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Estate of the Late Juliana Diez vda.

De Gabriel
versus Commissioner of Internal Revenue
GR. No. 155541. January 27, 2004
First Division, Ynares-Santiago, J.

Facts: During the lifetime of the decedent Juliana Diez vda. De Gabriel,
her business affairs were managed by the Philippine Trust Company
(PhilTrust). Two days after decedent’s death in 1979, PhilTrust filed her
income tax return for 1978 without indicating that she had died. The BIR
conducted an administrative investigation of the decedent’s tax liability
and found a deficiency income tax for the year 1977 in the amount of
P318,233.93. In 1982, BIR sent a demand letter and assessment notice
addressed to the decedent “c/o PhilTrust, Sta. Cruz, Manila”, which was
the address stated in her 1978 income tax return. In 1984, BIR issued
warrants of distraint and levy to enforce the collection of decedent’s
deficiency income tax liability and served the same upon her heir,
Francisco Gabriel. BIR then filed with the probate court a motion to allow
its claim for the deficiency tax claiming that its service on PhilTrust of the
notice of assessment was binding on the estate as neither Philtrust nor
the estate Administrator failed in his legal duty to inform the BIR of the
decedent’s death. BIR further claims that as the estate failed to question
the assessment within the statutory period of thirty days, the assessment
became final, executory, and incontestable.

(1) Was there a valid service of deficiency tax assessment on the estate of
(2) Did the tax assessment become final, executory, and incontestable?

(1) There was no valid service of deficiency tax assessment on the estate
of decedent. The relationship between PhilTrust and the decedent was
automatically severed the moment the taxpayer died. Thus, none of the
PhilTrust’s subsequent acts or omissions could bind the estate of the
decedent taxpayer. The assessment was not even served on an heir of the
decedent or the Administrator of the estate but on a completely
disinterested party. Clearly, this improper service was not binding on the
estate of the decedent.
(2) The tax assessment has become final, executory, and incontestable
absent the valid service of the notice of assessment on the estate of the
decedent. Though the Administrator may have been remiss in his legal
obligation to inform BIR of the decedent’s death, the consequence thereof
merely refer to the imposition of certain penal sanctions. It does not,
however, include the indefinite tolling of the prescriptive period for
making deficiency tax assessment or the waiver of the required notice for
such assessment.