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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 2: Tax Administration

CHAPTER 2

TAX ADMINISTRATION

Problem 2 – 1 TRUE OR FALSE

1. True

2. False – not the BIR, but the Department of Finance

3. False – the BIR is responsible to collect national taxes only.

4. False – The review shall be made by the Court of Justice.

5. True

6. True

7. False – The Secretary of Justice and the Courts also interprets the provisions of the Tax Code.

8. False – the fact that taxes are self-assessing the BIR assessment is necessary to ensure the reliability of the ITR.

9. False – the BIR or the Government is not allowed by law to appeal to the CTA. (Acting Collector

of customs vs. Court of Appeals, Oct. 31, 1957)

10. True

11. False – Appeal to the SC shall be made within 15 days from the receipt of the decision of the CTA.

12. False – the CIR can conduct a jeopardy assessment when there are no accounting records.

13. True

14. False – the taxpayer needs to waive first his right on the secrecy of bank deposits before BIR can inquire into his bank deposits.

15. True

Problem 2 – 2 TRUE OR FALSE

1. False – there must be a Letter of Authority.

2. False – the supporting documents must be submitted to the BIR within 60 days from the date a protest is filed.

3. True

4. True

5. False – destraint as a tax collection method is applicable only to personal property.

6. False – criminal violations already filed in court are not subject to compromise.

7. True

8. False, collection must be within 5 years

9. True

10. False-redemption period is within 1 year from date of auction sale.

11. True

12. True

Problem 2 – 3 TRUE OR FALSE

1. False – there is no need to pay additional registration fee for transfer of business registration.

2. True

3. False – the initial bond required for manufacturers and importers of articles subject to

excise tax is P100,000.

4. False – informer’s reward is subject to 10% final withholding tax.

5. True

6. True

7. True

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Chapter 2: Tax Administration

9. False – Seizure

10. False – Forfeiture

11. False – not allowed because the second cousin is within the 6 th degree of relative by consanguinity.

12. False – collection tax cases filed in courts are subject to compromise.

13. True

Problem 2 – 4

Problem 2 – 5

Problem 2 – 6

1. C

1. B

1. B

2. B

2. A

2. A

3. B

3. D

3. A

4. D

4. C

4. B

5. C

5. D

5. D

6. C

6. D

6. C

7. B

7. C

7. B

8. B

8. C

8. A

9. C

9. A

9. C

10. D

10. A

10. A

11. A

 

11. A

12. D

 

12. A

Problem 2 – 7

Case A:

April 15, 2014 - The return, statement or declaration can be modified, changed

or amended from within three years from the date of filing as long as no tax investigation has

been served to the taxpayer. (Sec. 6(A), NIRC)

Case B:

period of tax assessment is within 3 years starting from the date of filing the return (Sec. 203, NIRC), or its amendment.

October 20, 2015 - If the tax deficiency is due to simple neglect, the prescriptive

Case C:

be assessed, or a proceeding in court for the collection of such tax may be filed without assessment at any time within ten (10) years after the discovery of the falsity, fraud or omission.

(Sec. 222 (a), NIRC)

April 15, 2025 - If the ITR is fraudulent or no tax return was filed, the tax may

Case D:

be assessed, or a proceeding in court for the collection of such tax may be filed without assessment at any time within ten (10) years after the discovery of the falsity, fraud or omission.

(Sec. 222 (a), NIRC)

April 15, 2022 - If the ITR is fraudulent or no tax return was filed, the tax may

Case E:

expired. The filing of refund should have been made within two years after the payment of tax or penalty. It was filed within 2 years, one month, and 5 days after the date of erroneous payment,

hence, not appealable anymore.

No need to appeal. The prescribed period of filing for the refund is already

Case F: May 5, 2013. The filing of refund was appropriately made within the 2 year prescribed period. The denial was received on April 5, 2013. The filing of appeal to CTA should be made within 30 days from the receipt of denial from the BIR.

Case G:

The refund check (dated July 15, 2012) should be encashed within 5 years from the date the

August 2, 2017. The date of grant for refund was received on August 1, 2012.

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 2: Tax Administration

grant for refund was delivered (August 1, 2012). The check should be encashed from August 1, 2012 to August 1, 2017. It will be forfeited on August 2, 2017.

Case H:

the date of issuance. In this case, the date of issuance should be the date of tax credit certificate.

The expiry date would therefore start on July 31, 2017.

July 31, 2017. For tax credit, the five year prescriptive period should start from

Case I:

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:

August 20, 2011. If the BIR has no response after the submission of supporting

After January 22, 2011 January February March April May June July Total number of days as of July 21 Plus 30 days after the 180 days July August Total day on August 20

Days

9

28

31

30

31

30

21

180

10

20

30

Case J:

from the receipt of the denial of the BIR. The 30 days is determined as follows:

May 4, 2011. The last day to appeal to the CTA should be made within 30 days

First denial of the BIR – March 22, 2011 to 2 nd request for reconsideration – March 30, 2011 2 nd denial of the BIR – April 12, 2011 to May 4, 2011 to complete the 30 day period Total days as of May 4, 2011

Days

8

22

30

Case K:

unfavorable decision from CTA was received (June 10 plus 15 days).

June 25, 2011. The appeal to CTA should be made within 15 days from date of

Case L:

receipts of the unfavorable decision of CTA (June 25 plus 15 days).

July 10, 2011. The appeal to SC should be made within 15 days from date of

Case M:

March 1, 2011. Within 1 year from the date of sale.

Problem 2 – 8

B

Original business registration and renewal of business registration are subject to P500 each. The transfer of registration requires no additional registration fee to be paid by the taxpayer. (Sec. 243,

NIRC)

Problem 2 – 9

All criminal violation may be compromised except: (a) those already filed in court, or (2) those

involving fraud. (Sec. 204 (B), NIRC)

D

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Chapter 2: Tax Administration

Problem 2 – 10

D

Income tax payable

P1,000,000

Multiplied by minimum compromise rate due bankruptcy Minimum amount of compromise

 

20%

P

200,000

Problem 2 – 11

D

Amount of tax liability Surcharges Interest

 

P150,000

25,000

20,000

Advertising cost Price if purchase by the Government

 

5,000

P200,000

Problem 2 – 12

D

1. Letter C Actual excise tax on the first 6 months Multiplied by statutory increase in rate Required bonds on the last 6 months

 

P200,000

2

P400,000

If after 6 months of operation, the amount of initial bond is less than the amount of the total excise tax paid during the period, the amount of the bond shall be adjusted to twice the tax actually paid for the period. [Sec. 160 (A), NIRC]

2. Not in the choices, P400,000 Actual excise tax on the first year applicable to the second year (P200,000 + P250,000) Less: Excess of bonds over actual excise tax Bonds paid first year (P100,000 + P400,000) Actual excise tax first year Net actual amount of bond for the second year

 

P450,000

P500,000

(450,000)

50,000

P400,000

The bond for the succeeding years of operation shall be based on the actual total excise tax paid during the year immediately preceding the year of operation. [Sec. 160 (B), NIRC]

Problem 2 – 13

X is not entitled to receive the informer’s reward because being a first cousin, he is B’s (an RDO)

relative within the 6 th degree of consanguinity.

C

A public official or government employee or his relative within the 6 th degree of consanguinity

shall not be entitled to the informer’s reward of 10% based on the tax revenue recovered or P1,000,000. whichever is lower. This informer’s reward, once awarded shall be subject to a final withholding tax of 10%. (Sec. 282, NIRC)

Problem 2 – 14

1.

Letter D Sales price Less: Total amount per assessment Surcharge (P2,500,000 x 25%) Interest (P2,500,000 x 20% x 3/12)

 
 

P4,000,000

P2,500,000

625,000

125,000

3,250,000

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Chapter 2: Tax Administration

Net amount after public taxes, penalties and interest

 

P

750,000

Less: Capital gains tax (P4,000,000 x 6%) DST (P4,000,000 x 1.5%)

P

240,000

60,000

Cost of advertising Excess amount to be returned to X

20,000

320,000

 

P 430,000

2. Letter C Purchase price Add: Interest (P4,000,000 x 15% x 9/12) Redemption price

P4,000,000

 

450,000

 

P4,450,000

The redemption price is comprised of the purchase price plus 15% interest per annum from the date of purchase to the date redemption. (Sec. 214, NIRC)

3. Letter C Total rent income (P60,000 x 9 months) Less: Interest expense to redeem the property Excess income

P540,000

450,000

P 90,000

The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. (Sec. 214, NIRC)

Problem 2 – 15

Statutory fine (P250,000 x 2)

C

P500,000

Any taxpayer whose property has been placed under constructive distraint, and disposed the same without the knowledge and consent of the Commissioner shall be punished by a fine of not less than twice the value of the property sold, encumbered or disposed of, but not less than P5,000 or suffer imprisonment of not less than 2 years and 1 day but not more than 4 years or both. (Sec. 206, NIRC)

The P5,000 fine is applicable only when the computed amount (selling price x 2) is lower than

P5,000.

Problem 2 – 16

C

Proceeds from sale Less: Basic tax assessed Accrued interest from April 15, 200x to July 15, 200x (P300,000 x 20% x 3/12)

 

P 350,000

P300,000

15,000

Documentary stamp tax

1,500

Advertisement Amount to be refunded to Mr. Poe

1,000

317,500

 

P 32,500

Problem 2 – 17

D

Proceeds from sale (P1,500/0.005) Less: Basic tax assessed Accrued interest from April 15, 200x to July 15, 200x (P275,000 x 20% x 3/12) Documentary stamp tax

 

P 300,000

P275,000

13,750

1,125

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Chapter 2: Tax Administration

Advertisement Amount to be refunded to Mr. Ligot

Problem 2 – 18

Total surcharge (P10,000 x 25%)

C

1,000

290,875

P

9,125

P2,500

25% surcharge shall be imposed for late filing of the return and late payment of the tax. (Sec. 5, Rev. Regs. No. 12-99)

Problem 2 – 19

C

Interest (P10,000 x 20% x 2.5/12)

 

P416.67

The computation of interest is based on unpaid basic tax. (RMC No. 46–99)

Problem 2 – 20

C

Basic tax Surcharges:

P10,000

For late filing and payment (25%) For filing in wrong RDO (25%) Interest (P10,000 x 20% x 2.5/12) Total amount due

P2,500

2,500

5,000

417

P15,417

Problem 2 – 21

D

Income tax due per return Add: Surcharge for willful neglect to file the and late payment (P100,000 x 50%) Interest from April 15, 200B to

P50,000

P100,000

June 30, 200C (P100,000 x 20% x 14.5/12) Total amount due, June 30, 200C

24,167

74,167

P174,167

Late filing and late payment of tax is a taxpayer’s willful neglect if the payment is made only after the notification of the BIR. Such violation is subject to 50% surcharge plus 20% interest per annum computed from the due date of the tax until the date of payment. (Rev. Regs. No. 12-99, Sec. 5.3)

Problem 2 – 22

B

Income tax due per return Add: Surcharge for late filing and late payment - simple neglect (P100,000 x 25%)

P25,000

P100,000

Interest from April 15, 200B to June 30, 200B (P100,000 x 20% x 2.5/12) Total amount due (excluding compromise penalty)

4,167

29,167

P129,167

If the violation is late filing and late payment of tax, only one 25% surcharge shall be imposed for late filing of the return and late payment of the tax plus 20% interest per annum computed from the due date of the tax until the date of payment. (RMC No. 46-99; Sec. 5, Rev. Regs. No. 12-99)

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 2: Tax Administration

Problem 2 – 23

A

Unpaid tax due Additions to tax:

P1,000,000

Surcharge (P1,000,000 x 50%) Interest from April 15, 200B to December 31, 200C (P1,000,000 x 20% x 1 year & 6.5 mos.)

P500,000

341,666

841,667

Total amount due as of December 31, 200C Add: Excess amount Total selling price Add: Statutory interest rate to redeem (P2,000,000 x 15%) Total amount needed to redeem the real property

P1,841,667

158,333

P2,000,000

300,000

P2,300,000

The redemption of the property sold through public auction shall be made within one year from the date of sale subject to a statutory redemption interest rate of 15% per annum. (Sec. 214, NIRC)

Problem 2 – 24

B

Basic amount due per assessment Add: Surcharge for simple neglect to pay on time (P80,000 x 25%)

 

P 20,000

 

P 80,000

Interest (P80,000 x 20% x 45/360 days) Total required payment on June 30, 200A

2,000

22,000

 

P102,000

[Sec. 248(A)(3) and Sec. 249(B)(3), Rev. Regs. No. 12-99, Sept. 6, 1999]

 

Problem 2 – 25

C

Unpaid income tax due (P3,000,000 – P1,000,000)

 

P2,000,000

Additions to tax:

Surcharge (P2,000,000 x 50%)

P1,000,000

 

Interest (P2,000,000 x 20% x 3/12) Total amount due as of August 15, 200B

100,000

 

1,100,000

 

P3,100,000

Concealment of income is a form of fraud. A false or fraudulent return is subject to a surcharge of 50% based on the unpaid tax or the deficiency tax. [Sec. 248 (B), NIRC]

Problem 2 – 26

D

Income tax due per ITR Divided by installments allowed Tax due on 1 st installment Less: Tax credit Tax payable 1st installment

P8,000

2

P4,000

3,000

P1,000

When the tax due is in excess of P2,000, the taxpayer other than a corporation may elect to pay the tax in two equal installments (Sec. 56(A)(2), NIRC).

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Chapter 2: Tax Administration

Problem 2 – 27

1. Letter A Income tax due per return, April 15, 200B Less: 1 st installment, April 15, 200B Balance as of April 15, 200B Add: Interest from April 15, 200B to May 15, 200B

(P750,000 x 20% x 1/12) Total amount due, May 15, 200B

2. Letter C Balance as of May 15, 200B Add: Interest from May 15, 200B to June 15, 200B (P500,000 x 20% x 1/12) Total amount due, June 15, 200B Less: 3 rd installment, June 15, 200B (P250,000 + P8,333) Balance as of June 15, 200B Add: Interest from June 15, 200B to July 15, 200B (P250,000 x 20% x 1/12) 4 th and final installment

P1,000,000

 

250,000

P

750,000

12,500

P

762,500

P

500,000

8,333

P

508,333

258,333

P

250,000

4,167

P

254,167

Problem 2 – 28 Yes, because the prescriptive period of filing the written protest is within 30 days from receipt of assessment. Pay the related tax. Compromise is not a remedy because tax fraud is not subject to compromise.

Problem 2 – 29

1. Taxable income Add: Discrepancies per investigation:

P1,000,000

Undeclared rental income Nondeductible interest expenses Nondeductible bad debt expense Undocumented representation expenses Taxable income per investigation Multiplied by income tax rate Income tax due Less: Income tax paid per return Balance Add: 50% Surcharge for filing a fraudulent return (P330,000 x 50%) 20% interest per annum from April 15, 2010

P450,000

300,000

200,000

150,000

1,100,000

 

P2,100,000

 

30%

 

P

630,000

 

300,000

 

P

330,000

P165,000

to April 15, 2011 (P330,000 x 20%) Total amount due

66,000

231,000

 

P

561,000

2. Total amount due Add: 25% Surcharge for late payment (P561,000 x 25%) 20% Interest per annum from April 15, 2011 to June 15, 2011 (P561,000 x 20% x 2/12) Total amount due (excluding suggested compromise penalty for late payment)

 

P561,000

P140,250

18,700

158,950

 

P719,950

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 2: Tax Administration

Problem 2 – 30

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 2 – 31

a. The tax violations of Miss San Tago are the following:

1. Unregistered business (Sec. 236 [A], NIRC.)

2. Non-issuance of commercial invoice (Sec. 237, NIRC.)

3. Ignoring the summon (Sec. 5, NIRC.)

b. Miss San Tago’s minimum financial penalties if convicted:

1. For operating an unregistered business

P 5,000

2. For not issuing commercial invoices

1,000

3. Failure to obey summon

5,000

Total minimum

P11,000

Problem 2 – 32 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 201B Income tax due

P

2,666,667

1,111,111

P

1,555,556

30%

P

466,667

Problem 2 – 33

1. Principal factory Warehouses (P500 x 9) Branches (P500 x 30) Total annual registration fee – January 31, 200B

P

500

4,500

15,000

P20,000

2. Total annual registration fee – January 31, 200B Surcharges (20,000 x 25%) Interest (P20,000 x 20% x 6/12) Total amount due – July 30, 200B

P20,000

 

5,000

2,000

P27,000

Problem 2 – 34 Amount of tax liability Surcharges Interest Advertising cost Price if purchase by the Government

P100,000

25,000

20,000

 

5,000

P150,000

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS

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Chapter 2: Tax Administration

Problem 2 – 35 Case 1 – 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 2 – Financial incapability due to surplus deficit resulting to impairment in original capital by at least 50%.

Delinquent accounts Pending cases under administrative protest Criminal violation not filed in courts Total basic tax

P

500,000

900,000

1,000,000

P2,400,000

Multiplied by applicable compromise rate Amount of compromise

Case 3 – 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

 

40%

P

960,000

P

500,000

900,000

1,000,000

P2,400,000

 

40%

P

960,000

Problem 2 – 36

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).