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Which of the following is the main function of taxation? C. To raise revenues. C. To raise revenues. The following may be considered as a non-revenue objective of taxation, EXCEPT to _____. C. raise funds to defray the expenses of the government C. raise funds to defray the expenses of the government Which of the following tax systems will view indifferently the tax base and generally treat in common all categories of taxable income? B. A Global Tax System with Schedular Rates of Tax. B. A Global Tax System with Schedular Rates of Tax. B-India is a multinational corporation established under the laws of India. In order to penetrate the South East Asian market, it decided to establish B-Philippines, a fully-owned subsidiary of B-India. A perusal of the financial reports of B-Philippines for the last three years shows that only 30% of its income was sourced from the Philippines while the other 70% was sourced from neighboring South East Asian countries. During the year, B-Philippines wants to remit to B-India income amounting to P10M. B-Philippines asked for your advice regarding the income tax effects of the intended action. What would be your advice? C. B-Philippines should withhold branch profit remittance tax of 15% out of 10M. B. B-Philippines should withhold dividends tax 30% out of Php3M. For income tax purposes, which of the following would immediately prejudice the taxpayer during the year? The taxpayers dependent _______. A. marries D. changed his residence Which of the following is NOT a valid ground for seeking relief from Minimum Corporate Income Tax (MCIT)? B. Incurring net losses for several years which leads to inability to pay the tax. B. Incurring net losses for several years which leads to inability to pay the tax. The City of Pasay expropriated the residential house of X to pave the way for the construction of a flyover. Is the event subject to income tax? A. Yes, in the form of capital gains tax. C. Yes, either in the form of capital gains tax or ordinary income tax, at the taxpayer A is indebted to B in the amount of P100,000. For the services rendered by C, the brother of A, in favor of B, B forgave the indebtedness of A. What is the income tax consequence of this transaction? B. Only A shall declare an income in the amount of P100K. No income tax consequence for B and C. D. Only C shall declare an income in the amount of P100K. No income tax consequence for A and B. Due to the worthlessness of its investment in C Corporation, A Corporation decided to claim the value of the said worthless investments as bad debts, relying on the provisions of Section 34 E (2) of the National Internal Revenue Code (NIRC), after writing the said worthless investments off in its books. Comment on this procedure adopted by A Corporation. A. The procedure adopted is in accord with the NIRC, since worthless investments are considered as indebtedness resulting in bad debts. C. The procedure adopted is not in accord with the NIRC since worthless investments are not considered as indebtedness which would result in bad debts. For valuable services rendered by K to her employer, G Corporation, K was given an Option to Buy 1,000 G Corp. shares of stocks. The current market price of G Corp. is P100/share; but in the Option to Buy, K was granted the right to buy the shares at only P50/share. What is the income tax consequence of the foregoing transaction? C. There is no liability for income tax, whether at the time of the receipt or at the time of the exercise of the option to buy. B. At the moment of exercise of the option to buy, K shall be liable for income tax.

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In computing its income tax liability for the year 2005, X Corporation declared as part of deductible expenses not only the actual fringe benefits given to its managers and supervisors but also the corresponding fringe benefit tax imposed thereon. However, when the return was examined by examiners of the Bureau of Internal Revenue (BIR), the said deductions were disallowed on the ground that fringe benefit taxes are considered as income taxes; hence, they are non-deductible. Discuss the propriety of the BIRs actions. A. The action of the BIR is improper because fringe benefits, including the tax portion, are considered as ordinary and necessary business expenses. A. The action of the BIR is improper because fringe benefits, including the tax portion, are considered as ordinary and necessary business expenses. Which will NOT form part of the estate of a deceased alien who was residing in the Philippines at the time of his death? C. A life insurance proceed from a foreign insurer where his wife was designated as an irrevocable beneficiary. C. A life insurance proceed from a foreign insurer where his wife was designated as an irrevocable beneficiary. Which of the following is a requirement of the National Internal Revenue Code (NIRC)? B. Issuance of a preliminary assessment notice when the assessment is due to a deficient payment of an internal revenue tax. B. Issuance of a preliminary assessment notice when the assessment is due to a deficient payment of an internal revenue tax. Ka Pedring Matibag, a sole proprietor, buys and sells kumot at kulambo both of which are subject to value-added tax. Since he is using the calendar year as his taxable year, his taxable quarters end on the last day of March, June, September, and December. When should Ka Pedring file the VAT quarterly return for his gross sales or receipts for the period of June 1 to September 30? A. Within 25 days from September 30 A. Within 25 days from September 30 Spanflex Int'l Inc. received a notice of assessment from the BIR. It seasonably filed a protest with all the necessary supporting documents but the BIR failed to act on the protest. Thirty days from the lapse of 180 days from the filing of its protest, Spanflex still has not elevated the matter to the CTA. What remedy, if any, can Spanflex take? C. It may wait for the final decision of the BIR on his protest and appeal it to the CTA within 30 days from receipt of such decision. C. It may wait for the final decision of the BIR on his protest and appeal it to the CTA within 30 days from receipt of such decision. When a BIR decision affirming an assessment is appealed to the CTA, the BIR's power to garnish the taxpayer's bank deposits D. is not suspended since the continued existence of government depends on tax revenues. D. is not suspended since the continued existence of government depends on tax revenues. Zygomite Minerals, Inc., a corporation registered and holding office in Australia, not operating in the Philippines, may be subject to Philippine income taxation on B. gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation. B. gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation. A violation of the tariff and customs laws is the failure to B. pay the customs duties and taxes or to comply with the rules on customs procedures. B. pay the customs duties and taxes or to comply with the rules on customs procedures. Lualhati Educational Foundation, Inc., a stock educational institution organized for profit, decided to lease for commercial use a 1,500 sq. m. portion of its school. The school actually, directly, and exclusively used the rents for the maintenance of its school buildings, including payment of janitorial services. Is the leased portion subject to real property tax? D. Yes, since the leased portion is not actually, directly, and exclusively used for educational purposes. D. Yes, since the leased portion is not actually, directly, and exclusively used for educational purposes. Which of the following are NOT usually imposed when there is a tax amnesty?

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A. Civil, criminal, and administrative penalties A. Civil, criminal, and administrative penalties

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Which of the following is subject to Philippine final income taxes? C. Stock dividends declared by a domestic corporation received by a resident citizen. D. Property dividend declared by a domestic corporation received by a non-resident alien engaged in trade or business in the Philippines. B-India is a multinational corporation established under the laws of India. In order to penetrate the South East Asian market, it decided to establish B-Philippines, a fully-owned subsidiary of B-India. A perusal of the financial reports of B-Philippines for the last three years shows that only 30% of its income was sourced from the Philippines while the other 70% was sourced from neighboring South East Asian countries. During the year, B-Philippines wants to remit to B-India income amounting to P10M. B-Philippines asked for your advice regarding the income tax effects of the intended action. What would be your advice? C. B-Philippines should withhold branch profit remittance tax of 15% out of 10M. B. B-Philippines should withhold dividends tax 30% out of Php3M. JJJ, a non-stock, non-profit educational institution, bought from BBB, a resident citizen, his residential house and lot located at Ayala Ave., Baguio City. BBB would be using the proceeds of the sale to buy his new residential house and lot in Green Valley, Baguio City. JJJ will use the property bought as a site for the construction of a new building for its School of Law. From the above facts, which statement is correct? A. JJJ is not liable for capital gains tax because it is a non-stock, non-profit educational institution. C. BBB is liable for capital gains tax even if he sold a residential house. A corporation, which is on its second year of operation, incurred a net loss for the year. Is the corporation required to file an annual income tax return? C. Yes, because it is required to file a tax return notwithstanding a loss. C. Yes, because it is required to file a tax return notwithstanding a loss. Which of the following is NOT VAT-exempt? B. Lease of residential apartments where the monthly rental is less than Php10K, even if the total rentals from all apartments during the year exceeded Php1.5M. C. Sale of services by a VAT registered person in favor of a foreign client, and the payment is made in Philippine currency. In his income tax return filed last 15 April 2006, R overpaid his income tax for the year 2005. However, he discovered the error only on 1 November 2007. The following day, he filed a written claim for refund addressed to the Commissioner of Internal Revenue (CIR). After the lapse of 180 days, the CIR did not yet act on the claim for refund. Upon these facts, which of the following is correct? D. Rs right to refund had already prescribed. D. Rs right to refund had already prescribed. Are there situations when the imposition of the surcharge may be dispensed with? C. Yes, on highly exceptional situations such as when there was good faith and honest belief of the taxpayer that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law. C. Yes, on highly exceptional situations such as when there was good faith and honest belief of the taxpayer that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law. In order to raise revenue for the repair and maintenance of the newly constructed City Hall of Makati, the City Mayor ordered the collection of P1.00, called "elevator tax", every time a person rides any of the high-tech elevators in the City Hall during the hours of 8:00 a.m. to 10:00 a.m. and 4:00 p.m. to 6:00 p.m. Is the "elevator tax" a valid imposition? D. No, because no reasonable standards were used by the local government unit. C. No, because there was no proper levy of the tax.

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A municipality may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement only if A. the real property is within the Metropolitan Manila Area. A. the real property is within the Metropolitan Manila Area. There is no taxable income until such income is recognized. Taxable income is recognized when the C. income has been received, either actually or constructively. C. income has been received, either actually or constructively. Keyrand, Inc., a Philippine corporation, sold through the local stock exchange 10,000 PLDT shares that it bought 2 years ago. Keyrand sold the shares for P2 million and realized a net gain of P200,000.00. How shall it pay tax on the transaction? D. It shall pay a tax of one-half of 1% of the P2 million gross sales. D. It shall pay a tax of one-half of 1% of the P2 million gross sales. Federico, a Filipino citizen, migrated to the United States some six years ago and got a permanent resident status or green card. He should pay his Philippine income taxes on C. the gains derived from the sale in the New York Stock Exchange of shares of stock in PLDT, a Philippine corporation. C. the gains derived from the sale in the New York Stock Exchange of shares of stock in PLDT, a Philippine corporation. When a BIR decision affirming an assessment is appealed to the CTA, the BIR's power to garnish the taxpayer's bank deposits D. is not suspended since the continued existence of government depends on tax revenues. D. is not suspended since the continued existence of government depends on tax revenues. Real property taxes should not disregard increases in the value of real property occurring over a long period of time. To do otherwise would violate the canon of a sound tax system referred to as B. fiscal adequacy. B. fiscal adequacy. No action shall be taken by the BIR on the taxpayer's disputed issues until the taxpayer has paid the deficiency taxes D. attributable to the undisputed issues in the assessment notice. D. attributable to the undisputed issues in the assessment notice. Ka Tato owns a parcel of land in San Jose, Batangas 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 Ka Tato'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? B. No. The deficiency taxes for the period 1990 up to 2011 may still be collected within 10 years from March 2011. B. No. The deficiency taxes for the period 1990 up to 2011 may still be collected within 10 years from March 2011. Lualhati Educational Foundation, Inc., a stock educational institution organized for profit, decided to lease for commercial use a 1,500 sq. m. portion of its school. The school actually, directly, and exclusively used the rents for the maintenance of its school buildings, including payment of janitorial services. Is the leased portion subject to real property tax? D. Yes, since the leased portion is not actually, directly, and exclusively used for educational purposes. D. Yes, since the leased portion is not actually, directly, and exclusively used for educational purposes. Discriminatory duties may NOT be imposed upon articles A. wholly manufactured in the discriminating country but carried by vessels of another country. D. not manufactured in the discriminating country and carried by vessels of another country. In Operation Kandado, the BIR temporarily closed business establishments, including New

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Dynasty Corporation that failed to comply with VAT regulations. New Dynasty contends that it should not be temporarily closed since it has a valid and existing VAT registration, it faithfully issued VAT receipts, and filed the proper VAT returns. The contention may be rejected if the BIR investigation reveals that Your answer : Correct answer : 20) Question : D. there was an understatement of taxable sales or receipts by 30% or more for the taxable quarter. D. there was an understatement of taxable sales or receipts by 30% or more for the taxable quarter. 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 D. exempt from real property taxes since it is actually, directly, and exclusively used for educational purposes. D. exempt from real property taxes since it is actually, directly, and exclusively used for educational purposes. The eclectic theory as applied to taxation means that ______. C. our tax laws cannot extend outside our territorial jurisdiction C. our tax laws cannot extend outside our territorial jurisdiction Which of the following is NOT a scheme of shifting the incidence of taxation? B. The purchaser asks for a discount or refuses to buy at regular prices unless it is reduced by the amount equal to the tax he will pay. C. Changing the terms of the sale like Free-On-Board (FOB) shipping point in the Philippines to FOB destination abroad, so that the title passes abroad instead of in the Philippines. Under the National Internal Revenue Code (NIRC), income is received not only when it is actually or physically transferred to a person but even when it is merely constructively received by him. Which is NOT an example of income constructively received? A. The distributive share of a partner in the income of a partnership, which share was not actually distributed yet to the partners. C. Advance deposit made by the lessee which is convertible to rentals. The following may affect the computation of returnable gains and losses for income tax purposes, EXCEPT ________. D. status of the taxpayer D. status of the taxpayer Using the facts mentioned in item No. 50, when KD executed a Deed of Reconveyance in favor of AG, the Registrar of Deeds required that a prior tax clearance be shown before he cancels the title of KD and issue a new one in favor of AG. Was the action of the Registrar of Deeds proper? A. Yes, it is proper because the Registrar is duty bound to ensure that prior to cancelation of registration of title and issuing a new one, a tax clearance should first be issued by the Bureau of Internal Revenue (BIR). A. Yes, it is proper because the Registrar is duty bound to ensure that prior to cancelation of registration of title and issuing a new one, a tax clearance should first be issued by the Bureau of Internal Revenue (BIR). B Corporation, a domestic corporation, bought machineries from HK Corporation, a non-resident foreign corporation with principal office in Hong Kong. After some time, the machines bought by B Corporation necessitated repairs. B Corporation immediately contacted HK Corporation, and the parties agreed on the following terms: HK Corporation will conduct its repairs, subject to the payment of a consideration of $1M, payable as follows: $500,000 to be paid upon execution of the contract, while the remaining $500,000 shall be paid in five equal annual installments, with interest at 10% per annum on the amount outstanding. After the parties have entered into an agreement, B Corporation immediately shipped back the machines to HK Corporation for the repairs. Thereafter, when the repairs were completed, B Corporation complied religiously with its obligation to pay. Suppose B Corporation asked your advice as to whether it should subject the payments to withholding taxes, what would your advice be? A. To withhold taxes on the all the payments. C. To withhold taxes on the payment of interest only. H and W were married until their marriage was declared void due to psychological incapacity of H. The decree of nullity became final on 05 October 2010. Affected by the separation of their parents

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H & W, children A and B decided to live permanently with their grandparents, who provided them their chief support. For purposes of their income tax liability for 2010, discuss the additional exemptions that H and W shall enjoy. Your answer : Correct answer : D. No one can claim additional exemption. D. No one can claim additional exemption. Which is NOT within the competence of the Court of Tax Appeals (CTA) to decide? C. Appeals from decisions rendered by Regional Trial Court (RTC) in the exercise of its original jurisdiction. A. Issues involving disputed assessments of internal revenue taxes. Taxpayer K Corporation filed its Annual Income Tax Return for taxable year 1998 on 14 April 1999. Records of the case show that while the Bureau of Internal Revenue (BIR) avers that it sent the assessment notice dated 1 February 2002 on 6 February 2002, taxpayer K Corporation denies having received an assessment notice from the BIR. K Corporation alleges that it came to know of the deficiency tax assessment only on 17 March 2003 when it was served with the Warrant of Distraint and Levy. From the foregoing facts, which is correct? C. The BIR can invoke the presumption under Section 3(v), Rule 131 of the Rules of Court that when a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course of mail; thus, the burden rests on the taxpa A. The BIR has the burden of evidence to prove that the assessment has indeed been sent. Applying the facts mentioned in item No. 73, suppose that the CIR, in the process of reviewing the return of UB, found out that the school did not include certain non-school related income in its return, which would make the school liable for more MCIT than what it had paid. Thus, after complying with the procedural requirements of law, the BIR, on 30 May 2008, issued a formal assessment notice to UB assessing the deficiency MCIT for 2003. Is this act of the CIR legally justified? D. Yes, it is legally justified because the assessment and collection of MCIT does not prescribe. C. Yes, it is legally justified because the assessment was made within the period of prescription. B overpaid his real property tax for the year 2004. Sometime during the year 2005, he filed a written claim for refund with the local treasurer. After the lapse of 60 days, the treasurer did not act yet on his claim. Upon these facts, which of the following is correct? D. B should immediately appeal to the Local Board of Assessment Appeals within 60 days from the lapse of the 60-day period that the treasurer should act. D. B should immediately appeal to the Local Board of Assessment Appeals within 60 days from the lapse of the 60-day period that the treasurer should act. Anne Lapada, a student activist, wants to impugn the validity of a tax on text messages. Aside from claiming that the law adversely affects her since she sends messages by text, what may she allege that would strengthen her claim to the right to file a taxpayer's suit? B. That tax money is being extracted and spent in violation of the constitutionally guaranteed right to freedom of communication. B. That tax money is being extracted and spent in violation of the constitutionally guaranteed right to freedom of communication. Amaretto, Inc., imported 100 cases of Marula wine from South Africa. The shipment was assessed duties and value-added taxes of P300,000 which Amaretto, Inc. immediately paid. The Bureau of Customs did not, however, issue the release papers of the shipment yet since the Food and Drug Administration (FDA) needed to test the suitability of the wine for human consumption. Is the Bureau of Customs at fault for refusing to release the shipment just as yet? D. No, because the Bureau of Customs has not yer issued the legal permit for withdrawal pending the FDA's findings. D. No, because the Bureau of Customs has not yer issued the legal permit for withdrawal pending the FDA's findings. Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate and operate it, resulting in its destruction? B. Lifeblood theory B. Lifeblood theory Ka Pedring Matibag, a sole proprietor, buys and sells kumot at kulambo both of which are subject to value-added tax. Since he is using the calendar year as his taxable year, his taxable quarters end on the last day of March, June, September, and December. When should Ka Pedring file the

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VAT quarterly return for his gross sales or receipts for the period of June 1 to September 30? Your answer : Correct answer : Question : A. Within 25 days from September 30 A. Within 25 days from September 30 Spanflex Int'l Inc. received a notice of assessment from the BIR. It seasonably filed a protest with all the necessary supporting documents but the BIR failed to act on the protest. Thirty days from the lapse of 180 days from the filing of its protest, Spanflex still has not elevated the matter to the CTA. What remedy, if any, can Spanflex take? C. It may wait for the final decision of the BIR on his protest and appeal it to the CTA within 30 days from receipt of such decision. C. It may wait for the final decision of the BIR on his protest and appeal it to the CTA within 30 days from receipt of such decision. Anion, Inc. received a notice of assessment and a letter from the BIR demanding the payment of P3 million pesos in deficiency income taxes for the taxable year 2008. The financial statements of the company show that it has been suffering financial reverses from the year 2009 up to the present. Its asset position shows that it could pay only P500,000.00 which it offered as a compromise to the BIR. Which among the following may the BIR require to enable it to enter into a compromise with Anion, Inc.? C. Anion must waive its right to the secrecy of its bank deposits. C. Anion must waive its right to the secrecy of its bank deposits. Zygomite Minerals, Inc., a corporation registered and holding office in Australia, not operating in the Philippines, may be subject to Philippine income taxation on B. gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation. B. gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation. After the province has constructed a barangay road, the Sangguniang Panglalawigan may impose a special levy upon the lands specifically benefitted by the road up to an amount not to exceed A. 60% of the actual cost of the road without giving any portion to the barangay. A. 60% of the actual cost of the road without giving any portion to the barangay. There is prima facie evidence of a false or fraudulent return where the D. deductions claimed exceed by 30% the actual deductions. D. deductions claimed exceed by 30% the actual deductions. X died leaving behind several properties. In his will, X bequeathed all his properties to his children A, B and C. D, asserting that he is an illegitimate child of X, opposed the probate of the will, claiming that it is intrinsically invalid because of preterition. The probate court appointed A as the administrator of the properties of X. Having an entrepreneurial mind, A continued the business of X, which is primarily devoted to infrastructure and real property development. As per agreement by the heirs, no one shall take any portion of the estate, as such will be used for the furtherance of the business of X. The Commissioner of Internal Revenue (CIR), having received reliable information that the administrator is generating a lot of income for the estate, assessed the heirs of deficiency corporate taxes. Which of the following best describes the action taken by the CIR? B. The action of the CIR is not correct because corporations for infrastructure projects are not income taxpayers. C. The action of the CIR is not correct because the CIR should have assessed the estate itself of taxes. JJJ, a non-stock, non-profit educational institution, bought from BBB, a resident citizen, his residential house and lot located at Ayala Ave., Baguio City. BBB would be using the proceeds of the sale to buy his new residential house and lot in Green Valley, Baguio City. JJJ will use the property bought as a site for the construction of a new building for its School of Law. From the above facts, which statement is correct? C. BBB is liable for capital gains tax even if he sold a residential house. C. BBB is liable for capital gains tax even if he sold a residential house. Which of the following is applicable to corporations as regards the determination of their income tax liabilities? C. Net Capital Loss Carry Over Rule.

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A. Loss Limitation Rule. For its expansion plan for the year 2010, YouPee, a proprietary educational institution, obtained a loan from Metrobank for the construction of a school building, for which YouPee is paying substantial interests. As part of its financial policy, YouPee deposits in a bank account the tuition and other fees collected from students. For its income tax return in 2010, YouPee deducted in full the interest expenses on its loan obtained from Metrobank. The Bureau of Internal Revenue (BIR) disallowed the deduction on the ground that the same should be capitalized, or that the same should be subject to reduction. YouPee counters that it can declare the interest expense as an outright business expense and that it is not mandated to adjust the amount considering that it did not adopt a tax arbitrage scheme. Which would be the best decision based on the foregoing facts? C. The BIR is correct in arguing that YouPee should capitalize the interest expense, but YouPee is correct in arguing that there should be no adjustment to the interest expense. D. YouPee is correct in arguing that the interest expense may be declared as an outright expense, but the BIR is correct in arguing that there should be adjustments to the interest expense despite the non-availment by the taxpayer of the tax arbitrage sch Section 30 of the National Internal Revenue Code (NIRC) provides in part that the income of tax exempt corporations of whatever kind and character from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to tax imposed under the said code (NIRC). ESELYU, a non-stock, nonprofit educational institution and an exempt corporation as provided under Section 30 (H) of the NIRC, conducted a fund-raising activity for purposes of constructing its new school building. By reason of this, and relying on the aforesaid provision of the NIRC, the Bureau of Internal Revenue (BIR) assessed ESELYU for income taxes on the income generated from the fund-raising activity. Discuss the propriety of this act of the BIR. A. The action of the BIR was proper, since the source of the income is an activity conducted for profit. C. The action of the BIR was not proper, as the source of the tax exemption of ESELYU is the Constitution and not Section 30 of the NIRC. H and W were married until their marriage was declared void due to psychological incapacity of H. The decree of nullity became final on 05 October 2010. Affected by the separation of their parents H & W, children A and B decided to live permanently with their grandparents, who provided them their chief support. For purposes of their income tax liability for 2010, discuss the additional exemptions that H and W shall enjoy. D. No one can claim additional exemption. D. No one can claim additional exemption. Which of the following may NOT be compromised based on reasonable doubt? B. The civil aspect of a criminal case for violation of the National Internal Revenue Code (NIRC) that is already pending in court. D. A withholding tax liability which is not yet filed with the courts where the taxpayer was alleged to have failed to remit to the government the said withholding tax. Taxpayer K Corporation filed its Annual Income Tax Return for taxable year 1998 on 14 April 1999. Records of the case show that while the Bureau of Internal Revenue (BIR) avers that it sent the assessment notice dated 1 February 2002 on 6 February 2002, taxpayer K Corporation denies having received an assessment notice from the BIR. K Corporation alleges that it came to know of the deficiency tax assessment only on 17 March 2003 when it was served with the Warrant of Distraint and Levy. From the foregoing facts, which is correct? A. The BIR has the burden of evidence to prove that the assessment has indeed been sent. A. The BIR has the burden of evidence to prove that the assessment has indeed been sent. Which of the following is a requirement of the National Internal Revenue Code (NIRC)? B. Issuance of a preliminary assessment notice when the assessment is due to a deficient payment of an internal revenue tax. B. Issuance of a preliminary assessment notice when the assessment is due to a deficient payment of an internal revenue tax. X filed his tax return on 13 October 2005. Realizing an error in the filing of the said return, he filed a claim for refund, but the same was denied by the Commissioner of Internal Revenue on 12 September 2007. He intended to file his Petition before the Court of Tax Appeals on 12 October 2007, but the said date was declared as a non-working holiday. X thus filed his Petition on 15 October 2007, which is the next working day. Which of the following is correct? C. The petition should be given due course because there was a supervening event.

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B. The petition was filed out of time. Are there situations when the imposition of the surcharge may be dispensed with? C. Yes, on highly exceptional situations such as when there was good faith and honest belief of the taxpayer that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law. C. Yes, on highly exceptional situations such as when there was good faith and honest belief of the taxpayer that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax law. Which of the following is NOT within the scope of the revenue raising power of Provinces? B. Fees or charges on services rendered by the Province. C. Fees or charges on inspecting certain businesses. The Collector of Customs issued a warrant of seizure and detention against X for goods believed to have been smuggled by him. Acting on such warrant, customs agents went to Xs warehouse, forcibly opened the same, and seized the goods subject of such warrant. Upon these facts, which of the following is correct? D. The warrant is not valid because it was issued merely by the Collector and not the Commissioner of Customs. C. The goods were validly seized because it was by virtue of a warrant of seizure issued by the Collector of Customs which was already sufficient to effect a valid search and seizure in this case. The Collector of Customs commenced seizure proceedings over the goods imported by J. K, who claims to be the lawful owner of the goods subject of the seizure proceedings, filed a case before the Regional Trial Court (RTC) against the Bureau of Customs for recovery of possession with prayer for the issuance of a writ of replevin. The trial court issued summons requiring the Collector to file his responsive pleading. What is the best action to be taken by the Collector? A. Move to dismiss the RTC case as primary jurisdiction is already with the Bureau. A. Move to dismiss the RTC case as primary jurisdiction is already with the Bureau. The spouses Helena and Federico wanted to donate a parcel of land to their son Dondon who is getting married in December, 2011. The parcel of land has a zonal valuation of P420,000.00. What is the most efficient mode of donating the property? C. The spouses should each donate a P110,000.00 portion of the value of the property in 2011 then each should donate P100,000.00 in 2012. C. The spouses should each donate a P110,000.00 portion of the value of the property in 2011 then each should donate P100,000.00 in 2012. Although the power of taxation is basically legislative in character, it is NOT the function of Congress to A. fix with certainty the amount of taxes. B. collect the tax levied under the law. Income from dealings in property (real, personal, or mixed) is the gain or loss derived B. from cash and gratuitous receipts of property. D. only from the sale of property. The excess of allowable deductions over gross income of the business in a taxable year is known as D. NOLCO. A. net operating loss. Prior to the enactment of the Local Government Code, consumer's cooperatives registered under the Cooperative Development Act enjoyed exemption from all taxes imposed by a local government. With the Local Government Code's withdrawal of exemptions, could these cooperatives continue to enjoy such exemption? D. Yes, their exemption is specifically mentioned among those not withdrawn by the Local Government Code. D. Yes, their exemption is specifically mentioned among those not withdrawn by the Local Government Code. Which among the following concepts of taxation is the basis for the situs of income taxation?

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B. Symbiotic relation in taxation B. Symbiotic relation in taxation

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Of the following, which tax exemption does NOT require the application of the principle of strictissimi juris interpretation? Tax exemptions granted to a _____. C. barangay C. barangay The following may be considered as a non-revenue objective of taxation, EXCEPT to _____. C. raise funds to defray the expenses of the government C. raise funds to defray the expenses of the government X died leaving behind several properties. In his will, X bequeathed all his properties to his children A, B and C. D, asserting that he is an illegitimate child of X, opposed the probate of the will, claiming that it is intrinsically invalid because of preterition. The probate court appointed A as the administrator of the properties of X. Having an entrepreneurial mind, A continued the business of X, which is primarily devoted to infrastructure and real property development. As per agreement by the heirs, no one shall take any portion of the estate, as such will be used for the furtherance of the business of X. The Commissioner of Internal Revenue (CIR), having received reliable information that the administrator is generating a lot of income for the estate, assessed the heirs of deficiency corporate taxes. Which of the following best describes the action taken by the CIR? C. The action of the CIR is not correct because the CIR should have assessed the estate itself of taxes. C. The action of the CIR is not correct because the CIR should have assessed the estate itself of taxes. Which of the following is applicable to corporations as regards the determination of their income tax liabilities? A. Loss Limitation Rule. A. Loss Limitation Rule. Which of the following are NOT examples of related taxpayers? B. An individual and a corporation, more than 50% of the outstanding capital stock of which is owned by the said individual. C. The grantor and the beneficiary of a trust. BV Corporation obtained a loan from its President and majority stockholder, RE. The contract of loan was notarized and was entered in the books of the corporation as a loan payable to RE. The loan was bearing interest at a rate of 25% interest per annum. At the end of the year, the corporation paid the interest on the said loan and deducted the same as an interest expense. The Bureau of Internal Revenue (BIR), however, disallowed the same on the ground that the payment to RE is not an interest expense but a declaration of dividend to a stockholder, RE. Further, the BIR assessed BV Corporation of dividends tax for the dividend declared and received by RE arising from the payment of the interest on the loan. Suppose you were tasked to decide on the matter, which of the following considerations would be LEAST useful in your resolution? C. Frequency of the grant of loan by RE to BV. D. The functions performed by RE as President of BV. Which of the following is NOT VAT-exempt? C. Sale of services by a VAT registered person in favor of a foreign client, and the payment is made in Philippine currency. C. Sale of services by a VAT registered person in favor of a foreign client, and the payment is made in Philippine currency. Which of the following may generally be delegated? A. The power to reassign tax officials from one district office to another. D. All of the above. Which of the following is within the exclusive and original jurisdiction of the Court of Tax Appeals (CTA)?

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C. Internal revenue tax collection cases where the amount involved exceeds P1M, even if the case does not involve fraud. C. Internal revenue tax collection cases where the amount involved exceeds P1M, even if the case does not involve fraud. After examining the corporate records of X Corporation, the Bureau of Internal Revenue (BIR) discovered that the said corporation improperly retained substantial amounts of its earnings accumulated during the years 1999-2002. For some reason, the BIR was not able to immediately commence collection proceedings against X Corporation. It was only after four years that the BIR assessed X Corporation for improperly accumulated earnings tax, in preparation for collection proceedings against the said corporation. Upon these facts, which of the following is correct? B. The proceedings were still timely made because assessment of internal revenue taxes can be made anytime within five years from the filing of the return. C. The proceedings were still timely made because assessment of improperly accumulated earnings tax does not prescribe. Which of the following are NOT within the scope of the revenue raising powers of a municipality? D. Fees or charges on inspecting certain businesses. B. Sand and Gravel Tax. The Secretary of Finance issued a regulation stating that unpaid real property taxes should be subjected to a 2% interest per month from the time of the delinquency until the tax shall have been fully paid. Which of the following statements is correct? D. The regulation is invalid because the Secretary of Finance has no authority to issue regulations concerning local and real property tax matters. B. The regulation is invalid because the imposition of the 2% monthly interest should be limited to 36 months. Do the Regional Trial Courts (RTC) possess the power to issue injunctions re: collection of local taxes? D. No, because the power to enjoin collection of taxes is within the jurisdiction of the Court of Tax Appeals. A. Yes, provided that all requisites for injunction under the Rules of Court are present, because there is no express prohibition under the Local Government Code. There is no taxable income until such income is recognized. Taxable income is recognized when the C. income has been received, either actually or constructively. C. income has been received, either actually or constructively. Which theory in taxation states that without taxes, a government would be paralyzed for lack of power to activate and operate it, resulting in its destruction? B. Lifeblood theory B. Lifeblood theory Anktryd, Inc., bought a parcel of land in 2009 for P7 million as part of its inventory of real properties. In 2010, it sold the land for P12 million which was its zonal valuation. In the same year, it incurred a loss of P6 million for selling another parcel of land in its inventory. These were the only transactions it had in its real estate business. Which of the following is the applicable tax treatment? B. Anktryd could deduct its P6 million loss from its P5 million gain. B. Anktryd could deduct its P6 million loss from its P5 million gain. The actual effort exerted by the government to effect the exaction of what is due from the taxpayer is known as D. collection. D. collection. Federico, a Filipino citizen, migrated to the United States some six years ago and got a permanent resident status or green card. He should pay his Philippine income taxes on C. the gains derived from the sale in the New York Stock Exchange of shares of stock in PLDT, a Philippine corporation. C. the gains derived from the sale in the New York Stock Exchange of shares of stock in PLDT, a Philippine corporation. No action shall be taken by the BIR on the taxpayer's disputed issues until the taxpayer has paid

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the deficiency taxes D. attributable to the undisputed issues in the assessment notice. D. attributable to the undisputed issues in the assessment notice. Ka Tato owns a parcel of land in San Jose, Batangas 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 Ka Tato'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? B. No. The deficiency taxes for the period 1990 up to 2011 may still be collected within 10 years from March 2011. B. No. The deficiency taxes for the period 1990 up to 2011 may still be collected within 10 years from March 2011.

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The eclectic theory as applied to taxation means that ______. C. our tax laws cannot extend outside our territorial jurisdiction C. our tax laws cannot extend outside our territorial jurisdiction Which of the following statements would show the interplay of the other inherent powers of the state vis--vis the power of taxation? Your answer : B. Taxation cannot be used to achieve a police power objective because police power is dealing entirely with matters not connected with taxation. Correct answer : D. Taxation cannot be used to defeat objectives of police power and eminent domain. Question : Three brothers inherited in 1998 a parcel of land valued for real estate tax 3) purposes at P3 million which they held in co-ownership. In 2000, they transferred the property to a newly-organized corporation as their equity which was placed at the zonal value of P6 million. In exchange for the property, the three brothers each received shares of stocks of the corporation with a total par value of P2 million, or altogether, a total of P6 million, representing 60% of the outstanding shares of stocks of the said corporation. No business was done by the corporation, and the property remained idle. In the early part of 2002, one of the brothers, who was in dire need of funds, sold his shares to the two brothers for P2 million. Which is a correct internal revenue tax consequence of the abovementioned transactions? Your answer : A. The transfer of the land to the corporation shall be subject to capital gains tax. Correct answer : B. The transfer of the land to the corporation shall be exempt from income tax. Question : T Corporation sold a real property classified as capital asset in the 4) Philippines. How will the income on the sale be subjected to income tax? Your answer : D. All of the above are correct. Correct answer : D. All of the above are correct. Question : For its expansion plan for the year 2010, YouPee, a proprietary 5) educational institution, obtained a loan from Metrobank for the

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construction of a school building, for which YouPee is paying substantial interests. As part of its financial policy, YouPee deposits in a bank account the tuition and other fees collected from students. For its income tax return in 2010, YouPee deducted in full the interest expenses on its loan obtained from Metrobank. The Bureau of Internal Revenue (BIR) disallowed the deduction on the ground that the same should be capitalized, or that the same should be subject to reduction. YouPee counters that it can declare the interest expense as an outright business expense and that it is not mandated to adjust the amount considering that it did not adopt a tax arbitrage scheme. Which would be the best decision based on the foregoing facts? D. YouPee is correct in arguing that the interest expense may be declared as an outright expense, but the BIR is correct in arguing that there should be adjustments to the interest expense despite the nonavailment by the taxpayer of the tax arbitrage sch D. YouPee is correct in arguing that the interest expense may be declared as an outright expense, but the BIR is correct in arguing that there should be adjustments to the interest expense despite the non-availment by the taxpayer of the tax arbitrage sch In computing its income tax liability for the year 2005, X Corporation declared as part of deductible expenses not only the actual fringe benefits given to its managers and supervisors but also the corresponding fringe benefit tax imposed thereon. However, when the return was examined by examiners of the Bureau of Internal Revenue (BIR), the said deductions were disallowed on the ground that fringe benefit taxes are considered as income taxes; hence, they are non-deductible. Discuss the propriety of the BIRs actions. A. The action of the BIR is improper because fringe benefits, including the tax portion, are considered as ordinary and necessary business expenses. A. The action of the BIR is improper because fringe benefits, including the tax portion, are considered as ordinary and necessary business expenses. T Bank is an offshore bank operating in the Philippines. It earned income from its foreign currency transactions by lending to the following: (a) a foreign currency deposit unit (FCDU) of another bank; (b) X Corporation, a domestic corporation. How will the foregoing be taxed? D. Both shall be exempt from tax. A. The income from the lending in favor of an FCDU is exempt; while the income from X shall be subject to an income tax of 10%. Which of the following may NOT be done by the Commissioner of Internal Revenue (CIR)? D. All the above may be done by the CIR. B. Issue revenue regulations.

