BAR E&AMINATION 2004

TA&ATION

12 September 2004 INSTRUCTIONS

2:00 P.M. 5:00 P.M.

This questionnaire consists of ten (10) pages, excluding this cover. There are ten Roman numbers divided into sub-sets ith corresponding percentages. Read each question ver! carefull!. "ns er it directl!, concisel!, and clearl!. #rite legibl!. $tart each Roman number on a separate page. "n ans er to a sub-question under the same number ma! be ritten continuousl! on the same and immediatel! succeeding pages until completed. %o not repeat the questions. " mere &'es( or &)o( ans er to a problem ithout explanation or discussion ill not be given an! credit. HAND IN YOUR NOTEBOO !ITH THIS "UESTIONNAIRE. %%

#OOD $UC

"UESTION NO. I Taxes are assessed for the purpose of generating revenue to be used for public needs. Taxation itself is the po er b! hich the $tate raises revenue to defra! the expenses of government. " *urist said that a tax is hat e pa! for civili+ation. ". ,n our *urisdiction, erroneous1. .. /. 0. 1. hich of the follo ing statements ma! be

Taxes are pecuniar! in nature. Taxes are enforced charges and contributions. Taxes are imposed on persons and propert! territorial *urisdiction of a $tate. ithin the

Taxes are levied b! the executive branch of the government. Taxes are assessed according to a reasonable rule of apportionment. 2ustif! !our ans er or choice briefl!. (13)

4.

#hich of the follo ing propositions ma! no 1. The court should construe a la against the taxpa!er. .. /.

be untenable-

granting tax exemption strictl!

The court should construe a la granting a municipal corporation the po er to tax most strictl!. The 5ourt of Tax "ppeals has *urisdiction over decisions of the 5ustoms 5ommissioner in cases involving liabilit! for customs duties. The 5ourt of "ppeals has *urisdiction to revie the 5ourt of Tax "ppeals. decisions of

0.

1.

The $upreme 5ourt has *urisdiction to revie the 5ourt of "ppeals. 2ustif! !our ans er or choice briefl!. (13) "UESTION NO. II

decisions of

".

R5 is la -abiding citi+en ho pa!s his real estate taxes promptl!. %ue to a series of t!phoons and adverse economic conditions, an ordinance is passed b! 66 5it! granting a 103 discount for pa!ment of unpaid real estate taxes for the preceding !ear and the condonation of all penalties on fines resulting from the late pa!ment. "rguing that the ordinance re ards delinquent tax pa!ers and discriminates against prompt ones, R5 demands that he be refunded an amount equivalent to one-half of the real taxes he paid. The municipal attorne! rendered an opinion that R5 cannot be reimbursed because the ordinance did not provide for such reimbursement. R5 files suit to declare the ordinance void on the ground that it is a class legislation. #ill his suit prosper7 8xplain !our ans er briefl!. (13)

4.

" la as passed granting tax exemption to certain industries and investments for a period of five !ears. 4ut three !ears later, the la as repealed. #ith the repeal, the exemptions ere considered revo9ed b! the 4,R, hich assessed the investing companies for unpaid taxes effective on the date of the repeal of the la . ):5 and ;TR companies questioned the assessments on the ground that, having made their investments in full reliance ith the period of exemption granted b! the la , its repeal violated their constitutional right against the impairment of the obligations of contract. ,s the contention of the companies tenable or not7 Reason briefl!. (13)

"UESTION NO. III

".

<'= 5olleges is a non-stoc9, non-profit educational institution run b! the "rchdiocese of 4: 5it!. ,t collected and received the follo ing(a) (b) (c) (d) (e) Tuition fees %ormitor! fees Rentals from canteen concessionaires. ,nterest from mone!-mar9et placements of the tuition fees. %onation of a lot and building b! school alumni. ould not be

#hich of these abovecited income and donation exempt from taxation7 8xplain briefl!. (13) 4.

$uppose that <'= 5olleges if a proprietar! educational institution o ned b! the "rchbishop>s famil!, rather than the "rchdiocese, hich of those abovecited income and donation ould be exempt from taxation7 8xplain briefl!. (13)

"UESTION NO. I' ". 5iting $ection 10, "rticle ?,,, of the 1@AB 5onstitution hich provides that salaries of *udges shall be fixed b! la and that during their continuance in office their salar! shall not be decreased, a *udge of 66 Regional Trial 5ourt questioned the deduction of ithholding taxes from his salar! since it results into a net deduction of his pa!. ,s the contention of the *udge correct7 Reason briefl!. (13)

4.

" municipalit!, 44, has an ordinance hich requires that all stores, restaurants, and other establishments selling liquor should pa! a fixed

annual fee of :.0,000.00. $ubsequentl!, the municipal board proposed an ordinance imposing a sales tax equivalent to 13 of the amount paid for the purchase or consumption of liquor in stores, restaurants and other establishments. The municipal ma!or, 55, refused to sign the ordinance on the ground that it ould constitute double taxation. ,s the refusal of the ma!or *ustified7 Reason briefl!. (13) "UESTION NO. ' ". %ue to an uncertaint! hether or not a ne tax la is applicable to printing companies, %8C :rinters submitted a legal quer! to the 4ureau of ,nternal Revenue on that issue. The 4,R issued a ruling that printing companies are not covered b! the ne la . Rel!ing on this ruling, %8C :rinters did not pa! said tax. $ubsequentl!, ho ever, the 4,R reversed the ruling and issued a ne one stating that the tax covers printing companies. 5ould the 4,R no assess %8C :rinters for bac9 taxes corresponding to the !ears before the ne ruling7 Reason briefl!. (13) 4. :DR 5orp. claimed as a deduction in its tax returns the amount of :1,000,000 as bad debts. The corporation as assessed b! the 5ommissioner of ,nternal Revenue for deficienc! taxes on the ground that the debts cannot be considered as & orthless,( hence the! do not qualif! as bad debts. The compan! as9s for !our advice on &#hat factors ill help in determining hether or not the debts are bad debts7( "ns er and explain briefl!. (13) "UESTION NO. 'I "s an incentive for investors, a la as passed giving ne l! established companies in certain economic +ones exemption from all taxes, duties, fees, imposts and other charges for a period of three !ears. "45 5orp. as organi+ed and as granted such incentive. ,n the course of business, "45 5orp.

