FM 113 Inc Tax Final Exam 7 8 9 15 PDF

CHAPTER 7 INTRODUCTION TO REGULAR INCOME TAX True or False 1 1. There are 2 types of regular income tax; proportional income tax for corporations and progressive income tax for individuals. ( T ) 2. NRA-NETBs and NRFCs are also subject to regular income tax. ( F ) 3. All taxpayers a...

CHAPTER 7 INTRODUCTION TO REGULAR INCOME TAX True or False 1 1. There are 2 types of regular income tax; proportional income tax for corporations and progressive income tax for individuals. ( T ) 2. NRA-NETBs and NRFCs are also subject to regular income tax. ( F ) 3. All taxpayers are subject to final tax. ( F ) 4. Taxable income is synonymous to net income. ( F ) 5. For all taxpayers, taxable income means the pertinent items of gross income not subject to capital gains tax and final tax less allowable deductions. ( T ) 6. All taxpayers are subject to regular income tax. ( T ) 7. Employed taxpayers can claim expenses from their employment as deductions against their compensation income. ( F ) 8. Items of gross income subject to final tax and capital gains tax are excluded in gross income subject to regular income tax. ( T ) 9. The 250,000-income tax exemption for individuals is designed to be in lieu of their personal and business expenses. ( F – only in lieu of personal expense ) 10. Non-taxable compensation are items of compensation that are excluded against gross income. ( T ) True or False 2 1. The taxable compensation income is computed as gross compensation less the non-taxable compensation income. ( T ) 2. The deadline of filing the corporate quarterly income tax return is the same with the deadline of the quarterly income tax return of individuals. ( F ) 3. Business expenses can be deducted against all types of gross income subject to regular tax. ( F ) 4. No deduction shall be allowed against taxable income. ( T ) 5. Only corporations may incur deductions against gross income. ( F ) 6. The gross income from business is measured as sales or gross receipts less cost of sales or cost of services. ( T ) 7. The tax due of individuals is determined by means of a schedules of tax rates. ( T ) 8. The tax due of corporations is determined by multiplying their gross income by 30%.( T ) 9. The deadline of the annual income tax return of corporations using the calendar year is similar to the deadline fixed for individual taxpayers. ( T ) 10. Every individual taxpayer is exempt from income tax on compensation up to P250,000 annually but the same exemption does not apply to business income. ( T ) CHAPTER 8 – REGULAR INCOME TAX: EXCLUSION FROM GROSS INCOME True or False 1 1. The proceeds of life insurance received by the heirs of the insured upon his death. ( T ) 2. The amount received in excess of the premium paid in an insurance contract constitutes an item of gross income. ( T ) 3. Donated income is included in the gross income of the donee. ( F ) 4. Compensation for injuries and sickness constitutes profit; hence, an inclusion in gross income. ( F ) 5. It is sufficient that the employee rendered more than 10 years of service for his retirement benefit to be exempt. ( F ) 6. An employee can secure retirement benefit exemption only once in a lifetime. ( T ) 7. It is a must that the employer maintains a reasonable pension benefit plan for the retirement benefit to be exempt. ( T ) 8. An employee must have rendered more than 10 years of service before claiming exemption for his termination benefits. ( F ) 9. The income of the Philippine government from essential public functions is exempt from any income tax. ( T )  10. Prizes paid to corporations are an inclusion in gross income subject to final tax. ( T ) 11. Only the mandatory portion of GSIS, SSS, PhilHealth, and union dues can be excluded in gross compensation income. ( T ) 12. Social security benefits, retirement gratuities, and other benefits from foreign governments are excluded in gross income. ( T ) 13. Social security benefits, retirement gratuities, and other benefits from foreign private entities are included in gross income. ( F ) 14. The gain from redemption of shares in mutual fund is an exclusion in gross income subject to regular tax because it is an inclusion in gross income subject to capital gains tax. ( F ) 15. 13th Month pay and other benefits are taxable only up to P90,000. ( F ) True or False 2 1. GSIS and SSS benefits are included in gross income to the extent they exceed P90,000. ( F ) 2. Prizes awarded upon the condition that the recipient shall render specified future services is an item of gross income. ( T ) 3. Prizes from contests are included in gross income subject to regular income tax. ( F ) 4. The income from government owned and controlled corporations is an item of gross income. ( T) 5. Benefits of veterans of war or retired US army personnel are excluded in gross income. ( T ) 6. The employer’s share to SSS, PhilHealth, and Pag-Ibig contributions are an exclusion in gross income. (F) 7. Compared to exclusion, deduction is included in the amount of gross income but both exclusion and deductions are not reflected in the amount of taxable income. ( T ) 8. The interest income from any bond or debentures, short-term or long-term, is an item of gross income. ( T ) 9. Cooperatives that transact business only with members will, in no case, be subject to income tax. ( F ) 10. Cooperatives, regardless of their classification, are taxable on income from their unrelated activities. (T) 11. The gain on sale of long-term bonds with a maturity of 5 years in exclusion in gross income. ( F) 12. A non-stock, non-profit entity is subject to tax on income from unrelated activities. ( T ) 13. A general professional partnership can be registered as a BMBE. ( F ) 14. Items of income subject to final tax or capital gains tax are exclusions in gross income subject to regular income tax. ( T ) 15. A BMBE must have a net asset not exceeding P3,000,000 to be exempt. ( F ) CHAPTER 9 : REGULAR INCOME TAX: INCLUSION IN GROSS INCOME True or False 1 1. Items of gross income subject to regular income tax and capital gains tax are reportable to the government. (T) 2. Rent is a passive income, but not subject to final tax. (T) 3. The interest income from bonds issued by banks is subject to final tax. (F) 4. Gains from dealings in capital assets are generally subject to the regular income tax. (T) 5. The gross income from operations enjoying a tax holiday is included in gross income subject to regular tax but are presented as deductions in the income tax return. (F) 6. The share in a business partnership is subject to final tax, but the share in a general professional partnership is subject to regular income tax. (T) 7. Gains from dealings in ordinary assets are subject to regular income tax. (T) 8. Items of passive royalty income are subject to final income tax while items of active royalty income are subject to regular income tax. (T) 9. Compensation income is an inclusion in gross income subject to regular tax except compensation income of special aliens. (T) 10. The reportable gross income from business or the exercise of a profession is net of cost of goods sold or cost of services. (T)  11. Items of income which are included in gross income subject to final tax are excluded in gross income subject to regular income tax. (T) 12. Imputed interest income is an item of gross income subject to regular income tax. (F) 13. Advanced rentals are income in the year received. (T) 14. Real property tax and insurance on the property if assumed by the lessee constitute income to the lessor. (T) 15. Corporate winnings are exclusions in gross income; hence, they are exempt from income tax. (F) 16. Stock dividends are never subject to income tax. (F) 17. Pensions or retirement benefits are inclusions in gross income subject to regular income tax if the employee is terminated due to any cause within his control. (T) 18. (F) Prizes in athletic competitions sanctioned by the Philippine government are exclusions in gross income subject to final tax but, are inclusions in gross income subject to regular income tax. 19. Corporate prizes are exclusions in gross income subject to final tax but are inclusions in gross income subject to regular income tax. (T) 20. Stock splits are never subject to income tax. (T) True or False 2 1. The distributable net income of a general professional partnership is subject to creditable withholding tax. (T) 2. Exempt joint ventures and co-ownerships are treated as pass-through entities and are subject to income tax. (F) 3. The distribution by the GPP of items of passive income is an inclusion in gross income of the partner subject to regular income tax. (T) 4. General professional partnerships are exempt from tax and hence, exempt from withholding. (T) 5. The share from the net income of a joint venture organized abroad is subject to 10% final withholding tax. (F) 6. Income distribution from taxable estates and trusts is an inclusion in gross income subject to regular tax by the heir or beneficiary.(T) 7. The recovery of past deduction must be reverted back to gross income of taxpayers using the cash basis. (T) 8. The recovery of bad debts need not be reverted back to gross income of taxpayers using the cash basis. (F) 9. The recovery of deduction from any exempt year is subject to tax. (F) 10. General professional partnerships are not exempt from regular tax but are subject to final tax and capital gains tax. (F) 11. An indebtedness cancelled by the creditor out of mercy is an income to the debtor. (F) 12. When there is a net loss in the period the deduction is taken, the subsequent recovery of the deduction will not have any tax benefit. (F) 13. The refund or recovery of non-deductible taxes shall not be reverted back to gross income. (T) 14. The loss of the partnership can be claimed by the partners as deduction in their income tax returns. (T) 15. The accounting period of the taxpayer has a direct impact upon the amount of gross income to be reported. (F) 16. The power of the CIR to redistribute income and expense includes the power to impute income between affiliated enterprises. (F) 17. The situs of taxation has an impact on the extent of the reportable gross income. (T) 18. Creditable withholding taxes are added back to the amount of reportable gross income. (T) 19. The output VAT must be included as part of gross income of VAT taxpayers. (F) 20. The requirement to revert back to gross income the amount of withheld taxes applies only to VAT taxpayers. (F) 21. Generally, all items of income of NRA-NETB and NRFCs from the Philippines are inclusions in gross income subject to final tax. (T) 22. The taxpayer must enter into an advanced pricing agreement with the BIR for its cross-border transfer pricing with associated enterprises. (F) 23. Transfer pricing between associated enterprises must be made at arm’s length. (T) 24. The transfer pricing regulations apply only to cross-border transfers of goods and services between associated enterprises. (F) 25. Corporations under the direct and indirect control of the same controlling individual or corporation are associated enterprises. (T)  26. Under the accrual basis of accounting, items of gross income are reported in the period they are received. (F) 27. Basically, transfer pricing adjustment is needed when the income reported for Philippine taxation is understated. (T) CHAPTER 15-B: Corporate Income Taxation- Regular Corporations True or False 1 1. Domestic corporations are subject to either gross income tax or regular corporate income tax. True 2. A partnership organized under Philippine law is a domestic corporation for purposes of taxation. True 3. Exempt corporations are subject to MCIT with respect to their income subject to regular corporate income tax. True 4. MCIT does not apply to foreign corporations. False 5. As a rule, corporations always pay tax even if there is a loss effective from the fourth year of their operations. True 6. Resident foreign corporations are subject to either gross income tax or regular corporate income tax. False 7. Foreign MSMEs can claim 20% corporate income tax. True 8. Non-resident foreign corporations are subject to minimum corporate income tax. False 9. The 20% corporate income tax cannot apply if the gross profit exceeds P5,000,000. True 10. Large corporations with taxable income not exceeding P5,000,000 can claim the 20% corporate income tax. True 11. The MCIT applies only when income is zero or when there is an operating loss. False 12. MSMEs and REITs are exempt from MCIT. True 13. Special domestic corporations and special resident foreign corporations are exempt from MCIT. True 14. MCIT is generally computed as 2% of the gross income from operations starting July 1, 2023. False 15. If an entity started operations on June 2021, MCIT shall commence on June 2025. False True or False 2 1. The cost of services of banks includes interest expense. True 2. MCIT is applied on a quarterly, but not on an annual basis. False 3. MCIT excess can be deducted only against the excess of CIT over the MCIT in any of the succeeding three years. False 4. When there are several excess MCIT in prior years, the crediting of MCIT is made in a first-in first-out (FIFO) basis. True 5. The MCIT gross income includes only those arising from operations while the OSD gross income covers all items of gross income subject to regular income tax. True 6. For purposes of the MCIT, the cost of services includes all direct costs and expenses incurred in acquiring or manufacturing the goods. False 7. Items of passive income subject to final tax and capital gains tax are included in the basis of the MCIT. False 8. For accrual-basis taxpayers, the cost of services shall include unpaid expenses directly incurred in the provision of services. True 9. The gross receipts of service providers include advances from clients or customers. True 10. Corporations with income subject to special tax are mandatorily required to use he itemized deductions. True 11. Whenever MCIT is payable, there is a Net Operating Loss Carry-Over. False 12. An unused excess MCIT will expire in the fourth year of operation. False  13. The excess MCIT of previous years can be deducted against the RCIT of any quarter of the year if the RCIT is greater than MCIT. False 14. The MCIT rules are applied on the cumulative balances of the CIT and MCIT during the quarters of the taxable year. True 15. MCIT can be suspended for a taxpayer suffering from prolonged labor dispute, force majeure, or legitimate business reverses. True 16. The Commissioner of Internal Revenue may suspend the imposition of MCIT upon submission of the required proof. False 17. The branch profit remittance tax covers the remittance of special resident foreign corporations except PEZA-registered entities. True CHAPTER 15-A: CORPORATE INCOME TAX – SPECIAL CORPORATIONS True or False 1 1. Foreign and domestic banks may have an EFCDU. True 2. The income of FCDU, OBU, and EFCDU from residents other than depositary banks in the EFCDS or FCDS is subject to a 10% final tax. True 3. The income of FCDU or EFCDU from foreign sources is subject to regular income tax. False 4. Corporations subject to a rate below 25% are referred to as special corporations. True 5. Corporation includes joint ventures, associations, and partnerships. True 6. Joint ventures formed for the purpose of undertaking construction projects or engaging in energy operations are taxable as corporations. False 7. Exempt corporations are never subject to corporate income tax. False 8. Government-owned and controlled corporations are subject to corporate income tax. True 9. A non-profit hospital is an exempt corporation taxable only on income from unrelated activities. True 10. PEZA-registered enterprises are exempt from tax. False 11. BOI-registered enterprises enjoy income tax holiday for 20 years. False 12. FCDU and OBU are divisions of a foreign bank. False 13. The income of OBU from foreign sources is exempt from income tax. True 14. International carriers are subject to a tax of 2.5% on taxable income. False 15. A domestic carrier is subject to 25% tax on Philippine taxable income. False 16. Special corporations can claim optional standard deduction. False 17. Exempt corporations are not required to file income tax returns because they do not pay tax. False 18. Exempt corporations and special corporations are mandated to use the itemized deductions. True 19. Exempt corporations who filed late are not subject to penalties because they have no tax due. False 20. Exempt corporations fling BIR Form 1702-EX will not pay tax as a rule. True True or False 2 1. The classification rule is applied to private schools and non-profit hospitals,. False 2. The dominance test is applied to non-profit schools and private hospitals False 3. A government school is exempt from income tax. True 4. A non-resident owner or lessor of vessel is subject to tax at 7.5% of the gross rental. False 5. A regional area headquarters is exempt from tax because it does not derive income. True 6. A regional operating headquarter of a multinational company is subject to 10% on world income. False 7. A non-resident cinematographic film owner, lessor, or distributor is subject 25% tax on taxable income. False 8. A non-resident owner or lessor of aircraft, machineries, and other equipment is subject to tax at 4.5% of gross rentals. False 9. A farmers' or fruit growers' association is exempt from income tax. True 10. Exempt corporations are subject to income tax on their income from unrelated activities. True 11. A non-stock, non-profit institution must be organized for religious, charitable. scientific, athletic, cultural, or for the rehabilitation of veterans. True 12. To be exempt, all of the net income or assets of a non-profit corporation or association must be devoted to its purposes, and no part of its net income or asset accrues to benefit any member or a specific person. True  13. The unrelated income of non-profit corporations is exempt from income tax if the same is diverted to its non-profit purpose. True 14. The exemption of non-stock and non-profit corporations or associations shall commence when they secure their tax exemption ruling. True 15. The certificate of tax exemption ruling is valid for one year and renewable every year thereafter. False True or False 3 1. The FCDUs, OBUs, and EFCUs are never subject to regular income tax. False 2. Persons and service establishments inside an ECOZONE are subject to the regular tax. True 3. The Gross Philippine Billings of international carriers includes receipts from outgoing voyage or flights which must be billed in the Philippines. False 4. Expenses of an exempt corporation not directly traceable to either related or unrelated operations are allocated based on the ratio of gross income. True 5. Local water districts are exempt from income tax. True 6. Cooperatives that transacts business with non-members are taxable on income allocated to interest on members' capital when their accumulated reserve exceeds P10,000,000. True 7. All cooperatives, regardless of classification, are subject to income tax on their income from unrelated activities. True 8. The expenses of exempt corporations from exempt operations are deductible to its gross income from unrelated operations. False 9. When the income from related activities constitutes at least 50% of total income, private schools are subject to tax at 109% of taxable income from related and unrelated activities. True 10. When the income from unrelated activities exceeds 50% of total income, only the income from unrelated activities of private schools and non-profit hospitals is subject to 25% tax. False 11. Refunded tickets and tickets of non-revenue passengers are excluded in the Gross Philippine Billings. True 12. The gross receipts from transient passengers are excluded from Gross Philippine Billings if they depart from the Philippines through the same carrier within 48 hours from their arrival. True 13. The 48-hour rule does not apply when another carrier continues the flight or voyage of transient passenger True 14. The 48-hour rule may be extended by force majeure. True 15. Domestic Film owners, lessor or distributors shall be subject to 25% tax on gross income from all sources within. False