TAXATION 1

PART 2. MULTIPLE CHOICE.

1.
a)
b)
c)
d)

Why is the Fringe Benefit Tax collectible from the employer and not from the employee?
Valuation of benefits is easier at the level of the employer
Collection of FBT is ensured because it is withheld at source
The employee does not have the means to pay
(a) and (b) are correct

2.

Fringe Benefit tax shall be paid by the employer because:

a)
b)
c)
d)

the employee received the benefit net of tax

the Tax Code expressly so states /SEC. 33(B)
The employer relieves the employee of the burden to pay the tax
The employer is the agent of the employee for the payment thereof

3.
a)
b)
c)
d)

What is the tax consequence when the accumulation of unused sick leave benefits is paid annually?
It is exempt
It is not exempt
It is taxable if more than 10 days
It is exempt if less than 10 days

4. O, the President of Y Corporation, died. Y Corporation gave to Os widow an amount equivalent to Os

salary for one year. Is the amount considered as taxable income to the widow?
a) No, because the widow received a gift
b) Yes, because the widow received a flow of wealth other than a return of capital
c) Yes, because the widow received something which is economic benefit to her
d) No, because the widow received an inheritance
5. La Guardia Corporation grants all its employees (rank and file, supervisors and managers) 5% discount
of the purchase price of its products. During an audit investigation made by the Bureau of internal
Revenue (BIR), the BIR assessed the company for failure to withhold the corresponding tax on the amount
equivalent to the courtesy discount received by all employees contending that the courtesy discount is
considered as additional compensation subject to tax. Is there a legal basis for the assessment made by
the BIR?
a)
There is a legal basis for the assessment as the NIRC does not consider courtesy discount as de
minimis benefit
b)
There is no legal basis for the assessment because courtesy discount qualifies as de minimis benefits, it being
granted to promote goodwill and contentment
c)
The assessment has legal basis in that under RR 10-2008, courtesy discount is not considered as de minimis
benefit
d)
The assessment has no legal basis in that courtesy discount partakes of the nature of exempt fringe benefits
6.
a)
b)
c)
d)
e)

The following items are taxable except:

Illegal gains
Tax refund involving deductible tax
Tax refund involving non-deductible tax
Cash dividends
Annuities

7.
a)
b)
c)
d)

Fringe benefit tax shall be paid by the employer because:

The employee received the benefit net of tax
The Tax Code expressly so states
The employer relieves the employee of the burden to pay the tax
The employer is the agent of the employee for the payment thereof.

8. Pedro Santos, a manager in X Corporation is given a free trip to the US with his wife and family. The
company paid for all of the expenses of the said trip. X Corporation would be allowed to claim the said
expenses as part of its deductions computed as follows:
a)
b)
c)
d)

The cost of the trip, with all the expenses, taken as a miscellaneous charge
The cost of the trip, with all the expenses, together with the applicable fringe benefits tax paid
The fringe benefits tax paid only
The company could not claim the said expenses because it was not subjected to the expanded withholding tax

9. On the part of Mr. Pedro Santos, he would now be compelled to report the said trip, mentioned above,
in his personal income tax return as:
a) Additional compensation income
b) Professional fees
c) Both the trip and the fringe benefits tax paid would be recorded in his ITR
d) No item of the trip and the tax paid should be reported in his ITR
10. John dela Cruz, a non-resident Filipino, earned a commission for his work as a buying agent based in
Germany buying goods in Germany for sale in the Philippines. The payor of the said service was Z
Corporation which is based in the Philippines, the payment to John Dela Cruz was subjected to 10%
withholding tax for the services Mr. dela Cruz performed. The subjecting of the said commission income to
withholding tax is:
a) Correct because the payment for the service was from a Philippine source
b) Correct because Mr.Juan dela Cruz is a Filipino non-resident
c) Incorrect because the services was done outside the Philippines and is not considered a Philippine
source income
d) Incorrect because the sale of the goods were done in Germany which is outside the territorial jurisdiction of the
Philippine taxing authority.
11. An employee was terminated by the corporation for stealing. The court held that there was illegal
dismissal present in the case and favored the complainant-employee and ordered the payment of
separation pay. The said amount paid to the compliant-employee is:
a) Subject to the withholding taxes because termination of the employees services was due to the employees fault
b) Not subject to the withholding taxes because it is done without the fault of the employee
c) Not subject to the withholding taxes because it is a penalty imposed on the corporation
d) Subject to the withholding taxes because it is an ordinary expense of the corporation in doing
business.
12. Romano was an office clerk in the company he was working in. The company grants a transportation
allowance for Romano in the amount of P5,000.00 per month despite the fact that his work requires him to
stay in the office the whole day. As explained by his boss, the same is to cover his transportation through
and from the office to his home. The said transportation allowance is:
a) Not taxable on the part of Romano because it is for the employers convenience
b) Not taxable on the part of Romano because it is a de minimis benefit
c) Taxable on the part of Romano as a fringe benefits tax
d) Taxable on the part of Romano as additional compensation income
13.
Mr. Juan dela Cruz was employed by several companies o a part time basis for several years. During
this time, all of his employers were withholding from his salary Social Security System contributions
despite the fact that he has already exceeded the maximum allowed contributions under the SSS. Mr. dela
Cruz filed a refund from the SSS on the said contributions to which the SSS paid back to Mr. dela Cruz the
said amounts in excess. The effect of the said refund of SSS payment to Mr. dela Cruz would be:
a)
The amount refunded represents return of capital and therefore not subject to income tax for the years that they
were deducted
b)
The amount refunded represents return of income and therefore should be included in the income tax on the years
that they were deducted
c)
The amount refunded represents return of capital and therefore not subject to income tax for the year that it was
received
d) The amount refunded represents return of income and therefore should be included in the income tax
on the year that it was received.
14.
Roger bought an Ipod as a valentines gift to his girlfriend. One month later, apple suddenly
implemented a dramatic decrease in prices. Roger complained and 6 months later, received a rebate from
Apple. Assuming Roger is in the Philippines, and is a Filipino citizen, may the rebate be treated as income?
a)
No, he just has a deduction in cost
b)
Yes, because of the tax benefit rule
c)
No, it is a personal expense
d)
Yes, because the rebate represents taxable income
15.
A is a single and gainfully employed. She is the only child of B who is already of an advanced age
and depends solely on A for sustenance. A has a live-in partner in the person of X who had a child out of
wedlock with another woman. The child is a minor and is physically incapacitated and since X was not
employed, both depend on A for survival. X subsequently dies leaving Xs child an orphan but in the
physical custody of A. How much is As personal exemption?
a)
b)
c)

