Transfer Estate Tax of the Late Dominga de los Reyes de Padilla

November 12, 1958 BIR RULING NO. 671-58 Mr. Teodoro Padilla Attorney-at-Law 320-322 Shurdut Bldg. Muralla, Manila S i r : This has reference to your letter dated June 13, 1958, concerning the transfer tax case of the estate of the late Dominga de los Reyes de Padilla. cdta In the aforesaid letter, you claimed the deduction of the three items, namely: 1. Funeral expenses, P35,000.00 in lieu of P20,000.00 claimed in the original return; 2. Administrator's fees or attorney's fees in the administration of the estate, P100,000.00 in lieu of P30,000.00 claimed in the original return; and 3. The amount of P14,897.81 corresponding to real estate taxes. FIRST ITEM In the audit of the original return of the estate, the funeral expenses were deducted from the gross conjugal estate in accordance with Section 89(a)(1)(A) of the Tax Code. You contend now that the funeral expenses should not be deducted from the conjugal partnership property because such expenses were incurred after termination of the conjugal partnership and therefore said expenses should be borne alone by the estate of the decedent spouse. Your contention is without merit. Section 89 of the Tax Code provides: cdti "SEC. 89. Net Estate . For the purpose of the taxes imposed in this chapter the value of the net estate shall be determined: "(a) In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate "(1) Expenses, losses, indebtedness and taxes. Such amounts "(A) For funeral expenses which shall, in no case, exceed five per centum of the gross estate; xxx xxx xxx "(c) Share in the conjugal property . The net share of the surviving spouse in the conjugal partnership property as diminished by the obligations properly chargeable to such property shall, for the purpose of this section, be deducted from the net estate of the decedent." The abovequoted law is clear that the said funeral expenses shall be deducted from the gross conjugal partnership property because as you will note from paragraph (c) of the aforesaid law, the share of the surviving spouse is determined after deducting all the obligations of the conjugal partnership estate. Furthermore, our stand in deducting the funeral expenses from the conjugal partnership property is supported by Article 310 of the New Civil Code which provides that "The construction of a tombstone or mausoleum shall be deemed part of the funeral expenses and shall be chargeable to the conjugal partnership property, if the deceased is one of the spouses." cdll It will be noted that in the computation of the transfer tax of the estate of the late Dominga de los Reyes de Padilla, this Office had fully allowed the sum of P20,000.00 as funeral expenses claimed in the original return. The additional amount of P15,000.00 which you claimed in the amended return shall be subject to verification before the same is allowed as proper deduction from the gross estate. SECOND ITEM Your claim for the deduction of the amount of P100,000.00 as attorney's or administrator's fees cannot be granted, it appearing that no testate or intestate proceedings has been filed in court and that the estate will be divided extrajudicially among the heirs. Under Section 89(a)(1)(B) of the Tax Code, it is clear that in order that attorney's fees may be allowed as deduction, they must be incurred in connection with the testamentary or intestate proceedings conducted in court. It is true that in the United States they allow attorney's or administrator's fees incurred in connection with the administration of the estate although there is no court proceedings. But the United States law regarding estate tax deduction is different from the estate tax deduction prescribed in Section 89 of our National Internal Revenue Code. llcd Section 2053 of the United States Revenue Code provides: "SEC. 2053. Expenses, indebtedness and taxes . (a) General rule . For purposes of the tax imposed by Section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts 1. Funeral expenses; 2. For administration expenses ; 3. For claim against the estate; and xxx xxx xxx." Section 89 of the National Internal Revenue Code provides: "SEC. 89. For purposes of the taxes imposed in this Chapter the value of the net estate shall be determined: "(a) In the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate "(1) Expenses, losses, indebtedness and taxes. Such amounts "(A) For funeral expenses which shall, in no case exceed five per centum of the gross estate; "(B) For judicial expenses of the testamentary or intestate proceedings ; xxx xxx xxx." (Emphasis supplied) You will note that the abovequoted provisions of Section 2053 (a)(2) of the U.S. Revenue Code, speaks only of administration expenses while Section 89(a)(1)(B) of the National Internal Revenue Code speaks of judicial expenses of the testamentary or intestate proceedings. In the former law, the court proceedings is not mentioned and that is the reason why in the United States, they allow attorney's or administrator's fees incurred in the administration of the estate, although no proceedings in court has been conducted. cdta Your view that Section 89(a)(1)(B) covers not only administration expenses of estates under judicial proceedings but also those of estates under extrajudicial settlement has no legal basis. The law is clear and explicit that only judicial expenses incurred in testamentary or intestate proceedings are allowable deductions. "It is well in the beginning to remember that constitutional inquiries are largely eliminated from consideration in connection with the statutory estate tax deductions because these deductions, like income tax deductions, are matters of legislative grace. They are analogous to exemption given by statute, which are not to be enlarged by implications if doubts are nicely balanced. Deductions claimed must fall within one of the several classes of deductions specifically enumerated in, and must meet all applicable requirements of, the statute. The rule that taxing statutes must be construed in favor of the taxpayer does not generally apply to the statutory provisions dealing with deductions." (pp. 573-574, Federal Estate & Gift Taxation by Paul). THIRD ITEM Your claim for deduction of the sum of P14,897.81 representing real estate taxes alleged to have accrued before the death of the decedent, is allowable pursuant to Section 89(a)(1)(E) of the Tax Code. The said amount shall be deducted from the conjugal partnership property. However, this item shall also be subject to verification by our examiner who is investigating the estate and inheritance tax return of the deceased. cdti Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue