Tax Test Bank Theory

1.

The followin following g conditions conditions shall be be observed observed when there there is a net net capital capital loss carry over: over: a. The loss loss carried carried over over is for for a holding holding period period not not exceedin exceeding g 12 months months b. The amount amount of of the loss loss should should not exceed exceed the the income income before before exempt exemptions ions in in the year year when when the loss was sustained c. The taxpay taxpayer er shoul should d not not be a corpo corporat ration ion d. All of th the abo above ve

2.

Which Which of the follow following ing prizes prizes/bene /benefits fits is nontax nontaxable: able: a !rizes !rizes receiv received ed in recog recognit nition ion of of litera literary ry achie achievem vement ent b !rizes !rizes granted granted to athlete athletes s in local local competit competitions ions sanct sanctioned ioned by a nation national al sports sports associat association ion c "ocial "ocial "ecurity "ecurity benefits benefits receiv received ed by reside resident nt aliens aliens from from foreign foreign governme government nt agencies agencies d Any one of of th the ab above

#.

$n the computat computation ion of the improperly improperly accumul accumulated ated earnings earnings tax% tax% which of the followi following ng is not deducted deducted from from the taxable net income& a 'ivide 'ividends nds declar declared ed and and paid paid for the taxabl taxable e year  year  b Net operat operating ing loss loss carr carry-o y-over ver deduct deducted ed c $ncome $ncome tax due and paid paid for for the the taxabl taxable e year  year  d (one of of th the ab above

).

*fter *fter filing a protest protest within within the prescribe prescribed d period% all relevan relevantt documents documents should should be submitted submitted to the the +$, within a With Within in ##- days days afte afterr fili filing ng the the pro prote test st b With Within in ))- days days afte afterr fili filing ng the the pro prote test st c With Within in 60 60 days days afte afterr fili filing ng the the pro prote test st d *nswer no not gi given

.

Which Which of a b c d

.

3ne of the the genera generall princip principles les of of income income taxa taxatio tion: n: a * foreign foreign corpora corporation tion engaged engaged in in business business in the the !hilippi !hilippines nes is taxabl taxable e on all income income derive derived d from sources within and without the !hilippines b A foreign foreign corpor corporati ation on engage engaged d in busine business ss in the Philipp Philippine ines s is taxabl taxable e on all incom income e derived from sources within the Philippines Philippines only c * domest domestic ic corporat corporation ion is taxabl taxable e on income income derived derived from source sources s within within the !hilip !hilippines pines only only d * domest domestic ic corporat corporation ion is taxabl taxable e on income income derived derived from source sources s without without the !hilip !hilippines pines only only

4.

Which of the the follow following ing state statements ments is not not correc correct& t& a. 5$T is not not applicabl applicable e to nonres nonresident ident foreign foreign corporat corporations ions b. he annual annual corporate corporate income income tax tax return shall shall be filed filed within within 60 days follow following ing the close close of  the taxable year  c. ,esident ,esident foreign foreign corporat corporations ions would would be taxed taxed on net net income income from within within the the !hilippine !hilippines s only d. (onreside (onresident nt foreign foreign corporatio corporations ns are taxed taxed on gross income income from from within within the !hilippine !hilippines s only

6.

The follow following ing incom income e are subect subect to final final tax except: except: a. ,oyalty ,oyalty income income receive received d by a domestic domestic corpora corporation tion from from a domestic domestic corpora corporation tion b. ash dividen dividends ds received received by a nonreside nonresident nt foreign foreign corporati corporation on from a domestic domestic corporat corporation ion c. !ash divide dividends nds received received by a domestic domestic corpora corporation tion from from a domestic domestic corpo corporatio ration n d. $nterest $nterest income income receiv received ed by a resident resident foreig foreign n corporatio corporation n from a !hilipp !hilippine ine ban0 ban0

7.

Which Which of of a. b. c. d.

the the followin following g is subec subectt to the corpor corporate ate income income tax& * nons nonstoc toc0 0 and non nonpro profit fit educ educati ationa onall instit instituti ution on !ubl !ublic ic educ educat atio ional nal inst instit itut utio ion n Priva rivate te cem cemeter eteriies ivic ivic league league or organizat organization ion not organiz organized ed for profit profit and and operated operated exclusiv exclusively ely for for the promotion promotion of  of  social welfare

the the follo followi wing ng is is not not corre correct& ct& $ncome $ncome from from ille illegal gal act activi ivitie ties s are taxa taxable ble "efund "efund of income income tax expense expense constit constitutes utes taxable taxable income income to the the taxpayer  taxpayer  ,ecovery ,ecovery of of bad debts debts previo previously usly writte written n off is part part of the the taxable taxable income income *s a rule% rule% contest contest awards awards and prizes prizes of !1-%--!1-%--- or more more are subect subect to to final tax tax otherwise otherwise they they will will be subect to basic income tax

1-. 3ne of the follow following ing is/are is/are not taxabl taxable: e: a. omp ompen ensa sati tion on for for dam damag ages es b. 8ivings 8ivings 9uarters 9uarters provided provided to ran0 ran0 and file employe employees es for the conveni convenience ence of the employ employer  er  c. aciliti acilities es or privileges privileges of relativ relatively ely small small value offered offered by the employer employer as a means means of promoting promoting the health% goodwill% contentment% or efficiency of the employee d. All of th the abo above ve 11. The ;de minimis< minimis< benefit in excess of the ceiling ceiling is treated as: a. $nco $ncome me on the the part part of ran0 ran0 and and fil file e empl employ oyee ee b. "ub "ubec ectt to withh ithhol oldi ding ng tax tax on wages ages c. The The fri fring nge e ben benef efit it is a ded deduc ucti tibl ble e exp expen ense se of the the emp emplo loye yer  r  a. 12.

3nly a and b

b. 3n 3nly a and c

c. 3n 3nly b and c

$n which of the following transaction/s transaction/s is/are exempt from income income tax:

d. a#b#and c

a. b. c. d. b.

When it involves a gain from sale of shares of stoc0 held as capital assets and traded through the local stoc0 exchange When it involves sale of shares of stoc0 directly to the buyer held as capital asset When the sale involves a real property considered as principal residence When the sale involves a real property held as ordinary asset 3nly a and b b. $nly a and c

c. 3nly b and c

d. 3nly c

1#. Which among the following dependents% age is not considered to 9ualify a taxpayer as head of the family: a. Parents b. hildren c. "iblings d. "enior itizen 1). 5arvin is employed as a security guard of 8ianas "upermar0et% $nc. =e lives in a room within the compoundof 8ianas but he us not charged any rent. The rental value of the room is !#%--- a month. The rental on the part of the taxpayer is: a. b.

"ubect to income tax "ubect to fringe benefits tax

c. %xempt &ncome d. (one of the above

1. Which of the following taxes is/are deductible a. ustoms 'uties b. ommunity Taxes c. 8ocal Taxes d. $ncome Taxes a. 1.

a#b and c only

b. a%b%c and d

c. a and b only

d. b and c only

Which of the following losses is deductible over the threeyear period a. Net operating loss c. (et ordinary loss b. (et capital loss d. b and c only

14. Which of the following losses is deductible in the year of incurrence c. Net ordinary loss a. (et operating loss b. (et capital loss d. (one of the above 16. or individuals with gross income of !--%---% the following may be deducted% except: a. !ersonal exemptions c.'ealth('ospitali)ation &nsurance Premium b. *llowed business expenses d. *ll of the above 17. Which of the following best exemplifies the tax benefit rule applicable to bad debts recovery& a. $f in the year of deduction% a tax benefit resulted to the taxpayer% then the bad debts recovery is taxable in the year recovered b. $f no such benefits resulted in favor of the taxpayer in the year of deduction% then the bad debts recovery is not taxable c. The bad debts recovery is taxable whether or not the deduction benefitted the taxpayer  d. *oth a and b 2-. The following withholding taxes are included in the tax credit except: a. Withholding tax on compensation income b. reditable withholding taxes c. +inal withholding taxes d. Withholding tax on practice of profession 21. Which is deductible in the measurement of net income from business or profession& a. "alaries of personal security guard of a managerial employee b. Personal exemption c. Tuition fees of the taxpayer>s brother  d. $nterest expense on borrowings from family members 22. * repair a. b. c. d.

expense is deductible in the period paid or incurred unless it 5erely maintains the value of the property &ncreases the value of the property onstitutes a maor repair  onstitutes a minor repair 

2#. Which of these concepts are not relevant to corporations a. 'eductions c. ?xclusion b. @ross income d. Personal exemption 2). *n allocation of common expenses between related and unrelated activities is made to properly reflect taxable income. This procedure is re9uired only to a. domestic corporation c. exempt corporation b. resident foreign corporation d. nonprofit hospital 2. $nternational carriers are taxable on their gross income or receipt from a. incoming shipment or flight c. both incoming and outgoing flight b. outgoing shipment or flight d. any sources

