Whether Sec. 97 of the 1997 NIRC Applies to Court Order Authorizing a Judicial Administrator to Transfer Funds of the Estate Pending Its Settlement and Distribution

July 12, 2001 BIR RULING NO. 028-01 Sec. 97 000-00 Padilla Law Office 7/F Padilla-De Los Reyes Bldg. 232 Juan Luna St., Binondo Manila 1006 Attention: Atty . Sabino Padilla, Jr . Gentlemen : This refers to your letter dated May 21, 2001 requesting on behalf of your client, the Estate of Socorro Abella Soriano, for clarificatory ruling on whether Section 97 of the National Internal Revenue Code of 1997 applies to a court order authorizing a Judicial Administrator to transfer funds (bank deposits) of the estate from one bank to another in order to safeguard and protect the assets of the estate, pending settlement and distribution of the estate. It is represented that the late Socorro Abella Soriano died on February 4, 1997, possessed of real and personal properties; that among her personal properties were bank deposits in the PNB Republic Bank (now known as Maybank), A. Mabini St. Branch, in the amount of P13,228,852.97; that as of March 14, 2001, the deposit had increased to P18,358,801.58, from interest subject to the 20% final withholding tax; that the Estate of Socorro Abella Soriano is being settled in Branch 20 of the Regional Trial Court of Manila in Sp. Proc. No. 97-82151; that the Court in July 1997 appointed Atty. Sabino Padilla, Jr. as Judicial Administrator of the Estate; that Atty. Padilla continues as such up to the present; that on August 4, 1997, the Administrator filed the requisite Estate Tax Return, declaring the gross estate of P121,138,480.53 and paid an estate tax of P18,895,494.00; that as previously mentioned, among the assets reported in the Estate Tax Return were the deposits of the decedent in PNB Republic Bank (now Maybank), A. Mabini Branch; that being concerned about the financial condition of the national economy and of some banks, the Administrator asked the Court for authority to transfer the deposits in Maybank to Bank of the Philippine Islands, Citibank, Hongkong and Shanghai Bank, or Standard Chartered Bank; that after notice to, and without any objection on the part of all the heirs, the Court issued an Order dated February 19, 2001, thus "3) Authorizing petitioner Sabino Padilla, Jr., to transfer the deposits of the estate in Maybank to any of the following: Bank of the Philippine Islands, Citibank, Hongkong and Shanghai Bank or Standard Chartered Bank which the aforesaid petitioner deems it wise." that notwithstanding the aforesaid Court Order, Maybank refused to release the deposits for transfer to Bank of the Philippine Islands and required the Administrator to submit "a certification from the Commissioner of the Bureau of Internal Revenue (BIR) that the estate taxes have been duly paid" citing Section 97 of the 1997 Tax Code; that complying with the Bank's requirement, the Judicial Administrator obtained from the Revenue District Officer of RDO No. 33, a certification that the estate of Socorro Abella Soriano filed an Estate Tax Return and paid an estate tax of P18,895,434.00; that notwithstanding this certification, the Bank again refused to release the deposits on the ground that what is required is BIR Form No. 1954-B, a BIR Certificate Authorizing Transfer/Registration; that the Judicial Administrator informed the Bank that such form cannot as yet be submitted because such a form is to be secured only when the Administrator has been authorized to effect a transfer and distribution of the assets of the estate to the heirs; that what the Court has authorized was simply a transfer of the deposits from Maybank to any of the banks specified in the Order, and not the distribution of the assets; that notwithstanding such explanation, Maybank again refused to release the deposits, and insisted on the presentation of BIR Form No. 1954-B; hence, this request in view of the position taken by Maybank and of the grave danger that the assets of the estate may be lost due to the refusal of Maybank to comply with the Court Order of February 19, 2001. In reply, please be informed that pursuant to Section 97 of the 1997 Tax Code, pertinent portion of which reads, to wit: cCaDSA "SEC. 97. Payment of Tax Antecedent to the Transfer of Shares, Bonds or Rights . . . . "If a bank has knowledge of the death of a person, who maintained bank deposit account alone, or jointly with another, it shall not allow any withdrawal from the said deposit account, unless the Commissioner has certified that the taxes imposed thereon by this title have been paid; . . ." a bank which has knowledge of the death of its client-person shall not allow any withdrawal from the deposit account of said deceased person unless the Commissioner of Internal Revenue has certified that the estate or donor's taxes have been paid. Conversely, a withdrawal may be allowed if the Commissioner certifies that the estate tax due on the taxable estate has been paid. In the light of the representation made by herein Judicial Administrator that the transfer of the bank deposit of the late Socorro Abella Soriano from Maybank to any of the banks mentioned above shall be for the purpose of protecting the assets of the estate, which act was duly authorized by the Court having jurisdiction of the Judicial Settlement proceedings, and not for the purpose of transfer or distribution of the assets to the heirs and/or claimants, this Office shall not interpose any objection on such transfer of funds as requested and ordered by the probate Court. Likewise, since the corresponding estate tax due on the taxable estate of the late Socorro Abella Soriano, as reflected in the Estate Tax Return filed, has been paid, this Office is duty bound to certify that the same is paid. This fact of payment of the estate tax shall not, however, preclude the BIR from conducting any investigation and/or further assessment if it shall be ascertained later that the tax paid is deficient. Accordingly, this Office hereby authorizes Maybank to allow the transfer of funds from the deposit account of the deceased Socorro Abella Soriano pursuant to a lawful order of RTC-Branch 20, Manila in Spec. Proc. No. 97-82151 which reads, to wit, " 3 . Authorizing petitioner Sabino Padilla, Jr. to transfer the deposits of the estate in Maybank to any of the following: Bank of the Philippine Islands, Citibank, Hongkong and Shanghai Bank or Standard Charter which the aforesaid petitioner deems it wise ." The funds transferred to any of the above-named banks, should, however, be opened for the account of the Estate of the deceased Socorro Abella Soriano. Moreover, since the judicial settlement proceeding is still pending in the aforementioned Court and although the estate tax has been paid, the BIR cannot as yet issue the corresponding Certificate Authorizing Transfer/Registration. The same shall be made available only upon application by the Judicial Administrator pursuant to the order of the probate Court and upon verification by the BIR that estate tax paid is correct. Finally, the named bank/s shall not allow withdrawals and/or distribution of the said funds without the necessary tax clearance that the estate tax has been fully paid. This ruling is being issued on the basis of the foregoing facts as represented. If, however, upon investigation it shall be disclosed that the facts are different, the this ruling shall be considered null and void. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue