OTHER COMPREHENSIVE PROBLEMS

Use the following data for tile next three (3Jquestions:

The following data were taken from the financial statement of Chen Corpora lion in 2021:

Philippines Abroad
Gross sales P10,000,000 PS,000,000
Sales returns 200,000
Cost of goods sold 3,500,000 2,250,000
Operating expenses , 2,800,000 1,100,000
Interest income from trade receivable 100,000 50,000
Interest income from BPI deposits-Phils. 100,000
Interest income from BPI deposits-USA 80,000
Interest income- FCDU 150,000
Income from money market placement 200,000 100,000
Dividend income from domestic corporation 75,000
Dividend income from resident corporation 45,000
Dividend income from nonresident corporation 30,000
Royalty income - in general 30,000 25,000
Royalty income - books 20,000
Gain on sale of shares of stock of domestic corp. 120,000
held as capital asset thru local stock exchange;
Selling Price-PS00,000
Gain on sale of shares of stock of domestic corp. 150,000
held as capital asset directly to a buyer.Selling
Price--P650,000 .
Gain on sale of real property in the-Philippines 5,000,000
classified as capital asset. Cost =P4M; N =P~M

Additional information:
The asset of the corporation amounted to PB0,000,000.

122. How much is the income tax due and payable assuming the corporation is:
DC RFC
a. P1,674,00 P2,038,500
b. P2,038,500 P1,093,500
C. P1,383,750 P2,161,250
d. P1 ,395,000 P2,161,250

❖ Answer: C

271
 Crjr'rt/ /11'-II.•
o "Foreign corpornllons are _not subject to CGT on real properties They ma gonoralty nol
~
allowed lo own real propertios In the Ph1hpplnes However for lncomo tllllluon pufl)050S.
~ Copo(lfion: Abroad such Income If any. shall be SUbJOCl (0 25% RCIT for RFCs and 25'4 FWTs ro, NRFCs
phl!,ppin()S
PS,000,000 ~
PI0.000.000 Prs.ooo.o)J
G/OSSSM-S (200.000) /200.~ 123. How much is the final withholding tax on passive income assuming the corporation Is:
5a1t.s,wms (3,50().000) (2.250,000) 15.750.00JJ DC RFC
Cos! ol ~ sold (2,800,000) (1. 100,000) (3.900,0))j a. P81 ,250 P81250
~,ating efJ)IIA.<eS ,00.000 50,000 150COJ b. • P9o.soo pgo:soo
in:eraSI lrltOill! from trade receivable 80.000
lnfBIW ,ncome from BPI depoMs-USA
60.((lj c. P92,500 P81,250
100,000 100,(XIJ
ln.'!!r9S1 fllCOl!le from money market d. P92,500 P92.500

=:' .icome-RFC
Dl,,dend ,ncome-NRFC
exempJ
30,000
e,ell'f.l
30,(\\) ❖ Answer: D
25,000 25,00J
Ro~)' lllC()f1I& aoroad
Ta,able U'>CO/llB ~ Fwr - DC and RFC:
- - ~25i1 DC RFC
RC/Trare In/ores/ Income from BPI deposits-Ph/ls. @ 20'¼
Pt,JiiJE_ 20,000 P20,000
Rlgllllr Corporate Income Tu 0111 Interest Income from FCDU; PtS0.0001 tS¼ 22,600 22,500
Income from money morl<et placement@ 20'¼ 40,000 40.000
NOTE. h tn asset of the eotp<>ratlon Is not more than P100M. the 20% RCIT rare for Royalty Income @ 20% 10,000 10.000
~ ~~g15 ~ appllcable because the net income exceeded the PSM_threshold. Fina/ f,1x on passive Income P92.SOO P92,SQO
Under CREATE law, dNidend income rece11<ed by DC from RFC 1s tax exempt It i;
0
considered as 1nter-<:0rporale dividend exempt from tax. . o Royalty Income derived by OCs and RFCs from Phllipprne sources regardless of
The dividend Income 1mm NRFC if received by a DC Is exemp/ onl( under certain
0
ronc/itionS. If the condlt10ns for exemptio11s are not clearly Illustrated in the problem, FWT
classification (from books. Hterary or olherwise) Is subjecl to 20%

such dividend shall be subject lo RCIT.

124. How much Is the total ~pilal gains tax assuming the corporallon is:
OMOENO INCOME Received by DC from NRFC DC RFC NRFC
a. P22,500 P22,SOO P22,500
FOREIGN SOURCED DIVIDEND (RR 5-2021 ): b. PSS0,000 P10,000 P22,500
!by be exempt; Provided: , ..
0 Thal the dlvidenc1S actually re<eived or remitted into the Ph1hpplnes are reinvested In lhe c. P562,500 P22,500 P22,500
busmeSS operallOns of the domesdc corporalton in the PhUlppines within the O<lt d. P562,500 P10,000 P10,000
laXable year from the time the foreign-sourced dividends were received and shall be
•mited to funding the working capital requirements, capital expenditures, divklend
❖ Answer: C
payments. Investment ln domesltc subsidiaries. and infraslruclure project;
o Thal the domesbc corporation holds direcdy at least 20% of the outstanding shares ol
lhe foreign CO!J)Orallon; and CGT-DC
o That lhe domeslk eotp0ratlon has held the shareholdings for a minimum of two (2) years Gain on sale of shares sold d1reclly to a buyer= ((150,000x f5%) P22.500
at Ille tvne of dividend 10oome distribution. Sale of real property in the Philippines = (SP of P9M ..x 6%) 540,000
Tola/ Capita/ Gains Tax PS61,500
Resident Foreign Corporation: "SP= Cost+ Gain= P4M + SM= P9M: SP Is higher than FMV
Phillpplnes
G10SSsales P10,000,000 • CGT - RFC andNRFC.
Salesrerums (200,000) CGTon shares of DC= P/5().000 x 15% = P22.500
<Ml of goods sold (3,500,000)
Operating expenses (2,800,000)
tnrerest Income from trade receivable 100,000
D,VH1end income-resident foreign corp 45,000
Gain In safe ofn,11/ property" 5,000,000
Taxabte income PB.645,000
RCIT rare 25%
Rt1gular Corporate Income Tax Dua P2, 161,.250

272
273
 . C171flrt h .()-/uS
a.
12 (Based on ~R _S-~0
21
l:CR~TIVE School Umversity (CSU) Is a non-profit pnvale
educati_onal institution ~ th ~n issued.permit lo operate from the Commission on Higher
Education {CH_ED). II is ~egislered with the Securities and Exchange CommiSSlon as a
private domestic corporalion.
t · ·ncorrect?
125. Which of the following stateme~ sis I ub·~t to income tax based on net income from
a. Resident foreign corporat!ons are 5 J CSU uses a fiscal year ~ccounting ending July 31 of each year On July 31 , 2021, It
sources within the Philippines. , t to income tax based on net income from all recorded total gross receipts amounting to P18,000.000.00, of which P1 O000.000 came
b. Domestic corporations are subJec from education-related activities, while P8,000,000 from other unrel~ted business
sources. . re subject to income tax based on gross income activities. Also. CSU recorded cost of service and operaUng expenses from related
c. Nonresident foreign corpo~Uo~s a
ac1ivities amounting lo P2,000,000 and P1,000.000, respectively, and from unrelated
from sources within ~e _Ph!hppmeh~cll are non-profit are subject to income tax ba5e<1 business activities amounting to P 3,000,000.00 and P2.000,000.00, respectively.
d. Private educational inslltut1ons w 'thl the Philippines.
on the net income from sources WI n
How much is the income tax payable in 2021?
❖ Answer: 0
a. P100.000 c. Pl.000,000
b. P150,000 d. P2,500,000
0 • I •inslitu"-·
Private educabona ""'~ are ·domestic
.. , corporations·. taxable on IOCO.'n!•
denved from within and without the Ph1hppmes ❖ Answer: A
Solution:
Related Unrelated TOia/
Gross receipts
126. Which of the following shall be considered related income of proprietary educational P10.000,000 PB.000.000 PlB.000.000
Cost of SeMces
institutions? 12.000,000) tJ.000.000) (5,000,000)
Gross Income P8,(}qq,f»(J
I. Income from tuition fees and miscellaneous school fees . Operating expenses PS,000.000 PfJ. 000,000
(1,000,000} [l,000.000) (3,000,000}
11. Income from hospital where medical graduates are trained for residency Net Taxable income PT,000.000
Ill.
IV.
Income from canteen situated within the school campus
Income from bookstore situated within the school campus
RCIT rate
Regular Corporate Income Tax Due
"3,000.000
,,,
Pf0,000. 000

Pf/J0,000
a. I only c. I, II and IV only
b. I and II only d. I, II, Ill and IV NOTE:
o CSU IS subject lo =me taJc al the rate of 1% smce ~s gross Income from unrelated
❖ Answer: 0 activities did not exceed 50% of Iha total gross Income.

127. A domestic proprietary educational insUtution improved its library facilities by ad_dlng a new 129. Pioneer College, a private educational institution has presented the following data for lhe
year 2021:
wing to its old library building. The capital outlay on library improvement, for income tax
purposes, may be:
Gross income, related activities PS,000,000
a. Deducted al full at the time of completion of the improvement Grass Income, unrelated activities 5,000,000
b. Capitalized or expensed outright al the option of the school owners (except rental income)
Rental Income (gross of 5% Wl) 2,000,000
c. Capitalized and depreciated over the estimated life of the improvemept
Expenses. related acllvilles 2,000,000
d. Capitalized or expensed outright al the opUon of the Government Expenses, unrelated activities 3.000,000
Dividend income from a dome.slic corporation 100,000
❖ Answer: B
Quarterly income tax paid for the first 3 quarters 500,000

How much is the Income tax payable in 2021?

a. P700,000 c. Pl.750,000
b. P1 ,150,000 d. P1 ,500,000

❖ Answer: B

274
275
 C~1f'/"l/{/1J1l,
Solwi n
Grass rai,nt
l.Jrnllad~
"""'° ~ PS.000.000 A) Under CREATE la'tl, a n ~ ~ ol
e:xc.eed 1/rl. ol dlre<:1 latJor ~ I • ~
rJ labor nrwig e. - - (bttl <ICll ID
fat St.ti ~111•:I ol C f l ' ~
tranees 00<ol!ed ., Ptl1'c 5aW)C i'W;/1 IClr.dil Pl& ~ ~ ~ or
Gross ROO!t. ,na,ilt!rd ~ (except l!llltiJ/} 5,000,000
public. ltldWcat and YOC3'.ooal ~ d~/ oo,erod by a n ~ ~
RllfUI n::ome (gross d 5" WT) 2,000,000 Pl 2.000,r,l"J amcert!ledby111eT8CMlcalEduc:atonar.i ~ o . - ~ ~ , ,ESo.a, .,,,
~ 00 HiJh,;r Ed!M::a!.en (CHEO}, or ui,; ~ - ol ~ to.,:&t
~ 191afed actM$l8S
2,000,000
~ ""1liitoo ectM1IeS 3,000,000 (5, ~
Taable f1C0ll18 Pl,OOOWJ
Ta, rate ( tlllmlf«I 1ncon1,:.reut«J lnct>mtf; 2.f¼
Tat due
PS00,000
~ PropMUty tducatlon~I • ~ , 10% or 1'I, ol re1 nc,;re, ,11 rt/T CGT
w:s. Qu¥IJ!tty t a x ~ tnslltution1 (PEii) 111"- case trJ'/ be !SPECIAi. CORP )
~tax0'1rerttJ/nootTle 100,000 (6r~ ..tllch ar• NOHl'ROFIT TP.Al/1 Yh.. Cl>.EATE: 25'JI. r,t 21),r. W
lncafM Tu payab/1
~ r.ia,.; AA!>-2021.RMC
52.10211
l.1lr!!laled ,ncome ,s ~~ #ran rel2'.t:d
rO'.i<l"le
NOTE. II ;,e ~ . e d r.aroe cl IN! propnetary educational insbtubon is moie v.,.,. PEIi ditlributlng Ri3fll,W Cctp,:,ra!o T3~ r,t«/let 20% u
~ ol a IOlal goss ~ irie apolcallle S1C01ne tax rate sha~ ll'3 the reVJY:d RCTT di'(idend1to 25% (81,fs: RMC 61-202fJ CGT
,_ unda CREATE la"N ot ellhl!I 25% or 20% Since the lar~b!e net income 1$ rrcr: 1har1holders
v.-, P5.'.l Ille a.oplcable ra:e snal be 25"4.
Hoo-stock non-profit Ptllfppr.-J Cansl.MGn Alt XN ,S,c. ' f3J-
OOMtSTIC CORPORAllONS edtJQtlo~I AU R.c"VEMJES .rd ASSlcrS I l l ~. nor~ et1uea:Dnal
Propneta:y Nor,-~ ~ lns::u!icnS and Hosplla!s Institutions (NSEJs) i n s - ~ used actually, dlrlClly and ftclwnly for edu:a!Jonill
pusr,oses sl.3J be ea:rlj)j from rz:res arid ~~ ~
Tr.e rules ~ 10 cxdirtaly ro,iorations wdl also a~ply to proprietary ~ucaiaa &emfi( Ulide< s«tlon JQ, N/RC
l'&n.elOnS and llCJs;l,:a!s wiw:n are noir,,rofit except !he roflowing:
F'IIT CGT
Tl".e folowlng shall not be taxed !l
respect lO lnccme ~ bey lll6m ill
\) in CDffllllU1g base n:olll! tn, the special tax rate shall be 10% (Under CREATE. trE such:
soeoaJ !ax ~ ~ be reduced IO 1% from Jufy 1. 2020 to June 30, 2023). f-l.o!IE'r,r, (H) A r ~ ra,-pnf.i EillXa!mal
d ,oa;me no1 rela:!:d to its pnmary purpose or funcoon is more than 50% of its total gros; ins!Jllrucn
nc:oo-e. trE n:ome l2X rate stia,
be lhe appficable RCIT rate (depending on the~ Government &empl IJflOIY s«tion JO. NIRC- The FVIT CGT
~ as ~ under TRJJN Law (3(fi,} and CREATE (25% or 20%). educational folo,mg s11a1 001 oe ia:roo .. ,espea 10
Institutions (GEis) inromfJ r.<:erted by lliem as-such.
SUMMARY (I) Go-,em,ren1 ~ lns'.X-. &
(prt:rmed ine!ated i1corne is not hgtler than related income}: As f)roV1ded for III rr.e t;r;r or ctalet C12 • Ille GEJ
♦ TRAIN l.zK. 10%
• CREAiE Exemption from Real ProoMy Tax
o From July 1, 2020 to June 30. 2023: 1%
,:, . . J 1. 2023: 10% Sec6oo 234 of the Local Government Code (LGC) - The ~ are eJ2l!ID~ from pa;m;ni of lhe r.al propeny
tax: (b) Ct,aritable instiMions, chUJChes. parsonages or covenants aw,.,eroanl tnerel<l, mosques, nonprofit or re!iglOUS
ceme!Eries and a/I lands, bui!dings. and ,mp(OV!lments aaualj, ~ - and erwsite~ used for reJigious. Cllatta/Jle
"\Jrve!aled lrade. b<JsUJes; or other activity' is an aclivity which is not substantially re!a'"d- or eduaoonalpurposes. Real property cax. a local lal<. <S dlf'.ere.-it from CGT.
to tre exerasa or ~rformance of the school or hospital's primary purpo5: or Ml<W"'
such as but rot imned to rental income from available school spaces or facifilieS.
130. Advance Leaming Institute, an educational no1rprofit institution provided the following data
?ropoelary educational 1nslilu6on" is anv private school which are non:?rofit main~
for 2019 taxable year:
2/10 admrislered by private individuals or groups with an issued perrmt to opera!~
me Department of Educ:auon. Cuhure and Sports (DECS}, or the Commission on • Income from tuition fees P3.500,000
Educa!JOO (CHED). or the Technical Education and Skills Development AutOOfi!/ School miscellaneous fees 1.500,000
(TESOA). as the case may be. in acc:ordance with exlsling laws and regulafions. Dividend income:
Domestic corporation 2,000,000
2) h ,s rot sutJied to II.CIT 2,000,000
Resident foreign corporation
. afiredl!<,t Rent income (net of 5% withholding tax) 1,900,000
3) CAPITAL EXPENDITURES for expansion of school facil~ies may not be cap~ pro!l
r,stead damed as outnght expense This rule shall oot apply. hoWever. to a non- Operating expenses 4,000,000
h05{>,1al

277
276
 school in 2019 was: NOTE:
The ,ncome taK payable of t~e P500,000 () Under tho CREATE law. dividend lna,mo roce.ved by a dornc311<: c:orpornbon llom ro11<1on1
a. Pl.750,000 d. P400.000 rorolgn oorpornflon Is cucmpl from Income w,.
b. Pl ,650.000 · ◊ In compuUng busk: Income UU. lho special llD 11)10 shall bo 10,C. HowollOr UOOOI CREA TE
Law, lhe special lal rnlo shall oo reduced 10 I'll, beginning on July I , 2020 unUI Juno 30. 2023
o Assumn lhal the Income durlng lho lronslllon porlod (2020) wore roolaed evonly during lllo
❖ An$wer: D year.
RELATED INCOME: PJ,500,000 SUMMARY
income from IUl1ion fees 1,soo,000 Ps.ooo.000 (Provided rotnled lnCO!Tl'l is hJghar lhnn unrelallld Income)
Miscellaneous schOOI fees ♦ TRAIN Law: 10%
UNRELATED INCOME 2,000,000 + CREATE.
DlvkJend from RFC - TRAIN Law 2,000,000 4,000,000 o From July I , 2020 lo June 30, 2023 1,C.
Rental mcome (gross of S%W7) P9,000,6oo
o BMlnn,nn Julv I . 2023· 101ft
TOTAL GROSS INCOME (4,000,000L
OPEX P5,000,000 Use the following data for the neJ<t two (2) queslions:
Taxable net income ,1 10% Norte De University is a proprietary educational insUtutlon. It has lhe following selected
Tax rate (,e/4tedincome>unrelated Income, information for lhe taxable year 2021:
P500,000
Tax due • (100,DOgJ_ Tuition fees P12,800,000
Less: Withholding tel< on rental income 1,800,000
P400,0QO Miscellaneous fees
lnCOIT/8 Tax payable Interest on bank deposits 12,300
Rent income 350,000
Special Income Tax Rate for Pro rieta Educational Institution
.I Salaries and bonuses, all personnel 7,500,000
SUMMARY . . . 3,500,000
unrelated income Is not higher than related rncome).
. . . .A . . Other operating expenses
prov"""'
(
O"
• TRAIN Law: 1 "
+ CREATE: Additional information:
o From July 1, Q020 to June 30, 2023: 1'lo A new school building was built and finished on April 1, 2021 at a cost of PZ,000,000 with
0 innin Jul 1, 2023: 10% a depreciable life of 50 years.

131. Using the same data in the preceding number and assuming the taxable year was 2020, 132. Assuming the University opted to claim the cost of construction as an outright expense,
how much is the income tax payable? the income tax payable should be:
a. P15,000 c. P150,000 a. P19,500 c. P344,000
b. P65,000 d. P165,000 b. P147,000 d. P487.500

❖ Answer: B . ❖ Answer: A
RELATED INCOME: RelatedIncome:
Income from tullion fees P3,500,000 Tuition faes P12,800,000
Miscellaneous school fees 1,500,000 P5,000,000 Miscellaneous fees 1,800,000 P/4,600,000
UNRELATED INCOME Unn!lated Income:
Dividend income from RFC - CREA TE exempt Rent income 350,000
Rental income (gross of 5% W1) 2,000,000 2,000, OQQ.. Less: Operating expenses
TOTAL GROSS INCOME Pl,000,000 Salaries and bonuses, all personnel 7,500,000
OPEX (4,000,@L Other operating expenses 3,500,000
Cost ofnewbuilding 2,000,000 (13,000.000)
Tanble n11t lnco/11(1
~
TAX RATES
Taxable Net Income
x Income tax r'ate
,,,
Pl,950,000

(,elatedIncome> untelated lnccme) Income Tax Due/Payable Pfg 500

Jan. June: PJM x 6112 x 10% P150,000
July 10 Dec.: PJM x 6112 x f
~
NOTE:
I ~ Tax Due; (OR; PJMx 5.5%) ◊ CAPITAL EXPENDITURES for expansion of school facilities may not be capfla112od bul
P165,00o instead claimed as outright expense.
Less. Withholding tax on rental lncom
lne®1e Tax payable e ~
~

279
278
 So/tAJ0(1"
33 Assumng the ~ opted to capitaized the cost or buicfing coostruction. the Vla:,-
1
R8.ATED INCOME
tax payable shoud be. ~ TulalfHS PJ.000,000
l,'5,;&/laneOOS flHJS 250.000
Income from canteen ope,alJQnS 750.(JOO P•.000,000
a PO c. P392.000 UNRELATEO INCOME:
b P39.200 d P980.000 OMdend income from RFC; CREA TE I..Bw etempl
Rerrt i'lcome (gross) 6,000.000 6,000,000
OPE)( ,, . 125.000/
Taxable Net Income PS,875,000
t RCIT rate - CREA TEL- 2~
&M.oon
(un,.llt,dfncom, >"llf,d lncorrwi
R&tt!dlncom,: 1.468.750
/nwme Tax Due
Turoifses P12.800.000 Ouallerly ilGome lax payments (250,000)
~fees 1,800,000 1214,600,00J CWT.ronrent (300,000}
Unnut«I J ~: /ncom, Tu P,yabl, - 2021 1'968,750
Rer.tn:ome 350.00J
l ess: Q:ieramg erpeoses use the following data for the next two (2) questions:
Salanes and bcnlses. al personnel 7,500,000 Tunpuyog Educallonal Foundation (TEF) is a non-stock non-profit educational lnr;Ututlon. It
Other oper.;tng expenses 3,500,000 has the following selected information for the taxable year 2021:
Dep n-new building {P2M/5Qx9/12) 30,000 £11.030.000L Tuition fees P15,000,000
Taxable Net Income /23.920.000 Miscellaneous school fees 2.500,000
Operating expenses 7,500,000
Taxabie Net Income 123,920.000 Interest on bank deposits 125,000
r Income rar rate 1" Rent income, net of 5% CWT 332,500
lncame Tax Due/Payable P39,200 Rental related expenses 75,000

Additional lnfonnatlon:
134. Bahala Na College, a proprietary non-profit educational institution provided the folio'hirg • Tuition and miscellaneous school fees are actually, directly, exdusively used for
data for 2021 : educational purposes.
• A new school building was built and finished on April 1, 2021 at a cost of
Income from tuition fees P3,000,000 P2,000,000 with a depreciable life of 40 years.
School miscellaneous fees 250,000 TEPs assets amounted to P250M.
Income from canteen operations 750,000
Dividend income from: 135. The income tax payable for the year should be:
Domestic corporation 100,000 a. P17,500 c. P65,000
Resident foreign corporation (within) 50,000 b. P51,250 d. P68.750
Rent income (net} 5,700,000
4,125,000 ❖ Answer. B
Operating expenses
Quarterly income tax payments 250,000 TAXABLE INCOME
Rent income P350,000
RentaJ related expenses
Toe income tax payable of the school is: (75,000}
Taxable Net Income
P275,000
x Income tax rate - CREATE
2~
a. P37,500 c. P1 ,212,500 Income Tar Due
P68.750
d. P1,227,500 Less: Income Tar Withheld on fllnt
b. P968.750 (P332,500/95%) X 5%
(17,500}
lncom, rax Piiy;,b/e - 2021 P51,25Q
❖ Answer: B
0
AllOl\ilfllfi1 non-st_od<. educational inslilutlon Is not a special COfporation The rules
pertaining to _propneta_ry educational institullon are not applicable to l10ll-stod( non-
profrt educational institutions.

281
280
 C7rf/'/f ftthf.>'
. eonstilllllon, all revenues of a non-stock non. operating expenses related to rental Inc
Under Artide XIV of Ille PhUlpptne ,ctu1llr, d/rBCllv and excluslvelv used for • Interest from bank deposits ome 2.250,000
In 11MIOO that are - ' - Interest income from FCDS deposits 100,000
profil educalional s empt from inconJ8 1ax.
,duqtloMIpurpM!lare ex Dividend income from a domestic corporat· 80.000
• t11ulions are likewise exempt under SecUon 30 · Idehd income
o,v . frem a ',oreIgn
· corporabonion 65.000
11
Non•stoc:Jr. non-profit educati~ :come not related 10 11s exempt actJvilios (1.o., Quarterly Income tax payments 50.000
(H) of the Tax Cod0 - Howe: • regular corporate income tax. 80,000
10
renllt lncomt) shall be subiv··
Uonal institution and ii opted to expensed
136. Assuming the school is a govemm~nt ed~~income tax payable should be:
Additional school building was b .11
P4,000,000 with a depreciable 111~'
0
:~s
.d
finished on ~ril 1, _2021 al a cost of
educallonal Institution opted to claim the years. Only_,r appl,cable. assume the
outright u,e cost of building construction. The company's assets excluding land cost of construction as an outright expense.
a. P17.500 c. P65,000 amounted to P108,000,000.
b. P51,250 d. P68,750
138. How much is the income tax payable a • .
educational Institution? ssuming ABC 15 a non-stock non-profit
❖ Answer: B I be
◊ Solution =same wi1h the immediately praced ng num r a. P75,000 C. P1,135,000
b. P857,500 d. P3,289,000
The les pertaining to proprietary educaUonal institution shall not be applied
to ~ock non-profil educational Institutions and government educational
❖ Answer: B
lnstituuons. Rental income (gross) P7,5(}(),{X)()
Government educational Institutions are exempt under Secllon 30(1) of the Tax OPEX-rent (2,250,{X)()J
Code. However, tncome not related to its exempt activities shall be subject to Taxable net income PS,250,000
X 2~
regular corporate income lax.
Income Tax Due Pl,312,5()()
Quatterly tax payments (80,000)
137. Saint Mary's University (SMU) is a noll-stock, non-profit educational institution registered
CWT (375,000)
with Securities and Exchange Commission (SEC) as a corporaUon. For the year ended Income Tax Payable P857,500
December 31 , 2021, II reported rental Income amounting to 12150M from various tenants.
The Bureau ol lntemal Revenue (BIR) assessed SMU of P45M deficiency income tax for 0 The dividend income received from DC and RFC is exempl from tax under
rnntat income earned. Is the action of the BIR proper? CREATE Law.
a. No, because a proprietary educational institution shall be subject only to 10% 0 A non-profit non-stock educational 1nsbtullon Is not a s ~ corporallOn.
preferential corporate income tax. Consequently, the rules pertaining lo proprietary educabonlll lnst11uuon (l e. spodal
b. No, because all rnvenues of non-stock, non-profit educational institution shall be treatment or capital elpendilures) are not applicable 10 non-stock non-profit
e.xempt from taxes and du1ies as long as they are used actually direclly and educa~onal lnstllutions.
exclusively for educational purposes. • ◊ The mterest ma>me on bank depos11end FCDS deposu ere subject 10 FWT.
c. Yes, ~use leasing of property Is not actually, directly and exclusively related to
educational purposes. 139. ~o".' ~uch Is the income tax payable assuming ABC is a government educational
d Yes. becau~ taxes _ are the rlfeblood of the government and tax exemptions are Inst1tuhon?
construed sbictly agamSI the taxpayer and fiberally in favor of the government a. P75,000 c. Pl,135,000
b. P857,500 d. P3,289,000
❖ Answer: C
❖ Answer: B
Use the followmq data for the ne~ four r4) questions: ◊ Same computation with the preceding problem.
ABC tnsbtute has the following selected infoona .
Tuition lees (actually, directly, exclusively used~ for the _taxable year 2021: 140. How much is the income tax payable assuming ABC Is a proprietary educational
Miscellaneous fees (actually. directly, exclusrtlyeducational purposes) 1220.000,000
institution?
purposes) e uSed for educational 5,800.000
a. (P369,500) c. P1,135,000
Operalin_g expenses rnlated to SChool f . b. P857.500 d. P3,289,000
additJonal school building) ees (excluding depreciation on the 18,500,000
Renlalinoome(net olCWT) ❖ Answer: A
7.125,000

282 283
 ❖ Answor:A
$Ot.f!(VI P25,800,000 Gross lncomo from hospital oporot/on
ScJl{)(II /HS (18,500,000) Roni lncomu /P190,000/9S%) P2,000,000
QPEX-sdlod rees ,,.000.0001 Oporotlng expanses 200,000
QPEX-sdlod~ 7,500,000 Doproclolion oxpenso {500,000)
Rl!fllM in«)me (9,o.ss) (2,250.0001 (P4M I 25 x 6112) (80,000)
oPEX-f8nl ~PS.550,000
11, Texab/o Nol lnr.ome
Ta101lo'e nel ,n(f)(llf
t
income Tox Out
P85.500
(80,000)
x Tax rate · CREATE
Income Tax Dua
,~
Pt,620.000

P16,200
OuNforly l8l ~ (375,000) Lass: CWT on rent
(10,000}
CWT {P369.500) Income Tax Payable
L •..,,.~)
income Tar Payable (Re,.,,.,. -
P6.200

. . ble assuming ABC Is a CPA review school? 143. Assume the non-profil hospital opted lo expense outnghl 1h st f th
1~ 1 How much IS the ,ncome tax paya Pl l3S 000 hospilal. The income lax still due and payable in 2020 is e co o e newty constructed
a. P75.000 c. ' ' a. P6,200 c. P162.000
b. p4os,OOO d. P2,652,500 b. P152,000 d. P486,000

❖ Answer. D P25.B00,000 ❖ Answer: A

Sd,ool/ee.s
(18,500,000) ◊ Solution_= same _with the imme<fiately preced1119 number
OPEX-school fees
OPEX-sdlod buidilg: dep'n /120,000) ◊ The .opUon to either ~pitalize or expense outright capilal expendllures is
(P411/ 25t~2) apphcable only to propnetary educational institutions. ·
Rertsl moorne (9ro$S) 7,500,000
OPEX-nn (2,250.000) 144. ~ssume the hospital was organized for profit. !he income tax still due and payable in 2020
Tsxatlle net m:,ne P12,430,000 IS
t 251'
D,stribulNe share in nel income P3, 107,500
a. P280,000 c. P395,000
QuilTlerly tax p;tyments (80,000) b. P300,000 d. P405,000
CWT (375,000)
lnrorre Tax Peyabie P2652,500 ❖ Answer: C
o A CPA Review School ls no! classified as proprietary educational institution.
Solution:
Gross income from hospital operalion P2,000,000
Use the following data for the next four three /3) questions:
Roni income (P190,000l95%) 200,000
Anon-profit domestic hospital has the following dala during the year 2021: (500.000)
P2,000,000 Operating expenses
Gross income from hospital operation· {8(},000)
500,000 Depreciation expense
Operating expenses (exduding depieciation for the new hospital Taxable Net Income Pt,620,000
building) x Tax rate 25%
Rent income of commercial space, hospital ground floor net of 5% 190,000 Income Tax Due P405,000
withholding taxes ' Less: CWT on rent {10,000)
~ ! ~ bank deposit net of 20% withholding tax
In_ 40,000 Income Tax Payable P395,000
DMdend income from adomestic corporation · 100,000
NOTE:
Additional information: a) Section 27(8) of the Tax Code as ameniltd under CREATE law provides:
Proprietary educatlonal lnstitullons and HOSPITALS which 1r, NONPROFTTshaU pay a tax
• Ad:nal hospital buildi~g was bulll and finished on June 30 2021 at a cosl of of ten pen::ent (10%) on their taxable Income except those covered by Subseaion ID) hereo~
124. .000 wilh a depreciable life of 25 years ' PROVIDED THAT BEGINNING JULY 1, 2020 UNTIL JUNE 30,2023. THE TAX RATE
• The company's assets amounted lo 150M. . HEREIN IMPOSED SHALL BE ONE PERCENT (1 o/o). Provided, FURTHER. llllll tf the gross
Income from •unrelated trade, busi~ess or other aclivity' exceeds fifty perconl (50%) of lhe total
142. The income tax still due and payable in 2021 should be gross Income derived by such educational lns~tullons or hospitals from au sources. the tax
8 P6,200 prescnbed in Subsecllon (A) hereof shall be imposed on the enUre taxable Income.
c. P476 000
b. P162,000 d. P48s:ooo

285
284
 C/tflr{ frtflt,S
TION OF TERMS UNDER RR 5-20~1 :te hosp1lals, wh/C/1 ore non-profit, maintained
147_The following are excluded in the 'Gross Phili ine B' • .
b) OEFINI refer ro any pnva International air carrier, except: PP illlngs for income tax purpases of an
Propnetary HospttaIs. 'nd1\'llluals or groups.
,. nd admimstered by private r • Proprietary Educational Institutions and a. · Tickets sold outside the Philippines for .
a t~e definlliOO O1 t b fi Philippines passengers orlginahng from outside the
c- Noni>n)fil • as used in income or asset accrues o or ene I1s any
th31 I
Propne!OfY Hospltllls. means no ne t Income or assets devoted to the Institution's b. Passage documents sold outside lhe PhT .
fi son wilh all the ne from the Philippines I
ippines for excess baggage originating.
member or speo IC per_ .' conducted not for profit. •
purposes and anIts activities c. Tickets sold In the Philippines for passen ·, •
d the definition of tem,s, not all private hospitals are not actually flown gers ong,naling from the Philippines but
C) As descnlled In RR 5-2021. specifically un er ch it must be a non-profit hospital. Otherwise,
Tobeconsidoredassu , % d. th
Paspsah~I~ d_ocuments sold In the Philippines for cargoes originating from outside
are spedal corporalJOll. vised RCIT rate of either 20'1. or 25 . e , Ipp1nes
It shaUbe subject to tt>e re

❖ Answer: B
. 20 Maalaga Hospital, a private non-profit hospital,
145. (Based on illustration from R~ .~ ~ cost and allowable deductions of P6,000,000 and
1 148. In order for an international carrier lo qualify for exemption on the basis of reciprocity what
has gross recelptsof P 5,000'.. ~ ·leI
for its unrelated activities, it incurred PS,000,000 type of tax shall be exempted as well by lhe its home country? ·
PJ.250.000 from related activities, d llowable deductions, respectively with gross sales a. Income tax
and P2,000,000 as cost of sa es an a
1 .
of P18.000,000.
b. Business Tax
c. Transfer tax
How much is the income tax due assuming the taxable year is 2021? d. Any of the choices
a. P167,500 c. P335,000
b. P251.250 d. P4,187,500 . ❖ '
Answer:A

❖ Answer: D Use the following data for the next four (4/ questions:
Pacific Airlines, an international air carrier showed lhe following gross receipts for 2020:
Solution. Point of Origin Destination Gross receipts
Related Unrelated Total Philippines U.S.A P8,000,000
Gross sales P15,000,000 P18,000,000 P33,000,000 U.S.A. U.K 4,000,000
Cost ofsales (6,000,000) (5,000,000) (11,000,000) U.S.A Philippines 3,750,000
Gross Income P9,000,000 P13,000,000 P22,000,000
U.K Philippines 2,100,000
OPEX (3,250,000) {2,000,000) (5,250,000)
Additional information:
Taxable Net Income P5.750,000 P11000,000 P16,750,000
x Tax rate 25% • Forty percent (40%) of the shipments from lhe Philippines to the United States were
Income raxDue P4,187,500 later shipped to the United Kingdom. '
25% of all its revenues were from transport of cargoes and goods.
o The hospilat is subject to 25% RCIT since its gross income from unrelated
activities is more than 50% of its total gross income. 149. The Income tax payable for 2020 is
a. P127,500 c. P170,000
146. The Royale Afr Corporation is an international carrier doing business In the Philippines. Us b. P150,000 d. P200,000
taxable base for income tax purposes is - ❖ Answer: D ; (Income Tax Payable= P8M x 2.5%)
a Gross Philippine Billings
b. Gross Philippine BIiiings minus deductible expenses 150-The total tax expense ol Pacific Airlines in the Philippines for 2020 is
c. Regular rate of 30%of ils net taxable income a. P187,500 c. P230,000
d. Allocation of income from sources within and without the Philippines, as well as . b. P210,000 d. P260,000
expenses. •
❖ Answer. A ❖ Answer: D
◊ Income Tax Payable= (P8M x 2.5%)lax
+ (PSM x J%) =P260.000

Total ~es = Income tax + Busrness iiooal Carriers Is 3% common earners tax
The applicable ·business lax' of lnlema ded
under Section 118 of the Tax Code, as amen ·

286 287
 . Philippine earners ln U.SA are subject only
151. The Income tax payable for 2020 assuming -• •f1».•i:Mm
to 1% Income tax is PlGO 000 155. Which of the following shall pay a tax of ten r
a PO c. ' I - Regional or area headquarters pe cent (lO%) of their taxable Income?
b: PB0,000 d. P200,000 If - Regional operating headquarters
a. I only c. Both I and 11
❖ Answer: B M I% b. II only d. Neither I nor 11
0 Income Tax Payable= PS x
❖ Answer: B
ssuming Philippine carriers in U.S.A. are exempt from
152. The Income tax payable for 2018 a m
payment of income tax is 156. (Based on RR 5-2021 Illustration) Corporation Is lsta . .
Head Quarter (ROHQ) since 2015. For taxable years ~Oto~; a Reg1011a_lOperating
a. PO c. P160,000 the financial results: · 1tS operalloo showed
b. P80.000 d. P200,000
2020 2021 2022
❖ Answer: A 2023
Gross receipts 75M 120M 130M 75M
163. China Airlines Inc., aresident foreign corp. has the following data for the taxable year 2020: Cost of services 41.25M 66M 71.SM 4125M
Passengers airfare from China to Philippines P1 ,800,000 Allowable deductions 33.625M 41.2M 42.55M 35.125M
Passengers airfare from Philippines to China 1,500,000
Airfare for cargoes from China to Philippines 700,000 How much is the income tax due in 2023?
Airfare for cargoes from Philippines to China 1,300,000 a. PO c. P506,250
b. P337,500 d. P675,000
How much was lhe income tax payable?
a. P39,000 c. P70,000 ❖ Answer: C
b. P60,000 d. P84,000
Solution:
❖ Answer: C 2020 2021 2022 2023
Solution: Gross n,ceipts 75.000,000 ,20.000,000 rJ0.000.000 7iOOO.OOO
Passengers airfare from Philippines to China Pf .500,()()()
Airfare for cargoes from Philippines to China 1.300,()()() Cost of seN/ces (41,250,000) (66,000,000) (l t.500.000) (41,250.000)
Total Pl,800,000 Gross Income PJJ,150,()()() P54.IJOO.()()() PSMQQ,()()() PJJ.15(),()()()
x Tax Raia 2.5% Allowable deductions (33,625.000) (41,200,000) (42,5:i0,000/ (35,125.000)
Income Tax Dua and Payable 70,()()() Net Taxable Income P125.{)()(J --,;:fj,81JQ,{J(J()(J PfS,.9SIJ.{J()Q- ~ f.315,000)

154. Based on the preceding number, how mucl1 was lhe common canie(s tax for the year? Income Tax Rate
a. P39,000 c. P70,000 Income Tax
b. P60,000 d. P84,000 MCIT.
1022 @ 1%
❖ Answer:A 2023: @f.S'X,
Airfare for c11rgoos from Phl/1pplnes to China P1,300,0()() INCOME TAX OIJE
x Business tax rate /common camer's tax/ 3¾
lnccme Tax Due and Payable P39,0()() NOTE.
Jl/\UJl'f 1 2022 fo, ROHO II wJJ abo be
0
0 The regulor rote ot 25% shall bll affecih1I 011 Com slall8d 115 opera!lonS
Common camel's tax {Ccl)·for International carriers (RFCs) is 8 business IBl subjed (0 MCIT be9lnn1.ng on 1h11 sax! dllil, SlllC8 lite pany
under Sectlon 118 of the Tax Code, as amen<lod en is baS8d on gross
way badun 20 15 1 10 June 30 2023 cs 1'- ano
re~ipts on their transport of -9000s. cargoes or malls" origlnab/l9 to ttie • 0 ~ua,y lhe overage ~ta IS 1.5'4, me
MCIT rate ot 1.5% was used slna, lllO rate trom
Philippines. .
lo, .hJty 1 lO Otl<;embi!r J I , 2023. Ille ralB 15 • 11$, able lol TY 2023
Income iax ruto to be In compulmQ Ille incOITll! la-' due/pay

288
289
 Ct1t,'-1,[ flt,Y/s

l)US!oess in the Phmppin~s. is engage_i~ ship a. I only C. I and II only

00
157 Ten Ya);) eo,p a Japanese Cal> ~,tig structed ships 10 Super Fa1ry_lnc.. a Philippine b. II only d. II and Ill only
bubng 11 1ease5 sc:vne ol its lli?\\i) ~ the rental payments lo lhe le~or?
esme, \\'h3t tnOO/lla taX rate wl apply ❖ Answer: C
a ~ ~mcomsTax o OBUs are not spedal corporatJons
b. ~ Ff\81 \\1~ Tax o Tho provisions portalnrng to OBUs wero doleled unda lh CREA
7 5' Fm! \\~ ~ Tax OBUs shall bo taxable lust hke an Ofdlna,y resident ; 8 TE law. Consequontly,
d 4 ~ Fnsl \\~~ Tsx of CREATE law. om,gn corporaUon upon ettoct1vl!y

~ AAS-..r.0 0
Income dorived by offshore bankmg units (08U's) from for.Ian Cu/Tfncy nnuctlons
shall be taxed as follows :
~ b , 8 noo-resklenl lessor of aircraft, machineries
t ss. Reniats. charters aro_Olhef~~s
sooo:hef~t 111he ro'""l'Y"~ '
siJ
be subject to a tax of: COUNTERPARTY
Non-residents
TRAIN Law
TAX

a T\\~nt1·-lr.-e p.Yre>'lt (25\,) Exempt RCIT

Other OBU's
Exempt
b Se,'el'l· and one-half perrent (7 ½%) fee Local Commercial Banks Exernpt
RCIT
• cu and one-half pen:ent (4 ½%) of gross _rentals or s RCIT
~
Branches of foreign banks Exempt
Other residents RCIT
~~'O and one-half percent (2 ½%) of gross income 10% RCIT
0 Since Sec. 28(A)(4) of the Tax Code was deleted°' repealed under CREATE. Thus. the
❖ Answer. B
regular income tax rate or 25%imposed to resident foreign corporalions shall be applied
0 OBUs shall also be subject lo other taxes imposed under the Tax Code.
I59 A cinema!Ographx: m m OV.~, lessor. .or. distributor
. shall pay a tax, based on its gross 0 Prior to amendment under CREA TI: Law. d an OBU earn mcome other than from foreign
income from an sources witlnn the Phd1pp1nes, of.
currency transactions, it will be subject to basic mcome tax (30% RCIT vs. 2% MCIT.
a. Twenty-fil'e percent (25%) . whichever Is higher). Under CREATE Law, OBUs shall be subject to 25% RCIT on Its
b Seven and one-half percent (7 ½%) ordinary income.
c. Four and one-half percent (4 ½%) of gross _rentals or fees
d. Two and one-half percent (2 ½%) of gross Income 162. A depository bank under Foreign Currency Deposit System has the following income from
foreign currency transactions in 2019 (Exchange Rate $1=P45):
❖ Answer: A From Nonresidents S5.000
From residents S3,000
From Philippine National Bank $2,000
OFFSHORE BANKING UNITS (OBUs
How much is the final withholding tax on the above income?
160. A branch. Stlbsidiary or aflirrate of a foreign banking corporation which is dul~ auth~rized a. PO c. P13,500
by the Bangko Sentral ng Pifipinas (BSP) lo transact offshore banking business m the b. P9,000 d. P22,500
Phffippines in accordance with the provisions of P.O. No. 1034 as implemented by CB (now
BSP) Circular No. 1389. as amended. ❖ Answer: C
a. Offshore banking untt
b. Multinational company FWTx = $3,000 x P45 x 10% =P13,500
c. Petroleum Servic:e Contractor and Subcontractor
d. None of the choices PRIOR·ro CREATE Law Income derived by 8 depository . bank from ~s FCDS transactions
·
may be tax exempt or subjectto vr, FWT as follows:
1"'"'
❖ Answer: A FROM ITS FCDS TRANSACTION WITH:
E!(empl
Nonresidents
OBUs In the Philippines E!<empt
161. Prior to CREATE Law, Offshore Banking Units (OBUs) are tax exempt on income derived Exempt
Local commercial banks
from: Branches of foreign banks
Exempt
I. 10%
Foreign currency transactions with local commercial banks. From other residents
II.
Foreign currency transactions with branches of foreign banks authorized by
BSP. .
Ill.
Interest income derived from foreign currency loans granted to residents.

290
291
 . b and assume further that the taxable year
. th receding num er . ?
163. Assume the same data in e P. !ding tax on the above income The next thirteen (~31 ques~ions are based on the following data:
Is 2021 , how much is the final withho ~ Corporation provided the fo~lowing data for calendar year ending December 31
c. P13,500 2021: ($1-50): '
a. PO Philippines Abroad
b. P9,000 d. P22,500 Gross Income P4,000.000 $40,000
Deductions P2,500,000 $15,000
❖ Answer: A . ·the Income described above shall be subject to RCIT Income tax paid $3,000
o Upon effectivity of CREATE law,
rate of 25%.
Additional data: Assume the corporation Is not classified as MSME.
. . d • ·, 511 year of operations in the Philippines, has the
164. Ar, offshore banking umt, alrea y in Is f th year 2021:
following data in its income and expenses or e 165_If the corporation is a domestic corporation, its Income tax payable is:
a. P537,500 c. P750,000
Foreign currency transactions wfth: b. P687,500 d. P825,000
Non-residents 1,800,000
Local banks 1,200,000 ❖ Answer: A
Branches of foreign banks 1,000,000 Philipomes Abroad Total
AnotherOBU 500,000 Gross Income P4,000.000 P2.000.000 P6,000,000
Other residents 800,000 Deductions (2,500,000} aso.0001 3,250.000
Taxable net income Pl,500,000 Pl,250,000 P2.750,000
OTHER INCOME: x Tax Rate 251'
1,000,000 Income Tax Due P687.500
Rent Income
500,000 Less: INCOME TAX CREDIT
Miscellaneous income
Actual payment abroad: P150,000
OperaUng Expenses 2,380,000 ($3,000 X P5())
Umit = 1,250/2, 750 X P687.500 312,500
How much is the total income tax for the year? Allowed (/owe!) (150,000)
a PO c. P292,500 Income Tax Payable P537,500
b. PB0,000 d, P372,500
◊ WHO CAN CLAIM TAX CREDIT?
❖ Answer: D Resident citizens and Domestic corporallons only.

Solution: AMOUNT DEDUCTIBLE: .

The LOWER between the Actual income w paid abroad and the Umff.
Income from FCDS transactions P5.3QO.OOO
OTHER INCOME: 0 LIMIT:
Rental income It Depends on how many foreign counlry Isin\'Ol'Ved.
Pl,000,000 • IF Onl'f one foreign counl,y is inVONIJd Pl'JJPl)Dl8 ll'la>me lax
MJscellaneous income P6,B00.000
500.000 Nel Income, torolgn x
Operaung expenses /2,380.000_ L
Taxab/6 Net Income Net Income, world
P4,420,000
. The limit Is the lower belWeell Limit 1 and
IF More than one foreign counmes 818 lllvo/'ltid,
RCfT (P4,420.000 x 25") um1l 2 computed as ro11ows.
Pl, 105,000
MCIT /P6.800.000 x I)
/nccm, Tu DtM (hlgt.r I/Tl()Unt) P68.000 - -:;-;--;;;;:;;:~ ..,w th re was ~tale taxPhllipplne
LIMIT 1 (Per Fonlign coun1,y ..,~,e e
paid).
Income lBl
Pf, IOS.()O.!!-
Net Income. pe< foreign country
Net lnconVI' w0lld
, countries involved)
LIMIT 2 or B (Totnl of ALL foreign . x 1'l\lipploe inCOme uu
Net Income. all folelQn countneS
Net income, ~

292 293
 ny opted to claim the income lax paid
th
166_Based on the preceding number but ~:;~ncome tax payable should be: Solution:
abroad as deductions from lls gross lnco ' c. PSS0,000
a. PSS0,000 d. P910,000 Philippines
Gross Income
b. P730,000 P4.000,000
x Tax Rate
2.5%
Income Tax Due/Payable P100,000
❖ Answer: A ~ Abroad Total
P4.000,000 P2,fijij]joo P6,000,000
Gross Income (l,SOO.OOO) (900,000)" 3,400,000 170. If the corporation is a non-resident cinematographic film owner/lessor its Income tax
payable is: ··
Deductions Pl,500,000 Pl,100,000 P2,600,000
Taxable net iKxlme 25% a. P1 ,000,000 c. P300,000
x Tax Rate P650,00() . b. P100,000 d. P128,000
lf'KX!me Tax Due =P750,000 t 150,000 =P900,000..
CD Total OPEX abroadts a"-•A may be deducted from the income tax due or ❖ Answer: A
C:l Income tax paymen Lil""" · f th t
from the QrDS$ income (lreated as OPEX}. at ~e option o e axpayer.
Solution:
III Income Ta~ credit is applicable only to RCs and OCs .
lil II Silent treat the income tax payment abroad as a tax credit ·
Philippmes
Gross Income • P4,000,000
167. If the corporation is a resident corporation, its income tax paya~le is:
x Ta1< Rate 25%
a. P250,000 c. PSS0,000 Income Tax Due/Payable Pt,000,000
b. P375,000 d. P525,000
171. If the corporation is non-resident lessor of vessel, its income tax payable is:
❖ Answer: B
a. P100,000 c. P300,000
Philippines
Gross Income P4,000,000 b. P180,000 d. P128,000
Deductions (2,500.000)
Taxable net income Pt,500,000 ❖ Answer: B
x Tax Rare 25% Phiffppines
Income Tax Due/Payable P375,000 Gross Income P4,000,000
x Tax Rate 4.5%
ill Only RCs and DCs are enlitfed to income tax credit on Income tax payments
abroad. Income Tax Due/Payable PIB0,000

168. If the corporation is a non-resident foreign corporation. its Income tax is: 172. If the corporation is ·3 non-resident lessor of aircrafts, machineries and equipment. Its
a. P1 ,000,000 c. P880,000 Income tax payable is:
b. P1,280,000 d. P1,400,000 a. P100,000 c. P300,000
b. P180,000 d. P128,000
❖ Answer: A
Philippines ❖ Answer: C
Gross Income Philippines
P4.000.000
x Tax Rate Gross Income P4,000,000
25"
rncome Tax Due/Payable P1,000,000 x Tax Rate 7.5%
Income Tax Due/Payable P300,000
169. If the corporation is a resident international carrier its inco t bl · .
a· P100•000 C. PJ?,000 • me ax paya e Is. 173. If the corporation is a proprietary educational insUtutlon. its income tax payable is:
b. P10,000 d. P125,000 p12 500 c. P18,000
~: P1s:ooo d. p21,soo
❖ Answer: A
❖ Answer: B

294 295
 c7d1r(6°(JIU
❖ REGIONAL OPERATING HEADQUARTERS (ROHQs)
SooDC/il.
CREATE LAW
Ph11ippines Abroad Imm
P4,000.000 P2.000,000 P6,000.000 The 10%preferential lax on regional ope t' h
Gross Income {750,000) 3,250,000 to 31 December 2021 Bf"''nn' J. ra mg eadquaners (ROHQ) shall continue up
(2,500,000} • "1!!• inq snuary f 2022 ROHQ h
DedUctlOIIS pt,5()0,0UO Pf,250,000 P2,750,000 considered special corporalions and shall be 5 b.' , s s all no longer be
Ta.u/JM t1ill Income Just like an ordinary resident foreigncorporalion~ Jected 10 regular corporate Income taJt
P2.750,000
Tax.able 1)1){ lllCOl118 1%
r Tax Rate P27.500 BRANCH REMITTANCE TAX
Income Tax Due
Less. INCOME TAX CREDIT
P150.000
Actual payment abroad 12,500
Lim~= 1.250!2.750 x P27,500 178. Which or the following statements is correct?
Allowed (/owe,/
{12,500} a.~ny P'.ofit remlt~ed by a branch office of a multinational corporation to its head office
lnrome Tax Payable P15,000 1s subject to 15 Yo final tax based on total profits applied or earmar1<ed for remittance
without deduction for the tax component.
174. 11 the corporation is a non-stock oon-profi_t educational in~tit_ution whic~ ~ses all its b. Branch profit for purposes of branch remittance tax shall Include interests dividends
revenues or income for educational and charitable purposes, its income tax 1s. rents'. royalties,. !ncluding remuneration for technical services, salari~s. wages:
a. PO c. P120,000 premiums, annuities, emoluments or other fixed or determinable annual, periodic or
b. P730,000 d. P64,000 casual gains, profits, Income and capital gains received during each taxable year from
all sources within the Philippines.
❖ Answer.A c. For purposes of branch profit remittance, income items which are not effectively
connected with the conduct of its trade or business in the Philippines are not
175. If the corporation is a government educational institution which uses all its· revenues or considered branch profits.
income for educational purposes, its inrome tax is: .d. All of the above
a PO c. P120,000
b. P730.000 d. P64,000 ❖ Answer: D

•·· Answer. A 179. If a branch of a foreign corp. in the Philippines remits passive income earned in the
Philippines to the head office, what is the applicable tax on the said transaction?
176. If the corporation Is a non-profit hospital, its income tax payable. is: a. Subject to 30% final withholding tax
a P12,500 c. P18,000 b. Subject to 12% creditable withholding VAT
b. P15,000 d. P27,500 c. Subject to 15% branch profit remittances tax
d. Exempt from branch profit remittances tax
❖ Answer: B; same treatment with a proprietalY educational institution.
❖ Answer. D
1T7. II the corporation is a regional operating headquarters, its Income tax payable is:
a. P150,000 c. P880,000 For purposes of branch profit remittance. incom_e items wflich ara not effocflvety
b. P450.000 d. P525,000 connected with rhe conduct of its trade or business m/he ~hU,pplnes are nor ccnsldflrad
branch profits.
❖ Answer:A
Gross Income P4.000,000
Dedudlons _12.500,000)
Taxable ne/ inw,ne
Pf,500,000
x Tax Rafe
W%
Income Tax Due/Payable P150,000~

296 297
 C111j1>r11 firM ,
. f'ncome made by a branch of a foreign corporation , use the following data for the next three fJ/ J '
180. Which of the following remittances ~~dis subject 10 15% branch remittance tax? in }cCorporation, a domestic corporation had ~~eSl/o~
the Phlllpprnes to its head office ab .
Ordinary Interest income
ca
pital gains Dividend income f
d , ram
Sales e following data for 2019 taxable ear
. from bank a omest1c Cost or goods sold Ps,000,000 Y •
income .
deposits corporation General selling and administrati·ve 2,000 000
· expenses '
Yes No Yes Interest income from Philippine bank d 500,000
a. Yes
Yes Yes No Rental income (net ol 5% withholdl eposit 100,000
b. Yes Dividend Income: ng tax) 190,000
No Yes No
c. No
No No No From domestic corporation
d. Yes 60,000
Fr_om re~ident foreign corporation
Capital gains fr?m sale of domestic shares of 50,000
❖ Answer. D
.s)ocks sold directly to buyer
D1v1d_end declared and paid during the year 75,000
Retained earnings, 12/31/2016 500,000
1,000,000
IMPROPERLY ACCUMULATED EARNINGS TAX (IAET) Par Val~e ?f outstanding shares. 1213112017
500,000
Re ealed / Deleted under CREATE Law Appropnallon for future plant expansion
800,000

181. Prior to CREATE law. _ _ _ _ ls imposed in the nature of a penally to tne corporation 184. How much is the income tax payable for lhe year 2019?
to prevent the scheme of accumulating income rather than distribute the same to the a. P815,000 c. P825,000 .
stockholders for the purpose of avoiding tax on dividends. b. P819,200 d. P899,200
a. Minimum corporate income tax
❖ Answer: A
b. Optlonal corporate income tax
Sales PS.000,000
c. Improperly accumulated earnings tax
Rental income (P190.0<Xll95%J) 200,000
d. Capital gains tax Dividend from RFC - TRAIN Law 50,000
Cost of goods sold (2,000.000)
❖ Answer: C General se/1/ng and edmlnlstrat,ve exf)Dt1ses (500.000)
Taxable Net Income P2,750.000
182. The Improperly Accumulated Earnings Tax (prior to CREATE law) shall not apply to the X 30%
1 Income Tox Due P825.000
following, except?
a. Banks and other non-bank financial Intermediaries •
Loss: cwron re11tat Income (10,000)
Income Tax Payable PB/6,000
b. Insurance companies
c. Publicly-held corporation
185. How much Is the Improperly accumulated earnings tax?
d. Closely-held corporaUon
a. PO c. P212,875
❖ Answer. D b. P108,125 d. P2f.l,625

❖ Answer: C
183. II Is a test used In determining the reasonable needs of a business to justify the
::;~::~;;~~nf: ~
9
;!
1 5
( w~icht wCRillEAexempt the corporation from paying Improperly
pnor o TE law):
Income subJocl to basic lax:
P2.150,000
· Toxoblo nel Income
a. Urgency lest Poss,ve /11como s11b1ocr lo FWT
b. Immediacy tes1 100,000
/11/orost income from BPI
c. Reasonable needs test Tox oxempt incomo
60,000
d. Control tesl Dlvidand Income domos//c corporal/on
lncomo subjocl to CGT 75,000
❖ Answer: B On s/wres of stock
P2,985,000
TOTAL

298 299
 LESS /825.000)
PART 5
8A.('C ,., /IOl,lt ""'die payal# on,y/ (20,000}
Fl\ T Oft NtSSA• ,r,ro,ne (11,250)
CGT (PTS.(1((1 I 151) (500,000}
O\~/)Mll (500,000}
~:aYI (Pa vwe ot oursrandmg shares/
Md 1,000,000
R~ eMWJ9S. t,eg,nMJ9
PZ, 12B.750
1~ 1ltrVJIDPMY i,c;aimulari'd eammgs 10%
114..."T ~
P212,875
JAET

186 Ussig tile same data mtile prereding number and assuming further that lhe taxable year Partnership Defined
is 2021 . how much is the Improperly accumulated earnings tax?

Art. 1767 of the New Civil Code defined partnership as • a contract whereby
a PO c. P212.875 two or more pers?ns bind themselves to contnbute money, property, or Industry co a
b P108.125 d. P213,625 common fund, with the Intention of dMding the profits among themselves". Twi, or
more persons may also form a partnership for the exercise ofprofesslorf.
❖ Answer. A
IAET cs 110 lo!lger imposed un:!e. CREATE law. Partnership has a juridical personality separate and distinct from that of each
RR 5-2021 proYldes that the ,mpmperiy accumulated earnings tax shall no longer be of the partners. It may be constituted in any form, except where Immovable property
~ or, axporatJons upon the effectivily of the CREATE onwards. This shall apply or real rights are contributed thereto, in which case a public Instrument shall be
io lhe eflllf8 taxable .,e;r; lot aDfi..scal yearsllaxable years ending after the effec~vity of necessary.
CREATE.
For taxation purposes, Partnership is generally taxable as a corporation under
187. (Based on iltustrat10n from RR ~2021). JDS Corporation, a domestic corporation, has Section 22 of the Tax Code, as amended.
in.ppropri.,_-md retained earnings in excess of its paid-up capital stock amounting to
P20.000.000 and P 50,000,000 as of the fiscal years ending June 30, 2020 and June 30, Sec. 22 of the Tax Code, as amended provides:
2021. respectively. \Alh1ch of the following statements is correct?
CORPORATION SHALLINCLUDE:
1) One Person Corporations (OPCs);
a.JDS CorporatJOn shall be subject to the 10% improperly accumulated earnings tax as 2) Partnerships, no f118tter how createdor o,gmlad;
of June 30. 2020. 3) Joint stock companies:
b. JDS Corporation shall be subject to the 10% improperly accumulated earnings tax for 4) Joint accounts (cuentas en participaciln):
fisraJ year ending June 30. 2020 and June 30, 2021. 5) Associations: or
6) Insurance companies
c. JDS Corporation shall be subject to the.10% improperly accumulated earnings tax for
fiscal year ending June 30, 2020 and from July 1, 2020 up to April 1O, 2021 (prior lo But does NOT INCLUDE:
the effectrvity of CREATE law. ti Generalprofessionalpartnershfps;artf .
d. None of the above 2) A joint ventures or consortiums to,med for !he purpose of underlaklng.
a. Construction projeds: or 1lons 110
❖ Answer. A b Engaging In petroleum ooal geolhem13l and olher energy opera puBUall
• • • • t nder a seMca conlrad WIii> !he
an operating or consornum agreemen u
government
RR 5-202l provides_!hat lhe improperty accumulated earnings tax shall no longer be
if11POS€d on CQrpOrations upon lhe effeclivity of the CREATE onwards. This shall apply
to the entire taxable year for all flscal Y&al'lltaxable yaars ending after the eftectivity
fl CREATE H<J:Ne-ie!. JDS Corporation shall no longer be subject 10 lmpropel1Y
liCOJIIIUlated earnings tax lot the entire fiscal year ending June 30 2021 which Is after
n>e effectMty of CREATE. ' '

300 301
 Prrru10:,lj,
The GPP and the Partners may claim lhe followln .
t..1NOS OF PARTNERSHIP lheir option: 9 types of dedlJClions from gross Income. al
1) Itemized Deduction; or
I) Gener.JI ProfesS!Ona/ PartnershfpS (GPP) 2) Optional Standard Deductlon (0S0)
1 Partnership Is a partnership formed by persons
A General Prof~':!ir common profession, no part of h1corne of which
rd
for the purpose or exe s "~n trade or business·. A GPP Is also known as a SAMPLE COMPUTATION OF A PARTNER'S DISTRIBUTIVE SHARE INT
Is derived from engaging GPP Is not a taxable entity for Income tax purpos!!S HE NET INCOME OF AGPP:
Professional Partn~rshlp. ~passed-through" entity where Its income Is ultimately
since It Is only acting as a
taxed to the partners comprising It (RR 8·2018).
Gross lncome-GPP
Under Section 26 of the Tax Code and pertinent revenue regulations, a Nlowable deduclions
GPP is not subject to Income tax and consequently to creditable withholding tax. Net income-GPP Pa0,000 o.ooo
p2
However, a GPP Is required to file Income tax return for_the purpose oflfumlshlng x Partner's P&L % 50% P700.000'
information as to the share or each partners In the net income of the partnership Share in Income - Jip3,i'Q.iii~tioooiiil- -,;-P4;;;0~,00;;;;0:-----=~50
~%L_
which each partner shall Include in his individual Income tax return. For this 'Total Oislribulable Income or lhe GPP
1
P 0,000 PJso.ooo·-
purpose the net /nrome of a GPP shall be computed In the same manner as a ..Sample Profit and Loss rallo
corporation. It shall be noted, however, Ulat the tax exemption of GPPs shall '"Total Oislribullve share or a Partner
pertain only to its ordinary Income. Thus, a GPP is subject to final withholding
taxes on Its passive Incomes as well as capital gains tax, if applicable.
Sam le Com ufalion of3 Partner's .Taxable Net Income:
Gross compensation Income Of any) P800,000
PARTNERS OF GPP Gross business income (if any) 2,400.000
Allowable deductions from gross business income (1,200,000)
Toe Partn~ shall be liable for income tax only on their separate and Share In the Net income of a GPP"' 300,000
incflVidual capacities. Each partner shall report as _gross Income his or her Partner's Taxable Nellncome P2,300,000
distributive share (actual or constructive) In the net income of the partnership.
Income payments made periodically or at the end of the taxable year made by a NOTE: " 'The other incomes (passive incomes subiect 10 FWT and capital gains subIect 10 cGn ol
GPP to the partners, such as drawings, advances, sharings, allowances, stipends, a GPP as shown above are not included in the compulatioo of a Partner's Iaxable nel Income
etc., Is subject to creditable withholding tax as follows: because those incomes were already subjected to e•lh€r final Yollhhold1ng laXes on passrve Income
or capital gain lax. Only the FIJ00,000 share 111 !he GPP's ,ncome from operations shall bo included
Gross income for the current year CWT Rate (RR 11-2018) in lhe income tax return of a partner
Not more than P720,000 10%
More than ~720,000 15% 2) Taxable Partne1?hips

Partnerships (other than general professional partnerships, whether

OISTRlBUTIVE SHARE OF THE PARTNERS registered or not), for income taxation purposes, are considered as corporations
and are therefore taxed as such. Consequently, partners are cons/de;ed
For purposes of computing the distributive share of the partners, the net income shareholders, and therefore, profits distributed to them are considered as
of the partnership shall be computed In the same manner as a corporation. dividends subject to final withholding tax. Being a final tax, the share of a partner
(Sectlon 26 of the Tax Code)
in the net Income of a partnership subject to tax is not returnable In the partner's
FORMULA: personal Income tax return. Distributive Share ls equal to each partner's
Gross income distributive share of the net Income declared by the partnership for a taxable year
Pxx netof tax.
Operating expenses 'Pan or
Net income ro1urnablo
Add: Other tax exempt Income
xx· Income of ll1e TYPES: .
xx" part/\ers. • General co-Partnerships _ are partnerships, which by. law ~re assimilated
Passive Income subject to final taxes (net) within the context of, and so·legally contemplated as corporations.
xx"
Capi1al QaJnS subject to capi1al g · lax ..Noo-rel~t,ie
'IX" Unregistered business partnerships
DISTRIBUTABLE INCOME of lhe pa~~:hi (nel) lncomo of the
x Profit and Loss Percentage of a partner P Pxx Unregistered joint ventures
part/\OJS.
, DISTRIBUTIVE SHARE of a !1;!rtner x%
Pxx

302
303
 P!l1Vter..so/
. h ·ncome of a GeneraVComme1tialffaxable Partnershin
Computat/on of DISlribur/ve Share ,n r 8 ne11 ,..
ALLOWED DEDUCTIONS TO PAR
Pxx DISTRIBUTIVE SHARE IN ARRIVINGTNERS of a GPP FROM THEIR
Gross income
Allowable deductions.loperating expenses ~ AT NET TAXABLE INCOME
xx The followlng rules shall govern the eta·
Net Income _Jxx) 0 1th
share in the net income of the partne~~ 1 e partners of deductions from their
Less: Corporate Tax xx Ip ,RR No. 8-2018j.
Net income after corporate tax
xx A GPP may claim either the Itemized d
Add Tax exempllncome xx
Passive Income subject 10 final taxes, (net) the Tax Code, as amended or IN LIEUeducttons allowed under Section 34 of
Capital gains subject lo CGT, (net)
xx allowed to corporations in claiming ~ereof, It can opt to avail of the 050
DISTRIBUTABLE INCOME of lhe Partnership
Pxx exceeding forty percent (40%) of Its g el deductions In an amount not
x% • ross ncome.
x Profit and Loss Percentage of a partner --subject to final
Pxx"• In computing taxable income defined d 5 .
DISTRIBUTIVE SHARE of a partner withholding lax on amended, the following may be allow~:se~ed~~';;/ of the Tax code, as
I dividend Income
a. Itemized ex~nses which are ordinary and necessary, Incurred or paid
for the practice of Profession; or
SAMPLE COMPUTATION OF A PARTNER'S DISTRIBUTIVE SHARE IN THE NET INCOME OF AGP: b. Optional Standard Deduction (050),

Income from Passive incomes Capital gains The .share in the net income of the partnership, actually or constructively
Op~ral1ons net of FWTx net of CGTs TOTAL received, shall be reported as taxable income of each partner. The partners
Gross Income-GP P1 ,000,000 comprising the GPP can no longer dalm further deduction from their
Allowable deductions (400,000) distributive share In the net Income of the GPP and are not allowed to avail
Net income-GP P600,000 of the 8% income tax rate option since their distributive share from the GPP
30o/o RCfr (180,000) is already net of cost and expenses.
Net Income after Tax P420,000 P80,000 1220,000 P520,000"
x Partnets P&L •,1, 50% 50% 50% If the partner also derives other Income firom trade, business or practice of
Share In Income P2f0. 000 P40,000 P10,000 P260,000'" profession apart and distinct from the share in the net income of the GPP, the
'A General Partnefship is subject to RCIT or MCIT, whichever 1s higher deduction that can be claimed from the other Income would either be the
..Total Distnl>utable Income of the GP itemized deductions or OSD.
-rolal Dlstnbutive share of a Partner. The partner's share is trea~ed as dividend Income from
a domestic coll)Oratlon. hence. subject to final withholding tax on dividend income.
Consequently, tlus amount shall NOT be lnduded In the Partners ITR.

Sam~ CcmoutaUon ofa Partner's Taxable Net Income:

Gross compensation income (if any) PB00,000
Gross business income 2,400,000
Allowable deductions from gross business income (1,200.000)
Share in lhe Net income of a GP NA
Partner's Taxable Net Income P2 000 000

304 305
 S. Which of lR
he f?llowindg statements is raise?
QUIZZER a. egIs1ere general professional par1 , .
b. A partners' share in the net profits ~erahips are SUbJect lo income tax.
0
compensation Income. a general professional partnership Is not
Choose the letter of the correct answer. c. A limited partnership is considered lo ta
partnerships thereof likened to stoci<.hol; x purposes, a corporation and U1e
1. Partnership Is rormed by persons ror the sole purposfroe or exerci.slng. their common
d. Tax Income taxation rules application 10 ers. . . .
profession. no part of the income of which is derived m engaging in any trade or partnerships. corporauons likewise apply to Informal
business
a. Joint venture . ❖ Answer: A
b. General proressional partnership
c. Trading partnership
d. Joint accounts 6. A taxable partnership may be subject lo the following taxes·
I. Minimum corporate income tax ·
II. Regular corporate income tax
❖ Answer: B
Ill. Improperly accumulated earnings tax.
2. A general professional partnership is exempt from income lax, but is required.lo file an a. I, II and Ill c. I and Ill only
income tax return b. I and II only d. I only
a. For statistical purposes.
b. Because the net income of the partnership will be traced into the income lax ❖ Answer: B
return of the partners.
c. Because all income earners are required lo file income tax returns. 7. Which of the following statements is incorrecn
d. None of the above. a. Ageneral partnership in trade is not taxable as a corporation.
b. A joint venture for undertaking construction projects is not taxable as a corporation.
❖ Answer: B c. A consortium for energy operations pursuant to an operating consortium agreement
under a service contract with the government is not taxable as a corporation.
3. For purposes of taxation, partnership is d. A co-0wnershlp where the activities of the co-owners are limited lo the preservation
I. Classified into two major categories, partnership in trade and general of property and collection of income from the property is not taxable as acorporation.
professional partnership.
II. Partnership in trade is treated as corporate taxpayer. ❖ Answer: A
Ill. General professional partnership is exempt from income tax
a. I. II and Ill c. I and Ill only 8. When their parents died, Romeo and Juliet inherited five (5) hectares o( land in lsabela.
b. I and II only d. I only They decided to Invest capital and developed the land into a subdivision, with small lots
being sold either on installment or cash basis
❖ Answer:A 01: Have they formed an unregistered partnership subj~ lo~? .
02: Are they subject to final tax on their respective share Inthe income of the partnership?
4. Statement 1: All p~rtnerships are taxed in the same manner as corporation. a. Yes, No c. Yes, Yes
Statement 2: The income of a general commercial partnership is also subject 10 MCIT or b. No, Yes d. No, No
Regular Corporate Income Tax whichever is applicable.
a. Statements 1 &2 are false
b. Statement 1 is true but statement 2 is false
❖ Answer: C , lo 1h classified
0 Th , rta' •ng to practice of common pro,ess n, us,
c. Statement 1 Is false but statement 2 is true e partnership 1s no1pe im taxable as corporation. Share InIncome of
d. Statemerits 1and 2 are true as general or commercial partnership, • Istrealed as dividend income from
a general.partnership or comCome~fya~;~ !ers are subject to FWT 011 dividend
a domestic corporaLion. nseq. ' rshi
❖ Answer. C Income on their share in lhe nel income of tile partne p.

306
307
 Pari-;u1:>"f /"'
P1uf11ersluj
. A nd a Denl1st may form a GPP or an_or?lnary partne~hlp. 12. Statem~nt 1: For purp?ses of computing the dlslribuli /
9. Statement ~: AP CP rsh
a . .nd Corporation have separate 1und1cal personahlies distinct professional partnership, the net income of lhe ve ~are of the partners of a general
Statement r.: artne Ip a manner as a corporation. partnership shall be computed in Ille same
from the owners. Statement 2: Partners of a taxable partnersh·
a. Statements 1 & 2 are false
b Statement 1 is true but staJement 2 is raise distributed lo them by the partnership are co:i~re :nsld~r~d as shareholders and profits
a. Statements 1 & 2 are false er as dlVldends.
c. Statement 1 Is false but statement 2 is true
d Statements 1 and 2 are true b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but slatemenl 2 is true
d. Statements 1 and 2 are true
❖ Answer: C .
o Statement 1 IS false. They can only form an ordinary partnership, not a GPP
because !hey have different professions. ❖ Answer: 0

1o. Statement 1: A Partner of a GPP is not required lo include in his personal gross income 13. The partner's share in the profits of a general professional . .
his share in the distributable income of the GPP received by the partners although not yet distnbuted This partnership is regarded .as
Statement 2: Corporations may form a taxable partnership but not a GPP. under the Tax Code is known as: concept of income reporting
a Statements 1 & 2 are false a. Installment basis of reporting income
b. Statement 1 is true but statement 2 is false b. Accrual basis qf reporting income
c. Statement 1 ls fulse but statement 2 is true c. Constructive receipt basis of reporting income
d. Statements 1 and 2 are true d. Hybrid method of reporting income

❖ Answer. A ❖ Answer. C
o Statement 1is false.Share inthe income of a GPP Is a returnable iocome or
ordinary income which shall be included in the partner's ITR.
14. ~(atem1:nt 1: If the amo~nt to be distributed to a partner of a GPP is more than P720,000.
II 1s subject to 15% creditable withholding lax.
◊ Partnership IS a contract. II is perfected through meeting of the minds.
Consequently, corporations and other juridical persons cannot form a partnership Statement 2: The share of a partner in a GPP is subject to final withholding tax of 10% if
because they are incapable of giving consent However, juridical persons may the amount is below P720,000.
form ajoint venture. Statement 3: The distributive share or a partner in a commercial partnership Is subject to
final tax.
11. Statement 1: The distributive share of a partner in lhe net income of a taxable a. Statements 1, 2 and 3 are false
partnership Is equal to each partner's distributive share of the net income declared by the b. Only statement 3 is false
partnership for a taxable year after deducting the conresponding corporate tax. c. Only statement 2 is false
Srarement 2: If a taxable partnership sustains net operating loss, the partners shall be d. Statements 1, 2 and 3 are true
entitled to .deduct their respective shares in the net operating loss from their individual
gross income. ❖ Answer: C
a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false !5. Statement 1: AGPP shall not be subject to Income Tax.
c. Statement 1 is false but statement 2 is true Statement 2:Income payments to a GPP shall be considered exempt from withholding tax.
d. Statements 1 and 2 are true a. Statements 1 & 2 are false
b. Statement 1 is true but statement 2 is false
❖ Answer. B c. Statement 1 is false but stalement 2 is true
◊ Statement 1: Since the partnership ts a taxable partnership, the dislributable d. Statements 1 and 2 are true
share shall be the Income after deducting the regular corporale Income tax.
O Stateroonr 2: Unlike in a general partnership or commercial partnership, 1he ❖ Answer: 0
partner's share in the net Income or loss of a GPP Is Included In the returnable
lnrome of the partners.

308 309
 /"'

Prr1i11e,:.lf,)
❖ Answer: B /
o Share in income of aGPP is lfeated 0rd .
Share in Income of a GP istreated as lnary 1~come subject lo basic tax.
16 Which or the following options is correct? Part of distributable Returnable ~ subject to a final withholding lax. as adlvideod income. aPassive income.
income of the income of the 9'fu
partner partner
19_ Statement 1: Co-ownership and partnership are similar a ..
Statement 2: Corporations and ordinary partnerships a s_to taxabihty.
SHARE IN THE INCOME OF a. Statements 1 and 2 are false 1
re simi ar as to taxability.
GPP: Yes b. Statement 1 is true but statement 2 is false
Yes No
a From its operations Yes c. Statement 1 is false but statement 2 is true
Yes No
b. From its passive income No d. Statements 1 and 2 are true
No No
C. From its capital gains subject to
CGT No ❖ Answer: C
d. From its tax exempt income Yes No
O Statement 1 is false Co-ownership isnon-taxable whilea artn rshl I
taxable as corporation. P e P s generally
❖ Answer: D O Statemenl 2 is true: Ordinary partnership°' general partnership, for income
,> ·A" is incooect. Share in income from GPP's operations is subject to CWT.
taxation purposes, 1s taxable as a corporation.
o -a· is Incorrect. Share from the GPP'spassive income is non-returnable Income of
Ille partner
o ·c· Is incooect. Share in GPP·s capital gains subject to CGT is part of lhe 20. Statem_ent_ 1: Under RA10963, an individual partner of a GPP applying optlonal standard
dislributable Income of the partner. deduction 1s not allowed for any deduction on his distributive shares.
Statement 2: Under RA10963, an individual partner of a GPP may avail of 8% tax on his
17. Which or the following options is correct? distributive share, in lieu of graduated tax rate.
Part of distributable Returnable Subject to a. Only statement 1 is correct
income of the income of the FWTx b. Only statement 2 is correct
partner partner c. Both statements are correct
d. Both statements are incorrect
SHARE IN THE INCOME OF
COMMERCIAL PARTNERSHIP: ❖ Answer: A
a From its operations Yes No No
b. From its passive income Yes No Yes
21. Statement 1: GPP's may claim the 40%OSD in the detennination of dislrlbutable Income.
c. From its capital gains subject to No No No
Statement 2: A GPP is subject to Income tax.
CGT
d. From its tax exempt income No a. Only statement 1 is correct
Yes No
b. Only statement 2 is correct
❖ Answer: B c. Both statements are correct
O :A: is l_ncorrect. Share inlnrome from GP'soperahons is subject to FWT. d. Both statements are incorrect
O C Is incorrect. _Share from the GP's capital gains subject to CGT shall be part of
the dlslnbutable income and shall be subject to FWT ❖ Answer: A
0 1)" Is lnCOIT8CL II shall be subject lo FWT ·

l 8. Statoment .1: The share ol the partner in the gross income of the GPP is added to his
own gross income.
Slatemen1 2: The share of the partner in the net income of a GPP Is also considered 22· Mr. Diaz Is a partner or DMZ Partnership, a general profe~~o~a~~~~~~rso~~- f~~~:~!
pass1ve 1ncome. P2
25%Interest. The gross receipts of the Partnership a_moun e ~s w~re 760 000 and
a Statements 1 & 2 are false Year 2021. The recorded cost ol service and 0 ~~unr90 0
e;ge~ much Is the n~t Income
b. Statement 1 is true but statement 2 Is false P1,500,000, respectively. If the partnership ava 8 •
c. Statement 1 is false but statement 2 Is tn.ie for distribution to partners?
d Statements 1 and 2 are true c. P4 ,350,000
a. P2,750,000
b. P2,900,000 d. PS,750,000

310 311
 Prtrote/:St;
0 The dlslributable ne1 income 01 lhe /
itemized deductions or OSO The sh:~e::.eh:p may be determined by claim.ng etlhe,
constructJvely received, shall be reponed as net lllCOme ol Ille partnership, actually or
I
❖ Answer: C Pt0.000,000 0 II silent, assume lhe use of ilemlied deductJooa.Gble income of each partner
Grossl!lC8JP/S (2.750,000)
Less. C-OSI d .saMCeS
Gross Income
Pl.250.000 26_ How much is the income tax due of the Partnership?
Less. OPEX (Pl.lfJ0.000 J f0%)
(2.900.000) a. PO c. P1 ,087,500
N,t incOfM for distribution to pJ/fnefS
P',JSQ,000 b. P870,000 d. P1,305,000

(I NOlE The ele(:tJOrl of OSD is irrevocable fOf the taxable year. ❖ Answer: A

23. How much is the income tax due of DMZ Partnership? 27. How much is the income tax due of Ms. Real?
a. PO c. Pl,087,500 a. P86,250 c. P216,250
b P870,000 d. Pl,305,000 b. P130,000 d. P321,250

❖ Answer: A ❖ Answer: D
Share in distributive profit. (PS,7fJ0.000 x 25%) P1,437.fJOO
24. How much is the inaxne tax due of Mr. Diaz? Tax Due:
a. ?86250 C. P216.250
OnPB00,000 Pl30,000
In excess of P800,000;
b. P130.000 d. P321.250
(P1,437,500-800,000 x 30%) 191.250
Net income for distribution to partners P32f,250
•:• Answer: C
Shara i'I distli>uwe profit. (P4,350.000 X 25%) P1,087,500
0 Individual partners are not alkMed to claim further deduction from its distributive share
Tax Due:
since their share is already net of C05tS and expenses (RR 6-2018).
On PB()0,000 P130,000
o The partners are not allowed to avail or the 8% ino:Jme taX rate option since lheir share
In excess ofPB00.000;
from GPP is already net of costs and expenses.
(P1,087.SOO- 800,000 x 30%) 86,250
Net income for distribution to partners P216,250
28. Statement 1: A general professional partnership is exempt from income tax.
Statement 2: A general professional partnership is exempt from business tax.
0

0
=
lnarvldual partners are nol allowed to daim further deduction from its dislribufive share
!heir snare IS already net of costs and expenses (RR 8-2018).
The pattnerS are oot allowe<I to avail of lhe 8% Income lax rate option since lheir share
a. Only statement 1 is correct
b. Only statement 2 is correct
from GP? IS alr!!ady net of costs and expenses. · c. Both statements are correct
d. Both statements are incorrect
COMPUTATION OF GPP's DISTRIBUTABLE INCOME USING ITEMIZED DEDUCTION ❖ Answer. A
25. Ms. ~eal is a partner of RPT_Partnership, a general professional partnership, and owns t
29. Statement 1: Individual partner is not allowed to claim further deduction from his diS ributive
25o/o mteresl The gross receipts of the Partnership amounted to P1 o000 ODO for taxable share since this is already net of cost and ~xpenses. . . . .
year 202l. The ret?rded cost of service and operating expenses w~re P2,750,000 and Statement 2: A partner is not allowed to avail of the 8%income tax rate option since their
Pl,500.000. respectively. How much is the net income for distribution to partners? distributive share from GPP is already net of cost and expenses.
a. P2,750,000 c. P4,350,000
b. P2,900,000 d. PS,750,000 a. Only statement 1 is correct
b. Only statement 2 is correct
••• Answer: D c. Both statements are correct
Gross receipts d. Both statements are incorrect
P10,000,000
Less: Cost ofservices
(2,750.000)
Gross Income ❖ Answer: C
Less: OPEX (itemized) Pl,250,000
(1,500,000}
NIii Income for dlstrlbllfion to partners
PS,750,000

312 313
 ;:j~ljlfHi!:jjl:jli!?•)~iiiJl:\ljt•!:jl:jjN❖U,13 COMPUTATION OF RCIT AND MCI

!fte the following data for the next three /3/ questions·
. f T •p1e R Partnership a partnership in trade, and owns 50% TGT & Co. is a general partnership in trade and on its fifth .
30. Mr. Reyes is a partner, o O1"1h Partnership a~unted to P25,000,000 for taxable year
interest. The gross sa es e • e e P12 500 000 taxable year, it had a gross profit from sales and busine year of operaUons. Dunng 2020
2021 The recorded cost of sales and operating expen_ses w_r • • and Pl 0,000,000. respe~tively. The partnership assets amount:~ t~X'i;enses of P20,000,000 and
. 000
P5 280 tivel . How much is the net income for d1stnbutlon to partners? and T share equally m the profits and losses of the partnership. S0,000,000. Partners T. G.
• • . respec Y 000
a. PJ,062.500 c. P7,250,
b. P5,437,500 d. P12.250,000 34. The income tax due of the partnership should be:
a. P2,000,000 c. P2,750,000
❖ Answer. B b. P2,500,000 d. P3,000,000
Gross race/pis P25,000,000
Less: QJs1 ofservices (12,500,000) ❖ Answer: C
Gross Income P12,500,000
GP's Gross /1JCOm9
OPEX (5,250,000) OPEX P20,000.000
Net income Pl,250,000 (10,000,000)
Less: RCIT (CREA TE Law) @ ~
Net income
(1,812.500) Pt0.000.000
N~t iflCOl'M for dislnbution to partners PU37,500
RCITunderCREATE
P2, lfi0.000
(transitory period); P10M x 21.5%
o The RCIT rare to be apphed under the CREATE law should be 25% instead of.20% for
MSME be<:ause the net income e ~ the threshold of P5.000,000.
MCIT(P20M x 1.5%) P300.000
31. How much is the share in income of Mr. Reyes? Income Tax Due (higher) P2.150,000
a. PO c. P2,718,750
b. P1 .359,375 d. P5.437,500 O For taxation purposes, Pat1nership In tract;;Jbus.lness Of General Partnersh,p (GP) Is
taxable as ordinary domestic corporation (Sec. 22 of the Tax Code, as amended}.
Consequently. ti is atso subject ro MC/T
❖ Answer: C
0 Although the assets of the Partnershrp ilfB no1 more than the PI00.000,000 threshold.
o Share;, cflStribuwe profit (P5.437,500 x 50%) =P2.718,750 the applicable RCIT rate under the CREATE Jav, from July I. 2020 sl>outd be 25%
because the net income exceeded the threshold of P5,000,000.
32. How much should be withheld by the Partnership in the share in income of Mr. Reyes? O The RCIT rate for DCs not classified as l/S!.IE dvnng the rransifion period is 17.~. the
a. PO c. P271,875 average of 30% RCIT under TRAIN Jaw and 253' RC/T under CREA TE law.
b. P135,938 d. PS43,750 O The MC/T rare for dunng the (rallSl!ion penoa JS f.5%, the ewrage of 2" MCIT under
TRAIN law and 1% under CREATE law
❖ Answer: C _
35. The income tax payable of the partners as a consequence of being a partner in the
o The shara in income of Mr. Reyes from the general partnership, actually or
Partnership is:
conslruclive/y ~ived. is treated as dividend Income from a domestic corporation
subjed to 10% final wilhhokfuig tax on passive income. a. PO c. P770.000
b. P680,000 d. PB00,000
33 How much is the income tax payable of Mr. Reyes?
a. PO c. P271.875 ❖ Answer. A
b. P135,938 d. P543,750 ◊ The share of the partners mthe llflt r,comeofa GPrsttearedesa.V>dendrncome, suo,ea
nt received by the partners ,s slready ner ol the appbcable
❖ Answer: A to FWT. As such. the amou . . FWT coostilute fvN payment of the rax due
5
final tax on the Income they_received. mcetax on //Je,r share in ilcom& of the GP.
0 the partners are no longer liable to lllCOl7l8
The share ofthe patfnm Ill the net IIICOme ofa GP is treated as dividend income. subjed
~~ ~~::"· rhe amount re_celved .by the partners Is already net of the applicable 36· Assume the taxable year is 2021, the Income tax due of the partnership should be:
the 818lllCOme they rece,vect. Smee FWT conslJtute full payment of the tax due.
partners no longer fiable 10 income tax on their share In inrome of the GP. a. P2,000,000 c. P2,75.000
b. P2,500,000 d. P3,000,000

❖ Answer: B

314
315
 Solution:
Interest income from bank dePoSif (P200
000
Solution: P20,000,000 Interest income from FCDS deposh (P280 ~ 20%J P40,000
GP's Gross Income (10,000,000) FWT on Passive Income ' x 15%) 42.000
OPEX P10.000.000 P82.0QO
Net income
P2,500,000 39 _ How much is lhe distributable income of the Partnershi ?
RC/Tunder CREATE: /PI0,000,000 x ;5%) a. P992,667 c. P2,578,000 p
P200,000
MC/Tunder CREATE; /P20,000,0f)O x f~) b. P1 ,019,333 d. P2,978,000
P2,500,000
Income ra.x Due
❖ Answer: D

Solution:
ORDINARY INCOME:
Service Revenue
P4,490.000
m
Use the following data for the next seven questions: _ Cost of services
Rental income
(1,610,000)
Garcia. Ramos. Toribio and Co.. CPAs (GRT & Co.) are partners of an accounling firm. The 500,000
2020 financial records of the finn disclosed the following: Gross Income
P3,380,000
Service Revenue P4,490,000 Operating expenses
{800,000)
Cost of Services 1,610,000 Net Income from Operations
P2,580,000
Operating expenses 800,000
Rental income 500,000 PASSIVE INCOME SUBJECT TO FWT;
Interest income from bank deposit 200,000 Interest income .from bank deposit, net of FWT 160,000
Interest income from from FCDS deposit 280,000 (P200,000 X 80%)
Partnership assets 68,000,000 . Interest income from FCDS transactions, net of FWT; 238,000 398,000
(P280,000 X 85%)
Ramos is also engaged in business with the following data for the year.:
CAPITAL GAINS, net of CGTs
Gross Sales 122,500,000
Cost of Sales 1,250,000
TOTAL DISTRIBUTABLE INCOME OF THE GPP P2,978,000
Operating expenses 550,000

37. How much is the income tax due of the Partnership? ◊ Distributable income refers to the total income of the partnership from all sources
a. PO c. P645,000 which are available for distnbution to lhe partners. It may come from lhe
b. P516,000 d. PTT4,000 partnership's ordinary Income. passive income as well as capital gains. net of laxes.
if applicable.
❖ Answer: A
4o. How much is the distributive share of each partner in the total income of the GPP?
O The part/lership 1s classified a General Professional Partnership (GPP). GPP is NOT
included in lhe ~rimuon of Corporation under Section 22 of lhe Tax Code, as amended. a. P992,667 c. P2.57B,OOO
Consequenlly, ~ 1s not taxable as a corporalion. b. P1 ,019,333 d. P2,976,000
0
In general, a GPP is exempt from income tax on Its ordinary income Income tax due
generally refers to inccme tax on ordinaiy Income. Nonelheless a GPP Is subJ'ect 10 ❖ Answer: A
other taxes such as FWT on pass· · •
of a closely held corpo u dive income and_CGT on gain on sale ot shares of stocks
ra on an on real properties located in the Philippines. Solution:
Total distributable income ofthe GPP P2,978,000
38. How much is the total final withholding tax due of the Part h' ?
a. PO C. P42,000 n~rs IP. Divide by no. ofpartners 3
b. P40,000 d. P82,000 Distributive share of each of the partner P992,667

❖ Answer. D ◊ Unless proVJded otherwise, lhe dislnbulable income of the partnership shall be
divided equelly.

316
317
 f Ramos during the year? 0 Basis of OSD:
41. How mud1 is the taxable Income~ 560 000 For corporations lncludln
a P860 000 c. ' ' For Individuals. estales a~r:rshlps (GP or GPP) - gross Income
b: Pl .510,000 d P2,5BO,OOO s 5 - gross sal0s and/or receipts
0 The intention to use oso shall be 1 •
❖ Answer. C quarter of the taxable year otherwiS: ~i"Jfi~ In the Income lax rolum for 'the firsl
1
0 Once the election to avail ~f OSD or e~ zed deductJon shall be applied
11
~OM RAMOS' OWN BUSINESS: shall be irrevocable for the taxable ea~Tized ~eduction Is signified in the return. ii
P2,500,000
Gross Sales same type of deductionmust be coisist o~ wh~_the return Is made. Meaning. the
Cos/ of Sales
(1.2so.oool returns for lhe taxable year. en Yapp ied for all lhe succeeding quarte~y
Pl,250,000
Gross Profit (PSS0,000)
Operating expenses 43. How much is the taxable income of Ramos assuming the Part h' dR
Net ,ncome from business
P700,000 use Optional Standard deduction? ners 1Pan amos opted to
a. P1 ,376,000 c. P1 ,692,000
P2,580,000
Net ,ncome of the GPP b. P1 ,426,000 d. P2.176,000
Divide by number of partners 3
Share of Ramos In GPP's net income P860,000 ❖ Answer: D
TOTAL TAXABLE INCOME OF RAMOS P1 15601000 Solution:
Share of Ramos in the orrfinary Income of the Pf376.000
0 The partners' share in the other income of the GPP (i.e., subj. to FWT and CGTs) GPP under OSD /refer to the preceding number/
are NOT shown in the income tax return of the partners (non-returnable Income).
FROM RAMOS' OWN BUSINESS
42. How mud1 is the taxable income of Ramos assuming GRT & Co. opted to use Optional Gross Sa/es P2.500,000"
Standard Deduction (OSD)? Less: OSD (P2.5M x 40%) (1,000,000)
a. P1 .376,000 c. P1 ,692,000 Net Income from own business of Ramos using 1,500,000
b. P1 .426,000 d. Pl,860,600 OSD
Taxable netIncome ofRamos under OSO .P2,176,000
••· Answer. A
◊ "The basis of OSD for Individual taxpayers is Gross Sales or Gross Receipts
GPP's Gross Income P3,380,000
Less: OSD /operating expenses): (1,352,000)
P3,380,000 X 40% 44. TG Partnership reported net income before tax from trading amounting to PB,000,000
GPP's Net Income under OSD P2,028,000 during 2021 taxable year. The other income included interest income of PB0,000, net of
Divide by no. of partners 3 20% final withholding tax and dividend income from domestic corporation of P200,000.
Share of Ramos in the ordinary income of tile GPP P676,000 Assuming T and G share profits and losses equally, how much is the final withholding tax
Add: Ramos' own net income 700,000 on lhe distributive share of Tin the earnings of the partnership?
TaulJ/e Net /nC()(Tl8 ofRamos Pf,316,000 a. PO c. P300,000
b. P250,000 d. P314,000
O In computing the net taxable income, the Partnership as well as the partners ~y
choose between itemized deduction or OSD. Unless stated otherwise. ite1111zed
deduction shall be applied. ❖ Answer: D
Solution:
GP's net profit before tax PB,000,000
Less: Income Tax Due (PBM x 25%) (2,000.000)
Ontional Standard Deduction I Itemized Deductions ~ P6,000,000
GP's net Income alter tax
AJ the option of the taxpayer Applicable, in general 80.000
In ieu of itemin:d deduction Interest income net ofFWr
On a per item of expense basis 200,000
Irrevocable 101 the taxable year DMdend income (tax exempt)
6.280.000
40% flat rate Total dislributable income 2
Generally no limit as to amount Divide by number of parlners
No subslanllatlon requirement P3, 140.000
Substantiation is required. Share in income of fhe_GP /per partner)
Tradelbusiness/profession 10%
related
Trade/business/profession relaled x tax rate
FWT' on the distnblltlve share of T

318 319
 . rtnership sharing profits and losses in the
45. Juan and Ponce are partners In a business ~ses of the partnership for 2021 taxable year
ratio of 55:45. Toe data on Income and expe Use the following data for the _
next four /4/ questions:
were as follows: P?,500,000 -=
Gross income 3,000,000 8MPartnership is a commercial partnership formed by Borromeo d M
· ' 4th year of operations,
. an arquez. The results
of operations ,or year 2021 ' ·1
I s were as follows.
Operating expenses . rporation 200,000
Partnership
Dividend received from 3 do7s~cf;eign corporation 350,000 Gross Sales
Dividend received from 3 resi 7 1,000,000 Cost of sales
25,000,000
Interest income on bank deposit 28,000,000 10,000,000
Salaries expense 3,800,000
Partnership assets Rent expense 1,650,000
f final taxes withheld on the respective shares of Utilities expense 175,000
Whal are the correct amounts O . • Depreciation expense
Juan and Ponce in 2021 partnership income? 120.000
Miscellaneous expenses 48,000
Juan Ponce
P173,250 Personal Income and Expenses of the partners:
a. P211.750
281,875 230,625 Borromeo Marouez
b. Gross Income
C. 272.250 222,750 P 3.250,000 P 3,800,000
205,875 Deductible expenses 1.170,000 2.050,000
d. 251,165 Dividend from domestic corporation 250,000 300,000
Dividend from foreign corporation 120,000 82,500
❖ Answer: C Prize, supermarket raffle 150,000 75,000
Royalty, books 100,000 180,000
Solution:
GP Juan Ponce
GP"s gross income P7,500,000 46. The share of the partners in the net income of the partnership is
OPEX {3,000,000) a. Exempt from income
GP"s net income P4,500,000 b. Subject to 10% final withholding tax
Muftiply by: ( f00% • 20% RCIT} 80¼ c. Subject to 10% creditable withholding tax
GP"s net Income, net of tax P3,6-00,000 d. Subject to 15% creditable withholding tax
Interest income, net of FWT 800,000 ❖ Answer: B
Dividend income from DC 200,000
Dividend income from RFC 350,000
Total dislnbutable income of the GP P4,950,000 47. How much is the share of each partner In the net income of the partnership?
xshare in income 55% P2,722,500 a. PO c. P3.452,625
xshare in income 45% P2,227,500 b. P2,301,750 d PG,905,250
X tBX rate 10% 10%
FWT P272,250 P222,l@... ❖ Answer: C
Gross Sales PZ5,000,000
o The RCIT_rate ol20%(()( MSMEs shall apply since the assets and net Income
Income subjecl ro FWT, CGT and tax-exempt_income) did not exC1Jed the thres
(ex~ut;,
0
Cost of sales
Gross Income
(10.000.000)
PIS,000.000
Pf00.000.000 and PS,000,000, respectively. Less: Opera/Ing expenses:
Salaries expense 3.800.000
1,650.000
◊ Under the CREATE law. dividend Income received by a domestic corporallo~ fro;: Rent expense
r75,000
another domestic corporation including dividend from a resident foreign corporation a Utilities expense
120,000
exempt from Income tax. Depreciation expense (5,793.000)
48.000
Mlscellaneous expenses P9,207.000
Net taxable Income· GP
P2.301,150
RC/T Due: Pg,207,000 x 25%
P/50.000
MC/T; P15M x 1% P2,301,750
Income Tax Due (higher) · GP

320
321
 Pll1-f:1w:'i/{ j~
Nol WlQOITle of !he partnersl1J'p beforo ~ P9,207,000
Less income tar due of the partnership 2,301,750)
Net lnCOme of Iha GP after tax PS,905,250
O1\'lde by number ol partnerS 2
Sh,,.. of each Dartner In the net Income ol the GP P3 452,625

0 The share 00 the 111COT11e of a GP shall be based on the income of U1e partnership after
deaUdlng lhe IFICOIOO lax due.

48 How much Is the Income tax due of Borromeo for the year?
c. P64,000 c. PS00,000 8 0 R ,O,M,E O, ,A ,N,O , ,M,A R ,o U,E:,z, I' A R,T ,N,E: 1R s H
d. P490,000 d. P554,000 1
, 1 I I 1 • , •
1
r P, t ,
1
0 ' ' ' I 1 > I

·=· Answer: D
......_,.. --..-..,...,_~-... I I

9 j1 11 1P1I 1N1A 1K1I1L I 1G 1S1T, . B,R Ci y _,.__.,_

Solution: MIIN1I , L1A, ,C, I,TY , , , ,C IIA ,R O,T ,C,H,AR O,T
BORROMEO'S BUSINESS INCOME: 1 1
Gross Income P 3,250,000 1 I I I I I I t I ! I I I

Deductible expenses
DMdend from foreign corporation
Dividend from domestic c.orporation
Prize, supermarket raffle
(1 ,170,000)
120,000
10%Fwr
20% Fwr
ttetw•~·
11-..d
... olpodc.cdcr>•
b,m ,n,a,r ,t , . e ,d , t. G, o ,m .a
0 ,_o.c.-_,.(I.J),...:..,
...._,
PIT'l:11-TaalTa
1 l
-□
m '.
- ~,-::;....
O 0.
1
I

___ - .... •
I

' __
9,9,7 ,9 2
I 1

20% FWi
rt.t•T ~OUlfR-omP9,11VIIIMJ4J'),.
Royalty income I 0 , 2),01750
11 &Ms; Total Tu Cfedu.'?;rymonts ~Pw1 IV .... ~
Share in the income of the GP 10% Fwr ,o
Taxable net income - Borromeo P2,200,000 __,,.,._
11HlfTnPaJ3bk!'l(O~•ym.nQ ,... , I◄ uu~ I S ~ ~ ,v..,..
I I
'
2 3 0 , 1 ,7 5 0
' I

tT&orct,a,..
Income Tax Due (Graduated Rate) P554,000 I I
' ,0
On 1st P2M income
In excess of P2M: P200,000 x 32%
P490,000,
64,000 ··~
itTOlALAMOONTPAYABLEt(~tnQ(SM,,tdlll!mr t•.-m
'
' ' '
' '
I I I o

0
0

49. Determine the income tax due of the partnership and fill-up the applicable income tax , 23 0 1750
II mantrnarkane bca'.o."lt. 1 ·- ~-~bl--• I ' '

return I !Tope,~ i l TobeleM.ledaTca.CtlCl.~(nX) LJT~Nc:swd04'••c:ail•~

b. P150,000 c. P2,301,750
C. P300,000 d. P2,762, 100

❖ Answer: C
Boromeo a nd Marquez
- --
Gross Sales
Cost ofsales
Gross Income
Less: Operating e,;penses:
P25,000,000
(10,000,000)
P15,000,000
'llltt1,.,,...., I

~
2Sc..._0oblMom,(

I
- -
1 1
l nN

.
Part ■-0...

I I I
,..,.,._,7

I I
'
11'< I

I I I I -
I

-
o , I I I I I
'
.
I
Salaries expense I ' I '
3,800,000 I I I I I I < I '
Ren/ expense
Utllities expense
Depreciation expense
1,650,000
175,000
120,000
~ ·
~
, , , ,· , ,, '
V~»d.atloNR~,.nr...Cff,c:olR~C ) ! ~ ll/tOIN,,d....,.,..,.IA'Xl'"..-N.,t&tt'llifA~J
.sz,~t,IJ:t«~ (;._~ _ , l " - f;IJ
~,:,t ~
! O

r .$1,YWklwRa,,I , .... , ~
I I

Miscellaneous expenses 48,000 (5,793,000) '

Ne/ Income

RCIT Due; P9,207,000 x 25%

MCIT; P15M x 1%
Income Tax Due (higher) ·
Pl,301,750
P150,000
P9,207,000

~-----c=-i
-
P2,301 175Q]

32.2 323
 T ....

•• Annuo 11~
come Tax Return Annual Income Tax Return
1702-RT
.•.
and O\IIN Non-lnd1,idu, 1 Tup,y« Corporation, Partn,nh,p and Oth,.
CC!rpc,nt,on. Pa,tN~1
s ui.,rt °"~ ,• PREGVlAR tnco1n c, Tu Rite 11
Subj■ct Only lo REGULAR I on-lndll~dual l 1t p11t<
ncomt u Rtto
1 - l t~~ ~ttM rlll"lbltrnH..J _l RtrJIJll'td,-..t
a 2 o ,o ,o ,o ,0 1e.1O1R c,N E.1◊1
...1 _ rv- c MonolT..
,,rt Y1 ... ,(,_.,_
l t ~ l t 1- 0rclnlf'Y AIOW11bl♦ tt.fflf1-.cf D«h,clona {lea1t_•:Un...111toa\ M:U::t ,J
1
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o.. ,_..,.
50. ABC Partfnershait~1oi~saf~~nyee:l2poro2t1e~slsio5ntahl partnership formed by medical dociors. The
1702-RT results o aper • 1 year of operations, were as follows:
Partnership
Gross Receipts 30,000,000
.... .__ .............
~~~tlf..-.,_ ,,
cost of services
Salaries expense
18,000,000
5,800,000

----c ,._._.... ...

2 ..... 0.--, .......
Rent expense 2,500,000
·--~i....--,-w.-•f'•----""'--'" ""'111"
Utilities expense 350,000
Depreciation expense 170,000
Transportation expenses 230,000
Miscellaneous expenses 90,000

Determine the income tax due of and fill-up the appropriate income tax return
a. PO c. P715,000
b. P572,000 d. P858,000

❖ Answer: A
◊ A general professional partnership is exempt from Income tax on Its ordinary
income.

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 PART 6
1702-EX
l)llltrv--,~

.....
.J--, Xtt•fr,._~.,,,
,
AnnUa
Corpo(.001\ ,_,..,.,.hip
I Income Tax Return
lh4.- u. , .._. co,e1, "A»e
VCQ) and CX,,W"Sp«la.l ll'WI, w
Non.lndMdual Tupayo< EJCl!l,f>T
a,,dnd:rste.
~ and U'IOU HlfflPl~ In Sec,
nn tfO 01hff ranDI• k\com•J
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.n GROSS INCOME

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,..,_.__.,. I I I 1 17 0 0 0 O
0 Gross Income means all income derived from whatever source, 1 1 di b .

·-
to, the following items: , nc u ng, ut NOT lrmlted
, 0
0

·--
11-

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0
0 Inclusions fro?1 Gross Incom_e [Section 32(A) of the Tax Code, as amended)
1. 1 to ,ees,
compensation for services In whatever form paid, including, but not llm'ted ,

-------
2 r; o o o, n. o · I · d . .
"- saIaries, wages, comm ssrons, an similar Items;

___
·-------a,w- .,....
.n
S 8 0 0 0 0 0
0
2. Gross Income derived from the conduct of trade or business or the exercise of a
profession;
3. Gains derived from dealings in property;
,_
--
0
' 2 3 0 0 0 0 4. Interests;
■---
_.. ....__,...~
I .,
'0 5. Rents;
• ._....,_ 6. Royalties;
•. . . . . .911.- 0
0
7. Dividends;
8. Annuities;
• l n,r- , 1 , ,r 1, e , c::. ",,., ,,.,,,.,n ,a e 3,50000
9 0 0 0 0
9. Prizes and winnings;
•IM ,,,,; ,,- ,. l ,1 ;, ,n,,. o , u R, , " v. n, e, n. s, e,
I 0 10. Pensions; and
'
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11. Partner's distributive share from the net income of the general professional partnership.

--
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" I 9 1 4 O O O0 Exclusfons from Gross Income (Section 32(8) of the Tax Code, as amended]
The following Items shall not be lnduded In gross income and shall be exempt from income
I
. tax:
•I I
0
0 1) Life Insurance
I ' ' .0 2) Amount Received by Insured as Return of Premium

..-,,.,......---- ~--.,---•-
• '
.,....... _ _..__O-•-t•Jltr•""'N•"t
0
0
3)
4)
Gifts, Bequests, and Devises
Compensation for Injuries or Sickness
'
-•-
, .: ,on 0,0
5)
6)
Income Exempt under Treaty
Retirement Benefits, Pensions, Gratuities, etc.
.,
,? ,R
7) Miscellaneous Items
0
a) Income Derived by Foreign Government

-
.,·--·-••J
I
!. b) Income Derived by the Government or Its Politi('1I Subdivisions

I
It
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c) Prizes and Awards
d) Prizes and Awards In Sports Competition

,, -
_&
-
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e) 13th Month Pay and Other Benefits
f) GSIS, SSS, Medicare and Other Contributions ther Certificate of Indebtedness
g) Gains from the Sale of Bonds, Debentures or 0
•IT_,._.._,..
·--........·---·
~
I hl Gains from Redemption of Shares in Mutual Fund
~
,2 8 6 O O 0~ 8) r. ,.. to Recover as One Act, also known
ax Exempt Income under RA 11494, Bayant,,an
as Bayanihan Act n

330
331
COMPENSATION INCOM
Compen.sadon tnrome ls nc:;~~;:
1
islng out of an employer-employee relationship
services performed by an employee for hi~
It encompassed illf ~ munera~ or In kind (RR2-98). . Remuneration for services
employer whether paid In cas If the relationship of employer and employee
constitutes compensation incomet~:nwhen payment is made between the person In
does not exist any longer at the be
1
rformed and the Individual who performed
whose employ the services had en pe
them.
❖ FRINGE BENEffiS
o Taxable FB received by:
• Rank & file: Subject to basic tax
Supervisory or managerial: Subject to FBT (a final tax):
0 Tax Exempt FB
• If provided as exempt under the law; or
If the grant Is required by the nature of, or necessary to the trade,
business or profession of the employer; or
If the grant is for the convenience of the employer.
0 DE MINIMIS BENEFITS
Conforming to the ceiling
o Tax exempt; and
o Not induded In the P90,000 threshold
In excess of the ceiling
o Subject to basic tax ( only on the excess over P90,000)
❖ TAX EXEMPT 13m MONTH PAY and OTHER BENEffiS
o Beginning Jan. 1, 2018 - P90,000
"Other Benefits" include:
Christmas bonus (In &ress of the PS,000 under de mlnimis)
Productivity incentive bonus (if not more than PlOk=de mlnimls;
more than PlOk, the entire amount is part of other benefits)
Loyalty awards
Gifts In cash or in kind and other benefits of similar nature actually
received by officials and employees of both government and private
offices,
Further, RR 3-2015 emphasized that this exclusion from gross income Is
not applicable to:
Seif.-employed Individuals; and
Income generated from business
❖ FIXED OR VARIABLE ALLOWANCES
In general, fixed or variable allowances in addition to the regular
compensation, fixed for his position or office, Is compensation subject to income
tax and creditable withholding tax on compensation Income [Section 2.78.1 (A) of
RR 2-98 as am_ended by RR 10-2008). Examples of fixed or variable allowances
are transportation allowance, representation allowance, communication allowance,
living away from home allowance (LAFHA), and the like.
332
❖ PRE-COMPUTED BUSINESS ALLOWANce;
Reasonable amounts of refmb
entertainment expenses which are pre-ursements/advances for travelling and
an employee while he is on an assign~omfuted on a dally basis and are paid to
requirement of substantiation and to with~ ,t
duty need not be subject to the
0 ing (f.e, Per Diem).
❖ ' BUSINESS RELATED ALLOWANCES SUBJECT TO LIQUIDATION
Any amount paid specifically, either .
travelling, representation and other bona fide~::vances or reimbursements for
incurred or reasonably expected to be . inary and necessary expenses
performance of his duties are not compen~~~rred by the employee In the
following conditions are satisfied: n subject lo withholding, If the
It is for ordinary and necessary travelling and represe tati
·d · n on or entertainment
ex~nses pa, or ~ncurred by the employee in the pursuit of the trade
business or profession; and '
The employee is required to account/liquidate for the foregoing expenses in
accordance with the specific requirements of substantiation for each cat
0
of expenses pursuant to Sec. 34 of the tax code. eg ry
❖ REPRESENTATION AND TRANSPORTATION ALLOWANCES (RATA)
RATA granted to certain officials and employees of the government are
considered reimbursements for the expenses incurred Jn the performance one's
duties rather than as additional compensation. However, the excess of RATA, If
not returned to the employer, constitutes taxable compensation income of the
employee.
❖ STIPENDS OF RESIDENT PHYSICIANS
The stipends received by resident physicians during their intensive
training in the residency program of a hospital and individuals engaged in the
practice of profession or calling like doctors of medicine are subject to creditable
withholding tax (CWT) Imposed under the Tax Code, as amended (BIR Ruling No.
DA (C-004)024-2010, February 4'. 2010].
❖ COST OF LIVING ALLOWANCE (COLA) FOR MWES
COLA of minimum wage earners Is exempt from Income tax. :he COLA
forms part of the new wage rates or statutory minimum wage. Hence, It 1s covered
by the Income tax exemption of MWEs under RA 9504, as Implemented ?Y Re~enue
Regulations No l0-08 which covers the statutory minimum wage (1nclus1ve of
COLA under NC.R Wag~ Order No. NCR-16), Including holiday pay, overtime pay,
night shift differential pay and hazard pay.
❖ MATERNITY LEAVE PAY lOS•Day Expanded Maternity Leave Law,
Under RA 11210, otherwise known as th e d RMC !05 2019 the maternity
and It joint Implementing rules and regula~o~s :e full pay 0 ; full ~fary, wherein
benefit of the female employee shall perta n °
one of Its components Is the salary differential.
333
 (}rrf.s.s etfht l'-'ht
0 Retirement Benefit under RA
11494
full la .,.,,.,.Ins to the actual remuneration or earnings paid by an (also known as Bayanlhan II I I
the Bayanlhan to Recover as One Act
&ll@VWfo RJYv~- ' mp emented by RR 29-2020)
rvices rendered on normal working days andhours, Including
emp1oyer r seld"" 'or under existing company policy or collective bargaining Retirement Benefits received b Offi .
allowances prov = ,, whether Individual or corporate yt icials and employees of private firms
agreement. If any. provided: ' rom June 5, 2020 to December Jl 2020'
• That the amount received Is in ' '
Salary dffferentfa/ refers to the difference that shall be_shouldered by the employer registered with the Bureau of 1~~:~~nce with the retirement plan duly-
:SS ~anthetheactual
he cash benefit received from the Social Security System (SSS) Is
full pay or full salary of the female employee dllrlng the duration of
That any re-employment of such offi ~evenue (BIR); provided further
and its related parties within th cial or employee in the same firm
the maternity leave. shall be considered as proof of ne succeeding twelve ( 12) month period
on-retirement.
The salary differential, being part of the "maternity ~nelit", shall be treated under
the same tax rules with the actual cash benefit received from 555, hence, exempt NOTE: The abovementloned condltl0
benefits of employees under Sectf ~ do not cover the retirement
from Income tax and withholding tax on compensation Income. amended. on 3 (B)(6)(a) of the Tax Code, as

❖ PREMIUMS ON LIFE INSURANCE

Premiums on life Insurance covering the life of an employee paid by the
employer Is taxable Income to the employee, where the insured employee, directly
or indirectly Is the beneficiary under the policy.
❖ TIPS AND GRA1UmES
o If paid directly to an employee: taxable income of the employee but
not subject to withholding.
o If accounted for by the employee to the employer (i.e., Included in the
bill paid by customers): taxable Income of the employee and subject to
withholding.
If re-employment happened within th 1 nd
shall include the said retirement benefits lne~ e aryear 2020, the employer
official or employee for 2020 H . gross income of the concerned
• · owever, if re-employment will occur in 2021
and within the twelve-month period, the concerned official or employee shall
pa~ the taxes due on the retirement benefrt:s received within thirty (30) days
from date of re-employment, or on the due date for the payment of the
second lnsrallment payment of 2020 income tax, whichever comes later
without penalties. , '

❖ RETIREMENT BENEFITS, SEPARATION PAY, PENSION Rent is the amount paid for the use or enjoyment of a thing (real or personal) or right.

o With Reasonable private benefit plan
Retirement pay as a rule, is taxable, except those received by
officials and employees of private firms, whether Individual or corporate,
under a reasonable private benefit plan malnralned by the employer which
meets the following requirements:
❖ Taxable Rent Income of the lessor may In the fonn of:
1. Cash received, at stipulated price.
2. Obligations of the lessor to third persons paid or assumed by the lessee in
consideration of the contract of lease.
3. Advance payment, which may be In the form in the form of prepaid rent
(reported in full in the year of receipt)

1. The retirement plan must be approved by the Bureau of Internal
Revenue;
2. The retiring official or employees must have been In the service of the
same employer for at least ten (10) years, and;
3. ls not less than fifty (SO) years of age at the time of retirement; and
0 In the absence of reasonable private benefit plan
An employee may receive tax-exempt retirement benefits who ha 5
reached the age of 60 years or more, but not more than 65 years, who has
served at least 5 years In the establishment (BIR Ruling No. 495-14 dated
Rental income shall be taxable on the '/(Jar received, whether earned or unearned,
provided, there is no restriction as to its use. andregardless of method of acccunting
employed.
4. Security deposit in general Is not a taxable income. It shall be recognized
as a liability of the lessor t; the lessee. The lessor has the obligation to
return the amount to the lessee upon the expiration of the lease term.
However, security deposit shall be considered as ta_xable income:
0 Upon forfeiture in favor of the lessor, or
0 Upon application as rental payments.
I

Decembe~ 11, 2014). 5. Leasehold Improvements be ted as Income of the lessor If·
Improvements made by the lessee sedhallb Je.:essor (transfer of ownershipj
• The Improvements will be own Y e
at the end of the lease; to pay the lessee the value of such
The lessor Is not required
Improvements.

334 335
 SITUS OF DIVIDEND INCOME (Section 42 f
o the Tax Code; RMC 62·2021)
INCOME FROM LEASEHOLD IMPROVEMENTS IS REPORTED AS FOLLOWS.
METHOD TAXABLE AMOUNT 1) Dividends from within:
1) Outrlghl or Dividend Income from Domestic Corporation
Lump-som Melhod FMV of lmprovoment a) .
AMual BV. end of lease term
b) Dividend Income from Foreign Co
2) Spread-out or Remainino Term of leaso for the three-year period ending ;:,~~on, IF at least SO% of gross Income
Annual Melhod Income
the declaratlon of such dividends ( i e close of lls taxable year preceding
❖ Pre• Torm1nalion ol the loase · corporation has been In existence)or ordsuch part of such period as the
Tho addrtlOOal income ans,ng from lhe pro-termination is compute<! as follows. Philippines. was enved from sources within the

FMV, year of pre-termination 2) Dividends from without:

tocome already recognized/reported
Income. r or re•lerminatlOll

❖ NON-Taxable Rent Income of the lessor may In the form of:

1. Advance rentals representing option money
2. Security deposits to Insure faithful perfonTiance of certain obligations of the
lessee.

❖ FORMULA URCE OF DIVIDEND SOURCE OF INC I.I

Rental Payments PXXX DOMESTIC CORPORATION Income ls purely from Phaippine sources
Expenses of the lessor assumed by the lessee xxx
Income from leasehold Improvements lQQ!, FOREIGN CORPORATION
Total Rental Income em Rallo· If Ratio is·
Gl•Phils. x Dividend < 50%: Oi'lidend Income ls treated as entirely
GI-world denved from sourteS outside or the PhlRppines
<? 50°4: ~ ..!!!l.l!!.CQme is 1rea1ed as enllroly
DIVIDEND INCOME 1 derived rrom within lhe Phii nes RMC 62·2021

KINDS:
1) Cash Dividends
SITUS OF-DIVIDEND INCOME FROM FOREIGN CORPPORATIONS
2) Property Dividends
3) Stock Dividends (RMC 62-2021; RR 5-2021; Sec. 42 of the Tax Code, as amended)
4) Liquidating Dividends
Dividend income received by DC from NRFC: considered as foreign sourced dividend
CASH & PROPERTY DIVIDENDS under RR 5-2021.
Cash and property dividends shall be taxable upon declaratlon.
Dividend Income received by DC from RFC (RMC 62·2021)
STOO< DMDENDS ◊ The tax treatment of dividends received by a domestic corporation from RFC
GENERAL °
RULE: Distribution f stock dividend .1s not taxable because they are not
realized Income.
will depend on the sources of Income of the RFC. Under Section 42(A)(2)(b)
of the Tax Code, as amended, dividend from a foreign corporation shall be
treated as Income derived from sources WITHIN THE PHILIPPINES UNLESS
EXCEPTION: A stock dividend constJtut I less than SO% of the gross Income of the foreign corporation for the three
Interest different from that wh'ch h' f es ncorne If It gives the shareholder an
1 15 onner stockholdings represented. year period ending with the close of its taxable year preceding the declaration
of such dividends (or for such part of the period as the corporation has been
LIQUIDATING DIVLDENDS In existence) was derived from sources within the Philippines.
a mere return of capital H/ P
Liquidating dividends are exem t u t O th
e extent of the cost of Investment being
considered Income and th~refo~~er, balnythlng In excess of the cost shall be
xa e.

If the amount received by the st

Investment. the loss 11'1 the tran:hold~r in liquidation is less than the cost of
capital losses. ctlon is deductible to the extent aHowed tor

337
336
 GROSS INCC?ME FROM WHATEVER SOURCE DERIVED
l4;ifA¼f·i~i•i•iiil§;l¾'Jlt'l:il:m The Jaw imposes a tax on income from whatever
income whether coming from legal or Jlf,.,,alsou
.
source which means that It Includes
.,, rces.
Subjectro 1) PriZes received by Individuals (except NRA-NETB) from sources IV1tNri
200/o FWT EXAMPLES:
the Philippines exceeding Pl0,000. 1) Income from jueteng
2) Income from swindling activities
2) peso winnings exceeding Pl0,000 3) Recovery of bad debts
TRAIN Law 4) Refund of taxes
If received by RC, NRC and RA
5) Unutlllzed/excess campaign funds
6) Forgiveness of Indebtedness
CREATE Law
If received by RC, NRC, RA and NRAET
❖ RECOVERY OF BAD DEBTS
3) Other winnings from sources within the Philippines regardless of
In or~er for recovery of bad debts be considered Income, the following must be
amount
complied:
Subject to Prizes and Other winnings Including PCSO winnings received by NRAs- 1) Bad debts were written off In the previous year/s;
2) Such bad debts were deducted In arriving at taxable Income·
25% FWT NETB 3) There Is a resulting tax benefit on the deduction. '
subject to 4) Prizes and Other winnings derived by resident citizens and domestic
❖ REFUND OF TAXES
basic income corporations from sources without the Philippines
tax 5) Prizes and winnings received by corporations
6) Prizes received by individuals from sources within the Philippines The following are the requirements before refund of taxes be considered Income:
amounting to Pl0,000 or less. 1) There is payment of tax in the previous year/s;
2) The tax paid was deducted in arriving at the taxable Income;
3) There is a resulting tax benefit on the deductlon.
Exempt from 1) PCSO winnings
lncometax TRAIN~w ❖ FORGIVENESS OF INDEBTEDNESS
o PCSO winnings of not more than Pl0,000 and received byR~ TYPE TAX TREATMENT
NRC and RA Debtor performs services to the creditor Compensation Income
O PCSO winnings, regardless of amount, if received by NRAET
Creditor desires to benefit the debtor without any Gi~
CREATE ~w consideration
O PCSO winnings of not more than Pl0,000 if received by RC,
Creditor Is a corporation and the debtor Is a Dividend Income
NRC, RA and NRAET
stockholder of such co ration
2) Prizes and Awards made primarily in recognition of
• Religious, Charitable
• Scientific
Ed~cational artistic, literary; or
civic achievement

Provided the re<:!pient was: test ~

a) Selected without any action on his part to enter the Coll
Proceeding (not constituting gains from labor); and nditi01~
b) Not required to render substantial future services as a co
receive the prize/award.

3) All prizes and awards granted to athletes In local and International;:;

competitio_ ns and tournaments, whether held In the Philippines or
and sanctioned by their respective national sports assooatlon,
. ra0i19l
4l Winnings under Section 126 of the tax code (winnings on horse

338 339
 {jrr~'-' htet111u:.
b) Any amount received by an official or em .
it(!!•~iC•l?Lii;i•l:■1:lirl;i•1:-r,tti 5•
JZi4Md•i,iS.Jlbllffiifti!fflt9 as a consequence of separation of such
the employer because of:
~fri~
10
or by his heirs from the employer
ioal or employee from the service of
. ross income as provided under Section 32(B) of the
The following are exdusions from lhe(TRAgIN Law· RR 8-2018): Death
Tax Code. as amended by RR !0963 ' Sickness
Other physical disability or for any cau
I. LIFE INSURANCE or employee. se beyond t.he control of the said official

since it Is a mere reimbursement for the loss of fife.

General Rule: Exempt f rom taX c) Social security benefits, retirement gratuities
Exception: The following shall be taxable; ble consideration. received by resident or nonresident c·t· ' pensions and other similar benefits
1 Izens of the Ph'li 1
a. The benefioary was chosen for a va ua . to reside permanently In the Ph'I' .
11PP1 fr . 1 PP nes or aliens who come
b. The Interest eamed on the insurance po hey· nes om foreign go
other Institutions, private or public. vernment agencies and

2. RETURN OF PREM[UM . . d) Payments of benefits due or to become due to

ured as a return of premiums paid by him under life · d h any person residing In the
. Ins·ty contracts
Th e amoun t receIved by the ' either dunng t e term or at t he maturity
. . h Philippines un er t e laws of the United States administered b th u • ed s
Insurance, endowment , Or annuI , Veterans Administration. Y e mt tates
of the term mentioned In the contract or upon surrender of the contract.
Return of Premium Exempt
Excess Income e) Benefits recel.ved from or enjoyed under the Social Security System In accordance
with the provisions of Republic Act No. 8282.
)_ GIFTS, BEQUESTS & DEVISES _
The value of property acquired by gift, bequest, devise, or descent: Provided, however, f) Bene~ts rece!ved from the GSIS under Republic Act No. 8291, Including retirement
tnat Income from such property, as well as gift, bequest, devise, or descent of Income gratuity received by government officials and employees.
from any property, In cases of transfers of divided interest, shall be included in gross
7. MISCELLANEOUS ITEMS
lnrome.
Property inherited or received as gift Exempt
Income of above properties Taxable a) Income derived from investments in the Philippines in loans, stocks, bonds or other
domestic securities, or from interest on deposits In banks In the Philippines by:
4. COMPENSATION FOR INJURIES OR SICKNESS a. Foreign governments
Amounts received, through Accident or Health Insurance or under Workmen's b. Financing institutions owned, controlled, or enjoying refinancing from foreign
Compensation Act, as compensation for personal injuries or sickness, plus the amounts governments; and
of any damages received, whether by suit or agreement, on account of such Injuries or c. International or regional financial Institutions established by foreign
sickness. governments.

5. INCOME EXEMPT UNDER TREAlY b) Income derived from any public utility or from the exercise of any essential
Income of any kind, to the extent required by any treaty obligation binding upon the governmental function accruing to the Government of the Philippines or to any
Government of the Philippines, shall be exempt. political subdivision thereof.

6. RETIREMENT BENEFITS, PENSIONS,- GRATUffiES ETC.
a) Retirement benefits received under Republic Act No. 7641 and those received by
officials and employees of private finns, whether individual or corporate, In
accordance with a reasonable private benent plan maintained by the employer:
Provided
That the retiring official or employee has been In the service of the same
employer for at least ten (10) years;
At least fifty (50) years of age at the time of his retirement· and
That the benefits granted shall be availed of by an official 'or employee only
once.
c) Prizes and awards made primarily in recognition of religious, charitable, scientific,
educational, artistic, literary, or civic achievement but only if:
a. The recipient was selected without any action on his part to enter the contest
or proceeding; and .
b, The recipient ts not required to render substantial future services as a
condition to receiving the prize or award.
d) All prizes and awards granted to athletes In local and international sports
competitions and tournaments whether h~ld in the Phllippl~es or abroad and
sanetioned by their national sports associations.
e) Gross benents frQm 13u, month pay and other benefits received by officials and
employees of public and private entitles up to the extent of P82,000.

f) GSIS, 555, Medicare and Pag-Jbig contributions, and union dues of individuals.

340 341
 yn;s-s htctft,re,
exchange or retirement of bonds, debentures or
g) Gains realized from the sale or th maturity of more than five (5) years. Iti(:Q.ME FROM SOURCES WITHIN THE PHILIPPINES
other certificate of Indebtedness wl a
- (Sec. 12{Bl of the Tax CodeJ
n redemption of shares of stock in a mutual fund I) Interests derived from sources within the p .
h) Gains reallz ed by ti,e Investor Upo
or other Interest-bearing obligations of _hdllippines, and Interest on bonds, notes
company. res, ents, corporate or otherwise·
2) Dividends from '
8. Tex Exempt Income und er RA 1 1494, Bayanihan to Recover as One Act,
also known as Bayanlhan Act II
a. Domestic Corporation; and
a) Retirement Benefits received by officials and employees of private firms, whether
Individual or corporate, from June 5, 2020 to December 31, 2020 (Refer to page b. Foreign Corporation, IF at least SO%O r
335): period ending with the close of its ta b~ gross lnco~e for the three-year
such dividends (or for such part f xah e Y~r preceding the declaration of
. 0 sue period as the corporation has been
b) Cov,dl9 Special Risk Allowance given to public and private health "."orkers. In exIstence) was derived from sources within the Phllipplnes.
It Is an allowance paid to both private and public health workers directly catering
to or in contact with Covid-19 patients for every month that they are serving The term used under Section 40 of the Tax Code was fo 1
during the state of national eme,yency due to Covid-19 as declared by the without distinction as to whether the ~ore·rgn corpo tire gnl co~dratlon,
'd ra on s res, ent or
President. non~es1 ent. He~ce, the rule In detennlning the sltus of dividend Income from
foreign ~orporation shall apply to both resident and nonresident foreign
c) Actual Hazard Duty Pay given to HRH corporation. ,
Is a compensation given to temporary Human Resources for Health (HRH)
serving In the front line during the stite of emergency to Covidl9. NOTE T11e prov,s,ons perta n ng to SITUS of Income c•d,• Sc:· 0 n J2 0 1\he Tax Ced•:
was not amended b1 CREATE LAW O· / :r: la, 1rcalncen1 ol ,:~·-ccrp~ra\e di,,dpcd
d) Compensation paid to private and public health workers who have contracted was amended part cularly en the c, de0 d -~cr-i: re:,. ,t<J b, a com"<i c ,o,r,n<Jlion
COVID-19 In the line of duty or dies while fighting COVID 19, amounting to: from a foreign corp:raLon af'\d C,,•1dend ncome f-r11 cr::·...~s·: cc ·r.or;:i: Or'l to rJ~re:~,r:ent
fo•e, n cor oral on
One million pesos (Pl,000,000.00) in case of death, or
One hundred thousand pesos (Pl00,000.00) in case of severe or critical 3) Compensation for labor or personal services perfonned In the Philippines;
\
sickness; or
Fifteen thousand pesos (PlS,000.00) In case of mild or moderate sickness. 4) Rentals and royalties from property located In the Phllippines or from any Interest
in such property;
Provided that such amount given or to be given from February 1, 2020 and
during the stlte of national emergency due to Covidl9 as declared by the 5) Gains, profits and Income from the sate of real property located In the
President; Provided further, that the compensation provided herein shall be given Philippines;
to the beneficiaries not tater than three (3) months after the date of confinement
or death; Provided finally, that the required supporting documents are sutimttted. 6) Gains, profits and Income from: sale of personal property:
a. Sale of property - If sold In the Philippines
For compensation in case of death, the said amount shall not also be included as b. Sale of shares of domestic corporation - regardless of the place of sale
part of the gross estate of lhe decedent subject to estate tax. c, Sale of shares of foreign corporation - If sold In the Phfllpplnes
d. If manufactured, only tf manufactured and sold within the Philippines.

SITUS OF INCOME Section 42 of the Tax Code INCOME FROM SOURCES PARnY WITHIN OR PARnY WITHOUT
[Sec. 42(E) of the Tax Code] •
Q.ASSIFICATION OF INCOME AS TO SOURCE 1) Gains, profits and Income from the sale of personal property.produced (In whole or In
I) Income from sources within the Philippines part) by the taxpayer within and sold without the Phlllpptnes, or
2) lnoome from sources partly within or partly without the Phlllpplnes
3) Income from sources without the Philippines 2) p 1ttiout and sold within the Philippines.
rOduced (In whole or In part) by the taxpayer w

342
343
 {jn;s-s hlC(f/ru:,, I

I
I
lNCOM E TAX SYSTEMS !

o SCHEDULAR TAX SYSTEM VS. GLOBAL TAX SYSTEM I

. cLASSIFICATION OF ASSETS
Tax Trealmont . I
Income 1ax rules varies and made . • :•~
Uniform lax ln!,l l ,
rules 111'!ri~
lo depend on lhe kind or calegory 1) Ordinary
of 1axable income of lhe taxpayer 2) capital
Charac1orishcs:
1. Classification of . Calegorizas or dar.sifies Income . Does not categorize
income income ORDINARY ASSETS

2. Tax rates . Imposes different tax lreatment . Imposes uniformlai ra~ I The following are classified as ordinary assets:
and rates 0 Stock In trade of the taxpayer or other property of a kind h'ch
3. Appllcabmty . Individual laxpayers Corporate taxpayers I
included In the Inventory of the taxpayer; w I would properly be
0 Property held by the taxpayer primarily for sale to customers in th di
his trade or business; e or nary course of
Approach used In tile Philippines
Partly scheduler (i.e. income lax for individuals) and partly global o Property used In the trade or business, of a character which is subject to II f
deprecia~ion; or a owance or
fi.e. Income lax for corporalionsl.
◊ Real property used in trade or business of the taxpayer.

The_sale of ~he above ~ssets will result either to gain or loss. The gain is subject to
O GROSS INCOME TAXATION VS. NET INCOME TAXATION
basrc tax while the loss 1s fully deductible In arriving at the taxable Income.
Gross income taxation Net income taxalion
CAPITAL ASSETS
Deductions/ . No deduclions or exemptions . Allows deductions/ exemplions
All assets not classifiable under ordinary shall be dassified as capital assets.
Exemptions allowed

Tax Base . Gross income . Taxable Income

I Net capital Gain - means the excess of the gains from sales or exchanges of capital
assets over the losses from such sales or exchanges.
Applicability . NRA-NETB .. Individual taxpayers excepl NRA-NETB.

. Nonresident corporation
Corporate taxpayers except nonres'~
foreign corp.
Net Capital L~ - means the excess of the losses from sales or exchanges of
capital assets over the gains from such sales or exchanges.

Advantages . Minimizes source of graft and .. Just. fair and reasonable

corruption due to minimization
of margin of discretion
exercised by revenue dlslrict
PERCENTAGE TAKEN INTO ACCOUNT
In the case of a taxpayer, other than a corporation, only the following percentages of
Equitable relief (deductions and the gain or loss recognized upon the sale or exchange of a capitill asset shall be taken
.. exemptions) to taxpayers
More revenue to lhe government
Into account in computing net capital gain, net capital loss, and net Income:

. officers
Simplifies lax syslem
Minimizes tax evasion 1) One hundred percent (100%) if the capital asset has been held for not more
than twelve (12) months; and
2) Fifty percent (50%) If the capital asset has been held for more than twelve (12)
months.

i.lMJTATION ON CAPITAL LOSSES

I GENERAL RULE: Losses from sales or exchanges of capital assets shall be ~llowed
I Only to the extent of the gains from such sales or exchanges.

EXCEPTION: The limitation on capital losses will not apply, provided:

I
I 1)) The seller is a domestlc bank or truSt _~~lpt of deposit;
A substantial part of whose business is

344 345

,.. .... ,r.

 T
E)(CtiANGE OF PROPERTY (Section 4O(C) or
3) The ~ sold IS: the Tax Code, as amended]
a. Bond
b. Oebentvre GENERAL RULE: Upon the sale or exchange of
C. Note or loss shall be taxable. Property, the entire amount or the gain
d. Certil\cate; or
e. Othe' ~ of indebtedness
EXCEPTION: No gain or los, shall be recog I ed·
NET CAPITAL 1os.5 CARRY-OVER SediOf140{C)(2)of the Tax Code as AMENDED ~ZCREA.
TE Law as follows:

=!
than • COfl)Oratlon, sustains In any taxable year a net capital
If any ~)<er, other
loss. sud'l losS (In an
:;eC.:::i
:'f°" t ot In excess of the net "taxable Income" for such
~ succeeding taxable year as a loss from the sale or
~ held for not more than twelve (12) months.
l) No Gain or Loss _shal~ be recognized on a co

pursuance of a plan of reorganization ~~z;0

.
If such corporation 1s a party to a reo ~tion or on Its stock or securities
~~t:d exchan~es ~roperty In
corporation that Is party to the reorganization that I or secunties m ano~
Reorganization is defined as: s party to the reorganization.
GAINS & LOSSES FROM SHORT SALES ETC.
The following shall be considered capital gains or tosses: a) A corporation, which Is a party to a merger or consolidation cha
I ) Gains or losses from short sales; and . . . property solely for stock in a corporation, which Is a party to the ex nges
Gains or tosses attributable to the failure to exercise pnv1leges or options to buy consolidation; or merger or
2)
or sell property.
b) :n,e A~quisition by one ( 1) corporation, in exchange solely for all or a part of
its voting stock, or In exchange solely for all or part of the voting stock of a
DETERMINATION OF AMOUNT AND RECOGNIZTION OF GAIN OR LOSS corporation which is in control of the acquiring corporation of stock of
another corporation if, immediately after the acquisition, the acquiring
CQMPUTATIONOFGAINORLOSS corporation has control of such other corporation whether or not such
acquiring corporation had control immediately before the acquisition; or
Money recelved Pxxx
FMV of property received m c) The Acquisition by one (1) corporation, in exchange solely for all or a part of
Amount Realized Pxxx its voting stock, or in exchange solely for all or part of the voting stock of a
Basis or Adjust-ed Basis (.m) corporation which is in control of the acquiring corporation, of substantially
Gain (Loss) ~ all of the properties of another corporation. In detennlnlng whether the
exchange Is solely for the stock, the assumption by the acquiring corporation
of a liability of the others shall be disregarded; or
BASIS FOR DETERMINING GAIN OR LOSS of property Shau be:
d) A recapitalization, which shall mean an arrangement whereby the stock and
MANNER OF ACQUISITION bonds of a corporatlOf'\ are adjusted as to amount. income, or priority or an
1) Purchase Cost agreement of all stockholders and creditors to change and Increase or
2) IMerilance Fair Market Value at the time of inheritance decrease the capitalization or debts of the corporation or both; or
3) Donation GENERAL RULE:
The same as tt would be In the hands of the donor or the last e) A reincorporation, which shall mean the fonnation of the sa~ corporate
preceding owner. business with the same assets and the same stockholders surviving under a
EXCEPTION: new charter.
Fair Market value at the time of donation ,ii lower than lhe
amount above, for lhe purpose ol determining the losS. i) If property is transferred to a corporation by a pe~, alone or together with
•) If acquired for less than an others, not exceeding four (4) persons, In exchange for stock or unit of
adequate and full Amount paid by the transferee participation in such a corporation of which as a result of such exchange, the
oonsideration In money or · 1y ·ns or maintains control of said
transferor or transferors, collective ' gai . hall not be considered as
$ worth
corporation: Provided, That stocks Issued for services s
Issued In return for property.

346 347
 QUIZZER
NOTE:
-"""" used for business for shares of stocks covered under Choose the letter of the correct answer
SaleorexchangeoI P•VV'-''' )
this subsection shall not be subject to value added tax (vat ·
pr1nclples
In all of the foregoing Instances ol exchange of property, prior BIR confirmation or 1. income, for tax PUfP?Ses:
tax ruling shall not be re.quired for purposes of availing the tax exemption. I. Means all income from whatever 50
excluded under the Tax Code. urce (legal or illegal), unless specifically
The concerned pa,t,es can ,mplement the /ronsactlon covered by this Section Including, but not II. Means all wealth which flows into th ta
tm//od to, the tssull/lCC of the Celtllicate Authorizing Registration (CAR) by tho Revenue District Ill. Is recognized in the year it is actuaii8 re x~yer _other than return of capital.
Offics /ROOJ where the property Is localed, in case of ,ea/ properties. or to /he RDO whore tho IV. Refer to lhe amount of money comi:g ceived mcash or cash equivalent.
t,us,nesS is registored. in IO
specified lime, whelher as payment of a ~~ or corporation within a
case of shsrss of stocks, subjecf lo post-transaclion audit by the Bureau
(RR f>.2021), Investment. S81'Vlces, mteresl, or profits from
The term •control", when used In this Section, shall mean ownership of stocks Jn a a. I, II and Ill only C. I, II, Ill and IV
corporation after the transfer of property possessing at least fifty-one percent (51%) b. I and IV only d. None of the above
of the total voting power of all classes of stocks entitled to vote: Provided, That the
collectJve and not the Individual ownership of all classes of stocks entitled to vote of
the transferor or transferors shall be used in determining the presence of control.
❖ Answer: C

2. The sources from which income is derived

a. Labor
b. Illegal activities
c. Profits derived from sale or exchange of capital assets
d. All of the above

❖ Answer: D

3· The sources from which income is derived

A. B. C. D.
Labor True True True False
Gifts and inheritance True False False False
Use of capital True True False False

❖ Answer: B
◊· Properties received through donation and 1riheritance 818 nol income. However.
Income derived from the use of such properties ate classified as taxable income.
4
· ~ ~21, ·P9?_r~ sent his sister Ana $10,000 via a telegraphic lra~sfer through the Banko
; ro el P11tp1nas. Loma, lhe bank's remittance derk made a mistake and credited Ana
wi_ $100,000 which she promptly withdrew. The bank demanded the return of the
:Slakenly credited excess, but Ana refused. The BIR entered lhe picture and investigated
a. Would the BIR be correct if ii determines lhal Ana earned taxable income
Under these facts?
~- No, s~e had no income because she had no rig~t lo lhe mistakenly credited funds.
· Yes'. income Is taxable regardless of the source. .
c. No, 11 was not her fault that the funds in excess of $10,000 were credited to her.

348
349
 . 1$
000 were in effect donated to her. Which is not a valid definition of income?
d. No. the funds me.xcess O 10• 1O. a. Income is the return from capital in~ested.
b. income is a fund at one distinct point of time
❖ Answer._B I the Tax Code defines gross Income ~ all lncom~ ~erived lrom
SecliOO 32 ° Consequently the flow of wealth, without any d1s1inction as 10 c. Income means all wealth which flows into ~ t
capital. axpayer other lhan a mere return of
whatever tness
SOUfCII.of its source. .'is subject
• •
to income . • I.n oth~r words, the
tax
the ~ from w11,1,v,r S()UfC# discloses a legislative policy to indlJde d. Income means cash or its equivalent unless otherwise
• specified.
phrase ff1CO(Tllt""'SSly exempted wilhin the class of taxable Income under the law
all Income no ex.,,~ · ❖ Answer: B
s. Which of the following is a characteristic of income?
C. D.
A. 8. 11 . The share in the profits of a partner in a general profess· rtne
~I~ Is regarded as
1
True False received by him and thus taxable although not yet distribu':a : 5
Increase In taxpayer's wealth True True a. Actual receipt of income · pnncip e 1s known as
False False
Realization of gain True False b. Advance reporting of income
False False
Return on taxpayer's wealth True True c. Accrual method of accounting
d. Constructive receipt of income
❖ Answer. A
❖ Answer: D
6. Which of the following is a requisite for an inoome to be·taxable?
a. There must be gain 12. Which of the ~ollowing is considered or oonslr\Jed as an example of ·constructive receipr?
b. The gain must be realized or rece!ved . a. Retirement benefits, pensions, gratuities
c. The gain must not be excluded by law from taxation b. Fees paid to a public official
d. All of the above c. Interest coupons that have matured and are payable bu1 have not been cashed
d. Deposits for rentals to answer for damages, restricted as to use
❖ Answer: D
❖ Answer. C
7. Which of the following is not an inoome for income tax purposes?
a. Gain derived from labor. 13. Constructive receipt occurs when the money consideration or its equivalent is placed at
b. Return on capital. the control of the person who rendered the service without restrictJons by the payor. The
c. Excess of selling price over cost of assets sold.
following are examples of constructive receipts, except
d. Gift received
a. A security deposit to insure the faithful performance of certain obligations of the
❖ Answer: D lessee lo the lessor.
b. Deposit in banks which are made available to the seller of services wilhou1
8. Which of the following Is not an inoome for income tax purposes? restrictions;
a. Collection of loans receivable c. Issuance by the debtor of a notice to offset any debt or obligation and acceptance
b. Condonation of debt for services rendered thereof by the seller as payment for services rendered;
c. Excess of selling price over the cost of an asset sold d. Transfer of the amounts retain~ by the payor to the account of the contractor.
d. None of the above
❖ Answer.A
❖ Answer: A
14- There is constructive receipt of income when:
9. Which of the following is not a characteristic of inoome? a. Payment is crediled to payee's account
Payment is set aside for the payee, or otherwise made avallable ~ ~ payee may
th
a. Increase in taxpayer's wealth. b.
b. Realization or receipt of gain. d · • the yee could have drawn upon it dunng the
raw upon ,t at any time, or so pa_ ·ven
1 without substantial
c. Earnings constructively received. taxable year if notice or intention to withdraw had been 9
d. Return of taxpayer's wealth. limitations.
c. Both ·a· and "b"
❖ Answer: D d. Neither ·a· nor "b"

350 351
 19 Which of the follo~ing test of source of Income is 1
· a. Interest income • residence of the d bt ncorrect?
❖ Answer. C . e or
b. Incom~ from services - place of performance
15 When different types of Income are subjected to common tax rate, the tax system Is c. Royalties - place of use of intangible
described BS d. Gain on sale of real property_ place of sale.
a. Global tax system
b Gross Income tax system ❖ Answer: 0
c. Scheduler lax system ◊ The situs of gain on sale of real prope,t I h
Y s w ere the property Is $1/uatod
d. Finni tax system
20. Situs of taxation on income from sale shares of a domesll
❖ Answer: A a Always treated as Income derived from within !he Phclllco_rporat1on.
• . . ppines
b. Always treated as income den~ed from without the Philippines
Situs of Income . fa I I di g c. May be treated as Income within or without the Philippines depending th f
16 Situs for tcll(ation purposes wtll depend upon vanous CIors. nc u n sale On e pIace o
1.• The nature of the tax and the subject matter thereof. d. May be treated as income within or without the Phlllpplnes depending where the
11. nie possible protection and benefit that may accrue both to the government shares are kept
and to the taxpayer.
Ill. Domicile or residence ❖ Answer: A
IV. Citizenship
V. Source of Income 21. Situs of taxation on income from sale shares of a foreign corporation.
a. I and V only c. I, Ill, IV and V a. Always trea led as income derived from within the Philippines
b. I, Ill and IV only d. I, 11, Ill, IV and V b. Always treated as income derived from without the Philippines
c. May be treated as income within or without the Philippines depending on the place of
❖ Answer. D sale
d. May be treated as income within or without the Philippines depending where the
17. As a rule, 1ncome from whatever source is taxable. Income from whatever so\jrce may shares are kept
come,from:
I. Gains arising from expropriation of property ❖ Answer: C
II. Gambling gains
Ill. Income from illegal business or from embezzlement 22. Statement 1: A gain from sale of shares of a domestic corporation shall be considered
IV. Recovery of receivables previously written off · derived from the Philippines regardless of where the shares were sold.
V. Tax refunds
Statement 2: A gain from a sale of shares of a foreign corporalion shall be considered
VI. Compensation for injury suffered derived from the country where the corporation was created or organized.
VII. Gratuitous condonaUon of debt
a. Statements 1 & 2 are false
a. I and II only
b. I, IV and V only b. Statement 1 is true but statement 2 is false
c. I, IV, V and VI only c. Statement 1 is false but statement 2 is true
d. I, 11, Ill. IV and V only d. Statements 1 and 2 are true

•·· Answer. 0 ❖ Answer: B

23. Pedro earned interest income from a promissory note issu~ to him ~Y Juan,.a resident of
18. Situs of taxation on income from sale of property purchased.
a. Place of the seller California, U.S.A. Assuming that Pedro is a nonresident citizen, lhe interest income 1s
b. Place of sale a. Subject to basic income tax
c. Place of buyer b. Subject to final tax
d. As determined by the Commissioner c. Not subject to income tax
❖ Answer. B d. Partly subject to scheduler and partly subject to final tax

❖ Answer: C

3S2
353
 9ro-:S.s JiUIHIU:,
. ble . the residence of the debtor. Since the debtor is a resident
Ill The situs of ~rva I is sldered derived from abroad. Pedro, as provided in lhe 28 Which inoome from sources partly within and artt . .
1
ol USA the inoome ~ citlzen (taxable only on income derived from sources
problem, Is a nonre ) he ce the income Is non-taxable in the Philippines.
· the time basis? . . P Youtside the Philippines is allocated on
a Income of the mtemat1onal shipping corporati .th
within the Philippines , en , · ports on WI vessels !ouching Philippine
b. Income of a telegraph company with transmiss· fro .. .
.. rmanently residing in the Philippin~s, receive.~ se_veral Items abroad 10n mthe Ph1hppmes to points
24. Mr._Parker, a French ct!lzeWhn~ch mong the rollowing Is not subJect to Philippine income
during lhe taxable year. 1 a c. Income from goods produced in whole or in part in the Phili
foreign country, or vice-versa PP1nes and sold in a
taxation?
a. Consultancy fees rece·ived ror designing a oomputer program and installing the d. Income from personal services performed in part in the Ph .
same in Shanghai racility of a Chinese firm. abroad I11ppines and In part
b. Interest from his deposits in a local bank of foreign currency earned abroad
❖ Answer: D
converted to Philippine pesos. . . . •

c. Dividends received from an American oorporation which denved 600¼of its

annual gross receipts from Philippine sour~s for t~e past le~ (10) years.. 29. A taxpayer is ~mployed by a shipping ~mpany touching Philippine and foreign ports. In
d. Gains derived from lhe sale of his oondom1nium unit located m Quezon City. 2018, he received a gross ~aymenl for his services rendered of PJ,000.000. In that year,
the vessels on ~ard of_wh1ch.he rendered services had a total stay in Phillppine ports or
four months. His gross income from the Philippines was
❖ Answer: A a. PO c. P1 .500,000
b. P1,000,000 d. ?3,000,000
25. It is important to know the source of inoome for tax purposes (i.e., from within or without
the Philippines) because: , ❖ Answer: B
a. Some Individual and oorporate taxpayers are taxed on their worldwide income
IIl Income derived from Phifippines (allocated) =PJM x4/12 = P1.000.000
while others are taxable only upon income from sources within the Philippines
b. The Philippines imposes income tax only on income from .sources within
30. Chris is a Filipino immigrant living in the United States for more than 15 years. He Is retired
c. Some individual taxpayers are citizens while others are ahens
and he came back to the Philippines as a balikbayan. Every time he comes to lhe
d. Export sales are not subject to Income lax
Philippines, he stays here about a month. He regularly receives a pension from his former
employer in the United States. amounting to USS2,000 a month. While in lhe Philippines,
❖ Answer: A
with his pension pay from his former employer, he purchased three condominium units In
Makati which he is renting out for P25,000 a month each. Does the USS2.000 pension
26. Which of the following taxpayers Is taxable cin inoome f1 om all sources within and outside
the Phllippines? become taxable because he is now in the Philippines?
a. Yes. Income received In the Philippines by the non-resident citizens is taxable.
a. Domestic corporation
b. Yes. Income received in the Philippines or abroad by non-resident citizen is taxable.
b. Resident foreign corporation
c. Resident citizen c. No. Income earned abroad by a non-resident citizen Is not taxable in the Phillppines.
<.I. Both ·a· and ·c· d. No. The pension is exempt from taxation being one of the exclusions from gross
income.
❖ Answer: D
❖ Answer: C
27. Which of lhe following is NOT true about source of income? 31 · NI of the following are oorrect except one. Which is the exception?
a. In case of Income derived from labor, source is the place where the labor is
perfonned. a. The source of interest income Is the country where lhe debt?r resldldes.
b Th 1h ntry where the creditor res es.
b. In case or Income derived from use of capital, source is the place where the capital • e source of interest income 1s e i:ou th untry where lhe property Is
Is employed. c. Rents or royalUes are considered denved from e 00
c. In case ?f profits from the sale or exchange of capital assets, source is the place or located. . . d from lhe county where lhe
transacl1on occurs. d. Income from personal services Is considered denve
d. None of lhe above. services were rendered.
❖ Answer: 0
❖ Answer. B

354 355
 9rt¾, i hletf11u:,,
9rrf-..s.s h cu1,1,c,
32. Which or the lollowing Is considered incomertyderivedchafrosemd wlnithtihneth;:iihpiplip1npeinses?d
I. Gain on sale of personal prope pur an SOid in 36. Pedro is a mem~rdofd~e board of directors of ABC Compan D .
year. Pedro receive 1rector's fees amounting 10 PJOO y. unng the current taxable
Canada. h Ph.II . he attended. Such fees should .OOO from quarterly board meetings
II. Compensation received lrom services In I e I pp1nes.
Ill. Rent Income from real property localed In ~-SA. Id . th PhT . a. Form part of Pedro's gross compensati .
IV. Gain on sale of shares of a foreign corpora ion so in e 11pp1nes. same lime an empl~yee of !he corporatfo~mcome, whether or not he is al lhe
a. I and II only c. II and IV on1y b. Form part of Pedro s gross compensar .
b I. II and IV only d. All of the above an employee of the corporation ion income only if he is al lhe same lime
c. Both ·a· and "b" are correct
❖ Answer: C d. Neither ·a· nor "b" is correct

33 Which of the lollowing is not an income derived from sources within the Philippines for ❖ Answer: B
income tax purposes? . .
a. Interests derived from bonds issued by a foreign corporation 37. Which of_the following compensation will be subject to graduated rates?
b. Interest on notes or other interest-bearing obligations of residents a. Basic salary whel~er or not the e~ployee is a minimumwage earner
c. Both ·a· and "b" b. Basic salary only 1f the employee 1s not a minimum wage earner
d. Neither ·a· nor ·b• c. 13th month pay and other benefits not exceeding P90,000
d. Fringe benefits received by supervisory or managerial employee
❖ Answer: A
❖ Answer. B
34. Which of the following statements Is correct with respect to valuation of income?
a. The amount of income recognized is generally the value received or which the 38. Which of the following items that reduces salanes of employees is not an exclusion from
taxpayer has a right to receive. gross income?
b. If the services were rendered at a stipulated price, in the absence of any evidence to a. GSIS or SSS Contributions
the contrary, such price shall be presumed to be the fair market value of the b. Pag-ibig Contributions
compensation received. c. Labor Union Dues
c. Transfer of land made by a pe~n to another in payment of services rendered in the d. None of the choices
form of attorney's fees shall be considered as part of the gross income of the latter
valued al either the fair market value or the zonal valuation, whichever is higher, in ❖ Answer: D
the taxable year received.
d. All of the above 39. One of the following compensation income of an individual taxpayer is not an exclusion
from gross income:
❖ Answer. D
a. Monetized vacation leaves not exceeding 10 days a year.
b. Separation pay of an employee who resigned from his employment.
Compensation Income
c. Retirement benefits of an employee under a qualified benefit plan who has worked
35 Compensation_inco'.'18 is earned when an employer-employee relationship exists. Which for an employer for at least 1oyears, who at the lime of ret(rement is not less than 50
~ ~ r n g income represents income earned through employee-employer years of age, and who avails of the retirement for the first time
I. Professional fees d. All of these.
11. Wages
Ill. Pension pay •:• Answer.
II) Se
B. u · me unless the
•n general is a taxable compensa on mco .
IV. Capital gain parauonthepay, 1 lion 1,5' beyond the control of the employee such as but
a. I only reason for separa
C. II and Ill only not fimited to
b. I and Ill only d. I, II, Iii and IV o Retrenchment
◊ Illness
❖ Answer. C
□
Cl
~--Prof~ fees 81~ generally dassified as business income
· Capital garis are derived from sale/disposaVexchange/barter of capital assets.
4
o. Which of the following is taxable? Id n1r.yee due to the retrenchment program
a. Separation pay received by a SO-year O em.,._,
of the employer

356 357
 (jr(};f.J· ftl¼i~

from benefit plan registered with the BIR where at the time a. P1 ,000,000 C. P3,000,00Q
b. Rebremenl pay ~twas ~7 years of age, retiring from employment for the first b. P2,000,000
the employee reu • ployed with the employer for 8 years d. Ps,000.000
c. ~7!:i~~:°re': ,:;;ved by a ballkbayan from employer abroad at age or 30 ❖ Answer: C
d. None of the above
44• Which among the following• is part •of the taxable lncome of an employee?
❖ Answer. B 1. 1nsurance premium provided by employer on the life · •
1
employee where the designated beneficiary is the n:ra~~ policy of the
41 _ Statement t: Amounts received by reason of involuntary separ:ation remain exempt from I
II. Insurance premium paid _by employer on the life in~~~n!°po ~ e7~~yee.
income tax even if the official or employee at the lime of separalion has rendered less lhan
emhp~oyee wt;ere ~ designated beneficiary ls the employer.
11 0
ten (10) years of service and/or below fifty (50) years of age. Ill. T e income ax o e employee paid by the employer as rt f th
Statemem 2 Any amount received by an offi_cial o_ r en:iployee or by his heirs from the employee's benefit. pa O e
employer due to dealh. sickness or other physical d1sab1hty or for any cause beyond the
IV. The in?'me tax of the employee advanced by the employer, deductible a ainsl
control of the said official or employee., such as retrenchment. redundancy, or cessation of future income of the employee. g
business are exempt from income tax. a. I only
a. Both statements are correct c. II and Ill only
b. I and Ill only d. Ill only
b. Both statements are not cooect
c. Only the first statement Is correct ❖ Answer: B
d. Only the second statement is correct

❖ Answer: A
42. The taxpayer was retired by his employer in 2019 and paid P2,000,000 as a retirement
gratuity without any deduction for withholding tax. The corporation became bankrupt in
2021. Can the BIR subject the P2,000.000 retirement gratuity to income tax in 2021?
11
1 Answer: Yes, if the retirement gratuity was paid based on a reasonable pension
where the taxpayer was 50 years old and has served the corporation.
2'"11 answer: No. if the taxpayer was forced by the corporation to retire.
a 1" and 2"' answers are correct
11
b. 1 answer 1 is correct but 2"' answer is incorrect
c. 111 answer is Incorrect but 2"' answer Is correct
d. 111 and 2"' answers are incorrect
45. Statement 1: 'Remuneralion for services constitutes compensation income even if the
relationship of employer and employee does not exist any longer at the Umewhen payment
Is made between the person in whose employ the services had been performed and the
Individual who performed them.
Statement 2: In general, fixed or variable allowances which are received by a public officer
or employee or officer or employee of a private entity, in addition to the regular
compensation, fixed for his position or office, Is compensation subject to Income tax and
consequently, creditable withholding tax on compensation Income.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

❖ Answer. D
llJ 1a answer is l!lCOm!CI. To be exempt, the retirement pay must be based On
a reasonable retirement plan and the employee must be at least 50 years old
and should have served the company for at least 1Oyears.
2"" sta~ement ls i~rrect. The rules on tax-exempt retirement pay and
separation par are d1flerenl 2"" statement Is applicable to separation pay
rather than retirement pay.
43. JJ. an official of Excel Corporatio ked , .
· · ti Ca n, as ,or an earlier retirement because he was
th nd
::;J:uo~0~ his :,~~: his_girlfrie . He was _paid PJ,000,000 as separation pay in
company was separated fo~rvices ~o the corporation. ~~ul, another official of the same
separa!Jon pay Rene who hOCOJpymg a redundant position. He was given P1 ,000,000
opted lo retire for the firs, r as render~ 11 years of service and who is now P55 yrs. old
subject to withholding tax ir;8· He received P2,000,00Q retirement pay. The total income
-·
❖ Answer: A
II) Statement 2: Basis: Section 2.78.1(A) of RR 2·98 as amended by RR 10-
2008. Examples of fixed or variable allowances are tra~~portation allowance.
representation allowance, communication allowance, IMng away from home
allowance (LAFHA), and the like.
46. Statement 1: Representation and Transportation Allowan~s (RATA) granted under
Section 34 of the General Appropriations Act to certain officials and employees of the
government are considered reimbursements for lhe expenses Incurred in lhe performance
one's duties rather than as additional ~mpensation. "f t returned to the employer,
Statement 2: The excess of RATA in statement 1, I no
constitutes taxable compensation income of the employee. . tax
Statement 3: COLA of minimum wage earners is exempt from income ·
a. All statements are correct
b. All statements are incorrect

358
. 359
 c. Only statement 3 is correct
c. Only statement 3 is correct d. Only statement 3 is incorrect
d. Only statement 3 Is Incorrect
❖ Answer: A
OJ Statement 1: Pursuant to Section
❖ ~s~ tOI.A forms part of lhe new wage rates_or slalutory minimum wage 257.2 (A)(1 ) of RR 2-98. 2.S7.2 (A)(1) of RR 2-98. Under SeciJon
Hence nis covered by lhe income tax exemptiOn of MWEs under RA 9S04
as implemented by Revenue Regulalions No. 10-08, which covers 1~
stalutOI)' rmnimum wage (lncius1ve o_f COUI under N_ CR.Wage.Order No 49 _ that
Statement 1: Tips or gratuiUes paid d1recUy to an emplo b
are not accounted for by the employee to the Y~ Yarust~r of the employer
NCR· 16). lnduding holiday pay, overtime pay. night shift d1fferenllal pay and
income su6ject to basic tax. emp oyer are considered as taxable
hazard pay.
statement 2: The,; lips described
t in statement 1 shall not be SUbJecl
· to withholding
. . tax fOf
47. Juana. widow received the following during 2018:. . the reason that ups are no accounted for by the employee to the lo
a. Both statements are correct emp yer.
• Received $500 (S1=P44) monthly interest income from the pension plan of his
deceased husband who served in the US Army for 2~ years. . . b. Both statements are incorrect
• won a beauty contest "Miss Byuda 2018'. She received the following as pnzes: c. Only the first statement is correct
d. Only the second statement is correct
o Cash prize. PS0,000
o Free-trip abroad worth PS0,000 ❖ Answer: A ;
o College scholarship with International College of Business and Economics worth Basis: RR 2-98

P100,000
Extended Maternity Leave Pay
o Goods worth P20,000. 50. The maternity benefit of the female employee under RA 11210, otherwise known as the
• P100,000 from her debtor in payment of a loan, and interest in the sum of P15,000. 105-Day Expanded Maternity Leave Law, shall pertain to the:
• Inherited from her grandmother a lot and apartm~nt valued al P2,500,000 from which a. Full pay or full salary
b~ Actual cash benefit received from SSS
she 1s receiving monthly rental of P15,000.
c. Salary differential
The income subject to tax is - d. All of the above
a. P415,000 c. P250,000
❖ Answer: A; Basis: RMC 105-2019
b. P679,000 d. P515,000
51. _ _ _ _ _ _ _ _ pertains to the actual remuneration or earnings paid by an
❖ Answer. B
P264,000 employer for services rendered on normal working days and hours, including allowances
Monlhly interest on pension ($500 x P44 x 12)
Total pnzes received from a beauty contest 220,000 provided for under existing company policy or collective bargaining agreement tt any.
Interest income from a debtor 15,000 a. Full pay or full salary
Rental income in inherited apartment (P15,000 x 12) 180,000 b. Actual cash benefit received from SSS
Total income subject to tax P679.000 c. Salary differential
d. All of the above
III The question was income subject to tax. Therefore, it shall include all ty~s
of income subJect to income tax (regardless of the type of income tax: Ba51c,
❖ Answer: A Bas,s: RMC 105-2019
FWT,CGD.
52. f t the difference that shall be shouldered by th~ employer
48. ~atement _1: The stipends received by resident physicians during their intensive training
m the residency program of a hospital are subject to creditable withholding tax on
- : - - - - - - re ers o
when the actual cash benefit received from the So~al
the full pay or full salary of the female employee dunng
;cu; s
. S ·1y stem (SSS) ,s less than
8
u
ratitn of the maternity leave.
compensation income.
Statement 2: Reasonable amounts of reimbursements/advances for travelling and a. Full pay or full salary
entertalnmen~ e~nses which are pre-<:ompuled on a daily basis and are paid lo an b. Actual cash benefit received from SSS
e ~ while he is on an assignment or duty such as ·per diem· need not be subject to c. Salary differential
the requirement of substantiation and to withholding tax. d. All of the above
a. All statements are correct
b. All statements are incorrect ❖ Answer: C

361
360
 . . 9n):5,S /;l Cl>l1/ l',,
56 Which of the following interest income is subje t tO
RA l 121o otherwise known as the 105-Day Expanded · 1. Interest income earned or derived f c normal lax?
53. The maternity leave pay under · · • rom the normal co f
Malemlty Leave Law, shall be: JI. lnteresI income earned or derived from . urse o trade or business
a. Exempt from tax 111. Interest income earned or derived notes receivable.
I th
b. Subject to graduated income tax rate previous years rom e over-payment or Income tax for
c. Subject to fringe benefit tax . . IV, Interest income derived from investments•
The actual cash benefit from SSS is exempt while t~e 7alary differential a I only c d in government bonds
· · 1, 11an Ill only
d. shouldered by the employer shall be treated as compensation income subject to b. I and II only d. All of the above
graduated income tax rate.
❖ Answer: C
❖ Answer: A W Item ·1v- is a pass· ·
ive income (deposit substitute) subject lo FWT.
Business income/ Practice of Profession Recovery of previously written-off bad debts
Refund of prev_lously paid taxes
54. Which of the following statements is incorrect? . .
a Income from business is never subject to final withholding tax 57. The following data on net income. bad debt. write-off and recovery show·
b: Income from exercise of profession may be exempt from income tax 2020: Case A Case B . CaseC
c. Income from business may be subject to capital gains tax Net income (loss) before write-off 1<120.000 P60,ooo (1<40,000)
d. Income from exercise of profession may be subject to income tax Less: Bad debt wntten-off claimed as deduction 40 ooo 40 000 50,000
Net income (loss) after write-off P.!J0.000 ?20'.000 (P00,000)
❖ Answer: C
The following rules shall be observed on what type of income shall apply: 2021:
o Ordinary Income= Basic Tax or Normal Tax Subsequent recovery 1<40,000 1210,000 PS0,000
o Passive income, Philippines (must be in the list of income)= FWf The taxable recovery in 2021 should be:
o Passive income derived abroad = Basic Tax (For RCs and DCs only) Case A Case B CaseC
◊ Capital Gains: a. P40,000 1220,000 PS0,000
• On sale or shares of non-listed DC = CGT b. 1240,000 1220,000 µ - 0
• On sale of real properties in the Phils. = CGT C. 1240,000 1210,000 p 0
• On sale of shares of DC listed in the local stock exchange = Exempt from d. 1240,000 12 0 p 0
income tax but subject to stock transaction tax, a business tax.
• Olher Capllal Gains = Basic Tax
❖ Answer. "C"
Ordinary incomes subject to basic lax are incomes derived from:
◊ Employment (except FBs subject to FBT) ill APPLY THE "TAX-BENEFIT-RULE"
Amount recovered dunng thecurrent year shall be treated as taxable income
o Business income
if:
O Sale of ordinary income
1. The receivables written-off during the previous year(s) were allowed as
◊ Sale of capital assets not subject to CGTs deduction from the gross income duringwrite-off.
0 All other Income not exempt from tax + not subject to FWf or CGT 2. The wrile-ofl resulted 10 alower inoome laX payment due lo the reduction
In the taxable net Income brought aboul by the write-off.
55. Which of the following dealings in property is subject to normal income tax? 3. There was recovery (partial or full) d_uring the current taxable year.
a. Sale of ordinary assets
b. Sale of real property. located in the Philippines. classified as capital asset m· CASE A: bl ·
c. Sale of shares in a domestic corporation sold outside the local stock exchange o PnorYear(2020) - The company was able to reduce the laxa e income
d. All of the choices by P40 000 thereby resulung 10 alower laX payment.
0 Current Year (2021 ) _ The entire amount wa~ recov~red. Hence. the
❖ Answer: A entire recovert shall be recognized as taxable income m2021.

;ASEP~r Year (2020). The oompany was ableto reduce the taxable Income
by P20.000

362
