INCOME TAX rents for the maintenance of its school buildings, including payment of

(CORPORATIONS, PARTNERSHIPS, ETC) janitorial services. Is the leased portion subject to real property tax?
Compiled by: Karl Guinucud a. Yes, since Lualhati is a stock and for profit educational institution.
b. No, since the school actually, directly, and exclusively used the rents for
BASIC PRINCIPLES OF TAXATION educational purposes.
c. No, but it may be subject to income taxation on the rents it receives.
1. Which theory in taxation states that without taxes, a government d. Yes, since the leased portion is not actually, directly, and
would be paralyzed for lack of power to activate and operate it, resulting exclusively used for educational purposes.
in its destruction?
a. Power to destroy theory 6. Which among the following concepts of taxation is the basis for the
b. Lifeblood theory situs of income taxation?
c. Sumptuary theory a. Lifeblood doctrine of taxation
d. Symbiotic doctrine b. Symbiotic relation in taxation
c. Compensatory purpose of taxation
2. The actual effort exerted by the government to effect the exaction of d. Sumptuary purpose of taxation
what is due from the taxpayer is known as
a. Assessment. DONOR’S TAX
b. Levy. 7. Which of the following transactions is deemed a taxable gift?
c. Payment. a. Condonation or remission of a debt
d. Collection. b. Sale of residential house and lot for less than adequate and full
consideration in money or money’s worth
3. Although the power of taxation is basically legislative in character, it c. Both (a) and (b)
is NOT the function of Congress to d. Neither (a) nor (b)
a. Fix with certainty the amount of taxes.
b. Collect the tax levied under the law. 8. Which of the following statements relative to donor’s tax is false?
c. Identify who should collect the tax. a. The spouses shall file separate donor’s tax returns where the thing
d. Determine who should be subject to the tax. donated is common property.
b. Each parent shall be entitled to the P10,000 exemption on account of
4. An example of a tax where the concept of progressivity finds marriage of a child.
application is the c. Exemptions and deductions cannot be claimed where the 30%
a. Income tax on individuals. tax rate on stranger is applicable.
b. Excise tax on petroleum products. d. None of the foregoing.
c. Value-added tax on certain articles.
d. Amusement tax on boxing exhibitions. 9. The spouses Esme and Carlisle wanted to donate a parcel of land to their
son Edward who is getting married in December, 2016. The parcel of land has
5. Ligaya Educational Foundation, Inc., a stock educational institution a zonal valuation of P420,000.00. What is the most efficient mode of
organized for profit, decided to lease for commercial use a 1,500 sq. m. donating the property?
portion of its school. The school actually, directly, and exclusively use the
a. The spouses should first donate in 2016 a portion of the property valued b. Yes, because the donation is to be wholly used for
at P20,000, then spread the P400,000 equally for 2017, 2018, 2019 and administration purposes.
2020. c. Yes, since he did not obtain the requisite NGO certification before he
b. Spread the donation over a period of 5 years by the spouses made the donation.
donating P100,000 each year from 2016 to 2020. d. No, because the donation does not exceed 10% of his taxable income for
c. The spouses should each donate a P110,000 portion of the 2017.
value of the property in 2016 then each should donate P100,000
in 2017. 13. What law shall govern the imposition of donor’s tax?
d. The spouses should each donate a P100,000 portion of the value of the a. The law in force at the time of perfection of the donation
property in 2016, and another P100,000 each in 2017. Then, in 2018, Esme b. The law in force at the time of completion of the
should donate the remaining P20,000. donation
c. The law in force at the time of perfection or completion
10. Exempted from donor’s taxation are gifts made depending upon the agreement of the parties
a. For the use of the barangay. d. None of the choices
b. In consideration of marriage. 14. Andy, married, donated a land commonly owned by him and her spouse
c. To a school which is a stock corporation. worth P500,000 to her friend Joan. Only Andy signed the deed of donation.
d. To a for-profit government corporation. Joan assumed P200,000 unpaid mortgage on the property. How much is the
donor’s tax due?
11. Caroline donated P110,000.00 to her friend Vicky who was getting a. P6,000 c. P1,000
married. Caroline gave no other gift during the calendar year. What is the b. P90,000 d. P45,000
donor's tax implication on Caroline’s donation? 500k - 200k = 300k x 30% = 90,000
a. The P100,000 portion of the donation is exempt since given in 15. Dondie, resident citizen, made the following donations on April
consideration of marriage. 28 of the current year:
b. A P10,000 portion of the donation is exempt being a donation in Ø To his sister, Donna,P175,000 worth of property situated in Paris, France.
consideration of marriage. The donor’s tax paid is P40,000.
c. Caroline shall pay a 30% donor's tax on the P110,000 Ø To Dara, his girlfriend in the Philippines, jewelry valued at P225,000.
donation. Ø To International Rice Research Institute, cash amounting to P50,000.
d. The P100,000.00 portion of the donation is exempt under the rate The donor’s tax due after tax credit is –
schedule for donor's tax. a. P69,000 c. P29,000
b. P38,813 d. P5,625
12. A non-stock, non-profit school always had cash flow problems, resulting 225,000 x 30% = 67,500 + (175,000 - 100,000 x 2% Tabular) = 69,000 -
in failure to recruit well-trained administrative personnel to effectively (69,000 x 175k/400k) = 38,813
manage the school. In 2017, Don Leon donated P100 million pesos to the
school, provided the money shall be used solely for paying the salaries, wages, ESTATE TAX
and benefits of administrative personnel. The donation represents less than 16. Which of the following is not a part of the gross estate?
10% of Don Leon's taxable income for the year. Is he subject to donor's taxes? a. Conjugal property
a. No, since the donation is actually, directly, and exclusively used for b. Community property
educational purposes. c. Exclusive property of the decedent
d. Exclusive property of the surviving spouse
 Fishpond, Bulacan P1,500,000
17. Who among the following transferors is not liable for estate tax on the Family Home, Makati 1,500,000
property transferred during his lifetime? Cash in bank 900,000
a. The testator who bequeaths property to his heirs in a last will and
testament executed and probated during his lifetime Exclusive Properties of Orland:
b. The donor who reserves his right to amend or revoke the donation of Land, inherited from his father P400,000
property in favor of the donee who died on July 20, 2012. The
c. The donee of an appointed property who is required under a value of land at the time of
power of appointment to transfer such property upon death to his inheritance was P210,000. The
eldest child land was mortgagedforP30,000
d. The transferor of personal property who sold it for insufficient which was unpaid at the time of
consideration death of his father,P10,000 of
which was paid by Orland
18. Which of the following properties of the spouses will be part of common before he died.
properties under a regime of Conjugal Partnership of Gains?
a. Land inherited during the marriage Land, donated on February 14, 600,000
b. Fruits of land inherited 2013 by his mother who died on
c. Jewelry inherited during the marriage November 2, 2014. The value of
d. Building donated before marriage the land when donated
was P500,000 while upon death
19. Which of the following items is not considered as a “special deduction” in of his mother wasP400,000.
computing the taxable net estate of the decedent?
a. Vanishing deduction Exclusive Properties of Wife:
b. Medical expenses Farm in Laguna, acquired 2,000,000
c. Standard deduction before marriage
d. Family home allowance
Deductions claimed:
20. When the payment of estate tax will cause undue hardship upon the heirs Funeral expenses 250,000
or the estate which is undergoing judicial settlement before the court, the BIR Fire loss of apartment 80,000
Commissioner may grant an extension for a period not exceeding: (occurred 4 months after
a. 5 years death)
b. 3 years Bad debts (represents unpaid 100,000
c. 2 years receivable from Bert, an
d. 1 year insolvent)
Mortgage on inherited land 30,000
Next three (3) questions are based on the following: Vanishing deduction on 40,000
Orland, married resident citizen, died on August 20, 2016. The estate inherited land
reported the following assets and deductions: Vanishing deduction on 20,000
Conjugal Properties: donated land
 Standard deduction 2,000,000
* VANISHING DEDUCTIONS:
21. The gross estate is: Land Inherited by Father:
a. P4,000,000 c. P7,000,000 Value at the time of Death 210,000
b. P4,710,000 d. P5,000,000 Less: Mortgage Paid (10,000)
Initial Basis 200,000
22. The vanishing deduction is: Pro rata:
a. P184,000 c. P255,760 200/5000 x 400,000 (16,000)
b. P220,800 d. P292,560 Final Basis 184,000
Vanishing Rate(4 years but not more 5 yrs) 20%
23. The net taxable estate is: Vanishing Deduction 36,800
a. P819,200 c. P829,200 Land Donated by Mother:
b. P804,200 d. P579,200 Value at the time of Donation 500,000
Initial Basis 500,000
Properties Exclusive Conjugal Total Pro rata:
Fishpond, Bulacan P1,500,000 1,500,000 500/5000 x 400,000 (40,000)
Family Home, Makati 1,500,000 1,500,000 Final Basis 460,000
Cash in bank 900,000 900,000 Vanishing Rate(3 years but not more 4 yrs) 40%
Land, inherited from Father Vanishing Deduction 184,000
died on July 20, 2012. 400,000 400,000 TOTAL VANISHING DEDUCTIONS 220,800
Land, Donated from Mother
on Feb 14, 2013 . 600,000 600,000 24. Abe, married resident alien, died on January 15, 2017. She left the
Claims to Insolvent 100,000 100,000 following properties, expenses and obligations:
GROSS ESTATE 1,000,000 4,000,000 5,000,000 Community properties, P5,000,000
Philippines (including family
Allowable Deductions: home valued at P1,800,000)
Funeral Expenses (200,000) (200,000) Community properties, Abroad 2,000,000
Fire Loss (80,000) (80,000) Exclusive properties, Philippines 3,000,000
Bad Debts (100,000) (100,000) Actual funeral expenses 300,000
Mortgage on Land (20,000) (20,000) Judicial expenses 200,000
Vanishing Deductions* (220,800) (220,800) Medical expenses (incurred w/in 600,000
Net Estate Before Special 1yr. before death)
Deductions 759,200 3,620,000 4,379,200 Devise to National Gov’t 50,000
Legacy to Local Gov’t 70,000
Special Deductions:
Family Home( 1,500,000 x 1/2) (750,000) The net taxable estate is:
Special Deduction (1,000,000) a. P3,780,000 c. P3,580,000
Share of Surviving Spouse (1,810,000) b. P3,680,000 d. P3,530,000
NET TAXABLE ESTATE 819,200
RESIDENT ALIEN Personal properties inherited by 250,000
Particulars Exclusive Community Total Arthur during marriage
All Properties w/i & w/o 3,000,000 7,000,000 10,000,000 Benefits from SSS 50,000
Funeral Expense (200,000) (200,000) Retirement benefits 150,000
Judicial Expense (200,000) (200,000) Proceeds of group insurance taken 75,000
Transfers(50,000 + 70,000) (120,000) (120,000) by his employer
Gross Estate 2,880,000 6,600,000 9,480,000 Land inherited by the wife during 1,000,000
Share of Surviving Spouse (3,300,000) marriage
Medical Expenses (500,000) Income earned from the land 200,000
Family Home(1/2 of 1,800,000) (900,000) inherited by wife (25% of which
Standard Deductions (1,000,000) was earned after death)
Net Estate 3,780,000
How much is the gross estate if the property relationship is conjugal
25. Based on the above problem, if the decedent is a non-resident alien, partnership of gains is:
how much is the net taxable estate? a. P2,600,000 c. P1,950,000
a. P2,755,000 c. P5,220,000 b. P3,600,000 d. P2,200,000
b. P2,880,000 d. P5,380,000 Car acquired before marriage by Arthur P 300,000
NON - RESIDENT ALIEN House and lot acquired during marriage 1,500,000
Particulars Exclusive Community Total Personal properties inherited by Arthur during marriage 250,000
All Properties w/i Only 3,000,000 5,000,000 8,000,000 Income earned from the land inherited by wife
Funeral Expense 200,000 (25% of which was earned after death) 150,000
Judicial Expense 200,000 Gross Estate 2,200,000
Allowable Deduction 400,000 x 27. Based on the preceding number, the gross estate if the property
8M/10M (320,000) (320,000) relationship is absolute community of property is:
Transfers(50,000 + 70,000) (120,000) (120,000) a. P2,600,000 c. P1,950,000
Gross Estate 2,880,000 4,680,000 7,560,000 b. P3,600,000 d. P2,500,000
Share of Surviving Spouse (2,340,000) Car acquired before marriage by Arthur P 300,000
Net Estate 5,220,000 Car acquired before marriage by wife 450,000
House and lot acquired during marriage 1,500,000
26. Arthur, Filipino, married died leaving the following estate: Jewelries of wife 100,000
Personal properties inherited by Arthur during marriage 250,000
Car acquired before marriage by P 300,000 Gross Estate 2,600,000
Arthur
Car acquired before marriage by 450,000 VAT
wife
House and lot acquired during 1,500,000 28. LBJ made the following sales during the 12-month period:
marriage
Jewelries of wife 100,000 Sales, VAT taxable P1,500,000
transactions
 Sales, VAT zero-rated 400,000
transactions 32. A subdivision developer sold five (5) residential house and lots, each
Sales, VAT exempt 100,000 to different vendees, for P3,000,000 per lot, or a total sales
transactions of P15,000,000 for the taxable period.
Total P2,000,000 These sales shall be classified as:
a. 12% VAT transactions
Which of the following statements is correct? b. 0% VAT transactions
a. LBJ may not register under the VAT system because his sales from c. VAT exempt transactions
VAT taxable transactions did not exceed P1,919,500. d. None of the foregoing
b. LBJ may not register under the VAT system because his 3,199,000 each is the threshold
sales from VAT taxable and zero-rated transactions did not 33. CP operated a retail business that had been generating sales not
exceed P1,919,500. exceeding the threshold for VAT exempt persons. However, he desires to
c. LBJ is required to register because his total 12-month sales be registered under the VAT system for the first time in order to benefit
exceeded P1,919,500. from input tax credits.
d. None of the foregoing. What benefit may CP be entitled to once he registers under the VAT
system?
29. Which of the following is exempt from VAT? a. Tax refund
a. Common carriers transporting passengers by air within the b. Presumptive input tax credit
Philippines c. Transitional input tax credit
b. Common carriers transporting passengers by sea within the d. None of the foregoing
Philippines 34. What institution is required to deduct and withhold a final VAT of 5%
c. Common carriers transporting passengers by land within on the purchase of goods or services subject to VAT?
the Philippines a. National government or any political subdivision thereof
d. Common carriers transporting cargoes by air within the Philippines b. Government-owned or controlled corporations
c. Both (a) and (b)
30. Which statement is correct about value-added tax on goods or d. Neither (a) nor (b)
properties sold?
a. It is based on gross sales and not on net sales; 35. In the value-added tax on sale of services, the output tax is
b. May be due even if the goods or properties were not computed:
actually sold; a. On the billings of the month
c. Does not cover goods exported; b. On collections of the month on all billings made
d. It forms part of the selling expense of the trader. c. On the contract price of contracts completed during the taxable
period
31. For value-added tax purposes, which of the following transactions of d. Only and strictly on labor performed under the contract for
a VAT-registered taxpayer may not be zero-rated? services
a. Export sales
b. Foreign currency denominated sales 36. Which statement is wrong?
c. Sale of goods to the Asian Development Bank a. There is a transitional input tax from purchases of goods or
d. Sale of goods to an export oriented enterprise properties;
 b. There is a transitional input tax from purchases of
services; 39. The financial records of Benz Corp., a VAT-registered taxpayer, for
c. There is a transitional input tax from purchases of materials; the taxable year 2016 disclosed the following:
d. There is a transitional input tax from purchases of supplies. Local sales to private entities 1,500,000
Export Sales 500,000
37. Which of the following statements is correct on the inventory Local sales to government 800,000
balance in the financial statements at any given date of a VAT-registered
person? How much is the total sales subject to value-added tax?
a. Balance, net of input taxes a. P2,800,000 c. P2,000,000
b. Balance, inclusive of input taxes b. P2,300,000 d. P1,500,000
c. Balance on which the transitional input tax is computed annually Local sales to private entities 1,500,000
d. Balance where the VAT thereon may be calculated by multiplying Export Sales 500,000
it by 12% Local sales to government 800,000
Total VATABLE SALES 2,800,000
38. Genson Distribution Inc., a VAT taxpayer, had the following data in a
month: 40. Mantika Corp., a VAT-registered Corp., is a producer of cooking oil from
coconut and corn. It had the following data for the month of January 2017:
Cash sales P200,000 Sales, gross of VAT P 784,000
Open account sales 500,000 Corn & Coconut, 12-31-16 50,000
Consignment: Purchases of Corn & Coconut 330,000
0 to 30 days old (on which 600,000 Corn & Coconut, 1-31-17 20,000
there were remittances Purchases from VAT suppliers, VAT included:
from consignees Packaging Materials 56,000
of P200,000) Supplies 16,800
31 to 60 days old 700,000 The value-added tax payable for the month:
61 days old and above 900,000 a. P56,060 c. P60,650
How much is the output tax? b. P54,900 d. P63,000
a. P348,000 c. P264,000 Sales, gross of VAT P 784,000 Output TAX 84,000
b. P216,000 d. P108,000
Cash sales P200,000 Purchases of Corn & Coconut 330,000 x4% (13,200)
Open account sales 500,000 Purchases from VAT suppliers, VAT included:
Consignment: Packaging Materials 56,000
0 to 30 days old Supplies 16,800 72,800 x3/28 (7,800)
(on which there were remittances from consignees of VAT PAYABLE 63,000
P200,000) 200,000 41. Bunga Inc., a VAT taxpayer, is engage in the business of processing of
61 days old and above 900,000 fruits. Its data on sales and purchases for the month of August are
Total VATABLE SALES 1,800,000 provided below:
VAT 12% Sales P200,000
OUTPUT VAT 216,000 Purchases:
Fresh Fruits 30,000
Raw sugarcane 12,000
Tin Can, gross of VAT 12,320
Paper Labels, net of VAT 5,000
Cardboard for boxes, net of VAT 8,000
Freight, gross of VAT (50% still unpaid) 10,080

How much is the value-added tax payable?