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Which of the following are NOT within the scope of the revenue raising powers of a municipality? C. Fees or charges on services rendered by the municipality. B. Sand and Gravel Tax. BL has a one-hectare residential land located at Cebu City. One-half portion of the land is occupied by his residence and a garden, while the other half is vacant. BL received a notice of assessment from the City Treasurer of Cebu requiring him to pay an idle land tax for his vacant lot. BL paid the tax under protest. His protest, however, was denied by the City Treasurer. Immediately, he filed a petition before the Regional Trial Court, Cebu City, questioning the propriety of the acts of the City Treasurer. Which of the following is correct? C. The action will not prosper as the court has no jurisdiction over the matter. C. The action will not prosper as the court has no jurisdiction over the matter. There is no taxable income until such income is recognized. Taxable income is recognized when the C. income has been received, either actually or constructively. C. income has been received, either actually or constructively. Keyrand, Inc., a Philippine corporation, sold through the local stock exchange 10,000 PLDT shares that it bought 2 years ago. Keyrand sold the shares for P2 million and realized a net gain of P200,000.00. How shall it pay tax on the transaction? D. It shall pay a tax of one-half of 1% of the P2 million gross sales. D. It shall pay a tax of one-half of 1% of the P2 million gross sales. Guidant Resources Corporation, a corporation registered in Norway, has a 50 MW electric power plant in San Jose, Batangas. Aside from Guidant's income from its power plant, which among the following is considered as part of its income from sources within the Philippines? C. Dividends from a two-year old Norwegian subsidiary with operations in Zambia but derives 60% of its gross income from the Philippines. A. Gains from the sale to an Ilocos Norte power plant of generators bought from the United States. Aplets 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 Aplets and imposed a tax on Aplets net income derived from its exports to Kim. Is the BIR correct? A. Yes. Aplets is a non-resident foreign corporation engaged in trade or business in the Philippines.

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Correct answer : C. No. Aplets is a non-resident foreign corporation not engaged in trade or business in the Philippines. Question : Federico, a Filipino citizen, migrated to the United States some six years ago and got a permanent resident status or green card. He should pay his Philippine income taxes on Your answer : C. the gains derived from the sale in the New York Stock Exchange of shares of stock in PLDT, a Philippine corporation. Correct answer : C. the gains derived from the sale in the New York Stock Exchange of shares of stock in PLDT, a Philippine corporation. Question : The BIR could not avail itself of the remedy of levy and distraint to implement, through collection, an assessment that has become final, executory, and demandable where Your answer : B. the amount of the tax involved does not exceed P100.00. Correct answer : B. the amount of the tax involved does not exceed P100.00. Question : Anion, Inc. received a notice of assessment and a letter from the BIR demanding the payment of P3 million pesos in deficiency income taxes for the taxable year 2008. The financial statements of the company show that it has been suffering financial reverses from the year 2009 up to the present. Its asset position shows that it could pay only P500,000.00 which it offered as a compromise to the BIR. Which among the following may the BIR require to enable it to enter into a compromise with Anion, Inc.? Your answer : C. Anion must waive its right to the secrecy of its bank deposits. Correct answer : C. Anion must waive its right to the secrecy of its bank deposits. Question : When a BIR decision affirming an assessment is appealed to the CTA, the BIR's power to garnish the taxpayer's bank deposits Your answer : D. is not suspended since the continued existence of government depends on tax revenues. Correct answer : D. is not suspended since the continued existence of government depends on tax revenues. Question : The power to tax is the power to destroy. Is this always so? Your answer : D. No. The Supreme Court may nullify a tax law, hence, property rights are not affected. Correct answer : D. No. The Supreme Court may nullify a tax law, hence, property rights are not affected. Question : Zygomite Minerals, Inc., a corporation registered and holding office in Australia, not operating in the Philippines, may be subject to Philippine income taxation on Your answer : B. gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation. Correct answer : B. gains it derived from sale in Australia of shares of stock of Philex Mining Corporation, a Philippine corporation. Question : Celia donated P110,000.00 to her friend Victoria who was getting married.

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Celia gave no other gift during the calendar year. What is the donor's tax implication on Celia's donation? C. Celia shall pay a 30% donor's tax on the P110,000.00 donation. C. Celia shall pay a 30% donor's tax on the P110,000.00 donation. A violation of the tariff and customs laws is the failure to A. pay the customs duties and taxes and to comply with the rules on customs procedures. B. pay the customs duties and taxes or to comply with the rules on customs procedures. A non-stock, non-profit school always had cash flow problems, resulting in failure to recruit well-trained administrative personnel to effectively manage the school. In 2010, Don Leon donated P100 million pesos to the school, provided the money shall be used solely for paying the salaries, wages, and benefits of administrative personnel. The donation represents less than 10% of Don Leon's taxable income for the year. Is he subject to donor's taxes? B. Yes, because the donation is to be wholly used for administration purposes. B. Yes, because the donation is to be wholly used for administration purposes. No action shall be taken by the BIR on the taxpayer's disputed issues until the taxpayer has paid the deficiency taxes D. attributable to the undisputed issues in the assessment notice. D. attributable to the undisputed issues in the assessment notice. Money collected from taxation shall not be paid to any religious dignitary EXCEPT when A. the religious dignitary is assigned to the Philippine Army. A. the religious dignitary is assigned to the Philippine Army.