Chapter 1

General Principles and Concepts

Problem 1-1 True or False
Write True if the statement is correct or False if the statement is incorrect.
1. Eminent domain and police power can effectively be performed even without taxation.
2. Taxes may be imposed to encourage economic growth by granting tax exemptions.
3. Taxation is a way of apportioning the cost of government among those who are privileged to enoy its
benefits.
!. The state can enforce contributions upon its citi"ens in the form of taxes even without a provision in
the #onstitution authori"ing it.
$. The police power of the government may be exercised through taxation.
%. When the power to tax is delegated to the local government& only the legislative branch of the local
government can exercise the power.
'. The power of taxation can be exercised without limitation because its scope is unlimited.
(. The power of taxation is absolute because it is the strongest of all powers of the government.
). Taxation presupposes an e*uivalent compensation.
1+. There is no imposition of amount in police power.
11. ,olice power and eminent domain may defeat the constitutional rights of a person.
12. Tax exemption applies only to government entities that exercise proprietary functions.
13. -ll government entities regardless of their functions are exempted from taxes because it would be
impractical for the government to be taxing itself.
1!. The state can still exercise its taxing powers over its citi"en outside its territory.
Problem 1-2 True or False
Write True if the statement is correct or False if the statement is incorrect.
1. .o law granting any tax exemption shall be passed without the concurrence of two thirds of the
members of the congress.
2. #hurches are exempt from payment of income taxes.
3. - tax may be levied for the support of religious activities as long as all churches benefit from it.
!. - bill not signed by the ,resident can still become law.
$. .o person shall be imprisoned for nonpayment of income tax.
%. Taxation is considered as the lifeblood of the government and every government unit must exercise
this power.
'. The amount of taxes may be increased to curve spending power and minimi"e inflation.
(. /enefits from taxation have to be experienced to ustify the legitimacy of collection of taxes from the
people.
). Taxes may be used as a tool and weapon in international relations and protect trade relations.
1+. The power of legislative review in taxation is limited only to the interpretation and application of tax
laws.
11. The rule of 0ex post facto law1 is applicable for tax purposes.
12. 2eal estate tax and income tax collected on the same real estate property is double taxation.
13. - tax evader sidesteps the law& while the tax avoider brea3s it.
1!. Tax exemption is transferable and assignable.
1$. Taxation is the government4s legitimate means of interfering with the private properties of its subects.
Problem 1-3 True or False
Write True if the statement is correct or False if the statement is incorrect.
1. The doctrine of e*uitable recoupment is applicable to cases where the taxes involved are totally
unrelated.
2. ,rotection is the basic consideration that ustifies tax situs.
3. The tax situs for occupation is the place where occupation is pursued even if the criterion for
nationality is given.
!. There is no direct double taxation by taxing corporate income and corporate stoc3holders4 dividends
from the same corporation.
$. Tax laws are given retroactive effects.
%. 5n the imposition of taxes& public purpose is presumed.
'. Taxes are obligations created by law.
(. Taxes collected by the /52 are local taxes.
). .onpayment of license fee ma3es the business illegal.
1+. 5n taxation& it is one4s civil liability to pay taxes which gives rise to criminal liability.
11. Tax laws must be construed strictly against the government& and tax exemptions must be construed
strictly against the taxpayer.
12. -s a rule doubts must be resolved liberally in favor of the government and strictly against the taxpayer.
13. The ,hilippine tax laws are not political and penal in nature.
1!. When there is ambiguity of tax laws& the rules of statutory construction may be used to search for the
legislative intent. 6owever& when the meaning of the law is clear& the statute must be enforced as
written.
1$. 2evenue regulations that are inconsistent with law have the effect and force of law if they are useful
and reasonable.
Problem 1-4 Multiple Choice
Encircle the letter that contains the best answer.
1. 7tatement .o.18 Taxation is an inherent power of the government.
7tatement .o.28 Taxation is a process consisting of levying& assessment and collection.
a. /oth statements are correct.
b. /oth statements are incorrect.
c. 9nly statement .o.1 is correct.
d. 9nly statement .o.2 is correct.
2. 7tatement 18 The power of taxation is inherent in sovereignty being essential to the existence of every
government. 6ence& even if not mentioned in the #onstitution the state can still exercise the power.
7tatement 28 5t is essentially a legislative function. Even in the absence of any constitutional provision&
taxation power falls to #ongress as part of the general power of law:ma3ing.
a. /oth statements are false.
b. 9nly statement 1 is false.
c. /oth statements are true.
d. 9nly statement 1 is true.
3. Which of the following statements is;are correct<
i. Taxation is a process.
ii. Enactment of tax laws is part of the taxation process.
iii. The constitution expressly conferred the power of Taxation to the ,resident of the ,hilippines.
iv. Taxation re*uires voluntary contribution from the inhabitants to support the government.
#hoices8
a. i& ii& iii and iv
b. i& ii and iii only
c. i and ii only
d. i only
!. Which of the following is;are natural *ualities of a Taxation ,ower<
a. -n inherent power.
b. Essentially an executive function.
c. -n absolute power.
d. Territorial in operation
#hoices8
a. i& ii& iii and iv
b. i& ii and iii only
c. i and ii only
d. i only
$. Taxation co:exist with the four elements of the state& which include all& except one of the following8
a. =overnment
b. ,roperty
c. 7overeignty
d. Territory
%. Which of the following statements is not correct<
a. -ll the following .ational =overnment units exercise the inherent power of taxation.
b. >ocal government units could exercise the power of taxation through legislated delegation.
c. .ational legislation is exercised by #ongress.
d. 5nterpretation of Tax >aws is done by the >egislative branch of the government.
'. -ll of the following statements are correct except one.
a. Taxation power is an absolute power.
b. Taxation power is the strongest of all the inherent powers of the government.
c. Tax laws must not violate #onstitutional restrictions.
d. Exercise of taxation power is subect to restrictions.
(. 7tatement 18 =overnment units performing governmental functions are exempt from tax unless
expressly taxable.
7tatement 28 =overnment owned or controlled corporations exercising proprietary functions are
taxable unless expressly exempt.
a. 9nly statement 1 is correct.
b. 9nly statement 2 is correct.
c. /oth statements are correct.
d. /oth statements are not correct.
). Which of the following is incorrect description of taxation<
a. >egislative and inherent for the existence of the government.
b. .ecessary and for public purposes.
c. 7upreme and an absolute power of the state.
d. 2estricted by constitutional and inherent limitations.
1+. The power of taxation is supreme& plenary& unlimited and comprehensive. 6ence& it may be exercised
by the state without any #onstitutional provisions granting it. Which of the following is not correct<
a. The power of taxation is based on necessity because without money& the state cannot survive.
b. The scope of the power of taxation is unlimited.
c. The power of taxation can be exercised only if there is ust compensation.
d. The power of taxation is not absolutely unlimited.
Problem 1-5 Multiple Choice
Encircle the letter that contains the best answer.
1. Which of the following is not true<
2. Tax affects the area or nation as a community rather than as individuals. This is a specific explanation
of
a. ,ublic purpose
b. #ommon good
c. =eneral welfare
d. 2eciprocity
3. Which of the following is a correct nature of restriction to exercise taxation power<
#onstitutional >imitation 5nherent >imitation
a. Territorial urisdiction ?es ?es
b. 5nternational comity ?es .o
c. 2ule of uniformity and e*uity .o .o
d. @ue process of law ?es .o
!. Which statement refers to police power as distinguished from taxation<
Taxation ,ower ,olice ,ower Eminent @omain
a. 5nherent to the
Existence of the
government ?es ?es ?es
b. .ot legislative in
nature .o .o .o
c. 7uperior to the non:
impairment clause ?es ?es .o
d. 2estricted by ust
compensation .o .o ?es
a. 5t is restricted by constitutional provision.
b. 5t is superior to the impairment clause of the constitution.
c. 5t involves the ta3ing of property by the government.
d. The amount imposed has no limit.
$. ,olice power is distinguished from taxation power because
a. 5t involves ta3ing of property
b. The amount collected is limited to the cost of regulation
c. 5t is an inherent power of the state
d. The benefit derived is the protection given by the state
%. -ll of the following are inherent restrictions on the exercise of taxation power except
a. 2ule of uniformity
b. For public purpose
c. Territorial urisdiction
d. 5nternational comity
7. The A7 embassy donated vehicle to the @epartment of Foreign -ffairs of the ,hilippines. Which of the
following statement is 3ore3 <
a. This transaction is exempted from payment of donor4s tax only.
b. This transaction is exempted only from payment of documentary stamp tax.
c. This transaction is exempted from payment of both donor4s tax and documentary stamp tax.
d. This transaction is subect to both donor4s tax and documentary stamp tax.
(. - fundamental rule in taxation is that property of one country may not be taxed by another country.
This is 3nown as8
a. 5nternational law
b. 5nternational comity
c. 2eciprocity
d. 5nternational inhibition
). Which of the following statements is not correct<
a. The government automatically possesses the power to collect taxes from its inhabitants.
b. The government can enforce contribution upon its citi"en only when the constitution grants it.
c. Taxation power exists inseparably with the state.
d. The state has the supreme power to command and enforce contribution from the people within its
urisdiction.
1+. Which of the following statements is not correct<
a. #ollections from taxes are public money.
b. -ppropriation of taxes for the common good of the people is valid.
c. #onstruction of private road from taxes is a valid appropriation.
d. -llocation of taxes for the benefit of a greater portion of population is considered for public
purpose.
11. - taxpayer gives the following reasons in refusing to pay a tax. Which of these reasons is not
acceptable for legally refusing to pay the tax<
a. That he has been deprived of the due process.
b. That there is lac3 of territorial urisdiction.
c. That he derives no benefit from the tax.
d. That the prescriptive period for the tax has elapsed.
12. The following are the constitutional limitations on the power of taxation& except
a. 9nly #ongress can exercise the power of taxation
b. .on:impairment of the obligation of contracts
c. Taxes are not subect to set:off or compensation
d. The rule of taxation must be uniform
13. @ue process in taxation means that the
a. Taxpayers must be given the opportunity to be heard
b. 5ndividual taxpayer must derive direct benefit from taxes
c. Tax imposed must not be harsh& oppressive& and arbitrary
d. Tax imposed must be subect to the rule on uniformity
Problem 1-6 Multiple Choice
Encircle the letter that contains the best answer.
1. Which of the following can be an obect of taxation<
i. ,erson
ii. ,roperty
iii. 5ntangible rights
iv. 2ights
#hoices8
a. i and ii
b. i& ii and iii
c. i and iv
d. i& ii& iii and iv
2. Which of the following is incorrect<
a. Taxation exists inseparably with the state.
b. Taxation could be exercised without specific provisions in the constitution granting it.
c. Taxation is inherently legislative in nature.
d. -ny constitutional provisions could not restrict taxation.
3. Which of the following correctly describes the primary purpose of taxation<
Fiscal ,urpose 2egulatory ,urpose
a. To raise revenue ?es ?es
b. To chec3 inflation ?es .o
c. To discourage consumption
of harmful products .o .o
d. To limit influx of foreign
products .o ?es
!. Which of the following could not be considered as the purpose of taxation<
a. To raise revenue to support the government
b. To distribute the wealth of the nation
c. To chec3 inflation
d. To impose monetary burden to the people
$. Which of the following is;are purposes of taxation<
a. To raise revenue for government support
b. To distribute wealth of nation
c. To chec3 inflation
d. -ll of the above
%. Which of the following statements is not correct<
a. - tax bill must only be applicable and operative after becoming a law.
b. The effectivity of the tax law commences upon its approval.
c. The applicability of the tax law covers the present and future transactions.
d. Tax law is ex post facto in application.
'. Which of the following is not correct<
a. 5n the absence of specific tax provision& taxes in general are not cancellable.
b. ,rescriptive period for assessment and collection is applicable to returnable taxes.
c. The law on prescription being a remedial measure should be interpreted liberally in order to
protect the taxpayer.
d. The prescriptive period should be the shorter between the re*uired filing date and the actual date
of filing.
(. Which of the following remedies against double taxation is directly reducing the amount of tax<
a. 2eciprocity
b. Tax exemption
c. Tax credit
d. -llowance for deduction
). Which of the following tax escape is permissible under the tax code<
a. Tax minimi"ation
b. Tax evasion
c. Tax dodging
d. 9verstatement of expenses
1+. 9ne of the following is incorrect regarding tax exemption.
Expressed Exemption 5mplied Exemption
a. 13
th
month pay of
,3+&+++ and below ?es .o
b. 5nter:corporate
dividend ?es .o
c. .on:taxability of
government units .o .o
d. 7eparation pay due to
sic3ness ?es .o
11. 9ne of the following situs of taxation is not true.
>ocated or Earned
Within 9utside
a. Taxable income of nonresident citi"en ?es .o
b. Taxable estate of resident alien ?es ?es
c. Taxable donation of resident citi"en ?es ?es
d. Taxable sale ?es ?es
12. -ll of the following statements are true& except
a. @ouble taxation is taxing twice the same taxpayer for the same purpose covering the same period
and taxed by the same authority.
b. @irect double taxation is prohibited by law.
c. 5ndirect double taxation is allowed as long as this does not violate the e*ual protection and
uniformity principles.
d. 5ndirect double taxation is not enforceable.
Problem 1-7 Multiple Choice
Encircle the letter that contains the best answer.
1. 7tatement 18 The #ity of /aguio claims that it can impose additional taxes on ban3s under the >ocal
=overnment #ode Bin addition to the percentage tax on ban3s imposed in the .52#C.
7tatement 28 7uch imposition is a direct double taxation.
a. /oth statements are correct.
b. 9nly statement 1 is correct.
c. 9nly statement 2 is correct.
d. /oth statements are incorrect.
2. There can be no tax unless there is a law imposing that tax is consistent with the doctrine of
a. Aniformity in taxation
b. @ue process of law
c. Taxation is legislative in nature
d. The power of taxation is very broad
3. The following are 3inds of exemption from tax& except
a. Expressed exemption
b. 7tatutory exemption
c. Exemption by omission
d. Tax evasion
!. Which of the following is not correct<
a. Tax avoidance is forbidden in our urisdiction.
b. - group of persons which forms a corporation with the intention to save taxes is not guilty of tax
evasion.
c. There is a constitutional prohibition against double taxation in the ,hilippines.
d. -ll of the above.
$. Which of the following are characteristics of taxes<
i. Doluntary contribution
ii. 5mposed by legislative body
iii. ,roportionate in character
iv. Ased for public purpose
#hoices8
a. i& ii and iii only
b. i& ii and iv only
c. i and iii only
d. ii& iii and iv only
%. -ll of the following are national taxes as to collecting authority except
a. 5ncome tax
b. 2eal property tax
c. Estate tax
d. Dalue:added tax
'. Which of the following tax rates is behaving in the same direction with the taxable value<
a. ,roportionate
b. ,rogressive
c. 2egressive
d. @igressive
(. 7tatement 18 -ll tax escapes are illegal.
7tatement 28 Tax shifting is a form of tax avoidance.
a. /oth statements are true.
b. 9nly statement 1 is true.
c. 9nly statement 2 is true.
d. /oth statements are incorrect.
). 9ne of the following is a true classification of tax.
-s to obect -s to Who bears the burden
a. 5ncome tax ,ersonal 5ndirect
b. Dalue:added tax Excise @irect
c. @onor4s tax Excise @irect
d. Estate tax ,roperty 5ndirect
1+. 7tatement 18 #ustom duties are national taxes.
7tatement 28 Tariff is an import tax.
a. /oth statements are true.
b. 9nly statement 1 is true.
c. 9nly statement 2 is true.
d. /oth statements are incorrect.
11. 9ne of the characteristics of a tax is that it is generally
a. /ased on contract.
b. ,ayable in money.
c. -ssignable.
d. - demand of a taxpayer.
12. Tax of a fixed proportion of the value of the property with respect to which the tax is assessed& and
re*uires the intervention of assessors or appraisers to estimate the value of such property before the
amount due from each taxpayer can be determined is 3nown as
a. 7pecific tax
b. -d valorem tax
c. 7pecific or regulatory tax
d. ,roportionate tax
13. 5t is collected for the use of somebody else4s property.
a. Toll
b. @ebt
c. Tax
d. 7pecial assessment
1!. For this& the state has complete discretion on the amount to be imposed after distinguishing useful from
non:useful activity.
a. >icense fee
b. Tax
c. Toll
d. 7pecial assessment
Problem 1- Multiple Choice
Encircle the letter that contains the best answer.
1. The proportional contribution from persons and properties levied by the law:ma3ing body of the 7tate
by virtue of its sovereignty for the support of the government and all public needs is referred to as
a. Taxes
b. 7pecial assessment
c. >icense fees
d. 7urcharges
2. Which of the following statements is not correct<
a. Taxes may be imposed to raise revenues or to provide disincentives to certain activities within the
state.
b. The state can have the power of taxation even if the #onstitution does not expressly give it the
power to tax.
c. For the exercise of the power of taxation& the state can tax anything at any time.
d. The provisions of taxation in the ,hilippine #onstitution are grants of power and not limitations
on taxing powers.
3. Which of the following forms of escape from taxation does not result to loss of revenue to the
government<
a. Tax exemption
b. Tax avoidance
c. Tax evasion
d. 7hifting
!. Tax as distinguished from license fee8
a. .onpayment does not necessarily render the business illegal.
b. - regulatory measure.
c. 5mposed in the exercise of police power.
d. >imited to cover cost of regulation.
$. Which is not an essential characteristic of tax<
a. 5t is based on contract.
b. 5t is payable in money.
c. 5t is proportionate in character.
d. 5t is a regular payment.
%. 2egressive taxation system is
a. The same with regressive rate of tax.
b. .ot observed in the ,hilippines because it means that the tax rate increases as tax base decreases.
c. - situation where indirect taxpayers are more than direct taxpayers.
d. 5mposed to affect adversely the high:income sector of the population.
'. -ll except one is an example of direct taxes.
a. Transfer taxes
b. 9ther percentage taxes
c. 5ncome tax
d. Travel tax
(. -ll of the following are not taxes except
a. 7urcharge
b. 7pecial assessment
c. #ustom duties
d. >icense fee
). - financial aid granted by the government to help private commercial enterprises 3nown beneficial to
the people
a. Eargin fee
b. 7ubsidy
c. 7pecial assessment
d. Toll
1+. - schedule or list of rates& duties& or taxes imposed on imported and exported goods is called
a. Tariff
b. Tax rates
c. #ustom duties
d. Eargin rates
11. 7pecial assessment is an enforced proportional contribution from owners of land especially benefited
by public improvement. Which of the following is not considered as one of its characteristics<
a. 5t is levied on land.
b. 5t is based on the government4s need of money to support its legitimate obectives.
c. 5t is not a personal liability of the person being assessed.
d. 5t is based solely on the benefit derived by the owners of the land.
12. 9ne of the following is a distinction between tax and license fee.
a. Tax can be assigned while license fee cannot be assigned.
b. Tax is not subect so set:off whereas license fee is subect to set:off.
c. Tax is normally paid after the commencement of the business while a license fee is paid before
the commencement of the business.
d. Tax is based on law while a license fee is based on contract.
13. The specific distinction between tax and penalty is
a. ,unishment
b. >egality
c. 5mposition by the state
d. .one of the above
1!. The distinction between license and tax is
a. 2egulatory
b. Exercise of inherent power
c. 5mposition of payment
d. .onpayment will render the business illegal
Problem 1-! Multiple Choice
Encircle the letter that contains the best answer.
1. 7tatement 18 When the primary consideration is the legislative intent& but doubts exist in determining
such intent& the doubts must be resolved strictly against the taxing authority.
7tatement 28 Tax exemptions are strictly construed against the taxpayer.
a. /oth statements are true.
b. 9nly statement 1 is true.
c. 9nly statement 2 is true.
d. /oth statements are incorrect.
2. - body of law that codifies all national tax laws is 3nown as
a. .ational law
b. Tax law
c. 2evenue law
d. 2evenue regulation
3. Which of the following characteristics describes our internal revenue laws<
a. ,olitical in nature
b. ,enal in nature
c. =enerally prospective in operation although the tax statute may nevertheless operate
retrospectively provided it is clearly the legislative intent
d. 2etroactive in character
!. 5n cases of deductions and exemptions on income tax returns& doubts shall be resolved
a. >iberally in favor of the government
b. >iberally in favor of the taxpayer
c. 7trictly against the government
d. 7trictly against the taxpayer
$. 5n case of conflicts between the tax laws and generally accepted accounting principles B=--,C for
preparation of tax returns&
a. /oth tax laws and =--, shall be enforced
b. =--, shall prevail over the tax law
c. Tax laws shall prevail over the =--,
d. The courts shall resolve the issue
%. Which statement is incorrect<
a. - toll is a demand of sovereignty
b. - toll is a demand of ownership
c. - special assessment is a demand of taxpayer
d. - customs duty is a tax
'. Tax exemptions are strictly construed B1C if the law provides for liberal constructionF B2C if the
exemptions refer to public utilitiesF B3C in case of exemptions granted to entities organi"ed for
charitable& religious& or educational purposesF B!C in case of special laws applying in cases.
a. Exemption 3 is correct.
b. Exemptions 2 and 3 are correct.
c. .o given exemptions are correct.
d. -ll given exemptions are correct.
(. Which of the following statement is not true<
a. 5f a taxpayer is ac*uired of a criminal violation of the Tax #ode& this ac*uittal does not exonerate
him from his civil liability to pay the taxes.
b. - conviction for tax evasion is not a bar for collection of unpaid taxes.
c. - tax assessment is necessary for criminal prosecution for willful attempt to defeat and evade
payment of taxes.
d. #riminal proceedings under the Tax #ode are now a mode of collection of internal revenue taxes&
fees or charges.
). Which of the following falls under the urisdiction of the #ourt of Tax -ppeals<
a. #riminal action for the violation of the .52#.
b. Guestion of whether or not to impose a deficiency tax assessment upon a taxpayer.
c. -ppeal from undisputed tax assessment.
d. -ction for refund of real property tax.
1+. 7tatement 18 /52 rulings are the correct interpretations of the Tax #ode.
7tatement 28 7upreme #ourt decision shall prevail over the /52 rulings.
a. 9nly statement 1 is correct.
b. 9nly statement 2 is correct.
c. /oth statements are correct.
d. /oth statements are not correct.
11. -ll of the following statements are incorrect& except
a. =eneral provision under the Tax #ode prevails over /52 2egulation.
b. /52 2ulings prevails over >ocal Tax 9rdinance on matters concerning barangay taxes.
c. /52 2ulings are sound law until changed by court resolution.
d. Tax #ode could violate #onstitutional provisions.
12. Which statement is wrong< - revenue bill8
a. Eust originate from the 6ouse of 2epresentatives and on which same bill the 7enate may propose
amendments.
b. Eay originate from the 7enate and on which same bill the 6ouse of 2epresentatives may propose
amendments.
c. Eay have a 6ouse version and a 7enate version approved separately and then consolidated with
both houses approving the consolidation version.
d. Eay be recommended by the ,resident to #ongress.
13. Tax law is derived from
a. #onstitution
b. Hudicial decision
c. 7tatutory enactment
d. -ll of the above
1!. Which of the following statements is correct<
a. 2evenue regulations have the force and effect of law and a memorandum and a memorandum
order of the #ommissioner of 5nternal 2evenue& approved by the 7ecretary of Finance& has the
same force and effect as revenue regulation.
b. The revenue regulations in conflict with law are null and void.
c. The interpretations of the former 7ecretary of Finance do not necessarily bind on their successors.
d. -ll of the above.
1$. 7tatement 18 The law on prescription being a remedial measure should be interpreted liberally.
7tatement 28 @oubts as to whether double taxation has been imposed should be resolved in favor of the
taxpayer.
a. 9nly statement 1 is correct.
b. 9nly statement 2 is correct.
c. /oth statements are correct.
d. /oth statements are not correct.
1%. 7tatement 18 Tax statutes should be strictly construed against the government.
7tatement 28 Tax exemptions are strictly construed against the taxpayer.
a. 9nly statement 1 is correct.
b. 9nly statement 2 is correct.
c. /oth statements are correct.
d. /oth statements are not correct.
1'. 7tatement 18 Tax laws are applied prospectively.
7tatement 28 in case of conflict& Tax >aws prevail over #ivil >aws.
a. 9nly statement 1 is correct.
b. 9nly statement 2 is correct.
c. /oth statements are correct.
d. /oth statements are incorrect.
Chapter 2
Ta" #dministration
Problem 2-1 True or False
Write true if the statement is correct& or False if the statement is incorrect.
1. Tax administration is the enforcement of tax policy.
2. The /52 is the principal government administrative agency over tax administration.
3. The /52 #ommissioner has the final power to interpret the provision of the Tax #ode.
!. The 7ecretary of Hustice has the authority to interpret and ascertain the validity of tax laws& subect to
the review by the #ourt of Tax -ppeals.
$. #ooperatives are exempted from income tax& but not in payment of annual registration fee.
%. .o authority o print is needed if the receipts or invoices are serially numbered.
'. - person who continued the business of a deceased person is re*uired to register the business upon his
assumption of the said business.
(. 5nternal revenue taxes are self:assessingF hence tax assessment is not necessary to demand settlement
of a taxpayer4s tax liability.
). When a taxpayer earned income& he has the responsibility to compute& file and pay his tax liability to
the /52.
1+. The /52 has the burden to prove that the taxpayer concerned has received the tax assessment.
11. Tax assessment is a process of taxation which involves the passage of tax laws and ordinances through
legislature.
12. The substance of tax laws is a matter of the government4s tax policy.
13. Tax assessment refers to the administration and execution of tax laws by the legislative branch of the
government.
1!. Theoretical ustice means tax laws must be capable of convenient& ust and effective administration.
Problem 2-2 True or False
Write true if the statement is correct& or False if the statement is incorrect.
1. Heopardy assessment may be made when a taxpayer retires from business.
2. Within %+ days from the filing of the protest& all relevant supporting documents must be submitted to
the #ourt of Tax -ppealsF otherwise& the assessment shall become final.
3. The obect of distraint may either be personal and;or real properties.
!. When the amount of tax liability is ,1++& distraint and levy of properties cannot be enforced.
$. -ll criminal violations may be compromised.
%. -ny internal revenue tax& which has been assessed within the prescribed limitation period& may be
collected by distraint or levy& or by a proceeding in court within five B$C years following the
assessment of tax.
'. /an3 deposit or account may be distraint without violating the >aw on 7ecrecy of /an3 @eposits.
(. There is no limit on the right of the /52 #ommissioner to assess taxes on unreasonable accumulated
earnings of the corporation.
). 9nly the /52 #ommissioner is expressly authori"ed by the Tax #ode to enter into compromise for
both civil and criminal liabilities subect to certain conditions.
1+. The .ational =overnment is allowed to purchase property under distraint if the amount of bid is
substantially lesser than the actual cost of the said property.
11. -fter one year from the date of sale of real property under levy& the delin*uent taxpayer may redeem
the property sold.
12. The levy may be repeated until the full amount due& including all expenses& is collected.
13. @elin*uent accounts may be compromised while holding withholding tax cases& in general& are not
subect to compromise.
Problem 2-3 True or False
Write true if the statement is correct& or False if the statement is incorrect.
1. The /52 @irector should first approve the filing in courts of civil and criminal action for the recovery
of taxes and the enforcement of any fine& penalty& or forfeiture.
2. Forfeited property shall not be destroyed at least twenty days after sei"ure.
3. The re*uired initial bond for manufacturers and importers of articles subect to excise tax is ,2++&+++.
!. The informer4s reward is subect to 1+I creditable withholding tax.
$. The /52 2egional @irector is authori"ed to issue a >etter of -uthority.
%. 9nce a taxpayer is served with an >-& he should first verify or chec3 with the /524s .ational 9ffice
whether he is listed or not for .ational 9ffice -udit.
'. 9nly the real properties of a delin*uent taxpayer are subect to tax lien.
(. - fraudulent return with 3+I understatement of income reported is subect to a penalty of 2$I based
on the basic tax unpaid.
). /y forfeiture& the proceeds of the property sold are applied to satisfy the tax liability and the excess
thereof shall be returned to the taxpayer.
1+. /y sei"ure& no part of the proceeds goes to the taxpayer because the property is confiscated in favor of
the government.
11. - compromise tax remedy is available for both the taxpayer and the government.
12. #ases regarding collection of taxes already filed in the court are not subect to compromise.
13. @elin*uent accounts with duly approved schedule of installment payments are not subect to
compromise.
Problem 2-4 True or False
Write true if the statement is correct& or False if the statement is incorrect.
1. Apon conviction& an alien as an offender for tax violation could immediately be deported even if he has
paid all the tax liability discovered as chargeable against him.
2. - letter of authority is not necessary in conducting an examination of boo3s of account of taxpayer.
3. 9nly criminal actions can be submitted to a court for a udicial proceeding for tax violation cases.
!. -ssessment protest made by the taxpayer should be completely complied with by the submission of
pertinent documents to support the taxpayer4s claim.
$. Apon issuance of a tax ruling by the /52 #ommissioner& the concerned taxpayer can still file a petition
to the #ourt of -ppeals.
%. - tax assessment could be done only after a tax return has been filed.
'. 5f no tax return was filed& no government assessment could still be made if it was not assessed after 1+
years from the re*uired filing date.
(. -fter the tax liability has been assessed& the actual collection should be done within 1+ years from date
of assignment.
). >evy of real property could be done only after distraint of personal property of delin*uent taxpayer is
sold out to partially collect the tax deficiency.
1+. The residual value of real properties sold under levy proceedings are payable to the government.
11. When a tax compromise is reached& the ongoing litigation proceeding involving the tax assessed and
being collected shall be terminated.
12. Filing of bond in lieu of the actual tax to be paid is applicable only for export transactions.
13. - 1+I reward to tax informer is applicable also to discovery of smuggled goods which resulted in the
capture and sei"ure of goods smuggled.
Problem 2-5 Multiple Choice
Encircle the letter that contains the best answer.
1. Which of the following is;are element;s of impact of taxation<
i. >evy
ii. -ssessment
iii. #ollection
#hoices8
a. i& ii& and iii
b. i and ii only
c. ii and iii only
d. iii only
2. 5t is one of the attributes of a sound taxation system one of the attributes of a sound taxation system
which states that revenue must be sufficient to support governmental expenditures.
a. Fiscal ade*uacy
b. Theoretical ustice
c. -dministrative feasibility
d. E*uity
3. Which of the following statements is correct<
a. >evying and collection of taxes are legislative functions.
b. -ssessment and collection are administrative functions.
c. Enacting tax laws and its interpretation are legislative functions.
d. >evying and impositions are udicial functions.
!. Which of the following is correct<
>egislative -dministrative
a. Fixing of tax rates ?esJJ ?es
b. Daluation of obect of tax ?es .o
c. #ollection of taxes ?es ?es
d. -ssessment of tax liability .o ?es
$. Which of the following is not a measure to enhance administrative feasibility of taxation system<
a. #ollection of taxes proportionate to ability of the taxpayer to pay.
b. Withholding of taxes at source.
c. Guarterly filing and payment of income tax on business income.
d. -ccreditation of ban3s to collect taxes.
%. - basic principle of taxation which states that 0Taxes must be based on the taxpayer4s ability to pay1 is
called
a. E*uality in taxation
b. -bility to pay theory
c. Theoretical ustice
d. E*uity in taxation
'. 5t has the executive supervision and control over tax administration.
a. /ureau of 5nternal 2evenue
b. /ureau of #ustoms
c. @epartment of Finance
d. #ourt of Hustice
(. Which of the following is not among the administrative powers of the /ureau of 5nternal 2evenue<
a. #ompromise tax assessments
b. @istraint of personal property of delin*uent taxpayer
c. >evy of real property of delin*uent taxpayer
d. 2ender court decision concerning tax dispute
). Which of the following is not correct<
a. 5f it is the first employment of the taxpayer& he must be registered with the /52 before
employment or within 1+ days from the date of employment.
b. 5f the taxpayer is self:employed& he must register his business within 1+ days from commencement
of his business.
c. 5f the taxpayer is both employed and doing business& he must have only one T5. as employee and
as sole proprietor.
d. T5. must be indicated in the return& documents or statement filed with the /52.
1+. 7tatement 18 7elf:employed and businesses are registered annually.
7tatement 28 The annual registration fee is ,$++ payable on or before the end of Hanuary of each year.
a. 9nly statement 1 is correct.
b. /oth statements are correct.
c. 9nly statement 2 is correct.
d. /oth statements are not correct.
11. 7tatement 18 -n individual taxpayer earning purely compensation income is exempt from ,$++
registration fee& but re*uired to renew his registration every year.
7tatement 28 #ooperatives are exempt from annual registration with the /52.
a. 9nly statement 1 is correct.
b. /oth statements are correct.
c. 9nly statement 2 is correct.
d. /oth statements are not correct.
12. 7tatement 18 - business with more than ,$$+&+++ annual sale or receipts must be registered as D-T
business.
7tatement 28 - business with less than ,$$+&+++ annual sale or receipts may be registered as D-T
business.
a. 9nly statement 1 is correct.
b. /oth statements are correct.
c. 9nly statement 2 is correct.
d. /oth statements are not correct.
13. 7tatement 18 /usinesses registered with the /52 are re*uired to issue commercial invoice for sales of
goods and receipts for services rendered.
7tatement 28 - D-T 7ales invoice is to be issued by a D-T:registered business for its sales to a non:
D-T registered buyer.
a. 9nly statement 1 is correct.
b. /oth statements are correct.
c. 9nly statement 2 is correct.
d. /oth statements are not correct.
Problem 2-6 Multiple Choice
Encircle the letter that corresponds your answer.
1. Which of the following is not correct<
a. - tax assessment could be done before the filing of tax return nut after the expiration of
prescribed period for filing.
b. - tax assessment could be done after the filing of tax returns.
c. When the business is closed& a tax assessment could be done even before the expiration of the
prescribed filing date.
d. The /52 #ommissioner and the taxpayer may agree in writing on the assessment after the
expiration of the prescribed period for assessment.
2. Which of the following is not correct<
a. The taxpayer may protest the tax assessment by filing to the /52 #ommissioner a written re*uest
for reinvestigation within %+ days from receipt of such assessment.
b. 5f the tax assessment protest is not acted upon by the /52 #ommissioner within 1(+ days from
submission of documents& the taxpayer may appeal to the #ourt of Tax -ppeals.
c. The appeal to the #ourt of Tax -ppeals must be done within 3+ days from receipt of the /52
#ommissioner4s decision on the formal protest filed.
d. 5f the taxpayer did not ma3e any appeal on the tax assessment& it becomes final& executor and
demandable.
3. 5f the taxpayer failed to pay the tax demanded per final assessment& the government may exercise
several administrative remedies. Which of the following is not correct<
a. >evy of real property of the taxpayer may be availed of only after distraint of personal property
of taxpayer.
b. Either distraint or levy may be pursued simultaneously once the assessment becomes final and
demandable.
c. 5f the tax is assessed ,1++ and below& levy or distraint may not be availed of.
d. The remedy of distraint of personal property may be repeated if necessary until the full amount
due and all expenses are collected.
!. Which of the following is not true with regards to the authority of the #ommissioner to enter into a tax
compromise<
a. The taxpayer must not have an existing tax liability.
b. There must be an offer by the taxpayer or commissioner of an amount to be paid by the taxpayer.
c. - reasonable doubt as to the validity of the claim against the taxpayer exists.
d. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
$. Which of the following is the correct minimum compromise rate that the commissioner could legally accept<
-.1+I of the basic tax assessed due to financial incapability for a dissolved corporation
/. 2+I of the basic tax assessed doe to financial incapability of non:operating companies for a #. period of
three years or more as of date of application of compromise
#.!+I of doubtful validity of assessment
@.!+I for financial incapability of non:operating companies for a period of less than three years
%. Which of the following surcharges is not correct<
-. 2$I of basic amount of tax due for simple neglect
/ 2$I of basic tax amount due for unintentional failure to file and pay for tax return on prescribed date
#. $+I of the basic amount of tax due for filing of tax due for filing of return with an internal revenue
officere other than those with whom the return is re*uired to be filed
@. $+I ofd the basi amount of tax due for false or fraudulent tax return
'. -n informant reward is given for inforamation provided resulting in revenue recoveries. Which of the following
amuont of reward could legally be awarded is correct<
-. ,1++++++ for each fraud case discovered
/. 1+I of revenue recovered or ,1++++++;case& whichever is higher
#. 1+I of fair mar3et value of smuggled goods sei"ed or ,1++++++;case&
whichever is higher
@. 1+I of revenue recovered but not to exceed ,1++++++;case
(. The tax return is re*uired to be filed on or before -pril 1$& 2++$. The actual tax return was filed Earch 1$& 2++$.
The last day for assessment period is
-. -pril 1$& 2+1$ @. Earch 1$& 2+1$
/. -pril 1$& 2++( #. Earch 1$& 2++(
). 7tatement 18 businesses are re*uired to maintain only one set of boo3 of accounts
7tatement 28 a letter of authority is necessary before a /52 Examiner could be allowed to inspect the boo3 of
accounts of the taxpayer.
-. 9nly statement 1 is correct.
/. 9nly statement 2 is correct.
#. /oth statements are correct.
@. /oth statements are not correct.
1+. The sei"ed property of a delin*uent taxpayer becomes the property of the government. This refers to
-. distraint #. Forfeiture
/. >evy @. #ompromise
Problem 2-7 Ta" assessment$re%und procedures
&nstruction' @etermine the last day to exercise the right of the taxpayer.
(ituation 1'
@ate of tax erroneously paid -pril 1$& 2++(
@ate of claim for refund Eay 2+& 2+1+
.o decision on the claim of refund was made
Guestion 18 When is the last day to appeal to the #T-<
(ituation 2'
@ate of tax erroneously paid Hune 1+& 2++(
@ate of claim for refund was filed with /52 Earch 3& 2+1+
@ate of /52 decision of denial was received -pril $& 2+1+
Guestion8 When is the last day to appeal to the #T-<
(ituation 3'
@ate of tax erroneously paid Hune 1+& 2++(
@ate of claim for refund was fled with /52 Hune 1+& 2++)
@ate of /52 decision of grant was received -ugust 1& 2++)
@ate of refund chec3 received Huly 1$& 2++)
Guestion8 5f the refund chec3 was not encashed& when is the starting date for the government to forfeit<
(ituation 4'
@ate of tax erroneously paid Hune 1+ & 2++(
@ate of claim for refund was filed with /52 Hune 1+& 2++)
@ate of /52 decision of grant was received -ugust 21& 2++)
@ate of tax credit certificate received Huly 3+& 2++)
Guestion8 5f the tax credit certificate was not utili"ed or revalidated& when is the starting dste for the
government to revert it to the general fund<
(ituation 5'
@ate of assessment was received Hanuary 2& 2++)
,etition for reconsideration was filed with /52 Hanuary 12& 2++)
@ocuments to support petition submitted Hanuary 22& 2++)
.o decision on the protest as of Huly 12& 2++)
Guestion8 When is the last day to appeal to the #T-<
(ituation 6'
-ssessment received Hanuary $& 2++)
,etition for reconsideration filed with /52 February 1& 2++)
@ocuments to support petition submitted February '& 2++)
@ecision of /52 denying the petition Earch 22& 2++)
2
nd
re*uest for reconsideration filed with /52 Earch 3+& 2++)
@ecision on 2nd re*uest denied -pril 12& 2++)
Guestion8 When is the last day to appeal to the #T-<
(ituation 7'
@ate of appeal to the #T- -pril 21& 2++)
@ate adverse decision of the #T- Hune 1& 2++)
@ate the #T- adverse decision received Hune 1+& 2++)
Guestion8 When is the last day to appeal to the #ourt of -ppeals<
(ituation '
@ate of appeal to the #- Hune 1+& 2++)
@ate of adverse decision of the #- -ugust 2+& 2++)
@ate of the #- adverse decision received Hune 2$& 2++)
Guestion8 When is the last day to appeal to the 7upreme #ourt<
(ituation !'
@ate the real property was levied Hanuary $& 2++)
@ate the real property levied was sold Earch 1& 2++)
Guestion8 When is the last day to redeem the real property?
Problem 2- )ate Filin* and Pa+ment
5ncome tax return for the calendar year 2++) was due for filing on -pril 1$& 2+1+ but the taxpayer voluntarily filed
his return& without assessment notice from the /52 only on Hune 3+& 2+1+. The tax due per return amounts to
,1++&+++. 6ow much would be the total amount due inclusive of penalties and interest& excluding compromise
penalty<
a. ,12$&+++ c. ,13+&2+(
b. ,12)&1%' d. ,1++&+++
Problem 2-! Filin* at ,ron* -./
The taxpayer4s 2++) income tax return is re*uired to be filed through authori"ed agent ban3 under the urisdiction of
2@9 East Ea3ati. Without prior authori"ation from the /52& the taxpayer filed his tax return& and paid the tax
through the authori"ed agent ban3 under the urisdiction of 2@9 @avao #ity. The tax due and paid per return is
,1++&+++. 6ow much would be the amount still due and payable to /52<
a. ,2$&+++ c. ,1++&+++
b. ,$+&+++ d. ,12$&+++
Problem 2-10 )ate Pa+ment 1ith #ssessment 2otice
The taxpayer did not file his income tax return for the calendar year 2++) which was due on -pril 1$& 2+1+. 6e was
notified by the /52 about his failure to file the tax return& for which reason he filed his tax return and paid the tax
only after the said notice on Hune 3+& 2+11. The tax due per return is ,1++&+++. 6ow much would be the total
amount due& exclusive of compromise penalty<
a. ,12!&1%' c. ,1$!&1%'
b. ,1$+&+++ d. ,1'!&1%'
Problem 2-11 .e%icienc+ &ncome Ta"
The taxpayer filed his income tax on time for the year 2++)& and paid ,1++&+++ on -pril 1$& 2+1+. Apon pre:audit
of his return& it was disclosed that he erroneously computed the tax due. The correct amount of tax due is ,12+&+++.
The taxpayer is assessed for deficiency income tax in a letter of demand and assessment notice issued on Hune 3+&
2+11. 6ow much would be the amount still due<
a. ,!&(33 c. ,2!&+++
b. ,2+&+++ d. ,2!&(33
Problem 2-12 (tatutor+ Fine
- taxpayer4s property was placed under a constructive distraint. The fair mar3et value of his personal property is
,2$+&+++ with a cost amounting to ,1++&+++. 5f the taxpayer sold the said property without the consent of the /52
#ommissioner& how much statutory fine can the /52 impose against him<
a. ,$++&+++ c. ,2$+&+++
b. ,3$+&+++ d. ,1++&+++
Problem 2-13 Total Fine imposed
Eay /u3ol4s personal property has been placed under constructive distraint. /u3ol sold the said property without
the consent of the /52 #ommissioner. The following data are available8
-ctual cost of the property ,%&+++
Dalue of the property sold 2&+++
-mount of tax liability 1+&+++
7urcharges and interest 2&$++
/ased on the given data& how much is the fine to be imposed against /u3ol<
a. ,%&+++ c. ,3&+++
b. ,$&+++ d. ,2&$++
Problem 2-14 Ta" #ssessment Procedure
The 2@9 of /aguio #ity issued a tax assessment to Er. >ang due to fraudulent income tax amounting to ,$++&+++.
Er. >ang filed a protest within %+ days and submitted proofs 1+ days thereafter.
#an the /52 deny the protest of Er. >ang< What would be the remedy available to Er. >ang<
Problem 2-15 -edemption o% Propert+
Er. /ay:an4s real property had been levied due to tax delin*uency amounting to ,1&+++&+++ for a period of 2 years
since Hanuary 1& 2++'. 9n Hanuary 1& 2++)& the property was sold for public auction with a selling price ade*uate to
cover the amount of public taxes& surcharge and interest.
6ow much is the total amount to be paid by Er. /ay:an if he decides to redeem his real property on Hanuary 1&
2+1+<
Problem 2-16 3"cess %rom (ales Proceeds
The real property of Er. 7antago& a delin*uent taxpayer& was subected to a levy. 6is total tax liability per
assessment as of -pril 1$&2++) was ,3++&+++ payable on Eay 31& 2++) with the following expenses incurred by the
/528
-dvertisement ,1+&+++
Transfer of title 1$&+++
#apital gains tax 3+&+++
6ow much is the amount of excess from the proceeds of sale to be remitted to Er. 7antago as of 9ctober 31& 2++)<
Problem 2-17 Total #mount 4npaid
The income tax return of 7an Holly Eac #orporation shows the following data8
Total 7ales ,'&+++&+++
9perating expenses allowed %&$++&+++
.et taxable income $++&+++
Eultiply by corporate income tax rate 3+I
5ncome tax payable , 1$+&+++
The related income tax referred to the above 5T2 has been paid. -fter a year however& the /52 provided assessment
that the sales of the corporation is understated by 3+I. 6ow much is the total amount of tax unpaid including
surcharges and interest<
Problem 2-1 (ales Price o% Propert+ under distraint
@uring the auction of a property under distraint& the following information were available8
-ctual cost of the property ,2++&+++
Fair mar3et value of the property 3++&+++
-mount of bid 1++&+++
-mount of tax liability 1)+&+++
7urcharges and interest 2+&+++
/idding expenses 1+&+++
6ow much is the sales price of the property under distraint if the /52 #ommissioner decided to purchase the
property in behalf of the .ational =overnment<
Problem 2-1! Capital Gains Ta" and -edemption Price
9n -pril 1& 2++)& the /52 sold the residential lot Bunder levyC of Er. Eario >ucas. Er. >ucas received ,2+&+++
from the /52 as excess over the tax claim and cost of sale as follows8
5ncome tax liability ,!++&+++
#ost of sale $+&+++
Er.>ucas redeemed his residential lot on @ecember 1& 2++). 6ow much is the capital gains tax paid upon sale and
the re*uired total redemption price<
Problem 2-20 &n%ormer5s -e1ard
Eiss /enita Wan provided information to the government& which led to the capture and sei"ure of smuggled goods
with fair mar3et value of ,1$&+++&+++.
-e6uired'
a. 5f the government sold the captured goods for ,1$&+++&+++& how much would be the cash reward of Eiss
Wan as tax informer<
b. 5f the government destroyed the goods sei"ed because these are regarded as harmful to health& how much
cash reward would Eiss Wan receive<
c. 5n assumption to letter 0a1& how much final income tax should be withheld from the reward of Eiss Wan<
Problem 2-21 7iolations and Penalties
Eiss 6eide 7an Tago is operating an unregistered trading business& and she has not been issuing any official sales
invoice. When Eiss 7an Tago was summoned to present her boo3s of accounts to /52& she ignored the summon.
-e6uired'
a. Enumerate all the Tax #ode violations committed by Eiss 7an Tago.
b. 5f convicted for all these violations& how much is the total amount of penalties<
Problem 2-22 4nderstatement o% &ncome Ta" -eturn
9n -pril 1$& 2+1+& 9rville #orporation filed its income tax return for the taxable year 2++) declaring a total receipts
of ,2&+++&+++ and total deduction of ,1&$++&+++. The income tax due declared amounts to ,1%$&+++. Apon filing to
/52& the tax officer discovered that 9rville4s receipts are understated by 2$I and the deduction is overstated by
3$I. 6ow much is the amount of surcharge to be added to 9rville4s income tax due on -pril 1$& 2+1+<
Problem 2-23 -e*istration Fee
7plash #orporation is a manufacturer of beauty products that maintains ) warehouses and 3+ branches in the
,hilippines. 5ts principal factory is located in Gue"on #ity.
-e6uired' -ssuming that the taxable year is 2++)& compute the following8
a. Total annual registration fee of 7plash #orporation for 2++) if payment was made on Hanuary 31& 2+1+.
b. Total amount paid to the /52 if payment was made on Huly 3+& 2+1+.
Problem 2-24 .istraint Propert+ Purchased b+ Go8ernment
The /52 has decided to purchase a personal property under distraint in behalf of the .ational =overnment. The
information available in deciding the price of the said personal property is as follows8
Ear3et value of the property ,2++&+++
/id price of the highest bidder )+&+++
-mount of tax liability 1++&+++
7urcharges 2$&+++
5nterest 2+&+++
-dvertising cost $&+++
6ow much is the price of the personal property if purchased by the /52 in behalf of the .ational =overnment<
Problem 2-25 Chattel Propert+ For%eited
The government forfeited the chattel property of Er./alana due to criminal violation of tax laws. Er./alana4s total
tax liability per assessment as of -pril 1$& 2++) was ,1++&+++ payable on Hune 1& 2++). The property was sold for
,2++&+++ through a public auction on 7eptember 1& 2++) with the following expenses incurred by the /528
-dvertisement , $&+++
Transfer tax 2+&+++
6ow much is the amount of excess from proceeds of sale to be remitted to Er./alana as of 7eptember 1& 2++)<
Problem 2-26 Compromise #llo1ed
- criminal case was filed against -tang -ng for obtaining three different Tax 5dentification .umber BT5.C resulting
to an estimated tax fraud of ,2+ million.
5f -tang -ng proposed for a compromise to the /52 #ommissioner& how much is the maximum compromise that is
allowed to -ng<
Problem 2-27 Compromise
5n 2++)& Er.>ubrado Tinidor& a local manufacturer of furniture& settled a compromise agreement with the
#ommissioner of /52 concerning ,1+&+++&+++ unpaid taxes since 2++'.
?ou are called to compute the tax to be collected per compromise agreement under the following independent
assumptions8
1. Er.Tinidor is financially incapable and has ,1+&+++ income per month.
2. The compromise is due to doubtful validity of assessment.
Problem 2-2 Compromise
The following cases are available from the records of the /52 resulting from the compromise proposals of
corporations8
/asic Tax 7urcharge 5nterest
@elin*uent accounts , $++&+++ , 12$&+++ , 1++&+++
,ending cases under
administrative protest )++&+++ !$+&+++ 1(+&+++
#riminal violation not 1&+++&+++ 2$+&+++ 2++&+++
filed in courts
Withholding tax cases 2&+++&+++ $++&+++ !++&+++
#riminal violations filed in
courts $&+++&+++ 2&$++&+++ 1&+++&+++
Totals ,)&!++&+++ ,3&(2$&+++ ,1&((+&+++
-e6uired' 6ow much is the amount of compromise allowed using the following reasons Bindependent assumptionsC8
#ase 18 Financial incapability due to corporate insolvency.
#ase 28 Financial incapability due to surplus deficit resulting to impairment in original capital by at least $+I.
#ase 38 @oubtful validity of assessment.
Problem 2-2! Comprehensi8e Ta" -emed+
Eiss Ealou >ugui was assessed with tax liability of ,2$+&+++ exclusive of penalty. The financial status of Eiss
>agui when the demand for payment was made is as follows8
Total properties8
2eal property ,2++&+++
,ersonal property 1++&+++
Total liabilities& exclusive of tax 1$+&+++
-e6uired'
a. 5f Eiss >ugui offers for a compromise payment of ,1++&+++ for her tax liabilities on the ground of her
financial incapability& and #ommissioner accepted the offer& would it be in accordance with the pre:
re*uisite for a compromise settlement<
b. -ssuming that a distraint proceeding was carried out instead& which of the above properties would be
issued with warrant of distraint<
c. 5f all the properties of Eiss >ugui have a reali"able value of ,2++&+++ after payment of her ,1$+&+++
liabilities and possible cost of the proceedings& would it be possible for the government to carry out the
distraint and levy proceeding simultaneously to effect the conversion of Eiss >ugui4s assets into cash<
d. 5f& after the properties of Eiss >ugui were sold in public auction only ,2++&+++ was reali"ed and used as
payment of her liabilities& would this extinguish the unpaid tax liabilities of Eiss >ugui<