a. P20,580 c. P19,380
b. P18,900 d. P20,100
Sales P200,000 Output Tax 24,000
Purchases:
Fresh Fruits 30,000
Raw sugarcane 12,000
Tin Can, gross of VAT 12,320 Input Tax (1,320)
Paper Labels, net of VAT 5,000 Input Tax ( 600)
Cardboard for boxes, net of VAT 8,000 Input
Tax ( 960)
Freight, gross of VAT (50% still
unpaid) 10,080 Input Tax ( 540)
VAT PAYABLE 20,580
42. Bahay Kubo Inc. is a real estate dealer. Details of its sales during the TOTAL Receipts 3,450,000
year showed the following: VAT Rate 12%
Date of sale June 2, 2017 Output VAT 414,000
Consideration in the deed of sale P 5,000,000 45. COC Inc., in its first month of operation, and as a VAT taxpayer,
Fair market value in the assessment rolls 4,800,000 purchased various fixed assets. Purchases of fixed assets in the first month
Zonal Value 5,200,000 were as follows:
Schedule of payments: Light equipment, with a useful life of 3 years P 300,000
June 2, 2017 1,000,000 Heavy equipment, with a useful life of 10 years 4,000,000
June 2, 2018 2,000,000
June 2, 2019 2,000,000 How much is the input tax available for the month?
How much is the output tax to be recognized for the June 2, 2018 a. P516,000 c. P480,000
payment? b. P9,000 d. P8,600
a. P0 c. P249,600 Light Equipment 300,000/36 x 12% 1,000
b. P124,800 d. P624,000 Heavy Equipment 4,000,000/60 x 12% 8,000
Zonal Value 5,200,000 x 12% = 624,000 x 2M/5M Total Input VAT 9,000
= 249,600 Output Tax for 2018
46. Kusina Co., had its kitchen assembled by a VAT taxpayer. It took six
43. Assuming that the scheduled payment on June 2, 2017 months for the contractor to finish the work. Kusina Co. purchased
is P2,000,000, how much is the output tax to be recognized for the June materials in July from VAT suppliers at a cost of P500,000, VAT not
2, 2019 payment? included. Payment to the contractor in July 2017 on the Construction in
a. P0 c. P249,600 Progress, VAT not included was:
b. P124,800 d. P624,000 On contractor’s billing in June P100,000
Zero as in 0 for the sale will no longer qualify as Installment On contractor’s billing in July 70,000
Sales. The input tax available in July is:
a. P0 c. P60,000
44. Mr. Karpentero, a vat-registered building contractor, has the b. P80,400 d. P20,400
following data on gross receipts in a month, any tax not included: Materials from VAT Supplier 500,000
From Mr. A, a private property owner, final payment on the contract On contractor’s billing in June 100,000
price, net of 5% agreed retention fee On contractor’s billing in July 70,000
P2,850,000 Total 670,000
From Mr. B, a payment of 5% retention on the contract price previously VAT Rate 12%
made by him 100,000 Output Tax 80,400
From Mr. C, for materials used in the construction 500,000
How much is the output tax? 47. Data from the books of accounts of a VAT taxpayer for February:
a. P414,000 c. P72,000 Domestic Exports
b. P342,000 d. P62,000 Sales P 2,000,000 8,000,000
Final Payment on Contracts 2,850,000 Purchases:
Retention 100,000 From VAT Suppliers:
Materials 500,000 Goods for sale 600,000 2,400,000
 Supplies & services 90,000 360,000 b. 50% of the foreign company’s gross income for the preceding three
From Suppliers Paying percentage tax: (3) years prior to the dividend declaration was derived from sources
Goods for sale 100,000 1,500,000 within the Philippines.
Supplies & services 20,000 80,000 c. More than 50% of the foreign company’s gross income for the
If the input taxes attributable to zero-rated sales are claimed as tax credit, preceding three (3) years prior to the dividend declaration was derived
the net value-added tax refundable is: from sources within the Philippines.
a. P136,000 c. P145,000 d. Always classified as income without”.
b. P203,924.70 d. P174,000
Output Tax (2,000,000 x 12%) 240,000 51. D’ Lion, Inc., a Philippine corporation, sold through the local stock
Input Tax on Domestic Sales (690,000 x 12%) (82,800) exchange 10,000 PLDT shares that it bought 2 years ago. D’ Lion sold the
Input Tax on Zero Rated (2,760,000 x 12%) (331,200) shares for P2 million and realized a net gain of P200,000. How shall it
Refundable VAT (174,000) pay tax on the transaction?
a. It shall declare a P2 million gross income in its income tax return,
INCOME TAXATION deducting its cost of acquisition as an expense.
48. C. Lee, Chinese national, arrived in the Philippines on January 1, b. It shall report the P200,000 in its corporate income tax return
2012 to visit his Filipina paramour. He planned to stay in the country until adjusted by the holding period.
December 31, 2016, by which time he would go back to his legal wife and c. It shall pay 5% tax on the first P100,000 of the P200,000 and 10%
family in China. C. Lee derived income during his stay here in the tax on the remaining P100,000.
Philippines. d. It shall pay a tax of one-half of 1% of the P2 million gross
For the taxable year 2012, C. Lee shall be classified as a: sales.
a. Resident alien
b. Non-resident alien engaged in trade or business in the Philippines 52. The payor of passive income subject to final tax is required to
c. Non-resident alien not engaged in trade or business in the withhold the tax from the payment due the recipient. The withholding of
Philippines the tax has the effect of
d. Special alien employee a. A final settlement of the tax liability on the income.
b. A credit from the recipient's income tax liability.
49. The following individual taxpayers are subject to the graduated c. Consummating the transaction resulting in an income.
income tax rates of 5%-32%, except d. A deduction in the recipient's income tax return.
a. Filipino citizens
b. Resident aliens 53. Winterfell, Inc., bought a parcel of land in 2015 for P7 million as part
c. Non-resident alien engaged in trade or business in the Philippines of its inventory of real properties. In 2017, it sold the land for P12 million
d. Non-resident alien not engaged in trade or business in the which was its zonal valuation. In the same year, it incurred a loss of P6
Philippines million for selling another parcel of land in its inventory. These were the
only transactions it had in its real estate business. Which of the following
50. In which of the following cases will the dividend income from a is the applicable tax treatment?
foreign corporation be classified as “income without” a. Winterfell shall be subject to a tax of 6% of P12 million.
a. Less than 50% of the foreign company’s gross income for b. Winterfell could deduct its P6 million loss from its P5
the preceding three (3) years prior to the dividend declaration million gain.
