📝 Discussion Questions
1. Enumerate the NIRC list of items of gross income.
Hint: Include items such as compensation, business income, gains from dealings in
property, interest, rents, dividends, etc.
2. What are the broad categories of gross income?
Consider: Compensation, business/professional income, passive income, etc.
3. Discuss in detail the taxation of interest income. Which is subject to regular
income tax? Which is subject to final tax?
Include examples like interest from bank deposits, government bonds, and foreign
sources.
4. Discuss the treatment of gains from dealings in properties. Which gains are
subject to capital gains tax? Which gains are subject to regular income tax?
Hint: Distinguish between capital assets and ordinary assets.
5. Discuss the taxation of dividends.
Include rules for individual vs. corporate recipients, domestic vs. foreign
corporations.
6. Discuss the taxation of royalties.
Consider royalty from passive income (e.g. literary works) versus active royalties.
7. Discuss the taxation of prizes and winnings.
Include exemptions like for government-sanctioned sports competitions.
8. Compare actual distribution and the share in the net income of the partnership.
Which one is included in the gross income of the partner?
Consider taxation of general professional partnerships vs. business partnerships.
9. Discuss the taxability of recoveries of past deductions.
E.g. bad debts recovered after being written off.
10.Enumerate examples of pass-through entities. Are they subject to final tax,
capital gains tax, or regular income tax?
Examples: General professional partnerships, joint ventures.
11.Enumerate and discuss the transfer pricing methods.
Examples: CUP (Comparable Uncontrolled Price), Resale Price, Cost Plus, etc.
✔️ True or False 1
1. Imputed interest income is an item of gross income subject to regular income tax.
2. Items of gross income subject to regular income tax and capital gains tax are
reportable to the government.
3. Rent is a passive income but is not subject to final tax.
4. Interest income from bonds issued by banks is subject to final tax.
5. Gains from dealings in capital assets are generally subject to the regular income tax.
6. The gross income from operations enjoying a tax holiday are included in gross
income subject to regular tax, but are presented as deductions in the income tax
return.
7. 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.
8. Gains from dealings in ordinary assets are subject to regular income tax.
9. Items of passive royalty income are subject to final income tax while items of active
royalty income are subject to regular income tax.
10.Compensation income is an inclusion in gross income subject to regular tax except
compensation income of special aliens.
11.The reportable gross income from business or the exercise of a profession is net of
the cost of goods sold or cost of services.
12.Items of income which are included in gross income subject to final tax are excluded
in gross income subject to regular income tax.
13.Advanced rentals are income in the year received.
14.Real property tax and insurance on the property if assumed by the lessee constitute
income to the lessor.
15.Corporate winnings are exclusions in gross income; hence, they are exempt from
income tax.
16.Stock dividends are never subject to income tax.
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.
18.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.
20.Stock splits are never subject to income tax.
✔️ True or False 2
1. The recovery of deduction from an exempt year is subject to tax.
2. The distributable net income of a general professional partnership is subject to
creditable withholding tax.
3. Exempt joint ventures and co-ownerships are treated as pass-through entities and
are subject to income tax.
4. The distribution by the GPP of items of passive income is an inclusion in gross
income of the partner subject to regular income tax.
5. General professional partnerships are exempt from tax and hence, exempt from
withholding.
6. The share from the net income of a joint venture organized abroad is subject to 10%
final withholding tax.
7. Income distribution from taxable estates and trusts is an inclusion in gross income
subject to regular tax by the heir or beneficiary.
8. The recovery of past deduction must be reverted back to gross income of taxpayers
using the accrual basis.
9. The recovery of bad debts need not be reverted back to gross income of taxpayers
using the cash basis.
10.General professional partnerships are not exempt from regular tax but are subject to
final tax and capital gains tax.
11.An indebtedness cancelled by the creditor out of mercy is an income to the debtor.
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.
13.The refund or recovery of non-deductible taxes shall not be reverted back to gross
income.
14.The loss of the partnership can be claimed by the partners as deduction in their
income tax returns.
15.The accounting period of the taxpayer has a direct impact upon the amount of gross
income to be reported.
16.The power of the CIR to redistribute income and expense includes the power to
impute income between affiliated enterprises.
17.The situs of taxation has an impact on the extent of the reportable gross income.
18.Creditable withholding taxes are added back to the amount of reportable gross
income.
19.The output VAT must be included as part of gross income of VAT taxpayers.
20.The requirement to revert back to gross income the amount of withheld taxes applies
only to VAT taxpayers.
21.Generally, all items of income of NRA-NETB and NRFCs from the Philippines are
inclusions in gross income subject to final tax.
22.The taxpayer must enter into an advanced pricing agreement with the BIR for its
cross-border transfer pricing with associated enterprises.
23.Transfer pricing between associated enterprises must be made at arm’s length.
24.The transfer pricing regulations apply only to cross-border transfers of goods and
services between associated enterprises.
25.Corporations under the direct and indirect control of the same controlling individual or
corporation are associated enterprises.
26.Under the accrual basis of accounting, items of gross income are reported in the
period they are received.
27.Basically, transfer pricing adjustment is needed when the income reported for
Philippine taxation is understated.
📘 Multiple Choice – Theory: Part 1
1. Which item of gross income is not subject to regular tax?
a. Interest income from foreign bank deposits
b. Capital gain on the sale of bonds with more than 5 years maturity
c. Gain on sale of domestic stocks by a security dealer
d. Capital gain on sale of patent
2. Which is not subject to income tax?
a. Gain from sale of shares in mutual funds by the investor
b. Prizes in recognition of civic, religious, and artistic achievements
c. PCSO lotto winnings, not exceeding P10,000
d. All of these
3. Which is an item of gross income subject to regular tax?
a. Gain on sale of lot by a realty dealer
b. Interest income from bank deposits
c. Passive royalty income
d. Capital gain on the sale of domestic stocks
4. Which is not an item of gross income subject to final tax?
a. Dividends from a domestic corporation
b. Prizes in excess of P10,000 by an individual
c. Share in the income of a general professional partnership
d. Winnings
5. Which of these employee benefits is subject to final tax?
a. Fringe benefits to rank and file employees
b. Regular pay of supervisory and managerial employees
c. Fringe benefits to supervisory and managerial employees
d. Regular pay of rank and file employees
6. All of these are items of gross income subject to regular tax except:
a. Compensation income
b. Interest income from long-term bank deposits
c. Ordinary gain on sale of properties
d. Interest on notes receivables
7. Which is an income exempt from income tax?
a. Income of a general professional partnership
b. Foreign dividends
c. Taxes collected by the government
d. Income of government-owned and controlled corporations
8. All of these are subject to regular income tax, except:
a. Professional fees
b. Wages and commissions
c. Business income
d. Capital gain from the sale of real property located in the Philippines
9. Which is exempt from regular tax?
a. Income from construction
b. Income of qualified pension plans
c. Income from merchandising or trading
d. Income from financing or leasing
10.Which is not part of compensation income subject to regular tax?
a. Director's fees
b. Bonuses and fixed allowances
c. Portion of salary contributed to SSS
d. Portion of salary used to pay salary loans
11.Which is included in the gross income subject to regular tax of a resident alien?
a. Gross income from the sale of goods abroad
b. Interest income from promissory notes of resident clients
c. Interest income from relatives abroad
d. Gain from the sale of domestic stocks directly to a buyer
12.Which of the following deductions from gross compensation income is included as
part of gross income subject to regular tax?
a. Pag-IBIG contributions
b. Contributions to union dues
c. PhilHealth contributions
d. Withholding tax
13.Which interest income is not subject to regular tax?
a. Interest income from notes
b. Interest income from lending
c. Interest from trading account margins
d. All of these
14.Dividends to a resident taxpayer subject to regular tax include:
a. Foreign dividends
b. Domestic dividends
c. Both a and b
d. Neither a nor b
15.Statement 1: All prizes earned abroad are subject to regular tax.
Statement 2: All prizes in the Philippines are subject to final tax.
Which statement is generally correct?
a. Statement 1
b. Statement 2
c. Both statements 1 and 2
d. Neither statement is true
16.Which is an item of gross income subject to regular tax?
a. Lottery winnings from abroad
b. Imputed interest income
c. Advanced rent representing security deposit for contingency which may or may
not happen
d. Leasehold improvements with useful life not extending beyond the lease term
17.Which of the following is not subject to regular tax of a domestic corporation or
resident citizen?
a. Deposit interest income from abroad
b. Prize not exceeding P10,000 from the Philippines
c. Income from abroad exempt under treaty
d. Royalties from abroad
18.Which is subject to regular tax to a non-resident foreign corporation or
NRANETB?
a. Business income from the Philippines
b. Capital gain from the sale of stocks directly to a buyer in the Philippines
c. Dividends from domestic corporations
d. None of these
19.Which is subject to regular tax to a resident foreign corporation?
a. Service fees abroad
b. Gain from sale of real property capital assets in the Philippines
c. Dividends from a domestic corporation
d. Gain from dealings in properties abroad
20.The proceeds of life insurance received by the wife of the insured is:
a. Exempt from income tax
b. Subject to final tax
c. Part of taxable income
d. Partly exempt and partly taxable
🧠 Multiple Choice – Theory: Part 2
1. Which individual taxpayer is not subject to progressive tax?
a. NRA-ETB
b. Special aliens
c. Resident alien
d. Resident citizen
2. Which of the following will not be reported in gross income?
a. Receipt of inheritance
b. Share in the net income of a foreign partnership
c. Royalties from foreign sources
d. Income distribution from a taxable estate
3. Which is not a reportable type of gross income?
a. Passive royalties
b. Dividends from a foreign corporation
c. Rent income
d. Capital gains from the sale of domestic stocks through the PSE
4. Which of the following is included in gross income subject to regular tax?
a. Sub-contract income from petroleum service contractors
b. Interest income from government securities
c. Share in the net income of a taxable co-ownership
d. Farming income
5. All income earned abroad that would otherwise be subject to final taxes if earned
within the Philippines shall be subject to progressive tax of a:
a. Domestic corporation
b. Resident citizen
c. Resident alien
d. All taxpayers
6. All items of passive income earned abroad are subject to regular tax to:
a. A resident citizen only
b. A domestic corporation only
c. Resident citizens and domestic corporations
d. All taxpayers
7. Which corporate taxpayer is not subject to regular tax?
a. Domestic corporation
b. Resident corporation
c. Business partnership
d. Non-resident foreign corporation
8. Individual taxpayers shall report their income on:
a. A fiscal year
b. A calendar year
c. Either a fiscal or calendar year
d. A crop year
9. Corporations are allowed to report their income on:
a. A fiscal year
b. A calendar year
c. Either a fiscal year or calendar year
d. A crop year
10.Which is subject to progressive tax to an individual taxpayer?
a. Proceeds of life insurance policy
b. Gift
c. Amounts received by the insured in excess of premiums paid
d. Compensation for personal injuries
11.Which of these is subject to Philippine regular income tax to a foreigner?
a. Rent income on properties located abroad
b. Dividend income from a domestic corporation
c. Interest income on a deposit abroad
d. Interest income from domestic bonds
12.If not covered by the substituted filing system, employed individual taxpayers shall
report their regular income:
a. Monthly
b. Annually
c. Quarterly
d. Quarterly and annually
13.Corporations and individuals engaged in business or in the exercise of a profession
are required to report their regular income:
a. Monthly
b. Quarterly
c. Annually
d. Quarterly and annually
14.Which is incorrect concerning transactions between associated enterprises?
a. Transactions between related parties should not be controlled
b. Pricing should be determined by free market forces
c. Pricing should be motivated by the need to save from total income tax
d. Non-arm's length pricing between related parties may be restated by the BIR to
reflect the arm’s length value
15.Which is not an associated enterprise to the controlling individual of a holding
company?
a. An associate of a subsidiary in the group
b. The parent company
c. A direct subsidiary company
d. A subsidiary of a subsidiary in the group
Here is the full Multiple Choice - Problems: Part 1, 2, and 3 set, organized clearly for your
use in exams, quizzes, and review preparation. All items are included in the original order,
complete and ready for answering.
📊 Multiple Choice - Problems: Part 1
1. How much will be included in Bong's gross income for regular income tax purposes?
a. P150,000
b. P140,000
c. P110,000
d. P100,000
2. Determine the total income to be reported by Mr. Darlow in gross income:
a. P1,526,000
b. P1,426,000
c. P1,026,000
d. P826,000
3. Compute the taxable compensation income to be reported in the annual income tax
return:
a. P440,000
b. P330,000
c. P380,000
d. P390,000
4. Compute the gross income subject to progressive (regular) tax:
a. P1,480,000
b. P1,560,000
c. P560,000
d. P480,000
5. Compute the total gross income subject to regular tax for Iriga Corporation:
a. P1,720,000
b. P1,770,000
c. P1,780,000
d. P840,000
6. Compute the total gross income subject to regular income tax for Cordova, Inc.
(domestic corporation):
a. P920,000
b. P860,000
c. P800,000
d. P700,000
7. If Cordova, Inc. is a resident foreign corporation, compute the gross income subject
to regular tax:
a. P520,000
b. P480,000
c. P400,000
d. P440,000
8. How much will be included in Lenj’s gross income subject to regular tax?
a. P2,050,000
b. P2,250,000
c. P2,000,000
d. P1,950,000
9. How much will be included in the gross income of BBSA?
a. P600,000
b. P2,400,000
c. P3,000,000
d. P0
10.This increase in fair value is:
a. Exempt from income tax
b. Subject to income tax
c. Partially exempt and partially taxable
d. Any of these
11.Compute the income subject to regular tax for Northern Cattle Company:
a. P1,100,000
b. P800,000
c. P900,000
d. P600,000
12.Compute the gross income subject to progressive tax for Don Juan Ponce:
a. P647,000
b. P617,000
c. P600,000
d. P605,000
13.What will Mr. Roding include in his gross income on the 11th year of the policy?
a. P1,000,000
b. P100,000
c. P200,000
d. P1,200,000
14.How much will Jerry exclude from his gross income?
a. P500,000
b. P430,000
c. P70,000
d. P0
15.How much will be excluded from Mr. Vhinson’s gross income?
a. P800,000
b. P1,000,000
c. P200,000
d. P0
16.The proceeds of the insurance is an:
a. Item of gross income subject to regular tax
b. Item of gross income subject to final tax
c. Exclusion from gross income
d. Exempt income
17.How much of the P40,000 recovery is subject to tax?
a. P60,000
b. P10,000
c. P40,000
d. P0
18.How much will be included in the gross income in 2024 after re-commissioning?
a. P300,000
b. P200,000
c. P100,000
d. P0
19.Compute the amount of recovery subject to regular income tax:
a. P6,000,000
b. P1,000,000
c. P4,000,000
d. P0
20.How much must be reverted back to gross income in 2024?
a. P0
b. P4,000
c. P10,000
d. P44,000
21.Compute the tax benefit if the refund was of local tax instead of income tax:
a. P44,000
b. P4,000
c. P10,000
d. P0
22.How much shall be reverted to income on the recovery of local tax?
a. P0
b. P5,000
c. P20,000
d. P15,000
23.Determine the amount to be included in gross income in 2024:
a. P0
b. P10,000
c. P30,000
d. P40,000
📘 Multiple Choice - Problems: Part 2
1. What is the total amount to include in gross income subject to regular income tax?
a. P0
b. P1,147,500
c. P1,350,000
d. P1,500,000
2. Compute the total income to be reported in the gross income of Mr. Cordillera:
a. P0
b. P4,000
c. P96,000
d. P100,000
3. What is the net income?
a. P170,000
b. P290,000
c. P100,000
d. P20,000
4. Compute the taxable compensation income:
a. (P150,000)
b. (P30,000)
c. P140,000
d. P260,000
5. Compute the taxable income:
a. P10,000
b. P100,000
c. P90,000
d. P120,000
6. What is the reportable income in the tax return of Vhinson?
a. P1,170,000
b. P500,000
c. P550,000
d. P570,000
7. Determine the amount of income to be reported by Khim assuming partnership is a
beauty parlor:
a. P0
b. P570,000
c. P550,000
d. P500,000
8. What is the amount to include in gross income assuming the employee is a Filipino
rank and file employee?
