Chapter 3 - Gross Estate

BUSINESS AND TRANSFER TRANSFER TAXATION 5th Edition (BY: VALENCIA VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 3: GROSS ESTATE

CHAPTER 3

GROSS ESTATE Problem 3-1 1. False – False – should should be including revocable transfers and transfers for insufficient consideration. 2. False – False – depending depending on the citizenship and residency of the decedent. 3. True 4. False – False – common common stock only; preferred stock is measured at its par value. 5. False – False – resident resident alien = properties within and without 6. True 7. True 8. False – False – donation donation mortis causa is subject to estate tax. 9. True 10. False – False – only only revocable transfer is taxable. Problem 3-2 1. False – False – the the relationship must be one degree of generation. 2. True – True – If If he is a nonresident alien. 3. False – False – the the other way around 4. True 5. False – False – it it will depend on how the jewelry was acquired. 6. True 7. False – False – revocable revocable designation. 8. True 9. False – False – exclusively exclusively to wife 10. False – False – surviving surviving spouse capital is not included.

Problem 3-3 1. C 6. A 2. A 7. D 3. C 8. A 4. D 9. C 5. B 10. B, C & D

Problem 3-4

1. The reportable gross estate is P2,000,000. 2.

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 gr oss estate.

3. The reportable estate of A in the Philippines is P5,000,000. Even if A is a nonresident Filipino, Filipino, his properties located outside the Philippines are reportable in the Philippines because he is a Filipino citizen. 4.

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.

5.

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

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6.

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.

7.

If the cash dividend accrued to X before his d eath 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 p ar 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.

8.

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%).

9.

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 b ecause 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 o utside the Philippines should be reported as part of the gross estate for Ph ilippine 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 o f reciprocity can now be applied.

Problem 3 – 5 A House and lot, Daly City

P10,000,000


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Mansion, Boracay, Philippines Cars, Philippines Shares of stock, Hongkong Accounts receivable Gross estate of Molina

50,000,000 2,000,000 5,000,000 3,000,000 P70,000,000

Problem 3-6 C Real property in the Philippines Personal properties in foreign country Amount to be included in the gross estate

P1,000,000 300,000 P1,300,000

Problem 3-7 D Since the alien is nonresident all of his properties outside the Ph ilippines are reportable for Philippine estate tax purposes. Problem 3-8 1. A Real properties – Philippines Car – Philippines Collectibles – Taiwan Taxable gross estate

2.

P1,000,000 500,000 500,000 P2,000,000

D Real properties – Philippines Car – Philippines Taxable gross estate

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

Problem 3-16 C Fair market value – date of death

P2,000,000


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Less: Selling price received by Singsong Amount included in the gross estate

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 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

P1,000,000 1,000,000 500,000 2,000,000 1,000,000 P5,500,000

P5,000,000 2,000,000 P7,000,000

Problem 3-20 A Only nonresident alien shall be subject to reciprocity. Problem 3-21 1. 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

2. 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 1. Resident citizen Real estate – Philippines Real properties – Taiwan Personal properties – Philippines Gross estate

2.

3.

P 3,000,000 5,000,000 4,000,000 P12,000,000

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 5,000,000 10,000,000 500,000 P15,500,000

Nonresident alien Real estate – Philippines Personal properties – Philippines Gross estate

P 5,000,000 500,000 P 5,500,000


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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 1. Listed in the local exchange Common (P190/2) x 10,000 shares

2.

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

P 950,000

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

Problem 3-28 Proceeds of life insurance – revocable Donation to take effect upon h er death Diamond necklace Gross estate

P1,000,000 500,000 500,000 P2,000,000

Problem 3-29 1. Accrued interest (P1,000,000 x 6% x 9/12)

P

45,000


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2.

Transfers in contemplation of death Additions to the reportable gross estate

1,500,000 P1,545,000

Family home 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

P2,000,000 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

Chapter 3 - Gross Estate

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