BAR EXAMINATION QUESTIONS IN TAXATION JB DIMAAMPAO 1. Under RA 9010 the following will be subject to EVAT starting January 1, 2003, except: a. b. c. d.
Professionals, actors, actresses, talent, singers, etc. Banks and non-bank financial intermediaries Services performed as professional athletes Cabarets, night clubs and racetracks
2. Export of Marikina shoes is subject to: a. b. c. d.
12% VAT 0% VAT Exempt Specific Tax
3. Assessment is necessary in the following cases, except: a. b. c. d.
before the preliminary investigation of a fraudulent tax evasion case could prosper to fix the tax liability of a taxpayer establish a case for judicial action for issuance of warrant of distraint or levy
4. The prescriptive period for collection of taxes is: a. 10 years from discovery of omission to file return, falsity or fraud if there is no assessment b. 3 years from filing of return c. 5 years from release of assessment d. a and c are correct 5. Importation of automobiles is subject to: a. b. c. d. e.
Graduated Ad valorem tax of 2% to 60% VAT of 12% Specific tax a and b Exempt
6. The manufacture and importation of the following for local consumption are subject to excise tax, except: a. b. c. d.
alcohol products tobacco products cinematographic films mineral products
7. Domestic sale of bagoong is: a. b. c. d. e.
exempt from VAT subject to 12% VAT if gross annual sales exceed P1.5M subject to 0% VAT subject to 3% percentage tax if exempt from VAT b and d are correct
8. The BIR commissioner may_________ payment of internal revenue tax when it appears to be unjustly or excessively assessed, or that the administrative and collection costs involved do not justify the collection thereof.
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a. b. c. d.
compromise abate credit refund
9. No credit/refund of taxes shall be allowed unless the taxpayer: a. b. c. d.
Files a written claim for credit/refund with the BIR within 2 years from payment Pays the tax under protest Appeals to the CTA Amends his tax return
10. Assessment is: a. b. c. d.
A written notice of the tax due Based on facts and not presumed Demand for payment of the tax within a prescribed period of time All of the above
11. The following are required to keep books of accounts, except: a. b. c. d.
Corporations and partnerships Persons engaged in trade or business in the Philippines Persons who earn passive income None of the above
12. Requirements in order that retirement benefits may be exempt from income tax: a. Must be paid to an employee who is at least 50 years old and has served his employer for at least 10 years b. Exemption from taxation of retirement benefit must be availed of only once c. The benefit must be received under an existing Collective Bargaining Agreement d. a and b only 13. For purposes of the donor’s tax, the following are considered strangers: a. b. c. d.
Brother or sister, whether whole or half-blood Relatives by consanguinity in the collateral line within the 4th civil degree Relatives by affinity, except the spouse of the donor None of the above
14. The special deductions from the gross estate are the following, except: a. b. c. d.
Judicial expenses in testate or intestate proceedings Standard deduction Family home up to P1,000,000 Medical Expenses within one year from the death of the decedent not exceeding P500,000
15. Funeral expenses that can be claimed as deduction from the gross estate should be: a. b. c. d.
Actual amount incurred Not exceeding P200,000 5% of the gross estate The lowest of the above figures
16. The usual modes of avoiding the occurrence of double taxation are: a. b. c. d.
Reciprocal exemption either by law or treaty Tax credit for foreign taxes paid Deduction for foreign taxes paid All of the above
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17. Jose is a law-abiding citizen who pays his real estate taxes promptly. Due to a series of typhoons and adverse economic conditions, an ordinance is passed by Quezon City granting a 50% discount for payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on fines resulting from the late payment. Arguing that the ordinance rewards delinquent taxpayers and discriminates against prompt ones, Jose demands that he be refunded an amount equivalent to one-half of the real estate taxes he paid. The municipal attorney rendered an opinion that Jose cannot be reimbursed because the ordinance did not provide for such reimbursement. Jose files suit to declare the ordinance void on the ground that it is a class legislation. Will his suit prosper? a. The suit will prosper because the ordinance is discriminatory in character. b. The suit will prosper because the ordinance is not based on substantial distinction. c. The suit will not prosper because taxes are the lifeblood of the government and should be collected without unnecessary hindrance. d. The suit will not prosper because the ordinance is based on substantial distinction. Each set of taxes is a class by itself and the law would be open to attack only if all the taxpayers belonging to one class were not treated alike. e. None of the above 18. Which of the following statements are true? a. Resident Filipino citizens with income from foreign sources only are allowed personal and additional exemptions b. Non-resident aliens not engaged in trade/business in the Philippines are not allowed any personal exemptions c. Non-resident aliens engaged in trade/business in the Philippines are allowed personal exemptions based on reciprocity d. All of the above 19. The periodic decrease in the value of a fixed asset due to wear and tear, obsolescence or inadequacy a. b. c. d.
depletion depreciation capital loss special loss
20. The following cases may not be compromised: a. b. c. d.
Criminal tax fraud cases Withholding tax cases Delinquent accounts with duly approved schedule of payments All of the above
21. Citing Section 10, Article VIII of the 1987 Constitution which provides that salaries of judges shall be fixed by law and that during their continuance in office their salary shall not be decreased, a judge of a Regional Trial Court questioned the deduction of withholding taxes from his salary since it results into a net deduction of his pay. Is the contention of the judge correct? a. No. The contention is incorrect because taxes are enforced contributions. b. No. The contention is incorrect because taxes must be collected in order to support the government. c. No. The contention is not correct because deduction of withholding taxes is not a dimunition contemplated by the fundamental law.
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d. No. The contention is incorrect because deduction of withholding taxes is required by law. e. None of the above. 22. The following conditions shall be observed when there is a net capital loss carry over: a. The loss carried over is for a holding period not exceeding 12 months b. The amount of the loss should not exceed the income before exemptions in the year when the loss was sustained c. The taxpayer should not be a corporation d. All of the above 23. What is the minimum compromise rate in cases of doubtful validity of assessment? a. b. c. d.
40% of the basic assessed tax 10% of the basic assessed tax No limitation P1,000,000
24. Which of the following VAT transactions are not considered zero-rated? a. b. c. d.
Export sales of goods Domestic sale of goods in the regular course of trade or business Foreign currency denominated sale Sale of gold to Bangko Sentral ng Pilipinas
25. Barbaran municipality has an ordinance which requires that all stores, restaurants, and other establishments selling liquor should pay a fixed annual fee of P20,000. Subsequently, the municipal board proposed an ordinance imposing a sales tax equivalent to 5% of the amount paid for the purchase or consumption of liquor in stores, restaurants, and other establishments. The municipal mayor refused to sign the ordinance on the ground that it would constitute double taxation. Is the refusal of the mayor justified? a. No. The refusal of the mayor is unjustified because double taxation is allowed in our jurisdiction. b. No. The refusal of the mayor is not justified because the impositions are of different nature and character. c. No. The refusal of the mayor is unjustified because it is not within his power. d. No. The refusal of the mayor is not justified because double taxation will generate more revenues. e. None of the above. 26. This is a summary administrative remedy, seizure of real property to enforce payment of tax due: a. b. c. d.
Levy Distraint Forfeiture Tax lien
27. Which of the following cannot be considered as tax avoidance? a. b. c. d.
Splitting of donation Survivorship agreement Holding period for capital asset transactions None of the above
28. Tony has inadvertently omitted P100,000 income in his 2004 Income Tax Return. Upon discovery in 2005, the BIR issued an assessment for deficiency income tax for
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P100,000 plus 50% fraud surcharge. Meanwhile, Tony included the omitted P100,000 income in his 2005 Income Tax Return. What advice will you give Tony? a. b. c. d.
Amend his 2004 Income Tax return to reflect the correct amount of income Pay the assessed tax plus surcharge, and thereafter , ask for refund Protest the assessment Any of the above
29. Tino is engaged in buying and selling of fresh fruits at the Q-Mart and Aranque Markets. He is also exporting canned and preserved fruits to Japan. In 2004, he made a gross sales of P2,000,000. He is liable for VAT registration fee of : a. b. c. d.
P500 P1,000 P1,500 Exempt
30. Shirley was allowed to deduct P200,000 bad debts written off in 2003, where she had a net income before bad debts of P180,000 and a net loss of P20,000. IN 2004, she was able to recover the bad debts written off in full. The bad debts recovery is: a. b. c. d.
Taxable to the extent of P180,000 Taxable to the extent of P20,000 Taxable to the extent of P200,000 Not taxable
31. A taxpayer who believes that a tax ordinance is unconstitutional should appeal to: a. b. c. d.
BIR Commissioner Metropolitan Trial Court Court of Tax Appeals Secretary of Justice
32. Any of the following conditions should be met to enable the President to increase the VAT from 10% to 12% starting January 1, 2006: a. VAT collection to Gross Domestic Product in the previous year exceeds 2 4/5% b. National Government Deficit to Gross Domestic Product in the previous year exceeds 1 ½ % c. VAT tax effort to Gross National Product equals 4% d. Either a or b 33. In 2004 Allan gave the following donations: a. b. c. d.
P100,000 to the Iglesia ni Kristo P500,000 for campaign expenses of a senatorial candidate P200,000 to victims of calamities P300,000 to IBP
Which of the above donations are subject to donor’s tax? 34. Before any civil or criminal action is filed by the BIR in court, _____________ is necessary: a. b. c. d.
Approval of the Secretary of Justice Approval of the BIR Commissioner Approval of the Secretary of Finance Approval of the President
35. The ___________ has exclusive and original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of
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Customs, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is one million pesos or more. a. b. c. d.
BIR Commissioner Metropolitan Trial Court Regional Trial Court Court of Tax Appeals
36. The principle that where a claim for refund/credit is filed beyond the prescriptive period, it can still be applied against other taxes that may be due, is: a. b. c. d.
Doctrine of equitable benefit Doctrine of equitable recoupment Equitable tax benefit rule Cohan Rule
37. The fundamental principles of local taxation are: a. b. c. d.
Public purpose Uniformity Principle Not to let the collection of taxes to private person All of the above
38. Where the gross income of a taxpayer exceeds P150,000 per quarter his income tax return must be accompanied by: a. b. c. d.
Audit certificate of an independent CPA Comparative Financial Statements Schedule of Taxes and Licenses Summary of Income payments
39. The following income are not taxable, except: a. b. c. d. e.
Salary of farm workers in the form of products raised in the farm. Separation pay of employees who voluntarily resigned Value of leasehold improvement constructed on the leased land Increase in market value of land None of the above
40. Cash dividends received from a domestic corporation are subject to final tax of 10% if received by: a. b. c. d.
Another domestic corporation Resident foreign corporation Non-resident alien engaged in trade/business in the Phil. Resident Filipino citizen
41. Due to an uncertainty whether or not a new tax is applicable to printing companies, ABC Printers submitted a legal query to the Bureau of Internal Revenue on that issue. The BIR issued a ruling that printing companies are not covered by the new law. Relying on this ruling, ABC Printers did not pay said tax. Subsequently, however, the BIR reversed the ruling and issued a new one stating that the tax covers printing companies. Could the BIR now assess ABC Printers for back taxes corresponding to the years before the new ruling? a. b. c. d. e.
Yes. The reversal of the ruling is not prejudicial to the taxpayer. Yes. The reversal of the ruling is within the power of the BIR. Yes. The reversal of the ruling is consistent with the lifeblood doctrine. Yes. The reversal of the ruling does not result in grave injustice to the taxpayer. None of the above.
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42. The following are subject to amusement taxes: a. b. c. d.
Gross receipts of carnivals Gross receipts of cinema houses Professional basketball games Gross receipts of circus
43. The following are considered taxes: a. b. c. d.
Toll License Penalty None of the above
44. The power to tax may be delegated to: a. b. c. d.
The President BIR CTA a and b only
45. The BIR Commissioner is empowered to: a. b. c. d.
Interpret tax laws and decide tax cases Obtain information, summon and examine witnesses Collect national internal revenue taxes All of the above
46. Life insurance proceeds shall not be included in taxpayer’s gross income when: a. b. c. d. e.
The amount does not qualify as income The recipient is always the beneficiary The life insurance policy always provides for exclusion The amount is paid upon the death of the insured None of the above
47. The BIR Commissioner can inquire into the bank deposit of the taxpayer in the following cases: a. b. c. d.
To determine the gross estate in estate tax cases Compromise on the ground of financial incapacity Taxpayer executes a waiver of the Bank Secrecy Law All of the above
48. Seizure and forfeiture proceedings are within the exclusive jurisdiction of a. b. c. d.
Court of Tax Appeals Collector of Customs Regular courts Secretary of Finance
49. The equal protection clause is subject to reasonable classification. Classification to be valid must: a. b. c. d.
Rest on substantial distinction Germane to the purpose of the law Not limited to existing conditions only All of the above
50. The following are prohibited importations, except: a. Weapons of war
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b. c. d. e.
Insidious articles Narcotic Drugs. Gambling devices Live animals
51. The following BIR actions on the protest of an assessment are tantamount to denial thereof: a. Filing of collection case in court b. Issuance of warrant of distraint/levy c. Inaction of the BIR Commissioner within 180 days from submission of supporting documents by the taxpayer d. All of the above 52. JB got married to SAY last January 2004. On November 30, 2004, SAY gave birth to twins. Unfortunately, however, SAY died in the course of her delivery. Due to complications, one of the twins also died on December 15, 2004. In preparing his Income Tax Return (ITR) for the year 2004, what should JB indicate in the ITR as his civil status: a. b. c. d. e.
Single Married with 2 dependents Head of the family with 1 dependent Head of the family with 2 dependents None of the above
53. The following criteria need not be observed in the exercise of the flexible power of the President under the Tariff & Customs Code: a. b. c. d.
National security Welfare of the people Jurisdiction of the Customs Commissioner National Economy
54. Monthly support regularly given by an unmarried daughter to her aged mother. a. b. c. d.
Taxable income of mother Subject to donor’s tax Exempt from tax None of the above
55. The following are special customs duties, except: a. b. c. d.
Dumping duties Marking duties Discriminatory duties None of the above
56. Cancellation of debt of employee by his employer is taxable as a. b. c. d.
Compensation income Donation Indirect dividend Either a or b
57. Informer’s reward is equal to a. 10% of revenues, surcharges or fees collected by the BIR as a result of the information given b. P 1,000,000 c. a or b whichever is lower
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d. a or b whichever is higher 58. The following are duty-free articles: a. b. c. d.
Personal articles Articles for repair Articles for public exposition/exhibits All of the above
59. The following non-resident aliens can be subject to 15% income tax on income derived from sources within the Philippines. a. b. c. d.
employed by regional area/operating headquarters of multinational companies employed by OBU employed by petroleum service contractor and subcontractor all of the above
60. Which of the following taxes are not deductible from gross income: a. b. c. d.
Philippine Income Tax Value Added Tax Transfer Taxes All of the above
61. Separation pay is taxable. a. b. c. d. e.
if separation is due to death, sickness or injury of employee if employee voluntarily resigned if employee resigned at the age of 60 if the employer closed shop all of the above
62. The following are taxed like corporation a. b. c. d.
general professional partnership ordinary business partnership estates and trusts all of the above
63. VAT is a. b. c. d. e.
special tax local tax specific tax regressive tax none of the above
64. The following taxes have been replaced by VAT per RA 9337 a. b. c. d. e.
fringe benefits tax common carrier’s tax caterer’s tax percentage tax on banks and finance companies b and c only
65. The following are not subject to the improperly accumulated earnings tax, except: a. b. c. d.
Publicly held corporations Insurance companies Banks and other non-bank financial intermediaries None of the above
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66. If monthly rental income of a residential unit exceeds P 10,000 per unit, the same shall be subject to 12% VAT. a. b. c. d.
True, without any further condition. True, only if the total gross annual rentals received exceed P 1.5M False, this is subject to 0% VAT. False, this is exempt from VAT under RA 9337
67. The preliminary investigation of a fraudulent tax evasion case may be enjoined in the following cases. a. b. c. d. e.
when there is a prejudicial question when double jeopardy is clearly apparent when charges are manifestly false and motivated by lust for vengeance when the court has no jurisdiction over the offense all of the above
68. Sale of real estate is subject to VAT a. b. c. d.
True, if made in the regular course of trade or business False, it is exempt if the real estate is classified as capital asset False, it is exempt if what is sold is a residential unit a and b are correct
69. Why is the Fringe Benefits Tax collectible from the employer and not from the employee? a. b. c. d.
Valuation of benefits is easier at the level of the employer Collection of FBT is ensured because it is withheld at source The employee does not have the means to pay a and b are correct
70. A taxpayer with gross annual sales not exceeding P100, 000 is exempt from payment of business tax and registration requirements. a. True b. False, required to register with the BIR but exempt from the payment of registration fee c. False, required to pay registration fee d. b and c are correct 71. Which of the following statements is wrong? a. The MCIT is equal to 2% of the gross income of the corporation b. The MCIT is not computed quarterly but on an annual basis c. The MCIT payments can be carried over for the next 3 years immediately following such payment d. The taxpayer should pay the MCIT or the regular income tax whichever is higher. 72. In ruling on the constitutionality of the EVAT, the Supreme Court held that: a. A revenue bill shall originate exclusively in the House of Representatives but the Senate may adopt its own version b. The requirement of three separate readings on separate days cannot be dispensed with c. The Bicameral Conference Committee cannot make unauthorized insertions on the Senate version of the bill d. b and c are incorrect 73. The following are exempt from amusement tax: a. professional basketball games
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b. c. d. e.
boxing exhibitions billiards bowling c and d only
74. The following are subject to 3% common carrier’s tax, except: a. b. c. d.
taxicab operators common carriers transporting cargoes tourist buses motor tricycles
75. The manufacture of casino rubbing alcohol is subject to: a. b. c. d. e.
VAT percentage tax specific tax ad valorem tax exempt
76. A tax imposed at every stage of distribution process on the sale, barter or exchange of goods and services and transactions deemed sale, as well as importation of goods and services. a. b. c. d.
privilege tax percentage tax VAT excise tax
77. Mario disputed a deficiency tax assessment and upon receipt of an adverse decision by the Commissioner of Internal Revenue, filed an appeal with the Court of Tax Appeals. While the appeal is pending, the BIR served a warrant of levy on the real properties of Mario to enforce the collection of the disputed tax. Granting arguendo that the BIR can legally levy on the properties, what could Mario do to stop the process? a. Appeal the BIR’s action to the Court of Appeals b. Dispute BIR’s levy on the properties before the Court of Tax Appeals c. File a motion for injunction with the Court of Tax Appeals on the ground that such collection will jeopardize the interest of the taxpayer or the government. d. Secure a temporary restraining order before the Supreme Court. e. None of the above 78. Additional exemption for each dependent child per RA 9504 a. b. c. d.
P 10,000 P 9,000 P 8,000 P 25,000
79. Income tax is not a a. b. c. d. e.
personal tax national tax excise tax direct tax progressive tax
80. Under RA8424, the allowable deduction for medical expenses of a resident decedent shall not exceed : a. P 50,000
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b. P 550,000 c. P 5,000 d. P 500,000 81. Per RA 9504, how much is the total personal and additional exemption of Mrs. A, who became a widow during the taxable year and supporting her mother and one mentally retarded illegitimate 25 year-old child? a. b. c. d.
P 75, 000 P 40, 000 P 100, 000 P 48, 000
82. The following is not a taxable income of a resident Filipino citizen: a. b. c. d. e.
income from an illegal business income from a business abroad income from casino winnings from lotto none of the above
83. Which of the following are excluded from the gross estate? a. b. c. d. e.
proceeds of life insurance policy payable to an irrevocable beneficiary revocable transfers transfer in contemplation of death claims against insolvent persons none of the above
84. Basically, power of taxation is exercised by a. b. c. d. e.
the President the Congress Judiciary BIR All of the above
85. The standard deduction of P 1,000,000 from the gross estate is: a. b. c. d.
optional in addition to the itemized deductions not available to resident decedents in lieu of all itemized deductions
86. The following are the requisites for income to be taxable, except: a. b. c. d. e.
There must be gain or profit The gain must be received or realized The gain must not be excluded by law or treaty from taxation The income must exceed the personal and additional exemptions of the taxpayer None of the above
87. Who among the following are NOT required to file an income tax return? a. b. c. d.
Filipino citizen with business income from the Philippines. Resident alien on income derived within the Philippines. Non-resident alien engaged in trade or business An individual whose sole income has been subjected to final withholding tax.
88. Which of the following are NOT exempt from income tax? a. Philippine Health Insurance Corporation
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b. c. d. e.
Philippine National Oil Company University of the Philippines PAGCOR b and d
89. Which of the following is a qualified dependent for additional exemption? a. b. c. d. e.
45 years old mentally retarded son an illegitimate child legally adopted child all of the above none of the above
90. Which escape from taxation does not result in loss of revenue to the government? a. b. c. d. e.
Tax evasion Tax avoidance Tax exemption Shifting All of the above
91. The following fringe benefits are not taxable, except: a. Fringe benefits which are authorized and exempted from tax under special laws. b. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefits. c. Membership fees, dues and other expenses borne by the employer in social or athletic clubs or other similar organizations. d. Benefits given to rank and file employees, whether granted under a collective bargaining agreement or not. e. De minimis benefits. 92. The final tax on capital gains from sale of real property, classified as capital asset is: a. 20% based on the gross selling price or current fair market value whichever is higher. b. 7.5% based on the gross profit. c. 6% based on the gross selling price or zonal value, whichever is higher. d. 6% of the purchase price or the assessed value whichever is higher. e. None of the above 93. Sale, barter, exchange or other disposition of shares of stocks which are traded in the local stock exchange is subject to: a. b. c. d.
capital gains tax of 5% and 10% of capital gain percentage tax of ½ of 1% of selling price 10% VAT none of the above
94. Domeng bought a parcel of residential land for P 1,000,000 sometime in 1980. He sold the same to Norbie for P 10,000,000 on October 15, 2000. The transaction is subject to 6% capital gains tax. a. b. c. d.
True False, if Domeng is engaged in the real estate business. False, it is subject to VAT if the sale is in the regular course of trade or business. b and c are correct.
95. Who may not avail of the itemized deductions from gross income? a. Resident aliens b. Non resident aliens engaged in trade or business in the Philippines.
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c. Resident foreign corporations. d. Citizens and resident aliens whose income is purely compensation income. 96. The following are requisites for the deductibility of bad debts, except: a. There must be a valid and subsisting debt. b. The debt must be charged off during the taxable year. c. The debt must be actually ascertained to be worthless and uncollectible during the taxable year. d. It must be evidenced by a closed and completed transaction. 97. What is the nature of tax laws? a. b. c. d. e.
not political penal civil both a and b both a and c
98. Under the “Life-Blood doctrine”, the main source of revenue of the government is taxes. The power to tax includes the power to destroy in all cases. a. b. c. d.
Both statements are true. Both statements are false. The first statement is true while the second statement is false The first statement is false while the second statement is true.
99. Which of the following is not a source of tax laws? a. Administrative regulations and rulings or opinions of the Secretary of Justice. b. Administrative regulations and rulings or opinions of the Secretary of Budget and Management. c. Administrative regulations and rulings or opinions of the Commissioner of Internal Revenue. d. Administrative regulations and rulings or opinions of the Secretary of Finance. 100. Tips and gratuities paid directly to an employee by a customer and not reported to the employer a. b. c. d.
Taxable compensation income and subject to withholding tax. Not taxable. Taxable compensation income but not subject to withholding tax. Subject to donor’s tax.
101. No credit/refund of taxes shall be allowed unless the taxpayer: a. b. c. d.
Files a written claim for credit/refund with the BIR within 2 years from payment Pays the tax under protest Appeals to the CTA Amends his tax return
102. The oft-cited doctrine that taxes are lifeblood of the government does not favor one of the following rules: a. b. c. d.
Taxes are not subject to set off Taxes should be collected without unnecessary hindrance Tax exemptions should be sparingly granted Doctrine of Equitable Recoupment
103. Taxes are not enforced proportional contributions. In our jurisdiction, the following statements are correct except:
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a. b. c. d.
Taxes are obligations created by law. Taxes are based on one’s ability to pay. Taxes are levied by authority of the law. The power to tax is not unlimited.
104. Which of the following judicial pronouncements is most recent: a. Upon taxation depends the Government’s ability to serve the people for whose benefit taxes are collected. b. The BIR should be given the necessary discretion to avail itself of the most expeditious way to collect taxes. c. Taxes cannot be imposed by the executive department not by the courts. d. The best evidence obtainable under Section 6 (B) of the NIRC does not include mere photocopies of records/documents. 105. Congress passed a law allowing the payment of taxes in kind/services. This violates the principle of: a. b. c. d.
Economic efficiency Fiscal adequacy Theoretical justice Administrative feasibility
106. Which of the following statements may not be untenable: a. b. c. d.
The nature of the state’s power to tax is two-fold. Legislative power to tax involves the promulgation of rules. The rule of taxation should not be proportionate. Tax exemptions are liberally construed in favor of the government.
107. The following propositions are erroneous exept: a. b. c. d.
Public purpose includes indirect public advantage. The power to tax is inherent because it requires a set of rules. Taxes are always based on the amount received by the taxpayer. Taxpayer must receive personal benefit for the payment of tax.
108. The power to tax involves the power to destroy, said Chief Justice Marshall of the US Supreme Court. This should be construed to mean that: a. The power of taxation is unlimited b. The power to tax may be used solely for the purpose of raising revenues. c. The power to tax includes the power to regulate even to the extent of prohibition or destruction. d. The power to tax is superior to all other forms of the government. 109. The secondary or non-revenue purposes of taxation include the following except: a. b. c. d.
As an implement of the police power of the State To encourage the growth of local industries. To reduce social inequality To protect our local industry against unfair foreign competition.
110. Which of the following statements is true: a. b. c. d.
Payment signifies an act of compliance by the taxpayer. The act of assessing and collecting taxes is administrative in character. Symbiotic relationship theory is different from benefits received principle. All of the above.
111. Which of the following prevents the occurrence of double taxation?
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a. b. c. d.
