A.1.a.

The Pre-Assessment Notice is a communication issued by the Regional Assessment

Division, or any other concerned BIR Office, informing a Taxpayer who has been audited of the
findings of the Revenue Officer, following the review of these findings. If the Taxpayer disagrees
with the findings stated in the PAN, he shall then have fifteen (15) days from his receipt of the
PAN to file a written REPLY contesting the proposed assessment.

A Final Assessment Notice is a declaration of deficiency taxes issued to a Taxpayer who

fails to respond to a Pre-Assessment Notice within the 15-day period to file a reply, or whose reply
to the PAN was found to be without merit. As mandated in the Tax Code, the FLD/FAN should
state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based;
otherwise, the assessment shall be void. Within 30 days from receipt of the FLD/FAN, the taxpayer
may file his PROTEST, either by way of a request for reconsideration or reinvestigation.

b.

No. The deficiency tax assessment and warrant of distraint and levy issues against KLM
Corp are not valid.

The law requires a Pre-Assessment Notice informing the taxpayer who has been audited
the findings of the Revenue Officer. The right of the taxpayer to the PAN is an essential part of
the due process requirements so that if the taxpayer disagrees with the findings, he may file a
REPLY within 15 days from the receipt to contest the assessment. It is only after the issuance of
PAN, and the reply of the taxpayer and if it is found to be without merit that a FAN may be issued.
In the present case, KLM Corp. was not accorded due process as it did not receive a Pan after the
BIR’s investigation. Hence, the FAN is fatally infirm, and void considering the palpable violation
of the taxpayer’s right to procedural due process.

(NOTE: Hindi ako sure kung tama yung sagot, kasi baka nag-fall pala sa exceptions yun ginawa
ng BIR.

Instances when PAN is NO longer required: A Preliminary Assessment Notice shall not be
required in any of the following cases, in which case, issuance of the formal assessment notice for
the payment of the taxpayer’s deficiency tax liability shall be sufficient:
* When the finding for any deficiency tax is the result of mathematical error in the computation of
the tax appearing on the face of the tax return filed by the taxpayer; or
* When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
* When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax
for a taxable period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
* When the excise tax due on excisable articles has not been paid; or
* When an article locally purchased or imported by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to
non-exempt persons.

A2.a

Input tax is tax on purchase, while output tax is tax on sales.

Input tax is the value added tax added to the price when a VAT registered person purchase
goods or services liable to VAT. If the buyer is registered in the VAT Register, the buyer can
deduct the amount of VAT paid from his/her settlement with the tax authorities.

Output tax is the value added tax a VAT registered person calculate and charge on his own
sales of goods and services. Output VAT must be calculated on sales both to other businesses and
to ordinary consumers.

(Input tax means the VAT due on or paid by a VAT-registered on importation of goods or
local purchase of goods, properties or services, including lease or use of property in the course of
his trade or business. It shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.

While, Output tax means the VAT due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register under Section 236 of the Tax
Code.)
b.

Zero-rated sales refer to a sale, barter or exchange of goods, properties and/or services
subject to 0% VAT pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable
transaction for VAT purposes, but shall not result in any output tax. However, the input tax on
purchases of goods, properties or services, related to such zero-rated sales, shall be available as
tax credit or refund in accordance with existing regulations.

Effectively zero-rated transactions refer to the sale of goods or services by a VAT

registered person to a person or entity who was granted INDIRECT tax exemption under special
laws.

c.

Destination principle provides that goods and services are taxed only in the country where
these are consumed. Therefore, exports are zero-rated, but imports are taxed.

A.3.a.

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incident thereto, by any person
regardless of whether or not the person engaged therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net income and whether or not it sells exclusively
to members or their guests), or government entity. It requires regularity–the regular conduct or
pursuit of a commercial or an economic activity regardless of whether or not the entity is profit-
oriented.

b.

No. The association dues do not constitute income payments because they were collected
for the benefit of the unit owners and the Homeowners’ Association is not created as business
entity. The collection is the money of the unit owners pooled together and will be spent exclusively
for the purpose of maintaining and preserving the premises of their village.

In the case of the Homeowners’ Association, the function of the entity is merely for
administrative purposes and not a trade or business. Thus, payments in the form of association
dues are not subject to VAT.

A.4.a.

Instances under the Tax Code where gifts made are exempt from donor’s tax:

Gifts made to or for the use of the National Government or any entity created by any of its
agencies which is not conducted for profit, or to any political subdivision of the said Government.

Gifts in favor of an educational and/or charitable, religious, cultural or social welfare

corporation, institution, foundation, trust or philanthropic organization or research institution or
organization: Provided, however, that not more than thirty percent (30%) of said gifts shall be used
by such donee for administration purposes.

b.

No. The transaction does not fall under any of the exemptions. The law provides that a sale,
exchange, or transfer of property for less than adequate and full consideration made in the ordinary
course of business is subject to donor’s tax.

A.5.a

Yes, the deductions claimed by A’s heirs are correct.

The family home threshold for exemption is P10,000,000, and Barangay Certification is
no longer a requirement.

However, funereal expenses are no longer allowed. The TRAIN law now provides for the
standard deduction of P5,000,000
 b.

Yes. Under the TRAIN law the standard deduction is P5,000,000. There is no
substantiation required under the TRAIN law.

c.

Yes. The value of the gross estate of the decedent includes the value at the time of his death
of all property, real or personal, tangible or intangible, wherever situated

A.6.

No. the activity which gives rise to the income is the sale of ticket in the Philippines. Hence,
the income from sale of tickets is an income derived from Philippines sources which is subject to
the Philippine income tax.

A.7.

Tax exclusions from gross income refer to the flow of wealth to the taxpayer which are not
treated as part of the gross income, for purposes of computing the taxpayer’s taxable income. (Due
to the following reasons: 1. It is exempted by the fundamental law, 2. It is exempted by the statute,
3. It does not come within the definition of income.)

Tax deductions from gross income, on the other hand, are the amounts, which the law
allows to be deducted from gross income in order to arrive at net income.

Tax exclusions pertain to the computation of gross income, while tax deductions pertain to
the computation of net income.