ESTATE TAX AND BIR WOES

By | September 14, 2014
  1. Hi Atty. Wong , my name is Tessie and I’m from Seattle, Washington.  Our mother migrated and lived here in Seattle for about 8 years and also died here in Seattle.  

 

We are at the present time trying to transfer the title of the land that our deceased mother bought in the Philippines. We are actually on the last stage of the processing from the BIR and are just waiting for the CAR to be released.

 

However, we are a little confused right now and in need of your help. The first person who helped us in the BIR looked at all the required documents we need to submit. Then he filled up the form that shows what we need to pay and we need to pay them 6,000.00 pesos penalty for not transferring the title on time.  

 

He said we are exempted for 1,000,000.00 pesos estate tax because we have a receipt showing the costs of our mom’s funeral expenses. After paying the 6,000 we then submitted copies of all the required documents to another person who’s in charge for issuing the CAR.

 

Now this person was saying that we need to present a proof that our mother was a Filipino Citizen when she died for us to get the 1,000,000 exemption otherwise she will be considered a US citizen and we need to pay 34,000.00 pesos more for the estate tax.

 

 

 

 

 

 

But what happened now to our mom’s funeral expenses that supposedly we can use to lessen the estate tax?  It has been 10 years now since our mom passed away and we don’t have anything with us anymore to proof of her citizenship when she died.

 

     I read in one of your article online that a natural born Filipino citizen is deemed not to have lost their Philippine citizenship in spite of becoming a naturalized citizens of other country and that all the rights of being Filipino citizens, more particularly in land ownership is fully restored upon them under RA 8762 with limitations under BP 185 and the limitations for residential is 1,000 square meters. 

 

     Our mom was a natural born Filipino citizen and bought a land in the Philippines of about 700 square meters in size. Even if she was a US citizen when she died, basing it on the size of the land she own and basing it on RA 8762, shouldn’t be all her rights and privileges as Filipino citizen be restored upon her?  Then why do we need to show a proof  to the BIR that she’s a Filipino citizen when she died?  We hope to hear from you soon and thank you very much.

 

Ans: Hello Tessie! Based on the appreciation of the facts that you have conveyed , it behooves that thing be placed in proper perspectives.

 

Firstly, the issue raised by the BIR has nothing to do per se with land ownership in relation to Dual Citizenship Act of the Philippines, in relation to land ownership of former natural born Filipino citizens under BP 185 and RA 8762 that you are trying to invoke in dealing with the BIR.

 

Secondly, the issue is actually for the BIR to issue the required Certificate Authorizing Registration(CAR) of the certain deeds, presumably the Extrajudicial Settlement of the Estate that was executed by the heirs in order to effect the transfer of certain real estate in the name of the heirs. And

 

Thirdly, the issue of citizenship and residence being raised by the BIR has something to do the provisions of the National Internal Revenue Code(NIRC) of 1997 (RA 8424). Under this tax code, the issue of “residence” and “citizenship” of the deceased at the time of death are crucial in determining the treatment of exemption and deduction in the computations of the Estate Tax due of the estate of the deceased.

 

 

 

 

 

 

As stated in your email, your mother migrated to the USA and lived there for eight (8) years where she also died. Under the legal parlance, migration connotes transfer of residence. This fact simply means that your mother was in fact a resident of and presumably became and was a citizen of the USA at the time of her death. Hence, even assuming that your mother was still a Filipino citizen when she died, the situs or place of her residence at the time of death would still served as basis in determining whether or not the estate is entitled to certain exemption and deductions under the Tax Code.

 

Following the said premise, it is not surprising for the BIR officer to presume that your mother at the time of her death was in fact a resident of and a citizen of the USA unless proven otherwise .

 

Note further that the proof of citizenship or residence that are being required by the BIR has nothing to do with land ownership or direct issue of her citizenship or for her being a former natural-born Filipino citizen or having lost or retained her citizenship under the Dual Citizen Act in relation to BP 185 and RA 8762 that you mentioned .

 

The proof of “citizenship” and/or “residence “ of your mother at the time of her death is FOR OR INCIDENT TO ESTATE TAX PURPOSES ONLY   to determine the net estate tax due from the gross estate of your mother found in the Philippines , and more particularly to apply the appropriate exemption and deductions allowed by law in the computation of the estate tax as provided by the Tax Code.

 

Kindly take note that under Sec.86(D) of the NIRC Code, in order that a certain deduction and exemption can be invoked by the tax payer in the computation of the estate tax due, there are requirements that has to be complied with by a nonresident or by a foreigner deceased in the filing of the required “BIR TAX RETURNS”. For your ready reference, Sec.86(D) is hereunder reproduced:

 

‘Sec.86(D) Miscellaneous Provisions. – No deduction shall be allowed in the case of a nonresident not a citizen of the Philippines, unless the executor, administrator, or anyone of the heirs, as the case may be, includes in the return required to be filed under Section 90 the value at the time of his death of that part of the gross estate of the nonresident not situated in the Philippines.”

 

For your further reference, Section 90[Estate Tax Returns] requires that , in all cases of transfers subject to the tax imposed herein, or where, though exempt from tax, the gross value of the estate exceeds Two hundred thousand pesos (P200,000), or regardless of the gross value of the estate, where the said estate consists of registered or registrable property such as real property, motor vehicle, shares of stock or other similar property for which a clearance from the Bureau of Internal Revenue is required as a condition precedent for the transfer of ownership thereof in the name of the transferee, the executor, or the administrator, or any of the legal heirs, as the case may be, shall file a return under oath in duplicate, setting forth:

 

(1) The value of the gross estate of the decedent at the time of his death, or in case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;

(2) The deductions allowed from gross estate in determining the estate as defined in Section 86; and

(3) Such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct taxes.

The foregoing provisions could be the legal basis for the BIR to show proof of residence and citizenship of your mother at the time of her death.

The Tax Code further provides that where the estate tax returns showing a gross value exceeding Two million pesos (P2,000,000) shall be supported with a statement duly certified to by a Certified Public Accountant containing the following:

(a) Itemized assets of the decedent with their corresponding gross value at the time of his death, or in the case of a nonresident, not a citizen of the Philippines, of that part of his gross estate situated in the Philippines;

(b) Itemized deductions from gross estate allowed in Section 86; and

(c) The amount of tax due whether paid or still due and outstanding, among others.

Lastly , taxation is an esoteric and complex discipline . It is suggested that you engage the professional services of tax practitioners like Tax lawyer, a Certified Public Accountant(CPA) , to deal with and make representations with BIR to resolve the impasse relating to the issuance of CAR by the BIR. Looking forward you’ll find the above in order and for being part of the “Batas Pinoy Global Community”.

 

 

 

Thank you for writing and for being part of the Batas Pinoy global community.

 

 

 

 

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