Chap 2 Tax Admin2013

(1)

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)

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 Problem 2 – 5 Problem 2 – 6

1. C 1. B 1. B 2. B 2. A 2. A 3. B 3. D 3. A 4. D 4. C 4. B 5. C 5. D 5. D 6. C 6. D 6. C 7. B 7. C 7. B 8. B 8. C 8. A 9. C 9. A 9. C 10. D 10. A 10. A 11. A 11. A 12. D 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)

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 Days

January 9 February 28 March 31 April 30 May 31 June 30 July 21

Total number of days as of July 21 180

Plus 30 days after the 180 days

July 10

August 20

Total day on August 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)

Income tax payable P1,000,000

Multiplied by minimum compromise rate due bankruptcy 20%

(4)

Amount of tax liability P150,000

Surcharges 25,000

Interest 20,000

Advertising cost 5,000

Price if purchase by the Government P200,000

1. Letter C

Actual excise tax on the first 6 months P200,000

Multiplied by statutory increase in rate 2

Required bonds on the last 6 months 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) P450,000

Less: Excess of bonds over actual excise tax

Bonds paid first year (P100,000 + P400,000) P500,000

Actual excise tax first year (450,000) 50,000

Net actual amount of bond for the second year 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 6th_{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 P4,000,000

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 3,250,000

Net amount after public taxes, penalties and interest P 750,000

Less: Capital gains tax (P4,000,000 x 6%) P 240,000

DST (P4,000,000 x 1.5%) 60,000

Cost of advertising 20,000 320,000

Excess amount to be returned to X P 430,000

(5)

Purchase price P4,000,000

Add: Interest (P4,000,000 x 15% x 9/12) 450,000

Redemption price 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) P540,000

Less: Interest expense to redeem the property 450,000

Excess income 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)

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.

Proceeds from sale P 350,000

Less: Basic tax assessed P300,000

Accrued interest from April 15, 200x to

July 15, 200x (P300,000 x 20% x 3/12) 15,000

Documentary stamp tax 1,500

Advertisement 1,000 317,500

Amount to be refunded to Mr. Poe P 32,500

Proceeds from sale (P1,500/0.005) P 300,000

Less: Basic tax assessed P275,000

Accrued interest from April 15, 200x to

July 15, 200x (P275,000 x 20% x 3/12) 13,750

Documentary stamp tax 1,125

Advertisement 1,000 290,875

Amount to be refunded to Mr. Ligot P 9,125

Total surcharge (P10,000 x 25%) 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)

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)

Basic tax P10,000

Surcharges:

For late filing and payment (25%) P2,500

For filing in wrong RDO (25%) 2,500 5,000

Interest (P10,000 x 20% x 2.5/12) 417

Total amount due P15,417

Income tax due per return P100,000

Add: Surcharge for willful neglect to file the

and late payment (P100,000 x 50%) P50,000

Interest from April 15, 200B to

June 30, 200C (P100,000 x 20% x 14.5/12) 24,167 74,167

Total amount due, June 30, 200C 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)

Income tax due per return P100,000

Add: Surcharge for late filing and late payment

- simple neglect (P100,000 x 25%) P25,000

Interest from April 15, 200B to

June 30, 200B (P100,000 x 20% x 2.5/12) 4,167 29,167

Total amount due (excluding compromise penalty) 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 P1,000,000

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.) 341,666 841,667

Total amount due as of December 31, 200C P1,841,667

Add: Excess amount 158,333

Total selling price P2,000,000

Add: Statutory interest rate to redeem (P2,000,000 x 15%) 300,000

(7)

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)

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 20,000 2,000

P 80,000 22,000 P102,000 [Sec. 248(A)(3) and Sec. 249(B)(3), Rev. Regs. No. 12-99, Sept. 6, 1999]

Unpaid income tax due (P3,000,000 – P1,000,000) P2,000,000

Additions to tax:

Surcharge (P2,000,000 x 50%) P1,000,000

Interest (P2,000,000 x 20% x 3/12) 100,000 1,100,000

Total amount due as of August 15, 200B 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]

Income tax due per ITR P8,000

Divided by installments allowed 2

Tax due on 1st_installment _P4,000

Less: Tax credit 3,000

Tax payable 1st installment 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 P1,000,000

Less: 1st_{installment, April 15, 200B} _250,000

Balance as of April 15, 200B P 750,000

Add: Interest from April 15, 200B to May 15, 200B

(P750,000 x 20% x 1/12) 12,500

Total amount due, May 15, 200B P 762,500

2. Letter C

Balance as of May 15, 200B P 500,000

Add: Interest from May 15, 200B to June 15, 200B

(P500,000 x 20% x 1/12) 8,333

(8)

Less: 3rd_{installment, June 15, 200B}

(P250,000 + P8,333) 258,333

Balance as of June 15, 200B P 250,000

Add: Interest from June 15, 200B to July 15, 200B

(P250,000 x 20% x 1/12) 4,167

4th_{and final installment} _{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 P1,000,000

Add: Discrepancies per investigation:

Undeclared rental income P450,000

Nondeductible interest expenses 300,000

Nondeductible bad debt expense 200,000

Undocumented representation expenses 150,000 1,100,000

Taxable income per investigation P2,100,000

Multiplied by income tax rate 30%

Income tax due P 630,000

Less: Income tax paid per return 300,000

Balance P 330,000

Add: 50% Surcharge for filing a fraudulent return

(P330,000 x 50%) P165,000

20% interest per annum from April 15, 2010

to April 15, 2011 (P330,000 x 20%) 66,000 231,000

Total amount due P 561,000

2

. Total amount due P561,000

Add: 25% Surcharge for late payment

(P561,000 x 25%) P140,250

20% Interest per annum from April 15, 2011

to June 15, 2011 (P561,000 x 20% x 2/12) 18,700 158,950

Total amount due (excluding suggested

compromise penalty for late payment) 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:

(9)

2. Non-issuance of commercial invoice (Sec. 237, NIRC.)

3. Ignoring the summon (Sec. 5, NIRC.)

b. 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

P 2,666,667 1,111,111 P 1,555,556 30% P 466,667 Problem 2 – 33 1. Principal factory P 500 Warehouses (P500 x 9) 4,500 Branches (P500 x 30) 15,000

Total annual registration fee – January 31, 200B P20,000

2. Total annual registration fee – January 31, 200B P20,000

Surcharges (20,000 x 25%) 5,000

Interest (P20,000 x 20% x 6/12) 2,000

Total amount due – July 30, 200B P27,000

Problem 2 – 34

Amount of tax liability P100,000

Surcharges 25,000

Interest 20,000

Advertising cost 5,000

Price if purchase by the Government P150,000

Problem 2 – 35

Case 1 – Financial incapability due to corporate insolvency.

Delinquent accounts P 500,000

Pending cases under administrative protest 900,000

Criminal violation not filed in courts 1,000,000

Total basic tax P2,400,000

Multiplied by applicable compromise rate 20%

Amount of compromise P 480,000

Case 2 – Financial incapability due to surplus deficit resulting to impairment in original capital by at least 50%.

(10)

Case 3 – Doubtful validity of assessment.

Delinquent accounts P 500,000

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).