Tax

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
3
CHAPTER 2
TAX ADMINISTRATION
Problem 2 1 TRUE OR FALSE
1. True
2. False not the BIR, but the Department of Finance
3. False the BIR is responsible to collect national taxes only.
4. False The review shall be made by the Court of Justice.
5. True
6. True
7. False The Secretary of Justice and the Courts also interprets the provisions
of the Tax
Code.
8. False the fact that taxes are self-assessing the BIR assessment is necessary
to ensure
the reliability of the ITR.
9. False the BIR or the Government is not allowed by law to appeal to the CTA. (
Acting Collector
of customs vs. Court of Appeals, Oct. 31, 1957)
10. True
11. False Appeal to the SC shall be made within 15 days from the receipt of the
decision of
the CTA.
12. False the CIR can conduct a jeopardy assessment when there are no accounting
records.
13. True
14. False the taxpayer needs to waive first his right on the secrecy of bank dep
osits before
BIR can inquire into his bank deposits.
15. True
1. False there must be a Letter of Authority.
2. False the supporting documents must be submitted to the BIR within 60 days fr
om the
date a protest is filed.
3. True
4. True
5. False destraint as a tax collection method is applicable only to personal pro
perty.
6. False criminal violations already filed in court are not subject to compromis
e.
7. True
8. False, collection must be within 5 years
9. True
10. False-redemption period is within 1 year from date of auction sale.
11. True
12. True
1. False there is no need to pay additional registration fee for transfer of bus
iness
registration.
2. True
3. False the initial bond required for manufacturers and importers of articles s
ubject to
excise tax is P100,000.
4. False informers reward is subject to 10% final withholding tax.
5. True
6. True
7. True
8. True
SUGGESTED ANSWERS
4
9. False Seizure
10. False Forfeiture
11. False not allowed because the second cousin is within the 6th degree of rela
tive by
consanguinity.
12. False collection tax cases filed in courts are subject to compromise.
13. True
Problem 2 4 Problem 2 5 Problem 2 6
1. C 1. B 1. B
2. B 2. A 2. A
3. B 3. D 3. A
4. D 4. C 4. B
5. C 5. D 5. D
6. C 6. D 6. C
7. B 7. C 7. B
8. B 8. C 8. A
9. C 9. A 9. C
10. D 10. A 10. A
11. A 11. A
12. D 12. A
Problem 2 7
Case A: April 15, 2014 - The return, statement or declaration can be modified, c
hanged
or amended from within three years from the date of filing as long as no tax inv
estigation has
been served to the taxpayer. (Sec. 6(A), NIRC)
Case B: October 20, 2015 - If the tax deficiency is due to simple neglect, the p
rescriptive
period of tax assessment is within 3 years starting from the date of filing the
return (Sec. 203, NIRC), or
its amendment.
Case C: April 15, 2025 - If the ITR is fraudulent or no tax return was filed, th
e tax may
be assessed, or a proceeding in court for the collection of such tax may be file
d without
assessment at any time within ten (10) years after the discovery of the falsity,
fraud or omission.
(Sec. 222 (a), NIRC)
Case D: April 15, 2022 - If the ITR is fraudulent or no tax return was filed, th
e tax may
be assessed, or a proceeding in court for the collection of such tax may be file
d without
assessment at any time within ten (10) years after the discovery of the falsity,
fraud or omission.
(Sec. 222 (a), NIRC)
Case E: No need to appeal. The prescribed period of filing for the refund is alr
eady
expired. The filing of refund should have been made within two years after the p
ayment of tax or
penalty. It was filed within 2 years, one month, and 5 days after the date of er
roneous payment,
hence, not appealable anymore.
Case F: May 5, 2013. The filing of refund was appropriately made within the 2 ye
ar
prescribed period. The denial was received on April 5, 2013. The filing of appea
l to CTA should be
made within 30 days from the receipt of denial from the BIR.
Case G: August 2, 2017. The date of grant for refund was received on August 1, 2
012.
The refund check (dated July 15, 2012) should be encashed within 5 years from th
e date the
SUGGESTED ANSWERS
5
grant for refund was delivered (August 1, 2012). The check should be encashed fr
om August 1,
2012 to August 1, 2017. It will be forfeited on August 2, 2017.
Case H: July 31, 2017. For tax credit, the five year prescriptive period should
start from
the date of issuance. In this case, the date of issuance should be the date of t
ax credit certificate.
The expiry date would therefore start on July 31, 2017.
Case I: August 20, 2011. If the BIR has no response after the submission of supp
orting
documents to serve as evidence for the protest, the last day to appeal to the CT
A should be made
within 30 days from the lapse of the 180 day period from the submission of the s
upporting
documents.
