FUNDAMENTALS OF TAXATION

NATURE, SCOPE, CLASSIFICATION AND ESSENTIAL CHARACTERISTICS

Choose the correct answer from among the following choices:

I. The power of taxation involves the promulgation of rules

II. The State has the power to impose taxes even without a constitutional grant

III. Taxes are based upon the lifeblood theory

IV. There should be no improper delegation of the power to tax

- Statements II and III are both manifestations of the inherent nature of taxation

One of the following taxes is an ad valorem tax:

- Real property tax

Real property taxes should not disregard increases in the value of real property occurring
over a long period of time. To do otherwise would violate the canon of a sound tax system
referred to as

- Fiscal Adequacy.

Statement 1 The power of taxation is inherent in sovereignty being essential to the

existence of every government. Hence, even if not mentioned in the Constitution the state
can still exercise the power.

Statement 2 It is essentially a legislative function. Even in the absence of any

constitutional provision, taxation power falls to Congress as part of the general power of law
making.

- Both statements are true

What is the nature of tax laws?

- Not political

Statement 1 One of the essential characteristics of a tax is it is unlimited in amount.

Statement 2 A tax is generally unlimited because it is based on the needs of the state.

- Only statement 2 is correct but not statement 1

Choose the correct answer from among the following choices:

I. The power to tax can be delegated to units of local government but with limitations,
as may be provided by law.

II. The power to tax cannot be delegated to the executive department of the National
Government.

- True, true

One of the characteristics of our internal revenue laws is that they are

- generally prospective in operation although the tax statute may nevertheless operate
retrospectively provided it is clearly the legislative intent

Which of the following statements reflects the nature of a compromise penalty?

- None of the foregoing.

The present Philippine Budget deficit is a violation of what principle:

- Fiscal adequacy

No person shall be deprived of life, liberty and property without due process and this means
that:

- the taxpayer be secured from the abusive exercise of the taxing power of the State

The power of Mindoro to impose a gross sales tax of 1/2 percent on the gross freight and fares
of the cargo and passengers shipped or transported out from Mindoro by vessels plying
between the city and other ports was held valid.

- an exception to the principle of non-delegability of the power of taxation

The power to tax is not without limitations. Such limitations may be constitutional (expressly
found in the constitution or implied in its provisions) or inherent (restrict the power although
they are not embodied in the constitution). Which of the following is an inherent limitation?

Exemption of religious, charitable, and educational entities, non-profit cemeteries, and

churches from property taxation.

- Exemption from taxation of government entities

This is an inherent limitation on the power of taxation.

- The tax laws cannot apply to the property of foreign governments

Although the power is basically legislative in character, it is not the function of Congress to

- Collect the tax levied under the law

Which of these statements relative to the nature of taxes is inconsistent with the Supreme
Court’s rulings in tax cases?

- A stockholder who has an unpaid stock subscription at the time the corporation is
dissolved cannot be held liable for the corporation’s tax delinquency.

What is the system of taxation where different types of income are subjected to different set
of graduated or flat rates depending on the classification of the income?

- Schedular tax system

Which of the following is not a condition imposed by the Constitution for the exercise of the
power of eminent domain?

- The consent of the owner of the private property to sell the same to the government.

Statement 1 A tax that is allowed by law to be passed on by a taxpayer to another is called

an indirect tax

Statement 2 Business taxes which are not allowed by law to be passed on by sellers of
goods and services to buyers are nonetheless imperceptibly passed on because they are
factored in on the selling price.

- Both statements are true

Statement 1 A license fee at an amount that is more than necessary for regulation is a
tax, and hence may be imposed only on a clear authority under the law to impose the tax.

Statement 2 A tax levied for a special purpose, which is spent for purposes other than
those stated in the law for its use, if involving a huge amount, may tantamount to the crime
of plunder.

- Both statements are true

Which of these impositions is a regressive tax?

- Donor’s Tax
- Income Tax
- Documentary Stamp Tax
- None of the foregoing

A fundamental rule in taxation is that the property of one country may not be taxed by
another country. This is known as

- international comity
Marshall said that the power to tax involves the power to destroy while Holmes maintains the
power to tax is not the power to destroy. Which among the following statements does not
reconcile the two seemingly inconsistent opinions?

- The power to tax could not be the subject of compensation and set-off.

Statement 1 A person may refuse to pay a tax on the ground that he receives no personal
benefit from it.

Statement 2 A taxpayer has a right to question illegal expenditures of public funds.

- The first statement is false, but the second statement is true

Which of the following is not a necessary condition to become a tax haven country?

- no national tax treaties

One is not among the canons of taxation:

- Progressive taxation system

The primary purpose of taxation is

- To raise revenues for governmental needs

Statement 1 Symbiotic relation is the reason why the government could impose taxes on
the incomes of resident citizens derived from sources outside the Philippines

Statement 2 Jurisdiction is the reason why citizens must provide support to the state so
the latter could continue to give protection.

- Both statements are false

Choose the correct answer from among the following choices:

I. The power to tax can be delegated to units of local government but with limitations,
as may be provided by law.

II. The power to tax cannot be delegated to the executive department of the National
Government.

- True, true

The police power, the power of taxation and the power of eminent domain are co-equal and
inherent powers of government. May a tax validly imposed in the exercise of the police power
and not of the power of tax?

- Yes, because taxes may be imposed to regulate

PRINCIPLES OF SOUND TAX SYSTEM

The following are basic principles of a sound tax system

- fiscal adequacy, administrative feasibility and theoretical justice

In cases of deductions and exemptions on income tax returns, doubts shall be resolved

- strictly against the taxpayer

Which of the following is an element of a taxpayer’s suit?

- Illegal disbursement of public funds

Which of these importations is deemed a tax?

- Motor vehicle registration fee

Our tax laws are both:

- Civil and prospective

Which of these theories is based on the reciprocal duties of protection and support between
the State and its inhabitants?

- Benefits-Received Theory

Which of the following principles is not in accord with a sound tax system?

- Retroactivity of tax rulings

The Constitution does not prohibit indirect taxes. What the Constitution provides is that
Congress shall evolve a progressive system of taxation. Resort to indirect taxes should be
minimized but not avoided because it is difficult, if not impossible, to avoid them

- regressive taxes do not violate Sec 28 (1), Art VI of the Constitution

What is the system of taxation that is adopted in the Philippines?

- Semi-global and semi-schedular tax system

Settled is the rule that in tax matters, the government is not estopped by the errors or
mistakes committed by its agents or officers. This should be construed to mean that

- the power to tax is plenary and comprehensive

LIMITATIONS ON THE POWER OF TAXATION

Which of the following tax exemptions and relief is an extension of “international comity”?
 - Exemption of embassies of foreign governments from real property tax.
- Exemption of income of foreign governments from income tax.
- Tax treaties between the states granting tax incentives.
- All of the foregoing.

A non-stock, non-profit educational institution operates a canteen and a bookstore within

the school campus. The income derived from these facilities (for income tax purposes) and
the real property therein (for real property tax purposes, respectively, are:

- Exempt and taxable, respectively

No person shall be imprisoned for debt for non-payment of poll tax. This is a (an)

- Constitutional Limitation

Which of these statements relative to tax exemption is false?

- The rule of strict construction of tax exemptions applies to religious, charitable and
educational institutions.

A stock educational institution operates a canteen and a bookstore within the school
campus. The income derived from these facilities (for income tax purposes) and the real
property therein (for real property tax purposes, respectively, are:

- Taxable and exempt, respectively

TAX AVOIDANCE VS. TAX EVASION

Which of the following practices constitutes tax evasion?

- Understating the revenues and overstating the expenses

Transfer of the tax burden by one on whom the tax is assessed to another

- Shifting

Which of the following practices constitutes tax avoidance?

- Availing of tax credits

SITUS/PLACE OF TAXATION

The test in determining whether service income is classified as “income within” or “income
without” is the:

- Place where the service is performed.

Statement 1: Manufacturers, assemblers, repackers, brewers, distillers, rectifiers and
compounders of liquor, distilled spirits and wines, millers, producers, exporters,
wholesalers, distributors, dealers, contractors, banks and other financial institutions, and
other businesses, maintaining or operating branch or sales outlet elsewhere shall record the
sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall
accrue and shall be paid to the municipality where such branch or sales outlet is located.

Statement 2: In cases where there is no such branch or sales outlet in the city or municipality
where the sale or transaction is made, the sale shall be duly recorded in the principal office
and the taxes due shall accrue and shall be paid to such city or municipality.

- Both statements are true

The test in determining whether the gain on sale of personal property is classified as “income
within” or “income without” is the:

- Place where the contract is perfected

The situs of a business transaction is the:

- Place where the act is performed.

1st Statement: Tax imposed outside the situs of Taxation is void.

2nd Statement: International Comity is an exception to the territoriality doctrine.

- True; True

Subject to inherent limitations, the power of taxation is regarded as supreme, plenary,

unlimited and comprehensive

- scope of taxation

The following sales allocation shall apply to manufacturers, assemblers, contractors,

producers, and exporters with factories, project offices, plants, and plantations in the
pursuit of their business. Which statement is true?

Statement 1: Thirty percent (25%) of all sales recorded in the principal office shall be taxable
by the city or municipality where the principal office is located;

Statement 2: Seventy percent (70%) of all sales recorded in the principal office shall be
taxable by the city or city or municipality where the factory is located;

- Only Statement 2 is true

DOUBLE TAXATION

Double taxation in its general sense means taxing the same subject twice during the same
taxing period. In this sense, double taxation

- Does not violate the right to equal protection

Countries enter into bilateral tax treaties to and thus to

- none of the given

Which of these impositions constitutes direct double taxation?

- The imposition of a creditable income tax and a final income tax on the same item of
revenue.

The following constitute double taxation except one

- Both taxes are imposed in the same amount

Which of the following is not expressly provided for in the Constitution?

- Prohibition against direct double taxation

Statement I – Under Double taxation agreements, tax levied based on residence is called
source principle.

Statement II – Tax levied based on source of income is called residence principle.

- Both statements are incorrect

Statement 1 Direct double taxation involves 2 taxes by the same taxing authority.

Statement 2 Indirect double taxation involves 2 taxes by 2 different taxing authority.

- Both statements are true

In order to constitute direct double taxation, which of the following statements must be
present?

- Both a and b.

In every case of doubt, tax exemptions are construed

- Liberally in favor of the government and strictly against the taxpayer

Written treaties between two contracting states ensuring that nationals or residents of the
states are not being taxed twice.
 - Double Taxation Agreements

Statement I – The primary purpose of double taxation agreements is to facilitate the

international flow of capital, technology and services.

Statement II – Double taxation agreements eliminate double taxation of income and other
taxes in international transactions through a bilateral resolution of the conflicts between
overlapping tax jurisdictions.

- Both statements are correct

LEGISLATION OF TAX LAWS

Which of the following may tax exemption come from?

- All of these

In case of ambiguity, tax laws shall be interpreted

- liberally in favor of the government

Which among the following powers of the Commissioner of Internal Revenue can be
delegated?

- The power to conduct inventory surveillance

ETHICAL TAX COMPLIANCE AND ADMINISTRATION

Mr. Aldrin, CPA practitioner, is also employed with a manufacturing company and receives
the following for the year:

Another client of Mr. Aldrin asked about manufacturing process of another client, if you are
Mr. Aldrin, what will you do?

- No disclosure
ORGANIZATION OF BIR, BUCOR, LGU TAX COLLECTING UNITS, BOARD OF
INVESTEMENTS, PHILIPPINE ECONOMIC ZONE

Statement 1. The Commissioner of Internal revenue may terminate the tax period of a
taxpayer, and collect taxes due at such termination, should the taxpayer do an act that will
make the proceedings for the collection of the tax totally or partially ineffective

Statement 2. The Commissioner of Internal revenue may accredit and register tax agents
who prepare and file returns, reports, protests, etc. with, or who appear before, the Bureau
of Internal Revenue.

- Both statements are correct;

The Bureau of Internal Revenue is headed by a Commissioner and Deputy Commissioners

numbering:

- Four

Statement 1. The power of the Commissioner of Internal Revenue to recommend the

promulgation of rules and regulations by the Secretary of Finance may not be delegated.

Statement 2. The power of the Commissioner of Internal Revenue to issue rulings of first
impression or to reverse, revoke, or modify any existing rulings of the Bureau of Internal
Revenue may not be delegated.

- Both statements are true;

Statement 1. The Commissioners can divide the Philippines into districts as may be acquired
for administrative purposes, each district being under the supervision of a Revenue District
Officer.

Statement 2. The Commissioner of Customs and his subordinates are agents of the
Commissioner of Internal Revenue with respect to the collection of the national internal
revenue taxes on imported goods.

- Both statements are true;

The RATE program of the Bureau of Internal Revenue is to eradicate?

- Evaders

Statement 1. The Commissioner of Internal revenue is authorized to inquire into the bank
deposit of a taxpayer who filed an application for compromise of his tax liability by reason of
financial incapacity to pay.
Statement 2. A compromise for a tax liability of the ground of financial incapacity to pay shall
still involve a payment of tax from the taxpayer at a minimum compromise rate of 10% of the
basic assessed tax.

- Both statements are correct;

Which of the following phases of taxation cannot be delegated?

- Imposition

Who make the revenue regulations?

- Secretary of Finance

Which of the following statements relative to tax administration is true?

- The Commissioner of Internal Revenue has the exclusive and original jurisdiction to
interpret the provisions of the National Internal Revenue Code and other tax laws,
subject to review by the Secretary of Finance.

Statement 1 The RDO is known as the alter ego of the BIR Commissioner.

Statement 2 The BIR Commissioner is directly under the President’s Office.

- Both statements are false

Statement 1. The power to interpret provisions of the National Internal Revenue Code and
other tax laws shall be under the exclusive and original jurisdiction of the Commissioner of
Internal revenue, subject to review by the Secretary of Finance.

Statement 2. The power to decide disputed assessment and refunds of internal revenue
taxes is vested in the Commissioner of Internal Revenue, subject to the exclusive appellate
jurisdiction of the Court ot Tax Appeals.

- Both statements are correct;

Statement 1. The Commissioner of Internal Revenue has authority to terminate the tax
period of a taxpayer who is retiring from a business subject to tax, or is intending to leave the
Philippines or to remove his property or to hide or conceal his property, or to perform an act
tending to obstruct the collection of taxes.

Statement 2. When a tax period is terminated, any unpaid tax is due immediately.

- Both statements are true;

Statement 1. The power of the Commissioner of Internal Revenue to recommend the

promulgation of rules and regulations by the Secretary of Finance may not be delegated.
Statement 2. The power of the Commissioner of Internal Revenue to issue rulings of first
impression or to reverse, revoke, or modify any existing rulings of the Bureau of Internal
Revenue may not be delegated.

- Both statements are true;

Which of the following statements is correct?

- The power to tax generally includes the power to destroy

Which of the following statements is true? The Bureau of Internal revenue shall have the:

- Commissioner of Internal Revenue and four Deputy Commissioners.

Which of the following statement is wrong?

- A tax certificate validly issued by the Bureau of Internal Revenue may be used as
credit against any internal revenue tax.

TAX REMEDIES: DEFINITION, SCOPE, PRESCRIPTIVE

The prescription period for the issuance of a formal letter of demand and final assessment
notice may not ordinarily be stayed because of the lifeblood theory. However, there are
certain instances where the running of the prescriptive period may be suspended. Which
among the following is not among the recognized exceptions which suspend the prescriptive
period within which to assess?

- When the Commissioner of Internal Revenue is prevented from making an

assessment and within 60 days thereafter.

Your client, Mr. Aegis a local trader, inquired what laws will have most relevance in his daily
transactions. Having several laws to take into consideration which laws do you recommend
for Mr. Aegis to read?

- National Internal Revenue Code

A taxpayer filed an income tax return for calendar year 2016 on March 10, 2017. The
prescribed filing is April 15, of the year following the taxable year. The taxable year ended
December 31, 2016. When is the last day for the BIR to make an assessment?

- April 15, 2020

Which of the following statements is not correct?

- Businesses must be registered with the BIR within 10 days from the start of its
commercial activities.
Elorde, a famous boxer, intends to convert his boxing gymnasium into a cockpit arena. Elorde
summons you to give him advise to go over his tax exposures, as a certified public
accountant, you will recommend to Mr. Elorde which of the following reference/document?

- National Internal Revenue Code

Date the national internal revenue tax was paid – April 10, 1999. Claim for refund was filed
with the Bureau of Internal revenue – March 10, 2000. Date decision of denial of refund was
received – March 21, 2001. Last day to appeal to the Court of Tax Appeals:

- April 10, 2001.

The tax return is required to be filed on or before April 15, 2015. The actual tax return was
filed March 15, 2015. The last day for assessment period is

- April 15, 2018.

Given

Date of tax erroneously paid June 10, 2008

Date of claim for refund was filed with BIR June 10, 2009

Date of favorable BIR decision was issued August 1, 2009

Date when the refund check was mailed August 10, 2009

Date of refund check received August 25, 2009

When will the refund check be forfeited when not encashed in due time?

- August 10 2014

Statement 1. If before the expiration of the time prescribed for the assessment of the tax,
both the Commissioner and the taxpayer have agreed in writing to its assessment after such
time, the tax may be assessed within the period of extension agreed upon.

Statement 2. Under the doctrine of equitable recoupment, a liability for tax the collection of
which has not prescribed may be offset against a refund of another tax the refund of which
has prescribed. Conversely, a liability for a tax the collection for which has prescribed may
be offset against a refund for which has not prescribed. This American jurisprudence can
very well apply in the Philippines.

- Statement 1 is correct, but statement 2 is wrong.

Given:
Date of tax erroneously paid June 10, 2008

Date of claim for refund was filed with BIR March 3, 2010

Date of BIR decision of denial was received April 5, 2010

Question: When is the last day to appeal to the CTA?

- May 5, 2010

Piolo paid his income tax liability for 2009 on January 15, 2010. It was found out later on June
30, 2010 that he overpaid by more than P100,000. Assuming his claim for tax refund was
denied and the denial was received on April 30, 2013, the proper remedy available to Piolo
is?

- No more remedy since the two-year period already expired.

The taxpayer filed his income tax return for year 2015 on May 2, 2016. The taxable year ended
December 31, 2015. When is the last day for BIR to make assessment?

- May 2, 2019

Which of the following cases constitutes a prima facie evidence of a false or fraudulent
return?

- Sales or receipts P 1,000,000 were declared in the return but the true amount of sales
or receipts is P 1,400,000

Given

Date of adverse decision of the CTA June 1, 2017

Date the CTA adverse decision received June 10, 2017

Question: When is the last day to appeal to the Court of Appeals?

- June 25, 2017

The tax return is required to be filed on or before April 15, 2013. The actual tax return was
filed March 15, 2013. The last day for assessment period is

- April 15, 2016.

When the 2012 income tax return filed in 2013 is found to be deficient but not fraudulent,
and final assessment notice was sent by BIR April 5, 2014 and received by the tax payer on
May 5, 2014, when will be the last day for the BIR to collect?

- April 5, 2019
The information provided by an informer resulted to confiscation of P5,000,000 worth of
Hazardous goods. No tax revenue was recovered, because the confiscated goods were
destroyed.

Which of the following statements is correct?

- The informer is entitled to P500,000 reward

As a general rule, within what period must a taxpayer elevate to the Court of Tax Appeals a
denial of his application for refund of income tax overpayment?

- Within 30 days from receipt of the denial which must not exceed 2 years from
payment of income tax.

In the following cases, the government’s prescriptive period to collect starts to run except

- The period of limitation to collect is counted from the time the demand or
assessment notice has been received by the taxpayer.

When the 2015 income tax return filed in 2016 is found to be deficient but not fraudulent,
and final assessment notice was sent by BIR April 5, 2016,when will be the last day for the
BIR to collect?

- April 5, 2020

ADMINISTRATIVE REMEDIES

Which of the following violations is considered as fraudulent?

- Failure to file return.

Which statement is wrong?

- Stocks and securities shall be distrained by serving a copy of the warrant of distraint
upon the taxpayer and upon the president, manager, treasurer or other responsible
officer of the corporation, company or association which issued said stocks or
securities.
- Debts and credits shall be distrained by leaving with the person owing the debts or
having his possession or control such credits a copy of the warrant of distraint.
- Bank accounts are garnished by serving a warrant of garnishment upon the taxpayer
and upon the president, manager, treasurer or other responsible officer of the bank.
- None of the above.
Statement 1. A tax lien attaches to all the property and the property rights of a taxpayer only
from the time when the assessment was made by the Bureau of Internal Revenue for the
unpaid tax, with interest, penalties and costs.

Statement 2. A tax lien shall not be valid against any mortgagee, purchaser or judgment
creditor until notice of such lien shall be filed in the office of the Register of Deeds of the
province or city where the property is situated or located.

- Both statements are true

The following taxes are under the administration of the Commissioner of Internal Revenue,
except

- Custom duties

Anion, Inc. received a notice of assessment and a letter from the BIR demanding the
payment of P3 million pesos in deficiency income taxes for the taxable year 2015. The
financial statements of the company show that it has been suffering financial reverses from
the year 2016 up to the present. Its asset position shows that it could pay only P500,000.00
which it offered as a compromise to the BIR. Which among the following may the BIR require
to enable it to enter into a compromise with Anion, Inc.?

- Anion must waive its right to the secrecy of its bank deposits.

The following tax cases may be subject of a compromise, except?

- criminal violations involving tax fraud, that are already filed in court

Which of the following violation cannot be subject to compromise penalties?

- Keeping two sets of books of accounts or records.

The Following are administrative in character, except

- Imposition

It is the taking over of personal property of delinquent taxpayer which are in the possession
of third party, (bank deposit) , for purposes of collecting delinquent taxes.

- Garnishment

In the BIR’s investigation of a taxpayer’s withholding tax return for the taxable year 2015, a
discrepancy between the taxes withheld from its employees and the amounts actually
remitted to the BIR was found. Out of the P1.5 million taxes withheld from its employees,
only the amount of P 250,000 was remitted to the BIR. The BIR should subject the taxpayer
to a:
 - Preliminary assessment notice

For filing a false or fraudulent return, a surcharge is imposed. Which of the following is
correct?

- 50% as administrative penalty.

The surcharge of 50% on the amount due shall be imposed where there is:

- Failure to file a return on time due to wilful neglect.

The following are within the Powers and Duties of BIR, except

- Grant tax amnesty

The distinction between actual distraint and constructive distraint is that:

- In actual distraint, there is a taking of possession, while in constructive distraint, the

taxpayer is merely prohibited from disposing of the property.

In the following cases the running of prescriptive period for assessment is suspended,
except

- When the pre-assessment notice was mailed to the taxpayer

The following are within the authority of the BIR Commissioner, except

- To enter into tax compromise at an amount which in his judgment is reasonable, if the
reason is financial incapacity of taxpayer or doubtful assessment)

The following are within the Powers of the Internal Revenue Commissioner, except

- inquire into taxpayers bank deposit to arrive at an accurate assessment

Which of the following statements is wrong?

- A taxpayer may appeal to the Court of Tax Appeals.

- The government may appeal to the Court of Tax Appeals.
- A taxpayer may appeal to the Court of Appeals and the Supreme Court.
- The government may appeal to the Court of Tax Appeals and the Supreme Court.

In which of the following pre-assessment notice is required

- When the initial assessment of tax return, less than 30% deficiency was discovered.

The following are true regarding Networth method of determining income, except
 - The increase or decrease in net worth is adjusted by deducting all non-deductible
items and adding back there from the non-taxable receipts

The following statements are correct, except

- Government assessments are prima facie presumed correct and made in good faith.
- Assessment is discretionary on the Commissioner who cannot therefore be
compelled to assess a tax when he believes that there is no basis for such
assessment.
- The authority vested in the Commissioner to assess tax may be delegated, but the
power to make final assessments cannot be delegated.
- The rule of estoppel may be invoked against the government, if the Commissioner did
not make regular assessment for each period.

The BIR could not avail itself of the remedy of levy and distraint to implement, through
collection, an assessment that has become final, executory, and demandable where

- the amount of the tax involved does not exceed P100.00.

JUDICIAL ACTIONS

STATEMENT 1: As a general rule, the courts have no authority to enjoin the collection of
revenue taxes.

STATEMENT 2: the Court of Tax Appeals is empowered to enjoin the collection of taxes
through administrative remedies when collection could jeopardize the interest of the
government or taxpayer.

- True, true

When a BIR decision affirming an assessment is appealed to the CTA, the BIR's power to
garnish the taxpayer's bank Deposits

- is not suspended since the continued existence of government depends ontax

revenues.

Assessment is a prerequisite for judicial action in which of the following? in the case of
failure to file a return in the case of fraudulent return with the intent to evade tax.

- Neither in case i or case II

A car dealer could not pay his taxes on sales. The dealer delivered several units of the car to
the Bureau of Internal revenue in payment of the taxes.

Which of the following statements is correct?

 - This is not a valid procedure for collection of the tax.

On July 31, 2016, Esperanza received a preliminary assessment notice from the BIR
demanding that she pays P180,000.00 deficiency income taxes on her 2014 income. How
many days from July 31, 2016 should Esperanza respond to the notice?

- 15 days.

Statement 1. The state can collect the tax by summary proceedings of distraint of personal
property and levy on real property, one after the other, but no simultaneously.

Statement 2. There must be an assessment of a deficiency tax before there can be a judicial
action for collection

- Both statements are false.

Jeopardy assessment is a valid ground to compromise a tax liability

- because of doubt as to the validity of the assessment.

Assessment is a prerequisite for judicial action in which of the following? in the case of
failure to file a return in the case of fraudulent return with the intent to evade tax.

- Neither in case i or case II

The following tax cases may be subject of a compromise, except?

- criminal violations involving tax fraud, that are already filed in court

ADDITIONS TO TAX

Which of the following interest rate is not correct?

- 12% if it is pertaining to redemption of real property sold in public auction in a levy

proceeding

The following tax cases may be subject of a compromise, except?

- criminal violations involving tax fraud, that are already filed in court

The tax payer was discovered not filing his tax return. Under net worth method of determining
his income, his basic tax deficiency assessed is P1,000,000. Which of the following
statements in not correct?

- His surcharge is P250,000

REMEDIES: DEFINITION, SCOPE, PRESCRIPTIVE PERIOD

What is the prescribed period for redemption of real property levied and sold in public
auction?

- 1 year from the date the sale was granted to highest bidder

Which of the following tax collection remedies should come first ahead of the others?

- Either a or b

What is the effect of on the tax liability of a taxpayer who does not protest an assessment for
deficiency taxes?

- The taxpayer’s liability becomes fixed and subject to collection as the assessment
becomes final and collectible.

Piolo paid his income tax liability for 2009 on January 15, 2010. It was found out later on June
30, 2010 that he overpaid by more than P100,000. Assuming his claim for tax refund was
denied and the denial was received on April 30, 2013, the proper remedy available to Piolo
is?

- No more remedy since the two-year period already expired.

The revenue district office can carry out proceedings of a distraint of personal property when
the tax liability is not more than

- P1,000,000

What is the prescriptive period for an assessment fraud?

- 10 years from discovery

TAXPAYERS RIGHTS

Which among the following circumstances negates the prima facie presumption of
correctness of a BIR assessment?

- Proof that the assessment is utterly without foundation, arbitrary, and capricious.

In “Operation Kandado,” the BIR temporarily closed business establishments, including New
Dynasty Corporation that failed to comply with VAT regulations. New Dynasty contends that
it should not be temporarily closed since it has a valid and existing VAT registration, it
faithfully issued VAT receipts, and filed the proper VAT returns. The contention may be
rejected if the BIR investigation reveals that

- There was an understatement of taxable sales or receipts by 30% or more for the
taxable year.
ADMINISTRATIVE REMEDIES

Statement 1. A pre-assessment notice shall be acquired before an assessment may be

made.

Statement 2. The taxpayer shall be informed in writing of the law and the facts on which the
assessment is made, otherwise the assessment shall be void.

- Both statements are true.

An assessment shall become final if:

Statement 1. The assessment is not protested administratively if the protest is not filed with
the Bureau of Internal Revenue within thirty days from receipt of the assessment.

Statement 2. Relevant supporting documents were not presented to the Bureau of Internal
Revenue within sixty days from filing the protest on the assessment.

- Both statements are true.

In filing a protest with the Bureau of Internal Revenue, what remedies may be availed by the
taxpayer simultaneously?

- Reinvestigation or reconsideration

Statement 1. A substantial underdeclaration of taxable sales, receipts or income, or a

substantial overstatement of deductions shall constitute prima facie evidence of a false or
fraudulent return.

Statement 2. A return, statement or declaration filed with the Bureau of Internal Revenue
may not anymore be modified, changed or amended.

- First statement is true while second statement is false.

In 2010, Sally, a fruit market operator in Manila, received an assessment for customs duties
for her imported market equipment in the amount of P75,000. Believing that the amount is
excessive, she paid the same under protest. Because of assurances from her retained CPA
that she stands a good chance of being able to secure a refund of P50,000, she did not
deduct the same anymore from her income tax return. She deducted only the P25,000 which
she believed was due from her. She received the refund amounting only to P50,000 in 2012.
What should have been the proper tax treatment of the payment of P75,000 in 2010?

- Sally should have deducted the total P75,000 custom duties in 2010. When she
received the refund of P 50,000 in 2012, she should have included the amount as part
of her income in 2012.
A filed his income tax return for 2009 on April 15, 2010 and paid the tax of P20,000. Upon
audit by the BIR an assessment notice was issued on May 15, 2012 requiring him to pay a
deficiency tax of P40,000 not later than July 15, 2012. A may

- Request for an extension of the time to pay the deficiency income tax.

Which statement is correct? In case of an assessment of a tax:

- A protest should be filed by the taxpayer, otherwise the assessment becomes final
and cannot be questioned anymore in court.

Where any national internal revenue tax is alleged to have been erroneously or illegally
collected the taxpayer should first:

- File a claim for refund or credit.

Where any national internal revenue tax is alleged to have been erroneously or illegally
collected. As a remedy, the taxpayer should first file an action for refund with the

- BIR

Statement 1. The taxpayer shall respond to a pre-statement notice, and if he fails to respond,
an assessment shall be issued.

Statement 2. An assessment may be questioned administratively with the Bureau Internal

Revenue.

- Both statements are true.

When a taxpayer erroneously paid a tax in installments, the prescriptive period for a claim
for refund should be counted:

- From the date of payment of the last installment.

JUDICIAL REMEDIES

Which of the following taxes on importation of goods is not under the Direct administration
of the BIR?

- Custom duties

Which of the following statements is correct?

- The authority to accept tax compromise is exclusively to the BIR Commissioner

- The authority to revalidate letter of authority to assess is exclusively to the BIR
Commissioner
- The letter of Authority to assess is exclusively issued by the BIR Commissioner
 - The authority to issue final assessment is exclusively to the BIR Commissioner

Statement 1. No court shall have the authority to grant an injunction to restrain the collection
of any national internal revenue tax, fee or charge imposed by the National Internal revenue
Code.

Statement 2. Judicial proceedings for the collection of the internal revenue tax may be
instituted even without a prior assessment of the tax on the taxpayer:

- Both statements are true.

The official action of ascertaining the amount of tax due from a taxpayer, done under the
existing law

- Assessment

The period for collection of any tax by summary or judicial proceedings is suspended:

- If the taxpayer request for a reinvestigation which is granted by the Bureau of Internal
Revenue.
- If the taxpayer cannot be located in the address given by him in the tax return filed.
- When the taxpayer is out of the Philippines.
- Any of the above.

On April 15, 2007, Imelda filed her income tax return for her 2006 income and paid the tax
due thereon. In 2008, when Imelda hired a new CPA to prepare her income tax return, she
was informed that she made an overpayment in her income tax return filed in 2007.
Convinced that she erroneously computed her tax in favor of the government, Imelda
engaged the services of a lawyer and filed a written claim for refund of tax erroneously
collected with the CIR on December 15, 2008. On April 10, 2009, without receiving a reply or
decision on her claim for refund, Imelda’s lawyer filed in the Court of Tax Appeals a petition
for review on her claim for refund of tax erroneously collected. Did the Court of Tax Appeals
acquire jurisdiction over the petition for review of Imelda?

1st answer: No, because the appeal is premature, there being no decision yet on said claim
for refund. The Court of Tax Appeals did not acquire jurisdiction over the appeal because its
jurisdiction is to review by appeal decisions of the CIR.

2nd answer: Yes, because while the CIR has not yet rendered a decision on said claim for
refund, the pre-emptory period of two years within which a claim for refund of taxes
erroneously collected may be filed is about to expire on April 15, 2009 and the failure of the
CIR to act on the claim for refund is tantamount to denial of the taxpayer’s claim, hence
appealable to the Court of Tax Appeals.
 - First answer is wrong, second answer is correct.

Pacman received a formal letter of demand and final assessment notice (FLD/FAN). He
reasonably filed a protest and submitted all the necessary supporting documents but the
BIR failed to act on the protest. Thirty days after the lapse of 180 days from submission of
the relevant supporting documents, Pacman still has not elevated the matter to the CTA.
What remedy, if still any, can Pacman make?

- He may file a motion to admit appeal if Pacman could prove that his failure to appeal
was due to the negligence of the counsel.

Given

Date of first installment payment of tax April 15, 2010

Date of second installment payment of tax July 15, 2010

If the payments are determined as refundable, when will be the prescribed date to file the
request for refund?

- On or before July 15, 2012

EXPANDED JURISDICTION OF THE COURT OF TAX APPEALS

Which of the following cases falls within the jurisdiction of the Court of Tax Appeals?

- Question of whether or not to impose a deficiency tax assessment upon a taxpayer.

Date of tax erroneously paid June 10, 1991

Date of claim for refund was filed with BIR March 3, 1993

Date of BIR decision of denial was received April 5, 1993

Last day to appeal to the Court of Tax Appeals is on:

- May 5, 1993.

Which of the following government bodies, in which a decision on the protested assessment
is reviewed, is a quasi-judicial body?

- Court of Tax Appeals, reviewing a decision of the Bureau of Internal Revenue.

Assessment received – January 5, 2000; petition for reconsideration filed with the Bureau of
Internal Revenue – February 1, 2000; Documents supporting the petition filed by the taxpayer
– February 7, 2000. Decision of the Bureau of Internal revenue denying the petition was
received – March 22, 2000; Second request for reconsideration filed with the Bureau of
Internal revenue – March 30, 2000; Decision of denial of second request for reconsideration
was received – April 12, 2000; Last day to appeal to the Court of Tax Appeals:

- May 4, 2000

Date assessment was received – February 8, 2000; Petition for reconsideration was filed with
the Bureau of Internal revenue on February 18, 2000. Documents supporting the petition
were filed with the Bureau of Internal revenue on February 28, 2000. Decision of the denial
of the petition was received on March 11, 2000. Second request for reconsideration was filed
with the Bureau of Internal Revenue on March 21, 2000. Date revised assessment was
received on April 2, 2000. Last day to appeal to the Court of Tax Appeals:

- May 2, 2000.

On April 15, 2015, A filed his income tax return for his 2014 income and paid the tax due
thereon. In 2016, A discovered that he made an overpayment in his income tax return. He
filed a written claim for refund of tax erroneously collected with the CIR on October 1, 2016.
On April 14, 2017, without receiving a decision on his claim for refund, A filed in the CTA a
petition for review on his claim for refund of tax erroneously collected. Which of the following
is correct?

- The CTA acquired jurisdiction over the petition as the peremptory period of 2 years
within which a claim for refund is about to expire and the failure of the CIR to act on
the claim tantamount to denial of the claim.

Statement 1. The decision of the Commissioner of Internal Revenue on a protested

assessment should state that it is a final decision in order that it may be appealable to the
Court of Tax Appeals.

Statement 2. When the Bureau of Internal Revenue decided a protested assessment with
finality, the period to appeal to the Court of Tax Appeals is counted not from the date of the
decision but from the date of receipt of the decision.

- Both statements are true.

Which of the following government bodies, in which a decision on the protested assessment
is reviewed, is a quasi-judicial body?

- Court of Tax Appeals, reviewing a decision of the Bureau of Internal Revenue.

Which of the following statements are wrong? An appeal on an assessment may be made to
the Court of Tax Appeals:

- If the Bureau of Internal Revenue denies the protest in whole or in part.

 - If the Bureau of Internal Revenue does not act on the protest within one hundred
eighty days from the taxpayer’s submission of documents supporting his protest.
- Within thirty days from receipt of the decision of the Bureau of Internal Revenue on
the protest or within thirty days from the lapse of the one hundred eighty days period
(submission of the documents on the protest).
- None of the above.

Date the national internal revenue tax was erroneously paid – January 5, 1998; Date a claim
for refund was filed with the Bureau of Internal revenue – February 6, 1999; Date decision of
denial by the Bureau of Internal Revenue was received _ October 28, 1999. Last day to appeal
to the Court of Tax Appeals:

- November 27, 1999.

Which of the following statements is wrong?

- An assessment which is not protested and appealed to the Court of Tax Appeals
becomes final, executory and demandable.
- The proceedings on the protest in the Bureau of Internal Revenue is an administrative
proceedings.
- The proceedings in the Court of Tax Appeals is a judicial proceeding.
- The proceeding in the Court of Tax Appeals is a quasi-judicial proceeding.

Date assessment was received – January 2, 2000. petition for reconsideration was filed with
the Bureau of Internal revenue – January 12, 2000. Documents supporting the petition for
reconsideration was filed with the Bureau of Internal Revenue – January 22, 2000. No
decision on the protest by July 12, 2000. last day to appeal to the Court of Tax Appeals:

- August 20, 2000.

INCOME TAXATION

A. If a taxpayer married during 2018, he may claim the personal exemption for married
individual in full for such year

B. A dependent child who married within 2018 may still qualify as depended for the year

- False, false

Which of the enumerated taxpayers below can claim personal exemptions only if there exist
a reciprocity clause/law between the Philippines and his country?

- Non-resident alien engaged in business in the Philippines

A legally married couple had the following data in year 2006:

A legally married couple had the following data in year 2006:

A.) Three qualified legitimate children dependent

B.) Two nephews dependent

C.) One illegitimate child of Husband

D.) One legitimate child died in December 2006

E.) Both spouses are gainfully employed

The claimable personal and additional exemptions of the couple:

- H-64,000 , W-32,000

The AB Corporation, established in 1990, provided the following data for calendar year
ending December 31, 2010 ($1=P50)

If AB Corp. is a non-resident cinematographic film owner/lessor, its income tax is

- P1,000,000

If AB Corp. is a non-profit hospital, its income tax after tax credit is

- P125,000

Gross income taxation results to

- Less discretion on the part of the tax examiners

The term applied to the person whose property is transmitted through succession, whether
or not he left a will

- Decedent

Mr. Tajong, a single resident citizen with 15 recognized natural children, is a director of
Hippon Company. The following information pertains to Mr. Tajong’s income in 2009:

Compute the income tax payable (refundable) of Mr. Tajong.

 - P28,600

The income of an unmarried minor derived from the property he received from his living
parent shall be reported in the income tax return of the parent if:

- Neither a nor b.

Nexus Bank, a domestic corporation has the following data for the year:

The bank has total operating expenses of P12,000,000. How much was the normal income
tax for the year?

- P 600,000

The branch of Atlanta Corporation, a foreign corporation, reported P500,000 taxable income
in 2010. It also earned P100,000 dividend income from a domestic corporation. Assuming
the branch earmarked the entire dividend and half of its profits for remittance to its head
office. Compute the net remittance.

- P248,750

INDIVIDUALS

A taxpayer who was married but was legally separated a year before, earned P325,000
compensation income from employment during the taxable year. He has legally adopted
child as qualified dependent and paid P3,000 as health and hospitalization insurance
premiums. He can claim a total exemption of:

- 75,000

Which of the following expenditures may be claimed as deductible expense for income tax
purposes?

- Amount paid for the construction of building as part of the expansion program of an
educational institution.
 - Premiums paid on life insurance covering the life of a company executive payable to
the latter’s wife as the beneficiary
- Both a and b
- Neither a nor b

A. if any of the qualified dependents becomes 21 years old during the taxable year, the
taxpayer may still claim the same exemptions as if such dependent became 21 years old at
the close of such year.

B. Parents living with and dependent upon the taxpayer for their chief support regardless of
their age will qualify as head of the family

- True, true

A, married, had the following data for the taxable year:

If the taxpayer is a non-resident alien not engaged in business in the Philippines married and
his country grants 35,000 as personal exemption for married individuals, his taxable income
is

- 400,000

Which of the following taxpayers whose personal exemption is subject to the law on
reciprocity under the Tax Code?

- Non-resident alien who shall come to the Philippines and stay therein for an
aggregate period more than 180 days.

One is not correct

- If the taxpayer should have additional dependent children during the taxable year, he
can always claim the additional exemption for such year

Who among the following individuals shall report income from leasehold improvements?

- Y – he rented his uncultivated agricultural land to his uncle who planted 500 coconut
trees thereon during the first 5 years of the possession as stipulated in the contract;
the coconut trees would belong to Y after the expiration of the 15-year lease contract.

A, who became a widower in February of taxable year of 2009, had the following dependents:
The total basic personal and additional exemption in 2010 is:

- 150,000

A non-resident alien is taxable on all income derived from sources

- Within the Philippines only

May not claim personal exemption

- Non-resident alien who stayed in the Philippines for 175 days

Which of these premium payments on health/hospitalization insurance is deductible for

income tax purpose?

- Health insurance taken by an unmarried taxpayer for himself; he is a full-time teacher

at Father Saturnino Urios University with an annual compensation of P 270,000 (this
amount includes his 13th month pay of P 20,000).

A resident citizen, married with 4 qualified dependent children had the following during the
calendar year:

The taxable income is?

- 38,600

Which of the following individual taxpayers may claim personal and additional exemptions
for income tax purposes?

- Non-resident aliens engaged in trade or business in the Philippines, in the absence of

reciprocity
- Non-resident aliens not engaged in trade or business in the Philippines
- Both a and b
- Neither a nor b
The personal exemption of the non-resident alien engage in trade or business in the
Philippines is equal to that allowed by

- The income tax law of his country to a citizen of the Phil not residing there or the
amount provided by the NIRC to a citizen or resident whichever is lower

A resident citizen is taxable on all income derived from sources

- Within and without the Philippines

Which of the following individuals taxpayers cannot avail of the deductions for health and
hospitalization insurance premiums?

- Non-resident alien not engaged in business in the Philippines

Statement 1: If a taxpayer marries or has dependents during the year, or dies during the year,
or his spouse dies during the year, he/his estate may claim personal exemption in full for
such year.

Statement 2: If a dependent child dies within the year, or becomes twenty-one years old
within the year, the taxpayer may still claim additional exemption.

- Both statements are correct.

Petra, 35 year-old PWD is living with and dependent upon Arturo her Uncle. Petra is the
daughter of Arturo’s first cousin. Arturo is entitled to (taxable year – prior to 2018).

Basic Personal exemption

Additional Personal exemption

- YES; NO

A, married, had the following data for the taxable year:

- 170,000

Mr. A became a widower with three (3) dependent minor legitimate children in January of
2005. In February of the following year, he got married to Ms. B and subsequently in
November of the same year, the latter gave birth to a baby boy. The total basic and additional
personal exemptions of Mr. A in 2006 is:

- P64,000

The following taxpayers are allowed to claim additional exemptions, except

 - non-resident aliens

Who is a non-resident alien not engage in business in the Philippines?

- An alien who comes to the Phil. for a definite purpose shall be claimed which in its
nature may be promptly accomplished

A, married, had the following data for the taxable year:

If the taxpayer is a resident citizen, married, his taxable income is?

- 318,000

An Overseas Filipino Worker is allowed an additional exemption for qualified dependent

children:

- When he and his wife have income from common property situated in the Philippines
that provides chief support to their minor dependent children.

Which is subject progressive tax?

- Non-resident alien engaged in trade or business

CORPORATIONS

Matatag Corporation, a Philippine Corporation, sold through the local stock exchange
10,000 Smart shares that it bought 2 years ago. In 2018, Matatag sold the shares forP2 million
and realized a net gain of P200,000. How shall it pay tax on the transaction?

- It shall pay a tax of 6/10 of 1% of the P2 million gross sales.

Which of the following is a feature or characteristics of the minimum corporate income tax
(MCIT)?

- The income tax payable shall be computed as follows: net income x regular rate, or
gross income x 2%, whichever is lower.
- The MCIT takes effect on the third taxable year immediately following the first year of
business operations of the corporation.
- The excess MCIT over the regular income tax may be carried over and credited against
the regular income tax for the four (4) succeeding years.
- None of the foregoing.
A Corporation, a resident corporation, provided the following data for taxable year 2006

The corporation remitted to its head office the P5M dividend income and 40% of its net profit
to its head office in USA. (85% of the income of the foreign corporation which declared
dividends is from the Philippines.) The corporation’s total tax liability including the tax on the
profit remitted is

- P12,448,000

The domestic dividend received by a non-resident foreign corporation cannot avail of the
preferential 15% final tax rate under the tax sparing principle if:

- The country of the non-resident foreign corporation allows a tax credit for taxes
actually paid in the Philippines but does not allow any tax credit for taxes deemed in
the Philippines

Tiger Airlines, a resident foreign international carrier has the following records of income for
the period. (The income represents gross Phil. billings)

1. Continuous fight from Manila to Tokyo = 1,000 tickets at P2,000 per ticket

2. Flight from Manila to Singapore; transfer flight from Singapore to Tokyo = 2,000 tickets
at P3,000 per ticket

3. Continuous flight from Manila to Singapore = 3,000 tickets at P1,000 per ticket

The income tax due is

- P175,000

Assume AB Corp. is a domestic corporation, compute the income if it opts to claim the tax
paid abroad as deduction from gross income

- P780,000

The minimum corporate income tax is applicable to

- Philippine Airlines, Inc.

One of the following statements is wrong. Identify. The improperly accumulated earnings tax
imposed on corporations:

- Is computed on improperly accumulated income over several years.

Which statement is wrong? The gross income tax:

- Is always computed to compare with the normal income tax and minimum corporate
income tax?

One of the following is not acceptable as basis of relief from the MCIT

- Law suits filed by the company

A domestic corporation had the following data

The taxable income in 2009 is:

- P380,000

Which of the following is not covered by MCIT?

- Offshore banking units

Which of the following statements relative to a non-resident foreign corporation is false?

- It does not file an income tax return

- Its taxable income is always subject to final withholding tax
- It is taxed only on income derived from sources within the Philippines
- None of the foregoing

Which of the following is not an income tax on corporation?

- Stock transaction tax

Intercorporate dividend is exempt where the domestic dividend is received by a:

- Domestic corporation
- Resident foreign corporation
 - Both a and b
- Neither a nor b

Bright University, a private educational institution organized in 2000, had the following data
for 2007

The income tax due for 2007 is

- P20,000

For income taxation purposes, the term “corporation” excludes one of the following:

- General professional partnership

Pinoy, Inc. owned a piece of commercial land which was forcibly taken by the city
government for its highway expansion project in the exercise of its power of eminent domain.
This land was used by the corporation as a parking area for its numerous delivery trucks and
vans. A compensation of P 10,000,000 was paid although the selling price in the area
amounted to P 12,000,000 for a similar property. The company records showed that the land
was bought by the company a few years ago for only P 5,000,000. How shall the income tax
liability, if any, of Pinoy, Inc. on the foregoing transaction be computed?

- 30% corporate income tax rate based on the gross income of P 5,000,000

Baguio Meds is a non-profit hospital. The following shows its gross receipts and business
expenses in 2009:

Compute the income tax due of Baguio Meds.

- P540,000

The AB Corporation, established in 1990, provided the following data for calendar year
ending December 31, 2010 ($1=P50)
If AB Corp. is a domestic corporation, but its total expense is P5,800,000 (disregard original
data on expenses), its income tax is

- P120,000

Under the TRAIN Law, which of the following government-owned and controlled
corporations shall be subject to corporate income tax?

I. Philippine Amusement and Gaming Corporation (PAGCOR)

II. National Development Corporation

III. Philippine Charity Sweepstakes Office

IV. Social Security System

- I, and II

A domestic corporation organized in 2003 provided the following information

Using the above data, the tax due after credit, if any for 2007

- P45,000

Which of the following is a feature or characteristics of the minimum corporate income tax
(MCIT)?

- The income tax payable shall be computed as follows: net income x regular rate, or
gross income x 2%, whichever is lower.
- The MCIT takes effect on the third taxable year immediately following the first year of
business operations of the corporation.
 - The excess MCIT over the regular income tax may be carried over and credited
against the regular income tax for the four (4) succeeding years.
- None of the foregoing.

The improperly accumulated earnings tax which is a 10% surtax imposed on the improperly
accumulated taxable income of corporation, is imposable on:

- Publicly-held corporations
- Banks
- Insurance Companies
- None of the foregoing

The record of a closely held corporation which is already in operation in 2003, reveals the
following:

Upon examination of the 2007 return, the BIR concludes that there is improper accumulation
of profit. The corporation fails to show proof to prove the contrary.

Using 35% tax rate, how much is the tax payable of the corporation in 2006 and 2007.

- Zero, P47,500

A domestic corporation may employ as a basis for filing its annual corporate income tax
return the:

- Either calendar or fiscal year

Gross income tax applies to

- domestic corporations

All, except one, of the following, are not subject to the improperly accumulated earnings tax.
Which is the exception?

- Service enterprises.
One of the following is wrong. Which is it? The gross income tax on corporation is:

- Applicable to non-resident corporation.

A Corporation has the following data for the year 2007

The cost of the land which is not used in business is P1M, FMV is P3M. Its total tax liability as
a domestic corporation is:

- P980,500

PARTNERSHIPS

Which of the following is not treated as a corporation?

- General professional partnership.

Agamata, Moreno and Company (AMC) is a general professional partnership, with Agamata,
married and Moreno, single, participating equally in the income and expenses. The following
are the data for the partnership and the partners during the 2017 taxable year:

Additional information:
Agamata uses his personal car on going to meetings with various clients. His expenses to
such meeting amounted to P35,000. The said amount was not included in the expenses
claimed by the partnership.

The taxable income of Agamata if the Partnership is engaged in trade or business is:

- P 30,000

The distributive share of Agamata from the partnership profit is:

- P 125,000

Which of the following associations is subject to corporate income tax rate?

- Co-ownership where the property that is not under administration proceedings or

trust remains undivided for more than 10 years

X and Y inherited a piece of agricultural land from their recently deceased parents. The last
will and testament of the decedent provided that the said property shall not be partitioned
and should remain jointly owned by the siblings for a period of twenty (20) years. Which
organization is deemed to exist for income tax purposes?

- Co-ownership

Which if the following contributions may be claimed as a deduction by general professional

partnership?

- Donation to Rotary Club

- Donation to the City
- Both a and b
- Neither a nor b

A taxable business partnership which does not keep any books of accounts to record its
transactions shall adopt as its taxable year the:

- Calendar year

Which of the following contributions may be claimed as a deduction by a business

partnership?

- Donation to Parish Church

Bino and Gibo are partners in two partnerships, one general professional partnership and a
business partnership. The following data shows the separate income of Bino, Gibo and their
partnerships:
Bino and Gibo shares profits equally on both partnerships. Bino and Gibo are both single but
Gibo has 2 illegitimate children dependent upon him for chief support. Compute the taxable
income of Bino and Gibo, respectively.

- P425,000; P275,000

Statement 1: Partnership and Corporation have separate juridical personalities distinct from
the owners.

Statement 2: A CPA and a Dentist may form a GPP or an ordinary partnership.

- Statement 1 is false but statement 2 is true

X, Y and Z are lawyers who practice their legal profession in the same building. They hired a
common secretary and shared equally for her salary as well as the rental and electricity
expenses of their offices. However, they have their own clients and individually collect their
respective fees, except in some court cases handled by the two or three of them where they
ratably share their professional fees. Which of the following statements is true?

- X, Y and Z will file their annual individual ITRs and report their incomes and expenses
separately therein.

Which of these statements relative to a general professional partnership is false?

- The firm file an information return but the partners shall file their individual ITRs and
separately pay their income tax liabilities thereon.
- The firm may claim as a deduction any contributions which are deductible with limit,
whereas the individual partners may claim as a deduction any contributions which
are deductible in full.
- The distributive share of the partners shall be subject to 10% - 15% creditable
withholding tax.
- Any partnership loss may be claimed by the partners proportionately in their
respective ITRs.
Statement 1: If the amount to be distributed to a partner of a GPP is more than P720,000, it
is subject to 15% creditable withholding tax.

Statement 2: The share of a partner in a GPP is subject to final withholding tax of 10% if the
amount is below P720,000.

Statement 3: The distributive share of a partner is a commercial partner in a commercial

partnership is subject to final tax.

- Only Statement 2 is false

Which of the following statements is not correct?

- When the co-owners invest the income of the property co-owned in a business or in
any income producing properties or activities constituting themselves into a
business partnership, such partnership is consequently subject to tax as a
corporation.
- As a rule, a co-ownership is not subject to income tax because the activities of the
co-owners are limited to the preservation and enjoyment of the property and the
collection of the income therefrom.
- A co-owner is subject to income tax on his share in the net income of the co-
ownership actually or constructively received.
- All partnerships, no matter how created or organized, are considered as corporations
subject to corporate income tax.

An exempt general professional partnership shall adopt as its taxable year the:

- Calendar year

ESTATES AND TRUSTS

First statement: for taxation purposes, the taxable income of the estate shall be determined
in the same manner and basis as in the case of individual taxpayers.

Second statement: Prior to the effectivity of the TRAIN law, the income from the estate is
allowed with a personal exemption of P20,000.

- True; True

The taxable year of an estate or trust shall be:

- Calendar year

What is the treatment of the income of an estate or trust which is properly distributed to the
beneficiary during the taxable year on the part of the said beneficiary?
 - The beneficiary shall include the income received from the estate or trust as part of
the gross income in his personal income tax return.

Miguela, Marciana and Carmi are heirs of Bayle who died on November 1, 2017. The
properties of Bayle comprised solely of real property valued at P50,000,000 at the time of
her death. The property is subject to lease earning rental income. During 2018, the property
remained undivided and it derived a net rental income of P15,000,000.For income tax
purposes, the heirs will be tax on net rental income from the inherited property for the year
2018 as:

- Co-owners

The beneficiary of an estate during the period of administration is the:

- Administrator
- Surviving spouse and heirs
- Both a and b
- Neither a nor b

For income tax purposes, any person or corporation that holds in trust an estate of another
person or persons

- Fiduciary

The person called to the succession either by the provision of a will or by operation of law

- Heir

Which of the following transactions is taxable on the part of the estate?

- Sale of property prior to the partition of the estate by the executor or administrator for
more than the appraised value at the time of decedent’s death.

Determine which of the following trusts shall be taxable income be consolidated and the
income tax thereon computed on the basis of such consolidated income?

- Trust No. 1 and Trust No. 2 have the same grantor and the same beneficiary

The income of one of the following trusts is not subject to income taxation?

- Employee trust

The person in whom confidence is reposed as regards property for the benefit of another
person

- Trustee
Ms. Hair Noh died during the year on July 1, 2009, leaving 2 heirs, Gay and Bald. The estates
of Ms. Noh undergo judicial settlement. The following relates to the gross income of Ms. Noh,
Gay and Bald in 2009.

Bald and Gay received P80,000 distribution each from the executor of Ms. Noh’s estate
during the year. ½ of the respective distributions to Bald and Gay came from the corpus of
the estate.

Compute the 2009 taxable income of Bald.

- P320,000

Compute the 2009 taxable income of the estate.

- P200,000

Compute the 2009 taxable income of Gay.

- P515,000

The property, rights and obligations of a person which are not extinguished by his death and
those which accrued thereto since the opening of succession

- Estate

A created a trust for his daughter, B, a minor and appointed C as the trustee. A transferred
an apartment where rent income of 380,000 (net of 5% withholding tax) was received by the
trust with an expense of 90,000 during the year. 50% of the gross income was given to B,
while 20% based on the net receipts was recorded as valid expenses of the trust, compute
the income tax due or refundable of the trust and the taxable income of B.

- (P15,300); P150,000

Ms. Mho designated a trust in favor of his minor boyfriend, Bacleito. Both the P2,000,000
corpus and all future income of the trust is designated by Ms. Mho as irrevocable. During the
year, the trust earned P400,000 gross income, paid P40,000 as management fees to the
trustee and distributed P200,000 as allowance to Bacleito. Bacleito has other income from
part-time employment. Compute the taxable income of the trust and the taxable income of
Bacleito.
 - P140,000; P150,000

Which of the following statements is correct?

- Estates and trusts are allowed a personal exemption of 32,000 if the executor or
trustee is married
- The income tax rates for corporate taxpayers apply to taxable estates and trusts
- The taxable year of estates and trusts maybe calendar or fiscal year
- For a trust to be taxable, it must be irrevocable, both as to corpus (principal) and
income

What amount should be reported as taxable income of the co-ownership in 2018? (refer to
number 16)

- P0

The person to whom a gift of real property is given by virtue of a will

- Devisee

The person who establishes a trust

- Trustor

The income tax return of a trust is filed, and the tax thereon is paid, by the:

- Fiduciary

The individual performs services for a creditor who in consideration of thereof cancels the
debt, the cancellation of indebtedness may amount:

- To a payment of income

Which is an item of gross income?

- License fees collected by the Professional Regulation Commission

Which of the following trusts holds the grantor liable for its income tax?

- Trust where income is accumulated for the benefit of unborn or unascertained person
or persons with contingent interest
- Trust where income, in the discretion of the fiduciary, may either be distributed to the
beneficiaries or accumulated
- Trust which forms part of a pension, stock bonus or profit sharing plan of an employer
for the benefit of some or all of his employees
- None of the foregoing
On January 1, 2019, Trillanes established a trust fund for the benefits of his comrade, Paulo.
Trillanes appointed Atty. Digong as the trustee. The property transferred to the trust is a piece
of land with a dormitory earning rental income.

During the year, the trust earned P40,000,000 revenues and incurred expenses of
P10,000,000. Out of the trust’s income, Atty. Digong gave Trillanes P10,000,000 cash. In the
same year, Trillanes earned compensation income of P3,000,000;

The taxable income of the trust if it is administered abroad is?

- P30,000,000

The taxable income of the trust is:

- P 20,000,000

Which of the following items is a non-deductible item from the gross income of an estate or
trust?

- Operating expenses
- Share of beneficiary from gross income
- Exemption of P 50,000
- None of the foregoing

A decedent who has a will upon death

- Testator

TAX EXEMPT INDIVIDUALS AND ORGANIZATIONS

Which of the following real property of a non-stock, non-profit hospital shall be subject to
real property taxes?

- Ground floor leased to a canteen concessionaire and to doctors holding their clinics.

Proprietary educational institutions and non-profit hospitals shall be subject to the 30%
regular corporate income tax rate and not to the special 10% tax rate on its net income, if its
gross income is derived from:

- School or hospital operations – 60%; and unrelated school or hospital activities –

40%.
- School or hospital operations – 50%; and unrelated school or hospital activities –
50%.
- School or hospital operations – 100%.
- None of the foregoing.
All are sources of income except:

- Life insurance proceeds

Which can be subjected to income tax under the TRAIN law?

- Lotto winnings

Which of the following income is not from a related trade, business or activity of a domestic
proprietary educational institution?

- Income from hospital where medical graduates are trained for residency.

Which of these cases relative to a non-stock, non-profit educational institution is consistent

with administrative circulars and issuances?

- Incidental income (e.g. income derived from canteen, bookstore and dormitory
facilities) shall be exempt from income tax where the said facilities are owned and
operated by the school itself and are located inside or near the school campus.
- Where the school invests its income from tuition fees for an unrelated purpose (e.g.
money market placements), the earnings therefrom by way of interest are exempt
from income tax.
- Interest income derived from bank deposits is automatically exempt from income tax.
- None of the foregoing.

A taxpayer was legally separated and earned P250,000 during the year. He has legally
adopted child as qualified dependent and paid P3,000 as health and hospitalization
insurance premiums. He can claim a total exemption of:

- 35,400

The following, except one, may claim personal exemptions?

- Non-resident alien not engaged in trade or business in the Philippines

Which of the following items is not part of the gross compensation income?

- Fringe benefits

The following were received by a resident citizen employee, married, and with four qualified
dependent children for the year 2009: Salary (net of P20,000 withholding tax, P3,000 SSS
contribution; P2,000 union dues), P275,000; 13th month pay, P25,000; 14th month pay,
P25,000. How much was the taxable compensation income?

- P165,000
Which statement is incorrect?

- Winning results from transaction dependent upon chance.

- Prizes is subject to either regular tax or final tax
- Prize results from an effort.
- Winnings from the Philippines is always subject to final tax

Which of these items is subject to final withholding tax in the Philippines?

- None of the foregoing

The special income tax rate of 10% that may be availed by proprietary educational
institutions and non-profit hospitals shall be based on:

- Net income from both school/hospital related and unrelated activities

Which of the following refund is taxable?

- Refund of documentary stamp tax

INCLUSIONS IN GROSS INCOME

Select the incorrect statement concerning dividends.

A. Dividends representing investments in another corporation is a property dividend

subject to the 10% final tax

B. Stock dividend are exempt from taxes unless they confer upon the recipient a different
interest after the declaration

- Neither A nor B

A business partnership that is organized in the Philippines but dominantly operates abroad
is classified under the NIRC as a

- domestic corporation

Which of the following prizes is subject to income tax?

- Prize as “Good Samaritan of the Year” awarded by the local Parish Church for its
model Christian member.
- Prize from a local amateur badminton tournament sanctioned by the National
Badminton Association of the Philippines.
- Prize of Miss Gemma Cruz as the first Filipina winner of the “Miss International”
beauty pageant.
- None of the foregoing.
All of the following taxpayers are taxable even on income earned outside the Philippines,
except

- Resident alien

A resident alien rendered professional advisory services to foreign businesses earning him
P2,000,000 professional fees. The professional fee is

- exempt from the Philippines

Mr. Goden purchased a life annuity for P100,000 which will pay him P10,000 a year. The life
expectancy of Mr. Goden is 12 years. Which of the following will Mr. Goden be able to exclude
from his gross income?

- P100,000

Mr. Crisostomo insured his life with his estate as beneficiary. In 2017, after Mr. Crisostomo
had paid P65,000 in premium, he assigned the policy to Mr. Jose Ibarra for P60,000, and Mr.
Ibarra continued paying the premiums. Mr. Crisostomo died and Mr. Ibarra collected the total
proceeds of P200,000. Mr. Ibarra, after the assignment and before Mr. Crisostomo’s death,
paid a total premium of P80,000. As a result of the above transaction, Mr. Ibarra:

- Derived a taxable income of P60,000

A type of income tax consisting of a series of separate quasi-personal taxes, assessed on the
particular source of income with a superimposed persona tax on the income as a whole is a

- Composite income tax

At the testimonial dinner for new CPAs, Christian was requested to sing the theme song of
the movie “Ghost”. Mae was so delighted that she feels she is falling in love with Christian,
so she decided to cancel Christian’s indebtedness to her. As a result,

- Christian received a gift from Mae and therefore not part of his taxable income.

Dolly Acosta, a resident citizen, owned a commercial building in Las Vegas. The building was
currently leased to a resident Pilipino who pays P50,000,000 rental annually. The rent is
considered

- earned abroad.

Which is subject to income tax under the TRAIN Law?

- Business income from jueteng and sale of cocaine

All of the following income is considered earned within, except one. Choose the exception.
 - Dividends paid by a non-resident foreign corporation

Which income is considered purely earned in abroad?

- A merchandise purchased in the Philippines and sold abroad

Which is subject to income tax?

- Business income from jueteng and sale of cocaine

All of the following are taxable only on income earned within the Philippines, except

- Resident alien

Furrat, a non-resident alien, invests in the capital stock of a domestic corporation. Furrat
subsequently sold this to another non-resident alien at a gain of P20,000. Which is true?

- The income is taxable in the Philippines because domestic securities are by situs
rules situated herein.

The following data for the year 2010 of a resident rank-and-file employee who has four
qualified dependent children are made available:

Compute the taxable compensation income.

- P67,200

Which of the following tax refunds constitutes income?

- Refund of percentage tax.

Which of the following items is subject to income tax?

- Compensatory damages awarded by the court for loss of income during period of
disability.
In particular, income is taxed because

- It represents the best indicator of one’s ability to pay

Gross income means

- Income that can be subject to income taxation.

