Answer Key Tax 501 by Ampongan

PAGE 1 EXERCISE 2–1 1. The query should be addressed to the Commissioner of Internal Revenue 2. I will inform him that a compromise is not allowed anymore 3.

Piolo is correct.

4.

I will request for a compromise of the assessed tax on ground that the financial position of the taxpayer demonstrates clear inability to pay the assessed tax.

5.

The claim for refund should be denied on ground of prescription.

6. The Commissioner may not grant the refund when there is a deficiency tax assessment against the claimant-taxpayer. 7.

Yes.

8.

a. The counting of the two (2) year period commences to run from the date of final payment. b.

Augusto has thirty days from receipt of the decision of the CIR to file an appeal with the CTA

c.

He is given 30 days from receipt of the CIR’s decision but not exceeding 2 years from the date of final payment.

EXERCISE 2-2. MULTIPLE CHOICE 1.

C

2.

C

3.

A

4.

B

5.

D

6.

C

7.

B

8.

A

9.

D

10.

D

PAGE 2

11

C

12.

D

13.

B

14.

B

15.

C

EXERCISE 2-3 1.

D

2.

A

3.

D

4.

C

5.

D

EXERCISE 2–4 The proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.

EXERCISE 3-1 1.

The partnership is not liable to pay income tax.

2.

The contention of Judge Nitafan is wrong. .

3. Income subject to tax/Fair discounted value b.

80,000

PAGE 3 Income subject to tax, 2011

10,000

c. Income reportable in 2012 ( 20,000 x 50%) 4.

P 10,000

Whenever a stockholder is indebted to the corporation and said creditor corporation decides to condone the debt, such condonation has the effect of a payment of dividend to the stockholder. .

5.

Hilario is not required to report income on the condonation considering that the condonation of debt was given without requiring him to render services.

6.

Yes.

7.

Under the tax benefit rule, whenever a bad debt is claimed as deduction from gross income and it resulted to a reduction in its tax liability, the recovery of such is subject to tax.

8.

a. b. c. d. e. f. g. h. i. j.

9.

a. b. c. d.

Value-added tax Real property tax Income tax Stock transaction tax Special assessment Occupation tax Estate tax Income tax paid to a foreign country Community tax Excise tax

-

not taxable taxable not taxable not taxable not taxable taxable not taxable taxable if claimed as deduction

- taxable - taxable

Yes, subject to a final tax of 10% They are not subject to tax. both the stockholders who were paid stocks and cash dividends are subject to final tax.

10. a. Dividends received from domestic – not taxable b. Dividends received by resident foreign from - not taxable domestic c. Dividends received by nonresident foreign corporation from domestic – 15% final tax if the country in which the nonresident foreign corporation is domiciled shall allow tax credit of 15% in its income tax payable in such foreign country. 11. a .

Miss Supsup is entitled to 10% of the value of confiscated smuggled goods but not exceeding P1,000,000.

b. The reward received by Miss Supsup is subject to a final withholding tax of 10%.

PAGE 4 12. a .

she has to report an income of P100,000 on the leasehold improvement and P48,000 (P4,000 x 12) on the rent, or a total amount of P148,000.

b. Rent (P4,000 x 12) Add: Income on leasehold improvement Cost of improvement Less: Accumulated depreciation (100,000/25 x 18.5) Book value, end of lease (26,000 / 18.5 x ½ ) c .

P 48,000 P 100,000 74,000 26,000

Rent ( 4,000 x 6) Leasehold improvement: Cost P 100,000 Less: Depreciation (7/1/09 – 6/30/10) 4,0 (100,000 / 25) 00 Book value upon termination 96,000 Less: Amount already reported as income 703 Income of lessor in 2013

EXERCISE 3 – 2

1. T 2. T 3. T 4. T 5. F 6. T 7. F 8. T 9. F 10. T 11. F 12. F 13. F 14. T 15. F

703 48,703 24,000

95,29 7 119,29 7

PAGE 5

3-3. TAX BENEFIT RULE 3ANSWER: B 3.1: Case 1 – P 40,000 Case 2 - 20,000 Case 3 - 40,000 Case 4 70,000 33.2:

(1) ANSWER: D

33.3:

(2) ANSWER: D

(3) ANSWER: B

EXERCISES 3 – 3.4. MULTIPLE CHOICE THEORY 1.

ANSWER: C

2.

ANSWER: C

3.

ANSWER: D

PAGE 6 EXERCISE 3-4

PAGE 7 34.1:

LEASEHOLD IMPROVEMENT

1.

ANSWER: B

2.

ANSWER: D

3.

ANSWER: A

4.

ANSWER: C

5.

ANSWER: B

6.

ANSWER: B

7.

ANSWER: C

PAGE 8

EXERCISE 3-4.2: 1.

ANSWER: A

2.

ANSWER: C

3.

ANSWER: C

EXERCISE 3–4.3: ANSWER: B

EXERCISE 3–4.4 1. ANSWER: A

2.

ANSWER: C

PAGE 9 3.

ANSWER: D

EXERCISE 3-5 EXERCISE 3–5.1:

1.

ANSWER: D

2.

ANSWER: D

EXERCISE 3–5.2:

1.

ANSWER: C

2.

ANSWER: B

EXERCISE 3–5.3:

1.

ANSWER: C

EXERCISE 3-6. MULTIPLE CHOICE 1.

ANSWER: B

2.

ANSWER:

C

3.

ANSWER:

C

4.

ANSWER: C

5.

ANSWER: B

PAGE 10 6.

ANSWER: D

7.

ANSWER: C

8.

ANSWER: D

9.

ANSWER: C

1 0

ANSWER: D

1 1

ANSWER: B

1 2

ANSWER: C

1 3

ANSWER: A

1 4

ANSWER:

D

PAGE 11 1 5

ANSWER: C

1 6

ANSWER: D

1 7

ANSWER: A

1 8

ANSWER: D

1 9

ANSWER: A

EXERCISE 3 -7. Yes.

PAGE 12 EXERCISE 4–1. CROSSWORD PUZZLE 2

1

5

2

%

D

Y

T

4

W

E R

5

L

V

L

E

M

A

N

K

&

F

R

I N

S

G 3

C

E

3

8

L

O 0

6

S

7

I

S

M T

H

I

N

S

EXERCISE 4 – 2 1. T 2. F 3. F 4. F 5. T 6. F 7. T 8. F 9. T 10.

F

11.

T

12.

F

13.

T

14.

T

15.

T

EXERCISE 4-3

1 .

a .

Interest on corporate bonds - Taxable

G

E

PAGE 13

b . c . d . e . f. g .

Salary

- Taxable

Tips

- Taxable

Winnings in lotto

- Not taxable (expressly exempt under the law) - Taxable (income from whatever source derived) - Taxable (income from whatever source derived) - Not taxable (de minimis benefit)

Winnings in jueteng Money stolen from mother’s purse Rice subsidy of P325 per month

2 .

The value of the free meals and lodging is not taxable to Yaya

3 . 4 .

No..

5

The free parking and courtesy discounts are subject to fringe benefit tax

.

The rice allowance is considered as a de minimis benefit which is exempt from income.

The excess of the laundry allowance in the amount of P450 (P750-300) is part of gross compensation income if such excess is beyond the P30,000 ceiling for “other benefits.” The rental value of the residential property is subject to fringe benefits tax which is subject to final tax. . 6 .

The cost of the educational assistance extended by De la Salle University to Prof. Ferdinand should not be part of the gross compensation income of Prof. Romero. The cost of the tuition fee is attributable to the operation and conduct of business of the employer. Therefore, the same shall be deducted from the gross income of the school.

EXERCISE 4 – 4

1.

ANSWER:

C

2.

ANSWER:

C

PAGE 14

3.

ANSWER:

A

4.

ANSWER:

B

EXERCISE 4-5

1.

ANSWER: B

2.

ANSWER: B

3.

ANSWER:

D

PAGE 15

4.

ANSWER:

A

EXERCISE 4-6

1.

ANSWER: C

2.

ANSWER: C

3.

ANSWER: D

4.

ANSWER: D

5.

ANSWER: D

6.

ANSWER: D

7.

ANSWER: B

8.

ANSWER: B

9.

ANSWER: D

10 ANSWER: D . EXERCISE 4-7 1.

ANSWER: C

PAGE 16

2.

ANSWER: A

3.

ANSWER: B

4.

ANSWER: D

5.

ANSWER: D

6.

ANSWER: B

7.

ANSWER: C

8.

ANSWER: A

PAGE 17

9.

ANSWER: D

10.

ANSWER: A

11.

ANSWER:

D

12.

ANSWER:

D

EXERCISES 5-1 1.

None.

2.

None.

PAGE 18

a. b Fernando must report P20,000 [(P12,000 x 10) – 100,000] as income. . c No. . 3.

None

4.

Rodolfo must report an income of P75,000.

5. a.

Both actual and moral damages are not subject to tax. b not taxable. . Not included in the gross income..

c. Taxable. d. Not taxable. e. 6. 6.

No, because all the requisites for exemption from income tax are present:

7.

The amount is taxable to Nilo.

8. a.

Taxable. b Taxable.

. c Not taxable. . 9.

taxable.

PAGE 19

10.

Answer: P38,000

EXERCISES 5–2.1: 1.

ANSWER:

D

2.

ANSWER: B

3.

ANSWER: C

4.

ANSWER:

C

Prob 5-2.2

1.

ANSWER: C

2.

ANSWER: D

Prob 5-2.3

ANSWER: D

PAGE 20

Prob 5-2.4:

ANSWER:

B

Prob 5-2.5:

ANSWER:

C

Prob 5-3.1

ANSWER:

C

Prob 5-3.2

ANSWER:

C

Prob 5-3.3

ANSWER: B

Prob 5-3.4

ANSWER: D

Prob 5-3.5

ANSWER: A

Prob 5-3.6

ANSWER: D

PAGE 21

EXERCISES 5–4. Prob 5–4.1 ANSWER: C Prob 5-4.2 ANSWER: A

Prob 5-4.3

ANSWER: C

Prob 5-4.4

ANSWER:

D

EXERCISES 5–5

EXERCISE 5– 5.1: ANSWER:

C

EXERCISES 55.2 a. The P350,000 value of the car is subject to a final tax of 20%. b. The P5,000 is subject to graduated tax to be reported in the income tax c.

return. The cash prize and the equivalent amount of the 100 shares are subject to 20% final tax.

EXERCISES 5-5.3

PAGE 22

a.

The income of $75,000 is taxable to her unless she has acquired the status of a contract worker.

b.

The talent fees P100,000 is a professional income subject to graduated rates of tax.

c.

The $5,000 value of the trophy is not taxable

PROBLEM 5-6.1 ANSWER:

D

EXERCISE 5 – 7 1. None. 2 P147,500 .

EXERCISES 5 – 8 1.

ANSWER:

D

2.

ANSWER:

C

PAGE 23

3.

ANSWER:

C

4.

ANSWER:

A

5.

ANSWER:

A

6.

ANSWER:

B

7.

ANSWER: C

8.

ANSWER: D

9.

ANSWER: A

10.

ANSWER: C

11.

ANSWER: C

12.

ANSWER: D

13.

ANSWER: D

14.

ANSWER: D

15.

ANSWER: B

PAGE 24

16.

ANSWER: D

17.

ANSWER: A

EXERCISES 61 1.

CLASSIFICATION

SITUS OF TAXABLE INCOME a. Nonresident citizen Within only b. Nonresident alien Within only (NETB) c. Nonresident citizen Within only d. Resident alien Within only e. Nonresident alien Within only (NETB) f. Nonresident alien Within only (ETB)

2. a. No. b. No. . c.

Yes.

d. Yes. e. No. 3. a. In the absence of an agreement, John has the right to claim the additional exemption. b. If Marsha could prove that she provided chief support over the children, both spouses would be disqualified to claim additional exemption. c. 4.

None.

a. None.

5. a. None. . b. None. c.

None.

PAGE 25

d. None. e. P 100,000. 6.

a. No. b. Yes. c.

d.

Income tax P23,750

Income tax

35,000

7. a. Taxable income

b. Income tax – Jim Income tax – Pat Total income tax

175,00 0

P 11,500 31,250 42,750

PAGE 26

8. a.

2.00

b.

500

c. Income tax d.

724.54 50,000

e. Income tax due

112,034

Income tax due

324,440. 41

f.

9 a. Salary . b. Interest on bank deposit c. d. e. f. g. h. i.

- Compensation

- Passive income – tax exempt (longterm) Honorarium - Compensation income Prizes - Ordinary business income (not exceeding P10,000) Lotto winnings - Tax exempt Income from farming - Business income Royalties on books - Passive income (10%) Dividends from domestic - Passive income (10%) company 13th month pay - Exempt up to P 30,000

PAGE 27

j.

Interest on deposits

preterminated - Passive income (12%)

10 a. Juan .

Income tax payable

( 6,6 00)

b. Maria

Income tax – Juan Income tax – Maria Income tax payable / refund

( 6,600 ) ( 5,50 0) (12,10 0)

11 a . . Deductible health insurance premium

1,800

Deductible health insurance premium

2,400

b .

PAGE 28

c .

None.

d . Deductible health insurance premium 1 2.

1,600

a .

Income tax due

14,50 0

b .

Income tax due

1,500

c .

Income tax due 1 3.

Taxable income

14,500 Case 1 186,60 0

Case 2 155,00 0

PAGE 29

EXERCISE 6 – 2 1. ANSWER: B

2. ANSWER: D

3. ANSWER: B

4. ANSWER: B EXERCISE 6 - 3 INCOME 1. Interest on bank deposit with Banco de Oro- Php 2. Interest on bank deposit with a bank in the United States in U.S. dollar 3. Earnings from interest on money market 4. Royalties on inventions 5. Royalties on books

Resident or citizen 20%

NRA ETB 20%

Tax table 20% 20% 10%

Not taxable 20% 20% 10%

PAGE 30

6. Prizes amounting to P7,500 7. Prizes amounting to P20,000 8. Winnings in lotto – Philippines 9. Winnings in lottery 10. Interest on long-term investment 11. Interest on deposit for 4 ½ years 12. Cash dividends – domestic corp. 13. Share of partner in net income of taxable partnership 14. Interest income under expanded foreign currency deposit system

Tax table 20% Exempt 20% Exempt 5% 10% 10%

Tax table 20% Exempt 20% Exempt 5% 20% 20%

7.5%

Exempt

EXERCISE 6–4.1 1.

ANSWER:

A

EXERCISE 6–4.2 INCOME

RC

1. Rent on apartment in the

YES

RA, NRC YES

YES YES YES NO YES YES YES YES YES

NO YES NO NO NO YES NO NO YES

Phils. 2. Rent on apartment in Canada 3. Dividend-domestic corporation 4. Dividend-foreign corporation 5. Lotto winnings in the Phils. 6. Lotto winnings in U.S.A. 7. Cash prize on contest, Phils. 8. Cash prize on contest, U.S.A. 9. Interest, bank deposit in U.S.A. 10. Interest bank deposit – Phils. Problem 6– 4.3 1. ANSWER: C

NRA(ETB) NRA(NETB) YES

YES

NO

NO

YES

YES

NO NO NO

NO NO NO

YES

YES

NO NO

NO NO

YES

YES

PAGE 31

2.

ANSWER: C

3.

ANSWER: A

4.

ANSWER: B

5.

ANSWER: A

PAGE 32

6.

ANSWER: B

7.

ANSWER: D

8.

ANSWER:

EXERCISE 5.1

6-

ANSWER:

EXERCISE 5.2

D

D

6-

ANSWER:

B

PROBLEM 6-5.3 1.

ANSWER: A

PAGE 33

2.

ANSWER:

D

PROBLEM 6-5.4

1. ANSWER:

C

2. ANSWER:

C

PAGE 34

EXERCISES 6-6.1: PERSONAL EXEMPTIONS 1.

ANSWER:

B

2.

ANSWER:

A

3.

ANSWER:

C

4.

ANSWER:

B

5.

ANSWER:

C

6.

ANSWER:

C

7.

ANSWER:

D

8.

ANSWER:

B

9.

ANSWER:

D

PAGE 35

10.

ANSWER:

C

EXERCISES 6-6.2 1.

ANSWER:

C

2.

ANSWER:

B

3.

ANSWER:

D

4.

ANSWER: C

5.

ANSWER: D

PAGE 36

6.

Answer: A

7.

Answer: C

8.

Answer: C

EXERCISES 6 – 7. CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS 1.

ANSWER:

D

. 2.

ANSWER:

A

3.

ANSWER:

D

4.

ANSWER:

D

5.

ANSWER:

B

PAGE 37

6.

ANSWER:

7.

ANSWER: C

EXERCISES

A

6–8.1. PREMIUM PAYMENTS HOSPITALIZATION INSURANCE

1.

ANSWER:

D

2.

ANSWER:

D

3.

ANSWER:

C

ON

HEALTH

EXERCISE 6.8.2 Case 1:

None.

Case 2:

None..

Case 3:

The husband can only claim a maximum amount of P1,600

Case 4:

P1,200.

EXERCISES 6-9 1.

ANSWER:

A

AND/OR

PAGE 38

2.

ANSWER: D

3.

ANSWER: D

4.

ANSWER: C

5.

ANSWER: D

6.

ANSWER: A

PAGE 39

7.

ANSWER: D

8.

ANSWER: A

9.

ANSWER: B

PAGE 40

10 .

ANSWER: B

11 .

ANSWER: B

12 .

ANSWER: B

13 .

ANSWER: A

14 .

ANSWER: C

PAGE 41

15 .

Answer: B

EXERCISE 6-10. The petition has merit. Cooperatives are not required to withhold taxes on interest from savings and time deposits of their members based on a BIR Ruling.