1.

Omar Mote was issued a Final Assessment Notice (FAN) by the BIR, which he failed to
protest. The income and VAT assessment became delinquent. After complying with relevant
laws and revenue issuance, a Warrant of Garnishment was issued by the BIR against Omar’s
bank deposit accounts in LBP Marawi Branch. Omar contended that the issuance of the warrant
violated the Bank Secrecy Law (RA 1405) and Sec 6 (f) of the 1997 tax code, as amended, the
latter detailing the instances under which the BIR may be allowed to inquire into a taxpayer’s
bank deposits. Is the contention of Omar tenable? Explain briefly. (5pts)

No. Omar contentionnis not tenable. BIR is authorized to issue a warrant of garnishment against
the bank account of taxpayer. However, the taxpayer may request that the warrant be lifter. The
CIR may, in his discretion, allow the lifting of the order of distraint. He may ask for a bond as a
condition for the cancellation of the warrant.

2. Is Uniformity of Taxation the same as Equality of Taxation? (3pts)

The principle of uniformity of taxation bears a close relation to the concept of equality because
similar items are taxed equally only if the mode of assessment is the same or uniform. A tax that
is levied upon property must be in proportion or according to its value, ordinarily determined as
its fair cash or fair market value. This requirement protects equality and uniformity of taxation
by preventing arbitrary or inconsistent methods of determining how much tax is due. This
requirement applies only to property taxes, not to excise taxes.

3. An ordinance was passes by the City of Malaybalay, which imposed a permit fee of Php 100
on aliens as a condition for employment or engaging in any business or occupation. Did this
constitute a denial of due process? (5pts)

No. Because to do business is a privilege. It is not a constitutional right. By virtue of police power
an ordinance may be passed regulating the practice of profession or of doing business.

4. In the April 2017 case of Medicard Phils, Inc vs. CIR, the supreme court violated a tax
assessment on the ground that the 1987 Constitute and the 1997 NIRC have been violated.
What specific provision of the Bills of Right and section of the NIRC were cited by the Court as
having been violated? (3pts)

In this case, due process is violated because LN is not equivalent to LOA. LOA is an authority of a
BIR examiner to investigate the taxpayer. Aside from authority, it gives the taxpayer notice and
the opportunity to be head. Procedure: LOA > Informal conference > Preliminary Assessment
Notice > Final Notice. If the issues cannot be reconcile it will be referred to legal division and
subsequently to the CA if the same has not been resolved, provided, it is done within its
reglamentary period. Here, since LA is the only issue it is not valid. Thus, it violated the due
process clause.

5. Which of the following scenarios may run afoul of the Non-impairment Clause of the
Constitution?
5.1 Withdrawal of tax exemption on interest earned by Abdola Mautante on his bond investment
per Department of Finance’s Marawi Rehab 10 year Patriotic Bond 5 years has just passed before
its maturity date. (5pts)

5.2 Withdrawal of 5% preferential tax rate, in lieu of all taxes, granted to foreign nationals, like
US Army veteran Kim Trump, who responded to the Philippine Retirement Authority’s (PRA)
campaign promoting the Philippines as a premier retirement hub and who finally settled and
resided in the Philippines. PRA, in cooperation with the Department of Tourism, vigorously
lobbied Congress for the enactment of the amendatory law to the NIRC. (5pts)

6. Distinguish Capital Assets from Ordinary Assets. (5pts)

Capital assets are generally properties that are not used in trade or business of the taxpayer. On
the other hand, ordinary assets are properties used in trade or business or primarily held for sale
by the taxpayer.

7. Is the sale of land which is be devoted strictly for religious purposes by the church exempt
from the capital gains tax? (5pts.) (Based on constitutional mandate)

Yes. It is subject to capital gains tax regardless of entity because what is exempted from a religious
institution is only income tax. Capital gains tax is not included in the exemption.

8. Your client, Cayamora Monte, whose house and lot are being expropriated by the
government, asks you whether he is still subject to tax thereon. What will be your advice?

Yes. It is subject to capital gains tax if the compensation paid by the government to the tax payer
is more than the actual value of the property. There is gain if the market value is greater than the
acquisition value of the property.

9. As to its taxability, what will be your advice. If you are consulted by Xavier University on the
following matters:
A. Income tax on amount received from students as tuition fee; (EXEMPT)
B. Income tax on interest on: (NOT EXEMPT)
-bank deposit
- loan
C. Real property tax on the football field; (IT IS AN EXPENSE NOT AN INCOME)
D. Real property tax on the new basketball court simply lent by an alumnus. (IT IS AN EXPENSE
NOT AN INCOME)
E. Income tax on income from rock concert held at the football field. (NOT EXEMPT)
F. Income tax on income from the operation of the cafeteria; (NOT EXEMPT)
G. Income tax on money received as donation; (MONEY RECEIVED AS DONATION IF DIRECTLY
RELATED EXEMPT BUT IF WAY LABOT SA PURPOSE SA SCHOOL NOT EXEMPT)
H. Income tax on money received as legacy; and (LEGACY MURAG EXEMPT NOT)
I. Donor’s tax on its donations and tax treatment thereof for income tax purposes. (DONORS TAX
IS A FINAL TAX)

10. If it is Liceo De Cagayan University seeking your advice with regard to the above matters in
question No. 9?

Here, since Liceo de Cagayan is not a religious institution its income is subject to 10% proprietary
tax from tuition fees down to any related activities. But if said activities are not related like rentals
and the alike it is subject to 30% tax at the same time Liceo will be subject to real property tax.

11. Distinguish “Final Withholding Tax” from “Creditable Withholding tax” system per BIR
revenue Regulation No. 2-98, as amended many times.

The income subject to final withholding tax shall no longer form part of the gross income to be
reported in the income tax return. The tax withheld, being a final tax, represents the actual tax
due on the income. To report the same as part of gross income in the income tax return would
result into double taxation since the taxpayer would then pay his tax on the same income twice.

On the other hand, the income subject to creditable withholding tax shall form part of the gross
income to be reported in the income tax return. The tax already withheld shall then be claimed
as a tax credit, meaning, to be deducted from the amount of income tax computed according to
the graduated income tax.

12. Lorna, single cohabits with Andres who is legally married to Patricia , lorna and Andres 3 minor
children as well as Andres 70 year old father, who is physically handicapped, all live with and
depend upon Lorna for chief support.

13. A parcel of land owned by Happy Loon was expropriated by the National Government valued
at Php 3M. At that time, Loon was assessed by the BIR for the payment of income taxes worth
Php 1.2M. The Php 1M value of the expropriated land was at the time of the assessment
remained unpaid to Loon by the Government Loon now claims that he is not required to settle
his tax obligation because such claim has been set-off with the amount the Government owes
him. Rule on Loon’s contention.

14. Ferhana Mutin, a Filipino composer has just received Php. 30,000 as royalties for her
outstanding composition “De Pasin Oto”, Maranao version and rendition of the popular song
“Despacito”. She then later invested said amount to Mailing Industrial Corp. a Lanao Sur based
domestic corporation engaged in manufacturing by buying 1,000 shares thereof. Lastly July, the
company sent a Php 6,000 cheques to Mutin as cash dividends.

14.1 what income in the above problem is/are subject to final withholding tax?

14.2 give five income payments which are subject to final withholding tax.
15. According to military sources, the remaining MG/ASG/ISIS territories are holed up in a large
mosque guarding their estimated Php 1.4B lost. Is such huge sum taxable?

Yes. It is taxable. Apparently it is an illegal income, as such it is normally becomes part of one’s
taxable income.

16. Marwan (Malaysian) and Purisima (Filipino) met each other in Syria as part of the UN Peace-
Keeping contingent. Purisima became interested in the expensive diamond ring of Marwan and
offered to buy the same for Php 1M Marwan accepted the offer and the two agreed that payment
and delivery would done a month later in the Philippines when both would attend in the UN
Manila Anti-Terrorism Declaration. When the two finally met in Manila , Purisima informed
Marwan that he would only pay the sum of Php 750, 000 because Purisima is mandated by law
to withhold and remit the 25% final tax of Php 250, 000 to the BIR. Marwan objected asserting
that as a non-resident alien and not being engaged in trade of business in the Philippines , he is
no subject to income tax. Resolved the conflict.

17. ASG-MG Corporation’s statements of operations for taxable year ending December 31, 2015
and 2016, respectively are as follows:
2015 2016
Gross sale 10,000,000 12,500,000
Less: Cost of Sales 8,000,000 10,000,000
Gross: Profit 2,000,000 2,500,000
Less: Operation Expenses (which include bad debts Expenses of 750,000 for 2015 and 1M for
2016) 2,600,000 4,000,000 Net Income (Loss) 600,000 1,500,000

18.1 By June 2017, the company was able to recover the bad debts. What is the income
treatment of a recovery of bad debts previously allowed as deduction? (It is taxable)

18.2 Explain briefly the Tax Benefit Rule in relation to bad debts recovery.

Under the tax benefit rule or equitable doctrine of tax benefit, the recovery of amounts deducted
in previous years shall be included as part of the gross income in the year of recovery to the
extent of the income tax benefit of said deduction.

If in the year the taxpayer claimed deduction of bad debts written-off, he realized a reduction of
the income tax due from him on account of said deduction, his subsequent recovery thereof from
his debtor shall be treated as a receipt of realized taxable income. Conversely, if the said bad
debt written-off, then his subsequent recovery shall be treated as a mere recovery or a return of
capital, hence, not treated as receipt of realized taxable income.

18.3 What requisites must concur in order that bad debts may be deductible?

1. The debts are uncollectible despite diligent effort exerted by the taxpayer;
 2. Existing indebtedness subsisting due to the taxpayer which must be valid and legally
demandable;
3. Connected with the taxpayer’s trade, business or practice of profession;
4. Actually charged off in the books of accounts of the taxpayer as of the end of the taxable
year;
5. Actually ascertained to be worthless and uncollectible as of the end of the taxable year;
and
6. Must not be sustained in a transaction entered into between related parties.

1. What is the effect of the failure to stamp a taxable document? Will such failure affect the
validity of the document and/or the transaction? explain.

Failure to stamp a taxable document shall not invalidate the same. However, it shall not be
recorded or admitted or used as evidence in any court until the requisite stamp is affixed thereto
and cancelled. Furthermore, no notary or other officer authorized to administer oaths shall add
his jurat or acknowledgment to the document unless the proper documentary stamp is affixed
thereto and cancelled.

2. Gordon is engaged in the business of leasing out several residential apartment units he owns.
The monthly rental for each unit range from P12,000 to 16,000. His gross rental income for one
year is P3,150. He consults you on whether it is necessary for him to register as a VAT taxpayer.
What legal advice will you give him and why?

As a general rule, lease of residential units where gross receipts from rentals exceed 15K per
month per unit shall be subject to VAT if the aggregate annual gross receipts exceed 3M.
Otherwise, the gross receipts shall be subject to 3% percentage tax under Section 116 of the Tax
Code.

Here, however, since there are 2 rates which are below and above the threshold of 15K, of the
total gross income of 15K units exceeds 3M, the units above 15K is subject to VAT. But if the total
15k does not exceed 3M, and if both the 12K and 15K units are added but does not exceed 3M,
it is not subject to VAT.

3. Makalintal, age 90 years and suffering from incurable cancer, on May 21, 2017 wrote a will
and, on the same day, made several inter vivos gift to his children. 10 days later, he died. In you
opinion, are said gift considered transfers in contemplation of death for purposes of determining
properties to be included in his gross estate? Explain

4. Eddie Bato, a VAT -registered taxpayer with different lines of business, closed his RTW business
due to losses incurred as a direct result of the sprouting of ukay-ukay tiangges. His VAT
registration was cancelled on June 30, 2014. He filed an application for tax credit or refund
together with all the supporting documents on unused input taxes on April 1, 2016. The BIR
commissioner did not act on his claim and so Bato decided to file an appeal to the court of tax
appeals. He consulted you as to when is the earliest day for filing of the same and its deadline.
What is your answer to Bato’s question? (Procedure ang answer ani toinks)

5. Are the following transactions subject to vat? IF YES, what is the applicable rate for each
transaction? State the relevant authority for you answer. Payments:
(1) Salaries of office staff. (NOT SUBJECT TO VAT BECAUSE SALARY IS AN INCOME FROM
COMPENSATION SUBJECT TO INCOME TAX)
(2) Rentals for office space and (RENTALS FOR OFFICE SPACE IS SUBJECT TO VAT IF TOTAL GROSS
INCOME OF THE TAXPAYER EXCEEDS 3M, REGARDLESS OF THE RENTAL RATE PER UNIT BECAUSE
IT IS A COMMERCIAL LEASING)
(3) Representation expenses incurred in meeting with clients. (REPRESENTATION EXPENSES
DEPENDS ON THE TAXPAYER IF IT IS VATABLE OR NOT)

5.1 What are the items in the above-mentioned earnings which should be included in the
computation of MJH’s gross income?

None. Because items 1-3 are all expense account and not income.

5.2 What are the items in the above-mentioned payments which may be considered as
deduction from MJH’s gross income?

Items which should be included in the computation of taxable income are all except that
representation is limited to 1% or .05% of the gross sales rule.

5.3 If MJH law firm earns net income in 2017, what if any, is the tax consequence on the part
of MJH insofar as the payment of income tax is concerned? What, if any, is the tax consequence
on the part of Michael, Jewel and Hanz as individual partners insofrar as the payment of income
tax is concerned.

The tax consequence they are liable for income tax on their partnership share but the GPP is
exempt from tax. It’s the individual partners who are liable for income tax on their share on net
income of the GPP.

6. When does importation begin and when does it end? Why is it important to know whether
importation has already begun or not?

Sec. 1202. When Importation Begins and Deemed Terminated. — Importation begins when the
carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade
therein. Importation is deemed terminated upon payment of the duties, taxes and other charges
due upon the articles, or secured to be paid, at a port of entry and the legal permit for withdrawal
shall have been granted, or in case said articles are free of duties, taxes and other charges, until
they have legally left the jurisdiction of the customs.
7. When may a taxpayer’s suit be allowed? What are the requisites before a citizen may file a
taxpayer’s suit?

Taxpayer’s suit may be allowed if the following concur:

1. when the public so requires – as when the matter is of transcendental importance;
2. it has overreaching significance to society; or
3. of paramount public interest

An ordinary citizen or taxpayer may be allowed to bring suit although they had only an indirect
and general interest share in common of the public.

8. Discuss the criminal and tax collection cases which are under the exclusive appellate
jurisdiction of the Court of Tax Appeal?

9. Gordon is engaged in the business of leasing out several residential apartment units he owns.
The monthly rental for each unit ranges form 12,000 to 16,000. His gros rental income for one
year is P2,150. He consults you on whether it is necessary for him to register as a VAT taxpayer.
What legal advice will you give him and why?

10. Alan Bingkas died and willed a brand new BMW sports car to his brother Rostum who is
entrusted with the obligation to transfer the car to his 17 year old son. Cyrus a son of Alan, when
Cyrus reaches legal age. Discuss the estate tax consequence of the transfers form Alan to Rustom
and Rostum to Cyrus.

11. Differentiate a jeopardy assessment from a naked assessment?

Jeopardy assessment is a tax assessment made by an authorized Revenue officer without benefit
of complete or partial audit, in the light of RO’s belief that the assessment and collection of a
deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to comply with audit
and investigation requirements to present his books of accounts and/or pertinent records, or
substantiate all or any of the deductions, exemptions or credits claimed in his return.

Naked assessment is an assessment without foundation in character, the determination of the

tax due is without rational basis.

12. The BIR issued an assessment for deficiency income tax for taxable year 2012 last July 31,
2017 in the amount of P 5M inclusive of surcharges, interests and compromise penalties. If the
delinquent taxpayer is your client, what steps will you take? What is you defenses?

The authority of the BIR has already expired. Thus, the LOA is null and void. Under the law, the
assessment should be within 3 years from the last filing of the tax return during the year. Since it
is in year 2017 when they conducted the audit it already lapsed. Thus, they lost the authority
unless there is fraud.
13. The Philippine independent Catholic Church owns a 2 hectare lot in a town in Lanao del
Norte. The southern side and the middle part are occupied by the church and a convent, the
eastern side by a school run by the Church itself, the southeastern side by some commercial
establishments, while the rest of the property, in particular the northwestern side, is idle or
unoccupied. May the Church claim tax exemption on the entire land? Decide with reasons.

No. With regards to the commercial building. Apply the ADE.

14. AB Academy is a non-stock, non-profit school run by the Archdiocese of Lipao City. It collected
and received the following:
a. Tuition fees
b. Dormitory 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
Which of the above-cited income and donation would not be exempt from taxation? Explain
briefly.

Suppose AB Academy is a proprietary school owned by the Archibishop’s family, rather than the
Archdiocese, which of the above-mentioned receipts and donation would be exempt from
taxation? Explain briefly.

QUIZ
1. On April 16, 2017, DEF Corp. filed its annual income tax return (AITR) for 2016, showing an
overpayment of income tax of Php. 1M, which is to be carried over to the succeeding year(s). On
May 15, 2017, DEF amended its 2016 AITR which shows that instead of carry over of the excess
income tax payment, the option for tax refund was chosen. On June 27, 2017, DEF formally filed
its written claim for tax refund. A Letter of Authority for the audit of its books of accounts and
other accounting records has yet to be issued. If you were the BIR Examiner, would you
recommend for the grant or denial of the claim?

2. On July 22, 2010, SEC approved the Articles of Incorporation of ABC Corp. On August 29, 2010,
a SEC Registration Certificate was issued. Due to organisational problems, it was only on January
5, 2012 that ABC was able to file its application for registration with BIR. BIR approved the
application and issued a certificate of registration in favor of ABC but imposed penalty against
ABC for late registration. ABC incurred successive net losses for taxable years 2012, 2013 and
2014. However, beginning taxable year 2015, ABC recovered and sustained net gains from its
operations. BIR collected the 2% MCIT from ABC’s 2015 gross income given that the same was
higher than the normal income tax due for the same taxable year. Is the BIR correct in imposing
the 2% MCIT for taxable year 2015?

3. In its Final Adjustment Return for 2016 taxable year, XYZ corp. had excess tax credits arising
from the total quarterly income tax payments and other tax credits for 2016 being greater than
the final income tax due. It opted to carry over the excess tax credit for the following taxable
periods. After the preparation of its 2017 1st Quarterly Income Tax Return which return reflected
a net loss, XYZ changed its mind and chose not to carry over the excess tax credits against the net
loss return. Instead, it applied for a refund of the 2016 excess tax credit. Will the claim for refund
prosper?

4. What are the instances under the NIRC in which the Commissioner of Internal Revenue (CIR)
may inquire into a taxpayer’s bank deposits or accounts sans a court order?

5. Joe Binoy, died leaving behind, among other properties, savings and time deposits at PBI
Bank Branch in Makita City. After the filing of the estate tax return, the CIR issued a letter of
authority (et.A) authorizing the investigation of the estate and other tax liabilities of deceased
Binoy. Armed with photocopy of et A, the original copy of which was duly served to the
administrator of the estate, the BIR examiner proceeded to PBI to secure copies of Binoy’s bank
accounts and other transactions. The Bank denied access to the deposits without a valid court
order, contending that the examination is too broad as it includes audit of income and business
taxes and that RA 1405 (Bank Secrecy Law) allows access to a decedent’s bank deposits, sans a
court order, only in the determination of the decedent’s gross estate. Is the bank’s refusal
tenable? Explain briefly.

The banks refusal is tenable. Answer the bank secrecy law. State when the bank can produce. In
this case, BIR is not qualified unless there is an order coming from the court.