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Income Taxation - Answer key (6th Edition by Valencia)- Chapter 2

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Income Taxation - Answer key (6th Edition by Valencia)- Chapter 2

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Income Taxation - Answer key (6th Edition by Valencia)- Chapter 2

  1. 1. 3 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration CHAPTER 2 TAX ADMINISTRATION Problem 2 – 1 TRUE OR FALSE 1. True 2. False – not the BIR, but the Department of Finance 3. False – the BIR is responsible to collect national taxes only. 4. False – The review shall be made by the Court of Justice. 5. True 6. True 7. False – The Secretary of Justice and the Courts also interprets the provisions of the Tax Code. 8. False – the fact that taxes are self-assessing the BIR assessment is necessary to ensure the reliability of the ITR. 9. False – the BIR or the Government is not allowed by law to appeal to the CTA. (Acting Collector of customs vs. Court of Appeals, Oct. 31, 1957) 10. True 11. False – Appeal to the SC shall be made within 15 days from the receipt of the decision of the CTA. 12. False – the CIR can conduct a jeopardy assessment when there are no accounting records. 13. True 14. False – the taxpayer needs to waive first his right on the secrecy of bank deposits before BIR can inquire into his bank deposits. 15. True Problem 2 – 2 TRUE OR FALSE 1. False – there must be a Letter of Authority. 2. False – the supporting documents must be submitted to the BIR within 60 days from the date a protest is filed. 3. True 4. True 5. False – destraint as a tax collection method is applicable only to personal property. 6. False – criminal violations already filed in court are not subject to compromise. 7. True 8. False, collection must be within 5 years 9. True 10. False-redemption period is within 1 year from date of auction sale. 11. True 12. True Problem 2 – 3 TRUE OR FALSE 1. False – there is no need to pay additional registration fee for transfer of business registration. 2. True 3. False – the initial bond required for manufacturers and importers of articles subject to excise tax is P100,000. 4. False – informer’s reward is subject to 10% final withholding tax. 5. True 6. True 7. True 8. True 9. False – Seizure 10. False – Forfeiture
  2. 2. 4 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration 11. False – not allowed because the second cousin is within the 6th degree of relative by consanguinity. 12. False – collection tax cases filed in courts are subject to compromise. 13. True Problem 2 – 4 1. C 2. B 3. B 4. D 5. C 6. C 7. B 8. B 9. C 10. D 11. A 12. D Problem 2 – 5 1. B 2. A 3. D 4. C 5. D 6. D 7. C 8. C 9. A 10. A Problem 2 – 6 1. B 2. A 3. A 4. B 5. D 6. C 7. B 8. A 9. C 10. A 11. A 12. A Problem 2 – 7 Case A: April 15, 2014 - The return, statement or declaration can be modified, changed or amended from within three years from the date of filing as long as no tax investigation has been served to the taxpayer. (Sec. 6(A), NIRC) Case B: October 20, 2015 - If the tax deficiency is due to simple neglect, the prescriptive period of tax assessment is within 3 years starting from the date of filing the return (Sec. 203, NIRC), or its amendment. Case C: April 15, 2025 - If the ITR is fraudulent or no tax return was filed, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment at any time within ten (10) years after the discovery of the falsity, fraud or omission. (Sec. 222 (a), NIRC) Case D: April 15, 2022 - If the ITR is fraudulent or no tax return was filed, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment at any time within ten (10) years after the discovery of the falsity, fraud or omission. (Sec. 222 (a), NIRC) Case E: No need to appeal. The prescribed period of filing for the refund is already expired. The filing of refund should have been made within two years after the payment of tax or penalty. It was filed within 2 years, one month, and 5 days after the date of erroneous payment, hence, not appealable anymore. Case F: May 5, 2013. The filing of refund was appropriately made within the 2 year prescribed period. The denial was received on April 5, 2013. The filing of appeal to CTA should be made within 30 days from the receipt of denial from the BIR. Case G: August 2, 2017. The date of grant for refund was received on August 1, 2012. The refund check (dated July 15, 2012) should be encashed within 5 years from the date the grant for refund was delivered (August 1, 2012). The check should be encashed from August 1, 2012 to August 1, 2017. It will be forfeited on August 2, 2017.
  3. 3. 5 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Case H: July 31, 2017. For tax credit, the five year prescriptive period should start from the date of issuance. In this case, the date of issuance should be the date of tax credit certificate. The expiry date would therefore start on July 31, 2017. Case I: August 20, 2011. If the BIR has no response after the submission of supporting documents to serve as evidence for the protest, the last day to appeal to the CTA should be made within 30 days from the lapse of the 180 day period from the submission of the supporting documents. Computation of days: After January 22, 2011 January February March April May June July Total number of days as of July 21 Plus 30 days after the 180 days July August Total day on August 20 Days 9 28 31 30 31 30 21 180 10 20 30 Case J: May 4, 2011. The last day to appeal to the CTA should be made within 30 days from the receipt of the denial of the BIR. The 30 days is determined as follows: Days First denial of the BIR – March 22, 2011 to 2nd request for reconsideration – March 30, 2011 8 2nd denial of the BIR – April 12, 2011 to May 4, 2011 to complete the 30 day period 22 Total days as of May 4, 2011 30 Case K: June 25, 2011. The appeal to CTA should be made within 15 days from date of unfavorable decision from CTA was received (June 10 plus 15 days). Case L: July 10, 2011. The appeal to SC should be made within 15 days from date of receipts of the unfavorable decision of CTA (June 25 plus 15 days). Case M: March 1, 2011. Within 1 year from the date of sale. Problem 2 – 8 B Original business registration and renewal of business registration are subject to P500 each. The transfer of registration requires no additional registration fee to be paid by the taxpayer. (Sec. 243, NIRC) Problem 2 – 9 D All criminal violation may be compromised except: (a) those already filed in court, or (2) those involving fraud. (Sec. 204 (B), NIRC) Problem 2 – 10 D Income tax payable Multiplied by minimum compromise rate due bankruptcy Minimum amount of compromise P1,000,000 20% P 200,000
  4. 4. 6 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Problem 2 – 11 D Amount of tax liability Surcharges Interest Advertising cost Price if purchase by the Government P150,000 25,000 20,000 5,000 P200,000 Problem 2 – 12 D 1. Letter C Actual excise tax on the first 6 months Multiplied by statutory increase in rate Required bonds on the last 6 months P200,000 2 P400,000 If after 6 months of operation, the amount of initial bond is less than the amount of the total excise tax paid during the period, the amount of the bond shall be adjusted to twice the tax actually paid for the period. [Sec. 160 (A), NIRC] 2. Not in the choices, P400,000 Actual excise tax on the first year applicable to the second year (P200,000 + P250,000) Less: Excess of bonds over actual excise tax Bonds paid first year (P100,000 + P400,000) Actual excise tax first year Net actual amount of bond for the second year P450,000 P500,000 (450,000) 50,000 P400,000 The bond for the succeeding years of operation shall be based on the actual total excise tax paid during the year immediately preceding the year of operation. [Sec. 160 (B), NIRC] Problem 2 – 13 C X is not entitled to receive the informer’s reward because being a first cousin, he is B’s (an RDO) relative within the 6th degree of consanguinity. A public official or government employee or his relative within the 6 th degree of consanguinity shall not be entitled to the informer’s reward of 10% based on the tax revenue recovered or P1,000,000. whichever is lower. This informer’s reward, once awarded shall be subject to a final withholding tax of 10%. (Sec. 282, NIRC) Problem 2 – 14 1. Letter D Sales price Less: Total amount per assessment P2,500,000 Surcharge (P2,500,000 x 25%) 625,000 Interest (P2,500,000 x 20% x 3/12) 125,000 Net amount after public taxes, penalties and interest Less: Capital gains tax (P4,000,000 x 6%) P 240,000 DST (P4,000,000 x 1.5%) 60,000 Cost of advertising 20,000 Excess amount to be returned to X 2. Letter C P4,000,000 3,250,000 P 750,000 320,000 P 430,000
  5. 5. 7 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Purchase price Add: Interest (P4,000,000 x 15% x 9/12) Redemption price P4,000,000 450,000 P4,450,000 The redemption price is comprised of the purchase price plus 15% interest per annum from the date of purchase to the date redemption. (Sec. 214, NIRC) 3. Letter C Total rent income (P60,000 x 9 months) Less: Interest expense to redeem the property Excess income P540,000 450,000 P 90,000 The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption. (Sec. 214, NIRC) Problem 2 – 15 C Statutory fine (P250,000 x 2) P500,000 Any taxpayer whose property has been placed under constructive distraint, and disposed the same without the knowledge and consent of the Commissioner shall be punished by a fine of not less than twice the value of the property sold, encumbered or disposed of, but not less than P5,000 or suffer imprisonment of not less than 2 years and 1 day but not more than 4 years or both. (Sec. 206, NIRC) The P5,000 fine is applicable only when the computed amount (selling price x 2) is lower than P5,000. Problem 2 – 16 C Proceeds from sale Less: Basic tax assessed Accrued interest from April 15, 200x to July 15, 200x (P300,000 x 20% x 3/12) Documentary stamp tax Advertisement Amount to be refunded to Mr. Poe Problem 2 – 17 D Proceeds from sale (P1,500/0.005) Less: Basic tax assessed Accrued interest from April 15, 200x to July 15, 200x (P275,000 x 20% x 3/12) Documentary stamp tax Advertisement Amount to be refunded to Mr. Ligot Problem 2 – 18 C Total surcharge (P10,000 x 25%) P 350,000 P300,000 15,000 1,500 1,000 317,500 P 32,500 P 300,000 P275,000 13,750 1,125 1,000 P 290,875 9,125 P2,500 25% surcharge shall be imposed for late filing of the return and late payment of the tax. (Sec. 5, Rev. Regs. No. 12-99)
  6. 6. 8 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Problem 2 – 19 C Interest (P10,000 x 20% x 2.5/12) P416.67 The computation of interest is based on unpaid basic tax. (RMC No. 46–99) Problem 2 – 20 C Basic tax Surcharges: For late filing and payment (25%) For filing in wrong RDO (25%) Interest (P10,000 x 20% x 2.5/12) Total amount due Problem 2 – 21 D Income tax due per return Add: Surcharge for willful neglect to file the and late payment (P100,000 x 50%) Interest from April 15, 200B to June 30, 200C (P100,000 x 20% x 14.5/12) Total amount due, June 30, 200C P10,000 P2,500 2,500 5,000 417 P15,417 P100,000 P50,000 24,167 74,167 P174,167 Late filing and late payment of tax is a taxpayer’s willful neglect if the payment is made only after the notification of the BIR. Such violation is subject to 50% surcharge plus 20% interest per annum computed from the due date of the tax until the date of payment. (Rev. Regs. No. 12-99, Sec. 5.3) Problem 2 – 22 B Income tax due per return Add: Surcharge for late filing and late payment - simple neglect (P100,000 x 25%) Interest from April 15, 200B to June 30, 200B (P100,000 x 20% x 2.5/12) Total amount due (excluding compromise penalty) P100,000 P25,000 4,167 29,167 P129,167 If the violation is late filing and late payment of tax, only one 25% surcharge shall be imposed for late filing of the return and late payment of the tax plus 20% interest per annum computed from the due date of the tax until the date of payment. (RMC No. 46-99; Sec. 5, Rev. Regs. No. 12-99) Problem 2 – 23 A Unpaid tax due Additions to tax: Surcharge (P1,000,000 x 50%) P500,000 Interest from April 15, 200B to December 31, 200C (P1,000,000 x 20% x 1 year & 6.5 mos.) 341,666 Total amount due as of December 31, 200C Add: Excess amount Total selling price Add: Statutory interest rate to redeem (P2,000,000 x 15%) Total amount needed to redeem the real property P1,000,000 841,667 P1,841,667 158,333 P2,000,000 300,000 P2,300,000
  7. 7. 9 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration The redemption of the property sold through public auction shall be made within one year from the date of sale subject to a statutory redemption interest rate of 15% per annum. (Sec. 214, NIRC) Problem 2 – 24 B Basic amount due per assessment Add: Surcharge for simple neglect to pay on time (P80,000 x 25%) Interest (P80,000 x 20% x 45/360 days) Total required payment on June 30, 200A P 80,000 P 20,000 2,000 22,000 P102,000 [Sec. 248(A)(3) and Sec. 249(B)(3), Rev. Regs. No. 12-99, Sept. 6, 1999] Problem 2 – 25 C Unpaid income tax due (P3,000,000 – P1,000,000) Additions to tax: Surcharge (P2,000,000 x 50%) Interest (P2,000,000 x 20% x 3/12) Total amount due as of August 15, 200B P2,000,000 P1,000,000 100,000 1,100,000 P3,100,000 Concealment of income is a form of fraud. A false or fraudulent return is subject to a surcharge of 50% based on the unpaid tax or the deficiency tax. [Sec. 248 (B), NIRC] Problem 2 – 26 D Income tax due per ITR Divided by installments allowed Tax due on 1st installment Less: Tax credit Tax payable 1st installment P8,000 2 P4,000 3,000 P1,000 When the tax due is in excess of P2,000, the taxpayer other than a corporation may elect to pay the tax in two equal installments (Sec. 56(A)(2), NIRC). Problem 2 – 27 1. Letter A Income tax due per return, April 15, 200B Less: 1st installment, April 15, 200B Balance as of April 15, 200B Add: Interest from April 15, 200B to May 15, 200B (P750,000 x 20% x 1/12) Total amount due, May 15, 200B 2. Letter C Balance as of May 15, 200B Add: Interest from May 15, 200B to June 15, 200B (P500,000 x 20% x 1/12) Total amount due, June 15, 200B P1,000,000 250,000 P 750,000 12,500 P 762,500 P 500,000 8,333 P 508,333
