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ANGELES UNIVERSITY FOUNDATION

TAXATION REVIEW
Mid Term Exam
20 January 2011

I O!"e#$i%e Mu&$i'&e ()*i#e


1. Which of the following may not avail of the Optional Standard
Deduction?
a. Non-resident citizen earning usiness income
. Non-resident alien
c. Domestic corporation
d. !esident foreign corporation
". # minimum wage earner shall refer to
a. # wor$er in the private sector paid less than the statutory
minimum wage
. # wor$er in the private sector paid an amount not e%ceeding the
minimum wage
c. # wor$er in the private sector paid at least the minimum wage
d. # wor$er in the private sector paid the statutory minimum wage
&. # general professional partnership is ta%ed at
a. 'raduated ta% rates under Sec. "(#
. &)* of +a%ale net income
c. &,* of 'ross -ncome
d. Not ta%ale
(. .or purposes of computing /udicial e%penses as an allowale
deduction from the gross estate0 the following are included0 e%cept
a. 1%penses essential to the collections of the assets0 payment of
dets or distriution of the property of the decedent
. Notarials fee paid for the e%tra/udicial settlement of the estate
c. #ttorney2s fees paid to the guardian of the property of the
decedent during his lifetime
d. #ttorney2s fees incident to litigation incurred y the heirs in
asserting their respective rights over the estate
,. 1%penses to e deductile re3uires
a. the amount must e reasonale
. the amount must e sustantiated
"
c. it is not contrary to law0 pulic policy or morals
d. all of the aove
4. 5anishing deduction is availed y the ta%payer to
a. reduce his gross estate
. correct his accounting records to reflect the actual
deductions made
c. reduce his gross income
d. reduce his output value-added ta% liaility
6. # right of an income ta%payer to deduct from his income ta% payale
the foreign income ta% he has paid to his foreign country is
a. 7ersonal 1%emption
. Doctrine of !eciprocity
c. +a% 8redit
d. +a% Deduction
9. +he following items are not deductile e%cept
a. 7ersonal0 :iving0 or .amily 1%penses
. Depreciation or gradual demonization in the service or useful
value of a tangile property due from e%haustion0 wear and tear0
and normal osolescence
c. 7remiums on life insurance policy when the ta%payer is
directly;indirectly a eneficiary under such policy
d. #mounts e%pended in restoring property or in ma$ing good the
e%haustion thereof for which an allowance is or has een made
<. 7etra is a =anager of =ura Dito Department Store. She has 4
children with no husand. >ow much can she claim as a personal
e%emption when she files her income ta%?
a. 7()0)))
. 7,)0)))
c. 7&40)))
d. 7"(0)))
1). +he following are re3uired to file their income ta% returns e%cept
a. .ilipino citizen residing in the 7hilippines
. #n individual whose gross income does not e%ceed his personal
and additional deduction
c. -ndividual whose pure compensation income derived from
sources within the 7hilippines e%ceeds 74)0)))
d. #n individual who engaged in usiness or practice of a
profession within the 7hilippines regardless of the amount of
gross income
&
11. Which of the following is not deductile
a. 7romotion e%penses
. 1%penditures to promote the sales of additional capital stoc$ or
the cost0 commissions and fees for otaining stoc$ suscription
c. Ordinary repairs or maintenance costs due to wear and tear
d. -nterest on indetedness
1". +he gradual diminution in the service or useful value of tangile
property eing used in trade or usiness0 or resulting from ordinary
wear and tear is
a. Depreciation
. Depletion
c. 5anishing deductions
d. :osses
1&. Which is correct?
a. !esident alien are allowed personal and additional e%emptions
. Non-resident aliens engaged in trade or usiness are entitled to
personal e%emptions
c. Non-resident aliens engaged in trade or usiness are entitled to
additional e%emptions
d. !esident alien are entitled to personal e%emptions only y way
of reciprocity
1(. .or ad dets to e deductile0 the following re3uisites must concur0
e%cept
a. +here must e a valid a susisting det
. +he det must e connected with the ta%payer2s trade or
usiness
c. +he det must e actually worthless
d. +he det must e partially charged-off within the ta%ale year
1,. ?nder present law0 a family with si% children will have a ma%imum
ta% e%emption of
a. 7"))0))).))
. 7<40))).))
c. 71,)0))).))
d. 7",)0))).))
