Estate of Resident Alien Can Avail of Deductions Under the Tax Code

April 3, 2002 BIR RULING NO. 012-02 000-00 Atty. Juanito L. Santos No. 77 San Rafael St., Bo. Capitolyo Pasig City Dear Atty. Santos : This refers to your letter dated July 9, 2001 requesting for a clarification on the entitlement of the Estate of SOFRONIO AMPER, SR. (SOFRONIO for brevity) to the a) Deduction of the Family Home and b) Standard deduction as provided in Section 86(A)(4) and (5), respectively, of the 1997 Tax Code. The facts, as you represent, are the following: SOFRONIO is a natural-born Filipino citizen, born on March 11, 1925 in Surigao, Philippines. He joined the U.S. Merchant Marine sometime in 1946 to improve his life and future family and became an American citizen. At that time, joining the U.S. Merchant Marine was a very lucrative and propitious venture. He got married sometime in 1950 to LEONILA MENDOZA-AMPER and begot eight (8) children, now all of legal age and residents of the different parts of California, U.S.A. In 1960, they acquired as husband and wife a 314.08 sq.m. real estate property located at Merville Park, Paraaque City and in 1966 built thereon a residential house after full payment was made. Title over the property was issued by the Registry of Deeds of Rizal on October 16, 1969 and this place became their residence from 1966 up to the time of his death. A certification issued by the Barangay Chairman of Barangay Merville, Alicia R. Benzon, was attached to the request to prove that SOFRONIO and LEONILA are bona fide residents and owners of the said home. As a Merchant Marine, he was assigned to different places, came home to the Philippines to his wife whenever he had the opportunity. They acquired the subject property with all the intention of residing thereat, and to retire in his home country. From the time he retired at the age of 65 years old, he went home to the Philippines to reside therein. In 1998, due to his kidney problems, other ailments, and, old age, the family agreed to bring him to California, U.S.A. for treatment and hospitalization. All expenses for medicine and hospitalization were free, being a retired U.S. Merchant Marine. Those were the privileges, among others, granted by the U.S. government to its retired personnel, aside from the fact that all his children were there. On January 11, 2001, Jose finally succumbed and died, leaving the subject property as his only estate. In support of the above, the heirs have submitted an affidavit attesting, among others, to the fact that the subject property is the conjugal property of the Spouses SOFRONIO, that the said property was never leased to anybody; and, the said VENILDA Y. LAUD is their relative who has been staying and living with them, and at the same time the caretaker of the property. You have also submitted a certification issued Barangay Chairman dated July 25, 2001 that his Philippine house is his family residence. In reply, please be informed that Section 86(A)(4) and (5) of the 1997 Tax Code specifically provide that: "SEC. 86. Computation of Net Estate. For the purpose of the tax imposed in this Chapter, the value of the net estate shall be determined: (A) Deductions Allowed to the Estate of a Citizen or a Resident. In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate xxx xxx xxx (4) The Family Home. An amount equivalent to the current fair market value of the decedent's family home: Provided, however, That if the said current fair market value exceeds One million pesos (P1,000,000), the excess shall be subject to estate tax. As a sine qua non condition for the exemption or deduction, said family home must have been the decedent's family home as certified by the barangay captain of the locality. (5) Standard Deduction. An amount equivalent to One million pesos (P1,000,000). xxx xxx xxx." (Emphasis supplied.) Based on the documents submitted, it is shown that at the time of death of SOFRONIO, he was still considered a resident alien of the Philippines. There was an intention on the part of SOFRONIO to reside in the Philippines. The only reason he left the Philippines was to avail of free medical treatment in the United States, and there was no intention to reside in the United States permanently. Although Section 86(A) speaks of a " resident of the Philippines ", the same should be construed as to necessarily include resident aliens. Basic and axiomatic is the rule on statutory construction that the Courts, or in this case this Office, must give effect to the general legislative intent that can be discovered from or is unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. It is noteworthy to state that, the law precisely distinguishes a citizen or resident (Section 86(A), 1997 Tax Code) from a nonresident not a citizen of the Philippines (Section 86 (B) thereof) in terms of allowable deductions for an estate. Accordingly, SOFRONIO, being a bona fide resident of the Philippines as certified by the Barangay Chairman of Barangay Merville, and coupled by the circumstances stated above, is considered a resident alien within the definition of Section 86(A) of the 1997 Tax Code. As such, the value of the gross estate of SOFRONIO shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated in accordance with Section 85 of the 1997 Tax Code. Accordingly, the estate of SOFRONIO can avail of the deductions afforded to it under Section 86(A)(1) to (7) of the 1997 Tax Code, as implemented by Revenue Regulations No. 17-93 dated August 30, 1993, including the deduction of the Family Home and the Standard Deduction of P1,000,000.00 each. In BIR Ruling No. 009-99 dated January 22, 1999, "the above enumerated items are properly authorized by law to be deducted as independent, separate and distinct items of deduction which may properly be deducted from the gross estate of a resident decedent, subject to the limitations or conditions that are provided for under each said item above". This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue