Type of Question , Essay, True or False, with justification even the answer is True, most of

the questions will be from Deductions, Gross Income and Passive Income.

1.Individual taxpayer- engaged in business ? in connection to capital asset and its

consequences.

A. For those engaged in real estate business, the following are ordinary assets:
i. All real properties acquired by the real estate dealer
ii. All real properties acquired by the real estate developer, whether
developed or undeveloped
iii. All real properties held for sale or lease in the ordinary course of business
or which would be properly be included in the inventory
iv. All real properties acquired for lease/rent
v. All real properties acquired in the ordinary course of business by a
taxpayer habitually engaged in the sale of real estate

B. Will the property change nature from ordinary to capital asset?

i. Changing from real estate business to a non-real estate business: NO
ii. Ceasing operations of the real estate business: NO
iii. The properties acquired by the real estate business are abandoned: NO
iv. The properties acquired by the real estate business become idle: NO
v. Real estate business transfers the property to an ordinary person: YES

2. Solutio Indebeti – is money received through mistake taxable or not?

SEC. 72. Suit to Recover Tax Based on False or Fraudulent Returns - When an
assessment is made in case of any list, statement or return, which in the opinion of
the Commissioner was false or fraudulent or contained any understatement or
undervaluation, no tax collected under such assessment shall be recovered by any
suit, unless it is proved that the said list, statement or return was not false nor
fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith
regarding annual depreciation of oil or gas wells and mines.

Sec. 248. Civil Penalties. - (B) In case of willful neglect to file the return within the
period prescribed by this Code or by rules and regulations, or in case a false or
fraudulent return is willfully made, the penalty to be imposed shall be fifty percent
(50%) of the tax or of the deficiency tax.

Javier Case: "Taxpayer was the recipient of some money from abroad which he
presumed to be a gift but turned out to be an error and is now subject of litigation
that it was an "error or mistake of fact or law" not constituting fraud, that such
notation was practically an invitation for investigation and that Javier had literally
"laid his cards on the table."
3. Article 19 of Civil Code in connection to Moral Damages awarded, relate to 32 B (4)
on Gross Income, taxable or not?

Sec. 32B. Exclusions from Gross Income - (4) Compensation for Injuries or Sickness. -
amounts received, through Accident or Health Insurance or under Workmen's
Compensation Acts, as compensation for personal injuries or sickness, plus the
amounts of any damages received, whether by suit or agreement, on account of such
injuries or sickness.

Moral damages are taxable as income. Amount received as a compensation for

personal injuries plus amounts of any damages received on account of such
injuries are excluded from taxable income if the personal injuries are physical in
character. The words “personal injuries” should be given a restrictive meaning to
refer only to physical injuries.

4. Deductible expenses, on import duties.

5. Child and or Senior Citizen qualify to be dependent, requirement- be particular on

the date when the Train Law 1 take effect/ application.

Qualification:
1. Child not more than 21 years of age, Living with the taxpayer, Dependent on the
taxpayer, not gainfully employed
2. Senior Citizen at least 60 years of age, Living with the taxpayer, Dependent on
the taxpayer, not gainfully employed

Train law: Individual taxpayer is no longer allowed to claim basic personal exemption or
additional exemption for dependents.
Train Law took effect on January 1, 2018.

6. Passive Income, tax consequences.

Income subject to Final Withholding Tax of CITIZENS and Final Tax

RESIDENT ALIENS
1. Interest under the expanded foreign currency deposit system 7.5% (exempt for
NRA)
2. Royalty from books, literary works, & musical compositions 10%
3. Royalty other than above 20%
4. Interest on any current bank deposit, yield or other monetary benefits 20%
from deposit substitute, trust fund & similar arrangement
5. Prize exceeding P10,000 20%
6. Other winnings, except Phil Charity Sweepstakes & Lotto 20%
7. Dividend from a domestic corp, or from a joint stock company,
insurance or mutual fund company, & regional operating headquarters of 10% (20% for
multinational company or share in the distributive net income after tax o NRA
NRA)
a partnership (except a general professional partnership), joint stock or
 joint venture or consortium taxable as a corporation

Tax Rate on Passive Income of Domestic Corporations Final Tax

1. Interest under the expanded foreign currency deposit system 7.5%
2. Royalty of all types within the Philippines 20%
o Royalty from abroad? Enters the taxable income 30% tax rate
3. Interest on any current bank deposit, yield or other monetary benefits 20%
from deposit substitute, trust fund & similar arrangement
4. Dividend from domestic corporations (inter-corporate dividend) exempt

Tax Rate on Passive Income of Foreign Resident Corporations Final Tax

1. Interest under the expanded foreign currency deposit system 7.5%
2. Royalty of all types within the Philippines 20%
o Royalty from abroad? Exempt. (remember, only taxed from
sources within the Philippines)
3. Interest on any current bank deposit, yield or other monetary benefits 20%
from deposit substitute, trust fund & similar arrangement
4. Dividend from domestic corporations (inter-corporate dividend) exempt

Tax Rate on Passive Income of Foreign Non-Resident Final Tax

Corporations
1. Interest on foreign loans 20%
Non-resident lends to a domestic corporation
2. Dividend from domestic corporations (inter-corporate dividend) 15%
 This is subject to the condition that the country in which the non-
resident foreign corporation is domiciled allows a credit against
the tax due from the non-resident foreign corp taxes deemed to
 have been paid in the Philippines equivalent to 15%. If they
don’t,
 the dividends will be taxed at 30%.

7. Periods of Filling Corporate Income Tax Return- deadlines and requirements.

Corporate Annual Income Tax Return - This return is filed, with or without payment,
on or before the 15th day of the 4th month following the close of the taxpayer's
taxable year. (BIR Form 1702)

Corporate Quarterly Income Tax Return - The corporate quarterly income tax return
shall be filed with or without payment within sixty (60) days following the close of
each of the first three (3) quarters of the taxable year whether calendar or fiscal
year.

8. Tax Consequences and treatment of Insurance Premium/ Expense

Sec. 32B. Exclusions from Gross Income – (2) Amount Received by Insured as Return of
Premium. - The amount received by the insured, as a return of premiums paid by him
under life insurance, endowment, or annuity contracts, either during the term or at the
maturity of the term mentioned in the contract or upon surrender of the contract.

In life insurance, the premiums returned are not income but return of capital. They
represent earnings which were previously taxed. Therefore, the premium paid
does not form part of the Gross Income, however the value received by the
taxpayer which exceeds the premiums paid form part of the Gross Income.

9. Lotto Winnings deposited, interest Income? Passive Income?

20% Final Tax on prizes and winnings, except amounting to P10,000 or less which shall be subject to
regular income tax.

Train Law - Starting January 2018, all PCSO lotto prizes are taxed 20 percent if the
amount of the prize or winnings is above P10,000.

10. Capital Asset vs Ordinary Asset, tax consequences, particularly on the sale of real
property.

Ordinary assets:
1. Stock in trade of the taxpayer,
2. Other property of a kind which would properly be included in the inventory of
the taxpayer if on hand at the close of the year
3. Property held by the taxpayer primarily for sale to customers in the ordinary
course of his trade or business
4. Property used in trade or business of a character which is subject to allowance for
depreciation,
5. Real property used in trade or business.
Capital assets – everything that is not ordinary assets
Sale of realty
Final Tax Rate on Sales, Exchanges, or Transfers or Real
Properties Classified as Capital Assets (RR 8-98)
Sale of real property in the Philippines 6% of the gross selling
price, or the current
market value at the time
of sale, whichever is
higher

If sale was made to the government or to GOCCs Either 6% of the gross

selling price/current
market value or under
the normal income tax
rate, taxpayer’s option
 Creditable Withholding Tax on Sales, Exchanges or
Transfers of Real Properties classified as Ordinary Assets
(RR 8-98)
1. If the seller is habitually engaged in the real estate business
o Selling price is less than P500,000 1.5%
o Selling price is P500,000 to P2m 3%
o Selling price is above P2m 5% of gross selling
price/current market
value, whichever is
higher
2. If the seller is not habitually engaged in the real estate 7.5% of gross selling
business price/current market
value, whichever is
higher
3. If the seller is exempt from creditable withholding tax as per Exempt
RR 2-98

Exception:

1. Sale of Principal Residence – except from 6% CGT

2. Buyer is the government – given the option between CGT or RIT

3. Sale subject to right of redemption – CGT shall be based on the highest bid price

11.Proceed of life insurance to beneficiaries (upon death of the Insurer) , taxable or

not, justification. Is premium paid deductible?

No. Proceeds of life insurance policies paid to the beneficiary, upon the death of the
insured are excluded from gross income. [Sec. 32 (B) (1), NIRC of 1997]. The reason
is that life insurance proceeds represents indemnity not income.

Sec. 32B. Exclusions from Gross Income – (1) Life Insurance. - The proceeds of life
insurance policies paid to the heirs or beneficiaries upon the death of the insured,
whether in a single sum or otherwise, but if such amounts are held by the insurer
under an agreement to pay interest thereon, the interest payments shall be included
in gross income.

12. Cohabitation/ Assignment or Acquisition of Property/assets- tax consequences.

13. Individual Taxpayer application of Optional Standard Deduction / Itemized Deduction

(Section 34)

14. Inclusions and Exclusion under 32 B (4) on Gross Income.

Sec. 32B. Exclusions from Gross Income - (4) Compensation for Injuries or Sickness. -
amounts received, through Accident or Health Insurance or under Workmen's
Compensation Acts, as compensation for personal injuries or sickness, plus the
amounts of any damages received, whether by suit or agreement, on account of such
injuries or sickness.

The words “personal injuries” should be given a restrictive meaning to refer only
to physical injuries. This interpretation finds basis in Sec. 32 (B) (4), NIRC of 1997
which refers to “Accident or Health Insurance or under Workmen’s Compensation
Acts, both of which refers to “physical injuries or sickness”. This could only mean
physical injuries. This excludes mental injuries such as mental anguish.

15. Section 5 Power of CIR in obtaining of information.

Sec. 5 - Provides for the authority of the Commissioner to obtain information from
national and local governments, government agencies and instrumentalities.
Regarding their, costs and volume of production, receipts or sales and gross incomes
of taxpayers, and the names, addresses, and financial statements of corporations,
mutual fund companies, insurance companies

Train Law: Tax Incentive Report. - The Cooperative Development Authority

(“CDA”) has to submit to the Bureau of Internal Revenue (“BIR”) and the
Department of Finance a tax incentive report, which shall be included in the
database created under the Tax

16. Sale of Family Home, application, consequences and Exemption and Limitation
(Historical Cost) in connection to Capital Gains Tax.

Principal Residence (RR 14-2000)- It is the dwelling house, where the husband or
wife or unmarried individual resides; actual occupancy is not interrupted or
abandoned by temporary absence due to travel, studies, or work abroad

Requisites:

1. Taxpayer informs CIR 30 days before the sale

2. Written sworn declaration which includes CGT return and Barangay Certification

3. Proof that proceed from the sale has been utilized in purchase of the new home
within 18 calendar days from the sale

17. Donors Tax, under deductions, taxable or not?

REQUISITES FOR DEDUCTIBILITY OF CHARITABLE AND
OTHER CONTRIBUTIONS:
(1) The contribution must have been actually made to entities
specified by law;
(2) The contribution must have been made within the taxable
year;
(3) It must be evidenced by adequate receipts or records;
(4) For contributions other than money, the amount shall be
based on the acquisition cost of the property NOT the fair
market value at the time of the contribution;
(5) For contributions subject to statutory limitations, the same
must not exceed 10% in the case of individuals (engaged
in business or in practice of profession) or 5% in the case
of corporations of the said taxpayer’s taxable income
before deducting the charitable contributions.

CONTRIBUTIONS DEDUCTIBLE IN FULL:

(1) Donations to the Government or to any of its agencies or
political subdivisions;
(2) Donations to certain foreign institutions or international
organizations;
(3) Donations to accredited non-stock, non-profit
corporations/NGOs.

Train law: Donor’s Tax Rate. – Fixes the rate of donor’s tax to 6% on the total gifts in excess of
P250,000 during the calendar year.

Train Law: Uniform Computation of Donor’s Tax whether Donation to a Relative or a

Stranger. – Removes distinction of computation of donor’s tax between a donation made to a
relative and one made to a stranger. Regardless of the donee, donor’s tax shall be 6% of the total
gifts in excess of P250,000 exempt gift made during the calendar year.

18. Sources of Income- Taxable or Not, what extend to be taxable, is it Gain, Exclusion to be
taxable, Benefited or not.

(1) Compensation for services in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items;

(2) Gross income derived from the conduct of trade or business or the exercise of a
profession;

(3) Gains derived from dealings in property;

(4) Interests;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Annuities;

(9) Prizes and winnings;

(10) Pensions; and

(11) Partner's distributive share from the net income of the general professional
partnership.
19. International Juridical Double Taxation.

The imposition of comparable taxes in two or more states on the same taxpayer in
respect of the same subject matter and for identical periods. There is international
double taxation when one of the taxing authorities is a foreign government. (La
Suerte Factory v. CTA En Banc, G.R. No. 125346, November 11, 2014)

20. Bad Debt, tax consequences,

Requisites:

Existing:

1. valid and legal indebtedness due to the taxpayer

2. reported in the ITR

3. Actually ascertained as uncollectible

4. Actually charged off in the book of accounts

5. Must not be between related parties

6. Connected with the trade or business

- For insurance companies must be declared insolvent by Insurance Commissioner

- For banks, must submit to the BSP

- Creditor must prove diligent efforts to collect debt by:

1. Sending Statement of Accounts and Collection letters

2. Giving the account to a lawyer for collection and filling a collection case

21. Expropriation Proceeds- tax consequences.

- It appears then that the acquisition by the Government of private properties

through the exercise of the power of eminent domain, said properties being JUSTLY
compensated, is embraced within the meaning of the term "sale" "disposition of
property", and the proceeds from said transaction clearly fall within the definition of
gross income laid down by Section 29 of the Tax Code of the Philippines.

- Sale to government – Capital Gains Tax option: Either 6% of the gross selling
price/current market value or under the normal income tax rate, taxpayer’s
option
22. Section 39 – Distinguish All.

23. Hospitalization expenses, loss of Income, taxable consequences.

24. Fringe Benefits