14. # resident .ilipino citizen who ecame an Overseas 8ontract Wor$er
is ta%ed as follows
a. +a%-e%empt
. On income derived without the 7hilippines only
(
c. On income derived within and without the 7hilippines
d. On income derived within the 7hilippines only
16. +he following are e%empt from improperly accumulated earnings ta%0
e%cept
a. 8losely-held corporations
. @an$s
c. 7ulicly-held corporations
d. -nsurance companies
19. +he Withholding +a% System was devised for the following reasons0
e%cept
a. +o provide the ta%payer a convenient manner to meet his
proale income ta% liaility
. +o ensure the collection of the income ta%
c. +o improve the government2s cash flow
d. +o do away with the filing of income ta% returns
1<. Which is not included in the 'ross 1state su/ect to 1state +a%?
a. +ransfer in contemplation of death
. !evocale +ransfers
c. +ransfer for pulic used
d. +ransfers for insufficient consideration
"). What final ta% should e paid y a domestic corporation from sale of
shares of stoc$ not traded through the local stoc$ e%change?
a. Stoc$ transaction ta%
. 8apital gains ta%
c. -ntercorporate dividends
d. Surta%
"1. Where a foreign corporation enters into a transaction in the
7hilippines directly and independently of its ranch office in the
country0 the ta%payer on the income ta% due on the said transaction
would e
a. +he foreign corporation itself and su/ect the ta% similarly
imposed on non-resident foreign corporation
. +he foreign corporation itself and su/ect the ta% similarly
imposed on a resident foreign corporation
c. -ts ranch office as a non-resident foreign corporation
d. -ts ranch office as a resident foreign corporation
Note: case of Marubeni Corp. vs. CIR
,
"". 1state ta% is classified as
a. # 7ersonal ta%
. #n 1%cise ta%
c. # 7roperty ta%
d. #n -ncome ta%
"&. -n estate ta%0 the appraised value of real property shall e
a. +he fair mar$et value as determined y the 8ommissioner
. +he fair mar$et value as shown in the schedule of values fi%ed
y the 7rovincial and 8ity #ssessors
c. +he fair mar$et value as determined y the 8ommissioner0 or as
shown in the schedule of values fi%ed y the 7rovincial or 8ity
#ssessorsA whichever is lower
d. +he fair mar$et value as determined y the 8ommissioner0 or as
shown in the schedule of values fi%ed y the 7rovincial or 8ity
#ssessorsA whichever is higher
"(. +he following fringe enefits are not ta%ale e%cept
a. -nterest on loan at less than mar$et rate to the e%tent of the
difference etween the mar$et rate and actual rate granted
. 8ontriutions of the employer for the enefit of the employee
to retirement0 insurance and hospitalization enefit plans
c. @enefits given to the ran$ and file employees0 whether granted
under a collective argaining agreement or not
d. De minimis enefits as defined in the rules and regulations to
e promulgated y the Secretary of .inance upon
recommendation of the 8ommissioner
",. +he following are allowale and itemized deductions0 e%cept
a. 1%penses in connection with the ta%payer2s trade0 usiness or
profession
. -nterest on indetedness
c. 8ontriutions to pension trusts
d. #mount aid out for new uildings or for permanent
improvements0 or etterments made to increase the value of any
property or estate
"4. +he following are deductions from 'ross 1state0 e%cept
a. 7roperty previously ta%ed
. +ransfer for private use
c. 8on/ugal or community property
d. +he family home
4
"6. +he following are the re3uisites in order that losses may e considered
as allowale and itemized deductions0 e%cept
a. =ust e nominal
. =ust e sustained in a closed completed transaction
c. =ust not e compensated y insurance or otherwise
d. =ust e li3uidated and charged-off during the ta%ale year
"9. # decedent2s estate includes0 e%cept
a. Decedent2s interest
. +ransfers in contemplation of death
c. -rrevocale transfers
d. 7roperty passing under general power of appointment
"<. -n the case of Non-!esident #liens0 where the estate situated only in
the 7hilippines is su/ect to estate ta%0 the following deductions are
allowed e%cept
a. 7roportion of the same e%penses0 losses0 indetedness and ta%es
which the value of the gross estate in the 7hilippines ears to
his entire gross estate wherever situated
. Standard deduction0 an amount e3uivalent to 710)))0)))
c. 5anishing deductions on the property located in the 7hilippines
previously ta%ed also gradually diminishing at the rate of ")*
annually until the ,
th
year
d. +ransfer for pulic purposes to the 7hilippine 'overnment or its
political sudivision
&). +he following constitute sales or e%changes etween B!elated
7artiesC0 e%cept
a. @etween two corporations more than ,)* in value of the
outstanding stoc$ of each of which is owned0 directly or
indirectly0 y or for the same individual
. @etween or among memers of the family
c. @etween the fiduciary of a trust and the fiduciary of another
trust DNoteE only if the same person is the grantor of each trustF
d. @etween an individual and a corporation more than ,)* in
value of the outstanding stoc$ of which is owned0 directly or
indirectly0 y or for such individual
-- E++ay
1. GHI 8orp. is a domestic corporation with individual and corporate
non-resident shareholders0 primarily in the ?S#. .or the "
nd
Juarter
of 1<9&0 GHI corp. declared cash dividends to its ?.S. individual and
?.S. corporate non-resident stoc$holders0 from which the withholding
ta% on dividend income was accordingly paid to the @-!. On =ay 1,0
6
1<9(0 GHI 8orp. filed a formal claim for refund with the
8ommissioner of -nternal !evenue alleging that under the !7-?S +a%
+reaty0 the deduction allowed as ta% on dividends earned at the source
was fi%ed at ",* of said income instead of &)* or &,* with respect
to individual and corporate non-resident stoc$holders0 respectively.
