JPIA Contest: Tax

Multiple Choice
Identify the choice that best completes the statement or answers the question.
____ 1. Issues arise as to whether taxes may be collected even without tax measures?
a. yes. because it is an inherent power of the state;
b. yes, because of the life blood theory;
c. no. because of absence of the basis for the amount of the tax to be collected;
d. no. imposition of taxes without any tax measure amounts to oppression;

____ 2. What is the rule on the taxability of income that a government educational institution derives from its school
operations? Such income is:
a. subject to 10% tax on its net income provided its related income is higher than unrelated
income.
b. exempt from income taxation if it is actually, directly, exclusively used for educational
purposes.
c. exempt from income taxation in the same manner as a government owned or controlled
corporation.
d. Subject to ordinary income tax rates with respect to incomes derived from educational
activities.

____ 3. Mike leased his land to Leomar for two years beginning July 1, 2014. Leomar would pay monthly rental of
P100,000. He paid rent up to October 2014 and then defaulted for the rest of the year. Under accrual
method, how much was the income of Mike for 2014?
a. 400,000
b. 600,000
c. 200,000
d. None of the choices

____ 4. A prospective client approaches you to inquire from you whether or not he will be subject to VAT. He claims
that his sale of fresh fruits and fish for the last twelve months exceed the VAT threshold. His friend who is
not an accountant tells him that he will be subject to VAT and has to register under the VAT system. What
advice will you give him?
a. He does not have to register because the BIR cannot monitor his sales anyway.
b. He has to register because his sales have exceeded the VAT threshold.
c. He may optionally register his VAT-exempt sales so he can avail of input tax credit.
d. He does not have to register under the VAT system because his transactions are VAT-
exempt.
____ 5. On January 15, 2015, Mr. Jose de Leon executed a Deed of Donation covering a piece of land which is part of
the common property owned by him and his wife with the latter’s consent. The donation was made to his
niece, Jenilyn. Jenilyn accepted the donation on February 14, 2015. The land had an assessed value of P1
million and zonal value of P800,000 at the time of donation. It was also encumbered with an unpaid mortgage
of P300,000 which was assumed by the donee. In addition, the donee agreed to pay the applicable donor’s tax
of P210,000.

When is the gift perfected?

a. February 14, 2015
b. January 15, 2015
c. February 15, 2015
 d. None of the choices

____ 6. [TRAIN] On April 1, JJ donated his 1-hectare farm land in Quezon to Apollo with a condition that three years
from the date of donation, Apollo will construct a waiting shed for commuters adjacent to the farm land, and
that failure to comply with the condition shall be sufficient ground for the cancellation of donation. The
applicable donor’s tax was paid by JJ on April 30 which is within the prescribed period allowed in the tax
code. Which of the following is correct?
a. The payment of donor’s tax is appropriate even if the donation may be revoked in the
future due to non-fulfillment of the condition.
b. In case of revocation, the donor’s tax paid by JJ should be refunded by the BIR if he files
for refund within 2 years from revocation.
c. Both of the answers are correct
d. Neither of the answers are correct
____ 7. [TRAIN] Mr. Goran, a citizen and resident of the Philippines, died on October 5, 2018. He was married and
the property relationship during the marriage was the absolute community of property. He left the following
properties, with their market values, and obligations and charges:

Agricultural land P100,000

House and lot acquired by inheritance before the marriage and 4-1/2 years
ago, used as family home (with a fair market value of P420,000 and a
mortgage of P120,000 when acquired; P20,000 was paid by Mr. Goran
before he died) 500,000
Jewelry of Mrs. Goran, acquired during the marriage with the exclusive
money of Mrs. Goran 50,000
Clothes acquired during the marriage from income earned during (P60,000
for use of Mr. Goran, and P70,000 for use of Mrs. Goran) 130,000
Cash on hand and in banks: income from unidentified sources 300,000
Cash in bank:
From sale at a loss of exclusive property 1,500,000
Received as gift six years ago and before the marriage (current account) 40,000
Other properties:
Owned before the marriage 90,000
Acquired during the marriage 20,000
Deductions and other information
Total funeral expenses of P300,000. Paid from the estate
Judicial expenses 58,000
Unpaid mortgage (already on the property at the time acquired): 120,000
On agricultural land 20,000
On house and lot 100,000
Other obligations 20,000
Legacy to the Government of the Philippines from the current account 10,000