was derived from sources within the Philippines. c. Winterfell’s gain of P5 million shall be subject to the holding period.
d. Winterfell's P6 million loss could not be deducted from its P5 million
gain. 58. Assume the same facts in the immediately preceding number, except
that at the time of the completion of the residential house, the remaining
54. Passive income includes income derived from an activity in which the term of the lease was 15 years while the useful life of the house was 10
earner does not have any substantial participation. This type of income is years.
a. Usually subject to a final tax. What is the tax implication of the leasehold improvement?
b. Exempt from income taxation. a. Mr. Yu derives taxable income on the improvement; Mr. Uy can claim
c. Taxable only if earned by a citizen. depreciation expense as a deduction from gross income.
d. Included in the income tax return. b. Mr. Yu derives taxable income on the improvement; Mr. Uy cannot
55. In 2017, Alice earned P500,000 as income from her beauty parlor claim depreciation expense as a deduction from gross income.
and received P250,000 as Christmas gift from her aunt. She had no other c. Mr. Yu does not derive taxable income on the
receipts for the year. She spent P150,000 for the operation of her beauty improvement; Mr. Uy cannot claim depreciation expense as a
parlor. For tax purposes, her gross income for 2017 is deduction from gross income.
a. P750,000. c. P350,000 d. Mr. Yu does not derive taxable income on the improvement; Mr. Uy
b. P500,000 d.P600,000. can claim depreciation expense as a deduction from gross income.

56. Which of the following items is not part of gross income to be reported 59. Which of the following expenses may be deducted from gross
in the income tax return? compensation income?
a. Increase in value of land a. Depreciation of permanent assets
b. Gambling winnings b. Premium payments on health and/or hospitalization
c. Prize of P10,000 insurance
d. Gain from sale of store’s air conditioner c. Bad debts written off
d. Optional standard deduction
57. Mr. Yu leased his lot to Mr. Uy. The contract calls for Mr. Uy to
construct a house which would serve as the residence of the latter, the 60. Which of the following items of interest expense may be deducted
ownership thereof to be vested in Mr. Yu after the expiration of the lease. from gross income?
When the house was completely constructed, the remaining term of the a. Interest on corporation’s preferred stock
lease was 10 years. The residential house had an estimated useful life of b. Interest on loan for construction of a rest house
15 years. c. Interest for delinquency in the payment of percentage tax
What is the tax implication of the leasehold improvement? d. Interest on bank loan to finance petroleum exploration
a. Mr. Yu derives taxable income on the improvement; Mr. Uy can claim
depreciation expense as a deduction from gross income. 61. Which of the following taxes may be deducted from gross income?
b. Mr. Yu derives taxable income on the improvement; Mr. Uy a. Percentage tax on sale of listed stock
cannot claim depreciation expense as a deduction from gross b. Business permit fee paid to the city government
income. c. Income tax
c. Mr. Yu does not derive taxable income on the improvement; Mr. Uy d. Tax on interest on bank deposit
cannot claim depreciation expense as a deduction from gross income.
d. Mr. Yu does not derive taxable income on the improvement; Mr. Uy 62. Who among the following taxpayers may not claim a tax credit or
can claim depreciation expense as a deduction from gross income. deduction on income tax paid to foreign countries?
a. Resident citizens 67. Harry works as financial consultant in an oil firm in Dubai. Aside
b. Resident aliens from his salary thereat, he also maintains a 10-door apartment in Manila
c. Domestic corporations which he inherited from his parents when he was already married. On the
d. General Co-Partnerships other hand, Wilma, his wife, is employed as a loan officer at a local bank.
Data pertaining to their dependents appear below for the taxable year
63. The loss from sale or exchange of property is deductible from gross 2017:
income where the sale or exchange is: Anton - Son who turned 23 on April 1, 2017; incapable of self-support due
a. Between fiduciary of a trust and the fiduciary of another trust if they to loss of both legs in an accident;
have the same grantor Bunny - 21 year old daughter who is taking up culinary arts in Paris,
b. Between fiduciary of a trust and the beneficiary of such trust France;
c. Between an individual and his first cousin Charlie - 15-year old adulterous son of Harry living with the couple;
d. Between an individual and a corporation if the former owns more Dina - 12-year old child who died from a vehicular accident on January 1,
than 50% in value of the outstanding capital stock of the latter 2017; and
Evan - 80-year old father of Wilma, supported by her and living with the
64. Anne, claimed a bad debt of P50,000 as a deductible expense in the couple.
taxable year 2016. In 2017, Anne was able to recover the P50,000 debt The basic and additional personal exemptions of Harry for the taxable
already written off in the preceding year. year 2017 amounts to:
What is the treatment for tax purposes of the recovery of the bad debt? a. P50,000 and P100,000, respectively
a. Report the recovery of the bad debt as gross income in 2016. b. P50,000 and P75,000, respectively
b. Report the recovery of the bad debt as gross income in 2017. c. P50,000 and P0, respectively
c. Disregard the recovery of the bad debt. d. P0 and P0, respectively
d. Amend the 2016 income tax return to rectify the deduction for bad
debt claimed. 68. Assume the same facts above, the basic and additional personal
exemptions of Wilma for the taxable year 2016 amount to:
65. Which of the following assets shall be subject to depletion? a. P50,000 and P100,000, respectively
a. Machinery b. P50,000 and P75,000, respectively
b. Land containing ore deposit c. P50,000 and P0, respectively
c. Commercial d. P0 and P0, respectively
d. Goodwill
69. Which of the following statements does not characterize a capital
66. Which of the following individual taxpayers may claim basic and asset?
additional personal exemptions for income tax purposes? a. It may be real or personal property.
a. Non-resident aliens engaged in trade or business in the Philippines, b. It is not always subject to a holding period.
in the absence of reciprocity c. It is normally subject to value-added tax when it is sold.
b. Non-resident aliens not engaged in trade or business in the d. It is not always subject to a final tax.