363
 0
Current Year (2021)- The recovery amounted only to P10,000, hence ([) Apply the 'Tax-Benefit.Rule"
only the amount recovered (P10,000) shall be recognized as laxabl~
Income In 2021. The am_ ount of tax recovered duri
taxable income ii: ng the QJrrent year shall be treated as
CASEC: 1. The tax payment d .
unng
from the gross Income the prev10us ye ( )
0 Pnor Year (2020) . The company's o~rallon~ resulted to a loss even ar s were allowed as deductJon
prior 10 write-off of receivables. The wnte-off did not ~suit to a lower lax 2. The tax payment [prio; year(s)I
payment during the prior year. Consequently, applying lhe ·tax-benefit. 3. There was recovery (partial or fu~~~led to alowor taxable net Income.
rule". the company did not benefit from prior year write-off. Hence any • • unng the current taxable yoar.
amount recovered In the succeeding period shall not be treated as I!) •A_ - Taxa.ble income upon recovery.
taxable income. B • Applying the conditions enumei led
current year shall not be treated a above, the tax refunded Induring tho
58. The following were taken from the income statement of domestic corporation for the previously treated as deduction lron,3~ taxable Income because It was not
·c·-1ncome regardless of source Is 8 company's gross Income.
taxable year 2021: "D" same explanation with ·c· . taxable unless exempt under the law.
Gross profit on sales P800,000
Less: Deductible expenses P440,000
80,000 (520,000) 60. Which of the following tax refunds Is taxable?
Provision for bad debts
P280,000 a. Percentage tax on person's exempt from VAT
Net Income before tax
b. Estate or donor's tax
c. Stock transaction tax
Addflional Information:
• Accounts written-off during the year and charged to allowance for bad debts • d. Income tax paid to a foreign country if claimed as tax credit during the year.
PS0.000.
❖ Answer: A
Recoveries on accounts receivable previously written off in 2020 and credited to
allowance for bad debts.
III ~amples of taxpayments dassified as OPEX, hence, may be part of taxable
Allowed as deduction by the BIR - P30,000. income upon recovery:
Disallowed by the BIR as deduction . P20,000. Local business related iaxes
The taxable income of the corporation in 2021 should be: Percentage taxes except ·stock transaction taxes· under Sections 127(a)
a. P280,000 c. P330,000 and (b) of the Tax Code
b. 260,000 d. P340,000 Fringe benefit tax
Income tax paid abroad (by RCs and DCs only) classified by the taxpayer
❖ Answer: D as OPEX. Income tax paid abroad by RCs and DCs, at the option of the
Gross profit on sales PB00.000 taxpayer, may be dasslfied either as ta~ credit or OPEX.
Less: Excise taxes on sin products and non-essenlial goods
Deductible expenses P440,000 Customs duties
Provision for bad debts ND DST
Write-off current year 50,000 (P490.000J...
Ne/income P310,000 m Examples of tax payments classified not classified OPEX, hence, should not
Add: Other income fonn part of the taxable income upon recovery:
Recovery of previously WO bad debts (with tax benefit) 30,0QQ.. Local non-business related taxes
Taxab/e Net Income • 2021 p340,ogg_ Income tax paid abroad (by RCs and DCsonly) where the taxpayer opted
to credit such payment against the lnoome tax due.
lneome tax paid imposed under the Tax Code. as amended
59. Which of the following is not a taxable income?
Stock Transaction Taxes· under Sections 127(a) and (b) of the Tax Code
a Bad debts previously deducted as item of expense and partially recovered
subsequently VAT
Estate Tax
b. Taxbseqexpense previously disallowed as deduction from taxable income fully refunded • Donor's tax
SU~~ '
Special assessment
c. Income from gambling
d. Income from usurious financing 61
· The following are not taxable, except
~· Refund of fringe benefits tax
❖ Answer: B · Refund of Philippine income tax

364 365
 {jt'rf:s__r /trCd11re.
c. Refund of estate or donor's lax 65 Pobre borrowed from Rich P100,000 payable I fi
· Before the first installment became due Pobre ndive (S) equal monlhly installments.
d. Refund of special assessment entire office building of Rich, and as' com e~~ted general cleaning services in the
❖ Answer: A
of Pobre up to the amount of P75.000. The pj on, Rich cancelled lhe indebtedness
5•000 may amount lo:
a. To a gift
b. To a capital contribution
62. ABC Company paid the following lpax1e2s0i~5g21 c. To a donation inter vivas
Income tax , d. To a payment of income
Common carrier's tax 150,000
Local business taxes l00,000
❖ Answer: D
Donor's tax 60,000
Real estate tax 70,000 (Il If a ~eblo~ performs services for a creditor who cancels the debt in
cons1dera!lon for such services the debtor real••M . Iha
. ., ......, income to I amount
The common carrier's tax, real estate tax and P60,000 of the incom~ tax were refunded as com~nsatlon for his servtces. In the given problem, the cancellation
In 2021 . If the Income of ABC in 2021 was P1 ,200,000, the taxable income for the year of Pobre s indebtedness up to the amount of P?S 000 ri t
compensation . b. , gave se o
should be: m~me ~ iect lo income tax. since Rich condoned such
c. P 1,420,000 amount as consideration for the general deaning services rendered by
a. P 1,200,000 Pobre.
b. 1,480,000 d. P1 ,410,000
Rental Income
❖ Answer: C
Solutio11: 66. One of the following income shall be returned in the year received.
2018 Income prior lo tax refunds P 1,200,000 a. Interest earned on bank deposit.
Prior year tax payments refunded during 2021:
Common carriers tax 150,000 b. Share in the net income of professional partnership.
Real estate lax 70,000 c. Stock dividend.
Taxable net income P1,420,000 d. Rentals for 2021, 2022 and 2023 received in 2021 by a lessor under accrual method.

Condonatlon of Debt ❖ Answer: D

63. For tax purposes, which among the following rules shall be observed with respect to · rn Rental income shall be recognized upon receipt, regardless of the accounting
forgiveness of indebtedness? . method (cash or accrual) applied by the lessor.
l. If debtor rendered service in favor of the creditor, for9iveness of debt results IQ QJ Choices A and B shall be recognized as income when earned.
a taxable income to the debtor. rn ·c·, as a rule. is not dassified as income.
II. If lhe debtor did not render service in favor of the creditor, forgiveness of debt
67. What is the correct treatment of advance payment made by the lessee lo the lessor?
results in a taxable indirect gift.
Ill. If the debtor is a shareholder of a corporation, forgiveness of debt by 1he
I. If 1he advance payment represents loan, the amount is part of the lessor's
taxable income.
creditor-corporation results in dividend distribution.
11. If the advance payment 'represents security deposit. the amount is part of the
a. I only c. I and II only
b. II only d. I, II and Ill lessor's taxable income. .
Ill. If lhe advance payment representing loan is applied to unpaid rent, the amount
❖ Answer: D is part of the lessor's taxable income. .
IV. Prepaid rent must be reported in full in the year of receipt,
64. 11 an individual performs services for a creditor who in consideration thereof cancels the a. All of the above c. I. Ill, and III only
debt, the cancellation of indebtedness may amount: b. None of the above d. Ill and IV only
a To a gift
b. To a capital contribution ❖ Answer: D
c. To a donation inter vivos
d. To a payment or Income

❖ Answer. D; Refer to the rules provided in the preceding number.

366 367
 . ~ th ext four /4) questions: Solution:
Use the followmq data or en ears beginning July 1, 2020. Leomar would pay month!
Mike leased his land to l.e?1'1ar for two bctober 2018 and then defaulted for the rest of the yeai
rental of P100.000. He paid rent up 1O • Annual rental income
Income _from improvement (spreacJ.out method , P360,000
thod how much was the income of Mike for 2020? Cost of improvement 1·
68. UnderaccruaI me • P6,000,000
a p 2Q0,000 c. P600,000 . x remaining lease tenn over total useful life
b 400.000 . d. None of the choices Book value after lease term 15/30
P3,000,000
Divide by the shorter between the remaining lea58 1
and useful life erm
••• Answer: · t. rega rdless of the accounting 16 years 200,000
Cl RentalBincome shall be recognized upon r?ce1p Cathrina's 2020 taxable income
method used by the lessor (payment received: July to Oct.; 4 months) P560,000
rn L~sehold improvement shall be recognized as income only if the ownershi
will be transferred to the lessor at the end of the lease term. P
69. Using the same data in the preceding number. how much was the income of Mike in 2020
usmg cash method?
a. P200,000 c. P600,000 m Under the spre~-out method, the remaining book value afler the tease tenn
d. None of the choices shall ~ amortized by the shorter between the remaining lease term after
b. 400,000 complehon of the improvement and the useful Ufe of the lmprovemenl
❖ Answer: B ill Remaining lease term upon completion of the improvement was 15 years.
Shorter than the useM fife of 30 years.
70. Under accrual method, how much was the deductible expense of Leomar in 2020?
a. P60Q,()()0 C. P200,Q00 73. Assume Cathrina opted to use the lump-sum method of recognizing income from leasehold
b. 400,000 d. None.of the choices improvement, the correct income to be recognized in 2020 should be:
a. P360,000 c. P760,000
❖ Answer: A b. P560,000 d. PG,360,000
i;::J Rental expense incurred during the year should be from July to December or
for a total of six (6) months. ❖ Answer: D

71. Under cash method, how much was the deductible expense of Leomar in 2020? Solution:
a. P600,000 c. P200,000 Annual rental income P360,000
b. P400,000 d. None of the choices Income from /mproV11ment (/um1rsum; P6M) 6,000,000
Lessor's annual Income P6,360,000
❖ Answer: B
m Rental paid during the year were from July to October only. fl) Under the lump-sum approach, the entire cost of the leasehold lmprovemen1
upon completion shall be recognized as income.

Use the following data for the next three (31 questions: 74. Using the assumption in the immediately preceding number, the correct income to be
On January 1, 2019, Cathrina leased a parcel of land to Leah. The terms of the contract 01 recognized in 2021 should be:
lease 1s !Of sixteen (16) years and the rental fee is P360,000 a year. The contract provides that a.. P360,000 c. P760,000
Leah wil l construct a building and at the end of the term of the contract the ownership of the
0
b. P560,000 d. P6,360,000
building will be transferred to Cathrina. The building, with a useful life of 30 years, was
completed on January 1, 2020 at a cost of P6,000,000. ❖ Answer: A

72. Assume Cathrina opted to spread her income from leasehold improvement over the term Solution: P360,000
of the lease, the correct income to be recognized in 2020 should be: Annual rental_fncome (full recognized during 2020) ---=-=-=-
a. P360,000 c. P760,000 Income from improvement 'Y P360. 00()
b. P560,000 d. PG,360,000 Lessor's annual income

❖ Answer: B

368 369
 t ❖ Answer: A
Use the followmq data for the next fNe C5) queS ions: . J Solution:
On J I 1 2020 Pedro leased his vacant Joi for a penod of 12_ye~rs to uan at an annual rate
of ptfoo:ooo. it was also agreed that Juan will pay the following m202?:
• P4 .800,000 representing rental payment for two (2) years,
Rental income received in 2022
Annual real property tax assumed by th le P2400.000
INCOME from LEASEHOLD IMPROV~tEN s s~ 30.000
• Security deposit of P2.400,000; and Cost T.
x remaining PJ6,000,000
Annual real property tax of P30,000. . , life aner tease term overtota1usefull,fe
.
~16
Remain,ng book value afler lease term
Pt 2.000,000
The lease contract provides. among others, that Juan will construct a buildin.g at a cost of Divide b! romalncng lease lerm (shorter) 10
P36 ooo. Ownership of the building shall belong to Pedro upon the expiration or Annual income from leasehold improvemenl Pt,200,000
000 of the lease contract. Toe building was completed on July 1, 2022 with an
te~ination x (allocated = July to Dec. 2022 only) f.1I2
Income from leasehold Improvement 120221 600.000
estimated useful life of 15 years. Pedro s 2022 income P3.030,000
75. Pedro shall report total income from the lease in 2020 at
a. P-30.000 c. 122.430,000
79. Ass20u2m4ingh that du~t? the fa~lt tof the lessee, the lease contract was terminated on January
1, , ow muc rn~me Is o be reported by the lessor in 20247
b. P2.400,000 d. ?4,830,000 a. 1232,400,000 C. 1234,830,000
b. 1230,600,000 d. P33,030,000
•!• Answer. 0 P4,800,000
Rental income for 2 years received in 2020
Annual real property tax assumed by the Jessee 30,000 ❖ Answer: B
Income from leasehold improvement (not yet completed) Rental income received in 2024 (terminated beginning of the year
L.esro(s taxable income in 2020 P4,830,000 Annual real property lax in 2024 (terminated lease)
INCOME from LEASEHOLD IMPROVEMENT:
Cost P36.000,000
76. Pedro shall report total income in 2021 al x remaining life afler termination over total useful fife 13.!'i15"
a. 1230,000 C. 122,430,000 Remaining book value aner terminalion P32,400,000
b. P2.400,000 d. ?4,830,000 Income from improvement already recognized:
2018 (six months) (/j()(),00</J
❖ Answer: A 2019 (one year) (1,200,000)
Rent.al income received in 2021 Remaining book value, Jan. 1. 2020 PJ0,600,000
2021 Annual real property tax assumed by the lessee P30,000
Income from leasehold improvement (not yet completed) rn "Remaining useful life or the Improvements after terminationof the lease =
Lessor's taxable income in 2021 P30,000 = 15 years-1.5 years"'= 13.5years.
... July 1, 2020 lo December 31, 2023
77. ~ urning Pedro opted to use outright method in recognizing income from leasehold ill The remaining book value upon termination or the lease contract shall be
improvements, how much is the total income from lease for year 2022? recognized as income.
a. P.J,030,000 C. 1238,430,000
b. P3.630,000 d. 122,400,000 BO. 0~ January 1, 2019, Mike leased to Leomar a piece of vacanl lot on which the taller
constructed a 3-storey building for P6,000,000. The buildingwas com~leted on Ja~u?ry 1,
❖ Answer: C 2021 . The term of the lease is 10 years. while the estimated useful life of the bu1ld1ng is
Rental income received in 2022 P2,400,000 15 years. Mike opted to use the spread out method in recognizing Income. Which of the
Annual real property tax assumed by the lessee 30,000 following statements Is correct?
Income from ,mprovement = cost of construction a. Mike's annual depreciation expense on the leas~ld improvement ls P400,000
(fully recognized upon completion) 36,000,000 b. Aside from rent, Mike should recognize annual income of P350,000 due to the
Lessor's annual income P38,430,000
construction of the building. . •
c. Mike has the option either to deduct in full the cost of the bul!d~g 1n the year of
78· ~':~edro will U5". spread-out method in recognizing Income from leasehOld
completion, or claim deductions for such building annual deprec1at1on up to the end
mpro P ts, how much is the total income from lease for year 2022?
a. J,OJO,OOO c. 1214,430 000 of the term of the lease. .
d. If the fair market value of the building as of the date of compleUon 1s known..Mike Is
b. P3,630,000 d. P2,400,000
required to recognize as income such fair market value In the year of completion.

371
370
 Solution:
Cost of the improvement
❖ Ans~_r. B only if the lessor opted to use the lump-sum lllelhOd· Pt,000,000
C!J A Is: p4oo,ooo. Since the problem specifically provide that ~ Accumulated Depreciation of the lessee " he
:! opted to use spread-out method, the amount to be recognized Should
=P1M x 19/40 ort /J8Sl 19 years
Book value of the improvement beginning. of t{IJI year
(475,000}

not be P400,000. P525,000

CJ -c· ts an incorrect statement ADD: Annual rental expense 00 the 2(f1♦ year
CJ -er . cooed only if lhe lessor opted to use the lump-sum method 100,000
Tofil/ ill!owable deducllon to be r,cognind on the 2(f1♦ yNr P625,000
tNCO:E from LEASEHOLD IMPROVEMENT:
P6,000,000
~ming life after tease tenn over total useful life 7/15 DIVIDEND INCOME
Remaining book value a/ler tease tenn P2,800,000 SITUS OF DIVIDEND INCOME
Divide by remaining tease tenn (shorter) 8
Annual ;ncome from leasehold improvement beg. 2021 P350,000
83. If a corporation distributes its own treasury stocks to its stockholders this kind of a
81. Lessor, had the following infonnation for 2021: corporate distribution which is recognized in the Tax Code Is a: '
Cost or leasehold Improvement P1,000,000 a. stock dividend c. cash dividend
. 100,000 b. property dividend d. liquidating dividend
Annual rent
Toe estimated life of leasehold improvement is 50 years. The term of the lease is 40 ❖ Answer: A
years. At the end of the twentieth (20") year, the lease was terminated for valid causes
done by the lessee. 84. If a corporation distributes its assets to its ·stockholders upon dissolution, this kind of
corporate distribution will result in:
What is the Income to be reported by the lessor at the end of the 20th year? a. stock dividend c. cash dividend
a. P100,000 c. P605,000 b. property dividend d. liquidating dividend
b. P125,000 d. P700,000
❖ Answer:, D
❖ Answer: C
Toral Income from leasehold improvement =Pt,000, 000 x .. f flSO P200,000 85. Which among the following dividend income received In 2019 Is tax exempt? Dividend
Divide by remaining lease tenn 40yeais income received from
Annual income from leasehold improvement P5,(JOO I. Adomestic corporation by a domestic corporation _
II. A domestic corporation by a resident foreig_n corpora~on
Usefu/Ufe 50 years 111. Aresident foreign corporation by a domestie corporation
Leese Tenn (40 years) IV. A domestic corporation by a nonresident foreign corporaUon
Remaining useful life aller lease (Income ofthe Lessor) 10 years ..
a. All of the above c. I and II only
b. None of the above d. I, II and III only
Book value of the improvement end of 2{Jll year=P1M x 30/50 P600,C(X)
Less: illCOme from improvement already recognized as of end of
f!JII' year =P5,000 x 20 ~ ❖ Answer: C
Income to be recognized from the improvement on the 2fllt yaar PSOS,C(X) . .
86· Which among the following dividend . I ed during the effectlvlty of CREATE
income rece v
ADD: Annual rental income·on the 2fllt year ~ law Is tax exempt? 'Dividend income received rrom .
Total Income lo h. l'ICO{Jnlzed on the 2fllt year _!!!!!!!- I. A domestic corporation by a dof!18stic corporation ration
II. A domestic corporation by a resident foreign corpo .
82.. How much Is the allowable deduction of lessee on the 20111 year? Ill. A resident foreign corporation by a ~omeSlic ~rpor:~tion
a P600,000 C. P100,000 IV. A domestic corporation by a nonresident fore gn co
b. P62S,OOO d. PS00,000 a. All of the above c. I only
b. None of the above d. I, 11 ancl III only
❖ Answer: B
. /dM<iend In ,rom /II IS from Ph~ipplno sources.
❖ Answer: D. ; Assuming /ho slUS o

372 373
 . among the Iollowing dividend income is tax exempt?
87. Wtuch
I. Pure stock dividend Ill DI from FC. resident or nonresident {(Sec.
42
11. Pure liquidating dividend .◊ RaLio of Gross Income derived from Ph~A)(~Mb) or lhe Tax Code. as amended]
c. I and II years (RMC 62-2021 iSSUed on May / ~ over WU1d lllCXlme for Ille pasi 3
a. I only d. None of the choices 1
b. 11 only • Less lhan 50% =purely derived ~ ~
• Al leasl 50% =purely derived from r;;.,: PtnU:pines
❖ Answer: C
W Slhtatpemh
e _,,,pp is incorrect. If lhe laxpayer Is RC. the dividend {!lust be laxable in tun Ill
~nll1nes.
88 _ l.Jquidating diVldends are return of shareholders' investment. Which of the following rules Ill SPh~t_em_enl 2becaisincorrect If the laxpayer IS NRA, the dividend Is not laxabfe In lhe
on liquidating dividend is incorrect? . 1
1,ppines use the diVidend Income IS considered denved purely from abroad
a. The excess amount of liquidating dividend over cost of s_ha!;\surr:,n~erei Is taxable.
b. If a shareholder sustains a loss brought about by the 1IquI a ing IvI en , such loss NOTE T11e prov s•cos cerla r • g lo SITUS OF INCOME L1•!c· Sc:· -" , , , , , c, 'c
1 1 1 1
was not amended b1 CREATE LAW On, 1• 0 ta• :r.:;trr-•,1 0 1 ,,•,:·-· _. ·ai, .. , ,, ,
is deductible. - ·d t· d" ·ct d amended part cu arl1 01 !h~ c , ,!t 1c ';:,crnt: rec~•. t~ lJ, a c ~ ... t :-' - C' t "·-,, i,. 0
1 1
c. If a shareholder sustains a loss brought about by the 1IquI a ing IvI en , such loss fore1gr, corporat•on and d • ~t;--lj "r.o:r-: 'rt·r Con,e5·: '"r:'I ::·a· t\ • J f' , L } 1• 'CHl -1
is not deductible. cc'pcralron
d. All of the above
91. Using the above data, which of the following is correct? The cash dividend Is
❖ Answer: C a. Exempt from income tax if he is a resident citizen.
QJ -c· is a capital loss. Deductible lo the extent of capital gain b. Partly taxable if he is a resident alien.
c. Taxable in full if he is a nonresident citizen.
89. Which of the following statements regarding "indirect dividends" is correct? d. Exempt from income tax if he is a nonresident alien.
1. Indirect dividends are other dividends representing payment or rights, which
are in substance, dividends. ❖ Answer: .O Refer lo explanafion in rhe p/ea/ding number.
II. If the shareholder is a debtor of a corporation, cancellation of indebtedness by
the creditor-corporation results in indirect dividen,d distribution. Use the following data for the next three (3) questions:
Ill. The amount of the debt cancelled in statement "II" is returnable income of the Sandara, a nonresident Korean stockholder, received dividend income of P300,000 in 2021
shareholder. from Super Bowl Corporation, a foreign corporation doing business in the Phi!ip~ines. The
a. I only c. I and II only gross income of the foreign corporation from sources within and wit~out the Ph1hpp1nes for the
b. 11 only d. I, II and Ill past three years preceding 2021 were provided as follows:
Source 2018 2019 2020
❖ Answer: C Philippines P16,000,000 P15,000,000 P17,000,000
Cil ·111· is Incorrect If silent. the dividend is assumed to.be from a DC, hence, Abroad 8,000,000 11,000,000 13,000,000
either subject lo FWr (Individual shareholder) or tax-exempt (corporate•
shareholder). 92. The amount of dividend income subject to tax in 2021should be:
a. PO c. P180,000
90. A cash dividend of P100,000 received by a taxpayer in 2021 from a foreign corporation b. P120,000 d. P300,000
whose income from Philippine sources is 40% of its total income is
Statement 1: partly taxable if he is a resident citizen.
Statement 2: Partly taxable if he is a non-resident alien ❖ Answer: D . 1a business income. Hence. Sandara Is a
a. Statements 1 and 2 are false ◊ Dividend income is a passive 1~ 1~ ; business. She Is lsxable on ·gross· Income
nonresident alien not engaged ,n
b. State_ment 1 is true but statement 2 is false derived from Philippine sources.
c. Statement 1 is false but statement 2 is true
. ss ,ncome from within lhe Philippines over wo~d
d. Statements 1 and 2 are true ◊ In lhe problem prol'ided, lhe ralio of gro f . ooiporaUon Is 60% compuled as follows.
income for the past three (3) years of Ille orergn .
❖ Anawer: A 000/80'000 = 60%
Ratio of GI Phls./GI workf = P4S.
W DI income from DC= Income derived purely from Philippine sources [(Sec. 42(Al(2)(a)
of Ille T.u Code, as amended] · . Is consldeled denved fromwllhln Ille Phlfipp1nes
Therefore, the ENTIREdlviden= May 17, 2021.
as explained in RMC 62-2021

374
375
93. Sandam Is subject to:
a Basic income tax on P180,000 From resident foreign corporation (gross)
b. Basic income tax on gross Income of P300,000 60% of its income came from th P
c. Final withholding tax of 25% on P180,000 40% of its Income came fromthe Phhlllpplnes 50,000
. 8 llippmes
d Final withholding tax of 25% on gross income of P300,000 40,000
96. The taxpayer's taxable income is
❖ Answer: D a. P750,000 c. P796 OOO
0 A nonresident alien not engaged in trade or business In the Philippines is subject 10 25% b. P83o,ooo d. Psso'.ooo
final withholding tax based on gross Income.
❖ Answer: D
94. Assuming Super Bowl is a domestic corporation, the amount of income subject to lax Gross Income
Business expenses P2.000,000
should be: (1,200.000)
a. PO c. P180,000 Dividend income Jrom foreign corp.
Taxable Income 50,000
b. P120,000 d. P300,000 P850,()QO
◊ Dividend income from a foreign co alio .
❖ Answer: D
o Dividend income received from a domestic corporation is considered income derived
(except NRA-NETS) is subject to bas~co~e':'ved by an Individual taxpayer
purely from Philippine sources.
97. The final withholding taxes on dividends amount to
95. Alma, a nonresident citizen, received a dividend income of P300,000 in 2021 from Super a. P16,200 c. P25,200
Bowl Corporation, a foreign corporation doing business in' the Philippines. The gross b. P18,000 d. P26,000
income of the foreign corporation from sources within and without the Philippines for the
past three years preceding 2021 were provided as follows: . ❖ Answer: B
Source 2018 · 2019 2020 0) F".f! on DI from DC: (P90.000 + 72,000)190% x 10% : P18.000
Philippines P14,000,000 P10,000,000 P12,000,000 W D1v1?end ln~1!1e _from domestic corporation Is considered income dellved purely from
within the Ph1lippmes (regardless or the % of Income actually derived from within the
Abroad 10,000,000 16,000,000 18,000,000 · Philippines).

The amount of dividend·income subject to tax in 2021 should be: 98. ~abarles Corporation declared and distribuled to its stockholders, shares of Johnson
a. PO c. P165,000 Corporation. One of its stockholders, Vinz, who is a Rlipino, received 100 shares of
b. P135,000 d, P300,000 Johnson Corporation as dividends. At the date of dividend declaration, the fair mar1<et
value of shares of Johnson Corporation was P120 per share and by the time Vinz received
❖ Answer:A the dividend, the fair market value per share was P180. Which of the following Is correct?
◊ The taxpayer Is a nonresident citizen hence taxable only on Income derived from The dividend is.... ·
Philippine sources. '
a. Astock dividend, hence, exempt from income laxalion.
◊ The ratio of gross Income from within the Philippines over world Income for the past b. A property dividend, hence, taxable subject lo the graduated tax rate.
th~. (3) years of the foreign corporation is 45% (ratio = P36,000/80,000). If lhe
ratio 1s less than 50%, the dividend income shall be treated as derived purely from c. A property dividend, hence, taxable and subject lo the final tax rate of 10%.
sources without the Phllippines. d. A property dividend, hence, taxable and subjecl to lhe final tax rate ot 20%.

❖ Answer: C
Use the following data for the next two (2) questions:
John Joe, a resident alien, had the following data in 2021 .
Gro:>5 income. Philippines P2,000,000 · 99. This refers to a specified income payable at stated interva~s for a fixed or a contin~ent .
Business expen~s 1,200,000 period, often for the recipient's life, in consideratipn of a stipulated premium paid either m
Prior installment payments or in a single payment.
Dividends received: a. Annuity c. Pension
From domestic corporation (net) b. Royalty d. Gratuily
SO% of ~ts ~ncome came from the Philippines 90,000
40% of its income came from the Philippines. 72,000 ❖ Answer: A

376 377
 9n~, h1< e ·1>1,1
b The recipient of the award or prize is not requ·red
1 10 ,
. d b a taxpayer represent a part which is taxable and not taxable · services as a condition in receiving th render substanllal future
1oo.Annuity payments receive Y . · .. e pnze or award
Which of the following statement is correct?. bl .
c. The rec1p1ent of the award was selected without an
contest or proceeding.
cii ,
Ya on on his part to enter the
a II annuity received represents interest, ii Is a taxa e income.
'ved represents return of premium, it is not a taxable Income. d. None of the above
b. II annuIty rece1
c Both statements are correct ❖ Answer: D
d. Both statements are not correct

❖ Answer: C 105. Ped'.o was se~ected as the most. outstanding 'barrio teacher in Di Mahagllap town of
Reg1_on XX. His name was submilled by the school principal without his knowledge. He
101. Mr. Santiago purchased a life annuity for P100,_000 which will ~ay hi~ P10,00~ a year. The received a trophy and a cash award of PS0,000. The amount he received Is
life expectancy of Mr. Santiago is 12 years. Which of the following will Mr. Santiago be able a. Subject to basic Income tax
to exclude from his gross income? b. Subject to final tax
a. P10,000 c. P100,000 c. Exempt from income tax
b. P20,000 d. P120,00(} d. Partly taxable, party exempt

❖ Answer: C; Return ·or capija/. ❖ Answer: C

Prizes, Awards and Other Winnings 106. Erick is an amateur boxer who represented the Philippine team in the recently concluded
102. Ana received the following winnings in 2021. Which of the following is subject to final tax Rio Olympics held in Brazil. For winning in the said competition, he received the following
0120% . amounts in 2020:
a. P10,000 winnings outside the Philippines • PS00,000, cash prize from the Amateur Boxing Association of the Philippines
b. P1 .000,000 PCSO winnings (BAP), the accredited national sports association for boxing In the Philippines
c. P6,000 prize in a singing contest • PS,000,000 worth of house and lot donated by Rizal Commercial Banking
d. PB,000 PCSO winnings Corporation (RCBC):
• P600,000 talent fee as model of a known boxing gear; and .
❖ Answer: B . •• P900,000 professional fee from GMA 7 for being an instant celebrity.
Cil 'A" is subject to basic tax (assuming Ana is a resident citizen)
Ill -c· is subject to basic tax because the amount is not more than P10,000 How much of the above amounts is taxable to Erick?
ill ·o- is exempt under TRAIN Law because the amount is not more than P10,000 a. PO c. P2,000.000
ru 'B" is correct. PCSO winnings of more than P1 0,000 are subject to20%FWT,
unless received by NRA-NETB. In such cases, the FWT rate shall be 25%. b. P1 ,500,000 d. P4,000,000

103. Prizes and awards received shall be exempt from income tax when the followin~ conditions ❖ Answer: B
are met, except o Taxable income =PS00,000 + P900,oqo =P1 ,500,000
◊ The PS00,000 cash prize from BAP is tax exempt .
a. 11 is given in recognition of religious, charitable, scientific, educational, artistic, ◊ Properties received through gratuitous transfer, either through donation or
literary or civic achievement. ·
inheritance. is not subject to income tax. Thus. the house and lot received
b. The _recipient of the award or prize is not required to render substantial future from RCBC is non-taxable.
service~ ~s a condition in receiving the prize or award. ,
c. The rec1p1ent of the award was selected without any action on his part to enter 107. Assurne that in 2021, Erick decided to lease the house and lot to Drei for P240,000. How
the contest or proceeding.
d. The amount of prizes does not exceed P10,000 much Income is taxable to Erick in 2021?
a. PO c. P120,000
❖ Answer: 0 b. P40,000 d. P240,000

104. Prizes and awards received shall be exempt from Income tax when the following condilions ❖ Answer: D f perty acquired through gratuitous transfer
are met. except ◊ Income derived from the use O pro
is subject to income tax.
a. 1.tt,s given i~ recognition of religious, charitable, scientific educational artistic,
11erary or Civic achievement. ' '

378 379
 9n1s-s l1.crh11 e,

. Pacman a professional ooxer. won In his11110-boul again~! Timmy Bradly held at Mandalay
108 ·v N d Dun'ng lhe year Pacman received U1e following amounts· JJ a member of the Philippine boxing team .
Bey Las egas. eve o. · • 110· ' · for winning
· · god I ·in the Asian game
received the following
· during 2021:
Pnze
' • P25 MIiiion ns cash prize In the fight Athlete of lhe year award s P500,000
P30 million from Pay Per Vlew Winnings from Phllippine lotto 100,000
• P million talent fee as commerclal model of San Miguel Beer.
12 Prize - Mc Donald rafHe promo 400,00
How much of tho following amounts Is exempt from income tax? Cash girt from his SM Foundation 10.000
a. PO c. P30,000,000 The amount not subject to income tax is 100,000
b. ?25,000,000 d. P67,000,000 a. P700,000 c. P1110 OOO
b. P1 ,100,000 d. P1:010:ooo
❖ Answer: A
(l) AJI the aforementioned incomes ere taxable ❖ Answer: A
Prize for winning gold In the Asian games P500,000
109 Apol, a citizen and resident of the Philippines, ls a professional boxer. In a professional Athlete of the year award
100,000
ooxing match held in 2021. he won prize money in United States (US) dollars equivalent Cash gift from his SM Foundation
100,000
Total amount not sub/ea to lnrome lax P?00,00
to Pa00.000,000.

Question 1: Is the prize money paid to and received by Apol in the US taxable in the
Philippines?
Question 2: May Apol's prize money qualify as an exclusion from his gross income?
Question 3: The US already imposed and withheld income taxes from Apol's prize money.
How may Apol use or apply the Income taxes he paid on his prize money to the
US when he computes his income tax liability in the Philippines for 2021?
Answer to Question 1:
Yes. Under the Tax Code, the income within and without of a resident citizen is
taxable. Since Apol ls a resident Filipino citizen, his income worldwide is taxable in
the Philippines.
Answer to Question 2:
No. · Under the law, all prizes and awards granted to athletes in local and
international sports competitions whether held in the Philippines or abroad and
sanction~ by ~eir nafional sports association are excluded from gross income.
However, !~ ~•s ca~. there is no showing that the boxing match was sanctioned
by the Ph1Lipp1ne National Sports Commission. Therefore, the prize money is not
excluded.
Answer to Question 3:
~I ~ay a~ail of tax credit against his tax liability in the Philippines for taxes
paid in fo_re1gn countries. He may also choose to classify such income tax payments
as ~eduction_ from his gross income. He has to signify in his income tax return his
desire lo avail the deduction.
a All the answers to the questions are correct
b. Only the answers to Questions 1 and 2 are correct
c. Only the answer to Question 3is incorrect
d. All the answers lo the questions are inrorrect
Proceeds from Insurance
111. Proceeds of insurance taken by a corporation on the life of an execur 1O • d 'f ,
against loss in case of his death is ive m emm Y 11
a. Exempt from Income tax
b. Part of taxable Income
c. Subject to final tax
d. Partly exempt, partly taxable
❖ Answer: B
RULES ON PROCEEDS FROM LIFE INSURANCE:
❖ Insurance was taken out by the Insured Qnd"NiduaQ:
O As a result of the death of the Insured = nontaxable
O The insured ·outlived· the policy (not due to lhe death of the Insured) = the amounl received
by the insured shall be treated as partly ·return of capital" which is not iaxable and par11y ·relum
on capitar which shall form part or the taxable Income of the taxpayer.
❖ Insurance was taken out by the corporation (employer):
0 The beneficiary Is the employee =nontaxa!Jle lnoome of the employee's heirs or benef1C1aries
◊ The beneficiary is the corporation =taxable Income of lhe employer
NOTE:
In the problem provided. it appears that the beneficiary 1s the employer-rorporallon. The
problem stales ·10 Indemnify ff against toss in case of dearh·. Applying the rules
discussed above, lhe amount receMd shall be lreated by the employer-corporation as
part of its taxable Income.
t 12. The proceeds received under a life insurance endowment contract Is not considered part
of gross income:
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.

❖ Answer: A ❖ Answer: C

380 381
 (jrrJ-.,i !ttcN,1c
115_Which of the followin~ may be excluded from the
113 Pedro single received the following during the taxable y~ar: . f a. Income denved from bequests and d .gross Income of a taxpayer?
. ev1ces.
. P~s of his life insurance paid at an annua premium o F12,ooo.ooo b. Interest on proceeds of life insuran ..
• ce po11c1es
c. lnteresI received from a domeslic co . ·
Fl 15,000 within 25 years . . d. None of the above. rporatton.
Proceeds of his mother's life insurance patd al an annual premium 1,000.0000
of P10,000 within 20 years ❖ Answer: D
House and lot inherited from his mother 4,000,000
200,000 0 Income derived frorn "bequests ~nd de •
Rent income from inherited properties
received through Inheritance ( . vices means Income from propon,es
1
gratuitous transfers are not incgra u,t~us lr.lnsfer) Propor1Jes received from
For income tax purposes, how much of the above items must be included In his gross 01
properties. are income subiect t~~e. ( tvur, any lnoome don'led lrom these
income? number). ax re er also lo lho lmmodiotely succeoo1ng
a. P7.200,000 c. P200.000 0 Generally, proceeds derived fr rr I 5
b. 121 ,200,000 d. P.1,825,000 discussions). However, iniere~%~~n~
taxable.
te'3'.'.~
~re lax~xompt (refer to previous
n,•.,, rom proceeds of llfo insurance 1s

❖ Answer. D
Proceeds ofhis life insurance; Taxable= P2M- (P15,O00 x 25) Pl,625,000 116. Which of lhe following is taxable?
Rent income from Inherited propet1/es 200.000 a. Property acquired through donation
Total Pf,825,000 b. Inherited properties
o The P2M received by Pedro from the Insurance company is partly taxable because c. Income from lellers ·a· and ·b·
he outlived the pol,cy (Refer lo lhe discussions in lhe Immediately preceding d. None of the choices
number). The amount he received is in relation to "his" life insurance. If Pedro
died. lhe proceeds should have been received by his heirs or beneficiaries. The
amount of Income to be recognized shall be the portion pertaining only to "return ❖ Answer: C
on capital'. The P2M he received is composed of his contributions for lhe past 25
years (return of capital) and return ·on· capllal. Only lhe latter shall be recognized Compensation for Injuries suffered
as taxable Income. 117. The following are examples of nontaxable compensation for Injuries, except.
o Proceeds of life Insurance as a resull of the death of the Insured is a non-taxable a. Actual damages for injuries suffered.
Income.
b. Compensatory damages for unrealized profits.
0 Property received from gratuitous transfer (donation and inheritance) is a not
considered Income for Income taxation purposes. However, If such properties c. Moral damages for grief, anxiety and physical sufferings
derived income either from use, lease or sale, such Income shall form part of lho d. Exemplary damages.
taxable income of lhe taxpaye~.
❖ Answer: B
114. Pedro insured his life with his estate as beneficiary. In 2019, after Pedro had paid P650,000
in premium, he assigned the policy to Jose for P600,000. Jose continued paying the 118. This income is subject to basic tax
premiums. Pedro died in 2021 and Jose collected the total proceeds of P2,000,000. Jose, a. Compensation for personal injuries or sickness
after the assignment and Pedro's death, paid total premiums of PB00,000. As a result of b. Salaries or emoluments received during a leave of absence
the above transactions, Jose: c. Winnings from PCSO and Philippine lotto
a. May consider the proceeds of P2,000,000 as exempt from tax d. Fringe benefits given to managerial employees
b. Derived a taxable income of 12550,000 '
c. Derived a taxable income of P600,000 ❖ Answer: B
d. Answer not given
119. Marlon was hit by a car driven by Jaycee causing severe injuries to the former. II was found
❖ Answer: C out during trial that the driver was drunk al the time of the Incident.
O Taxable iOOJme = Proceeds_ capital After trial, the court awarded the following:
o Tl = ~ .000,000- 600,000 - 800,000 = P600,000 • 121,500,000 actual damages for hospitalization
o Jose 15 not lhe beneficiary of Pedro. Therefore, !hough the proceeds w~re • 12300,000 exemplary damages
collected as a resull of Pedro's death, the amount recefVed In excess of capital
shall be considered as part of Jose's taxable income.
• 12500,000 for loss of Income,; and
• 12100,000 moral damages.

382 383
 {jrt'..'i..i !ttet'llfc~
_arando is th~ hottes_t designer and make-u .
Marlon also received a cash gift of P100,000 from Jaycee. The taxable income reQiived 124 professional income Is P15,000 ooo i
On F artiSt In the Metropolis tOday HI 1
10-door high-end apartment ~rth PSO ~ ~~ry 4, 2021, he inhented fro~ a ~i3~nua
by Marion is: 1
c. ?1,500,000
a. P2,400,000 during the year amounted to P3,000,000. Brando'~~~ren~I income from the apa~:i
d. PS00,000
b. P1 ,900,000 gratuity of PS,00~,oo,o under lime deposit with 800 er income is from Interest on his
among the following 1s correct? at a rate of 10%per annum. Which
❖ Answer: D .
en Only equivalenl 10 the amount receive<! In compensation or lost income a. The apartmenl_he inherited forms part of h"15
b. The net rental income from apartment h . ~le income during the year.
120. Recoveries of damages. shall not form part of the taxable income when it represents income during the year. e mhented forms part or his taxable
compensation for personal injuries arising from: c. The interest on his gratuity forms part ·Of h" .
d. All of the above is taxable income during the year.
I. Libels
II. Defamation
❖ Answer: B
Ill. Slander
tV. Breach of promise to marry
V. Alienation of affection 125. A tax exclusion is defined as
a. I and II only c. I, II, Ill, IV and V a. An item or amount which the law allows 10 be deducted 1
d. None of the above arrive al net income. rom gross Income In order to
b. I, II and Ill only
b. The. .grant of immunity
. to. particular persons or corporat·ions from a tax which others
❖ Answer. C within the same taxing district are obliged to pay.
121. The following are examples of nontaxable compensation for injuries, except. c. tlncotyme received but which is not part of gross Income as it is exempted by law or by
a Actual damages for injuries suffered. rea .
b. Compensatory damages for unrealized profits. d. A deduction from income tax due of any amount paid to a foreign country subject to
c. Moral damages for grief, anxiety and physical sufferings limitation.
d. Exemplary damages.
❖ Answer: C
❖ Answer. B
126. Which of the following is not an income tax on corporations?
122. In order for ~ains real_ized from the sale or exchange or retirement of bonds, debentures a. Nonmaltax
or other certificate of indebtedness be exempt from income taxation what is the b. Minimum corporate Income tax
prescribed length of its maturity? ' c. Gross Income tax
a. 5 years or more d. Stock transaction tax
b. 5 years or less
c. More than 5 years ❖ Answer: D
d. ExacUy 5 years ◊ Stock transaction tax is a business tax, not an income tax

❖ Answer: C 127. Which among the following are examples of Income that are exempt from Income tax by
virtue of a treaty?
123. Which is not a creditable withholding income tax? a. Salaries of officials of the United Nations assigned in the Philippines if paid by the
a. Expanded withholding income lax United Nations and certified by the Secretary General of the United Na~ons.
b. Withholding income tax on passive income b. Salaries, allowances, fees, or wages received by citizens ot the United States of
c. Withholding income tax at source America working in consular offices In the Philippines are exempt from all taxes.
d. None of the above
c. Salaries of diplomatic officials and agents.
❖ Answer. B d. All of the above

❖ Answer: D

384 385
 (}nJ;rs htCd1,1e,
ynJ;,,, lt1a•1,1t'
Which or the following organizations shall bee
128. Which among the following are examples of Income that are exempt from income lax by 132· a Organizations such as provincial lairs xempt from Income lax?
8nd
virtue or special laws? d u ·1 d St t · character, which are designed to encoura ~lke associallons of a quasi-public
a. Payments or benefits due or to become due un er m e a es Veterans 1
and horticultural products through a syst ge e development of better agricultural
Administralipn are not Included In !he gross Income. . whose Income derived from gate receipts em i°f awards, prizes, or premiums and
b. Benefits received rrom or enjoyed under the Social Security System (SSS) are not
to meet all the necessary expenses or upk~n ry fees, donations Is used exclu~lvely
Included in the gross Income. . . . b. Associations w.hich have for their purpose, ti/~i1;~graflion . ,
c. Benefits received fromthe GSIS including retirement ~ratu1ty received by government
profits from which may inure to the benefit of th h O periodical race meets, the
officials and employees are not included In the gross income. . . eIr s areholders
c. Corporations engaged tn growing agricultural ·
d. All of the above livestock or similar products for profits. or horticultural products or raising
d. None of the choices.
❖ Answer: D
❖ Answer: A
129. Which or the following items is not part of gross Income to be reported in the Income tax
return?
a. Increase in value of land 133 Which of the following government owned or controlled corp 11 .
. . Instrumentalities shall pay such rate of tax upon their taxable lncomeorasons,I agenedc1es or
b. Gambling winnings . · - . . . • are mpos upon
c. Prize of P10,000 corpora tions or assoc,~1ions engaged in s1mIlar business, induslry or activity?
d. Gain from sale of store's air conditioner a. Government Service Insurance System (GSIS)
b. Social Security System (SSS)
❖ Answer. A · c. Philippine Amusement and Gaming Corporation (PAGCOR)
◊ Unrealized gains and losses are not recognized for income taxation purposes. d. Philippine Charity Sweepstakes Office (PCSO) .
Example of unrealized gain'is a mere increase in tire value of a land.
❖ Answer: C
130. Mr. Joe, an American residing in Hongkong came lo the Philippines to sing the American
national anthem on a professional boxing championship match held in the Araneta 134. Ana sued Pedro for breach of promise to marry. Pedro lost the case and duly paid
Coliseum. He was paid P1,000,000 as talent fee. His Philippine income tax would be: the court's award that included, among others, P100,000 as moral damages for
a. P320,000 c. P250,000 the mental anguish Ana suffered. Did Ana earn a laxable'income?
b. P285,000 d. P150,000 a. She had a taxable income of P100,000 slnoe income is income fromwhatever
source. .
❖ Answer: C b. She had rio taxable income because ii was adonation.
◊ Income Tax Due= Pt,000,000 x 25% = P250,000 c. She had.taxable income since she made a profit.
d. She had no taxable income since moral damages are compensatory.
131 . 1st statement: To be exempt from income taxation, long term bank deposit or Investment
should not be terminated by the investor before the 5th year; otherwise, it shall be subjected ❖. Answer: D
to final tax rates of 5%, 12%, or 20%on Interest income earnings. ◊ She had no taxable Income since moral damagesate compensatory.. Exemplaty
and moral damages awarded to a party-li~gant are not considered lallable
Income (America NA-Manila Branch vs. Commissioner of Internal Revenue.
~ statement: For purposes of exemption from Income taxation, the long term deposit or
Investment above refer to those investments issued by banks and other financial CTA Case No. 6144, March 14. 2005).
institutions.
a. Only 1" statement is correct Dealings In Property
Capital Gains and Losses . •
b. Only 2nd statement Is correct 135. income from dealings in property (real, P.ersonal, or mixed) Is the gain or loss denved:
c. Both statements are correct
a. Only from the cash sale of property
d. Both statements are incorrect b. From cash and gratuitous receipts of property
❖ Answer: A c. From sale and lease of property
◊ Only Interest income from long-term bank deposit or Investment is exempt from
d. Only from sale of property
Income tax. ·
❖ Answer: D

386 387
 d. There Is a final tax of 5% on real property sold.

136. The term ·capital assets° includesrty eluded in the taxpayer's inventory. ❖ Answer: D
a Stock In trade or other prope In .
b. R I rty nol used in the trade or business of taxpayer.
· ea prope. ·iy for sale to customers in the ordinary course of trade or business
c. Property pnman d b' t t . .
142. Which of the following statements is incorrect?
d. Property used in the trade or business of the taxpayer an su Jee o depreciation. a. cad~ital losses are deddudctib~e only to the extent of capital gains
b 0 r 1nary 1osses are e uct1ble only to the extent of 0 rd' ·.
c: Ordinary gains are always subject to basic tax. inary gams.
❖ Answer: B d. Capital gains may be subject to basic tax.
137_Under Section 39 (b) of the Tax Code, how much shall be taken into account in computing ❖ Answer: B
net income if a gain is realized by an individual taxpayer from the sale or exchange of
capital a~ts (other than real properties and shares of stocks) held for more than 12
months? 143. In computing gain or loss from the sale or other disposition of property acquired as gift or
a. 40% of the net capital gain. donation, the basis of cost shall be:
b. 50% of the net capital gain. a. The fair market value as of the date of acquisition.
c. 60% of the net capital gain. b. The purchase price plus expenses of acquisttion.
d. 100% of the net capital gain. c. The latest inventory value.
d. The same as it would be in the hands of the donor.
❖ Answer: B
❖ Answer: D
138. Lots being rented when subsequently sold are classified as
a. Capital assets c. Ordinary assets 144. Juan received as gift from his mother property purchased ten years ago for 12100,000. At
b. Liquid assets d. Fixed assets the time of donation, the property had a fair market value of 122,000,000. After owning the
property for 3 years, Juan sold them for 122,500,000. Which of the following statements is
❖ Answer: C correct?
a. The gain on the sale was a capital gain of 122,400,000.
139. The following rules shall be observed when a capital gain or capital loss is sustained by a· b. The gain on the sale was an ordinary gain of 122,400,000.
corporation, except c. The holding period of the asset is immaterial ·
a. Capital gains and losses are reoognized to the extent of its full amount. d. The gain on the sale going into the net taxable income was 122,400,000.
b. Capital losses are deductible only to the extent of capital gains.
c. Net capital losses are not deductible from ordinary gain or income but ordinary ❖ Answer: A
losses are deductible from capital gains. ◊ "B" Is wrong. What was sold was a capital asset.
d. There Is a holding period ◊ ·o· is wrong. Applying holding period, the taxable income should have been
Pl,200,000.
❖ Answer: D
145. Andres inherited a piece of land from his father (purchased by the father_ at P5.000,000)
140 -The fol!owing t~xpayers consider holding period. in determining the taxable capital gain or with a fair market value of P3,000.000 when Inherited. He transfe_rred this property to a
deduclibl~ capital loss and carry-over net capital loss the following year, except - corporation where he is the majority stockholder, Omega Corporalton, and received for 1:
a. lnd1v1dual c. Corporation newly issued shares of stocks with a par value of P4,500,000 and fair market value o
b. Estates d. Trusts PS,000,000. Which of the following is wrong?
a. The gain to Andres on the transfer Is P2,000,000.
❖ Answer. C b. The gain to Omega Corporation on the transfer is PO.
c. The basis of the shares in the hands of O~ega is PS,OOO,OOO.
141. ~ules on _capita~ gains and losses of corporations, except: d. There is no gain from any and all transacltons.
. Cap1_tal ga1~s and losses are reoognlzed to the extent of 1000;.0 regardless of the
holding penod. ❖ Answer: D
~- The net capital loss carry over is not applicable. ◊ "A" Is correct (P5M - P3M =P2M)
. Capital losses are deducUble only to the extent of capital gains.

388 389
 • _,., The issuing corporation will simply recognize the receipt of How much is Pedro's taxable income?
o ·a· and ·c are co =·11 And
asset in exchange of Its shares issued to res. a. 12484,000 C. 12435,500
b. 12444,000 d. 12385,500
. •al land with a cost of 12500,000 but with a fair market value ❖ Answer: C
146. Manuel transferred his comme;~ ·n exchange of the stocks of the corporation with par Income from trading activities
of 12750,000 to MHD AsCorpora oltno; the transfer he became the major stockholder of the Add: Net Capital Gain P400,000
value of 121,000,000. a resu '
Short term capital gain @100%
r As a result of the transfer: .
Long-term capital gain@ 50%
PS-0,000
corpora ion. . ed . . the difference between the fair market value of the shares of 22,500
a. The recogmz gain Is Short /em capital toss @100%
stocks and the cost of the land. (23,000)
Long-term capital loss @50%
b. The recognized gain is the difference between the par value of the stocks and the fair Net capital gain
(14.000)
market value of land. • 35,500 35.500
Taxable Net Income
c. No recognized gain because the land was in exchange of purely stocks and Manuel P435,500
became the majority stockholder.
d. No recognized gain because the land was in exchange of stocks of the ~rporalion. 150. Based on the above problem, assuming lhe taxpayer is a corporation, how much Is the
taxable income?
a. 12484,000 C. P435,500 .
❖ Answer: C b. 12444,000 d. 12385,500
❖ Answer: B
147. Emilio was a stockholder of EAC Co. He owned shares of stock which he acquired five
Income from trading activities P400,000
years ago at a cost of P100,000. EAC was dissolved. He received a liquidating dividend of Add: Net Capital Gain
12140,000. The gain subject to income tax is - · Short term capital gain @ 100% PS0,000
a. An ordinary gain to consider is P40,000. Long-term capital gain@ 100% 45,000
b. A C3pital gain to consider is P40,000. Short /em capital loss @ 100% (23,000)
c. A capital gain to consider is P20,000. Long-term capital loss@ 100% (28,000) 44,000
d. No gain to consider. Taxable Net Income P444,000

•:• Answer. "C11 The Next six (6) questions are based on the following information:
0 Apply holding period. Emilio provided the following data on his different income during the year:
◊ Capital gain subject to tax= P40,000 x 50% = P20,000. . 2020 2021
Business Income P 306,700 P410,800
148. Apel owns 51% of JJ Corporation valued at P25,000,000. Due to bankruptcy, JJ was Interest on time deposit with BPI 2,000 3,000
liquidated. Apel received P20,000,000 as liquidating dividend. Was the loss deductible? Short-term capital gain • 10,000 290,500
a. No, because Apel and JJ are considered related parties. . Long-term capital gain 20,600 80,200
b. Yes, the loss is classified as capital loss and could be deducted from capital gain, Short-term capital loss 290,000 20,900
if any. Long-term capital loss 80,400
c. No, because the amount received by Apo! was subject to capital gains tax.
d. Yes, because losses as a rule are deductible. · 151 • How much is the taxable income of Emilio for year 2020?
a. P306,700 c. P106,700
❖ Answer: B b. P56,700 d. nil
149. Pedro ~enerat~ net Income from trade amounting 10 12400,000. His capital asset ❖ Answer: A
transactions dunng 2020 are ·summarized as follows: P306.700
Business Income
Holding Period Amount Add: Net capital gain P10.000
Capital gain 6 months 1250,000 Short-term capital gain@ 100¾ 10,300
Capital gain 2 years Long-term capital gain @50%
45,000 (290,000)
Capital loss 12 months 23,000 Short-term capital loss@ 100% (40,200)
Capital loss 10 years Long-term capital loss @ SO% (P309,900)
28,000
Net capital loss P306.700
Taxable net income

390 391
 9r0crs hLc d11lc

hOldl period If the taxpayer Is Individual

o Apply the rules on ded ~ble only lo the extent of capital gains. use the following d~ta for the next !wo (2} questions.
o Capital tosses are u . FWT ~ s the following Information In 2020: -
o The interest Income on BPI Is subJect to Gross profit from sale of Inventories held for 2 years
Loss on two (2) weeks option contract P 500,000
152. How much is the taxable Income of Emilio for thoeoyear 2021? Gain on sale of bonds (holding period: 6 months) ~:~~~
P13800 c. P:113,8 Gain on sale of delivery truck held for 3 ½years ,
~: Pl lO,SOO d. P260,600 Gain on sale of personal car held for 5 years 400 ,000
160 000
capital gain on direct _sale _to buyers of shares of stocks held for 4 years 40 000
❖ Answer: C Sale of 2-year old restdenlial hou_se (Cost: P54Q.OOO) s.soo:ooo
Business income P410.BOO
In 2019, Jose had a net taxable income of PS0,000 and a capital loss of F275,000.
Add: Nel capital gain
Short-term capital gain@ 100% P290,500
Long-term capital gain @ 50% 40,100 155. How much is the taxable net income?
Short-term capital loss@ 100% (20,900) . a. P415,000 c. P890,000
Nel Capital Gain P309,700 b. P490,000 d. P940,000
Less: ner capital loss carry-over (2020) (306.700)" 3,000
Taxable net income P413,B0O ❖ Answer: D
Gross profit from sale ofinventories p 500. ooo
o "Capital loss carry-<>ver should not exceed the net taxable inoome during the year Gain on sale of delivery truck 400,000
the net capital loss was incurred. Loss on option contrac/ =@ 100% (50,000)
Gain on sale of bonds=@ 100% 60,000
153. If the taxpayer is a corporation, how much is the taxable income for the year 2020? Gain on sale of personal car= P160k x 50% 80,000
a. P306,700 . c. P106,700 Net Capital Gain 90,000
b. P56,700 d. nil Less: Net capital loss carry-over (50.000} 40.000
Taxable net income P940,000
•·· Answer. A ◊ Capital loss carry-over should not exceed I/le net taxable Income during ttie year
Business income P306, 700 the net capital loss was incurred
Add: Nel capital gain
Shon-term capital gain@ 100% P10,000 156. How much is the to\al capital gains tax?
Long-term capital gain @ 1DO% 20,600 a. P2,000 c. P332,000
Short-term capital loss@ 100"/4 (290,000) b. P166,000 d. P336,000
Long-lerm capital loss@ 100"/4 (80,400)
Net capital Joss (339,800) -~=;;-
Taxable net income P306, 700 ❖ Answer: D
CGT
O The rules on holding period and net capital loss carry-over are not applicable to On sate of shares of stock= P40,000 x f5',,j P6,000
corporate taxpayers. On sale ofresidential house= PS.500.000 x 6% 33 o,ooo
336
TOTALCGT ·~ .
154. If the taxpayer is a corporation, how much is the taxable income for the year 2021? ◊ CGT on shares of stock under I/le TRAIN Law is IS% of lhe capital gain
a. P13,800 c. P113,800
b. P110,800 d. P760,600 157. Juan a Filipino citizen migrated to the United States some eight (B) years agotaaod got a
' ' d He should pay his PhlUpplne Income xes on:
❖ Answer: 0 permanent resident status or green ~r · . . U A or jewelry he purchased in the
Business income a. The gains derived from the sale in Cahfomia, ·5· ·
P410,800
Add: Ner capital gain Philippines. . m any as the sole
Short-term capital gain@ 100"/4 P290,500 b. The proceeds he received from a Philippine insuran~ co P
Long-term capital gain@ 100% 80,200 b his father who dted recently.
Short-term capital loss@ 100% beneficiary of life insurance take~ Y S k Exchange of shares of stock in
(20,900) 349,800 c. The gains derived from the sale in New York toe
Taxable net income
P760,600
PLOT, a Philippine corporation. . rporation whose gross Income
d. Dividends received from a two year-old foreign co
was derived solely from abroad.

392 393
 ❖ Answer: C
o •A. is income earned abroad
0 er is a tax~xempt income. . .
o .,...
" gain. on sale of shares of DC is always conS1dered
PhT .
an mcomo in the Philippines
.
o -o· is a dil'ldend income earned outside of the I ippmes.

158_Statement t:Gain on sale or all kinds of capital assets are subject to the final tax on capital

r~:~nt 2: Gain from ·sale or real property classified as capital asset and located in DEDUCTIONS FROM THE GROSS INCOME
Miami. Florida is not subject to the final tax on capital gain. Section 34 of the Tax Code, as amended
a. Both statements are correct
b. Both statements are not correct Deductions, are the amounts, which the law allows to be deducted from gross Income In
c. Only the first statement is correct orderto arrive at net Income. On the other hand, "ExduslonS' are something received or earned
by the taxpayer that do not form part of gross Income while deductiol\S are something spent or
d. Only the second statement is correct paid in earning the gross income. Exclusions pertain to the computation of gross Income, while
deductions pertain to the computation of net Income.
❖ Answer: D
o Gain on sale of capRal assets may be: tciNDS OF DEDUCTIONS
o Subject to capital gains lax
1. Itemized Deductions
ci Subject to basic income lax .
2. Optional Standard Deduction
o Exempt from income tax but subject to stock transaction tax
3. Special Deductions allowed under special cases.
O Sale of real property located abroad is subject )o basic Income tax.
TAXPAYER ALLOWABLE DEDUCTIONS
159. In 2020, Mr. Vicente Tagle, a retiree, bought 10,000 CDA shares that are unlisted in the
local stock exchange for P10 per share. In 2021 , the said spares had a book value IJ:r Individuals eaming pure Beginning 2018, no more deduction Is allowed to
share of P60 per share. In view of a car accident in 2021, Mr. Vicente Tagle had to sell his compensation income purely compensation Income earners.
CDA shares but he could sell the same only for PS0 p_er share. The sale is subject to tax Individuals deriving Income from Itemized deductions or Optional Standard Deductlon
as follows: · trade, business or practice of
a. Stock transaction tax of 6/10 of 1%of gross selling price. profession.
b. 15%capital gains tax on the capital gain of PSO per share, atrived at by deducting the
cost (P10 per share) from the book value (P60 per share). . Corporations Itemized deductions or O Uonal Standard Deduction
c. 15% capital gains tax on the capital gain from sale of P40 per share (PS0 selling pnce
less P10 cost) plus donor's tax on the excess of the fair market value of the
m MIZED DEDUCTIONS
shares over the consideration.
d. Graduated income tax rates on the net taxable Income from the sale of the ed rovldes that except for taxpayers earning
shares. Section 34 of the Tax Code, as amend • P rendered under an employer-employee
compensation Income arising from personal servt~ tli"s Section in romputlng taxable Income
❖ Answer: C relationship where no deductions shall be allowed u~ ~. ~(A) and '27(B); there shall be allowed
subject to Income tax under Sections 24(A); 2S(A), 2 ' 2
the following deductions from gross Income as follows:
160. Assume the shares sold were from a foreign corporation, the sale is subject to:
A. Expenses
a. 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50 selling B. Interest
price less P10 cost).
C. Taxes
b. 15%capital gains tax on the capital gain from sale of P40 per share (PS0 selling price D. Losses
less P10 cost). E. Bad debts
c. St~ _ transaction tax of 6/10 of 1%of gross selling price F. Depreciation
d. Baste income tax G. Depletion
H. Charitable Contribution
I. Research and development
❖ Answer. D
J. Contributions to Pension Trust d/ HospitalJzatlon Insurance
K. Premium Payments on Health an or

394 395
 Dc/n:·tt',w.f n, f}n~,, t,c,•11/('
REQUISITES FOR DEDUCTIBILITY IN GEN -
~!~;~!~~ AND NECESSARY TRADE BUSINESS OR PROFESSIONAL EXPENSES • Must be ordinary and necessary· ERAL:
Secnon 34(A)( l )(a) of the Tax Code, as amended Paid or incurred during the taxable
Connected with trade, business or Year;
In general, there shall be allowed as deductions from gross Income all the ordinary and
necessar\• expenses paid or Incurred during the taxabl~ year In carrying on or which are directly
Supported by sufficient evidence·
Not against the law morals public n .
:~ctlce
of profession;
11
attributable to, the development, management, operation and/or conduct of the trade, business lt must have been ~ubJected to w•:1 ,cv or public order;
o ding tax, If applicable.
or exerose of a profession, Including:

I. Salaries and wages MINOR OR ORDINARY REPAIRS & MAINTENANCE

A reasonable allowance for salaries, wages, and other forms of compensation for KIND OF REPA!B
personal services rendered, Including the gross-up monetary value of fringe benent Repairs that mater!ally add to the value of the pro TREATMENT
furnished or granted by the employer to the employee: Provided, that the Income tax Repair that appreciably prolong the fife of the pro::::: Capitalize
Imposed on such salaries and fringe benefits has been paid; Repair that keep the property In Its ordinarily effl . t Capitalize
condition aen operating Outright Expense
2. Travel
A reasonable allowance for travel expenses, here and abroad, while away from home
In the pursuit of trade, business or profession;
W44~~1¥-f·i4!•l','l• i:i!iik•l4;1\?·iii3•11Iif·i1C•J:t•ili~~ii1i'i•C•J~b
Sedfon 34(A){2) of the Tax Code, as amended

3. Rentals In addition to the expenses allowable as deductions under Section 34 a private edu u
A reasonable allowance for rentals and/or other payments which are required as a 1
institution; referred to under Section 27(B) of this Code, may at Its opt/on ~feet to either· ca ona
condition for the continued use or possession, for purposes of U1e trade, business or 1. capitalize and claim depreciation as deduction· or ·
profession, of property to which the taxpayer has not taken or is not taking tjtle or In 2. Claim as outright expense. '
which he has no equity other than that of a lessee, user or possessor;

4. Entertainment, Amusement and Recreation Expense
A reasonable allowance for entertainment, amusement and recreation expenses during
the taxable year, that are directly connected to the development, management and
operation of the trade, business or profession of the taxpayer, or that are directly related
to or in furtherance of the conduct of his or Its trade, business or exercise of a profession
not to exceed such ceilings as prescribed under RR 10-2002. Provided, that any expense
Incurred for entertainment, amusement or recreation {EAR) that Is contrary to law,
morals, publlc policy or public order shall in no case be allowed as d.eduction.
AMOUNT DEDUCTIBLE - lower Amount between actual and limit:
LIMIT
Sale of Goods or Properties
Net Sales x ½ of 1%
Sale of services
Net Revenue x 1%
For sel_le_rs of ~u,.~ s or properties and services, an apportionment formula is used in
determining the ceiling on such expenses based on the following apportionment formula:
Section 34(B)of the Tax Code, as amended by CREATE Law
In General. The amount of interest paid or Incurred within a taxable year on Indebtedness In
connection with the taxpayer's profession, trade or business shall be allowed as deducUon from
gross Income.
REQUISITES FOR DEDUCTIBILITY under RR 5-2021 in relation to CREATE Law.
1. The Indebtedness must be that of the taxpayer;
2. The interest must have been stipulated In writing;
3. The Interest must be legally due;
4. The interest payment arrangement must not be between related taxpayers as
mandated In sec. 34(B)(2)(b), In relation to Sec. 36(B) both of the Tax Code of t997
5. The interest must not be Incurred to finance petroleum operations; and
6. The Interest was not treated as "capital expenditure', If such Interest was Incurred In
acquiring property used In trade, business or exercise of profession.

Net Sales/Revenue x Actual Expense Provided, however. that the taxuaw's otheMise allowabledeductron for Interest
Total Net Sales/Revenue exoense shall be @duce<l bv DnWY percent ( 200/o) of the Interest income
subjected to final tax: Provided, finally, that If the Interest Income tax Is adjusted
5. !Added under CREATE Law Upon effectMty of CREATE law an addltlona~deductlon In the future, the interest expense reduction rate shall be adjusted accordingly
from taxable Income of one-half (1/2) of the value of labor m:intng expenses Incurred formula as defined In the rules and regulauons
based on the prescribed standard
for skills development of enterprise-based trainees enrolled In public senior high tary of finance upon the recommendation or the
to be promulgated by t he secre '
~ools, public higher education Institutions, or public technical vocational Institutions
a d duly covered by an apprenticeship agreement under presldentlal decree no. 442• Commissioner of Internal Revenue (OR),
series of 1~74, or the "Labor Code of the Phlllpplnes", as amended, shall be granted to tion In Iha sJJowab/e Interest oxpensa was JJl o/
entetpnses. Provided, further, that for the additional deduction for enterprise-based Prior lo CREA TE law. th9 reduc
training of students from public educatfonal Institutions the enterprise shall secure income subjected to fins/ tax.
proper certification from the DEPED, TESDA, or CHED:' Provided, finally, that such
b a rcentage of Income subjected to final
deduction shall not exceed ten percent (10%) of direct labor wage (RR s-2021). The reduction of Interest expen~ Y ,:itrage• rule.
withholding tax Is known as the tall a

396 397
 COMPUTATION:
TRAIN LAW: Interest Expense (lrom .
Less: Reduction borrowmgi) Pxxx
JO% orfor tQ the effectfvlty o/CREA TE law for ou~
Ustnq tnr BW@te 01 ~ will result to a lower taxable Income but thetaxpay f Interest Income subject
Hlustrat/ofl, Interest expen savln s) of 30% (TRAIN law). On the other hand t er Multiply by etther: to FWT Pxxx
wlll enjoy tax ~efitl:e p ~ s of the loan/borrowings In a bank to YI~ TRA/NialY
CREATE law(ex 33%
taxpayer may epos ill be subjected to a nnal tax which Is usually lower (20%)
Deductible Interest ~ t MSMEs) 20% (XXX)
Interest lncom~:h:ch ;ar corporate Income tax of 30% (TRAIN law), thereby
compa~ to xinefit" on the part of the taxpayer. Difference = 30%. 20% Pxxx
creating double tall the Impact of the Imbalance between the tax savings arlslnn OPTIONAL TREATMENT OF INTEREST (Sec. 3'l B
- 10% To neutra ze I fI t ..., Interest related to acquisition of property used ( )(3))
~m the reduced taxable Income from the recognlt onhobankerdest e~pense ?nd the the option of the taxpayer, be: in trade, business or profession may, at
th •nterest Income derived from sue n epos t, the interest
~~:C1~ : r~nized shall be reduced by 33% of Interest Income subjected
1. Claimed as outright expense;
2. capitalize and claim depreciation.
to FWT.
NON-DEDUCTIBLE INTEREST
Dlffefen<:e =RCIT 30% • FWT rate of 20% = 10%
1. Interest paid to persons classified as related tax d
Reduction= 10%/30% = 330/o ( prior to CREATE Law) 8424 (the Tax Code); payers un er Sectlon 36(8) of RA_
2. If the Indebtedness Is Incurred to finance P"..troleum exploration (Sec J4(B)(i)(b))
CREATE LAW: 3. I nterest on preferred stock ·

The taxpayer's otherwise allowable deduction for Interest expense shall be
reduc.ed by an amount equivalent to twenty percent (20%) of interest income
subjected to final tax. However, if the final withholding tax rate on Interest income
of 20% wlll be adjUSted in the future, the interest expense reduction rate shall be
adjusted accordingly.
Difference =ROT 25% - FWT rate of 20% = 5%
Reduction= 5%/25% = 200/o (CREATE Law)
PREPAID INTEREST (Sec. 34(BX2)(a))
" Prepaid Interest" of an lndividUal under cash basis Is deductible not In the year that
the Inter~ wa~ paid In adva?ce but In the year that the indebtedness was fully paid.
Ho~ever, 1f the indebtedness tS payable in periodic amortization, the amount or Interest
which corresponds to the amount of the prinopal amortized or paid during the year
shall be allowed as deduction In such taxable year. Prepaid Interest shall likewise be
allowed as deduction from the gross income •at the time of payment" for businesses
engaged in renden'ng services using cash basis of acoounting.

In the case of corporations, since the Income tax rates changed effective July 1, TAXES Sec. 34 C of the Tax Code, as amended
2020, it follows that the deduction from the Interest expense of 20% shall be The term "taxes" means taxes proper and no deductions should be allowed for amounts
effective also on the said date. representing Interest, surcharge, or penaltJes Incident to delinquency.

MSMEs GENERAL RULE - Taxes paid or Incurred within the taxable year in (l)nnectlon with the taxpayer's
Profession, trade or business, shall be allowed as deduction.
For other domestic corporations with net taxable Income not exceeding Five MIiiion EXCEPTION - The following taxes are not deductible:
Pesos (PS,000,000) and total assets not exceeding One Hundred MIiiion 1. Income tax
(Pl00,000,000), exdudlng the land on which the particular business entity's office, 2. Income tax paid abroad if claimed as tax credit
plant and equipment are situated, the deduction /s 0% since there Is no 3. Estate tax
dlfference in the income tax rate on the taxable Income (20%) with the tax rate 4. Donor's tax
applied on the interest income subjected to final tax (20%). Thus, there Is no 5. Special assessment
interest arbitrage. The allowable Interest expense shall be the same with the
actual interest incurred. LIMITATIONS ON DEDUCTIONS [Sec. 34(Q(2)]. In the case of a non-resident alien individual
engaged In trade or business in the Phlllppines and a resident foreign (l)rporatlon, lhe .
NOTE: ~UCtions for taxes shall be allowed only if and to the extent that they are connected with
Interest (tax) arbitrage shall apply only to Interest expense arising from Income from sources within the Philippines.
"borrowings or loans".
Interest expense arising from • unpaid taxes" or • tax assessment" or interest
CReorr AGAINST TAX FOR TAXES OF FOREIGN COUN1RIES [sec. 34{C)(3))
1
noome Tax paid or Incurred during the year to any foreign count,y, at the o~Uon or the following
on _tax delinquen_c y or defldency, provided, the tax Is related ~o ~~• ~XPilyers, may be treated as operating expenses by the following taxpayers.
business or practice of profession shall not be covered by this ltmitalJO ·
Resident citizen·
Meaning, the related interest shall be 100% deductible.
In the case of indlvlduals engaged in business or practice of profession, ~ ~;esuch_corpo~tion; f any such individual who Is a member of a general
deduction shall take effect upon the effectivity of the CREATE law on Aprt ers 1ps and Estates - In the case O trust his proportionate share of such
11, 2021 Instead of July 1, 2020. ProfessI . ben lldarYof an estate or ,
ona 1partnership or a e estate or trust paid or Incurred dunng
taxes of the general professional partnership or th e

398 399
 D,/,:-r,;,7 ,,, 9,,,,_, 1,,,,., 11
b)
D l'l1~·{1iJ~t,i
,-1~111 {~ •
/ ''fJ.{.1
/,
//("( ) 1)/L'
Not less than seventy.five (JS%
coun"" If his distributive share of lhe Income of <•·•• the business Is In the na ) of the Dald•up capital or th .
the taXable year to a rore,gn " '' ""u1 same persons me or a COrJ>orallon Is h I e COfJ)Oration, Ir
partner.;hlp or trust 1s reported for ta,ral!On purposes. · ' e d by or on behalf of the
Additional Requirements 10 M
An alien Individual and a foreign corporation shall not be allowed the credits against the tux Bavan''han Act fl
,,
_JOLCQ Inn,,_,
and RR ?S·2<w2;_
,
- ~ '11 l OlQ ~nd 2021 und&
for the taxes of foreign countries allowed under lhls paragraph. 1. NOLCO shall be separately h
taxabl 20 s own In the t:axpa
e year 20 and In the Reco III yers Income tax return for
2. Unused NOLCO shall be P nc atlon DOrtlon of the Tax Return·
l(•J..{i:fiWWWGllttliflitt•t¥tillli4,Urffll ~~
Statements (with details of year su . ~ ~N ,
Otes to the 2020 Financial
Losses actually sustained dunng the taxable year and not compe~sated for by Insurance or otii;
ronns of Indemnity shall be allowed as deductions: (a) If Incurred in trade, profession or business· 3. NOLCO for taxable year 2020 shall : •~ed and amount claimed);
(b) Of property connected with the trade, business or profession, If the loss arises from fires: Statements separately rrom the Note esented In the Notes lo the Ananclal
storms, shopwrecx, or other casualties, or from robbery, theft or embezzlement. 0 for other taxable years.
NOLCO FOR MINES OTHER THAN OIL & GAS WELLS
KINDS OF LOSSES: For mines other than oil and gas wells net operatl
years of operation may be carried ov~ ror the nexntgfiloss Incurred In any of the nrst ten ( 10)
1. casualty Losses ve (5) years.
2. Net operating loss 03rry-over (NOLCO)
3. capital losses and securities becoming worthless LOSSES FROM WASH SALES OF STOCK OR SECURmES
4. Special Losses In case of any loss claimed to have been sustained f
a) Losses from wash sales of stock or securities shares of stock or securities shall not be deductible . rom any sale or other disposition of
11
b) Wagering losses 1) The seller Is not a dealer In secuntles· ·
c) Abandonment losses 2) Within a period of thirty (30) days bef~re the sale ending thirty (JO) d
the seller either: ays alter the sale,
CASUALTY LOSSES (RMO 31-09 dated October 16, 2009) a) Acqu'.red (by purchase or exchange) stock or secunlles Identical to the stock
securrtles sold; or or
REQUISITES FOR DEDUCTIBILITY: b) Has entered i~to a contract or option to acquire stock or securitles Identical to the
l . The loss arises from fires, storms, shipwreck, or other casualties, or from robbery, theft stock or secunt,es sold.
or embezzlement;
2. The property lost Is connected with the trade, business or practice of profession; WAGERING LOSSES Sec. [34(0)(6)]
3. Actually sustained during the taxable year; Losses from wagering transactions shall be allowed only to the extent of the gains from such
4. Nat compensated for by insurance or other forms of Indemnity transactions.
5. Incurred on trade, profession or business
6. Reported with the BIR within forty-five (45) days from the time of loss; and ABANDONMENT LOSSES
7. Not daimed as deduction for estate tax purposes. 1) In the event a contract area where petroleum operations are undertaken Is partially or
wholly abandoned, all accumulated exploration and development expendltures
NET OPERATING LOSS CARRY- OVER NOLCO Sec. 34 D 3 pertaining thereto shall be allowed as deduction.
"Net Operating loss• means the excess of allowable deduction over gross income of the business 2) In case a producing well Is subsequently abandoned, the unamortized costs thereof, as
In a taxable year - The net operating loss of the business or enterprise for any taxable year shall well as the undepreciated costs of equipment directly used therein, shall be allowed as
be 03med over as a deduction from gross Income for the next three {3} consecutive t;,xable deduction.
YH/S' lmmediately following the year of such loss. However, under RA 11494, also known as the
Bayanl1:'3n Act 11, the NOLCO of the business or enterprise for taxable years 2020 and 2021 shall EFFECT IF ABANDONED WELL IS REENTERED AND PRODUCTION IS RESUMED OR
be 03med over as a deduction from gross Income for the next five (S) consecutive taxable years EQUIPMENT IS RESTORED INTO SERVICE
Immediately following the year of loss. .
It the abandoned well ls re-entered and production Is resumed or equipment Is
Summary: restored into service, the effects are:
• NOLCO Incurred prior to 2020 and 2021 - 3 amsecutlve years a) The amount previously claimed as deduction shall be recognized as Income; and
• NOLCO Incurred In 2020 and 2021 _ s consecutive years b) Such amount shall also be capitalized and amortized or depreciated, as the G3se
• NOLCO beginning 2022 - 3 consecutive years may be.
REQUISITES FOR DEDUCT!BllllY
BAo DEBTS Sec. 34 E
1. : x~:n~me of Incurring net loss, the taxpayer must not be exempt from income
REQUISITES FOR DEDUCTIBILITY: ·
2. ~ Is no substantial change In the ownership of the business or enterprise In I) There must be an existing
. 1ndebtedness due to the taxpayer which must be valid an<!
a)
:,~if
O
f th '
:anb seventy:frve (75%) In nominal value of outstanding issu~
e uslness is In the name of a corporation Is held by or on l)eha
legally demandable;
2) The same must be connected with the taxpayer's trade, business or pra ce o
profession; . between related raxpayers;
ctl f

e same persons; or ' 3) The same must not be sustained In a transactJon

401
400
 v,/.ct,,7h/ Cjn1.<; /,lC""c Dc/u~ti1J711, {Jrf's.; h1r11111c
ed off In the books of accounts of the taxpayer a DEPRECIATION DEDUC11BLE BY NON•REslDENT
4) The same must be actually charg s of OR RESIDENT FOREIGN CORPORATIONS ALIENS ENGAGE IN TRADE OR BUSINESS
the end of the taxable year; an!talned to be worthless and uncollectlble.
5) n 1e same must be actually asc In u,e case of non-resident aliens engage 1
corporations, depreciation shall be allowed only 1~ :;ade or business or resident forelgn
SEOJRITIES BECOMING WORTHLESS 1
e Prof)elTy Is located In /he Ph/llpptnes.
REQUISITES FOR DEDUCTIBILITY less· OBSOLESCENCE MAY BE DEDUCTED IN ADDmoN TO
I ) securities are ascertained to be worth , ,
Allowance for obsolescence may be deducted In a DEPRECATION
2) The same Is charged off within the taxable year,
exhaustion, wear and tear. dditlon to reasonable allowance for tile
J) It must be a capital asset.

m;4■iiOJ:l•li•Jil·1~i•lrl·ti\'l34ti•hl•itllbi1W
M44#4P·OM:MWii} ·atJon deduction a reasonable allowance for the exhaust! '
1
case of oil and gas wells or mines, capital Invested ma be ell
=:ea~':!!';\f~~~:r:ga~~n= allowance for obsolescence) of property used In the trade 0; ;cthod, provided: Y amortized using cost-depletion
buslness. In the case of property held by one person for life 1~t11 r~malnder t~ tfnother person, When allowance for depletion shall equal capital invest""
1) granted; r rth
<au , no u er allowonce shall tie
the deduction shall be computed as if the life tenant were the a so1u e owner o 1e property and
shall be allowed to the fife tenant. In the case of property held In trust, the allowable deduction 2) Aner productJon in commercial quantities has commen
shall be apportioned between the Income benenctarles and the trustees In accordance with the development dr/11/ng costs shall be treated as follows: ced, fnti1119fbfe explorot/on 4nd
pertinent provisions of the Instrument creating the trust, or In the absence of such provisions, on
the basis of the trust Income allowable to each. INTANGIBLE EXPLORATION AND DEVELOPMENT DRILLING COSTS
~ TREATMENT
REQUISITES FOR DEDUCTIBILITY: Incurred for non-producing wells Deductlble In the year Incurred.
1) The property subject to depreciation is used In the trade, business or practice or and/or mines
profession; . At the ootion of thf: IQxoaver.
2) The allowance for depredation must be sustained by the person who owns or who has
a capital Investment in the property; OPTION I - Deductible in full In the year paid or
3) The allowance for depreciation must be reasonable; Incurred for producing wells incurred; or
4) The allowance for depredation should not exceed the cost of the proJ?erly; and/or mines
5) The schedule of the allowance must be attached to the return. OPTION 2 - caoitallze and amortize.

METHODS OF COMPUTATION IN GENERAL [Sec. 34(F)(2)] DEPLETION OF OIL AND GAS WELLS AND MINES DEDUCTIBLE BY A NON-RESIDENT ALIEN
1) Straight-line method INDMDUAL OR FOREIGN CORPORATION
2) Dedlnlng-balance method - rate should not exceed twice the rate in straight-line In the case of non-resident aliens engage in trade or business or resident foreign
method corporations, depletion shall be allowed only if the o/1 i1nd 9;1s wells or mines ;1ro located 1,1
3) Sum-of-the-years-digit method; and the Phlllppines.
4) Any other method which may be prescribed by the Secretary of finance upon
recommendation of the Commissioner of Internal Revenue (CIR) / BIR. CHARITABLE CONTRIBUTIONS Sec 34 H
Contributions or gifts actually paid or made within the taxable year to, or for the use of the
PROPERTIES USED lN Pl:TROLEUM OPERATIONS rSec. 34(F)(4)l Government of the Philippines or any of its agencies or any polltlcal subdivision thereof exclusively
Properties directly related to 1) Straight-line for public purposes, or to accredited domestic corporations or associations organized and operated
production 2) Declining-balance method exclusively for religious, charitable, scientific, youth and sports development, cultural or
NOTE: Useful life to be used is shorter period educational purposes or for the rehabiiitaUon of veterans, or to social welfare institutions, or to
between: nongovemment organizations, in accordance with rules and regulatlons promulgated by the
a. 10 years; or Secretary of Finance upon recommendation of the Commissioner, no part of the net Income of
b. Useful life which Inures to the benefit of any prtvate stockholder or Individual in an amount not In excess of
ten percent (10%) In the case of an individual, and five percent (5%) In the case of a corporation,
Properties not directly related to • Only straight line method is allowed of the taxpayer's taxable income derived from trade, business or profession as computed without
production lhe benefit of this and the following subparagraphs.
Useful life is always presumed to be 5
vears.
EULLY DEDUCTIBLE DONATIONS
"'i~PERTIES USED IN MINING OPERATIONS Sec. 3q F S The following charitable contributions shall be fully deductl:e.ny of Its ;1gencles or political
( l ~ hfe of property is ten Normal rate of depreciation (depreciate over l) Donations. to the Government of tile Ph/Hppi~es ~ ions: exclusively to be used In
years or less actual useful life) subdivisions including fully owned govemmen co,,,.,,_ '
Undertaking prtority activities in:
II expected life is more than ten Depreciated over any number of years a. Education;
10 ears
between five 5 ears and the ex fife. b, Health;
c. Youth
d. Sports development;

402 403
 DONATIONS SUBJECT TO LIMIT
e. Humnn settJcmenlS; The following donations, Which do not fall
f. Science and culture; subject to limit: under rully deductlble donations, shall be
g. Economic development. l ) Donations lo the Government Of h
lntcrnattonal organizations which are fully dCductlbi polllical subdivision thereof excl t e thlllpplnes or any agcndes or any
2) Donations to foreign lnstltullons or • e I
2) Donations to accredited dom~ ~;ve Y or Public purposes;
1n pursuoncc or: exclusively for: c corporations or assoctallons operated
o. Agreements; a. Religlous;
b. Treaties; b. Charitable;
c. Commitments; or c. Scientific;
d. Special laws.
d. Youth and sports development;
·edited Non-Government Organizations e. Cultural;
J) Donations to,Acoentorgan,z;,Molf' means a non-profit domestic corporation• f. Educational
TI1e term • non-90,,emm .
a Organized and operated exclusively for: 9. Rehabll!tatlon of veterans;
1. Scientific; h. Social welfare lnstltuUons; or
rl. Research; I. Non-government organization.
111. Educational;
Iv. Character building;
v. Youth and sports development; TAXPAYER &lli l.l&
vi. Health; Corporation 5% Taxable Income from trade, business or practice of
vii. social welfare; Individual 10% rofession before charitable contributions
viii. Cultural;
Ix. Charitable purposes; or VALUATION IN CASE OF DONATION OF NON-CASH PRDPERTY
x. A combination thereof. The amount of any charitable contribution of property other than money shall be based on
the acquisition cost.
b. No part of the net•income of which inures to the benefit of any private Individual;
c. Not later than 1S"' day of the third (JAi) month after the close of the taxable year RESEARCH AND DEVELOPMENT Sec. 34 I 3
in which contributions are received, makes utilization, unless an extended period A taxpayer may treat research or development expenditures which are paid or Incurred by him
ts granted by the Secretary of Finance, upon recommendation of the Commissioner <;luring the taxable year In connection with his trade, business or profession as ordinary and
of Internal Revenue. necessary expenses which are not chargeable to capital account. The expenditures so treated
d. The level of administrative expense of which shall, on an annual basis, in no case shall be allowed as deduction during the taxable year when paid or Incurred.
to exceed thirty percent (30%) of the total expenses;
e. The assets or which, In the event of dissolution, would be distributed to: If notchargeable to capital account Claim as outright expense
I. Another domestlc corporation organized for slmtlar purpose or pu_rposes;
or If chargeable to capital account but not At the option or the taxpayer:
Ii. The state for public purposes; or chargeable to property subject to
111. Another organization to be used In such manner as In the judgement of depreciation or depletion OPTION 1 - Oaim as outright expense.
the court shall best accomplish the general purpose for which the OPTION 2 - Amortize over 60 months.
dissolved organization was organized.
If chargeable to property subject to capitalize
PER SPECIAL LAWS, DONATIONS MADE TO THE FOLLOWING ARE DEDUCTIBLE IN depreciation or depletion
FUU:
1. Integrated Bar of the Philippines (P.D.181)
LIMITATIONS ON DEDUCTION
2. International Rice Research Institute (R.A. 2707) The following Research and Development expenditures are not deductible:
3. Develo~ment Acadei:ny of the Philippines (P.D. 205) 1. Any expenditure for the acquisition or improvement of land, or for the Improvement of
4. The University of the Philippines & other state colleges property to be used In connection with research and development of a character which
5. Cultural Center of the Phll1pplnes
6. Artesian Well Fund (R.A. 1977) Is subject to depreciation and depletion; and f milnlng the existence, location,
2. Any expenditure paid or Incurred for th e purpose a~~ Including oll or gas.
0
7. Ramon Magsaysay Award Foundation 1
extent, or quality of any deposit of ore or other m ne ,
8. Task Force on Human Settlement
9. Donations to the ~atlonal Museum, Library and Archives (P.D. 373)
10. National Commission on Culture PENSION TRUSTS Sec. 34 J
11. Humanitarian Science Foundation
12. National Soclat Action Council AMOUNT DEDUCTIBLE
Actual contribution to the extent of pension liability
Amortization of Past Service Cost
Total

404 405
 QUIZZER
PENSION LIABILITY al Cost
Pension llablllty Is equivalent to Norm :::::.---
ChOOSe lhe letter of the correct answer.
PAST SERVICE COST ctual contrtbutlons over the Normal Cost. It shall be
Past service cost is the excess of a
amortJZe<f over ten (JO) years. principles . .
1. Statement 1: Deductions are ,terns or amounts allowed to be subtracted from gross Income
to arrive at the taxable income.
f,j:),t,,:,.
, ~,i·W•t·ii\•~•)#tii/•p(llf• * = ~ ~lzed
Optional Standard OeductJon can be cla m ·
deductions. The follow,¼
Statement 2: Exclusions are receipts whieh are excluded from Iha gross income. hence. do
may be allowed to claim OSD: not form part of the gross income.
1) Individuals a. Only statement 1 is correct
a. Resident Otlzen b. Only statement 2 is correct
b. Non-resident citizen
c. Resident alien
c. Both statements are correct
d. Taxable estates and trusts d. Both statements are incorrect
2) Corporations
a. Domestic corporation ❖ Answer: C
b. Resident foreign corporation
2. Which of the following is not a characteristic of a deduction?
AMOUNT DEDUCTIBLE a. It is a reduction of wealth that helped earn the income subject to tax.
Individuals/Estates/Trusts 400/o of Gross Sales/Gross Receipts
400/o of Gross Income x 40% b. An immunity or privilege, a freedom from a charge or burden to which others are
Corporations/Partnerships
subjected.
NON-DEDUCTIBLE ITEMS Sec. 36 c. It is not a receipt.
1) Bribes, Kickbacks and other similar payments d. It is a subtraction to arrive at income subject lo tax.
2) Personal, living or family expenses .
3) Any amount paid out for new buildings or for permanent Improvements, or ❖ Answer: B
betterments made to increase the value of any property or estate . ◊ ·a· refers to •exclusions·. not deductions
4) Any amount expended in restoring property or in making good the exhaustion
thereof for which an allowance is or has been made 3. Political campaign contributions are not deductible from gross income
S) Premiums paid on any life insurance policy covering the life of any officer. or
a. If they are not reported to the Commissi~n on Elections. .
employee, or of any person financially interested In any trade or business earned
b. If the candidate supported wins the election because of possible corruplion.
on by the taxpayer, individual or corporate, when the taxpayer is directly or
Indirectly a beneficiary under such pollcy.- c. Since they do not help earn the income from which they are to be deducted. .
6) Interest, Losses and Bad Debts: d. Since such amounts are not considered as income of the candidate to whom given.
a. Between members of a family. Family of an Individual shall Include only his
brothers and sisters (whether by the whole or half-blood), spouse, ancestors, ❖ Answer: C
and lineal descendants; or
b. Except in the case of distributions in liquidation, between an )ndlvidual and a 4. Statement 1: Deductions from gross income are not presumed.
corporation more than fifty percent (50%) In value of the outstanding stock Statement 2: As a rule, deductions means ttemized deductions
of which Is owned, directly or Indirectly, by or for such Individual; or a. Only statement 1 is correct
c. Except In the case of distributions in liquidation, between two corporations b. Only statement 2 is correct
more than fifty percent (50%) In value of the outstanding stock of each of c. Both statements are correct
which is owned, directly or indirectly, by or for the same Individual, If either
d. Both statements are incorrect
one of such corporations, with respect to the taxable year of the corporation
preceding the date of the sale or exchange was a personal holding companYi
d. Between the granter and a fiduciary of any trust· or ❖ Answer: C ; Refers/so to Ovlzz8 rl8lnd /lJ
e. Betwee~ the fiduciary of a trust and fiduciary ~f another trust If the sarne . ts that are related to a particular period of
person 1s the granter with respect to each trust· or 5. Statement 1: Revenue expenditures are pen00 cos
1
f. Between a fiduciary of a trust and a beneficiary of such trust. time of business operation. . expenditures related to acquisition of
Statement 2: Capital expenditures are non-recumng
depreciable assets to be used In the business.

406 407
 De.£c1-w'Y7~hl, {jrt'$.J !tflllnu
a Ort( st.nerrenl 1 IS rorrecl
b Ort/ st;!elTefll 2 IS COlraci 10. Statement 1: IOnrnized~ · edss expense:; rray be deduced mn lhe
busmed
c. ~ ~ are rorrect Statement 2: le udioos from gross !JOSS neon-.: talDayels
d ! m i ~ are n:xmct Of receipts. lllCOme shrud be dt.t, ~ by ~
a. Only statement 1 is correct
❖ Armler:C b. Only statement 2 is correct
c. Both statements are correct
t.es:er bougrot o11 equpmeot in:jes" a twO-year insta:ment baSIS to be used in his office rn the d. Both statements are incorrect
6
~ rJ tws ~ - Lesterwl pay PSO.<XX> moothly fOf a period of twelve (12) fl'Olths
RJ' n:ome tn PlJPOSeS, the PS0.11.X) monlhly payment shall be: ❖ Answer: C
a Trea:Ed as buswleSS ra-ilal. hence deductible () Pe!SOOal a n d ~ ~ E
..._for . taxa5or, CUposes~ ill! r,01 albied lO be d!!dll::ild flan t,e ,....
• ....,.,._ ·n;r,me
b. Trea'.ed as capilal expendnure. hence no! deducfillle ..-
c. T~ a s ~ expense. hence dedudible 0 Refer also to Page «<6 for ~ Cems
d. Tre.;-e:! as orGf0"Y busl1eSS expense
11. Which of the following is a deductible expense for income tax pu ?
a. Salaries of domestic servants rposes
f>'::;.lcr;a ,-,a E::;lE$ b. Ordinary repair of the personal car
t.r,.o; gt:¢m c. Provision for doubtful accounts
~ Pn
kr:,r.;sPZJZ.'ie Pxx d. None of the above
'~"1 occ:m-
~ Pz,z:,e Pxx ❖ Answer: D
Cas;
◊ 'A and B' are pe!,onal ~

7 ~ 1 A 1aXpcrr,:r can cri/ deduct 211 item CJ(' amount rrom gross income only if there is
◊ ·c- is unreaized loss. Urveamd garis and los!es are not reaigraed ror 1.a.t ~
a lzH aCmzl1g sudl a IEOOdion.
~ 2 FIJ' flCOl'I\€ tax puposes, a ta1.pa'fer is free to deduct from ross income the full
12. This is not a r~uisite for business expense lo be deductible
arc.u; ol the &:d!.dion ab,red, or a li;sser amount or not to claim any deduction at all.
a. It must be reasonable
a Ortt ~ 1 is cooed b. It must be paid during the taxable year
b 0:t-/ Sl2'.::me1ll 2 IS crxred c. The withholding tax othefWise required have been deducted and remitted to the BIR
c. Bo!h slal!:rrlf:11:S are rorroo d. It must be ordinary and necessary
d Boin 5!.a'.errE-#.s are 11C01Tect
❖ Answer: B
❖ Answer: C 0 "B' is tnCOOeCl Business expE<1SeS mirredandlOI pak1rrr.r,be deducted from the ~ s
gross Income.
e In cases ol ded~.s ar.:J exemptioos on income tax returns, doubts shall be resolved
a. Sttict'/ agaJOSt the taxpayer 13. One of the requirements in order ror expenses lo be daimed as deduction for income tax
purposes is that, It should be subject to withholding tax If appricable. What Is the withholding
b S!Jictl-/ against the QOVemtrent
tax rate applicable to rental payments?
c. l..bsr-....y 111 favor of the taxpayer
a. 1% C. 2%
d l.!befaly In favo,, of the employer b. 5% d. 10%

9
= I~=er
a
b.
❖ Answer: A

Only statement 1 iss

has~ burden of justifying the allowance of any deduction claimed

Only statement 2 is correct

:r~~lrictty
construed against the government.
❖ Answer: B
◊ Refer lo the preceding 1umber (lotter "C") fo, Ille requlsttes for business expense to be
deductible.. Some of !he aed"ilable withholding 1.a.t rates under RR 11-2018 and RR 14-2018
are as follows:
p R ASE F YM I-ITF :
Professional fees, talent tees. etc. fo, serw:es rendered
c Bolh statements are correct Individual &rtt: _.,. P3M 5'r.
Cl Both statements are Incorrect If gross Income did not ex= 10
If gross tr,c,ome > P3M o,, regatdieSS of amount II
vat registered
❖ Answer. C

,
408 409
 c. Distribution of profits to partners.
Jw -i11dMdua/ Payeg: ceed P720 000 10% d. None of the above
11 ross income did not ex • l S%
II ~ross Income Is exceed P720,000
❖ Answer. D
5% o •A" is a liability. nol a dedue1!ble expense.
RontalS d by top withholding agonls Jo their
Income payments ma a . Sample Journal En.J!Y;
local supplier ot goods or seMceS. Compensation expense
Goods 1% Pxx
2% Cash
Servlcos Pxx
Withholding tax payable
xx
Income payments to beneficlaries of ~states/trusts 15%
(oxcepl IDX exempl and Incomes subJect to FWT) o ·a· is an Illegal paymen1, hence. non-deducllble
o ·c· distnbuJJon of company proff.s Is 001 a business e:cpense
Income paymenls to partners of GPPs Sample Journal Enw
More than P720,000 15% Retained earnings Pxx
Not more than P720,000 10% Dividend payable/Cash Pxx

Certain income .ovmonts made by cred~card comoanies 1%

1a. The following are the requisites for deduction of compensation expense, except
a. • Personal services must have been actually rendered
14 In the conduct of his business in 2021, ~est? found it necessary to give gifts to the b. · The compensation for such services must be reasonable
ovemment officials with whom he had offiCJal dealings. . . c. Both •a• and "b"
g a. These gifts are deductible expenses subject to the substantiation rule.
d. Neither •a· nor "b"
b. The value of the gift, If de minimis, are allowed to be ded_ucted.
c. Irrespective of the value, the gifts are considered as bnbes and not allowed to be ... Answ_!!r: D. ; 'A and a· ara reqwrad fix compe.'ISal,oo expense to be deductible.
deductible.
d. These gifts are deductible if found to be necessary and properly supported by
receipts. 19. Which of the following is allowable compensation expense or ~ndempthlotyehr? .do I llowable
a. Salary of employee paid for a limited period of time after his ea o JS wI w s a
❖ Answer. B. ; 'C' JS a btibe. hence. non-deductible. deduction of the employer.
b. Manager's expense account subject to fringe benefit tax.
Ordinary Business/Professional Expenses c. Both "a" and "b"
15. Which of the following is not deductible from gross Income? d. Neither "a" nor "b"
a. Salaries and wages or employees
❖ Answer: C
b. Entertainment, amusement and recreation expenses
c. Rental expenses
d. Bnbes. kJckbacks and other similar payments 20. Statement 1: Cost of technical books used by a CPA in the practice or his profession is
allowable business expense. . . _,. b a medical doctor while attending a
•:• Answer. 0 Statement 2· Tuition fees board and lodging incu11 "" Y . se
continuing p;ofessional educatlon seminar is allowable business expen ·
O -er 1s illegal payment hence. norHleductlble; Refer to page 330 a. Only statement 1 Is correct
o ·A,C' are ordinary business expenses
b. Only statement 2 is correct
16. Which of the following can be deducted from gross income in the year paid or Incurred? c. Both statements are correct
a. Repairs that materially add to the value of the property d. Both statements are Incorrect
b. Repalr that appreciably prolong the life of the property • era business re/al~
❖ Answer: C; 8-0lh o,pe nduures
c. Repair that keep the property in its ordinarily efficient operating condition
d. All of the choices
21 - Which of the following business expenses Of a Professfonal practitioner Is not allowed to be
❖ Answer. C ; 'A and C- shall be capitalize<!. deducted from the gross in~me? .d the Philippines by a nonresident anen engaged
a. Professional expenses incurred 00151 e
17. Which of~ following is allowable expense(s) oian employer? In business In the Philippines. . . a foreign country. .
a. T'.'X withheld by a corporation from its employees· salary. b. Income tax paid by a resident Citizen t.0 nd travel in connection with own business
b. Kickback payment to a government official. c. Entire amount incumed for meals, lodging, a
d. None of the above

410 411
 l)C/(;_dr.{)'7111 9nJ.<; /;,. ·rMu·
Depreciation
Professional fees 3,500,000
200,000
❖ Answer. -NETS
A ~,xablo only on income dorived rrom Pl 1.IIipp1'no souroo s. ConsequenUy,
Advertising expenses
3,000,000
O NRA
15
h nol bo deducted from gross income dorived In lho PhlllpPinos
Training expenses
·-·•
expenses lnCIJmid ou"""' s aII Office supplies
3,000,000
lax moots abroad by a resident citizen or domeslic corporalion may bo claimed as 500,000 P17,500,000
0 lnooma pay , •• cllon from the gross lnoome (OPEX), al lhe opilon or tho laxPilyor
crodll or as • ovuU
o
8 111,
·c· 1s on Olllinary ond necessary business expense.
·
HOW much Is the additional allowable training expense, if any?
a. PO c. P1 ,500,000
b. P1 ,000,000 d. P3,000,000
22. The following are allowable compensation expenses of the employer, except
a. Owrtime pay paid to a rank-and-file employee. ❖ Answer: C
b. Cash dividends paid ◊ Add/Ilona/ dad11ctlon = ½ofv11tu, ofIha actu1/ tnlnlng IXIJ#ns,1 ofPJM • Pf.SM
c Amounts paid for pensions of retired employees
O The amounr of Pl,S00,000, which la one-ho/I of lhe va/ua oflhe BCtuo//1alnl,1f1 axpa11.,,, of P
d. All of the above 3,000,000.00, can be claimed as adddlonal daducllon, $/tico Hdid no/ exC60d ton parr;snt {t/J")
of /he Dirac/ Labor Wage. In Ui/$ scenario, the corpor;tion's direcJ tabor wngos ,ncurrtd wa,
❖ Answer: B P 20,000,000.00. Th1J$, tho Ol>IHiaU value of the actual rramlng OXPOtlS& of Pl,600,000 did
o 'A and c· are ordinary bUslneSS oxpensas, deductible from gross Income
o ·s· Is a d1Stnou1JOO or oompany's earnings
not exceed the P2,000,000 ' °" of P20,000,000 00) UIIDsho/d. Provld«I lurth,r. 111,1,11
1h11 prescrlbad requlm111nu h11 bHn complf#d with (a g.. Approntlro!hlp Ag,BGmonr.
Certification from DepEdOf TESDA OICHED, whlchMrls applicable). lflhecomparrys dll1>CI
23. Eart is the product manager of Medo Bee Inc. Earl had a dinner wil~ Clifford, owner of a chain labor wage Is only P 10,000,000.00, 11,e add~lonal dadudion that can bo allcwod shan be
of restaurants, to convince the latter to carry Medo Bee products. Clifford aweed. After dinner, Pt,000,000 and no/ Pt,S00,000.
Eart and Clifford went their separate ways. Earl decided lo celebrate by going to a bar where
he picked-up a partner and consumed a bottle of liquor. He drove home and on his way, he 25. How much is lhe taxable net income of the Company?
sideswiped Delfin, a pedestrian who suffered injuries as a result of the accident. Earl settled a. P1 ,500,000 c. P40,000,000
the case extra-judicially by paying Delfin amounting to P100,000 for actual damages (the money b. P17,500,000 d. P21,000,000
comes from Medo Bee Inc.). Which of the following is correct? .
a. The expenses incurred In having dinner with Clifford may be deducted from gross income of ❖ Answer: D
Mcx!o Bee. Gro.ssSalas P100,()()(),()()()
b. The expenses incurred by Earl while celebrating with a partner In a bar Is deductible to Cost of Salas (611,000.000)
Gro.ss Income P40.000,000
expense of Medo Bee.
Expenses before addfonal deduction f0t tra111fng expenses /17.500,000)
c. The amount paid to Delfin may be deducted from gross Income of Medo Bee.
AddMionat aUowab/e expenses lot training expenses
d The amount paid to Delfin may be deducted but the amount will be reduced to an equitable (1,500.0001
(PJ.000,000 x ½)
amount to qualify as ordinary and necessary expenses. · Net raxable Income
P2f,OOQ,OOQ

•·• Answer: A 0 Section 3-4(A)(1)(a){V) of lhe Tax Code, as amended, provides:

~ . . Of CREATE law an additional deduction from taxable lnoomo of ooe-hall (112)
O 'A' is an ordinary business expense (promotional/representation cost) Upon 8 ectivity •. ' nses Incurred to, sl<llls development of enterpnse-basad
o The expenses Incurred In lhe bar as well as the amount paid 10 Delfin are non-business related of _lhe value of labor 1ra111,ng ~ - h schoOls public higher education fns1Jlu110ns. o, publlc
trainees enrolled in public senlOI '9 • red b an apprenticeship agreement unde<
(personal eKpenses), consequenily, no,wjeductlble.
technical vocallonal lnslllui1011S ~ ~~1 ~o,
44
nd
9 u1 'Labor Code of 1he Phifippines'. as
presidential decree no. 2. seMS s· Pro'vlded further. lhal /or I/le addlUonal deduellon
ADDITIONAL TRAINING EXPENSES UNDER THE CREATE LAW 10
amended, shall be gran~~ enlerpllS!! • bflc educational 1ns111u110ns. lhe enterpnse
for enterprise-based 1/lllnlOQ.of :~en:a f:;,ro. TESOA. o, CHED: ProYKfed, finally, lhat
shall secure proper certJficalion (lO%) of direct labor wage (RR S-2021)
24. (Based on Illustration in RR 5-2021). COD Corporation, a domestic manufacturing corporation, such deducllon shall not exceed len percen1
had gross sales of P100,000,000 for fiscal year ending June 30, 2021 and incurred cost of sales
of P60,000,000 and cost of sales of P17,500,000, with the following details:
Cost of Sales 2
D!rect materials P30,000,000 6. This is a non-deductible interest e~se fl petroleum exploration.
a. Interest paid on indebtedness incurred to nance
Direct labor .
Manufacturing overhead
20,000,000
10 000 ODO P60,000,000 b. Interest paid by a corporation on scnp wi:.
· d. 'dends
rabie on a mortgage upon real property of
15 1
Operating expenses ' ' c. Interest paid by a co~rat~ taxpayer ui1able owner.
which the said corporation 1s lhe legal or eq
Salaries and wages P7,000,000
Taxes 300,000

413
412
 v/.au,~, {jr,;,s l,r,c,,,,,,
.... c..i..nrv 1the tax where the interest is in itself an item that Is
lnterasl pa,u on rax 00,....,..¥, 1 a. Only statement 1 is correct
d b. Only statement 2 is correct
deducilble from gross lllC()(OO. Both statements are correct
c.
d. Both statements are incorrect
❖ Answer. A
REOUIREMEITTS FOR OEOUCTIBIUTY 10 relation 10 CREATE Law. of Interest 1xpen1t II laid
❖ Answer: C
down In RR S.2021:
1 The llldebtedness must be that of the taxpayer.
2 The intereSI must have been s~polaled in writing.
3(). In 2020ti (prttorot~OOO effecttivity of the CREATE law). Roy borrowed money from the Bank
tha OOO
3 The 11tetesl moS1 be legaly due. amoun ng o .- , . a an annual Interest rate of 7% He Invested the de
, ~ mterest payment arrangement must not be between related laxpayers as mandaled In substitutes earning annual interest income of 8% How much . ls the ded ct ble"'.°ney '"17 posit
Sec.34(8)(2l(b). 111111a1101110 Sec. 36(8) bolh of the Tax Code of 1997 o• · u I mteres
a. ,...3•600 C. 1270,000
s. Tht interMI must not be Incurred 10 financt petroleum operations; and
b. P26,400 d. !280,000
s The interest was not treated as 'capi'lal expendnure'. If such Interest was Incurred in
acqu,riog prope11y used ,n trade. business or exerase of profession.
❖ Answer: A
Provided. furtllel. thal the taxpayers olherwise allowable deduction for interest expense shal Actual in/erest =Pl,000,000 x 7¼ P70.000
be reduced by an am0t111l equivalent to twenty percent (20%) of interest Income subjected lo Less: Reduction= Pl.000.000 x8" x 33" (26,400)
rina1 tax. tiowe>-er, nlhe final wilhholding tax rate on interest income of 20% wiU be adjllsted Allowable mterest expense P43,600
111 the Mure. the nteresl expense redUdJOn rate shall be adjusted accordingly.
O This is known as lhe ·tax artxtrage· rule Interest e ~ will resuh to a lower taxable income
but the Laxpayer will enjoy laX beoefit (tax samgs) ol 30% On the olher hand, lhe taxpayor
27. This Is a deductible interest expense
a Interest on deposits paid by authorized banks of the BSP to depositors, if ii is shown that may deposit the proceeds o1 the loaMlonowings In a bank to yield mteres1 mcome wllld1 will
the tax on such interest was withheld and paid. be subjecled to a final tax which Is usually lower (20"4) comp111ed lo the regular corporate
income Lax of 30%. lherebycreating 'doub!e tax benelir on the part of the laxp_ayer. Diffeience
b. Interest paid on indebtedness between related taxpayers.
= 30%-20% =HJ%. To 1\81Jtrallze lhe inpactof lhe imbalance between lhe tax savings anslng
c. Interest paid on preferred stock.
from lhe reduced taxable income from lhe racogmlion of interest expense and lhe LlX dulrge
d. Interest paid when there is no stipulation for the payment thereof
to the interest Income derived from such bank deposit, lhe Interest expense to be recogniZed
shall be reduced by 33% of interest Income subjected 10 FWT (Difference =10. Reduction=
❖ Answer. A
10%/30% = 33%). However. lhls scheme shaU apply only 10 Interest expense arising from
o 11 and o· are non-<ledUdlble as provided under RR 5-2021. 'borrowings°' loans·.
O -C- os non-dedudible. ll shall be treated as dividend payment rather than payment ofinleresL
31. (CREATE Law; Based on Illustrations in RR 5-2021 ). For fiscal year ending June 30, 2021,
28. Which of the fol~ng is _a deductible expense for income tax purposes? assuming that JHB Corporation, aside from the operating expenses of 127,500.000. incurred
a Interest paid on delinquent business taxes interest expense of 12400,000 which satisfied the presaibed requirement for deductibnity, but
b. Provisions for doubtful accounts
ii also earned Interest Income of ?1 00,000, net of final tax of twenty percent (20%). How
c. Ordinary repair for personal car
much is the allowable deduction for interest expense?
d. Salaries of domestic servants.
a. P25,000 c. P375,000
❖ Answer. A b. P100,000 d. P400,000
0 ·A· is deducbble• proVlded lhe tax ·is penam
· Ing to a tax classified as operating expenses under
❖ Answer: C
Ille Tax Code
taxalioo 11us,ness taxes'• in genera1are dasslfoed as operating expense for lnGOll18 P4()(),000
Actual interest expense
purposes, Cot\sequenUy, lhe Interest associated wilh those types of laJ(es shal Less: Reduction
• treated as opera,;,,,,
be Pf()().(XJO
lllcewose
'8 -.., expenses, SPfQfically
. under ·interest expense· accounL lnleresl income subjecl lo FWT (noU
0 8°"
~ r o are non-<leduct1ble (RR 13-2000). Refer lo lhe explanatory note In lhe precedi09 Divide by
tntoresr Income su/iiOCI 10 FWT (gross) P125.000
101'
O ·c· Is non-<leducbble It s,,.
•·11 be treated as dividend payment rather than payment of Interest Mu#lplyby
Ddducllbt. lnt,rnl ,xpsns,
29. Statement 1 As a rule the interest t be . . . 111
is not deductJ'ble. · mus on an indebtedness of the taxpayer, otherWtse it ◊ UNDER THE CREATE LAW. t/18 taxpoye(s ¢1ffO".W pllowallM d§dtlC(/0/I for rere,s1
Sratement 2: Interest paid by the taxpa . expense shaHbe ajucsd pv twenty pe!WJ/. (10") ol me 1111"8$1 incomo sub/fldlld ro llnal
legal or equitable owner even though ler;,.n a mo~gage upon real estate of which he 1s 1'18 rax
S80Jred by such rnongage ma be e pay~r ts not directly liable upon the band or nol
' y deducted as interest on his indebtedness.

414 415
 J, -
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J,rrJ-.ss /;l'.C(J-./11,e,
.
De,/4ctto~
t6 G _/ '()hf
'j'rt':S.J II/ Cd-lt{C
32. (CREATE Law: Based on illustrations In RR 5-2021). For taxable year 2021, SGC
incurred interest expense of PS00,000 on its bank loan. For the year, its gross assets amo~· For income tax purposes the d .
a. P102,000 , ~u~ti1ble interest expense shall be
to PS0,000,000, exclusive of the cost of the land of P7,100,000. It registered a gross inco ed b. P138 600 . 4o.100
of P10,000,000 and Incurred operating expenses of P6,000,00 Inclusive of PSOO,OOO inler~e ' d. P150,000
expense. It had Interest Income earned for lhe same year amounting to P150,000. How mu SI
❖ Answer: C
Is the allowable deduction for interest expense? ch lnleresl paid on loan
a. PO c. P470,000 Reduc/ion (3J%x P30,000J Pf00,000
·b P150,000 d. PS00,000 lnleresl on taxes (9,900)
50,000
❖ Answer: D
0 TliE CREATE LAW furthet provides that ror other domestic corporations with net tax
0
Allowable deductions
Prior lo CREATE law, !he reduction
subjected to final tax
'"~:o, fOO
allowable mlerest eipense was 33% ol lncoma
income not exceeding foe Million Pesos (PS,000,000) and total assets nol exceedi ~ble
Hundred MiUion (P100,000,000), excluding the land on which the particular buslnessng 1. ne
. , ed k . en ,tys 35, Debtor Corporation, wilh total assets of p 15 000 00
year. ' ' O, shows the following data during taxable

. .
oIii,ce, plant and equipment are s1tual . also nown as MSMEs. the deducUon Is O'ft ·,

e~-
there Is no difference In the income tax rate on the taxable income (20%) with th t Smee
applied on the Interest moome subjected to final tax (20%). Thus, there is no interest artiitra9e
The 1llow1blt Interest expense shall be tht same with the actual Interest lncu1Ted. ·
Sales
Interest income, net of 20% final lax
Cost of sales
P
~ ,OOO
4,000
3
Salary expense 00,000
0 In Ula scenario provided In the problem. the oorporatlon Is subject to RCIT rate or 20o/, 1 Interest expense 120,000
Its taxable Income did not exceed PSM and Us total assets did not exceed P100M ' Is nee 60,000
or the land.s.oce the RCIT rate 'Is 20%, and the final tax on Interest income Is also
' exc
at USIYe
20%
Rent expense 24 000
Advertising expense 6·000
thel8 is no difference on 1hese IWO rates. Thus, there Is no inlerest arbitrage. The allowab~
lnlerest expense, In tins case, shall be PS00,000. Depreciation expense s:ooo
' 33. In oompubng allowable deduction for purposes of income laxation- What is lhe correct amount of itemized deduction?
a. P202,400 c. P215 000
: : : t: ~inning Julr 1, 2~20, inleresl expense arising.from loans or indebtedness
b. P205,100 d. P265:ooo
~ wilh taxpayers business shall be reduced by an amount equal to 20% interest
Income sub1ec1ed lo final lax
Statement 2: Interest incurred . ❖ Answer: C
only be allowed as a capital ex~i~;::;, used to acquire property to be used In trade shall Salary expense 120,000
lnhlr.st upense 60,000
a Only statement 1 is oorrecl Rent expense 24,000
b. Only statement 2 is correct Acfve!llsing expense 6,000
c. Bolh statements are correct Depmcia/ion expense S.000
d. Both slatements are incorrect Total /fem/zed Dedtx:tion P215,000

❖ Answer: A o For other domestic corporaUons clasSlfied as MSMEs, the dtducdon I• or, s.me there IS no
0 'Statement 2· Is inCOIT'ect lnl difference In the ,ncome lax mill on the taxable income /20'¼) with /he tax rate eppbed on the
treated as operating e~nse_ erest 1ncurred In acquiring property may be capitalized or inlerest income subjected to final ta• (20'Y,) Thus. lhe111 ls no interesl art>ltrage. The allowal>le
O In the case of corporations since the . Interest expense shaUbe equal with 1he actual interest incurred
(CREATE Law), it follows that the tneome tax rates changed effective July 1, 2020
effecbve olso on the said d t
ae.
deductlon from the Interest expense of 20% shall be 36· Leomar Corporation paid the following during 2021 :
PS0.000
o In Ille case of lndivrduaJs engaged In , Interest paid for late payment of 2020 income tax
lake effect upon the effectivily
. business or prac~ce of proression. such deduct10n shall Surcharge and compromise penally for late payment of 2020 Income tax 72,500
01 the CREATE law on April 11, 2021 instead or July t, 2020 1,000,000
Interest on bonds Issued by Leomar ColpOration 500,000
34. AA indlVldual taxpayer has lhe following data for 2019 tax b Interest on money borrowed by Leomar CoJporation lrom Gabarles
a le year: Incorporated (owns of 60% shares of Leomar CotJ)Oration) 200,000
Interest paid, business loan Interest on preferred shares which in reality is dividend
Interest paid, loan to finance personal ca P100,000 How much is the deduchble interest for 2021?
Interest expense on delinquen b r 500,000 a. P1 ,822,500 c. P1 ,000,000
Interest income BOO w t A cy uslness related taxes 50,000 b. P1,122,500 d. P50,000
, es venue branch (net) 24,000
❖ Answer: C

416 417
 Dc/4tt't~~
.s '()1.I( ':J
r:;/f}:{S
_ ftt C fi//ll'
lnterMt Expenst (on bonds 1uued by Leomar) = P1,000,000
0
rt®lfri1#3U=l~M=M -
0 INTEREST incuml<l lor the payment of lax or deficiency lax Is allowed lo be deducted ,io: A lessee paid the real estate lax on the property. he
lh8 gross 1neome ONLy IF Ille related iax· Is classlfiod as opcmllng expense for lax from amount paid was: leased. F
or Income tax purposes, the
purposes. Ho»,ivcr, ·,ncome 1ax· Is not classified as operating expense under the Tax~:n a. Deductible as part of lease expense
b. Deductible as tax expense s.
Thoreforo, lhe Interest paid for late payment of sucJ1 tax Is NONdeducllble because therelall!d
c. Deductible as an Interest expense
w Is not classified as operallng expense.
d. Non-deductible expense
0 Surcharges as well as penallles are NON-deductible expenses.
The interest on money borrowed by Leomar Corporallon from Cabartos lncorporatOd ❖ Answer: A
0
derived from 'related party transaction'. lnlerest expense, losses and bad debts arc N:'.
deductible If mcurred In relation to atransaction wilh a related party. RR 13-2000 as amend 41. The cost of l~asehold improvements shall be deductibl
by RR 5-2021 provides that the interest payment arrangement must not be between relal: a. Spreading the cost of the improvements over th e by lhe l~e by
8
taxpaye,s as mandated in Sec. 34(B)(2)(b). in ralallon to Sec. 36(B) of the Tax Code (relall!d term of_the lease, whichever is shorter. life 01 lhe improvements or remaining
party transactions). b. Spreading the cost of lhe improvements over th . .
term of the lease, whichever is longer e hie of the improvements or remaining
37. How shall interest related to acquisition of property used in trade, business or profession be c. Spreading the cost of the lmproveme~ts over th le
treated? outright in full, at the option of the lessee. e rm O1the lease or may be expensed
a. Claim as outright expense d. Any of the above
b. Capitalize .
c. At the option of the taxpayer, may be claimed as outright expense or capitalize ❖ Answer: A
d. At the option of the government, may be claimed as outright expense or capitalize
I •
42. A leasehold is acquired for bu~iness purposes for PS,000,000. The lease conlract is for 10
❖ Answer: C years. How much Is the deductible amount from the gross Income during the year?
a. PS00,000 c. PS,000,000
38. Mrs: Sarabia is a_self-employed individual using cash basis of accounting. in recording her b. P1,000,000 d. PO
business transactions. She borrowed mon~y from the bank in 2021 payable after 2 yeais in
lwnp sum. The proceeds given to her by the bank was already net of P.100,000 interesl When ❖ Answer: A; deducrion =PS,000,000IIO )'llat. =PS00,000
can she claim as deduction the said interest?
a. In 2021 43. On January 1, 2021, Mr. V leased his vacant lot for a period of 12 yeais to Mr. J at an annual
b. In 2022 rate of P2,400,000. It was also agreed that Mr. J will pay the following:
c. In 2023 • P-4,800,000 representing rental payment for year 2021 and 2022.
d. Spread over the term of the loan • Security deposit of P2,400,000.
• Annual real property tax of 1230,000.
❖ Answer: C The lease contract provides, among others that the lessee will construct a !>-storey
O "Prapaid interesr of an individual under cash basis is deductible not in lhe year.lh~t lhe interest building for parking purposes at a cost of PS,500,000. Owneiship of the building shall
~s paid in a~vance but In the year that the indebtedness was fully paid. However, ff the belong to the lessor upon the expiration 0< termination of the lease contract.
indebtedness 15 payable in periodic amortization, the amount of Interest which corresponds 10 The building was completed on July 1, 2023 wilh an estimated useful Ille of 15 yeais. How
the amount of the pnncipat amortized or paid during lhe year shall be allowed as deductionin much can l-,1r. J claim as deduction in relation to lhe lease in 2021?
such taxable year. Prepaid Interest shall likewise be allowed as deducllon from lhe gross a. P.2,430,000 C. 122,400,000
in~ ·at the ~ of paymenr fo, businesses engaged In rendering services using cash b. P4,830,000· d, 124,800,000
basis of accounting !Basis: Sec. 34(B)(2)(a} of the Tax Code]. .
❖ Answer: A
P2400,000
39. The foHowing interes~ are non-deductible, except? Rentals for 20121 =P2.4M annual rent x 6 mos/12 mos
30,000
a. Interest paid to persons classified as related taxpayers Annual real property tax P2430,000
b. Interest related to indebt d · . Total Ren/ Expense• 2021
e ness incurred to finance petroleum exploration
c. Interest on preferred stock 44· How much can Mr. J claim as deduction in relation to the lease in 2022?
d. Interest related to indebtedness incurred to finance working capital requirements
C. P2,430,000 C. 122,400,000
❖ Answer: D d. P4 830 000 d. P4,SOO,OOO
❖ A ;' s.i:ne solutlon with the prere<f,ng number.

418 419
 De/pdi<J'l~ (j'rl'{f !tw>nte
. bO how much can Mr. J claim as deduction in relation to 1h
45. Using the same Information a ve, e 50 Under cash method, how much was the dedUCtJbl
· a. P600,000 c. P200,CXX) e expense ol Leomar in 2021?
lease in 2023? c µz 400 000
a. 122.430,000 d. P3,063° 333 b. P400,000 d. None of the Choices
b. 122,930,000 . ' ' ❖ Answer. B; loot (4) mot11113 trorn Juf'f 10 December

❖ Answer: B 51 . Pedro leased his lotto Jose. The contract calls fOf J 1
Renrals for 2023
PZ.400.000
30.000 1
°
as the residence of the latter. the ownership theose construct a house wtuch \tj()Ujd serve
Annual 1881 property lax expiration of the,lease. When the house was comple: to be transferred to Pedro after lhe
Oepfll(;/alion expense. improvement lease was 10 years. The residential house had . cons1ructect, lhe remairung tetm ol the
500,000
- (P9 500 ()()Q/9,5y,af31 X 1/2 the tax Implication of the leasehold imPfovemen;n esbmated useful hfe of 15 ~ What IS
Tole/ Re~f Expense. 2023 PZ,930,000
0 The leasehold improvement shan be depreciated using the shoner between lhe rema~ a Pedro derives taxable Income on the improvement Jose can dai -
lease term and useful life.
as.a deduction from gross income. mdepreciation~
0 Remaining lease term of 9.5 ytara upon complellon o'. the leasehold improvement Is shortei b. Pedro derives taxable income oo the improvement· Jose cannot cial ·
compared 10 the esllrnaled useful life (15 years) of the improvement. expense as a deduction from gross Income. ' m Clepreaallon
c. Pedro ~~s not derive taxable income on the llllplovemenl Jose cannot claim
46. Using the same information abOve, how much can Mr J claim as deduction In relation to the deprecIatIon expense as a deduction from gross Income.
lease in 2024? d. Pedro does not derive taxable mcome on the ~emeot Jose can claim depreciaboo
C. 122,430,000 c. 123,430,000 expense as a deduct10n from gross income
d. 123,063,333 ❖ Answer. B
d. 122,930,000
O Jose cannot claim depreoabOn expense because al lhe CQlnlol v,ew ol .Jose, ll>e ,moroven-ent
❖ Answer: B Is a personal asset (per1almig 10 r-.s l'oosel, tere4tYe ¥f'/ depreoation ., ralabon to o..
Ren/sis for 2024 PZ.400.000 lmprovel}lenl Is noJH!educt,ble
Annual 1881 prope1ly fax 30,000 ◊ Pedro will denve an lllCOme t~U51! lhe ~ ol ihe pn)l)elt/ wt oe cransl!!rred ID rwn
Deplllcisfioo expense, Improvement UJ)On expiration of lhe lease ienn
=P9,500,000l9.5 t,000,000
Total Renl Expenso • 2024 PJ,430,000
52. Assume the same facts In the immediately precednJ lll.mber, except that at the ttme ol lhe
oomplellon ot the residential house. the remaining te!Tn ol the lease was 15 years while the
47. Mike leased his land to Leomar !or two years beginning July 1, 2021. Leomarwould pay montliy useful life of the house was 1Oyears. What Is lhe tax implcalk>n of the leasehold improvement?
rental or P100,000. He paid rent up to October 2021 and then defaulted !or the rest ol the year a. Pedro derives taxable inoome on the improvement Jose can clallll depreclalion expense
Under accrual method, how much was the lnoome of Mike In 2021? as a deduction lrom gross income.
a. P200,000 c. P600,000 b. Pedro derives taxable Income on the improvement. Jose cannot claim depredaUOn
b. 400,000 d. None or the choices expense as a deducllon from gross income
c. Pedro does not derive taxable income on Ille rnprovement Jose cannot claim
❖ Answer: B
·depreciation expense as a deducllon lrom gross income.
◊ Based on collections (4 months f,om July to Oclober), regardless of the &OOOU/ltin!l mell)(ll d. Pedro does not denve taxable Income on the tmprovemenl Jose can claim depredation
used by the lessor.
expense as a deduction from gross income
❖ Answer: C
46. Using the same data In the preceding number, under cash method, how much was the income 0 Jose cannot Clwm de\)recsabOn upense t,eca.cSe Bl IIMl pclllll ol view ol Jose Ille l~ m tnl
of Mike In 2021? Is a personal IISSel (perlillnmg ID his houSI) it,erelore, any del)f8Cliloon In '911110n ID the
a. P200,000 c. P600,000 Improvement IS ~
b. 400,000 d. None of the choices Imm fll ~-emenl because the usef\JI lilt ol !hi
Answer: B o Pedro win not delMI 1111 raimt Thell~ upon mmwiaoon of the lease. ow,."
improvement is shortar t11an the laase ierm ·
O rental Income Is recognized upon receipt. (( months from Joly to Oclobet), regatdleSS of lie no ITlOf8 improvement to oe nns~ 10 Pidro
accoun1lng mothod U5ed by the ~ -

iDJ#JM*Ma
49. Under accrual method, how much was the deductible expense or Leomar In 2021?
a. P600,000
b. 4oo,ooo
c. P200,000
d. None of the choices
53· Whieh of the tollowlng is nol a requisite for taxeS 10
a Must have been paid or incurred Wtllll~
be::the laX 15 ,~posed by law.
❖ A; sl• (6) m011ms from July ro Oecwnoo, b. Deductible only by the personls upon

420 421
 D o/4dt'to/~tJ.nt tjrrJ-.s.s htc<v,lc

C. ..\Jst be fl connect,on 111th the "'"""ye(s

K"'t""
profession, trade, or business .
~ b the national government.
d 1.tuslbe··-~ y ❖ Answer: D
o Since lhc related tax (donofs lax) Is ~ u • .
~ Answer: D shall likewise be norH!eductible. The fna........ctJble from gross Income • lhe ret.,ll!(j mtorest

54 Wtlld'I ol the ~ IS noo-dedoctble? rriels by land

a. Percemage tax on common ca
• Income tax Income tax
Dono(s tax·. Speda1 :ss!n~ - ""\I TAXES ate ~uctlbte
aclaimed as tax (ntf1l Estato la>..

b_ Frandlise laX
C. Ovenleas communications laX
Ii Stock transaction tax 58_ Which of the following is lhe correct allowable enlertainment expense?
a. Not more than ½% of revenue from seNJces.
❖ Answer. D b. Not more than 1% of net sales of goods.

~=-
c. Not mo<e than 1 ½% of revenue from services.
5.5 nlinla Coiporatioo was assessed by the BIR due to underpayment of Percentage d. Not more than 1 ½%of net sales of goods.
The1c;sessment Notice disclosed the following: ·
❖ Answer: A
Basic Tax P 1,000,000
Surcharge 250,000
Interest 200,000 59. Niah Corporation is engaged in lhe sale of goods with net sales of P2.000.000. The actual
Penalties 25,000 entertainment, amusement and recreation expenses for the laxable quarter totaled P20,000.
Total P 1,475,000 For income tax purposes, how much Is the deductible entertainment. amusement and
11 also generated interest income from bank deposits amounting to P.100,000. How much
recreation expenses?
a. P10,000 C. P20,000
is the dedud!ble interest?
a. ?200.000 C. 12167,000
b. P11 ,000 d. PO
b. 12162,000 d. nil
❖ Answer. A
❖ Answer: A Actual ~- P20. 000
Limit (.005 of net sales) 10,000
OPT expense ?1,000,000 Allowed PI0,000
Interest expense 200,000
Tola/ allcrNable deduction ?1,200,000
' 60. JAO Corpqration is engaged In the sale of goods and services wi1!1 net sales/net revenue of
0 Percentage Taxes, In general (except Stock Transaction Taxes under Section 127 of lhe Tax
123,000,000 and 122,000,000 respectively. The actual enlertainmenl. amusement ~nd
Code), are deductible from gross Income. ·
recreational (EAR) expense for the taxable year totalled 1230,000. How much 1s the deductible
0 Ir the tax p.iid Is allowable expense under the Tax Code, the related Interest is also dasliified
as deduction from the gross l~me. · EAR expense?
0 Penalties and surcharges, are non-<feductlble expense regardless of the dassification of lhe
a. 1230,000 c. F125,000
lax paid. b. P.27,000 d. nil
0 The Interest expense 010 NOT arise from a loan or indebtedness, hence. it shall nol be ❖ Answer: B
reduced by erther 33% (TRAIN law) or 20% (CREATE law) of Interest Income. earned
subjected lo final lax ~.e., lnlerest Income from bank depositi Sale of Goods:
Actual = P30,000 X 315 PtB,000
P15,000 P/5,000
Umd= P3Mx ½" =
56. Based on the above problem, how much is the deductible taxes?
12,000
a. 121.275,000 C. 121 ,250,000 Sale of Seryi(;e:
b. 121,000,000 d. nil Actual= PJ0,000 x 215 P12,000
Umit = P2M x 1% P20,000 -----;PV;;;;;;
.000;;;.
••• Answer. B TOTAL

57. Assuming the tax underpaid Is donor's tax, how much is the deductible Interest and tax? l!n.\i4fiM!et•)
6 .
LCO?
a. P200,000 and P1 ,000,000, respectively 1. Which of the following Is NOT correct r~ard1ng N~uS1neSS Income for the next 3 succeeding
1
a. NOLCO is allowed as de:<iuction ~ 2021 under Bayanlhan Act II). .
b. P200,000 and zero, respectively
c. Zero and P1 ,000,000, respectively years (5 years if !~curred in _2020 a ration subject to normal Income tax ,s allowed
d. Zero for both Items b. Domestic and resident foreign corpo
with NOLCO.

422 423
 Deitdllf7rfll✓,, (}1-u:ss 1;le(Jy,1.e,
Dt:./tkft.",9y,M1, {]m-s.; /2udhte
. . tiluti·on enioying preferential tax rate is allowed with NOLco deduction, the business Of enteipnse which
c. Pnvale educational ,ns 1 •
and 2021 shall be al~ to carry IOClJ~ net operamg loss fOf laxable years 2020
d. None of the above over the same as a•~ .
nex1 five (5) oonsecuUve la.>cabte -ueoon from Its gross Income fOf the
. years 1mlllediatety follow!
operatmg loss for said taxable yea ng the year of sue11 loss The oe1
❖ Answer: D expiration of RA No 11494 (also~may be cameo ovnr as a de<tucllon even after Iha
wilhln the nex1 five (5) oonsecu11ve iaxa,t Bayanlhan Act 11) prol'ldfd the samo are claJrned
62. Which of the following is e_ntilled toctd:~~i~~~~~sation income. O NOLCO Incurred beginning 20 bee years immediately fotla;,,ng Ille year of such loss
a. AA employee with respe .
· · t tional earner
0 NOLCO shall be avalled on a fir,~\
22
tamed over f0< the next three 131 COfl~ve years
n rst OU! bui, (RR 14-20011
b. Fore!gn in elmta ed WI.th the Philippine Economic Zone Authority (PEZA).
c. Entities reg s er
d. Self-employed individual 66. The term 'net operating loss• shall mean
a. The excess of capital losses over capital gains ded t"bl f . .
uc I e rom ordinary income.
The excess of cap1·tai Iosses over capital gains not deduct
❖ D b. I
bl I d' .
c. The excess of allowable
. deduCtions over gross Income. e rom or inary income.
d. The excess of capital losses over ordinary losses.
63 _ Statement 1: A net operating loss is the excess of allowabie deductions o~er the gross income
from business for a taxable year. . . ❖ Answer: C
Statement 2: A net operating Joss which had not prev,ou~ly be~n deducted_ from gross income
shall be carried over as a deduction only in the next year 1mmed1ately following the year or such
loss. 67. All of the following, except one, are requisttes in the carry-over of net operaUng loss:
a. Only statement 1 is correct a. There must_be no substa~tial change in the ownership or the business
b. Only statement 2 is correct b. Carry-?ver ts not allowed 1f the corporation issubject to MCIT during the taxable year
c. Both statements are correct c. Even 1f the corporation paid MCIT, the running or the prescriptive period is not
interrupted.
d. Both statements are incorrect
d. The carry-over is good for one (1) year
❖ Answer: A
❖ Answer: D
64. Which of the following items of expenses require that notice be filed with the Bl~ to be allowed
as deduction from gross income? 68. Which of the following instances will NOLCO can still be claimed as deduction?
a. Taxes c. Losses a. Transfer of ownership involves change from direct ownership lo indirect ownership,
b. Interest d. Salaries or vice versa.
b. Merger of the subsidiary into the parent company.
❖ Answer: C; (casualty losses)
c. Either •a· or "b"
d. Neither ·a• nor 'b"
65. The net operating loss of the business or enterprise for any taxable year immediately preceding ❖ Answer: C
the currant taxable year, which had not been previously offset as deduction rrom gross income
shall:
69. X Corporalion owns 100% of y Corporation. y Corporalion owns 100% of Z_CorporaUon that
a. Be carried over as a deduction from gross income for the next 3 consecutive taxable
has NOLCO. z Corporation is merged into yCorporation. Which of the following statements 1s
years immediately following the year of such loss.
correct?
b. The business or enterprise which incurred net operating loss for taxable ye~rs 2020
a. Z Corporation's NOLCO can be used by ii to the ex~us1on of all other parties.
and 2021 shall be allowed to carry over the same as a deduction from its gross
income for the next five (5) consecutive taxable years immediately following the year
b. z Corporation's NOLCO is transferred to YCorpora~on.
of such loss. C. z Corporations NOLCO is transferred to XCorporation.
d. zCorporations NOLCO can no longer be used·
c. The n~t operating loss for 2020 and 2021 taxable years may be carried o~er as a
deduction even after the expiration of RA No. 11494 (also known as Bayamhan M-
il) provided, the same are claimed within the next five (5) consecutive taxable yeais ❖ Answer: B
immediately following the year of such loss.
d. All or the above.
7
❖ Answer: D o. Which of the following losses Is not dequclible? lion
0 a. Abandonment losses in petroleu_m operafrom.sale of ordinary assets.
SECTION 4 01RR 25-2020. Ave (5) Year Period of Entitlement lo Deduct Net operatifl9 L05S
incurred for Taxable Years 2020 and 2021 . • Unless otherwise disqualified from claimI09 lf\B b. Excess of expenses over gross income

