chapter 5 - estate tax2013

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 28SUGGESTED ANSWERSChapter 5: ESTATE TAX

CHAPTER 5ESTATE TAX

Problem 511. True

2. False 20% of the net taxable estate 3. False intangible property of nonresident alien decedent. 4. False Not any claims, but legal claims substantiated with supporting documents

5. False Not allowed to nonresident alien decedent because they are taxed only on properties situated within.

6. False the first P200,000 is estate tax-exempt.

7. True 8. True 9. True 10. False If the value of the gross estate exceeds P2,000,000. 11. True 12. True

Problem 521. False This is also allowed to nonresident alien decedent for their ELITE. 2. True 3. True 4. True 5. False deductible in full 6. False standard deduction will not reduce the inheritance. 7. False only 30 days. 8. True 9. True

10. True 11. True 12. True

Problem 5-3Problem 5-4Problem 5-5

1.A1.C1.C

2.C2.B2.A

3.D3.B3.D

4.A4.D4.A

5.C5.A5.B

6.A6.D6.D

7.D7.D7.A

8.B8.C8.C

9.A9.A9.A

10.C10.D10.D

11.D11.D11.D

12. D

BUSINESS AND TRANSFER TAXATION 6th Edition (BY: VALENCIA & ROXAS) 29SUGGESTED ANSWERS

Chapter 5: ESTATE TAX

Problem 56B

Conjugal gross estate (P3,120,000 + P180,000)P3,300,000

Funeral expense allowed (P3,300,000 x 5%)(165,000)

Share of surviving spouse (P3,300,000 P165,000) x 50%( 1,567,500)

Standard deduction( 1,000,000)

Net estateP567,500

Problem 57D

Gross estateP3,000,000

Funeral expense allowed (P3,000,000 x 5%)(150,000)

Net conjugal/community estateP2,850,000

Standard deduction(1,000,000)

Net estateP1,850,000

Share of surviving spouse (P2,850,000 x 50%)1,425,000

Net taxable estateP425,000

Problem 58A

Estate after actual deductionsP1,200,000

Add: Actual deductions (P150,000 + P50,000)200,000


Less: Funeral expense allowed (P1,400,000 x 5%)P 70,000

Other deduction50,000

Standard deduction1,000,000(1,120,000)

Net taxable estateP 280,000

Problem 59D

ExclusiveConjugal

Property cashP1,000,000P4,000,000

Family home800,000

Transfer for public use(1,000,000)

Funeral expense allowed(200,000)

Net conjugal estateP4,600,000

Family home (P800,000/2)(400,000)



Share of surviving spouse (P4,600,000 x 50%)(2,300,000)


Problem 510A


Charges against the estate(200,000)



Family home(1,000,000)


Share of surviving spouse (P4,300,000 x 50%)(2,150,000)

Net estate taxable in the PhilippinesP150,000

Problem 511B

Conjugal

PropertiesP3,400,000

Funeral expense, limit(200,000)

Judicial expenses(250,000)


Claims against properties( 550,000)


Problem 512C

Net estate of P500,000 has a estate tax amounting toP15,000

Problem 513A

Estate tax of P5,000,000P465,000

Problem 514D

Net estateEstate tax

AmountsP2,000,000P135,000

Nonresident alien decedent is not allowed to have standard deduction. The funeral expense is not deductible because no part of gross estate located outside the Philippines is reported. (Sec. 86 (B), NIRC)

Problem 515A

Net taxable estateP10,000,000

Add: Family homeP1,000,000

Standard deduction1,000,0002,000,000

Distributable estate before estate taxP12,000,000

Less: Estate tax of P10,000,0001,215,000

Net distributable estateP10,785,000

Problem 516

1.Letter BExclusiveConjugal

Real estateP2,800,000P1,600,000

Personal property800,000

Funeral expense, limit(200,000)


Unpaid mortgage loan.(300,000)

Net exclusive/conjugal stateP2,800,000P1,800,000P4,600,000


Family home (P1,600,000/2)(800,000)


Share of surviving spouse (P1,800,000 x 50%)(900,000)


2.Letter D

Estate tax on P500,000P 15,000

Estate tax on excess (P1,600,000 x 8%)128,000

Estate taxP143,000

3.Letter BExclusiveConjugal

Real estateP2,800,000P1,600,000

Personal property800,000

Funeral expense, actual(245,000)


Unpaid mortgage loan.(300,000)

Net exclusive/conjugal estateP2,800,000P1,755,000P4,555,000

Share of surviving spouse (P1,755,000 x 50%)(877,500)

Estate tax( 143,000)




Problem 517C

Tax credit P100,000 x 2M/5M)P40,000

Problem 518A

Total gross estate (P1,700,000 + P800,000)P2,500,000

Less: Deductions1,500,000


Estate tax on P500,000P15,000

Excess P500,000 x 8%40,000

Total estate tax in the PhilippinesP55,000

Tax credit allowed (P800,000/P2,500,000) x P55,000 = P17,600 vs. P20,000P17,600

Problem 519

ConjugalExclusiveTotal

Real propertyP1,500,000

Inherited propertyP700,000

Other properties500,000.

Gross estateP2,000,000P700,000P2,700,000

Less: Deductions:

ELITE:

Funeral expensesP100,000

Judicial expenses80,000

Claims against the estate300,000

Transfer for public use20,000

Total deductionsP500,000500,000

Net conjugal/exclusive estateP1,500,000P700,000P2,200,000

Less: Special deductions:

Standard deduction1,000,000

Medical expense200,000

Net estate before share of surviving spouseP1,000,000

Less: Share of surviving spouse (P1,500,000 x 50%)750,000


Estate tax:

Tax on P200,000P- 0 -

Tax on excess (P50,000 x 5%)2,500

Estate tax dueP2,500

Problem 520


Family home PhilippinesP2,000,000

Family business Philippines2,000,000

Properties USA.P1,000,000

Gross estateP4,000,000P1,000,000P5,000,000

Deductions:

ELITE Funeral expense200,000..

Net conjugal/exclusiveP3,800,000P1,000,000P4,800,000

Less: Special deduction

Std. deduction1,000,000

Family home1,000,000


Less: Share of surviving spouse (P3,800,000 x 50%)1,900,000


Estate tax:


Tax on P500,000P15,000

Tax on excess (P400,000 x 8%)32,000

Estate tax dueP47,000

Less: Estate tax credit allowed (P47,000 x 8/28) lower13,429

Estate tax still due and payableP33,571

Supporting computation:

The computation of net estate per country is as follows:

PhilippinesU. S. A


Gross estateP4,000,000P1,000,000P5,000,000

Funeral expense(200,000)(200,000)

Family home(1,000,000)(1,000,000)

Allocation of std deduction

(P1,000,000 x 4/5): (1/4)(800,000)(200,000)(1,000,000)

Net estateP2,000,000P800,000P2,800,000

Problem 521


Gross estate*P5,800,000P4,200,000P10,000,000

Less Deductions:

Ordinary deductions:

Funeral expenses (actual, P350,000;

5% limit, P500,000; statutory

Maximum allowed, P200,000) - lowest(200,000)


Other deductions(100,000)

Vanishing deductions (note 1).( 92,000)

Net conjugal/exclusive estateP5,000,000P4,108,0009,108,000

Special deductions:


Family home (50% is P1,500,000) max. allowed(1,000,000)

Medical expenses (actual, P600,000) max. allowed(500,000)

Amount receivable under R.A. 4917(200,000)


Less: Share of the surviving spouse (P5,000,000 x 50%)2,500,000


*Note: The amount receivable under R.A. 4917 must be reclassified as exclusive property in order not to increase the deduction by 50%.

Vanishing deduction:

Cash, initial value allowed to takeP500,000

Less: Proportionate deductions:

Funeral expenseP200,000

Judicial expense500,000

Other obligations100,000

TotalP800,000

(P800,000 x P500,000/P10,000,000)40,000

Final basisP460,000

Multiplied by vanishing deduction rate20%

Vanishing deductionP 92,000


Problem 522

Gross estate (P2,000,000 + P180,000)P2,180,000

Less: Deductions:

Unpaid mortgageP 480,000

Funeral expense60,000


Standard1,000,0001,560,000

Net estateP620,000

Tax on P500,000P15,000

Tax on excess P120,000 x 8%9,600

Total estate taxP24,600


Less: Ordinary deductions (P480,000 + P80,000)P560,000

Estate tax24,600584,600


Problem 523

CashP400,000

Property1,500,000


Deductions:

Promissory note(500,000)

Funeral expense(70,000)


Less: Standard deduction1,000,000

Net estateP330,000


Net taxable estate(P335,000)


Less: Promissory noteP500,000

Funeral expense70,000570,000



Net distributable estateP665,000

Problem 524


Gross estate (P1,000,000 + P9,000,000)P1,000,000P9,000,000P10,000,000


Funeral expense (limit)(200,000)(200,000)

Judicial expense(200,000)(200,000)

Claims against the estate(500,000)(500,000)

P100,000


Special deductions:



