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INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 3

SUGGESTED ANSWERS
Chapter 2: Tax Administration

CHAPTER 2
TAX ADMINISTRATION
Problem 2 – 1 TRUE OR FALSE
1. True
2. False - Department of Finance
3. False - Exclusive and original power to interpret tax laws. Final power to interpret tax
laws belongs to the Supreme Court.
4. False - Review by the Court of Justice/Court of Appeals
5. False - Cooperatives are exempted from income tax and annual registration fee.
6. False - In all cases, the authority to print is required.
7. False - Not required to register again, just file an information update.
8. False - Tax assessment is needed to enforce payment of unpaid tax liability.
9. True
10. True
11. False - Levy or imposition of tax
12. True
13. False – executive branch of the government
14. False – the description refers to administrative feasibility.

Problem 2 – 2 TRUE OR FALSE


1. True
2. False – submit to the BIR.
3. False - Distraint is for personal property, while levy is for real property.
4. True
5. False - Exceptions are those already filed in court of those involving fraud.
6. True
7. True
8. True
9. True
10. False - value of property.
11. False – Redemption of property should be made within one year from the date of sale.
12. True
13. True

Problem 2 – 3 TRUE OR FALSE


1. True
2. True
3. False – P100,000
4. False – 10% final withholding tax
5. True – If authorized by the BIR Commissioner
6. True
7. False – All properties of a delinquent taxpayer may be subject to tax lien.
8. True
9. False – Seizure
10. False – Forfeiture
11. True
12. False – Criminal violations already filed in court are not subject to compromise.
Collection of taxes is not a criminal violation.
13. True

Problem 2 – 4 TRUE OR FALSE


1. True
2. False – Without letter of authority, the taxpayer could refuse access to his books.
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 4
SUGGESTED ANSWERS
Chapter 2: Tax Administration

3. False – Civil action could also be judiciary pursued.


4. True
5. False – the appeal must first be made to Court of Tax Appeals.
6. False – It could also be done if no tax return is filed.
7. False – Ten years prescription period starts at date of discovery that tax return was not
filed.
8. False – It should be 5 years.
9. False – Levy could also be done before or simultaneous with distraint.
10. False – Residual value should be returned to taxpayer.
11. True
12. False – It is also applicable to importation.
13. True

Problem 2 – 5 Problem 2 – 6
1. B 1. D
2. A 2. A
3. B 3. A
4. D 4. A
5. A 5. C
6. C 6. C
7. C 7. D
8. D 8. B
9. B 9. C
10. B 10. C
11. D
12. C
13. B

Problem 2 – 7

Situation 1 – 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.

Situation 2 – May 5, 2010. The filing of refund was appropriately made within the 2 year
prescribed period. The denial was received on April 5, 2010. The filing of appeal to CTA should
be made within 30 days from the receipt of denial from the BIR.

Situation 3 – August 2, 2014. The date of grant for refund was received on August 1, 2009.
The refund check (dated July 15, 2009) should be encashed within 5 years from the date the
grant for refund was received (August 1, 2009). The check should be encashed from August 1,
2009 to August 1, 2014. It will be forfeited on August 2, 2014.

Situation 4 – August 22, 2014. The date of grant for refund was received on August 21,
2009. The refund check (dated July 30, 2009) should be utilized within 5 years from the date
the grant for refund was received (August 21, 2009). The tax credit certificate should be
utilized from August 21, 2009 to August 21, 2014. It will be forfeited on August 22, 2014,
unless otherwise revalidated.

Situation 5 – August 20, 2009. 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.
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 5
SUGGESTED ANSWERS
Chapter 2: Tax Administration

Computation of days:
After January 22, 2009 Days
January 9
February 28
March 31
April 30
May 31
June 30
July 21
Total number of days as of July 21 180
Plus 30 days after the 180 days
July 10
August 20
Total day on August 20 30

Situation 6 – May 4, 2009. 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, 2009
to 2nd request for reconsideration – March 30, 2009 8
2nd denial of the BIR – April 12, 2009
to May 4, 2009 to complete the 30 day period 22
Total days as of May 4, 2009 30

Situation 7 – June 25, 2009. The appeal to CA should be made within 15 days from date of
unfavorable decision from CTA was received (June 10 plus 15 days).

Situation 9 – July 10, 2009. The appeal to SC should be made within 15 days from date of
unfavorable decision from CA was received (June 25 plus 15 days).

Situation 10 – March 1, 2010. Within 1 year from the date of sale.

Problem 2 – 8 B
Tax due per return P100,000
Late filing and payment – simple neglect (P100,000 x 25%) 25,000
Interest (P100,000 x 20% x 2.5/ 12) 4,167
Total amount due and payable P129,167

Problem 2 – 9 A
Amount due – surcharge (P100,000 x 25%) P25,000

Problem 2 – 10 D
Tax due per return P100,000
Late filing and payment – willful neglect (P100,000 x 50%) 50,000
Interest (P100,000 x 20% x 14.5/12) 24,167
Total amount due and payable P174,167

Problem 2 – 11 D
Deficiency income tax (P120,000 – P100,000) P20,000
Interest (P20,000 x 20% 435/ 360 days) 4,833
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 6
SUGGESTED ANSWERS
Chapter 2: Tax Administration

Amount still due P24,833

Problem 2 – 12 A
Statutory fine (P250,000 x 2) P500,000

Problem 2 – 13 B
Minimum statutory fine P 5,000

Problem 2 – 14
Yes, because the prescriptive period of filing the written protest is within 30 days from receipt
of assessment.

Mr. Lang is obligated to pay the P500,000 assessed against him.

Problem 2 – 15
Basic delinquency tax P 1,000,000
Surcharges – willful (P1,000,000 x 50%)* 500,000
Interest (P1,000,000 x 20% x 2) 400,000
Amount collected from the highest bidder P 1,900,000
Add: Interest for real property redemption (P1,900,000 x 285,000
15%)
Total redemption amount P 2,185,000

*The nonpayment of taxes is already 2 years it becomes habitual; hence, willful neglect.

Problem 2 – 16
Proceeds from the highest bidder (P30,000/6%)* P 500,000
Less: Basic tax assessed P 300,000
Advertisement 10,000
Transfer of title 15,000
Capital gain tax 30,000 355,000
Remittance to Mr. Santiago P 145,000

*The capital gains tax is based on the selling price of the real property sold. The rate of
capital gains tax is 6%; hence, the proceeds from the highest bidder is P500,000 or
(P30,000/6%).

Problem 2 – 17
Corrected sales (P7,000,000/70%) P10,000,000
Less: Operating expenses 6,500,000
Corrected net taxable income P 3,500,000
Multiplied by corporate tax rate 30%
Corrected total income tax due P 1,050,000
Less: Income tax paid 150,000
Tax deficit P 900,000
Surcharge (P900,000 x 25%) 225,000
Interest (P900,000 x 20%) 180,000
Total amount due P 1,305,000

Problem 2 – 18
Amount of tax liability P190,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 7
SUGGESTED ANSWERS
Chapter 2: Tax Administration

Surcharges and interest 20,000


Bidding expenses 10,000
Price for the government P220,000

Problem 2 – 19
Sales proceeds (P400,000 + P50,000 + P20,000)/94% P500,000
Multiplied by capital gains tax rate 6%
Capital gains tax P 30,000

Sales proceeds P500,000


Add: Interest (P500,000 x 15% x 8/12) 50,000
Redemption price P550,000

Problem 2 – 20
a. The cash reward of Miss Wan as tax informer would be P1,000,000, the maximum amount
of reward.

b. The informer’s reward remains payable, hence, Miss Wan will received the maximum
reward of P1,000,000.

c. The final income tax to be withheld from the reward of Miss Wan would be 10% of
P1,000,000 or P100,000.

Problem 2 – 21
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 Tago’s minimum financial penalties if convicted:


1. For operating an unregistered business P 5,000
2. For not issuing commercial invoices 1,000
3. Failure to obey summon 5,000
Total minimum P11,000

Problem 2 – 22
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%) P 2,666,667


Corrected allowable deductions (P1,500,000/1.35) 1,111,111
Taxable income per audit P 1,555,556
Multiply by percent of tax for 2009 30%
Income tax due 466,667

Problem 2 – 23
1. Principal factory P 500
Warehouses (P500 x 9) 4,500
Branches (P500 x 30) 15,000
Total annual registration fee – January 31, 2010 P20,000

2. Total annual registration fee – January 31, 2010 P20,000


Surcharges (20,000 x 25%) 5,000
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 8
SUGGESTED ANSWERS
Chapter 2: Tax Administration

Interest (P20,000 x 20% x 6/12) 2,000


Total amount due – July 30, 2005 P27,000

Problem 2 – 24
Amount of tax liability P100,000
Surcharges 25,000
Interest 20,000
Advertising cost 5,000
Price if purchase by the Government P150,000

Problem 2 – 25
None. Forfeited property belongs to the government, hence, excess amount over tax liability
is not refundable to the taxpayer.

Problem 2 – 26
Tax violation involving fraud is not allowed with tax comprise. (Sec. 204A, NIRC)

Problem 2 – 27
1. Compromise (P10,000,000 x 10%) P 1,000,000

2. Compromise (P10,000,000 x 40%) P 4,000,000

Problem 2 – 28
Case 1 – Financial incapability due to corporate insolvency.
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 20%
Amount of compromise 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 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

Problem 2 -29
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.
INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS) 9
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Chapter 2: Tax Administration

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).