Taxation Law: Answers To Bar Examination Questions

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics
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ANSWERS TO BAR EXAMINATION QUESTIONS
IN
TAXATION LAW
* ARRANGED
BY TOPIC *
(1994 2006)
E !"# $% A&&$%'# ()*
ROMUALDO L. SEERIS II
Silliman University - College of Law
From the ANSWERS TO BAR EXAMINATION QUESTIONS by the UP LAW COMPLEX & P ILIPPINE ASSOCIATION OF LAW SC OOLS
June 3, 2007
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FOREWARD
This work is NOT intended FOR SALE or COMMERCE. This work is a freeware. It may be freely o!ied and distrib"ted# ne$ertheless# %ERMISSION TO CO%& from the editors is A'(ISA)LE to !rote t the interest of the ORI*INAL SO+RCES,REFERENCES of this material-. dee!er It is !rimarily intended for all those who desire to ha$e a ommonly to" hed by the %hili!!ine )ar
"nderstandin. of the iss"es
E/aminations and its trend on s!e ifi ally on Ta/ation Laws. It is s!e ifi ally intended for law st"dents from the !ro$in es who# $ery often# are re i!ients of deliberately
distorted notes from other "ns r"!"lo"s law s hools and st"dents.
I wo"ld like to seek the ind"l.en e of the reader for some )ar 0"estions whi h are im!ro!erly lassified "nder a to!i and for some to!i s whi h are im!ro!erly
or i.norantly !hrased# for the arran.er is 1"st a )ar Re$iewee who has !re!ared this work while re$iewin. for the 2
nd
time for the )ar E/ams 2334 "nder time
onstraints and within his limited knowled.e of the law. I wo"ld like to seek the reader5s ind"l.en e also for a n"mber of ty!o.ra!hi al errors in this work.
The Arranger
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Detailed Table of Contents
GENERAL PRINCIPLES...................................................................................................................8 Basic Features: Present Income Tax System (1996)....................................................................................... 8 Basic Stages or Aspects of Taxation (2 6).............................................................................................. 8 !o""ection of Taxes: Aut#ority$ %r&inary !ourts (2 1)................................................................................8 !o""ection of Taxes: Prescription (2 1)..................................................................................................... 8 'irect Tax (s) In&irect Tax (199*)............................................................................................................8 'irect Tax (s) In&irect Tax (2 )............................................................................................................8 'irect Tax (s) In&irect Tax (2 1)............................................................................................................8 'irect Tax (s) In&irect Tax (2 6)............................................................................................................9 'ou+"e Taxation (199,)..........................................................................................................................9 'ou+"e Taxation: -#at !onstitutes 'T. (1996)..........................................................................................9 'ou+"e Taxation$ In&irect 'up"icate Taxation (199,)....................................................................................9 'ou+"e Taxation$ /icense Fee (s) /oca" Tax (2 *)..................................................................................... 9 'ou+"e Taxation$ 0et#o&s of A(oi&ing 'T (199,) .......................................................................................... 9 Imprescripti+i"ity of Tax /a1s (199,)......................................................................................................... 9 Po1er of Taxation: 23ua" Protection of t#e /a1 (2 )................................................................................. 10 Po1er of Taxation: In#erent in a So(ereign State (2 4).............................................................................10 Po1er of Taxation: /ega"ity$ /oca" 5o(6t Taxation (2 4)............................................................................... 10 Po1er of Taxation: /egis"ati(e in 7ature (199*)...........................................................................................10 Po1er of Taxation: /imitations of t#e !ongress (2 1)..................................................................................10 Po1er of Taxation: /imitations: Passing of 8e(enue Bi""s (199,)...................................................................... 11 Po1er of Taxation: /imitations$ Po1er to 'estroy (2 )................................................................................11 Po1er of Taxation: 8e(ocation of 2xempting Statutes (199,)...................................................................... 11 Po1er of Taxation$ In#erent in a So(ereign State (2 9).............................................................................11 Po1er of Taxation$ /egis"ati(e in 7ature (1996)...........................................................................................12 Purpose of Taxation$ Interpretation (2 *).............................................................................................. 12 Purpose of Taxation$ /egis"ati(e in 7ature (2 *)........................................................................................ 12 8u"e on Set:%ff or !ompensation of Taxes (1996)........................................................................................12 8u"e on Set:%ff or !ompensation of Taxes (2 1)........................................................................................12 8u"e on Set:%ff or !ompensation of Taxes (2 9)........................................................................................13 8u"e on Set:%ff or !ompensation on Taxes (2 9)....................................................................................... 13 Tax A(oi&ance (s) Tax 2(asion (1996)................................................................................................... 13 Tax A(oi&ance (s) Tax 2(asion (2 )................................................................................................... 13 Tax 2xemptions: 7ature ; !o(erage$ Proper Party (2 *).............................................................................. 13 Tax /a1s$ BI8 8u"ing$ 7on:8etroacti(ity of 8u"ings (2 *)............................................................................. 14 Tax Pyrami&ing$ 'efinition ; /ega"ity (2 6).............................................................................................. 14 Taxpayer Suit$ -#en A""o1e& (1996)........................................................................................................14 <niformity in t#e !o""ection of Taxes (199=)............................................................................................ 14 INCOME TAXATION....................................................................................................................... 14 Basic: A""o1a+"e 'e&uctions (s) Persona" 2xemptions (2 1)......................................................................... 14 Basic: 0eaning of Taxa+"e Income (2 )..................................................................................................15 Basic: Princip"e of Mobilia Sequuntur Personam (199*)................................................................................. 15 Basic: Proper A""o1ance of 'epreciation (199=).......................................................................................... 15 Basic: Sources of Income: Taxa+"e Income (199=)....................................................................................... 15 Basic: Tax Benefit 8u"e (2 4)............................................................................................................... 15 Basic$ Basis of Income Tax (1996)...........................................................................................................16 Basic$ 5ross Income: 'efine (1999).......................................................................................................16 Basic$ Income (s) !apita" (1999).............................................................................................................16 Basic$ Sc#e&u"ar Treatment (s) 5"o+a" Treatment (199*)...............................................................................16 !ompensation$ Income Tax: 'ue to Profita+"e Business 'ea" (1999)..................................................................16 !orporate: Income: 'onor6s tax$ Tax /ia+i"ity (1996) .....................................................................................17 !orporate$ Income Tax$ 8easona+"eness of t#e Bonus (2 6) ......................................................................... 17 !orporate$ Income: !o(erage$ >%ff:/ine> Air"ine (199*)................................................................................. 17 !orporate$ Income: !o(erage$ >%ff:/ine> Air"ine (2 9)................................................................................. 17
'i(i&en&s: 'isguise& &i(i&en&s (199*).....................................................................................................18 'i(i&en&s$ Income Tax$ 'e&ucti+"e 5ross Income (1999)............................................................................... 18
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2ffect$ !on&onation of /oan in Taxation (1999)........................................................................................... 18 Fringe Benefit Tax: !o(ere& 2mp"oyees (2 1)........................................................................................... 18 Fringe Benefit Tax: 2mp"oyer re3uire& to Pay (2 4).....................................................................................19
Interest: 'eficiency Interest: &efine (1999 Bar).........................................................................................19 Interest: 'e"in3uency Interest: &efine (1999)...............................................................................................19 IT8: Persona" Income$ 2xempte& to Fi"e IT8 (199,)...................................................................................... 19 IT8$ 'omestic !orporate Taxation (199,)................................................................................................19 IT8$ 'omestic !orporate Taxation (2 1)................................................................................................20 IT8$ Persona" Income: T1o 2mp"oyment (2 1)........................................................................................20 IT8$ Persona" Income$ 5SIS Pension (2 )............................................................................................ 20 IT8$ Persona" Income$ 0arrie& In&i(i&ua" (2 *)..........................................................................................20 IT8$ Taxpayer$ /ia+i"ities$ Fa"sifie& Tax 8eturn (2 9)................................................................................... 20 Partners#ip: Income Tax (1999)............................................................................................................ 21 Persona"$ Income Tax: 7on:8esi&ent A"ien (2 )........................................................................................ 21 Persona"$ Income Tax: 7on:8esi&ent !iti?en (1999)......................................................................................21 Persona"$ Income Tax: Tax:Free 2xc#ange (199,)........................................................................................ 22 Persona"$ Income Tax$ !ontract of /ease (1999)..........................................................................................22 Persona"$ Income Tax$ 0arrie& In&i(i&ua" (199,)..........................................................................................22 Persona"$ Income Tax$ 8etiring A"ien 2mp"oyee (2 9).................................................................................. 23 Persona"$ Income Taxation: 7on:8esi&ent !iti?en (199,)................................................................................23 Taxa+"e Income: I""ega" Income (1999 Bar).............................................................................................. 23 Taxa+"e or 7on:Taxa+"e$ Income an& 5ains (2 9).......................................................................................23 -it##o"&ing Tax: 7on:8esi&ent A"ien (2 1)...............................................................................................24 -it##o"&ing Tax: 8etirement Benefit (2 ).............................................................................................24 -it##o"&ing Tax: 8etirement Benefit (2 ).............................................................................................24 -it##o"&ing Tax: 8oya"ty (2 2)............................................................................................................. 24 -it##o"&ing Tax$ !o(erage (2 *)...........................................................................................................25 -it##o"&ing Tax$ 'omestic !orporation$ !as# 'i(i&en&s (2 1) ...................................................................... 25 -it##o"&ing Tax$ Income su+@ect t#ereto (2 1).......................................................................................25 -it##o"&ing Tax$ 7on:8esi&ent A"ien (199*)...............................................................................................25 -it##o"&ing Tax$ 7on:8esi&ent !orporation (199*)...................................................................................... 26 -it##o"&ing Tax$ 8ea&erAs 'igest A1ar& (199=).......................................................................................... 26 -it##o"&ing Tax$ Time 'eposit Interest$ 5SIS Pension (199*)......................................................................... 26
DEDUCTIONS, EXEMPTIONS, EXCLUSIONS - INCLUSIONS..................................................... 2 'e&uction: Faci"itation Fees or >BicB+acB> (199=).....................................................................................26 'e&uctions: %r&inary Business 2xpenses (2 *)........................................................................................26 'e&uctions: Amount for Bri+e (2 1)....................................................................................................... 27 'e&uctions: !apita" /osses$ Pro#i+itions (2 4)......................................................................................... 27 'e&uctions: 'e&ucti+"e Items from 5ross Income (1999)............................................................................27 'e&uctions: Income Tax: 'onation: 8ea" Property (2 2).............................................................................. 27 'e&uctions: 7on:'e&ucti+"e Items$ 5ross Income (1999)........................................................................... 28 'e&uctions: 8e3uisites$ 'e&uci+i"ity of a /oss (199=)...................................................................................28 'e&uctions$ Income Tax: A""o1a+"e 'e&uctions (2 1)..................................................................................28 'e&uctions$ Canis#ing 'e&uction$ Purpose (2 6).......................................................................................28 2xc"usion ; Inc"usion$ 5ross 8eceipts (2 6).............................................................................................28 2xc"usion (s) 'e&uction from 5ross Income (2 1) ......................................................................................28 2xc"usions ; Inc"usions: Benefits on Account of In@ury (1999).....................................................................29 2xc"usions ; Inc"usions: 2xecuti(e Benefits (1999)......................................................................................29 2xc"usions ; Inc"usions$ Assets$ 8esi&ent A"ien (2 9).................................................................................29 2xc"usions ; Inc"usions$ Benefits on Account of 'eat# (1996) ........................................................................ 30 2xc"usions ; Inc"usions$ Benefits on Account of In@ury (2 9).....................................................................30 2xc"usions ; Inc"usions$ !ompensation for persona" in@uries or sicBness (2 4) .................................................. 30 2xc"usions ; Inc"usions$ Faci"ities or Pri(i"eges$ 0i"itary !amp (1999) .......................................................... 30 2xc"usions ; Inc"usions$ 5ifts o(er an& a+o(e t#e 8etirement Pay (1999) ...........................................................31 2xc"usions ; Inc"usions$ IT8$ 14t# mont# pay an& &e minimis +enefits (2 9) ......................................................31 2xc"usions ; Inc"usions$ IT8$ 'i(i&en&s recei(e& +y a &omestic corporation (2 9) .............................................. 31 2xc"usions ; Inc"usions$ IT8$ Income rea"i?e& from sa"e (2 9) ....................................................................... 31 2xc"usions ; Inc"usions$ IT8$ Interest on &eposits (2 9)...........................................................................31 2xc"usions ; Inc"usions$ IT8$ Procee&s of "ife insurance (2 9) ...................................................................32
2xc"usions ; Inc"usions$ /ife Insurance Po"icy (2 4)...................................................................................32
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2xemptions: !#arita+"e Institutions (2 ).................................................................................................32 2xemptions: !#arita+"e Institutions$ !#urc#es (1996)................................................................................... 32 2xemptions: 2&ucationa" institution (2 *)................................................................................................32
2xemptions: 5ifts ; 'onations (199*)....................................................................................................32 2xemptions: Dea& of t#e Fami"y: (199=)................................................................................................... 33 2xemptions: 7on:Profit 2&ucationa" Institutions (2 )................................................................................. 33 2xemptions: 7on:Profit 2ntity$ Anci""ary Acti(ity ; Inci&enta" %perations (199*) ...................................................33 2xemptions: 7on:StocBE 7on:Profit Association (2 2)................................................................................. 34 2xemptions: Pri?e of Peace Poster !ontest (2 ).................................................................................... 34 2xemptions: Pri?es ; A1ar&s$ At#"etes (1996)............................................................................................34 2xemptions: 8etirement Benefits: -orB Separation (1999)............................................................................. 34 2xemptions: Separation Pay (199*)....................................................................................................... 35 2xemptions: Separation Pay (1999)....................................................................................................... 35 2xemptions: Separation Pay (2 9)....................................................................................................... 36 2xemptions: StocB 'i(i&en&s (2 4)........................................................................................................36 2xemptions: Strict"y !onstrue& (1996)...................................................................................................36 2xemptions: Termina" /ea(e Pay (1996)....................................................................................................36 2xemptions$ !#arita+"e Institutions (2 6).................................................................................................36 2xemptions$ 2&ucationa" institution (2 *)................................................................................................36 2xemptions$ 2xemptions are <ni"atera" in 7ature (2 *)................................................................................ 37 2xemptions$ 5o(6t BonusF 5iftsF ; A""o1ances (199*)...................................................................................37 2xemptions$ Persona" ; A&&itiona" 2xemption (2 6)................................................................................... 37 2xemptions$ 8oman !at#o"ic !#urc#$ /imitations (2 9)........................................................................... 38
CAPITAL GAIN TAX....................................................................................................................... 38 !apita" Asset (s) %r&inary Asset (2 4)..................................................................................................38 !apita" 5ain Tax$ 7ature (2 1).............................................................................................................. 38 %r&inary Sa"e of a !apita" Asset (199*).....................................................................................................38 Sa"es of S#are of StocBs: !apita" 5ains Tax 8eturn (1999)..............................................................................39 Tax Basis: !apita" 5ains: 0erger of !orporations (199*) ................................................................................39 Tax Basis: !apita" 5ains: Tax:Free 2xc#ange of Property (199*)...................................................................... 39 CORPORATION - PARTNERS/IP................................................................................................ 3! Ba& 'e+ts$ Factors$ 2"ements t#ereof (2 *)........................................................................................... 39 !on&ominium !orp)$ Sa"e of !ommon Areas (199*).................................................................................. 40 !orporation$ Sa"e$ !re&ita+"e -it##o"&ing Tax (199*) ................................................................................... 40 'i(i&en&s: -it##o"&ing Tax (1999).......................................................................................................... 40 2ffect: 'isso"ution$ !orporate 2xistence (2 *)...........................................................................................41 0inimum !orporate Income Tax (2 1).....................................................................................................41 0inimum !orporate Income Tax$ 2xemption (2 1)......................................................................................41 ESTATE - DONOR0S TAXES.........................................................................................................41 'onor6s Tax: 2"ection !ontri+utions (199=)................................................................................................41 'onor6s Tax$ Basis for 'etermining 5ain (1999).......................................................................................... 41 'onor6s Tax$ 'acion en Pago$ 2ffect: Taxation (199,)................................................................................42 'onor6s Tax$ 'onation to a Si+"ing (2 1)..................................................................................................42 'onor6s Tax$ 'onation to 7on:StocBF 7on:Profit Pri(ate 2&ucationa" Institutions (2 ) .................................... 42 'onor6s Tax$ 'onation to Po"itica" !an&i&ate (2 4).................................................................................. 43 'onor6s Tax$ 'onee or Beneficiary$ Stranger (2 )..................................................................................... 43 'onor6s Tax$ Sa"e of s#ares of StocB ; Sa"e of 8ea" Property (1999)............................................................. 43 2state Tax: !ompre#ensi(e Agrarian 8eform /a1 (199*)............................................................................43 2state Tax: 'onation 0ortis !ausa (2 1)................................................................................................. 43 2state Tax: 'onation 0ortis !ausa (s) Inter Ci(os (199*) ............................................................................... 44 2state Tax: 5ross 2state: A""o1a+"e 'e&uction (2 1)...................................................................................44 2state Tax: 5ross 2state: 'e&uctions (2 )..............................................................................................44 2state Tax: Inc"usion: 8esi&ent A"ien (199*)...............................................................................................44 2state Tax: Payment (s) Pro+ate Procee&ings (2 *)....................................................................................45 2state Tax: Situs of Taxation: 7on:8esi&ent 'ece&ent (2 )...................................................................... 45 2state Tax: Canis#ing 'e&uctions (199*).................................................................................................. 45 2state Tax$ Payment (s) Pro+ate Procee&ings (2 9)....................................................................................45
BUSINESS TAXES """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" 4#
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CAT: Basis of CAT (1996)..................................................................................................................... 45 CAT: !#aracteristics of CAT (1996)..........................................................................................................45 CAT: 2xempte& Transactions (1996)........................................................................................................ 45 CAT: /ia+"e for Payment (1996).............................................................................................................. 46 CAT: Transactions >'eeme& Sa"esG (199,)................................................................................................ 46
CAT$ !o(ere& Transactions (199=)........................................................................................................ 46 CAT$ 2xemption: !onstitutiona"ity (2 *).................................................................................................. 46 CAT$ 7on:CAT taxpayer$ !"aim for 8efun& (2 6)..................................................................................... 47
REMEDIES IN INTERNAL RE1ENUE TAXES................................................................................ 47 BI8: Assessment: <nregistere& Partners#ip (199,)...................................................................................... 47 BI8: !o""ection of Tax 'eficiency (1999)....................................................................................................47 BI8: !ompromise$ !on&itions (2 )....................................................................................................... 48 BI8: !ompromise$ 2xtent of Aut#ority (1996)............................................................................................. 48 BI8: !ompromise$ -it##o"&ing Agent (199=)..............................................................................................48 BI8: !orporation: 'istraint ; /e(y (2 2).................................................................................................. 48 BI8: !ourt of Tax Appea"s: !o""ection of Taxes$ 5roun&s for !ompromise (1996) ..................................................49 BI8: !rimina" Prosecution: Tax 2(asion (199=)........................................................................................ 49 BI8: 2xtinction$ !rimina" /ia+i"ity of t#e Taxpayer (2 2)............................................................................49 BI8: Frau&u"ent 8eturn$ Prima Facie 2(i&ence (199=)................................................................................50 BI8: Frau&u"ent 8eturn$ Prima Facie 2(i&ence (2 2)................................................................................50 BI8: 5arnis#ment: BanB Account of a Taxpayer (199=) ..................................................................................50 BI8: Pre:Assessment 7otice not 7ecessary (2 2).......................................................................................51 BI8: Prescripti(e Perio&: !i(i" Action (2 2)...............................................................................................51 BI8: Prescripti(e Perio&$ Assessment ; !o""ection (1999) ..............................................................................51 BI8: Prescripti(e Perio&$ !rimina" Action (2 2)..........................................................................................51 BI8: Secrecy of BanB 'eposits /a1 (199=).................................................................................................52 BI8: Summary 8eme&y: 2state Tax 'eficiencies (199=)................................................................................. 52 BI8: <npai& Taxes (s) !"aims for <npai& -ages (1999)................................................................................. 53 BI8$ Assessment$ !rimina" !omp"aint (2 9)...........................................................................................53 BI8$ Aut#ority$ 8efun& or !re&it of Taxes (2 9)......................................................................................... 53 BI8$ !ompromise (2 *)...................................................................................................................... 53 BI8$ !ompromise (2 9)...................................................................................................................... 54 BI8$ 'eficiency Tax Assessment (s) Tax 8efun& E Tax !re&it (2 9)..............................................................54 BI8$ 'istraint$ Prescription of t#e Action (2 2)....................................................................................... 54 BI8$ Fa"se (s) Frau&u"ent 8eturn (1996)....................................................................................................55 BI8$ Huris&iction$ 8e(ie1 8u"ings of t#e !ommissioner (2 6)........................................................................ 55 BI8$ Prescripti(e Perio&$ Assessment$ Frau&u"ent 8eturn (2 2)......................................................................55 BI8$ Prescripti(e Perio&$ !rimina" Action (2 6)..........................................................................................55 BI8$ Taxpayer: !i(i" Action ; !rimina" Action (2 2).................................................................................... 55 !ustom: Cio"ation of Tax ; !ustom 'uties (2 2)........................................................................................56 !ustoms$ Basis$ Automatic 8e(ie1 (2 2).............................................................................................. 56 'e"in3uent Tax 8eturn (199=).................................................................................................................57 Huris&iction: !ustoms (s) !TA (2 )................................................................................................... 57 /5<: !o""ection of TaxesF Fees ; !#arges (199,)........................................................................................ 57 Tax Amnesty (s) Tax 2xemption (2 1).....................................................................................................57 Taxpayer: A&ministrati(e ; Hu&icia" 8eme&ies (2 )................................................................................... 57 Taxpayer: Assessment: Protest: !"aims for refun& (2 ).............................................................................. 58 Taxpayer: Assessment$ In@unction (2 *)............................................................................................... 58 Taxpayer: BI8 Au&it or In(estigation (1999).............................................................................................58 Taxpayer: !ity Boar& of Assessment 'ecision$ -#ere to appea" (1999)..............................................................59 Taxpayer: !"aim for 8efun&$ Proce&ure (2 2).........................................................................................59 Taxpayer: 'eficiency Income Tax (1999)................................................................................................... 59 Taxpayer: 2x#austion of A&ministrati(e 8eme&ies (199,)...........................................................................60 Taxpayer: Fai"ure to -it##e"& ; 8emit Tax (2 )..................................................................................... 60 Taxpayer: 7I8! (s) T!! 8eme&ies (1996)..................................................................................................60 Taxpayer: %(er1it#o"&ing !"aim for 8efun& (1999).......................................................................................61 Taxpayer: Prescripti(e Perio&: Suspen&e& (2 )........................................................................................ 61 Taxpayer: Prescripti(e Perio&$ !"aim for 8efun& (199,)................................................................................. 61 Taxpayer: Prescripti(e Perio&$ !"aims for 8efun& (199*)................................................................................61
Taxpayer: Prescripti(e Perio&$ !"aims for 8efun& (2 *)................................................................................62
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Taxpayer: Protest against Assessment (199=).............................................................................................62 Taxpayer: Protest against Assessment (1999).............................................................................................62 Taxpayer: Protest against Assessment (1999).............................................................................................62 Taxpayer: Protest$ !"aim of 8efun& (1996).................................................................................................63
Taxpayer$ Appea" to t#e !ourt of Tax Appea"s (2 9).................................................................................63 Taxpayer$ !"aim for Tax !re&its (2 6)..................................................................................................... 63 Taxpayer$ !ompromise after !rimina" Action (199=)..................................................................................... 63 Taxpayer$ Protest against Assessment$ 'onor6s Tax (1999)............................................................................64 Taxpayer$ -it##o"&ing Agent$ !"aim of Tax 8efun& (2 9)..............................................................................64
LOCAL - REAL PROPERTY TAXES............................................................................................. 4 /oca" Taxation: Actua" <se of Property (2 2).............................................................................................64 /oca" Taxation: !o(erage (2 2).............................................................................................................64 /oca" Taxation: 2xemption$ 8ea" Property Taxes (2 2).................................................................................65 /oca" Taxation: Imposition of A& Ca"orem Tax (2 ) ....................................................................................65 /oca" Taxation: /ega"ityE !onstitutiona"ity$ Tax %r&inance (2 4).................................................................65 /oca" Taxation: /ega"ity$ Imposition of 8ea" Property Tax 8ate (2 2)................................................................65 /oca" Taxation: Po1er to Impose (2 4)....................................................................................................65 /oca" Taxation: 8emissionE!on&onation of Taxes (2 *)............................................................................... 66 /oca" Taxation: 8u"e of <niformity an& 23ua"ity (2 4).............................................................................. 66 /oca" Taxation$ Situs of Professiona" Taxes (2 9) .......................................................................................66 /oca" Taxation$ Specia" /e(y on I&"e /an&s (2 9)....................................................................................... 66 8ea" Property Tax: <n&ergroun& 5aso"ine TanBs (2 4).............................................................................67 8ea" Property Tax$ 8e3uirements$ Auction Sa"es of Property for Tax 'e"in3uency (2 6) ........................................ 67 8ea" Property Taxation: !apita" Asset (s) %r&inary Asset (1999)...................................................................... 67 8ea" Property Taxation: !apita" 5ains (s) %r&inary 5ains (199=)......................................................................67 8ea" Property Taxation: !o(erage of %r&inary Income (199=).......................................................................... 67 8ea" Property Taxation: 2xc#ange of /ot$ !apita" 5ain Tax (199,).................................................................... 68 8ea" Property Taxation: 2xemptionE'e&uctions$ 'onor6s Tax (199=)............................................................. 68 8ea" Property Taxation: 2xemption: Ac3uiring 7e1 Principa" 8esi&ence (2 ) .................................................... 68 8ea" Property Taxation: Fun&amenta" Princip"es (199,)................................................................................. 69 8ea" Property Taxation: Princip"es ; /imitations: /5< (2 ) ..........................................................................69 8ea" Property Taxation: Property So"& is an %r&inary Asset (199=)................................................................... 69 8ea" Property Taxation: <n&ergroun& 5aso"ine TanBs (2 1)..........................................................................69 8ea" Property Taxation$ 2xempte& Properties (2 6).................................................................................... 69 TARI33 AND CUSTOMS DUTIES...................................................................................................70 !ustoms: IF"exi+"e Tariff !"auseG (2 1)...................................................................................................70 !ustoms: A&ministrati(e (s) Hu&icia" 8eme&ies (199,)................................................................................. 70 !ustoms: Importation (1999)................................................................................................................. 70 !ustoms: Huris&iction$ Sei?ure ; Forfeiture Procee&ings (1996)......................................................................70 !ustoms: Jin&s of !ustom 'uties (1999).................................................................................................. 70 !ustoms: Jin&s of !ustom 'uties (199,).................................................................................................. 71 !ustoms: 8eme&ies of an Importer (1996)................................................................................................. 71 !ustoms: 8eturning 8esi&ents: TouristETra(e"ers (2 4)................................................................................71 !ustoms: Sei?ure ; Forfeiture: 2ffects (199*).............................................................................................71 !ustoms: Steps in(o"(ing Protest !ases (199*)....................................................................................... 72 !ustoms$ Basis of 'utia+"e Ca"ue$ Importe& Artic"e (2 9)..........................................................................72 !ustoms$ !ounter(ai"ing 'uty (s) 'umping 'uty (2 9)................................................................................ 72 !ustoms$ Taxa+i"ity$ Persona" 2ffects (2 9)..............................................................................................72 OT/ER RELATED MATTERS.........................................................................................................73 BI8: BanB 'eposits Secrecy Cio"ation (2 )........................................................................................... 73 BI8: Secrecy of BanB 'eposit /a1 (2 4)............................................................................................... 73
GENERAL PRINCIPLES
Basic Features: Present Income Tax System (1996) What are the asic feat!res of the "resent income ta# s$stem%&
SUGGESTED ANSWER*
+2, A77977?9=T and 4'::94T-'= > This is the act of e#ec!ting the la) thro!gh the administrati(e agencies of go(ernment. +3, 2A<?9=T > the act of the ta#"a$er in settling his ta# o ligations.
'!r "resent income ta# s$stem can e said to ha(e the follo)ing asic feat!res* +a, -t has ado"ted a COMPREHENSIVE TAX SITUS $ !sing the nationalit$. residence. and so!rce r!les. This ma/es citi0ens and resident aliens ta#a le on their income deri(ed from all so!rces )hile non1resident aliens are ta#ed onl$ on their income deri(ed from )ithin the 2hili""ines. 3omestic cor"orations are also ta#ed on !ni(ersal income )hile foreign cor"orations are ta#ed onl$ on income from )ithin.
+ , The indi(id!al mainl$ income ta# s$stem is
PROGRESSIVE IN NATURE in that it "ro(ides a grad!ated rates of income ta#. 4or"orations in general are ta#ed at a flat rate of thirt$ fi(e "ercent +355, of net income.
+c, -t has retained MORE SCHEDULAR THAN GLOBAL FEATURES )ith res"ect to indi(id!al ta#"a$ers !t has maintained a more glo al
treatment on cor"orations. $ote% The following might also be cited by the bar candidates as features of the income tax system:
a. -ndi(id!al com"ensation income earners are ta#ed on modified 6ross -ncome +6ross com"ensation income less "ersonal e#em"tions,. 7elf1 em"lo$ed and "rofessionals are ta#ed on net income )ith ded!ctions limited to se(en items or in lie! thereof the fort$ "ercent +405, ma#im!m ded!ction "l!s the "ersonal e#em"tions. 4or"orations are generall$ ta#ed on net income e#ce"t for non1resident foreign cor"orations )hich are ta#ed on gross income. The income ta# is generall$ im"osed (ia the self1 assessment s$stem or "a$1as1$o!1file conce"t of im"osing the ta# altho!gh certain incomes. -ncl!ding income of non1residents. are ta#ed on the "a$1as1 $o!1earn conce"t or the so called )ithholding ta#.
c.
The cor"orate income ta# is a one1la$er ta# in that distri !tion of "rofits to stoc/holders (except to non- residents) are not s! 8ect to income ta#.
Basic Stages or Aspects of Taxation (2 6) 9n!merate the 3 stages or as"ects of ta#ation. 9#"lain each. +55,
SUGGESTED ANSWER*
The as"ects of ta#ation are* +1, :9;<-=6 > the act of the legislat!re in choosing the "ersons. "ro"erties. rights or "ri(ileges to e s! 8ected to ta#ation.
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4 of
SUGGESTED ANSWER*
73
!o""ection of Taxes: Aut#ority$ %r&inary !ourts (2 1) ?a$ the co!rts en8oin the collection of re(en!e ta#es& 9#"lain $o!r ans)er. +25,
SUGGESTED ANSWER*
3-@94T TAB97 are ta#es )herein oth the incidence +or lia ilit$ for the "a$ment of the ta#, as )ell as the im"act or !rden of the ta# falls on the same "erson. An
As a general r!le. the co!rts ha(e no a!thorit$ to en8oin the collection of re(en!e ta#es. +7ec. 218. =-@4,. Ao)e(er. the 4o!rt of Ta# A""eals is em"o)ered to en8oin the collection of ta#es thro!gh administrati(e remedies )hen collection co!ld 8eo"ardi0e the interest of the go(ernment or ta#"a$er. +7ection 11. @A 1125,.
!o""ection of Taxes: Prescription (2 1) ?a$ the collection of ta#es e arred $ "rescri"tion& 9#"lain $o!r ans)er. +35,
SUGGESTED ANSWER*
<es. The collection of ta#es ma$ e arred $ "rescri"tion. The "rescri"ti(e "eriods for collection of ta#es are go(erned $ the ta# la) im"osing the ta#. Ao)e(er. if the ta# la) does not "ro(ide for "rescri"tion. the right of the go(ernment to collect ta#es ecomes im"rescri"ti le. 'irect Tax (s) In&irect Tax (199*) 3isting!ish a direct from an indirect ta#.
SUGGESTED ANSWER*
A 3-@94T TAB is one in )hich the ta#"a$er )ho "a$s the ta# is directl$ lia le therefor. that is. the !rden of "a$ing the ta# falls directl$ on the "erson "a$ing the ta#. An -=3-@94T TAB is one "aid $ a "erson )ho is not directl$ lia le therefor. and )ho ma$ therefore shift or "ass on the ta# to another "erson or entit$. )hich !ltimatel$ ass!mes the ta# !rden. (Maceda v.
Macaraig
!"# SCRA ##!$
'irect Tax (s) In&irect Tax (2 ) Among the ta#es im"osed $ the C!rea! of -nternal @e(en!e are income ta#. estate and donorDs ta#. (al!e1 added ta#. e#cise ta#. other "ercentage ta#es. and doc!mentar$ stam" ta#. 4lassif$ these ta#es into direct and indirect ta#es. and differentiate direct from -ndirect ta#es. +55,
SUGGESTED ANSWER*
-ncome ta#. estate and donorDs ta# are considered as direct ta#es. 'n the other hand. (al!e1added ta#. e#cise ta#. other "ercentage ta#es. and doc!mentar$ stam" ta# are indirect ta#es. 3-@94T TAB97 are demanded from the (er$ "erson )ho. as intended. sho!ld "a$ the ta# )hich he cannot shift to anotherE )hile an -=3-@94T TAB is demanded in the first instance from one "erson )ith the e#"ectation that he can shift the !rden to someone else. not as a ta# !t as a "art of the "!rchase "rice. 'irect Tax (s) In&irect Tax (2 1) 3isting!ish direct ta#es from indirect ta#es. and gi(e an e#am"le for each one. +25,
"!rchaser or cons!mer. 9#am"le* (al!e added ta#. 'irect Tax (s) In&irect Tax (2 6) 3isting!ish %direct ta#es% from %indirect ta#es.% 6i(e e#am"les. +55,
SUGGESTED ANSWER*
3-@94T TAB97 are demanded from the (er$ "erson )ho sho!ld "a$ the ta# and )hich he can not shift to another. An -=3-@94T TAB is demanded from one "erson )ith the e#"ectation that he can shift the !rden to someone else. not as a ta# !t as "art of the "!rchase "rice. 9#am"les of direct ta#es are the income ta#. the estate ta# and the donorDs ta#. 9#am"les of indirect ta#es are the (al!e1 added ta#. the "ercentage ta# and the e#cise ta# on e#cisea le articles. 'ou+"e Taxation (199,) -s do! le ta#ation a (alid defense against the legalit$ of a ta# meas!re&
SUGGESTED ANSWER*
=o. do! le ta#ation standing alone and not eing for idden $ o!r f!ndamental la) is not a (alid defense against the legalit$ of a ta# meas!re
Ao)e(er. if do! le ta#ation amo!nts to a direct d!"licate ta#ation. 1. in that the same s! 8ect is ta#ed t)ice )hen it sho!ld e ta#ed !t once. 2. in a fashion that oth ta#es are im"osed for the same "!r"ose 3. $ the same ta#ing a!thorit$. )ithin the same 8!risdiction or ta#ing district. 4. for the same ta#a le "eriod and 5. for the same /ind or character of a ta# then it ecomes legall$ o 8ectiona le eing o""ressi(e and ineF!ita le. for
(Pe*+i C,-a v.
Ta%a&a% '" SCRA (')$.

'ou+"e Taxation: -#at !onstitutes 'T. (1996) B. a lessor of a "ro"ert$. "a$s real estate ta# on the "remises. a real estate dealerDs ta# ased on rental recei"ts and income ta# on the rentals. B claims that this is do! le ta#ation& 3ecide.
SUGGESTED ANSWER*
e#am"le of this ta# is income ta# )here the "erson s! 8ect to ta# cannot shift the !rden of the ta# to another "erson. -=3-@94T TAB97. on the other hand. are ta#es )herein the incidence of or the lia ilit$ for the "a$ment of the ta# falls on one "erson !t the !rden thereof can e shifted or "assed on to another "erson. 9#am"le of this ta# is the (al!e1added ta#.
ALTERNATI1E ANSWER*
A direct ta# is a ta# )hich is demanded from the "erson )ho also sho!lders the !rden of the ta#. 9#am"le* cor"orate and indi(id!al income ta#. An indirect ta# is a ta# )hich is demanded from one "erson in the e#"ectation and intention that he shall indemnif$ himself at the e#"ense of another. and the !rden finall$ resting on the !ltimate
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There is no
do! le ta#ation. 3'GC:9 TABAT-'= means ta#ing for the same ta# "eriod the same thing or acti(it$ t)ice. )hen it sho!ld e ta#ed !t once. $ the same ta#ing a!thorit$ for the same "!r"ose and )ith the same /ind or character of ta#. The @9A: 97TAT9 TAB is a ta# on "ro"ert$E the @9A: 97TAT9 39A:9@D7 TAB is a ta# on the "ri(ilege to engage in !sinessE )hile the -=4'?9 TAB is a ta# on the "ri(ilege to earn an income. These ta#es are im"osed $ different ta#ing a!thorities and are essentiall$ of different /ind and character (Vi--a%.eva v+. Ci/0 ,1 I-,i-,
2' SCRA
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Imprescripti+i"ity of Tax /a1s (199,) Ta#es )ere generall$ im"rescri"ti leE stat!tes. ho)e(er. ma$ "ro(ide other)ise. 7tate the r!les that ha(e een ado"ted on this score $ 1
3#4$.
'ou+"e Taxation$ In&irect 'up"icate Taxation (199,) When an item of income is ta#ed in the 2hili""ines and the same income is ta#ed in another co!ntr$. is there a case of do! le ta#ation&
SUGGESTED ANSWER*
<es. !t it is onl$ a case of indirect d!"licate ta#ation )hich is not legall$ "rohi ited eca!se the ta#es are im"osed $ different ta#ing a!thorities. 'ou+"e Taxation$ /icense Fee (s) /oca" Tax (2 *) A m!nici"alit$. CC. has an ordinance )hich reF!ires that all stores. resta!rants. and other esta lishments selling liF!or sho!ld "a$ a fi#ed ann!al fee of 220.000. 7! seF!entl$. the m!nici"al oard "ro"osed an ordinance im"osing a sales ta# eF!i(alent to 55 of the amo!nt "aid for the "!rchase or cons!m"tion of liF!or in stores. resta!rants and other esta lishments. The m!nici"al ma$or. 44. ref!sed to sign the ordinance on the gro!nd that it )o!ld constit!te do! le ta#ation. -s the ref!sal of the ma$or 8!stified& @eason riefl$. +55,
SUGGESTED ANSWER*
=o. The ref!sal of the ma$or is not 8!stified. The im"ositions are of different nat!re and character. The fi#ed ann!al fee is in the nat!re of a license fee im"osed thro!gh the e#ercise of "olice "o)er )hile the 55 ta# on "!rchase or cons!m"tion is a local ta# im"osed thro!gh the e#ercise of ta#ing "o)ers. Coth a license fee and a ta# ma$ e im"osed on the same !siness or occ!"ation. or for selling the same article and this is not in (iolation of the r!le against do! le ta#ation H Ca5*a%ia Ge%era- de
Ta6ac,+ de Fi-i*i%,+ v. Ci/0 ,1 Ma%i-a 4 SCRA 7'# 8!"'79,. 'ou+"e Taxation$ 0et#o&s of A(oi&ing 'T (199,) What are the !s!al methods of a(oiding the occ!rrence of do! le ta#ation&
SUGGESTED ANSWER*
The !s!al methods of a(oiding the occ!rrence of do! le ta#ation are* 1. Allo)ing reci"rocal e#em"tion either $ la) or $ treat$E 2. Allo)ance of ta# credit for foreign ta#es "aidE 3. Allo)ance of ded!ction for foreign ta#es "aidE and 4. @ed!ction of the 2hili""ine ta# rate.
Note: Any three of the methods shall be given full credit.
+a, The =ational -nternal @e(en!e 4odeE + , The Tariff and 4!stoms 4odeE and +c, The :ocal 6o(ernment 4ode Ans)er*
SUGGESTED ANSWERS*
The r!les that ha(e een ado"ted on "rescri"tion are as follo)s* +a, $ational &nte'nal Re(enue Code 1 The stat!te of limitation for assessment of ta# if a ret!rn is filed is )ithin three +3, $ears from the last da$ "rescri ed $ la) for the filing of the ret!rn or if filed after the last da$. )ithin three $ears from date of act!al filing. -f no ret!rn is filed or the ret!rn filed is false or fra!d!lent. the "eriod to assess is )ithin T9= <9A@7 from disco(er$ of the omission. fra!d or falsit$. The "eriod to collect the ta# is )ithin TA@99 <9A@7 from date of assessment. -n the case. ho)e(er. of omission to file or if the ret!rn filed is false or fra!d!lent. the "eriod to collect is )ithin T9= <9A@7 from disco(er$ )itho!t need of an assessment.
+ , Ta'iff and Custo)s Code 1 -t does not e#"ress an$ general stat!te of limitationE it "ro(ided. ho)e(er. that %)hen articles ha(e entered and "assed free of d!t$ or final ad8!stment of d!ties made. )ith s! seF!ent deli(er$. s!ch entr$ and "assage free of d!t$ or settlement of d!ties )ill. after the e#"iration of '=9 +1, <9A@. from the date of the final "a$ment of d!ties. in the a sence of fra!d or "rotest. e final and concl!si(e !"on all "arties. !nless the liF!idation of -m"ort entr$ )as merel$ tentati(e% +7ec 1603. T44,.
reasona le classification. 4lassification. to e (alid. m!st +1, rest on s! stantial distinctions. +2, e germane to the "!r"ose of the la). +3, not e limited to e#isting conditions onl$. +4, a""l$ eF!all$ to all mem ers of the same class.
+c, *o+al ,o(e'n)ent Code 1

charges shall <9A@7
:ocal ta#es. fees. or e assessed )ithin I-;9 +5,
from the date the$ ecame d!e. -n case of fra!d or intent to e(ade the "a$ment of ta#es. fees or charges the same ma$ e assessed )ithin T9= <9A@7 from
disco(er$ of the fra!d or intent to e(ade "a$ment. The$ shall also e collected either $ administrati(e
or 8!dicial action )ithin I-;9 +5, <9A@7 from date

of assessment +7ec. 194. :64,.
Po1er of Taxation: 23ua" Protection of t#e /a1 (2
An 9#ec!ti(e 'rder )as iss!ed "!rs!ant to la). granting ta# and d!t$ incenti(es onl$ to !sinesses and residents )ithin the %sec!red area% of the 7! ic 9conomic 7"ecial Jone. and den$ing said incenti(es to those )ho li(e )ithin the Jone !t o!tside s!ch %sec!red area%. -s the constit!tional right to eF!al "rotection of the la) (iolated $ the 9#ec!ti(e 'rder& 9#"lain. +35,
SUGGESTED ANSWER*
=o. 9F!al "rotection of the la) cla!se is s! 8ect to
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There are s! stantial differences
et)een ig
10 of 73
Po1er of Taxation: /imitations of t#e !ongress (2 1)

4ongress. after m!ch "! lic hearing and cons!ltations )ith (ario!s sectors of societ$. came to the concl!sion that it )ill e good for the co!ntr$ to ha(e onl$ one
in(estors eing enticed to the %sec!red area% and the !siness o"erators o!tside that are in accord )ith the eF!al "rotection cla!se that does not reF!ire territorial !niformit$ of la)s. The classification a""lies eF!all$ to all the resident indi(id!als and !sinesses )ithin the %sec!red area%. The residents. eing in li/e circ!mstances to contri !ting directl$ to the achie(ement of the end "!r"ose of the la). are not categori0ed f!rther. -nstead. the$ are similarl$ treated. oth in "ri(ileges granted and o ligations reF!ired. (Tiu et al v. !ourt of "npeals et al #.$. No. %&'"%( )anuary &( %***)
Po1er of Taxation: In#erent in a So(ereign State (2 4) Wh$ is the "o)er to ta# considered inherent in a so(ereign 7tate& +45,
SUGGESTED ANSWER*
-t is considered inherent in a so(ereign 7tate eca!se it is a necessar$ attri !te of so(ereignt$. +ithout this power no sovereign ,tate can exist or endure . The power to tax proceeds upon the theory that the existence of a government is a necessity and this power is an essential and inherent attribute of sovereignty belonging as a matter of right to every independent state or government. =o so(ereign state can contin!e to e#ist )itho!t the means to "a$ its e#"ensesE and that for those means. it has the right to com"el all citi0ens and "ro"ert$ )ithin its limits to contri !te. hence. the emergence of the "o)er to ta#. (-% Am. )ur. Taxation "(). Po1er of Taxation: /ega"ity$ /oca" 5o(6t Taxation (2 4) ?a$ 4ongress. !nder the 1987 4onstit!tion. a olish the "o)er to ta# of local go(ernments& +45,
SUGGESTED ANSWER*
=o. 4ongress cannot a olish )hat is e#"ressl$ granted $ the f!ndamental la). The onl$ a!thorit$ conferred to 4ongress is to "ro(ide the g!idelines and limitations on the local go(ernmentDs e#ercise of the "o)er to ta# +7ec. 5. Art. B. 1987 4onstit!tion,. Po1er of Taxation: /egis"ati(e in 7ature (199*) The 7ecretar$ of Iinance. !"on recommendation of the 4ommissioner of -nternal @e(en!e. iss!ed a @e(en!e @eg!lation !sing gross income as the ta# ase for cor"orations doing !siness in the 2hili""ines. -s the @e(en!e @eg!lation (alid&
SUGGESTED ANSWER*
The reg!lation esta lishing gross income as the ta# ase for cor"orations doing !siness in the 2hili""ines +domestic as )ell as resident foreign, is not (alid. This is no longer im"lementation of the la) !t act!all$ it constit!tes legislation eca!se among the "o)ers that are e#cl!si(el$ )ithin the legislati(e a!thorit$ to ta# is the "o)er to determine 1the amo!nt of the ta#. (,ee % !ooley %'.-%/"). 4ertainl$. if the ta# is limited to gross income )itho!t ded!ctions of these cor"orations. this is changing the amo!nt of the ta# as said amo!nt !ltimatel$ de"ends on the ta#a le ase.
s$stem of ta#ation $ centrali0ing the im"osition and collection of all ta#es in the national go(ernment. Accordingl$. it is thin/ing of "assing a la) that )o!ld a olish the ta#ing "o)er of all local go(ernment !nits. -n $o!r o"inion. )o!ld s!ch a la) e (alid !nder the "resent 4onstit!tion& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
carr$ o!t the legitimate o 8ects of go(ernment. The !nderl$ing asis for its e#ercise is go(ernmental necessit$ for )itho!t it no go(ernment can e#ist nor end!re. Accordingl$. it has the
=o. The la) centrali0ing the im"osition and collection of all ta#es in the national go(ernment )o!ld contra(ene the 4onstit!tion )hich mandates that* . . . %9ach local go(ernment !nit shall ha(e the "o)er to create their o)n so!rces of re(en!e and to le($ ta#es. fees. and charges s! 8ect to s!ch g!idelines and limitations as 4ongress ma$ "ro(ide consistent )ith the asic "olic$ of local a!tonom$.% -t is clear that 4ongress can onl$ gi(e the g!idelines and limitations on the e#ercise $ the local go(ernments of the "o)er to ta# !t )hat )as granted $ the f!ndamental la) cannot e )ithdra)n $ 4ongress.
Po1er of Taxation: /imitations: Passing of 8e(enue Bi""s (199,) The Ao!se of @e"resentati(es introd!ced AC 7000 )hich en(isioned to le($ a ta# on (ario!s transactions. After the ill )as a""ro(ed $ the Ao!se. the ill )as sent to the 7enate as so reF!ired $ the 4onstit!tion. -n the !""er ho!se. instead of a deli eration on the Ao!se Cill. the 7enate introd!ced 7C 8000 )hich )as its o)n (ersion of the same ta#. The 7enate deli erated on this 7enate Cill and a""ro(ed the same. The Ao!se Cill and the 7enate Cill )ere then consolidated in the Cicameral 4ommittee. 9(ent!all$. the consolidated ill )as a""ro(ed and sent to the 2resident )ho signed the same. The "ri(ate sectors affected $ the ne) la) F!estioned the (alidit$ of the enactment on the gro!nd that the constit!tional "ro(ision reF!iring that all re(en!e ills sho!ld originate from the Ao!se of @e"resentati(es had een (iolated. @esol(e the iss!e.
SUGGESTED ANSWER*
There is no (iolation of the constit!tional reF!irement that all re(en!e ills sho!ld originate from the Ao!se of @e"resentati(es. What is "rohi ited is for the 7enate to enact re(en!e meas!res on its o)n )itho!t a ill originating from the Ao!se. C!t once the re(en!e ill )as "assed $ the Ao!se and sent to the 7enate. the latter can "ass its o)n (ersion on the same s! 8ect matter consonant )ith the latterDs "o)er to "ro"ose or conc!r )ith amendments. This follo)s from the co1 eF!alit$ of the t)o cham ers of 4ongress + T,-e%/i%, v. Secre/ar0 ,1 Fi%a%ce GR N,. !!3(33 Oc/. 7) !""3,.
Po1er of Taxation: /imitations$ Po1er to 'estroy (2 ) K!stice Aolmes once said* The power to tax is not the power to destroy while this !ourt (the ,upreme !ourt) sits.0 3escri e the "o)er to ta# and its limitations. +55,
SUGGESTED ANSWER*
The "o)er to ta# is an inherent "o)er of the so(ereign )hich is e#ercised thro!gh the legislat!re. to im"ose !rdens !"on s! 8ects and o 8ects )ithin its K!risdiction for the "!r"ose of raising re(en!es to
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roadest sco"e of all the "o)ers of go(ernment eca!se in the a sence of limitations. it is considered as !nlimited. "lenar$. com"rehensi(e and s!"reme. The t)o limitations on the "o)er of ta#ation are the inherent and constit!tional limitations )hich are intended to "re(ent a !se on the e#ercise of the other)ise "lenar$ and !nlimited "o)er. -t is the 4o!rtDs role to see to it that the e#ercise of the "o)er does not transgress these limitations. Po1er of Taxation: 8e(ocation of 2xempting Statutes (199,)
%B% 4or"oration )as the reci"ient in 1990 of t)o ta# e#em"tions oth from 4ongress. one la) e#em"ting the com"an$Ds ond iss!es from ta#es and the other e#em"ting the com"an$ from ta#es in the o"eration of its "! lic !tilities. The t)o la)s e#tending the ta# e#em"tions )ere re(o/ed $ 4ongress efore their e#"ir$ dates. Were the re(ocations constit!tional&
SUGGESTED ANSWER*
11 of 73
raise re(en!e for "! lic "!r"oses. The "o)er to ta# is so !nlimited in force and so searching in e#tent that co!rts scarcel$ (ent!re to declare it is
<es. The e#em"ting stat!tes are oth granted !nilaterall$ $ 4ongress in the e#ercise of ta#ing "o)ers. 7ince ta#ation is the r!le and ta# e#em"tion. the e#ce"tion. an$ ta# e#em"tion !nilaterall$ granted can e )ithdra)n at the "leas!re of the ta#ing a!thorit$ )itho!t (iolating the 4onstit!tion +Mac/a% Ce6. I%/er%a/i,%a- Air*,r/ A./:,ri/0 v Marc,+ G.R N,. !2))42 Se*/e56er !! !""',. =either of these )ere iss!ed $ the ta#ing a!thorit$ in a contract la)f!ll$ entered $ it so that their re(ocation )o!ld not constit!te an im"airment of the o ligations of contracts.
ALTERNATI1E ANSWER*
=o. The )ithdra)al of the ta# e#em"tion amo!nts to a de"ri(ation of "ro"ert$ )itho!t d!e "rocess of la). hence !nconstit!tional. Po1er of Taxation$ In#erent in a So(ereign State (2 9) 3escri e the "o)er of ta#ation. ?a$ a legislati(e od$ enact la)s to raise re(en!es in the a sence of a constit!tional "ro(ision granting said od$ the "o)er to ta#& 9#"lain.
SUGGESTED ANSWER*
<es. the legislati(e od$ ma$ enact la)s e(en in the a sence of a constit!tional "ro(ision eca!se the "o)er to ta# is inherent in the go(ernment and not merel$ a constit!tional grant. The "o)er of ta#ation is an essential and inherent attri !te of so(ereignt$ elonging as a matter of right to e(er$ inde"endent go(ernment )itho!t eing e#"ressl$ granted $ the "eo"le. (Pe*+i;C,-a B,//-i%g
C,5*a%0 ,1 /:e P:i-i**i%e+ I%c. v. M.%ici*a-i/0 ,1 Ta%a.a% Le0/e G.R. N,. L;7!!3' Fe6r.ar0 2# !"#'$
Ta#ation is the inherent "o)er of a 7tate to collect enforced "ro"ortional contri !tion to s!""ort the e#"enses of go(ernment. Ta#ation is the "o)er (ested in the legislat!re to im"ose !rdens or charges !"on "ersons and "ro"ert$ in order to
s! 8ect to an$ restrictions )hate(er. e#ce"t s!ch as rest in the discretion of the a!thorit$ )hich e#ercises it. (Ti,
v.
Vide,gra5 Reg.-a/,r0 B,ard G.R. N,. L;#3'"# <.%e !4 !"4#$ 7o "otent is the "o)er to ta# that it )as once o"ined
ans)er. it sho!ld e gi(en f!ll credit considering that the "resent 4TA Act +@.A. =o. 9282, has made the 4TA a coeF!al 8!dicial od$ of the 4o!rt of A""eals. The F!estion %Which of the follo)ing "ro"ositions
that %the "o)er to ta# in(ol(es the "o)er to destro$.%

(C.<. Mar+:a-- i% McC.--,c: v. Mar0-a%d ( =:ea/ 7!' ( L. Ed. 3#" ')#$
Po1er of Taxation$ /egis"ati(e in 7ature (1996) What is the nat!re of the "o)er of ta#ation&
SUGGESTED ANSWER*
The 2'W9@ T' TAB is an attri !te of so(ereignt$ and is inherent in the 7tate. -t is a "o)er emanating from necessit$ eca!se it im"oses a necessar$ !rden to "reser(e the 7tateDs so(ereignt$ (P:iG.ara%/ee C,. v+. C,55i++i,%er L;22)#( A*ri- 7) !"'3$. -t is inherentl$ legislati(e in nat!re and
character in that the "o)er of ta#ation can onl$ e e#ercised thro!gh the enactment of la).
ALTERNATI1E ANSWER*
The nat!re of the "o)er of ta#ation refers to its o)n limitations s!ch as the reF!irement that it sho!ld e for a "! lic "!r"ose. that it e legislati(e. that it is territorial and that it sho!ld e s! 8ect to international comit$.
Purpose of Taxation$ Interpretation (2 *) Which of the follo)ing "ro"ositions ma$ no) e !ntena le* 1, The co!rt sho!ld constr!e a la) granting ta# e#em"tion strictl$ against the ta#"a$er. 2, The co!rt sho!ld constr!e a la) granting a m!nici"al cor"oration the "o)er to ta# most strictl$. 3, The 4o!rt of Ta# A""eals has 8!risdiction o(er decisions of the 4!stoms 4ommissioner in cases in(ol(ing lia ilit$ for c!stoms d!ties. 4, The 4o!rt of A""eals has 8!risdiction to re(ie) decisions of the 4o!rt of Ta# A""eals. 5, The 7!"reme 4o!rt has 8!risdiction to re(ie) decisions of the 4o!rt of A""eals. K!stif$ $o!r ans)er or choice riefl$. +55,
SUGGESTED ANSWER*
2. The court should construe a law granting a municipal corporation the power to tax most strictly.
This "ro"osition is no) !ntena le. The asic rationale for the grant of ta# "o)er to local go(ernment !nits is to safeg!ard their (ia ilit$ and self1s!fficienc$ $ directl$ granting them general and road ta# "o)ers (Ma%i-a
E-ec/ric C,5*a%0 v. Pr,vi%ce ,1 Lag.%a e/. a-. 7)' SCRA #3) 8!"""9$. 4onsidering that inasm!ch as the "o)er to ta# ma$
e e#ercised $ local legislati(e odies. no longer $ (alid congressional delegation !t $ direct a!thorit$ conferred $ the 4onstit!tion. in inter"reting stat!tor$ "ro(isions on m!nici"al fiscal "o)ers. do! ts )ill. therefore. ha(e to e resol(ed in fa(or of m!nici"al cor"orations (Ci/0 G,ver%5e%/ ,1 Sa% Pa6-, Lag.%a v. Re0e+ 7)3 SCRA 737 8!"""9$. This means that the co!rt m!st ado"t a li eral constr!ction of a la) granting a m!nici"al cor"oration the "o)er to ta#.
$ote% -f the e#aminee chose "ro"osition no" 4 as his
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12
of
ma$ no) e !ntena le% ma$ lead the 73 e#aminee to choose a "ro"osition )hich is !ntena
?a$ a ta#"a$er )ho has "ending claims for ;AT in"!t credit or ref!nd. set1off said claims against his other ta# lia ilities& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
le on the asis of the ne) la) des"ite the c!t1off date ado"ted $ the Car 9#amination 4ommittee. @.A. =o. 9282 )as "assed on ?arch 30. 2004.
Purpose of Taxation$ /egis"ati(e in 7ature (2 *) Ta#es are assessed for the "!r"ose of generating re(en!e to e !sed for "! lic needs. Ta#ation itself is the "o)er $ )hich the 7tate raises re(en!e to defra$ the e#"enses of go(ernment. A 8!rist said that a ta# is )hat )e "a$ for ci(ili0ation.-n o!r 8!risdiction. )hich of the follo)ing statements ma$ e erroneo!s* 1, Ta#es are "ec!niar$ in nat!re. 2, Ta#es are enforced charges and contri !tions. 3, Ta#es are im"osed on "ersons and "ro"ert$ )ithin the territorial 8!risdiction of a 7tate. 4, Ta#es are le(ied $ the e#ec!ti(e ranch of the go(ernment. 5, Ta#es are assessed according to a reasona le r!le of a""ortionment. K!stif$ $o!r ans)er or choice riefl$. +55, -.,,E-TED A$-WER% A" 4" Taxes are levied by the executive branch of government. This statement is erroneo!s eca!se le($ refers to the act of im"osition $ the legislat!re )hich is done thro!gh the enactment of a ta# la). :e($ is an e#ercise of the "o)er to ta# )hich is e#cl!si(el$ legislati(e in nat!re and character. 4learl$. ta#es are not le(ied $ the e#ec!ti(e ranch of go(ernment. (<VPC v. A-6a0 !4' SCRA !"4 8!"")9$. 8u"e on Set:%ff or !ompensation of Taxes (1996)
B is the o)ner of a residential lot sit!ated at L!irino A(en!e. 2asa$ 4it$. The lot has an area of 300 sF!are meters. 'n K!ne 1. 1994. 100 sF!are meters of said lot o)ned $ B )as e#"ro"riated $ the go(ernment to e !sed in the )idening of L!irino A(en!e. for 2300.000.00 re"resenting the estimated assessed (al!e of said "ortion. Irom 1991 to 1995. B. )ho is a !sinessman. has not een "a$ing his income ta#es. B is no) eing assessed for the !n"aid income ta#es in the total amo!nt of 2150.000.00. B claims his income ta# lia ilit$ has alread$ een com"ensated $ the amo!nt of 2300.000.00 )hich the go(ernment o)es him for the e#"ro"riation of his "ro"ert$. 3ecide.
SUGGESTED ANSWER*
The income ta# lia ilit$ of B can not e com"ensated )ith the amo!nt o)ed $ the 6o(ernment as com"ensation for his "ro"ert$ e#"ro"riated. ta#es are of distinct /ind. essence and nat!re than ordinar$ o ligations. Ta#es and de ts cannot e the s! 8ect of com"ensation eca!se the 6o(ernment and B are not m!t!all$ creditors and de tors of each other and a claim for ta#es is not a de t. demand. contract. or K!dgment as is allo)a le to e set off. (Fra%cia v+. IAC. G.R #'#(" <.%e
24. !"44$
8u"e on Set:%ff or !ompensation of Taxes (2 1)
=o. 7et1off is a(aila le onl$ if oth o ligations are liF!idated and demanda le. :iF!idated de ts are those )here the e#act amo!nts ha(e alread$ een determined. -n the instant case. the claim of the ta#"a$er for ;AT ref!nd is still "ending and the amo!nt has still to e determined. A fortiori. the liF!idated o ligation of the ta#"a$er to the go(ernment can not. therefore. e set1off against the !nliF!idated claim )hich the ta#"a$er concei(ed to e#ist in his fa(or. +P:i-e> Mi%i%g C,r*. v. CIR GR N,. !23#)( A.g.+/ 2" !""4,.
ALTERNATI1E ANSWER*
there is a final 8!dgment for a s!m of mone$ against the local go(ernment ma/ing the assessment. The go(ernment and the ta#"a$er are not the %m!t!al creditors and de tors% of each other )ho can a(ail of the remed$ of com"ensation )hich Art. 1278 +4i(il 4ode, is
=o. Ta#es and claims for ref!nd cannot e the s! 8ect of set1off for the sim"le reason that the go(ernment and the ta#"a$er are not creditors and de tors of each other. There is a material distinction et)een a ta# and a claim for ref!nd. 4laims for ref!nds 8!st li/e de ts are d!e from the go(ernment in its cor"orate ca"acit$. )hile ta#es are d!e to the go(ernment in its so(ereign ca"acit$. +P:i-e> Mi%i%g C,r*. v. CIR GR N,. !23#)( A.g.+/ 2" !""4,. 8u"e on Set:%ff or !ompensation of Taxes (2 9) ?a$ ta#es e the s! 8ect of set1off or com"ensation& 9#"lain.
SUGGESTED ANSWER5
D,5i%g, v. Gar-i/,+ G.R. N,. L;!4""(

<.%e 2" !"'7
=o. ta#es cannot e the s! 8ect of set1off or com"ensation for the follo)ing reasons* 1, The life lood theor$ reF!ires that there sho!ld e no !nnecessar$ im"ediments to the collection of ta#es to ma/e a(aila le to the go(ernment the )here)ithal to meet its legitimate o 8ecti(esE and
2, The "a$ment of ta#es is not a contract!al o ligation !t

arises o!t of a d!t$ to "a$. and in res"ect of the "ositi(e acts of go(ernment. regarding the ma/ing and enforcing of ta#es. the "ersonal consent of the indi(id!al ta#"a$er is not reF!ired. (Re*.6-ic v. Ma56.-a, L.56er
C,. G.R.
N,. L;!##23 Fe6r.ar0 24 !"'2? Ca-/e> v. C,55i++i,% ,% A.di/ G.R. N,. "2343 Ma0 4 !""2? a%d P:i-e> v. C,55i++i,%er ,1 I%/er%a- Reve%.e G.R. N,. !23#)( A.g.+/ 24 !""4$
Ao)e(er. there is a "ossi ilit$ that set1off ma$ arise. if the claims against the go(ernment ha(e een recogni0ed and an amo!nt has alread$ een a""ro"riated for that "!r"ose. Where oth claims ha(e alread$ ecome o(erd!e and demanda le as )ell as f!ll$ liF!idated. 4om"ensation ta/es "lace $ o"eration of la) !nder Art. 1200 in relation to Articles 1279 and 1290 of the =e) 4i(il 4ode.
(D,5i%g, v. Gar-i/,+ G.R. N,. L;!4""( <.%e 2" !"'7$
8u"e on Set:%ff or !ompensation on Taxes (2 9) 4an an assessment for a local ta# e the s! 8ect of set1 off or com"ensation against a final 8!dgment for a s!m of mone$ o tained $ the ta#"a$er against the local go(ernment that made the assessment& 9#"lain.
SUGGESTED ANSWER*
=o. ta#es cannot
e the s! 8ect of set1off e(en )hen
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referring to Re*.6-ic
,1 /:e
P:i-i**i%e+ v.
1+ of 73
=ormall$. the sale is s! 8ect to a sales ta#.
Ma56.-a, L.56er C,. G.R. N,. L;!##23 Fe6r.ar0 24 !"'2? a%d Fra%cia v. I%/er5edia/e A**e--a/e C,.r/ G.R. N,. L;'#'(" <.%e 24 !""4.
B<J -nc. claims. ho)e(er. that since it sold the eF!i"ment to AC4 4or". )hich is ta# e#em"t. B<J
There is. ho)e(er. legal asis to state that an assessment for a local ta# ma$ e the s! 8ect of set1off or com"ensation against a final 8!dgment for a s!m of mone$ o tained $ the ta#"a$er against the local go(ernment $ o"eration of la) )here the local go(ernment and the ta#"a$er are in their o)n right reci"rocall$ de tors and creditors of each other. and that the de ts are oth d!e and demanda le. This is consistent
)ith the r!ling in rel$ing !"on Arts. 1278 and 1279 of the 4i(il 4ode. )here these "ro(isions )ere a""lied in relation to the national ta#. and sho!ld therefore e a""lica le to a local ta#. Tax A(oi&ance (s) Tax 2(asion (1996) 3isting!ish ta# e(asion from ta# a(oidance.
SUGGESTED ANSWER*
Ta# e(asion is a scheme !sed o!tside of those la)f!l means to esca"e ta# lia ilit$ and. )hen a(ailed of. it !s!all$ s! 8ects the ta#"a$er to f!rther or additional ci(il or criminal lia ilities. Ta# a(oidance. on the other hand. is a ta# sa(ing de(ice )ithin the means sanctioned $ la). hence legal. Tax A(oi&ance (s) Tax 2(asion (2 )
?r. 2asc!alDs income from leasing his "ro"ert$ reaches the ma#im!m rate of ta# !nder the la). Ae donated one1 half of his said "ro"ert$ to a non1 stoc/. non1"rofit ed!cational instit!tion )hose income and assets are act!all$. directl$ and e#cl!si(el$ !sed for ed!cational "!r"oses. and therefore F!alified for ta# e#em"tion !nder Article B-;. 7ection 4 +3, of the 4onstit!tion and 7ection 30 +h, of the Ta# 4ode. Aa(ing th!s transferred a "ortion of his said asset. ?r. 2asc!al s!cceeded in "a$ing a lesser ta# on the rental income deri(ed from his "ro"ert$. -s there ta# a(oidance or ta# e(asion& 9#"lain. +25,
SUGGESTED ANSWER*
There is ta# a(oidance. ?r. 2asc!al has e#"loited a f!ll$ "ermissi(e alternati(e method to red!ce his income ta# $ transferring "art of his rental income to a ta# e#em"t entit$ thro!gh a donation of one1half of the income "rod!cing "ro"ert$. The donation is li/e)ise e#em"t from the donorDs ta#. The donation is the legal means em"lo$ed to transfer the incidence of income ta# on the rental income. Tax 2xemptions: 7ature ; !o(erage$ Proper Party (2 *)
As an incenti(e for in(estors. a la) )as "assed gi(ing ne)l$ esta lished com"anies in certain economic 0one e#em"tion from all ta#es. d!ties. fees. im"osts and other charges for a "eriod of three $ears. AC4 4or". )as organi0ed and )as granted s!ch incenti(e. -n the co!rse of !siness. AC4 4or". "!rchased mechanical eF!i"ment from B<J -nc.
(Pe,*-e v. Sa%diga%6a0a% G.R. N,. !32372 A.g.+/ !' 2))3$.

sho!ld not e lia le to "a$ the sales ta#. -s this claim tena le& +55,
SUGGESTED ANSWER*
There is also ta# "$ramiding )hen sales ta#es are incorrectl$ a""lied to goods se(eral times from "rod!ction to final
A. =o. 9#em"tion from ta#es is "ersonal in nat!re and co(ers onl$ ta#es for )hich the ta#"a$er1grantee is directl$ lia le. The sales ta# is a ta# on the seller )ho is not e#em"t from ta#es. 7ince B<J -nc. is directl$ lia le for the sales ta# and no ta# e#em"tion "ri(ilege is e(er gi(en to him. therefore. its claim that the sale is ta# e#em"t is not tena le. A ta# e#em"tion is constr!ed in strictissimi 1uris and it can not e "ermitted to e#ist !"on (ag!e im"lications (A+ia/ic
Pe/r,-e.5 C,. L/d. V. L-a%e+ (" P:i-
('' 8!"2'9$.
Ass!me arg!endo that B<J had to and did "a$ the sales ta#. AC4 4or". later fo!nd o!t. ho)e(er. that B<J merel$ shifted or "assed on to AC4 the amo!nt of the sales ta# $ increasing the "!rchase "rice. AC4 4or". no) claims for a ref!nd from the C!rea! of -nternal @e(en!e in an amo!nt corres"onding to the ta# "assed on to it since it is ta# e#em"t. -s the claim of AC4 4or". meritorio!s& +55,
SUGGESTED ANSWER6
C. =o. The claim of AC4 4or". is not meritorio!s. Altho!gh the ta# )as shifted to AC4 4or". $ the seller. )hat is "aid $ it is not a ta# !t "art of the cost it has ass!med. Aence. since AC4 4or". is not a ta#"a$er. it has no ca"acit$ to file a claim for ref!nd. The ta#"a$er )ho can file a claim for ref!nd is the "erson stat!toril$ lia le for the "a$ment of the ta#. Tax /a1s$ BI8 8u"ing$ 7on:8etroacti(ity of 8u"ings (2 *) 3!e to an !ncertaint$ )hether or not a ne) ta# la) is a""lica le to "rinting com"anies. 39I 2rinters s! mitted a legal F!er$ to the C!rea! of -nternal @e(en!e on that iss!e. The C-@ iss!ed a r!ling that "rinting com"anies are not co(ered $ the ne) la). @el$ing on this r!ling. 39I 2rinters did not "a$ said ta#. 7! seF!entl$. ho)e(er. the C-@ re(ersed the r!ling and iss!ed a ne) one stating that the ta# co(ers "rinting com"anies. 4o!ld the C-@ no) assess 39I 2rinters for ac/ ta#es corres"onding to the $ears efore the ne) r!ling& @eason riefl$. +55,
SUGGESTED ANSWER*
(C:.rc:i-- @ Tai- v.
(P:i-. Tr.+/ @ C,. v.
=o. @e(ersal of a r!ling shall not e gi(en a retroacti(e a""lication if said re(ersal )ill e "re8!dicial to the ta#"a$er. Therefore. the C-@ can not assess 39I "rinters for ac/ ta#es eca!se it )o!ld e (iolati(e of the "rinci"le of non1retroacti(it$ of r!lings and doing so )o!ld res!lt in gra(e in8!stice to the ta#"a$er )ho relied on the first r!ling in good faith
(Sec/i,% 2(' NIRC? CIR v.
B.rr,.g:+ I%c. !(2 SCRA 72(8!"4'9$.
Tax Pyrami&ing$ 'efinition ; /ega"ity (2 6) What is ta# "$ramiding& What is its asis in la)& +55,
SUGGESTED ANSWER*
Ta# 2$ramiding is the im"osition of a ta# !"on another ta#. -t has no asis in fact or in la)
and "ersonal e#em"tions are as follo)s*

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sale. th!s. shifting the ta# 73 cons!mer.
14
!rden to the !ltimate
of
a.
(NOTABENE: This concept pertains to the 2AT law which is excluded from the bar coverage #uidelines for &((. 3ar 4xaminations )une %- &((.)
A+ /, a5,.%/ > Allo)a le ded!ctions generall$ refer to act!al e#"enses inc!rred in the "!rs!it of trade. !siness or "ractice of "rofession )hile
Taxpayer Suit$ -#en A""o1e& (1996) When ma$ a ta#"a$erDs s!it e allo)ed& -.,,E-TED A$-WER% A ta#"a$erDs s!it ma$ onl$ e allo)ed )hen an act com"lained of. )hich ma$ incl!de a legislati(e enactment. directl$ in(ol(es the illegal dis !rsement of "! lic f!nds deri(ed from ta#ation + Pa+c.a- v+. Secre/ar0 ,1 P.6-ic =,rA+ !!) P:i-. 77!,. <niformity in t#e !o""ection of Taxes (199=) 9#"lain the reF!irement of !niformit$ as a limitation in the im"osition andMor collection of ta#es. +55N
SUGGESTED ANSWER*
Gniformit$ in the im"osition andMor collection of ta#es means that all ta#a le articles. or /inds of "ro"ert$ of the same class shall e ta#ed at the same rate. The reF!irement of !niformit$ is com"lied )ith )hen the ta# o"erates )ith the same force and effect in e(er$ "lace
)here the s! 8ect of it is fo!nd

C,%ce*/i,% 7( P:i-. "'"$. -t does not mean that lands.
chattels. sec!rities. income. occ!"ations. franchises. "ri(ileges. necessities and l!#!ries shall e assessed at the same rate. 3ifferent articles ma$ e ta#ed at different amo!nts "ro(ided that the rate is !niform on the same class e(er$)here )ith all "eo"le at all times. Accordingl$. singling o!t one "artic!lar class for ta#ation "!r"oses does not infringe the reF!irement of !niformit$.
F&R-T A*TER$AT&/E A$-WER% The criteria is met )hen the ta# la)s o"erate eF!all$ and !niforml$ on all "ersons !nder similar circ!mstances. All "ersons are treated in the same manner. the conditions not eing different. oth in "ri(ileges conferred and lia ilities im"osed. Gniformit$ in ta#ation also refers to geogra"hical !niformit$. Ia(oritism and "reference is not allo)ed. -ECO$D A*TER$AT&/E A$-WER% A ta# is deemed to ha(e satisfied the !niformit$ r!le )hen it o"erates )ith the same force and effect in e(er$ "lace )here the s! 8ect ma$ e fo!nd.
Ba/c, '" P:i-. (2)$.
INCOME TAXATION
Basic: A""o1a+"e 'e&uctions (s) Persona" 2xemptions (2 1)
3isting!ish Allo)a le 3ed!ctions from 2ersonal 9#em"tions. 6i(e an e#am"le of an allo)a le ded!ction and another e#am"le for "ersonal e#em"tion. +55,
SUGGESTED ANSWER*
The
distinction
et)een
allo)a le
ded!ctions
.
c.
"ersonal e#em"tions are ar itrar$ amo!nts allo)ed $ la). A+ /, %a/.re > Allo)a le ded!ctions constit!te !siness e#"enses )hile "ersonal e#em"tions "ertain to "ersonal e#"enses.
A+ /, *.r*,+e > 3ed!ctions are allo)ed to ena le the ta#"a$er to reco!" his cost of doing !siness )hile "ersonal e#em"tions are allo)ed to co(er "ersonal. famil$ and li(ing e#"enses.
$OTE% The ar candidate ma$ gi(e a different fig!re de"ending on the method he !sed in com"!ting the ann!al de"reciation.
d.
A+ /, c-ai5a%/+ > Allo)a le ded!ctions can e claimed $ all ta#"a$ers. cor"orate or other)ise. )hile "ersonal e#em"tions can e claimed onl$ $ indi(id!al ta#"a$ers.
Basic: 0eaning of Taxa+"e Income (2 ) What is meant $ ta#a le income& +25,

SUGGESTED ANSWER*
TABAC:9 -=4'?9 means the "ertinent items of gross income s"ecified in the Ta# 4ode. less the ded!ctions andMor "ersonal and additional e#em"tions. if an$. a!thori0ed for s!ch t$"es of income $ the Ta# 4ode or other s"ecial la)s. (,ec. 5% N6$! of %**')
Basic: Princip"e of Mobilia Sequuntur Personam (199*) What is the "rinci"le of mobilia se7uuntur personam in income ta#ation&
SUGGESTED ANSWER*
2rinci"le of 8obilia ,e7uuntur 9ersonam in income ta#ation refers to the "rinci"le that ta#ation follo)s the "ro"ert$ or "erson )ho shall e s! 8ect to the ta#. Basic: Proper A""o1ance of 'epreciation (199=) 2. What is the "ro"er allo)ance for de"reciation of an$ "ro"ert$ !sed in trade or !siness& O35, 3. What is the ann!al de"reciation of a de"recia le fi#ed asset )ith a cost of 2100.000 and an estimated !sef!l life of 20 $ears and sal(age (al!e of 2 10.000 after its !sef!l life&
SUGGESTED ANSWER*
1. The *r,*er a--,&a%ce ,1 de*recia/i,% of an$ "ro"ert$ !sed in trade or !siness refers to the reason1 a le allo)ance for the e#ha!stion. )ear and tear (includ- ing reasonable allowance for obsolescence) of said "ro"ert$. The reasona le allo)ance shall incl!de. !t not limited to. an allo)ance com"!ted !nder an$ of the follo)ing methods* +a, straight1line methodE + , declining1 alance methodE +c, s!m1of1$ears1digit methodE and
+d, an$ other method )hich ma$ e "rescri ed $ the 7ecretar$ of Iinance !"on recommendation of the 4ommissioner of -nternal @e(en!e +7ec. 34+I,. =-@4,.
2. The ann!al de"reciation of the de"recia le fi#ed asset ma$ e com"!ted on the straight1line method )hich )ill allo) the ta#"a$er to ded!ct an ann!al de"re1 ciation of 2h"4.500. arri(ed at $ di(iding the de"recia le (al!e +2h" l00.00012h"l0.000, of 2h"90.000 $ the estimated !sef!l life +20 $ears,.
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The facts gi(en in the "ro lem are s!fficient to com"!te the ann!al de"reciation either !nder the declining1 alance method or s!m1of1$ears1digit method. An$ ans)er arri(ed at $ !sing an$ of the recogni0ed methods sho!ld e gi(en f!ll credit. -t is s!ggested that no F!estion reF!iring com"!tation sho!ld e gi(en in f!t!re ar e#aminations.
1. of 73
collect the same. < )as not a le to "a$. "rom"ting B 4om"an$ to )rite1off the entire lia ilit$. 3!ring the $ear of )rite1off. the entire amo!nt )as claimed as a ded!ction for income ta# "!r"oses red!cing the ta#a le net income of B 4om"an$ to onl$ 21.000.000.00. Three $ears later. <
Basic: Sources of Income: Taxa+"e Income (199=) Irom )hat so!rces of income are the follo)ing "ersonsMcor"orations ta#a le $ the 2hili""ine go(ernment& 2, 4iti0en of the 2hili""ines residing thereinE O15P 3, =on1resident citi0enE O151 4, An indi(id!al citi0en of the 2hili""ines )ho is )or/ing and deri(ing income from a road as an o(erseas contract )or/erE O15P 5, An alien indi(id!al. )hether a resident or not of the 2hili""inesE O15P 6, A domestic cor"orationE O15P SUGGESTED ANSWER* +7ection 23. =-@4 of 1997, 1, A citi0en of the 2hili""ines residing therein is ta#a le on all income deri(ed from so!rces )ithin and )itho!t the 2hili""ines. 2, A nonresident citi0en is ta#a le onl$ on income deri(ed from so!rces )ithin the 2hili""ines. 3, An indi(id!al citi0en of the 2hili""ines )ho is )or/ing and deri(ing income from a road as an o(erseas contract )or/er is ta#a le onl$ on income from so!rces )ithin the 2hili""ines. 4, An alien indi(id!al. )hether a resident or not of the 2hili""ines. is ta#a le onl$ on income deri(ed from so!rces )ithin the 2hili""ines. 5, A domestic cor"oration is ta#a le on all income deri(ed from so!rces )ithin and )itho!t the 2hili""ines. Basic: Tax Benefit 8u"e (2 4) +a, What is meant $ the %ta# enefit r!le%&
SUGGESTED ANSWER*
+a, TAB C9=9I-T @G:9 states that the ta#"a$er is o liged to declare as ta#a le income s! seF!ent reco(er$ of ad de ts in the $ear the$ )ere collected to the e#tent of the ta# enefit en8o$ed $ the ta#"a$er )hen the ad de ts )ere )ritten1off and claimed as a ded!ction from income. -t also a""lies to ta#es "re(io!sl$ ded!cted from gross income !t )hich )ere s! seF!entl$ ref!nded or credited. The ta#"a$er is also reF!ired to re"ort as ta#a le income the s! seF!ent ta# ref!nd or ta# credit granted to the e#tent of the ta# enefit the ta#"a$er en8o$ed )hen s!ch ta#es )ere "re(io!sl$ claimed as ded!ction from income. + , 6i(e an ill!stration of the a""lication of the ta# enefit r!le.
SUGGESTED ANSWER*
+ , B 4om"an$ has a !siness connected recei(a le amo!nting to 2100.000.00 from < )ho )as declared an/r!"t $ a com"etent co!rt. 3es"ite earnest efforts to
(ol!ntaril$ "aid his o ligation "re(io!sl$ )ritten1off to B 4om"an$. -n the $ear of reco(er$. the entire amo!nt constit!tes "art of gross income of B 4om"an$ eca!se it )as a le to get f!ll ta# enefit three $ears earlier. Basic$ Basis of Income Tax (1996) B is em"lo$ed as a dri(er of a cor"orate la)$er and recei(es a monthl$ salar$ of 25.000.00 )ith free oard and lodging )ith an eF!i(alent (al!e of 21.500.00. 1. What )ill e the asis of BDs income ta#& Wh$
2. Will $o!r ans)er in F!estion +a, BDs e the same if
income )hich is. $ stat!tor$ "ro(ision or other)ise. e#em"t from the ta# im"osed $ la) +7ec. 36. @e(. @eg. =o. 2,. 6ross income from !siness means total sales. less cost of goods sold. "l!s an$ income from in(estments
em"lo$er is an o stetrician& Wh$&

SUGGESTED ANSWERS*
1, The asis of BQs income ta# )o!ld de"end on )hether his em"lo$er is an em"lo$ee or a "racticing cor"orate la)$er. -f his em"lo$er is an em"lo$ee. the asis of BDs income ta# is 26.500.00 eF!i(alent to the total of the asic salar$ and the (al!e of the oard and lodging. This is so eca!se the em"lo$erMcor"orate la)$er has no "lace of !siness )here the free oard and lodging ma$ e gi(en. 'n the other hand. if the cor"orate la)$er is a %"racticing la)$er +self1em"lo$ed,. B sho!ld e ta#ed onl$ on 25.000.00 "ro(ided that the free oard and lodging is gi(en in the !siness "remises of the la)$er and for his con(enience and that the free lodging )as gi(en to B as a condition for em"lo$ment.
2, -f the em"lo$er is an o stetrician )ho is self1em1 "lo$ed. the asis of BDs income )ill onl$ e 25.000.00 if it is "ro(en that the free oard and lodging is gi(en )ithin the !siness "remises of said em"lo$er for his con(enience and that the free lodging is reF!ired to e acce"ted $ B as condition for em"lo$ment. 'ther)ise. B )o!ld e ta#ed on 26.500.00.
Basic$ 5ross Income: 'efine (1999) What is %gross -ncome% for "!r"oses of the -ncome ta#&
SUGGESTED ANSWER*
6@'77 -=4'?9 means all income from )hate(er so!rce deri(ed. incl!ding + !t not limited to, com"ensation for ser(ices. incl!ding fees. commissions. and similar itemsE gross income from !sinessE gains deri(ed from dealings in "ro"ert$E interestE rentsE ro$altiesE di(idendsE ann!itiesE "ri0es and )inningsE "ensionsE and "artnerDs distri !ti(e share of the gross income of general "rofessional "artnershi" +7ec. 28. =-@4,.
ALTERNATI1E ANSWER*
a, 6ross income means all )ealth )hich flo)s into the ta#"a$er other than as a mere ret!rn of ca"ital. -t incl!des the forms of income s"ecificall$ descri ed as gains and "rofits incl!ding gains deri(ed from the sale or other dis"osition of ca"ital.
, 6ross income means income +in the road sense, less
SUGGESTED ANSWER*
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and+7ec. from43. incidental or o!tside 73 so!rces @e(. @eg. =o. 2,.
16
o"erations or
of
Basic$ Income (s) !apita" (1999) Ao) does %-ncome% differ from %ca"ital%& 9#"lain.
SUGGESTED ANSWER*
The 4ommissioner is correct. The car ha(ing een gi(en to ?r. 'sorio in consideration of ha(ing introd!ced ?r. 2ere0 to a foreign -m"orter )hich res!lted to a "rofita le !siness deal is considered to e a com"ensation for
-ncome differs from ca"ital in that -=4'?9 is an$ )ealth )hich flo)s into the ta#"a$er other than a ret!rn of ca"ital )hile ca"ital constit!tes the in(estment )hich is the so!rce of income. Therefore. ca"ital is f!nd )hile income is the flo). 4a"ital is )ealth. )hile income is the ser(ice of )ealth. 4a"ital is the tree )hile income is the fr!it +Vice%/e Madriga- e/ a- v. <a5e+
RC11er/0 74 P:i-. (!(,.
Basic$ Sc#e&u"ar Treatment (s) 5"o+a" Treatment (199*) 3isting!ish %schedular treatment% from %global treatment% as !sed in income ta#ation.
SUGGESTED ANSWER*
Gnder a 74A93G:9@ 7<7T9?. the (ario!s t$"esMitems of income (compensation: business;professional income) are classified accordingl$ and are accorded different ta# treatments. in accordance )ith sched!les characteri0ed $ grad!ated ta# rates. 7ince these t$"es of income are treated se"aratel$. the allo)a le ded!ctions shall li/e)ise (ar$ for each t$"e of income.
Gnder the 6:'CA: 7<7T9?. all income recei(ed $ the ta#"a$er are gro!"ed together. )itho!t an$ distinction as to the t$"e or nat!re of the income. and after ded!cting therefrom e#"enses and other allo)a le ded!ctions. are s! 8ected to ta# at a fi#ed rate. !ompensation$ Income Tax: 'ue to Profita+"e Business 'ea" (1999) ?r. 'sorio. a an/ e#ec!ti(e. )hile "la$ing golf )ith ?r. 2ere0. a man!fact!ring firm e#ec!ti(e. mentioned to the latter that his +'sorio, an/ had 8!st o"ened a !siness relationshi" )ith a ig foreign im"orter of goods )hich 2ere0D com"an$ man!fact!res. 2ere0 reF!ested 'sorio to introd!ce him to this foreign im"orter and "!t in a good )ord for him +2ere0,. )hich 'sorio did. As a res!lt. 2ere0 )as a le to ma/e a "rofita le !siness deal )ith the foreign -m"orter. -n gratit!de. 2ere0. in ehalf of his man!fact!ring firm. sent 'sorio an e#"ensi(e car as a gift. 'sorio called 2ere0 and told him that there )as reall$ no o ligation on the "art of 2ere0 or his com"an$ to gi(e s!ch an e#"ensi(e gift. C!t 2ere0 insisted that 'sorio /ee" the car. The com"an$ of 2ere0 ded!cted the cost of the car as a !siness e#"ense. The 4ommissioner of -nternal @e(en!e incl!ded the fair mar/et (al!e of the car as -ncome of 'sorio )ho "rotested that the car )as a gift and therefore e#cl!ded from income. Who is correct. the 4ommissioner or 'sorio& 9#"lain.
ser(ices rendered. The transfer is not a gift eca!se it is not made o!t of a detached or disinterested generosit$ !t for a enefit accr!ing to ?r. 2ere0. The fact that the com"an$ of ?r. 2ere0 ta/es a !siness ded!ction for the "a$ment indicates that it )as considered as a "a$ rather than a gift. Aence. the fair mar/et (al!e of the car is incl!da le in the gross income "!rs!ant to 7ection 28+a,+l, of the Ta# 4ode (,ee %*'" <ederal Tax =andboo> p. %"-). A "a$ment tho!gh (ol!ntar$. if it is in ret!rn for ser(ices rendered. or "roceeds from the constraining force of an$ moral or legal d!t$ or a enefit to the "a$er is antici"ated. is a ta#a le income to the "a$ee e(en if characteri0ed as a DgiftD $ the "a$or (C,55i++i,%er
v+. D.6er+/ei% 7'7 U.S.
The "ar (al!e or stated (al!e of the shares iss!ed also constit!tes ded!cti le e#"ense to the cor"oration "ro(ided it is s! 8ected to )ithholding ta# on )ages.
2#4$.
ALTERNATI1E ANSWER*
?r. 'sorio is correct. The car )as not "a$ment for ser(ices rendered. There )as no "rior agreement or negotiations et)een ?r. 'sorio and ?r. 2ere0 that the former )ill e com"ensated for his ser(ices. ?r. 2ere0. in ehalf of his com"an$. ga(e the car to ?r. 'sorio o!t of gratit!de. The transfer ha(ing een made grat!ito!sl$ sho!ld e treated as a gift s! 8ect to donorDs ta# and sho!ld e e#cl!ded from the gross income of the reci"ient. ?r. 'sorio. The 4ommissioner sho!ld cancel the assessment of deficienc$ income ta# to ?r. 'sorio and instead assess deficienc$ donorDs ta# on ?r 2ere0D com"an$. +7ec. 28+ ,+3,. =-@4E Pir,va%, v+. C,55i++i,%er,
!orporate: Income: 'onor6s tax$ Tax /ia+i"ity (1996) B. a m!ltinational cor"oration doing !siness in the 2hili""ines donated 100 shares of stoc/ of said cor"oration to ?r. <. its resident manager in the 2hili""ines. 1, What is the ta# lia ilit$. if an$. of B cor"oration&
2, Ass!ming the shares of stoc/s )ere gi(en to ?r. < in consideration of his ser(ices to the cor"oration.
)hat are the ta# im"lications& 9#"lain.

SUGGESTED ANSWERS*
1, Ioreign cor"orations effecting a donation are s! 8ect to donorDs ta# onl$ if the "ro"ert$ donated is located in the 2hili""ines. Accordingl$. donation of a foreign cor"oration of its o)n shares of stoc/s in fa(or of resident em"lo$ee is not s! 8ect to donorDs ta# +C-@ @!ling =o. 018187. Kan!ar$ 26. 1987,. Ao)e(er. if 855 of the !siness of the foreign cor"oration is located in the 2hili""ines or the shares donated ha(e acF!ired !siness sit!s in the 2hili""ines. the donation ma$ e ta#ed in the 2hili""ines s! 8ect to the r!le of reci"rocit$.
2, -f the shares of stoc/s )ere gi(en to ?r. < in consideration of his ser(ices to the cor"oration. the same shall constit!te ta#a le com"ensation income to the reci"ient eca!se it is a com"ensation for ser(ices rendered !nder an em"lo$er1em"lo$ee relationshi". hence. s! 8ect to income ta#.
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!orporate$ Income Tax$ 8easona+"eness of t#e
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Bonus (2 6)
6old and 7il(er 4or"oration ga(e e#tra 14th month on!s to all its officials and em"lo$ees in the total amo!nt of 275 ?illion. When it filed its cor"orate income ta# ret!rn the follo)ing $ear. the cor"oration declared a net o"erating loss. When the income ta# ret!rn of the cor"oration )as re(ie)ed $ the C-@ the follo)ing $ear. it disallo)ed as item of ded!ction the 275 ?illion on!s the cor"oration ga(e its officials and em"lo$ees on the gro!nd of !nreasona leness. The cor"oration claimed that the on!s is an ordinar$ and necessar$ e#"ense that sho!ld e allo)ed. -f $o! )ere the C-@ 4ommissioner. ho) )ill $o! resol(e the iss!e& +55,
SUGGESTED ANSWER*
!orporate$ Income: !o(erage$ >%ff:/ine> Air"ine (2 9) An international airline )ith no landing rights in the 2hili""ines sold tic/ets in the 2hili""ines for air trans"ortation. -s income deri(ed from s!ch sales of tic/ets considered ta#a le income of the said international
- )ill disallo) the e#"ense. A on!s is ordinar$ and necessar$ )here said e#"endit!re is +1, a""ro"riate and hel"f!l in the de(elo"ment of the ta#"a$ers !siness
(8artens ?aw of <ederal 6ncome Taxation 2olume 62 p. 5%-) and +2, is normal in relation to the !siness of the ta#"a$er and the s!rro!nding circ!mstances (p. 5%. 6bid).
To determine the reasona leness of the on!s it m!st e commens!rate )ith ser(ices "erformed $ the officials and em"lo$ees. 'ther factors to consider are )hether the "a$ment )as made in good faithE the character of the ta#"a$erDs !sinessE the (ol!me and amo!nt of its net earningsE its localit$E the t$"e and e#tent of the ser(ices renderedE the salar$ "olic$ of the cor"orationE the si0e of the "artic!lar !sinessE the em"lo$eesD F!alification and contri !tions to the !siness (ent!reE and general economic conditions
(A/-a+ Mi%i%g v. CIR G.R. N,. L; 2'"!! <a%.ar0 2# !"4!$. Ao)e(er. since the !siness s!ffers from a net
o"erating loss. - )ill r!le that the !nreasona le e#"ense.
on!s
is an
!orporate$ Income: !o(erage$ >%ff:/ine> Air"ine (199*)

4aledonia Aircargo is an off1line international carrier )itho!t an$ flight o"erations in the 2hili""ines. -t has. ho)e(er. a liaison office in the 2hili""ines )hich is d!l$ licensed )ith the 7ec!rities and 9#change 4ommission. esta lished for the "!r"ose of "ro(iding "assenger and flight information. reser(ation and tic/eting ser(ices.
Are the re(en!es of 4aledonia Aircargo from tic/ets reser(ed $ its 2hili""ine office s! 8ect to ta#&
SUGGESTED ANSWER*
The re(en!es in the 2hili""ines of 4aledonia Aircargo as an %off1line% airline from tic/et reser(ation ser(ices are ta#a le income from %)hate(er so!rce% !nder 7ec. 28+a, of the Ta# 4ode. This case is analogo!s to
C,55i++i,%er v. BOAC G.R N,. N,. '3##7;#( A*ri- 7) !"4# )here the 7!"reme 4o!rt r!led that the income
recei(ed in the 2hili""ines from the sale of tic/ets $ an %off1line% airline is ta#a le as income from )hate(er so!rce.
air carrier from 2hili""ine so!rces !nder the Ta# 4ode& 9#"lain. +55,
ALTERNATI1E ANSWER*
14 of 73
A 4o.. a 2hili""ine cor"oration. iss!ed "referred shares of stoc/ )ith the follo)ing feat!res*
<es. The income deri(ed from the sales of tic/ets in the 2hili""ines is considered ta#a le income of the international air carrier from 2hili""ine so!rces. The so!rce of income is the "ro"ert$. acti(it$ or ser(ice that "rod!ced the income. The sale of tic/ets in the 2hili""ines is the acti(it$ that "rod!ces the income. The a sence of landing rights in the 2hili""ines cannot alter the fact that re(en!es )ere deri(ed from tic/et sales )ithin the 2hili""ines. (C,55i++i,%er ,1 I%/er%aReve%.e v. <a*a% Air Li%e+ G.R. N,. ')#!( Oc/,6er ( !""! rei/era/i%g Bri/i+: Over+ea+ Air&a0+ C,r*. Air I%dia a%d A5erica% Air-i%e+ I%c.$
ALTERNATI1E ANSWER*
=o. !nder ,ec. 5 of $.$. No. %--&((& . an off1line airline ha(ing a ranch office or a sales agent in the 2hili""ines )hich sells "assage doc!ments for com"ensation or commission to co(er off1line flights of its "rinci"al or head office. or for other airlines co(ering flights originating from 2hili""ine "orts or off1 line flights. is not considered engaged in !siness as an international air carrier in the 2hili""ines and is. therefore. not s! 8ect to 6ross 2hili""ine Cillings Ta# nor to the 35 common carrierDs ta#.
Cased on the foregoing. the international airline com"an$ is not considered as engaged in !siness in the 2hili""ines and is therefore a non1resident foreign cor"oration. A non1resident foreign cor"oration is s! 8ect to the gross income ta# on its income deri(ed from so!rces )ithin the 2hili""ines. The income from sale of tic/ets shall not form "art of ta#a le income eca!se the term %ta#a le income% as defined !nder 7ec. 31 of the =-@4 refers onl$ to income of those ta#"a$ers )ho "a$ $ )a$ of the net income ta#. Ta#a le income means the "ertinent items of gross income s"ecified in the =-@4. less the ded!ctions andMor "ersonal and additional e#em"tions. if an$. a!thori0ed for s!ch t$"es of income $ the =-@4 or other s"ecial la)s. 'i(i&en&s: 'isguise& &i(i&en&s (199*) 3isg!ised di(idends in income ta#ation& 6i(e an e#am"le.
SUGGESTED ANSWER*
3isg!ised di(idends are those income "a$ments made $ a domestic cor"oration. )hich is a s! sidiar$ of a non1 resident foreign cor"oration. to the latter ostensi l$ for ser(ices rendered $ the latter to the former. !t )hich "a$ments are dis"ro"ortionatel$ larger than the act!al (al!e of the ser(ices rendered. -n s!ch case. the amo!nt o(er and a o(e the tr!e (al!e of the ser(ice rendered shall e treated as a di(idend. and shall e s! 8ected to the corres"onding ta# of 355 on 2hili""ine so!rced gross income. or s!ch other "referential rate as ma$ e "ro(ided !nder a corres"onding Ta# Treat$.
E>a5*-eD @o$alt$ "a$ments !nder a corres"onding licensing agreement. 'i(i&en&s$ Income Tax$ 'e&ucti+"e 5ross Income (1999)
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1,
2,
=on1(otingE
2referred and c!m!lati(e di(idends at the rate of 105 "er ann!m. )hether or not in an$ "eriod the amo!nt is co(ered $ earnings or "ro8ectsE
enefits ta#. 9(en ass!ming that he is a managerial or s!"er(isor$ em"lo$ee. the small h!t is "ro(ided for the con(enience of the
3,
4,
-n the e(ent of dissol!tion of the iss!er. holders of "referred stoc/ shall e "aid in f!ll or rata l$ as the assets of the iss!er ma$ "ermit efore an$ distri !tion shall e made to common stoc/holdersE and The iss!er has the o"tion to redeem the "referred stoc/.
A 4o. declared di(idends on the "referred stoc/ and claimed the di(idends as interests ded!cti le from its gross -ncome for income ta# "!r"oses. The C-@ disallo)ed the ded!ction. A 4o. maintains that the "referred shares )ith their feat!res are reall$ de t and therefore the di(idends are realt$ interests. 3ecide. +105,
SUGGESTED ANSWER*
The di(idends are not ded!cti le from gross income. 2referred shares shall e considered ca"ital regardless of the conditions !nder )hich s!ch shares are iss!ed and. therefore. di(idends "aid thereon are not considered DinterestD )hich are allo)ed to e ded!cted from the gross income of the cor"oration. ($evenue 8emorandum !ircular No. %'-'% )uly %& %*'%). 2ffect$ !on&onation of /oan in Taxation (1999)
?r. Irancisco orro)ed 210.000.00 from his friend ?r. 6!tierre0 "a$a le in one $ear )itho!t interest. When the loan ecame d!e ?r. Irancisco told ?r. 6!tierre0 that he +?r. Irancisco, )as !na le to "a$ eca!se of !siness re(erses. ?r. 6!tierre0 too/ "it$ on ?r. Irancisco and condoned the loan. ?r. Irancisco )as sol(ent at the time he orro)ed the 2 10.000.00 and at the time the loan )as condoned. 3id ?r. Irancisco deri(e an$ income from the cancellation or condonation of his inde tedness& 9#"lain.
SUGGESTED ANSWER*
=o. ?r. Irancisco did not deri(e an$ income from the cancellation or condonation of his inde tedness. 7ince it is o (io!s that the creditor merel$ desired to enefit the de tor in (ie) of the a sence of consideration for the cancellation. the amo!nt of the de t is considered as a gift from the creditor to the de tor and need not e incl!ded in the latterDs gross income.
Fringe Benefit Tax: !o(ere& 2mp"oyees (2 1) B )as hired $ < to )atch o(er ;Qs fish"onds )ith a salar$ of 2h" 10.000.00. To ena le him to "erform his d!ties )ell. he )as also "ro(ided a small h!t. )hich he co!ld !se as his residence in the middle of the fish"onds. -s the fair mar/et (al!e of the !se of the small h!t $ B a %fringe enefit% that is s! 8ect to the 325 ta# im"osed $ 7ection 33 of the =ational -nternal @e(en!e 4ode& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
=o. B is neither a managerial nor a s!"er(isor$ em"lo$ee. 'nl$ managerial or s!"er(isor$ em"lo$ees are entitled to a fringe enefit s! 8ect to the fringe
em"lo$er. hence does not constit!te a ta#a le fringe enefit. (,ection 55 N4$!). Fringe Benefit Tax: 2mp"oyer re3uire& to Pay (2 4) A %fringe enefit% is defined as eing an$ good. ser(ice or other enefit f!rnished or granted in cash or in /ind $ an em"lo$er to an indi(id!al em"lo$ee. Wo!ld it e the em"lo$er or the em"lo$ee )ho is legall$ reF!ired to "a$ an income ta# on it& 9#"lain. +45,
SUGGESTED ANSWER*
of deficienc$ ta#. incl!si(e of s!rcharge and deficienc$ interest )ere com"!ted !" to Kan!ar$ 30. 1995 )hich is the d!e date for "a$ment "er assessment notice. fail!re to
-t is the em"lo$er )ho is legall$ reF!ired to "a$ an income ta# on the fringe enefit. The fringe enefit ta# is im"osed as a I-=A: W-TAA':3-=6 TAB "lacing the legal o ligation to remit the ta# on the em"lo$er. s!ch that. if the ta# is not "aid the legal reco!rse of the C-@ is to go after the em"lo$er. An$ amo!nt or (al!e recei(ed $ the em"lo$ee as a fringe enefit is considered ta# "aid hence. net of the income ta# d!e thereon. The "erson )ho is legall$ reF!ired to "a$ (same as statutory incidence as distinguished from economic incidence) is that "erson )ho. in case of non1"a$ment. can e legall$ demanded to "a$ the ta#. Interest: 'eficiency Interest: &efine (1999 Bar) What is a %deficienc$ interest% for "!r"oses of the income ta#& -ll!strate.
SUGGESTED ANSWER*
39I-4-9=4< -=T9@97T for "!r"oses of the income ta# is the interest d!e on an$ amo!nt of ta# d!e or installment thereof )hich is not "aid on or efore the date "rescri ed for its "a$ment com"!ted at the rate of 205 "er ann!m or the ?anila @eference @ate. )hiche(er is higher. from the date "rescri ed for its "a$ment !ntil it is f!ll$ "aid.
-f for e#am"le after the a!dit of the oo/s of B<J 4or". for ta#a le $ear 1993 there )as fo!nd to e d!e a deficienc$ income ta# of 2125.000.00 incl!si(e of the 255 s!rcharge im"osed !nder 7ection 248 of the Ta# 4ode. the interest )ill e com"!ted on the 2125.000.00 from A"ril 15. 1994 !" to its date of "a$ment.
Interest: 'e"in3uency Interest: &efine (1999) What is a %delinF!enc$ interest% for "!r"oses of the income ta#& -ll!strate.
SUGGESTED ANSWER*
3elinF!enc$ interest is the interest of 205 or the ?anila @eference @ate. )hiche(er is higher. reF!ired to e "aid in case of fail!re to "a$* +a, the amo!nt of the ta# d!e on an$ ret!rn reF!ired to e filedE or + , the amo!nt of the ta# d!e for )hich ret!rn is reF!iredE or
+c, the deficienc$ ta# or an$ s!rcharge or interest thereon. on the d!e date a""earing in the notice and demand of the 4ommissioner of -nternal @e(en!e. -f in the a o(e ill!stration the assessment notice )as released on 3ecem er 31. 1994 and the amo!nt
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"a$ on this latter date )ill render the
ta #
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delinF!ent and )ill reF!ire the "a$ment of delinF!enc$ interest. IT8: Persona" Income$ 2xempte& to Fi"e IT8 (199,)
A achelor )as em"lo$ed $ 4or"oration A on the first )or/ing da$ of Kan!ar$ 1996 on a "art1time asis )ith a salar$ of 23.500.00 a month. Ae then recei(ed the 13th month "a$. -n 7e"tem er 1996. he acce"ted another "art1 time Ko from 4or"oration C from )hich he recei(ed a total com"ensation of 214.500.00 for the $ear 1996. The correct total ta#es )ere )ithheld from oth earnings. With the )ithholding ta#es alread$ "aid. )o!ld he still e reF!ired to file an income ta# ret!rn for his 1996 income&
SUGGESTED ANSWER*
The gross recei"ts from trading !siness is incl!di le as an item of income in the cor"orate income ta# ret!rn. :i/e)ise. the gain or loss reali0ed as a conseF!ence of the recei"t of "roceeds !nder an ins!rance "olic$ on the loss of goods )ill e incl!ded in the cor"orate income ta#
<es. eca!se )hat is e#em"t from filing are those indi(id!als )ho ha(e total com"ensation income not e#ceeding 260.000 )ith the ta#es correctl$ )ithheld onl$ $ one em"lo$er. -n this case. e(en if his aggregate com"ensation income from oth his em"lo$ers does not e#ceed 260.000 and that total )ithholding ta#es )ere correctl$ )ithheld $ his em"lo$ers. the fact that he deri(es com"ensation income conc!rrentl$ from t)o em"lo$ers at an$time d!ring the ta#a le $ear. does not e#em"t him from filing his income ta# ret!rn ($A '"*' as implemented by $$ No. "-*5).
IT8$ 'omestic !orporate Taxation (199,)

3!ring the $ear. a domestic cor"oration deri(ed the follo)ing items of re(en!e* +a, gross recei"ts from a trading !sinessE + , interests from mone$ "lacements in the an/sE +c, di(idends from its stoc/ in(estments in domestic cor"orationsE +d, gains from stoc/ transactions thro!gh the 2hili""ine 7toc/ 9#changeE +e, "roceeds !nder an ins!rance "olic$ on the loss of goods. -n "re"aring the cor"orate income ta# ret!rn. )hat sho!ld e the ta# treatment on each of the a o(e items&
SUGGESTED ANSWER*
The gr,++ recei*/+ 1r,5 /radi%g 6.+i%e++ is incl!di le as an item of income in the cor"orate income ta# ret!rn and s! 8ect to cor"orate income ta# rate ased on net income. The other items of re(en!e )ill not e incl!ded in the cor"orate income ta# ret!rn. The interest from mone$ mar/et "lacements is s! 8ect to a final )ithholding ta# of 205E The di(idends from domestic cor"oration are e#em"t from income ta#E and gains from stoc/ transactions )ith the 2hili""ine 7toc/ 9#change are s! 8ect to transaction ta# )hich is in lie! of the income ta#. The "roceeds !nder an ins!rance "olic$ on the loss of goods is not an item of income !t merel$ a ret!rn of ca"ital hence not ta#a le.
ALTERNATI1E ANSWER*
ret!rn either as a ta#a le gain or a ded!cti le loss. The gain or loss is arri(ed at $ ded!cting from the "roceeds of ins!rance +amo!nt reali0ed, the asis of the good lost +7ec. 34+a,. =-@4,. The net income of the cor"oration shall e s! 8ect to cor"orate income ta# rate of 355. The other items of re(en!e )ill not e incl!ded in the cor"orate income ta# ret!rn. The interest from mone$ mar/et "lacements is s! 8ect to a final )ithholding ta# of 205E di(idends from domestic cor"orations are e#em"t from income ta#E and gains from stoc/ transactions )ith the 2hili""ine 7toc/ 9#change are s! 8ect to transaction ta# )hich is in lie! of the income ta#.
is not reF!ired to file an income ta# ret!rns )hen she meets the follo)ing conditionsE +1, the total gross com"ensation income does not e#ceed 2h"60.000.00 and +2, the income ta# has een correctl$ )ithheld. meaning
IT8$ 'omestic !orporate Taxation (2 1)

a, Ao) often does a domestic cor"oration file income ta# ret!rn for income earned d!ring a single ta#a le
$ear& 9#"lain the "rocess. +35,

SUGGESTED ANSWER*
a, A domestic cor"oration is reF!ired to file income ta# ret!rns fo!r +4, times for income earned d!ring a single ta#a le $ear. L!arterl$ ret!rns are reF!ired to e filed for the first three F!arters )here the cor"oration shall declare its F!arterl$ s!mmar$ of gross income and ded!ctions on a c!m!lati(e asis. (,ection '- N6$!). Then. a final ad8!stment ret!rn is reF!ired to e filed co(ering the total ta#a le income for the entire $ear. calendar or fiscal.
(,ection '. N6$!). , What is the reason for s!ch "roced!re& +25,
SUGGESTED ANSWER*
, The reason for this "roced!re is to ens!re the timeliness of collection to meet the !dgetar$ needs of the go(ernment. :i/e)ise. it is designed to ease the !rden on the ta#"a$er $ "ro(iding it )ith an installment "a$ment scheme. rather than reF!iring the "a$ment of the ta# on a l!m"1s!m asis after the end of the $ear.
ALTERNATI1E ANSWER*
, The reason for the F!arterl$ filing of ta# ret!rns is to allo) "artial collection of the ta# efore the end of the ta#a le $ear and also to im"ro(e the liF!idit$ of go(ernment IT8$ Persona" Income: T1o 2mp"oyment (2 1) -n the $ear 2000. B )or/ed "art time as a )aitress in a resta!rant in ?ega ?all from 8*00 a.m. to 4*00 ".m. and then as a cashier in a 241ho!r con(enience store in her neigh orhood. The total income of B for the $ear from the t)o em"lo$ers does not e#ceed her total "ersonal and additional e#em"tions for the $ear 2000. Was she reF!ired to file an income ta# ret!rn last A"ril& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
<es. An indi(id!al deri(ing com"ensation conc!rrentl$ from t)o or more em"lo$ers at an$ time d!ring the ta#a le $ear shall file an income ta# ret!rn +7ec. 51+A,+2,+ ,. =-@4.,
ALTERNATI1E ANSWER*
-t de"ends. An indi(id!al )ith "!re com"ensation income
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the ta# )ithheld is eF!al to the ta# d!e. (,ection l(A@(&)(b) N6$!).
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-s 3anilo lia le for the deficienc$ ta# and the "enalties thereon& What is the lia ilit$. if an$. of the acco!ntant& 3isc!ss. +55,
SUGGESTED ANSWER*
There is no mention in the "ro lem of the amo!nt of "ersonal and additional "ersonal e#em"tion to F!antif$ ho) m!ch is that com"ensation income that did not e#ceed the "ersonal and additional "ersonal e#em"tions. There is no. mention. either. of )hether or not the em"lo$ers )ithheld ta#es and that the amo!nt )ithheld is eF!al to the ta# d!e. Whether or not she )ill e reF!ired to file an income ta# ret!rn last A"ril 15 on the 2000 income )ill de"end on her com"liance )ith the reF!irements of the la). IT8$ Persona" Income$ 5SIS Pension (2 ) ?r. Ka(ier is a non1resident senior citi0en. Ae recei(es a monthl$ "ension from the 67-7 )hich he de"osits )ith the 2=C1?a/ati Cranch. -s he e#em"t from income ta# and therefore not reF!ired to file an income ta# ret!rn& +55,
SUGGESTED ANSWER*
3anilo is lia le for the deficienc$ ta# as )ell as for the deficienc$ interest. Ae sho!ld not e held lia le for the
?r. Ka(ier is e#em"t from income ta# on his monthl$ 67-7 "ension (,ec. 5&(3)(.)(f) N6$! of %**') !t not on the interest income that might accr!e on the "ensions de"osited )ith 2=C )hich are s! 8ect to final )ithholding ta#. 4onseF!entl$. since ?r. Ka(ierDs sole ta#a le income )o!ld ha(e een s! 8ected to a final )ithholding ta#. he is not reF!ired an$more to file an income ta# ret!rn. (,ec. -% (A) (&) (c). 6bid@.
IT8$ Persona" Income$ 0arrie& In&i(i&ua" (2 *) @A? got married to :-7A last Kan!ar$ 2003. 'n =o(em er 30. 2003. :-7A ga(e irth to t)ins. Gnfort!natel$. ho)e(er. :-7A died in the co!rse of her deli(er$. 3!e to com"lications. one of the t)ins also died on 3ecem er 15. 2003.
-n "re"aring his -ncome Ta# @et!rn +-T@, for the $ear 2003. )hat sho!ld @A? indicate in the -T@ as his ci(il stat!s* +a, singleE + , marriedE +c, Aead of the famil$E +d, )ido)erE +e, none of the a o(e& Wh$& @eason. +55,
SUGGESTED ANSWER*
@A? sho!ld indicate %+ , married% as his ci(il stat!s in "re"aring his -ncome Ta# @et!rn for the $ear 2003. The death of his )ife d!ring the $ear )ill not change his stat!s eca!se sho!ld the s"o!se die d!ring the ta#a le $ear. the ta#"a$er ma$ still claim the same e#em"tions (that of being married) as if the s"o!se died at the close of s!ch $ear
(,ection 5-;!1 N6$!). IT8$ Taxpayer$ /ia+i"ities$ Fa"sifie& Tax 8eturn (2 9) 3anilo. )ho is engaged in the trading !siness. entr!sted to his acco!ntant the "re"aration of his income ta# ret!rn and the "a$ment of the ta# d!e. The acco!ntant filed a falsified ta# ret!rn $ !nderdeclaring the sales and o(erstating the e#"ense ded!ctions $ 3anilo.
R,+ari, e/ a- G.R N,. !)"24" Oc/,6er+ !""($.
fra!d "enalt$ eca!se the acco!ntant acted e$ond the limits of his a!thorit$. There is no sho)ing in the "ro lem that 3anilo signed the falsified ret!rn or that it )as "re"ared !nder his direction.
H'n the other hand the acco!ntant ma$ e held criminall$ lia le for (iolation of the Ta# 4ode )hen he falsified the ta# ret!rn $ !nderdeclaring the sale and o(erstating the e#"ense ded!ctions. -f 3ann$Ds acco!ntant is a 4ertified 2! lic Acco!ntant. his certificate as a 42A shall a!tomaticall$ e re(o/ed or cancelled !"on con(iction.
2,
-s @e(en!e @eg!lation =o. 2193 no) considered as ha(ing ado"ted a gross income method instead of retaining the net income ta#ation scheme& 9#"lain.
SUGGESTED ANSWER*
Partners#ip: Income Tax (1999)

Ii(e $ears ago ?arF!e0. 2ene$ra. Ka$me. 2osadas and ?ang!iat. all la)$ers. formed a "artnershi" )hich the$ named ?arF!e0 and 2ene$ra :a) 'ffices. The 4ommis1 sioner of -nternal @e(en!e thereafter iss!ed $evenue $egulation No. &-*5 implementing $A. '"*. /no)n as the 7im"lified =et -ncome Ta#ation 7cheme +7=-T7,. @e(en!e @eg!lation =o. 21 93 "ro(ides in "art* Sec. '. Ge%era- Pr,1e++i,%a- Par/%er+:i* . > The general "rofessional "artnershi" and the "artners are co(ered $ @.A. 7496. Th!s. in determining "rofit of the "artnershi". onl$ the direct costs mentioned in said la) are to e ded!cted from "artnershi" income. Also. the e#"enses "aid or -nc!rred $ "artners in their indi(id!al ca"acities in the "ractice of their "rofession )hich are not reim !rsed or "aid $ the "artnershi" !t are not considered as direct costs are not ded!cti le from his gross income. 1, ?arF!e0 and 2ene$ra :a) 'ffices filed a ta#"a$erDs s!it alleging that @e(en!e @eg!lation =o. 2193 (iolates the "rinci"le of !niformit$ in ta#ation eca!se general "rofessional "artnershi"s are no) s! 8ect to "a$ment of income ta# and that there is a difference in the ta# treatment et)een indi(id!als engaged in the "ractice of their res"ecti(e "rofes1 sions and "artners in general "rofessional
"artnershi"s. -s this contention correct& 9#"lain.

SUGGESTED ANSWER*
1, The contention is not correct. 6eneral "rofessional

"artnershi"s remain to e a non1ta#a le entit$. What is ta#a le are the "artners com"rising the same and the$ are o ligated to re"ort as income their share in the income of the general "rofessional "artnershi" d!ring the ta#a le $ear )hether distri !ted or not. The 7=-T7 treat "rofessionals as one class of ta#"a$er so that the$ shall e treated ali/e irres"ecti(e of )hether the$ "ractice their "rofession alone or in association )ith other "rofessionals !nder a general "rofessional "artnershi". What are ta#ed differentl$ are indi(id!als and cor"orations. All indi(id!als similarl$ sit!ated are ta#ed ali/e !nder the reg!lations. therefore. the "rinci"le of !niformit$ in ta#ation is not (iolated. 'n the contrar$. all the reF!irements of a (alid classification ha(e een com"lied )ith (T,% v+. De-
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=o. @e(en!e @eg!lation =o. 2193 im"lementing @A =o. 7496 ha(e indeed significantl$ red!ced the items of ded!ction $ limiting it to direct costs and e#"enses or the 405 of gross recei"ts ma#im!m ded!ction in cases )here the direct costs are diffic!lt to determine. The allo)ance of limited ded!ctions ho)e(er. is still in consonance )ith the net income ta#ation scheme rather than the gross income method. While it is tr!e that not all the e#"enses of earning the income might e allo)ed. this can )ell e 8!stified $ the fact that ded!ctions are not matters of right !t are matters of legislati(e grace. Persona"$ Income Tax: 7on:8esi&ent A"ien (2 ) ?r. 4orte0 is a non1resident alien ased in Aong Rong. 3!ring the calendar $ear 1999. he came to the 2hili""ines se(eral times and sta$ed in the co!ntr$ for an aggregated "eriod of more than 180 da$s. Ao) )ill ?r. 4orte0 e ta#ed on his income deri(ed from so!rces )ithin the 2hili""ines and from a road& +55,
SUGGESTED ANSWER*
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to 2hili""ine income ta#. 2 F!alifies as a nonresident citi0en eca!se he lea(es the 2hili""ines for em"lo$ment reF!iring him to e "h$sicall$ "resent a road most of the time d!ring the ta#a le $ear. (,ection &&(4) N6$!). A non1 resident citi0en is ta#a le onl$ on income deri(ed from 2hili""ine so!rces. (,ection &5 N6$!). The salaries and
?r. 4orte0 eing a non1resident alien indi(id!al )ho has sta$ed for an aggregated "eriod of more than 180 da$s d!ring the calendar $ear 1999. shall for that ta#a le $ear e deemed to e a non1resident alien doing !siness in the 2hili""ines. 4onsidering the a o(e. ?r. 4orte0 shall e s! 8ect to an income ta# in the same manner as an indi(id!al citi0en and a resident alien indi(id!al. on ta#a le income recei(ed from all so!rces )ithin the 2hili""ines. A,ec. &- (A) (%) N6$! of %**'@ Th!s. he is allo)ed to a(ail of the itemi0ed ded!ctions incl!ding the "ersonal and additional e#em"tions !t s! 8ect to the r!le on reci"rocit$ on the "ersonal e#em"tions. (,ec. 5" (A) to ()) and (8) in relation to ,ec. &- (A) (%) 6bid ,ec. 5- (B) 6bid.@
NCT4: 6t is suggested that full credit should be given if the examineeDs answer only cover the first two paragraphs.
Persona"$ Income Tax: 7on:8esi&ent !iti?en (1999)

A 4o.. a 2hili""ine cor"oration. has an e#ec!ti(e +2, )ho is a Iili"ino citi0en. A 4o. has a s! sidiar$ in Aong Rong +AR 4o., and )ill assign 2 for an indefinite "eriod to )or/ f!ll time for AR 4o. 2 )ill ring his famil$ to reside in AR and )ill lease o!t his residence in the 2hili""ines. The salar$ of 2 )ill e sho!ldered 505 $ A 4o. )hile the other 505 "l!s ho!sing. cost of li(ing and ed!cational allo)ances of 2Ds de"endents )ill e sho!ldered $ AR 4o. A 4o. )ill credit the 505 of 2Ds salar$ to 2Ds 2hili""ine an/ acco!nt. 2 )ill sign the contract of em"lo$ment in the 2hili""ines. 2 )ill also e recei(ing rental income for the lease of his 2hili""ine residence. Are these salaries. allo)ances and rentals s! 8ect to the 2hili""ine income ta#& +55,
SUGGESTED ANSWER*
The salaries and allo)ances recei(ed $ 2 are not s! 8ect
allo)ances recei(ed from eing em"lo$ed a road are incomes from )itho!t eca!se these are com"ensation for ser(ices rendered o!tside of the 2hili""ines. (,ection "& N6$!). Ao)e(er. 2 is ta#a le on rental income for the lease of his 2hili""ine residence eca!se this is an income deri(ed from )ithin. the leased "ro"ert$ eing located in the 2hili""ines. (,ection "& N6$!). Persona"$ Income Tax: Tax:Free 2xc#ange (199,) Three rothers inherited in 1992 a "arcel of land (al!ed for real estate ta# "!r"oses at 23.0 million )hich the$ held in co1o)nershi". -n 1995. the$ transferred the "ro"ert$ to a ne)l$ organi0ed cor"oration as their eF!it$ )hich )as "laced at the 0onal (al!e of 26.0 million. -n e#change for the "ro"ert$. the three rothers th!s each recei(ed shares of stoc/ of the cor"oration )ith a total "ar (al!e of 22.0 million or. altogether. a total of 26.0 million. =o !siness )as done $ the 4or"oration. and the "ro"ert$ remained idle. -n the earl$ "art of 1997. one of the rothers. )ho )as in dire need of f!nds. sold his shares to the t)o rothers for 22.0 million. -s the transaction s! 8ect to an$ internal re(en!e ta# +other than the doc!mentar$ stam" ta#,&
SUGGESTED ANSWER*
?r. 3omingo o)ns a (acant "arcel of land. Ae leases the land to ?r. 9nriF!e0 for ten $ears at a rental of 212.000.00 "er $ear. The condition is that ?r. 9nriF!e0
<es. The e#change in 1995 is a ta#1free e#change so that the s! seF!ent sale of one of the rothers of his shares to the other t)o +2, rothers in 1997 )ill e s! 8ect to income ta#. This is so eca!se the ta#1 free e#change merel$ deferred the recognition of income on the e#change transaction. The gain s! 8ect to income ta# in the sale is meas!red $ the difference et)een the selling "rice of the shares +22 ?illion, and the asis of the real "ro"ert$ in the hands of the transferor at the time of e#change )hich is the fair mar/et (al!e of his share in the real "ro"ert$ at the time of inheritance +7ection 34+ ,+2,. =-@4,. The net gain from the sale of shares of stoc/ is s! 8ect to the sched!lar ca"ital gains ta# of 105 for the first 2100.000 and 205 for the e#cess thereof +7ection 2l+d,. =-@4,.
ALTERNATI1E ANSWER*
The e#change effected in 1995 did not F!alif$ as a ta#1free e#change eca!se there is no sho)ing that the three rothers gained control of the cor"oration $ acF!iring at least 515 of the (oting rights. 7ince the entire gain on the e#change )as "re(io!sl$ s! 8ected to income ta#. then. the sale )ill also e ta#a le if a gain res!lts therefrom. -n the instant case. the sale )ill not e s! 8ect to an$ internal re(en!e ta# other than the doc!mentar$ stam" ta#. eca!se the seller did not reali0e an$ gain from the sale. The gain is meas!red $ the difference et)een the amo!nt reali0ed +selling "rice, and the asis of the "ro"ert$. -ncidentall$. the asis to him is his share in the (al!e of the "ro"ert$ recei(ed at the time of e#change. )hich is 22 ?illion. an amo!nt. 8!st eF!al to the amo!nt reali0ed from the sale.
Persona"$ Income Tax$ !ontract of /ease (1999)
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)ill erect a ecome the "ro"ert$ of ?r. 3omingo at the end of the lease )itho!t com"ensation or reim !rsement )hatsoe(er for the (al!e of the !ilding. ?r. 9nriF!e0 erects the !ilding. G"on com"letion the !ilding had a fair mar/et (al!e of 21 ?illion. At the end of the lease the !ilding is )orth onl$ 2900.000.00 d!e to de"reciation. Will ?r. 3omingo ha(e income )hen the lease e#"ires and ecomes the o)ner of the !ilding )ith a fair mar/et (al!e of 2900.000.00& Ao) m!ch income m!st he re"ort on the !ilding& 9#"lain.
SUGGESTED ANSWER*
)il !ilding on the land )hich l
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oth em"lo$ed in 1991 $ the same com"an$. 'n 30 3ecem er 1992. their first child )as orn. and a second child )as orn on 07 =o(em er 1993. -n 1994. the$ sold the condomini!m !nit and o!ght a ne) !nit. Gnder the foregoing facts. )hat
When a !ilding is erected $ a lessee in the leased "remises in "!rs!ance of an agreement )ith the lessor that the !ilding ecomes the "ro"ert$ of the lessor at the end of the lease. the lessor has the o"tion to re"ort income as follo)s* 1, The lessor ma$ re"ort as income the mar/et (al!e of the !ilding at the time )hen s!ch !ilding is com"letedE or 2, The lessor ma$ s"read o(er the life of the lease the estimated de"reciated (al!e of s!ch !ilding at the termination of the lease and re"ort as income for each $ear of the lease an aliF!ot "art thereof +7ec. 49. @@ =o. 2,.
Gnder the first o"tion. the lessor )ill ha(e no income )hen the lease e#"ires and ecomes the o)ner of the !ilding. The second o"tion )ill gi(e rise to an income d!ring the $ear of lease e#"iration of 290.000.00 or 1M10 of the de"reciated (al!e of the !ilding.
The a(ailment of the first o"tion )ill reF!ire ?r. 3omingo to re"ort an income of 21.000.000.00 d!ring the $ear )hen the !ilding )as com"leted. A total of 2900.000.00 income )ill e re"orted !nder the second o"tion !t )ill e s"read o(er the life of the lease or 290.000.00 "er $ear.
ALTERNATI1E ANSWER*
?r. 3omingo )ill reali0e an income )hen the lease e#"ires and ecomes the o)ner of the !ilding )ith a fair mar/et (al!e of 2900.000.00 eca!se the condition for the lease is the transfer of the !ilding at the e#"iration of the lease. The income to e reali0ed $ ?r. 3omingo at the time of the e#"iration )ill consist of the (al!e of the !ilding )hich is 2900.000.00 and an$ rental income that has accr!ed as of said date. Persona"$ Income Tax$ 0arrie& In&i(i&ua" (199,)
?ar and Ko$ got married in 1990. A )ee/ efore their marriage. Ko$ recei(ed. $ )a$ of donation. a condomini!m !nit )orth 2750.000.00 from her "arents. After marriage. some reno(ations )ere made at a cost of 2150.000.00. The s"o!ses )ere
)ere the e(ents in the life of the s"o!ses that had income ta# incidences&
SUGGESTED ANSWER*
The e(ents in the life of s"o!ses. ?ar and Ko$. )hich ha(e income ta# incidences are the follo)ing* 1, Their marriage in 1990 F!alifies them to claim "ersonal e#em"tion for married indi(id!alsE 2, Their em"lo$ment in 1991 $ the same com"an$ )ill ma/e them lia le to the income ta# im"osed on gross com"ensation incomeE 3, Cirth of their first child in 3ecem er 1992 )o!ld gi(e rise to an additional e#em"tion of 25.000 for ta#a le $ear 1992E
4, Cirth of their second child in =o(em er 1993 )o!ld li/e)ise entitle them to claim additional e#em"tion of 25.000 raising their additional "ersonal e#em"tions to 2 10.000 for ta#a le $ear 1993E and
"ro"ert$ in the 2hili""ines. K!an shall e ta#ed on his net income !nder the Si5*-i1ied Ne/ I%c,5e Ta>a/i,% Sc:e5e +7=-T7, )here $ he shall e considered as a self1em"lo$ed indi(id!al. Ais -ncome as em"lo$ee in the Gnited 7tates. on the other hand. shall e ta#ed in
5,
7ale of their condomini!m !nit in 1994 shall ma/e the s"o!ses lia le to the 55 ca"ital gains ta# on the gain "res!med to ha(e een reali0ed from the sale.
Persona"$ Income Tax$ 8etiring A"ien 2mp"oyee (2 9) An alien em"lo$ee of the Asian 3e(elo"ment Can/ +A3C, )ho is retiring soon has offered to sell his car to $o! )hich he im"orted ta#1free for his "ersonal !se. The "ri(ilege of e#em"tion from ta# is granted to F!alified "ersonal !se !nder the A3C 4harter )hich is recogni0ed $ the ta# a!thorities. -f $o! decide to "!rchase the car. is the sale s! 8ect to ta#& 9#"lain. +55,
SUGGESTED ANSWER*
The sales transaction is s! 8ect to (al!e added ta# +;AT, !nder 7ec. 107+C, of the =-@4. altho!gh this "ro(ision is e#"ressl$ e#cl!ded from the co(erage of the 2005 ar e#am. The "roceeds from the sale are s! 8ect to income ta#. The car is considered a ca"ital asset of the retiring alien em"lo$ee eca!se he is not engaged in the !siness of !$ing and selling cars. Ae therefore deri(ed income. )hich sho!ld e re"orted in his income ta# ret!rn. +7ees. 32 and 39. =-@4, Persona"$ Income Taxation: 7on:8esi&ent !iti?en (199,) K!an. a Iili"ino citi0en. has immigrated to the Gnited 7tates )here he is no) a "ermanent resident. Ae o)ns certain income1earning "ro"ert$ in the 2hili""ines from )hich he contin!es to deri(e s! stantial income. Ae also recei(es income from his em"lo$ment in the Gnited 7tates on )hich the G7 income ta# is "aid. 'n )hich of the a o(e income is the ta#a le. if at all. in the 2hili""ines. and ho). in general terms. )o!ld s!ch income or incomes e ta#ed&
SUGGESTED ANSWER*
K!an. shall e ta#ed on oth his income from the 2hili""ines and on his -ncome from the Gnited 7tates e1 ca!se his eing a citi0en ma/es him ta#a le on all -ncome )here(er deri(ed. Ior the income he deri(es from his
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accordance )ith the sched!lar grad!ated rates of 15. 25 and 35. ased on the ad8!sted gross income deri(ed $ non1resident citi0ens from all so!rces )itho!t the 2hili""ines d!ring each ta#a le $ear. Taxa+"e Income: I""ega" Income (1999 Bar)
?r. :a8o8o is a ig1time s)indler. -n one $ear he )as a le to earn 21 ?illion from his s)indling acti(ities. When the 4ommissioner of -nternal @e(en!e disco(ered his income from s)indling. the 4ommissioner assessed him a deficienc$ income ta# for s!ch income. The la)$er of ?r. :a8o8o "rotested the assessment on the follo)ing gro!nds*
2+ of 73
the same income that )ere s! 8ected to the ta#. ?r. :a8o8oDs lia ilit$ to "a$ the ta# is ased on his ha(ing reali0ed a ta#a le income from his s)indling acti(ities and )ill not affect his o ligation to ma/e restit!tion. 2a$ment of the ta# is a ci(il o ligation im"osed $ la) )hile restit!tion is a ci(il lia ilit$ arising from a crime.
Taxa+"e or 7on:Taxa+"e$ Income an& 5ains (2 9)
1,
2,
The income ta# a""lies onl$ to legal income. not to illegal incomeE
?r. :a8o8oDs recei"ts from his s)indling did not constit!te income eca!se he )as !nder o ligation to ret!rn the amo!nt he had s)indled. hence. his recei"t from s)indling )as similar to a loan. )hich is not income. eca!se for e(er$ "eso orro)ed he has a corres"onding lia ilit$ to "a$ one "esoE and -f he has to "a$ the deficienc$ income ta# assess1
3,
ment. there )ill e hardl$ an$thing left to ret!rn to the (ictims of the s)indling. Ao) )ill $o! r!le on each of the three gro!nds for the "rotest& 9#"lain.
SUGGESTED ANSWERS*
1, The contention that the income ta# a""lies to legal income and not to illegal income is not correct. 7ection 28+a, of the Ta# 4ode incl!des )ithin the "!r(ie) of gross income all -ncome from )hate(er so!rce deri(ed. Aence. the illegalit$ of the income )ill not "recl!de the im"osition of the income ta# thereon.
2, The contention that the recei"ts from his

s)indling did not constit!te income eca!se of his o ligation to ret!rn the amo!nt s)indled is li/e)ise not correct. When a ta#"a$er acF!ires earnings. la)f!ll$ or !nla)f!ll$. )itho!t the consens!al recognition. e#"ress or im"lied. of an o ligation to re"a$ and )itho!t restriction as to their dis"osition. he has recei(ed ta#a le income. e(en tho!gh it ma$ still e claimed that he is not entitled to retain the mone$. and e(en tho!gh he ma$ still e ad8!dged to restore its eF!i(alent (<a5e+ v+. U.S. 7'' U.S. 2!7 !"'!$. To treat the em e00led f!nds not as ta#a le income )o!ld "er"et!ate in8!stice $ relie(ing em e00lers of the d!t$ of "a$ing income ta#es on the mone$ the$ enrich themsel(es )ith thro!gh em e00lement. )hile honest "eo"le "a$ their ta#es on e(er$ concei(a le t$"e of income. ()ames vs. E.,.)
3, The deficienc$ income ta# assessment is a direct ta# im"osed on the o)ner )hich is an e#cise on the "ri(ilege to earn an income. -t )ill not necessaril$ e "aid o!t of
SUGGESTED ANSWER*
9#"lain riefl$ )hether the follo)ing items are ta#a le or non1ta#a le* +55, a, -ncome from <UETENGE
SUGGESTED ANSWER*
Ta#a le. 6ross income incl!des %all income deri(ed from )hate(er so!rce% (,ec. 5&AA@ N6$!) )hich )as inter"reted as all income not e#"ressl$ e#cl!ded or e#em"ted from the class of ta#a le income. irres"ecti(e of the (ol!ntar$ or in(ol!ntar$ action of the ta#"a$er in "rod!cing the income. Th!s. the income ma$ "roceed from a legal or illegal so!rce s!ch as from 8!eteng. Gnla)f!l gains. gam ling )innings. etc. are s! 8ect to income ta#. The ta# code stands as an indifferent ne!tral "art$ on the matter of )here the income comes from.
(C,55i++i,%er ,1 I%/er%a- Reve%.e v. Ma%%i%g G.R. N,. L;247"4 A.g.+/ ' !"#3$
=o. The income ta# on all income deri(ed from 2hili""ine so!rces $ a non1resident alien )ho is not engaged in trade or !siness in the 2hili""ines is )ithheld $ the lessee as a Iinal Withholding Ta#. (,ection -'(A) N6$!). The go(ernment can not reF!ire "ersons o!tside
, 6ain arising from EXPROPRIATION OF PROPERTBE

SUGGESTED ANSWER*
Ta#a le. 7ale e#change or other dis"osition of "ro"ert$ to the go(ernment of real "ro"ert$ is ta#a le. -t incl!des ta/ing $ the go(ernment thro!gh condemnation "roceedings. (G,%Ea-e+ v. C,.r/ ,1 Ta> A**ea-+ G.R. N,.
L;!(372 Ma0 2' !"'3$
c,
TAXES "aid and s! seF!entl$ ref!ndedE
SUGGESTED ANSWER*
Ta#a le onl$ if the ta#es )ere "aid and claimed as ded!ction and )hich are s! seF!entl$ ref!nded or credited. -t shall e incl!ded as "art of gross income in the $ear of the recei"t to the e#tent of the income ta# enefit of said ded!ction. (,ec. 5"A!@A%@ N6$!) =ot ta#a le if the ta#es ref!nded )ere not originall$ claimed as ded!ctions.
d,
@eco(er$ of BAD DEBTS "re(io!sl$ charged offE
SUGGESTED ANSWER*
Ta#a le !nder the TA0 1E$EF&T R.*E. @eco(er$ of ad de ts "re(io!sl$ allo)ed as ded!ction in the "receding $ears shall e incl!ded as "art of the gross income in the $ear of reco(er$ to the e#tent of the income ta# enefit of said ded!ction. (,ec. 5"A4@A%@ N6$!) This is sometimes referred as the RECA2T.RE R.*E-. e, 6ain on the sale of a car !sed for "ersonal "!r"oses.
SUGGESTED ANSWER*
Ta#a le. 7ince the car is !sed for "ersonal "!r"oses. it is considered as a ca"ital asset hence the gain is considered income. (,ec. 5&AA@A5@ and ,ec. 5*AA@A%@ N6$!) -it##o"&ing Tax: 7on:8esi&ent A"ien (2 1) -s a non1resident alien )ho is not engaged in trade or !siness or in the e#ercise of "rofession in the 2hili""ines !t )ho deri(ed rental income from the 2hili""ines reF!ired to file an income ta# ret!rn on A"ril of the $ear follo)ing his recei"t of said income& -f not. )h$ not& 9#"lain $o!r ans)er. +55,
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of its territorial 8!risdiction to file a ret!rnE for
24 of 73
this reason. the income ta# on income deri(ed from )ithin m!st e collected thro!gh the )ithholding ta# s$stem and th!s relie(e the reci"ient of the income the d!t$ to file income ta# ret!rns. (,ection -% N6$!). -it##o"&ing Tax: 8etirement Benefit (2 ) To start a !siness of his o)n. ?r. ?ario de 6!0man o"ted for an earl$ retirement from a "ri(ate com"an$ after ten +10, $ears of ser(ice. 2!rs!ant to the com"an$Ds F!alified and a""ro(ed "ri(ate retirement enefit "lan. he )as "aid his retirement enefit )hich )as s! 8ected to )ithholding ta#. -s the em"lo$er correct in )ithholding the ta#& 9#"lain. +25,
SUGGESTED ANSWER*
enefits the enefits are e#cl!ded from gross income and e#em"t from income ta# if* i. retiring em"lo$ee m!st ha(e ser(ed at least fi(e+5, $earsE and ii. that he is not less than si#t$ +60, $ears of age !t not more than si#t$ fi(e +65,. -it##o"&ing Tax: 8oya"ty (2 2)
+a, -t de"ends. An em"lo$ee retiring !nder a com"an$Ds F!alified and "ri(ate retirement "lan can onl$ e e#em"t from income ta# on his retirement enefits if the follo)ing reF!isites are met* +1, that the retiring em"lo$ee m!st ha(e een in ser(ice of the same em"lo$er for at least ten +10, $earsE +2, that he is not less than 50 $ears of age at the time of retirementE and +3, the enefit is a(ailed of onl$ once. -n the instant case. there is no mention )hether the em"lo$ee has li/e)ise com"lied )ith reF!isites n!m er +2, and +3,. -it##o"&ing Tax: 8etirement Benefit (2 ) Gnder )hat conditions are retirement enefits recei(ed $ officials and em"lo$ees of "ri(ate firms e#cl!ded from gross income and e#em"t from ta#ation& +35,
SUGGESTED ANSWER*
The conditions to e met in order that retirement enefits recei(ed $ officials and em"lo$ees of "ri(ate firms are e#cl!ded from gross income and e#em"t from ta#ation are as follo)s* 2. Gnder @e"! lic Act =o. 4917 +those recei(ed !nder a reasona le "ri(ate enefit "lan,* a. the retiring official or em"lo$ee m!st ha(e een in ser(ice of the same em"lo$er for at least ten +10,$earsE . that he is not less than fift$ +50, $ears of age at the time of retirementE and c. that the enefit is a(ailed of onl$ once. 3. Gnder @e"! lic Act =o. 7641 +those recei(ed from em"lo$ers )itho!t an$ retirement "lan,* a. Those recei(ed !nder e#isting collecti(e argaining agreement and other agreements are e#em"tE and . -n the a sence of retirement "lan or agreement "ro(iding for retirement
The ?RC12hils. is a C'-1registered domestic cor"oration licensed $ the ?RC of the Gnited Ringdom to distri !te. s!""ort and !se in the 2hili""ines its com"!ter soft)are s$stems. incl!ding asic and related materials for an/s. The ?RC1 2hils. "ro(ides cons!ltanc$ and technical ser(ices incidental thereto $ entering into licensing agreements )ith an/s. Gnder s!ch agreements. the ?RC12hils. )ill not acF!ire an$ "ro"rietar$ rights in the licensed s$stems. The ?RC1 2hils. "a$s ro$alt$ to the ?RC1GR. net of 155 )ithholding ta# "rescri ed $ the @21GR Ta# Treat$. -s the income of the ?RC12hils. !nder the licensing agreement )ith an/s considered ro$alt$ s! 8ect to 205 final )ithholding ta#& Wh$& -f not. )hat /ind of ta# )ill its income e s! 8ect to& 9#"lain. +55,
SUGGESTED ANSWER*
at the final ta# of 105 and not at the "rogressi(e ta# rate sched!le !nder 7ection 24+A, of the Ta# 4ode& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
The reason for im"osing final )ithholding ta# rather than the "rogressi(e ta# sched!le on cash di(idends recei(ed $
<es. The income of ?RC12hils. !nder the licensing agreement )ith an/s shall e considered as ro$alt$ s! 8ect to the 205 final )ithholding ta#. The term ro$alt$ is road eno!gh to incl!de technical ad(ice. assistance or ser(ices rendered in connection )ith technical management or administration of an$ scientific. ind!strial or commercial !nderta/ing. (ent!re. "ro8ect or scheme. +7ec. 42+4,+f,. =-@4,. Accordingl$. the cons!ltanc$ and technical ser(ices rendered $ ?RC12hils. )hich are incidental to the distri !tion. s!""ort and !se of the com"!ter s$stems of ?RC1GR are ta#a le as ro$alt$.
-it##o"&ing Tax$ !o(erage (2 *)

4iting 7ection 10. Article ;--- of the 1987 4onstit!tion )hich "ro(ides that salaries of 8!dges shall e fi#ed $ la) and that d!ring their contin!ance in office their salar$ shall not e decreased. a 8!dge of ?? @egional Trial 4o!rt F!estioned the ded!ction of )ithholding ta#es from his salar$ since it res!lts into a net ded!ction of his "a$. -s the contention of the 8!dge correct& @eason riefl$. +55,
SUGGESTED ANSWER*
=o. The contention is incorrect. The salaries of 8!dges are not ta#1e#em"t and their ta#a ilit$ is not contrar$ to the "ro(isions of 7ection 10. Article ;--- of the 4onstit!tion on the non1dimin!tion of the salaries of mem ers of the 8!diciar$ d!ring their contin!ance in office. The clear intent of the 4onstit!tional 4ommission that framed the 4onstit!tion is to s! 8ect their salaries to ta# as in the case of all ta#"a$ers. Aence. the ded!ction of )ithholding ta#es. eing a manner of collecting the income ta# on their salar$. is not a dimin!tion contem"lated $ the f!ndamental la). (Ni/a1a% e/. a-. v. CIR !32 SCRA 24( 8!"4#P,. -it##o"&ing Tax$ 'omestic !orporation$ !as# 'i(i&en&s (2 1) What do $o! thin/ is the reason )h$ cash di(idends. )hen recei(ed $ a resident citi0en or alien from a domestic cor"oration. are ta#ed onl$
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domesti a resident citi0en or alien from a c cor"oration. is to ens!re the collection of income ta# on said income. -f )e s! 8ect the di(idend to the "rogressi(e ta# rate. )hich can onl$ e done thro!gh the filing of income ta# ret!rns. there is no ass!rance that the ta#"a$er )ill declare the income. es"eciall$ )hen there are other items of gross income earned d!ring the $ear. -t )o!ld e e#tremel$ diffic!lt for the C-@ to monitor com"liance considering the h!ge n!m er of stoc/holders. C$ shifting the res"onsi ilit$ to remit the ta# to the cor"oration. it is (er$ eas$ to chec/ com"liance eca!se there are fe)er )ithholding agents com"ared to the n!m er of income reci"ients.
:i/e)ise. the im"osition of a final )ithholding ta# )ill ma/e the ta# a(aila le to the go(ernment at an earlier time. Iinall$. the final )ithholding ta# )ill e a s!re re(en!e to the go(ernment !nli/e )hen the di(idend is treated as a ret!rna le income )here the reci"ient thereof )ho is in a ta# loss "osition is gi(en the chance to offset s!ch loss against di(idend income there $ de"ri(ing the go(ernment of the ta# on said di(idend income. O$ote% 6t is recommended that any of the foregoing answers can be given full credit because the 7uestion involves a policy issue which can only be found in the deliberations of !ongress.P
ALTERNATI1E ANSWER*
2. of 73
SUGGESTED ANSWER*
The follo)ing are lia le to "a$ income ta#es*

+a, The fo!r catholic "arishes eca!se the income recei(ed $ them. not eing income earned %as s!ch% in the "erformance of their religio!s f!nctions and d!ties. is ta#a le income !nder the last "aragra"h of 7ec. 26. in relation to 7ec. 26+e, of the Ta# 4ode. -n
The reason )h$ cash di(idends recei(ed $ a resident citi0en or alien from a domestic cor"oration are s! 8ected to the final )ithholding ta# of 105 and not at the "rogressi(e rate ta# sched!le is to lessen the im"act of a second la$er of ta# on the same income. -it##o"&ing Tax$ Income su+@ect t#ereto (2 1) What is meant $ income s! 8ect to %final ta#%& 6i(e at least t)o e#am"les of income of resident indi(id!als that is s! 8ect to the final ta#. +35,
SUGGESTED ANSWER*
-ncome s! 8ect to final ta# refers to an income )herein the ta# d!e is f!ll$ collected thro!gh the )ithholding ta# s$stem. Gnder this "roced!re. the "a$or of the income )ithholds the ta# and remits it to the go(ernment as a final settlement of the income ta# d!e on said income. The reci"ient is no longer reF!ired to incl!de the item of income s! 8ected to %final ta#% as "art of his gross income in his income ta# ret!rns. 9#am"les of income s! 8ect to final ta# are di(idend income. interest from an/ de"osits. ro$alties. etc.
-it##o"&ing Tax$ 7on:8esi&ent A"ien (199*) Io!r 4atholic "arishes hired the ser(ices of Iran/ Cinatra. a foreign non1resident entertainer. to "erform for fo!r +4, nights at the Iol/ Arts Theater. Cinatra )as "aid 2200.000.00 a night. The "arishes earned 21.000.000.00 )hich the$ !sed for the s!""ort of the or"hans in the cit$. Who are lia le to "a$ ta#es&
"romoting and o"erating the Cinatra 7ho). the$ engaged in an acti(it$ cond!cted for "rofit. +- id.,
+ , The income of Iran/ Cinatra. a non1resident alien !nder o!r la) is ta#a le at the rate of 305. final )ithholding ta# ased on the gross income from the sho). ?r. Cinatra is not engaged in an$ trade or !siness in the 2hili""ines.
$ la) or r!les and reg!lations shall. in addition to other "enalties "ro(ided $ la). !"on con(iction e "!nished $ a fine of not less than Ten tho!sand "esos +2h" 10.0'', and s!ffer im"risonment of not less than one +1,
-it##o"&ing Tax$ 7on:8esi&ent !orporation (199*)

Cates Ad(ertising 4om"an$ is a non1resident cor"oration d!l$ organi0ed and e#isting !nder the la)s of 7inga"ore. -t is not doing !siness and has no office in the 2hili""ines. 2ili"inas 6arment -ncor"orated. a domestic cor"oration. retained the ser(ices of Cates to do all the ad(ertising of its "rod!cts a road. Ior said ser(ices. CatesD fees are "aid thro!gh o!t)ard remittances. Are the fees recei(ed $ Cates s! 8ect to an$ )ithholding ta#&
-.,,E-TED A$-WER%
The fees "aid to Cates Ad(ertising 4o.. a non1resident foreign cor"oration are not s! 8ect to )ithholding ta# since the$ are not s! 8ect to 2hili""ine ta#. The$ are e#em"t eca!se the$ do not constit!te income from 2hili""ine so!rces. the same eing com"ensation for la or or "ersonal ser(ices "erformed o!tside the 2hili""ines +7ec. 36Hc, +3, and 7ec. 25+ ,+l,. Ta# 4ode,.
-it##o"&ing Tax$ 8ea&erAs 'igest A1ar& (199=) -s the "ri0e of one million "esos a)arded $ the @eaderDs 3igest s! 8ect to )ithholding of final ta#& Who is res"onsi le for )ithholding the ta#& What are the lia ilities for fail!re to )ithhold s!ch ta#& O55P
SUGGESTED ANSWER*
1,
-t de"ends. -f the "ri0e is considered as )innings deri(ed from so!rces )ithin the 2hili""ines. it is s! 8ect to )ithholding of final ta# +7ec. 24OCP in relation to 7ec. 57OAP. =-@4,. -f deri(ed from so!rces )itho!t the 2hili""ines. it is not s! 8ect to )ithholding of final ta# eca!se the 2hili""ine ta# la) and reg!lations co!ld not reach o!t to foreign 8!risdictions.
2,
The ta# shall e )ithheld $ the @eaderDs 3igest or local agent )ho has control o(er the "a$ment of the "ri0e.
An$ "erson reF!ired to )ithhold or )ho )illf!ll$ fails to )ithhold. shall. in addition to the other "enalties "ro(ided !nder the 4ode. e lia le !"on con(iction to a "enalt$ eF!al to the total amo!nt of ta# not )ithheld +7ec. 251. =-@4,. -n case of fail!re to )ithhold the ta# or in the case of !nder )ithholding. the deficienc$ ta# shall e collected from the "a$orM)ithholding agent +1st "ar.. 7ec. 2.57OAP. @.@. =o. 2198,.
3,
An$ "erson reF!ired !nder the Ta# 4ode or $ r!les and reg!lations to )ithhold ta#es at the time or times reF!ired
c!stomar$
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73 $ear !t not more than ten +10, $ears +1st "ar.. 7ec. 255. =-@4,.
26
of
(De*./0 v. D. P,%/ 7)4 US (44 8!"()9$ . 2a$ing "remi!ms
for the ins!rance of a "erson not connected to the com"an$ is not normal. !s!al or c!stomar$.
CO33E$T% -t is s!ggested that an$ of the follo)ing ans)ers to the F!estion. %What are the lia ilities for fail!re to )ithhold s!ch a ta#&% e gi(en f!ll credit* 1, The "a$or shall e lia le for the "a$ment of the ta# )hich )as not )ithheld. 2, The "a$erM)ithholding agent shall e lia le to oth ci(il and criminal "enalties im"osed $ the Ta# 4ode.
-it##o"&ing Tax$ Time 'eposit Interest$ 5SIS Pension (199*) ?ari el 7antos. a retired "! lic school teacher. relies on her "ension from the 67-7 and the -nterest -ncome from a time de"osit of 2500.000.00 )ith AC4 Can/. -s ?iss 7antos lia le to "a$ an$ ta# on her -ncome&
SUGGESTED ANSWER*
?ari el 7antos is e#em"t from ta# on the "ension from the 67-7 (,ec. &/(b((')(<) Tax !ode). Ao)e(er. as regards her time de"osit. the interest she recei(es thereon is s! 8ect to 205 final )ithholding ta#. (,ec. &%(a)(c) Tax !ode).
DEDUCTIONS, EXEMPTIONS, EXCLUSIONS - INCLUSIONS

'e&uction: Faci"itation Fees or >BicB+acB> (199=) ?4 6arcia. a contractor )ho )on the id for the constr!ction of a "! lic high)a$. claims as e#"enses. facilitation fees )hich according to him is standard o"erating "roced!re in transactions )ith the go(ernment. Are these e#"enses allo)a le as ded!ction from gross income& O55P
SUGGESTED ANSWER*
=o. The alleged facilitation fees )hich he claims as standard o"erating "roced!re in transactions )ith the go(ernment comes in the form of ri es or %/ic/ ac/% )hich are not allo)ed as ded!ctions from gross income
(,ection 5"(A)(l)(c) N6$!). 'e&uctions: %r&inary Business 2xpenses (2 *) 'B< is the "resident and chief e#ec!ti(e officer of A33 4om"!ters. -nc. When 'B< )as as/ed to 8oin the go(ernment ser(ice as director of a !rea! !nder the 3e"artment of Trade and -nd!str$. he too/ a lea(e of a sence from A33. Celie(ing that its !siness o!tloo/. good)ill and o""ort!nities im"ro(ed )ith 'B< in the go(ernment. A33 "ro"osed to o tain a "olic$ of ins!rance on his life. 'n ethical gro!nds. 'B< o 8ected to the ins!rance "!rchase !t A33 "!rchased the "olic$ an$)a$. -ts ann!al "remi!m amo!nted to 2100.000. -s said "remi!m ded!cti le $ A33 4om"!ters. -nc.& @eason. +55,
SUGGESTED ANSWER*
=o. The "remi!m is not ded!cti le eca!se it is not an ordinar$ !siness e#"ense. The term %ordinar$% is !sed in the income ta# la) in its common significance and it has the connotation of eing normal. !s!al or
Another reason for its non1ded!cti ilit$ is the fact that it can e considered as an illegal com"ensation made to a go(ernment em"lo$ee. This is so eca!se if the ins!red. his estate or heirs )ere made as the eneficiar$ (because of the re7uirement of insurable interest). the "a$ment of "remi!m )ill constit!te ri es )hich are not allo)ed as ded!ction from gross income (,ection 5"AA@Al@Ac@ N6$!). 'n the other hand. if the com"an$ )as made the eneficiar$. )hether directl$ or indirectl$. the "remi!m is not allo)ed as a ded!ction from gross income (,ection 5.AAF%"@ N6$!). 'e&uctions: Amount for Bri+e (2 1) -n order to facilitate the "rocessing of its a""lication for a license from a go(ernment office. 4or"oration A fo!nd it necessar$ to "a$ the amo!nt of 2h" 100.000 as a ri e to the a""ro(ing official. -s the 2h" 100.000 ded!cti le from the gross income of 4or"oration A& 'n the other hand. is the 2h" 100.000 ta#a le income of the a""ro(ing official& 9#"lain $o!r ans)ers. +55,
SUGGESTED ANSWER*
=olding 9eriod). -t stands to reason therefore. that if the transaction res!lts in loss. the same sho!ld e allo)ed onl$ from and to the e#tent of ca"ital gains and not to e ded!cted from
7ince the amo!nt of 2h"l00.000 constit!tes a ri e. it is not allo)ed as a ded!ction from gross income of 4or"oration A. (,ection 5"(A)(l)(c) N6$!) . Ao)e(er. to the reci"ient go(ernment official. the same constit!tes a ta#a le income. All income from legal or illegal so!rces are ta#a le a sent an$ clear "ro(ision of la) e#em"ting the same. This is the reason )h$ gross income had een defined to incl!de income from )hate(er so!rce deri(ed. (,ection 5&(A) N6$!). -llegall$ acF!ired income constit!tes reali0ed income !nder the claim of right doctrine (R./Ai% v. US 7(7 US !7)$.
'e&uctions: !apita" /osses$ Pro#i+itions (2 4) What is the rationale for the r!le "rohi iting the ded!ction of ca"ital losses from ordinar$ gains& 9#"lain.
SUGGESTED ANSWER*
-t is to ins!re that onl$ costs or e#"enses inc!rred in earning the income shall e ded!cti le for income ta# "!r"oses consonant )ith the reF!irement of the la) that onl$ necessar$ e#"enses are allo)ed as ded!ctions from gross income. The term % N4!4,,A$G 4H94N,4,% "res!""oses that in order to e allo)ed as ded!ction. the e#"ense m!st e !siness connected. )hich is not the case insofar as ca"ital losses are concerned. This is also the reason )h$ all non1 !siness connected e#"enses li/e "ersonal. li(ing and famil$ e#"enses. are not allo)ed as ded!ction from gross income (,ection 5.(A)(%) of the %**' Tax !ode). The "rohi ition of ded!ction of ca"ital losses from ordinar$ gains is designed to forestall the shifting of ded!ctions from an area s! 8ect to lo)er ta#es to an area s! 8ect to higher ta#es. there $ !nnecessaril$ res!lting in lea/age of ta# re(en!es. 4a"ital gains are generall$ ta#ed at a lo)er rate to "re(ent. among others. the !nching of income in one ta#a le $ear )hich is a li eralit$ in the la) egotten from moti(es of "! lic "olic$ ($ule on
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ordinar$ gains )hich are s! 8ect to a higher rate of income ta#. (!hirelstein <ederal 6ncome Taxation %*'' 4d.)
22 of 73
C.
-n order that donations to non1stoc/. non1"rofit ed!cational instit!tion ma$ e e#em"t from the donorDs gift ta#. )hat conditions m!st e met $ the
'e&uctions: 'e&ucti+"e Items from 5ross Income (1999) 9#"lain if the follo)ing items are ded!cti le from gross income for income ta# "!r"oses. 3isregard )ho is the "erson claiming the e#"ense. +55, 1, -nterest on loans !sed to acF!ire ca"ital eF!i"ment or machiner$. 2, 3e"reciation of good)ill.
SUGGESTED ANSWER*
donee& +35,
SUGGESTED ANSWER*
1, I%/ere+/ ,% -,a%+ .+ed /, acC.ire ca*i/aeC.i*; 5e%/ ,r 5ac:i%er0 is a ded!cti le item from gross income. The la) gi(es the ta#"a$er the o"tion to claim as a ded!ction or treat as ca"ital e#"endit!re interest in1 c!rred to acF!ire "ro"ert$ !sed in trade. !siness or e#ercise of a "rofession. (,ection 5"(3) (5) N6$!).
2, De*recia/i,% 1,r g,,d&i-- is not allo)ed as de1 d!ction from gross income. While intangi les ma$ e allo)ed to e de"reciated or amorti0ed. it is onl$ allo)ed to those intangi les )hose !se in the !siness or trade is definitel$ limited in d!ration. + Ba+i-a% E+/a/e+ I%c. v CIR 2! SCRA !#,. 7!ch is not the case )ith good)ill.
ALTERNATI1E ANSWER*
3e"reciation of good)ill is allo)ed as a ded!ction from gross income if the good)ill is acF!ired thro!gh ca"ital o!tla$ and is /no)n from e#"erience to e of (al!e to the !siness for onl$ a limited "eriod. (,ection %(' $evenue $egulations No. &). -n s!ch case. the good)ill is allo)ed to e amorti0ed o(er its !sef!l life to allo) the ded!ction of the c!rrent "ortion of the e#"ense from gross income. there $ "a(ing the )a$ for a "ro"er matching of costs against re(en!es )hich is an essential feat!re of the income ta# s$stem. 'e&uctions: Income Tax: 'onation: 8ea" Property (2 2) 'n 3ecem er 06. 2001. :;= 4or"oration donated a "iece of (acant lot sit!ated in ?andal!$ong 4it$ to an accredited and d!l$ registered non1 stoc/. non1"rofit ed!cational instit!tion to e !sed $ the latter in !ilding a s"orts com"le# for st!dents.
A. ?a$ the donor claim in f!ll as ded!ction from its gross income for the ta#a le $ear 2001 the amo!nt of the donated lot eF!i(alent to its fair mar/et (al!eM0onal (al!e at the time of the donation&
9#"lain $o!r ans)er. +25,

SUGGESTED ANSWER*
A. =o. 3onations andMor contri !tions made to F!alified donee instit!tions consisting of "ro"ert$ other than mone$ shall e ased on the acF!isition cost of the "ro"ert$. The donor is not entitled to claim as f!ll ded!ction the fair mar/et (al!eM0onal (al!e of the lot donated. +7ec. 34+A,. =-@4,.
C. -n order that donations to non1stoc/. non1"rofit ed!cational instit!tion ma$ e e#em"t from the donorDs gift ta#. it is reF!ired that not more than 305 of the said gifts shall e !sed $ the donee1instit!tion for administration "!r"oses. +7ec. 101+A,+3,. =-@4,.
Ta#"a$ers )hose onl$ income consists of salaries and )ages from their em"lo$ers ha(e long een com"laining
'e&uctions: 7on:'e&ucti+"e Items$ 5ross Income (1999) 9#"lain if the follo)ing items are ded!cti le from gross income for income ta# "!r"oses. 3isregard )ho is the "erson claiming the ded!ction. +55, 1. @eser(es for ad de ts. 2. Worthless sec!rities
SUGGESTED ANSWER*
1.
RE-ER/E FOR 1AD DE1T- are not allo)ed as ded!ction from gross income. Cad de ts m!st e charged off d!ring the ta#a le $ear to e allo)ed as ded!ction from gross income. The mere setting !" of reser(es )ill not gi(e rise to an$ ded!ction. +7ection 34+9,. =T@4,.
WORT4*E-- -EC.R&T&E-. )hich are ordinar$ assets. are not allo)ed as ded!ction from gross income eca!se the loss is not reali0ed. Ao)e(er. if these )orthless sec!rities are ca"ital assets. the o)ner is considered to ha(e inc!rred a ca"ital loss as of the last da$ of the ta#a le $ear and. therefore. ded!cti le to the e#tent of ca"ital gains. (,ection 5"(B)(") N6$!). This ded!ction. ho)e(er. is not allo)ed to a an/ or tr!st com"an$. (,ection 5"(4)(&) N6$!).
2.
'e&uctions: 8e3uisites$ 'e&uci+i"ity of a /oss (199=) 6i(e the reF!isites for ded!ci ilit$ of a loss. +551
SUGGESTED ANSWER*
The reF!isites for ded!ci ilit$ of a loss are 1, loss elongs to the ta#"a$erE 2, act!all$ s!stained and charged off d!ring the ta#a le $earE 3, e(idenced $ a closed and com"leted transactionE 4, not com"ensated $ -ns!rance or other forms of indemnit$E 5, not claimed as a ded!ction for estate ta# "!r"oses in case of indi(id!al ta#"a$ersE and 6, if it is a cas!alt$ loss it is e(idenced $ a declaration of loss filed )ithin 45 da$s )ith the C-@.
COMMENT*
The F!estion is (ag!e. There are different /inds of losses recogni0ed as ded!cti le !nder the Ta# 4ode. These are losses. in general +7ec. 34O3P+1,E net o"erating loss carr$o(er +7ec. 34O3P+3,E ca"ital losses +7ec. 34O3P+4,E :osses from )ash sales of stoc/s or sec!rities +7ec. 34O3P+5, in relation to 7ec. 38,E )agering losses +7ec. 34O3P+6,E and a andonment losses +7ec. 34+3P+7,. :osses are also ded!cti le from the gross estate +7ec. 86OAP+l,+e,. =-@4,. 4onsidering the time allotted for a fi(e +5, "oint F!estion is onl$ nine +9, min!tes. the candidates )o!ld not e a le to )rite do)n a com"lete ans)er. -t is s!ggested that an$ ans)er )hich states the reF!isites for the ded!ci ilit$ of an$ of the a o(e losses e gi(en f!ll credit.
'e&uctions$ Income Tax: A""o1a+"e 'e&uctions (2 1)
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that the$ are not allo)ed to ded!ct an$ item from their gross income for "!r"oses of com"!ting their net ta#a le income. With the "assage of the 4om"rehensi(e Ta# @eform Act of 1997. is this com"laint still (alid& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
24 of 73
(NOTA BENE: This 7uestion pertains to a percentage tax on #ross $eceipts which is excluded from the 3ar coverage)
2xc"usion (s) 'e&uction from 5ross Income (2 1)
=o more. 6ross com"ensation income earners are no) allo)ed at least an item of ded!ction in the form of "remi!m "a$ments on health andMor hos"itali0ation ins!rance in an amo!nt not e#ceeding 22.400 "er ann!m O7ection 34+?,P. This ded!ction is allo)ed if the aggregate famil$ income do not e#ceed 2250.000 and $ the s"o!se. in case of married indi(id!al. )ho claims additional "ersonal e#em"tion for de"endents.
'e&uctions$ Canis#ing 'e&uction$ Purpose (2 6) ;anishing ded!ction is a(ailed of $ ta#"a$ers to* a. 4orrect his acco!nting records to reflect the act!al ded!ctions made . @ed!ce his gross income c. @ed!ce his o!t"!t (al!e1added ta# lia ilit$ d. @ed!ce his gross estate 4hoose the correct ans)er. 9#"lain. +55,
SUGGESTED ANSWER*
+3, red!ce his gross estate. ;anishing ded!ction or "ro"1 ert$ "re(io!sl$ ta#ed is one of the items of ded!ction allo)ed in com"!ting the net estate of a decedent (,ection /.AA@A&@ and /.A3@A&@ N6$!). 2xc"usion ; Inc"usion$ 5ross 8eceipts (2 6)
4ongress enacts a la) im"osing a 55 ta# on gross recei"ts of common carriers. The la) does not define the term %gross recei"ts.% 9#"ress Trans"ort. -nc.. a !s com"an$ "l$ing the ?anila1Cag!io ro!te. has time de"osits )ith AC4 Can/. -n 2005. 9#"ress Trans"ort earned 21 ?illion interest. after ded!cting the 205 final )ithholding ta# from its time de"osits )ith the an/. The C-@ )ants to collect a 55 gross recei"ts ta# on the interest income of 9#"ress Trans"ort )itho!t ded!cting the 205 final )ithholding ta#. -s the C-@ correct& 9#"lain. +55,
ALTERNATI1E ANSWER*
<es. The term %6ross @ecei"ts% is road eno!gh to incl!de income constr!cti(el$ recei(ed $ the ta#"a$er. The amo!nt )ithheld is "aid to the go(ernment on its ehalf. in satisfaction of )ithholding ta#es. The fact that it did not act!all$ recei(e the amo!nt does not alter the fact that it is remitted in satisfaction of its ta# o ligations. 7ince the income )ithheld is an income o)ned $ 9#"ress Trans"ort. the same forms "art of its gross recei"ts (CIR v.
S,-id6a%A C,r*. G.R. N,. !(4!"!
N,ve56er 23 2))7$.
ALTERNATI1E ANSWER*
=o. The term %gross recei"ts.% as a""lied to the !siness of a common carrier consists of re(en!es from carriage of goods. cargoes. and "assengers. -t does not com"rehend or incl!de interest income )hich is "ro"erl$ descri ed as %'ther -ncome.%
3isting!ish %9#cl!sion from 6ross -ncome% from %3ed!ctions Irom 6ross -ncome%. 6i(e an e#am"le of each. +25,
SUGGESTED ANSWER*
income. All the other amo!nts recei(ed are either com"ensation for in8!ries or damages recei(ed on acco!nt of s!ch in8!riesD
EXCLUSIONS 1r,5 gr,++ i%c,5e refer to a flo) of )ealth to the ta#"a$er )hich are not treated as "art of gross income. for "!r"oses of com"!ting the ta#"a$erQs ta#a le income. d!e to the follo)ing reasons* +1, -t is e#em"ted $ the f!ndamental la)E +2, -t is e#em"ted $ stat!teE and +3, -t does not come )ithin the definition of income. +7ection 61. @@ =o. 2,. DEDUCTIONS 1r,5 gr,++ i%c,5e. on the other hand. are the amo!nts. )hich the la) allo)s to e ded!cted from gross income in order to arri(e at net income.
9#cl!sions "ertain to the com"!tation of gross income. )hile ded!ctions "ertain to the com"!tation of net income. 9#cl!sions are something recei(ed or earned $ the ta#"a$er )hich do not form "art of gross income )hile ded!ctions are something s"ent or "aid in earning gross income. 9#am"le of an e#cl!sion from gross income is "roceeds of life ins!rance recei(ed $ the eneficiar$ !"on the death of the ins!red )hich is not an income or 13th month "a$ of an em"lo$ee not e#ceeding 230.000 )hich is an income not recogni0ed for ta# "!r"oses. 9#am"le of a ded!ction is !siness rental. 2xc"usions ; Inc"usions: Benefits on Account of In@ury (1999)
?r. -nfante )as hit $ a )a$)ard !s )hile on his )a$ to )or/. Ae s!r(i(ed !t had to "a$ 2400.000.00 for his hos"itali0ation. Ae )as !na le to )or/ for si# months )hich meant that he did not recei(e his !s!al salar$ of 2 10.000.00 a month or a total of 260.000.00. Ae s!ed the !s com"an$ and )as a le to o tain a final 8!dgment a)arding him 2400.000.00 as reim !rsement for his hos"itali0ation. 260.000 for the salaries he failed to recei(e )hile hos"itali0ed. 2200.000.00 as moral damages for his "ain and s!ffering. and 2 100.000.00 as e#em"lar$ damages. Ae )as a le to collect in f!ll from the 8!dgment. Ao) m!ch income did he reali0e )hen he collected on the 8!dgment& 9#"lain.
SUGGESTED ANSWER*
=one. The 2200.000 moral and e#em"lar$ damages are com"ensation for in8!ries s!stained $ ?r. -nfante. The 2400.000.00 reim !rsement for hos"itali0ation e#"enses and the 260.000.00 for salaries he failed to recei(e are Damo!nts of an$ damages recei(ed )hether $ s!it or agreement on acco!nt of s!ch in8!ries.D 7ection 28+ ,+5, of the Ta# 4ode s"ecificall$ e#cl!de these amo!nts from the gross income of the indi(id!al in8!red. +7ection 28+ ,. =-@4 and 7ec. 63 @e(. @eg. =o. 2,
ALTERNATI1E ANSWER*
The income reali0ed from the 8!dgment is onl$ the reco(er$ for lost salaries. This constit!tes ta#a le income eca!se )ere it not for the in8!r$. he co!ld ha(e recei(ed it from his em"lo$er as com"ensation
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)hich are e#cl!sions from 73 "!rs!ant to 7ection 28+ ,+5, of the Ta#gross 4ode.
29 of income
heart attac/ and died. At the time of his death. he left the follo)ing "ro"erties* +a, an/ de"osits )ith 4iti an/ ?a/ati and 4iti an/ 'rlando. IloridaE + , a restho!se in 'rlando. IloridaE +c, a condomini!m !nit in
2xc"usions ; Inc"usions: 2xecuti(e Benefits (1999)

?r. Adrian is an e#ec!ti(e of a ig !siness cor"oration. Aside from his salar$. his em"lo$er "ro(ides him )ith the follo)ing enefits* free !se of a residential ho!se in an e#cl!si(e s! di(ision. free !se of a limo!sine and mem ershi" in a co!ntr$ cl! )here he can entertain c!stomers of the cor"oration. Which of these enefits. if an$. m!st ?r. Adrian re"ort as income& 9#"lain.
SUGGESTED ANSWER*
?r. Adrian m!st re"ort the im"!ted rental (al!e of the ho!se and limo!sine as income. -f the rental (al!e e#ceeds the "ersonal needs of ?r. Adrian eca!se he is e#"ected to "ro(ide accommodation in said ho!se for com"an$ g!ests or the car is !sed "artl$ for !siness "!r"ose. then ?r. Adrian is entitled onl$ to a rata le rental (al!e of the ho!se and limo!sine as e#cl!sion from gross income and onl$ a reasona le amo!nt sho!ld e re"orted as income. This is eca!se the free ho!sing and !se of the limo!sine are gi(en "artl$ for the con(enience and enefit of the em"lo$er (C,--ec/,r v+.
He%der+,%$.
ALTERNATI1E ANSWER*
@em!neration for ser(ices altho!gh not gi(en in the form of cash constit!tes com"ensation income. Accordingl$. the (al!e for the !se of the residential ho!se is "art of his com"ensation income )hich he m!st re"ort for income ta# "!r"oses. Ao)e(er. if the residential ho!se gi(en to ?r. Adrian for his free !se as an e#ec!ti(e is also !sed for the enefit of the cor"orationMem"lo$er. s!ch as for entertaining c!stomers of the cor"oration. onl$ 505 of the rental (al!e or de"reciation +if the ho!se is o)ned $ the cor"oration, shall form "art of com"ensation income +@A?' 1187,.
The free !se of a limo!sine and the mem ershi" in a co!ntr$ cl! is not "art of ?r. AdrianDs com"ensation income eca!se the$ )ere gi(en for the enefit of the em"lo$er and are considered to e necessar$ incidents for the "ro"er "erformance of his d!ties as an e#ec!ti(e of the cor"oration.
The mem ershi" fee in the co!ntr$ cl! needs to e re"orted as income. -t a""ears that the mem ershi" of ?r. Adrian to the co!ntr$ cl! is "rimaril$ for the enefit and con(enience of the em"lo$er. This is to ena le ?r. Adrian to entertain com"an$ g!ests
(C,--ec/,r v+.
He%der+,%$.
2xc"usions ; Inc"usions$ Assets$ 8esi&ent A"ien (2 9)

@al"h 3onald. an American citi0en. )as a to" e#ec!ti(e of a G.7. com"an$ in the 2hili""ines !ntil he retired in 1999. Ae came to li/e the 2hili""ines so m!ch that follo)ing his retirement. he decided to s"end the rest of his life in the co!ntr$. Ae a""lied for and )as granted a "ermanent resident stat!s the follo)ing $ear. -n the s"ring of 2004. )hile (acationing in 'rlando. Ilorida. G7A. he s!ffered a
?a/atiE +d, shares of stoc/ in the 2hili""ine s! sidiar$ of the G.7. 4om"an$ )here he )or/edE +e, shares of stoc/ in 7an ?ig!el 4or". and 2:'TE +f, shares of stoc/ in 3isne$ World in IloridaE +g, G.7. treas!r$ ondsE and +g, "roceeds from a life ins!rance "olic$ iss!ed $ a G.7. cor"oration. Which of the foregoing assets shall e incl!ded in the ta#a le gross estate in the 2hili""ines& 9#"lain. +55,
SUGGESTED ANSWER*
In@ury (2 9) K@ )as a "assenger of an airline that crashed. Ae s!r(i(ed the accident !t s!stained serio!s "h$sical in8!ries )hich reF!ired hos"itali0ation for 3 months. Iollo)ing negotiations )ith the airline and its ins!rer. an agreement
All of the "ro"erties en!merated e#ce"t +g,. the "roceeds from life ins!rance. are incl!ded in the ta#a le gross estate in the 2hili""ines. @al"h 3onald is considered a resident alien for ta# "!r"oses since he is an American 4iti0en and )as a "ermanent resident of the 2hili""ines at the time of his death. The (al!e of the gross estate of a resident alien decedent shall e determined $ incl!ding the (al!e at the time of his death of all "ro"ert$. real or "ersonal. tangi le or intangi le. )here(er sit!ated. +7ec. 85. =-@4,
The other item. +g, "roceeds from a life ins!rance "olic$. ma$ also e incl!ded on the ass!m"tion that it )as @al"h 3onald )ho too/ o!t the ins!rance !"on his o)n life. "a$a le !"on his death to his estate. +7ec. 85O9P. =-@4,
2xc"usions ; Inc"usions$ Benefits on Account of 'eat# (1996) B. an em"lo$ee of AC4 4or"oration died. AC4 4or"oration ga(e BQs )ido) an amo!nt eF!i(alent to BQs salar$ for one $ear. -s the amo!nt considered ta#a le income to the )ido)& Wh$&
SUGGESTED ANSWER*
=o. The amo!nt recei(ed $ the )ido) from the decedentDs em"lo$er ma$ either e a gift or a se"aration enefit on acco!nt of death. Coth are e#cl!sions from gross income "!rs!ant to "ro(isions of 7ection 28+ , of the Ta# 4ode.
ALTERNATI1E ANSWER*
=o. 7ince the amo!nt )as gi(en to the )ido) and not to the estate. it ecomes o (io!s that the amo!nt is more of a gift. -n one G.7. ta# case +E+/a/e ,1 He--+/r,5 v+. C,55i++i,%er 2( T.C. "!',. it )as held that "a$ments to the )ido) of the "resident of a cor"oration of the amo!nt the "resident )o!ld ha(e recei(ed in salar$ if he li(ed o!t the $ear constit!ted a gift and not an income. The controlling facts )hich )o!ld lead to the concl!sion that the amo!nt recei(ed $ the )ido) is not an income are as follo)s* 7, the gift )as made to the )ido) rather than the estate* 8, there )as no o ligation for the cor"oration to ma/e f!rther "a$ments to the deceasedE 9, the )ido) had ne(er )or/ed for the cor"orationE 10, the cor"oration recei(ed no economic enefitE and 11, the deceased had een f!ll$ com"ensated for his ser(ices + E+/a/e ,1 S0d%e0 Car/er v+. C,55i++i,%er (37 F. 2d '! (2dCir. !"#!,. 2xc"usions ; Inc"usions$ Benefits on Account of
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)as reached !nder the terms of )hich K@ )as "aid the follo)ing amo!nts* 2500.000.00 for his hos"itali0ationE 2250.000.00 as moral damagesE and 2300.000.00 for loss of income d!ring the "eriod of his treatment and rec!"eration. -n addition. K@ recei(ed from his em"lo$er the amo!nt of 2200.000.00 re"resenting the cash eF!i(alent of his earned (acation and sic/ lea(es.
+0 of 73
free li(ing F!arters in )hate(er militar$ cam" he is assigned. and free meals inside the cam". Are these enefits income to 4a"t. 4an!to& 9#"lain.
SUGGESTED ANSWER*
=o. the free !niforms. free li(ing F!arters and the free meals inside the cam" are not income to 4a"t. 4an!te eca!se these are facilities or "ri(ileges f!rnished $ the
Which. if an$. of the amo!nts he recei(ed are s! 8ect to income ta#& 9#"lain. +55,
SUGGESTED ANSWER*
All amo!nts recei(ed from the airline com"an$ are e#cl!ded from gross income. Gnder 7ec. 32+C,+4, of the =-@4. amo!nts of damages recei(ed. )hether $ s!it or agreement. on acco!nt of "ersonal in8!ries or sic/ness are e#cl!ded from gross income. 7ince the amo!nts recei(ed from the airline com"an$ )ere recei(ed as damages $ agreement on acco!nt of "ersonal in8!ries. all shall e e#cl!ded from K@Ds gross income. The amo!nt of 2200.000.00. less the eF!i(alent of not more than 10 da$s of (acation lea(e. recei(ed $ K@ from his em"lo$er. is s! 8ect to income ta# !nder 7ec. 2.78.1 +a, +7, of @.@. =o. 2198. 2xc"usions ; Inc"usions$ !ompensation for persona" in@uries or sicBness (2 4) B. )hile dri(ing home from his office. )as serio!sl$ in8!red )hen his a!tomo ile )as !m"ed from ehind $ a !s dri(en $ a rec/less dri(er. As a res!lt. he had to "a$ 2200.000.00 to his doctor and 2100. 000.00 to the hos"ital )here he )as confined for treatment. Ae filed a s!it against the !s dri(er and the !s com"an$ and )as a)arded and "aid act!al damages of 2300. 000.00 (for his doctor and hospitaliIation bills) 2100.000.00 $ )a$ of moral damages. and 250.000.00 for )hat he had to "a$ his attorne$ for ringing his case to co!rt. Which. if an$. of the foregoing a)ards are ta#a le income to B and )hich are not& 9#"lain. +85,
SUGGESTED ANSWER*
=othing is ta#a le. Gnder the Ta# 4ode. an$ amo!nt recei(ed as com"ensation for "ersonal in8!ries or sic/ness. "l!s the amo!nts for an$ damages recei(ed )hether $ s!it or agreement. on acco!nt of s!ch in8!ries or sic/ness shall e e#cl!ded from gross income. 7ince the entire amo!nt of 2450. 000.00 recei(ed are a)ard of damages on acco!nt of the in8!ries s!stainedE all shall e e#cl!ded from his gross income. ' (io!sl$. these damages are considered $ la) as mere ret!rn of ca"ital. +7ection 32+C,+4,. 1997 Ta# 4ode, 2xc"usions ; Inc"usions$ Faci"ities or Pri(i"eges$ 0i"itary !amp (1999) 4a"t. 4an!to is a mem er of the Armed Iorces of the 2hili""ines. Aside from his "a$ as ca"tain. the go(ernment gi(es him free !niforms.
em"lo$er for the em"lo$erDs con(enience )hich are necessar$ incidents to "ro"er "erformance of the militar$ "ersonnelDs d!ties. 2xc"usions ; Inc"usions$ 5ifts o(er an& a+o(e t#e 8etirement Pay (1999)
?r. L!iro0 )or/ed as chief acco!ntant of a hos"ital for fort$1fi(e $ears. When he retired at 65 he recei(ed retirement "a$ eF!i(alent to t)o monthsD salar$ for e(er$ $ear of ser(ice as "ro(ided in the hos"ital C-@ a""ro(ed retirement "lan. The Coard of 3irectors of the hos"ital felt that the hos"ital sho!ld gi(e L!iro0 more than )hat )as "ro(ided for in the hos"italDs retirement "lan in (ie) of his lo$alt$ and in(al!a le ser(ices for fort$1fi(e $earsE hence. it resol(ed to "a$ him a grat!it$ of 21 ?illion o(er and a o(e his retirement "a$.
ta#a le gift to the transferor. Gnder the Ta# 4ode. gifts are e#cl!ded from gross income therefore e#em"t from income ta#. +7ec. 28H ,+3,. =-@4E Pir,va%, v+. C,55i++i,%er,
The 4ommissioner of -nternal @e(en!e ta#ed the 21 ?il1 lion as "art of the gross com"ensation income of L!iro0 )ho "rotested that it )as e#cl!ded from income eca!se +a, it )as a retirement "a$. and + , it )as a gift. 1, -s ?r. L!iro0 correct in claiming that the additional 21 ?illion )as retirement "a$ and therefore e#cl!ded from income& 9#"lain. 2, -s ?r. L!iro0 correct in claiming that the additional 21 ?illion )as gift and therefore e#cl!ded from income& 9#"lain.
SUGGESTED ANSWERS*
1, =o. The additional 21 million is not a retirement "a$ !t a "art of the gross com"ensation income of ?r. L!iro0. This is not a retirement enefit recei(ed in accordance )ith a reasona le "ri(ate enefit "lan maintained $ the em"lo$er as it )as not "aid o!t of the retirement "lan. Accordingl$. the amo!nt recei(ed in e#cess of the retirement enefits that he is entitled to recei(e !nder the C-@1a""ro(ed retirement "lan )o!ld not F!alif$ as an e#cl!sion from gross income. 2, =o. The amo!nt recei(ed )as in consideration of his lo$alt$ and in(al!a le ser(ices to the com"an$ )hich is clearl$ a com"ensation income recei(ed on acco!nt of em"lo$ment. Gnder the em"lo$erDs Dmoti(ation test.D em"hasis sho!ld e "laced on the (al!e of ?r. L!iro0 ser(ices to the com"an$ as the com"elling reason for gi(ing him the grat!it$. hence it sho!ld constit!te a ta#a le income. The "a$ment )o!ld onl$ F!alif$ as a gift if there is nothing !t Dgood )ill. esteem and /indnessD )hich moti(ated the em"lo$er to gi(e the grat!it$.
(S/,%/,% v+. U.S. !4' F. S.**. 7"7$. 7!ch is not the case in
the herein "ro lem.

ALTERNATI1E ANSWER*
<es. The 1 million is not com"ensation income s! 8ect to income ta# !t a gift from his em"lo$er. There )as no e(idence "resented to sho) that he )as not f!ll$ com"en1 sated for his 45 $ears of ser(ice. -f his ser(ices contri !ted in a large meas!re to the s!ccess of the hos"ital. it did not gi(e rise to a reco(era le de t. The 21 million is "!rel$ a grat!it$ from the com"an$. -t is a
sirdondee@gmail.com
2xc"usions ; Inc"usions$ IT8$ 14t# mont# pay
+1 of 73
foreign an/E
SUGGESTED ANSWER*
an& &e minimis +enefits (2 9) 7tate )ith reasons the ta# treatment of the follo)ing in the "re"aration of ann!al income ta# ret!rns* 13th month "a$ and de minimis enefitsE
SUGGESTED ANSWER*
Coth items are e#cl!ded from the income ta# ret!rn* +i, -nterest income from an$ c!rrenc$ an/ de"osit is considered "assi(e income from so!rces )ithin the 2hili""ines and s! 8ect to final ta#. 7ince it is s! 8ect to
The !7/: 5,%/: *a0 not e#ceeding 230.000.00 shall not e re"orted in the income ta# ret!rn eca!se it is e#cl!ded from gross income + ,ec. 5&A3@A'@ Ae@ N6$!, The amo!nt of the 13th month "a$ in e#cess of 230.000.00 shall e re"orted in the ann!al income ta# ret!rn. De 5i%i5i+ 6e%e1i/+ )hich do not e#ceed the ceilings are e#cl!ded from gross income. and not to e considered for determining the 230.000.00 ceiling hence not re"orta le in the ann!al income ta# ret!rn. (,ec. &.'/.%AA@A5@ $.$. &-*/ as amended by ,ec. &.55 A!@ and further amended by $.$. No. /-&((() 2xc"usions ; Inc"usions$ IT8$ 'i(i&en&s recei(e& +y a &omestic corporation (2 9)
7tate )ith reasons the ta# treatment of the follo)ing in the "re"aration of ann!al income ta# ret!rns* 3i(idends recei(ed $ a domestic cor"oration from +i, another domestic cor"orationE and +ii, a foreign cor"orationE
SUGGESTED ANSWER*
+i, 3i(idends recei(ed $ a domestic cor"oration from a domestic cor"oration shall not e s! 8ect to ta# +7ec. 27O3PO4P. =-@4,. hence. e#cl!ded from the income ta# ret!rn. +ii, 3i(idends recei(ed $ a domestic cor"oration from a foreign cor"oration form "art of the gross income and are accordingl$ s! 8ect to net income ta#. hence incl!ded in the ann!al -T@ +7ec. 42OAPO2PO P. =-@4,. hence. m!st e incl!ded in the income ta# ret!rn. 2xc"usions ; Inc"usions$ IT8$ Income rea"i?e& from sa"e (2 9) 7tate )ith reasons the ta# treatment of the follo)ing in the "re"aration of ann!al income ta# ret!rns* -ncome reali0ed from sale of* +i, ca"ital assetsE and +ii, ordinar$ assets.
SUGGESTED ANSWER*
+i, -ncome reali0ed from sale of ca"ital assets is s! 8ect to the final )ithholding ta# at so!rce and therefore e#cl!ded from the -ncome Ta# @et!rn +7ec. 24O4P and O3P. =-@4,E +ii, -ncome reali0ed from sale of ordinar$ assets is "art of 6ross -ncome. incl!ded in the -ncome Ta# @et!rn. +7ec. 32OAPO3P. =-@4, 2xc"usions ; Inc"usions$ IT8$ Interest on &eposits (2 9) 7tate )ith reasons the ta# treatment of the follo)ing in the "re"aration of ann!al income ta# ret!rns* -nterest on de"osits )ith* +i, C2- Iamil$ Can/E and +ii, a local offshore an/ing !nit of a
!ildings and
im"ro(ements
act!all$.
directl$
and
final ta# it is not to e incl!ded in the ann!al -T@. +7ec. 24OCPO1P. =-@4, +!, 7ame as =o. +8,. 2xc"usions ; Inc"usions$ IT8$ Procee&s of "ife insurance (2 9) 7tate )ith reasons the ta# treatment of the follo)ing in the "re"aration of ann!al income ta# ret!rns* 2roceeds of life ins!rance recei(ed $ a child as irre(oca le eneficiar$E
SUGGESTED ANSWER*
=ot to e re"orted in the ann!al income ta# ret!rns eca!se the "roceeds of the life ins!rance are e#cl!ded from gross income. 2roceeds of :ife ins!rance "olicies "aid to the heirs or eneficiaries !"on the death of the ins!red is an e#cl!sion from gross income. (,ec.5&A3@Al@ N6$!) 2xc"usions ; Inc"usions$ /ife Insurance Po"icy (2 4) 'n 30 K!ne 2000. B too/ o!t a life ins!rance "olic$ on his o)n life in the amo!nt of 22.000.000.00. Ae designated his )ife. <. as irre(oca le eneficiar$ to 21.000.000.00 and his son. J. to the alance of 21.000.000.00 !t. in the latter designation. reser(ing his right to s! stit!te him for another. 'n 01 7e"tem er 2003. B died and his )ife and son )ent to the ins!rer to collect the "roceeds of BDs life ins!rance "olic$. +85, +a, Are the "roceeds of the ins!rance s! 8ect to income ta# on the "art of < and J for their res"ecti(e shares& 9#"lain. + , Are the "roceeds of the ins!rance to form "art of the gross estate of B& 9#"lain.
SUGGESTED ANSWERS*
+a, =o. The la) e#"licitl$ "ro(ides that "roceeds of life ins!rance "olicies "aid to the heirs or eneficiaries !"on the death of the ins!red are e#cl!ded from gross income and is e#em"t from ta#ation. The "roceeds of life ins!rance recei(ed !"on the death of the ins!red constit!te a com"ensation for the loss of life. hence a ret!rn of ca"ital. )hich is e$ond the sco"e of income ta#ation. (,ection 5&(3)(%) %**' Tax !ode)
+ , 'nl$ the "roceeds of 21.000.000.00 gi(en to the son. J. shall form "art of the 6ross 9state of B. Gnder the Ta# 4ode. "roceeds of life ins!rance shall form "art of the gross estate of the decedent to the e#tent of the amo!nt recei(a le $ the eneficiar$ designated in the "olic$ of the ins!rance e#ce"t )hen it is e#"ressl$ sti"!lated that the designation of the eneficiar$ is irre(oca le. As stated in the "ro lem. onl$ the designation of < is irre(oca le )hile the ins!redMdecedent reser(ed the right to s! stit!te J as eneficiar$ for another "erson. Accordingl$. the "roceeds recei(ed $ < shall e e#cl!ded )hile the "roceeds recei(ed $ J shall e incl!ded in the gross estate of B. (,ect;on /-(4) %**' Tax !ode)
2xemptions: !#arita+"e Institutions (2
Article ;-. 7ection 28 +3, of the 1987 2hili""ine 4onstit!tion "ro(ides that charita le instit!tions. ch!rches and "ersonages or co(enants a""!rtenant thereto. mosF!es. non1"rofit cemeteries and all lands.
of e#cl!si(el$ !sed for religio!s. charita le or 73 ed!cational "!r"oses shall e e#em"t from ta#ation. a, To )hat /ind of ta# does this e#em"tion a""l$& +25, -.,,E-TED A$-WER%
This e#em"tion a""lies onl$ to "ro"ert$ ta#es. What is e#em"ted is not the instit!tion itself !t the lands. !ildings and im"ro(ements act!all$. directl$ and e#cl!si(el$ !sed for religio!s. charita le and ed!cational "!r"oses. (C,55i++i,%er ,1
I%/er%a- Reve%.e v. C,.r/ ,1
sirdondee@gmail.com
+2
7ince the donee is a "ro"rietar$ ed!cational instit!tion. the donation is ta#a le +7ection 101+AB3,. =K@4,.
2xemptions: 5ifts ; 'onations (199*)

-n 1991. -melda ga(e her "arents a 4hristmas gift of 2 100.000.00 and a donation of 250.000.00 to her "arish
A**ea-+ e/ a- G.R. N,. !2()(7 Oc/,6er !( !""4$.
-s "roof of e#em"tion
act!al
!se
necessar$
for
ta#
"!r"oses !nder the 4onstit!tion& +35,

SUGGESTED ANSWER*
<es. eca!se ta# e#em"tions are strictl$ constr!ed against the ta#"a$er. There m!st e e(idence to sho) that the ta#"a$er has com"lied )ith the reF!irements for e#em"tion. I!rthermore. real "ro"ert$ ta#ation is ased on !se and not on o)nershi". hence the same r!le m!st also e a""lied for real "ro"ert$ ta# e#em"tions.
2xemptions: !#arita+"e Institutions$ !#urc#es (1996) The 4onstit!tion e#em"ts from ta#ation charita le in1 stit!tions. ch!rches. "arsonages or con(ents a""!rtenant thereto. mosF!es arid non1"rofit cemeteries and lands. !ildings and im"ro(ements act!all$. directl$ and e#cl!1 si(el$ !sed for religio!s. charita le and ed!cational "!r"oses. ?erc$ Aos"ital is a 1001 ed hos"ital organi0ed for charit$ "atients. 4an said hos"ital claim e#em"tion from ta#ation !nder the a o(e1F!oted constit!tional "ro(ision& 9#"lain.
SUGGESTED ANSWER*
<es. ?erc$ Aos"ital can claim e#em"tion from ta#ation !nder the "ro(ision of the 4onstit!tion. !t onl$ )ith res"ect to real "ro"ert$ ta#es "ro(ided that s!ch real "ro"erties are !sed act!all$. directl$ and e#cl!si(el$ for charita le "!r"oses. 2xemptions: 2&ucationa" institution (2 *) 7!""ose that B<J 4olleges is a "ro"rietar$ ed!cational instit!tion o)ned $ the Arch isho"Ds famil$. rather than the Archdiocese. )hich of those a o(e cited income and donation )o!ld e e#em"t from ta#ation& 9#"lain riefl$. +55,
SUGGESTED ANSWER*
-f B<J 4olleges is a "ro"rietar$ ed!cational instit!tion. all of its income from school related and non1school related acti(ities )ill e s! 8ect to the income ta# ased on its aggregate net income deri(ed from oth acti(ities +7ection 27+C,. =?4,. Accordingl$. all of the income en!merated in the "ro lem )ill e ta#a le. The donation of lot and !ilding )ill li/e)ise e s! 8ect to the donorDs ta# eca!se a donation to an ed!cational instit!tion is e#em"t onl$ if the school is incor"orated as a non1stoc/ entit$ "a$ing no di(idends.
ch!rch. 7he also donated a "arcel of land for the constr!ction of a !ilding to the 2G2 Al!mni Association. a non1stoc/. non1"rofit organi0ation. 2ortions of the !ilding shall e leased to generate income for the association. 1, -s the 4hristmas gift of 2 100.000.00 to -meldaDs "arents s! 8ect to ta#& 2, Ao) a o!t the donation to the "arish ch!rch& 3, Ao) a o!t the donation to the 2.G.2. Al!mni Asso1 ciation&
SUGGESTED ANSWER*
+6, illegitimate children. The ma#im!m n!m er of de"endents for "!r"oses of the additional "ersonal e#em"tion is fo!r. +7ec. 35. =-@4,.
2xemptions: 7on:Profit 2&ucationa" Institutions (2
1, The 4hristmas gift of 2100.000.00 gi(en $ -melda to her "arents is ta#a le !" to 250.000.00 eca!se !nder
!ode (a) of the the la) (,ec. *& Tax ) net gifts not e#ceeding 250.000.00 are e#em"t.
2, The donation of 250.000.00 to the "arish

ch!rch e(en ass!ming that it is e#cl!si(el$ for religio!s "!r"oses is not ta#1e#em"t eca!se the e#em"tion granted !nder Article ;-. 7ec. 28+3, of the 4onstit!tion a""lies onl$ to real estate ta#es (L-ad,c v. C,55i++i,%er !(SCRA2"2$.
3, The donation to the 2.G.2. Al!mni Association does not also F!alif$ for e#em"tion oth !nder the 4onstit!tion and the aforecited la) eca!se it is not an ed!cational or research organi0ation. cor"oration.
instit!tion. fo!ndation or tr!st.

ALTERNATI1E ANSWER*
3onation to the 2.G.2. Al!mni Association is e#em"t from donorDs ta# if it is "ro(en that the association is a nonstoc/. non1"rofit charita le association. "a$ing no di(idends. go(erned $ tr!stees )ho recei(e no com"ensation. and de(oting all its income to the accom"lishment and "romotion of the "!r"oses en!merated in its articles of incor"oration. =ot more than 305 of the gift sho!ld e !sed for administration "!r"oses $ the donee. 2xemptions: Dea& of t#e Fami"y: (199=) Arnold. )ho is single. coha its )ith ;ilma. )ho is legall$ married to Jachar$. Arnold and ;ilma ha(e si# minor children )ho li(e and de"end !"on Arnold for their chief s!""ort. The children are not married and not gainf!ll$ em"lo$ed. 1, Ior income ta# "!r"oses. ma$ Arnold e considered as %head of a famil$&% O35P 2, -s Arnold entitled to ded!ct from his gross income. an additional e#em"tion for each of his illegitimate child& O25P
SUGGESTED ANSWER*
1,
2,
<es. An !nmarried man )ho has illegitimate minor children )ho li(e )ith him and de"end !"on him for their chief s!""ort is considered as %head of the famil$% +$$ No. &-*/ implementing ,ection 5N6$!). =o. Arnold is onl$ entitled to ded!ct additional "ersonal e#em"tion for fo!r +4, o!t of the si#
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Gnder Article BT;. 7ection 4 +3, of the 1987
++ of 73
2hili""ine 4onstit!tion. all re(en!es and assets of non1 stoc/. non"rofit ed!cational instit!tions. !sed act!all$. directl$ and e#cl!si(el$ for ed!cational "!r"oses. are e#em"t from ta#es and d!ties. Are income deri(ed from dormitories. canteens and oo/stores as )ell as interest income on an/ de"osits and $ields from de"osit s! stit!tes a!tomaticall$ e#em"t from ta#ation& 9#"lain. +55,
SUGGESTED ANSWER*
the income thereon eing incidental to the o"erations of the Gni(ersit$ as a school. is e#em"t (Art. H62 (") (5) !onstitution: B4!, $egulations No. %5'-/' Bec. %. %*/').
2, Ior the same reasons. the Gni(ersit$ of Cigaa is not lia le to "a$ income ta#es for the o"eration of the
=o. The interest income on an/ de"osits and $ields from de"osit s! stit!tes are not a!tomaticall$ e#em"t from ta#ation. There m!st e a sho)ing that the incomes are incl!ded in the schoolDs ann!al information ret!rn and d!l$ a!dited financial statements together )ith*
1.
2. 3.
4ertifications from de"ositor$ an/s as to the amo!nt of interest income earned from "assi(e in(estments not s! 8ect to the 205 final )ithholding ta#E 4ertification of act!al. direct and e#cl!si(e !tili0ation of said income for ed!cational "!r"osesE Coard resol!tion on "ro"osed "ro8ect to e f!nded o!t of the mone$ de"osited in an/s or "laced in mone$ mar/et "lacements (<inance Bepartment Crder No. %"*-*- issued November &" %**-) )hich m!st e !sed act!all$. directl$ and e#cl!si(el$ for ed!cational "!r"oses.
The income deri(ed from dormitories. canteens and oo/stores are not also a!tomaticall$ e#em"t from ta#ation. There is still the reF!irement for e(idence to sho) act!al. direct and e#cl!si(e !se for ed!cational "!r"oses. -t is to e noted that the 1987 2hili""ine 4onstit!tion does not disting!ish )ith res"ect to the so!rce or origin of the income. The distinction is )ith res"ect to the !se )hich sho!ld e act!al. direct and e#cl!si(e for ed!cational "!r"oses. 4onseF!entl$. the "ro(isions of 7ec. 30 of the =-@4 of 1997. that a non1stoc/ and non"rofit ed!cational instit!tion is e#em"t from ta#ation onl$ %in res"ect to income recei(ed $ them as s!ch% co!ld not affect the constit!tional ta# e#em"tion. Where the 4onstit!tion does not disting!ish )ith res"ect to so!rce or origin. the Ta# 4ode sho!ld not ma/e distinctions. 2xemptions: 7on:Profit 2ntity$ Anci""ary Acti(ity ; Inci&enta" %perations (199*)
The Gni(ersit$ of Cigaa. a non1stoc/. non1"rofit entit$. o"erates a canteen for its st!dents and a oo/store inside the cam"!s. -t also o"erates t)o dormitories for its st!dents. one of )hich is in the cam"!s. -s the Gni(ersit$ lia le to "a$ income ta#es for the o"eration of the* 1, canteen& 2, oo/store& 3, t)o dormitories&
SUGGESTED ANSWER*
1,
Ior the o"eration of the canteen inside the cam"!s.
oo/store. since this is an ancillar$ acti(it$ the cond!ct of )hich is carried o!t )ithin the school "remises. 3, The Gni(ersit$ of Cigaa shall not e lia le to "a$ income ta#es for the o"eration of the dormitor$ located in the cam"!s. for same reasons as the foregoing. Ao)e(er. the latter shall e lia le for income ta#es on income from o"erations of the dormitor$ located o!tside the school "remises. 2xemptions: 7on:StocBE 7on:Profit Association (2 2)
B<J Io!ndation is a non1stoc/. non1"rofit association d!l$ organi0ed for religio!s. charita le and social )elfare "!r"oses. :ast Kan!ar$ 3. 2000 it sold a "ortion of its lot !sed for religio!s "!r"oses and !tili0ed the entire "roceeds for the constr!ction of a !ilding to ho!se its free 3a$ and =ight 4are 4enter for children of single "arents. -n order to s! sidi0e the e#"enses of the 3a$ and =ight 4are 4enter and to s!""ort its religio!s. charita le and social )elfare "ro8ects. the Io!ndation leased the 3001 sF!are meter area of the second and third floors of the !ilding for !se as a oarding ho!se. The Io!ndation also o"erates a canteen and a gift sho" )ithin the "remises. all the income from )hich is !sed act!all$. directl$. and e#cl!si(el$ for the "!r"oses for )hich the Io!ndation )as organi0ed. A. 4onsidering the constit!tional "ro(ision granting ta# e#em"tion to non1stoc/ cor"orations s!ch as those formed e#cl!si(el$ for religio!s. charita le or social )elfare "!r"oses. e#"lain the meaning of the last "aragra"h of said 7ec. 30 of the 1997 Ta# 4ode )hich states that J6ncome of whatever >ind and character of the foregoing organiIations from any of their properties real or personal or from any of their activities conducted for profit regardless of the disposition made of such income shall be
rentals from its oarding ho!se are considered as income from "ro"erties )hich are s! 8ect to ta#. :i/e)ise. the income from the o"eration of the canteen and gift sho"
sub1ect to tax imposed under this !ode.0 +55,

SUGGESTED ANSWER*
A. The e#em"tion contem"lated in the 4onstit!tion co(ers real estate ta# on real "ro"erties act!all$. directl$ and e#cl!si(el$ !sed for religio!s. charita le or social )elfare "!r"oses. -t does not co(er e#em"tion from the im"osition of the income ta# )hich is )ithin the conte#t of 7ection 30 of the Ta# 4ode. As a r!le. non1 stoc/ non1 "rofit cor"orations organi0ed for religio!s. charita le or social )elfare "!r"oses are e#em"t from income ta# on their income recei(ed $ them as s!ch. Ao)e(er. if these religio!s. charita le or social )elfare cor"orations deri(e income from their "ro"erties or an$ of their acti(ities cond!cted for "rofit. the income ta# shall e im"osed on said items of income irres"ecti(e of their dis"osition. + Sec. 7) NIRC? CIR v BMCA GR N,. !2()(7 !""4,.
C. -s the income deri(ed $ B<J Io!ndation from the sale of a "ortion of its lot. rentals from its oarding ho!se and the o"eration of its canteen and gift sho" s! 8ect to ta#& 9#"lain. +55,
SUGGESTED ANSWER*
C.
<es. The income deri(ed from the sale of lot and
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are income from its acti(ities cond!cted for
+4 of 73
"rofit )hich are s! 8ect to ta#. The income ta# attaches irres"ecti(e of the dis"osition of these incomes. +Sec. 7) NIRC? CIR v. BMCA GR N,. !2()(7 !""4,. 2xemptions: Pri?e of Peace Poster !ontest (2 ) Kose ?iranda. a $o!ng artist and designer. recei(ed a "ri0e of 2100.000.00 for )inning in the on1the1 s"ot "eace "oster contest s"onsored $ a local :ions 4l! . 7hall the re)ard e incl!ded in the gross income of the reci"ient for ta# "!r"oses& 9#"lain. +35,
SUGGESTED ANSWER*
of retirement. There are 2 gro!"s of em"lo$ees to e laid off* 1, 9m"lo$ees )ho are at least 50 $ears of age and has at 10 $ears of ser(ice at the time of termination of em"lo$ment. 2, 9m"lo$ees )ho do no meet either the age or length of ser(ice A 4o. "lans to gi(e the follo)ing*
=o. -t is not incl!da le in the gross income of the reci"ient eca!se the same is s! 8ect to a final ta# of 205. the amo!nt thereof eing in e#cess of 210.000 (,ec. &"(3)K%) N6$! of %**'). The "ri0e constit!tes a ta#a le income eca!se it )as made "rimaril$ in recognition of artistic achie(ement )hich he )on d!e to an action on his "art to enter the contest. A,ec. 5& (3) (') (c) N6$! of %**'@
7ince it is an on1the1s"ot contest. it is e(ident that he m!st ha(e 8oined the contest in order to earn the "ri0e or a)ard. 2xemptions: Pri?es ; A1ar&s$ At#"etes (1996)
'n$oc. an amate!r o#er. )on in a o#ing com"etition s"onsored $ the 6old 4!" Co#ing 4o!ncil. a s"orts association d!l$ accredited $ the 2hili""ine Co#ing Association. 'n$oc recei(ed the amo!nt of 2500.000 as his "ri0e )hich )as donated $ A$ala :and 4or"oration. The C-@ tried to collect income ta# on the amo!nt recei(ed $ 'n$oc and donorDs ta# from A$ala :and 4or"oration. )hich ta#es. 'n$oc and A$ala :and 4or"oration ref!se to "a$. 3ecide.
SUGGESTED ANSWER*
The "ri0e )ill not constit!te a ta#a le income to 'n$oc. hence the C-@ is not correct in im"osing the income ta#. @.A. =o. 7549 e#"licitl$ "ro(ides that DAll "ri0es and a)ards granted to athletes in local and international s"orts to!rnaments and com"etitions held in the 2hili""ines or a road and sanctioned $ their res"ecti(e national s"orts associations shall e e#em"t from income ta#%. =either is the C-@ correct in collecting the donorDs ta# from A$ala :and 4or"oration. The la) is clear )hen it categoricall$ stated %That the donorDs of said "ri0es and a)ards shall e e#em"t from the "a$ment of the donorDs ta#.% 2xemptions: 8etirement Benefits: -orB Separation (1999) A 4o.. a 2hili""ine cor"oration. has t)o di(isions > man!fact!ring and constr!ction. 3!e to the economic sit!ation. it had to close its constr!ction di(ision and la$1 off the em"lo$ees in that di(ision. A 4o. has a retirement "lan a""ro(ed $ the C-@. )hich reF!ires a minim!m of 50 $ears of age and 10 $ears of ser(ice in the same em"lo$er at the time
a. Ior categor$ +A, em"lo$ees 1 the enefits !nder the C-@ a""ro(ed "lan "l!s an e# gratia "a$ment of one month of e(er$ $ear of
1, -s the se"aration "a$ gi(en to @e$es s! 8ect to income ta#& 2, Ao) a o!t the se"aration "a$ recei(ed $ 4r!0& 3, Ao) a o!t the se"aration "a$ recei(ed $ Ca!tista&
ser(ice. . Ior categor$ +C, em"lo$ees for e(er$ $ear of ser(ice.

Ior
1 one month
oth categories. the cash eF!i(alent of
!n!sed (acation and sic/ lea(e credits. A 4o. see/s $o!r ad(ice as to )hether or not it )ill s! 8ect an$ of these "a$ments to WT. 9#"lain $o!r ad(ice. +55,
SUGGESTED ANSWER*
Ior categor$ A em"lo$ees. all the enefits recei(ed on acco!nt of their se"aration are not s! 8ect to income ta#. hence no )ithholding ta# shall e im"osed. The enefits recei(ed !nder the C-@1a""ro(ed "lan !"on meeting the ser(ice reF!irement and age reF!irement are e#"licitl$ e#cl!ded from gross income. The e# gratia "a$ment also F!alifies as an e#cl!sion from gross income eing in the nat!re of enefit recei(ed on acco!nt of se"aration d!e to ca!ses e$ond the em"lo$eesD control. +7ection 32+C,. =-@4,. The cash eF!i(alent of !n!sed (acation and sic/ lea(e credits F!alifies as "art of se"aration enefits e#cl!ded from gross income +CIR v. C,.r/ ,1 A**ea-+ GR N,. "'O!' Oc/,6er !# !""!,.
Ior categor$ C em"lo$ees. all the enefits recei(ed $ them )ill also e e#em"t from income ta#. hence not s! 8ect to )ithholding ta#. These are enefits recei(ed on acco!nt of se"aration d!e to ca!ses e$ond the em"lo$eesD control. )hich are s"ecificall$ e#cl!ded from gross income. (,ection 5&(3) N6$!).
ALTERNATI1E ANSWER6
All of the "a$ments are not s! 8ect to income ta# and sho!ld not also e s! 8ect to )ithholding ta#. The em"lo$ees )ere laid off. hence se"arated for a ca!se e$ond their control. 4onseF!entl$. the amo!nts to e "aid $ reason of s!ch in(ol!ntar$ se"aration are e#cl!ded from gross income. irres"ecti(e of )hether the em"lo$ee at the time of se"aration has rendered less than ten $ears of ser(ice andMor is elo) fift$ $ears of age.
(,ection 5&(3) N6$!). 2xemptions: Separation Pay (199*) 2edro @e$es. an official of 4or"oration B. as/ed for an %earlier retirement% eca!se he )as emigrating to A!stralia. Ae )as "aid 22.000.000.00 as se"aration "a$ in recognition of his (al!a le ser(ices to the cor"oration. K!an 4r!0. another official of the same com"an$. )as se"arated for occ!"$ing a red!ndant "osition. Ae )as gi(en 21.000.000.00 as se"aration "a$. Kose Ca!tista )as se"arated d!e to his failing e$esight. Ae )as gi(en 2500.000.00 as se"aration "a$. All the three +3, )ere not F!alified to retire !nder the C-@1a""ro(ed "ension "lan of the cor"oration.
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+. of
73
SUGGESTED ANSWER*
red!ndanc$ "rogram reF!iring em"lo$ees to ma/e an offer to resign is onl$ considered as a tool to e#"edite the la$1off of e#cess man"o)er )hose ser(ices are no longer needed $ the em"lo$er. !t is not the main reason or ca!se for the termination
SUGGESTED ANSWER*
1, The se"aration "a$ gi(en to @e$es is s! 8ect to income ta# as com"ensation income eca!se it arises from a ser(ice rendered "!rs!ant to an em"lo$er1em"lo$ee rela1 tionshi". -t is not considered an e#cl!sion from gross income eca!se the r!le in ta#ation is ta# constr!ed in strictissimi 1uris or the r!le on strict -nter"retation of ta# e#em"tions. 2, The se"aration "a$ recei(ed $ 4r!0 is not s! 8ect to income ta# eca!se his se"aration from the com"an$ )as in(ol!ntar$ +7ec. 28 +7,. Ta# 4ode,.
3, The se"aration "a$ recei(ed $ Ca!tista is li/e)ise not s! 8ect to ta#. Ais se"aration is d!e to disa ilit$. hence in(ol!ntar$. Gnder the la). se"aration "a$ recei(ed thro!gh in(ol!ntar$ ca!ses are e#em"t from ta#ation.
2, =o. ?r. Rintanar did not deri(e an$ income )hen he recei(ed his se"aration "a$ eca!se his se"aration from
2xemptions: Separation Pay (1999) ?r. Kaco o )or/ed for a man!fact!ring firm. 3!e to !siness re(erses the firm offered (ol!ntar$ red!ndanc$ "rogram in order to red!ce o(erhead e#"enses. Gnder the "rogram an em"lo$ee )ho offered to resign )o!ld e gi(en se"aration "a$ eF!i(alent to his three monthDs asic salar$ for e(er$ $ear of ser(ice. ?r. Kaco o acce"ted the offer and recei(ed 2400.000.00 as se"aration "a$ !nder the "rogram. After all the em"lo$ees )ho acce"ted the offer )ere "aid. the firm fo!nd its o(erhead still e#cessi(e. Aence it ado"ted another red!ndanc$ "rogram. ;ario!s !n"rofita le de"artments )ere closed. As a res!lt. ?r. Rintanar )as se"arated from the ser(ice. Ae also recei(ed 2400.000.00 as se"aration "a$. 1, 3id ?r. Kaco o deri(e income )hen he recei(ed his se"aration "a$& 9#"lain. 2, 3id ?r. Rintanar deri(e income )hen he recei(ed his se"aration "a$& 9#"lain.
SUGGESTED ANSWER*
1, <es. ?r. Kaco o deri(ed a ta#a le income )hen he recei(ed his se"aration "a$ eca!se his se"aration from em"lo$ment )as (ol!ntar$ on his "art in (ie) of his offer to resign. What is e#cl!ded from gross income is an$ amo!nt recei(ed $ an official or em"lo$ee as a conseF!ence of se"aration of s!ch official or em"lo$ee from the ser(ice of the em"lo$er for an$ ca!se e$ond the control of the said official or em"lo$ee +7ec 28. =-@4,.
ALTERNATI1E ANSWER*
=o. ?r. Kaco o did not deri(e an$ ta#a le income eca!se the se"aration "a$ )as d!e to a retrenchment "olic$ ado"ted $ the com"an$ so that an$ em"lo$ee terminated $ (irt!e thereof is considered to ha(e een se"arated d!e to ca!ses e$ond the em"lo$eeDs control. The (ol!ntar$
em"lo$ment is d!e to ca!ses e$ond his control. The se"aration )as in(ol!ntar$ as it )as a conseF!ence of the clos!re of (ario!s !n"rofita le de"artments "!rs!ant to the red!ndanc$ "rogram. 2xemptions: Separation Pay (2 9)
4om"an$ A decides to close its o"erations d!e to contin!ing losses and to terminate the ser(ices of its em"lo$ees. Gnder the :a or 4ode. em"lo$ees )ho are se"arated from ser(ice for s!ch ca!se are entitled to a minim!m of one1half month "a$ for e(er$ $ear of ser(ice. 4om"an$ A "aid the eF!i(alent of one month "a$ for e(er$ $ear of ser(ice and the cash eF!i(alent of !n!sed (acation and sic/ lea(es as se"aration enefits.
fa(or on ta# e#em"tions the$ eing contrar$ to the life1 lood theor$ )hich is the !nderl$ing asis for ta#es. 2xemptions: Termina" /ea(e Pay (1996)
Are s!ch enefits ta#a le and s! 8ect to )ithholding ta# !nder the Ta# 4ode& 3ecide )ith reasons. +55,
SUGGESTED ANSWER*
All of the enefits are not ta#a le. hence the$ are not s! 8ect to )ithholding ta# !nder the Ta# 4ode. Cenefits recei(ed as a conseF!ence of se"aration for an$ ca!se e$ond the control of the em"lo$ees s!ch as clos!re of !siness are e#cl!ded from gross income. (,ec. 5&A3@A.@Ab@ N6$! in relation to ,ec. &Ab@A&@ $.$. &-*/) 2xemptions: StocB 'i(i&en&s (2 4)
'n 03 Kan!ar$ 1998. B. a Iili"ino citi0en residing in the 2hili""ines. "!rchased one h!ndred +100, shares in the ca"ital stoc/ of < 4or"oration. a domestic com"an$. 'n 03 Kan!ar$ 2000. < 4or"oration declared. o!t of the "rofits of the com"an$ earned after 01 Kan!ar$ 1998. a h!ndred "ercent +1005, stoc/ di(idends on all stoc/holders of record as of 31 3ecem er 1999 as a res!lt of )hich B holding in < 4or"oration ecame t)o h!ndred +200, shares. Are the stoc/ di(idends recei(ed $ B s! 8ect to income ta#& 9#"lain. +85,
SUGGESTED ANSWER*
=o. 7toc/ di(idends are not reali0ed income. Accordingl$. the different "ro(isions of the Ta# 4ode im"osing a ta# on di(idend income onl$ incl!des )ithin its "!r(ie) cash and "ro"ert$ di(idends ma/ing stoc/ di(idends e#em"t from income ta#. Ao)e(er. if the distri !tion of stoc/ di(idends is the eF!i(alent of cash or "ro"ert$. as )hen the distri !tion res!lts in a change of o)nershi" interest of the shareholders. the stoc/ di(idends )ill e s! 8ect to income ta#. (,ection &"(3)(&): ,ection &-(A)L(3): ,ection &/(3)(-)(b) %**' Tax !ode) 2xemptions: Strict"y !onstrue& (1996) Wh$ are ta# e#em"tions strictl$ constr!ed against the ta#"a$er&
SUGGESTED ANSWER*
Ta# e#em"tions are strictl$ constr!ed against the ta#"a$er eca!se s!ch "ro(isions are highl$ disfa(ored and ma$ almost e said to e odio!s to the la) +Ma%i-a E-ec/ric C,5*a%0 v+. Vera '# SCRA 73!,. The e#ce"tion contained in the ta# stat!tes m!st e strictl$ constr!ed against the one claiming the e#em"tion eca!se the la) does not loo/ )ith
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A. an em"lo$ee of the 4o!rt of A""eals. retired !"on reaching the com"!lsor$ age of 65 $ears. G"on com"!lsor$ retirement. A recei(ed the mone$ (al!e of his acc!m!lated lea(e credits in the amo!nt of 2500.000.00. -s said amo!nt s! 8ect to ta#& 9#"lain.
SUGGESTED ANSWER*
+6 of 73
The 4onstit!tion "ro(ides that all re(en!es and assets of non1stoc/. non1"rofit ed!cational instit!tion )hich are act!all$. directl$ and e#cl!si(el$ !sed for ed!cational "!r"oses are e#em"t from ta#ation (,ection " par. 5 Article H62 %*/' !onstitution).
=o. The comm!tation of lea(e credits. more commonl$ /no)n as terminal lea(e "a$. i.e.. the cash eF!i(alent of acc!m!lated (acation and sic/ lea(e credits gi(en to an officer or em"lo$ee )ho retires. or se"arated from the ser(ice thro!gh no fa!lt of his o)n. is e#em"t from income ta#. +BIR
R.-i%g 274;"! da/ed N,ve56er 4 !""!?
C,55i++i,%er v. CA a%d E1re% Ca+/a%eda GR N,. "')!' Oc/,6er !# !""!,.
2xemptions$ !#arita+"e Institutions (2 6) The 4onstit!tion "ro(ides %charita le instit!tions. ch!rches. "ersonages or con(ents a""!rtenant thereto. mosF!es. and non1"rofit cemeteries and all lands. !ildings. and im"ro(ements act!all$ directl$ and e#cl!si(el$ !sed for religio!s. charita le or ed!cational "!r"oses shall e e#em"t from ta#ation.% This "ro(ision e#em"ts charita le instit!tions and religio!s instit!tions from )hat /ind of ta#es& 4hoose the est ans)er. 9#"lain. +55, a. from all /inds of ta#es. i.e.. income. ;AT. c!stoms d!ties. local ta#es and real "ro"ert$ ta# . from local ta# onl$ c. from (al!e1added ta# d. from real "ro"ert$ ta# onl$ e. from ca"ital gains ta# onl$
SUGGESTED ANSWER*
The "ro(ision e#em"tions charita le instit!tions and religio!s instit!tions from +d, @9A: 2@'29@T< TAB97 onl$. The e#em"tion is onl$ for ta#es assessed as "ro"ert$ ta#es. as disting!ished from e#cise ta#es (CIR v.
CA CTA @ BMCA G.R. N,. !2()(7 Oc/,6er !( !""4? L-ad,c v. C,55i++i,%er ,1 I%/er%a- Reve%.e L; !"2)! <.%e !' !"'3$.
2xemptions$ 2&ucationa" institution (2 *) B<J 4olleges is a non1stoc/. non1"rofit ed!cational instit!tion r!n $ the Archdiocese of C2 4it$. -t collected and recei(ed the follo)ing* +a, T!ition fees + , 3ormitor$ fees +c, @entals from canteen concessionaires +d, -nterest from mone$1mar/et "lacements of the t!ition fees +e, 3onation of a lot and !ilding $ school al!mni Which of these a o(e cited income and donation )o!ld not e e#em"t from ta#ation& 9#"lain riefl$. +55,
SUGGESTED ANSWER*
A. All of the income deri(ed $ the non1stoc/. non"rofit ed!cational instit!tion )ill e e#em"t from ta#ation "ro(ided the$ are !sed act!all$. directl$ and e#cl!si(el$ for ed!cational "!r"oses.
SUGGESTED ANSWER*
The donation is. li/e)ise. e#em"t from the donorDs ta# if act!all$. directl$ and e#cl!si(el$ !sed for ed!cational "!r"oses. "ro(ided not more than 305 of the donation is !sed $ the donee for administration "!r"oses. The donee. eing a non1stoc/. non1 "rofit ed!cational instit!tion. is a F!alified entit$ to recei(e an e#em"t donation s! 8ect to conditions "rescri ed $ la) (,ection " par. " Art. H62 %*/' !onstitution in relation to ,ection %(%(AH5) N)$!).
The contention is not tena le. The e#em"tion granted is in the nat!re of a !nilateral ta# e#em"tion. 7ince the e#em"tion gi(en is s"ontaneo!s on the "art of the
Accordingl$. none of the cited income and donation collected and recei(ed $ the non1stoc/. non1 "rofit ed!cational instit!tion )o!ld not e e#em"t from ta#ation.
ALTERNATI1E ANSWER*
The follo)ing recei"ts $ the non1stoc/. non"rofit ed!cational instit!tion are not e#em"t from ta#ation. (i0* +c, Re%/a-+ 1r,5 Ca%/ee% C,%ce++i,%aire+ . @ental income is considered as !nrelated to the school o"erationsE hence. ta#a le (BC< Crder No. %5'-/' Bec. %. %*/')
+d, I%/ere+/ 1r,5 5,%e0;5arAe/ *-ace5e%/+ ,1 /:e

/.i/i,% 1ee+. The interest on the "lacement is ta#a le (BC< Crder No. %5'-/'). -f ho)e(er. the said interest is !sed act!all$. directl$ and e#cl!si(el$ for ed!cational "!r"oses as "ro(en $ s! stantial e(idence. the same )ill e e#em"t from ta#ation (CIR v. CA 2"4
SCRA 47 !!""49F.
The other items of income )hich )ere all deri(ed from school1related acti(ities )ill e e#em"t from ta#ation in the hands of the reci"ient if !sed act!all$. directl$ and e#cl!si(el$ for ed!cational "!r"oses +7ection 4 "ar. 3. Article BT;. 1987 4onstit!tion,.
The donation to a non1stoc/. non1"rofit ed!cational instit!tion )ill e e#em"t from the donorDs ta# if !sed act!all$. directl$ and e#cl!si(el$ for ed!cational "!r"oses and "ro(ided. that. not more than 305 of the donation is !sed for administration "!r"oses +7ection 4. "ar. 4. Art. BK;. 1987 4onstit!tion. in relation to 7ection 101+A?3,. =K@4,. 2xemptions$ 2xemptions are <ni"atera" in 7ature (2 *) A la) )as "assed granting ta# e#em"tion to certain ind!stries and in(estments for a "eriod of fi(e $ears. C!t three $ears later. the la) )as re"ealed. With the re"eal. the e#em"tions )ere considered re(o/ed $ the C-@. )hich assessed the in(esting com"anies for !n"aid ta#es effecti(e on the date of the re"eal of the la). =24 and RT@ com"anies F!estioned the assessments on the gro!nd that. ha(ing made their in(estments in f!ll reliance )ith the "eriod of e#em"tion granted $ the la). its re"eal (iolated their constit!tional right against the im"airment of the o ligations and contracts. -s the contention of the com"anies tena le or not& @eason riefl$. +55,
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legislat!re and no ser(ice or d!t$ or other rem!nerati(e conditions ha(e een im"osed on the ta#"a$ers recei(ing the e#em"tion. it ma$ e re(o/ed at )ill $ the legislat!re + C:ri+/ C:.rc: v. P:i-ade-*:ia 2( H,&. 7)) 8!4')9,. What constit!tes an im"airment of the o ligation of contracts is the re(ocation of an e#em"tion )hich is fo!nded on a (al!a le consideration eca!se it ta/es the form and essence of a contract +Ca+a%,va+ v. H,rd. 4 P:i-. !23 8!")#9? Ma%i-a Rai-r,ad C,5*a%0 v.
+2 of 73
chief s!""ort
(Tax $eform Act $A /"&" !hapter 266 ,ection 5-AA@: 36$ $evenue $egulation (&-*/). 2. H,& 5.c: addi/i,%a- e>e5*/i,% ca% C:ar-ie c-ai5G E>*-ai%. (2.3H$
I%+.-ar C,--ec/,r ,1 C.+/,5+ !2 P:i-. !(' 8!"!39$ 2xemptions$ 5o(6t BonusF 5iftsF ; A""o1ances (199*)
-n 3ecem er 1993. the 7angg!niang Ca$an a!thori0ed a 4hristmas on!s of 23.000.00. a cash gift of 25.000.00 and trans"ortation and re"resentation allo)ance of 26.000.00 for each of the m!nici"al em"lo$ees.
1, 2, 3, 1,
-s the 4hristmas on!s s! 8ect to an$ ta#& Ao) a o!t the cash gift& Ao) a o!t the trans"ortation and re"resentation allo)ances& The 4A@-7T?A7 C'=G7 gi(en $ the 7angg!niang Ca$an to the m!nici"al em"lo$ees is ta#a le as additional com"ensation +7ec. 21 +a,. Ta# 4ode,. The cash gift "er em"lo$ee of 25.000.00 eing s! stantial ma$ e considered ta#a le also. The$ "arta/e the nat!re of additional com"ensation income as it is highl$ do! tf!l if m!nici"al go(ernments are a!thori0ed to ma/e gifts in s! stantial s!ms s!ch as this. The$ are not f!rther1 more gifts of %small (al!e% )hich em"lo$ers might gi(e to their em"lo$ees on s"ecial occasions li/e 4hristmas 1 items )hich co!ld e e#em"t !nder C-@ @e(en!e A!dit ?emo =o. 1187.
The trans"ortation and re"resentation allo)ances are act!all$ reim !rsements for e#"enses inc!rred $ the em"lo$ee for the em"lo$er. 7aid allo)ances s"ent $ the em"lo$ee for the em"lo$er are designed to enhance the F!alit$ of the ser(ice that the em"lo$er is s!""osed to "erform for its clientele li/e the "eo"le of the m!nici"alit$.
SUGGESTED ANSWER*
2,
3,
2xemptions$ Persona" ; A&&itiona" 2xemption (2 6) 4harlie. a )ido)er. has t)o sons $ his "re(io!s marriage. 4harlie li(es )ith Kane )ho is legall$ married to ?ario. The$ ha(e a child named Kill. The children are all minors and not gainf!ll$ em"lo$ed. !. H,& 5.c: *er+,%a- e>e5*/i,% ca% C:ar-ie c-ai5G E>*-ai%. (2.3H$
SUGGESTED ANSWER*
4harlie can claim the "ersonal e#em"tion of a Aead of a Iamil$ or 225.000.00 "ro(ided that. at least one of his minor and not gainf!ll$ em"lo$ed children is !nmarried and li(ing )ith and de"endent !"on him for
Answers to the BAR: Taxation 1994-2006 (Arranged by Topics SUGGESTED ANSWER*
Ais children from his "re(io!s marriage )ho are le1 gitimate children and his illegitimate child )ith Kane )ill all entitle him to additional "ersonal e#em"tion of 28.000.00 for each de"endent. if a"art from eing minor and not gainf!ll$ em"lo$ed. the$ are !nmarried. li(ing )ith and de"endent !"on 4harlie for their chief s!""ort (Tax $eform Act $A/"&" !hapter 2= ,ection 5-(A): 36$ $evenue $egulation (&-*/). 2xemptions$ 8oman !at#o"ic !#urc#$ /imitations (2 9)
The @oman 4atholic 4h!rch o)ns a 21hectare lot. in a to)n in Tarlac "ro(ince. The so!thern side and middle "art are occ!"ied $ the 4h!rch and a con(ent. the eastern side $ a school r!n $ the 4h!rch itself. the so!theastern side $ some commercial esta lishments. )hile the rest of the "ro"ert$. in "artic!lar the north)estern side. is idle or !nocc!"ied.
the term does not incl!de an$ of the follo)ing. )hich are conseF!entl$ considered %ordinar$ assets%* +1, stoc/ in trade of the ta#"a$er or other "ro"ert$ of a /ind )hich )o!ld "ro"erl$ e incl!ded in the
?a$ the 4h!rch claim ta# e#em"tion on the entire land& 3ecide )ith reasons.
SUGGESTED ANSWER*
=o. The 4h!rch cannot claim ta# e#em"tion on the entire land. 'nl$ the so!thern side and middle "art that are occ!"ied $ the 4h!rch and a con(ent and the eastern side occ!"ied $ a school r!n $ the 4h!rch itself are e#em"t. eca!se s!ch "arts of the 21hectare lot are act!all$. directl$ and e#cl!si(el$ !sed for religio!s and ed!cational "!r"oses. (,ec. &/A5@ Art. 26 %*/' !onstitution: ,ec. &5" ?ocal #overnment !ode) The so!theastern side occ!"ied $ some commercial esta lishment is not ta# e#em"t. -f real "ro"ert$ is !sed for one or more commercial "!r"oses. it is not e#cl!si(el$ !sed for the e#em"ted "!r"ose !t is s! 8ect to ta#ation. D7olel$D is s$non$mo!s )ith De#cl!si(el$.D (L.%g Ce%/er ,1 /:e P:i-i**i%e+ v. I.eE,% Ci/0 G.R. N,. !((!)( <.%e 2" 2))($ The "ro"ert$ m!st e e#cl!si(el$ +solel$, !sed for religio!s or ed!cational "!r"oses.
'f co!rse. it is a""arent that the north)estern side. )hich is idle or !nocc!"ied is not %act!all$. directl$ and e#cl!si(el$% !sed for religio!s or ed!cational "!r"oses. hence not e#em"t from ta#ation.
CAPITAL GAIN TAX

!apita" Asset (s) %r&inary Asset (2 4) 3isting!ish a %ca"ital asset% from an %ordinar$ asset%.
SUGGESTED ANSWER*
+a, The term %ca"ital asset% regards all "ro"erties not s"ecificall$ e#cl!ded in the stat!tor$ definition of ca"ital assets. the "rofits or loss on the sale or the e#change of )hich are treated as ca"ital gains or ca"ital losses. 4on(ersel$. all those "ro"erties s"ecificall$ e#cl!ded are considered as ordinar$ assets and the "rofits or losses reali0ed m!st ha(e to e treated as ordinar$ gains or ordinar$ losses. Accordingl$. %Ca*i/a- A++e/+% incl!des "ro"ert$ held $ the ta#"a$er )hether or not connected )ith his trade or !siness. !t
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in(entor$ of the ta#"a$er 73 the close of the ta#a le $earE
+4 of if on hand at
A shall therefore not e treated as a sale $ an !nregistered "artnershi". !t an ordinar$ sale of a ca"ital asset. and hence )ill e s! 8ect to the 55 ca"ital gains ta# and doc!mentar$
+2, "ro"ert$ held $ the ta#"a$er "rimaril$ for sale to c!stomers in the ordinar$ co!rse of trade or !sinessE +3, "ro"ert$ !sed in the trade or !siness of a character )hich is s! 8ect to the allo)ance for de"reciation "ro(ided in 7ection 34 +I, of the Ta# 4odeE or +4, real "ro"ert$ !sed in trade or the ta#"a$er. !siness of
The stat!tor$ definition of %ca"ital assets% "racticall$ e#cl!des from its sco"e. it )ill e noted. all "ro"ert$ held $ the ta#"a$er if !sed in connection )ith his trade or !siness. !apita" 5ain Tax$ 7ature (2 1) A. a doctor $ "rofession. sold in the $ear 2000 a "arcel of land )hich he o!ght as a form of in(estment in 1990 for 2h" 1 million. The land )as sold to C. his colleag!e. at a time )hen the real estate "rices had gone do)n and so the land )as sold onl$ for 2h" 800.000 )hich )as then the fair mar/et (al!e of the land. Ae !sed the "roceeds to finance his tri" to the Gnited 7tates. Ae claims that he sho!ld not e made to "a$ the 65 final ta# eca!se he did not ha(e an$ act!al gain on the sale. -s his contention correct& Wh$& +55,
SUGGESTED ANSWER*
=o. The 65 ca"ital gains ta# on sale of a real "ro"ert$ held as ca"ital asset is im"osed on the income "res!med to ha(e een reali0ed from the sale )hich is the fair mar/et (al!e or selling "rice thereof. )hiche(er is higher. +7ection 24+3,. =-@4,. Act!al gain is not reF!ired for the im"osition of the ta# !t it is the gain $ fiction of la) )hich is ta#a le. %r&inary Sa"e of a !apita" Asset (199*)
=oel :angit and his rother. Ko($. o!ght a "arcel of land )hich the$ registered in their names as "ro1 indi(iso o)ners +2arcel A,. 7! seF!entl$. the$ formed a "artnershi". d!l$ registered )ith 7ec!rities and 9#change 4ommission. )hich o!ght another "arcel of land +2arcel C,. Coth "arcels of land )ere sold. reali0ing a net "rofit of 21.000.000.00 for "arcel A and 2500.000.00 for "arcel C.
The C-@ claims that the sale of "arcel A sho!ld e ta#ed as a sale $ an !nregistered "artnershi". -s the C-@ correct&
SUGGESTED ANSWER*
The C-@ is not correct. since there is no sho)ing that the acF!isition of the "ro"ert$ $ =oel and Ko($ :angit as "ro indi(iso o)ners. and "rior to the formation of the "artnershi". )as !sed. intended for !se. or ears an$ relation )hatsoe(er to the "!rs!it or cond!ct of the "artnershi" !siness. The sale of "arcel
stam" ta# on transfers of real "ro"ert$. said ta#es to e orne eF!all$ $ the co1o)ners.
ALTERNATI1E ANSWER*
im"ractical and. therefore. not follo)ed in "ractice eca!se the !$erM )ithholding agent )ill not e in a "osition to determine ho) m!ch income is reali0ed $
The C-@ is correct in treating the gain from the sale of "arcel of land $ =oel and Ko($ :angit at a "rofit of 21.000.000.00. -n the case of Pa+c.aa%d Drag,% v. C,55i++i,%er G.R. N,. #4!77 Oc/,6er !4 !"44. the 7!"reme 4o!rt r!led that the
sharing of ret!rns does not in itself esta lish a "artnershi". )hether or not the "ersons sharing therein ha(e a 8oint or common right or interest in the "ro"ert$. The decision in said case cannot e a""lied here eca!se clearl$ the "arties organi0ed a "artnershi" d!l$ registered )ith the 7ec!rities and 9#change 4ommission. The$ "ooled their reso!rces together )ith the "!r"ose of di(iding the "rofit et)een them. Sa"es of S#are of StocBs: !apita" 5ains Tax 8eturn (1999)
AR 4o. is a Aong Rong cor"oration not doing !siness in the 2hili""ines. -t holds 405 of the shares of A 4o.. a 2hili""ine com"an$. )hile the 605 is o)ned $ 2 4o.. a Iili"ino1o)ned 2hili""ine cor"oration. AR 4o. also o)ns 1005 of the shares of C 4o.. an -ndonesian com"an$ )hich has a d!l$ licensed 2hili""ine ranch. 3!e to )orld)ide restr!ct!ring of the AR 4o. gro!". AR 4o. decided to sell all its shares in A and C 4os. The negotiations for the !$1o!t and the signing of the Agreement of 7ale )ere all done in the 2hili""ines. The Agreement "ro(ides that the "!rchase "rice )ill e "aid to AR 4oDs an/ acco!nt in the G. 7. and that little to A and C 4os. 7hares )ill "ass from AR 4o. to 2 4o. in AR )here the stoc/ certificates )ill e deli(ered. 2 4o. see/s $o!r ad(ice as to )hether or not it )ill s! 8ect the "a$ments of "!rchase "rice to Withholding Ta#. 9#"lain $o!r ad(ice. +105,
SUGGESTED ANSWER*
2 4o. sho!ld not s! 8ect the "a$ments of the "!rchase "rice to )ithholding ta#. While the seller is a non1resident foreign cor"oration )hich is not normall$ reF!ired to file ret!rns in the 2hili""ines. therefore. ordinaril$ all its income earned from 2hili""ine so!rces is ta#ed (ia the )ithholding ta# s$stem. this is not the "roced!re a(ailing )ith res"ect to sales of shares of stoc/. The ca"ital gains ta# on the sale of shares of stoc/ of a domestic cor"oration is al)a$s reF!ired to e "aid thro!gh a ca"ital gains ta# ret!rn filed. The sale of the shares of stoc/ of the -ndonesian 4or"oration is not s! 8ect to income ta# !nder o!r 8!risdiction eca!se the income deri(ed there from is considered as a foreign1so!rced income.
ALTERNATI1E ANSWER*
<es. !t onl$ on the shares of stoc/s of A 4o. and onl$ on the "ortion of the "!rchase "rice. )hich constit!tes ca"ital gains. Gnder the Ta# 4ode of 1997. the ca"ital gains ta# im"osed !nder 7ection 28+C,+5,+c, is collecti le (ia the )ithholding of ta# at so!rce "!rs!ant to 7ection 57 of the same 4ode.
+=ote* The ar candidate might ha(e relied on the "ro(ision of the Ta# 4ode of 1997 )hich "ro(ides that the ca"ital gains ta# is im"osed as )ithholding ta#es +7ection 57. =-@4,. This "roced!re is
sirdondee@gmail.com +9 of the seller from the sale. Ior this reason. 73the of foregoing s!ggested ans)ers sho!ldan$ e gi(en f!ll credit,.
treated as di(idend of the shareholder and the amo!nt of an$ gain that )as recogni0ed on the e#change.
CORPORATION - PARTNERS/IP
Ba& 'e+ts$ Factors$ 2"ements t#ereof (2 *)
Tax Basis: !apita" 5ains: 0erger of !orporations (199*) -n a F!alified merger !nder 7ection 34 +c, +2, of the Ta# 4ode. )hat is the ta# asis for com"!ting the ca"ital gains on* +a, the sale of the assets recei(ed $ the s!r(i(ing cor"oration from the a sor ed cor"orationE and + , the sale of the shares of stoc/ recei(ed $ the stoc/holders from the s!r(i(ing cor"oration&
SUGGESTED ANSWER*
-n a F!alified merger !nder 7ection 34 +c, +2, of the Ta# 4ode. the ta# asis for com"!ting the ca"ital gains on*
+a, the sale of the assets recei(ed $ the s!r(i(ing cor"oration from the a sor ed cor"oration shall e the originalMhistorical cost of the assets )hen still in the hands of the a sor ed cor"oration.
+ , the sale of the shares of stoc/ recei(ed $ the stoc/holders from the s!r(i(ing cor"oration shall e the acF!isitionMhistorical cost of assets transferred to the s!r(i(ing cor"oration. Tax Basis: !apita" 5ains: Tax:Free 2xc#ange of Property (199*) -n a F!alified ta#1free e#change of "ro"ert$ for shares !nder 7ection 34 +c, +2, of the Ta# 4ode. )hat is the ta# asis for com"!ting the ca"ital gains on* +a, the sale of the assets recei(ed $ the 4or"orationE and + , the sale of the shares recei(ed $ the stoc/holders in e#change of the assets&
SUGGESTED ANSWER*
-n a F!alified ta# free e#change of "ro"ert$ for shares !nder 7ection 34 +c, +2, of the Ta# 4ode. the ta# asis for com"!ting the gain on the* +a, sale of the assets recei(ed $ the cor"oration shall e the originalMhistorical cost +"!rchase "rice "l!s e#"enses of acF!isition, of the "ro"ert$M assets gi(en in e#change of the shares of stoc/.
+ , sale of the shares of stoc/ recei(ed $ the stoc/holders in e#change of the assets shall e the originalMhistorical cost of the "ro"ert$ gi(en in
e#change of the shares of stoc/.

ALTERNATI1E ANSWER*
The asis in com"!ting ca"ital gains ta# in a F!alified ta#1 free e#change !nder 7ec. 34 +c, +2, is* +a, With res"ect to the asset recei(ed $ the cor"oration the same as it )o!ld e in the hands of the transferor increased $ the amo!nt of the gain recogni0ed to the transferor on the transfer.
+ , With res"ect to the shares recei(ed $ the stoc/holders in e#change of the assets 1 the same as the asis of the "ro"ert$. stoc/ or sec!rities e#changed. decreased $ the mone$ recei(ed and the fair mar/et (al!e of the other "ro"ert$ recei(ed. and increased $ the amo!nt
2L@ 4or". claimed as a ded!ction in its ta# ret!rns the amo!nt of 21.000.000 as ad de ts. The cor"oration )as assessed $ the 4ommissioner of -nternal @e(en!e for deficienc$ ta#es on the gro!nd that the de ts cannot e considered as %)orthless.% hence the$ do not F!alif$ as ad de ts. The com"an$ as/s for $o!r ad(ice on %What factors )ill held in determining )hether or not the de ts are ad de ts&% Ans)er and e#"lain riefl$. +55,
SUGGESTED ANSWER*
The same is not s! 8ect to income ta# since no income )as reali0ed as a res!lt of the con(e$ance. )hich )as made "!rs!ant to the 4ondomini!m Act +@.A. =o. 4626. and the "!r"ose of )hich )as merel$ to (est title to the common areas in fa(or of the :and 4ondomini!m 4or"oration.
-n order that de ts e considered as ad de ts eca!se the$ ha(e ecome )orthless. the ta#"a$er sho!ld esta lish that d!ring the $ear for )hich the ded!ction is so!ght. a sit!ation de(elo"ed as a res!lt of )hich it ecame e(ident in the e#ercise of so!nd. o 8ecti(e !siness 8!dgment that there remained no "ractical. !t onl$ (ag!el$ theoretical. "ros"ect that the de t )o!ld e(er e "aid (C,--ec/,r ,1
I%/er%a- Reve%.e v. G,,dric: I%/er%a/i,%a- R.66er C,. 2! SCRA !77' 8!"'#9$. %Worthless% is not determined $
an infle#i le form!la or slide r!le calc!lation. !t !"on the e#ercise of so!nd !siness 8!dgment. The factors to e considered incl!de. !t are not limited to. the follo)ing*
1. 2. 3. 4.
The de tor has no "ro"ert$ nor (isi le incomeE The de tor has een ad8!dged an/r!"t or insol(entE 4ollateral shares ha(e ecome )orthlessE and There are n!mero!s de tors )ith small amo!nts of de ts and f!rther action on the acco!nts )o!ld entail e#"enses e#ceeding the amo!nts so!ght to e collected.
ALTERNATI1E ANSWER*
The follo)ing are the factors to e considered in determining )hether or not the de ts are ad de ts* 1. The de t m!st e (alid and s! sistingE 2. The de t is connected )ith the ta#"a$erDs trade or !siness. and is not et)een related "artiesE 3. There is an act!al ascertainment that the de t is )orthlessE and 4. The de t is charged1off )ithin the ta#a le $ear.
(PRC v. CA 23' SCRA ''# 8!""'9? Reve%.e Reg+. N,. 3;""$.
!on&ominium !orp)$ Sa"e of !ommon Areas (199*) B1land 4ondomini!m 4or"oration )as organi0ed $ the o)ners of !nits in B1land C!ilding in accordance )ith the ?aster 3eed )ith 3eclaration of @estrictions. The B1land C!ilding 4or"oration. the de(elo"er of the !ilding. con(e$ed the common areas in fa(or of the B1land 4ondomini!m 4or"oration. -s the con(e$ance s! 8ect to an$ ta#&
SUGGESTED ANSWER*
The con(e$ance is not s! 8ect to an$ ta#. The same is )itho!t consideration. and not in connection )ith a sale made to B1land 4ondomini!m 4or"oration. and the "!r"ose of the con(e$ance to the latter is for the management of the common areas for the common enefit of the !nit o)ners.
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40 of
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There eing no monetar$ consideration. neither is the con(e$ance s! 8ect to the credita le )ithholding ta# im1 "osed !nder @e(en!e @eg!lations 1190. as amended. The second con(e$ance )as act!all$ no con(e$ance at all eca!se )hen the !nits )ere sold to the (ario!s !$ers. the common areas )ere alread$ "art and "arcel of the sale of said !nits "!rs!ant to the 4ondomini!m Act. Ao)e(er. the 3eed of 4on(e$ance is s! 8ect to doc!mentar$ stam" ta#.
N.3. Bocumentary stamps tax and !ondominium ?aw are excluded from the coverage of the 3ar 4xaminations.
the cor"oration transacts !siness in the 2hili""ines directl$ and inde"endentl$ of its ranch. the ta#"a$er )o!ld e the foreign cor"oration itself and s! 8ect to the di(idend ta# similarl$ im"osed on non1resident foreign cor"oration. The di(idends attri !ta le to the Aome 'ffice )o!ld not F!alif$ as di(idends earned $ a resident foreign cor"oration. )hich is e#em"t from ta#.
(Mar.6e%i
C,r*,ra/i,% v. C,55i++i,%er GR N,. #'3#7 Se*/e56er !( !"4"$.
!orporation$ Sa"e$ !re&ita+"e -it##o"&ing Tax (199*)

=oel :angit and his rother. Ko($. o!ght a "arcel of land )hich the$ registered in their names as "ro1 indi(iso o)ners +2arcel A,. 7! seF!entl$. the$ formed a "artnershi". d!l$ registered )ith 7ec!rities and 9#change 4ommission. )hich o!ght another "arcel of land +2arcel C,. Coth "arcels of land )ere sold. reali0ing a net "rofit of 21.000.000.00 for "arcel A and 2500.000.00 for "arcel C.
The C-@ also claims that the sale of "arcel C sho!ld e ta#ed as a sale $ a cor"oration. -s the C-@ correct&
SUGGESTED ANSWER*
The C-@ is correct. since a %cor"oration% as defined !nder 7ection 20 +a, of the Ta# 4ode incl!des "artnershi"s. no matter ho) created or organi0ed. e#ce"t general "rofes1 sional "artnershi"s. The !siness "artnershi". in the in1 stant case. shall therefore e ta#ed in the same manner as a cor"oration on the sale of "arcel C. The sale shall th!s e s! 8ect to the credita le )ithholding ta# !nder @e(en!e @eg!lations 1190. as amended $ 12194. on the sale of "arcel C. and the "artnershi" shall re"ort the gain reali0ed from the sale )hen it files its income ta# ret!rn.
'i(i&en&s: -it##o"&ing Tax (1999)

AR 4o.. is a Aong Rong com"an$. )hich has a d!l$ licensed 2hili""ine ranch. engaged in trading acti(ities in the 2hili""ines. AR 4o. also in(ested directl$ in 405 of the shares of stoc/ of A 4o.. a 2hili""ine cor"oration. These shares are oo/ed in the Aead 'ffice of AR 4o. and are not reflected as assets of the 2hili""ine ranch. -n 1998. A 4o. declared di(idends to its stoc/holders. Cefore remitting the di(idends to AR 4o.. A 4o. see/s $o!r ad(ice as to )hether it )ill s! 8ect the remittance to WT. =o need to disc!ss WT rates. if a""lica le. Ioc!s $o!r disc!ssion on )hat is the iss!e. +105,
SUGGESTED ANSWER*
- )ill ad(ise A 4o. to )ithhold and remit the )ithholding ta# on the di(idends. While the general r!le is that a foreign cor"oration is the same 8!ridical entit$ as its ranch office in the 2hili""ines. )hen. ho)e(er.
red!ce their income ta# "a$ments. The filing of income ta# ret!rns sho)ing a ta# loss e(er$ $ear goes against the !siness moti(e )hich im"elled the stoc/holders to form the cor"oration. This is the reason )h$ domestic cor"orations +and resident foreign cor"orations, after the reco(er$ "eriod of fo!r $ears from the time the$ commence !siness o"erations. the$ ecome lia le to the ?4-T )hene(er this ta# im"osed at 25 of gross income e#ceeds the normal cor"orate income ta# im"osed on net income. +7"onsorshi" 7"eech. 4hairman of 7enate Wa$s and ?eans 4ommittee,.
0inimum !orporate Income Tax$ 2xemption (2 1)

-s a cor"oration )hich is e#em"ted from the minim!m cor"orate income ta# a!tomaticall$ e#em"ted from the reg!lar cor"orate income ta#& 9#"lain $o!r ans)er. +25,
SUGGESTED ANSWER*
(S.%i, v. NLRC !2# SCRA 7")J!"4(9F.
(Ta% Ti,%g Bi, v. CFR ( SCRA

=o. The minim!m cor"orate income ta# is a "ro#$ for the normal cor"orate income ta#. not the reg!lar cor"orate income ta# "aid $ a cor"oration. Ior instance. a "ro"rietar$ ed!cational instit!tion ma$ e s! 8ect to a reg!lar cor"orate income ta# of 105 +de"ending on its dominant income,. !t it is e#em"t from the im"osition of ?4-T eca!se the latter is not intended to s! stit!te
2ffect: 'isso"ution$ !orporate 2xistence (2 *)

Ior fail!re to com"l$ )ith certain cor"orate reF!irements. the stoc/holders of AC4 4or". )ere notified $ the 7ec!rities and 9#change 4ommission that the cor"oration )o!ld e s! 8ect to in(ol!ntar$ dissol!tion. The stoc/holders did not do an$thing to com"l$ )ith the reF!irements. and the cor"oration )as dissol(ed. 4an the stoc/holders e held "ersonall$ lia le for the !n"aid ta#es of the dissol(ed cor"oration& 9#"lain riefl$. +55,
SUGGESTED ANSWER*
=o. As a general r!le. stoc/holders cannot e held "ersonall$ lia le for the !n"aid ta#es of a dissol(ed cor"oration. The r!le "re(ailing !nder o!r 8!risdiction is that a cor"oration is (ested $ la) )ith a "ersonalit$ that is se"arate and distinct from those of the "ersons
com"osing it
='T9* additional "oint sho!ld e gi(en to the e#aminee if he ans)ers in the follo)ing that* Ao)e(er. stoc/holders ma$ e held lia le for the !n"aid ta#es of a dissol(ed cor"oration if it a""ears that the cor"orate assets ha(e "assed
into their hands "4' 8!"'29$. :i/e)ise. )hen stoc/holders ha(e !n"aid s! scri"tions to the ca"ital of the cor"oration the$ can e made lia le for !n"aid ta#es of the cor"oration to the e#tent of their !n"aid s! scri"tions. 0inimum !orporate Income Tax (2 1) What is the rationale of the la) in im"osing )hat is /no)n as the ?inim!m 4or"orate -ncome ta# on 3omestic 4or"orations& +35,
SUGGESTED ANSWER*
The im"osition of the ?inim!m 4or"orate -ncome Ta# +?4-T, is designed to forestall the "re(ailing "ractice of cor"orations of o(er claiming ded!ctions in order to
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s"ecial ta# rates. 7o is )ith 29JA enter"rises. 43A enter"rises etc.
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31 3ecem er 1994. and the other one1half "ro1 indi(iso interest to
O=ote* -f )hat is meant $ reg!lar income ta# is the 325 ta# rate im"osed on ta#a le income of cor"orations. the ans)er )o!ld e in the affirmati(e. eca!se domestic cor"orations and resident foreign cor"orations are either lia le for the 25 of gross income +?4-T, or 325 of net income +the normal cor"orate income ta#, )hiche(er is higher.P
ALTERNATI1E ANSWER*
the same son on 2 Kan!ar$ 1995. Ao) m!ch is the (al!e of the gifts in 1994 and 1995 for "!r"oses of com"!ting the gift ta#& 9#"lain.
SUGGESTED ANSWER*
1, The (al!e of the gifts for "!r"oses of com"!ting the gift ta# shall e 27.5million in 1994 and 27.5million in
=o. A cor"oration )hich is e#em"ted from the minim!m cor"orate income ta# is not a!tomaticall$ e#em"ted from the reg!lar cor"orate income ta#. The reason for this is that ?4-T is im"osed onl$ eginning on the fo!rth ta#a le $ear immediatel$ follo)ing the $ear in )hich s!ch cor"oration commenced its !siness o"erations. Th!s. a cor"oration ma$ e e#em"t from ?4-T eca!se it is onl$ on its third $ear of o"erations follo)ing its commencement of !siness o"erations.
ESTATE - DONOR0S TAXES

'onor6s Tax: 2"ection !ontri+utions (199=) Are contri !tions to a candidate in an election s! 8ect to donorDs ta#& 'n the "art of the contri !tor. is it allo)a le as a ded!ction from gross income& O55K
SUGGESTED ANSWER*
1,
=o. "ro(ided the reci"ient candidate had com"lied )ith the reF!irement for filing of ret!rns of contri1 !tions )ith the 4ommission on 9lections as reF!ired !nder the 'mni !s 9lection 4ode.
The contri !tor is not allo)ed to ded!ct the contri !tions eca!se the said e#"ense is not directl$ attri !ta le to. the de(elo"ment. management. o"eration andMor cond!ct of a trade. !siness or "rofession K,ec. 5"AA)(l)(a) N6$!) . I!rthermore. if the candidate is an inc!m ent go(ernment official or em"lo$ee. it ma$ e(en e considered as a ri e or a /ic/ ac/ +7ec. 34OAK+l,+c,.
2,
=-@4,.
CO33E$T% -t is s!ggested that f!ll credit sho!ld e gi(en for an$ ans)er to the first F!estion eca!se the ans)er reF!ires an inter"retation of the 9lection 4ode. 2!rs!ant to the "ro(isions of 7ection 99+4, of the =-@4. the ta#a ilit$ of this t$"e of contri !tionsMdonations is go(erned $ the 9lection 4ode.
'onor6s Tax$ Basis for 'etermining 5ain (1999)

+1, Renneth <!so"h o)ns a commercial lot )hich he o!ght man$ $ears ago for 21 ?illion. -t is no) )orth 220 ?illion altho!gh the 0onal (al!e is onl$ 215 ?illion. Ae donates one1half "ro1indi(iso interest in the land to his son 3ino on
1995. -n (al!ing a real "ro"ert$ for gift ta# "!r"oses the "ro"ert$ sho!ld e a""raised at the higher of t)o (al!es as of the time of donation )hich are +a, the fair mar/et (al!e as determined $ the 4ommissioner +)hich is the 0onal (al!e fi#ed "!rs!ant to 7ection 16+e, of the Ta# 4ode,. or + , the fair mar/et (al!e as sho)n in the sched!le of (al!es fi#ed $ the 2ro(incial and 4it$ Assessors. The fact that the "ro"ert$ is )orth 220 million as of the time of donation is immaterial !nless it can e sho)n that this (al!e is one of the t)o (al!es mentioned as "ro(ided !nder 7ection 81 of the Ta# 4ode. +2, The @e(en!e 3istrict 'fficer F!estions the s"litting of the donations into 1994 and 1995. Ae sa$s that since there )ere onl$ t)o +2, da$s se"arating the t)o donations the$ sho!ld e treated as one. ha(ing een
there is "res!med to e reali0ed an income of 220 million )hich is the gross selling "rice of the "ro"ert$. +7ec. 21+e,. =-@4,. The same )o!ld e s! 8ect to the 55 ca"ital gains ta#. 'onor6s Tax$ 'acion en Pago$ 2ffect: Taxation (199,)
made )ithin one $ear. -s he correct& 9#"lain.

SUGGESTED ANSWER*
2, The @e(en!e 3istrict 'fficer is not correct eca!se the com"!tation of the gift ta# is c!m!lati(e !t onl$ insofar as gifts made )ithin the same calendar $ear. Therefore. there is no legal 8!stification for treating t)o gifts effected in t)o se"arate calendar $ears as one gift.
+3, 3ino s! seF!entl$ sold the land to a !$er for 2 20 ?illion. Ao) m!ch did 3ino gain on the sale& 9#"lain.
SUGGESTED ANSWER*
3, 3ino gained an income of 19 million from the sale. 3ino acF!ires a carr$1o(er asis )hich is the asis of the "ro"ert$ in the hands of the donor or 21 million. The gain from the sale or other dis"osition of "ro"ert$ shall e the e#cess of the amo!nt reali0ed therefrom o(er the asis or ad8!sted asis for determining gain +7ec. 34+a,. =-@4,. 7ince the "ro"ert$ )as acF!ired $ gift. the asis for determining gain shall e the same as if it )o!ld e in the hands of the donor or the last "receding o)ner $ )hom the "ro"ert$ )as not acF!ired $ gift. Aence. the gain is com"!ted $ ded!cting the asis of 21 million from the amo!nt reali0ed )hich is 220 million.
+4, 7!""ose. instead of recei(ing the lot $ )a$ of donation. 3ino recei(ed it $ inheritance. What )o!ld e his gain on the sale of the lot for 220
?illion& 9#"lain.
SUGGESTED ANSWER*
4, -f the commercial lot )as recei(ed $ inheritance the gain from the sale for 220 million is 25 million eca!se the asis is the fair mar/et (al!e as of the date of acF!isition. The ste""ed1!" asis of 215 million )hich is the (al!e for estate ta# "!r"oses is the asis for determining the gain +7ec. 34+ ,+2,. =-@4,.
ALTERNATI1E ANSWER*
-f 3ino held on to the "ro"ert$ as a ca"ital asset in that it is neither for sale in the ordinar$ co!rse of !siness nor !sed in 3inoDs !siness. then !"on sale thereof
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An insol(ent com"an$ had an o!tstanding o ligation of 2 l00.000.00 from a creditor. 7ince it co!ld not "a$ the de t. the creditor agreed to acce"t "a$ment thro!gh dacion en "ago a "ro"ert$ )hich had a mar/et (al!e of 230.000.00. -n the dacion en "ago doc!ment. the alance of the de t )as condoned. A. What is the ta# effect on the discharge of the !n"aid alance of the o ligation on the de tor cor"oration&
C.
42 of 73
onl$ o(er one calendar $ear.
'onor6s Tax$ 'onation to 7on:StocBF 7on:Profit Pri(ate 2&ucationa" Institutions (2 )

What conditions m!st occ!r in order that all grants. donations and contri !tions to non1stoc/. non1"rofit "ri(ate ed!cational instit!tions ma$ e e#em"t from the donorDs ta# !nder 7ection 101 +a, of the Ta# 4ode& +35,
SUGGESTED ANSWER*
The follo)ing are the conditions*
-nsofar as the creditor is concerned. ho) is he
effected ta#1)ise as a conseF!ence of the transaction&

SUGGESTED ANSWERS*
+a, The condonation of the !n"aid alance of the o ligation has the effect of a donation made on the "art of the creditor. -t is o (io!s that the creditor merel$ desires to enefit the de tor and )itho!t an$ consideration therefore cancels the de t. the amo!nt of the de t cancelled is a gift from the creditor to the de tor and need not e incl!ded in the latterDs gross income +7ec. 50. @@ =o. 2,E + , Ior the difference of 270.000 the creditor shall e s! 8ect to donorDs ta# at the a""lica le rates "ro(ided for !nder the =ational -nternal @e(en!e 4ode.
ALTERNATI1E ANSWER*
+a, -f the discharge )as "rom"ted $ the insol(enc$ of the de tor com"an$. then it is a clear case of a )rite1off of a ad de ts )hich has no ta# conseF!ence to the de tor.
+ , The )rite1off of the ad de t )ill entitle the creditor to claim the same as a ded!ction from its gross income. 'onor6s Tax$ 'onation to a Si+"ing (2 1) <o!r achelor client. a Iili"ino residing in L!e0on 4it$. )ants to gi(e his sister a gift of 2h" 200.000.00. Ae see/s $o!r ad(ice. for "!r"oses of red!cing if not eliminating the donorDs ta# on the gift. on )hether it is etter for him to gi(e all of the 2h" 200.000.00 on 4hristmas 2001 or to gi(e 2h" 100.000.00 on 4hristmas2001 and the other 2h" 100.000.00 on Kan!ar$ 1. 2002. 2lease e#"lain $o!r ad(ice. +55,
SUGGESTED ANSWER*
- )o!ld ad(ice him to s"lit the donation. 6i(ing the 2h"200.000 as a one1time donation )o!ld mean that it )ill e s! 8ect to a higher ta# rac/et !nder the grad!ated ta# str!ct!re there $ necessitating the "a$ment of donorDs ta#. 'n the other hand. s"litting the donation into t)o eF!al amo!nts of 2h" 100.000 gi(en on t)o different $ears )ill totall$ relie(e the donor from the donorQs ta# eca!se the first 2h"l00.000 donation in the grad!ated rac/ets is e#em"t. +7ection 99. =-@4,. While the donorQs ta# is com"!ted on the c!m!lati(e donations. the aggregation of all donations made $ a donor is allo)ed
1. 2. 3. 4.
5.
=ot more than thirt$ "ercent +305, of said gifts shall e !sed $ s!ch donee for administration "!r"osesE The ed!cational instit!tion is incor"orated as a non1 stoc/ entit$. "a$ing no di(idends. go(erned $ tr!stees )ho recei(e no com"ensation. and
de(oting all its income. )hether st!dentsD fees or gifts. donations. s! sidies or other forms of "hilanthro"$. to the accom"lishment and "romotion of the "!r"oses en!merated in its Articles of -ncor"oration. +7ec. 101 +A, +3,. =-@4 of 1997P
cost in the shares sold is 21.000.000. The "!r"ose of A in selling the shares is to ena le his /e$ e#ec!ti(es to acF!ire a "ro"riet$ interest in the !siness and ha(e a "ersonal
'onor6s Tax$ 'onation to Po"itica" !an&i&ate (2 4) B is a friend of <. the chairman of 2olitical 2art$ J. )ho )ants to r!n for 2resident in the 2004 elections. Rno)ing that < needs f!nds for "osters and streamers. B is thin/ing of donating to < 2150.000.00 for his cam"aign. Ae as/s $o! )hether his intended donation to < )ill e s! 8ect to the donorDs ta#. What )o!ld $o!r ans)er e& Will $o!r ans)er e the same if he )ere to donate to 2olitical 2art$ J instead of to < directl$& +85,
SUGGESTED ANSWER*
The donation to <. once he ecomes a candidate for an electi(e "ost. is not s! 8ect to donorDs ta# "ro(ided that he com"lies )ith the reF!irement of filing ret!rns of contri !tions )ith the 4ommission on 9lections as reF!ired !nder the 'mni !s 9lection 4ode. The ans)er )o!ld e the same if B had donated the amo!nt to 2olitical 2art$ J instead of to < directl$ eca!se the la) "laces in eF!al footing an$ contri !tion to an$ candidate. "olitical "art$ or coalition of "arties for cam"aign "!r"oses. (,ection **(!) of the %**' Tax !ode).
'onor6s Tax$ 'onee or Beneficiary$ Stranger (2 ) When the donee or eneficiar$ is a stranger. the ta# "a$a le $ the donor shall e 305 of the net gifts. Ior "!r"oses of this ta#. )ho is a stranger& +25,
SUGGESTED ANSWER*
A 7T@A=69@ is a "erson )ho is not a* A. Crother. sister +)hether $ )hole or half1 lood,. s"o!se. ancestor and lineal descendantE or C. @elati(e $ consang!init$ in the collateral line )ithin the fo!rth degree of relationshi".% O7ec. 98 +C,. =-@4 of 1997P 'onor6s Tax$ Sa"e of s#ares of StocB ; Sa"e of 8ea" Property (1999) A. an indi(id!al. sold to C. his rother1in1la). his lot )ith a mar/et (al!e of 21.000.000 for 2600.000. ADs cost in the lot is 2100.000. C is financiall$ ca"a le of !$ing the lot.
A also o)ns B 4o.. )hich has a fast gro)ing !siness. A sold some of his shares of stoc/ in B 4o. to his /e$ e#ec!ti(es in B 4o. These e#ec!ti(es are not related to A. The selling "rice is 23.000.000. )hich is the oo/ (al!e of the shares sold !t )ith a mar/et (al!e of 25.000.000. ADs
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sta/e in its
!siness. 9#"lain if the a o(e transactions are s! 8ect to donorDs ta#. +55,
SUGGESTED ANSWER*
4+ of 73
The first transaction )here a lot )as sold $ A to his rother1in1la) for a "rice elo) its fair mar/et (al!e )ill not e s! 8ect to donorDs ta# if the lot F!alifies as a ca"ital asset. The transfer for less than ade7uate and full consideration which gives rise to a deemed gift does not apply to a sale of property sub1ect to capital gains tax. +7ection 100. =-@4,. Ao)e(er. if the lot sold is an ordinar$ asset. the e#cess of the fair mar/et (al!e o(er the consideration recei(ed shall e considered as a gift s! 8ect to the donorDs ta#.
!)4,. ' (io!sl$. the intention of the donor in ma/ing the inter1(i(os gifts is to a(oid the im"osition of the estate ta# and since the donees are li/e)ise his forced heirs )ho are called !"on to inherit. it )ill create a "res!m"tion 1uris tantum that said donations )ere made mortis causa. hence. the "ro"erties donated shall e incl!ded as "art of ADs gross estate.
The sale of shares of stoc/ elo) the fair mar/et (al!e thereof is s! 8ect to the donorDs ta# "!rs!ant to the "ro(isions of 7ection 100 of the Ta# 4ode. The e#cess of the fair mar/et (al!e o(er the selling "rice is a deemed gift.
ALTERNATI1E ANSWER*
The sale of shares of stoc/ elo) the fair mar/et (al!e )ill not gi(e rise to the im"osition of the donorDs ta#. -n determining the gain from the transfer. the selling "rice of the shares of stoc/s shall e the fair mar/et (al!e of the shares of stoc/s transferred. +7ection 6. @@ =o. 2182,. -n )hich case. the reason for the im"osition of the donorDs ta# on sales for inadeF!ate consideration does not e#ist.
2state Tax: !ompre#ensi(e Agrarian 8eform /a1 (199*)

Kose 'rti0 o)ns 100 hectares of agric!lt!ral land "lanted to cocon!t trees. Ae died on ?a$ 30. 1994. 2rior to his death. the go(ernment. $ o"eration of la). acF!ired !nder the 4om"rehensi(e Agrarian @eform :a) all his agric!lt!ral lands e#ce"t fi(e +5, hectares. G"on the death of 'rti0. his )ido) as/ed $o! ho) she )ill consider the 100 hectares of agric!lt!ral land in the "re"aration of the estate ta# ret!rn. What ad(ice )ill $o! gi(e her&
SUGGESTED ANSWER*
The 100 hectares of land that Kose 'rti0 o)ned !t )hich "rior to his death on ?a$ 30. 1994 )ere acF!ired $ the go(ernment !nder 4A@2 are no longer "art of his ta#a le gross estate. )ith the e#ce"tion of the remaining fi(e +5, hectares )hich !nder 7ec. 78Ha, of the Ta# 4ode still forms "art of %decedentDs interest%. 2state Tax: 'onation 0ortis !ausa (2 1) A. aged 90 $ears and s!ffering from inc!ra le cancer. on A!g!st 1. 2001 )rote a )ill and. on the same da$. made se(eral inter1(i(os gifts to his children. Ten da$s later. he died. -n $o!r o"inion. are the inter1 (i(os gifts considered transfers in contem"lation of death for "!r"oses of determining "ro"erties to e incl!ded in his gross estate& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
<es. When the donor ma/es his )ill )ithin a short time of. or sim!ltaneo!sl$ )ith. the ma/ing of gifts. the gifts are considered as ha(ing een made in contem"lation of death. + R,ce+ v. P,+ada+ 34 P:i-.
claimed $ the estate and )hen and )here shall the ret!rn e filed and estate ta# "aid& +35,
SUGGESTED ANSWER*
2state Tax: 'onation 0ortis !ausa (s) Inter Ci(os (199*) Are donations inter (i(os and donations mortis ca!sa s! 8ect to estate ta#es&
SUGGESTED ANSWER*
3onations inter (i(os are s! 8ect to donorDs gift ta# +7ec. 91 +a,. Ta# 4ode, )hile donations mortis ca!sa are s! 8ect to estate ta# +7ec. 77. Ta# 4ode,. Ao)e(er. donations inter (i(os. act!all$ constit!ting ta#a le lifetime li/e trans1 fers in contem"lation of death or re(oca le transfers +7ec. 78 + , and +c,. Ta# 4ode, ma$ e ta#ed for estate ta# "!r"oses. the theor$ eing that the transferorDs control thereon e#tends !" to the time of his death.
ALTERNATI1E ANSWER*
3onations inter (i(os are not s! 8ect to estate ta#es eca!se the transfer of the "ro"ert$ ta/e effect d!ring the lifetime of the donor. The transfer is therefore s! 8ect to the donorDs ta#. 'n the other hand. donations mortis ca!sa are s! 8ect to estate ta#es since the transfer of the "ro"erties ta/es effect after the death of the decedent. 7!ch donated "ro"erties. real or "ersonal. tangi le or intangi le. shall form "art of the gross estate. 2state Tax: 5ross 2state: A""o1a+"e 'e&uction (2 1)
'n the first anni(ersar$ of the death of <. his heirs hosted a s!m"t!o!s dinner for his doctors. n!rses. and others )ho attended to < d!ring his last illness. The cost of the dinner amo!nted to 2h" 50.000.00. 4om"ared to his gross estate. the 2h" 50.000.00 did not e#ceed fi(e "ercent of the estate. -s the said cost of the dinner to commemorate his one $ear death anni(ersar$ ded!cti le from his gross estate& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
=o. This e#"ense )ill not fall !nder an$ of the allo)a le ded!ctions from gross estate. Whether (ie)ed in the conte#t of either f!neral e#"enses or medical e#"enses. the same )ill not F!alif$ as a ded!ction. I!neral e#"enses ma$ incl!de medical e#"enses of the last illness !t not e#"enses inc!rred after !rial nor e#"enses inc!rred to commemorate the death anni(ersar$. (De G.E5a% V. De G.E5a% 47 SCRA 23'$. ?edical e#"enses. on the other hand. are allo)ed onl$ if inc!rred $ the decedent )ithin one $ear "rior to his death. +7ection 86+A, +6,. =-@4,.
2state Tax: 5ross 2state: 'e&uctions (2
?r. Ieli# de la 4r!0. a achelor resident citi0en. s!ffered from a heart attac/ )hile on a !siness tri" to the G7A. Ae died intestate on K!ne 15. 2000 in =e) <or/ 4it$. lea(ing ehind real "ro"erties sit!ated in =e) <or/E his famil$ home in ;alle ;erde. 2asig 4it$E an office condomini!m in ?a/ati 4it$E shares of stoc/s in 7an ?ig!el 4or"orationE cash in an/E and "ersonal elongings. The decedent is hea(il$ ins!red )ith -ns!lar :ife. Ae had no /no)n de ts at the time of his death. As the sole heir and a""ointed Administrator. ho) )o!ld $o! determine the gross estate of the decedent& What ded!ctions ma$ e
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The gross estate shall e determined $ incl!ding the (al!e at the time of his death a-- ,1 /:e *r,*er/ie+ 5e%/i,%ed. to the e#tent of the interest he had at the time of his death because he is a <ilipino citiIen. O7ec. 85 +A,. =-@4 of 1997P
44 of 73
in )hich the decedent ?r. de la 4r!0 )as domiciled at the time of his death. O7ec. 90 +3,. =-@4 of 1997P 2state Tax: Inc"usion: 8esi&ent A"ien (199*)
4liff @o ertson. an American citi0en. )as a "ermanent resident of the 2hili""ines. Ae died in ?iami. Ilorida. Ae left 10.000 shares of ?eralco. a condomini!m !nit at the
With res"ect to the -i1e i%+.ra%ce *r,ceed+. the amo!nt incl!di le in the gross estate for 2hili""ine ta# "!r"oses )o!ld e to the e#tent of the amo!nt recei(a le $ the estate of the deceased. his e#ec!tor. or administrator. !nder "olicies ta/en o!t $ decedent !"on his o)n life. irres"ecti(e of )hether or not the ins!red retained the "o)er of re(ocation. or to the e#tent of the amo!nt recei(a le $ an$ eneficiar$ designated in the "olic$ of ins!rance. e#ce"t )hen it is e#"ressl$ sti"!lated that the designation of the eneficiar$ is irre(oca le. O7ec. 85 +9, =-@4 of 1997P The DEDUCTIONS that ma$ e claimed $ the estate are* 1, The act!al f!neral e#"enses or in an amo!nt eF!al to fi(e "ercent +55, of the gross estate. )hiche(er is lo)er. !t in no case to e#ceed t)o h!ndred tho!sand "esos +2200.000.00,. O7ec. 86 +A, +1, +a,. =-@4 of 1997P 2,
3,
The 8!dicial e#"enses in the testate intestate "roceedings.+7ec. 86+A,+1,
or
The (al!e of the decedentDs famil$ home located in ;alle ;erde. 2asig 4it$ in an amo!nt not e#ceeding one million "esos +21.000.000.00,. and !"on "resentation of a certification of the aranga$ ca"tain of the localit$ that the same ha(e een the decedentDs famil$ home. O7ec. 86 +A, +4,. - idP
4, The standard ded!ction of 21.000.000. +7ec. 86+A, +5, 5, ?edical e#"enses inc!rred )ithin one $ear from death in an amo!nt not e#ceeding 2500.000.+7ec. 86+A,+6, The ESTATE TAX RETURN shall e filed )ithin si# +6, months from the decedentDs death +7ec. 90 +C,. =-@4 of 1997P. "ro(ided that the 4ommissioner of -nternal @e(en!e shall ha(e a!thorit$ to grant in meritorio!s cases. a reasona le e#tension not e#ceeding thirt$ +30, da$s for filing the ret!rn +7ec. 90 +c,. - idP 9#ce"t in cases )here the 4ommissioner of -nternal @e(en!e other)ise "ermits. the estate ta# ret!rn shall e filed )ith an a!thori0ed agent an/. or @e(en!e 3istrict 'fficer. 4ollection 'fficer. or d!l$ a!thori0ed Treas!rer of 2asig 4it$. the 4it$
T)in To)ers C!ilding at 2asig. ?etro ?anila and a ho!se and lot in :os Angeles. 4alifornia. What assets shall e incl!ded in the 9state Ta# @et!rn to e filed )ith the C-@&
SUGGESTED ANSWER*
2state Tax: Canis#ing 'e&uctions (199*) ;anishing ded!ctions in estate1ta#ation&
All of ?r. @o ertsonDs assets consisting of 10.000 shares in the ?eralco. a condomini!m !nit in 2asig. and his ho!se and lot in :os Angeles. 4alifornia are ta#a le. The "ro"erties of a resident alien decedent li/e ?r. @o ertson are ta#a le )here(er sit!ated +7ees. 77. 78 and 98. Ta# 4ode,. 2state Tax: Payment (s) Pro+ate Procee&ings (2 *)
;44 is the administrator of the estate of his father =64. in the estate "roceedings "ending efore the ?? @egional Trial 4o!rt. :ast $ear. he recei(ed from the 4ommissioner of -nternal @e(en!e a deficienc$ ta# assessment for the estate in the amo!nt of 21.000.000. C!t he ignored the notice. :ast month. the C-@ effected a le($ on the real "ro"erties of the estate to "a$ the delinF!ent ta#. ;44 filed a motion )ith the "ro ate co!rt to sto" the enforcement and collection of the ta# on the gro!nd that the C-@ sho!ld ha(e sec!red first the a""ro(al of the "ro ate co!rt. )hich had 8!risdiction o(er the estate. efore le($ing on its real "ro"erties. -s ;44Ds contention correct& +55,
SUGGGESTED ANSWER*
=o. ;44Ds contention is not correct. The a""ro(al of the "ro ate co!rt is not necessar$. 2a$ment of estate ta#es is a condition "recedent for the distri !tion of the "ro"erties of the decedent and the collection of estate ta#es is e#ec!ti(e in nat!re for )hich the co!rt is de(oid of an$ 8!risdiction. Aence. the a""ro(al of the co!rt. sitting in "ro ate. or as a settlement tri !nal is not a mandator$ reF!irement in the collection of estate ta#es +Marc,+ H v. C,.r/ ,1 A**ea-+ 2#7 SCRA (# 8!""#P,. 2state Tax: Situs of Taxation: 7on:8esi&ent 'ece&ent (2 ) 3isc!ss the r!le on situs of taxation )ith res"ect to the im"osition of the estate ta# on "ro"ert$ left ehind $ a non1resident decedent. +25,
SUGGESTED ANSWER*
The (al!e of the gross estate of a non1resident decedent )ho is a Iili"ino citi0en at the time of his death shall e determined $ incl!ding the (al!e at the time of his death of all "ro"ert$. real or "ersonal. tangi le or intangi le. )here(er sit!ated to the e#tent of the interest therein of the decedent at the time of his death O7ec. 85 +A,. =-@4 of 1997,. These "ro"erties shall ha(e a sit!s of ta#ation in the 2hili""ines hence s! 8ect to 2hili""ine estate ta#es. 'n the other hand. in the case of a non1resident decedent )ho at the time of his death )as not a citi0en of the 2hili""ines. only that part of the entire gross estate which is situated in the 9hilippines to the extent of the interest therein of the decedent at the time of his death shall be included in his taxable estate. 2ro(ided. that. )ith res"ect to intangi le "ersonal "ro"ert$. )e a""l$ the r!le of reci"rocit$. +- id,
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SUGGESTED ANSWER*
4. of 73
SUGGESTED ANSWER*
;anishing ded!ctions or "ro"ert$ "re(io!sl$ ta#ed in estate ta#ation refers to the diminishing ded!ci ilit$M e#em"tion. at the rate of 205 o(er a "eriod of fi(e +5, $ears !ntil it is lost after the fifth $ear. of an$ "ro"ert$ +sit!ated in the 2hili""ines, forming "art of the gross estate. acF!ired $ the decedent from a "rior decedent )ho died )ithin a "eriod of fi(e +5, $ears from the decedentDs death. 2state Tax$ Payment (s) Pro+ate Procee&ings (2 9) -s the a""ro(al of the co!rt. sitting as "ro ate or estate settlement co!rt. reF!ired in the enforcement and collection of estate ta#& 9#"lain.
SUGGESTED ANSWER*
@eal estate transactions )hich are e#em"t from the (al!e1 added ta# are* +a, 7ale of real "ro"ert$ not "rimaril$ held for sale or lease in the ordinar$ co!rse of trade or !sinessE
=o. the a""ro(al of the co!rt. sitting in "ro ate. or as a settlement tri !nal o(er the deceased is not a mandator$ reF!irement in the collection of estate ta#es. There is nothing in the Ta# 4ode. and in the "ertinent remedial la)s that im"lies the necessit$ of the "ro ate or estate settlement co!rtDs a""ro(al of the stateDs claim for estate ta#es. efore the same can e enforced and collected.
(Marc,+ v. C,.r/ ,1 A**ea-+ G.R. N,. !2)44) <.%e 3 !""#$
BUSINESS TAXES
CAT: Basis of CAT (1996) =:a/ i+ /:e 6a+i+ ,1 /:e Va-.e;Added Ta> ,% /a>a6-e +a-e+ ,1 rea- *r,*er/0G
SUGGESTED ANSWER*
The asis of the ;al!e1Added Ta# on ta#a le sale of real "ro"ert$ is %6@'77 79::-=6 2@-49% )hich is either selling "rice stated in the sale doc!ment or the %Jonal ;al!e%. )hiche(er is higher. -n the a sence of 0onal (al!es. the gross selling "rice shall refer to the mar/et (al!e as sho)n in the latest ta# declaration or the consideration. )hiche(er is higher. CAT: !#aracteristics of CAT (1996) =:a/ are /:e c:arac/eri+/ic+ ,1 /:e Va-.e;Added Ta>G
SUGGESTED ANSWER*
The (al!e1added ta# is an indirect ta# and the amo!nt of ta# ma$ e shifted or "assed on to the !$er. transferee or lessee of the goods. "ro"erties or ser(ices.
ALTERNATI1E ANSWER*
The (al!e1added ta# has the follo)ing characteristics* 1, -t is an indirect ta# )here ta# shifting is al)a$s "res!med* 2, -t is cons!m"tion1 asedE 3, -t is im"osed on the (al!e1added in each stage of distri !tionE 4, -t is a credit1in(oice method (al!e1added ta#E and 5, -t is not a cascading ta#. CAT: 2xempte& Transactions (1996) 6i(e at least three +3, real estate transactions )hich are not s! 8ect to the ;al!e1Added Ta#.
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+ , 7ale of real "ro"ert$ !tili0ed for sociali0ed ho!sing !nder @A. =o. 7279E +c, 7ale of real "ro"ert$ !tili0ed !nder the lo)1 cost ho!sing !nder C2 Cig. 220. $ote% The other real estate transactions )hich are e#em"t from the (al!e1added ta# )hich ma$ e cited $ the ar candidates are as follo)s* +a, Transfer of real "ro"ert$ to a tr!stee if the "ro"ert$ is to e held merel$ in tr!st for the tr!stor. + , Transfer of real "ro"ert$ to a cor"oration in e#change for its shares of stoc/ !nder 7ection 34+c,+2, and +6,+2, of the Ta# 4ode. +c, Ad(ance "a$ment $ the lessee in a lease contract. )hen the same is act!all$ a loan to the lessor from the lessee. +d, 7ec!rit$ de"osits for lease arrangements to ins!re the faithf!l "erformance of certain o ligations of the lessee to the lessor. +e, :ease of residential !nits. oarding ho!ses. dormito1 ries. rooms and ed s"aces offered for rent $ their o)ners at a monthl$ rental not e#ceeding 23.950.00 "er !nit. CAT: /ia+"e for Payment (1996) =:, are -ia6-e 1,r /:e *a05e%/ ,1 Va-.e;Added Ta>G
SUGGESTED ANSWER*
a 7tate )hether the follo)ing transactions are , ;AT 9#em"t. , s! 8ect to ;AT at 105E or c, s! 8ect to ;AT at 05* 1, 7ale of fresh (egeta les $ Aling -ning at the 2amilihang Ca$an ng Trece ?artire0. O15P 2, 7er(ices rendered $ Ka/eDs 4onstr!ction 4om"an$. a contractor to the World Aealth 'rgani0ation in the reno(ation of its offices in ?anila. O15P 3, 7ale of tractors and other agric!lt!ral im"lements $ C!ng/al -ncor"orated to local farmers. O15P
4, 7ale of @TW $ 4el$Ds Co!tiF!e. a Iili"ino dress designer. in her dress sho" and other o!tlets. O15P Iees for lodging "aid $ st!dents to Caha$1Caha$an 3ormitor$. a "ri(ate entit$ o"erating a st!dent
46 of 73
5,
dormitor$ +monthl$ fee 2-.500,. O15P

SUGGESTED ANSWER*
1,
;AT e#em"t. 7ale of agric!lt!ral "rod!cts. s!ch as fresh (egeta les. in their original state. of a /ind generall$ !sed as. or "rod!cing foods for h!man cons!m"tion is e#em"t from ;AT. +7ection 109+c,. =-@4,.
;AT at 05. 7ince Ka/eDs 4onstr!ction 4om"an$ has rendered ser(ices to the World Aealth 'rgani0ation. )hich is an entit$ e#em"ted from ta#ation !nder international agreements to )hich the 2hili""ines is a signator$. the s!""l$ of ser(ices is s! 8ect to 0ero "ercent +05, rate. +7ec. 108OC1+3,. =-@4,.
2,
The "ersons lia le for the (al!e1added ta# are* a. 7ellers of goods and "ro"erties in the co!rse of trade or !sinessE . 7ellers of ser(ices in the co!rse of trade or !siness. incl!ding lessors of goods and "ro"ertiesE c. -m"orters of ta#a le goods. )hether in the co!rse of !siness or not CAT: Transactions >'eeme& Sa"esG (199,)
Gnder the ;al!e Added ta# +;AT,. the ta# is im"osed on sales. arter. or e#change of goods and ser(ices. The ;AT is also im"osed on certain transactions %deemed1sales%. What are these so1called transactions %deemed salesD&
SUGGESTED ANSWER*
3,
;AT at 105. Tractors and other agric!lt!ral im"lements fall !nder the definition of goods )hich incl!de all tangi le o 8ects )hich are ca"a le of "ec!niar$ estimation +7ec. 106OA1+1,. =-@4. the sales of )hich are s! 8ect to ;AT at 105. This is s! 8ect to ;AT at 105. This transaction also falls !nder the definition of goods )hich incl!de all tangi le o 8ects )hich are ca"a le of "ec!niar$ estimation +7ec. 106OA1+1,. =-@4. the sales of )hich are s! 8ect to ;AT at 105. ;AT 9#em"t. The monthl$ fee "aid $ each st!dent falls !nder the lease of residential !nits )ith a monthl$ rental "er !nit not e#ceeding 2h" 8.000. )hich -s e#em"t from ;AT regardless of the amo!nt of aggregate rentals recei(ed $ the lessor d!ring the $ear. +7ec. 109+#,. =-@4,. The term !nit shall mean "er "erson in the case of dormitories. oarding ho!ses and ed s"aces +7ec. 4.10311. @@=o. 7195,.
The follo)ing transactions shall e deemed sale* a, Transfer. !se. or cons!m"tion not in the co!rse of !siness of goods originall$ intended for sale or for !se in the co!rse of !sinessE , 3istri !tion or transfer to* +1, 7hareholders or in(estors as share in the "rofits of ;AT1registered "ersonsE or +2, 4reditors in "a$ment of de tE 4onsignment of goods if act!al sale is not made )ithin 60 da$s follo)ing the date s!ch goods )ere consignedE and @etirement from or cessation of !siness. )ith res"ect to in(entories of ta#a le goods e#isting as of s!ch retirement or cessation.
4,
5,
c,
d,
CAT$ !o(ere& Transactions (199=)
CO33E$T% The "ro lems do not call for a $es or no ans)er. Accordingl$. a ar candidate )ho ans)ered onl$ ;AT e#em"t. ;AT at 105 or ;AT at 05. as called for in the
"ro lem )itho!t f!rther reasons. sho!ld e gi(en f!ll credit.
CAT$ 2xemption: !onstitutiona"ity (2 *)

A la) )as "assed e#em"ting doctors and la)$ers from the o"eration of the (al!e added ta#. 'ther "rofessionals com"lained and filed a s!it F!estioning the la) for eing discriminator$ and (iolati(e of the eF!al "rotection cla!se of the 4onstit!tion since com"lainants )ere not gi(en the
same e#em"tion. -s the s!it meritorio!s or not& @eason riefl$. +55,

SUGGESTED ANSWER*
=o. - )ill not allo) the ref!nd. 'nl$ ;AT1@egistered ta#"a$ers are entitled to a ref!nd of their
C. <es. the s!it is meritorio!s. The ;AT is designed for economic efficienc$E hence. sho!ld e ne!tral to those )ho elong to the same class. 2rofessionals are a class of ta#"a$ers $ themsel(es )ho. in com"liance )ith the r!le of eF!alit$ of ta#ation. m!st e treated ali/e for ta# "!r"oses. 9#em"ting la)$ers and doctors from a !rden to )hich other "rofessionals are s! 8ected )ill ma/e the la) discriminator$ and (iolati(e of the eF!al "rotection cla!se of the 4onstit!tion. While singling o!t a class for ta#ation "!r"oses )ill not infringe !"on this constit!tional limitation +S:e-- v. Va%, "( P:i-. 74" 8!"3(9,. singling o!t a ta#"a$er from a class )ill no do! t transgress the constit!tional limitation +Or5,c S.gar C,. I%c. v. Trea+.rer ,1 Or5,c Ci/0 22 SCRA ')7 8!"'4 P,. Treating doctors and la)$ers as a different class of "rofessionals )ill not com"l$ )ith the reF!irements of a reasona le. hence (alid classification. eca!se the classification is not ased !"on s! stantial distinction )hich ma/es real differences. The classification does not com"l$ )ith the reF!irement that it sho!ld e germane to the "!r"ose of the la) either. +Pe*+i;C,-a B,//-i%g C,. I%c. v. Ci/0 ,1 B./.a% 2( SCRA #4" 8!"'49,.
ANOT/ER ANSWER*
=o. The s!it is not meritorio!s. The eF!al "rotection cla!se of the 4onstit!tion merel$ reF!ires that all "ersons s! 8ected to legislation shall e treated ali/e. !nder li/e circ!mstances and conditions. oth in the "ri(ileges conferred and in the lia ilities im"osed. The eF!alit$ in ta#ation r!le is not (iolated if classifications or distinctions are made as long as the same are ased on reasona le and s! stantial differences. H Pe*+i;C,-a B,//-i%g C,. I%c. v. Ci/0 ,1 B./.a% 2( SCRA #4" 8!"'4P,. -n the instant case. the "rofessions of doctors and la)$ers are not "rinci"all$ aimed at earning mone$ !t for the ser(ice of the "eo"le. The e#em"tion granted to doctors and la)$ers from the o"eration of the ;AT is 8!stified. as it is not discriminator$ against the other "rofessionals eca!se the$ ha(e reasona le and s! stantial differences in the cond!ct of their "rofessions.
CAT$ 7on:CAT taxpayer$ !"aim for 8efun& (2 6) :il$Ds Iashion. -nc. is a garment man!fact!rer located and registered as a 7! ic Ca$ Iree"ort 9nter"rise !nder @e"! lic Act =o. 7227 and a non1 ;AT ta#"a$er. As s!ch. it is e#em"t from "a$ment of all local and national internal re(en!e ta#es. 3!ring its o"erations. it "!rchased (ario!s s!""lies and materials necessar$ in the cond!ct of its man!fact!ring !siness. The s!""liers of these goods shifted to :il$Ds Iashion. -nc. the 105 ;AT on the "!rchased items amo!nting to 2 500.000.00. :il$Ds Iashion. -nc. filed )ith the C-@ a claim for ref!nd for the in"!t ta# shifted to it $ the s!""liers. -f $o! )ere the 4ommissioner of -nternal @e(en!e. )ill $o! allo) the ref!nd& +55,
ALTERNATI1E ANSWER*
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!na""liedM!n!sed -n"!t ;AT +Ta# @eform Act. 7ection 112OAP O1997P,.

ALTERNATI1E ANSWER*
42 of 73
+L,re%E, O%a e/ a- v. CIR (3 SCRA #(,.