Which is not an item of gross income?

- PhilHealth benefits

Which of the following statement is most correct in case of involuntary termination?

- The benefits are exclusion from gross income.

A resident alien naturalized in accordance with law

- Resident citizen

EXCLUSIONS FROM GROSS INOME

Which of the following items that reduce salaries of employees is not an exclusions from
gross income?

- IOU’s.

Toma Sengla Tumba is an organized non-stock, non-profit fraternal organization. In order to

fund its summer activity, Bassagulero, its members purchased and sold souvenir
merchandise to local tourists. The total profit generated by the fund raising activity was
P200,000. The members further contributed P100,000 as additional funding for the activity.
Which statement is correct?

- Only the P100,000 membership contribution is subject to income tax.

Clarisse, a taxpayer uses the GAAP direct write-off method in computing his income:

What is Clarisse’s taxable income in 2017 before personal exemptions?

 - P390,000

A certain taxpayer had the following items of gross income in 2017:

Compute the total exclusions from gross income.

- P39,400

A resident citizen, 50-year old, with 3 qualified dependent children ask you to assist him in
the computation of his taxable income for the year 2010:

Compute the total amount of excluded or exempted income.

- P980,000

A resident citizen, widower, with a dependent minor brother, had the following data on
income and expenses.
Compute the total amount of excluded or exempted income.

- P1,465,000

Compute the total final tax from certain income.

- P84,000

Dimas owns a parcel of land worth P 5,000,000 which he inherited from his father in 2011
when it was worth P3,000,000. His father purchased the property in 2001 for P 1,000,000. If
Dimas transfers this parcel of land to his wholly owned corporation, Dimasalang
Corporation, in exchange for shares of stocks of said corporation worth P4,500,000, Dimas
will have a taxable gain of

- P 3,500,000

Which of the following accounting assets is not an ordinary asset?

- Investment property

Mike Anico is a stock broker and holds 10,000 ordinary stock of San Miguel Corporation, a
domestic corporation, acquired at P100 per share. His valuation for San Miguel Corporation
indicates that San Miguel’s stocks will decline in the near future. If Mike sells his stock
investment directly to a buyer, Tony Millan, at P115 per share, how much is the capital gains
tax payable on the transaction?

- P0
A domestic corporation has a gross profit from sales of P10,000,000, interest from bank
deposits in the Philippines of P100,000, and dividend from resident foreign corporation of
P100,000. If choosing the Optional Standard Deduction (OSD), the taxable income is:

- P 6,060,000

The 2010 books of accounts of DBest Company showed the following:

Fringe benefit expense P1,550,000

Fringe benefit tax expense 332,000

Compute the total deductible amount against gross income of DBest Company.

- P1,882,000

Statement 1: Ina total loss due to casualty, the measure of loss is the book value of the asset
reduced by any form of indemnity.

Statement 2: In a partial loss due to casualty, the measure of loss is the cost of the property,
or the cost to restore the property to its normal operating condition, whichever is lower,
reduced by any form of indemnity.

Statement 3: In a wash sale, loss is not deductible.

Statement 4: In a merger or consolidation, or transfer to a controlled corporation, loss is not

deductible.

- True, true, true, true.

Statement 1 The amount of NOLCO shall not include the amount of deduction incentives
allowed by law.

Statement 2 Net capital loss carry over can be carried over together with NOLCO.

- Only statement 1 is true

Statement 1 Persons with disability are mandatorily allowed a discount of 20% from all
establishments.

Statement 2 Senior citizens are mandatorily allowed a discount of 25% from certain
establishments.

- Both statements are false

A taxpayer has the following historical results of operations:

What is the total outstanding NOLCO at the end of 2020 which can be carried over in future
years?

- P200,000

Which of the following shall not subject to the 20% final tax beginning January 1, 2018?

- Prizes amounting to ten thousand pesos or less

Mr. Amorante bought a 2,000 square meter of and at a cost of P500,000. He leased the land
to Mr. D. Vargas at an annual rental of P40,000. The term of the contract of lease was 15
years. The contract of lease provide that Mr. Vargas will construct a building on the land,
which will belong to the lessor at the end of the term of the lease or at the termination of the
lease. The building was constructed for a total cost of P400,000 an has an estimated useful
life of 20 years which was the basis of a straight-line method of depreciation. The remaining
term of the lease when the building was completed was 14 years.

Compute the yearly income assuming Mr. Amorante will spread his income from leasehold
over the term of the lease contract

- P48,571

Armando is a partner in a business partnership. At the end of 2010, he has a total of P300,000
profit sharing on the after tax income of the partnership inclusive of P120,000 salaries as a
managing partner. Compute the amount final tax to be withheld from Armando’s profit
sharing.

- P18,000

To which of the following is the capital gains tax required to be filed? (Select the exception.)

- Office of the Commissioner of Internal Revenue

The term “capital assets” include

- Real property not used in the trade or business of the taxpayer.

Statement 1: Contributions by the employer to a pension trust for past service cost is
deductible in full in year that the employer made the contributions, if he is on the cash basis
of accounting.
Statement 2: Contributions or donations given directly to individuals cannot be deducted
from gross income.

- False, true.

Which of the following donations is deductible with limit for income tax purposes?

- Contribution to TESDA

A non-resident foreign corporation received domestic dividends in the sum of P 100,000. The
foreign country to which it is domiciled imposes an income tax of 40% on all dividends
received by corporations organized under and by virtue of its laws. The foreign country where
the non-resident foreign corporation is domiciled does not allow any tax credit on the tax
imposed on dividends. The non-resident foreign corporation shall be liable for Philippine
income tax on the dividend at the rate of:

- 30%

The interest income on long-term deposit that is pre-terminated on the third year is subject
to

- 12%

Precious, a non-resident alien, invests in the 60-day Peso time deposit of Metro Pilipino
Bank. Precious earned P100,000 interest income. How much final tax should Metro Pilipino
Bank withhold?

- P25,000

Which is an ordinary asset for a realty developer?

- Accounts receivables

The Optional Standard Deduction is ten percent of the gross income. Choose the correct and
best answer: For purposes of the Optional Standard Deduction of an individual (other than
non-resident alien) gross income means:

- Means gross profit from sales, or gross receipts or revenues less direct cost of
services, plus all other items of gross income.

The limitations imposed by law on the contributions subject to limit are:

- Neither a nor b
X claimed a bad debt of P 50,000 as a deductible expense in the taxable year 200A. In 200B,
X was able to recover the P 50,000 already written off in the preceding year. What is the
treatment of the recovery of the bad debt?

- Report the recovery of the bad debt as gross income in 200B.

The following computations were shown by the taxpayer as support of his GAAP income
under the accrual basis:

Determine the income for taxation purposes.

- P800,000

On July 1, 2017, Eliazar sold a real property for P600,000. 10% down-payment is due upon
signing of the contract of sale. The balance is payable as follows: 15% December 31, 2017;
50% March 31, 2018; 35% July 31, 2018

Since the property is classified as ordinary asset only the gain of P300,000 is subject to
progressive tax. How much of the gain is taxable in 2017?

- P 300,000

INCOME FROM COMPENSATION

Facilities or privileges furnished or offered by an employer to his employees that are of

relatively small value and are offered or furnished by the employer merely as a means of
promoting the health, goodwill, contentment, or efficiency of his employees.

- De minimis benefit

The following fringe benefits are not subject to fringe benefits tax, except:

- Fringe benefits furnished or granted by the employer to its managerial and

supervisory employees.

The following information belong to RUNDAY Corp. for the year 2011:

The fringe benefit tax due is:

 - P 75,294

Which of the following statements relative to the nature of final fringe benefit tax is true?

- The employer may claim the grossed-up monetary value of the fringe benefit as a
deductible expense.

Which is the most correct arrangement of words for terminating employees to be reported
with DOLE?

- We are reporting the closure of the company resulting to termination of 30

employees.

Statement 1: The fringe benefit tax is deductible from the gross income of the employer.

Statement 2: The fringe benefit tax is withheld by the employer.

- Both statements are true.

Basic rules on fringe benefits tax, except

- The fringe benefit tax is a tax paid by the managerial or supervisory employee

Alpha Zetta, Inc. established in the Philippines provided its employees cash and non-cash
fringe benefits in 2017 as follow:

Compute the total fringe benefit tax expense of Alpha Zetta, Inc.P238,824

- P145,490

There are 30 employees in a manufacturing firm consisting of 20 rank-and-file employees

and 10 supervisory employees. The manufacturing firm terminated its employees and gave
fringe benefits equivalent to P 10,000 per rank-and-file employee and P 20,000 per
supervisory employee based on a duly executed collected bargaining agreement (CBA)?
Which of the following statements is most correct?

- Rank-and-file employees are not subject to fringe benefit tax.

Which of the following is considered fringe benefits?

- Housing benefits given by the government to its public managerial officers.

Which of the following benefits received by a bank executive is subject to fringe benefit tax?

- Both a and b.

Which statement is wrong? The amount on which the fringe benefit tax rate is applied is:

- The monetary value of the fringe benefit.

On January 1, 2014, Helen invested P1,000,000 to RCBC Commercial Bank’s 5-year, tax-free
time deposit. The long-term deposit pays 15% annual interest every January 1. In need of
cash, Helen pre-terminated her investment on July 1, 2017. How much is the final tax due
and the proceeds of Helen’s investment?

- P63,000; P1,012,000

With regard to the amount on which the fringe benefit tax rate is applied, which statement is
wrong? The tax benefit rate is applied on

- The monetary value of the fringe benefit

In 2007, A Corporation allowed its Sales Manager to incur expenses subject to

reimbursement, as follows:

The amount subject to fringe benefits tax is

- P16,600

n 2017, ABC Corp. hired Ms. C. Aquino as sales manager for cosmetics. In accordance with
her conditions for employment, she was given the following compensation and fringe
benefit:

The fringe benefit tax due is

- P192,565
Raquel Ceralde was retired by her employer-corporation in 2016 and was paid P2,000,000
as a retirement gratuity without any deduction of withholding tax. The corporation became
bankrupt in 2017. Can the BIR subject the P2,000,000 retirement gratuity to income tax?

1st Answer: No, if the retirement gratuity was paid based on a reasonable pension plan
where Ceralde was 60 years old and has served the corporation for 9 years.

2nd Answer: Yes, if Ceralde was forced by the corporation to resign due to retrenchment.

- First answer is wrong; the second is correct.

The following data for the year 2010 of a resident rank-and-file employee who has four
qualified dependent children are made available:

Compute the total exclusions/exemptions (including de minimis benefits).

- P231,500

Which of the following is subject to the final fringe benefit tax?

- Business-class airline ticket for business convention abroad

- Meals and lodging of waitresses who are required to reside in the restaurant building
- Representation and transportation allowance of a salesman who is not required to
liquidate the same
- None of the foregoing

As a means of promoting the health, goodwill and efficiency of his employees, employer A
gave rank and file employee B the following fringe benefits in 2009:
The amount of taxable fringe benefit is

- P11,000

During 2017, Mrs. Imelda Juanito retired from her job at Golden Manpower Services, Inc. She
joined Golden Manpower Services, Inc. in 2001, when she was 38 years old, until 2010;
resigned in 2010 but returned to the company’s employ in 2012. Golden Manpower Services,
Inc. maintains a reasonable private benefit plan which is also approved by the BIR. This was
her first time availment of retirement benefit exemption. Is the retirement benefit taxable?

- No, because all conditions have been complied with

The grossed-up monetary value of fringe benefit subject to fringe benefit tax received by a
non-resident alien individual engaged in trade or business in the Philippines is computed by
dividing the monetary value of the fringe benefit by

- 75%

The fringe benefit tax is

- A, B and C

Which of the following is subject to fringe benefit tax?

- Fringe benefit of the managerial employees

Znneth Company made the following payments in the 3rd quarter of 2017:
Determine the fringe benefit tax due.

- P19,412

INCOME FROM BUSINESS

The following were taken from the income statement of ABC corporation for the year 2017:

The net income before income tax of ABC Corporation is:

- P340,000

Emson a corporate taxpayer reported the following in its 2017 income statement:

Compute the corporation’s taxable income.

- P324,000
CAPITAL GAINS TAX

Lots being rented when subsequently sold are classified as

- Ordinary assets

Which of the following is not a requisite of installment payment of capital gains tax in
installment involving the sale of personal property?

- Downpayment must not exceed 25%

The actual capital gain derived by an individual taxpayer may be included to all income
subject to progressive income tax when

- It involves sales of real property to the government

X connived with several brokers to engage among themselves in the buying and selling of his
securities in order to create a false appearance of active trading with respect to his securities
at the stock exchange. This transaction is what is known as:

- Wash sale

In 2008, Florencio inherited from his late father a house and lot. Florencio and his family
used the inherited property as their family home. In early 2010, Florencio’s immigrant
application to the US was approved so he decided to sell the property. In the meantime that
Florencio was looking for buyers, he rented out the property to Antonio who occupied the
same until it was finally sold in January, 2013. For tax purposes, the house and lot is

- A capital asset

A, a citizen of the Philippines, sold his residential land in the Philippines at a selling price of
4M and with a fair market value of 5M. The cost of the property sold was 1M. He purchased
a house and lot as his principal residence at a cost of 7M.

The capital gains tax is?

- 0

Which of the following taxes is a final capital gains tax?

- Tax on the sale of unlisted/untraded shares of stocks

The 5% final tax rate on the sale of unlisted/untraded shares of stock shall be applied where
the net capital gain amounts to:
 - P 100,000

Ms. Lyn Batungbakal, a real estate dealer, sold a real estate for P2,000,000 on November 29,
2017. The cost of the property was P1,500,000. The terms of the sale were as follows:

How much was the income to be reported in 2017?

- P125,000

A, a citizen of the Philippines, sold his residential land in the Philippines at a selling price of
4M and with a fair market value of 5M. The cost of the property sold was 1M. He purchased
a house and lot as his principal residence at a cost of 7M.

Using the preceding number, the basis (cost) of the new principal residence?

- 4M

In 2017, Nebular Corp. sold shares of stock of a domestic corporation for P250,000. The
shares acquired in 2015 at a cost of P100,000 were held as investment and were sold through
a local stock exchange.

The total capital gains taxes for the year:

- P 67,000

Jolina Madrigal sold his principal residence for P5,000,000. His principal residence was
acquired at P2,000,000 and has a fair market value of P6,000,000 at the date of sale. Within
18 months, Jolina reconstructed his new principal residence for P4,500,000.

The amount of capital gains tax to be released to Jolina is

- P324,000

Where the taxpayer is a corporation, which of the following statements is true?

- The net capital loss can be carried over in the next succeeding year
A, a citizen of the Philippines, sold his residential land in the Philippines at a selling price of
4M and with a fair market value of 5M. The cost of the property sold was 1M. He purchased
a house and lot as his principal residence at a cost of 7M.

If only 4M out of 5M was utilized in acquiring his new principal residence, the capital gains
tax is

- 72,000

Which of the following real properties is classified as a capital asset?

- Real property acquired by a real estate developer

- Real property for lease by a real estate lessor
- Both a and b
- Neither a nor b

Determine the capital loss that may be deducted to the extent of the capital gain in a given
taxable period:

- Loss from the sale of personal furniture

Where the taxpayer is a corporation, the following rules as to recognition of capital gains or
losses from disposition of property classified as capital asset shall apply. Which is the
exemption?

- Net capital loss carry-over should not exceed the net income in the year the loss was
incurred

The term “capital assets” include

- Real property not used in the trade or business of taxpayer

In 2017, Nebular Corp. sold shares of stock of a domestic corporation for P250,000. The
shares acquired in 2015 at a cost of P100,000 were held as investment and were sold through
a local stock exchange.

Assume the share sold were not held for investment purposes and the seller is a dealer in
securitie, how much is the capital gains tax?

- NIL

In 2017, Nebular Corp. sold shares of stock of a domestic corporation for P250,000. The
shares acquired in 2015 at a cost of P100,000 were held as investment and were sold through
a local stock exchange.
Assume the sale in the immediately preceding number was made in 2018, the applicable tax
due?

- P1,500

Ronald Rellera sold shares of stock for P250,000 on July 1, 2018 with a par value of P150,000.
The shares which were acquired for P190,000 on June 1, 2016 were held as investment, and
were sold to a buyer under the following terms:

How much was the capital gains tax due in 2018?