a. P0
b. P1,147,500
c. P1,500,000
d. P1,350,000
9. What is the total amount of gain to be included in gross income?
a. P150,000
b. P162,500
c. P170,000
d. P212,500
10.What is the amount of income to be included in gross income subject to regular
income tax assuming the taxpayer is a domestic corporation?
a. P1,300,000
b. P1,100,000
c. P1,700,000
d. P300,000
11.What is the gain to be included in gross income subject to regular income tax if the
taxpayer is a resident foreign corporation?
a. P300,000
b. P400,000
c. P700,000
d. P1,100,000
12.What is the gain to be included in gross income if the taxpayer is a resident alien?
a. P700,000
b. P400,000
c. P300,000
d. P1,100,000
13.What is the amount to be reported in gross income if the taxpayer is a resident
citizen?
a. P900,000
b. P1,100,000
c. P1,500,000
d. P2,000,000
14.What is the reportable gross income assuming the taxpayer is a resident alien?
a. P0
b. P900,000
c. P600,000
d. P400,000
15.What is the reportable item of gross income if the taxpayer respectively is a resident
citizen and a non-resident citizen?
a. P500,000; P0
b. P510,000; P10,000
c. P0; P500,000
d. P910,000; P410,000
16.What is the reportable item of gross income if the taxpayer is a domestic
corporation and a resident foreign corporation, respectively?
a. P500,000; P0
b. P510,000; P10,000
c. P910,000; P410,000
d. P500,000; P10,000
17.What is the total reportable gross income for Mang Sipalay (BMBE)?
a. P0
b. P10,000
c. P100,000
d. P110,000
18.What is the amount to be included in gross income subject to regular income tax for
Boracay Company?
a. P0
b. P190,000
c. P210,000
d. P400,000
19.What is the total amount to be reported in gross income subject to regular tax for Mr.
Siayan?
a. P0
b. P300,000
c. P414,000
d. P308,000
20.What is the total amount to be reported in gross income?
a. P0
b. P150,000
c. P400,000
d. P520,000
📐 Multiple Choice - Problems: Part 3
1. Compute the gross income subject to regular tax (VAT taxpayer):
a. P45,000
b. P45,900
c. P45,536
d. P51,000
2. What is the total income to be reported in gross income?
a. P0
b. P380,000
c. P300,000
d. P180,000
3. What is the total amount to be included in her gross income?
a. P200,000
b. P270,000
c. P350,000
d. P470,000
4. Compute the gross income subject to regular tax (non-VAT taxpayer):
a. P5,000
b. P40,000
c. P45,000
d. P50,000
5. Compute the gross income subject regular income tax (VAT taxpayer):
a. P59,400
b. P67,200
c. P66,000
d. P60,000
6. What is the amount subject to regular income tax (non-VAT taxpayer, net of 1%
withholding)?
a. P71,351
b. P71,429
c. P80,000
d. P79,200
7. Compute the amount subject to regular income tax on interest income:
a. P0
b. P6,400
c. P8,000
d. P10,000
8. Compute the amount subject to regular income tax for a VAT-registered taxpayer
(dividends):
a. P0
b. P17,647
c. P17,857
d. P20,000
9. What is the amount of gross income subject to Philippine tax under the APA?
a. P2,000,000
b. P4,800,000
c. P2,400,000
d. P6,000,000
10.What is the gross income of the trading business subject to regular income tax?
a. P0
b. P100,000
c. P200,000
d. P120,000
