200620092005

1. Enumerate the 3 stages or aspects of taxation. Explain each. 5%

Distinguish "direct taxes" from "Indirect taxes". Give examples. 5%TRUE or FALSE. Answer TRUE if the statement is true, or FALSE if the statement is false. Explain your answer in not more than two (2) sentences. (5%)

A law that allows taxes to be paid either in cash or in kind is valid.

When the financial position of the taxpayer demonstrates a clear inability to pay the tax, the Commissioner of Internal Revenue may validly compromise the tax liability.

The doctrine of equitable recoupment allows a taxpayer whose claim for refund has prescribed to offset tax liabilities with his claim of overpayment.

A law imposing a tax on income of religious institutions derived from the sale of religious articles is valid.

A false return and a fraudulent return are one and the same.Part I

a) Describe the power of taxation. May a legislative body enact laws to raise revenues in the absence of a constitutional provision granting said body the power to tax? Explain.

b) May taxes be the subject of set-off or compensation? Explain.

c) Can an assessment for a local tax be the subject of set-off or compensation against a final judgment for a sum of money obtained by the taxpayer against the local government that made the assessment? Explain.

d) Is a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain.

e) Is the approval of the court, sitting as probate or estate settlement court, required in the enforcement and collection of estate tax? Explain. (10%)

2. What is tax pyramiding? What is its basis in law? 5%

Enumerate the four (4) inherent limitations on taxation. Explain each item briefly. (4%)- II -

(1.) Explain briefly whether the following items are taxable or non-taxable:cralaw

a) Income from jueteng;

b) Gain arising from expropriation of property;

c) Taxes paid and subsequently refunded;

d) Recovery of bad debts previously charged off;

e) Gain on the sale of a car used for personal purposes. (5%)

(2.) State and discuss briefly whether the following cases may be compromised or may not be compromised:cralaw

a) Delinquent accounts;

b) Cases under administrative protest, after issuance of the final assessment notice to the taxpayer, which are still pending;

c) Criminal tax fraud cases;

d) Criminal violations already filed in court;

e) Cases where final reports of reinvestigation or reconsideration have been issued resulting in the reduction of the original assessment agreed to by the taxpayer when he signed the required agreement form. (5%)

3. What properties are exempt from the real property tax? 5%Melissa inherited from her father a 300-square-meter lot. At the time of her father's death on March 14, 1995, the property was valued at P720,000.00. On February 28, 1996, to defray the cost of the medical expenses of her sick son, she sold the lot for P600,000.00, on cash basis. The prevailing market value of the property at the time of the sale was P3,000.00 per square meter.

Is Melissa liable to pay capital gains tax on the transaction? If so, how much and why? If not, why not? (4%)

Is Melissa liable to pay Value Added Tax (VAT) on the sale of the property? If so, how much and why? If not, why not? (4%)

- III -

(1.) A city outside of Metro Manila plans to enact an ordinance that will impose a special levy on idle lands located in residential subdivisions within its territorial jurisdiction in addition to the basic real property tax. If the lot owners of a subdivision located in the said city seek your legal advice on the matter, what would your advice be? Discuss. (5%)

(2.) a) State and explain the basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff and Customs Code. b) Distinguish countervailing duty from dumping duty. (5%)

(3.) Jacob, after serving a 5-year tour of duty as military attach in Jakarta, returned to the Philippines bringing with him his personal effects including a personal computer and a car. Would Jacob be liable for taxes on these items? Discuss fully. (5%)

4. Royal Mining is a VAT -registered domestic mining entity. One of its products is silver being sold to the Bangko Sentral ng Pilipinas. It filed a claim with the BIR for tax refund on the ground that under Section 106 of the Tax Code, sales of precious metals to the Bangko Sentral are considered export sales subject to zero-rated VAT.

Is Royal Mining's claim meritorious? Explain. 5%International Technologies, Inc. (ITI) filed a claim for refund for unutilized input VAT with the Court of Tax Appeals (CTA). In the course of the trial, ITI engaged the services of an independent Certified Public Accountant (CPA) who examined the voluminous invoices and receipts of ITI. ITI offered in evidence only the summary prepared by the CPA, without the invoices and the receipts, and then submitted the case for decision.

Can the CTA grant ITI's claim for refund based only on the CPA's summary? Explain. (4%)- IV -

(1.) State with reasons the tax treatment of the following in the preparation of annual income tax returns:cralaw

a) Proceeds of life insurance received by a child as irrevocable beneficiary;

b) 13th month pay and de minimis benefits;

c) Dividends received by a domestic corporation from

(i) another domestic corporation; and

(ii) a foreign corporation;

d) Interest on deposits with

(i) BPI Family Bank; and

(ii) a local offshore banking unit of a foreign bank;

e) Income realized from sale of

(i) capital assets; and

(ii) ordinary assets. (5%)

(2.) a) State the conditions required by the Tax Code before the Commissioner of Internal Revenue could authorize the refund or credit of taxes erroneously or illegally received.

b) Does a withholding agent have the right to file an application for tax refund? Explain. (5%)

5. Vanishing deduction is availed of by taxpayers to:

correct his accounting records to reflect the actual deductions mad

reduce his gross income

reduce his output value-added tax liability

reduce his gross estate

Choose the correct answer. Explain. 5%

The Constitution provides "charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, and non- profit cemeteries and all lands, buildings, and improvements actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt from taxation." This provision exempts charitable institutions and religious institutions from what kind of taxes? Choose the best answer. Explain. 5%

from all kinds of taxes, i.e., income, VAT, customs duties, local taxes and real property tax

from income tax only

from value-added tax only

from real property tax only

from capital gains tax only

Jessie brought into the Philippines a foreign-made luxury car, and paid less than the actual taxes and duties due. Due to the discrepancy, the Bureau of Customs instituted seizure proceedings and issued a warrant of seizure and detention. The car, then parked inside a pay parking garage, was seized and brought by government agents to a government impounding facility. The Collector of Customs denied Jessie's request for the withdrawal of the warrant.

Aggrieved, Jessie filed against the Collector a criminal complaint for usurpation of judicial functions on the ground that only a judge may issue a warrant of search and seizure.

Resolve with reasons Jessie's criminal complaint. (4%)

Would your answer be the same if the luxury car was seized while parked inside the garage of Jessie's residence? Why or why not? (4%)- V -

A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding payment within 10 days, otherwise, it would collect through summary remedies. The taxpayer requested for a reconsideration stating the grounds therefor. Instead of resolving the request for reconsideration, the BIR sent a Final Notice Before Seizure to the taxpayer. May this action of the Commissioner of Internal Revenue be deemed a denial of the request for reconsideration of the taxpayer to entitle him to appeal to the Court of Tax Appeals?

Decide with reasons. (5%)

6. Congress enacts a law granting grade school and high school students a 10% discount on all school-prescribed textbooks purchased from any bookstore. The law allows bookstores to claim in full the discount as a tax credit.

If in a taxable year a bookstore has no tax due on which to apply the tax credits, can the bookstore claim from the BIR a tax refund in lieu of tax credit? Explain. 2.5%

Can the BIR require the bookstores to deduct the amount of the discount from their gross income? Explain. 2.5%

If a bookstore closes its business due to losses without being able to recoup the discount, can it claim reimbursement of the discount from the government on the ground that without such reimbursement, the law constitutes taking of private property for public use without just compensation? Explain. 5%The Sangguniang Bayan of the Municipality of Sampaloc, Quezon, passed an ordinance imposing a storage fee of ten centavos (P0.10) for every 100 kilos of copra deposited in any bodega within the Municipality's jurisdiction. The Metropolitan Manufacturing Corporation (MMC), with principal office in Makati, is engaged in the manufacture of soap, edible oil, margarine, and other coconut oil-based products. It has a warehouse in Sampaloc, Quezon, used as storage space for the copra purchased in Sampaloc and nearby towns before the same is shipped to Makati. MMC goes to court to challenge the validity of the ordinance, demanding the refund of the storage fees it paid under protest.

Is the ordinance valid? Explain your answer. (4%)- VI -

Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his income tax return and the payment of the tax due. The accountant filed a falsified tax return by underdeclaring the sales and overstating the expense deductions by Danilo.

Is Danilo liable for the deficiency tax and the penalties thereon?

What is the liability, if any, of the accountant? Discuss. (5%)

7. Congress enacts a law imposing a 5% tax on the gross receipts of common carriers. The law does not define the term "gross receipts". Express Transport, Inc., a bus company plying the Manila- Baguio route, has time deposits with ABC Bank. In 2005, Express Transport earned P1 Million interest, after deducting the 20% final withholding tax from its time deposits with the bank. The BIR wants to collect a 5% gross receipts tax on the interest income of Express Transport without deducting the 20% final withholding tax. Is the BIR correct? Explain. 5%

Kenya International Airlines (KIA) is a foreign corporation, organized under the laws of Kenya. It is not licensed to do business in the Philippines. Its commercial airplanes do not operate within Philippine territory, or service passengers embarking from Philippine airports. The firm is represented in the Philippines by its general agent, Philippine Airlines (PAL), a Philippine corporation.

KIA sells airplane tickets through PAL, and these tickets are serviced by KIA airplanes outside the Philippines. The total sales of airline tickets transacted by PAL for KIA in 1997 amounted to P2,968,156.00. The Commissioner of Internal Revenue assessed KIA deficiency income taxes at the rate of 35% on its taxable income, finding that KIA's airline ticket sales constituted income derived from sources within the Philippines.

KIA filed a protest on the ground that the P2,968,156.00 should be considered as income derived exclusively from sources outside the Philippines since KIA only serviced passengers outside Philippine territory.

Is the position of KIA tenable? Reasons. (4%)- VII -

An international airline with no landing rights in the Philippines sold tickets in the Philippines for air transportation. Is income derived from such sales of tickets considered taxable income of the said international air carrier from Philippine sources under the Tax Code? Explain. (5%)

8. On June 1, 2003, Global Bank received a final notice of assessment from the BIR for deficiency documentary stamp tax in the amount of P5 Million. On June 30, 2003, Global Bank filed a request for reconsideration with the Commissioner of Internal Revenue. The Commissioner denied the request for reconsideration only on May 30, 2006, at the same time serving on Global Bank a warrant of distraint to collect the deficiency tax. If you were its counsel, what will be your advice to the bank? Explain. 5%The City of Manila enacted Ordinance No. 55-66 which imposes a municipal occupation tax on persons practicing various professions in the city. Among those subjected to the occupation tax were lawyers. Atty. Mariano Batas, who has a law office in Manila, pays the ordinance-imposed occupation tax under protest. He goes to court to assail the validity of the ordinance for being discriminatory. Decide with reasons. (3%)- VIII -

JR was a passenger of an airline that crashed. He survived the accident but sustained serious physical injuries which required hospitalization for 3 months. Following negotiations with the airline and its insurer, an agreement was reached under the terms of which JR was paid the following amounts: P500,000.00 for his hospitalization; P250,000.00 as moral damages; and P300,000.00 for loss of income during the period of his treatment and recuperation. In addition, JR received from his employer the amount of P200,000.00 representing the cash equivalent of his earned vacation and sick leaves.

Which, if any, of the amounts he received are subject to income tax? Explain. (5%)

9. The Commissioner of Internal Revenue issued an assessment for deficiency income tax for taxable year 2000 last July 31, 2006 in the amount of P10 Million inclusive of surcharge and interests. If the delinquent taxpayer is your client, what steps will you take? What is your defense? 10%

Republic Power Corporation (RPC) is a government-owned and controlled corporation engaged in the supply, generation and transmission of electric power. In 2005, in order to provide electricity to Southern Tagalog provinces, RPC entered into an agreement with Jethro Energy Corporation (JEC), for the lease of JEC's power barges which shall be berthed at the port of Batangas City. The contract provides that JEC shall own the power barges and the fixtures, fittings, machinery, and equipment therein, all of which JEC shall supply at its own cost, and that JEC shall operate, manage and maintain the power barges for the purpose of converting the fuel of RPC into electricity. The contract also stipulates that all real estate taxes and assessments, rates and other charges, in respect of the power barges, shall be for the account of RPC.

