BIR Ruling [UN-207-94]

July 12, 1994 BIR RULING [UN-207-94] MEMORANDUM FOR : The Commissioner This refers to the proposed assessment against the Estate of the late Vivian Lim Tan who died a resident of Quezon City on May 27, 1991 c/o Mr. Harry C. Tan, Administrator, 10 Roces, Circle, Corinthian Garden, Quezon City involving the amount of P158,128.05 representing deficiency estate tax inclusive of increments thereof. Records of this case disclosed that the decedent died intestate leaving her husband, Mr. Harry C. Tan and their three children as her heirs; that the decedent prior to her death was suffering from terminal cancer for more than two (2) year's and has undergone an intensive medical and hospital care here and abroad (Japan, United States and Europe); that upon her death on May 27, 1991, her estate filed an estate tax return on August 23, 1991 and on the basis thereof paid the amount of P284,192.79 under Confirmation Receipt No. 23642610 dated August 23, 1991; that in the said return the estate claimed as deductions the following: (1) funeral expenses P50,000.00; and (2) claim against the estate P14,000,000.00; that investigation conducted by this office shows that the funeral expenses actually amounted to P216,160.00 as per Official Receipt issued by La Funeraria Paz, hence, this office allowed the deduction of the maximum amount of P50,000.00 for funeral expenses; that the claim against the estate amounting to P14,000,000.00 actually represents loans and cash advances incurred by the surviving spouse, Mr. Harry C. Tan from Fortune Tobacco Corporation as evidenced by the following: 1. Duly Notarized Memorandum of Indebtedness dated January 10, 1991; 2. Cash vouchers of Fortune Tobacco Corporation; 3. Subsidiary ledger of Fortune Tobacco Corporation; 4. Certification of Mr. Rojas Chua, Vice-President for Finance of Fortune Tobacco Corporation dated January 23, 1992, as to the existence of said indebtedness of Mr. Harry C. Tan; that the said loan/cash advances of Mr. Harry C. Tan obtained from Fortune Tobacco Corporation were all spent for the medication and hospitalization of the decedent here and abroad as evidenced by the medical and hospital receipts and affidavit of Mr. Harry C. Tan dated December 17, 1991; that on November 5, 1992 Mr. Harry C. Tan made partial payment of the amount of P2,000,000.00 to Fortune Tobacco Corporation on his said loan as evidenced by Checking Account No. 12463601 he issued in favor of Fortune Tobacco Corporation which payment was duly acknowledged in Official Receipt No. 166 issued on even date by the said corporation; that as a result of said investigation, there is still due from the estate the amount of P158,128.05 as deficiency estate tax which the estate paid under Confirmation Receipt No. B 24558927 dated March 4, 1992; and that the docket of this case was referred to the Law Division for resolution as to whether the loan claimed as a deduction from the gross estate of the decedent can be allowed on the bases of the documents submitted in support of the existence of the said loan of P14,000,000.00. Under Section 79(a) (1) (c) of the Tax Code, as amended for the purpose of the tax imposed in Chapter 1, Title III (estate tax) of the Tax Code, the value of the net estate shall be determined, in the case of a citizen or resident of the Philippines, by deducting from the value of the gross estate claims against the estate, provided, that at the time the indebtedness was incurred the debt instrument was duly notarized and, if the loan was contracted within three years before the death of the decedent, the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan. In the instant case, it appears that at the time the indebtedness of P14,000,000.00 was incurred the debt instrument was duly notarized as evidenced by the Memorandum of Indebtedness dated January 10, 1991 executed by the surviving spouse, Mr. Harry C. Tan and the Vice-President of Fortune Tobacco Corporation, Mr. Rojas Chua; and that the surviving spouse has duly submitted statements showing that the said loan were all spent for the hospitalization and medication of the decedent here and abroad. Moreover, Mr. Henry C. Tan has already made partial payment in the amount of P2,000,000.00 on said loan on November 5, 1993 as evidenced by Checking Account No. 12463601 he issued in favor of Fortune Tobacco Corporation. Such being the case, it is believed that since the loan in the amount of P14,000,000.00 which is being claimed as a deduction from the gross estate of the decedent was duly notarized and that the administrator has submitted documents showing the disposition of the proceeds of the loan, which were actually spent for the hospitalization and medication of the decedent, its allowance as a deduction from the gross estate of the decedent for purposes of computing the net estate of the decedent is legal and proper . aisadc In view thereof, it is respectfully recommended that since the estate of the late Vivian Lim Tan, has already paid the estate tax of P284,192.79 under Confirmation Receipt No. 23642610 dated August 23, 1991 as estate tax per return and the proposed assessment of P158,128.05 under Confirmation Receipt No. B 24558927 dated March 4, 1992, this case may now be considered closed. Respectfully Submitted: ALICIA M. TOMACRUZ Chief, Law Division CONCURRED IN: JAIME M. MAZA Assistant Commissioner (Legal Service) RECOMMENDATION APPROVED: LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue