chapter 3 - gross estate

BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

Chapter 3: GROSS ESTATE

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CHAPTER 3

GROSS ESTATE

Problem 3-1 1. False – should be including revocable transfers and transfers for insufficient consideration. 2. False – depending on the citizenship and residency of the decedent. 3. True 4. False – common stock only; preferred stock is measured at its par value. 5. False – resident alien = properties within and without 6. True

7. True 8. False – donation mortis causa is subject to estate tax. 9. True 10. False – only revocable transfer is taxable.

Problem 3-2 1. False – the relationship must be one degree of generation. 2. True – If he is a nonresident alien. 3. False – the other way around 4. True 5. False – it will depend on how the jewelry was acquired. 6. True 7. False – revocable designation. 8. True 9. False – exclusively to wife 10. False – surviving spouse capital is not included.

Problem 3-3 1. C 6. A 2. A 7. D 3. C 8. A 4. D 9. C 5. B 10. B, C & D

Problem 3-4 1. The reportable gross estate is P2,000,000.

2. Reportable gross estate is P600,000. As a rule, property donated by the decedent to a nonprofit and nonstock educational institution shall not be considered in the computation of gross estate.

3. The reportable estate of A in the Philippines is P5,000,000. Even if A is a nonresident Filipino, his

properties located outside the Philippines are reportable in the Philippines because he is a Filipino citizen.

4. P10,000,000. The properties left by a resident alien which are located within and outside the

Philippines are required to be reported for Philippine estate tax purposes.

5. At market value of P750,000. The law provides that the valuation should be at the market value of the property at the time of the owner’s death. The book value is irrelevant because the properties left by the decedent are considered under liquidating concern.



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6. Only the market value of P500,000 is the reportable gross estate. The rule is to report the market

value of the property at the time of the decedent’s death. The compensatory damages of P900,000 is nontaxable and besides the accrued to the decedent’s heirs after death.

7. If the cash dividend accrued to X before his death but received only after death, then the additional

gross estate would be P2,000,000. But if cash dividend accrued only after death, then there is no addition to the gross estate.

Note: If the problem is silent as to the par value of the shares of stock, it is assumed that the cost is the par value per share. The market value of the shares of stock shall be the reportable amount of the gross estate, not the

acquisition cost of the shares of stock.

8. A has 20% in the book value of U Corporation. The book value of U Corp. is P2,000,000. Therefore the reportable gross estate of A would be P400,000 or (P2,000,000 x 20%).

9. Zero. The beneficiary is irrevocable. Therefore, the P5,000,000 proceeds of life insurance should be excluded from the gross estate.

10. Property brought into marriage before August 3, 1988 shall be classified as an exclusive property but

its fruits shall be classified as part of the conjugal property. The exclusive gross estate of Mr. X is P8,000,000.

11. Marriage on or after August 3, 1988 shall be governed by the absolute community regime of property

relation. Therefore, the exclusive gross estate of Mr. X is zero because his property brought into marriage including its fruits shall be classified as part of the absolute community property.

12. Reportable gross estate is P6,000,000, but the entire amount shall be allowed as deductions from the gross estate as transfer for public use.

13. Reportable gross estate is P4,000,000. The claims against insolvent person should still be reported in

the gross estate but allowed as deductions from the gross estate.

14. Since M is a resident alien, all of his properties within and outside the Philippines should be reported as part of the gross estate for Philippine estate tax purposes. The reportable gross estate should be P11,000,000.

15. No amount is allowed as exemption because the rule of reciprocity is applied only on the intangibles

of nonresident alien.

16. Since Mr. T is a nonresident alien in this case, the gross estate is zero because the rule of reciprocity

can now be applied.

Problem 3 – 5 A House and lot, Daly City P10,000,000



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Mansion, Boracay, Philippines 50,000,000

Cars, Philippines 2,000,000 Shares of stock, Hongkong 5,000,000 Accounts receivable 3,000,000 Gross estate of Molina P70,000,000

Problem 3-6 C Real property in the Philippines P1,000,000 Personal properties in foreign country 300,000 Amount to be included in the gross estate P1,300,000

Problem 3-7 D Since the alien is nonresident all of his properties outside the Philippines are reportable for Philippine estate tax purposes.

Problem 3-8 1. A

Real properties – Philippines P1,000,000 Car – Philippines 500,000 Collectibles – Taiwan 500,000 Taxable gross estate P2,000,000

2. D

Real properties – Philippines P1,000,000 Car – Philippines 500,000 Taxable gross estate P1,500,000

Problem 3-9 A The gross estate shall be valued at its fair market value at the time of death.

Problem 3-10 C Amount to be included in the gross estate [(P120+P150)/2] x 1,000 P135,000

Problem 3-11 D Properties acquired and brought into marriage on or before August 3, 1988 is governed by absolute community of property ownership.

Problem 3-12 A Equity in SMC book value (P1,250,000,000 x 40%) P500,000,000 Investment income (P100,000,000 x 40%) 40,000,000 Amount to be included in the gross estate P540,000,000

Note: Investment income is considered because there is significant controlling interest.

Problem 3-13 B Proceeds to revocable life insurance P 800,000

Problem 3-14 D The proceeds of life insurance is not reportable because the beneficiary is irrevocable.

Problem 3-15 C Fair market value – date of death P3,000,000 Less: Selling price paid by the son 100,000 Amount included in the gross estate P2,900,000

Problem 3-16 C Fair market value – date of death P2,000,000



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Less: Selling price received by Singsong 1,300,000

Amount included in the gross estate P 700,000

Problem 3-17 C The entire amount of receivable, irrespective whether collectible or not, shall be included as part of the gross estate.

Problem 3-18 A Revocable donation to the Ramon Magsaysay Foundation P1,000,000 Family home 1,000,000 Benefits under R.A. 4917 500,000 Transfers in contemplation of death 2,000,000

Donation to the government 1,000,000 Total reportable gross estate P5,500,000

Problem 3-19 B Condominium in Makati as a fiduciary heir P5,000,000 Cash as bequest to the University of the Philippines 2,000,000 Amount to be excluded from reportable gross estate P7,000,000

Problem 3-20 A Only nonresident alien shall be subject to reciprocity.

Problem 3-21 1. Conjugal partnership of gains = A

Conjugal properties:

Accum. income from boarding house P3,000,000 Personal properties acquired during marriage 5,000,000 P 8,000,000 Exclusive property – boarding house inherited from his parents before marriage 4,000,000 Total gross estate P12,000,000

2. Absolute community of property = D

Absolute communal properties: Accum. income from boarding house P 3,000,000 Personal properties acquired during marriage 5,000,000

Boarding house inherited from his parents before marriage 4,000,000 Total gross estate P12,000,000

Problem 3-22 1. Resident citizen Real estate – Philippines P 5,000,000 Real properties – Taiwan 10,000,000 Personal properties – Philippines 500,000

Gross estate P15,500,000 2. Resident alien Real estate – Philippines P 5,000,000 Real properties – Taiwan 10,000,000 Personal properties – Philippines 500,000 Gross estate P15,500,000

3. Nonresident alien Real estate – Philippines P 5,000,000 Personal properties – Philippines 500,000 Gross estate P 5,500,000



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Problem 3-23 Real properties in the Philippines Car in the Philippines Collectibles Time deposit

Accrued interest on time deposit (P300,000 x 12% x 5/12) Gross estate

P2,000,000 800,000 500,000 300,000

15,000 P3,615,000

Problem 3-24 Shares of stock – Japanese Corporation – 85% of business in the Philippines Time deposit in Equitable-PCI Bank Investments in bonds in Jollibee Corporation Gross estate

P120,000,000 500,000,000

4,000,000 P624,000,000

Problem 3-25 House and lot P6,000,000 Investment in property 2,000,000 Car 600,000 Furniture 300,000 Gross estate P8,900,000

Problem 3-26 1. Listed in the local exchange Common (P190/2) x 10,000 shares P 950,000 2. Not listed in the local exchange Total stockholders’ equity P15,000,000 Less: Liquidating value of preferred stock (P110 x 60,000 shares) 6,600,000 Revaluation surplus 200,000 Total book value to common shares P 8,200,000 Divided by outstanding common shares 100,000 Book value per share P 82 Multiplied by number of Mr. Tulog’s investment in common shares 10,000 Value of securities as part of gross estate P 820,000

Problem 3-27 Real estate properties P 3,000,000 Time deposit – principal amount 2,000,000 Accrued interest on time deposit (P2,000,000 x 12% x 8/12) 160,000 Tangible personal properties 1,000,000 Other intangible properties 500,000

Gross estate P 6,660,000

Problem 3-28 Proceeds of life insurance – revocable Donation to take effect upon her death Diamond necklace Gross estate

P1,000,000 500,000

500,000 P2,000,000

Problem 3-29 1. Accrued interest (P1,000,000 x 6% x 9/12) P 45,000



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Transfers in contemplation of death 1,500,000

Additions to the reportable gross estate P1,545,000 2. Family home P2,000,000 Time deposit 1,000,000 Proceeds of life insurance received by his wife 500,000 Claims against insolvent person 200,000 Additions to the reportable gross estate (see 1) 1,545,000 Total gross estate P5,245,000

Problem 3-30 Conjugal

Partnership Absolute

Community Properties:

Acquired by decedent prior to marriage Acquired by surviving spouse prior to marriage Inherited by decedent during the marriage Acquired during the marriage

Income derived from property inherited by surviving spouse during the marriage Time deposit Accrued interest

Total gross estate of the decedent

P600,000

800,000 1,000,000

450,000 850,000

90,000

P3,790,000

P600,000 700,000 800,000

1,000,000

850,000 90,000

P4,040,000

chapter 3 - gross estate

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