INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
CHA)TER %
TAX ADMINISTRATION
Problem 2 1 TRUE OR FALSE
1. True
2. False not the BIR, but the Department of Finance
3. False the BIR is responsible to collect national taxes only.
. False The re!ie" shall be ma#e by the $ourt of %ustice.
&. True
'. True
(. False The )ecretary of %ustice an# the $ourts also interprets the pro!isions of the
Tax $o#e.
*. False the fact that taxes are self+assessin, the BIR assessment is necessary to
ensure the reliability of the ITR.
9. False the BIR or the -o!ernment is not allo"e# by la" to appeal to the $T.. (Acting
Collector of customs vs. Court of Appeals, Oct. 31, 1957)
1/. True
11. False .ppeal to the )$ shall be ma#e "ithin 1& #ays from the receipt of the #ecision
of the $T..
12. False the $IR can con#uct a 0eopar#y assessment "hen there are no accountin,
recor#s.
13. True
1. False the taxpayer nee#s to "ai!e first his ri,ht on the secrecy of ban1 #eposits
before BIR can in2uire into his ban1 #eposits.
1&. True
Problem 2 2 TRUE OR FALSE
1. False there must be a 3etter of .uthority.
2. False the supportin, #ocuments must be submitte# to the BIR "ithin '/ #ays from
the #ate a protest is file#.
3. True
. True
&. False #estraint as a tax collection metho# is applicable only to personal property.
6. False criminal !iolations alrea#y file# in court are not sub0ect to compromise.
(. True
*. False, collection must be "ithin & years
4. True
1/. False+re#emption perio# is "ithin 1 year from #ate of auction sale.
11. True
12. True
Problem 2 3 TRUE OR FALSE
1. False there is no nee# to pay a##itional re,istration fee for transfer of business
re,istration.
2. True
3. False the initial bon# re2uire# for manufacturers an# importers of articles sub0ect to
excise tax is 51//,///.
. False informer6s re"ar# is sub0ect to 1/7 final "ithhol#in, tax.
&. True
'. True
(. True
*. True
4. False )ei8ure
1/. False Forfeiture
3
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
11. False not allo"e# because the secon# cousin is "ithin the '
th
#e,ree of relati!e by
consan,uinity.
12. False collection tax cases file# in courts are sub0ect to compromise.
13. True
Problem 2 4 Problem 2 5 Problem 2 6
1. $ 1. B 1. B
2. B 2. . 2. .
3. B 3. D 3. .
. D . $ . B
&. $ &. D &. D
'. $ '. D '. $
(. B (. $ (. B
*. B *. $ *. .
4. $ 4. . 4. $
1/. D 1/. . 1/. .
11. . 11. .
12. D 12. .
Problem 2 7
Case A: April 15 2!14 " The return, statement or #eclaration can be
mo#ifie#, chan,e# or amen#e# from "ithin three years from the #ate of filin, as lon, as no
tax in!esti,ation has been ser!e# to the taxpayer. (Sec. 6(A), NIRC)
Case #: O$%ober 2! 2!15 + If the tax #eficiency is #ue to simple ne,lect, the
prescripti!e perio# of tax assessment is "ithin 3 years startin, from the #ate of filin, the
return (Sec. 203, NIRC), or its amen#ment.
Case C: April 15 2!25 + If the ITR is frau#ulent or no tax return "as file#, the
tax may be assesse#, or a procee#in, in court for the collection of such tax may be file#
"ithout assessment at any time "ithin ten 91/: years after the #isco!ery of the falsity, frau#
or omission. (Sec. 222 (a), NIRC)
Case &: April 15 2!22 + If the ITR is frau#ulent or no tax return "as file#, the
tax may be assesse#, or a procee#in, in court for the collection of such tax may be file#
"ithout assessment at any time "ithin ten 91/: years after the #isco!ery of the falsity, frau#
or omission. (Sec. 222 (a), NIRC)
Case E: 'o (ee) %o appeal* The prescribe# perio# of filin, for the refun# is
alrea#y expire#. The filin, of refun# shoul# ha!e been ma#e "ithin t"o years after the
payment of tax or penalty. It "as file# "ithin 2 years, one month, an# & #ays after the #ate of
erroneous payment, hence, not appealable anymore.
Case F: +a, 5 2!13* The filin, of refun# "as appropriately ma#e "ithin the
2 year prescribe# perio#. The #enial "as recei!e# on .pril &, 2/13. The filin, of appeal to $T.
shoul# be ma#e "ithin 3/ #ays from the receipt of #enial from the BIR.
Case -: A./.s% 2 2!17* The #ate of ,rant for refun# "as recei!e# on .u,ust
1, 2/12. The refun# chec1 9#ate# %uly 1&, 2/12: shoul# be encashe# "ithin & years from the
#ate the ,rant for refun# "as #eli!ere# 9.u,ust 1, 2/12:. The chec1 shoul# be encashe# from
.u,ust 1, 2/12 to .u,ust 1, 2/1(. It "ill be forfeite# on .u,ust 2, 2/1(.
4
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
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C!"t#$ %: T!& Ad'ini(t$!tion
Case 0: 1.l, 31 2!17* For tax cre#it, the fi!e year prescripti!e perio# shoul#
start from the #ate of issuance. In this case, the #ate of issuance shoul# be the #ate of tax
cre#it certificate. The expiry #ate "oul# therefore start on %uly 31, 2/1(.
Case 2: A./.s% 2! 2!11* If the BIR has no response after the submission of
supportin, #ocuments to ser!e as e!i#ence for the protest, the last #ay to appeal to the $T.
shoul# be ma#e "ithin 3/ #ays from the lapse of the 1*/ #ay perio# from the submission of
the supportin, #ocuments.
$omputation of #ays;
.fter %anuary 22, 2/11 Days
%anuary 4
February 2*
<arch 31
.pril 3/
<ay 31
%une 3/
%uly 21
Total number of #ays as of %uly 21 1*/
5lus 3/ #ays after the 1*/ #ays
%uly 1/
.u,ust 2/
Total #ay on .u,ust 2/ 3/
Case 1: +a, 4 2!11* The last #ay to appeal to the $T. shoul# be ma#e "ithin 3/
#ays from the receipt of the #enial of the BIR. The 3/ #ays is #etermine# as follo"s;
Days
First #enial of the BIR <arch 22, 2/11
to 2
n#
re2uest for reconsi#eration <arch 3/, 2/11 *
2
n#
#enial of the BIR .pril 12, 2/11
to <ay , 2/11 to complete the 3/ #ay perio# 22
Total #ays as of <ay , 2/11 3/
Case 3: 1.(e 25 2!11* The appeal to $T. shoul# be ma#e "ithin 1& #ays
from #ate of unfa!orable #ecision from $T. "as recei!e# 9%une 1/ plus 1& #ays:.
Case L: 1.l, 1! 2!11* The appeal to )$ shoul# be ma#e "ithin 1& #ays from
#ate of receipts of the unfa!orable #ecision of $T. 9%une 2& plus 1& #ays:.
Case +: +ar$4 1 2!11* =ithin 1 year from the #ate of sale.
Problem 2 5 #
>ri,inal business re,istration an# rene"al of business re,istration are sub0ect to 5&// each.
The transfer of re,istration re2uires no a##itional re,istration fee to be pai# by the taxpayer.
(Sec. 243, NIRC)
Problem 2 6 &
.ll criminal !iolation may be compromise# except; 9a: those alrea#y file# in court, or 92:
those in!ol!in, frau#. 9)ec. 2/ 9B:, ?IR$:
Problem 2 1! &
Income tax payable 51,///,///
<ultiplie# by minimum compromise rate #ue ban1ruptcy 2/7
<inimum amount of compromise 5 2//,///
5
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
Problem 2 11 &
.mount of tax liability 51&/,///
)urchar,es 2&,///
Interest 2/,///
.#!ertisin, cost &,///
5rice if purchase by the -o!ernment 52//,///
Problem 2 12 &
1. Le%%er C
.ctual excise tax on the first ' months 52//,///
<ultiplie# by statutory increase in rate 2
Re2uire# bon#s on the last ' months 5//,///
If after ' months of operation, the amount of initial bon# is less than the
amount of the total excise tax pai# #urin, the perio#, the amount of the
bon# shall be a#0uste# to t"ice the tax actually pai# for the perio#. @)ec.
1'/ 9.:, ?IR$A
2. 'o% i( %4e $4oi$es P4!!!!!
.ctual excise tax on the first year applicable to
the secon# year 952//,/// B 52&/,///: 5&/,///
3ess; Cxcess of bon#s o!er actual excise tax
Bon#s pai# first year 951//,/// B 5//,///: 5&//,///
.ctual excise tax first year 9&/,///: &/,///
?et actual amount of bon# for the secon# year 5//,///
The bon# for the succee#in, years of operation shall be base# on the
actual total excise tax pai# #urin, the year imme#iately prece#in, the year
of operation. @)ec. 1'/ 9B:, ?IR$A
Problem 2 13 C
D is not entitle# to recei!e the informer6s re"ar# because bein, a first cousin, he is B6s 9an
RD>: relati!e "ithin the '
th
#e,ree of consan,uinity.
. public official or ,o!ernment employee or his relati!e "ithin the '
th
#e,ree of consan,uinity
shall not be entitle# to the informer6s re"ar# of 1/7 base# on the tax re!enue reco!ere# or
51,///,///. "hiche!er is lo"er. This informer6s re"ar#, once a"ar#e# shall be sub0ect to a
final "ithhol#in, tax of 1/7. 9)ec. 2*2, ?IR$:
Problem 2 14
1. Le%%er &
)ales price 5,///,///
3ess; Total amount per assessment 52,&//,///
)urchar,e 952,&//,/// x 2&7: '2&,///
Interest 952,&//,/// x 2/7 x 3E12: 12&,/// 3,2&/,///
?et amount after public taxes, penalties an# interest 5 (&/,///
3ess; $apital ,ains tax 95,///,/// x '7: 5 2/,///
D)T 95,///,/// x 1.&7: '/,///
$ost of a#!ertisin, 2/,/// 32/,///
Cxcess amount to be returne# to D 5 3/,///
2. Le%%er C
6
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
5urchase price 5,///,///
.##; Interest 95,///,/// x 1&7 x 4E12: &/,///
Re#emption price 5,&/,///
The re#emption price is comprise# of the purchase price plus 1&7 interest
per annum from the #ate of purchase to the #ate re#emption. 9)ec. 21,
?IR$:
3. Le%%er C
Total rent income 95'/,/// x 4 months: 5&/,///
3ess; Interest expense to re#eem the property &/,///
Cxcess income 5 4/,///
The o"ner shall not, ho"e!er, be #epri!e# of the possession of the sai#
property an# shall be entitle# to the rents an# other income thereof until
the expiration of the time allo"e# for its re#emption. 9)ec. 21, ?IR$:
Problem 2 15 C
)tatutory fine 952&/,/// x 2: 5&//,///
.ny taxpayer "hose property has been place# un#er constructi!e #istraint, an# #ispose# the
same "ithout the 1no"le#,e an# consent of the $ommissioner shall be punishe# by a fine of
not less than t"ice the !alue of the property sol#, encumbere# or #ispose# of, but not less
than 5&,/// or suffer imprisonment of not less than 2 years an# 1 #ay but not more than
years or both. (Sec. 206, NIRC)
The 5&,/// fine is applicable only "hen the compute# amount 9sellin, price x 2: is lo"er than
5&,///.
Problem 2 16 C
5rocee#s from sale 5 3&/,///
3ess; Basic tax assesse# 53//,///
.ccrue# interest from .pril 1&, 2//x to
%uly 1&, 2//x 953//,/// x 2/7 x 3E12: 1&,///
Documentary stamp tax 1,&//
.#!ertisement 1,/// 31(,&//
.mount to be refun#e# to <r. 5oe 5 32,&//
Problem 2 17 &
5rocee#s from sale 951,&//E/.//&: 5 3//,///
3ess; Basic tax assesse# 52(&,///
.ccrue# interest from .pril 1&, 2//x to
%uly 1&, 2//x 952(&,/// x 2/7 x 3E12: 13,(&/
Documentary stamp tax 1,12&
.#!ertisement 1,/// 24/,*(&
.mount to be refun#e# to <r. 3i,ot 5 4,12&
Problem 2 15 C
Total surchar,e 951/,/// x 2&7: 52,&//
2&7 surchar,e shall be impose# for late filin, of the return an# late payment of the tax. 9)ec.
&, Re!. Re,s. ?o. 12+44:
7
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
Problem 2 16 C
Interest 951/,/// x 2/7 x 2.&E12: 51'.'(
The computation of interest is base# on unpai# basic tax. 9R<$ ?o. '44:
Problem 2 2! C
Basic tax 51/,///
)urchar,es;
For late filin, an# payment 92&7: 52,&//
For filin, in "ron, RD> 92&7: 2,&// &,///
Interest 951/,/// x 2/7 x 2.&E12: 1(
Total amount #ue 51&,1(
Problem 2 21 &
Income tax #ue per return 51//,///
.##; )urchar,e for "illful ne,lect to file the
an# late payment 951//,/// x &/7: 5&/,///
Interest from .pril 1&, 2//B to
%une 3/, 2//$ 951//,/// x 2/7 x 1.&E12: 2,1'( (,1'(
Total amount #ue, %une 3/, 2//$ 51(,1'(
3ate filin, an# late payment of tax is a taxpayer6s "illful ne,lect if the payment is ma#e only
after the notification of the BIR. )uch !iolation is sub0ect to &/7 surchar,e plus 2/7 interest
per annum compute# from the #ue #ate of the tax until the #ate of payment. 9Re!. Re,s. ?o.
12+44, )ec. &.3:
Problem 2 22 #
Income tax #ue per return 51//,///
.##; )urchar,e for late filin, an# late payment
+ simple ne,lect 951//,/// x 2&7: 52&,///
Interest from .pril 1&, 2//B to
%une 3/, 2//B 951//,/// x 2/7 x 2.&E12: ,1'( 24,1'(
Total amount #ue 9exclu#in, compromise penalty: 5124,1'(
If the !iolation is late filin, an# late payment of tax, only one 2&7 surchar,e shall be impose#
for late filin, of the return an# late payment of the tax plus 2/7 interest per annum
compute# from the #ue #ate of the tax until the #ate of payment. 9R<$ ?o. '+44F )ec. &,
Re!. Re,s. ?o. 12+44:
Problem 2 23 A
Gnpai# tax #ue 51,///,///
.##itions to tax;
)urchar,e 951,///,/// x &/7: 5&//,///
Interest from .pril 1&, 2//B to December 31,
2//$ 951,///,/// x 2/7 x 1 year H '.& mos.: 31,''' *1,''(
Total amount #ue as of December 31, 2//$ 51,*1,''(
.##; Cxcess amount 1&*,333
Total sellin, price 52,///,///
.##; )tatutory interest rate to re#eem 952,///,/// x 1&7: 3//,///
Total amount nee#e# to re#eem the real property 52,3//,///
8
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
The re#emption of the property sol# throu,h public auction shall be ma#e "ithin one year
from the #ate of sale sub0ect to a statutory re#emption interest rate of 1&7 per annum. 9)ec.
21, ?IR$:
Problem 2 24 #
Basic amount #ue per assessment
.##; )urchar,e for simple ne,lect
to pay on time 95*/,/// x 2&7:
Interest 95*/,/// x 2/7 x &E3'/ #ays:
Total re2uire# payment on %une 3/, 2//.
