3 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration CHAPTER TAX ADMINISTRATION Problem – TRUE OR FALSE True False - Department of Finance False - Exclusive and original power to interpret tax laws Final power to interpret tax laws belongs to the Supreme Court False - Review by the Court of Justice/Court of Appeals False - Cooperatives are exempted from income tax and annual registration fee False - In all cases, the authority to print is required False - Not required to register again, just file an information update False - Tax assessment is needed to enforce payment of unpaid tax liability True 10 True 11 False - Levy or imposition of tax 12 True 13 False – executive branch of the government 14 False – the description refers to administrative feasibility Problem – TRUE OR FALSE True False – submit to the BIR False - Distraint is for personal property, while levy is for real property True False - Exceptions are those already filed in court of those involving fraud True True True True 10 False - value of property 11 False – Redemption of property should be made within one year from the date of sale 12 True 13 True Problem – TRUE OR FALSE True True False – P100,000 False – 10% final withholding tax True – If authorized by the BIR Commissioner True False – All properties of a delinquent taxpayer may be subject to tax lien True False – Seizure 10 False – Forfeiture 11 True 12 False – Criminal violations already filed in court are not subject to compromise Collection of taxes is not a criminal violation 13 True Problem – TRUE OR FALSE True False – Without letter of authority, the taxpayer could refuse access to his books False – Civil action could also be judiciary pursued True False – the appeal must first be made to Court of Tax Appeals False – It could also be done if no tax return is filed False – Ten years prescription period starts at date of discovery that tax return was not filed False – It should be years False – Levy could also be done before or simultaneous with distraint 10 False – Residual value should be returned to taxpayer 11 True 12 False – It is also applicable to importation 13 True Problem – Problem – INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration B A B D A C C D B 10 B 11 D 12 C 13 B D A A A C C D B C 10 C Problem – Situation – No need to appeal The prescribed period of filing for the refund is already expired The filing of refund should have been made within two years after the payment of tax or penalty It was filed within years, one month, and days after the date of erroneous payment, hence, not appealable anymore Situation – May 5, 2010 The filing of refund was appropriately made within the year prescribed period The denial was received on April 5, 2010 The filing of appeal to CTA should be made within 30 days from the receipt of denial from the BIR Situation – August 2, 2014 The date of grant for refund was received on August 1, 2009 The refund check (dated July 15, 2009) should be encashed within years from the date the grant for refund was received (August 1, 2009) The check should be encashed from August 1, 2009 to August 1, 2014 It will be forfeited on August 2, 2014 Situation – August 22, 2014 The date of grant for refund was received on August 21, 2009 The refund check (dated July 30, 2009) should be utilized within years from the date the grant for refund was received (August 21, 2009) The tax credit certificate should be utilized from August 21, 2009 to August 21, 2014 It will be forfeited on August 22, 2014, unless otherwise revalidated Situation – August 20, 2009 If the BIR has no response after the submission of supporting documents to serve as evidence for the protest, the last day to appeal to the CTA should be made within 30 days from the lapse of the 180 day period from the submission of the supporting documents Computation of days: After January 22, 2009 Days January February 28 March 31 April 30 May 31 June 30 July 21 Total number of days as of July 21 180 Plus 30 days after the 180 days July 10 August 20 Total day on August 20 30 Situation – May 4, 2009 The last day to appeal to the CTA should be made within 30 days from the receipt of the denial of the BIR The 30 days is determined as follows: Days First denial of the BIR – March 22, 2009 to 2nd request for reconsideration – March 30, 2009 nd denial of the BIR – April 12, 2009 to May 4, 2009 to complete the 30 day period Total days as of May 4, 2009 22 30 Situation – June 25, 2009 The appeal to CA should be made within 15 days from date of unfavorable decision from CTA was received (June 10 plus 15 days) 5 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Situation – July 10, 2009 The appeal to SC should be made within 15 days from date of unfavorable decision from CA was received (June 25 plus 15 days) Situation 10 – March 1, 2010 Within year from the date of sale Problem – B Tax due per return Late filing and payment – simple neglect (P100,000 x 25%) Interest (P100,000 x 20% x 2.5/ 12) Total amount due and payable P100,000 25,000 4,167 P129,167 Problem – A Amount due – surcharge (P100,000 x 25%) P25,000 Problem – 10 D Tax due per return Late filing and payment – willful neglect (P100,000 x 50%) Interest (P100,000 x 20% x 14.5/12) Total amount due and payable P100,000 50,000 24,167 P174,167 Problem – 11 D Deficiency income tax (P120,000 – P100,000) Interest (P20,000 x 20% 435/ 360 days) Amount still due P20,000 4,833 P24,833 Problem – 12 A Statutory fine (P250,000 x 2) P500,000 Problem – 13 B Minimum statutory fine P 5,000 Problem – 14 Yes, because the prescriptive period of filing the written protest is within 30 days from receipt of assessment Mr Lang is obligated to pay the P500,000 assessed against him Problem – 15 Basic delinquency tax Surcharges – willful (P1,000,000 x 50%)* Interest (P1,000,000 x 20% x 2) Amount collected from the highest bidder Add: Interest for real property redemption (P1,900,000 x 15%) Total redemption amount P 1,000,000 500,000 400,000 P 1,900,000 285,000 P 2,185,000 *The nonpayment of taxes is already years it becomes habitual; hence, willful neglect Problem – 16 Proceeds from the highest bidder (P30,000/6%)* Less: Basic tax assessed Advertisement Transfer of title Capital gain tax Remittance to Mr Santiago P 500,000 P 300,000 10,000 15,000 30,000 355,000 P 145,000 *The capital gains tax is based on the selling price of the real property sold The rate of capital gains tax is 6%; hence, the proceeds from the highest bidder is P500,000 or (P30,000/6%) Problem – 17 Corrected sales (P7,000,000/70%) Less: Operating expenses Corrected net taxable income Multiplied by corporate tax rate Corrected total income tax due Less: Income tax paid Tax deficit P10,000,000 6,500,000 P 3,500,000 30% P 1,050,000 150,000 P 900,000 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Surcharge (P900,000 x 25%) Interest (P900,000 x 20%) Total amount due 225,000 180,000 P 1,305,000 Problem – 18 Amount of tax liability Surcharges and interest Bidding expenses Price for the government P190,000 20,000 10,000 P220,000 Problem – 19 Sales proceeds (P400,000 + P50,000 + P20,000)/94% Multiplied by capital gains tax rate Capital gains tax P500,000 6% P 30,000 Sales proceeds Add: Interest (P500,000 x 15% x 8/12) Redemption price P500,000 50,000 P550,000 Problem – 20 a The cash reward of Miss Wan as tax informer would be P1,000,000, the maximum amount of reward b The informer’s reward remains payable, hence, Miss Wan will received the maximum reward of P1,000,000 c The final income tax to be withheld from the reward of Miss Wan would be 10% of P1,000,000 or P100,000 Problem – 21 a The tax violations of Miss San Tago are the following: Unregistered business (Sec 236 [A], NIRC.) Non-issuance of commercial invoice (Sec 237, NIRC.) Ignoring the summon (Sec 5, NIRC.) b Miss San Tago’s minimum financial penalties if convicted: For operating an unregistered business For not issuing commercial invoices Failure to obey summon Total minimum P 5,000 1,000 5,000 P11,000 Problem – 22 None There is no surcharge to be imposed to Orville Corporation because the error was corrected before payment and the payment was made on time The income tax due is computed as follows: Corrected gross receipts (P2,000,000/75%) Corrected allowable deductions (P1,500,000/1.35) Taxable income per audit Multiply by percent of tax for 2009 Income tax due Problem – 23 Principal factory Warehouses (P500 x 9) Branches (P500 x 30) Total annual registration fee – January 31, 2010 Total annual registration fee – January 31, 2010 Surcharges (20,000 x 25%) Interest (P20,000 x 20% x 6/12) Total amount due – July 30, 2005 Problem – 24 Amount of tax liability Surcharges Interest Advertising cost P 2,666,667 1,111,111 P 1,555,556 30% 466,667 P 500 4,500 15,000 P20,000 P20,000 5,000 2,000 P27,000 P100,000 25,000 20,000 5,000 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Price if purchase by the Government P150,000 Problem – 25 None Forfeited property belongs to the government, hence, excess amount over tax liability is not refundable to the taxpayer Problem – 26 Tax violation involving fraud is not allowed with tax comprise (Sec 204A, NIRC) Problem – 27 Compromise (P10,000,000 x 10%) P 1,000,000 P 4,000,000 Compromise (P10,000,000 x 40%) Problem – 28 Case – Financial incapability due to corporate insolvency Delinquent accounts Pending cases under administrative protest Criminal violation not filed in courts Total basic tax Multiplied by applicable compromise rate Amount of compromise P 500,000 900,000 1,000,000 P2,400,000 20% P 480,000 Case – Financial incapability due to surplus deficit resulting to impairment in original capital by at least 50% Delinquent accounts P 500,000 Pending cases under administrative protest 900,000 Criminal violation not filed in courts 1,000,000 Total basic tax P2,400,000 Multiplied by applicable compromise rate 40% Amount of compromise P 960,000 Case – Doubtful validity of assessment Delinquent accounts Pending cases under administrative protest Criminal violation not filed in courts Total basic tax Multiplied by applicable compromise rate Amount of compromise P 500,000 900,000 1,000,000 P2,400,000 40% P 960,000 Problem -29 a Yes, because the offered compromise amount of P100,000 exceeds the required minimum amount of P25,000, (P250,000 x 10%) b Since distraint is imposed only on personal property, the personal property with a value of P100,000 shall be subjected to distraint c Yes, levy of real property and distraint of personal property can be done simultaneously (Sec 207B of the Tax Code) See also Section 205 of NIRC d No, the unpaid portion will remain as tax liability of Lugui because Miss Lugui did not avail of the compromise tax settlement The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected (Sec 217, NIRC)  ... Advertising cost P 2, 666,667 1,111,111 P 1,555,556 30% 466,667 P 500 4,500 15,000 P20,000 P20,000 5,000 2, 000 P27,000 P100,000 25 ,000 20 ,000 5,000 INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)... to 2nd request for reconsideration – March 30, 20 09 nd denial of the BIR – April 12, 20 09 to May 4, 20 09 to complete the 30 day period Total days as of May 4, 20 09 22 30 Situation – June 25 , 20 09... fee – January 31, 20 10 Total annual registration fee – January 31, 20 10 Surcharges (20 ,000 x 25 %) Interest (P20,000 x 20 % x 6/ 12) Total amount due – July 30, 20 05 Problem – 24 Amount of tax liability