Philippines
c. Both (a) and (b) 70. Which of the following transactions is exempt from capital gains tax?
d. Neither (a) nor (b) a. The sale of the principal residence of the taxpayer where the entire
proceeds is used to purchase a vacation lot at Tagaytay
b. The sale of a beach lot of the taxpayer where the entire proceeds is Gross income from business P 700,000
used to construct his principal residence Royalty from books 40,000
c. The sale of the principal residence of the taxpayer for the second time Gain on direct sale to buyer
in ten (10) years to purchase another principal residence of shares of stock of a domestic
d. None of the choices corporation held as capital asset 70,000
Loss on sale of land in the Philippines
71. Which of the following transactions is treated as a capital asset held as capital asset with cost of
transaction for income tax purposes? P1,500,000 when the
a. Sale of a residential lot by a subdivision developer zonal value is P1,200,000 500,000
b. Sale of a used delivery truck by a retailing company Business Expenses 300,000
c. Liquidation of partnership business How much is the total income tax expense for the year?
d. Sale of shares of stock by a dealer in securities a. P177,500 c. P159,500
b. P80,000 d. P156,000
72. Which of the following is not an attribute of a deferred-payment sale? Gross Income from Business 700,000
a. The initial payments exceed 25% of the selling price in the year of Less: Business Expense 300,000
sale. Personal Exemptions 50,000 350,000
b. The obligations or promissory notes received by the vendor from the Net Taxable income 350,000
vendee are considered as equivalent to cash. Tabular Schedule:
c. The tax may be paid in installments. 1st 250,000 Tax is 50,000
d. The sale involves both real and personal property. Excess of 250,000 - 350,000 = 100,000 x 30% 30,000
Capital Gains Tax on Shares ( 70,000 x 5% ) 3,500
73. The deductible expenses of an estate may consist of: Royalty Income (40,000 x 10%) 4,000
a. Deductible expenses allowed to an individual taxpayer Loss on Sale (Zonal Value 1.2 x 6%) 72,000
b. Income distributed to beneficiaries Total Income Tax Expense 159,500
c. Both (a) and (b)
d. Neither (a) nor (b) 76. Mercy is a citizen and resident of the Philippines. She had a
74. Determine which of the following trusts shall the taxable income be compensation income (net of exclusions) of P200,000 and a net income
consolidated and the income tax thereon computed on the basis of such from business of P700,000 for a year. She made quarterly income tax
consolidated income? payments amounting to P237,000 and her employer withheld P25,000
a. Trust No. 1 and Trust No. 2 have the same grantor and with different on her compensation income.
beneficiaries. The income tax payable (refundable) for the year is:
b. Trust No. 1 and Trust No. 2 have the same grantor and the a. (P25,000) c. (P42,000)
same beneficiary. b. P237,000 d. (P37,500)
c. Trust No. 1 and Trust No. 2 have different grantors and the same Compensation Income 200,000
beneficiary. Net Income from Business 700,000
d. Trust No. 1 and Trust No. 2 have different grantors and the same Total Income 900,000
fiduciary and beneficiary. Basic Exemptions (50,000)
Taxable Income 850,000
75. Inday is a resident citizen of the Philippines. Data for a year: 1st 500,000 Tax 125,000
 Excess of 500,000- 850,000 x 32% 112,000 79. How much is the final withholding tax if the taxpayer is a non-
Total Tax Due 237,000 resident citizen?
Less : Taxes Payments a. P21,450 c. P17,700
Quarterly Payments 237,000 b. P20,400 d. P36,250
Compensation CWT 25,000 262,000 Philippines
Refundable /Creditable Tax (25,000) Interest income from bank
deposits 45,000 x 20% = 9,000
77. EMT has the following data on his passive income earned during the Royalties from books 20,000 x 10% = 2,000
year 2016: Royalties from computer programs 20,000 x
Philippines Abroad 20% = 4,000
Dividend income from a domestic corporation 27,000 x
Interest income from bank deposits 45,000 25,000 10% = 2,700
Interest income from FCDU 50,000 0.00 Total Witholding Taxes 17,700
Royalties from books 20,000 30,000 80. How much is the final withholding tax if the taxpayer is a non-
Royalties from computer programs 20,000 40,000 resident alien engaged in trade or business?
Dividend income from a domestic corporation 27,000 13,000 a. P21,450 c. P17,700
Dividend income from a foreign corporation 33,000 22,000 b. P20,400 d. P36,250
Philippines
How much is the final withholding tax if the taxpayer is a resident citizen? Interest income from bank deposits 45,000 x
a. P21,450 c. P17,700 20% = 9,000
b. P20,400 d. P36,250 Royalties from books 20,000 x 10% = 2,000
Philippines Royalties from computer programs 20,000 x
Interest income from bank 20% = 4,000
deposits 45,000 x 20% = 9,000 Dividend income from a domestic corporation 27,000 x
Interest income from FCDU 50,000 x 7.5% = 3,750 20% = 5,400
Royalties from books 20,000 x 10% = 2,000 Total Witholding Taxes 20,400
Royalties from computer programs 20,000 x 81. How much is the final withholding tax if the taxpayer is a non-
20% = 4,000 resident alien not engaged in trade or business?
Dividend income from a domestic corporation 27,000 x a. P21,450 c. P17,700
10% = 2,700 b. P20,400 d. P36,250
Total Witholding Taxes 21,450 Interest income from bank deposits 45,000
Royalties from books 20,000
78. How much is the final withholding tax if the taxpayer is a resident Royalties from computer programs 20,000
alien? Dividend income from a domestic corporation 27,000
a. P21,450 c. P17,700 Dividend income from a foreign corporation 33,000
b. P20,400 d. P36,250 TOTAL PASSIVE INCOME 145,000
SAME COMPUTATION AS RESIDENT CITIZEN Final Withholding Tax Rate 25%
Total Withholding Taxes 36,250
82. Nonoy is an employee of a firm in Quezon City. He is supporting his a. P425,000 c. P570,800
4 year old brother who is living with him. Data on his compensation b. P380,000 d. P520,800
income for the year shows: Net Sales 2,000,000
Regular Salary P 240,000 Cost of Sales (600,000)
Thirteenth month pay 20,000 Operating Expenses (500,000)
Quarterly bonus 40,000 Net Income from Ordinary Business 900,000
Payroll Deductions: Add Other Income Broker Outside Phils 1,000,000
SSS Premiums 3,000 Total Taxable Income 1,900,000
Philhealth contributions 1,200 Corporate Tax Rate 30%
Pagibig contributions 4,000 Income Tax Due 570,000
Labor union dues 1,000 Less Quarterly Income Tax Paid (190,000)
Premium payments on hospitalization insurance 3,000 Income Tax Due and Payable 380,000
Payment of loan 5,000
How much is the taxable income? 84. The Kultura Foundation of the Philippines, a non-stock, non-profit
a. P210, 800 c. P208,400 corporation, organized and operated exclusively to preserve and show-
b. P207,800 d. P260,800 case Philippine cultural practices, music, dances, and folk arts, deriving
Regular Salary P 240,000 funding from mostly donations, had the following data for the year:
Total Income 240,000 Donations received P 20,000,000
Less: Basic Exemption (50,000) Interest income from bank deposits 100,000
SSS Premiums (3,000) Rent income from properties received as donation
Philhealth contributions (1,200) (net of 5% withholding tax) 475,000
Pagibig contributions (4,000) Expenses related to its rent income 30,000
Labor union dues (1,000)
Net Taxable Income 180,800 +30,000 if How much is the income tax expense of the Corporation for the year?
