[estate tax] 8. dizon v. cir

Dizon v. The Commissioner of the BIRFacts: Dizon died testate. His will was probated with the Regional Trial Court thereafter, and it was found out that his total estate would only amount to Php 14 Million Pesos. Claims against the estate were filed by several banks which, shockingly, totaled as much as Php 187 Million. Because the claims against the estate were much bigger than the total estate, the administrator filed with the Regional Director a request for certification to the effect that no estate tax was payable. The said Director issued a certification to that effect. Thereafter, a request was filed with the probate court to sell the properties forming part of the estate to satisfy the claims of the creditors. Sometime thereafter, however, deficiency assessment was sent by the Assistant BIR Commissioner, on the ground that compromise agreements were entered into by the administrator of the estate, which led to a substantial diminution of the claims, which were already paid. The deficiency assessment was in the amount of over Php 66 Million, inclusive of penalties and surcharges. The administrator appealed the assessment to the Court of Tax Appeals (CTA), which took the view of the BIR but provided another computation this time, assessing a deficiency of only Php 26 Million. The Court of Appeals (CA) affirmed the decision of the CTA. Hence, in the appeal to the Supreme Court (SC), Dizon argues that, in ascertaining the amount of the claims against the estate, what is controlling and what should be declared to and made basis by the BIR in assessing the corresponding tax is the amount payable at the time of death, so that even notwithstanding subsequent developments, for example condonation or compromise, the estate cannot be liable for deficiency. Moreover, it alleges procedural lapses on the part of the BIR.Issue: Are the CTA and CA correct in ruling that the estate should be liable for deficiency tax because of the subsequent compromise agreements with the creditors? Ruling and Discussion:No, the CTA and CA correct in ruling that the estate should be liable for deficiency tax, because, in the case of claims against the estate, what is controlling is the amount or the value of the debt at the time of death. Brushing aside the procedural lapses (which, by the way, consisted much of the SCs discussion), the SC ruled that in this jurisdiction the date-of-death valuation rule is adhered to. Because the Philippine (PH) Tax Laws are based on the United States (US) Tax laws, the interpretation in that jurisdiction carry great weight in our interpretation of our tax laws. In that jurisdiction, there are two conflicting views: (1) the post-death development view and (2) the date-of-death valuation. The SC had an opportunity in this case to express its agreement with the date-of-death valuation rule, because (a) there is no law or any discernible legislative intent prohibiting it, (b) nor does any law or discernible legislative intent prescribing the adoption of the post-death development rule, and (c) because taxation laws are, in this jurisdiction, being considered as burdensome to the citizens, must be construed strictissimi juris against the government and liberally in favor of the citizen. Thus, the claims against the estate existing at the time of death should be made basis in the determination of allowable deductions. The CTA and CA were incorrect and was corrected by the SC.