Solution manual transfer and business taxes by valencia CHAPTER 3 GROSS ESTATE

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.. Only the market value of P50

CHAPTER 3

GROSS ESTATE

Problem 3-1

1 False – should be including revocable transfers and transfers for insufficient consideration

2 False – depending on the citizenship and residency of the decedent

3 True

4 False – common stock only; preferred stock is measured at its par value

5 False – resident alien = properties within and without

6 True

7 True

8 False – donation mortis causa is subject to estate tax

9 True

10 False – only revocable transfer is taxable

Problem 3-2

1 False – the relationship must be one degree of generation

2 True – If he is a nonresident alien

3 False – the other way around

4 True

5 False – it will depend on how the jewelry was acquired

6 True

7 False – revocable designation

8 True

9 False – exclusively to wife

10 False – surviving spouse capital is not included

Problem 3-3

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 gross estate

3 The reportable estate of A in the Philippines is P5,000,000 Even if A is a nonresident 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

Chapter 3: GROSS ESTATE

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 death 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 par 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 because 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 outside the Philippines should be reported as part of the gross estate for Philippine 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 of reciprocity can now be applied

Problem 3 – 5 A

Problem 3-6 C

Problem 3-7 D

Since the alien is nonresident all of his properties outside the Philippines are reportable for Philippine estate tax purposes

Problem 3-8

1 A

2 D

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

Note: Investment income is considered because there is significant controlling interest

Problem 3-13 B

Problem 3-14 D

The proceeds of life insurance is not reportable because the beneficiary is irrevocable

Problem 3-15 C

Chapter 3: GROSS ESTATE Problem 3-16 C

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 P1,000,000

Problem 3-19 B

Cash as bequest to the University of the Philippines 2,000,000

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 P 8,000,000

Exclusive property – boarding house inherited from his parents before marriage 4,000,000

2 Absolute community of property = D

Absolute communal properties:

Accum income from boarding house P 3,000,000 Personal properties acquired during marriage 5,000,000 Boarding house inherited from his parents before marriage 4,000,000

Problem 3-22

1

Resident citizen

2

Resident alien

3

Nonresident alien

Real estate – Philippines P 5,000,000

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

P2,000,000 800,000 500,000 300,000 15,000 P3,615,000

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

P120,000,000 500,000,000 4,000,000 P624,000,000

Problem 3-25

Problem 3-26

1

Listed in the local exchange

2

Not listed in the local exchange

Less: Liquidating value of preferred stock

Multiplied by number of Mr Tulog’s

Problem 3-27

Accrued interest on time deposit (P2,000,000 x 12% x 8/12) 160,000

Problem 3-28

Proceeds of life insurance – revocable

Donation to take effect upon her death

Diamond necklace

Gross estate

P1,000,000 500,000

500,000 P2,000,000

Chapter 3: GROSS ESTATE

Problem 3-29

1

2

Additions to the reportable gross estate (see 1) 1,545,000

Problem 3-30

Conjugal Partnership CommunityAbsolute 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

P600,000 800,000 1,000,000 450,000 850,000 90,000 P3,790,000

P600,000 700,000 800,000 1,000,000

850,000 90,000 P4,040,000