The net taxable estate is:

a. 698,620.70
b. 857,310.34
c. 767,310.34
d. 0
____ 8. May the Philippine government require tax withholding on the salaries of Filipino employees working in the
American Embassy in the Philippines?
a. No, because this will violate the rule on international comity.
b. No, because if the Philippine government would impose the requirement of tax
withholding on the salaries of Filipino employees working in the Philippine embassy in
the Philippines, this would in effect require that the American government be constituted
as the withholding agent of the Philippine government insofar as the taxes on the salaries o
the Filipino employees are concerned.
c. Both answers are correct
d. None of the choices are correct.
____ 9. * A VAT-registered trader has the following transactions in the second month of a taxable quarter:

Sales of goods to private entities, gross of VAT 2,800,000

Purchases of goods sold to private entities, net of VAT 800,000
Sales to a Government Owned or Controlled Corporation
(GOCC), gross of VAT 1,120,000
Purchases of goods sold to GOCC, net of VAT 672,000

How much is the VAT payable?

a. 204,000
b. 175,000
c. 161,000
d. 211,000

____ 10. Settled is the rule that in tax matters, the government is not estopped by the errors or mistakes committee
by its agents or officers. This should be construed to mean that:
a. The state may still collect prescribed taxes.
b. BIR can still present evidence to prove assessment.
c. The power to tax is supreme and unlimited.
d. The power to tax is plenary and comprehensive.

____ 11. Double taxation in its general sense means taxing the same subject twice during the same taxing period. In
this sense, double taxation
a. violates the right to equal protection.
b. does not violate substantive due process.
c. does not violate the right to equal protection.
d. violates substantive due process.

____ 12. Eunice, a CPA, uses cash basis in computing her taxable income. In 2018, she performs a professional service
for a client who is unable to pay her. The unpaid professional fee of the client becomes worthless on 2019.
When can she deduct the worthless professional fee as bad debt?
a. 2018 or 2019
b. cannot be deducted in any year
c. 2019
d. 2018

____ 13. May a taxpayer who has claim for VAT input credit or refund, set-off said claim against his other tax
liabilities?
a. Yes, provided that the claim is set-off against other national internal revenue tax.
b. Yes, provided that the claim is set-off against other unpaid income tax.
 c. Yes, provided that the claim is duly substantiated by receipts.
d. Yes, provided that the claimant is a VAT-registered taxpayer.

____ 14. Estate tax should be imposed upon property transferred during life when the transferor reserves significant
powers over the possession or enjoyment of the property. Significant powers are reserved when the
transferee is, by reason of the reserved power, incapable of freely enjoying or disposing of the interest in the
transferred property until the transferor’s death. These transfers exclude:
a. value of trust property, part of the income and principal will be paid to the life beneficiary
for comfort, support and happiness.
b. property under an appointment where the decedent has a power exercisable in favor of his
creditors or creditors of his estate
c. property passing under ascertainable standard relating to the health, education, support, or
maintenance of the decedent.
d. property conditioned upon the transferor’s survivorship.

____ 15. CDE corporation determined that it has to establish a pension trust for its employees and hired an actuarial
study to determine the funding requirements of the corporation. After the study, it was determined that the
company shall be required to pay an amount of P100,000 as annual contributions to the fund and that the
past service cost, for accumulated benefits of the employees, should be established at the amount of
P1,000,000, the company shall be allowed for tax purposes to:
a. Amortize the past service cost over a period of 10years and expense yearly the annual
contributions.
b. Amortize the past service cost over a period of 5 years and expense yearly the annual
contributions of the corporation.
c. Set up the past services cost immediately and claim the said expense on the year it was
established and expense yearly the annual contributions.
d. Allow only the annual contributions as an expense with the past service cost as a non-
deductible expense.
____ 16. * A VAT-registered taxpayer has the following sales in a month:

Cash sales 300,000

Open account sales 750,000
Consignment sales (at suggested retail price)
0-30 days old (Consignees remittances, P336,000) 1,008,000
31-60 days old 1,050,000
61 days old and above 1,120,000

How much is the output tax for the month?

a. 466,500
b. 300,720
c. 268,500
d. 453,000

____ 17. In the absence of the prescriptive period to collect, may the law on prescription provided under the civil law
be applied ?
a. yes. because it is a law itself;
b. no. taxes does not arise from contract, therefore, the provisions of civil code can not
supplement;
c. no. taxes is an obligation of the taxpayer which is imprescriptible.
d. yes. in the absence of the agreement, the law comes in;
____ 18. *A widowed non-resident alien donor made the following donations, all on the same day:

Donee Property FMV

House and lot in the
To a daughter on her wedding day Philippines 2,000,000
To Development Academy of the Philippines Time deposit in BDO 500,000
To a son on his birthday Savings account in PNB 300,000

There is an unpaid mortgage of P500,000 on the house and lot which the daughter assumed. Also, the donor
wants 25% of the gift to the son be donated to a Roman Catholic Church of his choice in the Philippines.

The total gross gifts is:

a. 2,500,000
b. 2,225,000
c. 2,300,000
d. 2,800,000

____ 19. Ricky owns a parcel of land in San Jose, Batangas. It was declared for real property taxation as agricultural.
In 1990, he used the land for a poultry feed processing plant but continued to declare the property as
agricultural. In March 2011, the local tax assessor discovered Ricky’s change of use of his land and informed
the local treasurer who demanded payment of deficiency real property taxes from 1990 to 2011. Has the
action prescribed?
a. Yes. More than 10 years had lapsed for the period 1990 up to 2000, hence the right to
collect the deficiency taxes has prescribed.
b. Yes. More than 5 years had lapsed for the collection of the deficiency taxes for the period
1990 up to 2005.
c. No, the deficiency taxes may be collected within five years from when they fell due.
d. No. The deficiency taxes for the period 1990 up to 2011 may still be collected within 10
years from March 2011.

____ 20. To start a business of their own, employees A and B opted for an early retirement. A retired after 15 years of
service while B retired after 8 years of service. At the time of retirement, A was 55 years old while B was 60
years old. In the absence of a retirement plan or agreement providing for retirement benefits, the retirement
benefits they received
a. shall be taxable income of A
b. shall be taxable income of B
c. shall be taxable income of A and B
d. shall not be taxable of A and B

____ 21. Mr. Jose donated completely a parcel of land to his son a few months before Mr. Jose was accidentally hit
over by a speeding car and died. The particular parcel of land is includible in the gross estate of Mr. Jose
which is subject to the estate tax because
a. it is not to be included in the gross estate of Mr. Jose
b. it is a transfer for insufficient consideration
c. it is part of the transfers in contemplation of death
d. it is revocable transfer

____ 22. Which of the following is deductible as judicial expense of the testamentary and judicial proceedings?
a. Expenditures incurred for the individual benefit of the heirs, devisees or legatees
b. Premiums paid on the bond filed by the administrator as an expense of the administration
 in the nature of a qualification for the office
c. Attorney’s fees incident to litigation incurred by the heirs in asserting their respective
rights.
d. Payments to an accounting firm for services in taking inventory of assets, tax consultation,
and preparation of income tax returns for the estate

____ 23. A sold a personal property held as capital asset he acquired 9 years ago with an acquisition cost of P150,000
for P270,000. The payment shall be made in the following terms. Cash down payment of P40,000 and
additional P10,000 at the end of the year of sale. The property sold has been mortgaged for P160,000 which
is assumed by the buyer. The buyer issued a note payable for the balance which is to be paid equally in two
years following the year of sale. The contract price is
a. 110,000
b. 130,000
c. 270,000
d. 120,000

____ 24. An assessment was issued by the BIR against the taxpayer based on a review of the financial statements
presented by the taxpayer together with the tax returns, without conducting an actual investigation, but it
presented the facts and laws of the findings of the BIR. The same was questioned by the taxpayer on the
ground that it was capricious, whimsical and without legal basis. The findings of the BIR would stand against
the taxpayer because
a. the BIR stated the facts and laws which was the basis of the assessment made
b. there is a presumption of regularity on the work of the BIR examiner.
c. there is a presumption of correctness on the findings of the BIR which shifts the burden to
the taxpayer to disprove
d. the taxpayer is prohibited from questioning the wisdom of congress in creating such a law
which allows the executive branch of government to generate revenues from whatever
sources.
____ 25. * Rene Corporation is VAT registered and a holder of franchise from the government engaged in the business
of supplying water to several towns in the region. As recorded in its books, its total gross receipts during the
month from sale of water amounted to P2,550,000 while the receipts from rental of its equipment amounted to
P280,000. The operating expenses amounted to P2,000,000, 11%of which was paid to VAT registered persons.

The VAT payable for the month is

a. 7,200
b. 0
c. 313,200
d. 16,500

____ 26. A VAT registered taxpayer files a claim for refund with the Large Taxpayer Service having jurisdiction over the
principal place of business. Which of the following statements is correct?
a. The taxpayer is entitled to refund from any Revenue District Office
b. The said taxpayer may also file a claim for refund with the One Stop Center of the
Department of Finance
c. The taxpayer may also file a claim for refund with the Revenue District Office
d. The taxpayer is precluded from filing the same claim for refund with another office.

____ 27. What should the BIR do when prescriptive period for the assessment of a tax deficiency is about to prescribe
but the taxpayer has not yet complied with the BIR requirements for the production of books of accounts
and other records to substantiate the claimed deductions, exemptions or credits?
 a. issue a jeopardy assessment coupled with a letter of demand
b. call the taxpayer to a conference to explain the delay
c. issue a notice of constructive distraint to protect government interest
d. immediately conduct an investigation of the taxpayer’s activities

____ 28. [TRAIN] Mr. Roger died with a receivable from Mr. Novak. Mr. Novak has properties worth P220,000 and
obligations of P320,000. Included in the obligations are P20,000 owed to the Government of the Republic of
the Philippines for unpaid taxes and P60,000 owed to Mr. Roger. The deductible claim against insolvent
persons amount to:
a. 41,250
b. 20,000
c. 60,000
d. 40,000

____ 29. Apples Corporation is registered under the laws of Thailand. In the Philippines, its products are imported and
sold at a mark-up by its exclusive distributor, Oranges, Inc. The BIR compiled a record of all the imports of
Oranges from Apples, and imposed a tax on Apples’ net income derived from its exports to Oranges. Is the
BIR correct?
a. No. Apples is a non-resident foreign corporation not engaged in trade of business in the
Philippines
b. No. The tax should have been computed on the basis of gross revenues and not net income
c. Yes. Apples is a non-resident foreign corporation engaged in trade of business in the
Philippines
d. Yes. Apples is doing business in the Philippines through its exclusive distributor, Oranges

____ 30. The head priest of the religious sect Tres Personas Solo Dios, as the corporation sole, rented out a 5,000 sq.
m. lot registered in its name for use as school site of a school organized for profit. The sect used the rentals
for the support and upkeep of its priests. The rented lot is
a. not exempt from real property taxes because the user is organized for profit.
b. exempt from real property taxes since it is actually, directly, and exclusively used for
educational purposes.
c. exempt from real property taxes since it is actually, directly, and exclusively used for
religious purposes.
d. not exempt from real property taxes since it is the rents, not the land, that is used for
religious purposes.

____ 31. S, a Filipino decedent, owns a property valued at P2 million at the time of his death. The said property was
sold during his lifetime to V for P1,300,000 when its real value was P1,700,000. It was agreed by both parties
that the delivery and payment will take place after S’ death. For purposes of Philippine estate tax, the
amount to be included in the gross estate would be
a. 700,000
b. 400,000
c. 1,700,000
d. 2,000,000

____ 32. Juan had filed a claim for tax refund amounting to P10,000 which was approved but unreleased due to
absence of public fund. Comes April 15, he ask you whether the tax refund be off-sited with his tax due
P10,000?
a. Yes. Both obligations (government and taxpayer) arise from the same law;
b. no. Obligation to pay the just compensation arise from a contract while obligation to pay
real property tax arise from law. Therefore, compensation can not take place;
 c. yes. both liabilities will form part of the public fund;
d. no. claim fro tax refund is subject to a suspensive condition while obligation to pay is
subject to a resolutory condition.

____ 33. Due to insufficiency of the budget for the Araw ng Davao celebration, the Mayor issued an executive order
that a 1 peso tax be imposed on sale of every liter of gasoline. Decide the validity of such imposition.
a. The imposition is valid. The mayor is empowered under its residual power as the local
chief executive
b. The imposition is invalid. The power to enact tax measure is lodge with it the congress.
c. The imposition is invalid. The mayor has no authority. The imposition of such tax should
emanate from the Sangunian or any local legislative authority.
d. The imposition is valid. Being contained in an executive order and likewise, the local
government is empowered to raise revenue.

____ 34. Anton is a Filipino citizen. He died intestate in San Diego, California, his last residence and domicile. He left
properties situated in the Philippines and in USA. An administrator who is registered in Quezon City RDO was
appointed to oversee his estate. The appointed administrator lives in Manila. For Philippine income tax
purposes, the estate tax return shall be filed in the:
a. Office of the Commissioner
b. RDO in Manila
c. RDO in Quezon City
d. None of the choices

____ 35. Infinity Corporation is registered under the laws of the Virgin Islands. It has extensive operations in
Southeast Asia. In the Philippines, Its products are imported and sold at a mark-up by its exclusive
distributor, Kim’s Trading, Inc. The BIR compiled a record of all the imports of Kim from Infinity and imposed
a tax on Infinity net income derived from its exports to Kim. Is the BIR correct?
a. No. The tax should have been computed on the basis of gross revenues and not net
income.
b. No. Infinity is a non-resident foreign corporation not engaged in trade or business in the
Philippines.
c. Yes. Infinity is a non-resident foreign corporation engaged in trade or business in the
Philippines.
d. Yes. Infinity is doing business in the Philippines through its exclusive distributor Kim’s
Trading. Inc.
____ 36. The taxpayer is a VAT-registered owner of an eatery place. Data on gross receipts follow:

Food 3,360
Beverages 420
Service charge 378
City Tax 54.60

What shall the official receipt show?

a. 4,658.10
b. 4,617.60
c. 4,666.20
d. 4,711.56

____ 37. Is it possible for the tax to be used partly for public and partly private without violating the limitation that a
tax must be for public purpose?
 a. Yes. The purpose is not important as long as the use of the tax can be property accounted
for.
b. Yes. The purpose to be accomplished by taxation need not be exclusively public. Although
private individuals are directly benefited, the tax will still be valid provided such benefit is
only incidental.
c. No. The purpose shall either be public or private. It cannot be both.
d. No. The purpose to be accomplished by taxation need to be exclusively public. To benefit
private individuals will be tantamount to deprivation of property of those who paid the tax
without due process.

____ 38. Don Juan, a widower, died in 2016. In his will, he left his estate of P100 million to his four children. He named
his compadre, Don Samuel, to be the administrator of the estate. When the BIR send a demand letter to Don
Samuel for the payment of the estate tax, he refused to pay claiming that he did not benefit from the estate
for not being an heir. He resigned as administrator. As a result of the resignation, who may be liable for the
payment of estate tax?
a. Don Samuel because the tax became due prior to his resignation.
b. All the four children, the tax to be divided equally among them.
c. The eldest child who would be reimbursed by the others.
d. The person designated in the will as the one liable.

____ 39. Mr. Toto procured a life insurance upon his own life. He designated his estate’s executor as an irrevocable
beneficiary. For estate tax purposes, the proceeds of life insurance is
a. not included in the gross estate of Toto because the designation of the beneficiary is
irrevocable
b. included in the gross estate of Toto because when the executor of the estate is a beneficiary
the proceeds are included in the gross estate regardless of the designation.
c. included in the gross estate of Toto because proceeds of life insurance are always subject
to estate tax
d. not included in the gross estate because, as a rule, proceeds of life insurance are generally
not subject to estate tax.

____ 40. Why is the fringe benefits tax collectible from the employer and not from the employee?
a. valuation of benefits is easier at the level of the employer.
b. collection of FBT is ensured because it is withheld at source
c. the employee does not have the means to pay
d. all of the choices are correct

____ 41. The administrator of the estate of Rommel is in a quandary as to which forgiveness of debt will he include in
the gross estate of a decedent. Which of the following will you tell him to include in the gross estate of his
decedent-client?
a. forgiveness of debt by a corporation in favor of a stockholder-decedent.
b. forgiveness of debt which followed after the debtor rendered services in favor of the
creditor-decedent.
c. forgiveness of debt done during the lifetime of the decedent, the debtor did not render
services in favor of the creditor-decedent.
d. forgiveness of debt provided in the will and testament of a decedent in favor of a debtor
who did not render services in favor of the creditor-decedent.
____ 42. The following data are taken from the records of Ms. Cecille, not VAT-registered, who owns various
businesses for the current year 2017:
 Gross sales from sale of shoes and clothes 300,000
Gross sales from her boutique 400,000
Gross receipts from her parlor 500,000
During the month of January, the following data are presented
Gross sales from sale of shoes and clothes 30,000
Gross sales from her boutique 40,000
Gross receipts from her parlor 50,000

To what percentage tax, if any, will she be subject?

a. Percentage tax on VAT exempt persons
b. Percentage tax on domestic common carriers
c. Percentage tax on franchise grantees
d. none of the choices
____ 43. During 2010, the total net amount paid for the salaries and wages amounted to P9 million after effecting the
following deductions for employees:

SSS premiums contributions 420,000

Philhealth premium contributions 100,000
Pag-ibig premium contributions 180,000
Creditable withholding tax 300,000

In addition, the corporation provided its VP Operations P340,000 cash as fringe benefit. The allowable
deduction for salaries and benefits is
a. 10,340,000
b. 9,340,000
c. 10,000,000
d. 10,500,000

____ 44. Andersen Minerals, Inc., a corporation registered and holding office in Australia, not operating in the
Philippines, may be subject to Philippine income taxation on
a. gains it derived from sale in Australia of an ore crusher it bought from the Philippines with
the proceeds converted to pesos.
b. interests derived from its dollar deposits in a Philippine bank under the Expanded Foreign
Currency Deposit System.
c. gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a
Philippine corporation.
d. dividends earned from investment in a foreign corporation that derived 40% of its gross
income from Philippine sources.

____ 45. What is the approach adopted for purposes of individual taxpayer?
a. combination of modular & global approach;
b. combination of sectorial & schedular approach;
c. combination of modular & sectorial approach;
d. combination of sectorial & schedular approach;
JPIA Contest: Tax
Answer Section

MULTIPLE CHOICE
1. ANS: C
SOL:
While taxation is an inherent power of the state, a crucial question is: How much, what time to collect, how
will the tax be collected, and how will collection be enforced? While the state can impose a tax, the tax
measure to answer these questions.
TOP: General Principles of Taxation
2. ANS: B
SOL:
Income of a government educational institution derived from its operations will be exempt from taxation if it
is actually, directly and exclusively used for educational purposes.
TOP: Income Tax Partnerships, Estates and Trusts
3. ANS: A
SOL:
Rental actually received (P100,000 x 4) P400,000
Accrued rent income, November, December
(P100,000 + P10,000) 200,000
Income under the accrual method P600,000
TOP: Income Tax Individuals
4. ANS: D
SOL:
The sale of agricultural and marine products in its original state by the producer of the land or by the
fisherman is exempt from the value-added tax by express provision of law.
TOP: VAT
5. ANS: A
SOL:
A donation is perfected on the date it is accepted by the donee. That is the rule under the Philippine civil laws.
TOP: Donors Tax
6. ANS: A
SOL:
A donation was consummated and the donor’s tax correctly due on it was paid. Apollo became the absolute
owner because of the donation. That he lost ownership for whatever reason will not make the payment of the
donor’s
TRAIN Law:There were changes brought about on estate tax that the problem cannot be solved anymore.
For example.
(a) There are no more deductions for medical expenses funeral expense;
(b) Standard deduction is now P5,000,000, unlike before of P1,000,000.
The vanishing deduction cannot be computed because of (a).
TOP: Donors Tax
7. ANS: D
SOL:
Exclusive Community Total
 Agricultural land P100,000
House and lot P500,000
Jewelry 50,000
Clothes 60,000
Cash on hand and in banks 300,000
Cash in bank
From sale at a loss of exclusive property 1,500,000
Received as gift before the marriage 40,000
current account
Other properties:
Owned before the marriage 90,000
Acquired during the marriage 20,000
2,240,000 420,000
P4,420,000 P900,000
Unpaid mortgage
On agricultural land ( 20,000)
On house and lot (100,000)
Other obligations ( 20,000)
Legacy to the Government of the Philippines (10,000)
Vanishing deduction (See computation) (77,744)
Net estate P4,232,256 P860,000 P5,092,256
Less: Share of the surviving spouse (430,000)
in the net community property
½ of P860,000
Standard Deduction (5,000,000)
Net taxable estate 0

Initial value to take P420,000

Mortgage indebtedness paid 20,000
Balance P400,000
Less: P400,000/P5,320,000 x 150,000 11,278
Basis of vanishing deduction P388,722
Vanishing deduction at 20% P77,744
TOP: Estate Tax
8. ANS: B
SOL:
A withholding tax is a requirement on somebody to enforce a Philippine tax law. We cannot require the
foreign government to perform for us a task of collecting the Philippine income tax. (Withholding tax is
payment of tax.) Besides, failure to withhold tax under the regulations has a penalty, and we cannot visit the
penalty on a foreign government, lest there be an embarrassment to both governments.
TOP: Income Tax Individuals
9. ANS: A
SOL:
Output tax on sale of goods to private entities (P2,800,000 x 12/112) P300,000
Less: Input tax (P800,000x 12%) 96,000
Value-added tax payable P204,000

“Gross of VAT” means VAT included, and “net of VAT” is VAT not included.
 TOP: VAT
10. ANS: C
SOL:
The power to tax is supreme and unlimited and cannot be negated by the mistakes of the tax collectors.
TOP: Tax Remedies
11. ANS: A
SOL:
Double taxation means two (or more) taxes on the same subject matter in the same year, by the same taxing
authority. There will be a violation of the rule prohibiting “direct double taxation” If there are two taxes on
the same subject matter (assumed in the problem as same year by the same taxing authority). There is a
violation of the equal protection clause in the law.
TOP: General Principles of Taxation
12. ANS: B
SOL:
Because Eunice did not receive cash, she did not recognize an income from receivable. If she did not
recognize income from the receivable, she is not to recognize a deduction from the uncollectibility of the
receivable.
TOP: Income Tax Individuals
13. ANS: A
SOL:
But the other answer choices shall also be correct.
TOP: VAT
14. ANS: A
SOL:
Where part of the income and principal will be paid to the life beneficiary for comfort, support and happiness,
the trustor did not retain control over the property equivalent to retaining absolute ownership. If there was no
absolute ownership on the property as at the time of death, the transferor upon death did not make a transfer
that will be subject to estate tax when he dies.

This rule applies under the old law and under the TRAIN Law.
TOP: Estate Tax
15. ANS: A
SOL:
By provision of law, past service cost shall be amortized over a period of ten years from the time it is set up,
and present service cost is a deduction from the gross income of the year that such present service cost is paid.
TOP: Income Tax Corporation
16. ANS: B
SOL:
Cash sales (P300,000 x 12%) P36,000
Open account sales (P750,000 x 12%) 90,000
Consignment sales
0 to 20 days old (P336,000 x 12%) - sold already because there was
remittance 40,320
62 days old and above (1,120,000 x 12%) 134,400
P300,720

Goods consigned are subject to VAT when actually sold or after 60 days from the date of consignment.
TOP: VAT
17. ANS: A
SOL:
Collection of tax is an enforcement of a right – a right of the state. On rights for which there are no specific
provision in any special law, the general law on prescription must apply. The general law under the Civil Code
may apply.
TOP: General Principles of Taxation
18. ANS: C
SOL:
A non-resident donor is subject to donor’s tax on donations of properties within the Philippines. Since all the
properties donated were within the Philippine, the fair market values must be considered;

House and lot in the Philippines (P2,000,000 less P1,500,000

P500,000)
To Development Academy of the Philippines 500,000
To son 300,000
Total P2,300,000
TOP: Donors Tax
19. ANS: D
SOL:
On any tax on which the taxpayer committed fraud or omission, any pres-
criptive period against the state begins from the date of discovery by the state of the fraud or omission.
Counted from March 2011, date of discovery, collection may still be made (within 10 years from date of
discovery in March 2011).
TOP: Local Government Code
20. ANS: A
SOL:
Since there is no retirement fund in place, the retirement payments will be out of the general fund. Since A
had rendered more than ten years of service, his retirement pay is exempt. But B is subject to tax on his
retirement pay.
TOP: Income Tax Individuals
21. ANS: A
SOL:
It was not owned by Mr. Jose anymore at the time of his death. A completed donation divested of ownership
of the property from Mr. Jose
TOP: Estate tax
22. ANS: B
SOL:
A premium payment on the bond filed by the administrator is a condition precedent for the administrator to
qualify and begin discharging his duties under the jurisdiction of the court. This is an judicial expense. Letter
(d) does not qualify-- It is an administration expense.
TOP: Estate tax
23. ANS: D
SOL:
Selling price P270,000
Less: Mortgage assumed by the buyer 160,000
Balance P110,000
Add: Excess of mortgage over cost 10,000
Contract price P120,000
TOP: Income Tax on Capital Assets, Sales or Exchange of Properties
24. ANS: C
SOL:
The people in the Bureau of Internal Revenue must be presumed to be doing their task on tax collection
honestly and there is not fraud or dishonesty - the assessment stated the fact and laws under which the
assessment was made. Everything done by the BIR must be considered as honest and correct. The burden of
proof is on the taxpayer to show that the BIR is wrong in its finding of facts and of application of law.
TOP: Tax Remedies
25. ANS: A
SOL:
Rent received on equipment P280,000
Output VAT at 12% P33,600
Operating expenses (11% of P2,000,000) P220,000
Input VAT at 12% 26,400
Value-added tax payable P7,200
TOP: VAT
26. ANS: D
SOL:
It is a cardinal rule in procedural law that there must not be “forum shopping” If administrative proceedings
were filed in one office in the Bureau of Internal Revenue, a new administrative proceedings cannot be filed
with another office in the same Bureau, until the proceedings in the first office is terminated by dismissal or
decision.
TOP: VAT
27. ANS: A
SOL:
This will prevent the taxpayer from unilaterally doing an act that will prejudice the right of the state to collect
the tax.
TOP: Tax Remedies
28. ANS: B
SOL:
Value of properties of Mr. Novak P220,000
Obligations of Mr. Novak 320,000
Less: Obligations to preferred creditors 80,000 240,000
Obligations of Mr. Novak that will not be paid - Claim
against insolvent (P20,000)
TOP: Estate Tax
29. ANS: A
SOL:
Apples qualifies as a non-resident foreign corporation not engaged in business in the Philippines. It is
Oranges who should pay the income tax on its own income from operations.
TOP: Income Tax Corporation
30. ANS: B
SOL:
Under the law, property actually used a religious organization for religious purposes shall be exempt from the
tax. Income from the lot is only incidental but necessary for the performance of functions for which the
corporation was organized, yet the fact is, it is used to perform its functions as a religious group – support the
priests.
