Income taxation by ampongan chapter 1 to 4

Double taxation means taxing twice the same property twice when it should be taxed only once; that is “taxing the same person twice by the same jurisdiction for the same thing.” Otherwis

0.

EXERCISE 1 – 5

The claim of the Commissioner should be denied.

Rule-making power must be confined to details for regulating the mode or proceedings in order to carry into effect the law as has been enacted, and it cannot

be extended nor can it expand the statutory requirements or to embrace matters not covered by the statute

Administrative regulations must always be in harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved

in favor of the basic law.

EXERCISE 1 – 6

YES Double taxation means taxing twice the same property twice when it should be taxed only once; that is “taxing the same person twice by the same jurisdiction for the same thing.” Otherwise described as “direct duplicate taxation,” the two taxes must be imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

There is indeed double taxation if respondent is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No 7794, since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to make persons conducting business within the City of Manila to contribute to city revenues; (3) by the same taxing authority – the City of Manila; (4) within the same taxing jurisdiction –within the territorial jurisdiction of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business.

Moreover, Section 143(h) may be imposed only on businesses that are subject to excise tax, VAT, or percentage tax under the NIRC, and that are “not otherwise specified in preceding paragraphs.”

EXERCISE 1 – 7

1 Excise 6 Lifeblood

2 Community 7 Toll

3 Due process 8 School

4 Donor’s tax 9 Revenue

5 Shifting 10 Tax amnesty

Code (NIRC) and other tax laws is under the exclusive and original jurisdiction

of the Commissioner, subject to review by the Secretary of Finance.

Moreover, interpretation of officers, of laws which are entrusted to their administration, is entitled to great respect and have in their favor a

presumption of legality (Anscor Container Corporation v CTA, GR No 38052,

August 31, 1998).

2 I will inform him that a compromise is not allowed anymore because the case has already been filed in court The moment the case is filed in court, it cannot

be subject to compromise anymore.

3 Piolo is correct Under RA 1405 the BIR Commissioner’s power to inquire into

a taxpayer’s bank deposit is not in conflict with the Bank Secrecy Law Based

on the provision of the NIRC, the Commissioner is authorized to inquire into bank deposit:

a To determine the gross estate of a decedent; and

b When a taxpayer applies for a compromise of his tax liability by reason of financial incapacity.

4 I will request for a compromise of the assessed tax on ground that the financial position of the taxpayer demonstrates clear inability to pay the assessed tax Clearly, even if the case is decided against the taxpayer, he will not have the money to pay the assessed tax It is therefore an exercise in futility to forego with the case against him.

5 The claim for refund should be denied on ground of prescription Recovery of taxes erroneously paid or illegally collected are allowed only when filed within the two-year prescriptive period The two-year period should be computed from the time of actual filing of the Adjustment Return and final payment of the tax

(Phil Bank of Communications vs CIR, 302 SCRA 241).

Thus, the two year prescriptive period lapsed on April 5, 2008.

6 The Commissioner may not grant the refund when there is a deficiency tax assessment against the claimant-taxpayer To award such refund despite the

existence of the deficiency assessment is an absurdity and a polarity in

conceptual effects (Commissioner vs CA and Citytrust Banking Corp, 234

SCRA 348)

7 Yes Where a corporation paid quarterly corporate income taxes in any of the first three quarters during the taxable year but incurs a net loss during the taxable year, the two-year period for the filing of claim for refund or credit shall

be counted from the date of the filing of the annual corporate income tax return

(Commissioner vs TMX Sales, 205 SCRA 184).

8 a The counting of the two (2) year period commences to run from the date of

final payment Considering that the final payment was made on July 9, 2009, the prescriptive period will end on July 9, 2011.

b Augusto has thirty days from receipt of the decision of the CIR to file an appeal with the CTA Since it was received on May 15, 2011, he has until June 14, 2011 to file his appeal with the CTA.

c He is given 30 days from receipt of the CIR’s decision but not exceeding 2 years from the date of final payment Hence, he has until July 12, 2011, or the day following the receipt of the decision, to file an appeal with the CTA

EXERCISE 2-2 MULTIPLE CHOICE

Internal Revenue Code.