2. Which is not a re9uisite of a deductible loss& a. $t must be sustained by the taxpayer in the current year  b. $t must be reported to the +$, within ) days from the occurrence of the loss c. &t must be compensated by insurance or indemnity contracts d. $t must pertain to a property connected to the trade% business% or profession of the taxpayer  24. Which of the following income is not from a related trade% business or activity of a domestic proprietary educational institution a. &ncome from rent of available office spaces in one of the school buildings b. $ncome from hospital where medical graduates are trained for residency c. $ncome from the canteen situated within the school campus d. $ncome from boo0store situated within the school campus 26. $f an individual performs services for a creditor who in consideration thereof cancels the debt% the cancellation of indebtedness may amount to: a. a gift c. donation inter vivos b. a capital transaction d. payment of income 27. Which of the following is taxable& a. Pri)e won in an essay writing contest b. The (oble peace prize c. !rize won as member of the !+* mythical team d. *ward for being a model employee #-. Which of the following is a taxable income& a. $ncome from 9ualified pension plan b. ompensation for personal inuries c. 5oral damages d. &nterest on moral damages #1. or an individual on the cash basis of accounting% prepaid interest pn business indebtedness is deductible: a. $n the year that the interest is prepaid b. &n the year that the principal is paid c. or the portion expired corresponding to the current accounting period d. *s time goes by #2. Which of the following statements are true& a. ,esident ilipino citizens with income from foreign sources only are allowed personal and additional exemptions b. (onresident aliens not engaged in trade/business in the !hilippines are not allowed any personal exemptions c. (onresident aliens engaged in trade/business in the !hilippines are allowed personal exemptions based on reciprocity d. All of the above ##. Which of the following corporations is subect to the minimum corporate income tax& a. !roprietary educational institutions subect to tax at 1-A of their taxable income b. (onprofit hospitals subect to tax at 1-A of their taxable income c. ,omestic airline companies operating within the Philippines d. 'epository ban0s under the expanded foreign currency deposit system #). The following cases may not be compromised: a. riminal tax fraud cases b. Withholding tax cases c. 'elin9uent accounts with duly approved schedule of payment d. All of the above #. ash dividends received from a domestic corporation are subect to final tax of 1-A if received by: a. *nother domestic corporation b. ,esident foreign corporation c. (onresident alien engaged d. "esident +ilipino citi)en #. The +$, ommissioner is empowered to: a. $nterpret tax laws and decide tax cases b. 3btain information% summon and examine witnesses c. ollect national internal revenue taxes d. All of the above #4. 8ife insurance proceeds shall not be included in taxpayer>s gross income when: a. The amount does not 9ualify as income b. The recipient is always the beneficiary c. The life insurance policy always provides for exclusion d. he amount is paid upon the death of the insured e. (one of the above

b. c. d. e.

#6. Which of the following are (3T exempt from income tax& a. !hilippine =ealth $nsurance orporation !hilippine (ational 3il ompany Bniversity of the !hilippines !*@3, b and d #7. The following fringe benefits are not taxable% except: a. b. c. d. e.

ringe benefits which are authorized and exempted from tax under special laws. ontributions of the employer for the benefit of the employee to retirement% insurance and hospitalization benefits. embership fees# dues and other expenses borne by the employer in social or athletic clubs or other similar organi)ations. +enefits given to ran0 and file employees% whether granted under a collective bargaining agreement or not. 'e minimis benefits.

)-. Which of the following statements is false& a. Non-resident aliens engaged in trade or business are liable to pay 0/ dividend tax b. (onresident aliens not engaged in trade or business are liable to pay 2A dividend tax c. ,esident citizens are liable to pay 1-A dividend tax d. ,esident foreign corporations are exempt from the payament of dividend tax )1. @ross income means all income derived from whatever source% including the following items except: a. !ensions b. !rizes and winnings c. ,ents d. toc1 dividends )2. ?xclusions from gross income under the Tax ode include the following except: a. Ceterans benefits b. ompensation for inuries and sic0ness c. @ifts% be9uests% and devises d. 2ains from redemption of shares of stoc1 )#. ringe benefit tax shall be paid by the employer because: a. The employee received the benefit net of tax b. The Tax ode expressly so states c. The employer relieves the employee of the burden to pay the tax d. he employer is the agent of the employee for the payment thereof. )). *llowable deductions are distinguished from personal exemptions in that: a. b. c. d.

The former may be availed of only by corporate taxpayers% whereas the latter may apply to individual taxpayers. he former applies to corporate and individual taxpayers engaged in business or are practicing their profession# whereas the latter covers only natural persons. The former may be found in "ection #)% while the latter is granted under "ection #. The former is a privilege while the latter is a matter of right.

