Income Taxation - Answer key (6th Edition by Valencia)- Chapter 2

1. 3
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
CHAPTER 2
TAX ADMINISTRATION
Problem 2 – 1 TRUE OR FALSE
1. True
2. False – not the BIR, but the Department of Finance
3. False – the BIR is responsible to collect national taxes only.
4. False – The review shall be made by the Court of Justice.
5. True
6. True
7. False – The Secretary of Justice and the Courts also interprets the provisions of the
Tax Code.
8. False – the fact that taxes are self-assessing the BIR assessment is necessary to
ensure the reliability of the ITR.
9. False – the BIR or the Government is not allowed by law to appeal to the CTA. (Acting
Collector of customs vs. Court of Appeals, Oct. 31, 1957)
10. True
11. False – Appeal to the SC shall be made within 15 days from the receipt of the decision
of the CTA.
12. False – the CIR can conduct a jeopardy assessment when there are no accounting
records.
13. True
14. False – the taxpayer needs to waive first his right on the secrecy of bank deposits
before BIR can inquire into his bank deposits.
15. True
Problem 2 – 2 TRUE OR FALSE
1. False – there must be a Letter of Authority.
2. False – the supporting documents must be submitted to the BIR within 60 days from
the date a protest is filed.
3. True
4. True
5. False – destraint as a tax collection method is applicable only to personal property.
6. False – criminal violations already filed in court are not subject to compromise.
7. True
8. False, collection must be within 5 years
9. True
10. False-redemption period is within 1 year from date of auction sale.
11. True
12. True
Problem 2 – 3 TRUE OR FALSE
1. False – there is no need to pay additional registration fee for transfer of business
registration.
2. True
3. False – the initial bond required for manufacturers and importers of articles subject to
excise tax is P100,000.
4. False – informer’s reward is subject to 10% final withholding tax.
5. True
6. True
7. True
8. True
9. False – Seizure
10. False – Forfeiture

2. 4
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
11. False – not allowed because the second cousin is within the 6th degree of relative by
consanguinity.
12. False – collection tax cases filed in courts are subject to compromise.
13. True
Problem 2 – 4
1. C
2. B
3. B
4. D
5. C
6. C
7. B
8. B
9. C
10. D
11. A
12. D
Problem 2 – 5
1. B
2. A
3. D
4. C
5. D
6. D
7. C
8. C
9. A
10. A
Problem 2 – 6
1. B
2. A
3. A
4. B
5. D
6. C
7. B
8. A
9. C
10. A
11. A
12. A
Problem 2 – 7
Case A:
April 15, 2014 - The return, statement or declaration can be
modified, changed or amended from within three years from the date of filing as long as no
tax investigation has been served to the taxpayer. (Sec. 6(A), NIRC)
Case B:
October 20, 2015 - If the tax deficiency is due to simple neglect, the
prescriptive period of tax assessment is within 3 years starting from the date of filing the
return (Sec. 203, NIRC), or its amendment.
Case C:
April 15, 2025 - If the ITR is fraudulent or no tax return was filed, the
tax may be assessed, or a proceeding in court for the collection of such tax may be filed
without assessment at any time within ten (10) years after the discovery of the falsity, fraud
or omission. (Sec. 222 (a), NIRC)
Case D:
April 15, 2022 - If the ITR is fraudulent or no tax return was filed, the
tax may be assessed, or a proceeding in court for the collection of such tax may be filed
without assessment at any time within ten (10) years after the discovery of the falsity, fraud
or omission. (Sec. 222 (a), NIRC)
Case E:
No need to appeal. The prescribed period of filing for the refund is
already expired. The filing of refund should have been made within two years after the
payment of tax or penalty. It was filed within 2 years, one month, and 5 days after the date of
erroneous payment, hence, not appealable anymore.
Case F:
May 5, 2013. The filing of refund was appropriately made within the
2 year prescribed period. The denial was received on April 5, 2013. The filing of appeal to CTA
should be made within 30 days from the receipt of denial from the BIR.
Case G:
August 2, 2017. The date of grant for refund was received on August
1, 2012. The refund check (dated July 15, 2012) should be encashed within 5 years from the
date the grant for refund was delivered (August 1, 2012). The check should be encashed from
August 1, 2012 to August 1, 2017. It will be forfeited on August 2, 2017.

3. 5
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
Case H:
July 31, 2017. For tax credit, the five year prescriptive period should
start from the date of issuance. In this case, the date of issuance should be the date of tax
credit certificate. The expiry date would therefore start on July 31, 2017.
Case I:
August 20, 2011. If the BIR has no response after the submission of
supporting documents to serve as evidence for the protest, the last day to appeal to the CTA
should be made within 30 days from the lapse of the 180 day period from the submission of
the supporting documents.
Computation of days:
After January 22, 2011
January
February
March
April
May
June
July
Total number of days as of July 21
Plus 30 days after the 180 days
July
August
Total day on August 20
Days
9
28
31
30
31
30
21
180
10
20
30
Case J:
May 4, 2011. The last day to appeal to the CTA should be made within 30
days from the receipt of the denial of the BIR. The 30 days is determined as follows:
Days
First denial of the BIR – March 22, 2011
to 2nd request for reconsideration – March 30, 2011
8
2nd denial of the BIR – April 12, 2011
to May 4, 2011 to complete the 30 day period
22
Total days as of May 4, 2011
30
Case K:
June 25, 2011. The appeal to CTA should be made within 15 days
from date of unfavorable decision from CTA was received (June 10 plus 15 days).
Case L:
July 10, 2011. The appeal to SC should be made within 15 days from
date of receipts of the unfavorable decision of CTA (June 25 plus 15 days).
Case M:
March 1, 2011. Within 1 year from the date of sale.
Problem 2 – 8
B
Original business registration and renewal of business registration are subject to P500 each.
The transfer of registration requires no additional registration fee to be paid by the taxpayer.
(Sec. 243, NIRC)
Problem 2 – 9
D
All criminal violation may be compromised except: (a) those already filed in court, or (2)
those involving fraud. (Sec. 204 (B), NIRC)
Problem 2 – 10
D
Income tax payable
Multiplied by minimum compromise rate due bankruptcy
Minimum amount of compromise
P1,000,000
20%
P 200,000

4. 6
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
Problem 2 – 11
D
Amount of tax liability
Surcharges
Interest
Advertising cost
Price if purchase by the Government
P150,000
25,000
20,000
5,000
P200,000
Problem 2 – 12
D
1. Letter C
Actual excise tax on the first 6 months
Multiplied by statutory increase in rate
Required bonds on the last 6 months
P200,000
2
P400,000
If after 6 months of operation, the amount of initial bond is less than the
amount of the total excise tax paid during the period, the amount of the
bond shall be adjusted to twice the tax actually paid for the period. [Sec.
160 (A), NIRC]
2.
Not in the choices, P400,000
Actual excise tax on the first year applicable to
the second year (P200,000 + P250,000)
Less: Excess of bonds over actual excise tax
Bonds paid first year (P100,000 + P400,000)
Actual excise tax first year
Net actual amount of bond for the second year
P450,000
P500,000
(450,000)
50,000
P400,000
The bond for the succeeding years of operation shall be based on the
actual total excise tax paid during the year immediately preceding the year
of operation. [Sec. 160 (B), NIRC]
Problem 2 – 13
C
X is not entitled to receive the informer’s reward because being a first cousin, he is B’s (an
RDO) relative within the 6th degree of consanguinity.
A public official or government employee or his relative within the 6 th degree of consanguinity
shall not be entitled to the informer’s reward of 10% based on the tax revenue recovered or
P1,000,000. whichever is lower. This informer’s reward, once awarded shall be subject to a
final withholding tax of 10%. (Sec. 282, NIRC)
Problem 2 – 14
1. Letter D
Sales price
Less: Total amount per assessment
P2,500,000
Surcharge (P2,500,000 x 25%)
625,000
Interest (P2,500,000 x 20% x 3/12)
125,000
Net amount after public taxes, penalties and interest
Less: Capital gains tax (P4,000,000 x 6%)
P 240,000
DST (P4,000,000 x 1.5%)
60,000
Cost of advertising
20,000
Excess amount to be returned to X
2.
Letter C
P4,000,000
3,250,000
P 750,000
320,000
P 430,000

5. 7
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
Purchase price
Add: Interest (P4,000,000 x 15% x 9/12)
Redemption price
P4,000,000
450,000
P4,450,000
The redemption price is comprised of the purchase price plus 15% interest
per annum from the date of purchase to the date redemption. (Sec. 214,
NIRC)
3.
Letter C
Total rent income (P60,000 x 9 months)
Less: Interest expense to redeem the property
Excess income
P540,000
450,000
P 90,000
The owner shall not, however, be deprived of the possession of the said
property and shall be entitled to the rents and other income thereof until
the expiration of the time allowed for its redemption. (Sec. 214, NIRC)
Problem 2 – 15
C
Statutory fine (P250,000 x 2)
P500,000
Any taxpayer whose property has been placed under constructive distraint, and disposed the
same without the knowledge and consent of the Commissioner shall be punished by a fine of
not less than twice the value of the property sold, encumbered or disposed of, but not less
than P5,000 or suffer imprisonment of not less than 2 years and 1 day but not more than 4
years or both. (Sec. 206, NIRC)
The P5,000 fine is applicable only when the computed amount (selling price x 2) is lower than
P5,000.
Problem 2 – 16
C
Proceeds from sale
Less: Basic tax assessed
Accrued interest from April 15, 200x to
July 15, 200x (P300,000 x 20% x 3/12)
Documentary stamp tax
Advertisement
Amount to be refunded to Mr. Poe
Problem 2 – 17
D
Proceeds from sale (P1,500/0.005)
Less: Basic tax assessed
Accrued interest from April 15, 200x to
July 15, 200x (P275,000 x 20% x 3/12)
Documentary stamp tax
Advertisement
Amount to be refunded to Mr. Ligot
Problem 2 – 18
C
Total surcharge (P10,000 x 25%)
P 350,000
P300,000
15,000
1,500
1,000
317,500
P 32,500
P 300,000
P275,000
13,750
1,125
1,000
P
290,875
9,125
P2,500
25% surcharge shall be imposed for late filing of the return and late payment of the tax. (Sec.
5, Rev. Regs. No. 12-99)

6. 8
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
Problem 2 – 19
C
Interest (P10,000 x 20% x 2.5/12)
P416.67
The computation of interest is based on unpaid basic tax. (RMC No. 46–99)
Problem 2 – 20
C
Basic tax
Surcharges:
For late filing and payment (25%)
For filing in wrong RDO (25%)
Interest (P10,000 x 20% x 2.5/12)
Total amount due
Problem 2 – 21
D
Income tax due per return
Add: Surcharge for willful neglect to file the
and late payment (P100,000 x 50%)
Interest from April 15, 200B to
June 30, 200C (P100,000 x 20% x 14.5/12)
Total amount due, June 30, 200C
P10,000
P2,500
2,500
5,000
417
P15,417
P100,000
P50,000
24,167
74,167
P174,167
Late filing and late payment of tax is a taxpayer’s willful neglect if the payment is made only
after the notification of the BIR. Such violation is subject to 50% surcharge plus 20% interest
per annum computed from the due date of the tax until the date of payment. (Rev. Regs. No.
12-99, Sec. 5.3)
Problem 2 – 22
B
Income tax due per return
Add: Surcharge for late filing and late payment
- simple neglect (P100,000 x 25%)
Interest from April 15, 200B to
June 30, 200B (P100,000 x 20% x 2.5/12)
Total amount due (excluding compromise penalty)
P100,000
P25,000
4,167
29,167
P129,167
If the violation is late filing and late payment of tax, only one 25% surcharge shall be imposed
for late filing of the return and late payment of the tax plus 20% interest per annum
computed from the due date of the tax until the date of payment. (RMC No. 46-99; Sec. 5,
Rev. Regs. No. 12-99)
Problem 2 – 23
A
Unpaid tax due
Additions to tax:
Surcharge (P1,000,000 x 50%)
P500,000
Interest from April 15, 200B to December 31,
200C (P1,000,000 x 20% x 1 year & 6.5 mos.)
341,666
Total amount due as of December 31, 200C
Add: Excess amount
Total selling price
Add: Statutory interest rate to redeem (P2,000,000 x 15%)
Total amount needed to redeem the real property
P1,000,000
841,667
P1,841,667
158,333
P2,000,000
300,000
P2,300,000

7. 9
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
The redemption of the property sold through public auction shall be made within one year
from the date of sale subject to a statutory redemption interest rate of 15% per annum. (Sec.
214, NIRC)
Problem 2 – 24
B
Basic amount due per assessment
Add: Surcharge for simple neglect
to pay on time (P80,000 x 25%)
Interest (P80,000 x 20% x 45/360 days)
Total required payment on June 30, 200A
P 80,000
P 20,000
2,000
22,000
P102,000
[Sec. 248(A)(3) and Sec. 249(B)(3), Rev. Regs. No. 12-99, Sept. 6, 1999]
Problem 2 – 25
C
Unpaid income tax due (P3,000,000 – P1,000,000)
Additions to tax:
Surcharge (P2,000,000 x 50%)
Interest (P2,000,000 x 20% x 3/12)
Total amount due as of August 15, 200B
P2,000,000
P1,000,000
100,000
1,100,000
P3,100,000
Concealment of income is a form of fraud. A false or fraudulent return is subject to a
surcharge of 50% based on the unpaid tax or the deficiency tax. [Sec. 248 (B), NIRC]
Problem 2 – 26
D
Income tax due per ITR
Divided by installments allowed
Tax due on 1st installment
Less: Tax credit
Tax payable 1st installment
P8,000
2
P4,000
3,000
P1,000
When the tax due is in excess of P2,000, the taxpayer other than a corporation may elect to
pay the tax in two equal installments (Sec. 56(A)(2), NIRC).
Problem 2 – 27
1.
Letter A
Income tax due per return, April 15, 200B
Less: 1st installment, April 15, 200B
Balance as of April 15, 200B
Add: Interest from April 15, 200B to May 15, 200B
(P750,000 x 20% x 1/12)
Total amount due, May 15, 200B
2.
Letter C
Balance as of May 15, 200B
Add: Interest from May 15, 200B to June 15, 200B
(P500,000 x 20% x 1/12)
Total amount due, June 15, 200B
P1,000,000
250,000
P 750,000
12,500
P 762,500
P 500,000
8,333
P 508,333

8. 10
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
Less: 3rd installment, June 15, 200B
(P250,000 + P8,333)
Balance as of June 15, 200B
Add: Interest from June 15, 200B to July 15, 200B
(P250,000 x 20% x 1/12)
4th and final installment
258,333
P 250,000
4,167
P 254,167
Problem 2 – 28
Yes, because the prescriptive period of filing the written protest is within 30 days from receipt
of assessment. Pay the related tax. Compromise is not a remedy because tax fraud is not
subject to compromise.
Problem 2 – 29
1
Taxable income
.
Add: Discrepancies per investigation:
Undeclared rental income
Nondeductible interest expenses
Nondeductible bad debt expense
Undocumented representation expenses
Taxable income per investigation
Multiplied by income tax rate
Income tax due
Less: Income tax paid per return
Balance
Add: 50% Surcharge for filing a fraudulent return
(P330,000 x 50%)
20% interest per annum from April 15, 2010
to April 15, 2011 (P330,000 x 20%)
Total amount due
2
.
P1,000,00
0
P450,000
300,000
200,000
150,000
P165,000
66,000
Total amount due
Add: 25% Surcharge for late payment
(P561,000 x 25%)
20% Interest per annum from April 15, 2011
to June 15, 2011 (P561,000 x 20% x 2/12)
Total amount due (excluding suggested
compromise penalty for late payment)
1,100,000
P2,100,000
30%
P 630,000
300,000
P 330,000
231,000
P 561,000
P561,000
P140,250
18,700
158,950
P719,950
Problem 2 – 30
a. The cash reward of Miss Wan as tax informer would be P1,000,000, the maximum amount
of reward.
b.
The informer’s reward remains payable, hence, Miss Wan will received the maximum
reward of P1,000,000.
c.
The final income tax to be withheld from the reward of Miss Wan would be 10% of
P1,000,000 or P100,000.
Problem 2 – 31
a. The tax violations of Miss San Tago are the following:
1.
Unregistered business (Sec. 236 [A], NIRC.)

9. 11
INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
Chapter 2: Tax Administration
2.
3.
b.
Non-issuance of commercial invoice (Sec. 237, NIRC.)
Ignoring the summon (Sec. 5, NIRC.)
Miss San Tago’s minimum financial penalties if convicted:
1. For operating an unregistered business
2. For not issuing commercial invoices
3. Failure to obey summon
Total minimum
P 5,000
1,000
5,000
P11,000
Problem 2 – 32
None. There is no surcharge to be imposed to Orville Corporation because the error was
corrected before payment and the payment was made on time.
The income tax due is computed as follows:
Corrected gross receipts (P2,000,000/75%)
Corrected allowable deductions (P1,500,000/1.35)
Taxable income per audit
Multiply by percent of tax for 201B
Income tax due
Problem 2 – 33
1.
Principal factory
Warehouses (P500 x 9)
Branches (P500 x 30)
Total annual registration fee – January 31, 200B
2.
Total annual registration fee – January 31, 200B
Surcharges (20,000 x 25%)
Interest (P20,000 x 20% x 6/12)
Total amount due – July 30, 200B
Problem 2 – 34
Amount of tax liability
Surcharges
Interest
Advertising cost
Price if purchase by the Government
Problem 2 – 35
Case 1 – Financial incapability due to corporate insolvency.
Delinquent accounts
Pending cases under administrative protest
Criminal violation not filed in courts
Total basic tax
Multiplied by applicable compromise rate
Amount of compromise
P 2,666,667
1,111,111
P 1,555,556
30%
P 466,667
P
500
4,500
15,000
P20,000
P20,000
5,000
2,000
P27,000
P100,000
25,000
20,000
5,000
P150,000
P 500,000
900,000
1,000,000
P2,400,000
20%
P 480,000
Case 2 – Financial incapability due to surplus deficit resulting to impairment in original
capital by at least 50%.
Delinquent accounts
P 500,000

10. INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)
SUGGESTED ANSWERS
12
Chapter 2: Tax Administration
Pending cases under administrative protest
Criminal violation not filed in courts
Total basic tax
Multiplied by applicable compromise rate
Amount of compromise
900,000
1,000,000
P2,400,000
40%
P 960,000
Case 3 – Doubtful validity of assessment.
Delinquent accounts
Pending cases under administrative protest
Criminal violation not filed in courts
Total basic tax
Multiplied by applicable compromise rate
Amount of compromise
P 500,000
900,000
1,000,000
P2,400,000
40%
P 960,000
Problem 2 – 36
a. Yes, because the offered compromise amount of P100,000 exceeds the required minimum
amount of P25,000, (P250,000 x 10%).
b.
Since distraint is imposed only on personal property, the personal property with a value of
P100,000 shall be subjected to distraint.
c.
Yes, levy of real property and distraint of personal property can be done simultaneously
(Sec. 207B of the Tax Code). See also Section 205 of NIRC.
d.
No, the unpaid portion will remain as tax liability of Lugui because Miss Lugui did not avail
of the compromise tax settlement. The remedy by distraint of personal property and levy
on realty may be repeated if necessary until the full amount due, including all expenses,
is collected (Sec. 217, NIRC).