10% Withholding Tax — Receivables Collected

September 30, 1981 BIR RULING NO. 186-81 100-a 000-00 186-81 Mr. Romualdo L. Creus 1254 San Andres, Malate Metro Manila Dear Mr. Creus : This refers to your letter dated June 3, 1981 requesting clarification on the following sets of facts and questions: cdta 1. Mr. Otilio Arellano, an architect who practised his profession with associates and consultants under a single proprietorship, died together with the immediate members of his family on May 14, 1981. During his lifetime, he used consistently the cash basis of accounting in recording his income, so that income already earned but not yet received were not reflected in his income tax returns and in the pertinent financial statements. In the inventory of the property comprising his estate which is currently being undertaken, these receivables are being considered as part of the gross estate. Question: If these receivables are collected, will they be subject to 10% withholding tax under the expanded withholding tax system? If answered in the affirmative, can the amount withheld be applied or credited to the estate tax due? 2. At the time of his death, Mr. Arellano was expecting a tax refund. Question: Will the refund be part of his gross estate? If in the affirmative, can it be applied or credited to the estate tax due? In reply, please be informed as follows: 1. The receivables pertaining to Mr. Arellano shall form part of his gross estate and will not therefore be subject to the 10% withholding tax imposed by Section 1(a)(1) of Revenue Regulations No. 13-78 as amended by Revenue Regulations No. 6-79, implementing P.D. No. 1351. 2. The amount of tax refundable per income tax return of Mr. Arellano for the taxable year prior to his death forms part of his gross estate. "The value of a tax refund claim is includible in the decedent's gross estate whether filed by the decedent during his lifetime and unresolved at his death or by the executor after his death. Overwithholding or overpayment of estimated tax in the taxable year ending with decedent's death may also result in a right of recovery which is part of the decedent's gross estate." (Estate of Chisholm, 26 T.C. 253 cited in American Jurisprudence, 2d Ed., Volume 34, page 783) Said refund, when converted to tax credit as requested by the estate can be applied or credited against the estate tax. cdti Very truly yours, RUBEN B. ANCHETA Acting Commissioner