Commission of Internal Revenue vs. Pajonar Facts of the Case: 1.

Assailed in this petition for review on certiorari is the Resolution of the CTA granting private respondent Josefina P. Pajonar, as administratirix of the estate of Pedro P. Pajonar, a tax refund in the amount of P76,502.42, representing erroneously paid estate taxes for the year 1988. 2. Among the deductions from the gross estate allowed by the CTA were the amounts of P60,753.00 representing the notarial fee for the Extrajudicial Settlement and the amount of P50,000.00 as attorneys fees in Special Proceedings for guardianship/. 3. The Commissioner of Internal Revenue filed a motion for reconsideration of the CTAs decision asserting, among others, that the notarial fee for the Extrajudicial Settlement and the attorneys fees in the guardianship proceedings are not deductible expenses. 4. The CTA issued the assailed Resolution ordering the Commissioner of Internal Revenue to refund Josefina Pajonar, administratrix of the estate of Pedro Pajonar, the amount of P76,502.42 representing erroneously paid estate tax for the year 1988. 5. The CTA also upheld the validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorneys fees in the guardianship proceedings. Issue: Whether the notarial fee paid for the extrajudicial settlement in the amount of P60,753.00 and the attorneys fees in the guardianship proceedings in the amount of P50,000 may be allowed as deductions from the gross estate of decedent in order to arrive at the value of the net estate? The Court Held: Yes, judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from the gross estate of the decedent for the purposes of arriving at the value of the net estate, have been construed by the federal and state courts of the US to include all expenses, essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it. In other words, the expenses must be essential to the proper settlement of the estate. Expenditures incurred for the individual benefit of the heirs, devisees or legatees are not deductible. This distinction has been carried over to our jurisdiction.

Therefore, the notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such settlement effected a distribution of Pedro Pajonars estate to his lawful heirs. Similarly, the attorneys fees paid to PNB for acting as the guardian of Pedro Pajonars property during his lifetime should also be considered as a deductible administration expense.

CIR vs. Fisher Facts of the Case: 1. This case relates to the determination and settlement of the hereditary estate left by the deceased Walter Stevenson and the laws applicable thereto. 2. Walter G. Stevenson (born in the Philippines on August 9, 1874 of British parents and married in the City of Manila on January 23, 1909 to Beatrice Maurice Stevenson another British subject) died on February 22, 1951 in San Francisco, California, where he and his wife established their permanent residence. 3. Ancillary administration proceedings were instituted in the CFI of Manila for the settlement of the estate in the Philippines. 4. Ian Murray Statt was appointed ancillary administrator of the estate, who on July 11, 1951, filed a preliminary estate and inheritance tax return with the reservation of having the properties declared therein finally appraised at their values six months after the death of Stevenson. 5. An amended return was filed which included a deduction in the amount of P4,000.00 from the gross estate of the decedent as provided for in Section 861 (4) of the U.S. Federal Internal Revenue Code which the ancillary administrator averred was allowable by way of the reciprocity granted by Section 122 of the NIRC and the exemption from the imposition of estate and inheritance taxes on the shares of stock in the Mindanao Mother Lode Mines. The Court Held: On indebtedness: In other words, the allowable deductions is only to the extent of the portion of the indebtedness which is equivalent to the proportion that the estate in the Philippines bears to the total estate wherever situated. Stated differently, if the properties in the Philippines constitute but 1/5 of the entire assets wherever situated, then only 1/5 of the indebtedness may be deducted. But since, as heretofore adverted to, there is no statement of the value of the estate situated outside the Philippines, no part of the indebtedness can be allowed to be deducted, pursuant to Section 89, letter (d), number (1) of the IRC.

Rafael Arsenio S. Dizon, v. CTA and CIR G.R. No. 140944; April 30, 2008 Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his will was filed. The probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the Estate of Jose Fernandez. An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued a deficiency estate tax assessment, demanding payment of Php 66.97 million as deficiency estate tax. This was subsequently reduced by CTA to Php 37.42 million. The CA affirmed the CTAs ruling, 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 Estates creditors have been condoned, such claims may no longer be deducted from the gross estate of the decedent. Issue: Whether the actual claims of 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. Following the US Supreme Courts ruling in Ithaca Trust Co. v. United States, the Court held that post-death developments are not material in determining the amount of deduction. This is because estate tax is a tax imposed on the act of transferring property by will or intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the instance of death, the net value of the property transferred should be ascertained, as nearly as possible, as of the that time. This is the date-of-death valuation rule. The Court, in adopting the date-of-death valuation principle, explained that: First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the date-ofdeath valuation principle and particularly provides 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. 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.