). 'etermine which of the following items are taxable: a. $ncome from ueteng b. @ain arising from expropriation of property c. Taxes paid and subse9uently refunded d. ,ecovery of bad debts previously charged off  e. All of the above ). 'etermine which of the following is DareE included in the preparation of annual income tax returns: a. !roceeds of life insurance received by a child as irrevocable beneficiary b. 1#th month pay and de minimis benefits c. 'ividends received by a domestic corporation from another domestic corporation. d. $nterest on deposits with +!$ amily +an0 e. None of the above )4. F, was a passenger of an airline that crashed. =e survived the accident but sustained serious physical inuries which re9uired hospitalization for # months. ollowing negotiations with the airline and its insurer% an agreement was reached under the terms of which F, was paid some amounts. Which of the following amounts constitute taxable income& a. b. c. d.

!--%--- for his hospitalization !2-%--- as moral damages P00#000 for loss of income during the period of his treatment and recuperation F, received from his employer the amount of !2--%--- representing the cash e9uivalent of his earned vacation and sic0 leaves

)6. GHI olleges is a nonstoc0% nonprofit educational institution run by the *rchdiocese of +! ity. Which of  the following itemDsE is included in its $ncome Tax ,eturn& a. Tuition fees b. 8aboratory fees c. "entals from canteen concessionaires d. $nterest from moneymar0et placements of the tuition fees e. 'onation of a lot and building by school alumni )7. Which of the following are excluded from the gross estate& a. proceeds of life insurance policy payable to an irrevocable beneficiary b. revocable transfers c. transfer in contemplation of death d. claims against insolvent persons -. Who among the following are (3T re9uired to file an income tax return& a. b. c. d.

ilipino citizen with business income from the !hilippines. ,esident alien on income derived within the !hilippines. (onresident alien engaged in trade or business An individual whose sole income has been sub3ected to final withholding tax.

1. "hirley was allowed to deduct !2--%--- bad debts written off in 2--#% where she had a net income before bad debts of !16-%--- and a net loss of !2-%---. $( 2--)% she was able to recover the bad debts written off  in full. The bad debts recovery is: a. Taxable to the extent of !16-%--b. Taxable to the extent of !2-%--c. axable to the extent of P400#000 d. (ot taxable 2. 'ividends from a domestic corporation and/or share in the net income of a taxable partnership received by a citizen during the year 2-1 is subect to a final tax a. Iero c. 2-A b. #-A d. 50/ #. * deductible interest expense a. $nterest on loan between members of a family b. $nterest on loan that was used to finance the construction of the taxpayer>s residence c. &nterest on tax delinuency d. $nterest on indebtedness to finance a petroleum operations ). $n 2-1 Tuguegarao ?ducational $nstitute% a proprietary educational institution registered with the "? and =?' constructed a new school building at a total cost of !6%---%---. or income tax purposes% the construction cost may be: a. b. c. d. .

laimed entirely as deduction from its 2-1 gross income lassified as an asset or expensed outright at the option of the government !lassified as an asset or expensed outright at the option of the taxpayer  lassified as an asset and claim an annual depreciation over the life of the building

$f the gross income from unrelated activities exceeds -A of the total gross income derived by any private educational institution% the tax rate shall be #-A based on the entire taxable income. This principle is 0nown as a. onstructive receipt c. end result doctrine b. Tax benefit rule d. predominance test

. Which of the following statements is true& 'ividends received by a a. domestic corporation from a resident foreign corporation are subect to final withholding ta b. resident foreign corporation from another resident foreign corporation are subect to scheduler  income tax in the !hilippines c. non-resident foreign corporation from a domestic corporation maybe sub3ect to a tax sparing credit d. domestic corporation from another domestic corporation are subect to withholding tax 4. The minimum corporate income tax is imposed on a. b. c. d.

proprietary educational corporations taxable at 1-A of gross income depository ban0s under the expanded foreign currency deposit system business partnerships offshore ban0ing units subect to final tax of 1-A

6. Which of the following corporations is subect to improperly accumulated earnings tax& a. Proprietary educational institutions b. (ontaxable oint venture c. $nsurance companies d. @eneral professional partnerships

7. Which of the following is true& !roceeds of life insurance policy a. is exempt from income tax upon the death of the insured if the beneficiary is not the estate% executor or the administrator  b. is not subect to income tax if ta0en by a person other than the insured such as the employer  c. is not subect to income tax in its entirety if the insured outlives the policy regardless of the amount of premiums paid by the insured d. is exempt from income tax upon the death of the insured because the reuirement of  irrevocability and appointment of beneficiary other than the estate# executor or  administrator are applicable only on estate tax and not to income tax

-. Which a. b. c. d.

of the following statements is wrong about fringe benefits& The fringe benefit tax does not apply to ran0andfile employees he rule on de minimis benefit does not apply to rand-and-file employees The monetary value received by an official or employee is presumed to be net of fringe benefit tax $f the recipient of a fringe benefit is a nonresident alien not engaged in trade or business% the monetary value shall be divided by 4A in order to arrive at the grossedup monetary value