- P2,250.00

Which of the following transactions is treated as a capital asset transaction for income tax
purposes?

- Liquidation of partnership business

A, a resident citizen sold the following the real property:

The capital gains tax due is?

- P 780,000

Which of the following real estates is classified as an ordinary asset?

- Land owned by a company which shifted from a real estate business into a
manufacturing company
- Land acquired by the bank through foreclosure sale
- Both a and b
Jolina Madrigal sold his principal residence for P5,000,000. His principal residence was
acquired at P2,000,000 and has a fair market value of P6,000,000 at the date of sale. Within
18 months, Jolina reconstructed his new principal residence for P4,500,000.

Compute the cost basis of the new residence if it was acquired for P5,200,000.

- P2,200,000

Lita Aguirre was a stockholder of AIT Corp. She owned shares of stock which she acquired
five years ago at a cost of P1,000,000. AIT Corp. was dissolved. She received a liquidating
dividend of P140,000. The gain subject to income tax is?

- A capital gain to consider is P20,000

The following rules as to recognition of capital gains or losses from the disposition of
personal property classified as capital asset apply where the taxpayer is an individual. Which
is the exception?

- Net capital loss carry over in a taxable year should not exceed the capital gain in the
year the loss was incurred.

Which is not a requisite of the wash sales rule of securities?

- The seller must be a dealer in securities in a short sale transaction.

ITEMIZED DEDUCTIONS

Flores Corporation took two insurance on the life of its President, Mr. Chan. In one policy, the
beneficiary is the corporation to compensate it for its expected loss in case of death of its
President. The other policy designates Mr. Chan’s wife as its irrevocable beneficiary.

Q1: Are the insurance premiums paid by Flores Corporation in both policies deductible?

Q2: Will the insurance proceeds be treated as income subject to tax by the corporation and
by the wife.

- No to both questions.

Which of the following contributions is deductible in full for income tax purposes?

- Contribution to Development Academy of the Philippines

Who among the following taxpayers may avail of the 40% optional standard deduction for
income tax purposes?
 - Resident foreign corporation

One of the following is not requisite for an expense to be claimed as a deduction from gross
income:

- It must be actually paid during the taxable year.

Which statement wrong? Research and development cost:

- May be treated as a deferred expense to be amortized over a period of not less than
sixty months from the date benefit from expenditure is derived.

All of the following cannot deduct business expenses incurred abroad on foreign operation,
except

- Domestic corporation

An ordinary and necessary expenses which is fully documented and supported by receipts
may be fully deducted for income tax purposes over and above the limit set by law

- Contribution

The following taxpayers can claim tax credit except one

- Non-resident aliens

In computing allowable for purposes of income taxation:

Statement 1: Beginning the year 2009 interest expense arising from loans or indebtedness in
connection with taxpayer’s business shall be reduced by an amount equal to 33% interest
income subjected to final tax.

Statement 2: Interest incurred on money used to acquire property to be used in trade shall
only be allowed as a capital expenditure.

- Only statement 1 is correct.

Vicor Co., a domestic corporation has net income from within the Philippines, P200,000 and
from the USA, P300,000. Income tax paid on income from USA is P110,000. The tax credit on
income tax paid to US government is

- P64,000

Which interest expense can be deducted from gross income?

- Interest expense on money borrowed to buy government bonds.

- Interest expense on money borrowed to finance petroleum operations.
 - Interest expense between a corporation and the controlling individual.
- None of the above.

Which of the following losses is deductible?

- Loss on a transfer of property to a controlled corporation solely for stock.

Which statement is not correct?

- The deduction of an individual for contribution subject to limitation should not

exceed ten percent (10%) of his taxable income from business, trade or profession
before deduction for contributions.
- The deduction of a corporation for contributions subject to limitation should not
exceed five percent (5%) of its taxable income from business or trade before
deduction for contributions.
- Contributions to media in its fund drive for the relief of the calamity victims are
deductible from gross income.
- Contributions of canned goods to student organizations during the Christmas season
to contribution to Muntinlupa inmates are deductible from gross income.

Which of the following statements relative to contributions made by partnerships is false?

- A business partnership may deduct both contributions deductible with limit and
contributions deductible in full.
- A general professional partnership cannot deduct contributions deductible with limit.
- A partner of a general professional partnership cannot deduct contributions
deductible in full.
- None of the foregoing.

During 2017, Insider, Inc. borrowed long-term loans from a bank incurring thereon a total
interest of P150,000. It earned an extra P50,000 when it temporarily invested the same to
another bank prior to disbursement. On the other hand, it has earned an interest income
from notes receivable from various customers amounting to P100,000. How much is the
deductible interest expense for Insider, Inc. in 2017?

- P 129,000

In 2016, Boy’s residence was totally destroyed by fire. The property had an adjusted basis
and a fair market value of P130,000 before the fire. During 2016, Boy received insurance
reimbursement of P120,000 for the destruction of his home. Boy’s 2016 adjusted gross
income was P70,000. Boy had no casualty gains during the year. What amount of the fire loss
was Boy entitled to claim as an itemized deduction on his 2017 tax return?

- P0

PRW Wind Breeze, Inc., a domestic corporation, paid income tax for its Japanese and
Indonesian operation amounting to P1,500,000 and P800,000 respectively. Taxable income
from its Japanese and Indonesian operation was P5,000,000 and P2,000,000 respectively.
Taxable income attributable from sources within the Philippines was P10,000,000. How
much is the creditable foreign income tax of PRW Wind Breeze, Inc.?

- P2,200,000

In computing allowable for purposes of income taxation:

Statement 1: Beginning the year 2009 interest expense arising from loans or indebtedness in
connection with taxpayer’s business shall be reduced by an amount equal to 33% interest
income subjected to final tax.

Statement 2: Interest incurred on money used to acquire property to be used in trade shall
only be allowed as a capital expenditure.

- Only statement 1 is correct.

The loss from sale or exchange of property is deductible from gross income where the sale
or exchange is:

- Between an individual and his cousin.

Statement 1: Only business expenses may be deducted from the gross income of taxpayers.

Statement 2: Itemized deductions from gross income should be duly supported by vouchers
or receipts.

- First statement is false while second statement is true.

A loss that is suffered in connection with the taxpayer’s trade, business or profession, in
order to be deductible from gross income, must be reported to the Bureau of Internal
Revenue within:

- 45 days from discovery of the loss

Statement 1: A corporation cannot deduct a loss arising from a sale between the corporation
and the controlling individual stockholders.
Statement 2: A corporation cannot deduct a loss arising from a sale between the corporation
and the controlling parent corporation.

- Both statements are correct.

Which of the following depreciation is deductible?

- Depreciation for a building of a private educational institution where the initial cost of
construction is charged to expensed

Which of the following expenses may be deducted from gross compensation income?

- Premium payments on health and/or hospitalization insurance

All of the following cannot claim deductions, except

- Non-resident citizen engaged in trade or business

ABC Corporation took two key men insurance on the life of its President, Mr. X. In one policy,
the beneficiary is the corporation to compensate it for its expected loss in case of death of
its president. The other policy designates Mr. X’s wife as its irrevocable beneficiary.

Question 1 – Are the insurance premium paid by X corporation in both policies deductible?

Question 2 – Will the insurance proceeds be treated as income subject to tax by the
corporation and by the wife?

- No to both questions.

Which of the following intangible assets shall be subject to amortization?

- “Purchased goodwill” where a business was purchased for more than the actual
value of its assets.
- Neither a nor b.
- “Developed goodwill” through favourable location and efficient personnel.
- Both a and b.

Assuming PRW Wind Breeze, Inc. is a resident Japanese corporation, how much is the
deductible foreign tax expense if it claimed the foreign taxes paid as deductions to gross
income?

- P0

Which of the following is a deductible expense for income tax purposes?

- Provision for doubtful accounts

- None of the above
 - Ordinary repair of the personal car
- Salaries of domestic servant

Which of the following taxes may be deducted from gross income?

- Real property tax on commercial building

ITEMS NOT DEDUCTIBLE

One is not a deductible loss

- Loss due to removal of building or real estate purchased when the purchase was for
the acquisition of the land and without intending to use the building.

Which of the following losses cannot be initially deducted upon the happening of the event?

- YES; YES; YES

A building was partially destroyed by fire in 2015. It had a book value of P4,000,000. The
insurance company was willing to pay P3,000,000 which was refused by the owner of the
building. Finally, the claim was settled in 2017 for P3,500,000. The P3,500,000 proceeds is

- Exempt

Which cannot be a deductible as tax expense?

- YES; YES; NO

Losses from the following transactions are transactions between related parties and hence
not allowed as deductible for tax purposes, except?

- Losses incurred by a controlling (owning more than 50%) individual to a controlled

corporation

Generally, sales of real property are subject to tax. Which of the following sales of land is not
allowed by the law to be subjected to tax?

- Land foreclosed by the bank

The following are examples of corporate expenses deductible from gross income, except
one:

- Contributions to drum up business like contribution of soft drinks to barrio fiestas.

Which is a non-deductible expense?

- Tuition fee of the dependents of the taxpayer

One is not a deductible tax

- Energy tax on electrical power consumption

OPTIONAL STANDARD DEDUCTION

Which is incorrect?

- The taxpayer who wants to avail of the OSD must always use the OSD in filing his
quarterly return.
- A partner in a GPP can still claim either itemized deductions or optional deductions
from his share in the net income of the GPP
- GPP can claim OSD similar to those claimable by corporations
- To avail of the OSD, the taxpayer must signify in his return his election of the OSD

Which is not correct concerning OSD?

- It is computed as 40% of gross income or gross receipts less direct cost of services
for any taxpayer

Which of the following cannot claim optional standard deduction?

- A taxpayer earning a combination of compensation and passive income subject to

final tax

Select the correct statement concerning Optional Standard Deduction?

- Can be claimed simultaneously with a deduction for health and hospitalization

insurance by an individual taxpayer in business

Which of the following is correct regarding Net Operating Loss Carry-Over?

- NOLCO can be claimed only up to the extent of available taxable income in any given
subsequent period
Pinoy Exporters, Inc., a pioneer BOI-registered entity, incurred substantial losses from its
initial year of operation totaling P25,000,000. Under E.O. 226, pioneer firms as defined
therein enjoys tax holiday for its first 6 years of operation. If Pinoy Exporter, Inc. has a taxable
income before NOLCO of P18,000,000 in its second year of operation.

How much NOLCO can be claimed?

- P18,000,000

Which of the following taxpayers may avail the 40% optional standard deduction based on
the gross income?

- Non-resident foreign corporations

- Neither a nor b
- Both a and b
- Individual taxpayers

ACCOUNTING PERIODS

Effective February 2017, DEF Corporation changed its accounting period from a fiscal year
ending every January 31 to another fiscal year ending every August 31. Which is correct?

- DEF Corporation should file an adjustment return covering the period of February 1,
2017 to August 31, 2017.

XYZ Corporation changed its accounting period from a calendar year to a fiscal year ending
every March 31. XYZ Corporation should file its annual income tax return not later than

- July 15

Starting August, 2017, ABC Corporation changed its accounting period from a fiscal year
ending every June 30 to the calendar year. Which statement is correct?

- ABC Corporation should file an adjustment return on April 15, 2018 covering the
period of July 1, 2017 to December 31, 2017.

A corporation may change its taxable year to calendar or fiscal year in filing its annual income
tax return, provided:

- It seeks prior BIR approval of its proposed change in accounting period.

Which is correct? The fiscal accounting period is applicable only to

- Any taxpayers who are not individuals.

On October 1, 2017, Vicky sold one of her business establishment (ordinary asset). The land
and building cost Vicky P10,000,000 and was sold for P14,000,000. P500,000 was paid upon
the signing of the contract. The establishment is subject to P11,000,000 real mortgage and
is to be assumed by the buyer. Compute the amount of taxable gain to be reported in 2017.

- P4,000,000

Gross income is reported partially in each taxable year in proportion to collections made in
such period as it bears to the total contract price refer to

- Installment sales method

The following accounts relates to book of Zeus, a dealer of household appliances:

How much taxable gain is to be reported in 2017?

- P 800,000

Which among the following taxpayers may use a fiscal year as its taxable period?

- Joint accounts

On December 31, 2016, Carlo received P100,000 notes due April 1, 2017 as payment for his
business advisory services from his client. The notes can be discounted at various bank at
P96,000. Under deferred payment method, how much is taxable in 2016 and in 2017?

- P100,000; P 0

Mac Joe, a resident citizen, changed its accounting period for internal reporting purposes
from a calendar year to a fiscal year ending every June 30 after a significant change in the
nature of his business. Mac Joe should file its annual income tax not later than

- April 15

Mr. Mario was alleged to have under-declared his income during the previous year. An
examiner conducted an evaluation of Mr. Mario based on his statement of assets and
liabilities. The following information were available:
*40% was discovered unsupported and apparently fictitious

In the same period, Mr. Mario donated a parcel of land out of its declared asset with a
declared value of P200,000. Mr. Mario also presented a lists of his personal and family
expenditures aggregating P150,000 during that year. Using the net worth method, what is Mr.
Mario’s possible income?

- P220,000

A short accounting period may arise under the following scenarios, except one. Select the
exception?

- When an individual taxpayer changes his accounting period to a fiscal year.

Which is incorrect? The calendar year accounting period is applicable to

- individual income taxpayers only

RECONCILIATION OF INCOME UNDER PFRS AND INCOME UNDER TAX ACCOUNTING

Income tax return may be filed on the following, except

- Barangay treasurer of the taxpayer’s residence

In converting a GAAP accrual net income into taxable income, which of the following is
added?

- Penalties and other non-deductible expenses

Which is incorrect regarding a change in accounting period by non-individual taxpayers?

- If the change is from fiscal year to a calendar year, a separate final or adjustment
return shall be made for the period between the close of the last calendar year and
the last fiscal year
- If the change is from calendar year to fiscal year, a separate final or adjustment return
shall be made for the period between the close of the last calendar year for which
return was made and the date designated as the close of the fiscal year
 - If the change is from one fiscal year to another fiscal year, a separate final or
adjustment return shall be made for the period between the close of the former fiscal
year and the date designated as the close of the new fiscal year
- IF the change is from fiscal year to calendar year, a separate final or adjustment return
shall be made for the period between the close of the last fiscal year for which return
was made and the following December 31

The deductible expense of a taxable trust in addition to the regular expenses also allowed to
individual taxpayers, include:

- Both a and b

Katad, Inc. reported the following income in 2016 using GAAP cash basis:

Compute the taxable income of the taxpayer using the cash basis of accounting

- P400,000

Compute the taxable income of the taxpayer using the accrual basis of accounting

- P460,000

Which is correct?

- The installment method can be availed only by any taxpayer when the initial payment
do not exceed 25% of the selling price of the property sold.
- Dealers in real properties can always avail of the installment method.
- The casual sale of personal property cannot avail of the installment method if the
selling price is below P1,000
- The installment method of reporting income is applicable only to dealers in property.

Mr. Tomas, a farmer, had the following data for the year:
Using the cash method of accounting, the income is:

- P205,000

Which is incorrect regarding change in accounting methods?

- If the taxpayer changes from accrual to installment basis, he should include the
amounts received from sales or other dispositions of property made in any prior year
in the computation of his income for the year of change or any subsequent year.
- Any change in accounting method or accounting period require the BIR’s approval
- If a taxpayer adopted the cash basis and the accrual basis in computing income
earned on separate trade or business, he may opt to combine the two income
determined from the respective methods as a consolidated income for tax purposes
- If the taxpayer changes from accrual to installment basis, he should include only
receipts that relates to current sales or dispositions

MANUAL AND ELECTRONIC FILING AND E-SUBMISSION

Which of the following statements is wrong? A claim against insolvent person with no
properties whatsoever

- needs no preliminary filing of a case against the insolvent.

When will a self-employed individual file its 1st quarter income tax return?

- April 15 of the current year

XYZ Corporation adopts the fiscal year as its accounting period commencing on April 1 and
ending on March 31. For the taxable year April 1, 200A to March 31, 200B, the first quarter
return and the final adjustment return shall each be filed not later than:

- August 29, 200A and July 15, 200B, respectively

Who among the following individual taxpayers is not required to file an income tax return?
 - A partner who received his share in the profits of a taxable partnership.

