TAX Mock bar Exam

1. Define the following:

a. Doctrine of Equitable recoupment

The doctrine arose from common law allowing offsetting of a prescribed claim
for refund against the tax liability arising from the transaction on which
overpayment is made under payment is due. The doctrine finds no application
to cases where the taxes involved are totally unrelated although seems
equitable. It is not allowed in our jurisdiction ( CIR Vs. UST, 1958)

b. Necessity Theory

Supreme Court has held that under the necessity, taxation is a power
predicated upon necessity. It is a necessary burden to preserve the State’s
sovereignty and a means to give the citizenry an army to resist aggression, a
navy to defend its shores from invasion, a corps of civil servants to serve,
public improvements for the enjoyment of the citizenry, and those which come
within the State’s territory and facilities and protection which a government is
supposed to provide. (as stated in the case of Phil. Guaranty Co., Inc. v.
Commissioner [13 SCRA 775])

c. Benefits Received Theory

This theory bases the power of the State to demand and receive taxes on the
reciprocal duties of support and protection. The citizen supports the State by
paying the portion from his property that is demanded in order that he may, by
means thereof, be secured in the enjoyment of the benefits of an organized
society. Thus, the taxpayer cannot question the validity of the tax law on the
ground that payment of such tax will render him impoverished, or lessen his
financial or social standing, because the obligation to pay taxes is involuntary
and compulsory, in exchange for the protection and benefits one receives from
the government.

2. ABC Corporation is a multi-national company organized under the existing laws of

the Company. The Company is engaged in the business of manufacturing and
distribution of paper pulp used in the food packaging. During 2020, US Federal tax
system taxed income of ABC Corporation on sales derived outside the
Philippines. The BIR advised the Company to subject those sales derived abroad
to Philippine Income Tax. However, ABC Corp opposed on the belief that the same
is not subject to income tax because of double taxation.
 2.1 What are the 2 kinds of double taxation?
2.2 Is the BIR’s advice correct?

3. Distinguish the ff:

a. Compromise and tax abatement

b. Tax avoidance and tax evasion
c. Tax and License Fee

4. Bingo inherited a three-storey building in Makati from his father, a real estate
broker. On February 14, 2029, a Roman Catholic Church in Makati City approached
Bingo and offered to lease the building in order to use it as a venue for mass and
religious gatherings. Bingo accepted the rental of P10 million for the whole year.
The following year, the City Assessors Office (CAO) issued an assessment
against Alex for non-payment of real property taxes.

Is the CAO correct in assessing deficiency real property tax?

No the assessor is not correct in assessing Bingo for the deficiency real property
taxes.

Under the Beneficial Use Principle in Taxation Law, a property that is actually,
directly and exclusively used for religious purposes is exempt from real property
tax. The test of exemption from real property tax is not ownership but the
beneficial use of the property.

5. Dalton, who died last June 7,2020, is an American Citizen residing in Florida, USA.
He left several properties here in the Philippines such as pieces of jewelry, shares
of stocks from Accenture Philippines, and cash in bank deposited in BPI. On July
2020, the heirs of Dalton wanted to withdraw the cash in bank which is deposited
under the name of Dalton.

5.1 Are the properties subject to gross estate tax?

5.2 Is he allowed to claim standard deductions?
5.3 Is he allowed to claim family home as deduction from the gross estate?
5.4 Can the BPI allow the withdrawal of bank deposits named under
Dalton?

6. What are the grounds for the suspension of the running of the statute of
limitations in the collection and enforcement of internal revenue taxes? (3%)
Suggested Answer:
The grounds for the suspension of the running of the statute of limitations in the
 collection and enforcement of internal revenue taxes are the following:
a. when the taxpayer cannot be located or out of the country;
b. when the BIR is enjoined legally from the enforcement and collection of
Internal revenue taxes;
c. when the taxpayer moved for reinvestigation, coupled with a written Waiver
of the statute of limitations approved by the BIR; and
d. when a warrant of distraint and/or levy was served upon the taxpayer,
although the same did not materialize.

7. On May 15, 2018, CDE Corp. procured a life insurance policy for its key officials,
including Isko, the Operations Manager. CDE Corp. is the one paying the
insurance premiums and the designated beneficiary of the insurance proceeds.
On Sept. 9, 2020, Charles died.

7.1 Can CDE Corp claim the insurance premium paid as deductible for income tax
purpose?

No. CDE Corp cannot claim the insurance premium paid as deductible expense for
income tax purpose.

Under the tax law, insurance premiums paid by a Corporation for its key officials
in which the former is the designated beneficiary are not allowed as deductible
expense. CDE Corp. will be compensated for the premiums it paid on said
insurance by the insurance proceeds it will receive upon the death of Isko being
the designated beneficiary in the said policy.

7.2 Is the insurance proceeds received by CDE Corp. taxable income?

No. The insurance proceeds received by CDE Corp. as beneficiary of Isko in the
said policy is not a taxable income. Life insurance proceeds are excluded from the
gross income, as mandated in Sec. 32(B)(1) of the Code. This means that any
proceeds or benefits received from insurance policies should not be included in
the calculation of your gross income and are therefore exempted from taxation.

8. Duday, a pretty lawyer, after having been required by the Revenue District Office
to pay VAT pursuant to a Revenue Memorandum Order (RMO) of the
Commissioner of Internal Revenue, filed with the Regional Trial Court an action
questioning the validity of the said RMO. If you were the judge, how will you rule
on the case? Explain. (5%)
 If I were the judge, I will dismiss the case because regular courts have no
jurisdiction on cases involving the validity of Revenue Memorandum Order issued
by the Commissioner of Internal Revenue.
Under the law, the Court of Tax Appeals has jurisdiction to decide on decisions,
memorandum order, circulars issued by the Bureau of Internal Revenue. Thus,
the case should be dismissed for lack of jurisdiction.

9. Discuss the concept of Bona fide Arm’s Length Rule in relation to the
amendments made under the TRAIN Law on Donor’s Tax. (2.5%)
Under Section 100 of the National Internal Revenue Code, it states that “where
property, other than real property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money or money’s worth, then the
amount by which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift, and shall be included in computing the
amount of gifts made during the calendar year.” Thus, if the selling price is lower
than the fair market value of the share, the difference shall be deemed a gift
subject to donor’s tax.
Section 100 has been amended by the TRAIN Law which now provides an
exception to the payment of donor’s tax thereunder.

A taxpayer shall be exempted from paying donor’s tax if the sale, exchange or
other transfer or property is made in the ordinary course of business. That is
when the sale or transfer is a transaction which is a bona fide, at arm’s length, and
free from any donative intent. In such a situation, the relevant transfer will be
considered as one made for an adequate and full consideration so that donor’s
tax will not be imposed upon the difference.

10. Arianne, Jett, and Kat are siblings. On 23 July 2016, their Julio died due to
tuberculosis and heart complications. In computation of the net estate, the
siblings wanted to claim the medical expenses substantiated with receipts as
deduction from the gross estate. The BIR opposed such tax treatment of the new
rule introduced by TRAIN law. Is the BIR correct?

No, the BIR is not correct. It is settled rule that the net estate of the descedent is
governed by the law at the time of death. Here, Julio died on 2016 prior the
effectivity of TRAIN Law.

11. The BIR Commissioner filed a criminal complaint (Tax Evasion case) against a
Lawyer alleging that the latter failed to subject professional fees amounting to
Php 1,000,000 to income tax as well as VAT. The BIR issued Final Assessment
Notice to the lawyer. The taxpayer disputed the tax assessment contending that
the BIR’s assessment is void.
 11. 1 Enumerate the instances in which the BIR is allowed to issue FAN without
issuing Preliminary Assessment Notice?

11.2 Is the taxpayer’s contention correct?

12. On January 27, 2017, Ramon, the operations manager of ABC Corp., executed a
waiver of statute of limitations in connection with the BIR ‘s investigation of the
tax liabilities of the Company for the year 2012. However, BOD of ABC Corp. did
not adopt to a board resolution authorizing Ramon to execute the waiver.

On October 14, 2017, ABC Corp received the PAN indicating the alleged deficiency
taxes for the year 2012. The Company filed it protest on November 30,2017. The
BIR issued the FDDA contending the assessment has become final and executory
since the Company failed to submit the reply to PAN.

12.1 Discuss the prescriptive period to make an assessment on the part

of the BIR?
12.2 Discuss the prescriptive period to collect tax on the part of the BIR?
12.3 What are the requirements of a valid waiver of stature of limitations?
12.4 Has the right of the Government to assess and collect deficiency
taxes for the 2012 prescribed?
12.5 Is the contention or argument of BIR in issuing FDDA correct?

13. Pokekay University is a non-stock and non-profit education institution. It owns a

piece of land in Makati City which its two 7-storey building located. Building A is
devoted to classrooms, laboratories, and administrative office while Building B is
used as commercial space and was leased to different tenants.

In 2020, the University earned tuition fees and rental income from the said
commercial activity.

13.1 Can the City of Makati collect RPT on the land and buildings of Pokekay
University?

13.2 Can the BIR assess Pokekay University for the Income tax on the rental
income?

*nothing follows*