ALTERNATI1E ANSWER*
=o. The e#em"tion of :il$Ds Iashion. -nc. is onl$ for ta#es for )hich it is directl$ lia le. Aence. it can not claim e#em"tion for a ta# shifted to it. )hich is not at all considered a ta# to the !$er !t a "art of the "!rchase "rice. :il$Ds fashion is not the ta#"a$er in so far as the "assed1on ta# is concerned and therefore. it can not claim for a ref!nd of a ta# merel$ shifted to it +2hil. Acet$lene 4o.. -nc. (. 4-@. :119707.A!g. 17. 1987,.
(NCTA 34N4: This concept pertains to the 2AT law which is excluded from the 3ar coverage #uidelines for &((. 3ar 4xaminations )une %- &((.)
=o. the assessments are not 8!stified. The mere sharing of income does not of itself esta lish a "artnershi" a sent an$ clear intention of the co1o)ners )ho are onl$ a)aiting liF!idation of the estate. BI8: !o""ection of Tax 'eficiency (1999)
REMEDIES IN INTERNAL RE1ENUE TAXES

BI8: Assessment: <nregistere& Partners#ip (199,)
?r. 7antos died intestate in 1989 lea(ing his s"o!se and fi(e children as the onl$ heirs. The estate consisted of a famil$ home and a fo!r1door a"artment )hich )as eing rented to tenants. Within the $ear. an e#tra8!dicial settle1 ment of the estate )as e#ec!ted from the heirs. each of them recei(ing hisMher d!e share. The s!r(i(ing s"o!se ass!med administration of the "ro"ert$. 9ach $ear. the net income from the rental "ro"ert$ )as distri !ted to all. "ro"ortionatel$. on )hich the$ "aid res"ecti(el$. the corres"onding income ta#. -n 1994. the income ta# ret!rns of the heirs )ere e#amined and deficienc$ income ta# assessments )ere is1 s!ed against each of them for the $ears 1989 to 1993. incl!si(e. as ha(ing entered into an !nregistered "artnershi". Were the assessments 8!stified&
SUGGESTED ANSWER*
<es. the assessments )ere 8!stified eca!se for income ta# "!r"oses. the co1o)nershi" of inherited "ro"ert$ is a!tomaticall$ con(erted into an !nregistered "artnershi" from the moment the said "ro"erties are !sed as a common f!nd )ith intent to "rod!ce "rofits for the heirs in "ro"ortion to their shares in the inheritance. Irom the moment of s!ch "artition. the heirs are entitled alread$ to their res"ecti(e definite shares of the estate and the income thereof. for each of them to manage and dis"ose of as e#cl!si(el$ his o)n )itho!t the inter(ention of the other heirs. and. accordingl$. he ecomes lia le indi(id!all$ for all ta#es in connection there)ith. -f after s!ch "artition. he allo)s his shares to e held in common )ith his co1heir !nder a single management to e !sed )ith the intent of ma/ing "rofit there $ in "ro"ortion to his share. there can e no do! t that. e(en if no doc!ment or instr!ment )ere e#ec!ted for the "!r"ose. for ta# "!r"oses. at least. an !nregistered "artnershi" is formed
A died. s!r(i(ed $ his )ife and three children. The estate ta# )as "ro"erl$ "aid and the estate settled and di(ided and distri !ted among the fo!r heirs. :ater. the C-@ fo!nd o!t that the estate failed to re"ort the income recei(ed $ the estate d!ring administration. The C-@ iss!ed a deficienc$ income ta# assessment "l!s interest. s!rcharges and "enalties. 7ince the 3 children are residing a road. the C-@ so!ght to collect the f!ll ta# deficienc$ onl$ against the )ido). -s the C-@ correct& +105,
SUGGESTED ANSWER*
The com"romise of the ta# lia ilit$ is "ossi le at an$ stage of litigation and the amo!nt of com"romise is left to the discretion of the 4ommissioner e#ce"t )ith res"ect to
<es. the C-@ is correct. -n a case )here the estate has een distri !ted to the heirs. the collection remedies a(aila le to the C-@ in collecting ta# lia ilities of an estate ma$ either +1, s!e all the heirs and collect from each of them the amo!nt of ta# "ro"ortionate to the inheritance recei(ed or +2, $ (irt!e of the lien created !nder 7ection 219. s!e onl$ one heir and s! 8ect the "ro"ert$ he recei(ed from the estate to the "a$ment of the estate ta#. The C-@. therefore. is correct in "!rs!ing the second remed$ altho!gh this )ill gi(e rise to the right of the heir )ho "a$s to see/ reim !rsement from the other heirs.
(CIR v. Pi%eda 2! SCRA !)3$. -n no case. ho)e(er. can
the C-@ enforce the ta# lia ilit$ in e#cess of the share of the )ido) in the inheritance. BI8: !ompromise$ !on&itions (2 ) Gnder )hat conditions ma$ the 4ommissioner of -nternal @e(en!e e a!thori0ed to* A" 4om"romise the "a$ment of an$ internal re(en!e ta#& +25,
SUGGESTED ANSWER*
The 4ommissioner of -nternal @e(en!e ma$ e a!thori0ed to com"romise the "a$ment of an$ internal re(en!e ta# )here* 1, A reasona le do! t as to the (alidit$ of the claim against the ta#"a$er e#istsE or 2, the financial "osition of the ta#"a$er demonstrates a clear ina ilit$ to "a$ the assessed ta#. C. A ate or cancel a ta# lia ilit$& +35,
SUGGESTED ANSWER*
The 4ommissioner of -nternal @e(en!e ma$ a ate or cancel a ta# lia ilit$ )hen* 1, The ta# or an$ "ortion thereof a""ears to e !n8!stl$ or e#cessi(el$ assessedE or 2, The administration and collection costs in(ol(ed do not 8!stif$ the collection of the amo!nt d!e. O7ec. 204 +C,. =-@4 of 1997P BI8: !ompromise$ 2xtent of Aut#ority (1996) 9#"lain the e#tent of the a!thorit$ of the 4ommissioner of -nternal @e(en!e to com"romise and a ate ta#es&
SUGGESTED ANSWER*
The a!thorit$ of the 4ommissioner to com"romise encom"asses oth ci(il and criminal lia ilities of the ta#1 "a$er. The ci(il com"romise is allo)ed onl$ in cases
12, )here the ta# assessment is of do! tf!l (alidit$. or

13, )hen the financial "osition of the ta#"a$er demonstrates a clear ina ilit$ to "a$ the ta#.
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ta#"a$er final assessments iss!ed against large s
44 of 73
)herein the 4ommissioner cannot com"romise for less than fift$ "ercent +505,. An$ com"romise in(ol(ing large ta#"a$ers lo)er than fift$ "ercent +505, shall e s! 8ect to the a""ro(al of the 7ecretar$ of Iinance. All criminal (iolations e#ce"t those in(ol(ing fra!d. can e com"romised $ the 4ommissioner !t onl$ "rior to the filing of the information )ith the 4o!rt. The 4ommissioner ma$ also a ate or cancel a ta# lia ilit$ )hen 1. the ta# or an$ "ortion thereof a""ears to ha(e een !n8!stl$ or e#cessi(el$ assessedE or 2. the administrati(e and collection costs in(ol(ed do not K!stif$ collection of the amo!nt d!e. +7ec. 204. =-@4, BI8: !ompromise$ -it##o"&ing Agent (199=) ?a$ the 4ommissioner of the -nternal @e(en!e com"ro1 mise the "a$ment of )ithholding ta# (tax deducted and withheld at source) )here the financial "osition of the ta#"a$er demonstrates a clear ina ilit$ to "a$ the assessed ta#& O551
SUGGESTED ANSWER*
action for collection d!ring the "endenc$ of an administrati(e "rotest constit!tes the final decision of the 4ommissioner on the "rotest + CIR v. U%i,% S:i**i%g C,r*. 43 SCRA 3(4 8!"")9,.
=o. A ta#"a$er )ho is constit!ted as )ithholding agent )ho has ded!cted and )ithheld at so!rce the ta# on the income "a$ment made $ him holds the ta#es as tr!st f!nds for the go(ernment +7ec. 58O3P, and is o ligated to remit them to the C-@. The s! seF!ent ina ilit$ of the )ithholding agent to "a$Mremit the ta# )ithheld is not a gro!nd for com"romise eca!se the )ithholding ta# is not a ta# !"on the )ithholding agent !t it is onl$ a "roced!re for the collection of a ta#.
BI8: !orporation: 'istraint ; /e(y (2 2) 'n ?arch 15. 2000. the C-@ iss!ed a deficienc$ income ta# assessment for the ta#a le $ear 1997 against the ;alera 6ro!" of 4om"anies +;alera, in the amo!nt of 210 million. 4o!nsel for ;alera "rotested the assessment and reF!ested a rein(estigation of the case. 3!ring the in(estigation. it )as sho)n that ;alera had een transferring its "ro"erties to other "ersons. As no additional e(idence to dis"!te the assessment had een "resented. the C-@ iss!ed on K!ne 16. 2000 )arrants of distraint and le($ on the "ro"erties and ordered the filing of an action in the @egional Trial 4o!rt for the collection of the ta#. 4o!nsel for ;alera filed an in8!ncti(e s!it in the @egional Trial 4o!rt to com"el the C-@ to hold the collection of the ta# in a e$ance !ntil the decision on the "rotest )as rendered. A. 4an the C-@ file the ci(il action for collection. "ending decision on the administrati(e "rotest& 9#"lain. +35,
SUGGESTED ANSWER*
A. <es. eca!se there is no "rohi ition for this "roced!re considering that the filing of a ci(il
C.
As co!nsel for ;alera. )hat action )o!ld $o! ta/e in order to "rotect the interest of $o!r client& 9#"lain $o!r ans)er. +25,
SUGGESTED ANSWER*
contrar$. if the ta#es alleged to ha(e een e(aded is com"!ted ased on re"orts a""ro(ed $ the C-@ there is a "res!m"tion of reg!larit$ of the "re(io!s "a$ment of ta#es. so that !nless and !ntil the C-@ has made a final determination of )hat is s!""osed to e the correct ta#es. the ta#"a$er sho!ld not e "laced in the cr!ci le of
C. - )ill )ait for the filing of the ci(il action for collection and consider the same as an a""eala le decision. - )ill not file an in8!ncti(e s!it eca!se it is not an a(aila le remed$. - )o!ld then a""eal the case to the 4o!rt of Ta# A""eals and mo(e for the dismissal of the collection case )ith the @T4. 'nce the a""eal to the 4TA is filed on time. the 4TA has e#cl!si(e 8!risdiction o(er the case. Aence. the collection case in the @T4 sho!ld e dismissed +Ta6e+ v. F-,K, !!3 SCRA 2#4 8!"429,.
BI8: !ourt of Tax Appea"s: !o""ection of Taxes$ 5roun&s for !ompromise (1996)
1. ?a$ the 4o!rt of Ta# A""eals iss!e an in8!nction to en8oin the collection of ta#es $ the C!rea! of
-nternal @e(en!e& 9#"lain.

SUGGESTED ANSWER*
<es. When a decision of the 4ommissioner on a ta# "rotest is a""ealed to the 4TA "!rs!ant to ,ec. %% of $A. No. %%&- (law creating the !TA) in relation to ,ec. &&* of the N6$! . s!ch a""eal does not s!s"end the "a$ment. le($. distraint andMor sale of an$ of the ta#"a$erDs "ro"ert$ for the satisfaction of his ta# lia ilit$. Ao)e(er. )hen in the o"inion of the 4TA the collection of the ta# ma$ 8eo"ardi0e the interest of the 6o(ernment andMor the ta#"a$er. the 4o!rt at an$ stage of the "roceedings ma$ s!s"end or restrain the collection of the ta# and reF!ire the ta#"a$er either to de"osit the amo!nt claimed or to file a s!ret$ ond for not more than do! le the amo!nt )ith the 4o!rt. 2. ?a$ the ta# lia ilit$ of a ta#"a$er e com"romised d!ring the "endenc$ of an a""eal& 9#"lain.
SUGGESTED ANSWER*
<es. 3!ring the "endenc$ of the a""eal. the ta#"a$er ma$ still enter into a com"romise settlement of his ta# lia ilit$ for as long as an$ of the gro!nds for a com"romise i.e.E doubtful validity of assessment and financial incapacity of taxpayer. is "resent. A com"romise of a ta# lia ilit$ is "ossi le at an$ stage of litigation. e(en d!ring a""eal. altho!gh legal "ro"riet$ demands that "rior lea(e of co!rt sho!ld e o tained + Pa+.dec, v+. CIR L;7"74# <.%e 2" !"42,.
BI8: !rimina" Prosecution: Tax 2(asion (199=) -s assessment necessar$ efore a ta#"a$er ma$ e "rosec!ted for )illf!ll$ attem"ting in an$ manner to e(ade or defeat an$ ta# im"osed $ the -nternal @e(en!e 4ode& O55,
SUGGESTED ANSWER*
=o. Assessment is not necessar$ efore a ta#"a$er ma$ e "rosec!ted if there is a "rima facie sho)ing of a )illf!l attem"t to e(ade ta#es as in the ta#"a$erDs fail!re to declare a s"ecific item of ta#a le income in his income ta# ret!rns +U%ga6 v. C.+i "# SCRA 4##,. 'n the
49 criminal "rosec!tion + CIR v. F,r/.%e T,6acc, 73 C,r*. GR N,. !!"722 <.%e ( !""',.
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of
BI8: 2xtinction$ !rimina" /ia+i"ity of t#e Taxpayer (2 2)

?r. 4han. a man!fact!rer of garments. )as in(estigated for fail!re to file ta# ret!rns and to "a$ ta#es for the ta#a le $ear 1997. 3es"ite the subpoena duces tecum iss!ed to him. he ref!sed to "resent and s! mit his oo/s of acco!nts and allied records. -n(estigators. therefore. raided his factor$ and sei0ed se(eral !ndles of man!fact!red garments. s!""lies and !n"aid im"orted te#tile materials. After his a""rehension and ased on the testimon$ of a former em"lo$ee. deficienc$ income and !siness ta#es )ere assessed against ?r. 4han on A"ril 15. 2000. -t )as then that he "aid the ta#es. 4riminal action )as nonetheless instit!ted against him in the @egional Trial 4o!rt for (iolation of the Ta# 4ode. ?r. 4han mo(ed to dismiss the criminal case on the gro!nd that he had alread$ "aid the ta#es assessed against him. Ae also demanded the ret!rn of the garments and materials sei0ed from his factor$. Ao) )ill $o! resol(e ?r. 4hanDs motion& +55,
SUGGESTED ANSWER*
'eficiency Income Tax (2 6) The 4ommissioner of -nternal @e(en!e iss!ed an assess1 ment for deficienc$ income ta# for ta#a le $ear 2000 last K!l$ 31. 2006 in the amo!nt of 2 10 ?illion incl!si(e of
The motion to dismiss sho!ld e denied. The satisfaction of the ci(il lia ilit$ is not one of the gro!nds for the e#tinction of criminal action +Pe,*-e v. I-de1,%+, Tierra !2 SCRA ''' 8!"'(9,. :i/e)ise. the "a$ment of the ta# d!e after a""rehension shall not constit!te a (alid defense in an$ "rosec!tion for (iolation of an$ "ro(ision of the Ta# 4ode +7ec. 253OaP. =-@4,. Ao)e(er. the garments and materials sei0ed from the factor$ sho!ld e ordered ret!rned eca!se the "a$ment of the ta# had released them from an$ lien that the 6o(ernment has o(er them. !ustoms$ Huris&iction$ Assessment$ <npai& !ustoms 'utiesETaxes (2 6)
The 4ollector of 4!stoms iss!ed an assessment for !n1 "aid c!stoms d!ties and ta#es on the im"ortation of $o!r client in the amo!nt of 2980.000.00. Where )ill $o! file $o!r case to "rotect $o!r clientDs right& 4hoose the correct co!rtsM agencies. o ser(ing their "ro"er hierarch$. +55,
1. 2. 3. 4. 5. 6. 7.
4o!rt of Ta# A""eals 4ollector of 4!stoms 4ommissioner of 4!stoms @egional Trial 4o!rt ?etro"olitan Trial 4o!rt 4o!rt of A""eals 7!"reme 4o!rt
SUGGESTED ANSWER*
1. 2rotest )ith the 4ollector of 4!stoms (,ec. &5(/ T!!) 2. A""eal to the 4ommissioner of 4!stoms (,ec. &5%5 T!!). 3. A""eal to the 4TA ($A *&/&) 4. 2etition for @e(ie) on 4ertiorari 7!"reme 4o!rt ($ule "- of the %**' $ules of !ivil 9rocedure ($A *&/&). Taxpayer$ Prescripti(e Perio&$ Assessment$
at that "oint (BPI v. CIR G.R. N,. !7"#7'

Oc/,6er !# 2))3$.
s!rcharge and interests. -f the delinF!ent ta#"a$er is $o!r client. )hat ste"s )ill $o! ta/e& What is $o!r defense& +105,
ALTERNATI1E ANSWER*
Taxpayer$ CAT:registere&$ !"aim for Tax 8efun& (2 6)
As 4o!nsel. - shall mo(e to cancel the Assessment eca!se of "rescri"tion. The three +3, $ear "eriod of assessment for the -ncome Ta# @et!rns of 2000 starts on A"ril 15. 2001 and ends on A"ril 16. 2004. The assessment of K!l$ 31. 2006 is e$ond the three +3, $ear "rescri"ti(e "eriod and can no longer ha(e an$ legal. inding effect (Tax $eform Act Title 2666 !hapter 6 ,ection &(5 A%**'@).
ALTERNATI1E ANSWER*
7ince m$ client has lost his right to "rotest. - )ill ad(ise him to )ait for a collection action $ the 4ommissioner. Then. - )ill file a "etition for re(ie) )ith the 4TA to F!estion the collection. 7ince the assessment )as iss!ed e$ond the "rescri"ti(e "eriod to assess. the action to collect an in(alid assessment is not )arranted
(P:i-. <,.r; %a-i+/+ I%c. v. CIR G.R. N,. !'2432 Dece56er !' 2))($.
Taxpayer$ Assessment$ 'eficiency Tax (2 6) 'n K!ne 1. 2003. 6lo al Can/ recei(ed a final notice of assessment from the C-@ for deficienc$ doc!mentar$ stam" ta# in the amo!nt of 25 ?illion. 'n K!ne 30. 2003. 6lo al Can/ filed a reF!est for reconsideration )ith the 4ommissioner of -nternal @e(en!e. The 4ommissioner denied the reF!est for reconsideration onl$ on ?a$ 30. 2006. at the same time ser(ing on 6lo al Can/ a )arrant of distraint to collect the deficienc$ ta#. -f $o! )ere its co!nsel. )hat )ill e $o!r ad(ice to the an/& 9#"lain. +55,
ALTERNATI1E ANSWER*
The denial for the reF!est for reconsideration is the final decision of the 4-@.. - )o!ld ad(ise 6lo al Can/ to a""eal the denial to the 4o!rt of Ta# A""eals +4TA, )ithin 30 da$s from recei"t. - )ill f!rther ad(ise the an/ to file a motion for in8!nction )ith the 4o!rt of Ta# A""eals to en8oin the 4ommissioner from enforcing the assessment "ending resol!tion of the a""eal. While an a""eal to the 4TA )ill not s!s"end the "a$ment. le($. distraint. andMor sale of an$ "ro"ert$ of the ta#"a$er for the satisfaction of its ta# lia ilit$. the 4TA is a!thori0ed to gi(e in8!ncti(e relief if the enforcement )o!ld 8eo"ardi0e the interest of the ta#"a$er. as in this case. )here the assessment has not ecome final
(La+c,%a La%d C,. v
CIR CTA Ca+e N,. 3### <a%.ar0 ( 2)))? See a-+, Revi+ed CTA R.-e+ a**r,ved 60 /:e S.*re5e C,.r/ ,% Dece56er !3 2))3$.
ALTERNATI1E ANSWER*
- )ill ad(ice the Can/ to "rom"tl$ "a$ the deficienc$ doc!mentar$ stam" ta# and the interest charges to a(oid an$ f!rther increase in the ta# lia ilit$. The Can/ sho!ld ha(e a""ealed to the 4o!rt of Ta# A""eals )hen the C-@ failed to decide on its @eF!est for @econsideration )ithin thirt$ +30, da$s after the inaction of the C-@ for one h!ndred eight$ +180, da$s or on 3ecem er 31. 2003. The Ta# Assessment has alread$ ecome final. e#ec!tor$ and !na""eala le
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@o$al ?ining is a ;AT1registered domestic
.0 of 73
mining entit$. 'ne of its "rod!cts is sil(er eing sold to the Cang/o 7entral ng 2ili"inas. -t filed a claim )ith the C-@ for ta# ref!nd on the gro!nd that !nder 7ection 106 of the Ta# 4ode. sales of "recio!s metals to the Cang/o 7entral ng 2ili"inas are considered e#"ort sales s! 8ect to 0ero1rated ;AT. -s @o$al ?iningDs claim meritorio!s& 9#"lain. +55,
SUGGESTED ANSWER*
2#4,. =o)here in the Ta# 4ode is the 4ommissioner reF!ired to r!le first on the "rotest efore he can instit!te collection "roceedings on the ta# assessed. The legislati(e "olic$ is to gi(e the 4ommissioner m!ch latit!de in the s"eed$ and "rom"t collection of ta#es eca!se it is in ta#ation that the 6o(ernment de"ends to o tain the
=o. @o$al ?iningDs claim is not meritorio!s eca!se it is the sale to the Cang/o 7entral ng 2ili"inas of gold and not sil(er )hich is considered e#"ort sales at Jero1rated ;AT (Tax $eform Act Title 62 ,ection %(.A&@Aa@A"@).
(NOTA BENE: 42AT is excluded from the 3ar coverage #uidelines for &((. 3ar 4xaminations )une %- &((.)
BI8: Frau&u"ent 8eturn$ Prima Facie 2(i&ence (199=) What constit!tes "rima facie e(idence of a false or fra!d!lent ret!rn& O25P
SUGGESTED ANSWER*
There is "rima facie e(idence of a false or fra!d!lent ret!rn )hen the ta#"a$er has )illf!ll$ and /no)ingl$ filed it )ith the intent to e(ade a "art or all of the ta# legall$ d!e from him +U%ga6 v. C.+i "# SCRA 4##,. There m!st a""ear a design to mislead or decei(e on the "art of the ta#"a$er. or at least c!l"a le negligence. A mista/e not c!l"a le in res"ect of its (al!e )o!ld not constit!te a false ret!rn. (+ords and 9hrases 2ol. %. page %'5).
BI8: Frau&u"ent 8eturn$ Prima Facie 2(i&ence (2 2) What constit!tes prima facie e(idence of a false or fra!d!lent ret!rn to 8!stif$ the im"osition of a 505 s!rcharge on the deficienc$ ta# d!e from a ta#"a$er& 9#"lain. +55,
SUGGESTED ANSWER*
There is a "rima facie e(idence of false or fra!d!lent ret!rn )hen the ta#"a$er ,E3,TANT6A??G ENB4$- B4!?A$4B his ta#a le sales. recei"ts or income. or ,E3,TANT6A??G C24$,TAT4B his ded!ctions. the ta#"a$erDs fail!re to re"ort sales. recei"ts or income in an amo!nt e#ceeding 305 of that declared "er ret!rn. and a claim of ded!ction in an amo!nt e#ceeding 305 of act!al ded!ction shall render the ta#"a$er lia le for s! stantial !nderdeclaration and o(erdeclaration. res"ecti(el$. and )ill 8!stif$ the im"osition of the 505 s!rcharge on the deficienc$ ta# d!e from the ta#"a$er. (,ec. &"/ N6$!).
BI8: 5arnis#ment: BanB Account of a Taxpayer (199=)

-s the C-@ a!thori0ed to iss!e a )arrant of garnishment against the an/ acco!nt of a ta#"a$er des"ite the "endenc$ of his "rotest against the assessment )ith the C-@ or a""eal )ith the 4o!rt of Ta# A""eals& O55P
SUGGESTED ANSWER*
The C-@ is a!thori0ed to iss!e a )arrant of garnishment against the an/ acco!nt of a ta#"a$er des"ite the "endenc$ of "rotest + Ba6e+ v. F-,K, !3 SCRA
means to carr$ on its o"erations +Re*.6-ic .. Ti5 Tia% Te%g S,%+ I%c. !' SCRA 34(,.
ALTERNATI1E ANSWER*
=o. eca!se the assessment has not $et ecome final. e#ec!tor$ and demanda le. The asic consideration in the collection of ta#es is )hether the assessment is final and !na""eala le or the decision of the 4ommissioner is final. e#ec!tor$ and demanda le. the C-@ has legal asis to collect the ta# lia ilit$ $ either administrati(e or 8!dicial action. BI8: Pre:Assessment 7otice not 7ecessary (2 2)
-n the in(estigation of the )ithholding ta# ret!rns of AJ ?edina 7ec!rit$ Agenc$ +AJ ?edina, for the ta#a le $ears 1997 and 1998. a discre"anc$ et)een the ta#es )ithheld from its em"lo$ees and the amo!nts act!all$ remitted to the go(ernment )as fo!nd. Accordingl$. efore the "eriod of "rescri"tion commenced to r!n. the C-@ iss!ed an assessment and a demand letter calling for the immediate "a$ment of the deficienc$ )ithholding ta#es in the total amo!nt of 2250.000.00. 4o!nsel for AJ ?edina "rotested the assessment for eing n!ll and (oid on the gro!nd that no "re1assessment notice had een iss!ed. Ao)e(er. the "rotest )as denied. 4o!nsel then filed a "etition for "rohi ition )ith the 4o!rt of Ta# A""eals to restrain the collection of the ta#.
the ta#a le $ear 1994. After administrati(e hearings. the original assessment of 2150.000.00 )as red!ced to 275.000.00 and a modified assessment )as thereafter iss!ed on A!g!st 05. 1999. 3es"ite re"eated demands. Adamson failed and
A.
-s the contention of the co!nsel tena le& 9#"lain +25,
SUGGESTED ANSWER*
A. =o. the contention of the co!nsel is !ntena le. 7ection 228 of the Ta# 4ode e#"ressl$ "ro(ides that no "re1assessment notice is reF!ired )hen a discre"anc$ has een determined et)een the ta# )ithheld and the amo!nt act!all$ remitted $ the )ithholding agent. 7ince the amo!nt assessed relates to deficienc$ )ithholding ta#es. the C-@ is correct in iss!ing the assessment and demand letter calling for the immediate "a$ment of the deficienc$ )ithholding ta#es. +7ec. 228. =-@4,.
C.
Will the s"ecial ci(il action for "rohi ition ro!ght efore the 4TA !nder 7ec. 11 of @.A. =o. 1125 "ros"er& 3isc!ss $o!r ans)er. +35,
SUGGESTED ANSWER*
C. The s"ecial ci(il action for "rohi ition )ill not "ros"er. eca!se the 4TA has no 8!risdiction to entertain the same. The "o)er to iss!e )rit of in8!nction "ro(ided for !nder 7ection 11 of @A 1125 is onl$ ancillar$ to its a""ellate 8!risdiction. The 4TA is not (ested )ith original 8!risdiction to iss!e )rits of "rohi ition or in8!nction inde"endentl$ of and a"art from an a""ealed case. The remed$ is to a""eal the decision of the C-@. +C,--ec/,r v. B.+ec, 7 SCRA 7!7 8!"'!9,.
BI8: Prescripti(e Perio&: !i(i" Action (2 2) 'n A!g!st 5. 1997. Adamson 4o.. -nc. +Adamson, filed a reF!est for reconsideration of the deficienc$ )ithholding ta# assessment on K!l$ 10. 1997. co(ering
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assessment ref!sed to "a$ the modified . 4onseF!entl$. the C-@ ro!ght an action for collection in the @egional Trial 4o!rt on 7e"tem er 15. 2000. Adamson mo(ed to dismiss the action on the gro!nd that the go(ernmentDs right to collect the ta# $ 8!dicial action has "rescri ed. 3ecide the case. +55,
SUGGESTED ANSWER*
.1 of 73
the a""ro(al of the 4ommissioner. The com"an$ mo(ed to dismiss the criminal com"laint on the gro!nd that an act for (iolation of an$ "ro(ision of the Ta# 4ode "rescri es after fi(e +5, $ears and. in this case. the "eriod commenced to r!n on ?arch 30. 1996 )hen the "re1assessment )as iss!ed. Ao) )ill $o! resol(e the motion& 9#"lain $o!r ans)er. +55,
The right of the 6o(ernment to collect $ 8!dicial action has not "rescri ed. The filing of the reF!est for reconsideration s!s"ended the r!nning of the "rescri"ti(e "eriod and commenced to r!n again )hen a decision on the "rotest )as made on A!g!st 5. 1999. -t m!st e noted that in all cases co(ered $ an assessment. the "eriod to collect shall e fi(e +5, $ears from the date of the assessment !t this "eriod is s!s"ended $ the filing of a reF!est for reconsideration )hich )as acted !"on $ the 4ommissioner of -nternal @e(en!e +CIR v. =0e/:
S.ac, La6,ra/,rie+ I%c. 2)2 SCRA !23 8!""!9,.
BI8: Prescripti(e Perio&$ Assessment ; !o""ection (1999) A 4o.. a 2hili""ine 4or"oration. filed its 1995 -ncome Ta# @et!rn +-T@, on A"ril 15. 1996 sho)ing a net loss. 'n =o(em er 10. 1996. it amended its 1995 -T@ to sho) more losses. After a ta# in(estigation. the C-@ disallo)ed certain ded!ctions claimed $ A 4o.. "!tting A 4o. in a net income "osition. As a res!lt. on A!g!st 5. 1999. the C-@ iss!ed a deficienc$ income assessment against A 4o. A 4o. "rotested the assessment on the gro!nd that it has "rescri ed* 3ecide. +55,
SUGGESTED ANSWER*
The right of the C-@ to assess the ta# has not "rescri ed. The rule is that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return. +,ection &(5 N6$!,. Ao)e(er. if the ret!rn originall$ filed is amended s! stantiall$. the co!nting of the three1$ear "eriod starts from the date the amended ret!rn )as filed. +CIR v. P:,e%i> A++.ra%ce C,. L/d. !( SCRA 32,. There is a s! stantial amendment in this case eca!se a ne) ret!rn )as filed declaring more losses. )hich can onl$ e done either +1, in red!cing gross income or +2, in increasing the items of ded!ctions. claimed. BI8: Prescripti(e Perio&$ !rimina" Action (2 2) T< 4or"oration filed its final ad8!sted income ta# ret!rn for 1993 on A"ril 12. 1994 sho)ing a net loss from o"erations. After in(estigation. the C-@ iss!ed a "re1 assessment notice on ?arch 30. 1996. A final notice and demand letter dated A"ril 15. 1997 )as iss!ed. "ersonall$ deli(ered to and recei(ed $ the com"an$Ds chief acco!ntant. Ior )illf!l ref!sal and fail!re of T< 4or"oration to "a$ the ta#. )arrants of distraint and le($ on its "ro"erties )ere iss!ed and ser(ed !"on it. 'n Kan!ar$ 10. 2002. a criminal charge for (iolation of the Ta# 4ode )as instit!ted in the @egional Trial 4o!rt )ith
Answers to the BAR: Taxation 1994-2006 (Arranged by Topics SUGGESTED ANSWER*
The motion to dismiss sho!ld not e granted. -t is onl$ )hen the assessment has ecome final and !na""eala le that the 51$ear "eriod to file a criminal action commences to r!n +T.*aE v. U-,* 7!' SCRA !!4 8!"""9,. The "re1 assessment notice iss!ed on ?arch 30. 1996 is not a final assessment )hich is enforcea le $ the C-@. -t is the iss!ance of the final notice and demand letter dated A"ril 15. 1997 and the fail!re of the ta#"a$er to "rotest )ithin 30 da$s from recei"t thereof that made the assessment final and !na""eala le. The earliest date that the assessment has ecome final is ?a$ 16. 1997 and since the criminal charge )as instit!ted on Kan!ar$ 10. 2002. the same )as timel$ filed.
indicating the 0onal (al!e of 22.0 ?illion as the selling "rice and the other sho)ing the tr!e selling "rice of 22.5 ?illion. The ta# cons!ltant filed the ca"ital gains ta# ret!rn !sing the deed of sale sho)ing the 0onal (al!e of
BI8: Secrecy of BanB 'eposits /a1 (199=) 4an the 4ommissioner of -nternal @e(en!e inF!ire into the an/ de"osits of a ta#"a$er& -f so. does this "o)er of the 4ommissioner conflict )ith @.A. 1405 +7ecrec$ of Can/ 3e"osits :a), O55P
SUGGESTED ANSWER*
The 4ommissioner of -nternal @e(en!e is a!thori0ed to inF!ire into the an/ de"osits of* 1, a decedent to determine his gross estateE
2, an$ ta#"a$er )ho has filed an a""lication for com"romise of his ta# lia ilit$ $ means of financial inca"acit$ to "a$ his ta# lia ilit$ +7ec. 6+I,. =-@4,. Where the ta#"a$er has signed a )ai(er a!thori0ing the 4ommissioner or his d!l$ a!thori0ed re"resentati(es to -nF!ire into the an/ de"osits.
3,
(Note: This answer was not part of the answers enumerated in the E9 ?aw Answers to the 3ar in this but was later added in the recent E9 ?aw Answers to the 3ar as a result of A8?A ?aw of &((%)
The limited "o)er of the 4ommissioner does not conflict )ith @.A. =o. 1405 eca!se the "ro(isions of the Ta# 4ode granting this "o)er is an e#ce"tion to the 7ecrec$ of Can/ 3e"osits :a) as em odied in a later legislation. I!rthermore. in case a ta#"a$er a""lies for an a""lication to com"romise the "a$ment of his ta# lia ilities on his claim that his financial "osition demonstrates a clear ina ilit$ to "a$ the ta# assessed. his a""lication shall not e considered !nless and !ntil he )ai(es in )riting his "ri(ilege !nder @.A. =o. 1405. and s!ch )ai(er shall constit!te the a!thorit$ of the 4ommissioner to inF!ire into the an/ de"osits of the ta#"a$er.
BI8$ !onse3uence$ Taxpayer gui"ty of Tax 2(asion (2 9)

Kosel agreed to sell his condomini!m !nit to Kess for 22.5 ?illion. At the time of the sale. the "ro"ert$ had a 0onal (al!e of 22.0 ?illion. G"on the ad(ice of a ta# cons!ltant. the "arties agreed to e#ec!te t)o deeds of sale. one
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22.0 ?illion as the selling "rice. 3isc!ss the ta# im"lications and conseF!ences of the action. +55,
ALTERNATI1E ANSWER*
.2 of 73
The action of the "arties constit!tes ta# e(asion and e#"oses Kosel to*
+1, 39I-4-9=4< I-=A: -=4'?9 TAB on the sale of real "ro"ert$ in the 2hili""ines classified as a ca"ital asset. Gnder 7ec. 24+3, of the =-@4. the final ta# of si# "ercent +65, shall e ased on the gross selling "rice of 22.5 ?illion or 0onal (al!e of 22.0 ?illion. )hiche(er is higher. i.e.. 22.5 ?illionE
deceased. eca!se the collection of estate ta# is e#ec!ti(e in character. As s!ch the estate ta# is e#em"ted from the a""lication of the stat!te of non1 claims. and this is 8!stified $ the necessit$ of go(ernment f!nding. immortali0ed in the ma#im that ta#es are the life lood of the go(ernment + Marc,+ v. CIR G.R. N,. !2)44) <.%e 3 !""#,.
ALTERNATI1E ANSWER*
+2, I@AG3 29=A:T< amo!nting to 505 s!rcharge on the amo!nt e(aded +7ec. 248OCP =-@4,E and +3, 39I-4-9=4< -=T9@97T of 205 "er ann!m on the deficienc$. +7ec. 249OAPOCP. =-@4,
ALTERNATI1E ANSWER*
There is ta# e(asion eca!se of the conc!rrence of the follo)ing factors* 1, The "a$ment of less than that /no)n $ the ta#"a$er to e legall$ d!e. or the non1"a$ment of ta# )hen it is sho)n that a ta# is d!e. -t is e(ident that the "arties that the ta# d!e sho!ld e com"!ted ased on the (al!ation of 22.5 million and not 22.0 millionE 2, An accom"an$ing state of mind )hich is descri ed as eing %e(il% on % ad faith.% %)illf!l.% or %deli erate and not accidental.% 3es"ite the a o(e /no)ledge. the "arties deli eratel$ misre"resented the tr!e asis of the saleE and
3, A co!rse of action or fail!re of action )hich is !nla)f!l. This is sho)n $ the "re"aration of the t)o deeds of sale )hich sho)ed different (al!es.
(C,55i++i,%er ,1 E+/a/e ,1Be%ig%, P Se*/e56er !( 2))($ I%/er%aReve%.e v. T:e T6da <r. G.R. N,. !(#!44
The ta# e(asion committed sho!ld res!lt to the im"osition of a 505 fra!d s!rcharge on the amo!nt e(aded (,ec. &"/A3@ N6$!) "a$ment of the 3eficienc$ Ta#. and interest of 205 "er ann!m on the deficienc$. (,ec. &"*AA@A3@ N6$!) The "arties ma$ li/e)ise e s! 8ect to criminal "rosec!tion for )illf!ll$ failing to "a$ the ta#. as )ell as for filing a false and fra!d!lent ret!rn.
(,ees. &-" &-- and &-' N6$!) BI8: Summary 8eme&y: 2state Tax 'eficiencies (199=) -s the C-@ a!thori0ed to collect estate ta# deficiencies $ the s!mmar$ remed$ of le($ !"on and sale of real "ro"erties of the decedent )itho!t first sec!ring the a!thorit$ of the co!rt sitting in "ro ate o(er the s!""osed )ill of the decedent&
SUGGESTED ANSWER*
<es. The C-@ is a!thori0ed to collect estate ta# deficienc$ thro!gh the s!mmar$ remed$ of le($ing !"on and sale of real "ro"erties of a decedent. )itho!t the cognition and a!thorit$ of the co!rt sitting in "ro ate o(er the s!""osed )ill of the
<es. if the ta# assessment has alread$ ecome final. e#ec!tor$ and enforcea le. The a""ro(al of the co!rt sitting in "ro ate o(er the s!""osed )ill of the deceased is not a mandator$ reF!irement for the collection of the estate ta#. The "ro ate co!rt is determining iss!es )hich are not against the "ro"ert$ of the decedent. or a claim against the estate as s!ch. !t is against the interest or "ro"ert$ right )hich the heir. legatee. de(isee. etc. has in the "ro"ert$ formerl$ held $ the decedent. +Marc,+ v. CIR G.R N,. !2)44) <.%e 3 !""7,.
The 3'K is correct in r!ling that an assessment of the ta# deficienc$ of the cor"oration is not a "recondition to the filing of a criminal com"laint. There is no need for an
BI8: <npai& Taxes (s) !"aims for <npai& -ages (1999)

Ior fail!re of 'ceanic 4om"an$. -nc. +'49A=-4,. to "a$ deficienc$ ta#es of 220 ?illion. the 4ommissioner of -nternal @e(en!e iss!ed )arrants of distraint on '49A=-4Ds "ersonal "ro"erties and le(ied on its real "ro"erties. ?ean)hile. the 3e"artment of :a or thro!gh the :a or Ar iter rendered a decision ordering '49A=-4 to "a$ !n"aid )ages and other enefits to its em"lo$ees. Io!r arges elonging to '49A=-4 )ere le(ied !"on $ the sheriff and later sold at "! lic a!ction.
The 4ommissioner of -nternal @e(en!e filed a motion )ith the :a or Ar iter to ann!l the sale and en8oin the sheriff from dis"osing the "roceeds thereof. The em"lo$ees of '49A=-4 o""osed the motion contending that Art. 110 of the :a or 4ode gi(es first "reference to claims for !n"aid )ages. @esol(e the motion. 9#"lain.
SUGGESTED ANSWER*
The motion filed $ the 4ommissioner sho!ld e granted eca!se the claim of the go(ernment for !n"aid ta#es are generall$ "referred o(er the claims of la orers for !n"aid )ages. The "ro(ision of Article 110 of the :a or 4ode. )hich gi(es la orersD claims for "reference a""lies onl$ in case of an/r!"tc$ or liF!idation of the em"lo$erDs !siness. -n the instant case. 'ceanic is not !nder an/r!"tc$ or liF!idation at the time the )arrants of distraint and le($ )ere iss!ed hence. the o""osition of the em"lo$ees is !n)arranted. (CIR v+.
NLRC e/ a- G.R. N,.
#("'3 N,ve56er " !""($.
BI8$ Assessment$ !rimina" !omp"aint (2 9)

-n 1995. the C-@ filed efore the 3e"artment of K!stice +3'K, a criminal com"laint against a cor"oration and its officers for alleged e(asion of ta#es. The com"laint )as s!""orted $ a s)orn statement of the C-@ e#aminers sho)ing the com"!tation of the ta# lia ilities of the erring ta#"a$er. The cor"oration filed a motion to dismiss the criminal com"laint on the gro!nd that there has een. as $et. no assessment of its ta# lia ilit$E hence. the criminal com"laint )as "remat!re. The 3'K denied the motion on the gro!nd that an assessment of the ta# deficienc$ of the cor"oration is not a "recondition to the filing of a criminal com"laint and that in an$ e(ent. the 8oint affida(it of the C-@ e#aminers ma$ e considered as an assessment of the ta# lia ilit$ of the cor"oration. -s the r!ling of the 3'K correct& 9#"lain. +55,
SUGGESTED ANSWER*
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assessment so long as there is a "rima facie
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riefl$. +55,
SUGGESTED ANSWER*
sho)ing of (iolation of the "ro(isions of the Ta# 4ode. After all. a criminal charge is instit!ted not to demand "a$ment. !t to "enali0e the ta# "a$er for (iolation of the Ta# 4ode. (C,55i++i,%er ,1 I%/er%aReve%.e v. Pa+c,r
<es. The 4ommissioner has the "o)er to acce"t the offer of com"romise if the financial "osition of the ta#"a$er clearl$ demonstrates a clear ina ilit$ to "a$ the ta# +7ection 204. =-@4,.
Rea-/0 a%d Deve-,*5e%/ !247!3 <.%e 2" !""",
C,r*,ra/i,%
G.R.
N,.
I!rthermore. there is nothing in the "ro lem that sho)s that the C-@ in filing the case is also interested in collecting the ta# deficienc$. Ao)e(er. it is in error )hen it r!led that the 8oint affida(it of the C-@ e#aminers ma$ e considered as an assessment of the ta# lia ilit$ of the cor"oration. The 8oint affida(it sho)ing the com"!tation of the ta# lia ilities of the erring ta#"a$er is not a ta# assessment eca!se it )as not sent to the ta#"a$er. and does not demand "a$ment of the ta# )ithin a certain "eriod of time. An assessment is deemed made onl$ )hen the C-@ releases. mails or sends s!ch notice to the ta#"a$er.
(C,55i++i,%er ,1 I%/er%a- Reve%.e v. Pa+c,r Rea-/0 a%d Deve-,*5e%/ C,r*,ra/i,% G.R. N,. !247!3 <.%e 2" !"""$ N,/e+ a%d C,55e%/+D A plea is made for liberality in correcting the examinees answers because the examination is very long.
BI8$ Aut#ority$ 8efun& or !re&it of Taxes (2 9)

7tate the conditions reF!ired $ the Ta# 4ode efore the 4ommissioner of -nternal @e(en!e co!ld a!thori0e the ref!nd or credit of ta#es erroneo!sl$ or illegall$ recei(ed.
SUGGESTED ANSWER*
Gnder 7ec. 204+4,. =-@4. the follo)ing conditions m!st e met* 1. There m!st e a )ritten claim for ref!nd filed $ the ta#"a$er )ith the 4ommissioner. 2. The claim for ref!nd m!st e a categorical demand for reim !rsement. 3. The claim for ref!nd m!st e filed )ithin t)o +2, $ears from date of "a$ment of the ta# or "enalt$ regardless of an$ s!"er(ening ca!se. BI8$ !ompromise (2 *) After the ta# assessment had ecome final and !na""eala le. the 4ommissioner of -nternal @e(en!e initiated the filing of a ci(il action to collect the ta# d!e from =B. After se(eral $ears. a decision )as rendered $ the co!rt ordering =B to "a$ the ta# d!e "l!s "enalties and s!rcharges. The 8!dgment ecame final and e#ec!tor$. !t attem"ts to e#ec!te the 8!dgment a)ard )ere f!tile. 7! seF!entl$. =B offered the 4ommissioner a com"romise settlement of 505 of the 8!dgment a)ard. re"resenting that this amo!nt is all he co!ld reall$ afford. 3oes the 4ommissioner ha(e the "o)er to acce"t the com"romise offer& -s it legal and ethical& 9#"lain
As re"resented $ =B in his offer. onl$ 505 of the 8!dgment a)ard is all he co!ld reall$ afford. This is an offer for com"romise ased on financial inca"acit$ )hich the 4ommissioner shall not acce"t !nless accom"anied $ a )ai(er of the secrec$ of an/ de"osits +7ection 6OIS. =-@4,. The )ai(er )ill ena le the 4ommissioner to ascertain the financial "osition of the ta#"a$er. altho!gh the inF!ir$ need not e limited onl$ to the an/ de"osits of the ta#"a$er !t also as to his financial "osition as reflected in his financial statements or other records !"on )hich his "ro"ert$ holdings can e ascertained.
or reconsideration ha(e een iss!ed res!lting in the red!ction of the original assessment agreed to $ the ta#"a$er )hen he signed the reF!ired agreement form. The ta#"a$er is esto""ed from a""l$ing for a com"romise.
-f indeed. the financial "osition of =B as determined $ the 4ommissioner demonstrates a clear ina ilit$ to "a$ the ta#. the acce"tance of the offer is legal and ethical eca!se the gro!nd !"on )hich the com"romise )as anchored is )ithin the conte#t of the la) and the rate of com"romise is )ell )ithin and far e#ceeds the minim!m "rescri ed $ la) )hich is onl$ 105 of the asic ta# assessed. BI8$ !ompromise (2 9) 7tate and disc!ss riefl$ )hether the follo)ing cases ma$ e com"romised or ma$ not e com"romised* a, 3elinF!ent acco!ntsE , 4ases !nder administrati(e "rotest. after iss!ance of the final assessment notice to the ta#"a$er. )hich are still "endingE c, 4riminal ta# fra!d casesE d, 4riminal (iolations alread$ filed in co!rtE e, 4ases )here final re"orts of rein(estigation or reconsideration ha(e een iss!ed res!lting in the red!ction of the original assessment agreed to $ the ta#"a$er )hen he signed the reF!ired agreement form. +55,
SUGGESTED ANSWERS*
The follo)ing cases ma$ still e com"romised ($.$. 5((& A&((&@) eca!se of the ta#"a$erDs financial inca"acit$ to "a$ the ta# d!e or the assessmentDs do! tf!l (alidit$* a, 39:-=LG9=T A44'G=T7 ma$ e com"romised eca!se there is no sho)ing that there is a d!l$1a""ro(ed sched!le of installment "a$mentsE and , 4ases !nder administrati(e "rotest. after iss!ance of the final assessment notice to the ta#"a$er. )hich are still "ending. The follo)ing cases 8AG NC ?CN#4$ 34 !C89$'?-793 ($.$. 5(-(& A&((&@) eca!se the ta#"a$er has not "aid his ta#es for reasons other than his financial inca"acit$ or the do! tf!l (alidit$ of the assessment* a, 4@-?-=A: TAB I@AG3 cases as ma$ e determined $ the 4ommissioner or his a!thori0ed agents ma$ not e com"romisedE , 4@-?-=A: ;-':AT-'=7 A:@9A3< I-:93 -= 4'G@T so that the ta#"a$er )ill not "rofit from his fra!d )hich )o!ld enco!rage ta# e(asionE and c, 4ases )here final re"orts of rein(estigation
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.4 of
C.
73
BI8$ 'eficiency Tax Assessment (s) Tax 8efun& E Tax !re&it (2 9) -s a deficienc$ ta# assessment a ar to a claim for ta# ref!nd or ta# credit& 9#"lain.
SUGGESTED ANSWER*
-f $o! are the la)$er of ?r. and ?rs. 7e astian. )hat "ossi le defense or defenses )ill $o! raise in ehalf of $o!r clients against the action of the C-@ in enforcing collection of the ta# $ the s!mmar$ remedies of )arrants of distraints and le($&

SUGGESTED ANSWER*
<es. the deficienc$ ta# assessment is a ar to a ta# ref!nd or credit. The Ta#"a$er cannot e entitled to a ref!nd and at the same time lia le for a ta# deficienc$ assessment for the same $ear. The deficienc$ assessment creates a do! t as to the tr!th and acc!rac$ of the Ta# @et!rn. 7aid @et!rn cannot therefore e the asis of the ref!nd
(C,55i++i,%er ,1 I%/er%a- Reve%.e v. A--/e- 82))29 ci/i%g C,55i++i,%er ,1 I%/er%a- Reve%.e v. C,.r/ ,1 A**ea-+ Ci/0 Tr.+/ Ba%Ai%g C,r*,ra/i,% a%d C,.r/ ,1 Ta> A**ea-+ G.R. N,. !)''!! <.-0 2! !""($
BI8$ 'istraint$ Prescription of t#e Action (2 2)

?r. 7e astian is a Iili"ino seaman em"lo$ed $ a =or)egian com"an$ )hich is engaged e#cl!si(el$ in international shi""ing. Ae and his )ife. )ho manages their !siness. filed a 8oint income ta# ret!rn for 1997 on ?arch 15. 1998. After an a!dit of the ret!rn. the C-@ iss!ed on A"ril 20. 2001 a deficienc$ income ta# assessment for the s!m of 2250.000.00. incl!si(e of interest and "enalt$. Ior fail!re of ?r. and ?rs. 7e astian to "a$ the ta# )ithin the "eriod stated in the notice of assessment. the C-@ iss!ed on A!g!st 19. 2001 )arrants of distraint and le($ to enforce collection of the ta#. A. What is the r!le of income ta#ation )ith res"ect to ?r. 7e astianDs income in 1997 as a seaman on oard the =or)egian (essel engaged in
international shi""ing& 9#"lain $o!r ans)er. +25,

SUGGESTED ANSWER*
A. The income of ?r. 7e astian as a seaman is considered as income of a non1resident citi0en deri(ed from )itho!t the 2hili""ines. The total gross income. in G7 dollars +or if in other foreign c!rrenc$. its dollar eF!i(alent, from )itho!t shall e declared $ him for income ta# "!r"oses !sing a se"arate income ta# ret!rn )hich )ill not incl!de his income from !siness deri(ed )ithin +to e co(ered $ another ret!rn,. Ae is entitled to ded!ct from his dollar gross income a "ersonal e#em"tion of T4.500 and foreign national income ta#es "aid to arri(e at his ad8!sted income d!ring the $ear. Ais ad8!sted income )ill e s! 8ect to the grad!ated ta# rates of 15 to 35. (,ec. &% (b) Tax !ode of %*/.A9B %%-/@ as amended by 9B %**").
O=ote* The ar candidates are not e#"ected to e familiar )ith ta# histor$. 4onsidering that this is alread$ the fo!rth $ear of im"lementation of the Ta# 4ode of 1997. ar candidates )ere ta!ght and "re"ared to ans)er F!estions ased on the "resent la). -t is therefore reF!ested that the e#aminer e more lenient in chec/ing the ans)ers to this F!estion. 2erha"s. an ans)er ased on the "resent la) e gi(en f!ll credit.P
C. - )ill raise the defense of "rescri"tion. The right of the C-@ to assess "rescri es after three $ears co!nted from the last da$ "rescri ed $ la) for the filing of the income ta# ret!rns )hen the said ret!rn is filed on time. +7ection 203. =-@4,. The last da$ for filing the 1997 income ta# ret!rn is A"ril 15. 1998. 7ince the assessment )as iss!ed onl$ on A"ril 20. 2001. the C-@Ds right to assess has alread$ "rescri ed. BI8$ Fa"se (s) Frau&u"ent 8eturn (1996) 3isting!ish a false ret!rn from a fra!d!lent ret!rn.
SUGGESTED ANSWER*
estate ta# ret!rn )as filed and the estate ta# d!e in the amo!nt of 2250.000.00 )as "aid on 3ecem er 06. 1994. The Ta# Ira!d 3i(ision of the C-@ in(estigated the case on the asis of confidential information gi(en $ ?r. 7antos on Kan!ar$ 06. 1998 that the ret!rn filed $ ?r. 4astro )as fra!d!lent and that he failed to declare all
The distinction et)een a false ret!rn and a fra!d!lent ret!rn is that the first merel$ im"lies a de(iation from the tr!th or fact )hether intentional or not. )hereas the second is intentional and deceitf!l )ith the sole aim of e(ading the correct ta# d!e +AE%ar .+. C,55i++i,%er L;2)3'" A.g.+/ 27 !"#(,.
ALTERNATI1E ANSWER*
A false ret!rn contains de(iations from the tr!th )hich ma$ e d!e to mista/es. carelessness or ignorance of the "erson "re"aring the ret!rn. A fra!d!lent ret!rn contains an intentional )rongdoing )ith the sole o 8ect of a(oiding the ta# and it ma$ consist in the intentional !nderdeclaration of income. intentional o(erdeclaration of ded!ctions or the rec!rrence of oth. A false ret!rn is not necessaril$ tainted )ith fra!d eca!se the fra!d contem"lated $ la) is act!al and not constr!cti(e. An$ de(iation from the tr!th on the other hand. )hether intentional or not. constit!tes falsit$. +AE%ar v+. C,55i++i,%er L;2)3'" A.g.+/ 27 !"#(,
BI8$ Huris&iction$ 8e(ie1 8u"ings of t#e !ommissioner (2 6) ?r. A raham 9!genio. a "a)nsho" o"erator. after ha(ing een reF!ired $ the @e(en!e 3istrict 'fficer to "a$ (al!e added ta# "!rs!ant to a @e(en!e ?emorand!m 'rder +@?', of the 4ommissioner of -nternal @e(en!e. filed )ith the @egional Trial 4o!rt an action F!estioning the (alidit$ of the @?'. -f $o! )ere the 8!dge. )ill $o! dismiss the case& +55,
SUGGESTED ANSWER*
<es. The @?' is in realit$ a r!ling of the 4ommissioner in im"lementing the "ro(isions of the Ta# 4ode on the ta#a ilit$ of "a)nsho"s. K!risdiction to re(ie) r!lings of the 4ommissioner is lodged )ith the 4o!rt of Ta# A""eals and not )ith the @egional Trial 4o!rt
(CIR v.
<,+e1i%a Lea- G.R. N,. !!7(3" N,ve56er !4 2))2? Ta> Re1,r5 Ac/ RA 4(2( Ti/-e I Sec. ( 8!""#9$. (NOTA BENED This concept pertains to the 2AT law which is excluded from the bar coverage #uidelines for &((. 3ar 4xaminations )une %- &((.)
BI8$ Prescripti(e Perio&$ Assessment$ Frau&u"ent 8eturn (2 2)

?r. 4astro inherited from his father. )ho died on K!ne 10. 1994. se(eral "ieces of real "ro"ert$ in ?etro ?anila. The
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"ro"erties left $ his father )ith intent to e(ade "a$ment of the correct ta#. As a res!lt. a deficienc$ estate ta# assessment for 21.250.000.00. incl!si(e of 505 s!rcharge for fra!d. interest and "enalt$. )as iss!ed against him on Kan!ar$ 10. 2001. ?r. 4astro "rotested the assessment on the gro!nd of "rescri"tion. A. 3ecide ?r. 4astroDs "rotest. +25,
SUGGESTED ANSWER*
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treatment !nder a s"ecial la). After in(estigation of its )ithholding ta# ret!rns for the ta#a le $ear 1997. the C-@ iss!ed a deficienc$ )ithholding ta# assessment in the amo!nt of 2150.000.00. 'n ?a$ 15. 1999. eca!se of financial diffic!lt$. the deficienc$ ta# remained !n"aid. as a res!lt of )hich the assessment ecame final and e#ec!tor$. The
A. The "rotest sho!ld e resol(ed against ?r. 4astro. What )as filed is a fra!d!lent ret!rn ma/ing the "rescri"ti(e "eriod for assessment ten +10, $ears from disco(er$ of the fra!d +7ection 222. =-@4,. Accordingl$. the assessment )as iss!ed )ithin that "rescri"ti(e "eriod to ma/e an assessment ased on a fra!d!lent ret!rn.
C. What legal reF!irementMs m!st ?r. 7antos com"l$ )ith so that he can claim his re)ard& 9#"lain. +35,
SUGGESTED ANSWER*
The legal reF!irements that m!st e com"lied $ ?r. 7antos to entitle him to re)ard are as follo)s* 1, Ae sho!ld (ol!ntaril$ file a confidential information !nder oath )ith the :a) 3i(ision of the C!rea! of -nternal @e(en!e alleging therein the s"ecific (iolations constit!ting fra!dE 2, The information m!st not $et e in the "ossession of the C!rea! of -nternal @e(en!e. or refer to a case alread$ "ending or "re(io!sl$ in(estigated $ the C!rea! of -nternal @e(en!eE 3, ?r. 7antos sho!ld not e a go(ernment em"lo$ee or a relati(e of a go(ernment em"lo$ee )ithin the si#th degree of consang!init$E and 4, The information m!st res!lt to collections of re(en!es andMor fines and "enalties. +7ec. 282. =-@4, BI8$ Prescripti(e Perio&$ !rimina" Action (2 6)
6err$ )as eing "rosec!ted $ the C-@ for fail!re to "a$ his income ta# lia ilit$ for 4alendar <ear 1999 des"ite se(eral demands $ the C-@ in 2002. The -nformation )as filed )ith the @T4 onl$ last K!ne 2006. 6err$ filed a motion to F!ash the -nformation on the gro!nd of "rescri"tion. the -nformation ha(ing een filed e$ond the 51$ear reglementar$ "eriod. -f $o! )ere the 8!dge. )ill $o! dismiss the -nformation& Wh$& +55,
SUGGESTED ANSWER*
=o. The trial co!rt can e#ercise 8!risdiction. 2rescri"tion of a criminal action egins to r!n from the da$ of the (iolation of the la). The crime )as committed )hen 6err$ )illf!ll$ ref!sed to "a$ des"ite re"eated demands in 2002. 7ince the information )as filed in K!ne 2006. the criminal case )as instit!ted )ithin the fi(e1$ear "eriod reF!ired $ la) (T.*aE v. U-e* G.R.
N,. !2#### Oc/,6er
! !"""? Sec/i,% 24! NIRC$.
BI8$ Taxpayer: !i(i" Action ; !rimina" Action (2 2)

?inolta 2hili""ines. -nc. +?inolta, is an 92JA1 registered enter"rise en8o$ing "referential ta#
C-@ also fo!nd that. in (iolation of the "ro(isions of the =ational -nternal @e(en!e 4ode. ?inolta did not file its final cor"orate income ta# ret!rn for the ta#a le $ear 1998. eca!se it allegedl$ inc!rred net loss from its o"erations. 'n ?a$ 17. 2002. the C-@ filed )ith the @egional Trial 4o!rt an action for collection of the deficienc$ )ithholding ta# for 1997.
A. Will the C-@Ds action for collection "ros"er& As co!nsel of ?inolta. )hat action )ill $o! ta/e&
4ollector of 4!stoms iss!ed a notice of sale of the articles. -n order to restrain the 4ollector from carr$ing o!t the order to sell. ::3 filed )ith the 4o!rt of Ta# A""eals a "etition for re(ie) )ith a""lication for the iss!ance of a )rit of "rohi ition. -t also filed )ith the 4TA an a""eal for ref!nd of o(er"aid ta#es on its other im"ortations of ra) materials )hich has een "ending

SUGGESTED ANSWER*
A. <es. C-@Ds action for collection )ill "ros"er eca!se the assessment is alread$ final and e#ec!tor$. it can alread$ e enforced thro!gh 8!dicial action. As co!nsel of ?inolta. - )ill introd!ce e(idence that the income "a$ment )as re"orted $ the "a$ee and the income ta# )as "aid thereon in 1997 so that m$ client ma$ onl$ e allo)ed to "a$ the ci(il "enalties for non1 )ithholding "!rs!ant to @?' =o. 38183. O$ote% 6t is not clear whether this is a case of non- withholding; underwithholding or non-remittance of tax withheld. As such the tax counsel may be open to other remedies against the assessment.P
C. ?a$ criminal (iolations of the Ta# 4ode e com"romised& -f ?inolta ma/es a (ol!ntar$ offer to com"romise the criminal (iolations for non1 filing and non1"a$ment of ta#es for the $ear 1998. ma$ the 4ommissioner acce"t the offer& 9#"lain
+55,
SUGGESTED ANSWER*
C. All criminal (iolations of the Ta# 4ode ma$ e com"romised e#ce"t those alread$ filed in co!rt or those in(ol(ing fra!d +7ection 204. =-@4,. Accordingl$. if ?inolta ma/es a (ol!ntar$ offer to com"romise the criminal (iolations for non1filing and non1"a$ment of ta#es for the $ear 1998. the 4ommissioner ma$ acce"t the offer )hich is allo)ed $ la). Ao)e(er. if it can e esta lished that a ta# has not een "aid as a conseF!ence of non1filing of the ret!rn. the ci(il lia ilit$ for ta#es ma$ e dealt )ith inde"endentl$ of the criminal (iolations. The com"romise settlement of the criminal (iolations )ill not relie(e the ta#"a$er from its ci(il lia ilit$. C!t the ci(il lia ilit$ for ta#es ma$ also e com"romised if the financial "osition of the ta#"a$er demonstrates a clear ina ilit$ to "a$ the ta#.
!ustom: Cio"ation of Tax ; !ustom 'uties (2 2)

