Taxation Law Review

7/29/2019 Taxation Law Review

1/22

MOCK BAR EXAMINATION QUESTIONS IN

TAXATION

1. Under RA 9010 the following will be subject to EVAT starting January 1, 2003, except:

a. Professionals, actors, actresses, talent, singers, etc.b. Banks and non-bank financial intermediariesc. Services performed as professional athletesd. Cabarets, night clubs and racetracks

2. Export of Marikina shoes is subject to:

a. 12% VAT

b. 0% VATc. Exemptd. Specific Tax

3. Assessment is necessary in the following cases, except:

a. before the preliminary investigation of a fraudulent tax evasion case could prosperb. to fix the tax liability of a taxpayerc. establish a case for judicial actiond. for issuance of warrant of distraint or levy

4. The prescriptive period for collection of taxes is:

a. 10 years from discovery of omission to file return, falsity or fraud if there is noassessmentb. 3 years from filing of returnc. 5 years from release of assessmentd. a and c are correct

5. Importation of automobiles is subject to:

a. Graduated Ad valorem tax of 2% to 60%

b. VAT of 12%

c. Specific taxd. a and be. Exempt

6. The manufacture and importation of the following for local consumption are subject to excise tax,except:

a. alcohol productsb. tobacco products

c. cinematographic filmsd. mineral products

7. Domestic sale of bagoong is:

a. exempt from VAT

b. subject to 12% VAT if gross annual sales exceed P1.5M

c. subject to 0% VATd. subject to 3% percentage tax if exempt from VATe. b and d are correct

8. The BIR commissioner may_________ payment of internal revenue tax when it appears to beunjustly or excessively assessed, or that the administrative and collection costs involved do not justify

the collection thereof.

a. compromiseb. abatec. creditd. refund

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

1


2/22

a. Files a written claim for credit/refund with the BIR within 2 years from paymentb. Pays the tax under protestc. Appeals to the CTAd. Amends his tax return

10.Assessment is:

a. A written notice of the tax dueb. Based on facts and not presumedc. Demand for payment of the tax within a prescribed period of timed. All of the above

11. The following are required to keep books of accounts, except:

a. Corporations and partnershipsb. Persons engaged in trade or business in the Philippinesc. Persons who earn passive incomed. None of the above

12. Requirements in order that retirement benefits may be exempt from income tax:

a. Must be paid to an employee who is at least 50 years old and has served his employerfor at least 10 yearsb. Exemption from taxation of retirement benefit must be availed of only oncec. The benefit must be received under an existing Collective Bargaining Agreementd. a and b only

13. For purposes of the donors tax, the following are considered strangers:

a. Brother or sister, whether whole or half-blood

b. Relatives by consanguinity in the collateral line within the 4th civil degree

c. Relatives by affinity, except the spouse of the donord. None of the above

14. The special deductions from the gross estate are the following, except:

a. Judicial expenses in testate or intestate proceedingsb. Standard deductionc. Family home up to P1,000,000d. Medical Expenses within one year from the death of the decedent not exceedingP500,000

15. Funeral expenses that can be claimed as deduction from the gross estate should be:

a. Actual amount incurredb. Not exceeding P200,000

c. 5% of the gross estated. The lowest of the above figures

16. The usual modes of avoiding the occurrence of double taxation are:

a. Reciprocal exemption either by law or treatyb. Tax credit for foreign taxes paidc. Deduction for foreign taxes paidd. All of the above

17. Jose is a law-abiding citizen who pays his real estate taxes promptly. Due to a series of typhoonsand adverse economic conditions, an ordinance is passed by Quezon City granting a 50% discountfor payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on

fines resulting from the late payment.

Arguing that the ordinance rewards delinquent taxpayers and discriminates against prompt ones, Josedemands that he be refunded an amount equivalent to one-half of the real estate taxes he paid. Themunicipal attorney rendered an opinion that Jose cannot be reimbursed because the ordinance didnot provide for such reimbursement. Jose files suit to declare the ordinance void on the ground that itis a class legislation.

Will his suit prosper?

2


3/22

a. The suit will prosper because the ordinance is discriminatory in character.b. The suit will prosper because the ordinance is not based on substantial distinction.c. The suit will not prosper because taxes are the lifeblood of the government and should becollected without unnecessary hindrance.d. The suit will not prosper because the ordinance is based on substantial distinction. Eachset of taxes is a class by itself and the law would be open to attack only if all the taxpayersbelonging to one class were not treated alike.e. None of the above

18. Which of the following statements are true?

a. Resident Filipino citizens with income from foreign sources only are allowed personal andadditional exemptionsb. Non-resident aliens not engaged in trade/business in the Philippines are not allowed anypersonal exemptionsc. Non-resident aliens engaged in trade/business in the Philippines are allowed personalexemptions based on reciprocityd. All of the above

19. The periodic decrease in the value of a fixed asset due to wear and tear, obsolescence orinadequacy

a. depletionb. depreciationc. capital lossd. special loss

20. The following cases may not be compromised:

a. Criminal tax fraud casesb. Withholding tax casesc. Delinquent accounts with duly approved schedule of payments

d. All of the above

21. Citing Section 10, Article VIII of the 1987 Constitution which provides that salaries of judges shallbe fixed by law and that during their continuance in office their salary shall not be decreased, a judgeof a Regional Trial Court questioned the deduction of withholding taxes from his salary since it resultsinto a net deduction of his pay.

Is the contention of the judge correct?

a. No. The contention is incorrect because taxes are enforced contributions.b. No. The contention is incorrect because taxes must be collected in order to support thegovernment.c. No. The contention is not correct because deduction of withholding taxes is not a

dimunition contemplated by the fundamental law.d. No. The contention is incorrect because deduction of withholding taxes is required bylaw.e. None of the above.

22. The following conditions shall be observed when there is a net capital loss carry over:

a. The loss carried over is for a holding period not exceeding 12 monthsb. The amount of the loss should not exceed the income before exemptions in the yearwhen the loss was sustainedc. The taxpayer should not be a corporationd. All of the above

23. What is the minimum compromise rate in cases of doubtful validity of assessment?

a. 40% of the basic assessed taxb. 10% of the basic assessed taxc. No limitationd. P1,000,000

24. Which of the following VAT transactions are not considered zero-rated?

3


4/22

a. Export sales of goodsb. Domestic sale of goods in the regular course of trade or businessc. Foreign currency denominated saled. Sale of gold to Bangko Sentral ng Pilipinas

25. Barbaran municipality has an ordinance which requires that all stores, restaurants, and otherestablishments selling liquor should pay a fixed annual fee of P20,000. Subsequently, the municipalboard proposed an ordinance imposing a sales tax equivalent to 5% of the amount paid for thepurchase or consumption of liquor in stores, restaurants, and other establishments. The municipalmayor refused to sign the ordinance on the ground that it would constitute double taxation.

Is the refusal of the mayor justified?

a. No. The refusal of the mayor is unjustified because double taxation is allowed in ourjurisdiction.b. No. The refusal of the mayor is not justified because the impositions are of differentnature and character.c. No. The refusal of the mayor is unjustified because it is not within his power.d. No. The refusal of the mayor is not justified because double taxation will generate morerevenues.

e. None of the above.

26. This is a summary administrative remedy, seizure of real property to enforce payment of tax due:

a. Levyb. Distraintc. Forfeitured. Tax lien

27. Which of the following cannot be considered as tax avoidance?

a. Splitting of donationb. Survivorship agreement

c. Holding period for capital asset transactionsd. None of the above

28. Tony has inadvertently omitted P100,000 income in his 2004 Income Tax Return. Upon discovery

in 2005, the BIR issued an assessment for deficiency income tax for P100,000 plus 50% fraudsurcharge. Meanwhile, Tony included the omitted P100,000 income in his 2005 Income Tax Return.What advice will you give Tony?

a. Amend his 2004 Income Tax return to reflect the correct amount of incomeb. Pay the assessed tax plus surcharge, and thereafter , ask for refundc. Protest the assessmentd. Any of the above

29. Tino is engaged in buying and selling of fresh fruits at the Q-Mart and Aranque Markets. He isalso exporting canned and preserved fruits to Japan. In 2004, he made a gross sales of P2,000,000.He is liable for VAT registration fee of :

a. P500b. P1,000c. P1,500d. Exempt

30. Shirley was allowed to deduct P200,000 bad debts written off in 2003, where she had a netincome before bad debts of P180,000 and a net loss of P20,000. IN 2004, she was able to recoverthe bad debts written off in full. The bad debts recovery is:

a. Taxable to the extent of P180,000b. Taxable to the extent of P20,000c. Taxable to the extent of P200,000d. Not taxable

31. A taxpayer who believes that a tax ordinance is unconstitutional should appeal to:

a. BIR Commissionerb. Metropolitan Trial Court

4


5/22

c. Court of Tax Appealsd. Secretary of Justice

32. Any of the following conditions should be met to enable the President to increase the VAT from10% to 12% starting January 1, 2006:

a. VAT collection to Gross Domestic Product in the previous year exceeds 2 4/5%b. National Government Deficit to Gross Domestic Product in the previous year exceeds 1 %

c. VAT tax effort to Gross National Product equals 4%

d. Either a or b

33. In 2004 Allan gave the following donations:

a. P100,000 to the Iglesia ni Kristo

b. P500,000 for campaign expenses of a senatorial candidatec. P200,000 to victims of calamitiesd. P300,000 to IBP

Which of the above donations are subject to donors tax?

34. Before any civil or criminal action is filed by the BIR in court, _____________ is necessary:

a. Approval of the Secretary of Justiceb. Approval of the BIR Commissionerc. Approval of the Secretary of Financed. Approval of the President

35. The ___________ has exclusive and original jurisdiction over all criminal offenses arising from

violations of the National Internal Revenue Code or Tariff and Customs Code and other lawsadministered by the Bureau of Internal Revenue or the Bureau of Customs, where the principalamount of taxes and fees, exclusive of charges and penalties, claimed is one million pesos or more.

a. BIR Commissionerb. Metropolitan Trial Courtc. Regional Trial Courtd. Court of Tax Appeals

36. The principle that where a claim for refund/credit is filed beyond the prescriptive period, it can stillbe applied against other taxes that may be due, is:

a. Doctrine of equitable benefitb. Doctrine of equitable recoupmentc. Equitable tax benefit ruled. Cohan Rule

37. The fundamental principles of local taxation are:

a. Public purposeb. Uniformity Principlec. Not to let the collection of taxes to private persond. All of the above

38. Where the gross income of a taxpayer exceeds P150,000 per quarter his income tax return mustbe accompanied by:

a. Audit certificate of an independent CPAb. Comparative Financial Statementsc. Schedule of Taxes and Licenses

d. Summary of Income payments

39. The following income are not taxable, except:

a. Salary of farm workers in the form of products raised in the farm.b. Separation pay of employees who voluntarily resignedc. Value of leasehold improvement constructed on the leased landd. Increase in market value of land

5


6/22

e. None of the above

40. Cash dividends received from a domestic corporation are subject to final tax of 10% if receivedby:

a. Another domestic corporation

b. Resident foreign corporationc. Non-resident alien engaged in trade/business in the Phil.d. Resident Filipino citizen

41. Due to an uncertainty whether or not a new tax is applicable to printing companies, ABC Printerssubmitted a legal query to the Bureau of Internal Revenue on that issue. The BIR issued a ruling thatprinting companies are not covered by the new law. Relying on this ruling, ABC Printers did not paysaid tax.

Subsequently, however, the BIR reversed the ruling and issued a new one stating that the tax coversprinting companies. Could the BIR now assess ABC Printers for back taxes corresponding to theyears before the new ruling?

a. Yes. The reversal of the ruling is not prejudicial to the taxpayer.b. Yes. The reversal of the ruling is within the power of the BIR.c. Yes. The reversal of the ruling is consistent with the lifeblood doctrine.d. Yes. The reversal of the ruling does not result in grave injustice to the taxpayer.e. None of the above.

42. The following are subject to amusement taxes:

a. Gross receipts of carnivalsb. Gross receipts of cinemahousesc. Professional basketball gamesd. Gross receipts of circus

43. The following are considered taxes:

a. Tollb. Licensec. Penaltyd. None of the above

44. The power to tax may be delegated to:

a. The Presidentb. BIRc. CTAd. a and b only

45. The BIR Commissioner is empowered to:

a. Interpret tax laws and decide tax cases

b. Obtain information, summon and examine witnesses

c. Collect national internal revenue taxesd. All of the above

46. Life insurance proceeds shall not be included in taxpayers gross income when:

a. The amount does not qualify as incomeb. The recipient is always the beneficiaryc. The life insurance policy always provides for exclusion

d. The amount is paid upon the death of the insurede. None of the above

47. The BIR Commissioner can inquire into the bank deposit of the taxpayer in the following cases:

a. To determine the gross estate in estate tax casesb. Compromise on the ground of financial incapacityc. Taxpayer executes a waiver of the Bank Secrecy Lawd. All of the above

6


7/22

48. Seizure and forfeiture proceedings are within the exclusive jurisdiction of

a. Court of Tax Appealsb. Collector of Customsc. Regular courtsd. Secretary of Finance

49. The equal protection clause is subject to reasonable classification. Classification to be valid must:

a. Rest on substantial distinctionb. Germane to the purpose of the lawc. Not limited to existing conditions onlyd. All of the above

50. The following are prohibited importations, except:

a. Weapons of warb. Insidious articlesc. Narcotic Drugs.

d. Gambling devicese. Live animals

51. The following BIR actions on the protest of an assessment are tantamount to denial thereof:

a. Filing of collection case in courtb. Issuance of warrant of distraint/levyc. Inaction of the BIR Commissioner within 180 days from submission of supportingdocuments by the taxpayerd. All of the above

52. JB got married to SAY last January 2004. On November 30, 2004, SAY gave birth to twins.Unfortunately, however, SAY died in the course of her delivery. Due to complications, one of the

twins also died on December 15, 2004.

In preparing his Income Tax Return (ITR) for the year 2004, what should JB indicate in the ITR as hiscivil status:

a. Singleb. Married with 2 dependentsc. Head of the family with 1 dependentd. Head of the family with 2 dependentse. None of the above

53. The following criteria need not be observed in the exercise of the flexible power of the Presidentunder the Tariff & Customs Code:

a. National securityb. Welfare of the peoplec. Jurisdiction of the Customs Commissionerd. National Economy

54. Monthly support regularly given by an unmarried daughter to her aged mother.

a. Taxable income of mother

b. Subject to donors tax

c. Exempt from tax

d. None of the above

55. The following are special customs duties, except:

a. Dumping dutiesb. Marking dutiesc. Discriminatory dutiesd. None of the above

56. Cancellation of debt of employee by his employer is taxable as

7


8/22

a. Compensation income

b. Donation

c. Indirect dividend

d. Either a or b

57. Informers reward is equal to

a. 10% of revenues, surcharges or fees collected by the BIR as a result of the informationgivenb. P 1,000,000c. a or b whichever is lowerd. a or b whichever is higher

58. The following are duty-free articles:

a. Personal articlesb. Articles for repairc. Articles for public exposition/exhibitsd. All of the above

59. The following non-resident aliens can be subject to 15% income tax on income derived from

sources within the Philippines.

a. employed by regional area/operating headquarters of multinational companiesb. employed by OBUc. employed by petroleum service contractor and subcontractord. all of the above

60. Which of the following taxes are not deductible from gross income:

a. Philippine Income Taxb. Value Added Tax

c. Transfer Taxesd. All of the above

61. Separation pay is taxable.

a. if separation is due to death, sickness or injury of employeeb. if employee voluntarily resignedc. if employee resigned at the age of 60

d. if the employer closed shop

e. all of the above

62. The following are taxed like corporation

a. general professional partnershipb. ordinary business partnershipc. estates and trustsd. all of the above

63. VAT is

a. special taxb. local taxc. specific taxd. regressive taxe. none of the above

64. The following taxes have been replaced by VAT per RA 9337

a. fringe benefits taxb. common carriers taxc. caterers taxd. percentage tax on banks and finance companiese. b and c only