Computation of days:
After January 22, 2011 Days
January 9
February 28
March 31
April 30
May 31
June 30
July 21
Total number of days as of July 21 180
Plus 30 days after the 180 days
July 10
August 20
Total day on August 20 30
Case J: May 4, 2011. The last day to appeal to the CTA should be made within 30
days
from the receipt of the denial of the BIR. The 30 days is determined as follows:
Days
First denial of the BIR March 22, 2011
to 2nd request for reconsideration March 30, 2011 8
2nd denial of the BIR April 12, 2011
to May 4, 2011 to complete the 30 day period 22
Total days as of May 4, 2011 30
Case K: June 25, 2011. The appeal to CTA should be made within 15 days from date
of
unfavorable decision from CTA was received (June 10 plus 15 days).
Case L: July 10, 2011. The appeal to SC should be made within 15 days from date
of
receipts of the unfavorable decision of CTA (June 25 plus 15 days).
Case M: March 1, 2011. Within 1 year from the date of sale.
Problem 2 8 B
Original business registration and renewal of business registration are subject
to P500 each. The
transfer of registration requires no additional registration fee to be paid by t
he taxpayer. (Sec. 243,
NIRC)
Problem 2 9 D
All criminal violation may be compromised except: (a) those already filed in cou
rt, or (2) those
involving fraud. (Sec. 204 (B), NIRC)
SUGGESTED ANSWERS
6
Problem 2 10 D
Income tax payable P1,000,000
Multiplied by minimum compromise rate due bankruptcy 20%
Minimum amount of compromise P 200,000
Problem 2 11 D
Amount of tax liability P150,000
Surcharges 25,000
Interest 20,000
Advertising cost 5,000
Price if purchase by the Government P200,000
Problem 2 12 D
1. Letter C
Actual excise tax on the first 6 months P200,000
Multiplied by statutory increase in rate 2
Required bonds on the last 6 months P400,000
If after 6 months of operation, the amount of initial bond is less than the
amount of the total excise tax paid during the period, the amount of the bond
shall be adjusted to twice the tax actually paid for the period. [Sec. 160 (A),
NIRC]
2. Not in the choices, P400,000
Actual excise tax on the first year applicable to
the second year (P200,000 + P250,000) P450,000
Less: Excess of bonds over actual excise tax
Bonds paid first year (P100,000 + P400,000) P500,000
Actual excise tax first year (450,000) 50,000
Net actual amount of bond for the second year P400,000
The bond for the succeeding years of operation shall be based on the actual
total excise tax paid during the year immediately preceding the year of
operation. [Sec. 160 (B), NIRC]
Problem 2 13 C
X is not entitled to receive the informers reward because being a first cousin, h
e is Bs (an RDO)
relative within the 6th degree of consanguinity.
A public official or government employee or his relative within the 6th degree o
f consanguinity
shall not be entitled to the informers reward of 10% based on the tax revenue rec
overed or
P1,000,000. whichever is lower. This informers reward, once awarded shall be subj
ect to a final
withholding tax of 10%. (Sec. 282, NIRC)
Problem 2 14
1. Letter D
Sales price P4,000,000
Less: Total amount per assessment P2,500,000
Surcharge (P2,500,000 x 25%) 625,000
Interest (P2,500,000 x 20% x 3/12) 125,000 3,250,000
SUGGESTED ANSWERS
7
Net amount after public taxes, penalties and interest P 750,000
Less: Capital gains tax (P4,000,000 x 6%) P 240,000
DST (P4,000,000 x 1.5%) 60,000
Cost of advertising 20,000 320,000
Excess amount to be returned to X P 430,000
2. Letter C
Purchase price P4,000,000
Add: Interest (P4,000,000 x 15% x 9/12) 450,000
Redemption price P4,450,000
The redemption price is comprised of the purchase price plus 15% interest per
annum from the date of purchase to the date redemption. (Sec. 214, NIRC)
3. Letter C
Total rent income (P60,000 x 9 months) P540,000
Less: Interest expense to redeem the property 450,000
Excess income P 90,000
The owner shall not, however, be deprived of the possession of the said
property and shall be entitled to the rents and other income thereof until the
expiration of the time allowed for its redemption. (Sec. 214, NIRC)
Problem 2 15 C
Statutory fine (P250,000 x 2) P500,000
Any taxpayer whose property has been placed under constructive distraint, and di
sposed the
same without the knowledge and consent of the Commissioner shall be punished by
a fine of not
less than twice the value of the property sold, encumbered or disposed of, but n
ot less than
P5,000 or suffer imprisonment of not less than 2 years and 1 day but not more th
an 4 years or
both. (Sec. 206, NIRC)
The P5,000 fine is applicable only when the computed amount (selling price x 2)
is lower than
P5,000.