The 4ollector of 4!stoms of the 2ort of 4e ! iss!ed )arrants of sei0!re and detention against the im"ortation of machineries and eF!i"ment $ ::3 -m"ort and 9#"ort 4o. +::3, for alleged non"a$ment of ta# and c!stoms d!ties in (iolation of c!stoms la)s. ::3 )as notified of the sei0!re. !t. efore it co!ld e heard. the
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)ith the 4ollector of 4!stoms. The C!rea! of
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4!stoms mo(ed to dismiss the case for lac/ of 8!risdiction of the 4o!rt of Ta# A""eals.
A. 3oes the 4o!rt of Ta# A""eals ha(e 8!risdiction o(er the "etition for re(ie) and )rit of "rohi ition&
a!tomaticall$ ele(ated to the 4ommissioner for re(ie)E and if s!ch decision is affirmed $ the 4ommissioner. the same shall e a!tomaticall$ ele(ated to and e finall$ re(ie)ed $ the 7ecretar$ of Iinance +Ba,Aa+i% v. C,55i++i,%er ,1 C.+/,5+ !4) SCRA 3"! 8!"4"9,.
9#"lain +35,
SUGGESTED ANSWER*
A. =o. eca!se there is no decision as $et $ the 4ommissioner of 4!stoms )hich can e a""ealed to the 4TA. =either the remed$ of "rohi ition )o!ld lie eca!se the 4TA has not acF!ired an$ a""ellate 8!risdiction o(er the sei0!re case. The )rit of "rohi ition eing merel$ ancillar$ to the a""ellate 8!risdiction. the 4TA has no 8!risdiction o(er it !ntil it has acF!ired 8!risdiction on the "etition for re(ie). 7ince there is no a""eala le decision. the 4TA has no 8!risdiction o(er the "etition for re(ie) and )rit of "rohi ition. +C,55i++i,%er ,1 C.+/,5+ v. A-iA*a-a 7' SCRA 2)4 8!"#)9,. C. Will an a""eal to the 4TA for ta# ref!nd "ossi le& 9#"lain +25,
SUGGESTED ANSWER*
C. =o. eca!se the 4ommissioner of 4!stoms has not $et rendered a decision on the claim for ref!nd. The 8!risdiction of the 4ommissioner and the 4TA are not conc!rrent in so far as claims for ref!nd are concerned. The onl$ e#ce"tion is )hen the 4ollector has not acted on the "rotested "a$ment for a long time. the contin!ed inaction of the 4ollector or 4ommissioner sho!ld not e allo)ed to "re8!dice the ta#"a$er. +=estle 2hils.. -nc. (. 4o!rt of A""eals. 6@ =o. 134114. K!l$ 6. 2001,.
!ustoms$ Basis$ Automatic 8e(ie1 (2 2) Whene(er the decision of the 4ollector of 4!stoms is ad(erse to the go(ernment. it is a!tomaticall$ ele(ated to the 4ommissioner for re(ie) and. if it is affirmed $ him. it is a!tomaticall$ ele(ated to the 7ecretar$ of Iinance for re(ie). What is the asis of the a!tomatic re(ie) "roced!re in the C!rea! of 4!stoms& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
A!tomatic re(ie) is intended to "rotect the interest of the 6o(ernment in the collection of ta#es and c!stoms d!ties in sei0!re and "rotest cases. Witho!t s!ch a!tomatic re(ie). neither the 4ommissioner of 4!stoms nor the 7ecretar$ of Iinance )o!ld /no) a o!t the decision laid do)n $ the 4ollector fa(oring the ta#"a$er. The "o)er to decide sei0!re and "rotest cases ma$ e a !sed if no chec/s are instit!ted. A!tomatic re(ie) is necessar$ eca!se no od$ is e#"ected to a""eal the decision of the 4ollector )hich is fa(ora le to the ta#"a$er and ad(erse to the 6o(ernment. This is the reason )h$ )hene(er the decision of the 4ollector is ad(erse to the 6o(ernment. the said decision is
'e"in3uent Tax 8eturn (199=) When is a re(en!e ta# considered delinF!ent& O35,
SUGGESTED ANSWER*
A re(en!e ta# is considered delinF!ent )hen it is !n"aid after the la"se of the last da$ "rescri ed $ la) for its "a$ment. :i/e)ise. it co!ld also e considered as delinF!ent )here an assessment for deficienc$ ta# has ecome final and the ta#"a$er has not "aid it )ithin the "eriod gi(en in the notice of assessment. Huris&iction: !ustoms (s) !TA (2 )
a, 'n the asis of a )arrant of sei0!re and detention iss!ed $ the 4ollector of 4!stoms for the "!r"ose of enforcing the Tariff and 4!stoms :a)s. assorted rands of cigarettes said to ha(e een illegall$ im"orted into the 2hili""ines )ere sei0ed from a store )here the$ )ere o"enl$ offered for sale. 3issatisfied )ith the decision rendered after hearing $ the 4ollector of 4!stoms on the confiscation of the articles. the im"orter filed a "etition for re(ie) )ith the 4o!rt of Ta# A""eals. The 4ollector mo(ed to dismiss the "etition for lac/ of K!risdiction. @!le on the motion.
go(ernmentDs dri(e to "re(ent sm!ggling and other fra!ds !"on the 4!stoms. I!rthermore. the @egional Trial 4o!rt do not ha(e K!risdiction in order to render effecti(e and efficient the collection of -m"ort and e#"ort d!ties d!e the 7tate. )hich ena les the go(ernment to carr$ o!t the
+25,
SUGGESTED ANSWER*
?otion granted. The 4o!rt of Ta# A""eals has 8!risdiction onl$ o(er decisions of the 4ommissioner of 4!stoms in cases in(ol(ing sei0!res. detention or release of "ro"ert$ affected. +7ec. 7. @.A. =o. 1125,. There is no decision $et of the 4ommissioner )hich is s! 8ect to re(ie) $ the 4o!rt of Ta# A""eals.
ALTERNATI1E ANSWER*
?otion granted. The 4o!rt of Ta# A""eals has no 8!risdiction eca!se there is no decision rendered $ the 4ommissioner of 4!stoms on the sei0!re and forfeit!re case. The ta#"a$er sho!ld ha(e a""ealed the decision rendered $ the 4ollector )ithin fifteen +15, da$s from recei"t of the decision to the 4ommissioner of 4!stoms. The 4ommissionerQs ad(erse decision )o!ld then e the s! 8ect of an a""eal to the 4o!rt of Ta# A""eals. , Gnder the same facts. co!ld the im"orter file an action in the @egional Trial 4o!rt for re"le(in on the gro!nd that the articles are eing )rongf!ll$ detained $ the 4ollector of 4!stoms since the im"ortation )as not illegal and therefore e#em"t from sei0!re& 9#"lain.
+35,
SUGGESTED ANSWER*
=o. The legislators intended to di(est the @egional Trial 4o!rts of the 8!risdiction to re"le(in a "ro"ert$ )hich is a s! 8ect of sei0!re and forfeit!re "roceedings for (iolation of the Tariff and 4!stoms 4ode other)ise. actions for forfeit!re of "ro"ert$ for (iolation of the 4!stoms la)s co!ld easil$ e !ndermined $ the sim"le de(ice of re"le(in. + De -a F.e%/e v. De Ve0ra e/. a- !2) SCRA (33,
There sho!ld e no !nnecessar$ hindrance on the
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f!nctions -t has een -nstit!ted to "erform. +<a, e/ a- C,.r/ ,1 A**ea-+ e/ a- a%d c,5*a%i,% ca+e 2(" SCRA 73 (7,
.2 of 73
c.
Within si#t$ +60, da$s from filing of the "rotest. the ta#"a$er shall s! mit all rele(ant s!""orting doc!ments.
/5<: !o""ection of TaxesF Fees ; !#arges (199,) 6i(e the remedies a(aila le to local go(ernment !nits to enforce the collection of ta#es. fees. and charges&
SUGGESTED ANSWER*
The J.D&C&A* RE3ED&E- of an aggrie(ed ta#"a$er relati(e to an ASSESSMENT NOTICE are as follo)s*
The remedies a(aila le to the local go(ernment !nits to enforce collection of ta#es. fees. and charges are* 1, A3?-=-7T@AT-;9 @9?93-97 of distraint of "ersonal "ro"ert$ of )hate(er /ind )hether tangi le or intangi le. and le($ of real "ro"ert$ and interest thereinE and 2, KG3-4-A: @9?93< $ instit!tion of an ordinar$ ci(il action for collection )ith the reg!lar co!rts of "ro"er 8!risdiction. Tax Amnesty (s) Tax 2xemption (2 1) 3isting!ish a ta# amnest$ from a ta# e#em"tion. +35,
SUGGESTED ANSWER*
Ta# amnest$ is an imm!nit$ from all criminal. ci(il and administrati(e lia ilities arising from non"a$ment of ta#es. -t is a general "ardon gi(en to all ta#"a$ers. -t a""lies onl$ to "ast ta# "eriods. hence of retroacti(e a""lication. +Pe,*-e v. C,+/,%ed, G.R. N,. L;('44! !"44,.
Ta# e#em"tion is an imm!nit$ from the ci(il lia ilit$ onl$. -t is an imm!nit$ or "ri(ilege. a freedom from a charge or !rden to )hich others are s! 8ected. +F-,rer v. S:erida% !7# I%d. 24 7' ME 7'3 ,. -t is generall$ "ros"ecti(e in a""lication. Taxpayer: A&ministrati(e ; Hu&icia" 8eme&ies (2 )
3escri e se"aratel$ the "roced!res on the legal remedies !nder the Ta# 4ode a(aila le to an aggrie(ed ta#"a$er oth at the administrati(e and 8!dicial le(els. +55,
SUGGESTED ANSWER*
The legal remedies of an aggrie(ed ta#"a$er !nder the Ta# 4ode. oth at the administrati(e and 8!dicial le(els. ma$ e classified into those for a++e++5e%/. c,--ec/i,% and re1.%d. The "roced!res for the AD3&$&-TRAT&/E RE3ED&E- for ASSESSMENT are as follo)s* a. After recei"t of the 2re1Assessment =otice. he m!st )ithin fifteen +15, da$s from recei"t e#"lain )h$ no additional ta#es sho!ld e assessed against him.
. -f the 4ommissioner of -nternal @e(en!e iss!es an assessment notice. the ta#"a$er m!st administrati(el$ "rotest or dis"!te the assessment $ filing a motion for reconsideration or rein(estigation )ithin thirt$
+30, da$s from recei"t of the notice of assessment. +4th "ar.. 7ec. 228. =-@4 of 1997,
a.
Where the 4ommissioner of -nternal @e(en!e has not acted on the ta#"a$erDs "rotest )ithin a "eriod of one h!ndred eight$ +180, da$s from s! mission of all rele(ant doc!ments. then the ta#"a$er has a "eriod of thirt$ +30, da$s from the la"se of said 180 da$s )ithin )hich to inter"ose a "etition for re(ie) )ith the 4o!rt of Ta# A""eals. 7ho!ld the 4ommissioner den$ the ta#"a$erDs "rotest. then he has a "eriod of thirt$ +30, da$s from recei"t of said denial )ithin )hich to inter"ose a "etition for re(ie) )ith the 4o!rt of Ta# A""eals.
"rotest )as denied $ the 4ommissioner of -nternal @e(en!e +4ommissioner, )ith finalit$ on 7e"tem er 13. 1997. 4onseF!entl$. the 9#ec!tor )as made to "a$ the deficienc$ assessment on 'cto er 10. 1997. The follo)ing da$. the 9#ec!tor filed a 2etition )ith the 4o!rt of Ta# A""eals +4TA, "ra$ing for
-n oth cases the ta#"a$er m!st a""l$ )ith the 4o!rt of Ta# A""eals for the -ss!ance of an -n8!ncti(e )rit to en8oin the C!rea! of -nternal @e(en!e from collecting the dis"!ted ta# d!ring the "endenc$ of the "roceedings. $OTE% A 2004 Amendment 1 The decision of the di(ision of 4TA is in t!rn a""ealla le )ithin fifteen +15, da$s to the 4TA en anc. The decision of the 4TA en anc is directl$ a""ealla le to the 7!"reme 4o!rt on F!estion of la) on certiorari. The em"lo$ment $ the C!rea! of -nternal @e(en!e of an$ of the Ad)inist'ati(e Re)edies for the c,--ec/i,% ,1 /:e /a> li/e distraint. le($. etc. ma$ e administrati(el$ a""ealed $ the ta#"a$er to the 4ommissioner )hose decision is a""eala le to the 4o!rt of Ta# A""eals !nder other matter arising !nder the "ro(isions of the =ational -nternal @e(en!e 4ode. The 8!dicial a""eals starts )ith the 4o!rt of Ta# A""eals. and contin!es in the same manner as sho)n a o(e. 7ho!ld the C!rea! of -nternal @e(en!e decide to !tili0e its K!dicial ta# remedies for collecting the ta#es $ means of an ordinar$ s!it filed )ith the reg!lar co!rts for the collection of a s!m of mone$. the ta#"a$er co!ld o""ose the same going !" the ladder of 8!dicial "rocesses from the ?!nici"al Trial 4o!rt +as the case ma$ e, to the @egional Trial 4o!rt. to the 4o!rt of A""eals. thence to the 7!"reme 4o!rt. The remedies of an aggrie(ed ta#"a$er on a claim for ref!nd is to a""eal the ad(erse decision of the 4ommissioner to the 4TA in the same manner o!tlined a o(e. Taxpayer: Assessment: Protest: !"aims for refun& (2 )
'n K!ne 16. 1997. the C!rea! of -nternal @e(en!e +C-@, iss!ed against the 9state of Kose de la 4r!0 a notice of deficienc$ estate ta# assessment. incl!si(e of s!rcharge. interest and com"romise "enalt$. The 9#ec!tor of the 9state of Kose de la 4r!0 +9#ec!tor, filed a timel$ "rotest against the assessment and reF!ested for )ai(er of the s!rcharge. interest and "enalt$. The
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the ref!nd of the s!rcharge. interest and com"romise "enalt$. The 4TA too/ cogni0ance of the case and ordered the 4ommissioner to ma/e a ref!nd. The 4ommissioner filed a 2etition for @e(ie) )ith the 4o!rt of A""eals assailing the 8!risdiction of the 4TA and the 'rder to ma/e ref!nd to the 9state on the gro!nd that no claim for ref!nd )as filed )ith the C-@.
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collected or to file a s!ret$ ond for not more than do! le the amo!nt of the ta# to e fi#ed $ the co!rt (,ection %% )$.A. No. %%&-).
Taxpayer: BI8 Au&it or In(estigation (1999)
A" -s the stand of the 4ommissioner correct& @eason. +25,

SUGGESTED ANSWER*
<es. There )as no claim for ref!nd or credit that has een d!l$ filed )ith the 4ommissioner of -nternal @e(en!e )hich is reF!ired efore a s!it or "roceeding can e filed in an$ co!rt +7ec. 229. =-@4 of 1997,. The denial of the claim $ the 4ommissioner is the one )hich )ill (est the 4o!rt of Ta# A""eals 8!risdiction o(er the ref!nd case sho!ld the ta#"a$er decide to a""eal on time. 1" Wh$ is the filing of an administrati(e claim )ith the C-@ necessar$& +35,
SUGGESTED ANSWER*
The filing of an administrati(e claim for ref!nd )ith the C-@ is necessar$ in order* 1, To afford the 4ommissioner an o""ort!nit$ to consider the claim and to ha(e a chance to correct the errors of s! ordinate officers +G,%Ea-e+ v. CTA e/ a- !( SCRA #",E and 2, To notif$ the 6o(ernment that s!ch ta#es ha(e een F!estioned and the notice sho!ld e orne in mind in estimating the re(en!e a(aila le for e#"endit!res. +Ber5eK, v. C,--ec/,r G.R. N,. L; 7)24. <.-0 2" !"3), Taxpayer: Assessment$ In@unction (2 *) @@ dis"!ted a deficienc$ ta# assessment and !"on recei"t of an ad(erse decision $ the 4ommissioner of -nternal @e(en!e. filed an a""eal )ith the 4o!rt of Ta# A""eals. While the a""eal is "ending. the C-@ ser(ed a )arrant of le($ on the real "ro"erties of @@ to enforce the collection of the dis"!ted ta#. 6ranting arguendo that the C-@ can legall$ le($ on the "ro"erties. )hat co!ld @@ do to sto" the "rocess& 9#"lain riefl$. +55,
SUGGESTED ANSWER*
@@ sho!ld file a motion for in8!nction )ith the 4o!rt of Ta# A""eals to sto" the administrati(e collection "rocess. An a""eal to the 4TA shall not s!s"end the enforcement of the ta# lia ilit$. !nless a motion to that effect shall ha(e een "resented in co!rt and granted $ it on the asis that s!ch collection )ill 8eo"ardi0e the interest of the ta#"a$er or the 6o(ernment +Pir,va%, v. CIR !( SCRA 472 8!"'39,.
The 4TA is em"o)ered to s!s"end the collection of internal re(en!e ta#es and c!stoms d!ties in cases "ending a""eal onl$ )hen* +1, in the o"inion of the co!rt the collection $ the C-@ )ill 8eo"ardi0e the interest of the 6o(ernment andMor the ta#"a$erE and +2, the ta#"a$er is )illing to de"osit the amo!nt eing
A 4o.. a 2hili""ine cor"oration. is a ig man!fact!rer of cons!mer goods and has se(eral s!""liers of ra) materi1 als. The C-@ s!s"ects that some of the s!""liers are not "ro"erl$ re"orting their income on their sales to A 4o. The 4-@ therefore* 1, -ss!ed an access letter to A 4o. to f!rnish the C-@ information on sales and "a$ments to its s!""liers. 2, -ss!ed an access letter to a an/ +4B Can/, to f!rnish the C-@ on de"osits of some s!""liers of A 4o. on the alleged gro!nd that the s!""liers are committing ta# e(asion. A 4o.. B Can/ and the s!""liers ha(e not een iss!ed $ the C-@ letter of a!thorit$ to e#amine. A 4o. and B Can/ elie(e that the C-@ is on a %fishing e#"edition% and come to $o! for co!nsel. What is $o!r ad(ice& +105,
SUGGESTED ANSWER*
een erroneo!sl$. illegall$ or e#cessi(el$ assessed or collected* 2. Ae sho!ld file a )ritten claim for ref!nd )ith the 4ommissioner )ithin t)o $ears after the date of "a$ment of the ta# or "enalt$ +7ec. 204. =-@4,E
- )ill ad(ise A 4o. and C 4o. that the C-@ is 8!stified onl$ in getting information from the former !t not from the latter. The C-@ is a!thori0ed to o tain information from other "ersons other than those )hose internal re(en!e ta# lia ilit$ is s! 8ect to a!dit or in(estigation. Ao)e(er. this "o)er shall not e constr!ed as granting the 4ommissioner the a!thorit$ to inF!ire into an/ de"osits. (,ection -. N6$!). Taxpayer: !ity Boar& of Assessment 'ecision$ -#ere to appea" (1999) A 4o.. a 2hili""ine cor"oration. is the o)ner of machin1 er$. eF!i"ment and fi#t!res located at its "lant in ?!ntinl!"a 4it$. The 4it$ Assessor characteri0ed all these "ro"erties as real "ro"erties s! 8ect to the real "ro"ert$ ta#. A 4o. a""ealed the matter to the ?!ntinl!"a Coard of Assessment A""eals. The Coard r!led in fa(or of the 4it$. -n accordance )ith @A 1125 +An Act creating the 4o!rt of Ta# A""eals,. A 4o. ro!ght a "etition for re(ie) efore the 4TA to a""eal the decision of the 4it$ Coard of Assessment A""eals. -s the 2etition for @e(ie) "ro"er& 9#"lain. +55,
SUGGESTED ANSWER*
=o. The 4TAQs de(oid of 8!risdiction to entertain a""eals from the decision of the 4it$ Coard of Assessment A""eals. 7aid decision is instead a""eala le to the 4entral Coard of Assessment A""eals. )hich !nder the :ocal 6o(ernment 4ode. has a""ellate 8!risdiction o(er deci1 sions of :ocal Coard of Assessment A""eals. +Ca-/e>
P:i-+ 1,e. v. Ce%/ra- B,ard ,1 A++e++5e%/ A**ea-+ L; 3)('' Ma0 7! !"42,.
Taxpayer: !"aim for 8efun&$ Proce&ure (2 2) A. What m!st a ta#"a$er do in order to claim a ref!nd of. or ta# credit for. ta#es and "enalties )hich he alleges to ha(e een erroneo!sl$. illegall$ or e#cessi(el$ assessed or collected& +35,
SUGGESTED ANSWER*
The ta#"a$er m!st com"l$ )ith the follo)ing "roced!res in claiming a ref!nd of. or ta# credit for. ta#es and "enalties )hich he alleges to ha(e
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3.
The claim filed m!st state a categorical

P:i-. "' 8!"3)9$.
.9 of 73
$o!r other reco!rse& 9#"lain.

SUGGESTED ANSWERS*
demand for reim !rsement (Ber5eK, v. C,--ec/,r 4#

4.
The s!it or "roceeding for reco(er$ m!st
e commenced in co!rt )ithin t)o $ears from date of
"a$ment of the ta# or "enalt$ regardless of an$ s!"er(ening e(ent that )ill arise after "a$ment +7ec. 229. =-@4,.
ANote: 6f the answer given is only number % it is suggested that the same shall be given full credit considering that this is the only
re7uirement for the !ommissioner to ac7uire 1urisdiction over the claim.@
1, The e#aminer is correct in assessing a deficienc$ income ta# for ta#a le $ear 1993 !t not in im"osing the 505 fra!d s!rcharge. The amo!nt of all items of gross income m!st e incl!ded in gross income d!ring the $ear in )hich recei(ed or reali0ed +7ec. 38. =-@4,. The 505
C. 4an the 4ommissioner grant a ref!nd or ta# credit e(en )itho!t a )ritten claim for it& +25,
SUGGESTED ANSWER*
C. <es. When the ta#"a$er files a ret!rn )hich on its face sho)s an o(er"a$ment of the ta# and the o"tion to ref!ndM claim a ta# credit )as chosen $ the ta#"a$er. the 4ommissioner shall grant the ref!nd or ta# credit )itho!t the need for a )ritten claim. This is so. eca!se a ret!rn filed sho)ing an o(er"a$ment shall e considered as a )ritten claim for credit or ref!nd. + ,ees. '. and &(" N6$!,. ?oreo(er. the la) "ro(ides that the 4ommissioner ma$. e(en )itho!t a )ritten claim therefor. ref!nd or credit an$ ta# )here on the face of the ret!rn !"on )hich "a$ment )as made. s!ch "a$ment a""ears clearl$ to ha(e een erroneo!sl$ "aid. + ,ec. &&* N6$!,.
Taxpayer: 'eficiency Income Tax (1999)

C!sinessman 7te"hen <ang filed an income ta# ret!rn for 1993 sho)ing !siness net income of 2350.000.00 on )hich he "aid an income ta# of 261.000.00. After filing the ret!rn he reali0ed that he forgot to incl!de an item of !siness income in 1993 for 250.000.00. Ceing an honest ta#"a$er. he incl!ded this income in his ret!rn for 1994 and "aid the corres"onding income ta# thereon. -n the e#amination of his 1993 ret!rn the C-@ e#aminer fo!nd that 7te"hen <ang failed to re"ort this item of 250.000.00 and assessed him a deficienc$ income ta# on this item. "l!s a 505 fra!d s!rcharge.
1, 2,
3,
-s the e#aminer correct& 9#"lain. -f $o! )ere the la)$er of 7te"hen <ang. )hat )o!ld $o! ha(e ad(ised $o!r client efore he incl!ded in his 1994 ret!rn the amo!nt of 250.000.00 as 1993 income to a(oid the fra!d s!rcharge& 9#"lain. 4onsidering that 7te"hen <ang had alread$ een assessed a deficienc$ income ta# for 1993 for his fail!re to re"ort the 250.000.00 income. )hat )o!ld $o! ad(ise him to do to a(oid the "enalties for ta# delinF!enc$& 9#"lain.
What )o!ld $o! ad(ise 7te"hen <ang to do )ith regard to the income ta# he "aid for the 250.000.00 in his 1994 ret!rn& -n case $o!r remed$ fails. )hat is
4,
fra!d s!rcharge attaches onl$ if a false or fra!d!lent ret!rn is )illf!ll$ made $ ?r. <ang +7ec.248. =-@4,. The fact that ?r. <ang incl!ded the income in his 1994 ret!rn elies an$ claim of )illf!lness !t is rather indicati(e of an honest mista/e )hich )as so!ght to e rectified $ a s! seF!ent act. that is the filing of the 1994 ret!rn. 2, ?r. <ang sho!ld ha(e amended his 1993 -ncome ta# ret!rn to allo) for the incl!sion of the 250.000 income d!ring the ta#a le "eriod it )as reali0ed. 3, ?r. <ang sho!ld file a "rotest F!estioning the 505 s!rcharge and as/ for the a atement thereof.
ALTERNATI1E ANSWER*
"etition for re(ie) ma$ e filed )ith the 4o!rt of Ta# A""eals. @ather. it is the action ta/en $ the 4ommissioner in res"onse to the ta#"a$erDs "rotest on the assessment that )o!ld constit!te the a""eala le decision +7ection 7. @A 1125,.
+ , =o. the "etition for re(ie) can not e entertained $ the 4o!rt of A""eals. since decisions of the
?r. <ang sho!ld "a$ the deficienc$ income ta# on or efore the da$ "rescri ed for its "a$ment "er notice of demand. After "a$ment and )ithin t)o $ears thereafter. he sho!ld file a claim for ref!nd of ta#es erroneo!sl$ "aid to reco(er the e#cessi(e s!rcharge im"osed.
4, ?r. <ang sho!ld file a )ritten claim for ref!nd )ith the 4ommissioner of -nternal @e(en!e of the ta#es "aid on the 250.000 income incl!ded in 1994 )ithin t)o $ears from "a$ment "!rs!ant to 7ection 204+3, of the Ta# 4ode. 7ho!ld this remed$ fail in the administrati(e le(el. a 8!dicial claim for ref!nd can e instit!ted efore the e#"iration of the t)o $ear "eriod. Taxpayer: 2x#austion of A&ministrati(e 8eme&ies (199,)
+a, A ta#"a$er recei(ed. on 15 Kan!ar$ 1996 an as1 sessment for an internal re(en!e ta# deficienc$. 'n
10 Ie r!ar$ 1996. the ta#"a$er forth)ith filed a "etition for re(ie) )ith the 4o!rt of Ta# A""eals. 4o!ld the Ta# 4o!rt entertain the "etition&
+ , Gnder the a o(e fact!al setting. the ta#"a$er. instead of F!estioning the assessment he recei(ed on 15 Kan!ar$ 1996 "aid. on 01 ?arch 1996 the %deficienc$ ta#% assessed. The ta#"a$er reF!ested a ref!nd from the 4ommissioner $ s! mitting a )ritten claim on
1 ?arch 1997. -t )as denied. The ta#"a$er. on 15 ?arch 1997. filed a "etition for re(ie) )ith the 4o!rt of A""eals. 4o!ld the "etition still e entertained&
SUGGESTED ANSWER*
+a, =o. Cefore ta#"a$er can a(ail of K!dicial remed$ he m!st first e#ha!st administrati(e remedies $ filing a "rotest )ithin 30 da$s from recei"t of the assessment. -t is the 4ommissionerDs decision on the "rotest that gi(e the Ta# 4o!rt 8!risdiction o(er the case "ro(ided that the a""eal is filed )ithin 30 da$s from recei"t of the 4ommissionerDs decision. An assessment $ the C-@ is not the 4ommissionerDs decision from )hich a
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4ommissioner on cases in(ol(ing claim for ta# ref!nds are )ithin the e#cl!si(e and "rimar$ 8!risdiction of the 4o!rt of Ta# A""eals +7ection 7.@A1125,.
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5,
Taxpayer: Fai"ure to -it##e"& ; 8emit Tax (2 ) A domestic cor"oration failed to )ithhold and remit the ta# on income recei(ed from 2hili""ine so!rces $ a non1 resident foreign cor"oration. -n addition to the ci(il "enalties "ro(ided for !nder the Ta# 4ode. a com"romise "enalt$ )as im"osed for (iolation of the )ithholding ta# "ro(isions. ?a$ the 4ommissioner of -nternal @e(en!e legall$ enforce the collection of com"romise "enalt$& +55,
SUGGESTED ANSWER*
claim for ref!nd )hich ma$ ta/e the form of a atement or dra) ac/. The ta#"a$er can also file a "rotest )ithin 15 da$s from "a$ment if he disagrees )ith the r!ling or decision of the 4ollector of 4!stoms regarding the legalit$ or correctness of the assessment of c!stoms d!ties.
=o. There is no sho)ing that the com"romise "enalt$ )as im"osed $ the 4ommissioner of -nternal @e(en!e )ith the agreement and conformit$ of the ta#"a$er. +=,%der
Mec:a%ica- E%gi%eeri%g C,r*,ra/i,% .. C,.r/ ,1 Ta> A**ea-+ e/. a-. '( SCRA 333,. Taxpayer: 7I8! (s) T!! 8eme&ies (1996)
4om"are the ta#"a$erDs remedies !nder the =ational -nternal @e(en!e 4ode and the Tariff and 4!stoms 4ode.
SUGGESTED ANSWER*
The ta#"a$erDs remedies !nder the $AT&O$A* &$TER$A* RE/E$.E CODE ma$ e categori0ed into remedies efore "a$ment and remedies after "a$ment. The remed$ BEFORE PABMENT consists of
+a, Ad5i%i+/ra/ive Re5ed0 )hich is the filing of "rotest )ithin 30 da$s from recei"t of assessment. and + , <.dicia- Re5ed0 )hich is the a""eal of the ad(erse decision of the 4ommissioner on the "rotest )ith the 4o!rt of Ta# A""eals. and finall$ )ith the 7!"reme 4o!rt. The remed$ AFTER PABMENT is a(ailed of +c, $ "a$ing the assessed ta# )ithin 30 da$s from recei"t of assessment and +d, the filing of a claim for ref!nd or ta# credit of these ta#es on gro!nds that the$ are erroneo!sl$ "aid )ithin t)o $ears from date of "a$ment. +e, 6f there is a denial of the claim . a""eal to the 4TA shall e made )ithin 30 da$s from denial !t )ithin t)o $ears from date of "a$ment. -f the 4ommissioner fails to act on the claim for ref!nd or ta# credit and the t)o1$ear "eriod is a o!t to e#"ire. the ta#"a$er sho!ld consider the contin!o!s inaction of the 4ommissioner as a denial and ele(ate the case to the 4TA efore the e#"iration of the t)o1$ear "eriod. Gnder the Ta'iff and Custo)s Code. ta#"a$erDs reme1 dies arise onl$ after "a$ment of d!ties. 4, The administrati(e remedies consist of filing a
"ros"er& 9#"lain. +55,

SUGGESTED ANSWER*
6, -f the decision of the 4ollector is ad(erse to the ta#"a$er. he can notif$ the 4ollector )ithin 15 da$s from recei"t of said decision of his desire to ha(e his case re(ie)ed $ the 4ommissioner. The decision of the 4ollector on the ta#"a$erDs "rotest. if ad(erse to the 6o(ernment. is a!tomaticall$ ele(ated to the 4ommissioner for re(ie)E and if s!ch decision is affirmed $ the 4ommissioner. the same shall e a!tomaticall$ ele(ated to and finall$ re(ie)ed $ the 7ecretar$ of Iinance. @esort to 8!dicial relief can e had $ the ta#"a$er $ a""ealing the decision of the 4ommissioner or of the 7ecretar$ of Iinance +for cases s! 8ect to a!tomatic re(ie), )ithin 30 da$s from the "rom!lgation of the ad(erse decision to the 4TA.
=o. 2rescri"tion has not set in eca!se the "eriod of limitations for the C!rea! of -nternal @e(en!e to iss!e an assessment )as SUSPENDED d!ring the time that ?r. @e$es )as o!t of the 2hili""ines or from the "eriod
Taxpayer: %(er1it#o"&ing !"aim for 8efun& (1999)

A 4o. is the )holl$ o)ned s! sidiar$ of C 4o.. a non1 resident 6erman com"an$. A 4o. has a trademar/ licensing agreement )ith C 4o. 'n Ie . 10. 1995. A 4o. remitted to C 4o. ro$alties of 2 10.000.000. )hich A 4o. s! 8ected to a )ithholding ta# of 255 or 22.500.000. G"on ad(ice of co!nsel. A 4o. reali0ed that the "ro"er )ithholding ta# rate is 105. 'n ?arch 20. 1996. A 4o. filed a claim for ref!nd of 22.500.000 )ith the C-@. The C-@ denied the claim on =o(. 15. 1996. 'n =o(. 28. 1996. A 4o. filed a "etition for re(ie) )ith the 4TA. The C-@ attac/ed the ca"acit$ of A 4o.. as agent. to ring the ref!nd case. 3ecide the iss!e. +55,
SUGGESTED ANSWER*
A 4o.. the )ithholding agent of the non1resident foreign cor"oration is entitled to claim the ref!nd of e#cess )ithholding ta# "aid on the income of said cor"oration in the 2hili""ines. Ceing a )ithholding agent. it is the one held lia le for an$ (iolation of the )ithholding ta# la) sho!ld s!ch a (iolation occ!r. -n the same (ein. it sho!ld e allo)ed to claim a ref!nd in case of o(er)itholding.
+CIR v. =a%der P:i-+. I%c. GR N,. '47#4 A*ri- !3 !"44 !') SCRA 3#7? CIR v. Pr,c/er @ Ga56-e PMC 2O( SCRA 7##,.
Taxpayer: Prescripti(e Perio&: Suspen&e& (2
?r. @e$es. a Iili"ino citi0en engaged in the real estate !siness. filed his 1994 income ta# ret!rn on ?arch 20. 1995. 'n 3ecem er 15. 1995. he left the 2hili""ines as an immigrant to 8oin his famil$ in 4anada. After the in(estigation of said ret!rnMthe C-@ iss!ed a notice of deficienc$ income ta# assessment on A"ril 15. 1998. ?r. @e$es ret!rned to the 2hili""ines as a ali/ a$an on 3ecem er 8. 1998. Iinding his name to e in the list of delinF!ent ta#"a$ers. he filed a "rotest against the assessment on the gro!nd that he did not recei(e the notice of assessment and that the assessment had "rescri ed. Will the "rotest
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3ecem er 15. 1995 !" to 3ecem er 8. 1998. (,ec. &&5 in relation to ,ec. &(5 both of the N6$! of %**')
61 of 73
Taxpayer: Prescripti(e Perio&$ !"aim for 8efun& (199,)

A cor"oration files its income ta# ret!rn on a calendar $ear asis. Ior the first F!arter of 1993. it "aid on 30 ?a$ 1993 its F!arterl$ income ta# in the amo!nt of 23.0 million. 'n 20 A!g!st 1993. it "aid the second F!arterl$ income ta# of 20.5 million. The third F!arter res!lted in a net loss. and no ta# )as "aid. Ior the fo!rth and final ret!rn for 1993. the com"an$ re"orted a net loss for the $ear. and the ta#"a$er indicated in the income ta# ret!rn that it o"ted to claim a ref!nd of the F!arterl$ income ta# "a$ments. 'n 10 Kan!ar$ 1994. the cor"oration filed )ith the C!rea! of -nternal @e(en!e a )ritten claim for the ref!nd of 23.5 million.
for ref!nd in the C-@ as )ell as in the instit!tion of an action for ref!nd in the 4TA. the t)o1$ear "rescri"ti(e "eriod for ta# ref!nds +7ec. 230. Ta# 4ode, is co!nted from the filing of the final. ad8!stment ret!rn !nder 7ec. 67 of the Ta# 4ode. and not from the filing of the
C-@ failed to act on the claim for ref!ndE hence. on 02 ?arch 1996. the cor"oration filed a "etition for re(ie) )ith the 4o!rt of Ta# A""eals on its claim for ref!nd of the o(er"a$ment of its 1993 F!arterl$ income ta#. C-@. in its ans)er to the "etition. alleged that the claim for ref!nd )as filed e$ond the reglementar$ "eriod. 3id the claim for ref!nd "rescri e&
SUGGESTED ANSWER*
The claim for ref!nd has "rescri ed. The co!nting of the /&,;0ear *re+cri*/ive *eri,d 1,r 1i-i%g a c-ai5 1,r re1.%d is co!nted not from the date )hen the F!arterl$ income ta#es )ere "aid !t on the date )hen the final ad8!stment ret!rn or ann!al income ta# ret!rn )as filed
+CIR v. TMX Sa-e+ I%c. G.R. N,. 47#7' <a%.ar0 !3 !""2?
CIR v. P:iLA5 Li1e I%+.ra%ce C,. I%c. G.R. N,. !)32)4 Ma0 2" !""3,. -t is o (io!s that the ann!al income
ta# ret!rn )as filed efore Kan!ar$ 10. 1994 eca!se the )ritten claim for ref!nd )as filed )ith the C-@ on Kan!ar$ 10. 1994. 7ince the t)o1$ear "rescri"ti(e "eriod is not onl$ a limitation of action in the administrati(e stage !t also a limitation of action for ringing the case to the 8!dicial stage. the "etition for re(ie) filed )ith the 4TA on ?arch 02. 1996 is e$ond the reglementar$ "eriod.
Taxpayer: Prescripti(e Perio&$ !"aims for 8efun& (199*)

B49: 4or"oration filed its F!arterl$ income ta# ret!rn for the first F!arter of 1985 and "aid an income ta# of 2500.000.00 on ?a$ 15. 1985. -n the s! seF!ent F!arters. B49: s!ffered losses so that on A"ril 15. 1986 it declared a net loss of 21.000.000.00 in its ann!al income ta# ret!rn. After failing to get a ref!nd. B49: filed on ?arch 1. 1988 a case )ith the 4o!rt of Ta# A""eals to reco(er the 2500.000.00 in ta#es "aid on ?a$ 15. 1985.
-s the action to reco(er the ta#es filed timel$&

SUGGESTED ANSWER*
The action for ref!nd )as filed in the 4o!rt of Ta# A""eals on time. -n the case of C,55i++i,%er v. TMX Sa-e+ I%c. 2)3 SCRA !4(. )hich is similar to this case. the 7!"reme 4o!rt r!led that in the case of o(er"aid F!arterl$ cor"orate income ta#. the t)o1$ear "eriod for filing claims
)arrant.
This is the action - shall ta/e eca!se - shall consider the iss!ance of the )arrant as a final decision of the 4ommissioner of -nternal @e(en!e )hich co!ld e the
F!arterl$ ret!rn and "a$ment of the F!arterl$ ta#. The 4TA action on ?arch 1. 1988 )as clearl$ )ithin the reglementar$ t)o1$ear "eriod from the filing of the final ad8!stment ret!rn of the cor"oration on A"ril 15. 1986.
Taxpayer: Prescripti(e Perio&$ !"aims for 8efun& (2 *) 'n ?arch 12. 2001. @9= "aid his ta#es. Ten months later. he reali0ed that he had o(er"aid and so he immediatel$ filed a claim for ref!nd )ith the 4ommissioner of -nternal @e(en!e. 'n Ie r!ar$ 27. 2003. he recei(ed the decision of the 4ommissioner den$ing @9=Ds claim for ref!nd. 'n ?arch 24. 2003. @9= filed an a""eal )ith the 4o!rt of Ta# A""eals. Was his a""eal filed on time or not& @eason. +55,
SUGGESTED ANSWER*
The a""eal )as not filed on time. The t)o1$ear "eriod of limitation for filing a claim for ref!nd is not onl$ a limitation for "!rs!ing the claim at the administrati(e le(el !t also a limitation for a""ealing the case to the 4o!rt of Ta# A""eals. The la) "ro(ides that %no s!it or "roceeding shall e filed after the e#"iration of t)o $ears from the date of the "a$ment of the ta# or "enalt$ regardless of an$ s!"er(ening ca!se that ma$ arise after "a$ment +7ection 229. K;J@4K. 7ince the a""eal )as onl$ made on ?arch 24. 2003. more than t)o $ears had alread$ ela"sed from the time the ta#es )ere "aid on ?arch 12. 2003. Accordingl$. @9= had lost his 8!dicial remed$ eca!se of "rescri"tion. Taxpayer: Protest against Assessment (199=) 4IC 4or"oration. a domestic cor"oration engaged in food "rocessing and other allied acti(ities. recei(ed a letter from the C-@ assessing it for delinF!enc$ income ta#es. 4IC filed a letter of "rotest. 'ne month after. a )arrant of distraint and le($ )as ser(ed on 4IC 4or"oration. -f $o! )ere the la)$er engaged $ 4IC 4or"oration to contest the assessment made $ the C-@. )hat ste"s )ill $o! ta/e to "rotect $o!r client& +55,
SUGGESTED ANSWER*
- shall immediatel$ file a motion for reconsideration of the iss!ance of the )arrant of distraint and le($ and see/ from the C-@ 4ommissioner a denial of the "rotest %in clear and !neF!i(ocal lang!age.% This is so eca!se the iss!ance of a )arrant of distraint and le($ is not considered as a denial $ the C-@ of the "rotest filed $ 4IC 4or"oration +CIR v. U%i,% S:i**i%g C,r*. !43 SCRA 3(#,.
Within thirt$ +30, da$s from recei"t of s!ch denial %in clear and !neF!i(ocal lang!age.% - shall then file a "etition for re(ie) )ith the 4o!rt of Ta# A""eals. A*TER$AT&/E A$-WER% Within thirt$ +30, da$s from recei"t of the )arrant of distraint and le($. - shall file a "etition for re(ie) )ith the 4o!rt of Ta# A""eals )ith an a""lication for iss!ance of a )rit of "reliminar$ in8!nction to en8oin the C!rea! of -nternal @e(en!e from enforcing the
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s! 8ect of a""eal to the 4o!rt of Ta# A""eals
62 of 73
+B,6e+ .. F-,K, !3 SCRA 2#4,. The 4TA ma$. ho)e(er. remand the case to the C-@ and reF!ire the 4ommissioner to s"ecificall$ r!le on the "rotest. The decision of the 4ommissioner. if ad(erse to m$ client. )o!ld then constit!te an a""eala le decision. Taxpayer: Protest against Assessment (1999)
A 4o.. a 2hili""ine cor"oration. recei(ed an income ta# deficienc$ assessment from the C-@ on ?a$ 5. 1995. 'n ?a$ 31. 1995. A 4o. filed its "rotest )ith the C-@. 'n K!l$ 30. 1995. A 4o. s! mitted to the C-@ all rele(ant s!""orting doc!ments. The 4-@ did not formall$ r!le on the "rotest !t on Kan!ar$ 25. 1996. A 4o. )as ser(ed a s!mmons and a co"$ of the com"laint for collection of the ta# deficienc$ filed $ the C-@ )ith the @egional Trial 4o!rt +@T4,. 'n Ie r!ar$ 20. 1996. A 4o. ro!ght a 2etition for @e(ie) efore the 4TA. The C-@ contended that the 2etition is "remat!re since there )as no formal denial of the "rotest of A 4o. and sho!ld therefore e dismissed. 1. Aas the 4TA 8!risdiction o(er the case&
SUGGESTED ANSWER6
assessment. This )arrant )as ser(ed on A 4o. on ?a$ 25. 1997. -n a letter dated K!ne 4. 1997 and recei(ed $ A 4o. 5 da$s later. the 4-@ formall$ denied A 4o.Ds "rotest stating that it constit!tes his final decision on the matter. 'n K!l$ 6. 1997. A 4o. filed a 2etition for @e(ie) )ith the 4TA. The C-@ mo(ed to
<es. the 4TA has 8!risdiction o(er the case eca!se this F!alifies as an a""eal from the 4ommissionerDs decision on dis"!ted assessment. When the 4ommissioner decided to collect the ta# assessed )itho!t first deciding on the ta#"a$erDs "rotest. the effect of the 4ommissionerQs action of filing a 8!dicial action for collection is a decision of denial of the "rotest. in )hich e(ent the ta#"a$er ma$ file an a""eal )ith the 4TA. +Re*.6-ic v. Li5 Tia% Te%g @
S,%+ I%c. !' SCRA 34(? Da0ri/ v. Cr.E L; 7""!) Se*/. 2' !"44,. 2. Aas the @T4 8!risdiction o(er the collection case filed $ the C-@& 9#"lain.
SUGGESTED ANSWER6
The @T4 has no 8!risdiction o(er the collection case filed $ the C-@. The filing of an a""eal )ith the 4TA has the effect of di(esting the @T4 of 8!risdiction o(er the collection case. At the moment the ta#"a$er a""eals the case to the 4o!rt of Ta# A""eals in (ie) of the 4ommissionerDs filing of the collection case )ith the @T4 )hich )as considered as a decision of denial. it gi(es a 8!stifia le asis for the ta#"a$er to mo(e for dismissal in the @T4 of the 6o(ernmentDs action to collect the ta# lia ilit$ !nder dis"!te. +Ba6e+ v. F-,K, !3 SCRA 2#4? Sa% <.a% v. Va+C.eE 7 SCRA "2,. There is no final. e#ec!tor$ and demanda le assessment )hich can e enforced $ the C-@. once a timel$ a""eal is filed.
Taxpayer: Protest against Assessment (1999)

A 4o.. a 2hili""ine cor"oration. recei(ed an income ta# deficienc$ assessment from the C-@ on =o(em er 25. 1996. 'n 3ecem er 10. 1996. A 4o. filed its "rotest )ith the C-@ 'n ?a$ 20. 1997. the C-@ iss!ed a )arrant of distraint to enforce the
C-@Ds final act regarding reconsideration. (CIR v.
the
reF!est
for
dismiss the 2etition on the gro!nd that the 4TA has no 8!risdiction o(er the case. 3ecide. +105,
SUGGESTED ANSWER*
I+a6e-a C.-/.ra- C,r*,ra/i,% G.R. N,. !732!) <.-0 !! 2))!$
The 4TA has 8!risdiction o(er the case. The a""eala le decision is the one )hich categoricall$ stated that the 4ommissionerDs action on the dis"!ted assessment is final and. therefore. the rec/oning of the 301da$ "eriod to a""eal )as on K!ne 9. 1999. The filing of the "etition for re(ie) )ith the 4TA )as timel$ made. The 7!"reme 4o!rt has r!led that the 4-@ m!st categoricall$ state that his action on a dis"!ted assessment is finalE other)ise. the "eriod to a""eal )ill not commence to r!n. That final action cannot e im"lied from the mere iss!ance of a )arrant %of distraint and le($. +CIR v. U%i,% S:i**i%g C,r*,ra/i,% !43 SCRA 3(#,.
Taxpayer: Protest$ !"aim of 8efun& (1996) -s "rotest at the time of "a$ment of ta#es and d!ties a reF!irement to "reser(e the ta#"a$ersD right to claim a ref!nd& 9#"lain.
SUGGESTED ANSWER*
Ior TA0E- im"osed !nder the $&RC, "rotest at the time of "a$ment is not reF!ired to "reser(e the ta#"a$ersD right to claim ref!nd. This is clear !nder ,ection &5( of the N6$! )hich "ro(ides that a s!it or "roceeding ma$ e maintained for the reco(er$ of national internal re(en!e ta# or "enalt$ alleged to ha(e een erroneo!sl$ assessed or collected. )hether s!ch ta# or "enalt$ has een "aid !nder "rotest or not. Ior D.T&E- im"osed !nder the Ta'iff and Custo)s Code. a "rotest at the time of "a$ment is reF!ired to "reser(e the ta#"a$ersD claim for ref!nd. The "roced!re !nder the T44 is to the effect that )hen a r!ling or decision of the 4ollector of 4!stoms is made )here $ lia ilit$ for d!ties is determined. the "art$ ad(ersel$ affected ma$ "rotest s!ch r!ling or decision $ "resenting to the 4ollector. at the time )hen "a$ment is made. or )ithin 15 da$s thereafter. a )ritten "rotest setting forth his o 8ections to the r!ling or decision in F!estion +7ec. 2308. T44,.
Taxpayer$ Appea" to t#e !ourt of Tax Appea"s (2 9) A ta#"a$er recei(ed a ta# deficienc$ assessment of 21.2 ?illion from the C-@ demanding "a$ment )ithin 10 da$s. other)ise. it )o!ld collect thro!gh s!mmar$ remedies. The ta#"a$er reF!ested for a reconsideration stating the gro!nds therefor. -nstead of resol(ing the reF!est for reconsideration. the C-@ sent a Iinal =otice efore 7ei0!re to the ta#"a$er. ?a$ this action of the 4ommissioner of -nternal @e(en!e e deemed a denial of the reF!est for reconsideration of the ta#"a$er to entitle him to a""eal to the 4o!rt of Ta# A""eals& 3ecide )ith reasons. +55,
SUGGESTED ANSWER*
<es. the final notice efore sei0!re )as in effect a denial of the ta#"a$erDs reF!est for reconsideration. not onl$ )as the notice the onl$ res"onse recei(ed. its nat!re. content and tenor s!""orts the theor$ that it )as the
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6+ of
-s this "roced!re correct& O55P

SUGGESTED ANSWER*
73
Taxpayer$ !"aim for Tax !re&its (2 6)
4ongress enacts a la) granting grade school and high school st!dents a 105 disco!nt on all school1 "rescri ed te#t oo/s "!rchased from an$ oo/store. The la) allo)s oo/stores to claim in f!ll the disco!nt as a ta# credit.
=o. 4riminal (iolations. if alread$ filed in co!rt. ma$ not e com"romised (,ec. &("A3@ N6$!). I!rthermore. the "a$ment of the ta# d!e after a""rehension shall not constit!te a (alid defense in an$ "rosec!tion for (iolation of an$ "ro(isions of the Ta# 4ode (,ec. &"'(a) N6$!). Iinall$. there is no sho)ing that the "rosec!tor in the "ro lem is a legal officer of the C!rea! of -nternal
1. -f in a ta#a le $ear a oo/store has no ta# d!e on )hich to a""l$ the ta# credits. can the oo/store claim from the C-@ a ta# ref!nd in lie! of ta# credit& 9#"lain. +2.55,
SUGGESTED ANSWER*
=o. the oo/store cannot claim from the C-@ a ta# ref!nd in lie! of ta# credit. There is nothing in the la) that grants a ref!nd )hen the oo/store has no ta# lia il1 it$ against )hich the ta# credit can e !sed (CIR v. Ce%/ra- L.E,% Dr.g G.R. N, !3"'(# A*ri- !3 2))3$. A ta# credit is in the nat!re of a ta# e#em"tion and in case of do! t. the do! t sho!ld e resol(ed in strictissimi 1uris against the claimant. 2. 4an the C-@ reF!ire the oo/stores to ded!ct the amo!nt of the disco!nt from their gross income& 9#"lain. +2.55,
SUGGESTED ANSWER*
=o. Ta# credit )hich red!ces the ta# lia ilit$ is different from a ta# ded!ction )hich merel$ red!ces the ta# ase. 7ince the la) allo)ed the oo/stores to claim in f!ll the disco!nt as a ta# credit. the C-@ is not allo)ed to e#"and or contract the legislati(e mandate (CIR v. Bic,-a%dia
Dr.g C,r*. G.R. N,. !(4)47 <.-0 2! 2))'? CIR v. Ce%/ra- L.E,% Dr.g C,r*. G.R. N,. !3"'(# A*ri- !3 2))3$.
3. -f a oo/store closes its !siness d!e to losses )ith1 o!t eing a le to reco!" the disco!nt. can it claim reim !rsement of the disco!nt from the go(ernment on the gro!nd that )itho!t s!ch reim !rsement. the la) constit!tes ta/ing of "ri(ate "ro"ert$ for "! lic !se )itho!t 8!st com"ensation& 9#"lain. +55,
SUGGESTED ANSWER*
A oo/store. closing its !siness d!e to losses. cannot claim reim !rsement of the disco!nt from the go(ernment. -f the !siness contin!es to o"erate at a loss and no other ta#es are d!e. th!s com"elling it to close sho". the credit can ne(er e a""lied and )ill e lost altogether (CIR v. Ce%/raL.E,% Dr.g G.R. N,. !3"'(# A*ri- !3 2))3$. The grant of the disco!nt to the ta#"a$er is a mere "ri(ilege and can e re(o/ed an$time.
Taxpayer$ !ompromise after !rimina" Action (199=) An information )as filed in co!rt for )illf!l non1 "a$ment of income ta# the assessment of )hich has ecome final. The acc!sed. thro!gh co!nsel. "resented a motion that he e allo)ed to com"romise his ta# lia ilit$ s! 8ect of the information. The "rosec!tor indicated his conformit$ to the motion.
@e(en!e to )hom the cond!ct of criminal actions are lodged $ the Ta# 4ode.
ALTERNATI1E ANSWER*
ref!nd. of the amo!nt he elie(es )as illegall$ collected from him. (C,55i++i,%er ,1 I%/er%aReve%.e v. Pr,c/er @ Ga56-e G.R. N,. ''474 Dece56er 2 !""!$
=o. -f the com"romise referred to is the ci(il as"ect. the "roced!re follo)ed is not correct. 4om"romise for the "a$ment of an$ internal re(en!e ta# shall e made onl$ $ the 4ommissioner of -nternal @e(en!e or in a "ro"er case the 9(al!ation Coard of the C-@ +7ec. 204. =-@4,. A""l$ing the la) to the case at ar. com"romise settlement can onl$ e effected $ lea(e of 4o!rt.
Taxpayer$ Protest against Assessment$ 'onor6s Tax (1999)

?r. @odrigo. an 801$ear old retired !sinessman. fell in lo(e )ith 201$ear old Tetchie 7onora. a night cl! hos"italit$ girl. Altho!gh she ref!sed to marr$ him she agreed to e his %li(e1in% "artner. -n gratit!de. ?r. @odrigo transferred to her a condomini!m !nit. )here the$ oth li(e. !nder a deed of sale for 210 ?illion. ?r. @odrigo "aid the ca"ital gains ta# of 55 of 210 ?illion.
The 4ommissioner of -nternal @e(en!e fo!nd that the "ro"ert$ )as transferred to Tetchie 7onora $ ?r. @odrigo eca!se of the com"anionshi" she )as "ro(iding him. Accordingl$. the 4ommissioner made a determination that 7onora had com"ensation income of 210 ?illion in the $ear the condomini!m !nit )as transferred to her and iss!ed a deficienc$ income ta# assessment. Tetchie 7onora "rotests the assessment and claims that the transfer of the condomini!m !nit )as a gift and therefore e#cl!ded from income. Ao) )ill $o! r!le on the "rotest of Tetchie 7onora& 9#"lain.
SUGGESTED ANSWER*
- )ill grant the "rotest and cancel the assessment. The transfer of the "ro"ert$ $ ?r. @odrigo to ?s. 7onora )as grat!ito!s. The deed of sale indicating a 210 million consideration )as sim!lated eca!se ?r. @odrigo did not recei(e an$thing from the sale. The "ro lem categoricall$ states that the transfer )as made in gratit!de to ?s. 7onoraDs com"anionshi". The transfer eing grat!ito!s is s! 8ect to donorDs ta#. ?r. @odrigo sho!ld e assessed deficienc$ donorDs ta# and a 505 s!rcharge im"osed for fra!d!lentl$ sim!lating a contract of sale to e(ade donorDs ta#. (,ec. *%(b) N6$!). Taxpayer$ -it##o"&ing Agent$ !"aim of Tax 8efun& (2 9) 3oes a )ithholding agent ha(e the right to file an a""lication for ta# ref!nd& 9#"lain.
SUGGESTED ANSWER*
<es. A ta#"a$er is %an$ "erson s! 8ect to ta#.% 7ince. the )ithholding ta# agent )ho is %reF!ired to ded!ct and )ithheld an$ ta#% is made %"ersonall$ lia le for s!ch ta#% sho!ld the amo!nt of the ta# )ithheld e finall$ fo!nd to e less than that reF!ired to e )ithheld $ la). then he is a ta#"a$er. Th!s. he has s!fficient legal interest to file an a""lication for
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LOCAL - REAL PROPERTY TAXES

/oca" Taxation: Actua" <se of Property (2 2)
64 of 73
"ro(ince or m!nici"alit$ are a!thori0ed to le($ +7ec. 151. :64,
a. 2rinterDs or "! lisherDs ta# . Iranchise ta# c. 2rofessional ta#
The real "ro"ert$ of ?r. and ?rs Angeles. sit!ated in a commercial area in front of the "! lic mar/et. )as declared in their Ta# 3eclaration as residential eca!se it had een !sed $ them as their famil$ residence from the time of its constr!ction in 1990. Ao)e(er. since Kan!ar$ 1997. )hen the s"o!ses left for the Gnited 7tates to sta$ there "ermanentl$ )ith their children. the "ro"ert$ has een rented to a single "ro"rietor engaged in the sale of a""liances and agri1 "rod!cts. The 2ro(incial Assessor reclassified the "ro"ert$ as commercial for ta# "!r"oses starting Kan!ar$ 1998. ?r. and ?rs. Angeles a""ealed to the :ocal Coard of Assessment A""eals. contending that the Ta# 3eclaration "re(io!sl$ classif$ing their "ro"ert$ as residential is inding. Ao) sho!ld the a""eal e decided& +55,
SUGGESTED ANSWER*
The a""eal sho!ld e decided against ?r. and ?rs. Angeles. The la) foc!ses on the act!al !se of the "ro"ert$ for classification. (al!ation and assessment "!r"oses regardless of o)nershi". 7ection 217 of the :ocal 6o(ernment 4ode "ro(ides that %real "ro"ert$ shall e classified. (al!ed. and assessed on the asis of its act!al !se regardless of )here located. )hoe(er o)ns it. and )hoe(er !ses it%. /oca" Taxation: !o(erage (2 2) Aside from the asic real estate ta#. gi(e three +3, other ta#es )hich ma$ e im"osed $ "ro(incial and cit$ go(ernments as )ell as $ m!nici"alities in the ?etro ?anila area. +35,
SUGGESTED ANSWER*
The follo)ing real "ro"ert$ ta#es aside from the asic real "ro"ert$ ta# ma$ e im"osed $ "ro(incial and cit$ go(ernments as )ell as $ m!nici"alities in the ?etro ?anila area* 1. Additional le($ on real "ro"ert$ for the 7"ecial 9d!cation I!nd +7ec. 235. :64,E 2. Additional Ad1(alorem ta# on -dle lands +7ec. 23U. :64,E and 3. 7"ecial le($ +7ec. 240,. O$ote% The F!estion is s!sce"ti le to d!al inter"retation eca!se it is as/ing for three other ta#es and not three other real "ro"ert$ ta#es. Accordingl$. an alternati(e ans)er sho!ld e considered and gi(en f!ll creditP A. The follo)ing ta#es. aside from asic real estate ta#. ma$ e im"osed $* 1. 2ro(incial 6o(ernment a. 2rinterDs or "! lisherDs ta# . Iranchise Ta# c. 2rofessional ta#
2. 4it$ 6o(ernment 1 ma$ le($ ta#es )hich the
(,ec.&5' 6bid.)
3. ?!nici"alities in the ?etro ?anila Area 1 ma$ le($ ta#es at rates )hich shall not e#ceed $ 505 the ma#im!m rates "rescri ed in the :ocal 6o(ernment 4ode. a. Ann!al fi#ed ta# on man!fact!rers. assem lers. re"ac/ers. "rocessors. re)ers. distillers. rectifiers and com"o!nders of liF!ors. distilled s"irits. and )ines or man!fact!re of an$ article of commerce of )hate(er /ind or nat!reE . Ann!al fi#ed ta# on )holesalers. distri !tors. or dealers in an$ article of commerce of )hate(er /ind or nat!reE c. 2ercentage ta# on retailers
O=ote* 'ther ta#es ma$ com"rise the en!meration eca!se man$ other ta#es are a!thori0ed to e im"osed $ :6Gs.P
/oca" Taxation: 2xemption$ 8ea" Property Taxes (2 2) Gnder the :ocal 6o(ernment 4ode. )hat "ro"erties are e#em"t from real "ro"ert$ ta#es& +55,
SUGGESTED ANSWER*
The follo)ing "ro"erties are e#em"t from real "ro"ert$ ta#es* +7ec. 234. :64,.
1. @eal "ro"ert$ o)ned $ the @e"! lic of the 2hili""ines or an$ of its "olitical s! di(isions e#ce"t )hen the eneficial !se thereof has een granted. for consideration or other)ise. to a ta#a le "ersonE All lands. !ildings and im"ro(ements act!all$. directl$. and e#cl!si(el$ !sed for religio!s. charita le or ed!cational "!r"oses $ charita le instit!tions. ch!rches. "arsonages or con(ents a""!rtenant thereto. mosF!es. non"rofit or religio!s cemeteriesE
2.
3.
All machineries and eF!i"ment that are act!all$. directl$ and e#cl!si(el$ !sed $ local )ater districts and go(ernment1o)ned or controlled cor"orations engaged in the s!""l$ and distri !tion of )ater andMor generation and transmission of electric "o)erE All real "ro"ert$ o)ned $ d!l$ registered coo"erati(es as "ro(ided for !nder @.A. =o. 6938E and ?achiner$ and eF!i"ment !sed for "oll!tion control and en(ironmental "rotection.
4.
5.
/oca" Taxation: Imposition of A& Ca"orem Tax (2 ) ?a$ local go(ernments im"ose an ann!al realt$ ta# in addition to the asic real "ro"ert$ ta# on idle or (acant lots located in residential s! di(isions )ithin their res"ecti(e territorial 8!risdictions& +35,
SUGGESTED ANSWER*
=ot all local go(ernment !nits ma$ do so. 'nl$ "ro(inces. cities. and m!nici"alities )ithin the ?etro ?anila area (,ec. &5& ?ocal #overnment !ode) ma$ im"ose an ad va-,re5 /a> not e#ceeding fi(e "ercent +55, of the assessed (al!e (,ec. &5. 6bid.) of idle or (acant residential lots in a s! di(ision. d!l$ a""ro(ed $ "ro"er a!thorities regardless of area.
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/oca" Taxation: /ega"ityE !onstitutiona"ity$ Tax
6. of 73
im"osition& 9#"lain. +85,

