bar questions in taxation 1987-2001 (2).doc

8/14/2019 bar questions in taxation 1987-2001 (2).doc

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TAX LAW REVIEWERSAINT LOUIS UNIVERSITY BAR OPERATIONS

-n the case# howeer# o omission to ile or i the returniled is alse or raudulent# the period to collect is within tenyears rom the discoery without the need o an assessment.

() Taris and Costume Code ? -t does not express

any *eneral statute o limitation; it proided# howeer# thatwhen the articles hae entered and passed ree o duty or inalad+ustments o duties made# with suse4uent deliery# suchentry and passa*e ree o duty or settlement o duties will# aterthe expiration o one (") year# rom the date o the inal paymento duties# in the asence o raud or protest# e inal andconclusie upon all parties# unless the li4uidation o import entry

was merely tentatie (Sec. "@%7# TCC).

(c) 5ocal =oernment Code ? 5ocal taxes# ees orchar*es shall e assessed within ie (A) years rom the datethey ecome due. -n the case o raud or intent to eade thepayment o taxes# ees or char*es the same maye assessed

within ten years rom discoery o raud or intent to eadepayment. They shall also e collected either y administratie or

+udicial action within ie (A) years rom the date o assessment(Sec. "89 5=C).

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). (") Bhat are the asic eatures o the presentincome tax system2

($) Bhat is the nature o the power o taxation2(!"#"88@ &ar 'xams)

Suggested Answer:") ur present income tax system can e saidto hae the ollowin* asic eatures:

a.) -t has adopted a comprehensie tax situs y usin* thenationality# residence# and source rules. This ma6es residentcitiens and all other taxpayers taxale on their income deriedrom all sources while non1resident aliens are taxed only on theirincome deried rom within the Ehilippines. Domesticcorporations are also taxed on uniersal income while orei*ncorporations are taxed only on income rom within..) The indiidual income tax system is mainlypro*ressie in nature in that it proides *raduated rates oincome tax. Corporations in *eneral are taxed at a lat rate o7$F o net income.c.) -t has comined the eatures o a schedular and *loaltax system with respect to indiidual taxpayers ut hasmaintained a more *loal treatment on corporations.

$) The power to tax is an attriute tosoerei*nty and is inherent in the State. -t is a power emanatin*rom necessity ecause it imposes a necessary urden topresere the States soerei*nty (Ehil. =uarantee Co. s.Commissioner# 51$$%>9# ,pril 7%# "8@A). -t is inherentlyle*islatie in nature and character in that the power o taxationcan only e exercised throu*h the enactment o law.

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*. (") G# a lessor o a property# pays real estate tax onthe premises# a real estate dealers tax ased on rental receiptsand income tax on the rentals. G claims that this is douletaxation. Decide.

($) -s protest at the time o payment o taxesduty are4uirement to presere the taxpayers ri*ht to claim a reund2'xplain. (!$# "88@ &ar 'xams)Suggested Answer:

") There is no doule taxation. Doule taxationmeans taxin* or the same tax period the same thin* or actiitytwice# when it should e taxed ut once# y the same taxin*authority or the same purpose and with the same 6ind orcharacter o tax. The real estate tax is a tax on property: Thereal estate dealers tax is a tax on the priile*e to en*a*e inusiness: while the income tax is a tax on the priile*e to earnan income. These taxes are imposed y dierent taxin*authorities and are essentially o dierent 6ind and character( 0illanuea s. City o -loilo# $@ SCI).

$) or taxes imposed under the 3- SC


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,. or ailure o ceanic Company# -nc. (C',3-C)# topay deiciency taxes o E$% /illion# the Commissioner o-nternal


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/arch "8I8)# where the Supreme Court ruled that the dama*esthat may e caused to the taxpayer y ein* made to pay thetaxes cannot e said to e as irreparale as it would e a*ainstthe *oernments inaility to collect taxes.

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1. To proide means or rehailitation and stailiation othe su*ar industry so as to prepare it or the eentuality o theloss o the 4uota allocated to the Ehilippines resultin* rom thelitin* o K.S. sanctions a*ainst an ,rican country. Con*resspasses a law increasin* the existin* tax on the manuacture osu*ar on a *raduated asis. ,ll collections made under the laware to accrue to a special und to e sent only or the purposesenumerated therein# amon* which are to place the su*arindustry in a position to maintain itsel and ultimately to insure itscontinued existence despite the loss o that 4uota# and to aord

laorers employed in the industry a liin* wa*e and to improetheir wor6in* conditions. G# a su*ar planter# iles a suit4uestionin* the constitutionality o the law alle*in* that the tax isnot or a pulic purpose as the same is ein* leied exclusielyor the aid and support o the su*ar industry.

Decide the case. (!$# "88" &ar 'xams)

Suggested Answer:

The suit ile y the su*ar planter 4uestionin* theconstitutionality o the su*ar industry stailiation measure isuntenale. Taxation is no lon*er merely or raisin* reenue in

support the existence o *oernment ut the power may also eexercised to carry out le*itimate o+ects o the *oernment. -t isa le*itimate o+ect o *oernment to protect its local industrieson which the national economy lar*ely depends. Bhere the aimo the tax measure is to achiee such a *oernmental o+ectie#the tax imposition can e said or pulic purpose (=aston s. &ar 'xams)

Suggested Answer:

There is no iolation o the constitutional re4uirementthat all reenue ills should ori*inate rom the House o


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Tax Exe2tion is an immunity rom the ciil liailityonly. -t is an immunity or priile*e# a reedom rom a char*e orurden to which others are su+ected. -t is *enerally prospectiein application.

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1). G Corporation was the recipient in "88% o two taxexemptions oth rom Con*ress# one law exemptin* thecompanys ond issues rom taxes and the other exemptin* thecompany rom the taxes in the operation o its pulic utilities.The law extendin* the tax exemptions were reo6ed y theCon*ress eore their expiry dates.

Bere the reocations Constitutional2 (!7# "88> &ar'xams)

Suggested Answer:

es. The exemptin* statutes are oth *rantedunilaterally y the Con*ress in the exercise o taxin* powers.Since the taxation is rule and tax exemption# the exception# anytax exemption# unilaterally *ranted can e withdrawn at thepleasure o taxin* authority without iolatin* the Constitution.(/actan Ceu -nternational ,irport . /arcos# =.


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Suggested Answer:

Eattersons claim is not correct. Bhile Eatterson isexempt rom income tax# an exemption rom income tax doesnot# howeer# necessary mean an exemption li6ewise rom the

ilin* o an income tax return (=arrison s. Court o ,ppeals# "I>SC Ehil. Constitution

does not distin*uish with respect to the source or ori*in othe income. The distinction is with respect to the use whichshould e actual# direct and exclusie or educationalpurposes.

Conse4uently# the proisions o Sec. 7% o the 3-# "88A&ar 'xams)

Suggested Answer:

Prepared by the TAX LAW SECTION Chief SOCRATES PADUA Assistant Chief JOAN BIBAT Members DONNAMARIE CAJIGAN,CHARISMA NAIDA CASTILLO, LILYBETH SINDAYEN, CORAZON BATAD, AIE COLLADO, DANNY LATAWAN, CHRISTINE ELVENA,

LILIAN MARANES. All Right R!!"#!$ by theSAINT LOUIS UNIVERSITY COLLEGE O% LAW BAR OPERATIONS &''(.


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".) The contention is not correct. =eneralproessional partnerships remain to e a non1taxale entity.Bhat is taxale are the partners comprisin* the same and theyare oli*ated to report as income their share in the income othe *eneral proessional partnership durin* the taxale year

whether distriuted or not. The S3-TS treat proessionals asone class o taxpayer so that they shall e treated ali6eirrespectie o whether they practice their proession alone or inassociation with other proessionals under a *eneralproessional partnership. Bhat are taxed dierently areindiiduals and corporations. ,ll indiiduals similarly situatedare taxed ali6e under the re*ulations# thereore# the principle ouniormity in taxation is not iolated. r the contrary# all there4uirements o a alid classiication hae een compiled with(Tan s. del 1I># Dec. "@#"8I>).

$) or the same reasons# the Kniersity o &i*aa is not

liale to pay income taxes or the operation o the oo6store#since this is an ancillary actiity the conduct o which is carriedout within the school premises.

7) The Kniersity o &i*aa shall not e liale to payincome taxes ort the operation o the dormitory located in thecampus or the same reasons as the ore*oin*.

Howeer# the latter shall e liale or income taxes onincome rom operations o the dormitory located outside theschool premises.

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#. our Catholic parishes hired the serices o ran6&inatra# a orei*n non1resident entertainer# to perorm or our(9) ni*hts at the ol6 ,rts Theater. &inatra was paidE$%%#%%%.%% a ni*ht. The Earishes earned E"#%%%#%%%.%% whichthey used or the support o the orphans in the city.

,re the our Catholic Earishes liale to pay taxes2

Suggested Answer:

es. The our Catholic parishes are liale ecause the

income receied y them# not ein* income earned as such inthe perormance o their reli*ious unctions and duties# istaxale income under the last para*raph o Sec $@# in relation toSec. $@(e) o the Tax Code. -n promotin* and operatin* the&inatra Show# they en*a*ed in an actiity conducted or proit.

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Enforcement

'. , Co.# a Ehilippine corporation# is a i* manuacturero consumer *oods and has seeral suppliers o raw materials.The &-< suspects that some o the suppliers are not properlyreportin* their income on their sales to , Co. the C-< thereore:". -ssued an access letter to , Co. to urnish the &-< inormationon sales and payments to its suppliers. $. -ssued an accessletter to a an6 (G &an6) to urnish the &-< on deposits o somesuppliers o , Co. on the alle*ed *round that the suppliers arecommittin* tax easion.

, Co.# G &an6 and the suppliers hae not een issuedy the &-< letter o authority to examine. , Co. and G &an6eliee that the &-< is on a ishin* expedition and come to youor counsel. Bhat is your adice2 (!@# "888 &ar 'xams)

Suggested Answer:- will adise , Co. and & Co. that the &-< is +ustiied

only in *ettin* inormation rom the ormer ut not rom thelatter. The &-< is authoried to otain inormation rom otherpersons other than those whose internal reenue tax liaility issu+ect to audit or inesti*ation. Howeer# this power shall note construed as *rantin* the Commissioner the authority toin4uire into an6 deposits. (Sec. A# 3-


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(. /r. Eascuals income rom leasin* his propertyreaches the maximum rate o tax under the law. He donatedone1hal o his said property to a non1stoc6# non1proiteducational institution whose income and assets are actually#directly and exclusiely used or educational purposes# and

thereore 4ualiied or tax exemption under ,rt. G-0# Sec. 9(7) othe Constitution and Sec. 7% (h) o the Tax Code. Hain* thustranserred a portion o his said asset# /r. Eascual succeeded inpayin* a lesser tax on the rental income deried rom hisproperty . -s there tax aoidance or tax easion2 'xplain. (! $a#$%%% &ar 'xams)

Suggested Answer:

There is tax aoidance. /r. Eascual has aoided ale*ally permissie alternatie method to reduce his income taxy transerrin* part o his rental income to a tax exemptproperty. The donation is li6ewise exempt rom the donors tax.

The donation is the le*al means employed to transer theincidence o income tax on the rental income.

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). , taxpayer is suspected not to hae declared hiscorrect *ross income in his return iled or "88>. The examinerre4uested the Commissioner to authorie him to in4uire into thean6 deposits o the taxpayer so that he could proceed with thenet worth method o inesti*ation to estalish raud. /ay theexaminer e allowed to loo6 into the taxpayers an6 deposits2-n what cases may the Commissioner or his duly authoriedrepresentatie e allowed to in4uire or loo6 into the an6deposits o a taxpayer2 (!"># $%%% &ar 'xams)

Suggested Answer:3o# as this would e iolatie o )c. Bhere the taxpayer has si*ned a waier authoriin* the

C-< or his duly authoried representatie to in4uire into thean6 deposits.

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*. Can the Commissioner o the -nternal


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$) The i ncome t ax l iaility o G cannot ecompensated with the amount owed y the =oernment ascompensation or his property expropriated. Taxes are odistinct 6ind# essence and nature than ordinary oli*ations.

Taxes and dets cannot e the su+ect o compensationecause the =oernment and G are not mutually creditors anddetors o each other and a claim or taxes is not a det#demand# contract# or +ud*ment as is allowale to e set o.(rancia s. -,C# =.@>98#June $I#"8II)

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#. ") Distin*uish a alse return rom a raudulentreturn.

$) 'xplain the extent o the authority o the

Commissioner o -nternal # "88@ &ar 'xams)

Suggested Answer:

") The distinction etween a alse return and araudulent return is that the irst merely implies a deiation romthe truth or act whether international or not# whereas thesecond is intentional and deceitul with the sole aim o eadin*the correct tax due (,nar s. Commissioner# 51$%A@8# ,u*ust$7#"8>9).

A!ternati"e Answer:

") , alse return contains deiations rom thetruth# which may e due to mista6es# carelessness or i*noranceo the person preparin* the return. , raudulent return containsan intentional wron* doin* with the sole o+ect o aoidin* thetax and it may consist in the intentional under declaration oincome# intentional oer declaration o deduction or recurrenceo oth. , alse return is not necessarily tainted with raudecause the raud contemplated y law is actual and notconstructie. ,ny deiation rom the truth on the other hand#

whether intentional or not constitutes alsity# (,nar s.Commissioner# 51$%A@8# ,u*ust $7# "8>9)

$) The authority o the Commissioner tocompromise encompasses oth ciil and criminal liailities othe taxpayer. The ciil compromise is allowed only in cases (a)

where the tax assessment is a doutul alidity# or () when theinancial position o the taxpayer demonstrates a clear inailityto pay the tax. The compromise o the tax liaility is possile atany sta*e o liti*ation su+ect to the ollowin* minimum amounts:a) or cases o inancial incapacity# a minimum compromise ratee4uialent to ten percent ("%F) o the asic assessed tax# )or other cases# a minimum compromise rate e4uialent to ortypercent (9%F) o the asic assessed tax.

,ll criminals iolations except those inolin* raud#can e compromised y the Commissioner ut only prior theilin* o the inormation with the Court.

The Commissioner may also aate or cancel a taxliaility when (a) the tax or any portion thereo appears to haeeen un+ustly or excessiely assessed: or () the administratieand collection costs inoled do not +ustiy collection o theamount due# (Sec. $%9# 3-


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#(. , Co.# a Ehilippine corporation# has an executie (E)who is a ilipino citien. , Co. has a susidiary in Hon* Pon*(HP Co.) and will assi*n E or an indeinite period to wor6 ulltime or HP Co. E will rin* his amily to reside in Hon* Pon*and will lease out his residence in the Ehilippines. The salary o

E will e shouldered A%F y , Co. while the other A%F plushousin*# cost o liin* and educational allowances o Esdependents will e shouldered y HP Co. , Co. will credit theA%F o Es salary to Es Ehilippine an6 account. E will si*n thecontract o employment in the Ehilippines. E will also ereceiin* rental income or the lease o his Ehilippine residence.,re these salaries# allowances and rentals su+ect to theEhilippine income tax2 (!""# "888 &ar 'xams)

Suggested Answer:The salaries and allowances receied y E are not

su+ect to Ehilippine income tax. E 4ualiies as a non1residentcitien ecause he leaes the Ehilippines or employmentre4uirin* him to e physically present aroad most o the timedurin* the taxale year (Sec. $$')# 3-


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e4uipment or machinery. $ ? Depreciation o *oodwill. (!"$#"888 &ar 'xams)

Suggested Answer:

". This is a deductile item rom *ross income. The law *iesthe taxpayer the option to claim as a deduction or treat ascapital expenditure interest incurred to ac4uire property used intrade# usiness or exercise o proession. (Sec. 79& (7) 3-# 1>"# July "$# "8>").

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'. , Co.# a Ehilippine corporation has two diisions ?manuacturin* and construction. Due to the economic situation#it had to close its construction diision and lay1o the employeesin that diision. , Co. has a retirement plan approed y the&-


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separation due to causes eyond the employees control# whichare speciically excluded rom *ross income. (Sec. 7$& 3-). The prie constitutes a taxale income ecause it wasmade primarily in reco*nition o artistic achieement which he

won due to an action on his part to enter the contest. (Sec. 7$&(>)c# 3-


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with the E3&1/a6ati &ranch. -s he exempt rom income tax andthereore not re4uired to ile an income tax return2 (!># $%%%&ar 'xams)

Suggested Answer:/r. Jaier is exempt rom income tax on his monthly=S-S Eension (Sec. 7$& (@) 3-)

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',. -n order to acilitate the processin* o its applicationor a license rom a *oernment oice Corporation , ound itnecessary to pay the amount o E"%%#%%% as a rie to theapproin* oicial. -s the E "%%#%%% deductile rom the *rossincome o Corporation ,2 n the other hand# is the E "%%#%%%taxale income o the approin* oicial2 'xplain your answer.

(!"$# $%%" &ar 'xams)

Su**ested ,nswer:

Since the said amount constitutes a rie# it is notallowed as a deduction rom *ross income o Corporation,. (Sec. 79,("c) 3- ,llowale Deductions constituteusiness expenses while personal exemptions pertain topersonal expenses.

c. As to urose > Deductions are allowed toenale the taxpayer to recoup his cost o doin* usiness whilepersonal exemptions are allowed to coer personal amily andliin* expenses.

d. As to %!ai2ants > ,llowale Deductions can eclaimed y all taxpayers# corporate or otherwise# while personalexemptions can e claimed only y indiidual taxpayers.

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(1. Taxpayers whose only income consists o salaries andwa*es rom their employers hae lon* een complainin* that

they are not allowed to deduct any item rom their *ross incomeor purposes o computin* their net taxale income. Bith thepassa*e o the Comprehensie Tax


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(. Distin*uish 'xclusion rom =ross -ncome romDeductions rom =ross -ncome. =ie an example o each.(!@# $%%" &ar 'xams)

Suggested Answer:'xclusions rom *ross income reer to a low o wealth

to the taxpayer which are not treated as part o *rossincome# or purposes o computin* the taxpayers taxaleincome# due to the ollowin* reasons: ". -t is exempted ythe undamental law# $. -t is exempted y statute# and 7. -tdoes not come within the deinition o income. (Sec. @"#


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Suggested Answer:

3o. The @F capital *ains tax on sale o real propertyheld as capital asset is imposed on the income presumedto hae een realied rom the sale which is the air mar6etalue or sellin* price thereo# whicheer is hi*her (Sec.

$9D 3-7 3-@ 3-


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and additional personal exemptions. There is no mention#either o whether or not the employers withheld taxes andthat the amount withheld is e4ual to the tax due. Bhetheror not she will e re4uired to ile an income tax return last,pril "A on the $%%% income will depend on her compliance

with the re4uirements o the law.

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)1. -s a non1resident alien who is not en*a*ed in trade orusiness or in the exercise o proession in the Ehilippines ut

who deried rental income rom the Ehilippines re4uired to ilean income tax return on ,pril on the year ollowin* his receipt osaid income2 - not# why2 'xplain your answer. (!"9# $%%"&ar 'xams)

Suggested Answer:

3o. The income tax on all income deried rom theEhilippine sources y a non1resident alien who is noten*a*ed in trade or usiness in the Ehilippines is withheldy the lessee as a inal Bithholdin* Tax (Sec. A> (,)3- &ar 'xams)

Suggested Answer:

(a) , *loal system o taxation is one where the

taxpayer is re4uired to lump up all items o income earneddurin* a taxale period and pay under a sin*le set o income taxrules on these dierent items o income.

, schedular system o taxation proides or a dierenttax treatment o dierent types o income so that a separate taxreturn is re4uired to e iled or each type o income and the taxis computed on a per annum or per schedule asis.

() The method o taxation under the 3- &ar 'xams)

Suggested Answer:

es# the assessment were +ustiied ecause orincome tax purposes# the co ? ownership o inherited property isautomatically conerted into an unre*istered partnership romthe moment the said property are used as common und withintent to produce proits ro the heirs in proportion to their sharein the inheritance.

rom the moment o such partition# the heirs areentitled already to their respectie deinite shares o the estateand the income thereo# or each o them to man*e and disposeo as exclusiely his own without the interention o eth otherheirs# and # accordin*ly# he ecomes liale indiidually or alltaxes in connection therewith. - ater such partition# he allowshis shares to e held in common with his co ? heirs under asin*le mana*ement to e used with the intent o ma6in* proittherey in proportion to his share# there can e no dout that#

een i no document or instrument or the purpose# or taxpurposes# at least# an unre*istered partnership is ormed(5oreno Qa# et al . C- &ar 'xams)

Suggested Answer:es# the uyer is su+ect to capital *ains tax on the

exchan*e o the lots on the asis o preailin* air mar6et alueo the property transerred at the time o the exchan*e or the airmar6et alue o the property receied# whicheer is hi*her (Sec.$" (e)# 3-


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tax are not limited to sales ut also exchan*es o propertyunless exempted y a speciic proision o law.

A!ternati"e Answer:

3o. the exchan*e is not su+ect to capital *ains taxecause it is merely done to comply with the intentions o theparties to the preious contract re*ardin* the sale andac4uisition o a property with a *ood iew. This is a simplesustitution o the su+ect o the sale and since the preioustransaction was already su+ected to tax# no new tax should eimposed on the exchan*e (&-< &ar 'xams)

Suggested Answer:

The *ross receipts rom tradin* usiness is includileas an item o income in the corporate income tax return and

su+ect to corporate income tax rate ased on net income. Theother items o reenue will not e included in the corporate taxreturn. The interest rom money mar6et placements is su+ect toa inal withholdin* tax o $%F; diidends rom domesticcorporations are exempt rom income tax; and *ains rom stoc6transactions with Ehilippine Stoc6 'xchan*e are su+ect totransaction tax which is in lieu o income tax. The proceedsunder an insurance policy on the loss o *oods is not an item oincome ut merely a return o capital hence not taxale.

A!ternati"e Answer:

The *ross receipts rom tradin* usiness areincludile as an item o income in the corporate income taxreturn. 5i6ewise# the *ain or loss realied as a conse4uence othe receipts o the proceeds under an insurance policy on theloss o the *oods will e included in the corporate income taxreturn either as a taxale *ain or a deductile loss. The *ain orloss is arried at y deductin* rom the proceeds o insurance(amount realied) the asis o the *ood lost (Sec. 79(a)# 3-# as implementedy


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)+. ". Bhat is the dierence etween capital *ainsand ordinary *ains2 (7F)

$. Bhat d oes t he term ordinary income include2 (!"%# "88I &ar 'xams)

Suggested answer:

". Capital *ains a re *ains realied rom thesale or exchan*e o capital assets# while ordinary *ains reers to*ains realied rom the sale or disposition o ordinary assets.

$. The term ordinary income includes any *ainrom the sale or exchan*e o property which is not a capitalasset. These are the *ains deried rom the sale or exchan*e oproperty su!has stoc6 in trade o the taxpayer or other property

o a 6ind which property e included in the inentory o thetaxpayer i on hand at the close o the taxale year# or propertyheld y the taxpayer primarily or sale to customers in thecourse o his trade or usiness# or property used in trade orusiness o a character which is su+ect to the allowance ordepreciation# or real property used in trade or usiness o thetaxpayer. (Sec $$ (O) in relation to Sec 78 (,)(")# oth o the3-(,)#3-


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$. , non resident citien is taxale only in incomederied rom sources within the Ehilippines.

7. ,n indiidual citien o the Ehilippines who is wor6in*and deriin* income rom aroad as an oerseas

contract wor6er is taxale only on income romsources within the Ehilippines.

9. ,n alien indiidual# whether a resident or not o theEhilippines# is taxale only on income deried withinthe Ehilippines.

A. , domestic Corporation is taxale on all incomederied rom sources within and without theEhilippines.

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*#. ,rnold# who is sin*le# cohaits with 0ilma# who isle*ally married to Oachary. ,rnold and 0ilma hae six minorchildren who lie and depend upon ,rnold or their chiesupport. The children are not married and not *ainullyemployed.

". or income tax purposes# myt , rnold econsidered as head o amily2

$. -s ,rnold entitled to deduct rom his *rossincome# an additional exemption or each o his ille*itimatechild2 (!9# "88I &ar 'xams)

Suggested Answer:". es. ,n unmarried man who has ille*itimate

minor children who lie with him and depend upon him or theirchie support is considered as head o amily( will e su+ect to income tax.This is so ecause the tax ? ree exchan*e merely deerred thereco*nition o income on the exchan*e transaction. The *ainsu+ect to income tax in the sale is measured y the dierenceetween the sellin* price o the shares (E$ /illion) and theasis o the real property in the hands o the transeror at thetime o exchan*e which is the air mar6et alue o his share inthe real property at the time o inheritance (Sec. 79()($)#3-


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million# an amount# +ust e4ual to the amount realied rom thesale.

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**. G# a multinational corporation doin* usiness in theEhilippines donated "%% shares o stoc6 o said corporation to/r. # its resident mana*er in the Ehilippines.

".) Bhat is the tax liaility# i any# o G corporation2$.) ,ssumin* the shares o stoc6s were *ien to /r. in

consideration o his serices to the corporation# what arethe tax implications2 'xplain. (!A# "88@ &ar 'xams)

Suggested Answer:

".) orei*n corporations eectin* a donation issu+ect to donors tax only i the property donated is located inthe Ehilippines. ,ccordin*ly# donation o a orei*n corporationo its own shares o stoc6s in aor o resident employees# is notsu+ect to donors tax (&-< ). Howeer# i IAF o the usiness o the orei*ncorporation is located in the Ehilippines or the shares donatedhae ac4uired usiness situs in the Ehilippines# the donationmay e taxed in the Ehilippines su+ect to the rule o reciprocity.$.) - the shares o tax were *ien to /r. in theconsideration o his serices to the corporation# the same shallconstitute taxale compensation income to the recipientecause it is a compensation or serices rendered under anemployer1employee relationship# hence# su+ect to income tax.

The par alue or stated alue o the shares issued alsoconstitutes deductile expense to the corporation proidedit is su+ected to withholdin* tax on wa*es.

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*+. G is employed as a drier o a corporate lawyer andreceies a monthly salary o EA# %%%.%% with ree oard andlod*in* with an e4uialent alue o E"# A%%.%%.

".) Bhat will e the asis o Gs income tax2 Bhy2

$.) Bill your answer in 4uestion (a) e the same iGs employer is an ostetrician2 Bhy2 (!@# "88@&ar 'xams)

Suggested Answer:".) The asis o Gs income tax would depend on

whether his employer is an employee or a practicin* corporatelawyer. - his employer is an employee# the asis o Gs incometax is E@#A%%.%% e4uialent to the total o the asic salary andthe alue o the oard and lod*in*. This is so ecause theemployer corporate lawyer has no place o usiness where theree oard and lod*in* may e *ien. n the other hand# i thecorporate lawyer is a practicin* lawyer (sel1employed)# x should

e taxed only on EA# %%%.%% proided that the ree oard andlod*in* is *ien in the usiness premises o the lawyer and orhis conenience and that the ree lod*in* was *ien to G as acondition or employment.

$.) - the employer is an ostetrician who is sel1employed# the asis o Gs income will only e EA# %%%.%% i it isproen that the ree oard and lod*in* is *ien within the

usiness premises o said employer or his conenience andthat the ree lod*in* is re4uired to e accepted y G as conditionor employment. therwise# G would e taxed on E@#A%%.%%.

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*,. ". G# an employee o ,&C Corporation died.,&C Corporation *ae Gs widow an amount e4uialent to Gssalary or one year.

-s the amount considered taxale income to thewidow2 Bhy2

$. ,# an employee o the Court o appeals#retired upon reachin* the compulsory a*e o @A years. Kponcompulsory retirement# , receied the money alue o hisaccumulated leae credits in the amount o EA%%#%%%.%%.

-s said amount su+ect to tax2 'xplain. (!8#"88@ &ar 'xams)

Suggested Answer:

") 3o. The amount receied y the widowrom the decedents employer may either e a *it or aseparation eneit on account o death. &oth are exclusionsrom *ross income pursuant to proision o Section $I() o theTax Code.

A!ternati"e Answer:

3o. Since the amount was *ien to the widow and notto the estate# it ecomes oious that the amount is more o a*it. -n one K.S. tax case ('state o Hellstrom s.

Commissioner# $9 T.C. 8"@)# it was held that payments to thewidow o the president o a corporation o the amount thepresident would hae receied in salary i he lied out the yearconstituted a *it and not an income.

The controllin* acts# which would lead to theconclusion that the amount receied y the widow is not anincome# are as ollows:

a.) The *it was made to the widow rather than theestate:

.) There was no oli*ation or the corporation toma6e urther payments to the deceased;

c.) The widow had neer wor6ed or the corporation;d.) the corporation receied no economic eneit; ande.) the deceased had een ully compensated or hisserices ('state o

Sydney Carter s. Commissioner# 9A7# $d@" ($d Cir. "8>").

$) 3o. The commutation o leae o creditsmore commonly 6nown as terminal leae pay# i.e.# the cashe4uialent o accumulated acation and sic6 leae credits *iento an oicer or employee who retires# or separated rom theserice throu*h no ault o his own# is exempt rom income tax.(&-< rulin* $7I18" dated 3oemer I# "88"; Commissioner s.C, and 'ren Castaneda# =< 3o. 8@%"@# ctoer "># "88").

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+. ".) Bhat is *ross income or purposes o the incometax2

$.) How does income dier rom capital2 'xplain.(!"# "88A &ar 'xams)



&)


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Suggested Answer:".) =ross -ncome means all income rom whateersource deried includin* (ut not limited to) compensation orserices# includin* ees# commissions and similar items: *rossincome rom usiness; *ains deried rom dealin*s in property;

interest; rents; royalties; diidends; annuities; pries andwinnin*s; pensions: and partners distriutie share o the *rossincome o *eneral proessional partnership (Sec.$I# 3-


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or dama*e receied on account o such in+uries which areexclusions rom *ross income pursuant to Section $I()(A) othe Tax Code.

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+. /r. 5a+o+o is a i* time swindler. -n one year he wasale to earn E" /illion rom his swindlin* actiities. Bhen theCommissioner o -nternal reenue discoered his income romswindlin*# the Commissioner assessed him a deiciency incometax or such income.

The lawyer o /r. 5a+o+o protested the assessment onthe ollowin* *rounds:

".) The income tax applies only to le*al income# not to ille*alincome:

$.) /r. 5a+o+os receipts rom his swindlin* did not constituteincome ecause he was under oli*ation to return the

amount he had swindled# hence# his receipt rom swindlin*was similar to a loan# which is not income# ecause oreery peso orrowed he has a correspondin* liaility topay one peso: and

7.) - he has to pay the deiciency income tax assessment#there will e hardly anythin* let to return to the ictims othe swindlin*.

How will you rule on each o the three *rounds or theprotest2 'xplain. (!I# "88A &ar 'xams)

Suggested Answer:".) The contention that the income tax applies to le*al

income and not to ille*al income is not correct. Sec. $I(a) o theTax Code includes within the puriew o *ross income allincome rom whateer source deried. Hence# the ille*ality othe income will not preclude the imposition o the income taxthereon.

$.) The contention that the receipts rom his swindlin* didnot constitute income ecause o his oli*ation to return theamount swindled is li6ewise not correct. Bhen a taxpayerac4uires earnin*s# lawully or unlawully# without the consensualreco*nition# expressed or implied# o an oli*ation to repay and

without restriction as to their disposition# he has receiedtaxale income# een thou*h it may still e claimed that he isnot entitled to retain the money# and een thou*h he may still ead+ud*ed to restore its e4uialent (James s. K.S.# 7@@ K.S.$"7# "8@"). To treat the emeled unds not as taxaleincome would perpetuate in+ustice y reliein* emelers othe duty o payin* income taxes on the money they enrichthemseles with throu*h emelement# while honest peoplepay their taxes on eery conceiale type o income. (James s.K.S.)

7.) The deiciency income tax assessment is a direct taximposed on the owner which is an excise on the priile*e toearn an income. -t will not necessarily e paid out o the sameincome that was su+ected to the tax. /r. 5a+o+os liaility to paythe tax is ased on his hain* realied a taxale income rom

his swindlin* actiities and will not aect his oli*ation to ma6erestitution. Eayment o the tax is a ciil oli*ation imposed ylaw while restitution is a ciil liaility arisin* rom a crime.

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+#. -n "88%# /r. 3aal ou*ht a lot or E"# %%%#%%%.%% in asudiision with the intention o uildin* his residence on it. -n"889# he aandoned his plan to uild his residence on itecause the surroundin* area ecame a depressed area andland alues in the sudiision went down; instead# he sold it or

EI%%#%%%.%%. ,t the time o the sale# the onal alue wasEA%%#%%%.%%.

".) -s the land a capital asset or an ordinary asset2'xplain.

$.) -s there any income tax due on the sale2'xplain. (!8# "88A &ar 'xams)

Suggested Answer:

".) The land is a capital asset ecause it is neitheror sale in the ordinary course o usiness nor a property used inthe trade or usiness o the taxpayer. (Sec. 77# 3-


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$.) 3o. The amount receied was in considerationo his loyalty and inaluale serices to the company which isclearly a compensation income receied on account oemployment. Knder the employers motiation test# emphasisshould e placed on the alue o /r. Nuiro serices to the

company as the compellin* reason or *iin* him the *ratuity#hence it should constitute a taxale income. The paymentwould only 4ualiy as a *it i there is nothin* ut *ood will#esteem and 6indness which motiated the employer to *ie the*ratuity. (Stanton s. K.S.#"I@. Supp.787). such is not thecase in the herein prolem.

A!ternati"e Answer:

es. The E" /illion is not compensation incomesu+ect to income tax ut a *it rom his employer. There wasno eidence presented to show that he was not ullycompensated or his orty1ie years o serice. - his sericescontriuted in a lar*e measure to the success o the hospital# itdid not *ie rise to a recoerale det. The E" /illion is purelya *ratuity rom the company. -t is a taxale *it to the transeror.Knder the Tax Code# *its are excluded rom *ross incomethereore exempt rom income tax. (Sec.$I()(7)# 3-


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How will you rule on the protest o Tetchie Sonora2'xplain. (!"$# "88A &ar 'xams)

Suggested Answer:

- will *rant the protest and cancel the assessment.The transer o the property y /r.


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,. 16G sold a piece o land to the Knited Church oChrist o Nueon City# -nc. The land is to e deoted strictly orreli*ious purposes y the Church. Bhen the Church tried to

re*ister the title o the land# the AA V E7#%7"#%A% (Deed o Sale)

. Eayment o


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si*ned or ree the share to # his successor in oice. Bhat tax#i any# can e imposed y the &-< on the transaction2 (!"9#"887 &ar 'xams)

Suggested Answer:

The &-< cannot impose any tax ecause there was no realtranser o the ownership o the su+ect Capitol =ol Clu# -nc.(Capitol) proprietary share rom G to . reintal# -nc. is thetrue owner o the Capitol proprietary share. -t remained the trueowner rom the time o the Capitol shares use to . rientalremained the le*al owner thereo all throu*hout# while G and are only the eneicial owners.

A!ternati"e Answers:

a) The alue o the use o the share may econsidered compensation income to oth G and su+ect toincome tax. The reocale trust may not considered adisposition o a share o stoc6 su+ect to capital *ains tax.

) Since the transer does not inole anyconsideration. G is not su+ect to income tax. Bhile the transeris *ratuitous# there is no donatie intent. Thus# the transaction isnot su+ect to donors tax. Howeer# since the certiicate iseidence o interest in the Eroperty o the corporation# thetranser o the said certiicate is su+ect to the documentarystamp tax o E%.$% on each E$%% or ractional part thereo# othe ace alue o such certiicate# in accordance with Section">I o the 3-. &eore he returned home a ew days ater his tenure

ended# /r. Johnson transerred the su+ect share to /r.


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$) -n a 4ualiied mer*er under Section 79 (c) ($) o theTax Code# what is tax asis or computin* the capital *ains on:(a) the sale o the assets receied y the suriin* corporationrom the asored corporation; and () the sale o the shares ostoc6 receied y the stoc6holders rom the suriin*

corporation2 (!9# "889 &ar 'xams)

Suggested Answer:

") -n a 4ualiied tax ree exchan*e o the property or theshares under Section 79 (c) ($) Tax Code# the tax asis orcomputin* the *ain on the:

a) sale o the assets receied y the corporation shall ethe ori*inalhistorical cost (i.e. purchase price plusexpenses o ac4uisition) o the propertyassets *ienin exchan*e o the shares o stoc6.

) Sales o the shares o stoc6 receied y thestoc6holders in exchan*e o the assets shall e theori*inalhistorical cost o the property *ien inexchan*e o the shares o stoc6.

A!ternati"e Answer:

") The asis in computin* capital *ains tax in a 4ualiiedtax1ree exchan*e under Sec. 79 (c) ($) is:

(a) Bith respect to the assets receied y the corporationthe same as it would e in the hands o the transerorincreased y the amount o the *ain reco*nied to thetranseror on the transer.

() Bith respect to the shares receied y the

stoc6holders in exchan*e o the assets ? the same asthe asis o the property# stoc6 or security exchan*ed#decreased y the money receied and the air mar6etalue o the other property receied and increased ythe amount treated as diidend o the share holderand the amount o any *ain that was reco*nied onthe exchan*e.

$) -n a 4ualiied mer*er under Section 79 (c) ($) o theTax Code# the tax asis or computin* the capital *ains on:

(a) the sale o the assets receied y the suriin*corporation rom the asored corporation shall e the

ori*inalhistorical cost o the assets when still in thehands o the asored corporation.

() the sale o the shares o the stoc6 receied y thestoc6holders rom the suriin* corporation shall ethe ac4uisitionhistorical cost o assets transerred tothe suriin* corporation.

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,1. Eedro


29/59


retirement a*e o @A. would the amount o his entitled to receiey way o commutation o his accumulated leae credits o histerminal leae pay# e su+ect to income tax2 (!A# "88" &ar'xams)

Suggested Answer:

The amount that 'mmanuel Eere is to receie shouldnot e su+ected to income tax# and such was the rulin* y theSupreme Court in the -3 @# "%,u*ust "8I8).

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,'. -n Decemer "887# the San**unian* &ayanauthoried a Christmas onus o E7#%%%.%%# a cash *it oEA#%%%.%%# and transportation and representation allowance oE@#%%%.%% or each o the municipal employees.

") -s the Christmas onus su+ect to any tax2$) How aout the cash *it27) How aout the transportation and representation

allowances2 (!># "889 &ar 'xams)

Suggested Answer:

") The Christmas onus *ien y the San**unian*

&ayan to the municipal employees is taxale as additionalcompensation (Sec. $" (a) # Tax Code). 8@ut See 1,,* NIRCro"iding tax exe2tion /or 4onuses %as gi/ts et%.in%!uding 1#t2ont a5 not in ex%ess o/ P#.6

$) The cash *it per employee o EA#%%%.%% ein*sustantial may e considered taxale also. They parta6e thenature o additional compensation income as it is hi*hly doutuli municipal *oernments are authoried to ma6e *its insustantial sums such as this. They are not urthermore *its osmall alue which employers mi*ht *ie to their employees onspecial occasions li6e Christmas ? items which could e exemptunder &-< ragon v. Commissioner# =.I"77. ctoer "I# "8II# the Supreme Court ruled that thesharin* o returns does not in itsel estalish a partnership

whether or not the persons sharin* therein hae a +oint orcommon ri*ht or interest in the property. The decision in saidcase cannot e applied here ecause clearly the partiesor*anied a partnership duly re*istered with the Securities and'xchan*e Commission. They pooled their resources to*ether

with the purpose o diidin* the proit etween them.

$) The &-< is correct# since a corporation s deinedunder Section $% (a) o the Tax Code includes partnerships# nomatter how created or or*anied except *eneral proessionalpartnerships. The usiness partnership in the instant case# shallthereore e taxed in the same manner as a corporation on thesale o parcel &. T he sale shall thus e su+ect to the credile

withholdin* tax under


30/59


,re where the Supreme Courtruled that the income receied in the Ehilippines rom the sale otic6ets y an o1line airline is taxale as income rom whateersource. (@ut see de/inition o/ 0Gross Pi!iine @i!!ings3under te 1,,* NIRC6

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,+. 'elyn is a *raduate student o K.E. -n January #"88"# she won the Ealanca ,ward or an outstandin* short storyshe wrote. The award was E$A#%%%.%% in cash. -n eruary#"88"# she was also named most 0aluale Elayer o the 0arsityolleyall team and she was *ien a trophy plus E"%#%%%.%% .inally# -n /arch #"88"# she receied a ellowship ,ward romthe Kniersity o Caliornia to pursue a masters de*ree in,merican literature. The ellowship is or L"%#%%%.%% plus reeoard and lod*in* or two ($) semesters. Should 'elyn includethese awards and ellowship in her *ross income2


31/59


The last award *ranted to her the ellowship ,ward. Thisre4uires also sumission o application to 4ualiy or suchaward. Hence# it ails to meet the necessary re4uisites o theaore4uoted proision o law speciically item (i).


a) The award o E$A#%%%.%% should e included in 'elyns*ross income or while it was earned as a prie or literaryachieement. -t cannot e said that she won without any actionon her part to enter the contest. Her E"%#%%%.%% prie as /ost0aluale Elayer cannot e excluded or the same reason. &othawards# howeer# may e considered income su+ect to incometax.

The ellowship award o L"%#%%%.%% is# howeer# excludedrom her income as she was selected thereor without any actionon her part and the same was *ien to her in reco*nition o

literary and educational achieement# presumaly without herein* re4uired to render uture serices or the *rantor.

) -t depends. Section $I ()(I#') o the 3-)()# Tax Code). Howeer# asre*ards her time deposit# the interest she receies thereon issu+ect to $%F inal withholdin* tax. (Sec. $"(a)(c)# Tax Code).

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11. 16 &ates ,dertisin* Company is a non1residentcorporation duly or*anied and existin* under the laws oSin*apore. -t is not doin* usiness and has no oice in theEhilippines. Eilipinas =arment -ncorporated# a domesticcorporation retained the serices o &ates to do all theadertisin* o its products aroad. or said serices# &ates eesare paid throu*h outward remittances.

,re ees receied y &ates su+ect to any withholdin*tax2 (!"I# "889 &ar 'xams)

Suggested Answer:

The ees paid to &ates ,dertisin* Co.# a non1residentorei*n corporation are not su+ect to withholdin* tax since theyare not su+ect to Ehilippine tax. They are exempt ecause theydo not constitute income rom Ehilippine sources# the sameein* compensation or laor or personal serices perormedoutside the Ehiippines (Sec. 7@(c)(7) and Sec. $A()(")# TaxCode).

6G owns a hal1hectare property in &acoor# Caite which in"8I% was expropriated y the national *oernment# throu*h theDepartment o Eulic Bor6s and Hi*hways. ,ter ten years# G

was paid E$#%%%#%%%.%% as +ust compensation plus @F annualinterest y the DEBH ut minus the withholdin* tax. -s theaction o DEBH proper2


32/59


e4uialent o the loss which the owner o a thin* expropriatedhas to suer y reason o the expropriation.

urther# in &-< 8R$d7AI# it was held that:


33/59


-n the case at ar# the money adanced y /an* Dou*lasHamur*er -nc. to pay o the ciic liaility o G# which aroserom the accident ater a usiness deal has een struc6 or/an* Dou*las Hamur*er -nc. was in act reparationrestitutionto the a**rieed heirs. Howeer# the same cannot e

considered as an ordinary and deductile expense# since thelaw poses as a condition or its deductiility that the wron* ortort should hae een committed in the course o the usiness.

) - /an* Dou*las Hamur*er# -nc. treats the adances assalary or compensation o who is an employee o /an*Dou*las and withholds the correspondin* tax thereon then thereis a possiility o deductin*.

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1#. 16 The ilipinas Hospital or Crippled Children is acharitale or*aniation. G isited the hospital# on his irthday# as

was his custom. He *ae E"%%#%%%.%% to the hospital andEA#%%%.%% to a crippled *irl whom he particularly pitied. ,crippled son o G is in the hospital as o its patients. G wants toexclude oth the E"%%#%%%.%% and the EA#%%%.%% rom his *rossincome. Discuss. (!$# "887 &ar 'xams)

Suggested Answer:

Knder Sec. $8(h) (") o the 3ational -nternal


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1'. G +ust hurdled the ar examinations and immediatelyen*a*ed in the practice o law. -n preparin* his income taxreturn# he listed the ollowin* as deductile items: (a) ees paidto the Supreme Court to e ale to ta6e the ar examinations;

() ees paid to a law school to enroll in its pre1ar reiewclasses; (c) malpractice insurance and (d) amount spent toentertain a +ud*e who decide his irst case. Bhich deductionsare allowale:


35/59


payment o taxes. To allow deductiility o such interest woulde to diminished the punitie and deterrent eects o theimposition# and thus to diminish the importance o the promptpayment o taxes.

) The ar*ument o the Commissioner is wron*.&ecause while a tax as a *eneral rule is not a det# interest on anon1payment o a tax has een considered li6e interest onindetedness y the Supreme Court. ( 3ote: Bhether or not theinterest is deductile under the present law is not apparently in4uestion).

$) Distin*uish etween the le*al concept o taxesand det. (!"%# "88$ &ar 'xams)

Suggested Answer:

, tax may e considered a det in the Ciil Codesense or the ollowin* purposes:

a) Collection ein* enorced y court action;) Statute o limitations ; andc) Deduction rom *ross income.

Strictly spea6in*# howeer# a tax is not a det thatthere can e no set1o etween the taxpayer and the=oernment.

7) Eursuant to the 3ational -nternal


36/59


as casualty loss# proided the re*ulations *oernin*sustantiation re4uirements or losses are complied with.

A!ternati"e Answer:

3o. Bith respect to indiiduals en*a*ed in usiness#the 3- proides that ithe lod*in* is urnished in the usiness premises o theemployer and the employee is re4uired to accept such lod*in*as a condition o his employment# then the alue o said lod*in*

will e not taxale. -t is merely or the conenience# comort andpleasure o the employer.

A!ternati"e Answer:

a) The &-< may not tax the alue o the ree use o theroom# as the same may not strictly e considered compensationincome. Considerin* the nature o Gs employment and the actthat the ree lod*in* was urnished within the usinesspremises# it may reasonaly e said that the eneit thererominured to the employer more than to G and thus may not actuallye considered renumeration or serices included in thecomputation o the taxale income.

) -t depends. - the lod*in* urnished to employee Gis within the usiness premises o the employer and theemployee is re4uired to accept the lod*in* as condition oremployment the imputed rental alue o the room used y Gshall e excluded rom Gs compensation income (&-< ,udit/emo "1I>).

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1,. G is the proprietor o 0an*uard# which is a securityand detectie a*ency. G was ale to *et the contract to proidethe security serices o a *oernment a*ency. He si*ned theSecurity ,*reement with the director o the *oernment a*ency

callin* or the deployment o "%% security *uards on a $9 hourasis. The contract was reocale at the will o the director. Toplease the director# G *ies him at the end o the monthE"%%#%%%.%% per *uard hired. /ay G deduct rom his income themoney he paid to the director2


37/59


Suggested Answer:The *ross estate shall e determined y includin* the

alue at the time o his death all o the properties mentioned tothe extent o the interest he had at the time o his death ecausehe is a ilipino citien. (Sec. IA,# 3-)

The deductions that may e claimed y the estate are:". The actual uneral expenses or in an amount e4ual to ie

percent o the *ross estate# whicheer is lower# ut in nocase to exceed E$%%#%%% (Sec. I@,(") 3-)

9. The standard deduction o E"#%%%#%%%. (Sec. I@,(A) 3-)

The estate tax return shall e iled within six (@)

months rom the decedents death (Sec. 8% (&) 3-)

'xcept in cases where the C-< otherwise permits# theestate tax return shall e iled with an authoried a*ent an6# or


38/59


11). n Septemer "%# "88"# , &an6 /ana*er o peoples&an6# -nc. (E&-)# upon readin* an oituary announcin* the deatho /r.


39/59


11,. , died# suried y his wie and three children. Theestate tax was properly paid and the estate settled and diidedand distriuted amon* the our heirs. 5ater# the &-< ound outthat the estate ailed to report the income receied y the estatedurin* administration. The &-< issued a deiciency income tax

assessment plus interest# surchar*es and penalties. Since the7 children are residin* aroad# the &-< sou*ht to collect the ulltax deiciency only a*ainst the widow. -s the &-< correct2 (!9a#"888 &ar 'xams)

Suggested Answer:es# the &-< is correct. -n a case where the estate

has een distriuted to the heirs# the collection remediesaailale to the &-< in collectin* tax liailities o an estate mayeither (") sue all the heirs and collect rom each o them theamount o tax proportionate to the inheritance receied or ($) yirtue o the lien created under Sec. $"8# sue only one heir andsu+ect the property he receied rom the estate to the paymento the estate tax. The &-< thereore# is correct in pursuin* thesecond remedy althou*h this will *ie rise to the ri*ht o the heir

who pays to see6 reimursement rom the other heirs &CIR v.Pinea 21 CRA 1/). -n no case# howeer# can the &- rom the Calaar =ol Clu# -nc.

or E7%%#%%%.%%. -n 9 Septemer "8IA# it transerred the sameto /r. John Johnson# its ,merican computer consultant# toenale him to aail o the acilities o the clu durin* his stayhere. The consultancy a*reement expired two ($) years later. -nthe mean time# the alue o the Clu share appreciated and

what was purchased y the corporation at E7%%#%%%.%%#commanded a mar6et alue o EI%%#%%%.%% in "8I>. &eore hereturned home a ew days ater his tenure ended# /r. Johnson

transerred the su+ect share to /r.


43/59


". The appraisal must e at the current and air mar6et alue;and

$. Classiication or assessment must e on the asis oactual use (Sec. "8I# 5ocal =oernment Code)

A!ternati"e Answer:". ,ssessment must e on the asis o uniorm classiication$. ,ppraisal# assessment# ley and collection shall not e let

to priate persons; and7. ,ppraisal and assessment must e e4uitale. (Sec. "8I#

5ocal =oernment Code)

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1##. /ay the local *oernments impose an annual realtytax in addition to the asic real property tax on idle or acant lotslocated in residential sudiisions within their respectie

territorial +urisdictions2 (!"8# $%%% &ar 'xams)

Suggested Answer:3ot all local *oernment units may do so. nly

proinces# cities and municipalities within the /etro /anila ,rea(Sec. $7$# 5=C) may impose an ad alorem tax not exceedin*ie percent o the assessed alue (Sec. $7@ 5=C) o idle oracant residential lots in a sudiision# duly approed y properauthorities re*ardless o area. (Sec. $7> 5=C)

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1#'. Knder ,rticle 9"A o the Ciil Code# in order ormachinery and e4uipment to e considered real property# theymust e placed y the owner o the land and# in addition# musttend to directly meet the needs o the industry or wor6s carriedon y the owner. il companies# such as Caltex and Shellinstall under*round tan6s in the *asoline stations located onland leased y the oil companies rom others. ,re thoseunder*round tan6s which were not placed there y the owner othe land ut which were instead placed there y the lessee othe land# considered real property or purposes o real propertytaxation under the 5ocal =oernment Code2 'xplain youranswer. (!$%# $%%" &ar 'xams)

Suggested Answer:

es. The under*round tan6s althou*h installed y thelessee are considered as real property or purposes o theimposition o real property taxes. -t is only or purposes oexecutin* a inal ad+ustment that these machinery ande4uipment# installed y the lessee on the leased land# would note considered as real property. &ut in the imposition o the realproperty tax# the under*round tan6s are taxale as necessaryixtures o the *asoline station without which the *asoline station

would not e operational. &Caltex Phils. In!. v CAA 11+ CRA29)

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1#(. /rs. 'dna Dinoso is the re*istered owner o aresidential lot with two storey house situated in 3a*a City. The

lot with an area o 7$I s4. meters is descried and coered yTCT 3o. 9>78 o the ># a ""A s4. meter portion o'dnas property was expropriated y the %%.%% representin* the assessedalue o the aoresaid portion. This amount was deposited ythe =oernment in 'dnas ,ccount.

or almost ten years# 'dna ailed to pay her realestate taxes on the same property. Thus# on 3oemer A# "8>>#her property was sold at pulic auction y the City Treasurer o3a*a City to satisy her real estate tax delin4uencies amountin*to EA#I%%.%%. The hi*hest idder or the property was ,n*elChua.