P 50,000 because B and the child do not qualify as dependents

75,000 because B qualifies as a dependent but not the child
100,000 because both B and the child qualify as dependents

d)
75,000 because a dependent is defined as a child dependent upon and living with the taxpayer and is below 21
years of age hence the child of X who now lives with A is dependent
16. Mr. Adam has been an employee of Red Hill Mining Corporation for 19 years. On April 1, 2005, Adam
will celebrate his 49th birthday and, on the same day, retire from his company.
a)
b)

Adans retirement benefits will be tax exempt be subject to tax since he has only been employed for 19 years
be subject to tax since he is only 49 years old be either exempt from or subject to income tax
depending on whether the retirement plan is BIR- registered

17. A minimum wage earner receives additional compensation on his part-time teaching in 3 vocational
schools and from his real estate brokers commissions will be taxed:
a)
b)
c)
d)

only as to the other income sources

on the minimum wage income only
to the additional income sources but exempted on the minimum wage
on all the income both the minimum wage and the additional income sources.

18.
An individual engaged in business earned net income which is less than his personal and
additional exemptions during the year. Is he required to file an income tax return?
a) No, because he is not liable for any tax
b) Yes, because he is required to file a tax return notwithstanding such loss
c) Yes, because he still incurs income tax liabilities notwithstanding the foregoing facts
d) No, because individual taxpayers whose gross income is less than his personal exemptions need
not file returns.
19.
over. Is
a)
b)
c)
d)

The City of Cebu expropriated the residential house of X to pave the way for the construction of flythe event subject to income tax?
Yes, in the form of capital gains tax only
Yes, in the form of ordinary income tax only
Yes, either in the form of capital gains tax or ordinary income tax, at the taxpayers option
No, considering that the sale is in favor of the government, no income tax shall be imposed.

20. A is indebted to B in the amount of P 100,000 . For the services rendered by C, the brother of A, in
favor of B, forgave the indebtedness of A. What is the income tax consequence of this transaction?
a)
b)
c)
d)

C shall be liable for donors tax

There is no income tax consequence for all parties
Only C shall declare an income in the amount of 100,000. No income tax consequence for A and B.
Only A shall declare an income in the amount of 100,000. No income tax consequence for B and C.

21.
Lloyd and Ruth, husband and wife, are both employed by Y Corporation. After office hours, they
jointly manage a coffee shop at the ground floor of their house. The coffee shop is registered in the name
of both spouses. Which of the following is the correct way to prepare their income tax return?
a.
Lloyd will declare as his income the salaries of both spouses, while Ruth will declare the income from the coffee
shop.
b.
Ruth will declare the combined compensation income of the spouses, and Lloyd will declare the income from
the coffee shop.
c.
All the income will be declared by Lloyd alone, because only one consolidated return is required to be filed by
the spouses.
d.
Lloyd will declare his own compensation income and Ruth will declare hers. The income from the
coffee shop shall be equally divided between them. Each spouse shall be taxed separately on their
corresponding taxable income to be covered by one consolidated return for the spouses.
e.
LLoyd will declare his own compensation income and Ruth will declare hers. The income from the coffee shop
shall be equally divided between them. Lloyd will file one income tax return to cover all the income of both spouses, and
the tax is computed on the aggregate taxable income of the spouses.
22.
Romano got married to Beth last January 2015. On November 30, 2015, Beth gave birth to twins.
Unfortunately, however, Beth died in the course of her delivery. Due to complications, one of the twins also
died on December 15, 2015.
In preparing his Income Tax Return (ITR) for the year 2015, what should Romano indicate in the ITR as his civil status:
(a) single;
(b)
married
(c) Head of the family;
(d) widower;
(e)none of the above?