5 2/,///
2,///
5 */,///
22,///
51/2,///
@)ec. 2*9.:93: an# )ec. 249B:93:, Re!. Re,s. ?o. 12+44, )ept. ', 1444A
Problem 2 25 C
Gnpai# income tax #ue 953,///,/// 51,///,///: 52,///,///
.##itions to tax;
)urchar,e 952,///,/// x &/7: 51,///,///
Interest 952,///,/// x 2/7 x 3E12: 1//,/// 1,1//,///
Total amount #ue as of .u,ust 1&, 2//B 53,1//,///
$oncealment of income is a form of frau#. . false or frau#ulent return is sub0ect to a
surchar,e of &/7 base# on the unpai# tax or the #eficiency tax. @)ec. 2* 9B:, ?IR$A
Problem 2 26 &
Income tax #ue per ITR 5*,///
Di!i#e# by installments allo"e# 2
Tax #ue on 1
st
installment 5,///
3ess; Tax cre#it 3,///
Tax payable 1st installment 51,///
=hen the tax #ue is in excess of 52,///, the taxpayer other than a corporation may elect to
pay the tax in t"o e2ual installments 9)ec. &'9.:92:, ?IR$:.
Problem 2 27
1. Le%%er A
Income tax #ue per return, .pril 1&, 2//B 51,///,///
3ess; 1
st
installment, .pril 1&, 2//B 2&/,///
Balance as of .pril 1&, 2//B 5 (&/,///
.##; Interest from .pril 1&, 2//B to <ay 1&, 2//B
95(&/,/// x 2/7 x 1E12: 12,&//
Total amount #ue, <ay 1&, 2//B 5 ('2,&//
2. Le%%er C
Balance as of <ay 1&, 2//B 5 &//,///
.##; Interest from <ay 1&, 2//B to %une 1&, 2//B
95&//,/// x 2/7 x 1E12: *,333
Total amount #ue, %une 1&, 2//B 5 &/*,333
9
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
3ess; 3
r#
installment, %une 1&, 2//B
952&/,/// B 5*,333: 2&*,333
Balance as of %une 1&, 2//B 5 2&/,///
.##; Interest from %une 1&, 2//B to %uly 1&, 2//B
952&/,/// x 2/7 x 1E12: ,1'(

th
an# final installment 5 2&,1'(
Problem 2 25
Ies, because the prescripti!e perio# of filin, the "ritten protest is "ithin 3/ #ays from receipt
of assessment. 5ay the relate# tax. $ompromise is not a reme#y because tax frau# is not
sub0ect to compromise.
Problem 2 26
1
.
Taxable income 51,///,//
/
.##; Discrepancies per in!esti,ation;
Gn#eclare# rental income 5&/,///
?on#e#uctible interest expenses 3//,///
?on#e#uctible ba# #ebt expense 2//,///
Gn#ocumente# representation expenses 1&/,/// 1,1//,///
Taxable income per in!esti,ation 52,1//,///
<ultiplie# by income tax rate 3/7
Income tax #ue 5 '3/,///
3ess; Income tax pai# per return 3//,///
Balance 5 33/,///
.##; &/7 )urchar,e for filin, a frau#ulent return
9533/,/// x &/7: 51'&,///
2/7 interest per annum from .pril 1&, 2/1/
to .pril 1&, 2/11 9533/,/// x 2/7: '',/// 231,///
Total amount #ue 5 &'1,///
2
.
Total amount #ue 5&'1,///
.##; 2&7 )urchar,e for late payment
95&'1,/// x 2&7: 51/,2&/
2/7 Interest per annum from .pril 1&, 2/11
to %une 1&, 2/11 95&'1,/// x 2/7 x 2E12: 1*,(// 1&*,4&/
Total amount #ue 9exclu#in, su,,este#
compromise penalty for late payment: 5(14,4&/
Problem 2 3!
a. The cash re"ar# of <iss =an as tax informer "oul# be 51,///,///, the maximum amount
of re"ar#.
b. The informer6s re"ar# remains payable, hence, <iss =an "ill recei!e# the maximum
re"ar# of 51,///,///.
c. The final income tax to be "ithhel# from the re"ar# of <iss =an "oul# be 1/7 of
51,///,/// or 51//,///.