Problem 2 16 C
Proceeds from sale P 350,000
Less: Basic tax assessed P300,000
Accrued interest from April 15, 200x to
July 15, 200x (P300,000 x 20% x 3/12) 15,000
Documentary stamp tax 1,500
Advertisement 1,000 317,500
Amount to be refunded to Mr. Poe P 32,500
Problem 2 17 D
Proceeds from sale (P1,500/0.005) P 300,000
Less: Basic tax assessed P275,000
Accrued interest from April 15, 200x to
July 15, 200x (P275,000 x 20% x 3/12) 13,750
Documentary stamp tax 1,125
SUGGESTED ANSWERS
8
Advertisement 1,000 290,875
Amount to be refunded to Mr. Ligot P 9,125
Problem 2 18 C
Total surcharge (P10,000 x 25%) P2,500
25% surcharge shall be imposed for late filing of the return and late payment of
the tax. (Sec. 5,
Rev. Regs. No. 12-99)
Problem 2 19 C
Interest (P10,000 x 20% x 2.5/12) P416.67
The computation of interest is based on unpaid basic tax. (RMC No. 4699)
Problem 2 20 C
Basic tax P10,000
Surcharges:
For late filing and payment (25%) P2,500
For filing in wrong RDO (25%) 2,500 5,000
Interest (P10,000 x 20% x 2.5/12) 417
Total amount due P15,417
Problem 2 21 D
Income tax due per return P100,000
Add: Surcharge for willful neglect to file the
and late payment (P100,000 x 50%) P50,000
Interest from April 15, 200B to
June 30, 200C (P100,000 x 20% x 14.5/12) 24,167 74,167
Total amount due, June 30, 200C P174,167
Late filing and late payment of tax is a taxpayers willful neglect if the payment
is made only after
the notification of the BIR. Such violation is subject to 50% surcharge plus 20%
interest per
annum computed from the due date of the tax until the date of payment. (Rev. Reg
s. No. 12-99,
Sec. 5.3)
Problem 2 22 B
Income tax due per return P100,000
Add: Surcharge for late filing and late payment
- simple neglect (P100,000 x 25%) P25,000
Interest from April 15, 200B to
June 30, 200B (P100,000 x 20% x 2.5/12) 4,167 29,167
Total amount due (excluding compromise penalty) P129,167
If the violation is late filing and late payment of tax, only one 25% surcharge
shall be imposed for
late filing of the return and late payment of the tax plus 20% interest per annu
m computed from
the due date of the tax until the date of payment. (RMC No. 46-99; Sec. 5, Rev.
Regs. No. 12-99)
SUGGESTED ANSWERS
9
Problem 2 23 A
Unpaid tax due P1,000,000
Additions to tax:
Surcharge (P1,000,000 x 50%) P500,000
Interest from April 15, 200B to December 31,
200C (P1,000,000 x 20% x 1 year & 6.5 mos.) 341,666 841,667
Total amount due as of December 31, 200C P1,841,667
Add: Excess amount 158,333
Total selling price P2,000,000
Add: Statutory interest rate to redeem (P2,000,000 x 15%) 300,000
Total amount needed to redeem the real property P2,300,000
The redemption of the property sold through public auction shall be made within
one year from
the date of sale subject to a statutory redemption interest rate of 15% per annu
m. (Sec. 214,
NIRC)
Problem 2 24 B
Basic amount due per assessment
Add: Surcharge for simple neglect
to pay on time (P80,000 x 25%)
Interest (P80,000 x 20% x 45/360 days)
Total required payment on June 30, 200A
P 20,000
2,000
P 80,000
22,000
P102,000
[Sec. 248(A)(3) and Sec. 249(B)(3), Rev. Regs. No. 12-99, Sept. 6, 1999]
Problem 2 25 C
Unpaid income tax due (P3,000,000 P1,000,000) P2,000,000
Additions to tax:
Surcharge (P2,000,000 x 50%) P1,000,000
Interest (P2,000,000 x 20% x 3/12) 100,000 1,100,000
Total amount due as of August 15, 200B P3,100,000
Concealment of income is a form of fraud. A false or fraudulent return is subjec
t to a surcharge of
50% based on the unpaid tax or the deficiency tax. [Sec. 248 (B), NIRC]
Problem 2 26 D
Income tax due per ITR P8,000
Divided by installments allowed 2
Tax due on 1st installment P4,000
Less: Tax credit 3,000
Tax payable 1st installment P1,000
When the tax due is in excess of P2,000, the taxpayer other than a corporation m
ay elect to pay
the tax in two equal installments (Sec. 56(A)(2), NIRC).
