BIR Ruling [DA-529-99]

September 13, 1999 BIR RULING [DA-529-99] Quasha Ancheta Pea & Nolasco Don Pablo Building 114 Amorsolo Street Makati City Attention: Atty . Alonzo Q . Ancheta Gentlemen : This refers to your letter dated September 30, 1998 stating that Spouses Edward Conrad Geeslin (ECG) and Virginia Bewley Geeslin (VBG), both U.S. citizens, died on March 23, 1996 and April 22, 1996, respectively; that ECG at the time of his death was a resident of No. 10 Tamarind Road, Forbes Park, Makati City, Philippines, while VBG was a resident of San Francisco, California, USA; that the estate of ECG consists principally of real properties with some shares of stock and minimal bank deposits, all of which are in the Philippines; that on the other hand, the estate of VBG consists principally of her one-half (1/2) conjugal share in the real properties, shares of stock and bank deposits of ECG; that VBG also owned a parcel of land located at Santolan, Quezon City, which is entirely occupied by squatters and which had been declared as an Urban Land Reform Zone under Presidential Decree No. 1517; that the aforementioned parcel of land was her paraphernal property having inherited the same from her father; that Philip B. Geeslin, one of the children of ECG, originally petitioned the court to be appointed as executor of the Last Will and Testament of the late ECG; that subsequently, when VBG died, Philip B. Geeslin was chosen by the heirs to act as ancillary administrator of her estate in the Philippines; that being a new resident in the Philippines, and in order to have more time in pursuing a livelihood in the country, Philip B. Geeslin opted to withdraw as petitioner in the estate of ECG; that in his place, Dennis G. Dimagiba was substituted as executor; that due to the clogged court dockets and procedural technicalities, the new executor-designate, as of the date hereof, has not yet been validly appointed as executor, and the Last Will and Testament of ECG has not yet been admitted to probate, despite reasonable efforts to expedite the same; that it is expected that the court will soon issue letters testamentary in favor of petitioner and that the Last Will and Testament will be admitted to probate; that with regard to the appointment of Philip B. Geeslin as ancillary administrator of the estate of VBG, it is also expected that the same will be issued shortly by the probate court; that both estates are not in a financial position to pay the estate tax due, in the same manner that the heirs of the ECG and VBG are not financially capable of advancing the entire estate tax; that the heirs have in fact attempted to obtain loans from several banking institutions in order to raise funds to pay the estate tax, but were generally unsuccessful; that to make things worse, the Santolan property of VBG has long been occupied by squatters comprised mostly of military personnel, who have built permanent structures thereon; that while judgments for eviction and demolition orders have been obtained in the mid to late 1970's, the same were not expected due to strong resistance and intervention of the then Ministry of Human Settlements; that subsequently, P.D. No. 1517 (Urban Land Reform) was promulgated, which included under its coverage the Santolan property; that previous attempts to sell the property to the occupants through the National Home Mortgage Finance Corporation and the local government of Quezon City have failed; that these circumstances show that the property has very limited marketability and that its real market value is actually lower than the assigned zonal value of P4,000.00 per square meter; that in fact, the last written offer from the occupants in 1994, was for a price of P2,750.00 per square meter; that the estate tax return for the estate of ECG was supposed to have been filed on or before September 19, 1996, while the estate tax return for VBG was due on October 19, 1996. LexLib Based on the foregoing representations, you now request that "1. The estates be allowed to file the estate tax returns and pay the estate tax not later than September 19, 2001 for the estate of ECG, and October 19, 2001 for the estate of VBG; "2. The interest, surcharges and penalties be waived; "3. Your Office interpose no objection to the sale of its properties in order to raise funds for the payment of estate taxes, and that the transfer of the said properties and registration in the name of the buyers be allowed or granted clearance by the Commissioner, notwithstanding that the full amount of estate taxes due have not been paid; and "4. The Santolan property of VBG be valued at its actual market value at the time of death, which was lower than the assigned zonal value." In reply, please be informed as follows: 1. For the purpose of determining the estate tax provided for in Section 77 of the Tax Code, as amended, the estate tax return shall be filed within six (6) months from the decedent's death. (Section 83(b) of the Tax Code, as amended). Moreover, the Commissioner of Internal Revenue shall have the authority to grant, in meritorious cases, a reasonable extension not exceeding thirty days for filing the return. (Section 83(c) of the Tax Code, as amended). Such being the case, your request for extension to file the estate tax return of the late VBG and ECG not later than September 19, 2001 and October 19, 2001, respectively is hereby denied pursuant to said Section 83(c). cdll Moreover, the estate tax imposed under Section 77 of the same Code shall be paid at the time the return is filed by the executor, administrator, or the heirs. (Section 84(a) of the Tax Code, as amended) Furthermore, when the Commissioner of Internal Revenue finds that the payment on the due date of the estate tax or any part thereof would impose undue hardship upon the estate or any of the heirs, he may extend the time for payment of such tax or any part thereof not to exceed five years, in case the estate is settled through the courts, or two years in case the estate is settled extra-judicially. In such case, the amount in respect of which the extension is granted shall be paid on or before the date of the expiration of the period of the extension, and the running of the Statute of Limitations for assessment as provided in Section 203 of the Tax Code shall be suspended for the period of any such extension. (Section 84(b) of the Tax Code, as amended) In view of the abovementioned justifiable reasons, your request for an extension of time to pay the estate tax or any part thereof on or before September 19, 2001 for the estate of VBG and October 19, 2001 for the estate of ECG due on the transmission of the said estates to their heirs is hereby granted. However, the executor, administrator or beneficiary of the said estates shall be required to furnish a bond in such amount, not exceeding double the amount of the tax and with such sureties as the Commissioner deems necessary, conditioned upon the payment of the said tax in accordance with the terms of the extension. 2. Considering the aforementioned justifiable reasons, your request for a waiver or non-payment of the 25% surcharge on the estate tax due on the transmission of the late VBG and ECG's estate is likewise granted. However, it shall be understood that the said estate shall be liable to the corresponding interest that have accrued thereon up to the time of filing of the return and payment of the estate tax due on the transmission of the said estate to the heirs. 3. This Office interposes no objection on the sale of the properties left by the deceased in order to raise funds for the payment of the estate tax due on the transmission of the said estate to the heirs but the same shall be based on the consideration or the fair market value/zonal value at the time of sale, whichever is higher. However, this Office cannot as yet issue the authority for the RDO concerned to issue the corresponding Tax Clearance Certificate/CAR in the absence of a showing that the estate tax returns have been filed and the estate taxes fully paid. LexLib 4. Finally, for purposes of the estate tax of the Santolan property which has long been occupied by squatters, the same should be valued at its actual fair market value/zonal value at the time of death of the decedent. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue