Dorado, Princess D.

Income Taxation
BAOM-401 3/27/2024

Read and analyze each item. Provide what is asked. STRICTLY limit your answers to three (3)
sentences. (3 items x 10 points)

1. Glenda filed a libel case against JL for putting shame on him through unfounded and
defamatory remarks. Glenda was hospitalized due to the incident. As a result, JL was ordered by
the court to pay the following:
• Hospital dues of P120,000;
• Actual damages of P50,000;
• Exemplary damages of P60,000;
• Loss of income amounting to P100,000; and
• Moral damages of P115,000
How much should be reported by Glenda as taxable income from the incident? Explain.
ANSWER:
Glenda's real damages of P50,000 and her income loss of P100,000 should be reported as
taxable income. Exemplary damages and moral damages are normally non-taxable, while actual
damages and loss of income received as compensation are usually regarded as taxable.

2. A taxpayer worked as an audit manager of a hospital for several years. When he retired at age
60, he received retirement pay equivalent to two (2) months' salary for every year of service as
provided in the hospital's BIR-approved retirement plan. The hospital's Board of Directors felt that
the hospital should give the retired employee more than what was provided for in the hospital's
retirement plan, given his loyalty and invaluable services for several years. Hence, it is resolved
to pay him a gratuity of P2,000,000 over and above his retirement pay.
The Commissioner of Internal Revenue taxed the P2,000,000 as part of the gross compensation
income of the retired employee, who protested that it was excluded from income because it was
a retirement pay and a gift.
Should the additional P2,000,000 received by the retired employee be excluded from income?
Yes or No? Why?
ANSWER:
No, the retired employee's additional P2,000,000 should not be deducted from her
income. Even though it may be viewed as a gift, the money was given as payment for previous
services, thus it counts against gross compensation income and is taxable.

3. In 2018, Bruno obtained a life insurance policy on his own life in the amount of P2,000,000,
designating ½ of the policy to his wife, Perla, as an irrevocable beneficiary. Bruno designated his
son, Pedro, as a revocable beneficiary for the remaining 50% of the policy. On September 2021,
Bruno died, and his wife and son went to the insurance company to collect the policy's proceeds.
Are the proceeds of the insurance subject to income tax on the part of Perla and Pedro for their
respective shares? Yes or No? Why?
ANSWER:
No, Pedro and Perla are not normally required to pay income tax on the insurance profits.
Regardless of whether the beneficiary is revocable or irrevocable, income tax is often not due on
life insurance benefits received by beneficiaries.