The estimated income tax on self-employed individuals for 2018 shall be paid in four (4)
installments not later than:

- May 15, August 15, November 15 of the current year and April 15 of the following
calendar year.

The Bureau of Internal Revenue may grant the extension of time for filing of the Estate Tax
Return settled judicially within?

- 1 month

How long must the books of account be kept?

- For a period beginning from the last entry in each book until the last day prescribed
within which the Commissioner is allowed to make an assessment.

Which of the following statements is not correct?

- When a compulsory heir is given by will less than his legitime, the provisions of the
will should be modified in such a way that he will receive his legitime.
- The CIR may examine the bank deposit of a decedent for the purpose of determining
his gross estate even if the estate did not request for compromise on the ground of
financial incapacity.
- The P 500,000 standard deduction for medical expense for estate tax purposes is a
legal mechanism to further exempt the less privileged estate and heirs from tax
burden.
- The sharing of heirs in testamentary succession must satisfy the rules on legitime.

Under the TRAIN Law, a taxpayer who is qualified to pay his income tax for the taxable year
2018 by installment shall pay the first and second installment not later than:

- April 15, 2019 and October 15, 2019

Statement 1. The period for filing of returns and payment of taxes as provided by law may not
be amended by a revenue regulation.

Statement 2. A revenue regulation that is contrary to the law it implements is void.

- The first statement is false while the second statement is true;

While driving his car to Baguio, X, together with his wife, Y, and only son, Z, met an accident
that caused the instantaneous death of Z. The following day, Y also died in the hospital. The
spouses and their son had the following assets and liabilities at the time of death:
Which of the following statement is correct?

- A CPA certificate as regards to valuation of Y’s estate is required.

JB Bookstore is using cash method of accounting in recognizing its taxable income and
deductions. For the current year, he decided to adopt accrual method of accounting of
recognizing income and expenses. The application for permission to change the method
accounting employed and the basis upon which return is made shall be filed to the BIR within

- 90 days

LARGE TAXPAYERS, NON-LARGE TAXPAYERS AND INCOME TAX CREDITS (TAX RETURN
PREPARATION AND FILING OF TAX PAYMENTS)

ABC Corporation’s financial data for the taxable year 200A revealed an excess income tax in
its second quarter income return. What is the proper treatment of the excess income tax in
the second quarter

- Do not claim the excess income tax as tax refund or credit

TRANSFER TAX

Transfer tax is imposed to partially recover future reduction in income tax which will arise
from the split of income producing property to few or several taxpayers.

What theory statement does the statement describe?

- Tax recoupment theory

The following relates to a transfer made by a seller:

Assuming that title to the property is transferred on the date of sale, what is the amount of
donation and the type of transfer tax to apply?

- P2,500,000; donor’s tax

A property is transferred for less than full consideration when it is sold

- below the fair value of the property

Which of these is subject to tax only on transfers of properties situated in the Philippines?

- A citizen of the United States residing in Korea

Mr. Benedict made a revocable transfer of his stock investments on July 4, 2020 in favor of
his brother, Martin. Benedict died on December 15, 2020.

Assuming Benedict waived the right to revoke on August 20, 2020, what is the amount
subject to transfer tax and the type of transfer tax to apply?

- P1,100,000; donor’s tax

Which of these is taxable on global transfer of properties?

I. An American residing in the Philippines

II. A Filipino residing in Malaysia

III. A Sudanese residing in Bahrain

IV. A Chinese residing in the Philippines

- I, II and IV

Statement 1 A resident alien is taxable only on his estate situated in the Philippines.

Statement 2 A non-resident alien is taxable only on his estate situated in the Philippines.

- Only statement 2 is correct

Which will not inherit from the following group?

- Grandson from a living daughter of the decedent

There are several estate tax laws in the history of estate taxation in the Philippines. Which
applies to a particular decedent?

- The estate tax law in effect at the date of the decedent’s death

GROSS ESTATE

Which of the following statements is correct?

 - The gross estate of a resident citizen decedent would not include all properties,
whether real or personal and whether within or without
- The gross estate of a Filipino decedent who was residing in Australia would include
all properties regardless of location.
- The gross estate of an American decedent who was a resident of the Philippines
includes all properties in the Philippines only.
- The personal property of a non-resident alien is not included in the gross estate in
the Philippines if they are intangible.

Which of the following statements is correct? Property subject to vanishing deduction

should be:

- If the decedent was a citizen and resident of the Philippines, the property should be
located in the Philippines.

A resident decedent, during his lifetime, was under the conjugal partnership of gains.
Among his allowable deductions from the gross estate is vanishing deduction and the
following:

The multiplier “deductions” is:

- P2,250,000

A citizen and resident of the Philippines, died on October 10, 2019, leaving the following
properties, rights, obligations and charges:

The deduction for family home is:

- P10,000,000
In determining the taxable net estate of a decedent, which of the following rules is correct?

- Vanishing deduction must be subject to limitations.

Inheritance received is construed as unequal distribution of wealth resulting to the

imposition of estate tax describes:

- Redistribution of wealth theory

Personal property with a cost of P400,000 and a fair market value at the time of death of
P900,000, but subject to a mortgage of P250,000.

- Shall be in the gross estate at P900,000

Which of the following is not an exclusion from the gross estate?

- Proceeds of life insurance

A citizen of the Philippines and resident of Baguio City, died testate on May 10, 2017.
Among his gross estate are properties inherited from his deceased father who died on April
4, 2014. What percentage of deduction will be used in computing the amount of vanishing
deduction?

- 40% of the value taken as basis for vanishing deduction.

In computing the gross estate of a decedent:

- If he was a non-resident, but citizen of the Philippines, tangible and intangible

properties, regardless of location, shall be included.
- If he was a resident who was not a citizen of the Philippines, tangible and intangible
properties, regardless of location, shall be included.
- If he was a non-resident who was not a citizen of the Philippines, tangible and
intangible personal properties, located in the Philippines, shall be included.
- All the above statements are correct.

One of the following is not an exemption or exclusion from the gross estate.

- Shares of stock of San Miguel Corporation of a non-resident Mexican

Statement 1: For a vanishing deduction, there should always be two deaths within five
years from receipt of property.

Statement 2: For a vanishing deduction, there should always be two transfers of property
within five years whether the first transfer be gratuitous or onerous.

- Both statements are false.

1st statement: For marriages on or after August 3, 1988, the property relationship between
husband and wife, in the absence of a written agreement between them, is the system of
absolute community of property.

2nd statement: There may be a property relationship of conjugal partnership of gains even
if marriage was on or after August 3, 1988.

- Both statements are true

DEDUCTIONS ALLOWED TO ESTATE

The gross estate of A includes P80,000 receivable which is duly notarized from debtor B
whose records show:

The deductible claims against insolvent person is

- P 32,000

Mr. Estrado, an unmarried resident of the Philippines, died on January 15, 2013 leaving real
properties in Manila with fair market value of P1,560,000. Deductions claimed by the
administrator of the decedent estate are as follows:

How much funeral expense is allowed as deduction from the gross estate?

- P 83,000

A decedent died with a gross estate of P4,000,000. Which of the following is required?

- Estate tax return

Statement 1 No estate tax is due on an estate with P5,000,000 worth of properties.

Statement 2 An estate with only a family home worth P15,000,000 as its property will not
pay estate tax.

- Both statements are false

Mr. Freeman died leaving the following properties:

Compute the net taxable estate.

- P21,950,000

GROSS GIFTS

Statement 1: The gross gifts of a donor who is a non-resident alien will include all properties,
regardless of location.

Statement 2: The gross gifts of a donor who is a non-resident citizen of the Philippines, will
include only property located in the Philippines.

- Both statements are wrong.

DEDUCTIONS FROM GROSS GIFTS

On a contribution to the Roman Catholic Church by an individual, which of the following

correctly state/s the rule/s in computing the donor’s tax?

- It is considered a gross gift and a deduction from the gross gift.

Which of the following donations is entitled to deduction?

- Donation to charitable institution

- Donation to scientific organization
- Donation to social welfare institution
- Donation to a political party

When the donee or beneficiary is a stranger, the tax payable by the donor shall be

- 30% of the net gifts.

Ronald donated a total amount of P500,000, ½ to the Quezon City Hall and ½ to a
charitable institution, TAHANANG WALANG HAGDANAN. Upon inquiry, it was verified that
the charitable institution’s total receipts from donation amounted to P10M and its total
administrative expenses reached P4.0M. Ronald can claim a total deduction/exemption of:
 - P250,000

Quintos sold his land (capital asset) on September 5, 2017 to his best friend for P300,000
when the market value was P500,000. Cost of the land to taxpayer was P100,000. He gave a
commission of P20,000 to the broker and spent for documentary stamp taxes and transfer
fees the amount of P4,000. The internal revenue tax payable is:

- Final capital gain tax of P30,000.

Zee made donations to Xi and Yee, son and daughter-in-law, on account of marriage, of real
property with a fair market value of P1,500,000, but subject to a mortgage of P300,000
which was assumed by the donees.

The total donor’s tax is:

- P199,400

DONOR’S TAX CREDIT

On one date, a resident alien donor made donations of property in the Philippines to a non-
stranger, and of property outside the Philippines to a stranger. In taking a credit for the foreign
donor’s tax paid, the credit shall be against the Philippine donor’s tax on the:

- None of these.
- Donation to the non-stranger plus that to the stranger.
- Donation to the stranger.
- Donation to the non-stranger.

Leilanie, a citizen and resident of the Philippines, made the following donations on February
14, 2017:

To Mariz, a legitimate child, on account of marriage on the same day, property in Japan,
which paid the Japanese government a donor’s tax of P52,000 and with a fair market value
of P610,000

To Norie, a friend, ordinary donation of property in the Philippines, subject to a mortgage of

P60,000 which was assumed by Norie. Fair market value of the property, 160,000

The tax credit for foreign donor’s tax paid is:

- P42,857.14

In the previous question, the reciprocity clause applies to:

 - Intangible personal property

F made the following donations.

If he is a non-resident Japanese, and there is reciprocity law, his gross gift is:

- P850,000

A, a citizen and resident of the Philippines, made donations on January 10, 2017, as
follows:

Donor’s tax credit for donor’s tax paid to the U.S.:

- P1,000

The reciprocity clause in the donor’s tax law applies to a:

- Non-resident citizen
- Resident alien
- Resident citizen
- Non-resident alien

VALUE-ADDED TAX & PERCENTAGE TAXES

Which statement is correct?

- Husband and wife are considered separate taxpayers for business tax purposes.

Which is correct statement regarding the VAT?

- The taxable quarter of an individual taxpayer must be aligned to the calendar year.

Statement 1 A non-VAT-registered person who invoiced VAT on his sale shall be subject to
12% VAT without the benefit of an input VAT, 3% percentage tax, and 25% surcharge.
Statement 2 Exempt sales which are billed as regular sales shall be considered as regular
vatable sales

- Only statement 2 is true

Mapili owns a mango plantation. He harvested ripe mangoes and sold them to Fatima, fruit
stand owner and to Sweety, fresh fruit juice vendor whose annual gross sales never
exceeded P1,919,500 in 2007. For VAT purposes, which sale shall be exempt from VAT?

- The sale to Fatima only

When even if there is a business, there is no VAT imposition when:

Lease of residential unit with a monthly rental per unit exceeding P15, 000 but the aggregate
of such rentals during the year do not exceed P 3,000,000;

Lease of commercial units regarded of monthly rental per unit;

II

- OPT; VAT

A & G Construction, a VAT registered public works contractor had the following transactions:

The tax payable for the quarter:

- None

Sale by a real estate dealer

Installment output/input tax on payment of June 2, 2018:

- 249,600
Kingsman Incorporated had the following data arising out of sales and purchases in January,
2018:

The value-added tax payable for the month:

- P0

What is the effectivity of the request for cancellation of VAT registration

- On the month following the month the cancellation was approved

Which is correct statement regarding the advanced input VAT?

- The advanced input VAT is a down payment of the VAT on the ultimate sale of refined
sugar, flour or timber.

Value added tax - VAT Tax Preparation, Filing and Payment – 3

The value-added tax payable for January 2020 is:

- P34,716

Which of the following entities is not considered as a business?

- A cigarette vendor with sales not exceeding P100,000

Which is part of gross receipts?

 - Receipt of notice from a debtor to offset the consideration of the service for the debt
of the service provider

Ms. Halle Berry, self-employed, generated the following receipts during the year:

What is the total amount subject to business tax?

- P350,000

In the third quarter of 2013, a taxpayer in the sale of services whose annual gross receipts do
not exceed P 1,919,500 has the following data:

The percentage tax due for the quarter is:

- P 2,250

INTRODUCTION TO CONSUMPTION TAX

The following are major internal revenue business taxes in the NIRC of 1997, except one:

- Income tax

Which statement is considered correct?

- An excise tax which imposes a tax based on selling price or other specified value of
the article is called ad valorem tax.

INTRODUCTION TO BUSINESS TAX

Statement 1: An article may be subject to both value-added tax and excise tax.

Statement 2: The sale or exchange of shares of stocks in a domestic corporation that are
not listed and traded at the local stock exchange is subject to final percentage tax. (capital
gains tax)

- Only statement 1 is true but not statement 2.

VAT SALES

To be subject to VAT under the TRAIN Law, the lease of residential units shall have:

Monthly rental per unit of exceeding P15,000;

Gross annual rentals exceeding P3,000,000.

- Both I and II are necessary

Which of the following carrier shall be subject to value-added tax?

- Sea carrier classified as Domestic Corp voyage is from Philippines to Japan annual
gross receipts is P2,000,000

When even if there is a business, there is no VAT imposition when:

Sale of house and lot and other residential dwelling valued at 2,500,000 and below
beginning January 1, 2018;

Sale of residential lot at P1,500,000 per unit and below beginning January 1, 2018;

Sale of real properties for socialize housing

Sale of real properties for low cost housing

A business is pursued by an individual where the aggregate gross sales and or receipts do
not exceed P100,000 during the any twelve month period;

- All of the above

Goldis sells cakes and pastry items to well-known hotels and restaurants in Metro Manila.
The hotels and restaurants are allowed credit based on their track record. The total
amounts received or receivable from sales by Goldis in January of 2010 were P224,000,
including the value-added tax. 75% of the sales are normally on account. How much is the
value-added tax on the sales amount for the month of January 2010?

- P24,000

OUTPUT VAT

The records of Transylvania Hotel show the following net of VAT

The ouput tax for the year is

 - P 964,800

On May 1, 2015, a domestic corporation engaged in the real estate business sold a building
for P10 million, but with total fair market value of P12 million. The sale is subject to:

- Value-added tax at 12%

INPUT VAT

In which of the following cases may refund of input tax be allowed?

1st case: For input tax on purchases of capital goods.

2nd case: For input tax on purchases of goods and services by an exporter.

- Only in the 2nd case

What input taxes may be credited?

- Input taxes from importation of goods for sale

A creditable input tax allowed on one who becomes subject to VAT for the first time

- Transitional input tax

VAT TAX CREDITS

The following are basic principles of a sound tax system

- fiscal adequacy, administrative feasibility and theoretical justice

After recognizing the value-added tax payable for the month of December 2017, the books
of accounts of Five Belo, a merchandising company, showed a debit balance in the input
taxes account of P12,000. Sales and purchases at total invoice prices/costs for January
2018 were:
The value-added tax payable for January 2018 is:

- P34,716

One Punch Corp., a VAT-registered stockbroker (not dealer in securities) who owns shares
of stock as investments had the following selected data on gross receipts, costs and
expenses (value-added taxes not included), for January 2018:

Cost of supplies used in the brokerage business paid to VAT-taxpayers amounted to

P33,600, value-added tax included. Salaries of employees amounted to P67,200.

The value-added tax payable and the other percentage tax due for the month are:

VAT Payable

Percentage Tax due

- 56,400; 5,000

Cirrolytix, a VAT taxpayer, had the following data for the first three months of taxable year
2018:

There was a deferred input tax of P20,000 at the end of the previous year. The value-added
tax payable at the end of March is:

- P114,000

REFUND OF EXCESS INPUT VAT

After recognizing the value-added tax payable for the month of December 2017, the books
of accounts of Five Belo, a merchandising company, showed a debit balance in the input
taxes account of P12,000. Sales and purchases at total invoice prices/costs for January
2018 were:
The value-added tax on the importation is:

- P2,604

Which of the following are not account titles with balances in the books of accounts of a
VAT taxpayer?