old laws = 218,000 a. P161,000 c. P172,000
83. A domestic corporation, in its fifth (5th) year of operations, had the b. P136,000 d. P125,600
following data for the year: Rent Income (Gross Up) 500,000
Net sales P 2,000,000 Less: Expenses (30,000)
Capital gain on direct sale to a buyer Net Rent Income 470,000
of shares of a domestic corporation for P500,000 200,000 Tax Rate 30%
Capital gain on sale thru a real estate Tax Expense 141,000
broker of land and building outside the Add Interest Income Tax 20,000
Philippines for P5,000,000 1,000,000 Total Income Tax Expense 161,000
Dividend from a domestic corporation 50,000
Interest on bank deposit 40,000 85. A tax imposed in the nature of a penalty to the corporation to deter
Cost of sales 600,000 tax avoidance of shareholders who avoid paying the dividends tax on the
Quarterly corporate income tax paid 190,000 earnings distributed to them by the corporation.
Operating expenses 500,000 a. Minimum corporate income tax
The income tax payable upon filing of the annual income tax return is: b. Optional corporate income tax
c. Improperly accumulated earnings tax
d. Capital gains tax 90. To avoid payment of IAET, when must the dividends be declared and
paid or issued?
86. First statement: An accumulation of earnings or profits (including a. Not later than one year following the close of the taxable
undistributed earnings or profits of prior years) is unreasonable if it is not year
necessary for the purpose of the business, considering all the b. Not later than the 15th day following the close of the taxable year
circumstances of the case. c. Not later than 60th day following the close of the taxable quarter
Second statement: The term "reasonable needs of the business" are d. None of the choices
hereby construed to mean the immediate needs of the business, including
reasonably anticipated needs. TAX REMEDIES
a. Only the first statement is correct 91. Rosalie, a compensation income earner, filed her income tax return for
b. Only the second statement is correct the taxable year 2013 on March 30, 2014. On May 20, 2017, Rosalie received
c. Both statements are correct an assessment notice and letter of demand covering the taxable year 2013 but
d. Both statements are incorrect the postmark on the envelope shows April 10, 2017. Her return is not a false
and fraudulent return. Can Rosalie raise the defense of prescription?
87. The Improperly Accumulated Earnings Tax (IAET) is imposed on a. No. The 3 year prescriptive period started to run on April 15,
improperly accumulated taxable income earned starting January 1, 1998 2014, hence, it has not yet expired on April 10, 2017.
by domestic corporations as defined under the Tax Code and which are b. Yes. The 3 year prescriptive period started to run on April 15, 2014,
classified as closely-held corporations at the rate of: hence, it had already expired by May 20, 2017.
a. twenty percent (20%). c. ten percent (10%). c. No. The prescriptive period started to run on March 30, 2014, hence, the
b. fifteen percent (15%). d. five percent (5%). 3 year period expired on April 10, 2017.
d. Yes. Since the 3-year prescriptive period started to run on March 30,
88. The Improperly Accumulated Earnings Tax shall not apply to which 2014, it already expired by May 20, 2017.
of the following corporations?
a. Banks and other non-bank financial intermediaries 92. On March 30, 2012 Emmett Foods, Inc. received a notice of assessment
b. Insurance companies and a letter of demand on its April 15, 2009 final adjustment return from the
c. Publicly-held corporation BIR. Emmett Foods then filed a request for reinvestigation together with the
d. All of the choices requisite supporting documents on April 25, 2012. On June 2, 2012, the BIR
issued a final assessment reducing the amount of the tax demanded. Emmett
89. First statement: Once the profits have been subjected to Foods was satisfied with the reduction, it did not do anything anymore. On
improperly accumulated earnings tax, the same shall no longer be subject April 15, 2017 the BIR garnished the corporation's bank deposits to answer
to the same tax in later years even if not declared as dividends. for the tax liability. Was the BIR action proper?
Second statement: Profits which have been subjected to improperly a. Yes. The BIR has 5 years from the filing of the protest within which to
accumulated earnings tax when finally declared as dividends shall be collect.
subject to tax on dividends. b. Yes. The BIR has 5 years from the issuance of the final
a. Both statements are true assessment within which to collect.
b. Both statements are false c. No. The taxpayer did not apply for a compromise.
c. Only the first statement is true d. No. Without the taxpayer’s prior authority, the BIR action violated the
d. Only the second statement is true Bank Deposit Secrecy Law.
 of an early resolution of his protested assessment, the taxpayer should file his
93. Renesmee, Inc. received a notice of assessment and a letter from the BIR appeal to the Court of Tax Appeals not later than
demanding the payment of P3 million pesos in deficiency income taxes for a. August 31, 2017.
the taxable year 2015. The financial statements of the company show that it b. August 30, 2017.
has been suffering financial reverses from the year 2016 up to the present. Its c. August 15, 2017.
asset position shows that it could pay only P500,000.00 which it offered as a d. August 1, 2017.
compromise to the BIR. Which among the following may the BIR require to
enable it to enter into a compromise with Renesmee, Inc.? DOCUMENTARY STAMP TAX
a. Renesmee must show it has faithfully paid taxes before 2016. 97. A newly formed corporation issued shares of stocks to its incorporators
b. Renesmee must promise to pay its deficiency when financially able. for P150,000. The par value of the shares issued is P100,000. How much is
c. Renesmee must waive its right to the secrecy of its bank the documentary stamp tax?
deposits. a. P500 c. P750
d. Renesmee must immediately deposit the P500,000 with the BIR. b. P1,000 d. P1,500
Par Value Divide by 200 x 1 peso = 100,000 / 200 = 500
94. As a rule, within what period must a taxpayer elevate to the Court of Tax 98. Mr. T invested in shares of stock of Kapisananngmga Sisters Inc.
