Chapter 1

General Principles and Concepts

Problem 1-1 True or FalseWrite True if the statement is correct or False if the statement is incorrect.

1. Eminent domain and police power can effectively be performed even without taxation.2. Taxes may be imposed to encourage economic growth by granting tax exemptions.3. Taxation is a way of apportioning the cost of government among those who are privileged to enjoy its

benefits.4. The state can enforce contributions upon its citizens in the form of taxes even without a provision in

the Constitution authorizing it.5. The police power of the government may be exercised through taxation.6. When the power to tax is delegated to the local government, only the legislative branch of the local

government can exercise the power.7. The power of taxation can be exercised without limitation because its scope is unlimited.8. The power of taxation is absolute because it is the strongest of all powers of the government.9. Taxation presupposes an equivalent compensation.10. There is no imposition of amount in police power.11. Police power and eminent domain may defeat the constitutional rights of a person.12. Tax exemption applies only to government entities that exercise proprietary functions.13. All government entities regardless of their functions are exempted from taxes because it would be

impractical for the government to be taxing itself.14. The state can still exercise its taxing powers over its citizen outside its territory.

Problem 1-2 True or FalseWrite True if the statement is correct or False if the statement is incorrect.

1. No law granting any tax exemption shall be passed without the concurrence of two thirds of the members of the congress.

2. Churches are exempt from payment of income taxes.3. A tax may be levied for the support of religious activities as long as all churches benefit from it.4. A bill not signed by the President can still become law.5. No person shall be imprisoned for nonpayment of income tax.6. Taxation is considered as the lifeblood of the government and every government unit must exercise

this power.7. The amount of taxes may be increased to curve spending power and minimize inflation.8. Benefits from taxation have to be experienced to justify the legitimacy of collection of taxes from the

people.9. Taxes may be used as a tool and weapon in international relations and protect trade relations.10. The power of legislative review in taxation is limited only to the interpretation and application of tax

laws.11. The rule of “ex post facto law” is applicable for tax purposes.12. Real estate tax and income tax collected on the same real estate property is double taxation.13. A tax evader sidesteps the law, while the tax avoider breaks it.

14. Tax exemption is transferable and assignable.15. Taxation is the government’s legitimate means of interfering with the private properties of its subjects.

Problem 1-3 True or FalseWrite True if the statement is correct or False if the statement is incorrect.

1. The doctrine of equitable recoupment is applicable to cases where the taxes involved are totally unrelated.

2. Protection is the basic consideration that justifies tax situs.3. The tax situs for occupation is the place where occupation is pursued even if the criterion for

nationality is given.4. There is no direct double taxation by taxing corporate income and corporate stockholders’ dividends

from the same corporation.5. Tax laws are given retroactive effects.6. In the imposition of taxes, public purpose is presumed.7. Taxes are obligations created by law.8. Taxes collected by the BIR are local taxes.9. Nonpayment of license fee makes the business illegal.10. In taxation, it is one’s civil liability to pay taxes which gives rise to criminal liability.11. Tax laws must be construed strictly against the government, and tax exemptions must be construed

strictly against the taxpayer.12. As a rule doubts must be resolved liberally in favor of the government and strictly against the taxpayer.13. The Philippine tax laws are not political and penal in nature.14. When there is ambiguity of tax laws, the rules of statutory construction may be used to search for the

legislative intent. However, when the meaning of the law is clear, the statute must be enforced as written.

15. Revenue regulations that are inconsistent with law have the effect and force of law if they are useful and reasonable.

Problem 1-4 Multiple ChoiceEncircle the letter that contains the best answer.

1. Statement No.1: Taxation is an inherent power of the government.Statement No.2: Taxation is a process consisting of levying, assessment and collection.a. Both statements are correct.b. Both statements are incorrect.c. Only statement No.1 is correct.d. Only statement No.2 is correct.

2. 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: It is essentially a legislative function. Even in the absence of any constitutional provision, taxation power falls to Congress as part of the general power of law-making.a. Both statements are false.b. Only statement 1 is false.c. Both statements are true.d. Only statement 1 is true.

3. Which of the following statements is/are correct?i. Taxation is a process.ii. Enactment of tax laws is part of the taxation process.iii. The constitution expressly conferred the power of Taxation to the President of the Philippines.iv. Taxation requires voluntary contribution from the inhabitants to support the government.Choices:a. i, ii, iii and ivb. i, ii and iii onlyc. i and ii onlyd. i only

4. Which of the following is/are natural qualities of a Taxation Power?a. An inherent power.b. Essentially an executive function.c. An absolute power.d. Territorial in operationChoices:a. i, ii, iii and ivb. i, ii and iii onlyc. i and ii onlyd. i only

5. Taxation co-exist with the four elements of the state, which include all, except one of the following:a. Governmentb. Propertyc. Sovereigntyd. Territory

6. Which of the following statements is not correct?a. All the following National Government units exercise the inherent power of taxation.b. Local government units could exercise the power of taxation through legislated delegation.c. National legislation is exercised by Congress.d. Interpretation of Tax Laws is done by the Legislative branch of the government.

7. All of the following statements are correct except one.a. Taxation power is an absolute power.b. Taxation power is the strongest of all the inherent powers of the government.c. Tax laws must not violate Constitutional restrictions.d. Exercise of taxation power is subject to restrictions.

8. Statement 1: Government units performing governmental functions are exempt from tax unless expressly taxable.Statement 2: Government owned or controlled corporations exercising proprietary functions are taxable unless expressly exempt.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

9. Which of the following is incorrect description of taxation?a. Legislative and inherent for the existence of the government.b. Necessary and for public purposes.c. Supreme and an absolute power of the state.d. Restricted by constitutional and inherent limitations.

10. The power of taxation is supreme, plenary, unlimited and comprehensive. Hence, it may be exercised by the state without any Constitutional provisions granting it. Which of the following is not correct?a. The power of taxation is based on necessity because without money, the state cannot survive.b. The scope of the power of taxation is unlimited.c. The power of taxation can be exercised only if there is just compensation.d. The power of taxation is not absolutely unlimited.

Problem 1-5 Multiple ChoiceEncircle the letter that contains the best answer.

1. Which of the following is not true?

2. Tax affects the area or nation as a community rather than as individuals. This is a specific explanation of a. Public purposeb. Common goodc. General welfared. Reciprocity

3. Which of the following is a correct nature of restriction to exercise taxation power?

Constitutional Limitation Inherent Limitationa. Territorial jurisdiction Yes Yesb. International comity Yes Noc. Rule of uniformity and equity No Nod. Due process of law Yes No

4. Which statement refers to police power as distinguished from taxation?a. It is restricted by constitutional provision.b. It is superior to the impairment clause of the constitution.c. It involves the taking of property by the government.d. The amount imposed has no limit.

5. Police power is distinguished from taxation power because

Taxation Power Police Power Eminent Domaina. Inherent to the

Existence of the government Yes Yes Yes

b. Not legislative in nature No No No

c. Superior to the non-impairment clause Yes Yes No

d. Restricted by just compensation No No Yes

a. It involves taking of propertyb. The amount collected is limited to the cost of regulationc. It is an inherent power of the stated. The benefit derived is the protection given by the state

6. All of the following are inherent restrictions on the exercise of taxation power excepta. Rule of uniformityb. For public purposec. Territorial jurisdictiond. International comity

7. The US embassy donated vehicle to the Department of Foreign Affairs of the Philippines. Which of the following statement is korek ?a. This transaction is exempted from payment of donor’s tax only.b. This transaction is exempted only from payment of documentary stamp tax.c. This transaction is exempted from payment of both donor’s tax and documentary stamp tax.d. This transaction is subject to both donor’s tax and documentary stamp tax.

8. A fundamental rule in taxation is that property of one country may not be taxed by another country. This is known as:a. International lawb. International comityc. Reciprocityd. International inhibition

9. Which of the following statements is not correct?a. The government automatically possesses the power to collect taxes from its inhabitants.b. The government can enforce contribution upon its citizen only when the constitution grants it.c. Taxation power exists inseparably with the state.d. The state has the supreme power to command and enforce contribution from the people within its

jurisdiction.10. Which of the following statements is not correct?

a. Collections from taxes are public money.b. Appropriation of taxes for the common good of the people is valid.c. Construction of private road from taxes is a valid appropriation.d. Allocation of taxes for the benefit of a greater portion of population is considered for public

purpose.11. A taxpayer gives the following reasons in refusing to pay a tax. Which of these reasons is not

acceptable for legally refusing to pay the tax?a. That he has been deprived of the due process.b. That there is lack of territorial jurisdiction.c. That he derives no benefit from the tax.d. That the prescriptive period for the tax has elapsed.

12. The following are the constitutional limitations on the power of taxation, excepta. Only Congress can exercise the power of taxationb. Non-impairment of the obligation of contractsc. Taxes are not subject to set-off or compensationd. The rule of taxation must be uniform

13. Due process in taxation means that thea. Taxpayers must be given the opportunity to be heardb. Individual taxpayer must derive direct benefit from taxesc. Tax imposed must not be harsh, oppressive, and arbitraryd. Tax imposed must be subject to the rule on uniformity

Problem 1-6 Multiple ChoiceEncircle the letter that contains the best answer.

1. Which of the following can be an object of taxation?i. Personii. Propertyiii. Intangible rightsiv. RightsChoices:a. i and iib. i, ii and iiic. i and ivd. i, ii, iii and iv

2. Which of the following is incorrect?a. Taxation exists inseparably with the state.b. Taxation could be exercised without specific provisions in the constitution granting it.c. Taxation is inherently legislative in nature.d. Any constitutional provisions could not restrict taxation.

3. Which of the following correctly describes the primary purpose of taxation?Fiscal Purpose Regulatory Purpose

a. To raise revenue Yes Yesb. To check inflation Yes Noc. To discourage consumption

of harmful products No Nod. To limit influx of foreign

products No Yes4. Which of the following could not be considered as the purpose of taxation?

a. To raise revenue to support the governmentb. To distribute the wealth of the nationc. To check inflationd. To impose monetary burden to the people

5. Which of the following is/are purposes of taxation?a. To raise revenue for government supportb. To distribute wealth of nationc. To check inflationd. All of the above

6. Which of the following statements is not correct?a. A tax bill must only be applicable and operative after becoming a law.b. The effectivity of the tax law commences upon its approval.c. The applicability of the tax law covers the present and future transactions.d. Tax law is ex post facto in application.

7. Which of the following is not correct?a. In the absence of specific tax provision, taxes in general are not cancellable.b. Prescriptive period for assessment and collection is applicable to returnable taxes.c. The law on prescription being a remedial measure should be interpreted liberally in order to

protect the taxpayer.d. The prescriptive period should be the shorter between the required filing date and the actual date

of filing.

8. Which of the following remedies against double taxation is directly reducing the amount of tax?a. Reciprocityb. Tax exemptionc. Tax creditd. Allowance for deduction

9. Which of the following tax escape is permissible under the tax code?a. Tax minimizationb. Tax evasionc. Tax dodgingd. Overstatement of expenses

10. One of the following is incorrect regarding tax exemption.Expressed Exemption Implied Exemption

a. 13th month pay of P30,000 and below Yes No

b. Inter-corporate dividend Yes No

c. Non-taxability of government units No No

d. Separation pay due to sickness Yes No

11. One of the following situs of taxation is not true.Located or Earned

Within Outsidea. Taxable income of nonresident citizen Yes Nob. Taxable estate of resident alien Yes Yesc. Taxable donation of resident citizen Yes Yesd. Taxable sale Yes Yes

12. All of the following statements are true, excepta. Double taxation is taxing twice the same taxpayer for the same purpose covering the same period

and taxed by the same authority.b. Direct double taxation is prohibited by law.c. Indirect double taxation is allowed as long as this does not violate the equal protection and

uniformity principles.d. Indirect double taxation is not enforceable.

Problem 1-7 Multiple ChoiceEncircle the letter that contains the best answer.

1. Statement 1: The City of Baguio claims that it can impose additional taxes on banks under the Local Government Code (in addition to the percentage tax on banks imposed in the NIRC).Statement 2: Such imposition is a direct double taxation.a. Both statements are correct.b. Only statement 1 is correct.c. Only statement 2 is correct.d. Both statements are incorrect.

2. There can be no tax unless there is a law imposing that tax is consistent with the doctrine ofa. Uniformity in taxationb. Due process of lawc. Taxation is legislative in nature

d. The power of taxation is very broad3. The following are kinds of exemption from tax, except

a. Expressed exemptionb. Statutory exemptionc. Exemption by omissiond. Tax evasion

4. Which of the following is not correct?a. Tax avoidance is forbidden in our jurisdiction.b. A group of persons which forms a corporation with the intention to save taxes is not guilty of tax

evasion.c. There is a constitutional prohibition against double taxation in the Philippines.d. All of the above.

5. Which of the following are characteristics of taxes?i. Voluntary contributionii. Imposed by legislative bodyiii. Proportionate in characteriv. Used for public purposeChoices:a. i, ii and iii onlyb. i, ii and iv onlyc. i and iii onlyd. ii, iii and iv only

6. All of the following are national taxes as to collecting authority excepta. Income taxb. Real property taxc. Estate taxd. Value-added tax

7. Which of the following tax rates is behaving in the same direction with the taxable value?a. Proportionateb. Progressivec. Regressived. Digressive

8. Statement 1: All tax escapes are illegal.Statement 2: Tax shifting is a form of tax avoidance.a. Both statements are true.b. Only statement 1 is true.c. Only statement 2 is true.d. Both statements are incorrect.

9. One of the following is a true classification of tax.As to object As to Who bears the burden

a. Income tax Personal Indirectb. Value-added tax Excise Directc. Donor’s tax Excise Directd. Estate tax Property Indirect

10. Statement 1: Custom duties are national taxes.Statement 2: Tariff is an import tax.a. Both statements are true.b. Only statement 1 is true.c. Only statement 2 is true.

d. Both statements are incorrect.11. One of the characteristics of a tax is that it is generally

a. Based on contract.b. Payable in money.c. Assignable.d. A demand of a taxpayer.

12. 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 asa. Specific taxb. Ad valorem taxc. Specific or regulatory taxd. Proportionate tax

13. It is collected for the use of somebody else’s property.a. Tollb. Debtc. Taxd. Special assessment

14. For this, the state has complete discretion on the amount to be imposed after distinguishing useful from non-useful activity.a. License feeb. Taxc. Tolld. Special assessment

Problem 1-8 Multiple ChoiceEncircle the letter that contains the best answer.

1. The proportional contribution from persons and properties 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 asa. Taxesb. Special assessmentc. License feesd. Surcharges

2. 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.3. Which of the following forms of escape from taxation does not result to loss of revenue to the

government?a. Tax exemptionb. Tax avoidancec. Tax evasiond. Shifting

4. Tax as distinguished from license fee:a. Nonpayment does not necessarily render the business illegal.b. A regulatory measure.c. Imposed in the exercise of police power.d. Limited to cover cost of regulation.

5. Which is not an essential characteristic of tax?a. It is based on contract.b. It is payable in money.c. It is proportionate in character.d. It is a regular payment.

6. Regressive taxation system isa. The same with regressive rate of tax.b. Not observed in the Philippines because it means that the tax rate increases as tax base decreases.c. A situation where indirect taxpayers are more than direct taxpayers.d. Imposed to affect adversely the high-income sector of the population.

7. All except one is an example of direct taxes.a. Transfer taxesb. Other percentage taxesc. Income taxd. Travel tax

8. All of the following are not taxes excepta. Surchargeb. Special assessmentc. Custom dutiesd. License fee

9. A financial aid granted by the government to help private commercial enterprises known beneficial to the peoplea. Margin feeb. Subsidyc. Special assessmentd. Toll

10. A schedule or list of rates, duties, or taxes imposed on imported and exported goods is calleda. Tariffb. Tax ratesc. Custom dutiesd. Margin rates

11. Special assessment is an enforced proportional contribution from owners of land especially benefited by public improvement. Which of the following is not considered as one of its characteristics?a. It is levied on land.b. It is based on the government’s need of money to support its legitimate objectives.c. It is not a personal liability of the person being assessed.d. It is based solely on the benefit derived by the owners of the land.

12. One of the following is a distinction between tax and license fee.a. Tax can be assigned while license fee cannot be assigned.b. Tax is not subject so set-off whereas license fee is subject to set-off.c. Tax is normally paid after the commencement of the business while a license fee is paid before

the commencement of the business.d. Tax is based on law while a license fee is based on contract.

13. The specific distinction between tax and penalty isa. Punishmentb. Legalityc. Imposition by the stated. None of the above

14. The distinction between license and tax isa. Regulatoryb. Exercise of inherent powerc. Imposition of paymentd. Nonpayment will render the business illegal

Problem 1-9 Multiple ChoiceEncircle the letter that contains the best answer.

1. Statement 1: When the primary consideration is the legislative intent, but doubts exist in determining such intent, the doubts must be resolved strictly against the taxing authority.Statement 2: Tax exemptions are strictly construed against the taxpayer.a. Both statements are true.b. Only statement 1 is true.c. Only statement 2 is true.d. Both statements are incorrect.

2. A body of law that codifies all national tax laws is known asa. National lawb. Tax lawc. Revenue lawd. Revenue regulation

3. Which of the following characteristics describes our internal revenue laws?a. Political in natureb. Penal in naturec. Generally prospective in operation although the tax statute may nevertheless operate

retrospectively provided it is clearly the legislative intentd. Retroactive in character

4. In cases of deductions and exemptions on income tax returns, doubts shall be resolveda. Liberally in favor of the governmentb. Liberally in favor of the taxpayerc. Strictly against the governmentd. Strictly against the taxpayer

5. In case of conflicts between the tax laws and generally accepted accounting principles (GAAP) for preparation of tax returns,a. Both tax laws and GAAP shall be enforcedb. GAAP shall prevail over the tax lawc. Tax laws shall prevail over the GAAPd. The courts shall resolve the issue

6. Which statement is incorrect?a. A toll is a demand of sovereigntyb. A toll is a demand of ownershipc. A special assessment is a demand of taxpayer

d. A customs duty is a tax7. Tax exemptions are strictly construed (1) if the law provides for liberal construction; (2) if the

exemptions refer to public utilities; (3) in case of exemptions granted to entities organized for charitable, religious, or educational purposes; (4) in case of special laws applying in cases.a. Exemption 3 is correct.b. Exemptions 2 and 3 are correct.c. No given exemptions are correct.d. All given exemptions are correct.

8. Which of the following statement is not true?a. If a taxpayer is acquired of a criminal violation of the Tax Code, this acquittal does not exonerate

him from his civil liability to pay the taxes.b. A conviction for tax evasion is not a bar for collection of unpaid taxes.c. A tax assessment is necessary for criminal prosecution for willful attempt to defeat and evade

payment of taxes.d. Criminal proceedings under the Tax Code are now a mode of collection of internal revenue taxes,

fees or charges.9. Which of the following falls under the jurisdiction of the Court of Tax Appeals?

a. Criminal action for the violation of the NIRC.b. Question of whether or not to impose a deficiency tax assessment upon a taxpayer.c. Appeal from undisputed tax assessment.d. Action for refund of real property tax.

10. Statement 1: BIR rulings are the correct interpretations of the Tax Code.Statement 2: Supreme Court decision shall prevail over the BIR rulings.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

11. All of the following statements are incorrect, excepta. General provision under the Tax Code prevails over BIR Regulation.b. BIR Rulings prevails over Local Tax Ordinance on matters concerning barangay taxes.c. BIR Rulings are sound law until changed by court resolution.d. Tax Code could violate Constitutional provisions.

12. Which statement is wrong? 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.

13. Tax law is derived froma. Constitutionb. Judicial decisionc. Statutory enactmentd. All of the above

14. Which of the following statements is correct?a. Revenue regulations have the force and effect of law and a memorandum and a memorandum

order of the Commissioner of Internal Revenue, approved by the Secretary of Finance, has the same force and effect as revenue regulation.

b. The revenue regulations in conflict with law are null and void.c. The interpretations of the former Secretary of Finance do not necessarily bind on their successors.d. All of the above.

15. Statement 1: The law on prescription being a remedial measure should be interpreted liberally.Statement 2: Doubts as to whether double taxation has been imposed should be resolved in favor of the taxpayer.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

16. Statement 1: Tax statutes should be strictly construed against the government.Statement 2: Tax exemptions are strictly construed against the taxpayer.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are not correct.

17. Statement 1: Tax laws are applied prospectively.Statement 2: in case of conflict, Tax Laws prevail over Civil Laws.a. Only statement 1 is correct.b. Only statement 2 is correct.c. Both statements are correct.d. Both statements are incorrect.

Chapter 2

Tax Administration

Problem 2-1 True or FalseWrite true if the statement is correct, or False if the statement is incorrect.

1. Tax administration is the enforcement of tax policy.2. The BIR is the principal government administrative agency over tax administration.3. The BIR Commissioner has the final power to interpret the provision of the Tax Code.4. The Secretary of Justice has the authority to interpret and ascertain the validity of tax laws, subject to

the review by the Court of Tax Appeals.5. Cooperatives are exempted from income tax, but not in payment of annual registration fee.6. No authority o print is needed if the receipts or invoices are serially numbered.7. A person who continued the business of a deceased person is required to register the business upon his

assumption of the said business.8. Internal revenue taxes are self-assessing; hence tax assessment is not necessary to demand settlement

of a taxpayer’s tax liability.

9. When a taxpayer earned income, he has the responsibility to compute, file and pay his tax liability to the BIR.

10. The BIR has the burden to prove that the taxpayer concerned has received the tax assessment.11. Tax assessment is a process of taxation which involves the passage of tax laws and ordinances through

legislature.12. The substance of tax laws is a matter of the government’s tax policy.13. Tax assessment refers to the administration and execution of tax laws by the legislative branch of the

government.14. Theoretical justice means tax laws must be capable of convenient, just and effective administration.

Problem 2-2 True or FalseWrite true if the statement is correct, or False if the statement is incorrect.

1. Jeopardy assessment may be made when a taxpayer retires from business.2. Within 60 days from the filing of the protest, all relevant supporting documents must be submitted to

the Court of Tax Appeals; otherwise, the assessment shall become final.3. The object of distraint may either be personal and/or real properties.4. When the amount of tax liability is P100, distraint and levy of properties cannot be enforced.5. All criminal violations may be compromised.6. Any internal revenue tax, which has been assessed within the prescribed limitation period, may be

collected by distraint or levy, or by a proceeding in court within five (5) years following the assessment of tax.

7. Bank deposit or account may be distraint without violating the Law on Secrecy of Bank Deposits.8. There is no limit on the right of the BIR Commissioner to assess taxes on unreasonable accumulated

earnings of the corporation.9. Only the BIR Commissioner is expressly authorized by the Tax Code to enter into compromise for

both civil and criminal liabilities subject to certain conditions.10. The National Government is allowed to purchase property under distraint if the amount of bid is

substantially lesser than the actual cost of the said property.11. After one year from the date of sale of real property under levy, the delinquent taxpayer may redeem

the property sold.12. The levy may be repeated until the full amount due, including all expenses, is collected.13. Delinquent accounts may be compromised while holding withholding tax cases, in general, are not

subject to compromise.

Problem 2-3 True or FalseWrite true if the statement is correct, or False if the statement is incorrect.

1. The BIR Director should first approve the filing in courts of civil and criminal action for the recovery of taxes and the enforcement of any fine, penalty, or forfeiture.

2. Forfeited property shall not be destroyed at least twenty days after seizure.3. The required initial bond for manufacturers and importers of articles subject to excise tax is P200,000.4. The informer’s reward is subject to 10% creditable withholding tax.5. The BIR Regional Director is authorized to issue a Letter of Authority.6. Once a taxpayer is served with an LA, he should first verify or check with the BIR’s National Office

whether he is listed or not for National Office Audit.7. Only the real properties of a delinquent taxpayer are subject to tax lien.

8. A fraudulent return with 30% understatement of income reported is subject to a penalty of 25% based on the basic tax unpaid.

9. By forfeiture, the proceeds of the property sold are applied to satisfy the tax liability and the excess thereof shall be returned to the taxpayer.

10. By seizure, no part of the proceeds goes to the taxpayer because the property is confiscated in favor of the government.

11. A compromise tax remedy is available for both the taxpayer and the government.12. Cases regarding collection of taxes already filed in the court are not subject to compromise.13. Delinquent accounts with duly approved schedule of installment payments are not subject to

compromise.

Problem 2-4 True or FalseWrite true if the statement is correct, or False if the statement is incorrect.

1. Upon conviction, an alien as an offender for tax violation could immediately be deported even if he has paid all the tax liability discovered as chargeable against him.

2. A letter of authority is not necessary in conducting an examination of books of account of taxpayer.3. Only criminal actions can be submitted to a court for a judicial proceeding for tax violation cases.4. Assessment protest made by the taxpayer should be completely complied with by the submission of

pertinent documents to support the taxpayer’s claim.5. Upon issuance of a tax ruling by the BIR Commissioner, the concerned taxpayer can still file a petition

to the Court of Appeals.6. A tax assessment could be done only after a tax return has been filed.7. If no tax return was filed, no government assessment could still be made if it was not assessed after 10

years from the required filing date.8. After the tax liability has been assessed, the actual collection should be done within 10 years from date

of assignment.9. Levy of real property could be done only after distraint of personal property of delinquent taxpayer is

sold out to partially collect the tax deficiency.10. The residual value of real properties sold under levy proceedings are payable to the government.11. When a tax compromise is reached, the ongoing litigation proceeding involving the tax assessed and

being collected shall be terminated.12. Filing of bond in lieu of the actual tax to be paid is applicable only for export transactions.13. A 10% reward to tax informer is applicable also to discovery of smuggled goods which resulted in the

capture and seizure of goods smuggled.

Problem 2-5 Multiple ChoiceEncircle the letter that contains the best answer.

1. Which of the following is/are element/s of impact of taxation?i. Levyii. Assessmentiii. CollectionChoices:a. i, ii, and iiib. i and ii onlyc. ii and iii only

d. iii only2. It is one of the attributes of a sound taxation system one of the attributes of a sound taxation system

which states that revenue must be sufficient to support governmental expenditures.a. Fiscal adequacyb. Theoretical justicec. Administrative feasibilityd. Equity

3. Which of the following statements is correct?a. Levying and collection of taxes are legislative functions.b. Assessment and collection are administrative functions.c. Enacting tax laws and its interpretation are legislative functions.d. Levying and impositions are judicial functions.

4. Which of the following is correct?Legislative Administrative

a. Fixing of tax rates Yes!! Yesb. Valuation of object of tax Yes Noc. Collection of taxes Yes Yesd. Assessment of tax liability No Yes

5. Which of the following is not a measure to enhance administrative feasibility of taxation system?a. Collection of taxes proportionate to ability of the taxpayer to pay.b. Withholding of taxes at source.c. Quarterly filing and payment of income tax on business income.d. Accreditation of banks to collect taxes.

6. A basic principle of taxation which states that “Taxes must be based on the taxpayer’s ability to pay” is calleda. Equality in taxationb. Ability to pay theoryc. Theoretical justiced. Equity in taxation

7. It has the executive supervision and control over tax administration.a. Bureau of Internal Revenueb. Bureau of Customsc. Department of Financed. Court of Justice

8. Which of the following is not among the administrative powers of the Bureau of Internal Revenue?a. Compromise tax assessmentsb. Distraint of personal property of delinquent taxpayerc. Levy of real property of delinquent taxpayerd. Render court decision concerning tax dispute

9. Which of the following is not correct?a. If it is the first employment of the taxpayer, he must be registered with the BIR before

employment or within 10 days from the date of employment.b. If the taxpayer is self-employed, he must register his business within 10 days from commencement

of his business.c. If the taxpayer is both employed and doing business, he must have only one TIN as employee and

as sole proprietor.d. TIN must be indicated in the return, documents or statement filed with the BIR.

10. Statement 1: Self-employed and businesses are registered annually.Statement 2: The annual registration fee is P500 payable on or before the end of January of each year.

a. Only statement 1 is correct.b. Both statements are correct.c. Only statement 2 is correct.d. Both statements are not correct.

11. Statement 1: An individual taxpayer earning purely compensation income is exempt from P500 registration fee, but required to renew his registration every year.Statement 2: Cooperatives are exempt from annual registration with the BIR.a. Only statement 1 is correct.b. Both statements are correct.c. Only statement 2 is correct.d. Both statements are not correct.

12. Statement 1: A business with more than P550,000 annual sale or receipts must be registered as VAT business.Statement 2: A business with less than P550,000 annual sale or receipts may be registered as VAT business.a. Only statement 1 is correct.b. Both statements are correct.c. Only statement 2 is correct.d. Both statements are not correct.

13. Statement 1: Businesses registered with the BIR are required to issue commercial invoice for sales of goods and receipts for services rendered.Statement 2: A VAT Sales invoice is to be issued by a VAT-registered business for its sales to a non-VAT registered buyer.a. Only statement 1 is correct.b. Both statements are correct.c. Only statement 2 is correct.d. Both statements are not correct.

Problem 2-6 Multiple ChoiceEncircle the letter that corresponds your answer.

1. Which of the following is not correct?a. A tax assessment could be done before the filing of tax return nut after the expiration of

prescribed period for filing.b. A tax assessment could be done after the filing of tax returns.c. When the business is closed, a tax assessment could be done even before the expiration of the

prescribed filing date.d. The BIR Commissioner and the taxpayer may agree in writing on the assessment after the

expiration of the prescribed period for assessment.2. Which of the following is not correct?

a. The taxpayer may protest the tax assessment by filing to the BIR Commissioner a written request for reinvestigation within 60 days from receipt of such assessment.

b. If the tax assessment protest is not acted upon by the BIR Commissioner within 180 days from submission of documents, the taxpayer may appeal to the Court of Tax Appeals.

c. The appeal to the Court of Tax Appeals must be done within 30 days from receipt of the BIR Commissioner’s decision on the formal protest filed.

d. If the taxpayer did not make any appeal on the tax assessment, it becomes final, executor and demandable.

3. If the taxpayer failed to pay the tax demanded per final assessment, the government may exercise several administrative remedies. Which of the following is not correct?a. Levy of real property of the taxpayer may be availed of only after distraint of personal property

of taxpayer.b. Either distraint or levy may be pursued simultaneously once the assessment becomes final and

demandable.c. If the tax is assessed P100 and below, levy or distraint may not be availed of.d. The remedy of distraint of personal property may be repeated if necessary until the full amount

due and all expenses are collected.4. Which of the following is not true with regards to the authority of the Commissioner to enter into a tax

compromise?a. The taxpayer must not have an existing tax liability.b. There must be an offer by the taxpayer or commissioner of an amount to be paid by the taxpayer.c. A reasonable doubt as to the validity of the claim against the taxpayer exists.d. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

5. Which of the following is the correct minimum compromise rate that the commissioner could legally accept?

A.10% of the basic tax assessed due to financial incapability for a dissolved corporation

B. 20% of the basic tax assessed doe to financial incapability of non-operating companies for a C. period of three years or more as of date of application of compromise

C.40% of doubtful validity of assessment

D.40% for financial incapability of non-operating companies for a period of less than three years

6. Which of the following surcharges is not correct?

A. 25% of basic amount of tax due for simple neglect

B 25% of basic tax amount due for unintentional failure to file and pay for tax return on prescribed date

C. 50% of the basic amount of tax due for filing of tax due for filing of return with an internal revenue officere other than those with whom the return is required to be filed

D. 50% ofd the basi amount of tax due for false or fraudulent tax return

7. An informant reward is given for inforamation provided resulting in revenue recoveries. Which of the following amuont of reward could legally be awarded is correct?

A. P1000000 for each fraud case discovered

B. 10% of revenue recovered or P1000000/case, whichever is higher

C. 10% of fair market value of smuggled goods seized or P1000000/case, whichever is higher

D. 10% of revenue recovered but not to exceed P1000000/case

8. The tax return is required to be filed on or before April 15, 2005. The actual tax return was filed March 15, 2005. The last day for assessment period is

A. April 15, 2015 D. March 15, 2015

B. April 15, 2008 C. March 15, 2008

9. Statement 1: businesses are required to maintain only one set of book of accounts

Statement 2: a letter of authority is necessary before a BIR Examiner could be allowed to inspect the book of accounts of the taxpayer.

A. Only statement 1 is correct.

B. Only statement 2 is correct.

C. Both statements are correct.

D. Both statements are not correct.

10. The seized property of a delinquent taxpayer becomes the property of the government. This refers to

A. distraint C. Forfeiture

B. Levy D. Compromise

Problem 2-7 Tax assessment/refund procedures

Instruction: Determine the last day to exercise the right of the taxpayer.

Situation 1: Date of tax erroneously paid April 15, 2008Date of claim for refund May 20, 2010No decision on the claim of refund was madeQuestion 1: When is the last day to appeal to the CTA?

Situation 2:Date of tax erroneously paid June 10, 2008Date of claim for refund was filed with BIR March 3, 2010Date of BIR decision of denial was received April 5, 2010Question: When is the last day to appeal to the CTA?

Situation 3:Date of tax erroneously paid June 10, 2008Date of claim for refund was fled with BIR June 10, 2009Date of BIR decision of grant was received August 1, 2009Date of refund check received July 15, 2009Question: If the refund check was not encashed, when is the starting date for the government to forfeit?

Situation 4:Date of tax erroneously paid June 10 , 2008Date of claim for refund was filed with BIR June 10, 2009Date of BIR decision of grant was received August 21, 2009Date of tax credit certificate received July 30, 2009

Question: If the tax credit certificate was not utilized or revalidated, when is the starting dste for the government to revert it to the general fund?

Situation 5:Date of assessment was received January 2, 2009Petition for reconsideration was filed with BIR January 12, 2009Documents to support petition submitted January 22, 2009No decision on the protest as of July 12, 2009Question: When is the last day to appeal to the CTA?

Situation 6:Assessment received January 5, 2009Petition for reconsideration filed with BIR February 1, 2009Documents to support petition submitted February 7, 2009Decision of BIR denying the petition March 22, 20092nd request for reconsideration filed with BIR March 30, 2009Decision on 2nd request denied April 12, 2009Question: When is the last day to appeal to the CTA?

Situation 7:Date of appeal to the CTA April 21, 2009Date adverse decision of the CTA June 1, 2009Date the CTA adverse decision received June 10, 2009Question: When is the last day to appeal to the Court of Appeals?

Situation 8:Date of appeal to the CA June 10, 2009Date of adverse decision of the CA August 20, 2009Date of the CA adverse decision received June 25, 2009Question: When is the last day to appeal to the Supreme Court?

Situation 9:Date the real property was levied January 5, 2009Date the real property levied was sold March 1, 2009Question: When is the last day to redeem the real property?

Problem 2-8 Late Filing and PaymentIncome tax return for the calendar year 2009 was due for filing on April 15, 2010 but the taxpayer voluntarily filed his return, without assessment notice from the BIR only on June 30, 2010. The tax due per return amounts to P100,000. How much would be the total amount due inclusive of penalties and interest, excluding compromise penalty?a. P125,000 c. P130,208b. P129,167 d. P100,000

Problem 2-9 Filing at Wrong RDOThe taxpayer’s 2009 income tax return is required to be filed through authorized agent bank under the jurisdiction of RDO East Makati. Without prior authorization from the BIR, the taxpayer filed his tax return, and paid the tax

through the authorized agent bank under the jurisdiction of RDO Davao City. The tax due and paid per return is P100,000. How much would be the amount still due and payable to BIR?a. P25,000 c. P100,000b. P50,000 d. P125,000

Problem 2-10 Late Payment with Assessment NoticeThe taxpayer did not file his income tax return for the calendar year 2009 which was due on April 15, 2010. He was notified by the BIR about his failure to file the tax return, for which reason he filed his tax return and paid the tax only after the said notice on June 30, 2011. The tax due per return is P100,000. How much would be the total amount due, exclusive of compromise penalty?a. P124,167 c. P154,167b. P150,000 d. P174,167

Problem 2-11 Deficiency Income TaxThe taxpayer filed his income tax on time for the year 2009, and paid P100,000 on April 15, 2010. Upon pre-audit of his return, it was disclosed that he erroneously computed the tax due. The correct amount of tax due is P120,000. The taxpayer is assessed for deficiency income tax in a letter of demand and assessment notice issued on June 30, 2011. How much would be the amount still due?a. P4,833 c. P24,000b. P20,000 d. P24,833

Problem 2-12 Statutory FineA taxpayer’s property was placed under a constructive distraint. The fair market value of his personal property is P250,000 with a cost amounting to P100,000. If the taxpayer sold the said property without the consent of the BIR Commissioner, how much statutory fine can the BIR impose against him?a. P500,000 c. P250,000b. P350,000 d. P100,000

Problem 2-13 Total Fine imposedMay Bukol’s personal property has been placed under constructive distraint. Bukol sold the said property without the consent of the BIR Commissioner. The following data are available:

Actual cost of the property P6,000Value of the property sold 2,000

Amount of tax liability 10,000Surcharges and interest 2,500

Based on the given data, how much is the fine to be imposed against Bukol?a. P6,000 c. P3,000b. P5,000 d. P2,500

Problem 2-14 Tax Assessment ProcedureThe RDO of Baguio City issued a tax assessment to Mr. Lang due to fraudulent income tax amounting to P500,000. Mr. Lang filed a protest within 60 days and submitted proofs 10 days thereafter.

Can the BIR deny the protest of Mr. Lang? What would be the remedy available to Mr. Lang?

Problem 2-15 Redemption of PropertyMr. Bay-an’s real property had been levied due to tax delinquency amounting to P1,000,000 for a period of 2 years since January 1, 2007. On January 1, 2009, the property was sold for public auction with a selling price adequate to cover the amount of public taxes, surcharge and interest.

How much is the total amount to be paid by Mr. Bay-an if he decides to redeem his real property on January 1, 2010?

Problem 2-16 Excess from Sales ProceedsThe real property of Mr. Santago, a delinquent taxpayer, was subjected to a levy. His total tax liability per assessment as of April 15,2009 was P300,000 payable on May 31, 2009 with the following expenses incurred by the BIR:

Advertisement P10,000Transfer of title 15,000Capital gains tax 30,000

How much is the amount of excess from the proceeds of sale to be remitted to Mr. Santago as of October 31, 2009?

Problem 2-17 Total Amount UnpaidThe income tax return of San Jolly Mac Corporation shows the following data:

Total Sales P7,000,000Operating expenses allowed 6,500,000Net taxable income 500,000Multiply by corporate income tax rate 30%Income tax payable P 150,000

The related income tax referred to the above ITR has been paid. After a year however, the BIR provided assessment that the sales of the corporation is understated by 30%. How much is the total amount of tax unpaid including surcharges and interest?

Problem 2-18 Sales Price of Property under distraintDuring the auction of a property under distraint, the following information were available:

Actual cost of the property P200,000Fair market value of the property 300,000Amount of bid 100,000Amount of tax liability 190,000Surcharges and interest 20,000Bidding expenses 10,000

How much is the sales price of the property under distraint if the BIR Commissioner decided to purchase the property in behalf of the National Government?

Problem 2-19 Capital Gains Tax and Redemption PriceOn April 1, 2009, the BIR sold the residential lot (under levy) of Mr. Mario Lucas. Mr. Lucas received P20,000 from the BIR as excess over the tax claim and cost of sale as follows:

Income tax liability P400,000Cost of sale 50,000

Mr.Lucas redeemed his residential lot on December 1, 2009. How much is the capital gains tax paid upon sale and the required total redemption price?

Problem 2-20 Informer’s RewardMiss Benita Wan provided information to the government, which led to the capture and seizure of smuggled goods with fair market value of P15,000,000.

Required:a. If the government sold the captured goods for P15,000,000, how much would be the cash reward of Miss

Wan as tax informer?b. If the government destroyed the goods seized because these are regarded as harmful to health, how much

cash reward would Miss Wan receive?c. In assumption to letter “a”, how much final income tax should be withheld from the reward of Miss Wan?

Problem 2-21 Violations and PenaltiesMiss Heide San Tago is operating an unregistered trading business, and she has not been issuing any official sales invoice. When Miss San Tago was summoned to present her books of accounts to BIR, she ignored the summon.

Required:a. Enumerate all the Tax Code violations committed by Miss San Tago.b. If convicted for all these violations, how much is the total amount of penalties?

Problem 2-22 Understatement of Income Tax ReturnOn April 15, 2010, Orville Corporation filed its income tax return for the taxable year 2009 declaring a total receipts of P2,000,000 and total deduction of P1,500,000. The income tax due declared amounts to P165,000. Upon filing to BIR, the tax officer discovered that Orville’s receipts are understated by 25% and the deduction is overstated by 35%. How much is the amount of surcharge to be added to Orville’s income tax due on April 15, 2010?

Problem 2-23 Registration FeeSplash Corporation is a manufacturer of beauty products that maintains 9 warehouses and 30 branches in the Philippines. Its principal factory is located in Quezon City.

Required: Assuming that the taxable year is 2009, compute the following:a. Total annual registration fee of Splash Corporation for 2009 if payment was made on January 31, 2010.

b. Total amount paid to the BIR if payment was made on July 30, 2010.

Problem 2-24 Distraint Property Purchased by GovernmentThe BIR has decided to purchase a personal property under distraint in behalf of the National Government. The information available in deciding the price of the said personal property is as follows:

Market value of the property P200,000Bid price of the highest bidder 90,000Amount of tax liability 100,000Surcharges 25,000Interest 20,000Advertising cost 5,000

How much is the price of the personal property if purchased by the BIR in behalf of the National Government?

Problem 2-25 Chattel Property ForfeitedThe government forfeited the chattel property of Mr.Balana due to criminal violation of tax laws. Mr.Balana’s total tax liability per assessment as of April 15, 2009 was P100,000 payable on June 1, 2009. The property was sold for P200,000 through a public auction on September 1, 2009 with the following expenses incurred by the BIR:

Advertisement P 5,000Transfer tax 20,000

How much is the amount of excess from proceeds of sale to be remitted to Mr.Balana as of September 1, 2009?

Problem 2-26 Compromise AllowedA criminal case was filed against Atang Ang for obtaining three different Tax Identification Number (TIN) resulting to an estimated tax fraud of P20 million.

If Atang Ang proposed for a compromise to the BIR Commissioner, how much is the maximum compromise that is allowed to Ang?

Problem 2-27 CompromiseIn 2009, Mr.Lubrado Tinidor, a local manufacturer of furniture, settled a compromise agreement with the Commissioner of BIR concerning P10,000,000 unpaid taxes since 2007.

You are called to compute the tax to be collected per compromise agreement under the following independent assumptions:

1. Mr.Tinidor is financially incapable and has P10,000 income per month.2. The compromise is due to doubtful validity of assessment.

Problem 2-28 Compromise

The following cases are available from the records of the BIR resulting from the compromise proposals of corporations:

Basic Tax Surcharge InterestDelinquent accounts P 500,000 P 125,000 P 100,000Pending cases under administrative protest 900,000 450,000 180,000Criminal violation not filed in courts 1,000,000 250,000 200,000Withholding tax cases 2,000,000 500,000 400,000Criminal violations filed in courts 5,000,000 2,500,000 1,000,000Totals P9,400,000 P3,825,000 P1,880,000

Required: How much is the amount of compromise allowed using the following reasons (independent assumptions):

Case 1: Financial incapability due to corporate insolvency.Case 2: Financial incapability due to surplus deficit resulting to impairment in original capital by at least 50%.Case 3: Doubtful validity of assessment.

Problem 2-29 Comprehensive Tax RemedyMiss Malou Lugui was assessed with tax liability of P250,000 exclusive of penalty. The financial status of Miss Lagui when the demand for payment was made is as follows:

Total properties: Real property P200,000 Personal property 100,000Total liabilities, exclusive of tax 150,000

Required:a. If Miss Lugui offers for a compromise payment of P100,000 for her tax liabilities on the ground of her

financial incapability, and Commissioner accepted the offer, would it be in accordance with the pre-requisite for a compromise settlement?

b. Assuming that a distraint proceeding was carried out instead, which of the above properties would be issued with warrant of distraint?

c. If all the properties of Miss Lugui have a realizable value of P200,000 after payment of her P150,000 liabilities and possible cost of the proceedings, would it be possible for the government to carry out the distraint and levy proceeding simultaneously to effect the conversion of Miss Lugui’s assets into cash?

d. If, after the properties of Miss Lugui were sold in public auction only P200,000 was realized and used as payment of her liabilities, would this extinguish the unpaid tax liabilities of Miss Lugui?