Tax Mockboard

CONTROL NO.
MOCK BOARD EXAMINATIONS

November 10, 2019
TAXATION
NOTE: Final answers must be indicated on the separate answer sheet provided. Intermediary work on
questionnaire and scratch paper will merit no points.
1. Which of the following income is not from a related trade, business or activity of a domestic
proprietary educational institution?
A. income from hospital where medical graduates are trained for residency
B. income from the canteen situated within the school campus
C. income from bookstore situated within the school campus
D. income from rent of available office spaces in one of the school buildings
2. The following are exceptions to the rule that tax exemptions are strictly construed against the
taxpayer and liberally in favor of the government. Which one is not?
A. When the statute granting exemption provides for liberal construction.
B. The taxpayer does not fall within the purview of exception by clear legislative intent.
C. If exemptions refer to public property.
D. In cases of exemptions granted to charitable and educational institutions on their property.
3. What is the purpose of the doctrine of constructive receipt of income?

A. To prevent tax evasion.
B. To prevent the taxpayer on the cash basis from postponing the actual receipt of taxable
income.
C. To ensure collection of taxes.
D. To compel taxpayers to report their income.
4. The religious congregation was organized as a corporation sole. It owns a 5,000 sq. m. lot, registered
in the name of the rector, and rented out for use as a school site of an educational institution
organized for profit. The sect used the rentals for the support and upkeep of its priests. Choose the
most appropriate ruling with regard to real property tax (RPT) exemption of the 5,000 sq. m. lot.
A. Not exempt from the payment of RPT because the user is organized for profit.
B. Exempt from the payment of RPT because it is actually, directly and exclusively used for
educational purposes.
C. Not exempt from the payment of RPT because it is the proceeds, and not the property, that
is actually, directly and exclusively used for religious purposes.
D. Exempt from the payment of RPT because it is actually, directly and exclusively used for
religious purposes.
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5. Issues arises as to whether taxes may be collected even without tax measures.
A. Yes, because it is an inherent power of the state
B. Yes, because of the life blood theory
C. No, imposition of taxes without any tax measure amounts to oppression.
D. No, because of absence of the basis for the amount of the tax to be collected
6. A non-resident alien engaged in trade or business is one who spends how many days in the
Philippines?
A. Less than 183 days
B. More than 183 days
C. Less than 180 days
D. More than 180 days
7. Which of the following is not subject to the rule of reciprocity?

A. Share in a Philippine partnership owned by a nonresident alien decedent.
B. Investment in stock in a US corporation 80% of the business of which is in the Philippine
owned by a non-resident alien decedent.
C. Shares in a Philippine domestic corporation owned by a nonresident alien decedent.
D. Investment in bonds in a US corporation that have acquired business situs in the Philippines
owned by a non-resident alien decedent.
8. ABC, a foreign multinational corporation doing 50% of its business in the Philippines donated 1,000
shares of stock of said corporation to Mr. W, its resident manager in the Philippines. As a
consequence,
A. Mr. W will report the donation as part of its taxable income.
B. The donation is exempt from donor’s tax.
C. The donation is subject to donor’s tax.
D. Only 50% of the donation is subject to donor’s tax.
9. (TRAIN) Celia donated P110,000 to her friend Victoria who was getting married. Celia gave no other
gift during the calendar year. What is the donor’s tax implication on Celia’s donation?
A. Celia shall pay a 30% donor’s tax on the P110,000 donations.
B. The P110,000 portion of the donation is exempt under the rate schedule for donor’s tax
C. A P10,000 portion of the donation is exempt being a donation in consideration of marriage.
D. The P100,000 portion of the donation is exempt since given in consideration of marriage.
10. Martin donates the following items prior to his death:
House and lot, to his son, mortis causa 1,000,000

Diamond ring to his wife 500,000
Portion of land to the National Government 300,000
Car to his son on account of current birthday 800,000
How much is the gross amount of donations subject to donor’s and estate tax?
A. 800,000; 1,000,000 C. 1,000,000; 0
B. 1,100,000; 800,000 D. 1,600,000; 500,000
Taxation Page 2 of 8
11. (TRAIN) Jane operates a convenience store while she offers bookkeeping services to her clients. In
2020, her gross sales amounted to P800,000, in addition to her receipts from bookkeeping services
of P300,000. She failed to signify her intention to be taxed at 8% income tax rate on gross sales in
her initial Quarterly Income Tax Return, and she incurred cost of sales and operating expenses
amounting to P600,000 and P200,000, respectively, or a total of P800,000.
How much is his tax due in 2020?

A. 10,000 C. 25,000
B. 20,000 D. 30,000
12. TRAIN) Eric, a financial comptroller of Divine Company, earned annual compensation in 2020 of
P1,500,000, inclusive of 13th month and other benefits in the amount of P120,000 but net of
mandatory contributions to SSS and Philhealth. Aside from employment income, he owns a
convenience store, with gross sales of P2,400,000. His cost of sales and operating expenses are
P1,000,000 and P600,000, respectively, and with non-operating income of P100,000.
His tax due for 2020 if he did not opt to be taxed at 8% income tax rate on his gross sales for his
income from business:
A. 589,200 C. 595,200
B. 590,200 D. 598,200
13. (TRAIN) Allan, an officer of Jetti Corporation, earned in 2020 an annual compensation of P1,200,000
inclusive of 13th month and other benefits in the amount of P120,000. Aside from employment
income, he owns a farm with gross sales of P3,500,000. His cost of sales and operating expenses
are P1,000,000 and P600,000, respectively, and with non-operating income of P100,000.
His tax due for 2020 is

A. 845,200 C. 865,200
B. 855,200 D. 870,200
14. Mikle disposed her principal residence in exchange for a parcel of land owned by Josh. The land
received in exchange shall be sued for the construction of Mikle’s new principal residence. Which of
the following shall be an incorrect tax consequence of the exchange?
A. Mikle shall be exempt from capital gains tax
B. Josh shall be subject to capital gains tax or income tax
C. Mikle shall be subject to capital gains tax or income tax
D. None of the choices
15. The loss from sale or exchange of property is deductible from gross income where sale or exchange
is:
A. Between fiduciary of a trust and the fiduciary of another trust if they have the same grantor.
B. Between fiduciary of a trust and the beneficiary of such trust.
C. Between an individual and his first cousin.
D. Between an individual and a corporation if the former owns more than 50% in value of the
outstanding capital stock of the latter.
16. Donnie acquired his residential land in 2000 at a cost of P1 million. A sold the property on January
2, 2020 for a selling price of P4 million where the FMV is P5 million. Within 18 months, Donnie
purchased his new principal residence at a cost of P7 million. How much is the capital gains tax?
A. 300,000 C. 75,000
B. 240,000 D. 0
17. It is important to know the source of income for tax purposes because
A. Some individual and corporate are taxed on their worldwide income while others are taxable
only upon income from sources within the Philippines
B. The Philippines imposes income tax only on income from sources within
C. Some individual taxpayers are citizens while others are aliens
D. Export sales are not subject to income tax
18. X sold his house and lot to the Municipality of Carmen to be used as staff house. The sale is taxable
at
A. Exempted
B. 6% capital gains tax
C. 5%-30% of the gain
D. 6% capital gains tax or 5% - 30% of the gain at the option of the taxpayer
19. (TRAIN) Carlos, Filipino citizen sold directly to Carrie shares of stock of DMCI, a domestic corporation,
which are classified as capital assets. The selling price was P200,000 at the time when the fair market
value was P250,000 and cost was P100,000. The capital gains would have been:
A. 0 C. 10,000
B. 5,000 D. 15,000
20. (TRAIN) Connie bought a parcel of residential land for P1,000,000 sometime in 2019. He sold the
same to Canyon for P10 million on October 15, 2020. The transaction is subject to 6% capital gains
tax.
A. True
B. False. If Rey is engaged in the real estate business
C. False. It is subject to VAT if the sale is in the regular course of trade or business
D. No correct answer given
21. The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac province. The Church and a
convent occupy the southern side and middle part. The southeastern side by some commercial
establishments, while the rest of the property, in particular the northwestern side, is idle or
unoccupied. Which of the following is correct?
A. The Church may claim tax exemption on the entire land.
B. The exemption covers only the southern side and middle part occupied by the Church and a
convent and the eastern side by a school run by the church.
C. The tax is imposable on the northwestern side which is idle or unoccupied.
D. The entire property is taxable for real property taxation.
22. A client not engaged in realty business paid in full the P50,000 attorneys’ fees of his counsel in lot
which he bought in 2020 for P5,000 and which has a fair market value of P60,000. Which of these is
correct?
A. The client-transferor is subject to final capital gains tax based on P60,000.
B. The client-transferor is subject to final capital gains tax based on P50,000.
C. The client-transferor is not subject to final capital gains tax.
D. The client-transferor is subject to income tax for the difference between P50,000 and P5,000
23. Statement 1: Capital gains on shares within the 61-day period are recognized.
Statement 2: Capital losses on shares within the 61-day period are recognized.
A. Only statement 1 is correct

B. Only statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect.
24. (TRAIN) You are given the following information about the estate of a resident citizen decedent:
● Columbia Net estate of P100,000 and estate tax paid of P1,500
● Indonesia Net estate of P200,000 and estate tax paid of P1,800
● Philippines Net estate of P1,500,000
The allowable amount of tax credit for estate tax paid in foreign countries amount to:
A. 3,000 C. 3,300
B. 2,800 D. 5,500
25. (TRAIN) Mr. Roger died with a receivable from Mr. Novak. Mr. Novak has properties worth P220,000
and obligations of P320,000. Included in the obligation are P20,000 owed to the Government for
unpaid taxes and P60,000 owed to Mr. Roger. The deductible claim against insolvent persons
amount to:
A. 20,000 C. 40,000
B. 60,000 D. 41,250
26. Jane, married on January 1, 2017. She left an estate with a fair market value of P4 million. During
the year, the estate had a gross income of P800,000 and related expenses of P300,000. The
administrator gave P200,000 to Jimmy and another P200,000 to Jonas, Jane’s beneficiaries, 50% of
the amounts given to B and C came from the income of the estate and the other 50% came from
the estate. The net taxable income of the estate in 2017 is
A. 250,000 C. 50,000
B. 280,000 D. 80,000
27. Mayaman wanted the painting hanging on the wall of his living room replaced with a new one. He
then sells it to his bosom friend. Salamat, at a very low price of P500,000. Its fair market value is
P750,000. He bought the painting several years ago at an exhibit held in Shangri-la for P300,000.
The gain on sale of the painting is:
A. 450,000 C. 300,000
B. 500,000 D. 200,000
28. Artny Company, a Canadian Corporation, distributed dividends to its Filipinas Inc., a Philippine
company and a stockholder. The dividends are
A. taxable at 30% or at 15% if the corporation is subject to a tax sparing credit
B. taxable at 30%
C. taxable at 25%
D. not taxable
29. If a stockholder receives a taxable stock dividend, what is the measure of income applicable to him?
A. The book value of the shares of the preceding calendar year
B. Fair market value of the shares on the date of declaration
C. The adjusted cost of the old shares and the new shares of the corporation
D. Par value of the shares on the date he receives them
30. The interest expense of a domestic corporation on a bank loan in connection with the purchase of
production equipment:
A. is not deductible from gross income of the borrower-corporation.
B. is deductible from the gross income of the borrower-corporation during the year or it may
be capitalized as part of the cost of the equipment.
C. is deductible only for a period of five years from the date of purchase.
D. is deductible only if the taxpayer uses the cash method of accounting.
For items 31 and 32:

ABC Corp. is engaged in the sale of goods and services with net sales of P200,000 and net revenues
of P100,000. The actual entertainment, amusement, and recreation (EAR) expenses for the quarter
total P3,000.
31. How much is the allowable amount of EAR expense for goods?
A. P1,000
B. P2,000
C. P3,000
D. No EAR expense is allowed.
32. How much is the allowable amount of EAR expense for services?
A. P1,000
B. P2,000
C. P3,000
D. No EAR expense is allowed.
33. Mr. Monte was injured in a vehicular accident in 2016. He incurred and paid medical expenses of
P20,000 and legal fees of P10,000 during the year. In 2017, he received P70,000 as settlement from
the insurance company which insured the car owned by the other party involved in the accident.
From the above payments and transactions, the amount of taxable income to Mr. Monte in 2017:
A. Zero C. P70,000
B. P40,000 D. P50,000
34. RDE was retired by his employer corporation in 2015 and paid P1,000,000 as a retirement gratuity
without any deduction for withholding tax. The corporation became bankrupt in 2016. Can the BIR
subject the P1,000,000 retirement gratuity to income tax?
I. Yes, if the retirement gratuity was paid based on a reasonable pension plan where RDE was 50
years old and has served the corporation;
II. No, if RDE was forced by the corporation to retire.
A. Both answers are wrong C. I is correct; II is wrong

B. Both answers are correct D. I is wrong, II is correct
35. Mr. Z is the chief accountant of a very successful marketing corporation. At the age of forty-five
years, and having served the company for fifteen years, he retired from the corporation and
received a retirement pay of P1,500,000 from a funded plan registered with the Bureau of Internal
Revenue. For making a very significant contribution to the success of the corporation, he received a
gratuity of P1,000,000 from the general fund of the corporation.
Statement 1. The retirement pay received is taxable income because he had not yet reached the
age of sixty at the time of retirement;
Statement 2. The gratuity of P1,000,000 is not taxable income because it is a gift.
A. True, true C. True, false

B. False, false D. False, true
36. Where a return was filed, as a general rule, the prescriptive period for assessment after the date
the return was due or was filed, whichever is later, is within:
A. Three years C. Ten years
B. Five years D. Answer not given
37. Which of the following violations cannot be subject to compromise penalties?

A. Failure to keep/preserve books of accounts and accounting records
B. Failure to keep books of accounts or records in a native language or English
C. Failure to have books of accounts audited and have financial statements attached to income
tax return certified by independent CPA
D. Keeping two sets of books of accounts or records.
38. For filing a false and fraudulent return, a surcharge is imposed. Which of the following is correct?
A. 50% as administrative penalty C. 25% plus 50%
B. 50% as criminal penalty D. 25% as criminal penalty
39. For a tax erroneously or illegally paid by a taxpayer:
A. The taxpayer may file a petition for refund with the Bureau of Internal Revenue within two
years from the date of payment
B. The taxpayer may appeal to the Court of Tax Appeals the decision of the Bureau of Internal
Revenue;
C. The taxpayer may appeal the decision of the Court of Tax Appeals to the Supreme Court
within fifteen days from receipt of the decision of the Court of Tax Appeals?
Which statement is correct?

A. Statement A C. Both Statements A and B
B. Statement B D. Neither of Statement A nor B
40. When a tax return was filed by a taxpayer:

A. The Bureau of Internal Revenue may preliminarily make an assessment to be followed by
the summary proceedings of distraint and levy or by judicial proceedings;
B. The Bureau of Internal Revenue may collect immediately, by judicial proceedings.
Which of the two statements is correct?

A. Statement A C. Both Statements A and B
B. Statement B D. Neither of Statement A nor B
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CONTROL NO.

MOCK BOARD EXAMINATIONS

3. What is the purpose of the doctrine of constructive receipt of income?

7. Which of the following is not subject to the rule of reciprocity?

10. Martin donates the following items prior to his death:

House and lot, to his son, mortis causa 1,000,000

How much is his tax due in 2020?

His tax due for 2020 is

A. Only statement 1 is correct

For items 31 and 32:

A. Both answers are wrong C. I is correct; II is wrong

A. True, true C. True, false

37. Which of the following violations cannot be subject to compromise penalties?

Which statement is correct?

40. When a tax return was filed by a taxpayer:

Which of the two statements is correct?

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