- Excess input taxes carry-over

PERCENTAGE VS NON-VAT

Statement 1: Annual gross receipts of P10,000,000 received by a radio and TV broadcasting

franchise holder which is registered as VAT taxpayer is subject to 12% VAT.

Statement 2: The gross receipts of P 20,000,000 for the year reported by a non-VAT
registered radio and TV broadcasting franchise holder is subject to 12% VAT.

- Both statements are true.

Which of the following is exempt from VAT?

- Export sale by non-VAT individuals.

- Foreign currency denominated transactions
- Sale of services to entities duly registered with PEZA
- Sale to Ramon Magsaysay Awards Foundation

KINDS OF PERCENTAGE TAXES

One of the following is not subject to the 3% percentage tax

- Franchise grantee of electric utilities

Kapuso is a radio-TV broadcasting franchise grantee. During the preceding year, its gross
receipts did not exceed P10,000,000. During the first quarter of the current year, it has the
following data:

The franchise tax due for the quarter is:

- P 75,000

In the third quarter of 2013, a taxpayer in the sale of services whose annual gross receipts
do not exceed P 1,919,500 has the following data:

The percentage tax due for the quarter is:

- P 2,250

One of the following is a correct amusement tax rate:

- 30% on jai-alai and racetracks

DEFINITION, COVERAGE, AND APPLICABILITY

Statement 1: In computing the documentary stamp tax on deed of sale, the tax is based on
consideration at a rate of 1.5% pursuant to TRAIN law.

Statement 2: In computing the documentary stamp tax on original issue of share of stock,
the tax is based on par value at a rate of 1% pursuant to TRAIN law.

- Both statements are correct.

A debt instrument dated September 8, 2018 for a term of two (2) years and with a face value
of P250,000 was issued on the same date. How much documentary stamp tax is due on the
said instrument?

- P 1,250

The following are the non-taxable documents which of the following statements is correct.
 - Certificates of the assessed value of lands, not exceeding P200 in assessed value
furnished by the provincial, city or municipal treasurer.

Which of the following documents is exempt from documentary stamp tax?

- Bank deposits

Alpha Corporation, a newly formed corporation organized under the Philippine law issued
shares of stocks to one of its incorporators, Mr. Roger Nueva for P250,000. The par value of
the shares issued is P200,000. How much is the documentary stamps tax due

- P 2,000

Statement 1: In computing the documentary stamp tax on deed of sale, the tax is based on
consideration at a rate of 3% pursuant to TRAIN law.

Statement 2: In computing the documentary stamp tax on original issue of share of stock,
the tax is based on par value at a rate of 1% pursuant to TRAIN law.

- The first statement is wrong and the second statement is correct.

MISCELLANEOUST TAXATION TOPICS

LEVYING OF LOCAL TAXES

Statement 1: The province may levy and collect not more than ten percent (20%) of fair
market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other
quarry resources, as defined under the National Internal Revenue Code, as amended,
extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and
other public waters within its territorial jurisdiction.

Statement 2: The permit to extract sand, gravel and other quarry resources shall be issued
exclusively by the provincial governor, pursuant to the ordinance of the sangguniang
panlalawigan.

- Only Statement 2 is true

The province may impose a tax on the business of persons engaged in the printing and/or
publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets,
and others of similar nature, at a rate:

- Not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for
the preceding calendar year.
SITUS OF LOCAL TAXATION

Statement 1: Manufacturers, assemblers, repackers, brewers, distillers, rectifiers and

compounders of liquor, distilled spirits and wines, millers, producers, exporters,
wholesalers, distributors, dealers, contractors, banks and other financial institutions, and
other businesses, maintaining or operating branch or sales outlet elsewhere shall record the
sale in the branch or sales outlet making the sale or transaction, and the tax thereon shall
accrue and shall be paid to the municipality where such branch or sales outlet is located.

Statement 2: In cases where there is no such branch or sales outlet in the city or municipality
where the sale or transaction is made, the sale shall be duly recorded in the principal office
and the taxes due shall accrue and shall be paid to such city or municipality.

- Both statements are true

The following sales allocation shall apply to manufacturers, assemblers, contractors,

producers, and exporters with factories, project offices, plants, and plantations in the
pursuit of their business. Which statement is true?

Statement 1: Thirty percent (25%) of all sales recorded in the principal office shall be taxable
by the city or municipality where the principal office is located;

Statement 2: Seventy percent (70%) of all sales recorded in the principal office shall be
taxable by the city or city or municipality where the factory is located;

- Only Statement 2 is true

COMMON REVENUE RAISING POWER OF LGU

Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities,
municipalities, and barangays shall not extend to the levy of the following:

- Income tax, except when levied on banks and other financial institutions;
- Documentary stamp tax;
- Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa,
except as otherwise provided herein;
- All of the choices

Statement 1: Each local government unit shall exercise its power to create its own sources
of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent
with the basic policy of local autonomy.

Statement 2: Such taxes, fees, and charges shall accrue exclusively to the local government
units.
 - Both statements are true

MAGNA CARTA FOR DISABLED PERSONS

Statement 1: Disabled persons have the same rights as other people to take their proper
place in society.

Statement 2: Disabled persons' rights must never be perceived as welfare services by the
Government.

- True, True

Statement 1: The rehabilitation of the disabled persons shall be the concern of the
Government in order to foster their capacity to attain a more meaningful, productive and
satisfying life

Statement 2: To reach out to a greater number of disabled persons, the rehabilitation

services and benefits shall be expanded beyond the traditional urban-based centers to
community based programs that will ensure full participation of different sectors as
supported by national and local government agencies.

- True, True

The State shall provide financial assistance to economically marginalized but deserving
disabled students pursuing post-secondary or tertiary education. Such assistance may be
in the form of scholarship grants, student loan programs, subsidies, and other incentives to
qualified disabled students in both public and private schools. At least how many percent of
the allocation for the Private Education Student Financial Assistance Program created by
virtue of R.A. 6725 shall be set aside for disabled students pursuing vocational or technical
and degree courses?

- Five Percent (5%)

It refers to any loss, diminution or aberration of psychological, physiological, or anatomical

structure or function.

- Impairment

They are those suffering from restriction or different abilities, as a result of a mental, physical
or sensory impairment, to perform an activity in the manner or within the range considered
normal for a human being.

- Disabled Persons
Statement 1: Television stations shall be encouraged to provide a sign-language inset or
subtitles in at least one (1) newscast program a day and special programs covering events of
national significance.

Statement 2: All telephone companies shall be encouraged to install special telephone

devices or units for the hearing-impaired and ensure that they are commercially available to
enable them to communicate through the telephone system.

- True, True

OMNIBUS INVESTMENTS CODE (BOOK 1 OF EXECUTIVE ORDER 226)

The following is not a fiscal incentive to a BOI registered enterprise;

- Exemption from VAT

One of the following is not a function of the Chairman of BOI Board of Governors

- To act as Managing Head of the Board

All of the following are qualifications of the members of BOI Board of Governors, except;

- Natural Filipino born citizen

The Philippine Board of Investments (BOI) is an agency under the

- Department of Trade and Industry

Under whose authority the appointment of the members of the Board of Governors in the
BOI?

- President of the Philippines

Statement I – Energy is a preferred area of investment by the BOI.

Statement II – Knowledge Based Services is one of the Investment Priorities Plan of the BOI
for 2016.

- Both statements are correct

COURSE ASSESSMENT

Where is tax situs of business permit?

I. LGU Where the sales outlet or business is located.

II. If there is no sales outlet, the LGU where the principal office is located.
 III. If the manufacturer’s principal office and factory outlet are the same, the
LGU where the manufacturer’s principal office is situated.

IV. If manufacturer’s office different from factory outlet, 30% of business permit
will go LGU where manufacturer’s office and 70% of business permit will go to LGU where
factory is situated.

- All statements are correct

Pioneer enterprises are exempt from certain taxes for a certain period of time that are
otherwise applicable to other enterprises. Which of the following statements is wrong?

- This violates the constitutional requirement of rule of uniformity in taxation;

There can be no tax unless there is a law imposing the tax is consistent with the doctrine or
principle of

- due process of law

Which of the following is a correct nature of restriction (limitation) to exercise taxation

power?

Constitutional Inherent

- Territorial jurisdiction No Yes

This is not a requisite for business expense to be deductible

- It must be paid during the taxable year;

In 2020, Joana Tan Torres is an independent accounting practitioner. Her net revenue for the
year is P5M and incurred the following expenses:

How much of these expenses could she deduct on her 2020 Income Tax Return?

- P 550,000

The monetary value of this fringe benefit is 100% of the value of the fringe benefit

- The employer purchases the car in the name of the employee

Nova General Hospital, a 100 bed proprietary hospital organized in 2001, had the following
data for 2020:
The income tax still due for 2020 is:

- P 24,000

Pierre Ching, married, left the Philippines in the middle of the year on July 1, 2018 to go
abroad and work there for five (5) years. The following data were provided as of December
31, 2018:

Based on the above problem, but assuming Mr. Ching arrived from abroad on July 1, 2018 to
permanently resettle in the Philippines, after working abroad for 5 years, his taxable income
as of December 31, 2018 is:

- P 1,000,000

Individual taxpayers are subject to the following income tax:

I. Basic tax based on graduated tax table

II. Final withholding tax on passive income derived from sources within the Philippines
III. Stock transaction tax of 6/10 of 1% of gross selling price
- I and II only

Due to her expertise, Supply Chain Consultant Annie Ignacio (a freelancer) was hired by a
foreign petroleum contractor in Germany to provide technical assistance for two (2) months
from February to March. She was hired again for the months of June-July and October-
December of the same taxable year. Supply Chain Consultant Annie Ignacio is a:

- Non-resident citizen

Devant Corporation employs both regular and senior citizen employees and paid the
following compensation:
The deductible compensation expense is:

- P 1,115,000;

Using the above information, except that 20% of the regular employees are persons with
disability receiving a total compensation P 160,000, the deductible compensation of the
corporation is:

- P 1,155,000;

Cignal, a domestic corporation with total assets of P50,000,000, excluding the land on which
the PPEs are situated, organized 5 years ago has the following data for 2021:

How much is the income tax still due and payable in the second quarter?

- P 4,500

Cignal, a domestic corporation with total assets of P150,000,000, excluding the land on
which the PPEs are situated, organized 5 years ago has the following data for 2021:

How much is the income tax still due and payable in the second quarter?

- P 10,500

Royalty income received by a corporation upon effectivity of the TRAIN law shall be subject
to:

DC; RFC; NRFC

- 20%; 20%; 30%

Oxychem Corporation, a resident foreign corporation, has earned the following income
during the period:
 The total final tax on passive income for the year should be:

2017 2018
- P 200,000; 260,000

A taxpayer received during the taxable year the following passive income derived from within
the Philippines:

If taxpayer is a non-resident alien engaged in business, the final tax on the above passive
income would amount to:

- P 37,500

An annual tax of P500 was imposed upon all residents of the Philippines, who are above 21
years of age, with a gross annual income of P250,000, whether or not they send their children
to public schools, for the purpose of raising funds in order to improve public school
buildings.

The tax is

- for a public purpose

The following are similarities of the inherent power of taxation, eminent domain, and police
power, except one:

- Affect all persons or the public;

Statement 1

Symbiotic relation is the reason why the government could impose taxes on the incomes of
resident citizens derived from sources outside the Philippines
Statement 2

Jurisdiction is the reason why citizens must provide support to the state so the latter could
continue to give protection.

- Both statements are false

Tomas, Murillo, Tanghalimata and Co., CPA (TMT & Co.) are partners of an accounting firm.
The 2018 financial records of the firm disclosed the following:

How much is the taxable income of Murillo in 2018?

- P 1,720,000

How much is the distributable income of the GPP?

- P 3,060,000

How much is the distributive share of each partner in the total income of the GPP?

- P 1,020,000

Which of the following statement is correct?

- Indirect double taxation is legal as long as there is no violation of equal protection

and uniformity clauses of the Constitution;

In 2018, Mapagbigay Corporation, purchased a residential house and lot for P2,500,000. The
property was sold to the President of the corporation for P2,000,000. The fair market value
per Assessor’s Office and BIR were P4,000,000 and P3,000,000 respectively.

How much is the fringe benefits tax?

- P 1,076,923.08
In 2018, Mapagbigay Corporation, purchased a residential house and lot for P2,500,000. The
property was sold to the President of the corporation for P2,000,000. The fair market value
per Assessor’s Office and BIR were P4,000,000 and P3,000,000 respectively.

How much was the value of the fringe benefits?

- P 2,000,000

ABC Airlines, a resident foreign air carrier had the following during the quarter:

How much is the gross Philippine billings of ABC Airlines subject to Philippine income tax?

- P110,000,000

Allied Savings Bank has the following data for the month of January 2019:

Interest Income, the remaining maturity of the instrument is 5 years P 100,000

Rental (gross of 5% expanded withholding tax) 50,000

Net trading loss (10,000)

How much is the gross receipts tax on the collections of Allied Savings Bank for January
2019?

- P 8,500

Using the same data in the preceding paragraph, how much is the total business taxes due
for the month?
 - P 360,000

The following data on net income, bad debts, write-off and recovery show:

The taxable recovery in 2018 is?

Case A; Case B; Case C

- P 40,000; P 10,000; P 0

A motor vehicle accident involved City Bus Co. and a private motorcycle of Mr. Andre.
Resulting in the death of Mrs. Andre, physical injuries to Mr. Andre loss of earnings of Mr.
Andre for a month, and total loss of the motorcycle of Mr. Andre. From a court litigation, Mr.
Andre received damages, as follows: P500,000 for the death of the wife. P80,000 for his
physical injuries. P50,000 for lost earnings during the period under treatment, and P500,000
for the loss of the motorcycle that he bought for P360,000 and had a value of P500,000 at the
time of loss. Which statement is wrong?

- The damages of P50,000 for lost earnings is taxable;

Which of the following is a characteristic of income?

Decrease in taxpayer’s wealth

Unrealized gain

Return of taxpayer’s wealth

- False; False; True

Haideleen Lariba, a member of the Philippine weight lifting team received the following
during 2018:

The amount not subject to income tax is?

 - P 700,000

Mr. Sebastian is the Chief Information Officer of a very successful software development
corporation. At the age of forty-five years, and having served the company for fifteen years,
he retired from the corporation and received a retirement pay of P1,500,000 from a funded
plan registered with the Bureau of Internal Revenue. For making a very significant
contribution to the success of the corporation, he received a gratuity of P1,000,000 from the
general fund of the corporation.

Statement 1. The retirement pay received is taxable income because he had not been yet
reached the age of sixty at the time of retirement;

Statement 2. The gratuity of P1,000,000 is not taxable income because it is a gift.

- True; true

Mr. Fernandez purchased a life annuity for P100,000 which will pay him P10,000 a year. The
life expectancy of Mr. Fernandez is 12 years. Which of the following will Mr. Fernandez be
able to exclude from his gross income?

- P100,000

A donation was made by Mr. Angeles, a citizen and resident of the Philippines, to Brisney Co.,
of property in a foreign country with a fair market value of P300,000. Foreign donor’s tax of
P20,000 was paid. There was also a donation of P150,000 cash to Mr. Charlie, a legitimate
child.

How much is the tax credit for foreign donor’s tax paid?

- P 18,000

How much is the donor’s tax due after credit for foreign donor’s tax paid?

- P 9,000

How much was the donor’s tax on the donation before foreign donor’s tax credit?

- P 27,000

One of the following is subject to three percent (3%) percentage tax

- Establishments whose annual gross sales or receipts do not exceed P3,000,000 and
who are not VAT registered.

Floyd Wayweder (self-employed) is a Non-Vat registered taxpayer who operates a

convenience store. The following were provided for 2018:
Assume Floyd Wayweder opted to be taxed at 8% on his gross sales and receipts, his
applicable business tax is:

- None of the above

The percentage tax (tax due) is (above amounts are net of taxes)

- P 15,000

The 8% income tax rate shall be based on the gross sales/receipts and other non-operating
income, net of returns and cash discounts.

Purely self-employed/professional individual taxpayer who opted for 8% income tax does
not need to file and pay the 3% percentage tax.

- True, true