3

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

CHAPTER 2

TAX ADMINISTRATION
Problem 2 1 TRUE OR FALSE
1. True
2. False - Department of Finance
3. False - Exclusive and original power to interpret tax laws. Final power to interpret tax
laws belongs to the Supreme Court.
4. False - Review by the Court of Justice/Court of Appeals
5. False - Cooperatives are exempted from income tax and annual registration fee.
6. False - In all cases, the authority to print is required.
7. False - Not required to register again, just file an information update.
8. False - Tax assessment is needed to enforce payment of unpaid tax liability.
9. True
10. True
11. False - Levy or imposition of tax
12. True
13. False executive branch of the government
14. False the description refers to administrative feasibility.
Problem 2 2 TRUE OR FALSE
1. True
2. False submit to the BIR.
3. False - Distraint is for personal property, while levy is for real property.
4. True
5. False - Exceptions are those already filed in court of those involving fraud.
6. True
7. True
8. True
9. True
10. False - value of property.
11. False Redemption of property should be made within one year from the date of sale.
12. True
13. True
Problem 2 3 TRUE OR FALSE
1. True
2. True
3. False P100,000
4. False 10% final withholding tax
5. True If authorized by the BIR Commissioner
6. True
7. False All properties of a delinquent taxpayer may be subject to tax lien.
8. True
9. False Seizure
10. False Forfeiture
11. True
12. False Criminal violations already filed in court are not subject to compromise.
Collection of taxes is not a criminal violation.
13. True
Problem 2 4 TRUE OR FALSE
1. True
2. False Without letter of authority, the taxpayer could refuse access to his books.

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

False
True
False
False
False
filed.
False
False
False
True
False
True

Civil action could also be judiciary pursued.

the appeal must first be made to Court of Tax Appeals.
It could also be done if no tax return is filed.
Ten years prescription period starts at date of discovery that tax return was not
It should be 5 years.
Levy could also be done before or simultaneous with distraint.
Residual value should be returned to taxpayer.
It is also applicable to importation.

Problem 2 5
1. B
2. A
3. B
4. D
5. A
6. C
7. C
8. D
9. B
10. B
11. D
12. C
13. B

Problem 2 6
1. D
2. A
3. A
4. A
5. C
6. C
7. D
8. B
9. C
10. C

Problem 2 7
Situation 1 No need to appeal. The prescribed period of filing for the refund is already
expired. The filing of refund should have been made within two years after the payment of tax
or penalty. It was filed within 2 years, one month, and 5 days after the date of erroneous
payment, hence, not appealable anymore.
Situation 2 May 5, 2010. The filing of refund was appropriately made within the 2 year
prescribed period. The denial was received on April 5, 2010. The filing of appeal to CTA should
be made within 30 days from the receipt of denial from the BIR.
Situation 3 August 2, 2014. The date of grant for refund was received on August 1, 2009.
The refund check (dated July 15, 2009) should be encashed within 5 years from the date the
grant for refund was received (August 1, 2009). The check should be encashed from August 1,
2009 to August 1, 2014. It will be forfeited on August 2, 2014.
Situation 4 August 22, 2014. The date of grant for refund was received on August 21,
2009. The refund check (dated July 30, 2009) should be utilized within 5 years from the date
the grant for refund was received (August 21, 2009). The tax credit certificate should be
utilized from August 21, 2009 to August 21, 2014. It will be forfeited on August 22, 2014,
unless otherwise revalidated.
Situation 5 August 20, 2009. If the BIR has no response after the submission of
supporting documents to serve as evidence for the protest, the last day to appeal to the CTA
should be made within 30 days from the lapse of the 180 day period from the submission of
the supporting documents.

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

Computation of days:
After January 22, 2009
January
February
March
April
May
June
July
Total number of days as of July 21
Plus 30 days after the 180 days
July
August
Total day on August 20

Days
9
28
31
30
31
30
21
180
10
20
30

Situation 6 May 4, 2009. The last day to appeal to the CTA should be made within 30
days from the receipt of the denial of the BIR. The 30 days is determined as follows:
Days
First denial of the BIR March 22, 2009
to 2nd request for reconsideration March 30, 2009
2nd denial of the BIR April 12, 2009
to May 4, 2009 to complete the 30 day period
Total days as of May 4, 2009

8
22
30

Situation 7 June 25, 2009. The appeal to CA should be made within 15 days from date of
unfavorable decision from CTA was received (June 10 plus 15 days).
Situation 9 July 10, 2009. The appeal to SC should be made within 15 days from date of
unfavorable decision from CA was received (June 25 plus 15 days).
Situation 10 March 1, 2010. Within 1 year from the date of sale.
Problem 2 8
B
Tax due per return
Late filing and payment simple neglect (P100,000 x 25%)
Interest (P100,000 x 20% x 2.5/ 12)
Total amount due and payable

Problem 2 9
A
Amount due surcharge (P100,000 x 25%)
Problem 2 10
D
Tax due per return
Late filing and payment willful neglect (P100,000 x 50%)
Interest (P100,000 x 20% x 14.5/12)
Total amount due and payable
Problem 2 11
D
Deficiency income tax (P120,000 P100,000)
Interest (P20,000 x 20% 435/ 360 days)

P100,000
25,000
4,167
P129,167

P25,000
P100,000
50,000
24,167
P174,167
P20,000
4,833

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

Amount still due

P24,833

Problem 2 12
A
Statutory fine (P250,000 x 2)

P500,000

Problem 2 13
B
Minimum statutory fine

P 5,000

Problem 2 14
Yes, because the prescriptive period of filing the written protest is within 30 days from receipt
of assessment.
Mr. Lang is obligated to pay the P500,000 assessed against him.
Problem 2 15
Basic delinquency tax
Surcharges willful (P1,000,000 x 50%)*
Interest (P1,000,000 x 20% x 2)
Amount collected from the highest bidder
Add: Interest for real property redemption (P1,900,000 x
15%)
Total redemption amount

