1. What is the "immediacy test"? Explain briefly.

Under the Immediacy test which is recognized by the BIR, the reasonable needs of the
business are the immediate and reasonably anticipated needs supported by a direct
correlation of anticipated needs to such accumulation of profits.

2. Mirador, Inc., a domestic corporation, filed its Annual Income Tax

Return for its taxable year 2008 on April 15, 2009. In the Return, it
reflected an income tax overpayment of P1,000,000.00 and indicated
its choice to carry-over the overpayment as an automatic tax credit
against its income tax liabilities in subsequent years.
On April 15, 2010, it filed its Annual Income Tax Return for its
taxable year 2009 reflecting a taxable loss and an income tax
overpayment for the current year 2009 in the amount of P500,000.00
and its income tax overpayment for the prior year 2008 of
P1,000,000.00.
In its 2009 Return, the corporation indicated its option to claim for
refund the total income tax overpayment of P1,500,000.00
Choose which of the following statements is correct.
(Answer) Mirador, Inc. may claim as refund the total income tax
overpayment of P1,500,000.00 reflected in its income tax
return for its taxable year 2009;

Reason: Sec. 229 In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or penalty regardless
of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor, refund or credit any tax,
where on the face of the return upon which payment was made, such payment
appears clearly to have been erroneously paid.

3. A is a travelling salesman working full time for Nu Skin Products. He

receives a monthly salary plus 3% commission on his sales in a
Southern province where he is based. He regularly uses his own car
to maximize his visits even to far flung areas. One fine day a group
of militants seized his car. He was notified the following day by the
police that the marines and the militants had a bloody encounter
and his car was completely destroyed after a grenade hit it.
A wants to file a claim for casualty loss. Explain the legal basis of
your tax advice.
Answer: It depends.
If X is an employee of a company, he cannot deduct the losses incurred since an
individual taxpayer who derives income from compensation is allowed only personal
and additional deductions and the reasonable premiums for health and
hospitalization insurance.
If X is engaged in trade or business, he can deduct the value of the car from his gross
income provided he can recover only up to the amount of the casualty loss that does
not exceed its book value, and that it is not compensated by insurance or otherwise.

4. In 2009, Caruso, a resident Filipino citizen, received dividend income

from a U.S.-based corporation which owns a chain of Filipino
restaurants in the West Coast, U.S.A. The dividend remitted to
Caruso is subject to U.S. withholding tax with respect to a nonresident alien like Caruso.
What will be your advice to Caruso in order to lessen the
impact of possible double taxation on the same income?
Answer: Caruso can ask for tax credit through a certificate of
payment of taxes in the U.S.
Would your answer in A. be the same if Caruso became a U.S.
immigrant in 2008 and had become a non-resident Filipino
citizen? Explain the difference in treatment for Philippine
income tax purposes.
Answer: It will not be the same, Caruso will not be taxable this
time on any earnings or dividends received outside the
Philippines. The situs of taxation is already in U.S. therefore
being a non-resident citizen, he will not be taxable for
earnings outside the Philippines
5. a Filipino immigrant living in the United States for more than 10
years. He is retired and he came back to the Philippines as a
balikbayan. Every time he comes to the Philippines, he stays here for
about a month. He regularly receives a pension from his former
employer in the United States, amounting to US$1, 000 a month.
While in the Philippines, with his pension pay from his former
employer, he purchased three condominium units in Makati which he
is renting out for P15, 000 a month each.
Does the US$1, 000 pension become taxable because he is now
residing in the Philippines? Reason briefly.
Answer: No, the law provides that pensions received by resident or non-resident
citizens of the Philippines from foreign government agencies and other
institutions, private or public, are excluded from gross income. (Sec. 32 B [6] c,
NIRC)

6. Noel Santos is a very bright computer science graduate. He was

hired by Hewlett Packard. To entice him to accept the offer for
employment, he was offered the arrangement that part of is
compensation would be an insurance policy with a face value of P20
Million. The parents of Noel are made the beneficiaries of the
insurance policy.
Will the proceeds of the insurance form part of the income of
the parents of Noel and be subject to income tax? Reason
briefly.
Answer:
No, the proceeds of life insurance policies are paid to the heirs or beneficiaries
upon the death of the insured are not included as part of the gross income of the

recipient. There is no income realized because nothing flows to Noels parents

other than a mere return of capital, the capital being the life of the insured.

7. Antonia Santos, 30 years old, gainfully employed, is the sister of

Edgardo Santos. She died in an airplane crash. Edgardo is a lawyer
and he negotiated with the airline company and insurance company
and they were able to a agree total settlement of P10 Million. This is
what Antonia would have earned as somebody who was gainfully
employed. Edgardo was her only heir.
Is the P10 Million subject to estate tax? Reason briefly.

Answer:
No. The estate tax is a tax on the privilege enjoyed by an individual in controlling the
disposition of her properties to take effect upon her death. The P10 million is not a property
existing at the time of the decedents death; hence it cannot be said that she exercised
control over its disposition. Since the privilege to transmit property is not exercised by the
decedent, the estate tax cannot be imposed thereon.

Answer:

Should Edgardo report the P10 Million as his income being

Antonia's only heir? Reason briefly.

No. The amount received in a settlement agreement with the airline company and insurance
company is an amount received from the accident insurance covering the passenger of the
airline company and is in the nature of compensation for personal injuries and for damages
sustained on account of such injuries, which is excluded from the gross income of the
recipient.