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Dizon vs CIR


1.     On November 7, 1987, Jose P. Fernandez died.

2.     Thereafter, a petition for the probate of his will was filed.

3.     The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon and petitioner, Atty. Rafael Arsenio P.
Dizon as Special and Assistant Special Administrator.

4.     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.

5.     On April 27, 1990, BIR Regional Director issued Certification stating that the taxes due on the transfer of real and personal
properties of Jose had been fully paid and said properties may be transferred to his heirs.

6.     Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the purpose of
paying its creditors.

7.     Petitioner manifested that Manila Bank, a major creditor of the Estate was not included, as it did not file a claim with the
probate court since it had security over several real estate properties forming part of the Estate.

8.     However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, issued Estate Tax Assessment
Notice demanding the payment of P66,973,985.40 as deficiency estate tax.


            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


            It is admitted that the claims of the Estate's aforementioned creditors have been condoned - mode of extinguishing an

            The U.S. court ruled that the appropriate deduction is the value that the claim had at the date of the decedent's death. Also,
as held in Propstra v. U.S., where a lien claimed against the estate was certain and enforceable on the date of the decedent's death,
the fact that the claimant subsequently settled for lesser amount did not preclude the estate from deducting the entire amount of
the claim for estate tax purposes. These pronouncements essentially confirm the general principle that post-death developments
are not material in determining the amount of the deduction.

            The court expresses its agreement with the date-of-death valuation rule.

First. There is no law, nor do we discern any legislative intent in our tax laws, which disregard the date-of-death valuation
principle and particularly provide that post-death developments must be considered in determining the net value of the estate. It
bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and
clearly imports, tax statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or
activity is taxable is generally resolved against taxation.

Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein 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.
2. CIR vs Pineda GR No L-22734 September 15, 1957

Facts: On May 23, 1945, Anastasio Pineda died, survived by his wife and 15 children, the eldest of whom is Atty. Manuel
Pineda. Estate proceedings were had in the CFI of Manila resulting to the estate being divided among and awarded to the heirs.
Manuel’s share amounted to about P 2,500.00.

After the estate proceedings were closed, the Bureau of Internal Revenue (BIR) investigated the income tax liability of
the estate for the years 1945, 1946, 1947 and 1948 and it found that the corresponding income tax returns were not filed.
Thereupon, the representative of the CIR issued the following assessments:

I. Deficiency Income Tax (1945, 1946, 1947) – P 2,707.44

II. Additional Residence Tax for 1945 – P 14.50

III. Real estate dealer’s tax for 4th qtr of 1946 and whole year 1947 – P207.50

The assessment was contested by Manuel Pineda. Thereafter, he appealed to the CTA alleging that he was appealing
only that proportionate part or portion pertaining to him as one of the heirs. Subsequently, the CTA rendered judgment reversing
the decision of the CIR on the ground of prescription of his right to assess and collect the aforementioned tax. On appeal to the
SC, the SC affirmed the ruling of the CTA with respect to the assessment for the year 1947 (income tax) but held that for the
years 1945 and 1946, the action for assessment and collection has not yet prescribed. Accordingly, the SC remanded the case to
the CTA for further appropriate proceedings.

The CTA rendered judgment holding Manuel Pineda liable for his share in the deficiency income tax for 1945 and
1946 and the real estate dealer’s tax all amounting to P760.28. The decision was then appealed by the CIR to the SC.

Issue: WON Manuel Pineda can be held liable for the payment of all the taxes found by the CTA instead of only for his
corresponding share in the same

Held: YES. The government can require Manuel Pineda to pay the full amount of the taxes assessed. The reason is that the
government has a lien on the P2, 500.00 received by him from the estate as his share in the inheritance, for unpaid income taxes
for which said estate is liable, pursuant to Section 315 of the Tax Code.

By virtue of such lien, the government has the right to subject the property in Pineda’s possession (the money
amounting to P2, 500.00) to satisfy the income tax assessment. After such payment, Manuel Pineda will have a right of
contribution from his co-heirs.

The government can collect the tax in question in two ways. First, by going after all the heirs and collecting from each
one of them the amount of the tax proportionate to the inheritance received. The second remedy, pursuant to the lien created by
Section 315 of the Tax Code upon all property and property rights belonging to the taxpayer for unpaid income tax, is by
subjecting said property of the estate which is in the hands of the heir or transferee to the payment of the tax due, the estate. This
second remedy is the option the government took in this case to collect the tax. The BIR should be given the necessary discretion
to avail itself of the most expeditious way to collect the tax, because taxes are the lifeblood of the government and their prompt
and certain availability is an imperious need.