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Problem Exercises-Taxation Set 3

The document discusses several tax-related questions and answers: 1) Security deposits paid by tenants may be considered taxable income for lessors if kept after an early lease termination or property damage, but are not taxable if returned at lease end. 2) Money received by mistake is considered taxable income under Philippine tax law. 3) Juliet Ulbod's gross income for 2010 includes income from her business (P500,000) but not her gift (P250,000), with deductions for business expenses (P150,000) for a gross income of P500,000. The responses are concise summaries of the key information in 3 sentences or less as requested.

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Danny Labordo
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697 views2 pages

Problem Exercises-Taxation Set 3

The document discusses several tax-related questions and answers: 1) Security deposits paid by tenants may be considered taxable income for lessors if kept after an early lease termination or property damage, but are not taxable if returned at lease end. 2) Money received by mistake is considered taxable income under Philippine tax law. 3) Juliet Ulbod's gross income for 2010 includes income from her business (P500,000) but not her gift (P250,000), with deductions for business expenses (P150,000) for a gross income of P500,000. The responses are concise summaries of the key information in 3 sentences or less as requested.

Uploaded by

Danny Labordo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
  • Question 1: Explores whether security advances and deposits paid by a lessee to a lessor are considered income for tax purposes.
  • Question 3: Addresses the issue of income adjustment involving fictitious claims for dependents in tax filings.
  • Question 2: Discusses the tax implications of money received by mistake and corrected through repayment.
  • Question 4: Explains the tax implications of resolving a deficiency income tax assessment through civil obligations.
  • Question 6: Determines exclusions from gross income as per tax regulations.
  • Question 5: Explores the rules regarding the donation of assets to a university as a tax deduction.

1.

Are security advances and security deposits paid by a lessee to a lessor considered income
for tax purposes?

ANS:
It depends. Security advances and security deposits paid by a lessee to a lessor cannot be
considered income for tax purposes if the lessor is required to return it to the tenant at the
end of the lease; but when there is a clear breach of contract or the tenant breaks the lease,
leaves the property early or has caused some damage to property. Then, the lessor may
keep part, or all the security therefore may be included in taxable income.

2. Is money received under payment by mistake, income subject to income tax?

ANS:
Money received under payment by mistake is considered taxable income. Under Section 32
of the NIRC, gross income means all income derived from whatever source. Therefore, the
source of the income is immaterial whether derived from legal, illegal, or immoral sources.

3. In 2010, Juliet Ulbod earned P500,000.00 as income from her beauty parlor and received
P250,000.00 as Christmas gift from her spinster aunt. She had no other receipts for the year.
She spent P150,000.00 for the operation of her beauty parlor.
For tax purposes, her gross income for 2010 is:

4. Lao is a big-time swindler. In one year, he was able to earn P1 Million from his swindling
activities. When the CIR discovered his income from swindling, the CIR assessed him a
deficiency income tax for such income. The lawyer of Lao protested the assessment on the
following grounds:

(A) The income tax applies only to legal income, not to illegal income.

(B)  Lao's receipts from his swindling did not constitute income because he was under
obligation to return the amount he had swindled, hence, his receipt from swindling was
similar to a loan, which is not income, because for every peso borrowed, he has a
corresponding liability to pay one peso; and

(C)  If he has to pay the deficiency income tax assessment there will be hardly anything left
to return to the victims of the swindling.

How will you rule on each of the three grounds for the protest? 

ANS:
(A) Illegal income is not expressly excluded or exempted from the class of taxable income.
Under Section 32 of the NIRC, gross income means all income derived from whatever
source therefore any income regardless of the source is taxable income.

(B) When a taxpayer acquires earnings, legally or illegally, without consensual recognition,
express or implied, of an obligation to repay and without restriction as to their disposition,
he has received taxable income, even though it may still be claimed that he is not entitled
to retain the money and be adjudged to restore its equivalent. To treat the embezzled
funds as not taxable income would perpetuate injustice by relieving swindlers like Lao of
the duty of paying income taxes on the money they have enriched himself.
(C) The deficiency income tax assessment is a direct tax imposed on the owner which is an
excise on the privilege to earn an income. It will not necessarily be paid out of the same
income that was subjected to the tax. Lao’s liability to pay the tax is based on his having
realized a taxable income from his swindling activities and will not affect his obligation to
make restitution. Payment of the tax is a civil obligation imposed by law while restitution
is a civil liability arising from a crime.

5. Dr. Taimtim is an alumnus of the College of Medicine of Universal University (UU), a


privately owned center for learning whichgrants yearly dividends to its stockholders. UU has
a famous chapel locatedwithin the campus where the old folks used to say that anyone who
wanted topass the medical board examinations should offer a dozen roses on all
theSundays of October. This was what Dr. Taimtim did when he was still reviewing for the
board examinations. In his case, the folk saying proved to be true because he is now a
successful cardiologist. Wanting to give back to the chapel and help defray the costs of its
maintenance, Dr. Taimtim donated P50,000.00 to the caretakers of the chapel which was
evidenced by an acknowledgment receipt.

In computing his net taxable income, can Dr. Taimtim use his donation to the chapel as an
allowable deduction from his gross income under the National Internal Revenue Code
(NIRC)?

ANS:

No, Dr. Taimtim cannot use his donation to the chapel as an allowable deduction. The
chapel is privately owned by a university therefore the donation for the maintenance of the
chapel is a donation for the university. The donation to be deductible must comply with the
requirement that the net income of the done must not inure to the benefit of any private
stockholder or individual. In this case, the university is granting yearly dividends to its
stockholders which is a clear violation of the law appertaining to the so-called “private
inurement doctrine” thereby making the donation non-deductible.

6. Which of the following is an exclusion from gross income?

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