SUGGESTED ANSWERS
10
Problem 2 27
1. Letter A
Income tax due per return, April 15, 200B P1,000,000
Less: 1st installment, April 15, 200B 250,000
Balance as of April 15, 200B P 750,000
Add: Interest from April 15, 200B to May 15, 200B
(P750,000 x 20% x 1/12) 12,500
Total amount due, May 15, 200B P 762,500
2. Letter C
Balance as of May 15, 200B P 500,000
Add: Interest from May 15, 200B to June 15, 200B
(P500,000 x 20% x 1/12) 8,333
Total amount due, June 15, 200B P 508,333
Less: 3rd installment, June 15, 200B
(P250,000 + P8,333) 258,333
Balance as of June 15, 200B P 250,000
Add: Interest from June 15, 200B to July 15, 200B
(P250,000 x 20% x 1/12) 4,167
4th and final installment P 254,167
Problem 2 28
Yes, because the prescriptive period of filing the written protest is within 30
days from receipt of
assessment. Pay the related tax. Compromise is not a remedy because tax fraud is
not subject to
compromise.
Problem 2 29
1. Taxable income P1,000,000
Add: Discrepancies per investigation:
Undeclared rental income P450,000
Nondeductible interest expenses 300,000
Nondeductible bad debt expense 200,000
Undocumented representation expenses 150,000 1,100,000
Taxable income per investigation P2,100,000
Multiplied by income tax rate 30%
Income tax due P 630,000
Less: Income tax paid per return 300,000
Balance P 330,000
Add: 50% Surcharge for filing a fraudulent return
(P330,000 x 50%) P165,000
20% interest per annum from April 15, 2010
to April 15, 2011 (P330,000 x 20%) 66,000 231,000
Total amount due P 561,000
2. Total amount due P561,000
Add: 25% Surcharge for late payment
(P561,000 x 25%) P140,250
20% Interest per annum from April 15, 2011
to June 15, 2011 (P561,000 x 20% x 2/12) 18,700 158,950
Total amount due (excluding suggested
compromise penalty for late payment) P719,950
SUGGESTED ANSWERS
11
Problem 2 30
a. The cash reward of Miss Wan as tax informer would be P1,000,000, the maximum
amount of
reward.
b. The informers reward remains payable, hence, Miss Wan will received the maximu
m reward
of P1,000,000.
c. The final income tax to be withheld from the reward of Miss Wan would be 10%
of
P1,000,000 or P100,000.
Problem 2 31
a. The tax violations of Miss San Tago are the following:
1. Unregistered business (Sec. 236 [A], NIRC.)
2. Non-issuance of commercial invoice (Sec. 237, NIRC.)
3. Ignoring the summon (Sec. 5, NIRC.)
b. Miss San Tagos minimum financial penalties if convicted:
1. For operating an unregistered business
2. For not issuing commercial invoices
3. Failure to obey summon
Total minimum
P 5,000
1,000
5,000
P11,000
Problem 2 32
None. There is no surcharge to be imposed to Orville Corporation because the err
or was corrected
before payment and the payment was made on time.
The income tax due is computed as follows:
Corrected gross receipts (P2,000,000/75%)
Corrected allowable deductions (P1,500,000/1.35)
Taxable income per audit
Multiply by percent of tax for 201B
Income tax due
P 2,666,667
1,111,111
P 1,555,556
30%
P 466,667
Problem 2 33
1. Principal factory P 500
Warehouses (P500 x 9) 4,500
Branches (P500 x 30) 15,000
Total annual registration fee January 31, 200B P20,000
2. Total annual registration fee January 31, 200B P20,000
Surcharges (20,000 x 25%) 5,000
Interest (P20,000 x 20% x 6/12) 2,000
Total amount due July 30, 200B P27,000
Problem 2 34
Amount of tax liability P100,000
Surcharges 25,000
Interest 20,000
Advertising cost 5,000
Price if purchase by the Government P150,000
SUGGESTED ANSWERS
12
Problem 2 35
Case 1 Financial incapability due to corporate insolvency.
Delinquent accounts P 500,000
Pending cases under administrative protest 900,000
Criminal violation not filed in courts 1,000,000
Total basic tax P2,400,000
Multiplied by applicable compromise rate 20%
Amount of compromise P 480,000
Case 2 Financial incapability due to surplus deficit resulting to impairment in
original capital
by at least 50%.
Case 3 Doubtful validity of assessment.
Problem 2 36
a. Yes, because the offered compromise amount of P100,000 exceeds the required m
inimum
amount of P25,000, (P250,000 x 10%).
b. Since distraint is imposed only on personal property, the personal property w
ith a value of
P100,000 shall be subjected to distraint.
c. Yes, levy of real property and distraint of personal property can be done sim
ultaneously (Sec.
207B of the Tax Code). See also Section 205 of NIRC.
d. No, the unpaid portion will remain as tax liability of Lugui because Miss Lug
ui did not avail of
the compromise tax settlement. The remedy by distraint of personal property and
levy on
realty may be repeated if necessary until the full amount due, including all exp
enses, is
collected (Sec. 217, NIRC).

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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