The documentary stamp tax is levied under Title VII of the NIRC.

8 A

The power to interpret the provisions of the NIRC is under the exclusive original jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance

9 D

Under RA 1125, as amended, the decisions of the Commissioner of Internal Revenue on cases pertaining to disputed assessments, refunds of taxes, fees and other charges, penalties, etc is appealable only to the Court of Tax Appeals

10

. D

The limited power of the Commissioner does not conflict with RA 1405 because the provision of the Tax Code granting this power is an exception to the Secrecy of Bank Deposits Law.

The Commissioner or his duly authorized representative may be allowed only

to inquire into the bank deposits of the taxpayer on the following cases:

a To determine the gross estate of the decedent.

b Where the taxpayer has filed an application for compromise of his tax liability by reason of financial incapacity; and

c When there is a waiver duly signed by the taxpayer.

. D

When the 2-year period is about to lapse, the suit or proceeding must be started in the Court of Tax Appeals without awaiting for the decision of the Commissioner, or the 30-days reglementary period from receipt of decision to appeal to the CTA.

19

. C

The best action is to file an appeal with the Court of Tax Appeals before the lapse of the 2-year prescriptive period, without waiting for the decision of the Commissioner of Internal Revenue.

20

. D

The counting of the 30 day prescriptive period for appeal starts from the date

of receipt of the decision because it would be unfair on the part of the taxpayer to include in the counting the date while the decision is still in the table of the Commissioner or it is still in transit.

EXERCISE 2–3

The proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another Even if Petron passed on to Silkair the burden of the

tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.

An excise tax is an indirect tax where the tax burden can be shifted to the customer but the tax liability remains with the manufacturer or producer.

The excise taxes are collected from manufacturers or producers before removal of the domestic products from the place of production Although excise taxes can be considered as taxes on production, they are really taxes on property as they are imposed

on certain specified goods.

When Petron removes its petroleum products from its refinery in Limay, Bataan, it pays the excise taxes due on the petroleum products thus removed Petron, as manufacturer or producer, is the person liable for the payment of the excise tax as shown in the Excise Tax Returns filed with the BIR Stated otherwise, Petron is the taxpayer that is primarily, directly and legally liable for the payment of the excise taxes However, since an excise tax is an indirect tax, Petron can transfer to its customers the amount of the excise tax paid by treating it as part of the cost of the goods and tacking it on to the selling price.

Silkair as the purchaser and end consumer, ultimately bears the tax burden, but this does not transform petitioner’s status into a statutory taxpayer.

In the refund of indirect taxes, the statutory taxpayer is the proper party who can claim the refund.

Petitioner should invoke its tax exemption to Petron before buying the aviation jet fuel Petron, however, remains the statutory taxpayer on those excise taxes.

2 The contention of Judge Nitafan is wrong Payment of income tax byjudges is not covered by the constitutional protection against diminution

of their salaries during their continuance in office Income taxation forthe members of the judiciary give substance to the equality among thethree branches of the government consisting of the executive, legislativeand the judiciary

100,000 Less: Discount (100,000 x 20%) 20,000

Income subject to tax/Fair

of dividend by Dial Corporation to Rodolfo.

If Rodolfo is the creditor while Dial Corporation is the debtor andthe former decides to condone the debt of the latter, the amount isconsidered as an additional investment by Rodolfo to the corporation

5 Larry is not required to report income on the condonation consideringthat the condonation of debt was given without requiring him to renderservices The P50,000 constitutes more as a taxable gift rather than as

a taxable income

6 Yes the amount of P30,000 is in the nature of a remuneratory donation;

it is subject to income tax

7 Under the tax benefit rule, whenever a bad debt is claimed as deductionfrom gross income and it resulted to a reduction in its tax liability, therecovery of such is subject to tax Thus, when Pamco wrote off theaccounts and claimed it as deduction from gross income, there was acorresponding reduction in the tax liability It being the case, therecovery of such debt is taxable to PAMCO but only up to P90,000, theamount that has been beneficial to PAMCO

d Stock transaction tax - not taxable

h Income tax paid to a foreign

country - taxable if claimed as deduction

9 a Yes, the dividends are subject to a final tax of 10%.

