Tax 1007-16

CRC-ACE
The Professional CPA Review School
TAXATION
Topics:
 TAX – 1007 PERSONAL EXEMPTIONS

 TAX – 1008 COMPENSATION INCOME (AITR)
 TAX – 1009 ACCOUNTING METHODS & ACCOUNTING
PERIODS
 TAX – 1011 MINIMUM CORPORATE INCOME TAX (MCIT)
 TAX – 1012 QUARTERLY CORPORATE RETURNS
 TAX – 1013 IMPROPERLY ACCUMULATED PROFITS TAX
 TAX – 1014 SUMMARY OF TAXING INCOME FOR
PARTNERSHIPS (PH) AND PARTNERS
 TAX – 1015 SUMMARY OF TAXING INCOME FOR ESTATES
&TRUSTS
 TAX – 1016 SOURCES OF INCOME
Dean Ruben D. Morante

Prof. Roel E. Hermosilla
TAX-1007.18
PERSONAL EXEMPTIONS
A. Definition
Personal exemptions are arbitrary amounts allowed for personal, living or family expenses
of the taxpayer. The amount has been calculated to be roughly equivalent to the minimum
of subsistence.
B. Taxpayers allowed personal exemptions

1. Citizens
2. Resident aliens
3. Non-resident aliens engaged in trade or business in the Philippines, on the basis of
reciprocity
C. Kinds of personal exemptions

1. The basic personal exemption (personal exemption of the taxpayer himself)
2. The additional exemption for qualified dependent children
D. Amount of basic personal exemption

Personal exemption proper: P50,000 for each individual taxpayer. In the case of married
individuals where only one of the spouses is deriving gross income, only such spouse shall
be allowed the personal exemption of P50,000.
E. Amount of additional exemption for dependent children and Limit on additional exemptions
Additional exemption: P25,000 for each legitimate, recognized illegitimate, or legally
adopted child chiefly dependent upon and living with the taxpayer, if such dependent is not
more than 21 years of age, unmarried, and not gainfully employed, or if such dependent,
regardless of age, is incapable of self-support because of physical or mental defect.
PROVIDED HOWEVER, that the total number of

qualified dependent children for which additional
exemption may be claimed shall not exceed 4
dependents. PROVIDED FURTHER, that the
additional exemption for qualified dependent
children shall be claimed by only one of the
spouses in the case of married individuals. The
husband shall be deemed the proper claimant of
the additional exemption with respect to any
qualified dependent children, unless he explicitly
waives his right in favor of his wife in the
withholding exemption certificate. In the case of
legally separated spouses, additional
exemption may be claimed only by the spouse
who has custody of the child of children,
provided that the total amount of additional
exemptions that may be claimed by both
spouses shall not exceed the maximum
additional exemptions allowed for 4 qualified
dependent children only.
F. Dependents for Dependents for whom a taxpayer may claim additional
purposes of exemption:
additional 1. Legitimate children;
exemption 2. Illegitimate children (recognized); and
3. Adopted children.
General requirements:
1.Must be living with the taxpayer; and
2. Must be dependent upon the taxpayer for chief support.
3. Not more than 21 years of age regardless of age but
physically or mentally defective;
4. Unmarried; and
5. Not gainfully employed
G. Rules on change 1. If taxpayer marries or should have additional
of status dependents during the taxable year, the taxpayer may
claim the corresponding personal exemption in full for
such year.
2. If the taxpayer dies during the taxable year, his estate
may still claim the personal and additional exemptions
for himself and his dependents as if he died at the close
of such year.
3. If the spouse or any of the dependents dies or if any of
such dependents marries, becomes twenty-one years old
or becomes gainfully employed during the taxable year,
the taxpayer may still claim the same exemptions as if
the spouse or any of the dependents died, or as if
such dependents married, became twenty-one years
old or became gainfully employed at the close of such
year.
H. Personal Conditions:
exemptions 1. The foreign country of which the NRA ETB is a subject
allowed to non- or citizen has an income tax law;
resident aliens 2. The income tax law of his country allows personal
engaged in trade, exemptions to citizens of the Philippines not residing
business or therein; and
exercise of 3. The NRA ETB files a true and accurate return of his
profession in the income from all sources within the Philippines.
Philippines
Amount allowable:
The amount equal to the exemptions allowed by the
income tax law in the country of which the NRA ETB is
a subject to citizens of the Phil. not residing therein but
not to exceed the amount fixed as exemptions (basic
personal exemption and additional exemption for
qualified dependent children) for citizens or residents
of the Phil.
Problems
1. An exemption provided by law to take care of personal, living and family expenses of
individual income taxpayers and the amount of which is determined irregardless of their
status is:
a. Optional standard deduction c. Additional exemption
b. Personal exemption d. Special additional exemption
2. An exemption allowed to an individual income taxpayer who has qualified legitimate,
and/or recognized illegitimate or legally adopted children:
a. Additional exemption c. optional standard deduction
b. Special additional personal exemption d. personal exmption
3. Who among the following qualifies as dependent for purposes of additional exemption?
a. Sister-in-law b. stepmother c. Brother d. Illegitimate daughter
4. Which of the following is not a qualified dependent for purposes of claiming additional
exemption?
a. Illegitimate child c. legitimate child
b. Legally adopted child d. Child by natural adoption
5. As a rule, who of the spouses is the proper claimant of the additional exemption with
respect to any qualified dependent children?
a. The husband if his income is higher than the income of his wife
b. The spouse who has a higher income.
c. The husband.
d. The wife.
6. The wife can claim additional exemption if:
a. The husband’s income is lower than her income.
b. The husband is a nonresident citizen with income from within and without the
Philippines.
c. The husband is a pure business income earner.
d. The husband has no income of his own.
7. The following, except one, may claim personal exemptions?
a. Non-resident alien not engaged in trade or business in the Philippines
b. Non-resident alien engaged in trade or business in the Philippines.
c. Resident alien
d. Citizen
8. Syjuco, a Filipino widower living in Baguio City, is the sole source of support for his
mother Fatima and his son, Django. Fatima maintains her own household in Tarlac City.
Django and his wife are living in a dormitory in Manila near the university where both
are studying. How much personal and additional exemptions may Syjuco claim for
income tax purposes?
a. None b. P20,000 c. P25,000 d. P50,000
9. Aytona, who is single, maintains Barbie, a common law wife. Barbie is legally married to
Camilo. Aytona and Barbie have four (4) children and they are living and dependent
upon Aytona for their chief support, and the children are minors, unmarried and not
gainfully employed.
Aytona’s total personal exemptions entitlement shall be:
a. P50,000 b. P125,000 c. P150,000 d. P200,000
10. Which of the following income taxpayers whose personal exemption is subject to the
law on reciprocity under the Tax Code?
a. Non-resident citizen with respect to his income derived outside the Philippines.
b. Non-resident alien who shall come to the Philippines and stay therein for an
aggregate period of more than 180 days.
c. Resident alien deriving income from a foreign country.
d. Non-resident alien not engaged in trade or business in the Philippines whose
country allows personal exemption to Filipinos who are not residing but are deriving
income from said country.
11. The personal exemptions of the non-resident alien engaged in trade or business in the
Philippines is equal to that allowed by:
a. The income tax law of his country to a citizen of the Philippines not residing there.
b. The income tax law of his country to a citizen of the Philippines not residing there or
the amount provided by the NIRC to a citizen or resident, whichever is lower.
c. The National Internal Revenue Code to a citizen or resident.
d. The income tax law of his country to a citizen of the Philippines not residing there or
the amount provided by the NIRC to a citizen or resident alien, whichever is higher.
12. The taxpayer is a married nonresident alien engaged in business in the Philippines with
two qualified children. His country gives a nonresident Filipino with income there from a
basic personal exemption of P30,000 and additional exemption for each qualified
dependent child of P20,000. He is entitled to a total personal exemptions of:
a. P30,000 b. P70,000 c. P190,000 d. P100,000
13. Which of the following will change the status of the taxpayer?
a. Married of a dependent within the taxable year
b. Dependent gaining employment during the year
c. Dependent becoming 21 years old during the year.
d. Marriage of taxpayer himself during the year.
14. 1st Statement: if a taxpayer marries or has dependents during the year, or dies during
the year, or the spouse dies during the year, his/her estate may claim personal
exemption in full for such year.
2nd Statement: if a dependent child dies within the year, or becomes twenty one years
old within the year, the taxpayer may still claim additional exemption.
a. Both statements are correct
b. Both statements are wrong
c. The 1st statement is correct while the second statement is wrong
d. The 1st statement is wrong while the second statement is correct
15. Taxpayer’s are husband and wife. The gross compensation income of the wife is P60,000
while the business income of the husband is P100,000. They have six (6) qualified
dependent children but within the year one child died. Their total personal exemptions
is:
a. P100,000 b. P200,000 c. P225,000 d. P250,000
16. 1st statement: An illegitimate child dependent upon the taxpayer is a unit of additional
exemption.
2nd statement: A dependent child who marries within the year or who becomes gainfully
employed during the year is still a dependent with additional exemptions for the year.
c. The first statement is correct while the second is wrong
d. The first statement is wrong while the second statement is correct
17. Ate Glo’s husband, Garci, died in April 2010 leaving seven (7) unmarried children living
with and wholly dependent on Garci for support. The ages of the children are as follows:
Children Ages Status
A 24 Jobless
B 22 Mentally retarded
C 19 Studying in Manila
D 10 Studying in their hometown
E 8 Studying in their hometown
F 6 Studying in their hometown
G 3 Taken by the grandparents after the death of Garci
For purposes of 2010 income tax return, how much total personal exemptions would
Garci be entitled to?
a. P150,000 b. P200,000 c. P255,000 d. P250,000
Items 18 and 19 are based on the following information:
Mother Lil, widow, earning annual compensation income of P240,000 has the following
dependent children in 2010:
Booba - Celebrated her 21st birthday last June 12
Keana - Married on January 1
Rosanna - Gainfully employed effective July 1
Ara Mina - Died of dengue fever on September 30
Rufa Mae - Baby, born on December 31
18. The taxable income of mother Lily in 2010 is:
a. P65,000 b. P90,000 c. P165,000 d. P190,000
19. The taxable income of Mother Lily in 2011 is:
a. P65,000 b. P90,000 c. P165,000 d. P 190,000
20. On January 1, 2010, Pepito’s wife, Bianca, died at childbirth but the child survived.
Pepito took care of the child bringing him wherever he was assigned.
If Pepito was a resident citizen, how much personal and additional exemptions could he
avail of when he filed his income tax return for his 2010 income?
a. P50,000 b. P75,000 c. P100,000 d. P125,000
21. Ticsay, a resident citizen, is employed as a manager of an offshore Banking Unit in the
Philippines. He is married but estranged from his wife. He has, living with her and fully
dependent for support, his five (50 minor children, who were all unmarried and not
gainfully employed. What amount could Ticsay claim as his basic personal and additional
exemptions?
a. None b. P50,000 c. P150,000 d. P200,000
22. Income tax is generally regarded as:
a. An excise tax b. a tax on persons c. a property tax d. Tax on profits
23. An income tax is a tax:
a. Collected from the proprietor, lessee or operator of duly designated places or
activities for pleasurable diversion or entertainment.
b. Imposed on a fixed ratio between the gross sales or receipts and the burden
Imposed upon the taxpayer.
c. Which is imposed only to the increase in the worth, merit or importance of goods,
properties or services, and not on the total value of the goods or services sold or
rendered.
d. On the yearly profits arising from employment, property, professions, trades and
offices.
24. “Global system of income taxation” means:
a. All types of income, except those subject to final tax, are added together to arrive at
taxable income.
b. Separate graduated rates are imposed on different types of income.
c. Capital gains are excluded in determining taxable income.
d. Compensation income, business and professional income are taxed at different
places in the world.
25. It is important to know the source of income for income tax purposes, i.e. from within or
without the Philippines because:
a. The Philippines imposes income tax on income from sources within and without of a
non-resident citizen.
b. Some individual taxpayers are citizens while others are aliens.
c. Separated graduated rates are imposed on different types of income.
d. Some taxpayers are taxed on their worldwide income while others are taxable only
upon income from sources within the Philippines.
26. The following are the general principles of income taxation:
1. A citizen of the Philippines residing therein is taxable on all income derived from
sources within and without the Philippines.
2. A non-resident citizen is taxable only on income derived from sources within the
Philippines.
3. An individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on income from sources
within the Philippines.
4. An alien individual, whether a resident or not of the Philippines, is taxable only on
income derived from sources within the Philippines.
a. All the statements are true c. One of the statements is false
b. All the statements are false d. Some of the statements are false
Items 27 through 31 are based on the following Information:

Under what classification:
a. Resident citizen
b. Resident alien
c. Non-resident citizen
d. Non-resident alien in business in the Philippines
The following individual income taxpayers will fall?
27. A resident citizen who, at the start of the year, departs from the philippines to work abroad.
28. A non-resident citizen who, at the start of the year, returns to reside in the Philippines.
29. An alien who shall have stayed in the Philippines for more than one hundred eighty days.
30. An alien who shall have stayed in the Philippines for more than one year.
31. A citizen who stayed outside the Philippines for one hundred eighty days.
32. 1st Statement: A non-resident citizen is taxable only on his income from within the
Philippines.
2nd Statement: : A non-resident citizen is not taxable on his income from outside the
Philippines.
3rd Statement: A non-resident citizen is taxable on his income from within and outside the
Philippines.
True, true, true
False, false, false
True, true, false
False, false, true
Items 33 through 35 are based on the following information:

On May 31, 2010, A, non-resident citizen, returned to reside permanently in the Phils. His
income for the years shows:
Phils.USA
From Jan. 1, 2010 to May 30, 2010 P100,000 $50,000
From May 31, 2010 to Dec. 31, 2010 P150,000 $20,000
33. Which of the following is wrong?

a. He is considered a resident citizen on his income from May 31, 2010to Dec. 31, 2010.
b. He is consedered a non-resident citizen on his income from Jan. 1, 2010 to May 30, 2010.
c. He is considered a resident citizen on his income from Jan. 1, 2010 to Dec. 31, 2010.
d. He is taxable on his income from May 31, 2010 to Dec. 31, 2010.
34. Which is not taxable?

a. The Philippine income of P100,000 c. The USA income of US $50,000
b. The Philippine income of P150,000 d. The USA income of US $20,000
35. Assuming that A is a resident citizen who left the Phils. to reside in the USA, which is not
taxable?
a. The Philippine income of P100,000 c. The USA income of US $50,000
b. The Philippine income of P150,000 d. The USA income of US $20,000
36. Who among the following is a non-resident alien?

a. An alien who comes to the Philippinesfor a definite purpose which in its nature may be
promptly accomplished.
b. An alien who comes to the Philippinesfor a definite purpose which in its nature may
require an extended stay.
c. An alien who has acquired residence in the Philippines.
d. An alien who lives in the Philippines with no definite intention as to his stay.
37. A non-resident alien doing business in the Philippines is one who is/shall:
a. An individual whose father or mother is engaged in business in the Philippines.
b. An individual who is naturalized in accordance with law.
c. an individual whose residence is within the Philippines and who is not a citizen thereof.
d. Come to the Philippines and stay therein for an aggregate period of more than 180 days
during the calendar year.
38. The following are subject to 25% final tax on their gross income in the Phiippines:
 Non-resident alien individual doing business in the Philippines.
 Non-resident alien individual not doing business in the Philippines.
 Non-resident alien cinematographic film owner/lessor.
a. True, true, true
b. True, false, false
c. False, true, true
d. False, false, false
Taxpayer received the following income in 2010:
Rent, Philippines P10,000
Rent, Hongkong 20,000
Interest, peso deposit, PNB 10,000
Interest, US$ deposit, PNB ($1,000 x P56) 56,000
Interest, deposit in Hongkong (HK$1,000 x P7) 7,000
Prize (cash) won in a local contest 8,000
Prize (TV) won in a local lottery valued at 15,000
Prize won in contest in US 30,000
Lotto winning in US 10,000
Dividend, domestic company 60,000
39. If the taxpayer is a resident citizen, his returnable gross income is:
a. P18,000 b. P85,000 c. P103,000 d. 226,000
40. If the taxpayer is a nonresident citizen, his returnable gross income is:
a. P18,000 b. P85,000 c. P103,000 d. 226,000
41. If the taxpayer is a resident alien, his returnable gross income is:
a. P18,000 b. P85,000 c. P103,000 d. 226,000
42. If the taxpayer is a resident alien ETB, his returnable gross income is:
a. P18,000 b. P85,000 c. P103,000 d. 226,000
43. If the taxpayer is a resident alien not ETB, his returnable gross income is:
a. P18,000 b. P85,000 c. P103,000 d. 226,000
Items 44 through 48 based on the following information:

Guyito had the following data for 2010 taxable year:
Gross income, Philippines P380,600.28
Gross income, United States 255,304.65
Expenses, Philippines 194,269.03
Expenses, United States 193,248.39
44. If the taxpayer is a resident citizen of the Philippines who is married, his taxable income is:
a. P198,387 b. P198,387.51 c. P136,331.25 d. P136,331
45. If the taxpayer is a citizen of the Philippines with residence in the United States who is
married, the taxable income is:
a. P198,387 b. P198,387.51 c. P136,331.25 d. P136,331
46. If the taxpayer is a resident alien who is married, his taxable income is:
a. P136,331 b. P136,331.25 c. P198,387.51 d. P198,387
47. If the taxpayer is a non-resident alien engaged in business in the Philippines who is married
and the law of his country allows full reciprocity on personal exemptions, the taxable income is:
a. P136,331 b. P136,331.25 c. P198,387.51 d. P198,387
48. If the taxpayer is a non-resident alien not engaged in business in the Philippines who is
married, the taxable income is:
a. P330,600.28 b. P380,600.28 c. P330,600 d. P380,600

Maximo received the following income in 2010:
Business income, Philippines P300,000
Business income, United States 250,000
Expenses, Philippines 200,000
Expenses, United States 125,000
Interest on deposit with metrobank 3,000
Cash prize won in a local contest 6,000
Cash prize won in a contest in U.S. 10,000
Winnings in lotto 20,000
Winnings in lotto in U.S. 50,000
Dividends from SMC, a domestic company 25,000
Interest on deposit in U.S. ($1 = P48) $500
49. The taxable income if Maximo is a resident citizen, single, is:

a. P259,000 b. P309,000 c. P265,000 d. P315,000
50. The taxable income if maximo is a nonresident alien ETB, married with five dependent
children, is:
a. P109,000 b. 134,000 c. P100,000 d. P106,000
51. The income tax of Maximo assuming he is a nonresident alien NETB, single, is:
a. P71,000 b. P83,500 c. P284,000 d. P334,000
52. The following individuals are required to file an annual income tax return:
a. Every Filipino citizen residing in the Philippines
b. Every Filipino citizen residing abroad, on his income from sources within the Philippines
c. Every alien residing in the Philippines, on income derived from sources within the
Philippines.
d. Every non-resident alien engaged in trade, business or in the exercise of profession in the
Philippines.
a.All of statement are true. c.One of the statements is false.
b.All of this statements are false d.Some of statements are false.
53. The following individuals are not required to file an annual income tax return:
1.Individuals whose gross income does not exceed their total personal and additional
exemptions for dependents
2.Individuals earning purely compensation income from only one employer in the Philippines
and for which the income tax has been withheld correctly by said employer
3. Individuals whose income consists solely of winnings, prizes, royalties, interest, dividends
or share in the distributable net income a taxable partnership, subject to final tax.
4. Non-resident aliens not engaged in trade, business or practice of profession in the
Philippines.
5. Minimum wage earners or individuals who are exempt from income tax under the NIRC of
1997 (as amended) and other laws, general or special.
a. All the statements are true. c. One of the statements is false.
b. All the statements are false. d. Some of the statements are false.
54. Statement 1. “Substituted filing of income tax return” means that the individual
compensation income earner does not have to filean income tax return at the end of the year.
Statement 2. The annual information return on income taxes withheld on compensation
income filed by the employer is the subtitute filing of income tax return by the employee.
a. Both statements are true.
b. Both statements are false.
c. The first statements is true, but the second statements is false.
d. The first statements is false, but the second statements is true.
55. The following are required to file an annual income tax return irrespective of the amount of
gross income:
1. Individuals deriving compensation income from two or more employers.
2. Individuals deriving compensation income wheither from single or several omployers but
the income tax of which has not been withheld correctly.
3. Individuals deriving other non-business, non-profession-related income in addition to
compensation income not otherwise subject to final tax.
4. Indidividuals deriving purely compensationincome from a single employer, even though
the income tax of which has been correctly withheld, but whose spouse falls under (1), (2) and
(3) above.
5. Citizens of the Philippines engaged in trade, business or practice of profession within the
Philippines.
6. Aliens engaged in trade, business or practice of profession within the Philippines.
a. All the statements are true. c. Most of the statements are true.
b. All the statements are false. c. Most of the statements are false.
56.The income tax return of a parent includes the income of an unmarried child:
a. If the child is minor and the income was derived from property inherited by the child,
where the estate tax was paid.
b. if the child was minor and the income was derived from property received as gift from a
living parent where the donor’s tax was not paid.
c. If the child is minor and the income was derived from property received as gift from the
living parent
d. If the child is minor and the income was derived from his labor.
57. Statement 1: where donor’s tax has been paid on property received by a minor from a living
parent, income on such property shall be included in the income tax return of the parent.
Statement 2: The income tax return of a disabled person may be made by a person charged
with the care of his property.
Statement 3: The income tax return by an agent or authorized representative of the
taxpayer, as indicated in the return, is under the sole responsibility of the agent
authorizedrepresentative.
Statement 1Statement 2Statement 3
a. True True True
b. False False False
c. False True False
d. True False True

Kabsat, widower, and his 5 dependent children have the following income in 2010:
Salary of Kabsat P160,000

Income of children
A, employed, salary per month 30,000
B, 14, inherited land from uncle. Income of land 40,000
C, 12, income from property donated by Kabsat 50,000
Note: The donor’s tax was paidon the gift
D, 10, rental income from property donated by Kabsat 30,000
Note: Donation was subject to Donor’s tax and was not paid.
E, 8, income from property donated by kabsat 25,000
Note: Transfer is exempt from the gift tax.
58. What is the gross income o be reported by Kabsat?

a. P160,000 b. P175,000 c. P190,000 d. P335,000
59. What personal and additiona exemptions can be claimed by kabsat?

a. P75,000 b. P150,000 c. P175,000 d. P200,000
60. When an individual taxpayer is under temporary disability:
a. Income tax return is required to be filled for him by his guardian.
b. No income tax is required for him.
c.Income tax return for the period when he was under disability shall be required when he
becomes able.
d. none of the above statements are correct.
61. which statement is wrong? When an individual notwithstanding withholding income tax
during the year on his compensation income is required to file an income tax return at the ned
of the year, he:
a. may pay the income tax in two installments if he income tax on his taxable income for the
year, before credit for withholding income tax exceeds P2000.
b. may pay the income tax in two installments if the income tax on his taxable income for the
year after credit for withholding income tax exceeds P2000.
c. may credit the income tax withheld against the first installment tax due.
d. may still pay the income tax in one lumpsum even if it exceeds P2000 and credit the
withholding ncome tax against it.
62. Income tax return of the taxpayer shows the following:
Amount subject to tax P40000
Amount tax due 4000
Creditable tax withheld on the income 1000
Balance of tax due 3000
The income tax still due:
1st installment 2nd installment 1st installment 2nd installment
a. 1000 2000 c. 3000 4000
b. 2000 3000 d. 4000 1000
63. Income tax return of the taxpayer shows the following:
Amount subject to tax P87500
Amount tax due 12000
Creditable tax withheld on the income 7000
Balance of tax due 5000
The income tax still due:
1st installment 2nd installment 1st installment 2nd installment
a. 7000 none c. 5000 6000
b. 6000 7000 d. none 5000
64. Which of the following statements are false?
a. Individual taxpayers shall file their income tax returns on or before April 15 of each year.
b. Extension of time for filling income tax returns may be granted by the commissioner of
internal revenue.
c. Second installment in the payment of income tax must be paid on or before July 1 of the
same year.
d. In places where there are no accredited banks, the return can be filed with the municipal
treasurer where the place of the business is located.
65. which is correct? The income tax return shall be accompanied by the following:
a. Statement of net worth operations, if the gross receipts from the business or profession do
not exceed P50000 in one quarter.
b. Balance sheet and income statement, if the gross receipts from business or profession
exceed P50000 but do not exceed P150000 in any one quarter.
c. Balance sheet and income statement certified by an independent Certified Public Accountant,
if the gross receipts from business or profession exceed P150000 in any one quarter.
d. All of the above.
TAX-1008.19
COMPENSATION INCOME(AITR)
Under the new tax code individual taxpayer’s items of income are grouped together as follows:
I. Compensation – derived from employment
II. Capital Gains – derived from sales of real property and shares of stock
III. Passive income- derived from winnings cinematographic film and similar works,
prizes, royalty, interest, dividends and share in net income of taxble or business
partnership (W/CPRIDS)
IV. Business income – derived from trade, business, practice of profession and other
income.
I. COMPENSATION INCOME (AITR)
a. What is included? It includes all income arising from an employer-
employee relationship (wheter monetary or non-monetary), such as:
1. Salaries, wages, compensation, tips, commissions, emoluments and
honoraria
2. Bonuses
3. Allowances
a. Straight allowances, such as transportation, representation,
entertainment
b. Reimbursement or advance-type of allowance (non-taxable)
4. Fringe benefits
5. Retirement and separation benefits
6. Fees, including director’s fees
7. Pensions
8. other income of a similar nature
Note: Payment received by a partner from a general professional partnership for services
rendered shall not be considered compensation income, but rather as ordianary income.
b. What are excluded form compensation incomes? The following are the
items of exclusions:
1. Proceeds of a life insurance policy.
2. Amount received by the insured as return of premium.
3. Compensation for injuries or sickness received by an employee
pursuant to an Accident or Health Insurance or under the Workmen’s
Compensation Act.
4. Income exempt under Treaty or International commitments of the
Philippine Government (e.g., compensation income of U.S. Military
Service Personnel while serving the U.S. Military bases in the
Philippines).
5. Retirement and separation benefits
A. Retirement benefits- retirement benefits are taxable as a general
rule, except when received by an employee under the provisions
of Republic Act No.7641, in which case such benefits are tax
exempt. However, the following requisites must be present:
1. The private retirement or pension plan must be duly
registered and approved by the B.I.R.
2. The retiring employee must retire at least at age of 50
3. The retiring employee must have served the employer for at
least ten years prior to retirement; and
4. The retiring employee must avail of the tax exemption only
once.
B. Separation benefits- separation benefits are taxable as a general
rule. However, if the employee was separated from employment
because death sickness or other physical disability of for causes
beyond his control (e.g. retrenchment, redundancy and
installation of labor saving device), then his separation pay shall
be exempt from income tax.
6. SSS and GSIS benefits
7. Prizes and awards in recognition of religious, charitable scientific
educational, artistic, literary or civic achievement but only if the recipient
was selected without entering such contest or proceedings and will not
be required to render substantial future services as a condition to
receiving the prize or award.
8. Prizes and awards in sports competition, whether local or international
sanctioned by their National Sports Associations.
9. 13th month pay and other benefits( productivity incentives, loyalty
award, 14th month pay gifts in cash or in kind and Christmas bonus) not
exceeding P30000.
10. GSIS, SSS, Philhealth, Pag-ibig contributions and Union dues
(employee’s share).
11. “De minimis” benefits, such as:
a. Monetized unused vacation leave credits not exceeding ten (10) days
during the year
b. Medical cash allowance to dependents of employees not exceeding
seven hundred fifty pesos (P750) per employee per semester, or one
hundred twenty five pesos (P125) per month.
c. Rice subsidy of one thousand five hundred pesos (P1500) or one (1)
sack of 50-kg. rice per monthly amounting to not more than one five
hundred pesos (P1500).
d. Uniforms and clothing allowance not exceeding four thousand pesos
(P4000) per annum.
e. Actual medical benefits not exceeding ten thousand pesos (P10000)
f. Laundry allowance not exceeding three hundred pesos (P300) per
month.
g. Employee achievement awards, e.g., for length of service, safety
achievement, which must be in the form of a tangible personal property
other than cash or gift certificate, with an annual monbetary value not
exceeding ten thousand pesos (P10000) received by the employee under
established written plan which does not discriminate in favor of highly
paid employees.
h. Gifts given during Christmas and major anniversary celebrations not
exceeding five thousand pesos (P5000) per employee per annum;
i. Flowers, fruits and books or similar items given to employees under
certain circumstances, e.g., on account of illness, marriage, birth of baby,
etc.; and
j. Daily meal allowance for overtime work not exceeding twenty five
percent (25%) of the basic minimum wage.
c. Computation of tax base for compensation type of income only
Gross compensation income Pxxx
Less:
Personal and additional exemptions xxx
Health and/or hospitalization insurance xxx xxx
Taxable compensation income Pxxx
Problems
Saludo had the following data from his employement in 2010:
Monthly salary P12000
Taxes withheld 8000
Pag-ibig fund contributions 1500
Union dues 2400
Philhealth contributions 720
SSS premiums 480
th
13 month pay 12000
Mid-year bonus 12000
Loyalty award 5000
1. The portion of compensation which excluded from the gross compensation income if
Saludo is a rank and file employee:
a.P5,100 b. P34,100 c.P29000 d. none
2. The gross compensation income of Saludo that is taxable in 2010:
a.P144,000 b. P150,000 c.P109,900 d. P138,900
3. Apollo is an employee in a firm that gives benefits to its rank and file employees. He
received the following in a year. Salaries net of SSS, Philhealth and Pag-ibig contributions, and
of labor union dues P360,000; 13th month pay P30,000; Productivity incentives pay, P30,000;
mid-year bonus P15,000; Christmas bonus P30,000; Rice subsidy P20,000. The gross
compensation income of Apollo subject to income tax is:
a. P590,500 b.P443,000 c.P437,000 d.P290,000
4. Which statement is wrong? Deduction for premium on hospitalization and health
insurance is:
a. Allowed a citizen with gross compensation income only.
b. Allowed a citizen with business or professional income only.
c. Allowed a citizen with mixed income.
d. Allowed only if the taxpayer is taking itemized deductions from gross income.
5. which of the following is not a requisite for deductibility of health insurance?
a. The total family income is not more than P250,000.
b. The maximum amount of premium deductible during the year is P2,400 per family or P200 a
month.
c. in the case of married individual, the spouse claiming the additional exemption shall be
entitled to claim the health or hospitalization insurance premiums paid.
d. The taxpayer must be single.
6. Which statement is wrong? The deduction for premiums on hospitalization and health
insurance is:
a. Not to exceed P2,400 a year for family.
b. Not to exceed P200 per month.
c. Not allowed if the family income exceeds P250,000.
d.In the case of married persons, can be claimed by either spouse.
7. Ysmael, single, had the following in 2010:

Gross compensation income P180,000
Deductions made by the employer:
SSS Housing loan P24,000
SSS Premiums contributions 3,600
PhilHealth (Medicare) contributions 2,400
Pag-ibig contributions 1,800
Union dues 2,200
Premiums payments on:
Life insurance policy 3,000
Health insurance policy 2,000 39,000
Amount received P141,000
The taxable compensation incomeis:
a. P91,000 b. P115,000 c. P118,000 d.P148,000
8. The following data in 2010 belong to a taxpayer who is a widower and presently supporting
his live-in partner and her 2-year old daughter:
Basic Salary (gross) P180,000
Overtime Pay 20,000
th
13 month/bonus/incentive pay 40,000
Taxpayer claimed the following deductions:
SSS Premiums contributions 3,600
SSS Loan 10,000
Philhealth premiums contributions 2,400
Pag-ibig Premium contributions 1,800
Union dues 2,000
Transportation expenses 4,000
Health and Hospitalization Insurance Premiums 3,000
The taxable compensation income is:
a. P147,200 b. P147,800 c. P151,400 d.P177,800
II. CAPITAL GAINS (FINAL TAX)

For citizens, resident aliens, and non-resident aliens (both engaged or not engaged in
business), as follows:
A. Sale, exchange or other disposition of real property located in the Philippines
considered as capital asset:
1. TRANSACTIONS AFFECTED – Sale or exchange or other disposition of real property
located in the Philippines considered as capital asset. Sale shall include “pacto de
retro” sale and other conditional sales.
2. PERSONS LIABLE TO THE TAX:
a. Every individual and domestic corporation
b. Estate and trust
3. RATE OF TAX – The final capital gain is 6% based on the gross selling price orfair
market value of the property at the time of the sale, whichever is higher.
4. ALTERNATIVE TAXATION – In caseof sale or other disposition of real property located
in the Philippines held as capital asset by an individual to the government or any of
its political subdivisions or agencies or to a government owned or controlled
corporation, the tax shall be either the capital gains tax of 6% or the graduated rates
of 5% to 32%, at the option of the taxpayer.
5. GROSS SELLING PRICE – Means the amount of any money received plus the fair
market value of property (other than money) received. Interest included in
installment shall not form part of the amount realized but shall be treated as
ordinary income.
6. PAYMENT OF TAX IN INSTALLMENT – The tax maybe paid in installment basis if the
initial payments do not exceed 25% of the selling price.
7. FILING OF RETURN AND PAYMENT OF TAX
a. Cash sale – capital gains tax return is filed and payment of the tax is made within
30 days following each sale, exchange or other disposition of real property
capital asset by the seller.
b. Installment sale – capital gains tax return shall be filed and the tax paid within 30
days following receipt of such installment payment by the seller. The date shown
in the instrument of sale shall be presumed to be the date of actual receipt
unless the contract is shown by the seller.
8. EXCEPTION FROM THE TAX - Requisites:
a. Seller is a natural person (natural individual).
b. Real property sold is his principal residence;
c. Proceeds of the sale is fully utilized in acquiring or constructing a new principal
residence within 18 calendar months from the date of sale. Otherwise, any
unused portion shall be subject to the capital gains tax, as follows:
Gross selling price or Unutilized amount = Taxable Portion
FMV at date of sale, X Gross selling price
Whichever is higher
d. The BIR is duly notified of the taxpayer’s intention to avail of the tax exemption
within 30 days from the date of sale through a prescribed return;
e. The tax exemption can only be availed of once every 10 years; and
f. The historical cost or adjusted basis of the real property (principal residence)
sold shall be carried over to the new principal residence built or acquired.
Problems
1. Panday is not engaged in real estate business. He sold a 1,000 square meter residential
land for P300,000 on March 15,2010. The land was acquired by purchase on March 5,
2008 for P120,000. After acquisition, the land was fenced at a cost of P30,000. A
commission of 5% of the sales price was paid to the sales agent. How much is the capital
gains tax due?
a. P18,000 b. P18,900 c. P7,200 d. P9,000

Samson sold his residential house to Della for P5,000,000. Its FMV when he inherited it
was P6,000,000 although its present FMV is P8,000,000.
2. The tax on the above transaction is:
a. P360,000 CGT b. P480,000 CGT c. P300,000 CGT d. CGT and Donor’s
tax
3. Assuming the residential house is located abroad, the capital gain’s tax is:
a. P360,000 b. P480,000 c. P300,000 d. 0

On August 15, 2010, Pacman sold a 500 square meters residential house for P3,000,000.
The house was acquired in 2008 for P1,800,000. On the date of sale, the fair market
value of the house as shown in the real property declaration is P2,500,000 and the
assessed value amounts to P2,200,000. The zonal value is P7,000 per square meter.
4. The capital gains taxis:
a. P180,000 b. P150,000 c. P132,000 d. P210,000
5. The capital gains tax of Pacman if the proceeds of sale shall be utilized in acquiring a
new residence is:
a. P210,000 b. P150,000 c. P180,000 d. None
6. In the item no.5, the basis of the new residence is:
a. P1,800,000 b. P2,500,000 c. P3,000,000 d. P3,500,000
7. The amount to be deposited in escrow if the proceeds of the sale shall be utilized in
acquiring a new residence is:
a. P210,000 b. P150,000 c. P180,000 d.None
8. The capital gains tax payable assuming that Pacman will utilize only P2,000,000 of the
proceeds in acquiring a new residence:
a. P90,000 b. P210,000 c. P70,000 d. None
9. In item no.8, the basis of the new residence is:
a. P2,000,000 b. P1,750,000 c. P1,250,000 d. P1,200,000

Payumo sold for P10,000,000 his residential land in Manila (FMV is P12,000,000).
10. If Payumo utilized all of the P10,000,000 in buying a house and lot to be used as his new
principal residence, the final tax due from Payumo is:
a. P720,000 b. P600,00 c. P120,000 d. P0
11. If Payumo utilized only P7,000,000 of the proceeds of the sale in acquiring a new
principal residence, the final tax due from Payumo is:
a. P720,00 b. P216,000 c. P180,000 d. P0
12. The documentary stamp taxdue on the sale is:
a. P179,895 b. P180,000 c. P149,985 d. P150,000
B. Sale or exchange of shares of stock in a domestic corporation considered capital asset:

1. Persons liable to the tax:
a. Individual taxpayers
b. Corporate taxpayers
c. Other taxpayers such as estate, trust, trust funds and pension, among others
2. Persons exempted:
a. Gain derived by dealers in securities.
b. Shares sold or disposed of through the Philippine Stock Exchange (now a
percentage tax)
3. Rates of tax:
a. Sales outside of the Philippines Stocks Exchange (not traded) – on net capital gain:
Not over P100,000 – 5%
Over P100,000 – 10%
b. Sales through the Philippines Stock Exchange (listed and traded) – ½ of 1%
imposed on the gross selling price (now classified as percentage tax)
4. Computations:
a. Selling price:
1. FMV of the shares, transferred or exchanged
2. Traded through the Philippine stock exchange- FMV is the actual selling price.
3. Not traded, but listed- FMV is the highest closing price on the date of sale.
Where no sale was made, it is the highest closing price on the date nearest.
4. If not listed-FMV is the book value nearest.
b. Cost or basis:
1. If can be identified – actual purchase price ( specific identification method)
2. If cannot be identified- FIFO method
3. If books are maintained – moving average
4. In all cases – it has to have a cost ( for stock dividend)
c. Nature:
1. Non-deductibility of wash sales.
2. Capital losses may be deducted from the capital gains to the same taxable yeart
only. Net capital loss carryover is not allowed.
3. No holding period for both capital gains and capital losses.
5. Filling of returns and payment of the tax:

a. Sold outside the Philippines stock exchange – capital gains tax return is filled ang
payment of the tax is made within 30 days after each sale transaction and a final
consolidated return of all transaction during in the taxable year is field on or
before the 15th day of the 4th month following the close of the taxable year.
b. Sold through the Philippine stock Exchange (now classified as percentage tax )- the
stockbroker shall deduct the tax and remit to the BIR within 5 banking days from
collection date.
6. Installment method (applicable only to not traded shares) – it shall be governed by

sec. 48 (installment method) of the tax code. The capital gains tax return shall be
filed and the tax paid within 30 days after receipt of each installment.
Problems:
1. Ligaya sold 1,500 shares of her stock investment in a domestic corporation. The par
value per share was P85 but were acquired by her at P90. On the date of sale, the share
has a selling price of p120 per shares. The capital gains tax on the sale if the shares has
not listed and traded in the Philippine stock is exchange is:
a. P2,250
b. P2,625
c. P14,000
d. P11,375
2. In item no.1, the documentary stamp tax due on the sale is:
a. P478.50
b. P638.00
c. P675.00
d. P900.00
3. Popeye sold his 1,000 not listed ang traded shares of stock of a domestic corporation.
The data of which are as follows:
Selling price
Expenses on the sale
Purchase price
The capital gains tax due is:
a. P13,000
b. P14,000
c. P9,700
d. P12,850

Capital stock issued and outstanding – common only stock owned:
Acquisition no. 1: 100 shares acquired atP120 per shares;
Acquisition no. 2: 50 shares acquired at P130 per share; and
AcquisitionNo.3:20% stock dividend received.
Shares sold directly to a buyer – 110 shares at P110 per share
4. If costing is under FIFO method, the capital gain tax is:
a. P118
b. P55
c. P160
d. P110
5. If costing is under the moving average method, the capital gains tax is:
a. P35.75
b. P121.67
c. P39.72
d. P68.60
6. Paloma sold the following shares of stock during a year:

Listed and Traded Not listed and traded Listed and traded
Selling price P1, 500,000 P630, 000 P210, 000
Cost 1,230,000 570,000 170,000
Date sold 01/20/05 03/16/05 11/14/05
The capital gains tax payable is:
a. P3,000
b. P32,000
c. P11,550
d. P3,150

Oliver a resident citizen, has the following transactions of not listed and traded shares of stocks
of a domestic corporation:
Date of Sale Date of Acquisition Cost Selling Price
February 13, 2010 January 18, 2008 P 80,000 P 135,000
April 5, 2010 November 30, 2009 256,000 360,000
July 20, 2010 September 3, 2008 175,000 115,000
October 13, 2010 August 7, 2010 144,500 150,000
7. The capital gains tax on the February 13, 2010 sale is:
a. P2,750 b. P1,375 c. P675 d. P55,000
8. The capital gains tax on the April 5, 2010 sales is:
a. P10,400 b. P5,400 c. P5,200 d. None
9. The capital gains tax/(refund) on the July 20, 2010 sales is:
a. P3,000 b. (P3,000) c. (P6,000) d. None
10. The final capital gains tax/refund at the end of the year is:
a. Tax payable of P1,350
b. Tax refund of P1,350
c. Tax payable of P2,975
d. Tax refund of P2,975

Dimple is not a dealer in securities. In 2010, she had the following transactions of common
shares of stock of a domestic corporation:
Purchase on January 5, 100 shares P7,000
Sale on June 18, of the shares purchased on January 5 6,000
Purchase on June 22, 60 shares 6,500
Sale on October 5, of the shares purchased on June 22 8,000
11. The loss not recognized on the sale of June 18:

a. P1,000 b. P0 c. P600 d. Some other amount
12. The basis if the shares purchased on June 22, 2010 is:
a. P600 b. P7,100 c. P6,500 d. Some other amount
13. The gain on the sale of October 5, 2010 is:
a. P900 b. P1,500 c. P0 d. Some other amount
14. In which of the following instances may a taxpayer include his income as part of gross
income subject to basic tax or be subject to final tax at his option?
a. When it involves a gain from sale of shares of stock held as capital assets and is traded
in the stock exchange.
b. When it involves a sale of shares of stocks not traded in the stock exchange, held as
capital assets, and the gain does not exceed P100,000.
c. When the sale involves a real property held as capital asset.
d. When a real property held as capital asset is sold to the government or any of its
political subdivision.
C. Documentary Stamp Tax
1. On deeds of sale and conveyance of real property – All conveyance, deeds,

instruments, or writing, other than grants, patents or original certificates of
adjudication issued by the Government, whereby any land, tenement or
other realty sold shall be granted, assigned, transferred or otherwise
conveyed to the purchaser, or purchasers, or to any other person or persons
designated by such purchaser or purchasers, shall be collected a
documentary stamp tax, at the rates herein below prescribed, based on the
consideration contracted to be paid for such realty or on its fair market value
as determined by the Commissioner or fair market value as shown in the
schedule of values of the Provincial and City Assessors, whichever is higher.
Provided that when one of the contracting parties is the Government, the tax
herein imposed shall be based on the actual consideration.
a. When the consideration, or value received or contracted to be paid
for such realty, after making proper allowance of any encumbrance,
does not exceed one thousand pesos (P1,000), fifteen pesos (P15.00);
and
b. For each additional one thousand pesos (P1,000), or fractional part
thereof in excess of one thousand pesos (P1,000) of such
consideration or value, fifteen pesos (P15.00).
2. On sales, agreement to sell, memoranda of sales, deliveries or transfer of
shares or certificates of stock (not through the local stock exchange)- There
shall be collected a documentary stamp tax at the rate of P0.75 on each P200
or fractional part thereof, of the par value of the share of stock. (Sale, barter,
or exchange of shares of stock listed and traded through the local stock
exchange is now permanently exempt from the DST, effective March 20,
2009, under R.A. No. 9648).
3. Payment of documentary stamp tax
a. In general – Any person liable to pay documentary stamp tax upon
any document shall file a tax return and pay the tax in accordance
with the rules and regulations prescribed by the Secretary of Finance,
upon the recommendation of the Commissioner.
b. Time for filing and payment of the tax – The tax return shall be filed
within 5 days after the close of the month when the taxable
document was made (notarized), signed, issued, accepted, or
transferred, and the tax thereon shall be paid at the same time the
aforesaid return is filed.
c. Where to file – Except in cases where the Commissioner otherwise
permits, the aforesaid tax return shall be filed with and the tax due
shall be paid through the authorized agent bank within the territorial
jurisdiction of the Revenue District Office which has jurisdiction over
the residence or principal place of business of the taxpayer. In places
where there is no authorized agent bank, the return shall be filed
with the Revenue District Officer, collection agent, or duly authorized
Treasurer of the city or municipality in which the taxpayer has his
legal residence or principal place of business.
d. Exception – In lieu of the foregoing, the tax may be paid either
through purchase and actual affixture, or by imprinting the stamps
through a documentary stamp metering machine, on the taxable
document, in the manner as may be prescribed by rules and
regulations promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner.
III. PASSIVE INCOME (FINAL TAX)

This is subject to final withholding income tax as follows:
Citizen/ Res. Alien NRA EB
1. Interest savings deposit (Phil. 20% 20%
Currency)
2. Interest time deposit (Phil. Currency) 20% 20%
3. Yield from deposit substitute or MM 20% 20%
placement (Phil. Currency)
4. Yield from trust funds or similar 20% 20%
arrangements (Phil. Currency)
5. Royalties on:
a. Books, other literary works and 10% 10%
musical compositions
b. All others 20% 20%
6. Prizes, except prizes amounting to 20% 20%
P10,000 or less which shall be subject
to tax as passive income in the AITR.
7. Winnings, except PCSO and Lotto 20% 20%
winnings.
8. Interest Income from depositary bank 7½% Exempt
under expanded foreign currency
deposit system, received by a resident
individual but not by a non-resident
individual.
9. Interest income from long-term
deposit or long-term investment in
banks (Phil. Currency) pre-terminated
or withdrawn:
Less than 3 years 20% 20%
3 years to less than 4 years 15% 15%
4 years to less than 5 years 5% 5%
5 years and over Exempt Exempt
10. Cash and/or property dividend from
domestic corporation and distributive
share in the net income after income
tax of taxable partnership, effective:
January 1, 1998 6% 20%

January 1, 1999 8% 20%
January 1, 2000 10% 20%
Tax on dividend shall apply only on
income earned by the investee
domestic corporation on or after January
1, 1998
11. Income from cinematographic film and 25%
similar works
Problems
1. Aguila, a resident citizen, had the following incidental income in 2010:
Interest on Philippine currency bank deposit P30,000
Interest on foreign currency deposit under the expanded foreign
currency deposit system 50,000
Royalty from invention 150,000
Royalty from musical compositions 80,000
Dividend from domestic corporation 60,000
Share in the net income of business partnership 100,000
How much is the total final taxes?
a. P53,000 b. P57,750 c. P63,750 d. P70,000
2. Fatima, a Filipino overseas contract worker and her spouse, a resident of the Phils., have
a joint US dollar account with Citibank. Their gross interest earnings from the bank deposit
amounted to US $4,000. Which of the following statements is correct?
a. The interest income shall be treated as tax-exempt because Fatima is a non-residing
citizen.
b. The interest income shall be taxable in full because Fatima and her spouse are both
Filipino citizens.
c. Fifty percent (50%) of the interest income shall be treated as exempt while the other
fifty percent (50%) shall be subject to the graduated rates.
d. Fifty percent (50%) of the interest income shall be treated as exempt while the other
fifty percent (50%) shall be subject to a final withholding tax of 7.5%.
3. Hershe, married and a resident citizen, received the following income in 2010:
Within Without
Interest income on bank savings deposit P20,000 P10,000
Cash Dividend 30,000 20,000
Prizes 8,000 10,000
Lotto winnings 50,000 10,000
Royalty – books 30,000 20,000
Royalty – inventions 40,000 30,000
Interest on foreign currency deposit 10,000 20,000
Sale of land held for not more than 12
months as capital assets 400,000 200,000
Share from net income of:
General professional partnership 80,000 60,000
Business partnership 100,000 100,000
The gross income of Hershe subject to scheduler tax (graduated rates) is:
a. P450,000 b. P560,000 c. P468,000 d. P568,000
Malaya, Filipino taxpayer, single, received the following income for calendar year 2010:
Philippines Singapore
Salary P520,000 P200,000
Interest on bank deposit 24,000 72,000
Royalty 52,000 48,000
Dividend 60,000 96,000
Prizes from a raffle 12,000 24,000
Rent 22,000 18,000
4. If the taxpayer is a resident citizen, his returnable gross income is:

a. P760,000 b. P1,000,000 c. P1,010,000 d. P856,000
5. If the taxpayer is a non-resident citizen, his returnable gross income is:
a. P552,000 b. P612,000 c. P542,000 d. 602,000
6. The following data were provided by a resident citizen taxpayer for the current year:
Royalties on books, Philippines P100,000
Prize 10,000
Gain, sale of residential house, Philippines (selling price is
P5,000,000) 2,000,000
Gain, sale of shares of stock not listed and traded in the Local
Stock Exchange (selling price P300,000) 100,000
How much is the total final taxes?

a. P325,000 b. P317,000 c. P315,000 d. P145,000

An American who is an employee in the regional headquarter of a multinational corporation
established in the Philippines had the following data for taxable year 2010:
Salaries received P120,000
Other emoluments 50,000
Interest income from Phil. Bank deposit 20,000
Winnings from Phil. Charity sweepstakes 50,000
Winnings from tournament 100,000
Gain from sale of shares of stock in a domestic corp.
sold directly to buyer. 175,000
7. The capital gain’s tax is:

a. P8,750 b. P12,500 c. P7,500 d. P17,500
8. The total combined taxes on all other income from the Philippines is:
a. P42, 500 b. 55,500 c. P68,000 d. P85,000
IV. TRADE, BUSINESS, PRACTICE OF PROFESSION AND OTHER INCOME (AITR)

Computation of tax base for trade, business, profession, and other income combined.
Gross income P xxx
Less itemized deductions or 40% optional standard deduction (OSD)
based on GS or GR xxx
Net income xxx
Less:
Personal and additional exemptions P xxx
Health and/or hospitalization insurance xxx xxx
Taxable income P xxx
Problems
The taxpayer is a resident citizen who is married, with gross receipts from business of 500,000, business
expenses with supporting receipts of 180,000 and premiums on health insurance of 2,400, for 2010.
1. If the taxpayer chose the itemized deductions from gross income, the taxable income is:
a. 247,600 b. 250,000 c. 267,600 d. 270,000
2. If the taxpayer chose the optional standard deduction, the taxable income is:
a. 247,600 b. 250,000 c. 267,600 d.270,000
3. Benjie, single, Hd the following income and expenses for 2010:
Income
Compensation income as chief accountant 240,000
Professional fees 400,000
Gross income from business 360,000
Expenses:
Practice of profession 280,000
Business connected expenses 200,000
Personal and living expenses 190,000
Other income:
Interest on bank time deposit 15,000
Dividend received from a domestic corporation 10,000
The taxable income of Benjie is:
a. 280,000 b. 310,000 c. 470,000 d. 500,000
Lemuel had the following transactions for calendar year 2010:
Philippines Hongkong Total
Gross income 2,400,000 600,000 3,00,000
Business connected expenses 1,440,000 210,000 1,650,000
Other business connected expenses (cannot be allocated) 330,000
4. If the taxpayer is a resident citizen, single, the taxable income is:

a. 580,000 b. 646,000 c. 970,000 d. 1,036,000
5. If the taxpayer is a resident alien, single, the taxable income is:
a. 580,000 b. 646,000 c. 970,000 d. 1,036,000
Crizel, single, had the following during the taxable year 2010:
Philippines USA
Gross income from business 800,000 400,000
Business connected expenses 500,000 200,000
Rental income, gross 200,000 100,000
Interest income on bank deposit 100,000 20,000
Royalty income 60,000 40,000
Dividend received 80,000 30,000
6. If Crizel is a resident citizen, her taxable income is:

a. 450,000 b. 480,000 c. 870,000 d. 840,000
7. The amount of income subject to final tax is:
a. 240,000 b. 330,000 c. 440,000 d. 210,000
8. The amount of final tax paid (due) is:
a. 48,000 b. 40,000 c. 34,000 d. 45,000
9. If Crizel is a non-resident citizen, her taxable income is:
a. 450,000 b. 480,000 c. 870,000 d. 840,000
A taxpayer, married, with five minor children, provided the following data for 2010:
Compensation income (10% represents SSS, Union dues, Pag-ibig
&PhilHealth contributions) 150,000
Income from merchandising 180,000
Other income (20% represents income from bank deposits abroad) 20,000
Expenses (15% represents personal expenses and health insurance
Of 2,000 included in the 15%) 50,000
Income from Treasury bills 40,000
Additional information:
¼ of business income and deductible business expenses is from outside the Philippines.
10. If the taxpayer is a resident citizen, his taxable income is:

a. 104, 125 b. 140,500 c. 142,500 d. 254,125
11. If the taxpayer is a non-resident citizen, his taxable income is:
a. 104, 125 b. 140,500 c. 142,500 d. 254,125
12. If the taxpayer is a non-resident alien, ETB without Reciprocity Law, his taxable income is:
a. 104,125 b. 140,500 c. 142,500 d. 254, 125
13. Based on No. 10 (resident citizen), if the income from merchandising is only P70,000 (not
P180,000), the taxpayer’s taxable income is:
a. 30,500 b. 32,500 c. 71,750 d. 73,750
14. Based on No. 10 but the income from merchandising is from a conjugal business of the raxpayer
and his wife, the taxpayer’s taxable income is:
a. 30,500 b. 32,500 c. 71,750 d. 73,750
Gideon, a resident Filipino, single but supporting an aged mother, had the following data for 2010:
Gross profit from sales 800,000
Dividend from Domestic Corporation 30,000
Capital gain on sale of land in the Philippines held for 18 months (selling price, P500,000) 100,000
Capital gain on sales of shares of Domestic Corporation held for 6 months
(directly sold to buyer at P300,000) 150,000
Business expenses 450,000
Family expenses 120,000
15. The total final taxes paid on passive income and capital gains for the year is:
a. 48,000 b. 40,500 c. 43,000 d. 40,000
16. The taxable income of Gideon is:
a. 180,000 b. 280,000 c. 300,000 d. 400,000
Mr. and Mrs. Lozada, both professionals and residents of the Phil. With five minor children, had the
following data for the taxable year 2010:
Mr. Mrs. Total
Income from practice of profession, net of 15% 680,000 850,000 1,530,000

withholding tax
Expenses incurred in connection with income above 400,000 550,000 950,000
Rental income of property acquired during marriage:
 Administered by Mr. Lozada (net of 5% withholding 760,000 760,000

tax)
 Administered by Mrs. Lozada (net 5% withholding 570,000 570,000
tax)
Expenses incurred in connection with rental income 380,000 440,000 820,000
Salaries as part time faculty members, gross 120,000 180,000 300,000
Other income:
 Royalty, as author of textbook 100,000 150,000 250,000

 Prize in a supermarket raffle 10,000 20,000 30,000
 Dividend received from:
Foreign corporation 40,000 40,000
Domestic corporation 30,000 30,000
17. The taxable compensation and business income of Mr. Lozada is:
a. 670,000 b. 756,000 c. 910,000 d. 928,000
18. The taxable compensation and business income of Mrs. Lozada is:
a. 670,000 b. 756,000 c. 910,000 d. 928,000
19. The income tax still due from Mr. and Mrs. Lozada is:
a. 95,600 b. 128,880 c. 179,400 d. 256,200
20. 1st statement: For married individuals both earning taxable income, either spouse should file
only one return to cover their income for the taxable year.
2nd statement: The husband and wife should both sign the return unless it is physically
impossible for them to do so, in which case, the signature of only one of the spouses would
suffice.
a. Both statements are correct.
b. Both statements are wrong.
c. The first statement is correct, while the second statement is wrong.
d. The first statement is wrong, while the second statement is correct.
TAX-1009.20
Accounting Methods & Accounting Periods
1. Accounting periods of income taxpayers:

a. Calendar year-starts January 1 and ends December 31.
b. Fiscal year-accounting period of 12 months ending the last day of any month other than
December 31st.
2. Instances whereby taxable income must be computed on the basis of calendar year.
a. If the taxpayer is an individual.
b. If the taxpayer does not keep books.
c. If the taxpayer has no annual accounting period.
d. If the taxpayer’s annual accounting period is other than fiscal year.
3. Instances whereby short accounting period arises:
a. When the taxpayer dies.
b. When a corporation is newly organized.
c. When a corporation is dissolved.
d. When a corporation changes accounting period.
Problems
1. Which of the following cases may the taxable income be computed not on the basis of the
calendar year?
a. If the taxpayer has no accounting period.
b. If the taxpayer is an individual taxpayer.
c. If the taxpayer does not keep books of accounts.
d. If the taxpayer is a corporation.
2. 1st statement: There can be an accounting period of less than twelve months.
2nd statement: There can be an accounting period of more than twelve months.
a. Both statements are correct.
b. Both statements are wrong.
c. The first statement is correct, while second statement is wrong.
d. The first statement is wrong, while second statement is correct.
3. First statement: if a taxpayer, other than an individual, with approval of the Commissioner,
changes the basis of computing taxable income from fiscal year to calendar year, a separate final
or adjustment return hall be made for the period between the close of the last fiscal year for
which return was made and the following December 31.
Second statement: if the change is from calendar year to fiscal year by a corporate income
taxpayer, a separate final or adjustment return shall be made for the period between the close
of the last calendar year for which return was made and the date designated as of the fiscal
year.
a. True, true b. False, false c. True, false d. False, true
4. Methods of accounting:
a. Cash method- income is reported in the year it is received actually or constructively.
Expense is deducted in the year it is paid.
b. Accrual method- income is reported in the year in which it is earned. Expense is deducted in
the year in which it is incurred.
c. Hybrid method- combination or fusion of both the cash basis and the accrual method.
d. Percentage of completion method- applicable only in long term construction contracts
covering a period in excess of one year.
e. Installment method – applicable in the following 3 cases only:
1. Sale of personal property by a dealer.
2. Casual sale of personal property where the:
a. Selling price is over P1,000;
b. Initial payments do not exceed 25% of S.P.; and
c. Property is not of a kind which would be included in the taxpayer’s inventory if on
hand at the close of the taxable year.
3. Sale of real property where the initial payments do not exceed 25% of S.P.
f. Crop year basis- applicable only to farmers engaged in the production of crops which take
more than a year from the time of planting to the process of gathering and disposal.
Expenses paid or incurred are deductible in the year the gross income from sale of the crops
are realized.
Problems
1. First statement: the method of accounting regularly employed by the taxpayer in keeping his
books, if such method clearly reflects his income, is to be followed with respect to the time as of
which items of gross income and deductions are to be accounted for.
Second statement: The computation shall be made in accordance with such method of
accounting as in the opinion of the Commissioner clearly reflects the income if no method of
accounting has been so employed or if the method of accounting employed does not clearly
reflect the income.
a. True, true b. false, false c. true, false d. false, true
2. Which one of the following is not an essential of an acceptable accounting method?
a. There should be distinction between revenue and capital expenditures.

b. Expenses to restore property or prolong its useful life should be added to the property
account or charged against accumulated depreciation.
c. In all cases in which production, purchase or sale of merchandise is an income producing
factor, inventories at the beginning and at the end of the accounting period should be
considered.
d. The accounting method should adhere strictly to Philippine Accounting Standards.
3. Taxpayer is required to report income for the taxable year in which payments are actually or
constructively received while expenses are deducted in the year paid:
a. Accrual basis
b. Cash basis
c. Hybrid method
d. Crop year basis
4. First statement: Income which is credited to the account of or set apart for a taxpayer and which may
be withdrawn upon by him at any time is subject to tax for the year during which so credited or set
apart, although not then actually reduced to possession.
Second statement: The doctrine of constructive receipt of income is designed to prevent the exclusion
from taxable income of items, the actual receipt of which could, at the option of a taxpayer on the cash
basis, be deferred or indefinitely postponed.
5. One of the following is not an example of constructive receipt of income:
a. Partner’s distribute share in the profit of a partnership.

b. Interest credited to the account of a taxpayer and which may be drawn upon by him at anytime.
c. Interest coupons which have matured.
d. Corporation contingently credited stock bonus, but the stock is not available to the employees
until some future date.
6. The share in the profits of a partner in partnership is regarded as received by him and thus taxable
although not yet distributed. The principle is known as
a. Advance reporting of income c. Accrual method of reporting

b. Actual receipt of income d. Constructive receipt of income
7. Which of the following is considered or construed as an example of “constructively received income”?
a. Retirement benefits, pensions, gratuities.

b. Fees paid to a public official.
c. Interest coupons that have matured and are payable but have not been cashed.
d. Deposits for rentals to answer for damages, restricted as to use.
8. All of the following, except one, are considered as “constructive receipts” for income tax purposes.
Which is the exception?
a. The share of the profits of a partner in a general professional partnership.

b. Interest credited on bank savings deposit.
c. Bond interest coupons which have matured but which have not been redeemed.
d. Property borrowed by the taxpayer.
9. Under the NIRC, income is received not only when is actually or physically transferred to a person but
even when it is merely constructively received by him. An example of an income constructively received
is:
a. Rental payments refused by the lessor, when the lessee tendered payment and the latter made
a judicial deposit or the rental due.
b. Interest coupons not yet due and payable.
c. Interest on savings bank deposit not yet credited to the account of the depositor.
d. Advance deposit made by the lessee.
10. First statement: The amount of all items of gross income shall be included in the gross income for
the taxable year in which received by the taxpayer, unless, under the methods of accounting permitted
under the Tax Code, any such amounts are to be properly accounted for as of a different period.
Second statement: The deductions shall be taken for the taxable year in which “paid or accrued” or
“paid or incurred”, dependent upon the method of accounting upon the basis of which the net income is
computed unless in order to clearly reflect the income, the deductions should be taken as of a different
period.
11. Under this method of accounting, income is reported in the taxable year it is earned:
a. Cash basis c. Constructive receipt of income
b. Crop year basis d. Accrual method
12. One of the following incomes shall be returned in the year received.
a. Interest earned on bank deposit.

b. Share in the net income of professional partnership.
c. Stock dividend.
d. Rental for 2010, 2011 and 2012 received in 2010 by a lessor under accrual method.
13. Ticsay leased her land to Kitkat for two years beginning July 1, 2010. Kitkat would pay monthly rental
of P100,000. She paid rent up to October 2010 and then defaulted for the rest of the year.
a. P200,000 b. P400,000 c. P600,000 d. None of the choices
14. Using the same data in No. 13, under the cash method, how much was the income of Ticsay in 2010?
15. Using the same data in No. 13, under the accrual method, how much was the deductible expense of
Kitkat in 2010?
16. Using the same data in No. 13, under the cash method, how much was the deductible expense of
Kitkat in 2010?
17. Loreal leased her property to Purit a on July 1, 2010. Purita made the following advances:
Advances rent of P600,000 for the period July 1, 2010 to June 30, 2011
Loan to Loreal, P150,000
Security deposit, P200,000
Assuming Loreal used accrual method, how much was her taxable gross income in 2010?
a. P950,000 b. P600,000 c. P300,000 d. None of the above choices
18. Using the same data in No. 17, how much was the deductible expense of Purita in 2010?
a. P950,000 b. P600,000 c. P300,000 d. None of the above choices
19. Oliver, widower, with 5 dependent children, has the following income and expenses in 2010:
Gross income, retail business P300,000

Rental income for 2 years starting on November 1 of the year 480,000
at 20,000 a month
Interest on time deposit for 90 days which matured on 12,000
February 15 of the year
Market value of farm on December 31 of the year 250,000
Note: Farm was inherited from mother on January 10 of the year with a fair market value of 190,000
Expenses:
Ordinary and necessary expenses in retail business 180,000
Premium on life insurance 10,000
Premium on insurance of office equipment for one year paid on October 1 of the year 4, 800
Cost of vehicle acquired on March 1 of the year with useful life of 5 years. Vehicle is used in business
60% of the time 120,000
The taxable income of Oliver using the cash method is:
a. P411,800 b. 436,800 c. P529,800 d. P596,800
20. Bishop, a Filipino, residing in Baguio City, is engaged in the trucking business. He is legally separated
from his wife. He has 3 dependent children whose custody was awarded by the Court to his wife. His
records in 2010 show the following income and expenses:
Gross income from trucking P100,000

Dividend from Pinoy Company, Philippine Corporation 50,000
Dividend from Yanky, Inc., a foreign corporation 40,000
Rent income received on lease of lot for 3 years at P120,000 a 360,000
year
Share of profit received from ABC, a general professional 20,000
partnership. Bishop holds a 40% interest.
Note: The net income of the partnership for the year is P110,000
Expenses:
Ordinary and necessary expenses in trucking business P100,000
Rentals paid for lease of trucks for 2 years used in trucking 240,000
business
Note: Lease commenced on August 1 of the year.
Bad debt written off 25,000
Note: Funds were loaned to mother of Bishop, is unsecured, and
has remained uncollected for 3 years.
Casualty loss 70,000
Note: Typhoon destroyed a portion of the roof of residential house of Bishop.
Not covered by insurance.
The taxable income of Bishop using the accrual method is:
a. P514,000 b. P579,000 c. P604,000 d. 634,000
21. Under this method of reporting income, the taxpayer reports a percentage of gross income from a
long-term construction contract based on the portion of work that has been completed:
a. Accrual basis c. Percentage of completion method
b. Cash basis d. Hybrid method
Items 22 to 24 are based on the following information:
Biskeg has a contract starting Jnuary 1, 2010 to construct a Supermarket that is expected to be
completed in December 2012. The total contract price is P30,000,000. The following data pertaining to
the construction are as follows:
2010 2011 2012
Cost incurred to date P10,000,000 P21,500,000 P28,000,000
Percentage of completion 35% 75% 100%
Biskeg uses the percentage of completion method.
22. The gross income to be recognized in 2010 is:
a. P500,000 b. P1,000,000 c. P1,500,000 d. P2,000,000
a. P500,000 b. P1,000,000 c. P1,500,000 d. P2,000,000

a. P500,000 b. P1,000,000 c. P1,500,000 d. P2,000,000
25. Gross income is reported partially in each taxable year in proportion to collections made in such
period as it bears to the total contract price refers to:
a. Accrual method c. Crop year basis
b. Percentage of completion method d. Installment sales method
26. The taxpayer is not a dealer of personal property regularly selling on installments. Installment
method of reporting income is available to him on a sale of property if the initial payments on the sale:
a. Exceeds 25% of the selling price.

b. Do not exceed 25% of the selling price.
c. Regardless of the ratio of initial payments to the selling price.
d. Do not exceed 25% of the contract price.
27. Deferred payment method of reporting income on an installment sale is available to a taxpayer if,
there being a requirement of the law on the ratio of initial payments to the selling price, the initial
payments on the sale:
a. Exceed 25% of the selling price.

b. Do not exceed 25% of the selling price
c. Regardless of the ratio of initial payments to the selling price.
d. Do not exceed 25% of the contract price.
28. Which is wrong? Installment recognition of income is allowed in:
a. Installment sales of real property where the initial payments do not exceed twenty-five percent
of the selling price.
b. Installment sales of personal property by a dealer where the initial payments exceed twenty-five
percent of the selling price.
c. Long-term contracts.
d. Advance rental received.
29. One of the following is correct:
a. Income from long-term construction contracts may be reported on the completed contract
method of accounting.
b. Income from long-term construction contracts must be reported only on the percentage of
completion method of accounting.
c. Income from casual sale of personal property in installment, where the initial payments do not
exceed twenty-five percent of the selling price, cannot be reported under the installment
method.
d. Where in a deferred payment sale the initial payments exceed twenty-five percent of the selling
price, the income from the sale must be reported under the installment method.
30. 1st Statement: A change in the method of accounting requires a prior approval of the Commissioner
of Internal Revenue.
2nd Statement: A change in the accounting period does not require prior approval of the
Commissioner of Internal Revenue as long as the necessary income tax returns for the different
accounting periods (old, interim and new) are filed.

c. The first statement is correct while the second statement is wrong
d. The first statement is wrong while the second statement is correct.
TAX-1011.22
MCIT
MCIT R/NCIT
M - Minimum R/N - Regular/Normal
C - Corporate C - Corporate
I - Income I - Income
T - Tax T - Tax
2000 - 32%
2% of GI 2005 - 35% of TI
2009 - 30%
Meaning of gross income:
1. For sale of goods – Gross sales less sales returns, allowances, discounts and of goods
sold.
2. For sale of services – Gross receipts less sales returns, allowances, discounts, and cost of
services sold. Cost of services sold means all direct costs and expenses incurred to
provide the services required by the customers and clients including (a) salaries and
employee benefits of personnel, consultants and specialists directly rendering the
service and (b) cost of facilities used directly in providing the service such as
depreciation, rental of property and cost of supplies. In the case of banks, cost of
services sold shall include interest expense
3. It shall also include all items of income enumerated under Section 32 (A) of the Tax Code
except income exempt from tax and income subject to final withholding tax.
Corporations covered:
Domestic Those whose taxable income are subject to the regular or normal tax rate of
32%, 35%,
Resident FC 30%. Not those enjoying preferential rates on their taxable income.
When? Effective, 1/1/98. (regular or normal rates then were: 1998, 34% and 1999, 33%)
Provided it is already the 4th TY or beyond after commencement of its operations.
Registration date with the BIR is the start of commencement of operations.
Prorate TI for CY 2005 and if FY ended 11/30/05 or during 2009.
Amount payable:
MCIT when: There is 0 taxable income or net loss
In excess of the R/NCIT
When payable: Quarterly and annual bases. Simultaneous: (a) to filing the quarterly ITR (within
60 days from the close of each of the first 3 quarters of the taxable year); and
(b) to filing the annual Final or Adjustment ITR (on or before the 15 th day of the
4th month following the close of the taxable year).
Excess MCIT over R/NCIT paid: Creditable against R/NCIT of the immediate following 3 years
provided the R/NCIT is greater than the MCIT. The excess MCIT
losses its creditability after 3 years.
Suspension of imposition (exception)
Proven substantial losses due to:
a. Prolonged labor dispute (over 6 months)
b. Force majeure (act of GOD or insurgency)
c. Legitimate business reverses (fire or theft)
Problems
1. A tax imposed whenever a corporation has zero or negative taxable income or whenever
the minimum income tax is greater than the normal income tax due from such corporation:
a. Improperly accumulated earnings tax (IAET)
b. Gross income tax (GIT)
c. Capital gains tax (CGT)
d. Minimum corporate income tax (MCIT)
2. A corporation which was registered with the Bureau of Internal Revenue in May, 2007 shall
be covered by MCIT in:
a. 2008 b. 2009 c. 2010 d. 2011
3. The minimum corporate income tax of a domestic or resident trading or manufacturing

corporation is:
a. 2% of gross income
b. 5% of gross sales
c. 15% of gross income
d. 15% of gross sales
4. The minimum corporate income tax of a domestic or resident service corporation is:
a. 2% of gross receipts
b. 2% of gross income
c. 15% of gross receipts
d. 15% of gross income
5. One of the following statements is correct. Which is it? The minimum corporate income tax
of a corporation is computed:
a. In the quarterly or annual returns of the corporation.
b. In the annual income tax return only of the corporation.
c. In the quarterly return only of the corporation.
d. In all the taxable years of operations of the corporation.

A domestic corporation’s computed NCIT and MCIT and creditable income taxes withheld at
source from 1st to 4th quarters, including excess MCIT and excess withholding taxes from prior
year/s, are as follows:
Excess Excess
Taxes MCIT/NCIT withholding tax
Quarter NCIT MCIT withheld prior year prior year/s
1st P100,000 P80,000 P20,000 P30,000 P10,000
2nd 120,000 250,000 30,000
3rd 250,000 100,000 40,000
4 th 200,000 100,000 35,000
6. The income tax due at the end of the first quarter is:
a. P40,000 b. P50,000 c. P70,000 d. P80,000
7. The income tax due at the end of the second quarter is:
a. P120,000 b. P230,000 c. P260,000 d. P270,000
8. The income tax due at the end of the third quarter is:
a. P30,000 b. P40,000 c. P60,000 d. P70,000
9. The income tax due at the end of the year is:

a. P235,000 b. P220,000 c. P165,000 d. P205,000
10. Suppose the NCIT and MCIT in the 4th quarter are P50,000 and P120,000, respectively, the
income tax due at the end of the year is:
a. P75,000 b. P85,000 c. P105,000 d. P210,000

A domestic corporation which commenced business operations in 2006 has the following data:
2010 2011
Sales P1,700,000 P2,300,000
Cost of Sales 1,050,000 1,425,000
Operating Expenses 615,000 480,000
11. The income tax payable in 2010 is:

a. P13,000 b. P12,250 c. P11,200 d. P10,500
12. The journal entry in 2010 to record excess MCIT is:

a. Deferred charges – MCIT P1,800
Income tax payable P1,800
b. Deferred charges – MCIT 2,500
Income tax payable 2,500
c. Provision for income tax 11,200
d. Income tax payable 13,000
Cash 13,000
13. The income tax payable in 2011 is:

a. P15,700 b. P17,500 c. P116,000 d. P137,500
14. The journal entry in 2011 to record the carry forward of excess of MCIT against normal
income tax liability in 2010 is:
a. Income tax payable P2,500
Deferred charges – MCIT P2,500
b. Provision for income tax 137,500
c. Income tax payable 1,800
Deferred charges – MCIT 1,800
d. Income tax payable 2,500
Cash 2,500
15. What if even after 2010 the MCIT still continues to be higher than the RCIT? The journal
entry at December 31,2013, to cancel the excess MCIT in 2010 is:
a. Income tax payable P2,500
Deferred charges – MCIT P2,500
b. Income tax expense 2,500
c. Retained earnings 2,500
d. Income tax payable 750
Retained earnings 750
16. The imposition of minimum corporate income tax shall not be suspended whenever the
corporation suffers losses due to:
a. Prolonged labor dispute c. Legitimate business reverses
b. Force majeure d. Mismanagement
TAX-1012.23
QUARTERLY CORPORATE RETURNS
a.Who are required to file? Every corporation or partnership subject to income tax shall file a
quarterly summary declaration of its gross income and deductions on cumulative basis.
b. Time of filing and payment – The return shall be filed and the tax paid within 60 days from
the close of each of the first three (3) quarters of the taxable year, whether calendar or
fiscal.
c. Time of filing and adjustment return- A final or adjustment return shall be filed on or before
the 15th day of the 4th month following the close of the calendar or fiscal taxable year.
d. Final payment of income tax – The amount of income tax to be paid shall be the balance of
the tax on the final return after deducting therefrom the quarterly income taxes paid during
the preceding first three quarters of the same calendar or fiscal taxable year.
Note: If quarterly payments exceed the tax on the final return, the excess shall either be (1)
Refunded or (2) Credited against the estimated quarterly income tax liabilities for the
quarter of the succeeding taxable year.
Problems
The following selected cumulative balances were taken from the records of a domestic
corporation in its fifth year of operations in 2011. It had an income tax refundable of P10,000
for the previous year for which there is a certificate of tax credit.
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.

Gross profit from sales P800,000 P1,600,000 P2,400,000 P3,100,000
Capital gain on sale directly to
buyer of shares of domestic
corporation 50,000 50,000 50,000 100,000
Dividend from domestic
corporation 10,000 10,000 20,000 20,000
Interest on Philippine currency 5,000 10,000 15,000 20,000
bank deposit
Business expenses 600,000 1,200,000 1,700,000 2,100,000
Income tax withheld 15,000 35,000 65,000 115,000
1. The capital gain tax paid for the year:

a. P1,250 b. P12,500 c. P5,000 d. P16,000
2. The final tax paid on passive income within the year:
a. P35,000 b. P10,000 c. P12,500 d. P16,000
3. The income tax due at the end of the first quarter:

a. P35,000 b. P45,000 c. P55,000 d. P60,000
4. The income tax due at the end of the second quarter:

a. P50,000 b. P70,000 c. P140,000 d. P40,000
5. The income tax due at the end of the third quarter:

a. P66,000 b. P60,000 c. P75,000 d. P140,000
6. The income tax due at the end of the year:

a. P320,000 b. P350,000 c. P55,000 d. P40,000

The books of a domestic corporation, in its fifth year of operations in 2011, show the following:
SalesCost of Sales Expenses Other Income

1st Quarter P500,000 P260,000 P120,000P96,000 – Royalty,
net of withholding
tax of 20%
2nd Quarter 450,000 220,000 100,000 150,000 – Dividend
from domestic corp.
3rd Quarter 700,000 390,000 150,000 180,000 – Dividend
from foreign corp.
4th Quarter 600,000 310,000 150,000 190,000 – Dividend
from foreign corp.
7. The final tax paid on the royalty income within the year:
a. P19,200 b. P34,200 c. P24,000 d. P39,000
8. The income tax due at the end of the first quarter:

a. P42,000 b. P36,000 c. P52,800 d. P76,800
9. The income tax due at the end of the second quarter:

a. P80,000 b. P65,600 c. P39,000 d. P45,500
10. The income tax due at the end of the third quarter:
a. P102,000 b. P119,000 c. P147,200 d. P188,800
11. The income tax due at the end of the year:

a. P112,000 b. P87,400 c. P92,900 d. P96,000
12. One of the following is wrong. Which is it? The gross income tax on corporations is:
a. Applicable to domestic and resident foreign corporations only
b. Applicable to all foreign corporations
c. Based on gross profit from sales of gross receipts less sales allowances and discounts
d. May begin only starting year 2000
13. Which statement is wrong? The gross income tax:

a. Is optional to a qualified corporation.
b. Available only if the ratio of cost of sales does not exceed fifty-five percent of gross sales
or receipts from all sources.
c. The choice shall be irrevocable for three consecutive years that the corporation is
qualified under the scheme.
d. Is always computed to compare with the normal corporate income tax and minimum
corporate income tax.
14. Which statement is wrong? The gross income of tax of corporation:

a. 15% of gross income
b. 15% of gross sales
c. 15% of gross profit from sales
d. 15% of gross receipts less sales allowances and discounts
15. In year 2011, a domestic corporation had the following data:

Sales P4,000,000
Cost of Sales 1,500,000
Business Expenses 1,000,000
The gross income tax of the corporation is:
a. P375,000 b. P480,000 c. P600,000 d. P125,000
16. Which of the following is not an income tax on corporation?

a. Normal tax c. Gross income tax
b. Minimum corporate income tax d. Stock transaction tax
17. In the gross income of unrelated activity exceeds 50% of the total gross income derived by
any private educational institution, the normal corporate income tax rate shall be applied on
the entire taxable income. This is known as:
a. Constructive receipt c. End result doctrine
b. Tax benefit rule d. Predominance test

A proprietary educational institution, in its third year of operations, had the following income
and expenses in 2011:
Gross income, tuition P5,000,000
Rent, net of withholding tax of 5% 1,900,000
Dividend from domestic corporation 4,000,000
Operating expenses 4,500,000
18. Applying the predominance test, the percentage of unrelated income is:
a. 66 2/3% b. 54.55% c. 54.13% d. 53.64%
19. The income tax still due at the of the year is:
a. P650,000 b. P775,000 c.P125,000 d. P250,000

Brains University is a private educational institution recognized by the government.
The following are the financial data for its fiscal year ending October 31, 2011:
Tuition fees P12,800,000

Miscellaneous fees 1,800,000
Interest on bank deposits 12,300
Rent income of school facilities to outsiders 350,000
Salary and bonuses, all personnel 7,500,000
Other operating expenses 3,500,000
Repayment of loan 400,000
Quarterly (three quarters) income tax paid 48,000
An additional classroom building was constructed May 1, 2011 at a cost of
P2,000,000 with a depreciable life of 50 years.
20. Assuming the cost of transaction is treated as an expense, the income tax is still payable
by Brains University for the year ended October 31, 2011 is:
a. P195,000 b. P147,000 c. P576,000 d. P634,500
21. The income tax still payable if the cost of bulking construction is capitalized:
a. P345,000 b. P147,000 c. P393,000 d. P1,327,500
22. The taxable base for income tax purposes of an international carrier doing business in the
Philippines is:
a. Gross Philippine billings
b. Gross Philippine billings minus deductible expenses
c. Regular income tax rate of 30% of its taxable income
d. Allocation of income from sources within and without the Philippines, as well as expenses
23. The records of foreign international air carrier show the following data:
Gross receipts on passenger on:
Tickets (Manila to Hongkong) sold in the Philippines to
passengers originating from the Philippines. P10,000,000
Tickets (Manila to Hongkong) sold outside the Philippines
to passengers originating from the Philippines 6,000,000
Tickets (Hongkong to Manila) sold in the Philippines to
passengers originating outside the Philippines 2,000,000
Tickets (Manila to Hongkong) sold in the Philippines to
Passengers who were endorsed to another international airline
which airlifted them from Manila 1,000,000
Tickets (Manila to New York) sold in the Philippines to
passengers trans-shipped in Japan on another airline to New York
Flight from Manila to New York- 4 hours
Flight from Japan to New York- 8 hours
Expenses in connection with uplifts originating in the Philippines 12,000,000
The income tax payable is:

a. P500,000 b. P400,000 c. P700,000 d. P650,000
2. How much final tax was withheld from each of the following gross receipts by a nonresident
foreign corporation in 2011?
1. Rent from lease of aircraft to a domestic surveying company. P1,000,000
2. Royalty for the use of patent in the Philippines. 200,000
3. Interest on US dollar loan to a domestic company engaged in the
construction business. $50,000
4. Interest on US dollar deposit with a local bank operating a
Foreign Currency Deposit Unit. $20,000
a. P60,000 b.P75,000 c. $10,000 d. None
25. Which of the following is subject to income tax?

a. SSS and GSIS
b. Philippine Health Insurance Corporation (PHIC)
c. Philippine Charity Sweepstakes Office (PCSO)
d. PAGCOR
26. One of the following is exempt from income tax:

a. Propriety educational institution c. Government educational institution
b. Private Cemeteries d. Mutual savings bank

