TABLE OF CONTENTS

I TA..~
Chapter 1
ON INDIVIDUALS,
ESTATES AND TRUS'tS
Chaptll!:l' Title Pr.gc
1 1ax on lndi\iduals, E;:;tatf>.; anJ Trust----------------- 1
2 Ta'!:: on Cor!1orations, Partnu-shi:Js, Joint Ventures- 33 Mulbplf: Choice: Choose th~ best possible CMSWer.

3 Ln::lusions in tLc. Gross Income------------------------- 74

/7
4
../5
b
Sourc~s of Income----------------------------------------
Capital Gains and Losses -------------------------------
E:xcbJ sions from Gros~ !r1curnc ~ ~ ---------------------

?ass;vc 'nc:;!T'e Suoje;c: to :Oinal Ta.x------- -----------

93
100
110
132
I ~
1. Which of fre following is not a nonresident citizen?
a. A citizen of the Philippines who establishes to the satisfaction
of the Commissioner the fact of his physical presence abroad
with a definite ~ntention to restde therein.
b. A citizen c,f the Fhilippines who leaves the Philippines during
the taxable year to reside abroad, either as an immigrant or

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8 Capital Gains Tax and Documentary Stamp Tax---- 147 for e-mployment 011 a perman~"nt basis.
[ c. A citizen of the Philippines who works and derives income
9 :Cino.l Tax on Fringe Benefits---------------------------- 174 from sources abroad and whose emptoymen, iliertGt.t r<XjUd-e~
'
lG :::1come Tax Cases (Part I) ------------------------------- 199 I him to be physically present abroad most of the time during

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the taxable year.
11 ::J,.ductions from Gross Income d. P. citizen of the Philippines who ~Jes on a business trip
(Expenses in General. Interest and Taxes;------- 227 abroad and stays therein most of the time during the year.
~
::JeductJOns from Gross Income ILossesl ------- 243
Answer: D
L? =Jeductions from Gross Income ! Reference: Section 22 (EI ( 11, (21 and (3), NIRC, as amended
(BcuJ De-bts, Dr-prcciatin~1 and [Jep!etion) ----

2. A citizen \Vho bets iJt:ell fJi t.~:.. .:...:tJ.:::dy cc.rlsidcr,::d d~ no:;n~si(1r:r.: ~ (- ::;z~:-:
,:
and who arrives in the Phili;)pmes at any time during the !axable
~-_~~durti()fl~ fnlit! (~r~>s:-; 171~> i1t(,-' (C)ptioi:cil Stdlidt1rd
f year to reside permanent]\ in the Philippinr:s shall likewise be treated
fkclucilon and l-'rPmlti!f; P:1,nwr1ts rJn Hr:,' i: h as a nonresident citizen for the ta..-.;:ablc year in whJCh he aiTl\"e5 in
Lind/ or J fospit;Jl:zatin!-~ !nsurr-tnrt:~) 2\31 the Philippines with respect to his:
1'5 ::erns Not Dnluctiblr ---- a. income derived from sourcPs abroad until the date of his
,- arrival in the Philippmes.
b. income derived from sources within the Phih;)pines.
.)16 c. income derived from sources abroad until the last day of the
calendar year.
~ax .:eturns Prf'pCJrn.tinn qnd Pavment of Tax------- 329 d. income derived from sources \vithin and outside the
Philippines.

Answer: A
Reference: Section 22 (E) (4), NIRC, as amended

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 Chapter 1: Ta."t on lndividuais, Estate and Trust

3. To be considered physically present ab:::-oad most of the time during 6. Pa!ita !...ippi, ::tr> Am~can singe:::-, was Pngaged to sing !'or one week at
t.'le taxab:e year, a contract worker must have been outside the the Sof:tel Philippine Plaza after which he returned to t JSA. For
Phhippines ior not less than: inl:ome tax purposes, Palito Lippi should he classified as:
a. 18G days c. 1C5 days a. resirlent alien.
b. 183 days d. 190 aays b. nor. resident alien engaged ih trade or business.
c. nomesident alien not enga&t>d in tn~e or bt1siness.
Answer: .d d. resident citizen~
Reference: ~ction ~. Revenue Regulatio:u.s Nc-. 1-7t}

4. Kicty, r.on-resident citizen, arrivc:s ir. the Philippines on July 1, 2011

to reside here permanently after working a.:; a nurse in the United
I Answer: c,
References: Section 22 (G), N!RC, as amended
Section 5, Revenue Regulations No. 2

States of America for many years. For income tax purposes, she hill
be classified as: 7. Which of the following individual taxpayers is taxed on income from
a. nonresident citizc~ fer the year 2011 with respect to her sources within a!1d without the Philippines?
income derived from sources abroad from January 1, 201r a. A citizen of the Philippines residing !here!n.
untt1 the date of her arrival in the Ph!lippines. b. A non-resident citizen.
b. nonresident citizen for th<> whole \Tar of 2011.
c. .-esidcnt ci tize r. lo, ~Le ' h<>le vear ,1f :?0 11.
d. neither resident nor nonresident citizen fnr the year 2011. I c. Ar. individual c:tizen of ~he Ph!liprires who is working and
deriving income abroad as an overseas contract worker.
d. An alien individual. whether a 1 esident or not of the

I
Philippines.
Answer: A
Reference: Section 22 (E) (4), NIRC, as amended An:;wer: A
Reference: Section 23 (A), (B), (C) and (D), NIPC, as amended

:::>. Denzel! \\'etta, an American ::E,n<l:;crncnt ex;wrr is hired bv ;1 8. (Phil. CPA) It is important to know the source of income for tax
Philippir:~ co;-poration to :ts~;:-:t- ;~; 1ts cr:-~::::!:~:~rir~~~: ;1!"ld nper~1t> .,. . _ fnr purposes (i.e. from within and without the Philippines) because:

'
.~.. ~:c'!-l !:r_.~ ~:-'_::_-; ~r) c;f~1~' : ; t~,-.. !>~-; l:'lt~>r~; t',).~ :~ tll'ln'''<.:: ~ft .. ("';lP\~~ ':";t'f-llr a. some individuals a::d corporate ta.-.::payers are taxed on their

r~qiJJn :i.::t to cxttn(i his SL1\ .. l~-:(: II\T tr~~1!~,)r:t: >. ttl from sources w!lll!r: the Phliippines.
Th( r\n;,r;-:r:an man,t_~:t'!11CI1t' 1':-\.f)'['f !tl~<::l.!-..: ~!) 1~,!' ... t !':r b. the Philippines impost~s income tax only on income from
soon as :.-t :-:. _h>i> is do1:r sources within.
c. some individual taxpayers are citizens while others are aliens.
For i:1cc:-;:_~ tax purposes, th~ :\rr~,:i(';tn n~H1-t:~t'fJH"nt expt~rt sr:.dd be
d. export sales are not subject to income tax.
clas!:>ified a!;):
>1 rf"<.;HJt>nt ;Jii<'fl
Answer: A
b. r:un.rf"sldt~ni ;d:tn t'!L.:.t'_,.~i 1rt i:-.td< t.lr ht;:,:zlc'..;:-,
Reference: Section 23 (A), (B), (C) and (D), NIRC, as amended
c. r:r.-,!-:resident tthcn nor
d. res:dent citiz<'n

Answer: A 9. Which of the following individuals shall not be subject to income tax
under Section 2i~ (A) on their income from Philippines sources?
References: Section 22 {.:,:;'), ;;:::~ , .t; :.::;_.::~;t~-~~.:
a. Individual citizen ot t~1e Phiiippines ns1ding therein.
SectiC.Jit 3 ...R~~~.:--:. t<-~'-~-:_~::t.~i..:..,,l..; , ~-L
b. Individual citizen o: the Philippines re:.;ic!ing outside :'":e
Philippines includmc>, overseas cont;-act workers.
c. Individual alien shP ;sa resident of the Philippines.
d. Individual alien who is not a resident of the Philippines.

Answer: D
Reference: Section 24 (A) (1) (a), (b) and (c), NIRC, as amended

2
Chapter 1: Tax oo lndi\"ich.:a!s, Estate and Trust Ulaprer 1: lax on UlOJVIOU<US, ~LiH.c: ..Hu ~

10. Which of the following shall not be included in the term "trade, Answ~r:" ('!
business or profession"? Refe::o-ence: Section 25 (A) fl)~ lORC~ as amended
a. Perfcrma.nce of the functions of a public office.
b. Performance of services to the general public for a fee.
c. Perfcxmance of se;vices 8S an employee. 14. There srall be levied, collectec:.' a.ud paid for each ~.ble ~ upc.n
d. .Sc~ of the choices. the entire i.,'=<.lme receiv~ by e-~ery nonre<ri.dent !\lien mdivK!u.::tl n::!
e1gaged in trade or business l<\'ithin the Philippines from. ~
Answer.: C a. all sources within the P:"lilippines.
Referen::::e: Cection 22 (CC;, ~c. as amended b. all sources within and witi.out the Philippines.
c. aii sources withoct the Phili!)pines.
d. none of the choices.
! L First staterr..ent: The husbar.J ar.d wife sl'a~i compute their
individua;; income ta...\. separately based on their respective total Answer: A
taxable in.c:ome. Reference: Section 25 (B}, lORC, as amended
Second src:t":'me!t: lf any income cannot be ddinitely attnbuted to or
i'Jemifieli c..s m.:ome exclusively earned or realized by either of the
;:;put.s.es, ::-,e same shail be divided equaliy between the spouses for 15. There shall be leVied, collected and paid for each taxable year upon
the purpcse oi determining their respective l.axable income. the gross income received by every alien inc'ividual employf"d by
3.. '3Qr':: sn:P':?l~"Dc" 2re rorr~ct regional or area headquarters and regional operating headquarters
b. 3oC:, sta:ements are incorrect established in the Philippines by multinational companies from such
c. Oni, the first statement is correct regional or area headquarters and regional operating headquar:ters. a
d. Or.l:.- the second statement is correct tax equal to:
a. twenty-five percent (25~q of such gross income.
Answer: A b. tv.renty percent (2v%) of such gross income.
Reference: Section 24 {A) (ll (a), (b) and (c), NIRC, as amended c. fifteen percent (15/o) of such gross income.
d. ten percent (10%) of such gross income.

Answer: C
Reference: Section 25 iC) .NIRC, as amended

n ,, -~-~-n ~:~~ ~-'~1ilpp;r:t- ....;_ 16. The same tax treatment shall apply to Filipinos employed and
h. "1r ~-; .~.---1~:n dtH' '} 1 ~tside tilt'" Phlllp~Jl!J-::;;. occupying what similar positions as those of aliens emp::>yed by
.lt ".~ if:..i~',itit tit t))iilitJ~Jincs. these multinational companies, regardless of whether or not there is
an alien executive occupying the same position?
a. Managerial or technical positions
Answer: A h. Rank-and-file positions
Reference: Section 25 (A) (1), NIRC, as amended c. Managerial positions only
d. None of the choices

\ ('. ' l)hi1ippitH:s ~-d1<1!1 Answer: A

',', ~ :' t ): ; ! 1: if L References: Section 25 (C), NIRC, as amended
: l ._ ,~ 1 t' 1r1:: ._;: ; l r; \ Section 2.57-1 (D), Revenue Regulations No. 2-98
Section 1, Revenue Regulations No. 11-2010
'l".-.,

t:' ! :: '. I -' 'l r:, !'. s 'J: !"

; 't -. 5

d. \lo;-,_ than one hundn:d ninety (1901 days

4
Chapter 1: Tax on individuals, Estate and Trust Ulapter 1: - ax on UlOI vIll ucus, ~t.:H.c:: ...uu ~'-

6Jti~tJeQl.J.l;~:mt:::nt:s.~ceptwhich o[the ..... ... > _, ~ ,

I
.
.
must oceupy a mW1agerial or toohnlt.:ll po~tion_
~- ~d must a~tu3.ll~' lx' exe;ching such managmal and
",,.Y.~ -~-technical functions pertaining to said positi0n. . ..
f
l
,;;j;],:1>;: _The employee must have received or is riue to. rece1ve unde~ a ..
-':~;;;;:.:::,.:.~; contract of employment, a gross annual taxable compensation
-~1~:-:<: '~ ;. income of at least P975,000.00 (whether or not this is actually
received).
c. The employee must be exclusively working for the ROHQ or
I
l
RHQ as a regular employee and not just a consultant or f
contractu::~! personnel. t . Performance bonus at the.end of theyearwhich amount is not.~- ..
rl None ryf the c-hoic-~s
pregently determinable.
Answer: D
Reference: Section 3, Revenue Regulations No. 11-2010 Based on .the data presented, can Mr. A ~ve the option to: be tued
~at fifteen ~.e!lf(lSo/.,pfd'erential rate? ~ !:- :.. .:'=~:,';:~~:":
-a~ Yes; because his iegulartaxablecompena&tioncm~~;_t'r
19. Which of Lhe following statements is incorrect'? . . above the threshokt,amourit;) ; : : :; ,~ ~: . ?' ;: .;-:;;~~;;~:~'
a. The determination of whether or not the employee of ROHQ or b. No. bec.ause his performance bon~s at1the en4, of the ylr~ls ..
Rt-iQ 4 uc:t.lifies for the fir1~1l '-T:!thho!ding ta_x of fifteen percent not presently determinable. ' ''~< ..:,
( 15%) shall be made on a yearly basis. c. Yes, because a Filipino holding a managerial position in an
b. In cases where the totnl compensation of the employee of RHQ is always qualified to avail of the futeen percent (1,5%}.
ROHQ or RHQ cannot be determined at the start of the year preferential tax rate.. -. ; ': : :iiifi~?jZ;:.
or employment, the option to be taxed at fifteen percent (15%) d~ No-i because Filipinos working in RHQ are generatJy:tamt->!:~
cannot be cxercist>cL under Section 24 (A).
(~. T1~r rietcrnlin~111on ()!' t;:t ;:ro~''-) Z1:~1nual compensation incon1e
o~ tb:' employ<~,. of l'U'i(! nr l!ilO should, as far as . Answer: A
pmnicahlc. irwludc lJ,,:l1 ngular t:lX:tble c?mpensat1on Reference: Section 5, Revenue Regulations No. 11-2010
income and suppkrnentary CZlmpensatiOn mcome.
d. Nonf' of the rhnir<'S.

ADswer: D ..
Reference: Section 5, Revenue Regulations No, ~1~2()1Q c ,,
-to.>' .~?-.,-~ff,..,.,~,_., .... -

6
Chapter 1: Tax on lndivirluais. Estate and Trust

pTr'motion or change in job assignment qr;.W1iftes the Filipino manager

or technical employee to exercise the option to. be taxed at 15% 1'
re ereiuial rate.
~~~~~~~~--------------------------------------------~

r;~s~!I--:.COii'!hedilG'preseni...d:CB.n.M't::'a h8.~;et.he"option:ta:m~.!dr::-
. at fifteen ~ent (15%} preferential rate?; : : , :/,~i ?:.; "" .
a .. y~ because tis employment ~ntract states that he:iilian~
. .,t~e;.ar~ ~4\~a.l ~,Pensat.U:-n il':OO~tl_l:xt x.n~ts:
. . ~ ~:'tnresliold 'whetherheactuany teeeivesthis or not. . . ?.'
b/;
,~' No; t>ecaJse his total grosscom~'lsaU.Of. income at,~~~ 9!,.
year
- ,..the d<>es r.ot meet the threshold amount. .: ,.:, <
.c~:":'YeS;beca'Useanexnploy~of:: a regiunalarea. head~~ .
: qualifiel; to the fifteen percent (15%) preferenthl.~~f:~;."
d. No, Filipinos <:mployed by regiona! area headquarters.d(f:tiot
. have the or>tion to be taxed at fifteen percent (lSo/o).; . '
preferential tax rate.

Answer.A .
Reference: Section 5, Revenue Regulations No. 11-2010

22. (Adapted) Mr. C, a Filipino employed by ROHQ is a ma.mger of the

company for a long time now. His contract stipulates that he shall
receive~ annual compensation of P888,000. During the year, b~
rece1ve::! a:-1 1ncrea!>e in i1is ~t;"~td~Y \,:itJCli t)c;.a-1~:; n1::~
the annual compensation threshold ot t'<J/S,uuu.
Based on the data nresented. can Mr. C have the option to be ta."<ed
at fifteen percent (i5%) preferential nne?
a. Yes, but onlv from th.e effectivity of his s;'l];;Jry il_lcrease.
b. No, because. at the start of the year his compensation income
does not meet the thrt>shold amount.
c. Yes, he can avail of the option including his salary prior to the
salary increase.
d. No, Filipinos employed by ROHQ are subject to regular tax
rates.
/AD.Wers: Queaiioa l. ~'A
::u\v :.o :!H..Ht: Uli...-tU
Question 2 - B
~fe~~nce: Section 5, Revenu~.~~.~~o~tions rio. 11-2010
For ROHQ 1, the app.licable tux rule would be tile regular ax on
compensation income. For ROHQ 2, at the option of Mr. D, the
I
. applicable tax rate would be the final withholding tax rate of 15% of
gross income. There is no need f;;r ROHQ 2 tJ>.consolidate Mr. D's
income from his previous employer (ROH{J 1J'$ince this was :xwered
under a different tax regime. However, if Mr'D did not opt to be
taxed using the 15% preferential rate. he wilt be subjected to regular
income tax rate on compensation in which case there is a need to
consoUdate compensation income from ROHQ 1 and ROHQ 2 for a.
ro er ear-end ad stments on co ensation.

Answer: A 24. (Adapted) Mr. E is a long-serving employee of an ROHQ. He is an

Refcren~::e: Section_~. ~evenue Reg1}1ati()I1_S_r:i() 11-2010 executive secretary to the General Manager for which he receives an
',- ',r :, 'r r!i'l! ,., :t ', annual compensation income of P988,000.

"'1lur_u in,rt-'USt'} Can Mr. E opt to be taxed at fifteen percent (15%) preferential tax
. .' ;.-::!/' rate',J

8
Chapter i: Tax on Individuals, Estate and Trust

2e. A branch, sui>sidiary or affiliate of a foreign banking corporation

which is duly authorized by the Bangko Sentral ng Pilipinas (BSP) to
transact offshore banking business in the Philippines L'l accordar..ce
with the provisions of P.D. No. 1034 as implementeri by CB \now
BSP) Circular No. 1389, as amendee.
a. _, Off!'lhore banking unit
b. Multinatio:.18.1 company
c. Petrole\.lm Service t:ontractor and Subcontractor

~,,.rt1!f,f;~;~:~ s~ ;:ve~:e ae~~~~!clfr.~

d. None of the choices

Al;.swer: A
25. Th~ t<.nn PH..ans a foreign firm ot' t>ntity engaged in intem:J.ticnal. Reference: Section 2.22 (D), Revenue ~egub-.tio~ l'b. l0-98
trade \1.ith affiliates, subsidiaries or branch offices in the Asia-Pacific
Region and other foreign marke~s.
a. Offshore banking unit 29. An alien individual vrho is a permanent resident of a foreign country
b. Multinational company but who i~ f"mployf"d and assigned in the Philippi,1es bv a foreign
c. Fctroleum Service Contr<1ctor and Subcfntrnctur service contractor or by a foreign service subcontractor engais,ed in
d. None of the choices petrol,.um operations in the Philippines shall be liable to a tax oi:
a. twenty-five percent (25%) of such gross income.
Answer: B b. twenty percent (20%) of such gross incowe.
References: Section 25 (C), NIRC, as amended c. fifteer. percent (15%) of such gross income.
Section 2.57-1 (D), Revenue Regulations No. 2-98 d. ten percent (10%) of such gross i!lcome.

Answer: C
2r_; Tht>rf~ s:;all \w it" inl. coikc:ed ,llld paid for each ta..-;:ab!e vear upon Reference: Section 25 (E), NIRC. as amended
trw ?-c.;s :nconw :,ni\,d ',.- ,..:,n <llicn incli\HiU>ll crnplow:d by
off.::.=;<~ :)~1!1kin~::r: :q:t~ r"-,r.l!:~JSh('d tn the Phillppn~es a tax equal to: 30. The same tax treatment shall apply to Filipinos employed and
,111 t1 ~~r~):-~~.-; lt1('t:trit:' occupying what positions as tho~ of aliens employeri by a foreign
' r ~ r r '. ! ~r' petroleu!n service contrrt.~L~~~ \-:..;- :;:_~~..:\;.ntr-(]_ctc;-?
\\Cr11\ pc: c:\i t__:~, i i)( ~~tL h .:.!,rr)~:-; incor!;c_ a. Managerial anti tcchn;ca: pu~;ition;:;
{! ~\\tnt\ -fi:r pentn- L.~-:) 1) (d- S1Jih .~rnss in( q;nr. b. Managerial positions onh
c. Rank-and-file positions
t

Answer: B ~ d. Same positions as t~ose of alien employees

References: Section 25 iD), NIRC, as amended
Section 2.57-1 (E), Revenue Regulations No. 2-98 Answer: D
.References: Section 25 (E), NIRC, as amended
Section 2.57-1 (F), Revenue Regulations No. 2-98

\ )! ' ( ' ' " ......:, \ \ '' t :' ~ ' l' 1 1

31. Any income earned from all other sources within the Philippines by
' , ~ ' : r ' ' ' ~ } :< ! ! ! - ' the alien employees of Regional or Area Headquarters and Regional
Operating Headquarters of Multinational Companies, Offshore
Banking Units and Petroleum Ser.1ce Contractor and Subcor.tracwr
shall be subject to the:
a. pertinent income tdx, as :he case may he. imposed unck:- the
Tax Code.
b. fifteen percent ( lS':oj !in<d tax.
~~Ct!On 23 ~ :)i. t'f1KC, rt~ (tiH<~iHlcd C~ i\venLy-five percent (::?.'3~~_,) .'l::al tax.
Section 2.57-1 (E), Revenue Regulations No. 2-98 d. ti:tirty percent (30'}j,) final tax.

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 Ulapter 1: Tax on tnatv1auats, l:.SL<U.e anu w.l.
C:n..apter 1: Ton c~ individlJais, Estate and Trust

32. A.!'l <tlien ~m!-'loyee of Pr. offshorf' banking unit has the following
Answer: A
Referenee: Section 25 last ra b, NIRC, as amended income for the cuiTent year:
Section 25. Tax on Nonresident Alien IndividuaL -
Salary received from the
{C) Alien Jrui:vidual Employed by Reqional or Area Headquarters and
offshore bruJ<ing unit (OBU) PlO,OOO,OOO
[ Regional Operating Hearlquarters of J!ultinational Compani<1s. - '!'here Honoraria and albwai"ces rectivecl from the OB~ 5,000,000
sha:l be 1:!vred, rollPcter! :md pr:.id for eacr taxabie year upon the gross Intere~! income from a dGILesti.: llank
income <?ce- :-ed by every c.lien i1,diLicual emptoyt1d by re;;ionu.; 'Jr area on his peso deposits so.roo
hca1rr~,=---te:-s and reg:onal uperatinfi hPadquarters established in thP Capital gain from sa!e of shares in a
Phlrpp'~J?S :::,~ ~uir-w::c,~.al comp :nies as salaries, ";ages. annui1ies, domestic corporatbn lOO,()(X'!
~omper.:.:::,:- ren::."":--ati'Jn ar:C:. other -m::!uments, sur:h as honoraria Hew much is the t:l.X fro"Tl his gross income in the Phi;ipt::r.es?
,;r:d at:,: .. .-:c-.. t.S. f<.rr_ such regwnal ur area i:eadquarters and regional a. P2,272,50J c. Pl,SOO,OOO
r,perm~-~ :~ :.:dq:,c.r!ers, a to>: '(1,wlto jijicen percent ( 1 S%) of such b. P2,250,000 d. None of t:1e choices
]ross tr..:-:"""" ProL~ded, how<?cer. That ti.- same tax treatment shall
apply tc. .::':l:,::.cnos employed and occupying the same position as those of Answer: B
Jitens e:- P - jt-'d oy !hese multmational CO!>lpcmies. For purposes of this ~a-Ia_r__Y
_-_-(P-__-~-0_-.o-.~-.0---.~-.~-.o-___-~-!--.~-'*-~!.e--"-"_"_"_"_"_"_'_'=_"_'-,----P-1-.~---,.,--~------.
Chapte:--. :r~ :c -rn multinational c :Jrnpany mea:1s u foreiyn fimt or entity ilUhV!c.U.lc:.t. d.UU d..U.Vnc.1.u\A...:> V VyVVU,VVV .n,. .loJ /0} . ._. _ -""-'
cngar;q..-:1 :~ :tcmr.:c,:.:~l trade u:ith afF,,c:es or subsidiaries or branch
o__(fices "':r. ;:,-J? Asia.-Pat.."~fic Re~non and otr:e (ar-eiyrt Tru..Jrkets. 7
-
Total P 2 250 oog
::_lJ AI! c.-- "'::'"a',:~: C.: '":'inw~--1 ;;,, O'fo;rnr.- '""nking Units. -There shall
:Jt~ h::~tc
:::come . -~-. <"ci
'~<1 :. ,/
~il, c:
~-~a: .. 1 :c, r:.cl:
ery ai<erc :''(iluniz, 'cn:ployed by offsr'OrP banking
:-~ ?Jeor :1.pon the gross I N:J!~: Th'?. inter-?st incorr..e en pes? depe>s;ts o,.,.tl tre -:cpiC'l fl'J;'1 frJ~
sa 'e of shares af stock i!1 a dome.~ tic corporc.tion shall be subject to
iferent rates of tax {See Section 24 (B) (1} an.:i Se:::ti:Jn 24 (C).j
ur::.ts e.:. We - :;ht:~d rr: ):.e Pllll:pp:nes 03 su:'::.n.e-s. u.:o.ges, annuities,
r:-ornper - _. ~- . . ,, rern.~~eration c;_rJi other c~'):':rnents. such ns honoraria
_;~ci u.: . -'""-- rr~~-~~, ::,:;:~}; ,;/ >.r;r.-'; .,-) ~;r;; .. .:;_ 0. t(L\: r'lj7iCl: 10 fifteen
33. These are arLitrary amounts allowed, in the nature of a deduction
'.i, .::u.', ~:er. Thnt ~}:e .Su!nt
tht?
from the amount of gross compensation income and/or n~"t busi:-:ess
~ L( tre '',''. 'I"' :f f)f'CUfl_ljUt9 SCUrtP
':(' r.~- ;.r_; ...-1' !Jil!1k1P~] iJ.nits. and/or professional income, as the case may be, for personal, !i'.:i:-:g
or family expenses of an individual taxpayer.
a. Tax credit c. Personal exenqJtior:::..
b. Tax refund
Answer: C
.... , Reference: Section 9, Revenue Regulations No. 2
i<
' !
':'I [ )~- ~ 34. For purposes of determining the tax provided inn~~ Ta'< Code, there
:li :; '(: ; shall be allowed a basic personal exemption of:
rj ~ ~ J' /: '' ' .. a. P 50,000 c. P 25,000
b. p 32,000 d. p 20,000

Answer: A
.r ~J.:~:...:L_::!_~~ J. __ --~-~i_'}:_~~-~:--'fl_!j_:_!_]JJJ!.J.!:'.2J!!J_t...fl.~
References: Section 35 (Al, NIRC, as amended by R.A. No. 9504
,. ! / r, ~r) .-, ~. -~:.:_:~-:__":~:. ~!I.:~i_!_Q_:.!._~~~/-'r . <r, _; 1
~!_'Li_f!_~_:LJ!Jj_oru 1 !Ej hereof
'-'

:
Section 2.79 (I) (1), Revenue Regulations No. 2-98 as
amended by RR No. 10-2008 (effective July 6, 2008)

~5. How mur:h is tht> b;1sc ;wrson<~' "::r>rnptin!l !!1 the cas" o! ri:arn--:
indlvtdu:-tls \\.ht.re onh one oft} :r '--.pouses is deri\lng ~-~,r();-,s 1nco~--:-."_:?
a. p 100,000 c r ;)(),()()()
h. p 64,000 ct. p 40.000

Answer: C
Reference: Section 35 (AJ, NIRC, as amended jiJ:fiJ!~i2!111
-_!"
Q-kipierl: Tax on mdr."iduals, Estate and Trust Ulaprer 1: i ax on lnt.UVI1ualS, Mtau: ano. J ru:.~

Amwer: D

I
! xxx In the case of married indiz;iduals where only Of1e of the spous.~ is
deriving gross ~me, only such spouse shall be allowed the personal
mption. [Set:tion. 35 (All
Referel!ce: Section 35 (A), NIRC, aa amended

40. A singl~ h1dividual supporting a 24-year old bother incapable o( eelf-

support because of phy~cal defe<.t shall ctualify as:
36. A ~e.J indivirtual deriving income within the Philippin~s whose a. married. c. single.
soou se is unemoloved or i1: 2. nonre~ide,1t ci~n d~nving income b. head of family. d. none of th~ choices.
f~m fore!~ sc~rc~~. shall~ entitled to a personal exemption of:
a. PlC'O.c:>: onlv. c. P5u,OOO only. Answer: B
b. P 64.:.0 )nly. d. ?40,000 only. References: S.:ction 35 (A), NIRC, as amenc!ed
Revenue Regulations No. 2-98 pagP. CS
XXX the term 'head offamil-y' means an unmarri<>d or legally seDannteti[t
=.::e~: Reverue Regulations No. 2-98 page 54, ~:OOi(fil man or woman with one or both parents, ur with one or more brothers c.r
'R.&.lJC.o 9::04: sisters, or with. one or more legitimate, rerogl)ized natural or legally
adopted children or a qualified senior citizen living with and cleperu:lt';.J
upon him for their chief support, where such brother> or sisters or
37. T':e terrr: mei".:cs an unmarried or legally scpwated man or woman children are not more than twenty-one (21) years of age, unm.anied and
?.-it!: on~ or oc" ::Jarents, or with one or more b:::-othe:::-s or sist"!rs. or not gainfully employed or where such children, brothers or sisters,
;,;' h 'X:-: r)r ;~ ~~ .;n2;itimate, re,oe;'lizcd natural or legally adopted regardless of age are incapable of self-support because of mental or
p;l!Jsical defect.
<: ~.,idrer. . ::;: :: ::!1 .and df:'~;.~nd;r upon him for their chief support.
a. \!arr:c-,: :JUt legally separated c. Heac of family
b. s:ng:e d. None of the choices

Answer: C
Reference: Section 35 (A}, NIRC, as amended
41. It shall refer to any resident Filipino citizen aged 60 years old and
above.
a. Elderly or senior citizPn r. Renpfar.tor
b. Dependent petrPnt d. ~;qne of the choicf's
:1 he tax:
:: :;pon th '" ::'.1\''f tr.: chief suppnrt Answer: A
Reference: Section 2 b., Revenue Regulations No. 4-2006
:.1':- ll d. II un!v
42. For a benefactor to qualify as head of family, his dependent senior
.-'tnswer: A citizen shall have the following qualifications, except which of the
Reference: Section 35 (AI. NIRC, as amended following?
a. His annual taxable income does not exceed the poverty level
.,. n as determined by NEDA
b. Living with the benefactor
c. Dependent upon his benefactor for chief support
d. Unmarried

Answer: D
Reference: Section 7 (1), Revenue Regulations No. 4-2006

43. A benefactor has a qualified dependent senior citizen. For incon::e tax
purposes, which of the follO\ving statements is incorrect?

14
Chapter 1: Tax on Individuals, Estate and Trust Chapter 1: Tax on Individuals, Estat.e<tnd Trust

a. The ber,t.fa.c~o.- l>r.c.ll t~ ~11title.:! :mly to :r.e ba::ric ;;erwn3.1 '-i7. Where ti1c ::>po.U::;e of u.e employee is unemployed or is a nonresident
exemption allowed to head of family. citizen deriving income from foreign sources, the employed spoust":
b. The benefactor shall be entitled to both basic personal within the Philippines sl.all:
exemption and additional exemption. a. be automatically entitled to cillim tt.e ad~itional exem~ fer-
c. The benefactor shall register the senior citizen as hi::: children.
c~:;:>endent and hirrself/hersPlf as tenefGctcr in the ROC 1:>. be entitle<] to claim the <idditi.:>nal exemption fo~ chilardl if
hav1ngju.-isC:.iction over the place where hefsne and the the other spouse waives his right in favor of the employLd
senior citizen rt>sident. SpilU'Sf'.
c:. L- r~quired Lo file an income cax return (n'R), the benefactor .:;_ be entitled tn ::~ the ar!oitional exemption if he is the
o;h<J;! state therein thP name, tirthdcy and Office for :::Ienior h:.tsband.
Citi:>en Affairs (OSCA) ID r,umber of the dependent senior d. none of the choices.
citizert.
Answer: A
Answer: B Reference: Revenue Regulations No . 2-98 page 55
Reference: Section 7, Revenue Regulations No. 4-2006
Section 11, Revenue Regulations No. 7-201(): 41:S. Jn tne case of legally separateu spouses, 'l.Odltional exemptions ma.:'
be claimed only by the:
<+4. One of tr.e foilowing is not a head of fami;y fur ;m:o.n~ tax j)Urposes: a husband.
a. ',1. jl"nr <;U:)~0rti113 hi~ mntl-wr-in-lr~w. 60 years old; h. w!fe.
b. ::rn:;.r:-ed t'!Xpa_)c supp-xting r:is mother, 50 years o!J;
!_ c. spouse who has cu.,tody of the child or childrel'-
c. \larrietl t<L"<payer supporting a legit;m:1te child, 6 years old; d. none of the choices.
d. Legally separated taxpayer supporting a brother, 22 years old,
ph~sica1ly incapacitat~.::d. Answer: C
Reference: Section 35 (B), IDRC, as amended
Answer: C

49. In tht> rr~st> of lt>gr~lly sPpRr<JtPd spoust>s, thP tntRI nmonnt of

adctitional exemntions
. thRt mC~v
- hP rlriimPrl hv hoth shr~ll:
a. not exce~d thP mrtxin-!lliTI addltl~-,;ai PXf"rnptinns :llk~:.l.-:-.:-1

I
b. be decreed by the court.
c. be based on the number of children under tlwir nts'r;d-.
~\:c::s,v: :: A d. none of the choices.
References: Section 35 (B), NIRC, as amended R.A. No. 9504
Section 2. 79 (I) (2), Revenue Regulations No. 2-98 as Answer: A
amended by RR No. 10-2008 (effective 'July 6, 2008)

\"] 1;_ hl; , \ , t~ .:(t;l!~ _1:1for d~pt;:~c!ent shall he

f Reference: Section 35 (B), NIRC, as amended

l
nrli\ Ot[{-' Ui ;\lr :,~~" ;Si:'S t:; :ht' COlSC uf ri1arried SO. For purposes of additional exemption, a 'dependent' means any of the
following except:
The husbnnd 1s the propl':r claimant of the a. legitimate child c. legally adopte ! child
l ,:, .. :)'ll:: rr!' ~:- .. ~n unless he
b. illegitimate child rL senior citizen

Answer: D
References: Section 35 (B), NIRC, as amended
Section 7 last paragraph, Revenue Regulations
:\_l'';;:~r: A No. 4-2006
R~feren~es: St>-ctio:n 3~; {BL 71IHC~ a:i !tilli!ndcd
Revenue Regulations No. 2-98 page 55

16
Chapter 1: Tax on individuais, Estare and Trust Chapter 1: Tax on Individuals, Estate and Tmst

idependent chtld/cttildren under Secciun .JS {HJ of lM 1 w.. Cod.: 53. It r.1t:ar.~ prir.cipa! c~ mam support which is more than one-half of
(Section 7 last paragraph, Reuerue Re&ulutions No. 4c2006). the support required by the dependent.
a. Personal exerr.ption c. Chief support
b. Additional exemption d. PRrtial support
51. Fof -:ldditional exemption purposes, tne qualified depeudent child
sha.li pos<>css the fol!vw;n~ qua:ificatio'1g, except: Answer: C
a. chietlv <lependent upon ana living with lhe taxpa::;?r Reference: Section 1, Revenae Regulati:na No. 2
b. not more than twe'1.ty-onc (? iJ Vf.ars of age
r unmarried ancl not gainfully employed
d non of tlw rhoi:~es o~ the following cases, exc.:pt
54. The arlditionl:ll exemption applies in ai:
when:
Answer: r, a. the father is absent on a b1..0siness.
Reference: Section 35 (B), ~IRC, as amended b. a child or other dependent i~ away at school or on z. ;.'isit..
c. a parent, through force of circumstances, is obliged to
maintain his depentient c~i!dren with relatives or in a
.'i.2 :'\ dependent child r<-'gard!ess of age, is qualified for additional boarding house wl1::e L.~ lives e:.;e\whe.re_
exemption if: d. without necessity the dependent continuously makes his
! - ir:c.1pahlc of self-support. home, elsewhere.
l~- \~,.:r> rn~~n:a: ,);. phys:( :t1 de~cc~.
Answer: D
c. Both I am: ll References: Section 11, Revenue Regulat!ons No.2
d. Neither I nor II The Law on Income Taxation. Benjamin D. Teodoro
r::::-:--:----:-:--::-a=n:_:::.:::d-=H:.:::.e.=.c=tor S. de Leon, 2001 Edition, page 316
Answer: C "Living with the person giving support does not necessarily mean
Reference: Section 35 (B), NIRC, as amended actual or pnysical dwelling togrther at all times and under all
xr)e;::.,-o;! -,{,~thdisability, t;;Diil1er i7a71ororof legal age, and wfto isa--1 circumstances. In the absence of continuous actual residence together,
Filipino citizen, who may or may not be related to his benefactor and the character of the separation mr1st be considered.
wllo is living with and depcmlcnt upon such benefactor for his/ her !
cfilc(su;JJJort shuil !fUultf_LJ ti::_--: Li dtpen.cJent (.._--~;ecn.on. ~ ct, l<cvcnuc
1 I A. rP_c::,iriPnt nliPn 1111.th ch,lr/n->n nhrnnri io::.:; nnt thproh11 pntrrlrvl tn rrj::;rbr rJ-c;
Li_:~~ heu((.!:_)L[~l!!!i~Y.b_~~!_l_!':___ ~-- :: -~~~!_._j_~r-.:_;;eniit~: . F?t-~!.!!_!_~ntu;!~:;_~-~~- ___ _
f,'< f) Illations No. 1- :lOU<J).

f', rsrm u1th rhsnfniilrf slwli rP{f'r to an indiuiduul suJ[i.:nng from

55. If the taxpayer marries or should have additional dependentls) during
restrictwn or difje:cnt abliltles, as a result of mental, physical or
the taxu.ble year:
sensord impairment to perform activrty in a manner or within the
a. tlte taxpayer may claim the corresponding additional
runge considered nomzal for human being (Section 2 b; Reuenue
exemption, in full for such year.
!?cyrdation.~ i"lr). 1- )(J()CJ).
b. lhe taxpayer ma~ cl~til!l tile corresponding additional
exemption, only in the follo\\ing year.
nw berw(uctor of o person uilh disability may only be entitled to c. the):axpayer cannot claim the corresponding additional
clarm tlw new additio11al exemption of P25,000 per qualified
exemption in any year.
dependent child {not exceedmg four) if the person with disability is
d. none of the choices.
i; ,:,,,. '"r;:!imote. i//(,1itimr:e or legally adopted child, whether minor
:,,,,,,: u(i [!: .';er !I r;' !,;. f(n p11rfJOSt'S of uddf1/rma/ exemption.
Answer: A
u,; . :,_:,,r" It r1ot i),' e~':l/crJ to rlit' ufidition.ol eXt?TilptioH Ulift'S.S
Reference: Section 35 (C), NIRC, as amended
.", ,. ,; r r: "j'Un : ut'rjr. per.,on ur'h rli."ui)I!Jt.rt(Sc>ctioll -
Chapter 1: Tax on lndividuais, Estate and Trust

~-;>.

56. Which of Lhe following \\<ill change (ile sl.kttus of tilt i.<l.Xpayer? !'i9. The taxpayeris alnarried nonresident alien engaged in business in
a. Marriage of a dependent .vithin the taxable ye2r the Philippines with two {2) qualified dependent children. His
b. Dependent becoming 21 ~ears old dur_ng the year cocntry gives a nonresident Fi 1ipin0 with income ~erefrom a basic
c. Dependent f>air.ing employment during th.; year personal exemption of P 20,000 and additional exemption oi P 4,000.
d. Ma..iage of taxpayer himself during the year H~ is entitled ,to total.perso.aal t:JCemptions of:
a. P ~0,000 . c. ? .2d,OOO
Answer: lJ b. P 32,COO d. ? 4~.oon
Refe;:-ence: Section 35 (C), NlRC, as amended
A!lswer: C
Reference: Section 35 (I.J), l'fiRC, as amended
57. rirst 5.-faterr..ent: If the rax!Ja:er dies during the taxable year, his Basic personal evemption (lower) p :o 000
estd.te may still claim the personal and additional exemption::. for Additional exemption (ower) (P4,000 X 2) 8.000
himself and his dependent(s) as if he died at the close cf such year. Total personal exempticns P28 C:JO
Second statement: If the spot!se or any of the dependents dies or if Secticn 35 (D) Personal Exempti'!n Allowable to J19nre.sident
any of such clPpPncients marries, becomes twenty-one (21) years old Alien Indiuldual. -A nonresident alien indiui~ual engaged in
or becomes gainfully employed during the taxable year, the trade, business or in the exer::rse of a professwn in the Pi>illppnes
taxpayer may still clair:: the same exemptions as if the spouse or shall be entitled to a personal exemption in the amount eq-u.a:: :o
an\ of the dependents died, or as if such rl.ependents married, the e:.:emptions allowed in the income tax law in the cvuntry of
:Jec~;ne ~::e:-:t-. one (21) :;e::::-:; cl~ or becnn-:: g2.i:1!ull~ em;J!cyed at u:hich r.e is a S!lbjeC - ?r :itiZPI"'., to d_pz~ns of tfoe Phj1i['pi11PS l"!'?T
the (~; . ")Sz~ of SL4,.:h yea1. resding in sw.:h country, not to exceed the c..nount fixed in tl-.is
a. Both statements are correCL Section as exemption. fer citizens or r~sident of the Philippines:
h. Both statements are incorrect Provided, That said nonresident alien sfwuld file a true and
c. On:v the first statement is correct accurate return ofthe total income received by him from all sources
r! Or;:v the second statement is c:orrect in the Philippines, as reqwred by this Title.
"Some quarters are confused us to the extent of exempt1ons that
Answer: A are allowed to nonresident aliens engaged in trade or business or
Reference: Section 35 (C), NIRC, as amended are in the exercise of a prnf<><:ion in the Philrn!Jinrs
it :s the ar.:.th.or's poston the.:_: t:--::.: ~.;.:Z,.::~t'UfJlt: t:"."_t:.n!;/:.Jt~_::,, ~-,~L;~:d-:- (~;.-.:; .; --
basic and addiLiOTlU.l t:.Xt:l!Lj.JllUfL:::,. [;u:: heaUllty vf ~::-'cLtrun. .Jj v{ ~it.C _~."-= -~
)). 1:,:~, ,-u:. . \Pun,:!; th(st' t.L'<rJtt~ers, \\hnse personal exemption is
of 1997 reads, "Allowance of Personal Exemption. ;nr i,drf,;nl
~~ :_.~~- ~' 1 fit' i,t .. \. :)f r''Cl!J!"U( ;:_\- utHlPr the Tc:Lx Code?
,_
Taxpayer", while Section 35 (A; rt>Jers to a bas1c p<"rsonal exentfA~<;r- a'1d
::;,; l,ii/("ii '- :; r;,:-q)(~,t tu his in:~;;i""!ir> derived frorn Section 35 (B), the additional exemption for dependt>nts. Thus, there I "
; ~)';.Jt--;1d- the t)::dippinr.s two kinds of personal exemrt1ons: the basic personal cmd the additwnol.
\. c:. ;::t " :Tr \':!:, nmw to the Philippines and stay
~i1:lii Section 35 (D), is entitled "Personal Exemption Allorunble to Non-l<es~dent
... ,; .1:1 1'~)-.:~r{':~ar, period of inore than 180 days during Alien Individual, making no distinction as to what kind of personal
exemption is referred to. Thus, a nonresidt"'rtt alien. indii~tdua: may i.i.ilclcr
dr~n d,-ri.~n~~- ;ncotn< lrnrn ei foreign country certain circumstances be entitled to both basic persorwl and additwrwl
:(nt dlit'!l r~r;; ~"n-~nged tn trade or business in the exemptions." (Bar Reviewer in Taxation. Volume II h!J Abelardo T
!"~ .;:'"'"':; ._, hmw co'.!ntrv allows personal exen1ption to Domondon, 1999 Fourth Edition ?a e 316 __J
Pi: .. J!!1" xlw :tic n)t r<:sidine; but are deriving income from

20
 Chapter !~: Ta.'t on IMividuals, ~chte and Trust-
' 60. '.V'::..::.. :-f th~ fcll:mi.:1~ cc:n::ot clzi:n arld!tional ex~pti0n?
a. Married taxpayers with qualified deiJelldent illegitimate
children
b.. Single benefactor with a qualilled depePdent senior citizen
c:.. Single taxpayer with <;.ualifiec! dependent children.
-:!. Marri~ witlt quah!ied atloptec! chilrlren
Answe1:B
61. (Ph<. CPA) A nonresident alien deriving income from Philippine
;;oq:rces claims that he is ~nt;tled....to persoaal exemptions. Which of
the ;f-..;;llowing is not a condition for the allowance of personal
~e-~:lptions to said nonresident citizen?
a. That he has stayed in the Philippines for an nggregate period
of more than 180 days
'!:- Tt.at his count1y t.as an income tax law that allows personal
exemptions to Filipir.os net resic!in,5 tl:e:-ein
r: That rt> hc.s filed a true and accurate return of his total
incur.:~ from 3.11 sources within the Philippines
That he is married to :::1 Filipina
Ans-er: D
-<2 On"" A th..- : ,;lo\':lllg is not qualified as dependent for income ta'\
our::r:.,~J?S.
. . lllc'c;::r.;;:c ;:hlld, lb y<:ars old, living in the United Srates
:),:1: .: c::.':. r:or rriatcd to the l<Lxpaver, llvrng wtth and
k;ct1(:~:1: ::Dun b t;r-:pa\-er for chief support
;A-;:.!.1;::::.-t;,. ,-;1!ld. 2 \!'rlrs old. \vith a \Tarlv incornc of
Pf)U u: . li\;ng \\."lt riu~ t:1xpa~er
Brc::::~:-. 2J :~'c1r:~ o d. incapable of self-support because of
Ans.,.er: C
53 llcw ~!ch of the premiums paid during the taxable year for health
andfor hospitalization insurance for the taxpayer and his !'amily,
shall be allowed as a deduction from his gross incowe?
a. Not to exceed Two thouSC!Dd four. hundred pesos (P2.409) Per
family or Two hundred pesoCJ (P200J an ,onth
b. Not less than Two tllousand four nUJ>dred p~sos (P2,4001 p:=r
famil~, or Two hundred pes..:>s {P200) a month
c. Not to exceec! Thrt>e thousand four hundred pesos fP3,400J
per "_..-nily
ci. Not to eY-ceed Tw') thot.<.>a.1d four hmtired pesos (P2,400) per
spouse or Two hundreri .;>esos (P200) a month
..
Answer: A
Reference: Section 34 (M), NmC as amended
64. In order to be allowed a deduction for premiums paid during t.'1;.;;
taxable yea;: for health and/or ho.;pitalizatioa insurance, t11e familY
has to have a gross inr~om~ of: -
a. not more than Two hundred fifty thc:1sand pesos (P250,0JO)
for the taxz ble ~e-rr.
b. not less than Two hundred fifty thousand pesos (P250,000)
for the taxable year.
c. not more than Five hundred fifty thousand pesos (P550,000J
for the taxable year.
d. not more than Two hundred fifty thousand pesos (P250.000)
for the month ending the taxable year.
Answer: A
Reference: Section 34 (M), NlRC as amended
CS. Who shall claim the deduction for premiums paid during the taxabk
year for health and/or hospitalization insurance?
a. The husband always
b. The wife 8lways
c. The spouse claiming the additional exemption for dependenrs
d. The spouse who has the higher income
Answer: C
Reference: Section 34 (M), NIRC as amended
Chapter 1: Tax on Individuais, Estate and Trust Cnapter 1: Tax on lno1vu:tuals, Estate ana h'ust

66. Total family income includes primary income and other income from 7
t:L": imposed t!fe>n ir:d!,.;~u~=~l~ sh'lll ap;-t ~n the i::JC<'me o~ ~.-<J
0. Tl-><"
sources received by: or of any kind of property h~ld in trus~. including:
a the husband only. a. income accumulated in trust for the benefit of unborn or
b. the wife only. unascertained person or persons with contingent interests,.
c. the hush?.nd and wife only. and incornt: accumulated cr held frn future distribution~
d. all meTllbe:rs of the nuclear family. the tenns of Ll-te will~ t:PJst.
b. income which !s to !:>e dist:rlbu.ted currently by the 1idt.1ridry' to
~er:D the bene;iciaries, and income collected L) 2. guardiau of o.n
Reference: Revenue Regulations No. 2-9&, page 46 infant whkn is to be heid or distnbuted as the cvun may
direct.
c. income received by estates of deceased persons during the:
67. Which of the following shall be considered nuclear family? period of admini.,tration or settlement of the estate.
a. Father, mother, unmarried children living together as one d. all of the choices.
household
b. Single parer:t with children Answer: D
c. A smgle person living "lior.e Reference: Section 60 (A) (1), (2), (3) and (4J, NlRC, as amended
d. All of the choices
Section 60. Imposition of Tax.
(A) Application of Tax. - The tax impo!>ed by this Title upon individuals
ALs'\t"cr: I)
shall apply to 1he incurnt: vf <::Sia ..::s or uf uny il:ln~ uf p,upeny 1.t:ld iJ, 1
Reference: Revt:nue Regulations No. 2-98, page 46
trust. including: i
68. A mass of all property, rights and obligations, which are not
(1} Income accumulated in trust for the benefit ofunbom or unascertained I
extinguished by death, of a person existing at the time of his death,
and includes those which have accrued since the opening of
person or persons with contingent interests, and income accum.ul~ed
or held for future distribution tmder the terms of the will o trust;
{2) Income wh1ch is to be distnbuted r:vrrently by the fiduciary to the
I
successiOn.
a. Estate c. Co(J\\nership
benef:-inries, and income co7iccred by a guardian of an injant which
is 10 be held or distn.b1Lted 'IS :he court mu11 rl!rect, 1
I
b. Tr-ust P:1rt:wrship (.?I fnr-ome rpcened fn1 Pstoes ,,, (],ycaserl ~Hr~rms chJmll/ th' per:od of
d
,.
~ cuirnr'nistrntton or settleP!t''
I
;:-the e:-:.tule. uru..'

References: Article 776 and 781, Civil Code of the Philippines l - ~------___j

I
b(). :\ri~.(nt of propert_\',
ben,.'ir nf anotht-r.
rt.. (ll or ptr ..,-di<tl. held b_\ ~)ne i)er::;on tor the
i
t
t
71. The t<JX imposed on trust sh:ll1 '10t appl\ to ernplon~es trust which
forms part of a pension, s:ock :xmus or profit-sharing plan of an
ern plover for the benefit of sor.v or all oi h:s employees:
b. Trust d. Par-tnership ~ -if contributions rJfP m;.erle to tht trust h\ s11rh f'mplovf':. or
f
I emplo\T("S. or IJnth fo: ,,,. purpost' "r' dtstributine: to sur h

I
Answer: B
cmplmets the carnin:.;s .t;ld princip;li of tht fund
accumulated bv the trust in accordance \vith such plan;
II -if undf'r the trust instrument it is impossible, at any time
r
prior to tlw s:JtisLtctJr;~ n: all li<lbilttws wuh r<:Spfct to
('Inplo\('t'S under tht.- ~;'i'-.r, ror d!l\- p(1rt nf th(~ rorpus o:--
(tl('onu 1
1} t;t"" (\\"tthiL r~: ~ l>::-:L> \-':':lr or therf_-.:1!\t-:>r} usfc >)-:.
,)r di\'''i"ttd r(J. pt:rpl~~r, ~:;tr :>.1:1 f(Ji tht~ '-'"'XC']liSl\"t h~nf"~-1~ ):-
1: lS tJr:!j l!O\'tt:-.;.

24
Chapter 1: Tax on Individuals, Estate and Trust llhlpter l: ! ax on lOOIV.wlUde>, t.st.ate am~ lHu-1..

a. Both I and II are correct (A) Th..PTe <;hal/ b~ nllo:vP-cl Cl<; a cle--iw-tion in compr.tinq the taxaiJle
b. Neither I nor II is correct income of the estate or tr..1st the anwunt of the i17come of the estate or
trust for the taxable year which is to be distributed currently by the
c. Only I is correct
fidudary to the benefidarics, and the amfJunt OJ the ;nc:>me coUected. by
d. OnrJ li is correct
a guardic..n cJ an in_/ant t:Jhich is to oc held or distibtted us t.lt xur'!
.'Uiswec: A
may direct, but t~ amount~:> aUoved as a dedw:tion slwll be inc/ruled I
in computing the tux.uble incom<? oft'1c J,enefidories, whether distrilrted I
Reference: ~ction 60 (B), ldRC, as amnded to them or not A~y amount allowed as a decf:u:tion w.der thi..:; Subsec: m;
1-hail not be allowed ClS a dedu-:tion ..1nder Subsecfion (8) ofthi<; Secticm i
1 in the same or any succeeding taxable year. _j
'i2. First .stntem.eut: Any a:ncunt actually distributed to anv employee or
~istribut.:eshall b..! taxable to hirl ii. the year in which it was so
~istributed to the extent that 1t ex~eds the amount contributed ty 74. There shall be allowed as an additional deduction in compctinl> the
such e.nployee or distributee. taxable income of the estate or trust the amount of the ir:come of the
Second statement: The tax shall be cor.;uted upon the ta'W.ble estate or trust for its taxable year, which is ;.,;.:-operly paid or credited
income of the estate or tr'..lst a.\'1d shall bP pair! by the fid,Jciary, during <>uch year to any legatee, heir or beneficiary but the amount
except ru:. provided in Section 63 (r~"iatmg to revocable trusts) and so allowed a~ a deduction shall be included in computing the taxable
Section 64 (relating to income for the t..:r.c:it vf ~h..: gr::tn~cr). income of the legatee, heir or benefi.ciar;.
a. Both statements are correct I- In the case of income rece1ved by estates of deceased persons
b. 3-Jth sta:err.ents a:-e i:1:::)rre~t dLiri.lg the pc.r;od uf r.c!::::i:l::;t;a:i:)f: cr :;.c:tleoe:l.~ 0f t!:::e c s:?~!::
c. Oniy the first stalement is correct 11- In the case of income which, in the disc:-etion of the fiduc:ary,
d. Only the second statement is correct may be either distributed to the beneficiary or accumulated

Answer: A a. Both I and II are correct

References: Section 60 (B), NIRC, as amended b. Neither I nor ll is correct
Section 60 (C) (1), NIRC, as amended c. Only I is correct
d. Only It ts correct.

7~ \V~irh nf ,-hP fnllr)\\lnr!: st;-tt~Tnt~nts i~. . incorn:~ct? Answer: A

:-:~~ ~:._L>>tbir ip~-~~~;~(" t.r: 7[V_~ -:;~;ift' t-;t ~;;__~:--,;:-;~:it~ b:~ C0r"!:1D::!Cd !fl Refer~11ce: Section bl (B), NIXC, as amended
the same tnanner and on !'hf~ sarr;{~ basis as in t!te cast~ of ctn Section 61 (B) in the case ofmcomc receir.cd by esrcJt-":; ofdereLsed
inciividual. persons clunnr; the penod of admm.zstration or se~lement of the estae,
b There shJ.ll he allo\\:ed as a c!c~duc~:cn :n c;nr~pt:tlf:~ t!"!(~ ond ir:_ thp ens(~ oJ- rnrornP u~hrrh_ P!. the disrretton.. nf th~ _(iduciaf!{. rn.uy
taxable incom~ of the estak or tn;sr the :unoun' of the income be cztiter dlstnbuted to the benet1C1ar!J or arcumuiated, there shall be
of the estate or trust for the t<'lxabie wc~r which is to be allotucd r:s un additional deduc!ton :n computing the ta.xable incorne uf
distributed cunently bv the fiducwry to the beneficl<'lries. the f?Statc 01 (rust the urnount of the lflCOfflt' of the t"3t+.:'l~t:? or tniSt r0r z:s
. frv-;re shail lYe (tllu\\l~ed .i't5 d dcdu'~~~\~rl in cc;-r"!p:..!t:r:2: th{" tnxo/;!, yrur. >'iur'/1 ;s properht pord or crccbted durinq >uch yenr ro em:;
lc~!Ut{'t, fu.;r ~p h~ ntjl('!ory hut"'~' 1irnurud .'-;0 ul:(:ted :ls a der-J1,ctt'Jr?
:.a.xable income of the estate or tru,t th. amoun: nf tllt' 111 orne
.r;~1nll !>f_' 1'7(luled in. co,nputrng 0 tcv::al;!e incor;.;, of.he leyat.->e, he1r t'Jr
ccllcctcd bv a guardian of an lllf<mt \d11ch is tG be he:Cl "r
distributed as the court mav direct. LL>t?!l~jicwnL__ __ ____ --------- --------- ----------- _____
d. The amount so ailovect as :1 dcr!~;, tion in letters a. ar:d h.
;{./,._A shalll)(~ inr'luded :-~,. r;rcp'_:~::~"': ~~~: t.-l:-~;r!r> P~('(JI:"1' t)i
r.
'

.\nsv.rer: D
Reterence: Section 61 lA), NIRC a.s amended
~ -s;;~ti;;;;bl.-1:~~1e Inc; me
tr..1.st shall be computed in tile ~U.Utt::' :Td~n..:~~ ti.IL\i ull :f;e -'-~''''- ... , ...... _J , .. __, i
~in~t~h~e~c~a~s~e~o~if~a~n~z~n~d~i~m~d~u~a~l,~e~x~c~e~p~t~th~a~t:_____________~--------------__J

27.
26
 Chapter 1: Tax on lndividuals, Estate ar..d TrJst Chapter 1: Tax on fnd!viduals, Estate and Trust

1
75. First statement: In the case of a trust administered in a foreign 78. Iu w:1ici1 of Lhe following cases snali. part of the mcome of the trust 0e
country, the deductions mentioned in Subsections (Aland (B) of included in computirtg the i:ax.ab!.- income of the uantor?
Sect; on 61 shall not oe allo.ved. a. Where any part of tl:e income of & tlust is, or in the Oiscetion
Second st~tem,nt: The amount of "llly income included in the ret11rn of the grantor or of any person not having sJbetru:tic!
of said trust administ,.~ed in a foreign co.mtry shall not b~ inclurled adver'!e interest in the disposition of such oart of the i.ncoJmo
ir. computi11g the iPr:ome o~ the beneficia. ies. rna::: be held or accumuhteri for future distribution tc the
a. BotL !>Ultements are ccrrec.t grantor
b. Both statements are incorrect b. Where any part of the :ncome of a trust TTiay, or il' the
c. Only the- first statement is correct discretion of the grantor or of any per<10n not having a
d. vr.lv the seronrl statement 1s correct ::.ubst?ntial adverse ;nterest in the disposition of such part <'f
~wer:A
the income, be distributed to the grantor
Refer~nce: Section 61 (C); NIRC. as '\mended c. Where any part of the income of a trust is, or ir. tJ1e dis...tetJon
of the grantor or of any person not having a substantial
adverse interest in the disposition of such part of the income
76. The exemption allowed to the estate and trust is:
a. ?~r':'. .. P2:=1,000.
may be applied to the payment of premiums upon policies of
insurance on the life of the grantor
b. P20.000. ti. PSO.OOC'. d. 1\ll of tne choices
Answer: D
Re!'c1cr.ccs: Sectio:t 62, NIRC, & amen:!ed . . ________ _ Answ'!T: 0
1 The new reuenu; reguiatz~7~ i/?'R~;o.-'Jo.:iu0d)d;,-;_;;r ~entwn the ru~~ Reference: Section 64 (A), NIRC as amer.ded
personal exemp:ion allowed to esrate and tmst. The author assumes Section 64. Income for Benefit of Grantor.-
that the personal exernption allot< .c:-d to single individual taxpayer zs also I
(A) 'Where any part of the income of a tmst (I) is, or in the discretion of
the same amount o( E'xemption a!k...ced to estate and tmst as has beE'n !
the grantor or of any person not hating a substantial adverse interest in
1 the case in thP_E~~~.:..._________ ...... ____________ _j
the disposition of such part of the mcome may be held or accumulated
for future dis;riJoutzon to the grantor. or {2} may. or in the discretion of
77. In which of th: following cases sr.:,;!1h': incorrw r)f such ;1;:rt of the the grantor or of any person not hn~''9 a St1bstantza/ aduerse interest in
tfl!~;f bf~ !~':"~:~~-:~~:~! i!""! ('()IYlptl!ir::.' ~:-. ~:~:::-d..l!~ !!'!C<'~:;:I_ nf !ht" ~~f:l!1tnr? the rh.'-)pnsitrnn of such pnrt of th.f' :':C':-J~:c. he' distnb<~~-d ~o tht:: grGr. -:.:r.
\_lJ~ 1 o,...p -.~ ' 1 n,_- tirr:~"" t}:f~ H!~ tn r,,,.,,.._:t -t'"l +!~' n,..;1ntnr tit],. tn Or/3) is. OT lf1 fhp (/fsrrpf;()n nft}-.._-, rrr:nt/)rn,nt'nn! ''('Y'::_'C''~ .':~"' f;~:;-:: ,:

srtbstontr~li a.dt:erse tnterest 1 ._ -!.'r!_-.;lftr>n ,,r--"': 1 -~~ ')''.,.~ nr" .. hp : .. ,.~r ...,..... -=-

rnar; he applied to the pur;rnent o:!;r.~';nlwns up~rt polz~:1es ofmsura;;-ce...

suL:-.,;_~1:-lt!d.l ~-Hh'!~rst lnt~:=-, 1n tht dtspn<....Jtion rJ; <..;qch pLlrt of Oil the life Of' the qrcuztor, SIU.'h pu,; ')T tt1C 1/lCOTI!f' o{ thp tn1st shal/ ve

the {'r-,:-~:~s <)r rh{' incor;. ~ _,,rtfnH1J ! inciiJrfprf lr1 enrnpUl(fl[j the f(]YOb.fr"> P'r'tir"!~l.! orthc [jTU.~~t():r.
[I- \Vhtn~ :-l'" ;-nl_\ tinlt~ the; ,.,,:.. ~r u. r-e\r~st in tht> ~,rdnt<")r Till( t11 (13} /1s 11St'd 1n th1s Section,
ten>J rn the ihscretzon of the qrantor
fh'
nn~. nrl:--t ot the corpus c .. ~(~ ~n1st JS \:c;~rrd in <U1'. ptrson not nleanE> rn rhc discretion ofrhe ynu~i')r.
P!ther olnne or in ronjunction ~L~th
havine a substantial ad~r~;-._,~ interest in tht disp()'Si~ion of 1 arty {Jerson not hoPing a substunrzui cuil'erse lnterf"st In the d1spos 1tzor
Sl!r'tl pa~r of trw corpu';
:~-~[-'-~-~.~~~-~' t ll}Jj_!_t~~i!__~-~:(_}_!!_l_f_~c~ (_j~l(~-~r:.,r__ _________ -------~---------------- -----~---
a. I and f! II "nl\
b. I on!-. d. Nonr: nt the chorr-es
Answer: A
Reference: Section 63, NIRC. as amended
Section. 63. Rc7Jocablc tra.:-;;f.s .
. ;.,.
~ f;t ; ;r-' ,' :, -'
,, . . ( rt. ,: ''' . - .. ;:
::
(lt}IJ(,TSf~ !fli-'r'"~~~ ifl ;j),.J o'i.:..;,f){J.Siiiu'.: ' " ~;J( r; J)f)rt ~, r:r 'I'

income therefrom. the inc;me of such part of ti1e tn;sr ::;huii be tnclwicci
in com utin the tcu:able income,-.:::o_,Lr..:t.:.:h=e'-'g"-r:..:a:::r..:1::.:to,,r_____________~

28
C~ptev- 1; Tax on Individuals, Estate and Trust Oiapter 1; Tax on Individuals, Estate and Trust

79. Wbcich of the following statements is incorrect? 80. "'l;stfutem~.1t: Wl1c.<c tht e~ta;e is u.n..-!u jud:.c:a! actrn:nisna~a..
a. Guardians, tntstt-es, executors, administrators, receivers, the income of the estate shaL be taxa lJle to the fiduciary or tn.ustee
conservators ?.nd all persons or corporations, acting in any who shall pay file the return for the estate and pay the inCOTne ..ax
fiduciary -:apacity, sh:ill render, at least in dupl'-:.ate, a return due thereon. '
nf th-o income of the per!::on, trust or esta~e for whom or which Second statemeni-: Wh~re_ tte est.c..te is not under judicial
th"'y act. administ:-ation, the incv1ne of the es..ate shall be taxa ole Lo the
b. A return fo.- estat~ and tru:>t shall bt:: filed on:y in case such heirs and bel!eficiarie~ who shall ir.clude!n their !"'!turn:; tl.eir
persc.n, estate or trust has a e;ro:>s mccme of over FiftY distributive share :Jf the net income of the estate.
thousand pesos tPSO.QQO) during the tax?bk _.ear. a. True, True c. True, False
c. Suc-h fiduciary or person filing the return for him 01 it, shall b. False, Fals~ d. False, True
take oath th~'>.t l.e has sufficieut knowledge 0f the affairs of
such person, trust or estate to enable him to .nah.e wch Answer: A
return anJ that the same is, to the best of his knowledge and References: Section 209, Revenue Regulations No. 2
belief, true and correct, and be subject to all the provisions Section 210, Revenue Regulations No.2
whir.~ apply to individuals.
d. A return made by Jr for one ur two or more jomt fiduciaries
filed in the provinc~ .vi1c, ;; :;t;c-!1 ildt:ciaries reside; unc!er such 81. Which of ti"J.e following is included in the income of the estate of a
rules and regulations as the Secretary of Finance, upon decedent?
recoTneCJd<\tion C'f th(" Co'11'11is<;icn~r. <>h:>ll pr~scribe, sh?ll a. rrccmf' r~c'!iver:l 'f)~ th~ P~t"lte 0f q dereese--1 pt"'rsor; d'l..'rr:; the-
lx a sulfiCJent compliar.ce with the requirements of the Tax period of administration "r settlement of tl:e estate
Code. b. Excess of selling price over the appraised value placed upon-
the property at the time of death, where the propertv waf' sold
Answer: B after the settlement of the estate
Reference: Section 65, NIRC, as amended c. ,\ppreciation in the value of property passed to the executor or
Section 65. Fiduciary Retunts - r_;r_wrcho,:s. tn;s.cs. executors, I I
administrator upon death of decedent
r::~irnintstrators, rece:t:rT,:;, (~nn:;er: ,~~or.'.:, unci u!l pe~son:_; '~Jr cor]JOratzuns. li d. Delivery of property in kmd to legatee or distributee
----r-ing in nn_'f _,f.riur'nn_j t'OJ)rleit'! . ))nll n~rr}.,.-r. ir' rlu,nlir(. r.... n return or" t}Jr~
.,.-.rnrne n.t the r: .. --rsryn trust nr .;<-;!ri"i (()'' .,.;. ~'71 or 1/J;!/i~-~- .;;,:>11 ucr. and ht Answer: A
1',
: ' .:rJ!):. Reference: Section 211, Revenue Regulations No. 2
>>JUt!' or !nl-'> ri 9(Q.?~-~.!}~Q!_T!_c_ __qf_fjjJ_y_~_I}Q!!_~~1l_c]
1
-.- ,. S!Lch :Jt>r..._:p.

p~~o_~_~g~g_Q__Q}_Q_r Of.!_crA':!!:f.l)_g___~~-q__!-_~~~-~-t!J~~-~T.:_ .- ~ !: Jrtlur;nry ur

1r :' ()'I i }! r }t"z ; !t_' fit JS -;I} f([<'ll ~,It
S2 P~r:-:~ stutcrncnt: The amount of lr1C 1)me of the estate fer the t;'{xahle
4 ~"'-.0uJ{t-Yf~jP 0{ r~l(' r; :nlr.'-:; 0{ .~u~f !'' .,-"'ri" ;_n,.< or! stutt' :> eno.l.Jfr' hirn ~()
H'ar. which is properly paid or C"rcdited during such year to any
-.:J.ke sue!~ ret~;~ rp1d rhu! the ',fl''' ''. :(1 ;;t" ;)i'r:.r nt' ;.~>- ;..J1fl1J'/r'fl:;e nnd
ltgaitee. heir or beneficiary, is a special item of deduction from the
_:-=-;u:"j. lni.e u.ncllurT~Ti, ti.rullJt'
gross income of the estate.
:~.hzch apvfr1 to ~ru.I~~idJ(Jl:-::;: Pro, .. (,:, ,I_
- .. () Or rT"!Or7.' !'j'f' ... -~-/.':--;(Jril'.'~ {!:+---.-;' . I .l.

--__:1:-Je: lU'rirr ::.-.'i.Cf-1 r;,/c'S (JJ:d ri'J', '(!'. ..--. irt'. ~,(. ;, }[ :.l!Ufr!t'r',
corp::c; ()f thr tstnte is not decL.r_:ble from the gross mcorne uf the
c'SLtk.
... :Y.Jn recornrnercicz'!:on (>(:fit' (_'rHnr;:.~r:r:~~-
a. True, True c. True, False
-~~-ij_J!;i!:_:nt . ~'!!_~np_Ji~~~:?l_--~~!__~!~ r ~~~~.!!~~fL:~~~-~~ner_,u___-'___-.:._:___c:__:c--'---'-----'--------
h. False, False d. False, Tnw

Answer: A
(~eferenccs: Section 61 (B), N!RC. as amended
Section 211, Revenue Regulations No. 2

30
t..naouer _._ 1 ax on in<llVJduals, Estate ana Trust
.~
~: r ,~l

I
IG
I
~ L\ ' "
:jll ~1 ., ,; .; r.'"J .. U- -:,;._'. (. ~ . :,<J
83. The income distributed to the beneficiaries of estates and trusts,
e::;r;.cept income subject to final withholding tax and income exempt Chapter 2 .. :K :1 i ' .J
TAX ON CORPORATIONS,

I
~ tax, is subject to:
a. creditable withholding tax of 10%. PARTNERSHJPS, ~OINT VE1fTlrnES
b. creditable withholding tax of 15%
c. fnal "'ithholclir:g tax of 20%.
d. neither final nor crPditable v:ithholdiPg tax.

Answer: B
Reference: Section 2.57.2 (F), Revenue Regulatbns No. 2-98
Multiple Choice: Choose the best possible att.swer.
l
i'

I'
1. Which of the following is not subject to tax as a corporation?
:4. A '.:'.1st where the ir.corr.e and the corrus of whici. do not revert to the
a. Business partnerships '"!'
grat;tor, its incomt is accumulated and held for distribution to the
b. Joint sto<":k companies
bene!:ciary.
a- Orthnar:y tr:;_s:
b. Revocable trust
c. Irrevocable tn1st
::l. Employee'<: trust
c.
d.
Insurance companies
General professional partr'ership ;
Answer: A

85. A t:ust in which the power tu revc:st in the grantor, title to any part of
the ccrpus of the trust, is vested in the grantor himself or in am
2.
Answer: D
RfofeNu.:::~: S{,.Cti.Ju 2~ (B), NmC, aa a.mct.tlec!

A partnership formed by persons for the sole purposp _of ~e~ci~ing

I
$:1
f;.,
pe:rsc.n not having anv substantial adverse interest in the trust
cc.;:-_,;;..;s or in its inco.:1e.
"" Ordn,tn trust
Revocable trust
their common profession, no part of the inco:.1e ofwhtch ts oenved
from engaging in any trade or business.
a. Joint venture
.
Answer: B
b. Trading partnership
c. Gener~ll professional p:1:-t;;('rs 11ip
r!
.,
SectiOn 207. H.evenue Hegulations No. 2
Answer: C
..
l!ll(J!!lt or a t;ts! \\:1:, :s ftl hr
, >~ i , , , t
. '.in;;
~ , t :. ,
:Td ~~~
I L

ht.;'
. . >.

)!"
3. First statement: All joint \'entures regardless of the purpose these are
,
flltUtr- <!tstnh:l!Ot) ('(l~~...;:'-.,~~p_q. ,1: r.:rlq~ q: '::tl:n(~ r~r .U! 1 ''!rt
,i[ ; ; ,\ I ![ ~) l i : ' ; : i )' t ; ,' '
created are exempt from inconw taxation.
Second statement: The term -domestic", when applied to corporation, (
T' ,.
rne<1.ns cnated or organized in the Pililirpines or under the laws of
d foreign country as long as it mainuins a Philippine branch.
,.
a. lloth statements are corr-ect
lncntnt~ of.t r7-~st. ._,;-1~r .:~d(;- ::, t<T::1s ,_d d Yi!l :)r ,Jt'C\: -;)1
b. Both statements are incorrect j
trustt~t .. tna\ n his di~~~-r~-~;f.!l1. di'-'1rihutr~ fhr-.. incnrnc nr !
c. Onlv the first statement is correct
d Onh tlw second statenw;J' is 1.orrect

'
~
.:\r:.~;-.;.~::-: D
Rcf~rencc: Section 210. R.cvt~.:-~t!.~ R~~~ui:tti~ns ~-~n. ,__.
G

32
Chapter 2: Tax on Corporations. Partnerships, Joint Ventures Chapter 2: Tax on Corporations, Partnerships, J9int Vemures

Answer: B J_n::;wer: A
Reference: Section 22 Reference: Section 27 (AJ, NJRC, as amended
Sertlon 22. Deftnitlon.s -
A. xn
B. The term 'corporation' shall include partnerships, no matter hew
7. Effectbe Jt>.nuary 1,-2009, the rate of cor{X'rate income tax s!1aD be:
&..!..~irty-five pe:cent (35%)
created or organized, .icAnt-stock cx.mpanies, joint accounts (cuent.us en
portic;pacion), associafior:s, or insurance companies, but does not b. thirty-two J'f'rcent (32%).
indude general profts.'<WWll partnerships antl a JOint verture or c. thirty percent t30%).
consortium fvrmed for the purpc-.:>e of unc.lert.:~k;ny construdio, t prOJt:Cts d. twenty-tive percent tiSvfo).
or engaging in r~troleum, coal, geothermal and other energy
rpe, a'io"LS pursuant to an operat;ng consortium agreement under a Answer: C
S~'rvice contract with tne Govemm, tL aereral r,nrc'ssional Reference: Section 27 (A), NTRC, as amended
partnersrdps' are partnersh;ps fanned by pers;ns for the sole purposq !
of exercising their common pro[ess1on, no part of the income of which
is derived from engarr.nq in nn.J trade or businE'SS. ,. 8. Which of the following statements is incorrect?
a. In the case of corporations adopting the fi~-ycur a~~-:ti.-~g
IL C.!!.!..E!:.qamzed
The term 'domestic,' when applied to a corporation, means created
m rhe Flul!ppmt:>s or under its /uws.
period, the taxable income shall be computed without regard
----------- ----J cf the spe;::ific date \':!1en spec;f:c sa!es, pJrc!1ases anc c~:
transactions occur.
b. The corporations' incomF and exp~nses for the fi!'r:at year
4. The term applies to a foreign corporation ngag<:d ;n trade or
shall be deemed to have been earned and spent equruly for
business \\;thin the Philippines.
each month of the period.
a. Resident foreign corporation
c. The corporate income tax rate sr.all be applied on the amount
b. No!1resident foreign corp0ration
computed by multiplying the number of months covered bv
c. ~.h:ltinational corporation
cL Petroleum con'r:;c-tor the new rate within the fiscal year by the taxable income ;f
the corporation for the period, divided bv twelve.
d. None of the choices. -
Answer: ..\
';; Answer: D
Reference: Section 27 (A), NIRC, as amended
1-
lJusiness l,;t:!'P th~ i 'p:tnt .. -., ..r:
~

9. A domestic corporation has the foilowing data for the fiscal year
a. R~_~s1f..ient tl)rf.'l:~~, urpor;,:;r;~.
I: starting June 1, 2008 and ending \!av 31, 2009:
h '; r--;n ;-r--sidt-"!1 t ft':r.-: r.n C1 )!"U( JLt t 1011 I
l Gross income, Philippines P 5.000,000
c. !\fuitinarinn:d ,-,:noration
d. p,_~:r)it''..ln; c~, : 1;;-)r
! nrnss inrome. USA 10.000.000
~-
Dedurtlons, Phiiippines 2,000,000
Answer: B ! Deductions. USA -t.OOO,OOO
Referenc~: Section 22 (I), NIRC, as amended
t How much is the income tax due for the fiscal year ending May 31,
2000?
;L p J, J5fl,Q()() C. p 2 ,':).'-:().f)()')
b. p 2Cl62,5()() d. r L.7n{J..IthJ
:- ;_:. ,.

; ,_,,'

c. .
~d_;:
'
.::..:Ji\..-:t.::: ~

d. None of the choices

34
C11apter 2: Tax on <Corporations. Partne1ships, Joint Ventures Chapter 2: Ta't on Corporations, Partnerships. Jo!nt Ventur~

Answer: B 1 ! . They are con.fti~ut~~ when cnc:! iJlter~s!s h!m~c!f ::1 t~e 1:-usin~.,.~ cr
Reference: Section 27 {A), NIRC, as amended another by contributing capital .thereto, and sharin~ in the profits or
los::;es in the proportion agreed upon.
In the case of corporations adopting the fiscal-year accounting a. Joint stock companies
period, the twcable income sr.ull tJe computed wit:wut regard to the !:>. Join~ accounts or c-uentas en p'Uiicipacion
spec<.fir: date when spdjic sales, purchases and other trans.;;ctions ... Associat:ons
occur. TheiT incor,te and expf:nses for the fiscal year ;:;ha;i bt:: d. .Joint ver..tures
deemed to h_ave beP."1 earned and spent equally for each month of
the period.
Answer: B
The corpura1e income tax rate shall b? applied on the amount References: Art. 240, Code of Commerce
computed~::. rrr.ultiplymg the nw~Lbcr ?fmonths rotered by the new The Law on Income laxation, Be.njan1i.1 D. Teodoro
rate within rhe fio-cal year by i~? tnxable inrom2 of the corporatzon and Hector s_ De Leon, 2001 edition
for ~he tJ1''<::4, divided hy twelL'e.
Computation:
Gross ir:.~-rrw, Philin~'nr~s p 5,000,000 12. They include all o;ganizations with substantially all tile s'ilient
-.Jro!;S i:-1-.::.:.~::e, USA 10,000.000 features of a corporation and are ta.:mblc as a "corporation.
Total p l 5,000,000 a. Joint stock companies
Les: Dec:.Jctions, Philippir.<::s (P 2,000/100) b. Joint accounts or cuenta.s en po.rticiracion
Dec .lctions. l':::.-\ (_2jJOI\IJOil) 1,_~00 I)IJ(Ij
c. Associations
roxa.)(e : t::t tncon-le ,,_ Si.Jvv.v<lQ
d. Joint ventures
Tax due
June i .:200H to December 31, 2008 (7 monthsi Answer: C
P9. :)0.000 X 7.12 X .J'i :, P l.B.l7 ,500 References: Batangas Trans Co. and L.T.B. vs. Coll, CTA Case
.Janu::::-.- 1, 200l) to \fn_v .ll ..!I)()lJ lS rnonth'-'l No.71,Augustll, 1955
pG ,:;IJ. ()()() .'( ':; 1 _:: ~-: -,. The Law on Income Taxation, Benjamin D. Teodorv
;, 2~~H) ..~~::,_oo
and Hector S. De Leon, 2001 edition
---------

II
. ''. \ ; : :- J 1 ',_;,I; iII.,_\',
dtfi'"rent !rom a partnership tr: t:.,>: lt In\'ohes the dtspostlwn ol a
single lot of goods or the comple::m1 of a single project.
a. Joint stock companies
b. Joint accounts or cuentas e-n participacion
\.\ithuut fo:--~ .::1 ~~o\c-n1n~('J1i,d ,: ~r!Inrlt\.
c. Associations
~! . !n!:-- <!(H'k (~nrn;l,lPir"..:.
<i. Joint n~ntures
b . .Joi:-- :=~r-cnunts n:- f'tten:-ls tn n:lrtici~'l,U l<n-:.
r

l
c. .\ss Answer: D
d. References: Article 1783, Civil Code of the Philippines
Kohler, A Dictionary for Accountants
Ans,-,er: A The Law on Income Taxation, Benjamin D. Teodoro
References Kohler. 1\ Dktion;n:y for A.cco1ntants and HectorS. De Leon, 2001 edition
f

'
(
a. Thirty percent (30'~'0) c. Fifteen percent (15%)
b. Twenty-five percent (25%) d. Ten percent (10%)

36
Ch.apter 2: Tax on Corporations, Partnerships, Joint Ventures Chapter 2: Tax on Corporations, Partnerships, joint Ventures

Answer: C 16: Which of ~he fo!lcwing statex~:1ts ie i~ccrrer.t?

Reference: Section 27 A , NIRC, as amended
XXX
Provided, further, That U..e President, upon the recommendation of the
Secre=ary of F'inance, may effective January 1, 2000, allow cc7pcrations
the aptian to be taxed ati!fteen percent (15%1 o(qross hrome as
I defined hprein, after the follow;ng conditzons have been sat;sjiui:
i (1) t tax effart ratio oftwent:J percent (20%) of Gross National Proauct
! (GNP);
'2} A ratio of forty percen; (40%) of income tax cJtlection ro total t('.X
revenues;
(3} A '/AT tax effor uf f::;ur percnY!t :400) of GNP; and
(4} A 0. 9 p:::rcent (0. 99uj ratio of the Consolidated P..1blic 3ector
Financial Position (CPSFP) to GNP.
a. 'fhe option to be taxed based on grnss income shall be
available only to firms whose ratio of cost of sales to gross
sales or receipts from aU sotrces does not exceed fifty-five
percent (55%). .
b. The electicn of the gross in.:-t:-me tax option by the <.Ol }JOtation
shall be irrevocnbl~ for three (3) con~utive taxaole ye.us
auring which the corporation is qualified und~t- the SC"'l-teti'e.
- c. The term 'gross income' d,.rived from bt>sire;;s "~hall be
equivalent to gross s:lles less sales rett~ms, discounts ana
allowances and cost of goods sold.
d. "Cost of goods sold' shall include all business expenses
whether directly or not directly incurred to produce the
merchandise to bring the.m to their present location and use.

Answer: D
':=i. co;-porate incomP teL\: purpose<;, which of the follo.ving
J::'0r 0;:Jtiui><'l
Reference: Section 27 (A), NIRC, as amended
shEll! not be inclut!ed in 'cost of goods sold' for a tradin~ or
For purposes uf this Sect~ort (optio;u;.l ccrporate in.=om.e t:JX), tr..e tenn 1
1
merchandisine; concern?
'gross income' deri11ed from business shall be equivalent to gross sales
a. Invoice cost of the g_,ocs sold
less "'ales returns, discount<: and allowance!> a11d cost of qoods sold.
b. Import duties
c. Freight in transporting the goods to the place where the goods "Cost of goods sold' shall include all business expenses directly incurred - ~
are actually sold to produce the merchandise tc br;i1g them to their present location and
d. All costs oi production of finished goods use.

Answer: D
Referf!I1C~_:Sect_i~_I1~2J_JA), NIRC. as amended 17. Proprietary educational institutions and hospitals which are
nonprofit shall pay a tax of how much on thf'ir twx<thl~ income ;'It
. . .I.-cl
< ''
'''.
lf'''h
'.'.'h?_~ f'P!"f"'Pnt?
:1 Thirty p:nr>nt (30~)
b. Twenty-five percent (25"01

Answer: D
~J:r~:.: !L.lt" (l[/ {"()_c.;!<:; orr~
rnt;~r ::;.':-. ;(_;( -~r ~lrrt", t ;'(;f;1;: ' ' .. r,.-.. ,r,;,f ''<'
Reference: Section 27 IB), NIRC, as amended
I '

tn\~,(runc~ :_'Jrernnuns ruul o r u .. :. ;n,:urt:i !11 fP:ru; ~ ' r'lll! !fiU!t.lr;/')

*I . ' I.,.~ JT'!i 'H- IJ 'I! Tf ,; "f)!J ..::;-'

18. if the gross income from unrelated trade, business or other activity
1.1/ h ~,'(I r 't>,
t ' )' ;,-!',
exceeds fifty percent (50'/'n) of the total gross income derived by such
"~"" -.:.:::~:)_--; :>:._1l~J-.; j._ r ,.
___ !'!..
educational institutions or hospitals from all sources, what tax rate
shall be imposed on the entire taxable income starting January 1,
2009?
a. Thirty percent (30"~)) c. Fiitef'n percer:t (15%1
b. T\H~ntv-fivf' rwrccnt (..!.')' I d T~t; p('rn.nt ( J r)':,l

38
Chapter 2: Tax on Corporations, Partnerships, }oint Ventures Chapter 2: Tax on Corporations, Partnerships, jomt llenrures

Answer: A
Reference: Section 27 B NIRC, as amended
Section 27 (B} Proprietary Educational Instltutlon.s and
rs~~~~ro~~~~ft~IR~~-a~ended
1 - Oll1fted or Contro!led-ColpOI'Citfon.-r,
Hospitals. Propi2tary educational institutions and hospitals which
nre nonprofit shal! pay a tax of ten percent (10%) on thei: t:vcable income
except those covered oy Subse-::tion (Di hpreoj- Prouir:feri., that if the
Aqencia or Instrumentcditfes. - The provisions of existing special or
general latus to the contrary notwithstandi:-~g, a'l corporutions, agt..ru:ies,
or instrume.ltalities ownec:! C"' rontrol1ed by the G<n:em:ncnt, except the
I
I
qros::. income (rom unrelated ;radr:, busmess or other actiJiy exceeds
f.tty per~e.tt t50%J o{t!<e totul gross income derived by su<..h eaucational
rnstitutwns a~ rospi'a[s (rom ali .sourrf's, the U>: prescri'-Jed in
Govemment Servic:e ln..c:urance System (GSJ.S}, i.he &.::tal &:::::.1rity
Sys~em (SSS), the Fhilippine Healt'"r l11surancc Corporation (PHlC}, antf
the Philippine Charity Sweepstakes Office (PCSO" shall pay ~ur-h rote of
I
II For purpose:; of this Subsection, the tE'rm unrelc.ted t;ad.:?, business or II
Subsection (AI r..ereo( shall be imposed on tht;; ertire ra_~able ;,tcome. tax upon their taxable income as are imposed IJy this Sectio,lt!pon
corporations or ass:Jdations engaged in s similar btu.iress, industr:J, or
activity.
I
other activity' means ar..y t.rut.le, busrness or other activity, the t::onduct of
which 1~ not _substa~tially rela~ed to the exercis~:o or perfonnance by s!ich I'
educatwnal m.<;tltutwn
. or hosprtal of 1ts pnmary purp;.,se or Junction.
i A Prupnetary educationalrnsWutzor zs any pnvate sch;ol marntGmt.d I

I onrf ndmmistcred by pnvnte in'iw!Chw!s or groups wtth an issued permrt I

1 to operaTe from the DepartmenT of Educat:on. Cuiture and Sports fDECS), '
I C:.':}he Commrs_sr~n.on ffrgher F:rbJrn_tum ICffED_i; o!: tle Tecfmtcnl
I Lul.LCa: 1cn c~nu St(z,ls Ueut-"'!upm~"nt . t" tnor'"' lj r? c,>._JA, n.c:. , fh...' ! t~s~ may
=Jj 21. What is the minimum corporate income tax (MCIT) rate imposed
upon any domestic corporation on its gross income wit!lin and
\\<~t1luut the Philippiut&?
I be, rn acCL!.!!!!.!!1Ce u..nth e.Alt.;lu~n ,rr!_l~J_"i_!"tC~ '~i!-'.!Ju.t.'::_!_:...;;.__ __ ~--- a. Fifteen percent (15%) c. Five percent (5%)
b. Ten percent (10%) d. Two percent (2%)

19. \l.. h!ch of rhr_" follO\\ing incon1e i'-; not frorn a related trade, business or Answer: D
a~~i~it. ,-~f cion1estic propriet:trY ~rl;_;c:-ttional ir~stit:Jtion? References: Section 27 (E), NIRC, as amended
~~- : .. '.. inc frPn1 the hosp1:.d \\L Tt' rntcLca! ;r:;;ldua!es 1n_ ~:,lned Section 2.27 (E) (1), Revenue Regulations No. 9-98
_). c'Slrkrw\

Answer: D i
i
within the Philippines?
a. Fifteen percent ( 15%)
b. Ten percent (10~1,)
c. Five percent (5%)
d. Two percent (2%)

I Answer: D

l.
References: Section 28 (A) (2), NIRC, as amended
r.~ ~:. j: -~: l_tfl ; :~~ir
Section 2.28 (A) (2), Revenue Regulations No. 9-98

23. The MCIT shall be imposed upon a domestic corporation or a resident

toreign corporation:
I -whenever such corporatiun has a zero or Il<'sCJ.tive t::t.xabk
! incomf:;
Il - \Yhen the arnount o!- :n:;:~:n~nn corporate incon1e tll.X is gr~~:-itcr
than the normal inconw tc1x due from such corporation.
a. Both I and II are correct c. Only I is correct
b. Neither I nor II is correct d. Oniy II 1s correct

40
Chapter 2: Tax on Corporations. Partnerships, Joint Ventures Chaptet" 2: Tax on Corporations,. Partnerships, Joint Ventures

I
Answer: A Answer: D
References: Section 2.27 {El (11, Revenue Regulations h. 9-98, Reference: Section 2, RAwen14e Regulatioos Ko. 12-2007
as amended by Revenue Regulations No. 12-2007 amen.iing Section 2.27 (E) (1), R.event'.e Regaladoaa
Section 2.28 CAl (21, Revenue Regulations Jlo. 9-98, Jfo, 9-9S.
as amended by Revenue Rego.1b.t1ons No. 12-2007 Noiuithstand:ng the ahoVP provi..ion. :wwever, the computation and the
payment of MCI.'I', ~ft...:UllikeLJise apply at the tir.e offiling the quarterly
corporate i.U:Cme tax as prescribed under~ 75 (Dec1aratior. of
24. A domestic .:OTj)Ofation was registen:d with the BlR on January 1,
200 'l. What year would the '!rs~ r.~ClT be i.nposed on such
rQuarterly Income Tax) ar.d Section 77 (PZace ann Time o( Fi:inq and
Payment of Quarterly Corporate ~rr.e fax) of the 'J'r-.v C:xie. as
corporatiOJ,? amcnd-;d.
a. 2G04 ,.. ~008 Thus, in the computation of t:;.e tax due for the taxable quarter. if the
I
t. 2007 d. 2010 computed quarterly MCIT is nig.'Jer than the quarterly normal income
tax, the tax due to be pnid jor such taxable quarter at che time offiling I
Answer: C the quarterly corporate income tax retum shall be the Men which is two
Reference: Section 2.27 (E) ( 1), Revenue Regulations No. 9-98, percent (2%) of the gross income as of the end ofthe taxable quarter
as amended b_y_~~enue Regulations No. 12-2007 In the payment of said quarterly MCIT, excess MCIT from the prrwrou.s
1 A minimum cc:-porate income UL-.: (MCJT) of two perrent (L%) of the gross taxable year/ s shall not be allowed to be credited.
1 inwme as of the end uf Uw rnxabit> year itvhether calendar or fiscal
! year, dependmg on the arcrPmUmt J>enocl empioyed! ;._ ~er.:>by imposed
:Lpon arty dome~t1c corp_oratm .iJc'!l'rtni!J!L'!.'-G}<t: (011rp' (4th) t1.xable zwar
rmmedzateltt [oltowmq trw taxc,uic r;ear rn wfucll sucn corporc:ion
I under the normal income tax.
arter/ s are allowed to be
commenced its business opemtwns I
ThP JfCIT shall be imposed wrwneuer STich corporation has zero or
26 to 29 are based on thefolTowing: Panday Corp::>ration's computed
ncgat;v: ta,~abl~ incnrr:~::, o~ :~,_;:en,_t . er. the u.rnount c~( ir.i:n~nuP~ ~rporate j
tnco~e tCI...'\' rs grenrer rnnr~ .. , ,_. r;r-,pt;ut zn('CJI'?~ rnx (i1Jt' r1 :rn _..,_~,: .. ,n 1
normal income tax and MCIT, and creditatle income taxes \Vithheld
.--o~')rr:z~ion /Scct:on _), F!t'' ~--.~.: ~-} n:iu:rnt:<.::. .\o. ]_'._'(,~(:-:- n"~:'--':riing '
from 1st to 4th quarters including excess MCIT and excess
withholding taxes from prior year Is are as follows:
~~.~;r~t~i!
fnrnmf" ra:u . . . "!CIT
, -~-the foilo\\'l~H-~ ~--;: _Q.uar!.~ Tax _21CIT WitbhPid Pnor Year. Prior Y;-tr
:-he crJnl put. tflo! \ : r' . 1,1\; .t':l i ( ): \f( r- 1st p 100,000 p 80,000 p 20,000 p 30,000 p 10.000
2nd 120,000 250,000 30,000
Jr<l 250,000 100,000 40,000
4th 200,000 100,000 35,000

26. Ilo\v much is the income ta.x pa:able for the first quarter?
:-:._)rn:.ll in:.u;:H t.:~. : ~. 1: 1.1 !)t'p.:! :~H su: ~~txahlf' a. P 100,000 c. P 60,000
; 1 Li:r ~- ;t: :i. r:r~ -- '~i:~' (p:.lrfl-r:_\
Jr:J(;r.:>' :1cnn1(' tax b. p 80,000 d. p 40,000
eturr: sh(1ll her!~ .. \!t '[I '.\in~h IS t\\'(~ ptr- _...nt {.t~.-~ uf the
~rOSS income as of" !w ''!Hi of !ht: tnxahk fjU;lrter. 27. How much is the income tax payable for the second qunrter?
\;:'I' a. P 330,000 c f' 100,000
b. p 230,000 d. t' 80.000
.. ,, r t:

23. How much is thP income ta.:-: for th b.Jrd qu<JrtT")

a. P 470,000 c :; so.ooo
b. p 400.000 d. p 70.000

42
Chapter 2: Tn on Corporations, Partnerships, Joint Ventures Chapter 2: Taxon Corporations, Partnerships. JointVentm"eS

19. How much is the annual income ta'C pay2b!e:' .'\nnua! Ret'<.<rn
a. P 670,000 c. P 165,000 Normal .eorporate incoiPe ta;.::
b. p 505,000 d. p 100,000 (PIOO,OOO + Pl20,000 + P250,000 + P200,000) P67v.C~
Minimum corporate incom... tax
(P 30,000 + P250,000 + PlOO,OOO + Pl::>O,OOO) p 5:'0.00:>
Answe:ES: :l6. D
27.B Income tax C:ut (!.igher) P67o,noo
2!t.D Less: Excess tax credit, previous year (? 10,000)
2Q.C Creditable tax .dtithe!d, p:eviot:s quarters
Referen~: Section 2, Revenae Regula!:ions No. 12-2007 i?20,000 + P30,000 + P40 OW) t !'fl,000)
Creditable tax withne!d, Lh'<~ quarter 40,000)
amending Section 2.27 (EI (1), ~evenue Regulatb~s Tax payments, previous quai ters
No. 9-98. (P40,000 ~ P230,JOO + P70,000) ( 340,000)
1:-trsr '(r__;;;.ter Excess MCIT, prior year { 30,000) (_!'>05.0u0j
Nor-:na~ corpora:e :::come tax p 100,000 Tax payable (MCIT) p l65.QjZ..
Mi~im:..;m corporc.te income tax p 80.000
Q'--=-:-~e-: iy corp-vra:e :~come tax due (hig'cer) p 100,000
Les.s: =:xcess tax c::-edit, previous year (P 10.000)
C:cdita!J:e ~' w-.ithhc!d. this quarter 20,000i
30. Using the same data in the prei:eding problem except that the normal
~xccss ~YC1T !)rior yc3r 10 000) ( 60 000) income ~ax and ~h~ MCIT for tbe quc.rt.:rs ar~ as follows:
T,.-.:-: ;.--::::.:.ahle- t:c ... ~::: P1~~omP .-~x) p 01.()~~ 1st 0 2nd 0 3n:i.Q 4th 0
Normal income tax p 100,000 p 120,000 P250,000 p 50,000
Se-:-r::-_.: /warter
MCIT 80.000 250,000 100,000 120,000
l".~-~--" ::orpora:e" ::-:come tax (PIOO,OOO + PI20.UOO) p 220,000
\L--~r:-: --n co:pnr1:c' mcorne tax (P80,UOO + P250.1JOO) p 330.000 How muci1 is the annual income tax payable of the corporation for
p 330,000 the year end?
a. P 550,000 c. P475,000
b. p 520,000 d. p 75,000

,,. \!'!':!
,---,, ,,. .. ,
--- ---------!
,, Reference: Section 2, Revenue Regulations No. 12-2007
' .... . - ' > - . .

amending Section 2.27 (E) (1), Revenue Regulations

. ,.;-
No. 9-98 .
Normal ccJrporate income ta.x
(PlOO,OOO + P120,000 + P250,00u + ?50,000)
' . '- ' ' .; ~ ; ' . ' :\:. Minimum corporate income tax
(P80,000 + ?250,000 + PlOO,OOO + P120,000) p 550,000
- , \ J , 1 , I. : I I ', . i~ 1 ~. :. i
Income ux due (higher) p 550.000
;' 1.; \1, 1 r
Less: Excess tax credit, previous ,-ear P IO,OUO
:: I\: I ' \ 1- ll! ;.,
Creditable tax withheld, previous quarter
"' :..:: _(j :j j .. !' ~!),()\}{)~
(P20,000 + ?30,000 + P40,000) 90,000
'ilT.! ~,!X \\!th:1~:o. tn1s quarter
Creditable ta..'C withheld, this quarter 35.000
Tax pz-:~:menrs, previo 1.t"' rru.!:!--:-';
1 P-:0.000 j._ P:?.10.'_;r-;t) .. ~}-;-

'Lrx p:ty.l :Jh-_ {n . :-rn:d inr , l!I!'_' 1

_ t
 Chapter 2: 'rrax or. Corwrations, Partnerships, Joint Ventures Chapter 2: Tax on Corporations, Pannersmps, ;mm ~tc:m:.1o"""

31. The foliowing data are pres.e.1~.:d te- )OU. ~ .

in the case oj corpOrations adopting tl..i: fiscal-year ClCCOJ-Lnting period,

Normal
Year the taxable inome shall be computed without regard to the specific date

II
Income Tax MCIT
Il998 when sales, purchases and other transactior...s c-ccur. Their inroJ,Je and
p 50,000 p 75,000 e.Jq.~e.lSes for the fiscal year shall be deemed to have been earned and
t999 60.000 HiO,OOO s~nt equal!:; fo~ each Tl"onth of the period. . '

How m'..;.ch Is th-e taxpayable for the years 1998, 1998 and 2000?
Ieo,ooa 60,000 Iby multiplying
The corporate income i.wc Mte shtLI ~ applied on C02 amount computed
thz number of months covered by the new rate within Lhe
I
a.
b.
::. S'98-
J998-
T.S,OOO
?-S.OOO
: 9<J9- PlOO,OOO
19':!9- P 60,000
2000- F 35,000
2000- FlOO,OOO I fo:'X1! year by the taxable iTI.CJ'Tl.'! -:Jfthe C!'rpo;-atbnJOr the period.
1 divided by twelue.
J
c. ~998- ::c~r;.ooo :999- r:oo,ooo 2000- p 35,ooo
d. 298- ?:;0,000 I 99':.' - P 60,000 200C- PI 00,000
33. A resident foreign corporauon shall be granted the option to be tax.ed
Answer: A at what percf.nt on gross income under the same conditions. as
Reference: Section 2, Revenue Regulations No. 12-2007 provided in the Tax Code?
a:-:1ending Section 2.27 (E) (1), Revenue Regulations a. Thirty percent (30%) c. Fift""etl percent ( 15%)
No. 9-98 b. Twenty-five percent (25%t . d. Ten percent (HI ,o)
p 50 000
\~~:~.:-~.....:~ ~qr!'r;:--_" ~! :ncOr!':f" !'CfX P_..l.S.QOQ Answer: C
-t."< - .J~ :h~-~}1t_r)
P 75 OOQ Rei't.r.:.uce: Sectlo;t 28 1' !ast ru-a r:t h, l'UP.C, M PmeucJed
19L:ft;;- ~or-:-:--_~t tncome f::J:X Provided, however, That a resident f:Jreign corporation shall be granted
p 60 000
~. L::~::-.:..: ::1 corpor ~ :e in~ornc ta.~<
the option to be taxed at fifteen percent (15%) on fiross ir.come under- Vte
p l 00,000
T 3X ~- :~ '!: igher) ~ame t..Onditions, as provided in Section 27 (A).
P lOQ,.Q.QG
p l ()() 000
p f)() 000 34. An international carrier doing business in the Philippines shall pay a
p 100,000 tax of:
a. three percent (3%) on its gross receipts.
25,0(;[) i
b two qno onP-h'llf pPrcent 12 'h%) on its 'Gross Philippine
-~L-~~~
p )5,\)i.}~
Riilings.'
'------ ---------~~~~
c. two percent (2%) on its 'Gross Philippine Billings.'
d. one and one-half percent ( 1 '!2%) on its gross receipts.
:r1:1, (u < tlH)Jt .... -...i ::~ bt <..;~:f>jtct to (l!l incorne tax
:'t'r(t; ~(j .. ) ' :>---.; rct'<rlfl~t ~r1COtnP drri\'td in the Answer: B
r:.',; .,,, ""',~' , .. .'.;rh;:, he Philippines> Reference: Section 28 (A) (3j, NIRC, as a:::m=e:..:n::_::d::.:e:.:d::__:-:---------,
::-,~~,,- rJr:~n: : Dnmt~sric corporation / Section 28. Rates of Income Tax on Foreign Corporations.
! . ; ' : , , ! (A) Tux un Resident Foreign Corporat~ans.
(1) XXX
Answe~: 3 (2) x.xx
Refe_!e__llce_: Section 28 (Al Ill. NIRC, as amended (3) International Carrier. An international carrier doing business m the
:'~r-~:~~- .- .?:~ ~? -~-,-.;;: n: [~~r.1 r~;__.-; 7\L'( ;n -J:~;~-rc(q;-c---;)-;p~-:;_-tio~:r;. ~ Philippines shall pay a tax of two and one-half percent (2 1/2?6) on rts
'Gross Philipprne Billinr;s' as defined herermder.
(a) fntematinna/ Air C'nmcr. 'Gro.''-" !'hi!ippirw i-Ni:nr;s rc;, -r_<; 1r) :f.,

46
Chapter 2: Ta:::c on Corporations, Partnerships, Joint Venn:res
Provuied, further, 'i'hat for a ]light which originates ]rom tne
P'h.ili;;pines, but trar.sship1T'..ent of passf?:'.ger takes pbr:e at any port
outside the Philippines on another airline. only tlte aliquot portian of
the cost of the ticket corresponding tc the leg flown _from the
Philippines to the point cf transshipment shall iorm pwt of Gross
Phi11.ppine Pillings
(b) InteT""Lational Shipp;ng. - 'Gross Philippine Bi:Iing!:. means gross
rever~:ue whetr.er for pa;:,sPT1ger, cargo or mail ori.ginating from the
Phl';;:.;'~ne.J r:p to fina: destination, regac-aless of the place of sale or
_____Eayrc.ent'i ofhe pa:,;:;age rr freiqht ducum'!nts
~~~~~----------------~
.:::.. One of t::e following is iricludcd in the "Gross Philippine Billings" for
income ~.ax purposes ;fan international air carrier.
a. '0 :ckets sold outside the Philippines for passengers originating
t':-<-.)m outside the Philippines
b. Pc;,.'>S<ige docum~nts .;old-outside ~he Philippines for excess
bctg,ga~e origin,tting from the Philippines
r - c K<~rs sold in rhe Phiiippincs for oasse!1gers originating from
~:-.e Philippines but are I'Ot act\lally flow:-:
d. ?c.,::.sage documents sold in the Philippir:~s for cargoes
: ;-:ginating from outside the Philippines
Answer: B
,':l>~ItJtJ:-)q~-fi,l). i)~.L
)t' \n. 1 .~~o. :~<...:. :--,P~~r:rl(-'t!
il
Chapter l: fax oo t..orporauons, Pannersm ps, JOHlL v c:uu...;""
"' ~7. Wl-Jch o~ tl1t-. fol!owing shall be subject to 100/o final tax?
a. Tnccme derived by offshore banking units authorized by the
Bangko Se;}tral ng Pilipinas (BSP), fron for-ign currency
transactions with nonresiden~ other offshore Qanki.."lg units.
local com:nercial banks. inducting branclles of foreign banks
that may be autr1v1 iud by the Bangko Sentral ng PiEpi.-.aa
(BSP) to transact business \\.ith off:;hore banking units
t. Any interest _incom*" derived fr:>m foreign curreacy lo<'Jls
granted to residents otr~ ... !.~offshore banking units or local
commerdal banks, inciuding loca.t bran~h_.s of forc::ign banks
th'-t may be autilorized by the BSP to traru;;:tc: business >Nith
offshore baaking units
c. Any income of nonreside:1ts, whet;ter inc'!viduals or
corporations, from transactions with said offshore banking
uaits
~
"""
"'''"'-n. ,...( +h ,...'hn;,..,.<'
. . . 'loo<I'J..I. .... ...., .... "".................... ~ ......... ...,
Answer: B
R~~f?re~!!=-~~~on 28_(!\1(4}, NIRC, as am-"-e=n_:;d-'-e-=d---------~
Sectfo" 28. Rates of Income Tax on Forefgn Corporations.
tA) Tax on Resident Foreign Co1p0rations. -
(4) Offshore Banking Units. The provisions of any law to the contrary
notwithstanding, income derived by offshore banking units authorized
by the Bangko Sentral ng Pilipjr,tas (BSP), from foreign currency
transactions with nonresidents~ oti:er ojJshore banking units, local
commerdal bankS~ including branches of foreign banks that may be
authorized by the Bangko Sentral ng P'ilipinas (BSP) to transact business
with offshore banking unzts shall be cxe~;;tfrom all taxes except r-:er
i!lcuOtt: jt-orn Stich tronsact;.ort:.::; ;;s ~:;_~-. ,-;..._ .spcc:.,'fc:::..:. :::y [i-:e 5ccre!u.'~,' ,_._-~
Finance. upon recornrnendanon OJ :he :~fonetury dvurr.1 u.:iuch ;:;ita;: ,.~e
subject to the regular income tax pn<,iib~e by banks; Provided, howec'e,...
That any interest income derived fror: fore-tgn currency loans granted to
fresidents!other than offshore bankmg umts or local commerdal banks,
including local branches of foreign banks thct may be authorized by the
BSP to transact busmess with off<>hore banking units. shall be sub:ect
only to a final tax at the rate of ten percent (1 0%).
"Any income of nonresidents, whether :r:druiduals or corporations, from
transactions with said offshore bank:ng units shall be exempt from
income tax.
:hapter 2: Tal( on Corporations, Partnerships, joint Ventures
:!8. In resident iore1gi ~.;orporat;ons any profit rer<litteci by a branch w its
head office shall be subject to wh?t percent of tax whkh shall be
based on the total profits applied or earmarked for remit~ance
without any deduction for the t::Lx componP.nt thereof (exc{.pt th<'se
activi~i,.s which are ;;-egistt>red with the fililippine Econlffllic Zone
Autho:-i:y)?
a. Thirty perceut (30%) c. Fifteer. !Jercent :1!>%)
b. Twent::-five p~rcent (25%) d. Ten percent 11 0%)
Answer: C
Referenc<!: Se.:-tiv& 28 (A} (5), tflRC, as amended
Section 28. Rates of income Tax on Foreign Corporations.-
(A) Tax on Resuient Foreign Corporatior..s, -
(5) T<L< on Brunch Profits kem!ttances. - Any profit remitted by a brunch
to 1ts head office shall be subject to a tax of fifteen ( 15%) which shall be
':His"<l O"! rht> 10"1! prJfi'-" f?.J.p!if'd or f'unnar-ked for remittance without
arty ri<>riKtr'ln ror <he tax component thereof (e:;..a;;pt those; a.:tivities
cl'iu.-;, c;re re:T,reti r1rh 're ."'h.ilipplne Economic Zone Authoritt/). The
!(L\ -~-;:,:;: [)~ ~~u:.'r-~ :}cl ru~r~ .r::o~d In tfie same ma~ner as prouided ~:.:1
s, ._-:!or,; 57 nnd ';3 oft 1;:s Cod<>. provided, thnt interests, div,dends,
rl'l:t>:. roynhe::;. :~c!urh,::7 remuneration for technical services, salaries,
uuoes pre:>c:;,rr.~: unnl':res. emoluments or other fixed or determinable
CP:::,oi. pen:rl- '>" cJs:.n 1 r1<iii'S profits. income and capital gains
ren ... ,.,..- ,;,., ,; ', ..... ,,.,1 orv;:'" d:Lring each taxable year from all
:; ,.;.,,. ' -':"'' ~:j'!_!/ nnt .~w trt>att>d as branch profits
;: r ,' _ __:_,_:_:___~(--~~:_;_~-~:opnectt;>d ruith rhe conduct q[its trade QI
_),,'
I on~\.
i~
....;cicrenc_c: :::>cctiof1_:28Jr\i_(()), Nig__{;~~-~~l!l_t~nde::._dc=---~----------
Chapter 2: Tax on Corporations, Pa!"tnerships, jomt ~entures
Scct:on. AZ {!>DJ ThR tenn 'regkmal or area ~shall mean
~ brunch established in the Philippines by multinational companies and
whicfl headquarters do not ea"Tl or deriuc inco:-te from the Ptd~
and which act as supervisory, rommunications and ooordin.ating center
for their affiliates, subsidiaries, or bn.nches in the Asia-Pacific Regeon
and otherforoi!iyn mwkets.
SaCHon 22 (EEJ The term 'regional operating li.M.ufquarters' ::Jw11
mean a bra..,ch P.St~lished in t"te .,hilip['irtPs by multinazional
C'JfflJ'anies wi1ich are ~!..uqed !n any o[the following services: generol
administrction 'Inc' planning; business plann:i1s; and coordination;
S:Jurcing and procurement of raw materials an.i c.:ompon.ents_; corpr>rate
fina.'1Ce arJ.ursory services; marketing control and sales promotion;
training and persomtel man.agemenr; logistic sen.!ices; research a, u:1
I
development services and product development; technical support G.nd
maintenance; data processlng an.1 communications; c.nd business
,..,,...,,.,.,""_""',.,...,+
' """"'""''-""t"''~"- ""
~ 40. Which of the following corporations shall pay a tax equal to thirty
p~"rc-ent (30%) of the gross income received dunng each taxabie ye-
from all sources within the Philippines?
a. Domestic corporation
b. Resident foreign corporation
c. Nonresident foreign corporation
d. None of tile choices
Answer: C
Reference: Section 28 (B) !1), NIRC, as amended
Section 28 (B) Tax on Nonresident Foreign Corporation. -
(1) In General. - Except as othenmse provided m rhis Code, n fort"!gn
corporation not engaged in trade or business in the Philippines sholl
pay a tc...x equal to thirty-five percent (.35%) of the gross income
received during each taxable year f-om all sources within the
Philippines, such as interests, diuiciends, rents, royalties. salaries.
I premiums (except reinsurance premiums), annuities, emoluments or
other .fzxed or detennirwble annual. pt>riodic or casual gains. projr~>
I and income, and capital gains. except capital gains subject to tax
under subparagraph 5(c): Provided, Thut effective Junuant 1, 2009,
l the rate of income tax shall be thirt11 percent (30r;'o}.
- -----------
j
--------~
 l.lldiJ~cl ._. .u. ull '-'-''vv.-a(Jon.s, t'<:trUl~:rsrups, jomt venrures
Chapter 2: Tax on Corporations, Partnerships, joint Ventures

~- 41. A cinrematograoric filrn owner. lessor, or rlistrihutor sh::tll pay a tax

~ . .
Answe1; :S
Reference: Section 28 B 4 , NIRC, as ame.:::n;.;:;d:..::e..::d'---------.
a. tventy-tive percent (25%) of its gross income from all sources
Section 28 (iJ) l'ax c:t Nonresident Foreign Corporatic-n. -
~~thin the pt,ilippines.
(2) Nonrtf!Sident Cinematog.TWhic ;:zlm Owner,. Lessor 0r Distri':Jutor -A
L.. :.even dild vr:e-half percent (7 ~%)of gross rentals, !ease or cinematographi-: film owner, lessc~, or distriW -:Jr shail pay a tax of
chaner f~es from le'ases. twenty-flue pim:Pnt (259'::} ofits gro55 incomP from 0.:1 sources witi d. 1
r four a:1d -:;;1e-half per.ent (4 '!::%) of gross rentals or fee~. the Philippines.
c r.:;o and or:e-half percent (2 Y.. Yo) of gross ir.come from all
sc urces ;;,ith [,1 the Pru~ippines. I (3j Non:esi~ent Owner o_r Le~r oJfl<~essel~ Chartered by Phi!ippine _
!'Jatio;;as. -A nonrcstdent oumeror lessor of vessels shall be subft=(.t
Ans'Q. er: A '" a tax of four and one-half perrent (4 1/ 2%; of gross rentals, lease
R.!ferenez: Section 28 (P) (2), NIRC, :ts amended I1
or charter fees frorr lenses c-r charters to Filipirw citize:-t.S ur
corporations, as approved by the Maritime Industry Au:hority.
(4) Nonresident Owner or Lessor o] Aircraft; Machineries and O:her ,.
42. A nor::res:dent owner or lessor of vessels chartered by Philippine Equipment. - Rentals, charters and other fees derived by a
m:~im:1als sha1; be subject to a tax of: nonresident lessor of aircraft. machineries ana other equipmPT1t sr...all i
l
a.. t-'- enty-five percent (25%) of its gross income from all sources

~
,.,,:thin the Pnilippines.
s.;o.en a'1d one-half percent ( 1 l /2%) of gross rentals, lease o:>r
L be subject to a tax of seven und one-half percent {7 1I 2%) of gross
_rentals or fees. ________ __j

.-:.-:~~rtcr fe.-:s from leas,~s.

: ~ ._, :- ar:d 0T"",e- half JY'rcen t (4 1I 2%) 0f gross rentals, lease or . . _ 44. (Phil. CPA) Which of the following ~tatements is incorrect?
r:... ~r-te; from le<'lseS.
fe.--, a. Resident foreign corporations are subject to income tax based
,.,, '.: zn:d ,,,:e-half perc:r~nt(2 1/o%) of gross income from all on ,net income from sources within the Philippines.
~-- .:-cFs . hin tl:e P:-:clippines. b. Domestic corporations are subject to income tax based on net
income from all sources.
c. Nonresident foreign corporations are subject to income ta..x
Refe:"!:'nce: Section 28 (B) (3), NIRC, as amended based on gross income from sources within the Philippines.
d. Private educationa1 corporations are :>t.ibjcct to iiJ.CGT:~c ~i:.:-:
based on ttc net inr:::;:-:c f;-,;;n :;ourc.::::~: ~.!::;~in~!-:~-~ P~:~:~:;;::-_"''":
.; \} :T,i'(~ t~. : .;;;r~::..;Hicnt iessor of at the t~L'< rate of l 0 :0.
.,; ,tfl' .. ''J!llj)!)WI:: ::di IJ, sUbJt'Ct to a ULX
Answer: D

).~ :; : p ~;I i"

",_ h - l , .2 .,i r;: :::oss rentals or fees. 45. A tax imposed in the nature of a penalty to the corporation to deter
i i-l : /2''-.! :/ .':"ss rentals or lees. tax avoidance of shareholders who avoid paying the dividends tax on
,) 11: ;.-, .:.;:-:. in(~ornc frorn n.ll
the earnings distributed to them b\ the corporatiOn.
a. Minimum corporate income tax
b. Optional corporate income tax
c. Improperly accumulated earnings tax
d. Capital gains tax

Answer: C
Reference: Section 2, Revenue Regulations No. 2-2001

52
Chapter 2: Tax on Corporations, Partnerships, Joint Ventures Chapter .G: I ax on wrporauous, t"<U"Ulo::t :.mp..,, JvLil~ .,. ..,.. " ..

-+6. F;rst starement; An accumuiatiun of tarn.iHgs o.- prolits (ir.dulli.ug f. In the case of subsidiaries offoreign corporations in the Philippines,
undistribt'.ted eru.nings or proiits of prior years) is unreasonable ifit aU undistributed earnings intended or reserved for investmenzs
is not necessary for the pt1rpose of the husiness, considering all the. w;thin t'te PhilippirJ.es as can be proven by corporate records
circ"~UT"~3tances of the case. and/ or relei.'ant documen~ary evidence.
~ Secc>ru:l statement: The term refl.Svnable needs of the businessn are
:1erel:Jy construed to meau th. immediate needs vf the business,
including reasonably anticipated needs.
48. The Improperly Accumulated Earnings Tax ftAE11 is imJ)osed on
a. Only the first 3tatement is correct
irr.propetly accumulated taxable income 'earned <>tarting JanU:L)' 1,
b. Only the second statement is correct
1Y98 by dom.:::stic corporation3 as defined under the Tax Codt and
c. Both staten.ents are correct
which are classified as cJr>se!y-he~d corporations at the rate -;f:
d. Both statements are incorrect
a. twenty rercent (20%). c. ten pe:-cent (lO"A.J.
b. flfteer. percent (15%). d. fi11~ percent (5%).
Answer: C
Reference: Section 3, Revenue Regulations No. 2-2001
Answer: C .
References: Section :49 iAI, NIRC, a*' amended
-> 7. For pu:-pos-:s of implemerting the provisions on improperly Section 4, Revenue Regulations No. 2-2001
accumulated earnings tax, th~ following constitute accumulation of
~:1:-uing~ br th~ n:-c-s:-n:ctle nee-cis o~ tl:e >,'l~in~s::> ~:<-::ce"pt:
49. The Improperly Accumuiated Earnings 7ax shall nc,t ap~ly :o ,r.;}Lch
a. allowance for the increase in the accumulation of earnings up
to 100% of the: paid-up capital of the corporation as of of the following corporatio:::ts?
Balance Sheet date, inclusive of accumulations taken fron a. Banks and other non-bank financial intermediaries
other years. b. Insurance companies
b e.>rnings reserved for definite corporate expansion projects or c. Publicly-held corporation
;)"'Ograrns requiring considerable capital expenditure as d. All of the choices
:1pproved by the Board of Directors or equivalent body.
,,unings lTS~rv,,d fnr h11ilrling, piilnts or equiprn<'nt Answer: D
w,11Jisit1rm :1s ;lnnrnv.,d h\' the Board of Directors or
Reference: Section 4, Revenue Regulations
I
No. 2~2001
. ----- _., ___ - - - - - - - - - - - c
i1 Section 4. Coverage -
The 10% Improperly ilccumulated Eamings Tax (JAE7) rs 1mposea ~-,
improperly accumulated taxable income earned starting Januun3 ; .
1998 by domestic corporations as defined under the Tax Code
and which are classified as closely-held corporations. Prou:ded,
however, that Improperly Accumulated Eamings Tax.shal/ not appiy to'
. ~ :_")_-;(::-; c~(th_ese F!c{r.!rJ~1.')T1S, the _l~J!!orulng constitufp ocrumulation 1

the following corporations:

;..--.., ~~;J.<..; j(>r !he reason(;b!.:_, r".eeds of the businE'ss:

. ';;~1,-,, ~:n the rnt ,.. :;> ut the uccunu1latzor~ o] eunun~1s up to a. Banks and other non-bank financial intermediaries;
.1~ -.::1' pnirl-UfJ c(;p:tat o( the corpurntlon as of BaluncP ~heet b. Insurance companies;
::c::"',;; ,, (J( ucc~irr:.:..;.lations taken {rorrt other years; c. Publicly-held corporations;
:c. : nr1s "'St n:ed for definite corporare expanswn projects or ~ d. Taxable partnersfups;
: ;~rmls :n;uinnq cons:demble capital expenditure as appmved ' e. General professional partnerships;
f Non- taxable joint ventures; and
g. Enterprises duly registered with the Phz!:ppme Ecorwrruc Zou:
Authority {PEZA) under R.A 791 r!. and enterpnscs rerJtsterccl
pursuant to the Bases Converswn and Det,eloprnent Al't or I '/.1::
r;,; ,, j<J
' .
.JU'f1 iil.'IrTr: i(:;:~rr7':r:~.~e ~;;;.-..-;:nt'SS under R.A. 7227, as well as other enterprises duly T<'(j1Stererf ,r~t},-r
_'tl'11'.-' special economic zones declared by law wh1ch en;oy puyrnerc: -'f
special tax rate on their registered operurions or uctwitu s in :i,.'"A
'ite corporutwn or m respect
i;:, OJ whzch there lS legal profubztion other taxes, national or local.
uwnnst zts dtstribution;
 Lhapter ..:.: ll ax on Lorporations, Partnerships, joint Ventures
Fo1r purposes of the Re!]Ulations, closely-held corporations are those
corporations at least fifty percent (50%) in value ofthe outstanding
I.CG.pital stock or at least fiftlJ percent (50%) of the total -
xmbin.eci IJ(,tirtg power of a!l classes of stock erditleC:. to uote is owned
I ~ or indirectly by orf~r not more than twenty {20) indilitfuals.
. Do~c t\JTp::>rations not falling under the '-'foresa.id definition are,
! tr~:~. publicly-held corporatiorts.
L,.- p:Lrposes of detennimng whether the corporation is clos~ly held
I' COJr?Grr."t'on,
insofar such detennination is ba:;ed on :;tock ownership,
as
1
the foilowing rules shall i:Je applied;
1. s-x:: Not Owned ty Individuals. -Stork owned directly or indirectly
!::? a~ for a corporation., part1ersh.ip, esta!e or trust shall be
cor~.S~.dered as being owned proportionately by its shareholders,
pa.r:.ners or benefidaries.
2 ..=aJT..i.Zy and Partnership 0-:J.;rtership.- An in.diuirltwl shnll hP
=r..s:idered as owning the sto-.k owned, directly or indirectly, by or for
'::s fa.mily. 01 by or for his partne~. For purpos~s of this paragraph,
~;...e family of an iadividual' includes his brothers or sister-S (whether
' :-. r..oZt:: Of" ; wlf-b/(J(Jcij, spuu"'to, ..mcesior:s unci lineai descendunts.
3 JF~On to Acquire Stock.~ -If any person has an option to acc;uire
s~c-c;;, such stock shall be considered as owned by such person. For
_::.r..;rposes of this paragraph, an option to acquire S''Ch an option and
' _,::;~hone of a series of option shall be con :dered as an option to
:: ~-=~ re such stock.
..:. :: -.. : :'"1.1ctiue Ownership as .-\cnwi Ou;nership. -Stock constructively
. ''ori h11 rE'ason of the appilmtwn of paragraph (1) or (3) hereof
For purposes of <,OJpilnrul uamqmph r: i or (21. be treated as
.11 uun--d in1 s:;:-f. rwr '<!'". 1>'1/ sro6.: ccnstructiuely owned by
:;>ni\ ,\, '"\!111': 1--tr,d :: 1:r~m;~s Tax s!1a!l not apply to which
.')\\In~?, corpora~i(nl':~-.)
-.x:lhl~ p:trtnershms
;:::rerprises duh r~L~ist<'rt'd with the Philippine Economic Zone
:)
':(c: -c-::c<:: Section 4. Revenue Regulations No. 2-2001
56
Chapter 2: Tax on Corporations, Partnerships, Joint Venru1es
51. In determining the improperly accumulated earnings, which of the
following is not deducted from the taxabl<! net income?
a. Dividends actually or con~tnctively paid
b. Incom~ tax paid for the \"hole year
c. Amount :-esetved for the reasonable needs of the busine:..s
d. Income subject to final taX
Abswer: D
References: Section 29 (D), NIRC, as amende :1
r-:---:----::--:s~~ction s. RPvenue Regulations No 2-2001
Section. S. ~cue: Base of Improperl!J A.;; cumulated ,i;...u-nings Tax.. -
For corporations found subject to the tu:, the "Improperly .Accumulated
Taxable llcome" for a particula. r year is first dett::nnined by add.r..g to
i
1
that year's taxable income the following:
a. inco'ne exempt from tax;
, :-.~rm<> ...... ,...-~.,d f.rom gr"~"" 'ncome
I ; _ ;,;;;,;; ;;i,j:~-to}u;cd t~~~d '
I d. the amount of net operating loss carry-c-ver (NOLCO) deducted.
! ~"?dr:ccd ~J:
T!1C taxabl2 income :1$ :h::ls dct?mtfn:od s.'w!l b3 cr; ih:.: ';1 rr:
1 a. income tax paid/payab;e for the taxable year;
' b. diu;dends actuaily or constructively paid/issued from the applicable
year's taxable income;
c. amount reserved for the reasonable needs of the business as defined
in these Regulations emanating from tile covered year's taxable
income .
The resulting "Improperly Accwnulated Taxable Income is thereby
multiplied by lOf!-6 to get the !mproprr!y :\c--c;.Im!.t!ated !:r:.rr:!r!}S To_~~ 1
_.-...7"!
FOr pu,;p\Jses of deternun.rng th~- 30lirc{-' o( ~---u.rrt.i.r:q:.; ar p,-o;~~:; ../._ ,:,:.~;..-:_
1 dtsrnbured from accumuiared zncomr> Jor ench wxu iJie !i''nr. r ;,,...
I dividends shall be deemed to hcwe been pwrl oc;t of he :nu:;t reu"" :."
I accumulated profits or surplus nncl shall consriturp a .nnrt n(rf:p r;r:rr ~n!
. income of the distributee for the year 111. winch rccencd pursuun: c'J
Secti?n 73(C) of the Code.
Ij Provided, however, that where the diuzdends or portzUit of the swri
I rli71idend. riPr/(!rPrl fnrm . nnrt nfthP nrr:umu/nted Pnnwws us nf
I D~c~mbe~ 3],- 1997: ~r e~anat:.s from the acc..unulmtrl r;!mrr" n,' ,
particular year and, therefore, zs nn exception to the t'rcn rlznrJ
statement, such fact must be supported by a duly e>J'OitPrl Uourd
I
, Resolution to that effect. -~- ____ . ... .. ____ . __ .J
52 In determining the impropt>rh :wcumubt<-c! <':lrn:: " wh ,,. -
rdlowing is not Ztdcled to the t;Jxa hie net 1m:onw)
a. Income exempt from '.lX
b. Income excluded from gross income
c. 1\rnount of net operating lo::;s c;rry -u-. er d. i t::.:
d. Amount reserved for the reasonable needs or the l.>usine""
,:... .:~
57
 Chapter 2: i3fJ( on COTporati~, Partnerships, Joint Ventures Chapter 2: Tax on Corporations. Partnerships, joint Vent:i:&rei

Ans-e~ D Answer: C
Refe:n:r:ces: Section 29 (D), NIRC, as amended Reference: Section 6, Revenue negulatfons No. 2-2001
Sectioo 5, Revenue Regulation."! No. 2-2001 Section 6. Period for Payment of Dfvl.dend/Payment of IAET. - The
diuideuds must be 1:1edare::l artd p~id or issued not later than one yc["r
following the close of tie taxable year, otherwise, the IAET,;; any,
53. First ..~1'11!en.ent: Once tile profits h<tve been subJected t'l impro;>erly should be aid within fiftan {15) days thereafter.
acc;:.mulater:l eamin,5s tax, the sam~ shali no longer he snbject to
the same tax itl later years even if not declared as dividends.
Secmnd .s.1.atement: Profits which have be~n subje~.-ted to imprope..-Iy '\<. !'>6. First statement: The fact that-any corpontion is a mere h"lcir:g
a<..cumu.lated earnings tax when finally declared as dividends shall .:. ::. company or imestment company shall oe prima facie evidence of a
be sub::iect to tax on dividends. pu:-pose to &void the tax upon its shareholC.:t.rs or members.
a. Both statements are true Second statement: The fact n~at the earnings or IJrofits of a
b. Both statements are false .;c corporation are permitttd to accumulate beyond the reasonable
c. Only the first statement is true needs of the business shall be determinativ~ of the purpoSt: to avoid
d.. Only the second statement is true the tax upon its sh'-\reholders or members unless the corporation,
by tne dear preponderance of ev>dence, shall prove to the contra.-y.
Ans-.-er: A a. Both statements are correct
!teference: &ction s. Revenue Re tiona No. ~-2001 b. Both statements are incorrect
4 1
0- ::c ~T-_? Frcfi~ '-1:-zD tee:: :::~b_.:e::tcd t,:; 111~EJ: t."'lz s~:nc ::;ha!? :--..o !or:~e:- be c. Only the first st"ltenent is r0rrect
! suo:ecr:.;:d to L\ET !H larer years even if not declared as dividen.l. d. Only the occond statement is co;-rect
i No:::.1tr.standing the irl'lt'?Osition of the IAET, profits which have been
Answer: A
sut:ec::-"-d to L.J..ET, when finally declared as dividends, shal!
References: Section 29 (B) (1) and (2) and (C) (1) and (2), NIRC,
nc-. -~--::.. dcss be subjeC:: co tr:zx on drt:rucmds imposed under the Tax Code
or : :-- ;- -:xceut in thnse> =~:s~ances where tiw recipient is nor subject as amended
r/1.~""--
------ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ J
Section 7, Revenue Regulations No. 2-2001

( " f ... ------- .-l, 57. A cornoration having practicallv no aciivities :xu:pl ltuid1n._: pr:./.:~.
and collecting income tnere1rom or tnvesnn:z; ~!1t~TE'ln. shai: h~
... -.,
',;:n th;m- - " .. ,,.- +, -'''\\m~~ the close of the :clxable year considered:
' ',;,,r r;,.tn --- : -,-!; d,\\ fcdlmnng the close of the taxable a. a holding company.
b. an investment company_
c. a closely-held corporation.
d. none of the choices.

Answer: A
References: Section 20, Revenue Regulations No. 2
,:(eiere::ce: Section 6, Revenue Regulations No. 2-2001 Section 7, Revenue Regulations No. 2-2001

'< .::Ci ' ,--

,., :
'. t.tJ

---'~.._..i,_~_;~.C year

',me of the choices

)8 59
 Chapter 2: Tax on Corporations, Partnerships, Joint Ventures Chapter 2: Tax on Corporations, Partnersn1ps, jOint Ventures

58. if the act:J.vitits fulther include, o:r consist :substantially ot, i.>uying qo, Who shall initially determine whether there is an improper
and stlling stc:::ks, securities, real estate, or ot~e.c investment accumulation of profit?
property (whether upon' an outright ryr a marginal basis) so that the a. The taxpayer c. The Court of Tax Appeals
income is deriv("d !l:>t only from the ir..vestment yield but also from b. The BIR d. The Departm("nt of Justice
profits upon market fluctuations, the corpo~ticn shall t-e considered:
a. a holding company. Answer: B
~cference: Section 19, Revenue Regulathns No.2
b. an im:estment comr'lny.
c. a publicly held corporation.
d. None of the c~oices.
51. One of the following statements :s incorrect.
Answer: B a The improperly '\ccumulatee earnings tax is caku'a!ed to
References: Section 20. Revenue Regulaticns No. 2 force a closely-held corporation tc declare divicend.
Section 7, Revenue Regulations No. 2-2001 b. The impr0perly accllmt:!aterl earning~ tax is corr.~-'uted on
improperly accumulated earnings for several years.
c. The improperly accumulated earnings tax is on the net
59. The following are primajaae instances ot accumulanon ot prohts income per books dter income tax.
beyond the reason8 ble needs of a business and indicative of purpose d. The improperly ar.cuwuhted e?.rninE;s ta" is based on a
to avoid mcome tax upon sharenolders except: statutory fcrmub for improperly accumulat~d income.
c>. hvestrr..~:'"lt cf sul::stc.ntial :::en:r.g3 an1 profits cf the
rorporation in unrelated busintss or in stt.JCk or secur!ties d Answer: 1l
unrelated business. Reference: Section 29 (A), NIRC, as amended
b. investment in bonds and other bng-term securities.
c. accumulation of ea-:'1ings in excess of 100% of paid-up
capital, not othenvise intended for the reasonable needs of the 62. First statement: The mere iact that the corporation distributed a
t business. large part of its earnings for the ,-ear- in question does not
d. none of the choices. necessarily prove that earnings '.\ere not permitted to accumulate
beyond the reasonable needs of :he business.
Answer: D Second statement: If the Co:;;n::so.:c.:::c'~ of !ntt'r:1a! I~e\''~r;,_;e
detertllined that the corp\Jr..t :.. ; ..:~,r.~ ;. -,rnh~~i c:- ;l..~;L:c;: . . ~~ ~;.);" :.r.c
Reference: s,~ctiof17. Re;:e?ul! ~~_g__ulation~~~CI 2-200_! _____~
,--;-,. . ,,, :!:/ un L!.[_!rrlrl (;c:,_ :ro stunce:i ol accumulatwn of proflts beyond purpose of avoidmg the tax on :!~ell'- :euais tnrmL.;h th~ medium or
:i.e ec;.ionuiJ/, needs of u b, -.n,ss anri indicative of purpose to avoid permitting earnings or profits t<) i<C'cc!lllUiak, <tnd the ta:xpaver
'nry,rnf~' .-,-I_Y r:::nn '-:hnrehnlrJ,-,rc- contests such deterrnination of fact b; litig~ttion. the burden of
fl. f11 1 P ;trr;en t O( Sll i>starl tcCI 1 ''Oniings
unci profits of the COrpurat;on in proving the determination wron~ o\ preponderdnce of evidence, is
t unrda:ed lm.,Irwss or in stock or secunties of unrelated business; on the taxpayer,
b. !nvest.'7"tenr tn iJond::; unci '--'~i~erlony~~errn .se(._-uritzes; a. Both statements are , v:;,_,:
c .~crli!T:illrztJnn n(er:Tnin[!S n P.<ress nf 100n nfpaid-up ca.pital, not h. Both statements are incr>r-c
,,_;-,en, '., "' ' ruf, rl /(Jr t/,,' ,,-,,~ ',onuble needs of the business as defined e, Only the first statem>n 1s ,,"-~''''
.~'
4
.:~:ecp;:'t!f!O!l "" d. Only the second statemer.r s currect
in orrier to cJ, 'IE'rrnine whethPT" profits are accumulated for the reasonable
rtPecis o rhe 1-msiness ns to r; r;uid the zmposition of the improperly Answer: A
'}fJ!T''~,i:qr/ P/tont!nn Q(thp t(t_f."!)(l_l!Cr iS thClt Reierence: Section 19, Revenue Regulations No.2
: .. 't' . ' , ' ; : l. ~; '!ll<;r, . . ,)r.'. ri() ..

''r)~ 'rn~T(' re('0!')!1!{l()fl

,. ' ' ~ ).' /! ' 'J ! I ) I ' 'f-' . ~l<P' otui u!ternotu~e solutions
!Jf)-; -.:~<.;:;
';J[Jfnn: , rur1piecl with oction/s taken
1 1 ,':~:i!l! f!! (l{ :uT: '- ,~ >:,1.. 't~Z:(J .
. ---------- _ _ _ _ _ _ _ _ _ ____j

60 61
 Lnapter L: fax on Corporations, Partnerships, joint Ventures . Chapter 2: iax on Corporations, Partnerships, Joint Ventures

6~ ln order t0 {'~i-~bli3l-t ;ts cxcmptron, 9T'd thJ!: be reli-:ve~ 0f the duty '>f .., 65. Which of the following o:r:ganizations shall be exempt from income
filbg returns of income and paying the tax, it is necessary for every tax?
organization claiming exemption to fi!e an affidavit with L'le a. Organizatbns suc:Q as provincial fairs and like associations of
Commissioner of Internal Revenue, sh0wing which of the following? a quaci-publi::: ch&racter, which are designee! to encourage the
a. The cha~acter of the organization de 'lelopment of bette;; agricultural anu horticultural products
b. The purpose fur which it: wac crg:mized and its actual through a system of a..vards, prizes, or premiums, a.nd w!lose
acti.rities income Jeriverl f. om gate receipts, entry fc:es, donations is
c. The <:>ul!rcts of its income and its di~tribution used exclusively to meet th~ neces::.ary expenses o~ upk-:ep
d. All of the choices and operation
t. _1\ssociations which hav!' for their purpose, the holding of
Ans~er: D

I In order to establish its exemptior-.., and thus be relieved of the duty of

filing returns of income and paying the tax, tt is necessary t!tat every
organization ~/aiming exemption file an affidavit u-ith tJte Commissioner
l
Reference: Section 24, Revenue Regulati;:.:o:...::n.::.:s=-:-=-N_o_._,2~::.-:---;--:---::-
periodica! ra..:e meets, the profits from whir.h may inure to the
benefit of ~heir shareholders
c. Corporations engaged in growing agricultural or horticultural
products or raising livestock or similar products for profits
d. N~ne of the choices
of Inter.;::~; Revenue, showing the -:-harrrrl."'r ':'.[he O!"g'"!r!ization, the
! purpose for UJhich it was organized, its actual activities, the sources of
Answer: A
I its income and i,s distributi011. whether or not any of its income is 1
Reference: Section 25, }(evenue Regulations No. 2
j cr:edited to surp_lu~ or inures or may inure t~ t~.e benefit .of anY_ private
1 ;,tLtJJehoiaer ur ITtWVldual, and en geteral, a1, Jacts relatmg to Its
ope. ations which affecc its right to exempti?n.
66. Which of the following shall be exempt from income tax?
To such affidavit should be attached a copy of the charter or articles of I -Mutual savings bank which has no capital stock represented
incorporatiOn. the by-laws of th.:: organization, and the latest financial by shares, and whose earnings less only the expenses of
statement showing the assets, hab1lities, receipts and disbursement of operation, are distributable wholly among the depositors
II -Mutual savings bank which appear to have sharehoidfrs who
participate in the profits
,:-)-+ \Vhen s:idli ~{ ;8_\:-r.:xeinpr organ!zc~_lon file its annual information a. Both I and I! c Nt>ith~"r I nor i!
b. 1 on~v
d , j~: ,)('iOr(' .-\prli i :1 !)f r';-:-~h _\.c<lr
h. On.,:. wfure ,Junf' I:> <Jf --;;:h of n:'r Answer: B
Reference: Section 26, Revenue Regulations No. 2

Answer: A 67. Which of the following cemetery companies shall be exempt !rom
Reference: Section 24, ReJenue Regulations No. 2 income tax?
I -Any cemetery corporation cr1artered sokh r'x hur:;d n: :'",
and not permitted by its ch.:nter to engag<" Ill dtl\' hu~::w;;s r1:
necessarily in<..:ident to that purpose
II -A cemetery com .Jany having a capital stock represented bv
shares, or which is operated for profit or fn:- th<' h(':1,ofir c f
persons other than its me:~ ~"r;
a. Both I and ll
b. I onlv

Anawer: B
Reference: Section 29, Revenue Regulations No. 2

62 63
 Chapter 2: Tax on Corporations, Partnerships, Joint Ventures Chapter 2: Tax on wrporations, Partnerships, joint Venwres

68. A .:er.1tttry c.Jmpany which fulfills the other requuement of the -'+ 71. Which of the following is exempt from income tax?
sta'Ute may be exempt from incom" tax, even though it issues a. A club organized and operated exclusively for pleasure,
pref~rred stock entitling tl:le holders to dividend at a fvred rate,
recreation, and other non-profitable pUrposes, no part of the
pro~t!ed that its articles of inC4.1rpl>ration require:
net income of which inures to the ben'!fit of any private
I - that the preferred stock t:hall be retired at par as soon as
etockholder or individual
sufficient funds are r~ from s:l!es. t. A U)rporaticr- or association orga."l.ized exclusively fox ho~ding
II -that all f ..m<.is 11ot required for tl:e payments of dividencis upon title to property, col!ect:ir:; income t.'leretrom. ar:.d tuming the
or for the retirement of preferred stock sh?ll 1-e used by the entlie amount !hereof, kss ~..,;pel!ses, tc aJl organization
co!llpany for the care ..u1d imprcvem~nt of the cemetery which itself is exempt from income tax
property. c. Building and ~oan associations
c!. Nonf> of the choic~~
a. Both I and II L:. Neittcr I nor II I
b. I only d. II only Answ~r: D
Choices a. and b .. are prel.!iQusly tax~empt o.rg~ations but have
Answer: A been deleted under Section 30 of R.A. So. 8424.
R.E:ference: Section 29, Revem:?e Regulat!~n!! N~. 2 Choice c. is rw~ exempted and is sub;ect to tax under Section 4,
I. R.A. No. 82 __ - - - - - - . - - - - - - - - - - - - - - - - - - '

'
.
-< 69. Which of the following income shall not be exempt from income tax?
a. In case ot a religious corporation, income from the conduct of 72. Which of the follmnng statements 1s correct?
strictly religious activitie~. such as fees received for a. The tax imposed by law on corporations is not in.posed on!::
administering baptismal. S<)lemnizing marriages, attending upon such corporations as are organized and operated for
burials, holdin;;: masses. and other like income. profit.
I
b. In the case of educational co.rporation, income from the b. Any corporation, firm or association, no matter how created or
holc!!ng of an educational fair or exhibit. organized, or what the purpos<> of its organization may be, is
c. !:1corr.e of the above me;-; tioned corporations (letters a. and b.) subject to tax, except as prodded in Section 30, relative to the
f:-orr, i:;\estment, such as interests from the capital where the exemptions from tax on corporations.
GHJi;.,: has lwen ln:uwd
. .
:._:_.~.E!~:J. ~u;~: Ut:::..~r :--::;-.:-~:
. .
~!; CG!lti!:.J~J~:;-_;::~~
'. .
i::?":....'C1','\'(: DV the
c. A corporation is not exempr '-'l!"p!v and or:~v ')''.':tuse I' !S
primarily not orgaruzcd .._1;~,: :::.~-::-:i::_e_: :{Jl"" ~~:-::..;:;~.

d. All of the choices t1

. .-\nswer: C Answer: D
Reference: Section 29, Revenue Regulation::; No.2 References: Section 16, Revenue Regulations No. 2
Section 30, NIRC, as amended
---------------
Section 30. Exemptions from Twc on Corporations. - Thf> Jollm,_nr.q
~-~(}_ :\~; .1ssoc:r1~:-~.;,:-; of pe:-sons havlrn2; son1P common business interest.
;;:-:. :" :wtt\tties to,,.,,~~: for such common interest and does
, :~~-~<~.:,: :- :,c;ubr bus111ess a kind ordin;c1rilv carried on for
received by them as such: .
a. Labor, agriru.ltural or horticultural orgcm12utwn not orgwuzccl
board of tradt' principally for profit;
a. c. Business league
1::. Mutual savin[JS bank not hauinq u cunct<<i srock reorcscnteci by
d r;,jr le<lgue
shares, and t.:ooperutiut-~ hnn;.: ,{ ... ;, J', -'"~:':t,;: ~-,~1)! .:~ Jtr;tu~ :-:d :u;i

.
' ' ,-.
opernted for rnut11n! purr>n-..;.---; ,
.......' .. ,.. .
_!}li)';f_
. ,.,
'). ~
,.(
c. A beneficiary socwf1t. orcl-'r r,. .,. ,,.,.rl ,, ,,. >'\' ,.
benefit of the mem!Jer.s su,l: r;; ;,;u:c:c;::J" "/'!'"'
under the /odqe system. or p:u;;;, ; o:n !' u ."n:;'
corporation organized by cmp!or1e"' nro , hr:q h!r he T-''~''nent ui i .,_.
sickness, accrdent, or other bene;::s c .cci:,srL c::11 tv 'icc :::, :::beT> _,_-
(
such society, order, or assocratzon, or norJ.Stock corporatwn or titezr
de endents;

64 65 i
~'
 l.napter l.: rax on Corporations, Parmerships, Joint Ventures Chapter 2: Tax on Corporations. Partnerships, Joint Vent'.lres

d Cu.t...."iertf oo,.,.p'l'l!J cr!J'I".ed and op~C!+ed excluc:iv'.'!l~ for the benefit of 74. First statement: A general professional partnership as such shcl~ ::::~
its members; be subject to the income tax.
e. Nonstock corpoMtion or association o:-ganized and oper'lted Second statement: Persons engaging in business as partners in a
exclusively Jar reliqicus, cha. itable, scientific. athletic, or cultural geneml professional partnershi~ ~hall be liable for income tax only
pui]A)Ses, or for the rehabilitation of veteran..:>, no part vf its net in their separate and ind:vidual capacities.
inrome cr asset shnli belong to or inures :o tr. benefit of any a. Bo:.h statements are cvrrect
.1ember, organizer, offu:cr or any specific perso~
b. Both statc::ments are in::orrect
f Pt. sine!"s league cha;nber of COrrtT'leT'Ce: or board of trade, 'lOt c. Only the fi::-st stater,lent is correct
organized for profit and no part ofthi; net income .Jfwhicn inures to
t~ be:--.efit of any private s<ock-r..olrier, or indivi!luC'J;
d. On'y tl:e second stat~r:1Cnt is correct
g. Civic league or organization not organizec; f'Jr profit but operated
exclusively for the promotivn of socia! welfare; A-."lswer: A
!,

, 1... A nonstock and nortpr~fit educatior.ul institution; Reference: Sectio.u 26, NIRC, a.s <Wlende.1
Govemment educatronai rnstltulion;
j:
I
Farmers' or other mutual typhoon or fire insurance company, mutual
I ditch or irrigation company, mutual or cooperative telephort> 75. First statement: For ourposes of computing the distributive share of

I
1
I
company, or iike organizaLion of a pureiy icx:al character, tto.c:. rncome
of which consists solely of assessments, dues, and fees collected
from membrs for the sole purp;;s~ of mtetiizg its e<penses; and
k. Fanners', fruit arowers'. or like association organized and ooerated
ns a sales agl?'!t for the pv>pose of marl,:eting the produ~ts of its
th~: pa.'i:ners, the net income of the partnership shall be computed
in the sa::ne manner '\S a corporation.
SeLond statement: Each parlner shall report a~ gross income his
distributive sh:::tre, actually or- constnlctivelv r-ereived, in '"'" rp;:
income of the partnership.
members and turning back to th.em the proceeds of sales, Tess thP a. Both statements are correct
necessary selling expenses on the basis of the quantity of produce b. Both statements are incorrect
fimshed 1(umished?} by them. c. Only the first statement is correct
Notwrthsranding the provisiots m the preceding paragraphs, the income d. Only the second statement is correct
of u_ ;;areLer kind and character of the foregoing organizations from any
oftherr properties, real or personal, or from any of their activities Answer: A
ronri :,c :edfor profit regardless of the disposition made of such income. Reference: Section 26, NIRC, as amended
:,;h(;;',' :~~~, ~:;~ibi~~J5Z.i"~~\_ j'!3P_(}!?_i!_~__ l!!~der:_Jttis Cudt:.

76. First statement: The tax0b!t ::: omc dtclareci b\ :1 i" ;s;;w>;:'
7 3. < )ne r .; ::he fo!lo\\ ins is a gen~~ral professional partnership. partnership for a taxable \Ta: :s subwct to ;:1comr 1.1:: :gJ;;r)-;,'~: ';l

. a f-'ann~rship organized by a Ia\\'}'er, f"ngineer and a CPi\ to

p~m1de professional advice
taxable domestic corporation~ t!qdtT ~r:-ctio1: .~7 1.-\! f): :h~'~ -rd~< Crrt:~
Second statement: The shari' ::1 thf' raxahlf JIH"OIT\1' " ' <1 hw;:rv->:-;
b. :\ partnership organized by a grovp of CPAs for the common partnership shall be cleerr.t>d w tl<t\"C been Zlctua!lv or :~unsrv_,:-:::-:
~)ractice of accountancv received by the paz-tners in rn..- same raxabie vear d!ltl sln1 1 ';:
(" \ ~):~rtn('"fship organiz~d b:: a group of CP.I1~s for the purpose of tc.._xed to them in their indi"'1d'!dl r.;q)~ttit_\. \\hr~thtr .!~:J,!i!"'
...-~~1ing n"ai propertie<> distributt>tl or not.
: r,,:lt'ral partnership ur",anized by a group of engineers a. Both statements are cu~:~,.ct
~:rs<"~Q;ed m manufacturing of equipment b. Both statements are incorrect
c. Only the first statement is corn>ct
Answer: 3 d. Onlv the s(cond st;J<er;;n+ >: r'CJlT<':':
:::ie::non 22 (B). 'i'!RC, as amended
---l
-:,, .. ,r)r.trrr, r :!)'_; ,f 'r7It!'f/ fFJ rJer::;OT';.~
----~----~-

~- r';n,~t;~ :; .. :: : "S,';fr-),'1, r:() !lUrt u( l;'e

il!r'rJ
' '._;~ ~~/_:~-~ 1_!!_! _'!.' :)., !.-~L:Jt_:_!!_!_!!_~f_:___")__t!_i!__~0_~~--

66 67
Chapter 2: Tax on Corporations, Partnerships, joint Ventures -
Chapter 2: Tax on Corporations, Partnerships, Joint Ventures

Ana""'er: .4 Answer: A
Reference: Section 73 ID), NJRC, as amended
Reference: Section 3, Revenue Regulations No. 30-2003
Section 73(D} Yet Income of a Partnership Deetrted Constnu::iNlJi
IReceived by Partners. - 11.e taxable income declared by a partnP.TShip
for a taxu.ble year which is subject !o tax wtder Sectiott27 (A) vfthis
80. A taxable partr!ership may be s-:lbject to the following tmres except
Code, c.,j1er dedt~ng the corporate income t.u imposed therein. shall be
deei'TId to have been actually or wnstn..ctively received by th:! partners a. lliinimurr.. corporate income tax.
in the S'l11te taxable yPar and sh111 be taxed to them in their indit:idual b. gross incofl"e tax.
ca aci , :ur.ether actual! distributed or not. c. imprcp~rly accumulated eami.gs tl'IX.
--- d. .JOnt: of the choic:s.

77. The share of a partner from the distributable r.et inc') me etfter _,...nswer: C
Reference: Section 4, Revenue R~~tlons No. 2-2001
deducting the corporate income tax of a business partnen.hip is
subject to:
a. creditable withhoiC;ng tax of 10%.
b. final with holdinv tl'lx of 10%. 81. First statement: T~.~t=!.b!e pa.rt_Tlerships are required to file cumulative
c. capital gains t~ quarterly declarations and a final return because they are taxed as
d. tax under Sec. 24 (A). .;;orporatiou~.
Second statement: The net distributable net mcome of a ta"l:able
Answer: B part:-:en:hip sloa!l induce inco'11es w~i-::h are sub;ect"?i to :':1a; ~a:
as wdl as those that are exempted from income ta"<.
References: Section 24 (B) (2), NIRC. as amended
a. Both statements are correct
Section 2.57-1 (A} (5), Revenue Regulations No. 2-98
b. Both statements are incorrect
c. Only the first statement is correct

78. Income payments to partners of a gener~l professional partnership
amounting to ?720,000 or less are subject to:
a. creditable withholding tax of 15%.
d. Only the second statement is correct

Answer: A
.
b. finai withholding tax of i 0''~-
, ,-,-,~~:,-~:}~t -~;.i:~r;!\,i,i;;~~ ;,.1-., ,,f 1~"',~
82. First statement: A general co-p"r ,,, a fHr'';"c ,;;;p .\h'"'::~
part or all of its income is dcrl\ed fror:1 the conch;ct of track or
Answer: C business and is subject to cor;<or;He inconw tax.
Reference: Section 3, Revenue Regulations No. 30-2003
1
Income payments to partners of general professton_a_z=-------~
partnerships. - fncorne payments made periodically or at the end of
Second statenzent: The share o: :l ~_;,~r-tncr in the ~-;ar~ners.hip's
distributable net income of a \t'ilr. t>ve>n i! not actualiv receivtd, ''''ll
be considered constructiveiy ;.ecei\ed bv the partner .in the sdme
-
year that the net income of the partnership is determined. and wi'l
the tu'<able year fn1 a general professional par1nershrp to the partners,
"'r1ch as dro~umq:;, oduances, shanngs, alloreances, strpPnds. ere. -
Fr/teen percent 115''n), rf the income payments to the partner for the
be ~ubject
dividend.
to a final \'--ithhold ::<..: c~f ten perrent (; rr ;.;,as if
..
L. current 'teu.r exceeds P/20.000; w;d Ten percent 10>,, i othenuise a. Both statements are cor;-e,t
b. Both statements are incornc
c. Only the first statement is :orrcct
:_~:"!lt"f~l: prr)fPc..:~_:i()!l-11 partnership d. Onlv tht seco!ld .:c:t<'rl1":': .., ',,,.,.,.,

Answer: A

68
69
'c
4
 Ch.apter z~ Tax on C.orporations, Partnerships, Joint Ventures Chapter 2: Tax on Corporations, Partnerships, Joint Ventures

:"" 83. First! .o>tw.emeru: Salaries rt:u:iveu b.;: a partner from a general
prc.fessional ?fu-ttlership is not considered gross compensation 86. The share of a corporation in the net income after tax of a joint
inc?me but as part of his share in the di~tr.iouta~le net income of venture or consortium taxable as a corporation of which it is a co-
fr...e partoermip. ' venturer is subject to:
Sea.Au:J. statE:me:U: Sala!ies received by_a partner from a business a. r.reditablt withholding tax of 10%.
partnership is considered gross cumpensation incom.:!. b. final withh01ding tax of 10%.
a. 3oth statP.rr.ents are correct c. capital gains tax.
b. Both statements are inc0rrel..t d. rtone of the choices
c. Only the fi:-st :st:~.temeut is correci.
...... Only the second sU:.~ement is correct Ano;wer: D
References: Sectilln 27 (D) (4), NIRC, as amended
Answer: A Sectio~ 28 (A) (7J ~d), IiiRC as amendeu
Section 73 A , NIRC, as amended

The share of a co-venturer-corporation in the net income uft(,, tax of a
84. Wl"t.ii:h of the following joint ventures is subject to corporate income joint venturP nr consortium ta.Yable as a corooration is considered an

. tax?
a. Joint venture for selling real property in the ordinary course
of trade or busmess
1 inter-corporate dividend and therefore, shalf not be subject to mcomP tax.J
"
Joi!lt ;en~ur-e fo:- the purpose o! undertaY..ing ccr.~tmcti?n
projects pursuant to a11 opt::-ating or t..onsortium agreement
'"-< 87 The '5hare l)f R t:Ot;JOration CI)-\'~!'J~Ur~r i-; the n<>t Ir\C'':Tit' r)f ""X-
exempt joint venture is subject to:
a. corporate income tax. c. capital gains tax .
'"
under a service contract with the Government
Join venture for engaging in petroleum, coal, geothermal and b. final withholding tax. d. none of the choices.
other energy operations pursuant to 'ln operating or
consortiUm agreement under a service contract with the Answer: A
Government
None of the choices

88. The share of an individual-co-\,,ntq:r-r in 'he "''r inr-;);Jlr' nf 'i'lx-

l
A Il.S"W'e r: A exemot joint vt>nture is subien ,,
rze f e r:~-~~.i_~e_<:_~on_~2j_!!),_l'HRC,<ts a me nd~d _______________ _ a. sectiOn 24 !/\).
;c -l-;e term 'corporation' shall inch1de partner.;/ups, no matter how b. final withholding tax .
r.c .eel or orynnized, jomt-.c,rock companies. ;oin' uccounts (cuentas en

- .~_v: .-~ ~tpac1on.;.

i :~c.~,.de xxx
nssoc1atrons, or insurance corr...po.rues) but does not
venture or ronsortium (onnecl [or the purpose of
r1 'tl!Tlt
, 1"--: :: ,,rtakmq constn;ction projel'ts or engaging m petroleum, coal,
Answer: A

u::,_-: ;-rennul and other enerqy operations pursuwtl to art operating

rr;~_c.ortium nnrPPT7lPI1t unriPr (l SPnJirP rnntrnrt with the Go1!Pmment.
89. What is formed whenev<>r tlw ov:r:,-:ship of ;~n undivided thi:1:c; r;,
right be!onhs to diffcn~nt pfr--.~_::~;;-:-)
I
a. Partrwrship C . <'",'.lltT'i'l!ll
b. ,Joint account , . , J1 , 1 r 1 t .._,( :1 : 1 r, ~
"::) The share of an individual in the net income after tax of a joint
ver.:'..:re or consortium taxable as a <'Orporation of which he is a Answer: C
.--~-or ('{l~\:entunr is :-;ub!et't r(): Reference: Article 484, Civil Code of the Philippines
r~d!7.~:)~ . ~ \ 1:\thhtJ]di::_:, Ltx,
;:."1; x:rhhDldil1'_l, ~ ~-~: ,d 1j'
,r 1 (Jr,l
. iDl~ -~i ~~(l)rlS LL'\

~ t:< tn:'it-..r :-){,~-- _2 ~ i_\l

Answer: B
Reference: Section 24 (B) (2), NIRC, as amended

I
' 70 71
 Chapter 2: Tax on <..orporations, Partnerships, jomt ~entures
Chapter 2: Ta~ on Corporations, Partnerships, Joint Ventures

93. A piece of land near a beach was donated to IVr !?rn!:'s l:ol''Mf" ?r:d
90. Which of the following shall quaiiiy as co-ownership?
Mr. Jorge Jayme by their father. The donees decided to m;prove th.=
I - 3uccession by several heirs to an estate, the estate is not
property by investing in the development of the property into a beach
underadmuustration
resort. They earned rentals frnm the cottages and sale of food to
II Donation of property to two or more beneficiruies
guests. !'or income ~tion, the beach resort would be ..reatea as..:
.... Bot."l I and II c. I only a. co-o.vnerst..ip.
b. Neither I nor II d. a only !J. general protessiona! partnership.
c. joini. venture.
Answer: A d. corp')ration.

Answer: D
91. Mr. Juan Cruz and Ms. Joan Cruz inherited a~ apartment house
from the!:- dearly departed father. The property was not under
administration. They decided not to divide the property, and simply
continued collec-ting rentals from it. The ientals were divided equally
bct. ."'.~::cn em. ~.~r .. Jun.Il Cr-...:z tva.::; appoi!tcd as t_t}e .-~erson-in- ~
charge. This was an example of a/an:
a. co-ownership.
b. general professional partnership.
c. unr~gistered partnership.
d. corpor~tion .

Answer: A
Referen~e: Section 210, Revenue Regulations No.2

92. First statement: Should the co-owners invest the income of the co-
ownership in any income-producing properties. they would be
~-,_-;il~ti~:i\iti~ th,rnsf:"h.:e;.;. ~r~~~J ...-i parin,'rshtp ctild j;"'> ~:vn_:--;,,qucntly

sti'ncct :u ta.x a~ a corp(Jrat1on.

,.; Second sturement: \Vhere the inlwrikd prOJWrn remained undiviclt;d

- fur more than ten (101 w~ars. and no <Itkmpt was c:cr made to
divide the same <.Ino~g the co-heirs, nor w~~s the property under
administration proceedings nor held in trus,, the property should
lJe consiclered as owned by an unregistered partnership.
<1. Both statements are correct
b. lln:h statements an~ incorrect
,. Onh the first statement is correct
d. Only the second statement is correct

Answer: A
Ref~renccs: De Leon vs~ Comm. CTA Case No. 738.
September 11, 1961
Evangelista vs. Coli., L-9996, October 15, 1957
Ona vs. Comrn., CTA Case No. 617, July 31, 1961
BIR Ruling, August 18, 1959

72
73
 Chapter 3: Inclusior.s in the Gross !ncome

Chapter 3 (3) Gains derived from dealings in property;

------ ------,
INCLUSIONS Ilf THE GROSS INCOME (4) Intere.Sts;
(5) Rents;
!nm! wast!' your lift 1n tfoU6ts llllliJean: spent[yourulftm tlie 11101{6ejort you (6) Royc.Jties;
we{[css.-nJ llial til rignt pttformana of tliis Mu.rs tfuties
{7) Dividends;
will 6t tli.: btst pnpuralionfor tlie /io;;rs or-agu tliat f"l/Pw it. (8) Annuities;
- 'I(Qi'p/i U{zLfo 'E1T111rso11 (9) Prizes and winnmgs;
(lOJ Pensions; and
I (11) Padner"s distributive shcre ,r-ron. U.e net inwm.e of the gene1u:
Multiple r.hoice: Chouse the best possible a.n.svter. L_~ssiunal partnership. - - - - - - ' - - - - _______,

...
.,t 3. li. means gross income Jess statUtof)" de1uctions.

.....
1. it means all wealth which flows into the taxpayer other than mere
?. Gross income c. ~:et assets
retur.-t of capital and includes gain:::; derived from the sale or other b. Net income d. None of the choices
rli<~[l')Sit!on nf t::apita! assets .
a. Income
b. AssP.t
c. Capital
d. Funrl
.\nswer: B 1 t

Reference: Section 36 (..::), Revenue Regulations No. 2

..
~ AnsweT: A
fc) Net inroTT'e, m~on;ng gross ,,,,o~P !oso.; stntutory dedurtio; ,s
' The statutory dedudions are, ;n ge'7eral, tnouah not e-.::clusively,
., Reference: Section 36 (a). Revenue Re~lations No. 2

.,
expenditures other than capita; expenditures, c-onnected with the
l The United States Supreme Court defined income as "the gain deriued production of income.
from capital, from labor, or both combined, provided it is understood to (d) in the case of a taxpayer other than a corporation, net income
Ii
. i
include profit gained through a i5ale or conuerszon of capital assets.
(Eisner liS. Macomber, 252 r.;s 189; 85 CJ.S. 730-731/
The Philippine Supreme Court has defined mcome fur tax purposes as
1 means gross income less excrr:pticns.
Ordmanly the net zncome zs !o c.o co>Jputed m occordan~e wrrh rhe
II method of accounting regularly en p:J,ed
lfl k,opp'1q the books of :he

"the amount of money coming to n person or corporation within a
... specified time, whether as pa:_-1rnpnt for seruices. interest. or prufit:::. ! tnxp~:!.:__ - - - - - - - - - - - - . ~~~~ -~- -"------------- ...
:70ir"l" ;r:;_:e_..._;rn;_r:"'rLt.'' /r iifiJ''-"-~"' ~urt-'i;:n:' !i:_lf:_.,,._ ~ -'u}n' .!-rutci.nul c~r
:.
:iL~:~~!~~~-u._~~~f!':T v0!!!~du.c_!_~~~-~: J"'!!( ')/~;}
... 4. The term means the p<rtinent ::-_ ':h .>:" sross incJme specified 1!: cl~>:
Tax Code, less the dcductio1:s ~': : . ,: DtTS<lflcll ~;~:d additiona; ...
exernption~;, if any, authorized r,_.:- ,-;:~ ~h tvp~"s ~:t ::.cor~1e h:,: thp T;ct(
'
L. lr means inc.;me (in the broad sense) excludmg income whirh IS by
Code or other special laws.
statutory provisions or otherwise exem!Jt from the t<:Di imposed by fl.. Gross income c:. ~;et ~i.ssets
~
'r !J~~';'
b. Ta-:able income d. Non? of the choic,:o. (
.. a.
lJ.
Gross mcome
0cet income
c.
d.
Net assets
:\one of the ch0ices Answer: B -
Reference: Section 31, NIRC, a:; amended
Answer: A
References: Section 36 (bl, Revenue Regulations No. 2
. Se~tion_32 JA)_._NIRC, as ::tm::!n_ded.
Sec?:ion 32. Gross Income. - (r1) {;e:teral Definition. ,;:Xt'e;_;t u);en
..
,-
'!;['!;'::.

-.}1/(' , ~ . 'til.::)
Answer: A
/ 1' j l : .rnr;ensatlon ]or serr .r:c"'). ~n l::i:utf'['Fr ;'(;rrn rtu~ i, ~cfiu.irng. hut
:.: ~ i 'c.:.),
_,.f.'i r~_ur
not!
Refe-rence: .Madrigal vs. Raffertv. 38 Phil. 414
...
, ;2; Gross income derived from. the conduct of irudc: or
exercise of a profession;
business or the

c
,,,,
74 75
 Chapter 3: incluSions in the Gross Income _
Chapter 3: Inclusions in the Gross lllCIH!1e

.c 6. it no.~ refere;lC<! to all wealth that flows into the taxpayer which
includes return of capita]. Anawer:D
a. Capital c. Revenue References: Lynch vs. Turrish. 264 U.S. 221
b. Receipts d. Income V.T. Lfiy, B.T.A. 703; W. Cravens, 3 B.T.A. 382

Answer. JJ
'-' 1 1. This states that for m:;ome to exist, it is nectssar; t:Pal. the rapita~ be
sep<rrated from something of exchangeable value.
7. !'his .erm, as apj)iled to ta'tation, refers to all funds or income derived a. Separ::.bihty o; severance test of iucome
by the gov:'!mment \l.lhether f;om tax vr other s0urces. b. Ability to pay theory
a. Capital c. Revenue c Benefits received thevry
b. Receipts d. Income d. Situs cf taxation

--
Answer: C Answer: A

8. One of t.'le following is not a distinction between capita] and inccrr:e. 12, In gener;:.l, this term means all remuneration for services performed
a. Capital is fund, income is a flow. by an employet> for his employer under an employer-employee
b. Carit!l! is wt>alth, incnPJe is the servit::f" of Wf"<llth. relationship.

c. Capital is a tee, income is the fruit.

d. Capita] is to corpor&tions, income is to individuals.

Answer: D
a. Dividend
b. Com{:-ensation

Answer: B
d. r<oyalty

Reference: Section 2.78.1 (A), Revenue Regulations No. 2-98

.. 9. One of the follo'.Ving is not a requisite of a taxable income.

a. There must be gain.
b. The gain must be reaiized or received.
T!1c ga1n rnust r;ot ';e ~xCi1,.J(_1~c1 b\ ~3.\s.. fro:::. taxation .
" 13. Which of the following statements is incorrect?
a. The nt-tnie b\ \\:hich :f:., rc:Ti.~lr~e:-J~~:;n for s~rvict-"'S 1s

-- d.

Answer: D
The gain must be that of resident or nonrt:sident citizen. b.

c.
The basis upon \\h:c:-:. ~:-;,. :..'t!.:. 1~1~1t:r-lt1nt:
in determining wlwther the remuneration constitutes
compensation.
~--;,

Remuneration tor sr.~r:~r-~-s con!-lrituic:-; coEipcnsati~;n ~~:en if

!1.tid 1s i;-:-i::~~~~t::-:~i:

the relationship of emplu\ er and t>rnployee does not exist any

..
10. \Vh1Ch of the following statements is incorrect? longf~r at trw time \\rwn rlw JXl\-mtnt 1s mack between r~e
a. /\ mere increD.st.. in the '.'a!ue of the p;apertJ is n0t inc~mt:" l)qt person in whose emp\;.;._ th< snYices had been performed anc!
merely an unrealized increase in capital. the i nc!i\idual \dv; pe~,,rrn,d r!HITJ
b. Gain may occur as a result of exchange of property, payment, d. None of the chmccs.
assumption, reduction or cancellation of the taxpayer's
indebtedness (unless it amounts to a gift) or other profit Answer: D
r.:t!ized from tht cnmpldion of a IransaC''urL Reference: Section 2. 78.1 (A). Revenue Regulations No. 2-98

-(
~ ::'." raxpa\~_'T n~('n~s. throuv,h rnis~akt. ,1!1 <1!11t)1J!lt in
:}f rht .1::;n1;;' ~L~reed upon. --h-- t"~.:r~~ss is n:)r rax~thl':':'
-~ ., :~q,. unlt~'; 1t~ ' r\ tn n<llril rs :;.1J!- c<ar nr is dispttrtd .
.'1c,r:t.~ :)r t ht l.:J\JiC!" .

' 76
17
 Chapter 3: Inclusions in the Gross Income Chapter 3: !nc!usior1s m tile Gross Income

14. Which of the following statements is incorrect?
a. If services are paid for in a medium other than money, lhe fair
~~ market value of tl.e thing taken in payment is the a:nount to
bf' included as conmens'-'ttion subject to withho!ding.
h. If thf" services are rendered at a stipukted :price, m the
d!>scnr:e of evido.:.1ce to the contrary, ~uc!1 price will be
presumed to be the fair market value of the remunerati:m
reu:t" e :::1
c. If a c0rporation trc:.nsfers to its em?loyees its own stock as
P!.muneration for servires rencfer~d by the employee, the
amount of such r:::mnnero.tion is the fair market vc.lut cf the
stock at the time t'te services were rendered.
d. None of the choices.
Answer: D
. Reference: Section 2.78.1 (A) (1), Revenue R:gulations No. 29&
, 'ICompensation may be paid in money or in some medium other thw,
1
1 ...
.
money as for example, stocks, bonds or other fonns of property.
1 If serJ.::es crc:paiC.fo in G rr:e:.:!i:.J:n ot":er tha:1. rr:anq;~l t.'-Ie fcir m:1rlcet
value of L"te thing tc.ken in payment zs the arnoun. to be mcluded as
, I1
compensation subject io withholding. lftne sennces are rendered at a
stipulated price~ in the absence of euidence to the contrary, such price
:: I!will be presumed to be the fair market l!alue of the remuneration
receiued. If a corporation transjPrs to its employees its own stock as
. j remuneration for seruicPS rendered hy the employe:>, the amount of
i such remuneration is the fair mr;rket rmlr1e of the stock at the time the
[_~n>ic:'S were rende!fl_d_.-----~--
"'
16. Vv'hich of the following is not taxable:> _
a. Living quarters or meals fu.-nished to an emr!oyee forth:!
convenience of the employer.
b. Tips o;:- gratuities paid directly to an en-ployee by a C"1stomer
of the employer which are not acxour.ted for hy the employee
to the e111ployer
c. Pensions, retirement and separation pay, in general
d. Fixed or varia!Jle transportatior., representatitJn end <'~her
allowances which are received by a public otiicer or employee
or officer or employee of a pn"ate entity, in adoition to the
regular compensation fl.xM fm his position or ofice, in general
Answer: A
Reference: Section 2.78.1 (A) (2) (4) (5) and (6) (a),
Rev,.nue Regulation~ No. 2-98
17. Any amount paid specifically, either as advances or reimbursement"'
for rra\'dmg, representa~ion and or;,~; t'"'nCJ.jidc xd~r.a:-y :1:1d
necessary :!Xpenses iw:urred or reasonably expecced to be incurred
by the employee in the performance of his duties are not
compensation subject to withholding, if which of the following
conditions is satisfied?
I -It is for ordinary and necess2sv traveling and representation
or entertainment expenses paid or ir.cl'rred by the employee
in the pun;uit of the trade. business or pro:essinn.
II- Thr~ r:-n1plo_vec is rcquirt~ . . i .. 0 ;:.-~:-. ;'_r:-:.t /!icp!1d3.!~ fo~ the
::---- -~"~ '~~- '_1~~!:_ t~..,'f-" -: ....... ,.-~,-,lt'
rr ,xrw::~~:~~ ~:-;_

.."'
1-
l ,J. Frrst statement: Comjwnsall"ll Pi<!\. lwp<nll 111 ill<Hle\' or Ill surne
medrum other than nwnev, .;; f"r txampl, sl~>\'ks, bonds or other
of substa::~:.~~ .. ~: : ~ ~:,c[1 ~-:-l'-~'!,'J:\ l)t.
;-cq:..;irt>r:lcrtt~;

pursuant to Sec. :34 of the C-Jdt

r--":pr"'il-,f:':--t

forms of nrorwrt\ .
. .ieeoncl stu.ten;Pnt:. Where corn1)<"'11s<ttion rs paid in property other
than money, the employc1 shall make neetssarv arrangenwnts to
a.
b.
N~irh,~r
Borh I and ll
l nor II c.
li.
I onh,
II on!\ .
ensure that the amount of tile ta..x required to tJC withhdd rs
f Hvai!rlble for payment to the Commissiont>r.
Answer: B
a. Onlv the first statement is con-ect
Reference: Section 2.78.1 (6) (b) (il and (ii), Revenue Regulations
No. 2-98 .
b. Onlv the second s\<1ttnu:1t is correct
c. Both statements are correct
d. Both statements are incorrect

Answer: C
Rcf,-~re~c.:t>: Sectior1 2~ 78.1 (A1 f lJ ;tnd 1,:.1)~ Revenue Rc~ulations
No. 2-9:-3 ..
,

r 78 19
 Chapter 3: Inclusions in the Gross w.come Chapter 3: Inclusions in the Gross~

! 8. Pir<.>t ~atement: The excess of advances made over actual expenses

- 21. First statement: In the case of manufactl:!ring, merchandising, .or
shall constitute taxable income if such amount is n;"Jt returned to
mining business, "gross income~ means tne total sales, less the cost
the eii"phyer.
of ~oods sold, plus any income from investments and fr~m
Seconds statement: Reaso!lable amounts of reimbursemt>nts/
incidental or outside operaticns or ~urces. .
advances for traveling and entertainmer t expenses which are pre-
Second statement: In determining Lhe eross iDcome of manuf&cnuin:g.
computed on a daily basis and are pAid to an employee while he is
merchandising, or mining busines~. suttractiGns f"noald r.ot. !>e cadt'
on an assignment or duty r.ecd not be suiJject to thf" requirement of
for depreciation, depletion. selling expe~ses or losses, or fo 1tems not
<>ubstantiatio"l and to w!thholding.
o~dinarily ust>d in comp11ting t!':c cost of gc,od~ solu.
a. ')r.lv the first statement is correct
a. Only the seconJ <>tatem.:?nt is correct
b. Only the second s:a~ement is correct
h. Only the first statement is corre~t
c. Both statements ar.: mcorrect
c. Both statements are incor:-ect
o. Boti1 statemer..ts are correct
d. Both statemen~s are corr,:ct
Answer: D
Answ~.r;D
Reference: Section 2.78.1 (6) (b) (if), Revenue Regulations

-
..,._ ,.. nn Reference: Section 43, :tevenue Re~tions No. 2
.nL. _..::10

.
:c, 22. First statement: All individuals, partnerships or corporations that I
19. Promissorv notes or other evidence of inrlebtP.rtnc:-gs rece;vP.o in
payment for services, and not merely as security for such pc;,yment,
cultivate, operate or r.~anage tarms for gain or profit e1tner as
uwners or ::u, tenants are designated as farmers.
..
constitute income to the amoui.t of their:
a. face value. c. fair market value.
Second statement: Persons cultivating or operating farms for

b. maturity value. d. None of the choices.

recreation or pleasure, the result of which is a continual lnss from
year to year, are not regarded as farmers .
a. Both statements i'lrt~ cornc-t
Answer: C
Reference: Section 42, Revenue Regulations No. 2
b. Both statements are incuTect
c. Only the second statement 1s correct

d. Onlv rhc first st;nemr>nr ;,. rorTcrt .
- shalt
d.
tre;tt a> mcorne the:
face Vi'!lue of the note at that time.
b. fair discounted vaiue of the note at that rir:v.
Answer: A
Reference: Section 45, Revenue Reguhtions No. 2

c. maturity value of the note at that time.

23. Which of the following methods r;rd\' be used b\ farmers to determme

d. fair market value of the note at that time.
I their gross income'J
a. Cash basis or n'cPrrts or rl!sbl!rsernents basis in whrch no
.
Answer: B
Reference: Section 42, Revenue Regulations No. 2
in\cntory is used to rkt:::rrw prufits
b. Accrual lJnsis in \\ili('h ::; r:1V~"nto~\' rs u:;ed to d<"tcrmine
.
profits .
c. Crop basis which is used \~orwn the farmer is engaged m
produrin~ rrnps \\'hich t; 1 k: t':"inrc- th<1n ;-~ \r;-'tr~ to g;tthfr and
di~;pn>,(" of frorn t/1: tin~~
d. \li ~~ 1 ~~~ c:h<>i.:;

..
Answer: D ..
Reference: Section 45, Revenue: R.-:gul..ttions i:'io. 2
..
r 80 81
 Chapter 3: Inclusions in the Gross income Chapter 3: inclusions in the Gross income

24. Using the cash basis for determining his income a farmer may 26. A farmer under accrual basis ha~ the following data fo: the year:
include which of the follO\ving items in his gruss income? Beginning inventory:
a. .\mount ot cash or the value ot merchandise or other property Livestock and farm products rais..:d in the fa.n:r. F 60,000
r~eived !rom sale of livestock and produc~ which were raised
Livestock and farm products pt.r:::ha~ the previous ye~r 30.000
during the taxable year o: prior years received from the sale (Jf Ending inventory:
livesl.ock and farm produce raised in the farm
Livestock &nd farm products ::-aised i1 the fa1m 100,000
b. Profit from sale of any livestock or other items which were
purcha3ed
Livestock and faT'll products p:uchased ec,noc
3a..le~ nf livestoc-k and farm prodt;,.:ts raised and
c. Gross income fro'll all other sources n:rrchascd 120,000
d. All of the choices Cost of livestock <.~.nd farm prxlucts purchased
during tht. year 100,000
Answer~ D Miscellaneou.:> receipts:
Reference: St-ction 45, Revenue Regulations No. 2 Gain on sale nf work, breeding or dairy animals 30,000

--- Gain on sale of farm equipment and machinery 10,000

- 25. In the case of a !armer reporting on accrue> I b<:sis, his gross profits
are ascertained by;
I -adding to the inventory value of livestock and pr(Jducts on
hanc.! at t~::: end of the ye<:r the ar.:wun~ :rec~ived from th::! s:1le
Hire of tractor
Eire of teams Eke h!re of raraba0s or horses
Others
!-!ow r>l'lch 's his gross
a. r 370,000
in:::.>m'~?
20,000
6,000
4,()\)(l

..
of livestock products, ctnd miscellaneous rtteipts for hire of c. p !80,000
teams, machinery, and the like during the year. b. p 270,000 a. ~one of the choices
II -deducting from the sum the inventory value of livestock and

--
products on hand at the beginning of the year and the cost of Answer: C
livestock raised or purchased during the year. Endmg inventory
a. Both I and II c. I only Livestock and farm ;)rOtiu. ts rar"t"d
in.the farm p 100.000
b. Neither I nor II d. II onlv
L~:es!ock ~1nd f~trm prndu >; ;~-:~:-- ~-:_:--~_,! qr~ r)IJQ Pl80.000
~,~:r<:. nf livtstnck ;ttHI f~tnn !)' !(:: :"~r.-~
An:.;wcr: ..~. . ,llld rurchased
Reference: Section 45, Revenue Regulations No. 2
.... l\Lsn~llaneous receipts
Gclin on sale of work, hr,.,,,::c-.-:
dairv aniinals
"~
.'30.000
..... G~nn
machinery
on s.tlc of farrn ('quiprr;r:il t d:-,d
: U.lJOO
Hir,. nf tractor :.!IJ,OOO

- H;re of teams like hire of

Hor~cs
CJ::ters
To~.ii
Less:
Beginning inventory
e;J.r.-t!)addS 1;~

't ()()() 70.000

P:170,000

L :csr-ock .tnd Lt rrn rr-cxlu,

:!Jstd in lht (;trn:
~sftl(_'k ~ltHl !:trrr: ;-,r~~d:._;r
)_:r~iLl>_,r_,j Pl pr{',,;(,:l~~ ; : iil 1
t ---; ~l\'i~stock .1:1d: !tiT,~;:

( I"~Un"h<.ised d:.llln_v.: :~ \ ...

c 83
82
 Chapter 3: inclusions in the Gross income Cl.apter 3: Inclusions in the Gross !Dcome

Alternative computation:
Sales of livestock and farm oroducts
raU.ed al4d purchased
Less Cost nf sales
Beginning inventOry
Livestock and fa:m products
raiaed in the fcti1Tl
Livestock ~tnd farm products
purchased in the previous
year
28. (Phil. CPA) In computing gain or loss from the sale or other
disposition of property acquirto.:i as gilt or ucnation~ the bas-is of cost
Pl20,000
shall be the:
a. fair ma:-ket value, ciate of acqu~si~on.
b. latest inventor} value.
p 60,000 c. purchase price plus expen~s of :1cquisition.
d. same as it '-''Ould be in the hands of the :lonor.

..
30,000 F 90,000 An.;wer: D
Add: Cost of livestock end farm Refe.ence: Section 4C (Bl (3), NIRC, as amended
prodK..s purchased durin~
ti.e year 100,000
Total 190,000
Less: Ending inventory 29. In computing gain or loss from the sale or other disposition of
Livestock and farm products property acquired as inheritance, the basi~ of cost shall be the:

....-
l.... rais.. d in the farm ( PJ 00,000) a. fair r1arket value, date of acquisitionfinheritanr.e.
Liveslock and farm products b. latest inventory value .
purchased 80,UVU) ( 11:>0,000) ( iO 000) c. purchase price plus expenses of acqcisition.
Gross income from sales of
(. d. same as it would be in the hands of th~ decedent.

--..
liv-:-st'Y.:k 3.'1d fnrm pr-xl:~c~~ P 1 10 000
Add: Miscellaneous receipts
1...nswer: A
Gain on sale c,f work,
breeding or dairy animals p 30,000 Reference: Section 40 (B) (2), NIRC, as amended
Gain on sale of farm equipment
and machinery 10,000
Hire of tractor 20.000 30. Which of the following is not income of the lessor under a lease
Hire of teams like hire of carabaos or horses 6.000 contract?

.. Others
Tnt;ll grns~ 1ncnmP
__4 UUO a. The consideration for the t:se of the property paid periodically

:;.
by the lcs~.;ce
C)b!:;ation~;
to the
or the
lr~ssor
!~~_;~s:-
.. :--. : ::::-~~ ~:.::t~~~s ~E!id h:.r thl':' ~-:-~<::PP

--
.stl c. 1\dvance re:lta!s in !!-:e :1~!~:::--: of ;'rep2id =-~~t
27. First staternent: Gai;-1 or loss frotn the sale of good~xiU results only d. Amount received in the n;:,:urc of security deposit
whf"n the businf"ss, or part of it, to which the goodwill :_{it:1rheo: 1s
soid in which case the gain or loss \\ill be cleterm:r.ed bv comp<~ring Answer: D

..c
the -:ale price with the cost or other basis of the assets including
goo<iv.i!L
Second statement: Income from expropnation (forced salt~) is Jncome 31. The lessor may report as income at the time when such buildings or
from sale or exchange and any profit cknved therefmm 1s. leasehold llnprovements are cornpieted the iair market vaiue of such
therefore, subject to income tax. buildings or leasehold improvt"n:ents subJect to the lease.
a. Both statements are correct a. Annual or spread-out meti-:od
b. Both statements are incorrect b. Lump sum or outright method
Onlv the se\oncl st'lternent is corrPct c. Peret'ntclge of comniPtion rr:cthod
d. Crnnplcttd fJ)!ltt-;-lct rnet i: :

Answer: A Answer: B
Referer.:ces: Section 46, F:evenue Regulations No. > Reference: Section 49 (a), Revenue Regulations No.2
Gutierrez vs. Court of Tax Appeals, 14 SCR.t\ 71,
:\larch 28, 1965
E. Rodriguez, Inc. vs. Collector, 28 SCRA 1119,
July 31, 1969

84 85'
 Chapter 3: inclusions in the Gross incomf! Chapter 3: Inclusions in the Gross Income .,

.,~
..
32. The lessor may spread over the life of the lease the estimated 36. Using the same data in the preceding number, how much was tne
depreciated value of such buildings or improvements at the deductible loss of the lesso.- assuming tl:e leasehold imt:'rovement
..
,
termination of the lease and repcrt as income for each year of the was destroyed at the beginning of tlle lOth yeru .>i t._'le lease contract .J
lea::.e an aliquct part thereof. and there was ;nsura...ct: recovery cf P30,000 and salvage va!u,. '>f '
~~
a. Annt:.al or s~read. -out method P20,000? -'J
b. Lump sum or :>Utright method a. Pt>8,568 c. Pl8,568
c. Percentage of completion methc.d b. P38,568 d. None
d. Completed contract method
Answers 33. A
Aaswer: A

.
34. D
Refere::l<;e: Section 49 (b), RewenllP. Regulations No. 2 ;;ss.s
36.C
Reference: Section 49, Revenue Regulations No. 2
33. (Phil. CPA Modified) Mr. C. Conte bought a 2,000 square meter land Annual rental . p 40,000

I
at~ r:ost of P500,000. He leaserl the lanrl to Mr. D. D?mi>=~n ~tan lnccme from leas:::hold improvement 120.000
annual rcnLal of P40,000. The term C'f Lhe contract of lease was 15 Total income p 160 000
years. The contract of lease provided tL.a.t fvk Da..nian will construct P4JO,OOO
Ccst of leasehold improvement
a building on the ianri, which will belong to the lessor at the end of Less: Accumulated depreciation fP400,0C0/20 X 14) I 280,0001
fr.e ter.r 'Jf the l.ease o:- ~t the t':!:-m:nrJ.ticn 'Jf the !e'l<>~. The 1:-uildin~ 1 E''lOk vaiue, end ol lease ::" l~C 00C
was constructed for<..< total cost of P400,000 and has an estimated
u&eful life of ~0 years which was the basis of a straight-line method. p 40,000
of depreciation. The remaining term of the lease when the building
34. Annual rental
Income from leasehold improvement (Pl20,000fl4} 8 571
p 48 587
was completed was 14 years. Total income
How much was the income from lease contract in the vear the 35. Cost of leasehold improvemer:t p 400,000
improvement was completed assuming Mr. Conte will report his ( 200,000)
income from leasehold irnprovemrcnt using outright or lump sum
method/
Less: Accumulated depreciation IP-+00.000/20 :X 10!
Book value, end of lOth year
Less: Income <~lre;c,dy reponed rP-<."i-:-1 X 10)
i::~,1:~!e. )i!_:' r j .. r 1)1('l!l"lu.ic ~,_ :::-:..:--:. . . . . .
200,0()0
::-
'--'~
'),/
..... ~;\_,,
('\' ...
:;_

{)sing the
c'li~.2JD

3a1ne data. in the pn~rcdin~~ ntunher. :10\\. n1uch \Yds rhe I 36. Income already reported (P0.57l \,;-;)
Less: Insurance recovery ( P "\)
(~.d.j:~!
.JL() I
! ~0_l}.Qi

I
yearly mcome assuming Mr. Crmtt will spread nis inc-ome frnr:~ Deductible loss fco.L~~AA
kasehold improvement ovt>r th~ term of the contract of lea;w')

-
I( f(Jr uu; other reason thnn u /}(JitU l'd purchase from t h. !esse<> by the
<.1. PlGO,OOO c. Pl20,000 lessor tlu- lease is terrninated, so thot the iessor contes rnfo possesslon or
b. PJ14.290 rL P 48.5S7 (onrn}i o{ ri1e property prior to ilt1" rur:r- , ,~-~.oin(illy fixer! [-:;r 7h~' tenn~::nt;or~ nf
the lcusc. the lessor rcreiut:s ud-'fi~U)r'(: rwurne j()r ri:::.Y yenr zn ruh~cl1 ,tl;>
3:5. using the same data in the preceding number. how much ,,.,\stile lcnsc !.S so ternunoted to rln exr~ n~ r.hu.~ nz l!flliic q{ s:u)~ hut!Llrnqs or
inc-ome of Mr. Conte in the 12th year, assuming the contract of lr~ase 1mpro1emenL<> when he became ent1tleri to suc/1 pos.~tsswn exreeds the
was ter.ninated after the 1 1th ::e<tr or dt the beginning of tb 12th nmount already reported as income on accmmt of' the erf'ctwn of swh
Nu (l[Jpr'"("iti~:!J'I ;olrt~' r!;.r- t~! ;'(?~!.:;es ,-.t_l:r~r
J lnn"ldw:}s or il11JJT01-'erncnt::;. :::

-..
uuu~ ti-)e tJU'TTUJtun" tenninnflrJ!' '){rl~. ;_-.._;,> -~f?dl! f,,, 'r
1
: ,;

' h
; ~ \

-(
~~~'s'~'.':t:~)rr tuAe.; {){11_r'l' (/,'':;. , , ,:'/)Or"':.;/'-; 'r.: ;nlt' :;. ,n,_-......."'
r/w erecrwn OJ :O.IlCil IJwlciulrJ'' or f!II[J''" r; ... -., le.ss un_1f -.,!lfl .-;,}'' u:i.r_'
..:,;;tj:~:.-:' to thr /,-<,_...,,. ro ri .('_.\:en. "~ :: {. '! .; .. :, '! .- ;: ! ;_'f
utsurance.

86
 Cha~_. 3: Inclusions in the Gross income Chapter 3: Inclusions in the Gross income

37. One of the following does not constitute gross income.

a. Income earned by corporate sinking fund 40. Which of the folio'ving statements is incorrect?
b. Amount received t.'uough a compromise agreement Vloith the a. Gains, profics, and incorr.e are tO be included in the gross
&ovemment fc.r the latter'!:: unlawful encroachment c: :1 right income for the taxable year ~which they are received l:>y the
to a ;-crtio.1 a landed estate, insofar <~.s said a.nount excetds taxpayet, unless thty are include<! when U.tt} a-:crue ~c him w
the pur.::hase price of the port~on of th'! land accordance with approvE'<! method of acCC\unting followed by
c. Income from expropriatiun (forced sale) of land him.
I). If a person sues in one year ca a pecuniary claim or [.)r
d. None of the choices
propeny, an:l mone} or property i~ re:::overe-1 'Jl'! a judgmett
therefore in a later year, income i~ r-e~lized in that year,
assuming the money or property would have been income in
tl:e earlier y;ar if then received.
3&. .?hil. CPA) If an individual performs services for a creditor who in c. Bad debts or accounts charged off because of the fact that
c:-.r:lSide!"lltion thereof cancels the debt, the cancellation of they were determined to be worthless, which are subsequently
1 ecovered, whether or not by suit, co.nstitute income for the
i::r:;debtedness m:;;.y amount to a:

-.-
a gift. c. donation inter vivos. year i.1 which recovered, regardless 0f the date when amounts
":
b. capital contribution. J. paynent of income. were charged off.
d. None of the choices.
.....
A..u!;we: D
Reference: Section 50, Revenue i{egulations No. 2 Answer: D
j The cancellation and forgiveness of mdebtedness may amount to a Reference: Section 51, Revenue Regulations No. 2
~~ payment of income, to a gift, or to a capital transaction, dependent upon
' ~he circumstances. If for example, ar: indiuidual performs seruices for a
creditor, who, in consideration therpof cancels the debt, income to that 41. The recovery of the account previously written off would co .. stitute
:;.rn.ount is reaiized by the debtor as cornpensat:on for hi:._; s'r,_.n.ccs.
;,~ howeter, a creditor merely deszres to benefit a debtor and rczthov.' any
taxable income only if in the year of recognition of being worthless,
the wn .e-otf. esulted in a reduction of a taxable income.
conszderation thereof canceis the dei)r. the amount of the 1iei;t <S a gzft
~T0'7l the creditor to the dt?btor c;r~cl ;:.~:::.:1 ::ot be :~:c!~J.rJ,rl :r: ~J:e {utt:_)r\
<L Reciprocity rule
h c:quiry of the incumbent nile
c. Tax benefit rule
d. Matc:-iality n1!~
-

,
Ph:l CPA) Which of the least> arra:;;__ccments will tht, dlllt)l!r~t. recc:,ed
'::'::-:he lessor in consideration ror tr.e ltase of his proper!\ sn,dl not
Answer: C

i2. One of the following is constde::-ed ::m income for income ta:'i:ation.
a. Advance in the value of the person or a corporation
--
:.e considered as rent income-:> b. increase in book value of real propertv and other fixed assets

b.
Fin~nci:otl lt>>'lSP
Conditional mortga!.',e
Lease-purchase
Pacto de retro arrangenwnt
c.

d.
,fa corporation as a result of their re-appraisai
\t't irHTt><lSe in the \aiue of ii\estock or mcrease of irs
~n\entorv
items of gross income which have been credited or set apart
-
for the taxpayer without restriction

Answer: D c
Reference: Section 52, Revenue Regulations No. 2

.-
I
-
88
Chapter 3: loclus'.ons in the Gross lncome Chapter 3: Inclusions in the Gross lnc.ome

43. Which of the following statements is incorrect?
a. A dj rect di~idend is one where the paying corporation
acknowledges that the distribution is a dividend payment
o. An indired dividend is a distribution of profits C:i~ised as a
t ..<=-c.fment of St"rvices, properties, etc.
c. i:n. . idend paid out of the income of the corporation P.amed
r.Jefore Janua_r:- 1, 1 ~98 is not tax::tb!e to the receiving
stocki1old~s
C:. A dividend paid in shares of stock of anot:;er rorpora<.ion lield
46. (Phil. CPAj A corporation receives its own shares of stock in
exchange for the property. What is the basis of the gain or loss?
a. The g~n or loss shall iJe based on the fair market value uf its
:shares only. . .t.
b. Th~ gain or loss shall be based sole!y on the rost of tl:e
property.
c. The ...,ain or loss shall b::: based on t!:e trur mark:!t va~ue of its
own ";;t.ares anu the cost of t!1e property.
d. There is ntither a gain nor e !o::;s.

-
a.s i:westment is a stock di\idend
An!:wer: C
Answer: D

4 7. (Phil. CPA) If a corporation distributes its ovn treasury stock to its

.::.4# 'J/hich of th-:: follo;.\ing stater::cnts is incorr-:c~'? stockl1o~ders, this kind of a corporate distribution which is
a. A stock divider.d cunstitutes income if it gives the shareholder recognized in the Tax Code is a:
an mterest different irom that which his former stock a. stock dividend. c. ca.:;h dividend
represented. .
b. :,\.h-:or. Lt:ere is o!ll\ ur.e .::la.>s oi .;;~oc~ :,._su.cd and out.>tand;n[;
at the time of the -stock dividend, the dividend wlll not result
~n a change in the proportionate interests of the shareholders
in the net assets of the corporation, hence, the stock dividend
b. property dividend.

Answer: A
d. liquidating dividend.

-<
:s :-.at taxable. 48. (Phil. CPAl If a corporation distributes its assets to it~ stockholders
c. ,;;;-_ ~n a stockholder :-eceives a stock di\idencl which is taxil. hle upon dissolution, this kind of corporate distribution will result in:
:::JC:Jrne, the measur,. -:;f incor:1e 1s the par value of the shares a. "'tock dividend. c. cash dividend.

Answer: C
::;f s:.xk received. b. property dividend.

i\.ns\tJer: :U
d. liquidating dividend.

-
t'). (Phil. CPA Modified) During 2004, .Juan Kwan received the following
incon1e:
-~ -). iPhiL C?.:.. ~:a st.Ul k.holdt~:- ~-f~r-'iVt'S :t tdxabtt~ '~! -'ck di\:~lcnd, \vh:1~ ts Interest from Philippine Treasury Certificates P4,000
:he rnf"r:-~:-.:--: of!ncorne aoo:_:~alJlc to hirn? Refund pertaining to 2003 mcorne tax 500
a. ?ar :alue of the sha:-cs on the dc~te he :-eceives them
b. :;-.-~:~:- rnarket value o; ~::~_.. shdr"S on th~ r!fnt.,. of declarrllion Tht ~oral amount of inter~!::;t ~;_.: bjec: !~) t:tx in K\::an 's 2004 in cor!"!~ t.?_x
c. ~:-:t: adjusted cost nf :~1e (>ld shares ;-u1d the 11('\\. shan-s nf ~he return was:
cor:x>ranons <1. P4,500 c. PSOO
d. n-,; book value of tht:> shares of the preceding calendar year b. P4,000 d. zero

.-\nswer: 3 Answer: D

.......
J
 Chapter 3: Indus..ons in the Gross Income

50. (PhiL CPA) Jose Josef filed Form No. 1700 for tl:e taxable year. Chapter 4
In July 2004, he received an income tax refund of P9,000, plus
interest of p:oo, for overpayment of2003 income tax. What amount
SOURCES OF INCOME
of the taA refund anJ interest were taxable in ..:o..efs 2004 income tax
"11Urt is :zo impossiliility to liim r&J statufs prrparr4 to conqwr n;cry fUwurl
r~t1.4.n?
'1Mfem:fo ~ ~faGng. - Sarali J. 1fafe
a Zero c. P9,000
b. PluO d. P9,100
Multiple Choice: Choose the oest possible answer.
Answer: B

1. As to source, the Tax Code classifies income into:

51. Which of tht following will constitute a taxaole incvr<le?
a. income which is derived in full from sources within the
a. Pnze won in an essay contest the recipient joined
Philippines.
b. The No!..":"l Peace Prize
b. income which is derived in full from sources outside the
'-~ Priz.e '"~von as most valuable 2..:rl~tet!r p!ayer in an international

-
Philippines.
sports cm.apetition
c. income which is derived partly from sources within and partly
d. Award not exceeaiug tne amount set by law for being a model
from s~ur-ces outeide t.'le Philippi:--:es.
employee
d. all of the choices.
Answer: A
Answer: D
References: Section 42, NIRC, as amended

.... 52. Which of th"c foliowing :ax rf'funds ronstitutes income?

a. Reft.::--:d of Philippine income tax
b. Refu:-!d of estate ta.-..:
Section 152, Revenue Regulations Nc. 2

2. ..Vhich of the following dividends shall be considered as income not

-
c. Refu~d r)f 1/2' of: )stock transa::tio:Js tax
from sources within the Philippines?
a. Dividends from a domestic corporation
b. D1\..:idencis trom a foreL~Tt c;:;rporal ion \Vhcrc Ltss tt1nn ~:i!t:;.
Answr: D

- 53.\\ hich of tL-~ ,_;,,-..;,:in~.r ,_:;tr~Ll~1_c r,cu\{l_, ,:..; L.t:-..:z:;)r,~?

8. AnH,. :: rcc<J\t:---.~c! frorn l!btl SlJlt.-..;
percent (50%j of the gross mcome of sucn ;ureign corporation
for the three-year period preceding the declaration of such
dividends was derived from sources within the Philippines
c. Dividends from a foreign corporation where more than eighty-
five percent (85%) of the gross income of such foreign
b. t\mc): . . . - ;eco\e~~.. \_~ til patt_,~lt tn!n~:.:t;--:J~nt -iUlts
( corporation for the three-year period preceding the declaration

- Answer: B
Reference: BIR Ruling, September 8, 1954
of such dividends was derived from source~ within the
Philippines
d. None of the choices

Answer: B
Reference: Section 42 (A) (2) ja) and (b), NIRC, as amended

(
4 f
'
(
92
 Chapter 4: Sources of Income Chapter 4: Sources of Income

3. Which of the following interests shall be considered as income from

7. Gai11s, prufits anJ inc.uwe frmn L"-1e sale ofpt::.~.lal f'lu~.rty,
pm-cha~ed withvut and ~old within the Philippines shall be tre&.ted as
c;ources within the Philippines?
a. Interests derived from sources within the Philippines inc0me which is derived:
fl. in full from source<! 'r!thin the Philippbcs.
b. Interests on bonds and no~es of residents, co;:porate or
b. in full from sources outside the Philip(i...nes.
otherwise ~. parGy from sources within &nd partly from &eurces outside
c. bterests on other interest-bearing obligation of resi~ents,
the PhilippineL
corporat,. or othe:>vise
d. none of the choices.
d. All of the choices
J\4;;.wer: A

-
Answer: D Reference: Section 42 {A, (6,, NIRC, as am.encled
Reference: Section 4?. (A) (1) and i2), NIRC, as amended

"-.:( 4. Mr. Arai Nakurot, a Japanese engineer residing in Tokyo, .Japan, wo.s 8. Which of the following statements is correct?
contr:1ctt>d by <i domestic u::.;:poration to assemble in the Philippines a. From the items of gross income derived from sources witt..in

-
~ an equipment it bought in Japan. He started the work in Japan and the Philippines, there shall be deducteci the expenses, io:ol>e.S
spent 10 days there. The assembling job was completed in the and other deductions properly allocated to such income from
sources within.

-
Philippines for another 20 days. He was paid P300,000 for his job.
f' b Fr'l'TI tl-}~ item'> of gros'> i'1C"'ffiP. df'ri>~ f~nw c;o1lrct"s within
How much was the income from Ph1lippine source> the Philippines, there shall be deducte:d a ratable pa:-t :>f
a. P300,000 c. PlOO,uOO expenses, interests, losses and other deductions effecti:ely
b. P200,000 d. None connected with the business or trade conc'ucted exclusively

--
c \vithin the Philippines \vhich ~annot definitely be allocated to
Answer: B some items or class of gross income.
~t!~_!ence: Se~!iiJ.E..~2 (AL(3),_ ~I~~!_~~J:Ilf!.~~e!l_ c. Items of deductions shali be allowed only if fully substantiated
L~(_) ':':'!C.!l'~t/_1rCI~::._;'_(~~lrJ_':___ I)!;, ! ~ !'2_00.0 00_ _

I
_ by all the information necessary for its calculation.
d. All of the choices.

..a i Answer: D

-
J)f1lL;)0lflr~:-..; 1f:
Reference: Section 42 (B) (1), NIRC, as amended
. 1:tHil prup(r~~\ Lh;i[;.~,: :: :l1~ Pt::::~)p!;~r-s

-( 1l

,,
h.
!'tGUl .1nv inter{:-:t in ':--'l''ii ~)rnr:~:-n:. :ncl~H' 1~, :-f!\i.,:~ ~1~
ro_\dilits frunl tlltdil~~J:>l, t--r:~u;:d: i)topcr~ :r: :~-: ~~~::l:~)pltlt'::-;.

Hnrh I and II
~Jeithcr I nor!! r!
I ul<:'
II on.:
I 9. Which of the following shall be considered income from sources
outside the Philippines?
a. Compensation t(Jr labor ur personal services performed

- Answer: A
Reference: Section 42 (AJ !+), NIRC, as amended
b.
out::;idc the Philippin~~.;
l--1entals or rovalties from ;1ropnt\' located outszde the
Philippines or from any mterest in such property including
rentals or royalties for the use of or for the privilege of using
outside the Philippines, pate>nts, copyrights, secret processes
I ~ and formuL1s, g;ood,\1\l. t-Hl'l11:1rks, tre1dr h:ands. franchises
;1nd other lik prop<'rfws

- c.

d.
(~ains, profits :tnd inctnn- fn11~~ tllr~ s,-l~,.. r)f r~:rti nropf-"rt\
located oulsidt~ the P1-:ili;Jpl~~t:s
i\ll of the clwiu:s
, ~ .

Answer: D
Answer: A Reference: Section 42 (C), NIRC, as amended
Reference: Section 42 {A) (5), NIRC, as amended

t
 Chapter 4: Sources of Jnmme
Chapter 4: Sources of Income

>It 10. Which of the following shall be considered as income partly within p 1,600.000
Gross inc:ome, Phi!ippines
anQ partly without the Philippines? Less: Bu-;iness expenses, Philippines (? 500,000)
a. Gains, profits and income from the sale of personal property Unallocated business expenses
produced (in whole or in part) ~Y the taxpayer within and sold (Pl,60V,OOO/P2,000,000 X P!S<i,OOO) (
without the Philippires Interest expense, Philippines (
b. Gains, profit., and income from the c;ale o!" personal property U:1allocated interest expc::nse
pr<:duced (i:: whcl~ cr in p<.>.rtl by the taxpayer without and (PI,600,000/P'2,000,0C0 X P8'l,OOO) 64.00C) ( 7SW.OOO}
sold within the Philippines Taxable net inco:ne p st6:cx
c. Ir..::ome from services ~rforrned partly within and partly

-
withC'Jt the Philippines
d. All of the rhoices 13. A corporation manufactures goods in the Philippines, which are sold
exclusively in foreign countries. The following data are taken irom
Answer: D ~ \~::J~ '. - '- '._-,. - _., the records of the corporation:
Reference: Section 42 !E}, NIRC, as amendett Gross sales, without PS,OOO,OOO
Gross income fror.1 sales, without 3.000,000

- 1 L Whicl- of the following shal! be treated as deriued entirely from

sources without the Philippir.~s?
Operating expenses
Value of properties, Philippines
Value of properties, without
2,100,000
300,000
600,000
- a. Gains, profits anrl incrJm~ derived from the purchase ~~
personal property within and its sale without t~1c: Philippines
b. Gains, profits and income derived from the purchase of
How much is the taxable inc0me from sources within wd from
sources without assuming no independent factory or production price
can be established to the satisfaction of the Commissioner?
personal property without and its sale within the Philippines a. P900,000; None c. P150,000; P750,000
c. Gam from the sale of shares of stock in a domestic b. P750,000; Pl50,000 d. None o~ the choices
corpor-ation reJ;ardless of \\-here the said shares are sold
d. All of the choKes Answer: C

- Answer: A
Reference: Section 162, Revenue Regulations No. 2
I
i
(iross mcome- !rom sales. wnh,,u,
Less: Operati:-Jl; expenses
P 3.UUO.OOO
l 1 { ~I } ! :! :f J 1

..-
____:::,_:__::~::::....:-.:._,

Taxable income
Taxable income within
P900,000/2 X P300,000/P'--.iOU.UGO p i50,000
fur the'-~~....~: :-ent _\c~-tr
Add: (?900,000/2) X (0/PS,OOUJJOO)
C-rnss :~;cornc. Phtli ppt t1<'"~ l' i ,ilOU,OOO
Taxable income within
( HlO,OOO
son_ non Taxable income with(mt

-
Bus!:;e-~~s t"xpenses, Philip:1ir~~_,~
B1.Js~:1~~ss e-~xpcnse-..;, 1 ;~~.\ 20() ' ( )()() t><-JOO,uuu /2 x bUO,uuu /YUU.UiJI./ p 300,000
1')(),(l()() Add: (P900,000/2) X (P5,00U,OOU/P5.000,000) 4SO 000
L:na1!e:c'lte(i Lnl~lncss ~xp~'-:~,:~"-;
Taxable income within 1:__7~
Interest t>xpense, L :-i!\ 50'()()()
'nterest expense. Philippnws 100,000 Formula:
'<()- ()()() T>~x'lbk incomt> Valu,. of nro;wrtv, wnhin
f'XXX

X

f"' -\drl
2 VniuP ofprfJ:)~-r-., \'.:ii11n .ntd w:r:iOut

,.
""'"'

~
Tax~tbk

2
Hlcornt

Taxable tncorne, wJthin PXX..'\

~'!Qte: To romputt the taxable inco"'t'. ~~tf:r~ut use os n;Lmerators the :o.hu" of

c property, without and gross sales, without.

t
96
 Chapter 4: Sources ot Income ChapleT 4: Sources oflllC'Oine

14. A nonresident alien individual engaged in business in t;1c ?~1ilippiues

An.3wers: Question 1 - D
has the following data on income and expenses in 2()ll :~
p 220,000 Question 2 - B
1) Gross income, Philippines
Question 3 - B
2) Rent on building, Philippines,
net of S'Yo with.~oldlng tax
3) Re'lt on comrr~erciru building, USA
95,000
70,000
12!!eo""" 1 and 2
Within
4) mter~st incon,e, debtor 1esides ii"l Hongkong 10,000 Gross inc0"!le, Philippi..t;es
5! DividenJs irom Ford :..1ctcrs, foreiECt company, R':'nt ::>:1 building, Philippines {M!':,000/95%)
declarecl ir, ;.011. 50,000 ;i Rent on commercial buildir.g. USA
Interest income, debtor resides m Hongkong

-
Note: Gross income of Ford ~1otors fGllov. s:
Within Without "' Dividends from Ford Motors, foreign company
2008 P 300,C00 P ~00,000 Within {Pl,200,COO/P2,000,000* X P50,000) 30.c-co
Without (P800,000/P2,000,000 X P50,000) 20,()(10 1
::t009
2010
400,000
500,000
100,000
200,000
.t Royalties received from Ford Motors for use f
of patent'S in USA 30,000 ,
~011 350,000 150,000 ~ Dividend from watmart Corp., l'S.~ oco-l'
-
80
6) Royaities received from Ford Motors for use Gain on s.lie, Philippines, land located in Japan 300 000
o! ;:atents in USA 30,000 Gain on sale, ::>hilippines, .-ar purchased I
I
7) Dividend from Walmart Corp .. LJSA. j in Japan 50.000 ~-
Total F 4GO 000 F GOQk~

-.
C.: -~cl:l :e(: in 2011 80,0')0

I~
:~Vote: Gross income c..:!- \Valm2~t for the p:--~t>__ding * If th.:: ratio of the Philippine Gross Income over the Total World
2 years prior to declaration of dividend follow: .-\ Gross Income is between 50% and 85%, the dividend income from
Within \Vithout a foreign corporation is an ir..come partly within and partly without
2009 P -tOO,OOO P 600.000 the Philippines. 1, 20(), 000/2,000,000 equcls 60%.
t()(J. ()')0
2010

.tf)()JJ()i)
8; Gain on salt~. f'hilipp::-~r:---;. Ltnr! :~ \t!t~d in .Jcq)<ti1 lUO,(HJO .,./fthe ratio of the Philippine Gross Income over the Total World
9! Clair_ on :<:.ie. Philip;~:::-__"-~. r;:r pc.:- ;-:,tscd ir~ .Ltp(1J1 50,000 Gross Income is less than 500, the dividend income from a foreign
1 0! p,fk.. !~<O..:.t"~ 1
I
corpnrotinn is an income from sources purely ou.ts:dc the
PhihpnmPs ROO. non; 7 ROO nnr, Prf""'"' 44. 44~_
.
.
-- :.n
:, r
:r ~-\
: ~ lr . '': fJ !) 1r : 1
'~;
lU,()UO
\O.Ll< 10
Question 3
Gross income, Philippines
Add: Other income
Rent on building, Philippines
Divi(knds from Ford Motors,
p 100,000
p 220,000

...

( for~ign company 30,000

-
Gain on sale. Philipp~1es,
cc1r purchctsed tn ,Japan 50 OUO I RO 000
t). : ) : 1'
Total p 400,000
Less: Deductions
Business expenses, Philippines (P 100,000)
:::(rJt:: f:;:~l ~(J'.lrr(s \\ithou(?
Depreciation building, Philippines ( 20,000)
P f."; o. noo Expenst?s, sdle of car. Pr.:'lp;mws ( I O.ilCil I
~ > :; i(
L'na!l~Jcared txpense0
c
--
'i'l&
(l'->JO.OOO-' Pl ,(JO{J_:!U:' :\ :'''' ;_:Ji.:<J) --~~-~ ].\ ( ~l..2:Lf_~r_.rJ)
:'<et Incurc.ic be for~.: per,soiLil :-'Xer:l c , :1: p -~4h,()()()
""'
__1~_Li2UO

..
Lc~.;s: tL;.SlC prTsor;~d cxcrnr,tif;r~ ~,_-,~:-!

r...
i .

Taxable net incorrw !~.;J..~_uy~

~----------------------------------~----

lfiA
( b. P2l6,000 d. ,'lone of the choices

t 98
 Chapter 5: Capital Gains and tc.sses

Chapter 5 ~- One oi the following rcru properties is an orriinary asset.

a. Real property acquired by balk::; through foreclosure sales
CAPITAL GAINS AND LOSSES b. Real property transferred through succession or donatia..J. w
t):}e.ht-ir 0"('" ~onee wr~o is not engaged in the real estate
"1M grt..tes~ miswq~YOu car. ~in fife is to wntinua{[y 6e afraUfyou wifl rua~ one. ' business with the 1 espect ~o L'le real property inherited or
-'E!Eert J{u6~ara donateci. and who does hot !'Ubsequ~tly use slvh property in
trade or b:.tsine:ss
c. Real property received as dividend from a< llJ1XIrat.iur. "-\<hi::h s
Multiple Choice: t::hoose the best po.<osihle -:t:"swer. engaged in re?.l estate 1.msiness ty the stoc~10lders wl:v .ue
not engaged in real estate business and w):}o d'J n'Jt
.... 1. (P!>il. CPA) The
a.
1.er::1 "capit:Jl 'tsset" includes:
stock in trade or other property includf'd m the taxpayer's
subsequently use such real proJX.rty in trade or business
d. Re::U property, whether single detached; townhouse or
condominium unit, not used in trade or business as
invent01')". evidenced by a certific:~.tion from the Barangay Chairman or
b. real property not used ir. the trade or business of taxpayer. from head of administration, in case of condominium unit,

-"'
c. property primarily for sale w customers in tne ordinary townhouse or apartment, and as validated !rom the extsting
codrse of his trarl.:: or business. available records of the BIR, owned by an individual engaged
d. property used in the trade or business of t!-.c taxpayer and in business.

- su biect to depreciation.

- Answer: B
Reference: Section 39(A) (1), NIRC, as amended

-
Answer: A
Reference: Section 2 b. 4. and 3 f Revenue Regulations
No. 7-2003

-- i ~~:~:,::;,~":'~:,::~~~"~,:;::.ses ~
I I;

:-,: 3. First statement: Real property initially acquired by a taxpayer

(1 1 Cap:''l: :\sse's . . the rern 'uvtn; u: s:_!s means properTy i!t.'ld by the
~nxnouPr trJ)r_ethr>ror not con,nt(-tt'(} urrf' !~1.-..:. t!ru}e or hu:-;inc.c>;-\}. but does
I engaged in the real estate business shall not result in its
conversion into Cl eel pi tell Hsst>t t>vt>n if the same is subsequently
1' iHJt. "r~~) ;f' .)!')I-~,: ;n_ Trorff-' j ( r; , ' u:<rJU "1r .,. nr ) her nrnpt rt !_j_:"_!_;' U kiruj Hhanrlont>d or ht>comes idle.

--
'""" ; .. -,'!'-} i:,
: , . -r,,, ,, ... .:_.:_____ ~ .--~, ,, 1 ~i 1 _~_~ _ _:_~:_._-.~t, ..,-
'-~--''r ''r;'_'r"J_l._-:_:~7J..L}_~d.!./_f_!l_j_~f~.'.T~_l::~1.-?QJ.i:_I
:_~_r::__~~.~'--Ir-7:})__~-~-:-~i.l__t_:__:__} __ !_]___i_:_i_-2}_::_:~:_':':~ ,,., tl-.' [;.-rf!r'rlr:J ror.lr.'-;f' >_Lbl.'~ t-rr;r/e 0r
t)rJ
Serorzcl staternent: Real prope:~ti.cs classific(t as ordinary assets !c;
being used in business by a ta-.;payer other than real estate
business are automatically converted into capital assets upon

- '~ ~~ :;,:';;;;,~;_~:;:,~;,;;:~;,:J~~;::,::.:~::~';;;~~~::t showing of proof that the same have not been used in business for
more than two (2) years prior to the consummati"n of the taxable

c
-
transactions involving said properties.
a. True, True
b. False, False
c. True, False
d. False, True

Answer: A
Reference: Section 3 e., Revenue Regulations No. 7-2003

:.\ 4. (Phil. CPA) Lots being rented when subs,qu,ntlv sold dn"' classified
as:
a. capital assets. c. ordinarY assel s.
b. liquid assets. cl. fixed assets.

A..1swer: C
(

100
 Chapter 5: Capital Gains and Losses Chapter 5: Capital Gains and Lo--~

5. This i.> the length of time capital assets are held. It covers the perioa 10. (?l.il. CPA) Uncl..:r tho;;: !ax Cvde, ~ww .l!uch s.h:ll oc taken into
from date of acquisition to date of sale. accountin computing th~ n.!t income, if a gain is realized by an
a. Holding period c. Accounting pP.riod individual taxp<tye1 from the sale or exchange of capi~ a~~ ('>tner
iJ. Taxable period 0. Audit reriod than real prop~rties and. shares of stock) held for more than t"veke
months?
Answer: A a. 50% of the net capital gain c. P-:;(),000
b. 5% c:-f tile capital asse~ sold d. p 5,000

6. (P:-~il. CPA) A ieature of ordinary gains as distinguished Irom capital Answer: A

gair<;. Reference: Section 39 (B). NlhC. as ameud~d
{B) Percentage Taker. into Lceowtt. - In the cas_::...e_o_if_a_taxpayer:
__---.-0-ther-
-;
a. Gains from sales of assets not <>tvck in trade
t> ;vtay or may not be taxable irt full - I t!u:n a corporation, only the follou.Jing ,?ercentages of the gain or loss
recognized upon the sale or exchange of a capital asset shall be taken
I
i
c. Sources are capital assets
d. No holding pe:ior.l into account in computing net capital gain, net capital loss, and net !
income: I
Answer: D
(1) One 1-w.ruL-edperc.:.r.t (lCCfJ~) if:T capital as.:>et t-..as 1;~-n '-:et.=Jor
not more than twelue (12} months; and !
{2) Fifty percent (50"6) if the capital C'.SSet r.as been hrld for more than I
c
.. 7. \\ih;ch of th~ full(_,w;r,fc; ~hal: L: s:.'Jjt<'~ tu fi.l.~.l ldX?
I -Capital g2.;n from :-.a:e ol sil<~rcs of s:och: uut traded in the local
stock exchange .
[! - Presumed capital gain on s21le of real property classified as
~~lve f!?L"!..~1].5.

11. Capital losses are deductible from:

___j

-
a. ordinary gains only.
capit21l assf't.
b. capital gains only.
I J:1h'
1 c. both ordinary and capital gains.
iJ. flitJther [ nor i[ ft onlv d. either ordinary gains or capital gains.

Answer: A Answer: B
Reference: Section 39 (C ), NIRC, as amended

-- :l. \1t c~lf)l~:ll :;,~1:r1

i (C) Limitation on Capital Losses .. - Losses from

f ;~e::~:::::;e:~mpany incorporated znder the laws of the

sal-;,s o-; ;;;chG-;;~j;;s
I capital assets shall be allowed only to the extent of the gwns from suc>i
)/

II deposits,
Philippines, a substantial part of whose business is the receipt of
( Answer: A
sells any bond, debenture, note, or certificate or or her euzdence
ofir>..debtedness issued by any corporation (including one !SS'Led by a
!{eference: Section 39 \Al f2). NIRC, as amended l gouemment or political subdzuision thereof}, with interest coupor~s or zn

l regzstered form, any loss resulting from such sale shail not be sub;ect to
the foregoing limitation and shall not be included in determining the
applicabilitlj of such limitation to other losses.

-c
(
c. 102
 Chapter 5: Capitai Gains and Losses Chapter 5: Capital Gains and l.osses

12. First statement: Net capitallo::;::, ..:ahy'-Ovtor is allow.:!<.l tu t<tApd.jtr.il 15. First statement: Oai.ns or losses trom short saJes of property shaD be
other than corporations, and this is carried over to the succe,;d;ng considered as gair.s or losses from sales or exchanges of caoital
year as a short-term loss. ~.ssets.
Stcond statement: The amount of net capital loss carry-over is the s~~nd Staiement: Gains or losses attrilJutable tf\ the fai!.ll'e!!)
net capital loss or the ne-t income in t!1e year the net capital loss is
,\
t exert'ise privilegt:s or optiot& to buy or c;~1J property shall be
sustained, whicheve: is lower. cotJsi?ered as capit:E'J ga!ns or Iosse<>.
a. 'True,Tru.e c. True, t<'alse a. Both ~taternents are correct
b. FC:..:s<", Fal~e d. False, True b. Both statements are incor;~ci.
c. Only the flrst statement is corre<::t
Answer: A d. Only the second statemeut is ccn-ect
Reference: Section 39 (D}, NIRC, as t>men,-=d:..:e:.c:d=----:--------,
1 fD} Net Cc..pital LosS Carryf~JVer If any tcu:payer, other than a Answer: A
1
l corporation, sustains in any uxable year a net capita/loss, such loss (in Reference: Sectio.il 39 (F) (1) and. (2), NIRC, as amended
, an amount not in excess of the net .n,9ome for such year) -::h.a/1 be treated
1 in the succeeding taxable -year as a loss from the sale or exchange of a
I
'
capital asset held for not more than twelve ( 12) months. '":' 16. Which of the following statements is incorrect?
~ Net mcome means qross inco11te les::. statu wry cieductio.<s. The statuto'Y '/ a. Actual sale, barter or exchange of capital~ must always

c.. deductions are, in ~;enerul. tlio111h wt exclusively, expenditures other

:han cu;<tul expud,turc.. curu,Pc'.cJ tL:ti: (:.:: prodact:'on oj;:1::-:rn.-:.
In the case of a tcupayer other tlwn u corporation, net income means
qross incom~ less ex~twn.!"_f~'!.:.rwn 36 (cJ. Revenue Reculations No.2 .
transpire before capital gains and losses are recognized.
b. Af securitie:s 1Jec.or.11e \\<orthless during the taxabll! year ami are
capital assets, the loss shall be considered as a loss from t..!Je
sale, barter or exchange of capital assets on the last day of

..
each taxable year.
c. Amounts received by the holder upon the retirement of bonds,
-== 13 . F1rst statenu-'nt: Corp,,;,ri'''"' ,,r, dlln\H'd to observe the holding
debentures or other evidence of indebtedness issued by any
corporation including those issued by the Government with
per-iDd and to carrY O\"tr r'.l~! ,;ttJL~dt 1{):-):~
interest coupon or in registered from, shall be considered as

---
S~cord stot,.nwnt: C:1 n1:, '.'. , ':; . 1:Hi tl)Ssts of the general professional
t!w r.>:Jrttwr'> in propurtion ro their amounts in exchange thereof, and may n::sult lo rapilal gair:s
ar losses:.
d. Gains dnd losses frorn short ~Ztl~~; of prvperLy ;;hall be
considered as gains or losses from sale or exchange of cap::al
....... -
f'f-1!S 1 ",
., 1
i'd!>t~ ,1 F:1lst. True
assets.
..._ Answer: D Answer: A

( 1:>:, 't:YJn r:lc' ~--ti:cm.-.:nt of bonds.

.._ 1; l~~r . !dt'!li.'r~~~~ of irHhhtedness
17. Wh1ch of the following \vill not result to capital gains or losses?
a. Gains or losses on account of failure to exercise a privilege or
~ t}'~ ;s<:.u~~d ;,~.- ;t v.(j~:ernment or
. :: :rJ:<.-rcs :oupons Dr in registered option to buy or sell property
b. When a corporation distributes all of its assets in complete
liquidation
c. When a partner retires "r \\hen the partnership is disso!v-:l
d. Gains or losses from sill< of office eljuipment

Answer: D

c
(
t_.
101-
 Chapter 5: Capital Gains and Losses Chapter 5: capital Gains and Losses

18. (Phil. CPA) Jose Josue qualitied as heaa of a h0usehold for i\lit:tax An~twers: Question 1 - A
purposes. Mr. Josue's 2Qlil taxable income was P200,0GO excl1sive QUes~on2- D
of capital and losses. Mr. Josue had a net long-tenn loss of P8,001) QnS!Jon l
in WU. What amount of this capital loss c<'uld Mr. Josut> offset alii
against the 2QH~ordin:uy income? Gross inr.ome P240,000
a. Zero .:. P4,000 Other income.
b. P3,ouo d P8,000 Capital ~;ain (P::,o,ooo x IOO"A.J p 30,000
Capital loss (PSO,OOO X 1 ~;,; L 50,000)
Net capital los::; ( 20,0C'))
Answer: A Tctal gross income 240,{)1.)()

- 1'1. r.ST Corporation has the follnwing data for the years 2010 and 201,l:
2010: Gross income
Busir:css expenses
P 240,000
180,000
Less:

iilii
Business ~ense
Taxable net income

Gross hcome
,Other income:
( 180,v00)
F 60,QOO

p 500,000

Capital loss (capital asset was acqt~ir~d on Capiut! ~iu (?60,000 X lw'lOJ p 60,.;0(, ..
-
-
JanuarY 15. 2010 and was sold on
March 15, 2010)
C1pital gain (Cd:Jltal asset was acquired on
50,000
Capital loss (P20,000 X 100"~)
Net c"pit3.l gain
Total gross income
( 20,000)
40,0CO
540.000 I

-.
.lctnll<ll'YiS. 2(\)9 ll1d \vd.S :oO.Cl on Less: l:iusmess expense
Taxable net income
400,000)
p i40.000
t
March ,:; 1. 2010} 30,000
2010: Cross income P 500,000 I I
Business expe:-:ses
C:tpital g:.in {C2'Jttal asset held for 12 months)
400,000
60,000
Qy,.st!or. 2
'SJJ~
Gross income p 240,000
I ..-
C<~pital loss (ca::::i:al assd held ff;r more than
20,000
Other income:
Capital gain (P30,000 X 50%) p 15,000
I -
- ~.9.1J_
Capital loss (P50,000 X 100'!-(,)
Net capital loss
TtJr_d.i ~ro~"'S
incon:.'::
(
(
50.000)
35 OC>J)
ill ,.,,;1
.... ...,.~__.,vv-...~
i
I
--...
--
>-!J !!!
Lt:ss: Bu:::;incss cxpcn~c uuu j

--
l ci()
Net income before exemption 60,000
F i IJI),('' Less: Basic personal exemption ( SO OOQl
~ ) ( If -~ . ( Taxable net income 10 QQQ
I'
E.
' ~ ' <>
'
~ ' r'
!<l."i'<l>,t
~' " >" "'
.......
2011:
Gross income P SOO,OOO
...
--
Other income:

- ;) '';'' l:l(\
. ~011?

t ' : . >I ) , ( ~ '

Capitai gain (P60,000 X 100";, . ;
Capital loss (P20,000 X 50%)
Net capital gain
Less: Net capital loss carry-over
(
P 60,UUU
10 000)
50,000
10,000) 40 000
D 11'> f!i\f\ ~-) 1f)()_(~ ..-~!-.) Total gross income 540.000
Less: Business expense ( +OO~QQ(J 1

-
Net inromc- before c-xemption l lO,Of)U
Less: 8;.1s:c persunai exernptio;;. l _ _,'iO.lc::JI! i
Taxable r:.e: incCnnc p" ~1().1)<)1~

(
*The arno:1nt camerl ouer lS P 1 0, UUU {taxable net income) bt"cuuse a
is [o,uer than the net capitol loss 0[ P?"' nr>r) in 2010. :'1 the :cr~c n'
a taxpayer other than a corporation, net income means gross inco,;;e
less exemptions (Section 36 (d), Revenue Regulations No. 2.)
-
I,,

t.
 Chapter 5: Capital Gains and Losses
Chapter 5: Capital Gains and Losses

20. Tn 2009;
a general professional partnership was organized. Tiffany 22. A singl~ ~2.xpayer h<t:> the fol~o=ir.g income, expenses and
Reyes contributed PSOO,OOO for a 60% ;n.terest. Th.! partnership;s transactions in :lila
Gross income - -- P 150,000
?et income in 2009 was P750,000, and iTti:20l,Q;P800.000. The net
n:.come in 2009 was disribtlted tc the partners .vhile no distr!bution
Business expenses '75.000
Selling price, par'..nership interest
of income wc.s made in 2(110.
(investment inli'lf!w3s P20,000) 60,0UO
~fi: the partner:::hi;:> '''as dissolved, and Ms. Reyes received
I11 Gain on sale of personal car helc for 3 years 10,000
P700,000 as her share ii: 1-te liquidatiun. Loss on sale of jeweiry for ;erson~l use
held for 6 rr..o,tths 5,000
How much capital :-;ain floss) was recognized in 20li?
Loss on account t'> exf'rcio;e two-mcnth opticn LO Lu~ 4,000
a. P200,COO gain c. P21:SO,OOO loss
Li'}uidati"lg dividend (investment in~ PlOO,OOQ) 81),000
b. Pl40,000 los" d. None of the choices
Gain on short sc>.les 2,000
Answer: B Question 1: How much is the net capital gain?
Amount received p 700,000
I
I a. P 63,1)00 c. P 16,000

- I
Lcs.<;: lnvestmen t p 500,000 b. p 23.000 d. p 8.000
Share in the tndisnbutecl incom~
__<?.,80.QOO Question 2: How much is taxable net income?
II
(1-'XOO,OOO X h()"t,)
Lo:~g;-ttrm c:tpir.1! ;,1ss p 280 000 a. P 88,000 c. P 41,000
b. ? 48,000 a. P 33,000
!>' r ;_z::;;-d (P'2t:<l.OOO X 'iO';~,) ~O~QQ
----
Answers: Question 1: D
Question 2: D
21. Rower~.~ <'xrwcts thdt within <1 \,,ek. the market price of Angeles
Cor:Xl:'ilt'llll slurec;, \\hwL 1-: :;,J!m; .d PlO per share, will go down. Queatioa 1 - Net capital gain
Gain on sale of partnersh;p interest (?40,000 X 50%) p 20.000
:OL: d:s nor luu \:::.',''; .. ,, ( >1-p w1:: >11 shares so she calls up her
Gain on sale of personal car (PlO,OOO X 50%) 5,000
>c>.tr,c::tc:,Jkt'r and .t:;k>; ll:::: '" :wii t(lr lwr !0,000 shares of Angeles 5,000)
Loss on sale of jewelry (PS,OOO X 100%)
( n~ '\(,~- 1 ':nn ~h~-l!-I'S. ~,'q",: 1 !~r! th,_ ~tockhrr)k~'~r agree that tht~ so!d Loss on account to exercise twu-munlh upliol'
~o b:r; (P4,000 X 100~"~
Loss on liquidming dividt>D,-: ;p_:>;) iJi_jfi X :i0"':,)
-!~ t ~~:- i~l,l.HJIJ :"')Jl trc.:--. ;lf PllJ per sh<1rc.
Gain on short sales (P2,000 X 1OO'Y,)

-c
',~;1,:!,~~ lrt ;t\)o!Jt to he replaced, the
Net capital gain
' :;:;:,~ i)r :\1~:..: ., .,_,! . ...,:;.u;'i 1 ~:-~ts tD P1(> per share.
i '< ',j ~() ~~()\\"l'[l,l -, ~:.._;, '~IJ:: c'\"~rrhcles'., si1c onit.:.rs her Question 2 - Taxabie net income
S~'){ ~;}.:'-,:~- [() tl1i\ ',\rl !''" ;il_i){l~) r\i1P.~-..Jes C'nrpnr(-ltion shares to Gross income p 150,000
Other income- Net capital gain 8 000
Total gross income 158,000
r \ :' ~ Less: Business expenses 75,000)
i'l,ii,lr()() loss Net income before exemption 83,000
r! !'.c'.il,!ll)() loss Less: Basic personal exemption ( 50 000)
Taxable net income p 33 000

p l f)l)_()[ ,H;
-~-~1.L~!..:~ i
11~ ~r-''.L.uc:)i
-- __________j

lOH
(.1\,ll,'i.!-,\S,il..\=t.\S; r,o.tU.'N Chal>(er 6: Exclustons 1rom i.Jro:>:. d!UI.u.,

.1 -.::(' :3.
Chapter 6 ~we1:A
Ref'!rcnce: Section 32 B 1 1UR as amended
EXCLUSIONS FROM GROSS INCOME Section 32 (BJ kclusforu fNm't OT'OSS lncalr..e.. -71u: following if~ I
shall not be included-in gross income and shdl be exempt from taxation l
"'ii.. .J.ffnrnu 6etw.:en .. sueas#person ana otliers is not a fac{oj strmg.!i, 'ndP.T this title:
-:.. t a U.:{:ff._nowftdjje, 5ut ratfiera li:[~_i11 witl- 'J!i"nce Lom6a:-di
(1) Life Ir..surcrnc.e. - Tr..e proceeds of li:r> ~::mce polici<7 R~!d to !Jte. J
heirs 0 , beneficiaries upon the death of the rnsured, wl-.et.Jer rn a smgl<- Jj
Multiple Choice: Choose the best po::.sible answer. ~~ or otherwise, b:d if such wncuns c.--e hel<i by the insurer under an
agreenem t0 pay itlterest the<.:un, tr.e inter~ payments shall be
included in ros:> incnmP. _ ____,
It rders to inccme received or earned but is not taxable as income
because 1t i::. exempted by law or by treaty.
4. (P!lil. CPA) The widow of your oest friend has just been paid
::t. Exclusion c. Deduction
o. Inclusion d. Taxation Pl,OOO,OOO on account of the life in<mrance policy of the deceased
husband. She asks you whether she shall declare the amount for
Answer; A income tax purposes or for estate ta>. pu.pOSes.
Reference: Section 61, Revenue Regulations No.~ First advice: The proceeds of the life iT!surance paid to the
beneficiary upon the death of the insured are exempt fro:n ir:ccme
~ ar:c! need not be dedareti for ~T'lCOf!'le t:=uc purposes.

' First swrement: Tax-free income is not to lx included in the income Secon.J uduice: Tt.e pn:;;eeds of li:e insura.."'lce will have to be declared

-
ta.x rp;urn unless information regarding it is specifically called for.
for estate tax purposes if the designati::Jr: of the beneficiary is
Se,:r,rc~- c;tutt''?:ent: While exc:lusions are simp!v not laken into
revocable, otherwise, they need not be declared.
........
:::cr .:: i: :etennininl; <;:-oss n,cnme. deduc:ons are subtracted
:~,: .-.:-,ss :::orne to arri'.- CJt net inC'onH~.
:~';r;~ ;--;~dtt'r11ents are corn~ct
a.
b.
Both advices are right
First advice ri3ht; second ad-..ice wrnng
-
.,-

--
c. Both advices are wrong
... :, -....: tPrt1t'nts ~<n-~ incorn('t d. First advice wrong; second adice right

Answer: A

.~<.t::fen.:nc~: S~ction 61, Re"". . . enue Regulations l'io~ 2 5. First statement: The amount rec.-m~d bv the insured, as a return of
J
premium p~jd by him under life msura:1ce, endowment, or annuitv
contracts, either during the term or ~t the maturity of the tenn
--
---
mentioned in the contract or upon surrender of the contract shall
be excluded from gross income.
::-}I > < t j' {' { . ; ! , '(: t ;: )[: i !_1,: : ) ~-;:; : i ~!!: Second statement: If the amounts, when added to amounts receiveu
:r:tl\;:1s {);' 'ht r)- ' tr~s ~;t ]if:~
insur:-lnce before the taxable year under such contract, exceed the aggregate
er .111 ,t:_',rcr~Jn:n .. -.}pay Interest thereon, premium paid, whether or not paid during the taxable year, then
the excess shall be included in the gross income.
a. Both statements are cornrt

.-,
b. Onlv the first statement is ::onc:ct
c. Both statements are inc:or:n
d. OnlY the second staternei;: rs cor:-cc~

Answer: A
Reierences: Section 32 {B) (2), !-HRC, as amended
Section 62, Revenue Regulations No. 2

! lO t;
li
:~ii~:l~t$~~ ~ - ,,;.~:~,"JJJ
"ii;\~"11
;l;f
,
''
 Chapter 6: :Exclusions from:.:.:..G::.r:...:o:...:s:..:s_:l::.:n..::.co.:.m=e----------------

Pir.;t st?temen't: The value of property acquired by gift, bequest. u'o 1 -\\
6. (Phil. CPA) Mr. Santiago purchased a life annuity for PlOO,OOO which '
devise or descent shall be excluded from the gross income.
would pay him PlO,OOO a year. The life expectancy of Mr. Santiago
was 12 years. 'Which of the f0llowing would Mr. Santiago iJe able to
Second sta:te~ent: .Income from prooerty re-::ei'.;ed as gift, bequ~..,
exclu<k- from hi:. gross incc;:r.e? devise or descent as well as gill, bequest, devise or descent of
a. P120,000 ir.com'! from Wly property, in C?.se 0~ ttansfer uf divided propery.
c. P2C,GOO
h. P100 000 shall be includ.'!c! in gross mcome.
d. Pl0,000
a. Both statements are corr*"Ct
P.n<iwe:r: B b. Both statements are incorrect
c. Only the first Rt::tt""ment is correct
d. Only the second statemtcnt is ~orrect
In 19Q9, :vtr. S. Sa:1tos purchdsed q life insurarce by paying
PSOO .~~ :;o premi1~ns. The insurance contract stipulated that Answer:.\
Reference: Section 3?. B 3 , YJRC, as amended
Mr. Sa.nt0s wou:d receive P700,000 as annuity to be paid in three (3)
years as follows: P200,000 in 2009; P200,000 in201Q and &lction 3.2 (B} Exclusions from Gross Income. - The following iten:s
P300,0QO ;n 2011. shall not be included in gross income and sh1 be ~t frcm taxatwn
I u>!rl<"f' this title:
- Hov; :-:-. :..;ch wo:.:::: ~1r. Santos exclude from gross income in 2.0ti?
(3) Gifts, Bequests, and Devises. - ~ value of property a_cquired by -
-
a. ?200,0c~::-
t

Answer: B
:': OO.C'
c. F5G,iJGO
d !'JorH
gift, beque.:;;t, devise, ..Jr descent: Pro111ded, hcwever, That rn~me from
such property, as well as gift, bequest, devise or descent of m~me from_
any property, in cases of transfers of divided mterest, shall be mc!udeu.
in ss income.
..
. : '.\f
in~<;: j, 1tt
tl;<:- ~-
Cruz irtsurr>d his life with his estate as beneficiary .
'< L>u~ had paid P65,000 in premiums, he assigned
tu '.L < Santos frJr 1'(>0.000, and Mr. Santos collected the
10. One of the following is subject to income tax.
a. Incorr1e from a donated property derived from its investment
-..
-
or sale
- t'J""-
t )# ~.'
- ,,ei"
.- ( -,
;'. 1 00,000. Mr. Santos, after the assignment, and
1.:1th n:wl total nnmiurns oi P80.000.
b. Alimony or amount of principal paid under a marriage
settlement ! r

- r1'1-' 1; i') 1:\.cl.:/:i ,ff;(f}\jifl-

C.

d.
PI.J(J,OOO
Zero
or through legal successwn
d. Participating dividends in msurance ..
,

An"""''!': C
}3dc::c:-"~~~--~-'=~~io_r~_62, Rev~n~c Regulations No.2
Answ-=r: A
Reference: Section 64, Reven~~ Regulations No.2

...

11. Which of the following shall be excluded from gross income'?

.
a. Amounts received through accident or health insurance
00.000 ( 140 000)
! ; -"- b. Amounts received under Workmen's Compensation Acts
.fO~~~Q~Q
c. Amounts of any damages received, whether by suit or

-..
:l' .,."~rnr1. i1;1 (J<..;.c:,'tJ1~TY?PTlf Or agreement, on account of injuries or sickness
cl. r\ll of the choJCes
Answer: D
References: Section 32 (B) (4), NIRC, as amended
..
Section 63, Revenue Regulations No. 2 ..
(

 Chapter 6: Exdusions from Gross Income Olapter 6: Exch1s'~r.s from Gm<"..s ~

12. vimch of the t01lo\Uing shall not be subject to tax? <.;el tai;-, c.i"il case, Wilfredo, plaintiff, was awarded by the court
:l\< 15. iu
a. Moral damage:: c. Compensatory damages P20,000 damages representing profit he failed to realize on ac::ount of
b. Exemplary damages d. .\11 of the choices defendant's faill.il'e to co"llply with his obligation to WLfrerlo.
Are those damages taxable bcome :>fWilfredo?
Answer: D a. No, because,rlamages are ~y not sufject tu income tax
Ref~rence: :3IR Ruling No. 22 (h) 000-00-417-93 dated b. Yt:~. because d"~mages which ate excluded frt.n: gross inCOILL
October 20, !993 .ceiterated in Ishwar Jethmal are only those that are paid a.isillg from injurie~ or :;ickress.
Ra~!!.nani. et '\1 V!'. The Commissioner of Internal c. Nv, because 110 crimina) case was filed by Wilfredo.
Revenue, CTA Case No. 5108, uromulgated d. Yes, be..:ausc damages arising out of a civil case is always
September 15, J.996 t-ucable under the carrent p;.ovisions nf the Tax Code.

,----.,----
Section 2 7&.1 (B) (6), Revenue Re
-1ctual, moral, exemplary and nomina/ damageS received cy WL
tiona No. 2-98
Ans:wer: B
..
employee or his heirs pursuant to a final judgment or compromise
agreement arising out of or related to an em1Jloyer-employee relationship

...
shall not be subJect to tax. [.Section 2. 78.1 (B) (6), Revenue Regulations
i ;Vo. 2-98 page 29./
~- 16. An accident solely attnbutable to the criminal n~Jigence of the driver
oi Reckless Bus Coml-<'illY resultr;._.li< the death of Ricardo's vr..-e.
physical injury to Ricardo that prevented him from working fo: a
..
month and the total wreck of his brcUld nev. cru v. hich he bought !'or

~ :~ l:! R-(:ove:-i~~ J: Jam<'.ges. rep~p<:;ef't~!13 C<'m_!1Pn~rttioP f()r ~r-sonru

;::~:...:~1es wi:ich are Iion-ph:r sical m nature s~all not be included in
P400,000.
In the action for damages flied by Ric--c.rdo against the bus company,
.
gross income if due to which of the following?

-,..
I the Court awarded the following:
... a. Libel, defamation and slander
b. Breach of promise to marrY
c. Alienation of affection
d. All of the choices For Ricardo's injury consisting mainly in the
loss of his right arm p 30.000
For the loss of one-month salary 25,000
Answer: D
For the death of his wife 25,000
Reference: See Hawkins vs. Comm., 6 B.T.A. 1032
. BIR Ruling, May 28, 1953
For moral damages on account of such loss
For the loss of his car the vaiut: ui '' hich doubled
100,000
.
..-
.. :, \ '.lr. 1\lonte \\as rniured tn <t \chicular accident in 2009.
.;1 1 :.nrl I' 11d rn<'dic<~l ,..:pt~nses of P20,01.)0 and legal fees of
How much was the taxable income of Ricardo?
a. P980,000 c. P25,000
,: .:2, tl;: ,,',it. lr; :2011. ;-:~ :~,~~ci~:cf! P7n.ooo as sett[em~nt b. P425,000 d. Zero
: ,. :';,:::nl<'<' cnrnp;tn\ .';ill' :1 rns1lrcd the car owned by the
...... "'t:. :;;nlini' n tiw <ttT:rk:H. From rhe above pavments and An&wer: B ""
1:. -;,, :;:~s. rh, :Hnurmt of !axahk rncorne to \llr. "vlonte in 2011

,, )(). c. !'fU. 000.

Loss of one-month salary (recovery of lost income)
Loss of car (amount recovered in excess of what was iost)
Taxable amount
P 25.C.OO
_400,~]00

f'__'i~;)__.._C.._Q__Q
--
. .HJ. d /Tro .

.:\ns\ver: D
(.:.~~cnce. ::>ectioa J? \B) (4) ..'HRC,as a1Tlend1!d
_ ~:;;-: : J:} E_~:.~::.us!Of!_':; (rrJm c,;.ross Incom.e.

.....
; { 1r.,n' ";~l.:.: ;h':-_;l_,.~.i- :;:;:.~:, ;~ :.;rckr.\J-C . ~;iu::; ~;:t-~ UfltU:J.nL~ t~j

1
,_zny
ciwnwJt?S rece::ived. whe::rher by surt or agreemenr, on account of
_such UlJUnes or sickness.
p, ''
''
( I ( [

lH
 Chapter 6: Exclusions from Gross income Chapter 6: Exclusions from Grr-..ss hlcome

' 11. 0,1e oftl1e foJ<..>ing i.;; tc..AE.b!{. in t!Le Fh;!ip~:nes. . .

a. Salaries of offic~als of the 0nited N~tions asstgned m the 19. Retirement benefits receiverl under R.A. No. 7641 and those rec.eWed
Philippines paid by the Unitf"d Nations and certified by the by officials and employt!es of private firms. whether individual or
Se~retary General oi the United Nations . . corporatf', shall he ex~l~ded from gross incowe, provided that the
b. Income of ciJzens of the United States workng m consular following are satisfied, except. that:
oftice~ in the Phil;ppines a. the retirement 1>-!nefit is in accurdance with a reasonable
c. Salaries o; diplomatic officials and agents assigned in the private plan maintained by the employer approved by the BIF.
Philtppines . c. tbe .-ettring uffi.:::ial or employee has been in ~he ser'ic.e of tl;e
d. Sal<u :es of nonresident employed by a foretgn petroleum same en:ployer for at lea:;t ten (10) years and is not l<'"ss than
service .:on~:1ctor in the Phthppines. fifty (50) years of agP at the t.imt: of retirement.
r. the retir.ng official or employee should nut ha;e previously
Answer: D availed C'f the privilege under the retirement benefit plan of
References: Section 32 (B) (5), NIRC, as amended the same or another employer.
Section 25 (E), NIRC, as amended . d. none of the choices.
Section 32 {B) Excl~sionsfr:om Gross Inu1~e. Thef~llou:!_~~~:e_r::_: l
--
shall not be included rn gross mcome and shal, be exemp.fro ... , ............ v . . ADawer: D
'1".der this rit!i?: References: Section 32 (B}(6) (a), NIRC, as amendeci
i5! Income Exempt under Treaty. -Income of any kmd, to the extent Section 2.78.1 (B) (1) (a), Revenue Regulations
'""'f!wed o;~ c,r y ::c.:I:!J Jb:igc.tior.. !J:nding ;.q;or.. ~hc Gcr;:::nr.tcnt cf!he No. :;:.gs c :;:5
;::;,,;rppmes Sectton 32 (B) Exclusions .from Gross Iru:ome. The followmg aem.s
shall not be inciuded in gross income and shall be exempt from ta~at10n
Sectton 25 (E} Alien Individual Employed by Petroleum_ Service under this title:
Contractor and Subcontractor. An Alien individual who rs o
::;c'rr:ane!t res:dent of a foreign country but who is empi<..yed and . (a) Retirement benefits rece1ved under Republic Act No. 764i and rr.ose
,-ss:T!ed m i: 2 ?fl!lrppines bl{ a forerqn se~1ce contractor or by afor1gn received by officials and employees of pnvate firms, whether indr~,c1d:.; a!
. w c~ -~ubcoo:-c:ctor enuruwd in petroleum operatwns rn the Ph<lrpprnes or corporate, in accordance with a reasonable pnvate benefit plan
;::::: 'x izabie :o ,, tax offi(teen percent {15o) of the salarit>s, wages, maintained by the employer: Pr-ovided, That the retrnng official or
, - J, ~:r:--.. ;-C:".f>-r:snti"on., reii!.uncrcct:'cn ar:d other erncluments, such as employee has been ill the o,er 'i, e of tire ,;wne ~empiurwr /cJr ot iec<:o ~
{10) years ar:d is not !c.s.: ~r~,-~~ __:::~~~; !S()} !..i_-.,:~r~; ~~;,:_~,: .:: .::1 ~ ~.-~.
. _:-:rf, . -.,,t"'f~r tn-:y;:rn-:r~r shnJl
c "i.!fl{ f;1 -...,.;rt'r-' tdY

(~'1J}lf''r 1 .. ht~ sarne po~c..;rt;on I

retirement: Prouidccl) fr_;.t!l~'C:-'."". ---:~_1! .. }~:.: L)C!!eJ~:~s !:J.r:.:.::~~._(l :.. ~:d~ r :h::,

...... ~.' I : ) t"nplr''l J unrl oc

, r)'frni~ ;,,., ,en ue runtru/'t Jr~f!!~::;;ul~contrac:o_r_.____ _ j
as an subparagraph shall lw m:m!erl of hy an official or crnph!!;ee only ry<e
For purposes of this Subscct<cm, the term 'reasonable priuate benef',t
plan' means a pension, gratwty. stock bonus or profit-sharing plan
;i- cht' ;,,: ,,vmc; tT\trrncnt twnefirs received irom pri\ate firms maintained by an employer for the benefit of some or all of hrs officwls

c .- --. .. l t) i t
;::.~:;~,:ind
~}

:rom an rmplover under its reasonable pension plan,

''>~\~ :'-:l --t~~ ,-:-.:1:-. uld ~1nd ha:-5 :-;ctvcd the cornpo.ny for
or employees, wherern contrlmtwns arc made by :;uch cmploycrfor ::e
officials or employees, or both, for rhe purpose of distnlmtmg to surr
officials and employees the eaminqs ond principal o(r/i, fw;d th:1 .
accumulated, and wherein rrs rs provided in sard plan that ut no ::cr
en1 an rnplo\er under its nasonable pension plan, shall any part of the corpus or mcorne of the ftmd be llSI''ci j(Jr, or be
"; :; l }t'ilrs old and has served the company for diverted to, any purpose other than for the exclusive benef;r oftlw so.:d
u[Jicials and emp!Qy_ee~_ . ________ _

Answer: D

116
 Chapter 6: Exclusions from C-ross mrome
Chanter 6: Exclusions from Gross Income
ADsWer:D
20. First stctement: The law does not requrre that the 10-year Reference:- Section 32 B 6 , NIRC,- a'llended
_ ~ requirement for tax-aempt retirement benefits should be Section 32 (!3} ~=Zusf.ons from Oro.ss Income. The following items
-~ ( '-~ \_.1 ' \
shall not be included in gross income and shall be exempt from tJ:zxabtm
.~
uninter.upted. &: sh~,, be
Second s:ateTn.PnL: The tax-exempt rewe.ue!lt hf-n,.nts I:U.I
ava:Ied o; by tr..e off. cia! or tmployee only onr.e.
a. Both <..\.ate,ncats ere- ~orrect;
uader this title..
(6) Retirement Benefits, PetL--io.-ts, Gra+u~ etc.- ..
(b) Any C'rnount received by an offici"' oremplnye'f! or by his hefrsjr-r-n
I
t~ employer .as a com:equenre of separation ::.f such oifici'll or en;;:'.oyee
b. Both statements a: e incorrect:
c. 0.1ly Lhe first statemen~ is cCJrrec~;
d. Only the second stateiT'"~~ is correct.
I JmTtt the servzce of the employer because of dec.Jh, sick:1ess or other l
physical disability or for a. zy cause beyond the control of the sau:t official :
or employee. - :

Answer: A
21 An employee of x Company retired at the age of 50 years 1ld efter
serving the company for 10 year~. !-le received retirem~nt benefits r
.. from X C:ompany amounting to P2,50'J,OOO. _The f~ll?~g y~ar ane
his retirement, he wa~ invited by Y Corpcrauon to J_om 1t as 1ts
. l<:xccutive Vice-PresidenL After serving Y Corpor~tlon for 10 ~ears,
he retired at the age of 61. Y Corpor<tt10n gc.ve ln:n P3,000,0-0
retirement beP~fits.
Which retirement benefits should be subject~o,,tax?
~If. 23. (Phil. CP..A Modified) RDE was retired by lus employer corporation in
2.W and paid PI ,000,000 as a retire~rent grat1ity without any
deduction for withholding tax. The corporation became banla-':Ipt ir.
;;sm~ Can the BIR subject the Pl,OOO,OOO reti,.f'ment l!f3tuitv tu
~ ~
income tax?
First answer: Yes, if the retirement gratuity was paid based on a
reasonable pension plan where RDE was 50 years old and has
::.ened the UJl pord~ion f...,I 8 years
Second answer: No, if ROE was forced by the corporation to retire
a. Both answers are wrong

-... a. Retirement beneJ.ts from X eompany': "

b. Retirement benefits from Y Corporation
c. Both retirement ~nefits
d. Neither retirement benefits
b.
c.
d.
Both
First
First
answers are correct
answer is correct; second answer is wrong
answer is \\Tong; second answer is correct

Answer: B

- '24. (PhiL Har i\dapled) NeHioso. 48 _years oi et:;;e 3:-!d 2 re!tred ~:;:c;_ . . :;~e,

--
t\r:: amount received lA an official or employee or by his heirs from
uw cmplO)':r d.S a consequ"'n,-,. of sepRration of such official or
emoloyee from the ser.ice of the employer shall be excluded from
gro.ss ~ncmne except if caused by
a. death.
had among his properties and transactions at the end of the ta::.->ble
year 2011: Retirement benefits in the amount of P200,000 received
by him in 2011 under a qualified retirement pian maintained b; his
former employer company. Nellioso voluntarily retired after 20-vears
of service. -
Is the ahove item subjl"ct to the regular ta.--: r:o:.tes for individu::!!

- t). sickness or oth;<?"i ph::sical disability.

c. anv cause bevonc! t.hf control of the official or employee.
d. none of the chotces.
taxpayers?
a. No, because retirement benefits are generally not sut1]eC io
the regular rates for individual taxpayers.
b. Yes, because Nellioso is only 48 years old when he retired
which is beloi.v the 50-yei-!r old renuiremenr tor cxemnr
rctiremt~nt benefits. , -

-
c. No, becausP the retirement benefits rece:w~d bv \ilic;s,_ :,~~
subj<"ct to final withholding tax. -
d. '{es, because- rh~ retlren1t"nt benefi~s dre sd\-en \vhcr1 .\r.. L~rJso
voluntarily retired from ttw companv.

Answer: B
I.

118
 Chapter 6: Exclusions from Gross Income
~S. lPni!. Bar Ada.pteJ) Eo.->1 vi a f.J001 family Jr. r.;hruaty 14, :f~~
Mario worked his way thrr:-ugh colkge. Aftt>r working for more than
12 years in X Manufac-turing Company, Mario decided to retire and
avail of the ~nefits unrler the very rea30nab1P. ..,..tirement plan
naintained by his employer. On the day of his retirement ou
April 30, '?.Oll !1e received P4CO,OOO as retireml'!nt be:~efit.
Is Mario's P400,00G retrr~ment benefit s1bject to incom,. tax?
a. Ye<>, beC[tu:>e Ma:io is only 48 years at the time of his
retirement which is below the 50-year old requirement for
~xempt retiren.ent benefits.
- b. No, becaus~ Mario worked for the company for 12 years and
the retirement benefits are given under a ver:, reasonable
retirement plan maintained by his employer.
c. Yes, because it was Mario who decided to retire and ~vail of
~he benefits under the very reasonabie retirement plan
- maintained by his employer.
cL ~;o, berause retiremer:t benefits are not subject to income
regardless of the age of the reLiree.
- Ans-wi.!r: A
26 '.\"hi ~ uf the following separat!On pav is taxable?
c;,p.,mtion pav recei\Pd bv an employee who resign<>d to join
:J'"!lcr cornpan~
ration p:\\ n~';!:.-d by an cn::J!O\"t>f' whose services were
- ,.:-r-,H1;dt~d duP '"() iy~:-,Jness n-~ver~);'S.
';l:-~ .1r tht t;n"'""" .-.<- t~r;ninal:.\n!
- ;r1{latH\
,,
,,,,,
l.<<l._lll
...
t'(<
3ection 2. 73.1 : .3; {1) {b)~
~lo. 2-98 page 25
Chapter 6: Exclusions from Gross !nrom':'
27 . "ir<.Jt statement: In order for the separation pay to be exempt from
:o.:. income tax, the separation from the service of the official or
;Y employee must not be a~ked for or initiated ty him or not of his
own making.
Second statement: .Any paymP.nt made by an ecployer to an
employee on account of dismissal, constitute<J compensaticr>
regan!less of whether the e:nployer is leg--cUly ooun::l by contract,
:;t:Rtute. or oL"'"lerwise to make such payment.
a. Oniy the first st.atement is correct
b. Only the second s::a~ement is correct
Answer: C
c. Both statements ar~ correct
d. Botn statemer.ts are not correct
Reference: Section 2.78.1 (B) (1) (b), Revenue Regulations
N ;;, :0:-98 pa~ ... 25
28. Which of the following is not a condition for granting tax exemptions
to employe'! benefits?
a. The e:nplcyee is termin<J.~ed from services of the employer due
to death, sickness or other physical disability or for cause
beyond the control of the employee
b. The employer pays benefits to the official or employee or his
heirs as a consequence of such separation
c. The employee has served the employer for at least ten ( 101
the f;rnplnye(~ \\'aS 48 years
d. None of the choices
Answer: C
References: Section 32 (B) (6) (b), NIRC as amended
BIR Ruling No. 153-98, October 19, 1998
Section 2.78.1 (B) (1) (b), Revenue Regulations
No. ~-98 page 25
Revenue Regulations
121
 Cha!'ter 6: Exclusions from Gross income Chapter 6: ExclusitH>.s from Gross focome

29. tF'mL i:;at Adapted) Wh1<-h 01 rne foilowing srJ<:Ul r.ui: be subject to
income ta..""<:? The separation pay of Mr. Jacobo is taxable because he voluntaril!,
I -Pedro Reyes, an official of CofJX'raticn X, asked for "early resigned. It is not stated that 1u! is 5J years old or (.,!JeT', th':lt he has
retiremenf' because he was emigrating to Auc::t:r3.lia. He was rendered at least 10 years of S"!rvice, '11td he has not previously availed ,
paid P2 000,000 as a separation pay in recognition of his vfths'tax-jree-retiremenL . i
valua'Jle s~rvices to the corporation.
II -Juan Cruz, another official of the same ccmpanj was
I The s~arc.tiortpay of J.Ii. KintunaTis not taxanle tecause the reason for:
separatior. was beyond his control. !
separated for occuP'ing .t redundant oosition. He was given
P500,000 as separation pay.

.
HI -.lose Ba-"tista was separated due to his failing eyesight. He 31. Wnich of .he following shall oe exctuded from gcss income?

- v:as given PSUO,OOO as separation pay.

:'Li the thre:: (3) were not qualified to retire under the BIRapproved
;:>er 'lion plan of the corporati.,.,.
a. Social '3ecurity be~efits, rejrement ~sratuities, pen~ions "Uld
other ::;imilar benefits received from foreign governrr.ent
agencies and other institutions, private and puLiic by residenr
a. I, II and lli c. I only or nonresident citizens of the :'.!Ulippines or aliens who come
t.. land II d. II a;1d lii only to reside permr:nently in t.l:e Phi!ippines;

- ~""l:::wer: D
I
b. United States Veterans Ad:mmstration benefits;
c. GSIS and SSS benefits;
d. All CJfthe choices.
-.....
-
'!he> c;evamrio" pcy received by Pedro Reyes is subject to tax because
.:_,.re 'S r.c :1":'/ of shm~~ng 'hD~ hers SO years old or ouer, that he has
'eruice

-
-
"""nde,etl ,,- >.Ft I 0 years vf
htz8 ,.,ot prt-"'1 --;:1sly availed
urith Corpo:ation X, and that he
rhc 'tc. . .-t:-free retirement.
II
Answer: D.
Reference: Section 3J (Bj (o) (c) (d) (e) and (f). NIRC, as amended
--
--
The S;;/!)Drc~_.~,. ;)Cl_TI rect?i::t?d i>,'J .Iu.an (~ru% is nnt ltu:n1Jle because he
.-TlS -n- r),-""' .~~,~ ;Jt t C'-cJ.!/.'>P fJf>~.~or;d hiS COJt(T"Ol. ! 32. Which of the following incomes derived by foreign governments,

;:~ ,,::;1~. ::. : ~"::~ :~r~:-',''.''J .:~?;,~1 ;;;:,u~~~~~~:~Jj~~~~~~~~~~ecause h:J

financiug institutions owned, controlled or enjo:ving refinancing from
foreign governments and international or regional financial
institutions established by foreign governments shall be excluded
from gross income?

- ,_ .. :1~~1: ,,f(ered .1 \!~untar:: rcchtncLtnC)'

stocks, bonds or other don:estJc securitwc,;
II -Income from interest on deposit:> in banks in the Philippi:;cs
--
--
1 :;lt ~d e,;J!'IISt:H;_ i~~ndtr the ~)ro.gr3rn,
" ' l l ) 1'-~'.::,.; '.'! '\t_:!'i il(' -~i . . ~:n '..,(pztration p~.-t_y a. Both I and II c. I onlv
:s t~:.;-('e ~11r::~~: "-, ~~:-'lsic --.;aLH-:"/ {1)r tn,,~-~ry _year of service. b. Neither I nor II d. II only
-. r :'1i<: ~; rhc ---.-~ :_j -~d l't'lr~~1,eci P--l-00,()1)() as separation
-"'.- .\ ' :1r\ . ~-'}-(i rn _' 7,_: :: ri t hr ~:"'rnph >t.~cs \Vho accepted the Answer: A
Reference: Section 32 {B) {7) (a), N1RC, as amended -
-
33. First statement: Generaliy, the income of government entities
performing proprietary function is subject to tax.
,.,
Second statement: Income derived from any pu:J!!C" utility or from t',.:
exercist:~ of an.v es~~entiai go,.ernrnenta! functu_1n {-!Cf:!-l~ing tn ~~lf
Govt>rnment of thr Philippines~'' rc .lny politic"l ,;_!hdnist<ll, h ~ '/
--
tmc2.bk.
-
a. True, True-
h False-, False
,;, Tru:, False
d Fa\sP. Tnw
-
.-
-
 Chapter 6: Exclusions from Gross Income Chapter 6: ExclusiOns tmm Gross Income

Answe:.:: A AnS"Ver: A
Reference: Section 32 (H) (7) (b); NIRC, RS amended Reference: Section 32 (B) {7) (d), NIRC, as amended

34. Prizes and awards made pc.;manly in recognition of religiou::l, 38. Conrad smooth" Uoe is an amateur boxer. He is sent to compete in
cha:itable, scientific, educativnal, artisti..:, literary, or civic - Sot;th Korea by the Arr>ateur Boxing Associatioa of lhe Philip?!"les
achievement, shati be e;~clt!ded from gr0:;s income, but oil:y ~f the (ABA.t>) and wins the gold medal titer beating !lis oppcne:1t Oh Ke
recipient: Bah. He is awarded PSOO,OOO by GooJ Faith Corp.. a domestic
I -is sek.::ted without any action on his part to enter the contes! Philipoir.c corporation. What is the tax consequence ol the av.ard
or proceedir.g. rereived by Conrad "Smuot.'1" Ube?
... li -is nut reqPired to render substantial future services as a
condition to receiving such prize or award.
a. Subject to Section 2<! (rt}
b. Subject to final ~ax
.... Not subject to inrume tax
a. Both I and II are correct c. Only I is correct
d. Subject to amusement tax
b. Neither I nor II is correct d. Only II is correct
...
-,. Answer: A
Reference: Section 32 tB; ('7} (cj, NIRC, as amended


-
c .35. Ms. Elisya Montenegro entered her short story in a literary contest.
39. Bon "Boom Boom" Bonafe, resident citizen, is a professional boxer.
He fights Antonio "Speedy" Dayag in the world championship m the
USA. He recei.es PlS,OOO,OOO p:-".ze for the fight. What is the tax

-,.. S~it~ won in the Short Story category, and received PSOO,OOO for her
pr::c:t. What was the tax consequence of the literary prize?
'' Exempt from income tax
consequence of the prize received by Bon "Boom Boom" Bonafe?
a. Subject to Section 24 (A)
b. Subject to final tax
- .) Subject to final >xit;;holding tax
C'ub1ect to Sectior. 24 (A)
c. Not subject to income tax
d. Subject to amusement tax

- r:. 'Jut subject to any mtcrnal revenue tax

Answer: A

- 'I.

:;r,cvin:, in 2011. H~r ::arne \\as Slibrnitted bv her supervisor

40. Gross benefits received by officiais and employees of public and
private entities are excluded from gross income provided thnt the
total exclusion shall not exceed:
.,, :'Jll rlt'r krto\\kdo,e. <;;:e received a plaque, trophy and cash a. PlOO,OOO c. P30,000
c.,, Jf ~'500,000. Wha' ,,...,!s the tax consequence of the reward? b. p 50,000 d. P20,000

"',.,;;''! !') tin~d \.-::t!h __~!ding L-1x Answer: C

<: ):1~'! tn S(i'fiiH' 2~ f ,\) Reference: Section 32 B 7 e ,_ NIR:_C, as amended _____ _
.\
1
}; :o sub;cct to a:J:.., 1nternal revenue tax Section 32 (B) Exclusions from Gross Income. - The fuilowzng 1tE'ms
shall not be included in gross income and shall be exempt fr ;m taxatwn
under this title:
(7} ,\1iscellancnus Jte:ns

, } f : ~ : : ~ ~: ! t , : , : r ! o: .. ' , !1 (e) 13th l\'!onth Pay and c:>ther !:3c.~1t{!~::::.. ~ .":,n.JSS bent~:':.; recc:' :f/

offlciois nnd ernployees r~{puhl1r rau! rJ'l!'att? pnt:t:t:v-; Pro! rrJ. ~.

hotvever) That the total exclusu;rr u~1c~,~,. this suf~~r;a,.~ugrr.'fF . , j
e:.:ceed Thirty thou::.and pc;:o:: rr).~(l.Cr'C) !!!-irr, -:f::i!! ~~,)~
:t. ..'.':empt from 1ncome tax. c. subject to Section 24 (A).
stdJJect to final wirhholding ta..x. d. none of the choices.

I 2-t 125
 Chapter 6~ Exdusions from Gross Income Chapter 6: Exdu-;ions trom Gross tncome

/r) dt::nefit::; lf:Ct:ivt::.l oy er.tpioyf:t.S jJUiSV.WU to hesiden~ul Dc::r::!.e 43. T!le amount.()! the informer's reward shall be equivalent to:
So FS 1, as .:unenrJed by Memorandum Order No. 28, dated August a. ten percent (10%) of the amount recovered or one million
13, 1986; . pesos (P1,::>00,COO) per case ..vhichever is higher.
fi"J Benefits received by officicls and emDloyees not covered by b. ten percent (10o/...) of the amount recovered or one million
Prestden,tia; decree No. 851, a> amended by Memorar.dum Order pesos (?1,000,000) per case w;ichev~r is lower.
So. 28, datai August 13, 1986; c.nd c. fifteen percent (15~} oft;.1.e amount reuwered.
livJ Othe- ben.;fits su6t ~ product:vity incentives and Christmas n. none uf the choices.
bOi .us: Provided, further, That the cding of Thiri.y thousand pesos
,?30 JOOJ may be increased ,hrough ruie:, and regulation.;; i:;sued An-::1u: B
b:, the Secretary of Finance, t.jJ,m recommendation of the
Refere!lCe: Sectlo4 2.~7-1 (K), Revenue Regulations Nv. 2-98

- 41. Which 'Of

C:Cmmissior..er, after conside:ing among others, the effect on the
same o thP in ation rate at the end o the taxable ear.

the following shall not be inclu1;;d" ..

~--------p~a=ge~l~0~-~----------------
1(K} Infarrrt~er's Rcu.oa.rd to Persons lnstrur.".ental in the DiscoveT!, of

I1
Vfo:attons of the 1!ational Internal ReveP~ue Code .:xnd the
Dt$covery and Seizure of Smuggled Goods - The following rewards
shall be $bject to a final withiwlding tax at the rate of ter. percent ( 10%)
j
I
;

a.. GSIS and SSS contribution:::

-
,'.
b. M~kare and Pag-IBIG contrib~,<.tions
c.. Union dues
{1) Ttwse yiven to per>vns, except WL internal revenut:' official ur
employee, or other public official or employee or his r.::!a.~iLe :._-:t!:ir: :r.e
sixth degree of consanguinity, wiw z..vluntarily give Jefiniie and sworn
j
'

-c
d All of the choices
informatiorr not y<.>t in the posses..<:iort nf BlR, lPading to the rlrsro"C~i c;~'
Answer: D I frauds upon the Internal Revenue Lrws or violations of an!_ ofrhe
provisions thereof, thereby r.o:sulting in the recovery of revenues,
Reference: Section 32j_B , NIRC, as amended
surcharges and fees and/or the conviction of the guilty party and/or
! Section 32 (B) Exclusions from Gross Income. The folio~ving Items imposition of any fine or penalty.
:::: i sh:.:..-: :A be included in gross income and shall be L(emptfrom
tax:: :--:c:~ :1ndt'r Ous titlt?: (2) Those given to an informer where thP offender has offered to
IC compromise the violation of law committed by !tim and his offer has
(7! ,,;:~re!laneous !tern::>. -

-
been accepted by the Commissioner and collected fmm the otlender
~.SIS. SSS ..~1r:::ci~c(;.rc nr:_d ()ther Cont:--b~tnn:::. - GS!S, SSS,.
~. .f-..--!~::.~:- ':~.--1 ;).--- '' ,;)','1 ,~,-H,tP~> 1 f'r~'nn- ntr/1JPi()tJ {/r/r-..<;:; {)(
The amount of reward shaii be eqw1'uienc ro ren perr,nl ( 1 : rc,
.-:"),;,,,

.::
--,.... und collcctt:d or one rnillun. pt.:s..J~. 1(~~ 1 :' ceo, (}~. C
1
._, (,>; ;;, ,r r(~.'-:;l' " ' "

lower.
;:. . :~c:nbu''ons m cx:cs" of the manc!atord GSIS, SSS, Phil health and
;';..;" . .:.::;:'] cr I !::rn .~- :Jc; .,,1:::-:m2nt Mutua! Fund contributions are not The reward shall be paid under rhe mles and reqz1iarlons rss,;ed !J;, :i-.,
ex: :. d:biefrnrrr gross ir~c~me of the individual taxpayer and, therefore, Secretary of Finane, upon the recommendation ~f the Comrrussroner
an? :-::;;.;jeer to irtcorne tax and consequently, to withholding tax (Revenue However, sucl,person shall not be entitled to a reward shor<id ru
. ''d."'~52,...andt!!! Ci.!_culart:'?_c 27-20 U)_. ______ - - - - - - - - - - - ' revenues, surcharges or fees be actually recovered or collcc:crl :r;r :':::C!
.........
-=
I apply to a case already pending or previously mvestigatcd or examrPc!
by the Commissioner or any of his deputies or aqents or exr;::r:,r
~ ~ ,: he :utJCJ\<:m:.; ~'ins sil:1il lw <~xcluded from gross income'? the Secreta o Finance or an o his dP uties or cu;ents. --~----~---- --------~

'Jc>ll1S rcalizcd rrrJ:11 the sale or exchange or retirement of

-:nncls. dcbf'ntur~s or other CPrtificates of inctebtedness with a
:*- 44. Informer's reward to persons instrumented in thP disconr: nF
vioiations of the National Intern;,! Revenue <'>de dl'd th, ':''''
and seizure of smuggled goods is sr:bwct to,, ri::ai \\;th':- : . ,:.
a. ten percent (10';.;,).
b. fifteen percent ( 15'~n).
; ] ' ) ~ i ; \'
c. twenty percent (20%).
d. twenty-fivepcrcent (25';~)) .

c .."'ins-~cr: A
Reference: Section 32 {B) (7) (g) and (h}, NIRC, as amended

l 126
 S"-~pter .6: Exclusions from Gross !ncome Chapter 6: Exdusim!s from Gross !OCWJm.-

.!'~e.::: I.. Summary of Exclusions from Gt-oss Income

Reference: Se~ion 2.5';-1 (K), Revenue Regulations
No. 2-98 ~e 10 Section 31 (B) Exclllllions from 4Jross Income. - The following items
shall not be included in gross income and shall be exempt from
taxation unc!er tllis title:
:j< 45. \VO.icr <0!" the followi~g is subject to tax? 1._ Life !r!sura.."'lce.' - 'nte proceed"~ of life ~surance pc:.l~;::;es paid to the
a. lr:.~erel>t
on gO'I;ernment ~t.curities heirs or beneficiaries upon the death cf the ins.rred, V!het11er u. a
o. Interes on long-term deposit& or investments in banks with a si~gle sum or otherwise, but if such amounts are helJ bv t~e
maturity of five (5) years or more insurer under an agreement to pay interest there<Or, th,. interest
c. lntcr~st on the price ot the land covered ty the Presidential

-
payments shall oe included in gross income.
Decrees on Land Reform, received by the landowner from the
J.illn.:haser-tenam. and the capital gain derived by 'h:m 2. A:nount Received by Insured as Return of Pranium. - The amount
receive,l by the insured, as a return of premiums paid by him

d. Interest received by nonresidents from deposits wi!.'l
depository banks under the Expanded Foreign Currency under life insurance, endowment, or annuity contracts, either
Deposit System (EFCDS) durir.g the term or at the maturity of the term mentioned in the

-
.....
A ;;;' \0'}.., fl
;::~:::::=.:._:;_-~:=--:7"''---
r;:~~1:;;~;;_:;;su~~::;;~~:=:t o: ::~e=:~~~c:~~i:~~~~~ ~b~J
contract or upor surrender of tne contract.
3. Gifts, Bequests, and Devises. _The value of ;'!"'<::f":'rty ?C'1ui. u~ :1\'
gift, bequest, devise, or desceut: Proviued, howe-;er, That income
frC'm n.:ch ~r0!JP.rty, as well "iS gift, hequest, devise or descent of
-....
o, ~,-.'

46. Which of th.; f::~llowing statements re~ campaigri:Cot.lijit)U~i-~

' ' ', ". :~ .: ;M".~~'.~,t:\tlll""""''''':ili iucome from any property, ir:. cases of transfers of divided interest,
shall be included in gross income. s;:c\.~ -\-1:> bu,, ~~,:.: "f, ~. 1 -.: ' ' -i' ..
is correct? . , , /:~iL'":;::j_;;~'~
a. As a gene.al rule, campaign contributions are not~~;~'~],:{~ ~t~
included in the taxable income of the candidate to whom .:I
they were given, the reason being that such contributions
4. Compensation for Injuries or Sickness.- amounts received,
through Accident or Health Insurance or under Workmen's
Compensation Acts, as compensation for personal injuries or
sickness, plus the amounts of any damages received, whether by
--....
-
were given not for the personal expenditurejenrichmentof

- !-~:.
the concerned candidate, but for the purpose of utilizing
such contributions for hi::>/her campaign.
To be considt:'r*:'d 0~ exerr1pt from 1n~:orne tax~ the~
suit or agreement, on account of such injuries or sickness.
5. Income Exempt under Treaty.- income of an-, ;.;.,;-.d, to the: t:-:'cL
required by any treatv obl!gat:o:: t;mding upo:1 .;;, Govtrn::r"',

- campaign contributions must have been utilized to cover

a candidate's expenditures for his/her electoral campaign.
- c Unuti!izerljexcess campaign funds. thRt is, campaign
contributions net of the candidate's campaign
expenditures. shall be considered as subject to income
ta'l{, and as such, must be includetl in the candidate's
taxable itlCO!!!e as stated in his/ho:-r Income T~_-..: Return
filed for the subject taxable year.
d. All of the choices
An.swer: D
,:;, :-c:ence: Section 2, Revenue Regulations No. 7-2011
:: f.Ju,,;-;;;7;~-;;r;;q-;:~ - ---:_-u:i;o /rlii;:;;{F~-;uith th,----1
,' '.{' tl;r nnprnl.Jr-:cz~,, .".totc1P'~rtt
the Philippines.
-
6. Retirement Benefits, Pensions, Gratuities, etc.-
a. Retirement benefits received under Republic Act No. 76-11 and
those received by officials and employees of private firms. --
whether individual or corporate, in accordance with a
reasonable private benefit plan maintained by the emplo;er:
Provided, That the retiring official or employee has twtr: :n :~:
...
service of the same employer for at least ten ( 10) \Tars "wi :s
not less than fifty (50) years of age at the time of hts renreme::~.
Provided, further, That the benefits grantei under this
f_.\(pr'J;dttures rt'qtnred under
subparagraph shall be avaiied of by an officr<1l or empl(Ar:<> nnh
once. For purposes of this Subsection, the '"-:n r<',lson.;iJ':
private benefit plan' means a pt>nsion, gr8::1>': siJ"' ""''
--
--
J

.1. :,,') :.:ft'C'tf,rn ( c,}~ <..:;ho;'l Jt' 07t, 1 PIO!:. pr;:.ch~dtdf'rom f profit-sharing plan maintained bv an emp~o.,~r fc>r 1 1 :
~7. su,-:1 t.~X.fJCll<-itttlrt' ..~.; o.:.:: d~._.'~i:~tr~o. n'-; . his/ her ca.n:paiyn II
some or all of his offici;1ls or emplon~cs. w!w~~::n co:',.,'
- .. , .. _,,."tinns ;'s :o.rjch. the crfrr'' '!nwunt o(such campniqn are made by such employer for the officiciis _.; l.'a:pi. ,,_. ,
; 11 1J_~~-~~L"_..:.~~!(!l~ h.~.iY!.!:,:.;,.lJ1, ':'ri 5;~~.~~!.r'!!_r_~~y-~u. ~?Jt~C:!_~o i.~cam~_~ax. I ~uth, for the purpose of distributing to su~~:: -:.~:-;,~;.1!, ..,
employees the earnings and principal of the fund th~_;::;
accumulated and wherein its is rovided in said lan that at no .
!::8 129
 Chapter 6: Exclusions from Gross Income ~napter t>; hXCIWi!UII.!> lfUili ul U:..:> '""""~"'

,.
I time shall any part of the corpus or fiicorue of the iunri IJe used
for, or be .diverted to, a.1y purpose other than for the e;:clusive d. Prizes and Awards in Sports Comoetition. - All prizes and t
-;-
.
~ II, ,.
. b.:nefit ~qf ple ~J cfficicls and employees.
. ..... ~

'b. 1'.ny azi.o_uat recei"ed by an ott~iaJ. or eop'ioyee or by his heirs

award.i granted to aJlletes in local and international sports
C'')mpet;tions 'Uld tournaments whether held in the Philippines 1
or abroad and sanctio':'led !): their national sports assodato;)S.. ~~
f;:-()m n.e ~mp1oyer a~ :1 conseqhence of S.::f'aratori of such
offkial or emp.icyee frc:n the service of tilP. eMployer because of f".13th Month Pay ai".d Other Benefits.- Oroas benefits receive.l
death sickness or other l'l:ysical disability or for any cause by official~ and employees of puoEc and private entit1es:
I beyond the control of the srud official or em~loyee.
c. Tne provisions of any exifting law to thecontrary
Fro>'ided, however, That the total exclusion urd:::r this
subparagrap~ shall not exceed Thirty th1-usa.1d pesos (P3'',CC'J) j
which st>all cove.; :- ,
notwithstanding, social s?curity benefits, retiremen! gratuities,
pensions and other similar benefits received by resident or
(i) :aenefits received by official:, end employets of the natic'tl8J" I c
"" and local governmf'nt pu<suant to Republic f\Ct No. 668.
nonresident citizens of th..: Philippines or aliens who come to (ii) Benefits received by employees pursuant to PieSi~ential 1
reside permanently in the Philippines from forei6Il government
agencies and other in<>titutions, private or public.
Decree No. 851, a3 amended by Memorandum Order No.
28, dated August 13, 1986; -I ,

I J. Payments of benefits due or to become due to any person
re::;id:nt; i:1. th:! P!1i!ippines under the I....ws of the Pnit~d States
(iii) ::Jenefits received by oftlcia!s a:1d employees not covered by :
Presidential decree No. 851, <1.., auH!uJt.d ty Me:::orandum
I! administered by the United States Veterans Administration. Order No. 28, dated August 13, 1986; a.1d

l
1
(ivj Ct:1e.- ~ndi~s .::.~ct. a;; procu~tivity in-::en~iws 2nd I
e. Benefits receiveJ from or enjoyed under the Social Recurity Christmas bonus: Provided, furthe<, That the ceiling of
System in accordance with the provisions of Republic Act No. Thirty thousand pesos (P30,000) may be increased through
....= I 8282. rules and reg"Jlations issued by the Secretary of Finance,
upon recommendation of the Commissioner, after
'
I
.
f. Benefits received from the GSIS under Republic Act No. 8291,
including retirement gratuity received by government officials considering among others, the effect on the same of the
inflation rate at the end of the taxable year. 1
I
and employees.

.. 7. Misce11aneous Items.- f. GSIS, SSS, Medicare and Other Contributions. - GSIS, ~SS,
Medicare and Pag-ibig contnbt!t:ons, rlnd union r:t:t's of
I

--.. n:\cstments m the i>tllitppll1es tn ioans, stocks, bonds or other

domestic securittes, or from int~rest on depo~;its in banks in the
Pr1iilppim~s bv (i) foreign govemrnents, (ii) financing institutions
individuals .
g. Gains from the Sal_e of .Bonds, Debentures or other Certtficate ""
Indebtedness. - Gains realized from the same or exchange or
... O\\'nt>d, controlied, or enjoying refinancing from foreign retirement of bonds, debentures or other certificate of
indebtedness ~!!lii.!.~rity o~ more than\five (5) years.
[',overnments, and (iii) international or regional financial
""' :nstitutions established by foreign governments. h. Gains from ~~c!~IJ1_ption of Shares in Mutua! Funct - Gains

-
..... h. f;,r:c':~e DPrivt>d bv the Gov~rnrnenl or its Political Subdivisions. realized by the investor upon redemption of shart>s of stock in a
in,or:ir~
cleriHd from anv public utility or from the exercise of mutual fund company as defined in Section 22 (BB\ of th1s
essential governmental function accruing to the
:;;w Code.
GO\ernment of the Philippines or to any political subdivision
~hereof.

,.,.
""'
-
l ;, . rr'< 1pient was s~L'U:U wi.thout auy ron on~ his part to

-....
ClC'
,..-.t .. ~ 1-l!" "'rJ~rn.:-_;-- ()r --.:nf'fPrl!n":: :!nd 4),'J~\-~:\ ,~~ _: \-<:.-,:~~~-<.:~~ t.);;-~~ f~
1::) ~her . ~:-ipienr is_, JJt re<Juirecl to rrnder s~1r1st;i.ntJal future -
services as a condition to receiving the prize or award.
--..
.... 1'31
130
 Which of the following shall not be subject to the 200/o final tax?
Chapter 7 a. Amount of interest from any currency bank deposit and yield
PASSIVE INCOME or any '>ther monetary beY1efit from deposit substitutes and
from trust funds and similar arrangements
S'UliJECT 'tO FINAL TA.~ b. Royaltie::.
c. Other winnings {exce::>" ?hfuppine C'harity 8weepstakLs and
"'TT;.., secrtt o}"succN ir. fife isJo~ .1 ma:: ro 6e ready for his opJ!OTtunity wlien it comes. LO~to winnings)
-'Ear( oj <}3e(Ur>nrju.{
d. Prizes amounti:1g to tPn thousand ~<>os (PlO,OOO) or lec:;s

Answer: D
M:ultirle Choice: Choose the l::est possible answer.

1. Under this system, the amount of income tax withheld by the

withholding agent is constituted as?. full and final paymentofthe
Reference: Section 24 (B) (1), :rt1RC, as amended
Section .l4 1'BI Rats of Tax on Certa1n Pa..ssivt: Iru:orne.
(1) Interests, Royalties, Prizes, and Othe:- Winnings. -A .final tax at the
rate of twenty percP.nt (20%) is hereby imposed upon the amount of
-
interest from any currency bank deposit and yield or any other

-.
i11come tax due from the payee :::r. the said income.
t a. c..-editable withholding tax c. Global tax system mvneL.:y benefit fi . mt deposit S'J.bstit>.Ltes and fro:-:; trust funds and 411
similar CUTC1ngements; royalties, except on books, as well as othe...
b. Final withhoiding tax d. Sched11lar tax system
literary works and m!-!Sical CX'TTIJX'sifi.ons, which c:;hall be imposed a final
tax often percent (1 0%); prizes (except prizes amounting to Ten

Answer: B thousand pesos Pl0,000} or less whzch shall be subrecr to tax undt:r
Subsection (A) of Section Wand other winnings (ex:cept Philippine

..
-..
2. Final tax is generally withheld: '. Charity Sweepstakes and Lotto winnings), derived from sources tvithin
I - on passive income; the Phili ines
11 - from Philippine sources.
a.
b.
Borh land I! are cornct
l nor 11 1s corrr>':'
c. Only I is correct
d. Only II is correct ~ 5. The term shall mean an alternative form of obtaining funds from the -
-
~e: ~her
public other than deposits, through the issuance. endorsement, or
Answer: B acceptan::e of debt instruments for the born:;-_,cr:; c.;n :Kro:; :~~. for
tl!e- pHrpnsr- (~f ~~f:h:nding or pu:-c:~:1s:::; of rec~i":~~;:~s ~~:r~ 0 .. :-..._..,. .
obligations, or financing their o . . ~.-:~ :"!e(~-d!) o:~ the rV.?':':(~S ,~\f ~h~_:r :- ~pr:
:. li:~:"ttsrs, ~l)', >d~lt~s.
.,,,-,,-.~,s 'J'.
~~,:-~:::;:: ..-:
prizes and 1.)t1:f~r \\ln~1::::_~s c!t~ri\ed from Philippine
lf1'iP:idti;ll:--. ,xup~
:-:~:.:dl h~~~ ;~l});''(t
:1Jn:<sid::n .!liens not engaged in trade
t ' ! -~ r:n:d ~.!X n:
or dealer.
a. Quasi-banking activities c. Banking activities -
rL
'J

Answer: B
'' (j
n
' d
30":,_
3:2'~;).
b. Deposit substitutes

Answer: B
Reference: Section 22 (Y), NlRC, as amended
cl. Mutual funding

Reference: Se_c:tion~ 24
ie~~; r::.,r~ ,-;.;30
.;)':.'~:nr-,.-5.~ ; __,,,, .
-...
ll31Jl). rHR_C!~~am~~i!de_d='-----.--.-_---:---;
,.,,,;r ;,>-, r() tnrl:'. :ouul ntzzen and mdwzdual
:c;x rhcli >~IJfJ
upphcs tn nr)n_re,~rrl~~nt nl:t''1 engaged in trade or * 6. The term 'public' means borrowing from how rPam indi,:iduai or
.Srr-t;on ~ l (H) r1ntl Secrion 25 /.\} {2}./
1 corporate lenders at any one time? -

...
a. twenty-five (25) or more c. twentv 120) or ltss
h. twent_\ (20) or more d. ten (l'-'i <:: ,.,,,,-.

Answer: B
Reference: Section 22 (Y), NIRC, as amended
--
-.
... -
I')')
l .)~
133 :~
 Chapter 7: Passive Income Subject to Final Tax Cl"'.aprer 7: Pa~.;e lw...-ome Subject to Fm.a.l Tax

V.'l':i:::. of t!:c f:>l!oW.ng ic n')t in::bded ;n the t~r:n "derc:::it Interest income from long-term deposit or investment in the form of
st!b~titutes? savings, common or individual trus: funds, deposit substitutes~
a. Bankers' acceptances inv~::stmtnt management acCJunts and other mvestmentsevtdenced
b. Promissory notes by !:ertificates b such form prescribed by the Bangko Sentral ng
c. Rer-urchasc agreements, including re"erse repurchase J?ilipinas (B~ P) shall be: , ,. , , . rS , (, . i.,
agreem~nts entered into by and lx!tween th~ Bangko Sentral a. exempt from the tax.-Yt, c. su~ect to 15% fmrtl tax.
ng Pilipinas (BSP) and any authori 7.erl agent bank, certificates b. subject to 20% final ta."'t. d. s~bject to .Section ~4 {A}.
of assignment or participation anct similar instruments with
recourse
d. Debt instruments issued for interbank call loans with

-- maturity of not more than five (5) days to cover defiricncy in

reservt:s against deposit li<lbilities, including those between or
among banks and quasi- banks

Answer: D

-
Reference: Section 22 ( , NIRC, as amend;;d
I xxx These in...<>trnments may include, but need not be limited to, bankers'
: accer:tc.nce::;, pror:ti:;sory notes, repurchc._s:! aflr2em2r.ts. including

- 1 reuerse repurchase agreements entered mtc oy and between the Bangko

i Scnrral ng Pilipinas (BSP} and any authorizer! ayent bank, certificates of
nssrgnment or participation and similar instruments wii:h recourse:
Prouided, however, That debt instruments is~ for interbank call
loans with rn aturity of not more than flue (5,\:.:c:!}~) to cover deficiency in
resPrues agoinst deposit /iabi/itzes, u.duding those between or among
bunks and quasz-imni-::<, siw!l not be conszdered as deposit substitute 5) the lang-term depositS Or inve..-vnents must have a maturity period of
.. not less than five (5) years;

- - "' :~::!:;:~!::::! ::1::;:::~::~:- :--~:--::-~;;t :1.

6f, the lon'g-term depi>sits or investments must be in denomi; lations of
P10,000 nnd Mh1>r d..-r!omi1>!?,.-:>n.s as may bf! prescribed by th.> ESP;
71 onliJ the interest income from lonrrterm deposlt.'> or mrwstmPnt
cerr-'.ficares are covered by mcorr:e tax exerr<.ptwn;

-
!;;;~;:-::::;;~. ~;~.::1: U!'L:::: th(~~ CXi)~~!Hied
'i> 8) income tax exemption does not rover any other income such a.s gwns
from trading, foreign exchaT!ge gains;
9} the long-term deposits or irwest:r.ents should r..ct be terminated in;
:_'.'. :::~'. r:'''t:~nt (~~~)' ;
such nlterest H1Cotne;.
(_lr
the investor before the fiffh year (Revenue Memorandum Circular ~io.
pPn't'l~T :=-~ ~;~ r)f SUC:h
1
:::,r:-n \; interest inCOille .
. ~~'.rn ;1r:d ()tH .. h:~:f ~)r'r(cnt (7 1 .o;d of such int~rcst income.
-.. ,,., .md <Hl>-iLllf D<'r'e;H (2 ''""\ "f such interest income.
:" 10. Should the holder of the certificate pre-terminate the deposn nr
t\nst;.rer: C investment before the fifth (5th) year. a final tax shed! be impn~' !

<~'-' fc r e n.:;e :__~~-c ti ()~ 2~J.!!H_!_l~IR~, as amend=e-=d:......_ _--:---:--:---::-- the entire income and shall be deducted and withheld by the
.. _.._., ; :o ,.lc_ci, ;;u:uccer. '['iJG: irterest zncome recewcd by an individual depository bank from the proceeds of t'1e long-term dep~sit or
,.-r ',;~-r-L_Jn~ n 1~J"r.~_e-.,,r/ ..:;nt P.-ldi;rirl.Jn!l (rnrn n. denos:tonJ bank under investment certificatf'. At what rat!' shall thf' fln::d ~1': lw ;r hp
:.'l ' > .:lJf{'('f ' t ) ;z r~n n.l
"I _. ; . . ,.,.
remaining maturitv is four Hl o,ars ') :,.:;s rh:':l .:_:"! ->1 \t" :r ,-'
(l. sn;)

c
.l
135
 Chapter 7: Passive Income Subject to Final Tax Cl"'..apter 7: Passive Income Subject to Final Tax

f..:1s~ar: A 13. First statement: The tax on interest income from foreign curn-ncy
Referen~e: Sectton 24 (B) (1), NIRC, as am~Jlded deposit shall be imposed unless the depositor who is a nonresident
x:xx Prorrided, fu. her, That interest income frvm long-temildeposit or citizen or nonresideut alien can present documentary evidence that

r
rt.

investment in the form of savings, comT'l.on or :ridi.vidual trust funds, l:e is not a resident of the Philippines.
deposit 5!-lJl:iti.rnte.s, investT'l.ent ma:-1age"lent accounts and other Second statement To te entitled to an exemption frc.m the tn oa
I mJ~tments e11idenced by cntijicatS in SU.:;hfr,;-mp~cribed by the interest income on f()retgn curreuc.y deposit. the ForeiEJl Currency
Banglw Sentral :1.9 Pilipinas tBSP) shall n~Tex1TJ.Pt\from the tax Imposed Ba.Lk Account shall be in the :1ame of the non.-esident :ndividual ::>r
undt:r this Subsecti.:m: Frovidec.l, .findly, That should the r.olda of the nonresident corporation.
certificate pre-terminate tilt; deposiz or i.111estment before the .fiftr /~lh) a. Both statements are correct
year, a .fir.d :ax shall be impusd on the entire income and sha!I be b. Both <;~tatements are incorrect
deducted :md withheld by the depo::.itory bank from the rroceeds ofth
c. OrJy the firs~ staten:!!nt is correc.
long-term deposit or investment certificate basea on the remaining
maturity thereof:
Four (4) years tu less than jive (5) years - 5%;
Three (3) years to less than (4) years - 12%; and
_j d. Only the secoud statement is correct

klswer:A
Reference: Section 2.24 (B) and (C), Rev. Regulations No. 10-98
--..,.. Less than t'tree 13 ears- 20% -------- __ _

-
, -
. 14. Which of the following share i~ t!-1~ net :n::ome r~-:::eived by an
individual ~>hal~ not be l:>Ubjed to iinal tax but to regular income tax

-
11. Who of the following shall be subject to ?lf2% tax on interest received
irvL1 a c!q:,0~itory Lan~ ur.Lt.r the o .. panJ~...d foreign c;.I.Teacy Jepos~t for inrlividu~~?
svstem? a. Share of an individual in the distributable net income after
" a. Nonresident alien engaged in trade or business m the lax of a business partnership of which he is a partner
Philippines b. Share of an individual in the distributable net income of a
b. Nonresident alien !1(>~ ngaged in trade or business in the general professional partnership of which he is a partner
Philippines c. Share of an individual in the distributable net income after
,c: :'-Jonresident citizen tax of an association, a joint account, or a joint \e:1ture CJr
consortium taxable as a corporation of whicb he is a

--
d. Resident citizen
member or co-venturer
d. None of the choices

-
--'~

........
1 '
;:;:,,i,,,e,ces:

lr ,;: ;>r-r-ount
Se~tir>n '24 (B) !1 ), NTRC ;-too; amended
Section 2.24 (A), (B) and (D), Revenue Regulations
No. 10-98

in a ,kpostton !>.mk under the foreign currency deposit

Answer: B
Reference: Section 24
(2) Cash and/ or Property Dividends -.\final tax ar the fl!!()'L'cr!r] rnt>''
shall be imposed upon the cash and/or property dr~~droTIIls nctuallr1 or
constructively received by an individual from a domesttc corporation 'Jr
from a joint stock company, insurance or murual fund compwues unci
;. ,,.:;: :s :nintlv in the narr.e ,,f" nonresident citizen such as an
regional operating headquarters of multinational compmues. or on rh,'
- _,.,-; , nrr:H'f W<>rker. nr ~~ F:irpino seaman. and his spouse or
share of an individual in the disrnhutable net rncome rzt'-r r,u_ o( r:
:."': . : .. :-:l i\ho ts a restcir'r:r "~ rlw Philtppines, the interest on such
partnership (except a general professwnal partnershzp; ,tdiich ire r;; 'J
!r; '\ )l( .;;:~tll be:
partner, or on the share of an individual in the net rncome artcr ten of rm.
cx::rnptecl in its enuret\. association, a joint account, or a 'oint venture or consortium taxable as a
,ubwct to tina! \\'ithhoidint( ta."< of 7 '/,%in its entiretv. corporation ofwhrch he is a membrr nr ro-Penhirer
:::d ~.'
Six: percent (6%) beginninq Jmuuzr:; i. ; f)8;
r ,. Eight percent (8:o) beginning cfcz"'"~''i ! , ! 'I') '.
TPn percent (1 0"0 beginnmg Jw,r~c-u-:; :. _'('(}(
\~1.-..,'.Ver: C Prouided. hou..H?ver, That the teL\- or: :h; ~dends _-:;huli n;);_,.
:, . ~~:-r~:.-1('".~- S~..::~i~~-~~ "")_'2 t 1. \ ' '~ 1 t? 40 ~V~~"-!~ Re~ulations No. 10-98 Pflrr?Pri ()r! Or nftpr .Jnnunr!J ]_. ! \)(),(; !,.,rn:rnp __f0rr"'1!',(1 .r_v: -" ,..~: r '~

c. earnings as of December 31, 1997 sha!l not, erer1 '] r:!tr' 7c''d ,,,.
distributed on or after January 1, 1998, be subject to this tax.

l._. 136 137

 C>!apter7: !?:assive lnrorne Subject to Final Tax _G"'~pter 7: Passive Income Subject to Fina! Tax

! rreviot...:>ly, aw<<-kn.ds received from domestic cotporadon and liU:: share " 17. The LAB Corporation, which was incorporated in 1996, has the
I of an ,;-ldiuiduc! partner in a partnership subject t'l t.:zx are taxed as following Stockholder's Equity Section as of December 31. 2008:
fo'4Dw~:; Capital stock autho~.7.ed,issued and outstanding P 50,000,000
I bJa;
1
at che rate of 1';% m I 986;
;:zt 1!!he rate of 10% effective Jo.nuar.J 1, 1987
ACCllrnulated profits ancl losses (retained earnings)
An
~0 000,000

analy~s of the reta;ned ea.rnin~s account sh;>Ws that tne credit to

1 ~J at ':he rate of5% effecveJanuan.J 1, 19-?!J; and
1 C.; at c. he rot&: of 0% starting Ja:tu('ry I, 1989/Sec. 21 (c) (2), NIRC this accvunt came from income of the followin~ years:
Taxablt> income for 2008
I before R.A "" 8424, Tax Rej!.Jrm Act of 199/j.
TRv.able income from 1t;98 to 2007
p 3,000,000
22,000, Of.JO
Based em t!-te above prouisi'JTt, di:iidends rcceivedfror.t durresttc Taxable income from 1996 to 19<17 _ _2J)Ou,COU
CO']:JOrr:.-tion and the share of an individual partner in a partner~hip Totru P "G.!JQQ 000
subjed to tax are subject to 0% tax rate from January 1. 1989 tl'
D-:::em::i:Jer31. 1997. The Corporation declared a cash dividend uf 55% to st.xkl'.olrfers c:
record as of March 15, 2009 pay<1ble on March 31, 2010. fhe total
15. Wruch of the following cash and/or pror;-::rty di";dends actually or amount of cash dividend is P27 ,500,000 {55% 'Jf PSO,GOO,OOO).
constru-ctivelv recrived by an individual shall not be suuject to final
.... ta>r bu~ to regul~r income tax for individuals:'
a. Cash and/or prope:-ty div;dends from a domestic corporation
How much of the dividends shall be subject tv iO% fm<1l ta't?
a. P30,000,000
b. P27,500,000
c. ?27,500,000
d. P'25,000,000

-
or from a joint stock company
~ C'&!::h :u:~.'or prop~:ty ::J!v:c!erd3 :r0:n ;-::strarc'! or mutual Answer: C
L1nd companies Refe~ence: Section 73 (C), NIRC as amended
c '- Cash and/or property dividends from regional operating
axable income of 2008 P 3,000,000
-
._
headquarters of multinational ccmpanies
d. Cash and :or prope-y dividends from a nonresident foreign
~ Drpor: t~:or:
axable income from 1998 to 2007
Total
e difference between P27,500,000 and P25,000.000 {r2, -:'SO,OCIJ;
22 000,000
P 25 000 CQQ



whtch comes from the ta.:mble mcorne from 1996 to 1997 ts 'lot suben
I __ ___ _______
Answe:-: D

-
-~
R"!f":l'~c-;'Ce: S.,ction 24 (B) !2), NIRC, as amended ..__to the_:...final tax_:_{see Section 24 {B):__t.':/.
____ _____
NIRC,:__as amended)
:__ ________
18. There sh::d! !Je lc~'.ied, (~()l!r?C!:t:-d ~u-:d p:tid for t?E!_ch ~~:.xaty[_. ~ '--~~!~ ;__ ::n~
.

- ,,~ . _:::--;u~s.
.,,,' ....... 'C<)r!l : /
---.
r:wsr
dt\-tdtcd declar~d by a cnrporatHHl is
rt>cc:Jt;\ accumulat~d profits. In
the entire income receiv{'d from all sources within the Ph;:mnin~" ~,.
every nonresident alien individual not engag{'d in trade or !;;,,;J!~f'ss

- L)\\In_:~. ::-:ctpt:
'> c:tr~:::ss or prr;;;! s of the taxable year.
:e ,:t::':::2s n, prr,f:'<:> :lccumulated up to the vear prior to the
within the Philippines as interest. cash and/ or pro pert\ d;, iti,uh
tax equal to:
a. twenty-five percent (25%) of such income.
b. twenty percent (20%) of such mcome.

c. fifteen percent ( i 5%} of such 1ncorne .

- t IL --,;: :1nH!S or ~JrD:'its or-.1:.- after the earnings d. ten percent (10%) of such income.
:,.- ~~l~ ., -~--i-~ iHt~ -!Istributcr!.
~t1t' n1 ~ ~;f~ c!toices_ Answer: A
Reference: SeC'tion 25 (Bj, i~IRC, as amended
jSectton 25 (BJ Nonrestder;."tXzi~-;.,_-[;.,_df~d~~TNoTE..:.rgag~d in Trade
! or Business Within the Philippines . . ;-;,._.,,, ;i:n.": ;.,. ;,., , , .' .
and paid for each trLxnble .ueur LJ.j)un r;:~: (r:J1r(' :nn;r:. ,.:
sources withm the Phrl1ppmes hy etrTi/ nm:r,:;:rient :,,.,,
engaged in trade or bt1siness tuithu: t) 't' ,t)hri:,n:~;rne . .:: , ,,~_ . .-, .;.
,.
..
and/ or property diutdends, rents, sniones, l.<.'f1;PS, pr~m11'~e< . , .. : ''e
com.pensatzon, rernuneratzon, emolwnetts, ur utru..:r ;:.v.:u u u :._":,: :uL ..
annual or periodic or casual gains, profits, and mcome, and capztai
..
ins a tax e ai to twent ve ercent 25% o such income.

'38 139
 Ct-..a~ 7; P~ Income Subject to Final Tax Chapter 7: Passive Income Subject to Fmal Tax

.:::apil.w !1.'-1S reab.zed by .:z ru.mresiLie~tc ulien indiV~'dua1T.i.t t:rtyug;;d in 22. Which of the following passive income from Philippine sources is
t::rade o- business in the Philippines from the 3ale of shares of stock in exempt~~~when received by nonresident
<r~.y domestic rorporation and real JJrDperty shall be subject to the aliens and non-resident citizens?
LllnCOme trtt ~l?_eg_ '!nder S!ll:>sectbns C and o Section 24. a. Royalties, in general
b. Yidd or any other monetary benefi:: frr~m deposit substitute
c. Intereet income rec~i.ved from a deposii.c::y ban!{ under
19. '11ocrucl-t uf tht" followin~ pasdvt:: inC'ome is not <Jubject to 200/o fmal expcmd_.d foreign currency depo::;it system -
...-:thholdmg tax? d. Other winmngs
a. lnteres~ from any peso bark deposit

-
b. Yield or any otht:r mo!'lctary benefit fror.1 dep<'sit substitutes Answer: C
and from trust funds and similar arru;gements
c. Pr.zes (exceptprizes amou!'lting to Pl0,')00 0r l~ss)
d. Roy"llties on books, as well as other literary works and ' 23. Cash and/ ur property cividends shall be subject to ~ 0% tinal
musical compositions withholding tax if actually or constructively received from any of the
following except: , . '" v
....
- ADswer: D a: domestic corpcration or from joint stock companies.
b. insurance or mutual fund comp:mies.
..... c. regionaJ oper"'.ting headquarters of multinationals .

- ?.0. -~ c-inl'"m:lt()~I'!::"'hic film ow.-,er. ~~~sor, or distributor who is a

::: :-nre.:,;cer:t alien engaged in trade or busin ~ss shall r.a: a tax of:
a. twer:ty-five percent (25%) of its gross income from all sources
d. a nonresident foreign corporation.

Answer: D

-,..
......
within L"le Philippines.
b. twenty percent (20';o) of its gross income from all sources

- .~ithin tl:e Philippines.

c. ::f:eei1 percent ( lS'uo) of its gross income from all sources
x,:l:in :he Philippines.
d .e:-: ne:-c~nt (10~/;.,) of its gross income from all sources within
i-.:.~ ?h~~~~pines.
24. Share of an individual in the distributable net income after tax shall be
subject to 10% final tax if received from any of the following, except:
a. business partnership.
b. general professional partnership.
c. associatiOn.
d. jon:t a.cc0unt.. juinL \t:::~L~:-~

- _.;_:::swer: A
Reference: Section 25 (2), NIRC, as amended Answer: B

.. c"' :,! :c' :c;ik>\\ing shall be exempt from income tax:>
- i';~ .. :,);:;:r:, Ch;t:-it\ Swe,_psrakes winnings :lncl ::;::o winnings
'r::~re" ;rKonw Lo:n long-term deposit or investment in the
.. <d\ll1c~s. cornmrm or individual tr~lst funds, deposit
-:.: .s;:~'.l'ros. in\stment management accounts and other
:;!'.estmenrs evidenced bv certificates in such form prescribed
bv Bangko Sentral ng Pilipinas
,._ I ,...., ..
,-."" ,)
25. Which of the following passive income is ex,mpt from ta;;: when
received by resident or citizen anc! r:cnresidt"nt aliens e-n~sag~d 1n
trade or business in the Philippines but suhjPct to 1S" .. final rax
when received by nonresident aliens :wt erL,,L.ed m t:dd, or
business?
a. Prizes of more than PlO,OOO
b. Interl!St income from long-term deposit or instrument
evidenced by certificates pr,.,srribcd h Rt-::ckn "'-rnn! ::v

. !I Pilipinas
c. Yield or an\' other rn{)nt~--l (;1't:.tAr1: :r,,::1 :- ,_.,._ ~~ -. ~._-

similar dtTangcnwnte>
cl. Other \\innings

Answer: B

140 141
 Chapter 7: ~_ssive Income Subject to FL'la! Tax
<:haprer 7: Passive Income Subject to Final Tax

Section 27. Rates of Income Tax on Domestic Corporations

26 . .n. restden citizen received a pri..::..! d P-10,800. '.'/hi~J: of th"! !"ollowing
(D) Rates of Tax on Certain Pa.ssiw: Incomes. -
statements is correct in connecti0n .vith the imposition of fmal tax on (1) Interest from Deposits and }'ield or any other Monetary Benefit from:
the prize? . . .. Deposit Substitutes and from Trust Funds and Similar Arra'lgements,
o.. TlJI'! first PlO,OCO is s-.Jbject to Sectlon 24 (A), the remammg and Royalties. - A final tax at' the rat of twenty percent {20'/f>) is hereby
P3C 000 is su bj..:ct to 20% f!.nal tax imposed upon thP nmount ofintPrest en currenq; bank depos;t and
b. The' .vhole amouqt 01 ~40.00(; shall be subject ~o :.!0% final '.field or any other monetary t>eF>~fit from dt>posii substif11 tes a:ui fi om
tax .. trust funis and similar arranf:<::merts received bJ! dom~stic ,
c. The first PlO,OOO shall be exempt from tax. the !'emammg corporatior~s, a~cl royalties, deri;.Jed from sources Uitthin t/.e Pruiip1~:: ~ '
?30 000 is subject t:J 20% fin~J tc:x Provided, however, That interest income daived by c. domestic
d. The,whole amount is subject to 25% fi--Jal true corporation from a de!Jository bank ur.der tk? t:?xpan.ded foreign

- Answe!': &
currer..;;y deposit system shall be sub_ie~-r t:J a final income tax at the
rate of .>even and one-halfpercent (7 '::"'r>J of sue: 1 interest income
Section 28. Rates of Income Tcu: on Foreign Corporation
(A) Tax on Resident Foreign Corporation
27. Passi\e income received by domestic corpvr':'-~~n~.an~.~~~~~~~~~ ~l--~ 11 (7i Tax on Certain Incomes Receu.ea oy a Resident Foreign Co7JX.-atiar~

.... foreign corporations denveo from sources WlUliU lU<:: nuupp...w:."' "'h
be sul-ject to a fina1 tax at the rate of , 0
~ (a) Interest from Deposits and Yi<?!ri or any other Monetary Benefit frcrn
Deposit Substitutes, Trust Funds and Smuiar Arrangements and

-
twenty-five percent (L.S%).
~- ~;:(>r.ty pcrce:~t ~20~~-
c. fift..!e.1 pi!rcent 115 Vo).
ti ten percent (10%1.
Royalties. -Interest from any currer:cy bank deposit and yiPld 0" ctr.y
viher tnont:?tu.ry b<::ttefit irorrL dtpo:>:: s:.bsritutes and :rom tn1s1 Jimds
and similar arrangements and royaltles derived from sot: Tes !Hi hw '~"' --
....
--..
Answer: B Philippines shall be subject to a final income tax at the rate of twenty

--
....
References: Section 27 (!>} (1), NIRC, as amended
";ection 28 (A) (7) (a), NIRC, as amended
percent (20%) of such interest: Provided, however, That interest income
derived by a resident foreign corporat:onfrom a depository bank ur.der
the expanded foreign currency depos:: system shall be subjPct tr:> a fir. a!
, income tax at the rate of seven and o:e-half percent (7 '-2~n) ol suci:
....

--
L_0terest incomE'.____________ _________ ----- ----

-
. ,.; Whir:' 0 : the follosing pass;\e inrome is not subject to final tax when
:"PC't->' : .. !" ~)\ C'()rpnrations?

'-" 30. Whteh of the tollo\nng lllt'0~1f' rk;:. :':: ':, !:)rnc:~t:- r;r r:-~;;io:

-- ' o:.dt lt'S

..,.i,.l<J or mnnetan lJe;;cfit from dt'iJ<JSlt su!Jstlttlft'
rlepositorv banks under tlw txpiin<!rd to;rign curr-:nn dq>o:;:
system is subject to I 0% fi:1al ta..-:'J
a. Inco1ne from fnreigr; cL:r:-er:,:~. ~:-a:I~-;act!on<, .':ith ;:ur::~-':.:'...
J
-
b. Income from foreign currenc: :an,;actton; \\ith otfs~;.,,,.
-
--
banking units in the Phllippl!lc,;
c. Income from foretgn currency transactions wtth local

- :ill<'"< :: 1;-or;; 1ieri\cci !Jy

.",., .. ,.,

:,;~;;;;:~ ,
a domt'stic corporation and a resident
,nnr;>~ ull fro:ll a drnositon bank under the expanded
1 /;~;v:~: cieposir s\stt~m shall be subject to a final income tax d.
may be authorized bv the Ba:L,:..:o :-)entral ng Pilrprn;;s '!
transact business with fore:l~:: 'U1Tt'I1CV clr-pusit s\ s't'':l
Interest income from foretgn ~urrency loans grant<>d tn
:~-;;

residents
~
,,,.,,.., i =-~

Answer: D ....
Reference: Section 27 (D) (3). NIRC. as c<mended
Section 28 (A) (7) {b), ?'>IRC, as amended -
)
''-ns~v,...r t:)
Refer-ences: Section 27 (D) ( 1), NIRC, as amended
Section 28 (A) (7) (a), as amended
--
143
-
 Chapter 7: Passive Income Subject to Final Tax Chapter 7: Passive Income Subject ro Fir..a! Tax

31. Any incor.1c of nonresicier.ts, wl11::tiler !r.divi<.lu.:lls Oi corporations, ten percent (10%). Any income of nonresidents, whether individuals :>r
from tra.Tlsactions with c~pository banks under the expanded system corporations, from transactions with defXJsitory banks under the
shall be: expanded system shall be exempt from income tax.
~ exempt from income tax.
b. suQiect. to fiftee:t J:ercetlt (15%) final tax. 32. Dividends received by a don:estic corporation or
by a resident foreign
r:. subject to teJ.l pe-rcent P (l%) fmal U'x. corporatic.n from a domestic cuporati..:hl shall:
d. subject to seven and :me-half percent (7 Y,%) final tax. a. not be subject t0 tax.
b. be st: Lject tQ fiitee!l percent ( 15%) final tax.
c. be S 1 tbjest to ten perr"r:t : 10"') final t:ot.x.

=l
Answer. A
Reference: Section 27 (D) (3), NIRC, as a~ended d. none of the choices.

-- Section 28 (A) \71 (b), Nrn.C, as ame=-n=d=e-=d'----:---

i .::iection 27. Rates of In.cort'.e Tax on Domesttc Corporattons.
i {D) Rates of Tax o~ Q>rtain Passive Incomes. -
I {3) Tax an Income Derived under the Expanded Foreign Currency Deposit
Answer. A
Reference; Section 27 (D) (4), NIR(;, as amended
r-::---,----,.........;.S_:_.ection 28 (A)~), NIRC, as amende_d_ _ _ _ ____,
Sectton 27. Rates of Income Tax on Dotnesttc Cvrporattons.
:~~;~~:~: ~=;:~:!:~.ej,~~:t;:::'"~:,~:~~7:!/z:e::a~~~~ wi!h
- 1
nortresidents, offshore banking units in the Philippines, local commercial
1
, (D) 1\uie$ of T(L-r:: on Certain Passit-e Incomes.
(4) InterC"lrpC>rntP TXv:C:.ends. Diuirlcnds rercived by a do'T.estic

--
banks includir..g bra.1ches offoreign bar..u th.:lt may be authorized by the cor;:;orat:onfrom another domes:ic corporation shall not be subject to tax
I Bangko Se1tral na Pilipinas (BSP) to trans ad business with foreign Scctton 28. Rates of In=orr.c T;vc en Foreisn C.;;,rpora.tior.
currency deposit system unis rmd other rlPpositonJ banks Hnder the (A) Tax on Resident Foreign Corporatzcn
expanded foreign currency deposit system shall be exempt from all taxes,
(7) Tax on Certain Incomes Receieed by a Resident Foreign Corporation.
except net income from :>uch transactions as may be specified by the
(d) Intercorporate Dividends. - Dz;.rder:ds received by a resident foreign
Secretary cfFmance, upon recommendation by the Monetary Board to be corporation from a domestic corpcrarrcc'l liable to tax: under this Code
subJ'>ct to the regular income tax payable by banks: Provided, however,
shall not be subject to tax under <;:is 7''tle. ______..___ _
' That in terest income from foreTgn currency /o'lns granted by such
, deposztory banks under said expanded system to residents under than

-- : offsrore tmits in the Phzlipprr.es or other depository banks under the 33. One of the following dividends rcct>in~cl from a domestic corpora no~~
cxpc~~~deri systcrn shc:Il be ;;~,;_.;~jcct ton ;:nc! tcL"C a! the rate of!en percent
is not subject to final tax.
I r( ~n,, fnrv-,m~., ,-.(nnnrc:r:,Jvnf..:::, 1/'hpfhPr iT1f"l,n-frfun/~ nr rnn1nr(1finns a. Cash dividend reccind :,. ,, '"s:dent nr:Ln
~ b. Propertv cil\'!dcncl rt''. .: "'>:1:--':.w:':: :<':'" ., '"'

-- .,_ i~t' t'xcrnpt (rorn

Section 28. Rates of Income Tax on Foreign Corporation
r ~I c: i_\" un Rcstdcnt Foreign Corporn'un
~r,.corne ~~L't.

- ._.. ;x <-"? l 'ertoin Incomes ?eceized by a l?eszdent Foreign Corporrrtion.-

trade or business
c. Property chvidend I'CI.'''l\, ~ \... d nonn:sir!ent for;::.;:<
corporation
d. Cash dividend ren:ived l": a 1.:sident for"J~!1 corp<Jrc\tJO::
;, ,',,mr TlPni'Pd under tf,p r:;xpanrlf'd Foreign Currency Deposit
Answer: D

-
,<:, ;''"' . jncorne Denued under the Expanded Foreign CurrenClJ Deposit
,., irccome> clcrn:crl h; a dtposrtonJ iJnnk ?<nder the expandeci
'IF"'I' "':rnncy cleposzt srr.c,em (mmforPn.Jn currency trmrsactwns with
~ 34. How much final \\itllholcling t ,:.: ,:-; ::::>std on he :uno't:. . i!'':
nor:: '-:,<',:n:s, off'.;lwrP bon>:"'(j units t'l the Ph,l!ppines, local cornmercwl received by a nonresident fort'i~:: ,-:;:::::,ltion u:1 for:.>;n :"c;'"'
;Junr_, :nciwlinq bmnches c_,-foreryn brmks that may be a11thonzed by contracted on or after Auguo;t 1, l (1'),;
:-., o<w'q;:o Sentrnl r:o Pilipr.os !F?SP) to transact husiness rvithforeign a. twenty percent (2010) c. ten percent ( 1on. I
b. fifteenrwn(nt(JS.j ,i_ fi\.rw:c-n:

, :r~.; ./,._ .-{_, rnrn1 i1: >~JtY'ijrctl iJ!/ Answer: A

,.,, .. 'i'nf:.:~ "' ; .. ; f?c .'..r.). (~"ur:t ~3oud g_e.fe_x:~n<:(!.~_~e.<::tion 28 (B) (S) (:1l. ~>IRC, as amended
I - - -
, ~ 1 r ; . -, .: / r 1! 'I Sectton 28. Rates of Income Tcvc on Foreign Corporarions.
,; .. ,, .... , .-. !'hur ulrere.,tlnco''r-' (r.rrn {oretyn r11TTency loans (]ranred iJy (a) Interest on F'oreiqn Loans .-~ ... ,:,: : .t.;'i?oirhnr; tux ot !;,,, . -.,!,, ::f
,:,~_ ., _:..;o,-_.;Itur_LfVCU~r\::,., unc~~- r .:)tdti r..:ApundeJ. sy::>Zern cu re::.1J.tTLts otfk:r ' twenty percent (JO'oj ts hcrciJi :;::.x;-. ,;r: the ur:: JJ.rc: :~:,.~c ;: O!L

1
offshore bankmg umts m the P!ulippznes or other depository banks
them foreign loans contracted on or ajter August 1, 1 ':J8o;
;_under the ex anded s stem shall be sub ect to a nal tax at the rate o

14-4
145
 Chapter 7: Passive Income Subject to Final Tax

35. How much fma1 \\lithholding tax is lmlJ()seO on the amount of cash Chapter 8
and/ or property dividends received from a domestic corporation by a
no~ident foreign corporation? CAPITAL GAINS TAX AND
~- cwenty percent (20%) c. ten percent (10%) DOCUMENTARY STAMP TAX
b. fifteen per\:ent (15%) d. five percent (5%)
~e a6ihty to conc~ntrau a111l to use you~ time Wt'C" is ~: er::r 4 ine
AI>swer: a ifyou want to succeetf in ousinrss-or af.tWst unyw.~ere dst: for t/iat n..JtUr.
Refe.-ence: Section ~8 B 5; (b). N!:tt.C, as ~m=~.::::n:;.:u::.:.e:..:d=---------, ,L.:r. J,~,lh-,-u

Section ~8. Rates .:Jj Income ~"ax on F=>r.eign Corpo!:ut:Lo.n.s.

{bllntercorporate_Di_vidends. - A ji;u1f:uithholding tax at the rate of
Jifteenpercer:t (15%) (is hereby imposed on the amount nf cash a>tu/ or
Iproperly Multiple Choice: Choosto the best possiblt: answer.
1 diuide:!ds receir.-ed from a domestic corporation, which shall be
colleaed and paid. as provided in Section 5 I{A) of this Code, S'.1bject to
the cond;tion that the country in which the nonresident foreign 1. The tax base and the tax rates of the capital gains tax on the ;;ale of
I r;t:J_rpQration is domiciled, .ihall allow a credit against che tar due from shares of stock nnt tn:ided in the stock exchange shall be:

- I
1
the n.onre;;;id~rujon:dgn lXJtputuiion tu.x.t::~ dt:~nted to f~~L'2 beenp~_:d in
the Philippines equivalent to twenty percent (20%), whtch represents the
.iifferen.c.:: !Jetween the r~gular in:::orr..e tax oJr tJ-Jrty-fiue percent (35%)
I - the net capital gain.
a- S'Y? on the first PIOO,OOO; 10% on exces3 of PIOO.OJO

- a:cd the fifteen percent (15%) tax on dividends as provided in this

su.hpamgraph: Pror.;ded, That effectiue January 1. 2009. the credtt
against the tax due shall be equivalent to fifteen percent (15%), which
! represents the dtfference between the regular income tax of thirty
LEe cent (30%) and the fifteen percent (15q6) tax on dividends.
a. Both I and II are correct
b.

Answer: A
Neitt1er 1 nor II is correct
c.
d.
Only ! is
vniv It 1:>
cr;:i~<::~
co ~ec t

References: Section 24 (C), NIRC, as amended

Section 25 (A) (3), NIRC, as amended
',,
Section 25 (B). NIRC, as amended

-
' Section 27 (D) (2), NIRC, as amended
Section 28 (A) (7) (c), NIRC, as amended
Section 28 (B) {5) (c), NIRC, as amended

..;_ 2. When is the capital gains tin re'.urn fi:t:d b\ a :ra:.urai ,_,,.:uncLe<!:
person, resident or nonres!l:nt. \\hu is not ex>rny ;mcie: f>Xlstn;c:
lav.s for the sale, barter~ cxcr.an~e o~ other or:~r()US dtspo-;1tl0!1

c- intended to transfer ownership of sh;u-,s of stCo<.'kc> ;n dc:-:;estw

corporation classifif'ci as rar:o'ra! 'lSst,ts. not tr:Fl'i i1rC''I'!h th: ]I;C<J]
stock exchange?
I- Within thirty (30) d.J-, s '"'T ,.,,.,1 ctsh ,;t:. 1::: . vr;,r;~'
or other disposition --,r sh.tn-s stock ;_~~'Jr ~_r:ld~>,_: ~:::o:~:;:; t-~:
{1:-

local stock exchang'

II- In case of installment sak, the rcturn shall \;e ;-;lt-d .nthm
thirt\. (30) rb,s foilr;.<.p;::-: trw :-:Tlpt nf h, first <ir>\\ n p;onmP!l'
and \\.'ithin (30) da':(; : ~~ ''.\1:~:~ :.Hh su:\sr1;':r:1; ~7~S'"d!:rnrn

a. Both I and II <Jr<' ;: ~ j

b. Both ! ancl II arc ;w

147
 Chapter B: Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentary Stamp Tax

Answer: A 6. In the case of exchange-~9f"r~d'~iR~~~

Reference: liiR Form No. 1707 (Capital Gains Tax Return for ~the selling price shall be the:
Onerous TraJU~fer of Shues of S!:ocks N?t Traded a. total consideration per deed of sale.
Through the Local. Stock Exchange) b. sum of money ond the fair rr.arket value of the property
recei\lec.
c. fair mark~ t valu~ ~..f the property rece;ved. ~: ;, ; J.. ' , . '. -. ,
f '~ Whtn is the filing of the annual capiUJ gains tax return for onerous d. no.-.e of the choices.
transfer of shares of stCY"I< not tracf"d thro..tgl. the ~occ>J stock
exchange covering 2.h traHsaction~ Oi the preceding taxable year? A:cswer: C

-
a. Within th1rty (3:)) days after the end of tht. taxable year Reference: Section 7 (c.1.3), Revenue Regulations Nc. 6-2rA>s
b. On or Leiore the fifteenth (15th) day of the fourth (4th) month
following the c:o::.e of the taxable year
c. On or before the fifteenth (15h) day of the third (Jd) month 7. In case the fair market value of L'"le shares of stock soid, bartered, or
following the ci.,.;;e of the ta'Cable year exchanged is greater than the amount of money anrl/ o- fair market
f ' d. Within fifteen ( 15) days after the enn of the ta.xable year value of the property received, L'"le e;:cess of the fair market value of

,-...
~ Answer: B
the shares of stock sold, bartered or exchanged over the amount of
mon~y aml th.: fair market \~.:ue of the proj:>ertY. if a:1y. :-ecei. ed as

-
Reference: BIR Form :ho. r/07-A (Annual Capital Gains Tax consideration shc.ll be deemed a:
Retarn for Onerol!s Transfer cf 8hnres ,r ~t;,ek.c' N".,t a. gift sub_iect to the dunors rruc c. dividend dJstributivn.
'I raded Tluol!gh the Local Stock Exchange) b. taxable income. d. none uf the: choices.
< Answer: A
-=::: 4. Where is the capital gains ta..x return for onerous transfer of shares of Reference: Section 7 (c.1.4), g_evenue Regulations No. 6-2008

-=
stock net traded through the local stock exchange filed? (c) Detennination of Amount ond Recogrution of Gam or Loss. -
J - Authorized Agent Bank (AAB) under the jurisdiction of the (c.l) Determination of Selh.r"g _0.-.c:-. -In deter!l'Itr..!ng rhe set'hrg . --'~r:rP,

-
ROO where the seller I transferor is required to register the following rules sh(J!/ oppizr
I! - In places when" thPrP r~re no Authorized Agent Banks. the' (c.l.l) In the case of cosi: sn:.. tlte sc!l:no price sf11d.' be ti~e :';to'
rPtnrn hr~ll hP filf'd with the Revf'rltle Collt:>ction Officer or consicleru~!on ;_,,-~r- ~':.--. ~ (1/ so if-;'

---
.:::::::
d
dtdyt\urht~i-izrd Cir~- nr J\iunicipal Trr;-J:-;un'"t l)f the h'LH)

wlwre the seller . transferor is required tn nt,iskr

l1uth ! and !I are ctl!T<'ct
Both [ cl!1d l l .. re mcorrect
c.
d.
Onh r is ('O!Tf"rt
Only It is correct
purtiu
::;urn
receiuccl.
Ill'"''''
ofn~cr:~':;

(c. 1. :3) !rt the C(lSe o; ,

'!,' ,r ;, 1 ui r- t',':
t'u;r .rn.cr,...;:et
'.,tt~i:(:i
"'1/1f(-' or~;~!:;) . . .' ;:.... ~-,

c- Answer: A
Reference: BIR Form Nos. 1701 and 1707-A
rnarket uuiue ._,~: r;.~~- _:---.-,pt'rty recc_iz t:.u.'
(c.J.L~} In case the lrn: :nG~.r .. ;'OlUf' o(the shun's u.~sro(.~- :-:
bartered. or c..-ch~-~r 'i. d ts orcuter thr;n t}u (unour~~
rnnney ur,l
iflt' {>_\('(',_ . .:--:: i'.
. i.

, ;_ r:.. _, ~ r 'i.: ~. J: ' ,

.:">. iil the case ol casl]sale of shares of stock not traded through the .">old. lJiU ~. r(i '.r.
:ocal stock exchange, the selling price shall be the: tl!efnir n1arker ,,.a:~c :the proprrt_Tf. t(urnJ. r~~er.<.:-rJ .
total ,-r,nc;idnrcltinn ~wr r!cPd of salt>. considPrntion ':he~!! h.~ drernerl n gift suh_ject to the ~flp~or'c::
i
c:: fft' '
,)(: ;.; I 1 ' , , : , '.'

...-..

c ,i.nswer: A

c Reference: Section 7 (c.l.l), Revenue Regulations No. 6-2008

l__
148 149
 Chapter 8: Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentary Stamp Tax

~ 10. Which of the following ~tatements is incorrect?

; 8. in tile case: vi share-> of ::.t-<.k nvt !!3t>::d and traded in the local stock
exchanges, what shall be considered as the fair market value? a. The gain from the sale or other disposition of shares of stock
a. The closing price on the day whe~ L'le sh::u-es are wid, shall be the excess of the amount realized therefrom over the
lra.J\sferred, or exchanged basis or adju~ted basis for d~termining gain.
b. The bcok va!ue oi the shares of stock as shown in the b. The ios.> from !he f>ale or other disposition of shan.s .:.f stock
fmancia! sb>tP.ments duly .-ertified by en independent certified shall be tbe excess of the basis or acju~t::!d ba~:_, ~or
public ac-:::ountant nearest to the date of sale delerminin5 toss over the am,mnt realized.
c. The acquisition co~t nf the 3hares sold, ~ransferred or c. The &mount reallZt:d from the s;~.le or other di:;~sitior. of
exchang"d prope~ sl1v.lllx the su:n of mor,ey recei~oed plus ..he fair
d. The selling price ~r th,. bid price nearest to ~he da:e of sale as market value of tile property (other thv.n P"1oney) :-eceivcd. if

- publishd m any newspaper or publication of gene:aJ.

drc'llation, whichever is higher

Answer: B
f.
.
t__, - "': _'! 1~.
any.
d. None of the choices.

Answer: D
Reference: Section 7 (c.3}, Revenue RegulatioD.S No. 6-2008

....
Reference: Section 7 (c.2.2t; Revenue Regulations No. 6-2008
' '1
-...
(c.:L) JJe}lrutwn oj jazr markeL value- of the Shw .;;> c.j Swck. For
I purposes of tr.is Section, "fair market value of the share of stock
I svld 3hali be: . ___ ..... . I 11. The cost basis for determining the capital gains or losses for shares of

-c I fc.2.11 En the case of11!sted shares' which were sold, transferred, or RtC'ck acqnirf'd through ::mrch?s~ sh2Jl IJe go"mec' by i:.'rh o' :-:'-
I e.x:c"artged outsirle of the {radrng system anri/ or faCilities of following rules?
the Loc-al Stock Exchange, the closing price on the day 1/Jhen a. If the shares of stock can be identified, then the cost shall be

-- I the shares are sold, transferred, or exchanged. W"hen no sale the actual purchase price plus all costs of acquisition, such as
is made in the Local Stock Exchange on the day when the commissions, documentary stamp taxes, transier fees, etc.
..... fisted shares are sold, transferr.:d, or exchanged, the closing
price on rhe day nenrest to the date of sale. transfer or
b. If the shares of stock ca::not he propt>rl\ idcn tifi,d. t ::en the
~ cost to be assigned shall ';e computed or: the bas:-; or- rh
exchange of the shares shall be the farr market l!alue. first-in first-out (FIFO) I'-hod.

--
(c.:.: 2} in the case of shan?s of stock not Irs ted oncl traded zn the local
c. If books of accounts an r~'aintairwd h: :he st"l!r: x -re ,.-,.,~:-'
stock exchangs, rl--LL l;oDk t:alu.c Gf the :;hare:.: of .~!cc.lf as
~I.~,...,n : .. , hn r~.,..,n.,7r-.r 7 1 C"+l"'!t~'nont<:e r!rrT11 rr:>rriflprf JpJ r1r1
transaction of a particuLu- st(1ck is r~< u:drcL th- ,(, ~::.,~:~:~!

''"'1(f 1 ~~>":>" ~~r, r:r--::i,-f ,!F1I,[:c r_urr''"":' ,.,i ~-~n . . . ~ ~u -,::,..~ r-Jnt~- of
average method sh:1!~ !- ... ::':;::~.'~~ :-.1~h"'":~ "":;ar ~ ': .:!
1
:::--~- -~

-.....
~
____ .'>!_Il':l._o;_i,~::_l '2" the fcnr rnnrk:ct un/rw.
d. All of the choices.

Answer: D

- 'I. In the case of a unit of pel: :icip<ttion in any association, recnation or

ai!lUsernt>nt club (such as gulf. polo, or similar clubs), the fair market
value thereof shall be the:
Reference: Section 7 (c.3.1.1) (1), (2) and (3), Revenue
Regulations No. 6-2008

-
........ c>)sin_g pr1ce on the da~ . .vhen the ~ho::tres rtre sold. tr(lnsfcrrcd,
.~,.,... ~X\' h '1 !1 (Jf~rl
;;;;~k vc~lu; c;;.t!w shares of stock as shown in the financial
statements duly certified by an independent certified public
12. Five (5) shares of stock in XYX L>:n:J,tm ,\"1..,,. ::,:qu:r,c:
ofPhp 1,000.00 or at two hur1C!:,d il'sc):-> per s;,;:n !Ph;
"'' ;t

XYX Company declared and issu,.d fiH' (5) shares of sroc:..C d'i stcwk
dividend.
;L :JtJ

;wcountant nearest to the date of sale.

r;~ th'" '~h;tres ~nlrL t:-an~fr-rnd or t>:<chdnged. ,.
:::sit:'l!'!
'":.~ ~;:-:'
r1):;t
~ ~,,. ;)r:~ nr;lrr',.: t;} ~;:,' .-j.l~t~ ()( ~.L tS
How much is tlw cost h:1si:; .-.,:
a. P200
' '}) .... [' ~I r :.)
-

b. PlSO .
'Ill

-.... Ans~ver: D
Reference: Section 7 (c.2.3), Revenue Regulations No. 6-2008 ..

150 151
 Chapter 8: Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentary Stamp Tax

Answer: C (Pl,OOO/ 10 shares) ~ 15. Assume that "Mr. Ehl" sold to "Mr. Nash", sha::-es of <:oc!{ fx e
Refe1~nce: Section 7 (c.3.1.1) (iv), Revenue Regulations consideration of PI ,000,000. At the time of the sale, its fair market
No. 6-2008 value is P3,000,000. "Mr. Nash" later on sells this property for
in general, stock dividend received shall be asstgroed with a .;ost basis P2,000,000. Ho\7 much is the capital gain (loss)?
which shalllx: determined by allocating the cost of the orif,inal sh'l~es 4 a. P2,000,000 c. (Pl,000,0<10)
stock t" the :Ctal num.be:- snares held aft.:::- rece4Jt of stock dividend.~ ~- PI ,ODO,OOO d. (P SfJO,OOO)
I fi;e , thP criginal shares plus the shares of stock receiued as stock ~- cc;r - _()T"';,
c~,~-~ I.e. r - 'vi) '-+-.:...:
'. :.
__
, . ,.-,

L.E_ivfdends , J.niwer: B
Reference~ Section 7 (c.3.1.4), Revenue ~egulations No. 6-2008
Selling pric<> p 2,000,( )()
r 13. First stat.. ment: If the property was acquired by d~"ise, bequest or
Less; 3a1'i::; 1.000.0001
:.rll:.eritance, the; basis shall be the fair market vaiue of such Capital gam ~~
pr:Jperty at the time of death ot the decedent.
-<: :;, Second statement: If the property was acquired by gift, the basis If the property was acquired for less than an adequnte consideration in
shall be the same as it would be in the hands of the donor or the money or money's worth, the ba...h cf such property is thf: amount paid

--,...
~ last preceding owner by whom 1t was uot 11cquir.-u by gift, except
that if such basis is greater than the fair market value of the
property_at the time of th::! gift, then for the purpose of determi,1iug
',th:: lo:::;s, tne basis shcll ~ su~h !'aJ'r mq;kP.t u?.lue >" ''
a. Eoth statements a::-e correct
fl y' ~i ( r.,,r
by the transferee for the properly.
i-iC'!"eVt::r, at the time of saie b11 ".\fr. _r;;;,r to Mr..Vas:1. tho.! form,_-r
should pay Capital Gains T(n-:md Documentary Sto.mp T~ on t}u;
c>ver-the-counter sale transac:c't$ of short's and at the sarne twe
Donor's Tax on the indirect g~: u -t::~'(, is the dijferc.-H:e beruee" f.:1ir
market value ofshares/sto'-ks sold an,: the actual consideration ror
< b. Both statements are incorrect
c. Only the first statement is correct the sold shares of stock. .
-=::::; d. Only the second statement is correct

..:: Answer: A 16. First statement: For sale, barter. t>xchange or other forms of

---- Reference: Section 7 (c.3.1.2) and (c.3.1.2), Revenue Regulations disposition of shares of stuck S\l b]'Xt to the so,~.; I()",, ca,~ital ,, i i"s
No. 6-2008 ta.x ()~ __t~e\net\capitztl ga1:- rhmng the taxable v'ar, the capica!
losses nahzed rrnn1 th1c.:; i ;~ o~- ;i-.1n.~;~ction dLring rht~ ~:-:.:..:-;'t;-,>~ ;~_a:-

---
"""""" ''
l"t \ssurne that "'V1r. Era" i-;r"ugtlt shares of stork in l<f70 at a cost of
.': >10,000. lie donated :r::se shan's to ":Vlr. :\io" on Januar. 1, 1'J')8,
~-_ .. :-in~ \\'hich tirne, the said sharr~s has a fair rnarket \alue of
of transaction
Second staternent: If the
durin~ ti1t .-.d::;t
ptnud.
ti~;i;:~;-,?r.-~r
nf the 3h.-tr-cs is an li:- :~:v: 'Jj he
rule on holding period ~1n< ::t;-::p ~: LJ~~s carr." t.:'.r v.:::l :- ~ -_.---..--.
not\AJithstanding th< pn,\;.<\;:--;:--. ;;f :-;"~ction :~(;()~-~he l'a-: (':;::~-~ :-1:;

c--
? l ,000,000 and 01~ the basis of such fair market value, "Mr. 'Em"
::-a.id the correspondi:~g donor's tax. "Mr. Aio'', the donee, sold the amended.
s::-:ares on January I, 1')(I<J for a consideration of P :2,000,000. a. Only the first :;tater:~'':1t ::; ::rJrnct
b. Only the second st~t_tnr;,enr i-~ corn'c:t
,:->\\'much is the capn;,: ~~ain (loss) from szde of shares of stock? c. Both sl;ltcrnents ;q,, r 'J:T<'<"I
a. ['1,900,000 c. fX150,000 cL Both statements :t~:- :c~cu:;-;, r
b. PI ,000,000 d. P500,000
Answer: C
Answer: A Reference: Section 7 (cA), Revenue Regulations No. 6-2008
~ P :c.OOO,OOO
.__ I __ _jJJOcll.8.-'

,..... ~ !: I '' l,'lOO,(HJc.:

.. --~---- ----~-----~----------'

c
~ 152 153
 ChapterS: Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentary Stamp Tax

ll. Which of the followmg sta1.ement is incorrect? 20. In the case of stnck without par value, the pre~r it.:. G. arr.uun~ vf t::x
<.... Losses from shares of stock, held as capital asset, which have documentary stan1p truds equivalen-t to what percent of the
become worthless during the tax..1ble yec.r shall be treated as documentary stamp tax paid upon the original issue of said stock?
capital loss as of the end of the yc.ar. a. Thirty ;x:rcent (30%) c. Ten percent (10%1
b. Loss t-om shares of stock, he!d as capital asset, whic'11 ha. e .b. !wenty five percent (25%) d. Five percent (5%)
4 be<'coe worthlc~s ~not deduct:ble a~ainst the cap;tal [;ains
n:alized from the sale, barter, exchange or other forms of Answer: B
' ~1' 1 dispositior: of ~hares C'i stock during the taxable year, bu~ References: Section 175. NIRC, a'~amended

~
raust be claimed agc:ii,st other capttal gains to thP extent ction 175. Stc..mprTax oli\~AlQ..:ig=r=.::::e:::.::lt:::te:::n:::ts~-to--=s=-e-=z"""z,_,M-em_o_rand...l
pro\-ided ;or u.1kr Section 34 of the TllX Ccxle, I:"S am..::nced. Sales, Deliveries or Transfer of Shures or Certiftca~es of Stock-

- c. For the 5/, and 10"/o 'let capital ::::ains tax to apply, there must
be a..-1 actual disposit!on of share:<> of stock held as capital
asset, and the capttal gain and capital :oss used as the basis
if' determining net capital gain. must be derived and incurred
n all sales, or agreements tu sell, or memomnda of .<::.a/Ps, or deliVtri:!S_
Or transfer aj shares or .::-?r..jicates of stock in Gn'.l association,
corr,pany, or corporation, or transfer of such secunties by assignment i11.
blank, or by delivery, or by any paper or agre~er , or memorandum or
respectively, from a sale, bart!'r, excba..,ge or other disposition other evidences of transfer or ::;ale whether entitling the holder in any
of shares of stock. manner to the benefit of such stoJc, or to secure the future payment of
money, or for the futur':! transfer of nr.y stock, there shall ';e collrcted a
d. None of the choices.
documen.t?.ry stamp tax of Seventy-fiLJt?centavos JE~J on_e~~ I~

- An:nrer: D
Reference: Section 7 (c.S,, Revenue Regulations No. 6-2003
hlpJdred pesos L~OO), orfractwn.a! part thereof, of the\par ~ahie joF such
stock: Provided, That o;ily one rax shaii oe cotecteti on <>uci, :sale or
transfer of stock from one J-erson to arc:her, regardless of whether or
not a certificate of stock is issued, indorsed, or delivered in pursuance of
'*' 18. The documentary stamp tax on all sales, or agreement to sell, or such sale or transfer: and Prouided. further, That in the case of stock
without par value the amount of tf:p documentary stamp tax herein
mem~randa of sales, or deliveries, or transfer of due-bills, certificates
of obligation. or share~ or certificates of stock is based on: prescribed shall be equivalent to !!:!:..!i!.l.Ji:l"-u!I_percert {:!5'\ 1 o'.the
a. purchase price. c. par value. documentary stamp tcu: pazd upon ~~l_t' or,g1r:a/ 15_~S!_'t- nJ: -;c~d :;!C -~- _ ___;
b. book value. d. fair value.

Answer: C
21. Ho'.V murh f!nr~l t~~x i~ irr1rn~P'ri 10"''''
httn n;.Jiztd from tht s,tit-. :::< ', ,--
Reference: Section 175, NIRC, as amended
property located in the Philipp1rw->. ' .. 1ss!li<~d as ':.l!l!l.L ,-;sets-)
a. 10c~~} capital gains tax c. 5 o c;-tpl'.. t': J.::;;Js tax
b. 6~;, capital gains Ltx ,._
.I
:if l 'l. The amount of .he docurr:enrary stamp tax on ali "aks, or agn:ement
to sell. or memoranda of sales, or deliverit_;, or transfer of due-bills,
cc;; ;fi. a~es 0f obligJ.tion, or shares or certificates of stock is:
Answer: B
.J. ~wve-ntv-five centa\os (0. 75) on each P 1,000 of the selling References: Section 24 (D), NIRC. as amended
Section 25 (Aj (3). NIRC, as amended
i, ,, ... ,:~r\five-centa;os (!'0.75) on each P200. or fractional part Section 25 (B), NIRC, as amended
thereof. of the par value.
c. se\entY-five-centaYoS (P0.75) on each P200, or fractional part
~:_,-:-~- -,r, of thP L--l: :- !l;l. rk~,t -.,: 1~: :,-. 22. \Vhat is the tax base of the capit<>l "tins tax on s:d ,,;- rc\d propert::
~-{~~) (!'! \,),! ~ - ,;.i i1 ,.~(i, ,,~- ;'' 1 :~): 1 );Jrt 1h~n()~. or' classi(icd t!S c;tplLd :t~srf'
a. C:J.p1~:ll ~~:11t:
h. ( frn:--;.';; <...:.t'lili1.: pr!f'l'
C C'U!Tr'f1l l";ur !1i,ll-~<t; \'.!
.\nswer: B
d. (;ross selling pri('(' {);
References: Section 175, NIRC, as amended
Xevenue Regulations No. 13-0t
1l!ght"'T"

154 155
 Chapter 8: Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentar; Stamp Tax

Answer: D . 26. The Commissioner of Internal Rever:ue :>!13.1~ te dt:ly r.G~i5~ ry th--,
References: Section 24 (D), NIRC, as amended taxpayer within how many days from the date of sale or riispositil'n 0f
- Section 2t) (A) (3), NIRC, aa amended the principal residence through a prescribed return of his intention to
Section 25 (B), NIRC, P amended avail 0[ the tax exemption from capital gains tax?
a. sixty (60) days c fifteen (15) days
b. tiurty (30) days d. ten (10) d:t;s
~. 23. Which of the following is not subject to the 6% capital gains ta;.;?
a. G.::tins presur~prJ to ~1ave bee.a r~alized from the sale, Answer: :S
excnange, cr ,,ther Jispcsition of real pro!)erty located in the R.!f~rence: Section 24 {D} (2j, ~c. as amended
FhilippirieS, classihed as capital assets
" b. Pacto de retro sale of rer>l proper:y by indi'.iduals, including
estates and ~rusts ~ 27. Th,..
taY exemption from the capital ~air:3 tax car: only be a\.aikd of
r c. Other forms of conditional sak of real property, by inJividuals, once e,.ory:
including e<~tates and trusts a. ten (10) years. c. eighteen (18) months.
d. None of the choices b. five (5) years d. ten (10) months.

Answer: D Answer: A .... , ,

-
References: Section 24 (D) (1), NIRC, as amended Reference: Section 24 (D) (2}, NIRC, as amended
Section 25 (Al (:?), NIRC, as a:r.ende1
Se.;tion 25 (B), NIRC, as amended 28. If there is no full 'ltilization of u,e proceeds of sa;.: or di>:>positioa, the
portion of the gain presumed to have been realized from the sale vr
disposition shall be:
24. If real property classified as capital asset is sold to the government or a. exempt from capital gains ta.x.
any of its political subdivisions or agencies or GOCC's, the tax shall be: b. subject to 6% capital gains tax.
Option I - 6% capital gains ta.x. c. subject to 5% capital gains tax.
Option II - Section 24 (A). d. none of the choices.
a. Both options are C'')rrec; r. Oniy i is correct
,_,
' Answer: B
Reference: Section 24 (D) (2), N1RC, as amended
Answer: A
Reference: Section 24 (D) ( 1), NIRC, as amended
......
.... lmpc)~tr!
29. tlo\V much final t<lX is 1 !n t h(_. P,ain T)rts ~ 1nltd t 1 , h~-t';~ )f'~~n

realized on the sale, exchans~r>

or citspcsJtiOn of Lmds and. or
buildings \vhich are not actual!:.; used in the busn1css ('f ~!
25. Capital g<~ins presumed to have been realized from the sale or
corporation and are treated as ce1pitai assets'J
disposition of their pri_!l<::_i_Q<:_~_lresidence by natural persons, the
a. 10';) capit~ll gZlins t;--~v r ~-j .ipir(tl ~~ains :ax
proceeds of which is fully utiiizrci in Jcquiring or constructing a new
b. (-)",~, capit<tl gains tax d. t'' \ ;tpit;d ~~,11!"'1'-, .
p;mcipai 1esicience within eightc-en {18) calendar months from the
date of sale or disposition, shall be:
Answer: B
a. subject to the 6% capital gains tax.
References: Section 27 (D) (5), NIRC, as amended
subject t0 tlw S''l, rC~pital gains t:'lX.

bttiidin~cLiss1ficd as cap;~ t ~._,,, . '!. ! dnr::

Answer: C a. c~a;)ltal g.l:n
..._ Reference: Section 24 (D) (2), NIRC, as amended b. Cross scllmg pric,
..... c.
d.
\...~l!rrcnt L~.ir l11dJ.-~:::-
Gross seilmg price ur c LdTC!l[ lcill lllctl;.
. . ~ .
. .. :LC;>:'.-''-..':[ lS

higher

156 157
 Chapter' 8: Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentary Stamp Tax

Answer.:&> Answer! D
Refe=DCes: Section 27 (D) (5). NIRC, as amended Reference: BIR Form No. 1706 [Capital Gains Tax RetvTD. f'or
Onerous Transfer of Real Property Classified as
Capital Asset (both Taxable and ExemptU
31. When is i.he capital gains ta.x return for onerous transfer d real
pro~ classitied as capital asset (b-1th taxable anJ exempt: f>led?
I However, filing of the retum is n'> longer Te!JUired whPTt the Droperty real
transaction :nvolves the folll':vir.q:
I - Within thirty (30! days foliowing ea10:h sale, exchange or -:t tS not classified a3 a capital as.'>et;
dicpositior. of r-...aJ property - not located it> the Philiopines;
!I- Iu c~se of inst::~:~.at:ot sale, within thirty (30) days following - dfspo.:::ition is ~ratuitous;
t.re rer.eipt of the let down rayme:1t -;md within thirty (30) - disposi:ion is pursuant to th Cor.prene. ,sive /'.qraria::.n::..:::R::::tO;Lfi::::.orrr.:.:.:.:'::.._ _ __ J

- days following each subsequent im:taillnent payment

a. Both I and n are correct c. Only I is correct
<~ 34. The documentary stamp tax on de-eds of sale ar1d conveyance of real
..
b. Both I and II are ii'lcorrect d. Only II is correct
property is based on:
a. acquisition cost.
Answer: A
c
-.. RefereDCe: BIR Form llo. 1706 [capita! Gains Tax Return for
Onerous Transfer of Real Property Classified as
b. consideration contracted to be paid for such realty.
c. cons~<leration con~racted to be paid foe such realtv or on 1ts
fair market .ralue, whichever is ;1igher. -

--... capital Asset (both Taxable and Exempt)]

32. Which of the following staten1ent~ i.:> incorrect?

d. actual cash payment.

Answer: C

-- * a. One capital gains tax return is filed for every transfer Reference: Section 196, NIRC, as amended
.
...
.-
document regardle<>s of the number of each real property sold,

-- exchanged or disposed of.

b. The capital gains tax return is filed by all persons (natural or
juridical) whether resident or nonresident, including Estates
e!!1d Trusts, who .:;ells, t>xchanges, or disposes of a real
~ 35. When one of the contracting parties is the GovcrnP1ent the
documentary stamp tax imposed shall be basen on the:
a. actual consideration.
~

-... nrorwrtv !orated m the Ph!linnines ar.d classified as capital b. consideration conrrctc!r:-:: 7i_) t,~ r~ tid (!)f :-;;~lL~1 realty.
~...._t. . f f{Jr thr~ !J1.1:---,--,;;e nf s;: .. :-;;1;c!_ aT--~>~ ~.:!f,.;n-,tnct t.:ert1tlcate c. considr-~ration conrr:~::-,~. ,) ~)" n:-uci r()r ':';th rc;tln.- nr 1. .

.._ fair market value. \d1;;::~"'\Cr h'.Clh<.T.

'o effect tmnsfer r>f ownership (till() ')f thF property frorn the 1-;

--
-.;eller to the buyer.
c. The capital gains tax return is filed wr:h the RDO having
JUr:sdiction over the place where the propnty being
d.

Answer: A
nor.e of the choices.

Reference: Section 196, NIRC, as amended

J
transferred is located.

-
...
d. None of the choices .
....
.... Answer: D ~ 36. How much is the docume11LtrT -,'"rnp ,,\X on dds of s;tle drv:
Reference: BIR Form No. 1706 [Capital Gains Tax Return for convevance of real propert\)
Onerous Transfer of Real Property Classified as I- Fifteen pesos (Pl5.00) whn1 the consitk;-:Hion, or valuf'
Capital Asset (both Taxable and Exempt)] received or contracted to be paid for such rralty after makin2;
proi)~r allo\\Tanct~ of :-J.::. ~r:~,-:t::~l;r;1r~,-, .. '!;r--; r111i t':\Cte() ()r:~
th-_JS,lnd pt"~..;os (P! .r;.)()
;H~ ' .qq~di ~a::~-:; ~-L\ :~:! ... , ':-) il(J ~r,:-~~; ;r-qtll:-~d \\'hr-"'r1 rhe II Fi 1ttn ;Jr'-~\);; (!)~ ' l! : ..... l;li:~lnl1, r Jr1t' r;rr)~ls,lr;::
-' <I:-~\ Ll!1SdCt1:J~i ';J\,rd\T'~ '\ i':\)1 \,f ..... f .. :rd>n\1n:.:? {!>l.'')(J()j, L)r fr:.tC!)!~"l-1, :J.:, ' ' ).- .:; f'Xc ~~.; l}n;:~ r:~;'
,,. :;!~ -l i:~!. ;.:1ili~)pincs.
(lr

tr.d prpper.- :-; !i(d :

)
--
h The disposition ut the rc<ll Drc.pertY is ~;raruitous. -
'1. F~~;t-}-: f ~l:h~ f! :~i~.~ ,~!:-- ')'

..
c. !he disposition or n:ai IJroperiV 1s pu;suar:t to Lillo
Comprehensive Agrarian Reform.
b. Bot:: [ (."i:t-...! II are i:1:..:v:ir.::..~: r: is currcct

.... d. All of the choices .

... 158 159

. ,.~.t
.,,., .
""-
 Chapter 8: Capital Gains Tax and Doc>Jmentary Stamp Tax Chapter 8: Capital Gains Tax and 0fX.l1memary :-.ramp Tax

Answer: A. Answer: D
Reference: Section 196, NlRC, as amended Reference: Section 200 (B), NIRC. as amended
ction 196. Stamp tax on Deeds of Bar. and Coftueyanccs of
Real Pro_rJerty On all conveyan'Y!::, deeds, instruments, or t'Titir.gs,
39. Where is the documentary stamp ta.'t :-etum filed~
her than grants, pateotts or original cert:jicates '>[adJudication issued
the C-oucmment, wh:-2by w.y land, tenement, crother realty sold I- Through the au[horized agent bank witl-tin \l:e territorU>l
. all be grantPd, assigned, transferred or otherwise ronveycd to the j'trisdiction of the Re.venue Thstnct Office whid: ha~
l pu rr:h-::J<>er, vr purchasnrs, or to any other person or persons destgnated jurisdiction over the reside.:'ce c:- princip?.l place of busine~
I by S..LCh purchc~c:r or purchasers, there shall be collected a documentary ol Lhe taxiJa_yer
Il- In places where there is no aurhorized a:;ent bank, the return
1 s:~mp far at the rat.:;;s herein betaUJ przscribed, hased on the

. I consideration contracted to be paid fc.- such rPalty or on !ts fair rrrzrket

! w;iu~ determined in uccordance with Section 6{E) of this C:;de.
1 wJuch.er..'er is higher: Provictcd, Thc,t when one of the concrncting parties
shall be filed with the Reve:.ue District Officer, collection
agent, or duly authoriz.tJ freast::-er of the c;ty or municipality
in which the taxpaye; has his le sal residence or principal
is the Government the tax herein imposed shall be based on the actual place of business
1 consideration.

.. I a. Both I and II are correct c. Only I is correct

c
--
1 (a) When the consideratwn, or vaiue recewed or contracted to be put'1 }or b. Both I and II are incorrect d. Only II is correct
such realty after mnking proper allowance of any enc-.:mbrance, dc:::s
not exceed One thousand pesos (PI, OOu) fifteen pe~os (P 15. 00). Answer: A
I
--
(bj For each addttwnQl One thousand Fesos tP l,OUOt, or (ractronat part Rcferecce: Section ~QO (t:), !~'IRC, a~ a'!Len1en
thereof zn excess of One thousand pesos (PI, 000) oj such consrdemtron

I or value, Fifteen pesos {P 15. 00).

40. What is the alternative method of paying the documentary stamp tax?.

--
1 V/hen rt appears that the amount of the documentan_J stamp tax payable
._ : heretmder has been reduced by em incorTect statemer;r of the
a. Paying additional capital gains ta't
b. Using the tax withheld as payment
considcra<ion in any conveyance, deed. rnstn.1ment o,.. writrng sub;ect to c. Imprinting the stamps through a documentary stamp
such tax the Commissioner, proL-incial or city Treasurer, or other revenue

--
,..
officer shall, from the assessment rolls or other relrab:e source of
1njorrr,.:r~on, a.sses5;: the pr,IJJer1!l of its Tnle rnClr~er;. r;."~n::' und coi.'ccz Ore
metering machine on the ta:mbie document
d. None of the choices

Answer: C

- Reference: Section 200 (D), NIRC, as amended

--
E.'{('t"pl ;1s provided hv rules and nt;uLltions r:-:rcn::l:~_atcd lJ': :he
"'
\

~~crcL-!~. of Ftnanct, upon n~ 't!l1l11<ndati(H: )f th.-~ (~l)tl1nJissioncr of

41. What sh<dl be the effect or tf: :,,:, .... ,, 'Ki\' or ;l!Tix tlJ,; du<'lill.cL:c<::-.
intrr nal Revenue, tlw docut'lentary st~1mp tax nc:r:l shall !Jc filed
stn.mp tax on tht" in~~trnrnent_. dn{'U:1~(~:--.- or papf~r \\hi(~h 1s r~~qtnn~..-.:
\\ithin how man\ clavs after the close of the morHh when the tax:1blt~
uv ld\\' to lw sl;ll!tpcd')

--
docum~nt was made, signed, issued, accepted, or tr:>nsferre(P
a. The instrun1cnt, dl)C~.":L~~--:~ ,~::- :-; :-,pr sh;t!l not h(-~ recnrd,ri
a. T-,.,ntv (:.ZU) r!;ns c. Ten i! D1 days
b. Tiw in:;truuwnt.. d" ...
l1 Fih'en ( 1S) da;s d. Five 1.5) davs
<lr1\. nTn,d of tlw s<tr:."
evidence in anv cour:
Answer: C
Reference: Section 200 (B), NIRC, as amended
c. No notarv public or other o!!:cer authorized to admintster

~' ' ' :1! ; t \ -;! }J ( j, l \ : ! : :- r ; : ': ! l Answer: ')

.f(cfcrencc: Section 201, Nn<cc. '; ._t;;;..,:,ded

--
r1 r:: r:,r hefnrc- rhr- lSrh \'.,\- ;:~t"r~r !hr~ r lnse ,.,; ..-~,. !710nth
,. '.Vithin fifte~n ( 15) cln.v<.; aftn tlw do \!Int,r j-., -;Jgned
d. As the documentary stamp tax return is filed

- 161'
 Chapter 8: Capital Gains Tax and Documcntar; Stamp Tax Chapter 8: Capital Gains Tax and Documentary :>tamp tax

4:.: ...:U1 iruL'-l.:;lt..a.J taxpayer held shares of stock as investment. During Answer: D
the cu...r.rent year, he sold the shares he bought for PlOO,OOO to a Selling price P?~.ooo -!
direct lbJuyer fo.r f 180,COC. He incurred P30,0UO selling t>xpenses in Less: Cost ( 30<i.ooo; I
connec:tion with the sal~. \_ c50 ,1:;ciu J:~r J,:,: CapitalfOdii (P S~OOQII
H::>v.: ~.1>:-h was the capital gains tax on tre 3ale if any? Capital gains tax __ ==--.J
a. :Pe.~ <... f-4,000
b. P4,d00 d P2,500
45. An inc:iiviaual tax!1ay~r owns seeral pieces of lai'C: which dre
Answ.a-: ~ \;
I &~--pn~~~~------- classified as capital assets. H.~ has :1e followi:1g d.rlta for the current

- ! Less: Cost
I
Se!h~g ~er:ses
(
(
p 180,000

~
100,000)
:::o 000)
year:
Lot 1 Lot 2 Lot 3

II Cap1e.a.l gain
Capital gains ta,; (P"iO,OOO ~{ 5'~{)
.
~
Selling price
Less: Cost
p 3,000,000 p 4,000,000 p 5,000,000
I 1,500,0001 ( 3,000.000) ( 6,500,0001

-
1

-c (c.3.1} Ba.sU for Determining Gam or Loss from Sale or DLspost'f.t-;;~

! of Shares of stock. - Gain or loss from the sale, barter or exchange OJ
Gain (lossj P 1. .JO~QQ P i .000.000 P 1.500.QOO
FMV, time of sale E.,_2.500.0C..Q P S.OOf'.QOO P 7 QQ() COO
~
I proper.:!y, for a ualu_able ~nsideration, shall be determined by deducting

-
c::
! from L."<e amc,uru oJ Ct.Jii..!>zdeiuttvr.. LGr,t>ac:ed tc, bt puzd, :he Le.Id:>;/
1 transf<tc.ror's basis for the property sold or dzspused pius expens!E?. of
I sale/ disposition,. if any. -----
How much is the capital ~ains tax on th<.> above sales.
Lot 1
a. P 180,000
b. p 150,000
Lvr "J
p 300,000
p 240,000
_12.!2._
p 420,000
p 300,000
::: c. p 90,000 p 60,000 None

=
.....
...;3. An
bough~
ii.c!~vidual
taxpayer holds shart:>s of stock as investment which he
for PSOO,OOO. During the current vear. he sold it directly to a
buyer "or P750,000. - .
d. None

Answer: A
Lot l
None ~;r>ne

~ .'3. J':_.(j ,:_;i-_,-.:i.."

~ i dX r~,:_.._. I
-..
-
~~-~-~--

Fair m;trket valu<~ (h:'-(~1:

...... Answer: B
T<JX raft~
Capmd gains 1 ax
~
~.;r..:'U~.- ~~ pnce p 7:10,000 Lot :3 - Fair market v;dut~ (hi~~:1t'i!
Les'S :.ost ouo,
...... ( 500
~:2_.=;o, ooo I
Tax r;~te
C:tpiLd g:l!ll'-> \~lX
_ _ _ ___!!___
<
....... l:~iF;. , ~alns f.l:<
L_ __ _ ---- ----- -~~~~~~~
P_ 1 2'_;~:./. .

P! OO.C't 0 X ::1 p '1.000

Pl50.CCO X lU 0
1 :; 000 E' 2 (.J.i~DQ
46. On January 2, 2011, an inc!i\ l(kci; t.txp.l\er, res1dent citizen, sold :lls
rcsickntial hnust~ fnr PJ,OOO,Oil(i :F\1\". :iine (Jf sa1e. P:'i.OOO,OOO). He
\\
:i I : ) ; ~1 : ~ l j ) : : ' '-; t J :.

"'-- 1,1

r 1 : '. \ l ~ ; 't 1 -,

:]. i'30iJ,(if)f\
a ~'2S,OUU C. :J.-/:JU t>. ,'~I.~U.U',JU _i.
b. Pl2,500 d. ?\one

'1)2 163
 Chapter 8: Capital Gains Tax and Documentary Stamp Ta-c Chapter 8: Capital Gains Tax and Docu..-nenta.-: Stamp Tax

Q.Jestion 2: Assuming that the individual taxpayer utilized only Answers: Question 1 - ::;
Pl,OOO,OOO of the proceeds to build a new principal Question 2 - A
res;dence, now much is the capital gains tax due and Reference: Section 4 (1), Revenue Regulations No. l::t-99

a. P300,000
p~ya3le?

b. P2(l0,000
c. ?180,000
ci. None
~~:~~UO~pt from oop;tal gai= but m~<t deposit in escrow :he
I ~qu!valcnt OJ the capttal gau.s ~=-
6%
:cu I.
J'_now'!rs Qaesti'ln 1 D The 6% capital gains tax cAherwise due ... n the presumed capt tal gains
Que~tion 2 B deriv"'d frorr. the sale, e'(change or dzspos .on of his principal
residence sl-ta/1 be cier;osited .'n cash or '1l.a1lnger's check in intere~~

- Question 1 . Exer'l{Jt frorr capital gains tax. A deposit in escrow i.e; required.
The 6% .;a_rital guins tax otherwise du.e on <he p.-esumed capital
gains derive-t from the sale, exchange or riispo!>Ltion of his principal
residence shall be deposited in cash or manager's check in interest-
bearing account with c.n Authorized Agent Bank {AA B) under an Escrow
Agreeme"lt betu-~en the concerned Ret'?nue Distrirt Off'irPr, the seller/
bearing account with an Authorized A.:;-ent Bank {i\ABJ ur:der an
Escrow Agreement be:ween th concerned ,"?ever,~e Distnct Officer, the
seller/transferor ar,d the AAB :o the effect that the amount so
deposited, including its interest yield shall only be released to such
SP:Zt::ri transferor upon certification by the said RDO that the proceeds
I of scle or disposition trereof ha.s, in fact, teen util;zed in the .

--c transferot and the 1V' d to the effect that the amorml 'iU dt'posited,
including its interest yield shall only be released to ::;::c.'-! :;el:cr/
transferor upon certificatwn by the suic< ROO ,hat the pruceeds of sale or
'
acquisition or construction of the seller/ transferors new pnn~pal
residence within 18 calendar momhs frur:: the date of the sazd sale or

-
disposition (Section 2.2, Revenue RegtLlations No. 14-::.tOUO.}
disposition there0_f has. in far::t, been 11tilized in rhe acquisition or
constr...<ction of the seller/ transferov's new principai residence within Question 2
,
-,-... 18 calendar Months from th2 date of the said sale or disposition
(Section 2.2, Revenue Regulations No. 14-2000.) 1110\-"' o> ., 'i .i '
Ques~ion 2 '""''
~~
_,., (; 0
;~~;
.a < -
Historica: c.ost of old principal res1der.ce
Add: Additional cost to acquire new pr.:1cipal residence
Cost to acquire ne\.,. principal res:de:cce
Less: Gross selling price of old
P 7,000,000
P l,OG0,')00

- Taxable portion (P2.000,000/P3,000,000 X P5,fl()fJ.i)00)

Tax rare
P 3,333,333 principal residence
Adjusted cost basis of new prirvip : ~:~:,::::n:
4,000,000) 3 ooo ooo " .:, ' Q\so
~:1_4QQ~9-QQ (\~'.XT ~

--
Capital gains tax P 21JO.QQQ

,;;;:
Pl.DOO,(J\Jf). lie sold the satd prop<'rt\' on ,janu;w; l. 2011, \\ith a f<ur Pi ,Ulh).Ouil. Ht suid lite: ,,,u . i "

--
:n.:rket ::due of P:-l.OOO,UOO for a consickrat:on ur P!,OtlO,CIUO. Within rn<trkct value of p:=;_oOO,OOO lu: .t.,,;:>r:eratlm of P+,UUU,OOO. Mr.
th~~ i.S-rnonth regkn1ent~u'- period h( ptln-I-1.-tst-"'d ili~ nt'\\ prinf ip.-d .\verjdo acqu;recl his nC\\" pr!Lf ;;.--!~ r~>-i<:t'nr-r \_\.ithin the _18-~1:Jnth ,
residence at cost of P7,000,0UO. regleincnti::lr_\ period but d:d r::;~ ~rL:::_. :-:1e er~tlre proce~ds ot rf1c sat~
in acolllring his new principai rt:,;;;k;;,'C because he only used
Qlwstion 1: How much is the capita: t~ams tc1x dueJ P3,00C).000 then~of in acquir::;; h1s :~ .. w ;)rirwipal n~sirlt>nce.

-
..... a. P420,000
b.

a.
f'JOO.OOO

P4,000,000
c.
d.

c.
P240,000
.V)rw

()uestion ..l: How much is the basis of the n<'".\' princtp.ll residcnn,::>
PI ,000,000
C)iit-'-~(it';n. l:
a.
h.
Hn\\. ~1~1ch i~~ t!:~: :~;:::
P-t..OU,CJ()(l
[>210,0()()
-~-:~r~s U!X'?
~)I:;. ( Jl ;{.I

--
""""
b. P3.000,000 d. None of lhe choices Ouestion 2: How much is the basis o: the new principal residence::>
' :L P-'.OOO.Or)() : f'i .or.r)flflf)

.....
--
""-

...t 164
 Chapter~: Capital tiams i ax ana uocumentary :::.tamp 1 <!X
Chapter 8: Capitai Gains Tax and Documentary Stamp Tax

Answer: A
Answers: Question 1 - C
Reference: Section 5(2), Revenue Regulations No .. 13-99
Question 2 - D
Refer.,n.:e: Section 4 (3}, Revenue Re6Ulations No. 13-99
.--- ~ *51. market
Mr. Mendoza assign-:d and con;eyed his prillripru resicJ.en:e wnh Jai.
Question 1
T<.::'able r.-ortion (Pl,OOO,OOO/ P4,000,000 X P5,000,0000) p 1,250,000 value of P4,000,0UO end in addition paid P2,000,0CO ta
Tax rate 6% acquire as new principal r~sicence of Ms. Co. Ms. C::>, oa thf" otheT
(;a;oital g>lins tax P 75 CQQ hand, co!lveyed princ;pai resid~nce to Mr. Mendo..a with fair r.::!-"ire:
valu,.. 0f P5,000,000, \\ith the int....ntion of muking the property
Question 2 receivecl fro1n \~Jr. M':ndoza as her 11.ew principal reside:-.-.~... The
Historical cost 0f c.Id principal residence p 1,000,000 historical cost of Lhe old prir.c:ipal residence of Mr. Mer.doza is
Less: Fvrtion of historical cost pertaining to the tax paid Pl,OOO,OOO wi1ile the historical cost of the old principal residence of
on utilized amount (25%, x P~ ,000,000) ( 250.000) Ms. Co is P:JOO,OOO.
Adjusted cost basis of new principal residence P 750 O.QQ
Question 1: tiow much was the capital gains tax due on the
A!tema!i:.'e con~put~!tior:_: exchange of property by Mr~ Mendoza?
Ullirzt::d fl11LOUtl.l of G:SF a. PSOO,OOO c. P60,000
------------------------------X Historical cast of nld nrirtcinrt/ reside. tee b. P360,000 d. None

.---....
GSP of old prirtci_na/ residence - - '

(P:;,oofJ.OOO/ P4,000,1100l X PI 000 000 = e'l=-SQ._()OQ QuPstinn 2: How much :a5 the cost basis of the new principal
residence ;f Mr. ~fendoz:1?
a. P4,000,000 c. P500,000
49. Mr. E. Mateo assigned and conveyed his principal residence to ABC b. P3,000.000 d. P416,667

-
--
Realty Corporation in exchange for a condominium unit which Mr.
Mateo will use as his new principal residence.
What are the tax consequences of this exchange?
a. Mr. E. Mateo is exempt from capital gains tax while ABC
.'}( Question 3: How much was r'te capital gains tax due from Ms. Co?
a. PSOO,OOO
b. P160,000
c. P60,000
d. l'ione

Realty Corporation ~;hall be subje{~t i:~corne t:1x.

,-
t()

~ :J \ir [~:_ !vLtl!~u dl.td :\[;,: j\~c,l!t> Cur;Jul"dilli1 :-.,!idii I)(' <'.t\{'it;;,;
- '.(, r'i\f"\
tron1 cz1p1Uli g;uns :ax. " 1'1,000,00() ...:. L ,..J\;'J,\JIJ\..!

f3<Jth :Vlr. E. :VLttco ;,rri :\HC' l--:<allv C"rpor,ttiun si1<1li he b. PJ,OOO,OOO d.

---
suhj(ct to i:1con1f' ~;tx.
d. None of the cho:ces Answers: Q~estion 1 - D
Question 2 - B
Answer: A Question 3 - C

- Reference: Section 5 (1), Revenue Regulations No. 13-99 Question 4 - D

~:~::::~ i-:-~~~;,~~- ~~~-r, I /-,-,.-,-.,-,1------------ -------..-.

SO. 1\lr. J. Bala disposed his principal residence in exchange for a parcel
of land. Tlw h1nd n~ceiveci in '~xchange shall .Je used for the
I ~!1stuttcai cu,t ol th, l!cl prm. .l.J! ,,-c;:dcnce P 1,000,0()0

-
...... >>'I';)

. ' ' ; ', \.; ~ .. !

': 'f1'' ,,-,.,
1 .\dd
.
Addtllon<ll l'()<;t t'l acqcw nw pnnnpal resirknce
t~~~~~
~:
() ,\1 jllr :'''X ;r: ;.,

)."\ ' I): '): 1: : : I 1 I 1

......... P ''.~ !(H),()f}()

Que~,Uorl_.3
J:.
' .. i t ! ' :
T.tx~lbkp~.,!~:-n! tt~' ,_,):} ,')1; \.
[,: "''"' '\ \.
....
-
.( l !,~ ..
~ :- ~ ( ' ( J ' I \' '!':lX Cl tt~ j

C....tpil~ll ga1n:) t..J.X

b. :'ieither I nor II IS co~;,ct
Question 4- (P5,000,000 / P6,000,000 X PSOO,OOO) p 416.6QZ

..' 166
-v
C1 '!Vi\ 1_tf
1 10
V.." \\ ~ d 167 .. -I.,
 Chapter 8: Capita! Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Doru.rnentary Stam,p Tax~ 1,. 01 ,, c ~-- _,11" i)r .;: l
--~------~~~~--0"d~e~".~.~~~.--~\'MJ'l,D~:',rm.Jt~~.~r,~-~~o~D~~.~v~,r=~~o--~"~~----~~--~
,.....--- ~ ---- ~" ' I fo I.
52. Ms. Sheila Gutierrez sold her residential house under the foilowing r,.
terms: The shares, acqmred on Junt 1,
1
53. On July 1, ~(ffi~..~..fs. Cri~ Lir..ga~ ~ld ;h::tr;~ o~ st-:>r.!{ fo,. P21X',C'OC\.
2{il)9_ at
a cost of f'150,000, were
Cash re-::etved, January 10 P lOO,ooa held as investment, and were sold directly to &. buyer under the
Amount rxeived, June 100,000 following terms: ---
Irstallment due, J.me 10. 600,0(10 Down paym~Tlt, July 1, QUU F 20,000]
Ad ..Htional information: IT'lstallment due, Octoba 10, ;i{)f!~ .30,000 <;\) ;~-:- ~~';..
Cost of land 150,0001 lm;tallm::!nt cue, October 10, 2N2\ 75,000
:vfortgag~ assumed by the buyer 2oc,uooJ Installment due, October 10, 201~~ 75,C,C~
Mortgage on the land executed by buyer in faor . , . , Oc:.c cc.c
c.-f the :se:ler to guc-rarttee payment 600,000 Q:wst:on 1: How :nuch was the capi~?1 tax due in'20l.it
* Que~do;< 1: How much is the capital gains tax due in 2011?
co. P60,000 C. P17.647
a. P 2.500.00
b. r Y37.so
c. P 625.0G
d. P 56:Z.so
b. P42,353 d. Pl0,588
Questio:'l 2: How much is the documentary stamp tax?
a. P 2,500.00 c. P 625.00

--<--
H,.,w much is the documentary stamp ta.x?
Q;IP.c;Tinn 2:
b. p 9.37.50 d. p 562.50
a. PlOO,IJOO c. P15,000
b. PSO,OOO d. None of the choices
Answers: Question 1 - C
Question 2 - D
Answers: Question 1 - C
Question 2 - C Question 1

--_,.
Selling price p 200,000
Question 1 Less: Cost 150,000
...... Capital gains tax (P1 ,000,00{) X 6%)
20! 1 capital gains tax due
Capital gain p 50 000
Capital gaim; tax (PSO,OOO X so.q
,january 10,2011 (PIS:.J.fJOOjPXSO,OOO X P60.\)C(;i P IO,S.'S8
July l, 2011- 20.t)00j..:OO.OOO x 2.500 p 2.50

,-
June 10,2011 (Pl00.0f,0/P850.000 X P60,000) __
7.Q."i9
Total Pl7/Jl7 Oct 10, 2011-30.000/200.000 x 2.500 37':)
Tdt:d

- Note: (~npital arzr"n>; tnx T71UJ/ l>t-" flO: 'j :J) 11/St(ll/niPr'..rs I{ the init(ul pnyrrti?Ti~S
i
I
J ,t.;ote: /\r; inrliuirluultollo .se ()T dL:.poses o(n'd! prufJ.-'r['f (onsirJ,n-d us
::prt(lj rlS.'-~f't, 011fi is Of!JeriJ -o. tfll(lfrj!t'rf fO rt'f)t!rf ff!,> lfiZJn !J!Iij{r do not cxcc(cf ..:s. . u(~f:1 .;~ .::_r; .nnre. !

-
..._
instrzllment rnetlwrl (when

und ft:'!jUlatioH~-.;
:::n/ pot;rnents d1 '"'' ,,.,,'erl ..!:)'., o{rfw
1
se 1ii!HJ pnce} mny pay the cr:;nru/ [JtW!S tux"' '"srnillll'nls 11111/er ntf,s
lu lh! prull,:n\Ju:ed ,:;_;i :Ju ::'t\'!(<dr~t :;: r,-,;,,nc(, ::pun
Dornn JHl~Jtrlf'T!t
Adrl !nsrn/lm,nr, !f''ur df
[rulHll payrr?crtt:
-:;r:',,

-
n--rnrnrnenrlation q{the C'o!F""!!SSI.Ont'r f....;.tctlon .;(; {<.'}._\.if<.?/. us arnencicd.)
r
/Jri'1n pn_i_Jf1H'l!t 1) lfH) ..'"
.. l.cfd: Jn:-;talfmcnt, year Of --;1;:'P ] (}(),{.!(J,
Exress o( r1wrtqaqp assumed over cost _ :5CLQQ~)_

"-
., nl !'o';nu~:t.'~ ,, ,..' .>~.J,,

~,.....
l)j~

-
,""""
...
'J
168
 Chapter 8: Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentary Stamp Tax

,~,/~:~_. ~
t 54. Mr. Juan Juanico has the following transactions involving shares of Cu~ .. d~z. 2 - Cavital gall!S i..wl. un <.:u.uvii<iltt:d ret.u.u
stock sold~. through the local stock exchange: .,._c,;r ,.. '.' Capital gains (PSO,OuO + Pl70,000 + Pl00,0201 p 320,000
Capital loss ( 50.0001
. Date Selling Price Fair Market V~lue Cost Net capital gain p 270,(X)O
Jdlluary 15, 20U P 150,000 P120,000 Pl00,000
Capitb.l gains tax (Pl00,00v X 5%) P 5,000
March 15, 2(H j 301J.OOC 3?.0,000 150 1)00 (Pl7C,OOu X 10%) 17,00C p 22,:XXJ
October 15, ~ofi 2so;ooo 220.000 300,001) L.::ss: Taxes already paid (!'2,500 + Pl2,00V + P5,00C) ( 19.~
December 15, 20lt 350,000 300,000 ~:10,000 Tax s~ill due p 2:5:..v
'\\ Qvt?stior:. I How much is the capitd gains t;-~x due for the sale or.

- a
b.
December 15, ?0.1.1?
P12,000
p 5,000

Question 2: How much is the capital gains tax payable (refundable)

c. P2,500
d. None of the choices
't 55. Candelar;a CO..!J?.9I~B2!h dom:::stic, has the following data in jillf:

.
Gross busines~-income
Operating expenses
Intere~t on bank deposit, BPI Makati
Y'ldf 'd .
, ~(' 1 .~ ,;
. 1' f c,,~
P SOG,OOO
100 000
50'000 f. 'JLf:r," 10
'
"" .- I.e. rom epo~~ S'!~!i.!ute, Manila-) cYtlllr.r& - 20,000x 2n", . "\
',vhen the consolidate":! rt-'::rn is filed on or oelore

--.
< Dnndend from a resident foreign corporation ,t .cJ,: '
1
April 15 of the succeeding year?
(60':<. of business in the Philippines) 100,000
a. Pl2,000 c. P2,500
Dealings in properties:

-... b. P 5,000 d. None of the choices

--
P-eal pr:::>pr:ic:s (c:1pita! r.:;::;:::s)
Lan:i Vacant :ot
ftnswen: Question 1 - B p 200,000
Selling price p 500,000
Question 2 - C Cost (2004} ';' j 50,000 200,000

-
.... ,Januar: 15, 2011 Down payn1ent (2006) 200.000 100,0( ')
Se!li~~g price p 150.01)0 Installment (20v7t > 150,000
Less: Cost (_ 100 ()()())
Installrnen~ ('7008) 250,00fJ

--,
Ca;;::al )',ctin r 50c'_'.P_ll
p 2 .)()() b. Pl:'rsonal properties
()ff!ce
,;;;;
._ :::ieliing pm:e }-' l ~JU.JI}tJ P LUU,\;;__;._.;
Cost (2007) 80,111]1) l20.orJf;
Accumulated cleprec:i;,:: ;:1

-
-' !Pi IAJ.UUI) X
iP 7U.UOO X l
.> 1
I
i) ~J,i)OU

__7.U\iiJ
Dowtt p:1yment (2009i
Installment (2010)
Installment (2011)
-.r ''""'.r
,.)\J.'J'J')

50.1)1)()
70,000
::JO,GVj
75.(J(J()
75,0()(J

-
...... ..::_~>;:trou nrir~->
---c.
LA,':..:.<..:.-
C.1:;:.. d
l_
t -

u:;t
~ 1,a1n
p ..! so'()()()
L -'l\!.'l"'_l\ll_l)
]~_C'O.i)t)(i
Sh<1ns of stock not lisre1! :L-:d r!-;:tdcd in tf:':
Selling price
Cost (2007)
Down payment (2009)
;(J{ , : ; stock exchan:.~,:
p lSO.V!Ij
10,0(J(j
30,000
lnsra!ImPn t (20 10) SO,Qr)rJ
.. . . . ( . '. ' ~ ',
ln:;t,lillll<'T't (2011! ;o.rf.;l;

- ' ! :1 ~ -:
.' ~ ..
; 1:-: n 1 t : t p:! ),:
P1 >, 1
T. ! ln , n I r1e 1 n 2 0 ! ! ~?

-
._
a. P39,000
b. P24,000
c.
d.
P19,200
P15,000

J 170 171
 Chaptt-r a~ Capital Gains Tax and Documentary Stamp Tax Chapter 8: Capital Gains Tax and Documentary Stamp Tax
,-.(,_,_jJ..--, -t ~ (I ( (M..j. t~i ,r)l
~l.,j il'w"'flt -h; ~" !,)r'
~ :Jr Question 3: How much is the retUiil.<J,ble capital gatn n 20ll from
r) - < i.; . O:t~o;t;C'n4
the sale of car? -- Selling price P200,000
Less: Book value (P120,000- P80,000) { 40.000)
<:.... P70,000 c. P32,667 Ordinary gain P 16C.OOO
b.. ?37,233 d. None
Return? hie gain in instailment
Questtion 4: How much is ~e retumab!e eain in 20(!; from ~he sale tPt6o,oocrfP2oc~ooo :x P7!:,000)./ r ,.. . . I ~ J. ,..._.
, r Nooo
of office equipment: Note: i11itial payments do not exceed 25% of selling pice
<i.. Pl60,00U c. P60,0CJ
ri. P30,000 Qceetion 5
b. p 80,000 Gross income p soc .()f)()

.. Questi:n. 5: How much i~ the taxable net inc-')TTie in 2011?

a.. P597,333
b. P592,667
c. P492.667
d. Choice not given
Other income:
!::>iv:de!'lds, resident ioreigr. corporation
Gain, sale of car
Gain, sale of office equipment . .
' ,"'iJt;') ':
100,000
22,567
60.000

Tc:11 692.667
f', I'
Anstlf'ers: Question 1 - B 1:.' ' "' Less: Business expenses 100.0001

..c Question 2 - C Tax<.ble net income P592 667

-- Question
Questioc.
Question
3
4
5
-
-
-
C
C
B

--~--:0~0~~]

--""
Ouestion_!
l!"".:terest mcome, bank deposit (PSO,OOO X 2(;"/,.)
Y~eld, de~sit substj_t~te (P20,000 X 20'Yu) -'\ '' 4 000
T:tal ~O~O',, t,, <.v''''' '' [Q, l1 q,z... e__~.QIJQ ..
..
--
,. .{ ~' II~ , l I '

Question 2 '...-i
r.< ~ .. ,.
1 i!t,
\'ctcont lot c,, i

C=.pital gains wx (b'c~, X P'i<HJ.OOOI

2011- P250.000/P.SG<;.U(J<J X P:lO,IlOO p 15.000 1
i
,;
-

~A
->
" :
-
L:,.
~

~_.1
... --,
1 .\,_ ..._.
'

'
----~-----
'- .. ' ' .. '
(\1,
~
I
-

] J..
-
c;,:-.; lUO.UlJ(I - '"''
,),lf\)lj

lU;:, X 40.U0(l
2011- (P70,UUO/ Pl5U.UUU ;,;: f><J,U\JU)

-
Tr:<~:1}

~~~ Copitul (!Clrns !a:f !S Jl'lljflhle 1r1 rnstu!/:r.~nt !r:,t;n[ pu; 1 :::~ nts c!o n11t
..
exceed JS ,, (l( tilt~ sPl/:n:J fJnt ,_

-..,-
Question 3

j
' '.! l l t~,l I ', . ~ , ; l
,,,, .
.
--
.....
I.

J 172
 Chapter 9: Final Tax on Fringe Benefits

An'17er~ t:::
Chapter 9 Reference: Section 'l.~3 (A). Re~enue Regulations No. 3-98
FINAL TAXON
FRINGE BENEFITS
Wi1en will the .lringe benefit tax be pa:i?
Little minds are tanuaan.I su6tfuetfiy misfortunes; a. 15t.'l day afte::- the enl1 of the fiso..l quarter
6utgreat mintis rise .lOOU tlier11. - 1-f-'asliinqton Jn-111f] b. 20th day after t!1e end )f I.Ai!endar jear
c. 25th day after the end of the calendcu ctuarter
d. 30th d-ctys after the end of the calendar year
Mwtiple Ch:>ice: Choose the best poc;sible answer.
Answer: C
Reftrences: Sectiou 33 (A), NIRC, as amended
l. How much is the iinal tax imposed on the gro::.sed-up monetary value Section 2.33 (A), Revenue Regulations No. 3-98
of fringe benefit granted by the employer to the employee except rank Section 57 (A), lfiRC, as amended
flnd file emphyees, starting .January 1, 2000? Section 58 (A}, RIRC, as ameuded

s..... a. 34%
b. 33%
c. 32%
d. ~5~10

-
.._
rtlf!'
~...ns~er C
Referenct.s: Section 33 (A), NIRC, as amended
Section 2.33 (A), Revenue R~lations No. 3-98
4. Fringe benefit tax is impcsed 0:1:
a. m.:magerial and supervisorv employees.
b rank and fil~ employees.
c. consultants.

-,.,.
.....
Section 33. Special Treatment of Fringe Benefit.
(A) Imposition of Tax. A final ~rvc of thirty Jour per-cent (3-l".,j e[{ecti11e
d. employers.

-- .fanuan; 1. 1998; thirty-threr> percent (33"} r>ffectwe Jarwan; I. I ')99:

c.nd thirry-tu.'O percent (32~'} ejfec::re Januar:J 1, 2000 und tfu:~cti{tPr, is
hereby imposed on the qrossrdti[J rnonetury value oifringe bPneJit
rurmshed or granted to rhe Pmpio,ee (except rank und file ernplo1wPs as
cf.::f~ncd hcr::~rrt} by the crnpi:;;: ,~- ~ .; :--O'er n..; :r~d: ~h.:n! nr u :("J7Jurnt~o.';
5.
Answer: A

The term means all emplovces \\ ho

nor supc-r"'-,.:i;;ory position.
~:re holding neither managerial

-]
~ ' (', > '> I I I ( ; ': jt ~ j )( .i it ','; ; . '>

,- ,,;~ ..... iJll~!t'">.; <)1'fJr.l/t'',,...;;:;~?

''.
< </ , !
.....
' , l . 1 . ~. ' I I I L '''''I '' d.
1>.

Answer: B
\.:\_litli'dCt\..ld.! (._"i1lpl0,\.f-F~'~
~ank anc! tile emplo::':,; d.
:viirli1J-id!11 I.V..:-l~~t~ ,-ctfii(lS
t<ank:ng empim tes

-
._
2
Reference: Section 2.33 (A), Revenue Regulations No. 3-98

- :!tt ernplo\t-.-~.'0~1-<t ca!crHLtr ;~:.trterh has1s a~ r):rnld!ri :1nrir-r tf:P

r l.'< c:ode
.._-:P/'()!Ui srurrrncnt: The ~~ITl:'l:yti ;) r~Hl!:.:7,tl-:'-' \ t:~J ()r' r}-:
~Y:-nr"tit renresents the \\l1o1~: ;!nl'JUr:t ot 1ncornc rvaiizcd {)'' ti1~-~
If. G. ()nf' \vho is vested \Vith po\.\Tf'-l
CXCC 1 ltt" !lLULt'...'."I1li'rl1 pn\IC.'J>'<_;, ::Hi

a. l\lanagerial employe~
or pr~rogativcs t0 Jny do\VH .-tnd
'!7. r;J i11I't"'. tr:t!'l'-;t\'r, SUSp~'!H_i.

L:-t\nff. rt"call dtsch.trgr~. ~1'-;Sl:..~.:. ")r I~ ,,r;):Jnc ('Inplo\ees.

<. Hanking employee
em p!oyee which includes he net amount of monev or rnorl<:tarY b. Supervisorv emplovec d. None of the choices
,.. l' : ' ) f : ~.~ :t \' '.\';: i . l--. l .
t)

...... Answer: A
~
Reference: Section 2.33 (A), Revenue Regulations No. 3-98

)
-.....
J 174
 Chapter-9r .fina! Tax <m Fring~ Benefits Tax Chapter 9: Final Tax on Fringe Benefil3

7. ThofJc!'. who, in the interest of the etnployer, effectively recommend

such managerial ~ctions if the exercise of such authority is not-
*' 10. P:.r:st sta.ten-,n:: Tl::.e f::-'.
1'1g.! tea~ft t.:lx :s itr:.p.:>!::ed on!y r.L::r. t_~~
employer is a .-:orporatiot~.
mer~rot!tinary.orc~cal in nature but requires the use of Second statement: The fringf" benefit tax shall be withheld ar.d paid
independent jud~ent. by the emplover in accordan:::e with the provision of Se'!tion 57 w:
a.. Managerial empiQyee c. Ranking employee a. Both statements 3re cc.rrect
b. upervisory em.tJ~oyee d. None of th"! choices b. Bc.th staternen!:s are incorr~t
c. on:y the ftrst statement j~ corr~t
Answer: B d. Onlv thf" second statement is correct
Refuence: Section 2.3=3 (A), Revenue Regu~aticna No. 3-98
Answer: D
Reiuences: Section 33 (A), NlRC, as amended
of ~he following valuation fringe ber'e:it~(s-i~dorrect?
*Which
a.. if ~he fringe
"f
is granted :n money, uris---directly paid for
iJendit
by the empioyer, then the value is the amount granted or paid
Section 57 ,A), HIRC, as ame::1ded

for. 1 L The grossed-up monetary value of tl.t.fringe benefit shall be

b. If the frir:gt. l;c::::efit is granted or furnished by the employer in determined by dividing the actual monetary value of the: fril~ ~c.::lt
::5 property othe: h:1'1 fTI0'1,;) ,wd o.-.nership is tr>.asferred to by:

...
~ the employee, :hen the value of the fcinge benefit shall be
equal to the fair market value of the property as determined in
accordance wi:~ :he authority of the Commissioner to
a. 66%.
b. 67% .
c. 68%.
d 70%.

< prescribe real property \aJues. Answer: C

-.:::...._ c.

c.
If the fringe benefit is granted or furnished by the employer in
propertv other than money but o\>.nership is not transferred to
the emplovee, the value of the fm;;e benefit is equal to the
depreciation va!'J~ of the property.
None of the cr:'1:ns
Reference: Section 33 (A), NIRC, as amended

12 The fringe benefit furnished to employees who are I10.E!~.siqe_nt alien;;

I!Ot engaged in trade or business within the Philippines shall be taxed

--,..
...$
Anser: D
Re!erer. . cc: Section 2.33 {A)~ Kevenue R~gu1ations i'io. 3-.;,s
at:
a . 33%.
b. 3:L';(,.
') .::-n1
c. -J-/0.
d. l ') '

J
Answer: C
9. \V":- ':-~ r>f the forl)\\ln_.: :-:irH',t' bi!tt,~fits sh.-1-~ noi ln :---.t;~,,~~-r to J"h(~ References: Section 33 (A), NIRC, as amended
,.,... fr:r:::~ Denefit ta.xY
Benefits ~ivcr; .,) trw rank and fi!o omplo:.Tt~o;. .hf'fher granted
r-=--:-:-.......,;--:-Section 2.33 (A), Revenue Re lations No. 3-98
Provided, however, That fringe benefit furnished to employees and
under a coilec~i\; [);.trgauung agr--_:~::'nlent urn()~ raxable under Subsectwns (B}. (CJ, (DJ and {EJ of Secrion 25 shall &.::

-
~ FrinPP
- "C:J-

tr:.(l('
hPnPfit.;.;;
- -. - -

'." . , ''US!l1C"''

employer'
' .
. . . .._..,:JJin-(~ h\' tht n:'11n- nf '
~

of.,
: . " ...... t"rJplr/-..-1
.. ..,, .' 'J"t''"'-'S'OT1
. ' ' . ' J /
Fringe bt;nefit given for rhe con\tr:;_!lce uc ld,:<~nt..lgt of the
rH' .,,~, ,._..'->'~d: 1)
/--
tn tht-" taxed at the npplirnhle rntPs rmnnsed thereat.

13. The grossed-up value of the fringe benefit furnished to employees

d All of the ch J!u~s who are nonresident @~ns not engaged in trade or business v.ithin
the Philippinesshall be determined bv dividing the actual mor.e~arv

--
Ans;;;er D value of the fringe benefit b\:
Re!-t::-ences: Section 3~~ ~~\;. :nRC, ds .1rr:~nd('!d a. 85"'). c. 70~<>.
Section .33 ;(~\, IRC, a~; arne.nded b. 75~\l, d. 68~;,.,

176
 Chapter 9: Final Tax on Fringe Benefits Tax Cbapter9: Final Tax on Fringe Benefits

Answer: B Ans-;vc:r: .\
References: S.-,ction 33 (A), J.IIIRC, as amended Re.ierence5: Section 33 (A), J.IIIRC, as amended
Section 2.33 A Revenue Re tions No. 3-98 ..-------Se:::..:o..c::..:tio=o=n 2.33 (A), Revenue Regulations No. 3-98
ProviCed, furt'ter, That the grossed -up value of ih.e fringe beru=jit shall Provided, further, That the grryssed -up oolue of the fringe benefi~ shall
11? determined by dividing the actual rru.n.etary 'Jalue of the fringe
benef.: by the di(ferer..cg between one huT!.fired percent f1 00%/
tWt'nty-fiue pen.:e"lt (25%), t~ app:i.:able rate of income tax und~r
and_j be determ:ned by di:Jiding th'? actual monetary ualue o} t/Je fringe
benefit by the d;c{erPnce betwar one hundretl percer..l (100%1 :1-r::t
fii'teen p~rcer:.t t15%t the applicarle rate of inrome tax under
Subsection B) of Seeticr, 25. S:.~bsections C), (D), arui (E) of Sec:icn 25.

..
;
it 14. Duri.:1g the Clrrent year, u .1onresident alien nut engaged i:; trade or
business, -:arne to the Philippi.ies to fulfill a ccntract c::-rr. :nitment. He
stayec! at one of the .Uve-star hotels in Makati City. His local contact
17./'.n alien manager employed by an offshore banking unit in the
Philippine::; received fringe benefits arnoUilting to P680,000 during
the first quarter of the current year. How much was the fringe
benefit tax, if any?
'.
\
paid h1m P500,000 for the services rende1cd and P90,000 for his
hotel bills. How much is the fringe benefit tax, if any? a. P 226,667 c.. p 120,000

s.... a. P~ 96,66 7
b. P125,01)1)
c. P 30,000
d. None
b. p 217,600 d. None
t

-
,_
....
Answer~ C
Grus:;ed-up monet,.uy value
of the fringe benefit (P90,000/75%) p :.::o.ooo
Answer: C
Grossed-up monetary value
of the fringe benefit (P680,:J00/8S:cj
Tax rate
r
p 800,000
15%
ooo
-,_.._ Tax rate 2~fx, Fringe benefits tax 120
'J I! J
Fringe benefits tax

- 15. The fr:nge benefit furnished to crnplc_--.-pr~s \vho are alicr~ 1:11ir-.!du.ais
18. For purposes of fringe benefit tax. this term means any good. service
or other benefit furnished or granted in cash or in kmd by an

,-
employer to an individual emplovee except rank and file employees.
(~rTlp!8Y"-"~! b_\ ;-{~gior~t.1l or a;-ez:. headquar~c::;. ar~'! : :"-l,i!H1:~ l '::': ,: : ~ !~~.
a. Divid{'n<i '- Dole-out
;:*'": 1 r:..-:''"~:-'":-"'. nf :-n~.:~.-::i.:1tic~~~ ,-.,n:;~-.l:'~~~(~ ~~~r~~h,-,.- .. hnJ.-,.,,. q,~._: .1n,l
-~

u.
....
r"' ~ ,..

!" !'l!'~~t: Ut:::!!r-;Hf.

r -~.)".)
Answer: B
] d. ,_-)
References: Section 33 (B), NIRC as amended
J
-- Answer: D
References: Section 33 (A). NIRC, as amended
---------~ection 2.33 (B), Revenue Regulations No. 3-98
I Section 33. Special Treatment of Fringe Benefit. - . ~:-:l
I {A) XXX

- --- --- Se~!i()_l! ~:3~ ~),Revenue Regulations No. 3.._9~

tUY'iJ.;;~__, :u:~;r:r SrL{).S{rtiOrL'--_; (l~. . l- !.")) unil ,_:~, ,,,

___ _t.h.P___ CP.I~~i n!L{_:~.-~~!-~~r~~~~~L_~h~_-!''(_l_~: _l_!_~_;~,t_ir
_;,,rr;
. '!'
:r;
;h ,, : .,. -
! (B) Fringe Benefit defined.- For purposes of this Section, the term
; 'fringe benefit' means any r}ooci. scr"r'P or otltcr benejitjum1shed or
yranted in cush or in kmd by em cmpio!1 er to rll! mdwzciuai employee
(except mnk and file employees as defined herein) such as, but not
limited to, the following:
1
!

1.) Housiny;

--"""" 2.) E.\}JcrL'-''t' ucc urt~Lt;

-) ') .. - ~ .' '

1.) Ve.f'!r-l'-' ~~r un11 ~-,znri:
l_j f11)r;..:;ef,:n/!f :J T'--;r>rrnc!, :-,!lCf! r;_-;
-, j :n;<;'/'( ',-J I~," lr.:Ul/ nt !Ps,) thu1 ''fr,,-;, ._. ,-<::";.:;the !"'.'(~? 7 lt t),fth~-,
,.f1/' 'rt'!~C:' J;,rrocen lht' Tr?(lr:.._- . ~ ,-., :~-; ;~(~t 1 J(J/ ore qrn.nte(f.
t
-
l
io-..
b. 75%.
,-,'
6. j .'v!ernbershio lees. dw-:o and nit,_,. c.-;;ecsi"S borne by tht> employer
;or ~he ernplor;ee u1 soctal ur~d u:irh~:c ~-:~lb::> ur other sunzlar
orgamzatwns;
7.) Expenses for foreign travel; r

~ 178
 Chapter 9: Final Tax on Fringe Benefits Tax Chapter 9: Final Tax on Fringe Beid!ts

8.) Holiday and vacation expenses; 21. Whi~h t)f the fC'Ilcv.r!ng shal! 'not~ crt:ated az tl:'t:a':>!e f!ir.ge be:1cC:..,
9.j Educational assistance to the employee or his dependents; and a. Housirg privilege of military officials of the Anne<! Forces of
10.) Life or health insurance and other TWn-life insurance premiums or tl!e Philippines (AFf? consisting of the Pt..ilippine Army.
~miZar amounts in excess of";~at the law al!o-:.:W::::.S~-~-----__~ Philippine Navy and Philippine Air F'lrce
b. A housing unit which is situate<! insitJe or located withd-t a
maximum of f!fty (50) me.ers fnna !be yeri~.1eter of the
19. n,e monetary value of rhe follo.ving housbg p-rivi!ege shall be fifty business premises .
percent (50%j Of tl:e Val'.l:! Of the benefit, "XCc!pt Which Of the c;. Temporary housing for an employee who stays ia a housing
following? . unit for tnree (3) months or less

.... a. If the Pmployer leases a reside.1tial property for thf! .l1se of his d. All of the choices
employte and the said pro~1 t) is the usJal place of residence
of the employee Answer: D
b. If the employer o.,;n!? a resiaential property and the srure is Reference: Section 2.33 (B) (1) (f) (g) and (h). Revenu~
assigned for. the use of nis employee as his usual place of Regulations Ro. 398
residence
c If the employer purchases a residential property, on
ir.stall:ncr.t ba~is and allows his employee .to. ~se the same a& f 22. During the year ~tit~. ABC Corporation paid for the monthly rental of

---
a resideatial house of its branch manager, Mr. J. de la Cruz,
his usual place of residence
amounting to P68,0000.
d Nnrte of the c11oices ~ ~ ''P IJOJA<,
Question 1: How much is the vaJ>le oftlie :ringe benefit?
...... Answer: D a. P 68,000 c. P 16,000

--- Reference: Section 2.33 (B) (1) (a) (b) and (c), Revenue
Regulations No. 3-98
b. p 34,000 d. p 11,333

-
........
20. In which of the followir.g r:1s<cs :shall ::.e monetary value be the entire
value of the benefit:l
Question 2: How much is the monetary value of the frir.ge benefit?
a.
b.
P 68,000
p 34,000
c.
d.
P 16,000
p 11,333

-J
Question 3: How much is the frin~e benefit t<LX?
I -If the erno~o\:er Jti.:-(_<~:-:t;jes a : :-:;HJential uropt~rt\' and transfers
pSI :,.~..-nersl1:::; -;: ~::,~ :.:-: p:;p .. ~ :~~--~h~ r-:_~:1:'? f)t it1r' Pin!lio.Yef"~ f (;JiOO
b. p 11,333 ,J. {~t;nc of the choices
f!- If the ernp:)~.'tT I) 1,_i.;-~r:ascs ct :-:srdential prop~rty and trrtnsfers
ownersh;:) elf rht? Sct:ci prupc~:: t) h1s cmplovee for the latter's
Answers: Question 1 - A

-
:-esidenti.:::.: use, :;-~_r ~~ ~);icf~ ].--':.:..;; '"'r::J!! rhe ~mplo_::r~r's acquisition
cost Question 2 - B (P68,000 x 50%)
Question 3- A (P34,000 divided by 68% x 32%)
'l. Both I <1nrl ll r:. [(eJ>her l nnr ll Reference: Section 2.33 (B) (1) (a), Revenue Regulations No. 3-98
b. I only d. !I only
lj' the employer leases a residential property for the use of his
Answer: A employee and the said property is the usual place of residence of the
employee, the value of the benefit shall l1e the amount of rental paid
Reference: Section 2.33 (B) ( 1) (d) and (e), Revenue Regulations
thereon by the employer, as euidenced by the lease contract. The

-
No. 3-98 monetary value of the fringe benefit shall be fifty per cent (50%) of the
ualuc of the benefit.
......... Tl!c journal entries to n?cord the f---:,:_.:1~"' t)ont-'fit-'-; t-'~'per:se and the frzn(./e
h<'nctfts trL-v: Pxpense are as .foiiou','"'

__P.<..:i:lit_ Credit
a. Fringe benefit expense p 06,000
Cash/ Fri1~gc bt.:nt~fit pJ:r:' " G8,00C
b. Fringe benefit tax expense 16,000
Cash/ Fringe benefit tax payable 16,000
'J
180
 Chapter 9: final Tax on Fringe Benefits Tax Chapter 9: Fioat Tax on Fringe tsenents

*' 23. XYZ Corp. owns a condominium unit. During the year 20ft :.he .:>a~d
cc..rporation fuq:,~hed and granted the said property for the
The jovmal mf'r!_t ~halT
follows:
Tt<!cogrtize c,rJy the frirrge """""!_fit !t1X ~!'P OS

3
residential use of its Assistant Vice President. The fair market value Debit Credit
Ofthe p~perty per BIR amount" to PIO,OOO,OOO while its fair market Fringe bene!it tax ex~nse * p 9,804
value as shown in its cur.-ent Real P10perty Declaration g.mounts to Cash 1 rringe benefit tax payable
P8,000,GCO. *(Pll7647 divided by 12 mc.nths) .. ~
Question J How :ruch is the value of the fringe benefit?
a. ? 10,000,000 c. r SGO,COO
b. p 8,000,000 d. p 400,000 !:IL.24. Using the saJT>,.. data in the imr.1edia~ely prec~ding number a.J.ci

- Question 2: How much is tne monetary valu~ of the fringe

~. p 8,000,000
b. p 4,000,000
c. p 250,000
d. p 200,000
benefit~
~- assuming thc>t the acquisition cost of+he residential property is
P7 ,000,000 and the remaining useful life is 15 years.
Question 1: How much is the value of the fringe benefit?
a. PlO,OOO,OOO c. I> 500,000

b. p 8,000,000 d.. p 400,000

'J\: Qvsrion 3. How much is the monthly fringe benefit expense?
~
I
a. P 41,667
b. P 20,833
c. P 16,667
d. None
Question 2: How much is the monetary value of the fringe benefit?

--' !)uestwn 4: How mucn is Lhe monrhtv t;1nge hendir tax expense)
a. P 16,667 c. P 7 ,8~t3
..... P S,OOC,OOO
b. p 4,000,000
c. P 250,000
d. p 200.000

l. Question 3: How much is the monthly fringe benefit expense?

1
~
-.....
-.
.....
b. P 9,804 d. ~one

Answers: Question 1- C {5 <,X P1 CJ,OOO,OGG;

Question 2 - C 1.~.. _~ ., X P.1U0.00i)i
a. P 41,667
b. ? 20,833
c. P 16,667
d. None

Question 4: How much is the monthly fringe benefit tax expense?

--
Question 3 - D a. P 16,667 c. P 7,843
Question4-Btf>..:,:-::o_rJO!J '),'")._. -:~'' 1 l.!r:-:n:-:r:1~~1
b. P 9,804 d. None
References: Section 2.33 (Bi i 1) (b). Revenue Regulations No. 3-98
. ((91ci'!C ,! J}J
<!I' ~. j n ....... , ..... ~"""'
:-:~ ..J"
Answers: Question 1- c . f--;:,.,,1':\, P~t:,tHltJ,t)OU} rtflll\ls
.
t ' ,y-

l'i)c 't.
Question 2- C f~()"" X ''5UU.UUU) '
L ~-' ''

) Question 3- C (P3.0UO.OUIJ I 15 years ; 12 months)

i
1 r;r '_,_.J'.

-
Question 4 - B W250.0UO 1 hH'% X 32% j l2 mnnths)
References: Section 2.33 (B) (1} (b), Revenue Regulations N<>. ~-98
Section 2.33 (D) (2), Revenue Regulations No. 3-98
I:- ~f

...
T [ () r; L':; , ' '/ ,' i ( _.:, ' I :' r .

....
-
If the cost of the property (?7, 000.000) subject to depreaation is lesser
liwn iis fuir rParket taiue as derenmned by rhe Commissioner
'Section 2.33 (BJ {1) (b), Revenue Regulations No. 3-98.i
(PI 0, 000, 000), the excf'ss amount (P3, 000,000} shall be amor1tzed
'7/f(', f}1L' ,{.'/: 1[1' ;-.' 'r/-. throughout the rcmwning estimated tLsefullife of the resid;mtial prr1per1y
iJt?P~(its tru.~ shpll ~trtuT-' n. uf.lit~ ried:J< ~_, 1:-; /"TF. rJ!-r_l...:;-; rrcorn!-"' of
1
used in computing the said employer's depreciation expense and
t.t, __ , P.rrpf.:J'J.Pr. f:!.?__1!~':Pt?'1r i(ThP ;-'rL'~i.~::; _t'r;r ra.m;Tttrltzor~ o{(q.r~qP b~n'e..{!ts allowed as a deduction from the said employer's gross income as fn.nge
' I,~, ' '" ' ) <' benef!-t expense
l
The inurnoi .::-ntnc:; nre us {ollo1c

(' r ' :
-----~---
'
..
,! . Frir..:j,'-~ ~Y .. rlcfit cxpcn:--.L

I
- Regulations No. 3-98.)
L.
Incnrn;.~

Fringt~ btT:!lt
constructiveiy rtai:c..:ed
t8X expense
Cash/ Fringe benefit tax payable
9,>-104
9,804

s 182
 Chopter CJ: FfnJ! Tax on Fringe Benefits Tax

,. 25. In 2011. Tamia Corporation purchased a residential hT.:s~ '0!'1C bt ~or

Answers: Q-1f.~ion 1 - A

~
2,300,000 .. The p. roperro. was~ol;:Dto the President of the
rpo:~~~!l- ~-!') ,980,000. The fair market value per BIR and per
Question 2 - A
ssessor s Office \\ere P?.SOO,OOO ar.d P2,607,000 respectively. Question 3- A (PS,000,000/68/o x 32%j
Refer'!nce: ~~on 2.33 (B) (ll(d), Revenue P.e tio:as Ro. 3-98
Questivn 1: How much is the value of the fringe benefit? I If the employer purchases a re..identi.al property and transfers
nwnersilf.p thereof in the narrx of thP. emoloyee. the vul<.~.e of the berlefit
a. P2.607.000
h. P.J.soo oon
c:. ?1,960,000
d. p 627,ooo I shali be the employers acqt.<isition oost or z.Jn.:d vel<.~.<'! a"' deterr.:h::1 by
the Commis3i'lncr, whic.heue:- is higher. T.2e m:metary value of the
()uesrwn ..!: How mt:ch is the .norwtary value of the fri~? tx-nefit? e bene t shall !Je the entire t."!lue o the t.
8. P 627.00C c. P 12-J,OOO
b. p 313.50(J d. p C)9,0()Q
~ ~ 27. G.B Corporation bought a e
-side.J.li!.~!Pi~~
!- on installment for the
Question 3: Ho\\' much is the fringe benefit ta.x? ~f i!~ Pr~~i~nt. The otal~ .ount paid by the corporation waP
a. P 29.S.OS9 c. P 1R2,963 ps;soo,ooo (i:nc;lusive of "-"""'~OOOint~re~~)-
b. P -+ i. .51'.1 l. None of the c'~oices
Question 1: How much was the value of the fringe benefit? .
a. P 5,500,000 c. r 27::i,COO

-
Answers: Question 1- D il'.!.t,u/.uou- Pl.'N->U uUlJi
Questio!l 2 - A .r_ ..., . b. p 5,000,000 d. p 250,000

'
Quest1on 3- A f"'- Jill) 1 ,,,, .... :--; ..'. ,
Q;,t.::!3tion 2: H0w m'lt:h was the monetarv value of the fringe benefit?
~~fe_rence~_Sectjon_ 2.33 (B) ( 1) (c), ~e,enue_ R~gul<ttions N(). 3-98 a. P 2,750,000 c. P 137,500
1] f ~~t' tH"''_:J.O_ljt.:r r~:~ rc f!U~'-;( '.'-; (J ,-,.~.:,<f, n tta/ fJTO{Jf..'rf!J {lflcf ( f"(lliS .r._.r::_;
b. p 2,500,000 d. p J 25,000 j
ouner~; -_~; thtTcu.'- ~-.J iu.--; e:nr,'!o.r!t)e for the lnttpr's rPsidcnrr,:: .4_. .;t-. at n
pnce ,,_ ~he~: . r: .. , >' r - 1
:.i,',;':......
1

:.;J;,;{' .;. .. ,. ,,: ... .. :. ..
j~'to.l; '.- .. rti --.-;, '('!uru<.'
,:;.~:.:.:!.<..,f:>J'7. t_'()~~r. rr:c i'(ll{(' ,)' .,.,, !J~nc/1! Question 3: How murh was the fringe benefits tax?
(~~.,... .~nur~t::.'t ;_o!:te. u.-.; (l,, :.:..--.rf u: .-;,,.
r 70';ni r"011:d us cit~, ........ :~rf fp, 11
a. P 1,294,118 c. P 64,706
b. p 1,176,471 d. p 58,824

,.........
{)!!i !' . )1 ( '

. 1,.,., .

Answers: Question 1- D (5'' X P5,000,000) ""''6 '-'l::'l,,Q 1 ' ' .,, ;:

Question 2- D ('JU :~ P::?50,000)
Question 3- D ,_pi .. ~_(_:;_;u / (JS ;~ _: ~;..::,.:

...J
Reference: Section 2.33 (J!U!Uc), Revenue Regulations No. 3-98
~
~- tl-1;; employer purchases a resz.~entrnl property on instaliment b:;.:;;.s
[ ' t : : ' : - ( f l :- )' '

i'. i
.. ::--,- ,;
1 and a.llous hrs employee to use :ne ~arne as hzs usual place of 1
' ' ' ~
resiclt>nce, the annual valrle of the benefit shall be five ;;er cent (5;) of l
~ ' ,l II ' . . ! ;, ; ' i. ,,
)!_)()

')\)()
I the acquisition cost, exclusive oJ rnrerest. The monetary vulue of fnnge
1 benefit shClll be fifty per cent r::c :1 of thE' ~nlue of the bent'f1t. ____ _j
I
'1)1''
J::.; ;:;

!lf
ll' it";\'<- 28. In general, expenses incurred r)r- paid bv the emplo\ce but wh:ch are

-'
.....
paid or _r~i.u:lR.\!J:~dby. his employer shail be treated as taxable fringe
benefits,-exce.ptWh~:r,, '.-<,-l'o''
: f
emplovcc .
+,,,,..,._ ~' .: ,, "._,
I -the expenditures are cl.1h receiptea for and i_r2!_!1enarne oftht:;

Il -tiJ;~-expen(\itures do;;-, pdcrakz.' trw nanu of :1 p<Tsr-,::~,;

.~, :1

t'Xpense attrib1 nablr.' t-. 'w mpi,,H:<.

... !/,

a.
b.
Both! and II are reqll!:ocl ;,1r rhe cxccptio:1
Neither! nor TI is n'~q~_,i,-d fnr thf" exception
c. Only I is required for the exception
d. Only II is required for the exception

184
 Chapter 9: Finai Tax on Fringe Benefits Tax Chapter 9: Final Tax on r nnge tsenents

Answer: A 31. Whi::i: cf the fcllowing shall !:>e ~u!~d e.~ bu~ne~~ exren~ 1Uld not
Reference: Section 2.33 (B) (2) (a), Revenue Regulations No. 3-98 be subject to the fringe benefits tax?
a. The employer leases and maintains a fleet cf motor vebicft
for the use of the btf-liness and the employee
- ~ ._ 29. In which of the following cases shall the cx~nse acc(Ju.-:.(~t-~ b. The use .of airc.-att (mcludin~ helicopt.:!rS) owned and
treated as taxable fringe bentfit but sutject to the tox impos.ed'urtder maintained by the emplc~cr
Ser.tion 24 of the Tax Code? ,.. The use of yncht whether owned and maintained or leased by
a. Expenses incurr<!d b_; the emplovee but w!Iich arc paid by his the employer
empioy-r d. All ofthe choices
b. Expenses pard for by the employee b :t reimburseu by Pis
employer Answer: B ~t.l,\ '.ilf-''~ (V. :3' ..., - ' . at,-.Oo.{S -=I,[Sv fJ d~ !?JS\ Nw '"~' g. Mt I
c. Personal exJXnses (Jf the employee (like pt<rchase of groceries Reference: Section 2.33 (B) (3) (f) (g) and (h), Revenue ~-: rc,c :,.<.''!~ :o,
for the personal consumption of the ewployee and his family Regulations No. 3-98 ~qwq t..~ ""~ ' ... c.fq ~c,.J i ,_0 o..-c-
I~CJ-.' ,, f 't.,;,_'j'!...-t
' !I . .
r.-oembers) paid for or reimt>ursed b-" the e!llployer to the ":j ,,!;
c:-nployce whether or not the same are duly receipted for in <, ~ . " ' --~ '"~'\.~~ t ~>q,:~.f 'J ~~~

~ the name of the employer ~32. In ;2QU, Mata Optical Shop, sc!e proprictors.lllp, p-:.m:hased a momr
..., d. Representation and transportation allowances which are fixed --llcl:li_cle for the use of its Manager, Dr. Malachi Mata. It was

- in amounts and are regularh received bv the emplo':ees as

1=-a1 to: tr.e:r month I; cor.J;x:r.sat:u: inc.JITL'
C @st.ered i.1 D.r. Mata~~.. The cost of the '.'eh!cl~ W3.s P4Q#J,OOO.
The vehicle was ~J.v_fo_r !_h(_! ben~_!_C>H!l_~ ()01PanY
!-!ow much is the fringe benehts tax?

--,
._
rJIII Answer: D
a. P 188,235 c. p 37,647
Reference: Section 2.33 (B) {2) (a) (b) (c) and {d), Revenue
b. p 94,118 d. None of the choices
..._.. Regulations No. 3-98
Answer: A (P400.000 divided by 68% x 32%)
Reference: Section 2.33 B 3 a Revenue Re ations No. 3-98

,-.
30. ln wr1ici1 une of the fulin<.Ir;'' fringe benefits c.tst:s invJk;::c:; motor
llfthe employer purchases motor vehicle in the name of the employee, the ,
..:ebi:_~:c :;h:.1~1 the rn~:~1~:~!;'. :.d11~~ 1:~ ::::': ~:,:c~_~::t (::;t) -l~~f .. :~~ ,alttP of
.... ,.. .-:. j ~<~~lue of the benefit is the acqusition. The mone!!l!":::f ualue of thP frin'JP !

-
, ~ ')

. i bc::.c_ h.! ~-J:~z!! !-:'~ th? f"rt.!!t? !'nT,P nf thp hPnP.fit. rPgnrrilPss nf rohether t r I?'
1

. ~ ' I '
'
' 'r) l I t ' , ' : .. I,<'
- : i rnoror r~ehirle 1s userl ;)y tfte -'N JJluyt't-' _partly jiJr his per:-:.onol p:ir;:;-r:.
1

? h{' c:ll plo\'('r'

and partly for the benefit of hzs employer.
] D if th~ t"!1l}'L:.r pP>'." ) 1.: ~ :n;)ltr'-:c-c 'Xith Cd~-)ll ~-{~: ~:~e
71ze above mle also apphes if the employer:

- a.) provides the employee with cash for the purchc">e of a motor vehlcle,
the ownership of which is placed in the name of the employee
(Section 2.33 (B) (3) (b). Revenue Regulations No. 3-98);

-
""=
~ '" ll ;..,r ' ()! l : '; -. " ) ll :-; 1 r : ' . -, : \ ~ : , , ,_
1

I
b.) purchases the car on installment basis, the ownership of which is
ploced in the name of the employee (the value and monewry value
shall be the acquisztion cost, exclusive of interest, clivzdend by S
years (Section 2.33(8) (3) {c), Revenue Regulations No. 3-98):
Answer: D c) shoulders a portion of the amount of the purchase price of a motor
Reference: Section 2.33 fBI {3) (.xi ib) ic) and (el, Revenue vehicle the ownership of which is placed in the name of the
....... I
i_~ __ET__n_I}j!!_1J!?!!__{Sectzon 2.33 Wj {JJ irf), F!ezenue R_5'_9_1!lut1?_JL"'__!_<L}-9J;___
........
-)
.....
......
lS 186
 Chapter 9: Final Tax on Fringe Benet1ts Tax

33. Eyes Drop, maker of the best-selling ice cream, owns a tleet 0f motor Answen: 'Quetttion 1 - A
vehicles for use of the busin_e.$_~_;g_lditsemployees. One of the motor Question 2 - B (50% X ?2u,~
vehicles costing P450,000 is not used for business purposes, but for Question 3 - B (PlO,CJO I 68<4 f 32%}
the employte.:>' personal needs.
*" Questic;z 1: What is the value 0f the tringe benefit?
Reference: Section 2.33 B 3 Reveaue Re tiona No. 3-98
If ~he e.nployerleases and maintains a fleet of motor vehicles for the use
of the bu.:iness and the empl~ the voh.e of the benefit shall be tt>e
i
a. P450,000
b. p 225,000
c. P 90,000
d. p 45,000
amount of r.:mtal payments for mator vehfdes not norrttU:!] used for
sales, freight, delivery Serl/ices rmd otr.er non-personal use. Th:!
monetary value of the fringe benefit shall be fifty per cent ;SO%) of tire
j
Question 2: What is the monetary value of tht> fringe benefit? value o the bene _t.
a. P4S0,000 c. P 90,000
b. p 2~5 000 d. p 45,000 ,...., l"ct'lk. (). -r l,c..,
~ 35. Which one of the following hou~hoid expenses of the ~IJ1plo,yee borne
Question 3: How much is the annual fringe benefits tax? by the employer shall not be trPated as ta.xabl~_Xrilge_~~efii?
a. P2ll,765 c. P 42,353 a. Sn.laries of the hoPsehold help
ri L. P 105,882 d. P ?.1,176 b. Salaries of the personal driver
c. Payment for h?meowners assocuuion duc:s, gat bage dues. etc. ., ~
answers: Question 1- c (P45o.ooo yeat!;l' A ltV
1
/S \<0;
d None of the choices Qll Oc ~"~ol cu~:.j ...h fs T'
Question 2 - D I:'if)';;,, X ptl()':OOO)
( r, ;:,.! "\ 4J ~:(,__._; tt'- .ito~ ~~~ ;~,"ti;" -U.J ,)
Questioc 3-D tFS.iJOO 1 )))".., 1 ~.~ 'l ~awax;D

... Reference: Section 2.~~J 1R!~1_Hevt!_D:~t:__Regulabons No. 3-98

I If the employer owns and mamtwns a fleet of motor vehzcles for t hue
I of the busmess and the employees, the vohw o) the benefit shall be the
ej
Reference~ Section 2.33 (B) (4), R.:!venue Reg-.llati'lns No. 3-98

....
! WYjursrtron cost of oll the motor uehrrles not nonnallr; use-d for sales, 36. Which of thr following shall be treated as taxable fringe benefit?
! frerght, (ol':'luen; senrces.und utfwr non p_ersor~n/w;e dll'Tcf,rl by jive {5) I- The interest foregone if the employer lends money to his
year.:: i ne rnufl( run) r U''Jt' ''}d)<' tn . . . rJt? rU:''lt-'flt '-'hnlll>t' ftj-j !"'rcent
'_f_l!_!_'_j__o_," ~ 1 '5' t'_2lllt' 1J_f tCh !Jcr~.~-; _ _ ____ -~ ~-- ~ --~-~
employees free of interest .
II- The interest foregone if the employer lends money to h1s
employt>es at a rate lower than twelve percent (12%)
l \..
a. Both i ;}nd II
('! J!: ! }, lil . ; ~ 1 t. \"! 'll;'' ' ; l \;.'
; , ; : 11 ; )< "-;, 1; ld j ! -~~ U I l t :--; b. i'>ienher [ nor Il ll only
....
....
I
..,
~--.i~~)"])~:',: ,

p -.::1,0\ J()
t'T- r: I' t~~d 1',11) ),!', :::~;; . ;'

( i'
i('Jll,d

~i.(J()()
o! i>~:().tHI(J_
Answer: A
Reference: Section 2.33 (B) (5) (a), Revel"ue Regulations No. 3-98 ....
....
\, [) : '),()()() d ~'">ne uf t 1:: ci1l)iC(~S

.. (_)li:' ',)' )jr 37. Membership fees, dues, and other expenses borne by the employer
for his employee, in social and athletic c!ubs or other similar
....
....
organizations shall be treated as taxable fringe benefit:
a. at fifty percent (50%) of such fees or dues.
b. in full.
c. in full or fifty percent (SO~;:) of such fees or dues depending on
the'? agre~mcnt between th,: m:)in.er and tlte employee.
d. none of the choices. ..
Answer: B
. Reference: Section 2.33 (B) (6), Revenue Regulations No. 3-98
,. )~ .
t
~'.c \ilA~. f'~ r
.
;:
.v ;.__. .)ff'
' ~

l-'.,0J p...,,t..L,. "'i 1 ~!;.., \~;7 ~r)

I

188
 Chapter 'J: Final Tax on Fringe Benefits

of the expenses for ~........ ~,;~~ 40. First statement: Holiday and \'acation expenst~s of the employee
as taxable fringe benefits? borne by his emplover shall be tnakd as taxable fnnf'C bendlls.
a. Reasonable business expenses which are paid for by the St:('ljl:(} -~>:l~:t ,f:[_ /,~. .1_ ~ '''' tJ.,, ,;.~ctll. ~ll l;1(
employee for the forcig:1 trcnel of his employee for the purpu;;e { ! L 1 J . ! r ~ .'' ! :

of attt>nrling business mt>etings or conventions

ll Tlw cost of economy and l US!!H'"ss class airplane ticket
c Sc\TI!t\" ptr-ctnt (70'~.:.) of t!w CCJst of first class airplane ticket
d. All of the choices C1ti Cl,t- C.:<.nOt ~V.;tr "'JZr
''
Answer: D
~eference: Section 2.33 (B) (7) (a), Revenue Regulations No. 398 Answer: D
1 Reasonable business expenses which are paid for by the employer for Reference: Section 2.33 (Bl i8i <<_nd 19! ia;. Revenue Regulations
; the foreign travel of his employee for the purpose of attending business No. 3-98
meetings or conventions shall not be treated as taxable frinqe benefits.
in tfus instance, inland travel expenses (such as expenSes for food: i
beverages and local transportation) except lodging cost in a lwtel (gr.-7 cbfr wf l 41. A sciJolar~-.hi1) ELln J\, 1!Jt' ('i~.; ( .~ l
sim;lar establishments} amounting to an average or US$300 ofless per "'if pi><4~t~ ttl.X~th1{' i 1 <'T!~~
. ~ I~ U tre;_itcd as !::::,;J_c
day, shall not be subject to fnngc bt>nefit tax. The expenses should be 1clAW / :~ ( ! ('{:; .!1t'f' +ff! \\"'~;; ~~}I'
supported l'!J documents prouing the actual occurrences of the meetings : cc<Apn
t'Inpl(l\tI :. . i.Ltdc. 1nt:-;J:.cs~, <~; )-'I() , . ~~i\_:1:
or conventions. I
_,. -thtrc i~-; ;1 \\Ti.,.!("!l roJ.'7~:1 ~ th!!:, 1/l~tt !h(

-..--_,.
;t )J !1 1 :,\r t': t:;q].-,\ t 1 ' ;;,

ThP rn:=:t nf econc:rYl_~/ nnd businrss class airplane zcket sllullnot iu_, ; , ' ' ... ' . ; ~ ; 1, . 'II l \ I - ].( l !
, .-::;~h}t-i 1o (i f,.,,!f.P"' r~f_-'r~t::)~t tex. 1-!::~:.:~':...c:-, :hi~y percent (3Qr,';_,) v_(iltt::: c..v,:.,t. J>CJ JtJ(l Cll tl11:r l J let ! 1 :,, i l; \ l

~_[irs_r c/ass__ ~Jimlr:me t1cket sf~ nil he s11h]Pct to a frinae !Jenefi! t=.
~ ....... a. Both I and II arc< urn< t (J;Jh Iis correct
,.v
b. Neither l nor IJ j,; cn::-cn cL Onh l i is correct
39. First statement: In the aJsence of documentary evidence showing Answer: A
that the employee's travel abroad was in connection with bu~ 'ness Reference: Sect! on 2.33 (BJ (9) (a), ~~"'.(!I1~~:_gulati<:~_ns N~~..:2.~..

- meetings or conventions, the entire cost of the ticket, including cost

of hotel accommodations and other expenses incident thereto
shouldered by the employer, shall be treated as taxable fringe
A sclwlarsllif;grw-;/i;-;v;;;-eT~q;h~!-;,,;-iJ.If the employer shall not be treated
as taxable fnnge benefit if tlw educalwn or study mvolved IS d1rectly
connected tuith thr ernplnycr~ 'rw](', lm cmess or pro 1ession. and there
J

I
I
I
benefits. i<; (' ,,ritter rorttrnd !et'i"""" rne,. tho <~w C'n;J 1<'yf'e !'> ,rder ()Cl!Jafor:
Secon.d statement: Traveling expenses which are paid by the to remain in the employ of the employer for pPn.od of time that they have

- employer for tht: travei of the family members of the employee shall
be treated as taxable fringe benefits of the employee.
mutually flgreed upon.
In this case, the exper,ditures shall be treated as incurred for the I

--
a. O;,ly U1e finsi. tsiatement is correct
conv~nience.ar1d fu'":~~rar:ce of the <_'mpl~f}_rr-arie o~ busi:1e~s~ 1
b. 0:1ly the second -statement 1s correct
c. Both state-ments are incorrect
d. Both sta~ments are correct
)( 42. The cost of educational assist;,nre extended by an c;;>plo_,u to tl:~
dependents of an employe..: s:mll lJc treated as taxable fringe benefi[s
Answer: D
of ':he employee unles~ the assistance vas:
R'!fe.rence: Section 2.33 (B) (7) (b) and (c), Revenue Reg>.llaticns
J lb. ::.-98
a. prnvided through a competiivp scheme unde;: the sc~ola-s~iiJ
proJUam of the .:::ompar,y.
b paid directly to tllP srhool where the dependents are studying .
c. gi:en throut;h the erap:oyee-p.lrC;lt <)fthe dependent.
d. none of the chokes.

Answer: A
Referenc-=: Section 2.33 (B) (9) (b), Revenue Regulations No. 3-98
,

~
190 191
 45. First statement: TLe exc:J tption of an\ fringe benefit frc :n th- ': :rlt'!'
43. The cost of life or health insurance and other non-life insurance
premiums borne by the employer for his employee shall be treated as beneflt tax sha~l 11ct be ll:lerpnted to mean excrnpt1<..:1 fr'!fT, :-or,\
taxable fringe ~rieJit, except v,;hich of the following?
l- Contributions of the employer tor the benefit of the employee,
,,'1
<f- pursuant to the prmisions of existing laws. surh as uncicr tlw
Social Security S\stem iSSS! (F:.A. l\o. 8182. as ;u:Jcnckd) ur
under the GoYermnenr ::-~IT\H:t' insur;mce S\stcm (GSIS)
(f<.A. l\o. 8291. ;-;s ;m;,JJrit-l!i . ur similar conuihutions arising
from tl1e prmisions o; ;c;n:- uthn existing laws . 1,''\

- ~ ~-

a.
b.
II- The cost of premiums borne by the employer for the group
insurance of his employees
Both I and II
I only
c.
d.
Neither I nor II
II only Answer: A
Reference: Section 2.33 (C). Revenue Regulations l'io. :;-9i::.
Answer: A
~ Referenc:!: Section 2.33 (B) (10), Revenue Regulations No. 3-98
4() ';'fu;-...t r 1~~

)
1 :; t

to l1 i::; {:~; 11, ( ' \ r-t ~, : ;

44. Which of the following fringe !x:1efits shall not be subject to fringe fttrnlsht '.: J:f:c]\
..-. bPncfit te1x?

----
........
--...
;-1 rrint;e- br::-nFfits.
under special laws
\rhi~h rl.rr .~.-.,_l~1J,ri7t=-fl

b. Contributions of the employer for the benefit of the employee

to retirement, insurance and hospitalization benefit plans
c. De minimis benefits a:.. defined in the rules and regulations to
(--!t"!d ,.,r~n~p1rd flllll! 1;i-.:

c. i3<"r:f'flts
business or
pr~1.~lnd h\ the: u:- ; r.:-
r':-qft~!),:;ion ( 1: z!~e e:~.;-:c~..r--
~ r --~."'

---,. Answer: D
be promul~ated by the Secretary of Finance, upon
recommendation of the Commissioner
d. All of the choices
Answer: B
Reference: Section 2.33 (C), Revenue Regulations No. 3-98

l References: Section 33 (C), NIRC as amended 17. First statement The monetized unused vacation ieave crediu~ of

-- ~ ---~
Section 2.33 (C) (:&.) l2l illld (4), Re'\'euu~ Regulat!ons
3-98
._.~
"""'- .. ____ ~-
t o:.ectton ~~. >!"pe<:UU 1. reaunent OJ .r nnge .oeneJtt. -
.. Jl - -
private empkyees not exceeding ten (lOJ days shali be comndered
as "de minimis" benefit not subject to mcome tax as well as
withholding tax or. compensaL,m of both manie;eria! ar.d rank and

-- ~)( U'Wl
i (CJ Fringe Eenej'f.ts Not Taxable. - The foilowing frinqe benefits
I are not taxable under this Section:
pt Jfl) Iringe henefits which are authorized and e.;cemptedfrom tax
I under s.neciallaws;
me emp!oyees. .
Second statement: The monetized value of vacation and sick leave
credits paid to government officia l.i and employees shail ~
considepod as "de minimis ~ndit nf't subject to income tax as W"!H
!2} Co"ttributions of the emplryer for the btrtefit of the employe:! to . as withholding tax C'n com}Xnsation c4' both managerial and .-ank
f rt,irunent, insurance and hcspitali:zction benefit plans; and me .!mployees
(3} Benefits give;. t... the rank and fJ.e employees, whethe'!" granted A. True, Troe c. Fo:.l::.e, !<alst.
under a collective bargairung agrcemnt or not; and b. True, False d. False, True
(4} ~...J&ngfit? os defi'led iT' the rules and regulations to be
promulgated by the ~!arJ of Finance, upon TeCOI1l.J'fu::ndcui'Jn of ,;t ; AuaWer.-A .
l.... theronur.~~sw~~ner~~------------------------------------__J "' -Ref~~nce~: SecHon 2, R~veaue Regulations No. 8-2000
Section 1, Revenue Regulations No. 10-2000
eet:ion 1 A (3) (bl. Reve!llle_Reg&Jat:ieoas lh~ 5-2011

193
192
 Chapter 9: Final Tax on Fnnge Heneilts

~ 48. Medical cash allow~ce to dependents of employees shall be

considered as "de minimis" benefit not subject to income tax as well
S2. -:__..c:&undr_\ ~1iiu",ul.Ct s .... <~
as withholding tax on compensation of both managerial and rank and ;,,

file em!Jluyee;, 1f not exceeo,rJg: SULiJCCt tu ll:\:

,! \
~~o1!1 rn;trJ.i:(;: ~ ;-: t.;
a. Pl ,500 per semester or P250 per month.
b. P1,200 per.semester or P200 per month. i':
.-,\
c. P 900 per semester or P150 per month.
d. P 7::>0 per ;,enHstn or 1'125 per month.
Answer: B
Answer: D Reference: Section l, Revenue l<ct:uiations .No. 10 :20UU

- Reference: Section 2, Revenue Regulations No. 8-2000

49 Ri(:P subsidy shall be considered as "de minimis" benefit not subject

i j j l ( . ~ ){ . 1 :- '

other than td~.h ()T gift ccrti1ic:nc n(,:\Td L:_'. :::c t'I1lj)H \tc --~~~:fr 1 ~t~~
to mcome tax as well as withholding tax on compensation of both
e!-.tablislwd 1\Tillt'll nLttJ 11 lnd1 d"' , "1 i:::. . ::-1 i !1 <l: ~ .. :1 ::! ', '_< { '!
~
managerial and rank and file employees if r::ot exceeding:
highl) paid cinp~oyt{~. ~,h:1!l ]11 ('(.~1' h ~-fli.
a. Pl ,500 or one ( 1) sack of 50-kg rice 1--er month amounting to
not more than P1,500.
) b. Pl ,000 or one (I) sack of 50-kg rice per month amounting to
of l.Joth
a.
J!lHilCJ.g("!

P30.0(J()
Jed iiLd r;!l]f.; ;,;:~J <'l;i<

not mo1e than Pl ,000.

..... ~:. P.J~)o rH_-r !Bunth.

-...
~
o. llUJle uf Lhe chuices.
Answer: D

-,....
...... Answer: A
Reference: Section 1, Revenue Regulations No. 5-2008
Reference: Section 1, Revenue Regulations No. 10-2000

54. Gifts given during Christmas an0 m;,ior anmnsan ct"lcbr<tliun;,

shall be considered as "de minimis" beneftt r:ot subject to income tax

-I *
50. Uniforms and clothing allowance shall be considered as "de minirr.isr.
benefit not subject t'J inco"le tax as well as withholdi!lg tax on
c-'lmpensation of both manag~rial and -ank nnd file emp!oyees if not
!!X::ced:ng:
a. P4,000 per annum. :Z.V!I . c. Pl,OOO per annum.
as well as withholding tax on compensation of both managenal and
ranl~ and file ernployF:es if not ~xc-"'ding:
a. PlC,OCO ycr ::::1p!oyec ;)er c'r.:~t.::r..
b. ?5,000 per employee per annum.

.... b. P3,000 per annum. d. none of the choices.

c P4,000 per employ:>t> p('r annum .
d. P3,000 per employee per annum.

....... A.llswer: A lh"ct\ \,Cl ~ &.o :, -7 tl"-0 , h ''J ').,, 1':L

Reference: Section 1, Revenue Regulations No. 5-2008 Answer: B
Reference: Section 1, Revenue Regulations No. 10-2000
51

ICUnPr....n as "de
benefit not to in--:01.te tax ae well af wii.hholding ::ax
:J on compensatior. of both m;:.nageri<L ~.-.d rank and file employees if

-- not exceedmg:
a. P1 0,000 per mon~!-;.. c. PS,OOO per annum

~
b. PliJ,OOO per annurr. d. P4,000 per mvntl .
._ Answer: B

... Reference: Section 1, Revenue Regulations No. 10-20IJO

]'f1!JIPJPUJI!li~m%!1!11?RS~
r .... , ......
"iOA
195
 Chapter 9: Final Tax on Fringe llenet1ts

57. In general, fixed or \ariable transportation, represent?.tion and other

allowances which are rt'cci\cd b\ a public offKCT or emplo\ee of a
marriage, ~-) Ji \ ~.1: ' (' J -~ 1 ] i ~\' , j I 1 r. l 1 i :' . :::( :I,,_ ''

benefit not subject to income tax as well as withholding tax on f~I~)SltJO!l (;j 011if C.

compensation of both managerial and rank and file employees. ~ - f._~rprr~~e: ,

Second statement: Daily meal allowance for overtime work and
night/ graveyard shfitnoTexceecling t\venty-fiv~..m~r.g;_nU2.5;?) of the
., it
basic minimum wage on a per region basis shall be considered as jj !:,lJ::<ll i',

"de minimis" benefit not subkct toJfi.f.Q!!!.~ as well as a. Bllth e:~l ~;;: :'
\'ithholding tax on compensation of both managerial and rank and

--
b. Both exceptwns a:-e r:1Concn
me employees. . c. ()n1Y the ~ir>7 t~~cc:': \:1 :~ cr;!-~t~:
a. Only the frrst statement is correct d. Unh tL ,.,. ' : ., : "' .;
b. Only the second statement is correct
c. Both statements are c..orrec:t
Answer: A
d. Both statements are incoiP"..et' '. Reference: Section 2, Rcycnue Regulations No. 8-2000

Answer: B
Reference: Section 1, Revenue Regulations No. 10-2000 58./\ny arnount p~-~1~..: ~->';
Section 1 A (3) Ul, Revenue ReSU!atfons No. 5-2011 for traveling. repn-"' 1:1~,- ..
Revenue Regulations No. 5-2011 deletedjlowers,fruits, books, or ( :_ l ' ' ~ { .'
sirniiur items among the "de minimis" benefits.

---
,.
;
; All other benefits given by employerawhich are not included irt the

--
satisfied:
I above enumeratiqn (Sec. lRR No. $-:ZQl1} shtlll not be eonsidered as
I de minimis benefits, and.hence, .8itDJ1 be subject to income tax as First condition.: lt is fur c)rd~nar: and ~ ;< ~-f-'S:-.(.~rY t~c_:.':t~l::-:; .:~:.~:ci
represcntati.on Qr entert':~;-~"11~-~ll expcn.se:, p:1id or i:~r..:-:-e.! L~ 1;,,
i1 well as withJwlding tax Of!, co~n income (see Revenue
Re ations NoAi-2011 ,i." - ~(;>Ji)ic,,~jJJt ' employee in the pursuit of the trade, husiness or rrn;,:s~:<m.
Second conditwn: The cmpioYee is required_ t_o....<::c:.<::o_uT:t_or ,.:qutd;;tte cJD-fO\ 11'0~

-
~ 56. Which of the following statements is incorrect?
a. The amount of "de minimis" benefits r:onfonning to th,. ceiling
;Jre::>crice:: :n ':..'1c Tax Coc!.! shall ;.1ot be considereG ir1
for tJ:!e~xpenscs in <'Ccordanc~ with the specific rec;u:;-crr:e~;s_of
substantiation for each C'itegory Of exp~::ses pur~.;;o>o; ..-. t,>- ! 2X
1 ccilf*

I
8ode.

-- determining the P30,000 ceiling of "other benefits" included

in the exempt 13th month and other benefits.
b. If the emolov.:!r pays more than'the ceiling prescribed for "de
minimis" benefits the excess shall be taxable to the employee
receiving the benefits Ol<!y if such excess is beyond the
a. Bot~1 cun.ji,ic.ns arc correct
b. Both conditions are u:co:-rect
c. Only the first condition is correct
d. Only the second condition is cor.ect

P30,000 ceiling Answer: A

c. Any amount given by the employe::r as benefits to its Reference: Section 2, RC)vc;nue Regulat;ons No. 8-2':>00
emrloyees, w~ether c;assified as de minimis or frin~e benefits,
sl1all constitute as deduction upon st:cn emJ:~oyer.
d. Repr..:sentation and ttansrortahor. allowB.I"ce whic~ ae fiXed

-
in amounts an:i r:!gularly :-eceive::c! hy th<! enployees as part of
their monthly compensation shal1 be treated as taxable fringe
ber.efits if receive1 by r.~anagerial ar1rl s..Ipetvisory employees. -

-..... hswer: D (P.-r?uro'\i~ .~., .:o ;r-'Nt01

References: Section 2, Revenue Re~tfons No. 8-2000
Section 2.33 (B) (dJ, Revenue Regulations No. 3-;s

r 197
 c.. ~ Ic :o ' ~

' ~ l
', ,1 "r

~ 59. First statement: Pursuant to Executive Order No. 219 which took Chapter 10
effect on January 1, 2000, additional compensation allowance
(ACA) given to Government personnel shall not be subject to INCO!\!E T !\X. CASE8
withholomg tax 12.~ill.img_ 1tsforrnal integration into the basic pay. 1.FAh. T .ij
Second stotement: Eflt'l'lin: t<txabie year 2000, ACA shall be -
classified as part of the "other benefits: under the Tax Code which
are excluded f1om gross compensation income provided tlw total
amount of such benefits dot'S not exceed P30,000.
a. Both statements are cor:ect

- b. Coth statements are incorrect

c. Only the first statement is correct
d. Only the second statement is correct

A-nswer: A
Reference: Section 2, Revenue Regulations No. 8-2000
Multiple Choice: Choose the best possible answer.

INDIVIDUALS
1. A married nsident ciTizen ll;I" f1u 1',1

~ The following infor::.ii110I: :wrt.lJJ , ,,_ ....
:. year 2011
Sa1aG !lt'~ nj P:~: ;~{)(J \'.-,~hl.u~c;i7J'.' :,,:.
60. First statement: The excess of advances over the actual expenses
) shall constitute taxable income if such amount is not returned to Interest incon1e, :)<tnk dt~p:._:~.:t !-..:PI \~(r'
Yield from Htone. mark,: p);,cr nw::
the employer.

::l . ~
Second stuternf:'nl: F~t:nson~~tJ!~ arnounts of reimbursements or

-----
l ' ' . - . - -- -- - ' ~ '

auvances for traveiing and ~ntenamment expenses which are pre- 1\.'l .l)l L..-.._1-'t.. li,_">L, Ut-'~ t !<"- '- --'

)
computed on a daiiy basis and are paid to an employee while he is I-I-calth in!;ur;~~c~_: ;;ren!lt!~~1 p;:L::
, f ' l .: on an assignment or duty need not be subject to the requirements
.. of substantiation and to withholding. a. P400,000 c. .(1(.
'

-""-
' a. True, True c. True, False b. P336,000 d. .. OCJ'.
b. False, False d. False, True
Answer: C
Answer: A
,_,,. Gross con.p'nsation income (P3SO.OOO + P2C ;,J,.
References~ Section 1, Revenue Regu1ationa No. 10-2000
le~: 1:3asic perr:>n<'ll exemprion :;:. ". Ji(J.

I J.IJ
1-
Scctio~; 2, R,~-,:aue ~~tiuns N~. 8-20CO
Additional exemption 1
..00.

-- Taxable compensation inco!"!l.e

- 2. A single resident citizen has two (21 qualified depende;-;' -:.h:!dre:-..

During a particular year. he earns and spends he fo:;,y,. i:-;g
Gross income fr:>m practice "f profession
Expenses in connection with the pra;::t;ce
? 2 50.:

of profess inn
Hospitalization insurance premiun. paid 2
l Ho\1' much is the wxable net income?
a. P250,00CI c. PlOO,OOO
b. P20CI.OOO d. p 98,000

-
-r t99
 Chapter 10: Income Tax Cases (Part IJ

Question 2 - Nonresident citizen

Gross professional income p 250,000 Gross compensation income. Phtlipnines t,:}_(_)(l(l

{ 50,000) Lt-s~: b.:~~1c }Y~~rsn:.,~; L":,r.:J~I!'I';

"\t: .:.cu:~.c !J,_;e;r(:: t..'XCii.lpi.Ju!~~ 2ll0,U00
L"~.' H:1"ic ptrsun~:! excnlptic;:; (P 50.000)
:\u<:iri(H.<Jl c;.~(:nrptilill :;o ooo 1
He:!lth ;;:1d/PI hnsp!talu:: tl:;n
1; .<..;ur;~!H 1: prcrc.iun.1 L___ - ,'. ()(J.QI i- __g),;. 000 \
.-..; ( ' ~ ~~ ; ( ; ' : ;' ~ . j . ;: t : . \ : : '
:--> l 1Jc Ilf't In' or:~c J' ~0,(J5.1(J
----------------------------=-----=--- \. ;_ {. \.~ \.~ \ : ;'J :.; v '

Less.: ExcL!-.~ n! ciec.~..:ction~, n'.TI ':'...:

- 3. A married resident citizen has two (2) qualified dependent children.

He llas lhe follO\\ing data on income and expenses for the year 2011:
S;darY. Philippines, gross of withholding tax of P5,000 p 60,000
GJ V!>:O. uu::;iue::;::; income, Phiiippines
4.
Taxable net i:1c01-r:t:

l\n alien n1di,:id:..1al :-:~k~~~d Y!..Yll ~~~ (_~~l~2~~; !l:n 1n 1!1~

500,000 ta.x return for hi<; in conK in 201]. lk ;;ro~, ic!cd ,., ,c;
Ru~in~>ss expenses, Philippines 80,000
information:
Gross business income, USA 900,000
Gross busint'ss inconH, Philipp;!-,,-~
Business expenses, USA lOO,OOU
Jnunst inr:ome from bank dcrnsit, Philippines 50,000
Bu<:;iness expe!1ses. Fhil!ppirws
Interest income from bank deposit, USA 70,000
Business exj)enst~). J~t})(!!1
()-ucs::c .. , 1: ltO".\- r:::.._:ch is Lis L ..-....,:L!c !H'I li1con1c in the Philippines?

-
..... b.
fl ,:2-::_~u,u~;:_;
Pl ,250,000
c.
d.
F42o,ooo
1'380,000
Japanese ::,1n:epstaKes WJIIllliWS
inieres1 income, Bank of Tokn>. ,ic,;>all

-
~
Question 2: Assuming the taxpaver is a nonresident citizen, how
Interest income received from a dcpnsi1or~; lJank
under Expanded Foreign Currenry Deposit

--
tl'
much is his taxable net income in the Philippines/'
a. Pl,290,000
b. Pl,250,000

Answers: Question 1 - B
c. P420,COO
d. P380,000
System (EFDS), Philippines
The taxpayer was a singie resident alien and had thnce :3; .<,j_Ui_lLflcd
-!::
dependent g_~9thers...
.
1
Question 1: How much v.as the taxabie n~>t income in 201 P

[ QvesJC'r. ?. - D
~estion 1 - Resident citizen
Grns compensation income p 60,000
&. P4.073,ClJJ
b. p . 775,000
P750,JOO
d. P350,000

Les'i: Basic personal exemption tP 50,000) Question 2: Assuming the taxpayer was a married nonresic:ent aiien

--
Ar:iuitional exempt;on { 50,000) 100.000) engaged in trade or bu,siness in the Phihppi,les, and had
Excess deductio''l<> over grc38 two (2) quali!!ed dependent children. Japan aliowed
compensat~on income (P 40,000) P7:J.OOO basic personal exemption to married Filipinos
G-oss business income, Philippines .500,000 110t residing there, and P20,000 additional e;..emption !:::r
Gross busine3S income, USA 900 000 each dependent child. 0fFqr Phi!ippine income ta.:., :.o\1
Total 1,400,000
Add: Other income much was the taxable net hr;ome?
Interest on bank deposit, USA a. P4,975,000 c. P71 0,000
l 7C OQ.O

~
- Total
LPss business expenses,
Philippines (P 8C,OOO)
1 470,0CO

Bu.;iness exoens..&, USA ( 100.000) (_l!i_O...QQQ)

~
b. P 150,000 d. P700,000

Questiofl. 3: Assuming the !a:xp"'yer wad a non:-esidt:m a:ien _not

(!ng~ed in trade or husiness, how much was th-:-

-.....
Net income before excess of Pl-..ilippine income tax?
deductions over GCI 1,290,000 c. >250,000
a. P350,000
Less: Exces;. of dec'uctions over GCI ( 40.v()(J) 1.250.000 d. No,le of the cJ~oices
TaxaJ!e net income p 1 250 000 b. P300,000

200 201
 Chapter 10: Income Tax Cases (i'art IJ

Question 2 - Taxable net income of wife

Answers: Question 1 - J( Ci Gross compensation mcome
Question 2 - C L-t:s~: B~t~'~c p{rs(1: , : :,t ::. :.\
Question 3 - C J''--'''"

' Q_l)e_s!j.Q!!_] - Reside&_alien

\ lfl~:-, l)us:;H~<...,.<--. 1r-!c'OH1t'. Ph:::pf';!H:--o p 1.000,000
\ f- ~ l <....; ~ ); : ' (: ~ \ ' '. ' : !t .
l1"-...~. bu:--.~nt':--.;, t::xptn~es, 1-'fnlippines ( _ _0)j_2J 1_\_l!l J
:\t ;:J (:;1;t twfurt excinptHl~lS P kOO,OOO dci"'Crlf1r_~ ~ ::;:\: ~ :.
~;:r:

Lv:. E.t~,:c prr."S . JI1<..d cxcn1ptio!: { 50 000) cx1~lcJ1!-;~~ 1Pr the\ t:~; ..-.:o 1:
'L:xdhi(- n1t inco:ne f __ _,i:_~ Saiar:. u! the bu~lJa1Hi., ~t< C.'(
withholding tax

-
Question 2 Nonresident alien engaged in trade or business
Gross business income, Philippines P 1,000,000 SalarY of the \\'ife. gross ''l l'tl0.('(; ;:: '1-::
Less: Business expenses, Philippines 200,000 Profe~sional income. hu~lJ;.:>d. :;,
'-;ct mcome before exemptions 800,000 withholding tax
Lc~~: B<tsic ptrsonal exemption (l0uer) { P 50,000} Expenses. practice oi pro~,~sH,:.
Additional exemption (lower) Pre1niun1 payrn<-nt 1or hc~.:tll 1n'
(P20.0Cj0 X 2) 40,000) ( 90.000) by the wile
Taxable net income I'd~
.('
Gross busmess irKoll:c. ''- :!
Question 3 -Nonresident alien not engaged in trade or business Business cxpcn!~cs. \\ :fc
l (;ross busmess i~icome, Phihpp;nes
T;.,x to be withht:l': 1250,;, X Pl.OCJC,.vOO)
P 1,000.000
~. __ 25Q.._Q.QQ
Rent incomt, le;.;se of co:::nw:1 ;,:o.:.~.
grn~<..: Cf :=-\(!" 1Y!th}!n1d~n: r;~~:

l , : f.",t)''''"'-~
. 'j
]f-,1._.~1 .~1li;. ,,;

-.... Ronl.ities. hook publish<<~ and :-.J.t:

--
.~(; ()l)( I
t\ marTied TaxpayPr has one [ l) qualified dependent child. His Interest income, BPI-Manila
comp(nsation income and that of his spouse amounted to PSO,OOO Prizes, Manila
and P70,000, respectively. He and his wife each took health and Interest income recei\'ed under Ex-;o;:;--:,>ri For,i\.:1
~ -,.... =::,c,,OfJiJ
. C 1 ;.:-:::
':<.ric
hospitalization insu!-ance and paid a yearly premium of P3,000 for Currency Deposit System (Ef ' ' '
each policy. In addition to his compensation income of PSO,OOO, he
~he husband waived the_ additional exe!1;ptio!1 in fa\'or o: ::-,:s wife.
derived gross income of P130,000 from his merchandising business

-[ and paid P30,000 business-related expenses.

Question 1: How much is the
a. ?.:/7,600
~a-xable net income of the husband?
c. Vt2,600 .
Question 1: How much was th-: taxable income of the hus~anc!?
a. Pl,750,000
b. Pl,747,000
c. P1.7UO,OOO
d. P1,475,000
b. P74,ROO d. None of the choice ..
Question 2: How much ,,as the taxable income of t:1e .nfi""J
Question 2 H. lW much is the ta'mb!e net i:--come of tl"o<. \\'ife? a. Pl ,750,000 c. Pl .7~0,000
a. P70,000 c. Pl7,600 b. Pl,747,000 d. Pl,4t5,000
b. P20,000 d. None

fl''1 W.,}
Answers: Questfor. 1 - C
~ -"'.)
Quest!::n 2 - B
Questi :>n 1 - Taxable net income of busband

I. &n:oss c-ompensation income

f..eg--;_ Basic pel""lnal exemption
Add;Jrmd e:xt::mpt;'Jn
(P 50,000)
( 25,000)
P 50,000

J.Iealth and hospitalization insur-..nce ( 2.400} ( 77.400)

Excess deductions over GG (f.~
Gross business im.otr.~ p 130,()00
.. Less: Business e:"q>enses
Excess deductions over GCI
(
(
30,000)
27.400)
. Taxable net income

203
2f12
 Answers: Question 1 ":" C
The tax shall be cornputed zn accordance u.n:h and at tht rute.Y t>stui;h.'-:--tieu' 1r1 Tid
Question 2 - D followin() scllPdvlf'
Husband Wiff> Not ovf'r PIO.(HH!
Gio~~ cornpens~tion income p 500,000 p 600,000 iU I (; ;: (

Lt-~~; 1-<;p. . _~- pt-J son;d e:\ernption ( 50,000) ( - ). ,.(

50,000) ( 1 -_ ~ j \ ' ' 1 I ;' ; ( ) ~ : : ' ,~ , , \ , ; , ' I
/\dJ::t:onal ext:n'lption ( 25 000) '1(1 I''
T< . . x.: i )it cnrn pe!lS<t t ior: !ncoint 450 000 525 000 .,;\
( ':, >> t lU ~inc~~ i pn )fc-2.~:, jn~d in~_ ()I"fl( 1.000,000 500,000 1 1:r: j,
( ): t !<:!. ;:lC< ::1 :l'
'I!,,

-
Kent income 350,000 350,000
Rmalties. Singa,Jore 300 000 300.000
Total 1,650,000 1,150,000 8. Mr. F, married, \\hose \\ire is ;i!so f::c:--'o\-ecl. h,~, '\':'' :.'!' ":!':
Lc,..,.: Bu,iness/ professiOnal expenses 300,000) 100,000)
E:-;;wn"e'-, leased property dependent children. lk ncre:\TS :: :r,"]rw:H;~ :<: 1!:<
100,000) 100 000)
1,250,000 Basic monthh salan
9:::>0,000
Total taxable net income PLJ_DQ.OOO Pl.4Z5.DQO Thirteenth month pa\ :t) J~

Other bcnef1ts t,

The withholdinu wx from ,J,"nuan ''~ :\mtmlw: ;s l'L'.'--=.~;:,

l \1r. E. ;narrwd and has two (2) qualified dependent children, received
thf' foil(n\ mg for the year 2011:
BasiC [11gnthly salcu:- p 45,000"'::
Ho\V n1uch is the lax io r_.,- ccdlccTtc
DecembCJ?
for tht ll.i!I.lil c
:tiUIJd<di

Pl ,77S,77 (P1.] ;:;.~::;

1 ()\en in;~ pay f2.L~-~~~- . -.ein bcr s.uou.~-
<L c.

-- ~~-i!;:i-i.Ct:.t1l11 11JUHiJi }Jd._\

Other Lt:nefiis
45.oou :o
12,000 1

--- The withholding tax from January to November was P98,082.

How much was the ta-x to be collected (refunded) for the month of
December?
Answer: A
Salary (Pl6.SOO X 12)
Thirt~enth month and other pay
(P33,000 - P30,000*)
}) ;(_~,-:, U(:(l_.l1'

Gross compensatwn income 201,000.00

-[ a. P26,617.73
b. Pl8,517.73
c. P18,402.59
d. IP 8,917.73)
Les::.. Bas1c personal exemption
Additional exemption
(2 x P25,QQr))
Tax::~le co'11peTJsatinr: ;PC''lr:1''
p 50,000.00

SO OOCJ.OO _1 00.000 00
? 'Jc~ I},Q~.)jJ(l

- Salar)' (P45,0CO X 12)

0v<:l ti,nc tJd)'
Thirteenth month a11d other pa~
p 540,000.00
5,000.00
Tax due (Section 24 (A)j
P70,000
P3l,OOO X 20%
f' 8,SOu.uO
6,200.00 p 14,7~0.00

- (P57,000- P30,000"J
G!'oss compensation income
Less: Basic personal exemption
Additional exemption
p 50,000.00
~QQQ.QQ
572,000.00
l...<;;:,;:,. Tax withhold from January n
November
Tax to bt: collected in December
.,.he f 1rst P3U,OOO of thineenth month and other benefits is exempted
p
12.924.23
1.775 77

(P25,000 X 21 . 50.000.0Q 100.000.00 (see exclus10ns from gross income.;

Taxable .;ompensation income .E 472 000 I)Q The tax shc.ll be corrputP.d in accordance Wl11t and at !he rates estt.b!zsherJ in the

I Tax due !Section 24 {A))

P2:-r::,ooo p 50,000.00
followi,g schedule:
Not over Pl0,000 ................................. 5%
P2::!2,000 X :>0"~ 6'S,EOO.OO P 116,600.00
C'ver p 10,000 l:.Jt no~ over P 30,0GJ ... PSOO + 10"/o :>fthe excess over P!O,CJO
Over p 30,(100 OPt not over P 70,000 ... 1'2,500 + !5% of the ex:ess <..er P30.000
k:ss: Tax withheld from Ja'luary tc. Ov,. 1 'P 70 000 but not ov~ Pl40,000 .. ?8,500 + 20"/o ::J!the exces<; ovpr F70,001
Nov-.:mber 98.0S2.27) C\ier PI4o:c90
but not ove:- P250,000 ... P22,';0G + :?5% of the excess over Pl40,000
Tax to be collected in December e 18 517.73 Over P250,00V but 1.c.t OJcr P:;o(',l'){l(' ... PSU.OCO + 30"/ooftht. ex::ess over P"Sf:,OC'O
Over PSOO,OOO ................................... Pl?S,OOO + 32% of the excess ovrr
.,.he first P30,000 of thirteenth month and other benefits h; exempted PSOO 000 in 201)()
(see exclusions from gross income.)

204 205
 Chapter 10: Income Tax Cases (Pan 1)

9. Mr. G, single, was hired on July 6, He receives the following: 10. Mrs. H, married, whose husband is also working. rt>ceives tiw
Basic monthly salary p 20,000 following:
TLirkcnth month pay 20,000Jf- Basic monthlv s<tl<tn
:. :u:i tl d~\ ~<11~1~'-. f1 un1 previous ernpluyer 'Thlrteenli1 1110!1tn pa_\ ~b 1-:: }\. . .,.-j.', .. _..-..
(.Janu;1ry to .June) 6,000 Otb.:-- twnc::l~'
Tiv wnhl](lldin2; tax from his previous emplo:ver is P2,899.68 and The\\ iti:hulti 11~' L:~.. r,, 1 '
:~r,;n :hr- j'rtsr-rr e;np!OH'I~ i!-. Pl/,500.50. ~Jhe r-c~-;i('JiS c~ltr: :'. ~-

, ir pa\s fCJr T.lw :-ear an annual premium on health and How nHH h 1s tlw ;;,:, t" lw '' Jt:dJC
ilospnahzation msurance amountir.g to P2,400, December?
a. P18,517.73
How much is the ta.x to be \~ithheld (refunded) for the month of
fkcember? b. p 1,775.77
;,_
b.
PL/75,77
Pl.i 75.17
c. (P2,280.50)
Answer: C

d. (P5,180.18) ---~----~----

Salary frnn1 prc\'l()lJ<..:; cn1pln~-c: u):),~ I:;'; X k)

Answer: D Thirteenth mont!, :md other p:n
(P43.:B:l ::n- f':~U.Ul!ll lit I i
S.::l~u}' from
previous employer (?6,000 X 6) p 36,000.00 Gros~ compcns~-:~:nn Inco:T:~'
Salan from prc:>ent employer (P20,000 X 6} 120,000.00 Less: Baste per-.;;.one:d exeinp;H'l: :;'; (
Grn"-'<.:. cnmper:sa!Jon income p 156,000.00 Taxable compeno;ation mcm:H
L<:ss: Ba,.w persrmal exemption p 50.000.00

-,.,.
......
2,400.00 52.400.00 P 14ll.UUU.UU I' .'..'.;,(!I' tJ\1

-
103,333.33 X 25'i;) __ :..z;) h:1:?_.:~:)_ F' -- -,.-.. _-,_,j,l
Taxable comptnsation income P 103 600 00 Less: Tax withhold from JanuarY t<: __ _s_:::_~';_;~.-,.~,
.:,_gw.t
Ta.x due [Secuon 24 (A)) Tax to be refunded in December II'~-_.'..' .';'YJ.CC I

-""-
:...0 . ~ ~ Q ., I , , ., ,

of
(./ t, ,. '
P70,000 P 8,500.00 "The first P30,000. thirteenth rnu:'-, r:: and other benefit~:-. 1'-- n.<.mptt('
33,600 X 20% 6.720.00 P 15,220.00 (see exclusions from b.-oss mcome.)
Less: Tax withhold from January to November
(?2,899,68 + Pl7,500.50J 20.400.18 The !ax shall be compu!ed in accordance u!IU. a"!d at tiw rates esta!>l!shcci tn the
Tax to be refunded in December foUowictg schedule:
(P 5 180.18)

[ r; 1..: fit sc F30,000 of tni1 tee nth month and other benefits is exempted
Not over PlO 000 ................................. 5%

--
hence the ?20,000 thirteenth month P<"Y is not inc}ltded in the
cr>Mputation{see f""'{d,~ions from gross income.)
... Premium payment C'n health and hospitalization is Flaciwed Al'l
Over p lO,UOO out aot over P 30.UOO ... PS<YJ + lU'Yo ol the excess over l-'10,000
Over p 30.000 but not over P 70.000 ... fY2,.500 + 15%01 thP exc.-ss over P30,~~~
Over p 70,000 but not over Pl40,00C ... P8,SrYJ + 20% ofthf" tXrPS<; mn P70,".
Over Pl40,000 but not over P250,000 ... P:22,500 + 25% of the excess over Pl40,000

- drrluction wh!:n the gross income dcx-s not exceed P250,000 The Cvet F2::;C,OOO Lut nut ove1 P500,000 ... PSO 000 + 300/o of tht:" excess over P250.000
maximum amount is ?2,400.

rr.., .ax shall be m~p~<ted :n. accordance U.'lth and at the rates established ir. the
I Over PSOO,OOO ................................... P! 25,000 + 32% of the excess over
PSOO,OOO in 2000

follot.L.'i.ng ~hedule:
e

Sot m~ PIO,OOO ................................ S"''f.

Over P 10,000 b: t not over P 30,000 ... PSOO lO"o of the exr~s~ over P'O,OOO

:; 0..-e:r P 30,000 but ot over P /O,OOO ... P2,500 + 15% d the excess over P3C,OOO

-
0..= P 70,000 out no~ over Pl40,000 ... P8,500 + 20% of the excess over P70,000
0vu Pl40,0l!O bu .tot over P250.000 ... P22,500 + 25% oftbe excess over Pl40,COO
Over PL50,000 bu~ not ovc: P500,00C ... P50,000 + 3004. ofth;! excess over M50,000
Over PSOC,OOO ................................. Pl25,0CJ + 32% of the excess ever

t
-...
PSOO ()()(' b :..!000

206 207
 10: Income Tax Cases (Part i)
-.
11. For taxable 2008, LCB Service Company ' Mr. J. Bala,
12. Mr. M got married on July 20, 2008, when his girlfriend was 1om (4 I
married, with two (2) qualified dependent children. He received the
frl1ln~.,.!nc:: months pregnant. On December 26. 2008, the wife !'!ave lm t h t"
t\\ins. Ean-:ings ::--un1 .l<i!tdc--n\ 1 :, L;(\JS \\.<:-J~~ T' l-"'-~' , ;;,
f-:: 'r rnr,-, :.;(;:-:. ;cx(<~uiiilb SSS;'IiDivlFj
f'f-:JC crr:~;Jn':ef ~, ~-~L~~;c\ tor the resT oi 2lj\ ~' iH t;:n;c~: t'c: .i\: iliUJ ,._
p 45,000
)\( :r1;1:t l' ;Hj !!.1!11~~
5,000
ti: :,:' {] T)< 1 '- IHr T1J(:;-;t l1 d !' ~;I'
2.000
-~- 1nl; ~:;r.n:L r~:-:_\
11:1 :tr t.'l] Llz-((n~b<'r :2(;08 -15.000 i' i
u;,,,; lJ<'It;;~. pnn ])utnJ!wr LUOB 12.000
: ;;c lox \\ithiwici !rum Janu;uy to I\ovcn:bcr amounted to Answer: A
PJ36.609 93. How much is the tax to be withheld (refunded) for the Salal}' (January l to ,July:;_ ..200.":))
:71nnt h of Decem her?
Salary (,Jul\' 6 to Decem he;-~! . .'IYl~
p 10' :. : 7. 7 3
Pl3,Ci:'.(JCJ7
c.
d
(P5,180.J8)
(P9,000 03)
Gross corr:pens.dtion incoi!ie
Less: B<"-i' persnc:al .-xcn:pllt ,,.
,
Additional exempiun (2 x f'l .. - _)") l __ ~~~:--.-~!.:-~_\:.:,\_
Answer: B Tax;:tble C'):npen sa. tion i ncr \;~1t - ,')1_ .',!);.'

S.d:.ry (P4S.UIJ(J X I :.:!1 Tax due !Section 2-+ fA)]

(her tinlc p,1_\ !P:=)_(J(HJ .\ l '..?} p 540,000.00 P2 C',() ()()I; p :::.n_1 H.!! 1
tL:_!..-:<tui pa~ d'2.0(;() X 12) oO.OOO.OO ~:-- :--:t ( : ;;
~fl,OUC: Y... 3{Y;-~.
24,000.00
~-t::::t'entL ;;.e-;!I;, <!L;.: other pel~- !IJ.::,-;- (J00- P:~U,OOO"J '(;-
27 000.00 .. BasK !IC:'""SfH1ai t..:xrnlJltHl:; l)('! fi' .
Jn)s~ c onlnr,;c..;.:~t,nn :n;,"!'T!t'

-
,f<.,.~c.-:-, :..:J,' ~--!!'~:I ~ \""; p 11
. --.

,-
! P d 1 /Jt)U) ,,
~
1 I r IHr . ' ' ,;

:\dd:ti::;:~,} c:\('litptidn 1.::: A f'JI, .SOO**Ai

; axab1e compcn~~J tion inconlt
3:-l.OOCJ) ! 74 OOO.O!J) Tnt;,i

- Tax due iSecti<Jn 24 f\11

P577 OQ.Q...QQ ** Additional exemption JWI RR ;\u. ; '.1 - OOS
,Jan-uarv w June 2008 (I j"l. X -~ :,UO) P 4 .UUU

-- July to December 200S (1/2 :-: 2.':.000) ] -, _C,()('

1>soo.uoo " p 125,000 Total I:~lJd.;i,_I,,JJ
77,000 X 32%
24 640 p 149,640.00
fill Less: Tax withhold from Januarv to
The Ia.>: shall be ~omp-..aed tTl accorclance ,._:::: and at tile rates esta!Jltshed m !l1e
November .
( 136,6QQ,OJ) following schedule:
Tax to be collected in December Not over Pl 'J,000 ................................. 5"'c _
~~~),0_1

[ Over p 10.000 but not over P 30,000 ... f>J:JJ ' 10'!~ of the excess over PIO/J.JO
Over p JO,OOU t.Jut not ever? 70,u00 .. .!2.5vu + L:ho of the exc<"~ u\'u f .;J,v,!G

-
The hrst P-30,000 of thirteenth month and other benefits is exempted
lsee exclusions from gross income.} Over p 70 000 but not over P140,000 ... P8,500 + 200;b of the ex,t'ss over P70,000
""Basic p.::;sona! cxcrr.ptka _!)<; RR No. 10-2008 Over Pl40:ooo but not over P2SO,OOO ... P.:"2.500 + 25'% of thl" exnss over Pl~0-~0~
January to ,June 200R (]/2 X P32,000) Over P250 000 but not over PSOO,OOO ... PSO.OflO + 30"/o of the excess ovl"r ?2;::,0,"0'-'

-
Pl6,000 '"'--
VII\... ..,...,"' """ ...... ............. ... p1.. 25 000 + 32'% of the t'XCt'SS OVt'f
..... I
J;_;!:_, .o December 2008 (1 /2 X PSO,OOOj
"!":Jta! . 25,000
I 'vvv.v<o.Jv
P5(J('l 000 in 2000

J
P4I 000
, .... Additional exemption per RR No. 10-2008
January to June 2008 tl/2 X P8,000) p 4,000
July to 0ecember 2008 (l/2 X P25,000) _!2,500
Total
P16 500

I
~
u: shall be COrrtplA<ed m occordnnce WI.th and at the rates established in the
lwc
:otlowing !'Chedule
!'i:ot over PlO,GOO ................................ 5%
~r P IO,Ow bJt not ovt'r P 30,000 ... PSOO + 10",4, of~~e eM:ess over PlO,OOO
OR. P 30.000 but not over i> 7C.OOO ... P:;:,SOO + 15% of "-e excess over P30,000

f O!.Jer P 70,')()() but not 0\-'er f'140,000 ... P8.5JO + 20*> of the excess over P7n 000
:::Wer P140,000 but not ~r P250,000 ... P22.50U + 25% of the txcess over P14u,OOO
{)o1er ?250,000 but not over PSOO,OOO ... P:o.ooo + 30"/o of the excess ov,.r P250,000
OPer PSOO,OOO ................................ P125,000 + 32% of the excess over
PSOO.OOO in 2000

208
209
 Chapter 10: lncume T"x l."' . !'art I

TRUST Answers: Question 1 - C

Question 2 - B
13. Mr. J2.mes Santiago created two (2) trusts designating Atty. Mars Question 3 - B
Hr:J:;:. ::,d ttw Philinpine Tru~t Company as trustf'Ps. The common _yuc__:;tion 4_._ . <::
Lt r.eh n of th l\\o 121 rru~rs was his son, James II, married, and ,-~-----

Qucst~(_)l_1 1_- Tht ta~ auc oi ~~tc1~ t;us-~

,,!~ ~
j" ...?J fill:~::~i('ci d{ ;:_::dr :::children. 'The follov.:ing data \verc
::1(1dt ,,:~:.L:-.tbk f~Jr the \t~ar 2011:
Trust _~"l_cLl Trust No.2
{ ;! < ,;-,~ ;: cCUJ11(' p 600,000 p 700,000 j;,,.,:;,{' .-,.,
l;t:~:;.tss cxp~nsrs 300,000 400,000 Pe:s(jn:d l'\:(n1r: \(1!~
'I i ,i 'i;l
lncume distribution to benefi< :ary 100,000 200,000 Tax~d)k r:ct inco;nt

lilil~:.:".S<i_!1lL<lKQ_Jl_
(;r(J~~ lT!CfJJne p 800,000
l1~1s1:1t~s exprn~cs 250,000
bcome distribution recei,ed, gross of 15% Lt:--~...: l1'.._.~.!'\(s~ . . c:.\H'tJ:--,1',
cred1table withholding tax 300,000 li:t r.~:c d1~t :-J!Hit H)::
l:1c<m1e ta.x paid. previous 3 quarters 40,000 Pc:-~ ,;J::t! cxttnpll<'!:

t~itteST!O!l I: !-iov: r:nuch v;d.s theta'( due fro1n each trust?

Trust Nr,_ 1 T::.Jst \o.2
d. P37 .500 Pl 4.SOO
i) f'_::: (> _( l(_if_i j :'..:,: ~:~::~.-~ ::'L ,;~::~1 ;1;;1

f) r :-nA n\JSt'd cxcrn~)li<l!l t!.i\t"il II\ t 1 li:t\ .('

C. P25.000 I .._;,._) 1 JV

d. None !\one QuestiQ..~ _ Ta~L<l!l.~ of eashtrusLa_fter_s_hare on the con~oltd<-.ted

(:'uestlon 2: How much was the tax due on the consolidated income? !!teo me ~ , , . -\, . ____ ~:.:_~
a. ?65,000 c. P37,500 Share ~in the consolidated incon:
b. P50,000 d. None of the choices Less: Tax alread,- paid

--[ Question 3: How much was the tax payable of each trust after their
share in the consolidated income?
Trust No.1 Trust No.2
Tax still due
Trust f\i'l. 1 - P150.000 I P200 000 X P.'iU.OOU !'.); ,:;(;\j
Trust No. 2 - p 50,000 1 P.:.:>OU,OOO X P:=iO.UOU ~ PI 2,5(J(.J

- a.
b.
P37 ,500
Pl2,5L'tJ
P12,300
1-' 7,000
p 7,65i
Question 4 - Tax due James Santiago II
r..-.""lc:!C ~t""~r-n~~

;dd~v 1~;~~~ distribution received

.'-\;)'),000
.)!}:)_()(!_!_)f.'

--
c. p 8,346
; . iOO.OOU
d. None None Total 1:':0,000)
j..('ss: Busii.CSS expenses .':/J,UOUJ
Qt."?Stion 4: Hvw much was Lhe ~payable of James Santiago n H;;sic personal exemption ';.() OOQ,
\
after t..l.X credits? Additlo'1al exemption :r_: ~1.()()\)
p
~- PIOS,OOO c. P20,000 Taxable net mcome

L
b. ?60,000 d. None of th,. choices p lC'i.OOO
Tax due !Sec. 24 (A)! _,"

-
P4S.OUO
Wit!-.holding tax (P:'l?O,OOO X lrt;:,:~~ :.-, 5 0CJO
Tax payments, pn;.-IOu:; J qua ~v 000
~able _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __p_: _~~~-Qg
:-----'

--
r 210
211
 Cha ter 10: Income Tax Cases (Part lj

Gross income, Philippines p l 0.000.000

,. " '11, )()",.nftht> txctss o, ... ,. P10.000 Gross income. t:S:\ .c:.C.'.}_,_LJ11_l'
' ' (i ''' , - _,()IJ, 1.-)", of tlw cxnss mn 1'30.\HJ() Tutai
-~()( J . . . J~ )" , of !}1f' ('\.( (""-;S C\Tr fl((i .tJ! )! !
t"\(: :.'~' )() "! )::)''o ol l~lt' t",(t'S~ U\t'I PliU.(HHJ
(l\1"! ;,)()() ... ~0" .. of ;~w cxt'f~~ (l\tr f_):)O.<HH; :)

1
-,_(J!l{) :~.!"(,
td !}!I' t':'-:(t':--o~ 0\TJ T~ll._~l gru~_..,_ :il!"L':>.
' 1 1 (Jiilllll .'liOIJ
l...t~-...: l Jtt!tH .. 1 <.,
Busincs~ c:-:;)tn.._~::-1
f'.
Section 60 (C) Computation and Payment . .

-
Busmcss expenses. L:~A ,-tJU.OUl! .'. "00U.l>0('
1 :! In ( ;nwro/. - Tlw tax shnil lw compu.ed upon the taxable income
Taxable net income P": ~'::_'J').i,H.Jt.'
r:' !/I(' ,s'n'l' or tn1st wtt! -:lw/1 he paid by the fiduciary, except
u-. ''"' ri 1 S<cun. ,,:r:ttnq to rc!locable trnsts) ar!(i Tax due (30';:,)
-' 1 l.u' ' tr iullll(./1< :" . .. ,, /(Jr the hcnejlt ofthe gruntor). Less: Tax C"rcdit- ~.~,ithh(l;(i::1~~ t~lY ';L~~ .,
',,,\,
Tax payable -~- _. ._,_,_v'~'-
' ' ( ,,tso!uiut;o,, o( lnrornt o( Two or More Tn1sts. - \Vhere. in the '-------------------------------
cu:;, or 1:. o or more tn1s~---. lite creator of the trnst in earh
n!slunce ;:; 1/w ;;ume fJ<T'-'O!I. und t/1(' heneficiary in each
p,slnltr,. :s tiw .-.;u/lw. ;ia :uxuhle income of all tlw trvsls shnll 15. XYZ Corponuion is a forei?-n corp"r<ocJon <'TlL'<l!-'<'d in ll;.:~<:,_: :. ::~ t!"
I~< cun ,G ':cio:cd unrl ;;,, :<~x pmuiclcd in tlzz's Section computecl
Philippines. During the year 2011. :s :rHom(' ;md t'X!'': -:, ;,:,
,,,, .'uc 1 -'"-'<ll<iutnl .,,,v::c and such proportion o(suicltox shown belo\\:
Grc~~~ incnri~c. Philippi~:rH
',uil i .. -. ''-'"u tnu,,' , , ,,ltiurn !'Odl trustee rri;zch tilt'

- ' ' "T\.,,

r
B;..!~:::t"s~ ('~':j~:;~~~~~:. P1~i1i;:;
f\ f'

u_\ u 1.~.1~ : ~. ''C-'":C qj The ~,-:, ,. ':r}nP'11-~tered by Jun1 henrs to tlu~

... ,.

Gross income, South J-.:on;1 /( __ ()(J(j,()(j()

__ _!ons[)_l__u;!_a:e~im!;_o_'!_l(:'_ (~f ti:, :-;,z~'~!E.L!.!':!_~ts.

-,- 14. r\BC Corporation was created in accordance with Philippines laws.
Business expenses, South Korea
Interest income on dollar deposit,
p;;s-Manila, Philippines
Yield on money market placement in Souh Korea
.3.000.000

:'>CJO.OOO
l ,000.000

[
- During the \ear 2011, it had the following data on income and
.xpenses:
r:; 0S'' il'Cl!Tie PhiFrp;PCS
Business expenses, Philippines
G:oss income. USA
p J 0,000 000
2,000,000
5,000,000
Question 1: How much is the Phiiippine income tax due and payable
using 30% income tax rate?
a. PS,OOO,OOC
b. P5,250,000
c. r4,500,000
<:1. t;one uf til<.:: c.r.o;cu,

Question 2: Assuming the corporation is not engaged in business in

Business expenses, USA 1,500,000
thf' Philippint>s. how much is the final withholding tax in
I:1terest inccme., Ba~!: of P! \!an1!a] Phi!tppines
+ 300,000
the Philippines?
Interest income, C:1ase Manhattan Bank, USA 100,000
a. P6,000,000 c. P4,500,000
Rent income, net of 5% withholding tax 190,000
b. P5,250,000 d. None of ,he choices
: kA much w~:,. the Philipp':1e income tax payaiJJe '.Ising 30% income
tax rate? -~-... -- ~ ---
Answers: Questic;n 1- C
a. P3,540.000 c. P3,440,000 r-:::----:-:---:-'Question 2 - A
b. P3,531 .C8v d. P2,480,000 Questlcn 1.
Grv::.s i, tcome, Philippines
Less: Business expense.>, Philippines
p 20.000 000
\_ "i.OOO,OOC l
I
Taxable net incom~ fJS 000 000
Tax due 1JO%j P 4 ;..oo ooo I
.....
r 212 213
 Chapter 10: Income Tax Cases (P.1;-: i)

Question 2
Gross income, Philippines 17. A proprietary private educational institution has presented the
p 20,000,000.
Tax rate following data for the year 2011:
30%
' ; l , \:... , i 1 1 I i ( 1 j ( 1 1r ~ ; ', t ;-! ...,:
E~6JlQ_Q,OOO
Gross income. related acti\Jtw:,
(~rus::::; incun1t:, lli1re1ntet1 <H 1~l\-iL 1 . ilL\.-;_l,Ull

P2.000,0()(1 ;tnt f"'::t cr,:r:::,: sn::r,.,.

I': li (_ j ':\ \~' ,d:!lf \:I "j} l('
J:Jlormntion wen: from the records t~ros~ of ~)'' ,,_-; t 111 h >Lnt. ~; l
: : 1 : ; ~ : J ~; <1 i ' , l I ! ] \. t
. "pri\ate educanonal institution, Expcn~t ~. n.,tit-d <t::J\'lllt ~~

201 1: Exlwl1::-.t s. l~i::cl~~tt(i ,:cti\'l\Jr:

\il>;rr :~~~11l'OUS !cc~ p .)(J:2.600 f)i\idcnd fr(;: .. d dur:-testic cul p~,r :) : J\

-
J]

Tuition 2,o43, 100 How much is the tax payable?

Income from rents 60,000 a. P2,100,000 c P700.: f
Nd income, schooi canteen 36,200 b. P2,000.000 (:
Net income, book store 24,800
I )j,id(~nds lJ,OOO Answer: B
Interest on time deposit 45,000
Gn>ss mconw. related activtllt'"
E::;;enscs: Payroll and administrative salary 1,425,420 -
Gross income, unrelated [lCtiVJtJr:, ( ,''
Other operating expenses 844,430 Total (,[,

Ucprec:ation. new si..x-room building 37,500 Less: Expen~.es, related acuvn rct. t
'j
1J )
--'
rd 1r 1 1 1 \
.

Expen~cs. unrel(ttcd acr:~li tr"

in ri,, first mont!1 of the fiscal :-car. the school built a new six-room
:,u i Jrlinl' cost mg P7 .')O.non Th~ .,,.". building would !Je depreciated

---
,
~",.. . ' ' '. ':. ~: !-~:-

''""the lllC<Jllle t<.L-.: (juc from the Central Plain University,

;;.-,.,. ;;;c:,il
Inc. :or the fiscal year en Jed Mav 31, 2011?
a. P305,805 c. Pl52,903
Tax due (;lU'>,f
Les~: \\!itlillulJ!ug lax
Tax payable
UII ICIIL

,- b. P203,870 d. P101,935

- Answer: D
Tuition p 2,843,100
-t 18. The following data were provided by Ai: America, international ca:-:-:er
doing business in the Philippines:
Gross receipts, sales of tickds in the Philippines
[ Other income
(Manil3 to T'ii!>f>i flight) oc., 0r>(i,0"'

--
:\1is::ellan-:m.s ;ces i- 062,600
Rent 60000 Gross receipts, sales of tickets in Japan
Income, school cantePT'J ~~'>.200
(Manila to.Tokyo flight) 5 OUO,OU('
Income, bookstore ~ Gross receipts, sales of tickets in Japan

-
24.800 483,600
Gross income 3,326,700 ('rokyo to Mamla tlightJ 3.00u,OOO
Less: Der!uctions G.::-oss receipts, sales of tickets in the Philippines
Payroll and admin salaJY (P 1,425,420) (Manila to Hongkong flight), passengers were
Other nnerating exp ... nses ( B44,430)
Depreci'ltinr.
endorsed to another mt~rnational airline which
( 37.500) ( 2.307,350) airlifted t!\em from Manil~ 1,000,000
T:lXable net income p 1 019 350 ;.: Gross n~ceipts, sales of tickets in the Fhilippines

l Tax due (10/o) p 101.935 (Manila to Lus AngPles flight). passenger:. w~re

- trans":lhip;>ed in Tokyo to Los Angeles by aaotn~r

airline .(flight from Manila to Tokyo- 3 ho l!'S;
lligl:t from Toky0 to Los Angeles- 10 hours; 4,500,000

--
Exv..:nst;s, Philippines 4,000,00C
How much was the Philippine iilCome tax due and payable?
a. P5,25(),000 c. P387,500
b. p 537,500 d. P287 ,500

214
215
 Cha

Answer: C . :.1\ 20. A corporation has the following data for the past year:
Gross receipts, Philippines (Manila to Taipei) Gross income, Philippines P2,500,000
~t:;.:o.. Lp ... :c (:,;c,:.::~ :, Tuk.u) Gross income, Japan : .S:JO.OW
'J-' .::.;.t;::.c: ;_,:, : ... . _.. t;, iiun.gk-;.;._;ngj 1,000,000 Expenses, hlilipplllt:"
.~:a <:o lJ'S Angehs) Expense~;. Japan
__I ,_;'iOO.CJu(j
p 15.500.000
1,'
;:~.s~, U 11111 :r '":t ; t ::TJ.!l <:'
.. t : ; : .. { : L. I ; ~ T: (J i ); ! \ ,
t 1I1t'r11HlCJf~:-(-:.IJ~l1( :lJr,.:.
----------------------
a. P750,000 c. PlK7,500
.,
- ; 'J. A resident fon:1gn corporation has the following data on its income,
tXp!J:s(~s ;:~:<i rernittances:
(,]"'' ;;;, <>lrlt'. f'iJI~ippill"S P7,000,000
5,000,000
b. P625,000

Question 2: How much is the fin;ll ;.:>hlwlding t;c.;

d. Pll2.500

;,ssL--nl::~ ;lw
corporation is nonre~1r::'.:-::.t foreign l('~~r)r of\ f~s.<;~.fl~
chartered to Philippinr- nationals'(
Busmtss expenses, Philippines 2,000,000
a. P750,00C c. 1'187.500
!3us:ness expenses, us.(\. 1,000,000
b. P62S,OOO d. Pll2.500
RU\ ,,lr;es on Phiiippine cop\-rights 500,000
In;,-rc"T uJ; tillw deposit, P~-.if-1-\l;mila. Philippines 100,000
F;r-::::t'. .tn< cs of profit during the \ear 200,000 Answers: Question 1 - B
Question 2 - D
1,--Q---:- -~
. .
~ ~ _.. - - __!!_C_S~-~-'?~~ ...
. ~. _ _H.:,l}.;; c. Pi ,500,0UCJ
I Gross income, Philippirte~; }-' J.:::JJfJ.Ui -~~-~

' P1,75(l_!Jfd' d. None of the choices Tax rate 2~:-(

- Question 2: How much is the tax on the branch profit remittances?

a. P60.000
b. P40,000
c. P30,000
d. P20,000
Final withholding tax
Question 2
Gross income, Philippines
. Tax rate
p 2.500,000
4 '/,%

---
Final withholding tax
Answers: Question 1 - C
Guestion 2 - C
Qgescion 1 :21. A corporation has the following incomt;
Gross income, Philippines p 7,000,000 Inte!"est income 1eriverl from de~~it0ry bani< under

-- Less: Busine~<; expenses, Philipp'c-es

Taxable net income
( 2.000.000)
r s,ooo,ooo
Expanded Foreign Currency Deposit System '
CRnitAl 17Ain frnm <;AlP nf shArPs nf c;tnrk not traded
-i~ the local stock ex-:::hange
p 100,000

200,000

-
Tax dJe and payable ~30%) p 1.500 090
Dividend from a domestic corporatiotl _.:__v ,-:! 300,000
Question 2
Profit remittance p 200,000 Question 1: How much is the final tax on the passive income and the
Tax ratr 15% capital gains tax, assuming the corporation is a
Tax or. i.Jranch pnft remittance ? 30 090 r~sident foreign corporation?
Final tax on

l a.
passivt- in,..0me
P45,000
Capital gains t&..'{
Pl5,000
b. P15,000 ? 7,500
c. Pl~,GOO P4;>,uOO
~ d. p 7,500 Pl5,000

.&

216 217
 10: ter 10: Income Tax Cases
.j
1
>,~,: Question 2: How much is the final tax on the passive income and the Answer: A
capital gains tax, assuming the corporation is a 2()09; RCIT p 28,000
;,.,,;_l:csidcnt forcig_n c:orporation?
i;;J;._ll ......_.;_,\.Oil
I
j
MCIT
T::, c~ .. <.:.c: p(::;:.l.
p 40.000

~-i:Ulit:;,]_g_ains t~.
I.; . . l< Hl Pl 'S.OOO 2010: RCIT 1~--L~----
j;: .. ()(j() MClT : ___ .:.___~_''

j~ 7,500
p: :- I,:( l() : 'i ::, '000
l'Ei.OOO

- Answers: Question 1 - D
Question 2 - A
L__
2011: RCIT
MCIT
Tax due (higher)
Less: Unexpired excess MC!T
Tax payable
(
p 40.000
p ~0.000
p 40.000
2.()(~1

Q_l!_e_gi~IJ,_l
Fnnd \Vithho!d!ng tax on intt:n_:st 1ncome under EFCDS
(PJ OO,OOU X 7 ';.';q p 7 500
23. The following data pertain to a domestic corporation \\ hich ?'f~istenrl
C:,rnal pnn: p 200 000
with BIR in 1998:
lviir-lHnUnl l~01 porate :\onnal Corpor;!l<
4

p 5,000 _L~,_:-~-~!Y;!- Tax t\iC_1T ~Il<'<J!llc Tt1X ~\:\_~;~~.

J o.noo P L5,000 ~ JG,V~JQ
20UY ~' "i5,u00

2010 100,000 60)000

-
Question 2
Fmal Withholding tax on divid~nd !rom 2011 60,000 100,000
domestic corporation (P300,000 X 15%) p 45 000 How much is the t;::.x payable for 2009, 2010 and 2011?
Capital gains tax on sale of shares of stock P 15 OQQ 2009 2010 2011
a. P 75,000 PlOO,OOO PlOO,OOO

-[ 22. A d0::-~estic

2009
cor;'Qration has the following data:
Minimum Corporate
Income Tax {MCiT)
P40,000
Normal Corporate
income Tax {NCITl
P28,000

I ,.-1

b. p 50,000
c. p 75,000
d. P 75,000
p 60,000
p 75,000
PlOO,OOO
p 60,000
p 60,000
i-' 35.000

2010 8,000 10,000 I~~~w~er~:~D~-------------------------------------~

l20Q91 Normal income tax
~1-ti
P 50,000
I
I

....--
30,000 40,000 1 Mm1mum corporate income taX P 75,000
How much 1s the tax due and payable in~.~and BJI?
I. Tax due (higher) P 75 000
20< ;2010: ~(jtl_~i~'C '2010! Normal income tax P 60,000
Minimum corporate income tax p 100.000
a. P40,000 Zero P38,000 Tax due {higherj p;oo ooo
b. P40,000 PlO,OOO P40,000 ~11: Normal income tax p 100,000
c. P28,000 PIO,COO P40,000 Minimt.m c.orpc:ate inr:ome tax p 60,000
d. P'28,000 P1 0,000 !"28,000 Tux due (hig}'ler) P 10C,000

-
Less: l'nex;Jil cd excess MCIT
(P25,000 + F-40,000) (5,000)
Ta;;..pa}'?.hk P 35 OQ_Q

r 218
219
 10: Income Tax Cases

Taxable net income p 1.700,000

ofDccembe:r 31, 2011~ Add: Inter-corporate di,idenrls P SOO.OOO
Net orcr<ltin? los~ .--~~rn
P 3,0UO,UCJO Interest on mone:: r:'lnrkct
__ },ROll OO_Q \'[' ,,,,,
(L__c~Q_,CLQ~()()) T(11:d
Ac_unJubcd reL.:ill:d earnings, end of year P 6,000,000 Lcs~: F1n::d !.ax o:~ T:Ji<~r.~:-: (\:-, ::. ~.-,
trl<l :K~.:t pl . . !t_cr:~J- .
2() i j. l,;,.c,o, lllJilH'
p 5.000,000 Di\ldcn(~~:> p;_ud

-
Expenses 3,000,000 Tax due for the year S i U UUU 1 L ...:.U~.JU.UUU J
Rent income, net of 5"<, withholding tax Retained earnings, end 2011 -! p 1,070,000
475,000
Intt"rcst on mone\ In8rkct placement, Add: Retained earnings from prior years .If' 6.000.000
!l'"t nf 2(1',)" \\Jthholding ta~~
Accumulated retained earnings, end of 2011 ,;,.'( 7,070,000
80,000 Less: Amount that may be retained
l nit'! -(nrpnrate di\idf_r~d~ r-ercive-d 500,000 {lOOC/0 oi paid-up capital) ;:_ ~.000,000
Di\'Idends paid ln the corporation 1,500,000 Improperly accumulated taxable income P 2.070.000
Tax rate .l 0 ;.;
Improperly ace urn u Ia ted e;,. n in..:g_:s_:t~a:.:x_ _ _ _ _ _ _ _..!-.... ..:r ...,.,
P c.::-~- -_, ..JJI)I,i
'-"':....:.__
'pon t'XammCJtion "f thP 2011 rf'turn, the BIR concludes that there is
::;;proper ;wrumulat:on of prof:; The corporation fails to show proof
~(J pron: the rontrarT.
25. A closely held corporatio~1. registnt(l w1th Bl !< in 2007. <''''-'"d the
following:
lj(),,_ :nLch i~ ': ':,:: ;Jayabie ol the corporation per 2010:

->
-'1
b.
f>:SJ
P485.000
.c~ .. -<.i1J
0~(;;_,()
111 lilt"" \t-c:.; .20i1(
c. P425,000
d. None of the choices
Operauug expell~e!>
Net OfX:tating lu::,~
2011: Gross income
'-~~~~:~\!_~ J
(i:=-~~Q~~QQQ)
p 3.000.000
Operating expenses 1.000,000
, Question 2: How much is the tax on the improperly accumulated Other income:
income in 2011? Interest on bank deposit. net of 20%

-[
a. P207,000 c. P98,500 withholding tax 80,000
b. P107,000 d. None of the choices Dividend received from a r:!omestic
corporati:">n 50,000
o\n"'we:-!': Que:;tion 1 - C !)ividends paid curing :he :;ear liJS,000
Question 2 - A
The BIR conclud..:d bastd l:.n its imestigatim, tl.a~ there \\QS improper
Reference: Revenue Memorandum Circu!:lr No. 35-2011
accumulation of profit in2QU. The taxpayer did not contest the

-.... Question 1
Gross innmc
Other income (rent)
'1'otal
PS,OOO~
__,s""o=o:~ I
5,5GO,OOO
findings vf L'-le BIR..
How much was the tax on improperly
a. P153,000
b. f-158,000
acc~unulatcd
c.
profit?
P168,000
d. None of the choices
Less: Business e) ye ses (P3,0CJ,OOO)
Net operat::.g loss Ca!C) over ( 800.0JO) ( 3.800.0UO)
T'V<:arle net income PI ZOO 000 Answer: B

-t:
l Ta;., ..;ut> (.'0/o)
!..ess: Creditable witt.holdir.g :.a..x on :-ent (P
Unexpireu excess MCIT
t2'lr, X P3,COO,OC::l)
Tax payable
{
25,000)
p

60.000) l--===
p
510,000 ~ssinccrn,
Less: Operatir.g e;.,:,t>enses
Net op.!rating loss carry-over
Taxa;..:e net income
TPx due ar>d payable (30%)
(P 1,000,000)
( 500,000) (
p 3,000,000

1.500,000)
f..!.590WQ
~~~

-... 220
MC1 T is not yet applicable in the year 201 0 because- it is onJ_y ~ third
i.srcctioa wzrh the BTR m <:1107

221
 Cha 10: Income Tax Cases Part IJ
Cha

Taxable net income

27. A domestic corporation had the following income:
Prize, Philippines PSOO,OOO
Add: Net operating loss carry-over p 500,000
Interest income, bank deposit, Philippines 300.onn
l!'t'"'n<.:-t ~nr~"'7:~ 1'1:"':>-k ~e;;nsit 100,000
Tl:. (',::,() 000
2, l SO,OOO Capital g:1.m fmrn sale of land. Philippines
r : .: _)().()(\(I (~(llll nrH:. :~\:,_olHLC;: ccJs1. p.;_soo.ooo:
-1 ;){). ()(l(j F.\;\. ":T 1 : tl: .~:-.1. pr .~ J(\_(){!(J
1___ j_OU. ()f)( I ! __ ~'i70.00Q) l11tcrc;-.! ::~:\:Lf !:!\:;~ (1(-~) -~-JIOr\ ;_;:i1~{ UT:(~~-; Ft-~ ~
l ,:,su.ouu
CnJHal !:'.:-~:!1~- -;;i~::l ~a!t~ ( -di<!r('~ r< ~tock not 1rf~Ut (
-----~]9'>0
in the local stock exchange (sellmg price, PSOU,O(>U;

- ~
~. -
!rnproperiy LlccumulateG e~~T"":-::::gs tax

''il'-'- ~cr\'HT Cr,:u,Idtiu:~.

:dllov,:ing c1at<:;. fur the yc~-ir
:. '''r-eel with BIR in 2004. has the
2011:
.E__ 158 OOQ
Question 1: How much was the final withholding tax on p;.s',i\(

a.
L.
income?
P304,000
P11 0~000
C.
d.
P78,750
None of the ch.:);, c :~

,JII' Gross rerf'ipts p 1,000,000

Questwn 2: How much is the capital gains tax due, if an:-)
~
f)1scounts gi\c-n 100,000
l\ct urns and aliow<mccs
a. P364.000 c. P78,750
150,000 d. None of tht ci1C1H ,.,.,
l S<:lanes oi rwrsonnd (~!rt",::\ :n'.oln:d in the
suppl)" of senices
F{~es of ronsul~an1s d::-ct-. ::,;ohtd in the
300,000
h. PllO.OOO

Answers: Question 1 - C
::(
-- '-:ilpr~jjy nf , . ~-....-i('P~'
Question 2 -A
50.000
f.~~:Ha.l of eqL...:p~~;cn.t (i::c, <_._ Qu,t:stio_n_l_:_ Final tax. ()D passive _inc<n!!~
supply ol serYtc-es 70,000 Interest income, bank depos1t, Phi!Jppmes
::=a Operating expenses 420,000 (P300,000 X 20cA,) P {>U.OUU
Interest income, bank deposit under EFCDS
How much is the income tax due and payable? (P250,000 X 7 '1./;q JH 7;:;u
Total E_ __ 18,..Q:,
a. P27 ,000 c. Zero
~ b. P 6,600 d. None of the choices

-r- Answer: B
.~-

(;ro~"' recupts p 1,000,000

QuestiQn 2 - Capital gains tf,x
Sale of land (P6,000,000 X 6'Yo)
Sale of shares of stock (P80,000 X 5%1
Total
p 360,000
___ _3,&(,1(2
p 364.QQQ
L.
-.-. Less: Diswunts
Retums <~nd ailowanct~
Net receipts
Less: Cost of ser.ices
Sauuie5 of ~=oersonne!
!P

(P
100,000)
(_15C ..QQQl

:::00,000)
:::!50.~00)
750,000 4 28. / .. busineos pcirtners11ip organized by partners Asl-i a.r1d Cris, equal
partners, ha3 the following data for the year ended ;2011,:
Gross business income P 1,000,000
Fees of consultants ( 50,000)
D~ductil>le expenses 300,000
Rental of equiprnem I 70.000) 1 420,000)
Gro;;s income 330,000 YielJ from der:osit snbstitute, r:et of final
Less: Operating ex-pe.:ses 420,000 withholding tax . . . 50,000
"iet op::rati:1g loss (P qo.OOO) Int::rest income derived from a de;><>siLOry bank
[ 100,000

-t
undec EFCUS, .. ct of \&rithholding tax
RCIT L_-__ Gain from sale of snares of stock n:>t traded :n the
MCIT IP330,000 X 2%) p___,oOO local f:tock exchanee, net nf capital gains tax ciCl,vOU
T"x due enc! ;>aY::J.ble (higher) Withdrawals on the sha'"e ir. t.~e net income of t~1t.
1 5C,OOO
partn~, net of withholding ta.< .
~ Rent income, gross of 5% withholding t<uc 300,000
a.. Pa)'inents of quarterly taxes, ftrst 3 quarters 120,000

-- 222
223
 Cha tcr 10: income Tax Cases (Part 1
Chapter 10: Income Tax Cases (Part IJ

Question 1: How muc~ is the taxable n~t incorr1e of the business

partnersh1p? 29. Rhea Co. and Izzy Co. formed a joint venture to undertake a
a. Pl ,300,000 construction project pursuant to an operating consortium agreement
c. P700.000
under a service contract with the Government. Thn slL:r d
rl.
Fo1 \llc (dr:cn.t _-.cdl 1 ll.c ful;\_,\\l.i~;~ li.;d_i:l. CHi. \Ii.c4Z-_jt}.J..:li (_1;P.: ~~tJ(!id_(
OJ)f'r~ttjons v.:crf prcs{ntcd
,Jolnl opt-":--;:1-;:i(_l;: (JJ"Ii~s ii1Ct;JI:r i (

!'] h.'l. 000

( [,11] Separate I ',\

,; f\onc ut lht- cLuir-cs

-- (!:it-'S[ lull.._;:

;,
~--j( \\.

partnPrship?
P'"'Sc.r;nr;
f>.( ,, .C:!)(\
)
. ' muc 1 l" til(: li.stributable net income of th

c. P130.000
cl Pb50.000
e
Gross income
Expenses

Question 1: How much is the net mconw td tb jomt \'<:.tclrc'J

a. P235,000,000 , '''0fl.OOn.t:,:,
P.LO.UUU.UUO
5.000.000
p:-;~.)_Ut)U.UUU
J O.OOO.OCJC:

b. P150,000,000 d. \'one of tht' choices

Qucstio{l 2: Huw much is the income t1x due from the ynnt \"<ntur,.)
C. P37,SOO
!. P4fi,.SOO a. P/0 ..')00,000 c f'.30.000.0r;
d. None of the choices b. P45.UOO,OOO (:. \(It su bj(Ct : T lf"O!i !t' . -.

->....
Answers: Question 1 - B
Q~estion 2- c .). (lur.'--..1/cJit.:. /H.\\ii"Hhl:-.1LtJ..., ,11l lJfi -:::ct E'L 4 ",_ 1._(: 1 '''

Quc~li.on d - A C1. PJ.~.VOU,GVG c. ro5,uui...J,lhJ'.J

Question 4 - B b. P20,000,UOO J. F'/O,OOO~OGC
Question 1
\.iross business incorne Question 4: How much is the taxable net income of lzzy Company?
Add: Rent income p 1,000,000 a. P15.000,000 c. P6S,OOO.OOO

-[
Less: Deductible expenses '\' 300,000 b. P20,000,000 d. P/0,000,000
Taxablt> net income ( 300.000)
P 1 000 OOQ
Question 2 Answers: Question 1 - C
;ax d~c rr; ,000,000 X 3U ,) Question 2 - D
p 300,000
:....e~s- Ta.:: ;:>a~- ~~r._t._), fir~l .3 uua_nc:s Q'.1e:st!cn 3- C
( 120,000) Question 4 - D
Cred1table withholdmg.wx on rent

-..
lS% X P300,000) Question 1
Ta-.: payable ( 15,000)
Question 3
e JAfi QQQ GrO!'"- income
lAss: Exp<'nses (
p 150.000.000
50,000,000j
Taxable n.-t income Net income p 100 200 000
Less: Income t:uc p 1,000,000
Question 2
hcome aft.-, tax ( :2&9.21 None .. Jo;nt venture undertaking construc.cio:l project pursuan: to
Add: Yie!J from deposit substitute 7C0,00()-
50,C::JJ an op-:rating 01 consortiuJI(l agreement under a St"r. ice con<Iact \ltith
Interest inrome, (EFCDS)
[ the Government is not subject tc income ~ax.

-...
100,000
Ga:., from sa!e of shares of stock nnt tradeci
.n the loca.l stoclr ex" han~' Questions 3 and 4
Disui!-,utabJe n~t income <> 80 ::>co Rl-Jea Co. lzzy Co.
Gross income, separate cperation P 20,000,000 , P 30,(J()O,C>OC
Question 4
Add: Share in jc.:.1t venture nel inwme :!:
(PlOO,OOO,OCO X 50"/o) ._ S;:J,OOO,OOC 50,000,')()0
Sh<tre in the distributable net ir.come Total ~c.ss income 70,000,000 80,000,000
Tax rate
Less: Expensece~, separate operation ( 5,()()(),000) (__1Q._000.')00)
Final withholding tax
P 70 QOQ QOO _j

Taxable net income P n!'> QQQ.ill)Q

224
225
 ' '
Chapter 10: Income Tax Cases (Part I)

"".;' -to/<?d i.~~-e (1 ~f~r:

30. LC~ Co. and 'LST Co. formed a joint venture to import and sell heavy Chapter 11
equipment. They shared equallv. For the current year, the following DEDUCTIONS FROM GROSS INCOME
( ;f1i <:J ( )n t 1 Jtir -~~ 1in1 n I Hl septH r' tt nperr..r :on~ \Vt>rt" present~d:
P 1UO.UOO,UUU
(EXPENSES IN GENERAL;
L.xpt ~1 s( ~ ( :10.000.000) INTEREST EXPENSE AND TAXES)
~-:{n;:~n..itr (,I~I1,J!Hl7:s {no~ i';,, i 1; 1.: :11u rt')
1\~B (~--- .. _LJJI.C<l.c._
':'ii.O(Hi,IJO(i f':lU.CllHl,O(l() ,\u,-,( ..'~;.f mrfl.lil.l u,tfJJt"fl(tt"f' iflt;lli,.i

l (1,0(10.000 1 :'i.OUO,OU\l jilt'!. mdi;r lffl1,1J..i.J, l 1 .~t I lit:; ;.I.llll t ~,iL.';: ' ( ,)nr~.J ..:

- ()ucsti,)rr l. Ho\\' much

.,
h.
C.
P 1 ou. ooo. ono
" ;IHJOO.ClOO
.....
.\\int,
'.
is the kxablc net income of the joint venture?

l1Gl SUDJCC1 tO::;\ \tli:.C teL\:

Multiple Choice: Choose the best possible answer.

d. Answer not given 1. It refers to the pertinent items of gross income Jess the deduc:10ns
ami for personal and additional exemptions, if any, authonzeci for
Quest/em..': Ho\\' much is the t;,x due from the joint \'Cntun~? such types of income b\' the Tax Code or other special laws.
P.~C, UOO. 000 a. Taxable incomr <'. Professional incon;c
b. P....:1,CJ00.000 b. Business income d. Compensation mcomr
<: \n1w. not subject tu i:2r,,::1e ta..x
.--._r.~~\:..cr
not gl\cn Answer: A

- Reference: Section 31, Nlk.C., as amend.:O.

-
(luesrwn .3: How much IS tlw t<,xuble net mcome of LCB Company?
a. P/5.000.000 c. P40,000,000
o. P;JO,OOO,OOO d. PlS,OOO,OOO 2. First statement: Exclusions are receipts which are excluded from the
gross income, hence, do not form part of the gross income.
Question 4: How much is the taxable net income of LBT Company? Second statement: Deductions are allowable items or amounts that
can be subtracted from the gross income to arrive at the taxable

---
a. P75,000,000 c. P40,000,000
b. PSO,OOO,OOO d. P15,000,000 income
a. True, True c. True, False
_An,_w~r<>: Question i - Jl b. F&h.e, Fals~ c. Fal!:e, T::-ue

-- Question
Ouestion
Question
2
3
4
-
-
-
B
C
D
Answer: A

- ~er:~:~~ome
Less: Expenses
Taxable net inco1ae

Que:;tion ~
(
p 100,000,000
0
30,000.000)
70 000 001]
3. First statement: A taxpayer can deduct an item or amount from the ..
gross income on~y if there is a iaw authorizing such a deduc~on.
Second statement: For income tax purposes, a t::~-rpaver is fre':! to
dedu::t from tl.e gross illcome the 1"ull amount or a lesser amo1nt of
th~ deducti0n allowed or not claim any ueduction at all.
I Tax due (P70,0(){},000 X J0%1 ~?1 000 000 a. '1'rue, True c. True, False
[
..--...
b. Fo.!s.!, False d. .!<'c:..!se, True
Questio;;.s 3 and 4
1.CB Co. BT Co. _
Gross income, separate operation p 50,00~.000 ;' 30,000,000 A&lswer: A
Less: ExpenbeS, separate operation LlQJ>CO.OOO) (. J :i,OOO.OOO)
Taxable net income p 40 000 vou p 15 000 000

-
XI

226
~~ ..
227
 Chapter 11: Deductions from Gross Income Chapter 11: Deductions from Gross Income:
Interest and in General, Interest and

4. Taxpayers eaming compensation income arising from personal

services rendered under an employer-employee relationship are 7. Which of the following is not a requisite for the deductibility of
Ailr,,\."fri to dedurt t};c' fc~~O\'::;r:_ ~.-:~ccpt: salaries. \\'ages and other forms of compensation including the
gros~t-d-up I1lUI1t:tary
valiJe u( i-r-lligc i...-elH:fll f-uiT1lsiH.. Li u1 grd.IItcn U\-
the emj,]over to l!ie nnplo\ef'?
: '( ;,,ll1l! f:i' a. !<casc)nz!blr
L. S<-rvi(f'!-, <:tn- <-1ctu~.ll_\ It'IHicrtc~
c. V/ithLcJ:(~l;lg t;--:x L(-;.~ tJ~.cn J~.c
d. i~(JilC ol the choHTS

-
Answer: D
Reference: Section 34, NIRC, as amended Answer: D
Reference: Section 34 (A) (1) (a) (i), NIRC, as amended

0. One of the kilowing is nnt a nq~1isJt1 for the deductibility of business

8. One of the following is not deductible from the gross income.
a. Amounts paid as pensions to retired employees or their
v families or others dependent upon them, or< n ;c,ccount of
The expenses <!re ordinan ;,net necessary.
injuri("s rect>i,:ecl hv employees and lump-sum amounts paid
t;. TLc c:...:pe~ij~c~ <..rc jl(ild n;- ;ncur-red during the ta..,.~able year.
01: accruf'd as compensation k1r- injurit>s. not compensated for
c. Th txpcnses <tn din-cih attributable to tlw deveioprnc11t,
by insurance or othennsc

--
I!J<lli<:."cnl<'nt. o:wrdti<lll ;:;Hl:or conduct ofthttr?.de, husincss
'(J, Arnount of dH .:.;;_~ltn~ r/
f1il n:fictr or ('rtii~".'"'-t )._:;, Tt1 L1.s
~~:-- txc:-ci::-.c (J! ;_:;, :t:--s;,r
\\'idU\\ vr l.tt::H ~ h.JI ct
J.in1ittU t-Jt.:l J.UU aflcl lu~ Ueull1, iu
c1. /\s Jonp, <ls Ln_l:--::!~{ss n_L::!~cL t}H .. expenses do not uecessarih
recognition of the scr\liccs rendered by the officer or ernployee
: ;. haH' to be substantiult'ci \~ith sufficient evidence, such as ..
c. Salades paid by employers to employees who are absent
official receipts or other adequate records.
because they are in the military, naval or other sen:i~e in the
Ansv-er: D government, but who intend to return at the concluswn of
such service

-
Reference: Section 34(A) ( 1) (a}, NIRC, as amended
d. Ostensible salary paid by a corporation which is actually a
distribution of dividends or part payment for a property

c.... (;_ (Phil. CP.A.) The follo,,ing ?re exAmples of corporate expenses
~t.ducfblc frum g1oss incunw, evept:
a. representation expenses designated to promote busi11ess.
Anrwe~: D

--
b. contribution 1.o dmm up bw;iness, like contributions of soft 9. Which of the following is not a requisite for the deductibility of travel
drinks i.o barrio fiesta.
expenses, here and :1brond?
c. expenses paid to an advertising fi:-m in order to create a
a. R"'<lSouable
favorable imag ~ fo; the corporation.
b. Incurred or paid while away from home
d. premiums on life in:;urance covering the life of :'Jl employee if c. Incurred or paid in tht pursuit of t;ade, businP~s or
the beneficiarv is :he heirs.
profession
,.-JlSWer: h d. No"le of tht choices
[
- Answer: D
Reference: Section 34 (A) (1) (a) (ii), NIRC, as amended

-..
228 229
 Chapter 11:
Chapter 11: Deductions from Gross Income:
(Expenses in General, Interest Expense and Taxes)

10. Which of the following is not a requisite for the deductibility of the
rentals and I or other pavments which are required as a condition for 13. First statement: The term "entertainment, amusement and recreation
;I,;: ( nn~;-!li~t'd ~.~::--.r til !"-.~~~--~:-,l'iJ q1 prCJJ.}erl_,? expenses" includes representation expenses and/ or depr<>ci0tion or
rental expense rc~t~lilit::. t ll~i.J :<-t...:.:~.(Ji.: :ac:lit ~c;-,_
l(J
,, ~Secolld stoienuut: TiH' \tnn 'c:~if~-t;;inrnent f;lcil1tlt-~;r sh~!E rcftr rn ~~
,,;;_]:.~ ll~ ~-;11(: (\1)'. ~-~~' i )~ T t

l". !H;: l;ll~in~' '"!tie or li! \~ !Jic}J h~ or persOii<,1 pr(lp(::\ ~~~t-~_; '"' ,.:-:p::.~\{ : ;): !~lt. f,
1 , : :, 1 i , , ( .~ \ .. . : r :.: . . . ;lf-:17 ut d icS~('<, ~lscr 'li 1)U~~_-:.t~;S(ii. entrrt~un:Lcnt. t,_;r;;_l:-,cn:l":, :t;:~1():1 t< " 1 '' ~: ';: ,.:

a. !3oth ~t~1tczn(nt::-; ~~n; :t~,

-
Answer: D
Reference: Section 34 (A) (1) (a) (iii), NIRC, as amended
b.
c.
d.

Answer: A
!3oth statements art> Jalsc
Only the first statement is true
Only the second statement 1s true

"' ... A business partEt-rship it>;-,vd "'condominium unit in Makati for use- Reference: Section 2, Revenue Regulations No. 10-2002
;.,s i1s otfwt The rnntnw: '''"'properly classified as a capital lease. It
paid PSO.OOO nw:i:hly 1n <he condominium owner. For income

-'
J 4. Which of the followirlf', t:q)('n::<s t:h<dl not bf' cons;dered
entert;,innwnt, amusement ;;nd ncrcation expenses)
b.
( I<(:~ cltci:_,, :::_;;c LH. 'CdL.s~ :_h~__ t-;i_Xp<i\'<T \\'CJS taking title i1nd
a.

\\Uli!Cl Ut "Clle \!]' (''.'.'rltr 0! tne COI1C!OITJll1JUnl ll11Jt. 1 eldLlUll~iliJ.J

d. !JUt <iu.icE <tiJie !leu use the payment was not reasonable. b. r:xpenses for charit;-;.blc or f~;.ncl raising events
c. Expenses for bona fide business meeting of stockholders,
Answer: C j i
partners or directors
d. All of the choices

-..... 12. Which of the foilowing is not a requisite for the deductibility of
~tertainment, amusement and recreation expenses during the
t2xable y~ar?
a. ra;c: or i.;..:ul ru: d.Lin~--. t:1e L.axaiJle \ear
Answer: D
Reference: Section 3, Revenue Re~lations No. 10-2002

ISection 3. Exclusions - Tile following expense are not considere~

e'1.ter.airPncn!, cmus~'-rcnt a"d rec~Poton t?.vpenses ns defined under r
I
-- b. Directly connected to the developm~nt. management anci
operation of the trad<>, business or profession of the taxpayt>r
or related tv or in furtherance of the conduct of his trade
Section 2 hereof:
a. Expenses which are treated as compensation or fnnge benefits for
seroices rendered under an employer-employee relationship 1
I
- business or exercise of a profession
c. Not contrary to la,,., m"Jrals, publiL. policy or public order
d. None of the choices

.An.nver: D
' pursuant to Reuen"e Reguiaiiorc,.; 2-98, 3-98 wul umf:'lu:Iimoht.S
thereto;
b. Expenses for charitable or fimd raising events;
c. Expenses for bona fide liusir,.cs;;, meeting of stockholders, partner:: 1
or directors; j
Pefe~ence: StctioT'. 34 (A) (1) (3.) (iv), NIRC, as amendP.d d. Expenses for atte1 .dmg or sponsoring an emplouee to a businPs.;
league or profes:..io::al nrg ..mization meeting;

-
y e. Expenses jor events organi~ed fo; pro.,., ">;ion, markdin') :me'
advertising including COT,certs, confe;enre<>, ~t::nun<.~r:;, workshops,
rxmventions, ard other similar events;

-
...
f Othu expens~s of a simi!ar nc.~...tr'e.
Notwit.'..stunding th~ foregoing, such items of exclusions mal/,
ncnetheless, quc.Iify a.c; i~en..s of deduction under Section 34 oftlte Tax
Code of 1997, subject to conditbn for deductibility stated therein..

-
231
 Chapter 11: Deductions from Gross Jnconw:
Chapter 11: Deductions from Gross Income (Expenses in General, Interest Expense and Taxes)
in General, Interest and

15. There shall be allowed a deduction from gross income for Answer: A
entertainment, amusement and recreation expense in an amount Reference: Section 6, Revenue Regulations No. 10-2002
P(}t;~~:n1rnt t; the ;1ctL.~J enlcrtc1iJtJIJent, cinJL~f>'rnF"n! anrl rctTf'f1i10;1
-
1
, c p~. '.: ,_;1- incL;i:c(i \'J1ill!! tiH.:' t<-LXa[)JC \'t-.:d- lJ\ tlte tCi.'\J)d~:er.
:Ji< \

C!llplt<\n.
; t~1U\\; ; icc:-, (1 r,, ;,, : 1 t :- ', {.' { r] r:; :.._J ( ( j : ~ l :- -' ,\ ~1. f)c lll;l!~!11i~ i){ !lt'lJ)'-. ~i\~~ r,-, !-:~qd(\\(TS
!Jf ~~i 1 <~S (II pl\ :'(r;;~ :- -
b. Frin~c bent-f:t~ E~\ci; to rdL~: t;!Ld L1c
JJ .: r1 e t 1 ( ., t ! J t 1~ i _: : ~ c. SSS, GSIS, Philhealth, HDi\1F and other contributwns

-
taxp~n ers t>ngaged ill ::-.<:k of scrvin:s, including exercise of d. Cost of advertising to _influence legislation
profession and u,t. or],.,,,,. of propenin;.
a Both J and II <tlc corrtct c. (In!\ I is correct Answer: D
l,. Both i :md ii ,,,. mcc:r:.,.,: d 'lnh JJ is cornct

~ Answer: A 19. A taxpay<'r is engaged in trucking business. He finds it more .

profitab-le to violate the color-coding ordinance and other n ~ulatwns
..... Reference: Section 5, Revenue Regulations No. 10-2002 1 ::-Jn spec1tied
restricting the use of n1otor \e lHCJcs 1 ch\'-'
.<~ . --
o~ ''O'lr" ot "w
~- :~
1 1
_
8

__ !.' -

day. He reg!lbriy pa\s the icgal fine:o For income taxatiOn,

'-
l!iC lnws
J, rzrst stutcmcn': Not\\ itllstaiHill!!' 1 he ceilillf imposed on the paid a;-e:
t;-ntertalnn1C!1t C!Illll~('J11C!1! ;!T~r: :-eCTP;l1}nn r:--:pcn~;r"'~;. the cl<tiiTit <l
a. dcduc:~~)le Ltlau'J.e :.~~c~'; ~~;f_ ;_l~.!~!~ n1 uJcur:-t'd 1
~ 1

8ttnbuted dtrecth to ousm,~ss.

L t~.:~ !fnst sfJ .. j} ))t' ~ld\,~~-; T: ... , --c: " , dit f'c>r iJur;~o~;cs u;
nPterrninir:f', its dcdnctihdin ;-l~, \\ell as< orr:}liancc \\"ith the
b. deductibie becau-se they are ordinary and nece:;sai)
substantiation requin:ments. c. not deductible because the allowance thereof frustrates
j lll
.... Second staterrwnt: If a taxpavcr is found to have shifted the amount
of the entertainment, amusenwm and recreation expense to any
sharply defined public policy. . _
d. not deductible because the amount 1s not spec111ed.
other expem,, in order to a\oid being subjec!ed to the ceiling, the

-...
~ amount shifted shall be disallowed in its totality, without prejudice Answer: C
to such penalties as may be imposed by the Tax Code of 1997.
a Both statements are true
b. Both statemellts are fals< 2{). No G.Educ'Lion fn.. m g1c.s:> i.l.::vme .:;r.a:l be ..1llow\!d undc::- ~cct:on 3~(:\;
of the Tax Code unless the taxpayer shall substanti3.te With suffictent
c. Unty tne :irsl statement 1s true
~vidence, such as official receipts or other adequate records:

--.. rl. Only the second statement is true

Answer: A
Reference: Section 5, Revenue Regulation No. 10-2002
I -the amount of the eXTJense beinP deducted.
II -the a:rect contleci.iOt1 or relation. uf the e11:pense be~g
deducted to tne development. management, operation and/or
ronduct of the trade, bt:siness or profession of the taxpayer.
.

a. Doth I and II are correct c. Only I is correc

d. Only II is c-orrect
:X 17. The taxpayer is requirPd to use in iLs financial statements and b. Both I and I1 are hcorrect
income tax retarn:
, r- the acc<'unt title "-:ntert:J.i;.,meut, amusement and "ecreation Answer: A
. ~
exper.3e".
U -in the :>Jtemativf', to disclose in the notes to financial
Rf'ference: Section 34 !A) (1} (b), Nffi.C, as amenu~d
~tements the am0u,1t wrresponding thereto \VIlen recording
I

.I
er.ten.ainment, amusement and recreation expense prud or
_incurred .
a. Both I and II are correct c. Only I is correct
b. Both ' and II are incorrect d. Only II is correct
I

233
232
 Chapter 11: Deductions from Gross Income;
(Expenses in General, Interest Expense and Taxes)

21. No deduction from gross income shall be allowed for any payment
made, directly or indirectly, to an official or employee of the national 24. First statement: Taxpayers carrying materials and supplies on hand
gCJ\'C!-11nlt~llt. ur to a1.1 oifili.:"; ",; <nqJ!oyee of cnl~' local go','ernment should include in expenses the charges for materials and supplies
.~:iJ~. ci to c,;r. o11ItJ.tl (II tI:Ji ,u_\t't c)l a government-O\vned ur oniy to the amount that tlw\ :n-e actually cunsumed and used in
( tif:!l!;]]cd ( :lrp!iLl::~l!. (~ ~ ~:r: nt!::i<d or crnp]O,\'('f' oi nprcscnt;di\c opcr<>tion ctunnE the \Tar j,,r \\ i1Ir-ll tiw return 1s m:~ck. ;J:-:>\:ckd
r;i rt :unJ~!JJ <(J\.<TLiLcil~. { :( :t ;):-;'.<-t:e corpor<.1li.l!L f-'J'llt J-(11 that tlw cost of such matcridi', ;,;Hi iJjliie;.. h:ts no; i>c<:: c- c'uc,,,
j)7 1 J!c;o~..,io:l;:l; p;_~t-Tt:c:-~.;hil ,; ~):: .. l d Clltiiy, 11th(' p~t\I1t{ r:~ in d(~tfrrr~inir~~ t!-;t net lncnnH lor ;1:;\ pr-c\i(Jus _\ ( ;1r
::<tcutul stutenu'nt: lf a tl:xp;ncr ccnTJt~ 1ncidt-rn;:d rTit"!:t:i<:
;! a hri!Jc. c. other si;nil;,_r pd_'.-IlH'il1~~- supplies on hand fo~ \\-hicL nn rccnrd of con~;u JnptiOn is t.:t! -~. t :r ( i

... Answer: D
b. kickback.

Reference: Section 34 (A) (1) (c), NIRC, as amended

d. all of the choices. which physical inventories at the beginning and end of the year arc
not taken, it will be permissible for the taxpayer to include in his
expenses and deduct from gross income the total cost of such
supplies and matei-ials as were purchased during the.vear for
\\'hich the return is IT1udc, pro.:idcd the net income is clearly

"'....
reflected bv this method.
22. i\ pn\;1te educational instJ:c:tion h<>d capita! outla)s of c!epnTiablc H. True,True c. True, False
8Ssfts for expansion ofsch"l !iniL:!es. For income taxntwn. the b. False, False d. False, True
;:'ri~:21~ f'dtH_--~!tJona! in~:~:~~::.~!: rn:l~\

'--
(
,.jjlllt
a.
l>.

c
deduct the capit;-;l u:::b\s ''s expenst-s during the vtar.
dcprccintc the CC'Sl '".tT tl.t cstim;Hed useful life.
dt.dilt': !llc c~-ql!~ . . : .:7:,;_\~: ._:- :_::pcnsc duru1Q the _\C~-:.r o:
d, !'".'Jaw tiwii! L'\t: tilt' e~1::11ated usetu! II!e 8t 11s nptwn.

{icduc t the <.dj)Ilai uutiays <:s expense during the year or

depreciate them over the estimated useful life at the option of
~s.
Answer: A
Reference: Section 67, Revenue Regulations No.2

First statement; All establishments supplying any of the goods and

services, may claim the discounts granted as a tax deduction based

.,
..,.
Answer: C
the BIR.

Reference: Section 34 (A) (2), NIRC, as amended

on the cost of th~ goods sold or services rendered to Senior
Citizens.

...
-
",.;,_ ,,,- ~,. ' .,.:
-* 2?. 'A-~:c~ ::f :h:; :o!bwi:1r; is :.::L dcduct:ble !;o:n tl1e gross income of a
~rofessional? :~~~l~~i~riJi~r-;;~~i~,,,~,,~z;J~;,~~l'Jue
a. Tuition, travel, board and lodging expense1" incurred wh:le

-
-
attending a continuint; professional education
b. Cost of subscript;ion of technical books used by t.he
professional in ~"!e practice or his profession or those that may
enhance his technical knowledge i:1 the management of a
corporation under him
c. Amou:1t :spent for books of a permunent character

c
d. ln!'lurance premiL.ms assamst fire, storm, theft, accident or
other similar losses in the practice 0f his :;Jrofession

An.sYer: C

..
,_ I<eferGr.cc: &ectfon 69, Revenue P..ehUlations flo. 2 a+i', .
',l..

235
 Ch.q)~t. LTlllH: Hln:, ; 1 ,J;~: l;I u~)'-- ! ra t;;:!l
f Expenses in General.l:1terest Expe::,, ,,:Hl Taxes)
(Expenses in Gerwr"l. Interest Expense and T~1xe~,
------~-----------------------

.-;_,r, 'f,l}r)''\ 1~_..,,, '<tt~~e:11tn!-.: qTf'(t"?

''-.

,-.,_
('.

. f;
I

't

'. ( f : : "( l '.: '. !" <~( ' '

. : ~-. ~ , :i!. u 1.:

i

.L

--
{.'X!
! ..
"'J
~! l{
0
lg 1 1 ; :1(' ~\ (~( J \_

3 Both I and II are C(i' r

-
'}. Both 1 <-u:d c1a: 1Ct~z:;:
t
,. c Only l lS correct
"' (.'nly II :s c::.::---., ~ t

,.,.
Answer: A
Reference: :::.~..ctbn 1~. Rc:'.c..:. I
-- l1
f

----
j
 Chapter 11: Deductions from Gross Income Chapter 11: Deductions from Gross Income:
(Expenses in General, IntereSt E-xpense and Tciies) (Expenses in General, Interest Expense and Taxes)

(B) INTEREST EXPENSE

34. Interest incurred or paid by the taxpayer on all unpaid business-
30. First sratrmrnt: As n ruk. thr ;:;rc:cst must he on an indehterlr:ess of n-l<Hccl li!Xt;S;
ded uctiblc. - ~~itdll lJ~ IL.i.~~y llctiLH t:Uit' li(Jlll 'lilt- giu;..~ lllCOllH~.
Second stuic,ncnt: !:1tcrcs1 p:ii(: L\ the taxpa~er on a rnortgaf!C upon Il ~,!J;.ll not [y-~ su!Jiect 10 ::c:!~l!jn;: 1ly tt:: ;--tr110U!l1 t-(;L:~1 iu
;:\: rc1l c~::lt<' ,,f \'.iii< !2llc i" t';c wt;d or tquitabk OW!IlT,~:_'~<~n.ii_i,_t' :s
:1o! rli:rcl~_\ 1i:-!!Jl(- upnn 1ht hr,;~~ ur note secured h:- :--~u~..~h I!ior1p,t~~:r. '\j

rn<i\" bt d1 ducl~d 11s Illt<'r~ :-::: 'lL' 1s iiidehtt~dness.

( '! . :\. 1 1 ~; i .

!) t~()~}~ 1 ~:;;(: :; <ti( Ii~\ ;rl.('( 1 ( i. ( /: ~ ; \ J l i !--. t f. ~-:- t '

a. ,.I rur, True: c. 'True, Fa1~-;t
b. Fabe, F<,]S(' d. False, True

-
Answer: A

31. The taxpayt~r's other\vise cdlo\\ahlt-' dtductlon for interest expcns('

Answer: A
Reference: Revenue Regulations No. 13-00

,. hali be 1eJuced b) how llllll'lJ :-.l<l !I!lg .January 1, 2009?

... a. Fortv-five percent (45"<) of the interest income suhjectecl to

final tax

-t-G\d ;'t'Y,
-
b. Fort\'-t\\o percent (4:2"o) cl the interest income subjected to
(Q TAXES

J5. Taxes paict or inr-:..:rred within th<' t;:xable Ye:lr in connection \\ith the

'-..
fin<ii tax
taxpa\<'I .. s proft:s;,ion, tnHk or husJ'''ss. sli<itl be a!lU\\ed "'"
c. Thirty-three percent (33', 1 of the interest income subjected to deduct ion, <:xerp'..

r
t-
\L
final tax
T\\(ni\-L.(- ntTC(-nl
fin0l ta)<.:
L_i;, , ,~tL<' llltt"r('st incoi!J<' stiiJi<T1cd to
,.t.

all of the choices.

... Answer: C
Reference: Section 34 (B) (i), NikC, as amended by R.A. No. 9337
cL

Answer: D
Reference: Section 34 (C) (1) (a) (b) and (c), NIRC, asP-mended
~ * 32. r-;o deduction shall be allowed in respect of interest under which of

-.-....
the following situations? (C) Taxes.-
a. If within the taxable year an individual taxpayer reporting (1) In General. -Taxes paid or incurred within the taxable year in
income on the cash basis ;ncurs an indcbtPdness on which corrtection uJith the taxprzyer's profession, trade or business, s'IJ.all
ir.t~:-e'-t i:> ;:>::-.ic :n aj:anr-c ::u~t:gh disc::Jun~ -::r oth.:;T:ise be a/!o;~;ec! as ded:J.::tion, e.-:cep!
b. :r both the taxpayer and the person to whom the payment has (a) The income tax provided for under this Title;
be~n made or is :o be made are related taxpayers under (f:>l Incnm~' taxes imposed by authority of any foreign country; but
Section 36 (B) this c!eduction shall be allowed in t.'re case of a taxpayer who

...... c. If the indebtedness is ;ncurred to hnance petroleum operation

d. All of the choices (:, J:,: J ., . t '" '.:;
Answer: D
Refe.cence: Secti<>n 34 (B) (2), NIRC, as a:nended
J
does not signify in his return hi3 desire to have to any extent
tr:.e benefits of pe<ragraph (3) of this subsection (relating tu
credits for taxes offoreign countries);
{c) Estate ancl donor's taxes; and
~r; :! . y (d) Taxes assessed against /neal benefits of a k:nd tending to
1

-1 increase the value o/'tre proyenu asse$SP.d.

-' 32 ..: the option of the taxpayer, !J1_ter~_:>t i.I1~ur:r_cQtQ_(l~gill_re proper!Y ~ " I

Prouirl.ed, That taxes allowed u'nder this Subsection, wre;. ,efunded

-..
used in trace or bu<>incss or ~xercise of profe.;;,,_ion mg_: l;e:
I allowed as a dedudion. or .:;redited, srt:Jll be included ~part of gross incont.e in the yea, of j

-... I! - treatt>d dS :1 capital CXIJPnditure. re t to t.'Ie extent o the income tax benefit of ~'lid deduction. _ J
a. Roth I anci II are correct .... Only I 1& correct
b. Both l and II are incorrect d. Only II is correct
Answer: A

- 238
Reference: Section 34 (:S) (3), NIRC, as amended

239
 Chapter 11: Deductions from Gross Income Chapter 11: Deductions from Gross Income:
(ExpensesJn&!neraklnterest Expense and Taxes) (Expenses in General, Interest Expense and Taxes)

36. In the case of a nonresident alien individual engaged in trade or

business in the Philippines and a resident foreign corporation, the I -the amount of tax due upon such redetermination, if any,
r_fcductions fur LJ...."'~c~ 0h<:.Jllx c_.:lu\\<.-_i <nti\ if HJI(] to 1i1t~ ~~'-:ttpt th~~t "hni! be p;.nci bv tiw t:c>:p<-tver upon notice and df'rn<Jnd bv the
:L(< u.rt- l unncctc(l v.. ii 11: (.,_ t )j r1 :rll S~)lO: .1- ;-,

:t~(' ;:;~(1(1~:' r,: t;p: n r :-:l;tl(! :: ;.;_\. o.....;}~al) be crec:l ~~ (r

L. l1H.u~~1c frurr! ~..,~;ur('t~. . ~ 1 i> ,, .( !):i1i1prliiH'S

111CCJILCfron: sutJrCt'~ .\ !~!. >ti llll~,i\;,~. ~h( l)!-nl,j"'j'r:lt :-. . : ,-, i (i !:;_' ("( ,;-'

cl None ()! trw l'hnic, 'S,

... Answer: A
Reference: Section 34 (C) (2), NIRC, as amended
Answer: A
Reference: Set.::tion 34 (C) (5), NIRC, as amended

); 3CJ. in tht case such a t<LX \\'as incurred but not paid, the Commissioner
37. \';hich of the following shall not !J,. a;:,,l\t>d tax cr\'dit for lorcign
dS a c<.:);~d;~;i..;n pn:cr-c:cnt to ;he cdlo\\anct: of tc:L'\. credit rn~-t_\" require
:ncome ta.x?
the taxpaytr ..
a. Resirlent citizen
to gin<! ho:~d \\'ith suretif's s;Jlisfactorv to and to be approved

'.-.
~~- [)omest!c corporation
l.J\. 1hc Cun;n.i:..;sioner ir1 sue!:: ~lliil as he ll1CJ.~ rec~uire.
c. Partnerships and esLllt'"'
ll c . . HH.i i1 ioncc! ~.:;Jon the ;)a_\Tr~~~;: t !)_\ the trLXJXl.\Cr cf ;1;1:. an;ount
d Alien incli\;dual and d lop:.:n ',,1.Jl('ration
( Au::,wtr: D
nf 1;-~X f~lll!~d r;~H' \}r)nT~ ;~!!_'.' C:~~rh !f'df'tC'!!!1!!1~~~~r.~-;
a. i>otll 1 and Jl are corrtct c. Unlv J 1s co:-rtct

-
Reference: Section 34 (C) (3j (aj and (bj, NIRC, as amended b. both i and ll arc incorTtct d. Oniy ii is correct
(3) Credit Against Taxfo;:T~;~--;;ji~;eTg-;;.countries. - Jftize ---~
r~>:poyer sigrnfies irt his retwn !w. '" s:(' to /zauc the benefits of this Answer: A
1
paragraph, the tax imposed VI. t/us T11/e shall be credited with: Reference: Section 34 (C) (5), NIRC, as amended

--
{aJ Citizen and Domestic Corpomtron - In the cnse of a citizen of the
Philippines and of a domestic corporation, the amount of income taxes
:f, 40. The credits against income tax for taxes of foreigr. coun:rics shall, at
vaid or incurred C.:unng the taxable year to any foreign c.Juntry: and
thF optio:1 of the t?.xpayer. bf' taken in the year which the taxes of

- i})>
0
"J."7r~ers!.r("J:: c::1e.? .'::!:t;:x:cs. :n the-'' ,!f W1)1 :::uc;, i,l!..liuiduu./ who rs
a mer.Lb::r of a general professional partnershio or a beneficia7'lf of rzn
estate or tl1st, his proporionate share of such taxes of the ge~ral
d.e foreign cvunti} Wcie:
a. incurred irrespective of the method of accounting empl0yeC: in
t:ecp~r.;:; his books.

-
....
professional partnership or the estate or trust paid or incurred during
the taxable year to a foreign co.;.ntry. if his dtstributive share oj the
income of such partnership or trust is rep'rted for taxation under this
Title.
An alien individual and a foreign corporation shall not be allowed the
b. paid if the taxpayer use~ c~sl-, !Tit>tJ-.c,d in k!"~>pi~g his books.
c. incurred if the taxpo.yer u~c~ accruai me:hod in keeping his.
books .
d. none of the choices.

credits against the tax f..Jr the taxes of foreiyn L'OW!trie~ allowed under Answer: A
this paraflraph. . ____________..J Refe.ence: Section 34 (C) (v), :::'URC, as amended

.... ~- Jf 3.CCr.Jed taxes, vhen !)aid, differ from tJ-~e awount~ claimed as
credits t>y th,. taxpayer, or :r any tax t-Jaid is rdunded ~ll \\hole or in
41. If the taxpay:!r ekcts to take such credits in the year in whic!l the
taxes c~ the foreign conn try accrued:
part. tl1e taxpaver shall notify the Commi:;:;ioner of Internal Revenue I - t..'le credits for all st.bsequent y~s shall be taken upon the
who ~hall redeterm~ne the amc.unt of the tax for the year or years sarr.e ba3is;
afftcted, anJ: II -no portion uf a Tty such taxes shall he allo\\ed as a de1uctio.o

.. in the same or any succeeding year. .j;

;
k~;
,. '
,, . - :
;" 1 ~

241
 Chapter 11: Deductions from Gross Income Chapter 11: Deductions !rom Gross Income:
-,,;, ,~;-~:{~nses in General, Interest Expense and Taxes) {Expenses in General. Interest Expense and Taxes)
~-

a. Both I and II are correct c. Only I is correct

b. Both I and II are incnrrf'ct d. Onl\' II is rorrt'ct Answer: D
Ref~rence: Section 80, Revenue Regulations No. 2
Ansv.er: A
Reference: Section 34 (q 16). NTRC, as amended
. i/'.
,, ( :-. ( ' : t I : ( ' 1~ . ; : ( .{ , l I ] i ; )- j ! ' :" :--. J :; 1 i ''
. l ( 1\\ ( \ \ { ~: i \ :. ; : f . ( . f;; ~ ; ' . ' :- 1
' ' ' .: ' ) ~--: f { : ' : 1 :

i, { ~ tilt. j( I)]()\\ Jl]: ,<

'-.'I

<1 Th<" tutdl ttl1JUU!ll ol ;;;( (IJ!P (:trJ\t'd :rorn sources \\'iihoti1 the
....
1).
l'lnlippirws
Th~ aiil()U111 nf inCcJ:: r- <11 :: '(j tTilll: c;t( ll { Oll!J!T'\. th~ 1;(\: p;lid ,<...;(
~!.r{lSS I Tl('OJYJ(' .
('(JJui <::.fU1f>i!U 'lif .'\ i;!X 1~ ( nnSi(:fl r(j CI:',~{'S~td (~_L,(!lil~T lo( ti! iH'!l<'l i'-,
. (
\\]:(Ji 1!:1 pn,jHrt\ sllhicc: tn 1L( :z:x i~ !l!njttd lo t!\1'1#i''f>n:

-
',,it'); ;:]"i,'rl): '1 ( jf ' ; I ' ~ I I 1! ! t ( j l 1 ! 1' 11. ' ! . ! . t ! j 1 ' ~-. IIIi. .!1\ '1111
' \I
l

l-f,~!illd!lO!!~ pr-t~<Ti!Jt .i h\ .' ~~{: c::tr_\ uf Financt~ ;1 l:lltt1 st~dtr::r::r<...; :trf' ('OITcc!
CJihcr JrJ;(I!-7 1 i;J!iot~ :~'-tT~' :Lr i !Jt' '<-rirrcclt ion ritl(l !) Hoth st;J!!'7;:,:::s ttrc Jncnrrcct
('(J!IIpUt::tlO!: uf SL~ f1 ( J'C\l :. C. ( h1J\ tilt'~~'>,; S\i!lt'!rlCI1t j~ ( ~~~ :T{ f
( J /\ ~l ( Jr ! 1Jt. I :If )11, 'f ''-..;,

Answer: D
Answer: A
( Reference: Section 34 {C) (7) (a} lbl and lei. NIRC. as amended

.--. :.: r i.T:-,t ,-...,iOit nat;:_ T:J(" ltTlt! ~::.\,('"--,- : .. ~.:J!S 1:-:~-.c~ prO]HT d!:d !':f)
should be ullm\t'd !<>r ;,:TlOll!lts rcprt>S('Illi!i? intt-rcst,
(]( ducti(>JlS
surchar;~e. or pt~na.ltics incicic:1 ~,~ r~- linq :cnc\.
Secuwl slutemen;_ Taxes <in tkc:;:c::hlc as sue}; onh by the p~'rsnn
Reference: Section Revcnu<:

HL Which ol t }J(' l(!]]o\\ :11:', sta!\'!lll'llls ;s incorrect')

<L ~pccial c1sst:ssn1ents arc
f~<:gulations

!1(Jt dcdilctihl('. (\Tn

No. 2

tho~i?h i"H!

upon whom the:- art' imposed_ ilwidl'nt;ll hrnefit m;l\' inun to the ptthlic w<'lf;,n'. " ..1.

-... a. Both statements are correct b. When asscssmt>nts are made for the purpose of lll?c1~1tenance
b. Both statements are incorrect or repair of loca 1 benefits, 1 he taxpayer may ded LlCt
c. 0nlv the first statement is currect assessments paid as an expense incurred in husmtss, if the
d. On!\- the l->ecomi stcltcrn1nt is correct p;,vmcnt e;f such assessnJ<'l1t:. :s twcess;,n- to tht> conduct of
his business.
Answer: A When the assc:>smeJJts arL n,adL for the purpose of
Reference: Section 80, Revenue Re~Jlatior>s No. 2 ~_onstructmg !r)cal benefits, the payments bv the taxpayer are
in the natu~~- fJfcapltal cxp<~nditurcs eiii<i qft" n,Ji t..acC.h.~-:tilJlL".
44. Which of the lo!lowing statements is incorrect? d. :\'one of the choices.
~ a. The percentage tax imposed by law upon saks is not
deductible by the individual purchaser, even though the tax. Answer: D
may lY> billed to hil"l a:; a separate item. Refer"'nce: Section 83, Rev"nue Regulations No. 2

- h. In computing the net mcom<' :)(an individual, no deduction is

allowed for the ta-...es irr.pos<"d upon hi.; inte;c~t as
shareholder of a bCJnk or <>:her corporation, which arL p;ud lw
the corporation witiwut rei""lbursemF:nt from the taxpayer.
c In thf> r<l,c;e of cwpor;.te bom's or other uLligdti0m. containing
a tax-free ;:,ovcnant clo.use, tf:e corporation paying a tax or

... R::v pat t cf it for so:neonf' "lse pursuarii to its agreement, is

nut entitled to deduct surh payment from gross income on
any grounrL
u. None :>f the choic:c::. .
...
242 243
 Chapter 11: Deductions from Gross Income
,.c(Expenses in General. Interest Expense and Taxes)

-*-~ 4;:;here ~sse:~~~~;~f~~;~;~r the purp~seofboth con~ru~i~~Cuc~l,t, Chapter 12

and mamt~nance or repairs, the burden is on the taxpayer to show
t~eallocatwn ofth~ amounts 8Ss!"ss('rl forth<" different purposes. DEDUCTIONS FROM GROSS INCOME
\\hwh c>ftlw follm:Jn;' st;ottr::.'~~ 1 :.: cc:pc;:"
(LOSSES)
a. lf the allocatJ<n c;m !~'' lw !ll<ldc, ll<'liC of the c;mounts to Jw
paid is ckductihlc
b. If the alluc:ttion en; n ,; ~,,. J;,;;dt', oni\ th(' aJ!lfJU!lt ass .. sstd r:
for the purpose of m::T:ltn<Jne< or lT!lair of l:wdl lwrwtns sL;,
be deductihk
M:ultiplc Choice: Choose the best possible ansucr
.....
r. If the allocation can nut be made, onh the amount assessed
for the purpose of constructing local benefits shall be
deductible

,...... cL

Answer: A
None of the choices

Reference: Section 83, Revenue Regulations No.2

1. On<' ot thcs< ::, nnt ;; rcqutsJtc tor dec:uctibilitv of ioss. 11
<1. The I!J'.s must be that of the taxp<Jycr.
b. TLt" lu:)~ ntu~--1 l)c dctu<dl.\ ~u~:.a1ned anci charged ufi ~~\ninn
the td.x;lbic \T;lt.

'-=-
c. Th<' l(JS~) i11Ust be e\idcnc('d b\ ;1 closed ;n1d corl:Jp!e1td
tL:llls~v~~ itJn.
d. Tla :(~~~ 'lliU~t lJC ( CliJlj)~"J!S.i1'! 1 d rur by ;llSllL-l.IlC( (;' u1!ifT fur
( Ill

-,. Am::;wer: D
_geferen~_f!_: __ S_e~t_i()!!_~~~Ll!HaJ. and J!>_h NIRCL~s amend~d----,
[ keqw~1tcs fur dcductibll17y of loss:
I o ThL' loss must be that 0( the toxpa!,Jer:
b. It must bt" actually sustained and cr.mged off uitl1in the <ax able year;
l

-- c. It must l}e~videnced by a closed and completed transaction;

d. It mus(U:gt)be compensated fo,. by ms:;,-ance o,- other form of
indemnity,: .

-....
e. In case nfcasua!:y los5, a sworn Llcdwutiort ofliw loss must be filed
witrwz 45 doys o]te,- the date of the occwTence of casualty o,- robbery,
I theft or emhe7.zlem'?nt;

-...

! f ThE <axpa:JLr n;t:st iJrov._ the elements of the loss claime:J, such as the
II
~e
actual 11ature nnd 'WC!,rr>nce of the -:~en.t and am"V"' cf!hP 1"!':!':;
UTLU
g. The loss must be connecteJ -..uith the trade, business or profession of j
I ta:x.paqer.
1
I

-.
....
2. First statement: The term "losses" impli.-:s an unintt>ntionat ~arting
Nith somethiT'lg cf value .
SecoTIJ statcn;.ent: f'.io loss shall be allowed as a deducti,m from vvss
incon.e 1f at th~ time 0f ~e fili!1g of the return, Sllch Joss has been
claimed as a deduction for estate tax p..trposes in the est:1te ta.A

~
return .
a. Only the first :;tatemem is correct
b. Only the second stateu1ent is correct
.. c. Both statements are correct
d. Both statements are incorrect

244
245
 Chapter 12: Deductions from Gross Income (Losses)

Answer: C 6. A coconut plantation in Masbate was destroyed by cadang-cadang

Reference: Section 34 (D) (1) (c), NIRC, as amended infestation starti..-1g 2010. By the end of that year, more than % of
c:ic: pL:ntatiun \\:lS \\'Orthless. Towards the middle of 2011, the
tJl<-.li:ln~iul1 \\a_:) ~Oldlly destroyed.
3. Flrsl statf'rncnt: Losses ar,. df't:uctJbk oniy bv thr corporation should t!r
\\ !;('ll !n~~s he deducted?
sustaimng them, tht;s, 1i1e H>ss ,,uffen:d bv a corporation which L::s a. 2010
a separate personalit\ ll"m 1:s stockholders, cannot be clt>ductnl b. 201 1
the latter. /\ii\ \ t;_~: ;1, 1 fH ta.:~pr,\ tr r 0 ;UOSf'~
Second statement: In tile cas~ of a nonres1dcnt alien individuiil or d C:-HlllO! bt dcduc1td in an~. \'t,::-
foreign corporation, the losses deductible shall be those actually

...... sustained during the year and incurred in business, trade or

- exercise of a profession conducted within the Philippines, when

such losses arc not compens;,tcri forb\ insurance or other forms of
inden1nity.
a. Both statements arc incorrect
b. Only the first instiillnw:Jt is correct
Answer: B
Reference: Section 96, Revenue Regulations No. 2
.
---~j~;~,::-i~;;~,-;, . ;fl';;~~: .:r/1~;11/;c los.~ s/~;;~1/cihe sustalllcd dunTjg =he: wxable
ycur. A ios:: 1s acruuiiy susrumeri when it is euidenced uy a c;u:;ed anu
' r'OrTIJ'Iered trou<.Oi'Tron. Tlwn' .ilnu/rl bran idPntifiahlr Pl'Pr!! which
: JUSt:fcs tlw /os:o. {sec Allwmbm Ciqar and Cignrt;ttc -~1fg. Cc. :s. Comrr:.
c. Onlv tile second statemn1t is correct ~ L- L'(:.Jf.}_, Moy :.!'J. 1 1J5iJ.)
d. Both statcmcn1s arc cc::--rect

Answer: D r. DunnL an unusu;dl\ slJ<IlJg lqJJ,,,u!l in 2010. '' \\<tnhr. s \':as

Reference: Section 34 (D) (2) . .NlRC, as amended

-
(}! J)! .OOC.UUO. lLt :.r._:- :~ .~dUe{<
dt. . ~tnj\t(L TJ1c (J\.\;nr-r filed <t ch11::.
the \\arehoust:~. ag~1inst th( !nsur~-n1(:e cornpany. The Jns.:~-ii<inC'~
company was wlllmg to pay PbOO.OOO. Finally, tlw claim was settlec
4. It denotes an accident, a mishap, some sudden invasion by a hostile in 2012 for P750,000, the insurance company paying that amount::-.
agency, and excludes the progressive deterior;:ttion of property the same year.
through a steadily operating cause.
a. Casualty c. Abandonment When would the loss of P250,000 be deductible?
.a. .. 2010. . :j::. '2012

-
b. Business d. Wager
b. 2011 d. None of the choices
Answer: A
AnswP.r: C
j The loss could not be deducted in :Z()lO inasmuch as there was still a
5. A ftn:: occurred in the City of Dumagucte and coincided with the 1 controversy as to the amount of the damage to be paid by the insurance
contpany. It was oniy m :2013. that the transaction was ciosed and
looting oi a stock of plywood of a lumber company. The lumber
company, i1owever, failed to record such loss in its books of accounts. I completed and ihe actuall<,ss finalb-1 ascertained and iixtJ
Was the loss deductible?
a. Yes,_ because the loss was caused by theft and the taxpqyer
3. Which of the following statements Js incorrect?
was not compensated for by insurance .
b. No, because the conduct of the taxpayer in n:>t -::hnrgin~ off its a. A loss from theft or embezziement occurring in one ye".r ;:md
loss in its books of acc0unts proved tl-.at the alleged loss had discovered in another is ordinarily deductible for th!" year in
which it was sustained.

-
not bt:en suffered.
~. Yes, because when th! pl) wood wa& looted there was an
b. The allowable rieduction for losses is limited to the un-
uniT'l~entional partine \1/ith something of value.
recovered cost (book v:l!ue) of the property lest or destroyed.
d. No. becau::<e the los<i .vas not a direct .-e~ult of the Ere but by c. Ti1e ruie is that loss deduction will be nenied if iliere is &
theft that resulted from such fire. reasOnable rigltt to compensate for the loss.
d. None of the choices.
Answer: B

....
....
Reference: City J,.umbexs vs. C'..omm., L-18611, January 30, 1964

l
247
 Deductions from Gross Income (Losses) Chapter 12: Deductions from Gross Income (Losses)

Answer: D 12. First statement: The actual cost of other property which is destroyed
References: Section 76, Revenue Regulations No. 2 bv order of authorities ma\' be rlaimed as a loss by a farmer.
BIR Ruling No. 373, November 23, 1987 >-.et~ 0 , 1 f} ...... io~e,rPnr !1 :ln inr~1\'1dt:~:i O\\ns e1nd opcr:1trs 8 f2rm. in
~:: 1 u 11 10 n u ;_ , ~':;ng (-r:;:..'.~lt),ed 11: a. Lui r-,c~r trade. business ur calling. ~j nd
~:;::::~ : ~--_,-;, 1:11::; :-,lit}:(_.; ;;:''07: nf 1ht f;1rn; thtn rhr ;1!lHH:n,
'~ ()n( (;~ rbt 1ul:t)\'.inr los~< s J~~ c.l'ti ''ihlc
;1 Lu:-;s CdU~(~d b_\ lhc ~!c;~t:\ '.\~-~tkCIJing ol t:~c bu~it1';!~ (~Uc 11
nonruti \\ind anci \\~;f.tf,,-;- ru:1di1ions.
rL L{l~s dLJ( t<J 1er1nitc (q :;(t: c:~ilnar~c.

--
c. Lo~~ rc~uitinf'. from car ;:rr dent due to willtu! nc~c;:;gcnc" ur Only ~Le first installlrwnt :.;correct
b.
willful act. On!~ the second staternf'nt ts correct
d. Loss resulting from car ;c,cctcknt because of fault\ dri\ing.
c.
d Both s:Atfnwnts arc cntTh t

Answer: D
,
Answe:r: D
Reference: Section 100, Revenue Regulations No. 2

l 0. A taxpayer is engaged in jewdn business. The car door is

accidentally slammed on her hand bre<tking the sFtting o! a d;:mwi~d ;_,, 'l'Li::-.. tCiilJ ~,}":~: rilcdll the (-:"1 c:---~ td 1-iflu\\'dhlc dcdtlC!HHl {J'.t unJS~
ring \\'hich he is carJ _\ing c1s a s;nT~ plF dernonstra1 ion to a r:c~,pccti\c incn:1H: of t~H ~J.:sint'~S ln ;~ l~t."\dL;,. .-f-;tr
buyer. The diamond falls fwm lht: r;ng and is ne:er founc:. The Joss ~L !\c1 c:~-;;italloss c. N('t t;~xab1e irH (;tTl<"
is:

.--- t>.
c.
dfductjbl(- as a c~sual!\ :cs~;.
not deductible because loss of jewelry is generally not
deductible.
d. deductible because diamonds are precious.
Answer: B
References: Section 34 (D) (3), NIRC, as amended
Section 1, Revenue Regulations No. 14-2001

Answer: B 14. The net operating loss of the business or enterprise for _any taxable

-- 11 Which of the fol!O\\-irg statements is correct regarding losses of

vear immediatelv preceding the current taxable year, whr:::h had not
been previous!~ "offset <tS clfcLction from gross incumc shall be
carried uvc1 as a deduction from gross mcome tor:

-... f,u r.1c:rs"?

a Loss .. s incurred in tl-:e operat:on of the farm as a business
enterprise are deductible from gross i::1ccme .
a. the next three (3} conserutiv.o tax?.ble year:, immediatr:ly
follov.:in~ ~h~ yc<:.r o: su-.::1, :v~s.
b. the next five (5) consec~.tiv~ t:lY.ahle years immed!:-!t~'y
.., b. If farm products are held for favorable markets, no deduct:on ioiiowing Lhe year of such loss.

... on account. of shrinkage in weight or physical value or by

deterioration in storage shall be allowed, except as such
shrinkage maybe reflected in an inventory if used to
c. any :>-year period not necessarily consecutive taxable years
immediqteJy following the year of su:h loss .
r1. !''one of the rhoices .
det<!rmine profit.

... c. Total loss by storm, flood, or fire of a pros}JCctive crop i~ not a

deductible loss in computing net .incor>Ie .
d. All of the choices .
Answer: A
Re~erence~; Section 34 (D) (3), NIRC, as amended
Section 1, Rf'!7enue Re~tions No. 14-2001
.IJJSY~rer: D
., Reference: Section 100, !Wvenl4e Re~tions Nc. 2

..
,
c

248 249
 Chapter 12: Deductions from Gross Income (Losses)

15. First statement: For mines other than oil and gas wells, a net 18. Which of the following statements is correct?
operating loss without the benefit of incentives provided for under a. In general. NOLCO shall be allowed as a deduction from the
Exccuthc Order No. 22'. ;.,, a1r.cndcd, otherwise knu\\n ;;s tiw ! 11,:.. :---. ,;Jt 1!:.1L ul 1!~.t s'1n1c :cL...~;;;.!:,cr v;ho sustained and
'1(::;,,. I' :-,~(:S ]tF,(ii(iic!--..:) 1...1~ t}-J(- (.[1(-... ;.~-.t
(Jlut.uiJU!J lnvestxucLts ~..__-u:.it ui- j )<:):-, incuried
1 in an:- ut tile 11! sl. lt'!J
I 1 0) \e;-1rs c)f opt-ration llid\ Lt_. t ;:~ned (_)\'t_.t. HS ;1
dtdtrct1or; f7-j ':-11
~;;xal>lt' incornt-:- for tlH r.:c~.~ 1-:'.t :5! _'.cars in11ncdi:1tcl\ Julie~\~.; :r_ tr
. '(' r;

. e::i uf ,.,ll< h ios~..

:-:~cor1d sfu1erncnt: The Ciitirc ~.:T;C~l;~t oj the los~, o1 rnirH-s <;~htr tl:;1:,
'_,;! <Uid ga~; wells sh;:ll be ct:-r:c:ci O\Tr to the lirst o11Lc i,,,. I : '','

taxable years followmg tlw loss, and any portion of such los" whJCh to, 111 .._- tr~r::srer or as~.::;gTlirl''il1 tncreot throug~~ ~-: rrHrgcr,
nmsolicb:ion or <lll\. torm of bu,.,ines:> combination of such

,.-
exceeds the taxable inconw of such first Year shall be deducttd in
like manner from the tax<tble income of t.he next renHlininF four 11) ~;~Xp;-1_\tT \\'!t11 (:I!U.dl!Cf" pt'r~.(;Tl

\'Crlr!-'. \OLC n sl:;1ll iw <~liJ\\rd 11 tl;, : h;1s been no suiJstantlai

<J. Only the firsi st:J1t'J1H :~t ;s rr)nect ,-!Ld)Jt 11: rt-,,- n\' n1-1---=.i':nJi~ : r.~ : Jilsine>ss or fnt<':-nrisc in that
1

n,,tit~ss;;1,;;1 75':." m :,,;mina: -..;:lue of outstandir~g issued

... b.
c.
d.
Only the second statement is correct
!3oth statements arc correct
Both statements an: incorrect
shares 01 n()t it's~ th.:Jil /:)~(, c: ~-:lc pa1d up caplt<:tl of the
, 0 rpur;"1H,:l. if the in.iSJllc"~' ;,. ':~ 1lw n;tmc of the corporat:on.
,i::d i!. :;~-:~: ll_'-' or~_-):' ti!t;;tii 1 1! ' I ' s;1n1c person~

'c-... Answer: C
References: Section 34 (D) (3), NIRC, as amended
Section 1, Rennue Reguiations No. 14-2001
c. \i\ oi

_.i\ns\ver: I)
1. iJf (-}-:u~cT~.

kefcrcncc; St::cliou 2, hcv~nuc Rt;i;Ulations I~v. 14-2001

- 16. Frrst statement: Any net loss inc:..lrred in a taxable year during which
the taxpayer was exempt from mcome tax shall not be aile wed as a
net operating loss carryover deduction
Second sta: 2ment: Net operating loss carry-over shall be allowed only
19 \Vhich of the follcwing st;;lt-nwnrs i;, ::;correct?
a. incli\idual (indudi;;g e"tatt ,,;,d trust) engag{d in trade or
1\n
business or in tile exercis< of profe~sion, and a domestic

-- if ..here has been no substantial change in the ownership of the

business or enterprise.
~- Both c;tatements are co:Tect
t. Beth :-ta~cocr. t:; <::.re i:1..:-.;.; e:::t
c. Only the first statement is o.:'Orrect
corporation or resident foreign corporation may be allowed to
claim deduction of his/its corresponding NOLCO.
b. A taxpayer who claims the 0ptional standard deduction s:1all
not sn:ml:a:1cccsly 2.v:1i\ of ~l:e c.~~cuct!o'1 d th<" l'l0LC0.
c. Th<" three-year reglementary period shall continue to run
notwithstandi..,g the f::wt that <'ertain taxpayers availed of the

..
d. Only the second statement is i11correct
optional standard deduction during the said period.
Answer: A d. None of the c}-l(..iccs .
Referencea: Section 34 (D) (3), NIRC, as amended
..... Sectioc 1, Revenue Regulationa No. 14-2001 Answer: D
"R.~fe:-ence: Section 2, Revenue Regulations No. 14-2001

-- 17. Th,.. atlowance for deduction ot net operating loss carry over (NOLCO)
20. NOLCO shali he :wailed of on a:

--
shall lx! limii.ed only to net operating losses accumulated beginnmg:
a.. January 1, 1 ;)98. c. January 1, 2000. '3.. ~first-in, first-out" lJ<::.sis. c. "weighted average" basis.
b Jarl'.lary 1, 19~9. d. January 1, 2009. b. "last-in, first-Gut'' basis. d. none of the choices.

~er:A Answer: A .
P.eferen,c;: ~c.tAo~ 2, Reven.ae RegulatioLS No. 14-2001 Referenc-e: S.action 2, Revenue Regulation:: Nl\. 14-2001

-... 251
250
 Chapter 12: Deductions from Gross Income [Losses)

21. Which of the following shall not be entitled to claim deduction of Answer: D
NOLCO? _Reference: Section 6 and 7, Revenue Regulations No. 14-2001
' -.-_;t' -,-,, ( "( 1 ' ;Jr:_J.: h,-- ,-~~n-:r-ntr;,! _..... ;HliJ'~! !'I 01e tuxpuuer'..: : . inrornP trcx.
a. Offshort> Bcomking Unit k)BU) of a foreign banking corporation.
. . , ,_ .... _.. t,-ri~ T ~;::,."':;rr ':'':.':''
and Foreign Curnnc\ Ut'nosit Unit (FCDU) of a donwstlc or /. i.'-( (j ,() ;I .t
fort'ign corporminn, du\ ;.;uthorizt>rl as such b\ the HanQkn ;i 1 ' . '( ~ ' r f !'t 1: /' . ' ;
Sentrai ng Piiipinas (L3Si'J .
(<.'

b. :\n enterpris<' registered with Board of ln\'cstmcnt \\"lih ' ( l

respect to its BOl-ng;IsU.Ted activit\ tnjovi!lg the lnc-nnw Ta~

Holiday incenti\'e ' ,., ';, ;;,. ,(I,
-~ ------- ------ -~

c. An enterprise registered with Philippine Economic Zone

-
...__ Authority (PEZA), with respect to its PEZA-registered business
activity
d. All of the choices

Answer: D
Reference: Section 4,_~e!_:EUe Regulations No. 14-2001
;r.<T >iu~, uo :1i
tI1't
curp~~r:.lc
~"'~.n;;itr th;:n
..~~._cuJ.ti stut(nlt'ii:1
i1J(
1he
I 1c~~~H-s!ic ~ir;d n ~jr~,~.r iutt'ign
the iwi~~fn ~"lf :~( ,il.,C{) !u: ~!. >:1~!. ~-iS
)!!H~ L:..X
nnrrn:d
TLc
t\iC1Tj

I"Ul1!1111f,
111
cnrpoy~n( 1~~{on1e

ni
<.!li~ ~cL'\.i"llJh
it

1Lr thnTyc~lr pf~riod

t:1x.)
corporations c~1nnot
is subject tn rnininnun
)"t'-cl.r (i-.e~., i\~CiT i:,

for t:~c t:xpiry

; The following shall not also be Pr111tled to claim deduction ~f !16Lc6____ -l uf \\..JLC() IS IHJl ili~t~rruptcd l1\ !},; L1<'l thdt such C<lrpcr<,::(nt is
i

'--
a. An enle1]Jnse reg1stt:red und,-,, Bnses Conut"rsion ar,cl Deuelopn;, 1,! ,~,;
of 1992, e.g., SBMA-rey1stued enle1]Jnses, wzth respect to lis
registered business actll-'Ity:
I sul:tci tn \,1( !1 1t! ;1:i\ 1;J""\::h1c \c<<
;: d~.11h ~-.tctttnlcr~t~ <-in' co1 ;(<:
~~unn~:. ~lit.li threc-~,f~.:: ;;1nod

h H.lth ~,1~:tcr:1cr:~~ ~-He inc()rr~-c~

( b. Forciqn cnr;.;cratzons cr~q(i[jt -rf :: ~:~crnu1tor~u.! sh:jJp:.;q or o:r curTUi(!t
IJuszness m tne i-'nwppuzes:
( ::I\ ;~:t t.1r s: ..... ~;:ti!:l'1!1 )~, < ~.- -, c

c. jn generai, any per::;urt, rwluu.; ur JUridical, er~joying exempti<Jn ji"Om

mcometax, pursuant to the provisions of the Tax Code or any special
law, unth respect to its operatzon during the period for which t/"' Answer: A
aforesaid exemption is applicable. Rcfcr('ncc: Section 6, Revenue Regulations No. 14-2001

- . 22. Which of the following statements is incorrect?

a. NOLCO shall be allowed as deduction in computing the
24. Capital losses are deductible from:
a. "ordinary gains only.

- ~e,:p3y-:::-'<: i!'lc0Me +<'xe~ pPr qnrte-r eTlri enn1al fmai

b. capital gains only.
adjustment income tax returns. c. t)Oth ordinary and capital gdins.
b. If per the taxpay<!r's final annual adjusted incomt> tax return, j_ none of the ch'lices.
the entire operation., for the year resulted to a net operating
loss, such net operating loss may be claimed as NOLCO Answer: B
deduction in the immediately succeeding taxable year subject Reference: Section 39 (C), rdRC, as amended
to the three-year period -requisite.
c. In order that compliance with the three-year statutory
requisite may be effectively monitored, the ta.Ypayer, shall, at 25. In the t.c.se of a !a:vp.Jyer, other than a corporation, ~he !Jercentages of
all times show its NOLCO deduction in its income tax return the !0ss to be ncognized in comput;rg net capita} lo::.s, and net
as a separate item of dC.:u.:;c.ion and not as part of deductible' in corn<: upon t ~e sale or exchange of<> capital asset held for r"or.:
than t\\elve (12) mc:1~h"' shall be:

-
.osses, i.."'l ger.eral.
d. None of the ch0ires. a. nne h:JPdred per-::e::1t (JOC'~(,J. c. fifty percent (50%).
b. se\enty-five yercent (75%). d. r:one <Jf the choices .

252 253
 Chapter 12: Deductions from Gross Income (Losses)

Answer: C 29. First statement: In the event a contract area where petroleum
Reference: Section 39 B , NIRC, as amended operations are undertaken is partially or wholly abandoned, all
Section 39 (B) Percentage Taken tnto Account. In thr cnse of n ;:tiu: 1 ,,n,: c!v., iupment expenditures pertaining
1aJ:>D1.'cr. nlftcr thr;n o C(l 7 j)(_wor:~,u} only the folloz.cing perce1:tagc.~; (~.1 ~!:e ;_ ; l \ . i l' : \. - ~ , ~ l; I_ i'

qnm or loss reC0(]7li::ced upon the sale or rxchange of a capital asset

sftu!l hr:___. tuA~en utto nccoU!!t i't cr~rnputin[J net cnprtnlgo.irt. nt"! CO.Jn7ui
lu~s. untl net incon,e , : J (;: ~ ; \ : ; i 1lJ , ; 1 j '! \ ! ; :I ' ~ ! ( ( i l j -; \. 1 '{ i
(7 j One iumdred pcu'ertl {!(!(!', 1 i(tlu:: copltal asset lws herr: held i<" S:li'.l
not more tlwn tzucluc( I:'} mnrtths; and
(:.!} Fijty percent (50u,,} iftiw capaa/ asset has been held for more t/;on
lJ. Hoth staH~rnents an' l!~corn(-t

-
twelve (12) months.
....... c.
d
Only the first staternc:1t is correct
Clnh th(' ":rnnd st;H<'!1<<'1l1 !:, 'ontct

26. It is a sale of securities where substantially identical sPcurities ;m Answer: A t

acquired 01 purchased within a 61-day period begmning 30 days Reference: Section 34 (D) (7) (a), NIRC, as amended
before the sale and ending 30 <iays after the sale.
a. Wash sale c. Discounted sale
b. Bargain sale d. Garage sale 30. Fust s:utorwnt: ln casc <l pnldun:-,r> \\'ell 1s s11hsequently abandonf,d,
tiH un:nnortlz:r~ ~!)~:ts th~-~-t:_:1. ;_~~, ',\rll ~1~; the undeprcciated costs of

Answer: A cqtLp:n<nt dlrcr tlscd ll~!rrJn." J:d! he ;-dlf1\\ed as a d~~duction in

Reference: Section 38 (A), NIRC, as amended 1lw \t';\1 stJCh ''-'ll. eouiJw,,:~1 ur ''"!lit\ is abandoned h\ 1he
{'( ll 1: ~ .. c '1 {_) !'
Secortd :_~tutcrncn: lf the <-lb;.~iidoncd '-'-T11 is reentered and nroduction
27. ~substantially identical" means that the stock must be of the same is resumed, or 1f such cquipmtTlt or facilitY is restored into service,
class, or in case of bonds, the terms thereof must be the same. On" the said costs shall be includrd as part of gross income in the year
of these is substantially identical. of resumption or restoration and shall l;e aJIJOJtized or Jepreciated,
a. Common stock and the preferred stock of the same as the case mav be.
corpor~tion a. Both statements are correct

-..-.
.
i
b. !\on-voting stock and a stock with voting power
c. Two series of bonds where one is secured by d r.1orfgage and
the otl1er is nol; or which differ as to interest rates
d. Two series ot bonds with the same mterest rates but with
b. Both statements are incorrect
c. Only the first statement is correct
d. Only thP second statement is correct

~ rlifferent dates of rr.nturity Answer: A

......._ Rderence: Section 34 (DJ (7) (bJ, ~nRC, as amended

31. In w:,;-::h of the foliowing shall .w gai. or loss be recognized in

pursuance of a plan of merger or consolidation?
28. The wash sale provision does not apply to: a. A corror?ti'Jn, which is a party to a merger or corsolidation,
I - dealers in securities. exchanges property solely for stock in a corp0r~ticn, which is
a- short sale transactions. a party to the rnerger or consolidati:m

c: a. Yes to I and II
b. No ~o ! and II
c. Yes to I only
d. Yes to II only
b. A shareholder ex.:ha,.,ges stock in a corporation, which is a
party to the merger or cortsolid?.tion, soiely for the stock of
another corporation also a party to the merger or
Ms1rer:A consolidatiun
Reference: Se::tion 3S 'A), NIRC, as amended c. A security holcler of a co1 porati;:m, whir.h is a party to the
:nerger or cons0lidation, exchanges his securities d1 ::uch
corporation, solely for stock or securities in such corporation,
a party to the merger or consolidation
d. All of the cho:ces

ZS4 255
 Chapter 12: Deductions from Gross Income (Losses}

Answer: D 34. (Phil. CPA) Mrs. Evangelista owns a parcel of land \\orth P500,000
Reference: Section 40 (C) (2) (a) (bt and (c), NIRC, as amended which she inherited from her !~"lther in 2011 when it was worth
P3UU.OUn. lH ~ .<:1Lht .i ~hd't,il~~~c'.l !~til 2001 fo: PlUO.(;(J(J. If I\1rs.
1'..\~lil~!.<'jt~l<\ [i.: _;'.)~ :~-,- l:~~ Ji<tl\"("j I i l(i \1 1 1 ;r'! \\ i li 11J _\ (;\\ I ;1 ( J
32. Which of the following statements is correct? <-)1{)( l<:. ~-.,;\]{! {."(_\ iJ' ):-~~~ (,j) \\IJI ~ i1

a. No gain or loss shall be recognized if propen\ IS tr:msfened lf

a corporntion by ~-l person in exchant~e for sto( k en nni~ of ( ',

panicipatioll lll such a curpur<1tion of which as a nst!lt of

such exchange sa1d person, alone or together \\ith other::;, not
exceeding four {4) persons, gains control of said corporation_ Answer: A
,.............--- -~--------
b. Stocks issued for services shall not be considered as issued in 7',i:( {) l -,;[
~
., c.
return for propertY.
The term control shall mean ownership of stocks in a

,. corporation to the extent of at least 51 '/r, of the total voting t

...
power of all classt:s of stock entitled to vote.
d. All of the choices .

Answer: D

'..
..c --
Reference: Section 40 (C) (2), NIRC, as amended

ilrost of P500,fl0() but wnh" !;:ur mar-ket v~,luc of P750,000 to ,JDC 1

-,. Corporation in exchange of the stocks of the corporation with a par

value of Pl ,000,000. As a result of the transfer, he became the
majority stockholder of the corporation. As a result of the transfer:
a. Tne recognized gain i~ the difference between the fair market
I

--
value of the stares of stocks and the cost of the land.
b. The recognized gain is the difference between the par value of
the stocks and the fair market value of ~he land.

...
c. There is no reco~nizt>fi ga;n ~ause the lanci wes in P'CC'P<'\ngP.
of purely stocks and Mr. de la Cruz became t!le majority
stocKholder.

'
~
d. There is no recognized gain because the land was in exchange
of stocks of the corporation.

' ~
Answer: C
Reference: Section 40 ( C) (2};_NIR_.=;:....:C:..<-=:a.:..::s-'a'-"'m=e.:::n:.::d:.::e.::d'---------,
j No :Jain or loss shall also be recognized if property is transferred to a
cor_voration by a person :n exchange for stock or ur.it ofparticipation in
I
..,.
r- such a corporation of which c.s fl result of such n_-::-:.'w.nge said person,
~
I awne or together witr others, not r:xceeding four (4} persons, gains control
of said C07Joration: Protfded, That stxks ~~sued for sen-ices shall not be
I
j consulered as issueJ in return foc:_r..c.p'-'-roperty.=s;..::.;.;;;<.;. '- - - - - - - -

--
....
.._
257
 Chapter 13: Deductions from Gross income
(Bad Debts, Depreciation and Depletion)

Chapter 13 3. First statement: The phrR~e "<Ktuallv charged off from the taxpayer's
DEDUCTIONS FROf\-1 GROSS INCOME hn.-d:--s nt ;Jccn~:;:::" i-:~, ::~~:- ~ '~:-:~ l~ ~Lr ~1:~~0 1.:nt 0t mo::'":':
lent bv tht:
(BAD DEBTS, DEPRECIATION tc1xpa~tr t1n i!:c ( ~~ur:,1 (~: i1 ' :,~J:-,l!JI:<s. ~r;;(lt' (,r pn~:cssion) to lns
(:! 1 ; 1 ~); . ~) ~ ~ l' :I :
AND DEPLETION) , ~- ; t r ~ l ; ; 1
'
t ' ~ ', ( ' : ~

{"'; . : : ! ' ~ i ; ( . 7~ :
Jr ;:_; ult t(,u:t (:,1 ,.:d:,._;tlid :.... :f:~.."tli.uJ tile ttd!lt l~(rrlt.lli.\,
thut ,UU.\I'S TTl('Si f:;;/urL.' - _~l[(re,{:\ftrt"ttr
Secunri stulcnlt;; ... T. ~~-- '-" ., ' ~':r;;:\~ - -r11<>,
account of estnnated unullll'ctll;Jc ;,c.counts does no' constituT~ a
\\Titt'-off of !tw s:;id nn;\<Jh:(-. lwnrl.'. sholi not be;:, Yalid bas1s for
Multiple Choice: Choose the best possible answer. ils df'ductiun d~ ~1 !J(ld c~~)~ ~:--:pci::)f
ti. True, Trt;(~ 'J ;~L d . t ; : :-,;
b. Falst, F~~~:--t d i ._i;. ~( '! ;:- -~ : '
(El BAD DEBTS
1. it refers to the amounts due the taxpayer whether as money lent or Answer: A
uncollected income from goods or senices rendered but haYe become Reference: Section 2 c. Revenue Regulations No. 5-99

'
worthkss or uncollectible, in part or in whole.
a. Bad debts c. Liabilities
b. Securities d. Restructured debts 4. ()ne of the fol1C1\\i::P. 1s iH,! (: nqtli~,Ji' :,:: r.:cci~lcti<1;~ L: :)<~d debts:
( Answer: A
;.1 There i!Jt.'"'~ 1,,- ;-:;l (--x:.: :;r 1:,-:~ ;i{, :J('S:-. :(. :~~ ~.;...x:;'-\{ ; a:~cl
tbCSt' I!H2~t ty \"t.d:( a:1t! Jt:r:~ -.' :1eT~1<-ilH1at)!e

Reference: Section 2 a. Revenue Regulations No. 5-99 b. The debt must ,,nuail\ !Jc chc.~g<CI ott the Dro~:s of accounts
of the taxp;,,cr ;,so: the end c: ttw taxable \T&.,.
c. The debt rnust ;:c-tLa.ll: be c::~c~-:-tained \\ort1-:le~(; fl_nd
2. Which of the fo!lowing statements is incorrect? uncollectible as of the end of t1:e taxable \car.
a. In general, a debt is nrlt wonnless simply because it :s of d. The debt must have a matunt~ of not more tha.n 5 years.

- doubtful value or difficult to collect.

b. A taxpayer may not postpone a bad debt deduction on the Answer: D
Reference: Section 3, Revenue Regulations No. 5-99

..
ba~is of a mere l.ope of ultimate collection or because of a
continuance of attempts to colJ.ect notes wnich have long
cecome overcu~. a~d w!lP.re there :s no showir:g that the
surrounding circumstances differ from those relating to other
!!Otes whkh we!":' charged off in a prior year.
c. Accounts receivable, the amount of which is insignificant and
the collection oi which through court action may be more
costly ~o tne taxpayer, mar be written-off as bad debts even
without conclusive evidence that taxpayer's receiv::tble from a
dertur has definitely become worthless.
d. Ncne of the choices.
5. Pirst statement: In case of h;:.mks, the Ban~Sko Sentr[:J r.g Pili;:>i"l::;g
(BSP), through the Monetary Board, shall ascertain the
worthlessness and uncoiiectibiiity of the bau Jebts. and ii. shall
:tpprove the v.ntmg off of the said indebtedness from the banks'
book; of accounts at the end of the ta'illble- year.
Seco~1d statement: In r:o rase n.ay a r~cei\;able from an insurance or
surety company be \,ritten-off from the taxpayer's h0oks and
claim~d as bad debts deducti0n unless such compan_: has been

c declare-d closec! due to :nsol..ren:::y c- fo~ any such siMilar reason by

- Auawer. D
Reference: Section 2 c. Rev..!nu.e Regulations Nu. 5-99
tile Insurance Commtssior.er.
a. True, True
b. Faisf., False

Answer. A
c. Tnte, False
d. False, True

Reference: Section 3, Revenue Regulations No. 5-99

258
259
 Chapter 13: Deductions trom Gross Income
(Bad Debts, Depreciation and Depletion)

9. :\Certified Public Accountant u~es cash basis in computing his

6. One of the following is not deductible as bad debts:
...:c. . l;(" ]\}( (lllif. ,); )(),() (,t i' ,Ji::;, f 1 ltdt~;~luilfii scl-~;1 ( ;,,~ ~
a. Difference between the purchase price and the indeht<>dncss. (j

llJ
where under foreclosure of a mortgage, the mortgagee buys
the mortgc.gt~d prupe::\ ;;nd credits the indebtedness to the
purchase price.
b. Worthless debts an~::1~: !rom unpGid wages, salaries, rents
and similar items of t;,xable income, the income such items
< ~~U l0 (~:- ..~~; \ ! '
represent has been mcludcd in the returns of income for the
d. Ca1111ut Lc d((JI;c;~d l!~ .J:;\
year in which the deduction for bad debt is sought to be
made, or in a previous year.
c. Difference between the amount received in distribution of Answer: D
. j: _, : .1 ! ! ,' , t - , , ~,. ( ~ i ! t '{ t 1( / ( ,: i ~ r( .:1 (
assets of a bankrupt com pan\ and the amount of claims
'!I j 1/ J ', ~ J{ii 1 f '.~ J{)rft ~-
against the said company.
d. Difference betwt>en the amount rt>ceived bv a creditor of a :n2010
decedent in distribution of the assets of the decedent's estate
ancl the amount of his claim.
'l! Jl ( _'- _:-. ~ f ,' t ! >: ( \ 1 1 r: ( "- ; J I i, ; ~I .' i1 ~ / , I ! ' ' 1 '. ( J -" ; i( t 'II I; i { '{: ~ { .: t i: . .,; t ' I . ~. j ' ;

~~i 17(Cz)P:t .~(),- t!d :". -, !. :r ~-: f J(J( i { ir i , ' , . ,,:: :,

Answer: A U<'(i1. ;; I 1 ,:I , ( ii( Jf 1 {;_

Reference: Section 103, Revenue Regulations No. 2 f 1{ n;udt' PI- Jr (,!'I tr

7. If a taxpayer computes his income based on the value of his notes or

accounts receivable at their fair market value when received, which JO. ic is the gr:Hlual diminut)<,n ol til< U'>l'i'ul v;tlue oft<mgib:c P~''lwrty
may be less than their face value, the amount deductible for bad resulting frorn \\<~ar and ttdr ci:H1 r:r;::;1cd obsolescence. lt 1s r1lso
debts in any case is Emited to the: <',pplied to the <<nJOrtization of i:Jt;,ng:blc assets whose >..:st: m !hF
a. face value when received. trade or business is definitely limited in duration.
b. net realizable value at the end of the year. a. Depreciation c. Obsolescence
c. fair market value when received. b. n~p!etion d. Bad debt
d. maturity \c...lue upon rr.atmity.

- Answt'r: C
Reference: Section 102, Revenue Regulations No. 2
Answer: A

11. The ba~is of computinr; Jepreciation of 8n asset is the:

a. acquisition cost of the property.
8. A purchaser of accounts receivable which can not be colltcted and b. fatr market value of the property.
are consequently ch~ged off t..f}e books as bad debts is entitled to c. adi<-.sted basis for computing the ;.J.Ss on the sale of propeny.
deduct thc::,n, the amount of deduction to be based upon: <i. 1 dlppmised value of tl1e property.
a. the face va':ue of the accounts receivable .
b. th.: net :-ealizable value cf the ar:counts receivable.
Allswer: A
c. th~> price paid for the accounts receivable.

... a. tne fair di.scounted value of the accounts receivable .

JO'~wer:
Referenc,.:
C
zie'~ 103, Revenue Regulati.,1111 No. 2

261
 Chapter 13: Deductions from Gross Income
(Bad Debts, Depreciation and Depletion)

12. Which of the following statements is incorrect? 14 Whir-r nf the fn11r>wmg stcJ'<'llWnts is incorrect?
a. There shall be allowed as a depreciation deduction a
reasonable allowance for the exhaustion, wear and tear
including reasonable allowance for obsolescence of propert\
used in the trade or business.
b. ln the ca~.;e of propert\ held by one person for life \\ith
remainder to another person, the deduction shall be
cumputed <tS 1f the life tenant were the absolute owner of the
ClJTU lll ~tell iC('S l1Ct :cd~t:. " CUll~.~._:crd:iuri ci;._~;-:::t;, the

.,
property and shall be allowed to the life tenant.

~
c. In the case of property held in trust, the allowable deduction dl..:op1H>ll
;iH :t~ ;H
1)! Sl!<'h t!E,r<'Clllf'J'Jl
;-..:i~:Lh ni t",Ll~J:.: 1:1;: t:_t' cx;s:cr;l.. t .; ~ uci1 L1r !~
for depreciation shall be apportioned between the income
beneficiaries and the trustees in accordance \\ith the ;:;;,j, ,.___i,t!H'! '. si~;\ii rt~.' "-\ith :~-( (Itl\iT;~!.:: ~1: :.il 1:!:,, '-
pertinent provisions of the instrument creating the trust, or in

... the absence of such provisions, on the basis of the trust

income allowable to each .

c,..
d. None uf the choices.
j:, ,J,,' ;:J:t1~;;;1~' ~-.;.,\ ;, ;,;lii~'; :(1 :1:{ t;:},{: )J,;:t_\ l t,i 1

Answer: D ( \ ~ J ( '(.:; ''

Reference: Section 34 (F) (1), NIRC, as amended \\ j1fTt 1! ;t~:~);l\T~ lJ;J~- ;~d(~~::td ~.1.1 i~ ll~~ch!l ]i~-, r:d

--..
I 1jf i (
....... ,1tlJ ,) ~l t'XIWT1Sf''- ;!~, ntrl1JC!Hl:; 1rnn: n1s ~n ~.:-- ;nron~t 1

13. Which of the ioliowing methods of depreciatiOn shall be allowed tor \'.'j(\;n;;i :n:'.. \\riltcn ()bJ('CilO~l on1!Jr r~l!"! o! t11C LrJn1T1liSSiOllt"!'

income tax purposes? (.:- tu~; .:t::\ ddthor1zcd 1Tpr~~;fnta:1\(s. trH ;-1fon~cud useful
a. Straight-line method li!< t.Uld {:!preciation n~!<. ~~c ~!dopu:l by t~lf' t.;Lx~>(::rr 1ur thf

... b. Declining-balance method

c. Sum-of-the-years-digit method
almes:n<i clt-preciable ass<,1 :,hall ix considered iJi;iding for
purposs <Jf depreciation .

-........ d. All of the choices

Answer; D
2.eft:reuc.t:: Sectio>n 34 2, !HR.C,
(:1} Uu of Certain Methods and ~trtes.-
aa~ e~mt>ud~J
The term 'ren.wnable
Answer: B
Refuence: Section34 (F) (3), NIRC, as amende<!_~-----------
73fi,g-re~~~~t as to r;;~ful Liie on Which Deprecwtion Rate b Bused.
Where under wh,, ut<d rcqulation.-; pre.~rriiJcd hy tlu.: Secretary of FirwncE'
upo~: .TCCO!Tln:c;!dCltzor: of rhc (~nnirru.._;_~~innrrJ ~hr-- ~axpr:ycr and the
allowance' as used in the preceding paragraph shall include, but not

..,~
CommJ:-c -,wner ilaue enlered intu w1 agreement in writing speCifically aealzny
limited to, an allowance computed in accordance with rules and
I regulations prescribed_ by the Secretary of Finance, upon
~L'ith tJ:C Use{li.: fife and rate 0( dCjJTCCiati011 of (Ht.'J Jl!OJ-1P112J tiu'" rn1r SO
agwr <; upor; t:'l1111i 1><- l!intlingm~ !Jot'' the taxpayer and tlw nallnal
recommendation of the CommissioneC", under any of the following
Gouemmcnt in absence of facts and circwnsranccs not taken into
) I methodS:
{a) The straigh!-lin.e method;
rons;rieraiiOII dun,,g
1rw
the adopriu11 of such agreemen' The respon~ibilitzt o(
estal>'rsiJinq t!w ex;.;terzcc o[such (arts ..m,: circwn:;::znr,_, slzall rest rr'th tlw
._ (b) .:Jeciining-bvlance m ...>thod, using a rate not exceeding twice the rate

-
part11 mitwtmq tne modification Any c 1.ange m thP ngreed rate and use[u//rie
which wc:.tld have been used had the annuai allowance been computed o; rhe ,k;Jreciollle pro;erl!; as spenfied in the agrer111ent shall nor IJe cffeclivtc

--..
u.".der the method dP..Scribed in Subsection (F) (1);
1._) The sum-of-tl.e-years-digit method; a~
......
I (ci) any other :nethcd which r...ay be prescribed by the SeCTel.a:-Ji of
. Fin'V".ce u~n recommendation of the Cornmzssioner.
for ramble yerJ.rs prior'" tl!e !axi"IJle year in wh:ch rtotic" irJ ri:ing by
1
certified ~nail or registered mari rs _;eriJCd by tr<> party imvatmg such cha'lgz
- _ _ _ _ __J I to tile other party to the agreement: Provided, however, tnar wher::: ttl
, taxpayer has adopted surlt usefttl ii[e and depreciation rate for any
cie:Jreciable and claimed the depreciation experlSS as deduction from hi~
gross ir.:;ome, without any written objection on he part of the ec.nmissioner
or his duly authorized representatives, the aforesaid useful life and

-'..
.....
262
depreciation rate so adopted by the taxpayer for the aforesaid depreciable
asset shall be c.onsidered bindin ses o this Subsectwn.

263
 Chapter 13: Deductions from Gross Income
(Bad Debts, Depreciation and Depletion)

15. An allowance for depreciation in respect of all properties directly I f7operties not u~ed directly in the productioiz of petroleum shall be
related to production of petroleum initio.lly placed in service in a ~ (~(-_urcc;u:tl .. ~lt:.J.t; .:.:rJ?.-~7}: 4 -.t:> :t.t!;, :r} : 1:r Jos;s a_.'"---.:: c5tirnntecl
tax~1 ble year shall be allowed under:
I -the straight-line.
II -declining-balance method of dt>preciation at the option of the
service contractor. ")(

a. Both I and 11 are correct c. Only I is correct . "'\ . ,, ., : l

b. Both l and II are incorrect d. Only II is correct Jilt- \CL . J' , '": ~
b. depreciated mer an\ n u m iJ,.r ui \Tc.rs IJetl\een Ji. e (o) year;,
Answer: A and :he expcr. red lite:! 1!H ;;J!t(-r !:-- !~H!re than ~f'. \ l(l) \cars.
Reference: Section 34 (F) (4), NIRC, as amended C. allo\'."r_~d (-tS (:tdL~c::;cl:i :r~.;JI ';_,:::i_~!t J::; (l:ll<'.

,
..
d. :1.11 u: :ht c:~, 'r:,

"' 16. The useful life of properties used in or related to production of

petroleum shall be:
Answer: D
Reference: Section 34 (F) (5). NIRC, a& ;;.mended
a. ten (10) years or such shorter life as may be permitted by the

'..
....c:
'
Commissioner.
h. ten ( 1 0) vears onlv.
seven !7! \'ears or such shorter life as may be permitwd by tiw
Commissioner.
19. Jn the cn~c <f ;_;non: t~irient
business or :tsic~{:_+ f(JrcipTl
the dctC!"'iC;~~~!lL:, :.._.,:.- ;;.~-~
;1.~1t:i ;nt:_., idi:ttl cnf?_~tgcd 1:. 7ad( o:
{'(JriHILli:r;!~
::
t: rc;tson<.\hi, ;:: .. O\\ilf1tT fo 1
;;~ :1~1 rJJ c;, _ .:..J_\1,1l. .i1l. (JT

-
1ts non-use :ntnc ~..'.. ~-,;rH:--.s ,;,:(u IJl 1 1;\)lc.-..,:--:..~nl ~)l1<.t.~~ ~J'. ~_,:_r~.l.i..i.~tt.:G:
d. five (5) years.
a. \\'ht:n the p~~-~;)1-rt_:. i~ i;>: <-ttcd ::1 uf OL1:sidf' the p_:-_::ippines .
b. when the p:-u;xrt\ is 1ou,ted (JUt side the Philipp::;es.
Answer: A
c. \dwn such p:,;pert\ i'i locatu) m the Philippine~.
Reference: Section 34 (F) (4), NIRC, as amended
r!. none of tlH.: c:lcJices.

Answer: C
17. 1 he depreciation for properties not used directly in the production of
Reference: Section 34 (F) (6}, NIRC, as amended
petroleum shall be;
I -straight-line method.

J--
II - .3 years es::ir.latcd !ife. (G) DEPLETION
a. No to I and II c. Yes to I only 21). It is tht> exhanstion of natura.! resources like mines, oil and gas wells
b. Yes to I a.""ld II d. Yes to II only due to production.
a. Depletion c. Amortization
Answer: B b, Depreciatior
) Reference: Section 34 (FJ (4), .NIRC, as amended
d. Wasting assets

~
J Depreciation of Pro~es Used in Petroleum Operations. An Answer: A
allowance for d~reciation in respect of all properties directly related to
nroductic"'l of petrolew,t i'litially placed in se1111ce in u taxable year shall
21. In the case uf oil and gas wtlls or mines, a re"l.sonable <"11owance for
I?e n.ltot:JPd under the strwght-line or dediniT'g-halance method of
depredC!tion at tfu! optivn of the service contractor. depletion or amortization computed in a-:r:ordance with what method
shall be grd.nted under rules and regulatio!is to be prescribcc oy t~~
However, if the service <XIIllractor i.Utially elects the decli:Ung-balance
Secreta.")' of finance, upon recon:mendation of the Commissioner?
method, it may at anfJ <.~bsequent dozte, shift to the ~traight-line method.
a. Straight-line depleti0n method
1he useful life ofproperties tsed in or elated to production ofpeirv'ieum b. Cost-depletion method
shad be ten (1 0} years of such shorter life as may be permitted by the c. Declining-balance depletion method
ICommissioner. _ _ ___ ___._.__________, d. Sum-of-the-years-digit method

265
 Chapter 13: Deductions from Gross Income Chapter 13: Deductions, from Gross Income
(Bad Debts, Depre':iation and Depletion) (Bad Debts, Depreciation and Depletion)

Answer: B Answer: A
Reference: Section 34 (G) (1), NIRC, as amended Reference: Section 34 (G) (1), NIRC, as amended

22. Atttr production in ~omme:-cial C!PantitiP'l has cowmenctd, certain 25. In cowputing taxable income frorr.. mi.Ping O!'Craiions, the tax;.ayer
intai1gible exploration ::md development dri!Eng costs shaa be may at l:is option, deduct:
oeauctible: I -f'xploration and development exp-.:1e!i~res &;.ccuL.ml.:lted as
: -in tht> yea"" incurred if su,-;; expend::ures are incurn"l for cost or adjusted basis for cost depldion as ::>f uate vf
nor.-producing wells and; or mine;,. prospecting.
II - m full in the .1 ear paid or incurred or at the electior: of the
II -exploration and develop.nent expenditures p"lid or incur-ed
) ta..xpayer. 'Day be capitalized ai10 amortize(] if such
expenditures incurred are for producing\\ ells and,' or mines
in the same contract area.
a. Yes to I only c. Yes to bor1: I and II
during the taxable year.
a. Yes to I only
b. Yes to II only
c. No to I and II
d. Yes to I andll

b. Yes to II only d. No to both I and ll Answer: D
S.~ference; Section '34 (G) (1), NIRC, as amended
Answer: C
Reference: ~ection 34 (G) (1), t.1RL, as.amt!udt:d
26. Which of the following statements is incorrect?

..-
23. The term refers to any cost incurred in petroleum operations which in a. The amount deductible for exploration and development
itself has no sal\a~' value and which is incidental to and necessarv expenC.imres shall not exceed twenty-five percent (25%) of the
for t!1e drilling of \\~~Jls llnd prPrar~ttion of \\'"11s fnr rhe pr ,H.iL:r.tion of net income from mining operations computed without the
p-::tr(">le;~Irn.
benefit of any tax incentives under exi~ting laws.
' ~L Cu:-.;t for cuq',ii:-:;itiu:-: ()r ::;:!)rovcrnr~-;t
b. The actual exploration and development expenditures minus
:) :~:xpl()r:1t1on ~--~)sts :r1 !)t~t :o1c11 ill <jper;l t 1on twenty-five percent (25%) of the net income from mining shall
~:-ILHIPihf(' C)Srs in ~)~'ii\ :ru;1 nrk'Ll:;nn be carried forward to the succeeding years unt1! fully

- Answer: C
~ o J I < ! : ' ( ~ > 7 - > '
deduCted.
c. The eiection by the taxpayer to deduct the exploration ana
development expenditun's is irrevocable and shall be binding
in succeeding taxable years.
d. None of the choices.
Answer: D
Reference: Section 34 (G) (2), NIRC, as amended I
~ .. .r: ' [

.. '-!. ll

Second .-.;tutc:rwnr: r\nv

<; l l ( ~ l . ':

tntan~IDlC" exploriltlon. d tit:!!,!.! c1nd

27. Allowable deductions for mining operation shall not include:
a. mining, milling and marketing expenses.
b. depreciation of properties dtrectlv used in the mining
'


operations.
c. exptncliturt'S for the itc;utsition or irnpr01:cment of propen:: r_ i
a character whtch is suii]('L., w the allm,;nlle for depreciatir)!"L
..... -: ' I t : ~ ; f , ! , . : ! l \ ~" \;
d. None of the ch(Jic:cs.
~

'
l

f. 266
 Chapter 13: Deductions from Gross Income Chapter 13: Deductions from Gross Income
(Bad Debts Depreciation and Depletion) (Bad Debts, Depreciation and Depletion)

Answer: C 30. In the case of a nom es1dent alien individual engaged in trade or
Reference: Section 34 NIRC, as amended business i..1 the Philippinf"s or a resident foreign corpora:.ion,
'Set rincome fraT". mining operations, as 1Jsed in thi<> Subsection, shall cl!cwanre for depletion of oil and gas Wells or mines sha:l be
litea:rL gross income from cpe>rations less 'allowable deductions' which
authori~ only iu respect to c.il and gas wells or min.:!s located:
are m~.ecessar:Jor reb ted to nining e-p-?rations.
a. within and cutside the Philiprbes.
'APar:uable ded:<ctions' shall include mini11g, nil:ing ann marketing b. within the Phili?l'ines.
expt;;:"'.ses. m:,; depreca:ion of properties d1rectly used in he r.tinir.g c. ott.c;ide the Philippines.
ope~CltiOIIS. F::s paragraph shall -~a applrJ 'o expenditures fer the d. none oi the chokes.
~u;_.-:sition or :"'.prouemer.~ 0, prope,-ry o.' a rham.:ter which is subject to
the ::.Ilowancf' _cr
depreciat:orc Answer: B
) Jn :.:.:; case si':c.ZI ~his paragraph uppi!J with :-espect to amounts paid or
incu.:..-red for the exploration. and de. 'io menr o oil and as.
Reference: Section 34 (Gj {2), iURC, as amended

,


18. It me:EtD'> exper:jitures paid or ir:curred fJr the purpo:::e of
ascercaining ti::: existence. !ocatior:. extent, or quality of any dep0s;t
of or':' or other r:1ineral, <~n: p;1id ,,,. 'ncurred hefcre the beginning of
the ::-,~~eloprt:~."":t stage o~ :: ~ illiL .~_~:- dcpo<;:t
a. Jntanc:,;:O:e costs ur' ;jetrol:!::t operation
Explora:;on cost
w _

.-- Devclop!7!enr rost

Answer: B
~e_ft:!'ence_:_Sectio~34_(Gl 1_2), NIRC, as amended ---------.
!

-
._ :n: 'exploration expenditt1res '"~ ::."_ 'Y!)t'!uh:ures pu:d nr
' ' 'I ' > , \ [. .7:: ~) .'
'"
;,!-.,"'
" . ;ru iJU!,;
1
-th!'
ur :ttr u:,-u.
'_lt.~]JC?_!~-~~-------

-
). '"-'Tle or _i

: I It :- -~: ~; ;: n;.~ the dt~veloprnent stage

'.J)
'.
; !1 r ' : ~ ; ' : i 1, 1 t ~ ' l ' i )

')

.. ; ) :;:

-
.,.,.

.'
'. 26B
 Chapter 14: Deductions from Gross Income:
Charitable and Other Contributions, Research and Development
And Pension Trusts Contribution
Cnap'ter 14
DEDUCTIONS FROM GROSS INCOME 2. "'rsc statement: Donations to the Govc;rnment of the !'hilippines or to
(CHARITABLE AND OTHER CONTRIBUTIONS~ any of jts agencies or political sutxlivisions, inch.dine fully-<r.. ned
goverr.me:::tt corporations, exclusively to Enance; to provide for, or ~o
RESEARCH AND DEVELOPMENT be u.sed in und~rtaking pr('lriry activities c.:e dedactible in iull.
AND PENSION TRUSTS CONTRlB'trtiON) Second ~tatem:mt: Any donation whi<.h is made to the GownlJlletlt or
to any of its agencies ,.,r ;nlit!... .d! ~l.lbdivbious. no~ i.e. accordance
with the sai::l aHPUal p1ioritv pl~r. ... nall je s1bject to the 5% ~r lO'?o
limitations prescribeJ in ~he Tax Code.
a. Only tl1e ftrst st"!.tement is correct
) Mul~~ple Choice: Choot.e the best possible answer. b. 0!1ly the second statement is correct
c. Both statements are correct
I
d. Both statements are incorrect

Answer: C
, (J~:("of tht" :oilO\\ing is ncf ~- nrp~!s!!F for !hP deductibility r-;f
d:3rila':le and othl'r c-on;nhqtion<>:
Reference: Section 34 (H) (2) (a), NIRC, as amended
(2) Gontributions lJeductzble in Ft.: !f. - Notwithstanding the provisions of
T~;c contriru~~o:, nt'''.t bt 1...--.:uail_,- ~a;d or m;:).d~ to tt:P
r"!!!lppinr (;lV''' !'!' ;;t," :\ pol!:JCal SU~Jdivisiun thereof or
t."e preceding subpa~a3raph, dcnarioi'S t'> t"'e f'>'loi.Fng ;r>stitot+ic"'s c~
to any of the dornesuc cornorations or asso,.ia~ions specified
entities shal: bz deductib:e inf:ll:
(a) Donations tc the Government. Donations to t'he Government 4 the

....... in the Tax Code. P~lippines or to any of its agencies or political subdivisions, including
fully-owned government co1p0rations, exclusively to finance, to provide

-
b [ ;nllst be rn;:dc \\i:l:in tl;,' ::1xabk \ear.
r [r must not cxnrd 1 (f';, o! :,.. in(: ..,:dual's t<Lxable income and
. qf rh(_' (or-por;i'Jr):l's t;1:'.:::,:t. il'::.~,znt~ l;cfPrC dedth Ling the
for, or to l;e used in undertaking priority activities in education, health
l/Ot<th and sports deve/opmetLt, human settlements. science and cu/!'..1~10
-: :r;htttions and in economic developmPnt according to a National Priority Plan
determined by the National Economic and Development Authonty
(NEDA), m consultatwn wrth approprwte gouem,rtent ag.,ncws,
ir!c!!Hiiny !'ts n.:yionui d~""ue!up.>!~~.>~:~ !.-~}~U!C!;~ cu!d pn.t'U~t:' p;!:.!ur!:r~~-.~_;

R.e;'crence: Section 34 (H) ( 1), NIRC, as ;unended

persons o.nd insiituuon.s: J-)roLrt(i.e-(i. :-'hat any dona:.ion. t.vhzl): :.s :t.'-~-.ic
( I' .,.;,.,
the Gouemrncnt or to any oflts or;rncies or polltical subdir:lsions ;')' r
accordance wlt/1 the said annrwl pnorlty plan shall be suhj('ci to thP
..... r'r ;1~-'l_ij .f()r
/lnutatlons prescriberf rn paragraph ( 1) of thrs Subsectron;
, 1 i, ',I) ( '< ~ r 'r ')I , . '.'r; ,_,., '11t'f"l".)'

.' . ; : ;' . "!' "'!l,,.r:t')t' rP (L. ~:)(ratror:s

\ -~ ) '

'
'i ilt:ri 1 . t, . '' ____j~'..!..!..:.:. r~~r_i';;,,/;/~ ,-..,('(t'fli 1 fiC:..
3. Which of the following shall bt: deductible in full?
J
::.'

a Donations made for the use of the Government of the

';' ,, ,~ :.~.~i<'~-~~_;r__~IL:Lr_J_~ __'--2 ~>r ro Philippines or any of its agencies or any political subdivrsion
,,,,, .,,. )': ' 1 I : ~}' .''7 .' f, ':, ( /7'; ,i
exclusively for public purpose
b. Donations made to accredited domestic corporations or
/ t tu iuflul: uf ~/Ll' ( 1 '"!1 rn; -, , ~;.-:cT. : [-'tJrt u( thf.. llt [ uuoffte q{
:~-i )ir; .. ,. , ) r urir:rr/unl1n
associations organized and operated exclusively for religious,
1 .-j,
charitable, scientific, vouth and sports de,elopment. cu1rur;,;
or educational purpose<; >r :t'habilitation of verer;~;;s
c. Donat10ns to f'Jrcign iw;';'u:wns or internat10r:a!
<Jn~anrzations 111 pursua:i' ,, Df or 1;1 compliance \\'i''l
ngrct~rnents, trenties, o:- ,~o::nnirrncnts t~ntf~red in1(l L.\ ~~:
Government of the Philippines and the foreign inst 1t u! :on s or .,
international organizatiOns or in pursuance of special laws
d. None of the choices
J
~7()
 Chapter 14: Deductions from Gross Income: Chapter 14: Deductions from Gross Income:
Charitable a~d Other Contributions, Research and Development Charitabfe and Other, Contributions, Research and Development
I And Pension Trusts Contribution And Pension Trusts Contribution

Answer: C
Reference: Section 34 (H) (2) (b), NIRC, :1a ame=n:.::d:.::e-=d:___ _ _ ____,
II(2) Contributions fleductible ;'1 ru/1. - Notwiltstanding the _PJ1ovisior.~ ;;f
the preceding subpararraph, dortations to the Jot/owing i11stitutions
, 01 '-ntitie:; shall be d ... dvctble ir,fuii:
I
ib}Donations to C~rtai.1 Foreign 'nstitutions or Inrem,.tional
Or17nnizations. - donations to Jc.-eigl, insutut:'ons or intcna:iunal
orJaniza:io,s u.hrrh are full!' deduct;ble in pursuance c:r ~-in
rornplwnce 1utt': cJgrcer-,erH<;, treaties, or commrtments entered into
by the Cio'"nm:ent of the Phzirpp:nes and the foreign instit:aions or
) _______!!!:_t~!'_la_t_'2nal_<:J!IfE!!.i::ations _q_r_ i__~~uance of 5pecial laws; ______)
;; 'T. T:J be deductible in full, cenc::n accrec!itccl non-government
o~~<!l:iz.:-,tions (NGO) or non-nrofic c!omestic corporations must IT'P.et
~
.. Ct~rT:ll:< requisites. Unt> ot the foilt ...-ing is not a r;;quisite:
-......
Orc;;mi;-:::d ;;:1d opnated txclusively for scient:tlc, research,
--!1~'rat))!1{-.i;, tj'"!~i!dCtf?r LLlildi!lf:,,
Ut'\'tlopmt~nt.
Answer: C
Reference: Section 34 (H) (2) (c), NIRC, as am~nded
1 (2] Con.Mbutions Deductible in Full.- Notwiths.--=tandi=:.::::-:..,:.;;tg;_t7he_p_ro_VIS....,.,-;-,.ms--o-":rf:-.
the preceding sub1:-'aragraph. drmation::: to the foll.Jwing institufiut:;
1 0r entities shall be deductible in fuu:
(c) Do'l.atio~ to AccreditEd Non.-yovemment Organizations. - The term
'non-go1.1emment .0'!1ar>IZC1tion' me :1ns a rwn profit dJmestic
corporatwn:
(1} Organized and operated A elusively Jo~ scientific, research,
educational, character-building nnd youth end. sports developm.er.t, ~~
health. social welfare, cuitural or charitable purposes, or a combirt.a:i.
thereof, rw part of the net income 0jwhich inures to th~ befit of any
i
pritl!!fe in.rliuirlw!l; !
(2J Which. rwt later than the 15th day of the third month after the dose!
of the at:ereJited aor>-go~menr organizations ;axable year in whid: I
contributions are received. makPs utilization directly for the active
-~")J~:i uLC:. sp.J.~.-~s
or..duct ofh(' acti;ities constituting the purpose or function for whJch d
t

I
lwattn. s"c;al welfare. cultural and .:h1ritabie r
p1.:rposes o:- a tornbinati"ns of these purposes. is o:--ganized and operated, unle"'s an e'dended peri~-1. is granted by . I
h. :'-lot lat<'r than rhe 15th daY of the third month after the close
the Secretary of Finance in accordance with the rules and reg-..tlations
.. ~)r rhc tdX~th~~-" 1.r.~:1r !r! -..\hi~.'h t~F~ ('I)TJtrihlttlons nre r~ceivtd,
:Lzlkts utilii:.,:: ::1 u: ~h{ "nH:-:~)lt:::lns r!irectl! for the purpose
',r --~ 1 1! ,--~ 11 , 1 r
;tttj
to be promulgated, upon recommendation of the Commissioner;
(3) The level of administrative expense of which shall, on an annual
basis, conform with the rules and regulations to be prescn1Jt>d by :he
Secretary of Finance, upon recommendation of the Commisswner. but
il
I

in no case to exceed thirty_perc:ent [3Q~bLof.lhe total exuenses; and

-."'...
[['

:c,
d~:;_;tn'buti.~:.tJ fO QJ1:.7th_e; f:..Flp!:_j':!: - ).'!~~-':._-~!(' .'U!j):)r-:tt:.:)t: u~:j(TT~.- -r: ~- r
I!: '_, cl. '.'{;'I' i j <.._t_'"), similar purpose or purposes. or to the .c;tnt<' for p11hlrc purpo:.;., Gr
-'
...
;
,;{.

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:,J .. ;11'i" ore,aniz~lttU\1 ''J

purpu:--~c
: 1l ! -.... ll: I

or
i<t t

fH
would be clistnbuted by a court to wwt!tl'r orgwl!zatwn to be usEri .,,
such manner as in the judument of :>urcl court shall best acco;nplrs!: tr:e
general pur,,ose for which the disso/1 ed organization was orgamz..ed.
-~~-: t~ :1 :ht ~~:<.:~:; ,J s..Jid C!lllrl ~~1~dl

5. Subject to such terms and conditions as ma_y be prescribed by the

Secretary of Finance, the term 'utilization' means:
I -Any amount in cash or in kind (including administrative
expenses) paid or utilized to accomplish one or more purposes
'


for which the accredited non-government organiz<~tion so.s
created or org;mizecL
ii -/\ny a!lJOUnt P'lid to acqurn <ltl :1sset used ior held l<>r il';-
dlrectl_v in C<lrr.-ing out (Jt1t' nr Inon-~ puq.HjSf'S for \\fli,'il r:- ...

accredited nor:-~ovf"rnnJ;;1: nr.~!,.:1ni.-:rttion \\,1S crccuc:! _f

organized

a. Yes to I only c. No to both I and II
b. Yes to II only d. Yes to both I and II J
 Chapter 14: Deductions from Gross Income: Chapter 14: Deductions from Gross Income:
Ch2ritable and Other Contributions, Research and Development Charitable and Other Contributions, Research and Development
And Pension Trusts Contribution And Pension Trusts ~ntribution

Answer: D
Reference: Section 34 c NIRC, as am~ud'!d Answer: A
Subject to such terms ar.l conditioM a.c: ma,-=y~b-=e=p=re=c:=:c=n7,;.b-=e:...d7':-j_i:l_L~.,-------, References: Section 34 (H)'(4l, L"JRC as amended
Secretary of Finane", the term 'utilzzation' means: Ramirez va. Commissioner c.f lnterral !~evenue,
1
i) .-<by amount in cas~, or in kind (ind1~ding administr~tive expenses) P_uid CTA Case No. 544, 3eptember 14, 1~59
I
1~
or utrlrzed to rzccompltsh one or more purpo::cs for u:ruch the acrredrtec!
non-govemment org::mzzat1 on :vas :rented or orga'liZCd.
('! Ar,u '!moun: paid to acquire Wt asset used (or he:r..:.jvr use) directly ir.
e. Wl>jch of the foliC\\ ing donatiC'ns shall be dedt'Ctible in full?
ca:-rying out cne or m<?re purposes for which the accredited non- a. Dor.~Lms to The Artesia.1 Well Fund
, [!OLct: nment or:;anization z..;as created or organized.
b. Donations to the Univ..rsity of ~he Philippines and other- s..ae
colleges and universiti~s
) t A" amount set c.side for a specific project which comes within one or more
c. Donations to the Cultural Ct.nter of the Philippines
~ purpo~ ~s of the accredited non-government organization may be treated
: as a rmltzation, but only i(at the time such amount is set asi,ie, the d. All of the choices t

1 accreditLd non-~ov~mment organization has establishEd tO ~he

: satt.."facton of tne urnnt!sson<>r that the amount will be pa,d for the Answer: D
,. Under special laws, donations to the following, arr.ong others, are

..
sper-tfir pro;ect U"thiTl a penod to be orescnbed in rules and regulations to
;,"' !'n'"'u!yated ~'Y the Secretary of Finance, upon recommendation of the deductible in fu!l:
a} The A rt~ian Well Fund {P. 4.. No. I 977};
,. ,__~, '"" ':-.s!unc:r. i.:,: :ot tu exct:eci ;iue i:,J yea(S, utal dte projt:d is one
6z,,-i, uut be tJ.cT:er accomplished by setting aside _,u~h amount than by b) The llitem(ltional Ric Research Institute (R.A. No. ::707);

... ~,,r.el!!_c~te_ EEll~~ifnt of funds.

c) The National Science De;JeloJ:ment Board (rww Department of Science
and Technology) and its agencies and to public or recognized priL'ate
educational institutions, and scientific and research foundations

-
~; . -;-~c; .-Er:oc:nt of a::; char;table contribut10n of property other than (R.A. No. 3589);
::-1n:-:--~-.st:.1.ll he ~--:!sf'd on the: d) The Uni~ersity of the Philippines and other state colleges and
:t. :ii: mar,.. :r. \'Olillt' of s.1id property. universities;

:rnt!iS!t: -~ rost of <o<lid propertv. I e) The Philippine Rural Reconstruction Movement;

1 ]) The Cultural Center of the 1-'hihppinPs;
i yj The Tru.~lc:es uf tht: ?n:~>:;s F'uu!~duZ!.u!t u{ ~-~~~~t, . _

---
; lt} The J'lationu.l L~urruni.s.sion on. cu.i:.-ire;
i) The Humanitarian Science Foundation;

-
J) The Integrated Bar of the Philippmes (P. D. JVo. 18 1);
Answer: B k) Development Academy of the Phillpprnes (P.D. I'io. 205);
Rder-:nce: Section 34 (H) (3), N!RC, as amended
I) Aquuculture Department ofthP Southeast Asian Fisheries and
Development Center (P.D. No. 292);
" )
,-I m) National Social Action Council (P.D. No. 294);
n) Tusk Furce un Hu;nan Settlt::tnt:rtt.s, o.nd
'\- t ti;: ;~-~ .1::d r -~~ll:.triotls o) National A.fuseum, Library and Archives (P.D. No . .373).
J , .. ,.. lT., r I tLtrH :. \Jpo:1 n(orn:nciHbttion of

- . .. ~ ~.; ''

!' l: t- !()!1 c~ nt
Donations to any of the above organizations actually received by the
donee during the taxable year shall not be included or added to
charitable contributions allowed under Sertinn 34 (HI of tltP Tux CorlP for
LPT_'!E0_Ses_gL comfl.liJirJ.y_U:_e !:_Ill()_'cU_r;ble_clecluctwn u ''I I: '''" rr utort.
1 .\ ' : ., l :'<' r1(

,
~
,'
<mlv th SlTOnd staterrwnt is correct
 Chapter 14: Deductions from Gross Income: Chapter 14: Deductions from Gross Income:
Charitable and Other Contributions, Research and Development Charitable and Other Contributions, Research and Development
And Pension Trusts Contribution And Pension Trusts Contribution

(I) RESEARCH AND DEVELOPMZN't:

11. Research and dt:velorment e.'q>enses treated as defe.rreCI expenses
9. First statement: A taxpayer may treat rese<trch or development shall be allowed as deduc~ion TCl~bly -:iistributed mer ::t period '>!not
~xpenditures which are paid O!' bcurred by him dunn.g the taxable less than:
year in conne..::tion with his trac!r-, business 0r professton as q ISO months ~~ginn;ng with the monfr endin~ the taxpayer..s
c:-cinary and necessary e).penses wi1ich are r:ot chargeable to taYab!e year.
capital account. b. G(l month<> b..:ginn!.ngwith the month in which the taxpayer
S:xond statement: fhe expenditures so treated shall be allowed as firs! rea1i4:es bPnefits from such expenditures.
ded:..:ction during t!-le t<L~able year wheu paid or incurred. c. 30 mont.i1s begin.1ing v.it;J thf' mor::h ;n which the taxpayer
a. Ontv the !irst statement is correct first realizes ~nefits f::-o.n such .:!Xpenditutes.
b. Gnt) the secor.d !:.tatement is LOrrect d. 6 months beginning with the month in whicn tl:e taxpayer
) c. Doth statemen.ts are correct first realizes benefits lrom such expenditure:;.
d. Both statements are incorrect

Answer: C
Answer: B '
Reference: Sectio:u 34 I '2 . .t.dRC. as amended
Reference: Section 34 (I} {1), NIRC, as amended In computing taxable income, such deferred expenses shall be .:l!lvr...-eC:

..
~

~
1(;. At the .. ~<>' tion of the taxpayc:r and in accorda~ce with the niles and
regulatwns to be prescrit~d by the Secretary of Finance, upon
as ded'.lction ratably distributed OLer a period uf 11ot les:s than sixty {60)
months a-; mny be PlP.rteri ny the t'1~_1?(7!Jer fbpgfnnirtg uri.th the m0nth in
whiCh the taxpayer first realizes bc-rfits from such expenditures).
The election provided by paragraph 12) hereof may be made for any
.... :-ecommenJation of the Commissioner, which of the following
taxable year beginning after the effectiuity of the Tax Code, but only if
research and dcvdopmcnt cxpendi:ures may be treated as deferrea made not later ~han the time prescnbed by law for filing the retumfor

-
CXCt::T:. <.r<..;'.J

,
I):Ld (;r incurred by
l:_t:-;in(~ss nr profes~-r.:r.
'<>: trecltcd as oni:::;,;-.; and necessarY
: t:-~;c:tL!~. to c~ip;~--- ;1crounr hut n{).
thf~ ta..'<:payer in connection \Vith his trade,

cxpt~nses.
,,h:1r~~":1bl~~ to property
such taxable year. The method so elected, and the period selected by
the taxpayer, shall be adhered to in cornputzng taxable income for the
taxable year for which the election is made and for all subsequent
taxable rtears unless with the amm)T'a[ of the Commissioner. a chnrraP
to C1 di{f;rent method IS authon~-<i :A'fth ~e::;uec' to ll przrt or ali of SU;G

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I .., "'!. 't-' r;. ~
l \ f) l I . I 1\ I I 1 e:r.:pcnd~rures, The clerTior: '-:t:((.' r''~ :;);f!t v i.~~J ~-.....,r;.:u:"''~'} 1 fTlr(.-"' prnd <:'-r
incurred dunng any tcu:ablc rwnr ':Jr rduch tl:t" tuxpw;er mokes thP
electwn. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
L::.:::.::.:.:.::.:.:.:

- .:\ns\.ver: D
I<.eference: Scction34
: _. ' .. . :n::J" J.' r
CIJ (2),NI~(;. as aiileE.cif!.tf____________ _
::. : nrd1 ruui ! ),rJeiopment F':xpendrrurf's. -~
,orr, ur 12. Research and development deduction shall not apply to:

')
.- ,
-...


'('t;ru! o{th1 ru. ~;r:';'r (If!(]!'! u.ccord . .t:<'t' i/ ~~~~ th( n1!cs and
. . .
p l ; tu f>e prcscr>-.-< :;if t/1,-> Sec-rt--ror 1 i (){ F1nonce, upon

.... _,. . .,n ,)r-':!1' ;-;:o:~~~,-.

1
I
!
:.:?.; !!C!TU/re:::;eonh und
I -Any expr-rHliture for the acquisition or improvement of lalld. ur
for the improvem<>nt of prnf'Prt\ to 11' llSPn in connPrtion ..,;ith
research and development of a character which is su!JjeCc to
't1)1"!'rfl::. ., ''.',1/ he ~reutcrl rl ~ ,fet>r~erl ('_,prnses:
0
depreciation and deplctron.

- - +- -;~.";
u~Teri

7 ;
iJ!I r-~~ toxpuyer rn

r,-:,,, .... ,-.-"-

;.,,~ r '}t
conru-'Ct10ll tvzth Jus

-,nrl~,r !V7.ru(!r-rlflf'
l'i
0]} },PrPO(
,,ri,'l-'!l;:'--

:r .
nnd
~() {Jf,)!J
r_,l,.t;r),'
rty
tuldt:,

L)r(l
II -Any expenditure paid or incurred for the purpose of

a.
ascertaining the existence, location, extt>nt or quality Jf anv
deposit or ore or other rcJIJ1<T<li. includin~~ otl or gds.
Yes to I onl1,; c. Yes tu both I ~tnd Ii.
b. Yes to II only; d. \o t<, lll1th I ;md il.

Answer: C
Reference: Section 34 (I) (3), N!RC, as amended
 Chapter 14: Deductions from Gross Income: Chapter 14: Deductions from Gross lnrome:
Charitable and Other Contributions, Research and Development Charitable and Other: Contributions, Research and Development
And Pension Trusts Contribution And Pension Trusts Contribution

(Jl PENSION '!'RUS~

IKl ADDITIONAl REQ~MENTS FOR DEDtiCTT.Bll.ITY OF
13. Contributions to pension trust during the taxable year to cover the CERTAIN PAYMENTS
pension liability a::crumg d'..lring th~ year, shall be allowed c.s a
d~>ductiun under: !5. Any amount paid or payable which is othe:rwise deductible from. or
a. 0rdinary and necess;.try expense::;. bken into acccunt in computing gross in~ome or for which
b. in ,erest expenses. depreciation or amortizatio:.1 may be permitted. ~!1all be allo,ed as 3.
c. los~~s. deritl"ticn only if it is shown that the tax required to be d~ducted and
d. t<c.xes. Witt.held there from ha~ been:
a. paid to the Bureau of internal Revenue in accordance ..,,.jth the
Answer: A p:-ovision!:. in the Tax Code.
) Reference: Section 34 (J), NIRC, as amended b. correct:y computed in accordance .vith the previsions of the
Tax Code.
c. clairr:ed as deduction by the taxpayer from his gfoss income.
14. An employer establishing or maintaining a pension trust~~ pro:ide d non"' of the choi"Ps.

for t:1e pavme:lt of reasonable pensions to his employees shall be

..-
~
allowed as a ded:.~ctior: (in actd;tio:1 o the cont:!butions t0 such tru<>t
durin~ the te~xable vear to cover the pension liability accruing during
('c ;ear. allowed as a dedt:ction unde:- Subsection (A) (1) of this
':.;ectior. i a reason< blP amount transferred or paid into such trust
Answer: A
Reference: Section 34 (K), NIRC. as amended

-..
.....
It
<knng hi' taxable year in excess of such contributions, but only if

I - .. ts not theretofore been ;lllO\:ed as a deductiOn,

r: :s ,lppori~ned in equal parts n~;pr a period of tPn (lO)
, -J:lsccu~i\( \.f"<lr~} b,_:~inn1n~ '.\1~:1 the year in \vhicl: the
r.nskr or p<1Vllltnr 1s m.1ck .
y,..._ to II nnl.-

-
a..
"~I ) rt 1 ! t 1, ~( i :;

-'
...

J
""-

~ '

279
 Chapter 15: Deduc.tions from Gross Income (Optional Standard Deduction
and Payments'on Health and/or Hospitalization Insurance)

Chapter 15
DEDUCTiONS FROM GROSS INCOME
{OPTIONAL STANDARD DRDUCTIOfl AND
PREI\'IIUM PAYMENTS ON HEALTH AND/Oli
HOSP.ITALIZAT!ON INSUPJl...NCE)
''Tfie tafe1 .. if suaess is nothing more tb"
) Multiple Choice: Choose tne best possible c.onswer.
3. In lie~ of the itemized deductions, an indiviciua! subject to tax unrl~r
Sectim-.. 24, ot.'ler than a nonresident alien, may elect a standard
deduction .i.n an amount not exceedi.1g:
a. tenpercent (10%) of' his gross income.
t. twe.Llty !)ercent (20010) :>f his gross sales or grc...ss recei;>ts.
c. forty percent (40%) of his gros::. income.
d. forty percent (40%) of his gross salf's or gros~ recei;;ts.
d~in!J 11 fi.l! )'01' (Jn tfo. u:etr. - Jfenry ~i: ::.Cnafeffow
Answer: i>
Refert"nces: 3<1lL), NIRC, as amendec! b)' R.A. No .. 9bu4
Section 3, Revenue Regu!ations No. 16-20(}8

t1l_ OPTIONAL STANDARD DEDUCTlO~

4. First stateutent: The "cost of sa!es" in case'of in-dividual seller ,.,r
'. Which of the following may be allm,ed to claim OSD in lieu of the goods, or the -cost of services" in the case ci individual seller of
itemized deducti<ms? services, are not allowed to be deducted fo. pu.po:,,;., uf dete:-:::lirang
a. Resident citizen the basis of the OSD.
b. ,ion-nsJd<nt ntizn
Seccn:l. stat.:m:.ent: Fo: o~l:e:- i::c!i:idual texpe.ye:-:: :1lk>wed ~y '<:v o
c. Rcsi<knt C~!icn report their income and de..iuctions under a dif;erent method of
accounting (e.g. percentage of completion basis, etc.) other than
... d. All of the chOices
cash and accrual method of accounting, the '"gross sales" or ~gross
Answer: D
receipts" shall be determined in accordance ~;th said acceptable
References: Section 34 (Ll. NiRC. as amended by R.A. No. 9504
method.
Section 2, Revenue Regulations No. 16-2008 a. Both statements are correct
b. Only the first statement is correct
c. Both statements are inr:-orP~ct
ci Only thP !':Pronrl stMf"mt'nt i-; rnrrf"(t

: "< : ~ 1:r' t'S t, 1 i ( s <I,.

Answer: A
Reference: Section 3, Revenue Regulations No. 16-2008
..
l
,,
--
t.
.
t
,- , . . , ,
1 il' t:',ll'
. . '1' ' il(J'('!''"
5. In the case of domestic corporation or a rf"sident foreign corpora-:rJ::.
it may elect a standard deduction in an amount not exct:eding
a. ten percent (10%) of it:s gross income.
~~~f~:re!l::. :-:~:Section 34 (L 1 ....1IRC. as amended by R.A. No. 9504
b. twenty percent (20%) of its gross sales or gross rt:etipcs.
C:>ection 2, R-=ven"~ Regulations
. . - No.. ; 16-2008 --, c. forty percent (40%) of its gross income.
; ",;:/
'
r}~' ,; !>
.
' .,';
--
:L'r.._ ,;/!tit' rrernL-:td
----~---

I d. forty percent (40%) of its gross sales or gross receipts.

rt,r. 1r(:n..~ ot CJY; .. , .,,j ,-.ts~-:u.r; f:'X[h'n.::;es o:'if)ILeri under
r' ." 'l,:1cn})/r)"
Answer: C
References: Section 34 (L), NIRC, as amended by R.A. ~io. 9504-
Section 4, Revenue Regulations ~o. 16-2008

281
 Chapter 15: Deductions from Gross Income (Optional Standard Deduction Chapter 15: Deductions from Gross Income (Optional Standard Deauction
and Payments on Health and/or Hospitalization Insurance) and Payments on Health and for Hospitalization Insurance)

6. Which of the followi!lg statements is incorrect for OSD purposes?

a. "Gross income" shall mean the gross sales less sales returns, 9. For taxpayers engaged as sellers of services but employing the
disc01mts and allowances and cost of goods sold. at;crual basis of accounting for thei:- income, the term a gross receipts
b. Q, oss sales" sha!l inciude vr.Iy saks co:1tributory to income shall mear. amouuts:
taxable under Se~t~or. 27(A) of the TaJC Code. a. earned as gros3 :-e\..;nue during the taxable ye"lr.
r r~ost of gocds sold" shall incluc!e the purchase priet or cost to b. actually rece~ved during the taxable yea..-.
produce the merchanc;se and all -::xpe;1ses directly in~urred in c. constructively received during t.~e taxable:: year.
bringing them ~o their p1e::;ent loc.ation a;:d use. d. none of the choices.
u. None of the ch:):c.::s.
Answe!': A
Answ~r: D R~fe~nct;: Section 4, Revenue Rega!ations No. 16-2008
Reference: Section 4, Revenue Regulations No. 16-200&
10. Firststatement: The items of gross income under Section 3.;; (AJ of the
Tax Code, as amended, which are required to be decla~~ed in the
7. In the case of sellers of s."?:-.-ice~, the term "gross income" means: income tax: return of the taxpayer for the taxable year a,.,. ~r! of
a. "gross receipts" less s.1les returns, allowances, discounts and the gro5.i income against which the OSD may be deducted in
.-:ost 01. services. arriving at taxable income.
Second statement: Passive income which have been subjected to a
... b. "gross receipts" less sales returns, allowances, and discounts .
c. ..gross re-ce1prg" lPs~ cost of serv1ces . f'mai tax at &&Urc(; ~hal: r.ct fo;ra phrt of !:b..c gro:;s iYvr:ie fr;r
d. none of the choi.::es. purposes of computing the forty percent (4J%) opt:onal standard
,. deduction.
Answer: A
Reference: Section 4, Revenue Regul;.tions No. 16-2008
a. Both statements are correct
b. Only the first statement is correct
c. Both statements are incorrect
d. Only the second statement is correct
.'oru- .... ,.. ,,! i: "Cost. of stT. ics" means all diwrt costs and expenses
Answer: A
Reference: Section 4, Revenue Regulations No. 16-2008

..
'~ ; ! ! ;f ) ! : : ~ ~ '

11. Which of the following statements is corrt'ct?

a. A general professional partnership may cla1:-r: c::rlwr '~~
itemized deductions or OSD.
) b. A general professional partnt>rship can rlaim 0:3D in'''
amount not exceeding fortv percent (40''lo) ot lts gross mcor:-re
Answ<-'r: .\ c. The net incon1e dete1 rnint'"d by either clain11i:_: ~~~cit~;-:-:~;~~.-::

l~::fcrencc: Scctiol14, Revcnue_Regul~tions No. _H>_-:~9_()_8_'----------, deduction or OSD from GPP's gross mcome :'; ':~
. :- .. n_-::; nu_'un:~ ui! (hr-~(r costs orul e.'<].Jt:n.St)-~~ nece.ssanly distributable net income from which the sh;::"'' )f ,.,,,-;, ;;;,::er
;n,,;i ro pmurde 1 he .oerl'rces reqwred by the customers and clients is to be determined.
d. All of the choices.
; t'.''' r _>( f)t '.'

''?"'
'" Answer: D
Reference: Section 6, Revenue Regulations No. 16-2008 "
''", : ;' '

)
'
.J
283
 Chapter 15: Deductions from Gross Income (Optional Standard Deduction Chapter 15: Deductions from Gross !nrome (Optional Standard Deduction
and Payments on Health and/or Hospitalization Insurance) and Payments on Health and for Hospitalization Insurance)

ofth~OSD U.r~aU:~tileOSQ;UJr;;,
uctiotis tfu..t C8Jl be claimed :n, '
.,.,ineome umntrade, bu~~
D!O' .......

distinct-from_his sh&reil...~ ..,

ded~ction that he_(:Wl.~-~~
t~fi~~~rt:ttw same <Jeduetic)n. avaittCI. cf~:
' .. . ... -.,- .19:::'
~ . vr . '

-
..
., A.claut..,l: D
Reference:. Se..:t1 on 6, Revenue Regulatlona No~- 1~2(108 aa. ,,_ '
;.~it4 DY~.:::;~~:-~i:.-~1rr: :::~~~;~Ia: -~
Rcr~ta:l:a: $~etten ~_;!{~?n:s~ R~~tioM l'J("t. 2-10'.0
~

amended by Section 2, Revenue Re~~ou. i 15. First statement: The taxpayer shall signify in his inccme tax return
No. 2-2010 , ..
his intention to elect the optional standard deduction, otherwise, he
shall be considered as having availed himself of the itemized
1 ). If the GPP avails of tlw OSfJ in computing its net income, the deductions .
partnf"rs comprisine; it can no longer claim further deduction from Second statement: The choice of optional standard deduction whe;.
the1r share in tlw s.1id rw .:;come for the following reasons: made in the return shall be irrevocable for the taxabk year for
F-?en.sGn. I~ Th1 p;::;tn":--~: di:;!rib~~ti.__c share in the GPP is treated which the return is madt> .
. ~: ~'.:': ~~.:-:::~~: ::-:""~::,. ~- ~: . . :::: ~~-,~~::: ~::.!~~c: /!'"~?r~~!~!'S ~:!d tl:~ 4()0/~ ::1 TnlP, Tnw r. rnw. hllst
; ' ~ . ::) '. '. : ' b. False. Fa!st d. Fa1:-.;f'. Trt:(
...
;

Answer: A
";--,~'-'r;- Tilt\ J.--.i J ~;t~;, !rt ilt'll ;J( rhr itt~ruizcd deductions References: Section 34 (L), NIRC, as amended by R.A. No. 9504
c.J..d 111 )omput::L~ 'i!xa!Jic :ncunw. IT will answer tor both th;; Section 7, Revenue Regulations No. 16-2008

) .,:"" uf ddu,rions il::u\\,d to the GPP CJrH! its partners.

16. Which of the following statements is correct?
: .' J' ; 1 ! ; l: ~ { : t l - l !'[. ; . ') ~~' (. ~ a. Tl1e election to clairn either the OSD or the itemized dech.:ct!c11
) for the taxable year must be signified by checking the
(.);' i \ i 1:_, ''( J ;;, ., appropriate box in the income tax return filed for the first
ti. lJ:il\ II IS ( ()_l"J'i'Ct quarter of the taxable year adopted by the taxpayer.
b. Once the electbn is made, Lhe same type of deduction must
Answer: A be consistently applied for all the succecdinr; 'i'::r:.::
:: ::i.e>:"~nct:: Section 2, F~.cvenue Rcg1.1!ation3 No. 2-2010 returns and in the finill 1nconv" t<1x rrturn fc::- :h:
year.
c. Any taxpayer who is re4uin:d but bi:s to file ;;:. .,.. ,
income tax return for the first qunncr shall he: C''>:il'i,--,rl ,,.,
..
hRving availed of the it<"mized ctedurtinns o:1t:rm ;or r:-:c
. . . taxable yeax:. . ,
) tl~ti;at}~:i~l,~~~~~~o~~ff&~ti:~.,. >.

) 2fn 28S
 Chapter 15: Deductions from Gross Income (Optional Standard Deduction Chapter 15: Deductions from Gross !nro:ne (Optional Standard Deduction
and Payments on Health and/or Hospitalization Insurance) and Payments on Health and/or Hospitalization Insurance)

Question 2 - How much is the amount of OSD assuming the taxpayer

is a corpr>ration?
17: First stctement: An individual whn is entitled to and clair.ted for the a. P4()1),000 c. PSO,OOV
optiomd standard dedcction shall not be required to submit v:ith b. Pt00/)00 d. P20,000
r.is tax rttum such fmc:Jl ctal c;ratement otherwise required under
the TPx Code b.tt shall keep such records pertaining to h;~ gros::; Answers: Question 1 - A
sales 0r gross rect:ipts. Question 2 - C
Second statement: In the case of a corporation claiming OSC, the s&id ~efeTenc': Eection 5, Revenue Repllations No. 16-200cc..::.~----
corporation is still required to submit its financia~ stateme:1ts when ..Jrtdividual ~r>P<2!:ation
it files its annual income tax return and to keep such re-... ords GrosS sales p 1,000,000 p 1 000,000 l
pertaining to its gross income.
a. Both statements are true
Less: Cost of sales
BasisofOSD
o~nrme
(
__
l,ooo,onc
4fr/o
' ( ~gg~~J I
b. Botb sater.1ents are false
c. Only the first statement is true uSD p 400.000 P ao.ooo_j
d. Only the sec::md st.atement is true ' - - - - - - - - - - - - - - - - --

20. A :cta!Jcr of gooc!s, whose a~co'.l:-: tin6 :nct!:.od i~ .u:::ler tb.e a:::c:-u:J ~
Au!>lll t; 1 : 1..
basis, has a gross sales of Pl,OOJ,OOO with a cost of sales amounur:g
Referen...:e!J: Section 34 (L), NIRC, as amended by R.A. No. 9504
Section 7, Revenue Regulations No. 16-2008 to PtsuO,OOO for year 2009. The taxpayer is qualified to choose OSD

as deductions .
P3. Which of the following stat' :nents is incorrect? Question 1 - How much is the net taxable income assuming the
' In the filing of the quarterly income tax returns, the taxpaver taxpayer is a sing!<> individual with no dependl"nts?
rnav opt to use either itemized deductions or OSD. a. PSSO,OOO c. Pl20,000
~ A taxpayer who avails of the itemized deduction in the.first b. P200,000 d. None of the choices
quarter of its/his t.a.~able year or fails to file an income, tax
;~-'!!"~ !,_,, !->-:- !!root r~_!<>_rtPr "f thP t~_1l:"'hlP Y~"l'lr, shAH have tn
::.:l:J.iiT!. ~ht' ~trrni~ct?~{ d~_...r;, H't ifHl ln df"!ern1ining the taxable taxpayer is a corporatitHJ)
income for the rest of the year, including the final income tax a. P550,000 c. Pl20.COO

-) return.
rill' LtXpdl er is nu c~ilowed w use hybrid method of claiming
Its/ his deductions ror one t<LX<l ble vear.
~Oi1t' of tiw l'hOiCeS
b. P200,000

Answers: Question 1 - A
Question 2 - C
d.

References: Section 5, Revenue Regulations No. 16-2008

None of the choice{;

Answer: D Revenue Memorandum Circular No. 222009

R.eference: Section 7, Revenue Regulations No. 16-2008
Section 3, Revenue Regulations No. 2-2010 Individual Corn~ )f~i Lnr:..
Gross sales p 1,000,000 P l ,OUU,Ol!U
1 .; .,.,nler "f o;oods, ''host~ <wcotmtinc: method is under the accrual Less: Cost of s~Jcs ( _____ --- I i ----~_()()}_)(;~.
',~\).;' - :Jl I\()()()(;! \\"i~~1 l !~ns:- r)f salr~s ;unounting Clross salts ! Gross income l ,UUO. 'JI;
Less: r):-;o -! \}().' {_ ,(
Basic person;d cxcrnpt:on --- ~~~.L_t.~' _'
Taxablt~ net incorn< p
150: ".' ,.

:} ~ '\\; ;_)()
-' ,. ~'~0,0Cl0

) b. PlOO,OOO d. P20,000

) 286 287
 Chapter 15: Deductions trom Gross Income t Upoonal :,tandard Ueaucnon
. Chapter 15: Deductions from Gross Income (Optional Standard Deduction and Payments on Health and/or Hospitalization Insurance)
and Payments on Health and/or Hospitalization Insurance)

21. The ~ollowing data"'."""'"'rtn1tn Nl~:i~tt,~~ny;f:~JPI\,

p:rofe88ional nA1'tnPrilh

<~!~~ Toted itemizd d~d~~.

Parirte ;..; (SO% partner) wl'in is mairied:an:Cf'Ms five\s: qualiftd:
depentlent children is also eng.1ged. in tit:ldiJ:lg bus'ness; His sa.!es
anc other data for the current vear~ as follOws: . ':if.:A : ,. ;,: :
Gros~ sa1es, tradinghusinoP.~ P4,000~{)0()-~. ;;-:::; -P4,uoO,ooo-
Returns and allo~s.
DisCounts
~ 2S_o;oOQ,;;,,,_,;.
150,000;?:. ...
.. ,,
400.000
i:~ ~~e~~d deductions -~~ggg~~:'.~,~:~';. 1 3,600,000
1.44o.ogv
Question 1 - How much is the taxable net income of Partner M.
2,160,000
assuming the general professional partnersnipuses itemized
deductiuns?
.

a. P3, 120,000
b. P2,950,000
c. P2,676,000
d. None ofthe choices -Less: Basic' penwnat bcemption 50,000
1.110.000
3,270,000

Additional exemption 100.000 150,000

()uestion 2- How much is the taxable net income of Partner M
assuming the general professional partnership uses optional
Taxable net income P3. 12.0.QQQ
standard deduction? '*COmputation of the net income of GPP usinv OSD:
a. P3.! 20,000 c. P2,676,000 Gross receipts P5.000.000

..
'" < ' > I I ! ! ~! ! ! I

":1
1,). J -, J.I\J~\...1'...1\J
Less: Returns and allowances 100.000
Discounts 200,000 __M)O.OOO
Answers: Question 1 - B Net sales 4,700,000
... Question 1
Qucstioll:~-~~~
- --------------1
P4,000,000
Less: Cost of services
Gross income
l ,OUO,OUO
3,700,000
Gross sales Less: OSD (3,700,000 x 40%} 1,480,000
) Les:-.: I~eturns and allowances
Discounts
250,000
1_50,000 400,000
Net income E'U2Q...O.D_Q
N!"t sales 3,6oo.ooo I
> Less: Cost of sales
Gross income
1.500.000
2,100,000
I (M) INSURANCE
PREMIUM PAYMENTS FOR HEALTH AND_LQR_HOSPITALIZATIO!"
. -- .._____ -- . --- ~--

.... Other income 22. One of the following is nc: a requisite for deduction of prerntum
~ :.- ,:: in ~he net incorne nf GPP*
. ''-'L20U,ODD X 5'. .W)O O(_)Q
I payments on insurance:
a. The taxpav1~r must be> d!l i;1r!J\'tdtt<d t:J;:LI'. , ...
... !
3,7U0,000 b. The premium pan:1,..nr ::; :w.drh ;,:1.: ,, :Hh:' '.:.,:
titJ\J,0C: 1". insurance of the taxpm,:r :1:::! hts t<Jlll!:-.
~ L --l>)li' pcr:;nr:<:li exe::-:ptHH1 :!0.00\; c. The taxpaver' s farnil~ h:1s ;t <l,rl,)ss in:. ~:;,,.. , ~- !.1,) .... ,( .:
:\ !ditional exemptio11 l 00,000 750,000 P250,000 for the taxabie \cdr.
~
l cc.:.c[;" nel ll!C:Ol1le L~~QJLQQ d. Ti1e individual taxpavcr is,, ;Ju::: uJ:llfJ":

) l________________________________________________ earner.

)
~~~~.~~~-~

289
'
I
2BB
 O::hapter 15: Deductions from Gros~ Income {Optional Standard D.:duction Chapter 15: Deductions from Gross Income (Optional St::~nnan.1 lJctlunwn

I
I Answer: D
and Payments on Health and/or Hospitalization Insurance)

Reference: Section 34 (M), NIRC, as amended

and Payments on Health and/or Hospitali7.ation Insurance}

25. First statement: Totai family incnmP of P250,000 includes prim<;rv

I 23. '.Vi>at afTiount of premiums br health and/ or hospitalizatiC'n

~su:-ance- taken by t:1e taxpayer for him~l!. includir.g his fct;.m;y,
income and oth~r income from sources received by all members of
the nuclear faMily.
Secc>'~::i s!atement: The maximum amount of P2,400 is deductible by
the spouse who paid for tht. health 'l.ndjor ho:-:pitalizario.1

I
1
~
:,hall be a!'r.ved as a d.:duc':on from his press income?
' ~~otto e;<c~cd t.,a thot.:"and four hundred peso~ (F2.400) !JCr
family
'='- !\t)! to exc<'ect two thJusand four hundre-d pesos (P:2.. 1 GO) per
family or two hundred pesos (P200) a month paicl during the
insurance.
a. True, True
b. False. False
c.
d.
Tnw. False
rals.. Tnw

Answer: A
) wxnble \ear
c. Not Jess than two thousand four hundred pesos (P2,400} per
Reference: Section 2.79 ('B), Revenue Regulation:: No. 2-98
t fam;lv
page 45

,
r d. :\.me of tht' choices

Answer: B
2f>. Which of the following ~hall !:Jt> C!H1S!dered a nuciear family?
a. Father, mother, unmarried c-~1;!--!ren living together <JS o;.,-
household
b. Single parent with children
,..'- Heterences: Section ~4 (MJ, Nl!<.l;, as amenueci
Section 2.79 {B), Revenae Regulations No. 2-98
c. Single person living <l!orw
d. All of the choices
.... page 45

-
Answer: D
.. ,:;:d ra.-..:;HHT !Hid !':su:i '"'-"'" -;f lll'<t!th insurancf" pP'l111\l!ll
Reference: Section 2.79 (B), Revenue Regulations No. 2-98
page 46
::s-:r <:":tin~~ ,Juh ot t ::,,til r-:~' ' t \ t r Thr total amount he
-- -- .. _,,_q- 11:ts i'~.t)(li. H"'' ;;.,:<'ll \\;!s thl' dt'ductibk
27. First statPment: In the case of r.~ .. n::d re~xp<1\t'~s nnl\ t:Jt sp"
fl1 ,,,,,
1/\f

lllSllranct.
Second stutenu:!nl. Indi\-idi.ud ~.l-...:\J,t-, ,;s c;t:-~1:: ~ ;::q1;~~;d :
Ans;~cr: C
income arising from person;;; ._,,, .._ :r:s n::~d: :.! u , ..
R..:f.::rcnce: Section 34 (M), NIRC, as amended emplovt't' relationship c<tlln<Jt "";; ,,:riJ, d.-,:. :L>Il t":- p:,::
' . . .
~' r' '' . ', J rr i { ',1: f ~ 1 ,' ,0 ? ,I i +f f /! :
'\
,j' I I j
payments on health <H1d/or h<lsp:t:liizati(~n :n:~ .ri!rw-
) i. 1 .
a. True, True c. T:-.. - r;,:ls:
;. I' rf '(;r . ,.- P: 'ili.fl tl.'lff:' or b. False. False d. Falst Tnw

':nn,r.- ., tor i 1 ;rnseli~ P1<'i;u/IT!O Jus

r" 1 ' rp;-;_..., ult'OPit'." }Jnuui(~rf. Answer: C
,r, ; ')r rr.:,~c !}~un Tuo llunrired JUf!t Reference: Section 2. 79 (B), Revenue Regulations No. 2-98
;;!}:'~' 1jt.(i'" Proz,u"[._d. f/qalf_u ~.rhnt u? 1 page 46
'.J'/.

[)
f)
291
 Chapter 16: items Not Deductibie

Cilapter 16 2. Which of the following is deductible?

a. Any amount paid out for new buildings or for permanent
ITEMS NO'l' DE,DUCTmLE rmJ:=rovements, or betterments made to increase the value of
any properzy or estate
"Orrr u;l.ofears faiUsre limits liis activities.
b. Intangible drilling and development cc.sts mcurred in
FaiUsre is Ottf; tne op;c:turrity tr m"rrinUI/ieeT'tfy 6egin again. - Jfo~m_ 'Funf
petroleum operations
c. Any arr.ount expended in restoring property or in ma;Gng good
the erhaustinn the:-e..Jf for wnich an allowan..:e is l)r haf' bt-en
:multiple C:iloice; Choose the best possible answer.
made
d. None of the choices
1. One of the following is deductible from tht gross i~>come:
Answer: B
a. Personal, living and family exp>nses. Reference: Section 36 (A) (2), Nll<C, as amended
b. Amount paid out for new buildings or for permanent
improvements or Oetterments, made to increase the value of

any pro})("rty or e'lt?te.
l~:~dft~ CPA}t.o\8C Corporauon took two keymen insurance on the fiie
c. Losses from sales or exchanges of property directly or
~~:t otJt.&,W'sideril,. Mr. X. In 4le poll.:v, the beneficial) 1S the
indirectly be~ween memhers of the fam;ly. .. ;;,l(corPO'mbori to compensate it for its- expected loss in case ot death of
d. Premiums paid on any life insurance policy covering the life of
!) ., it3 Pr~3t:Ic:t~. Tte othe::- fO!.icy dcs:gnr..tes M::-. X's wlff' r..s :ts
any person financia:Jv interested m any trade or business
carried on by the taxpaye1, individual or corporate, when the
,,;
irr~v~ble ~eficiary.
~Cf.~fJ.:~,Are the insurance premiums paid by X Corp. in both
family of the insured is directly or indirectly a beneficiary.
II "':';~ ~-"~';:~"''- -"j:lolidesdeductible?
I
,. QUestlO;f.i-Will the insurance proceeds be treated as income
Answer: D subject to ta"< by the corporation and by the wife?
Ref(!J:':..~~e_:_Sectiop 36 j~l_i!_lL.~~~==~~~~~~~~~~~
2
I computzng nd income, no deduction shail in any case be allowed in
a. Yes to first question, and no to second question
r ,,o, 'Ct to b. Yes to both questions
/ ,': Pr-rsunal, liuinq or (un~d1 1 t:.'..-\-fJt?ttSt?s: c. No to first question, and yes to second question
-<:~J ';' 11 !PJT 1 1 !JrJuJ _; 1 ntritr 1 ~j.'-: or rrr J)Jrrnr.:_nenr c!. No to both qucst<o<ls

..
U1! 1 --,, .n .. '!J!
"\
)!:--,):~rner-;t:_). o, ht"!Te--..-'! 1 i'flt:~ r"'~Ocie ro 1ncreu.'>? rhe l-~aill.e of any
:)-_[1t_'r!1/ or e:-.tutt ', Answer: D

.. to intanqible dnllinq and

"~:::~ ;)u_;_~~. . cct~-i)n "'}:(,[! .. ,/. rtfJfJltJ
':'opn r'llf cu-;:s Z:I<J,.rrt'ri n petroleun~ operc..:ion; ruhich are
1 1

;. h"tc!Jit' tmd< -r Sui>sc-ctwrz {UJ (I) of Section 34 of this Code.

Reference: Section 36 (A) (4}, NIRC, as amended

,
)

.....
''''! :'''"unt r'YJWnr'!crln restnteng propt'r1!J or in making good the
.')'n:;s:wn tl:eree{for whzclt an allowance is or has been made; or
c',,,: .. w:s [JCn! on wu1 !:ii' msT;rruKe polrcy corerinq the life of any
, , T 'Jr.' rnp!mi<'<'. or 'J' urn{ fWrson jincmcially intert>sted in any
r.- _: .-(e )~ uu:;u;t 'ss cr_:rnt'rl on by the ra_'(paycr, rndividual or corporate,
> :en rre taxomwr rs dmxtlrt or indirect/If a beneficiary under such
4. Case I-~ i\ family corpo;-a7.;o;;. ;).J.i(! :he prc:-;1l:trTiS on the :::-~
insurance polic\ of its prc~idcnt ,tnd ntHntd h1<..; '.'-jf,~
beneficiary.
Case II- A corporation p<nr.l 'i; Dr<'!llJU!l1S on tht' :nsurd:,,, l' ,::
covering the lives of 1:s t\Wl cxecuti\cs namrnet. c:1c:--, 'J:i~:
:t-;

the ber cficiarv. .

'J ' ..._~--~;_
I
- - -~-- ---~ --~~--------J Which of the a bon pn::;c; :
., a. Both l and ! l
...... b. Neither ! nnr !!

""' Answer: D
Reference: Section 36 {A) i4l. NTRC:, t<; 'l.m~nd<~~
""'
)
) 292 293
 Chapter 16: Items Not Deductible Chapter 16: Items Not Deductible

.:>. One of tl1e following is r.o;; a men,ber 0f th.; far.1liy e.nd t..'lerefore not a Answer: B
related party. Reference: Section 36 (B) (2), NlRC. as amended
a. Brother c. Spouse
b. Sister d. Sister-in-law
). Mr. Tony Dee created a trust in tavor of his son, Tony II. He
Answer: D &ppointed Atty. Mars Bona as a trustee. Mr. '.:onmd Oh also ~.ted
Referenc"': Section 36 (B} (1), N!RC, as amended a trust in f:1vor of his mothtr, Connie. Mr. Oh appointed Mr. Ging
Aye as trustee. ALty. Mars Bo:1a sold his i.msi"'!e~.s car to Mr. Ging A_/e
at a loss. Can Atty. Bona deduct t~c los~ from the sale o tl''! c:...r..,
6. Which of the follmvit1g shall be considered as rdated parties or a. No, becau~e both Atty. Bona and 1\ir. Aye were both
taxpayers? fiduciaries uf trusts.
a. Grantor and fiduciary of any trust 1:). Yes, because Atty. Bona anc Mr. Aye are 'lcuciaries not of the
b. Fiduciary of a trust <'nd the fiduciary of anoilier trust if ilie same grantor.
same person is. a grantor with respect to each trust c. No, because Atty. Bona does not have a capital 8ftin.
c. Fiduciary of a trust and a ben..:ficiary of such trust d. Yes, because losses as a rule are always dedu..::tible.
d. All of the choices
Answer:!!

.. Answer: D
Ref~Te:rv~e: Bec-t-in'l ~IS {~) 14), (5) and !6~, 'NIRC, as amended
Rt:fereuce: Section 36 (B) (4), (5) and (6), NIRC, a& amended

10. First statement: A corporation cannot deduct a Joss arising Lom a

7. Mr. George Jaime own<> 50% of Gelai Corporation. He sold a property sale between the corporation and the controlling individual
at a loss 0 Gelai Corporation. Is the Joss deductible from Mr. Jaime's stockholder.
gross income? Second statement: A corporation cannot deduct a loss arising from a
iii a. Yes, because Mr. Jaime and Gelai Corporation are not sale between the corporation and the controiling parent
considered relatec! parties. corporation.
b. No, because Mr. Jaime and Gelai Corporation are considered a. Only the first statement 1s correct
related partit>s. b. Only lhe second stateiilt:llt is correc:
-:::;.
c. Both statements are CCJ~c,cr
,.. d 'io. because th .1r:wunt of loss cannot be JdentJ!Ied with d. Both statements are mc:orrect

-)
certainty.
Answer: A
Answer: A Reference: Section 36 (B) (2), Nll~C, '!s a_!Ilend~_d_ __ u ___ _

Reference: Section 36 (B) (2), NIRC, as amended IIn computing net income. no d2ductions shall ~~l any cc;sc be .~'io'J eel : ~
respect of losses from saies ur exciwnyes ofpropertii ,firecriu ur
I inrhrPrtly) PXrPpf in the crzsP of rhstri!Jutions i1; liquirlntion. l:;tc:tl1_f;;.::~L ~~

."\. \ir. r.:arl Jimson 51'. ')f ~1\ra Corporation. His total individual and corporatiOn more :i'Wlfifty pen.,nt (..)r; ,.} 1r _.,,, 0 (-,o
) 0\\'IlS
:nv.~strnent \\as P 15.000. JIJ. !\1\-ra Corporation was liquidated due outstanding stock of which IS 0'! r:etl. rilrectly 0r mrl:ct!l;, ;,., c;r ;r;r ''' ;.
individual.
..... t0 bankruptcy. Mr. Jimson rect>ived PlO,OOO,OOO as liquidating
dividend. Was the loss deductiblt'?
----------------~---------

;>1ljo
'\o. lwcaust :VIr .. ;; ;;son <>IH~ \1\T<I Corporation were
'('l7J'~irifn~d r(Ll~,. ' lXI).I'."';-;--i
..... ~

f f:. {~1: lus~; \\",I>; :l'~!~!~i-d ,! c,lnP d l(;ss ;uHi could be

-
. ~";;to

\,l, b<Ta'Ist ~h'~ _... ,,m: rc<_'t\ed iJ'. \!r. .Jirnson was subject
~
to c;Jp!tal gnins tax.
d. Yes. hee<lUSt~ lo:.;se~, as a rule are alwavs deductible.
)
) 295
294
 \:haph!r 16. items Not Deductible

Summary of items not deductible Chapter 17

SEC'riOJI 36. Items not IRJueWJle.-

, A) Gene:""al ~!.!. - ln c:>mputing net income, no deducuon srall in any -..ase be

-l INCOME TAX CASES
(PARTll)
, ?llowed m respect to-
";tfi '[J " i.s a miln wtlo fias 6{u:tderttf. 6ut is not a6fe tc ca.<~i in on tlie e.rpmenu.,
(1) Pe.""::.:;l liv;:-::; or family expenst>s; a1 u e _'E{;..rt J{ .S6.lr:

(2) An; a~cu:1t Daid out for new b.:ildings ,,r for perma"1ent improvc:-:~e"'ts,
cr ~::~=:e:-:~s made to increase the value of any prcperty or estat~;
M-.lltiple ChoieP.: Choose the best poSStbl~ ~wer.
This Subsection sl:c.ll! not apply to intangible ~rilling and development
cost~ :nc~rred in petroleum operations which are deductible under
Suosect.on ilsJ\~1 u1 ;:,ection 34 oi lhi::; Cooe. EXPENSES !N GENERAL
d : t'ne sale of goods and services \ltith net
1 ERA Curv0ra~:o:1 :s eng,~te .n - ~- .. . ~,
:\:1\ a;,L :.:;nt ~xpe.JC~~d :n restorin;,; rropert: or in mak;ng good the
<-:<h..,;s::( thereof for which an allowance is or has been made; or

salesfnet revenue o -
f p?OO 000 ~~~ PlOO 000 respectively. The :.o, __
, ,_.,u ' ~ h ..... ,,.
t:rtte;"tz.i:Jm"nt, a'T!usement and :-ec:-eation expense or t e ,a..xau~
{4; f'c::-:-:::;:-:-:s pa:d on anJlife insurance policy covering the life of any officer quarter is F3,000.
; :-:-.::: .. :. ee. or of any person financially mterested in any traue ur
How much is the amount of the ded~ctible entertainment,
:. :~ :~""" " :;:~d ,m by the taxpayer, individual or cmporate. when the
:-~ :; s :c:l: or indirectly <t beneficiary under such nolicy. amusement and recreation expense.
p~ OOO c. P1,500
iBJ Losses from Sales or Exchanges of Property.- In computmg ne: ~-- p~:ooo d. Pl,OOO
>. -~.ions shall!:--, any ca~e be :J!low<~cl in respect of losses
'(:-

,.~ :::> ~.l:l).;t.'s ,)r property dm~ctly or indirectly

Answer: B
Reference: Section 5, Rc.,~nue Re~tions No_.l0-2002 _____
~~ .. l'.

::)off nf-.CJI)U<i.-,
!'
:\ctuai\..!UU,OdVj .?,U _.,.,
Limit (O.:')'Y',, x ~OO,illli
c_ __ ~_)_f_L__
r)fdt~':r:)l~i._;tld~.:. il: :.J'-iidatHJ:!, bt't\\('t'!' !!l !!F1:"'.id 1~J,tl :\\lowed {i wn)
--,,,r: ~t-:.n1 ilf~~: pl'rct:Jt ':")()~<~)in ::1.ln. <1f ll;~ nut.,Lu1rhng Salt" nf :;;eTfiH'f'S
. ., \\ned. dirtl\ or ir:.d:~t:~:;~,_ h~.- tlr tq;:- '->u!1 ltldt':l,.,r,d;
-.~~:t~wl ( lUO,OUllj:)UIJ,U::t; . I H }i}) ~
!(

Limit(\/,, x lUO,OUUl
Allowable ckductl<>ll
,Jf (::<.:.:rlin.i~lrH1S ir: i:qlJ~d.tt:\>n, b('l\\tr:-1 :so
.. ~:1-:n t-;:!\- ~Hn_tnt (.=;o lln \:;!llH' o! th.: ~~utst;lnding
_-.. . n\-nt~d. (ilrcctlv or indlrec:Iy, by or for tlH' ~~~!ne
.,: one of such curporations, with respect :o the taxabl<'
nior: :1n~:ed:n:...~ tht~ d:!~e t)f rh.-:- sale r;f r-'"{h;tngc \\.:.;::;
~ ~ : )

'
l ' \( ' <I l ' ' ;

1; \ ; .'[ '. ; .

297
 Chapter 17: Income Tax.Cases (Part B) Chapter 17: Income Tax Cases tPart UJ

INTEREST EXPENSE ADtrW~n~ ~iP-stlou 1 -

Questio~ 2 - A
2. A.Jf) Corporatior. used the accrual basis of accounting from the year
Question 3 - C
it was organized. On March 1, 20fl it purchased an equipment for Reference: Section 34 (B) {2) (a), !'dRC, as llD.lended
P1,120,000, VAT inclusive. The equipment was estimc>tecl to have a
QlJefltion 1 - None
life of 5 years. The equipn:ent was financed through a one-year loan
9gestion ~- P5n,ooo 1
with Banco de Plata with intere"!t at the rate oi lR% per annum
beginr.ing J2..nuary 16, _!201~. which was disco:l'1ted in full. During
I Qucs~ion 3 - P20U,000 /f-500.000 X P50,000 = P20.000
the same year, the corporation also paid interest on business-related (2J Exceptions. - No de-luctivn shall be allowed in respect of interest l
ta'<es amounting to PSU,OOO. under the succeeding subparagraphs: j
.. Ir: ~Oll, AJD had interest ir.;::nme from it:> bank deposit in the
(a) If withi;~ the taxable year an individual taxpayer reporting
:ncome on the c'l.Sh basis incurs an indebtedness on which an
f
l
) amount of PlOO,OOO. J\JD decided to expense outright tht. inttrest
mcurred to acquire the equipment.
How much was the deductible interest',>
interest is paid in ad~nce throughdiscount or otherwise:_
Provided, That such interest shall be allowed as a deductwn Ul
.

the year the indebtedness is paid: Provid!'!d, furl~ That if the

Ij
"!. P'243,200 c. Pl9-.>,200 indebted >tess is payable in periodic amortizatiOns, the amount
b. P210,200 d~ PIG0.200 of interest which corresponds to the amount of the principa.l 1
amortized or t:aid dun'ng the year shall be allow~d as deduction 1
Answer: B in such taxable year; 1

ln:c-rest exprnse
;Pl,l20,000 X 18%, X 11..'5j12) p 193.200
... Less: Reduction (33'Yo x PIOO,OOO) 33 000) p 160,200
TAXES

Interest on business related taxes - 50 000 4. In 2011, CPL Corporation, domestic, had net income P200,000 from
Deductible interest ~)..2.,;2.99 within the Philippines and P300.000 from the USA. The incc-ne tax
paid on income !rom USA was PllO,OOO .
!low much was the allov,:able tax credit on income tax paid to the US
3. In 2010. an incliviclual ta..xpaver, using cash basis of arcoupting. Gmernment using 30% tax rate?
obtained a PSOV.OOO bard~ Ivan for business use. Th(~ b;1nk dcd~-~r:cd a. PlSO,OOO c. P'JO.OOO
b. Plln.oon ..
u.
p;:.id 1:1 full by the taxpa._,.,_

(Jwsrun I: Huw mud1 ''"-"trw d,ductihk intcrest 111 2010? Answer: C

;~U.~~::~~:t: i~~~::irw-;
a. PSO.OOO ,. f'JU,OOIJ p 200.000
b. i-'30,000 d. '\lorw I 300 000

) Question 2: How much \\as the <kductihl<' interest in 2011? I Tax due (.)0 ;,)
P~:?OO,OQQ

P._l;';?.!,!..J,4QU
a. P:JO.OOO c. t-..:u.()Utl
) b PJO,OOO
FPrt'lf',n i!1CtJ!l1t' tax cr!d1r
I'J.l u OUQ
I :\du;d
Lunit (P.\UO.OOO/!''i.JU.'I';'J .\. Pi:'iO.OOO) p ')(). ()()()
Question 3: Use the same infor"1ation above but data on payme:-:ts
m:vic an' il'; '>ilow-;: 2011- f':100 000: 2012-

......
)
)
298
 Chapter 17: !nco me Tax Cases (Part I!) Chapter 17: Income Tax Cases (Part HJ

5. Mr. JO!If! San Jose, resident citizen, married, derived income from Quesdon 2 - Fore:ign income taKes aa deGucdu.l.l
sources within and without the Philippines. The following were the Net income, Philippines p 150.000
data on his taxable iacome and foreign taxes for the year 2011; Net income, A (P200,000- PSO,OOO) 150,000
Net inoome, Philippines P 150,000 Net income, B 70.000
Net income, Country A (before PSO,OOO income ax) 200,000 r;et income, C (PlSO,noo- ?12,000) ltS.OC;)
Net moome, Cou:1try B (after :?30,000 income tax) 70,000 Net lo:ss, D 15(\f'lJO)
Nct income, Country C (before P32,0CO inc;::,me tax) 150,000 Net in(.ntne, :::: 50,000
Total net income before exemptior.s J88,fl00
Net in<...'Ome, Country u ~50,00C)
l-ess: Basic person1.l exemption (_M!~l
Net mcome, Country E (no incc>me ~ax paid) 50.000 Taxable net income P338 09Q

l ':'he tax-s paid by Ylr. San Jose when .tc filed the quarterly Tax due Sec. 24 (AI p 76,400
declarations for the first three (3) quarters i<1 2011 wen:- ~10,000. Less: Payments, firsl 3 quarters 10.000!
) Questic"!. 1: How much was the tax payable in the Philippines when
Tax payable p 6~7490

the i.axpayer filed his annual return, assuming he opted

to claim foreign income ta.:..:es as ;u.:;;: credit? (4) Limita1ions on Credit. -The amount ofth"! credit taken under this
I a. PllO,OOO c. P24,620 Section shall be subject to each of the following l;rnitations:
It b. ? 66,400 d. P:L..;,OOO
~
(a) The amount of the credit i'1 resp"!ct to fhP tax paia or incurred tn an.y
country E"hall not exceed the same proportion of the tax against V'hich
. Quesli<-~-
.:.: How much was Lhe tc.t..X paYab:e lil t:lc Pl1ilippines wheil
the taxpayer filed his annual return, assuming he opted
Stich credit is taken, whzch the taxpayers tnxao/e mcome from
sources within such country under thzs Title bears to his entire

.
a. ?76,400
b. ?t:t.400
to claim foreign income taxes as deduction?
c. P24,620
d. P23,000
taxable income for the same taxable year; and
(b) The tc>tal amount nfthe credit s.'tall not e.'Cceed the same proportiun of
the tax agcinst which such credit zs taken, which the taxpayer's
Answers: Question 1 - D Question 2 - B
taxable income frorn sources u:ithout the Phzlippines ta:'Cable under
flus T1tl..-: bears to his entire ta'Cabie income or the same taxable ear_
Reference: Section 34 (C) (4) (a) and (b), NIRC, <ts amended

LOSSES

-..
...
c:>.
. '

:"<, .. - .. ::-:. E
,,
.::. B iP70.iJ 1 10- P><J.ilOil)
c
I ()I l.liiJ()
].'iU.IJUU
t ::,(),();_){) l
~~~;\ ~,li!J_Q
C1. On ,Julv l, 2010, a Certified Public i\ccountmH ;)urchased tor
PSOO,OOO an automobile, which xill be used exclusivelv for his
prctrtin He df~ducted annual cieprt>ciation on the basis of an
cstimdtcd usdul life of five (S) years. On July 1, 2012, the automoblle
Tut,~. :-:.:: :nconh~ befon.! LX~rnp:loi~s p ,=}()(),!){_)() was partially damaged in an accidental collision with another
) Le'-..~- 3<.-!:si.....: personai exernplilHl
Tax . !::;,~ ~er income
__0~lli
P :f~1U,OOU
automobile. The fair market value of tlw vehicle was P200,000
i m mr<l iatelv lwfore thf' collision ancl P 100.000 imm~diatclY aLer the
p l l ( J,( )( )() collisJc!ll Tl1r~ taxpa\'er re.-,~tnd insur:11Wt' ptTlP'eds of P7ClJ)i)() to
) T.n
L,.,,,
.~: .~-c.
:24 (A)
--_,x credits/ pannents rover the loss. !!ow much is the (kductibk loss~J

.... Pa;ments, first 3 quarttrs

F''::>reign income tax crt .!lt
( P l U.UUU)
I _Ti::c()()Q l -~Ul()..Q l
n ) '. r:\~
a. 1'200,000
b. PlOO,OOO
c. Pl30,000
d. P 30,000
~

Answer: D
1 'd- pr,l:-h'rr\ d~<->ti,,\-r! (F~~~~~.il, 1 t;

-
~~.,
PlurJ,Jli'
~ J'' ' :.)
> , { )( !
F; ):,_ ,, ,!J:: 1f).:-;no,r1r) 1, J- i)'.!IJ(J,(r;!;;
,r\() 't'-)J\),' 'i<; -: i' ( ')'I

:~- .;:y} i':)l)()_tiiill "< ; i. ''), ')' ') ,, 1) ') J,()f)IJ

~ __ _7n rJ()SI ,
total
:.:; - ~y,
f.' >J.~II)Q

~
t'" ~v.vDu 1 PSOO,OOO X P llO,OUU
AUo"'"d (low!'"r between limit a and limit b)

~ 300
 Chapter 1i: income Tax Cases (Part Ii) Chapter 17: Income Tax Cases (Part IIJ

7. J. Ireneo acquired machinery for use in his business. After a strong t.L.s7!.:r: C
typhoon, the machinery suffered pa."tial damage. The following data Adjust'!d basis p 100,000
were made avai!able for determining the deductible loss: Less: lnsurancerecovery ( ~O.WOJ
Cost P 500,000 De<tuctible loss p 20002
Accumulated depreciation 300,000 In case cf 1osses arising from total destroction ofproperty r:sed in
Restoration cost 250,000 !n.siness (ordi'1c.n; a..c:set), the net book valt..e imnt:liatel!J preceding the
Estimate<i remaining useiul life 5 years casualty should be used a-c the bas;s in claiming loc;.ces, otso to be
Question 1: How much was tht! deductlble loss?
reduced by orty a,u;unt ofinsurr:J.nce orco'l1['errsatic>n receiiJPd. __j
a. PSOO,OOO c. P200,000
b. P2"i0,000 d. None 9. Jey Manuf'lc~uring Company bought a piece of land as well as the Jld
building erected on it. In the Deed of Sale, the land has an allocated
Question 2: How much W')Uld be the nev basis for depreciation?
price of P2,000,000 and the buildi11g, P500,000. The building was
a. P500,000 c. P200,000 immediately demolished to give way to the construction of a factory.
b. P250,000 d. Pl 00,000
The cost of the removal was P25,000 and the proceeds from sale of
scrap amounted to PlO,OOO. How murh was the deductible loss?
Answers: Question 1 - C
a. P515,000 c. P490,000
Qu"!stion 2 - B
b. PSOO,OOO d. None
Q!t_~~t~~I!.!
Rook value (PSOO,OOO - P300,000! P200,000
Answer: D
Restoration cost p 250,000
Reference: Section 97, Revenue Re lations Ro. 2
Deducuble loss (lower)
When a taxpayer buys a real estate where there is a existirg bui:ding
Question 2
Book '.'aiue p 200,000
I and tears it down with a view to erecting thereon a ~other building, it
! will :Je considered that the ta-.::payer has sustained no deductible
Add: Excess of r-esttJr:ltion cost nYf'~ :x:.eok '-'alue so lliill e.-.-vense on account of the cosz of such remot.:al, since the value of the
AdJUSted basis fvr depreciat:on P_2SO,UOQ real estate, exclusive of old rmprot'ements, is presumably equal to ~he
In case of losses nns!IHJ from rmrtir:: riamr;r:e of property useri in purchase price of the land and im!ldmq plus the cost of rernovina the
buslPt?SS. rhe repioct?rnenr ro.--.:;r to r~s::;re ~~ 1 e nrooe~rt.TJ back to its usf'less bulldiny.

the !ieductrf>le los:-:e~. hut u1 .r:n C(L -=--~-u;; r~t..~ d-.,chuttble loss br.._ r.rtHe
tfup-: hr, ne; hook ::uftk' Of The rri!( ~,,-1){)t:'-:"ll UT!rnedl(lrel!J hef()n~ tht l\l. r..:cm Corporation had an old computer costing P50.000 \\ith ~'"
t'{l.S~~ (~;[eJ :1r-r-umulated depnciation o! P3r) i!OO. The corporation decided to
The cx::~>:-..;s O!\'r rlf!-' n1't };(Ji)k ru! 1 J.t' ..... -,.:<.':2 _;''!I hjort t{!(' cn.-1 1 111/ty nplace it wtth the latt>st compu~Pr mock!. The old computer was sold
sho!;.ici he caprrui::~ed :~uh:(cr to dt~;;rec:~~r:~ r: ~Her :;.-k. rcrnniruny u.sefl,:' for P5.000. llow much loss could be deducted by Rem Corporation?
l!fe of the proper!'! a. P50,000 c. Pl5,000
b. P20,000 d. None

h. r\ ta.xpay..-~r hc1s a business prop1r:_. :,

t. 1:~~~ ,u1 adjusted basi:-), Answer: C

.. PlOO.OOO. It was eompletely destn>.-,~d t:.:- :;rein 2010. His rmh

cbim r.~- r-eimburser"'~nt w:ts 0n ir:-;;;ran::-c: ,]aim fnr P80,000. It w:1s
Reference: Section 97, Revenue Re ulations No. 2
Cost of computer p 50.000
-:rr: . ~~ 101 ~- 1 i Ls~ .'\cClliTIUl~i~rrl rlcpreCJ<:.:~:,-ln (_...:_~~}I )f_)(l!

IJ, ;, -~- v.li u.

!

:_,1_-::.~ :..':Jc to rftt--' lH)!U.rl!Urii rc'77:o!, :! ,),r-,/t-'ltltJilti()!/

t~ 1

,Jj.ol(l i;:~r!rlill~j-, ~; '

~ _'L\!~ )
..
....:..('rnn)inrt of 0ld mnchinenf. eau'nrn~nt. 1--'fC 11lt'tdent tn rPnei!J(J.
1
.rJr

rp_nlucernt:?nts toill be deductible (rnr: qrn-::;s incurne

302
 Chapter 17: income Tax Cases (Part ll) Chapter 17: lncom~ Tax Cases {Part H)

11. Cathy Gaming Corporation bought a special m?chine for gaming Ansr.er; .\
purposes v.'ith d. cost of P600,000. Subsequently a law was passed 1997 1998 1999 2QQQ 2001 6?02
prohibitmg gaming of any kind. The special machine was Gross income PSOO P700 P900 P600 P/00 P800
permar.ently r:!tired from use. At the time th~ ~aw was pas~ Less: Bu.siness expenses { 5501 1'-"9""00"'-l'--'(...:800,.,._J_ .J.f...:S:.<SO"""-!.__......:.<~L-1
68Cl f..QQ)
Operatir.g incorr.e (l<k.s) ( 50) ( 200) 100 50 20 200
prc~1ibiting gaming of any kil'd, the ac..:umulated depreciation of the
:nachine was P200,000. How nuch is the deductible: loss of the
Corporat~on?
I Less: NOLCO
Taxable ne~ int.ome
_ _ _ _ ___,_(_1'-"0""0""l_.___,~...,IJ""l_..____..:.:..:.....
~==========~~-=~=,.;,~=~.if!~
~n~ _ ___:._
P2uQ
a. P600,000 c. P200,0CO nused NO!..CO =- = = PIOO PO p 30
b. P400,000 ci. Nor.e
ot~s: a NOLCO starteri on January 1, 1998.
b. The unused NOLCO in 2001 had expired.
Answer: R (PGC'O,OOO- P2uv,OOO)
Reference. Section 98, Revenue Regulalions~P.:..:.0::,:-:..:2::::_.......,:-:-----.,-
I When chroughsome change in busmess condrtwns, the usefulnes::; in
I business of some or all oftr..e capital assets is suddenly terminated. so
thl 14. A taxpayer under calendar year ha3 the following selected
transactions:
i trat the taxpayer discontinues the h11sincss or discards such a:,scts Sept. 9, 2010 Purchase~ 100 shares of Kaye Co. ordinary for
j pennanerdtf! jar ust:: m such bu"'mess, he may clarm as deductwn rhe P5,000 .
. actual loss sus~u:e:i. Dec.21, 2otf Purchased 50 shares of Kaye Co. ordinary for
P2,750.
De:::. ::26, ~011 Sdd t!'le 10~ .:;hc..r:;;; p..1rcha:>ec! 0:1 S...:pt 9, ~00
12. Ria Corporation purch.~sed l (J(J shares of \/;mie Corporation a: P200 for P4.000.
per share or a total of P20,000. Three months later, the shares were Jan. 2, ~012 Purchased 25 shares of Kaye Co. ordinary for
selling at PSO per share. How much was the deductible loss of Jan? P1,125.
a. P20.000 c. P.');OOO
b. Pl.S.OOO d. None Question 1: How many shares are sold at a 1oss without coverin~
acquisition?
Answer: D a. 100 shares c. 50 shares
Re_fi!l"enc,e: ~~ti_c:m ~<~.-~~venueRcgulations No. 2 b. 75 shares d. 25 shares

~ ~, , 11 ~ r~ t .,. . , (! ,: :; ''', ''"'

I'(} i 1i;) I) t ,f..... < <" r '-) r()('"' t j .: r ): , ! ; ; ~ !: <I <
0
/ .' { 1,, 1! 1
... ''(' i ,oss on wash saie L<wttai ioss
a. p 500 P250
b. p 750 p 250
c. p 1,000 None
d. None None

t'XI)f"Tl:...;rs (Juestion 3: How much is the adjusted cost of the shares bought on
December 21.2011 ancl.Januarv 2, 2012?
December 21, 2011 :.Lm'.tarv 2, 2012
a. P 3,250 P 1,375
p s.:;u,(ruu
F c:ICHl.(!OC1
b.
c.
P2,750
p 750
P1,125
p 250

,L P 500 P 2:10

,.. ,,

b. Pl70,000

304
 Chapter li: Income Tax Cases (Part II) Chapter 17: Income Tax Cases (Part II)

Answers: Question 1 - D Aus~~~ D

Question 2 - B Refe1ence: Section 40 IC as amended
Question 3 - A Value of shar<!3 receive<! p 10,000
Question 1 Value of shares surrend~rcc! 8.00Q
No. of shares lndicarea gain p 200\J
No. of shan:s acquired within the prohibited period G .1i.1 to bt- l'f'!f"'.Ogr.ized

l
!:>h:1n..s sold without CO'Iering acyu1sition
No ['ain or loss shall be rea:,gruzed ij in pun;uance of a ptar. of a tner'!:P' .
Ilote: 75 shares have cc,v-:;ing acquisition, therefc:e,
considered as wash sa;.:.
or consolidation, a shareholder exchanges stoJc in a corporation, l"hirf:
is a party to the uterger or consolidation, solely for the stock of an"the.
Question 2 co ration also cJ art to the meT' er or consolidation..
Loss on wash saie (""5/100 X PI,Ol'O)
Capi~all0ss 125/100 X Pl.OOO)
Selling price p 4,000 17. The following data are made available by a stockholder of corporation
Less: Cost 5 000 that ceased to exist after it was merged with another coii>oration: .
Ind~cated loss (Li.QQQl FMV of shares re..:eived P _11'),000
Que:.Uon 3 Cash received 2,000
1:..0-21-d Cost p 2,750 ~<'MV 0f pro!J~rty received 1,000
Add: Sha:e in l;ss on wash sale Cost of the shares surrendered 12,000
!50/7.5 X P750) 50()
How much is the gain to be recognized?
Adjusted COS( p_~.~dJd
a. P3,000 c. PS,OOO
0!-0:2-12 Cost p 1.125 b. Pl,OOO d. None
Acld: ::0-h<~rc
in loss on wash sale
:2:1/7'."5 X P750) Answer: B
Adjus:~~d co<.:.t Reference: Section 40
FMV, shares received p 10,000
Cash rccei;ec! 2.000
~\1V !lrn;;t--rtv n .. t,.... ivfd I 0 000
~ 3.000
f'Ji),l.:t;:) .L-> dcducticll' II()W m:J<'il .tn' r';, ckductii>i<' l;d:n Less: Cost of shans surT:ndercd ( ; 2.000)
los<-;t''-;r) Indicated gain }'==~.},!(,~
a < l ' ' 1\
r
(\(\/'\
,_;U,\1\_1\.J Pl0, 1 )(Y! C~.-tin Lobe recognized b:.QQCQ
h f'.?l),()()l) d >~ont
If, in connection with Wl exciwn(je of property, an indwidua/, a
shareholder, a sccw<t!J lw!dcr or a corporation recewes not only stock
Answer: B
or secuntws pennittcd to be recen:ed tuitl'Ollt the recognit:an of gain or
loss, !Jut ulso money awl/ or pmpcr1y. tiw gain, if any. but not the loss,
1 LO'~,'::;.-:"'S ~~on/ il'r;ti~'l;f''; '!1:." :t-:c,
shall tw rerognized lwt m an nmmmt not m excess of the sum of the
: the 0~!_'~~-~-~~~~~~>_rn _';'o<-;: - ~r; : r~;,;,

.., money and fair market value of such other property received:
Provided, That as to the shareholder, if the money and! or other
tL'' propPrTy rereived hos the effect of u tli:;tribw;on of a wxa/Jle cliuidewl
there shu!l be tCLYed ns cln 1rle:~rl to th{' slutreho/r}Pr nn (Ifnc:,r' of th,..,
~Jain n~coynizcd not in exc:::>ss ')(.:'L'-; [Hd.!JtH~:cH~c;~e ~t 1 ,'F.t' n:-~.;,,
undzsrrth!at?d earTu.nqs and [Jru(~.-.; o{rf;e cU!JV,nUron. r,i.~ 'Vi'urncler.
un y, u( rhe qain rt-"CO(Jnizl:?d sfuz (lc tr ott 'I l n..:: (i .(;; ;~ul gr~:r:
!

i !O\V iilUi.:h tS the ~~,-tin !1) :_, i . '-.:::.<__:\.

a. P '-J.i..ill:,i
b. p 8,000 \.1. \ 't \.....' i l. ~-

)
306
 Chapter 1/: lncom!: tax I.A~t!:.lt'an UJ

[[ "'cmnection with the exchange of property, the transferor

:::crxmrwn receives not only stock pennitted to be received without the
~e~C!P2
Cost of shares surrendered F ; .JX
I
~ of gain or loss but also money and/ or other property, then: Leis: Cash eceived (P3,ooo, I

I
FMV. property received I 500) ( 3.500)
fit f -tte: corporation receiw ':] such money .:1nd/or other property Balanc.. p s.soo
iim:dntes it in p.1rsuWU'e of the plan of merger or consolidation, no P.dd: Cam recognized 1.500
]ll:I:Ir:O the rorporatiun sha;t be ~ecognizedfrcm the excha~, but Ad~usted Lesis l: 2Mf"
.:'1 ::-:e corp0ration receiving such other property and/ or money does
f
.;tribute it in pursuance of the p!nn of merg-~r or conso!idation,
-:;:r If, in connectio.1 uith an~.: ofproperty. a"1 iudividuC'I, a
.>:e ;mr~ if any, ~ut n('t the /o.;,s to ihe corporativn shull be shareholder, a security holder or a LJrporation receives not onltJ Sto...--k
-.:.::t;nrzed but in an all'ot~nt not in excess of the sum of such or sea..-dic:s pennitted to bP :-ereived without the recogmti,m of gain r:>r
-~.a-"!:'!J and the fair mnrlcet value of such other property so r('c~ueri, loss, but also money and/ or prop-=rty, the gain, if any, but no< the ;.:>"c.,
D"'!!:.h ts not distributed. sha'l be recognized but in an amount not in excess o{tl-te sum .:Jfthe
moneu and fair market value of such other pror&rtu recei~ed.
The basis of the stock or seatrities received by the transfesor upon the
18. 1 =~:;.~~<cider c! :! corporation that was merged with another exchange spedfied in the above exception. shall be the same as the .
(;:""':E::on had the following data: basis of the property, stock or scc.1.rities exc~T.'!g-:>ri, derrPn.<:Pd by 1
-.,;-. .Ji sha!...:S received P 10,00G (1) the money received. and (2) the fair market IXllue of the other j
:..,.,.~ :-eceived 3,0GO propcrt:J ~eceived, anr.l increas:?ri by ('l) the amount treated as dividenj
'' r, ~f poperv :-~c:i\:d suo of the shareholder and (b) the amount of any gain (Section 40 (Cj (5},
:..H;; Jf the shares surrendered Q,OdO N!RC, as amended.)
=!""'-:ncr; 1: How much was the amount of gain recognized:>
<. -;:.~.500 C. ?3,000
.::3.500 d. None BAD lJEBTS
19. Sam Corporation values and records the promissory notes it receives
>.,c:~::~ .l: What \\ould \w ;tdjusrec! b,;s1s lt tht> shares received?
from customers at their fair market value. One time, it received a
:; !)00 c. PS,SOO
note for P800,000 with a discounted value of ?720,000 at the time
P-t.:JOO receivt'd. Tlw discounted value was recorded in the books. The ::ctes
.~...:...;";;'=':-;;: Question i - B
Question 2 - A !low much can Sam Corporauon write off as bad debts.>
a. P800,000 c. P80,000
l b. P720,000 d. Zero
-'Cf'IVl'(! ;:;;~ II

----~
''.ll) Answer: B
f) 1-:._:;\-)() 1

l i
'( i ~ ' .: ~ ~' ~'..il~l !

308
 Chapter 17: Income Tax Cas<:s (Part II) Chapter 17: Income Tax Cases (Part U}

20. In 2010, Mr. H_ C_ Mi.-am bt->rrowed Pl,OOO,OOO from Ban...:u C:c. Quc[.tior.. 2. I{o-.v much is tile C'd:i;::c.r:al taJ: ::;-~ 2010 a:; <: ~C'n~.l"""lce
Pl..a~"!U!::, rr:0rtgaging his houSI! and lot as security for the loan. In of bad debts recovery?
2011, upon defau[t b:>- Mr. Mirarn in the payment of his loan, the ~, PlO,OOO c. P3,000
bank foreclosed the mortg.:..;;e and the ptoperty of Mr. Miram was sold b. !" 3,500 d. None of the choices
at a pubiir: auctxm. Tne bank purchased the property at the &u;::tion
sa>e for P80fJ,OOO. In ;Jayment fur the propeny, the ~ank ~;:>plied Anawers: Question 1 - A
P800,00(J of ~tJ.e debt oi Mr. Mirarr1 so tha.t the balance of hi~ Question 2- r.
obhgatic;r. ~o the jank amounted tc P?.OO,onc_ Refere~!: Sec~o_E. 34 (E) (1), NIRC, as amende4
Qr~:stio'1 1: .-\ssc::nmg ~ir. H IJ_ Miram is insolvent, how-r.:u~h can Q_u~s_tlon 1
:he ':;ar:k ded ... ct 'l.S bad deht? Lc;ud!ng "Excludi.1g T:-x
Bad Debts Bad ')cbts Benet~
a_ Pl.r00,()()0 c. ?200,000 :oo,ooo p
Income p p 100,000
b. P !30Q,nro d. None Less: Expenses 50,000) ( 40,000) ( 10 ()I).'H

Qo.;estion 2: Ass:;.:ning the bank sold the J.lro~rty for P700,COO in

Net income (tax benefit) p 50,000 p 60,000 p .w.ooo
Tax rate 30% 30"/'! 30%
2Ui2, when can the bank dedt..;::t the loss of PSCJ,OOO? Incorr.e ;,ax ~~ 15~_QQQ ~~-J,B..Q 3000
a. 20!C c. 20!2 Question 2
b. 2011 d. None of the chcces lnclud:n~ Excluding Adt'itic"lal
Recove!Y Recovea Tax
Answers: Question 1 - D lncom<> P l2U.U00 t> 120,000 t>
Question 2 - C Add, Bad debts recovery 10 000 lO,O<A:l
Reference: Section 103, Revenue Regulations No. 2 Total income p 130,000 p 120,000 p 10,000
~~-here 'Jr:de~ _'c-:cios:.i.r-e of a Trortgaqe, the mur'')O(Jf't' hlliJS :: ~ l Expenses ( 70,JOO) ( 70,000)
~~ar:_c}':::..~~"j;::~ _:...,::~.. , -:, ~2~d CTt'ch!s :llt! utde>htt:dnt..~.").'C> ;,;rtfL the Jlii..~~-;>,lS? I Net income p 60.000 p 50,000 p 10,000
I
~e. ~~o:-' ..:._.:~__..-r-:-~- 'r~ ~- ..~~if'~n T(:e _!J1ln';1.lSP pnc~:::; _,ttd ri!C !Ttdtf-..:::I!:r~ss Tax rat._~ 30% 30% 30''/o
Income tax ~=l~..Qill.! 15 QQQ f. 3JW
Xxx Prouided, That recouery of bad debts previously allowed as
deduction. in the prcccrlr;:g yc.:~rs -;J-:.:;I! be included as part of !he
g-rs-::;:; '0~~""':,:>~"~~"" i.~ 1);~-~ .~r--~:!r r._--f r:__r-r.(-..-.,' 1'0 ~h_e o?_~'fpnf l'l_(tJu:> inr()rnP try
IJ_"P~~.::_:;: n.~'snu/ rleriurhrJr> ,-J_..;rr r.~.,~ _.; :-~~) (i)j.
L-----~------------------------------------------------------~
';--- ... -'-

: 1 fl Pi; I
22. Cool Dude Corporation has the following income and e:penses for the
,\_ ._ .. - years 2009 and 2010. During 2009. bad debts worth PlO,OOO were
written off and allowed as dcdu::::tions b;; the BIR The whole arnount,
f' ' }.' )( )[) however, \\'as recovered during 2010.
.,. '
2000: I nco me p 100,000
}_J()('l
Less: Bad debts p 10.000
I' -;,I,1HH)
Other expense-<.
Net income (loss)
95 000 (
(~5,.Q0Q)
105 000)

2010: Inconw p 12(),1, ,!j
Ll'ss: Expcns,s _]J]~~-~~' J i
i\d income

()uestwn I: How much is the tax :,c;wlit to Cool Dude Corpor;,:.:,n Cls ci
n'sult of the 8!R ;:!l]m,in"' br~d deht write-off r~s cir'durtion')
a. P:O,OOO c. P1,500
b. P 5,000 d. None of the choices

310
 Chapter 17: !ncome Tax Cases (Part !!J Chapter 17: Income Tax Cases (Part fi}

Question 2: How much is the additional tax in 2C 1'} .J.'> n ccr.~eqee:1ce Qu~"'ticm
2: How mud. is the taxaole r.et income,..
of bad debts recovery? a. P333;220 c. P233,220
a. PlO,OOO c. Pl,750 b. P282, 720 d. None of the choices
b. p 5,000 d. Pl,500
hnswers: Quetion 1 - B
Answeno: Que..tion 1 - B QuesUon2-C
Question 2- D estfon 1
RefereDC~; Section 34 (F) 11), NlRC, a~ a=m=-=e~n:.:d::.e::.d.:::..._ _ _ _ __ xmumtl'tWn of charitablt> arul other contributions
Questio& 1
t .. ~ ..
-----~...-.---~
- ' ...... ,"f
ExJuding Tax
l eductib!e in full (Ccntributio:. to UP)
Deductible with limit
P lO,Xh

Bad Debts Bent>fit Contribution to religious organization p 25,000

!.Jcome p 100,000 p Contribution for rehabilitation of veterans 2C.ouo
Less: Expenses ( JC:s.:JOJ (_95,GOO) ( l<J.OOOl Total actual contributions p 45.000
Net me-orne (:= benefit) (P ;::,_GOO) p s.oon p 5,000 Umit (10% X P375,800*) p 37.580 .37.580
Tax :o-ak 30% 30% Tore! P47 58Q
lnc.. ;r;~:: ::.::...x ==' p l.SQQ p 1 500
*Ne income before charitable and other contributions P380,800
Less: N~t capital gain 5.000
Excludinr:; Additional Net income from business ~580U
T~lX

F .-
,, f' ; :.> ;,01 I()
--
p
-- Que~o::io:a2
5.000 Gross income P500,000
--~---'~ Other income
Tota: i:-:cc:nt: p . '~ . 1)0 p 120,000 p 5,000
..;U(/) ( 100 000) Capital gain (50%) p 10,000
Expe-r:ses
7\er -;~..~or..e p 20,000 p 5,000 Capital lo~s ( 1OO'fo) ( 5.000)
_ lOo;,, Net capital gain 5,000
T:tx -.,~
.. . . .-:-. ':. . ~: . - - ,,.,\
P _ ~---- t~-:"r)o
Total
Less: Deductions
'505,ooo
( 124,200)
Net income before charitable and other contributions P380,800
L,;,;s: Charitable anti ulher contri~>utiuns 47 5RO
~,....,. _T..,.. ,_ -...,..,. ,. . . _
~-ir\.i"'>..l i 4 ;:>.> . -i:---
---
Lt"s-..;: B<lsic person;tl t-"xempt:n:'! (P :=i0,0.-)0)
----------~~

.\ [] :: . Additional exemption 12 X P25,000) ( 50,000) ( 100 000)

\\: r: :J Taxable net income .e2_,1Jk~,?_2

2' 1.: II)()

),~)()()
PENSION TRUSTS
2-+. An employer maintains a pension trust for its employees. The
i;: \"1 ': : . (): )() following contributions are made:
2009 2010 2011
2 .) . ()()() p 100,000 p 100,000 p 100,000
Current service costs
Past service costs
Total contributions
80 000 60 000
f J~O,Q9_Q EJJ)=QQ_Q_Q

How much is the deductible pfnsion contributions for the year 2009.
2010 and 2011?
a. 2009- Pl80,000; 2010- Pl60.000; 2011- PlOO,OOO.
b. 2009- Pl08,000; 2010- Pll4,000; 2011- Pll4,000.
~- 2009- Pl08,000; 2010- Pl06,000; 201 I- P106,000.
d. l20Q9 - P108,000; flllfl- Pl06,000; f1&H- PlOO,OOO.

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 Chapter 17: Income Tax Cases (Part 11) Chapter 17: lncmne Tax Cases (Part II)

Answer. B Questiort 2: Hc~v r:1ach i~ t~, r.~t t:Dea:-!c comp~-::aion income?

2009 2010 2C.ll a. P250,000 c. P147,600
Current service costs b. P200,000 ti. p 47,600
.(fully deductible) p 100,000 p 100,000 p lOO,JOO
?ast service costs AnslVers: Question 1 - D
IPSO,OOO t 10 years) 8,000 8,000 8,0CO Que&tion 2 - C
(?60.000/ 10 years) 6 ouo - - 6,000 .-------
Total ~-1 QQ. f)j),Q f' _1H_,Q_QO 7
~ lj1QQQ Quer.don \_
None. Pure compensation income earner::: a.-c na ai:cweJ O[-.ior:al
standard deductic,"
OPTIONAL STANDARD DEDUCTI_QN Question::
Gross compensation income (?2CO,OOO + P50,000} P 2"0,0Vv
25. A resid'!~lt :;itizen \''he is married with r.o qualified d.::pendent Less: Basic personal exemption {P 50,000)
::hildren has the folloWing data in 2011: Additional exempti.:;n ( 50,000)
Gross receiptS from services P400,000'f' Health and/cr hospitalization
Cost of serVices 100,000 insurance premium paid 2.400)

(_ug400)
Long term capital gain 10,000 Net taxabie compensation income p i47.t..-Qk
~hart term capital loss . 5.000
Dividend- from domestic corporation 15,000
Operating expenses 20,000 ~REI'!fJUM_ PA_X_:M~!iJ' F.Q.JtREAI.J_I! ~NO_/ OR HQ_SJ'!TAt!.Z~TJ9_lf
INSURANCE
Assuming the taxpay'"r chooses 0ptwnal standard deduction, how
much is the taxable income? 27. A qualified taxpayer paid PSOO pesos of health insurance premium
a. P205,000 c. ?190,000 for himself star+ing .July of the current year. The total amount he
b. P202,000 d. None of the choices paid for the year was P3,000. How much was the deduct:'J!e
premium for health insurance in the current year?
Answer: C a. P3,000 c. P1,200
p 400,000 b. P2,400 d. None of the choices
Gross receipts
Less: Optionai stanOanl deducLion i~t(Y:,~ x "-.\..~fj,(J{)(}j L''J.ooo
:2 11 ~. t:}~)~_, Answer: t:: (P200 x 6 months)
-\r_~::: i_,th~-::r income Reference: Section 34 (M), NIRC, as _amendet!______________ . __ _
Net capital gain
Long term c-apital Lc.'-n 1;u
I r:Hj p,emzum Payments Oil Health and/or Hospita::;wtion b'"''' ''" p
an Individual Taxpayer. -the amount of premiums r:ot to e.\-OY:i ; , u
Short-term ctpit;; ~ :. '~;- r 1
H ;'' thousand four hundred pesos (?2,400) per famziy or Tu o hunrlrecl

Basi(" personal exemption

f' 2-U,OOO
__:::).000
I
1
pesos (P200) a month paid during the taxab:2 year for health ,p:d! r:1r
lws.pztalization insurance taken by the taxpayer for himself, inciucbng
T<..L-..uble net incon1c PJ,Sl().,.QQQ hzs famzly. shall be allowed as a deduction from hzs gross mcorne:
1 f'ro!.-'t.ded. That said _farnily has a gross income of r.o! rnorc th~:~ T:)_.~J
1
I hundrt?djijty thousand pt?sos (PJSO,OOO) for the toxabl<e !JC'<Ir
Prouz(lf'd. finally, That in the c-ase of mumed tcupayers. ani; :. ~c

~
r-h~:dr ;1:1:-; :~1e folto... in:l, :rJ: rn( \.< .:: ..:: i; J pause claiming the addztiona.l exemption for dependents slw .'i iw
S;lL!rlrs. IH:t of p~,o.UOU \,:::~lloldrrH!. t:1~-. l' ..2UU,OOO entztled to this deduction. I
---~-----

1~)_(1()f)
l()!'}

'. ;.(}!;

.x 1::u

314
 Chapter 18: Accqunting Periods and Methods

4. The ~bie income:: shan be computed on Lhe basis of the calendar

Chapter 18 year under which of the foJlowing?
ACCOUNTING PERIODS a. If the taxpayer's annual accounting period is .->ther t.'lan a
AND METHODS fiscal yedl"
b. If Lhe taxpo.ye:- has n:> annual accounting period, or does not
"711ose u.4J tru.t to ch.Jr..-e rn;;st .. 5Je 6y tf.. rwufts of cfu.na - car.:ir. CooiUfge keep bouks :
l:.If t.he taxpayer is an individual
d. All of the choices
Multiple Choice: Choose the best possible answer.
Answer: D
Reference: Section 43, NIRC, as amended
ACCOU~TmG PERIOD
1. An accounting period of tv:elve ( 12) "ll.Onths ending on the last day of 5. Which of the following may with the approval of the Conuflissi~ne of
December. Internal Revenue first secured, file their returns and romput.:: their-
a. Calendar yea, c. Leap year income tax on a tlscal year basts':'
b. Fi<>::al \ea:- d. Sum of-theye3.r a. Corporations c. Partnerships
. b. Associations d. AI! of the choices
Answer: A
Answer: D
Reference: Section 169, aevenue Regulations No. 2
2. An accountmg :x~::cd of tweive ( 12) months ending on the last day of
any month othe~ :han DPce~nber.
a. Cale:1r.::>:- .''r c. Leap yec1 r 6. First statement: The amount of all items of gross income which the
h. cL Sum-nf-th<:>\'l.'cu taxpayer received, shall be inciuded in the gross income for the
taxable year, unless, under methods of accounting permitted under
Answer: B Section 43 of the T<!X Corle. r~ny ~nrh r~mounts C!rP to Dl" rropi>rly
Reference: Section 22 {Q), NIRC, as amended accounted loi as of a diffen~nt nPriorl.
Second statcnu:~nt: In cast~ ;i ~ !:<:~/d\ r ' [ di('S, <1D10i_: ;~. ~ ,l(',~ru.o:! ., p ~.'
the date of his death shall be included in the computation of his
~:-:~ <'~ ;_! l;t :>nlpt;tfd upon tlH'" bas1:; t)f the taxable income for the taxable period where the date of his death
id.Xpd\f::- --; ,'"' .,:;n: ':;. D~r1od (fisc:d \f"dr ("Jr- ~,_,1~,:;.ct1r \"f",lr, as falls unless it is properly includible in such period or a prior peric;d.
thr r.as;' r~;:- : .tJni.~:l''f' ~x11!1 rt1e rrttthod of ;tt;.:oullting a. Onlv the first statement IS cCJrrect
l'. r1 l.;t~~IYTl'' th; hnok~ of SlJch t:1x:n.l'."t'f, hut the b. Only the second statement is correct
:.:r:dd!~ ;;i, dl (uid,uHc \\i1i1 such,nJc--.rhod as in the c. 8oth statements are correct
d. Both statcrncnts arc incorrect

)-, ~-: d:Jr':--:. r~nt cl(;t:-:\- rctlc\_. :r~l l!H'{)i!1f?. Answer: C

,l. c. I onlv References: Section 44, NIRC, as amended
h d. II onlv Section 170, Revenue Regulations No. 2
_. : f ~-:~ C. t ~ t: n '.! u d '~ ' l
:;:-~~~;._~n:.i.;.: f<.e~~ula:~_tr>ns i"~o . .2

316
 Chapter 18: A:counting Periods and Methods

7. First statement: For the taxal.Hc y c:a1, amour.ts 'paiu or acu ued' or
'paid or incurred' shall be deducted depending ()n the acc_mmting
method used in computing the net income unless dedt,cttOns are
taken as of a different period in order to clea:-ly reflect the income.
Second statement: In he case of tl1e deatl-t of a taxpayer, there shall
be allo-~ed as de~~uc t:ons fo, ::he taxa!Jie P"nod :n which fails tl1e
date of his ckath, amo:.;nts accrued up to the date oi his death if
r.ot ot~"nvi~e nrnpt>:]._ allo.vable in respect of such perioc! or a prior -~r:'s:~:I(~,' .fl~..;:~~.~. ,., ~., . . , ,.,.. ,.
periGd. RefereDce: Section : _RevenueP.ephltioas lfo. ~-201 i'
a. Botb :st<Jremt'I. t' .,rc corrert
b. Both st<~tcmcn;s 1re incc:-rcct
c (Jnl\ the first stc,;cm( nt is cornct 11. Which of the following statements is incorr~>ct?
d. Oniy the secom: eo<atement is correct. a. No return can be made for a period of more than t\velve
1
rrionths. .
Answer: A b. A seoarate return for a fractional part of a vear ts req;1ircd
Reference: Section 45, NIRC, as acended whenever .there is a change, with the approval of the
Commissioner of Intemal Revenue, in the basis of computing
R. Which of rile f.Jl!U\\in~ <.,~_erner:t<> is incorrect? the net income from one ta"mble year to another taxable year.
,, r :-1 t,.,...
-: ti ,., :1 ;Jc'i.-;Juc.l ch:cn!!"~ t~P b?.~i~ 0f
~,.:.~p: :.:._.T .'1, ...... r::.:~,:.l !;,.,.. ,e<.tr, to cal~nJar year, with
c. l ne re4uirements with respect to ti1e Iiling ot a separaLt
\ ) l ~ Li \ J l '-, I. , ~ , , - ) J. ~ \._.. ). -'' l '"- '-'-'
retur::1 and the payment of tax for a part of a year are the
thf" :1pproval ot :~e Commissioner of Internal Re\er.ue, a same as for the filing of a return and the payment of tax for a
sepa:-at<' final c: c;ciJustrrJtnt nturn shall be made for the full taxable year closing at the same time.
::wri~d fwt\\'t'<':: --- .. ,]J:st of th b:st fiscal n?ar for which
d. None of the choices.
: t~'lt:' x.1s !1l:i 'r: ~}~,. toiio\t.ir:.; L)e< t~rnber 31.
: ~:~~- :1.u1~C' l"~ : ,~:r:r!ar . ~":__ - t0 fiscai yt~ar, C\ separate Answer: D
.: <~~ ;: <t-l:t:st:~.. ::1 ;l:.ti! hr n:ddc tor tlw pe-riod Reference: Section 173, Revenue Regulations No. 2
. '~ '-.\ r~, !; 1 ~: ' ' ; ,-.,r t 11t~~Ln ':r;lr for \\hirh r~turn
:l ,,i ... 11'' ., .. t"n.;r~i :)c.; the clo~t-~ 1: tht~ fiscal
12 TlH' tcn11 n:ft~rs to build~ng, in;.ildl~.::~1on ui Ci.Yi1:-lt!'U.Ltlc_~~i .__ . ;n~LJ:,.~
t. , ( ':. - tr \fJ ctnoth~~- :iscrt! \ear. a
covering a period in excess of one ( l J year.
'"' ::-- I r , .. :1 '-'tnll lw m.l<k for rlw a. Long-term contracts c. Construction in pr<>~r,s<,
b. Short term contracts d. Contract of lease

Answer: A
Reference: Section 48, NIRC, as amended
1\aswer: D
References: S~ction h) .ud J. T, (c\i, NIRC, as amended
Section.:. Re;enue Regulations No. 32011 13. Persons whose gross income is deriveu in whole or in part from
building, installation or construction contracts covering a period in
:1 Tht :-,., 1,ws: 'n:- apprc:al cf the charw:e in accounting period should excess of one (1) :vear shall report such income upon the basis of:
'1": ::.;-; "' :l<>\1' many d.c;s pri:-.r to the a. comp!crec! contr.~;t. ,. acc-rual
:.: ::.< fY'r:.xP h. pe,ccntnge of completion. d. none of tl:,, dmi< t':S.

Answer: B
Reference: Section 48, NIRC, as amended

Answer: C
Reference: Section 4, Revenue Regulations No. ~-2011
 L.flcli.Ht!f H); tl.\.:C.:OUiltlllg t"'t:HOU.S cllll.l J\llt:UlOU.S
Chapter 18: Accounting' Periods and Methods

14. Which of the following instanr:es does not give rise to short
accounting period? . 16. Which of the following statements is correct?
a. When the corporation is newly organized and is using fiscal a. Income which i~ credited to the account :>for ser aj)an for a
year ta,xpaye;- and which may be withdrawn upon by him at any
b. When a corporation is dissolveci time is su'!Jject to tax f.Jr the yer.r durin{; whkh so creoited or
c. \'/hen a corporation changes accomti11g period setapart, although not :.h.::n actually reduced to posseSsi"l.
d. \\'her, the taxpayer diPs b. To constitute constructiv:: receipt, the hcome must be
credired to t~e ta"<payer \\ithout any substantial lirrJtatior or
Answer: A restriction as to Lhe time or F"lr!ler of payment or condition
upon which payment is to lk made.
c. The docrine of consuuctive receipt of incor.te is dcsig11ed to
15. \Vhir;1 one of the followin5 is not a:1 essential of an acceptable prevent the exct:1sion from taxab1e incom-: of items, the actual
accounting method? rece!pt of which could. at the 0ption of a taxpqyer on the cash
a. There should be distinction between revenue and capital basis, be deferred or indefinitely postponed.
::xpenditures.
b. E;>..penses to restore property or prolong its useful life should
d. All of t!le choices. '
be ad(!ed to the property accoPnt or charged against Answer. D
depreciation. Refe ..ence: Section 52, Revenue Regulations No.2
c. In a!l cases in which production, purchase or sale of
:::erchancllse :sa;: incom<> produnng !actor, mventories at the
hegmn:r.g and at the end of the accounting neriod should be 17. One of the following is not an example of constructive recei1Jt of
considered. income:
d. The accounting method shnuld adht>re strictly to generally a. Partner's distributive share in the profit of a partnership.
accepttd accountilll~ princip]('S. b. IntPrest credited to the account of a ta-...payer and which he
may withdraw at an:. time.
Answer: D c. Interest coupons which have matured.
R~ference: Sec_tion_l67,Revenue Regulati~l!_~ }'!().__2______-.,--,.,----, cl. Corporation contingently crt>dited stock bonus, but the stock
... ,. ,~.,: ~ o,-,cHa,rrnrl ~t!)ff.J,, J ",- reco~(nizeci f;y tile Tnx 1
is not available to the ernplon:t: untti ~".1rne !utun cht<.

' ' ( I ,; , .~ { f! '; I

Answer: D
Reference: Section 53, Revenue Regulations No. 2
''r/{lrj (l_f ill , ",. , ~ i!J ,-, 'J ~ ., , , , utc <Jnlr> (~r

18. A method of accounting which applies to a farm,-r who is engaged in

, . ,. i>::s::
producing crops which take more than a year from the time of
planting to the time of gathering and disposing. The t>ntire cost of
producing crop must be w.ken ;Js ;1 deduction in th(' \Tar in \\hich
,,-. ,,~ ')' ,()!..''':: 'i -,:_ J;l' !~;r~~:-~r-rihecl
the gross income from the crop is realized.
:?<J I fit'::,, T.'I(J,riir "ifu;! t'(d'il i.\j-JU_f_lt'r sJtofl a. Cash basis; c. Crop basis;
"',c:; u:u ..!J:.:,"'' J,' u' u:u.ru::; u:o ure 111 I1SjWlyment b. Accrual basis; d. Installment method .
. ,. 0 ", ~u~ f-/rn:t Jf?OTL::. :Vn :}_-~L ___ _

Answer: C

320
 Chapter 18: Accounring Periods and Methods Chapter 18: Accoimting Periods and Methods

19. First statement: A taxpayer \\ho chr:nges th~ JTiethod of c>.rcounting or otl:envise disposes of personal property on the Installment piun may
emplo\ed in keeping his books shall secure the co:~sent of the return as income therefrom in ariJ -:1.xable yec.r tha: proportion ofi:Je
Commissioner of Internal Revenue Lefore computing his inrome installment payments actually received in thot year, which the gross
upon such new metnoC: for purpo~e;; of taxation oro.fit realized cr to be realized wJ,en payn.ent i.s completed, bears to he
Secnnd statement. If for anv reason the has~s of rcp<>rting income total contract pria:..
subject to tax is .-:h;'ngcd, thL ta:q;ayer '-hall attach ~o !.is 1etur:1 a
separate st?tPment ::ettillg forth [,)r the taxable year and for the
'n th~> <..ase {1} of a casual sale ur other casual disposit'or' of personal
property (other t;flr.. prop.:rt:J of c; k:hd .vhich wculd properly ve
pn:c.~dJ'~ \Tar tht' classes of items ~iffercntl\ t: eated umier the t\\o
includ d ilL he mLentory ofth...: ,wq:;ayer if on hand at the dose of the
0

s-.st,_;;s, s"Jeri.\: 1g in :articular all a'TIOUPts duplicatt>d 1;1 entirely taxable year}, f:-r a prier' exceedinft One tho:.sand J-le...;os IPJ.O(it)). or
or;tiL:t:d as a result uf such cha::f!.P. (2) of c :sale or other disposition of real property, if i:. ell her rase the
a. True. True c-. True. False : initial paymens do not exceed tuenty-five per~ent (25%) of the selling
lJ. False F;.ist d. False. True I prict:, the income may, under the rules u.nd regv:..rtions prescribed by tnF

Answer: A ~;:;:ro1i:r:~:~~~;;:~mmendatio~ of the ~omm.~~~~cv:__~'_~e---

22. Which one of the following is not a condition for reporting income
u.1der inst<.llmer.t ;nethocl b) a casual seller of per::;onal p:opcn:?
.>;\ ii'::::. Cl'\! Wl::": lw t~ross ir,o::w is rerortcd naniallv in each a. The selling price of property exct>eds Pl.OOO .
I<~Xd;J:~., ~ : Ll ;1i :)ntrlorl r~ . ~-~r)ll~rtions r:~:tdc ir. SU('h period as it b. The initi~ll ;x1yrrents mus~ not exceed :2su" of the St'ili'lg pr.rr,
bt;tr~-; {J:t :::e tota: ~'(Jn!racr pr!( t, 'his nf~_;s ~o c. The property sold is not a ki'ld whir.h would be includible in
<t 'Tn;) \ t'<l!' h.tsrs rn<'; i:. ,, I ,. . ptn('JI t;12,e of completion method the inventory if on hand ?-t the close of the taxable year.
h ,u,cni d lll 1 -thud d. ins~allrncn~ sal.~s rnethod. d. The seller is a natural person.

Answer: D
Reference: Section 49 (A). NIRC, as amended Reference: Section 49 (B), NIRC, as amended
'>)>",

~:). First statement: Persons \lho s<li "r ol iwn1 ist dtsiJO"-<" oi ; ,,d
propt-rt\. ;~r;! .. on'Si<1<rcd <ls ~ .. ,;~.J; ,1:-;st"'i. :t~c ::-:::::: :;;.:.::''-::
il
\\"hich do not cx<<'f'd f\lrntlfi,, ptnrnt [..2:)".,) nf h silm:>, prH
,; -'t ; ;;!' 1/fo)',.
maY use the installment m<t!:u<! to !"('port the :;:tin 011 tht s<tl<.
i .. ., ..
Seco;1d staternent: An individual._, hn st!!s or dlsp{J:.-,t~"-) of nai
propertY. consi< 1ered as capital ;;ssct. and is other..!st qualiti<d u,
report the gain under installment method ma\ pd-. the ciipilid !!;~::~:;
tax in installments under rules and regulations ro ht prornulgiltt'C
".
'. i' \\. ,' ',(t::

::i r:: ,:.1: ;;J\

' . : ) f ' : l . . : i l 1~ ( )!
Com rn issioncr.
a. True, True c. Trw. F;;lsc
b. False. False d. F<!lst. Tnw

Answer: A
Reference: Section 49 (B) and {C), NIRC, as amended

"~ + The p;l.\llll'i'!! ncti\(d i:: (';tsh ()~- ;,:,iH~--. r'.~ll: ,;1 . :1r_( .:-
indelnedness due and pavable n1 ;;ur;st"qcl<'!ll ,,;;t"' .s !Ji'<JJ1i:c,c;,;.
notts, 1nortgage gtvcnj b) the purLnd:-.,tr du: :11g till i~t.:.. d:JJ~_. .(,1; ~r.
i{elerence: :::>ectiorl -1-':ol (A.j ..tnd (nJ, 1'1lRC, as amendeci .. which the sale or other disposition is made.
-.' ' ~ ti ,-,
( ':'',]/' .p, .rp } { ' ( i h_u :_,. :-.;(-: n':;u~f ofFinrntct. Initial payment c. Contract price
~. ,,,u,..~;..:,tL!.!~t-~~-. u J!l~~:-<..,_9_~-~--~~~-C?_~gulur/y ~ell::> ; Fair market
 Chapter 18: Accounting Periods and Methods

?~ M~. AvP:en 1'11aznn o\vns a car, which she bought for P700,000 on
Answer: A
References: Sectiun 49 (B), NIRC, as amended
Janu~ 2, . . . She uses the car for personal purposes. On
December 1, iiiiii she sells the car for P800.000 under in<>tallment.
Section 175, Revenue Regulatio~ Ro. 2
The following terms are agreed upon by Ms. Tuazon and the buyer.
Do~ pa~'lllent, 1)ecember 1 P 100,000
'25. Ti1e total amount or pncc of th'! :sale inclu~i:r'g the cash or property
Amount paid, Da.err.ber 15, iOO,OOO
Installment due, Dec.:!mber 1, 300,000
r('>ceived and includin~ 211 notes of the buyer or m0rtgages assumed
~Y. him. Installr.lent due, December 1, 300,000
a lniti;:l oaymeqt c. Contract prir<>. Th:! aLC'lmulated deprec.aLion of the car as of December 1, mf-1 is
b. 3ellmg pr:~e d. Fair markPt price P408,333.

Answer: B How much ir.; the taxable inccme in 2GI 1?

Reference: Mitchie's Federal Tax Handbook, Vol. I, page 697
a. P 100,000 c P 12,500
b. p 18,750 d. p 10,000 ,
26. r~'-' amount which ttw purchaser contracts to pay the seller i"1 cash. p
Selling price 800,000
a. lniua! payment c. CGntract price Less: Cost ( 700,0001
h :-kihJ'{ price d. Fair rr.arket price Capital gain (long-term) f IQQ QQQ

A".swer: C Recognized gain 150%) I; suooo

Reference: Mitchie's Federal Tax Handbook, Vol. I, page 697 .~ - (PSO,OOOI P800,000) X ?200,000 f 12 SQQ
Initial payment 1 Selling price= ?200,0001 P800,000 25%

.!; :\ ,n;lpan\ en~!.<H;<'d ill h;lllling sold:~ hauling truck in installment on

Note: w'hen the property sold is capital asset, the basis is its cost,
. i ' 1. 2011. Tiw !'o'',\\ 111 cbt;I \,,.,_,. pnscnted in conn<-ction with
not its tJOk value .
;: s.dt~:
Tl t)-::n nnn
'')(')1 1
l ,,)\1,1.1\J\.J
29. ivfs. Oline Rosales, a real estate de~ler. sold a real est:1te fo!"'
"~n r~n~:
~.000.000 on ~!o. ~mber ~0. ~01!. T!:t~ c0st efthe pr-fJrP:t':' 'X:1S
Pl:soo:ooo. The terms of the s.1lc ,,-,~;-.:as follows:
.'. 11 t"' ::: .I 11\ i. 201] .! !:).()()() Down payment P 400,000
1--.,(,'! i!!i~':l: r]ti{' . . ,]!\ 1. ].{)12 ) ) .
:) ()()()
Balance, payable in monthly installments on
I ,\J.OOI) PlOO,OOO beginning December 29, 2011
!\:
until fwly paid 1,600,000
i) I'_-,. ()I)() How much was the income in 2011?
a. P300,000
b. P125,000
.\:-1,;wer: C c. p 75,000
l> 'JlJ\).()()() d. None. Subject to 6% final tax
' ' ' ', ~ ' :' ': ) j ) -, :I ~ . ;I ; : ) ! O)IJ(),()()() I
:I H),' )I )I}
;..A::n=sw.::..::e:.:r:.::...:B=------- _ _ _ _ _
Sellmg price p 2.000.000
Less: Cost I_L_:'iOO.UOU)
Cia in ~~ 5flll,_QQ~i

I P2,000,00l!: \. F::iUU,lJO()
.Vote J'l
I 2011- (P500,000
Initial payment::; I Sellmg pnce ~ PSUU,UUU/ P2,0UU,UUO
I' - _I ,2:~!-JVcQ
~
 ~--l-.-

Chapter 18: Accounting.PeriodSand Methods

30. Ms. Achie Dizon sold a personal property, a capital asset, for
P600,000 on ~larch :r,, 20 ll payabie as iollows: 31. Ms. Jam Ranillo, a real estate dealer, sold a real property for
Do\lin payment p 100,000 P200,000 on October 29, ~&'it in inst~lhnent. The cost of property
Installment due, 2012 200,000 was P150,00(). The terms ot the sale agreed upon by Ms. Rani.tlo and
Installmert d'le, 2013 2oc,::wo the buyer were:
The pro:-wrty was purchaserl on Ma.:- 19, 2010 at a co::.t of P270,00::>. Down paymen! _ . J.> 40,01)0
It y;as rr.ort,;z-.ged witi1 a balance ofF' i 00,000, which was to be B<:<lancc is pa:,:::.ble in montl'>ly installments
ass ..:med by the ouyer. r;1e commission on the sale was 130,000. ofPlO,OOO iJeginning November 29, 20.U
\.Hltll fully pai~ 160,000
How nuch was the returnable c~pital gain of Ms. Di?.on in 20! 1?
:l. p C)() fj( ;() c. p 30,000 How '11Uch \\"lS the taxable inccme in 2C 11?
b. r) 6U,,J00 d. P 15,000 a. P 50,000 c. P 12,500
b. p 15,000 d. p 12,000
Answer: B
~-------------------------------------, Answer: A ,
l.sel.ling ?rice i' 600,000
II Le,.;s: ..... ost p 270,000 Seliin~
Less: Cost
orice
(
p 200,000
lSO,COO)
I 30.000 : 300,000)
PYJQ.QQ2 Gain Li:iQ...OOG

?Ol i - f'.:iJi) ''''J 1

P:'i')li.<JOO X P\00.000 E'..=P.Q..Oi?.Q Initial payments I Selling price (P60,000/P200,000) ~t~

Initial payments
p 100,000 Down payments p 40,000
F\P.-. pil;p~:~nv rcn.::\l'd Add: Installments, year of sale
In...,~~t~l:-:~.:;!r qhlJ~~-~:: )n_s 400,000 November 20. 2011 p 10,000
\!n:~~'.d~~~-~ ,Js:-;llt11n; 100 000 December 29, 2011 10 000 20 000
~,-::l:. :~ ~ P JV_Q,PP.Q
1
Initial payments e=~ZP.,QQQ
,, .. .-

P hUO.OOO Note: This is an example of "Deferred Payment Sale not on the

Jnstallrnent Plan" bcc:ntse rite t-nitiui puyrnt-'nfs cxcc:e1..i :::)',) o_(:;~e
( ~!J!O. U012}
,, ' ,::,(j

f' ~')f),()t)!)
'--------------- ---------------

i ).. i' 1 i)(),()()() 32. Thi:;,m~'thod is based on the accounting formula that an incr(>ase in
net worth plus non-deductible disbursements minus nonta-.:able
receipt:;, equal net incorne.
f' 1)(),1)()\l
a. Installment mf>thnd c. Cash rn,.,.thrtr!
i ,.
b. Accrual method d. Net \Hlrth nwlhud
~----------~-~~~~-~

Answer: D
Reference: Perez vs. CTA andS_~~y__!-_:10507,_~~y_30,_!?!?8_~--
lnct-dentctl!l 1. net zcor:l1 '!i't'i'lvd! r:~J' (i1 1 ll'COtl11tl!I~j n!:'tlidd ~:~ ;.'/. lj~,~
;;crcl_rt (JT! c:icft.ncC :;j"{r.--r,H!/(' .. ;,,, _rn..,r~ ;--.fc UU(],,-!t/inr/ (i'," ';l_,r: 1n/r 1 .'/ '1,~

rn; i"~Cre<lse n~ the r'-'t- unr~i: nf,; ;n_-,_n'l:i r r!.-::;t,--; on tht' rl:c:r:; tl!t: ,' 11r
un incn.ost? rn net u:ortt~, ~runrt'fJO,-tt.,d unrl not t'xpluint'd ;,_~_~ ~h,-
tnXJ)(lyer COT1H?sfrorn inr"Onle dtrl:~rl
1
,:rr)_'-,1 d tuxnhl~-: .-->IJIJrrP

326
 Chapter18: Accounting Periods and Methods

33. The Bureau of Interral Revenue is using the Net Worth Method of
Chapter 19
investigation on Mr. Art Angeles, a married taxpayer with two (2) TAX RET'URNS PREPAR.t\.TION
qualified dependents. The investigatiun covers the years ~_!o AND PAYMENT OF TAX
2011. Th:::re art no discrepancies discovered fer tht: year:.>~ to
20'10. However, tr.e BIR discovers discrepancies for IZBU. Mr. "(Jejorr an_ytfiing tls, preparation Is t6e l{fJ ttl succes.
Angeles paid P20,500 inco:-ne t::..x on tt!e !ncome declared for ZO!l. - )ff&rt 'Ein::!l!i.
The asses, liabilities and net W')rth at the end of 2UiG and 2011

12.31.10 12.3l.li Multiple Choice: Choose the best pcssible answer.

.\~sets p 700,000 p 900,000
Liabilities 200,000 100,000
Net worth p 500,000 p 800,000 1. A sworn statement i.."l which the taxpayer discloses tl:e nature and
extent of his tax liability by formally making a report of hiJ income
The following data pertain to 2011: and allowable deductions fer the taxable year in the prescribed form.
:ersonai, faxuily and living expenses ? 72,000 c. Letter of authorit~
a. Income tax re ~ a.ru
rJthe:- non-r!eductiblf' expenses 30,000 d. Letter of intent
b. Tax assessment
Philippine Lotto wmninf_;s 100,000
Other non-ta-:able income 22,000
Answer: A
H:.::: ;r:uc:: .J rhe ckficiency income lax per investigation?
a. P 32.5()() c. P 6,000 2. Who of the following individuals shall be required to file an income
b. P l2.C)O d. None of the choices tax return?
a. Every Filipino citizen residing in the Philippines
Answer: B b. Every Filipino citizen residing outside the Philippines, on his
;._., .<, ',, .. :. l1 p ?>00,000 income from sources within the Philippines
.,.,.,,. ,. . _ tO 500 000 c. Every alien residing in the Philippines, on income derived
300,000 from sources within the Philippines
...... ) 1'.11/;
d. Aii of the choices
I : !_ ( 1 I', ': ; [ ~ '. :...:. i) I -,',JV''

:30,000
\ 1'1: 100.000)
Answer: D
,,., !' lll }::.~, 22 000) Reference: Section 51 (A) (1), NIRC, as amended
1
f' 2B0,000 F.very nonresident alien engaged in trade or business or in tfze
f' .)() '(l()() exercise of profession in che Philippines is also required to file an
__ ,,l)J_)f).'_) l 00 ouo income tax retum.
p l8(),Q()Q
p 32.500
( 20 ::;oo) 3. Who of the following individuals shall not be required to file an
. :.. l: P. d,~...,_Q()<J income tax return?
.. - - - - - - - - - - - - - - - - - - - - - - - - - - - - ' a. An individual whose gross income does not exceed his cOtal
personal and additional exernpt10ns for dependent'>
b. An individual with respect to pure compensation incnnw
derived from sources \\'ithin the Philippines, the inconw L\':
on which has been correctly withheld
c. An individual whose sole income has been subjened to final
withholding tax
d. All of the choices

l ' ) ()
."'l ...... tJ
 Chapter 19: Tax Return Preparation and Payment of Tax
AI::s""Ae:-: D
Reference: Section 51 (A) (2), NIR:C, as amended
An individual who is exempt from income tax pursuant to the provisions
of the Code and other laws, g~::neral or srecial is not required to file ('n
in..:ome tax return.. Excmples cfthe<>e ineividuals are:
1) M:.:uMurn. wage earners (MW) who work m the private ">ector and
being paid the s.atutory minirnum wage {:iMW), as fiXed by Regional
Tnpartite Waqe and Pnductivity Board or National Wages and
ProductiVIty Commission, applicable to the place v1here he/ she is
:.1 E:m.p/oyees in !hE public sector with compensation income of not more
tic an the SMW in the non-agricultural sector, as f.xed by Regional 1
.j
Tnpartite Wage and Productivity Board or Nat:onal Wages and
Productivity Commission, applicable to the place where he/ she is 1
assiqn~crion 1, Revenue Regulation~ No. 70-2008 pages 3 and 4.}1
.1
'- First statement: A citizen 0f h-: Phil:p;Ji:~es and any alien ir,c!ividt!al
en=:aeed in business or practice of profession within the Phil!ppine
s~: :" file an in com~ tax return, rega:-dles:; of the amount of gross
Secor:d statement: :\n individual deri.-ing compensation concurrently
f~c:~1 two or more employers a any t:me during the taxable y~ar
s:: :: file a" incor.~e ta.>c return.
C'l:llv the flrsL <.;\aternent is co::-~~ct
Bu~ h s.taten:-len~s an- corre-ct
Onh the''~( -~wl statement :s ''1:-rc:t
.~1L)'-.. er: B
Ref;c~ence: Section 51 {A) (2) (a) and (b), NIRC, as amended
,;f'rn,r:t: }->: ;_-~ :;1 (';\sts -.\h~-~- +:H C''J:nrni;sior~tr
s. tiw ~<1< ,,,.,,. .1x nturn sh.::: ,,. ;iled .,,qh an <~Uthorized
'>dnk. [~,-.:: ... U:strin Off!~:- C.'"ik<t1on ,\gent or duly
::-:~.~~t \'n: . t,,;:- ,,: r-h, (trv ():- : d:JI lp,di'\. 111 \\hirh such
i:. 1 s ! 1 :~, .t~.~-t. ;t-.Hl~nce o: ; ~ .~-;~ lp,tl pLtct~ of business in the
;tntcmcrit :::::~:: tdxpaver ha:~ :1o lf'~dl residence or place of
c,s 1n t[ci' P'i,:lnr">. rlw inc<cw t:~x return shall he filed
. '}
'''!\
.:\:!3 ...'-'r: C
Reference: Section 51 (B), NIRC, as amended
330
Chapter 19: Tax Return Preparation and Payment of Tax
6. The filing of the ITR of an individual deriving income purely from
compensation who is required to file an income tax retum shall be:
a. on or bef.::>n: the fifteenth (15th) day of Apri~ of each year
covering i<lCO.lll~ f~r the J:receding taxa~le y~-.
b._ on before the fifteenth (15th) c!3.:',' of the fourth month iollowinz
the clo.::;~ of tlte taxable year
c. un or before the thirtieth (3Qth) day of April ot eaci1 year
ccvering inco;ne for the preceding taxable yec-r.
1. none. of U.e choices.
I
I Answer: A
: Re!eTence: Section 5i (C) (1), NIRC, as amendeJ
,
7. First stateme,t: Indlvidua! ta..'l!:payers receiving purely compensation
income, regardless of a:-uount, irom oniy one employer in the
Philippines for the calendar year, the income tax of\v;iicl, hc.s bctn
v.ithheld correctly by the said employer shall not be required to file
::m in~cme tax retu::-!1.
Second sta~ement: The Annual Informc.tion Return of Incorr.c Taxes
Withheld on Cmapensation and Final Withholding Taxes filed by
the employers of employees receiving purely compensation income,
regardle~s of amOUI)t, from only one employer in the Philippines for
the calendar year, shall be tantamount to the substituted filing of
income tax retums by said employees.
a. Both statements are correct
b. Both statements an~ incorrect
c. Onlv the first statement is correct
cl. Onlv the second statement is correct
Answer: A
Reference: Section 4, Revenue Regulations No. 3-2002,
othenvise amending Section 2.83.4 of Revenue Regulations
No. 2-98
8. A capital gains tax return for the sale or exl:hange of shares of stock
not traded through a local stock exchange as prescribed under
Section 24(c) by an individual shall be filed within:
a. ten ( 10) days after each transactior.
b. twenty (20) days 0ftt>r Pach trans;J.Ction
c. fifteen (15) days alter e;cwh transaf'tion.
d. thirty (30) clavs after each transaction.
Answer: D
Reference: Section 51 (C) (2) (a), NIRC, as amended
 Chapter 19: Tax Return Preparation and Payment ot Tax
Chapter 19: Tax Return Preparation and Payment of Tax

~. TL.e f:na~ co:t~~!idnt~d :-ctu!J C()\"ering 311 st'Xk trp.nsetction!t cf t_he

preceding laJcable ~ez.r of an inc.ividual shall be filed on or before: Answer: B
a. April 15 of each year. Reference: Section 51 :E), NIRC, as amended
b. Aoril 20 of each year.
c. April 30 of each year.
d. r1ont> of the choice:;-. 13. A taxpayer, widower. and his fie :5) chilriren ~ave the following data
f.:>r the year 21)09:
Answer: A Gross 1:-usiness income (taxpayer) P 120,00C
Reference: Section 51 (C) (2) (a), NIRC, as amended B 1 sbess expenses 30,000
:ncome of <.;hildren:
Abigail, 16 ye<trs o1d, salary ,o,ooo
10. From the sale or t:isposition of real property undl"r Section 24(D), an Bet!1, 14 yeurs old, income from property
individual shall file a return within how many days follmving each inher:ted from her uncle 50,000
sale or other disposition? Cathy, 12 years old, income from property
a. Ten (I 0) days c. Thirty (30) days received as gift from t!'le taxpayer.
(donor's tax h?oo; been paid)
'
60,000
b. Fifteen (15) days d. None of the choices
Desiree, 10 years old, income from property
Answer: C received as gift from the taxnayer
Ref~rence: Section 51 (Cl (2) (b), NIRC, as amended (exempt from donor's tax) 65,000
E!;mily, E. years oid, income from property
received as gift fro;:n the taxpayer
11. Fzrst statement: Mamed individuals, whether citizens, resident or (donor's tax not yet paid) 80,000
n0nresident aliens. v.;ho d::> not derive income purely from Question 1: How much is the total gross income of the taxpayer?
compe.1sation, shall file a return for the taxable year to include the a. P375,000 c. P200,000
::-".rom~ of hoth ~-;p0 1.1ses. b. P330,000 d. P120,000.
<,h on <I stoternent: \\'h,re it is impracticable for the spouses to file
.:~,.-return, ach spo.:s<~ may file a s<parate return of income but Question 2: How much is the total personal exemptions of the
:~r- r,~tu;-rts sn f::~-: :-;:-:;::~~ be consol:(Ltted by the Bureau of Internal taxpayer?
.~j]lt' !;f :)j;',)',t--.'.1; cnil~~~~!~l!: ~\li" :il~-: L:iX;i1JlC ... ear. a. Pl50,000 c. PSO,OO!l
Bl1tl1 :-:;t;t:~r;:~:,~" drt~ corrc~t b. p 75,000 cL None of the choices

Answers: Question 1 - C
Question 2 - B

Answer: A Question 1
?ference: Section 51 ID), NIRC. as amended Gross business income ltaxoaverl P l 20 ,UOO
Add: Income from prop~rt);fl:ceiv:d CIS gift frnrn tlw
taxpayer by Emily k() ()()\)

._ .. !:wn:ne of unrn;;r::d rnmors derived from property received from Total gross income ~_1.)Q,9SH2
::,!n; n:uent shall:,. mrluded in the return of the parent, except:
Question 2
t'" : : , ,:.- .; : ,x h:1s ht't"1 paid on such property.
Basic personal exer.>ptl';n P :JO,I i1 !(!
\; >>LH:l~ ~-- ;:;~"rtv 1s ext"Il1pt frorn donor's Additional exempt1o:: iEmil\ <>ni\'! -~~ ~(!_(_~~l
Total personal exemr::c>ns tJ ~ ,)/j
~-------------------------------------------~

1 : ; I_) ~ : ~ ; - ' \ 1 l: '

332 333
 ------------------------
Chapter 19: Tax Return Preparation and Payment of Tax

Answer: A
14. ~vh!cnot the followmg statements is mcorrect? Reference: Section 52 C , NIRC, as amended
a. If the taxpuy-:r is unable to .nake his 0\\-'Il return, the returr, (C) Return of Corporation Contemplating Dt.:sohltton or
may be made b:, hi~ duly ~uthorized agent or representative Reorga:tU:ation. Every corporation shall, uithin thirty (30) days after
or by tl:e euardian or other J=.d.::iOn ch:1:-gcc with the care of the adoption b1.1 tJte OOtpC'I ation of a res~Iution cr p1a"t jor its dissolution,
'tis person or pro~rty. or fer the liquidation of the whole 0' any part of :ts ropr~al stock.
b The pri:H-i;J::U and his representative or guardian shall assume in.Cluc';rtg a c:Jrporation which hns been.wtified of~~'e involunta;y
the responsiuility of mak;ng the return 8. ld incurring dissolution by the Se(.wities and Excilllll!:~ CcmnJ~sio.-.._ o~ for 1ts
nen~ltie<: provided for erroneou<;, fi:Jlse or fraudulent returns. reorga:-tizatinn, render a correct return to the c:ommissior:..r, l,)er7fieJ
c. The fact that an individnal's nam(. is signPd ~o a filed return unrier oat.'t, setting forth the tenns of such resolution or 'l!an and sucn I
ot.~r infoTT'1.ation a!' the Secretant of Finance, :..pon rec:;. 1.mendation of '
shall be prima facie evidence for all purposes that the return
'Va~ actually signed by him.
the commissioner. sf.all, b!l rules and regulatir:r:..s, prescribe 1

I
d. None of the choices.

Answer: D
.
1 The dis$nlving or reorganizing corporatwn s:--.all, prior to the issuance by
the Securities <.<nd Exchnnge Commisszc..n ofrhe Certificate oj Dissolution
or Reorganization, as rru:ry be definer! by rules ar.d reg-,;:lationa
.

Feference: Section 51 (F) and (G), N!RC, as amended I

. presmbed ty the Secretary of Finrnce. upon recoTcrr.e.,dation ofthP
Comr.,issioner, SP.._urc:: a ce11ifi..:u.t~ vjtux dearer,..' fr.:.;m <he Bureau of
1
,li

Internal Revenue wl>ich certificate shall be s:r.;bn-,.-ri 'J 1-,p ,c::,,.,,,;li""

15. Which of the following st:1tements is incorrect? and Exchan e Comr,tission. _j

.L 2>c:-:, c o;,K,;;,.Lcn !,t:bject ~u ~-t:-.:, excqJL bce;g.1 c.c.rpuratioJ.~

not engaged in trade ,)r busmess in the Philippines, shall
render, at !t:>ast in duplicate. a true and accurate quarterly 17. EvetT cor;>cration den\ing capital gains from the sale or exchange of
income tax return and fin:-tl or adjustment return. shares of stock not traded through a local stock exchange shall file:
h. Tlw nturn c;hall ht> fi!td h\' .;,,. pr~"sideL . vice-president or I -a return within thirty (30) d<n s aft~er each transaction.
nt!:r prinr;;)c\: officn, :tnd ,;1 lw ~;\\'orn to by such officer II- a final consolidated return of alltransactJOr.S during the
:cHi iJ.,; !h~ .. tn~asurer or :ls:-;;~,:~!:lt : rcasun:-r. taxable year on or before the flf-:eent!;; 1 Srf-:l --_!ay cf th(~ fourth
.\ ('{!i~porrt!l;n r~:t'i\.' r~!n; t~i)\. f':~~--~r- rr!ltndar ~t~ar or fisc:-tl year (4th) month tollowing the clost> of thP ra_xa:.:>Ie :ear.
:! .::!'-::s '::- :::::::_' :t~ 11 ' 1 \ ~;;). t:t:: retur:-1. a. l only ~: TT

", '11 ~>1 t 1tl, ~ t"\r.. ri,-,.rl ,.,..,., t"'llr-.' ......,,.l

>I

. "', '-; '< ' F " ~-

" "

: l '-~ >)!"1
""f"

:! :~'-C.
-
"
:.:i :.;l<tlnwnh sub!llittecl bv Answer: C
; 'he 1n{or~l\' LJ.:-~ :z.turn filed. Reference: Section 52 ID), NIRC, as amended
c\ns-.ver: D
l-<.ekrencc: Section 52 (A) and (B), NTRC, as amended 18. The Commissioner may grant ei rt>ason2ble xr,ns; .,f m: fnr fillll!'.

returns of income (or final and adjustment retc:rns ::: ~:";;;> <;f
corporations), except in wh1ch ot the tuJ;c,.,,;::~. _,_,,.,;
</:,;, ,::i[1i;t!Jn_;.~. fiis'".;o)~~::on nr a. Destruction of books of .wnHmrs a:1c: n:i!-:r r-,_orr:, >t ; )w
: :~' u: n tc' th(-. Curn;n!ssioncr of taxpayer through fire, tluod or t\plwo;' ::nd the ;,a:d books
'~-t_'.s d!-~er tlH curpo~ation and other records are in the process oi rconstruction
!::~ ;r)itlri,-)t1 ~lr rcon.:_-:anization. b. Epidemic, pestiknce or otLer ci'lletmitiP-: nr,.\:-Pii:J" in c;nific
sectors of thr~ countrv \\h~re tlw t;::::>t'-": ::-.< :~ ,; \\ ... , ,;,,.
principal business is be1n~ ccn:di, :i
c. Sickness or i!!ness of th.' ,un,c.!n:CJ:l'. :,,:Jr::-:--:c":- : ,, ;
manager or proprietor of the :H.lsnwss
,, .. ti r '(
I
d. None of the choiCes
;!

C!nl\ the sermd statement is correct

-:335
1 '>t
 l..llapter 1 ':J: Tax i{eturn t'reparauon anu t'ayme.m oi 'ax
Chapter 19: Tax Return Preparation and Payment of Tax

.A_nswer: C 21. Which of the following statements is incorrect?

References: Se.::t:ion sa, NIRC, as amended a. The total amount of tax imposed by the Tax Code shall be
paid b) the person subject :o tax at the time the return is
.-::-----.,--=Se=c:::..:tio::J.l&3 Revenue Re tiona No.2
Section 53. Extension of'Jtme tv Fi!e Retl!rr...!'. The Commissbner fil'!d. -
may in rneritorious cases, grant a reasonable extension of time fo. fil:ng b. In the case of tramp ve 3sels. the shipping agents and/ o. t:le
IC'llii7ts of U:C'JMe (or {inc.J and aajustment rePms in case of h11sbanding agents, and iil their absenc~. the captains thereuf
coporaz:onsJ, subjeci to tr.e previsions of Sectio.:_"l 56 o ~this C::>de. are requir::!d to file the rt::tUJT> and Pd'' the ta.'t dt.e thL eon
before their departure.
c. Upon failure of the said agents or captain<> to "He the returr'
1. F:rst swten.ent: In cases wherein receivers, trustees ~n bankruptcy or ~no pc:.y the tax, the Bureau of Customs i!> author.zed to hold
assign~es are operating the property or business of a corporation, the ves~et and prevent its deparr~re until prod of payment of
subject to the tax imposed under th~ Tax Code, such receivers, the tax ts presented or a st.fficent bond is filed to ..inS\ver for
trustees or assignees shall make returns of net income as anrl for the tax due.
such ccrporation, in the same manner and form as such
organization is required to make returns.
d. None of the choices.

Second statement: Any tax due on the income as retun1ed by Ar.swcr: D
rc-ciYers.. tn.J.ste~s or assignees sha 11 be assessed and collected in Reference: Section 56 (A) (1), NIRC, as t>merdett
the sar:1.e manner '1!:' tf assessed directly against the organizations
"f\'-y" :- '-:.: >i:wsses cr ;;ror;crtios ti-:ey h:.;::e ::;:.Jst:::dy cr ::;ontr')l.
a. B,,,h statements a~e correct 22. Which of the following stat~ments is correct?
b. 0:--:,\ the first statement is correct a. When theta;.;: due is in excess of Two thousand pesos
&:.: h statements are incorrect (P2,000), the taxpayer other than a corporation mas elect to
d. ('-~>.-the second statement is correct pay the tax in two (2) equal installments -
b. In case the taxpayer other than a corporation is q:.:alified to
Answer: A pay the tax in installments. the first install::-:er: sf:all be oaid
Reference: Section 54, NlRC, as amended at the time the return is filed and the second ir.sta;Jment: on
Section :;.i.~Ret"u~.s ~fRe;;~i~;;:;,~T~stee-;-in B~nkruptcy or or before July 15 following the close of the caler.C:a:- vear.
Assianccs. - ;,, cu.,,f~s 'J.r,a-.'~-'1 r,'t't'ii"P~""'.:;._ tn1sL~es in f>nn~nlotcu or c. If nny installment is not pa1d on or b<:for-e ~he ::.c,-:: :::-:.:: ::;:- ;ts
pHy nH-:Il t, the \\dtoie ~:uno Ll n r OI t Iv~ u :1 :;.: ,i(:
1
~-~-'-: , ~-- ~r; ~~ ~
and payable, together with the delinq~encv p~:-.,,:-:~s
..''!.~,/::;;~:),, . - _. :/,'., /','> 1
-~~~::;:,~ ::r,';,'j~~ ,:.:~:~~t:~~~p~mtwn, ,I d. All of the choices. ,
rPif!l T nr'r: - .-~, rr~ S1/('f' r:trir11z.nnnn js fpreTnbt~t(Jre
.... ,;\-1'
---.
0 ' 1 1JI'""Yt

._,:; nr :

' . :! (_1-'_;
r,C:

:::"'_;
un1J f(U.: r;':Jc on rhe tncnrne us ret1Jn1ed b[j
"f,uil :_.,. ussess-'cl and collected m the-
1{ rJ;;_--.;_,_ .;_.; .} '~:rc _ctiy (<ianst ~Ju._ oruur::zatlons o_f ruhcse
JI Answer: D
Refereace: Section 56 (A) (2), NIRC, as amended

l;rc!!_J r_!:e'> ., . :__t'_ r'(_l_'~~'_C!_l_~_-~?_~{~1-~_c__~!>_~~~--~C}__!_ ____ ~----~--- _

23. An individual taxpayer has the followin~ data for the c_:~~-:lt ..,:
Tax due p _=;r,_ ')0
nrolt'SSJI):::L :;:J:tnersh;;> shall file, at least in duplicate, Less: Creditable withholding tax (~GOO)
, 1rwonw. s,;;,r,!~ forth the- following, except: Tax payable p 21\QQQ
, ;, : ;;<! '"t!twJ:n::s :illr.>\':ocd b\ t}Jis Title
The taxpayer elects to pav the tax in t\.o (2) equal inst". :~-:~n:s
How much is the ta..x payable?
;, Time the return is filed .Julv l S
a. P 25,000 P 25.00)
b. P 25,000 Nom~
c. P 20,000 None
d. None P 20,000

337'
 Chapter 19: Tax Return Preparation and Payment of Tax Chapter 19: Tax Return Preparation and Payment ofTax

Answe~: D ----:-:----:-:--:---:-:--:----:---:-----:-:--:-:---:--:----:-:- -==------. 26 .. For individual taxpayers required tc ftle quarterlv returns. the return
The full amount nfthe withholding tax is applied wl;en the first fiJr th~ first quarter ot the year is filed on or before:
installment is made_._____ ______ - - - - - - - - - - - - - ' a. April 1 S of the same year.
b. Augnst 15 of thf same: year.
c. November 15 of the :;arne year.
24. Wnich of the following <;!atem~nts is inrx.rrect? d. April 15 of the SUl:ceeding ye-ar
a. Except as otheT\\iise provided in the Tax Code, every
individual subject to income tax, who is receiving self- Answer: A
employment income, whether it constit~tes the sole source of Refereuc~: Sectiou 74 (B), NIRC, as amended
his income or in combination with salaries, wages and O(her
flxed or aeterminable incorr:.e, shall make and file a
declaration of his estimated income for the current taxable 27. For individual taxpayers required to fiie qJarterly returr.s, the
year on or before April 15 of the same taxable year. returns for the second quarter are filed on or before: 1
h. In gener<~l, self-empwvment income consists of the earnings a. April 15 of the !l8Jlle year.
derived by the indiVidual from the. practi<.:e of profession or b. u1gust 15 of the same year.
conriuct of trade or business carried on by him as a sole c. August 15 of the succeeding:e:r.
proprietor or by a partner ship of which he i~ a. member. d. April 15 o[ th~.: st.1cceeJing year.
r Nnrr~:"iclent J7;l;J:';r'0 citizens witt> re,:~d t11 income from
without the PhiliiJ;Jines, and :wnresidcnt c:liens not er:gaged Answer: B
in trade or business in the Philippines, are not required to Reference: S.:ction 74 (B), NIRC, as amended
render a declarat:on of estimated income ta-<.
d. None uf the choic~s-
28. For individual taxpayers required to file quarterly :-ecums, the
Answer: D returns for the third quarter are filed on or before:
Reference: Section 74 (AI, NIRC, as amended a. April 15 of the same year.
b. November 15 of the same vear.
c. November 15 of the succeeding ;:ar.
d. t\prii 15 of the sucr-etding ;;,r
:< i1 d dcclarati0r: .'->: :cnr<'d sh~ll! lw pa:d in !our (tl
::. ,: :ti lrrwn h Answer: B
- .~~~ rhe cnrrf~nr t~1x;dJlc yt~ar, thf' raxpayer Reference: Section 74 (B), NIRC, as amended
rr,"'~'l:LJIJl_; ~~xpecr::. .,,; ,-. <~ !Ji"'gn inconw t<Jx. he shall ~~lean
::::c>:rl<-d decbrar:" .. ~;-;g dll\' inttT\,ll of installment oayment
29. In the case of an individual, this term means the <H;;ount wr1icr1 the
individual declared as income tax in hi<> fin:cll ;,ri;w'"rl ;)nd ;mn:j;;]
income tax return for the preceding taxable \Tar :::.:H:s '"'' sl:::: "r
the credits allowed under the Tax Code against tb '-;aid ti!x.
a. Estimated tax c. De!inqc:encv tax
b. Deficiency tax d. NonP 0f the choices
A.CI:;.::~: .\
:f'"'_:nce: Section 71- 3: :t.nd iC), N1RC, as amended Answer: A
Reference: Section 74 (C), NIRC, as amended

339
 Chapter l ':1: Tax Return Preparauon ana Payment ot lax
Chapter 19: Tax Return Preparation and Payment ufTax

30. Pi:-->t -;t'1t'E!mer.t: E"':ry -:-orpcr?.tion shall fj!~ p_t le"l~t i!l cluvlkate H
quarterly ~ummary declaration of its gross income and deductions
on a cumulative basis for the preceding quarter or quarters upo:1
which the incnme tax shall be levied, collected and paid.
Secor!d stnteTPe'1.i: The tax so computed on the quarterly sl.!mm?.ry
ded?.:ation shall be decreaSt'd by the amo:.mt ::>f tax previously
paid o- assessed C.urin~ the preceding quarters and shall be paid
not later than sixty (uO} days from the close of eacl1 of the first th:ee
(31 quarters of tne taxable year, whethe1 calendar or fiscal ye'lr.
a. Both S<alements-of incorrect
b. Only the fir~t statement is corn::ct
c. Bot~ statements are correct
d. Only the second statement is correct
Answer: C
Reference: Sectiun 75 and 77 (B), NT..RC, = ::.:::::::.d::d
33. First statement: In case the corporation is entitled to a ta1: cred:t or
refund of the excess esti.--nated quarterly income taxes paid, the
excess amount shown on its final adjustment return may be carried
c,ver anc.i credited against the estimated quarterly incmr~ t<u
liabilities for t!1e taxable '1Uarters of the suc::eedirg taxable )eaTS.
Second statcmer.t: Once the option to cany--ovcr and apply the
excess quarterly income Vl'< o.gamst income t'l.'!( jue for tne ta'Gible
quarters of the succeeding taxable years ~J<ts bee1 made, such
option stall be considered irrevocab1e for that ta"!Cabk ~r :xi and
no a~plication for cash refund or issuaJce of a t?-X cred:: ce--t::-:cate
:shall be rulowed therefor.
a. Only the first statement is correct
b. Both statements are correct
c. On~y the second statement is correct
d. Both statcr11ents ar-c incorrect

Answer: B
31. Every corporation liable to tax under the Tax Code shall file a final Reference: Section 76, NIRC, as amended
adjustment return co\ering the total taxable income for the preceding
c1.lendar or fiscal year:
a. on or before the 15th day of the 4th month following the close ::S4. First statement: Except as the Commissioner of Internal Rev,.nue
cf the taxable year. otherwise permits, the quarterly income tax declaration and the
b. on or before the 30' 11 day of the 4th month following the close final adjustment return shall he filed with the al!~h<,:-'ze:-1 a2.~nt
of the taxable year. banks or Revenue District Officer or Collection :ige:--:: ~::.r rl-.::-:.-
, . on :'.pril IS ,frhe succeedingyear. authorized Treasurer of the city or muniCipaiity ~.-:;_-.--::::; ;__;:--:;d_,c:ion
norw of tht rnuices. over the location of the principal office of the cor?<::-,:;'='":;;::-!":!-:~
return or place \\here it:; :n.ain bock0 of ,;:~c8'_:~:~ -:~~ ,:~:.. ~:- 1 -~- 2 .
from ,\"l:~-::-!'1 thr-- rctnrn i--; ::-:-r-r;:1;rr! 0~"" t~..-~-
Reference: Section 7o and 77 (Bj, NIRC, as amended
returns and the final adj.1stment inc-orTw ::-;x ;-e::::-:.~
at the time the declaratron or return is f::,~d ::- ":: ,-::---- ~:~:-;,,::f;.:d

.L. ..:. If rr~~- --;urn ()f rhe qt.,trreri~- tax pa_vrnents n1ade during the said
b_y the Commissioner of lnten1rtl l\t''-'<'Ihif:
Llx,,'Jie~ vr,ar ts nor ,q_;al to the total tax due on the entire taxable a. Both statements are correct
lJ:<,,:r: uf th.1t \<'di, ,',ila~ shall tilt: corpor<ttion do? b. Both stat<"ments ar<" inrorrect
!';,,;the h<~Ll1ve of tax still due c. Only the first statement is correc:
c nTv on 1 t:; ,. xcess credit d. Oniy the second staterrwnt is c()rrr<;
lk cr>ditl'd "'refunded with the excess amount paid
f\n v uf the choKes
Answer: A
Reference: Section 77 (A) and (C), NIRC, as amended
l\ns'.1'l"Z!r: D
I-.:e:~rence: Section 76. NIRC, as amended
3S. A person '.':ho has no leg~-!~ r~:si' 1,.; :- t ( ,.. : ~~,
the Philippines n1av file tl:':' :nc-,>rr:, t 1:<
a. authorized agent br:.nk~~
b_ f-{evenue Uistrict o:ficrT
c_ collection agent or rJq]\- ~<Jt.hnnxerl ';1\ ,.,-.,-
Treasurer_
d. office of the Commissioner of Internal Revenue_

.j
140 I
341
 Chapter 19: Tax Return-Preparation and Paymentm tax

Answer: D 39. This refers to the system developed and mainta~ed by t~ Bureau of
Internal Revenue (BIR) f0r electronically filing tax returns. induding
attachments, if auy, :md paying taxes thereon, specifically through
36. If the grc.,ss rec-:-i;Jts from 'business in any quarter do not exceed the ~nternet.
f'SO.OI)(), what attachments shall a.:compar:y L1'1e incorn'! taX return? a. Man, al Filing and Payrr.ent System
a. Statement of Net Worth and Operatiort b. El.,.ctroni<. Filing and Faj:nent Systew
b. Ba!::ince Sheet and Incoue Statement c. Up-to-date Filir.g ar.d Payoent System
c. Audited Comparati\e Balance Sheets, Income Stlte-neT"lts, d. Advance Technological Filmg a.-:d ravcc:.lt Systen.
Statements ?f Cash Flrws and Schedule cf In-.:orue Pruducing
Properties and the Corresr-onding Income tht:refro::::1 Answer: B
d. None Reference: Se~tioP 2.1, Revenue :a~gulations No. 9-2CC1

Answer: A 40. This refers to th~,; control numLer issued by t:~e: EFPS to ack."'lo\;.:ledge
Reference: Section 232 (A), NIRC, u amended that a tax return, including attachments, has been succe~fully filed
electronically.
a. Filing Reference P.umter
37 If t::e g:-oss receipts from. business in any quarter exceed PSO,OOO but b. Confirmation Nu~b.:!r
do not exceed Pl SO,UOO, what attachments shall accompany the c. Acknowledgment Number
'n c:n--r ~' J.X ~et r1? d. Taxp~~~r'l> lnf0rm~tio11 NumbPr
a. Statement of :'iet '.:;orth <lild Cperation
b. Balance Sheet and Income Statement Answer: A
c. Audited Comparative Bal<lnce Sheets, Income Statements, Reference: Section 2.9, Revenue Regulations No. 9-2001
Srattnlf'nts of c_,,, Flows and Schedule of Income Producing
Propcrtws and -r~: (''l!Tesponding Income therefrom 41. This refers to the control number issued by the authorized agent
d ~\()nc bank (AAB) to the taxpayer and BIR to ack:~o-.,:ecge t:-:a: ::-,e
taxpayer's account has been successfully deb;~~d f:"lectrJ:-t:ca:~:: ::-.
Answer: B payment of his tax liabilitv.
Reference: Section 232 !Ai. NIRC. as amended a. Filing Reference Number
h. Confirmation Number
c. Arknowledgment Number
,:n~:s~; ~:1 an_v: ;u:trttr t~XCt::d i-;1 SO.O(J). d. Taxpayer's Information Number
,:::;~:tno.. ~h- in~'(j;nr_ tdX :-erL~rn'?
l~ ::Hnt ~=r ', 1 ~-~!! .uHi C)pcr:I~:'Jt1 Answer: B
Sh(t ,:,
.... :L!:t(' ::1~nrne Statt~rnent Reference: Section 2.10, Revenue Regulations No. 9-2001
\ . i:t<'d Com;,::- .. H. !lane Shnrs. Income Statements.
:l(\'~1~.-.. \! ,.,,,.~ ri.i-:,! :--~ch'(llllc of fi1C(}ti1C' Producing 42. This refers to the control number iss~.!~~d by th~ .~AB :0 .. ~p ~~!? ~-~.
!. <Jri:~~-~ ,!:t~~ . liT~:~por;din:; Irlc(Hn(~ !hercfrorn confirm that tax payment has bt:en crt>dited tr; 'rle acco:_;::~ 'Jr' r:-.e
';(' government or recognized as revenue (internal re\enue ta:' v;ik.:; ;:~
by the Bureau ofTreasury.
Answer: C a. Filin~ Reference Number
C>,~L:r'~:1<::~: s~~tion '2:l2 .\ l cllRC. as ;<tmended b. Confirmation Number
c. Acknowledgmt"nt Number
d. Taxpayer's Information Number

Answer: C
Reference: Section 2.11, Revenue Regulations No. 9-2001

342
 Chapter 19: Tax Return Preparation and Payment of Tax Chapter 19: Tax ~eturn Prera~ttnn a no t'aymcm j;: lax

-t..>. \.-v'nu -;_;; tile fu:Jr...~\\Ir.g taXjJ...JCI~ ;:;,;'-ai; f.i~t,.; ~he:r tcturu u..1d. pay ~hch 45. First statement: For all returns that v.-il! b... e-'l!e<3 "-.. :=:.:cg-:- "'~"'P'1'ers
.t--:-~yp<.,;
.....
~-~
t1 !"()l!Dh FR~
-..., -o--
---~- -- starting August 1, 2002, e-payment of t,__F:' 1.;.,_xe" r: . "' t':"'~~r::'l
1 - l Rrge taxpayers. . through EFPC) shall become mandatory unless c,tJ:.;:::-.\ise notified by
11 - T":c .ol'J'1tt>t-ring 20C cr mc.re Non-large Taxpayers previously Commis<>ioner 0f Int~mal Revenu~.
identified by the BIR. Sr>ronr: statement: Upon receipt of a nutiLatJon ':-t!e. au!y signed by
a. Both I and d L. I only tre Com1aissioner of tnc::rnal Re\'enJe, it L.co:;:e" .nz..::rJa.!'"'t)' w
b. ;; .i~e: I no.- J d. l! on 1y the vomnt~eri11g two hundred (200 or rr:on ~JO:-:-'a:-~e > ...-:,.;e<y~:-s.
including their branche~ ,oc'1tp.J 1n t!':: .:Jm;x.~ter.z~.:: - .:r 'le
; ... ~-.er: A district offices, to file tr'ir :_tt!TT:s "'"'i' ;. ._-_.-;~ ""-".; :--_, i.FF:-'
r::dc:-cncc: Section 3, R.::venue RegulatiOI'S No, 1!1-20C'i ?. Both statements are -~orrc'::
b. Bc>th !"tat.:ments are i .. ,.orrect
c. Oniy e~ e first sta tem:-n t i::. . orre':t
the;r L1:-:s th:,1ugh EFPS? d. Only the second .:>tat~rnenL is C.v~ i'c _t
a. C rporations sith paidti;J capital o~ Ten Miliion PeS'os
!P! ~J/J'Y),nqq~ ~nr! ~~h"'{"P Answ~r: A
'J. ' ,_,;;;orations with complc:e compu:t>rizPd system
Rc.rerences: SeciJ,,n 3.1, Revenue Reg:u!ations ~o. 9-2002
T:~:-:.;.; . .1.--;,..rs puhhc hi-!dlng ;-::_:-slJ:l.tlt t0 E:--~t?<:'ntjve- ()rdr:r Sect!~r.. ~.2.!, R.eve!'!U~ Regulations ~to. ~D-2007

':.-~. -~/-~S c_i~ i:r~~>~rr cnt !_r. J..~R No.-:::>:_r_;:) Section 3, Revenue Regulations No. 17-2010
f.ttr{fP. Ta."!'"}er.c::
1) .:!s to t,:L.t..: jJGlJ'n~:. -~t-'::5
Percentage tax
Ar:sv;.:r: D
VAT
References: Section 3.3. aevcnue Regulations No. 10-2007
Excise tax
Scctivn 3. Revenue Regulations No. 3-2009 Income tax
Sectiol:l_2. ~C_"',Tenuc _!(,cgul::ctiuns iSo._l-20'0_ i"-'ithholdinc; W>'
tf;~: t--r~ ..,-~ (.... ;. ~
1'1: :f.:r... s.t /'...;"OC. pe: q: . ...rter
At lN;_,,t P20C!.CGv per q-;,;r1er
;:t ic-2:;1 PJ,OOO~(){;(J
./it :t~-; ~r Pi ,Dt~D. Cf\D
~;:\.: . :.c.:/!P}:{_;_:~ r .--.~,....

Doctunentar:J sru, ''P :rn { .."

.?.] ils ro finnncrn. cone;

,::)-"
;;; I,;J'ii','"' "!'' .,,
._____--':.;:,l"'-'==o"-'r'"'a""t""-eta.xn_!lyfrs l_:ijtcd_s_~!~~i rL_~lz!:_~-"~
:') :. ( ; .\f} ~-i(J,-..., as

;~J '" -Lhl r:::<puycr:s 46. Which of the following statenwn~.; '" :: ,,, ,
', L'l)L ~ j:~- t,, .~:z (':, qr.r._, , ~.. 1.' i_<J c;t;:t:T fJOUCntrnen'
a. Identified tnxp::yers th.tt \\<Ju:d ;;~:- ,,, .,:::.
::,-;;c.:-.1 aE 7!.:-:::c rc[;:;.ten)d ,~.~ith r!~c:
:: rr.Jinc 1-:conorr.ic Znnr A:ul;rm.'y;
and/or are r~'quirecl to fik certai1: :::.x ::t:~:.~ :a
shall enroll tn the EFPS in accurda:,c;: .,_, i': ,. :cr,,.

;")'
~). .~ taxp;.!:~~r t h:! .t.i i1 ,_. : ,.l \ ., t :

/\UtbfJrized r\~"~11' H;u;:~

throu?.h iht::~ htt:1k d::1Jt ~\ r::
C. Largt> Taxpny,:r~i tnro:~T::.t'".t cst1;1 , .. ,,
J.
.
Authorize<i Ag!.'n' Bank<; ":"'"!"'7"'
J are capable to accept f>)J:<y:n>;>nts
d. None of the choices.

345 'j
I
 Chapter 19; Tax Return Preparation and Payment of Tax Chapter 19: Tax Return Preparanon ana Payment or 'i ax

49. Which of the following statements is incorrect?

Ans,.er: D a. To erase any doubt and to ensure receipt by the BIR before
Reference: Section 4, Revenae Regulations No. 9-2001, mirlnight of the due dates prescribed for the filing of a return.
as amended by RR No. 2-2002 and RR No. 9-2002 th~ electronic return shall be filed or "r before IO:CO p.m. of
the prescribed due dates.
b. For the elecn cnic payment of taA for the returns requirf:d tf'
47. F0:- juriclical entiTies or artificial persons enrollment shall be mctde be filerl earlier under the staggenj filing S)"~ten . th~ tao;cpayer
by the officers required by law to file returns. Which of tl:::: followinr upon e-filing &hall, s~ill using me facilities d ~?PS, hk~'ise
is correct? give instructbn to the AAB to r!eJi~ its accoun for the ='Jur.:
a. For domestic corpo;-at!ons, enrollment sh"'ll bf' by either th:! of tax on or befc>re the due date fvr pavrdent the::--:of as
President, the Vice-Presid~nt or C'ti1er principal officers pres-.:ribed under t11e prevailing or app;it..able law:. cr
b. For p<:!:-!nerships, enrollment shall be by the managing reJUlations.
oartner c. For the purpose of stagger..:d filing, the i11dustry of the
c. For resident foreign c(lrporations, enrollment shall be by the taxpayer is its pritnary line of busi'less or the priJfla.rv
country manager purpose of its existence 'lS stated in the .Articles of
d. All of the choices Incorp<ration, for corporate ta.,;pay~rs.
d. None cf tile cl1oi:::cs.
Answer: D
RefeTt>nce: Se-::tion 4, Revenue Regulations No. 9-2001,
as amended by RR No. 2<~002
Answer: D
48. Which of the following staterrents is correct? Reference: Section 7, Revenue Regulations No. 9-2001,
<L For pur!Y'ses ot filing of returns under EFPS, the return for .as amended by RR No. 5-2004
withholclin~ of VAT and Other Percentage Taxes shall be filed
on or bcfor~ the tenth ( lOh) day of the following month, which 50. First statement: For Non-Large Taxp<;; .er.., '':no :n:e:-:C. :: e-:= ..1:..
is likewise tiw due date> for the payment of this type of electronic payment shall be made '1'::-ou::>,h the ir.t'C'::-ne 'J.:;,n;;;::-:s
11ithholding tax. facilities of any Authorized Agent Rank 1:\:\Bi
l.~. Tiw fiim~ d the :'vionthlv [~emittance Return and Final fncome Second statement: For i-;on- Lan',e T<rs:J,, .. :: .., ": :' .:: .. :: .. ~- :.. ~:--
i- ::-: \\-:'~~1'~-~r~ .\hi--~ i:l-;
been ~tdded ;1~; ;unon~ rf1()S( ft->turn~ manual payment, it st:!! a!kv.>.<':!, .... ,. ,.
\1at rn;t:- iw riltd ttndn tht I:H'S sh;lll follow the staggered the A_>\Bs within the terntonal ;u:;.,(;,, :r;r. :r :r.~ :-- ....
,1,w d:lt:,; r..:;. (irr,up :\ 15 da\s, ((roup Ill~ clays; Group C- Office where the ta.xpaver is requ:r ! 'J ~":>,t:;<t:
1 ~ r! ,.., s: <:"":' r 1 l2 da\s; GroupE- ! 1 days.) a. Onlv the first staterner~t !s C!!;:;.,
\>11 Lr:,: '<~>:p:!\ers shall han tlw option t0 file a b. Only the second s:atemcnr Is 'Jr:-":
'>ns():ir!dd :Tturn m the head office or to file returns on a c. Both statements are CO!Tr'( t
,,,.r nrC~nr:, t:wliii\' has1s for purposes of filing of returns d. Both statements arc mcn;T<'r:
::~;!::-- E:;-!)~ ::f ~h~ rr:!)!1th!_\' \'.'ithholding tcLx returns and
~:,--!:i,_ ;~~r'''I1't~~~,. "ax returns. Answer: C
() ~ 1 l >. :. : ~ \) '! 1 "-). Reference: Section 8.2, Revenue Regulations No. 9-2001

.\nswcr: D 51. First statement. In case of systems unavaibbility as declared bv the

.--.,( .r:rtee: Sectinn 7. Revenue Regulations
L; ~1.~rle:1detl b~/ R.R i'Jo. 5<2004
No. 9-2001 Commissioner of Internal l'?e\enuc t: ':-; '''i ,, ..
representative during tax fili:L'. ri;:;:l:::":, ::IL::' :: -- :--r.
pRyment of taxes due therteon si11:; >. :,,:c <[!'"'' ..~., :
the-counter by the EFPs-A:\B:,.
Second statement: Once the sv~,tem i, .:;1 onlin~ :> ro. :::--d l :.;
returns which was manuallv filed s!1al1 he e filtr: wi:t- :1 fifteen ! 1.)J
days from the date of manual filim~.

346 347
I
J
 Chapter 19: Tax Return PreparatiOn and Payment ot Tax

c.,. 55. Which of the following statements is ir~orrec?

b. a. The paper copy of the <lUrliterl financial s:;Jtpc-;p;:-o. sri=!ll he
c. filed within fifteen ( 15) days from the date of f::ir.g 0f BIR Fonn .
d. No. 1702
b. The t~yer is requirtd to file four {41 copies of we a!rlited
Answer. C c;; .: : ~:~?;- . ,.' . .. i . . finaw.. i.::ll statemens.
Refennce: Sect:osi 6~4, Revenufi_Regu1atioua No. 17-?010 c. 't'!.e audited finanual statunents sha] be: 5lt:: v:<:. ~r-:e L!S or
the LTD() 8S t:1e cas~ l!lay be, in ti1e c~,c- ,-,[ 1..2-;" .,..;:.:.:payers .
.\n electronic si~amre ~ives rise to w~ic~ of he folio\~6r"' and w'th t:1eir respecti~ :<t :e!"! _e 'Jicr:-.:t n::-""
:Jresum ptiuns? of Non-L:'rge Ta.:-:p<~-.crs.
i- Tr1at the electronic signaturt; is the signature of the individual d. None of the choices .
.. :::.... ~:!:ayer, 'J~ ir1 th.:: .-:ase of a corpo;E~.~c tclx.payer. the s1gnature
~L li;!y ii.nd col!eCt~ve!y. of both authorized corporate vffi~cr /3 Answer: D
that are require<i by the Tax Code or appropriate regulations Reference: Section 13, Revenue Regu1ations No. 9-201
to file and swear to the truth ar:d correctness of such return
't - ..... ... ... -- .
it.llU \.'- tlU d..l t: LC.i lUJ.CU d~ ~ULH UUU... Ci ~ U) lHt:: 4.....0! iJVid.Lt;
s':"cr-etary in a do<:ur:1ent submitted to the B!R. 56. V!h!ch :-:~~ J-.~ f.~1L.>v.-i:1g s~.~~~m;:;t~ is rc;r ... ~"'c-:-~
1:- That tht elec~ror:ic sisnature \\Zls aff:xt_d l_,y the .:,bove- a. Failure to comp!v wnh th~ prc.:s,s:cs r,! ;\-~:c..:
rrwntinne.l tBx'l~:e: or persons with the intrntion of si;Ynin!!. :;Prt:c;T1it,g to EP 0 S .:~~-:;:'1 }y- ;:-'"~: ...

return. pesos (P 1 ,000) or sut:.c-r impn s .. r:r::..-r~

a. Both I and 11 I! onlv months or both.
c.
b. Onlv the first and serrmd o!!r~::5c-s ., r:
D. d. Neither I nor ll
prcwisions oft h<':' reg: ;., : ict: '> ;~~'r:.':
Answer: A ~ctt~ec! throt~~Jl d, ~-; (_;:1:i~,~
c. F"r tlw third :1nl .;n! ""::en' .. , ..
Rcf~rcncc: Section 10, R:::vcnue Regulations No. 9-2001,
~-- - - - - - - - ..J- .J t.__ T"')T'"I .,,._ ...... F""lr\r'\f""l
nro\-isinns u~-11-v r,,,:.: ~r~;~
-.C') ...:l.l.J..l.t.:Z..L'..lt;U U) ..1.~ .L1U ..w~.4.VV..W

Answer: D
References: Section 275, ~~C<-C, :..ls 3_r~..;:~":'.r"~
,; ; }j i J1C )I\ i 1: -., c ii~r.-.. c (J) I1ltH1th~
Section 16~ R:..:r.ycn-:..::.: R<:..~~~L-t:i():!' :o . .-,_
r::. ~ rnon ." ar.nended by R:,~ :'{u. -:-2CG2
p ,! d T'.'.'> 12) months

\:1swer: D
i'~cfcrence: Section 11, Revenue Regulations No. 9-2001
,.,:;rs ,,f ,;;-;putcs r::~:;;,;:::; the contents of returns filed viaEFPS,
.\hich shaJ~ g~ l\ern'?
Ti1, <>lltents s!J<..: '1 the h;,rd cop\ of the financial
l\ ' ...

'-;' 1, j' tr:~ l..~-)::1[)~;' r

-); :.~~;' ;-1II\
~-. ~-:

: ll'' ::. '17" .:1 :. r~-lr, _;')!the !tldr)r?ndent

.\nswer: C
Reference: Section 12, Revenue Regulations No. 9-2001

349
 Chapter 19: Tax Return Preparation and Payment of Tax

Su!VIMARY OF DUE DATES Chapter 20

Due date Returu to be filed
WITHHOLDING TAXES
I.:~::ome ta... Aprii 15 of the succeeding year
{indilidual, pure BIR Form No. 1700 "''Iiose wlio 6.:fie..: tJuU t/iey an n._c~Msiwij in 1M fitjfit
compensation an generafiy t!iose u.lc uliieve nr..nh"'B- - )ff.i'm..s Jfurfq
incomeea~rn~~e~r~l---4~~----------~~~~-------------r-----~------------~
bcome tax Fint q\Uu"ter- April15 same~!'
1indi.ridual with . Second quarter- Angust 15 same ye~:- Multiple Choice~ Choose the be.-.t possible CUUiweT.
busine:;s 0r 1 Third quarter -Nove:nber 15, same BIR Form Nc. 1701 -Q
professional
income, or mixed
income; estates
!I year
1. Under this systerr:, the amour>t of income taY v.it!-.held by the
1 withl1olcing agent is cr-nstituted c...,; a full and final payment of tLe
and trusts
F:nal return- April 15, succeedin~
income tax due from the payee on the said income. ,
a. Creditable withholding tax c. Glc:-al t->: s:--stem
~-----------------~-~-~vea~r---.-----~~~~---~-~~-----~---~~B~I~R
1 __F_o~rm~~-~r~'__l7_0~1--~
1 Income
I
tax i 1' un quaner- OU"' uay euler clOSe 01
(corpor<ttions and ! quarter
I b. Final withholding tax d. Sched.;lar tax system

1 F2rtnershir-.;! j Sec?nc! quarter~ 60<h after cbse of A!lswer: B

1 1 quarter BIR Form No. 1702-Q Reference: Section 2.57 (A), Revenue Regulations No. 298
; Third quarter- 60 1h day after dose of
I t:arter .
~~--~~~--~--
Final/adjustment return- 15th day of 2. Which of the following statements is correct?
!the 4'" month after close of the BIR Form No. 1702
a. The liability for payment of the final tax rests p:irr.ari!v an the
f taxable vear
i Capital gains tax Per transaction return - 30h day after
payor as a w1thholding agent.
l a. Saie of shares not date of sa!c BIR Form No. 1707 b. In case of the withholding agent's fa1l'.Jre 'G .,:';..._;..._c.:ri tree f:r:a;
! through the Final/consolidated return- 15'" day tax or in case of unde:-withholdmg. the c!ef:ce:'::; :ax s:-:a:l be
local stock of the 4'" month after close of BIR Form No. 1707-A collected from the pavor j\\ithh'Jldin:z, dgen'
c. The pa).~ee is not req'...!:::-~d :n r:~~:~ 3.t! i: .' r. ~-:; -~::
incon1e sUbjeCt to :nJ,t~ \i.dili:\_J:.Li~!. ..~~
Iustalln1ent sale - JV' Jay afle~ u.tte BiR Fuun t\u. i 700 d. All ol the cho1ces.
~ ~ ~~'-1~':'~-~- __ ~ _______rlf.:>ale ------------__,_------------"!
Remittance of tax January to November-! Q<h dm after Answer: D
withheld the nd <)f each month ( 15"' day if BIR Form No. 1601E
Reference: Section 2.57 (Aj, Revenue Regulations No. 2-98
a. Creditable under EFPSI
witrlhol,img tax December- 'iot later thar. 15'" day of
the follo..,mg year (.January 20 if
nrtriPr F:~~\ 3. First statement: The finalit\ of the withl-.old::-:2: rax :s ::~,:~c! ,:-Jl: co
. -----~--~--- --- -- -- _~c.:.:_::::::_~-------------l--------:-::-:-:::::--"1
b :-mal wtrhho!ding Same as m ietter a. BIR form No. 1601F the payee's income tax liabr!Ii\. on th~ p;1rt:r.'.l:ar :: ..
t;IX Second statement: Final \\ithholding ax doc"> not c:: .. : .. , -~:,~
c. Income tax Same as in letter a. BIR Form No. 1601C payee's other ta.'( liability on income subject to fi:::1: :,;{, sid: a.;
Withheld on w 1:en the said income is further subject to a percent2ge tax.
a. Only the first stat<>rnenr i.-; c r:;
b. Onlv the st'cond s:at"r::.:n '' ;
c. Both statements an:' r ..
d. Both statements arc !!''"<n:,.,.:

Answer: C
Reference: Section 2:57 (A}, Revem1e Re~ulations No. ~-9:5

350 351
Chapter 20: Withholding raxes C.."lapter 20. Witl'!::o!c!ng Taxes

r. Under U'lis :systcr.:., 1.3xcs w~thndJ 011 ..:cr.aul ~ncome payments are
intended tO equal O'" at least approximate the tax due Of the payee on
said inco111e.
a. Crcdita'ble withholding tax c. Global tax system
b. F~nal wit~~ol1ing ta.."': d. Schedular tax system
&.nswcr: A
Reference: Section 2.57 (B), Revenue Re:uJatiors rio. 298
5. First statement: The in:::ome recipient subject to creditable
withhoiding tax is still required to file an income tax return to
report the incowe andjor pay the difference between the tax
withheld a~d the tax due on the income.
Second statement: Taxes w;thheld on income payments con~red by
the expanrieri wnhhoiriing tax (referreri to in Sec. 2.:j7.}. of RR :.,;.ga;
and compensation income (referred to in Sec. 2.78 of Revenue
Regulation::> ~~o. 2-98) are crediLai>le in !1ature.
il.. Rnth stcote'\'ents ?r~ c0rrect
7. X Corporation, a domestic c0rporation which reports ir.cc:::.t: a.;.~
expenses on a calendar year basis, issues 2-year lxmds ""' f<tc~
value of PlOO,OOO,OOO at a discount amounting to P6,000,000 on
January 1, 2002 to twenty fie (25) inves-..ors. It records in its books
the amortb.ed portion of the dis..:ount as expense in tlte amoun~ c-f
P'.l5C,OOO 1month (P6,000,00U div~ded ty 24 I!Jor.th~:.
WheP shall tb.~ find w:thholding tax l>e done?
a. ,January c. ,..1a..-c:1
':>. February d. April
Answer: C
Reference: Section 2.57.4, Revenue Regulations No. 2-:>8,
r -_ _ ___;:;ac:cs~amende-1 by Revenue Regulations No. 6-_:;!!l)c.:l=---~
Since the disccmt io;: n.ot yet paid or payable O'Jt the alrq:.ot p<~r"::0rt of
which has already been recorded as expense for tax purpos<?:s. tne
:.virhrv:>/ding ofrhe :t0"-6 final ta.'C shad be done ore tr:e !T:' -_,: ,;. .:.:"
quarter when the same has been claimed c.s a'! expersa ~ i-P ': ;rJr:erly
income tOX retunlS/fina/ ad}ttStmC'TitS rP~:Lm.c; :;ir'ri Q!; / . ' ;r

b. Both statement~ are inccrr;:ct 1 hus, in the above case, the amorti7ed cf scount ''.> i .,~ '"''- -'' :~ : :0 j
c. Only the first statement ik correct X Corporation for the months of Januar:J, FebrJ'-'':J and .'.!::;r~:- :::: 1]2
d. Only the second statement is correct amounting to P750,000 shall be subject to 20'v fir. a! to.>: :. .~: ;:_ _'J'
come ,'.!arch 2002. which tax shall be remitted '' "'h:n : C :ic."c : c. ~2r :;:e
Answer: A quarter ending March 2002 (that is, on or he~'cre .-~.,J~ : -
Reference: Section 2.57 (B), Revenue Regulations No. 2-98, as said withllolding tax shuli be repnned ir' ''s .~-;> :) ::. -- .'
amended of Final Income Twes Withheld rf'qrrrcri '<) !;. . . i ' ~
nthPr hnnrl. for the culenrlar CJT r1rtc,. Pnd,r:q 1.-. ,,-,:..
withiloldlW/ o{ the tiT ;eli f(U hr ;,, Ull:o:-:ct.
rnonth::; Of { JcfODer. ,\O~!t_.,rn;u_...,,. r:~,-J iS'
200.l nnd the rf'rntttar~cc rf~er._n' ,;hui! ;_~,on ,_., !'
;1~:r;" ""''~ ;f tlw cT~'dttable ~<lX requind lo lw \\ithlwld on inc, nne
The suid rPithholr-htu:; tux shni:' r_)l' rer.~or~':l ;n ~::-:
t);1\:n71~ _-.., PXCep~
Rr?tunt of Frnul Int'orne Trv:e:..; ~r.. irith,LJ r. 'i'i_'r. ,; '
'J ::-~~: JUndiral rwrson. \':hPthcr nr not en;~aged in trade or 1 ;

bc:sirwss. [ 2_0o:!.__~::~~~llle Re~~~~O:.~~~~-'-'}_!~~! .

b. a:-: individual. with nspect ~o pavments madt~ in connection
\\:rh h1s trade or bustnt'SS.
;;:ll :~r)\. 'f'Tninent offices including gove-rnment O\'...'ned cr
cr::1trolkd :_-orporauons, as \\'1:,!1 as provincial. city and
rn _:ninpal "'m-crnments a11d barangays.
cl :-lfJne of the choices .

.'\ nswer: D
?;2fcrenc<:: Section 2.57.3 fA). IB) and (C), Revenue Regulations
cio. :2-98. as amended bv Revenue Regulations
No. t.:l--2002
Ulapter \J: WtUlnotamg !axes
8. Whl;::t. cf ~he ~c>!1c'Vir.g st.iteoentf: ic; incorrect?
a. The obligatio,") of the payor to deduct and withhold the tax
ander Section 2.57 of Revenue Rei;Ulations No. 2-9S arises at
fre time an income payment is paid or. payable, or the income
payrne11t is ac.crue..i or recorded as an expense or a-sset,
v.:!-.icheve is applicable, in the payor's book, whichever comes
first.
b. The term "payable" ::-efers tc the date the ::>bligation becomes
-iue, demand.:blc ur legally enfor,_-:ai:>le.
c. Where an income ic; not yet paid or payable cut lhe sc.me has
been record<!d as an expense or asset, whichever is c.pplicat-!e,
in the payor's bo<:>ks, the'obligation to withhold shall arise in
t..'1e last month Gf the return period in which the same is
.claimed as an expense oc amortized for tax purposes.
d. None of the choices.
Answers: D
Refare&~c;;e: Section :;:.57.4, ReYenue Regulations No. 2-98,
as amended by Revenue Regulations No. 6-2001
9. The withholding of creditable withholding tax prescribed in Revenue
Kegulations No. 2-98, as amended, shall apply to income payments
made to which of the following?
a. l'iational goverr:ment and its instrumentalities, including
provincial, citv or municipal governments and bamngays
b Govcrnment-o-,n-:ed and controlled corporations
I\rsons enjov<ng exemption from pavment of incoll1c taxes
Answer: B
Reference: Section 2.57.5, Revenue Regulations No. 2-98,
- ----
as --amended
Section 2.57.5. Exemption from Withholding.- The withiwlrhrtg or !
rrcri;~nl:!, unrr:lwi<i:r'] rv: prescnbed rn these J<egulatwns slzw! nut
app!:tl'! :~:rcwoe pnymt>nts made to thefolloun11y:
(A} .':at:onul ymemmenr and its instrumentalities, including provincial,
nty or rnunrcrpal governments and barangays except govemment-
1';,,~,1 f!'~~rl (Y)"4-~":';'d r_r::rporrzt?.tJn. (Revenue
';1-,r),n tr,Jrn pnyrnen..T n_: ;r:('t)J!f, .. r1Ye.:; !n;rc;!tnr .
'1:l' 'J nerul or :::.pe~ ;t::. '--;u,h o::~ {Juf 1ot
(!)
i ;-~, ~ ; :::~ -.-- ;._1 '.-.n..l Lund ~./.::>c F?euu!atoru !]curd {!iL[_.~P::, -:--
1!lDCC us engaged rn socialized housing project where the selling
rice o the house and lot or onl the lot does not exceed one
354
hundred eighty thousand pesos (PJBO,OOOJ in Metr::J _.~:.r.J.'= :x:C
other highly urbanized areas and one hundred fifty thousand pesos
(Pl50, 000) in other areas or such adjusted amount of seiling price II
for socialized housirtg as may later be determined and adopted by
the HLURB as providecf under Republic Act No. 7279 and 1ts
implementing ~egulatio:'lS;
I
(2) C-arpo ..ntions registered with the Board of lrwestmer.ts, Phi.''poine .
Expert Prcc~ing Zo'1es and Subic Bay .\!etropolztrm .~u.tr.c~
enjoyir,g exemption from the ;!lev me lax r-r.rsJant :o E..O. 226, as 1
-
amended, kepulJlic Act Ao. 7916 and the Ornrbus Jn:e""-tmer-..1 C.ode
of 1987; (Revenue Regulatwns No. 14-2C02j
(3) Corporations u;hfc.h are exempt }rom the income tu.:c ur.-=r &c. 3iJ of
the NTRC, to wit: th~> Guvemment Service insurance ~!stem {GSJS),
the SoCial Security System (SSS), the Philippine health Insurance
Corporatirm (PHIC), and the Philippi'1P Charity Su.-eeps.al1es Office
(PCSO};
However, the income payments arising from any actit'ity u.:hic'-: is
condt..:cted for profit or in::.Jme dcriued fr;'"' rerzi or pe'"Sa-:rz! p-::p~y
shall be subject to a withholding zax as pn::>sLMbed in ;i.ese
regulations.
(4) General Professional Partnt>rships tRetu.:.e FP~:;:....ut:--"':5 : .~.: .;.
2002)
(5) Joint ventures or consorrrwn fanned for :i:e purpose cf u.ndertc.;::ng
construction projects or engaginq in perro!f":lT!'!. coal. gecnerm.c;i &
other energy operations pursuor:t to en cpero'-'~9 r c'O' .3or::;"
agreement under a sen "'ce contruct :rh ~!--:_~ (;:.."';' t"'~~~~~- .. ,_:..~, ~:.-..- -.~P
.____R'-'-e...,_ulations Nu. 1-1-200;..':
\Vlthheld by the \\itid1oid .. ":,~ t-t.~~t-li'- ~tl<tl, ;~- ;,; __ ; :;;_, . ....
in duplicate \\ith the aut~-,\;r:::cd :H:~c:j: b.;::r.:s _,_r-~1~t~r: .:; .. :-.i:
Rev~nue District Office (PL)C)) h<t\ln~~ :~1:",,_:;: . -' ~:,:- '":-_.c_ :-~--,~--.{-,.:0.
or principal place of bus;::,ss of; he :. :::, :; ~.. ;;;: <:.; ,;,:;::~:
Second statement: In places .\llt'r:: there ;s ;;o <L:t:l'.Jrize,: a~e:-.
banksJ the ret1__1rn sh:1l1 ~)~ ::~t~d drrcc<_. .~:~--..__: ~;-:c f~r-:~_*:: _. :_.::-:~-
Officer, Collection Offiur T rhe <1111\ ;~:;h"''"'d T,:,-;.r"~ ....-
citv or municipality whcr lw \\ tlch.>:.Ir::.~ -.::. ,
princip<1l p!CJ.ct of husint.O'>'; t:, loc'<tk<i. :>r . :~-r ;,,.
agent is a COrporation, wr:T<' tfW pnrcci;>;il Ji':-t IS :,,f., .,.
cases where the CommissiOner orherwtse penmts.
PcqulntiL)TlS :VJ. 7-1-]0t!:?J il.. Both st;Hcm<:nts are rn;-,,., .
b. Both Stdtemnt:; :1: ..
c. On1_v the fir:--;t s\ait:
d, (Jnh the ~ec(HHi s:c~r
Answer: A
Reference: Section 2~58 {/1.) (lJ, L\.cver!u:.: I<t:gu1~ttiGllS ~io. 2-93~
as amended
,;, ,'
355
Chapter 20: Withholding Taxes

11. For both large and non-large taxpayers, the withholding tax retum,
whether c.reditable or final (including final withholding taxes on
interest from a'ly currency bank deposit and ,)iei.d or any other
monetarJ benefit from deposit substitutes and from tr';.lst funus and
similar diTangeme.t~s) shall be fi!P-d and payments should be made.
within hew manj .:!a:s aftt>r !hL end of eact. ,nonth (eY.cept
December)?
a. twenty (20) dav;.. ten ( 10) Jays
o. fifteer. (lb) d<~ys u. fi:e (5) days
Answer: D
Reference: Section 2.58 (A) (2) (b), Revenue Regulations lio. 2-98,
as amended by Revenue Regulations lio. 6-2001 and
Revenue Regulatioru: .!N::.:o~-~1;:..7:..--=2003:;.::;.:~:;-;-:---:----:---;;;~-
~D-e_a_d_line_.
_S_J_ro-=r.::t:,.:he:..:EFPS.filingofU-.e monthly withholding taT TPT>..ms (Ell?.
Forms Nc. 1601C, 1601E and 1602) have been sraggereri depend!nq on
the industry grou,n of the taxpay:>r to either the ! 1"' 12'", 1~- "r 15~ r:..J 1
thefoll.Jwin[; m.o;lth. Epcrymer.! deadline remav-..s 0"'1 the 1.::;.. !
fRe lations No. 26-2002 and Rev.:nue Memuro~rium Cm:..,_.,la.r So. 2-20C3J!

Answer. C 14. Every payor requir'.!d to dedu~t R.nd withhold taxe<:: ur.Jer ~r.e ...
Reference: Section ~.58 fA) (2) (a), Revenue Regulations No. 2-98, regulation<; shall fur;.ish, in triplicate each payet>, '' hether mu-.,idual
as amended by Revenue Regulations iio. 6-2001 or corporate, with a withholding tax statement, usinf the prlscribed
form showi11g the income payment<; maJe and t.">Je rur.ount ot taT...es
withheld therefrom, for every month cf the quarter \\'iL.in how r:'..ai.i
12. For both large and non-large taxpayers, the withhoiding tax return, davs b!lowir..g the close of tl-te taxable q11arter emp 1 oye~! b) ne pa:ee
whether creditable or final (including final withholding taxes on in filing his/its quarterly i11come t'l.x return?
interest from any currency ban!..: deposit and yield or any other a. twenty(20)days c. :~:-:[1'J)c:-,:-::;
rr.0a~ta:j' benefit f;-o;n depo!;it 3Ubst!t;J:e:: ar:d fro;n t:1.!~t fends and
b. fifteen(lS)days d. ::,~ :iC!.<>
similar arrangements) iOJ the ;nonth of December of each year, sha.ll
be filed on or before: Answer: A
a. January 10 of the following year. Reference: Section 2.58 (B), Revenue Regulations No. 2-98,
b. January i 5 of the following year as amended by Revenue Regulations No. 6-2001
c. Janu<1r:.- 31 of the following vear.
d. March 1S of the foiim\ing year.
15. For final \Vithholding taxes. the statem~n~. stc.~>:~ ':::.t-> :: -~- ...- :-;--::.-
Answer: B
Reference: Section 2.!'i8 IAl 12) (a), Rev.-ntte RPg>ttations No. 2-98,
as am.,;nded by R.evenue Regulations No. 6-2001 b. Januar\' 15 of the succLTdinc>, -',._,,.
c . . Januar~ 31 of the st:ccenlin;; :--,;1:
d. March 15 of the succeeci:ng ye;;;.
,~ ,_J' '\~: L ~,
~ 1 .. ,r-, 'l. .~1 )a;,;-s ~xhcth(.. r Iar~~, or rHin-lan:~c. v;;ho a\ailed of
l . . . ,.S'J<'<"'
,_ ! . -l '<:. ~ -, '-'

the electromc filing <llld ;Ja;ments (EF-T'S!. the deadline for

Answer: C
.. Jectr"nicallv filing the app!iC'able withholding tax returns and paying
Reference: Section 2.58 {B), Revenue Regulations ~o. 2-98,
the t:Jxes due via the EFP~ shall be:
as amended by Revenue Regulations No. 6-200 l
.-: t\\ent, {20) eLi;,:; la~cr than the d~.:(tdline set for manual filing
{B) l\~tf71wldmq tw.: staterr;ent 'UX<''-' , :i:i.' --- :.
dnd D:t\ rrwnt.
required to declurt unci znthhnlci itLH"-; : . .. ,J, .,. .; '-- i.
h fiftet:n 1 J .'1\ da\s !arr'r than the clr'adline set for manual filing
furnish, in triplicate (Reuen!Je Rer;ulatl""' .\u '-' ' - i
and pavmen t. whether individual or corporate, with u Zl'rthhoiciuu; :ux .-.,-
ten ( J 0) d:l\s later than th<' deadline set for manual filing and usino the [Jresrn)-'Pd fonn IRTR F'onn 2.-u:;} sli0 1 i 'PO;-,,
~ ~ , ! '.. T: ' : , pul/Til('nts ;ruuie 'l71ri tJ,e ,~,...,:nru)f r;t tuy,, t :;.;
('. : i\ ; !.\, ... rnon,~;~ o(i't' r:i;-u,_-,r urU .,._ +:1 ( , . ,, ,_ .. ',.

1uithholding teed upon L'Pnfi,.:;:.d co'n.nrrPI'-~ ,,r"ri1~ 1/U't----' I , ,'' , . ~

Regulations No. 3-2002}

357
356
 O.apter 20: Withholding Taxes
I Forftnal withizOlciing tcU:es. the statement should be given to the payee
on o; before Jarwary 31 of the succeeding year.
Upon request of the payee, howeuer, the payor must furnish such
certi cate simyltcneously with the income puyment.
16. The payor is requin:d to ftt .. wi~h the 31R.-Large Taxpayers A;;sistance
Division. Large Taxrayers DistC: ::t Office or the Excise Taxpayers
Assistance Division, or the RevenuP. District OfficP .,.,here the
payorfeM}Jloyer is registered as Withholding ngent, Wl Annual
Information Retun1 of Creditable Income Taxes Withheld (Expanded)
or lncc.me Payments Exempt fro;n Withholding Tax (BIR Form No.
1604-E) on or before:
a. March 1 of t."te following year in which payments were made.
b. :.1arch 10 of the follo'\ving year ;n. "-".'hich p~~~!T!~nts \vere made.
c. March 15 of the following year in which payments were made.
d. none of the c~oic:es.
Answer A
Reference: Section 2.58 (C), Revenue ReJi!Ulations No. 2-98
as amended by Revenue Regulations No. 3-2002
l- The payor is required u file with the BIR-Large Taxpayers Assistance
Division. Large Taxp<tyers District Office or the Excise Taxpayers
Assistance Division, or the Revenue District Office where the
p3.\'0r/e:np!o::er is registered as W1thhoUing i\gf:nr, an Annuai
~:1t-:;;:7l:cl7i:.:;n t<l~tuin ~-~!- ::-:c::;:i-:_t~ T~!X~~~; -..~-i!Ili!e~~_i '-J~! :..=u!!lp~r!~)d~iLl!~ ,---~_!~';
~~-i:1aJ \,.i,.'irhh(>i<iing raxc~ ;iJiK i-orin :~IJ. lt>il--t~-....-ii (HI ur l>efulc.
a_ .jd!lUrtr\ 1 uf rh( ;-~-'llo\vins ytar in \vhich pa_vinents v:t>re
made.
lJ. Januan 1;) of the following year ll1 which payments were
made.
..;a.nuary 31 of tl-:~ fol!o;\ing year in which payments were
made.
none of rhe choices.
?SS
Answer: C
Reference: Section 2.58 (CJ, Revenue Regulations No. 2-98
as amended b Revenue tions Ko. 3-2002
__j (C) A'lltt.:al informaticn retumfor income tax withheld c SO'lrr:e.- T:e
payur is r-equired to file with the BIR-Largc Taxpayers A.sSistan -e
Dirnsion, Large Ta.'q)ayers Uistrirt OJfi._e Ot" ,he F.~ Taxpcry~
Jl;:,sistrmcP Division, or the Revenue District Off.ce where tr.e
payor/ employer is reyisiercr as 'Vithh,.,lding Ager;.t, on or !"Jefore .V.'1.TC11
1 of the follcwing ytar irt which pay1nenrs u..'ere maU.e, an .!.nr..:..al
Information Retr..;m of Creditable Income Tc:.-res Witt:i.eiri
(Expanded)/ rr..come Paymen:.;; Exempt from 11/!ihh'"!!d-n.g Tax fBIR F:;r:n
No. 1604-EJ ana, c.-t ar before January 31 of !ht.. o-wd year, an. Anr.ua!
Information Return of Income Taxes l'iirhheid 'JTc cornpensm~r;. and F:na1
Withholding Taxes (BIR Form No. 1604-CFj (Re:>en '! Regulatio'j$ No. 3-
2nn2} , showing among other"' the jol!otuir:g ir:_';;;nnatior:.:
( 1) Name, address and taxpayers, identzficanon n._;mber tTJ:, 1, r..ru:i
(-') I'Yature of income ?ayments, gr'J:..s arnount ::md amo~, '''of: --x
t.oith; t.eld .frotn each pay;:e and SilCh cz.h..er i'r!._rcr;na!an. a.s ryu.:;,y be
reouirPd by the Commissto;~er
If the payor is the Governmrnt of the Ph~i:;":YT.es -:or :JTl~f pD.::'
subdivision or agency thereof. or any gozemmenHJ1Dn.ed or cor.:raiZ'"d.
corporation, the return shall be made by the o;',<:cer or emp!o:;ee i;,a:-:~~:;
control of the payments or by an;; des'qna:ed a:Ticer or emp:Yie"'
An individual tuhose sole inccrne iu.ts bt?-e~: S1J.h,ectc-! :c _::r:.:~: :. -~~):.: :J
tax prouidPd under Section 57"1.4! shu!: 'l>A ';e ru;:.;rcd :::; ,.::. :. -: n~q
tax return pursuant to Sect:o~ 511:\}i.:.: , ., .J;". :i:,: -:c:.x -::c!f,, ,:::-- r -~' .~ ~ .;.,:.-,
crf'dttcard!1{J[.Jltcurum ir; pr:'l:, J:' . - ,-"/
BIR Fonn :Vo. :.:!3(1{:) duly 3 1 :_F>'ri h,lj ~i': n :~,.l.'r .,. U!.'_-} .-., --"
su..[(ice.
The tcrrn n.n inclitndual!vitc.3e cnn;J.)t ..~:_.t:::)r; ~. "' u._. ,-.-
to finol :vi!.:1holding tax sf'n) ~ 7 '('/::.:f ~;!-;_-.- ::- r; :~!:'urr:.; :*;:-
occupyzng the some [)()S!tio':'' us tilt cl:,,,: -.~mt.i.J1je~s. :s -. -' .-.-~._I
be, toho nre ernp!01j('ri iJ!J r!r.;onuf,ln, :~:, ;r/(~'1~~- .. ,.-:
area heodq:Larters, offsf!OrtJ iJunk:~~; ,r.<. ;Jr:.:r.-).t .. r , . .,-
and SUb-contractor.:.;, purs:,c~r-_!_ ~0 ,u~r~.t 1 :'" .!.)7""':.):- ,.
(D), (E) ancl 57 (A) of the Tw. Co,!, >/ .' i'i-, ."':c;::<!:::c 1 c: ;., .) -~,;
Pre.sich:ntial Decree .Vo. 73.:--f an(] (l1lt-r :.,o::rTtr._.-~~ !Tll''-' ~,='..: ,_.--Je
Rr'!J11{1;:rrp;_.: 'n). , ; _.1 c _
1
)
359
Chapter 20: Withholding Taxes

20. First statement: Deeds of conveyances ol" t:J.~" -,;- b1c ~r>:::
18. Which of the following statements is incorrect? building/improvement thereon arising from sales. 00.--ters, or
a. Income upon which any cred~tahle tax ;s required to be exchanges subject to the creditable expanded 'loli'ithhoiding tax shall
withheld at source shall be included in the return of its not be recorded by tee Register of Deeds unless the Commissioner
recipient. 'JC his duly :1uthorized representative has ~ifled that sucn
b. The e:xCPs~ "' t~e withhdd tax over the tax du~ Jl his returo tm..>sfers and conveyat1ce~ have heen re~rted anrl the t.<paTtacd
s~all be 1 dunrl~d to him ::.uhject to the autho:ity uf the witt-holding tax, bcluc;ive of the do:;ume:>ta:: stamp ..ax,. aue
Commissioner to refund taxes under Ser. 204 of the NIRC ~t:reon r.a:e bec.n fully paid.
(AuL01ity of the Comnrissioner to Compromise, Abate and Sero'1.c1 sta1 ement: The Reeist~r c~ !:'eeds sh ::!.11 annotate on r:--::
RPfund or Creuit faxes.) Original C::rtificate ofTitle, Tr2:1sfcr Cer:::ica~e ::::Ti'~ or
c. If the im:cme tax collected at source is les~ than the tax due Condominium Certificate of Title of the said property, st.c'-:
on his return. t~e diff~renc~ s~all bt:: paid in accordance with inforr.lation required under Section 53 fc; of the 1 ax Code
tht: provision~ uf Sec. 56 of the Tax Code (Payment anc! . {Registration with Register of Deed~.)
Assessment of Income Ta..x for Inai"iduals and Corporations.) a. Only the first statement is corr~t 1
d. None of the c~oices. b. Both statement::; are correct
c. Only the second statement is correct
Answer: D d. Both st?t~ments are :r.correct
Reference: Section 2.58.1, Revenue Regulations No. 2-98
Answer: B
Reference: Section 2.58.2 Revenue Regulations ~o. 2-9~
19. Fzrst statement: The taxes withheld by the withholding agents shall as amended b Revenue Re lations No. 14-2002
be maintained in separate accounts and should not be commingled Section 2.58.2. Registration with the Register of Deeds.- Deeds of
with any other funds of the withholding agent. conveyances of land or land and buildinglirr:proe-rr:e"' <-ere<:r: ariS:r:g i
Second statement: The taxe..; withheld bv the \\ithholding agents jrom sales, barters, or exchanges sub;cct o rr:e rr"'i:~be ex,~ :ded
shall be cons1cl,~red as a trust fund held for government until they withholding tax shall not be rf'corr/,,c! h!i 'h.E' _:.:";'rc: : r ) .. ,- -~-oc'o '. ~:.-ss :r,o
are remitted. Commisswner or his duly at<hor<c,d re~J"t'Y'' :;::. :' -- ' :;- ~:
a. Both statements are c-orrect SUCh transfers and COnV~_!}QPCeS fJtH t' i:-.. '-::.'!"'__ r. r::../~--,~ , ... ~ r ~~ ..-.CCl
_, /,:

b. [~(Jth stcttemt:nts arf' it":~:oiT-~ct :c:rhhoiriiny tux. inclrisir,. ()::-,. ,; .. , , ':

r-. . '~ ~:--. .::_~ ::;-::~ :~ ..
~

: . ' ; ' l ~ - ;

The }\egrstcr<~(Uerds shut:' :';"r:o,,~ . ,~"1 ~;'~" r/--~-~

Answer: A Trunsft!r Cerlifi.cute or
Tirlt )r ,H .~')n:; 1 :~;rr ;,- .
Referenc~: Section 2.58.1, Revenue Regulations No. 2-98 F,\~qulations i'io. i 4-".JUO:..:!; c~f :iu :u.:ri ~)r.~_r;:-rt_f.
11n~ler Section 58 (E) of" the rnrie '" ro-;c nf rP;:.' ,., ...
n.quirenicnt. he shall be liu.J;\ tu i:~_t: pc ~:~LIZ!-.~_:/~_.
269 of" the Tax Code.

361
160
Chapter 20: Withholding Taxes

21. \Vhic~1 .J~the fc!:o.ving statements is incorrect? 23. If in lieu of the automatic applicat:cn cf !li:; ~xce-A: creet, ~!1.!
a. The amount of creditable tax withheld shall be allowed as c.. taxpayer wants a cash refund or a tax credit certifiCate: for ust U:
tax credit ag<Lns.t the inr:ome tax liability of the payte ir the payment of his other national internal revenue tax liabilities, he shall
quarter of the taxable yea:- in which ir.:ome was earned or mlll<'e a written request therefor, within:
received. a. five (5) years after the payment of tile tax
b. Claims. for tax cred! or re!und of any credit?ble incume tax b. fr.ree (~) years after the pa~nnent of the tar-
which was d<.ducted and withheld or1 income paymer:ts s:181i c. tw::> (2) ye1lrs after the payment :Jf the tax.
be giveu cue C'JUr<;e .:>nly vh~"n it is shown that the income ci. none of the choices.
J:-ayment h:l.; iJee:1 dedared as part of the gross income.
c. Clc>im<> for tax c<edit or 1-.:fund of any cred;tahle income tax Answ.!r: C
which was deducted r~nd with~tid on ir:come paywent-; s!:all ~efut:nce: Sec!:ion 2.58.3 (CI (1), Revenne Rep;a~ous No. 2-98
be given due course only \\hen the fact of withholding !s 1
If itt lieu of th.<: automatic applicator> of his excess credit, the :xqA4yeT
estabiished by a copy of the withholding tax staterr,ent duly wants a cash refund or a tax CT"'dir cert".ficate for use in payment -:Jj his
issued by the payor to the payee showing the amount paid other national internal revenue tcrx lir?ilities, he shall make a written
and the amount of tax wi:hheld thenfmm. request therefor, within two years after the payrr.ent of the tal (Ref.
ri. i~one oi the cho1ce~. Sections 204(c) and 229 of the Code), 1-rouided ho~uer. that ~f tf.e
taxpayer ltas indicated ;n his incoMe t'lX ret-1m~ option for eitlu!!- a
Answer: D cash refund oro ta:'C credit certificate, such indicatton shrul be
Rf'fer"!nr:e: Section ?..5~ ~ !A) a.,d (B) l?t>venu'! 'Rt>~tJatie>I'!=
considered sufficient for- the pur-pose. Upon. fi!ir.g o.f .his reques!, tr.~
taxpayer~ income rcL'C retunt shewirJ the e..:ce"'s expcn.uea JJ,.;'"_,_;,;,.r..<J
rh. 2-98
tax credits sh 1ll be exam;: ea. The excess expanded u11hhoiding ~=so
determined, shall be re nded! credrted to the taxoa!fer.
22. Which of the following statements is correct?
a. An individual or cr;rporate LD;payns excess exp?..nc-'.ed
24. Any income payment which is deductible under the :ax Code .,;;.an r.>e
witl:'wlding tax r:::'Odits for the ta.x:lble quartcr/\"edf sha::
allo\vcd as a deduction !:-orr:. tf:c p<--iYor's gross i::'":c;rr:~ or:.~~~~ !f :': :s
automatically be allowed as a credit against his mcmT!e tax shown that the inC'mle tax req'.tin'd to be w,rhhe!d roas hee:1 n
due for the taxablt, quarters/years imrnedia:el:, succet:dm6
the Bureau of Internal ~e':':':cue. !kwen'r. i:-: w~ich of tl":e :'r>l:c'.. ::-.2;
the taxabie qua~rp-c./::e;-trs in \vhich rhe t-~XCTSS ,Tt't~it ;{r-us~~
.
. .., .!. '
.. . . .
! ! ! ~ ~ ! ".' ! I_! ~ ! ~-! : ; .' o l '- ~ : ' l _'<. ~ I , ! \ l .' --:,..
ca~es sill ...1 deduction =-.c ,<: '-'\':,-d ::n ii .. -:~- . -- ...
rn;3_de?
- .. ,\;; :._;; i , :.:, i, l.\. l i -,. i, , -~ L l, t;! --) _; l J., : .'\. : ~., ; 11<2
8.. The payee rep(>fit't! ;~:e tncon:r~ c.1nd ~ ,_l-. s ~.::.~ i.:<: -:~- ..
;1nd the \\ithhc1:__;tnt.~
J.g;''tr 1';" t.'"\X:pa~.-~:- ~-- t.s r:.c :-:.:tx. ::-----_.:..::.~::-:.:;
tax rt-'ttlrn t()r !h(: :_~:._.,,..J(l!_/~ r.1x:.lhtt' :_),._;_r;d --d:d'.. ~~-~~ :-!' .:-n:~o:Jur .t
~ht-=- intt~n~~r inc;dtnt rn ti~r ~>.i!:n T'> ._.,~~:~:r_,;r~ ~:;~- '":>:
of such excess -.<.:::;,c,id .. l,2 ;,~x ,ncl,.;.
surcharges, if applw:.bl',
c. ,\n individual or C';:-por re l~lXpci\t'r -.\:dch shdii atttunldtic~dh:
b~ alkn.ved tO c:.-~-~r: f}oP _'Xi_-~'SS \\it):!~n!d!!1,(~ t:!!< r;-~(:1i"<::; 0f ;he
!'
b. The recipient; pa"':e r"a!lnl to report t:w !!lCG::w u:: ' :~ ': ..::
previous taxa'J!e !''~rl'>rl has Il<Jt optt'rl ford c:1sh ref,.:nd or tdX 1Lttt~ i_l'r-:-renf, h!l"" r!11~ \\.iih}Hlldin~~ ;1:<;1T :;Jx:1,1.rr ~;::;\:; :-;.-:- -!:(.
'Ted it certi fir;n ir:cluding the in:rr~s~ lnc!dent tl) tf~~ ~-.~i>_;r: .,:--:--: ~--
:\ll or lw chowr:.> tax and ~:;urchdf<t"S, lf .-tppltcdhl:. ~-P ~:1-~ t:;::t 'J: ~;-~~~ -1--:~;
audit aud in'iestigdtiun ur rt!nvestigatiun/ reconsid~--;~!.7:Jn.
Answer: D The withholding ;1gent erroneously undt>rwithheld rlY? r;,x b'Jt
Reference: Section :2.58.3 fC), Revenue Reg-:.tb.tions No. 2-98
1- 't} . . :-:

. --;: ,,-,~~:~)~~ 1)f ~-~~.-.. ~<;t

362 363
Chapter 20: Withhol<ling Taxes

A.ilsw~J:: !)
Answer: D
Reference: Section 2.58.5 (C) (A), (B) and (C). Revenue Reference: Section 2. 78, Revenue Regulatiol".s No. 2-!if8
Re&Ulation<~ No. 2-9a as amendea by Revenue
RegulatioiU' He. 1~4-:...:2=:00=2=-:-----;--::--;- ~--:-;----,
Note Items of deduction representing return of CXIJ ital St.ch as those 27. This term refers to a!l individual verfoTMing service under an
perto:mL"lg to purchas~>c; of raw materials forminn part offoushed . employer-employee .-datior.;;t.ip.
product or purrhases of goods for resale, shall be_ allv_wed ~ dedurttons a. Employer c. Public~~
upon the withholding ('gent's paymem of the baste Wlthholdm.g tax and
b. Emp!oy~e d. Trader
p~ties inci L"Tt, t() non-r.:..ithholding or underwithholding. (Revenue
IRegulations No. 17-2003) . -----------' Answer: B
Reference: Section 2. 78.3, R~v::nue Regulations !fo. 2-98
25. Which of the fc.llowing St.."l.tements is incorrect?
a. Every person who is required to withhold the tax from the
compensation of an employee is liable for the payment ot such
28. Who of the following is an employee? . t
a. Officers and employees, whether e'~ted or appointed, of the
tax to L.'1e Bil~
Government of the Phijjppir.es, or any political subdivision
b. Such liability stays even if the employee subsequently oays
thereof or any agency or instrume:nt.alit:
the tax.
b. An individual who is subject to the control or direcuon of
c. The payment of the tax by the employee does not relieve the
ano~htr with re~..1rC:s to :h~ =-~sc.;t t:J '::<.! c:.cr:::-:-:;::~'le':! b_.- ~~ ..
"'mployer from the liability for penaltie<> andjor additions to
work, but is free as ~c the mca.;s and meth~s for
the ta'!: for fa;1ure to deduct and withhold within the time
accomplishing the result
prescribed by law or regulations.
c. Individuals who foliow an independent trade, business, or
d. None of the choices.
profession, in which they offer their senices to tl:e public
d. None of the choices
Answer: D
Reference: Section 2.58:~ Rev~nue Regul~_t!ons No. 2-98 ____1
Answer: A
I Section 2.58.6. Tax Paid by Recipient of Income.--:- Euery person
Reference: Section 2.78.3. Revenue Regulations No. 2-98
I u.,'hc ~s '!YYJU!rf?d ra u:!tl~;.rJ!d thr> tczx from tht? co:r~pt~nsat!on oj !1!!

;;/,:'.' ',;~; 'J;;;',; :,: ~'.~: ;~).-;~_':,,, ;~,-~ :1~;t ::~;;:~:~:~ ::,~:~~:>rr ~;;:;)~~:>/,.~:::. ::,~!1:::~~~~1~~1~:
1 1

; for f_1f?!'(l{.tie-.::. nnd. )r nr]rfitror,_...:. to tht~ t(Jxfor frnhirl-~ to deduct n.r:d 1 a. In general, the relnr:nnsh1p .)f t}v~ ~;:~:_,:r;\~;-- ~::.~! ~:--:-l;J:S: ~e
: witizho!J. 1u;thm th :me vrescnb, rl b11 Zaw or regr<iatwns. The employer exists \Vhen the per::,, IIi fuc \\ Lu:.-. ::-~..::.;:_~_-:~ -.'. -:--.., :~.=-~:--f-::-:::,.:-:.: :-_as
I tulll no! he rciiP1oed of h1s :-.-!I.Jiilty for {;ayme>nt of 'he tux required to be the right to control <!:ld dirr:Tt the :r.d:':;cluii: '.>r~s ;K:-'c;:--:-;-,c; ~he
1 wrthhe/d 1miess h run sitow that the tax has been omd IH/ tl:e services, not oniy as to th~ r~suit !r) :-)e acr:o:npllsher: b~. - r::e
j emplor;ee .. Tlz:arnrmnt_ of Wlli tax withhelcl~ c_oilP!:.te_d by the employer zs work but also as to r:1e <ktctils a:1d rr:eans b:: '>:h:ch :-.e result
'~a s pecw l_jw1Ct m r =: ::' )_:}.!.__ 1!2"..!..10 1 em men r o1.!.!25'..!: n w pp m..:cc:...:sc...__ is accomplislwd.
b. An ernplo~ce is suhj:ct tn tile .\-i:~ -~;.-~ ~-r_~n.~r'< ::: :::: ~~::-:~:~:~~r
not only as to \\'hat snail :)c \~()tlt'. bl .. nov:: s:1;-:.:1 D~ dor:e.
26. Which of the following statements is correct? c. It is not necessary ti1at the' ,mplover actuaJL di:-ects or
a. The withholdinr' 0f tax on compensation i.Kome is a method controls the manner in 11hich tiw ser.:ices ar? performed; it is
f Ct)1:~:ctl: __ ~: :' ~:rl)nH.~ t;~;.: z1r <snnrc~'-~ =~~P<>n rece1pt o!~ the sufticient that lw h,, n,,. r!''_::: ' :,
d. ~one- of thr~ choicr ~
, ;'~'.~"~ : r;:;;, ''.'t'r! :n.:t:.: i1::d:c:: '.\ ::~rLr ci~i:-;;rr::; :_~r
'~1~n---;, d;'. ::~:). 1~:( :~ :r(>nl .~r-:npi'!L.;;l~;~)P f()r ;-;er\ir.--; Answer: D
:r~nd~rcd ~:i i:t~ flhlilppinc:-;. Reference: Section 2.78.3, Revenue Regu.lations No. 298
'T~,, :;:i"l~~ :~ ("'.;~,':!:.:!''~! ;-; ~hr ~.t;:~t~~!~'.:')!r!::;~~ ~1':.~f_;1t-.
d. :\Jl of the C Il rJiCCS.

364 '365
CI-.apter 20: Withholding Taxes O>.apter20: WithhcfdingTaxes

.>0. Wno of tne following is an employee? 33. Which of the following IS noL an employer?
a. Superintendents, managers, and others ~longing to similar a. Any person paying compensation on bel>..alf of a ::!'n..res!rl<:::nt
levels alien individual, foreign partnership, or fore:gn corpo"Cltic:t,
b. Officer of a corpora~on who is not engaged iP trade or l>u:;iness within the PbitippiTl~s
c. An indi.ridual, performing servi_,-es fc.r a corporation, bvth as b. A trust or estate
an office~- and Wrector c. The fiduc..i..ry ac~~ng for or on behalf 0f tne tr'J~t or c::;tak
d. Ali of the choices d. Organization exempt from income tax

Answ:u: lJ Answer: C
PE.ference: Section ~.78.3, Kev..,nue Re tions No. 2-98 Reference: Secticn 2.78.4 (B), Revenue Regulati<Jns No. 2-98
I No di~tinction is rr'ldP ~een classes or grades of cmpic::;ees. Thus J (B) Person paying cvmpensc..:io:l on be~lf of a n.ouesident. - The te:ml
i superintendents, managers, and others belonging to o,;mi/ar levels are 'employer" also means Gny person paymg compensatiOn on behalf oJ a
1 employees. An officer of~ corporation is an employee of the corporariorL nonresident alien in.:.iwidual, forezgn partnership, or foreign corporation.
An individual, performing se-uices for a corporn.tion, both as an officer who is not engaged iJL trc..ie c;- l?usiness within the Philippine:t.
I
r
and director, is an empla:;ee subject to u.-ithh0lding on compensation.
1 including direcc_,,-s jees.
It is the .~esponsibility of th.: employer to Wti1JiOld., pay, or re.f.;.n.d tile tax
and fum ish the statement~ reqv1red under thRse Regulations. The term
"employer" as defined rn fA) and (B) above lS u1tended to dele ""11m.e u.:ho
is the withholding agtmt.
31. The t~nn rn~an::o Any ~r<;fln f0r whoTP c>n iTJdi,id,vtl ;>"'rforrns or
pe;formed any service, of whatever natu:;::, under an employer-- .As a rnatter of bu<;iness udn~irn.>~r:.JtJn~ lerczin mec+..a.n:-:4! de:.::;:z!.:3 ~f :,r,.._e
employee relaC:mst:ip. withholding process may be handled by representati: !?S r;f the err;;!o:,er.
a. Employer c. Public servant Thus, in the case of a corporate employer :L-ith branch offices, the branch
b. Employee d. Trader manager or other representatwe may actually. as a matter of ir.<c,~ai
admmistration, withhold the to.< or prepare he sta:emer.:s req-A;reri
under the law. NeuerthPless. rile !e(jal resr:;or.srb1i::y f:;r 'i."throidTq,
Answer: A
paying and retununr; ~;~c ta. <t: ru'rl ~ !1.n1rs .-:g s~1ch 3tare-rn.en_ts ...-f's~s :Lt:!:
Reference: Section 2.78.4, Revenue Regulations No. 2-98
the corporate empior;er.
. '- _-),

rJ~lrrr,; ~~f r)H p:_tyn~t~: ~ ,, .. ::t~ ~ornp(ns:Piu:1 in r-asfs xhere the pnul. ,iCftnt i'entur:, o:- )r;;._r ~,.~-~~ .n-;u~~- ~- t .:::~::;: ;~ ~

-,,.-~,.:icF:; :n or- '.\er,-. . :;:-:!l~_..d ford person .vhu duts n.oi (xerc:s.:: A 7nJs'! ~p- :~~;rate. roth('! thon t;, :ri:,,_rr,:, -~< ~:~; -,.,...' 'J"' r;&..:u---- r-::
fn,-:;t or r:->stot(--. is qenernlj'r; 7ftt"' ,-'rr:nio;/-:r

Siutement: \\'here comrJer;s,ttion, such a:> certain types of pensioc". The ter:r: ernployer {-r!f_u-ur'c.<-, n')' nr~ly .-u:. 'r~:hvrd 1 i ;r:.:i ,-;.r'
or retirement pay, are pa;d bv a trust and the p:rson for shorn r::e OT'(JUnization enqayed r~! trade r;r ;,!l~:nf?SS, bu! !.[ t,:'so :nr:~,.-jp;. t
services \vere performed has no control over the pavment ot sue;-; organrzarion e.v..t?n1pt front ir'co.r:e rox, sue;: G~~ chortu.;Jle c~r)d '"":':''-'_.~'Jtts

a. Both statements a:-: correct (]OUE'!71Jr!('7~t o( rhc P!::i:p/nnr.>s, :r~: lr;r.!:.n:_j .; -~i .._'t::'.
b. Both statements a:-<~ incorrect nnd oolrtrcnl subcliL!s~:Jns.
c. Only th1 first statement is correct
d. Onlv rhe second st:ltement is correct

~--\nsT.ver: 1\
i<eiercnce: Section 2.-:-3..+ (AI. Revenue Regulations No. 2-98

366 367
Chapter 20: Withholding Taxes

37. Which of the fol!ovbg ~tae,.,ents i~ rcrrP-f'f'>

Answer: D
, a. In general, the employer shall 0e respe>nF'ble for tlY.
Reference: Se::tion 2.79.1 (C) (1) (h), Revenue Regulations
withholding and remittance of the correct amoJnt of tax
Wo. 2-98
required to be deducted and witilheld from thi! compen~on
income of his t>mpluyees.
b. If the employer fails to withhold and. rcutit !Le <:"OI'Ittt. amc.,Pnt
35. 1:1 case of cneTlges in the inforr.1atiun data in the Application (BIR
of tax, such :ax sl}all be 1-olkcted frrm C:-.e emplYt together
Form 1902) previously su"'Jmitte<i by the emplc;ee, consisting of
with the penalties or addition::. to the tax 'ltherv.i:ie applicable.
d>angt>s in persona! and additional exemptions, employment/
c The employer .vho is required tr-o collect. account for and remit
wcrking status of the spouse 0f the employee, multiple employment
an: ta'C impc3ed b: the NIRC, as ::mervied. who 'Willft.;_.y fails
status and amour;t of co--np.::nsat10n income, an Exemption
to collect such tax, or accot.;nt for and remit such tax or
Certificqte (EIR Form 2305) retlecting the changes, together with the
willfully ~ssist in any manner to e\ad'- any paymeLt thereof,
required doc-..:.ments/evidence of changes must be snbmitted to the
shall in audition to ether penalties, prcr.ri..ded for i:1 the Tax
employer within how maJ1Y days after such change?
Code, as arr ~nded, be liable, upon conviction, to a Jfnalty
a. .thirty (30} days c. fifteen ( 15) days
equal to the amount of the tax not collected nor ~ccounted fo:
b. twenty i20l UC;~ss d. te:J. (10) days
or remitted.
d. All of the .-;ho:ces.
Answer: D
Reference: Section 2.79.1 (C) (1) (c), Revenue Regulations
Answer: D
r-eo. ~-c;,s
The e~ployer shall then m=zk~--ihe-'TtecessanJ adJustments on the _j Reference: Section 2.80 (A)Il) an(i (2), Rl'venue Regulations
No. 2-98
~w~~~-th~ho~ld~t:.:_.n::;g~t~ax~.:::oL[~th:!e~e:.:.m~,p=lo::.:Yt.:e::..:e~b:.:::a:;::.s:.::c:.:::d:...o:::.n:..:..:tc:.:h:.::e:...r..:te=u:....'.:c.ir-"'t[<'-'o_n_n_a__t_io_n_._ _
Note: Any employer/withho/dmg agent ulw fails, or refuses to ref..Jnd
excess withholding tax not later than Januard 25 of the 51:xeedir..g year
shall, in addition to any penal tic'S pre 1ded in T;tle X of :he Code, as
36. The employer shall transmit both the original and duplicate copies of nmendecl, hP linb/e to a peron'ty erpwl 10 the tote;/ amou.nr of refund
the Application or Certificate (after accomplishmg the portion for which was not refunded to L-e ern,J!o~:ee res1<.'':'1gfrcrr: any e"t"cess of
Employer's information of either forms) to the Rcv(nue District the amount withheld over t!-:c tw: actually due cTI !herr re!;.Jm (Secc:cn 1
Officer of tlt( City ur ~v1u:.:.ict;J<t1itv \\.ltcrr: the ,.,.::-l;Jlo\.tT ll~ts. hi3 h:gz-tl L?._80(21j_::3_1 Re~e!i!!'~Pcfi_~<fr",_\~,_:. ;_:':._~______________________ __;
:.. i ....

. '' . ~' ~ . ' -.! .. ' . -

::.JlJ! l;l\ \,._Lllf-..1.1.\.l.r _

a. thirty (.30) days (' ::t~t~n { J ~) d.n s JS. First stnten1cnt: Where an ernpio~:tc fctds ()r r~:~fuses o ~~}e the
h. tw>nrv f20) da\s d .~-~: {10) (Lt_\s
\Vithholding cxen1ption c.~_r:iri(':ttt_ nr '.':ill:-:_1 S'.l;Jp:it.'"S :a2se '")-:
inaccurate inforn1atio11 7~:-.':-::~nct~_,; ,lttf'r ;.!u~: .r;:-::-:.::: ::o::cc b:~- ~he
Answer: A emplov~r. the tax otherwise rr, be wtthheld t;-,- the employer shall be
Reference: Section 2.79.!_L(:L@).!..~':_"\I'~Ilue__B._eg~l~t.!?n!lf!~~-2~~- coliected from him includmg pen~1lties or addrcions to the tax fr0m
l The duplzcate copy duly s;nrr:pcd reet'lued h!t rf:e !31!? slwll he yirier ro the due <iate of remittanc<-' until the date of p;r>menr.
U_he !:'_fr']}!O!J~Pc __~-------------- _____ ------------------------- Second stutement: \VIwrt h<~ -~mpi<J\'t', .lfter cJt;,: \\ri"'en not:re from
the employer, willfull\- hils nr rdusr,s ro file the app1;cat1on [c;r
registration or the Withholdin,~ txemption cennicate or wilifuily
supplies false and inaccurate information, the excess taxes
withhelrl hv the emplnvtr sh:lll nn :,,., ;-rfmdFd '" r~ ~mplovP~ but

1 Uo!!I SLl!t-:r~l~!~t~-; ;~n-:

1). L>J 1
fl stait_~n~nrs d:-c :r; >:t
()ni' th' h!-~ ~)Ltt-_r: :~
d. ()nly tht..-'" St-:cund s~ . .l~,-:Jl n: :.-~ _._;;;-~

368
t.napter LU: W1tnholamg raxes

Answer: A A book entry. if made should irdicate an absolute transfer from one
Reference: Section 2.80 (B), Revenue Regulations No. 2-98 account to another. If the income i<> not credited, but it is :set apart, such
income must be unqualifiedly subjf;ct to rhe c:iemG.nd of the taxpayer.
Where a corporation contingently credits its emplor.}f!4!S wuh a bcnus
39. E\ery pen:on who makes payment or exp~cts to make payment of stock, which is not avrtilable :0 sur:h emplo!J~ unJ:i1 some ,~jm,re cl....t.e,
compensation subject to witt,.holcimg tax t0 any single emplc.yee sl:all the mt.re crediting on the b.:;oks oftl:e corporation does rt.G! constitut.e
register b~r filing in duplica~e. \\ith the Revenue District Office (ROO) 1 puyment
of the City or Municipality where his legal rPsiJence or place 0f
i->u~iness is locate<I. an Application for Registration 3S a withholding
agent us;.ag th~ form prel>Cribed by the Bureau not later than: 41. First stateme'1t: An extension of time, !lot exceeding thirtv t30J days,
a. twenty (20) d:ys after becoming an employer. within which to fCJrnish t:1e Certificate of Income Tax Withheld on
b. r.aecn (lo) days after becoming a11 employer. Compe11satiu'1 (Form No. 2316) r~qt..ired by Section 2.83 of Revenue
c. tE:t {10) days after becoming an employer. Regulation<> 2-98 upcn termination of employment is hereby
d. five (S) days after becoming an employer. granted to any employer with respect to any employee whose
employment 1s terminated during tht: calendar year. t
Answ~r: C Second stateme?J.t: In the ca<>e of intermittent or interrupten
Reference: Section 2.83.5, Revenue Regulations No. 2-98 employment where Lhere is a reasonable expectation on the p<trt of
both employer and employee of further empio:ment, there is no
requirement that an cmplovee's withholding sta~e:nent be
40. Wnicn of the tollowing statements is correcr";- imil..?ciic. ,ely i\n r.i~h~J toe o.:t.J 1)lvy e~'.
a. The withholdir:g tax on compensation shall apply to a. Both statements are correct

II
compensation actually or constructivel.v paid. b. Both statements are incorrect
b. Compensation is constructively paid within the meaning of c. Only the first statement is correct
the Regulations when it is credited to the ~!c:count of :;r ~et d. Only the second statement is correct
apart for an emplovee so that it rna\ be dmwn upon b\ him .~:..:::

any time although not then actually reduced to possessiOn. Answer: A

c. \Vhere a corporation contingt:ntly credits i:s emplo\cts '.l.:ch Reference: Section 2.83.7. Revenue Re~tions No. 2-98_ _ __
L>i:~s sloch.? \\hicli i-::. ft~)t t.t\.<tiL:tb:e !(_, Si._.ic:-: t..'inp:~_J~,-c"':; :..~:~l: 'Section 2.83. 7. Extension of Time for Fu~i;hfng Statem-e!"!.ts to
~-.!:'lit' ,~,j~,- ',. ;,,,-;-,: t-~-~-,~.:;~ .. -y ~ -- .. 1---.. \, ,---..1 ,~~- .. ~ .... "'
!i
>~

. ~ . . ' .! . '' / " '. ~ . -~'

''t ' ' l
'''' ''' '-

I
!~ .":zl.tl\}ll '-~'-'\-~'.> ~-'' '-..'-'' )LJ.\LlL~ r-~

.1 :\~~:::-~he (-}~c:ccJ. C"'o-npcnsutron (1-"onn 1Vo. 23 i 6} reqrnred b!! Sfc-~r:)!_ 1.83 'J/ ~-;... ~::>-:"
l?cgulations upon tr::rrninntron o,r err:plcJ!J'ncr~: s !-:r_.:-.,.-t-i.Jy yr(;,... :~o?ci .- r;_'i.y
~
Answer: D iii
Reference Section 2.83.6, Revenue
-
,...----------------------~-
Regulations No. 2-98
--------- ------------ ---~----
:II d:1riny ti1c ralendur yeor. In the case of!-nier~r~r:f:?.-:~ or in~t_-rr-,_~;,.:,.-1_
crnplo_lJfHt.:nt u_;here tht?re is a n?c;_sonal;le t?Xp(.'( r~~:un on the _::;1~ :;_.'both
' Section 2.83.6. Applicability of Constructive Receipt of ernployer oncl cn1ployec offu.rther ernpioyrnent. ~[:ere !S n.o
Compensation.- The U'!thhold!t~g tnx on r~nrn!1rnsnt;on sJ-.nll up,r)!'J tc I
<!e
rt=(rcr--::ru::Ttt
~<Jr(I~ ur ~-rn,'Ji(l!Jee '-' u.,if}:.!!olt!inrJ 'Jnternent he lrrJnPdlatel_~J :~_.{-r-r:.;.~~f?-1 the
cnmpensat:on nctr1ully or ronstnu:twely pmci. Corr'rwnsotio'' r'; ernp!U!Jt't': h 1it u1hen su1h expe(r~lfron ('f'(:.'::>~s ~r; ~-"'-':1-.;t, t(~-:: -,t'~~- ... _..
constn1ct1r eirt pwci u:rthin the meaninq of lhc.se Hef!Uiotwns :ch ': s nutst he frn-ru:_,}1ed 1uitJun thirty r.:n) dO!f:-5 {run: ~he riu.re o_,(:-:.:.--T:-". ;_t:on of
crechterl to :ire account of or set apart for an employee so tlw~ rr n::_:; .r,c
dmwn rwon hy hrm at any trme althouqh not ther actually reduced ro J
~
employmcn:. Tire extensron mcnrwn(clunder thr.:; Sectron refer:,; 'a
extens ron of tune for junushing the Cenrjicate of income Tax V/rthheld on

,r.'
t ' 'r: < > _' ..- r' 1}, { '~- '} ,' : \f : 'i '~ ! 1 t' ' ' } r
')' rr ~iti. ~;r:tl f!)', ~ 1 .11" t~t~({;' 11-~n!r.' ,> ' 1) "!.''

1 rnrn1 hP .-];r:ttt u,r)nn nr on.'t t~rnt~, ruul ;t:::: _PU'lrne': .. hrnrlq;,; '-i"''' -~l.-;
control und Li~spo~lttcrL

370 371
 cnapter .<.u: vllll..i1nuwmg 1<~At::.

SUMMARY OF WITHHOLDING TAXES

'
JNCOME PAYMF.NTS RATE
(As of 01/0IJIM)

INCOME PAYMENTS t;UBJECT TO (C) Rentals- 5%

CREDITABLE lVI'fHJ{OLDING TAXES 1.) Real properties
2.) Personal Properti~s used in buf.iness, ')0 gro~
(Sec '2.57 .2 - Pever.ut: Reguhtion3"N9"~ ~~ ~R. R~- -~~2003! ..
rentals/lt>ase in excess of PlO,OUO aiU"1.:ally.
as lasL amended hy RR 1-2004 md by mt~~~OQ9~~~

r
-, I
exct>pt those mder fma."lcial :ease with
authnrized lea 'ling/finance cnmpanies
(I) Poles, satel11tes and transTT'issirn fac.iities
!2) Billl)oards
I
.,
I
JNCO!dE PAYMENTS RATE (D) Cinematographic:: film rer.tals and other payments 5%
i (As "fOl/01/041 _ to res1dent i"1d1vic.luals and corponte
(A) Professional fP<::S, talent fees, etc. for services rendued 10/., if gross income for 1 cinematof'.raphic ftlm owners, lessors or
by !r-dividuals. - On the gross professional,
prorr.otional and talent fees or any other form of
the year does not
exceed ?720,000
I distriLutors I 7k
II
(E) Income payments to certain contracto:-s, whether
re::: .. ~ne~~tion for tl-}P. services of the foiiov..ing I 5~~, if grcs: ::-:.~G:r..e individual or corporate
individuals : exceeds P720,000 \ 1.) General engineering contractors - fixed works
i .) Those individually engaged in the practice of
professions or callings: lawyers; certified public
aCCuunt.a.-.t;.;; CCCtJrs 0~ :n~c:c:::c; 2r-:hitects civil, I
i
requiring specialized eigineering ~nowledge and .
. skill. incl..; ding the following:
a.) Reclamation works;
t

!
I
electrical, chemical. mechan.-.:a1, ::.uuctural, b.) Rai:roads;
i11duseridl, mining, sanitary, metallurgical and c.) Highways, streets and roads;
geodetic engineers; marine surveyors; doctors of d.) Tunnels;
veterinary science; dentist; profess10nal appraisers;
connoisseurs of tobacco; acn;a:-:es; and interior II e.) Airports and airways;
f) Waste reduction plants;
decorators, designers and ail 'llher profession g.) Bridges. overpasses, u.lderpasses and other I
requiring government licens'-"'~ ex<Jminatio;Js I similar works:
andjor regul?.ted by the PRC ..'-'C, etc. I !
i h,) Pipelines and other svsrem-; for the
:
2.) Prof.--:.ssiooa.l cutcrtainers ::::uc--: ~:.~ ~~11_!~ nnt h ..,irtd I transmission of petroleum and other liqwd
::--=~c~ .. : ~:"'~ ~r.,.!P"<.::.f><.;:_ c:.lnP:Pr.;.,. ._.;.. ~f"l.ts. c<HrlDI)~er._,.
'
oc gaseous subst3nct.~-;:
'.,,,,... t ,i, . ..,,.,
3.1 Profc~s1on~d athletes incluc!:: ~ ... \-..-;f<:t~tb.lll pi:t'.Trs. J.J Excav"ting;
pclor~1r!s ar~d ;ockcys k.) Trenching;
-+.) .\11 cilr(,_:ror<..; dild proJUCLT:-;: .:-;t_d tn :;.r~;\lr:s. 1.} Paving: and
stage, radio. televtslon and -=-~: ~ ... 1,_,_: i prudu~__ ~~~,;1:-;. ut.) StnfctL:ing \Vt1r ~
:1.)Insur;ulCt.: ;~gents and insur<!:>.e ctd)Ustcrc; 2.) General Building contractor";-- in ( onnecti0r:
IJ.i\bn3gem':nt and technical r_-"''"Ji;~nts \Vith any structure built. f,J~ th{ s~t~port, shclte:-
7) Bookkeeping 3gents and ager.'.:c".; ancl enclosure of persons, :mirn.1is. chattels. or
R.) Other recip1ents of talent tees rnnv~lble propt~rty of any kir:d. rcquinng in its
n.i Fees of directors who are n~,- r:-:pi")Tt.:s of :he Lonstruction the usc of mo~c th:.n :wo unrc;,,,.c!
company paying such fees. -.:':ose dutic~s ar;, building trades or crafts. or to du <>r supenntend
confined to attendance at ar.rl p;uticipation in the the whole or anv part thernu. Such structure
meetinl>;S nf the board of dir.-~.or; includes sewers and sewerage disposal plants
and svstems. parks. plavgrounds. ,tnd other
nTrPati<.)Ilal \\orks. rt>finc~:~_''). '- ht::l\c;d pl.lni'->
.. ' . :
~ ~ ; .' -- ) dnd :...1n1iLtr :ndl!',~r::t! pL1:" l,.;pl :tr;~.:
SDt'l'ldliztd ~ng!:-;.,_:ing k: ;L~ !:~'~ '->!:1\:.-..
,,::_.. _. :}1)\\"trh()USC, [""HJ'.\:; pLli;tc; 1 ~i):t,

pLl;:ts anci Jnst;d:.t::nn, r;,:;:cs .1; . .::~:.\: :;:

plt":tnt.s, cerncnt aLd concrete \\u:-;._:~ ::1
~onnt:cuon \"-"ILfl ~ .tUcl\.!- -~~-~--~ .-.. ,j

works.

372
 Chapter 20: Withholding Taxes

:~COI\U:: PA \'1\lEl\'TS k\IT

(As of OJ/elt'N)
I IHCOME PAYMENTS RATE
5.) Other contractors-
(m) Persons engaged in the sale of computer
::)pecialty Contractors- Those whose operations service:,, computer Ill ogran"ners,
pertain to the perfo'"!l.::mce of const'Uction work software/ pro gran deve~oper I ::lesigners, .
requiring special slil.l aud whose principal internet service prcviders. weo pc..ge
contracting business involves the use of desi'(ning, computer data processing,
I spe.::ia!ized building trades or crafts. conve1 sion or b3se services an'l other
.----~-:.
4.; Other contractor:--
(a) Filling, dem'llition ar:1 salvage work
computer related acuvitie!'<;
(n) Person,; eng23ed in landscc.p;ng services;
I
(o) Pe~sons engaged il, the cnllection and
cont:actors anJ operators of m;ne Jrilling
appararus;
(b) Op<:rators of dockyards;
(c) Persons engaged in the installation of water
disposal oi garbage;
(p) TV and radio station operators on sale of TV
'lnd radio airtime; and
I

system, and gas or electric light, heat or
!)0\Vt:"..--

(d) Operators of stevedoring, warehousing or

(q) TV and radio blocktimers on sale of TV and
radio commercial spots.
(F) Inwmc dish ibutior, to the beneficiaries of estates 15%
II
forwarding establishments; and t:-ust, except such income subject tc ti:u-:1
(e) Transportation contractors which include I withholding tax and t<tX exempt income
..:v . r.r::0:1 carr:e:-s fc~r :!1c :J.:r:a;;c ~>: g0cd:;
J-tG!inco;;;;-payme-nrs/commissions'se;,ice fe~s-t~ - -~-- --
and merchandise o: .,hatever kmd by land,
air or water, where the gross payments by certain brokers and agents (custo""ls insurance.
the pavor to the same pa;ee amounts to at stock, real estate, immigration and commercial
leas~ t~o thousand peso~ {?2,000) per brokers and agents of professional entertainers)
--~----~-+~~~-------
month. n:r.;ardless of the n..;mbcr of (!-!) Income payments to p<>rtners of general 1(!';, 1f g:-0ss ::1cc:;~e for t.':e
shipments during the month~ professiollal partnerships
(t) Prif!:er'i. bookbinder:>, l!thO!,'Tilphers and exceeC ?720.000
pu b;:c;.;hers. except tho<se pnnL'lj)Jlly enga~ed 1 .S / :~ ;;:-~_ c:;s i:-:c-:me ex2eeds
i:1 ~:-...~ ;:;:_.::~!ic~i~~o~ ~);- v:-::-:.~::-":2; <;: ;:;:; ~-----~~--~----~- --------
to.-~'' .,.-...-..~,,--..,.r r:" 1~'~7~~= ... f'",''.-'"'.1_ tlr h1lll~qn

the medical pr:v:titt<mcrs by P" j,,i ' .., '''' wcre :::: ~ ~':'e~: ?- ..2 ..-. ~~ -'._,
adn1itred and (on fined to such b.os~Ji:.dls ~Jr c!:n:< :f ~;--_.--s-; :::.:J:-::-:-:r:- -~:--: .-:"'..'"-ds
.t:H: )c d: :;v .lgt~L: __ :Jnd/llr or pdici bv H\i()s and silniiar es~....tbii~hrnc-nis
loEe(::HH1 ;q!,CrlClt'S ,lnd , Jt{-:~~r : ):t:-.ltlt''--.'i (d"crors uf rnedicine/dent::li medicinc-/ve'erinar;
:ll;:~r:Cit~s: mcdicme. medical technologists, phvsic" t
{h) Ad\o.:ort:c.,ul.~~ ;lg{~ncil"s. ~'~:r~:."<...:,..r nf ~l'!l';~ thnapist. spt:<ch therapist, nurses, :>!!ted healti:
payments to media: workers. etc.l
ln<Je;;end(nt prodtF~t~r._, ..
~f ~>' l'~i(ln, :.j(::r, (,/) f'a~rn,nr tu rt~.. ~;cller,fo\\.'flt'r f{):- !l! .. -..-!;t. '--~'that~~ . _.
- --- -----________;

dnci '-\!;J;.~c perforrndniL~~ J~ -...r,IJ.v~;. or rransft~r of r::ll propert.\ cLts-,Jfi~d .1s r)nl:n,__l.r_';
Indc;; 1 :TIUet~t prndUCt'f<.) rJ: :n. ,:t:S1
dSSCt
Lab0r rrcn1tting agencies ~1.::d ~labor-only .. l.) Selkr/transkror is exempt from crl'tLtable
withholding tax

r1 J .<lltri:~ p; <lL p,:)l li ),()( '!) :,

l ~ ~
~~(!; r' ~~ r: .. ff11l;( 1 ll lll ;:l;(
"'
l
I} / '
t '}.. t )()l j. j ;t ;'

,,,,\
~

C3L.lte bu~incss

374
 i..llap(er LO: Withholding TaxPs napter 20: WithhoidJng Taxes

IliCOME PAYMEl'ITS RATE RATE

(As ofOI/01/04)
'\d..!ttlonal :.JCOme payme11ts :o goemment 15Y'o ~
personnd for ov~rtirr.~ services from imp0rters,
shipping and >tirlire companies, or their ag~.;nts 1
(L} Income oa:rments made by cred' c.ua companies ----:--t 'o of 1
/2 of the gross receipts
t !~1 Income payments made by the !O,J !20~00") Prlvalf! I I
corporationt- to their local resident supplier of
goods <1nd seJVio...es :purchase& involving
i
I
I
I

&g;"!fU~J-,~ct8iJ1 their.. ~al state I

cumulativ.~tof',P3u,OC~ within. the same
.t:~:~ including nGn-resident alieus
engaged in trade or business in the Philippines
Supplier of ~oods 2 '1'u
___ :1ppE~; cf se!'l!ces
ffi e_n_t_s_m_E_Jd_,.e---:b_)_'_g_o_v_;.r;-;:.:~:~. -:~-,,-,_r_t_;_:!: y .l--- -----------------11
:--,!'\:-:.-)-,=-n-.<:-o_m_e.:._:p;_a_y_'___
1
casual or sing!.:: pu:cLase w!1ich io. Pl 0.000 and 1
below, on their purchass of gr,(><j,; and services
fr0m locai :-e"1dent "UP;Jiier" ~ I' Residcf'ltial and Generat Seriicescusromer .
Sup{.-hr of goods I l''' whose mo~thly e~ci~ .;.nsilmptiori exceeds
Supplier of services -~. ____________ 2'~:_:_____ 200 kwh as classified by the eoncemed DU
(0) Commissions. rebates, dtscour.ts and other 1 1O"ie
considcrat:on paid/gL1ntcd l!; :-... -~>rJdttlt and I Non-residential
--~~--~~~~~~~~--L
t.'Xclusive s.;o>~s rt:prt._'S('J.1tdti\.:c .t~ :-: .~:k::~r1t.; (W) Income payments made by top 5,000 individual
d.~cnts/st.;.n-<.:~~ents of con1p<tt1i~., .~:tl1ng Cl.U!li- taxpayers tv t.,eir local/resident suppliers of goods
1evei mark~~r.;:--.g co~:.pdnlL's. o:; : .:: .....,_d:,. \d. ~~lpJds and local/resident suppliers of service:; other
;p"'d '-'l?f\,'"H_,_~ 'hrt.n_r~~h d~~l_'t_"f_ ~. "-'!~!!~!- those covered by other rates of withholding tax
(purchases involving agdculn.;ral products in then
origiil(li SCttC' in ~'XCt'SS of p:)(J()J)th) \':lt~1lf1 tf1t~
:;amc taxable ye;Jr)
Supplier of goGds
I.._t'->'~t-..., .,\ ~-:ruclu~_-t<-; ,!. : -~- i r t 1)
<::,,d ...,.__ . _Suppliei_'2f 2.C.!':"_iS.S_________________________ _
:(,:\; r).t\'T11t'nt-;. --:..::h hv nrt l't'l'd ("(

:Jt~rlnr

.-.-.
,
~~~-
_.., J
.
r l .- ~' 1
-~.
1 , ~
~ .., -,

: I , : ) : ' '{ lt ; ~. --.

',i:!:ncultur,:!. :c;;r:st :u1ri rn:t;l!: ~.- ~-: :Jl: :l<lli :!HlC:
;Jroduct~. r:ql;irr:..- ;!nd lt\T"itock! -:-~'-:;~ ~-'a\:ntnt~,
ro !T!3r~in:1! !~co;:;t: l';l.--r1l'r<:..
._; I ' ~

376
 Chapter 20: \"/ithho!ding Taxes

FINAL WITHHOLDING TAXES Cha pte.t 21

r--
Tax
COMPREHENSIVE fAX CASES
Nature Of Income Payments
R.lte
lnte!"est on Foreir;'l Loans Payable to NP.FCs 20% ".(/I fiatf.<ayllifurMiirrptopk ton~ liiJ UKJfs tUuitlimrJsi'-.
Inter>!st and Other II.come Payments ur. ~='oreign Currency I W tr..--wr 1fllllk anytmng. - ;S44C ?ftwt.A
Tr:m~actions/Loan..; Pavable o CBUs 10%
Int..:rest ar.d Other Income r ..yments on F'lreign C~:rencv 10'%
Transactions Loans Payable to FCDU:.; Multiple Choi..;e: Choos~ the best possible aJLS&DZI'.
Cash o;vidend Payment by Domestic Corporations to Citize"s ar..d resident
alienf
Cash Di-...idend Pavment t-r Durrestic Co orations to NRFCs
Property Dividend Paymen~ by Domestic Corporatwns to Citiur.> anJ
resident aliens 1- 1. The following ar": the revenue items in the Income Statement of a
domestic corporation for the year 2011:
~ Property Dividend PaVInent bv Domest1c Corporations to NRFC; 30'l'o
, Cash Dividend Payment by Domestic Corporation to NRFC.:s whose Countries 1:;(1) Sales PJ.OOO,OOO
i Aih)wed Tax Dee-m.-d Paid Crr-dit ,;;;,;ien to Tax Snar.nKKu:-=,e=--=-------+--=--1 Co<:;t of sales 500,000"
I ~operty Di~d-encf?aY-ment-~vDume~tir Co~p~rations:~o N~!Ts whose
~ountnes Allowed Tax Deemed .-.. w '-rt"oll ;-,uo;ect tu .ax Spa:m;,; Rule
IS%
____j
Gain from sale of an office equipment
Gain frcm sale of land not used in business
Cash Dividend Payment by Domestic Corp~'!tio_ns to NR:\E';B . 2:tn__ ; (selling price P30U,U00) lOV,OV<J-
~'T'1ertv D;v~dt::"(~ Ppyy!'e'1t l~~!""'lrst~_c_c;r~orn~:E'.-~--~~E~~~~j--- - - - - '20(} n Gai:1 fror:1 ~?.!':' 0f <:l-::1:-es 0f <>cd:: dire" I~'':'
j Sb.-tre to NR/i. r_:.iD in the Distnbu.U.tl..,:c '\et lncor:ne :\fter Tax uf d_ Partners!n;; -~ 20n~,- -;
the buyer 50,JOO
(Except General Profess1onal Pann.-rship) of which he is" p-,ru-,cr or share
Gain from sale of shares of stock through the
1,

in the Net Income After Tax of an Associar ion, a .JJint Ac,oc:nr Jr a Joint 1

Venture Taxable as a Co oration of \Vhich He is a Member or a Co-Vt:nrurer ---___j !----- stock exchange (selling price, P200,000) 1O,C'JO
~~n other pavments to t-;RFCs. - - - - - - - - - - - - - - - - - - - -------i------2~ l11terest income from bank deposit, Philippines 40,000
~ Distributiv~ shart ')f tn<.hvidua1 p;~rtr:Pr~ in a taxable p<trT;J.t;~~:;p. ! 1CY\) i Yield r'rom deposit substitute, Philippines 80,000
. ~sociatlO~llnt accounl or JOH~T vf"n::..n.e or co_ns~~niutn _. _ , hkrest income received irom depository bank
i AllKinds of R;~;~i~:-r>aym~Ptsr-:)--<~~,;-;-~:--;~.sltTt:;t~I;t~;-~~-~~:l~i-t\I~:Tf3-,~~~-!!rr~--~~~--- under EFCDS, Philippines 60,000
th.ut W~ ~HO and \V)'"-}i)_.<~~~!.~v~~~~~~-~t~..~i nsJ.(!t_'!]l_((_Ht}:;_~1-~-(~:__:..,_(~~-;-,_~-~:.n.;___ ___ . ---~
>r,'
lnter<:>st income from h;omk deposit. liSA 400.000
lnt<-'rPst on tr::H!t notes recervctblt. Ph!linDlnes 30.000
-j
r.r"n nnn
-J ..i.J-'
~ )~1 ~h( r;,,,~"' --'~r~:J!...,., i. '"'t' .1::(! f~oyaities, Philippines 70,000
t >.;ncr \..Jr Lt~.:.'J; 'Jf F~::e: ~!~ V> ....... .
- --
Royalties, USA 300.000
(): t~1t' (~t"ll"> ::~ 1-:!.1ls ,!J". i l'l!.ti""!: ;-! L)i-yidcnd rcc~i'!-.red from don1cstlc corporation 150,000
-~-___!_:~~~~~~.~~\:~~:---'-tJ!~~~~-;.~r)_~:::tr ie~ :::;_'.i L ~)_ilt~-r_lt :--> - _ Dividend received from a foreign corporation 350,000
~~-~~ Pa.~.._!.~~~~-~- :_~!__( J~l_]~~r.:-~_~.!::l_t_i_~?_l_!_-.::. ___._______ ( , 1n t r. ut\ 1r :;,' ~u ~~ :~~ :-. ;r '' >r-,
1

f\tVInents tu :\:!rn Ind,\.:,,_l\.idl !:t-rq,;~,~ .: :,,; ;[~:__:... , >.ilf<:;.:~: ~.n: :.

Prizes and winnings, Philippines 400,000
Contrartors and Sub-Cor!tracto:-:., a:-:r: ~)': l:c~~l'lli-ll 1n \rt,t i ;,., .. 1 ;lLirt: :i~l
Refund of Philippine value-added tax. 100,000
F~t').!,lOI:<d Opr::ttJI1~~ !fe;1,::_ !U:1rtt:-. :..1: '.: .... ~l:Ll!HH'.::l' ,,;il ..... Bad ck bt recoverY .50,000
_____ !~~- Fi~ip~-~~~~~:.:-11~}_{_)~~-~~~-~--~:~--~~~ r_\_n; ~ ;-:" ~~.. I r_:;!_: l~- !J l
(luestion ]_ Hm.v much JS total <xnnptecl/excllld::d !T~'')r:",e?
1-'a';ments ~o '\!JI1-t~<: . . llk::.t :\l:n >~:l:_ :~!"l,~:L~rc! 1:1 ': Hk or
s~~le 0f shares n1 domcst:c C'Ofl2~2_E;!t1 .:--:s ~~;~~~ a. P323,000 c. p 260/;00
U:1 P:1~~n1er:ts +:; "'Tqn f~estdent Ir: .t'.~~'1:t!i Fnr-~i~n Corpnr--:~f .. b. P302,500 d_ P250,000
!::::; 1 1 J 'ltrc,, i < .,
;:,, ,,, \ :, ()11Pst1on :2: flo\\' much iS the t(lt;t] tina! \\ithholdtr:c~ ;,,.-~,..:;on pass:ve
1:L iilCOr1lt~':)

d. f't,3,0:JU c.
.~ \. :t. '.d~-:-' ;--., )r I I

b. l':'iO.OOO d.
i !l!t: nal i~~

!;\;l,;r\l:TH\ ~>n ;_,,l'Jks, (Jt::tr Lltci~t,-\. .'. ,;1.:3 .1::.:. ... ~;_,;\.ct~ ........ c)ut.-\;ttun 0 Iio\\ !TlUCh lS Lhc lU!~d C~iplt.ll g .. !.lUS .. ,. r

-- -----__._______ ---- ~---- --

.Informer's Ca~h I~eward to lndlvidu;,;"-(Jundtc~l i'erson~ -----"---'-'_'f_~(}____. a. l'o3,000 c. P42,51JJ

b. P50,000 d. P20,500

378
 l.llapter ll: l.omprenens1ve lax t.ases Chapter 21:. Comprehensive Tax Cases

Question 4: How much is the total gross income subject to regular 2. A resi.:!cnt c~t~n. 50 y~s v!c!, r.lairieri. ~.i!h three P1 CtuaiiC.:~
corporate income tax? dependent children ask~ you to Hssist him in computing his taxPbk
a_ P?,650,000 c. P2,320,000 net income for the year !J.VIII: .
b. P2,350,000 d. P2,250,000 Gross professional income, net of l.!'i% withholding~ r 800,000_
Professivnal ex_.:;er,ses ~OO.IJOO
lo.nswers Question 1 - C Retin:ment benefi!:s ~ved f.-om his pre-Jious
Questi:>n 2 - C employt:r that mamtainec. a reaSilnable ryri.;at'!
Qut:stion 3 - 0 pension plan (he served the co.npany for 12 years) 250,000
Question 4 - A Lt:mp sum benefits received from SSS 200,000
Question 1 - Total exemJ:ted/ excluded income Priz<. in a sports tournament sponsored by a group
Gain frorc~ s..k of shares 01 stock through the of businessmen promoting health products SO,OC'')
sto<.:k e~:change . p 10,000 Gain from sale of bonds (maturity perio::! is 4 years) 10,000
D:.-."ld:!nd received frcJm domestic coriJoration 150,000 Interest income from bonds with maturity period
Refund of Philippine value-addPd tax 100,000 of7 years 20,000
t
Tctal f~~',)Q Interest on long term deposits \Hi.h maturity period
Question 2 -To!<!_! _fina! ~~hhol-t!ng ta.-.:es on passive l'lcome
of 5 years .:w.wo
Philippine Lotto winnings 500,000
ln:erest income from bank deposit, Philippines
P l'l,O(;r; Share in tl!e uei: inLOI11e uf a busines::. partnerst.ip !JO,OOO
5?40,000 X 20C/1o)
Y~dJ fiOJT dc:pv;,t s;,;ost.tc.tt:. Phi:itJt-i>~e,., (!uestioa 1: How much is tne total amount of excluaeo ':>r exempted
P80,000 X 2tY:.'>,J 16,UOC income?
lr".:erest income received from depository bank a. Pl,150,000 c. P980,000
..;ncler EFCDS. Philippines (P60,000 X 7 '//~\.,) 4,500
RcYalties, Philippines (P70,000 X 2Q'};,) 14 000
b. Pl.OOO;cOOO d. P480,if.'J
T-cd
Question 2: How much is the final v.rithholding ta't on certain
Question 3 - Total caQ!tal gaigs_~_ax income?
a. P34,000 c. P24,000
b. P30.000 d. P20.0C'J
' ' .... >.- .- : . ~' ' t - ' l ... ' 1 . - ... ' ' . "' .
) -

a. PS26,176 c. P3.3S,O:.:O
b. PSIG, 176 d. P375,GCH}
_Q_~e s t~on_1:._.=_I_o_t_~__grQ_~_!'~ in~_g_ t}}.~ -~y_bj~~~--~-Q __t;QIP:~~-~!1;_!;_ income ta"C
:C: ..c:c"-< P 1 <JOO,(Jf)l;
~-::ss: Ct;c.;t t)f ~,;;~--;
Answers: Question 1 - B
.... ~: .<~':::t Ii:1~:unh
Question 2 - D
C :;;:er incorne Question 3 - A
~~.~n trr;Jn '->.t. 1 !' ::: ')''"; . ,qtt:pnll'tt: 20.U'J'/.
Question 1 -Total amount of excluded or exempted income
-:terest Jncnrrl(' :r(>:n ~)d:l-:_ d'!Hlslt. l.:~ \ .;uu _(),;,
Rctirt'ment benciits received fmm his prevwus
.:;:ere~t c'n r,idt n()tc:. :-:t ::P.'.thk. Pl:d:pp::::_,)
employer that maintained a reasonable private
.::..:h'ar.ce rent trn tso (~i ~ :drs. Philtpp~:-:c:-J 1 r'>OO,OOC
pension plan (he served the company for 12 years} P 250,000
- ,;~d!:s. c::;.\ :\00,000
Lump sum benefits received from SSS 2C0.000
:.)u,;~:;:_,
lnit>n~st incon1e from Oonds \VJlh d rnatunt; pt:r: )ri
1

o! -~- ~.-~:1rs

r.(:
~ '~

Tural

380
 Chapter 21: ComprenensJVe Tax Cases l.napter L.l: t..ompreneos1ve tax~

Questlou 2 - Final withJwldiag taxes on certain income AD'iw~rs: ~.1eost:!cr. l A

PriZf' in a sports tournament sponsored by a group of Que:ttion 2 - B
businessmen promoting health products Question 3 - A
(PSO,OOO X 20%) . p 10,000
Share in the net income of a bu sb.!ss partnership Question 1 - Total amcr..:n~ :>f e.1tCI'l.f.,., or elLdtalpteu iw::otae ~-
(PlOO.OOO X 10"/o) 10.000 Prize receiiled for achievement ir-. literature
Final withholding taxe3 P"O QQQ filid ;:-.otjo:O the co.atest) P 10 000
vain from sale of bonds (maturity is 6 years) 5,000
Quertion 3 - 1axabt~ net ine;ome
Gross profe:..sion&! income, net :)[ 1::;0;;,
Cash he mherited from ni.> uncle
Pnx:eeds of his wife's life insurat1ce
300 OOV
' ~ I
withholding t'IX (P800,000/85%)
Ot\..;er income:
P941,17f' (revocable bu.c{'iciary)
Amount received as return of premium
l,OOO.OUC
151} 000 I
Gain from sale of bc:1ds {maturitv ;)er;od is 4 y~ar.;) 10.000 Total amount of excluded/exempted income P I.465.00Q
i
I
Total g:oss income 951,176
Question 2 - Total final tL.X from certain income

i
Less: Professional expenses 300,000
Basic personal exemp:ion SU,OOO Interest from savings deposit, BPI-Makati, Philipp'nes t
Additional exem;;.. v.-, 75 000 425.000 (PSO,OOO X 20%) p 10,~
I

l
TaxaL!e net income u&l1U Prize in a literary contest he joined (PlOO,OOO X ~v'/oj 2V.\i\A:i
Tax Informer's Reward (PSOO,OOO X 10"/o} 50,000 I;

' In~er'!s! hcome f:om Govem~ent bond.> (P20,'){)() X 2001>1 4 ()()('

ill Total final tax PJ-4000 J
3. A reside:: ritizen, widow!'"r. w~t h a dependent mmor brotner. nas t'1e ~ j
following data on income and expenses: Gross bL.>iness mc~r.1e, Question 3 - Ta.xc.hle net income i
PSOO,OOO; Business expe::ses. P200,000: [nterest from savings
deposit, BPI-Makati, Philippine:>, PSO,OOO: Prize in a literary contest
he joined, PlOO,OOO; Priz~ reuived for <tchievernent in literature (did
Gross compensation income (separation PfG1
Less: Basic personal exemption
Taxable compensation income
Gross business income P 500,000
i
P250,000
50,000j
p 200,000
'
f
notjom he contest), P1C IJOO: Gain from sale of bonds (maturitY is Other income
6 years). PS,OOO; Separc,:;on pav from his iorrrwr job (resr>;r:ed). Excess of amount received as return
P250,00fJ; Cash he inhe:-::ed :rom hrs unc>:. P300,000: !-'roceeds of of premium 50.000
- \Vi.nnings from illegal g2mbhr:g ___1_9 Of_tO
! . . -.- --
1 )L~l g:~~~S ~!!'," 1
J!1!_ ...- --.. .. 1 \ l .lrt!
'

; i : t 1 ) ; ; , ~ : I ( 1 ; r 1 =~ , t 1 t. : J. ,_: L...:::.:.;~-:;: ~-~u~slri\..'~..;~ cxpcrL-,...;...,

:;1 1:11 is. t.J}.r, .fJ(_;(J; \Vi; llii1 Taxable net income

~xe:npred 1:>
a. Pl .46.1,000 C. ?1 .~l~IJ.OOO
b. Pl,400.000 ,J. P -li>:.l.OUO

Ouesrwn 2. Hm\ mud1

a. P U>.OUJ PS!J.I;i)IJ
b. !' R-1 ,000 .l p:yr).' JIJCJ

';! :; \ ... ::--.

382
 ~napter .O::J.; ~omprenenstve lax. uses
Chapter 21: Comprehensive Tax Cases

4. Mr. John Juan, single, resident citizen and supporting a qualified ~tu'w~no: Questi:)n l - ~
dependent illegitimate son, has the following data for year 2011: . Question 2 - D
Gross sales of goods P1 ,000,000 Question 3 - A
Sales returns and allowances 50,000 Question t
Cost of sales 300,000 Sah.rie"\ expense (P270,0CO + P30,000)
lnteresL income, Philippine currency bank deposit 10,000 Business pem.its and licer.ses
Shz...re in the net income of t.usiness partnership, Ccmmunity tax
net 01 10/c .vithhc!aing tax 90,000 Contributions to veasion trusc
Current service cosc ?30.000
Salarie::: of employees, nP! uf P30,00f) creditable
Past s~.v~,;e cost (P20,000/10 years) 2.000 22.000
withhf'lding tax 270,000
EntertaL"lment expenses
Value-addeJ tax 100,000 PlO.OW
Actual
Business permit and license:> 5,000 Limit (.005 X P9SO,OOOJ p 4.7~ ~.7~
Community tax 10,000 Deductible interest expense
Interest paid on business loan which has alrf'adv Interest expense PS').OOO t
prescribed 20,000 Reduction (33% X PlO,OOO) 3.30!) 46.700'
CJCHI ibutions to pension-trust Research and development cost
\f'2C,OOC Co\e:-::; past year's cost) 50.000 (P60,000/60 months X 6 months) 6,000
lO.OOG Deprt"ciai0n expense, t>quipmen:
Entertainment expenst>s 2,500
')(\ 001) (PS0,000/5 X 3/12)
Irt~re<:t exre:Ff' oc,.JOU
i<'nnge benehts expenses
Resea~ch and de'> elopment costs (deferred) 32.UOO
Fringe Ler.efits tax expense
benefits reiilized starting .July 1, 2011 60,000 Total itemized deductions ?506 95Q.
Purchase of equipment (estimated life is 5 years,
acquired o:; October l, 2011) 50.000 Question 2 (Itemized deduct''lnsl
Frir.::;e benefits expenss 68.000 Gross sales PLOOO,OOO
Fri;J ~e b(~ncfi t :--~ ;_~ex t:--:;-Jt: n:s~ 32. ()()(~ Less: Saies returns and allowances ( 50 0001
Net sales p ';50,000
Less: Cost of sales 3-':0 000
Gross income
.
Less:
- . .
Ht:!!l!Zt.u
. . .
Ut"(iUCtHJ:-l~ ~~'~'.::; t! 1.~. ! : _ _ _'_:__~.. 'f' ' '

~~t in~on1c bt.:fdiC cxcmpti._;;t:.:, . -. -

~ _:~_;

Less: Basic personal exemption ':'1.:)00:

Additional exemption l .2.).(AJ0J
Taxable net inconh.: P r,::z.Q5Q
i! ){'(\::-: t-'r!
d. P2;):-).{)(; J c PlSU,OfJ() Question 3 (Optional Standard Deduction)
tj. Pl i:,,<J()il d. f' 6.-s.u:'ilJ Gross sales Pl,Cw.OVO
LPss: Saks rf'tUPlS il.nd allnwancts r so ooo 1
Net sales P c;.=r;.:JOO
Less: Optional standard deduction (40% X P950.C:,..: ( ?"') ']00i
Net income before exemptions p 510,000
d. P-+<l.,.l)(i'; <:. i'25:=i .I )i i()
Less: Basic personal exemption ( -50,000}
I).lr--,,q.n_c:;(: d. Pl7.').()n() :?5.GOOi
Additional exemption
Taxable net income D ..:::~~~r,;r_)

384
 Chapter 21: Comprehensive Tax Cases Chapter 21: Comprehensive Tax Cases

5. (Phil. CPA Modified) From the following data, compute t:1c ~z:come 6. (Phil. C?A} 7he followmg we><! ...aken fL'uLl the iLc.o.I.u.: .:.tat..."C~~ cf
tax still due from a domestic corporation engaged in merchandising ABC Corporation for the taxable year DfD'il:
business. For the calendar year ZOU, the net income per books is Gross profits from sales P800.00Q
P150,000, after conside!ir:g among oti-.ers: Le.;;s: B1 ,S!l'!ess expenses (P 440,000) !:
Non-taxable mc.ome (other~) p 5,500 Provision for bad debb ( 80.000; ( 520.000)
Inter-corporate dividends 5,500 Net in~ome before. tax u~
Net capitaj toss :z,;:;oo
:CSad debts wr;tten off 6,5()0 Additional !nformatior.:
Nor.-deductible "XtJe.1Ses (ohers) :2,000 1.) A~courtt~ v.ritte11 off du..--ir.g the year and ch~ to e:JloWIDJ...e
C0ntribution to a non-prc,iit religious organiza~ion 12,0CO for bad debts, ?50,000;
Contribution to Government's prioriLy program l,SOO 2.) Recoveries on accounts receivable previo11sly \\oTirten o:f m 2GIU
Quarteny income truc paynent.s 65,000 and credited to allowance for bad debts:
Provision foz bad debts 8,000 Allowed as deduction by BIR P30,000
Disallowed as deduction by BIR P20,000
1he net income per books should be rer0nci:ed with the provisions of t
the Tax Code, meaning, items which are r:::>t taxable must l.'e How much was the taxable net income?
excluded c>r.cl items which arc nflt deductible >J.re to be addt>d back. a. P390,000 c. P34v,GW
b. P360,000 d. P280,000

'I,
How much is the net tax due and pavable>
a Pf)fi,'24(1 r. Pl,/-+0 .\nswer: C
b. P62, 100 d. Non<:" cf tne choices
1 :iet income per books P280,000
Add (Deduct):
Provision for bad ck.bts 80,000
Net ine<m;.~ per books P 150,000 Bad debt re<.:overy 30,000
Add (Deduct): Accounts written off (_:::.0,000)
:':o~1-taxable ::~cunH r;:.'l~~~ '.,) 5,50<1\
fn~(~r-cr.;;-~)dLi'l d:."'_i!;-:\::~

',' .. . ,. (! ~~ r l .. I
5,000}
2,50U
(J,:':)UUj
1 1l
~
!
Taxable net income .,340.000

.; !!tarrir~~J incli\:idttdl L:1Xpi-iyt:i- ~:..dh t,;.,;n q~rt~~~c~ ..-:!cr:c:::::!c::: ::~:!C:-C'::

() ),(HHJ hds the follo-.~ing curnulati..-c data for the year 20 ll:
~~-- i.'~!)_(HJ 1
., First Second Third
p 22t )_:")()t)
1" Business income F 150,000
Quarter Quarter
P 300,000
Quarter
P 700 000
Year
Pl,OOO,OOO
:\et
1P~-2.U~JU ~ P:.-:-~~.'.!1

tncJ~1,. iw~:;r~._' -\~dfli.J f' .2:\'l,UUU

l (gross of 1'Yo
j withholding t<1x)
4., Business expenses 50,000 150,000 300,000 400,000

Taxable net mconw

t'll,~,_,); I~JL:;:O<))

~-.2211,~
. l
l.l20U)

f) l ) . -~ ...i: )
j
'
i
Question 1: How much is the tax payable for the first quarter?
a.
b.
P14,500
Pl3,000
c.
d.
P9,000
None of the choices

Question 2: HO\v much is the t<LX payable for the second c;:.idrcer?
a. P2S.OOO c. f'<J,OOO
b. PlO,SOO

Question 3: How much is the tax payable for the third quarter?
a. P95,000 c. PG6,oon
b. P79,000 d. P50,000

386
 l..hapter L.l: 1..omprenens1Vc lax 1..ases Chapter 21: Comprehensive Tax Cases

Question 4: How much is tax payable for the whnle vear? S. A single mxpayer has Lhe foilowi:1g date. for ~h! } ear!!:'~ (in
a. P37,000 c. P27,000
thousands}:
b. P30,000 d. None of the choices First Second Third rourtl'>
Quarter Ou.arter Quarter Ouarter
Gross compensation income p 40 p .40 p 40 p 40
Answers: QueatiC'n 1 - B Gross rec~ipts 600 4i)(} ~ 600
Question 2 - C Cost of service~ 100 lOu 80 200
Question 3 - (' Business expenses
Question 4 - C (total itemized) t()f) ISO 10" 200
INDIVIDUAL TAXl'AYER (PURE BUSINESS INCOME l.ARN~R) Share, business partnership !0 10
Share, general professional
Questions l_!_Q_3- Quarter!> Declarations (Return.;} ! ifiiiibf!!J511$11 20 20 20 20
FirstQ_ Se::ond 0 Third 0_ I part!1ership,
Yield on deposit substitute 5 5 5 5
Gross income P 150,000 P 150.000 P 400,000
.-'-.dd: 0ther income . t
.... _,. _:!! gr-o~s income 150,000 150,000 400 000 Question 1: How much is the tax payable for each quarter and the
i..ess: Deductions 50 000) 100 000) 150.000) entire yew- a:>btiilllll.g the taxpayc.r uses itemized
! :"l.v3b!c in~.:ome. this q:J.arte~ 100,000 :->0.)00 250,000 deductions?
Add: Tax<,;Jle income, First s~c~nd Th:rd
prr:vir}us qUd.Tters Ji)~} {}()_Q _Quarter Quarter Quarter Annual
:.1xab!e inc()Int~ to date ~~c 1:: j ~Jr<;) a. PlOI,OOO Pl53,800 P192,200 P297,h00
b. p 59,000 Pl07,ooo P140,360 P242,760
-:-ax due Section ~4 (AJ p 14,500 p ~5.0()() p 95,000 c. p 99,000 p 50,800 p 36,400 p 87,100
Less: Tax credits/ pavments d. p 57,000 p 46,000 p 31,360 p 77,9()()
?rior _\ ~.-~ar's ext ~ss ~ax crr-..... !:t- )
Tax p<i;rnt~nts. pre;:ous (l~ 22,000) Question 2: How much is the tax payable for eac~ quaner and the
:~.!"Cdii,tlJ:r r;tX W~l.f:r:t"ld,
entire year assuming the taxpayer uses optional
pr''-'Jf)'l:~ qti<l:::..T'. . J.OUO)
\..:r:_:dtl,lt)>_- ~.,:-: w!:r~:- ~::d,
standard deduction?
'Tt..:-.A
. :~:'-~ 'T: -.. ,.,. ,-,11()\ First Second j ! Jll u.
l
~.....:._.::_:__:_1
n,1~)rtpr A_nn1~~t
(')llr"lrtPr
~~-----
n~~-:trtP~-
< _,,

a. PIOI,OOO P153,SOO Pi r:;2,2G() ?307 . ..!.:~(1

b. p 59,000 Pl07,000 Pl40,360 P242,760
1
)
1
'):JO.OOU c. p . 87,000 P.78.800. .P. 58.l60 P'l38.300
d. p 99,000 p 50,800 " p 36.400 p 87,100
; . ( )t )(). \)()()

--- ~l)t) ()lj_Qj Answers: Question 1 - C

\t_r IrHurn( ilOU.UUU Question 2 - C
( ; ~ ~ ,~) ; ,; ) .'
Question 1 - Itemized Deductions
Quarterly Declarations (Retums)
First Q Second Q Third Q
Gross receipts p 600,000 P400,000 P280,000
fa_;.;: dU.t.: .::JL'CllU!l .,2..;. tJi_j
Less: Cost of services ( 100,000) ( 100,000) ( 80,000)
J"-,, ~\ r!r-.....-~'.'~~
Gross income 500,000 JOO.OOO 200,000
-'. 'I
Add: Share in net income
,))
of GPP 20 QUO .20 ~J(j() _____:fs.L.Q_OQ
Total gross income 520,000 32()_()1)() 2LU.U0(J
Less: Deductions l 00 00 12) I l 5 U.~~l_l_!) : (j(). ()()())
Ta.'<:able income, this quarter 420,0Ull l 7U.GUU l.2U,OOU
Add: Taxable income,
previous quarters
Taxable_ income to date

388
 l.Ud.JJLt:r "1; 1...omprt:nens1vt: lax ws~::s Chapter 21: omprehensive Tax cases

First Q Second Q _Thir.Q_Q_

Tax due Section 24 (A) p 101,000 P153,800 p 192,200
Less: Tax credits/payments
Prior year's excess tax credit ) )
Tax p:1yments, previous Qs 99,000) 149,800)
Credit3.ble tax ""ithheld,
previo-..1~ qt'arter~ 2,000) 4,0CO)
Cr~c!itabletax wit:-,helrl,
this quarter ( 2 000) 2,000) ( 2,000)
Tax payable (overpa:- r.,ent) ~ <;t9.QQQ p SQ 8QQ .e...__J~

Annual .l?t:turn
Gro;;:; taxable compensation income p 160.000
Le~s: uecu:.:tic'1;,
Premium paid on he;.,lth and/o.-
hospita!ization insurance r
Basic persor..!l ~xem;Jt:on 50,000
Additional exemptrvn so 000
TCI (excess of -ledu~tions c--~~ GTCI~ p 110,000
Gross receipts p 1,880,000
Less: Co'->' of sr;:,-.,s 480 OIJO)
utO'>':> la.xaiJJe ')uo,;:-:ess
professiorrdl mu "" ? i ,400,00(;
Adct: Other taxab!t: :ncnr.:e 80 000
Total ? 1,480,000
Less: Deriu< tion<; I sso 000)
\et incom, p (}]0.000

T:,::.tble bu,.,:ness :: .,,:::

T.:)t~d t<:lXdh>~ Jn(:l):~:, P~Ul~Q.QQ
930 000
II TCI (excea.o deductions. over GTCli
' , ....,,.., c.,.: ~ Gross receipts P U~80.000
.....
Less: OSD (40% X Pl,880,000} ( 752.000)
' - j - ~ ' '

I
I
: KG,.!CJO)
f),()00)
2,000)
I Net
Add:- Other: taXilblemcome
Ne~U1conle .
1,128,000
80.000
P-1.2,0$,000

- -------~---~-----~~~~~--'
( 1b,SOO)
( _ _ _-_._.---1
e_
.~8~I.. LQQ
I Less: Excess of deductions over GTCI
Taxable busineSs inc:Ome
Total taxable U1come
Tax due Section 24 (A)
Less: Tax credits/payments
Prior year's excess credits (
1.208.000
p 1 3180QQ
p 386,760

)
T~RS-YJJle!\~ first 3 quarters :( 223.960)
Cridltable tax Withheld, flrst 3 Qs . ( 6,000)
Creditable tax withheld, fourth quarte!" ( 2,000)
Tax withheld on salary (on TCI of P 11 0,000) ( 16,500)
Foreign tax credits ( l
Tax payable p_~.J..d.QQ

390
 Chapter 21: Comprehensive Tax Cases Chapter 21: Comprehensive Tax cases

9. The 2010 income tax return of Alkt. C:cq:.,c,rat;c..n sh.:>ws th.:. !"oll.:>H~h6 Answe:rs: Quesrio.o. ! - D
data: Questior 2 - :&
Income tax due P 250,000 Question 3 - C
Le~: Tax credit~ QuetttfOD 4 - C
Quarterly payments for the first ttree quarters L 300,JOO)
Excess tE.x payment~ ( P SO.GOQ l CORPORATE T~AYER ,
~~otJona ! to 3 ~arterly Declaratioas I~
Alice Corpora:ion opts to claim the exces~ pa_;. ments in 20.10 as tax __."'irstQ... Sq:ood Q. ..InmuL
r:r""dit o be carried ovt>r tn sn: eeding c-:_uarters of 2011. Sales ::' 500,000 P "''JC.OOO P40(),()00
L~ss: C'-est of sales L 250.000 ) ( 400.QQQ) L 15'\onQl
The :oi!owing cumulative data are presen:ed: Gro:;s income 250,000 200,000 2:-0,000
First Se::ond Third Add: Other income -----
Quarter Quarter Quarter Year Total gross income 250,000 200,000 250,000
Sales, gross of 1% Less: Deductions SO.OOOJ 100.000) l5C,000)
'vithholding tax p 500,000 Pl,tOO,OOO PI,500,000 P2,200,000
Cost 250,(.. 00 650,000 .'300.000 1.200,000
Taxable incvme, this quarter
Add: Taxable income,
200,000 100,000 100,.000

Operating expenses 50.000 150,000 300,000 500,000 prev1ous quaners WJ.WC ~~

~~'"\(\r"" I
Total taxable income to date P200,000 P300~000 P400,000 I
Question 1: How much is tax p.'lyctble for the first quarter?
a Pn0,000
b. P24,000
r P 0 ~,'JOC>
d. p 3,()00
Tax rate
Tax ::lue
Less: Tax credits/payments
3C%
p 60,000
3mi,
p 90.000
JQ%
p 120,000
II
Prior year's excess tax credit 50,00V) 50,000) 50,000)
Tax payments, previous Qs ) 5,0W} 29,000)'
Q-J.estion 2: How much is ta:-: pa\ able for the second quarter? Cre:iitable tax withheld,
a. P90,000 c. P23,000 previous quarters :".000) 11,000)
b. P24,000 ci. P 5.000 Creditable tax withheld,
this quarter ( 5 uOO) 4.000)
Chestion 3: Ho.v rnucl' ;s t:tx ;):L"a!J!<' for t!w third q11;1rter? Tax payable (overpayment) p 5 000 p 22 QO!J
a. Pl 20 OOfJ ,. P~~G.OOO
h. p I)O.(;(;rJ ,~ P...2:3.\JiJO Question 4 - Annual Return
0 '
.:::>t:ue~

Less: Cost of saies

I
( ._::_'_..;:,:-rr;n ;: HI;-.\- r:a;(:; ::..; ,.- :}::. ,;)it !"n~:
~ -, -~. ~ ';) 1 ) (}
Gross income from operation
d f)~~'}.f~/J 1 J
I) -~ , 1 ) I l ~ ,l
Add: Non~operating and other income

i
Total gross income ? : JJOO,OOO
Less: Deductions ( 500 000)
Taxable income p 500,000
30~'lo
Tax rate
Income ta.'( due p 150,000

I
Less: Tax credits/payments
Prior year's excess credits 50,000)
Tax payments, first 3 quarters 55,000)
Creditable tax withheld, first 3 quarters 15,000)
Creditable tax withheld, fourth quarter 7.000)
Tax pCJ.yable (overpayment)
 I
Chapter 21: Comprehensive Tax Cases Chapter 21: ComPf#lienSive Tax Cases

10 The following condensed data >Iitle taken from Quarterly income Answere: Question 1 - C
statements of The Clazz Corporation, which was r~gistered wi~ the Qlwstion 2 - D
BIR in ~ The data were for the year .12lB(J,
First Second Third Fourth Qg_eatlou 1 - Corporate Taxpayer !Itemized De4aetioPsl
Quarterly Declarations (Returns)
Quarter Quarter ~er Quarter
Sales Pl,200,(A)0 Pl,OOO,OOO P2,200,000 Pl,SQO,OOO
First 0 Second 0 ]bjrdU :
Sales . P !,200,{)()t) P.l.OOV.OOO P 2.200.000 I .
Beginning inventory 500,0()0 Less: Coat of scles ( 600.000) 1_ _ 100.000) ( 400.000)
Pl;rchases 3UO,IJOO 200,000 400,000 500,000 Gross income P 600,0CO I' ~.000 p 1.800.000
Endir.g inventor. 200.000 300,000 300,000 600,000 Add~ Other income 150,000 lSO,OOV 200.000
Rent income, gross Total gross income p 750,000 p 1,050,00C r2,X'J,OOO
of 5% .... ithholding Less: Deductionf' ( 250.0001 ( 350.00()} (_ ! X..QOQ)
tax 15v.ooo 150,000 200,000 Taxable income,
this quarter p 500,000 p 700,(;00 p 1 ,85(},000
Selling expenses .250,000 350,000 150,000 300,000
Add: Taxable income,
previous quarters 500.000 1~.000
Question 1: How much is theta"< payable for each quarter and the
eatire year assuming the taxpayer uses itemized Total taxable income
deductions? to date p 500,000 p 1,200,000 PZ.uso.ooo
First S.-rnnr. Third Tax rate 30% 30"k 30"/g
Quan'r ()l;,~rtf~~ Tax due p 150,')00 p 360,000 p 91.>,000
Ouarter Annual
a. P 1:JO,Ct;u f'~)Ql; J)r .(; P9 iS,OOO ?300,000 I rf'S'3: TRY. credits/p<:tymeTlt,:;
b. P'35,000 P32--+,0(,,:J Prior year's ex~ess
P684,000 ?918.000 tax credit ) (
c. PH2,SOO ?202.5()0 P545,000 ?300,000 Tax payments, previous
d. ?127,500 PIS 1 _:,r_o ?350,000 ?234,000 ) ( 142,500} 345,000~
quarters
Creditable tax withheld,
previous quarters J ( 7,500) 15,000)
Quesrr-or~ ~: H~)\\- ~:-:uc~h Js ::~ ::>C p.nable for e;-lch quarter and the
cntu \ear .:sse::-::::-,; rhc t.c..:pan:r uses optionnl Creditable tax withheld,
SLtn(~(:rd d~~: .r .. :rJi'"" this quarter 7,500) ( 7,500) { 10 000)
Tax payable {overpayment) L_j_12.5QO --~c2Q2_.,;)QQ p 545,00Q
)' 1,. , -
\fln~l
; ! -,f' :' t)Ji ;n, onr1 _Fir~?..!....!.J"_ SPcnr:(~ (1 '":':;;rr-: (J

h. Beginning inventory p 500,000 p 2UO,OU0 p :300.000

f't ,,--; l, ()!I() PCJ I 8, OUO
) ,, p:~ l ~--. ()()() PJOO,OOO
Add: Purchases 300 000 200 000 -<GO.OOO
. ~. t ',~.--)() .( ;;_ ;() Goods available for sale 800,000 400.000 rOO.OOO
Less: Ending inventory ( 200,000) ( 300 000) t 300 000)
Cost of sales ~ 6QQ QQQ p lQQ QQO p 4QQ QQQ

Annual Return
Sales p 5,900,000
Less: Cost of sal~s ( _ld_OO, 000)
Gross income from operation p 4,600,000
Add: Non-operating and other. income 500,000
Total gross income p 5,100,000
Less: Deductions l 0'50 000)
Taxable income p 4.0">0.000
Tax rate (except MCIT rate) :30'>;)
Income tax
Less: Tax credits/payme-nts
Prior year's excess credits )
Tax payments, first 3 quarters 890,000}
Creditable. tax withheld, first 3 quarters 25,000)
Creditable tax withheld, fourth quarter ....-~-::-::--'7::::-l
Tax payable (overp;;;_a~y~men~t)~--~~=---::-"."":"=-~~~~~~

394
 haptPr ',!] l :omprehenslve 1ax l.a~n

------ --- ~--- -- Annual Return

,\!!![ '!,.li" Sales
p 500,000 Less: Cost of sales
\dd. P;- 1 400 000 Gross income from operation
n)(H.is <~' Add: Nun-operating and other income
:~:: E:""/~.:.s 1n r:.o:- otal groc;s income ? .S~ >~'*::_.. ~.; ~
. r
~'.l'-< of:),__:."'-) Less: OSD (40% X P.5,100,000'
Taxable: incor:e
'}u<;:_.:>_~i{)_r1_:: _:. -~?.~_J2.o.;:a_!~_TJ!.'!:''l:'o".r:JQp_ti~n ~ 1 f>!!!ll_dar:_c:{ t:' '!GU cti.:~ns! Tax rate (except MCIT .ate
rf.rly Z>~ ::;rr;t;~-, <., 't;"Tl.'-.>: Income tax
''
_ _:......:.:__L_ ~:,:i~520..~W,__ ___ _.Ih;d C1 Less: Ta.:;: c.cdits/pa_.~,,r.;
p 1 . ..: '-.1' '() !' : ,GUO,OGIJ P 2,200,000 Prior :car,s excc:3;; ,. ,.. -~:
:___
4QQ[~~~) Tax pa_vmems, first .:1 c: ... __ ;::;
!' l~ft!)').:yy_! Creditab!~ t~G< \Yithh_:~<. :-:~-;: -~ qlu:.o-
\ 1.::1: ,~)II,_. ,.1(_) -~L~~:l 2\JCI.OUO Creditable tax withr:e:c: ,-_;:-en (F~"'.. <'
,.d ,~r; .;_,. p .1/J f' .O.SO UUU P 2,000,JOO Td.x payable (ovcrpaymcn~i
i _)'<I

L .~ t...'orrtpur-_1TF1H <-__' u,e C.-u,-.r ,-:. ,--.(;

Dct:,:n:-;:;-;f; :~- :-:
P 1,20C,OOu :\c1d: ! :..1n.:h~ :.;e~
(~nnd~ ~~...- _! :;.!b:f" ""'~:

1 t.J -.:v oou

Co~;t of :o.ctks
p P 2,2RO,OUU --------~~---

____:}.Q_l.:i
[' t'>bt.OCO

i ,.

' '

. ,,1'

t
 Chapter 22: Cqmpliance Requirements

Chapte1 22 Answer: A
Reference: Section 232 , NIRC, as ameade4
COMPLIANCE REQUIREMENTS Those whose quarterly sales, earnings, receipts, or output do not exceed
Fifty thousand pesos (PSO,OOO) shall keep 'lnd use simplified set of
bookkeeping records duly authcriz~od by the Seuetary of rlnar.ce
l"he' ein all ira~ -;actions and rP...sults ('f opercti?nS are ~.,_ and from
which rUl taxes due the Gove"lmTtt mO!,' readily and accur.:ttelJ, oe
Multipie: Choice: C.:hoose the beSt possible ar.swer. qscert ...ined and dqtennin~c anu time of the year. ~

~. First statement: All corporations, companies, partnerships or persons 3. What books of accot>nt shall be kept for t!>oc;e whose qua;J:er;y s.c--.:e.;,
required hy taw to pay intemal revenue taxes &hall keep a journal ec>rnings, receipts or outrut exceed PSrt,OOO but do r.ot e:-<ceed
and a ledger or their equivalents. PlSO,OOO?
Second statemeni: The term 'Independent Certified Public a. Simplified set of bookkeeping records
Accountant', as used in the Tax Codt.;, m.,.ans an accountant who b. Joumal and a ledger or cheir equivalems
possesses the indcpcndcn~.: ~~ dcfi~ed i~ the r...:les and regttlationc:: c. Either simpli!ied set ot bookkeeping records. or jm.:nal and a
ot the Board of Accountancy promulgated pursuant to the Revised ledger or their e~ui:pJent<;
Accour:.tancy La,;. d. No bo0ks of account required
a. Only the first statement is correct
b. Only the second stR.tement is rorrect Answer: B
c. Both statements are correct Reference: Section 232 (A), NIRC, as amended
d. Both statements are incorrect

Answer: C 4. The books of account are required to be audited a::.d exa:-::::1ed ::~-::-:->.
Reference: Section 232 by an independent CPA if the gross quarterly sales. ea:-r:::-.gs,
Penmue Regvlatwns No. 8-07 also requires that, beginning taxable year receipts or output exceed:
:2001. tcc<payer-s should rnamtmn books and records that would reflect a. PlO,OOO c. P SO.COO
rize ~,ocoY?czh"'] "Prns betweer: the runount mdiroted in the Financr"al !!II b. P30,011u d. ?: ~
11!1

~.:.: . :::,,~:-~~,:-~:'l::i~~~:e.\~::,~~;J~~ o:: :::: ~tr::~'~r:~:;, ::;.~;~bes

a more ~ Answer: D
ci,'3<.nptwe ar:d cif-twled manner of presentrng the Financial Statements.
Tf.,' snmP RP: Pnw k'Pgulatrons ulso specifies that external auditors, I I Reference: Section 232 ~), N~C_!__as ~m~Ec!~_c!_ .
rporations, cornpunr'es. pn..rtner<:;f~i"r)s or e~~rsr,'".-:-: :: ; -. ~-/ r: ----~

l
,,,-r,lur to the ~rL>:pruwrs, hrwe the responsibility to maintain and es, earnings, receipts or output ,_~xceed One:.~::..,..-,_'".: ::~_-1 w,.
r.Jrt'S''''"e ropzes of audited and certified financr"al statements within three sos (PlSO,OOO) shall have their hooks uf acco'"-r.t:; :;:,l1:>.'c~ : .;
!f!::Urs {rom cir;e clute 0 ziznc u{ tax returns. ~xamined yearly by inde_rwnrient r:erti(ied ;ubi:c Ar<o;.''u.'"<' ,,.,,;-: _.,..
I tncorne tax retun1s accompa11!ed wrth a clwy accomp.:~;~:pa .--:.ccr;,,,~
Jnfonnation f'orm (AlFj rcinrh shn!i ronrain, cur_'_~r:y ~)ir_,r"'; . . ,.-.,..-.. .,;

I
lifted from certified balar:ce sireets, profit und ,Jss ... ;'en', , .. _,
>'. !1.\i lJUoks o: ;,rcount shall be kept for those whose quarteriy sales,
schedules listing incomeprudue1n~7 proper11es wd :r ' co~. ,::':' .f:r-
t::1rnmgs, receipts or output do not exceed PSO,OOO?
incorne therefrom and other releucmt statements.
it. Simplified set of bookkeeping records
.Jour:1a; .-Jnd (! lcdgf"r ();- tht:ir er;uivalents '~
~>thf~~ ..,::-:J:)liried --;:--'r (J! ~;r;r)kl:~---:lit1Q records n: journ:1l ::trHi a I"

399
 Chapter 22': Compliance Requirements ~hapter l:l; Compliance Requtremems

J. First statement: Ali corporatlOnl:>, companies, panne.-ships or persons Answer: C

keeping the books of accoun~s .tnentioned in the Tax Code may, at Reference: Section 235 NIRC as amended
their option, keep 3Ubsidiary books as the needs of their businecs AU the books of accounts, including the subsidiary books and other
rna~ T't>qPi'!'"~.
accounting records of corporations, partnerships, or persons. shD11 be
Second statement: 'Where su.::h .:;ubsid.b.!ies are kept, they shall form preserved by them for a perio::l beginning from the lust entry in each
book U;ttJ7 the last dau pre:scri!Jed by Section 203 within which the
part of the accounting syste!ll of the trutpayer enci shall be sucject
Commissioner is autiwri.?;ed to mal<-e an assessment. The ~aid books
to the sar.1e ruies and regulation:; as to their keeping, translation, ::md records shall be 51-.bject to PXamination and inspection by internal
production and inspection as are applical:-1~ tc the jcltmd &:J.d Lhe reuenuec
lecger.
a. Both statements are correct
b. Both statements are incorrect
~ Only the ftrst statement is correct
d. Only the second state:nent is correct

Answer: A
4
Reference: Section 233, NIRC, as amended
I
C :r.e bock.s cf acc~u:;t :::a:; be kep :r. the following bnguf'.ges e::cept:
a. Nutive language. c. EnglisiL
Answer: D
b. Spanish. d. Chinese or Japanese.

Answer: D
9. For income tax purposes, the examination a.T'ld inspection of the
Reference: Section 234, NIRC, as amended
books of account and records shall be made onh once in a taxable
All such corpora trans, companies, partnerships or persons shall keep the year under which of the following cases? .
hooks or records mentioned in Section232 hereof in native language,
F:nqhsh nr Sprmish. Prrwided. ho!J'rcver, That if in addition to said books a. Fraud, irregularity or mistakes, as determined tv the
Commissioner -
or re,'orrls the trv:-omwr keeus other books or records in a lanr1uaqe other
.::.;1, : .>:r!_[:: -'~ ~_:::_~T<;~;~-- : he shn!i rnnke n ~nu~ nnri b_ The taxpayer rup:, ~~' ;--
n.t .. the entres 111 such other books or records rnto
cornJJi<'te trl'~s 1 utrnn c. Verification of compliau_;__:_ \\'ith 'xa~r~,_. ,_,.;d=-- k-"' ' __;_ .~
~
~;
.

u nurrrt' lcu>(f'W<i<>: Enri.':sh or Spar_:sh, and the swd translatwn must be regulations
n~~tie iHI the hoo~-;,-,,,P'"" or such t'-V:pO!JPr, or in /tis absence, bu his d. None of the choices
17Hll!urwr and nwst be certified under oath uS to its correctness by the
swri bookkeeper- or manager, and shall fonn an integral part of the Answer: D
o:<msaid bc:oks of ucccunts. The keeping of such books or records in Reference: Section 235, NIRC, as amended
Will lrmquw1e ,Jther tlum a native language, English or Spanish, is

r_r(_:r~'!:.~U l!!~~!tif!_1_It;>d ,_____________________ _j

I I For income tax purposes, such examination and inspect:c'C shall be
made only once in a tcvwble year. except n the fo!!ou :-; -:-'.'S
(a) Fraud, irregulanty or rnista~:es, as cleterrnmeu rn ; .._ ~ Jrr:m ss1:;r,c r
(b) The taxpayer requests remn:stigation; .. .-
How long must the books of account be kept? (c) V~:!rification of compliance with withfwlding tax /au_ s -::r:d
:1. For a [)lcrinrl hPr:innmg tb precf'ding taxahlf' year until the regulations;
L.1st cL1'. n( !hr _....,,t:nc t;1xa:;: 1."' _\-t... ar (d) Verification of capital qmns :ru: !whr!r::es: uni
;: it)r <l p~-r:od ~::.. ::iilins th urrcnt- t<Jxablc y(ar until the last (e) In the exerci,;e of the (:.onunr_, ;um,,r-s 'JOU'''r -. ., i
d,l\. q[ ri1r Sf~illt' l,l:O:;dJlr:" y-~:_:_;
obtain infonnatwnfrorn oti~,_,, person'; m ,,.; ... , , .... ._, r
~, ~

c h>r :t frT<Hi :~c:::1rllng frcm th<' Ltst entrY in each book until .____s_e_..parate examination unri u '1wcrzor; 11_1u:,_ ;, .
the last clay prescribed within whtch the -Commissioner is
cuithonzeci to n1ake an a~~essment
d. Keeping of books of account is not required
 Chapter 22: Compliance Requirements
lG. ~atio:l a11.u irSJX<..iicn of Looks .:;,f a~.;cvur.ts and other
ac('Ot.lnting records shall be done in the:
a. taxpayf'rs office or place of businesS only.
b. office cf !he Bureau of Internal Revenue only.
c. taxpayer's office or place C'f business or in the office of the
Bureau of ln'-emal Reventte.
d. non.:! of the choices.
Answer: C
Reference: &;ction 235, NIRC, as a::nenllec'
ll. Firs:I statement: All corporations, partnerships or persons that retire
from business shall, within ten (10) days from the date of
~tirement, or within such period of time as may be allowed by the
Commiss10ner m special cases, submit their books oi ac~.uuut,
ll:duding subsidiary books and other accounting records, to the
Commissioner or any of his deputies, for exa."'lination, after which
"::ey shali b~ r~~'.l:ne0.
Sec.:-nd state;nent: Any pro\ ;sion of exis~ng general or ::;pecial law to
the contrary notwithstanding,, the books of account and other
pertinent recorc!s of tax-exempt organizations or grantees of tax
ir:c~ntives shall be subject to examination by the BIR for purposes
c: ascertaining compliance with the conditions under which they
ha.-e been granted tax exemptions or tax incentives, and their tax
::.c_bilities, if any.
'1. True. True c. True. False
False. False d. False. True
Ans.. er: A
Reference: Section 235, NIRC, as amended
12. W'-:.-:-: shall a person subject to any internal revenue tax register with
a;.'=~-=~nate Revenue District Office?
\Viih!n ten (10} days from date of employment
On or bt,fore the commencement of business
Fkt'ore pavment of any tax due
:\11 the choices
402
Chapter 22: Cornplianre Requirements
Answer: D
Reference: Section 236 A , NIRC, as amended
Every person subject to any internal revenue tax shall register once with
the appropriate Reverwe District Officer.
I
(1) Within ten (1 0) day"> from date of employment. or
(2) ~ or before the comm"?T1Ce111RT!! of business, or
f3) Before payme'l.t of any ta.'C du.t:, or
(4) Upcn..filinp o! a ret>..tm, state1T'ent or declaration as required in tr.is
Code.
The registration shall contain the tL4X.payer's name, style. plc.re of
residence, t.u.siness and such oth.:?l infonnatir.n as n<ay be rea-,.;.zred O[i
the Commissio1,er in the forr.. prcscribed_..ch.=e..ce..fi-=o_r._______ ---~
t
13. First statement: A person maintaining a head office. branch or fo.cility
i
shall register \\ith the Revenue District Office1 havingjurisdicL,..m
cv~r ~her..ead office, branch or facility.
Secvnd statement: For purposes of the registration require::1e:-::s, the
term 'facility' may include but not be limited to :;2-.:es o;.;:>':~s. :::aces
of production, warehouses or storage places.
II
a. Only the first statement is correct
b. Only the second statement is correct
c. Both statements are correct
d. Both statements are incorrect
Answer: C
Reference: Section 236 (A), NIRC, as amended
ll
ii
14. Which of the following statemens 1s JncutT<~Cf~
a. An annual registration fee in the amuur~t uf FI\T 1-'..:r-J:~~~;
pesos (PSOO) for every separate or distmct f'stabi;sl-'.:::c:: ')~
place of business. includmg facilitY types ,,iJ,:rt> sGi'rs
transactions occur, shall h~ paid 11pon registratiOn a~:; e,f>:--.
year Lhereafter on or before the last day of .Janua:--.
h. Coopeorrttives. individuals earnin? purely conlpens;!~_:c::!
income, whetlwr loc<"~ll\' u: abroad, dnd u\ers~as \' ,~~::~: : <>
not liable to the registrat10n fee lwrein imposed.
c. The registration fee shall be paid to an authonzec: <~2,':!":': rJa!":~:
located within the nvenue district. or to the Revenue
Collection Officer. or dul.; e~:ttltnrilcd Tre;,:;u~er rl: '':n '": n:
municipalitY where each
registered.
d. None of the chowes.
Answer: D
Reference: Section 236 (B), NIRC, as amended
403
 Chapter 22: Compliance Requirements
Chapter 22: Compliance Requirements

15. Whi'=L .:.f the fc;llo7.1n.g statcruer.ts is cor:-e~t? . Answer: A

a. Every persor. who is required to register with the Bureau of Reference: Section 236 (F), NIRC, as amended
Inte.,;-nal Revenue, shall register each type of internal revenue
tax fo.::- which he is obligated, sball file a return anr:l shall pay
such ta:Jtes, and &hall apdate such registration of any 18. This refers to a V'.Titten ~cknowledgment of the fact of paym~t i..1
cb.cmt;t;S. money or other settlement i.Jetween the selier ~nd the buver of goods.
~- In <"8se a registered person decides t{' transfer his place of creditor anc:i debtor, or pers.ons rer.derng services to cust'Jm'!rs.
business or his head office or b:-anches, it s~all be his duty to a. ~eceip~s c. Delivery receipts
up<hte his regist:-ati::>11 status by filh,; an application for b. Sales invoic.'! d. C:reei: memon: :1dum
>egistration informatloTl update in the fcrm prescribed
therefor. AnsloVer: A
c. Any person reg1stere<l in accordance witit the Regulations
shall, whenever applicable, update his registration
infQrrnaticn with the Revenue District Office where he is 19. This is a written account of goods or services rendere'i i-:d the price
registered, specify:ng therein any change in type ?nd other charged tht>reon.
Ut.xvayc:i uc:l<t.il::o. a. Receipts c. Delivery receipts
d. All of the choices. t. Sale::o invoice d. Credit me ;nor andt:..-n
Answer: D AnswP.r: B
Reference: Section 236 (C), (D} and IE), NIRC, as amended

20. Receipt or invoice is issued, at least in duplicate, at the time the

16. First statement: The registration of any person who ceases to be transaction is effected for each sale or transfer of merchandise or for
liable to a tax type shall be cancelled upon filing with the Revenue services rendered valued at:
District Office where he is registered, an application for registration a. P 5 or more. c. P20 or rr:cn-e.
information update in a form prescribed therefor. b. PlO or more. d. P25 or !T:{Jre.
Second statement: The cancellation of registration will be effective
from the first day of the following month. Answer: D
'l.. ~)n.iv the fir~r stau.. mt~nr is co:-:t:"cl Reference: Section 237, NIRC, as amem.led __________ _
h. Only the second statement is correct -AITpe~so;:;ss-ul;J~;ctt-; ~~-,;~t",om~Il ~'t ;.,~~~rr:c~_,;,u!! " y ,_ ; ( r: s,, ~ 1' ..
c. Both statements are correct transfer of merchandzse or for scr:.1res renri,-rcri 1 o , 4~ : , : T:cu::il-:'>'
d. Both statements are incorrect pesos (P25. 00} or n1ore, issut:> drJIIi rt ~_;:stt'rt-d ret t'lP~-s -:: :- ~:.-:;.fe r.;r
commercial invoices, prepared ut lt->ust ut d:Jtn'icute, .-..i_,-_,-~_i,dJ ~he ~:."iG.~::- ''~-~~
Answer: C transaction, quantitlj, unit cost and descnpt1_m of mercr.ar:cirse ur na::,re
Reference: Section 236 (F), NIRC, as amended of service.

17. First statement: Only one Taxpayer identification Number (TIN) shall 21. In cases where the sales or receipts in trw nrecedl~s :.par ~xceed
be assigned to a ta"<payer. P30,000, receipt or invoice is issued for each sale ur 'ransfer of
Second statement: Any person who shall secure more than one merchandise or for services rendered valued at:
T.txpn\er Identification Number sha~l be criminally liable under the a. not less than Pl 0. (' rl'lt l,..ss c~2.n P25.
;-n1\'L''''n of :-leuio:: 2-;" ::> on 'Violat:s1: of Other Provisions of this b. not less than P:20.
t.._'z\clt~ ~r h~,~l.Jiati~J::s. In (;en~ral.
d. ~~\l!h s~atemc:-nts are cornct Answer: D
b. i3olh statf'm~nts are incorrec:
c. On!\' the first statement is correct
d. Only the second statement is correct

404 40S
 Chapter 22: Compliance Requirements Chapter 22: Co.mp!iance Reqmrements

2~. ~'rucil of illt: [clluNir,g per:ouns i:s required to issue a receipt? The Commissioner may, in meritorious cases, exemat mu,t oer.;an subject
a 'f'h<.)se w~1ose value of merchandise sold or the service to internal revenue tax from compliance with the prov.swns of rfus
rendered is less than P25, and whos.; groEs sales or receipts Section.
ir~ thP. preceding year do not exceed P30,000
b. Tbo.:;e exempted by the Commissioner of Internal Rever-ue
uuder meriwrous caseta 25. The per-alty fo::- non-is:mance of receipts or invoices are as follo\. s:
c. Ma:rl<:et ve:1dors selling exclusively domestic meat, fruii.s, A. .?ine of n0t less than p1 ,000 but not more than P50,00v;
vegetables, game, p0u!try, G.,~ WlC otl-ter food prrxiucts B. lm!l.iso.1ment f0r not less than two (2) years but ,...ot r::c:e thar>
d. TI-..ose whose W"'llue of merchand.se scld or toe service four (4) yt"ars.
rendered is ?100 cr mere
a. A only c. BJth A a..::.c B
b. B only d. Ncithe:- :\ ,o- 3
Answer: D

23. In which of the following cases must the receipt indic3te the name,
busmess style and address oi the customer or dieut?
a. Sales or senices are valued at Pl,OOO or more
Ii Answer: C
Referenc~: Section 264, NIRC, as amended I

26. Which of the following statements is iiJ.correct?

b. Fayments for rental, commissions, compensation of fees
a. All persons who are engaged m business sr.-rt <o<:ct::-e from the
(::--:-g?rdks<> o! the e.mo11r-t)
3:.~rc3.t: of In~ern<J R~'.Tn\.:" T: aL'l,o:-i:: t: :-::-:- --~~---:-<; -
c. Sa1e is rr.ade by munJfacLtrers, producers, importers or
sales or commercial invoices before::... pnD'"",- ~;:-, ;:-'- -;ce
\vbolesalers (regardless of the amount)
same.
d. All of the choices
b. No authority to print receipts or sales or cornmerc:,:,: :::cices
shall be granted unless the receipts or invoices ;:o ':<.: ::~::.:ed
Answer: D
are serially numbered and shall show, amo::~ r:-1:\-.:~:- '-.:ngs.
Reference: Section 237, NIRC, as amended
the name, business St\le, T,Lxpayer lckntifir>, tic,;: :. ::. -p.-:
:.i:ere :.'..e receipt is rssued to cover payment made as rentals,
(T!N) and business address of the person or ::-:::- .. sr- ::-.e
co'" miss :>YIS. compensation or fees. ,-eceipts o,- invoices shall be issued
:; ;::cit o ~.. -~:i show tiw name. business sty/<>, if any, and address of the
same, and such othPr infn'"''tt'qn that ma:: '=" -r::
r1!1Ps 2r!ri r~gl_1h~tlnn~ rt) h .... ~r l:n!Jlr~a.red ":y. :: ~,

Fln:trl('t-". lipnn rrcor!l!!!',-"!-;<,-,+

Internal Revenue.
-;..,,?:ec'"::ts or !n\"Olc>~s must be kept in the place of business of the c. All persons who print rere1pt ~,~ sales or cr;:. ;:;-: -;r :: ~ - ;~ :r-:"
shallrnaintain a loghn~;k,::_:..~:,-:i~cr 0f t~-"':P?<,r:':-c:. l:~<~ ~,,,,-~ ,~ .
",c<lt>r or :: the buyer for hO'\" many years from the date of issuance?
3- , er (origin all Seller (duplicatel their printing senices.
3 years d. None of the choices
a. 3 vears
!:. 5 years
:0 vears Answer: D
10 years
.! Reference: Section 238, NIRC, as amended
" '\ c.;t necessarY Not necessary

Answer: A
Referet;lce:_e_ction 237!.1\liRC. as amell_<!_':_d
__
or ;r ':rc(' .:,haU he issued to the purchaser,
;, -_;~ ,... ,;_~Jr
., ,, .1 -:. ';n, ;;:,o 'run,nct:on is effected, uho, rfengaged
... ,,, ,,. , .,,r,1St! u: ;vntf"SS1on, shu// keep and pl"esen'e the
_.,, '"' . .:-. p!uce of ;_.,,_,,ne::>s fJr u penod of three (3) years from the
In,,, n .; 'n w;}>l,, <Jonr in ruhirh surh invoice ol" receipt was issued,
vhrlc ,;..," 1.!iplieate- shall be kept and p,-eserved by the issuer, also in his
. place oj bus_lness, for a like period.

I
407 ::i/t
27. First statement: The certificate or receipts showing payment of taxes 29. Any revocati~n, modification or reversal of any of the rules and
issued to a p<'rson engaged in a bu:-,ness subject to an annual regulations promulgated or any of the rulings or circulars
rcg1stratwn iee silall be kept cuusp,cuvusi\ exhibited in plain view promulgated by the Commissioner shall not be gi'.en retroac-tive
in U;t place .,,:hert> the business Is co:~riuct<d. application if the revocation, modification or reversal will be
Second stotemcnt: In rase of a JXdc!>: nr otlwr persons not having a prejudicial to the taxpayers, except in which of thf' following cases~
ftxtd place of busim:ss, the cer~ i!ic~.~~ <r n ,eip1 s :-;bowing payment a. Where the taxpayer deliberatelv misstates or omits mat<.'ne::
of ;_;,,xes shall be kept in the possts:-.:,>n oi 11Je holrler thereof, and facts from his return or any document req"-lired of him ::\ t!~t.
should be able to show it upon dem<1:1d ol an\' internal revenue Bureau of Internal Revenut>
officer. b. Where the facts subsequently gathered by the Bureau of
a. Both statements are correct Internal Revenue are materially different from the facts on
h. Both statements are incorrec\ which the ruling is based
c Onl\ thP first statement is corn:ct c. Where the taxpayer acted in bad faith
();:h tht second statement is cc~rrect d. All of the choices

Answer: A Answer: D
Reference: Section 241, NIRC, as amended Reference: Section 246, NIRC, as amended

28. Whicr, A the following statements is corrccP
;, ,', :-:c:: :,:1\' mdl\'ldual \\ );,; l:" ;.:id tiw annurJ.l registration fee
c:es. c.r.n tne same tJUSJIJt'"" ;o-, <'Uilliuuni LJ_, lhe pcrsou or
p-c:rsons interested in his tst<tie, l!O additional payment shall
be required for the residue of the term which the tax was
pctlC.:.
b. The person or persons interested in the estate should, within
thii'C)' (30) days from the death of the decedent, submit to the
Bureau of Internal Revenue or the regional or revenue District
Office inventories of goods or stocks he had at the time of
such 'leath.
30. These are issuances signed by the Secretary of Fi;;ance, upon
recommendation of the Ccr.:miss1nnf'r of J::rern2J RrvPnue, thnt
specify, prescribe ur define fl_!1""="s (-!!!(1 rrr:111~t~c,n':- .-.~~the effectl\'e
enforcement of the provisions of the National Internal Revenue Code
! (NIRC) and related statutes.
Ii a. Revenue Regulations
b. Revenue Memorandum Orders
i c. Revenue Memorandum Rulings
I d. Revenue Memorandum Circulars

Answer: A
c. I 1 t:-.c ~~e 0f t;o.ns.f~r c.f ::-wncr .>:l;p ::>r :::hange :)f r.ame of <:l:e
business establishment, no additional payment shall be
recuired for the residue of the term which the tax was paid.
d. All of the choices.
'
ii
:i
Reference: BIR Website Directory

31. These are issuances that provide directives or instructions; prescribe

guidelines; anci, outline prot.:e~ses, operations, a.cti;...itics, \:rorl:.."lc".~z,
ADnrer. D i method~ and procedures n~cessary in the implemeniation of stated
policies, goals, objectives, plans and programs of the Bureau in all
Reference: Section 242, NlRC, as amended
I Note: Under Section 243 of the Tax Code, any bu.,'incs'3 jor which the areas of operations, exce?t auditiag.
cznrrwl registratWnjee has been paid may, subject to the rules and a. Revenue Regulations
n?gUlatioz..s prescribed by thE Secretary of Finance, upon b. Rf'>ve:me Memorandum Orders
~.mendatwn of the Commissioner, be removed and contir..ued in any c. Revenue Memorandum RulinJ!s
other p:.tzce witr?ut the payment o; ddi~iona.: !ax during the term for d. Revenue Memorandum Ci.culars
wluch the a ment wa-'s-'-m~a-'-d__e'-.----- -------------...l
AnswPr: ~
RefPrance: BIR Website Directory

I.. 409
32. These are rulings, opinions and interpretations of the Commissioner
of Internal Revenue with respect to the provisions of the Tax Code
ar:(i other tax ~<:\:s. as apnhrl to <1 specific set of facts. with or
w;:hout cc;tat;;;-,nd preu~dronts. and which the Commissioner mm
1S~.:.H_ trnrr ::;~- 1inH fcr 1ht n~l:-JHlSt' o! pro\'Hling taxpayers
g._,_~~.:::.:.:H t_ f:r; :f;, .1.": l zlil~tc!'~~:J(c~; ili spc('ific Sl1'....lf:ltions.
c-: h:~--\e::::- f<c~'LJL1tlf:!i~.
i<(\'(;~L~ ':c:r(1~;: 1 ;tlunJ (Jrdcr s
J\t,t :1"e \i(:nt;r~_-t;Jci1liH kulings
d. Revenue ,\iernorandum Circulars

Answer: C
Reference: BIR 'Website Directory t

33. These ar-e lSSL!;:nccs that pub1lsh pertinent and applicable portions,
a!> weli as a.:nn!:firdt;ons. ()f liw.s. rules. regulations and precedents
lSSUeG h\ t._Lr i~if...: diHi othtr a~~fT!Clt-"S, O!!ll(~S.
a. Rr-;t'E '_:c hegulatiuns
~. Re\t:-itP: \ic:;:1nrandun1 (>rdcrs

Answer: D
Reference: BlK Website Directory

410