424 425
 C. Losses on wash sales of stocks.
d Losses 011 sale ol lnvestmenls. ' ' 1 !il!3-}l'Uil3iH❖Mf
74 Statement 1: Casualty. robbery, thett or embcZZJe 1
❖ Answer: C · •Declaration of Loss· is submrtled within 45 days lrom" : d~s ,3'
8 deductJble only when a
robbery, theft or embezzlement that caused the loss a O discovery or the casualty or
71 . taxpayers i:nay be allowed to da1m losses from wash sales as deduction?
WhJch of the following Statement 2: Casual,ty. robbery, theft or embezzJeroon1 loses are deductJble from ross income
8 Dealer In Real Properties . if at the time of lhe fil!ng of the income lax return, lhey have not been claimed as d~ . for
b. Dealer In personal properties estate tax purposes In the estale tax return. UClions
c. Dealer in securities a. Only statement 1 Is correct
d Investor in shares of stocks b. Only statement 2 is correct
c. Both statements are correct
,:. Answer: C d. Both statements are incorrect

1 2020 Ana purchased 100 shares of common stock of Jessie company for ❖ Answer: C
72. On December • mbe • 15 2020 she purchased 100 additional shares for P9,000. On January
PlO
2. ,OOO.
2021 On~the 1~ ~hares.purchased on December 1, 2020 for P9,000.
, she ?5. Sira Sira Company had an old warehouse which had a cost of 121 ,200,000. The company
demolished the warehouse when it had a book value of 12200,000 in order 10 construct a new
How rooch IS the deductible loss? and bigger warehouse. The demolition cost amounted to 1225,000 while the scrap were sold lor
a 121,000 C. P5()() P10,000. How much is the deductible loss in arriving at taxable Income?
b. 12750 d. zero a. None c. 12200.000
b. 12185,000 d 12215,000
❖ Answer: D
Se.6ig pnce P9,(}()() ❖ Answer: D
Cast /10.0000) Book value of lhe old warehouse P200,000
lndra!ed loss /1,(}()()) Demolition cost 26,000
(/ 61-0ay Ru~: Prohlbiled Period = 30 days before sale and 30 days after sale Proceeds from scrap (10,000}
0 Decembef 15. 2020 10 January 2. 2021 is within the 30-day prohibited period. Conseqllellily, Deductible loss P2t5,000
lhe l'lda.ed loss ,s dassmed as 'loss on wash-sale". a non-deductible loss.
76. Statement i: In a total loss due to casualty, the measure of loss is the book value of the asset
73. Ero: had the following stock transactions: . reduced by any form of indemnity .
• Purchased 100 shares of oommon stock of Drei Inc. on Sept. 21, 2021 for P5,000. Statement 2: In a partial loss due to casualty, the measure_ol loss ,_s_the ~k value of the
Purchased 50 shares of substantially identical stock on Dec. 21, 2021 for P2,750. property. or the cost to restore the property to tts normal operating condition. whichever Is lower,
• On December 26, 2021. he purchased 25 additional shares of such stock for P1,125. reduced by any form of Indemnity.
On January 2, 2022, he sold for P4,000 the 100 shares purchased on Sept. 21, 2021. a. Only statement 1 is correct
How much is the non-deductible loss? b. Only statement 2 is correct
a. ?-1,000 C. 12250 c. Both statements are correct
b. P750 d. zero d. Both statements are Incorrect

❖ Answer: B ❖ Answer: C
Selling price
P4,000
Cos/ PSOO 000 an automobile which will be used
/5,0000) 77. On July 1. 2018, a taxpayer purchased for d~preclalion on the basis of an estimated
(n<ficated loss
{1,000) i;
I
exclusively for his practice. He deducted nu:he automobile was partially damaged In an
1 2 1
useful life of five (5) years. On July. , Th· cost of repairs amounted to 12100,000._ The
Non-Deductible= Pt,000 x 75"/100 P750
Deductible L()SS = Pt,000 • 750 P250 accidental collision with another vehicle. f ; to cover the loss. How much 15 the
0
61-0ay Rule: Prohibited Period= 30 days before sale and 30 days after sale mt,er
taxpayer received insurance proceeds O 12 0' 000
0 deductible loss? ' 12130.000
December 21, 2021 to January 2. 2022 ls within lhe 30-day prohibited period. The total nu C.
of shares purchased on those acquisitions was 75. a. ?-200,000 d. 1230,000
b. 12100,000

❖ Answer: D'

426 427
 D<'£·ti117,,, {jrrJ.:5., 1~ ,u
P200,000
100.000
81. sNJ Inc. purchased shares of stoek of Valde Corp f P60
Al the end of the taxable year, it was ascertained :a .
,000 and of Boba Co for P30,000
t,ecause of the complete insolvency 01 the corporaooi: rts Valde Corp stod( was worthless

==~
~.bss
PHXJ,000
(70,000}
P30,000
Pr.al LcsS = ;,e IO,oel' between remarvig book value before the casualty loss and cost 10
declined to P28.000. How much Is the deductible loss oi ;~ :~ ~ Co shares value had
a.
b.
1290,000
1262,000
C. 126(),()()()
d. nil
❖ Answer: C
~li!.SS.-3110! ~
TOIII 10:SS =,_.,g b00' value before the casualty loss less Insurance Proceeds. 0 Worthless seainties =dedudlble loss
0
0 Loss oo shrinkage in the value of the secunnes =IIO!H!educt.ble
78
Emano~ a property foc use 111 her business. Aft~r a devastating typhoon, the machinery
suffered paroa1 damage. The folo',\ing were made available: 82. One of the_followin~ tosses is not deductible from gross income
Cost P500.000 a. Loss incurred in trade, profession, or business
Acrunulated depreciation 300,000 b. Loss due to fires, storms, shipwreck, or other casualties, robbery, theft. or
Restoraoon cost 250,000 embezzle~ent of property connected with trade, business, or profession.
Esnmated useful rife 5 years c. Net operating loss carry-over
HC7N much IS the deductlble loss? d. Shrinkage in the value of the stOCk
a. ?O C. 12250,000
b. 12200,000 d. 12100,000 ❖ Answer: D

•:• Answer: B 83. When shall bad debts be allowed as deduction from gross income?
BookvaAle P200,000 a. Upon setting up of allowance for doubtful accounts
Cesl ro/8Slo/'e P250,000 b. Upon write-off in the books
Alowed(lowel) P200,000
c. At the ~ption of the taxpayer, upon selling up of alloWance or upon wnte-off
d. At the option of the government, upon setting-up of allowance or upon write-off
79. One of the following losses cannot be deducted from gross income.
a. To construct a bigger warehouse, a corporation demolished an old warehouse
❖ Answer: B
which had a construction cost of PJ,000,000 and a book value of PS00.000.
0 Wrile-0ff =deductible loss
b. Demolition of a building existing on a land purchased where the corporation has no
O Provision for bad debts =norH!edudible
use for the building at the time of purchase and it was its inlention to remove the
building in order to build its factory.
c. A rorporation retired its machinery from the business because of the increase In the 84. The following·losses are deductible from gross lnrome, except one which is deductlble only to
cost of production and the failure of the machinery to meet the desired number of the extent of capital gain:
units of production. a. net operating loss carryover.
d. A corporation ascertained that its B Corp. stocks are worthless because of the total b. accounts written off because these are certain to be unrollectrbte:
insolvency of B Corp. c. loss arising from permanent decline in market value ;
d. loss incurred from a transaction involving a capital asset.
❖ Answer: B
❖ Answer: D

=~ble~;
80. Dong, a gambling addict, won P9~,000 from cockfighting during the year. However, he also
from other gambling activities amounting to. P200,000. How much Is the
85, Statement 1: Capital losses can be deducted only from capital gains

Statement 2: Ordinary tosses can be deducted from any gross Income

a P200,000 C. !290,000
b. 12110,000 d. nil a. Only statement 1 is correct
b. Only statement 2 is correct
•:• Answer: C; To the extent of gambling winnings only. c. Both statements are correct
d. Both statements are incorrect
❖ Answer: C

428 429
 Dct/2.tL·,,7111 9n,ssl, c(),i,,c: 1
l]l'lfu/11)11,f ,,, (;n,.c_r l,ff()ntt
llnln balance method In claiming depreciation. In such acase. ✓
If lho prooioda wero rec:elvtld -
86. Awxpoyer Is allowed to use doc g 0
Bholl bo oxompi from lncofTVl :: rOIUII ol lhe flouth ol U. lll•PDy11r, IOJCll P'cx.e.cll
the llmllailon Is - d twice the rate In straight-line method Part of lho grosa Qt lalij x For llll4lo tnui11oo f)tJIJ>Otol, 11ma, 01 ""Y not bl
o. II should not excee twice tho rate In sum-of-ttie-years digit method
b II should not exceed In stral ht-lino method Llro Insurance woa ~,kon oul ~y lho ompioyor lor 1110 omp oe
c. 11 should not exceed lthhe ra:e In sum~f-the-years digit method 0 Bonofielary Is tho omployor loy
d. It should not exceed ra e8
✓ Promlurn payrnon11, nondO(l
0
lncomo of U10 omployor, uc blo whUo lho JlfOCJ)ffds shall bo pan ot u., lll-'llble
❖ Answer: A
0 Bononclary la lho ompfoyce or Ille employco'a do nd ,...
educational Institution, spent P10 million for the construction of 8 ✓ P I pe on..,nolra
67. BSE College. a proprietary t lor the construction · romfoyum paymont - laxnblo lncomo of lho omployoo ond doductJblt otperiso or 1119
new school building. The amount span In the year of completion omp or.

·
89
a Must be claimed expense · · r h b lldl
. ed d cl 'm annual depreciation over the hie o I e u ng ✓ Proceods (lo l>e roc,mod by tho umployon's hclrs/boneflaurtoJ) - nonta.Qblo inc:omo of
b Capltailz an 81 I rth s hool tho holrs/bell(lr,c1artos
Capitalized or expensed outright al the opt on o e c
~: Capitalized or expensed outright al the option or the BIR 90. All of the following, except one, are not doducllble from gross Income
a. Tuition lees and other expenses of the taxpaye(s children
❖ Answer: C b. Repl~cement ?f the ~oaf ?f the office building
c. Premiums paid In 1nsunng the life of the Corporate President Appointing the
68_ Non-resident aliens engage in trade or business as wben as resldwenht'fohrelfgnthcofrporation~ are corporation as the beneficiary of the policy ·
also allowed to claim depreciation In arriving al laxa 1e income. Ic o e o11owing Is an d. Premiums paid on a life Insurance policy or a rank-and-file employee wllh the latte(s
absolute requirement before depreciation can be claimed? . . . children 8$ the appointed beneficiary
a. The property, regardless of location, directly helped in the generation of Income In
the Philippines. ❖ Answer: D
b. The property, regardless of location, helped, directly or Indirectly, in the generation ◊ "A" Is non-deductible. Ii Is a personal expense.
of income in the Philippines. ◊ ·a· Is non.<Jeductlble. It Is a cap,taUzab!e cosl.
c. The property is used In trade or business regardless of location ◊ ·c· is non.<Jeducilble becair.;e the benerlciary ,s the employer.
d. The property must be located in the Philippines ◊ ·o· Is deductible. The designated benericiarics are tho employee's heirs
❖ Answer: D
91. In 2021, Della Company paid total premiums or P10,000 for the l~e Insurance policy or the Vice
President, where the beneficiary Is the corporation. Al the end or the year, Delta received
PREMIUM PAYMENT ON LIFE INSURANCE dividend of 12100,000 because of the policy. In 2021, lhe corporation should lndlcale a claim for
a deduction for life insurance premium or
89. XY2 Co. look two key men insurance on the life of its President, Mr. A. In one policy, the a·. 12100,000 c. P1,000
beneficiary Is the corporation to compensate it for its expected loss in case of death or its b. 1210,000 d. nil
president. The other policy designates Mr. A's wife as its irrevocable beneficiary. .
Question 1-Are the insurance premiums paid by XYZ Co. in both pglicies deductible? ❖ Answer: D
Question 2-Wlll the insurance proceeds be treated as income subject to tax by the
corporation and by the wife?
a. Yes to first and No to second question; li:•I1ltlli=ll=R•l~ilill=Iiiit•l~@
b. Yes to both questions;
c. No to first and yes lo second question; 92. Which of the following is deductible from gross income even if the paymenl is not connected
d. No to both questions. with business?
a. Contribution of the employer to the pension lwst of the employee.
❖ Answer: D b. Charitable contributions
c. Income tax paid in foreign country.
GUIDE: d. Travelling expenses
Lrle Insurance was taken oul by the employee ❖ Answer: B
0
Premium payment = personal expense; nondeductible
o Proceeds
✓ 11 the insured outlived the policy, the excess of proceeds over the preml~m paymenlS
shall be taxable to the tax taxpayer.

430 431
 v,/..dionr1, q,,,,_, l,u-,,1<
Which of the followi~ chantable contributions Is not fully deductible? . . . The amount of deductible charitable contribution 01
Dett:.ctt0 '7 11, 9ms., hto,111c
93· 97· on: property other than money shall be based
a. Donatlon to the Government of the Philippines to finance pnonty proiects ldonUfil!d
a. Fair market value
by NEDA. · fM b. Book value
b. Donation 10 the Municipality of MIiagros 1n the Province o asbate for the repair 01
Municipal Hall. . c. Lower of cost or fair market value
c. Donation to International Organizations. . . d. Acquisition cost
d Donation to Accredited Non-government Organizations
❖ Answer: D
❖ Answer: B

94 one of the following chantable and other contnoutions is not deducti~le in full: 98. To be allowed as a valid deduction. charitable and other contrlb tio t
a. Donations to Government of the Philippines or to an of tis agencies or Political a. 5% of taxable income after charitable contribution Incaseuof lndn~uds nlot exceed
oi ttabl " h , , , 1v1uas
subdMsions, including fully owned government corporations, exclusively to finance. b. 1~ ,o o xa e income a er chan~ble contribution, Incase of indlVlduals
provide for, or to be used in undertaking priority projects. c. 5 V: of taxable !~come before chantableof contribution. in case of Individuals.
b. Donations to certain foreign institutions or International organizations (i.e., International d. 10 Vo of taxable income before chantable contribution, In case or Individuals.
❖ Answer: D
Red Cross. World Health Organization).
c. Donations to accredited non-government organizations or non-profit domestic 99. The following contributions and donations were made by alaxpayer.
corporations that satisfied the four requirements set by law. To Christ the King Catholic Church P250,000
d Donations made for the use of the Government of the Philippines or any of its agencies or To Bukas Palad, non-profit domestic corporation 300,000
political subdivision exduslvely for public purpose. To the fire victims of Recto 200,000
To the Gospel church of Taiwan 350,000
❖ Answer: D
How much is the total deduchole actual charitable and other contributions subject to
95. To be deductible in full. certain accredited non-government organizations or non-profit domestic limit?
corporations must meet certain requisites. One of the following is not a requisite a. P250,000 C. P750.000
. b. P550,000 d. P1,100,000
a. Organized and operated exclusively for scientific, research, educational, character
building and youth and sports development, health, social welfare, cultural and charitabts
purposes qr combination of these purposes. ❖ Answer: B
O Deductible with ~mit = Donations to Clmst lhe Kmg and Bukas Palad JoundatJon
b. Not later than the 15" day of the third month after the close of the taxable year. in which
O Donations dlrecily given to the fire 'lictlms as wen as to Ille Gospel church of Tar.wn (foreign
the contributions are received, makes utilization of the contributions directly for the
COIJ)Oration not exempt under trealy or lntemallonal 019amza1JOns) are nondeducbble
purpose or function for which the organization is organized and operated.
c. The assets of which, in the event of dissolution, would be distributed to another non-profit contributions.
domestic corporation organized for similar purpose or purposes, or to the Stale for public
purpose or would be distributed by a court to another organization to be used In such 100. A domestic corporation has the following data on income and expenses P6,200,000
ma_nner as _in the judgment of said court shall best accomplish the general purpose for Gross business income 2,500,000
which the dissolved organization was organized. Deductions Including SSS and Philhealth contn~utions of P1 :i0,000 100,000
d. The administrative expenses shall, on an annual basis, not exceed 40% of the total Contributions to the Government for priority prOJect In education 100.000
expenses Contribution to foreign private foundation . 190,000
Contribution to domestic charitable orgamzatton
❖ Answer: D
How much is the deductible charitable and 0ther contributions?
96. The following do~tlons are non-deductible, except? a. P390,000 c. P285.000
a. Donations given directly to Yolanda survivors b. P290,000 d. P21 1.000
b. Alms given to beggars
c. Political contributions ❖ Answer: C Plf/0,000
d. Donauons to International Organizations Ac/uBI (wl /im~/ cor,//1l)UOOIIS l 5"1
Vs. Umff (nel /nG0/118 belole()/)()/ S"I 185,000
: /(6,200,000- 2.500, l P185.000
❖ Answer: D Allowed (lower/ . • 100,000
Add: [)edudiblo In full (prioitY projed) /rbiflOllS P285.000
Tolal allowable chllfilOb/B snd o/fllll coo

433
432
 ~OTEContnbonom 10 8 foreign pnvale 019anization Is non-<leducllble. unless provided for Under
So/ullon.
lntomauonal agreements or treaty.
Gross Income
Cost of Sales PS.000,000
Use the following data for the next two (21 questions. Se/es 3.000,000
Juan, reported the following during the taxable year. P8.000,000
Sales
Gross Income Ps,ooo,ooo cos PB,000.000
Cost of Sales 3,000,00Q
Salaries or employees. net or P100,000 withholding t_
ax and aoo,ooo Salaries (gross of withholding tax, sss.Medlcare//1' (3,000.000)
Fringe benefils gr,,en to rank and file employees ag.lb/QJ /P50.000J
PS0,000 SSS. Medicare and Pag-ibig premium contnbullons Frlngo benefds (@Grossed-up monetary va!IJa) /300.000)
Fringe benefits given to rank and file employees 300,00Q Rent expense (250,000}
Fringe benefits given to managerial employees (GUMV) 250,000 Representation and entarlainment r
Net Income before contnbutw
y," 01 N.Sates) P8M
• x 005
(t20.IX!OJ
(◄O.OOOJ
Represenlation and entertainment expenses (business related) 100,000
Donation to religious and chan'teble institutioru PJ,340,000
Rent expense 120,000 Actual= P500,000 (167,000)
Donation to religious and charitable institutions 500,000 Umit: P3,340.000 x 5% =P/67,000
Allowed /lower amount). fimff
101. At what amount should Juan report as taxable income for2020? Taxable pet ln.:ome
P3. t73.000
a. P2,790,000 c. P2,956,000
b. P2,906,000 d. P3,006,000

❖ Answer. D 103. Which statement is wrong? Contributions made by an employer to a pension trust.
Solution. a. For lump sum payment to cover past service cost, rs allowable as deduction beginning
Gross Income P5,000,000 with the year the payment was made.
Cost of Sales 3,000,000 b. For lump sum payment to cover past service cost is allowable as deduction amortized
Sales PB.000,000 for period of ten years.
Sates c. For a lump sum payment to cover past setv1ce cost, may be amortii.ed over a penod or
PB,000,000
cos (3,000,000) . more than, but not less than ten years.
Salaries (gross of withholding tax, SSS, Medicare//Pag-ibig) (950,000) d. .For present service oost, is deductible in lhe year that payment Is made.
Fnnge bene/i!s given to rank and file employees (300,000)
Fnnge benefits (@Grossed-up mooetary value) (250,000} ❖ Answer: C
Rent e.q>ense (120,000)
Repmsemation and entertainment expenses
I½ % of Net Sales) , PBM x .005 · (40,000)
104. Statement 1: Contributions by the employer to a pension trust for past service cost IS deductible
Net Income before contributions PJ,340,000 in full in the year that lhe employer made the contributions. if he Is on the cash basis or
Donat,on to religious and charitable Institutions (334,000) accounting.
Actual = P500,000
Limit P3,340,000 x 10% = P334.000 Statement 2: Contributions or donations given directly to individuals cannot be deducted from
AJ!owed /low!lr amount): Umd
Tax~bk N,t Income gross Income.
P3,0(J6, 000
a. Only statement 1 is correct
0
Allowable Representation exp. =Iha lower between the actual expenditures and Iha limit. b. Only statement 2 is oorract
0 Umltis: , c. Both statements are correct
Sale of goods = ½% of Net Sales d. Both statements are incorrect
Sale or serv.ce = 1%of Revenues
❖ Answer: B
. Contn'b llon• for past servtoe cost shall be amoruzed tor 1en (10) years..
102. How much is lhe oorrect taxabl t· . O "A" ls incorrecL u ,
e ne income assuming the taxpayer Is a corporation? Refer to lhe rules prolided'" the prereding number
a. P2.790,000 P2 956 00
b P3 173 000 c. ' ' O
. ' · d. P3,006,000
❖ Answer. B

434
435
 Du/4 ~1,,'7., , (jm,s ;,u,,,,,, . De1fu:ltt>117,:n,
nal'Kinn llUS1 for its employees. The following contributions are rTla<le The deducbble pension contnbulion fOf the year IS -
105 An employel mantaJnS I""-·- 201 g 2020 2021 a P100,000 c Pl,000.000
P1 ,000,000 P1 ,000,000 P1 ,000,000 b. P200.000 d. Pl 100,000
Qmnt seivice costs 800,000 600,000
Past sernce costs
❖ Answer: B
How nu:ll 15 the deductlbie pension contributions? Current or ptBS8nl seMC11 costs PI00,000
2019 2020 2021 Past S8IVIC6 costs = PIM/10 100000
Pl 800 000 Pl,600,000 P1,000,000 Total P'lOO,(XX)
a.
b. P1:oso:ooo P1,060,000 Pl,000,000
C.
P1 080 000 P1,140,000 P1 ,060,000
d
p1:oao:ooo P1.140,000 P1.14o,ooo

•:• Answer: D 109, Which statement is wrong? Research and development cost
Wj ZQ1J WQ a. On land and building acquired for research and development purposes is noi deducttble
Pf,()()(),()()(} Pl,()()(),000 Pl.000,000 as research and development cost
Cunenl ,58(\/ICe rosts
P»tserollCt!COSIS b. May be claimed as an outright deduction from gross income
80,0()() 80,()()() 80.000
2019
2020 6(),000 60,000 c. May be lreated as a deferred expense lo be amortized over lhe penod whtch winbenefit
2021 from the expenditure.
Tai.al Pf.080.000 Pl.140,000 Pf.140,000
d. May be treated as a deferred expense lo be amorttzed over a penod of not less than
thirty-six (36) months from lhe date benefil from lhe expendilure is denved
106. DLC Corp. contnbu1ed 124,000,000 to its pension plan during the year 2018. The normal cosl
appeanng on the Actuarial Valuation Report is only ~.000,000. How much can DLC Corp.
❖ Answer: C
claim as deduction?
a. 124,000,000 C. ~ .100,000
b. P.J,000,000 d. nil 110. Research and development deduction shall not apply to
I. Any expenditure for the acquisition or lmprovemenl of land, or for the 1mprovernon1
❖ Answer: C of property to be used In connection with research and development of a character
Cum!nt seMCe costs /noonat cos/) P3,000.000 which is subject to depreciation and deplebOn.
Pas/ :ie= costs II. Any e,cpenditure paid or incurred for the purpose of ascertaining the e,us1eoce,
/excess conttlbution over nonnal cost). =Pl,000.000/10 100,000
~ nmooo location, extent quafity of any deposit or ore Of olher m11ieral, including oil and gas
• a. I only c. Both I and II
107. Continuing lhe information above, assuming In 2019 DLC Corp. contributed only 122,000,000 b. 11 only d. Nc11her I nor II
while the Normal Cost is PJ.000,000, how much is the deductible amount?
a. ?2,100,000 C. ?2,000,000 ❖ Answer: C
b. P.J,000.000 d. ~.100,000
111 . Research and development expenses trealed as a deferred expenses shall be·allOWOd as
❖ Answer: A
deduction ratably distribuled over a P8.riod of h . which lhe ta""-=er firsl real1Z8S
Cv118<11 seMce co.sis /normal cost} P2,000,000 a. Nol more lhan 60 months beginning with the mont in ~,,..,
Pasuervice co.sis from 2018 100 000
TOia/ P2.100:000 benefits from such expendllure.
0
, . ""'" the month 10 which tile tupayer first 1eallzos
Currom sel'lice to be recognized shall not exceed tho aclual contributions paid. b, Not less than 60 months beginning "'"'
benefits from such expenditure.. . . hlch lhe iaxpayer firsl realizes
108 ~=l~rporat~ has bee~ In business for the past 10 years. For the year 2018, it decided c, Not less than 30 months beginning with lhe month in w
Past pens!on fund for its employees. The pertinent data of the fund are us follow: benefits from such expendllure. h which the tupayer first realizes
sel'Vlce cosl (lump sum paymenl) P1 000 000 d. Not less than 6 months beginning with the mont in
Present service cosl ' 100,000
'
benefits from such expenditure.

❖ Answer: B

437
436
 1 7 Research and development costs: 0
D ,,t{,(~-L •,u
·o· IsIncorrect. The otection to da•m eilhe/
< u J'£,, r,
'f'-ht '";fr,,._r htamtt
112. Whleh statemen Is l\'T'Oll
lheg u·isl''on and/or lmprovemenl of land and building, mus1 be
a. When relat00 10 acq u year must be signified by ~ the lne OSO 01 Ille 1tOIIIIZe<l deduc110n lot lht ra,illlle
first quaner of the taxable year adopled ~pPn)pria1o 00• m Ille lllCOr!W! ra, rea,m Noa ro, 11>1
capitalized. I . h ded . type of deduction must be cons.sten lhe latpaye,, Once lhe oled>on is made lhe same
b. If not related to land and bU1lding, may be treated as an ou ng I uction.
c. If not related 10 land and building may be treated as a deferred expense which may be the final Income tax relum Jor the : : ~ IClf al Ille •~lng Qual1l!f1y 101~ nnd In
quarterly Income tax return shal bo yoar. lvly la.lpaye, required bu1la.ls ID 11111 the
amortized. opbon for the taxable year COl\sldered as haw-.g availed of Iha lte~ Oeduc11ons
d Cannot be deducted in gross income.
116. For purposes of Optional Standard deduction of an individual lhe Optio
❖ Answer. B of forty percent (40%) should be based on: · na1Standard Deduction
a. If a trading concern, gross profit from sales
ITEMIZED DEDUCTIONS/ OPTIONAL STANDARD DEDUCTIONS OSD b. If a service concern. gross receipts less direct cost of seivices
c. Gross sales or gross receipts
113 Which of the following income is to be reduced by itemized deductions? d. Means gross profit from sales, or gross rece1pts or revenues less direct cost of services
a. Compensation income plus all other items of gross income ·
b. Business income
c. Passive income ❖ Answer: C
d. Capital gain
117. Which of the following should be used as
a basis In computing the Optional Standard
❖ Answer: B Deduction?
I. For individual taxpayers using the accrual basis of accounting, OSD Is based on
40% of gross sales.
114. The following may be allowed to claim OSD in lieu of the itemized deductions, except
a Taxable estates and trust II. For individual taxpayera using the cash basis of accounting, OSD ls based on 40%
of gross receipts.
b. Non-Resident afiens
c. Resident foreign corporations Ill. For individual taxpayers using the other basis of accounting such as percentage of
completion method, OSD is based on 40% of gross receipts or sales. as the case
d. Domestic corporations
maybe.
❖ Answer. B IV. For OSD purposes, corporate taxpayers shall compute the OSD in the same
manner with individual taxpayers
NOTE
a. I and Ill only c. All of the above
o The foOowmg may be allowed to daim Opllonal Standard Deductions (OSD) in lieu of the
ilemiz.ed deductions as follows: b. I, II and Ill only d. None of the above
Resident Citizens
Nonresidenl otizens ❖ Answer: B
Resident afiens O ·1v- IS lncooect. The baSis of OSD·
Taxable estates and trusts For individual taxpayers- gross sales o< rncelpls
Domestic 001p0rations For corporations - gro.ss Income
Resident foreign COfJ)Orations
Partnerships 118. The following statements pertain to Optional Slaodard Deduction (OSD) for corporations.

115. Optional standard deduction . Which is incorrect? led a final tax at source shall not form pan
a. Passive Incomes which have been subjec IO SD
a.. Is equal to 40% of the gross income from business or practice of profession. of the gross income lo'. purposes of comllP~~!~art.of the gross income for purposes of
b. Cannot be used as a deduction from compensation income. b. Incomes exempt from income tax sha no
c. May be availed by ail individuals
computing OSO. ' . en a ed in trading of goods. OSD should be
d May be availed of by the taxpayer whether or not he signifies his desire to elect optional c. If the taxpayer ~ndlvidual or corporate) is l~sgdlscounts and allowances. and rost of
standard deduction. based on Gross sales less sales returns, 53
sales.
❖ Answer. B d. None of the above
0
•A" IS incooect. The basis of OSD Is gross sales or receipts
0 13· Is CO!Tect.
❖ Answer: C
0
-C- Is •ncooect. 11 Is not allowed lo nonresident aliens and non-resident foreign corporatiOns.

439
438
 of computing lhe OSD sllOuld be: ❖ Answer:
o -c· 11 incorrect The basis - gross sales or receipts Solution. D
• Fot kldlvfdual 13~
RH corporatlOIIS -gross WlCOf1l8 Gross sales
Se/es returns and a/lowllflCes P9 350,000
cooect· A chOice by an individual of the Optional Standard Salos discounts /250.000)
119 One or the following statements Is Interest lnrome on lrade notes rocerv,01o /100,000/
Other inrome 150,000
Oeducbon means that
a His lllCOfl1e tax return
need not be accompanied by financial statements Cost of sales 50000
b He need not keep books of accoun(s Gross income (J,000,00))
. need t have records of gross income Less· OPEX with VOCJChers and t8Q!/pls 1'6.200.000
c.
d
~ no
HIS choice can Su
"II be "'"'
......~nged by filing an amended return Taxable Not Income (4,000,000)
P2.200.000

❖ Answer: A o Interest Income from bank deposils alld royalty lnal<ne are paSSlve Incomes subjod 10 FWT
They are excluded from the 00fflf)V1a!lon ol taxable net income 1ubjod 10 baSIC Income lax
. . has the followi'ng data on Income and expenses in 2021:
120. Aresident citiZen
Gross compensation income P200,000 122. Based on the preceding number. how much is the taxable Income using OSD?
Gross sales 900,000 a. 123,755,000 c. 123,695,000
Cost of sales 500,000 b. PS,470,000 d. 123,720,000
Business expenses 200,000
❖ Answer: D
Solution:
He avails himself of the Optional Standard Deduction. How much ls his taxable net
Gross sales P9.350,000
income? Sales returns and alfcwances (250,000)
a. P690,000 c. P420,000 Sales discoonts (100,000)
b. P740,000 d. P290,000 Interest ,ncome on trade no/es~ tS0,000
Other income 50.000
Cost ofsales /l000,000/
❖ Answer: B Gross Income 1'6.200.000
Soluri011. Less: OPEX (P6,200.000 x 40!!) /2,480.000)
Gross wmpensatoo income P200,000 Taxable Net Income PJ,720.000
Gross sales P900,000
Less: OPEX (OSD):
= P900,000 r 40% (360,000) 540,000
123. A resident corporation has the following data oo Income and expenses durlng the~~
Taxable net Income P740,000 Gross sales 000
25 ooo
o ff the taxpayer is individual. the basis of OSD Is gross sales or receipts. Sales returns and allowances 10:000
Sales discounts 15 000
121. A domestic corporation has the following data on income and expenses for the year. Interest Income on trade notes receivable so:ooo
Gross sales P9,350,000 Capital gain on asset held for 2 years 400,000
Sales returns and allowances 250,000 Cost of sales . 215,000
Sales discounts 100,000 Operating expenses with vouchers and rece1p~ 200,000
Interest income on trade notes rec.eivable 150,000 Operating expenses without vo_uchers anci receipts 10,000
Other income 50,000 Capital loss on asset held for SIX (6) month s
Costol~ ~MOO · ·1
I env·zed deduction?
Operating expenses with vouchers and receipts 4,000,000 HOW much .IS the taxable
·
incomel2340
usmg Q()()
Operating expenses without vouchers and receipts 500,000 a. 12293,000 de. MAg'ooo
Interest income from savings deposit 80,000 b. 12300,000 · '""" '
lnteres, income from deposit under FCDS 125 000
Royalty income 100:000 ❖ Answer: C

How much is the taxable income using Itemized deduction?

a 121,675,000 C. 121,700,000
b. 122,175,000 d. 122,200,000

440 441
 pART 8
Soitlon P936,000
Gross sllle! 25,000
Salts tUruml and a110wat>005
Sales dlst;OIXIIS
Nel s.it.I
Less· Co$1 olSa!eS
Md lnlllll!SI mcome on trade rocefvllble
10,000 (35,00(Jl_
· 900,000
{400,000)
15,000
/lccdML!:J MetU: ,vu[
Gross Prof, 515,000
L8SS. OPEX wllh vouchefS and rocelpts
Ne/ ,w:o;ne from opllliltions
(215,000)
300,000 Installment Reporting of Income
Md Net Cepifal Gn//1
Ceptal gain on asset held tor 2 yea~ 50,000
Capita/ toss on asset held /of six (6/ months (10,000) 40,000
Taxable Nat rncome P340,000

124 How much is the taxable income using OSD?

8.12293,000 c. 12340,000 ACCOUNTING PERIODS
b P300,000 d. 12349,000
Section 43 of the Tax Code provides, that the taxable Income shall be computed
❖ Answer: D upon the basis of t~e taxpayer's annual accounting period (R.scal year or calendar year, as
Sohl/ion· the case may be) in accordance with the method of accounting regularly employed In
Gross sa,es P93s;ooo keeping the books of such taxpayer, but If no such method of accounUng has been so
Sa!ss re/ums and allowances 25,000 employed, or If the method employed does not dearly renect the Income, the computation
Sales discounts 10,000 (35,000) shall be made in accordance with such method as In the opinion or the Commissioner dearly
Net Sales 900,000 reflects the Income. If the taxpayer's annual accounting period ls other than a flscal year or
Less. Ccst of Sales (400,000) If the taxpayer has no annual accounting period, or does not keep books, or If the taxpayer
Add· Interest mcome on trade receivable 15,000 Is an Individual, the taxable income shall be computed on the basis or the calendar year.
Gross Prof# 515,000
Less: OPEX under OSD = PSIS,000 x 40% (208,000) KINDS
Net income from operations 309,000
Add. Nel Capffat Gain
Cap/la/ ga,n on asset held for 2 yea~
1) Calendar Year
50,000
Capital loss on asset held for six /8) months {10,000) 40,000 2) Fiscal Year
Taxable Net Income P349.000
O Holding period on capital gains and losses Is 1rrelevanl If the taxpayer Is a corporalion. INSTANCES WHEN USE OF CALENDAR YEAR 15 REQUIRED
O Capital gains and losses are non-business related. Consequently, shall be excluded In lhe
determination or OSO. Taxable income shall be computed on the basis of calendar year In the following
cases:

1. If the taxpayer's annual accounting period ls other than a fiscal year;

2. If the taxpayer has no annual accounting period;
3. If the taxpayer does not keep books ~f accounts;
4. If the taxpayer Is an Individual. (Section 43, RA 8424)

SHORT PERIOD RETURN

Accounting period may be less than twelve (12) months (Short Accounting Period)
may arise when:

1. A corporation Is newly organized

2. When a corporation Is dissolved
3. When the taxpayer dies riod
4, When a corporation changes accounting pe

442 443
 ,--1,-,,,M IM( I
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'-

RESULTING FROM CHANGE OF ACCOUNTING PERIOD

RETURNS FOR SHORT PERIOD Sales of Real Property - These lndud I
( Semon • J of tl1t! Tax Code) provided, the Initial payments do not e sa es or other d1sposI11on of real property
nan Individual, with the approval of the Commissioner, than exceect 25% of setllng price.
If a taXPilver, other tha t income from fiscal year to calendar year, a separate flna~es INITIAL PAYMENTS means the pa
r;!
the basis of computi~I made for the period between the close of the last fiscal Y
01
evidences of Indebtedness ol the pu;;::e;:
1
<J~ in cash 0t properly olher than
adjustment return sha de and the following December 31. If the change Is frea r or other disposition Is made. unng the taxable period ,n which the salo
fo, which retumfiwasl ma a separate final or adjustment return shall be made for ornth
calendar """r to Isca year, h'ch tu e
~ the dose of the last calendar year for w I re rn was made and the
::i nated as of the dose of the fiscal year. If the change Is from one fiscal Year
desig fi r a separate final or adjustment return shall be made for the pe"•·
J. SALES OF REAL PROPERTY CONSIDERED AS CAPITAL ASS
[Section 49(C)] ETS BY INDIVIDUALS
to another sea I yea , d d I t-" th ' ouu
1.
between the dose of the former fiscal year and the ate es gna = as e close of the
new fiscal year. An Individual taxpayer who sells real property considered as cap1ta1assets and the
Initial payments do not exceed 25% of the setllng price may pay the capital gains tax
ACCOUNTING METHODS In Installments.

1) Cash method
2) Accrual method SUMMARY: INSTALLMENT REPORTING OF INCOME
3) Oop basis
4) Percentage of completion ORDINARY
S) rnstallment method ASSETS:
Trader of Goods The sale should be oo installment basis
PERCENTAGE OF COMPLETION (Section 48 of the Tax Code) (regardless of the ration of lnifial payments over
Percentage of completion method Is only allowed In case of " long-term contracts·. seling price).

"Long-term contracts· means building, Installation or construction contracts covering Sale of Real Property The sale should be oo installment basis. and
a period In excess of one (1) year. The inibal payments do not exceed 25%of selling
pnce.
CHANGE OF ACCOUNTING PERIOD
CAPITAL ASSETS:
If a taxpayer, other than an individual, changes his accounting period from fiscal Sale of personal The se16ng price exceeds P1 ,000; and
year to calendar year, from calendar year to fiscal year, or from· one fiscal year to property The Initial payments do not exceed 25% of selling
another, the net Income shall, with the approval ofthe Commissioner, be computed on price
the basis of such new accounting period, subject to the provisions of Section 4 7 (Section
46 of the Tax Code). Sale of Real Property Installment payment of caplW g1ins ux. provided
the Initial payments do not exceed 25% of selling
INSTALLMENT METHOD (Section 49 of the Tax Code) rice.
The following sales may be reported on Installment Basis:

1. SALES OF DEALERS IN PERSONAL PROPERTY [Section 49(A))

These indude sales by persons who regularly sell or otherwise dispose of personal
property on the installment plan may return as Income therefrom in any taxable year FORMATS OF COMPUTATION
that proportion of the installment payments actually received In that year, which u,e
gross profi~ realized or to be realized when payment fs completed. bears to the total 1. Selling Price (SP)
contTiJct pnce. , ,
p XXX
Cash received XXX
2· SALES OF REALTY AND CASUAL SALES OF PERSONALITY (Section 49(B)l FMV of the property received -ax
Receivables
~
~sual ?11es of Personal Property · These Include casual sales or other casual Unpaid mortgage assumed by the buyer Pm
~ Itio_n of ~rsonal property (other than property of a kind which are ordinarilY Selling Price
uded 10 the mv~ntory of the taxpayer; capital assets), provided:
a. The selling pnce exceeds Pl 000· and
b. The Initial paymen ts do not exceed
' ' 2S% of selling price.

445
444
 QUIZZER
2 Contrad Pnce (CP) An accounting period of twelve (12) months ending on the last day of December
p XXX 1. a. Calendar year c Leap year
~Pnc:e (XXX) b. Flscal year d. Sum-of-the-year
Less. Mo,tgage aSS\Jmed by tile buyer P XXX
Balance XXX ❖ Answer:A
Add. Excess unpaid mortgage over cost
Con!ract Pnce
2_ An accounting period of twelve (12) months ending on the last day of any month other than
December.
Initial Paymeots (IP)
a. Calendar year c. Leap year
3 b. Fiscal year d. Sum--0f-the-year
Pxxx ❖ Answer: B
Oownpayment I XXX
Expected Installment collectioOS in the year of sa e
XXX
Excess or unpaid mortgage over cost 3. Which one of the following cases may the taxable income be computed not on the basis or the
Pxxx
Initial Payments calendar year?
I. Taxpayer has no accounting period
4. Realized Gross Profit (RGP) (if sale is subject to basic tax) II. Taxpayer does not keep books of accounts
RGP = Collections x Gross Profit Rate Ill. Taxpayer is an Individual taxpayer
Gross Profit Rate = Gross ProfiVContract Price IV. Taxpayer is a corporation
V. Taxpayer is a general partnership
5. Installment capital Gains Tax
lnS1aUment CGT = Total CGT x Colledion/CP a. IVon ly c. Ill. IV and V only
b. IV and V only d. None of the above
❖ Answer: B

CHANGE FROM ACCRUAL TO INSTALLMENT BASIS [Section 49(D)] 4. Which of the following statements is correct?
a. A change in the method of accounting requires a prior approval of the Commissioner
Jr a raxpayer entitled to the benefits of Subsection (A) elects for any taxable 'year to report of Internal Revenue.
htS ra.xable Income on the Installment basis,. then in computing his Income for the year of b. A change in accounting period does not require prior approval of the Com!fllssioner
change or any subsequent year, amounts actually received during any such year on account of Internal Revenue as long as the necessary income tax returns for lhe different
of sales or other dispositions of property made In any prior year shall not be excluded.
accounting periods are filed.
c. Both 'a" and "b"
ALLOCATION OF INCOME AND DEDUCTIONS (SECTION SO) d. Neither ·a· nor "b"
❖ Answer: A
In the case of two or more organizations, trades or businesses (whether or not Incorporated
and whether or not organized In the Philippines) owned or controlled directly or indirectly 5. A method of accounting which a~plies to a farmer who Is engaged i~ produci~g cr~ps which
by the same interests, the Commissioner is authorized to distribute apportion or allocate lake more than a year from the time of planting to lhe ti~ ~ galhenng_and disposing The
gross !~come or deductions_between or among such organization, t~ade or business, if he entire cost of producing crop must be taken as a deduction in the year in which lhe gross
determines that such distribution, apportionment or allocation is necessary In order to income from the crop is realized.
prevent evasion of raxes or clearly to reflect the Income of any such organizations, trades a. Cash basis c. Crop basis
or businesses. d. Installment method
b. Accrual basis
❖ Answer: C

6· A method of accounting where income is reported in the year if is collected, actually or

constructively. C b sis
aChb ' c. ropa
b: A:ruai8~ssis d. lnslallmenl method
❖ Answer: A

447
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. Ive nse to short accounting period? c. Statement 1 is false but statement 2 1 ,._ -
7 Which of the followrng instanoes ma, Y91s ne·""'1 nmanized using calendar year d. Statements 1 and 2 are true. s 1rue
· a When the corpora1iOl1 "' ="
corporation 1s dissolved
! ::~ : corporation changes accounting period ❖ Answer: B
d All of the above
Which one of the following 1s an essential of an acceptabl
❖ Answer: D 12. a. There should be distinction between revenueeaanccoudntlngl method?
b. ExpenSes Io reslore property or prolong its useful capita
rt h
expenditures
. Ive rise to short accounting period? property account or charged against depreciation i e s ould not be added to the
8. Which of the followmg lnStances
1
~!
When the corporauv,,
~s
1
ne""" organized using fiscal year
"'1 c. In all cases In which production purchase or sal f _._ .
When a taxpayer dies .
od · f t · ' e o rne,"',and1se is an income
11 pr ucmg ac or, inventories should be considered either I th beg. I
ui" When a corporation changes accountmg method the end of the accounting period a e rnn ng or at
· c. Ill only
a. I only d I1 II and Ill d. T~e .accounting method should adhere to generally accepted accounting
b. II only · pnnc,ples.

❖ Answer. B ❖ Answer: A

9_ Which of the following statements in incorrect? , 13. Statemen_t 1: Income which _is credite<! to the account of or set apart for a taxpayer and which
a. No unifonn method of accounting can be prescnbed fo~ all taxpayers. may be withdrawn upon by him at any trme IS subject to tax for the year during which so credited
b. Each taxpayer is required by law to make a return on his tru_e income. or set apart, although not then actually reduced to possession.
c. The taxpayer has to adopt accrual meth?d of_a~counting because it is in Statement 2: The doctrine of constructive receipt of income ls designed 10 prevent the exclusion
accordance with generally accepted accounting pnnc1ples from taxable income of Items, the actual receipt of which could, at the option of a taxpayer on
d. Where purchase or sale of merchandise is an income-producing factor, the cash basis, be deferred or indefinitely postponed.
inventories on hand shall be taken at the beginning and at the end of year. a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
❖ Answer: C c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
10. Statement 1: II a taxpayer, other than an individual, with the approval of the Commissioner,
changes the basis of computing net income from fiscal year to calendar year, a separate final ❖ Answer: D
or adjustment return shall be made for the period between th1;1 close of the last fiscal year for
which return was made and the following December 31. 14. The following statements pertain to registration requirements of every person f'fl(luired to
Statement 2: If the change is from calendar year to fiscal year, a separate final or adjustment register for tax purposes. Choose the inccrrect statement.
return shall be made for the period between the close of the last calendar year for which return I. Every person subject 10 any internal revenue tax shall register once w1th the
was made and the date designated as the close of the fiscal year. appropriate revenue district officer. .
a. Statements 1 and 2 are false II. A person maintaining a head office. branch or facility shall register with ~he
b. Statement 1 is true but statement 2 is false revenue district officer having jurisdiction over the head office, branch or facll1ty.
c. Statement 1 is false but statement 2 is true Ill. In case a registered person decides to transfer his place _of bu_slness or his head
d. Statements 1 and 2 are true office or branches, it shall be his duty to update his reg1stra1ron status by filing
an applicallon for registralion Information update in a prescnbed form.
❖ Answer: D IV. The registration of any person who ceases lo be liable to a la~ type shall be
cancelled upon filing with lhe Revenue District Office ~here he is registered by
11. Statement 1: The method of accounting regularly employed by the taxpayer in keep!ng h~ filing an application for regislralion infonmauon update in a prescnbed form.
books, If such method clearly reflects his Income, is to be followed with respect to the time8 a. 111 only c. All of the above
of which items of gross income and deductions are to be accounted for. b. IV only d. None of the above
Statement 2: The computation shall be made in accordance with such method of aceounllll9
as rn ~e opl~ion of the Commissioner clearly reflects the income if !here is a moltiod
accounting being employed by the taxpayer and such method of accounting clearly renoct
:e ❖ Answer: 9
Income. 1S the uthority of the Tax Code to make, render. or
· Statement 1. Any person required under ah be supplied with or assigned a single
a Stalements 1 and 2 are false me a return statement or other documents 5 8II
b Stalemenl 1 is true but statement 2 is false Taxpayer ld~nllficatlon Number (TIN).

448 449
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7
__..i-:.,1TIN shall be indicated every time a return, staterne t Hire of tractor ~
Sfa18f7)8(1f 2 The ..,-,,B ,_IR¥for the taxpayer's proper identification. n Or Hire of carabaos and horses 20,000
oocunent IS fded with the Others 6,000
a StatemenlS 1& 2 are false .
b Slatement 1 ts true but statement 2 ~ false &,00()
c Statement 1 Is false bu1 statement 2 IS true How much 1s his gross income?
d Statements 1 and 2 are true a. P370,000 C. P180,000
b. P270,000 d. P90,000
❖ Answer: D
❖ Answer: C
Sale of livestock aoo fann product&
16_ The books of accounl may be kept in the following languages, except Cost of Sales Pt20,0000
a Native langUage Beginning 111vent0i)' (6(/(( , 3Cfo:J
b Spanish Purchases of fivsstock P90.000
C English Ending inventor/ 100.000
(180,000) (10.000J
d. Chinese oc Japanese. Gross ine-0me from open,ffom
Add: Other Income (30k • 1Ot • 201< • 6k+ 4k) /10.000
Tota/ Gross Income 70,000
❖ Answer: D PIB0,000

17. Statement 1: The books of aa:ount and other records shall be subject to examination and 20. Based on the preceding data, how much is the gross income assuming cash basis IS used?
inspecoon only once in a taxable year by the BIR officers. a. P370,000 c. P180,000
Statement 2: The examination and inspection of books of account and other accounting b. P270,000 d. P90,000
records shall be done in the taxpayer's office or place of business or office of the BIR.
a. Statements 1 and 2 are false ❖ Answer: D
Sale of livestock and farm produelJ
b. Statement 1 is true but statement 2 is false Pl20.000
Cost ofSales:
c. Statemem 1 is false but statement 2 is true Purchases of livestock {100.000)
d. Statements 1 and 2 are true Gross lnrome from operations, 20.000
Add: Olher income (30k • 10k + 20k • &c• 4k) 70.000
••• An$wer: D Total Gross inccme P90,000

18. For income tax purposes, the examination and inspection of the books of account and Next five {5/ questions are based on the following.
records shall be made only once in a taxable year, except in the following cases: Joseph provided the following data on sale of his personal property sold In 2021 held by him for 15
I Fraud, irregularity or rmstakes, as determined by the Commissioner; months:
II. The taxpayer requests for reinvestigation; Cost 12225.000
111. V~f,cation of compfiance with withholding tax laws and regulations; Mortgage assumed by the buyer 270,000
IV Verification of capital gains tax liabilities; Installment Collection Schedule:
a. I and II only c. All of the above 2021 67,500
b. Ill and IV only d. None of the above 2022 67,500
2023 45,000
❖ Answer: C
21. How much is the selling pnce?
a. P450,000 c. P180,000
19. A farmer under accrual basis has the following data for the year: b. P270,000 d. P225,000
Begrrmlng inventory:
~vestock and farm products raised In the farm P 60,000 ❖ Answer: A
~1ve~tock and farm products purchased the previous year 30,000 Cash received P67,5(J(J
Endmg inventory: 112,500
Receivables
Livestock and farm products raised in the farm 100,000 FMVofprof)(Jrty recervod
l.Jvestock and farm products purchased Mortgage assumll<f by tho buyer 270.000
80,000
~ ~:_livestock and farm Products raised and purchased 120,000
Selling Price P450,000

" '---~laneo
1vest~ and farm products purchased during the year 100,000 22· How much Is the contract price?
...,.,.,. us income:
Ga!n on sale of work, bleeding or dairy animals 30,000 a. P460,000 c. P180.000
Gain on sale of farm equipment and machinery b. P270,000 d. P225.000
10,000

450 451
 ❖ Answer. A
❖ Answer: 0 P450,(}()() ◊ The seller can ava~ of Instalment "'POrti Of
s.ltl9 p,a ssumed by the buyer /270,()()()J over selling price because h Is - ng l'la>me regardless of Ille rallo of Initial IXl)'fflenl
Lass. Alotl~ 8.! cost= P270.000- P225.000 s e regulally engaged lo lladlng personal ll'Ol>erty
45,00o
°
excess ol morlgaf16 111' ~OOo Gross Profit%
Conrn1C1 P~ --=-=-- 2021 = 15150 ~
2022 =40/100 40¾
23 How much Is the initial payments? 2023 =751 15() ~
. a P67 500 C. p45'000
b: P112.500 d. P22S,OOO Collections GP % Reak?ed Gross
In 2023
❖ Answer: B P67,500
Prom on 2023
Cash rece/V8d 45,000 From 202 t sale
Excess of morlgBgU over cost Pt0,000 ~ P3.000
Pll2.500 From 2022 sale 20,000 40')£
ln/Oal Payment 8,000
From 2023 sale 40,000 50% 20,000
TOTAL
24. How much is lhe income subject to income ta~ in 2021, 2022, and 2023? PJf.000
a. 1256,250, 1233.750 and ?22,500, respecti~ely 26. Maripet sold the following capital assets as follows: (RP . Philippines)
b. ?112,500. ?67,500 and ?45.000, respectively
Lot 1 Lot 2 Lot 3
c. 12225.000. PO and PO, respectively Selling Price 12225,000 12750,000 121,200,000
d. None of the choices Cost 95,000 900,000 300,000
Terms of Sale:
❖ Answer.A
P450,000 Downpayment, Feb. 2021 P 15,000 P 75,000 P 150,000
Sellingpooi
Cost (225,000) 1st Installment payment, April 2021 15,000 75,000 75,000
Gross Profri P225.000 2"" Installment payment, Sept. 2021 15,000 120,000
Still due (2022) 180,000 P 600,000 P 855,000
Gross Pro& %= GP/CP 100%
P22S.OOOIP22S.OOO How much is the capital gains tax for the year 2021?
REALIZED GROSS PROFIT 2021 (Year 2021 2022 a. ?83,700 c. 12130,500
20231
1) b. ?32,400 d. 1211.700
lnival paymenl (Y1} / Co//eclions (Y2&Y3) P/12,500 P67,500 P45,000
i w~ ❖ Answer: A
Gross Profri P/12,500 RATIO of INITIAL PAYMENT over SEUING PRICE
x Holding Periocl 50% SO% 50¾ If not more than 25% =apply insta! menl melhod
REALIZ£0 GROSS PROFfT P56.25Q PJJ,750 P.22,500 If more than 25% =lllS!allment ~ melhod IS nol applcable: oonsldcred as deferroo
The asset sold was a capital asset and the seller is Individual, hence. apply rules on holding sale
period
For year 1. the basts should be the Initial payment. rather than collecllons. 0 LOT 1 =45/225 = 20%: lnslallmenl method os applicable
For 2"' year Ollwards. use collectlons. 0 LOT 2 = 1501750 = 20%; instaVmenl melhod IS aP?'(able ,
◊ LOT 3 = 34511 .200 = 28.7S%; Deferred basis: shall be uealed as cash sase

25. The following data pertain to installment sales of personal property made by Dina Bale, who Pl95,0IJO
Lot 1 and2
regulally sells in Installment, in her retail fumtture store. Lot3 f,20(),000
Year of sale Installment sale Profil Equal collection Total P1.39S.OOO
61'
2021 P 50,000 15,000 10,000 X
PBJ.700
2022 P100,000 40,000 20,000 CGT
2023 P150,000 75,000 40,000 th balance was collected 1n 2022. how much
27. Based on the above problem. assuming Iha1 8
These sales were regularly made in Installment by Dina Bale to her customers. un<ler is the capital gains tax on that year?
installment method, how much should Dina should report as gross profit for 2023? a. P130,500 c. P4S,BOO
a. P3l,000 c. P86,000 b. P98,100 d. nil
b. P7S.OOO d. P130,000
❖ Answer: C

452 453
 pART9

Sdl'1on P780,000
LOI f illl<I 2
LOI 3 780,000
TOIIII 6"
J
P46.800
CGT

28 Karen, a real estate dealer, sold a house and lot for P600,000 on November 20, 2021. The TRANSFER TAXES
cost of the property was P375.000. Tenns are:
Downpayment P100,000
Transfer taxes.are taxes imposed upon the gra'w..ltou.'S d's 'ti f •
I pos1 on o pnvate properties
Balance • Payable in monthly installments or
or rights. Gratu,tous transfer Is one that neither Imposes b rd
P25,000 beginning Dec. 20, 2021. . . u en nor requ1res
cons1derat1on from tran~feree o~ recl~lent. The transfer of ownership ts free because of
the a_bsence of financial consrderatron. Hence, gratuitous transfers are essentially
How much is the income subject to income tax in-2021? donations. The applicable taxes on gratuitous transfers are as follows:
a. ?125,000 c. P46,875
b. ?225,000 d. P23,437.50 ~ Im IM Ob/«I gf.IAuJfgg
Upon death of the donor Mon!s<ausa Estate Tax
❖ Answer.C DONATION Pnwege to lransfer Excise
o Raooof lnilial Payment overSening Price= 125/600 = 20.83%; since the ratio is not more than Dunng the lifellme of lhe lnler•V!'l0S llonot's Tax grarullousty Tax
25%, the 111Slalfmenl method of recording income is applicable. donor and lhe donee
o Gross Profit= PS00.000-375,000 = P225.000
o GP%= 225/600 = 37.5% Estate Tax

0 Taxable income In 2021= P125,000 x 37.5% = P46,875 Estate Tax is a tax imposed on the privilege that a person Is given in controlling
to a certain extent, the disposition of his property to take effect upon death. As shown In
29. How much is the income subject to income tax in 2022? the table above, Estate Tax is an exdse tax imposed on the act of passing the ownership
a. P112,500 c. P56,250 . of property at the time of death and not on the value of the property or right
b. P300,000 d. nil
Accrual. It accrues as of the death of the decedent, notwithstanding the
postponement of the actual possession or enjoyment of the estate by the beneficiary.
❖ Answer.A Upon the death of the decedent, succession takes place and the right of the "State"
O Taxable Income 2022 =P25.000 x 12monlhs x 37.5% =P112,500 to the tax the privilege to transmit the estate vests Instantly upon death (RR 2-2003).

30. Assuming the asset above is a capital asset, the capital gains tax payable is 2021 and in Rltng of Estate Tax Returrr.
2022 should be: ◊ Decedent died before 2018: within 6 months after death
a. P36,000 and PO, respectively ◊ Decedent died on or after Jan. 1, 2018: within l year from date of
b. P7,500 and P18,000, respectively death
c. PO and P36,000, respectively o Law to be appli ed. The law/ statute in force as of the date of death of
d. P18,000 and P7,500, respectively the decedent {RR 12-2018).

❖ Answer: B III The accrual ol lhe tax Is distinct from the obliganon to pay the Sjll118 (filing p&rfodJ
o Capital ga,ns tax (CGT) 2021 =P125,000 x 6% =7 500
m Under mentonous cases (to be determined by the BIR). filing of ~le tax retum !!ID'.
b ded f a period of not more than 30 days. This proV1sron 16 not mandatory
0 Capital gains tax (CGT) 2022 =P25,000 X 12 X 6% ·=18,000 ...! exten or led nder the TRAIN Law. Thus, whether the fifing shall be
and was not repea u
extended solely depends on the BIR.

Taxpayer: The •estate" of the decedent as a jurid/ci1I ,:erson

Personal obligation to file and pay the applicable taxes.
o Primarily liable: Administrator or executor
o Secondarily liable: Any of the heirs

454 455
 nts of succession
eterne
succession uccesslon takes place If the following elements are present
S DECEDENT - the person whose property I t
virtue of which the property, rights and obligations 8 t he left a will (Art 775 Ovff G'" ' fs"' ransrnltted through succession, whether
It 15 a mode of acqu1Slt1on by e of a person are transmitted through his deatti or no ' 1 vue O u,e Phfls.).
to the extent of the value of the lnheri:n\~ratlon of law [Art. 774, Civil Code (CC) of the HEIR - the person called to the succession either by th
to another or others either by will or y o b operation of law (Art. 782, Ovit COde of the Pfllls,. e prov1S1on of a will or by
Philippines]. c. ESTATE (Inheritance) - refers to all the property, rights and obligations of a person
which are not extinguished by his death (Art 176, O vit Code of tile Phfl!i'J.
TYPES (Art. 778, Civil Code):
pecedent's Estate
hlch results from the designation of an heir, made In a WIii
1. Testamentary. That w ribed by law (the decedent executed a last will and
executed In the fonn presc 1. LEGJTIME 1s the portion of the testator's property which could not be disposed of
testament). freely because the law has reserved It for the compulsory heirs, (Alt. 886, a).
at which Is effected by operation of law or transmission or
2. Leg,1/ or Intestate Th 2. FREE PORTION Is that part of the whole estate which the testator could dispose of
propertJes where freely through written will Irrespective of his relationship to the recipient.

0 There 15 no will; or Kinds of Heirs

0 If there Is a will, the same Is void or lost Its validity, or nobody
succeeds In the wlll. 1) Compulsory Heirs. They Inherit with or without a will.
Primary Compulsory Heirs
3. Nixed. That which is effected partly by a will or by operation of law. o Legitimate children and descendants
o Illegltlmate children
Cl The value of obfiga~s that may be transferred from the decedent lo his/her he,~s) should ◊ Widow or widower
not exceed 1ne value of the properties and rights (inheritance) transferred.
Secondary Compulsory Heirs
❖ WILL· an act whereby a person Is pennltted with the formalities prescribed by law, to
◊ In default of legitimate children and descendant:5, legitimate parents
control to a certain degree the disposition of his estate, to take effect after his death
and ascendants
(Alt. 183, a) from the moment of the death of the decedent, the rights to the
succession are transmitted, and the possession of the hereditary property Is deemed
transmitted to the heir (Art. 777, CC).
m The compulsory heirs are entitled to their legitlme, with or without a will,
unless validly "dis-lnhented".
❖ Kinds of WIiis:
2) Voluntary Heirs. They_lnherlt only If they are In the will.
1. !iotarfaf or Orrfinaryor Attested Will - is one which is executed in accordance 3) Intestate Heirs
with the fonnalitles prescribed by Art. 804 to 808 of the New Civil Code. It Is a • The compulsory heirs In testamentary succession are also heirs fn intestate
will that ls created for the testator by a third party, usually his lawyer, follows successlon. They are entitled to their legltlme. However, as tD the f~
proper fonn, signed and dated In front of the required number of witnesses (3 or porti on of the estate, ,t shall be distributed to the following lntest.ite heirs
more witnesses) and acknowledged by the presence of a notary public. as follows (order of prioritY) in the absence of a vali d wffl.
a. Legitimate children
2. Holographic Wlff-ls a written will which must be entirely written, dated and
b. Legitimate parents
signed by the hand of the testator himself, without the necessity of any wltn~-
c. Illegitimate children
Thls kind of will does not need fonnalltles because many people can recognize
d. Spouse
his handwriting and it can be verified by a penmanship expert.
e. Brothers or slsters m
f. Relatives by consanguinity up to 5 civil degree
en Codlcfl - a supplE!ment or addition to a will, made after the execution of a
g. State
will a~d annexed to be taken as a part thereof, by which any disposition
made m the original will is explained, added to or altered.
NOTE· tale success,on ls based ,n lhe Ofder of pnonty
• The d1stnbubon of free portion In intes nearest In degree excludes Ille more distant ones.
because in every mhenlance. lhe relatNe r1y takes place
saving the rig hi of representation when ilr1yp~ the
i adO!)tinQparents 1n the same mann!!f as a
• An adopted child succeeds lo llle prope
legitimate child

457
456
 ~
lC

ILC
Survivor Ltgltlme
½

)I
C()(rlpu/soty lt9ir (CH)
Notes
divide by Ille number of LC, whelhOr they survive alone or with
~
-
GROSS ESTATE
, Real or immovable property
Tangible personal property
Conf.lComm.
xx
xx
Exclusiw
J()(

xx
Total

ss ¼
Intangible property• xx xx
2 or more LC ½ xx
Certain transfers.. xx
ss Equal 10 1 lC
ss
AU !he concurring CH gel from lhe half free portion, lhe share of tho ha . Total xx xx
lC ½
preference over lhal of thO IC, whose share may suffer reduction ""9 xx xx
ss ¼
Deeause there ts no preference among themselves Plll-<ata
IC ½of1LC LESS: ORDINARY DEDUCTIONS
½ Whether they survive alone or with conculTing CH
LPA 1) LITe
½ tC sucoeed in the ¼ in equal shares
LPA Losses
IC ¼ (xx) (XX)
½ [ndebtedness or Claims against the estate
LPA (xx) (xx)
ss ¼ Unpaid Iaxes
(xx) (XX)
lPA ½ _!le.. such as claims against insolvent persons (xx) (xx)
ss 1/8 2) Vanishing Deduction
IC 114 • Property Relationship: CPG
IC 112 Divide equally among the IC (XX)
Property Relationship. ACoP (xx)
ss 1/3
3) Transfer for Public Use (generally exclusive)
(XX)
IC 1/3 (XX) (xx)
ss 1/2 1/3 ff marnage Is in articulo mortis.and deceased spouse dies within 3 months Net Community/Exclusive before special deductions xx xx xx
afterlhemamage
IP ½ LESS: SPECIAL DEDUCTIONS
IP Exduded Children lnhem in Ille amounts eslabrished in the foregoing rules 1. STANDARD DEDUCTION
/vlycl1illl 11 depends
(XX)
TRAIN Law;
IP ¼ Only the parents of IC are induded. Grandparents and other ascendants a~ Citizen/Resident decedents - PSM
ss ¼ excluded. NRA decedenls - PS00,000
2. FAMILY HOME (xx)
TRAIN Law;
'Fo.R!M9l~ O'F CO'.MP'UTA'Ploof: C#izen/R~ldent decedents - PtOM maumum
NRA decedents - nol allowed
UNMARRIED DECEDENT: 3. AMOUNT RECEIVED UNDER RM917 (xx)
(NRA decedents • not allowed}
Gross Estate Pxx NET ESTATE before share of the surviving spouse xx
LESS:
Ordinary Deductions (xx) Less: Share of the Su,v1vlng Spouse t½ of 11te ne1 common ptllll6llyb9b-a 5pec:a1DeductJoos) (xx\
Special Deductions (xx) NET TAXABLE ESTATE Pxx
Net Taxable Estate Pxx Multiply by the Estate Tax Rate under the TRAIN Law 6%
x Estate Ta.x rate 6% ESTATETAX DUE Pxx
Estate Tax Due Pxx
Less: Estate tax credit nglble properties Including rights accruing before death. claims against insolvent persons, RA 4917. and
'lnta_
(xx) l'eCelVilble as proceeds from life Insurance taken out by the decedent
Estate Tax Payable Pxx "Rerar to certain 1111nsfers made before death but v.ill take effect only upon death (transfer mortis causa) as weU as
transfer under general power of appolntmenl irans!?rs made to quaified Chanlable organwilloos and transfer for
?Ublic use/purpose,

EST-'TE TAX RATE

Toe estate tax rate beginning January 1, 2018 or upon the effectlvlty of RA
:i963 (TRAIN Is Go/o based on the value of the net estate as presented In the
Law)
regolng format of computing the estate tax due.

458 459
GROSS ESTATE (Sec. 85 of lhr Tat COdC, as amended)
Property passing under General P
d interests In properties of the decedent at the time or 1 ower of Appointment (GPA).
properttes ~...em:<! durillg 11retlme (only In fomi), but In substance
115
Conslm of an 5. Transfers for Insufficient consld<!ra
deaU\ as well ns propcnieS 1TI11"" w~ adequate and full consideration Inlion - not a bona Ode sale for an
only tnnSf~ 111 tt>e tlmt d<!atll, property at substantJa//y beta Its r. money or money's worth [ s.r/eo of
w air marker value (FMV)J
Compooents of the Gross Estate
AMOUNT INCLUDED IN GROSS ESTATE·
PROPERTIES EXlSTING AT TI-IE TIME OF DEATH SUCH AS: FMV at the time or death Pxxx ·
Real propl!ltY and other tangible Personal Property Less: Selling Price (mo
11
b ~ t s Interest and Intangibles Excess of FMV over SP
De::ed r s Interest _ Refers to the extent of equity or ownershl (Included In Gross Estate) P&!ll
• partio:'Uon of the dect'<fent on any property physically existing and Prese:i
In tne oross estate, whether or not in his possession, control or dominion. 6. Proceeds from Life Insurance (on Insurance under policies tllken out
11 also ~ers to the value of any Interest In property owned or possessed by by the d~ent upan his own fife). The following are Included In tile
~ decedent at the time of his death (interest ht!vlng value or capable of gross estate:
being valued, transferred)
a. Whether designated as REVOCABLE or IRREVOCABLE when the
Intangible Properties considered Located In the Phlllppines: benelidary Is the:
• Frand1tse which must be exercised In the Phlllpplnes; Estate of the deceased
Shares, obligations or bonds Issued by a any corporation or sociedad His executor; or
anonlma organized or constituted in the Philippines; Administrator
Shares obligations or bonds issued by any foreign corporation, at feast
8596 of the business of which Is located In the Philippines; b. When the benefidary IS a third person (other those mentioned In
Shares, obligations, or bonds Issued by any foreign corporation If such letter fla") and the designation Is REVOCABLE.
shares, obhgatlons, or bonds have acquired a business situs (used In
the furtherance of its business In the Philippines) In the Philippines;
Shares or nghts m partnership, business or industry established In the 2. Exemptions and Exclusions from Gross Estate
Phillppmes..
a. UNDER SECTION 85 and 104 of the Tax Code, as amended
c Properties transferred grc1tultously during lifetime, but In substance, transferred
capital or exclusille property of the surviving spouse (5ec. BS(H)]
upon death: Properties outside the Philippines of a non-resident alien decedent (Sec. 104)
• I ntangible personal property In the Philippines of a non-resident alien when the
L Transfer in contemplabon of death - the thought of death must be the rule of Reciprocity applies (Sec. 104)
controlling motJve which induces the disposition of the property.
b. UNDER SECTION 87 of the Tax Code, as amended
EXCEPTION When the transfer of property is a bona fide sale for an
adequate and full conslderahon in money or money's worth. 1) The merger of the usufruct (right to use) In the owner of the naked tale.

2. Transfer with retenbon or reservation of certain right - allows the 2) The transmission from the first helr, legatee or donee In favor of another
