TAXATION 1

FINAL EXAMINATION – COMPREHENSIVE

PROBLEM 1 – Multiple Choice – Write the letter as well as the entire answer
1. Among the nature of taxation are the following. Which one is not?
a. It is inherent in sovereignty c. The government solely benefits from it
b. The citizenry benefits from it d. It is a means by which the government raises income

2. Which statement is false? Income tax

a. Is always based on gross amount c. Is a tax on person’s income, emoluments or profit
b. Is always a direct tax d. Is a tax on all yearly profits from property, trade or profession

3. The following are national internal revenue taxes. Which one is not?
a. Excise tax b. Income tax c. Value added tax d. Real estate tax

4. Which statement is false? Income tax

a. Is always a direct tax c. is tax on person’s income, emulements or profits
b. Is always based on gross amount d. is a tax on all yearly profits arising from business

5. Which of the following may not be deducted by an individual taxpayer from his gross
compensation income?
a. Premium payment on health insurance c. additional exemption
b. Basic personal exemption d. itemized deduction

6. Pertinent items of gross income less the deductions and personal and additional exemptions,
authorized for such type of income is
a. Tax due b. Tax rate c. Tax credit d. Taxable income

7. A dependent child must possess the following qualifications except

a. Not married c. not gainfully employed d. living with the taxpayer
b. Not more than 21 years old if mentally or physically or mentally incapacitated

8. All of the following taxpayers except one may deduct premium payment from his gross income.
Who may not?
a. Non-resident citizen b. Resident citizen c. Non-resident citizen d. Resident
alien

9. Taxable income may mean any of the following

a. Gross/net income b. Net compensation income c. Gross compensation income d. All of
the above

10. Which of the following is not an income tax on corporations?

a. Minimum corporate income tax b. stock transaction tax c. gross income tax d.
normal tax

11. The following domestic corporations are generally taxed at the same rate.
Which is not?
a. Taxable partnerships c. Government-owned and controlled corporations
b. Proprietary educational institutions d. None of the above

12. Which of the following domestic corporations is exempt from income tax?
a. Non-stock and non-profit educational institution
b. Labor, agricultural organization organized principally for profit
c. Cemetery company owned and operated not exclusively for the benefit of members
d. Civic league organized for profit and operated not exclusively for the promotion of social
welfare
13. Dividends received by domestic corporation from a domestic corporation is subject to which
income tax rate?
a. 20% b. 6% c. exempt d. none of the above
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14. Which of the following non-resident foreign corporations is imposed the highest income tax rate?
a. Cinematographic film owner, lessor or distributor
b. Owner or lessor of vessels chartered byPhilippine nationals
c. Owner or lessor of aircraft , machinery and other equipment
d. Same for all

15. Which of the following corporations is imposed the least income tax rate?
a. Offshore banking units c. regional operating headquarters
b. International carriers d. branch profit remittances

16. Interest received as passive income by domestic and resident foreign corporations may be subject
to which tax rate?
a. 20% b. 7 ½% c. 10% d. all of the above

17. For purposes of determining the improperly accumulated taxable income for a taxable year, the
following, except one, are added to that year’s taxable income. Which one?
a. Income exempt from tax c. Income excluded from gross income
b. Income subject to final tax d. The amount of net operating loss carry-over (NOLCO)

18. One of the following statements is wrong. Which is it? Gross income tax on corporation is
a. Applicable starting year 2000 c. applicable to domestic corporations
b. Applicable to resident corporations d. applicable to non-resident corporations

19. One of the following statements is correct? Which is it? The MCIT is computed
a. Only in the quarterly return of the corporation
b. Only in the annual income tax return of the corporation
c. In all the taxable years of operations of the corporation
d. In the quarterly and the annual returns of the corporation

20. IAET shall not apply to the following corporations except one. Which one?
a. Closely-held corporations c. Taxable and general professional partnerships
b. Publicly-held corporations d. Banks

21. The general term which applies to all persons or corporations that occupy positions or peculiar
confidence towards others, such as trustees, executors, guardians, or administrators, receivers or
conservators
a. Grantor b. trustor c. fiduciary d. beneficiary

22. When an individual dies, future income on his property will be taxed to
a. The individual himself c. Those who inherit the property
b. The estate itself after the heirs have received the property d. none of the above

23. Which is not compensation?

a. Non-exempt pensions, retirement and separation pay
b. Living quarter meals in addition to salary
c. Tips and gratuities when not accounted for by the employee to the employer
d. All of the above e. None of the above

24. Fixed or variable transportation and representation allowances are taxable

a. If the employee has accounted for the expenses according to substantation requirements
b. If received in addition to regular compensation fixed for employee’s position or office
c. If it is ordinary and necessary expenses incurred in pursuit of profession
d. All of the above e. None of the above

25. Which of the following is taxable?

a. Lotto winnings c. Gain on sale of 10-year bond
b. Prize exceeding 10,000 d. Interest on long-term deposit or investment

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26. Income from whatever source include all other income not expressly exempt under the laws.
Which does not belong?
a. Bad debts written off when recovered c. Income from gambling
b. Moral damages for slander d. all of the above e. none of the above

27. Which of the following items that reduce salaries of employees is not an exclusion from gross
income?
a. IOUs b. PHIC contribution c. HDMF contribution d. SSS or GSIS contribution

28. The employer subject to the fringe benefit tax may be a/an
a. Corporation b. individual c. professional partnership d. all of the above

29. The grossed-up monetary value of fringe benefit subject to fringe benefit tax received by a non-
resident alien individual not engaged in trade or business in the Philippines is computed by
dividing the monetary value of the fringe benefit by
a. 15% b. 25% c. 85% d. 75%

30. Which statement is wrong? The fringe benefit tax is

a. Withheld at source c. imposed on the employee
b. Imposed on the employer d. deductible by the employer

31. Interest on loans used to acquire capital equipment in connection with a taxpayer’s business may
be
a. A deductible item from gross income c. both of the above
b. Treated as capital expenditure d. neither “a” nor “b”

32. Which of the following taxes is not deductible from gross income?
a. Philippine income tax c. Income tax imposed by a foreign country d. estate tax
b. All of the above d. none of the above

33. Bad debts to be deductible from gross income

a. Must be charged off during the taxable year c. must be set up as reserve for bad debt
b. Both of the above d. neither “a” nor “b”

34. One of the following is not correct about the deductibility of losses from gross income. Which is
it?
a. It must not be compensated for by insurance or any form of indemnity
b. It is property owned by the taxpayer, whether used in business or not
c. It must arise from fire, storm or other casualty
d. A declaration of loss should be filed with the BIR

35. So that worthless securities may be allowed as deduction from gross income
a. they must be ordinary assets b. they must be capital assets c. both of them d. none of
them

36. Which of the following is considered a sale or exchange of capital assets?

a. Short sale of securities c. retirement of bonds
b. Securities becoming worthless c. failure to exercise option to buy or sell property
c. All of the above

37. Which is not correct? The 82,000 limit on gross benefits of employees
a. Include Christmas bonus d. does not include employees of private firms
b. Include productivity incentive pay e. all of the above
c. May be increased by Secretary of Finance f. none of the above

38. Which of the following does not receive the same tax treatment as a cash dividend?
a. Liquidating dividend d. scrip dividend
b. Property dividend e. all of the above
c. Indirect dividend f. none of the above
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 39. Which statement is wrong? The amount on which the fringe benefit tax rate is applied is
a. The monetary value of the fringe benefit
b. The grossed-up monetary value of the fringe benefit
c. The amount deductible by the employer from his gross income
d. Reflected in the books in the two accounts of fringe benefits and tax

40. Means all employees who are holding neither managerial nor supervisory position
a. Officers b. managerial employees c. supervisory employees d. rank-and-file employees

PROBLEM 2 – Identify or fill in the blank

1. Means all wealth, which flows into the taxpayer other than a mere return of capital.
2. A tax on all yearly profits arising from property, profession, trade or business.
3. The BIR functions under the supervision and control of which government department?
4. The conduct of banking transactions whereby any person, whether natural or juridical, may
deposit foreign currencies forming part of the Philippine international reserves.
5. An individual who earns compensation income and at the same time is engaged in business or
practice of profession.
6. Any good, service, or other benefit furnished or granted by an employer in cash or in kind in
addition to basic salaries, to an employee (except rank-and-file employee) under an employer-
employee relationship.
7. BIR issuances that publish pertinent and applicable portions, as well as amplifications of laws,
rules, regulations and precedents issued by the BIR and other agencies.
8. BIR issuances signed by the Secretary of Finance, upon recommendation of the BIR commissioner
that specifiy, prescribe or define rules and regulations for the effective enforcement of the
provisions of the NIRC and related statues.
9. The basis and the tax rate for NRANETB earning both compensation and business income.
10. Arbitrary amounts allowed as deductions from gross income of the individual taxpayer from
business or practice of profession.
11. The pertinent items of gross income less the deductions and personal and additional exemptions, if
any, authorized for such types of income by the Tax Code and other special laws.
12. A foreign corporation not engaged in trade or business in the Philippines.
13. The tax base and the tax rate of offshore banking units
14. The tax base and the tax rate of international carriers.
15. The tax rate for the remittance of profit of a foreign branch to its head office.
16. The tax rate on taxable income of a regional operating headquarters.
17. Philippine Air Lines’ income tax liability shall be the lower amount between basic corporate
income tax or _________.
18. The tax rate on gross income of non-resident cinematographic film owner, lessor or distributor.
19. The tax rate of non-resident owner or lessor of aircraft, machinery and other equipment.
20. The asset account title recorded in the corporation’s books for any amount paid as excess MCIT.
21. This asset account is carried forward against the normal income tax for a period not exceeding
________taxable years immediately succeeding the taxable year in which the same has been paid.
22. Corporations at least 50% in value of the outstanding share capital or at least 50% of the total
combined voting power of all shares entitled to vote is owned directly or indirectly by or for not
more than 20 individuals.
23. Domestic corporations not falling under the above definition are called _________.
24. A corporation having practically no activities except holding property, and collecting the income
therefrom or investing the same.
25. What is the gross income tax rate?
26. This happens when the taxpayer minimizes his tax liability by taking advantage of legally
available tax planning opportunities.
27. This occurs when the taxpayer resorts to unlawful means to lessen or to get away with his tax
liability.
28. Net capital loss carry over is recognized if such net capital loss may be deducted from _________
of the next taxable year.
29. In this kind of sale, the seller sells securities, which he does not own, and, therefore, he cannot
supply the securities if he anticipates a decline in their price.
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 30. In computing the capital gain tax, what is the tax base of the real property being sold?
31. In computing the capital gain tax on shares of stock not traded in the stock exchange, what is the
tax base?
32. Facilities or privileges furnished or offered b y an employer to his employees that are of relatively
small value and are offered or furnished by the employer merely as a means of promoting the
health, goodwill, contentment or efficiency of his employees.
33. The whole amount of income realized by the employee which includes the net amount of money
or net monetary value of property which has been received plus the amount of fringe benefit tax
due thereon.
34. If the company’s manager lives in a residential house owned by his employer, how is the grossed-
up monetary value computed?
35. What are the due dates for the payment of quarterly income tax of an individual?
36. What are the due dates for the payment of quarterly income tax of a corporation?
37. Give the BIR form number for the filing of income tax of the following:
a) Annual income tax return for individual
b) Quarterly income tax return for individual
c) Annual income tax return for corporation subject to the regular income tax rates
d) Quarterly income tax return for corporation

PROBLEM 3 – Enumeration
1. Classification of taxes (a) as to subject matter (3); as to determination of amount (2); as to
graduation or rate (3); as to who bears the burden (2)
2. National taxes (6)
3. Local taxes (5)
4. Categories of income (6)
5. Examples of passive income (5)
6. Kinds of domestic corporation (4)
7. De minimis benefits not subject to income tax (5)
8. Forms of compensation (7)
9. Exclusions from gross income - excluding miscellaneous items (5)
10. Examples of fringe benefits (7)
11. Itemized deductions (7)
12. Tax refunds which are not taxable (5)
13. Tax-exempt government-owned or controlled corporations (4)
14. Types of withholding taxes (4)