65. The following are not subject to the improperly accumulated earnings tax, except:

8


9/22

a. Publicly held corporationsb. Insurance companiesc. Banks and other non-bank financial intermediariesd. None of the above

66.If monthly rental income of a residential unit exceeds P 10,000 per unit, the same shall be subjectto 12% VAT.

a. True, without any further condition.

b. True, only if the total gross annual rentals received exceed P 1.5M

c. False, this is subject to 0% VAT.

d. False, this is exempt from VAT under RA 9337

67. The preliminary investigation of a fraudulent tax evasion case may be enjoined in the followingcases.

a. when there is a prejudicial questionb. when double jeopardy is clearly apparent

c. when charges are manifestly false and motivated by lust for vengeanced. when the court has no jurisdiction over the offensee. all of the above

68. Sale of real estate is subject to VAT

a. True, if made in the regular course of trade or businessb. False, it is exempt if the real estate is classified as capital assetc. False, it is exempt if what is sold is a residential unitd. a and b are correct

69. Why is the Fringe Benefits Tax collectible from the employer and not from the employee?

a. Valuation of benefits is easier at the level of the employerb. Collection of FBT is ensured because it is withheld at sourcec. The employee does not have the means to payd. a and b are correct

70. A taxpayer with gross annual sales not exceeding P100, 000 is exempt from payment of businesstax and registration requirements.

a. True

b. False, required to register with the BIR but exempt from the payment of registration fee

c. False, required to pay registration feed. b and c are correct

71. Which of the following statements is wrong?

a. The MCIT is equal to 2% of the gross income of the corporation

b. The MCIT is not computed quarterly but on an annual basis

c. The MCIT payments can be carried over for the next 3 years immediately following such

paymentd. The taxpayer should pay the MCIT or the regular income tax whichever is higher.

72. In ruling on the constitutionality of the EVAT, the Supreme Court held that:

a. A revenue bill shall originate exclusively in the House of Representatives but the Senate

may adopt its own version

b. The requirement of three separate readings on separate days cannot be dispensed with

c. The Bicameral Conference Committee cannot make unauthorized insertions on theSenate version of the billd. b and c are incorrect

73. The following are exempt from amusement tax:

a. professional basketball gamesb. boxing exhibitions

9


10/22

c. billiardsd. bowlinge. c and d only

74. The following are subject to 3% common carriers tax, except:

a. taxicab operatorsb. common carriers transporting cargoesc. tourist busesd. motor tricycles

75. The manufacture of casino rubbing alcohol is subject to:

a. VATb. percentage taxc. specific taxd. advalorem taxe. exempt

76. A tax imposed at every stage of distribution process on the sale, barter or exchange of goods andservices and transactions deemed sale, as well as importation of goods and services.

a. privilege taxb. percentage taxc. VATd. excise tax

77. Mario disputed a deficiency tax assessment and upon receipt of an adverse decision by theCommissioner of Internal Revenue, filed an appeal with the Court of Tax Appeals. While the appealis pending, the BIR served a warrant of levy on the real properties of Mario to enforce the collection ofthe disputed tax. Granting arguendo that the BIR can legally levy on the properties, what could Mariodo to stop the process?

a. Appeal the BIRs action to the Court of Appealsb. Dispute BIRs levy on the properties before the Court of Tax Appealsc. File a motion for injunction with the Court of Tax Appeals on the ground that suchcollection will jeopardize the interest of the taxpayer or the government.d. Secure a temporary restraining order before the Supreme Court.e. None of the above

78.Additional exemption for each dependent child per RA 9504

a. P 10,000b. P 9,000

c. P 8,000

d. P 25,000

79. Income tax is not a

a. personal taxb. national taxc. excise taxd. direct taxe. progressive tax

80. Under RA8424, the allowable deduction for medical expenses of a resident decedent shall notexceed :

a. P 50,000

b. P 550,000c. P 5,000d. P 500,000

81. Per RA 9504, how much is the total personal and additional exemption of Mrs. A, who became a

widow during the taxable year and supporting her mother and one mentally retarded illegitimate 25year-old child?

10


11/22

a. P 75, 000

b. P 40, 000

c. P 100, 000

d. P 48, 000

82. The following is not a taxable income of a resident Filipino citizen:

a. income from an illegal businessb. income from a business abroadc. income from casinod. winnings from lottoe. none of the above

83. Which of the following are excluded from the gross estate?

a. proceeds of life insurance policy payable to an irrevocable beneficiaryb. revocable transfersc. transfer in contemplation of deathd. claims against insolvent persons

e. none of the above

84. Basically, power of taxation is exercised by

a. the Presidentb. the Congressc. Judiciaryd. BIRe. All of the above

85. The standard deduction of P 1,000,000 from the gross estate is:

a. optional

b. in addition to the itemized deductionsc. not available to resident decedentsd. in lieu of all itemized deductions

86. The following are the requisites for income to be taxable, except:

a. There must be gain or profitb. The gain must be received or realizedc. The gain must not be excluded by law or treaty from taxationd. The income must exceed the personal and additional exemptions of the taxpayere. None of the above

87. Who among the following are NOT required to file an income tax return?

a. Filipino citizen with business income from the Philippines.b. Resident alien on income derived within the Philippines.c. Non-resident alien engaged in trade or businessd. An individual whose sole income has been subjected to final withholding tax.

88. Which of the following are NOT exempt from income tax?

a. Philippine Health Insurance Corporationb. Philippine National Oil Companyc. University of the Philippinesd. PAGCORe. b and d

89. Which of the following is a qualified dependent for additional exemption?

a. 45 years old mentally retarded sonb. an illegitimate childc. legally adopted childd. all of the abovee. none of the above

11


12/22

90. Which escape from taxation does not result in loss of revenue to the government?

a. Tax evasionb. Tax avoidancec. Tax exemptiond. Shiftinge. All of the above

91. The following fringe benefits are not taxable, except:

a. Fringe benefits which are authorized and exempted from tax under special laws.b. Contributions of the employer for the benefit of the employee to retirement, insurance andhospitalization benefits.c. Membership fees, dues and other expenses borne by the employer in social or athleticclubs or other similar organizations.d. Benefits given to rank and file employees, whether granted under a collective bargainingagreement or not.e. De minimis benefits.

92. The final tax on capital gains from sale of real property, classified as capital asset is:

a. 20% based on the gross selling price or current fair market value whichever is higher.b. 7.5% based on the gross profit.c. 6% based on the gross selling price or zonal value, whichever is higher.d. 6% of the purchase price or the assessed value whichever is higher.e. None of the above

93. Sale, barter, exchange or other disposition of shares of stocks which are traded in the local stockexchange is subject to:

a. capital gains tax of 5% and 10% of capital gain

b. percentage tax of of 1% of selling price

c. 10% VAT

d. none of the above

94. Domeng bought a parcel of residential land for P 1,000,000 sometime in 1980. He sold the same

to Norbie for P 10,000,000 on October 15, 2000. The transaction is subject to 6% capital gains tax.

a. Trueb. False, if Domeng is engaged in the real estate business.c. False, it is subject to VAT if the sale is in the regular course of trade or business.d. b and c are correct.

95. Who may not avail of the itemized deductions from gross income?

a. Resident aliens

b. Non resident aliens engaged in trade or business in the Philippines.c. Resident foreign corporations.d. Citizens and resident aliens whose income is purely compensation income.

96. The following are requisites for the deductibility of bad debts, except:

a. There must be a valid and subsisting debt.b. The debt must be charged off during the taxable year.c. The debt must be actually ascertained to be worthless and uncollectible during thetaxable year.d. It must be evidenced by a closed and completed transaction.

97. What is the nature of tax laws?

a. not politicalb. penalc. civild. both a and be. both a and c

98. Under the Life-Blood doctrine, the main source of revenue of the government is taxes.

The power to tax includes the power to destroy in all cases.

12


13/22

a. Both statements are true.b. Both statements are false.

c. The first statement is true while the second statement is false

d. The first statement is false while the second statement is true.

99. Which of the following is not a source of tax laws?

a. Administrative regulations and rulings or opinions of the Secretary of Justice.b. Administrative regulations and rulings or opinions of the Secretary of Budget andManagement.c. Administrative regulations and rulings or opinions of the Commissioner of InternalRevenue.d. Administrative regulations and rulings or opinions of the Secretary of Finance.

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

a. Taxable compensation income and subject to withholding tax.b. Not taxable.c. Taxable compensation income but not subject to withholding tax.d. Subject to donors tax.

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

a. Files a written claim for credit/refund with the BIR within 2 years from paymentb. Pays the tax under protestc. Appeals to the CTAd. Amends his tax return

102. The oft-cited doctrine that taxes are lifeblood of the government does not favor one of the

following rules:

a. Taxes are not subject to set offb. Taxes should be collected without unnecessary hindrancec. Tax exemptions should be sparingly grantedd. Doctrine of Equitable Recoupment

103. Taxes are not enforced proportional contributions. In our jurisdiction, the following statements arecorrect except:

a. Taxes are obligations created by law.b. Taxes are based on ones ability to pay.c. Taxes are levied by authority of the law.d. The power to tax is not unlimited.

104. Which of the following judicial pronouncements is most recent:

a. Upon taxation depends the Governments ability to serve the people for whose benefittaxes are collected.b. The BIR should be given the necessary discretion to avail itself of the most expeditiousway to collect taxes.c. Taxes cannot be imposed by the executive department not by the courts.d. The best evidence obtainable under Section 6 (B) of the NIRC does not include merephotocopies of records/documents.

105. Congress passed a law allowing the payment of taxes in kind/services. This violates the principle of:

a. Economic efficiencyb. Fiscal adequacy

c. Theoretical justiced. Administrative feasibility

106. Which of the following statements may not be untenable:

a. The nature of the states power to tax is two-fold.b. Legislative power to tax involves the promulgation of rules.c. The rule of taxation should not be proportionate.d. Tax exemptions are liberally construed in favor of the government.

13


14/22

107. The following propositions are erroneous exept:

a. Public purpose includes indirect public advantage.b. The power to tax is inherent because it requires a set of rules.c. Taxes are always based on the amount received by the taxpayer.d. Taxpayer must receive personal benefit for the payment of tax.

108. The power to tax involves the power to destroy, said Chief Justice Marshall of the US SupremeCourt. This should be construed to mean that:

a. The power of taxation is unlimitedb. The power to tax may be used solely for the purpose of raising revenues.c. The power to tax includes the power to regulate even to the extent of prohibition ordestruction.d. The power to tax is superior to all other forms of the government.

109. The secondary or non-revenue purposes of taxation include the following except:

a. As an implement of the police power of the State

b. To encourage the growth of local industries.c. To reduce social inequalityd. To protect our local industry against unfair foreign competition.

110. Which of the following statements is true:

a. Payment signifies an act of compliance by the taxpayer.b. The act of assessing and collecting taxes is administrative in character.c. Symbiotic relationship theory is different from benefits received principle.

d. All of the above.

111. Which of the following prevents the occurrence of double taxation?

a. Vanishing deduction

b. Allowable deduction

c. Exemption methodd. None of the above

112. The following items are taxable except:

a. Illegal gainsb. Tax refund involving deductible taxc. Tax refund involving non-deductible taxd. Cash dividende. Annuities

113. Gross income means all income derived from whatever source, including the following itemsexcept:

a. Pensionsb. Prizes and winningsc. Rentsd. Stock dividends

114. Exclusions from gross income under the Tax Code include the following except:

a. Veterans benefitsb. Compensation for injuries and sicknessc. Gifts, bequests, and devises

d. Gains from redemption of shares of stock

115. Fringe benefit tax shall be paid by the employer because:

a. The employee received the benefit net of taxb. The Tax Code expressly so statesc. The employer relieves the employee of the burden to pay the taxd. The employer is the agent of the employee for the payment thereof.

14


15/22

116. Allowable deductions are distinguished from personal exemptions in that:

a. The former may be availed of only by corporate taxpayers, whereas the latter may applyto individual taxpayers.

b. The former applies to corporate and individual taxpayers engaged in business or are

practicing their profession, whereas the latter covers only natural persons.

c. The former may be found in Section 34, while the latter is granted under Section 35.d. The former is a privilege while the latter is a matter of right.

117. Which of the following statements is not correct?

a. Interest on government securities is not tax exempt effective January 1, 1998.b. Stock dividend is tax exempt.c. Premium on life insurance may be taxable to the employee.d. Fringe benefit is subject to 32% final tax effective January 1, 2000.

118. Gross estate includes the following items except:

a. Transfer for insufficient considerationb. Donations mortis causac. Revocable transfersd. Transfer under special power of appointment.

119. Donation to stranger is subject to 30% of the net gift. Stranger includes:

a. Second cousinb. Half brotherc. Lineal descendantd. Collateral relative within the fourth civil degree of relationship

120. Taxes are the lifeblood of the government and their prompt and certain availability is an imperiousneed. This pronouncement was cite in several decisions of the Supreme Court except in the caseof:

a. Commissioner vs. Pineda, 21 SCRA 105b. Vera vs. Fernandez, 89 SCRA 199c. Lutz vs. Araneta, 98 SCRA 148d. Philex Mining vs. CIR, 294 SCRA 678

121. Lest the collector kill the hen that lays the golden egg. This has been metaphorically mentionedto justify a settled rule as laid down in the case of:

a. Gomez vs. Palomar, 25 SCRA 827b. Punzalan vs. Manila, 95 SCRA 46c. Roxas vs. CTA, 23 SCRA 276d. Villegas vs. Pao, 86 SCRA 270

122. The symbiotic relationship theory as enunciated in the case of CIR vs. Algue, Inc., 158 SCRA 9,is an amplification of:

a. Ability to pay principleb. Progressive system of taxationc. Lifeblood doctrined. Benefit-protection theory

123. 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. The power to tax is supreme and unlimited.

b. The power to tax is plenary and comprehensive.c. The state may still collect prescribed taxes.d. BIR can still present evidence to prove assessment.

124. Srictissimi juris may be applied in the construction and interpretation of tax laws except:

a. Local ordinance imposing business tax.b. Local ordinance granting tax amnesty.c. Provision of the NIRC granting tax credit.

15


16/22

d. Special law lowering tax rate.

125. May a taxpayer who has claim for VAT input credit or refund, set-off said claim against his othertax liabilities?

a. Yes, provided that the claim is set-off against other unpaid income tax.

b. Yes, provided that the claim is set-off against other national internal revenue tax.c. Yes, provided that the claimant is a VAT-registered taxpayer.d. Yes, provided that the claim is duly substantiated by receipts.

126. The police power, the power of taxation and the power of eminent domain are co-equal and

inherent powers of government. May a tax be validly imposed in the exercise of the police power and notof the power to tax?

a. Yes, because the power to tax and police power have some similar objectives.b. Yes, because the police power of the state includes the power to regulatec. Yes, because taxes may be imposed to regulate.d. Yes, because taxation also involves the power to carry out the legitimate objects ofgovernment.

127. Taxes are not subject to set-off because:

a. Taxes are the lifeblood of the government.b. Taxes are the sinews of the state.c. Taxes are enforced chargesd. Taxes should be collected without unnecessary hindrancee. Taxes are not ordinary obligations.

128. May the collection of taxes be barred by prescription?

a. Yes, provided that they are income taxes.b. Yes, provided that they are local taxes.

c. Yes, provided that they are custom duties.d. Yes, provided that the tax law provides for prescriptive periods.e. Yes, provided that they are imposed by special laws.

129. May the courts enjoin the collection of revenue taxes?

a. No, because taxes are the lifeblood of the government.b. No, because taxes are needed to carry out the legitimate objects of the government.

c. No, except if the collection will jeopardize the interest of the taxpayer.

d. No, except if the taxpayer is financially incapable.e. None of the above.

130. What is the purpose of the doctrine of constructive receipt of income?

a. To ensure collection of taxes.b. To compel taxpayers to report their incomec. To prevent tax evasion.d. To prevent the taxpayer on the cash basis from postponing the actual receipt of taxableincome.e. None of the above.

131. Any amount received under claim of right is taxable if:

a. It arises from illegal transaction.b. It is received without restriction as to its disposition.c. It is decreed by the courtd. The claimant diese. The claimant donates the same

132. Taxable rent income includes the following items except:

a. Value of permanent improvementb. Premiums paid on the insurance of the leased premisesc. Royaltiesd. Interest on bond issued by the lessor

16


17/22

133. Income from long-term contracts may not be reported under one of the following methods:

a. Outright method

b. Spread-out method

c. Completed contract basis

d. Accrual basise. Cash basis

134. How is compensation paid in promissory note treated for income tax purpose?

a. Subject to final taxb. It is taxed at gross amountc. Taxable to the amount of the fair market value of the promissory noted. It is deductible from gross compensation incomee. None of the above

135. Tax applicable to certain specified goods or articles manufactured or purchased in the Philippinesfor domestic sale or consumption.

a. Specific taxb. VATc. Percentage taxd. Excise tax

136. Cost of carabao used in farming is deductible as any ordinary expense.

a. Trueb. False, because carabao is a capital expenditurec. False, because carabao is subject to depreciation

d. Both b and c

137. Under RA 9337, a presumptive input tax credit is allowed to processors/manufacturers of milk,sardines, mackerel, refined sugar, cooking oil, and packed noodle-based instant meals at the rate of:

a. 1.5%b. 4%c. 2%d. 8%

138. Tax evasion is:

a. Means of escape from tax liability outside what is legal and permissibleb. Tax saving device within the means sanctioned by lawc. Deduction from foreign taxes paid

d. a and c only

139. The following are qualif ied dependents of a head of the family, except:

a. Either or both parentsb. Brother/Sister of whole or half-bloodc. Senior citizend. Grandchildren

140. Which of the following is deductible for income tax purposes:

a. Employers contribution to pension trustb. Personal, family, living expenses

c. Wagering lossesd. Kickbacks

141. For tax purposes, income is synonymous to:

a. Capitalb. Receiptsc. Realized profitd. None of the above

17


18/22

142. The following can avail of the Input Tax Credit, except:

a. Importer of goods/articles previously subjected to VATb. Purchaser of domestic goods upon consummation of the salec. Exporter of goods and services not registered under the VAT systemd. Purchaser of services, lessee or licensee upon payment of compensation, rental, royaltyor fee

143. Educational services rendered by private educational institutions are exempt from VAT if duly

accredited by the following, except:

a. Securities and Exchange Commissionb. Commission on Higher Educationc. Department of Education, Culture and Sportsd. Technical Education and Skills Development Authority

144. For VAT purposes in connection with deferred payment sale of real property, the term initialpayments shall include:

a. Payments made in the year of sale in addition to the down paymentb. Mortgage on the real property sold not exceeding the cost thereofc. Evidence of indebtedness issued by the purchaser to the seller at the time of saled. Down payment only made at the time of sale.

145. In our jurisdiction, which of the following statements may be erroneous:

a. Taxes are pecuniary in nature.b. Taxes are enforced charges and contributions.c. Taxes are imposed on persons and property within the territorial jurisdiction of a State.d. Taxes are levied by the executive branch of the government.e. Taxes are assessed according to a reasonable rule of apportionment.

146. Determine which of the following items are taxable:

a. Income from juetengb. Gain arising from expropriation of propertyc. Taxes paid and subsequently refundedd. Recovery of bad debts previously charged offe. All of the above

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

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 another domestic corporation.

d. Interest on deposits with BPI Family Bank

e. None of the above

148. 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 andits insurer, an agreement was reached under the terms of which JR was paid some amounts. Which ofthe following amounts constitute taxable income?

a. P500,000 for his hospitalizationb. P250,000 as moral damagesc. P300,000 for loss of income during the period of his treatment and recuperationd. JR received from his employer the amount of P200,000 representing the cash equivalentof his earned vacation and sick leaves.

149. MAR got married to SALLY last January 2005. On November 30, 2005, SALLY gave birth totwins. Unfortunately, however, SALLY died in the course of her delivery. Due to complications, one ofthe twins also died on December 15, 2005. In preparing his Income Tax Return (ITR) for the year 2005,what should MAR indicate in the ITR as his civil status?

a. Singleb. Married

18


19/22

c. Head of the familyd. Widower e. None of the above

150. Which of the following cases may not be compromised:

a. Delinquent accountsb. Cases under administrative protest, after issuance of the final assessment notice to thetaxpayer, which are still pending.c. Criminal tax fraud casesd. None of the above

151. A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demandingpayment within 10 days, otherwise, it would collect through summary remedies. The taxpayer requestedfor reconsideration stating the grounds therefore. Instead of resolving the request for reconsideration, theBIR sent a Final Notice before Seizure to the taxpayer. Which of the following remedies can the taxpayeravail?

a. File an injunction before the Regional Trial Courtb. Appeal to the Court of Tax Appealsc. Appeal to the Court of Appealsd. Proceed with Certiorari before the Supreme Court

152. The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac province. The Church and aconvent occupy the southern side and middle part. The southeastern side by some commercialestablishments, while the rest of the property, in particular the northwestern side, is idle or unoccupied.Which of the following is correct?

a. The Church may claim tax exemption on the entire land.b. The exemption covers only the southern side and middle part occupied by the Churchand a convent and the eastern side by a school run by the church.c. The tax is imposable on the northwestern side which is idle or unoccupied.d. The entire property is taxable for real property taxation

153. XYZ Colleges is a non-stock, non-profit educational institution run by the Archdiocese of BP City.Which of the following item(s) is included in its Income Tax Return?

a. Tuition feesb. Laboratory feesc. Rentals from canteen concessionairesd. Interest from money-market placements of the tuition feese. Donation of a lot and building by school alumni

154. Frank Sinatra, an American Citizen, was a top executive of a US company in the Philippines untilhe retired in 1999. He came to like the Philippines so much that following his retirement, he decided tospend 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 heartattack and died. Which of the following assets shall not be included in taxable gross estate in thePhilippines?

a. Bank Deposits with Citibank Makati and Citibank Orlando, Floridab. A condominium unit in Makatic. Shares of stock in the Philippine subsidiary of the US Company where he worked.d. Shares of stock in San Miguel Corporation and PLDT.e. Shares of stock in Disney World in Floridaf. None of the above

155. An individual client not engaged in realty business paid in full the P50,000 attorneys fees of hiscounsel in lot which he bought in 1990 for P5,000 and which has a fair market value of P60,000. Which

of these is correct?

a. The client-transferor is subject to final capital gains tax based on P60,000

b. The client-transferor is subject to final capital gains tax based on P50,000

c. The client-transferor is not subject to final capital gains taxd. The client-transferor is subject to income tax for the difference between P50,000 andP5,000e. None of the above

19


20/22

156. One of these is not the correct period within which internal revenue taxes shall be assessed:

a. Within 3 days after the last day prescribed by law for the filing of the returnb. Within 3 years from the date the return was filedc. If no return was filed, within 10 years from date of discovery of failure to file returnd. If return is false or fraudulent, within 10 years from date of discovery of the falsity orfraud.

157. One of these is not an exception to the rule that for income tax purposes, the books and records

of a taxpayer shall be subject to examination and inspection only once in a taxable year:

a. When the taxpayer is outside the Philippinesb. When there is fraud, irregularity or mistakec. Verification of compliance with withholding tax lawsd. When taxpayers requests reinvestigatione. Verification of capital gains tax liabilities

158. Which of the following cases is pre-assessment notice required?

a. In a discrepancy between the tax withheld and the amount actually remitted by thewithholding agentb. When the excise tax due has not been paidc. Transfer by an exempt person of articles to non-exempt persond. When the commissioner or his duly authorized representative finds that proper tax should be

assessed.

159. To pre-empt the lapse of prescriptive period within which the government can assess and/or

collect in court without assessment,

a. The government may issue jeopardy assessmentb. The government may require waiver of prescriptive periodc. The waiver by the taxpayer must be accepted by the commissioner or his duly authorizeddeputy.d. The waiver is a waiver by the taxpayer of his right to invoke the defense of prescription.e. b, c and d only

160. One of these is true:

a. Waiver of prescriptive period to last until the completion of investigation is valid.b. Waiver is a taxpayers concession to the state, thus, it must be construed strictly againstthe statec. Waiver being unilateral, the state need not express its acceptance, and when accepted,the taxpayer need not be notified.d. Waiver being unilateral, acceptance by the state need not observe the level of authorityof the officials empowered to accept.

161. One of these has no time limit within which to assess:

a. Income taxb. Transfer taxes (donor or estate)c. Value Added Taxd. Privilege tax

162. One of these is not a type of local tax and other impositions

a. Municipal taxes on business & occupationsb. Municipal fees & service chargesc. Real property taxesd. Taxes on gross receipts of transportation businesses

163. For casual sale of real property, you do not pay

a. Capital gains taxb. Documentary stamp taxc. Local transfer taxd. Income tax

164. In local business taxes, the local government of one of these is prohibited to collect

20


21/22

a. factory siteb. Principal office

c. places thru which sales trucks pass

d. none of the above

165. Special classes of real property do not include

a. Local water districtb. Public power generating companyc. Hospitalsd. Schools

166. Which is not a levy on real property

a. Special education fund

b. Ad valorem tax on idle land

c. Special assessmentd. Transfer tax on sale or transfer

ANSWER KEY TAXATION

1. D 31. D 61. B 91. C 121. C 150. C2. B 32. D 62. B 92. C 122. D 151. B3. A 33. D 63. C 93. B 123. B 152. B4. D 34. B 64. E 94. A 124. A 153. C

5. A 35. D 65. D 95. D 125. B 154. F6. C 36. B 66. B 96. D 126.C 155 A7. A 37. D 67. C 97. E 127. E 156. A8. B 38. A 68. D 98. C 128. D 157. C9. A 39. B 69. B 99. B 129. C 158. D10 .D 40. D 70. B 100 .A 130. C 159. E11. D 41. E 71. B 101. A 131. B 160. B12. D 42. B 72. A 102. D 132. A 161. D13. C 43. D 73. E 103. D 133. E 162. D

21


22/22

14. A 44. D 74. B 104. C 134. E 163. D15. D 45. D 75. D 105. D 135. D 164. C16. D 46. D 76. C 106. C 136. A 165. B17. D 47. D 77. D 107.A 137. B 166. D18. D 48. B 78. D 108. C 138. A19. B 49. D 79. C 109. B 139. D20. D 50. E 80. D 110. B 140. A21. C 51. D 81. A 111. C 141. B22. D 52. B 82. D 112. C 142. C23. A 53. C 83. A 113. D 143. A24. B 54. C 84. B 114. D 144. A25. B 55. D 85. B 115. D 145. D26. A 56. D 86. D 116. B 148. E27. D 57. C 87. D 117. C 147. E28. C 58. C 88. E 118. D 148. C29. A 59. D 89. D 119. A 149. B30. C 60. D 90. D 120. C

Documents

Taxation Law Review