BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 3: GROSS ESTATE CHAPTER GROSS ESTATE Problem 3-1 False – should be including revocable transfers and transfers for insufficient consideration False – depending on the citizenship and residency of the decedent True False – common stock only; preferred stock is measured at its par value False – resident alien = properties within and without True True False – donation mortis causa is subject to estate tax True 10 False – only revocable transfer is taxable Problem 3-2 False – the relationship must be one degree of generation True – If he is a nonresident alien False – the other way around True False – it will depend on how the jewelry was acquired True False – revocable designation True False – exclusively to wife 10 False – surviving spouse capital is not included Problem 3-3 C A A D C A D C B 10 B, C & D Problem 3-4 The reportable gross estate is P2,000,000 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 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 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 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 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 3: GROSS ESTATE 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 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 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%) 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 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 10 Chapter 3: GROSS ESTATE Problem – A House and lot, Daly City Mansion, Boracay, Philippines Cars, Philippines Shares of stock, Hongkong Accounts receivable Gross estate of Molina Problem 3-6 C Real property in the Philippines Personal properties in foreign country Amount to be included in the gross estate P10,000,000 50,000,000 2,000,000 5,000,000 3,000,000 P70,000,000 P1,000,000 300,000 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 A Real properties – Philippines Car – Philippines Collectibles – Taiwan Taxable gross estate D Real properties – Philippines Car – Philippines Taxable gross estate P1,000,000 500,000 500,000 P2,000,000 P1,000,000 500,000 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%) Investment income (P100,000,000 x 40%) Amount to be included in the gross estate P500,000,000 40,000,000 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 Less: Selling price paid by the son Amount included in the gross estate P3,000,000 100,000 P2,900,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 11 Chapter 3: GROSS ESTATE Problem 3-16 C Fair market value – date of death Less: Selling price received by Singsong Amount included in the gross estate P2,000,000 1,300,000 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 Family home Benefits under R.A 4917 Transfers in contemplation of death Donation to the government Total reportable gross estate P1,000,000 1,000,000 500,000 2,000,000 1,000,000 P5,500,000 Problem 3-19 B Condominium in Makati as a fiduciary heir Cash as bequest to the University of the Philippines Amount to be excluded from reportable gross estate P5,000,000 2,000,000 P7,000,000 Problem 3-20 A Only nonresident alien shall be subject to reciprocity Problem 3-21 Conjugal partnership of gains = A Conjugal properties: Accum income from boarding house P3,000,000 Personal properties acquired during marriage 5,000,000 Exclusive property – boarding house inherited from his parents before marriage Total gross estate P 8,000,000 4,000,000 P12,000,000 Absolute community of property = D Absolute communal properties: Accum income from boarding house Personal properties acquired during marriage Boarding house inherited from his parents before marriage Total gross estate Problem 3-22 Resident citizen Real estate – Philippines Real properties – Taiwan Personal properties – Philippines Gross estate P 5,000,000 10,000,000 500,000 P15,500,000 Resident alien Real estate – Philippines Real properties – Taiwan Personal properties – Philippines Gross estate P 3,000,000 5,000,000 4,000,000 P12,000,000 Nonresident alien P 5,000,000 10,000,000 500,000 P15,500,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 12 Chapter 3: GROSS ESTATE Real estate – Philippines Personal properties – Philippines Gross estate P 5,000,000 500,000 P 5,500,000 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 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 Problem 3-25 House and lot Investment in property Car Furniture Gross estate P2,000,000 800,000 500,000 300,000 15,000 P3,615,000 P120,000,000 500,000,000 4,000,000 P624,000,000 P6,000,000 2,000,000 600,000 300,000 P8,900,000 Problem 3-26 Listed in the local exchange Common (P190/2) x 10,000 shares P 950,000 Not listed in the local exchange Total stockholders’ equity Less: Liquidating value of preferred stock (P110 x 60,000 shares) Revaluation surplus Total book value to common shares Divided by outstanding common shares Book value per share Multiplied by number of Mr Tulog’s investment in common shares Value of securities as part of gross estate Problem 3-27 Real estate properties Time deposit – principal amount Accrued interest on time deposit (P2,000,000 x 12% x 8/12) Tangible personal properties Other intangible properties Gross estate Problem 3-28 Proceeds of life insurance – revocable Donation to take effect upon her death Diamond necklace Gross estate P15,000,000 6,600,000 200,000 P 8,200,000 100,000 P 82 P 10,000 820,000 P 3,000,000 2,000,000 160,000 1,000,000 500,000 P 6,660,000 P1,000,000 500,000 500,000 P2,000,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 13 Chapter 3: GROSS ESTATE Problem 3-29 Accrued interest (P1,000,000 x 6% x 9/12) Transfers in contemplation of death Additions to the reportable gross estate P 45,000 1,500,000 P1,545,000 Family home P2,000,000 Time deposit Proceeds of life insurance received by his wife Claims against insolvent person Additions to the reportable gross estate (see 1) Total gross estate 1,000,000 500,000 200,000 1,545,000 P5,245,000 Problem 3-30 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 Conjugal Partnership Absolute Community P600,000 800,000 1,000,000 P600,000 700,000 800,000 1,000,000 450,000 850,000 90,000 P3,790,000 850,000 90,000 P4,040,000 ... included in the gross estate P3,000,000 100,000 P2,900,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 11 Chapter 3: GROSS ESTATE Problem 3- 16 C Fair market... P15,500,000 BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 12 Chapter 3: GROSS ESTATE Real estate – Philippines Personal properties – Philippines Gross estate. . .BUSINESS AND TRANSFER TAXATION 5th Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 3: GROSS ESTATE Only the market value of P500,000 is the reportable gross estate The rule