In 2011, Jaguar Inc., a branch of foreign company doing business in the Philippines , had the
Following income and expenses:
Gross income P100,000,000
Business expenses 60,000,000
Dividend from domestic corporation
Interest on Philippine currency deposit 500,000
Capital gain on sale directly to buyer of stock investment 100,000
in domestic corporation
Quarterly income taxes paid 10,000,000
In early 2012, the branch earmarked for remittance of its head office abroad the dividend
received, the capital gain and P10 million of its net income in 2011.
27. The income tax still due at the end of 2011 is:
a. P2.0 million b.2.96 million c.P3.01 million d. P4.0 million
28. The branch profit remittance tax and the total amount to be remitted in its head office
abroad are:
Branch profits Amount to be Branch profits Amount to be
Remittance tax Remitted remittance tax remitted
a.P1.275 million 8.50 million c. P1.597 million 9.053 million
b.P1.500 million 9.140 million d. P1.371 million 7.769 million
29. A mother corporation is abroad, with a branch office in the Philippine. Which of the
following statements is wrong?
a. In a year, the branch in the Philippines is subject to profit remittance tax on its remittance
of profits to the mother company abroad, even if the profits from which the remittance is made
was prior a year’s profits.
b. The profit remittance tax is fifteen percent (15%) final tax of the amount of profit remittance,
as applied for with the bank.
c. The bank with which the application for remittance was filed would be the withholding agent
of the BIR.
d. Even activities registered with the Philippine Economic Zone Authority (PEZA), from the
profits from which remittance is applied for, will be subject to the profit remittance tax.
TAX-1013.24
Surtax
Penalty tax 10% of the improperly
Improperly accumulated accumulated profits every (CY/FY)
profits tax
Additional tax to the R/NCIT
Effectivity: Starting January 1, 1998 accumulated profits

Corp. Covered: Every domestic corporation formed or availed for the purpose of avoiding
the imposition of income tax to its stockholders or stockholders of other corporation by
permitting its profits to accumulate instead of being distributed.
Presumption or evidence of avoiding the payment of income tax to stockholders:

1. Corp. is mere holding co.
2. Corp. is an investment Co.
3. Profits of the corp. are permitted to accumulate beyond the reasonable needs of the
business.
4. Closely-held corp. (family corp.)
Circumstances indicative of improper accumulation of profits:

1. Withdrawals by stockholders disguised as loans.
2. Expenditures by the corp. for the personal benefit of the stockholders.
3. Yearly substantial advances made to stockholders-officers.
4. Investment in unrelated business.
5. Radical change of business when large profits have been accumulated.
Circumstances considered proper accumulation of profits:

1. Additional working capital purposes.
2. Purchase of long-life assets reasonably required by the business.
3. Obligation in a contract to set aside funds in a sinking fund to settle debt.
Improperly accumulated tax profits:

1. After tax net income
2. Net operating loss carry-over deducted
3. Income subject to final tax
4. Income exempt from income tax
5. Income excluded from gross income
6. Reduced by dividends actually or constructively paid
Exempt from corporations: (I-PNB)

1. Insurance companies
2. Publicly-held corporations
3. Non- bank financial intermediaries
4. Banks
Problems
1. A penalty and a form of deterrent to the avoidance of tax upon shareholders who are
supposed to pay dividends tax on the earnings distributed to them by their corporation:
a. Minimum corporate income tax c. Improperly accumulated earnings tax
b. Fringe benefit tax d. Gross income tax
2. Improperly accumulated earnings tax is:

a. 10% of taxable income c. 10% of improperly accumulated income
b. 10% of net income d. 10% of gross income
3. The following, except one, give rise to the presumption that a corporation is improperly
accumulating profits. Identify the exception:
a. The corporation is a mere holding company.
b. The corporation is an investment company.
c. The corporation permits its profit to accumulate beyond reasonable needs of the business.
d. the corporation is a service enterprise.
4. One of the following statements is wrong. Identify. The improperly accumulated earnings tax
imposed on corporations:
a. Is calculated to force corporations to pay out dividends.
b. Is computed on improperly accumulated income over several years.
c. Is based on the net income per books after income tax.
d. Is based on a statutory formula for improperly accumulated income.
5. All of the following, except one, are additions to taxable income after income tax for
purposes of computing improperly accumulated income:
a. Income subject to final tax.
b. Income excluded from gross income.
c. Reserved for the reasonable needs of the business.
d. NOLCO deducted in computing taxable income.
6. A domestic corporation had the following data for 2011, the accumulated earnings for which
year the Bureau of Internal Revenue considered to be improper:
Sales P6,000,000
Cost of sales 2,000,000
Business expenses 1,000,000
Interest on Philippine currency bank deposits 50,000
Capital gain on sale directly to buyer of shares of
domestic corporation 120,000
Dividend income from domestic corporation 60,000
Dividend declared and paid during the year 500,000
The improperly accumulated earnings tax is:
a. P175,300 b. P181,300 c. P171,000 d. P166,300
The records of a closely-held domestic corporation show the following data for 2011:
Gross income (gross of WT of 2%) P1,500,000
Business expenses 600,000
Gain on sale of business asset 60,000
Interest on deposit with Metrobank, net of tax 5,000
Sale of shares of stocks, not listed and traded:
Selling price 150,000
Cost 115,000
Dividends from Orocan Corporation, domestic 35,000
Dividends paid during the year 120,000
Reserved for building acquisition 300,000
In 2010, the corporation suffered an operating loss of P130,000. This amount was carried
forward and claimed as deduction from gross income in 2011.
7. The income tax due in 2011 is:
a. P250,600 b. P260,500 c. P219,000 d. P231,400
8. The improperly accumulated earnings tax is:
a. P64,415 b. P36,425 c. P32,275 d. P25,060
9. All, except one, of the following, are not subject to the improperly accumulated earnings tax.
Which is the exception?
a. Publicly-held corporations.
b. Banks and nonbank financial intermediaries.
c. Insurance companies.
d. Service enterprises.
10. In 2011, Family Corporation, a domestic corporation, had a taxable income of P2,000,000. It
paid a corporate tax of 30% leaving a distributable income of P1,400,000. If a dividend is
declared by the corporation and received by the following stockholders, which of the following
statements is false?
a. Nonresident aliens engaged in trade or business are liable to pay 25% dividend tax.
b. Nonresident aliens not engaged in trade or business are liable to pay 25% dividend tax.
c. Resident citizens are liable to pay 10% dividend tax.
d. Resident foreign corporations are exempt from the payment of dividend tax.
TAX-1014.25
SUMMARY OF TAXING INCOME FOR PARTNERSHIPS (PH) AND PARTNERS
Taxable PH Tax exempt PH
GPPH/JV or Consortium for CP/EO
All other PH
Extension of the partners

Corporation
Calendar/Fiscal accounting period Calendar accounting period only for GPPH
QF/P- within 60 days ff. close of 1,2 &3 AIIR- on or before the 15th day of the 4th month
quarters ff. the close of C/F AP
AF/AITR- on or before the 15th day of the 4th NI (NL) computed in the same manner as a
month ff. the close of C/F AP corporation
Partners Partners
Income constructively received in cash
Irrespective of AM used, share in NI taxable to the partners, distributed or not
Share in NL is deductible in tax exempt PH only, but not in taxable PH
Final tax rate: Annual ITR
1998- 6% Compartment: Pr for GPPH (treated as GI)
1999- 8% Deductions: Itemized/40% OSD based on GS or GR
2000- 10% Progressive rates
Compensation paid to partners

Compensation: Additional professional income for GPPH:
AITR- Co AITR- Pr
Progressive rates Progressive rates
Both taxable & exempt PH (dual personality)
Taxable PH Tax exempt PH
To the extent of income derived from trade To the extent of income derived from the
or business exercise of common profession by the
Apply the same rules as above partners in GPPH
Apply the same rules as above.
CO-OWNERSHIP
a. Is a co-ownership taxable? Generally no, because the activities of the co-owners are
usually limited to the preservation of the property owned in common and collection of
the income therefrom.
b. What is the tax liability of the co-owners? They shall report in their respective income
tax returns their shares of the income of the co-ownership.
c. When will a co-ownership be taxable? When the income of the co-ownership is invested
by the co-owners in business or other income producing properties, the co-ownership
will be taxable as a corporation because the co-owners have constituted themselves
into a taxable PH.
Problems
Balbon and Company, a business partnership, has the following data of income and expenses in
2011:
Gross income P750,000
Expenses 200,000
Dividend from a domestic corporation 75,000
Interest on bank deposit (gross of tax) 10,000
Partners Bal and Bon share profits and losses in the ratio of 55% and 45%, respectively.
1. The income tax payable by Balbon and Company is:
a. P15,000 b. P192,500 c. P176,000 d. Exempt
2. The final taxes on the respective share of Bal and Bon in the 2011 partnership income are:
Bal Bon Bal Bon

a. P25,740.00 P21,060.00 c. P24,227.50 P19,822.50
b. P31,157.50 P25,492.50 d. P30,250.00 P55,045.00
3. For purposes of income taxation, which of the following is not considered as corporation?
a. General professional partnership c. Unregistered partnership
b. Business partnership d. Joint stock companies
4. A general professional partnership is exempt from income tax, but is required to file an
annual income information return:
a. For statistical purposes.
b. Because the net income of the partnership will be traced into the income tax return of
the partners.
c. Because all income earners are required to file income tax returns.
d. None of the above.
5. The members of this form of business organization shall be liable for income tax only on their
individual capacity and their share in the profits, whether distributed or otherwise, shall be
returned for taxation. This applies to:
a. Duly registered general co-partnership c. General professional partnership
b. Unregistered general co-partnership d. Joint-stock companies
6. The share of a partner in the profits of a general professional partnership is regarded as
received by him and thus taxable although not yet distributed. This principle is known as:
a. Advance reporting of income c. Accrual method of accounting
b. Actual receipt of income d. Constructive receipt of income
7. If a general professional partnership is on the accrual method of accounting, and a partner on
his own transactions is on the cash method of accounting, in the partner’s determination of his
taxable income for a year:
a. He can consolidate his share in the net income of the partnership, determined by the
partnership under the accrual method, with his own income determined under the cash
method.
b. He must convert his income from the partnership into cash method before consolidating
it with his own income on the cash method.
c. He must convert his own income into accrual method before consolidating it with his
own income from the partnership under the accrual method.
d. He does not have to report his income from the partnership because the partnership is
exempt from income tax.
Ringky and Tingky is a general professional partnership, with Ringky, married, and Tingky,
single, participating equally in the income and expenses. The following are data for the
partnership and the partners in 2011:
Ringky and Tingky Ringky Tingky
Gross receipts P600,000 P150,000 P200,000
Expenses 350,000 80,000 120,000
8. The gross income of Ringky from the partnership is:
a. P300,000 b. P125,000 c. P600,000 d. P450,000
9. The taxable income of Tingky is:
a. P145,000 b. P155,000 c. P173,000 d. P185,000
Money and Penny, CPAs, a partnership of Certified Public Accountants, had a gross receipts of
P220,000 and expenses of P85,000 in 2011:
Money Penny
Share in profit and loss ratio 75% 25%
Income from other business P125,000 P325,000
Expenses 80,000 190,000
Amount withdrawn from partnership 30,000 12,500
Filing status Married Unmarried
Dependent children None 2
10. The income tax payable by the partnership is:
a. P72,600 b. P45,900 c. P44,550 d. None
11. The taxable income of Money and Penny is:
a. P96,250 and P68,750, respectively c. P101,250 and P33,750, respectively
b. P114,250 and P127,750, respectively d. P13,000 and P94,000, respectively
12. Which of the following is not gross compensation income?
a. Salary of P20,000 of an employee.
b. Bonus of P20,000 of an employee.
c. Salary of P20,000 of a partner in a general professional partnership.
d. Honorarium of P20,000 of an employee who is a member of the board of directors of a
corporation.
13. Each partner shall report as income his distributive share, actually or constructively
received, in the net income of a general professional partnership. The share of a partner (with
current year’s gross income of P720,000 or below) if withdrawn shall be subjected to creditable
withholding tax of:
a. 15% b. 20% c. 32% d. 10%
King, single, and Kong, married with two dependent children, are partners in the following
partnerships. King holds 60% interest while 40% interest belong to Kong. The partnership
income and expenses for the taxable year 2011 are given below:
Profits withdrawn
Partnership Income Expenses Net King Kong
Prof. PH I P400,000 P200,000 P200,000 P60,000 P40,000
Prof. PH II 400,000 500,000 (100,000) - -
Business PH I 500,000 200,000 300,000 40,000 20,000
Business PH II 200,000 300,000 (100,000) - -
Note: The partnerships remitted to the BIR the corresponding withholding tax on the share of
King and Kong.
The partners’ personal income and expenses for the same taxable year are shown below:
King Kong
Gross income from business P400,000 P600,000
Business expenses 240,000 380,000
Other income:
Rent, net of withholding tax of 5% 57,000 -
Gain on sale of residential house in the Philippines - 250,000
on a selling price of P1,000,000
Dividend from domestic company, gross of tax 50,000 70,000
Royalty, net of tax 40,000 -
Interest on bank deposit, net of tax 60,000 20,000
14. The capital gain tax paid by Kong during the year:
a. P15,000 b. P20,000 c. P60,000 d. Exempt
15. The final tax paid by King on passive income within the year:
a. P48,000 b. P42,600 c. P37,000 d. P41,700
16. The taxable income of King:
a. P230,000 b. P260,000 c. P280,000 d. P287,000
17. The income tax payable by Kong after tax credits:
a. P40,500 b. P26,500 c. P36,500 d. P23,500
18. Which of the following is subject to improperly accumulated earnings tax?
a.Insurance companies c. Business partnerships
b. Banks and non-bank financial intermediaries d. Investment companies
19. Oro, Plata and Mata are heirs of Panday who died on February 14, 2011. The properties of
Panday comprised solely of real property primarily deriving rental income. For income tax
purposes, the heirs will be taxed on rental income from the inherited property for the year
2011 as:
a. An unregistered partnership c. A co-ownership
b. A corporation d. A joint account
20. 1st Question: Is a co-ownership taxable? No, because the activities of the co-owners are
limited to the preservation of the property and the collection of income therefrom.
2nd Question: Is the share of co-owner taxable? Yes, because each co-owner is taxed
individually on his distribution share in the income of co-ownership.
a. Answers to both questions are correct.

b. Answer to Question 1 is wrong, answer to Question 2 is correct.
c. Answer to Question 1 is correct, answer to Question 2 is wrong.
d. Answers to both questions are wrong.
TAX-1015.26
SUMMARY OF TAXINF INCOME FOR ESTATES AND TRUSTS
1. What is an “estate” and when is it considered as a separate income taxpayer?

An “estate” is the totality of the property left by a deceased person, whether real, personal,
tangible or intangible. An “estate” is considered as a separate income taxpayer only when it is a
subject either an “intestate court proceedings” or a “testate court proceedings”.
2. What is a “trust” and when is it considered a separate income taxpayer? A “trust” is the
totality of the property conveyed by a person called the trustor to another person called the
trustee for the purpose of enabling the latter to safeguard such property. A “trust” is
considered as a separate income taxpayer if the “trust” created is an irrevocable trust.
3. Rules the computation of the tax on estates and trusts:
a. The same rules in the determination of gross income for individuals are applied in the case
of
estates and trusts.
b. Estates and trusts are allowed the same deductions from gross income as allowed to
individuals. In
addition, they can further deduct the following items from the gross income:
1. Amount of its income which is to be distributed currently to the beneficiaries;
2. Amount of its income for the taxable year which is properly paid or credited during such
year to any heir, legatee or beneficiary, but the amount so allowed as s deduction shall
be included in computing the taxable income of the heir, legatee or beneficiary.
c. Estates and trusts are required to use only the calendar accounting period.
d. Estates and trusts are allowed an exception of P20,000.
e. The progressive rates of tax used for individuals are applied to estates and trusts.
4. Consolidation of income in trusts. This is done when the grantor and beneficiary of the
several
trusts are the same person in each instance.
Tax Formula:
Consolidated Gross Income P XXX
Less: Consolidated Deductions XXX
Consolidated Net Income XXX
Less: Exemption of a single amount of 20,000
Taxable Income of several trusts P XXX
PROBLEMS
1. Which of the following is not subject to tax as a separate income taxpayer?
a. Estates under judicial settlement c. Unregistered partnerships
b. Irrevocable trusts d. Revocable trusts

Pinoy died on January 1, 2011, leaving a gross estate of P10,000,000. Judicial testamentary
proceedings were instituted for the settlement of the estate: In 2011, the estate realized a
gross income from a business of P1,000,000 and incurred business expenses in the amount of
P300,000. Income of the estate for the same year were also distributed to the following
children-beneficiaries:
Pipoy, married with one dependent child, with
professional income of P320,000 and expenses of P100,000 P250,000
Pipay, single, 14 years old 250,000
2. The income tax due from the estate of Pinoy.
a. P189,000 b. P32,500 c. P182,600 d. P137,500
3. The income taxes due from the beneficiaries:
Pipoy Pipay Pipoy Pipay
a. P38,750 P104,000 c. P104,000 P38,750
b. P93,500 P14,500 d. P14,500 P93,500

Pacman created two trusts, Trust 1 and Trust 2 as fiduciaries, and Chavit a common beneficiary.
The following are the data on income and expenses of Trust 1 and Trust 2 in 2011:
Trust 1 Trust 2
Gross Income P180,000 P160,000
Deductible Expenses and Losses 50,000 80,000
Distribution made out of year’s income 20,000
4. The income tax due under trust consolidation by the BIR:
a. P7,000 b. P12,500 c. P30,000 d.35,000
5. The income tax still due from each trust as determined by the BIR:
Trust 1 Trust2 Trust 1 Trust 2
a. P18,000 P12,000 c. P12,500 P7,000
b. P 5,500 P 5,000 d. P 5,000 P5,500
TAX-1016.27
SOURCES OF INCOME
1. It is important to know the source of income for tax purposes ( i.e., from within or without
the
Philippines) because:
a. Some individual or corporate taxpayers are tax on their worldwide income while others
are
taxable only upon income from sources within the Philippines.
b. The Philippines imposes income tax only on income from sources within.
c. Some individual taxpayers are citizens while others are aliens.
d. Export sales are not subject to income tax.
2. Source of taxable income:
a. Within b. Without c. Partly within and partly without
3. Income within and without is determined as follows:
INCOME TEST OF SOURCE OF INCOME
a. Interest Residence of the debtor
b. Dividend:
1. From Domestic Corp. Income within
2. From Foreign Corp. a. Income within, if 50% or more of the gross
Incomeof the foreign company for the preceding
3 yearsprior to declaration of dividend was
derived fromsources within the Phil.
Income within determined as follows:
Phil. Gross Income x Dividend = Income Within

World Gross Income
b. Income without, if less than 50% of the gross

incomeof the foreign company for the preceding 3
years prior to declaration of dividend was derived
from sources within the Phil.
c. Income from services Place of performance
d. Rent Location of property
e. Royalties Place of use of the tangible
f. Gain on sale of real property Location of property
g. Gain on sale of domestic shares of stock Income within
h. In the case of mining Place where the mine is located
i. In the case of farming Place where the farm is located
j. Gain on sale of personal property Place of sale
purchased in one country and sold
in another
k. In the case of merchandising Place of sale
l. In the case of manufacturing:
1. If produced in whole within and sold within – income is purely within
2. If produced in whole without and sold without – income is purely without
3. If produced in whole or on part within and sold without – income is partly within and partly
without.
4. If produced in whole or in part without and sold within – income is partly within and partly
without.
For the income partly within and partly without, income purely within the Phil. may be
determined by processes or formulas of general apportionment prescribed by the Secretary of
Finance, upon recommendation of the Commissioner. At present, the formula are:
Net X Gross Sales, Phil. XXX
Income Gross Sales, World
+
Net Income X Property Value, Phil. XXX
2 Property Value, World XXX
Income purely within
4. Expenses allocation:
a. In case expenses cannot be allocated as to whether within or without, the following formula
should be observed:
Phil. Gross Income X Unallocated Expenses = Expenses purely within
World Gross Income
b. Formula to determine taxable income within the Phil.

Gross Income within XXX
Less: Expenses allocated to income within XXX
Ratable portion of unallocated expense XXX XXX
Taxable Income within XXX
Ratable portion of unallocated expenses is arrived at by using the formula in (a).

Problems
1. Kadafy, a non-resident alien stockholder, received a dividend income of P300,000 in 2011

from a foreign corporation doing business in the Philippines. The gross income of the foreign
corporation from within and without the Philippines for three years preceding 2011 are as
follows:
Source of income 2008 2009 2010
From within the Philippines P16,000,000 P12,000,000 P14,000,000
From without the Philippines 8,000,000 14,000,000 16,000,000
How much of the dividend income received by Kadafy is considered income from sources within
the Philippines?
a. Zero b. P150,000 c. P157,500 d. P300,000

Taxpayer has the following income and expenses for 2011:
a. Gross income fron business, Philippines P220,000
b. Rent from the building, located in the Philippines, net of creditable
withholding tax of 5% 95,000
c. Rent from commercial building located in Japan 70,000
d. Dividend from a foreign company 60,000
Note: Gross income of the company for the preceding 3 years prior to the
declaration of dividend was:
Within Without
1st Year P 100,000 P200,000
2nd Year 400,000 100,000
3rd Year 500,000 200,000
Total P1,000,000 P500,000

e. Royalties received from Yakuza for use of its patent in Japan 30,000
f. Dividend from another foreign company 80,000
Note: Gross income of the company for the preceding 3 years prior to
the declaration of dividend was:
Within Without
1st Year P 100,000 P 300,000
2nd Year 300,000 300,000
3rd Year 400,000 400,000
Total P 800,000 P 1,000,000

g. Gain on sale in the Philippines of land located in Japan 300,000
h. Gain on sale in the Philippines of toys purchased in Japan 40,000
Expenses of the taxpayer:
a. Business expenses, Philippines P 150,000
b. Depreciation, building in the Philippines 20,000
c. Depreciation, building in Japan 10,000
d. Expenses, sale of land in the Philippines 50,000
e. Expenses, sale of toys in the Philippines 10,000
f. Unallocated expenses 54,000
2. Classifying income as to source, the following are income purely:

Within Phil. Without Phil. Within Phil. Without Phil.
a. P500,000 P400,000 c. P400,000 P500,000
b. P360,000 P540,000 d. P700,000 P200,000
3. Classifying the expenses, the following are expenses allocated to income purely:
Within Phil. Without Phil. Within Phil. Without Phil.
a. P180,000 P60,000 c. P90,000 P204,000
b. P204,000 P90,000 d. P180,000 P114,000
4. The taxable income if the taxpayer is a non-resident alien engaged in trade or business in the
Philippines , single, whose country grants personal exemption to single Filipino not residing
therein of P75,000:
a. P196,000 b. P176,000 c. P146,000 d. P121,000
5. The taxable income if taxpayer is a resident citizen, married:
a. P606,000 b. P581,000 c. P574,000 d. P556,000
6. A resident alien married and with 5 qualified dependent citizen, has the following data on his
income and expenses for 2011:
Gross Income, Phils. P1,500,000
Gross Income, USA 2,000,000
Deductions, Phils. 500,000
Deductions, USA 700,000
Unallocated business expenses 105,000
Other Data:
Dividend from foreign corporation (70% of
business of which is in the Philippines) 50,000
Dividend from domestic corporation 20,000
How much is the taxable income for Philippine income tax purposes?
a. P815,000 b. P840,000 c. P926,000 d. P990,000
7. A resident corporation manufactures articles in the Philippines for sale only in foreign
countries. Data on operations are:
Gross Sales, foreign countries P8,000,000
Cost of sales, foreign countries 4,000,000
Expenses of operations 2,500,000
Value of Properties in the Philippines 800,000
Value of Properties in the foreign countries 400,000
The taxable income purely within the Philippines is:
a. Zero b. P500,000 c. P150,000 d. P1,500,000

A corporation has the following income and expenses for 2011 (fifth year of operations):
Gross income, Philippines P2,400,000
Gross income, US 1,600,000
Business expense, Philippines 1,000,000
Business Expense, US 800,000
Unallocated business expense 480,000
Interest expense in connection with US business 100,000
Interest expense in connection with Philippines business 200,000
Interest expense in connection with business in the
Philippines and US 160,000
8. The corporate income tax due if a domestic corporation:

a. P80,000 b, P403,200 c. P441,000 d. P378,000
9. The corporate income tax due if a resident foreign corporation:
a. P48,000 b. P285,600 c. P244,800 d. P216,120
10. The corporate income tax due if a nonresident foreign corporation:
a. P48,000 b. P720,000 c. P768,000 d. P840,000

Tax 1007-16

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CRC-ACE

The Professional CPA Review School

 TAX – 1007 PERSONAL EXEMPTIONS

Dean Ruben D. Morante

B. Taxpayers allowed personal exemptions

C. Kinds of personal exemptions

D. Amount of basic personal exemption

PROVIDED HOWEVER, that the total number of

Items 27 through 31 are based on the following Information:

Items 33 through 35 are based on the following information:

33. Which of the following is wrong?

34. Which is not taxable?

36. Who among the following is a non-resident alien?

Items 44 through 48 based on the following information:

Items 49 through 51 are based on the following information:

49. The taxable income if Maximo is a resident citizen, single, is:

Items 58 and 59 are based on the following information:

Salary of Kabsat P160,000

58. What is the gross income o be reported by Kabsat?

59. What personal and additiona exemptions can be claimed by kabsat?

7. Ysmael, single, had the following in 2010:

II. CAPITAL GAINS (FINAL TAX)

Items 2 and 3 are based on the following information:

Items 4 through 9 are based on the following information:

Items 10 through 12 are based on the following information:

B. Sale or exchange of shares of stock in a domestic corporation considered capital asset:

5. Filling of returns and payment of the tax:

6. Installment method (applicable only to not traded shares) – it shall be governed by

Items 4 and 5 are based on the following information:

6. Paloma sold the following shares of stock during a year:

Items 7 through 10 are based on the following information:

Items 11 through 13 are based on the following information:

11. The loss not recognized on the sale of June 18:

1. On deeds of sale and conveyance of real property – All conveyance, deeds,

III. PASSIVE INCOME (FINAL TAX)

January 1, 1998 6% 20%

4. If the taxpayer is a resident citizen, his returnable gross income is:

How much is the total final taxes?

Items 7 and 8 are based on the following information:

7. The capital gain’s tax is:

IV. TRADE, BUSINESS, PRACTICE OF PROFESSION AND OTHER INCOME (AITR)

Items 1 and 2 are based on the following information:

3. Benjie, single, Hd the following income and expenses for 2010:

Compensation income as chief accountant 240,000

Professional fees 400,000

Gross income from business 360,000

Practice of profession 280,000

Business connected expenses 200,000

Personal and living expenses 190,000

Interest on bank time deposit 15,000

Dividend received from a domestic corporation 10,000

The taxable income of Benjie is:

a. 280,000 b. 310,000 c. 470,000 d. 500,000

Items 4 and 5 are based on the following information:

Lemuel had the following transactions for calendar year 2010:

Philippines Hongkong Total

Gross income 2,400,000 600,000 3,00,000

Business connected expenses 1,440,000 210,000 1,650,000

Other business connected expenses (cannot be allocated) 330,000

4. If the taxpayer is a resident citizen, single, the taxable income is:

Gross income from business 800,000 400,000

Business connected expenses 500,000 200,000