BIR Ruling [DA-495-05]

December 8, 2005 BIR RULING [DA-495-05] 90 (C) & 91 (B);DA-495-2005 Atty. Maria Rizza S. Ferrer 10/F, Racoon Magsaysay Center Roxas Boulevard, Manila M a d a m : This refers to your letter dated December 1, 2005 stating that Potenciano Ilusorio died on June 28, 2001; that the filing of the estate tax return and payment of the estate tax have not been possible due to the following reasons which are beyond the control of the Decedent's heirs: (1) Your client, Sylvia K. Ilusorio, was awaiting Court appointment as Special Administrator upon completion of her testimony at Baguio Regional Trial Court (RTC) Branch 7 entitled " In the Matter of the Probate of the Will of Potenciano Ilusorio " when, on September 20, 2001, the Court of Appeals issued a Temporary Restraining Order (TRO) against the Baguio RTC-Branch 7. The TRO prevented Sylvia K. Ilusorio from being appointed Special Administrator and, consequently, from preparing the required inventory of assets and filing of the estate tax return. The fact is that there are two (2) probate cases involving the decedent's estate, the subjects of which are two (2) distinct Last Wills of the Decedent. One probate case was initiated in the Regional Trial Court of Baguio City docketed as SP. PROC. No. 01-1067, while the other one was initiated in the Regional Trial Court of Paraaque City docketed as SP. No. 01-0140. The issue of which of the two courts should proceed with the probate is currently pending resolution in the Supreme Court in G.R. No. 164252 entitled " Erlinda I. Bildner, et al. vs. Erlinda K. Ilusorio, et al .," To date, no Special Administrator has been appointed to make an inventory of the estate and to settle the estate taxes. (2) The Decedent, his spouse and their children have been embroiled in highly publicized and controversial family feud since 1997. The squabble resulted in the filing of close to two hundred (200) cases in various courts, which, to date, continue to be litigated by the Decedent's heirs. Many of the cases involve the family corporations and diverse properties, and the essential issue of whether certain of these properties actually form part of the estate of the decedent. The existence of these cases and the slow pace of court proceedings have made it extremely difficult, if not impossible, to make an inventory of the assets of the Decedent. (3) The estate of Potenciano Ilusorio has no liquid assets that can be used to pay for the estate tax, and it will take some time to dispose of certain assets in order to raise funds to pay for the same. The family feud and the seeming propensity of the Ilusorio children to litigate have made it almost impossible to attract buyers for the assets. (4) Since the family feud started, there have been office break-ins, unauthorized withdrawal or disappearance of important papers and records, including stock certificates, land titles and accounting records. These unfortunate events caused the loss of vital documents necessary for determining the complete gross estate of the Decedent. Reconstitution of these documents will require time. TAEDcS (5) There are efforts to collate the properties in the course of the on-going settlement talks being mediated by government officials. However, the conflicting claims of the heirs have produced hardship and delay in finalizing the accurate list of what actually forms part of the estate of the Decedent. that the foregoing reasons coupled with the fact that the named heirs in the Last Will and Testament of the Decedent have no intention to evade the payment of estate tax and to neglect the filing of the estate tax return, have prompted your client to request the following: a) the extension of time to file the required estate tax return and pay the estate tax due within five (5) years from June 28, 2001 or until June 28, 2006 pursuant to Sections 91(B) of the Tax Code; and b) the waiver of the surcharge and penalties arising from the late filing of the estate tax return and payment of estate tax. that in support of your request, you submitted the following documents: 1) list of the cases involving the Ilusorio heirs and/or their representatives; and 2) Police blotters evidencing the office break-ins and the unauthorized withdrawals and/or disappearance of important papers and records. In reply, please be informed that under Section 90(B) and (C) of the Tax Code of 1997, estate tax return is required to be filed within six (6) months from the decedent's death, and in meritorious cases, a reasonable extension not exceeding thirty (30) days for filing the return may be granted by the Commissioner of Internal Revenue. The payment of the estate tax or any part thereof shall be made upon the filing of the return or on such date as fixed if an extension is granted by the Commissioner, but in no case to exceed five (5) years in case the estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially pursuant to Section 91(B) of the Tax Code of 1997. Based on the aforestated justifiable reason, your request for an extension of time within which to pay the estate tax is hereby granted pursuant to Section 91 (B) of the Tax Code of 1997. Accordingly, the estate tax due on the estate of Potenciano Ilusorio may be paid up to five (5) years counted from June 28, 2001 or until June 28, 2006. On the other hand, under Section 90(C) of the Tax Code, only thirty (30) days is granted as an extension of the period within which to file the estate tax return reckoned from the lapse of the six-month period within which the said return is required to be filed. Thus, considering that Potenciano Ilusorio died on June 28, 2001, said period had already lapsed. Such being the case, you are hereby directed to immediately file the estate tax return for the estate of Potenciano Ilusorio in order to stop the running of the interest for late filing thereof. Moreover, in view of the above favorable action on your request for an extension of five (5) years within which to pay the estate tax, this Office has decided to forego the imposition of the surcharge and penalties on the estate tax due on the transmission of the estate of Potenciano Ilusorio. However, it shall be understood that the estate shall be liable for the corresponding interest that has accrued thereon up to the time of payment of the aforesaid estate tax pursuant to Section 249 of the Tax Code of 1997. acHDTE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service