+hus0 it had overpaid its withholding ta% due on dividends paid to its
non-resident stoc$holders in the ?S. On Kan 160 1<9,0 GHI 8orp.0
eing a mere withholding agent0 had no legal personality to file a
claim for refund of withholding ta% on ehalf of its non-resident ?S
stoc$holders ecause it is not the real party in interest.
,ue+$i*n- 8an GHI 8orp. rings this suit for the recovery of an
overpaid withholding ta% at source on ehalf of its non-resident ?S
stoc$holders? Why?
". -n 1<<) Lim inherited from her mother several tracts of land0 among
which were two contiguous parcels situated on 7ureza and Sta. =esa
Streets in =anila0 with an area of &19 and 46049( s3uare meters0
respectively. When her mother was still alive she had these two
parcels sudivided into "< lots. "9 were leased to various lessees
whose contracts of lease all e%pired in 1<<1. +he "<
th
lot0 with an area
of (90))) s3uare meters was not leased to anyone. -t needed filling
ecause of its very low elevation0 and was planted to kankong and
other crops. #fter Lim too$ possession of the parcels of land in 1<<"0
she instructed her attorney-in-fact to sell them. +he "9 lots were
ought y its occupants. >owever0 the "<
th
lot could not e sold
immediately due to its low elevation. +hus0 sometime in 1<<&0 the
attorney-in-fact had :ot "< filled0 then sudivided into small lots.
:ater these lots were sold in 1<<, in installment asis. Lim reported
her income from the sale of the small lots in 1<<, as capital gains.
+he 8ommissioner of -nternal !evenue considered Lim2s profits from
the sale of the mentioned lots as ordinary gains. +he 8ommissioner
postulates that Lim is engaged in the usiness of leasing the lots she
inherited from her mother. +he suse3uent sale of the lots cannot e
recognized as sales of capital assets ut of Breal property used in trade
or usiness of the ta%payerC. Lim argues that D1F she is not the one
who leased the lots in 3uestionA D"F the lots were residential0 not
commercial lotsA and D&F the leases on the "< small lots were to last
until 1<<10 efore which date she was powerless to e/ect the lessees
there from.
,ue+$i*n- #re the properties in 3uestion which Lim inherited and
suse3uently sold in small lots to other persons should e regarded as
capital assets? 1%plain your answer.
&. #ir .rance is a foreign corporation organized under the laws of
.rance. -t is not licensed to do usiness in the 7hilippines as an
international carrier. -ts airplanes do not operate within 7hilippine
territory nor service passengers emar$ing from 7hilippine ports. +he
firm is represented in the 7hilippines y its general sales agent0
7hilippine #ir :ines0 -nc. D7#:F0 a corporate entity duly organized
9
under the laws of the 7hilippines. #ir .rance sells airplane tic$ets in
the 7hilippines through this agent. +hese tic$ets are serviced y #ir
.rance airplanes outside the 7hilippines. +he total sales of airplane
tic$ets transacted y 7#: for #ir .rance in 1<<6 amounted to
7"0<4901,4.)). +he commissioner of -nternal !evenue assessed #ir
.rance deficiency income ta% at the rate of &,* on its ta%ale income
derived from sources within the 7hilippine illings for 1<<". #ir
.rance filed a protest on the ground that the amount of 7"0<4901,4.))
was derived e%clusively from sources outside the 7hilippines. +he
protest was denied y the 8ommissioner of -nternal !evenue. >ence0
from this decision0 #ir .rance appealed to the 8ourt of +a% appeals.
,ue+$i*n- Was the 8ommissioner of -nternal !evenue correct in
denying the protest of #ir .rance? Why?
(. =a%ima 8ortez is a government employee wor$ing at the Department
of >ealth. She owns &)) s3. m. lot in Juezon 8ity which she
inherited from her father at the time of his death on =arch 1(0 1<<,
valued at 76")0))).)). On .eruary "<0 1<<40 =a%ima sold this lot
for 74))0))).)) on cash asis. +he prevailing value of said property
as of =arch 1<<, was 7&0))).));s3.m. or 7<))0))).)).
,ue+$i*n-

Da.F -s =a%ima liale to pay the capital gains ta% on said
transaction? -f so0 how much?
D.F -s =a%ima liale to the 5alue #dded +a% D5#+F from the sale of
real property? -f so0 how much?