A. Taxation

7/25/2019 A. Taxation

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Taxation

Disclaimer:This material is not designed to replace the materials provided by the CPA Review Centers. No item in this test will

appear in the actual CPA exams. This test will help you gauge if you have understood the concepts and not just memorize

the answers in the reviewers.

It is best to print the test and answer the questions for an hour to simulate the actual board exam. Time duration is 1 hour

only.

More practice questions in www.icpa.ph

____ 1. Among the nature of taxation is that it is an inherent power being an attribute of sovereignty. Which among

the following is not among its manifestation as such inherent power?

a. the State has the right to select the subjects and objects of taxation

b. courts not issue an injunction to enjoin the collection of taxes

c. there should be no improper delegation of the power to tax

d. taxes may be imposed even without a constitutional grant

____ 2. A tax does not meet the public purpose limitation if it

a. is designed to support the services of government for some of its recognized objects

b. is for the welfare of the nation or greater portion of the population

c. affects the areas as a community rather than as individuals

d. is for the benefit principally of limited subjects or objects

____ 3. A stranger for donors tax purposes is

a. second cousin

b. nephew

c. grandchild

d. grandmother

____ 4. John is an alien assigned in the Philippines to manage the regional area headquarters of Deli France, a

multinational company.

John wages and salaries are

a. tax at 10% on gross income

b. tax at 5%-32% on taxable income

c. exempted from tax being an area headquarters of a multinational

d. tax at 15% on gross income

____ 5. In instances wherein the tax or any portion thereof appears to be unjustly or excessively assessed or where the

administration and collection costs involved do not justify the collection of the amount due, the commissioner

may:a. submit the matter to a committee composed of taxpayers and BIR officials to determine

future action the particular matter

b. cause a further investigation to determine the true value of the assessment

c. abate or cancel the tax liability

d. compromise the payment of the internal revenue tax


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____ 6. The following items are taxable except

a. illegal gains

b. tax refund involving non-deductible tax

c. cash dividend

d. tax refund involving deductible tax

____ 7. Matteo donates the following items prior to his death:

House and lot to his son (mortis causa) 1,000,000

Diamond ring to his wife 500,000

Portion of land to the National Government 300,000

Car to his son on account of current birthday 800,000

How much is the gross amount of donations subject to donors tax?

a. 1,000,000

b. 1,600,000

c. 80,000

d. 1,100,000

____ 8. As a rule, stock dividend is tax exempt because the recipient realizes no gain except

a. indirect dividend

b. liquidating dividend

c. issuance of different classes of shares of stock

d. treasury shares of stock

____ 9. Choose the correct answer from among the following choices:

I The power of taxation involves the promulgation of rules

II The State has the power to impose taxes even without a constitutional grant

III Taxes are based upon the lifeblood theory

IV There should be no improper delegation of the power to tax

a. Statements II and IV are both manifestations of taxation being legislative in nature

b. Statements I and II are both manifestations of taxation being legislative in nature

c. Statements II and III are both manifestations of the inherent nature of taxation

d. Statements I and IV are both manifestations of taxation being inherent in nature

____ 10. Determine which of the following is (are) included in the preparation of annual income tax returns:

a. interest on deposits with Banco de Orob. proceeds of life insurance procured by the employer for his employee

c. 13th month pay and de minimis benefits

d. dividends received by a domestic corporation from another domestic corporation

____ 11. Income includes gains and profits including gains derived from the sale or other disposition of capital assets.

On this account, taxable income derived from capital includes

a. profit from exchange of shares of stock

b. gain from retirement of bonds

c. profits from dealings in property

d. gain from redemption of shares of stock


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____ 12. Congress passed a law revoking all tax exemption status granted to some taxpayers, except if covered by thenon-impairment clause of the Constitution. Which of the following principles would best justify this move by

Congress?

a. tax exemptions are granted only when there is a concurrence of a majority of all the

members of Congress

b. tax exemptions are mere privileges granted by the State

c. tax exemption are looked upon with disfavord. tax exemptions are to be construed strictly against the taxpayer

____ 13. Tips and gratuities paid directly to an employee by a customer and not reported to the employer

a. subject to donors tax

b. taxable compensation income but not subject to withholding tax

c. not taxable

d. taxable compensation income and subject to withholding tax

____ 14. Ben Darwin, an American tourist, arrived in the Philippines on August 1, 2014 and stays in the country up to

8 month is classified as

a. resident citizen

b. non resident citizen

c. non resident alien engaged in trade or business

d. non resident alien not engaged in trade or business

e. resident alien

____ 15. No person shall be deprived of life, liberty and property without due process and this means that:

a. the taxpayer be secured from the abusive exercise of the taxing power of the State

b. there must be a progressive system of taxationc. the tax law is applicable to all persons in the same class

d. the tax law must be fair and based in ones ability to pay

____ 16. Income received through mistake is taxable on he theory that

a. the source of income is immaterial

b. income derived from whatever resource is taxablec. recipient must have received material benefitd. taxes are the lifeblood of the government

____ 17. The proceeds of life insurance is to be included as part of the gross estate of the decedent insured:

a. when the beneficiary of the estate is the estate itself with instructions directed that the

proceeds be used only to settle the estate

b. when the beneficiary is instructed to use the proceeds to pay off the debts of the decedent

c. when the beneficiary is irrevocable

d. when the irrevocable beneficiary predeceased the insured decedent

____ 18. Settled is the rule that in tax matters, the government is not estopped by the errors or mistakes committed by

its agents or officers. This should be construed to mean that

a. BIR can still present evidence to prove assessmentb. the power to tax is plenary and comprehensive

c. the state may still collect prescribed taxes

d. the power to tax is supreme and unlimited


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____ 19. Expenses incurred by movie actors and actresses, relating to their beautification expenses are

a. disallowed as an expense because the same is personal in nature

b. allowed as an expense because the same is related to their profession

c. allowed as an expense provided that it has been subjected to the withholding tax regardless

of the nature

d. disallowed as an expenses because it is not connected with their trade or business

____ 20. What is the decisive factor in determining whether a bank interest should be considered as an income from

within the Philippines?

a. amount to be deposited

b. location of the bank

c. resource of depositor

d. place of payment

____ 21. Assessment is

a. a warning for unpaid taxes due within the taxable year

b. a mere notice of the tax due

c. demand for payment of the tax within a prescribed period of time

d. based on presumed facts

____ 22. The power of Mindoro to impose a gross sales tax of 1/2 percent on the gross freight and fares of the cargo

and passengers shipped or transported out from Mindoro by vessels plying between the city and other ports

was held valid.

a. local governments units have the power of taxation like the State

b. the taxing power of the State cannot be delegated

c. taxation of the local governments is inherent

d. an exception to the principle of non-delegability of the power of taxation

____ 23. The provisions of the family code require the transfer of the share of the guilty spouse of his/her share in thecommunity property in favor of the innocent spouse, in effect causing a transfer of the property. The said

transfer is

a. not subject to the Philippine donors tax due to lack of donative intent

b. subject to Philippine donors tax due to the donative intent

c. subject to Philippine donors tax because there was a transfer of property for inadequateconsideration

d. not subject to the Philippine donors tax due to a provision of the Family Code

____ 24. The following income are not taxable, except

a. separation pay of employees who voluntarily resigned

b. value of leasehold improvement constructed on the leased land

c. salary of farm workers in the form of products raised in the farmd. increase in market value of land

____ 25. When different types of income are subjected to common tax rates, the tax system is described asa. totality tax system

b. segregated tax system

c. scheduler tax system

d. gross income system


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____ 26. Rule in taxation is that the property of a Filipino taxpayer in the US cannot be taxed in the Philippines is a

recognition of the principle of

a. international law

b. reciprocity

c. international comity

d. territoriality

____ 27. The filing and payment of the estate tax in the Philippines shall be done within:

a. 6 months from the knowledge of the BIR of the death of the decedent

b. 6 months from the appointment of the administrator of the estate of the decedent

c. 2 months from the date of death of the decedent

d. 6 months from the date of death of the decedent

____ 28. The rates for donors taxes imposed in the Philippines is

a. exempt to 15%

b. 2% to 30%

c. exempt to 30%

d. 2% to 15%

____ 29. The proposed amendments to the VAT has spawned a lot of controversy. However, the issue of validity of the

imposition of VAT is not one of the first impression. Tolentino vs. Secretary of Finance, ruled that the VAT

law was valid for various reasons. Which among the following statements is not among the reasons

mentioned in the decision for upholding the validity of the VAT law?

a. There was no improper delegation of the legislative authority to tax when Congress

imposed the VAT

b. It is equitable because it is imposed only on the sale of goods and services by persons

engaged in business with an annual gross sales exceeding P550,000

c. Small sari-sari stores, as well as sales of farm and marine products, are exempt from the

VAT so that the costs of basic food and other necessities are expected to be relatively

lower and within the reach of the general public.

d. The imposition of VAT does not violate the uniformity principle because it is appliedsimilarly on all goods and services and to the public which are not exempt, at the constant

rate of 0% to 12%

____ 30. Which among the following are subject to the improperly accumulated earnings tax?

a. closely-held domestic corporations

b. foreign corporations

c. domestic corporations

d. partnerships

____ 31. A final assessment of the BIR must be received by the taxpayer within:a. within 10 years from the last day of filing the tax return if filed on or before the last day of

filing

b. on any date after the filing of the tentative tax returnc. 3 years from the last date of filing of the tax return if filed on or before the last day of

filingd. within 5 years from the filing of the tax return if filed after the last day of filing


