XV.

(2017)

Casimira died on June 19, 2017 after three weeks of confinement due to an
unsuccessful liver transplant. For her confinement, she had incurred substantial
medical expenses that she financed through personal loans secured by mortgages
on her real properties. Her heirs are still in the process of making an inventory of
her assets that can be used to pay the estate taxes, if any, which are due on
December 19, 2017.

(a) Are the medical expenses, personal loans and mortgages incurred by
Casimira deductible from her gross estate? Explain your answer. (5%)

Suggested Answer:

(a) Yes, subject to certain conditions set by the NIRC. As for the medical
expenses, they must be incurred within one year from death, whether paid or
unpaid, and the amount must not exceed P500,000. As for the personal load,
it is required that the loan document must be notarized and if incurred within
the three years from date of death, the executor or administrator shall submit
a statement showing the disposition of the proceeds of the load. As to the
mortgages, it is required that the fair market value of Casimira’s interest in
said property, undiminished by such mortgage or indebtedness, is included
in the value of the gross estate. The claims for personal loans and mortgages
must have been contracted bona fide and for an adequate consideration in
money or money’s worth (Section 86, 1997 NIRC, as amended).

(b) May the heirs of Casimira file the estate tax return and pay the
corresponding estate tax beyond December 19, 2017 without incurring
interest and surcharge? Explain your answer. (3%)

Suggested Answer:

(b) The heirs may file the estate tax return beyond December 19, 2017 as long
as they filed a request for a reasonable extension, not exceeding 30 days.
Once the request for extension has been granted and the return filed within
the extended period following the “pay-as-you-file” procedure, only the
interest on extended maybe imposed but not the surcharge. Interest and
surcharge, however, may be imposed upon failure of the heirs to file and pay
the estate tax within the extended period granted by the CIR (Sections
248(A) and 249(D), 1997 NIRC, as amended).

Section 91, on the other hand, allows for the extension of time to pay the
estate tax due, for a period not exceeding five (5) years in case the estate is
settled through the courts, or two (2) years in case the estate is settled
extrajudicially. If an extension is granted, the interest in extended payment
may be imposed. The Commissioner may require the executor, or
administrator, or beneficiary, as the case may be, to furnish a bond in an
amount not exceeding double the amount of the tax and with such sureties as
the Commissioner deems necessary, conditions upon the payment of the said
tax in accordance with the terms of the extension.