FIRST PRE-BOARD IN TAXATION

Items 1 - 5
One day, Ms. KT, a very gorgeous businesswoman, came to know a certain Chris Evans online.
Thereupon, the handsome man proceeded to express his affection to the lady and asked her to
visit him in Hollywood, California. Luckily, it was Valentines day, there was a lot of discounted
international air travel. Without wasting any moment, she booked the last remaining seat for her
Hollywood escapade, thinking of finally meeting the ultimate man of her dreams.

1. Prior to Ms. KT’s departure to Hollywood, from what sources of her income should be the
subject of our taxing jurisdiction?
a. Within
b. Without
c. Within or without
d. Within and without

2. Upon Ms. KT’s arrival in Hollywood, from what sources of her income should be the subject
of our taxing jurisdiction?
a. Within
b. Without
c. Within or without
d. Within and without

3. During her stay in Hollywood, Chris Evans never failed to date her almost every other day
despite his very busy schedules. Indeed, the man was really in love with her. However, as all
great things must come to an end, after three months, i.e., 90 days, of whirlwind romance,
the time has finally come for the lady to come back home. Upon arrival in the Philippines,
what will now be the classification of Ms. KT as regards her citizenship and nationality?
a. Resident Citizen
b. Nonresident Citizen
c. Resident Alien
d. Nonresident Alien

4. What if Ms. KT extended her stay and decided to come back on November after celebrating
her birthday with her man, that is, after staying for more than 183 days abroad?
a. Resident Citizen
b. Nonresident Citizen
c. Resident Alien
d. Nonresident Alien

5. Supposing on the day of her arrival, Ms. KT agreed to the proposal of Chris Evans to finally
make California as their domicile and accept him as her lawful spouse, from what sources of
her income should be the subject of our taxing jurisdiction?
a. Within
b. Without
c. Within or without
d. Within and without

6. The following are the nature of taxation, except

a. Inherent in sovereignty
b. Subject to inherent and constitutional limitations
c. Essentially legislative in character
d. Subject to approval by the people

7. It literally means "place of taxation"; the country that has the power and jurisdiction to levy
and collect the tax
a. Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation

8. The reciprocal duties of support and protection between the people and the government
a. Basis of taxation
b. Situs of taxation
c. Scope of taxation
d. Theory of taxation
9. A tax must be imposed for public purpose.Which of the following is not a public purpose
a. National defense
b. Improvement of the sugar and coconut industries
c. Public education
d. Improvement of a subdivision road

10. Which is not an essential characteristic of a tax?

a. It is unlimited as to amount
b. It is proportionate in character
c. It is payable in money
d. It is an enforced contribution

11. It is achieved through the passage of tax law that defines the tax system of a nation
a. Tax legislation
b. Tax administration
c. Reciprocity
d. International inhibition.

12. A fundamental rule in taxation is that the property of one country may not be taxed
by another country. This is known as
a. International law
b. International comity
c. Reciprocity
d. International inhibition

13. Which of the following statements is not correct?

a. Collections from taxes are public money.
b. Appropriation of taxes for the common good of the people is valid.
c. Construction of private road from taxes is a valid appropriation.
 d. Allocation of taxes for the benefit of greater portion of population is considered
for public purposes.

14. A taxpayer gives the following reasons in refusing to pay a tax. Which of his reasons
is not acceptable for legally refusing to pay the tax?
a. That he has been deprived of due process of law.
b. That there is lack of territorial jurisdiction.
c. That he drives no benefit from the tax.
d. That the prescriptive period for the tax has elapsed.

15. The following are the constitutional limitations on the power of taxation, except
a. Taxes are not subject to set-off or compensation.
b. Only Congress can exercise the power of taxation.
c. Non-impairment of the obligation of contracts.
d. The rule of taxation must be uniform.

16. Which of the following is/ are taxable only for income earned within the Philippines?
i. Nonresident citizen
ii. Nonresident alien
iii. Resident citizen
iv. Resident alien

Choices:
a. i, ii and iii only
b. i, ii and iv only
c. i, and iii only
d. iii and iv only

17. Which of the following are characteristics of taxes?

i. Voluntary contribution
ii. Imposed by legislative body
iii. Proportionate I n character
iv. Used for public purpose

Choices:
a. i, ii and iii only.
b. i, ii and iv only.
c. i, and iii only.
d. ii, iii and iv only

18. Which of the following has no power to impose taxes?

a. Provinces b. Cities c. Barangays d. Barrios

19. Rationales for implementing exclusions from gross income, except:

a. They represent return of capital or are not income, gain or profit.
b. They are subject to another kind of internal revenue tax.
c. They are income or gain that is expressly exempt from income tax.
 d. They are income or profit that is exempt from income tax.

20. Which of the following statements is/are incorrect?

I. Deduction: included in the gross income but later deducted.
II. Exclusion: not included in the computation of gross income. Refers to income received or
earned but is not taxable as income because of exemption by virtue of a law or treaty.
III. Tax Credit: paid beforehand and is deducted from the tax liability of the taxpayer.
a. I only
b. I and II only
c. I, II and III
d. None of the aforementioned

21. Which of the following is taxable?

a. SSS and GSIS benefit
b. Social security benefit received by a balikbayan from employer abroad.
c. Separation pay received by a 50-year old employee due to the retrenchment program
of the employer.
d. Personnel Economic Relief Allowance

22. The following are exclusions from gross income, except

a. Proceeds of life insurance policies
b. SSS retirement benefits
c. Gifts, bequests and devises
d. Stock option granted by employer

23. For the life insurance premium paid by the employer to be included as gross income of
employee, the designated beneficiary should be
a. A family member of the insured
b. Employer
c. The insured person
d. A religious organization

24. The Philippines, under EO 37 (1986) and RA 8424 (1998), follows what type of tax
system?
a. Global system
b. Schedular system
c. Semi-global or semi-schedular system
d. Semi global and semi-schedular system

25. The progressive system of income taxation is laid down under the fundamentals of?
a. Jurisdiction
b. Territoriality
c. Necessity
d. Ability to pay

26. In the Philippines, income tax is imposed on:

I. Gross income
 II. Net income
III. Passive income
a. II only
b. II and III only
c. I and II only
d. All the aforementioned

27. The following are the purpose/s of Income Tax:

I. To raise revenue
II. To place burden of on those best able to pay
III. To mitigate evils
IV. To destroy
a. I only
b. I and IV only
c. I, II and IV only
d. All the aforementioned

28. When shall fiscal year be used in computing taxable income?

a. If the taxpayer has no annual accounting period
b. If the taxpayer does not keep books of accounts
c. If the taxpayer is an individual or a partnership
d. If the taxpayer is a corporation

29. The following statements are valid as regards the likes of SGV & Co., except:
a. Formed by persons for the sole purpose of exercising their common profession
b. No part of the income of which is derived from engaging in any trade or
business
c. Not considered as a taxable entity for taxation purposes
d. The partners themselves are liable, not the partnership, are liable for the
payment of income tax in their individual capacities.

30. Which is not included within the definition of income for taxation purposes?
a. Revenue
b. Profit
c. Gain
d. All are classified as income

31. Which is not a lawful source of government revenue?

a. Earnings from exercise of profession
b. Gains from dealings in securities
c. Income acquired illegally
d. Rental income held for deposit only

32. When is income taxable?

I. When there is gain or profit
II. When realized during the year
 III. Not exempt from income tax
a. I only
b. II only
c. I and II only
d. I, II and III

33. Refer to the following statements:

I. "The fact is that property is a tree, income is the fruit; labor is a tree, income the fruit;
capital is a tree, income the fruit." A tax on income is not a tax on property. "Income," as
here used, can be defined as "profits or gains."
II. A mere increase in the value of property is not Income, but merely unrealized increase in
capital.
a. I only
b. II only
c. I and II
d. Both statement are incorrect

34. Which is taxable for income tax purposes?

a. Recovery of items previously deducted from gross income (tax benefit rule)
b. Recovery of damages
c. Forgiveness of indebtedness
d. Compensation for injury

35. Which is subject to income tax?

a. Forgiveness of indebtedness of a stockholder
b. Income from asset revaluations
c. Forgiveness of indebtedness
d. Recovery of damages

36. After 10 years of romantic relationship, Jeff decided to end his relationship with Clint which
made Clint very angry, Clint with anger in his eyes boxed, kicked and berated Jeff. Jeff tried
to pacify Clint, but Clint slipped, lost control and fell to the ground requiring hospitalization.
To buy peace, Jeff decided to shoulder the medical expenses for the injuries suffered by
Clint. The amount is
a. Taxable income Clint
b. Subject to donor’s tax of Jeff
c. Subject to final tax
d. Exempt from income tax

37. For the month of August and September 2014, ABC Bank has the following income/loss:
Interest income with maturity August September
-of less than 5 years P800,000 P1M
-of more than 5 years 800,000 1M
Rentals 400,000 800,000
Net trading gain (loss) (100,000) 200,000

The gross receipts tax of ABC Bank for August is

a. P76,000 b. P68,000 c. P69,000 d. P63,000

38. The gross receipts tax of ABC Bank for September is

 a. P125,000 b. P130,000 c. P116,000 d. P123,000

39. A field his ITR for 2014 on April 15, 2015 and will pay his tax liability in installment. The
return shows an income tax due of P100,000 and income tax withheld of P60,000. If A pays
the 2nd installment only on October 15, 2015, the amount to be paid (excluding compromise
penalty) is?
a. P26,000 b. P35,000 c. P55,000 d. P37,500

40. A’s income tax liability for 2014 was P75,000. She filed the return and paid the total amount
due but not with the proper internal revenue district office on July 15, 2015. The amount
payable (ignoring compromise penalty) is?
a. P97,500 b. P112,500 c. P116,250 d. P135,000

41. A sold his piano, a capital asset which he purchased in 2000 at a cost of P50,000. The
terms of sale show:
Downpayment - January 15, 2014 -------- P20,000
Installment Payment - February 15, 2014 -------- 20,000
February 15, 2015 -------- 40,000
February 15, 2016 -------- 40,000
A will report a taxable gain on above sales in 2014 of
a. P11,667 b. P23,333 c. P35,000 d. P70,000

42. ABC Corporation engage in freight and trucking business received the following in 2014:
Share in net income in the joint venture with XYZ Corp. P900,000
Dividend received from KLM Corp., a Domestic Corp. 18,000
Dividend received from NOP Corp., a Non-resident foreign Corp 10,000
Own net income 1,200,000

The net taxable income of ABC Corp. Is

a. P1,210,000 b. P2,110,000 c. P2,210,000 d. P1,200,000

Items 43 - 45.
ABC, a domestic corporation usually bills its foreign branch at cost. ABC and the BIR entered
into an advanced pricing agreement which fixed ABC’s cross border pricing to its foreign branch
at 150% of cost. The following are provided for the year:

Philippines Branch
Sales through branch:
(intra-company sales)
Selling Price Php 10,000,000 Php 18,000,000
Cost of Sales 10,000,000 10,000,000
Gross Income Php 0 Php 8,000,000

Sales to another domestic corporation:

Selling Price Php 8,000,000
Cost of Sales 3,000,000
Gross Income Php 5,000,000

43. The gross income from the Philippines is

a. Php 5,000,000 b. Php 10,000,000 c. Php 13,000,000 d. Php 15,000,000
44. The gross income of ABC is
a. Php 13,000,000 b. Php 18,000,000 c. Php 5,000,000 d. Php 10,000,000

45. If the foreign operation is not a branch but a foreign subsidiary incorporated abroad, ABC’s
gross income is
a. Php 5,000,000 b. Php 10,000,000 c. Php 9,000,000 d. Php 13,000,000

46. A Filipino taxpayer supports the following dependents for their chief financial needs:
 Mentally retarded legitimate son (40 years old);
 Legitimate son (25 years old)
 Legitimate daughter (20 years old) and her husband (21 years old)
 Illegitimate daughter (10 years old)
 Adopted child (6 years old)
 Wife without income
 Senior citizen mother; ad
 A brother (20 years old)
How much is the amount of his total personal exemptions allowed from his P300,000
gross compensation income?
a. P175,000 c. P125,000
b. P150,000 d. P100,000

47. The taxpayer is a widow who supports the following:

(a) Legitimate child by a former marriage, 12 years old;
(b) Recognized natural child with present common law husband, 6 years old;
(c) Common law husband who is single; and
(d) Widowed mother (senior citizen) of her common law husband
The amount of her personal and additional exemption is?
a. P50,000 c. P100,000
b. P75,000 d. P120,000

48. Mr. Ronald Baden, an American citizen and a resident of California, U.S.A., has
business income derived in the Philippines amounting to P500,000 for the year. He is
married and 2 minor children.
How much will be allowed as his personal exemption for the computation of his income
tax in the Philippines, if his country’s tax law is granting the same amount of personal
exemptions to Filipino citizens, except for additional exemption where his country’s tax
law is allowing P10,000 per dependent child?
a. P100,000 c . P50,000
b. P70,000 d. P – 0 –

49. Maria, married and without income, receives her allowance amounting to P50,000
per month from her husband who is working in Brunei as Accountant. She supports
her two siblings and parents who are qualified as dependent relatives.
How much is the total personal and additional exemptions of Maria?
a. P120,000 c. P50,000
b. P100,000 d. P–0–

50. Juan, single, is an OFW with a monthly income abroad amounting to P20,000. He has
a sari-sari store in the Philippines with an average monthly income of P10,000. If
Juan returned in the Philippines from March 1 of the taxable year and stayed to
manage his sari-sari store, how much of his income is subject to tax in the
Philippines after personal exemption?
a. P 70,000 c. P110,000
b. P100,000 d. P120,000

51. Mr. Roman Dinero (single), a Spaniard who is a resident general manager of Texas
Instrument, Philippines – a multinational company’s regional operating
headquarters established in the Philippines – received a monthly salary of P250,000.
What is the amount of Mr. Dinero’s income tax payable during the year assuming he
received 12 months salary?
a. P12,500 c. P450,000
b. P80,000 d. P487,500

52. On July 1, 201x, Mr. Bout, an Indian national came to work in the Philippines as a
resident general manager of Abbot Laboratories – a multinational company’s
regional operating headquarters. He received a monthly salary of P150,000 plus
13th. In addition, he received a bonus of P50,000 and a car fringe benefit amounting
to P850,000, net of fringe benefit tax. What is the amount of Mr. Bout’s preferential
income tax on compensation for the year 201x?
a. P297,000 c. P153,750
b. P165,000 d. P 149,250

53. Mr. E, a Filipino holding a technical position in a Regional Operating Headquarters of

Multinational Company receives a monthly salary and cost of living allowance in the
amount of P65,000 and P5,000, respectively, for the entire year. How much is the
income tax due of Mr. E?
a. P131,250 c. P238,600
b. P229,000 d. P149,250

54. Eddie Paylaeng, a Filipino citizen who supports his senior citizen father, reported the
following earnings and expenses during the year:
Gross compensation income P200,000
Gross receipts derived from rent income 50,000
Personal living expenses 180,000
Premium payments on hospitalization insurance 5,000

How much is the net taxable income of Mr. Paylaeng by taking the best option to
minimize tax?
a. P 52,400 c. P177,600
b. P175,000 d. P180,400

55. A tax payer that allowed with both personal exemption and additional exemption is
a/an
a. Individual taxpayer
b. Estate and trusts
c. Partnership
d. Corporation

56. The following individual taxpayers are granted basic and additional personal
exemption except
a. Resident citizen
b. Non-resident citizen
c. Partnership fully owned by resident Filipino citizen
d. Non-resident alien engaged in trade or business in the Philippines with treaty
reciprocity

57. For Philippine tax computation, which of the following individual is taxable also for
income earned outside the Philippines?
a. Non-resident alien
b. Non-resident citizen
c. Resident alien
d. Resident citizen

58. A foreign individual who have stayed in the Philippines during the taxable year for
more than 180 days but less than one year is considered a
a. Non-resident alien during business in the Philippines
b. Non-resident alien not doing business in the Philippines
c. Resident alien
d. Resident alien doing business in the Philippines

59. For taxation purposes, a Filipino citizen who stayed outside the Philippines and work
abroad for 182 days during the taxable year is classified as
a. Non-resident citizen
b. Resident citizen
c. Overseas contract worker
d. Special taxpayer

60. For taxation purposes, the following are taxable corporation, except
a. National Power Corporation
b. KPMJ & Company Auditing Firm
c. ABC Trading Partnership
d. PAGCOR
61. Which of the following corporate tax is not yet implemented in the Philippines?
a. Optional gross income
b. Capital gains tax
c. Passive income tax
d. Minimum corporate income tax

62. The business income of a domestic corporation may be subject to any of the
following except
a. Minimum corporate income tax
b. Normal corporate tax
c. Optional gross income tax
d. Final withholding tax

63. All of the following are subject to minimum corporate income tax starting on the
4th year of its business operation, except
a. Nonresident foreign corporation
b. General commercial partnership
c. Resident foreign corporation
d. Domestic corporation

64. The excess of minimum corporate income tax over the normal income tax is
deductible from normal income tax for the next succeeding
a. 2 years
b. 3 years
c. 4 years
d. 5 years

65. Which of the following is an incorrect determination of income tax?

a. 25% on gross income within of a nonresident cinematographic film
b. 30% income tax on the net taxable income of a nonresident foreign corporation
c. 10% income tax on proprietary education institution
d. 30% income tax on net business income of government owned and controlled
corporation

66. The following are correct income tax rate, except

a. 7.5% on gross income within earned by nonresident foreign cinematographic film owner
b. 2.5% on gross receipts within received by foreign international carrier.
c. 4.5% on gross income within earned by nonresident lessor of vessel chartered by
Philippine nationals
d. 7.5% on gross income within earned by nonresident foreign lessor of aircraft

67. The tax imposed on inter-corporate dividends received by a nonresident foreign

corporation from a domestic corporation is
 a. Tax-exempt
b. Subject to 10% final tax
c. Subject to 15% final tax
d. Subject to 30% corporate tax

68. Which of the following corporation is subject to IAET?

a. Publicly-held corporations
b. Family-closed corporation
c. Banks and other nonbank financial intermediaries
d. Insurance companies

69. Which of the following items is not added to the taxable income per ITR to compute
the improperly accumulated taxable income?
a. NOLCO
b. Tax-exempt and exclusions from gross income
c. Dividends
d. Income subject to final tax

70. Statement 1: A domestic corporation subjected to normal corporate income tax is

exempt from Improperly Accumulated Earning Tax
Statement 2: Both domestic and resident foreign corporations are subject to improperly
accumulated earning tax
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

End