Vanishing deduction Allowable deduction Exemption method None of the above
112. The following items are taxable except: a. b. c. d. e.
Illegal gains Tax refund involving deductible tax Tax refund involving non-deductible tax Cash dividend Annuities
113. Gross income means all income derived from whatever source, including the following items except: a. b. c. d.
Pensions Prizes and winnings Rents Stock dividends
114. Exclusions from gross income under the Tax Code include the following except: a. b. c. d.
Veterans benefits Compensation for injuries and sickness Gifts, bequests, and devises Gains from redemption of shares of stock
115. Fringe benefit tax shall be paid by the employer because: a. b. c. d.
The employee received the benefit net of tax The Tax Code expressly so states The employer relieves the employee of the burden to pay the tax The employer is the agent of the employee for the payment thereof.
116. Allowable deductions are distinguished from personal exemptions in that: a. The former may be availed of only by corporate taxpayers, whereas the latter may apply to individual taxpayers. b. The former applies to corporate and individual taxpayers engaged in business or are practicing their profession, whereas the latter covers only natural persons. c. The former may be found in Section 34, while the latter is granted under Section 35. d. The former is a privilege while the latter is a matter of right. 117. Which of the following statements is not correct? a. b. c. d.
Interest on government securities is not tax exempt effective January 1, 1998. Stock dividend is tax exempt. Premium on life insurance may be taxable to the employee. Fringe benefit is subject to 32% final tax effective January 1, 2000.
118. Gross estate includes the following items except: a. b. c. d.
Transfer for insufficient consideration Donations mortis causa Revocable transfers Transfer under special power of appointment.
119. Donation to stranger is subject to 30% of the net gift. Stranger includes: a. Second cousin
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b. Half brother c. Lineal descendant d. Collateral relative within the fourth civil degree of relationship 120. Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. This pronouncement was cite in several decisions of the Supreme Court except in the case of: a. b. c. d.
Commissioner vs. Pineda, 21 SCRA 105 Vera vs. Fernandez, 89 SCRA 199 Lutz vs. Araneta, 98 SCRA 148 Philex Mining vs. CIR, 294 SCRA 678
121. “Lest the collector kill the hen that lays the golden egg.” This has been metaphorically mentioned to justify a settled rule as laid down in the case of: a. b. c. d.
Gomez vs. Palomar, 25 SCRA 827 Punzalan vs. Manila, 95 SCRA 46 Roxas vs. CTA, 23 SCRA 276 Villegas vs. Pao, 86 SCRA 270
122. The symbiotic relationship theory as enunciated in the case of CIR vs. Algue, Inc., 158 SCRA 9, is an amplification of: a. b. c. d.
Ability to pay principle Progressive system of taxation Lifeblood doctrine Benefit-protection theory
123. Settled is the rule that in tax matters, the government is not estopped by the errors or mistakes committed by its agents or officers. This should be construed to mean that: a. b. c. d.
The power to tax is supreme and unlimited. The power to tax is plenary and comprehensive. The state may still collect prescribed taxes. BIR can still present evidence to prove assessment.
124. Srictissimi juris may be applied in the construction and interpretation of tax laws except: a. b. c. d.
Local ordinance imposing business tax. Local ordinance granting tax amnesty. Provision of the NIRC granting tax credit. Special law lowering tax rate.
125. May a taxpayer who has claim for VAT input credit or refund, set-off said claim against his other tax liabilities? a. b. c. d.
Yes, provided that the claim is set-off against other unpaid income tax. Yes, provided that the claim is set-off against other national internal revenue tax. Yes, provided that the claimant is a VAT-registered taxpayer. Yes, provided that the claim is duly substantiated by receipts.
126. The police power, the power of taxation and the power of eminent domain are coequal and inherent powers of government. May a tax be validly imposed in the exercise of the police power and not of the power to tax? a. Yes, because the power to tax and police power have some similar objectives. b. Yes, because the police power of the state includes the power to regulate c. Yes, because taxes may be imposed to regulate.
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d. Yes, because taxation also involves the power to carry out the legitimate objects of government. 127. Taxes are not subject to set-off because: a. b. c. d. e.
Taxes are the lifeblood of the government. Taxes are the sinews of the state. Taxes are enforced charges Taxes should be collected without unnecessary hindrance Taxes are not ordinary obligations.
128. May the collection of taxes be barred by prescription? a. b. c. d. e.
Yes, provided that they are income taxes. Yes, provided that they are local taxes. Yes, provided that they are custom duties. Yes, provided that the tax law provides for prescriptive periods. Yes, provided that they are imposed by special laws.
129. May the courts enjoin the collection of revenue taxes? a. b. c. d. e.
No, because taxes are the lifeblood of the government. No, because taxes are needed to carry out the legitimate objects of the government. No, except if the collection will jeopardize the interest of the taxpayer. No, except if the taxpayer is financially incapable. None of the above.
130. What is the purpose of the doctrine of constructive receipt of income? a. b. c. d.
To ensure collection of taxes. To compel taxpayers to report their income To prevent tax evasion. To prevent the taxpayer on the cash basis from postponing the actual receipt of taxable income. e. None of the above. 131. Any amount received under claim of right is taxable if: a. b. c. d. e.
It arises from illegal transaction. It is received without restriction as to its disposition. It is decreed by the court The claimant dies The claimant donates the same
132. Taxable rent income includes the following items except: a. b. c. d.
Value of permanent improvement Premiums paid on the insurance of the leased premises Royalties Interest on bond issued by the lessor
133. Income from long-term contracts may not be reported under one of the following methods: a. b. c. d. e.
Outright method Spread-out method Completed contract basis Accrual basis Cash basis
134. How is compensation paid in promissory note treated for income tax purpose?
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a. b. c. d. e.
Subject to final tax It is taxed at gross amount Taxable to the amount of the fair market value of the promissory note It is deductible from gross compensation income None of the above
135. Tax applicable to certain specified goods or articles manufactured or purchased in the Philippines for domestic sale or consumption. a. b. c. d.
Specific tax VAT Percentage tax Excise tax
136. Cost of carabao used in farming is deductible as any ordinary expense. a. b. c. d. 137.
True False, because carabao is a capital expenditure False, because carabao is subject to depreciation Both b and c
Under RA 9337, a presumptive input tax credit is allowed to processors/manufacturers of milk, sardines, mackerel, refined sugar, cooking oil, and packed noodle-based instant meals at the rate of: a. b. c. d.
1.5% 4% 2% 8%
138. Tax evasion is: a. b. c. d.
Means of escape from tax liability outside what is legal and permissible Tax saving device within the means sanctioned by law Deduction from foreign taxes paid a and c only
139. The following are qualified dependents of a head of the family, except: a. b. c. d.
Either or both parents Brother/Sister of whole or half-blood Senior citizen Grandchildren
140. Which of the following is deductible for income tax purposes: a. b. c. d.
Employer’s contribution to pension trust Personal, family, living expenses Wagering losses Kickbacks
141. For tax purposes, income is synonymous to: a. b. c. d.
Capital Receipts Realized profit None of the above
142. The following can avail of the Input Tax Credit, except: a. Importer of goods/articles previously subjected to VAT b. Purchaser of domestic goods upon consummation of the sale
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c. Exporter of goods and services not registered under the VAT system d. Purchaser of services, lessee or licensee upon payment of compensation, rental, royalty or fee 143. Educational services rendered by private educational institutions are exempt from VAT if duly accredited by the following, except: a. b. c. d.
Securities and Exchange Commission Commission on Higher Education Department of Education, Culture and Sports Technical Education and Skills Development Authority
144. For VAT purposes in connection with deferred payment sale of real property, the term “initial payments” shall include: a. b. c. d.
Payments made in the year of sale in addition to the down payment Mortgage on the real property sold not exceeding the cost thereof Evidence of indebtedness issued by the purchaser to the seller at the time of sale Down payment only made at the time of sale.
145. In our jurisdiction, which of the following statements may be erroneous: a. Taxes are pecuniary in nature. b. Taxes are enforced charges and contributions. c. Taxes are imposed on persons and property within the territorial jurisdiction of a State. d. Taxes are levied by the executive branch of the government. e. Taxes are assessed according to a reasonable rule of apportionment. 146. Determine which of the following items are taxable: a. b. c. d. e.
Income from jueteng Gain arising from expropriation of property Taxes paid and subsequently refunded Recovery of bad debts previously charged off All of the above
147. Determine which of the following is (are) included in the preparation of annual income tax returns: a. b. c. d. e.
Proceeds of life insurance received by a child as irrevocable beneficiary 13th month pay and de minimis benefits Dividends received by a domestic corporation from another domestic corporation. Interest on deposits with BPI Family Bank None of the above
148. JR was a passenger of an airline that crashed. He survived the accident but sustained serious physical injuries which required hospitalization for 3 months. Following negotiations with the airline and its insurer, an agreement was reached under the terms of which JR was paid some amounts. Which of the following amounts constitute taxable income? a. b. c. d.
P500,000 for his hospitalization P250,000 as moral damages P300,000 for loss of income during the period of his treatment and recuperation JR received from his employer the amount of P200,000 representing the cash equivalent of his earned vacation and sick leaves.
149. MAR got married to SALLY last January 2005. On November 30, 2005, SALLY gave birth to twins. Unfortunately, however, SALLY died in the course of her delivery. Due to complications, one of the twins also died on December 15, 2005. In
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preparing his Income Tax Return (ITR) for the year 2005, what should MAR indicate in the ITR as his civil status? a. b. c. d. e.
Single Married Head of the family Widower None of the above
150. Which of the following cases may not be compromised: a. Delinquent accounts b. Cases under administrative protest, after issuance of the final assessment notice to the taxpayer, which are still pending. c. Criminal tax fraud cases d. None of the above 151. A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding payment within 10 days, otherwise, it would collect through summary remedies. The taxpayer requested for reconsideration stating the grounds therefore. Instead of resolving the request for reconsideration, the BIR sent a Final Notice before Seizure to the taxpayer. Which of the following remedies can the taxpayer avail? a. b. c. d.
File an injunction before the Regional Trial Court Appeal to the Court of Tax Appeals Appeal to the Court of Appeals Proceed with Certiorari before the Supreme Court
152. The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac province. The Church and a convent occupy the southern side and middle part. The southeastern side by some commercial establishments, while the rest of the property, in particular the northwestern side, is idle or unoccupied. Which of the following is correct? a. The Church may claim tax exemption on the entire land. b. The exemption covers only the southern side and middle part occupied by the Church and a convent and the eastern side by a school run by the church. c. The tax is imposable on the northwestern side which is idle or unoccupied. d. The entire property is taxable for real property taxation 153. XYZ Colleges is a non-stock, non-profit educational institution run by the Archdiocese of BP City. Which of the following item(s) is included in its Income Tax Return? a. b. c. d. e.
Tuition fees Laboratory fees Rentals from canteen concessionaires Interest from money-market placements of the tuition fees Donation of a lot and building by school alumni
154. Frank Sinatra, an American Citizen, was a top executive of a US company in the Philippines until he retired in 1999. He came to like the Philippines so much that following his retirement, he decided to spend the rest of his life in the country. He applied for and was granted a permanent resident status the following year. In the spring of 2004, while vacationing in Orlando, Florida, USA, he suffered a heart attack and died. Which of the following assets shall not be included in taxable gross estate in the Philippines? a. Bank Deposits with Citibank Makati and Citibank Orlando, Florida b. A condominium unit in Makati c. Shares of stock in the Philippine subsidiary of the US Company where he worked.
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d. Shares of stock in San Miguel Corporation and PLDT. e. Shares of stock in Disney World in Florida f. None of the above 155. An individual client not engaged in realty business paid in full the P50,000 attorney’s fees of his counsel in lot which he bought in 1990 for P5,000 and which has a fair market value of P60,000. Which of these is correct? a. b. c. d.
The client-transferor is subject to final capital gains tax based on P60,000 The client-transferor is subject to final capital gains tax based on P50,000 The client-transferor is not subject to final capital gains tax The client-transferor is subject to income tax for the difference between P50,000 and P5,000 e. None of the above 156. One of these is not the correct period within which internal revenue taxes shall be assessed: a. b. c. d.
Within 3 days after the last day prescribed by law for the filing of the return Within 3 years from the date the return was filed If no return was filed, within 10 years from date of discovery of failure to file return If return is false or fraudulent, within 10 years from date of discovery of the falsity or fraud.
157. One of these is not an exception to the rule that for income tax purposes, the books and records of a taxpayer shall be subject to examination and inspection only once in a taxable year: a. b. c. d. e.
When the taxpayer is outside the Philippines When there is fraud, irregularity or mistake Verification of compliance with withholding tax laws When taxpayers requests reinvestigation Verification of capital gains tax liabilities
158. Which of the following cases is pre-assessment notice required? a. In a discrepancy between the tax withheld and the amount actually remitted by the withholding agent b. When the excise tax due has not been paid c. Transfer by an exempt person of articles to non-exempt person d. When the commissioner or his duly authorized representative finds that proper tax should be assessed. 159. To pre-empt the lapse of prescriptive period within which the government can assess and/or collect in court without assessment, a. The government may issue jeopardy assessment b. The government may require waiver of prescriptive period c. The waiver by the taxpayer must be accepted by the commissioner or his duly authorized deputy. d. The waiver is a waiver by the taxpayer of his right to invoke the defense of prescription. e. b, c and d only 160. One of these is true: a. Waiver of prescriptive period to last until the completion of investigation is valid. b. Waiver is a taxpayer’s concession to the state, thus, it must be construed strictly against the state c. Waiver being unilateral, the state need not express its acceptance, and when accepted, the taxpayer need not be notified.
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d. Waiver being unilateral, acceptance by the state need not observe the level of authority of the officials empowered to accept. 161. One of these has no time limit within which to assess: a. b. c. d.
Income tax Transfer taxes (donor or estate) Value Added Tax Privilege tax
162. One of these is not a type of local tax and other impositions – a. b. c. d.
Municipal taxes on business & occupations Municipal fees & service charges Real property taxes Taxes on gross receipts of transportation businesses
163. For casual sale of real property, you do not pay – a. b. c. d.
Capital gains tax Documentary stamp tax Local transfer tax Income tax
164. In local business taxes, the local government of one of these is prohibited to collect – a. b. c. d.
factory site Principal office places thru which sales trucks pass none of the above
165. Special classes of real property do not include – a. b. c. d.
Local water district Public power – generating company Hospitals Schools
166. Which is not a levy on real property – a. b. c. d.
Special education fund Ad valorem tax on idle land Special assessment Transfer tax on sale or transfer
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ANSWER KEY TAXATION 1. D 2. B 3. A 4. D 5. A 6. C 7. A 8. B 9. A 10 .D 11. D 12. D 13. C 14. A 15. D 16. D 17. D 18. D 19. B 20. D 21. C 22. D 23. A 24. B 25. B 26. A 27. D 28. C 29. A 30. C
31. D 32. D 33. D 34. B 35. D 36. B 37. D 38. A 39. B 40. D 41. E 42. B 43. D 44. D 45. D 46. D 47. D 48. B 49. D 50. E 51. D 52. B 53. C 54. C 55. D 56. D 57. C 58. C 59. D 60. D
61. B 62. B 63. C 64. E 65. D 66. B 67. C 68. D 69. B 70. B 71. B 72. A 73. E 74. B 75. D 76. C 77. D 78. D 79. C 80. D 81. A 82. D 83. A 84. B 85. B 86. D 87. D 88. E 89. D 90. D
91. C 92. C 93. B 94. A 95. D 96. D 97. E 98. C 99. B 100 .A 101. A 102. D 103. D 104. C 105. D 106. C 107.A 108. C 109. B 110. B 111. C 112. C 113. D 114. D 115. D 116. B 117. C 118. D 119. A 120. C
121. C 122. D 123. B 124. A 125. B 126.C 127. E 128. D 129. C 130. C 131. B 132. A 133. E 134. E 135. D 136. A 137. B 138. A 139. D 140. A 141. B 142. C 143. A 144. A 145. D 148. E 147. E 148. C 149. B
150. C 151. B 152. B 153. C 154. F 155 A 156. A 157. C 158. D 159. E 160. B 161. D 162. D 163. D 164. C 165. B 166. D
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