chapter 3 - gross estate2013

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

Chapter 3: GROSS ESTATE

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CHAPTER 3

GROSS ESTATE

Problem 3-1 1. True 2. False include all properties within and outside the Philippines. 3. True 4. False intangible personal properties 5. False properties of nonresident aliens. The properties within and outside the Philippines of

a resident alien is subject to Philippine estate tax. 6. True

7. False common stock only; preferred stock is measured at its par value. 8. True 9. True 10. False This is a donation mortis causa which is subject to estate tax. 11. True 12. False only proceeds of life insurance with revocable beneficiary is included for estate tax

purposes.

Problem 3-2 1. True 2. False amount receivable under R.A. 4917 shall be included as part of the gross estate

subject to deduction of its entire amount reported. 3. False only intangible properties are exempted from estate tax. 4. True 5. False the reciprocity exemption is granted only to nonresident alien. 6. True 7. True 8. True 9. False exclusive property. 10. True 11. True 12. True

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

10. C 10. D 11. D 11. C 12. A 12. A





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Problem 3-5 1. The reportable gross estate is P3,000,000 or (P2,500,000 + P500,000)

2. P25,000,000. 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.

3. 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%).

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

5. 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.

6. Zero. No amount is allowed as exemption because the rule of reciprocity is applied only on

the intangibles of nonresident alien.

7. P10,000,000. Since Mr. T is a nonresident alien in this case, the gross estate is zero because the rule of reciprocity can now be applied.

8. None. The rule is to report the market value of the property at the time of the decedents

death. The compensatory damages of P900,000 are excluded since the accrued is made to the decedents heirs after death. Payments for medical and funeral expenses are nontaxable because they are considered contributions from symphatizers.

9. Excluded from the gross estate is P3,000,000 or (P5,000,000 x 60%). As a rule, property

donated by the decedent to a nonprofit and nonstock educational institution is excluded from the gross estate. Donations to the Philippine government is included as part of the gross estate, but deductible in its full amount.

Problem 3 6 B 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 owners death. The book value is irrelevant because the properties left by the decedent are considered under liquidating concern.

Problem 3 7 C Business, Daly City P30,000,000 Cars, Philippines 1,000,000 Condominium, Philippines 3,000,000 Mansion, Boracay, Philippines 20,000,000 Shares of stock, Hongkong 4,000,000

Accounts receivable 2,000,000 Gross estate of Molina P60,000,000

Problem 3-8 B Real property in the Philippines P1,600,000 Personal properties in foreign country 600,000 Personal properties in foreign country 800,000 Amount to be included in the gross estate P3,000,000





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Problem 3-9 A P500,000. Since the alien is nonresident all of his properties outside the Philippines are reportable for Philippine estate tax purposes. The investment in shares of stock of a resident foreign corporation with 85% business situs in the Philippines is a property within the Philippines.

Problem 3-10 1. Letter A

Real properties Philippines P1,000,000 Car Philippines 800,000 Collectibles Philippines 500,000 Franchise Taiwan 200,000 Taxable gross estate P2,500,000

2. Letter C Real properties Philippines P1,000,000 Car Philippines 800,000 Taxable gross estate P1,800,000

Problem 3-11 A P500,000. The gross estate shall be valued at its fair market value at the time of death.

Problem 3-12 C Amount to be included in the gross estate [(P120+P150)/2] x 1,000 P135,000

Problem 3-13 D Equity in SMC book value (P100,000,000 x 40%) P40,000,000

Investment income (P20,000,000 x 40%) 8,000,000 Amount to be included in the gross estate P48,000,000

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

Problem 3-14 B Business establishments P10,000,000 Accrued income (P200,000 x 5 months) 1,000,000 Time deposit for 10 years 30,000,000

Accrued interest (P30,000,000 x 12% x 10/12) 3,000,000 5% equity in Jollibee Corporation 5,000,000 Car and mansion donated mortis causa to his son 20,000,000 Gross estate P69,000,000

The dividend is excluded because the declaration was made after death.

Problem 3-15 A Commercial building P10,000,000

Rental income earned (P200,000 x 5 months) 1,000,000 Common shares (P120 + P130)/2 = P125 x 200,000 shares 25,000,000 Cash dividend (P20,000,000/200,000) = P100 x 10% x 200,000 2,000,000 Reportable gross estate P38,000,000

Problem 3-16 B Revocable donation to the Ramon Magsaysay Foundation P1,000,000 Family home 1,000,000 Nontaxable benefits under R.A. 4917 500,000

Transfers in contemplation of death 2,000,000





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Donation to the government 1,000,000

Total reportable gross estate P5,500,000

Problem 3-17 D Zero, because the proceeds of life insurance is designated to an irrevocable beneficiary. The P200,000 is also excluded because such amount in on account of physical injury and accrued after death.

Problem 3-18 A P500,000. The proceeds of life insurance are reportable because the beneficiary is revocable.

Problem 3-19 D There is no inadequate consideration because the sale of real property classified as capital asset is subject to a final capital gains tax of 6% based on the selling price or fair market value,

whichever is higher. Note: If the cash P100,000 cash payment made by the son is available at the time of death; then the amount should be included as part of the gross estate.