transferor to continue enjoying, possessing or controlling the property beneficiary in accordance with the will of the predecessor. This type of transf~r IS
(benefldal ownership) because only the naked tltle has been most commonly known as "transfer under Special Power of Appointment (SPA)
transferred. o GPA vs SPA:
0
GPA = Jnduslon to the gross estate
3. SPA = exduslon from the gross estate
Revocable transfer - decedent transfers the enjoyment of his property 0

to anottier, subject to his right to revoke the transfer at wlll, with or Inheritance or legacy of the ndudary heir or
without notJfying the transferee, any tlme before he dies. 3) The transmission or delivery of the
legatee to the _fedelcomissary. ith SPA above. The only difference Is, In
NOTE Items 2 and 3 do noI actually convey full ownership over lll8 o This Is the sam~ w the relatiooshlp of the donor and donee is only
fldelcomlssary tran er,from a Parent to his/her son)
property transferred, hence, 51111 part of the gross estate of the transferor one degree apart (I.e.,

461
460
 Estr{6: ?,;~
•-""""" or transfers to social welfare, cultural
~) Al ~ cje,,ta!S. - - ; ,:- ar'od
Shares of stock
(Nll1tllOll! lnsffl\.lOOflS, ~ - of said Instttuttons Inure to the benent or 0
a. Traded In the Local Stock Exchange (LSE) _
1) No part ol me ,._, any
lowest quotations nearest the date of d thmean vafue between the highest itnd
l) : ; ; - ' ~ rt,,an JO'lb of such transfels shall be used for administration death Itself. ea If none Is available on the date or
purposes.
b. Not traded in the local stock exchange:
c UNDER SPf(IAL LAWS I. Common (ordinary) shares_ Book value
nee and b(!nents received by members of the GSIS (RA72S) 2. Preferred (preference) shares - Par Value
Proc:1e«l5 ol rife l~ ra ....rs trom the sssby reason or death (RA1792), ·
eeneftts ~ ~, rnem= • usufruct - based on latest Basic Mortality Table to be approved by the Secretary of
Arnounts ra.~ trom Phlllppme and United States governments ,or war damages, 0
~ from United States veterans Administration. Finance, upon recommendation of the Insurance Commissioner,
: : ; : received trom the Philippines and US government for damages suffered
OUnng World War 11 (RA227).
Retirement benefits of offidals/employeeS of a pnvate firm (RA4917). P'R{YP'E'Jl/IY 'M:L'Jt'T''lc»fs'JfJp 'B'I'T'w'ff,JfS'POUS!ES
Payments from the Phlllpplnes or us government to the legal heirs of deceased of
World war n veterans and deceased dvlllan for supplies/services furnished to the us
(Art 74 of the Family Code)
itnd Phffipplne Army (RA136)
Proceeds or life 1nsurana- under a group Insurance taken out by employer (not taken Arttcle 74 of the Family Code provides that the property relationship between husband ana
wife shall be governed In the following order·
out upon hls life)
Transfers by way of bona fide sales
Transfer of property to the National government or to any of Its pollttcal subdivisions. By marriage settlements executed before the mamage;
Personal Equity and Retirement Account (PERA) assets of the decedent-contributor By the provisions of this Code (Family Code); and
(RA No. 9505) By the local customs
Compensation paid to private and__llYbllc health workers who contracted Covld-19 (in
~ ofdMth) uoder @f itiP!#iM5,ltl§hf tJ:f•S1·i¢1 llt·i~f·!,I fl 1. BASED ON AGREEMENT
If there was an agreement entered Into by the parttes before marriage,
apply the type of settlement entered Into by the parties such as:
THE COMPOSITION OF THE ESTATE TAX MAY BE SUMMARIZED AS FOLLOWS: Absolute Community of Property (ACoP)
::' • -_ · Gross Estate Conjugal Partnership of Gains (CPG)
❖ Citizen or 1. Property (Real or Personal) property wherever Complete Separation
Residenl alien s~uated
2. lnta 1ble rsonal ro wherever situated 2. BY OPERATIONS OF LAW (Family Code)
❖ Nonresident alien 1. Real property situated In the Phlllppines In the absence of an agreement, the marriage settlement will depend on
2 Tangible personal property situated in the Philippines the date of marriage as provided under the law (Family Code) as follows:
3. Intangible personal property with situs in the Date: Before the effectlvity of the NFC (Aug. 3, 1988), apply CPG
Phlllppines, unless excluded on the basis of Date: On or after the effectlvlty of the NFC (Aug. 3, 1988), apply ACoP
red as described below.
3. BY CUSTOMS OR TRADmONS
RfCIPROCITY CUIUSE - No lllK Shall be imposed with respect to intangible personal properties of a OOl1-
resdenl - /NRA)oecedenl Sllualed In 11'6 Phi ppmes· .
11 When !he _ lcnign COl.lltly, 'Where such NRA ls a resident and citizen, does no! Impose lransfer laX willl ❖ CONJUGAL PARTNERSHIP OF GAINS (CPG)
~ 10 ~ pelS0031properties of Flllptn0 OliZens nol residing In that counlty; or
2) M1IM lhe &n9f' CW1try unposes lransfer laxes. bul grants similar exemplJOn with respect lo lntang:b/e
l)e50llal l)l0pel!'les of Flflplno cifizens not reSlding In that oounlly
1) Exclusive Properties:

That which Is brought to the marriage as his or her own (properties before
VALUATION OF GROSS ESTATE (Sec. 88 of the Tax Code, as amended)
marriage) . ·
In General - falr market value upon death. That which each acquires during marriage b~ gratbyuitoi:!~e~r by exchange with
That which Is acquired by right of redemp on,
Personal Properties - Fair market value
property belonging to any one of the spouses: ~~~e wife or or the husband.
0 That which is purchased with excluslve money
Real Property- the higher amount between·
• Fair Market Value .
Zonal Value

463
462
 .Z) Coajugal Propertlos:
suMMARY:
by onerous litlu during m11rriogc at the expense of the common
ThOS(! :\CQHlred
Properties ocqulrod boforo mnmngo
. '.
rund, whctheI the acquisition be for tho partnership, or for only one or the
Common faclu!MI
Propo1rlos ncq11Iroo during momnge
~=botalncd irom lobor, Industry, work 01 profession or either 01 both
From oxclusfve proporty
sp()US1!S' From common proporty ExclUSl\'t Elcius1ve
Tllt' FRUITS ( o,- /nron'I<.•), natur.il or lndustrtal, or civil, due or received during Co111mon Common
Thoso obtalnod horn labor rndusll'f work O lo
mani~ from common property, as well 11s the net fruits from the exclusive or both spouses, ' r PIO SSJOn ol eu11e, Common Common

6;~ Gm1u1tous Tmnsfe, (1nhen1onco or don., IIOn)

property of e.1ch spouse;

Rule on Av/ts under CPG: "AFC - ALL Erult:s (or Income) are Common.• ACoP E.tdu11ve
o Generally
Tht°' share of either spouse In the hidden treasure which the law awards to the Exclusive
Tho donor/leslalor exprass1y provided thal It shall loon
nnder or owner of the property where the treasure Is found; pnrt of the community property !Art 92(1). Family Codol
Those ,,cquln!d through occupation such as fishing or hunting; Common
uvestock exlsllng upon dissolution of the partnership In excess of the number of 3 FRUITS or Incomo on propert,os Apply lhe followt119 rules:
~"h kind brought to the mamage by either spouse; and • ACoP. The Frwt shall roaow the source
Cor E
Those are acquired by chance, such as winnings from gambling or betting. CPG All Fru1ts are common
Common
Howevef, losses there from shall be borne exclusively by the-loser-spouse.
4. Property for personal and exclusive use of ellher spouse
Generally Exdustvo E, dvslve
~ ABSOLUTE COMMUNITY OF PROPERTY (ACoP) Except JEWELRY under ACoP !Art 92(2), Fam,ty Codol Common
5. Property acquired before the mamage by erthel spouse who has leg,tlma1e Elclus1ve
1) Community Properties:
descendants by a former mamage and the fruits as \\'ell as the llleome. rt
an , of such Code
l. All properties owned by the spouses at t he time of celebration of the
mamagc (properties before marriage); or NOTE: Property acquired dumg mamage 1s p,esumed 10 belong 10 the spouses (common
2. Aaluired thereafter, unless proven otherwise, as well as the fruits or Income property), unless provided otherwise (Art 93 and 116 of the Family Code)
!hereof.

Rule on Fruhs. "FFS - The E.rult (or income) will E_ollow the Source.· ALLOWABLE DEDUCTIONS DEFINED
2) Exdusive Properties:
Deductions are items which the law on estate tax allows, as amended, to be
subtracted from the value of the gross estate ,n order to amve at the net taxable estate.
❖ Property acquired during marriage by gratuitous tiUe by spouse, as well as the As a rule, deductions from gross estate are presumed to be common deductions unless
fruits or Income thereof.
specffically Identified as exdusive.
EXCEPTION: unless It tS expressJy provided by the donor, testator or gfi3ntor t/Jat
they shall fonn part oftile community property. ORDINARY DEDUCTIONS _ clJss,fied as exclus,ve or common dcduct,on
1, LOSSESSr INDEBTEDNESS, TAXES, etc. (UTe)
~ Rule oo Fru115: "FFS - The E.ruit (or income) will E.ollow the SourceM
~ sualty Losses
Property f0< pet500al and exclusive use of either spouse.
O Requisites: Settlement penod ls the
EXCEPTION: Jewel ry shall fonn Part of the community property. ❖ Incurred dunng the settlement of th~es=te tax as follows:
period allowed by law to file an~ pay_ ~ ths (6) after death
❖ Property acquired before the marriage by either spouse who has legitimate • Decedent died before 2018. within six (1) after de.1th
descendants by the former marriage, and the fruits as well as the income, If any Deced l tfred on or after Jan 1, 20lB- Wlllwl one year
of such property • en shl reek, or other casualties, or from
❖ Arising from fires, storms, f1W
robbery the~ or embeZZlement;
❖ Not co~pensated by insurance; ta purposes·
❖ Not dalmed as deduction for ln:mefor ~ paym~t of ~ estate tax
❖ Incurred not later than che last bleytS the value of the property last.
0 Amount deductible - the amount deducb

465
Iodeb«PdDCM or 011,m !M!nft tho Estal1: ~
Requcsftt5: j..,...,._t ex!Stlng at the time of his death; Requisites:
l) Penanal ~ d the ucs.,~• 0
a. The fair market value of the mort
2) Con~ In good faith; rt· mortgage indebtedness should be Incl~= property undlmlnisned by the
J) Must be valid in Law and entorceable In cou ,
b. Contracted In good faith; and In th e gross esuite; .
•> Must not have bttl1 condoned by the credltOrs;
c. For an adequate and full consideration.
S) Must not have prescnbed;

6) Subst3noall0f'I Requirements: 0 Amount Deductible - amount of unpaid mortgage.

/JI Qs: p/Sf11« LQ?QS ,oduding AdvanceS . !J.DPlld Ja xes

• A Duly Notmred certification from the Creditor as to the unpaid balance of o Requisite - the tax must have accrued before the death f th d
the debt lndudlng ,ntereSt as the date of death. The Sworn Certification o AMOUNT DEDUCTIBLE - unpaid taxes that accrued beio e ecedent
but not Including (Sec. 6.4.2 of RR 12 •2018): ore the decedent's death
shall be signed by:
CREDITQB SJGNATORY a. Any Income tax upon income recelved alter death·
lf01!d/tvrlS8 The President or Vice-President or b. Property taxes not accrued before death; and '
C,otpor3tJon Other Principal Office of the Corporation c. Estate tax from the transmlsslon of his estate.

JI 07!ditDt- IS a Any of the general partners

gajms Against Insolvent Persons
Partner.;hip o Requisites:
a. Value of the daims is lnduded In the gross estate; and
If OeditDr is a • Branch manager of the Bank or Flnanctal
Institution which monitors and manages the loan b. The Insolvency of the debtor must be established.
Bank/Rnandal
of the decedent-debtor ◊ Amount deductible - the amount of claims/receivable that cannot be collected.
lnsdMJon

IF SAID LOAN IS CONTRACTED WITHIN THREE (3) years prior to the death
of the decedent A Statement under Oath executed by the administrator or 2, TRANSFER FOR PUBUC USE (TFPU)
executor of the estate reflecting the disposition of the proceeds of the loan.
Requisites:
❖ Given to the Government of the Philippines (National or local);
If the uaDi/!d oblloatiQn arose from Purchase orGoods or Services:
❖ Must be testamentary In character; or
Pertinent documents evidencing the purchase of goods or service, such as
❖ By way of donation mortis causa executed by the decedent before his death;
sales Invoice, delivery receipts, official receipts.
·•· Exclusively for public purpose.
A Duly Notarized Certification from the Creditor as to the unpaid balance of
the debt indudlng Interest as the date of death. AMOUNT DEDUCTIBLE - amount of all bequests, legacies, devises, or transfers to or
for the _use of the Government of the Philippines, or any of Its political subdivisions.
The Sworn Certification shall be signed by:
CREDITOR SIGNATORY
':,~itrx is a • The President or Vice-President or 3, VANISHING DEDUCTION (PROPERTY PREVIOUSLY TAXED)
~,.,.,,atJon Other Principal Office of the Corporation
Requisites:
JI Credirar Is a , Any of the general partners The decedent died within S years from recelpt of the property from a prior
Partnersl11p
decedent OR donor;
JI CredltDr Is a , The property is located In the Philippines
Branch manager of the Bank or flnandal The property must have formed part of the taxable estate of the prior
Bank/Finanda/
Institution which monitors and manages the Joan decedent or the taxable gilt of the donor and the transfer tax (estate tax or
Institution
of the decedent-debtor donor's tax, as the case may be) relative thereto had been paid;
In-, ol 1!18 cases above, the one who ShO . The property on which vanishing deductlon ls being taken must be 1denlffied
lhe ku1h avil degree. el1her by consa .uld certify must not be a relaUve of the borrower wilhin as the one received from the prior decedent, or from the donor, or
ngu1n11y °' affinity. something acquired In exchange therefore;
AMOUITT DEDUCTIBLE _ th No vanishing deductlon on the property was allowable to the estate of the
requirements. e amount of debt that wlll qualify In the a1>0ve
prior decedent.

466 467
 AMOUNT DEDUCTIBLE (PROFORMA COMPUTATION):
0 AMOUNT DEDUCTIBLE - The LOWER betw
een FMV at the time death vs. FMV at the ACTUAL INTEREST een th e Actual lntf!testand the Um1t
Value to take (lower betw 0
o Purely Exclusive = 100% FMV
time of Inheritance or donatlo~)decedent (on mortgaged assumed)
◊
Less: Mortgage paid by pr~n ~ O
Purely Common Property = lOO•;.0 FMV/ 2
MIXED:
Initial Basis (18) Pxx
Less: Proportional Deduction Exclusive Property ( 100%)
Ploc
[(I8/GE) x (LITe + TFPU)] ~ Add: Common Property (l00%/2)
Total
xx
Anal Basis Pxx Ploc
Rate ~ Amount Received by heirs under R.A. 4917
VANISHING DEDUCTION ~ 3
,
o REQUISITES
RA TE OF VANISHING DEDUCTION: a) Include such amount In the gross estate.
b) Amount Deductible - amount received by the heirs from the decedent's
Interval of Acquisition (Inheritance or donation) employer as a consequence of the death of the decedent-employee.
and death of present decedent RATE
Within 1 year ·100%
More than 1 year but not more than 2 years 80% HARE OF THE SURVIVING SPOUSE
More than 2 years but not more than 3 years 60%
More than 3 years but not more than 4 years • 40% o Applicable only to married decedents.
More than 4 years but not more than 5 years 20% o Amount Deductible:
Common Properties Ploc
Less: Common Deductions uru
SPECIAL DEDUCTIONS Net Common Properties before special deductions Ploc
Multiply by: ~
SUMMARY: Share of the Surviving Spouse exx
!:ltli:i:o LBt::ildi:ot decedi:ot HBA di:g:di:ot TAX CREDIT FOR ESTATE TAX PAID TO A FOREIGN COUNTRY
Standard deduction PS,000,000 PS00,000
0 WHO CAN CLAIM?
Family Home Not allowed Only resident or citizen decedents can dalm tax credit.
Purely exduslve FMV but not to exceed Pl0M
Purely common FMV/2 but not to exceed Pl0M 0 AMOUNT DEDUCTIBLE:
Mixed Add the properties applying the The LOWER between the Actual estate tax paid abroad and the Umlt.
( exduslve and foregoing rules but the total
common) amount shall not exceed PlOM 0 LIMIT:
It Depends on how mal)y foreign country Is involved.
Benefits under RA 4917 Amount of death benefit Not allowed
IF Only one foreign country Is Involved
1. Standard Deduction Net estate, foreign x Philippine estate tax
Net estate, world
The amount deductible without any required substantiation Is PS,000,000 ir the
d~ent died on or after January 1, 2018. A standard deduction of PS00,000 shall IF More than one foreign countries are Involved. The Omit Is the lower
a so be allowed to nonresident alien decedent beginning January 1, 2018. between Limit 1 and Limit 2 computed as follows:

2. Famlly Home Allowanc:e LIMIT 1 or A ( Per Foreign Couni7y where_there was estate tax paid):
0 REQUISITES: Net estate, per foreign x Phlhpplne estate tax
a) The decedent Is married or head of a famll . Net estate, world
b) ~~eta~~lly ~°:e must be the actual resld~ntlal home of the decedent aod
LIMIT 2 or B (Total of ALL foreign countries Involved):
locality Jeata lei uhme of hi~ death, as certified by the Brgy. captain of tile
m Y ome Is situated· Net estate, all foreign countries x Phlllpplne estate tax
c) It ls located In the Philippines· , Net estate, world
d) The value of the family home'is Included In the gross estate

468 469

ESTATE TAX RET\JRN (SectlOn 90 of the Tax Code, as amended)
When Required?
, In all cases subject to estate tax;
Regardless of the amount of the gross estate, where It consists of registered
registrable property such as real property, motor vehide, shares of ~.tock, or oth:
slmllar property for which a "Certificate Authorizing Registration (CAR) from the BIR
Is required as a condition ~recedent for the transfer of ownership thereof In the name
of the transferee, the administrator, or the executor, or any of the legal heirs, as the
case may be, shall file a retum under oat:11.
CPA Certification is required If the gross estate exceeds
PS,000,000 - If the decede,nt died on or after January 1, 2018
CPA Certification shall contain certification as to:
Composition of the Gross Estate
The allowable deductions claimed
The estate tax due
Who shall file the Estate Tax Return?
Executor/administrator (primary obligation); or
Any of the legal heirs (secondary obligation)
Date of Filing:
TRAIN Law - Within one (1) year after death
Cl EXTENSION: The Commissioner or his/her duly authorized
representative, shall have the authority to grant, in meritorious cases, a
reasonable extension, not exceedfng thirty (30) days, for filing the
return.
NOTE: The provision of the Tax Code [Sec. 90(C)] authorizing the
Commissioner of Internal Revenue to grant, under meritorious cases, a
reasonable extension not exceeding thirty (30) days for filing the
return, was NOT REPEALEO by the TRAIN Law.
Place of Filing:
I~ case ofa resident decedent
a• Authorized agent bank; or
b. Revenue District Officer·
c. Collection Officer· or '
d. ~auth orized Treasurer of the city or municipality In which tile
ent was domiciled at the time of his death.
470
In case ofa non-resident decedent
a. Revenue District Office where th
registered e executor or administrator ts
b. Revenue District Office having Jurisdiction
administrator's legal residence (if over the executor or
registered) executor or administrator Is not
c. Office of the BIR Commlssloner (RDO No 39 So th
if the estate does not have an execut~r or- d ~ Quezon City)
Philippines. a m n1strator In the
Payment of Estate Tax:
Estate tax shall be paid at the time the return Is flied (Pay as you Flle)
When the Commlssroner finds that the payment of the estate tax or of
any part thereof would Impose undue hardship upon the estate or any
of the heirs, he may extend the time for payment as follows:
o Estate Is settled extrajudicially (extra-judicial settlement) - 2 years
o Estate is settled judicially Gudidal settlement) - 5 yejlrs
The application for extension shall be filed with the RDO) where
the estate is required to secure Its TIN and file the estate tax return.
This application shall be approved by the CIR or his duly authorized
representative. Where the request for extension Is by reason of
negligence, intentional disregard of rules and regulations, or fraud, no
extension shall be granted. If an extension Is granted, the OR may
require the executor, or administrator, or beneficiary, as the case may
be, to tum/sh a bond in such amount, not exceeding double tlle
illlJQ1!!1J of tlle tax and with such sureties as th~ Commissioner deems
necessary, conditioned upon the payment of the said tax In accordance
with the terms of the extension.
Estate tax shall be paid at the trme the retum Is flied (Pay as you File)
INSUFAOENCY OF CASH FOR THE PAYMENT OF ESTATE TAX
In case of Insufficiency of cash for the Immediate payment of the total
estate tax due, the estate may be allowed to pay the esta_te tax due through .the
following options, including corresponding terms and conditions (RR 12· 20lS).
1. Cash Installment; f the date
• 'The cash Installments shall be made within two (2) years rom
of the flllng of the estate tax retum; semi-annually, annually)
The frequency (I.e., monthlY, quarterillY, t shall be Indicated In the
deadline and the amount of each lnsta men BIR·
estate tax return, subject to the approval by th e ' ent of entJre tax
1th
In case of lapse of two (2) years ~ ;uil t : :rand demandable
due, the remaining balance tt,ereo i3 terest reckoned from the
subj ect to applicable penalties and n ment of estate tax; and
prescribed deadline for filing the retu~ ~~n the estates permitted
No civil penalties or interest may be m
to pay the estate tax due by Installment.
471

r estate and application of Its proceeds to the estate ta
2. Partial dtsposJtlon o ~ (section 94
due
n for purposes of this optJon, shall refer to th
The disposmor p'roperty whether real, personal or Intangible Pronartye
ronveyance o ' . . ,,_ ,
with the equivalent cash consideration,
The written request for the partial disposition of estate shall be flleii,
t ether with a notanzed undertaking that the proceeds thereof shall
:;1
exduslvely used for the payment of U1e total estate ta)( due;
The computed estate tax due shall be allocated In proportion to the
value of each property·
An electronic Certificate Authorizing Registration (eCAR) shall be Issued
upon presentation of the proof of payment of the proportionate estate
tax due of the property Intended to be disposed. Accordingly, eCARs
shall be issued as many as there are properties to be disposed to cover
the total estate tax due, net of the proportionate estate tax(es)
previously paid under this option; and
Jn case of failure to pay the total estate tax due out from the proceeds
of the said disposition, the estate tax due shall be Immediately due and
demandable subject to the applicable penalties and Interest reckoned
from the prescribed deadline for filing the return and payment of the
estate tax, without prejudice of withholding the issuance of eCARs on
the remaining properties until the payment of the remaining balance of
the estate tax due, Including the penalties and Interest.
Discharge of Executor or Administrator from Personal Llablllty
(Secllon 92 of the Tax Code, as amended)
If the executor or administrator makes a written appllcatfon to the Commissioner
for deterrmnabon of the amount of the estate tax and discharge from personal llabllltv
therefore, the Commissioner (as soon as possible, and In any event within one (1) year
after the making of such application, or If the appllcatlon Is made before the return Is filed,
then within one (1) year after the return Is filed, but not after the expiration of the penod
prescribed for the assessment of the tax In SectJon 20:il shall not notify the executor or
administrator of the amount of the tax. The executor or administrator, upon payment of
the amount or which he Is notified, shall be discharged from personal llablllty for anY
deficiency In the tax thereafter found to be due and shall be entitled to a receipt or writing
showing such discharge.
472
nt before Dellvery by Executor or Administrator
payrne of the Tax Code, as amended)
. dge shall authorize the executor or Judioal administrator to deliver a dlstnb
No JU to any party Interested In the estate unless a certification from the Com utive
share te tax has been paid Is shown. mis.stoner
111at the esta
f certain Officers and Persons
DUti es O
a. There shall not be transferred to any new owner In the books of any corporation
socledad anonlma, partnership, business, or Industry organized or est.iblished 1~
the Phlllpplnes any share, obligation, bond or nght by way of gift lntcr·VIVOS or
mortls causa, legacy or Inheritance, unless a certification from the commissioner
(thru issuance of eCAR) or his duly authonze representabve that the taxes have
been paid Is shown (Section 97 of the Tax Code, as amended).
b. No Judge shall authorize the executor or Judicial administrator to deliver a
distributive share to any party interested In the estate, unless a certlflcaUon from
the Bureau of Internal Revenue (BIR) that the estate tax has been paid Is shown
(Section 94 of the Tax Code, as amended).
c Register of Deeds shall not register m the registry of property any transfer of real
· property or real rights therein, or any mortgage, by way of donation moms
causa or Inheritance, without a certification from the BIR of payment of estilte
tax, and they shall Immediately notify the BIR of non-payment of tax discovered
by them (Section 95 of the Tax Code, as amended).
d. IF BANK HAS KNOWLEDGE OF THE DEATH OF A PERSON WHO MAINTAINED A
JOINT ACCOUNT,
PRIOR TO TRAIN LAW:
It shall not allow any withdrawal by a surviving depositor from th e sahald
has certified that the estilte tax s
:i~
account unless the Comm1ss1oner d istrat Or the estate or anyone or
paid: Provided, however, that the a min or the Commissioner of
the heirs of the decedent may, upon authortzatyuo;!;sand pesos (P20,000)
BIR, withdraw an amount not exceeding twen
without the certification.
UNDER THE TRAIN LAW:
rson who malntalnL'<l a bank
If a bank has knowledge of the d~alh of ~h~ It shall allow iJnY w/t/ldrawal
deposit account alone, or Jointly wi th ano ' final withholding tax or six
from the said deposit account, subj~ :t:drawal slips shall contain a
percent (6%). For this purpose, d posJtors are still living at U1e
1
statement to the effect that all of th e Join de osltors and such statement
ume of withdrawal by any one of the Joint ep In all cases the final tax
shall be under oath by the said depos1i:•on the tax d~e. on the net
withheld shall not be refunded, or crt of the Tax Code, as amended)
taxable estate of the decedent (Section
473
 In Instances where the deposit accounts have been duly included in
estate of the decedent and the estate tax due thereon J>ald the Q,UIZZER
~=tor, administrator, or any of the legal heirs shall present the ' the
Issued for the said estate prior to withdrawing from the bank dee<:.All. Choose the letter of the correct answer.
account. Such withdrawal shall no longer be subject to the 6% Withho:~t
tax by the bank. 9 Tran&fer Taxes
1. Which of the following st~tements is false? Transfer tax Is
e. Any lawyer, notary public or any government officer _who, by reason of his Official a. Imposed upon gratuitous transfer or property
duties, Intervenes In the preparation or ackno~ledgment of documents regardln b. Of two kinds· estate tax and donors· tax
partition or disposal of donations Inter v1vos or mortls causa, legacy
lnhentance shall furnish the BIR with copies of such documents and
i c. Classified as national tax
d. None of the above
Information whatsoever which may facilitate the collection of the estate tax. any
❖ Answer: D

f. A debtor shall not pay his debts to the heirs, legatees, executor or admlnistrato
2. Statement 1: Gratullo_us tra~sfer or donation is subject to transfer tax.
of his creditor-decedent without a certlficatlon from BIR that the estate tax ha;
been paid, but he may pay the executor or judicial administrator without such Stat~ment 2: A donahon which ta~es effect at the time of death of the donor is a donation
certification If the credit is included In the inventory of the estate of the m?rt1s causa subject to estate while a donation which takes effect during the lifetime of
decedent both the donor and the donee Is a donallon inter-vlvos subject to donor's tax
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

❖ Answer: C
G@(uitous Transfpr: TAX
Donation inter-vrvos Donor's tex ta transfor tex)
Donat,on morl,s cau.sa Estate tax (a trans/et tax)

011t1rous [rans/pr
In the orrflnary course of trade or business Business Tax • Income Tax
lncoma tex only
Not In the Olfllna,y course of trade or buSlfless

3. The tax imposed on the right to transmit property at death 1s known as.
a. Donor's tax c. Business tax
b. Estate tax d. Income tax

❖ Answer: B
4. The tax Imposed on the transfer of property without·considerat1on between two or more
persons who are living at the time the transfer Is made.
a. Donor's tax c. Business tax
b. Estate tax d. Income tax

❖ Answer. A
5. s tion that requires payment of transfer tax.
1: A sale Is a form of transfer u:3nsac f f the decedenfs property or rights to the
S2: Transfer tax accrues at the time of trans er 0
heir.

475
474
 E,61/c: '!tr(
b. An mdirecl tax because the burden of pav,ng the tax Is h ft d lh
a. Only statemenl 1 1s correct any of the heirs of the decedenl '' 5 1 e on e execu 1
0< or
b. Only slatement 2 1s correct
Both statements are correct
c. An_excise tax because the object of which is the shifting of economic benefits and
C
Both statements are incorrect enJoyment of property from lhe dead to the living
d
d. Apoll tax because 111s also imposed on residents of the Philippines whelher F1ilprno
citizens or not
❖ Answer: D tullous rmnsfers
0

~
0
A "sa~·. 111 general. Is an onerous tm
0
::~e
r ~ tax is appt,callle onl'j to gra nst, henco nol sub/OC1 to tmnsfer tax
gratuitous transfer(upon death ,n case of mort,scausa
Trens/er ru awws from the ~'Zo,t,on 111 case of donat,on tnter-vrvos)
❖ Answer: C
o on
Estate tax is Imposed 11!11 the <ftcedtnt nor onlhe property tmnsmttod upon doal/1 but on the
dollaDon Qnd upon petfect,on oJ ""' ·pnvtlege· to lr.msftr PtOpellies 9raluilous1y upon death /rate, also to the immedl/llai'f pmced,ng
number)
. th sslon are transmitted from the moment of death or o Estate t/lY is not an llldired tax_ Though the person.al ab'gat,oo to file and pay the 8311/0 te1 msts
6 Statement 1· The _nghts to ehsuccetponement of the actual possession or enjoyment or
the decedent, notwithstanding t e pos with the admm,Mraforterecutor 01 any of the heirs. IBlpedr.-ely, the "burr/en" of /lB)Ylg the tax ,snot
sh/fled to fhom The fflOnlly ~ to PlY the estllle Rill be tskan from the eMale. no/ from th,
the estale by the beneficiary. lmmedlalely to all the property of the deceased anceslor adm,rnstratortex(J(;U(or or any ol the heit3

Statement 2 Thef he1rsthsucceedmpletely as if the ancestor had executed and delivered lo o For Ph,t,pplne Taxation l)Url)OS85. ndired 1a1!>$ pe111.-n onl'j to "bu.s#less ra,es· Estate rn, is e
al the moment a dea as co . transfer lax. not a buskiess tax.
them a deed for the same before his death. ·
a Only stalement 1 is correct 10.' Which of the following is incorrect?
b Only statement 2 1s correct a. Estate tax is an excise tax. It 1s a tax on the nght to transfer property at dealh and
c. Both statements are correct on certain transfers which are made by law the equivalent of testamentary
d. Both statements are rncorrect disposition.
b. Excise tax is an ad valorem tax. It IS assessed based on the net value of the estale
❖ Answer: C transferred.
c. Upon effectivity of the TRAIN Law, estate tax Is a proportional tax It is no longer
7. Mortis causa transfer of property is effected: based on a graduated tax rale but to a fixed rate of 6%on the net taxable estate of
a. When the property Is received by the heir. . . a decedent.
b. When the court awarded the ownership of property to a particular heir. d. Estate tax is a specific tax.
c. Upon the death of the decedenl
d. Upon payment of estate tax. ❖ Answer: D
o Prior to TRAJN Law. estate tax IS ~ e d using a gradualB'f lax table
❖ Answer: C o Specific tax is applicable onJy lo sm products ;nJ non-essential goods

8 The subject matter or object of transfer taxes is 11. Justification for the imposition of transfer tax.
a. Righi to transmit c. Properties of the decedent a. RedistribuUon of wealth theoiy
b Decedent d Beneficiaries b. Benefit received theory
c. State partnership theory
❖ Answer: A d. All of the above
-, The subfecl matter or obJect ol razat,on are
Pet3oos. olhe,- laloim as °'personal tax·
Prope,ty, 0/ll!!lllfse knolln as "property tax· ❖ Answer: D TATETAX
JUSTIFICATION FOR THE IMPOSmON OF ES
• Right or Prlvrleoe. ~ known as 'exase tax'
0 RediSlribu/lOII of Wea#/1 T'heoiy . ladOf lO the inequalilies Ill wenllh and IOO)IIM)S Toll
o Eltate Tar Is a tn imP0SM on the "/llMlege"lhaf ape= Is grven In C011trolbng too certainext:;
Tho receipt or 1ohen1ance IS a ~ ,-ved by the sua:essor Illus helping lo oromou,
I l l e ~ o/ IMS prope,ry /ng/lt ro rTansmilJ to take effect upon death Consequentl'f, Estale rd the
irnpos,llOn ol eslate tax reduces Y~ ta.< baSe 15 Ille value or 1l1e property and Ille
~ rnposed on the act of pasmg the owner.;hlp of propertyat the time of death and
0 111
on the propiirty or nght equitable distribuboll of "1!atlh 111 ~ ~ b y the desJre 10 rn,t,ga1e tho evb ot lnhenlance
progressive scheme of taxation is preciselY
In the present lonn
9 Estate tax ,s
o Benefd-Rece/Ved TIHHllY l!la govenvnent 111 1110 dlstllbullOn al Iha est.ate al IJll
a A property tax because ,1 is imposed on the property transmitted by the decedent 10 The law coosldels the seMCS rendered \ hiS Wl5heS For Ille perfonnonce ot tneR serw:es and
his heirs. decedent. either by law 011'1 att0!clance: !he hecrS. Ille State oolects lhe la1
other benefits that accrue to the estats a
o PrivlJsge or Slate Partnership Tl->'

476
 E_ifrltc 7:r_
(:
hi bU1 8 pnvllege glllllled by tho Stato and lega1ees h.
l/ndl< ""' llllOl'I ~ is nol ~ !he siare ~uenlly. lhe State as a Pi!Ssr,e ~
1
❖ Answer. A
bNll a,c:qund Ot#f "'°' 1111 ~ haS the r,ghl to coMod lhe share Which IS PIOl)erly due lo rt 0 Succession takes place ill1d Ille nqhl or !ht ·s, •
instantly upon death (Secll0/1 3, RR Z·200J/ J(O 10 f«J lht ~ to lrwuml the NlJII• ...u
pa,me, "' lllt aca,,,.Jll!Ol ol prope
o AccnJBl&haUctJlnCJde wth thee-•--01 .......~.
of tho donor .._,., - ....., lneb1al.clnmo,t4cauu 01-,,,-upondNlh
, At,;,ly 10 Ply n.orr the nature of an 1.W1eamed wealth or wmdfall. aro place assets 111k)
R-,l of ll\hel1tV'ICII 'lli1C' 15 -:, nus creates an abt1ily lo pay U1e lnx and thus conlnbut
Ill liands of 1111 hln an<l t,ene,ioane' :e,
It is a well settled rule that estate taxallon ,s
IO 9 ( ) ~ ,nc:ome 17· Creation of the last wil l testament d governed by lhe statute In force at the time or.
as unequal distribution of wealth resulting lo the a . or eath of the decedent In case of intestate
12 lnhentance received Is construed succession
1mpo51llon of estate tax describes: c state partnership theory b. Death of the decedent
a red1stnbubOll of wealth theory d. abllity to pay theory c. FIiing of estate tax return
b benefit-received theory d. Either leller "b" or ·c· whichever will result to higher estate tax liability
❖ Answer: B
❖ Answer: A

Whrch among the following statements is correct? . concept of Succession

13 a Estate taxation is governed by the statute in force at the lime of death of the 18. It is a mode of acquisition by virtue of which, the property, rights and obligations to the
extent of the value of the inheritance, of a person are transmitted through his d~th to
decedent
another either by his will or by operation of law.
b. Estate tax accrues as of the death of thfethdecedSttentt. tax the pn·v·11ege to Ira ·1the a. Succession c. Prescnption
c. succession takes place and the right o e a e o nsm,
estate vests mstanUy upon death. b. Donation d Exchanges
d. All of the above
❖ Answer: A
0 Title IV, Chapter 1, AltJCJe m ofRA No 386. othMNe MOWl1 ii$ !ht CM Code ol tn. Phi/lpplnlls
❖ Answer: D o One of the modes of acqumg (a}ptf)f)811y. (b}ni( (c)oblgitJ011 whrch s11,, take 1fttd upon dH/h
of a person, e~hor 1/uough a last wi1 and temmffll or in tJie ,ll).ieflCe of, WII. through p,ovls/OM of
14. The taxpayer in estate tax Is: law (new civl1 cede)
o AH/tough ob/igationslliabitlas of a c/flcedenl may be tnnsmtttd to the helt(s/. Ille amounl 5/td no/
.a The decedenl excood the iJ99mga/e vwe of p,openm Bild ngh(s lflhelitd.
b The estate as a jundical entity
C The heirs or succession
19. Statement 1: Decedent is the general term applred to lhe person whose property ,s
d. The administrator or executor transmitted through succession, whether or not he left a wdl.
·=· Answer: B
0
HJf taxati0/1 purposes. 1axpaye,' shall penain 011/y ro o person. natural orJUricfical. Statement 2: An heir Is a person called to succession either by proV1Sion of a will or by
operation of law.
15. Who has the personal liability to pay estate tax? a. Only statement 1 is correct
a. The decedent b. Only statement 2 1s correct
b The estate as a juridical entity c. Both statements are correct
C. The heirs or successors d. Both statements are incorrect
d. The administrator or executor
❖- Answer: C
o Tille IV, Chap/or t, M ~ 775 and 782 ol RA No 385. CM/ Cede of the l'Mppws
❖ Answer. D 1
o Ta,payw- the estate as a )Undicat pers011 Being a jundrcal parson, If cannot nto Iha as/ate "
retum and pay the corrasponding estate tax due 011 Ifs own. The ·porsona/ obhgatlon" to file and pay 20. Which statement is raise about succession:
rests wtth tho executor or ldmlmstrator. as lhe case may be. In tho obsenca of an executor Of a. The successor inherits all the transmissible property of a decedent including his
Mtnun<strator, any ol ~ l&gal and nghlful heirs
llabllltles.
b. The successor can be made liable for the obligaoons of the decedent beyond tho
16 Estate tax accrues from:
a The moment of death of the decedent vialue of th7 asset'·tshe recendcrlveded1
't·s maluring after the death of the decedent pass to the
b. The moment the notice of death is filed c n succession, ru1 a
heirs even if they were not subjected to eStale tax.
c. The moment the estate tax return is filed
d. The moment the propertles are delivered to the heirs

479
478
 r can refuse the Inheritance.
d In succession. the successo ❖ Answer: C
o On:Jlnary wr/1, attested Wif/ an11 notana
❖ Answer: B ,,,,_oons,1iabllllle of adecedent may be transmitted ro the heir(5) 0 In case of BIIY Insertion, cance/fat~ :-' " on, end the Ami
o "IT Is lrtCOfT'ld Alfl009h - r re value of prope,tles and nghts Inherited, • It>! authenti7aro the some by his /i,I s,gno:' or UlltalA)n kt • ho#og,Dph,c WII. the /MIi/or mus/
Codie/I ts a supplement or sac!i,on
o
llntOUl1I shal not exc:Hd t h e ~rJultl" shaD be sub}ecl to estate tax. Propett,es BCqu/~
-c· Is cam,d Only~ r a t e tar. /loW&Vflf, Hmay be su~I to Income tax. a~e,
0
taken as a pa,t thereof. by Which anyo;i. . ,_
1
'!lade aner 1h11••KUJon o1, w,r 100 &Mflnd 10 bo
dultl $11111 not I » ~ compuisolY h6ir& may be di$1nherite<I (through /as/ 11iU BIid leM anered In Mier fhat aOOd',c,l may be etr::t.JOn made In the ~ wt/I ts etp1,1n«1. added to or
and 826, CC) ' # slla!lbeuecuttdai mlhecne oln'III/M:t825
o 1)" ,s correct

=':::
oolyJ ~ · suca,~ :,y
tn suc:cessn'!, ha/r(s) shal also have the right to refuse or renounco lnhe;me,.
be tantamount to donation mter•vivos, subfecl lo donor's tar Of1tt
be effected only through a "Wi/r and the reason for disinheritance (s/iouJd be 24, Statement 1: The ry,aking of a will ls strictly a
b.,nd ii the Cll'1 Cede) shal /i(e,t,;st be provld6d.
part of the .discretion of a third person or aC:rsopl_n;I act II cannot be left 1n whole or In
m 15 ed lhrough lhe mstrumentallly of an
0
agent or attorney. '
1. Which of the following could legally effect transfer of properties through succession? stalement 2: The burden of proof that the le ta
2
1. By virtue of a wm
making hls dispositions is on the person wh;
tor was not of sound mind at lhe Ume of
11. By operations of law
testator, one month, or less, before making his
0
,:i,:s
the probate of lhe wlll: but 1f the
person who maintains the varldity of the . as publicly known to be Insane. the
Ill. By onerous transfer lucid Interval. 11
WI muSI prove lhat lhe testalor made it during a
a. I only c. I and Ill only
d. I, II and Ill a. Only statement 1 is correct
b. I and II only
b. Only statement 2 is correct
c. Both statements are correct
•:• Answer. 8 h • • I d. Both statements are incorrect
0
The question Is specif,caly pettl!l'ling to transfer 1hroug succeSS/0/I on y, a gratuftous transfir,
/Hlnee, exoode onerous tnnsler.
❖ Answer: C
22. AA act whereby a person is permitted, with the formallUes prescri~ed by law, to control lo o Refer to Arl/cJe 784 and~ of RA No. 386 /the CM Cod, ofme ~ s /
a certain degree the disposition of his estate, to take effect after his death.
a. Contract c, Will 25. The persons prohibited by law to make awill are:
b. Trust d. Legacy I. Those below 18 years of age. .
II. Those who are not of sound mind at the time of its execution.
❖ Answer: C a. I only c. Both I and II
o The Fotrns of a ~ shal be observed, ofhefWise, ii Is cooSJdered void. b. II only d. Neither I nor II
❖ Answer: C
o FORMS OF A LAST Wlll AND TESTAMENT:
O,;ti,a,y wi or Notarial or Attested Will
h must be 111 writmg and executed ,n a language or dialect known to the testator. 26. The following are the elements of succession, except:
h must be subscnbed at the end thereof by the testator himsel Ior by the testato(s name 11Titten a. Decedent c. Heir
by some other pmon in his presence and by his express dlrectJon b. Estate d. Executor
h must be attested and subsaibed by three or more credible witnesses In the presence ol lhe
❖ Answer: D
testator illld of one another.

Hobqraohlc WI 27. Succession which results from the designation of an heir, made In a will executed in the
• 11 must be entirely writteo, ln a language or dialect known to the testator. form prescribed by law is known as·
• Dated
Signed by the hand ol lhe testator hlmse~ a. Legal or Intestate succession
II is subject 10 no o//Jer form and ~ may be made In or oul o/ the Phlllpplnes and need nol be b. Testamentary succession
witnessed (Art. 811 CC). c. Mixed succession
d. Ordinary succession.
23 · _ _ _ _ _ Is ~ written will which must be entirely written, dated and signed by the
han~ o~the testator himself. It subject to no other form and it may be made In or out or the ❖ Answer: B
Ph1hppmes and need not be witnessed.
a. Ordinary will c. Holographic will 28. The portion of the decedent's estate which the law reserves to his compulsory heir Is called:
b. Notarial will d. Codicil a. Legitime c. Legacy
b. Free portion d. Bequest

480 481
 ~ Anawtr: A ,f#/1 Jl/0 /WO Cflog0(IOS. /119#/mt nnd froo pOll/on
o TIit ~ ( ' I I ~ : ~ by ,~ ol a I/ISi w/n ond IOSlfflll8fll 34• The personal properties of a non•rosld
•• ~ n...,u #11/lS,., pemlllN proptrllos Included In the gross oslato II. ent, not citizen of tho Phlllpplnos, would not be
<> t . ,, U l)llf (, . , ~ & ' I I ~fM/ p,oporl'/os a. The Intangible personal property I th
0 °""" •• ()rt o/ ~ 1n1,ol,'WliJ
the estate tax law applies
i"
b. The intangible personal property 1 ~ Phlllppinos
s n he Phlllpplnos and the rociprocily ctauso of
29 A person,~ inherits speclflc personal property through awill·
a Oevlsoo c. Heir
o. Tho tangible personal property Is In the Phill
d. Tho personal property Is shares of st pplnos
b. Legatee d Successor business Is In the Philippines. ock of 8 domestic corporallon 90% of whose

~ Antwtr. 8 ❖ Answer: B
o Roclp,oclry rulo Ls no1 om-, Htnc,. lhe
30 A person woo lnhents specific renl property through a will: pro~m provides o, t!)f tact, ol lho C4Jt'c:1o,r1yru:.on /klp(od/y should'"" be e11p/JIH/ unlu& lht
c. Heir wfbod lhat rodptoc;/ry clouso 1, apjJ/lcablt
8 Oevi...<:ee
b. Legatee d. SUCC&SSOr 35. Sfa/amenf 1: As a general rule, the situs of tan 'bl
country where such Is actually located at the lime ~f e personal ~roperty ls the place or
~ Answer: A Statamanf 2: The rule that the situs of inta lbl the docedent s death.
8
residence of the owner does not apply when : personal property Is the domicile or
31 Which ol the lollowing is a valid will? a. Only statement 1 is correct Property has a situs elsewhore.
a Thal which ro<IU08S the legit,me of compulsory heirs. b. Only statement 2 ls correct
b That which Increase the share of one heir without impairing the legitime of the other c. Both statements are correct
he~ . d, Both statements are incorrect
c. That \\'hidl transfer the legltime of one heir to the other heir.
d That~ impair the legitime of compulsory heirs. ❖ Answer: C
o Rehlr elso to the gu/delneJ ilhJstratsd il quizzer No. 38
~ Answer: B .
c A ~, ,_ stWlf ~ . Ill INS1 tQ(ia/ 10 rtre value ol his or her leg/lime. 36. All of the following .are considerod Intangible In the Philippines, except
., A ~ h.w,..., _ , , ~ rti6'1 his OI tMII leghno, provided the &XCGSS llill COlll9 from 1M
a. Franchise which must be exercised in the Philippines
ht /l(WIIC'l o/ltle esuiht. '
b. Share_s, obligation~ or bonds issued by any corporation or socledad anonlma
organized or consHtuted in the Ph1hppmes In accon:lance w,th Us laws
3.2 Whd'I of the tollowing is nol a compulsory heir?
c. Shares, obligations or bonds by any foreign corporation 75%of the business or
a Legit11rate children and descendants, with respect to their legitimate parents or
which is located in the PhTiippmes
ascendants
d. Shares, obligations of bonds issued by any foreign corporation If such shares
b. In ~fault of letter -a·, legitimate parents or ascendants, with respect to their
obligations or bonds have acquired a business situs 1n the Philippines: ·
legllimale children 0( descendants
C. Widow 0( widower
❖ Answer: C
d Relatives by affinity
37. Which of the following Item is considered si!Uated outside the Philippines?
~ Answer. 0
a. Franchise in the name of the decedent which Is exercised in the Philippines
b. Share of stock holdings of decedent in a foreign corporation whose business ls 90%
Composition and Valuation of the Gn:>$$ Estate •
done in the Philippines .
33 One of lhe folowing Is subjecl to estate tax on properties situated within the Philippines c. Bond certificate issued by a dOlnesbC corpOlation owned by a non-resident decedent
only
d. Foreign currency deposited in bank outside the Phlfippines
a. resident cilizen c. nonresident citizen
b. msident alien d. nonresident alien ❖ Answer: D
~ AnS'Mr.O
GUDE. 38. Shares are not deemed property within lhe Philippines when
O ~ISlcmiw,o,midetll : ~ l l l d ~ a. The shares are issued by a domestic roiporation.
o ~ IS I ~ _ , , : ~ ady.1/ ~ 4SSume lfl&re IS /10 f'8(;ip(fldY.

483
482
 Cs&d:c ~
E.s&rte 'tr~
• corporation with no business situs in the Statement 2: If zonal value Is available at d
b. The shares are Issued by a fore19n market value per assessor's liStings of valuate~ death, and this Is higher than the fair
Philippines. f •gn corporation with 85% business in the gross estate is the zonal value. es, en the amount to be reported in the
c. The shares are issued by a ore1 a. Only statement 1 is correct
Philippines. . rporation organized under Philippine laws, b. Only statement 2 is correct
d. The shares are issued by a co c. Both statements are correct
d. Both statements are incorrect
❖ Answer: B
SITUS of INTANGIBLEs· ~
1!:!IANGIBl.f. Domlc/le of the owner ❖ Answer: C
1 In G8(1e(ai . s
2 ~,a~~~" ofopera/JOIIS in the Ph) . Ph,t,pp,nes
42. Part of the estate left by A are preference shares of MERALCO The
traded in the Philippine Stock Excha . • . shares are listed and
FC Fora/gn correct? nge Which of the following rules of valuaUon Is
o lngtnml Ph/Npplnes
0 . Al least 85% of ls operations Is ,n the a. The preference s~ares will be valued using the arithmetic mean between the highest
P/111',ppineS • • t"· Philippines
o ReganJJess of " of operaliOlls ,n '"' and lowest quota~on at the date nearest the date of death, if none is available on
f'/lilpp/Ms but expressly provl<Jed that ii the date of death itself.
had seq~ bus,ness sffus ,n the
PtJllppines b. The preference shares will be valued based on their book value
3 SALE of shsres. bonds, securities of c. The preference shares will be valued based on their par value.
Phillpplnes
DC d. The preference shares will be valued based on their fair market value as determined
Place ofSale
• FC
4 Franclllse, copynghl. tllldemarl<s, patents Where ff is exercised by the Commissioner of Internal Revenue
Residence of //!ti.debtor
5. Receivables
Location of the depository bank
6. Bank deposits ❖ Answer: A
SITUS of TANGIBLE Properties
1 Movable/Personal p,opBl1y Where # Is located 43. Pedro died on Nov. 2, 2021, leaving the followir!Q properbes:
2 tmmov,tiie or re,/ properly Where # Is situated • Common stocks of Sunchamp Corporation (2,000 shares) - listed In the Philippine
Stock Exchange (highest - P40; lowest - 1239)
39. The following are general rules on situs. Which one is not? • Common stocks of AgriNurture Corporation (1 ,500 shares) - not listed m the stock
a. The situs of real property is the place or country where It is situated. exchange. Cost - l250 per share, book value - P45 per share.
b. The situs of tangible personal property Is the place or country where such is actual~ • Preferred stocks of Greenergy Inc. (3,000 shares) - not listed In the stock exchange
located at the time of decedent's death. Cost - P70 per share; book value - P60 per share: par value - P50 per share
c. The situs of Intangible personal property is the place or country where such Is Car (cost - P600,000: book value - P350,000, market value· P400,000)
actually located at the Ume of the decedent's death. Real properties (zonal value - P120,000; assessed value· P72,000)
d. The situs of Intangible personal property Is the domicile or residence of the owner.
The gross estate of Pedro is:
❖ Answer: C a. P816,500 c. P824,000
b. P817,500 d. P846,SOO
40 Which Is not a test of situs?
a. Residence of the debtor In case of accounts receivable. ❖ Answer: A
PT9,0()I)
b. Place of storage In case of shares of stocks. Sunchamp {(P40+P39}12 x 2.0COs/lMIS
67,500
c. Location of depository bank In case of bank deposit. A9riNunu11 (P45, 1.500 sha!IS/
Greene,py (P50 x 3,0CO shallS) 150.000
d. Place of exercise in case of copyright. Car 400,000
120.000
Rest propeme.s
❖ Answer. B P816,5CO
To/Bl

41 · Statement 1: For estate tax computation, real estate shall be valued al fair market value 44. Pedro died on March 1, 2021 teaving a parcel of land The following data were available
al the date of death of the decedent. in connection with the property• P2,500,000
Assessed valued, six (6) months before death

485
484
 E.s6ite, ~
~me of filiM estate tax return on Feb. 28, 2022 3,000,OOo
Falr marllet value aI u ..,,
2,000,00Q 80,000 ordinary shares of Prosperous Co .
Zonal value, March 1. 2021 .
What would be the value of Iha piece of land in the gross estate? • Outstanding shares • 800 rposhration, a closely held domestic corporation.
000
a P2,000.000 c. PJ,Q00,000 • Rt ' dEamings.
e aIne ' '
P3,000,000 ares
b P2.500.000 d. PS,000,000 • Book value per share _ P10

❖ ~s~,:,., bet_, tfle FIJV pro~ by lfle Ciry OI ProvincJBI 8SSOSSOl'S (BSSOSSed l'Blva) Of l Oflal
• • p,ov,dtd by tfle BiR Ill tlll/ lfaN1 ofdeal/J. .
100,000 ordinary shares of Umaangat In led .
• Outstanding shares • 1000'ooocorpohara • a publicly listed corporation
. , , s res· P10 par
• R~tarned earnings • PS,000,000 '
• Mean value of the shares in the stock exchange . P15
45_ Juan died on Feb. 1. 2021 leaving a 1,000 sq. meter of parcel of land in Sampaloc, Manila
with Ille following valuations:
Assessed valued as determined by the City assessors P25,000/sq. m. 120,000 ordinary shares of Bigatin Corporation. Bigatin's sha 1· led · the I 1
stock exchange res are is ,n oca
Zonal value as determined by the CIR 18,000,000
Fair maricet value as determined by independent appraisers 28,000,000 • Outstanding shares• 1,000,000 shares: P10 par
Whal would be the value of the piece of land In the gross estate? • Retained earnings - PS,000,000
a. P18,000,000 c. P28,000,000 • Mean value of the shares in the stock exchange • P12
b. P25,000,000 d. PJ0,000,000
The correct amount of gross estate should be:
a. P2,300,000 c. PJ,740,000
❖ Answer. B
o Unless ~ s,e no o(l>ef avail8ble valualion, fair marl!ot valuss dB/ermined by independtnt b. PJ,500,000 d. PJ,850,000
lpprlllSelS a,e lgncntd fOI estate taxlllion purposes.
❖ Answer: C
46. A decedent left 10,000 PLOT shares. The shares were traded in the local stock exchange. Prosperous (80,000 sh. x PIO) PB00,000
f,J, the lime of death, the following were available: · Umaangat (100,000 x P15) l,S(/(),000
8/galln (120,000 x P12) 1,«o,000
Mean between the highest and the lowest quotations P500 per share Total P3.740,0(}()
Book value P350 per share
49. Ana, a Filiplna who died in Syria left the following properties:
What was the value included in the decedent's gross estate? House and Lot in Syria 1,000,000
a. P3,500,000 Vacant Lot in Manila 2,000,000
b. P4,000,000 Shares of stock in a domestic corp.. 60% of the business is 100,000
c. PS,000,000 located in the Philippines . .
Shares of stock in a foreign corp., 70% of the business 1s 200,000
d. Whichever was the highest among the fair market value, mean and book value
❖ Answer. C located in the Philippines
Carin Manila 500.000
VALUATION ol Shares o1 SIOC:k:
0 the avrnpe b6/weenthe h/¢1ost BIid lowest quo/Bl/oh nearest tho dsto of death.
GIitr&ded.
o E • PI0,000 shares r PS(}() per 5h818: P5()(),000 How much is the gross estate?
0
~mon "'ordmty $h1118S, /IOI traded - book valuo Bl the data ofdeath a. P2,000,000 c. P2,600,00
0 tnad OI profetl!l'K;e 4hares, not t1B<Jad - par value
b. P2,500,000 d. PJ,800,000
47 Which prope~ is valued using the book value? ❖ Answer: D : Reterrotmso/UIJOfli1#51
a Bonds being traded in the bond matket 50 Based on the preceding number, but assuming /w is a non-<esldent alien. the gross estate is
b. Annuity a. P2,000,000 c. P2.600,00
c Shares of stodc not traded in the stock exchange b. P2,500,000 d. PJ.800.000
d. UsufruCl ,i, Answer: C : Refortotnesolufion/il#SI
~ Answer. C 61 Co u · th cedl ber and the rule of reciprocity applies. the gross estate is
· n numg e pre ng num
.a. Mae Kaya owns various shares Of stocks Al a. P2,000,000 c. P2,600,00
the tJme of her death the f from different companies during her llfellm6· b. P2,500,000 d. PJ,800,000
· ollOWing details were provided to her administrator:

487
486
 Esude 'Lttc
Philippines not residing In that foreign country , .
Philippine gross estate of the non-resident ar·180What properties will be 1nciuded mthe
•!• Answer. B
House tnd LOI In ~
V«MtLarnMll1'a
Shltw d Sfod( In • domes/le (#J)O(lltkln
S/lnS o/ $lod. In 8 flw/gll corp •
CHizarvR11sldonl
Pf,000,000
2,000,000
100,000
200,000
NRA wlo roe.

P2,000,000
100,000
-
NRA WI roe

P2,000,()00
a. All the properties above
b. Propertles B, C, and D
c. Property C only
d. Properties A and C
decedent?

500,000 500,000 500,000

C,,rnUltlll P3,BC0,000 P2,600,000 P2,500]Q[ ❖ Answer: C
T<nl o NRA dOClldMts are taxable only on lhalt asl;Jla locatod,, the """--"'- 11
tntangiblos ,n the Philipplnea are lllewise e,cJudlld ',_..,,..,.. rt(J()l'OCIIy ~ •PPIO•
The sAus of shares of $locks of a dom&Slie co,pon,t!on is always considered In tho Phdlppines,
0 o In the prob/am proyfd,,d, I h a ~ Is NRA aod rec,proc/ly nAII /J applicable rller11/oro lrdJt#d
rega,dltss o1111t" ofts operations In tht Ptul/pplflf!s. . In hi& astote ere tonglble propert,u located 111 tho Ph,llpplnes only
o 11,t S>lus of shares of stocks of 8 foreign COIJ)O(lltk>n ls Phl/lpp/flf!S ONLy IF:
✓ Al least 85%of Its opefltiOnS is ln the Phlfipplnes: or
✓ If expressly pro\'lded tl\at the lorelgn corporation have already acquired buslnoss sllus In lhe 54, Using ~he same data in the ~receding number, assuming the decedent Is a resident alien.
Philipplnes (regardlesS of Ille % of operations In the Philippines) and his country does not impose transfer taxes to Filipino not residing therein the
o Do not a.ssume ~ Philippine gross estale should inciude· '
a. All the properties above
52. The following are properties in the gross estate of a decedent with their fair market value:
b. Property B, C and D
House and lot, family home in Quezon City P1 ,500,000
Deposit in the foreign branch of a domestic bank . 500,000 c. Property C only
Shares or stock issued by a domestic corp., certificate kept in the US 1,000,000 d. Properties A and C
Pieces of jewelry 800,000
Receivable, debtor in Cebu 200,000 ❖ Answer: A
o Citizen end Resident decedents are tillablil on titer estat, kicaled Wllhin and without tho Plll/ipptnk
If decedent was non-resident alien and there Is reciprocity, property excluded from Reciprocity ro/6 Is applicable OM/ on lnl~ lrihin ol NRA de(edents_
gross estate ,is valued at
a. P4,000,000 c. P700,000 55. Which of the following shall be included In the decedent's gross estate?
b. P1,700,000 d. Pi00,000 I. Share in common properties of the surviving spouse
II. Capital or paraphemal property of the surviving spouse
❖ Answer. B Ill. Properties outside the Philippines of a non-resident citizen decedent
DtposJf in the fornlgn·brardl of a domestic bst1k P500,000
Shares of Slodl of s DC 1,000,000 IV. Intangible personal property in the Philippines of a non-resident alien
Receivable, debtor m Cebu 200,000 a. I only t . I, Ill and IV only
fotal eu:iuSIOfl Pt.700,000 b, I and III only d. I, 11, Ill and IV
0 Smee the decadent rs NRA and there ls reclprociry, excluded from GE era properties without tho
~ $ and llllangibles .. I/le Phlllpplnes.
0 Shares off DC ls all\-ays considored an estate In the Phlllpplnes regardless of whe/8 the certificato ❖ Answer: C
IS /cept. '
0 The Silus of bank deposN ls whera the deposftory bank Is located (regardless of whether the ban~ is Transfer In Contemplation of Death and R~v~cable Transfers .
~:,_,, ~JC), ThfHl!/olo, the bank deposil In the problem /s cons/dared port of estate "oVhhOUI 56. Which of the following is not a charactenstic of d~nat1on mortis causa?
...,..,es because, snhough I/le bank ls domestic. It was deposited to its foreign branch. a. The transfer to the donee is irrevocable while donor Is alive.
· of o·tIe or ownership to the donee before the death of the
53 A non-resident alien left the following properties at the time of his death:
b. There Is no conveyance
A. Bank depoS1~ Canada dohnor. r t . th full or naked ownership and control of the property while
B. Bank deposit, BOO.Manila c. T e trans eror re ams e
C. Car in Quezon City alive. . th donee
d. The transfer should be void if the donor should su1V1ve e ·
D. Investment mbonds, PLOT .
E. Investment in stocks, IBM, USA
F. House and lot, USA ❖ Answer: A
57. Which of the following statements is incorr~t?n his lifetime may revoke, alter, amend, or
The country of the non res'd t d8ath
tax of any charact :th 1 en ·aIIen _decedent does not impose a transfer or th8 a. In a revocable transfer, the decedent un ~IP of the property.
er WI respect to rnlangibie personal property of citizens of terminate ttie terms of enjoyment or owne

489
488
 Cstti,te, rr
l I'(:
Es&tte Tr~
b. A revocable transfer 15 atways includlble in the. gross estate of the decedent. statement 2: The donee-decedent or a s .
property in trust, hence. the property shall fopecia1 power ol appointment only holds the
~.:.,_ --....., shall be included in the gross estate of the decedent-transl a. Only statement 1 is correct rm part of the donee-decedent's gross estate.
c. A re.........,,., irdl ''""' rclsed eror
though tt,e power to revoke was not exe • b. Only statement 2 ls correct
d ~power of the decedent-transferor to revoke terms may be exercised Just once c. Both statements are correct
d. Both statements are incorrect
•~ Answer. D
❖ Answer: A
sa Loo Sol 95 years old. was diagOOSE!d of variou~ aifmen~ on Jan_uary_1. 2018. Mobvated
by lhoogh of death. he decided to dispoSe all his properties I~ his children and relatives
He ex-eMed a last will and testament dispOSing all his properties in the Philippines to h~
chben. On the same day, he made donations inter-vivos to ~is ot~er relatives as to his
o
o
GPA =Add to GE. SPA =erdude from GE
The power gramed to t h e ~ or
Appolntmont (GPA)" ifhe4he is authomed ro
no/ merely based on too ~ 01 the
added to the gross astale upon /x5l!>er ~
= ~ I.$lid be k/lQllfl BS -0-ral Power of
Bn)'008 wflO should tlhent the propeny. llllO
11
- tllCOmpasses °""81Shlp. hence. shal be
properaes 11 the United States. Lolo Sot cfied ~ month afte~dispos1_ng all his properties_ o The power grantod to t h e ~ O< CU118f11 ~-~~
Shood the propertJeS donated by Lolo Sot to hlS other relatives be mduded in his gross Appolntmenr (SPA)" if l>elshe . - - """"""'" shl1 be /mown M 'Speoal Power ol
IS -u ..ued to ~ ottfy from rhose identified by the pred«:4$$0r
Thus, the propertyrivolvedunder SPA was Otrfenlrusledtothe ~cadent,,, fllVOtol another
esta.'e ~ his death? as desired by me predecessor, rhenilcn, excvded., hlsi1!er estate upon death.
a No, because they were not hls properties anymore at the time of death.
b. Yes. becauSe the dooatx>os were donations mortis causa and should be governed 62. Which Is correct?
by the ne on eslate taxanon. a. The person who ?'e~tes the ~ r is the donor of the power (donor-decedent).
c.. No. d the oooor's tax had been paid already on the donations. b. The person who 1s given the nght to exercise the power of appointment Is the donee
d. No, because they were not transfels in contemplation of death, since the donations
(donee-<lecedent).
-wera not sirutaneoos with the exea.rtion of the last will and testament c. The property being transferred and the subject or the power of appointment Is the
appointed property.
.:,. Answer: B
d. All of the above
o T h e ~ fa:D'dl..Di)Sa 11 ~ /Is ~rlies was Ille 1/Jooght ofhis death'. Hencs,
IJoll1 ~ 11 substance. IM!I!! mad! i1 rortempla.ioo of death. Consequently, both /Talls.'ets
t:IUSI II@ ix:td!d,, In s,nss as!all!. ❖ Answer: D
o The donor-decedent is also MOWn as Ille pooeee.ssor wive rhe ~ I l l is atso known as
lhe present decedent 0< fr.it hl!lf.
59 To prevent llldue avoidance of tax. inter-vivos disposition in contemplation of death is
subject lo
a. Donor's tax c. lncxme tax 63. Wllich of the following statements is incorrect?
a. A general power of appointment authorizes the donee of the power to appoint any
b. Estate tax d. Excise tax
person to possess or enjoy the property.
b. A general power of appointment makes the donee of the power the owner of the
property.
60· The ~ c. The appointed property passing under a general power of appointment Is not
- •'\! are deemed transfers ·mcontemplation of death except
lncludlble In the gross estate of the donee-<lecedent.
a. While sbll alive: the decedent donated property where Ule donation will take effeci

~ ~==erred
at the lime of his death.
a property_in the regular course of the business operati~.
of such while he/sh~ ~~ with the condition that he/she will enjoy the fruits
d. None of the above

❖ Answer: C; (GPA= Add to GE; SPA= edlde from GE)

64. Statement 1: The power of appointment is ·generar when.the power of appointment

d The . .
decedent transferred a property to take e~ ~fter his/her death authorizes the donee of the power to appoint only from a restricted or designated dass of
❖ Answer: B persons other than himself. .
0 Exwded -A CandD
Statement 2: Special power of appoin~ent exists when the power of appointment
o lnooded- 8 authorizes the donee of the power to appoint any person he pleases.
a. Only statement 1 Is cormct
Genenil Power of Appolnbnent (GPA) b. Only statement 2 is correct
61. Statement 1: A special power of a a~d Special Power of Appointment (SPA)
only from aroong a designated ppo,ntment authorizes the donee of the power to appoint c. Both statements are cormct
class or group of P8fSOns other than himself. d. Both statements are incorrect

490 491
 d. Both statements are incorrect
~ I = SPA s,,iemenl 2 = GPA)
❖ Answer: D; (
❖ Answer: B ; (St 1
8 oment 1 =SPA, Statemont 2 =f!M>Cjll>H, 11811$/or •ub/ to estate to,)
sed In his will a piece of land; naked title to Bonifacio and
65. Statement 1 Aguinaldo::s Rtzal lives, thereafter to Bonifacio The transmission rrorn are transactions and acquisibons exempt fro I f ,~~
~ c t to Rtzal !Of ~ arilRizal is subject to estate tax but the merger of the usufruct and
69· The following
T • • r th fi h ,
·
m rans er=, except
a. ransm1ss1on rom e rst eIr or donee in favor of anoth b n rd
Aguinaldo to Bon1faC10 . u n the death of Rizal is exempt. with the desire of the predecessor er ene ioary 1n acco ance
the naked title 10
Statement 2. ~P
8:~S: i~is will real property to his btother Fidel who ~s entruste<J
rve and transmit the property to JOV, a son of Fidel, when
b. Transmission or delivery of the Inheritance or legacy by th fid
to the fideicommlssary
h 1
e uoary etr or ega1ee
with the obhgabonf to~ transmission from Fidel to his son JDV ls subject to tax. c. The merger of usufruct in the owner of the naked title
JDV becOITleS O age. 11 " '
a Ooly s1a1ement 1 is correct d. All bequests, devises. legacies or transfers to social welfare cultural and charitable
institutions '
b. Only s1a1emenl 2 is correct
c. Both s1atements are correct ❖ Answer: D
d. Both statements are incorrect 0 Choices ·a· and "b" are properties "he/din tlvst' oni'f bythe ~ t
o The decedent Ill letter ·c· is no/ the owner of the propetty, lherelot!. excluded
0 Bequest to Charitable Institutions • Requirements 1cr Exduslon
❖ Answer: A co Bonla,;,o and Ra8I =svtJied to estate tax; Bon"
Agu,naldo t R I
11BCIO o, ,za =exempt All bequest deV!Ses, legac1es or trans/as to sodal welfare. aJiluraJ and charitable Institutions, no
0 part of the net income of which ,nures lo lhe benefit of any lndMdual Prorld«I. however. that not
Erap to Rdel arr, JDV =subJec1 co estate tax: Fide/ to JDV = not subject to eslaltt tax
0 more than thirty percent (30%) or the sail bequest, devises. 1egaoes or transfers shah be used by
such Institutions for admlnlsirabon purposes.
66 One of the following donations is not induded as part of gross estate
a Revocable transfers Insufficient Consideration
b. Transfers wrth reservalJon of certain nghts 70. On the belief that Pedro is about to die, he sold to his daughter a parcel of land valued at
c. Transfers under special power of appointment P3,000,000 for the same amount One (1) year later, Pedro died of a car acadent. At that
d. Transfers mcontemplation of death time, the property had already a value of ?3,500,000. For Philippine estate tax purposes.
the amount includible in the gross estate is
❖ Answer: C a. PS00,000 c. PJ,500,000
b. PJ,000,000 d. nil
fi7 Which of the following transfer is not lnduded in the gross estate?
a Transfer with reservation of certain rights ❖ Answer: D
b Transfer for insufficient consideration 0 II the proceeds are subsrantiaNy the same 0t higher rhan the RAV of the propetfy sold, n IS a bona
fide or valid sale and there/om ~ichmd from the gross astate.
c Transfer for an adequate and full consideration in money or money's worth
d Transfer in contemplation of death
71. Vlad died on October 20, 2018. During his fifetime, upon knowing_ that he had Stage 4
cancer, sold his Lamborghini car to his son for 124.000,000. The fair market value of the
