TAXATION – Income Taxation General Principles of Taxation Taxation as distinguished from police power and power of eminent domain A Property is taken to promote the general welfare B Maybe exercised only by the government C Operates upon the whole citizenry D There is generally no limit as to the amount that may be imposed The following are constitutional limitations, except A No imprisonment for non-payment of poll tax B Non-impairment of the obligation of contracts C Rule of uniformity and equity in taxation D Exemption from income tax of charitable institutions, cemeteries, churches, personage or convents appurtenant thereto, as well as all lands, buildings and improvements actually, directly and exclusively used for religious, charitable and educational purposes Which of the following statements is correct? A The President is authorized to increase or decrease national internal revenue tax rates B One of the nature of taxation is the reciprocal duties of protection and support between the state and subjects thereof C Every sovereign government has the inherent power to tax D Income tax in an indirect tax A tax must be imposed for public purpose Which of the following is not a public purpose? A National defense B Public education C Improvement of the sugar and coconut industries D Improvement of a subdivision road Which is not an essential characteristic of a tax? A It is unlimited as to amount B It is payable in money C It is proportionate in character D It is an enforced contribution Special assessment is an enforced proportional contribution from owners of land especially benefited by public improvement Which one 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 persons assessed D It is based solely on the benefit derived by the owners of the land It is the privilege of not being imposed a financial obligation to which others are subject A Tax incentive B Tax exemption C Tax amnesty D Tax credit As to scope of the legislative power to tax, which is not correct? A Where there are no constitutional restrictions, and provided the subjects are within the territorial jurisdiction of the state, Congress has unlimited discretion as to the persons, property or occupations to be taxed B In the absence of any constitutional prohibition, Congress has the right to levy a tax of any amount it sees fit C The discretion of Congress in imposing taxes extends to the mode, method or kind of tax, unless restricted by the constitution D The sole arbiter of the purpose or which taxes shall be levied is Congress, provided the purpose is public and the courts may not review the levy of the tax to determine whether or not the purpose is public Which of the following is a nature of taxation? A The power is granted by legislative action B It is essentially an administrative function C It is generally payable in money D Without it the state can continue to exist 10 Which of the following is not a determinant of the place of taxation? A Source of the income B Citizenship of the taxpayer C Residence of the taxpayer D Amount of tax to be imposed 11 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 BIR to modify the rules in time for filing of returns and payment of taxes D The power of taxation is shared by the legislative and executive departments of the government 12 Statement – The point on which tax is originally imposed is impact of taxation Statement – Eminent domain is inferior to non-impairment clause of the constitution Statement – As a rule, taxes are subject to set-off or compensation Statement – As a rule, provisions on the validity of tax exemptions are resolved liberally in favor of the taxpayer A B C D Statement 1Statement 2Statement 3Statement True False False True False True True False True True False False False False True True 13 A tax system where the revenues are supplied mostly by indirect taxes A Schedular C Progressive B Proportional D Regressive 14 A tax system where the greater bulk of the tax revenues is derived by direct taxes A Schedular C Progressive B Proportional D Regressive 15 This is an inherent limitation on the power of taxation A Rule on uniformity and equity in taxation B Due process of law and equal protection of the laws C Non-impairment of the jurisdiction of the Supreme Court in tax cases D Tax must be for the public purpose 16 This is a constitutional limitation on the power of taxation A Tax laws must be applied within the territorial jurisdiction of the state B Exemption of government agencies and instrumentalities from taxation C No appropriation of public money for religious purposes D Power to tax cannot be delegated to private persons or entities 17 They exist independent of the constitution being fundamental powers of the state, except A Power of taxation C Power of imminent domain B Police power D Power of recall 18 The power to acquire private property upon payment of just compensation for public purpose A Power of taxation C Power of imminent domain B Police power D Power of recall 19 The power to regulate liberty and property to promote the general welfare A Power of taxation C Power of imminent domain B Police power D Power of recall 20 The power to demand proportionate contributions from persons and property to defray the expenses of the government A Power of taxation C Power of imminent domain B Police power D Power of recall 21 Basic Principles of a sound tax system, except A Fiscal adequacy C Administrative feasibility B Equality or theoretical justice D Intellectual sensitivity 22 The tax imposed should be proportionate to the taxpayer’s ability to pay A Fiscal adequacy C Administrative feasibility B Equality or theoretical justice D Intellectual sensitivity 23 The sources of revenue as a whole, should be sufficient to meet the demands of public expenditures A Fiscal adequacy C Administrative feasibility B Equality or theoretical justice D Intellectual sensitivity 24 The tax laws must be capable of convenient, just and effective administration A Fiscal adequacy C Administrative feasibility B Equality or theoretical justice D Intellectual sensitivity 25 Persons or things belonging to the same class shall be taxed at the same rate A Simplicity in taxation C Equality in taxation B Reciprocity in taxation D Uniformity in taxation 26 The tax should be proportional to the relative value of the property to be taxed A Simplicity in taxation C Equality in taxation B Reciprocity in taxation D Uniformity in taxation 27.The following are the nature of taxation, except A Inherent in sovereignty B Essentially legislative in character C Subject to inherent and constitutional limitation D Subject to approval by the people 28 It literally means “place of taxation”; the country that has the power and jurisdiction to levy and collect the tax A Basis of taxation C Scope of taxation B Situs of taxation D Theory of taxation 29 The existence of the government is a necessity and that the state has the right to compel all individuals and property within its limits to contribute A Basis of taxation C Scope of taxation B Situs of taxation D Theory of taxation 30 The reciprocal duties of support and protection between the people and the government A Basis of taxation C Scope of taxation B Situs of taxation D Theory of taxation 31 Subject to inherent and constitutional limitations, the power of taxation is regarded as supreme, plenary, unlimited and comprehensive A Basis of taxation C Scope of taxation B Situs of taxation D Theory of taxation 32 Our National Internal Revenue Laws are A Political in nature C Criminal in nature B Penal in nature D Civil in nature 33 The levying or imposition of tax and the collection of the tax are processes which constitute the taxation system A Basis of taxation C Nature of taxation B Aspects of taxation D Theory of taxation 34 The process or means by which the sovereign, through its law-making body raises income to defray the expenses of the government A Toll C Taxation B License fee D Assessment 35 Enforced proportional contributions from persons and property levied by the state by virtue of its sovereignty for the support of the government and for all public needs A Toll C Taxes B License fee D Assessment 36 An escape from taxation where the tax burden is transferred by the one on whom the tax is imposed or assessed to another A Shifting C Transformation B Exemption D Capitalization 37 An escape from taxation where the producer or manufacturer pays the tax and endeavors to recoup himself by improving his process of production thereby turning out his units of products at a lower cost A Shifting C Transformation B Exemption D Capitalization 38 An escape from taxation where there is a reduction in the price of the taxed object equal to the capitalized value of future taxes which the taxpayer expects to be called upon to pay A Shifting C Transformation B Exemption D Capitalization 39 The use of illegal or fraudulent means to avoid or defeat the payment of tax A Exemption C Avoidance B Shifting D Evasion 40 The use of legal or permissible means to minimize or avoid taxes A Exemption C Avoidance B Shifting D Evasion 41 Synonymous to tax evasion A Tax dodging C Tax exemption B Tax minimization D Tax evasion 42 Synonymous to tax avoidance A Tax dodging C Tax exemption B Tax minimization D Tax evasion 43 In every case of doubt, tax statutes are construed A Strictly against the government and the taxpayer B Liberally in favor of the government and the taxpayer C Strictly against the government and liberally in favor of the taxpayer D Liberally in favor of the government and strictly against the taxpayer 44 In every case of doubt, tax exemptions are construed A Strictly against the government and the taxpayer B Liberally in favor of the government and the taxpayer C Strictly against the government and liberally in favor of the taxpayer D Liberally in favor of the government and strictly against the taxpayer 45 In case of conflict between the Tax Code and the Philippine Accounting Standards (PAS) A PAS shall prevail over the Tax Code B Tax Code shall prevail over PAS C PAS and Tax Code shall be both disregarded D The taxpayer may choose between the PAS or the Tax Code 46 Tax of a fixed amount imposed upon all persons residing within a specified territory without regard to their property or occupation they may be engaged A Personal, poll or capitation C Excise B Property D Regressive 47 Tax imposed on personal or real property in proportion to its value or on some other reasonable method of apportionment A Personal, poll or capitation C Excise B Property D Regressive 48 Tax imposed upon performance of an act, the enjoyment of privilege or the engaging in an occupation A Personal, poll or capitation C Excise B Property D Regressive 49 Tax which is demanded from the person whom the law intends or desires to pay it A Direct C Excise B Indirect D Percentage 50 Tax which is demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another A Direct C Excise B Indirect D Percentage 51 Tax which imposes a specific sum by the head or number or by some standard of weight or measurement and which requires no assessment other than a listing or classification of the objects to be taxed A Specific C Excise B Ad-valorem D Income 52 Tax of a fixed proportion of the amount or value of the property with respect to which the tax is assessed A Specific C Excise B Ad-valorem D Percentage 53 Tax based on a fixed percentage of the amount of property, income or other basis to be taxed A Proportional C Regressive B Progressive D Indirect 54 Tax where the rate decreases as the tax base increases A Proportional C Regressive B Progressive D Indirect 55 Tax where the rate increases as the tax base increases A Proportional C Regressive B Progressive D Indirect 56 Which of the following statements is not correct? A Tax burdens shall neither be imposed nor presumed to be imposed beyond what the statute expressly and clearly states because tax statutes should be construed strictly against the government B Tax exemptions, tax amnesty tax condonations and their equivalent provisions are not presumed and, when granted are strictly construed against the taxpayer because such provisions are highly disfavored by the government C Exemptions from taxation are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right D The House of Representatives has the duty and the exclusive power of constructing and interpreting tax laws 57 The strongest of all inherent powers of the state because without it, the government can neither survive nor dispense any of its other powers and functions effectively A Police Power C Power of Taxation B Power of Eminent Domain D Power of Recall 58 This power is superior to the non-impairment clause and is broader in application because it is a power to make and implement laws A Power of Taxation C Power of Eminent Domain B Power of Recall D Police Power 59 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 Income tax liabilities shall be paid by the inhabitants even if foreign invaders occupy our country C Taxes may be imposed retroactively by law, but unless so expressed by such law, these taxes must only be imposed prospectively D Tax laws are either political or penal in nature 60 Which of the following is not a constitutional limitation on the Power of Taxation? A No person shall be deprived of life , liberty or property without due process of law B No person shall be denied the equal protection of the law C No person shall be imprisoned for debt or non-payment of tax D No law granting any tax exemption shall be passed without the concurrence of a majority of all the members of Congress 61 The distinction of a tax from permit or license fee is that a tax is: A Imposed for regulation B One which involves an exercise of police power C One in which there is generally no limit on the amount that maybe imposed D Limited to the cost of regulation 62 Police power as distinguished from the power of eminent domain: A Just compensation is received by the owner of the property B Maybe exercised by private individuals C May regulate both liberty and property D Property is taken by the government for public purpose 63 A tax wherein both the incidence of or the liability for the payment of the tax as well as the burden of the tax falls on the same person A Direct tax C Indirect tax B Value added tax D Percentage tax 64 Which one of the following is not a characteristic or element of a tax? A It is an enforced contribution B It is legislative in character C It is based on the ability to pay D It is payable in money or in kind 65 Tax as distinguished from license fees: A Limited to cover cost of regulation B A regulatory measure C Non-payment does not necessarily render the business illegal D Imposed in the exercise of police power 66 The power of taxation is exercised by A The President C Bureau of Internal Revenue B The Supreme Court D Congress 67 One of the characteristics of internal revenue laws is that they are: A Criminal in nature C Political in nature B Penal in nature D Generally prospective in application 68 Which of the following is not an example of excise tax: A Transfer tax C Real property tax B Sales tax D Income tax 69 The following are similarities of the inherent power of taxation, eminent domain, and police power, except one: A Are necessary attributes of sovereignty B Superior to the non-impairment clause of the constitution C Compensation is received D Are legislative in character 70 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 transfers the sales tax to the distributor, then in turn to the wholesaler, in turn to the retailer and finally to the consumer 71 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 72 License fee as distinguished from tax: A Non-payment does not necessary render the business illegal B A revenue raising measure C Imposed in the exercise of taxing power D Limited to cover cost of regulation 73 Value-added tax is an example of: A Graduated tax C Regressive tax B Progressive tax D Proportional tax 74 Which tax principle is described in the statement “ the more income earned by the taxpayer, the more tax he has to pay.” A Fiscal Adequacy C Administrative feasibility B Theoretical justice D Inherent in sovereignty 75 The most superior and least limitable among the fundamental powers of the state: A Power of recall C Power of taxation B Police power D Power of eminent domain 76 One of the characteristics of a tax is that: A It is generally based on contact B It is generally payable in money C It is generally assignable D It is generally subject to compensation 77 The following are the characteristics of our internal revenue laws except: A Political in nature B Civil in nature C Generally prospective in application D May operate retrospectively if congress so provides 78 Which of the following has no power of taxation? A Provinces C Barangays B Cities D Barrios 79 Which of the following statements 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 80 Tax as distinguished from special assessment: A not as a personal liability of the person assessed B based wholly on benefits C exceptional as to time and place D based on necessity and is to raise revenues 81 Under this basic principle of a sound tax system, the Government should not incur a deficit: A Theoretical justice C Fiscal Adequacy B Administrative feasibility D Uniformity in taxation 82 Which of the following may not raise money for the government? A Power of taxation C Eminent Domain B Police power D License fee 83 No person shall be imprisoned for non-payment of this: A Excise tax C Income tax B Value added tax D Poll tax 84 This is a demand of ownership: A License fee C Toll B Tax D Customs duties 85 Income tax is generally regarded as A an excise tax C a property tax B a tax on persons D tax on profits 86 Which of the following is not acceptable for legally refusing to pay the tax? A That the right of the state to collect the tax has prescribed B That there is no jurisdiction to collect the tax C That the tax law was declared as unconstitutional D That there is no benefit derived from the tax 87 It is important to know the source of income for income tax purposes, i.e from within or without the Philippines because A The Philippines imposes income tax on income from sources within and without of a non-resident citizen B Some individual taxpayers are citizens while others are aliens C Separate graduated rates are imposed on different types of income D Some taxpayers are taxed on their worldwide income while others are taxable only upon income from sources within the Phils 88 A law granting tax exemption requires the concurrence of A Majority vote of members of congress B 2/3 vote of members of Congress C 3/4 vote of members of Congress D Unanimous vote of members of Congress 89 No person shall be imprisoned for debt or non-payment of poll tax This is a(an) A Inherent limitation C International limitation B Constitutional limitation D Territorial limitation 90 The Department of Finance thru its officers entered into a contract with foreign investors granting them exemption from all forms of taxes to encourage investments in the Phils The contract is A Void, unless the President ratifies B Void, because the power to grant tax exemption is vested in Congress C Valid, if the President has authorized the officers to enter into such contract D Valid, because the purpose is to promote public welfare 10 91 Tax as distinguished from debt A no imprisonment for non-payment C based on contract B may be paid in kind D based on law 92 Congress can impose a tax at any amount and at anytime shows that A Taxation is an inherent power of the state B Taxation is essentially a legislative power C Taxation is a very broad power of the state D Taxation is based on taxpayers’ ability to pay 93 The amount required is dictated by the needs of the government in: A License fee C Toll B Tax D Debts 94 A charge imposed on land for special benefits derived resulting from public improvements A Tax C License B Toll D Special assessment 95 Which of the following are National Internal Revenue Taxes? I Income tax III Donor’s tax V Other percentage tax II Estate tax IV Value Added tax VI Excise Tax VII Documentary stamp tax A I, II, III, IV B I, II, III, IV, V C I, II, III, IV, V, VI D I, II, III, IV, V, VI, VII 96 The Bureau of Internal Revenue shall have a chief and four (4) assistant chiefs to be known as A Secretary and Assistant Secretaries B Secretary and Undersecretaries C Commissioner and Assistant Commissioners D Commissioners and Deputy Commissioners 97 The three fundamental powers of the state are I Inherent in the state and may be exercised by the state without need of any constitutional grant II Not only necessary but indispensable A True; True B True; false C False; true D False; false 98 The three fundamental powers of the state are I Methods by which the state interfere with private rights II Exercised primarily by the legislature A True; True B True; false C False; true D False; false 99 I Police power regulates both liberty and property while the power of eminent domain and the power of taxation affect only property rights II Police power and the power of taxation may be exercised only by the government while the power of eminent domain may be exercised by some private entities A True; True C False; true B True; false D False; false 34 B Fringe benefit tax D Grossed-up monetary 10 Which statement is wrong? The fringe benefit tax is A imposed on the employer B imposed on the managerial or supervisory employee C withheld at source D deductible by the employer 11 As a means of promoting the health, goodwill, and efficiency of his employees, employer A gave rank and file employee X the following fringe benefits in 2009: Monetized unused vacation leave of 15 days P 9,000 Rice subsidy 24,000 Uniform and clothing allowance 8,000 Achievement award for length of service in the form of tangible personal property 15,000 Gifts given during Christmas and major anniversary celebrations 10,000 th 13 Month pay 18,000 The amount of taxable fringe benefits is A P30,000 B P25,000 C D P23,000 P11,000 12 The employer’s deductions for the benefits given A P23,000 C P66,000 B P18,000 D P84,000 13 The grossed-up monetary value of fringe benefit subject to fringe benefit tax received by a non-resident alien individual not engaged in trade or business in the Philippines is computed by dividing the monetary value of the fringe benefit by A 75% C 85% B 25% D 15% 14 The following fringe benefits are not subject to fringe benefits tax, except: A Fringe benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not B Contributions of the employer for the benefit of the employees to retirement, insurance and hospitalization benefits plans C De minimis benefits, as defined in the rules and regulations to be promulgated by the Secretary of Finance, upon recommendations of the Commissioner D Fringe benefits furnished or granted by the employer to its managerial and supervisory employees DEDUCTIONS AND EXEMPTIONS Which of the following statements is true? A Payments which constitutes bribes, kickbacks, and others of similar nature which are necessary to realize the profit are allowed as deduction from gross income B The taxes which are deductible from gross income include the taxes, interest and penalties incident to tax delinquency C Deductions are amounts allowed by the Tax Code to be deducted from gross income to arrive at the income tax liability of a taxpayer D Losses from wagering transactions shall be allowed only up to the extent of the gains from such transactions 35 X Corp had a net sales of P1M The actual entertainment, amusement and recreation expense amounted to P20,000 The deductible “EAR” expense is A P20,000 C P10,000 B P 6,000 D P 5,000 Y Corp had a net revenue of P1M The actual entertainment, amusement and recreation expense amounted to P20,000 The deductible “EAR” expense is A P20,000 C P 5,000 B P 6,000 D P 10,000 Z Corp is engaged in the sale of goods and services with net sales and net revenue of P2M and P1M respectively The actual entertainment, amusement and recreation expense amounted to P18,000 The deductible “EAR” expense is A P18,000 C P12,000 B P16,000 D P 6,000 This is not deductible from gross income A Transportation expenses from the main office to the branch B Transportation expenses from home to the office and from the office back to home C Travel expenses on business trips D Travel expenses while away from home in the pursuit of trade, business or profession A revenue expenditure is A Usually incurred in the acquisition, betterment or permanent improvement of the asset B Capitalized and the cost is recovered through annual depreciation C Ordinarily to benefit more than one accounting period D To benefit one accounting period and is a deduction from gross income in the year paid or incurred The optional standard deduction for corporations is A 10% of the gross income C 40% of the gross income B 10% of the gross sales/ receipts D 40% of the gross sales/receipts No deductions shall be allowed where the transaction is between “related taxpayers” for Losses from sales or exchanges of property Interest expense Bad debts A B and only and only C D and only 1, and The phrase “related taxpayers” will apply to the following, except: A Between members of a family B Between the grantor and a fiduciary of any trust C Between a fiduciary of a trust and a beneficiary of such trust D Between an individual and a corporation more than 50% in value of the outstanding stock of which is owned, directly or indirectly for such individual, in case of distributions in liquidation 10 For individuals, premiums paid during the taxable year for health and/or hospitalization insurance taken out by him on himself, including his family shall be allowed as deductions from gross income, provided that the family has a gross income of A More than P250,000 C Not more than P250,000 B More than P500,000 D Not more than P2,400 36 11 The deduction for premium payments on health and / or hospitalization insurance is not available to: A An individual with gross compensation income only B An individual with gross income from business or practice profession, whether he is availing of the optional standard deduction or itemized deduction C An individual with mixed income D Both husband and wife 12 - In case of married taxpayer, only the spouse claiming the additional exemptions for dependents shall be entitled to the deduction on premium payments on health and / or hospitalization insurance - The deduction for premium payments on health and / or hospitalization insurance shall not exceed P2,400 for the family or P200 a month A B True; True True; False C D False; True False; False 14 In 2009, Z, a resident citizen, engaged in business borrowed money from ABC Bank from which he had an interest expense of P20,000 His deposit in XYZ bank yielded an interest income of P25,000 His deduction for interest expense is A P20,000 C P 9,750 B P 5,000 D P10,250 15 Interest expense incurred to acquire property used in trade or business or exercise of a profession is A Not allowed as a deduction against gross income B Required to be treated as a capital expenditure to form part of the cost of the asset C Allowed as a deduction or treated as a capital expenditure at the option of the taxpayer D.Allowed as a deduction or treated as a capital expenditure at the option of the government ?15 If an individual is on the cash basis of accounting, will interest paid in advance be allowed as a deduction? First answer - No, it is a deduction in the year that the indebtedness was paid and not in the year that the interest was paid Second answer – Yes, if the indebtedness is payable in periodic amortizations, the amount of the interest which corresponds to the amount of the principal amortized or paid during the year shall be allowed as a deduction in such taxable year A True; True C False; False B True; False D False; True 16 17 May be deducted from gross income A Philippine income tax B Foreign income tax C D Estate or donor’s tax Special assessment A taxpayer engaged in business incurred a partial loss of property as follows: Asset Book value of the asset at the time of loss P200,000 Cost to restore the property back to its normal operating condition 120,000 Insurance recovery 50,000 Salvage None The deductible loss for asset is A P120,000 B P 70,000 C D P30,000 P80,000 Asset P200,000 300,000 None 40,000 37 18 The deductible loss for asset is A P300,000 B P200,000 C D P160,000 P240,000 19 The operating loss, which had not been previously offset as deduction from gross income shall be carried over as deduction from gross income for the next A consecutive taxable years immediately following such loss B consecutive taxable years immediately following such loss C consecutive taxable years immediately following such loss D taxable year immediately following such loss 20 A taxpayer had the following: Year Gross income P450,000 Allowable Deductions 530,000 21 Year2 P450,000 430,000 Year Year Year P440,000 P420,000 P490,000 410,000 410,000 410,000 The income to be reported in year is A P20,000 B P60,000 C D P450,000 P The income to be reported in year is A P60,000 B P20,000 C D P80,000 P 22 One of the following losses can not be deducted from gross income A To construct a bigger warehouse, a corporation demolished an old warehouse which had a construction cost of P2M and a book value of P300,000 B Demolition of a building existing on a land purchased where the corporation has no use for the building at the time of purchase and it was its intention to remove the building in order to build its factory C A corporation retired its machinery from the business because of the increase in the cost of production and the failure of the machinery to meet the desired number of units of production D A corporation ascertained that its B Corp stocks are worthless because of the total insolvency of B Corp 23 Examples of taxes that are deductible except A Occupation tax C B Privilege tax D Documentary stamp tax Philippine income tax Non-deductible taxes, except A Special assessment B Donor’s tax Estate tax Business tax 24 C D 25 X acquired a machine at a cost of P250,000 Scrap value is P20,000 and the estimated useful life was 25 years After depreciating the asset for 20 years using the straight-line method, it was determined that the remaining life is not five years The annual depreciation from the 21st year assuming a remaining life of 10 years without scrap is A P10,000 C P9,200 B P11,500 D P6,600 26 - An expense which is necessary but not ordinary, or ordinary but not necessary is Deductible from gross income - The taxpayer must signify his intention to elect the itemized deduction, otherwise, he is deemed to have chosen the optional standard deduction A True; True C False; True B True; False D False; False 38 ?27 A B - Interest paid on preferred stock is deductible from gross income of the paying corporation - A capital expenditure usually benefits more than one accounting period and is deductible from gross income in the year it is paid or incurred True; True True; False C D False; True False; False ?28 - The cost of leasehold improvements shall be deductible from gross income of the paying corporation - Contributions by the employer to a pension trust for past service cost is deductible in full in the year that the employer made the contributions A True; True C False; True B True; False D False; False 29 For individuals with gross compensation income, the following maybe deducted, except: A Personal exemptions B Additional Exemptions C Optional standard deduction D Premium payments on health and/or hospitalization insurance 30 For individuals with gross income from business or practice of profession, the following may be deducted Optional standard deduction Itemized deduction 3.`Personal exemptions Additional exemptions Premium payments on health and / a hospitalization insurance A B 1, 2, and 2, and C D 3, and and either or 1, 2, 3, and 31 Any amount subsequently received on account of a bad debt previously charged off and allowed as a deduction from gross income in prior years must be included in gross income in the taxable year in which received This is A Severance test C Destination of income test B Life-blood theory D Equitable doctrine of tax benefit 32 X took out a life insurance policy of P1,000,000 naming his wife as beneficiary The policy provides that the insurance company will pay X the amount of P1,000,000 after the 25th year of the policy and his beneficiary, should he die before this date The premiums paid on the policy is P700,000 If X outlived the policy and received the proceeds of P1,000,000, such proceeds will be: A Taxable in full C Exempt from income tax B Partly taxable, partly exempt D Subject to final tax 33 Using the preceding no., if X dies and his beneficiary received the proceeds of P1,000,000, such proceeds will be A Taxable in full C Exempt from income tax B Partly taxable, partly exempt D Subject to final tax 34 Z, a dedicated and honest employee of RST Corp for the past 20 years was advised that he is to be retrenched as the company was losing heavily but that he would be given the separation pay provided by law To avoid implication of inefficiency Z was advised to file a letter of resignation instead of being retrenched If Z files a letter of resignation and receives the separation pay, such amount is 39 A Taxable in full B Partly taxable , partly exempt 35 C D Private educational institutions Resident alien C D Non-resident citizen Non-resident alien One of the following is not correct for deductibility of losses from gross income A B C D 39 Exempt from income tax Subject to final tax May claim tax credit for income taxes paid to foreign country A Resident citizen B Resident alien 38 C D May consider capital expenditures as revenue expenditures A Resident citizen B Domestic corporation 37 D Exempt from income tax Subject to final tax Using the preceding no., If Z is retrenched and receives the separation pay, such amount is A Taxable in full B Partly taxable , partly exempt 36 C Must arise from fire, storm or other casualty, robbery, theft or embezzlement Must not be compensated by insurance or other form of indemnity A declaration of loss by casualty should be filed with the Bureau of Internal Revenue Must have been claimed as deduction in the estate return of the taxpayer Which of the following statements is not correct? A The optional standard deduction is an amount equal to forty percent (40%) of the Gross income from business or practice of profession of the taxpayer B The optional standard deduction is not available against compensation income arising Out of an employer-employee relationship C The election of Optional Standard Deduction is irrevocable for the taxable year for Which the choice is made D Unless the taxpayer signifies in his return his intention he shall be considered as having availed of the itemized deduction 40 The following may be allowed to claim optional standard deduction, except A B 41 Resident alien Non-resident alien Taxable estates and trusts Domestic corporation C D General professional partnership Foreign corporation The optional standard deduction for individuals is A B 43 C D The following may elect optional standard deduction or itemized deduction, except A B 42 Resident citizen Non-resident citizen 10% of the gross income 10% of the gross sales/receipts C D 40% of the gross income 40% of the gross sales/receipts May consider capital expenditures as revenue expenditures A Resident citizen 40 B Domestic corporations C Private educational institutions D Resident alien 44 A building was partially destroyed by fire in 2010 The building had a book value of P10M The insurance company was willing to pay P5 M, which was refused by the owner Finally, the claim was settled in 2011 for P9M The proceeds will be A B C D 45 Z took a life insurance policy of P2M naming his wife as beneficiary The policy provides that the insurance company will pay Z the amount of P2 M after the 25th year of the policy and his beneficiary, should he die before this date The premiums paid on the policy is P1.5M If Z outlived the policy and received the proceeds of P2M, such proceeds will be: A B C D 46 Exempt from income tax Part of taxable income Subject to final tax Partly exempt, partly taxable Taxable in full Exempt from income tax Partly taxable, partly exempt Subject to final tax B, a retailer of goods uses the accrual method in reporting his income and expenses His 2010 transactions show: Jan - June 30 Gross Sales P1,000,000 Cost of Sales 600,000 Business expenses 100,000 Jul - Sept 30 P700,000 200,000 50,000 Oct.1 - Dec 31 P900,000 300,000 70,000 For the period January to June 30, 2010, he used the itemized deduction but decided to use the optional standard deduction beginning July B’s annual income tax return using the optional standard deduction will show a net income before exemptions of A P1,560,000 B P 900,000 47 C P1,020,000 D P1,320,000 RLG Corporation, a retailer of goods uses the accrual method of accounting in reporting its income and expenses under the calendar year basis From January to June 30, 2010, it used the itemized deduction but decided to use the optional standard deduction method when it filed its annual income tax return Its 2010 transactions show: Gross Sales Cost of Sales Business expenses Jan - June 30 P1,000,000 600,000 100,000 The net income of RDG is A P1,560,000 B P 660,000 48 Jul - Sept 30 P700,000 300,000 50,000 Oct.1 - Dec 31 P900,000 600,000 150,000 C P800,000 D P720,000 MDG Corporation is engaged in trading business The reported income and expenses for taxable year 2010 show: 41 Sales P10,000,000 Cost of sales 6,000,000 General business expenses 1,000,000 Interest on time deposit (gross) 100,000 Interest expense on loans payable 180,000 The net taxable income is A P2,858,000 B P2,820,000 C P3,000,000 D P2,862,000 CAPITAL ASSETS Where the taxpayer is a corporation, which of the following statements is true? A The holding period does not apply to corporation, hence, capital gains and losses are recognized at 50% B The net capital loss can be carried over in the next succeeding year C Capital loss is deductible only up to the extent of ordinary gains D Ordinary loss is deductible from capital gains - Capital losses are deductible from ordinary gains but net capital loss is not deductible from ordinary gains - Ordinary losses are deductible only to the extent of the capital gains but the net capital loss is not deductible from ordinary gain A True; True C False; True B True; False D False; False An individual taxpayer owns a ten (10)- door apartment with a monthly rental of P10,000 each residential unit He sold this property to another individual taxpayer Which is not correct? A The seller is not liable to pay the capital gains tax B The property sold is a capital asset C The taxpayer is engaged in business D The rental income is subject to income tax using the graduated rates Holding period is the duration for which the taxpayer held the capital asset A capital asset held by the taxpayer for not more than 12 months is said to be A short-term C long-term B medium-term D no-term The following rules as to recognition of capital gains or losses from the disposition of personal property classified as capital asset apply where the taxpayer is an individual Which is the exception? A Depending on the holding period, the percentages of gain or loss is 100% if the capital asset has been held for 12 months or less; and 50% if the capital asset has been held for more than 12 months B Capital losses are deductible only to the extent of the capital gains; hence, the net capital loss is not deductible C Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain D Net capital loss carry over in a taxable year should not exceed the capital gain in the year the loss was incurred Where the taxpayer is a corporation, the following rules as to recognition of capital gains or losses from the disposition of property classified as capital asset shall apply Which is the exception? 42 A B C D The holding period does not apply to corporations, hence, capital gains and losses are recognized at 100% Capital losses are deductible only to the extent of capital gains Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain Net capital loss carry-over should not exceed the net income in the year the loss was incurred The term “capital assets” include A Stock in trade or other property included in the taxpayer’s inventory B Real property not used in the trade or business of taxpayer C Property primarily for sale to customers in the ordinary course of his trade or business D Property used in the trade or business of the taxpayer and subject to depreciation A sold his principal residence at a selling price of P5M but with a FMV of P6M The property sold was acquired for P3M He purchased his new principal residence at a cost of P7M The capital gains tax is A P360,000 C P240,000 B P300,000 D P How much is the basis (cost) of the new principal residence? A P7M C P5M B P6M D P4M 10 If only P4M out of P5 M was utilized in acquiring his new principal residence, the capital gain tax is A P60,000 C P300,000 B P72,000 D P360,000 11 Using the preceding number, the basis (cost) of the new principal residence? A P3.2M C P2.4M B P4M D P3M INSTALLMENT METHOD Which of the following statements is not correct? Those who make a casual sale or disposition of personal property on the installment plan may elect the installment basis of reporting income if A The personal property sold is not of a kind which would be included in the inventory B The selling price exceeds P1,000 C The sale is in installment D The initial payments not exceed 25% of the contract price In 2009, Z sold a piece of land which had a cost of P1M for a selling price of P4M The sale called for an assumption by the buyer of a mortgage on the land of P1.5M, cash of P500,000 on the date of sale and installment payments of P500,000 every year thereafter The land is an ordinary asset The income to be reported in 2009 under the installment method of reporting income is A P500,000 C P375,000 B P750,000 D P1,000,000 FILING, PENALTIES AND REMEDIES 1.The Income tax return for the calendar year 2010 was due for filing on April 15, 2011, but 43 the taxpayer voluntarily filed his tax return without notice from the BIR, only on July 15, 2011 The tax due per return amounts to P100,000 The total amount due on July 15, 2011 (excluding compromise penalty) is A P145,000 B P111,250 C P117,500 D P130,000 Using the preceding number, but the income tax return is filed on time but through an internal revenue officer other than with whom the return is required to be filed The total amount due is A P100,000 C P150,000 B P130,000 D P125,000 The taxpayer did not file his income tax return for the calendar year 2008 He was notified by the BIR of his failure to file the tax return, for which reason he filed his tax return and paid the tax only after said notice on October 15, 2010 The tax due per return is P100,000 The total amount due on October 15, 2010 (excluding compromise penalty) is A P150,000 B P155,000 C D P180,000 P205,000 Taxpayer filed on time his income tax return for the calendar year 2008 and paid on April 15, 2009 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 is issued on June 15, 2010 calling for payment on or before July 15, 2010 The amount still due on July 15, 2010 is: A P30,000 B P31,250 C P35,000 D P25,000 A corporation filed its ITR and paid tax for calendar year 2008 with a net taxable income of P500,000 However, upon investigation, it was disclosed that its ITR was false or fraudulent because it did not report a taxable income amounting to another P500,000 Failing to protest on time against the preliminary assessment notice, a final letter of demand and assessment notice issued on June 15, 2010 calling for payment on before July 15, 2010 The amount still due on July 15, 2010 is A P328,125 B P297,500 C P262,500 D P306,250 Using the preceding number, assuming that the assessment has become final and collectible, but the corporation pays the tax assessment only on August 15, 2010, the total amount due (excluding compromise penalty) is A P415,625 B P376,833 C P387,917 D P329,500 Individual self-employed taxpayers are required to file their Income Tax Returns: A B C D On a yearly basis,, once a year On a quarterly basis, non-cumulative system On a quarterly basis, cumulative system On a quarterly basis, cumulative system and on a yearly basis, once a year The individual income tax return of a fixed earner (employee) is filed on or before A April 15 of the current taxable year 44 B April 15 of the following taxable year C May 15 of the current taxable year D May 15 of the following taxable year A resident citizen taxpayer is allowed to pay his income tax due on installment basis if: A B C D Basic income tax is P2,000 or below Basic income tax is over P2,000 Basic income tax is over P5,000 Basic income tax is over P1,000 10 B was employed by A Corporation on the first working day of January 2008 on a part-time basis with a salary of P10,000 a month He then received his 13th month pay In September 2008 he accepted another part-time job from B Corporation from which he received a total compensation of P408,000 for the year 2008 The correct total taxes were withheld from both earnings With regard to the filing of income tax return (ITR) for the year 2008 which of the following is true? A B is exempt from filing his ITR because the correct total taxes have been withheld B B is not exempt from filing his ITR because his total compensation income for 2008 came from more than one employer C B is exempt from filing his ITR because his total income for 2008 came from employeremployee relationship D B is not exempt from filing his ITR because his income came from employer-employee relationship 11 Generally, the following individuals are required to file an income tax return Who is the exception? A Every Filipino citizen residing in the Philippines B Every Filipino citizen residing outside the Philippines, on his income from sources outside the Philippines C Every alien residing in the Philippines on income derived from sources within the Philippines D Every non-resident alien engaged in trade or business in the Philippines 12 Where compromise penalties is not allowed A Failure to preserve or keep books of accounts and accounting records B Failure to keep records of accounts or records in a native language or in English C Failure to have books of accounts audited and have financial statements attached to income tax return certified by an independent CPA D Keeping two (2) sets of books of accounts or records All criminal violations may be compromised: A) Except those already filed in court B) Except those involving fraud A True; True B True; False C False; True D False; False For filing a false and fraudulent return, a surcharge is imposed at: A 25% as criminal penalty B 25% as administrative penalty C 50% as criminal penalty 45 D 50% as administrative penalty This is not an administrative remedy available to a taxpayer in connection with collection of taxes A B C D Filing a petition for reconsideration or reinvestigation Filing a claim for tax refund or credit Entering into a compromise Filing a criminal complaint against erring BIR officials or employees A compromise for a tax liability on the ground of financial incapacity to pay shall still involve a payment of tax from the taxpayer at a minimum compromise rate of A B C D 10% of the basic assessed tax 20% of the basic assessed tax 30% of the basic assessed tax 40% of the basic assessed tax Using the preceding number, with regard to compromises other than on the ground of financial incapacity to pay, the compromise shall involve a minimum compromise rate of A B C D 10% of the basic assessed tax 20% of the basic assessed tax 30% of the basic assessed tax 40% of the basic assessed tax 20 An assessment shall become final if not protested administratively, if such protest is not filed with the BIR, from receipt of the assessment within A 30 days B 60 days C 90 days D 180 days 21 Using the preceding number, relevant supporting documents must also be presented to the BIR, from filing the protest on the assessment within A 30 days B 60 days C 90 days D 180 days 22 An appeal on an assessment may be made to the CTA if the BIR does not act on the protest within, how many days from the taxpayer’s submission of documents supporting his protest? A 30 days B 60 days C 90 days D 180 days 23 I - The taxpayer shall respond to a pre assessment notice, and if he fails to respond, an assessment shall be issued II - An assessment issued may be questioned administratively with the BIR A True; True B True; False C False; True D False; False 24 Where a return was filed, as a general rule, the prescriptive period for assessment after the date the return was due or was filed, whichever is later, is within A years B years C years D 10 years 46 25 Where any national internal revenue tax is alleged to have been erroneously or illegally collected As a remedy, the taxpayer should first file an action for refund with the A Regional Trial Court B Court of Tax Appeals C BIR D Court of Appeals 26 In case of an assessment of a tax A The assessment should be made within years from date of filing of the return B The assessment should be made within years from date of the return is due C A protest should be made on time, otherwise the assessment becomes final and executory D A protest may be filed anytime before the BIR collects the tax 27 Date of payment of tax erroneously paid Date of claim for refund was filed Date decision of denial by the BIR was received Last day to appeal to the CTA is A April 15, 2011 B January 15, 2011 April 15, 2009 January 15, 2010 September 15, 2010 C November 15, 2010 D October 15, 2010 28 Using the preceding number, if date of decision of denial by the BIR was received on March 31, 2011, the last day to appeal to the CTA is A April 30, 2011 C March 31, 2012 B April 15, 2011 D May 30, 2011 29 Date assessment was received Date petition for reconsideration was filed with the BIR Date of filing of documents to support the petition Date of decision of denial of the petition was received The last day to appeal to the CTA is A April 15, 2011 B November 8, 2010 March 8, 2010 March 18, 2010 May 8, 2010 September 28, 2010 C December 8, 2010 D October 28, 2010 30 Date assessment was received Date petition for reconsideration was filed with the BIR Date of filing of documents to support the petition No decision on the protest is received as of The last day to appeal to the CTA is March 8, 2010 March 28, 2010 May 8, 2010 October 30, 2010 A April 15, 2011 C December 4, 2010 B November 8, 2010 D November 30, 2010 31 Which of the following statements is correct? A B C D Individuals deriving compensation income are exempt from filing ITR General professional partnership are exempt from filing ITR Domestic corporations can avail the optional standard deduction beginning 2008 Resident aliens engaged in business in the Philippines are required to file quarterly and annual ITR 32 Which of the following statement is correct? A A protest should be filed by a taxpayer, otherwise the assessment becomes final and can no longer be questioned in court 47 B A protest may be filed by the taxpayer anytime before the BIR collects the tax C The assessment should be made by the BIR within five years from the filing of the return D The assessment shall include only tax proper 33 Which of the following statements is incorrect? A A pre-assessment notice shall be required before an assessment maybe made B The taxpayer shall be informed of the law and the facts on which the assessment is made, otherwise the assessment shall be void C The Commissioner may refund a tax even without a claim refund from the taxpayer where on the face of the return upon which the payment was made, such a payment clearly appears to have been erroneously made D A suit may be brought even after the lapse of two years from the date of payment, if any supervening cause arises after payment 34 The following are the grounds to cancel a tax liability by the Commissioner, except A The tax is unjustly or excessively assessed B The administration and collection costs involved not justify the collection of the amount C A reasonable doubt as to the validity of the claim against the taxpayer D Illegal collection of tax 35 Which of the following is not a requisite to toll the collection of taxes to be made by the BIR, upon proof of the following to the Court of Tax Appeals A B C D It will jeopardize the interest of the taxpayer It will jeopardize the interest of the government Filing of a bond for at least double the amount of the tax assessed The case is not dilatory 36 Which of the following will not interrupt the running of the prescriptive period for assessment and collection of taxes? A When the Commissioner is prohibited from making the assessment or beginning distrait and levy or a proceeding in court and for thirty (30) days after B The taxpayer requests for the reinvestigation which is granted by the Commissioner C When the taxpayer is out of the Philippines D When the taxpayer cannot be located in the address given by him in the return 37 The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the Tax Code or other laws administered by the BIR is vested with A B C D The Commissioner of the BIR The Secretary of Finance The Court of Tax Appeals The Regular Courts 38 It is the official action of an administrative officer in determining the amount of tax due from a taxpayer, or it may be a notice to the effect that the amount stated therein is due from the taxpayer with a demand for payment of the tax or deficiency stated therein A Tax investigation B Tax audit C Tax assessments D Tax mapping 39 Which of the following is not the remedies of the government in tax collection? A Tax lien C Forfeiture 48 B Compromise D Protest 40 Commissioner of BIR may compromise any internal revenue tax when, except one A A reasonable doubt as to the validity of the claim against the taxpayer exists B The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax C The tax or any portion thereof appears to be unjustly or excessively assessed D The taxpayer has been granted by the SEC or by any competent tribunal a moratorium or suspension of payments to creditors, or otherwise declared bankrupt or insolvent 51 The power of the Commissioner of Internal Revenue include the following, except A Abate a tax liability of a taxpayer B Compromise the payment of any internal revenue tax C Credit or refund a tax that has been erroneously paid by the taxpayer D Inquire into bank deposits of a taxpayer ... creditable withholding income tax? A Expanded withholding income tax B Withholding income tax on passive income C Withholding income tax at source D Withholding income tax on compensation income As a rule,... the taxation system A Basis of taxation C Nature of taxation B Aspects of taxation D Theory of taxation 34 The process or means by which the sovereign, through its law-making body raises income. .. taxation C Scope of taxation B Situs of taxation D Theory of taxation 30 The reciprocal duties of support and protection between the people and the government A Basis of taxation C Scope of taxation