Samplex: Taxation Law Review

Posted on October 6, 2013 | Leave a comment

Taxation Law Review Final Examinations
Far Eastern University Institute of Law
Atty. Edwin Abella
October 8, 2013

Dindong and Marian are husband and wife, both i!i"inos and residents of #ue$on %it&
who are both em"!o&ed b& 'raser Pharmaceutica! %or"oration ('P%), a domestic
cor"oration* Dindong is the +ice President for the Lega! De"artment and is receiving the
fo!!owing from his em"!o&ment and other sources for the ca!endar &ear 2012,
1* -a!ar& of P3.0,000 a month*
2* /e"resentation a!!owance of P20,000 "er month which he is re0uired to !i0uidate
not !ater than 1 da&s after the end of the month* 2n& un!i0uidated amount wi!! be
deducted from his 34ed month!& trans"ortation a!!owance of P1.,000, but a!! these
re"resentation a!!owances has been actua!!& s"ent*
3* ree tuition fee to 3nish a Mastera! Degree at 2sian 5nstitute of Management
amounting to P136,000 for the &ear*
6* One bag of .0 7i!ogram 8asmine rice ever& month worth P6,900*
.* One bag of .0 7i!ogram washed sugar ever& month worth P1,.00*
6* 2nua! dues with 5:P amounting to P2,060 and annua! dues with the 2merican :ar
2ssociation for P3,600*
1* Director;s fee of P10,000 "er meeting which is re0uired to be conducted ever&
1st Monda& of the month*
9* Pri$e from a tennis tournament s"onsored b& /D% amounting to P20,000*
<* 5nterest on :an7 De"osit with Metroban7 amounting to P.00,000*
10* 5nterest on a !oan to a friend amounting to P200,000*
11* =ain from sa!e of shares of stoc7s of PLD> which are not traded in the stoc7
e4change in the amount of P1.0,000*
12* =ain from dis"osition of shares of stoc7s of a foreign cor"oration ac0uired in
200< amounting to P200,000*
13* >he withho!ding ta4 certi3cate re?ects P1,319,6<9 as ta4es remitted on
com"ensation income for the &ear*
Marian is the +ice President for Mar7eting and is entit!ed to the fo!!owing,
1* -a!ar& of P620,000 a month*
2* i4ed re"resentation a!!owances P20,000 a month*
3* 2 new @onda %/+ worth 1*36 Mi!!ion*
6* 2nnua! dues with Phi!i""ine Medica! 2ssociation amounting to P2,120*
.* %ost of foreign trave! to attend a seminar for mar7eting e4ecutives he!d in
Aashington amounting to P120,000*
6* 2n interestBfree !oan amounting to P2 Mi!!ion re!eased to her in 8anuar& 2012
"a&ab!e in 3 &ears*
1* 2nnua! "remium of P20,000for an insurance ta7en b& 'P% amounting to P2
Mi!!ion naming a who!!& ownded subsidiar&, 2b!e %or"oration, as the bene3ciar&*
9* Pri$e from a commercia! raCe amounting to P10,000*
<* /o&a!ties "aid b& /e4 :oo7store on her authorshi" of a bestse!!er Mar7eting :oo7
"ub!ished in 2012, amounting to P120,000*00
10* >ota! ta4es withhe!d and remitted on Marian;s com"ensation for the &ear is
P1,.11,301*
>he s"ouses have three (3) !egitimate chi!dren and one (1) !ega!!& ado"ted chi!d who
are a!! !iving with them and de"endent u"on them for chief su""ort* >he o!dest
!egitimate chi!d ce!ebrated his 21st birthda& on 8anuar& 1, 2012 and the ado"ted chi!d
became gainfu!!& em"!o&ed on December 1., 2012 u"on turning 21 &ears o!d* On 2"ri!
21, 2012, the s"ouses donated a residentia! !ot with a fair mar7et va!ue of P2 Mi!!ion in
favor of their ado"ted chi!d and 3ancee who are to be married in the succeeding &ear*
>he 6 chi!dren are a!! covered b& hea!th and hos"ita!i$ation insurance for which the
husband was "a&ing a "remium of P3,000 "er chi!d "er annum* >he husband waived his
right to c!aim for additiona! "ersona! e4em"tion in favor of his wife*
>he s"ouses a!so o"erate a car re"air sho", DDM Motors which is du!& registered for +2>
"ur"oses and earned service sa!esE revenues of P6*2 mi!!ion during 2012* >he& started
the &ear with $ero receivab!es from customers but as of December 31, 2012, P200,000
remains unco!!ected on the services rendered that &ear* >he e4"enses for the o"erations
of the business are com"rised of,
1* -a!aries of the two mechanics and the cashier at the rate of the statutor&
minimum wage in Metro Mani!a of P6.6 "er da&* >he tota! sa!aries "aid is P6<,320*
'0uiva!ent to P166,660 "er em"!o&ee (P6.6 4 36. da&s)*
2* @a$ard "a& of P20,000 each was "aid to the 2 mechanics, over the "a& and night
shift diFerentia! "a& amounted to P30,000 each for the 3 em"!o&ees*
3* >he mechanics area!so given commission of .G of their res"ective bi!!ings as
