Items 2-5: Incidental income from hospital primarily

used as training ground of medical course

Nard Corporation had the following income and students 375,000
expenses: Yield from trust funds
30,000
Gross income, Philippines P700,000 Interest on bank deposits, net of 20% WT
Gross income, Japan 500,000 7,000
Expenses, Philippines 400,000 Rent income from lease of store space,
Expenses, Japan 200,000 net of 5% CWT
Other income – gross of WT: 23,750
Cash dividend from San Miguel Expenses 3,000,000
Corp, domestic 50,000 Cost of new building, constructed July 1
Dividend received from foreign corp 30,000 (life – 50 years) 6,000,000
Royalty income, Phil.
225,000 6. The income tax due if the cost of the new building
Income from goodwill, U.S. 200,000 is treated as an expense ---
Rent from land located in the Phils. a. 110,000 c. 108,750
180,000 b. 72,500 d. 71,250
Rent form land located in the U.S. 300,000 7. The income tax payable if the cost of the new
Interest on bank deposit, BDO 15,000 building is capitalized ---
a. 703,875 c. 704,000
2. The income tax due if domestic corporation b. 71,250 d. 702,750
a. 500,000 c. 393,000 8. The total final tax ---
b. 458,500 d. 210,000 a. 23,500 c. 7,750
3. The total final WT if the corporation is domestic b. 31,500 d. None
a. 65,500 c. 48,000
b. 72,000 d. 25,500 Items 9-10:
4. The income tax due if resident foreign corp
a. 210,000 c. 144,000 A proprietary educational institutions, in its third
b. 500,500 d. 245,000 year of operations, had the following income and
5. The final WT if non-resident foreign corporation expenses in 2017:
a. 351,000 c. 500,500
b. 262,500 d. 292,500 Gross income, tuition P 5,000,000
Rent, net of withholding tax of 5%
SPECIAL CORPORATIONS 1,900,000
A. DOMESTIC CORPORATIONS Dividend from domestic company 4,000,000
1. Private Educational Institutions and Hospitals Operating expenses 4,500,000
(whether stock or non-stock)
9. Applying the predominance test, the percentage
Rate and Base – 10% of taxable income of unrelated income is:
Exception: Predominance Test - If the gross a. 66 2/3% c. 54.13%
Income from unrelated trade, business or other b. 54.55% d. 53.64%
activity exceeds 50% of the total gross income 10. The income tax payable at the end of the year is:
derived by such educational institutions or a. P 650,000 c. P 150,000
hospital b. P 775,000 d. P 750,000
from all sources, the 30% rate shall be applied on 11. One of the following is exempt from income tax:
the entire income. a. Proprietary educational institutions
b. Private cemeteries
Expenses allowable to private educational c. Government educational institutions
Institutions – In addition to expenses allowable as d. CPA review center
deductions, it may at its option elect either:
2. Government- owned of Controlled Corp,
a. To deduct expenses otherwise considered as Agencies of Instrumentalities (taxable
capital outlays of depreciable assets incurred irrespective of existing general or special laws)
during the taxable year for the expansion of
school facilities, or Rate – 30%
b. To deduct allowance for depreciation thereof. Base – Taxable income, but the following are
exempt:
Items 6 – 8:
1. SSS and GSIS
Bicol School of Business and Arts (BSBA), a 2. PHIC
proprietary educational institution has the following 3. PCSO (deleted in TRAIN Law)
data of income and expenses: 4. Local water districts

Tuition fees P 12. Which of the following is subject to income tax?

8,500,000 a. SSS and GSIS
Miscellaneous fees b. Philippine Health Insurance Corporation
1,200,000 c. Philippine Charity Sweepstakes Office
Dividend from domestic corporation 80,000 d. Local water districts
B. RESIDENT FOREIGN CORPORATIONS
1. International carrier – 2.5% of gross Philippine
billings
Exception: International carriers doing business in
the Philippines may avail of a preferential rate or
exemption on their gross revenue derived from the
carriage of persons and their excess baggage on the
basis of –
a. an applicable tax treaty or
b. international agreement to which the
Philippines is a signatory, or
c. on the basis of reciprocity such that an
international carrier, whose home country
grants income tax exemption to Philippine
carriers.
2. Offshore banking units – FWT of 10% of its income
authorized with local commercial banks and
branches of foreign banks that may be authorized by
BSP to transact business including income derived
from foreign currency loans granted to residents.
3. Branch profit remittances – FWT of 15% of any
profit remitted by the Philippine branch to its head
office, except those registered with the following:
a. Philippine Economic Zone Authority (PEZA)
b. Subic Bay Metropolitan Authority (SBMA)
c. Clark Development Authority (CDA)
d. Other companies within the special economic
zones
1. Regional or Area Headquarters – Exempt
2. Regional Operating Hqrs of Multinational
Companies – 10% of their taxable income
Problem
13. The taxable base for income tax purpose of an
international carrier doing business in the Philippines
is :
a. Gross Philippine billings.
b. Gross Philippine billings minus deductible
expenses.
c. Regular corporate income tax rate of 30% of
its taxable income.
d. Allocation of income from sources within and
without the Philippines, as well as expenses.
14. International carriers are subject to
a. value-added tax on services conducted in the
Philippines
b. value-added tax on gross receipts within and
income tax on gross Philippine billings
c. 3% percentage tax on carriage of cargo in
outgoing flights and 2.5% income tax on gross
Philippine billings, but maybe exempt on the basis of
reciprocity
d. 3% percentage tax and 2.5% income tax on
gross Philippine billings
C. NONRESIDENT FOREIGN CORPORATIONS
1. NR cinematographic film owner, lessor or
distributor – 25% of its gross income from all sources
within
2. NR owner/lessor of vessels chartered by Philippine
nationals – 4.5% of gross rentals, lease or charter
fees from leases or charters to Filipino citizens or
corporation as, approved by the Maritime Industry
Authority (MARINA)
3. NR owner of lessr or aircraft, machineries and
other equipments – 7.5% of gross rentals or fees
Problems
15. A mother corporation has a branch office in the
Philippines. Which of the following statements is NOT
CORRECT?
a. In a year, the branch in the Philippines is
subject to a profit remittance tax on its
remittance of profits to the mother company
abroad, even if the profits from which the
remittance was made was a prior year’s
profits.
b. The profit remittance tax is 15% final tax of
the amount of profit for remittance, as
applied for with the bank.
c. The bank with which the application for
remittance was filed would be the withholding
agent of the Bureau of Internal Revenue
d. Even activities registered with the Philippine
Economic Zone Authority (PEZA), from the
profits from which the remittance is applied
for, will be subject to profit remittance tax.
16. Teri Yaki Corp., a Japanese Corp having no
business in the Philippines, is engaged in ship
building. It leases siome of its newly constructed
ships to Super Fairy Inc., a Philippine Center.
What income tax rate will apply to the rental
payments of the lessor?
a. 30% Basic Income Tax
b. 25% Final Witholding Tax
c. 7.5% Final Witholding Tax
d. 4.5% Final Witholding Tax
Capital gain on sale of shares pf stock which
are not traded in the stock exchange
Seller Tax base Tax rate
Domestic corp Net cap gain 15%
Foreign corp Net cap gain P100,000 and
below – 5%
On the excess
– 10%
Exemptions from tax on corporations
The following organizations shall not be taxed in
respect to income received by them as such:
1. Labor, agricultural or horticultural organization not
organized principally for profit.
2. Mutual savings bank not having a capital stock
represented by shares and cooperative bank
without capital stock organized and operated from
mutual purposes and without profit;
3. A beneficiary, order or association, operating for
the exclusive benefit of the members such as a
fraternal organization operating under the lodge
system, or a mutual aid association or a non-stock
corporation organized by employees providing for
the payment of life, sickness, accident or other
benefits exclusively for the members of such
 society, order or association, or nonstock
corporation or their dependents;
4. Cemetery company owned and operated
exclusively for the benefit of its members;
5. Nonstock corporation or association organized and
operated exclusively for religious, charitable,
scientific, athletic, or cultural purposes, or for the
rehabilitation of veterans, no part of its net
income nor asset shall belong to or inure to the
benefit of any member, organizer or any specific
person.
6. Business league, chamber of commerce, or board
of trade, not organized for profit and no part of
the net income of which inure to the benefit of
any private stockholder or individual;
7. Civic league or organization not organized for
profit but operated exclusively for the promotion
of social welfare;
8. A nonstock and nonprofit educational institution
9. Government educational institution
10. Farmers’ or other mutual typhoon or fire
insurance company, or like organization of a
purely local character, the income of which
consists solely of assets, dues, and fees collected
from members for the sole purpose of meeting its
expenses; and
11. Farmers’, fruit growers, or like association
organized and operated as sales agent for the
purpose of marketing the products of its members
and turning back to them the proceeds of sales,
less the necessary selling expenses on the basis
of the quantity of produce finished by them.
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any of
their properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to
tax imposed under the National Internal Revenue
Code.
MINIMUM CORPORATE INCOME TAX
Tax Rate and Tax Base: 2% of gross income
Meaning of gross income:
Gross receipts / sales Pxx
Less: sales returns & allowances P x x
Sales discounts xx xx
Net Sales xx
Less: Cost of services / goods sold x x
Gross income xx
The term gross income means all items of the
income realized or earned by the taxpayer during the
taxable period which are subject to normal corporate
income tax, EXCEPT –
1. Income exempt from tax, and
2. Income subject to final withholding tax.
Cost of services sold means all direct costs and
expenses incurred to provide the services required
by the customers and clients during:
a. Salaries and employee benefits of personnel,
consultants and specialists directly rendering
the service, and
b. Cost of facilities used directly in providing the
service such as depreciation, rental of
property and cost of supplies. In the case of
banks, cost of services sold shall include
interest expense.
Corporation covered:
Domestic those whose taxable income are
subject to the regular or normal tax rate of 30%; not
those enjoying preferential rates on their taxable
income.
Resident FC
Requirements:
1. It is already the 4th taxable year or beyond
after commencement of its operations.
2. Registration date with the BIR is the start of
commencement of operations.
3. MCIT is payable when it is higher than the
normal income tax.
When payable?
Quarterly / annual bases. Simultaneous to filing:
a. Of quarterly ITR ; and
b. Of Annual Final or Adjustment ITR.
Excess MCIT over NIT paid:
1. Credible against the NIT of the next three (3)
succeeding years, provided the NIT is greater
than MCIT.
2. The excess MCIT losses its credibility after
three (3) years
Suspension of imposition (exception)
Proven substantial losses due to:
a. Prolonged labor dispute (over 6 months)
b. Force majeure (act of GOD or insurgency)
c. Legitimate business reverses (fire or theft)
problems
17. a corporation which was registered with the
Bureau of Internal Revenue in May 2012 shall be
covered by MCIT.
a. 2013 c. 2015
b. 2014 d. 2016
18. one of the following statements is correct. Which
is it? The minimum corporate income tax of a
corporation is computed:
a. in the quarterly and the annual returns of the
corporation
b. in the annual income tax return only of the
corporation
c. in the quarterly return only of the corporation
d. in all taxable years of operations of the
corporation
Exceptions to MCIT:
1. Domestic Corporations:
a. Proprietary educational institutions which
are subject to 10% tax
b. Non-profit hospitals which are subject to
10% tax
c. Depository banks under the expanded
foreign currency deposit system
d. Real Estate Investment Trust (REIT)
2. Foreign Corporations
a. Offshore banking Units subject to 10%
FWT
b. International carriers subject to 2.5% taxt
c. Regional Operating headquarters subject
to 10% of taxable income
d. Firms under PEZA, CDA & SBMA
Items 19-23;
A domestic corporation’s computed NIT and MCIT
and creditable income taxer with held at source from
1st to 4th quarters, including excess MCIT and excess
withholding taxes from prior year/s are as follows:
1st 2 nd 3rd 4th
NIT 100,00 120,00 250,000 200,000
MCIT 80,000 250,000 100,00 100,000
Taxes withhold 20,000 30,000 40,000 35,000
Excess MCIT/ NIT d. Income tax payable 750
Prior year 30,000 Retained earnings
Excess WT 750
Prior year/s 10,000
19. The income tax payable at the end of the 1 st 29. The imposition of minimum corporate income tax
quarter shall not be suspended whenever the corporation
a. P40,000 c. P70,000 suffers losses due to:
b. P50,000 d. P80,000 a. Prolonged labor dispute
20. The income tax payable at the 2nd quarter is: b. Force majeure
a. P120,000 c. P260,000 c. Legitimate business reverses
b. P230,000 d. P270,000 d. Mismanagement
21. The income tax payable at the 3rd quarter is:
a. P30,000 c. P60,000 QUATERLY CORPORATE RETURNS
b. P40,000 d. P70,000
22. The income tax at the end of the year is: a. Who are required to file? Every
a. P235,000 c. P165,000 corporation or partnership subject to
b. P220,000 d. P205,000
income tax shall file a quarterly summary
23. Suppose the NIT and MCIT in the 4 th quarter are
P50,000 and P120,000 respectively, the income tax declaration of its gross income and
due at the end of the year is: deductions on a cumulative basis.
a. P75,000 c. P105,000 b. Time of filing and payment – Within 60 days
b. P85,000 d. P210,000 from the close of each of the first three (3)
Items 24-28 quarters of the taxable year, whether calendar
A domestic corporation which commenced business or fiscal.
operations in 2005 has the following data: c. Time of filing final or adjustment return –
Sales P1,700,000 P2,300,000 On or before the 15th day of the 4th month
Cost of Sales 1,050,000 1,425,000 following the close of the calendar or fiscal
Operating Expenses 615,000 480,000 taxable year.
d. Final payment of income tax – The amount
24. The income tax payable in 2014 is: of tax payable shall be the balance of the tax
a. P13,000 c. P11,200 on the final return after deducting therefrom
b. P12,250 d. P10,500 the quarterly income taxes paid during the
25. The journal entry in 2014 to record excess MCIT preceding 1st three quarters of the same
is: calendar or fiscal taxable year.
a. Deferred charges – MCIT P1,800
Income tax payable P1,8000 Note: If quarterly payments exceed the tax on the
b. Deferred charges – MCIT P2,500 final return, the excess shall either be:
Income tax payable P2,500 1. Refunded, or
c. Provision for income tax P11,200 2. Credited against the estimated quarterly
Income tax payable P11,200 income tax liabilities for the quarter of the
d. Income tax payable P13,000 succeeding taxable year.
Cash P13,000
26.The income tax payable in 2015 is: Problems
a. P15,700 c. P118,500
b. P17,500 d. P116,000 Items 30 -34:
27. the journal entry in 2015 to record the carry
forward of 2014 excess MCIT against normal income The following selected cumulative balances were
tax liability in 2015 is: taken from the records of a domestic corporation in
a. income tax payable P 2,500 its 5th year of operations in 2018. It had an excess
Deferred charges P 2,500 income tax of P10,000 for the previous year for
b.Provision for income tax P 137,500 which there is a certificate of tax credit.
Income Tax Payable P 137, 500
c.Income tax payable P 1,800 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
deferred charges P 1,800 a. 800,000 1,600,000 2,400,000
d.Income tax payable P 750 3,100,000
Cash P750 b. 50,000 50,000 50,000
28. What if even after 2015 the MCIT still continues 100,000
to be higher than the NIT? The journal entry at c. 10,000 10,000 20,000
December 31, 2017 to cancel the excessMCIT in 20,000
2014 is: d. 5,000 10,000 15,000
a. Income tax payable P750 20,000
Deferred charges – MCIT e. 600,000 1,200,000 1,700,000
P750 2,100,000
b. Income tax expense 750 f. 15,000 35,000 65,000
Deferred charges – MCIT 115,000
750
c. Retained earnings 2,500 Notes:
Deferred charges – MCIT
2,500 a. Gross profit from sales
 b. Capital gain on sale directly to buyer of 38. The income tax payable at the end of 2nd quarter:
shares of domestic corporation
c. Dividend from domestic corporation a. P 80,000 c. P 39,000
d. Interest on Philippine currency bank deposit b. P 35,000 d. P 75,000
e. Business expenses
f. Income tax withheld 39. The income tax payable at the end of the 3rd
quarter:
30. The capital gain tax paid for the year:
a. P15,000 c. P 5,000 a. P 102,000 c. P 147,200
b. 12,000 d. 20,000 b. P 119,000 d. P 177,000

31. The final tax paid on passive income within the 40. The income tax payable at the end of the year:
year: a. P 273,000 c. P 87,400
a. P 4,000 c. P12,500 b. P 92,900 d. P 96,000
b. 10,000 d. 16,000
41. Which of the following is not an income tax on
32. The income tax payable at the end of the 1st corporations?
quarter: a. Normal tax
a. P 35,000 c. P55,000 b. Minimum Corporate Income Tax
b. 10,000 d. 60,000 c. Gross Income Tax
d. Stock Transaction Tax
33. The income tax payable at the end of the 2nd
quarter: IMPROPERLY ACCUMULATED EARNING TAX
a. P 50,000 c. P140,000
b. 70,000 d. 40,000 1. Tax Rate and Tax Base: 10% of Improperly
34. The income tax payable at the end of the 3rd Accumulated Taxable Income
quarter:
a. P66,000 c. P210,000 2. Who are covered? Every domestic corporation
b. 60,000 d. 140,000 formed or availed for the purpose of avoiding the
35. The income tax payable at the end of the year: imposition of income tax to its stockholders or
a. P300,000 c. P55,000 stockholders of other corporation by permitting its
b. 350,000 d. 40,000 profits to accumulate instead of being distributed.

Items 36 – 40: 3. Presumption or evidence of avoiding the

payment of income tax to stockholders:
The books of a domestic corporation, in its 5th year of 1. Corporation is a mere holding company.
operations in 2015 show the following: 2. Corporation is an investment company.
3. Profits of the corporation are permitted to
Sales Cost of Sales accumulate beyond the reasonable needs of
Expenses the business.
1st Quarter P500,000 P260,000 4. Closely- held corp. (family corp.)
P120,000
2nd Quarter 450,000 220,000 4. Prima facie presumption of improper
100,000 accumulation of profits:
3rd Quarter 700,000 390,000 1. Withdrawals by stockholders disguised as
150,000 loans
4th Quarter 600,000 310,000 2. Expenditures by the corporation for the
160,000 personal benefit of the stockholders.
Total 2,250,000 1,180,000 3. Yearly substantial advances made to
530,000 stockholders-officers.
4. Investments in unrelated business.
Other income: 5. Radical change of business when large profits
have been accumulated.
1st Q – P 96,000 – Royalty, net of 20% WT tax
2nd Q- 50,000 - Dividend from domestic corp
3rd Q- 180,000 – Dividend from foreign corp 5. Circumstances considered proper
4th Q– 190,000 – Dividend from foreign corp accumulation of profits:
1. Additional working capital purposes.
36. The final tax paid on the royalty income within 2. Purchase of long-life assets reasonably
the year? required
a. P19,200 c. P 24,000 by the business.
b. P 34,200 d. P 39,000 3. Obligation in a contract to set aside funds ina
sinking fund to settle debts.
37. The income tax due at the end of the first
quarter: Exempt Corporations:

a. P42,000 c. P 52,800 1. Insurance companies

b. P 36,000 d. P 76,800 2. Publicly-held companies
3. Banks and non-bank financial intermediaries
4. Taxable and general professional partnerships Items 46-47:
5. Non-taxable joint ventures
6. Those registered with the PEZA, SBMA, CDA and in The records of a closely-held domestic corporation
special economic zones. show the following data for 2015:

