BIR Ruling [DA-394-99]

July 8, 1999 BIR RULING [DA-394-99] Ms. Teresita Palon Santos C/o Susan M. Ramirez Rm. 207 Withholding Tax Division BIR, NOB, Diliman Quezon City M a d a m : This refers to your letter dated April 28, 1998 requesting, in effect, for a ruling as to whether or not the renunciations of inherited properties in favor of one or more heirs by all other co-heirs in an extra-judicial settlement executed by the heirs of the deceased Spouses Gaudencio Palon and Felomena Santos Fuente is subject to donor's tax. Documents submitted show that the heirs of the deceased Spouses Gaudencio Palon and Felomena Santos Fuente namely: Teresita, Leonila, Felicisima, Erlinda, Elpidio and Gaudencio Jr., all surnamed Palon, executed on April 8, 1998 an Extra-judicial Settlement of the Estate of the Spouses Gaudencio Palon and Felomena Santos Fuente who died on June 30, 1978 and March 24, 1975, respectively; that in said Extra-judicial Settlement, the said heirs have agreed that the partition of the properties of the said decedents consisting of two (2) parcels of land, including improvements existing thereon, situated in the Municipality of Cabiao, Nueva Ecija covered by Transfer Certificate of Title Nos. 4552 and 868 and containing an area of 65,732 square meters and 35,021 square meters respectively; that the partition of the said properties of the decedents is in the following manner: - TCT No. 4552 - The heirs Teresita Palon, Leonila Palon, Gaudencio Palon Jr. and Erlinda Palon are renouncing their rights to the said property in favor of co-owners Felicisima Palon and Elpidio Palon. TADaCH - TCT No. 868 - The heirs Teresita Palon, Felicisima Palon, Gaudencio Palon Jr., Elpidio Palon and Erlinda Palon are renouncing their rights to the said property in favor of co-heir Leonila Palon. and that to your understanding, property which is not yet owned and not yet in the possession of a person cannot be considered and be the subject of donation. In reply, please be informed that since the renunciation or waiver is made by any of the co-heirs in favor of one or more of the co-heirs but not all of the other co-heirs, no right of accretion shall take place in favor of the co-heir/s to whom the share in the inheritance was renounced. Consequently, the act of renunciation shall be treated both as inheritance and donation and the co-heirs to whom the waiver was made, shall equally divide the same and shall equally pay the inheritance/estate tax computed in accordance with then Sections 85 of the Tax Code of 1975 in the case of Felicisima Santos Fuente who died on March 24, 1975 and Section 99 of the Tax Code of 1978 in the case of Gaudencio Palon who died on June 30, 1978. The corresponding gift tax thereof shall likewise be paid, computed in accordance with Section 108 of the Tax Code of 1975 insofar as the share of Felomena Santos Fuente in the conjugal estate is concerned, and Section 120 of the Tax Code of 1978 insofar as the share of Gaudencio Palon in the conjugal estate is concerned, otherwise, the waiver may be considered as if made by any of the co-heirs in favor of all the other co-heirs. The renunciation in favor of the other co-heirs specifically the areas for each and every co-heirs shall be treated as donation and therefore the co-heirs to whom the renunciation was made shall pay not only the inheritance/estate tax but also the gift tax in proportion to what he received. Based on the representation, the renunciation by an heir or heirs is made in favor of one or more heirs but not all the other heirs, the act of renunciation is in effect an act of disposition inasmuch as the act of disposition and the benefits thereof are not enjoyed by everybody. (BIR Ruling No. 455-93 dated November 19, 1993) TAIESD Accordingly, this Office is of the opinion as it hereby holds that the said Extra-judicial Settlement of the Estate of the Spouses Gaudencio Palon and Felomena Santos Fuente is subject to both donor and estate / inheritance taxes. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)