b The dividends paid are in effect property dividends They are subject

10 a Dividends received from domestic – not taxable

b Dividends received by resident foreign

c Dividends received by nonresident foreign corporation fromdomestic – 15% final tax if the country in which the nonresidentforeign corporation is domiciled shall allow tax credit of 17% in itsincome tax payable in such foreign country

11 a Mr Sips is entitled to 10% of the value of confiscated smuggled

goods but not exceeding P1,000,000 Since 10% of the value of thesmuggled goods is P10,000,000 (P100,000,000 x 10%), Mr Sips isentitled only to P1 million as tax informer’s reward

b The reward received by Mr Sips is subject to a final withholding tax

of 10% Hence, the amount of tax to be withheld in favor of thegovernment is P100,000 (P1,000,000 x 10%)

12 a Under Outright Method, the lessor is required to report as income

the fair market value of the improvement at the time of completion.Thus, she has to report an income of P100,000 on the leaseholdimprovement and P48,000 (P4,000 x 12) on the rent, or a totalamount of P148,000

48,000Add: Income on leasehold

00Leasehold improvement:

Less: Depreciation - July 1, 2009 to

June 30, 2010 (100,000 / 25) 4,000 Book value upon termination 96,000

Less: Amount already reported as

0Less: Accounts written-

The community tax paid by a corporation is a deductible item from gross income Hence, a refund received is taxable.

Income to be reported under outright

(1,800,000/30 x 17.5) 1,050,0

00 Book value, end of lease 750,00

0 (750,000/17.5) x 6/12 21,429

Income to be reported under spread-out

4. ANSWER: C

Effective January 1, 2009, the land and the building shall be exempt from real estate tax because it is now being used actually, directly and exclusively for educational purpose.

All assessments or reassessments made after the 1 st day of January of any year shall take effect on the 1 st day of January of the succeeding year (Sec 221, Local Government Code of 1991).

No real property tax will be shouldered by the lessee starting 2009 because the land and the building shall be exempt from real estate tax considering that it is now being used actually, directly and exclusive for educational purpose.

Less: Accumulated depreciation

(1,800,000/30 x 3.75) 225,00

0 Book value upon termination 1,575,00

0 Less: Amount declared as

000 Depreciation for 9 years

(1,000,000/20 x 9) 450,000

Book value, end of lease 550,00

0 Annual income (550,000/ 9

Note: It is presumed that Bryant had already reported his entireincome on leasehold improvement for the taxable year 2010but not his income from January to February 28, 2011.

EXERCISE 3–3.3:

ANSWER: B

00Income on leasehold improvement:

0 Less: Depreciation for 15 years

00 Divide by remaining term of lease

Total income using spread-out method 220,000

3 ANSWER: D

EXERCISE 3–4.1:

1 ANSWER: D

120,000Less: Discount (P120,000 x 20%) 24,000

2 ANSWER: D

0Less: Income to be reported in 2008

A schedular system of taxation is a system employed where the

income tax treatment varies and is made to depend on the kind or

category of taxable income of the taxpayer It is distinguished from

global system in the sense that the latter is employed where the tax

system views indifferently the tax base and generally treats in common

all categories of taxable income of individual (Tan vs Del Rosario, 237

5 ANSWER: B

The amount of P3,000 raised by Mon is a gift which should beexcluded from gross income because when a financial aid is asked, thatmeans that there is no legally demandable obligation on the part ofother people to give him money

6 ANSWER: D

Income refers to earnings, lawfully acquired, without consensualrecognition, express or implied of an obligation to repay and withoutrestriction as to their imposition (James vs US, 366 US 213)

7 ANSWER: C

The amount received by Ceidi and Ador fall within the ambit of

“income from whatever source derived” because these are income notexpressly excluded or exempted from the class of taxable income

The above phrase is so broad that it includes all income notexpressly excluded or exempted from the class of taxable income,