Appeals a denial of his application for refund of income tax overpayment? amounting to P100,000 with par value of P80,000. After 2 years, he disposed
a. Within 30 days from receipt of the Commissioner’s denial of his said shares directly to Mr. B for P230,000.
application for refund. The documentary stamp tax on above transaction is:
b. Within 30 days from receipt of the denial which must not a. P400 c. P300
exceed 2 years from payment of income tax. b. P1,150 d. P862.50
c. Within 2 years from payment of the income taxes sought to be refunded. 80,000 / 200 = 400 x 75% = 300
d. Within 30 days from receipt of the denial or within two years from 99. Based on number 97, but assuming the shares are without par value, how
payment. much is the documentary stamp tax?
a. P500 c. P750
95. What is the effect on the tax liability of a taxpayer who does not protest b. P1,000 d. P0.00
an assessment for deficiency taxes? Selling Price - Cost = 230,000 - 80,000 = 150,000 / 200 = 750
100. Continuing number 99, if the shares were subsequently sold
a. The taxpayer may appeal his liability to the CTA since the assessment is for P200,000, how much is the documentary stamp tax?
a final decision of the Commissioner on the matter. a. P750 c. P1,500
b. The BIR could already enforce the collection of the taxpayer's liability if b. P187.50 d. P375
it could secure authority from the CTA. Doc Stamp Upon Original Issuance 750 x 25% = 187.50
c. The taxpayer's liability becomes fixed and subject to collection 101. Mr. Purisima owns a resthouse in Pampanga acquired by him for
as the assessment becomes final and collectible. P10,750,000. He sold the same to Mr. Apo for P5,000,000. The fair market
d. The taxpayer's liability remains suspended for 180 days from the value at the time of sale per assessor’s office is P10,000,000 while zonal value
expiration of the period to protest. is P15,000,000. The documentary stamp tax on the transaction is:
a. P75,000 c. P150,000
96. The taxpayer seasonably filed his protest together with all the supporting b. P225,000 d. P161,250
documents. It is already July 31, 2017, or 180 days from submission of the 15,000,000/1000 = 15,000 x 15 pesos = 225,000
protest but the BIR Commissioner has not yet decided his protest. Desirous 102. Who is liable to the payment documentary stamp tax?
a. Mr. Purisima
b. Mr. Apo
c. It depends on the agreement of the parties
d. It depends on who is benefiting on the transaction
RATE PROGRAM
Q – What is RATE?
A - RATE stands for Run AgainstTax Evaders
Q – What is RATE Program?
It is a program initiated by the Department of Finance & BIR to investigate
and prosecute individuals and/or entities engaged in tax evasion and other
criminal violations of the NIRC of 1197.
Q – What is tax evasion or tax fraud?
A- Tax evasion or fraud is the use by the taxpayer of illegal or fraudulent
means to defeat or lessen the payment of a tax.
Q – Who may be charged under the RATE Program?
A – Any person, association, partnership and company found to have
committed a violation of the provisions of the NIRC of 1997. But in the case
of associations, partnerships or corporations, the penalty shall be imposed on
the partner, president, general manager, branch manager, treasurer, officer-
in-charge and employee/s responsible for the violation.
Q – What are the fraudulent activities or criminal violations
covered by the RATE Program?
A – Although not all inclusive, listed below are some of the infractions that
are considered as criminal violations of the NIRC of 1997:
a) Offenses relating to income:
Ø Failure to file tax return/s
Ø Failure to pay taxes
Ø Deliberate underdeclaration of income by more than 30% of that declared
per return (substantial underdeclaration)
Ø Hiding or transferring assets or income
Ø Non-remittance of withholding taxes
b) Offenses relating to Deductions
Ø Deliberate overstatement of amount of deductions by more than 30% of
actual deductions (substantial overstatement of deductions)
Ø Claiming personal expenses as business expenses
Ø Claiming false deductions
c) Other Violations
Ø Use of fake Certificate Authorizing Registation (CAR), Tax Clearance
Certificate (TCC) or other accountable forms
Ø Failure to register with the BIR
Ø Keeping more than one (1) set of books of accounts
Ø Making false entries in books and records
Q –What are the effects of fraud under NIRC of 1997?
A – The following are the effects of fraud:
Ø Civil penalties resulting to the imposition of a 50% surcharge
Ø Criminal penalties resulting to the imposition of penal sanctions of
imprisonment and/or fine upon conviction by the Judicial Courts
Ø Power of the BIR to assess and collect the tax is extended to 10 years from
the date of discovery of the fraud case
Ø Fraud cases cannot be the subject of a compromise
Q – Does the BIR give any reward to persons who report
suspected tax fraud or tax evasion activities?If so, how much?
A – Yes, the reward is a sum equivalent to ten percent (10%) of the
surcharges, revenues or fees recovered and/or fine or penalty imposed &
collected, or One Million Pesos (P1,000,000) per case, whichever is lower.
OPLAN KANDADO PROGRAM
Q – What is “OplanKandado” Program?
A – Under the program, business operations of non-compliant taxpayers will
be temporarily closed if they will be found to have violated certain tax laws.
Q – What are the grounds for suspension or temporary closure of
business?
A – The following are the grounds for suspension or closure under the
“OplanKandado” program:
Ø Failure to issue receipts or invoices by a VAT-registered or registrable
taxpayer
Ø Failure to file a VAT return
Ø Understatement of taxable sales or receipts by 30% or more of the
correct amount thereof in the case of a VAT-registered or registrable taxpayer
Ø Failure to register
Q – What is the duration of the suspension or closure of
business?
A – The closure of a business establishment shall last for a period of not less
than five (5) days, and shall be in force until the violation is rectified by the
concerned taxpayer.
Q – Will the suspension and temporary closure of business
preclude the BIR from filing appropriate charges under the RATE
program?
A – No.