fo!!ows, Mechanic Pano&, P <0,000, Mechanic 2bno& 120,000*
1* 2!! of the above "a&ments were not subHected to withho!ding ta4 due to the
honest be!ief of the s"ouses that the minimum wage earners are e4em"t from
income ta4*
2* /enta! e4"enses (net of the 12G +2> "assedBon b& !essor) amounted to P260,000
for the &ear for which the .G '4"anded Aithho!ding >a4 was "ro"er!& deducted
and remitted to the government*
3* Purchase of e0ui"ment at the start of the &ear (Hanuar&) amounted to P1,200,000
(e4c!usive of 12G +2>) and e4"ected to be used for . &ears*
6* -"are "arts and other su""!ies "urchased from +2>Bsu""!iers amounted to
P1.0,000 (net of the 12G +2>)
.* 2!! "urchases from +2>Bsu""!iers are covered either b& +2> invoice or +2> oIcia!
recei"t* >here are no in"ut ta4es at the start of the &ear*
'P%, is a +2>Bregistered trader of "harmaceutica! "roducts* 5ts sa!es for 2012 amounted
to P.00 Mi!!ion* >he &ear started with an inventor& of P. Mi!!ion* >he "urchases for the
&ear amounted to P600 Mi!!ion but P.0 Mi!!ion worth of merchandise remained unso!d as
of December 31* >hese were a!! "urchased from +2>Bregistered su""!iers* 2!! the in"ut
ta4es in the "revious &ear were fu!!& uti!i$ed in "a&ment of its out"ut ta4es for that &ear*
'P% received cash dividends amounting to P2 Mi!!ion, from :arac7 %or"oration, a J*-*
%or"oration deriving 60G of its gross income from Phi!i""ine sources through its branch
in Pasig %it&*
>he tota! administrative and se!!ing e4"enses incurred b& 'P% for 2012 amounted to
P100 Mi!!ion inc!usive of a!! the "a&ments made for the bene3t of the s"ouses, Dindong
and Marian*
On -e"tember 30, 2013, 'P%, through its cor"orate oIces, received a ina! 2ssessment
Kotice from the %ommissioner of 5nterna! /evenue re?ecting de3cienc& 5ncome >a4 and
+a!ueB2dded >a4 for ta4ab!e &ear 2011* >he "rocedures re0uired for the issuance of a
va!id assessement were re!igious!& fo!!owed b& the %5/*
Your services are now engaged by the spouses Dindong and Marian to address
the following concerns:
1. Determine the types of income that each should declare in their Income
Tax eturn for the year !"1!. #repare a list with the corresonding
amount of all returnable income of the spouses.
!. $ow much is the gross income of Dindong and Marian to be declared in
their income tax return%
&. $ow should these incomes be re'ected in the income tax return%
(xplain the procedures by citing provisions of the income tax law to
support your position.
). Identify the incomes that are not re*uired to be declared in the income
tax return and give the reasons for each. +lso indicate the amount of
such income you have identi,ed- the amount of tax thereon if sub.ect to
tax- or indicate if the income if exempt from income tax. /ite the legal
basis for each item.
0. $ow much is the amount of personal exemption 1basic and additional2
that Dindong and Marian may claim in their income tax return%
3. 4hat are the deductions that can be claimed by Dindong and Marian%
Indicate the amount and the reason for their deductibility and cite your
legal bases.
5. 4hat are the items not deductible% 6ive reasons and cite your legal
bases.
7. $ow much is the taxable compensation income of Dindong and Marian%
6ive reasons for your computation and cite your legal bases.
8. $ow much is the taxable business income of Dindong and Marian% 6ive
reasons for your computation and give legal bases.
1". $ow much is the respective total taxable income 1tax base2 of the
spouses%
11. $ow much is the income tax liablity per income tax return of Dindong
and Marian%
1!. 4hat are the donor9s tax implications of the donation made by the
spouses in !"1!% Determine the amount of donor9s tax due from each
donation made.
1&. /alculate the :+T exposure of Dindong and Marian for !"1! 1aanuali;ed
determination2 and explain how you arrived at that amount.
1). $ow much is the taxable income of (#/ in its income tax return for the
taxable year !"1!% <upport your answer with explanation and legal
bases of what should be included or excluded in your computations 1both
on income and deductions2
10. /alculate the :+T exposure of (#/ for !"1! and explain your position.
13. (xplain the legal remedies available to (#/ on the =inal +ssessment
>otice for taxable year !"11.