1.

The inherent powers of the sovereign state to legislate for the protection of the health, welfare and morals of
the community is Police Power
2. Which statement below expresses the lifeblood theory . The underlying basis of taxation is government
necessity, for without taxation, a government can neither exists or endure
3. Which of the following statement is wrong? The power of taxation maybe exercised by the government, its
political subdivisions and public utilities
4. Which statement is wrong? The power of taxation maybe exercised by the government, its political subdivisions
and public utilities
5. Congress passed a sin tax law that increased the tax rates on cigarettes by 1,000%. The law was thought to be
sufficient to drive many cigarettes companies out of the business and was questioned in court by a cigarette
company that would go out of business because it would not be able to pay the increased tax. The cigarette
company is wrong because the law recognized that the power to tax is the power to destroy
6. Which of the following are the elements of impact of taxation? Levy, Imposition, Assessment
7. Which of the aspects of taxation is (are) administrative in nature? Assessment, Collection
8. Which of the following statement is correct? The power of taxation and police power may be exercised
simultaneously
9. Which of the following statement is not correct? The government can enforce contribution upon its citizens only
when the constitution grants it.
10. Taxation is an inherent power because it co-exist with the existence of the state
11. The point on which tax burden finally rests and settles down is Incidence of Taxation
12. Which is not a desired construction of tax laws Tax laws are prospective, not retrospective because taxes are
burden
13. The tax exemption of properties used by diplomats or heads of states in the exercise of sovereign powers and
diplomatic function Inherent Limitation
14. The following, except one are the basic principles of a sound tax system. The exception is it is levied by the
lawmaking body of the state
15. The municipality of San Isidro passed an ordinance imposing a tax on installation managers. At the time, there
was only one installation manager in the municipality, thus, only he would be liable for the tax. Is the law
constitutional? It is constitutional as it applies to all persons in that class
16. A tax is invalid in all of the following, except It results to double taxation
17. In our jurisdiction, which of the following statements maybe erroneous? Taxes are levied and collected by the
legislative branch of the government
18. The principle which requires that taxation laws and its implementing rules and regulations should be clear and
free from several interpretation is administrative feasibility

Limitation on the Power of Taxation

19. The power to tax is not without limitations. Such limitations may be constitutional (expressly fund in the
constitution or implied in its provisions) or inherent (restrict the power although they are not embodied in the
constitution) which are the following is an inherent limitation? Exemption from taxation of government entities
20. In a loan agreement between BSP (as borrower) and private international banks (as lenders) it is stipulated that
all payments of interest in the BSP to the lenders shall be made free and clear from all Philippine taxes which
maybe imposed thereon. It is the stipulation valid? No, violative of the constitutional limitations

Tax Evasion vs Tax Avoidance

21. Prior to the VAT law, sales of cars was subject to sales tax but the tax applied only to the original or the first sale,
the second and subsequent sales were not subject to tax. Deltoid Motors Incorporation hit on the idea of setting
 up a wholly owned subsidiary. Gonmad motors and of selling its assembled cars to Gonmad at a low price so it
would pay a lower tax on the first sale. Gonmad would then sell the cars to the public at a higher price without
paying any sales tax on this subsequent sale. Characterize the arrangement. The plan is improper, the veil of
corporate fiction can be pierced so that the second sale will be considered the taxable sale
22. Which of the following statements constitute tax avoidance? Maybe contrary to the intent of the legislature but
nevertheless do not violate the law
23. There shall be a prima facie evidence of a purpose to avoid the tax upon its members or stockholders if the
corporations is/are Holding or investment companies

Double Taxation

24. Mr. Alas sells shoes in Makati through a retail store. He pays the VAT on his gross sales to the BIR and the
municipal license tax based in the same gross sales to the City of Makati. He comes to you for advice because he
thinks he is being subjected to double taxation. What advice will you give? Double Taxation is allowed where one
tax is imposed by the national government and the other by the local government
25. Bank A deposited money with Bank B which earns interest that is subjected to the 20% final withholding tax. At
the same time, Bank A subjected to the 5% gross receipts tax on its interest income on loan transactions. Which
statement below incorrectly describes the transactions?

Legislative of tax laws

26. Although the power of taxation basically legislative in character it is not the function of Congress to Collect the
tax levied under the law

Ethical tax compliance and administration

27. Which of the following statement is not correct? A memorandum circular promulgated by the CIR that imposes
penalty for violations of certain rules need not be published in a newspaper of general circulation or official
gazette because it has the fort and effect of law

Collecting Units Board of Investments, Philippine Economic Zone Authority

28. One of the following is not within the powers of the Commissioner of Internal Revenue. Compromise criminal
violation if already filed in court and those involving fraud

Remedies of the Government

29. A’s income tax liability for 2016 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, 2017. The amount payable (ignoring compromise penalty) is
P116, 250
30. A preliminary assessment notice is not required to be issued by the BIR before issuing a final assessment notice
in one of the following cases. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the return
31. Taxpayer Andy received on Jan. 3,2017 a preliminary assessment notice (PAN) from the BIR, stating that he had
15 days from its receipt to comment or to file a protest. 8 days later, before he could comment or file a protest,
Andy received the final assessment notice (FAN) Decide on the validity of the FAN? The FAN is invalid; Andy was
not given the chance to respond to the FAN, in violation of his due process rights
 32. Taxpayer A was required by the BR to sign and submit a waiver of the statue of imitations on the assessment
period, to give the BIR more time to complete its investigation. The BIR accepted the waiver but failed to indicate
the date of its acceptance. What is the legal status of the waiver? The waiver is invalid, the date of acceptance is
crucial in counting the start of the period of suspension of the prescriptive period
33. On April 15, 2017, the Commissioner of Internal Revenue mailed by registered mail the final assessment notice
and the demand letter covering the calendar year 2013 with the QC Post Office. Which statement is correct? The
assessment notice is valid even if the taxpayer received, the same after the three year period from the date of
filing of the tax return
34. The prescriptive period for the collection of the deficiency tax assessment will be tolled if the taxpayer files a
request for reinvestigation that is approved by the Commissioner of Internal Revenue
35. A filed his income tax return for the calendar year 2013 on March 20, 2014. When the last day for the BIR to
collect assuming A did not pay the tax due upon filling? April 15, 2017
36. Using the above data, assuming A filed his income tax return on April 20, 2014 and the return is not fraudulent,
when is the last day for the BIR to make an assessment? April 20, 2017
37. Using the above data, if the BIR issued a deficiency income tax assessment on March 10, 2017, when is the last
day for the BIR to collect? March 10, 2022
38. Which court has jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule
if the waiver of the Statue of Limitations was validly affected? Court of Tax Appeals
39. Which statement is correct? The collection of a deficiency tax assessment by distraint and levy
40. XYZ Corporation filed its income tax return and paid the tax due for calendar year 2016 showing a tax liability of
P175, 000. However, upon audit, it was discovered that its income tax return was false or fraudulent because it
did not report other taxable income. Per investigation the correct income tax due is P350, 000. The corporation
was duly informed of this finding through a preliminary assessment notice. Failing to protest on time against the
preliminary assessment notice, a formal letter of demand and assessment notice was issued on May 31, 2018
calling for payment of the deficiency income tax or before July 15, 2018. The amount due on July 15, 2018 is
P306, 250

Remedies of the taxpayer

41. Where no notice or audit investigation of tax return, statement or declaration has been actually served upon the
taxpayer, the tax return maybe modified, change or amended by the taxpayer, from the date of such filing, within
3 years
42. Mr. A was preparing his income tax return and had some doubt on whether on commission he earned should be
declared for the current year or for the succeeding year. He sought the opinion of his lawyer who advised him to
report the commission in the succeeding year. The lawyer’s advice turned out to be wrong. In Mr. A’s petition
against the BIR assessment, the court ruled against Mr. A. Is Mr. A guilty of fraud? Mr. A is not guilty of fraud as
he simply followed the advice of his lawyer
43. Mr. A files his ITR for 2012 on April 1, 2013 and paid the tax due thereon of P100, 000. The BIR made an
assessment on April 15, 2016 which shows that the correct income tax due should have been P150, 000
 requiring payment on or before July 15, 2016. The assessment was received by Mr. A on June 1, 2016. Mr. A can:
Dispute the assessment with the CIR within 30 days from June 1, 2016
44. Mr. Alvarez is in the retail business. He received a deficiency tax assessment from the BIR containing only
computation of the deficiency tax and the penalties, without any explanation of the factual and legal bases for
the assessment. Is the assessment valid? The assessment is invalid; the law requires a statement of the facts and
the law upon which the assessment is based
45. The submission of the required documents within 60 days from the filing of the protest is available only where
the taxpayer previously filed a request for reinvestigation with the BIR official
46. The Commissioner of Internal Revenue issued a BIR ruling to the effect that the transaction is liable to income tax
and value added tax. Upon receipt of the ruling, a taxpayer does not agree thereto. What is his proper remedy?
File an appeal to the Secretary of Finance within 30 days from receipt thereof

Taxpayer and tax base

47. An individual, who is real estate dealer, sold a residential lot in Quezon City at a gain of Php 100, 000 (selling
price of Php 900, 000 and cost of Php 800,000). The sale is subject to income tax as follows ordinary income tax
at the graduated rates of 5% to 32% of net taxable income
48. Which of the following items is an income of a resident alien subject to the basic tax (scheduler)? Interest
income from Philippine lotto winnings
49. A resident alien received a prize of P40, 000 from SM department store. Which of the following statements is
correct in connection with the imposition of final tax on the prize? The whole amount of P40, 000 shall be
subject to 20% final tax
50. Which of the following is correct? An American who stayed in the Philippines for an aggregate period of 183 days
during the calendar year is a non-resident alien engaged in business in the Philippine.
51. A dealer in securities sold unlisted shares of stock of a domestic corporation in 2017 and derived a gain of Php
1M therefrom. The gain is taxable at 30% regular corporate income tax based on net taxable income
52. Interest income of domestic commercial bank derived from a peso loan to a domestic corporation in 2010 is
subject to the 30% income tax based on its net taxable income
53. Interest income of a domestic commercial bank derived from a peso loan to a domestic corporation in 2017 is
subject to 30% income tax based on its net taxable income
54. DEF College a private educational institution organized in 2015 had the following data in 2017 is Php 95, 000
55. XYZ Corporation had the following data during the calendar year 2017. The taxable income is P820, 000
56. The following were taken from the income statement of A Corporation for the taxable year 2016. The taxable
income is P390, 000
57. Which of the following is not correct? A minimum corporate income tax of 2% of the gross income is imposed on
taxable corporations beginning on the 4th taxable year immediately following the year in which such corporation
was incorporated
 58. A exchanged a parcel of land with a FMV of P200, 000, with b Corporation for P50, 000 cash and 1, 500 common
shares of the corporation with a fair market value of P100/share. The land had a cost of P140, 000. After the
exchange, A owns 51% of the total voting power of B Corporation’s issued and outstanding shares. How much
taxable gain should A recognize on this transaction? P50, 000
59. A general professional partnership and its partners are subject to the following rules, except the share of the
partner shall be subject to a creditable withholding tax of 10%
60. The following organizations shall not be taxed in respect to income received by them as such, except non-profit
hospital
61. What is the rule on the taxability of income that a government educational institution derives from its school
related operations? Such income is exempt from income taxation if it is actually, directly and exclusively used for
educational purposes

Gross Income

62. In 2010, Mr. Platon sent his sister Helen 1, 000 via a telegraphic transfer through the Bank of PI. The bank’s
remittance clerk made a mistake and credited Helen with 1, 000, 000 which she promptly withdrew. The bank
demanded the return of the mistake the return of the mistakenly credited excess, but Helen refused. The BIR
entered the picture and investigated Helen. Would the BIR be correct if it determines that Helen earned taxable
income under these facts? Yes, income is income regardless of the source
63. A insured his life for P10M in case A dies, the proceeds of the life insurance shall be excluded from gross income
whether beneficiary is revocable or irrevocable
64. The following are the requirements to exempt retirement pay due to old age from income tax, except the retiree
must be a senior citizen
65. Aleta sued Boboy for breach of promise to marry. Boboy lost the case and duly paid the court’s award that
included, among others, Php 100, 000 as moral damages for the mental anguish Aleta suffered. Did Aleta earn a
taxable income? She had no taxable income since moral damages are compensatory

66. This income is subject to basic tax salaries or emoluments received during a leave of absence

67. Which of the following statements is not correct? Holiday pay, overtime pay, night shift differential pay and
hazard pay received by individuals shall be exempt from income tax

68. One of the following may not be deducted from gross compensation income of a resident citizen Health and/or
hospitalization insurance premiums
69. This income is part of taxable income subject to the basic tax (scheduler) Fringe benefits given to rank and file
employees

70. PRT Corporation purchased a residential house and lot with a swimming pool in an upscale subdivision and
required the company president to stay there without paying rent, it reasoned out that the company president
must maintain a certain image and be able to entertain guests at the house to promote the company’s business.
The company president declared that because they are childless, he and his wife could very well live in a smaller
house. Was there a taxable fringe benefit? There was no taxable fringe benefit since it was for the convenience
of the employer and was necessary for its business

71. In 2009, A Enterprise paid for the annual rental of a residential house used by its general manager amounting to
P340, 000. The fringe benefit tax is P80, 000

72. Which of the following statements on fringe benefit is correct? The tax is imposed on the employer and withheld
at source

73. MGC Corporation secured an income tax holiday for 5 years as pioneer industry. On the 4thh year of the tax
holiday, MGC Corporation declared and paid cash dividends to its stockholders, all f whom are individuals. Are
the dividends taxable? The dividends are taxable; the tax exemption of MGC Corporation does not extend to its
stockholders

74. A, a stockholder of ABC Corporation, is indebted to ABC Corporation amounting P25, 000. At the end of the
taxable year, he received a notice that the corporation cancelled hi indebtedness. As a result A received P25, 000
as dividend and therefore subject to final tax

75. A cash dividend of P100, 000 received by a taxpayer in 2016 from a foreign corporation whose income from
Philippine sources is 50% of its total income is

Statement 1- Partly taxable if he is a resident citizen

Statement 2- Partly taxable if he is a non-resident alien
Only Statement 2 is true
76. Using the above data, which of the following is correct? The cash dividend is Partly taxable if he is a resident
alien
77. A final tax shall be imposed upon the cash and/or properly dividends actually or constructively received by an
individual from I and II
78. Acting on the information given by A, the government seized and confiscated smuggled goods with a fair market
value of P40M. the final withholding tax P100, 000