2005 BAR EXAMINATIONS
IN TAXATION LAW
BAR EXAMINATIONS 2005
TAXATION
11 September 2005 2 P.M. — 5 P.M.
INSTRUCTIONS
This questionnaire consists of fourteen (14) numbers contained in eight
(8) pages. Read each question very carefully. Answer legibly, clearly
and concisely. Start each number on a separate page; an answer to a
sub-question under the same number may be written continuously on the
same and immediately succeeding pages until completed. Do not repeat
the question.
HAND IN YOUR NOTEBOOK WITH THIS
QUESTIONNAIRE GOOD LUCK!!!
(Sgd.) Romeo J. Callejo, Sr.
Chairman
2005 Bar Examination Committee
PLEASE CHECK THE NUMBER OF PAGES IN
THIS SET WARNING: NOT FOR SALE OR UNAUTHORIZED USE
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TAXATION
- I -
a) Describe the power of taxation. May a legislative body enact laws to
raise revenues in the absence of a constitutional provision granting
said body the power to tax? Explain.
b) May taxes be the subject of set-off or compensation? Explain.
c) Can an assessment for a local tax be the subject of set-off or
compensation against a final judgment for a sum of money obtained by
the taxpayer against the local government that made the assessment?
Explain.
d) Is a deficiency tax assessment a bar to a claim for tax refund or
tax credit? Explain.
e) Is the approval of the court, sitting as probate or estate
settlement court, required in the enforcement and collection of estate
tax? Explain. (10%)
- II -
(1.) Explain briefly whether the following items are taxable or
non-taxable:cralaw:red
a) Income from jueteng;
b) Gain arising from expropriation of
property;
c) Taxes paid and subsequently
refunded;
d) Recovery of bad debts previously
charged off;
e) Gain on the sale of a car used for
personal purposes. (5%)
(2.) State and discuss briefly whether the following cases may be
compromised or may not be compromised:cralaw:red
a) Delinquent accounts;
b) Cases under administrative protest,
after issuance of the final assessment notice to the taxpayer, which
are still pending;
c) Criminal tax fraud cases;
d) Criminal violations already filed in
court;
e)
Cases where final reports of reinvestigation or reconsideration have
been issued resulting in the reduction of the original assessment
agreed to by the taxpayer when he signed the required agreement form.
(5%)
- III -
(1.) A city outside of Metro Manila plans to enact an ordinance that
will impose a special levy on idle lands located in residential
subdivisions within its territorial jurisdiction in addition to the
basic real property tax. If the lot owners of a subdivision located in
the said city seek your legal advice on the matter, what would your
advice be? Discuss. (5%)
(2.) a) State and explain the basis of dutiable value of an imported
article subject to an ad valorem tax under the Tariff and Customs Code.
b) Distinguish countervailing duty from dumping duty. (5%)
(3.) Jacob, after serving a 5-year tour of duty as military
attaché in Jakarta, returned to the Philippines bringing with
him his personal effects including a personal computer and a car. Would
Jacob be liable for taxes on these items? Discuss fully. (5%)
- IV -
(1.) State with reasons the tax treatment of the following in the
preparation of annual income tax returns:cralaw:red
a) Proceeds of life insurance received
by a child as irrevocable beneficiary;
b) 13th month pay and de minimis benefits;
c) Dividends received by a domestic
corporation from
(i) another domestic corporation; and
(ii) a foreign corporation;
d) Interest on deposits with
(i) BPI Family Bank; and
(ii) a local offshore banking unit of a
foreign bank;
e) Income realized from sale of
(i) capital assets; and
(ii) ordinary assets. (5%)
(2.) a) State the conditions required by the Tax Code before the
Commissioner of Internal Revenue could authorize the refund or credit
of taxes erroneously or illegally received.
b) Does a withholding agent have the right to file an application for
tax refund? Explain. (5%)
- V -
A taxpayer received a tax deficiency assessment of P1.2 Million from
the BIR demanding payment within 10 days, otherwise, it would collect
through summary remedies. The taxpayer requested for a reconsideration
stating the grounds therefor. Instead of resolving the request for
reconsideration, the BIR sent a Final Notice Before Seizure to the
taxpayer. May this action of the Commissioner of Internal Revenue be
deemed a denial of the request for reconsideration of the taxpayer to
entitle him to appeal to the Court of Tax Appeals?
Decide with reasons. (5%)
- VI -
Danilo, who is engaged in the trading business, entrusted to his
accountant the preparation of his income tax return and the payment of
the tax due. The accountant filed a falsified tax return by
underdeclaring the sales and overstating the expense deductions by
Danilo.
Is Danilo liable for the deficiency tax and the penalties thereon?
What is the liability, if any, of the accountant? Discuss. (5%)
- VII -
An international airline with no landing rights in the Philippines sold
tickets in the Philippines for air transportation. Is income derived
from such sales of tickets considered taxable income of the said
international air carrier from Philippine sources under the Tax Code?
Explain. (5%)
- VIII -
JR was a passenger of an airline that crashed. He survived the accident
but sustained serious physical injuries which required hospitalization
for 3 months. Following negotiations with the airline and its insurer,
an agreement was reached under the terms of which JR was paid the
following amounts: P500,000.00 for his hospitalization; P250,000.00 as
moral damages; and P300,000.00 for loss of income during the period of
his treatment and recuperation. In addition, JR received from his
employer the amount of P200,000.00 representing the cash equivalent of
his earned vacation and sick leaves.
Which, if any, of the amounts he received are subject to income tax?
Explain. (5%)
- IX -
Company A decides to close its operations due to continuing losses and
to terminate the services of its employees. Under the Labor Code,
employees who are separated from service for such cause are entitled to
a minimum of one-half month pay for every year of service. Company A
paid the equivalent of one month pay for every year of service and the
cash equivalent of unused vacation and sick leaves as separation
benefits.
Are such benefits taxable and subject to withholding tax under the Tax
Code?
Decide with reasons. (5%)
- X -
The Roman Catholic Church owns a 2-hectare lot in a town in Tarlac
province. The southern side and middle part are occupied by the Church
and a convent, the eastern side by a school run by the Church itself,
the southeastern side by some commercial establishments, while the rest
of the property, in particular the northwestern side, is idle or
unoccupied.
May the Church claim tax exemption on the entire land? Decide with
reasons. (5%)
- XI -
An alien employee of the Asian Development Bank (ADB) who is retiring
soon has offered to sell his car to you which he imported tax-free for
his personal use. The privilege of exemption from tax is granted to
qualified personal use under the ADB Charter which is recognized by the
tax authorities.
If you decide to purchase the car, is the sale subject to tax? Explain.
(5%)
- XII -
Ralph Donald, an American citizen, was a top executive of a U.S.
company in the Philippines until he retired in 1999. He came to like
the Philippines so much that following his retirement, he decided to
spend the rest of his life in the country. He applied for and was
granted a permanent resident status the following year. In the spring
of 2004, while vacationing in Orlando, Florida, USA, he suffered a
heart attack and died. At the time of his death, he left the following
properties:cralaw:red
(a) bank deposits with Citibank Makati
and Citibank Orlando, Florida;
(b) a resthouse in Orlando, Florida;
(c) a condominium unit in Makati;
(d) shares of stock in the Philippine
subsidiary of the U.S. Company where he worked;
(e) shares of stock in San Miguel Corp.
and PLDT;
(f) shares of stock in Disney World in
Florida;
(g) U.S. treasury bonds; and
(h) proceeds from a life insurance
policy issued by a U.S. corporation.
Which of the foregoing assets shall be included in the taxable gross
estate in the Philippines? Explain. (5%)
- XIII -
Josel agreed to sell his condominium unit to Jess for P2.5 Million. At
the time of the sale, the property had a zonal value of P2.0 Million.
Upon the advice of a tax consultant, the parties agreed to execute two
deeds of sale, one indicating the zonal value of P2.0 Million as the
selling price and the other showing the true selling price of P2.5
Million. The tax consultant filed the capital gains tax return using
the deed of sale showing the zonal value of P2.0 Million as the selling
price.
Discuss the tax implications and consequences of the action taken by
the parties. (5%)
- XIV -
(1.) Mr. Fermin, a resident of Quezon City, is a Certified Public
Accountant-Lawyer engaged in the practice of his two professions. He
has his main office in Makati City and maintains a branch office in
Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati
City and his professional tax as a lawyer in Pasig City.
a) May Makati City, where he has his
main office, require him to pay his professional tax as a lawyer?
Explain.
b)
May Quezon City, where he has his residence and where he also practices
his two professions, go after him for the payment of his professional
tax as a CPA and a lawyer? Explain. (5%)
(2.) In 1995, the BIR filed before the Department of Justice (DOJ) a
criminal complaint against a corporation and its officers for alleged
evasion of taxes. The complaint was supported by a sworn statement of
the BIR examiners showing the computation of the tax liabilities of the
erring taxpayer. The corporation filed a motion to dismiss the criminal
complaint on the ground that there has been, as yet, no assessment of
its tax liability; hence, the criminal complaint was premature. The DOJ
denied the motion on the ground that an assessment of the tax
deficiency of the corporation is not a precondition to the filing of a
criminal complaint and that in any event, the joint affidavit of the
BIR examiners may be considered as an assessment of the tax liability
of the corporation.
Is the ruling of the DOJ correct? Explain. (5%)
NOTHING FOLLOWS.
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