Clarification on Provisions of RMO No. 42-86 Implementing the Expanded Tax Amnesty under EO No. 64

December 15, 1986 BIR RULING NO. 272-86 87 000-00 272-86 Gentlemen : This refers to your letter dated December 3, 1986 requesting clarification on the following provisions of Revenue Memorandum Order No. 42-86 implementing the Expanded Tax Amnesty under Executive Order No. 64, viz: "The donee (in case of donation) of the heir (in case of inheritance) shall declare in his own name and in his own tax amnesty return and as part of his own assets, the donated property or his distributive share from the hereditary estate, whether or not the said assets are in his actual possession." (Rule 3.4.1, RMO No. 42-86) "For purposes of determining increase in networth of the donee/heir, said real property shall be valued, based on its 1985 fair market value per 1985 tax declaration plus (1) 10% thereof or (2) plus 50% thereof if the said real property is located within an exclusive residential subdivision within the following cities/municipalities: City of Manila, Quezon City, Municipality of Makati, Municipality of San Juan, Municipality of Paraaque, Las Pias, Muntinlupa, Mandaluyong." (11)(c) "ANNEX A", RMO No. 42-86). and confirmation of your opinion stated as follows: "(a) If the hereditary estate has not as yet been partitioned or distributed to the heirs or beneficiaries as of December 31, 1985, the Estate of the decedent, through its administrator or executor, should file the tax amnesty return under Executive Order No. 64 to cover the estate tax liability of the Estate. However, should there be an actual distribution of the estate to the heirs, then the heir desiring to avail of the expanded tax amnesty should file the amnesty return to include his distributive share in computing his increase in networth; and cdtech "(b) In the event that the taxpayer died within the taxable period from January 1, 1981 to December 31, 1985, the fair market value of the property at the time of death shall be deemed the cost thereof for purposes of ascertaining the increase in networth as of December 31, 1985." In reply, please be informed that your aforementioned opinion is hereby confirmed. The estate of a decedent is a taxpayer separate and distinct from the heirs. In fact, the estate tax imposed by Section 87 of the Tax Code must necessarily be paid by the executor or administrator from the estate thereby reducing it before delivery to any beneficiary of his distributive share of the estate. Such being the case, if the estate has not as yet been partitioned or distributed to the heirs or beneficiaries as of December 31, 1985, the estate through its executor or administrator should file the tax amnesty return under Executive Order No. 64 to cover the estate tax liability of the estate. However, if the estate has already been distributed to the heirs, then the heir should file the amnesty return to include his distributive share in computing his increase in networth. Moreover, the estate tax is imposed on the privilege of a decedent to transmit property at death. The tax should be measured by the value of the estate as it stood at the time of the decedent's death, regardless of any subsequent contingency affecting value or any subsequent increase or decrease in value and notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary or heir. ( Lorenzo, etc. vs. Posadas, Jr. etc . 64 Phil. 353; Zaballero, et al. vs. Coll. of Internal Revenue , 70 Phil. 294; 61 C.J. 1692, 1693; see also Knowlton 7, Moore, 178 U.S. 41). Thus, pursuant to Section 91(b) of the Tax Code, the estate shall be appraised at its fair market value as of the time of death. Such being the case, a taxpayer who died within the taxable period from January 1, 1981 to December 31, 1985, the fair market value of the property at the time of death shall be deemed the cost thereof for purposes of ascertaining the increase in networth as of December 31, 1985. cdt Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue