CHAPTER 1 General Principles and Concepts of Taxation Theory Problems 1.

.) Which of the following statements is not correct with respect to Tax Exemption? a.) Tax exemption are liberally construed in favor of the grantee and strictly against the government b.) When tax exemption is claimed, it must be shown to exist, for every presumption against it, and a well-founded doubt is fatal to the claim c.) Tax exemptions are looked upon with disfavor against the grantee and generally in favor of the taxing authority. d.) The state cannot strip itself of the most essential power of taxation by doubtful word. It cannot be deprived of this highest attribute of sovereignty. 2.) Without revenue raised from taxation, the government will not survive resulting detriment to society. a.) lifeblood theory b.) basis of taxation c.) Tax evasion d.) Symbiotic relationship

3.) A taxpayer gives the following reasons in refusing to pay a tax. Which of his reasons is not acceptable for legally refusing to pay the tax? a.) That he has been deprived of due process. b.) That there is lack of territorial jurisdiction. c.) That the prescriptive period for the tax has elapsed. d.) That he will derive no benefit from the tax. 4.) A canon of taxation which means that tax laws must be clear and concise, capable or proper enforcement, and not burdensome, convenient as to time and manner of payment. a.) Fiscal adequacy b.) Administrative feasibility c.) Ability to pay principles d.) Theoretical justice

5.) One of the characteristics of a tax is that a.) b.) c.) d.) It is generally based on contract It is generally based in money It is generally assignable Answer not given.

6.) One of the characteristics of a tax is a.) A tax is a pecuniary burden and the law may not allow payment in kind. b.) It is dependent upon the will or contractual assent, express or implied, of the person taxed. c.) It is levied by the state by virtue of its sovereignty. d.) It is collected for public and private purposes. 7.) Value added tax is not an example of what kind of tax? a.) Indirect tax b.) Direct tax c.) Proportional tax d.) Business tax

8.) The following are similarities of the inherent power of taxation, eminent domain, and police power, except one: a.) Are necessary attributes of sovereignty b.) Interfere with private rights and property c.) Affect all persons or the public d.) Are legislative in their implementation 9.) Which statement refers to police power as distinguished from taxation? a.) It can only be imposed on specific property or properties. b.) The amount imposed depends on whether the activity is useful or not. c.) It involves the taking of property by the government. d.) The amount imposed has no limit. 10.) The distinction of tax from permit of license fee is that a tax is a.) Imposition for regulation b.) One which involves an exercise of police power. c.) One in which there is generally no limit on the amount that may be imposed. d.) Answer not given. 11.) This is a prerogative of escaping or diminishing a tax liability through availment of ways allowable by law or not contrary to law to mitigate tax liability

a.) Tax exemption b.) Tax avoidance 12.) Tariff may generally be defined as:

c.) Tax assessment d.) Tax evasion

a.) amounts imposed on goods entering the imposing country. b.) amounts which are levied on goods leaving the imposing country. c.) amounts imposed on goods passing through the imposing country, but destined ultimately to another country. d.) list of commodities with corresponding duties collectible therefrom. 13.) A rule in taxation which states that all taxable persons and property of the same class are taxed at the same rate is: a.) Uniformity in taxation b.) Theory of taxation c.) Scope of taxation d.) Situs of taxation

14.) The country that has the jurisdiction or right to levy and collect the tax is: a.) Scope of taxation b.) Theory of taxation c.) Situs of taxation d.) Equality in taxation

15.) A tax upon a corporation for its property and upon its shareholders for their shares is an example of a.) Poll tax b.) Direct duplicate taxation c.) Indirect duplicate taxation d.) Uniformity in taxation

CHAPTER 3 ITEMS AND CONCEPTS OF INCOME 1.) Schedular system of taxation means a.) all types of income are added together to arrive at gross income. b.) separate graduated rates are imposed on different types of income. c.) capital gains are excluded in determining gross income.

d.) compensation income and business incomes are added together in arriving at gross income. 2.) This dividend is subject to ordinary income tax a.) Dividend received by a domestic corporation from another domestic corporation. b.) Dividend received by a resident foreign corporation from a domestic corporation. c.) Dividend received by a domestic corporation from a resident foreign corporation. d.) Dividend received by resident citizen from a domestic corporation. 3.) One of the following is not subject to income tax a.) Winning in jueteng b.) Bribe given to a public official c.) Winnings in lotto d.) Wagering gains 4.) One of the following is not the major business internal revenue tax in the Tax Code. a.) Value Added Tax b.) Excise Tax on Business c.) Income Tax d.) Percentage Tax

5.) The employees of PALA, incorporated staged a strike. Mon an employee joined the strike. After four (4) months of continued strike, Mon ran out of money and asked financial aid from other people since he has no source of income and needed financial assistance in order to live. He was able to raise P3, 000. When Mon filed his return, he excluded these benefits from his gross income. a.) The P 3,000 is subject to final withholding tax. b.) The entire amount is not taxable because it is a donation and not income. c.) The income is not taxable because it is neither compensation, business, professional nor passive income. d.) The entire income is taxable because it is considered as income from whatever source derived. 6.) Gains form graft, extortion, embezzlement, fraud or ransom fall under: a.) Tax avoidance b.) Tax exemption c.) Tax evasion d.) Income taxation

7.) Ceidi was notified by its depository bank that P 1 million had been credited to his savings account because of a million-dollar remittance by her sister in the United States through a US bank. Ceidi lost no time in spending most of the money for various purposes, such as the purchase of luxurious condominium unit and a luxury car, money market placement, gifts to relatives, etc. It turned out that Ceidis sister remitted only $ 1,000 dollars and not $ 1million. Statement: The erroneous remittance is taxable. Ador issued a check drawn on a bank in which he has no funds. He negotiated the check and received P 15,000 and immediately proceeded to the casino to try his luck but lost. Later, he was charged and convicted for violation of Batas Pambansa Blg. 22. Statement 2: The BIR can tax him for the P 15,000 he got from negotiating the check. a.) b.) c.) d.) Statement 1 is true, while Statement 2 is false. Statement 1 is false, while Statement 2 is true. Both statements are true. Both statements are false.

8.) If an individual renders services to a creditor who in consideration thereof cancels the debt, the cancellation of indebtedness may amount to a: a.) Gift b.) Capital contribution c.) Donation inter vivos d.) Payment of income

9.) Which of the following is subject to tax? a.) P6, 000 representing his unused vacation leave credits of nine working days; b.) Traveling expenses of P15,000 received by an employee who was sent on a business trip to Davao City; c.) Representation expenses of P5,000 a month which are not subject to liquidation; d.) Tips received by waitresses which are not accounted for by the employees to their employer. 10.) There is an effect of a payment of dividend when a.) fringe benefits are received by an employee from the company. b.) promissory notes are paid to the employees for the services he had rendered to his employer. c.) a creditor condones the debt of a corporation. d.) a corporation condones the debt of its stockholders.

11.) Lazaro saved the life of Cory and three others who met a car accident. Unintentionally, it was found out that Cory is a kidnap victim of the three men. Because of the assistance extended by Lazaro, Cory was saved and the kidnappers were arrested by police authorities. Consequently, Cory gave him P50, 000. The remuneration received by Lazaro is: a.) exempt for tax b.) subject to income tax c.) subject to donors tax d.) subject to 20% final tax

12.) In 2011, King, an employee of Advanced Corporation, is indebted to Philip Corporation in the amount of P50, 000. He has also a liability with Rex of P25, 000. During the year, the Board of Directors of Philip decided to condone his liability, he being a stockholder of said corporation. To be relieved of his liability, King was required by Rex to work in his restaurant for two (2) months as waiter. As a consequence, King filed his vacation leave from Advanced Corporation for the same period thereby receiving the monetized value of his leave credits in the amount of P6, 000. While working as waiter in the restaurant, he received tips from the customers totaling to P5, 000. Said amount was not accounted anymore by Rex. How much is the taxable income of King in 2011? a.) P 36,000 b.) 25,000 c.) 30,000 d.) 86,000

CHAPTER 5 EXCLUSIONS FROM GROSS INCOME 1.) In which of the following cases below would exempt the retiring employee to an income tax on his retirement benefit? Private Benefit Plan Case 1 Case 2 Case 3 Case 4 a.) Case 1 only b.) Cases 1 and 2 Yes Yes No Yes c.) Cases 2, 3 and 4 d.) Case 4 only Years in Service 12 9 15 11 Retirement Age 40 60 65 55

2.) Which of the following benefits/ gratuity is taxable? a.) Lifetime monthly gratuity of P20, 000 to a medal of valor awardee b.) The terminal leave pay consisting of the accumulated vacation and sick leave credits of an employee of the Supreme Court. c.) Retirement benefit per Collective bargaining Agreement although the early retirement is against the will of the employee.

d.) Separation or severance pay received in the form of residential lots as a consequence of continued losses. 3.) A tax exclusion is defined as: a.) an item or amount which the law allows to be deducted from gross income in order to arrive at net income. b.) the grant of immunity to particular persons or corporations from a tax which others within the same taxing district are obliged to pay. c.) income received but which is not taxable as it is exempted by law or treaty d.) a deduction from income tax due of any amount paid to a foreign country, subject to limitation 4.) The proceeds of insurance by a corporation on the life of the President to indemnify it against loss in case of his death is: a.) exempt from income tax b.) subject to final tax c.) part of taxable income d.) partly exempt, partly taxable

5.) A building was partially destroyed by fire in 2011. The building had a book value of P4, 000, 000. The insurance company was willing to pay P3, 000, 000 which was refused by the owner of the building. Finally, the claim was settled in 2012 for P3, 500, 000. a.) exempt from income tax b.) taxable in full c.) subject to final tax d.) partly taxable, partly exempt

6.) The widow of your best friend has just been paid P1, 000, 000 on account of the life insurance policy of the deceased husband. She asks you whether she should declare the amount for income tax purposes or for estate tax purposes. 1st advice The proceeds of life insurance paid to the beneficiary upon the death of the insured are exempt from income tax and need not be declared for income tax purposes. 2nd advice The proceeds of life insurance would have to be declared for estate tax purposes if the designation of the beneficiary was irrevocable, otherwise it need not be declared. a.) b.) c.) d.) Both advices are correct. 1st advice is correct, while the 2nd advice is wrong. Both advices are wrong. 1st advice is wrong, while the 2nd advice is correct.

7.) Which of the following may be excluded from the gross income of a taxpayer?

a.) Income derived from bequests and devises. b.) Interest on proceeds of life insurance policies. c.) Interest on obligations of the government of the Republic of the Philippines. d.) Interest on banks received by foreign governments. 8.) Roman, a retired public school teacher, relies on his pension from the GSIS and the interest income from his time deposit of P600, 000. Is he liable to file his income tax return and pay the corresponding tax thereon? Ling-ling Company decides to close its operations due to continuing losses and to terminate the services of its employees. Under the labor Code, employees who are separated from service for such cause are entitled to a minimum of one- half month pay for every year of service. Ling-ling Company paid the equivalent of one month pay for every year of service and the cash equivalent of unused vacation and sick leaves as separation benefits. Are such benefits taxable and subject to withholding tax under the tax code? a.) b.) c.) d.) Yes to 1 question and No to 2nd question. Yes to both questions. No to 1 question and yes to 2nd question. No to both questions

9.) Which of the following is not subject to income tax? a.) Moral damages awarded to litigant for mental anguish on account of a libelous article written about him. b.) P5, 000 received by a person when his name was drawn by chance from a phone book in connection with a television program which is being done through picking up of name in a telephone directory. c.) Excess remittance of dollar from a sister in the United States due to computer error ( $1, 000 only instead of $1, 000, 000). d.) Stock dividend received from a corporation when there is a change in proportionate interest. 10.) Which of the following is taxable? a.) Monthly support from a son who is working abroad. b.) A plague costing P1, 000 as award for socio-economic activities in the community. c.) P10, 000 worth of goods as prize for having won a beauty contest sponsored by a civic organization.

d.) Separation pay of P30, 000 received from a company which was declared bankrupt. 11.) Which of the following gifts would constitute exclusion from gross income? a.) Roy appeared on a TV quiz show and received a prize of P20, 000 b.) Barreto received P30, 000 from his employer because he developed an idea that reduced the employers production costs. c.) Luis borrowed P21, 500 from his mother in order to finance his last year in college. Upon graduation, Luis mother told him he did not have to repay the P21, 500. She intended the money to be a graduation present. d.) None of the above 12.) Which of the following separation pay is taxable? a.)P 45, 000 due to physical disability to perform his work. b.) 20, 000 due to death of the employee. c.) 30, 000 due to retrenchment. d.) 10, 000 due to inefficiency in service. 13.) Which of the following damages is taxable? a.) Actual damages for injury suffered b.) Moral damages for mental anguish. c.) Damages for loss of the goods. d.) Compensatory damages for loss of profits. 14.) One of the following prizes/ benefits is taxable a.) Prizes received in recognition of literary achievement. b.) Prizes granted to athletes in local competitions sanctioned by a national sports association. c.) Social security benefits received by resident aliens from foreign government agencies. d.) 13th month pay and other benefits in excess of P30, 000. 15.) Tito purchased a life annuity for P1, 000, 000 that will pay him P100, 000 a year. The life expectancy of Tito is 12 years. Which of the following will Tito be able to exclude from his gross income? a.) P 200, 000 c.) 1, 200, 000

b.) 1, 000, 000

d.)

None