In 2007, JEC received an assessment of real property taxes on the power barges from the Assessor of Batangas City. JEC sought reconsideration of the assessment on the ground that the power barges are exempt from real estate taxes under Section 234 [c] of R.A. 7160 as they are actually, directly and exclusively used by RPC, a government-owned and controlled corporation. Furthermore, even assuming that the power barges are subject to real property tax, RPC should be held liable therefor, in accordance with the terms of the lease agreement. Is the contention of JEC correct? Explain your answer. (4%)- IX -

Company A decides to close its operations due to continuing losses and to terminate the services of its employees. Under the Labor Code, employees who are separated from service for such cause are entitled to a minimum of one-half month pay for every year of service. Company A paid the equivalent of one month pay for every year of service and the cash equivalent of unused vacation and sick leaves as separation benefits.

Are such benefits taxable and subject to withholding tax under the Tax Code?

Decide with reasons. (5%)

10. The Collector of Customs issued an assessment for unpaid customs duties and taxes on the importation of your client in the amount of P980,000.00. Where will you file your case to protect your client's right? Choose the correct courts/agencies, observing their proper hierarchy. 5%

Court of Tax Appeals

Collector of Customs

Commissioner of Customs

Regional Trial Court

Metropolitan Trial Court

Court of Appeals

Supreme CourtABCD Corporation (ABCD) is a domestic corporation with individual and corporate shareholders who are residents of the United States. For the 2nd quarter of 1983, these U.S.-based individual and corporate stockholders received cash dividends from the corporation. The corresponding withholding tax on dividend income --- 30% for individual and 35% for corporate non-resident stockholders --- was deducted at source and remitted to the BIR.

On May 15, 1984, ABCD filed with the Commissioner of Internal Revenue a formal claim for refund, alleging that under the RP-US Tax Treaty, the deduction withheld at source as tax on dividends earned was fixed at 25% of said income. Thus, ABCD asserted that it overpaid the withholding tax due on the cash dividends given to its non-resident stockholders in the U.S. The Commissioner denied the claim.

On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals (CTA) reiterating its demand for refund.

Does ABCD Corporation have the legal personality to file the refund on behalf of its non-resident stockholders? Why or why not? (3%)

Is the contention of ABCD Corporation correct? Why or why not? (3%)- X -

The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac province. The southern side and middle part are occupied by the Church and a convent, the eastern side by a school run by the Church itself, the southeastern side by some commercial establishments, while the rest of the property, in particular the northwestern side, is idle or unoccupied.

May the Church claim tax exemption on the entire land? Decide with reasons. (5%)

11. Charlie, a widower, has two sons by his previous marriage. Charlie lives with Jane who is legally married to Mario. They have a child named Jill. The children are all minors and not gainfully employed.

How much personal exemption can Charlie claim? Explain. 2.5%

How much additional exemption can Charlie claim? Explain. 2.5%Raffy and Wena, husband and wife, are both employed by XXX Corporation. After office hours, they jointly manage a coffee shop at the ground floor of their house. The coffee shop is registered in the name of both spouses. Which of the following is the correct way to prepare their income tax return? Write the letter only. DO NOT EXPLAIN YOUR ANSWER. (2%)

Raffy will declare as his income the salaries of both spouses, while Wena will declare the income from the coffee shop.

Wena will declare the combined compensation income of the spouses, and Raffy will declare the income from the coffee shop.

All the income will be declared by Raffy alone, because only one consolidated return is required to be filed by the spouses.

Raffy will declare his own compensation income and Wena will declare hers. The income from the coffee shop shall be equally divided between them. Each spouse shall be taxed separately on their corresponding taxable income to be covered by one consolidated return for the spouses.

Raffy will declare his own compensation income and Wena will declare hers. The income from the coffee shop shall be equally divided between them. Raffy will file one income tax return to cover all the income of both spouses, and the tax is computed on the aggregate taxable income of the spouses.

12. Mr. Abraham Eugenio, a pawnshop operator, after having been required by the Revenue District Officer to pay value added tax pursuant to a Revenue Memorandum Order (RMO) of the Commission.er of Internal Revenue, filed with the Regional Trial Court an action questioning the validity of the RMO.

If you were the judge, will you dismiss the case? 5%YYY Corporation engaged the services of the Manananggol Law Firm in 2006 to defend the corporation's title over a property used in the business. For the legal services rendered in 2007, the law firm billed the corporation only in 2008. The corporation duly paid.