TOP: Income Tax Partnerships, Estates and Trusts
31. ANS: D
SOL:
 Since delivery and payment is to take place at the time of death, there was no consummated sale during the
lifetime of S. A sale is consummated only when a delivery is made, even if payment is not yet made. The
property was owned by Mr. S up to the time of his death. The value to be included in his gross estate is
P2,000,000.
TOP: Estate Tax
32. ANS: A
SOL:
There are two rights against each other, under the Income Tax Law. Is there compensation that cancels out the
obligations? Yes. What is the point of a pro-tracted refund and a protracted collection? Let the two rights
offset each other.
TOP: Tax Remedies
33. ANS: C
SOL:
A tax, whether national or local, should be imposed by law. If it is national tax, it should be imposed by law
passed by the Congress of the Philippines, if it is a local tax, by an ordinance passed by the local legislative
authority, or Sangunian. The mayor has no legislative authority to issue an executive order to impose a tax.
An executive order is not a local legislation.
TOP: Local Government Code
34. ANS: C
SOL:
The estate tax return must be filed with the office who can recognize and have jurisdiction over the
representative of the estate - that should be the administrator registered with the RDO in Quezon City.
Residence of the administrator is not equivalent to personality to be recognized by the Bureau of Internal
Revenue.
TOP: Estate tax
35. ANS: B
SOL:
Infinity is not doing business in the Philippines. It is Kim’s Trading Inc. that is doing business in the
Philippines. Therefore, Infinity is a non-resident corporation and should be taxed on gross income from within
the Philippines. To Infinity there is no gross income from the Philippines.
TOP: Income Tax Corporation
36. ANS: C
SOL:
Sale of food P3,360.00
Sale of beverages 420.00
3,780.00
VAT at 12% of P3,780 453.60
Service charge (part of output tax) 378.00
City tax 54.60
Total P4,666.20
TOP: VAT
37. ANS: B
SOL:
The tax must be for a public purpose. As long as the overriding consideration for a tax is for the public good,
it does not become objection-able if there is benefit to certain interests or people, provided that benefit is only
incidental and minimal.
TOP: General Principles of Taxation
38. ANS: B
SOL:
 The estate tax must be paid by the estate. If the estate does not pay the tax, payment must be made by the
heirs in the proportion that they receive from the estate.
TOP: Estate Tax
39. ANS: B
SOL:
The requirements on inclusion in the gross estate of the proceeds of life insurance are present: taken upon his
own life with his executor as beneficiary.
TOP: Estate Tax
40. ANS: B
SOL:
There is wisdom in the law by providing for the computation of the fringe benefit by the employer. And there
is a statutory formula that the employee may not be able to handle. There shall not be an understatement in the
amount of the benefit by the employer because the employer knows that he will be answerable for an under-
declaration – all of the facts on the benefits being known to him.

(valuation of benefits is easier at the level of the employer, may also be an acceptable answer.)

This rule applies under the old law and under the TRAIN Law.
TOP: Income Tax Individuals
41. ANS: D
SOL:
A debt due a person is property of that person. When a person died with that property, he can give that
property by way of succession. Since the indebtedness was forgiven without a consideration (no services
rendered in return), that is giving away of property owned by the creditor, in a will. Property under the
circumstances must be included in the gross estate.
TOP: Estate Tax
42. ANS: A
SOL:
Ms. Cecille is not subject to taxes in (b) and (c) answer choices. But she does not pay the VAT because her
sales of the preceding year did not exceed the threshold of P3,000,000 (under the VAT). That being so, her
percentage tax will be the 3% percentage tax on gross receipts/sales.
TOP: Percentage and Other Taxes
43. ANS: D
SOL:
Net amount paid P9,000,000
Add: Mandatory deductions:
SSS premiums P420,000
Philhealth premium 100,000
Pagibig premium 180,000
Creditable withholding income tax 300,000 1,000,000
Fringe benefit 500,000
Total P10,500,000
TOP: Income Tax Individuals
44. ANS: C
SOL:
This is income from the Philippines.
TOP: Income Tax Corporation
45. ANS: B
SOL:
The approach on individual is scheduler because the tax is imposed depending on the schedule to which there
is the tax (for example, the capital gain income tax on shares of stock of domestic corporations), and it is
global, because the tax applies whether that income was earned from within or outside the Philippines.
TOP: General Principles of Taxation