SUGGESTED ANSWER*
%r&inance (2 4)
B. a ta#"a$er )ho elie(es that an ordinance "assed $ the 4it$ 4o!ncil of 2asa$ is !nconstit!tional for eing discriminator$ against him. )ant to /no) from $o!. his ta# la)$er. )hether or not he can file an a""eal. -n the affirmati(e. he as/s $o! )here s!ch a""eal sho!ld e made* the 7ecretar$ of Iinance. or the 7ecretar$ of K!stice. or the 4o!rt of Ta# A""eals. or the reg!lar co!rts. What )o!ld $o!r ad(ice e to $o!r client. B& +85,
SUGGESTED ANSWER*
=o. The im"osition of a generation of re(en!e !nder shall e e#ercised $ the go(ernment !nit concerned
ta#. fee or charge or the the :ocal 6o(ernment 4ode. 7A=6G=-A= of the local thro!gh an a""ro"riate
The a""eal sho!ld e made )ith the 7ecretar$ of K!stice. An$ F!estion on the constit!tionalit$ or legalit$ of a ta# ordinance ma$ e raised on a""eal )ith the 7ecretar$ of K!stice )ithin 30 da$s from the effecti(it$ thereof. (Sec.
!4# LGC? Hag,%,0 MarAe/ Ve%d,r A++,cia/i,% v. M.%ici*a-i/0 ,1 Hag,%,0 7#' SCRA 7#' 82))29$.
/oca" Taxation: /ega"ity$ Imposition of 8ea" Property Tax 8ate (2 2) An 'rdinance )as "assed $ the 2ro(incial Coard of a 2ro(ince in the =orth. increasing the rate of asic real "ro"ert$ ta# from 0.0065 to 1 5 of the assessed (al!e of the real "ro"ert$ effecti(e Kan!ar$ 1. 2000. @esidents of the m!nici"alities of the said "ro(ince "rotested the 'rdinance on the gro!nd that no "! lic hearing )as cond!cted and. therefore. an$ increase in the rate of real "ro"ert$ ta# is (oid. -s there merit in the "rotest& 9#"lain $o!r ans)er. +25,
SUGGESTED ANSWER*
The "rotest is de(oid of merit. =o "! lic hearing is reF!ired efore the enactment of a local ta# ordinance le($ing the asic real "ro"ert$ ta# +Art. 324. :64 @eg!lations,.
ALTERNATI1E ANSWER*
<es. there is merit in the "rotest "ro(ided that s!fficient "roof co!ld e introd!ced for the non1o ser(ance of "! lic hearing. C$ im"lication. the 7!"reme 4o!rt recogni0ed that "! lic hearings are reF!ired to e cond!cted "rior to the enactment of an ordinance im"osing real "ro"ert$ ta#es. Altho!gh it )as concl!ded $ the highest tri !nal that "res!m"tion of (alidit$ of a ta# ordinance can not e o(ercome $ are assertions of "roced!ral defects on its enactment. it )o!ld seem that if the ta#"a$er had "resented e(idence to s!""ort the allegation that no "! lic hearing )as cond!cted. the 4o!rt sho!ld ha(e r!led that the ta# ordinance is in(alid. (Be-e%
Fig.erre+ v. C,.r/ ,1 A**ea-+ GRN,. !!"!#2 Marc: 23 !"""$. /oca" Taxation: Po1er to Impose (2 4) -n order to raise re(en!e for the re"air and maintenance of the ne)l$ constr!cted 4it$ Aall of ?a/ati. the 4it$ ?a$or ordered the collection of 21.00. called %ele(ator ta#%. e(er$ time a "erson rides an$ of the high1tech ele(ators in the cit$ hall d!ring the ho!rs of 8*00 a.m. to 10*00 a.m. and 4*00 ".m. to 6*00 ".m. -s the %ele(ator ta#% a (alid
!n8!st. /oca" Taxation$ Situs of Professiona" Taxes (2 9) ?r. Iermin. a resident of L!e0on 4it$. is a 4ertified 2! lic Acco!ntant1:a)$er engaged in the "ractice of his
ordinance (,ection %5& of the ?ocal #overnment !ode). The cit$ ma$or alone co!ld not order the collection of the ta#E as s!ch. the %ele(ator ta#% is an in(alid im"osition. /oca" Taxation: 8emissionE!on&onation of Taxes (2 *)
@4 is a la)1a iding citi0en )ho "a$s his real estate ta#es "rom"tl$. 3!e to a series of t$"hoons and ad(erse economic conditions. an ordinance is "assed $ ?? 4it$ granting a 505 disco!nt for "a$ment of !n"aid real estate ta#es for the "receding $ear and the condonation of all "enalties on fines res!lting from the late "a$ment. Arg!ing that the ordinance re)ards delinF!ent ta#"a$ers and discriminates against "rom"t ones. @4 demands that he e ref!nded an amo!nt eF!i(alent to one1half of the real ta#es he "aid. The m!nici"al attorne$ rendered an o"inion that @4 cannot e reim !rsed eca!se the ordinance did not "ro(ide for s!ch reim !rsement. @4 files s!it to declare the ordinance (oid on the gro!nd that it is a class legislation. Will his s!it "ros"er& 9#"lain $o!r ans)er riefl$. +55,
SUGGESTED ANSWER*
The s!it )ill not "ros"er. The remission or condonation of ta#es d!e and "a$a le to the e#cl!sion of ta#es alread$ collected does not constit!te !nfair discrimination. 9ach set of ta#es is a class $ itself and the la) )o!ld e o"en to attac/ as class legislation onl$ if all ta#"a$ers elonging to one class )ere not treated ali/e 5<.a% L.%a S.6divi+i,%
I%c. v. Sar5ie%/, "! P:i-. 7#! 8!"329$"
/oca" Taxation: 8u"e of <niformity an& 23ua"ity (2 4) The 4it$ of ?a/ati. in order to sol(e the traffic "ro lem in its !siness districts. decided to im"ose a ta#. to e "aid $ the dri(er. on all "ri(ate cars entering the cit$ d!ring "ea/ ho!rs from 8*00 a.m. to 9*00 a.m. from ?onda$s to Irida$s. !t e#em"ts those cars carr$ing more than t)o occ!"ants. e#cl!ding the dri(er. -s the ordinance (alid& 9#"lain. +85,
SUGGESTED ANSWER*
The ordinance is in (iolation of the @!le of Gniformit$ and 9F!alit$. )hich reF!ires that all s! 8ects or o 8ects of ta#ation. similarl$ sit!ated m!st e treated ali/e in eF!al footing and m!st not classif$ the s! 8ects in an ar itrar$ manner. -n the case at ar. the ordinance e#em"ts cars carr$ing more than t)o occ!"ants from co(erage of the said ordinance. I!rthermore. the ordinance onl$ im"oses the ta# on "ri(ate cars and e#em"ts "! lic (ehicles from the im"osition of the ta#. altho!gh oth contri !te to the traffic "ro lem. There e#ists no s! stantial standard !sed in the classification $ the 4it$ of ?a/ati.
Another iss!e is the fact that the ta# is im"osed on the dri(er of the (ehicle and not on the registered o)ner of the same. The ta# does not onl$ (iolate the reF!irement of !niformit$. !t the same is also !n8!st eca!se it "laces the !rden on someone )ho has no control o(er the ro!te of the (ehicle. The ordinance is. therefore. in(alid for (iolating the r!le of !niformit$ and eF!alit$ as )ell as for eing
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t)o "rofessions. Ae has his main office in
66 of 73
and more "rod!cti(e "!r"ose. (9hilippine ?egal 4ncyclopedia by ,ibal %*/. 4d.)
Iinall$. - )o!ld ad(ise them to constr!ct or "lace im"ro(ements on their idle lands $ ma/ing (al!a le additions to the "ro"ert$ or ameliorations in the landDs
?a/ati 4it$ and maintains a ranch office in 2asig 4it$. ?r. Iermin "a$s his "rofessional ta# as a 42A in ?a/ati 4it$ and his "rofessional ta# as a la)$er in 2asig 4it$. +55, a, ?a$ ?a/ati 4it$. )here he has his main office. reF!ire him to "a$ his "rofessional ta# as a la)$er& 9#"lain.
SUGGESTED ANSWER*
=o. ?a/ati 4it$ )here ?r. Iermin has his main office ma$ not reF!ire him to "a$ his "rofessional ta# as a la)$er. ?r. Iermin has the o"tion of "a$ing his "rofessional ta# as a la)$er in 2asig 4it$ )here he "ractices la) or in ?a/ati 4it$ )here he maintains his "rinci"al office. (,ec. %5*Ab@ ?ocal #overnment !ode)
, ?a$ L!e0on 4it$. )here he has his residence and )here he also "ractices his t)o "rofessions. go after him for the "a$ment of his "rofessional ta# as a 42A and a la)$er& 9#"lain.
SUGGESTED ANSWER*
=o. the sit!s of the "rofessional ta# is the cit$ )here the "rofessional "ractices his "rofession or )here he maintains his "rinci"al office in case he "ractices his "rofession in se(eral "laces. The local go(ernment of L!e0on 4it$ has no right to collect the "rofessional ta# from ?r. Iermin as the "lace of residence of the ta#"a$er is not the "ro"er sit!s in the collection of the "rofessional ta#. /oca" Taxation$ Specia" /e(y on I&"e /an&s (2 9) A cit$ o!tside of ?etro ?anila "lans to enact an ordinance that )ill im"ose a s"ecial le($ on idle lands located in residential s! di(isions )ithin its territorial 8!risdiction in addition to the asic real "ro"ert$ ta#. -f the lot o)ners of a s! di(ision located in the said cit$ see/ $o!r legal ad(ice on the matter. )hat )o!ld $o!r ad(ice e& 3isc!ss. +55,
SUGGESTED ANSWER*
- )o!ld ad(ise the lot o)ners that a cit$. e(en if it is o!tside ?etro ?anila. ma$ le($ an ann!al ta# on idle lands at the rate not e#ceeding fi(e "ercent +55, of the assessed (al!e of the "ro"ert$ )hich shall e in addition to the asic real "ro"ert$ ta#. (,ec. &5. ?ocal #overnment !ode) - )o!ld li/e)ise ad(ise them that the le($ ma$ a""l$ to residential lots. regardless of land area. in s! di(isions d!l$ a""ro(ed $ "ro"er a!thorities. the o)nershi" of )hich has een transferred to indi(id!al o)ners )ho shall e lia le for the additional ta#. +:ast "ar.. 7ec. 237,
The term %-dle :ands% means. land not de(oted directl$ to an$ cro" or to an$ definite "!r"ose for at least one $ear "rior to the notice of e#"ro"riation. e#ce"t for reasons other than force ma1eure or an$ fort!ito!s e(ent. !t !sed to e de(oted or is s!ita le to s!ch cro" or is contig!o!s to land de(oted directl$ to an$ cro" and does not incl!de land de(oted "ermanentl$ or reg!larl$ to other essential
2))3? Ci/0 Trea+.rer ,1 I.C. v. CA G.R. N,. !2)"#( Dec. 22 !""#$.
conditions so the lands )o!ld not e considered as idle. +7ec. 199OmP, -n this manner their "ro"erties )o!ld not e s! 8ect to the ad valorem tax on idle lands. 8ea" Property Tax: <n&ergroun& 5aso"ine TanBs (2 4)
Gnder Article 415 of the 4i(il 4ode. in order for machiner$ and eF!i"ment to e considered real "ro"ert$. the "ieces m!st e "laced $ the o)ner of the land and. in addition. m!st tend to directl$ meet the needs of the ind!str$ or )or/s carried on $ the o)ner. 'il com"anies install !ndergro!nd tan/s in the gasoline stations located on land leased $ the oil com"anies from the o)ners of the land )here the gasoline stations OareP located. Are those !ndergro!nd tan/s. )hich )ere not "laced there $ the o)ner of the land !t )hich )ere instead "laced there $ the lessee of the land. considered real "ro"ert$ for "!r"oses of real "ro"ert$ ta#ation !nder the local 6o(ernment 4ode& 9#"lain. +85,
SUGGESTED ANSWER*
<es. The "ro"erties are considered as necessar$ fi#t!res of the gasoline station. )itho!t )hich the gasoline station )o!ld e !seless. ?achiner$ and eF!i"ment installed $ the
lessee of leased land is not real "ro"ert$ for "!r"oses of e#ec!tion of a final 8!dgment onl$. The$ are considered as real "ro"ert$ for real "ro"ert$ ta# "!r"oses as %other im"ro(ements to affi#ed or attached real "ro"ert$ !nder the Assessment :a) and the @eal 2ro"ert$ Ta# 4ode.
5Ca-/e> v. Ce%/ra- B,ard ,1 A++e++5e%/ A**ea-+ !!( SCRA 2"' 8!"4296"
8ea" Property Tax$ 8e3uirements$ Auction Sa"es of Property for Tax 'e"in3uency (2 6)
L!e0on 4it$ "! lished on Kan!ar$ 30. 2006 a list of delinF!ent real "ro"ert$ ta#"a$ers in 2 ne)s"a"ers of general circ!lation and "osted this in the main lo $ of the 4it$ Aall. The notice reF!ires all o)ners of real "ro"erties in the list to "a$ the real "ro"ert$ ta# d!e )ithin 30 da$s from the date of "! lication. other)ise the "ro"erties listed shall e sold at "! lic a!ction. Koachin is one of those named in the list. Ae "!rchased a real "ro"ert$ in 1996 !t failed to register the doc!ment of sale )ith the register of 3eeds and sec!re a ne) real "ro"ert$ ta# declaration in his name. Ae alleged that the a!ction sale of his "ro"ert$ is (oid for lac/ of d!e "rocess considering that the 4it$ Treas!rer did not send him "ersonal notice. Ior his "art. the 4it$ Treas!rer maintains that the "! lication and "osting of notice are s!fficient com"liance )ith the reF!irements of the la).
1. -f $o! )ere the 8!dge. ho) )ill $o! resol(e this iss!e& +2.55,
SUGGESTED ANSWER*
- )ill resol(e the iss!e in fa(or of Koachin. -n a!ction sales of "ro"ert$ for ta# delinF!enc$. notice to delinF!ent lando)ners and to the "! lic in general is an essential and indis"ensa le reF!irement of la). the non1f!lfillment of )hich (itiates the same (Ti,%gc, v. P:i-. Ve/era%+ Ba%A G.R. N,. 42#42 A.g. 3 !""2$. The fail!re to gi(e notice to the right "erson i.e.. the real o)ner. )ill render an a!ction sale (oid (Ta% v. Ba%/eg.i G.R. N, !3()2# Oc/,6er 2(
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62 of
73
2. Ass!ming Koachin is a registered o)ner. )ill $o!r ans)er e the same& +2.55,
SUGGESTED ANSWER*
trade or !siness of the ta#"a$er. (,ec. && AM@ in relation to ,ec. 5*AA@(%) both of the N6$!).
ALTERNATI1E ANSWER*
The term ordinar$ income incl!des income from "erformance of ser(ices. )hether "rofessional or "er1 sonal. gains accr!ing from !siness. and "rofit arising from the sale or e#change of ordinar$ assets.
<es. The la) reF!ires that a notice of the a!ction sale m!st e "ro"erl$ sent to Koachin and not merel$ thro!gh "! lication (Ta% v. Ba%/eg.i G.R. N, !3()2#
Oc/,6er
2( 2))3? E+/a/e ,1 Mercede+ <ac,6 v. CA G.R. N,. !2)(73 Dec. 22 !""#$.
8ea" Property Taxation: !apita" Asset (s) %r&inary Asset (1999)

-n 1990. ?r. =a(al o!ght a lot for 21.000.000.00 -n a s! di(ision )ith the intention of !ilding his residence on it. -n 1994. he a andoned his "lan to !ild his residence on it eca!se the s!rro!nding area ecame a de"ressed area and land (al!es in the s! di(ision )ent do)nE instead. he sold it for 2800.000.00. At the time of the sale. the 0onal (al!e )as 2500.000.00.
1, -s the land a ca"ital asset or an ordinar$ asset& 9#"lain. 2, -s there an$ income ta# d!e on the sale& 9#"lain.
SUGGESTED ANSWERS*
1, The land is a ca"ital asset eca!se it is neither for sale in the ordinar$ co!rse of !siness nor a "ro"ert$ !sed in the trade or !siness of the ta#"a$er. +7ec. 33. =-@4,. 2, <es. ?r. =a(al is lia le to the 55 ca"ital gains ta# im"osed !nder 7ection 21+e, of the Ta# 4ode ased on the gross selling "rice of 2800.000.00 )hich is an amo!nt higher than the 0onal (al!e. 8ea" Property Taxation: !apita" 5ains (s) %r&inary 5ains (199=) What is the difference et)een ca"ital gains and ordinar$ gains& O35P
SUGGESTED ANSWER*
4A2-TA: 6A-=7 are gains reali0ed from the sale or e#change of ca"ital assets. )hile '@3-=A@< 6A-=7 refer to gains reali0ed from the sale or dis"osition of ordinar$ assets. 8ea" Property Taxation: !o(erage of %r&inary Income (199=) What does the term %ordinar$ income% incl!de& O25P
SUGGESTED ANSWER*
The term ordinar$ income incl!des an$ gain from the sale or e#change of "ro"ert$ )hich is not a ca"ital asset. These are the gains deri(ed from the sale or e#change of "ro"ert$ s!ch as stoc/ in trade of the ta#"a$er or other "ro"ert$ of a /ind )hich )o!ld "ro"erl$ e incl!ded in the in(entor$ of the ta#"a$er if on hand at the close of the ta#a le $ear. or "ro"ert$ held $ the ta#"a$er "rimaril$ for sale to c!stomers in the co!rse of his trade or !siness. or "ro"ert$ !sed in trade or !siness of a character )hich is s! 8ect to the allo)ance for de"reciation. or real "ro"ert$ !sed in
8ea" Property Taxation: 2xc#ange of /ot$ !apita" 5ain Tax (199,)

A cor"oration. engaged in real estateD de(elo"ment. e#ec!ted deeds of sale on (ario!s s! di(ided lots. 'ne !$er. after going aro!nd the s! di(ision. o!ght a corner lot )ith a good (ie) of the s!rro!nding terrain. Ae "aid 21.2 million. and the title to the "ro"ert$ )as iss!ed. A $ear later. the (al!e of the lot a""reciated to a mar/et (al!e of 21.6 million. and the !$er decided to !ild his ho!se thereon. G"on ins"ection. ho)e(er. he disco(ered that a h!ge to)er antennae had een erected on the lot frontage totall$ loc/ing his (ie). When he com"lained. the realt$ com"an$ e#changed his lot )ith another corner lot )ith an eF!al area !t affording a etter (ie). -s the !$er lia le for ca"ital gains ta# on the e#change of the lots&
SUGGESTED ANSWER*
7ince the donation is to e !sed as a relocation site for the less fort!nate constit!ents of the m!nici"alit$. -t ma$ e considered as an !nderta/ing for h!man settlements.
<es. the !$er is s! 8ect to ca"ital gains ta# on the e#change of lots on the asis of "re(ailing fair mar/et (al!e of the "ro"ert$ transferred at the time of the e#change or the fair mar/et (al!e of the "ro"ert$ recei(ed. )hiche(er is higher (,ection &%(e) N6$!). @eal "ro"ert$ transactions s! 8ect to ca"ital gains ta# are not limited to sales !t also e#changes of "ro"ert$ !nless e#em"ted $ a s"ecific "ro(ision of la).
ALTERNATI1E ANSWER*
=o. The e#change is not s! 8ect to ca"ital gains ta# eca!se it is merel$ done to com"l$ )ith the intentions of the "arties to the "re(io!s contract regarding the sale and acF!isition of a "ro"ert$ )ith a good (ie). This is a sim"le s! stit!tion of the o 8ect of sale and since the "re(io!s transaction )as alread$ s! 8ected to ta#. no ne) ta# sho!ld e im"osed on the e#change (36$ $uling No. &%(e) (-5-/* ((/-*-). 8ea" Property Taxation: 2xemptionE'e&uctions$ 'onor6s Tax (199=)
Ace To acco 4or"oration o!ght a "arcel of land sit!ated at 2ateros and donated it to the ?!nici"al 6o(ernment of 2ateros for the sole "!r"ose of de(oting the said land as a relocation site for the less fort!nate constit!ents of said m!nici"alit$. -n accordance there)ith. the ?!nici"al 6o(1 ernment of 2ateros iss!ed to the occ!"antsM eneficiaries 4ertificates of A)ard gi(ing to them the res"ecti(e areas )here their ho!ses are erected. Thro!gh 'rdinance =o. 2. 7eries of 1998. the said m!nici"al go(ernment ordained that the lots a)arded to the a)ardeesMdonees e finall$ transferred and donated to them. 3etermine the ta# conseF!ence of the foregoing dis"ositions )ith res"ect to Ace To acco 4or"oration. the ?!nici"al 6o(ernment of 2ateros. and the occ!"antsM eneficiaries. O55P
SUGGESTED ANSWER*
The donation $ Ace To acco 4or"oration is e>e5*/ 1r,5 /:e d,%,rM+ /a> eca!se it F!alifies as a gift to or for the !se of an$ "olitical s! di(ision of the =ational 6o(ernment +7ection 101+2,. =-@4,. The con(e$ance is li/e)ise e#em"t from doc!mentar$ stam" ta# eca!se it is a transfer )itho!t consideration.
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hence the (al!e of the land 5a0 6e ded.c/i6-e
64 of 73
i% 1.-- 1r,5 /:e gr,++ i%c,5e of Ace To acco 4or"oration if in accordance to a =ational 2riorit$ 2lan determined $ the =ational 9conomic 3e(elo"ment A!thorit$. (,ec. 5"K=@(&)(a) N6$!). -f the !tili0ation is not in accordance to a =ational 2riorit$ 2lan determined $ the =ational 9conomic 3e(elo"ment A!thorit$. then Ace To acco 4or"oration ma$ ded!ct the (al!e of the land donated onl$ to the e#tent of fi(e +55, "ercent of its ta#a le income deri(ed from trade or !siness as com"!ted )itho!t the enefit of the donation. (,ec. 5"A=@(&)(a) in relation to ,ec. 5"A=@(%) N6$!).
"rinci"al residence or eighteen +18, months from K!l$ 12. 2000.
The ?!nici"alit$ of 2ateros is not s! 8ect to an$ donorDs ta# on the (al!e of land it s! seF!entl$ donated. it eing e#em"t from ta#es as a "olitical s! di(ision of the =ational 6o(ernment. The occ!"antsM eneficiaries are s! 8ect to real "ro"ert$ ta#es eca!se the$ no) o)n the land.
ALTERNATI1E ANSWER
on Taxability of 8unicipality
and Awardees:
The a)arding $ the ?!nici"al 6o(ernment of lots to s"ecific a)ardees or donees is li/e)ise e#em"t from the donorDs ta# eca!se it is onl$ an im"lementation of the "!r"ose for )hich the "ro"ert$ )as gi(en $ Ace To acco 4or"oration. The "!r"ose of the first donation is to de(ote the land as a relocation site for the less fort!nate constit!ents. -f later on the ?!nici"alit$ gi(es o!t 4ertificates of A)ard o(er s"ecific lots occ!"ied $ the F!alified occ!"antsM eneficiaries. this is intended to "er"et!ate the "!r"ose of the "re(io!s donor. the ?!1 nici"alit$ acting merel$ as a cond!it and not the tr!e donor. This is sim"l$ a donation $ the ?!nici"alit$ in form !t not in s! stance.
The recei"t $ the occ!"ant eneficiaries of their res"ecti(e lots thro!gh the 4ertificate of A)ard has no ta# im"lications. The$ are. ho)e(er. lia le for real "ro"1 ert$ ta#es. 8ea" Property Taxation: 2xemption: Ac3uiring 7e1 Principa" 8esi&ence (2 ) :ast K!l$ 12. 2000. ?r. V ?rs. 2eter 4amacho sold their "rinci"al residence sit!ated in Tandang 7ora. L!e0on 4it$ for Ten ?illion 2esos +210.000.000.00, )ith the intention of !sing the "roceeds to acF!ire or constr!ct a ne) "rinci"al residence in A!rora Aills. Cag!io 4it$. What conditions m!st e met in order that the ca"ital gains "res!med to ha(e een reali0ed from s!ch sale ma$ not e s! 8ect to ca"ital gains ta#& +55,
SUGGESTED ANSWER*
The conditions are* 1. The "roceeds are f!ll$ !tili0ed in acF!iring or constr!cting a ne) "rinci"al residence )ithin eighteen +18, calendar months from the sale or dis"osition of the
%*/ ?ocal #overnment !ode)
2.
The historical cost or ad8!sted asis of the real "ro"ert$ sold or dis"osed shall e carried o(er to the ne) "rinci"al residence !ilt or acF!ired.
The 4ommissioner of -nternal @e(en!e m!st ha(e een informed $ ?r. V ?rs. 2eter 4amacho )ithin thirt$ +30, da$s from the date of sale or dis"osition on K!l$ 12. 2000 thro!gh a "rescri ed ret!rn of their intention to a(ail of the ta# e#em"tion.
3.
4. 5.
That the said e#em"tion can onl$ e a(ailed of once e(er$ ten +10, $ears. -f there is no f!ll !tili0ation of the "roceeds of sale or dis"osition. the "ortion of the gain "res!med to ha(e een reali0ed from the sale or dis"osition shall e s! 8ect to ca"ital gains ta# A,ec. &" (B) (&) N6$! of %**'@
8ea" Property Taxation: Fun&amenta" Princip"es (199,) 7tate the f!ndamental "rinci"les !nderl$ing real "ro"ert$ ta#ation in the 2hili""ines.
SUGGESTED ANSWER*
The follo)ing are the f!ndamental "rinci"les go(erning real "ro"ert$ ta#ation* 1, @eal "ro"ert$ shall e a""raised at its c!rrent and fair mar/et (al!eE 2, @eal "ro"ert$ shall e classified for assessment "!r"oses on the asis of its act!al !se* 3, @eal "ro"ert$ shall e assessed on the asis of a !niform classification )ithin each local go(ernment !nitE 4, The a""raisal. assessment. le($. and collection of real "ro"ert$ ta# shall not e let to an$ "ri(ate "ersonE and 5, The a""raisal and assessment of real "ro"ert$ shall e eF!ita le. 8ea" Property Taxation: Princip"es ; /imitations: /5< (2 ) 6i(e at least t)o +2, f!ndamental "rinci"les go(erning real "ro"ert$ ta#ation. )hich are limitations on the ta#ing "o)er of local go(ernments insofar as the le($ing of the realt$ ta# is concerned. +25,
SUGGESTED ANSWER*
T)o +2, f!ndamental "rinci"les go(erning real "ro"ert$ ta#ation are* 1, The a""raisal m!st e at the c!rrent and fair mar/et (al!eE and
2, 4lassification for assessment m!st asis e on the
of act!al !se. (,ec. %*/ ?ocal #overnment !ode)

ALTERNATI1E ANSWER*
The e#aminee sho!ld e gi(en credit if he chooses the a o(e t)o +2, or an$ t)o +2, of those en!merated elo)*
1, Assessment m!st e on the asis of !niform classificationE 2, A""raisal. assessment. le($ and collection shall not e let to "ri(ate "ersonsE and 3, A""raisal and assessment m!st e eF!ita le. (,ec.
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8ea" Property Taxation: Property So"& is an
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%r&inary Asset (199=)

An indi(id!al ta#"a$er )ho o)ns a ten +10, door a"art1 ment )ith a monthl$ rental of 210.000 each residential !nit. sold this "ro"ert$ to another indi(id!al ta#"a$er. -s the seller lia le to "a$ the ca"ital gains ta#& O55P
SUGGESTED ANSWER*
and im"ro(ements act!all$. directl$ and e#cl!si(el$ !sed for religio!s. charita le or ed!cational "!r"osesE +3, All machineries and eF!i"ment that are act!all$. directl$ and e#cl!si(el$ !sed $ :'4A: WAT9@ GT-:-T-97 and go(ernment1o)ned or controlled cor"orations engaged in the s!""l$ and distri !tion
=o. The seller is not lia le to "a$ the ca"ital gains ta# eca!se the "ro"ert$ sold is an ordinar$ asset. i.e. real "ro"ert$ !sed in trade or !siness. -t is a""arent that the ta#"a$er is engaged in the real estate !siness. reg!larl$ renting o!t the ten +10, door a"artment.
8ea" Property Taxation: <n&ergroun& 5aso"ine TanBs (2 1) Gnder Article 415 of the 4i(il 4ode. in order for machiner$ and eF!i"ment to e considered real "ro"ert$. the$ m!st e "laced $ the o)ner of the land and. in addition. m!st tend to directl$ meet the needs of the ind!str$ or )or/s carried on $ the o)ner. 'il com"anies. s!ch as 4alte# and 7hell. install !ndergro!nd tan/s in the gasoline stations located on land leased $ the oil com"anies from others. Are those !ndergro!nd tan/s )hich )ere not "laced there $ the o)ner of the land !t )hich )ere instead "laced there $ the lessee of the land. considered real "ro"ert$ for "!r"oses of real "ro"ert$ ta#ation !nder the :ocal 6o(ernment 4ode& 9#"lain $o!r ans)er. +55,
SUGGESTED ANSWER*
<es. The !ndergro!nd tan/s altho!gh installed $ the lessee. 7hell and 4alte#. are considered as real "ro"ert$ for "!r"oses of the im"osition of real "ro"ert$ ta#es. -t is onl$ for "!r"oses of e#ec!ting a final 8!dgment that these machiner$ and eF!i"ment. installed $ the lessee on a leased land. )o!ld not e considered as real "ro"ert$. C!t in the im"osition of the real "ro"ert$ ta#. the !ndergro!nd tan/s are ta#a le as necessar$ fi#t!res of the gasoline station )itho!t )hich the gasoline station )o!ld not e o"erational. + Ca-/e> P:i-+. I%c v. CBAA !!( SCRA. 2"',. 8ea" Property Taxation$ 2xempte& Properties (2 6) What "ro"erties are e#em"t from the real "ro"ert$ ta#& +55,
SUGGESTED ANSWER*
The follo)ing "ro"erties are e#em"t from the real "ro"ert$ ta# +7ection 234. :ocal 6o(ernment 4ode,* +1, @eal "ro"ert$ o)ned $ the @92GC:-4 'I TA9 2A-:-22-=97 or an$ of its "olitical s! di(isions e#ce"t )hen the eneficial !se thereof has een granted for consideration or other)ise to a ta#a le "ersonE
+2, 4AA@-TAC:9 -=7T-TGT-'=7. ch!rches. "arsonages or con(ents a""!rtenant thereto. mosF!es. non1"rofit or religio!s cemeteries. and all lands. !ildings.
of )ater andMor generation and transmission of electric "o)erE +4, All real "ro"ert$ o)ned $ d!l$ @96-7T9@93 4''29@AT-;97 as "ro(ided for !nder @.A. 6938E and +5, ?achiner$ and eF!i"ment !sed for 9C??ET6CN !CNT$C? and 4N26$CN84NTA? 9$CT4!T6CN.
or aircraft enters 2hili""ine territorial 8!risdiction )ith the intention to !nload therein and ends at the time the goods are released or )ithdra)n from the c!stomho!se !"on
TARI33 AND CUSTOMS DUTIES

!ustoms: IF"exi+"e Tariff !"auseG (2 1) What do $o! !nderstand $ the term %fle#i le tariff cla!se% as !sed in the Tariff and 4!stoms 4ode& +55, -.,,E-TED A$-WER%
The term %1-e>i6-e /ari11 c-a.+e %refers to the a!thorit$ gi(en to the 2resident to ad8!st tariff rates !nder 7ection 401 of the Tariff and 4!stoms 4ode. )hich is the ena ling la) that made effecti(e the delegation of the ta#ing "o)er to the 2resident !nder the 4onstit!tion.
O$ote* 6t is suggested that if the examinee cites the entire provision of ,ec. "(% of the Tariff L !ustoms !ode he should also be given full credit.P !ustoms: A&ministrati(e (s) Hu&icia" 8eme&ies (199,)
The Tariff and 4!stoms 4ode allo)s the C!rea! of 4!stoms to resort to the administrati(e remed$ of sei0!re. s!ch as $ enforcing the ta# lien on the im"orted article. and to the 8!dicial remed$ of filing an action in co!rt. When does the C!rea! of 4!stoms normall$ a(ail itselfE
+a, of the administrati(e. instead of the 8!dicial remed$. or + , of the latter. instead of the former. remed$&
SUGGESTED ANSWER*
+a, The C!rea! of 4!stoms normall$ a(ails itself of the A3?-=-7T@AT-;9 @9?93< of sei0!re. s!ch as $ enforcing the ta# lien on the im"orted articles. instead of the 8!dicial remed$ )hen the goods to )hich the ta# lien attaches. regardless of o)nershi". is still in the c!stod$ or control of the 6o(ernment. -n the case. ho)e(er. of im"ortations )hich are "rohi ited or !ndeclared. the remed$ of sei0!re and forfeit!re ma$ still e e#ercised $ the C!rea! of 4!stoms e(en if the goods are no longer in its c!stod$.
+ , 'n the other hand. )hen the goods are "ro"erl$ released and th!s e$ond the reach of ta# lien. the go(ern1 ment can see/ "a$ment of the ta# lia ilit$ thro!gh 8!dicial action since the ta# lia ilit$ of the im"orter constit!tes a "ersonal de t to the go(ernment. therefore. enforcea le $ action. -n this case 8!dicial remed$ is normall$ a(ailed of instead of the administrati(e remed$.
!ustoms: Importation (1999) When does im"ortation egin and )hen does it end&
SUGGESTED ANSWER*
-?2'@TAT-'= egins from the time the carr$ing (essel
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lega "a$ment of the c!stoms d!ties or )ith l
20 of 73
"ermit to )ithdra) +Vid.0a v+. Berdiag, #7 SCRA 337,. !ustoms: Huris&iction$ Sei?ure ; Forfeiture Procee&ings (1996)
'n Kan!ar$ 1. 1996. armed )ith )arrants of sei0!re and detention iss!ed $ the C!rea! of 4!stoms. mem ers of the c!stoms enforcement and sec!rit$ ser(ices coordinated )ith the L!e0on 4it$ "olice to search the "remises o)ned $ a certain ?r. Ao along Rala$aan A(en!e. L!e0on 4it$. )hich allegedl$ contained !nta#ed (ehicles and "arts. While inside the "remises. the mem er of the c!stoms enforcement and sec!rit$ ser(ices noted articles )hich )ere not incl!ded in the list contained in the )arrant. Aence. on Kan!ar$ 15. 1996. an amended )arrant and sei0!re )as iss!ed. 'n Kan!ar$ 25. 1996. the c!stoms "ersonnel started ha!ling the articles "!rs!ant to the amended )arrant. This "rom"ted ?r. Ao to file a case for in8!nction and damages )ith a "ra$er for a restraining order efore the @egional Trial 4o!rt of L!e0on 4it$ against the C!rea! of 4!stoms on Kan!ar$ 27. 1996. 'n the same date. the Trial 4o!rt iss!ed a tem"orar$ restraining order.
(al!e or cost of "rod!ction. and the im"ortation )o!ld ca!se or li/el$ ca!se an in8!r$ to local ind!stries engaged in the man!fact!re or "rod!ction of the same or similar articles or "re(ent their esta lishment.
A motion to dismiss )as filed $ the C!rea! of 4!stoms on the gro!nd that the @egional Trial 4o!rt has no 8!ris1 diction o(er the s! 8ect matter of the com"laint claiming that it )as the C!rea! of 4!stoms that has e#cl!si(e 8!risdiction o(er it. 3ecide.
SUGGESTED ANSWER*
The motion to dismiss sho!ld e granted. 7ei0!re and forfeit!re "roceedings are )ithin the e#cl!si(e 8!risdiction of the 4ollector of 4!stoms to the e#cl!sion of reg!lar 4o!rts. @egional Trial 4o!rts are de(oid of com"etence to "ass !"on the (alidit$ or reg!larit$ of sei0!re and forfeit!re "roceedings cond!cted $ the C!rea! of 4!stoms and to en8oin or other)ise interfere )ith these "roceedings +Re*.6-ic v+. CFI ,1 Ma%i-a 8Bra%c:
XXII9 G.R. N,. (7#(# Se*/e56er 2 !""2? <a, v+. CA G.R. N,. !)(')( Oc/,6er ' !""3,. !ustoms: Jin&s of !ustom 'uties (1999) Gnder the Tariff and 4!stoms 4ode. )hat are a, d!m"ing d!ties , co!nter(ailing d!ties c, mar/ing d!ties d, discriminator$ d!ties&
SUGGESTED ANSWER*
6,
D.5*i%g d./ie+ are s"ecial d!ties im"osed $ the 7ecretar$ of Iinance !"on recommendation of the Tariff 4ommission )hen it is fo!nd that the "rice of the im"orted articles is deli eratel$ or contin!all$ fi#ed at less than the fair mar/et
7,
C,.%/ervai-i%g d./ie+ are s"ecial d!ties im"osed $ the 7ecretar$ of Iinance !"on "rior in(estigation and re"ort of the Tariff 4ommission to offset an e#cise or inland re(en!e ta# !"on articles of the same class man!fact!red at home or s! sidies to foreign "rod!cers or man!fact!rers $ their res"ecti(e go(ernments.
!ustoms: 8eme&ies of an Importer (1996) 3isc!ss riefl$ the remedies of an im"orter d!ring the "endenc$ of sei0!re "roceedings.
8,
MarAi%g d./ie+ are s"ecial d!ties eF!i(alent to 55 ad (alorem im"osed on articles not "ro"erl$ mar/ed. These are collected $ the 4ommissioner of 4!stoms e#ce"t )hen the im"ro"erl$ mar/ed articles are e#"orted or destro$ed !nder c!stoms s!"er(ision and "rior to final liF!idation of the corres"onding entr$. These d!ties are designed to "re(ent "ossi le dece"tion of the c!stomers. Di+cri5i%a/,r0 d./ie+ are s"ecial d!ties collected in an amo!nt not e#ceeding 1005 ad (alorem. im"osed $ the 2resident of the 2hili""ines against goods of a foreign co!ntr$ )hich discriminates against 2hili""ine commerce or against goods coming from the 2hili""ines and shi""ed to a foreign co!ntr$.
9,
!ustoms: Jin&s of !ustom 'uties (199,) 9#"lain riefl$ each of the s"ecial c!stoms d!ties a!thori0ed !nder the Tariff and 4!stoms 4ode.
SUGGESTED ANSWER*
The follo)ing are the S*ecia- D./ie+ im"osed !nder the Tariff and 4!stoms 4ode* +a, D.5*i%g D./0 1 This is a d!t$ le(ied on im"orted goods )here it a""ears that a s"ecific /ind or class of foreign article is eing im"orted into or sold or is li/el$ to e sold in the 2hili""ines at a "rice less than its fair (al!eE
+ , C,.%/ervai-i%g D./0 1 This is a d!t$ eF!al to the ascertained or estimated amo!nt of the s! sid$ or o!nt$ or s! (ention granted $ the foreign co!ntr$ on the "rod!ction. man!fact!re. or e#"ortation into the 2hili""ines of an$ article li/el$ to in8!re an ind!str$ in the 2hili""ines or retard or considera le retard the esta lishment of s!ch ind!str$E +c, MarAi%g D./0 1 This is a d!t$ on an ad (alorem asis im"osed for im"ro"erl$ mar/ed articles. The la) reF!ires that foreign im"ortations m!st e mar/ed in an$ official lang!age of the 2hili""ines the name of the co!ntr$ of origin of the articleE
+d, Di+cri5i%a/,r0 ,r Re/a-ia/,r0 D./0 1 This is a d!t$ im"osed on im"orted goods )hene(er it is fo!nd as a fact that the co!ntr$ of origin discriminates against the commerce of the 2hili""ines in s!ch a manner as to "lace the commerce of the 2hili""ines at a disad(antage com"ared )ith the commerce of an$ foreign co!ntr$.
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SUGGESTED ANSWER*
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3!ring the "endenc$ of sei0!re "roceedings the im"orter ma$ sec!re the release of the im"orted "ro"ert$ for legitimate !se $ "osting a ond in an amo!nt to e fi#ed $ the 4ollector. conditioned for the "a$ment of the a""raised (al!e of the article andMor an$ fine. e#"enses and costs )hich ma$ e ad8!dged in the caseE provided that articles the importation of which is prohibited by law shall not be released under bond. The im"orter ma$ also offer to "a$ to the collector a fine im"osed $ him !"on the "ro"ert$ to sec!re its release or in case of forfeit!re. the im"orter shall offer to "a$ for the domestic mar/et (al!e of the sei0ed article. )hich offer s! 8ect to the a""ro(al of the 4ommissioner ma$ e acce"ted $ the 4ollector in settlement of the sei0!re case. e#ce"t )hen there is fra!d. G"on "a$ment of the fine or domestic mar/et (al!e. the "ro"ert$ shall e forth)ith released and all lia ilities )hich ma$ or might attach to the "ro"ert$ $ (irt!e of the offense )hich )as the occasion of the sei0!re and all lia ilit$ )hich might ha(e een inc!rred !nder an$ ond gi(en $ the im"orter in res"ect to s!ch "ro"ert$ shall there!"on e deemed to e discharged. !ustoms: 8eturning 8esi&ents: TouristETra(e"ers (2 4) B and his )ife. <. Iili"inos li(ing in the 2hili""ines. )ent on a three1month "leas!re tri" aro!nd the )orld d!ring the months of K!ne. K!l$ and A!g!st 2002. -n the co!rse of their tri". the$ acc!m!lated some "ersonal effects )hich )ere necessar$. a""ro"riate and normall$ !sed in leis!re tri"s. as )ell as so!(enirs in non1commercial F!antities. Are the$ %ret!rning residents% for "!r"oses of 7ection 105 of the Tariff and 4!stoms 4ode& 9#"lain. +85,
SUGGESTED ANSWER*
shi"ment of garlic )as illegall$ im"orted. 4an the 4ollector of 4!stoms of the "ort sei0e and forfeit the tr!c/ as an instr!ment in the sm!ggling&
SUGGESTED ANSWER*
<es. the 4ollector of 4!stoms of the "ort can sei0e and forfeit the tr!c/ as an instr!ment in the sm!ggling acti(it$. since the same )as !sed !nla)f!ll$ in the im"ortation of
=o. The term %ret!rning residents% refers to nationals )ho ha(e sta$ed in a foreign co!ntr$ for a "eriod of at least si# +6, months. (,ection %(-(f) of the Tariff and !ustoms !ode). 3!e to their limited d!ration of sta$ a road B and < are not considered as %ret!rning residents% !t the$ are merel$ considered as tra(elers or to!rists )ho en8o$ the enefit of conditionall$ free im"ortation.
ANote: !redit must li>ewise be given if the candidate answered in the affirmative considering that travelers or tourists are given the same tax treatment as that of returning residents treating their personal effects not in commercial 7uantities as conditionally free importation.@
!ustoms: Sei?ure ; Forfeiture: 2ffects (199*) -n sm!ggling a shi"ment of garlic. the sm!gglers !sed an eight1)heeler tr!c/ )hich the$ hired for the "!r"ose of ta/ing o!t the shi"ment from the c!stoms 0one. 3ann$. the tr!c/ o)ner. did not ha(e a certificate of "! lic con(enience to o"erate his tr!c/ing !siness. 3ann$ did not /no) that the
sm!ggled articles. The mere carr$ing of s!ch articles on oard the tr!c/ +in commercial F!antities, shall s! 8ect the tr!c/ to forfeit!re. since it )as not eing !sed as a d!l$ a!thori0ed common carrier. )hich )as chartered or leased as s!ch. +7ec. 2530 OaP. T44,
?oreo(er. altho!gh forfeit!re of the (ehicle )ill not e effected if it is esta lished that the o)ner thereof had no /no)ledge of or "artici"ation in the !nla)f!l act. there arises a prima facie "res!m"tion or /no)ledge or "artici"ation if the o)ner is not in the !siness for )hich the con(e$ance is generall$ !sed. Th!s. not ha(ing a certificate of "! lic con(enience to o"erate a tr!c/ing !siness. he is legall$ deemed not to ha(e een engaged in the tr!c/ing !siness. (,ec. &-5% Tariff and !ustoms !ode)
The asis of d!tia le (al!e of an im"orted article s! 8ect to an ad valorem tax !nder the Tariff and 4!stoms 4ode is its T@A=7A4T-'= ;A:G9. +,ec. &(%AA@ Tariff and !ustoms !ode as amended by $.A. No. *%5-) -f s!ch (al!e co!ld not e determined. then the follo)ing (al!es are to e !tili0ed in their seF!ence* Tra%+ac/i,% va-.e ,1 ide%/ica- g,,d+ (,ec. &(%A3@): Tra%+ac/i,% va-.e ,1
!ustoms: Steps in(o"(ing Protest !ases (199*)

The 4ollector of 4!stoms instit!ted sei0!re "roceedings against a shi"ment of motor (ehicles for ha(ing een misdeclared as second1hand (ehicles. 7tate the "roced!re for the re(ie) of the decision !" to the 7!"reme 4o!rt of the 4ollector of 4!stoms ad(erse to the im"orter.
SUGGESTED ANSWER*
The "roced!re in sei0!re cases ma$ e s!mmari0ed as follo)s* +a, The collector iss!es a )arrant for the detention or forfeit!re of the im"orted articlesE +7ec. 2301. Tariff and 4!stoms 4ode, + , The 4ollector gi(es the im"orter a )ritten notice of the sei0!re and fi#es a hearing date to gi(e the im"orter an o""ort!nit$ to e heardE +7ec. 2303. T44, +c, A formal hearing is cond!ctedE +7ec. 2312. T44, +d, The 4ollector renders a declaration of forfeit!reE +7ec. 2312. T44, +e, The -m"orter aggrie(ed $ the action of the 4ollector in an$ case of sei0!re ma$ a""eal to the 4ommissioner for his re(ie) )ithin fifteen +15, da$s from )ritten notice of the 4ollectorDs decisionE +7ec. 2313. T44, +f, The im"orter aggrie(ed $ the action or r!ling of the 4ommissioner in an$ case of sei0!re ma$ a""eal to the 4o!rt of Ta# A""ealsE +7ec. 2402. T44,
+g, The im"orter ad(ersel$ affected $ the decision of the 4o!rt of Ta# A""eals +3i(ision, ma$ a""eal to the 4o!rt of Ta# A""eals +en anc, )ithin fifteen
+15, da$s )hich ma$ e e#tended for another fifteen +15, da$s or s!ch "eriod as the 4o!rt of Ta# A""eals ma$ decide. !ustoms$ Basis of 'utia+"e Ca"ue$ Importe& Artic"e (2 9) 7tate and e#"lain the asis of d!tia le (al!e of an im"orted article s! 8ect to an ad (alorem ta# !nder the Tariff and 4!stoms 4ode.
ALTERNATI1E ANSWER*
sirdondee@gmail.com
+i5i-ar g,,d+ (,ec. &(%A!@):
22 of 73
Ded.c/ive va-.e
(,ec. 66.4.% !A.C. No. "-&(("): C,5*./ed va-.e +,ec. 66.<.l !.A.C. No. %-&(("( , and Fa--6acA va-.e. +,ec. &(%A<@ ,
ALTERNATI1E ANSWER*
$earsE c, Ae is ret!rning to the 2hili""ines after ser(ing his to!r of d!t$E and d, Ae has not a(ailed of the ta# e#em"tion for the "ast fo!r +4, $ears. Ae is entitled to ta# e#em"tion on his "ersonal and ho!sehold effects incl!ding a carE "ro(ided.
The asis of d!tia le (al!e of an im"orted article s! 8ect to an ad (alorem ta# !nder the Tariff and 4!stoms 4ode is its transaction (al!e. )hich shall e the "rice act!all$ "aid or "a$a le for the goods )hen sold for e#"ort to the 2hili""ines. ad8!sted $ adding certain cost elements to the e#tent that the$ are inc!rred $ the !$er !t are not incl!ded in the "rice act!all$ "aid or "a$a le for the im"orted goods. (,ec. &(%AA@ Tariff and !ustoms !ode as amended by $.A. *%5-)
-f s!ch (al!e co!ld not e determined. then the follo)ing (al!es are to e !tili0ed in their seF!ence* Transaction (al!e of identical goods +7ec. 201OCP,E Transaction (al!e of similar goods +7ec. 201O4P,E 3ed!cti(e (al!e +7ec. --.9.1. 4A.'. =o. 412004,E 4om"!ted (al!e +7ec. --.I.l. 4.A.'. =o. 1120040, and Iall ac/ (al!e. +7ec. 201OIP,
!ustoms$ !ounter(ai"ing 'uty (s) 'umping 'uty (2 9) 3isting!ish co!nter(ailing d!t$ from d!m"ing d!t$. +55,
SUGGESTED ANSWER*
The distinctions et)een co!nter(ailing d!t$ and d!m"ing d!t$ are the follo)ing* +1, Casis* The co!nter(ailing d!t$ is im"osed )hene(er there is granted !"on the im"orted article $ the co!ntr$ of origin a s"ecific s! sid$ !"on its "rod!ction. man!fact!re or e#"ortation and this res!lts or threatens in8!r$ to local ind!str$ )hile the asis for the im"osition of d!m"ing d!t$ is the im"ortation and sale of im"orted items at elo) their normal (al!e ca!sing or li/el$ to ca!se in8!r$ to local ind!str$. +2, Amo!nt* The co!nter(ailing d!t$ im"osed is eF!i(alent to the (al!e of the s"ecific s! sid$ )hile the d!m"ing d!t$ is eF!i(alent to the margin of d!m"ing )hich is eF!al to the difference et)een the e#"ort "rice to the 2hili""ines and the normal (al!e of the im"orted article. !ustoms$ Taxa+i"ity$ Persona" 2ffects (2 9) Kaco . after ser(ing a 51$ear to!r of d!t$ as militar$ attache in Ka/arta. ret!rned to the 2hili""ines ringing )ith him his "ersonal effects incl!ding a "ersonal com"!ter and a car. Wo!ld Kaco e lia le for ta#es on these items& 3isc!ss f!ll$. +55,
SUGGESTED ANSWER*
=o. Kaco is not lia le for ta#es on his "ersonal com"!ter and the car eca!se he is ta#1e#em"t $ la). Ae has met the follo)ing reF!irements for e#em"tion !nder 2.3. =o. 922 +1976,* a, Ae )as a militar$ attache assigned to Ka/artaE , Ae has ser(ed a road for not less than t)o +2,
sirdondee@gmail.com
c,
a,
The car m!st ha(e een ordered or "!rchased "rior to the recei"t $ the 2hili""ine mission or cons!late in Ka/arta of Kaco Ds recall orderE , the car is registered in Kaco Ds nameE c, the e#em"tion shall a""l$ to the (al!e of the carE d, the e#em"tion shall a""l$ to the aggregate (al!e of his "ersonal and ho!sehold effects +incl!ding the "ersonal com"!ter, not e#ceeding thirt$ "er cent!m +305, of the total amo!nt recei(ed $ Kaco as salar$ and allo)ances d!ring his assignment in Ka/arta. !t not to e#ceed fo!r +4, $earsE e, Kaco m!st not ha(e a(ailed of the e#em"tion more oftener than one e(er$ fo!r $ears. + ?ast par. ,ec. %(- Tariff and !ustoms !ode,
Where the ta#"a$er has signed a )ai(er a!thori0ing the 4ommissioner or his d!l$ a!thori0ed re"resentati(es to -nF!ire into the an/ de"osits.
2+ of 73
BI8: Secrecy of BanB 'eposit /a1 (2 4)

B dies in $ear 2000 lea(ing a an/ de"osit of 22.000.000.00 !nder 8oint acco!nt )ith his associates in a la) office. :earning of BDs death from the ne)s"a"ers. the 4ommissioner of -nternal @e(en!e )rote to e(er$ an/ in the co!ntr$ as/ing them to disclose to him the amo!nt of de"osits that might e o!tstanding in his name or 8ointl$ )ith others at the date of his death. ?a$ the an/ holding the de"osit ref!se to com"l$ on the gro!nd of the 7ecrec$ of Can/ 3e"osit :a)& 9#"lain. +85,
SUGGESTED ANSWER*
OT/ER RELATED MATTERS

BI8: BanB 'eposits Secrecy Cio"ation (2 ) A ta#"a$er is s!s"ected not to ha(e declared his correct gross income in his ret!rn filed for 1997. The e#aminer reF!ested the 4ommissioner to a!thori0e him to inF!ire into the an/ de"osits of the ta#"a$er so that he co!ld "roceed )ith the net )orth method of in(estigation to esta lish fra!d. ?a$ the e#aminer e allo)ed to loo/ into the ta#"a$erDs an/ de"osits& -n )hat cases ma$ the 4ommissioner or his d!l$ a!thori0ed re"resentati(e e allo)ed to inF!ire or loo/ into the an/ de"osits of a ta#"a$er& +55,
SUGGESTED ANSWER*
=o. as this )o!ld e (iolati(e of @e"! lic Act =o. 1405. the Can/ 3e"osits 7ecrec$ :a). The 4ommissioner of -nternal @e(en!e or his d!l$ a!thori0ed re"resentati(e ma$ e allo)ed to inF!ire or loo/ into the an/ de"osits of a ta#"a$er in the follo)ing cases* a, Ior the "!r"ose of determining the gross estate of a decedentE , Where the ta#"a$er has filed an a""lication for com"romise of his ta# lia ilit$ $ reason of financial inca"acit$ to "a$ s!ch ta# lia ilit$. +7ec. 6 +I,. =-@4 of 1997P
=o. The 4ommissioner of -nternal @e(en!e has the a!thorit$ to inF!ire into an/ de"osit acco!nts of a decedent to determine his gross estate not)ithstanding the "ro(isions of the Can/ 7ecrec$ :a). Aence. the an/s holding the de"osits in F!estion ma$ not ref!se to disclose the amo!nt of de"osits on the gro!nd of secrec$ of an/ de"osits. +7ection 6+I, of the 1997 Ta# 4ode,. The fact that the de"osit is a 8oint acco!nt )ill not "recl!de the 4ommissioner from inF!iring thereon eca!se the la) mandates that if a an/ has /no)ledge of the death of a "erson. )ho maintained a an/ de"osit acco!nt alone. or 8ointl$ )ith another. it shall not allo) an$ )ithdra)al from the said de"osit acco!nt. !nless the 4ommissioner has certified that the ta#es im"osed thereon ha(e een "aid. +7ection 97 of the 1997 Ta# 4ode,. Aence. to e a le to gi(e the reF!ired certification. the incl!sion of the de"osit is im"erati(e. )hich ma$ e made "ossi le onl$ thro!gh the inF!ir$ made $ the 4ommissioner.

Taxation Law: Answers To Bar Examination Questions

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Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

"nderstandin. of the iss"es

time for the )ar E/ams 2334 "nder time

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

2xc"usions ; Inc"usions$ /ife Insurance Po"icy (2 4)...................................................................................32

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

BUSINESS TAXES """""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""" 4#

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Taxpayer: Prescripti(e Perio&$ !"aims for 8efun& (2 *)................................................................................62

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

!"# SCRA ##!$

Ta%a&a% '" SCRA (')$.

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

+c, *o+al ,o(e'n)ent Code 1

:ocal ta#es. fees. or e assessed )ithin I-;9 +5,

or 8!dicial action )ithin I-;9 +5, <9A@7 from date

Po1er of Taxation: 23ua" Protection of t#e /a1 (2

=o. 9F!al "rotection of the la) cla!se is s! 8ect to

There are s! stantial differences

Po1er of Taxation: /imitations of t#e !ongress (2 1)

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

that %the "o)er to ta# in(ol(es the "o)er to destro$.%

8u"e on Set:%ff or !ompensation of Taxes (2 1)

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

D,5i%g, v. Gar-i/,+ G.R. N,. L;!4""(

2, The "a$ment of ta#es is not a contract!al o ligation !t

=o. ta#es cannot

e the s! 8ect of set1off e(en )hen

=ormall$. the sale is s! 8ect to a sales ta#.

(Pe,*-e v. Sa%diga%6a0a% G.R. N,. !32372 A.g.+/ !' 2))3$.

(P:i-. Tr.+/ @ C,. v.

B.rr,.g:+ I%c. !(2 SCRA 72(8!"4'9$.

and "ersonal e#em"tions are as follo)s*

sale. th!s. shifting the ta# 73 cons!mer.

)here the s! 8ect of it is fo!nd

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Basic: 0eaning of Taxa+"e Income (2 ) What is meant $ ta#a le income& +25,

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

em"lo$er is an o stetrician& Wh$&

and+7ec. from43. incidental or o!tside 73 so!rces @e(. @eg. =o. 2,.

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

)hat are the ta# im"lications& 9#"lain.

!orporate$ Income Tax$ 8easona+"eness of t#e

o"erating loss. - )ill r!le that the !nreasona le e#"ense.

!orporate$ Income: !o(erage$ >%ff:/ine> Air"ine (199*)

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

"a$ on this latter date )ill render the

IT8$ 'omestic !orporate Taxation (199,)

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

IT8$ 'omestic !orporate Taxation (2 1)

$ear& 9#"lain the "rocess. +35,

-t de"ends. An indi(id!al )ith "!re com"ensation income

Answers to the BAR: Taxation 1994-2006 (Arranged by Topics

R,+ari, e/ a- G.R N,. !)"24" Oc/,6er+ !""($.

Partners#ip: Income Tax (1999)

"artnershi"s. -s this contention correct& 9#"lain.

1, The contention is not correct. 6eneral "rofessional

Persona"$ Income Tax: 7on:8esi&ent !iti?en (1999)

C,r,ra/i,% v. C,55i++i,%er GR N,. #'3#7 Se/e56er !( !"4"$.