Problem 2 31
a. The tax !iolations of <iss )an Ta,o are the follo"in,;
1. Gnre,istere# business 9)ec. 23' @.A, ?IR$.:
10
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
2. ?on+issuance of commercial in!oice 9)ec. 23(, ?IR$.:
3. I,norin, the summon 9)ec. &, ?IR$.:
b. <iss )an Ta,o6s minimum financial penalties if con!icte#;
1. For operatin, an unre,istere# business
2. For not issuin, commercial in!oices
3. Failure to obey summon
Total minimum
5 &,///
1,///
&,///
511,///
Problem 2 32
?one. There is no surchar,e to be impose# to >r!ille $orporation because the error "as
correcte# before payment an# the payment "as ma#e on time.
The income tax #ue is compute# as follo"s;
$orrecte# ,ross receipts 952,///,///E(&7:
$orrecte# allo"able #e#uctions 951,&//,///E1.3&:
Taxable income per au#it
<ultiply by percent of tax for 2/1B
Income tax #ue
5 2,''',''(
1,111,111
5 1,&&&,&&'
3/7
5 '',''(
Problem 2 33
1. 5rincipal factory 5 &//
=arehouses 95&// x 4: ,&//
Branches 95&// x 3/: 1&,///
Total annual re,istration fee %anuary 31, 2//B 52/,///
2. Total annual re,istration fee %anuary 31, 2//B 52/,///
)urchar,es 92/,/// x 2&7: &,///
Interest 952/,/// x 2/7 x 'E12: 2,///
Total amount #ue %uly 3/, 2//B 52(,///
Problem 2 34
.mount of tax liability 51//,///
)urchar,es 2&,///
Interest 2/,///
.#!ertisin, cost &,///
5rice if purchase by the -o!ernment 51&/,///
Problem 2 35
Case 1 Financial incapability #ue to corporate insol!ency.
Delin2uent accounts 5 &//,///
5en#in, cases un#er a#ministrati!e protest 4//,///
$riminal !iolation not file# in courts 1,///,///
Total basic tax 52,//,///
<ultiplie# by applicable compromise rate 2/7
.mount of compromise 5 */,///
Case 2 Financial incapability #ue to surplus #eficit resultin, to impairment in ori,inal
capital by at least &/7.
Delin2uent accounts 5 &//,///
11
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
C!"t#$ %: T!& Ad'ini(t$!tion
5en#in, cases un#er a#ministrati!e protest 4//,///
$riminal !iolation not file# in courts 1,///,///
Total basic tax 52,//,///
<ultiplie# by applicable compromise rate /7
.mount of compromise 5 4'/,///
Case 3 Doubtful !ali#ity of assessment.
Delin2uent accounts 5 &//,///
5en#in, cases un#er a#ministrati!e protest 4//,///
$riminal !iolation not file# in courts 1,///,///
Total basic tax 52,//,///
<ultiplie# by applicable compromise rate /7
.mount of compromise 5 4'/,///
Problem 2 36
a. Ies, because the offere# compromise amount of 51//,/// excee#s the re2uire# minimum
amount of 52&,///, 952&/,/// x 1/7:.
b. )ince #istraint is impose# only on personal property, the personal property "ith a !alue of
51//,/// shall be sub0ecte# to #istraint.
c. Ies, le!y of real property an# #istraint of personal property can be #one simultaneously
9)ec. 2/(B of the Tax $o#e:. )ee also )ection 2/& of ?IR$.
#. ?o, the unpai# portion "ill remain as tax liability of 3u,ui because <iss 3u,ui #i# not a!ail
of the compromise tax settlement. The reme#y by #istraint of personal property an# le!y
on realty may be repeate# if necessary until the full amount #ue, inclu#in, all expenses,
is collecte# 9)ec. 21(, ?IR$:.
12