1.

Requirements in order that retirement benefits may be exempt from income tax:

a. Must be paid to an employee who is at least 50 years old and has served his employer for at
least 10 years
b. Exemption from taxation of retirement benefit must be availed of only once
c. The benefit must be received under an existing Collective Bargaining Agreement
d. a and b only

2. Which of the following statements are true?

a. Resident Filipino citizens with income from foreign sources only are allowed personal and
additional exemptions
b. Non-resident aliens not engaged in trade/business in the Philippines are not allowed any
personal exemptions
c. Non-resident aliens engaged in trade/business in the Philippines are allowed personal
exemptions based on reciprocity
d. All of the above

3. The periodic decrease in the value of a fixed asset due to wear and tear, obsolescence or
inadequacy

a. depletion
b. depreciation
c. capital loss
d. special loss

4. Citing Section 10, Article VIII of the 1987 Constitution which provides that salaries of judges shall
be fixed by law and that during their continuance in office their salary shall not be decreased, a judge
of a Regional Trial Court questioned the deduction of withholding taxes from his salary since it results
into a net deduction of his pay.

Is the contention of the judge correct?

a. No. The contention is incorrect because taxes are enforced contributions.

b. No. The contention is incorrect because taxes must be collected in order to support the
government.
c. No. The contention is not correct because deduction of withholding taxes is not a
dimunition contemplated by the fundamental law.
d. No. The contention is incorrect because deduction of withholding taxes is required by law.
e. None of the above.

5. The following conditions shall be observed when there is a net capital loss carry over:

a. The loss carried over is for a holding period not exceeding 12 months
b. The amount of the loss should not exceed the income before exemptions in the year when
the loss was sustained
c. The taxpayer should not be a corporation
d. All of the above

6. Shirley was allowed to deduct P200,000 bad debts written off in 2003, where she had a net
income before bad debts of P180,000 and a net loss of P20,000. IN 2004, she was able to recover
the bad debts written off in full. The bad debts recovery is:

a. Taxable to the extent of P180,000

b. Taxable to the extent of P20,000
c. Taxable to the extent of P200,000
 d. Not taxable

7. The principle that where a claim for refund/credit is filed beyond the prescriptive period, it can still
be applied against other taxes that may be due, is:

a. Doctrine of equitable benefit

b. Doctrine of equitable recoupment
c. Equitable tax benefit rule
d. Cohan Rule

8. Where the gross income of a taxpayer exceeds P150,000 per quarter his income tax return must
be accompanied by:

a. Audit certificate of an independent CPA

b. Comparative Financial Statements
c. Schedule of Taxes and Licenses
d. Summary of Income payments

9. The following income are not taxable, except:

a. Salary of farm workers in the form of products raised in the farm.

b. Separation pay of employees who voluntarily resigned
c. Value of leasehold improvement constructed on the leased land
d. Increase in market value of land
e. None of the above

10. Cash dividends received from a domestic corporation are subject to final tax of 10% if received
by:

a. Another domestic corporation

b. Resident foreign corporation
c. Non-resident alien engaged in trade/business in the Phil.
d. Resident Filipino citizen

11. Life insurance proceeds shall not be included in taxpayer’s gross income when:

a. The amount does not qualify as income

b. The recipient is always the beneficiary
c. The life insurance policy always provides for exclusion
d. The amount is paid upon the death of the insured
e. None of the above

12. JB got married to SAY last January 2004. On November 30, 2004, SAY gave birth to twins.
Unfortunately, however, SAY died in the course of her delivery. Due to complications, one of the
twins also died on December 15, 2004.

In preparing his Income Tax Return (ITR) for the year 2004, what should JB indicate in the ITR as his
civil status:

a. Single
b. Married with 2 dependents
c. Head of the family with 1 dependent
d. Head of the family with 2 dependents
e. None of the above

13. Monthly support regularly given by an unmarried daughter to her aged mother.
 a. Taxable income of mother
b. Subject to donor’s tax
c. Exempt from tax
d. None of the above

14. Cancellation of debt of employee by his employer is taxable as

a. Compensation income
b. Donation
c. Indirect dividend
d. Either a or b

15. The following non-resident aliens can be subject to 15% income tax on income derived from
sources within the Philippines.

a. employed by regional area/operating headquarters of multinational companies

b. employed by OBU
c. employed by petroleum service contractor and subcontractor
d. all of the above

16. Which of the following taxes are not deductible from gross income:

a. Philippine Income Tax

b. Value Added Tax
c. Transfer Taxes
d. All of the above

17. Separation pay is taxable.

a. if separation is due to death, sickness or injury of employee

b. if employee voluntarily resigned
c. if employee resigned at the age of 60
d. if the employer closed shop
e. all of the above

18. The following are taxed like corporation

a. general professional partnership

b. ordinary business partnership
c. estates and trusts
d. all of the above

19. The following are not subject to the improperly accumulated earnings tax, except:

a. Publicly held corporations

b. Insurance companies
c. Banks and other non-bank financial intermediaries
d. None of the above

20. Why is the Fringe Benefits Tax collectible from the employer and not from the employee?

a. Valuation of benefits is easier at the level of the employer

b. Collection of FBT is ensured because it is withheld at source
c. The employee does not have the means to pay
d. a and b are correct
21. A taxpayer with gross annual sales not exceeding P100, 000 is exempt from payment of business
tax and registration requirements.

a. True
b. False, required to register with the BIR but exempt from the payment of registration fee
c. False, required to pay registration fee
d. b and c are correct

22. Which of the following statements is wrong?

a. The MCIT is equal to 2% of the gross income of the corporation

b. The MCIT is not computed quarterly but on an annual basis
c. The MCIT payments can be carried over for the next 3 years immediately following such
payment
d. The taxpayer should pay the MCIT or the regular income tax whichever is higher.

23. Additional exemption for each dependent child per RA 9504

a. P 10,000
b. P 9,000
c. P 8,000
d. P 25,000

24. Income tax is not a

a. personal tax
b. national tax
c. excise tax
d. direct tax
e. progressive tax

25. Under RA8424, the allowable deduction for medical expenses of a resident decedent shall not
exceed :

a. P 50,000
b. P 550,000
c. P 5,000
d. P 500,000

26. Per RA 9504, how much is the total personal and additional exemption of Mrs. A, who became a
widow during the taxable year and supporting her mother and one mentally retarded illegitimate 25
year-old child?

a. P 75, 000
b. P 40, 000
c. P 100, 000
d. P 48, 000

27. The following is not a taxable income of a resident Filipino citizen:

a. income from an illegal business

b. income from a business abroad
c. income from casino
d. winnings from lotto
e. none of the above
28. The following are the requisites for income to be taxable, except:

a. There must be gain or profit

b. The gain must be received or realized
c. The gain must not be excluded by law or treaty from taxation
d. The income must exceed the personal and additional exemptions of the taxpayer
e. None of the above

29. Who among the following are NOT required to file an income tax return?

a. Filipino citizen with business income from the Philippines.

b. Resident alien on income derived within the Philippines.
c. Non-resident alien engaged in trade or business
d. An individual whose sole income has been subjected to final withholding tax.

30. Which of the following are NOT exempt from income tax?

a. Philippine Health Insurance Corporation

b. Philippine National Oil Company
c. University of the Philippines
d. PAGCOR
e. b and d

31. Which of the following is a qualified dependent for additional exemption?

a. 45 years old mentally retarded son

b. an illegitimate child
c. legally adopted child
d. all of the above
e. none of the above

32. The following fringe benefits are not taxable, except:

a. Fringe benefits which are authorized and exempted from tax under special laws.
b. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefits.
c. Membership fees, dues and other expenses borne by the employer in social or athletic
clubs or other similar organizations.
d. Benefits given to rank and file employees, whether granted under a collective bargaining
agreement or not.
e. De minimis benefits.

33. The final tax on capital gains from sale of real property, classified as capital asset is:

a. 20% based on the gross selling price or current fair market value whichever is higher.
b. 7.5% based on the gross profit.
c. 6% based on the gross selling price or zonal value, whichever is higher.
d. 6% of the purchase price or the assessed value whichever is higher.
e. None of the above

34. Sale, barter, exchange or other disposition of shares of stocks which are traded in the local stock
exchange is subject to:

a. capital gains tax of 5% and 10% of capital gain

b. percentage tax of ½ of 1% of selling price
 c. 10% VAT
d. none of the above

35. Domeng bought a parcel of residential land for P 1,000,000 sometime in 1980. He sold the same
to Norbie for P 10,000,000 on October 15, 2000. The transaction is subject to 6% capital gains tax.

a. True
b. False, if Domeng is engaged in the real estate business.
c. False, it is subject to VAT if the sale is in the regular course of trade or business.
d. b and c are correct.

36. Who may not avail of the itemized deductions from gross income?

a. Resident aliens
b. Non resident aliens engaged in trade or business in the Philippines.
c. Resident foreign corporations.
d. Citizens and resident aliens whose income is purely compensation income.

37. The following are requisites for the deductibility of bad debts, except:

a. There must be a valid and subsisting debt.

b. The debt must be charged off during the taxable year.
c. The debt must be actually ascertained to be worthless and uncollectible during the taxable
year.
d. It must be evidenced by a closed and completed transaction.

38. Tips and gratuities paid directly to an employee by a customer and not reported to the employer

a. Taxable compensation income and subject to withholding tax.

b. Not taxable.
c. Taxable compensation income but not subject to withholding tax.
d. Subject to donor’s tax.

39. No credit/refund of taxes shall be allowed unless the taxpayer:

a. Files a written claim for credit/refund with the BIR within 2 years from payment
b. Pays the tax under protest
c. Appeals to the CTA
d. Amends his tax return

40. The following items are taxable except:

a. Illegal gains
b. Tax refund involving deductible tax
c. Tax refund involving non-deductible tax
d. Cash dividend
e. Annuities

41. Gross income means all income derived from whatever source, including the following items
except:

a. Pensions
b. Prizes and winnings
c. Rents
d. Stock dividends
42. Exclusions from gross income under the Tax Code include the following except:

a. Veterans benefits
b. Compensation for injuries and sickness
c. Gifts, bequests, and devises
d. Gains from redemption of shares of stock

43. Fringe benefit tax shall be paid by the employer because:

a. The employee received the benefit net of tax

b. The Tax Code expressly so states
c. The employer relieves the employee of the burden to pay the tax
d. The employer is the agent of the employee for the payment thereof.

44. Allowable deductions are distinguished from personal exemptions in that:

a. The former may be availed of only by corporate taxpayers, whereas the latter may apply to
individual taxpayers.
b. The former applies to corporate and individual taxpayers engaged in business or are
practicing their profession, whereas the latter covers only natural persons.
c. The former may be found in Section 34, while the latter is granted under Section 35.
d. The former is a privilege while the latter is a matter of right.

45. Which of the following statements is not correct?

a. Interest on government securities is not tax exempt effective January 1, 1998.

b. Stock dividend is tax exempt.
c. Premium on life insurance may be taxable to the employee.
d. Fringe benefit is subject to 32% final tax effective January 1, 2000.

46. What is the purpose of the doctrine of constructive receipt of income?

a. To ensure collection of taxes.

b. To compel taxpayers to report their income
c. To prevent tax evasion.
d. To prevent the taxpayer on the cash basis from postponing the actual receipt of taxable
income.
e. None of the above.

47. Any amount received under claim of right is taxable if:

a. It arises from illegal transaction.

b. It is received without restriction as to its disposition.
c. It is decreed by the court
d. The claimant dies
e. The claimant donates the same

48. Taxable rent income includes the following items except:

a. Value of permanent improvement

b. Premiums paid on the insurance of the leased premises
c. Royalties
d. Interest on bond issued by the lessor

49. Income from long-term contracts may not be reported under one of the following methods:
 a. Outright method
b. Spread-out method
c. Completed contract basis
d. Accrual basis
e. Cash basis

50. How is compensation paid in promissory note treated for income tax purpose?

a. Subject to final tax

b. It is taxed at gross amount
c. Taxable to the amount of the fair market value of the promissory note
d. It is deductible from gross compensation income
e. None of the above

51. The following are qualified dependents of a head of the family, except:

a. Either or both parents

b. Brother/Sister of whole or half-blood
c. Senior citizen
d. Grandchildren

52. Which of the following is deductible for income tax purposes:

a. Employer’s contribution to pension trust

b. Personal, family, living expenses
c. Wagering losses
d. Kickbacks

53. For tax purposes, income is synonymous to:

a. Capital
b. Receipts
c. Realized profit
d. None of the above

54. Determine which of the following items are taxable:

a. Income from jueteng

b. Gain arising from expropriation of property
c. Taxes paid and subsequently refunded
d. Recovery of bad debts previously charged off
e. All of the above

55. Determine which of the following is (are) included in the preparation of annual income tax returns:

a. Proceeds of life insurance received by a child as irrevocable beneficiary

b. 13th month pay and de minimis benefits
c. Dividends received by a domestic corporation from another domestic corporation.
d. Interest on deposits with BPI Family Bank
e. None of the above

56. JR was a passenger of an airline that crashed. He survived the accident but sustained serious
physical injuries which required hospitalization for 3 months. Following negotiations with the
airline and its insurer, an agreement was reached under the terms of which JR was paid some
amounts. Which of the following amounts constitute taxable income?
 a. P500,000 for his hospitalization
b. P250,000 as moral damages
c. P300,000 for loss of income during the period of his treatment and recuperation
d. JR received from his employer the amount of P200,000 representing the cash equivalent of
his earned vacation and sick leaves.

57. MAR got married to SALLY last January 2005. On November 30, 2005, SALLY gave birth to
twins. Unfortunately, however, SALLY died in the course of her delivery. Due to complications,
one of the twins also died on December 15, 2005. In preparing his Income Tax Return (ITR) for
the year 2005, what should MAR indicate in the ITR as his civil status?

a. Single
b. Married
c. Head of the family
d. Widower
e. None of the above

58. XYZ Colleges is a non-stock, non-profit educational institution run by the Archdiocese of BP City.
Which of the following item(s) is included in its Income Tax Return?

a. Tuition fees
b. Laboratory fees
c. Rentals from canteen concessionaires
d. Interest from money-market placements of the tuition fees
e. Donation of a lot and building by school alumni

59. Frank Sinatra, an American Citizen, was a top executive of a US company in the Philippines until
he retired in 1999. He came to like the Philippines so much that following his retirement, he
decided to spend the rest of his life in the country. He applied for and was granted a permanent
resident status the following year. In the spring of 2004, while vacationing in Orlando, Florida,
USA, he suffered a heart attack and died. Which of the following assets shall not be included in
taxable gross estate in the Philippines?

a. Bank Deposits with Citibank Makati and Citibank Orlando, Florida

b. A condominium unit in Makati
c. Shares of stock in the Philippine subsidiary of the US Company where he worked.
d. Shares of stock in San Miguel Corporation and PLDT.
e. Shares of stock in Disney World in Florida
f. None of the above

60. An individual client not engaged in realty business paid in full the P50,000 attorney’s fees of his
counsel in lot which he bought in 1990 for P5,000 and which has a fair market value of P60,000.
Which of these is correct?

a. The client-transferor is subject to final capital gains tax based on P60,000

b. The client-transferor is subject to final capital gains tax based on P50,000
c. The client-transferor is not subject to final capital gains tax
d. The client-transferor is subject to income tax for the difference between P50,000 and P5,000
e. None of the above

61. For casual sale of real property, you do not pay –

a. Capital gains tax

b. Documentary stamp tax
c. Local transfer tax
d. Income tax