P 1,000,000
500,000
400,000
P 1,900,000
285,000
P 2,185,000

*The nonpayment of taxes is already 2 years it becomes habitual; hence, willful neglect.
Problem 2 16
Proceeds from the highest bidder (P30,000/6%)*
Less: Basic tax assessed
Advertisement
Transfer of title
Capital gain tax
Remittance to Mr. Santiago

P 500,000
P 300,000
10,000
15,000
30,000

355,000
P 145,000

*The capital gains tax is based on the selling price of the real property sold. The rate of
capital gains tax is 6%; hence, the proceeds from the highest bidder is P500,000 or
(P30,000/6%).

Problem 2 17
Corrected sales (P7,000,000/70%)
Less: Operating expenses
Corrected net taxable income
Multiplied by corporate tax rate
Corrected total income tax due
Less: Income tax paid
Tax deficit
Surcharge (P900,000 x 25%)
Interest (P900,000 x 20%)
Total amount due
Problem 2 18
Amount of tax liability

P10,000,000
6,500,000
P 3,500,000
30%
P 1,050,000
150,000
P
900,000
225,000
180,000
P 1,305,000
P190,000

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

Surcharges and interest

Bidding expenses
Price for the government

20,000
10,000
P220,000

Problem 2 19
Sales proceeds (P400,000 + P50,000 + P20,000)/94%
Multiplied by capital gains tax rate
Capital gains tax

P500,000
6%
P 30,000

Sales proceeds
Add: Interest (P500,000 x 15% x 8/12)
Redemption price

P500,000
50,000
P550,000

Problem 2 20
a. The cash reward of Miss Wan as tax informer would be P1,000,000, the maximum amount
of reward.
b.

The informers reward remains payable, hence, Miss Wan will received the maximum
reward of P1,000,000.

c.

The final income tax to be withheld from the reward of Miss Wan would be 10% of
P1,000,000 or P100,000.

Problem 2 21
a. The tax violations of Miss San Tago are the following:
1.
Unregistered business (Sec. 236 [A], NIRC.)
2.
Non-issuance of commercial invoice (Sec. 237, NIRC.)
3.
Ignoring the summon (Sec. 5, NIRC.)
b.

Miss San Tagos minimum financial penalties if convicted:

1. For operating an unregistered business
2. For not issuing commercial invoices
3. Failure to obey summon
Total minimum

P 5,000
1,000
5,000
P11,000

Problem 2 22
None. There is no surcharge to be imposed to Orville Corporation because the error was
corrected before payment and the payment was made on time.
The income tax due is computed as follows:
Corrected gross receipts (P2,000,000/75%)
Corrected allowable deductions (P1,500,000/1.35)
Taxable income per audit
Multiply by percent of tax for 2009
Income tax due
Problem 2 23
1.
Principal factory
Warehouses (P500 x 9)
Branches (P500 x 30)
Total annual registration fee January 31, 2010
2.

Total annual registration fee January 31, 2010

Surcharges (20,000 x 25%)

P 2,666,667
1,111,111
P 1,555,556
30%
466,667
P

500
4,500
15,000
P20,000
P20,000
5,000

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

Interest (P20,000 x 20% x 6/12)

Total amount due July 30, 2005
Problem 2 24
Amount of tax liability
Surcharges
Interest
Advertising cost
Price if purchase by the Government

2,000
P27,000
P100,000
25,000
20,000
5,000
P150,000

Problem 2 25
None. Forfeited property belongs to the government, hence, excess amount over tax liability
is not refundable to the taxpayer.
Problem 2 26
Tax violation involving fraud is not allowed with tax comprise. (Sec. 204A, NIRC)
Problem 2 27
1.
Compromise (P10,000,000 x 10%)

P 1,000,000

2.

P 4,000,000

Compromise (P10,000,000 x 40%)

Problem 2 28
Case 1 Financial incapability due to corporate insolvency.
Delinquent accounts
Pending cases under administrative protest
Criminal violation not filed in courts
Total basic tax
Multiplied by applicable compromise rate
Amount of compromise

P 500,000
900,000
1,000,000
P2,400,000
20%
P 480,000

Case 2 Financial incapability due to surplus deficit resulting to impairment in original

capital by at least 50%.
Delinquent accounts
P 500,000
Pending cases under administrative protest
900,000
Criminal violation not filed in courts
1,000,000
Total basic tax
P2,400,000
Multiplied by applicable compromise rate
40%
Amount of compromise
P 960,000
Case 3 Doubtful validity of assessment.
Delinquent accounts
Pending cases under administrative protest
Criminal violation not filed in courts
Total basic tax
Multiplied by applicable compromise rate
Amount of compromise

P 500,000
900,000
1,000,000
P2,400,000
40%
P 960,000

Problem 2 -29
a. Yes, because the offered compromise amount of P100,000 exceeds the required minimum
amount of P25,000, (P250,000 x 10%).
b.

Since distraint is imposed only on personal property, the personal property with a value of
P100,000 shall be subjected to distraint.

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)

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9
Chapter 2: Tax Administration

c.

Yes, levy of real property and distraint of personal property can be done simultaneously
(Sec. 207B of the Tax Code). See also Section 205 of NIRC.

d.

No, the unpaid portion will remain as tax liability of Lugui because Miss Lugui did not avail
of the compromise tax settlement. The remedy by distraint of personal property and levy
on realty may be repeated if necessary until the full amount due, including all expenses,
is collected (Sec. 217, NIRC).