YYY Corporation claimed this expense as a deduction from gross income in its 2008 return, because the exact amount of the expense was determined only in 2008. Is YYY's claim of deduction proper? Reasons. (4%)- XI -

An alien employee of the Asian Development Bank (ADB) who is retiring soon has offered to sell his car to you which he imported tax-free for his personal use. The privilege of exemption from tax is granted to qualified personal use under the ADB Charter which is recognized by the tax authorities.

If you decide to purchase the car, is the sale subject to tax? Explain. (5%)

13. Gerry was being prosecuted by the BIR for failure to pay his income tax liability for Calendar Year 1999 despite several demands by the BIR in 2002. The Information was filed with the RTC only last June 2006. Gerry filed a motion to quash the Information on the ground of prescription, the Information having beer. filed beyond the 5-year reglementary period.

If you were the judge, will you dismiss the Information? Why? 5%In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000.00. The fair market value (FMV) of the painting at the time of the purchase was P1-million. Yuri paid all the corresponding taxes on the transaction. In 2001, Xavier died. In his last will and testament, Xavier bequeathed the painting, already worth P1.5-million, to his only son, Zandro. The will also granted Zandro the power to appoint his wife, Wilma, as successor to the painting in the event of Zandro's death. Zandro died in 2007, and Wilma succeeded to the property.Should the painting be included in the gross estate of Xavier in 2001 and thus, be subject to estate tax? Explain. (3%)

Should the painting be included in the gross estate of Zandro in 2007 and thus, be subject to estate tax? Explain. (3%)

May a vanishing deduction be allowed in either or both of the estates? Explain. (3%)- XII -

Ralph Donald, an American citizen, was a top executive of a U.S. company in the Philippines until he retired in 1999. He came to like the Philippines so much that following his retirement, he decided to spend the rest of his life in the country. He applied for and was granted a permanent resident status the following year. In the spring of 2004, while vacationing in Orlando, Florida, USA, he suffered a heart attack and died. At the time of his death, he left the following properties:cralaw

(a) bank deposits with Citibank Makati and Citibank Orlando, Florida;

(b) a resthouse in Orlando, Florida;

(c) a condominium unit in Makati;

(d) shares of stock in the Philippine subsidiary of the U.S. Company where he worked;

(e) shares of stock in San Miguel Corp. and PLDT;

(f) shares of stock in Disney World in Florida;

(g) U.S. treasury bonds; and

(h) proceeds from a life insurance policy issued by a U.S. corporation.

Which of the foregoing assets shall be included in the taxable gross estate in the Philippines? Explain. (5%)

14. Gold and Silver Corporation gave extra 14th month bonus to all its officials and employees in the total amount of P75 Million. When it filed its corporate income tax return the following year, the corporation declared a net operating loss. When the income tax return of the corporation was reviewed by the BIR the following year, it disallowed as item of deduction the P75 Million bonus the corporation gave its officials and employees on the ground of unreasonableness. The corporation claimed that the bonus is an ordinary and necessary expense that should be allowed.

If you were the BIR Commissioner, how will you resolve the issue? 5%Emiliano Paupahan is engaged in the business of leasing out several residential apartment units he owns. The monthly rental for each unit ranges from P8,000.00 to P10,000.00. His gross rental income for one year is P1,650,000.00. He consults you on whether it is necessary for him to register as a VAT taxpayer. What legal advice will you give him, and why? (4%)- XIV -

(1.) Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer engaged in the practice of his two professions. He has his main office in Makati City and maintains a branch office in Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and his professional tax as a lawyer in Pasig City.

a) May Makati City, where he has his main office, require him to pay his professional tax as a lawyer? Explain.

b) May Quezon City, where he has his residence and where he also practices his two professions, go after him for the payment of his professional tax as a CPA and a lawyer? Explain. (5%)

(2.) In 1995, the BIR filed before the Department of Justice (DOJ) a criminal complaint against a corporation and its officers for alleged evasion of taxes. The complaint was supported by a sworn statement of the BIR examiners showing the computation of the tax liabilities of the erring taxpayer. The corporation filed a motion to dismiss the criminal complaint on the ground that there has been, as yet, no assessment of its tax liability; hence, the criminal complaint was premature. The DOJ denied the motion on the ground that an assessment of the tax deficiency of the corporation is not a precondition to the filing of a criminal complaint and that in any event, the joint affidavit of the BIR examiners may be considered as an assessment of the tax liability of the corporation.

Is the ruling of the DOJ correct? Explain. (5%)

15. Lily's Fashion, Inc. is a garment manufacturer located and registered as a Subic Bay Freeport Enterprise under Republic Act No. 7227 and a non-VAT taxpayer. As such, it is exempt from payment of all local and national internal revenue taxes. During its operations, it purchased various supplies and materials necessary in the conduct of its manufacturing business. The suppliers of these goods shifted to Lily's Fashion, Inc. the 10% VAT on the purchased items amounting to PS00,000.00. Lily's Fashion, Inc. filed with the BIR a claim for refund for 'the input tax shifted to it by the suppliers.

If you were the Commissioner of Internal Revenue, will you allow the refund? 5%Miguel, a citizen and resident of Mexico, donated US$1,000.00 worth of stocks in Barack Motors Corporation, a Mexican company, to his legitimate son, Miguelito, who is residing in the Philippines and about to be married to a Filipino girlfriend. Mexico does not impose any transfer tax of whatever nature on all gratuitous transfers of property.

Is Miguel entitled to claim a dowry exclusion? Why or why not? (3%)

Is Miguel entitled to the rule of reciprocity in order to be exempt from the Philippine donor's tax? Why or why not? (3%)

16. Quezon City published on January 30, 2006 a list of delinquent real property taxpayers in 2 newspapers of general circulation and posted this in the main lobby of the City Hall. The notice requires all owners of real properties in the list to pay the real property tax due within 30 days from the date of publication, otherwise the properties listed shall be sold at public auction.

Joachin is one of those named in the list. He purchased a real property in 1996 but failed to register the document of sale with the Register of Deeds and secure a new real property tax declaration in his name. He alleged that the auction sale of his property is void for lack of due process considering that the City Treasurer did not send him personal notice. For his part, the City Treasurer maintains that the publication and posting of notice are sufficient compliance with the requirements of the law.

If you were the judge, how will you resolve this issue? 2.5%

Assuming Joachin is a registered owner, will your answer be the same? 2.5%Ernesto, a Filipino citizen and a practicing lawyer, filed his income tax return for 2007 claiming optional standard deductions. Realizing that he has enough documents to substantiate his profession-connected expenses, he now plans to file an amended income tax return for 2007, in order to claim itemized deductions, since no audit has been commenced by the BIR on the return he previously filed. Will Ernesto be allowed to amend his return? Why or why not? (4%)

A final assessment notice was issued by the BIR on June 13, 2000, and received by the taxpayer on June 15, 2000. The taxpayer protested the assessment on July 31, 2000. The protest was initially given due course, but was eventually denied by the Commissioner of Internal Revenue in a decision dated June 15, 2005. The taxpayer then filed a petition for review with the Court of Tax Appeals (CTA), but the CTA dismissed the same.

Is the CTA correct in dismissing the petition for review? Explain your answer. (4%)

Assume that the CTA's decision dismissing the petition for review has become final. May the Commissioner legally enforce collection of the delinquent tax? Explain. (4%)

A taxpayer received an assessment notice from the BIR on February 3, 2009. The following day, he filed a protest, in the form of a request for reinvestigation, against the assessment and submitted all relevant documents in support of the protest. On September 11, 2009, the taxpayer, apprehensive because he had not yet received notice of a decision by the Commissioner on his protest, sought your advice.

What remedy or remedies are available to the taxpayer? Explain. (4%)

Johnny transferred a valuable 10-door commercial apartment to a designated trustee, Miriam, naming in the trust instrument Santino, Johnny's 10-year old son, as the sole beneficiary. The trustee is instructed to distribute the yearly rentals amounting to P720,000.00. The trustee consults you if she has to pay the annual income tax on the rentals received from the commercial apartment.

What advice will you give the trustee? Explain. (3%)

Will your advice be the same if the trustee is directed to accumulate the rental income and distribute the same only when the beneficiary reaches the age of majority? Why or why not? (3%)

Masarap Food Corporation (MFC) incurred substantial advertising expenses in order to protect its brand franchise for one of its line products. In its income tax return, MFC included the advertising expense as deduction from gross income, claiming it as an ordinary business expense. Is MFC correct? Explain. (3%)