Medical expense( 500,000)


Less: Share of surviving spouse (P100,000 x 50%)50,000


Tax on P5,000,000P465,000

Tax on excess P2,550,000 x 15%382,500

Estate taxP847,500

Conjugal estateP1,000,000

Less: Ordinary deductions (actual):



Claims against the estate500,000910,000

Net conjugal estate before share of surviving spouseP90,000

Less: Share of surviving spouse (P90,000 x 50%)45,000

Net share of the decedentP45,000

Add: Exclusive property of the decedent9,000,000

Net distributable estate before estate taxP9,045,000

Less: Estate tax847,500


Divide by number of heirs (12 + 1)13

Share of each heirP 603,576.92

Note: The medical expense is assumed to have been paid.

Problem 525

TaxableDistributable

Conjugal property - real estateP2,000,000P2,000,000


Funeral expenses, limit (P2M + P300,000) x 5%( 115,000)(150,000)

Judicial expenses(5,000)(5,000)

Unpaid mortgage( 500,000)(500,000)

Vanishing deduction*( 175,304).

Net conjugal estateP1,204,696P1,345,000

Add: Exclusive property personal property inherited300,000300,000

Net estate before special deductionP1,504,696P1,645,000

Less: Standard deduction1,000,000.

Net estate before share of surviving spouseP504,696P1,645,000


(P1,345,000 x 50%)672,500

Net taxable/distributable estate(P97,652)P972,500

Divide by number of compulsory heirs3

Inheritance of each heirP324,167

Vanishing deduction:

*Value takenP300,000

Less: Proportionate deductions (P620,000 x P300,000/ P2,300,000)80,870

Final basisP219,130

Multiply by percentage of vanishing deduction one year ago80%

Vanishing deductionsP175,304



Problem 526

The property relationship of Don and Dona Dinero shall be governed by the regime of absolute community property ownership because they got married after August 3, 1988. Hence, the computation would be:

1. Computation of net estate:

CommunalExclusiveTotal

Residential house and lotP 3,500,000

Building apartment10,000,000

Income of apartment3,000,000

Deposit in Equitable Bank5,000,000

Agricultural landP 800,000

Family car550,000

Other personal properties1,000,000

Claim against insolvent person100,000.

Total gross estateP23,150,000P 800,000P23,950,000

Less: Ordinary deductions:

ELIT:

Funeral expenses maximum200,000


Claims against the estate600,000

Claims against insolvent person100,000

Unpaid mortgage300,000

Transfer for public use.200,0002,000,000

Net estate before special deductionsP21,650,000P 300,000P21,950,000

Less: Special deductions:

Standard deduction1,000,000

Family home maximum1,000,000

Medical expenses maximum500,000




2. Computation of estate tax:

For the first P5,000,000P465,000

Excess (P3,625,000 x 15%)543,750

Estate tax dueP1,008,750

3. Computation of net distributable estate:

CommunalExclusiveTotal

Residential house and lotP 3,500,000

Building apartment10,000,000

Income of apartment3,000,000

Deposit in equitable bank5,000,000

Agricultural landP800,000

Family car550,000

Other personal properties1,000,000

Claims against insolvent person100,000.


Total gross estateP23,150,000P 800,000P23,950,000

Less: Actual deductions:

Funeral expense actual350,000


Claims against the estate actual800,000


Unpaid mortgage300,000

Transfer for public use.200,0002,350,000

Net estate before share of surviving spouseP21,300,000P300,000P21,600,000


Net estate before estate taxP10,950,000

Less: Estate tax1,008,750

Net distributable estateP 9,941,250

4. Distribution of the net distributable estate:

Following the assumptions given above, the computation of the share from the net distributable estate of each heir would be:

Legitime:

To two legitimate children (P9,941,250 x 50%)P 4,970,625

To legally surviving spouse (P4,970,625/2)2,485,313

To illegitimate child (P2,485,313 x 50%)1,242,656

Free portion:

To church based on Will1,242,656

TotalP9,941,250

Problem 5-27

Estate tax:

Gross estate

House and lot, Baguio CityP1,000,000

House and lot, Quezon City family home*1,500,000

Grocery store, Baclaran300,000

Inventory (P700,000 P300,000) x 450/300600,000

Cash sales450,000

Claims against insolvent persons50,000P3,900,000


Funeral (P3,900,000 x 5%)P195,000

Claims against insolvent persons50,000

Unpaid income taxes20,000(265,000)

Net estate before special deductionsP3,635,000

Special deductions:

Family home (P1,500,000/2)P750,000

Medical expenses500,000

Standard deductions1,000,000(2,250,000)



Net taxable estate(P432,500)

Estate tax dueP- 0 -

Note: The house and lot in New York, Quezon City is assumed family home because Don and Dona Posamin reside in that place.

Net distributable estate:



Actual deductions:

FuneralP250,000

Claims against insolvent persons50,000

Unpaid income taxes20,000

Medical expense550,000870,000

Net estate before share of spouseP3,030,000



Problem 528

1.Estate tax

House and lot (family home)P3,000,000

Time deposit principal amount2,000,000

Accrued interest 2004: (P2,000,000 x 12% x 12/12)240,000

2005: (P2,000,000 x 12% x 10/12)200,000

Car1,000,000




Funeral expense, limitP 200,000

Judicial50,000

Claims against insolvent person100,000(350,000)

Net estate before special deductionsP6,190,000

Special deductions:

Standard deductionsP1,000,000

Medical expense, limit500,000

Family home, limit1,000,000(2,500,000)




Tax on P500,000P15,000

Tax on excess (P95,000 x 8%)7,600

Estate taxP22,600

2.Net distributable estate


Actual deductions:



Claims against insolvent person100,000(400,000)

Net distributable estate before share of surviving spouseP6,140,000


Net actual estateP3,070,000

Less: Estate tax22,600


3.Distribution of inheritance


Divided by number of heirs (intestate succession)4

Share of each heirP761,850


Problem 5291.Estate tax credit = P215,000

2.Estate tax payable = P222,500

Supporting computations:

a. Estate tax payable to the Philippines :

Country ACountry BPhilippinesEntire

Gross estateP1,200,000P2,500,000P5,000,000P8,700,000

Unpaid mortgages(200,000)(200,000)

Unpaid taxes(500,000)(500,000)

Transfer for public use..(2,000,000)(2,000,000)

Net of identifiable deductionsP1,000,000P2,000,000P3,000,000P6,000,000

Allocated deductions**(172,500)(358,750)(718,750)(1,250,000)

Net estateP 827,500P1,641,250P2,281,250P4,750,000

** Computation of allocated deductions:


Funeral expensesP 27,600P 57,400P115,000P 200,000

Judicial expenses6,90014,35028,75050,000

Standard deduction allocated138,000287,000575,0001,000,000

Total allocated deductionsP172,500P358,750P718,750P1,250,000

Note: The above deductions are allocated because they are not specifically identified asdeductions from a specific country. The fraction per country is computed as follows:


Gross state per countryP1,200,000P2,500,000P5,000,000P8,700,000

Divide by entire gross estateP8,700,000P8,700,000P8,700,000P8,700,000

Fraction13.80%28.70%57.50%100%

b. Computation of Philippines estate tax:

Tax on P2,000,000P135,000

Tax on excess (P2,750,000 x 11%)302,500

TotalP437,500

Less: Tax credit allowed*215,000

Estate tax payable to the Philippine GovernmentP222,500

c. Computation of tax credit:

Limit A:

Country A: [P437,500 x (P827,500/P4,750,000)]P76,217

Actual payment to country A lowerP75,000P 75,000

Country B: (P437,500 x P1,641,250/P4,750,000)P151,167


Actual payment to country B lowerP140,000140,000

Tax credit Limit AP215,000

Limit B:

Total net estate foreign

[(P2,468,750)/P4,750,000] x P437,500P227,385

Total actual estate tax payments foreign

(P75,000 + P140,000) lowerP215,000

Tax credit Limit BP215,000

*Tax credit allowed (the lower of limit A or B)P215,000

Problem 530


CashP2,000,000

Shares of stock (P100 x 100,000 shares)P10,000,000

Insurance proceeds1,000,000

Transfer in contemplation of death.3,000,000

Total gross estateP2,000,000P14,000,000P16,000,000

Less: Ordinary deduction Transfer for public use.10,000,00010,000,000

Net estate before special deductionP2,000,000P 4,000,000P6,000,000

Less: Standard deduction1,000,000




Estate tax on P2,000,000P135,000

Tax on excess (P2,000,000 x 11%)220,000

Total estate taxP355,000

Less: Tax credits on tax previously paid (P34,840 + P204,000)238,840

Transfer tax still dueP116,160

Problem 531

Estate tax on P5,000,000P135,000

Estate tax on excess (P3,000,000 x 15%)450,000

Estate taxP585,000

Add: Surcharges willful neglect (P585,000 x 50%)P292,500

Interest for 4 years (P585,000 x 20% x 4)468,000760,500

Total amount to be paidP1,345,500

chapter 5 - estate tax2013

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