Formula:
Gross income(gross of WT of 2%) 1,500,000
Taxable income Business Expenses
Pxx 600,000
Add: Income exempt from tax Pxx Gain on saleof business asset 60,000
Income excluded from gross income xx Interest on deposit with BDO, net of tax 5,000
Income subject to final tax xx
NOLCO deducted xx Sale of share of stock, not listed and traded:
xx
Selling price
Total
150,000
xx
Less: Income tax paid/payable Cost
For the taxable year xx 115,000
Dividends paid/issued from Dividends from domestic corporation 35,000
applicable year’s Dividends paid during the year
taxable income xx 120,000
Reserved for reasonable needs Reserved for building acquisition
of the business xx 300,000
xx
Improperly accumulated taxable income
xx
Rate of tax In 2014, the corporation an operating loss of
10% 130,000. This amount was carried forward and
Improperly accumulated earnings tax claimed as deduction from gross income in 2015.
xx

Problems 46. the income tax due in 2015 is:

42. A penalty and a form of deterrent to the a. 250,000
avoidance of tax upon shareholders who are
supposed to pay dividends tax on the earnings b. 260,500
distributed to them by their corporation:
a. Minimum corporate income tax c. 219,000
b. Fringe benefit tax
d,249,000
c. Improperly accumulated earnings tax
d. Gross income tax

43. The Following except one, gives rise to the 47.the improperly accumulated earning tax is:
presumption that a corporation is improperly
accumulating profits. Identify the exception: a. 64,415
a. Minimum corporate income tax b. 36,425
b. Fringe benefit tax
c. Improperly accumulated earnings tax c. 32,275
d. Gross income tax
d. 25,060
44. One of the following statements is WRONG.
Identify the improperly accumulated earnings tax
imposed on corporations: 48. A domestic corporation had the following data for
a. Is calculated to force corporations to pay out
2015, the accumulated earning for which year the
dividends
Bureau of Internal Revenue considered to be
b. Is computed on improperly accumulated income
over several years improper:
c. Is based on the net income per books after income
tax.
d. Is based on a statutory formula for improperly Sale
accumulated income. 6,000,000
Cost of sale
45. All of the following, except one, are additions to 2,000,000
taxable income after income tax for purposes of
Business expense
computing improperly accumulated income
1,000,000
a. Income subject to final taxes
b. Reserved for reasonable needs of the business Interest on Philippine peso bank deposit
c. Income excluded from gross income 50,000
Capital gain on sale directly to buyer of
Shares of domestic corp
120,000
Dividend income from domestic corp.
60,000
Dividend declared and paid during
the year
500,000
The importantly accumulated earnings tax is:
a. P175,300 c. P171,000
b. P181,300 d. P166,300
49. Family Corp, a domestic corporation, had a
taxable income of P2,000,000. It paid a corporate tax
of 30% leaving a distributable income of P1,400,000.
If a dividend is declared by the corporation and
received by the following stockholders, which of the
following statements is false?
a. NRA ETB are liable to pay 25% dividend tax.
b. Nonresident aliens are liable to pay 25%
dividend tax.
c. Resident citizens are liable to pay 10%
dividend tax.
d. Resident foreign corporations are exempt
from the payment tax.
PARTNERSHIP
Kinds of partnership
1. Tax exempt partnership
2. Taxable partnership
Partnership not subject to income tax (Exempt)
1. General professional partnership – One
formed for the sole purpose of exercising a
common profession, no part of the income of
which is derived from engaging in trade or
business.
2. Joint venture or consortium formed for the
purpose of undertaking –
a. Construction projects, or
b. Petroleum, coal, geothermal, and other
energy operations under a service
contract with the government.
Notes –
1. Filling of return- Exempt partnerships are
required to file an annual income tax return.
The purpose is to furnish information as to the
share each partner shall include in his
personal income tax return.
2. Tax liability of partners –
a. Share on the net profits – taxable as
business income, whether distributed or
not [principle of constructive receipt].
b. Rules to determined the share of partner
in the income of the partnership-
1. Each partner shall take into account
his share of the partnership’s income,
gain, loss, deduction or credit.
2. He shall be deemed to have elected
the itemized deductions unless he
declares his share of the gross income
undiminished by his share of the
deduction.
3. Income payments made periodically or at the end
of the taxable year, such as drawings, advances,
sharing, allowances, stipends, etc. are subject to
CWT of payments during the year-
10% - does not exceed P720,000
15% - exceeds P270,000
4. GPP can claim optional standard deduction (40%
of gross income) but the partners cannot claim
deduction from their share in the net income.
TRAIN LAW:
1. For purposes of computing the distributive
share of the partners, the net income of the
GDP shall be computed in the same manner
as a corporation. It may claim either the
a. Itemized deduction or
b. Avail of the OSD allowed to corporations in
claiming the deduction in an amount not
exceeding 40% of its gross income.
2. The distributable net income of the
partnership may be determined by claiming
either itemized deductions or OSD.
3. The share in the net income of the
partnership, actually or constructively
received, shall be reported as taxable income
of each partner. The partners comprising the
GPP can no longer claim further deduction
from their distributed share in the net income
of the GPP and are not allowed to avail of the
8% income tax rate option since their
distributed share from the GPP is already net
of cost and expenses.
 Prof Partnership Bus Partnership
a. P 17,500 None
4. If the partner also derives other income from b. P 17,500 P 47,500
trade, business or practice of profession apart c. P 23,875 P 47,500
and distinct from the share in the net income d. None None
of the GPP, the deduction that can be claimed
from the other income would either be the
itemized deductions or OSD. Partnerships subject to income tax
All other partnerships (except those mentioned
above), no matter how created or organized, are
considered as corporations subject to corporate tax.

Notes –

1. Filing of the return – These partnerships are

Item 1-2:
Mr. A is a partner of ABC & Co., a general
professional partnership and owns 25% interest. The
gross receipts of ABC& Co. amounted to P10,000,000
for taxable year 2018.
The recorded cost of service and operating expenses
were P2,750,000 and P1,500,000, respectively.
1. If ABC & Co. availed of the OSD, which
statement is false?
required to file quarterly income tax returns for the
1st, 2nd, 3rd quarters and an annual return.
2. Tax liability of partners – The share of an
individual partner is subject to final withholding tax
of 10%.
3. Payments made to the partners – considered as
business income
4. Tax Rate – the net income is taxable at 30%.
Items 6-8:
The partners in the following partnerships are-

a. There is no income tax liability for ABC & A. Aral -60%, single
B. Pasa -40%, married, with one dependent child
Co.
b. The taxable net income is P4,350,000.
The 2017 partnership income and expenses –
c. The elected OSD in the computation of its Prof Part Bus Part
net income is irrevocable for the taxable Gross Income P 300,000 P500,000
year for which the return is made. Expenses P 150,000 P200,000
d. The GPP is liable to business tax. Drawings:
A. Aral P 50,000
B. Pasa 30,000
2. The income tax liability of Mr. A will be Partners’ personal income and expenses in 2017:
a. P216,250 c. P87,000
A. Aral
b. P321,250 d. Exempt
Gross business income (grosws of 1% WT), P800,000
Business expenses, P500,000
3. How much is the income tax due on Mr. A if the Dividend domestic company, net of WT, 45,000
partnership on Mr. A if the partnership elected Royalty, net of WT, P80,000
itemized deduction?
a. P 216,250 c. P 87,000 P. Pasa
b. P 321,250 d. EXEMPT Gross business income (gross of 1% WT), P500,000
Business expenses, P100,000
Items 4-5: Dividend domestic company, net of WT, P18,000
Rollie, Pollie, and Ollie, CPAs, formed a partnership to Rent, net of WT 5%, P76,000
engage in the practice of their profession. The
partnership is not in the practice of their profession. 6. The taxable income of Partner A. Aral –
The partnership is not registered with SEC. During a. P550,000 c. P320,000
the year, it earned gross receipts of P500,000 and b. P370,000 d. P340,000
incurred expenses of P275,000.
7. The tax payable by Partner P. Pasa after tax credit
4. Which of the following questionable is answerable a. P110,000 c. P175,000
by “yes”? b. P116,000 d. P102,500
a. Is the partnership subject to income tax? 8. The total final withholding tax on P. Pasa –
b. Is the partnership subject to value-added tax a. P 34,000 c. P 10,400
on its gross receipts? b. P14,000 d. P122,000
c. Are the shares of the partners in the net
income returnable for income tax purposes? CO-OWNERSHIP
d. None of the above.
1. Is a co-ownership taxable? Generally, no because
5.How much is the taxable income of Ollie if his the activities of the co-owners are usually limited to
share in profit and loss ratio is 30%? How about if the
partnership is a taxable partnership?
the preservations of the property owned in common b. Not under juridical settlement – mere co-
and collection of the income therefrom. ownership

2. What is the tax liability of the co-owners? They 2. Taxable in the same manner as individuals.
shall report in their respective income tax returns
their share in the income of the co-ownership. Rules on trusts:
a. Revocable trust – taxable is the trustor and not the
3. When will a co-ownership be taxable? When the trust
income of the co-ownership is invested by the co- b. Irrevocable trust – taxable
owners in business or other income producing
properties, the co-ownership will be taxable as a
corporation, because the co-owners have constituted Items 7 – 8
themselves into a partnership.
Estoy died May 5, 2016 leaving the following:
Problems
9. When the wife died in 2014, she left real Estate (under juridical
properties to her husband and 5 children with a total settlement) P2,750,000
value of P50,000,000. In the will, the husband is Income earned in 2016 400,000
appointed as administrator of the estate. In 2016, Expenses incurred in 2016 75,000
the project of partition was approved by the court Amount distributed to beneficiaries:
and the special proceedings was closed and Estelita, single, with one child 125,000
terminated. However, he continued to administer the Istana, married 125,000
properties with the consent of his children. He
accumulated the income and purchased a passenger Estelita is employed with the government. During the
bus valued at P5,000,000. year, her taxable compensation income was
P150,000.
a. The income of the inherited property is taxable to
the heirs, while the income form the passenger bus 10. The incme tax due on the estate of Estoy
is subject to corporate tax. a. P 6,250 c. P 66,500
b. The annual income of P3,000,000 is not taxable to b. P 2,000 d. Not taxable
the heirs.
c. The income of the inherited property is not 11. the taxable income on Estelita
taxable, while the income form the passenger bus is a. P 75,000 c. P275,000
subject to final tax on the heirs. b. P 200,000 d. P250,000
d. The income of the inherited property is taxable to
the partners, while the income of the passenger bus 12. If the income is earned in 2018, how much is the
is not. taxable income of the estate?
a. P 75,000 c. P 275,000
ESTATE & TRUST b. P 200,000 d. P250,000

1. Estate (inheritance) – the property, rights, and Items 9-10

obligations of a person which are not extinguished by
his death and also those which have accrued thereto Andi created two trusts for her daughter Bianca and
since the opening of the succession. appointed Carla and Diana as trustees for Trust 1
and 2, respectively. In 2017, the gross income of
2. Trust – an arrangement created by will or an Trust 1 was P120,000 and deduction of P20,000,
arrangement under which title to property is passed while Trust 2 had a gross income of P100,000 and a
to another for conservation or investment with the deduction of P30,000.
income therefrom and ultimately the corpus
(principal) to be distributed in accordance with the 13. The taxable income from the two thrusts under
directions of the creator as expressed in the trust consolidation –
governing instrument. a. P 120,000 c. P 200,000
b. P 150,000 d. P 170,000
3. Revocable trust – the title to the trust can be
returned to the grantor at any time. 14. The share of Trustee Diana in the tax payable by
the consolidated trust –
4. Trustor/Grantor – the person who establishes a a. P 14, 706 c. P 25,000
trust. b. P 10, 294 d. P 12,000

5. Trustee – the one in whom confidence is reposed END

as regards property for the benefit of another -done-
person.

6. Beneficiary – the person for whose benefit the

trust has been created

Rules on estates:

1. a. Under juridical settlement – taxable