DIZON v. CA

G.R. No. 140944, April 30, 2008

FACTS: After the death of Jose P. Fernandez died in November 7, 1987.  Thereafter, a petition for the probate of his will was filed.  The probate court appointed Justice Dizon and petitioner, Atty. Rafael Arsenio P. Dizon as Special and Assistant Special Administrator, respectively, of the Estate of Jose. Then, in a letter, Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the Estate. 

Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return and to represent the same in securing a Certificate of Tax Clearance. Eventually, an estate tax return was filed which showed no estate tax liability. BIR thereafter issued a deficiency estate tax assessment. Atty. Gonzales moved for the reconsideration of the said estate tax assessment. However, the BIR Commissioner denied the request and reiterated that the estate is liable for the deficiency estate tax. Then, petitioner filed a petition for review before respondent CTA. 

The CTA denied the said petition for review. Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of the deficiency estate tax which is less than the original assessment. Aggrieved, petitioner went to the CA via a petition for review. The CA affirmed the CTA's ruling. 

Petitioner filed a Motion for Reconsideration which the CA denied. Hence, the instant Petition.

The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross estate, no estate tax was due.  On the other hand, respondents argue that since the claims of the Estate’s creditors have been condoned, such claims may no longer be deducted from the gross estate of the decedent.

ISSUE: One of the ultimate issue which require resolution in this case is whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax imposed against the Estate. 

**** The specific question is whether the actual claims of the creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors.

HELD: Yes. The Court, in adopting the date-of-death valuation principle in the US Supreme Court’s ruling in Ithaca Trust Co. v. United States, explained that:

• First. Post-death developments are not material in determining the amount of deduction. This is because in estate tax the tax levied occurs at the instance of death, for that reason, the net value of the property transferred should be ascertained, as nearly as possible, as of the that time.

• Second. In our Rules on Special Proceedings the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death.

Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions.