SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 2019 Edition

By: TABAG & GARCIA

CHAPTER 1 – SUCCESSION & TRANSFER TAXES

TRUE OR FALSE
1. TRUE 6. TRUE 11. FALSE 16. TRUE
2. TRUE 7. FALSE 12. TRUE 17. FALSE
3. TRUE 8. FALSE 13. TRUE 18. TRUE
4. FALSE 9. TRUE 14. TRUE 19. TRUE
5. FALSE 10. FALSE 15. FALSE 20. TRUE

MULTIPLE CHOICE
1. D 12. C 23. D 34. D 45. B
2. A 13. C 24. B 35. B 46. C
3. D 14. B 25. D 36. B 47. D
4. C 15. D 26. D 37. D 48. D
5. C 16. C 27. B 38. B 49. A
6. A 17. B 28. D 39. D 50. B
7. B 18. D 29. A 40. D 51. A
8. A 19. C 30. D 41. B 52. D**
9. B 20. B 31. B 42. D 53. D
10. A 21. B 32. A 43. B 54. D
11. D 22. B 33. D 44. B 55. B
**Inheritance and repudiation takes effect upon death of the decedent

CHAPTER 2 – GROSS ESTATE

PROBLEM SOLVING
(P2.1) (1) P19,300,000 (2) P19,300,000 (3) P11,000,000 (4) P14,300,000
Citizen/ Resident NRA with R NRA w/o R
(# 1 & 2) (# 3) (# 4)
Family home in the Philippines P8,000,000 P8,000,000 P8,000,000
Parcel land of with vacation house in Malaysia 5,000,000
Farm land in the Philippines 3,000,000 3,000,000 3,000,000
Shares of stock of a DC 2,000,000 2,000,000
Shares of stock of a foreign corporation the entire business of which is in 500,000 500,000
the Philippines, deposited in a bank safety deposit box in Malaysia
Receivable from a friend who has no property whatsoever 300,000 300,000
Receivables under insurance policies:
 Life insurance with his estate as revocable beneficiary 200,000 200,000
 Life insurance with his daughter as revocable beneficiary 300,000 300,000
 Life insurance with his son as irrevocable beneficiary - - -
 Life insurance (group) taken by the employer of the decedent - - -
TOTAL GROSS ESTATE P19,300,000 P11,000,000 P14,300,000

(P2.2)
To Juan P25,000,000
To Pedro 18,000,000
To Maria 15,000,000
 To Sisa 20,000,000
Total Gross Estate P78,000,000

(P2.3)
Shares of stock (Frozen Co.)
[(P8M+3M)/800,000sh x 100,000 shares P1,375,000
Shares of stock (Divergent Co..)
100,000 shares x P15** 1,500,000
Shares of stock (Lenovo Co..)
100,000 shares x P12 1,200,000
Total Gross Estate P4,075,000
***Mean value shall be used only if the quotation price at the date of death is not determinable (RR 2-2003)
(P2.4) (1)P230,0000; (2)P1,100,000; (3)P0; (4)P5,000,000; (5)P1M + [1M x 10% x 1.5)] = P1,150,000

MODIFIED IDENTIFICATION
EXERCISE A
1. Included 6. Excluded
2. Included 7. Excluded *
3. Excluded 8. Included **
4. Included 9. Excluded
5. Excluded 10. Included***
*Designated by the prior decedent
**Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included first in the gross estate before
deducting the same from the gross estate.
*** Bequests to charitable institutions are considered exclusions from the gross estate only if the problem clearly states that not
more than 30% were used for administrative purposes. However, even if not more than 30% of the bequests were used for
administrative purposes, since whether or not such is exempt will undergo scrutiny first by the BIR, these items shall be included
first in the gross estate before deducting the same for estate tax purposes.

EXERCISE B EXERCISE C
1. P0; valid sale 1. P10M
2. P0; valid sale 2. P20M
3. P0; valid sale 3. P5M
4. P4,000,000 4. P10M
5. P6,000,000 5. P0

TRUE OR FALSE
1. TRUE 6. FALSE 11. FALSE 16. TRUE
2. TRUE 7. FALSE 12. TRUE 17. TRUE
3. TRUE 8. FALSE 13. TRUE 18. FALSE
4. FALSE 9. TRUE 14. FALSE 19. TRUE
5. TRUE 10. TRUE 15. FALSE 20. FALSE

MULTIPLE CHOICE
1. A 16. D 31. C 46. C 61. A
2. B 17. C 32. C 47. D 62. A
3. D 18. B 33. B 48. C 63. A
4. B 19. D 34. A 49. C 64. C
5. C 20. A 35. B 50. B 65. D
6. C 21. D 36. B 51. D 66. B
7. A 22. A 37. D 52. D 67. A
8. B 23. A 38. B 53. C 68. C
 9. A 24. B 39. B 54. C 69. C
10. A 25. C 40. C 55. C 70. D
11. A 26. C 41. C 56. B 71. C
12. B 27. C 42. C 57. D 72. A
13. D 28. C 43. B 58. C 73. D
14. A 29. D 44. B 59. C 74. D
15. C 30. B 45. B 60. A

Supporting Computations (Multiple Choice):

(22).
Common stock-Sunchamp [(P40+39)/2] x 2,000 shares P79,000
Common stock – AgriNurture (1,500 shares x P45) 67,500
Preferred stock – Greenery (3,000 shares x P50 par value) 150,000
Car @ FMV 400,000
Real properties @ zonal value 120,000
Total Exclusion from the gross estate P816,500

(23).
Bank deposit in the foreign branch of a domestic bank P500,000
Bank deposit in Makati branch of a foreign bank 300,000
Shares of stock issued by a domestic corporation 1,000,000
(certificate kept in Canada)
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Exclusion from the gross estate P2,800,000
(24).
House and lot, family home in Quezon City P1,500,000
Bank deposit in Makati branch of a foreign bank 300,000
Shares of stock issued by a domestic corporation 1,000,000
(certificate kept in Canada)
Franchise exercised in Manila 800,000
Receivable, debtor from Mindanao 200,000
Total Inclusion from the gross estate P3,800,000
(26).
Shares of stocks, domestic corp. P250,000
(certificate kept in UK)
Shares of stocks, domestic corp. 100,000
(certificate kept in Phils.)
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Intangibles subject to reciprocity P600,000

(27).
Land & building, Philippines P2,000,000
House and lot, Philippines 3,500,000
Shares of stocks, domestic corp. (certificate kept in UK) 250,000
Shares of stocks, domestic corp. (certificate kept in Phils.) 100,000
Franchise exercised in the Phils. 200,000
Receivables, debtor is from Phils. 50,000
Gross Estate P6,100,000

(33). (P12M/100,000) x 1,000 shares = P120,000

(34). P100 x 1,000 shares = P100,000; Par Value=P10M/100,000 = P100/share
(35). P110 x 1,000 shares = P110,000
 (36). (P140 + P80/2) x 1,000 shares = P110,000

(44).
Consideration FMV upon transfer FMV upon death Gross Estate
received
Land P1,500,000 P1,500,000 P2,000,000 None. Valid sale
Shares of stock 100,000 50,000 150,000 None. Valid sale
Vintage car 50,000 80,000 100,000 P50,000
Painting 250,000 400,000 500,000 250,000
INCLUSION IN THE GROSS ESTATE P300,000

(48). Includible in the Gross Estate = FMV @ time of “+” less Consideration received = P300k-P100k = P200,000

CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE

PROBLEM SOLVING

(P3.1) (a) P2,500,000 computed as follows:

Loss due to shipwreck, two (2) months after the decedent’s death. P500,000
Robbery loss P2,000,000
Allowable Deduction P2,500,000

(b) P500,000 computed as follows:

Loss due to shipwreck, two (2) months after the decedent’s death. P500,000
Allowable Deduction P500,000

(P3.2) P5,715,000 computed as follows:

Ordinary Deductions:
Claim against insolvent person (500,000-400,000) P100,000
Unpaid taxes on the estate before death 150,000
Unpaid mortgage on the estate 200,000
Funeral expenses (no longer allowed under TRAIN Law) -
Judicial expenses (no longer allowed under TRAIN Law) -
Unpaid loans arising from debt instruments (notarized) 125,000
Unpaid loans arising from debt instruments (not notarized). The debt 75,000
instrument was issued by a financial institution not requiring notarizations
for debt instruments issued
Casualty loss 65,000
Special Deductions:
Standard deduction 5,000,000
Medical expenses (no longer allowed under TRAIN Law) -
Total Allowable deduction from the gross estate P5,715,000

(P3.3) (Claim Against Insolvent Persons)

Case A: P100,000

Case B: P333,333 computed as follows:

Receivable P500,000
Collectible portion (400/1,200) x 500,000 (166,667)
Deductible claim (Uncollectible portion) P333,333

Case C: P0. Debtor is not insolvent

Case D: P250,000
 Total Assets P1,200,000
Taxes payable (Gov’t is a priority creditor) (800,000)
Assets after deducting unpaid taxes P400,000

Receivable (CAIP) P500,000

Collectible (400/800) x 500,000 (250,000)
Deductible Claim against Insolvent Persons P250,000

(P3.4) P200,000 computed as follows:

Uncollectible receivable from Juan P100,000
Uncollectible receivable from Manuel 100,000
Total P200,000

(P3.5) P133,333 computed as follows:

Debtor’s Assets P400,000
Taxes payable (Gov’t is a priority creditor) (200,000)
Assets after deducting unpaid taxes P200,000

Receivable (CAIP) P200,000

Collectible (200/600) x 200,000 (66,667)
Deductible Claim against Insolvent Persons P133,333

(P3.6) P262,500 computed as follows:

Value to take P937,500
1st Deduction: Mortgage paid (187,500)
Initial basis P750,000
2nd Deduction: Proportionate deduction
(750/4,500) x 562,500 (93,750)
Final Basis P656,250
x Vanishing rate 40%
Vanishing Deduction P262,500

(P3.7) STANDARD DEDUCTION

CASE
A P5,000,000
B P5,000,000
C P5,000,000
D P500,000
E P500,000

(P3.8) FAMILY HOME

Case A: P0
Case B: P5,000,000
Case C: P0; exclusive property of the surviving spouse
Case D: P10,000,000
Case E: P12M/2 = P6,000,000
Case F: [ 5M + (5,000,000/2)] = P7,500,000

(P3.9)
Question 1: P7,308,013; (Decedent: Resident Citizen)
Question 2: P7,308,013; (Decedent: Resident Alien) (same computation with Q#1).

Domestic shares of 2,000 shares inherited 6 years ago P8,000,000

House and lot, family home, located in Davao, inherited 2 years ago 2,000,000
Jewelry items, in the Philippines at the time of death 400,000
Jewelry items kept in a vault abroad 200,000
 Bank deposit in a Philippine branch of a U.S. bank 5,000,000
Interest from bank deposit (after death) -
Transfer for Public Use (donation to the gov’t provided in his will) 250,000
GROSS ESTATE P15,850,000
ORDINARY DEDUCTIONS:
Funeral expenses, Philippines -
Judicial expenses, abroad -
Judicial expenses, Philippines -
Claims against the estate 120,000
Transfer for Public Use 250,000
Vanishing deductions
(Shares of stocks = None; House and Lot = Allowed) 1,171,987** (1,541,987)
SPECIAL DEDUCTIONS
Standard Deduction (TRAIN Law) 5,000,000
Family Home 2,000,000
Medical Expenses -
RA 4917 - (7,000,000)
NET TAXABLE ESTATE P7,308,013

Value to take P1,500,000

1st Deduction: Mortgage paid -
Initial basis P1,500,000
2nd Deduction: Proportionate deduction
(1,500/15,850) x P370,000 (35,016)
Final Basis P1,464,984
x Vanishing rate 80%
Vanishing Deduction P1,171,987**

(P3.10)
Question No. 1
TFPU P300,000
House and Lot in Makati (Family Home) 1,500,000
Farm Lot 825,000
Other real properties 15,000,000
Claim against insolvent person 225,000
Transfer in contemplation of death 1,250,000
Total Gross Estate P19,100,000
Allowable Deductions  
Funeral expenses -
Judicial expenses -
TFPU (correct amount) (300,000)* *
Claim against insolvent person (225,0000)**
Unpaid mortgage on farm lot (75,000)**
Standard deduction (5,000,000)
Medical expenses -
Family Home (1,500,000)
TAXABLE NET ESTATE P12,000,000

Question No. 2
 Value to take P575,000
Mortgage paid (P150,000-P75,000) (75,000)
Initial Basis 500,000
Proportional deduction
(500/19,100) x 600,000** (15,707)
Final Basis 484,293
Vanishing deduction rate 20%
Vanishing Deduction*** P96,859

NET ESTATE without VD (from Q#1) P12,000,000

Vanishing Deduction*** (96,859)
TAXABLE NET ESTATE P11,903,141

(P3.11)
Question No. 1
VALUE TO TAKE (LAND) P1,250,000
MORTGAGE PAID (50,000)
INITIAL BASIS 1,200,000
Proportionate Deduction:
(1,200/12,800 x P700,000**) (65,625)
FINAL BASIS P1,134,375
VANISHING DEDUCTION % 40%
VANISHING DEDUCTION P453,750
Correct ELIT + TFPU:
=1,200k+100k-300k-600k+300k TFPU=P700,000***

Question No. 2
Gross Estate P12,800,000
Correct Losses, Indebtedness, Taxes (LIT) (400,000)
TFPU (300,000)
Vanishing deduction (453,750)
Standard deduction (5,000,000)
Family Home (2,000,000)
Medical expenses (repealed under TRAIN Law) -
Death benefits under RA4917 (200,000)
Net taxable estate P4,446,250
TRUE OR FALSE
1. TRUE 6. FALSE 11. TRUE 16. TRUE
2. TRUE 7. TRUE 12. FALSE 17. TRUE
3. TRUE 8. FALSE 13. TRUE 18. TRUE
4. TRUE 9. TRUE 14. FALSE 19. TRUE
5. FALSE 10. TRUE 15. TRUE 20. FALSE

MULTIPLE CHOICE
1. C 11. D 21. D 31. D
2. D 12. D 22. C 32. A
3. C 13. A 23. C 33. A
4. D 14. A 24. A 34. C
5. A 15. B 25. C 35. D
6. A 16. B 26. B 36. A
7. A 17. B 27. B 37. A
8. D 18. C 28. D 38. A
9. D 19. A 29. A 39. C
10. C 20. C 30. B 40. B

Supporting Computation (Multiple Choice):

(6.) A
Real property tax for the year 2017 P100,000
Notarized interest bearing promissory note 100,000
Accrued interest on the promissory note at the time of death 20,000
Income tax due for 2013 200,000
Allowable deductions P420,000

(12). D
Income tax from practice of profession , 2017 P300,000
Income tax from practice of profession for Jan.-June, 2018 100,000
Real property taxes for 2016 and 2017 150,000
Business taxes for 2017 100,000
Deductible taxes P650,000

(29). A
Value to take/Initial Basis P900,000
Mortgage paid (50,000)
Initial basis 850,000
2nd Deduction:
(850/1,000 x P100,000**) (85,000)
Final Basis P765,000
x Vanishing rate 40%
 VANISHING DEDUCTION P306,000
** Mortgage P150,000 – 50,000

(39). C
Gross Estate P6,000,000
(Tangible property Phils.; with reciprocity)
Prorated LIT (1,200,000 x 6,000/10,000,000) (720,000)
Standard deduction (500,000)
Taxable Estate P4,780,000

(40). B
Shares, domestic corporation P500,000
Tangible personal property 1,500,000
Gross Estate 2,000,000
Prorated LIT (500,000 x 2,000/2,500) (400,000)
Standard deduction (500,000)
Taxable Estate P1,100,000
TAX DUE
Estate Tax Due (P1.1M x 6%) P66,000