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
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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 80,000

value
b.

Income subject to tax, 2011 10,000

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c. Income reportable in 2012 ( 20,000 x P 10,000

50%)

4. 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. Value-added tax - not taxable
b. Real property tax - taxable
c. Income tax - not taxable
d. Stock transaction tax - not taxable
e. Special assessment - not taxable
f. Occupation tax - taxable
g. Estate tax - not taxable
h. Income tax paid to a foreign - taxable if claimed as deduction
country
i. Community tax - taxable
j. Excise tax - taxable

9. a. Yes,
b. subject to a final tax of 10%
c. They are not subject to tax.
d. 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%.
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.
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b. Rent (P4,000 x 12) P

48,000
Add: Income on leasehold improvement
Cost of improvement P 100,000
Less: Accumulated depreciation 74,00
(100,000/25 x 18.5) 0
Book value, end of lease 26,000
(26,000 / 18.5 x ½ ) 703
48,703

c Rent ( 4,000 x 6) 24,000

.
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 703 95,29
income 7
Income of lessor in 2013 119,29
7

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

3-3. TAX BENEFIT RULE

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3- ANSWER: B
3.1:
Case 1 –P 40,000
Case 2 - 20,000
Case 3 - 40,000
Case 4 - 70,000

3- (1) ANSWER: D
3.2:

3- (2) ANSWER: D
3.3:

(3) ANSWER: B

EXERCISES 3 – 3.4. MULTIPLE CHOICE

THEORY

1. ANSWER: C

2. ANSWER: C

3. ANSWER: D

EXERCISE 3-4
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3- LEASEHOLD
4.1: IMPROVEMENT

1. ANSWER: B

2. ANSWER: D

3. ANSWER: A

4. ANSWER: C

5. ANSWER: B

6. ANSWER: B

7. ANSWER: C
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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

3. ANSWER: D
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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
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6. ANSWER: D

7. ANSWER: C

8. ANSWER: D

9. ANSWER: C

1 ANSWER: D
0

1 ANSWER: B
1

1 ANSWER: C
2

1 ANSWER: A
3

1 ANSWER: D
4

1 ANSWER: C
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1 ANSWER: D
6

1 ANSWER: A
7

1 ANSWER: D
8

1 ANSWER: A
9

EXERCISE 3 -7.
Yes.

EXERCISE 4–1. CROSSWORD PUZZLE

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1 2 3
2 5 % D
4
Y T W E L V E

E M
5
R A N K & F I L E

R N
6
S G S I S
7
3 M
8
C L O T H I N G

0 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 - Taxable
. . bonds
b Salary - Taxable
.
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c Tips - Taxable
.
d Winnings in lotto - Not taxable (expressly exempt under
. the law)
e Winnings in jueteng - Taxable (income from whatever source
. derived)
f. Money stolen from - Taxable (income from whatever source
mother’s purse derived)
g Rice subsidy of P325 per - Not taxable (de minimis benefit)
. month

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

3 No..
.
4 The rice allowance is considered as a de minimis benefit which is exempt
. from income.

5 The free parking and courtesy discounts are subject to fringe benefit tax
.
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
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3. ANSWER: A

4. ANSWER: B

EXERCISE 4-5

1. ANSWER: B

2. ANSWER: B

3. ANSWER: D

4. ANSWER: A
EXERCISE 4-6
 PAGE 14

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
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2. ANSWER: A

3. ANSWER: B

4. ANSWER: D

5. ANSWER: D

6. ANSWER: B

7. ANSWER: C

8. ANSWER: A
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9. ANSWER: D

10. ANSWER: A

11. ANSWER: D

12. ANSWER: D

EXERCISES 5-1

1. None.

2. None.
a.
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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. Both actual and moral damages are not subject to tax.

a.
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. Taxable.
a.
b Taxable.
.
c Not taxable.
.

9. taxable.

10. Answer: P38,000

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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
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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

EXERCISES 5–4.
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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 5-
5.2

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

EXERCISES 5-5.3
 PAGE 21

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
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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
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16. ANSWER: D

17. ANSWER: A

EXERCISES
6-1
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. None.

4. a. None.
5. a. None. .
b. None.
 PAGE 24

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

6. a. No.

b. Yes.

c. Income tax P23,750

d. Income tax 35,000

7. a. Taxable income 175,0

00

b. Income tax – Jim P

11,500
Income tax – Pat 31,250
Total income tax 42,750
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8. a. 2.00

b. 500

c.

Income tax 724.54

d. 50,000

e.

Income tax due 112,034

f.

Income tax due 324,440.

41

9 a. Salary - Compensation
.
b. Interest on bank deposit - Passive income – tax exempt (long-
term)
c. Honorarium - Compensation income
d. Prizes - Ordinary business income (not exceeding
P10,000)
e. Lotto winnings - Tax exempt
f. Income from farming - Business income
g. Royalties on books - Passive income (10%)
h. Dividends from domestic - Passive income (10%)
company
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i. 13th month pay - Exempt up to P 30,000

j. Interest on preterminated - Passive income (12%)
deposits

10 a. Juan
.

Income tax payable ( 6,6

00)

b. Maria

Income tax – Juan ( 6,600

)
Income tax – Maria ( 5,50
0)
Income tax payable / (12,10
refund 0)

11 a
. .

Deductible health insurance premium 1,800

b
.
 PAGE 27

Deductible health insurance premium 2,400

c None.
.

d
.

Deductible health insurance premium 1,600

1 a
2. .

Income tax due 14,50

0

b
.

Income tax due 1,500

c
.

Income tax due 14,50

0

Case 1 Case 2
1 Taxable income 186,6 155,00
3. 00 0
 PAGE 28

EXERCISE 6 – 2
1. ANSWER: B

2. ANSWER: D

3. ANSWER: B

4. ANSWER: B

EXERCISE 6 - 3
Resident NRA
INCOME
or citizen ETB
1. Interest on bank deposit with Banco de 20% 20%
Oro- Php
2. Interest on bank deposit with a bank in the
United States in U.S. dollar Tax table Not taxable
 PAGE 29

3. Earnings from interest on money market 20% 20%

4. Royalties on inventions 20% 20%
5. Royalties on books 10% 10%
6. Prizes amounting to P7,500 Tax table Tax table
7. Prizes amounting to P20,000 20% 20%
8. Winnings in lotto – Philippines Exempt Exempt
9. Winnings in lottery 20% 20%
10. Interest on long-term investment Exempt Exempt
11. Interest on deposit for 4 ½ years 5% 5%
12. Cash dividends – domestic corp. 10% 20%
13. Share of partner in net income of taxable 10% 20%
partnership
14. Interest income under expanded foreign
currency deposit system 7.5% Exempt

EXERCISE 6–4.1
1. ANSWER: A

EXERCISE 6–4.2
INCOME RC RA, NRA(ETB NRA(NET
NRC ) B)
1. Rent on apartment in the YES YES YES YES

Phils.
2. Rent on apartment in YES NO NO NO
Canada
3. Dividend-domestic YES YES YES YES

corporation
4. Dividend-foreign corporation YES NO NO NO
5. Lotto winnings in the Phils. NO NO NO NO
6. Lotto winnings in U.S.A. YES NO NO NO
7. Cash prize on contest, Phils. YES YES YES YES
8. Cash prize on contest, U.S.A. YES NO NO NO
9. Interest, bank deposit in YES NO NO NO
U.S.A.
10. Interest bank deposit – Phils. YES YES YES YES

Problem 6–
4.3
1. ANSWER: C
 PAGE 30

2. ANSWER: C

3. ANSWER: A

4. ANSWER: B
 PAGE 31

5. ANSWER: A

6. ANSWER: B

7. ANSWER: D

8. ANSWER: D

EXERCISE 6-
5.1
ANSWER: D

EXERCISE 6-
5.2
ANSWER: B

PROBLEM 6-5.3
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1. ANSWER: A

2. ANSWER: D

PROBLEM 6-5.4

1. ANSWER: C
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2. ANSWER: C

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
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8. ANSWER: B

9. ANSWER: D

10. ANSWER: C

EXERCISES 6-
6.2
1. ANSWER: C

2. ANSWER: B

3. ANSWER: D

4. ANSWER: C
 PAGE 35

5. ANSWER: D

6. Answer: A

7. Answer: C

8. Answer: C

EXERCISES 6 – 7. CLASSIFICATION OF INDIVIDUAL INCOME TAXPAYERS

1. ANSWER: D
.

2. ANSWER: A
 PAGE 36

3. ANSWER: D

4. ANSWER: D

5. ANSWER: B

6. ANSWER: A

7. ANSWER: C

EXERCISES 6–8.1. PREMIUM PAYMENTS ON HEALTH AND/OR

HOSPITALIZATION INSURANCE

1. ANSWER: D

2. ANSWER: D

3. ANSWER: C

EXERCISE 6.8.2

Case None.
1:

Case None..
2:
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Case The husband can only claim a maximum amount of P1,600

3:

Case P1,200.
4:

EXERCISES 6-9
1. ANSWER: A

2. ANSWER: D

3. ANSWER: D

4. ANSWER: C

5. ANSWER: D

6. ANSWER: A
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7. ANSWER: D

8. ANSWER: A

9. ANSWER: B
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10 ANSWER: B
.

11 ANSWER: B
.

12 ANSWER: B
.

13 ANSWER: A
.
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14 ANSWER: C
.

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.