purchased mechanical equipment from <'= ,nc. )ormall!, the sale is sub*ect to a sales tax. ". <'= ,nc. claims, ho ever, that since it sold the equipment to "45 5orp. hich is tax exempt, <'= should not be liable to pa! the sales tax. ,s this claim tenable7 (13) "ssume arguendo that <'= had to and did pa! the sales tax. "45 5orp. later found out, ho ever, that <'= merel! shifted or passed on to "45 the amount of the sales tax b! increasing the purchase price. "45 5orp. no claims for a refund from the 4ureau of ,nternal Revenue in an amount corresponding to the tax passed on to it since it is tax exempt. ,s the claim of "45 5orp. meritorious7 (13) "UESTION NO. 'II ". Cor failure to compl! ith certain corporate requirements, the stoc9holders of "45 5orp. ere notified b! the $ecurities and 8xchange 5ommission that the corporation ould be sub*ect to involuntar! dissolution. The stoc9holders did not do an!thing to compl! ith the requirements, and the corporation as dissolved. 5an the stoc9holders be held personall! liable for the unpaid taxes of the dissolved corporation7 8xplain briefl!. (13) "fter the tax assessment had become final and unappealable, the 5ommissioner of ,nternal Revenue initiated the filing of a civil action to collect the tax due from )<. "fter several !ears, a decision as rendered b! the court ordering )< to pa! the tax due plus penalties and surcharges. The *udgment became final and executor!, but attempts to execute the *udgment a ard ere futile. $ubsequentl!, )< offered the 5ommissioner a compromise settlement of 103 of the *udgment a ard, representing that this amount is all he could reall! afford. %oes the 5ommissioner have the po er to accept the compromise offer7 ,s it legal and ethical7 8xplain briefl!. (13)

4.

4.

"UESTION NO. 'III ". R"6 got married to E,$" last 2anuar! .00/. Fn )ovember /0, .00/, Eisa gave birth to t ins. Gnfortunatel!, ho ever, Eisa died in the course of her deliver!. %ue to complications, one of the t ins also died on %ecember 11, .00/. ,n preparing his ,ncome Tax Return (,TR) for the !ear .00/, hat should R"6 indicate in the ,TR as his civil status- (a) singleH (b) marriedH (c) Iead of the famil! (d) ido erH (e) none of the above7 #h!7 Reason. (13)

4.

F<' is the president and chief executive officer of "%% 5omputers, ,nc. #hen F<' as as9ed to *oin the government service as director of a bureau under the %epartment of Trade J ,ndustr!, he too9 a leave of absence from "%%. 4elieving that its business outloo9, good ill and opportunities improved ith F<' in the government, "%% proposed to obtain a polic! of insurance on his life. Fn ethical grounds, F<' ob*ected to the insurance purchase but "%% purchased the polic! an! a!. ,ts annual premium amounted to :100,000. ,s said premium deductible b! "%% 5omputers, ,nc.7 Reason. (13) "UESTION NO. I&

".

?55 is the administrator of the estate of his father )K5, in the estate proceedings pending before the 66 Regional Trial 5ourt. East !ear, he received from the 5ommissioner of ,nternal Revenue a deficienc! tax assessment for the estate in the amount of :1,000,000. 4ut he ignored the notice. East month, the 4,R effected a lev! on the real properties of the estate to pa! the delinquent tax. ?55 filed a motion ith the probate court to stop the enforcement and collection of the tax on the ground that the 4,R should have secured first the approval of the probate court, hich had *urisdiction over the estate, before lev!ing on its real properties. ,s ?55>s contention correct7 (13)

4.

RR disputed a deficienc! tax assessment and upon receipt of an adverse decision b! the 5ommissioner of ,nternal Revenue, filed an appeal ith the 5ourt of Tax "ppeals. #hile the appeal is pending, the 4,R served a arrant of lev! on the real properties of RR to enforce the collection of the disputed tax. Kranting arguendo that the 4,R can legall! lev! on the properties, hat could RR do to stop the process7 8xplain briefl!. (13) "UESTION NO. &

".

Fn 6arch 1., .001, R8) paid his taxes. Ten months later, he reali+ed that he had overpaid and so he immediatel! filed a claim for refund ith the 5ommissioner of ,nternal Revenue. Fn Cebruar! .B, .00/, he received the decision of the 5ommissioner den!ing R8)>s claim for refund. Fn 6arch .0, .00/, R8) filed an appeal ith the 5ourt of Tax "ppeals. #as his appeal filed on time or not7 Reason. (13)

4.

" la as passed exempting doctors and la !ers from the operation of the value added tax. Fther professionals complained and filed suit questioning the la for being discriminator! and violative of the equal protection clause of the 5onstitution since complainants ere not given the same exemption. ,s the suit meritorious or not7 Reason briefl!. (13)