Internal Revenue Case of the Estate of the Late Dolores Riera Vda. De Arane

March 25, 1959 BIR RULING NO. 160-59 The Regional Director Regional District No. 3 Manila S i r : There is returned herewith the entire docket covering the internal revenue case of the estate of the late Dolores Riera Vda. De Arane, involving the sum of P1,756.92 (computed as of June 30, 1952), representing deficiency estate and inheritance taxes exclusive of penalties. aisadc The following facts are duly established; Dolores Riera Vda. de Arane died on June 4, 1941. No notice of death and estate and inheritance tax return were filed. Testate proceedings were instituted in the Court of First Instance of Manila (Sp. Proc. No. 59556). The proceedings were terminated on April 18, 1951 upon approval by the Court of the project of partition submitted by the judicial administrator, J.V. Escobar, on April 18, 1951. (Order, April 23, 1951). This Office was furnished with a copy of the order on April 27, 1951. Subsequently, then Examiner Leopoldo Gonzales filed the corresponding estate and inheritance tax return and provisionally assessed against the estate and heirs and estate tax of P86.62 and inheritance tax of P5.00, respectively, issuing therefor Assessment Notice No. Est-A-12809-41 dated May 16, 1951. The administrator immediately paid the assessment under Official Receipts Nos. 3083 and 1749, both dated May 28, 1951. After investigation, a deficiency assessment for the amount of P1,666.78 was found and the corresponding assessment notice issued on September 17, 1951. The administrator, however, refuses to be bound by this assessment because he is already discharged from his responsibilities as such. Subsequently, the property of the deceased in Daet, Camarines Norte was sought to be levied upon. This property was, however, sold under authority of the Court to one Concepcion Abano. The deed of sale was registered on December 21, 1950. Because of this circumstance, the warrant of Distraint and Levy was returned unexecuted. The case is now referred to us for final disposition, inviting particular attention to the following questions: "1) May the government still claim the preference lien over the property of the deceased notwithstanding the sale to third parties in accordance with Section 315 of the Tax Code, as amended?" "2) May the government still file a judicial action against the heirs of the deceased for the collection of the aforesaid taxes in accordance with Section 332(c) of the Tax Code, as amended?" In the resolution of the first issue, we quote below Section 315 of the Tax Code: "Sec. 315. Nature and extent of the tax lien . xxx xxx xxx The estate tax shall be a lien for five years upon the gross estate of the decedent from the date the tax becomes legally due . The lien of the tax on inheritance, legacies, and other acquisitions mortis causa shall be superior to all other liens, mortgagee, encumbrances, or real right created thereon subsequent to the death of the predecessor, and shall be enforcible against the property inherited whether in the possession of the delinquent owner or purchaser, but this lien will be extinguished at the end of five years from the date when the tax becomes legally due ." (Emphasis supplied). cdtech It is to be observed from the abovequoted provision of law that the tax lien exists only for a five-year period counted, in both cases, from the time the taxes becomes legally due. Judicial proceedings having been instituted in the instant case, the estate and inheritance taxes were legally due on March 21, 1943 and June 21, 1943, respectively, (Sec. 95(a) (2), Tax Code). Both liens ought, therefore, to have been extinguished on March 21, 1948 and June 21, 1948, respectively, were it not for the passage of Commonwealth Act No. 722 which provided for the suspension of the period of limitation as contemplated in Sections 331 and 332 of the Tax Code for the period from December 8, 1941 to February 28, 1946 inclusive. Accordingly, pursuant to Commonwealth Act 722, the lien was, therefore, effective only up to March 1, 1951. Even then, both liens are nevertheless extinguished. The deficiency assessment was made on September 17, 1951. In accordance with Section 332(c) of the Tax Code which is quoted below, to wit: "(c) Where the assessment of any internal revenue tax has been made within the period of limitation above prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if began (1) within five years after the assessment of the tax," . . .. The Government had only up to September 17, 1956 within which to enforce collection of the tax, either by distraint or levy or by judicial action. Consequently, the government lost its right of action to collect the aforestated tax liability. Aside from the circumstances mentioned in Commonwealth Act 722, the running of the prescriptive period for collection is also suspended under the circumstances mentioned in Section 333 of the Tax Code, and to quote: "SEC. 333. Suspension of running of statute . The running of the statute of limitation provided in section three hundred thirty-one or three hundred thirty-two on the making of assessments and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Collector of Internal Revenue is prohibited from making the assessment or beginning distraint or levy or a proceeding in court, and for sixty days thereafter." Obviously, the absence of the heirs from the Philippines is not a cause for the suspension of the running of the period of limitation. From whatever angle the case is viewed, we believe that the right of the Government to collect has already prescribed. Very truly yours, (SGD.) JOSE ARAAS Commissioner of Internal Revenue