Problem 3-20 C Fair market value date of death P2,000,000 Less: Selling price received by Singsong 1,300,000 Amount included in the gross estate P 700,000

Problem 3-21 C P160,000. The entire amount of receivable, irrespective whether collectible or not, shall be included as part of the gross estate.

Problem 3-22 B Family home to Cell, his daughter (Cancer used the house until his death) P 4,000,000 Commercial building to Cyst, his son (Cancer received the rental income) 6,000,000 Shares of stock to Aids, his wife (Evidenced by oral donation) 3,000,000 Amount reportable for estate tax purposes P13,000,000

Problem 3-23 D The reportable estate of A in the Philippines is P10,000,000. Even if A is a nonresident Filipino, his properties located outside the Philippines are reportable in the Philippines because he is a Filipino citizen.

Problem 3-24 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 3-25 A Zero. Only nonresident alien shall be subject to reciprocity.

Problem 3-26 B P4,000,000 value of condominium located in the Philippines. Intangible properties are not subject to estate tax in the Philippines when there is reciprocity and the decedent who owns them is a nonresident alien.





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Problem 3-27 D P2,000,000. Properties acquired and brought into marriage on or after August 3, 1988 are governed by absolute community property relation; hence, to be included as part of the gross estate.

Problem 3-28 1. Letter C

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 is P12,000,000.

2. Letter A 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.

Problem 3-29 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 during marriage 4,000,000 Total gross estate P12,000,000

2. Absolute community of property = C Absolute community properties: Personal properties acquired during marriage P5,000,000 Farm land brought into marriage by his wife 6,000,000 P11,000,000 Exclusive properties

Boarding house inherited from his parents during marriage P4,000,000 Accum. income from boarding house 3,000,000 7,000,000 Total gross estate P18,000,000

Problem 3-30 Case 1 Include. The donation is conditional. The donor reserved the power to own the car until the latter passes the CPA exam.

Case 2 Include. The donation is revocable because the donor controls and enjoys the property for himself until his death. Case 3 Exclude. The donation is complete because control over the property by the donor ended after 3 years. Case 4 - Include. The donor predeceased the donee. Absolute control is transferred to the donee upon the death of the donor.

Case 5 Exclude. The P60,000 (P80,000 P20,000) is subject to donors tax at the time of sale. Case 6 Include. The sale is in contemplation of death. The P900,000 is subject to income tax. Case 7 Exclude. The sale of real property is subject to a final tax of 6% based on the selling price or fair market value, whichever is higher. Case 8 Include. The transfer is an inheritance to be received at the time of death as evidenced by a Will.





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Case 9 Exclude. No transfer tax is to be paid because the property was transferred at the desire of the predecessor, H. S has no power or control to appoint other successor.

Case 10 Include. The transfer is a general power of appointment.

Case 11 Exclude. Subject to donors tax because the actual transfer is inter vivos. The transfer of proceeds of life insurance is deemed complete at during the life-time of the donor.

Case 12 Incude. Include as part of the gross estate if the beneficiary is revocable or the decedents estate, his administrator or his executor.

Problem 3-31 Real properties in the Philippines

Car in the Philippines Accounts receivable Time deposit Accrued interest on time deposit (P300,000 x 12% x 5/12) Claims against insolvent person Gross estate

P2,000,000

800,000 500,000 300,000

15,000 35,000 P3,650,000

Problem 3-32 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 3-33 House and lot P6,000,000 Investment in property 2,000,000 Car 600,000 Furniture 300,000 Gross estate P8,900,000

Problem 3-34 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. Tulogs investment in common shares 10,000 Value of securities as part of gross estate P 820,000

Problem 3-35 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





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Problem 3-36 1. Accrued interest (P1,000,000 x 6% x 9/12) P 45,000 Transfers in contemplation of death car 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 3-37 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

Problem 3-38 1. Filipino or resident alien Within Outside Total Condominium P5,000,000 P5,000,000 Commercial building P10,000,000 10,000,000 Shares of stock nonresident foreign corp. 3,000,000 3,000,000 Business transferred to his son, the decedent enjoys the income until his death 8,000,000 8,000,000 Investments in lands: Fair market value at time of death 5,000,000 2,000,000 7,000,000 Proceeds of life insurance, estate irrevocable beneficiary 2,000,000 2,000,000 Proceeds of property insurance 3,000,000 7,000,000 10,000,000 Cash in bank 2,500,000 4,000,000 6,500,000 Franchises 1,500,000 2,000,000 3,500,000 Total gross estate P27,000,000 P28,000,000 P55,000,000

2. Nonresident alien without reciprocity Within Condominium P5,000,000 Business transferred to his son, the decedent

enjoys the income until his death 8,000,000 Investments in lands: Fair market value at time of death 5,000,000 Proceeds of life insurance, estate irrevocable beneficiary 2,000,000 Proceeds of property insurance 3,000,000 Cash in bank 2,500,000 Franchises 1,500,000 Total gross estate P27,000,000





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3. Nonresident alien with reciprocity Within Condominium P5,000,000 Business transferred to his son, the decedent enjoys the income until his death 8,000,000 Investments in lands: Fair market value at time of death 5,000,000 Total gross estate P18,000,000

chapter 3 - gross estate2013

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