11 September 2005

2 P.M. 5 P.M.

INSTRUCTIONS This questionnaire consists of fourteen (14) numbers contained in ei ht (!) pa es. "ead each question #er$ carefu%%$. &ns'er legibly, clearly and concisely. Start each number on a separate pa e( an ans'er to a sub)question under the same number ma$ be 'ritten continuous%$ on the same and immediate%$ succeedin pa es unti% comp%eted. *o not repeat the question.

HAND IN YOUR NOTEBOOK WITH THIS QUESTIONNAIRE GOOD LUCK!!!

++++++++++++++++++++++++++++++++++++ ,-&."M&/ 2005 0&" 12&M./&T.3/ ,3MM.TT11

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-Ia) Describe the power of taxation. May a legislative body enact laws to raise revenues in the absence of a constitutional provision granting said body the power to tax? Explain. b) May taxes be the subject of set-off or compensation? Explain. c) an an assessment for a local tax be the subject of set-off or compensation against a final judgment for a sum of money obtained by the taxpayer against the local government that made the assessment? Explain. d) !s a deficiency tax assessment a bar to a claim for tax refund or tax credit? Explain. e) !s the approval of the court" sitting as probate or estate settlement court" re#uired in the enforcement and collection of estate tax? Explain. $%&')

- II $%.) Explain briefly whether the following items are taxable or non-taxable( a) !ncome from jueteng) b) *ain arising from expropriation of property) c) +axes paid and subse#uently refunded) d) ,ecovery of bad debts previously charged off) e) *ain on the sale of a car used for personal purposes. $-')

$..) /tate and discuss briefly whether the following cases may be compromised or may not be compromised( a) Delin#uent accounts) b) c) d) e) ases under administrative protest" after issuance of the final assessment notice to the taxpayer" which are still pending) riminal tax fraud cases) riminal violations already filed in court) ases where final reports of reinvestigation or reconsideration have been issued resulting in the reduction of the original assessment agreed to by the taxpayer when he signed the re#uired agreement form. $-') - III $%.) 0 city outside of Metro Manila plans to enact an ordinance that will impose a special levy on idle lands located in residential subdivisions within its territorial jurisdiction in addition to the basic real property tax. !f the lot owners of a subdivision located in the said city see1 your legal advice on the matter" what would your advice be? Discuss. $-') $..) a) /tate and explain the basis of dutiable value of an imported article subject to an ad valorem tax under the +ariff and ustoms ode. b) Distinguish countervailing duty from dumping duty. $-')

$2.) 3acob" after serving a --year tour of duty as military attach4 in 3a1arta" returned to the 5hilippines bringing with him his personal effects including a personal computer and a car. 6ould 3acob be liable for taxes on these items? Discuss fully.

$-')

- IV $%.) /tate with reasons the tax treatment of the following in the preparation of annual income tax returns( a) 5roceeds of life insurance received by a child as irrevocable beneficiary) b) %2th month pay and de minimis benefits) c) Dividends received by a domestic corporation from $i) another domestic corporation) and $ii) a foreign corporation) d) !nterest on deposits with $i) 75! 8amily 7an1) and $ii) a local offshore ban1ing unit of a foreign ban1) e) !ncome reali9ed from sale of $i) capital assets) and $ii) ordinary assets. $-')

$..) a) /tate the conditions re#uired by the +ax ode before the ommissioner of !nternal ,evenue could authori9e the refund or credit of taxes erroneously or illegally received. b) Does a withholding agent have the right to file an application for tax refund? Explain. $-')

-V0 taxpayer received a tax deficiency assessment of 5%.. Million from the 7!, demanding payment within %& days" otherwise" it would collect through

summary remedies. +he taxpayer re#uested for a reconsideration stating the grounds therefor. !nstead of resolving the re#uest for reconsideration" the 7!, sent a 8inal :otice 7efore /ei9ure to the taxpayer. May this action of the ommissioner of !nternal ,evenue be deemed a denial of the re#uest for reconsideration of the taxpayer to entitle him to appeal to the ourt of +ax 0ppeals? Decide with reasons. $-')

- VI Danilo" who is engaged in the trading business" entrusted to his accountant the preparation of his income tax return and the payment of the tax due. +he accountant filed a falsified tax return by underdeclaring the sales and overstating the expense deductions by Danilo. !s Danilo liable for the deficiency tax and the penalties thereon? 6hat is the liability" if any" of the accountant? Discuss. $-')

- VII 0n international airline with no landing rights in the 5hilippines sold tic1ets in the 5hilippines for air transportation. !s income derived from such sales of tic1ets considered taxable income of the said international air carrier from 5hilippine sources under the +ax ode? Explain. $-')

- VIII 3, was a passenger of an airline that crashed. ;e survived the accident but sustained serious physical injuries which re#uired hospitali9ation for 2 months. 8ollowing negotiations with the airline and its insurer" an agreement was reached under the terms of which 3, was paid the following amounts(

5-&&"&&&.&& for his hospitali9ation) 5.-&"&&&.&& as moral damages) and 52&&"&&&.&& for loss of income during the period of his treatment and recuperation. !n addition" 3, received from his employer the amount of 5.&&"&&&.&& representing the cash e#uivalent of his earned vacation and sic1 leaves. 6hich" if any" of the amounts he received are subject to income tax? Explain. $-') - IX ompany 0 decides to close its operations due to continuing losses and to terminate the services of its employees. <nder the =abor ode" employees who are separated from service for such cause are entitled to a minimum of one-half month pay for every year of service. ompany 0 paid the e#uivalent of one month pay for every year of service and the cash e#uivalent of unused vacation and sic1 leaves as separation benefits. 0re such benefits taxable and subject to withholding tax under the +ax ode? Decide with reasons. $-') -X+he ,oman atholic hurch owns a .-hectare lot in a town in +arlac province. +he southern side and middle part are occupied by the hurch and a convent" the eastern side by a school run by the hurch itself" the southeastern side by some commercial establishments" while the rest of the property" in particular the northwestern side" is idle or unoccupied. May the reasons. hurch claim tax exemption on the entire land? Decide with $-') - XI 0n alien employee of the 0sian Development 7an1 $0D7) who is retiring soon has offered to sell his car to you which he imported tax-free for his personal use. +he privilege of exemption from tax is granted to #ualified personal use under the 0D7 harter which is recogni9ed by the tax authorities. !f you decide to purchase the car" is the sale subject to tax? Explain.

$-') - XII ,alph Donald" an 0merican citi9en" was a top executive of a <./. company in the 5hilippines until he retired in %>>>. ;e came to li1e the 5hilippines so much that following his retirement" he decided to spend the rest of his life in the country. ;e applied for and was granted a permanent resident status the following year. !n the spring of .&&?" while vacationing in @rlando" 8lorida" </0" he suffered a heart attac1 and died. 0t the time of his death" he left the following properties( $a) ban1 deposits with itiban1 Ma1ati and itiban1 @rlando" 8lorida) $b) a resthouse in @rlando" 8lorida) $c) a condominium unit in Ma1ati) $d) shares of stoc1 in the 5hilippine subsidiary of the <./. ompany where he wor1ed) $e) shares of stoc1 in /an Miguel orp. and 5=D+) $f) shares of stoc1 in Disney 6orld in 8lorida) $g) <./. treasury bonds) and $g) proceeds from a life insurance policy issued by a <./. corporation. 6hich of the foregoing assets shall be included in the taxable gross estate in the 5hilippines? Explain. $-') - XIII 3osel agreed to sell his condominium unit to 3ess for 5..- Million. 0t the time of the sale" the property had a 9onal value of 5..& Million. <pon the advice of a tax consultant" the parties agreed to execute two deeds of sale" one indicating the 9onal value of 5..& Million as the selling price and the other showing the true selling price of 5..- Million. +he tax consultant filed the capital gains tax return using the deed of sale showing the 9onal value of 5..& Million as the selling price. Discuss the tax implications and conse#uences of the action ta1en by the parties. $-')

- XIV $%.) Mr. 8ermin" a resident of Aue9on ity" is a ertified 5ublic 0ccountant=awyer engaged in the practice of his two professions. ;e has his main office in Ma1ati ity and maintains a branch office in 5asig ity. Mr. 8ermin pays his

professional tax as a 5asig ity.

50 in Ma1ati

ity and his professional tax as a lawyer in

a) May Ma1ati ity" where he has his main office" re#uire him to pay his professional tax as a lawyer? Explain. b) May Aue9on ity" where he has his residence and where he also practices his two professions" go after him for the payment of his professional tax as a 50 and a lawyer? Explain. $-') $..) !n %>>-" the 7!, filed before the Department of 3ustice $D@3) a criminal complaint against a corporation and its officers for alleged evasion of taxes. +he complaint was supported by a sworn statement of the 7!, examiners showing the computation of the tax liabilities of the erring taxpayer. +he corporation filed a motion to dismiss the criminal complaint on the ground that there has been" as yet" no assessment of its tax liability) hence" the criminal complaint was premature. +he D@3 denied the motion on the ground that an assessment of the tax deficiency of the corporation is not a precondition to the filing of a criminal complaint and that in any event" the joint affidavit of the 7!, examiners may be considered as an assessment of the tax liability of the corporation. !s the ruling of the D@3 correct? Explain. $-')

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