BIR Ruling No. 001-08

January 28, 2008 BIR RULING NO. 001-08 Secs. 85, 24 (D) (1), 196, NIRC; Sec. 9, E.O. 1035 National Power Corporation Quezon Ave. cor BIR Road, Diliman, Quezon City Attention: Ricardo V. Samorio Officer-in-Charge, South Luzon Projects Gentlemen : This refers to your letter dated May 23, 2007, requesting for estate tax assessment for a lot to be acquired by the National Power Corporation (NPC) for the Caliraya-Botocan-Kalayaan-Build-Operate-Transfer (CBK-BROT) * Project. It is represented that the NPC is acquiring lots within the area of the Caliraya Hydro Electric Power Plant (CHEP). One of these lots is Lot No. 1469-B in Lumban, Laguna wherein the Caliraya tailrace canal is situated. The subject lot was formerly owned by Lorenza Aaliwin and Aquilina Aquino who died on January 22, 1987 and October 25, 1990, respectively. The heirs of the deceased then executed an extra-judicial partition of real estate with special power of attorney on March 29, 2007 to partition the abovementioned property and negotiate its sale to NPC. It is further represented that the heirs are being required by BIR San Pablo City, Laguna to settle unpaid estate taxes for all other real properties including those not involved in this transaction. Apparently, the net proceeds for the lot to be acquired by NPC is meager compared to the expenses to be incurred. This has caused the heirs to be unwilling to sell their property to NPC. HEcIDa You now request this Office to confirm your opinion that under Section 9 (b) of Executive Order (EO) No. 1035, only the lot to be acquired by the NPC should be assessed estate tax in order that the heirs would proceed with the sale of said land to NPC. DCAEcS In reply, please be informed that the law in effect at the time of death of the decedents was Section 100 of the Tax Code of 1977 (now Section 85 of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337) which provided that: "Section 100. Gross Estate. The value of the gross estate of the decedent shall be determined by including the value at the time of death of all property, real or personal, tangible or intangible, wherever situated: . . . " Presently, Section 85 of the current version of the NIRC is virtually identical to the abovementioned provision. As such, the determination of what constitutes the gross estate of decedents subject to estate tax is the same now as it was at the time of death of the lot owners in the present case (1987 and 1990). For purposes of determining the estate tax liability of a decedent's estate, the gross estate of the latter must first be ascertained and this includes all real property owned by the decedent, real or personal, tangible or intangible, wherever situated. In the present case, the lot which will be acquired by NPC is included among the mass of properties that form part of the gross estate of Lorenza Aaliwin and Aquilina Aquino. However, it appears that the estate tax due on the real properties of the deceased has not yet been paid and that this is now preventing the transfer of the abovementioned lot to NPC for the operation of the CHEP. In this regard, Section 9 (b) of EO 1035 states that: "Sec. 9. Assessment of Taxes Due . The Bureau of Internal Revenue and the respective Provincial/City/Municipal Treasurers shall assess the following taxes, where applicable, on the property being acquired . . . b) Estate tax due on the portion of the estate of a deceased owner to be acquired by the government and; xxx xxx xxx Such assessment shall be made and transmitted to the government implementing agency/instrumentality concerned within one (1) week from the submission of the complete requirements." The purpose behind EO 1035 is to expedite the transfer of private property to the government for infrastructure and development projects. By expediting the processes surrounding such transfers, the government ensures that its public projects will not be hampered by unnecessary delays and obstacles that would prevent the people from benefiting from these projects. The present case is well within the contemplation of the foregoing provision. Section 9 (b) EO 1035 clearly mandates that upon NPC's submission of the complete requirements, the BIR should submit the estate tax assessment on property to be acquired within one week from such submission. In the present case, the fact that the subject lot is a common part of the estate of Lorenza Aaliwin and Aquilina Aquino that have yet to be subjected to estate tax, should not prevent the assessment of said lot in order to facilitate its transfer to NPC. To do otherwise would certainly be violative of the clear intent of EO 1035 to prioritize the assessment of estate taxes if such prove a hindrance to the proper implementation of government projects. AIHDcC It must be stressed, however that the priority given for the assessment of estate taxes on the abovementioned lot does not exempt the transfer of the same from the imposable taxes under the same Tax Code of 1997, as amended. Thus, the transfer of the said lot to NPC shall be subject to capital gains tax and documentary stamp tax under Section 24 (D) (1) and 196, respectively, of the same Tax Code. Accordingly, this Office holds that Lot No. 1469-B in Lumban, Laguna should be assessed for estate tax separately, but the heirs should likewise be assessed on the remainder of the gross estates of Lorenza Aaliwin and Aquilina Aquino which have not been subjected to estate tax. 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 should be considered null and avoid. Very truly yours, (SGD.) LILIAN B. HEFTI Commissioner of Internal Revenue