❖ Answer: C car at the time of sale is 123,000,000 while it is already valued al PS,000,000 at the ume of
o Transfer for an adequate and full consrderation fn money or money's worlh =valid safe
o The term -r a money's worth lnCiudes t.angible and Intangible property, services, and o/hef · death. The amount that will be added to gross estate is:
COftSlderatJOO redvciJle to a money value (Monon:h v. US, 2009, US DrsL LEXIS 64546) a. PO c. PB00,000
b. PS00,000 d. P1 ,200,000
68. Statement 1 Pedro died giving Juan the power to appoint a person who will Inherit his
house and lol Juan, however can only choose among Ana, Lorna and Fe. Juan decided ❖ Answer: A. 11 Is a valid orb0/18 lide sale.
10 transfer the property to Fe through the farmer's will. The 'transfer from Juan to Fe Is
subject to estate tax. · 72 B . be f the consideration ,s fictrtious, how much will lorm part
ased on the preceding num r, 1
Statement 2 Dunng A's lifetime, he decided to give B as gift his (Al car subject 10 the of gross estate?
condibon that ti 8 does not become a CPA within 3 years A shall revoke the transfer. In a P1 ,000,000 c. PS,000,000
the second year however. A died. The car should form part of A's gross estate. b. P2,000,000 d. nil ecfsa/6 Thep,OCMds1S aswmodtobtP(T)
a Only statement 1 is correct ❖ Answer: C; (FIClitlous sale means 'fabriCal
b Only statement 2 is correct
c Both s1a1ements are correct

493
492
 Est-rtte, 7d.
(:
~ valued at 121,500,000 at the time of his death. The sai Designallon.

prope~ was sold by

121 .200.000. It was ag
=~Y
73 Pedro, decedent, owns a P~ ·ng his lifetime to Juan for 12700,000 when its value w d

prope~ as long as he lives. or

~:dro and Juan that the former will enjoy the income of~!
F PhUippine estate tax purposes, how much will be Included
.
ReVOCilble
lrrevocablo
lnclde In lhe GE
lnciUde In lhe GE

fll The Phlllpp1ne Insurance Code~

~lnlheGE
Exclude from lhe GE

designation of lhe benerlCiary ls not de Iha!1he desl;ination of a policy Is rel'OCllble in case the
in determining gross estate? °'
provides that ,he insured shootd h ar silenL Socoon 11 of lho Insurance Code (RA 10607)
a PO c. P800.000 poncy unless he has ex"'-•" ave Ille righl IO change 1he benefiaary he deslgnalOd 10 lht
b. P500.000 d P1,200,000 ' the Insured does
the event -·l10I
-,chawa~the 1h15 nghl in saJd ""°"'
,.,,...,, No•""'-·•-Mlnn,.
,n,u,.w.....,, u,e ....,...,
'~"""'ng, 10
deemed irrevocable· nee beneficiary during his lifetime. the desJgnallon s11an be
❖ Answer: C ded in the gross estate ,s the excess of FMV upon death overthe PfOCeeds
o n. amount to ~ FMV st the time oftransfer ol Pl,200,000 s/'/s/1 be used onlyto determ~
o The P700.000":' -:-;,::! -~ , sale for ·1nsutr,aent consideration'. 76. Which of the following is not Included in the gross estate?
whelherorno/ n"'" ,.,. """"
a. Revocable transfer where the conslderaboo is not sufficient.
b. Revocable transfer where the power of revocation was not exercised.
74 Based on the preceding number, if the fair markei value of the property at the time of death
1 ocoo,000, how much will form part of gross estate?
· wasony.-u c. Proceeds of life insurance where the beneficiary designated is the estate and the
designation Is irrevocable
a. PO c. PB00,000 •
b. PS00,000 d. P1 ,200,000 d. Proceeds of life insurance where the beneficiary designated Is lhe mother and lhe
designation is irrevocable.
••· Answer. A
❖ Answer: D
Proceeds of Life Insurance ..
75. Amounts receivable by the estate of the deceased, his exe_cu~or or administrator as an
insurance under policy taken by the decedent upon his own hie Is: 77. Proceeds of life insurance where the beneficiary of the decedent 1s not his estate, executor
or administrator Is:
a Excluded from the gross estate; .
a, Part of gross income if the beneficiary is revocable
b. Part of the gross estate whether the beneficiary is revocable or irrevocable;
b. Part of gross income regardless whether the beneficiary is revocable or irrevocable
c. Part of the gross estate if the beneficiary is revocable;
c. Not part of gross estate if the beneficiary is irrevocable
d Part of the gross estate if the beneficiary is irrevocable.
d. Part of gross estate regardless whether the beneficiary Is revocable or irrevocable
❖ Answer: B
❖ Answer: C
APPLY THE FOLLOWING RULES:
INCLUDED IN THE Grou Estate:
Proceeds ot life insurance taken out by lhe bv Ille decedent on his own life should be Included In the gross 78. Proceeds of llfe insurance to the extent of the amount receivable by the estate of the
estate tt the following requisites are present deceased, his executor or administrator under poficies taken out by the decedent upon his
1 II mUS1 be an Insurance on the life of lhe decedent
2 The benertc1ary must be either of lhe following:
own life shall be
His estate. executor ot adm,nfsllator (revocable or not) I. Part of the gross estate Irrespective of whether or not the Insured retained the
Arly third person (other than his estate, administrator or executor) provided that the designation 'power of revocation
is nol lmivocable II. Not part of the gross estate if the beneficiary Is irrevocable.
EXCLUDED IN THE Gron Estate: 111. Part of the gross income if the designation of the benefid~ry i's rev~cab: ed
A. Proceeds of hie Insurance taken out by the by the decedent on his own life should be ueluded ill IV. Not part of the gross income Irrespective of whether or not t e nsure re 1n
Ille gross estate d the following requlsfles are present
the power of revocation
1 II must be an Insurance on the life ol the decedent
2. The beneridary mus1 be OTHER THAN-. a. I and II c. I and IV
• Hls !!$tale, executor or administrator (I.e., ch:ldren, spouse, parenlS), and b. I and 111 d. only I
The designation IS irrevocab/o
B. Tax exempt insurance (t e , group msurance taken OUI by the employer for lhe benefit 01 IJie ❖ Answer: D
employees)
79. Which of the following life Insurance proceeds shall not be Included in the computalion of
SUMMARY

LIFE INSURANCE ,,. gross estate? t or admirnstralor and the designation of the
a. Beneficiary is the estate, execu or
Taken out IIYY£1!
TOlten OIJI by !he decedont decedent's EMPLO beneficiary is revocable; or administrator and the designation of lhe
Eslll!a. 8dmlnls"-tot°' Other lhan the vslale, Excluded f!Om 1118 GE~, b. Beneficiary Is the estate, executor
-.ior 8dmintstrato, o, executor Nol subfeCI IO estAII beneficiary is irrevocable;

495
494
 Est«tl!. rr-
(({c•
"· n the estate executor or administrator and the deslgnat
c. Benefioary Is other l "" ' ion of b. capital d. equity
Ille beneficiary IS revocable; . ❖ Answer: B
...n than the estate executor or administrator and the design t·
d. Beneficiary JS ot•"" • a ion of
the beneficiary rs ,rrevoc:able. 85. The gross estate of a decedent who was .
a His capital property, the wife's para~amed at the Ume of death will be composed of
❖ Answer. D
b. His capital property and the comm! emal property and the comrT10n property
c. Common property property
PROPERTY RELATIONSHIP; MARRIAGE SETTLEMENT d His capital property
Which ol the following statements ls Incorrect? ,
80 a. Marriage settlements may fix the property rela~ons of spouses during the marriage
❖ Answer: B
wilhln the limits provided by the family code. 0 ·A· Is lncomiet. E,cluslve proptnlos of lhuu .
b The purpose ol system of property relationship Is to distinguish a conjugal gross OS/BIO. M\'1119 Sj)O!J$8 soon flOI be IIICIUded 111 lho docodonl'$
. rt w ·a· Is correct. Tho decedent's gro.ss es/118
community property lrom an excIus1ve prope y. 0
/hair common propot1/as. shaJI be compo$0d of hisl?icr oxduSMJ properoes and
c Modlficat10ns or amendments in the marriage settlements may only be allowed arter
the celebration of the marriage. 86. Statement 1: In the absence of marriage settleme ts
d None of the above property relationship between husband and wife sh~I ~xecuted before the marriage. the
the provisions of law, respectively. governed by local custom and by
❖ Answer: C; (amondments shall be mada pnor to mamaga)
Statement 2: Claims against Insolvent persons may be ch ed I
a. Only statement 1 is correct arg aga nst exclusive property
81 Statement 1. ConIugal partnership of gains, absolute community of property and complete
b. Only statement 2 is correct
separation are all valid regimes that may govern property relations between spouses.
c. Both statements are correct
Statement 2' Under the regime of absolute community of property, the husband and the
d. Both statements are Incorrect
wile place in a common fund the proceeds, products, fruits and income from their separate
property and those acquired by either or both spouses through their effort or by chance.
❖ Answer: B
a. Only statement 1 is correct Slalemenl 1 - Order of Priority
b. Only statement 2 Is correct • o Agreoment of the spousos executed b,/orf mamage
c. Both statements are correct o By oparotions of law
d Both statements are Incorrect o Customs or traddions

❖ Answer: C 87. In the absen<:8 of a marriage setUemenl or when the regime agreed upon Is void, the
property relations of the spouses who married before August 3, 1998 shall be governed
82 Under the law, the property relationship between husband and wife shall be governed in by:
what order? a. Absolute community of properties.
1 By marriag: settlements executed before the marriage. b. Conjugal partnership of gains
II By the provisions of this Code c. Absolute separation of properties.
111. By the local custom. d. No property relations.
a I, 11, Ill c .11, 111, I
b I, Ill, II ❖ Answer: B
• d. 111, II, I
❖ Answer. A 88. In the absence of a marriage settlement, or when the regime agreed upon was void, the
be: property relations of the spouses who were mamed on or after August 3, 1988 would
83 ExcJUSNe property of the wtte is called?
a Income c a Absolute community of property
b capital - paraphemal b. Conjugal partnership of gains
❖ Answer. c d. equity c. Absolute separation of property .
d. Either absolute community of property or conJugal partnership of gains
84. EJlduS1ve property of the husband is called?
a 1ncxime c paraphemal ❖ Answer; A

496 497
 Est,u~ ~
reach spouse. Which one is not? RULESon FRUITS
O .ACoP FFS- f'nm wiFolowlhe ~ (18
The followlng are exclusive property ,..,. marriage by lucrative title. 0
89. __,.,. .,,..,,,;res dunng u"' f ith o CPG AFC· .41 fflJh llll Cbmn,on ( ' C0mmu'1,ty t M c:mwninry ptopellyJ
a That ~ICh i:ou• ......- with the exclusive money o e er s~use. o Since the fruit mthis pat1Jcv/ar case regw1e.ss of socn;,,J
b That which Is purchaSed ch nge with other property belonging to the spouses Nshan b e ~ as f ~ ~ ~ ~ ~ - . . ,. , • ~ p,opetfy/.
c That which is acquired b~~ e as his or her own. ·
d Thal ~ich IS brOUQhl to
94· Whichrty?
of the following is exduSIVe prnnonv
-,,...., under the system of absolule community of
prope
❖ Answer: C a. Property before marriage
b. Inheritance dunng marriage
c. Property acquired during mamage
Conjugal Partnership of.Gains !CPG) rty of the spouses d. All or the above.
1
90. One of the f~~ng is a: . : : ,=ge as his or he:~
a Thal which IS broug . d • the marriage by inhentance ❖ Answer: B
b That which each acquires unng
· The fruits of an exclusive property f th ·i 95. Properties owned by the spouses before and brought into the mamage shall be dass,fied
~- Thal which is purchased with the exclusive property o . e WT e
as:
Absolute Community Property Cgyuqal Paitnershlp of Gains
❖ Answer: C and r:unmurir ptOPerty, ,re generalt ,nterchangeable. Howaver, if u"'
••- ,,.,,.,._m
,,,,..,,. as~ a. Community Conjugal
81
0
~ type d /he mNriage se/lJemenl, apply the fol/oWlng rules. b. Exclusive Exclusive
The •conjuplp,op#ltY' sh8I penail to common property uflder CPG. Community
Tile ;: •community propMfy' shal pertan to ccmmon property under ACoP.
C.
d. Exclusive
Exdusive
Conjugal
91_ Which of the foflow,ng 1s exclusive property under the system of conjugal partnership of ❖ Answer: C
gains?
a. Property before marriage 96. The fruits on properties owned by the spouses before and brought Into the mamage shall
b. Inheritance during marriage . be classified as:
c. Property acquired during marriage out of exclustve money Absolute Community Property Cotwqat Pannership of Gains
d. All of the above. a. Community ConJugal
b. Exclusive Exduslve
❖ Answer. D C. Community Exduslve
d. Exdusive Conjugal
92. Which is not an exclusive property of a spouse?
a. That which Is brought to the mamage as his or her own. ❖ Answer: A
b. That which each acquired during the marriage by gratuitous tiUe.
c That which Is acquired by right of redemption. 97. Properties received from gratuitous transfer during mamage shall _be da~1fied as
d. That which is purchased with the spouses' common fund. Absolute Community Prope!1Y 9gntuqal Partnership of Gams
a. Community Conjugal
❖ Answer. D Exclusive Exclusive
b.
c, Community Exduswe
Absolute Community of Property d. Exclusive ConJugal

93. One of the followln~ is not a community property of the spouses ❖ Answer: B
a. Property lnhented by the husband before marriage
b. Winnings in gambling 98. Th , , from gratuitous transfer will be daSSlfied as
e fruits rece,ved dunng ma_mage Q2!( a/ Partners/up of Gams
c Fruits of property Inherited during the marriage Absolute Community Property tug Conjugal
d Fruits or property Inherited before the marriage a. Community Exclusive
❖ Answer. C b. Exdusive Exclusive
0
c. Community
Ptope,ry acQw9d dunng mlllriege, under ACoP. ls general/}' exclusive property

499
498
 Conjugal
E.xdtJSlVe b. P18,510.000
d d P23.610,000
❖ Answer: A
❖ Answer: D
e
_...-s ~ cJt,r,g mani96 am general'( Glassmed as
~ ,_,.; ~ " ' ~ ,s t,CcP 1rHf/he donor Of testator e,p,ewy ~ ~.,
'ltlr.· Resl /louse n Cebu
Income from fSSI i'loca 111 Ce()u
~ td,sl t:11 ~ --,.,(/the spouses. Illar Condomnu:n n Davao
I lf'.ll bM pa,! rJJt-. CMJIIOtl ,...,,-.,
Income f r o m ~ 111 ~
nd exclusive use shall be classified as: Town hocm? 111 Quezon Cty 360.000
10500,000
99 Personal property for personal aProoe~ Coniugal Partnership of Gains Income from town ho<M n Outzon Cly
I 050 000
Absolute eommun'(Y ~ Conjugal CM, nhttted 17( lri'e ctmp ~
a. eommunrty Exclusive .Mweiry for pe,sonaJ a n d ~ l4e
Total CctJuqll Propnu
b E.xclus,ve Exclusive Pr2sroooo
C. Comm~ity .
E.xclus,ve Con1ugal 102. How much is the gross estate under ConfugaJ Partnership or Gains?
d
a. P12,510,000 c. P22.310.000

=~
❖ Answer: B b. P18,510,000 d. P23,610,000
e0 G«,etl/ ~ ~ a n d eidJsM use· under ACoP. shal be cJaSSJfied as 00trrru-,r
1
prr,1-.»d .,.,_ Secml 92 rJU>a I • CNi Cede Thu role, however. 5hal not i1pfr/lo
❖ Answer. B
Rest house i'l Cebu 1'6.000000
CPG Income from rest llOl<Se In Cebu 600.000
Condomltwm 111 Dav10
1oo. Statement 1. The right to succession is effected at the time of transfer of the decedent's Income from coodomnlm 111 ~ Je() 000
property or nghts to the heir. . • Town hou5e n Ouezcvi Cty 10,500000
Statement 2: Ana is the surviving spouse of Jose. Her share In their community property Income from town hocM n OuMr, Cly t,050000
Cat, iiheded 17( 'K!t dlnng--.,,
Is classified as her exdus,ve property and ~II fonn part of the decedent's distributable JneJry for pel$0NI nJ e.rd.csN, c,se
estate. Total Gros., Esti!te cnllr CPG Pla.510000
a Only statement 1 as correct
b. Only statement 2 1s correct 103. How much Is the community properties under Absolute Community of Propeny?
c Both statements are correct a. P12,510,000 c. P22,310,000
d Both statements are Incorrect b. P18,510.000 d P2J,6t0,000

❖ Answer: D ❖ Answer. D
Rest house 111 C«x1 1'6000000 Ccn-.trunty
o Statement t 11 riama It I/JIii be elltcttd ,t thfl IJ/1l8I of detlh of Ille dl/GOdfnl
tncomo from rest houu n Cebu l500 000 Canmutllfy
o Tho common /)/OjlfllltJ ol the 8POOsts I/Jal be ~ In the GE 1600.000
Condomni.m 111 Davao Comm&.nly
o Tllo llulr, rllht SUMVrlg l/lOU5t In tht C0011110t1 propo,ty shal not be /lxludod In Che detMJllllfC1l lneomo from cOtld0lnnun ti OMo l50000 Conmully
ol 'diltnbu1able ntl ISlilfe
Town hotM n Otitron Cly 10500000 CorMll#W)'
IIIC0ml from 101m ' - " (Mia, Cly 1,1)50000 Commun,y
The next lour (4/ questions are based on the data provided below: Car, /nhtrtod by .....,_ dtmO ~ I 300,000 COfm1uwy
Mr J. Chavez died leaving the following properties: hwelr; fol (WJOIVII and ••tllJM 1M 200000 Community
TOla/ GIQS.S cs/Ille oodfr CPO />116 10000
Rest house In Cebu, acquired before marriage 6,000.000
Income from rest house In Cebu 600,000 0 Undtr ACoP, ptTJPttty IICQund 1/toc.c;h p-alU!Dus lt¥lsllt /lllhttCancl 0t donltGIJ - ~
Condominium In Davao, brought to marriage by w,fe 3,600,000 IMlnl!I•·. I S ~ eac.bsM unlffl ,. lfll.,, 0t dooot trp,ut/'f PlfMded 11111 IUc./l f/tt6
Income from condominium In Davao 360,000 form PM1 of the c:ormnfy p,opttty
Town house In Quezon City, acquired dunng mamage 10,500,000
Income from town house in Quezon City 1,050.000 104. How much Is the gross estate under AbsOlute Community or Properties?
Car, inhented by wife during marriage (the decedent provided In his a P12,510,000 c. P22,310,000
Wall that it shall form part of the common properties of the spouses) 1,300,000 b P18,510.000 d P23.610,000
Jewelry, acquired dunng mamage for exclusive use of the wife 200,000
❖ Answer. D 1.1 erctaM or CCVlll1CVl ~ _,.,,,,. ~
101
· Howam~~ ;t°
1
'
00
0 000
'
nlugal properties under Conjugal Partnership of Gains?
C. P22,310,000
o Und8r ACoP. Ollltt m,y be d1ISSlf»d
problem Of illuslrlborl. ., tt. p,op,,1M "'
c:IISracl 11 ClllT.IIU1ly ~

500 501
 Casually Losses
duded In the gross estate or a decedent, except: Claims against the flS/ato (600,000)
105. The list provided below ,s not:s or the surviving spouse; Vanl.!hlng dtlductlOII'" (1,600,000)
a Share In common prope .. g spouse· NET Estate before Special Deductions -;;/O;t52.i°i000i';;;:!'";;----::~=-c,--_J/1,1.,J._!:15~2.~000~!L
of the survivin • .
b. ExdusIve pr0Jl4:rty hill Ines or a non-resident ahen decedent; Share of the SS 8/ld Pl,848,000 Pl5.000,000 P22.1148,000
c. Properties outside the P rtyp~n the Philippines or a non-resident alien when the rul SPECIAL DEDUCTIONS,
d Intangible personal prope a Slandsrd Deduction
of Redprodly applies. FamflyHome (5.000,000)
Lot= P◄M (9,000,000
❖ Answer: A """"',ty ••• be lnCluded fim In tho gross osts111 beforo tho is sharo 011••
·A· n,unlff common.,..,,,.. ..~1 ''"
House= P10M12 = PSM
0
sinflff} spous11 ,s deduded SHARE OF THE SS (P15Ml2) {7,500.0001
0 13 ro o· s/111 be excluded from thl GE. TAXABLE NET ESTATE

vs, thl MM19 d8(a lorthe next two /21 questJons/ . . Value to takennillal e. (vacallon house)
Proportional deduction Pt,300,000
The estate of Pedro, resident citizen decedent, mamed, who died on Apnl .1, 2021 were as
(P1.JM/26M) x P2.2M
follows, Final BaSIS (1tO,OOO)
House and lot (Facndy Home) P14,000,000 xVD%
Pl.190,000
The lot was acquired at a cost or P3M, five (5) years ago, before IO%
Vanishing Deduction
marriage while the house was constructed on March 1, 2021 , during
marriage: at a cost of P10M from partnership funds. The lot had a FMV NOTE.
of P4.000,000 after construction of the house. The value of lhe lot amounling lo P◄M Is assumed 10 be lhe FMV of the l)f'Ojlerty upon death of lho
Other properties acquired during marriage 6,000,000 decedent since the decedent died shol1ly after conslruclion of the house
The property In Davao, recer.oed as gift Is not subjed 10 vanishing deducbon becauso tho appllcable
Vacation house in Batanes mheri1ed on Feb. 14, 2020, during marriage, 2,500,000 dono(s tax was not paid by the donor,
then with afair market value or P1 ,300,000 Funeral, judldal and medlcal expenses are no longer deduct!ble Imm the gross aslala
Property in Davao, received as gift during marriage from a friend on 2,300,000 Tho casualty losses were inaJrred within one (I) year Imm death of the docedenl or within 11111
sotUement period, hence, deductible,
Jan. 12, 2020 (the applicable donor's tax was not paid by the donor) Olhor properties, unless p,o'llded olhel'Mle, are mumed lo ba pall ol common propar11H
Rental Income on the property in Davao up to the lime of death 1,200,000 Rent.I Income (fruits); CPG:oommon, ACoP • same daUlficllllon with the sourco of lho income
Expenses/Cla1ms:
Funeral expenses 420,000 107. How much is the net taxable estate under Absolute Community of Property?
Judicial expenses 800,000 a. P4,836,000 c. P1,948,000
Casualty losses Incurred on Dec. 10, 2021 600,000 b. (P2,174,000) d. P2,174,000
Claims against the estate 1,600,000
Medical expenses within 1 year prior to death, only half was receipted 4,000,000 ❖ Answer: C

106 How much is the net taxable estate under Conjugai Partnership or Gains?
a P3,926,000 c. P3,426,000
b PG,426,000 d. P1,348,000

•·· Answer: D
SoMJon
SolullOII:
FamfyhomHo( ~ ~ m,J common ~
Famfy hofno.hoose P4,000,000 Family home-lo/ P4,000,000
0thtl p,cperties PI0,000,000 Family home-house 10,000,000
VIC.tf,u, llouso 6,000,000 6,000,000
2,500,000 Other propellles
~ I I D.\'IO Vaca//on /Jouso 2,500,000
Rental 1ncomt 2,300,000 2,300.000
TOia/ G,osi fsttlt 1,200,000 Prope,ty In Davao
PB,800,000 P26,000,000 Rental Income 1,200,000
Pl 7,200,000 P6,000.000 P20,000,000 P26,000,000
ORDINARY DEDUCTIONS Total Gross Estele

502 503
 E..r6de. z;c
b. If the creditor is a J)altnership, n shall be .
ORDINARY DEDUCTIONS· (600,000) c. If the creditor I.s a bank or other mancial. 9lgoed by any ol lhe general ~
c,suJly Losses (1,600,000) of the bank/financial In5trtubon which ' ~ . 4 shal be uecu!ed by the branch~
CJa,mS againsl 1h11 es/BIO .-1/9~5:::,.2,00Q~),..,."_----:-:-=-:-:~--.1(3~2,00oi d. All of the above ll1ai10ts and manages the loal ol the deblor~
VIWlls/tlng decJIJCII()().. Ded ctions PS,048,000 17,800,000 P22.~ .=
NET Estate before Special u IIVU ❖ Answer: D
and Shalll of the SS
11 2. The following are the requisites In order for claims
SPECIAL DEDUCTIONS except which one? ilQaJlSt the decedenrs estate may be dedudible,
(5,000,00o)
Standard DediJdrOO a. They must be the personal debl of the decedent
Family Home /Pt4W2)
(7,000,00o
b. They must be enforceable in court.
SHARE OF THE 55 c. They may have been condoned prior to death
(B.900.m.._
(P17,800,000l2)
TAXABLE NET ESTATE
-
Pt,948,ooo

❖
d. If the loan was conlracled J years befora death subrTII
the proceeds.

Answer: C
, statement show,ng lhe disposition of

DEDUCTIONS FROM GROSS ESTATE

113. 'Much of the following is not_deductible from the gross estate of a decedent?
~:S~~ro died 10 2021 The followmg are the requ1sttes in dalmlng casualty losses In lhe computation I. Income taxes oo income received after death
II. Property taxes not accrued before death
of estate tax. except Ill. Estate Tax
a Losses are not c:ompensaled by Insurance;
a. I and II only c Al of the above
b Losses must not have been daimed as deduction in the computation of income tax;
b. II and Ill only d. None of the above
c. Losses were incurred not later than one (1) year from the lime of death.
d None or the above
❖ Answer: C
❖ Answer: D
Accommodation Loan
109 Various types of losses Incurred by a decedent's estate were as follows:
Loss due to typhoon, a day before the decedent's death, P1 ,000,000. 114. If a loan Is found to be merely an acconmodabon loan where the loan proceeds wont to another
Loss due to shipwreck, ten (10) months after the decedent's death, PS00,000. person, which of the following statements Is inrorred?
Loss due to robbery, 1 ½ years after lhe decedent's death, P2,000,000. a. The value of the unpaid loan must be induded as a receivable of the estate
Gambling losses before death, P2,250,000 b. If there is a legal impediment to recognize the same as receivable of the estate said unpaid
obligation shall not be allowed as a deductlon from gross estate •
How much Is the deductible losses from the gross estate of the decedent? c. In all Instances, the mortgaged property, to the extent of the decedent's Interest therein. should
a PS00,000 c. P2,500,000 always fonn part of the gross estate.
b P2,250,000 d Pt ,500,000 d. None of the choices

❖ Answer: A ❖ Answer: D
o Only tho loss duo lo sh/pwrock Is d0<1ucriblo from /ho gross oslolo
115 Which of the following Is not a requirement In dalmmg unpaid mortgage as deduction for estate tax
purposes?
a The fair market value of the mortgaged property, nel of the mortgage indeblodness. should be
Indebtedness or Claim, Against the Estate and Unpaid Taxes lnduded In the gross estate;
110 Deduct1blo dalms against lhe Ostate or ·indebtedness In respect of property may arise out of, except. b The fair market value of the mortgaged property undiminished by the mortgage lndobtednoss
~ :tract c operations of law
d. none of the above
· should be lnduded in the gross estate:
c The loan must be contracted In good faith
d. The loan must be for an adequate and funronslderatJon
❖ Answer: D
❖ Answer: A
t 11 Whldl or tho following stalemonts rtal I 10 10
tho unpaid bolanco ol dobl 01 dobtpe nng the duly notarized cortlficatlon from the crod1to< 85 116 Mr. Pobre Is In need of monoy to start a small business. However. he has no property to secure a
a If the Clldrto,, 15ac:orporaoon ~tti decedent Including Interest as of the date Is c:orroc17n(ip31 loan from a bank so he sought the help of hls good friend Mr Rich Mr Rlch then obla1ned a loan
~ r of the CXl!J)OrlllJon • 8 be signed by President or V1ce-Presldont or other po from Banco de Uro amounUng to 1,000,000 sectJred by a real property worth 2,000,000 to

504 sos
 Est«tc~rr
( ~

Pol)l'8 If subSeqUOnl to sao.Jnng the loan and dehvaring lo

l(XXll1ffl)dale the rwquesl ol ~ tlO'N ~ gross estale shOuld be reported? kl,, ❖ Answer: B
Pobr1 tht pnx:eedS._! Rd! ' c PJ.000,000
a P1,000,......., d nR
b. P2.000.000 121. pedro a citizen of the Philippines and resident of .
his gross estate were properties Inherited from hi ~ City, ded testate on May 10. 2019 Among
5
percentage of the deduction would be used in . ased lalher who dltd on Apnl 4, 2016 Whal
'" AllslWr. C; (2J,I • II.I/ a. 60% c. 20% COOlpuling lho ilfOOUnt or vanlshuig deductlon?
. el value or P10,000,000 at the time of the decedent's dealh b. 40% d. nil
111 A pl9Cll! ol land ~ a fatr ~rk ctoser exaJTllnation. you found out that the value used was ne~
rdlled in the t,tlSS 9$1111e. ~ same land. How much shOuld have been induded and ded,.,..~ ❖ Answer: B
P2.000.000 lllP3Jd mortgage on ._, o Tho property was lnhonled from the
fr001 the gross estate? . Amo!!!JI to be deducted decedent's da81h. The vanJshm d...,~~IonllOf mon, IIIM! 1/ne
• . .,, •'>AM 11ft slid bo
►'VOil btftn Ille Pf8Wlt
Amotn lo b e ~ lntOIVQI olAcqU1St5)11 and det(h of (he DWI( 1/tgdtnr 2'
P12.000,000 P2,000,000
a 2-~·000 Wth/n one rest tao%
b P10,000.000 \Vjh/n two ye!ll ~
C. P10,000,000 0 WjhiJ thlff ars 6°"
PB,000.000
d
Wthki five ye1rs ~
122. Mr. Pim Manaw. resident decedent. married. <fled, leaving the ro11ow1ng properties·
Real and personal propert!es acquired during lhe mamage p 3 ooo ooo
Vanishing Deduction .
118. Thf ~ are the reqUISlleS for vanishing deductiOn to be allowable, except one. House and lot inherited from his father one year and 3 monlhs befom ho 2'000'000
a The es1a1e tax of the prior sucx:ession roost have been finally detennined and paid. died (fair mar1<et value when Inherited, P1 ,500,000) used as the ' •
b The present decedent died within five (5) ye~rs from date of death of the_prior de~nl decedent's family home
c. The property W!lh respect to which deduction Is sought can be Identified as having been Car purchased with cash received es gift from his mother during the year 500,000
receM!d by the present decedent from the prior decedent he died
d. Nooe of lhe above Cash (inclusive of P-500,000 received as inhentance from the father) 1,500.000

❖ Answer: D The following obligations and expenses were also made available
Claims against conjugal properties 600,000
119. Ded Nha, a aizEn of the Phippines and resident of Manila died intestate on November 2, 2018. Unpaid mortgage on the inhen1ed house and lot 100,000
Anaig his !1'0SS est;:,: are properties acquired through public sale of properties left by Bernardo (original mortgage was for P600,000)
ah> died 4½ yeas ~ What percentage of deduction will be used In computing the amount of
r.nmg dedlJdiln? How much is the total vanishing dedudlon?
a 60% c. 20% a. P1,000,000 c. P1,530,000
b 40% d nil b. P1 ,080,000 d. nil

❖ Answer. D ❖ Answer: C
o Vam.'lng dldtr.::Col is II/owed ontt I the propetty was acquired through gratu~ous ~f!f
(dDraal rr ~ J The prope,ty., I/us part/cular problem was acquired through pubk W1 '
(ptJDlc a..c:t.o1. ctllt0US llWISfetJ, hence, vanishing deduction is not allowed So/utlO(I,
INHERITANCE FROM THE FATHER:
20 Yh:tl al lhe lalowrig IJll9el1ies of Namayapa Nha Who died on December 1 2020 Is subject to Value lo Take:
House and lot (lower amoont)
Pt,500,000
v.nri,g deductioll? ' 500,000
Cash
Propeny 1 Rest House Vl Tagaytay pon:hased In 2014 Total
P2.000,000
Prcpeny 2 Canmen:ial lol and building inherited from her mother In 2013 where the es!ale Less· Mottgege paid on mOllgage assumed
(500,000)
tax lllereon had not been paid. t,500,000
Initial Basis
~ J Donatm from a fnend In 2015 Less.. Propo,tiona/ de(JudlOII (150,000}
~ 4 Property won '"a lollery six (6) months before death. (t,50Cfl.000 x PT00.000)
P1,350,000
Ans/ Basis

a
~
No
~ ~ Property4 x Vanishing dacfuaJon "
Vanishmg daductJon-/nhentBnce
"°" Pt,080,000
No Yes Yes
b No No Yes No DONATION FROM THE MOTHER: P500,000
C Yes Yes No Yes Value to take/Initial Basis
d Yes Yes No No

507
506
 \
Loss Mortgage paid on mong~ as.iumed
PropOlll(l(lli cWJuci,oll (50,000) fnlf/al8&1s 1500,000/
LtsS (S()IY1,0()/) t PT00,0()/)) P.450,000 Lass· Propot1ional ded1JC11011
6,000.000
100'/4

-
1,450 000 6,000IIB,0001 P2.400,000
fN/8,Sil "
P1,s3oifJ- Final Basis /800,000/
V' ud,duCIJOl11SHINGDEDUCTIONS
' V,m/li')g PS,200.000
11 Vamshlnp deduction %
TOTAi. ''" • ~
Some of the properties he left are the following: Vanishing deduct1011
1'3.120,000
123 Teh Pok died on November 20. 2020 Mar1<et Value
Date Date of CD AJJowable Lossu, mde~edness, taxes am transfvr to, P<JJlic us• /oxcJud,ng tunenil
Mode Dale and jtxJ,aaf 01pa115esJ = PJ,000.000-200,000-400,000 =P2.400,000
Acgulred Acgulred Dealh
of Aooiifsllioll W Funeral and /udlCJaJ expensas wen, repe~ under the TRAIN Law, coru:equently,
Asse! 7-3-16 500,000 350,000 lhosa expend,ur&J shal be excluded In tho computilflOn or dotomunat/on of tM
Land Purchase 800,000 980,000
10-2-19 proporlJon,J ~I/CVCII for V2/IISlting dedue1ion putp0$".S,
Car Donation
W The mOl!gago llll•r r.hentance and contr.Jded by tho preWII d««1ont .nw setli.m&nl
of the m011gage assumed ~nen lnhented 5haR be lr}nonid for P'J'POSfS ofcomputing ,,,.
Other lnformatio1r cedent amounts lo PJ,000,000. vamshmg dedtJC1tor1
th The s~ue/11 mongage has nothklg to do i;,th tho lnherilance or donat,on, honco,
a) Toe gross estate of e ~e F250 000 when ii was acquired and Teh Pok paid the same C!l
b) The car was mortgaged or • wn bo lr;nored III computng lhe af)plicablo l'olfll5hklg doouct1011
befora he died. taled n 325 000 which Includes judicial expenses of
The allowable deducllonS 1O " ' ' 125 Mrs. Nathy Gok died on March 20. 2021 leaving a gross estate of PB0,000,000 mdudlng a land
c) PJO,OOO and funeral expenses of P150,000. · inherited from his unde on October 1~. 2017 and a car donated to him on Apnl 20, 2015 The
following data pertain to the two properties
The vanishing dedudlon is -
C. P648,783
a P581,000 Unpaid Mortgage FMV upon receipt FMV upon death
b P571,000 d. P637,617 Land P1,000,000 Fl18,000,000 P12,500,000
Car 500,000 3,000,000 4,000,000
❖ Answer: B
The decedent was able to pay ½of the unpaid mortgage on the land before hisdealh The deductions
SoUm.
Va,l,e to Take· Car PB00,000 are· 000 000
· Expenses, losses, indebtedness, taxes (exdudlng the unpaid mortgages Fl 12. ,
uss. Afolfgoge paid on morrgage assumed (50,000)
above but induding actual funeral expenses of PJ,000,000 and medical
/nlla/Basis 750,000
Less. Propottmal deducllon expenses of P6,000,000)
751Y3,000r Pt45,000- (36,25()) Transfer lo the Government included above 3,000,000
Fml &szs P726,250 Family home ~nduded above) 20,000,000
t Var,shr,g da6Jdion " 80%
Vamhing deductioo · riheriance P571,000 The allowable vanishing deduction Is:
a. P2,130,000 c. P4,380,000
□ -l.lT= (P325.~.000-IS0,000) =Pt45,000 te of b. P4,260,000 d P6,260,000
Cl Frneral andfl}diaal expenses all! no longer allowed as deduction from gross esta
a deader4 who died on or after the effectivftyof lhe TRAIN Law (Jan. 1, 20'.8) ❖ Answer: C
So/ut,on.
12-4 A decedent lied 111 2021 leaving properties he mhented 2 ½ years ago which had fair mar1<el value Pt2,S00,000
Va/11!1 to TaA'S -Land /IOwet v.we) IISSWIM
Less· Mongage paid on mottgage
/500 000)
ol PS,000,000 at the time of htS death (P6,500,000 at the time of inheritance, and unpaid mort~ t2,000,000
ol PS00,000 paid by the present decedent) After inhentance, the decedent mortgages the.prope el lnilla/Baszs
for PS00,000 and paid the same before his death. Other properties m his gross estate had fair rnatkl)lic Less: Propott,onalckductlon _
, 2. ~.000 x P1.ooo ooo (1 ,050.000)
vakie of PIO 000,000 The total expenses, losses, indebtedness, taxes and transfer for pu PI0.950.000
IUPOSI! iilTUlllsd to PJ,000,000 Expenses 1named, which were included in the PJ,000,000, ~
Frna/Baszs
P200 000 for fl.nefal eXl)e!lseS and P400,000 f°' judicial expenses.
r Van,s/wlg ~ 1' 4°"
P4 31KJ.000
Vanishing dedllctlon
How rruch IS !he varishr,g dedlldion?
a P2,000,000 0 "Corrected LJTa • TFPU Pt2.000,000
c. PJ,000,000 UTe • unad}u5led
b P2,750,000
d PJ,120,000 ADD 500,000
Unpaid mortgage on land 500000
Unpaid motTgage on the I#
LESS' 11000.0001
P6,SOO,OOO F111eral expenses

509
 ,...,,,...~
ADJUSTED UT•
(6,000,000)
P4.000,000
l000.000 ❖ Answer: C
ADD TFPU • PT,000,000
ADJUSTED UTt tnd TFf'tf
Claim Against Insolvent Persona
th8 preceding number Is: 131 . Which statement ls Incorrect about claims against insolvent persons?
126 The taxable net e.stJte baS6d on c P53,620,000 a. They must be Included In the gross estate even II Uncollecbble
a P2,174,000 d. P52,000,000 b. They must be duly notarized as a rule.
b P40,000,000 c. The deduction is only the uncollectible P0rtlon
d The Insolvency of the debtor must be established
❖ Answer: C PB0,000,000
GIOSS ts/llf
(4,000,000} ❖ Anaw1r: B
A4Wted UTe
Tl'lflSlel lot Public Use (3,000,000}
{4,380,000)
v~C)MJCtJOn
(5,000,000}
132. Statement 1= In 8 claim against insolvent person, the Insolvency al the dobtor must be proven and
Standlll!f Deduct/Ofl not merely alleged.
Hltf1r//-lome (10,000,000)
PSJ.620,000 Slatoment 2: II could be Iha! the amount lo be Included as part of the gross esiate os a clalm
Taxable Ne/ £stale against Insolvent person Is less than the Mt amount owed
a. Only statement 1 ls CO/Ted
127 Varwshmg deduction on properties received from gratuitous transfer belore marriage shall be b. Only statement 2 ls COITeCt
dasslfied as. c. Both statements are COITeCt
Absolute C.ommunily Property Con[uqal Partnership of Gains d. Both statements are Incorrect
a Coovnunity Conjugal
b Exclusive Exclusive ❖ Answer: A
C. Community Exclusive
d ExclUSlVe Conjugal 133. The following data were taken from the estate of Pedro·
Claims against Juan (Insolvent), PI00,000, fully uncolleclible
❖ Answer. C Claims against Manuel r111S01vent). P200,000. 50% co«ecllble
o Tm c.lass.i'italD! of /he deduction wiM depend on the classification of the property. Claims against a person who absconded. PJ00,000
o Propeny be/Oil! mamage. AC-OP= Communily; CPG = Exclusive
Based on the data provided, how much should be deducted from Pedro's gross estate?
128. Vanishing deduction on properties received from gratuitous transfer during marriage shall be a. P600,000 c. P200,000
dassified as:
Absolule Community Property Confugal Partnership of Gains
b. PS00,000 d. ml
a Cortrnunity Conjugal
b. ❖ Answer: C
Exclusive Exclusive o Allowable dedlJdion =mcaivilble from Jual1 and SOM rteelvable from l.liOOtl =P200.<XXJ
C. Comiiunlty Exclusive o A per3on l'i~O absconded Is a pelSOfl Mho ~ or /UllilWIIY, nol an msolvonl po=
d Exclusive Conjugal
,_. Answer: B 134. One of the following statements is inconecl.. Claims against insolvent persons
a. Should always be mcluded In the gross estate.
129 b. If entirely uncollectlble, may be omitted In the computation for the ne1 taxable estate
~i~mamed under the conjugal partnership of gains, vanishing deduction shall be c. Can give rise to reducllon even if the deb!of had some properties
d. Can be a deductlon even if secured by a mortgage
a ExclllSM! Properties
❖ Answer: B
b. ConJugal Properties
c Either Exclusive Properties or Conjugal Properties

❖
d Neither Exclusive nor Conjugal Properties
Answtr: A
whose =:s
135. The gross estate of Juan lndudes PB0,000 receivables which Is duly notarized from deblol Pedro
show:
Indebtedness to:
PIOO,OOO

130 • Government (unpaid taxes) 40,000

~olowmg are required 10 be fisted as part of the gross estate, but are exempted from 85tate tat. • Juan
60,000
20.000
a Shaie of the SUIVMng spouse • Other aedrtors
b. Transler for public use
c. Exclusive property of the decedent The deductible claims against Insolvent person 15
d Amount receNe(l by heirs under RA 4917 a. P29,285 c. P48,000

510 511
 Esarte %{
d PB0,000 b. The total value of the family home must be Incl
b P32,000
c. For purposes11f availing ra11111y homo dell . Uded as pan or the gross estate of the decedeot
❖ Answ.r. B PI00,000
Juan ·s ruce,vab/e from d. Family home deductJon may not be ,... ___uctithaon, 8 person may cons11tuto only one famdy home
=Id Ur:# to
(priorlfti
1M govommenl (40,000)
pe(J,o
X un:;ol/ect/b/e port/on
VJ)P-,
❖ Answer: D
"""" n Pl0,000,000
P6(),000
A~IISS'IS (100%-60¾)
Pt00,000 Uncollectible Portion - Claim ~ 139 Adecedent died on Nov. 1. 2020 le_avtng a fallily home composed of the following Conjugal house
OMdt by ,em,nr,g Jiat,,li//es Against Insolvent Persons PJ
worth PS,000,000, and ~ laod which he exduslvely owned valued at 124,000,000 He also owns a
Collc:tille " ofreceivables
60% ~ vacaUon house In Baguio worth P7,000,000 The deduCIJble amount of 1anv1y home Is
a. PS,000,000 c P12.000.000
b. P10.000,000 d. P19,000,000
SPECIAL DEDUCTIONS
❖ Answer. A ; Allowable FH =(PB.000,00MJ • 4,000.000 = PB.000,000
Standard Deduction rdlng standard deduction under the TRAIN LAW, except:
136 The lollowmg statements are cooec1PS~ 000 shall be allowed as an additional deduction without
a. A deduction In the amoun 1 1 ° •· 140. Based on the preceding number, if the house Is also an exdusM1 property, how much
deductlble family home allowance?
is the

c. P12.000,000
b
c..
~· ,
· 000 .~.11 be allowed as deduction for the benefit of the decedent
need of subslanliaf~OOO
The lull amount o "'ia 'd t 1·
Standard deduction Is not allowed 10 decedents who are nonresI en a 1ens.
a. PS,000,000
b. Pl0,000,000 d. P19,000,000
d. None of the above ❖ Answer. B (Allowable FH =PB.000,000 +,.000.000 =P12.000.000, mu= PfO.(IQ(),00<>,
❖ Answer: C 141. rn 2021, a married, nonresident citizen dee.eden! has the followlng common properties, obhgabons.
PRIOR TO 2018 and expenses
0 ~ orly to abzen and resident decedents.
0 Deductible amount= P1.000,000 Real property, Philippines P40,000,000
F« decedents ~ died on or aner January 1, 201 B: Real property, USA 50,000,000.
0 ADabll! orly aJ dec8dents (citizens, residents and NRAs) Funeral expenses 700,000
0 Dedudi,le amcxn: Judicial expenses 800,000
Ciflzen and Resident Decedent= PS.000,000 Indebtedness 3,000,000
NRA Decedent = P500.000 Unpaid taxes 1,000,000
o Soostanbation requnments = none
Unpaid medical expenses 2,000,000
137. /IJ of the foftowlng rtems are allowed as deductions against exclusive portion of the ~state, excepl
The real property in the Philippmes includes the family home valued at P15,000.000 How
a Taxes
much Is the taxable net estate?
b Clams against insolvent persons
a. P26,000,000 c. PJ0,500,000
c.. Share of the surviving spouse
b P28,000,000 d P33,000,000
d Family home
❖ Answer. C
❖ Answer. C
o Shara ofthe SUMVJng spouse as weB 11s specsa/ deductions il/8 not deductible under 'excluSNS •ntY
·common· pt0pe11y ollhe decedeti/ Solution:
Gross Estate
Real property, ~ P40,000.000
Family Home (FH) 50.000.000
Real property, USA
BEGINNING JANUARY 1, 2018· P90,000.000
Total
For ~ t s ~ died on or after January 1, 201B· Less.
o A.llowablo only to claen and resident decooenls wtx, am mamed orhead ofthe family Indebtedness (3,000,000)
o ~amount= Actual FMVof Iha FH but not to exceed PI0,000,000 I 1)(11 Unpaid taxes (t.000.000} (4,000.000)
0 P86.000,000
If the FH is purely common, rts FMV shan be divldod by two but the doductible amount sha Net common estate
o.
exceed the rmt of Pt 000,000 ,ml
Less:
0 (43.000,000
If the FH IS /l'Jf'e/y e,cluslva. the deduelible amount shall be tts entire FMV but not exceed !he Share of survrving Sp0(JS8 (86Mf2}
ol Pt0,000.000 (7,500,000}
Family Home (15IH2J
If the FH IS Pai11Y exausr.,, and PIIJl/y common. the deductible amount shall be the tolal ~
0 (5.000.000}
Standard DedudlOII ~ .500.000
cximmon and e.tclus,,e FH as descnbe 111 the preceding paragmphs, but its tolal a/lolf3bls Net taxab/11 estate
611111 not =eed the lmd ol Pt0,000,000

138
~Fof the folow!ng Slalements Is Incorrect In connection with famlly home deduction? • nes
~ followmg data for the next three 13/ ques/JOIISmamed
013
dbZBO decedent who died on Janua,y 2021
follOWing lnlormalion were from the estate
amly home deduction shall be allowed only 11 such family home Is situated in the PhiTipPI Property:

512 513
 Est/lf~ T~
12,000.000 Es&de 'tit(
~IIT"e~ ~ 6,-Sat;IJ~ marriage . 6,000,000 Real property in Batangas, inherited by Mr. Musay duri ma
~ ,..esec~ cl\«lend earned ~ mamage 1,000,000 trorn his late father. The fair marl<et value per lax declaration~ mage
· ·1s P12 •ooo,000. Said
h' , two and hall years ago,
~~ as '\8)85 ago rimimamage
1,000,000 the zonal valuation as o1!axed
· propeny was previou•"' ,s death Is PS·000·000 wtule
w11en Mr. Musay inherited !he property from his father ~, at avalue of P10.000.00
~ 4,000,000
011:l ..-,s1 Irle estJII! 1,000,000
Fum~ 500.000 Real property i_
n Cavite, donated to Mrs. Musay, 10 years ago (before marriage) by his parents-
In-law . Toe fair marl<et value as per latest lax declaration as of !he b M M , d th
Is pJ,000,00 while !he zonal valuation is P4,000,000. me OI ' usay s ea
~

Qther exclusive properties of Mr. Musay P1,000,000; . Other properties of Mr. and Mrs. Musay-
••1. ll1dlr ~ ~ d g . n s . ~ : ' t ~ i s PJ,000,000. Funeral expenses incurred by the estate during the wake and bunal of Mr Musay
a. P13.00J.O'.Xl c. • ' amounted to P1 ,900,000.
P12.00l.CXKI d P6,00).00)
,, Ans--= A 145. Compute item 34 (Gross Estate) of BIR form no. 1801
a. P28,500,000 c. PJ0,000,000
!'-l The ') st1ae dale sumw19 spouse isPS.,.,,..,, OO b. P32,500,000 d. P40,000,000
&. P6.00l (XX) C. uvu,
b. P-!.:00.00l d. P3,00),000 ❖ Answer: D
~ ~B
146. Compute Schedule V (Ordinary deductions) of BIR Form no. 0801
1'44 The net taxable es1:a1e or the dec:edenl is
a P600.ro:J c. PS00,000 a. PS,000,000 c. P12,000,000
b P575.000 d P475,000 b. P10,250,000 d PS,500,000
,:, Answer: C
~ !&!!i!!W. ~ ❖ Answer: B; (Total o1 the mot1gag! pay;t,1e an11 ~ dedudJOn)
Gross~
FMnir hoa-ol! P12,000,000 147. Compute item 40 (Net Taxable Estate) of BIR from no. 1801
Dome.sx.sllams P6,000.000
Sri d!,pcsi (n::teSt Yned) 1,000,000
a. P3,750,000 c. P29,750,000
-'--1ty 1.000 000 b. P13,750,000 d. PO
Toal P7,000,000 PfJ,000,000 P20.000,00'J
Deducoor,s.
❖ Answer: A
can .1gilmt Jti., estate (4,000,000) /4,000.00lJ
Nr,(estaret,em~~ P7,000,000 P9,000.000 P16,000,00'J
S:>eea/O!!d!QYJS 148. Compute item 20 (Estate Tax Payable) or BIR from no. 1801.
Sfaldilltl dedudion (5,000,(l)JJ a. P225,000 c. P1,785,000
Famly Home (12000,000l2} (6,000,IXIJI b. P825,000 d. PO
51w, oltM •UTYMng spouu t~~
N« uaJw nut.
~ ❖ Answer: A
Use the following data for the next four (4) questions: .. Solution
&elusive Common To/a/
M<. Pim Musay. Flllpino and married, died in 2021, leaving his estate in favor of his survWll19
spouse The following information were made available: P20,000,000
RPQC
RPBatangas Pl2,000,000
4,000.000
Real property in Quezon City, acquired durlng marriage. Said property is support~d by:. RPCal'ite
Otherexcl ,.000.000
barangay certificabon that the spouses resided in this property at the time of Mr. Musay 5 ~u,e 3,000,000
Other common P27,000.000 P40,000,000
The fair marl<et value of this property as per latest tax declaration is P15,000,000 while e P22.000,000
GROSS ESTATE
~onal valuation as or !he time death Is p 20,000,000. Said real property was held as a
3
mortri ORDINARY DEDUCTIONS· (5,000,000) (5,000.000)
tn loan appjled by the spouses. As of the lime of death, the outstanding balance 0 Mortgage Payable
/5.250.000)" (5.250.000)
mortgage payable amounted to PS,000,000. Vanishing deduction P22.000.000 P29,750,000
P7,750,000
NET ESTATE (11.000.000}
Share of the SS (5.000.000}
Standard deduction

515
514
F,mly Home (P20Ml2}
NET TAXABLE ESTATE
Esta(e u,r ntlt
ESTATE TAX DUE/PAYABLE
P10,000,000
.-----
Estate Tax Return
--·--=·=-~=:::.-::-----·
....._
Value to takMnlfJBI bllsls
f'rr¥)ol1iollal decfuct/oll:
(1,250,000}
10/40 x PS,000,000
PB,750,000
Final Basis 60%
X
VanWung Deduction
PS,250,000"

"1111Tien. ....... _ , ____-. , _ _.,,.,..

517
516
 Esmt& 't«t
149 Bonifacio. head of family died on Janua,y 15 2021 lea
Cash In bank, 50%, donaled mortis ca~sa t ·Nauv!Govtng~ foltowing properties and obllgaUOos·
1801 Estate Tax Return House and lot in Makall, F. Home
O
,50-%lo O C gov't PJ,000,000
Personal properties 15.000.000
Farm lol 15.000.000
Claim against an insolvent debtor 8,250,000
Transfer in contamplation of death (gratui1ous) 2.250,000
15
Transfer passing under special power of appaintmenl •: ::

DEDUCTIONS CLAIMED:
Funeral expenses
5,750,000
Judicial expenses
675,000
Donayon mortls causa lo Ouezon City government 1,500,000
Unpard mortgage on the farm lot 750.000
Medi~! expenses Qncluded In the funeral expenses Incurred wflhln the 1 year 2.250,000
pe~ wllh receipts) •

The farm lot was Inherited 5 ½ yeais by the dealdenl before his death with a value then of
PS,750,000 and a mortgage Indebtedness of P1 ,500,000 The taxable net estate Is·
a. P26,720,000 c. P41,500,000
b. P37,500,000 d. PS0,500,000

❖ Answer: B
Solution:
TFPU (Calh in bitlk, OC and Natl Gov!) PJ.000.000
Family Home 15,000,000
Persooa/ properties 15,000,000
Farm lot 8,250,000
Claim against an lnSONen/ debtor 2.250,000
Tmnsfer In ccntemp/lbon of death (gn/litovJ) 15,000,000
Transfer pas.sing under 5p«ie/ pawtl o/ apporlJMnl

DEDUCTIONS CUJI.IED·
TFPU fJ,000,000)
Claim against an lnsolvenl dtbwl (2,250.000)
Unp,ld mortg,g, on the farm lot (150,000)
Standard dtdvctixl (6,000,000)
Family Home (10,000,000}
Ntl Tuable EJ/lllt P31.500.000

150. Which of the following Is deducllble from Ille gross estate of a non-resklont alien decedent?
a. Funeral and judfdal expenses
b. Death benefits under RA 4917
c. Family home allowance
d. None of the above

❖ Anawer: D
151 All f nol deductible from tho gross estate or a non-resident alien

------- =~-----~
------------=- -------
..................
· o the following, except one, are
a Funeral and judicial expenses
b. Death benefits under RA 4917
c. Family home allowance

519
518
 d. StalClafd de(M:tal a. PJ,000,000 C. PS,047,619
b. P6,049,110
d. PS,000,000
~ AnswK-0
❖ Answer. C
One at -- ~ car,o1 be aamed as dedudiOn from the gross estate of a non-resident
152 dl!a!dl,1t aieo 157. Deductible vanishing deduction shaR be
a. Vn;tw,g de(iJCll0ll a. PO p
b P3 352,050 c. 4,523,810
b Medc:ale,q,enses . ' d. PS,452,050
c.. ~ a t ~ spouse
d. Transierftrpldi:US8 ❖ Answer. C

❖ Answr:B 158. Net taxable estate is

a. P18,547,950 c. P40,000,000
153. One at lhe ~ is al1wed as a dedudion from the gross estate of a non-resident alien decedent b. P20,498,840 d. P42,928,571
but tS pnnted between Pliipprle gross estate and the total or world gross estate:
a. Losses. r1debledness ard taxes ❖ Answer. D
b Sh.ft ol the SllViw1g spouse I.BndlnOC P20,000,000
c.. v~deciJdion Jewelries S.000.000
d Amoln l1!C2lved lllCler RA 4917 Family home 15,000,000
Vehicles B.000,000
CfaJms against moMnt pmon 5,000.000
~ Answer: A Total Gross Estate, Phipplr,es PSJ,000,000
Less: Allowable Deductions.
154 One ol the lolowi1g is nc4 aDo-Mld as a deduction from the gross estate of a non-resident Alow!lbleUT
ilien decedent P53,000 / 63,000 I 1'6,000.000" (S.IUT,619"}
a. transfer ftr public use c. share of the surviving spouse Vanishing De<i.dlons'" (4,523.810}
b standard dedudion d. lamlly home Slandanf Dewctlon (500,000}
NET TAXABLE ESTATE P42.928,671
v Answ.r. D "UT:
Claims against insolwnt person 5,000,000
Losses 1,000,000
Total 1'6,000,000
Use the bbmo data for the next four /4/ questions:
Sarah,
Land In Davaoof China and a Chinese clttzen d'ed
a resident I Iast July 4, 2021 . the following properties:
leaving "'VANISHNG DEDUCTIONS
Rest house China P20,000,000 Value to takellnl!ial Basis (jewelry) PS,000,000
111 Propo,tlonal or 2n' deduclion /476, 190)
Jewelnes recelwd from friend 10,000,000 (5,000'53,000 x 5,IUT,619}
Famiy Home a a week before her death 5,000,000
Final Bssis 4,523.810
Vehicles 15,000,000 mle I OOff
8,000,000 VanWring dedvction P4,S23.BI0
TheF~~ants or Sarah dalmed the following deductions·
...,,.., expenses iiihe following data for /he next three /31questiol\S:
Clams against lllSOlvent persons
PJ,000,000
5,000,000
I.DOIHllidentAmmlcal.dildCIIIMff. ~
losses Exclusive propertles, Philippines 115,600,000
Medal expenses 1,000,000 Conjugal properties, Phlllppmes 4,200,000
Family home 2,000,000 Conjugal properties, Abroad 18,200,000
Standard dedlldJOns 15,000,000 Claims against Insolvent persons 1,000,000
5,000,000 Funeral expenses 200,000
155 The gross estate Is Judicial expenses 850,000
a P48,000,000 Claims against the estate 1,500,000
b PSJ,000,000
c. PSS,000,000 Losses: occurring 8 mos. after death due to fire 1,700,000
d P63,000,000 Donation mol1ls causa to MakaU City Hall 1,800,000
❖ Amwer. B Family Home (Inc. above), located abroad I0.000,000
000
Standard deduc1Jon 10,000,
156 Total Lile to be deducted 1
rom the grou estate 159· The taxable net estate Is.

521
520
 Esl,tI ( Tl'lc
c. P',981,250 b. Only statement 2 is correct
a P5. 165.000 d P21,000,000 Both statements are correct
C.
b ~ 665.000 Both statements are Incorrect
d.
~ AnsMr: B f.n;Asttt ~ IRll/ ~ Answer: C
PS.600.000 P4,200.000 PU00.000
Glos$ . . . ,rr:" (1,410.000)
~ ~ u ,f tS3. Stslemflnt 1: This deduction Is allowed by law to lessen the ha1Shno I
,.
Tff'CJ- Mlli8 _jk~'·aoo.~im.~IXX>/
000rf---;;P2.;-:1JO,ijj
~ ,ooom"" 1'6.530,ooo
(500,000)
taxation where the same estate Is being subtect to both the ,_._ eSla~
estate tax. ·~"'ll"
°.ax"~~
0 ro""t'I"'"'
Slsda'D~ (1,365,000)
Sl'wwd,_ ~ spcxs Stsfemfln/ 2: ~ n t alien decedents are not entitled to estate tax aedlt
P4,665,000 a. Only statement 1 IS correct
Hllra.QblttstJII
b. Only statement 2 ls c:ooect
c. Both statements are correct
Cllms~hsoMll!petSOM
Pl,000,000 d. Both statements are incorrect
cams~111eestJ1.t 1,500,000
Losses 1.700,000 ❖ Answer: C
Tctll P-4,200,000
9.8128
%
Pl.470,000" 164. Statement 1: An estate tax credit IS allowed as deduction from the estate tax due If the decedent at
~ Propo,rmll L/Te
the lime of his death was a resident citizen of a lorelgn country whk:h at the time or his death did no1
SltldMd de(M:tJOII al PS00,000 is alow9d as dedllc/ion from the gross estate of NRA d ~ impose an estate tax of any character in respect of intangble personal property ot citizens of the
0
ITlder the TRJJN Law.
Philippines not resi<fmg In that forelg1 country
0 CLAM AGANST INSOLVENTPERSONS (CAIPJ. Since Ille problem alrvedy cJBSSified the gro.ss Statement 2: An estate tax creda is allowed as dedudJon from the estate tax due if the laws ol the
,stn nto eJCils/';e 111d COlllfflOM%lffllJl1ilylconjugat. nshaR be assumed that the CAJP was foreign country of which the dea!dent was a resident citizen at the lime ol his death allow a S1m1lar
WNdy rd»ed 11 ~ categories (genenilly common). Thus, the CAJP shall no longer be exempllon from estate taxes of every character, In respect ol intangible pe(SONII property owned by
~ shown in the compcAation of the Gross Es/ale. However, It shall be included I, the citizens of the Phinppines not resialOQ In that foreign coootry.
comput.ml o/ allwable cledudion a. Only statement 1Is correct
b. Only statement 2 Is c:ooect
ESTATE TAX CREDIT c. Both statements are cooect
d. Both statements are Incorrect
160 Slatement 1: Estate Tax Cll!dit refers to the taxpayer's right to deduct from the tax due the amount
ol tax tt has paid to a foraign country. ❖ Answer: D
Statement 2 Estate Tax credit could be claimed as a deduction if such taxes pertain to properties
wlltcll are Included In the gross estale for Philippine estate tax computaUon. 16!>. Which of the following is not allowed w,th tax Cll!dit for payments of estate tax on foreign countnes?
a. Only statement 1 ls correct a, A resident alien
b Only statement 2 Is correct b. A non resident citizen
c. Both statements are c:ooect c. An alien who was a resident of his own country at the date ol death
d. Both stalements are Incorrect d. An American residing In the Phil ippines at the date of death
❖ AnlWtr. C
❖ Answer: C
161. In a>mpu1ing the estate tax, which of the followtng shall not be allowed tax credit for taxes paid
166. Statement 1· Tax aedit for foreign estate tax Is allowed to minimize the elfed of multJpllcrty of situs
abroad?
a Resident alien decedent
i,
Statement Tax aedlt tor foreign estate tax Is allowed to minimize the effect of IOdlrect double
taxation.
b Non-rask!ent alien decedent a. Only statement 1 Is correcl
c Resident cillzen decedent
b. Only statement 2 ls correcl
d Hoo-resident citizen decedent
c. Both statements are COIT8Cl
~ Answ.r. B d. Both statements are lnconad

162 1 ❖ Answer: C
: : . ~ ~:;:te Tax _credit refers to the ~ r ' s right to deduct from the tax due the amount
,_, a IN'Ainn country'
Slat1m1111 2 Esta --..,.,
Wtilcll ll8 lndllded':8 ~ credit could be claimed as a deduction If such taxes pertain to proper1le
=:
5

• Only stateme: 1is

sta te for Philippine estate tax computaUon. TAJ( CREDIT -1 FOREIGN COUNTRY ONLY

522 523
 a. P270,000
esudc 'Ztc:
c. P217,500
Nexr lltO (2)a,moons 8tJ' based 011 the ~ b. P315,000
d P232.500
A Clllzen-de(:edet dll!d with the foftoWlng . Philippines USA
P4,400,000 ❖ Answer. D
?14,200,000 GIDSS E.stafe
Gross Estate 6,400,000 2,200,000 Allowable deductions P32.250,000
AMowable DedudionS Taxable Net Eslafe (24.750,000)
(exdudlll9 standard deduction) 150,000 PT,!,()(),000
Estate tax paid ESTATE TAX DUE (PT.SMx6"J
.~....., in the Phmppines assuming the decedent Is a l100-re•1,1,..• Less: Allowable Tax C!8Cf,/ P450,000
167. How nu:t1 Is the estate tax pa,_., """"n LIMIT 1
c:imn? China= l,500IT,500 x P450.000 L!IlJt 6'!llil Mlm!1
c. P168,000 Japan = No estate fax paym"'
P90,000 P37,5(/(/ P37,5(X}
a P132,000
d. P300,000 USA= 3, 750/7,500 x P4r,(J,OOO
b P150,000 225,000 180,000 180000
TOTAL LIMIT 1
P2l7,500
~ Answer. C
GIOSS es/119 (lllfhin ,nd wt/)(M) PIB,600,000 LIMIT 2 (All lorelgn countries)
Al<,wable deductiollS eJCAl(/ing standard deduction (8,600,000) China, Japan, USA
Sfanc/ltd deductJJn /5,000,00Jll.. = 4,500/7,SOO x P450,000 270,000 217,500 217.500
TIJ'lble Net Estlle PS,000,000
ALLOWABLE TAX CREDIT Oo-J (217,500)
Esllte Tu Due (P5M X 6%} PJ00,000 ESTATE TAX PAYABLE P232,500
Less: Estate Tu Oedi:
Estate tu plld in abroad P150,000 III FORMULA FOR ESTATE TAX CREDIT Ylfletl m019 than one (1) be,gn aiun1nes 11111 iwot.ed
is Uni= (2.2(»'5,000 x P300,000} 132,000 LIMIT 1: (Per Fort,ign Cotnlyw!'ffl lhenl was estate tax pald).
Al:lwll>le Tar Cn1di (LOWER IJ/T/00/ll) (132,000) Net estate, per lorllgn f'hllipi1e !SIiia tax
Estate Tax Payable Pt68.000 Ne1 estate, -1d

W FORMULA FOR ESTATE TAX CREDIT where only one (1) loreign country is invo!Yed. LIMIT 2: (Total ol Ail foreign CXUllneS irMll'l!d)
Nel estala. foreign x Philippine estate tax Net estale, al foreign o:M1lnes l ~ eslalll tu

Net estate, v«ll1d Net estate, -1d

168 How mud1 Is the estate tax payable in the Phnippines assuming the decedent is a non-resident alien?
a P150,000 c. PJ00,000 COMPLIANCE REQUIREMENTS
b. P168,000 d. P438,000
170. Statement 1: The estate tax Imposed lllder the Tax Code shall be paid by the exeartor or
❖ Answer: D administrator before the derrvery of the distributive share In the Inheritance lo anyheir or benerldary
Gross estate (wthin only) P14,200,000
Allwable deductions exclud11g standatd deduciion (6,400,000) Stateme~t 2: The executor or adr!inistrator or arrestate has the primary obrigatioo 10 pay the estate
Stllldanldedudm {500,000} tax but the heir or beneficiary has ~ liability lor paying lhat p0l1lon of the estate
Taable Net Estate PT,300,000 corresponding to his distributive share in the value of the total net estate.
a. Only statement 1 Is correct
Estate Tu Due (PT.3M x 6%} P438,000 b. Only statement 2 ls correct
W NRA decedents are not WJtlled to estate tax creefd c. Both statements are correct
~ The SIWICW!I deduction for NRA decfdents under the TRAIN Law is PS00,000 ontf. d. Both statements are Incorrect
TAX CREDIT - MORE TitAN ONE (1) FOREIGN COUNTRIES •!• Answer: C
169· 1k Naiahmk, citizen decedenl died on Apnl 10, 2019 with the following data: 171. Lolo Sot died in 2020 leaV1ng a gross estite amolJlbng to P1,500,000. No estate tax is due based
on the tax code as amended under the TRAIN Law. Toe gross estate Is ~ of a ~lcle
I
.
Phillppr,es
Oilna
Gross Estate
P18,750,000
3000000
Allowable
Deductions
P15 750 000
' '
Estate tax
paid
p..
Worth PS00,000.'shares of stocks valued at PSOO,OOOard
believes that only nobce or death shoOld be-filed since
u::e~= ~~~~~
9

Japan 4'500' 1,500,000 37,500 tax. What will you tell him? ha lo be filed becaUSll the gross eslale exceeds
USA ' ,OOO 5,250,000 . a. Notioe ol death and estate taX return~ of reglslered or registrable properties, estate tax
5,ooo,000 2,250,000 180,000 P200 ODO and when the gross estate estate
is req~ired to be filed regardless of the value of the gross ·
The estate tax payable mthe Phillppmes should be:

525
524
 Estate, lo
~
· ulred 10 be filed t>ecause the gross estate exceeds P20o 000 i:.._ d. Wrthin one (1) yea, alter dealh
b. Only notice or ~th is reqbe flied_.., when the gross estate exceeds P200,000 ~or-~
laX return Is reqlired to "'"' • ""e Is
❖ Answer. D
estale laX due. th estate tax return need to be filed In this particular case
c. Neither notice of dea nor • ·
d Only estate tax return has to be filed 17s. An estate tax return Is not necessary In the fn11n...- •
a. Donation of PS00.000 ClSh -~"•'II illSlance
b. Transfer of molor vehicle valued al P1 300 000
❖ Answer:
O
D .,_.,,, ofthe TRAIN I.BW
The dtcedfnl dJed upon ,,,.,..,,.y c. Both ·a· and "b" ' '
NOTICE OF DEATH: d. Neither ·a· nor "b.
No longer raqulrtd ll1def the TRAIN Law
❖ Answer: A
ESTATE TAX RETURN:
When Requlr9d?
• In au cases 1ubjed to estlle 1aX • m. Statement 1:The Commssiooeroranyoflhe Revenue Officer . .
Regardle1S o1 lhe amount of lhe gross eslate, where it conmts of real 01 Code shall have the authority lo granl In mentorioos authorized by him pursuant IO the tax
thirty (30) days for fifing the return. cases, a reasonable extension not exceeding
reglslrable proper1les.

172. A decedent died upon the effectlvily of the TRAIN Law, under which of the following situaUons an •
eslate laX return Is not required to be filed?
a. Tramfors which are subjec1 to estate lax.
Statement 2: The application for the extension o( 1Jme 1o file the estate tax tum
the RDO where the estata Is required lo seo.n ils TIN and file tax rebxn of~ e=. t be filed with

b. Tho estate consists or n,glstered or registrable properties for which a clearance from the BIR a. Only statament 1 Is COIT8d
Is required es a c:ondlllon precedent for the transfer of ownership. b. Only statement 2 ls COIT8d
c. Tho gross value of the estate c:onslsUng or non-registrable properties does not exceed c. Both statements are o:irrect
PS,000,000. d. Both stalements are lncooed
d. None or the above
❖ Answer: C
❖ Anawer: C
178. Extension for the payment or the estate tax shal be alowed on the ground or:
173. Who shall file the estate tax return? o. Undue hardship upon tho estate or any ol lhe heii,
o. Executor, or administrator, or any of the legal heirs b. Negllgonca
b. CredltO!S or the decedent c. lntenllonal disregard of rules and regufabons
c. Personal soaetary or the decedent d. Fraud
d Debtors or the decedent
❖ Answer. A
❖ Anawor: A
179. Tho Commissioner, on meritorious cases. may extend the Ume for paymonl of estalo tax·
174. TI10 Estato Tox Rotum shall bo flied ond pi!yment mado with
In caso the estalo Is settled In case the estate Is
0 An Aulhonzod Agont Bonk (AAB) or tho Revenuo District Office (RDO) having jurisdlctJon over
judicially sellled em-)udldally
U10 ptaco of resldonce or the docedont ot tho limo or hls/hor doath. 5 years
b, 11 Uioro Is no MB within tho resldonco or tho decedon~ tho Estato Tax Return must be filed o. 5 years
0nd th0 payment mado with tho Rovonuo Colloctlon Officer or duly Aulhorizod City or Municipal b. 2years 2 )'8lll1
c. Syears 2 ye,11
Troosurer ol the RDO having Jurisdiction ovor tho place or rosldonco of tho docodenl. 5years
c II th0 roqulrod ftlor hos no logo! residence In tho Phlllpplnoa, tho Estato Tax roturn will bO filed d. 2 years
: : the Offico of the Convnlsaloner 01 In the Phlllpplno Embassy or Consulate In the COUllllY
d All ~ :
0
0
0
::®"' wns rosldtng 01 tho limo or his or hor doath.
❖ Anawtr: C
180. When on eslate ts settled extraiudlclaJly. the estate tax relum may be filed and the eslate tax paid
~ An1w1r: D o. By ony of the heirs, with a right ol relmbul'8mtnt lrom the other heirs
b, Only by tho heir with outholity from the other heirs
c. By each or tho heirs, the payment being for his dlstribullve sharo In the estale IIIX.
175 11 the dOcodont died on or 811 J d The eldosl or tho heir, and closeSI In relatlonlhiP 10 lhO docodonl
o. At the umo of doolh or nnuary 1, 2018, tho ostale tax return should be nted
b Wllhln 30 days aflur doalh <• Anawtr. A
c Within su monlhs anur donU1

527
526
 E.s&ue 'l;t
E..,t,tle 7,~

...--
B 111 ~ 1 2021 wtlidl was questiOned by C 111d h la The CIR may exarrn lht i.. dtP0ll1 r, 1
If! A clMl ~ I ,..- .-.d The last day ftt~
101 b
!_ aXIQllld an extra-judldll seltlemenl 1s1111 even if 1ht 151111 dlCI not ~for ~ for,. ~ at ONm■■IO ,_ IJlt)N
~-~ -~ The shlnng of htlri In 1eslMltn 1
~w• on Iha P"' ol ~ WQPeClly
~~""!..':"1"'
C
. . . . Ill ,a,TI ~ r, ()dober 1 2021
I . . 3) 202! d .,......,31 °2022 d II an IXIIOSIOfl to piy Iha nAae on.,.
b "fllA lO, 2aZ2 _ .., • .,.._, •• ~ or his dlAy IUlllonZ9cl
111presenlaUY1 rTll'f l'IQUll9 lht ldllhltralo, Ot IXICID or btnllk:a,y 10 flaNlfl I bond In
such amount exCMdllg double lht IITlOunl of lhe ID .., wtll ~ ...,... • u.
~ Aft1wW: 0 , (RR 12~11, Commls,loner deems necwury ~
lhe llrms ol tht txtll1Slon upon "'PIYffla\t o/ a llJ'" ICOOl'dln0e •
112 Thi 11110., tor Ill IJIYITSlt d . . - tax may be extended. until,
~ 1 2aZ2 c. Oaobet 1, 2024 ❖ Anawtr: D; (RR 12,2018)
~ Mstn Jt.'202• d Mstl'l 31, 2025 0 T1>t lllflOCIII ofthe bond 1111111111 be - flerl ~ . . _,.di.lie••

.o, ~B 1!7 Stllemtnl 1 My amount paid beyond lht Sl&JIDly cl.- dla ol hi... 11u1 ~ Ill .__,,..
C. e:.--,.,,.,.... ,.,. ptnod, Shall bl subject lo fnlllwl but nol lo uttla/gt
• ~ ~ • 2 yen tom apnlion of fie onglnal due date
s
~ 11111d ~ ,en tom upntion ol Jhe originll due dale
Stlttm«lt 2 No extension 1or paymentol etQll tax lhll1 bt gqnr,d wllll'I I l l a ~ lot__,,_,
Is by r1aS011 of negGganca, Jnllnlionll dingal'd ol rules ni ragulillolw. or frail on lhe iwt ol lht
183 '11q .. - -Ill ,am. a CPA lWlilcale IS required when: taxpayer
I Gn,a es:. tc:am P 2,000,000 a Only statement 1 is correc1
b Gnm ~ meeds P 5 000,000 b. Only stalement 2 i., C0ffld
c. Gn:ss . - lXlllllds PIOJXX),000 c. Both statements a111 correct
d Groa lllat l9ICtws P 2,IXX).(XXl d Both statements art lllalffld
.o, --= 8; (RR 12~11) ❖ Anawtr: C
18' 0.. d I l l ~ a IIDl a anent d lhe sta11men1 certilled lo by a CPA. 168 In case of a residenldecedalll tht adlll1lis1rab'of lXIO.VNI ~ lllUltlll ol lht Ol0ldlf1
a lli:na!,d amt d tie Olcadenl with Its corresponding gross value at the time of his deafl and secure new TIN from tile lht
c, ri cased nctWISiden aier1 d Iha! part of his gross estate situated In the Pht11ppines a. Office of lhe Commssioner
b
C
d
The n:xn d
c.9ed ~ d pnlD,
Im-....
lllrTlml dlducaDlls from !10SS es1i1e
peid C, still due and outstanding
b
c
d
RDO where the admmtrator or execua is regislete<l
RDO where the dlcedenl was domlClled • lhe 111nt ol his daltll
Duly aulhonzed trusurer of lt1e r1y or nu,icpllily "'-9 lht dacedlnl II domded 11 . . ..,,.
of his dealh
♦ Alsww-D
❖ Anawtr: C
1115 ~ 1 If ai mnion fer payment of esta1e lax IS granted, the Commissioner 0f hlS d\ly
da'izlld IIPWltdwe may l'IQ!n lhe exeaAor, or admlnfstra1or, or beneficiary, as lhe caae ml/ 189. ~ the estate tax bl paid I n ~
be ., flmsi I bcrlcl II such anon. nol excee:mg double tht amount of lhe lax a Yes. In case tilt avadlblt c:a!II ol Illa esllll • not sulllaent 10 PIY Ill - - ID IIIIMy
b Yes. al the optron of lhe heirs wtlh ~ 111111ml chllgts
~ 2 Nff ~ l-1 aftlr tie 9U11Jby due dale of lhe estate tax. but ~ in the e.densia1 c No. tax 15 lht lifeblood of lhe Stir. twlOI ailllcllct1 cal"10I Ill dlll,-s .._, Ir')'
llSl0d _,. beMIJICIIO,__ tunoctoutnarge drrumstance
I OnlJ ..... 1 1!$ CXJITld d None of tilt abcM
b Only..,_. 2 a CXJITld
C. ec.i...,... .. CXJITld ❖ An1wtr. A
d bt--..U nlncorrld
~ Annw:c

190 A dec»dtnt who ma1ntar1S • binktcx:ount dild Ill ~larch 12 20111 ~ ol h ~ ...,,. "'
ls C0ff9CI?

Slcemtnt 1 If I bank has knOWlldgl of lilt~ °''

dNlll 1ro,i,-,
""10" - - ""°
~ ._
tta•IIII I ba111 aa.,ii
. _, 1 .,_
IIO!lt, or Jointly wrth lllOl/lef 11111111 ,lo# Ille

529
528
 £ rt4/,, 'l~
wtlhhold1ng I.Ix of 6%of (he amount to be withdrlw. pr«Mded, !hit aw wttrdf_. hi °"Y bl "llde
within one year from tho date of uJd dlcedlnt

St•oment 2' In au cases, !ht final tax wrthhetd lhall not be rtfundld 0< a~ on fie lb - ""
the net taxable estate of !he d~
• Only statement 1 11 correct
b Only statlment 2 1s COfTed
c Both statements are oorrtct
d Both statements are incorrect

❖ An1wtr. C;· (RR 12-2018)

191. Whkh of the following sta~nts la oorrect?

a There shall not be transferred to any nt1W owner In the books of 3"'/ corpa abon, ~...ad
°'
anonlma, partnership, buSlness. Industry organized Of established tn lhe Phrlpprle$ r,
share, obligation, bond or right by way of grft inter-VIVOS or mortts c.ausa, legao/"' ~ -
unless an eCAR Is issued by the CommisSIOOer or his duly authonze represen(z'W!
b. In Instances where the deposit accounts have been duty tnduded in the ~oss e61all d ,e
dec.edent and the estate tax due thereon paid, the exerutor, ~ . or atrf d Ile lega
heirs shall present the eCAR issued f0< the said estate prio( to withdrawing from the hart
deposit account
c. The withdrawal desaibe In letter b shall no longer be subject to the 6% williafr,g ~ tr, h
bank.
d. All of the above

❖ Answer. D; (RR 12-2018)

530