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.

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

4.
5.
6.
7.
8.
9.
10.
11.

False informers reward is subject to 10% final withholding tax.

True
True
True
True
False Seizure
False Forfeiture
False not allowed because the second cousin is within the 6 th 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)

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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Chapter 2: Tax Administration

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.
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
nd
2 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

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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Chapter 2: Tax Administration

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

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)

P450,000

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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Chapter 2: Tax Administration

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

(450,000)

P500,000
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 informers reward because being a first cousin, he is Bs (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 informers reward of 10% based on the tax revenue recovered or
P1,000,000. whichever is lower. This informers 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
Purchase price
Add: Interest (P4,000,000 x 15% x 9/12)
Redemption price

P4,000,000

3,250,000
P 750,000

320,000
P 430,000

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

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

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

290,875
P 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)
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. 4699)

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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Chapter 2: Tax Administration

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 taxpayers 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%)
Interest from April 15, 200B to December 31,
200C (P1,000,000 x 20% x 1 year & 6.5 mos.)
Total amount due as of December 31, 200C
Add: Excess amount

P1,000,000
P500,000
341,666

841,667
P1,841,667
158,333

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INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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Chapter 2: Tax Administration

Total selling price

Add: Statutory interest rate to redeem (P2,000,000 x 15%)
Total amount needed to redeem the real property

P2,000,000
300,000
P2,300,000

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

11

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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Chapter 2: Tax Administration

Income tax due per return, April 15, 200B

Less: 1 st 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.

P1,000,000
250,000
P 750,000
12,500
P 762,500

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
Less: 3 rd 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

P 500,000
8,333
P 508,333
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
.

Total amount due

Add: 25% Surcharge for late payment

P1,000,00
0
P450,000
300,000
200,000
150,000

1,100,000
P2,100,000
30%
P 630,000
300,000
P 330,000

P165,000
66,000

231,000
P 561,000
P561,000

12

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

SUGGESTED ANSWERS

Chapter 2: Tax Administration

(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)

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 informers 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.)
2. Non-issuance of commercial invoice (Sec. 237, NIRC.)
3. Ignoring the summon (Sec. 5, NIRC.)
b.

Miss San Tagos 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

P 2,666,667
1,111,111
P 1,555,556
30%
P 466,667

500
4,500
15,000
P20,000

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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13
Chapter 2: Tax Administration

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

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
Pending cases under administrative protest
900,000
Criminal violation not filed in courts
1,000,000
Total basic tax
P2,400,000
Multiplied by applicable compromise rate
40%
Amount of compromise
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

Problem 2 36

P 500,000
900,000
1,000,000
P2,400,000
40%
P 960,000

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)

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14
Chapter 2: Tax Administration

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).