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TAXN 1000 FIRST TERM EXAM

2nd SEMESTER SY 2021-2022

True/False
Indicate whether the statement is true or false.

__F__ 1. Amounts received, through Accident or Health Insurance or under Workmen's Compensation
Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received,
whether by suit or agreement, on account of such injuries or sickness are taxable items of income.

__T__ 2. Any amount received by an official or employee or by his heirs from the employer as a
consequence of separation of such official or employee from the service of the employer because of death
sickness or other physical disability or for any cause beyond the control of the said official or employee is
exempt from income tax.

__T__ 3. Payments of benefits due or to become due to any person residing in the Philippines under the
laws of the United States administered by the United States Veterans Administration are exempt from
income tax.

__F__ 4. Foreign income is subjected to final tax if the taxpayer is taxable on global income.

__T__ 5. Interest income on government securities are subject to final tax.

__F__ 6. All items of passive income are generally subject to final tax.

__T__ 7. Final tax is collected at source, hence, there is no need to file an income tax return.

__F__ 8. Corporations are tax-exempt on inter-corporate dividends from any corporation.

__F__ 9. Individuals and corporations are tax-exempt on interest income on long-term deposits.

__T__ 10. Dividends from resident corporations are subject to regular tax if received by a resident citizen
or domestic corporation.

__F__ 11. Dividends from Real Estate Investment Trusts are exempt from final tax.

__T__ 12. There is no long-term or short-term classification of foreign currency deposits.

__F__ 13. Royalties of a passive nature such as royalties of claims owners or land owners of mining
properties, royalties of inventors from companies that manufacture and sell their invention, and royalty
from licensing agreements that transfers the use of trademark or technology are subject to 10% final tax.
__T__ 14. The outright method of reporting income on leasehold improvements constructed by the lessee on
the property of the lessor recognizes income at the time when such buildings or improvements are completed
for the fair market value of such buildings or improvements.

__T__ 15. A taxpayer receiving as compensation a note considered good for its face value at maturity, but
not bearing interest, shall treat as income as of the time of receipt the fair discounted value of the note at that
time. If the payment due on the note as accounted for is met as it becomes due, there should be included as
income in respect of such payment, such amount thereof representing the recovery of the discount originally
deducted.

__F__ 16. As a power of the Commissioner to order inventory-taking of goods, the findings may be used
as the basis for assessing the taxes for the other months or quarters of the same year only.

__T__ 17. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising under the Tax Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to
the exclusive appellate jurisdiction of the Court of Tax Appeals.

__F__ 18. A final tax of six percent (6%) based on the gross selling price or current fair market value as
determined in accordance with Section 6(E) of the NIRC, whichever is higher, is imposed upon capital
gains presumed to have been realized from the sale, exchange, or other disposition of real property located
in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional
sales, by individuals other than estates and trusts.

__T__ 19. A final tax at 15% of the net capital gains realized during the taxable year from the sale, barter,
exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed
of through the stock exchange.

__F__ 20. A final tax of 15% of the net capital gains realized during the taxable year from the sale,
barter, exchange or other disposition of shares of stock in a domestic corporation sold, or disposed of
through the stock exchange.

__T__ 21. The tax liability, if any, on gains from sales or other dispositions of real property to the
government or any of its political subdivisions or agencies or to government-owned or controlled
corporations shall be at the regular tax or the 6% capital gains tax at the option of the taxpayer.

__T__ 22. Capital gains presumed to have been realized from the sale or disposition of their principal
residence by natural persons, the proceeds of which is fully utilized in acquiring or constructing a new
principal residence within eighteen (18) calendar months from the date of sale or disposition, shall be
exempt from the capital gains tax.

__F__ 23. Capital gains realized by a nonresident alien individual not engaged in trade or business in the
Philippines from the sale of shares of stock in any domestic corporation and real property held as capital
asset in the Philippines shall be subject to 25% final tax.

__T__ 24. CWT are used to reduce the regular income tax (RIT) due, and thus may be withheld only from
income subject to RIT.
Multiple Choice
Identify the choice that best completes the statement or answers the question.

__D__ 25. I. The point on which a tax is originally imposed is impact of taxation. II. The point on
which a tax burden finally rests or settles down is incidence of taxation.

a. False; false c. False; true

b. True; false d. True; True
__C__ 26. The reciprocal duties of support and protection between the people and the government.
a. Theory of taxation c. Basis of taxation
b. Scope of taxation d. Situs of taxation
__D__ 27. A tax must be imposed for public purpose. Which of the following is not a public purpose?
a. Public education
b. Improvement of the sugar and coconut industries.
c. National defense
d. Improvement of a subdivision road.
__D__ 28. Which is not an essential characteristic of a tax?
a. It is payable in money. c. It is proportionate in character.
b. It is an enforced contribution. d. It is unlimited as to amount.
__D__ 29. It is the privilege of not being imposed a financial obligation to which others are subject.
a. Tax incentive c. Tax amnesty
b. Tax credit d. Tax exemption

__C__ 30. As to scope of the legislative power to tax, which is not correct?
a. Where there are no constitutional restrictions, and provided the subjects are within the
territorial jurisdiction of the state, Congress has unlimited discretion as to the persons,
property or occupations to be taxed.
b. In the absence of any constitutional prohibition, Congress has the right to levy a tax of
any amount it sees fit.
c. The sole arbiter of the purpose or which taxes shall be levied is Congress, provided
the purpose is public and the courts may not review the levy of the tax to determine
whether or not the purpose is public.
d. The discretion of Congress in imposing taxes extends to the mode, method or kind of tax,
unless restricted by the constitution.
__D__ 31. Which of the following is not a determinant of the place of taxation?
a. Citizenship of the taxpayer c. Residence of the taxpayer
b. Source of the income d. Amount of tax to be imposed
__C__ 32. This is an inherent limitation on the power of taxation.
a. Non-impairment of the jurisdiction of the Supreme Court in tax cases.
b. Due process of law and equal protection of the laws.
c. Tax must be for the public purpose.
d. Rule on uniformity and equity in taxation.
__C__ 33. This is a constitutional limitation on the power of taxation.
a. Power to tax cannot be delegated to private persons or entities.
b. Tax laws must be applied within the territorial jurisdiction of the state.
c. No appropriation of public money for religious purposes.
d. Exemption of government agencies and instrumentalities from taxation.
__A__ 34. The tax laws must be capable of convenient, just and effective administration.
a. Administrative feasibility c. Fiscal adequacy
b. Intellectual sensitivity d. Equality or theoretical justice
__D__ 35. Persons or things belonging to the same class shall be taxed at the same rate.
a. Reciprocity in taxation c. Simplicity in taxation
b. Equality in taxation d. Uniformity in taxation
__A__ 36. It literally means “place of taxation”; the country that has the power and jurisdiction to levy
and collect the tax.
a. Situs of taxation c. Scope of taxation
b. Basis of taxation d. Theory of taxation
__C__ 37. An escape from taxation where the tax burden is transferred by the one on whom the tax is
imposed or assessed to another.
a. Exemption c. Shifting
b. Capitalization d. Transformation
__A__ 38. In every case of doubt, tax exemptions are construed
a. Liberally in favor of the government and strictly against the taxpayer.
b. Liberally in favor of the government and the taxpayer.
c. Strictly against the government and liberally in favor of the taxpayer.
d. Strictly against the government and the taxpayer.
__D__ 39. Tax imposed upon performance of an act, the enjoyment of privilege or the engaging in an
occupation.
a. Property c. Personal, poll or capitation
b. Regressive d. Excise
__C__ 40. Tax which imposes a specific sum by the head or number or by some standard of weight or
measurement and which requires no assessment other than a listing or classification of the objects to be
taxed.
a. Excise c. Specific
b. Income d. Ad-valorem
__B__ 41. Which of the following statements is not correct?
a. Income tax liabilities shall be paid by the inhabitants even if foreign invaders occupy our country.
b. Tax laws are either political or penal in nature.
c. Taxes may be imposed retroactively by law, but unless so expressed by such law, these
taxes must only be imposed prospectively.
d. An inherent limitation of taxation may be disregarded by the application of a
constitutional limitation.
__D__ 42. Tax as distinguished from license fees:
a. Limited to cover cost of regulation.
b. Imposed in the exercise of police power.
 c. A regulatory measure.
d. Non-payment does not necessarily render the business illegal.
__D__ 43. No person shall be imprisoned for non-payment of this:
a. Value added tax c. Income tax
b. Excise tax d. Poll tax
__D__ 44. This is a demand of ownership:
a. License fee c. Tax
b. Customs duties d. Toll
__A__ 45. Which of the following is not acceptable for legally refusing to pay the tax?
a. That there is no benefit derived from the tax.
b. That the tax law was declared as unconstitutional.
c. That the right of the state to collect the tax has prescribed.
d. That there is no jurisdiction to collect the tax.
__B__ 46. It is important to know the source of income for income tax purposes, i.e. from within or
without the Philippines because
a. The Philippines imposes income tax on income from sources within and without of a non-
resident citizen.
b. Some taxpayers are taxed on their worldwide income while others are taxable only
upon income from sources within the Philippines
c. Separate graduated rates are imposed on different types of income.
d. Some individual taxpayers are citizens while others are aliens.
__A__ 47. The Department of Finance thru its officers entered into a contract with foreign investors
granting them exemption from all forms of taxes to encourage investments in the Philippines. The
contract is
a. Void, because the power to grant tax exemption is vested in Congress.
b. Valid, because the purpose is to promote public welfare.
c. Void, unless the President ratifies
d. Valid, if the President has authorized the officers to enter into such contract.

__B__ 48. The three fundamental powers of the state are

I. Methods by which the state interfere with private rights.
II Exercised primarily by the legislature.

A. False; false c. True; false

b. True; True d. False; true

__B__ 49. I. The President has the power to veto a revenue bill even if such bill was already
approved by Congress.
II. The President is superior to Congress as he/she can veto any bill even if already
approved by Congress.
a. False; false c. False; true
b. True; false d. True; True
__A__ 50. AE86 Corporation’s fiscal year starts on April 1 and ends on March 31. It decided to change to
calendar year in 2020. It shall file an adjustment/short period return covering the period
___________________________.
 a. April 1 to December 31, 2020
b. April 1, 2019 to March 31, 2020
c. April 1, 2019 to December 31, 2020
d. none of the above
__A__ 51. Takumi died on April 27, 2021. His heirs shall file a return covering the period from
____________to ____________ on or before _________________________.

a. from January 1 to April 27, 2021 on or before April 15, 2022

b. from January 1 to December 31, 2021 on or before April 15, 2022
c. from January 1 to April 27, 2021 on or before May 27, 2021
d. none of the above

__C__ 52. Which statement is false?

a. The income of mixed income earner is globalized.
b. A negative net income or net operating loss (NOL) shall not be offset against
taxable compensation income because deductions are expenses of business/profession
and are properly deductible only against gross income thereto whereas no expense is
deductible against taxable compensation income.
c. Cost of services include to indirect costs such as general administration and marketing
expenses of the business.
d. Non-operating income include gains from dealings in properties, income distribution from a GPP,
taxable trust or estate, or from an exempt joint venture, casual active income and other passive
income which are ot subjected to final withholding tax.
__A__ 53. Which BIR Form shall be filed by purely employed taxpayer?
a. BIR Form 1700 c. BIR Form 1701
b. BIR Form 1701A d. BIR Form 1701Q
__C__ 54. Which BIR Form shall be filed by mixed income earner electing 8% flat income tax?
a. BIR Form 1700 c. BIR Form 1701
b. BIR Form 1701A d. BIR Form 1701Q

__A__ 55. Which BIR Form shall be filed by corporations exempt from income tax?
a. BIR Form 1702-EX c. BIR Form 1702-RT
b. BIR Form 1702-MX d. BIR Form 1702-A
__B__ 56. Judy Ann sued Wowie for breach of promise to marry. Wowie lost the case and duly paid the
court’s award that included, among others, P100,000 as moral damages for the mental anguish Judy Ann
suffered.

Did Judy Ann earn a taxable income? (BEQ)

a. She had a taxable income of P100,000 since income from whatever source.
b. She had no taxable income since moral damages are compensatory.
c. She had taxable income since she made a profit.
d. She had no taxable income because it was a donation.
__C__ 57. The proceeds received under a life insurance endowment contract is not considered part of
gross income (BEQ)
a. if it is so stated in the life insurance endowment policy.
 b. if the price for the endowment policy was not fully paid.
c. where payment is made as a result of the death of the insured.
d. where the beneficiary was not the one who took out the endowment contract.
__D__ 58. Corco Corporation took two life insurance policies on the life of its EVP, Mrs. Lopez. On one
policy the beneficiary is the corporation and the other, designates her husband as the revocable beneficiary.
The insurance premium paid by Corco Corporation is (RPCPA)
a. Tax deductible insofar as the first policy is concerned.
b. Tax deductible for both policies.
c. Not tax deductible for both policies.
d. First policy is not deductible; second policy is deductible.

___A_ 59. Anton was hired as a staff auditor of SBB and company in 1999. In December 2006, he
transferred to Tacandong and Associates. In 2008, he returned back to SBB and Company until his
retirement in 2014 at the ages of 55.
Question 1: Are the retirement benefits taxable to Anton?
Question 2: Suppose he was terminated from employment due to dishonesty. Is the separation pay taxable
to Anton.
Question 3: Suppose he was terminated from employment due to the merger of the two audit firms. Will
the separation pay be taxable to Anton

A. No Yes No c. Yes No No
B. No Yes Yes d. Yes No Yes
__D__ 60. Raquel Montero was retired by her employer - corporation in 2015 and paid P2,000,000 as a
retirement gratuity without any deduction of withholding tax. The corporation became bankrupt in 2016.
Can the BIR subject the P2,000,000 retirement gratuity to income tax? (RPCPA)
1st Answer: No, if the retirement gratuity was paid based on a reasonable pension plan where Montero was
60 years old and has served the corporation for 9 years.
2nd Answer: Yes, if Montero was forced by the corporation to resign due to retrenchment.

a. Both answers are wrong.

b. Both answers are correct.
c. First answer is correct, the second is wrong.
d. First answer is wrong, the second is correct.
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