In the Philippines, the settlement of a decedent’s estate is a time-sensitive legal obligation. Under the National Internal Revenue Code (NIRC), as amended by the TRAIN Law (Republic Act No. 10963), the estate tax return must be filed and the tax paid within one (1) year from the decedent’s death.
However, liquidity issues—where the estate consists of valuable properties but lacks sufficient cash—often make immediate payment difficult. To address this, Philippine law provides specific mechanisms for extending the period of payment.
1. Statutory Basis for Extension
The authority to grant an extension for the payment of estate tax is vested in the Commissioner of Internal Revenue (CIR). Under Section 91(B) of the NIRC, an extension may be granted if the Commissioner finds that the payment on the due date would impose undue hardship upon the estate or any of the heirs.
Permissible Extension Periods
The length of the extension depends on whether the estate is settled through judicial or extrajudicial means:
- Judicial Settlement: The extension shall not exceed five (5) years.
- Extrajudicial Settlement: The extension shall not exceed two (2) years.
2. The Requirement of "Undue Hardship"
An extension is not a matter of right but a discretionary remedy. The taxpayer must prove "undue hardship," which is defined as more than mere inconvenience.
- What constitutes hardship: The forced sale of assets at a "sacrifice price" or the inability to mobilize funds despite diligent efforts.
- What does not qualify: A simple lack of liquid funds if there are other readily available means to secure the tax (e.g., existing bank accounts of the decedent that can now be withdrawn under the TRAIN Law's 6% final tax provision).
3. Procedural Requirements for Filing
To validly request an extension, the administrator, executor, or heir must comply with the following:
- Written Request: A formal letter-petition must be addressed to the Commissioner of Internal Revenue, filed through the Revenue District Office (RDO) where the estate is registered.
- Timing: The request must be filed before the expiration of the original one-year deadline for payment. Belated requests are generally denied, and the estate will be subject to penalties and interest.
- Bond Requirement: The Commissioner may require the executor, administrator, or beneficiary to furnish a bond in an amount not exceeding double the amount of the tax due. This ensures that the government is protected during the extension period.
4. Payment by Installment
In lieu of a total deferment, the TRAIN Law introduced a more accessible "Payment by Installment" option. If the available cash of the estate is insufficient to pay the total estate tax due, the heirs may be allowed to pay in installments within two (2) years from the statutory date for filing the return.
- No Penalties: Unlike a traditional extension which may still accrue interest, an installment plan approved at the time of filing the return does not subject the taxpayer to civil penalties and interest, provided the schedule is strictly followed.
5. Limitations and Restrictions
The law imposes strict boundaries on these concessions:
- Negligence or Fraud: No extension will be granted if the deficiency in tax is due to negligence, intentional disregard of rules and regulations, or fraud on the part of the taxpayer.
- Interest Accrual: If an extension is granted under Section 91(B), the Commissioner may still require the payment of interest at the rate prescribed by law (currently 12% per annum under the TRAIN Law) from the original due date until the tax is paid.
- Clearance Issues: No Certification Authorizing Registration (CAR) will be issued for the transfer of properties until the estate tax is paid in full, unless a partial CAR is requested for specific properties corresponding to the amount already paid.
6. Summary of Key Differences
| Feature | Extension of Time (Sec. 91 B) | Payment by Installment (TRAIN Law) |
|---|---|---|
| Grounds | Undue Hardship | Insufficiency of Cash |
| Max Duration | 2 years (Extrajudicial) / 5 years (Judicial) | 2 years |
| Interest | Generally applies | No interest if filed on time |
| Bond | May be required | Generally not required |
Conclusion
Heirs and administrators should evaluate the estate's liquidity as early as possible within the one-year window following the decedent's death. If a request for extension or installment is necessary, it must be supported by a clear showing of the estate's financial position and filed diligently before the deadline to avoid the heavy imposition of surcharges and interests characteristic of Philippine tax enforcement.