PAGE Tax Law Multiple Choice Questions

University of Cebu College of Law UCLASS Bar Operations: Tax Law Society

GENERAL PRINCIPLES OF TAXATION1. The following are similarities of the inherent power of taxation, eminent domain, and police power, EXCEPT one:

a. Are necessary attributes of sovereignty;

b. Interfere with private rights and property;

c. Affect all persons or the public;

d. Are legislative in implementation.2. Among the nature of taxation is that it is an inherent power being an attribute of sovereignty. Which among the following is NOT among its manifestation as such inherent power?

a. Courts cannot issue an injunction to enjoin the collection of taxes.b. There should be no improper delegation of the power to tax.c. Taxes may be imposed even without a constitutional grant.d. The State has the right to select the subjects and objects of taxation.3. Which is NOT a characteristic of the power of Taxation?

a. The power co-exists with the existence of the State.

b. It is absolutely legislative in character.

c. It is subject to inherent limitations.

d. It is subject to limitations found in the 1987 Constitution.4. Which of the following statements is NOT correct?

a. Taxes may be imposed to raise revenues or to provide disincentives to certain activities within the state;

b. The state can have the power of taxation even if the Constitution does not expressly give it the power to tax;

c. For the exercise of the power of taxation, the state can tax anything at any time;

d. The provisions of taxation in the Philippine Constitution are grants of power and not limitations on taxing powers.

5. Tax laws, being imposition of burden, shall be strictly construed against:

a. A person who refuses to pay the tax

b. The taxpayer

c. The government

d. Either the taxpayer or the government, depending on the evidence presented6. The defense available to a taxpayer who is required to pay excessive taxes is:

a. That the tax is levied for a religious purpose

b. Due process of law

c. Equal protection of the law

d. Non-impairment of obligations of contract7. In case of conflict between tax laws and generally accepted accounting principles (GAAP):

a. Both tax laws and GAAP shall be enforced;

b. GAAP shall prevail over tax laws;

c. Tax laws shall prevail over GAAP;

d. The issue shall be resolved by the courts.8. Double taxation is not unconstitutional but double taxation exists when:

a. Real estate tax and income tax are collected on the same real property.

b. VAT is imposed on the gross receipts and income tax is also imposed on the same gross receipts.

c. Income tax and capital gains tax are collected on the gain from the sale of real property.

d. Corporate income is taxed and stockholders dividends are also taxed by the same corporation.9. How is a tax distinguished from a license fee?

a. Non-payment of tax does not necessarily render the business illegal.

b. Tax is a regulatory measure.

c. Tax is imposed in the exercise of police power.

d. Tax is limited to cover cost of regulation.10. Which of the following statements is NOT correct?

a. Taxes may be imposed to raise revenues or to deter certain activities within the state.

b. The state can have the power to tax although the Constitution does not expressly give it the power to tax.

c. In the exercise of the power of taxation, the state can tax anything at any time.

d. The provisions of taxation in the Constitution are grants of the power to tax.11. Which statement refers to police power as distinguished from taxation?

a. It can only be imposed on specific property or properties.

b. The amount imposed depends on whether the activity is useful or not.

c. It involves the taking of property by the government.

d. The amount imposed has no limit.

12. One of the characteristics of internal revenue laws is that they are:

a. Criminal in nature

b. Penal in nature

c. Political in nature

d. Generally prospective in application13. Which of the following is NOT an example of an excise tax?

a. Transfer tax

b. Sales tax

c. Real property tax

d. Income tax14. The Municipality of Bogo in the province of Cebu has an ordinance which requires all stores, restaurants, and other establishments selling liquor to pay a fixed annual fee of P20,000. Subsequently, the municipal council proposed an ordinance imposing a sales tax equivalent to 5% of the amount paid for the purchase or consumption of liquor in stores, restaurants, and other establishments. The municipal mayor refused to sign the ordinance on the ground that it would constitute double taxation.

Is the refusal of the mayor justified?

a. No. The refusal of the mayor is unjustified because double taxation is allowed in our jurisdiction.

b. No. The refusal of the mayor is not justified because the impositions are of different nature and character.

c. No. The refusal of the mayor is unjustified because it is not within his power.

d. Yes. The refusal of the mayor is justified because the impositions constitute double taxation.15. Which of the following is not a scheme of shifting the incidence of taxation?

a. The manufacturer transfers the tax to the consumer by adding the tax to the selling price of the goods sold;

b. The purchaser asks for a discount or refuse to buy at regular prices unless it is reduced by the amount equal to the tax he will pay;

c. Changing the terms of the sale like FOB shipping point in the Philippines to FOB destination abroad, so that the title passes abroad instead of in the Philippines;

d. The manufacturer transfer the sales tax to the distributor, then in turn to the wholesaler, in turn to the retailer and finally to the consumer.16. The following statements are presented to you for evaluation:

Statement 1 The power of taxation is inherent in sovereignty being essential to the existence of every government. Hence, even if not mentioned in the Constitution, the State can still exercise the power.

Statement 2 The power of taxation is essentially a legislative function. Even in the absence of any constitutional provision, taxation falls to Congress as part of the general power of law-making.

a. Both statements are correct

b. Both statements are wrong.c. The first statement is correct; the second statement is wrong.d. The first statement is wrong; the second statement is correct.17. The City Government of Cebu, claiming that it can impose taxes under the Local Government Code, imposed a tax on banks (in addition to the percentage tax on banks imposed in the National Internal Revenue Code). The banks within the City of Cebu objected for the various reasons given below.

Which would justify the objection of the banks?

a. The power of taxation cannot be delegated.

b. The rule of double taxation.

c. Uniformity in taxation.

d. None of the above18. An annual tax of P500.00 was imposed upon all residents of the Philippines, who are above twenty-one (21) years of age, with a gross annual income of P250,000, whether or not they send their children to public schools, for the purpose of raising funds in order to improve public school buildings. The said tax is:

a. violative of the equal protection clause of the Constitution

b. confiscatory

c. for a public purpose

d. a contradiction to the inherent limitations of taxation19. Which is NOT an essential characteristic of a tax?

a. It is unlimited as to amount.

b. It is a regular payment.c. It is proportionate in character.

d. It is payable in money.

20. Which of the following violates the inherent limitation of the power of taxation?

a. A supplier of school supplies for the Department of Education shifted the value-added tax (VAT), making the government an indirect taxpayer of the VAT.

b. A revenue regulation was issued by the Department of Finance to amend a mistake in a tax law.

c. Income of the United States (US) government in the Philippines is not subjected to income taxation.

d. Resident citizens abroad are taxed on their income abroad even if they have no income from the Philippines.

21. A tax does not meet the public purpose limitation if it:

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

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

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

d. is designed to support the services of government for some of its recognized objects.22. Consider the following statements:

I. The power of taxation involves the promulgation of rules.

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

III. Taxes are based upon the lifeblood theory.

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

Choose the correct answer from among the following choices:

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

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

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

d. Statements II and III are both manifestations of the inherent nature of taxation.23. Which of the following may not raise money for the government?

a. Power of taxation

b. Eminent domain

c. Police power

d. None of the above24. Taxes are assessed for the purpose of generating revenue to be used for public needs. Taxation itself is the power by which the State raises revenue to defray the expenses of the government.

In our jurisdiction, which of the following statements may be erroneous?

a. Taxes are pecuniary in nature.

b. Taxes are enforced charges and contributions.

c. Taxes are levied by the executive branch of government.

d. Taxes are assessed according to a reasonable rule of apportionment.25. Justice Marshall said that the power to tax involves the power to destroy while Justice Holmes maintains that the power to tax is not the power to destroy. Which among the following statements does NOT reconcile the two seemingly inconsistent opinions?

a. The imposition of a valid tax could not be judicially restrained merely because it would prejudice taxpayers property.

b. The power to tax could not be the subject of compensation and set-off.

c. An illegal tax could be judicially declared invalid and should not work to prejudice a taxpayers property.

d. Justice Marshalls view refers to a valid tax while Justice Holmes view refers to an invalid tax.26. The proportional contribution by persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of the government and all public needs is referred to as:

a. Taxes

b. Special assessment

c. License fees

d. Toll fees27. Which of the following is a similarity among the three (3) inherent powers of the State?

a. They are superior to the impairment clause of the Constitution.

b. They are means by which the State interferes with private rights and properties.

c. They affect the community as a whole.d. They are commonly payable in money.28. Tax of a fixed proportion of the value of the property with respect to which the tax is assessed and requires the intervention of assessors or appraisers to estimate the value of such property before the amount due from each taxpayer can be determined is known as:

a. Specific

b. Ad valorem

c. Special or regulatory

d. Proportionate29. Which of the following statements is NOT correct?

a. An inherent limitation of taxation may be disregarded by the application of a constitutional limitation.

b. The property of an educational institution operated by a religious order is exempt from property tax, but its income is subject to income tax.

c. The prohibition of delegation by the state of the power of taxation will still allow the Bureau of Internal Revenue to modify the rules on time for filing of returns and payment of taxes.

d. The power of taxation is shared by the legislative and executive departments of government.30. Which of the following has no power of taxation?

a) Provinces

b) Cities

c) Barangays

d) Barrios31. A tax must be imposed for a public purpose. Which of the following is NOT a public purpose?

a. National defense

b. Public education

c. Improvement of the sugar industry

d. None of the above32. In year 2002, a person was given by a special law the privilege to operate a public utility (franchise), in consideration of which, he was required by that law to pay a franchise tax. This franchise can be amended by:

a. An amendment of that special law only;

b. An amendment of that special law or a law of general application;

c. An amendment of a revenue regulation issued by the BIR;

d. None of the above33. Mr. X is a law-abiding citizen who pays his real estate taxes promptly. Due to a series of typhoons and adverse economic conditions, an ordinance was passed by the City Government of Quezon City granting a 50% discount for payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on fines resulting from the late payment. Arguing that the ordinance rewards delinquent taxpayers and discriminates against prompt ones, Mr. X demands that he be refunded an amount equivalent to one-half of the real estate taxes he paid. The city attorney rendered an opinion that Mr. X cannot be reimbursed because the ordinance did not provide for such reimbursement. Mr. X files a suit to declare the ordinance void on the ground that it is a class legislation.

Will Mr. Xs suit prosper?

a. The suit will prosper because the ordinance is discriminatory in character.

b. The suit will prosper because the ordinance is not based on substantial distinction.

c. The suit will not prosper because taxes are the lifeblood of the government and should be collected without unnecessary hindrance.

d. The suit will not prosper because the ordinance is based on substantial distinction. Each set of taxes is a class by itself and the law would be open to attack only if all the taxpayers belonging to one class were not treated alike.34. Which statement is NOT correct? A revenue bill:

a. Must originate from the House of Representatives and on which same bill the Senate may propose amendments.

b. May originate from the Senate and on which same bill the House of Representatives may propose amendments.

c. May have a House version and a Senate version approved separately, and then consolidated, with both houses approving the consolidation version.

d. May be recommended by the President to Congress.35. The state has complete discretion on the amount to be imposed, after distinguishing between a useful and a non-useful activity:

a. Tax

b. License fee

c. Toll

d. Customs duty36. Tax evasion is the use of illegal means to avoid payment of taxes. There is evasion when:

a. Sales are understated to lessen the VAT.

b. Indirect taxes are shifted to consumers.

c. Property is transferred in contemplation of death to lessen the estate tax.

d. Depreciation method is used in claiming deduction to lessen the income tax.37. Which is the correct and best statement? A tax reform at any given time underscores the fact that:

a. Taxation is an inherent power of the state.

b. Taxation is essentially a legislative power.

c. Taxation is a power that is very broad.

d. The state can and should adopt progressive taxation.38. Which statement gives the correct answer? That a feasibility study needs or need not look into taxes of different political subdivisions of government which may be alternative sites of the business is because:

a. Provinces, cities and municipalities must have uniform taxes between and among themselves.

b. The local taxes of one political subdivision need not be uniform with local taxes of another political subdivision.

c. Businesses that are subject to national business taxes are exempt from local business taxes.

d. Local business taxes may be credited against national business taxes.39. Which of the following statements is NOT correct?

a. A tax is a demand of sovereignty.

b. A toll is a demand of ownership.

c. A special assessment is a tax.

d. Customs duty is a tax.40. Congress passed a law revoking all tax exemption status granted to some taxpayers, except if covered by the non-impairment clause of the Constitution. Which of the following principles would best justify this move by Congress?

a. Tax exemptions are looked upon with disfavor.

b. Tax exemptions are mere privileges granted by the State.

c. Tax exemptions are to be construed strictly against the taxpayer.

d. Tax exemptions are granted only when there is a concurrence of a majority of all the members of Congress.41. A fundamental rule in taxation is that the property of one country may not be taxed by another country. This is known as:

a. International law

b. International comity

c. Reciprocity

d. International inhibition42. The City of Manila passed an ordinance imposing a license fee on all motor vehicles entering the city between the hours of 8:00 a.m. to 4:00 p.m. Commuters assailed the validity of the law. If you were the judge, what would be your ruling? The ordinance is:

a. Valid, because it was issued as a source of revenue

b. Valid, because it is a legitimate exercise of police power

c. Void, because it discriminates against those who are not able to pay the license fee, particularly, the low-salaried employee, and is therefore, a class legislation

d. Void, because it is not imposed by any other municipality43. Which of the following statements is correct?

a. There is no double taxation by taxing corporate income and corporate stockholders dividends from the same corporation.

b. The public purpose of tax shall be expressly stated in a tax measure.

c. Taxpayers shall pay equal amount of taxes based on the rule of uniformity and equity in taxation.

d. The President has the full power to exempt any person from taxation.44. The following statements are presented to you for evaluation:

Statement No. 1

To be exempt from taxation under the Constitution, land and building must be exclusively and actually used for religious, educational or charitable purpose, even if not directly.

Statement No. 2

Exemptions of non-profit schools are limited only to revenue and assets derived from strictly school operations.

a. Both statements are correct.

b. Only Statement No. 1 is correct.

c. Only Statement No. 2 is correct.

d. Both statements are incorrect.45. In this power of the state, the person who is parting with his money/property is presumed to receive a benefit.

a. Taxation

b. Police power

c. Eminent domain

d. Both Taxation and Eminent Domain46. Estate tax is an example of a:

a. Direct, property, and national tax

b. Direct, excise, and national tax

c. Direct, personal, and national tax

d. Indirect, property, and national tax47. In all of the following, EXCEPT one, there can be a classification of the subject matter being required to shoulder the burden. Which one is the exception?

a. Tax

b. License fee

c. Toll

d. Eminent domain48. The phrase There can be no tax unless there is a law imposing the tax is consistent with the doctrine or principle of:

a. Uniformity of taxation;

b. Due process of law;

c. Non-delegation of power to tax;

d. The power of taxation is very broad and the only limitation is the sense of responsibility of the members of the legislature to their constituents.49. Which of the following statements is correct?

a. Tax law is not valid when its theory purposes and basis are disregarded.

b. There can be tax exemption solely on the ground of equity.

c. Levying or imposition of taxes is known as tax administration.

d. The power to tax includes the power to destroy in all cases.50. The exemption of minimum wage earners from income tax is an illustration of:

a. Lifeblood theory

b. Employer-benefit rule

c. Nature of the power to tax

d. Benefits-protection theory

51. Which of the following is NOT an element of double taxation?

a. Two taxes

b. Same subject

c. Same year

d. Same amount

52. All of the following are forms of escape of taxation EXCEPT:

a. Transformation

b. Tax avoidance

c. Double taxation

d. Tax evasion53. Statement 1: Because the power of taxation is inherent in a state, the inherent limitations on the power of taxation always apply.

Statement 2: Inherent limitations on the power of taxation must give way to constitutional limitations.

a. The first statement is true while the second statement is false;

b. The first statement is false while the second statement is true;

c. Both statements are true;

d. Both statements are false.54. Which statement is NOT correct? The tax should be based on the taxpayers ability to pay.

a. As a basic principle of taxation, this is called theoretical justice,

b. As a theory of taxation, this is called ability-to-pay-theory

c. No person shall be imprisoned for non-payment of a tax;

d. A graduated tax table is in consonance with this rule.55. Which statement is NOT correct?

a. A tax is a demand of sovereignty while a toll is a demand of property ownership;

b. Non-payment of a tax does not make the activity taxed unlawful;

c. A grant of police power to a unit of local government carries with it a grant of the power to tax.

d. Customs duty is a tax.56. Some franchise holders who are paying the franchise tax are being required by an amendatory law to pay the value-added tax, while others remain subject to the franchise tax. Which of the following constitutional provisions makes the law unconstitutional?

a. No law shall be passed impairing the obligations of contracts;

b. The rule on taxation shall be uniform;

c. No person shall be deprived of property without due process of law;

d. None of the above57. Under this basic principle of a sound tax system, the Government should not incur a deficit:

a. Theoretical justice

b. Administrative feasibility

c. Fiscal adequacy

d. Ability-to-pay principle58. A person may be imprisoned for:

a. Non-payment of a poll tax

b. Failure to pay a debt

c. Non-payment of his income tax

d. Failure to pay his community tax

59. Taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. This describes the principle of:

a. Reciprocity

b. Revenue Raising

c. Honesty and Fairness

d. Protection and Benefit60. Diplomatic and consular representatives are exempted from the Community Tax Certificate. The exemption adheres to the principle of:

a. Situs of taxation

b. International comity

c. Tax exemption of dignitaries

d. Immunity of government from taxes

61. In order to raise more funds for the government, a value-added tax (VAT) on toll fees was imposed. Is it valid?

a. No, because it would amount to direct duplicate taxation.

b. Yes, because toll fees are collected by private corporations; thus, there is no prohibition to tax the same.

c. Yes, because toll fees are charges demanded by reason of ownership; thus, it may be the subject of a tax.

d. No, because toll fees are equivalent to taxes; thus, to impose a tax on toll would be amounting to a violation of due process. 62. The rule in taxation that the property of a Filipino taxpayer in the United States cannot be taxed in the Philippines is a recognition of the principle of:

a. Reciprocity

b. Territoriality

c. International Law

d. International Comity

63. Citing Section 10, Article VIII of the 1987 Constitution which provides that salaries of judges shall be fixed by law and that during their continuance in office their salary shall not be decreased, a judge of a Regional Trial Court questioned the deduction of withholding taxes from his salary since it results into a net deduction of his pay.Is the contention of the judge correct?

a. No. The contention is incorrect because taxes are enforced contributions.

b. No. The contention is incorrect because taxes must be collected in order to support the government.

c. No. The contention is not correct because deduction of withholding taxes is not a diminution contemplated by the Constitution.

d. No. The contention is incorrect because deduction of withholding taxes is required by law.64. As to who bears the burden, a community tax is a

a. Personal tax

b. Direct tax

c. Ad valorem tax

d. Local tax

65. As a basic principle of taxation, that Taxes must be based on the taxpayers ability to pay is called:

a. Equality in taxation

b. Ability to pay theory

c. Theoretical justice

d. Equity in taxation66. Which is not an essential characteristic of tax?

a. It is unlimited as to amount.

b. It is payable in money.

c. It is proportionate in character.

d. It is a regular payment.INCOME TAX67. The Optional Standard Deduction (OSD) that may be claimed by a resident alien in computing his or her taxable income is equivalent to:

a. 10% of gross sales or gross receipts

b. 40% of gross income

c. Zero, because only resident citizens, non-resident citizens, and domestic corporations are allowed by law to claim OSD

d. 40% of gross sales or gross receipts

e. 10% of gross income68. Which of the following corporations is subject to the Minimum Corporate Income Tax (MCIT)?

a. Proprietary educational institutions

b. Resident foreign corporations

c. Domestic corporations subject to special tax rates

d. Offshore banking units69. Which statement is NOT correct?

a. A resident citizen and a resident alien are subject to a final tax of 7.5% on interest on foreign currency deposits under the expanded foreign currency deposit system.

b. A non-resident citizen is exempt from income tax on interest on foreign currency deposit under the expanded foreign currency deposit system.

c. A non-resident alien engaged in business in the Philippines has a final tax of 20% on interest only if the interest is on the bank deposits.d. A non-resident alien engaged in business in the Philippines is subject to a final tax of 20% on dividends received from domestic corporations.70. Under the National Internal Revenue Code, the term corporation excludes not only general professional partnerships, but also:

a. Joint stock companies

b. Insurance companies

c. Joint accounts or cuentas en participacion

d. Joint venture formed for the purpose of undertaking construction projects71. Which of the following distinguishes Allowable Deductions from Personal Exemptions?

a. Allowed to cover personal, family, and living expenses

b. Arbitrary amounts allowed by law

c. Can be claimed only by individual taxpayers

d. Enables the taxpayer to recoup his/its cost of doing business72. Which of the following statements about Minimum Corporate Income Tax (MCIT) is NOT correct?

a. The MCIT is imposed on a taxable corporation beginning on the fourth taxable year of the corporations business operations.

b. The imposition of the MCIT on a corporation may be suspended by the Secretary of Finance on the ground of legitimate business reverses.

c. If the MCIT is applicable, it should be computed and paid quarterly at the time of filing of the quarterly corporate income tax.

d. A resident foreign corporation is subject to MCIT.73. The Improperly Accumulated Earnings Tax (IAET) shall be applicable to which of the following corporations?

a. Insurance companies

b. Taxable joint ventures

c. Banks

d. Taxable partnerships

74. Statement 1 Value Added Tax is a property tax.

Statement 2 Estate Tax is a direct tax.

a. Both statements are correct.

b. Both statements are wrong.

c. The first statement is correct; the second statement is wrong.

d. The first statement is wrong; the second statement is correct.75. Under the National Internal Revenue Code of 1997, as amended, regional or area headquarters of multinational companies shall pay a tax of:

a. 10% of their taxable income

b. 30% of their gross income

c. 30% of their taxable income

d. None, because they are exempt from income tax76. A non-resident alien not engaged in business in the Philippines, but with income from the Philippines:

Statement 1 Is taxed at 25% of gross income from within the Philippines.

Statement 2 Is entitled to personal exemptions on the basis of reciprocity.

a. Both statements are correct.

b. Both statements are wrong.

c. The first statement is correct; the second statement is wrong.d. The first statement is wrong; the second statement is correct.77. A citizen of the Philippines was a non-resident citizen in year 2008. On May 15, 2009, he arrived in the Philippines to reside permanently in the Philippines. His income for the year 2009 were as follows:

A From January 1, 2009 to May 14, 2009;

B From May 15, 2009 to December 31, 2009.

Which of the following statements is NOT correct?

a. He is considered a resident citizen on his A and B income.b. He is considered a resident citizen on his B income.

c. He is considered a non-resident citizen on his A income.

d. He is not taxable on his A income.78. Which of the following statements is NOT correct?

a. A general partnership in trade shall not be treated as a corporation for tax purposes.b. A co-ownership where the activities of the co-owners are limited to the preservation of property and collection of income from the property shall not be treated as a corporation for tax purposes.

c. A co-ownership by investment of labor or capital shall be treated as a corporation for tax purposes.

d. A regional operating headquarter of a multinational company may earn income from the Philippines.79. Which of the following is taxable?

a. Separation pay received by a 50-year old employee due to the retrenchment program of the employer.

b. Retirement pay received from a benefit plan registered with the BIR where at the time the employee retired, he was 55 years old, retiring from employment for the first time in his life, and was employed with the employer from whom he is retiring for 5 years prior to retirement.c. Social security benefit received by a balikbayan from his employer abroad at the age of 35.

d. SSS and GSIS benefits. 80. Which of the following is subject to Philippine final income taxes?

a. Stock dividends declared by a domestic corporation received by a resident citizen

b. Property dividends declared by a domestic corporations received by a resident foreign corporation

c. Cash dividends declared by non-resident foreign corporations received by resident citizens

d. Property dividends declared by a domestic corporation received by a non-resident alien engaged in trade or business in the Philippines81. A stock dividend is not taxable

a. If there is no resulting change in the proportionate interest of the shareholders in the net assets of the corporation.

b. If there was only one class of stock issued and outstanding at the time of the dividend.

c. Since it is only capitalization of the accumulated profits (retained earnings).

d. All of the above.82. The fringe benefit tax is NOT:

a. a final tax to be withheld by the employer

b. an employees benefit supplementing a money wage or salary

c. to be paid on or before the 10th day of the month following the calendar quarter in which the fringe benefit was granted

d. an expense deductible from the gross income of the employer

83. Which of the following is NOT a correct principle of individual income taxation?

a. Resident Filipino citizens are taxable on all income from sources within and without the Philippines.

b. Non-resident citizens are taxable only on income from sources within the Philippines.

c. Overseas Contract Workers (OCW) are taxable only on income from sources without the Philippines.

d. An alien individual, whether a resident or not of the Philippines, is taxable only on income from sources within the Philippines.84. Statement 1 Income derived from an unlawful source is always taxable.

Statement 2 Income derived from lawful source may or may not be taxable.

a. Both statements are correct.b. Both statements are wrong.

c. The first statement is correct; the second statement is wrong.

d. The first statement is wrong; the second statement is correct.85. Which of the following statements regarding capital assets is/are correct?

Statement 1 The sale of shares of stock of a domestic corporation not listed through a local stock exchange is subject to the capital gains tax if the sale results in a net capital gain.

Statement 2 The sale of real property in the Philippines shall be subject to the capital gains tax even if it resulted in a loss.

a. Both statements are correct.b. Both statements are wrong.

c. The first statement is correct; the second statement is wrong.

d. The first statement is wrong; the second statement is correct.86. On general rules on capital gains and losses, which of the following statements is NOT true?

a. Capital gains and losses of corporations are always recognized in full.

b. The net capital loss of one year can be carried over to the succeeding year by a corporation.c. Capital losses are always deductible only against capital gains.

d. The recognition of capital gains and losses for individuals takes into account the holding period of the capital asset. 87. All of the following statements are correct EXCEPT one. Which one is the exception?

a. Income from personal service is considered derived from the country where the services were rendered.

b. Rents or royalties are considered derived from the country where the property is located.

c. Income from sale of property is considered derived from the country where the property is located.

d. The source of interest income is the country where the creditor resides.88. The following fringe benefits are not taxable EXCEPT:

a. Those which are authorized and exempted under special laws

b. Contributions of the employer for the benefit of the employee to retirement, insurance, hospitalization benefit plans, holiday and vacation expenses

c. Those benefits given to rank-and-file employees

d. De minimis benefits89. Mr. Quiambao is a non-resident alien based in Hong Kong. During the calendar year 1999, he came to the Philippines several times and stayed in the country for an aggregates period of more than 180 days. How will Mr. Quiambao be taxed on his income derived from sources within the Philippines and from abroad?

a. He is deemed to be a non-resident alien doing business in the Philippines. Hence, shall be subject to an income tax on taxable income received from all sources within and without the Philippines.

b. He is deemed to be a non-resident alien doing business in the Philippines. Hence, he shall be subject to an income tax on taxable income received from all sources within the Philippines.c. He is deemed to be a non-resident alien not doing business in the Philippines. Hence, shall be subject to income tax on taxable income received from all sources within the Philippines.

d. He is deemed to a non-resident alien not doing business in the Philippines. Hence, shall not be subject to an income tax.

90. Cash dividends received from a domestic corporation are subject to a final tax of 10% if such dividends are received by a:

a. Resident foreign corporation

b. Non-resident alien engaged in trade or business in the Philippines

c. Resident alien

d. Non-resident alien not engaged in trade or business in the Philippines

91. The following statements pertaining to Optional Standard Deductions (OSD) are correct, EXCEPT:

a. OSD is available only to citizens and resident aliens.

b. Proof of actual expenses is not required.

c. The amount of standard deduction is limited to 40% of the taxpayers gross income or gross sales, as the case may be.

d. The election of OSD is revocable for the year in which made, such that he can change it to itemized deductions.92. Mr. Ortega owns a 5-door apartment with a monthly rental of P 10,000 each residential unit. Later, he sold such property for it is not anymore generating income. The value of the property before sale was P10M and was sold at P7.5M. Is Mr. Ortega liable to pay the capital gains tax?

a. Yes, because the property sold is a capital asset, located in the Philippines and not used in business as it ceases to be profitable.

b. Yes, because the property sold is a capital asset in contemplation of law and the capital loss is immaterial since again is presumed for sale.

c. No, because the property sold is an ordinary asset which is real property used in business.d. No, because the apartment is considered to be a principal residence where sale thereof entitles the owner of the benefit of the exemption. 93. Which is an application of the tax benefit rule?

a. Taxpayer declares as taxable income subsequent recovery of bad debts in the year they were collected to the extent of the benefit enjoyed by the taxpayer when the bad debts were written-off and claimed as deduction from gross income.b. Reserves for bad debts are set up to be charged off during the taxable year as deduction from gross income.

c. Income tax erroneously paid but which were subsequently refunded or credited.

d. Taxpayer is required to report as taxable income the subsequent tax refund or tax credit of overpayment of value-added tax.

94. Which of the following donations cannot have full deductibility?

a. Donations to the Philippine Government or to any of its agencies or political subdivisions, including fully-owned government corporations undertaking priority activities as approved by the Department of Social Welfare and Development.

b. Donations to foreign institutions or international organizations to whom the Philippine Government has treaties or commitments with or covered by special laws.c. Donations to NGOs accredited by the Philippine Council for NGO Certification.d. Both choices (B) and (C)95. Mr. X, a Filipino citizen who has been working in America for 20 years, owns a house and lot therein. As he was desirous to go back to the Philippines for good, he sold his property to an American citizen here in the Philippines prior his return therein thru his agent. Should Mr. X include the income realized from the sale of the property in his return?

a. No, since Mr. X was a non-resident citizen who is only taxed for his income within the Philippines.b. Yes, because the sale took place in the Philippines and thus enjoyed the protection of the Philippine government.

c. No, since such sale is subject to capital gains tax (final tax).

d. Yes, because such income is a part of Mr. Xs gross income as it was a sale of capital asset found abroad.96. Mr. Martinez is an employee of XYZ Corporation for five (5) years. At the age of fifty (50), he retired from his work. Mr. Martinez received from the corporation his retirement benefits under the companys BIR-approved private benefit plan. Will such benefits or pension be subject to tax?

a. Yes, it is subject to tax since Mr. Martinez had not satisfied the ten-year-requirement to avail the tax exemption.b. No, such pension is tax exempt because Mr. Martinez had already served the company for five years.

c. Yes, because he must be at least 60 years old to avail the tax exemption.

d. No, since Mr. Martinez is already 50 years old when he retired.97. Mr. and Mrs. Perez are both employees. The gross compensation income, net exclusions, of Mr. Perez was P120,000 and the gross compensation income, net exclusions of Mrs. Perez was P120,000. They have a qualified dependent child, Albert. Mr. Perez paid a premium of P2,000 on a hospitalization insurance on himself, Mrs. Perez and Albert. Who is the proper claimant of the additional exemption?

a. Mr. Perez aloneb. Mrs. Perez alone

c. Either Mr. Perez or Mrs. Perez

d. Neither Mr. Perez nor Mrs. Perez

98. Which statement is correct?

a. Taxes paid or accrued within the taxable year in connection with the taxpayers trade or business or exercise of a profession, are excluded from deductions on gross income.

b. Taxes paid or accrued within the taxable year in connection with the taxpayers trade or business or exercise of a profession, are deductible from gross income.c. Taxes paid or accrued within the taxable year in connection with the taxpayers trade or business or exercise of a profession, are excluded from deductions on net income.

d. Taxes paid or accrued within the taxable year in connection with the taxpayers trade or business or exercise of profession, are deductible from net income. 99. De minimis benefits are one of those fringe benefits which are not subject to tax. Which of the following statements does not define de minimis benefits?

a. These consist of facilities and privileges furnished or offered by an employer.

b. There are relatively small in value.

c. These are taxable when received by managerial or supervisory employees.d. These are offered by the employer merely as a means of promoting health, goodwill and contentment or efficiency of his employee.100. The following statements are true about fringe benefits and fringe benefits tax, EXCEPT:

a. Fringe benefit given to a rank-and-file employee is not subject to the fringe benefit tax.

b. Fringe benefit given to a supervisory or managerial employee is subject to the fringe benefit tax.

c. Fringe benefit tax is not imposed on de minimis benefits, whether given to rank-and-file employees or to supervisory or managerial employees.

d. Fringe benefit tax can be imposed on resident citizens only. 101. On November 10, 2010, Mr. and Mrs. Henares sold their principal residence in Makati City for P 6,500,000. The following requirements must be met in order that the capital gains presumed to have been realized from such sale may not be subjected to the 6% capital gains tax, EXCEPT:

a. They must inform the BIR of the intention of to avail of the tax exemption within thirty (30) days from the date of sale

b. They must fully utilize the proceeds of the said sale to acquire or construct a new principal residence immediatelyc. The property sold must not be used in business.

d. They can only avail of the tax exemptions once every ten (10) years. 102. All of the following corporations below are exempt from income tax EXCEPT:

a. Philippine Health Insurance Corporation (PHIC)

b. Philippine Amusement and Gaming Corporation (PAGCOR)c. Local Water Districts

d. Philippine Charity Sweepstakes Office (PCSO)103. The Optional Standard Deduction (OSD), which is a deduction from gross income allowed to be taken in lieu of the itemized deductions, is:

a. not available against compensation income of an individual taxpayer arising out of an employer-employee relationship

b. not available to an individual taxpayer who is a self-employed resident alien

c. available against compensation income of an individual taxpayer arising out of an employer-employee relationship

d. available to an individual taxpayer who is a self-employed non-resident alien104. Which of the following income items earned by Mr. Roxas, a resident citizen, shall be included in the Gross Income for income tax computation purposes?

Realized Gain from Realized Gain from Redemption of Sale of Bonds

Shares in Mutual Fund

with Maturity of Five Years

a. Included

Excludedb. Excluded

Excludedc. Included

Includedd. Excluded Included105. Under Philippine tax laws, which of the following transactions shall NOT be subject to tax on dividends?

a. Property dividends paid by a domestic corporation to a resident foreign corporation.b. Cash dividends received by a non-resident foreign corporation from a domestic corporation.

c. Property dividends paid by a domestic corporation to a non resident citizen

d. Partners share in the distributive income of a business partnership. 106. Mr. Ichiro Suzuki, a Japanese citizen who has stayed in the Philippines for more than a year, is the General Manager of Olympus Philippines Corporation (referred herein as Olympus Philippines), a domestic corporation and a wholly-owned subsidiary of Olympus Japan Ltd. (referred herein as Olympus Japan), a foreign corporation based in Japan. The split-pay arrangement is adopted by Olympus Philippines for expatriates, in which a portion of their salaries is paid outside the Philippines. As general manager, Mr. Suzuki receives a compensation of P 60,000 per month from Olympus Philippines, and he also receives 125,000 yen per month from Olympus Japan, which is paid through his bank account in Tokyo, Japan, the place where his family resides. If, for income tax purposes, Mr. Suzuki is treated as a non-resident alien engaged in business in the Philippines, should his compensation from Olympus Japan be declared as taxable gross income in the Philippines?

a. No, because the compensation was paid by a foreign corporation, hence it is considered an income derived from sources outside the Philippines.

b. Yes, because Mr. Suzuki has been in the Philippines for more than 180 days, hence, he is taxable on all income derived from sources within and outside the Philippines.

c. Yes, because the compensation was paid in connection with services rendered in the Philippines, hence, it is considered income derived from sources within the Philippines.d. No. Even if the compensation was paid in connection with services rendered in the Philippines, it was paid through Mr. Suzukis bank account in Japan, hence, it is not considered income derives from sources within the Philippines.107. Edwin is a minimum wage earner working at Kudos Metal Corporation. During the year 2010, in addition to his basic salary, he also received holiday pay, overtime pay, night shift differential pay, and hazard pay. He received a hazard pay in view of the risky nature of his job as a production worker of the said corporation. Which of the aforementioned income received by Edwin is/are taxable?

a. Only the hazard pay and the night shift differential pay

b. None of the income received by Edwin is taxable

c. Only the night shift differential pay

d. Only the hazard pay108. A stock dividend received from a domestic corporation by a non-resident alien not engaged in trade or business in the Philippines and subsequently redeemed by the former is:

a. Subject to income taxb. Not subject to income tax

c. Is not considered income within the Philippines

d. Is income sourced partly within the Philippines and partly without the Philippines109. A minimum wage earner who receives additional compensation on his part-time teaching in three (3) vocational schools and from his real estate brokers commissions will be taxed:

a. Only as to the other income sources

b. On the minimum wage only

c. On the additional income sources but exempted on the minimum wage

d. On all the income with respect to the minimum wage and the additional income sources110. The following are taxable EXCEPT:

a. Salaries received by a manager for services rendered in a factory in the Philippines

b. Interest received by a resident citizen (Filipino) from a loan agreement signed in the Philippines by a debtor, who is a Canadian resident

c. Money received through bribery

d. Interest received by a Canadian resident from a loan agreement signed in Canada by a resident citizen (Filipino).111. Which of the following is not passive income subject to final tax?

a. Winnings from lottery, raffle draws in the Philippines

b. Royalty income from copyright used in the Philippines

c. Prizes from a sports contest in the Philippines amounting to P10,000

d. Cash dividends received by individuals from domestic corporations

112. Which of the following is NOT for the benefit of the taxpayer?

a. Cohan Rule

b. All Events Test

c. Substantiation Rule

d. Optional Standard Deductions

113. Which of the following is subject to the minimum corporate income tax (MCIT)?

a. Hospitals

b. International carriers

c. Offshore banking units

d. Resident foreign corporations114. Which of the following is NOT taxable?

a. Proceeds of life insurance received by a revocable beneficiary after the death of the insured

b. Amount received as compensation for unrealized salary for 3 months, whether by suit or agreement, on account of an accident.

c. Proceeds of life insurance received by an irrevocable beneficiary after the death of the insured.d. Sale of lot which is a capital asset located in the Philippines.115. Tiffany Rodriguez, a resident alien employed in a domestic corporation, was separated due to her falling eyesight. She was given P 50,000 as a separation pay. She contended that such pay is not taxable. Is her contention correct?

a. Yes, because her separation is due to her disability, hence, involuntary and for a cause beyond her control.b. No, because her separation is due to her disability, hence, a cause attributable to her own incapacity.

c. Yes, because the separation pay is an income derived from sources within the Philippines.

d. No, because the income of aliens is not subject to tax.116. Mirador, Inc., a domestic corporation, filed its Annual Income Tax Return for its taxable year 2008 on April 15, 2009. In the Return, it reflected an income tax overpayment of P1,000,000.00 and indicated its choice to carry-over the overpayment as an automatic tax credit against its income tax liabilities in subsequent years.

On April 15, 2010, it filed its Annual Income Tax Return for its taxable year 2009 reflecting a taxable loss and an income tax overpayment for the current year 2009 in the amount of P500,000.00 and its income tax overpayment for the prior year 2008 of P1,000,000.00.

In its 2009 Return, the corporation indicated its option to claim for refund the total income tax overpayment of P1,500,000.00.

Choose which of the following statements is correct:

a. Mirador, Inc. may claim as refund the total income tax overpayment of P1,500,000.00 reflected in its income tax return for its taxable year 2009.

b. Mirador, Inc. may claim as refund the amount of P500,000.00 representing the income tax overpayment for its taxable year 2009.

c. No amount may be claimed as refund.

d. Mirador, Inc. may claim as refund the amount of P1,000,000.00 representing the income tax overpayment for its taxable year 2008.117. Foreign income taxes paid by a foreign corporation

a. May be claimed either as a deduction or as a credit, at the option of the corporation.

b. May be claimed only as a deduction or as a tax credit, whichever has the lower amount.

c. May be claimed as a tax credit only.

d. Do not qualify either as a deduction or as a tax credit.118. Which of the following income payments is subject to final withholding tax?

a. Dividends received by a domestic corporation from a domestic corporation

b. Interest income on dollar deposit of a non-resident alien

c. Interest on long-term deposits with maturity period exceeding 5 years

d. Tax informers reward119. Statement 1 Only business expenses may be deducted from the gross income of taxpayers.

Statement 2 Itemized deductions from the gross income should be duly supported by vouchers or receipts.

a. Only Statement 1 is correct.

b. Both statements are correct.

c. Only Statement 2 is correct.d. Both statements are incorrect.120. Manny agreed to sell his condominium unit to Ricky for 3 million pesos. At the time of the sale, the property has a zonal value of 2.5 million pesos. Upon the advice of a tax consultant, the parties agreed to execute two deeds of sale, one indicating the zonal value of 2.5 million pesos as the selling price and the other, showing the true selling price of 3 million pesos. The tax consultant filed the capital gains tax return using the deed of sale showing the zonal value of 2.5 million pesos as the selling price. What is the tax implication of the action taken by the parties?

a. The capital gains tax due on the sale shall be based on the 2.5 million pesos.

b. The capital gains tax due on the sale shall be based on the actual selling price of 3 million pesos, which is higher than the zonal value of the property.c. The capital gains tax due on the sale shall be based on the opinion of the tax consultant.

d. The capital gains tax due on the sale shall be based on either of the two amounts.

121. Interest income received by a non-resident citizen from a depository bank under the expanded foreign currency deposit system shall be:

a. Subject to final tax of 10% of such interest income

b. Subject to final tax of 7.5% of such interest income

c. Subject to final tax of 20% of such interest income

d. Exempt from tax122. On January 3, 2008, Mr. X, a Filipino residing in the Philippines, purchased one hundred (100) shares of the capital stock of ABC Corporation, a domestic company. On January 3, 2010, ABC Corporation declared, out of profits of the company earned after January 1, 2008, a hundred percent (100%) stock dividends on all stockholders record as of December 31, 2009 as a result of which Mr. Xs holding in ABC Corporation became two hundred (200) shares. Are the stock dividends received by Mr. X subject to income tax?

a. Yes. Stock dividends are taxable as provided in the Tax Code.

b. Yes. Stock dividends are taxable since they are realized income.

c. No. Stock dividends are not taxable even if these are equivalent to cash and property dividends.

d. No. Stock dividends are not realized income and are exempt from income tax.123. Mr. Celso Angeles is a big-time swindler. In one year, he was able to earn P2,000,000 from his swindling activities. When the Commissioner of Internal Revenue discovered his income from swindling, the Commissioner assessed him a deficiency income tax for such income. The lawyer of Mr. Angeles protested the assessment on the ground that income tax applies only to legal income, not to illegal income. Is the contention of the lawyer of Mr. Angeles correct?

a. No, the illegality of the income will not preclude the imposition of the income tax thereon.

b. Yes, the illegality of the income will preclude the imposition of the income tax thereon.

c. Yes, the BIR is without jurisdiction to impose taxes on illegal income.

d. It depends on whether after the imposition of the tax, there will be anything left to return to the victims of the swindling activities.124. Statement 1 If the lessor is a citizen, resident alien, or a non-resident alien engaged in trade or business in the Philippines, his net income shall be subject to the graduated income tax rates.

Statement 2 If the lessors are husband and wife, they shall compute jointly their individual income tax based in their taxable income.

a. Both statements are true

b. Statement 1 is true; Statement 2 is falsec. Both statements are false

d. Statement 1 is false; Statement 2 is true

125. Employers shall pay for fringe benefits given to the following employees, EXCEPT:

a. Sorterb. Branch manager

c. Team leader

d. Operations supervisor126. What is the tax treatment of fringe benefits given to rank-and-file employees?

a. They are part of compensation income subject to income tax and withholding tax.b. They shall be imposed a final tax of 32% on their grossed-up monetary value.

c. They are exempt from tax.

d. None of the above.127. An individual engaged in business earned net income which is less than his personal and additional exemptions during the year. Is he required to file an income tax return?

a. No, because he is not liable for any tax.

b. Yes, because he is required to file a tax return notwithstanding such loss.

c. Yes, because he still incurs income tax liabilities notwithstanding the foregoing facts,

d. No, because individual taxpayers whose gross income is less than his personal exemptions need not file tax returns.128. The Philippine Charity Sweepstakes Office (PCSO) gives its supervisor transportation and meal allowances during their duty of inspecting lotto franchise holders. The said allowance is

a. Not taxable as it is required by the nature of the business.b. Taxable by 32% on its grossed-up monetary value.

c. Taxable as compensation income on the part of the supervisors.

d. None of the above129. Born of poor family on February 14, 1950, Mario worked his way through college. After working for more than 12 years in XYZ Manufacturing Corp., he decided to retire on January 30, 1999, and avail of the benefits under the very reasonable retirement plan maintained by his employer. Is this retirement benefit subject to income tax?

a. Yes, because he failed to qualify the age requirement of not less than 50 years old.b. No, all retirement benefits are not subject to tax.

c. No, the BIR would allow one year short of the age requirement. Thus, not taxable.

d. Yes, because all income from within the Philippines are taxable.

130. Interest income earned by a resident Filipino outside the Philippines is:

a. Subject to the scheduler tax rateb. Subject to a final withholding tax

c. Subject to 15% special tax rate

d. Not subject to income tax131. A loss in one line of business is not permitted as a deduction from gain in another line of business. This is known as the:

a. Cohan rule

b. Tax benefit rule

c. All events test rule

d. Marcelo Steel doctrine132. The following taxpayers are allowed to claim personal exemptions, EXCEPT:

a. Resident Aliens engaged in trade or business

b. Estates and Trusts

c. Resident Citizens

d. Non-resident Aliens not engaged in trade or business.133. Mr. Lee is a non-resident alien based in Hong Kong. During the calendar year 2009, he came to the Philippines several times and stayed in the country for an aggregated period of more than 180 days. What kind of taxpayer is Mr. Lee for taxable year 2009?

a. A non-resident alien doing business in the Philippines.b. A resident alien

c. A non-resident alien not doing business in the Philippines.

d. A non-resident alien partly doing and partly not doing business in the Philippines.134. Under Republic Act No. 9520, otherwise known as the Philippine Cooperative Code of 2008, what is the tax treatment of the interest paid by cooperatives on the savings and time deposits of their members?

a. Subject to 20% final tax

b. Exempt from taxc. Subject to 15% final tax

d. Subject to 10% final tax

135. Which of the following statements below is correct regarding taxation of estates and trusts?

a. Income of estates or any kind of property held in trust shall be taxable to the grantor if the instrument is revocable.

b. Income of estates or any kind of property held in trust shall be taxable to the grantor if the instrument is irrevocable.

c. Income of estates or any kind of property held in trust shall be taxable to the fiduciary if the instrument is revocable.

d. Income tax imposed upon corporations shall also apply to the income of estates or of any kind of property held in trust.136. The improperly accumulated earnings tax (IAET) shall NOT apply to:

a. Taxable joint ventures

b. Pharmaceutical companies

c. Banks and insurance companies

d. Proprietary educational institutions

137. Interest income from foreign currency loan extended to a Philippine domestic corporation received by a non-resident alien engaged in trade or business is:

a. Exempt from income tax

b. Subject to a final tax of 25%

c. Subject to a final tax of 7.5%

d. Subject to a regular tax from 5%-32% (schedular tax rate)138. In his income tax return for the year 2010, Mr. Cecilio Sison claimed the following items as deductions from his gross income.

A. Real estate tax paid on his house and lot

B. Depreciation of the car used in going to and from office

C. Interest paid on a loan the proceeds of which he used in the construction of his house

D. Amount paid to the LTO for the registration of his car

E. Contribution paid to a religious organization

F. Loss of wifes jewelry through robbery

The income of Mr. Sison was derived solely from his employment as an executive of a private bank. Which of the items mentioned may be allowed or disallowed as deductions from his gross income?

a. All items enumerated are non-deductible and if included in the return, they are disallowed because Mr. Sison is only allowed personal and additional exemptions.b. All the items enumerated are deductible since they constitute items allowed as deductions from gross income.

c. All the items enumerated are deductible from his gross income since all were incurred during the taxable year and are reasonable and necessary expenses.

d. All items, except the amount paid to the LTO for the registration of his car, are deductible because they are considered as allowable deductions from gross income.139. What is the tax treatment of a scholarship grant to a rank-and-file employee by an employer if the study involved is directly connected with the employers business?

a. It shall not be treated as fringe benefit, following the employers convenience rule and in furtherance of business.b. It shall not be treated as fringe benefit because it is only a de minimis benefit.

c. It shall be treated as fringe benefit pursuant to Sec. 33 of the Tax Code.

d. It shall be treated as fringe benefit since it improves an employees educational attainment.140. On general income taxation, which statement is NOT correct?

a. Non-resident aliens, whether engaged in trade or business or not, are taxed on their gross income.b. An individual citizen, either resident or non-resident, and an individual resident alien are taxed similarly.

c. A non-resident alien engaged in trade or business is generally subject to the same income tax rate as a citizen and resident alien.

d. A non-resident alien who is not engaged in trade or business is taxed differently from the other individual taxpayers.141. Which of the following items forms part of gross income?

a. Dividends received by a domestic corporation from a foreign corporationb. The proceeds of a life insurance received by a child as an irrevocable beneficiary

c. Interest on deposit with a local bank

d. 13th month pay and de minimis benefits142. Cash dividends received from a domestic corporation by Mr. Roberts, a non-resident alien engaged in business in the Philippines, is subject to:

a. 10% final tax of the gross amount of the dividend.

b. 15% final tax of the gross amount of the dividend.

c. 20% final tax of the gross amount of the dividend.d. the schedular tax rates under the Tax Code because such item forms part of Gross Income.143. Due to the worthlessness of its investment in West Corporation, East Corporation decided to claim the value of the said worthless investments as bad debts, relying on the provisions of Section 34 (E)(2) of the National Internal Revenue Code (NIRC) of 1997, after writing the same off in its books. Comment on this procedure adopted by East Corporation.

a. The procedure adopted is in accord with the NIRC, if East Corporation exercised all reasonable means of recovering the investment.

b. The procedure adopted is in accord with the NIRC, since worthless investments are considered as indebtedness resulting in bad debts.

c. The procedure adopted is not in accord with the NIRC, because worthless investments are classified as ordinary losses and not bad debts.

d. The procedure adopted is not in accord with the NIRC, since worthless investments are not considered as indebtedness which would result in bad debts.144. Mr. A is indebted to Mr. B in the amount of P100,000. For the services rendered by Mr. C, the brother of Mr. A, in favor of Mr. B, Mr. B forgave the indebtedness of Mr. A. What is the income tax consequence of this transaction?

a. Mr. C shall be liable to donors tax.

b. There is no income tax consequence for all parties.

c. Only Mr. C shall declare an income in the amount of P100,000. No income tax consequence for Mr. A and Mr. B.

d. Only Mr. A shall declare an income in the amount of P100,000. No income tax consequence for Mr. B and Mr. C.145. Mr. A took a life insurance policy for P100,000, naming his wife as beneficiary. Under the terms of the policy, the insurer will pay Mr. A the amount of P100,000 after the 20th year of the policy, or will pay his beneficiaries, should he die before that date. Mr. A outlived the policy and received P100,000. The premium paid on the policy was P85,000. Is the P100,000 received by Mr. A subject to tax?

a. Of the P 100,000, the sum of P 85,000 is not subject to tax, being received by him as return of premiums paid upon the insurance contract; the remaining P15,000 is taxable as it represents earnings of his premium.b. The P100,000 representing the total amount of the proceeds of the life insurance, is not taxable.

c. The P100,000 representing the proceeds of the life insurance is taxable, because A outlived the insurance policy.

d. The P100,000 is taxable as the proceeds of a life insurance must be paid to the beneficiaries upon the death of the insured for it to be deductible from gross income.146. Under this test, the accrual of income and expenses for income tax computation purposes is permitted if the right to income or liability has been fixed, and the amount of such income or liability can be determined with reasonable accuracy. This test is called:

a. Immediacy test

b. Rational basis test

c. All events testd. Realization test

147. Mr. Anderson, an American citizen residing in Australia, came to the Philippines in October 2010 for a two-week vacation in one of the well-known resorts in the country. During his stay in the Philippines, he won the Philippine Charity Sweepstakes Office (PCSO) Grand Lotto jackpot prize amounting to approximately P250,000,000. What is the tax treatment of the lotto winnings by Mr. Anderson in year 2010?

a. Subject to 25% final withholding tax b. Subject to 20% final withholding tax

c. Exempt from income tax

d. Subject to income tax as part of gross income under Section 32(A) of the Tax Code148. A stock dividend received from a domestic corporation by a non-resident alien not engaged in trade or business in the Philippines is:

a. subject to 20% final tax

b. subject to 25% final tax

c. not subject to tax

d. subject to 10% final tax149. Which of the following statements about the Regular Corporate Income Tax and the Minimum Corporate Income Tax (MCIT) is correct?

a. The annual corporate income tax is always equal or higher than the MCIT.

b. MCIT is always lower than the Regular Corporate Income Tax at regular rate.

c. The excess of MCIT over the Regular Corporate Income Tax is allowed to be carried forward to the next four (4) successive years.

d. The excess of MCIT over the Regular Corporate Income Tax of the current year always reduces the Regular Corporate Income Tax.

150. For income tax purposes, it is important to know the sources of income (i.e., from within and without the Philippines) because:

a. The Philippines imposes income tax only on income from sources within.

b. Some individual taxpayers are citizens while others are aliens.

c. Export sales are not subject to income tax.

d. Some individual taxpayers and corporate taxpayers are taxed on their worldwide income while others are taxable only upon income from sources within the Philippines.151. Which of the following cash or property dividends is subject to Philippine income tax?

a. Received by a domestic corporation from another domestic corporation

b. Received by a resident foreign corporation from a domestic corporation

c. Received by a domestic corporation from a foreign corporation not doing business in the Philippines

d. Received by a non-resident foreign corporation from another non-resident foreign corporation152. All of the following are taxed at 25% of their gross income in the Philippines, EXCEPT:

a. Non-resident individual not doing business in the Philippines

b. A foreign corporation whose only income in the Philippines is the gain from sale of shares of stock in the stock exchange

c. Non-resident foreign cinematographic film owner/lessor

d. A non-resident American whose only income earned in the Philippines is the interest on peso time deposit153. Under Philippine tax laws, the term marginal income earner refers to those individuals whose businesses do not realize gross sales or receipts exceeding _____ in any 12-month period.a. P 150,000

b. P 200,000

c. P 60,000

d. P 100,000154. Which of the following income items received by a non-stock, non-profit organization operated exclusively for the promotion of social welfare is exempt from corporate income tax?

a. Assessment dues from members of the organization

b. Income from grocery store operated by the organization

c. Rentals from office spaces in the building owned by the organization

d. Parking fees in the parking area inside the building owned by the organization155. For its expansion plan for the year 2010, the Central Visayas University (CVU), a proprietary educational institution, obtained a loan from Metropolitan Bank for the construction of a school building, for which CVU is paying substantial interests. As part of its financial policy, CVU deposits in a bank account the tuition and other fees collected from the students. For its income tax return in taxable year 2010, CVU deducted in full the interest expenses on its loan obtained from Metropolitan Bank. The Bureau of Internal Revenue (BIR) disallowed the deduction on the ground that the same should be capitalized, or that the same should be subject to reduction. CVU counters that it can declare the interest expense as an outright business expense, and that it is not mandated to adjust the amount considering that it did not adopt a tax arbitrage scheme. Which would be the best decision based on the foregoing facts?

a. CVUs position is fully justified.

b. The BIRs position is fully justified.

c. The BIR is correct in arguing that CVU should capitalize the interest expense, but CVU is correct in arguing that there should be no adjustment to the interest expense.

d. CVU is correct in arguing that the interest expense may be declared as an outright expense, but the BIR is correct in arguing that there should be adjustments to the interest expense despite the non-availment by the taxpayer of the tax arbitrage scheme.

156. In computing gain or loss from the sale or other disposition of property acquired by gift or donation, the cost basis of the donee is:

a. Fair market value at the time of donation

b. Purchase price plus expenses of acquisition, including VAT

c. Fair market value at the time of purchase

d. The basis as if the property is in the hands of the donor157. Proctor and Gamble Philippines Manufacturing Corporation (PMC), a corporation organized under Philippine laws, is a subsidiary of Proctor and Gamble USA. In year 2010, PMC needed at least P50,000,000 as working capital. As of the end of taxable year 2009, its liquid assets were only P40,000,000. Thus, it retained an excess of 100% of its paid-in capital in the amount of P10,000,000 to increase its working capital for taxable year 2010. The Commissioner of Internal Revenue (CIR) sent an assessment letter to PMC demanding the payment of deficiency income tax for year 2010 representing 10% of the improperly accumulated surplus. Disputing the assessment, PMC asserted that the retention of the corporate surplus of P10,000,000 was used to increase the working capital reserve, and as such, it falls within the term reasonable needs of the business. Resolve the issue.

a. The CIRs assessment is not valid because an increase in capital reserve is designed to meet the reasonable needs of the business.

b. The CIRs assessment is unmeritorious because the accumulated earnings tax does not apply to the subsidiary of a foreign corporation.

c. PMCs dispute bears no merit because PMC is not one of those exempt from the imposition of improperly accumulated earnings tax of 10%.

d. PMCs dispute has no merit because increase in capital reserve is not covered by the justifying instances for the retention of corporate surplus under Revenue Regulations No. 2-2001.

158. All of the following fringe benefits are not taxable except

a. De minimis benefits

b. Those authorized and exempted under contractual agreements

c. Contributions of the employer for the benefit of the employee to retirement, insurance, and hospitalization

d. Benefits given to a clerk of the company159. ABC Corporation, a domestic corporation, paid various taxes during the taxable year 2010. For income tax computation purposes, which of the following is NOT deductible from its gross income?

a. Documentary stamp tax

b. Value-added tax

c. Real estate tax

d. Fringe benefits tax160. Mrs. Corazon Cruz, a retired public school teacher, relies on her pension from the Government Service Insurance System (GSIS) and on the interest income from her time deposit of P800,000.00 with City Savings Bank. Is Mrs. Cruz liable to pay any tax on her income?

a. She is exempt from tax on the pension from GSIS but the interest she receives from her time deposit is subject to 20% final withholding tax.

b. She is exempt from tax on the pension from GSIS but the interest she receives from her time deposit is subject to 10% final withholding tax.

c. As a senior citizen, she is exempt from tax on both the pension from GSIS and on the interest she receives from her time deposit.

d. She is exempt from tax on the pension from GSIS but the interest income she receives from her time deposit shall be included as part of her gross income.ESTATE TAX

161. Which of the following deductions from the gross estate is NOT subject to a maximum amount?a. Medical expenses

b. Funeral expenses

c. Family home

d. Vanishing deduction162. A decedent who is not a citizen nor a resident of the Philippines shall be subject to the Philippine estate tax if:

a. The decedent was a former Filipino citizen who acquired his new citizenship within six (6) months prior to his death.

b. The decedent died in the Philippines.

c. The decedent stayed in the Philippines prior to his death for a period of more than 180 days within the year whether continuous or interrupted.

d. The decedent owns shares of stock of Philippine corporations at the time of his death.163. Which of the following statements is correct?

a. Proceeds of accident insurance paid by the insurance company directly to a revocable beneficiary are part of the gross estate of the decedent.

b. Proceeds of life insurance taken out by the decedent on his own life when already married, is conjugal property in the gross estate, regardless of whether the premiums were paid out of exclusive or conjugal property.

c. Proceeds of property insurance receivable when the decedent was still alive are part of the gross estate.

d. Proceeds of group insurance secured by the employer, when the revocable beneficiary is the wife, are part of the gross estate.164. The following are transactions and acquisitions exempt from transfer tax EXCEPT:

a. Transmission from the first heir or donee in favor of another beneficiary in accordance with the desire of the predecessor

b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary

c. The merger of usufruct in the owner of the naked title

d. All bequests, devisees, legacies or transfers to social welfare, cultural or charitable institutions165. Which of the following statements below regarding estate tax is correct?

a. Revocable transfers shall be included in the gross estate only if the revocation was actually exercised.

b. A transfer mortis causa of a real property located in the Philippines and held as capital asset is not subject to estate tax.

c. Proceeds of life insurance policy where the beneficiary is the executor are included in the gross estate in all cases.

d. In the computation of estate tax, only a married decedent can claim the deduction for Family Home.

166. The personal properties of a non-resident, not citizen of the Philippines would not be included in the gross estate if:

a. The intangible personal property is in the Philippines

b. The intangible personal property is in the Philippines and the reciprocity clause of the estate tax law appliesc. The tangible personal property is in the Philippines

d. The personal property is shares of stock of a domestic corporation 90% of whose business is in the Philippines167. Which of the following should NOT be included in the gross estate of a decedent for purposes of computing the estate tax?

a. Revocable transfer where the consideration is not sufficient

b. Revocable transfer where the power of revocation was not exercised

c. Proceeds of life insurance where the beneficiary designated is the estate and the designation is irrevocable

d. Proceeds of life insurance where the beneficiary designated is the mother and the designation is irrevocable168. The effect of the declaration of a corporation of a stock dividend during the pendency of the settlement of the estate of a deceased stockholder will be:

a. The inclusion of the stock dividends declared in the estate of the decedent

b. The exclusion of the stock dividends declared from the estate of the decedent

c. The naming of the stock dividend directly in favor of the heirs of the decedent

d. The inclusion of the stock dividends in the income of the estate of the decedent169. Which will NOT form part of the estate of a deceased alien who was residing in the Philippines at the time of his death?

a. A parcel of land located abroad

b. His shares of stocks of a foreign corporation

c. His ring which was worn by him when he was buried

d. Life insurance proceeds from a foreign insurer where his wife was designated as irrevocable beneficiary170. The following acquisitions and transmissions shall NOT be taxed, EXCEPT:

a. The merger of usufruct in the owner of the naked title

b. The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary

c. The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance with the desire of the predecessor

d. The transmission of the property for use to the national government provided that said property was included in the gross estate of the decedent

171. Which of the following exempt transmissions will still require inclusion of the property in the gross estate?

a. Merger of the usufruct in the owner of the naked title

b. Legacy to a charitable institution whose administrative expenses did not exceed 30% of the legacyc. Transfer from a first heir to a second heir designated by the decedent

d. Death benefits received under the GSIS and SSS

172. Which of the following statements on judicial expenses, as deductions form the gross estate is NOT correct?

a. shall be allowed if the estate is under judicial settlement

b. shall be allowed even if the estate is extra-judicially settled

c. shall include judicial expenses to settle the conflicting claims of the heirsd. shall be allowed even if the decedent is a non-resident alien and represent expenses outside the Philippines173. All of the following statements are correct EXCEPT one. Which one is the exception?

a. The allowable deduction for funeral expenses can never be more than the actual funeral expenses paid.

b. Vanishing deduction diminishes the estate physically.

c. In order to be deductible from gross estate, taxes must accrue before the decedents death.

d. Claims against the estate, even for equitable reasons, are not allowed as deduction if not notarized. 174. Mr. Estrada, a citizen of the Philippines and resident of Cebu City, died testate on June 10, 2010. Among his gross estate are properties inherited from his deceased father who died on April 14, 2007. What percentage of deduction will be used in computing the amount of vanishing deduction?

a. 80% of the value taken as basis for vanishing deduction

b. 100% of the value taken as basis for vanishing deduction

c. 60% of the value taken as basis for vanishing deduction

d. 40% of the value taken as basis for vanishing deduction

175. The Estate Tax Return shall be accompanied by a certificate of an independent Certified Public Accountant (CPA) if the amount of the gross estate is:a. P2,000,000 or over

b. Over P1,500,000

c. P1,500,000 or over

d. Over P2,000,000176. For purposes of computing estate tax, the following requirements shall be complied with in order to make medical expenses deductible from the gross estate of a resident alien decedent, EXCEPT:

a. Medical expenses must be incurred within six (6) months prior to his death.

b. Medical expenses must not exceed P500,000.

c. Medical expenses must be duly substantiated by receipts.

d. Medical expenses must be incurred by the decedent.

177. Summit Corporation took an insurance on the life of its President, Mr. Vincent Perez, designating his wife Ms. Grace Perez as revocable beneficiary. In the event of death of Mr. Perez, will the insurance proceeds for part of the gross estate of Mr. Perez?

a. Yes, because the said insurance was secured on Mr. Perezs life by his employer.

b. No, because it was not Mr. Perez who secured said insurance for his life, and the same was not payable to his estate or to his executor or administrator, but to Ms. Grace Perez.

c. Yes, because the said insurance was secured on Mr. Perezs life by his employer, making Mr. Perezs wife the revocable beneficiary.

d. No, because the said insurance was secured by Mr. Perezs employer, making the latter entitled to the insurance proceeds.

DONORS TAX

178. In computing the donors tax on a subsequent donation, the donor must also consider:

a. All prior net gifts during his lifetime

b. Only the present donation

c. All prior net gifts during the calendar year

d. The present and the immediately preceding donations

179. If the donor is a non-resident and not a citizen of the Philippines, which of the following statements is NOT correct?

a. Property situated abroad but donated to a citizen of the Philippines is not subject to the donors tax.

b. Property situated in the Philippines but donated to a donee abroad is subject to the donors tax.

c. Property located outside the Philippines but donated on account of marriage to a resident of the Philippines is allowed a deduction of P10,000.

d. Property located in the Philippines with a fair market value of P150,000 and donated to a citizen of the Philippines is subject to the donors tax.

180. Which of the following statements is NOT correct in a case where a donor with several donations during the year fails to file the Donors Tax Return for each of the dates when the donations were made?a. Such failure shall be cured by filing a Donors Tax Return at the end of the year reflecting all donations made within the year and paying the taxes shown in that one return.

b. Each failure is subject to penalties for non-filing of tax return and non-payment of the tax due on time.

c. The taxpayer can voluntarily file late the Donors Tax Return for each date that donations were made, and make payments on the tax due shown on each tax return, with penalties.

d. If the different donors taxes were not paid on the original due dates because of requests for extension seasonably filed with the Commissioner of Internal Revenue, each required payment of tax shall have an extended period of not more than six months. 181. Which of the following statements about Donors Tax is NOT correct?

a. It is computed on the basis of the net gifts of a calendar year.

b. It becomes proportionately higher on later donations.

c. It is computed and paid within 30 days from the date of donation.

d. It is computed separately for each spouse in case of a joint donation.182. In the preparation of the Donors Tax Return

a. Dowries are not shown anymore as gross gifts and as deductions.

b. Donors tax on donations to strangers and to non-strangers are computed and shown in separate tax returns.

c. Dowries are shown as deductions from the gross gifts.

d. Spouses making donations of conjugal or community property prepare only one Donors Tax Return.183. An irrevocable trust was created whereby Mr. Samuel San Jose transferred his commercial apartment to the Philippine Trust Company as trustee. The trust instrument designated Mrs. Josefa San Jose as the beneficiary to the rentals for life and appointed their only son to the remainer. Which of the following statements best describes the taxability of the trust?

a. The transfer by Mr. San Jose is subject to donors tax while the rentals accruing to Mrs. San Jose is exempt from income tax as property acquired by gift.

b. The transfer by Mr. San Jose is subject to donors tax while the rentals accruing to Mrs. San Jose is subject to income tax.

c. The transfer by Mr. San Jose is not subject to donors tax but the rentals accruing to Mrs. San Jose is subject to donors tax being the nature of usufruct.

d. The transfer of the apartment to the trustee is subject to estate tax upon the death of Mr. San Jose.184. The following statements are presented to you for evaluation:

Statement No. 1

Donations to a stranger are based on gross gift.

Statement No. 2

Only gratuitous transfers are subject to donors tax.

Statement No. 3

All donations are subject to donors tax.

a. Only Statement No. 1 and Statement No. 3 are FALSE.

b. Only Statement No. 1 and Statement No. 2 are TRUE.

c. Only Statement No. 1 is FALSE.

d. All statements are FALSE.185. Mr. Villamor maintains legal residence in Quezon City. He transacted business in Makati City, and temporarily resided in Cebu City for a month. During his stay in Cebu City, he made a donation to his nephew who graduated Magna Cum Laude from one of the reputable universities in Cebu City. The donation was accepted through a notarized document executed in Mandaue City. In which BIR office should the Donors Tax Return be filed?

a. Cebu City

b. Mandaue City

c. Quezon City

d. Either Cebu City or Quezon City, at the option of the donor

186. A taxpayer died leaving real and personal properties. Among the