'dna was not present at the pulic auction althou*hshe later admitted hain* receied the notice o hearin* or thepetition or entry o a new certiicate o title y ,n*el Chua. (&oththe auction sale and the inal ill o sale were annotated at theac6 o TCT 3o. 9>78 y the 8# 'dna iled a complaint to annulthe auction sale which was denied y the C- Jud*e o 3a*aCity. -n act the C- Jud*e ordered the TCT ! 9>78 o 'dna ecancelled and that a new title e issued to ,n*el Chua.

n appeal# the Court o ,ppeal airmed the C-decision in toto.

'dna then eleated the case to the Supreme Courtcitin* seeral *rae errors o law amon* which are:

". That her tax delin4uencies (inolin* EA#I%%) ornon payment o real estate taxes were oset y the sum oE@#>%%.%% which the *oernment o the Ehilippines owed her.She claims that her tax delin4uencies hae een extin*uishedy le*al compensation:

$. That the price o EA#I%%.%% paid y ,n*el Chuawas *rossly inade4uate and that ecause o its inade4uacy# thesame is tantamount to depriation o property without dueprocess o law:

7. That the pulic auction made on her property is

oid.

Discuss the merits o the appeal. (!8# "88$ &ar'xams)

Suggested Answer:

". The decision o the Court o ,ppeals airmin* theC- decision must e airmed.

n the procedural aspect# it has not een shown# asre4uired under the


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$. n the claim that the price or the property was*rossly inade4uate# the 7). Thus# the sellin* price is ased not on the air mar6et alue

o the property sold at pulic auction ut the amount o realproperty taxes due thereon. -n any case# the delin4uenttaxpayer is *ien one year rom the date o re*istration o thesale within which to redeem the property y payin* the taxesdue plus costs and interest.

7. n the claim that the pulic auction made on theproperty is oid# the Constitution).

@6 The /unicipality o ,r*ao# Eroince o Ceupassed a tax ordinance re4uirin* all proessionals practicin* inthe municipality to pay tax e4uialent to two ($F) percent otheir *ross income. , certiied true copy o the ordinance was

sent to Secretary o inance or reiew on " /arch "8I8 andwas receied y him on the same day. n "A ,u*ust "8I8#een as the tax ordinance remain unacted upon y theSecretary o inance# the municipality started collectin* the taxin 4uestion. The memers o the Ehilippine &ar in themunicipality 4uestioned the le*ality o the ordinance and sou*htthe suspension o the collection o the tax# ut the municipalityar*ued that since the Secretary has not ta6en any action o the

ordinance or more than one hundred twenty days ater hisreceipt thereo# the le*ality o the ordinance can no lon*er e4uestioned and insisted on the collection o tax.

") -s the tax ordinance in 4uestion le*al2 (!"@# "88" &ar

'xams)

Suggested Answer:

3o# the tax ordinance is not le*al as the 5ocal TaxCode allows proinces and cities# to the exclusion omunicipalities# to impose an annual occupation tax on allpersons en*a*ed in the exercise or practiced o their proessionor callin* in speciied amounts which in the case o lawyers isE7%% per annum (Secs. "" and "$ in relation to Sec. $7# 5ocalTax Code). , person authoried to practice his proession orcallin* shall pay the tax to proince where he practices hisproession or callin* or maintains his oice.

3o local *oernment unit can impose a tax on income(Sec. A# 5ocal Tax Code).

$) -s the /unicipality correct in insistin* collectin* thetax2 (!"@# "88" &ar 'xams)

Suggested Answer:

3o# the /unicipality was incorrect in insistin* on thecollection o the tax. nce the tax on occupation is paid asstated in para*raph (a)# aoe# the lawyer is entitled to practicehis proession or callin* in all parts o the Ehilippines withoutein* su+ect to any other national or local tax# license or ee or

the practice o such proession or callin*.

7) Bill the inaction o the Secretary o inance ar theproessional in the /unicipality rom 4uestionin* the le*ality othat ordinance2

Suggested Answer:

The inaction o the Secretary o inance does not arthe proessional in the /unicipality rom 4uestionin* the le*alityo the ordinance. Bhile it is true that Secretary o inance mayhimsel suspend the tax ordinance within the "$% day periodrom receipt thereo# his ailure to do so# adersely aected y

the ordinance.

9) Bhat remedies are aailale to the taxpayer to enalehim to 4uestion the le*ality o the ordinance2

Suggested Answer:

The taxpayer may pursue his remedies eitheradministratiely or +udicially. He may# as the case warrants# ilea ormal protest with the Secretary o inance 4uery with theEroincial iscal whose opinion is appealale to the Secretary oJustice whose decision may e contested in the proper court.The other remedy would e to ile special ciil action or

declaratory relie (i circumstances still warrant) or to pay the taxand thereater to ile an action or reund within six (@) yearsater such payment.

A!ternati"e Answer:

n the asis o the acts o the prolem# it wouldappear that the administratie remedy is no lon*er aailale



((


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since there is already an attempt to enorce collection. The onlyremedy o the taxpayer is to pay the tax and sue or its recoeryin the ordinary court. 8N9TE: nder te resent LGC teaea! %on%erning te !ega!it5un%on%titutiona!it5 o/ anew!5 ena%ted ordinan%e sou!d 4e to te Se%retar5 o/

Dusti%e ursuant to Se%. 1+* o/ te %ode.6

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1#*. -n iew o the street widenin* and cementin* o roadsand the improement o draina*e and sewers in the district o'rmita# the City Council o the City o /anila passed anordinance imposin* and collectin* special ley on lands in thedistrict# Jose ># howeer#the =S-S allowed G to repurchase the lot.

,ter assessment y the City ,ssessor# the City

Treasurer o /anila re4uired G to pay the real estate taxes dueon the lot or the years "8>> and "8>I. G paid under protest. nSeptemer A# "8>8# x sent a demand letter to the City Treasureror reund. The demand was reused.

G then iled the


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reund o real estate taxes paid under protest on the *round osolutio ine"iti

) The


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enales the *oernment to carry out the unctions it haseen instituted to perorm. (@ao et al, v. CA, et al an!ompanion !ase, 2+9 CRA 4/, +4)

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1'#. Bhat do you understand y the term lexile tariclause as used in the Tari and Customs Code2 (!"I# $%%"&ar 'xams)

Suggested Answer:

The said term reers to the authority *ien to theEresident to ad+ust tari rates under Section 9%" o the Tariand Customs Code# which is the enalin* law that madeeectie the dele*ation o the taxin* power to the Eresident

under the Constitution.

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1''. n January "# "88@# armed with warrants o seiureand detention issued y the &ureau o Custom# memers o thecustoms enorcement and security serices coordinated with theNueon City police to search the premises owned y a certain/r. Ho alon* Palayaan ,enue# Nueon City# which alle*edlycontained untaxed ehicles and parts. Bhile inside thepremises# the memer o the custom enorcement and securityserices noted articles# which were not included in the listcontained in the warrant. Hence# on January "A#"88@# anamended warrant and seiure was issued.

n January "A# "88@# the customs personnel startedhaulin* the articles pursuant to the amended warrant. Thisprompted /r. Ho to ile a case or in+unction and dama*es witha prayer or a restrainin* order eore the #"88@. on the same date# the trial court issued a temporaryrestrainin* order.

".) , motion to dismiss was iled y the &ureau oCustoms on the *round that the


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Durin* the pro*ress o the search and seiure# andwhile the *oods were ein* remoed y the Customs a*entsrom the ode*as where they were stored# the consi*nee iled aEetition (Ciil Case 3o. $79) with the 8@# and that said

warrant e declared null and oid since the Collector no lon*erhad +urisdiction to issue the same considerin* that the customsduties and taxes had already een paid and the *oods had letthe control and +urisdiction o the &ureau o Customs.

") Did the Collector o Customs hae +urisdiction toissue the warrant o seiure and detention2 (!"7# "88" &ar'xams)

Suggested Answer:

n the assumption that the *oods were released romCustoms custody without proper appraisal as contended y'-- the Collector o Customs had +urisdiction to issue the

warrant o seiure and detention. This remedy is *enerallyaailale in importations tainted with irre*ularity (Sec. $A7"#TCC; 0iduya s. &erdia*o# >7 SC


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o Customs whose decision# in return# is reiewale y the Courto Tax ,ppeals. (-id)


a) 3o. The owner must hae irst appealed thedecision o the Collector o Customs# and i the decision wasaderse# then the Court o Tax ,ppeals# consistent with theprinciple o exhaustion o administratie remedies.

) 3o. The 4uestion o seiure and oreiture is or theCollector o Customs to determine in the irst instance and thenthe Commissioner o Customs. This is a ield where the doctrineo the primary +urisdiction controls. The Collector o Customs

when sittin* in oreiture proceedin*s# constitutes a triunal uponwhich the law coners +urisdiction to hear and determine all4uestions touchin* the oreiture and urther disposition o thesu+ect matter. The exclusie +urisdiction in seiure andoreiture cases ested in the Collector o Customs precludesthe


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arrial# the ar*es were su+ected to the duty y the &ureau oCustoms. DSC# reused to pay any customs duty contendin*that the charter or lease o the ar*es# which will e returned tothe orei*n owner when the charter expires# is not an importationand# thereore cannot e su+ected to any customs duty.

") -s DSCs reusal with or without le*al asis2 (!"I#"88" &ar 'xams)

Suggested Answer:

DSCs is without le*al asis. The term importationincludes the entry into the country o any article rom a orei*ncountry. The act that imported *oods are to e re1exporteddoes not mean that the customs duties may not e imposed#althou*h# in certain cases and su+ect to limitations prescriedy the Tari and Customs Code a drawac6 may e aailale tothe taxpayer so as to e ale to otain the reund. ,n exampleo which are articles which are used in the manuacture oproducts or export within three (7) years ater the importation.

$) n what is the dutiale alue o any imported articleased2 (!"I# "88" &ar 'xams)

Suggested Answer:

The dutiale alue o imported articles is the homeconsumption cost alue# i.e.# the cost air mar6et alue or priceo the imported articles in wholesale 4uantities in the principalmar6et o the exportin* country or country o ori*in# includin*expenses collected rom importation such as insurance# rei*ht#pac6a*in*# loadin* and unloadin* char*es ut includin* internal

excise taxes in case such alue is unascertainale# theCommissioner may also determined the home consumptionalue rom any reliale and aailale data (Sec. $%"# TCC# asamended: Commissioner s. Court o Tax ,ppeals# =.$%@8# $" /ay "8II).

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REarit v.Cru? eptem"er 2, 1988)$. The


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1(). , Co.# a Ehilippine corporation# receied an income

tax deiciency assessment rom the &-< on 3oemer $A# "[email protected] Decemer "%# "88># , Co. iled its protest with the &-. -n a letter dated June 9# "88> and receied y , Co. Adays later# the C-< ormally denied , Co.s protest statin* that itconstitutes his inal decision on the matter. n July @# "88># ,Co. iled a Eetition or


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1(,. n June "@# "88># the &-< issued a*ainst the estateo Jose dela Cru# a notice o deiciency estate tax assessment#inclusie o surchar*e# interest and compromise penalty. The

'xecutor o the 'state iled a timely protest a*ainst theassessment and re4uested or waier o the surchar*e# interestand penalty. The protest was denied y the C-< with inality onSeptemer "7# "88>. Conse4uently# the 'xecutor was made topay the deiciency assessment on ctoer "%# "88>. Theollowin* day# the 'xecutor iled a Eetition with the CT,# prayin*or the reund o the surchar*e# interest and compromisepenalty. The CT, too6 co*niance o the case and ordered theC-< to ma6e a reund. The Commissioner iled a Eetition or


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Suggested Answer:

The claim or reund has prescried. The countin* otwo ? year prescriptie period or ilin* a claim or reund is

counted not rom the date when the 4uarterly income taxes werepaid ut on the date when the inal ad+ustments return or annualincome tax return was iled (C-< . T/G Sales -nc.# =.7@# January "A# "887; C-< . Ehilam 5ie -nsurance Co.#-nc.# =.


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Bithin thirty (7%) days rom receipt o the warrant odistraint and ley# - shall ile a petition or reiew with the court oTax ,ppeals with an application or issuance o a writ opreliminary in+unction to en+oin the &-< rom enorcin* the

warrant.

This is the action - shall ta6e ecause - shall considerthe issuance o the warrant as a inal decision o theCommissioner o -nternal


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,&C Corporations essel was ound# ater appropriateadministratie proceedin*s# to hae iolated the said proisionar exceedin* than $%F statutory limitation. The Collector oCustoms imposed a ine o E$$#@%%.%% (representin* "AF o thealue o the discrepancy) which was airmed y the

Commissioner o Customs.

n appeal y ,&C Corporation# the Court o Tax,ppeals ound the ine o E$$#@%%.%% harsh and unreasonaleor a irst oense and reduced the same to EA#%%%.%%.

The Commissioner o Customs 4uestions the scope oauthority o the Court o Tax ,ppeals in the determination o theine imposale under Section $A$7 o the Tari and CustomsCode.

Bhose +ud*ment should preail under thecircumstances o the case2 'xplain ully. (!"7# "88$ &ar'xams)

Suggested Answer:

The +ud*ment o the Court o Tax ,ppeals shouldpreail.

The CT, has exclusie appellate +urisdiction oerdecision o the Commissioner o Customs in cases inolin* theimposition o ines# oreitures or other penalties.

@6 ,ntonio Cru was appointed y the # the Commissioner o -nternal . in his letter to the Commissioner# dated $" eruary"8I># which was receied y the latters oice two ($) dayslater# the ,dministrator re4uested or a reconsideration o theassessment on the *round that the same is contrary to the lawand is not supported y suicient eidence. He also re4uestedor a period o iteen ("A) days within which to sumit theestates position paper.

n 9 ,u*ust "8II# not hain* receied the promise

position paper# the Commissioner iled the Court a motion orallowance o claim and or an order o payment o estate taxes#prayin* therein that the administrator e directed to pay the&-< the aorementioned deiciency tax. The administratoropposed the motion alle*in* that y reasons o the pendency ohis re4uest or reconsideration# the deiciency assessment hasnot ecome inal and executory and# thereore# the asence o adecision on the disputed assessment is a ar a*ainst collectiono taxes. He urther ar*ued that it is the Court o Tax ,ppeals#and not the


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stoc6holders y irtue o its ein* the withholdin* a*ent or the*oernment in respect o the cash diidends it declared (Comm.s. Bander Ehils.).


3o. The tax is due on the non1resident stoc6holders.The rule is that the reund may e claimed y the taxpayer on

whom the tax is imposed and who eectiely paid the tax.

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1*.". Bhat are the le*al remedies o an a**rieed tax payer

oth at the administratie and +udicial leels2 Descrieseparately the procedures. (!$# "88$ &ar 'xams)

Suggested Answer:

a. The administrati9e and +udicial remedies are suchas may e proided or in law imposin* the tax. ,n expressiono such remedies in the law should then e deemed exclusiey the taxpayer. Bhen the law imposin* the tax is silent onremedies# the laws and rules o procedure o *eneral applicationshall then *oern.

. Knder the 3-


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1*'.A6/r. Dante # "88"# ollowin* the decision o theSupreme Court that the money alues o the accumulated leaecreditsterminal pay is not su+ect to withholdin* tax# /r.A# the prescriptie period tocollect was interrupted and resumed on "% Decemer "8>8.Bhen the Commissioner issued the warrant o distraint on >



+-


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eruary "8I% it was well within the ie1year (now 7 years)prescriptie period to collect.


a) The &ureau o -nternal eruary "8I%# y issuin* a warrant distraint a*ainstitness# -nc. Hence# the action o the &-< to collect thedeiciency taxes was clearly within the three (7)1yearprescriptie period.

) The ri*ht o the &-< to collect the deiciency taxeshas not prescried# as the prescriptie period is rec6oned romthe date o the reduced assessment# which is Decemer "%#

"8>8. The &-< has three (7) years rom said date to collect.

The reduced assessment is in the nature o acompromise assessment# the irst assessment receied yitness# -nc. on Decemer "8# "8>9# and protested on eruaryI# "8>A# hain* already ecome inal and indin* on itness.,pplyin* the present proisions o the 3-7# the &-< sent a notice oassessment to G to pay E7%%#%%%.%% as orest char*es or theyear "8>%1>7. G made partial payment o E"%%#%%%.%% onSeptemer $I# "8>7. G died in 3oemer "8>>. n July $8#"8>8# the &-< iled in the Testate 'state Eroceedin*s o G# theclaim or E$%%#%%%.%% the unpaid orest char*es let y G# the

administrator o the estate opposed the claim on the *round oprescription. Decide. (!"I# "887 &ar 'xams)

Suggested Answer:

Bhere assessment was made# the tax may ecollected within ie (A) years (now 7 years) rom the date oassessment (Collection o -nternal


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as lon* as any o the *rounds or a compromise# i.e. doutulalidity o assessment and inancial incapacity o taxpayer# ispresent. , compromise o a tax liaility is possile at any sta*eo liti*ation# een durin* appeal# althou*h le*al proprietydemands that prior leae o court should e otained (Easudeco

s. cir l1787I># June $8# "8I$).

+/

bar questions in taxation 1987-2001 (2).doc

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