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MC – part 1
Which is true?
a. A only c. A and B
b. B only d. Neither A and B
5. International double taxation can be mitigated by any of the following except
a. Providing allowance for tax credit
b. Provision of reciprocity provisions in tax laws
c. Provision of tax exemptions
d. Entering into treaties to form regional trade blockage against the rest of the world
6. Which is not an object of taxation?
a. Persons c .Transactions
b. Business d. Public Properties
7. That courts cannot issue injunction against the government’s effort to collect taxes is justified by
a. The lifeblood c. the ability to pay theory
b. Imprescriptibility of taxes d. the doctrine of estoppel
8. The power to enforce proportional contribution from the people for the support of the government is
a. Taxation c. Eminent domain
b. Police power d. Exploitation
a.
9. This theory underscores that taxes are indispensable to the existence of the state.
Doctrine of equitable recoupment
b. The Lifeblood Doctrine
c. The benefit received theory
d. The Holmes Doctrine
10. A. Taxation is the rule, exception is the exemption
B. Vague taxation laws are interpreted liberally in favor of the government
Which is false?
A. A only c. Both A and B
B. B only d. Neither A nor B
11. Select the incorrect statement
a. The power to tax includes the power to exempt
b. Exemption is construed against the taxpayer and in favor of the government
c. Tax statues are construed against the government in case of doubt
d. Taxes should be collected only for public improvements
12. Which is not a public purpose?
a. Public education c. Transportation
b. National defense d. None of these
13. Which does not properly describe the scope of taxation?
a. Comprehensive c. Discretionary
b. Supreme d. Unlimited
14. All of these are secondary purposes of taxation except
a. To reduce social inequality
b. To protect local industries
c. To raise revenue for the support of the government
d. To encourage growth of local industries
15. What is the theory of taxation?
a. Reciprocal duties of support and protection
b. Necessity
c. Constitutionality
d. Public purpose
16. A. taxes should not operate retrospectively.
B.tax is generally for public purpose
Which is true?
a. A only c. A and B
a.
b. B only d. Neither A nor B
17. Which provision of the Constitution is double taxation believed to violate?
A. Equal protection guarantee
B. Progressive scheme of taxation
C. Uniformity rule
D. Either A or C
18. Which limitation of taxation is the concept of “situs of taxation” based?
Territoriality c. International comity
b. Public purpose d. Exemption of the government
19. Which tax exemption is irrevocable?
a. Tax exemption based on contract
b. Tax exemption based on the Constitution
c. Tax exemption based on law
d. Both A and B
20. Which statement is incorrect?
a. Every person must contribute his share in government costs
b. The existence of a government is expected to improve the lives of the people
c. The government provides protection and other benefits while the people provide support
d. Only those who are able to pay tax can enjoy the privileges and protection of the government
21. Which is the most incorrect statement regarding taxes?
a. Taxes are necessary for the continued existence of the government
b. The obligation to pay tax does not rest upon the privilege enjoyed by or the protection afforded to
the citizen of the government but upon the necessity of money for the support of the state
c. There should be personal benefit enjoyed from the government before one is required to pay tax
d. Taxes should be collected without unnecessary delay but its collection should not be tainted with
arbitrariness
22. Statement 1: in the selection of the objects of taxation, the courts have no power to inquire into the
wisdom, objectivity, motive, expediency, or necessity of a tax law.
Statement 2: An imposition can be both a tax and a regulation. Taxes may be levied to provide means
for rehabilitation and stabilization of threatened industry
Which is correct?
a. Statement 1 only c. Both statements
b. Statement 2 only d. Neither statements
23. Which of the following acts in taxation is administrative by nature?
a. Determination of the amount to be imposed
b. Fixing the allocation of the amount to be collected between the local government and the national
government
a.
c. Levy or distraint of taxpayers’ property for tax delinquency
d. Determining the purpose of the tax to impose
24. This refers to the privilege or immunity form a tax burden which others are subject to:
a. Exclusion c. Tax holiday
b. Deduction d. Reciprocity
25. Statement 1: the benefit received theory presupposes that some taxpayers within the territorial
jurisdiction of the Phil. Will be exempted from paying tax so long as they do not receive benefits from
the government.
Statement 2: the ability to pay theory suggests that some taxpayers may be exempted from tax
provided they do not have the ability to pay the same.
MC Part 2
a. A and B c. C and E
b. B and C d. D and E
9. The provisions in the Constitution regarding taxation are
a. Grants of the power to tax
b. Limitations to the power to tax
c. Grants and limitations to the power to tax
d. Limitations against double taxation
10. The constitutional exemption of non-stock, non-profit educational institutions refers to
a. Real property tax c. property tax and income tax
b. Income tax d. business tax
11. Which of the following is violative of the principle of non-delegation?
a. Requiring that legislative enactment must exclusively pertain to congress
b. Authorizing the president to fix the amount of impost on imported and exported commodities
c. Authorizing certain private corporation to collect taxes
d. Allowing the secretary of finance and the BIR to issue regulation or rulings which go beyond the
scope of a tax law
12. Which of the following violates constitutional provisions?
a. Payment of salaries to priest or religious ministers employed by the Armed Forces of the
Philippines
b. Imposing tax on properties of religious institutions which are not directly and exclusively used for
religious purposes
c. Imposition of license for the sale of religious literature
d. Authorizing the President of the Philippines to fix the rates of tariffs or imposts
13. In order to phase-out a huge deficit, the President of the Philippines passed a law offering all taxpayers
with previous tax delinquency to pay a minimum tax in exchange for relief from tax assessment in the
period of delinquency. Is this a valid exercise of taxation power? a. Yes, because the measure adopted
is grounded upon necessity
b. Yes, because the President is merely exercising his presidential discretion
c. No, because the power of taxation is non-delegated
d. No, because only the Department of Finance can issue such ruling
14. Concerned with increasing unemployment rates in the country, the President of the Philippines
encouraged the Philippine Senate to pass a law granting special tax privileges to foreign investors who
will establish businesses in the country. The senate accordingly drafted the bill and passed to Congress
for approval. Is this valid exercise of taxation power?
a. Yes. It is the discretion of the President to adopt any measures he deemed necessary to alleviate
poor conditions in the country.
b. Yes. Any means beneficial to the public interest should be given optimum priority.
c. Yes. The president’s proposal will have to be finally approved and passed by the legislature. The
rule on non-delegation of taxation would not be violated.
d. No. tax bills shall originate from the House of Representatives
15. Ram is the only practicing lung transplant specialist in Baguio City. The City Government of Baguio
passed a local ordinance subjecting the practice of lung transplant to 2% tax based on receipts. Ram
objected claiming that other transplant specialists in other regions of the country are not subjected to
tax.
MC – Part 3
1. When a legislative body taxes a persons and property, rights and privileges under the same taxable
category at the same rate, this is referred to as compliance with the constitutional limitation of:
a. Equity c. Due process
b. Uniformity d. Equal protection clause
Which is incorrect?
a. Statement 1 c. both statements
b. Statement 2 d. neither statement
19. Select the correct statement
a. The provision on taxation in the Philippine Constitution are grants of the power to tax
b. The power to tax includes the power to destroy
c. When taxation is used as a tool for general and economic welfare, this is called fiscal purpose
d. The sumptuary purpose of taxation is to raise funds for the government
20. Which if the following power is inherent or co-existent with the creation of the government?
a. Police power c. taxation
b. Eminent domain d. all of these
21. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose
b. Taxation is limited to its territorial jurisdiction
c. Tax laws shall be uniform and equitable
d. Government agencies and instrumentalities are exempt from tax
22. Select the incorrect statement
a. The power to tax includes the power to exempt
b. Exemption is construed against the taxpayer and in favor of the government
c. Tax statues are construed against the government in case of doubt
d. Taxes should be collected only for public improvement
23. Which of the following is not a constitutional limitation of the power to tax?
a. Non-impairment of obligation or contracts
b. Due process and equal protection of the law
c. Non-appropriation for religious purpose
d. Non-delegation of the taxing power
24. Which of the power of the state is the most superior? Which is regarded as the most important?
a. Taxation; eminent domain
b. Police power; taxation
c. Eminent domain; police power
d. All
MC – Part 2
MC – Part 3
MC – PART 2
Statement 1: items of passive income from abroad are subject to regular income tax.
Statement 2: items of passive income from the Philippines are generally subject to final income tax. Which
statement is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement
Which is true with the regular income tax?
a. Certain items of income are subject to final withholding tax
b. Tax is payable at regular intervals
c. Income tax returns are not required
d. All of these
Which is not a feature of regular income tax?
a. It generally applies to all items of gross not subject to final tax
b. Creditable withholding tax
c. Gross income tax
d. Accounting period
Statement 1: capital gains are generally subject to capital gains tax
Statement 2: items of passive income in the Philippines are generally subject to regular income tax a.
Statement 1 is true
b. Statement 2 is true
c. Both statements 1 and 2 are true
d. Neither statement 1 and 2 is true
Deductions from gross income are
a. Personal expenses
b. Business expenses
c. Either a or b
d. Neither a or b
Which of the following statement distinguishes deductions from exclusions from gross income?
a. Deductions can be claimed by citizens while P250,000 income exemption cannot be claimed by aliens
b. Deduction are outflows from gross incomes while exclusions are not outflows from gross income
c. Both deductions and exclusions are deducted from gross income. d.
All of these
Progressive income tax does not apply to a
a. Non-resident alien
b. Resident alien
c. Non-resident citizen
d. Resident citizen
Proportional income tax does not apply to
a. Domestic corporation
b. Resident foreign corporation
c. Business partnership
d. General professional partnership
Which is not included under the term “corporation”?
a. Business partnership
b. Co-ownership
c. Non-profit charitable institution
d. Joint venture
The highest the highest marginal tax rate for individual income taxpayers is a.
25%
b. 30%
c. 35%
d. 32%
Which corporate taxpayer is not subject to regular income tax?
a. Non-resident foreign corporation
b. Domestic corporation
c. Resident foreign corporation
d. Business partnership
Which individual income taxpayers is not subject to regular tax?
a. Resident alien not engaged in trade or business
b. Non-resident citizen not engaged in trade or business
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
Which is correct with respect to exclusions from gross income?
a. They are included as part of gross income but are subsequently deducted
b. They are not included in gross income but are added to taxable income
c. They are not considered in the computation of taxable income
d. They are synonymous with deductions
Which is correct with respect to deductions from gross income?
a. They pertain to expenses of generating items of business or professional gross income
b. They are excluded from the determination of taxable income
c. They include all expenses incurred in the generation of any income
d. They include P250,000 annual income exemption Which constitute a taxable item of gross
income?
a. Compensation for personal injuries
b. Gain from sale in mutual funds
c. Gain from sale of government bonds
d. Income exempt under treaty
The proceeds of an insurance policy received by the corporation as beneficiary on the life of its officer is a.
A gift
b. A taxable income
c. An inheritance
d. Exempt from income tax
Mr. buguey was insured in a life insurance with his daughter, ybon, as the irrevocable beneficiary. Ybon was
paid the entire proceeds when Mr. buguey died. The proceeds constitute
a. A taxable inheritance
b. A taxable gift
c. A taxable income
d. An exclusion from gross income
A policy who outlived the policy an received a cash surrender value in excess premiums paid exempt upon
a. The amount representing a return of premiums
b. The entire amount received
c. The excess of the amount received over the premium paid
d. None of these
The assignment of an insurance policy at an amount in excess of the premiums paid on the policy is subject to
a. Donor’s tax
b. Income tax
c. Estate tax
d. Any of these
A widow who collected the life insurance proceeds of her decease husband is
a. Exempt to the entire amount of the proceeds
b. Taxable to the excess of the proceeds over the premiums paid by the husband
c. Taxable to the excess of the proceeds over the premiums paid by the widow
d. Exempt with respect to the portion of the proceeds representing returns of a premium
The policyholder of a life insurance contract outlived his insurance policy. He was paid P3000,000 upon
maturity of the policy. He paid P250,000 total premium. What is the inclusion in gross income? a. P300,000
b. P250,000
c. P50,000
d. P0
Which of the following is subject to tax?
a. Proceeds of crop insurance
b. Proceeds of livestock insurance
c. Indemnity under patent infringement suit
d. All of these
Which is not requisite of exemption of a retirement benefit plan?
a. 10 years of employment
b. The employer maintains a reasonable pension
c. The retiree must be a senior citizen
d. First time availment of retirement exemption
Termination benefits are exempt from income tax provided that the reason for termination is a.
Beyond the employee’s control
b. Within the employer’s control
c. Within the employee’s control
d. Beyond the employer’s control
Which is not an item of exclusion from gross income?
a. Sss benefits
b. Income of the government and its political subdivisions
c. Income of the government-owned and controlled corporations
d. Income of foreign governments
Which of the following government-owned and controlled corporations is subject to income tax? a.
Social security system
b. National development corporation
c. Philippine charity sweepstakes office
d. Philippine health insurance corporation
Which is not acceptable ground for exemption of termination pay?
a. Mass employee lay-off
b. Closure of employer’s business
c. Grave misconduct and neglect of duty
d. Retrenchment of employer’s business
Which is not an item of gross income for taxation purposes?
a. Unrealized income
b. Advanced income
c. Income earned between related parties
d. All of these
Which is subject to income tax?
a. Gain on sale of 6-year bonds
b. Gain on sale of share in mutual fund
c. Interest income on long-term bonds with a maturity period exceeding five years
d. Interest income on long-term bonds deposits by individual taxpayers Which
of the following is not an exclusion from gross income?
a. Income of government properties
b. Income taxes collected by the bureau of internal revenue
c. Dividend income payable to a foreign government
d. Social security benefits
Which of the following cannot claim deductions from gross income despite actual engagement in business? a.
Resident citizen
b. Resident alien
c. Non-resident citizen
d. Non-resident alien not engaged in trade or business
Which of the following tax payers cannot claim deduction from gross income?
a. General professional partnership
b. Domestic corporation
c. Resident foreign corporation
d. Non-resident foreign corporation
Which of the following can be claimed as deduction?
a. Transportation allowance of employees of the taxpayer
b. Transportation allowance of the taxpayer’s dependents
c. Losses from destruction of the taxpayer’s residence
d. Depreciation of the residence of the taxpayer
Which expense is deductible despite the fact that it is not actual expense?
a. Compliance expense on regulatory requirements
b. Deduction incentives for compliance to regulatory requirements
c. Uncollectible debts ascertained to be worthless
d. None of these
Which is not a characteristic of deductions from gross income?
a. Legitimate business expense
b. Capital expenditure
c. Ordinary and necessary business expense
d. Actual and necessary business expense Which is a deductible expense?
a. Regular repair of office equipment
b. Refurbishing of an old building to prepare it for use
c. Addition of a wing to an existing building
d. Overhaul of machineries to extend their useful life
Which of the following taxpayers can claim deduction against gross income?
a. A resident citizen taxpayer earning purely compensation income
b. Non-resident foreign corporation
c. Non-resident alien not engaged in trade or business
d. Resident citizen earning a mix of passive and business income Which is not separate
classification of deduction from gross income?
a. Net operating loss carry over
b. Regular allowable itemized deductions
c. Special allowable itemized deductions
d. Net capital loss carry over
Which statement incorrect regarding deductions?
a. The claim of deductions, similar to exemption, is construed against the taxpayer
b. The use of optional standard deduction always result in reported taxable income
c. The unreasonableness of deduction is up to BIR to prove
d. The incurrence of an operating loss is an indication of an unreasonableness expense
Losses on capital assets are
a. deductible against gross income to the extent not compensated by insurance.
b. deductible against capital gain to the extend compensated by insurance.
c. not deductible against gross income whether or not compensated for by insurance.
d. not deductible against capital gains unless not compensated for by insurance.
Which is a deductible expense?
a. Marketing and advertising expense
b. Insurance on factory building
c. Salaries of security guards in the factory
d. Cost of registering stocks
The transaction involving an insured property is said to be closed and completed when
a. final settlement by the insurer is made.
b. the report of the insurance adjuster indicates a loss.
c. final settlement confirms an unrecoverable cost.
d. no proceedings in the court is expected to be made by the insured.
Which is deductible expense?
a. Acquisition cost of a business franchise
b. Repayment of debt
c. Cost of registering a business
d. Cost of issuing securities
Which is deductible business expense?
a. Interest on personal borrowings
b. Rental of taxpayer’s domicile
c. Selling commission to agents
d. Wages of kasambahays
A repair expense is deductible in the period paid or incurred useless it
a. merely maintain the value of the property.
b. Increases the value of the property.
c. constitutes a major repair.
d. constitutes a major expense.
Losses of property are not deductible unless
a. sustained with a related party.
b. sustained in an actual or completed transaction.
c. temporary in nature.
d. covered by insurance or indemnity contracts.
Losses on insured properties are not deductible
a. to the extent not compensated by insurance.
b. to the extent compensated by insurance.
c. as a rule, except when allowed by the BIR examiner.
d. In all circumstances.
Which statement is the most accurate?
a. prepaid expense is deductible in the period paid by taxpayer using cash basis.
b. prepaid expense is deductible in the future period it relate without regard to the basis of
accounting employed by the taxpayer.
c. accrued expenses are deductible by cash basis taxpayers
d. depreciation expense can be claimed only by accrual basis taxpayer.
Cash basis and accrual basis taxpayer differs in the treatment of
a. Prepaid expense
b. Current period cash expense
c. Current period accrued expense
d. Depreciation expense Which may not be related?
a. The controlling individual and the controlled corporation.
b. The controlling individual and a subsidiary of a controlled corporation.
c. The grantor and fiduciary of a trust
d. The grantor and the beneficiary of trust
Which of the following is an extraordinary non-deductible expense against regular gross income of
merchandiser?
a. Loss on sale of obsolete merchandise
b. Store supplies and utilities
c. Local business permit
d. Loss on sale of investment in stocks
Which is a deductible expense against business gross income?
a. Commission expense on sale of investment in stocks
b. Salaries of marketing personnel of a manufacturing business
c. Quarterly estimated income tax
d. Final tax on interest income on the bank savings deposit Which is not a general principle of
deduction?
a. The matching principle
b. The related party rule
c. The withholding rule
d. The transfer pricing rule
Which is an actual deductible expense?
a. Provision for an estimated bad debt expense
b. Loss arising for liability on a contested lawsuit confirmed by a final judgment
c. Increase in value of foreign currency- denominated debt
d. Death of animal offspring
Which is deductible against gross income?
a. Imputed interest expense
b. Advance to the profit sharing of a partner in a general professional partnership
c. Repayment of business debt
d. Local taxes
Which of the following is deductible?
a. Rent office space
b. Tuition fees of the siblings of the taxpayer
c. Selling expense of domestic stocks directly to a buyer
d. Estimated losses on lawsuit
Which is non-deductible against gross income?
a. Loss on scale of stocks through the PSE
b. Write-off of bad debts
c. Loss on destruction of office building by an earthquake
d. Amortization of patent or franchise used in business Which is an incorrect statement?
a. The straight line method provides for an equal periodic deduction against gross income.
b. The sum-of-the-years digit method provides for an increasing deduction against gross income.
c. The double declining balance method provides for a declining deduction at a rete twice the deduction
of the straight line method.
d. Both straight line method and sum-of-the-years-digit method consider the residual value of the
property.
Which of the following ordinary assets cannot be depreciated?
a. Office equipment
b. Machineries
c. Building and its improvements
d. Land
Statement 1: Only taxpayer under the accrual basis shall use the inventory method in deducting inventories.
statement 2: Only taxpayer under the under the accrual basis can claim deduction for depreciation and losses.
a. Statement 1 is correct.
b. Statement 2 is correct
c. Both statements are correct
d. Neither statement is correct
Statement 1: The cost of goods sold is directly deducted upon sales in the measurements of the gross income
from the sales of goods.
Statement 2: The cost of services is directly deducted from gross receipts in the measurements of the gross
income from the sales of goods.
a. Statement 1 is correct.
b. Statement 2 is correct
c. Both statements are correct
d. Neither statement is correct Which
is not a capital expenditure?
a. Payments to create E good image of the business of the taxpayer
b. Prepaid expenses
c. Accrued expenses
d. Advances to contractors
Statement 1: Repairs that do not extent the useful life or increase the fair value of an assets should be
capitalized.
Statement 2: The costs of issuing securities of the taxpayer are deductions against gross income. a.
Statement 1 is correct.
b. Statement 2 is correct
c. Both statements are correct
d. Neither statement is correct
Statement 1: Improvements to properties are usually capitalized.
Statement 2: Directly attributable cost of acquisition of properties are added to the basis of the properties
acquired.
a. Statement 1 is correct.
b. Statement 2 is correct
c. Both statements are correct
d. Neither statement is correct
The following cannot claim deduction from gross income except
a. A self-employed individual taxpayer
b. A corporation earning purely passive income
c. An individual earning purely passive income
d. An individual taxpayer earning purely compensation and passive income Which is not
deductible against gross income?
a. Interest expenses incuccred to purchase tax-exempt securities
b. Net capital loss
c. Personal expenses
d. All of these
Which is a deductible business expense?
a. Loss on decline in value of securities
b. Estimated losses on expropriation
c. Fire loss on an insured property
d. Loss on theft of company assets
Which of the following constitution a deductible business expenses?
a. Purchase of office equipment invoiced under the trade name of the taxpayer’s business
b. Tuition fees of dependents of the taxpayer
c. Interest expense on business loan
d. Representation expenses booked in the name of the taxpayer’s
Which of the following qualifies for deduction for an individual income taxpayer engaged in business? a.
Salaries of household maid
b. Gasoline expenses of the taxpayer’s personal car
c. Office internet expense
d. Taxpayer’s transportation expense to and from his residence
Which of the following can be deducted by an individual taxpayer not engaged in business? a.
Transportation expenses
b. Communication expenses
c. Internet expenses
d. None of these
Which of the following can be claimed by a resident foreign corporation?
a. Depreciation expenses on properties located abroad
b. Oncome tax paid in a foreign country
c. Income tax paid in the Philippines
d. Interest expenses on foreign borrowings used to finance its Philippines business Which can be
treated as a capital expenditure deductible thought depreciation expense?
a. Interest expense incurred to purchase office equipment
b. Losses sustained in an uninsured office building
c. Acquisition of land
d. Acquisition of personal computers
Which of the following items can be deducted in full in the year sustained?
a. Write-off of bad debts by a taxpayer under the cash basis
b. Loss on market decline in the value of the gold inventories
c. Loss on the destruction of the taxpayer’s personal car
d. Uninsured fire loss sustained by the business of the taxpayer
Deduction can be claimed against
a. Talent fees
b. Fixed allowance
c. Fringe benefits
d. Salaries
Which is deductible in full by a taxpayer engaged in the merchandising business?
a. Value of inventories taken home by the business owner
b. Loss on unrecoverable debts from a non-paying family member
c. Imputed interest on the capital investment of the owner
d. Value of inventories destroyed by rodents Which is not deductible loss by security dealer?
a. Wash sales loss
b. Loss on the sale of bonds with more than five years maturity
c. Loss on the sale of stocks though the PSE
d. Loss on the sale of short-term bonds through the Philippine deadline
Determine the deductible loss.
a. Loss incurred in exchanging property to obtain control of corporation
b. Loss incurred in exchanging properties with a corporation after obtaining control over said corporation
c. Calamity loss on uninsured property
d. Bad debts from a sister company
Which of the following is non-deductible by the fact that it violates the matching principle?
a. Expense of a tax-exempt operation
b. Payment for the police protection
c. Payments pf revolutionary taxes
d. Expenses not receipted in the name of the taxpayer
Which is incorrect with regard to expenses incurred between associated enterprises?
a. The pricing of the transaction must not be controlled.
b. The pricing method to be adopted shall be based on free market factors on those made between two
independent parties.
c. In case of a controlled transaction, the deduction expense to the paying enterprise shall be arm’s
length value of the transaction.
d. No deduction shall be allowed on expenses incurred between associated enterprises Which is not a
business expense?
a. Fringe benefits tax expense
b. De minimis benefits granted to employees
c. Salaries of personal driver od the company president which was subjected to fringe benefit tax
d. Depreciation value of properties designated for the use of company managers and supervisors which
are subjected to fringe benefits tax
(TRUE OR FALSE)
TRUE 1. Items of gross income subject to regular income tax and capital gains tax are reportable to the
government.
TRUE 2. Rent is a passive income, but is not subject to final tax.
FALSE 3. The interest income from bonds issued by banks is subject to final tax.
TRUE 4. Gains from dealings in capital assets are generally subject to the regular income tax.
FALSE 5. The gross income from operations enjoying a tax holiday are included in gross income subject to
regular tax, but are presented as deductions in the income tax return.
TRUE 6. The share in business partnership is subject to final tax, but the share in a general professional
partnership is subject to regular income tax.
TRUE 7. Gains from dealings in ordinary assets are subject to regular income tax
TRUE 8. Items of passive royalty income are subject to final income tax while items of active royalty income
are subject to regular income tax.
TRUE 9. Compensation income is an inclusion in gross income subject to regular tax except compensation
income of special aliens.
TRUE 10. The reportable gross income from business or the exercise of a profession is net of the cost of
goods sold or cost of services.
TRUE 11. Items of income which are included in gross income subject to final tax are excluded in gross
income subject to regular income tax.
FALSE 12. Imputed interest income is an item of gross income subject to regular income tax.
TRUE 13. Advanced rentals are income in the year received.
TRUE 14. Real property tax and insurance on the property if assumed by the lessee constitute income to the
lessor.
FALSE 15. Corporate winnings are exclusions in gross income; hence, they are exempt from income tax.
FALSE 16. Stock dividends are never subject to income tax.
TRUE 17. Pensions or retirement benefits are inclusions in gross income subject to regular income tax if the
employee is terminated due to any cause within his control.
FALSE 18. Prizes in athletic competitions sanctioned by the Philippine government are exclusions in gross
income subject to final tax, but are inclusions in gross income subject to regular income tax.
TRUE 19. Corporate prizes are exclusions in gross income subject to final tax but are inclusions in gross
income subject to regular income tax.
TRUE 20. Stock splits are never subject to income tax.
TRUE 21. The distributable net income of a general professional partnership is subject to creditable
withholding tax.
FALSE 22. Exempt joint ventures and co-ownerships are treated as pass-through entities and are subject to
income tax.
TRUE 23. The distribution by the GDP of items of passive income is an inclusion in gross income of the
partner subject to regular income tax.
TRUE 24. General professional partnerships are exempt from tax and hence, exempt from withholding.
FALSE 25. The share from the net income of a joint venture organized abroad is subject to 10% final
withholding tax.
TRUE 26. Income distribution from taxable estates and trusts is an inclusion in gross income subject to
regular tax by the heir or beneficiary.
TRUE 27. The recovery of past deduction must be reverted back to gross income of taxpayers using the
accrual basis.
FALSE 28. The recovery of bad debts need not be reverted back to gross income of taxpayers using the cash
basis.
FALSE 29. The recovery of deduction from an exempt year is subject to tax.
FALSE 30. General professional partnerships are not exempt from regular tax but are subject to final tax and
capital gains tax.
FALSE 31. An indebtedness cancelled by the creditor out of mercy is an income to the debtor.
FALSE 32. When there is a net loss in the period the deduction is taken, the subsequent recovery of the
deduction will not have any tax benefit.
TRUE 33. The refund or recovery of non-deductible taxes shall not be reverted back to gross income.
FALSE 34. The loss of the partnership can be claimed by the partners as deduction in their income tax
returns.
FALSE 35. The accounting period of the taxpayer has a direct impact upon the amount of gross income to be
reported.
FALSE 36. The power of the CIR to redistribute income and expense includes the power to impute income
between affiliated enterprises.
TRUE 37. The situs of taxation has an impact on the extent of the reportable gross income.
TRUE 38. Creditable withholding taxes are added back to the amount of reportable gross income.
FALSE 39. The output VAT must be included as part of gross income of VAT taxpayers.
FALSE 40. The requirement to revert back to gross income the amount of withheld taxes applies only to VAT
taxpayers.
TRUE 41. Generally, all items of income of NRA-NETB and NRFCs from the Philippines are inclusions in gross
income subject to final tax.
FALSE 42. The taxpayer must enter into an advanced pricing agreement with the BIR for its cross-border
transfer pricing with associated enterprises.
TRUE 43. Transfer pricing between associated enterprises must be made at arm’s length.
FALSE 44. The transfer pricing regulations apply only to cross-border transfers of goods and services between
associated enterprises.
TRUE 45. Corporations under the direct and indirect control of the same controlling individual or
corporation are associated enterprises.
FALSE 46. Under the accrual basis of accounting items of gross income are reported in the period they are
received.
TRUE 47. Basically, transfer pricing adjustment is needed when the income reported for Philippine taxation
is understand.
MULTIPLE CHOICE – THEORY
1. Which is not subject to income tax? D. All of these
2. Which is an item of gross income subject to regular tax? A. Gain on sale of lot by a realty
dealer
3. Which is not an item of gross income subject to final tax? C. Share in the income of a general
professional partnership
4. Which of these employee benefits is subject to final tax? C. Fringe benefits to supervisory
and managerial employee
5. All of these are items of gross income subject to regular tax except B. Interest income from long-term
one. Select. bank deposits
6. Which is an income exempt from income tax? C. Taxes collected by the
government
7. All of these are subject to regular income tax, except D. Capital gain from sale of real
property located in the Philippines
8. Which is exempt from regular tax? B. Income of qualified pension plans
9. Which item of gross income is not subject to regular tax? B. Capital gain on the sale of bonds
with more than 5 years maturity
10. Which is not part of compensation income subject to regular tax? C. Portion of salary contributed to
SSS
11. Which is included in the gross income subject to regular tax of a B. Interest income from promissory
resident alien? notes of resident aliens
12. Which of the following deductions from gross compensation income D. Dues withholding tax
is included as part of gross income subject to regular tax?
13. Which interest income is subject to regular tax? D. All of these
14. Dividends subject to regular tax includes A. Foreign Dividends
15. Statement 1: All prizes earned abroad are subject to regular tax. A. Statement 1
Statement 2: All prizes in the Philippines are subject to final tax.
Which statement is generally correct?
16. Which is an item of gross income subject to regular tax? A. Lottery
17. Which of the following is not subject to regular tax of a domestic C. Income from abroad exempt
corporation or resident citizen? under treaty
18. Which is subject to regular tax to a non-resident foreign corporation D. None of these
or non-resident alien not engaged in trade or business?
19. Which is subject to regular tax to a resident foreign corporation? B. Gain from sale of real property
capital assets in the Philippines
20. The proceeds of life insurance received by the wife of the insured is A. Exempt from income tax
21. Which of the following will not be reported in gross income? A. Receipt inheritance
22. Which is not reportable type of gross income? D. Capital gains from the sale of
domestic stocks through the PSE
23. Which of the following is included in gross income subject to regular D. Farming income
tax?
24. All income earned abroad that would otherwise be subject to final B. Resident citizen
taxes if earned within the Philippines shall be subject to progressive tax
of a
25. All items of passive income earned abroad are subject to regular tax to C. A resident citizens and domestic
corporations
26. Which individual taxpayer is not subject to progressive tax? B. Special aliens
27. Which corporate taxpayer is not subject to regular tax? D. Non-resident foreign corporation
28. Individual taxpayers shall report their income on B. A calendar year
29. Corporations are allowed to report their income on C. Either fiscal year or calendar year
30. Which is not subject to progressive tax to an individual taxpayer? C. Amounts received by the insured
in excess of premiums paid
31. Which of these is subject to Philippine regular income tax to a D. Interest income from domestic
foreigner? bonds
32. If not covered by the substituted filing system, employed individual B. Annually
taxpayers shall report their regular income
33. Corporations and individuals engaged in business or in the exercise of D. Quarterly and Annually
a profession are required to report their regular income
34. Which is incorrect concerning transactions between associated C. Pricing should be motivated by
enterprises? the need to save from total income
tax.
35. Which is not an associated enterprise to the controlling individual of A. An associate of a subsidiary in
a holding company? the group
Chapter 10: Compensation Income
Multiple Choice Theory- Part 1:
1. Which is not an element of an employer-employee relationship?
D. Payment of fixed wages
4. Which do not form part of other benefits of rank and file employees?
B. Salaries and Wages
10. Which is correct when a minimum wage earner derives other income outside his employment? C.
He is exempt from withholding tax, but subject to income tax
15. Statement 1: Excess de minimis is considered compensation income as “other benefits” for rank and file employees
and managerial or supervisory employees.
Statement 2: Excess de minimis is a fringe benefit subject to the fringe benefit tax.
C. Both statements are incorrect
16. Which is considered compensation?
B. Cost-of-living allowance
19. Which is not subject to the P90,000 exemption threshold for a private employee?
C. Profit sharing bonus
23. Statement 1: A minimum wage earner who loses the benefit of exemption by transferring to a region with a lower
minimum wage is taxable on all income during the year.
Statement 2: A minimum wage earner who qualifies as much during the year is exempt from tax on all income earned
during the year.
B. Both statements are incorrect
3. The actual value of benefits realized by the managerial or supervisory employees is referred to as the A.
Monetary Value
6. The free usage of the following items is exempt from fringe benefit tax?
C. Helicopter
7. What percentage of the fair value of the yacht is considered in measuring depreciation value?
A. 5%
Mang Pandoy, substituted for an employee who went on one year sabbatical leave. B. P21,600
Mang Pandoy received a total of P144, 000 during the year. Aling Maria substituted for
an employee who filed for maternity leave for 3 months. Aling Maria received a total of
P28, 000 during the year.
10. A restaurant granted 25% discounts to senior citizens in excess of the 20% mandatory
requirement. During the year, the restaurant reported receipts of P93,750 from senior D. P25,000
citizen customers. Compute the deduction for senior citizens’ discount.
11. An employer embarked on a socio-economic program named “A World Empowered
by Persons with Disability.” Under the ambitious program, the employer established a
business which is fully manned by persons with disability. The employer incurred
P300,000 in workplace improvements specifically designed for its disabled employees. D. P525,000
The business venture turned very profitable due to overwhelming public sympathy.
During the year, the employer paid P2,100,000 in compensation expense. Compute the
additional deductible compensation expense.
12. In the immediately preceding problem, what is the deductible additional expense for D. P150,000
the improvements made for the employees with disability?
13. In 2016, Bernard Bakilan, a practicing lawyer, adopted a public elementary school
and distributed P500,000 for the acquisition of computer equipment and software.
Beranard had an operating income of P900,000 before this contribution expense. A. P250,000;
Assuming the “Adopt-a-School Program” is an investment priority program of the P150,000
government in 2016, compute Bernard’s additional contribution expense and net income
respectively.
14. In the preceding problem, compute Bernard’s additional contribution expense and
net income, respectively, if the “Adopt-a-School program” is no longer a government D. P250,000;
priority program in 2016? P560,000
15. Binondo Jewellery is a qualified jewelry enterprise registered with the Board of
Investments. In order to modernize its jewelry making business, it instituted an in-house
training program and hired external experts to train its employees. The program was D. P150,000
duly approved by TESDA. The program cost P300,000 during the year. What is the
deductible amount of additional training expense?
16. Girl Power Corporation employs purely women. It installed a lactation station at a
total cost of P350,000 and secured a “Working Mother-Baby-Friendly Certificate” from C. P350,000
Department of Health. Compute the additional deduction under the Rooming-in and
Breastfeeding Practices Act.
17. A government provincial hospital established a milk bank at a cost of P1,000,000.
Determine the additional deduction incentive it is allowed under the Rooming-in and C. P0
Breastfeeding Practices Act.
18. In the immediately preceding problem, what would be the additional deduction C. P1,000,000
assuming the hospital is a proprietary medical center?
19. Atty. Midsayaf is a practicing lawyer in the remote provinces of Mindanao. During the
year, he provided 180 actual hours for pro-bono services inclusive of the 60-hour
mandatory legal aid services to indigent clients. These services would have been billed B. P120,000
P1,000 per hour if rendered to paying clients. Atty. Midsayaf has a P1,400,000 gross
income during the year exclusive of P20,000 interest on his savings deposit.
20. Curaratnit, Bolalatsing & Associates, a law firm, earned an operating income of
P8,000,000, net of P6,000,000 administrative expenses and P12,000,000 direct cost of
services. During the year, it represented selected clients under its free legal assistance B. P1,400,000
program. The value of these services would have been P1,500,000. It also represented
ondigent clients for free, the value of which would have been P400,000. Compute the
special deduction for free legal services.
21. An employer paid a total of P800,000 productivity incentive bonus to its production D.P400,000
workers. What is the additional productivity incentive bonus expense?
22. An employer provides manpower training and special studies to its rank and file
employees at a total cost of P200,000. The in-house program was accredited by TESDA. C. P100,000
What is the deductible additional productivity incentive bonus expense?
23. A taxpayer had the following results of operation:
2019 2020
B. P1,000,000
Gross income P1,200,000 P2,500,000
Itemized Deductions 1,400,000 1,000,000
Deduction Incentives 200,000 300,000
What is the net income in 2020?
24. An enterprise registered with the BOI had a consistent profitable operation. Just
before graduating from its BOI tax holiday incentives in 2019, it sustained a P1,800,000
operating loss due to an employee strike in 2019. The settlement of the deadlock in 2020 A. P 0
enable the enterprise to post a P2,400,000 operating income. What is the allowable
NOLCO deduction in 2020?
25. A corporate taxpayer incurred an operating loss in 2020:
Sales P3,000,000
Less: Cost of Sales 1,200,000 Gross
Income P1,800,000
Less: Deductions B. P200,000
Regular Itemized deduction P1,200,000
Special Itemized deductions 800,000
Deduction incentives 400,000 2,400,000
Net operating loss P 600,000
What is the amount of NOLCO to be carried over in the next three years?
26. An individual taxpayer reported the following in 2019:
2016 (P800,000)
2017 ( 400,000) B. P700,000
2018 ( 200,000) 2019 ( 100,000)
Compute the deductible NOLCO in 2020.
28. In 2016, Warren Buffet purchased the net assets of Berkshire Hathaway, a losing
business which posted a cumulative P10,000,000 loss in the past three years. Buffet’s A. P 0
charismatic leadership led the business to turn P4,000,000 profits in 2016. What is the
allowable NOLCO deduction for 2016?
29. A taxpayer has the following historical results of operations:
2016 (P600,000)
2017 ( 700,000)
2018 400,000
2019 ( 200,000) 2020 100,000 B. P200,000
What is the total outstanding NOLCO at the end of 2020 which can be carried over in
future years?
30. A taxpayer reported the following items of gross income and deductions in 2020:
Compute the total deductible salaries expense under regular allowable itemized
deductions and the total special deductions.
16. The OSD of corporations under the accrual basis is based on C. Total gross income
17. The OSD of individuals under the cash basis is based on B. Gross receipts
18. Which is not deducted in the determination of gross sales? D. Bad debt expense
19. For purposes of the OSD, which is not deducted in the determination D. Cost of services
of gross receipts?
20. Non-operating income subject to regular tax is excluded in the OSD A. Individual taxpayers
base of
21. Cost of services of banks excludes the following except C. Interest expense on the
depositors accounts
22. In the determination of the distributive net income of the general D. Partners cannot claim OSD on
professional partnership, their share in the net income of a
general professional partnership.
23. Which is correct with respect to the deduction claimable by a partner C. The partner can claim itemized
against his share in the distributive net income of a general professional deduction provided the general
partnership? professional partnership also uses
itemized deductions.
24. Individual income taxpayer must indicate his or her option to claim C. The annual income tax return.
OSD on
25. Corporate income taxpayers must indicate their options to claim OSD A. The first quarter return during
on the year.
MULTIPLE CHOICE – PROBLEM
1. An individual taxpayer, reported P800,000 net income after the
following:
Sales P3,400,000
Cost of sales 1,200,000
Administrative expense 300,000
Selling expenses 500,000 C. P1,408,000
Other taxable income from operations 120,000
Other non-operating income 80,000 Passive
income, net of final taxes 70,000
Sales P1,000,000
Cost of sales 600,000 A.P440,000
Gain on sale of equipment 60,000
Interest income from bank deposits 40,000
Deductible expenses 300,000
Non-deductible expenses 200,000
3. A non-resident alien is considered engaged in trade or business in the Philippines if he stayed therein for D. More
than 180 days
4. On which of the following dates shall a citizen who left the Philippines during the year be classified as a non-resident
citizen for the year? A. May 31
5. An alien shall be classified as resident in 2014 if he arrived in the Philippines on which of the following dates?
A. December 30, 2013
6. An individual whose residence is not within the Philippines and who is not a citizen thereof B.
Non-resident Alien
7. How long does a citizen have to stay abroad being classified as a non-resident?
A. At least 183 days
8. How long shall an alien have to stay in the Philippines before being classified as a resident alien?
D. More than 1 year
11. In 2014, an alien who has been in the country since July 1, 2013 is classified
as a B. Resident Alien
12. In 2016, an American who had been a resident in the Philippines since August
14, 2016 is a D. NRA- NETB
5. Which of the following employees is not required to file an annual consolidated income tax return?
D. Those earning purely compensation income when the employer correctly withheld the tax
7. Which individual income taxpayer can claim tax credit for foreign taxes paid?
A. Resident citizen
8. What is the optional standard deduction claimable by individual income taxpayers who are engaged in business?
D. 40% of gross receipt or sales
9. When should individual income taxpayers submit their annual or consolidated return for the year 2020?
C. April 15, 2021
14. Which is tax credit against the tax due under Form 1700?
A. Form 2316
15. The first quarter income tax return is due
C. May 15 of the same year
16. The third quarter income tax return is due
C. November 15 of the same year
18. Which will not be included in the tax basis of the 8% income tax?
C. Gross income from operation
19. Which is an item of income subject to regular tax?
D. Gain on sale of equipment
20. Who is not allowed the option to be taxed at 8%?
A. Compensation Income Earner
21. Statement 1: There is no need to file a consolidated return if the withholding tax on compensation and the
expanded withholding tax is correctly withheld.
Statement 2: A businessman who is deriving income from a sole customer need not file a consolidated
return if the customer correctly withheld any expanded withholding tax. D. False, True
1. Trixie’s business uses fiscal year accounting period starting July 1 and ending June 30 for internal reporting.
Her business reported the following quarterly net income on a fiscal year basis:
FISCAL YEAR 2018-2019 2019-2020
1st Quarter (July 1 to September 30) P 190,000 210,000
2nd Quarter (October 1 to December 31) 220,000 250,000
3rd Quarter (1/1/2020 – 3/31/2020) 180,000
4th Quarter (4/1/2020) – 6/30/2020) 200,000
2. Jerson, married 15 dependents, had the following income within and outside the Philippines:
Philippines Abroad
Compensation Income P 280,000
Rental Income 50,000 100,000
Royalties- books 32,000 25,000
Domestic Dividends 9,000 -
Foreign Dividends - 40,000
5. In the immediately preceding problem, compute fringe benefit tax for the year.
C. P 2,826,923
6. The following relate to the net income of the firm of Mr. Aguin O. Odit:
Professional Fees P 600,000
Long-term capital gain 80,000
Short-term capital gain 45,000
Ordinary Gain 20,000
Long-term capital loss (90,000)
Short-term capital loss (30,000)
Ordinary Loss (40,000)
Other business expenses (200,000)
Net Income P 385,000
Compute his taxable income.
C. P 390,000
8. During the year, Coleen received compensation income of P 455,000 after P 15,000 withholding tax on
compensation. Compute her income tax still due.
B. P 47, 500
9. A Filipino citizen has P 400,000 Philippine income and P 300,000 foreign income. He paid P 55,000
income taxes abroad. Compute the allowable tax credit for the income taxes paid abroad. C. P 45,000
10. In the preceding problem, what is the tax credit if taxpayer was a non-resident citizen or a resident
alien? A. P 0
2. Mary made the following computation of her annual financial savings from employment, her sole source of
income:
Salaries, net of P 59,000 withholding tax and P 12,000 mandatory payroll deductions P 321,000
Expenses:
- Load Expenses P 10,000
- Medical Expenses 8,000
- Transportation Expenses 25,000
- Food, Rent & Utilities 100,000
- Bank Loan Repayments 20,000
- Miscellaneous Expenses 15,000
Net savings for 2020 P 143,000
What is Mary’s taxable compensation income for 2020?
C. P 380,000
6. Compute the tax still due if Mr. Roger opted to the 8% optional tax.
D. P 52,000
7. Jerik, a self-employed employee with ten dependent children, had the following items of income and expenses in
2020:
Sales P 900,000
Less: Cost of Sales 400,000
Gross Profit P 500,000
Interest Income, net of 20% final tax 16,000
Interest Income from clients notes 12,000
Expenses:
- Salaries Expenses P 100,000
- Depreciation Expenses 15,000
- Rent &Other expenses 50,000
- Interest Expense 30,000
Net Income P 333,000
Compute the deductible business expense.
B. P 188, 400
8. Jerik shall report taxable income of
A. P 322,280
9. Compute the taxable income if Jerik opted to use the optional standard deduction
B. P 547, 200
10. Compute the income tax due if Jerik opted to use the 8% optional income tax.
B. P 72,000
11. An individual income taxpayer had the following income:
Compensation Income P 820,000
Mandatory payroll deductions 20,000
Gross receipts 1,800,000
Direct cost of services 500,000
Expenses 300,000
Other income subject to regular tax 100,000
Other income subject to final tax 200,000
Withholding tax on compensation 130,000
Expanded withholding tax on receipts 14,000
Estimated tax payments made 94,000
Compute the income tax still due if the taxpayer opted to the itemized deduction.
C. P 222,000
12. Compute the income tax due if the taxpayer opted to the optional standard deduction.
B. P 246,000
13. Compute the income tax due if taxpayer opted to the 8% optional income tax.
A. P 282,000
14. Mr. Markey recorded sales of P 2,500,000, cost of sales of P 1,000,000 and expenses of P 700,000. He is
also a partner in various partnership and received the following share in their net income:
General Professional Partnership Business Partnership
Share in net income P 200,000 P 400,000
Compute the income tax due if Mr. Markey opted to itemized deduction.
C. P 190,000
15. Compute the income tax due if Mr. Markey opted to the 8% optional income tax. C.
P 196,000
SPECIAL CORPORATION
TRUE OR FALSE 1
TRUE OR FALSE 2
1. The classification rule is applied to private schools and non-profit hospitals. F (dominance test)
2. The dominance test is applied to non-profit schools and private hospitals. F
3. A government school is exempt from income tax. T
4. A non-resident owner or lessor of vessel is subject to a tax at 7.5% of the gross rental. F (4.5% of gross income)
5. A regional area headquarters is exempt from tax because it does not derive income. T
6. A regional operating headquarter of a municipal company is subject to 10% on world income. F (Philippine
income)
7. A non-resident cinematographic film owner, lessor, or distributor is subject to 25% tax on taxable income. F
(gross income)
8. A non-resident owner or lessor of aircraft, machineries and other equipment is subject to tax at 4.5% of gross
rentals. F (7.5% of gross income)
9. A farmers’ or fruit growers’ association is exempt from income tax. T
10. Exempt corporations are subject to income tax on their income from unrelated activities. T
11. A non-stock, non-profit institution must be organized for religious, charitable, scientific, athletic, cultural, or for
the rehabilitation of veterans. T
12. To be exempt, all of the net income or asset of a non-profit corporation or association must be devoted to its
purposes, and no part of its net income or asset accrues to benefit any member or a specific person. T
13. The unrelated income of non-profit corporations is exempted from income tax if the same is diverted to its
nonprofit purpose. T
14. The exemption of non-stock and non-profit corporations or associations shall commence when they secure their
tax exemption ruling. T
15. The certificate of tax exemption ruling is valid for one year and renewable every year thereafter. F (three years)
TRUE OR FALSE 3
1. The FCDUs, OBUs and EFCDUs, are never subject to regular income tax. F
2. Persons and service establishments inside an ECOZONE are subject to regular tax. T
3. The Gross Philippine Billings of international carriers includes receipts from outgoing voyage or flights which
must be billed in the Philippines. F (wherever billed so long as outgoing)
4. Expenses of an exempt corporation not directly traceable to either related or unrelated operations are allocated
based on the ration of gross income. T
5. Local water districts are exempt from income tax. T
6. Cooperatives that transact business with non-members are taxable on income allocated to interest on members’
capital when their accumulated reserve exceeds P10,000,000. T
7. All cooperatives, regardless of classification, are subject to income tax on their income from unrelated activities.
T
8. The expenses of exempt corporations from exempt operations are deductible to its gross income from unrelated
operations. F
9. When the income from the related activities constitutes at least 50% of total income, private schools are subject
to tax at 10% of taxable income from related and unrelated services. T (the dominance test)
10. When the income from the unrelated activities constitutes at least 50% of total income, only the income from
unrelated activities of private schools and non-profit hospitals is subject to 30% tax. F
11. Refunded tickets and tickets of non-revenue passengers are excluded in the Gross Philippine Billings. T
12. The gross receipts from transient passengers are excluded from Gross Philippine Billings if they depart from the
Philippines through the same carrier within 48 hours from their arrival. T
13. The 48-hour rule does not apply when another carrier continued the flight or voyage of transient passengers. T
14. The 48-hour rule may be extended by force majeure. T
15. Domestic film owners, lessors or distributors shall be subject to 25% tax on gross income from all sources within.
F (30% on world taxable income)
MULTIPLE CHOICE: THEORY 1
1. An allocation of common expenses between related and unrelated activities is made to properly reflect taxable
income. This procedure is required only of exempt corporations.
2. What percentage of profit will shareholders ultimately receive from the corporate earnings? – 63% of taxable
income
3. Which of these concepts is not relevant to corporations? – personal exemptions
4. The preferential tax rate of 10% taxable income applies to proprietary school.
5. When applicable, the 10% preferential tax rate applies to income from both related and unrelated activities.
6. Exempt corporations are nevertheless subject to 30% tax on income from unrelated activities.
7. Which is not taxable on unrelated activities? – none of these
8. The income from properties of exempt corporations is considered income from unrelated sources.
9. The classification rule is not relevant to a profit-oriented agricultural organization. 10. Which is subject to
corporate income tax? – Philippine Charity Sweepstakes Office
11. International carriers are taxable on their gross income or receipt from outgoing shipment or flight.
12. A domestic carrier is subject to tax on world taxable income.
13. A non-resident lessor of vessels chartered by Filipino nationals is subject to 4.5% tax on its gross rentals from
Filipino Nationals.
14. A domestic cinematographic film owner, distributor or lessor is subject to 30% tax on global taxable income.
15. A non-resident film owner, distributor or lessor is subject to 25% tax on Philippine gross income.
16. A non-resident lessor of aircraft is subject to 7.5% tax on Philippines gross income.
17. A domestic lessor of aircraft and other equipment is subject to 30% tax on global taxable income.
18. An exempt corporation with no taxable income is delinquent in filling its tax return. Which penalty is it liable to?
- compromise
Berkshire Corporation reported the following gross income and expenses in 2020:
Philippines Abroad Total
1. Domestic corporation – d
2. Resident foreign corporation - a
3. Non-resident foreign corporation - b
4. Private proprietary educational institution or a non-profit hospital majority of its income is from related activities
-b
5. Non-profit entity - d
6. Government-owned and controlled corporation - a
7. International carrier - b
8. Offshore banking unit - c
9. Non-resident cinematographic film owner, distributor or lessor - c
10. Non-resident owner or lessor of vessels - a
11. Non-resident owner or lessor of aircraft, machineries and other equipment - c
12. Non-profit association, 60% of its income was derived from unrelated activities - b
PROBLEM 2
PROBLEM 3
A domestic bank reports the following income from its regular banking (RBU) and foreign currency deposit unit (FCDU):
RBU FCDU
PROBLEM 4
PROBLEM 5
Antartica, a shipping company, reported the following gross receipts and deductions during the year:
Shipments
PROBLEM 6
An air carrier reported the following for its air transport operations:
Destination Fares
Determine the income tax due assuming that the carrier is a/an:
1. International Carrier - d
2. Domestic carrier with P3,000,000 global expenses - b
PROBLEM 7
PhilTravel is engaged in the business of sea transport. It arranged the transport of various cargoes with a shipping
company to bring the cargoes from the Philippines to Afghanistan for a total charter fee of P4,000,000.
Compute the income tax on this transaction assuming that the shipping company is a/an:
PROBLEM 8
A non-profit non-stock school has a gross income of P4,000,000 only on 40% of which was contributed by related
activities and total expenses of P3,000,000, 50% of which was incurred in connection with non-related activities.
1. Compute the total income tax if the income from non-related activities is not used exclusively for educational
purposes. - d
2. In the immediately preceding problem, compute the income tax due if all income of the nonprofit school is used
for educational purposes. - a
3. Compute the total income tax assuming the taxpayer is a non-profit charitable institution. - a
4. Compute the total income tax assuming the taxpayer is a private school. - c
5. Compute the total income tax assuming the taxpayer is a private hospital. - d
6. Compute the total income tax assuming the taxpayer is a non-profit hospital. - b
7. Compute the total income tax assuming the taxpayer is a government hospital. - b
PROBLEM 9
A private school has P5,000,000 gross income; 60% of this represents tuition and miscellaneous fee. It has net income of
P2,000,000, 60% of which was contributed by sources not related to academic instruction.
INTEGRATED CASE 1
INTEGRATED CASE 2
Baguio Medical Center is a non-profit hospital. In 2020, it reported the following gross income and expenses:
Activities
INTREGRATED CASE 3
Danumco, a government-owned and controlled corporation, had the following items of income during the year:
Service charges to clients P8,000,000
Expenses 7,000,000
INTEGRATED CASE 4
A private school had the following list of transactions during the year:
Tuition fees and assessments P80,000,000
REGULAR CORPORATIONS
TRUE OR FALSE 1
1. Exempt corporations are subject to MCIT with respect to their income subject to regular corporate income tax. T
2. MCIT does not apply to foreign corporations. F (It apply to resident foreign corporations.)
3. As a rule, corporations always pay tax even if there is a loss effective from the fourth year of their operations. T
4. Resident foreign corporations are subject to either gross income tax or regular corporate income tax. F
5. A partnership organized under Philippine law is a domestic corporation for purposes of taxation. T
6. Domestic corporations are subject to either gross income tax or regular corporate income tax. T
7. The gross income tax applies only to corporations subject to regular income tax. F (Domestic only.)
8. Non-resident foreign corporations are subject to minimum corporate income tax. F
9. The gross income tax cannot apply if the gross profit rate falls below 45%. T
10. Both the regular corporate income tax and the gross income tax and the gross income tax are subject to the
minimum corporate income tax. F
11. The MCIT applies only when income is zero or when there is an operating loss. F (also when RCIT<MCIT)
12. Domestic corporations under the gross income tax, including REITs, are exempt from MCIT. T 13. Special
domestic corporations and special resident foreign corporations are exempt from MCIT. T
14. MCIT is computed as 2% of the gross income from operations. F (on total gross income)
15. If an entity started operations on June 2011, MCIT shall commence on June 2015. F (start by 1/1/2015)
TRUE OR FALSE 2
1. Investment companies and insurance companies are prima facie presumed improperly accumulating profits. F
2. The improperly accumulated earnings tax does not cover holding companies, publicly listed companies, and
banks. F (not holding companies)
3. A closely held corporation is one that is not listed in an organized equity or debt market regardless of the
number of individuals owning it. F (if held by more than 20 people, it is closed corporation)
4. The improperly accumulated earnings tax applies also to the proprietary educational institutions. T
5. The Commissioner of Internal Revenue may suspend the imposition of MCIT upon submission of the required
proof. F
6. The improperly accumulated earnings tax applies to all regular domestic and foreign corporations. F
7. An appropriation involves setting aside of earnings for immediate needs of the business. T
8. The correlation test on appropriation requires that there must be a direct relationship of the business needs to
the accumulation of profits. T
9. If the ownership of the top 20 shareholders of a corporation is more than 50%, the corporation is a publicly held
corporation. F
10. A corporation that is owned by a publicly listed corporation is a public corporation. T
11. The investment of substantial profit in unrelated business, stocks or securities of unrelated business is an
instance of improper accumulation earnings. T
12. IAET is a penalty tax; hence, earnings subject to IAET will still be subject to a dividend tax when subsequently
declared. T
13. The branch profit remittance tax covers remittance of special resident foreign corporations except
PEZAregistered entities. T
14. Partnerships and Ecozone-registered entities are not subject to improperly accumulated earnings tax. T
15. The branch profit remittance tax covers the profit remittance, excluding investment income, of branches of
domestic and resident foreign corporations to their head offices. F
1. The following are the composition of the social gross income of a domestic corporation which is subject to
MCIT?
2. In the immediately preceding problem, what is the regular corporate income tax if the corporation has a total
allowable deduction of P1,700,000? - B
3. The Calintaan Corporation had the following historical MCIT and RCIT data:
4. In the immediately preceding problem, what is the tax due and payable respectively in 2019 and 2020? - A
5. Shown below are operating results of Bulalacao Corporation since its start of operations:
8. A corporate taxpayer had the following data on its fifth year of operation:
Philippines Abroad Total
9. In the immediately preceding problem, what is the tax due if the corporation is a resident foreign corporation? -
C
10. A domestic corporation reported the following income in its fifth year of operation:
Within Without Total
Gross income P4,000,000 P3,000,000 P7,000,000
11. In the immediately preceding problem, what is the income tax due assuming the taxpayer is a resident foreign
corporation? - D
12. A corporation which started operation in 2016 had the following results of operations:
2018 2019 2020
13. In the immediately preceding problem, what is the tax due 2020? - C 14. A corporation which started operations
in 2015 reported the following:
2019 2020
15. In the immediately preceding problem, what is the tax due and payable in 2020? - D
16. Enteng Unlimited started operations in 2012. The following shows details of its income in 2020:
2018 2019 2020
Operation had been profitable since start of operation except that a major strike in 2018 and 2019 caused major
problems in business operations. Enteng Unlimited requested for lifting of the MCIT which was granted for the years
2018 and 2019. Compute the income tax payable in 2020. - B
17. Compute the taxable income of Excellence Unlimited in 2020 if it opted to use optional standard deduction. - D
There were excess MCIT of P70,000 and P130,000 respectively in 2018 and 2019. What is the income tax
payable in the second quarter? - C
2017 P80,0000 0
5. In the immediately preceding problems, what is the tax still due in 2021? - B
6. The following were the MCIT and RCIT of a corporation from 2015 through 2020:
MCIT RCIT
2015 P90,000 0
8. The Paluan Corporation had the following excess MCIT in prior years:
Excess MCIT – 2016 P80,000
In 2020, the RCIT and MCIT were respectively P230,000 and P210,000. What is the income tax due and payable?
-D
9. The quarterly MCIT, RCIT and creditable withholding tax of Taraka Corporation are shown below:
MCIT RCIT CWTs
Taraka Corporation also had P120,000 excess creditable withholding tax and P180,000 excess MCIT still
outstanding from the prior year.
11. A domestic corporation was assessed by the BIR for improperly accumulated earnings tax. Relevant to the
determination of the IAET are the following data:
Gross income P4,000,000
12. A domestic corporation was assessed on its fifth year of operation for improperly accumulated earnings tax:
Gross income P4,000,000
13. The following data relates to a tax payer assessed for improperly accumulating profits:
Taxable income P1,200,000
14. A foreign branch remitted the following profits to its head office abroad:
Taxable income, net of regular income tax P1,200,000
15. A resident foreign corporation branch had the following results of operations in 2020, the fifth year of its
operations:
Gross income from sales of goods P5,000,000
16. A closely-held corporation which started operation in 2015 reported the following data:
Year 2019
Compute the income tax still due respectively in 2019 and 2020. - B
INTEGRATED CASES 1
Required:
Indicate the
Assuming the corporation is a Total final tax Total capital gains tax Regular tax amount of
taxes in the
Domestic corporation
corresponding
Resident foreign corporation boxes.
INTEGRATED CASE 2
A domestic corporation reported the following on its fifth year of its operations:
Philippines
Required:
Compute the income tax still due or refundable assuming the corporation opted for: a.
Itemized deductions
INTEGRATED CASE 3
The books of a corporation show the following for the taxable year 2020:
Gross income Deductions
Philippines P400,000 P200,000
The corporation paid tax on net income of P70,000 in the US, P19,000 in Singapore, and P15,000 in Malaysia.
Required: Compute the tax still due assuming that the corporation is a:
TRUE OR FALSE 1
1. Interest incurred in the financing of petroleum operations may at the option of the taxpayer be
capitalized or expensed. F
2. Income tax is not an expense. T
3. The arbitrage limit applies only when there is an intentional arbitrage. F
4. The arbitrage limit applies to all taxpayers including individuals. T
5. Interest expenses incurred with related parties are deductible. F
6. Interest expenses are deductible in full amount if there is no interest income subject to final tax during
the period. T
7. Interest on a prescribed debt is deductible. F
8. A deductible interest must not be incurred between related parties. T
9. The allowable deduction for deductible taxes includes the basic tax, surcharge and interest. F
10. Foreign taxes can be claimed as a deduction or tax credit. T
11. Foreign corporations and aliens can claim deduction or tax credit for foreign taxes. F
12. Capital loss is deductible to the extent of ordinary gain while ordinary loss is deductible in full. F
13. Losses must be reported to the BIR within 45 days from the occurrence of the casualty, robbery, theft,
or embezzlement giving rise to the loss. T
14. Depreciation on revaluation surplus of properties can be deducted as part of depreciation expense. F
15. The claim of the same loss in the income tax return of the estate and in the estate tax return is not
allowed. T
TRUE OR FALSE 2
1. Bad debt expenses representing loss of capital can be deducted by cash basis taxpayers. T
2. Bad debt expenses between related parties can be deducted as long as these are adequately supported
with documentary evidence. F
3. The loss of capital investment in a business can be claimed as bad debt expense. F
4. The subsequent recovery of bad debt expense must be reverted back to gross income to the extent of
the tax benefit of the deduction in the year the deduction is made. T
5. The loss on insured property cannot be deducted. T
6. In total destruction of properties, restoration costs are treated as new acquisition of properties. T
7. If the fair value of the property is not determinable, restoration costs are expensed to the extent of the
basis of the original property. The excess over the basis is treated as an increase in fair value and is
capitalized. T
8. The loss in value of assets is deductible only when sustained and realized. T
9. Losses on wagering transactions are deductible and full. F
10. With the exception of the domestic corporations and resident citizens, expenses incurred abroad
cannot be deducted unless incurred in connection with the Philippine business. T
11. Contributions are valued at the fair value of the property donated. F
12. The recovery of bad debts by cash basis taxpayers must always be reverted back to gross income. T
13. The recovery of bad debts by accrual basis taxpayers must always be reverted back to gross income. T
14. Capital assets can be depreciated for tax purposes. F
15. The depreciation expense on properties held under life tenancy is computed as if the life tenant were
the absolute owner of the property. T
TRUE OR FALSE 3
1. Petroleum operations are not subject to the limit on the deduction of intangible operation and
development costs after the commencement of commercial production. T
2. Contribution expenses are deductible if the done is a domestic institution. T
3. Donations to foreign institutions covered by treaty exemptions are fully deductible. T
4. Contribution expenses are measured at the fair value of the property donated. F
5. Private educational institutions are allowed to deduct capital expenditures. T
6. The depreciation on properties held in trust is apportioned between the income beneficiaries and the
trustees in accordance with the provision of the instrument creating the trust or on the basis of the
income allowable to each. T
7. The depreciation of revaluation surplus is not deductible in taxation. T
8. No depreciation expense is allowable for helicopters, yachts, airplanes or aircraft, and land vehicles
which exceeds P2,400,000 in value unless the main line of business of the taxpayer is transport or lease
of transportation equipment. T
9. Tangible development costs in wasting assets are capitalized and depreciated. T
10. Intangible exploration and development costs incurred before commercial production in a wasting
asset operation are capitalized as cost of the wasting asset. T
11. After commencement of commercial production, intangible exploration and development costs
incurred on non-producing wells or mines are deductible in the period paid or incurred. T
12. After commencement of commercial production, intangible exploration and development costs
incurred on producing wells or mines are always capitalized and amortized using the costdepletion
method. F
13. The threshold on partially deductible contributions of corporate taxpayer is 10% of the net income
before the contribution. F
14. The funding of past service cost is amortized over 10 years or the actual vesting period whichever is
longer. F
15. The overfunding of defined benefits plans is treated as funding of past service cost and is amortized
over the 10 years. F
16. The employee counterpart in a contributory pension plan is deductible by the employer. F
17. Research and development costs related to land must be capitalized. T
18. Research and development costs not related to capital accounts are either deducted outright or
deferred and amortized over a period of not less than 60 months. T
19. The EAR expense on the sale of goods is subject to s limit of 0.5% of gross sales. F
20. The EAR expense on the sale of services is subject to a limit of 1% of net revenue. T
21. Purely employed individuals can claim deductions for donations made. F
1. Which of the following cannot be deducted against gross income of non-VAT taxpayer? – Philippine
income tax
2. Which is not deductible against gross income? – depreciation value of fringe benefit given to
managerial employee
3. Which is deductible tax expense against gross income? – documentary stamp tax
4. Which is deductible in the measurement of the net income from business or profession? – salaries of
personal security guard of a managerial employee
5. Which of the following can treat capital expenditures as outright deduction? – private educational
institutions
6. Which is not a requisite of a deductible loss? – it must be compensated by insurance or indemnity
contracts
7. Which is a correct statement? – gains between related parties are taxable
8. Who are not related parties for purposes of the NIRC? – a partner and the partnership
9. Which is a deductible tax expense? – real property tax on business properties
10. Which of the following can be deducted by a VAT taxpayer? – interest on tax delinquency
11. Who cannot claim foreign income tax credit? – resident aliens
12. Foreign income tax can be claimed as - deduction from gross income | tax credit against the income tax
due (yes, yes)
13. Estimated quarterly income tax can be claimed as - deduction from gross income | tax credit against
the income tax due (No, yes)
14. Fringe benefit tax can be claimed as - deduction from gross income | tax credit against the income tax
due (yes, no)
15. Which of these expenses is not part of the deductible expenses of the taxpayer? – documentary stamp
tax on the sale of stocks directly to a buyer.
3. Gawan merchandising paid P400,000 to employees, net of P60,000 total withholding tax on
compensation. What is the deductible amount of expense by the employer? – 460k
4. A taxpayer under the cash basis had the following expenditures:
Acquisition of office equipment at the middle of the P200,000
year (5 year useful life)
Payment of employee salaries 40,000
Payment of office utilities expenses 60,000
How much is claimable as deductible business expenses for the year? – 300k
8. Suppose the income taxpayer in the immediately preceding problem is a corporation, compute the
deductible capital loss against capital gain. – 50k
9. The following data relate to an individual taxpayer:
Capital loss – current year P80,000
Capital gain – current year 150,000
Net capital loss – last year 90,000
Net income – last year 80,000
What is the net capital loss carry-over for the current period? – 70k
13. Assume in the immediately preceding problem that the tax payer is a corporation. What would be the
taxable income in 2020? – 110k
14. A corporation income taxpayer reported the following income and deductions:
Gross income Deductions
2016 P300,000 P450,000
2017 400,000 470,000
2018 450,000 400,000
2019 500,000 420,000
2020 500,000 400,000
Compute the taxable income in 2020. – 30k
15. Andrew, a resident citizen, reported a world taxable income of P500,000 and a tax due on world
income of P125,000. P150,000 of the taxable income was earned in japan out of which he paid P45,000
in income tax. Compute Andrew’s foreign tax credit. – 37.5k
2. ABC Company declared a property dividend with book value of P1,000,000 and fair value of
P1,200,000. The total dividends withheld on the dividends were P60,000. Compute the total deductible
expense. – 0
3. Naga Company paid P32,000 fringe benefits tax for the purchase of merchandise used by the family of
one of its company officers. How much is the deductible expense against gross income? – 100k
4. Makati corporation has operations in Malaysia and Singapore with the following taxable income and
taxes paid during the year:
Philippines Malaysia Singapore
Taxable income P800,000 900,000 700,000
Income tax paid 180,000 288,000 175,000
Makati corporation wishes to claim the foreign income tax paid as tax credit. Compute the foreign
income tax credit. – 445k
5. Balanga, Inc. contributed P500,000 for its pension funds inclusive of P200,000 funding of current
service cost. How much is the deductible pension expense? – 230k
6. Tawi-tawi, Inc. maintained a defined contribution pension plan. The plan is contributory where
employees contribute 20% of the pension contributions. During the year, Tawi-tawi contributed
P1,000,000 inclusive of employee contribution which was pre-deducted through their salaries.
Compute the pension expense. – 800k
7. Entertain Corporation set up a plan on 2020. The following relate to a fund:
2020 2021
Funding of current service cost P400,000 400,000
Funding of past service cost 300,000 200,000
Compute the deductible pension expense in 2020. – 430k
8. In the immediately preceding problem, compute the pension expense in 2021. – 450k
9. Zambales Inc. made the following contributions during 2020:
Contributions to the government in non-priority activities P60,000
Contributions to foreign charitable institutions 40,000
Contributions to accredited non-profit institution 30,000
Contributions to foreign organization with treaty exemption 100,000
Zambales Inc. has net income before contribution expense of P1,000,000. Compute the
deductible contribution expense. – 180k
20. Which is not a special feature of regular income taxation? Final withholding tax at source
21. An individual taxpayer shall file his or her income tax return on or before the- 15
Th
day of the
fourth month of the following calendar year
22. Anderson died on March 31, 2017. Which is correct statement? Anderson’s 2017 income tax
return shall cover January 1, 2017 to March 31, 2017
23. Mrs. Julian started business on July 15, 2016. What should be the coverage of her 2016 income
tax return?- July 15, 2016 to December 21, 2016
24. A corporation reporting on a fiscal year ending every March 31 shall file its 2017 income tax
return not later than- July 15, 2017
25. Metersbonwe Corporation started business on April 5, 2016 and opted to report income tax on
a fiscal year ending every October 31. Metersbonwe’s first income tax return shall cover- April 5,
2016- October 31, 2016
26. Beneco Corporation reports on a calendar year. On August 15, 2016, its stopped business due to
persistent losses. Beneco Corporations last income tax return shall cover- January 1 to august
15, 2016
27. Effective March 1, 2017, Jonah, Inc. changed its calendar year to a fiscal year ending every Jun e
30. An adjustment return shall be filled covering the period- January 1 to June 30, 2017
28. During 2017, Klein Corporation Changed its accounting period to the calendar year. The
adjustment return shall be filed on or before- April 15, 2018
29. Effective July 2, 2016, Rofelson Company changed its fiscal year ending every March 31 to
another fiscal year ending August 31. An adjustment return shall be filed covering the period-
April 1 to August 31, 2016
30. Effective May 15, 2017, Tabuk Inc. changed its fiscal year ending every April 30 to the calendar
year. An adjustment return shall be filled covering the period- May 1 to December 31, 2017
degree of consanguinity
32. Which is not subject to final tax? Fringe benefits of rank and file employees
33. Which of the following is exempt from final tax? Dividends from a foreign corporation
1. Which of the Following defines the country's tax Policy?
a. Philippine Constitution
b. National Internal Revenue Law
c. Pari Materia Principle
d. Tax Transformation
B. National Internal Revenue Law
2. Taxation co-exist with the four elements of the state which includes all, except:
a. Government
b. Property
c. Sovereignty
d. Territory
B. Property
3. Which of the following statements is not correct?
a. The government automatically possesses the power to collect taxes from its inhabitants
b. The government can enforce contribution upon its citizen only when the Constitution grants it.
c. Taxation power exists inseparably with the state.
d. The state has the supreme power to command and enforce contribution from people with its
jurisdiction
b. The government can enforce contribution upon its citizen only when the Constitution grants it.
4. Which of the following statements is/are correct?
i. Taxation is a process.
ii. Enactment of Tax Laws is part of the taxation process
iii. The Constitution expressly conferred to the power of Taxation to the President of the Philippines.
iv. Taxation requires voluntary contribution from inhabitant to support the government.
a. i, ii, iii, and iv
b. i, ii and iii only
c. i and ii only
d. i only
c. i and ii only
5. Which of the following is/are natural qualities of Taxation Power?
i. An inherent power
ii. Essentially an executive function
iii. An absolute Power
iv. Territorial in operation
a. i and iv only
b. ii and iii only
c. i and ii only
d. i only
a. i and iv only
6. Which of the following statement is not correct?
a. Only the national government exercises the inherent power of taxation.
b. The power to tax by the local government units is a delegated power granted by the Constitution and
other special laws
c. National legislation is exercised by the Congress
d. Interpretation of Tax Laws is done by the Legislative branch of the government
d. Interpretation of Tax Laws is done by the Legislative branch of the government
7. Which of the following statements is not correct?
a. Collections from taxes are public money
b. Appropriation of taxes for the common good of the people is valid
c. Construction of private road from the taxes is a valid appropriation
d. Allocation of taxes for the benefit of greater portion of population is considered for public purposes
c. Construction of private road from the taxes is a valid appropriation
8. All of the following statements are correct except one
a. Taxation power is an absolute power
b. Taxation power is the strongest of all inherent portion of the government
c. Tax laws must not violate Constitutional restrictions.
d. Exercise of Taxation power is subject to restrictions
a. Taxation power is an absolute power
9. One of the following is not among the basic justification for taxation
a. Taxation is based on necessity
b. Taxation is the lifeblood of the government
c. Taxation is the bread and butter of the government
d. Taxation is a voluntary contribution for the benefits received.
d. Taxation is a voluntary contribution for the benefits received.
10. Which of the following could be an object of taxation?
i. Person
ii. Tangible property
iii. Intangible property
iv. Rights
a. i and ii
b. i, ii and iii
c. i and iv
d. i ii , iii and iv
d. i ii , iii and iv
11. These refer to the rules or orders having force of law issued by the executive branch of the government
to ensure uniform application of the tax law
a. Revenue regulations
b. BIR rulings
c. Memorandum Orders
d. Local Tax ordinances
a. Revenue regulations
12. Tax administration is a system involving enforcement of taxes through the use of
a. Tax legislation
b. Tax legislation and assessment
c. Tax imposition and collection
d. Tax assessment and collection
d. Tax assessment and collection
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13. A government officer considered as a tax enforcer by having the power to ascertain the validity of tax
laws subject to the review of the Courts of Justice
a. Secretary of Justice
b. Secretary of Finance
c. BIR Commissioner
d. Chief Justice
a. Secretary of Justice
14. Which of the following is not within the scope of authority of the BIR Commissioner?
a. To exercise the levying function of Taxation
b. To interpret tax laws
c. To assess and collect BIR taxes
d. To decide cases involving National Internal Revenue Taxes
a. To exercise the levying function of Taxation
15. The following instances allow the BIR Commissioner to inquire or examine the bank deposits of
taxpayers, except
a. To determine the gross estate of a decedent
b. When the taxpayer filed an application for compromise of his tax liability
c. The taxpayer waives his right in writing the confidentiality of the bank deposits
d. When the taxpayer fails the lifestyle check test and shows unexplained wealth
d. When the taxpayer fails the lifestyle check test and shows unexplained wealth
16. The BIR is under the supervision of the
a. Department of Budget
b. Bureau of Customs
c. Department of Finance
d. Department of Trade and Industry
c. Department of Finance
17. Which of the following is not an activity involving tax administration?
a. Execution of judgement decided by the court in favor of the BIR
b. Passage of tax laws and ordinances through the legislature
c. Computation of tax due and payable
d. Taxpayer's compliance to pay tax obligation
b. Passage of tax laws and ordinances through the legislature
18. Which of the following statements is correct?
a. Levying and collection of taxes are legislative function
b. Assessment and Collection are administrative functions
c. Enacting of tax laws and its interpretation are legislative function
d. Levying and impositions are juridical funtions
b. Assessment and Collection are administrative functions
19. Which of the following is correct?
a. Fixing of tax rates
b. Valuation of Object of tax
c. Collection of Taxes
d. Assessment of Tax liability
d. Assessment of Tax liability
20. It has the executive supervision and control over tax administration
a. Bureau of Internal Revenues
b. Bureau of Customs
c. Department of Finance
d. Court of Justice
a. Bureau of Internal Revenues
21. Which of the following is not among the administrative powers of the Bureau of Internal Revenue?
a. Compromise tax assessments
b. Distraint of personal property of delinquent taxpayer
c. Render court decision concerning tax dispute
d. Levy of real property of delinquent taxpayer
c. Render court decision concerning tax dispute
22. The tax assessment is being asked to be cancelled because there is question as to its validity or legality
a. Jeopardy assessment
b. Disputed assessment
c. Illegal assessment
d. Deficiency assessment
b. Disputed assessment
23. Which of the following is not correct?
a. If it is the first employment of the taxpayer, he must be registered with the BIR before employment or
within 10 days from date of employment
b. If taxpayer is self-employed, he must register his business within 10 days from commencement of his
business
c. If the taxpayer is both employed and doing business, he must have only one TIN as the employee and as
a sole proprietor
d. TIN must be indicated in the return, documents or statement filed with the BIR
d. TIN must be indicated in the return, documents or statement filed with the BIR
24. Which of the following must not be included as part of income?
a. Personal Consumption
b. Accumulated income
c. Additional Investments
d. Savings
c. Additional Investments
25. Which of the following does not describe income?
a. Increase in taxpayer's wealth
b. Return of taxpayer's wealth
c. Realization or receipt of gain
d. Earnings constructively received
b. Return of taxpayer's wealth
26. Total assets minus total liabilities is equal to
a. Net Worth
b. Owner's Capital
c. Shareholder's equity
d. All of the above
d. All of the above
27. The principal amount of time deposit in the bank (point of view of depositor) is a/an
a. Income
b. Revenue
c. Capital
d. Receipt
c. Capital
28. Statement 1: All wealth that flows into the taxpayer's hand other than, mere return of capital is
income.
Statement 2: All earnings are taxable with income tax
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
a. Only statement 1 is correct
29. Which of the following items is not included in the determination of taxable income?
a. Realized gain
b. Realized Loss
c. Gift
d. Income derived from the gift
c. Gift **
30. Which of the following is not a criterion of a taxable income?
a. There must be gain
b. The gain need not to be actually received
c. The gain must be included by the law as treaty from taxation
d. The law as treaty from taxation must exclude the gain
d. The law as treaty from taxation must exclude the gain
31. Which of the following is classified as income?
a. Damage recovery due to physical injuries
b. Return of capital
c. Excess of selling price over cost of assets sold
d. Gifts received
c. Excess of selling price over cost of assets sold
32. Which of the following is not a characteristics of income?
a. Increase in taxpayers wealth
b. Return of taxpayers wealth
c. Realization or receipt of gain
d. Earnings constructively received
b. Return of taxpayers wealth
33. If a property is received in lieu of cash compensation, the basis of tax is the
a. Supposed amount of cash to be received
b. Agreed value of the property received
c. Fair market value of the property received
d. Salvage value of the property received
c. Fair market value of the property received
34. If services are rendered for the cancellation of debt, the basis of tax (point of view of the debtor) is the
a. Fair market value of the service rendered
b. Amount of obligation omitted
c. Fair market value of the debt cancelled
d. Supposed amount of cash to be received
b. Amount of obligation omitted
35. Which of the following businesses is/are normally reporting income on accrual basis?
a. Real property lessor
b. Professional partnership
c. Trading business
d. Brokerage business
c. Trading business
36. Which of the following is/are generally subject to final tax?
i. Compensation Income
ii. Business Income
iii. Passive Income
iv. Capital Gain
a. i, ii, ii and iv
b. i and ii only
c. iii and iv only
d. iii only
c. iii and iv only
37. The amount of 13th month pay and other benefits was increased by
a. P82,000
b. P 52,000
c. P30,000
d. P - 0 -
a. P82,000
38. These benefits are relatively small value anf they are not considered compensation subject to income
tax
a. Fringe benefits
b. 13th month pay and other benefits of P82,000
c. Minimum wage
d. De minimis
d. De minimis
39. A stock option that entitles the holder to purchase shares of stock is called
a. Equity-settlement option
b. Cash-settlement option
c. Stock-purchase option
d. Debt-equity option
a. Equity-settlement option
40. Which of the following is taxable with income tax as its gross amount when earned within the
Philippines?
a. Professional fee
b. Compensation income
c. Business Income
d. Royalty Income
d. Royalty Income
41. Statement 1: Remuneration for casual labor not in the course of an employer's trade pr business is not
considered as taxable compensation income
Statement 2: Additional Benefits received by the employee for the convenience of the employer are not
taxable income of the employee
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
c. Both statements are correct
42. Which of the following is a taxable compensation income?
a. Separation pay due to resignation
b. Retirement pay under BIR approved retirement plan
c. Separation pay due to disability
d. Terminal pay by fact of death
a. Separation pay due to resignation
43. Which of the following is a taxable compensation income?
a. Professional fee, net of creditable withholding tax
b. Separation pay due to closure of the employer's business
c. Terminal pay inclusive of P15,000 13th month pay
d. Separation pay due to early retirement
d. Separation pay due to early retirement
44. Statement 1: All vacation leave and sick leave with pay are taxable compensation income
Statement 2: All unused vacation leave converted into cash are taxable
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
d. Both statements are incorrect
45. Which of the following is not taxable compensation income?
a. Free housing given to employee
b. Social Security System Benefits
c. Retirement pay under duly BIR approved benefit plan
d. Retrenchment pay
a. Free housing given to employee
46. Which of the following is not taxable?
a. P2,50 for 10 days sick leave actually taken
b. P1,250 for 5 days unused vacation leave converted into cash
c. P1,000 for unused vacation leave received as part of separation pay due to voluntary resignation
d. P500 availed leave
b. P1,250 for 5 days unused vacation leave converted into cash
47. Which of the following is a taxable compensation income?
a. Cost of living allowance
b. De minimis benefits
c. Retirement benefit under BIR approved retirement plan
d. Retrenchment Pay
a. Cost of living allowance
48. Which of the following dividends are subject to income tax?
a. Received by domestic corporation from another domestic corporation
b. Received by a resident corporation from a domestic corporation
c. Received by domestic from nonresident foreign corporation
d. Received by nonresident foreign corporation from another nonresident foreign corporation
c. Received by domestic from nonresident foreign corporation
49. Which of the following is not correct?
a. Collection from taxes are public money
b. Appropriation of taxes for the common good of the people is valid
c. Construction of private road from taxes are availed appropriation
c. Construction of private road from taxes are availed appropriation
50. The power to tax includes the power to destroy because the taxpayer has no option but to pay the tax
is imposed to him
a. Marshall Dicturm
b. Holmes Doctrine
c. Pan Matera Principle
a. Marshall Dicturm
51. All of the following are administrative functions of taxation except
a. Selection of object of tax
b. Equalization of assessment
c. Collection of Taxes
a. Selection of object of tax
52. The following is an incorrect description of taxation
a. Legislative and inherent for the existence of the government
b. It involves the taking of property by the government
c. The amount imposed had no limit`
a. Legislative and inherent for the existence of the government
53. A fundamental rule is that the property of one country may not be taxed by another country. This is
known as
a. International Law
b. International Comity
c. Reciprocity
b. International Comity
54. Which of the following tax rate between in same direction with the taxable value?
a. Proportionate
b. Progressive
c. Regressive
d...?
55. The seized property of a delinquent taxpayer becomes the property of the government. This refers to
a. Distraint
b. Levy
c. Forfeiture
c. Forfe