TAXATION 2, FINAL EXAMINATION

STUDENT NAME: LAGULAO-CABASAN, DENISE Y.

The following are the ANSWERS:

1. A. Income alone is the money received on a regular basis for work or investments. In income
taxation- income constitutes from personal income tax on individuals, regular corporate income
tax on corporations, minimum corporate income tax on corporations and capital gains tax on
sale of shares of stocks by a domestic corporation and on real properties, tax on passive
investment, fringe benefits, branch profit remittances, tax on improperly accumulated earnings
and final withholding tax.

B. Taxability of:

1. Life Insurance - shall be excluded from gross income and shall be exempt from income tax.
The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of
the insured, whether in a single sum or otherwise, but if such amounts are held by the
insurer under an agreement to pay interest thereon, the interest payments shall be included
in gross income
2. Gifts, bequests and devises - shall be excluded from gross income and shall be exempt from
income tax.
3. Retirement Benefits - shall be excluded from gross income and shall be exempt from income
tax.

C. Deductibility of the following:

1. Ordinary and necessary expenses are deductible on business expenses as an allowable

deduction from gross income. They must be incurred during the taxable year in carrying on or
which are directly attributable to, the development, management, operation and/or conduct of
the trade, business or exercise of a profession.

2. Taxes are deductible if payments made must be for “taxes”, taxes are imposed by the law
upon the taxpayer, taxes must be paid or accrued during the taxable year in connection with the
taxpayers trade, business, or profession, and these taxes are not excluded by law from being
deducted from the taxpayer’s gross income.

3. Losses are deductible if the loss is of the taxpayers, the said loss is actually sustained and
charged off within the taxable year, the loss is evidenced by a closed and completed transaction,
the loss is not claimed as a deduction for estate tax purposes, loss not compensated for by
insurance or otherwise, if made by an individual the loss must be connected to his trade or
profession, if it is a casualty loss it has been reported within 45 days.
4. Depreciation is deductible if the allowance for it is reasonable, it must be for property arising
out of its use in the trade or business, or out of its not being used temporarily during the said
year, and it must be charged off during the taxable year from the taxpayer’s book of accounts.

5. Depletion to be deductible must be for oil and gas wells, depletion is based on actual
reduction in flow and production ascertained, not by flush flow, but by the settled production or
regular flow. For mines, depletion is allowable up to an amount not to exceed the market value,
as used for purposes of imposing the mining ad valorem taxes, of the products mined and sold
during the year.

D. Substitute filing is when the filing of Certificate of Compensation Payment and Tax Withheld
BIR Form 2316 done by the employer of an individual taxpayer can become a substitute to the
filing of the annual income tax return for individuals earning purely compensation income.

E. General Professional Partnership shall not be subject to income tax. Nevertheless, persons
engaging in business as partners in a general professional partnership shall be responsible for
income tax only in their separate and individual capacities.

2. A. Examination of Returns and Determination of Tax Due:

After a return has been filed as required under the provisions of this Code, the Commissioner or
his duly authorized representative may authorize the examination of any taxpayer and the
assessment of the correct amount of tax:

a. That failure to file a return shall not prevent the Commissioner from authorizing the
examination of any taxpayer.

b. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the
Commissioner or from his duly authorized representative.

c. Any return, statement of declaration filed in any office authorized to receive the same shall
not be withdrawn. Provided, that within three (3) years from the date of such filing, the same
may be modified, changed, or amended: Provided, further, that no notice for audit or
investigation of such return, statement or declaration has in the meantime been actually served
upon the taxpayer.

B. Authority to Terminate Taxable Period:

a. When it shall come to the knowledge of the Commissioner that a taxpayer is retiring from
business subject to tax, or is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property, or is performing any act tending to obstruct the
proceedings for the collection of the tax for the past or current quarter or year or to render the
same totally or partly ineffective unless such proceedings are begun immediately, and

b. the Commissioner shall declare the tax period of such taxpayer terminated at any time and
shall send the taxpayer a notice of such decision, together with a request for the immediate
payment of the tax for the period so declared terminated and the tax for the preceding year or
quarter, or such portion thereof as may be unpaid, and said taxes shall be due and payable
immediately and shall be subject to all the penalties hereafter prescribed, unless paid within the
time fixed in the demand made by the Commissioner.

C. 1. Electronic Letter of Authority is Letter of Authority made or sent electronically, an official

document that empowers a Revenue Officer to examine and scrutinize a Taxpayer's books of
accounts and other accounting records, in order to determine the Taxpayer's correct internal
revenue tax liabilities. But BIR issued a memorandum about electronic Letter of Authority since
significant changes have occurred and that automation process were introduced to improve
operational efficiency and to provide up-to-date information to its audit activities.

2. The Preliminary Assessment Notice is a communication issued by the Regional Assessment

Division, or any other concerned BIR Office, informing a Taxpayer who has been audited of the
findings of the Revenue Officer, following the review of these findings. If the Taxpayer disagrees
with the findings stated in the PAN, he shall then have fifteen days from his receipt of the PAN
to file a written reply contesting the proposed assessment.

3. As a general rule, the assessment of national internal revenue taxes prescribes within three
years or ten years, depending on whether or not a tax return was filed or the tax return filed
was false with intent to evade payment of tax. Nevertheless, where the law does not provide for
any particular prescriptive period of assessment then the rule is that the tax sought to be
assessed becomes imprescriptible.

4. Tax delinquency refers to a tax that is unpaid after the payment due date. Usually a penalty is
attached to a delinquent tax. A taxpayer is delinquent in the payment of his tax when the self-
assessed tax return he filed on the prescribed date was not paid or only partially paid. Or the
deficiency tax assessed by the BIR became final and executory.

5. The distinction between a false return and a fraudulent return is that the first implies
nonconformity or deviation from the truth whether intentional or not, while fraudulent return is
intentional and deceitful with the purpose of evading the correct tax due.