LCCM REFRESHER COURSE

FINAL EXAMINATION March 26, 2023

TAXATION

Instructions: Choose the BEST answer for each of the following items. Mark only one answer for
each item on the Special Answer Sheet provided. Strictly no erasure allowed.

1. Statement 1: The CIR is authorized to inquire into the bank deposit of a taxpayer who has filed
an application for compromise of his tax liability by reason of financial incapacity to pay.
Statement 2: The CIR is authorized to look into the bank deposit of a decedent to determine his
gross estate.
a. True, true c. False, true
b. True, false d. False, false

2. Atty. Idol Gadon, failed to report and file estate tax return of his late father, Ferdinand Gadon
who died September 19, 2020. The BIR assess Atty. Gadon amounting to Php23 billion in
October 30, 2021. Atty. Idol Gadon, protested the assessment with the Supreme Court for
failure of the BIR to observe due process. Which of the following is correct?
a. A protest should be filed by the taxpayer within the BIR, otherwise the assessment
becomes final and can no longer be questioned in court.
b. A protest may be filed by the taxpayer any time before the BIR collects the tax.
c. The assessment should be made by the BIR within five years from the filing of the return
d. The Supreme Court may reverse the assessment and shall include only tax proper.

3. Which of the following is not a requisite to toll the collection of taxes to be made by the BIR,
upon proof of the following to the Court of Tax Appeals
a. It will jeopardize the interest of the taxpayer
b. It will jeopardize the interest of the government
c. Filing of a bond for at least double the amount of the tax assessed
d. The case is not dilatory

4. ABC Corporation won a tax refund case with the Supreme Court for P50 Million. Upon
execution of the judgment and when trying to get the Tax Credit Certificates (TCC) representing
the refund, the Bureau of Internal Revenue (BIR) refused to issue the TCC on the basis of the
fact that the corporation is under audit by the BIR and it has a potential tax liability. Is there a
valid justification for the BIR to withhold the issuance of the TCC?
a. Yes, power of the BIR to make assessment and collection of all national internal revenue
taxes, fees and charges.
b. Yes, power of the BIR to enforce all national taxes, fees and charges including
forfeitures, penalties and fines connected therewith.
c. No, BIR is only in the assessment stage and not yet in the collection stage.
d. No, the BIR is inferior to the courts.
5. On June 2, 2018 Global Bank received a final notice of assessment from the BIR for deficiency
documentary stamp tax in the amount of P5million. On June 30, 2018, Global Bank filed a
request for reconsideration with the Commissioner of Internal Revenue. The Commissioner
denied the request for reconsideration only on March 30, 2022, at the same time serving on
Global Bank a warrant of distraint to collect the deficiency tax. What are the remedies of Global
Bank?
a. Appeal to the Court of Tax of Appeals within 30 days from receipt of the denial.
b. File for injunctive relief to restrain the distraint.
c. Enter into a compromise agreement with the Commissioner of Internal Revenue.
d. All of the above.

6. Gerry was being prosecuted by the BIR for failure to pay his income tax liability for Calendar
Year 2018 despite several demands by the BIR in 2021. The information was filed with the
Regional Trial Court only last January 2022. What are the remedies of Gerry?
a. Gerry should file a motion to quash the Information on the ground of prescription.
b. Gerry should answer the Information.
c. Gerry should file a protest with the Commissioner of BIR.
d. Gerry should appeal to the CTA.

7. A’s income tax liability for 2020 was P75,000. She filed the return and paid the total amount
due on July 15, 2021 but not with the proper internal revenue district office. The amount payable
by A is
a. P96,000 c. P114,750
b. P116,250 d. P112,500

8. Jane filed his annual income tax return on May 22, 2016 for income earned during 2015. The
BIR examiner assessed Jane for tax delinquency on October 15, 2017. Jane filed a protest
plus all documentary evidence on November 8, 2017 with the Commissioner of the Internal
Revenue. The Commissioner rendered its unfavorable judgment on May 10, 2018. When is
the last day to appeal the case to the Court of Tax of Appeal?
a. June 8, 2008 c. May 25, 2008
b. June 10, 2008 d. May 22, 2008

9. Commissioner of Bureau of Internal Revenue may abate any internal revenue tax when, except
one:
a. The tax `or any portion thereof appears to be unjustly or excessively assessed
b. The administration and collection costs involved do not justify the collection of the
amount due.
c. Where on the face of the return upon which payment was made such payment appears
clearly to have been erroneously paid.
d. The delinquent account or disputed assessment is one resulting from a jeopardy
assessment.
10. Under the eFPS a return is deemed filed with the BIR after a sequence Number is generated.
What is this sequence Number?
a. Filing Reference Number
b. Confirmation Number
c. Acknowledgement Number
d. Computerized Generated Number

Buenas Corporation, a real estate dealer and lessor, on its first year of operation, has received
a Letter of Authority from the BIR. As a revenue officer, you were assigned to audit the
Corporation’s income tax for taxable year 2018. The audited financial statements show the
Corporation’s income statement as follow:
Revenues:
Rental income 2,800,000
Interest from bank 24,000
Gain on sale of land 500,000
Total 3,324,000
Expenses:
Depreciation 800,000
Salaries and wages 200,000
Taxes and licenses 180,000
Entertainment and representation 40,000
Interest expense 60,000
Office supplies 20,000
Total 1,300,000

Net income before income tax 2,024,000

Income tax expense
450,000
Net income 1,574,000

Income tax due for the year is computed as follows:

Net income before income tax 2,024,000

Less : Interest from bank 24,000
Gain on sale of land 500,000
524,00
Net taxable income 1,500,000
Multiply by: corporate income tax
rate 30%
Income tax expense 450,000

After a detailed examination of the Corporation’s books, you have noted the following:
• Balance sheet as of December 31, 2018 showed an outstanding balance of deferred rent
income amounting to P200,000, representing advance rent payments by tenants.
 • Interest from bank is net of 20% final withholding tax
• Gain on sale of land, represents gain on sale of residential lot with selling price, amounting
to P2,000,000
• Taxes and licenses in the Notes to Financial Statements
Showed the following breakdown
• Withholding tax on sale of land, P120,000
• Documentary stamp tax on sale of land, P30,000
• Surcharge and penalties on late payment of tax, P10,000
• Permits and licenses, P20,000
Interest expense includes interest on late payment of tax, amounting to P5,000.

11. How much should be reflected as net sales and revenue in the annual income tax return of the
Corporation?
a. P3,000,000
b. P5,000,000
c. P4,800,000
d. P3,300,000

12. How much should be the deductible taxes and licenses?

a. P20,000
b. P180,000
c. P30,000
d. P50,000

13. How is the deductible entertainment and representation expense?

a. P40,000
b. P33,333
c. P38,000
d. P34,000

14. How much is the basic deficiency income tax due?

a. P136,475
b. P252,200
c. P253,770
d. P250,800
 BTS CORPORATION, is a registered enterprise with the Board of Investments and was
granted an Income Tax Holiday (ITH) Incentives for the first 4 years of operations as a non-
pioneer firm. The Corporation has not applied for an extension of its ITH incentives on its 5th
year 2019. On its 5th year of operations, it reported the following:
Export Sales P120,000,000
Cost of goods manufactured and sold 70,000,000
Operating expenses 20,000,000
Additional information were made available as follows:
➢ Cost of goods manufactured and sold include, imported raw materials with dutiable
value of P1,400,000. Pre-computed customs duties and other charges are as follows:
(a) Customs duties – P200,000
(b) Insurance – P10,000
(c) Arrastre charges – P5,000
(d) Wharfage dues – P7,000.
➢ Included under operating expenses are expenses incurred on the importation of the
said equipment as follows:
(a) Facilitation fee – P100,000
(b) Delivery expense to warehouse after release from Customs P11,200.
➢ Cost of goods manufactured and sold include direct labor skilled and unskilled
workers amounting to P10,000,000 and P20,000,000, respectively. The project meets
the prescribed ration of capital equipment to number of workers set by the BOI.
➢ The Company incurred an accumulated net operating loss on the first 4 years of
operations as follows:
(a) 1st year – P2,000,000
(b) 2nd year – P1,600,000
(c) 3rd year – P800,000
(d) 4th year – P400,000.

15. How much is the deductible direct labor cost?

a. P35,000,000
b. P45,000,000
c. P40,000,000
d. P30,000,000

16. How much is the deductible net operating loss carry over?
a. None
b. P2,800,000
c. P400,000
d. P4,800,000
17. How much is the income tax due of the Company for the year?
a. P4,500,000
b. P1,750,000
c. P4,530,000
d. P1,869,000

John and Marcia inherited a commercial lot and building from their parents 2 years ago. In 2018
(current year), the inherited property realized rental income of P300,000 per month, in which
both shared the revenues equally. The co-ownership remained unregistered with the Securities
and Exchange Commission. In addition, Jose and Maria reported their following personal
income and expenses.

➢ John, gross compensation income (inclusive of 13th month and other benefits
amounting to P100,000), P1,300,000

➢ Marcia, net income from her laundry service business (net of cost and expenses of
P600,000), P200,000.

18. How much final withholding income tax should the co-ownership remit representing the
revenue distribution to the co-owners?
a. P360,000
b. P540,000
c. None
d. P180,000

19. How much is the income tax due of John in his annual income tax return, assuming optional
standard deduction is used in determining his expenses?
a. P582,800
b. P431,800
c. P253,000
d. P611,600

20. How much is the income tax due of Marcia in his annual income tax return, assuming optional
standard deduction is used in determining his expenses.
a. P22,000
b. P322,000
c. P358,000
d. P250,000
21. When is the deadline for filling of the annual income tax return of the co-ownership for taxable
year 2018?
a. April 15, 2018
b. May 15, 2019
c. Not applicable
d. April 15, 2019

ATTY. PAPA, is a practicing lawyer, is also a licensed real estate broker. Both businesses
were registered with the BIR and had the following data made available for year 2018 (months
are gross of withholding tax):
Revenues from his profession 3,000,000
Commission received 600,000
Cost of services 700,000
Business related expenses 400,000
Gain on sale of real property held for investment 500,000
Selling price of real property 2,000,000
Wagering gain 150,000
Wagering losses 100,000
Royalties from books published 150,000
Interest Income from banks 30,000

22. Compute Tax due, assuming ATTY. opted to use itemized deduction in computing his income
tax.
a. P810,000
b. P698,000
c. P666,000
d. P826,000

23. Compute OSD. Optional Standard Deductions

a. P2,240,000
b. P2,300,000
c. P1,460,000
d. P1,440,000

24. How much is the final withholding income tax of ATTY., assuming 2/3 of interest income
from banks were realized from time deposits with maturity of 5 years?
a. P47,000
b. P17,000
c. P32,000
d. P137,000
25. 1st Statement: The term “goods” for value added tax purposes shall mean all tangible and
intangible objects which are capable of pecuniary estimation and shall include, but not limited
to radio, television, satellite transmission and cable television time.
2nd Statement: The term “export sales” for VAT purposes shall include, but not be limited to
sale of gold to the Bangko Sentral ng Pilipinas.
a. True, False c. False, True
b. True, True d. False, False

26. 1st Statement: Any VAT registered person whose sales are zero-rated or effective zero-rated
may, within two (2) years after the close of the taxable year when the sales were made may
apply for tax credit certificate or refund of the creditable input tax due or paid attributable to
such sales.
2nd Statement: A VAT-registered person may apply for the issuance of tax credit certificate or
refund of input taxes paid on capital goods imported or locally purchased to the extent that
such input taxes have not been applied against output taxes. The application may be made
only within two years after the close of the taxable quarter when the importation was made.
a. True; False c. False; True
b. True; True d. False; False

27. 1st Statement: Excise taxes imposed and based on weight or volume capacity or any other
physical unit of measurement shall be referred to as ad valorem tax.
2nd Statement: Excise taxes imposed and based on selling price or other specified value of
the good shall be referred to as specific tax.
a. True; False c. False; True
b. True; True d. False; False

28. A merchant of stock or securities, whether an individual, partnership or corporation, with an

established place of business, regularly engaged in the purchase of securities and resells them
to customers; and who, as a merchant, buys securities and resells them to customers with a
view to the gains and profits that may be derived therefrom.
a. Dealer in securities c. Underwriters
b. Stock brokers d. Stock merchants

29. Mr. Robin Tulfo is a manufacturer of fermented liquors. In making sales, all taxes on the
products and transactions are passed on to the buyers. For purposes of the value-added tax,
which of these taxes mentioned here forms part of the gross selling price?
a. Excise tax c. Percentage tax
b. Value-added tax d. Both A and B
30. 1st statement: America Corporation is a merchandising concern and has one (P1,000,000.00)
million worth of inventories. Brazil Corporation, a real estate company, exchanged its real
properties for shares of stock of America Corporation resulting to acquisition of corporate
control. The one million (1,000,000.00) worth of inventories of America Corporation, which
were transferred to Brazil Corporation by virtue of corporate take-over is not subject to VAT.
2nd statement: The exchange of real property by Brazil Corporation resulting to corporate
control is subject to VAT.
a. True, true c. False, false
b. True, false d. False, true

31. ERA Corporation has the following sales during the month:
Sale to private entities 224,000.00
Sale to export-oriented enterprise 100,000.00
Sale of exempt goods 100,000.00

The following input taxes were passed on by its VAT suppliers during the month:
Input tax on taxable goods 5,000.00
Input tax on zero-rated sales 3,000.00
Input tax on sale of exempt goods 2,000.00
Input tax on depreciable capital good not 20,000.00
attributable to any specific activity

The VAT payable for the month:

a. 1,000 c. 9,000
b. 7,200 d. 16,000

32. Mr. Jose, Filipino, married died leaving the following estate:
Car acquired before marriage by Mr. Jose - P 300,000
Car acquired before marriage by Mrs. Jose – P 450,000
House and lot acquired during marriage P 1,500,000
Jewelries of Mrs. Jose, acquired
before marriage 100,000
Personal properties inherited by Mr. Jose
during marriage 250,000
Benefits from SSS 50,000
Retirement benefits from a private firm 150,000
Proceeds of group insurance taken by his employer 75,000
Land inherited by the wife
during marriage 1,000,000
Income earned from the land inherited
By wife above (25% of which was
Earned after death) 200,000
The gross estate under Conjugal Partnership of Gains is:
a. P 2,600,000 c. P 1,950,000
b. P 3,600,000 d. P 2,200,000

33. Under the same problem, the gross estate under Absolute Community of property is:
a. P 2,600,000 c. P 1,950,000
b. P 3,600,000 d. P 2,500,000

34. A decedent died single, leaving a family home which consists of a piece of land that he
inherited 3 – ½ years ago (with a value at the time of P600,000) with a fair value of P800,000
at the time of his death, and a house thereon which he built at a cost of P650,000, and a fair
market value at the time of his death of P450,000. Other properties in his gross estate have
a fair market value of P550,000. Unpaid obligations at the time of his death amounted to
P300,000.
The vanishing deduction is:
a. 200,000
b. 500,000
c. 40,000
d. 225,000

35. The Congregation of the Mary Immaculate donated a land and a dormitory building located
along España Street in favor of the Sisters of the Holy Cross, a group of nuns operating a
free clinic and high school teaching basic spiritual values. Is the donation subject to donor’s
tax?
a. Yes, the donation is subject to donor’s tax because the donee is a stranger.
b. Yes, the donation is subject to donor’s tax because it failed to mention the purpose of the
donation.
c. No, the donation is not subject to donor’s tax because the donee is a non-stock, non-
profit organization engaged principally for religious and educational vocation.
d. No, the donation is exempt from donor’s tax being charitable in nature.
 Beginning 1 January 2018:

Taxable Income (PHP)

Tax on column 1 (PHP) Tax on excess (%)
Over Not Over

0 250,000 - 0

250,000 400,000 - 20

400,000 800,000 30,000 25

800,000 2,000,000 130,000 30

2,000,000 8,000,000 490,000 32

8,000,000 2,410,000 35

36. The following are excluded from the gross estate of a decedent except:
a. Transfers before the decedent’s death, not in contemplation of death.
b. Bona fide sale for an adequate and full consideration in money or money’s worth before the
decedent’s death.
c. Exclusive properties or capital of the surviving spouse.
d. Proceeds of life insurance where the designation of the third party beneficiary is revocable.

37. One of the assets left by J. Cruz when he died is 100,000 shares of stock of Walt Stick
Company with a par value of ₱4.00 per share. The company has an authorized capital stock
of 1,200,000 shares. Unissued shares total 400,000 shares. Retained earnings amount to
₱600,000. The shares of stock of the company are not traded in the stock exchange. How
much will be included in the gross estate of J. Cruz?
A. ₱475,000
B. ₱316,667
C. ₱400,000
D. None of the above.
38. Mr. A died leaving a gross estate of ₱870,000. Among the assets are: (1) a receivable from B,
businessman, in the amount of ₱40,000; and (2) another receivable from C, a cousin, in the
amount of ₱30,000.
B was declared an insolvent by a court. The court determined that B’s assets that were
available for payment to his creditors totalled ₱60,000, while his total liabilities totalled
₱100,000.
On the other hand, C, without properties, was able to pay only ₱10,000.
How much can the estate deduct as claims against insolvent persons for purposes of
computing the net estate?
a. ₱70,000
b. ₱36,000
c. ₱58,000
d. None of the above.

39-40 J. Cruz, Filipino, single, died on December 24, 2018 leaving the following properties and expenses:

Apartment and lot ₱ 500,000

Toy collection 300,000
Shares of San Miguel Corp. 300,000
Land 100,000
Jeep 20,000

The last 3 properties, namely the SMC shares, the land, and the jeep were acquired by the
decedent by gratuitous title with the following fair market values:
Date FMV on FMV in estate
Acquired date acquired of J. Cruz

San Miguel shares (donated) July 1, 2012 ₱ 400,000 ₱ 300,000

Land (inherited) October 1, 2016 50,000 100,000
Jeep (inherited) October 1, 2016 100,000 20,000
Expenses:
Funeral expenses ₱ 50,000
Mortgage on apartment and lot 300,000
Loss of jeep 20,000
Other information:
a. The land which J. Cruz inherited had a mortgage of ₱30,000 which he paid before he died.
b. The amount of ₱70,000 of the mortgage on the apartment and lot remained unpaid upon his
death.
c. The jeep was carnapped on July 5, 2019.
39. Compute the vanishing deduction that may be availed of in computing the estate tax.
a. ₱22,230
b. ₱11,115
c. ₱18,525
d. None of the above.

40. Compute the vanishing deduction assuming J. Cruz paid only the amount of ₱20,000 of the
mortgage on the inherited land.
a. ₱27,541
b. ₱16,525
c. ₱18,361
d. None of the above.

41. Which of the following does not escape the estate tax?
a. Devise of real property in favor of St. Francis Church
b. Merger of usufruct in the owner of the naked title to the property
c. Transmission via a special power of appointment of personal property to the City of Manila.
d. Legacy transmitted by the fiduciary heir to the second heir in a fideicommissary substitution.

42-43. J. Cruz, Filipino, married, died testate on January 10, 2018. Records show the following
assets and deductions on the date of death:

Condominium unit in Makati (family home) ₱ 40,000,000

Apartment in HongKong 300,000
Domestic shares 250,000
Note receivable from insolvent debtor residing in Manila 60,000
Note receivable from insolvent debtor residing in HongKong 40,000

Deductions claimed:
Cost of cemetery lot 35,000
Expenses of internment 25,000
Note payable, contracted 2017, not notarized 30,000
Note payable, contracted 2016, notarized, paid on Jan. 22, 2018 100,000
Note payable, contracted 2016, notarized, paid on Jan. 4, 2018 50,000
Mortgage on condominium unit in Makati 100,000
Mortgage on apartment in HongKong 50,000
Legacy to J. Cruz's brother 40,000
Legacy to Municipality of Orani, Bataan for schoolhouse 100,000
Legacy to social welfare organization 30,000
 42. Determine the gross estate of J. Cruz.
a. ₱40,400,000
b. ₱40,250,000
c. ₱40,350,000
d. None of the above.

43. Determine the net estate of J. Cruz subject to the estate tax.
a. ₱40,050,000
b. ₱ 5,100,000
c. ₱ 5,145,000
d. None of the above.

44-46. J. Adams Mansanas, single, died on December 6, 2018, leaving the following assets,
expenses, charges, and obligations:
Assets:
Domestic shares ₱ 5,000,000
Foreign shares, U.S. Company has 40% business in the Phils. 700,000
Investment in a domestic partnership 1,000,000
Cash in bank, Manila 1,200,000
Account receivable from a debtor residing in the U.S. (The
account is worthless. Debtor is fully insolvent.) 100,000
Car, model 2017 700,000

Expenses, charges, and obligations:

Funeral expenses 150,000
Judicial expenses incurred in settlement of the estate 100,000
Unpaid income tax for 2016 160,000
Loss through robbery 2 months after death 200,000
Loss in business 80,000
Legacy in favor of Philippine National Red Cross ("PNRC") 50,000
Legacy to City of Makati for children's playground. 100,000

44. Compute the taxable net estate and the estate tax due if decedent was a resident of the
Philippines at the time of his death.
a. ₱3,090,000; ₱185,400
b. ₱3,790,000; ₱227,400
c. ₱2,840,000; ₱170,400
d. None of the above.
45. Compute the taxable net estate and the estate tax due if decedent was a non-resident alien,
and there was no reciprocity.
a. ₱7,723,103: ₱463,386
b. ₱3,090,000; ₱185,400
c. ₱6,923,103; ₱415,386
d. None of the above.

46. Compute the taxable net estate and the estate tax due if decedent was a non-resident alien, and
there was reciprocity.
a. ₱21,034; ₱1,262
b. ₱521,034; ₱31,262
c. (₱310,000); ₱0
d. None of the above.

47. In which of the following cases will filing an estate tax return be unnecessary?
a. When the gross estate does not include any registrable property and is valued at ₱640,000. Total
deductions amount to ₱530,000.
b. When the gross estate consists of the following properties: Cash, ₱40,000; Second hand
jeep parked in Manila with FMV of ₱90,000; and jewelry worth ₱130,000. Standard
deduction of ₱5,000,000 was claimed.
c. When the gross estate, which does not include any registrable property, is valued at
₱450,000. Standard deduction is claimed.
d. None of the above.

48. Where property is transferred for less than an adequate and full consideration in money or
money’s worth, then the amount by which the fair market value of the property exceeded the
value of the consideration shall be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year. The legislative intent of the deemed gift
provision under Section 100 of the Tax Code is to discourage parties in a transaction from
controlling their selling price in order to reduce their income taxes to be paid to the
government.

However, the deemed gift provision does not apply to the following:
a. Sale by individual taxpayers of real property located in the Philippines and classified as capital
asset.
b. Sale thru the stock exchange of listed domestic shares.
c. Property dividends.
d. All of the above.
49. In 2018, Alberto sold a printing press to Bimbo, his brother, the particulars of which are as
follows:
Market value of the printing press ₱ 230,000
Selling price 170,000
Cost in 20015 160,000
Book value in 2018 140,000
Which statement/s is/are true?
a. Seller Alberto is deemed a donor and buyer Bimbo a donee by operation of law.
b. The printing press being an ordinary or business asset, the entire gain on the sale is taxable
income to Alberto and must be included in his income tax return.
c. All of the above.
d. None of the above.

50. Sarah Joy Bumanglag believed in the ability of Chris Llamado, a candidate in the May 2022
elections for Senator. Sarah donated the amount of ₱500,000 to the campaign of Llamado.
a. The donation is subject to donor’s tax, but the same can be used as a deduction in Sarah Joy’s ITR.

b. The donation is not subject to donor’s tax, and the same cannot be used as a deduction
in Sarah Joy’s ITR.
c. The donation is not subject to donor’s tax, and the same can be used as a deduction in
Sarah Joy’s ITR.
d. Sarah Joy should be reprimanded for supporting an obviously incompetent candidate.

THE END.