  8. 8. 10 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration Less: 3rd installment, June 15, 200B (P250,000 + P8,333) Balance as of June 15, 200B Add: Interest from June 15, 200B to July 15, 200B (P250,000 x 20% x 1/12) 4th and final installment 258,333 P 250,000 4,167 P 254,167 Problem 2 – 28 Yes, because the prescriptive period of filing the written protest is within 30 days from receipt of assessment. Pay the related tax. Compromise is not a remedy because tax fraud is not subject to compromise. Problem 2 – 29 1 Taxable income . Add: Discrepancies per investigation: Undeclared rental income Nondeductible interest expenses Nondeductible bad debt expense Undocumented representation expenses Taxable income per investigation Multiplied by income tax rate Income tax due Less: Income tax paid per return Balance Add: 50% Surcharge for filing a fraudulent return (P330,000 x 50%) 20% interest per annum from April 15, 2010 to April 15, 2011 (P330,000 x 20%) Total amount due 2 . P1,000,00 0 P450,000 300,000 200,000 150,000 P165,000 66,000 Total amount due Add: 25% Surcharge for late payment (P561,000 x 25%) 20% Interest per annum from April 15, 2011 to June 15, 2011 (P561,000 x 20% x 2/12) Total amount due (excluding suggested compromise penalty for late payment) 1,100,000 P2,100,000 30% P 630,000 300,000 P 330,000 231,000 P 561,000 P561,000 P140,250 18,700 158,950 P719,950 Problem 2 – 30 a. The cash reward of Miss Wan as tax informer would be P1,000,000, the maximum amount of reward. b. The informer’s reward remains payable, hence, Miss Wan will received the maximum reward of P1,000,000. c. The final income tax to be withheld from the reward of Miss Wan would be 10% of P1,000,000 or P100,000. Problem 2 – 31 a. The tax violations of Miss San Tago are the following: 1. Unregistered business (Sec. 236 [A], NIRC.)
  9. 9. 11 INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS Chapter 2: Tax Administration 2. 3. b. Non-issuance of commercial invoice (Sec. 237, NIRC.) Ignoring the summon (Sec. 5, NIRC.) Miss San Tago’s minimum financial penalties if convicted: 1. For operating an unregistered business 2. For not issuing commercial invoices 3. Failure to obey summon Total minimum P 5,000 1,000 5,000 P11,000 Problem 2 – 32 None. There is no surcharge to be imposed to Orville Corporation because the error was corrected before payment and the payment was made on time. The income tax due is computed as follows: Corrected gross receipts (P2,000,000/75%) Corrected allowable deductions (P1,500,000/1.35) Taxable income per audit Multiply by percent of tax for 201B Income tax due Problem 2 – 33 1. Principal factory Warehouses (P500 x 9) Branches (P500 x 30) Total annual registration fee – January 31, 200B 2. Total annual registration fee – January 31, 200B Surcharges (20,000 x 25%) Interest (P20,000 x 20% x 6/12) Total amount due – July 30, 200B Problem 2 – 34 Amount of tax liability Surcharges Interest Advertising cost Price if purchase by the Government Problem 2 – 35 Case 1 – Financial incapability due to corporate insolvency. Delinquent accounts Pending cases under administrative protest Criminal violation not filed in courts Total basic tax Multiplied by applicable compromise rate Amount of compromise P 2,666,667 1,111,111 P 1,555,556 30% P 466,667 P 500 4,500 15,000 P20,000 P20,000 5,000 2,000 P27,000 P100,000 25,000 20,000 5,000 P150,000 P 500,000 900,000 1,000,000 P2,400,000 20% P 480,000 Case 2 – Financial incapability due to surplus deficit resulting to impairment in original capital by at least 50%. Delinquent accounts P 500,000
  10. 10. INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS) SUGGESTED ANSWERS 12 Chapter 2: Tax Administration Pending cases under administrative protest Criminal violation not filed in courts Total basic tax Multiplied by applicable compromise rate Amount of compromise 900,000 1,000,000 P2,400,000 40% P 960,000 Case 3 – Doubtful validity of assessment. Delinquent accounts Pending cases under administrative protest Criminal violation not filed in courts Total basic tax Multiplied by applicable compromise rate Amount of compromise P 500,000 900,000 1,000,000 P2,400,000 40% P 960,000 Problem 2 – 36 a. Yes, because the offered compromise amount of P100,000 exceeds the required minimum amount of P25,000, (P250,000 x 10%). b. Since distraint is imposed only on personal property, the personal property with a value of P100,000 shall be subjected to distraint. c. Yes, levy of real property and distraint of personal property can be done simultaneously (Sec. 207B of the Tax Code). See also Section 205 of NIRC. d. No, the unpaid portion will remain as tax liability of Lugui because Miss Lugui did not avail of the compromise tax settlement. The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected (Sec. 217, NIRC).

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