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____ 32. The basis of the right of the government to tax income emanates from

a. theory of proper climate for production of income

b. benefits received theory

c. symbiotic relationship principle

d. inherent power of taxation

____ 33. Which of the following is a deductible expense?

a. premiums paid on any life insurance policy covering the life of any officer or employee

when the officer or employee is directly or indirectly the beneficiary under such policy

b. personal, living or family expenses

c. none of the above

d. amounts expended in restoring property or in making good the exhaustion thereof for

which an allowance is or has been made

____ 34. The determining factor in identifying the source of taxable income in compensation for labor, or personal

services performed in the Philippines

a. place of performance

b. place of payment

c. place of the execution of the contractd. place of perfection of contract

____ 35. Except as otherwise may be provided, the following individuals are required to file an income tax return,

except

a. Every Filipino citizen residing outside the Philippines, on his income from sources

without the Philippines

b. Every alien residing in the Philippines on income derived from sources within the

Philippines

c. Every Filipino citizen residing in the Philippines

d. Every non-residents alien engaged in trade or business or in the exercise of a profession in

the Philippines

____ 36. Which of the following is not a limitation on a local government units right to levy local taxes?

a. a public hearing must precede its passage

b. it must be confined to the activities enumerated in the Local Government Codec. it can not extend to those already covered by the National Internal Revenue Code

d. it must not be oppressive and confiscatory

____ 37. Srictissimi jurismay be applied in the construction and interpretation of tax laws except

a. local ordinance imposing business tax

b. special law lowering tax rate

c. provision of the NIRC granting tax creditd. local ordinance granting tax amnesty

____ 38. In order that an assessment may be considered valid, it is required that the said assessment shall statea. that the assessment shall become final within 30 days if not acted upon by the taxpayer

b. the particular tax type and year under investigation

c. the factual and legal basis of the assessment

d. all of the above


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____ 39. Which of the following statements is true?

a. symbiotic relationship theory is different from benefits received principle

b. payment signifies an act of compliance by the taxpayer

c. all of the above

d. the act of assessing and collecting taxes is administrative in character

____ 40. Which of the following would be prejudicial to the status of a taxpayer during the year?

a. dependent became gainfully employed

b. dependent reached 21 years of age

c. dependent changes his residence

d. dependent marries

____ 41. The multiple situs of taxation may seek relief by reducing the amount of tax by way of

a. international tax treaty on the basis of reciprocity

b. tax credit

c. tax exemption

d. tax declaration

____ 42. The source of interests on bonds, notes or other interest bearing obligations of residents, corporate orotherwise is determined by

a. residence of the obligor

b. physical location of the securities

c. place of payment

d. residence of the oblige

____ 43. No credit/refund of taxes shall be allowed unless the taxpayer:

a. amends his tax return

b. appeals to the CTA

c. pays the tax under protestd. files a written claim for credit/refund with the BIR within 2 years from payment

____ 44. Matteo donates the following items prior to his death:

House and lot to his son (mortis causa) 1,000,000

Diamond ring to his wife 500,000

Portion of land to the National Government 300,000

Car to his son on account of current birthday 800,000

For donors tax purposes, who among the following is considered as a stranger?

a. Grandfather

b. Father in law

c. Brother

d. Spouse____ 45. The following propositions are erroneous except

a. public purpose includes indirect public advantage

b. the power to tax is inherent because it requires a set of rules

c. taxpayer must receive personal benefit for the payment of tax

d. taxes are always based on the amount received by the taxpayer


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____ 46. Your 2 classmates are engaged in a discussion as to what are included in the inherent limitations on the powerof taxation. They decided to make you their referee in order to enlighten them on which of the following is

generally not included among the inherent limitations. What should you choose from among the following?

a. recognition of comity

b. the taxing power should only be exercised within the territorial boundaries of the taxing

authority

c. double taxationd. no improper delegation of the legislative authority to tax

____ 47. Collection of taxes cannot be enjoined as government would not be able to perform its function because

a. taxes are the lifeblood of government

b. fiscal adequacy demands for their immediate collection

c. taxation is for a public purpose

d. taxation is inherent in sovereignty

____ 48. A minimum wage earner receives additional compensation on his part-time teaching in 3 vocational schools

and from his real estate brokers commissions will be taxed

a. only as to the other income sources

b. on all the income both to the minimum wage and the additional income sources

c. on the minimum wage income only

d. to the additional income sources but exempted to the minimum wage

____ 49. The police power, the power of taxation and the power of eminent domain are co-equal and inherent powers

of government. May a tax validly imposed in the exercise of the police power and not of the power of tax?

a. Yes, because the police power of the state includes the power to regulate

b. Yes, because taxation also involves the power to carry out the legitimate objects ofgovernment

c. Yes, because taxes may be imposed to regulate

d. Yes, because the power to tax and police power have some similar objectives

____ 50. The valuation of the gross estate shall be made at the

a. date of appointment of the administrator of the estateb. date of filing of the notice of deathc. date of transmission of the property of the decedent to the heirs

d. date of filing of the estate tax return

Documents

A. Taxation