Solman TAX2 2019 Edition Final docx PDF

Preview

Summary

Download Solman TAX2 2019 Edition Final docx PDF

Description

SOLUTIONS MANUAL TRANSFER & BUSINESS TAXATION, 2019 Edition By: TABAG & GARCIA CHAPTER 1 – SUCCESSION & TRANSFER TAXES TRUE OR FALSE 1. TRUE 6. TRUE

11. FALSE

16. TRUE

2. TRUE

7. FALSE

12. TRUE

17. FALSE

3. TRUE

8. FALSE

13. TRUE

18. TRUE

4. FALSE

9. TRUE

14. TRUE

19. TRUE

5. FALSE

10. FALSE

15. FALSE

20. TRUE

23. D 24. B

34. D 35. B

45. B 46. C

MULTIPLE CHOICE 1. D 12. C 2. A 13. C 3. D 4. C

14. B 15. D

25. D 26. D

36. B 37. D

47. D 48. D

5. C 6. A 7. B

16. C 17. B 18. D

27. B 28. D 29. A

38. B 39. D 40. D

49. A 50. B 51. A

8. A 9. B

19. C 20. B

30. D 31. B

41. B 42. D

52. D** 53. D

10. A 21. B 32. A 43. B 54. D 11. D 22. B 33. D 44. B 55. B **Inheritance and repudiation takes effect upon death of the decedent

CHAPTER 2 – GROSS ESTATE PROBLEM SOLVING (P2.1) (1) P19,300,000

(2) P19,300,000

Family home in the Philippines Parcel land of with vacation house in Malaysia

(3) P11,000,000 (4) P14,300,000 Citizen/ Resident NRA with R NRA w/o R (# 1 & 2) (# 3) (# 4) P8,000,000 P8,000,000 P8,000,000 5,000,000

Farm land in the Philippines Shares of stock of a DC Shares of stock of a foreign corporation the entire business of which is in the Philippines, deposited in a bank safety deposit box in Malaysia Receivable from a friend who has no property whatsoever

3,000,000 2,000,000

3,000,000

500,000

3,000,000 2,000,000 500,000

300,000

300,000

200,000

200,000

Receivables under insurance policies:

▪ Life insurance with his estate as revocable beneficiary ▪ Life insurance with his daughter as revocable beneficiary ▪ Life insurance with his son as irrevocable beneficiary ▪ Life insurance (group) taken by the employer of the decedent TOTAL GROSS ESTATE

300,000

300,000

-

-

-

-

-

-

P19,300,000 P11,000,000 P14,300,000

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 1 of 42

(P2.2) To Juan P25,000,000 To Pedro 18,000,000 To Maria 15,000,000 To Sisa 20,000,000 Total Gross Estate P78,000,000

(P2.3) Shares of stock (Frozen Co.) [(P8M+3M)/800,000sh x 100,000 sharesP1,375,000 Shares of stock (Divergent Co..) 100,000 shares x P15**

1,500,000

Shares of stock (Lenovo Co..) 100,000 shares x P12

1,200,000 Total Gross Estate P4,075,000 ***Mean value shall be used only if the quotation price at the date of death is not determinable (RR 2-2003) (P2.4) (1)P230,0000; (2)P1,100,000; (3)P0; (4)P5,000,000; (5)P1M + [1M x (1M x 10% x 1.5)] = P1,150,000

MODIFIED IDENTIFICATION EXERCISE A 1. Included 6. Excluded 2. Included 7. Excluded * 3. Excluded 8. Included ** 4. Included 9. Excluded 5. Excluded 10. Included*** *Designated by the prior decedent **Exclusions from the gross estate. Nonetheless, the tax code requires these items to be included first in the gross estate before deducting the same from the gross estate. *** Bequests to charitable institutions are considered exclusions from the gross estate only if the problem clearly states that not more than 30% were used for administrative purposes. However, even if not more than 30% of the bequests were used for administrative purposes, since whether or not such is exempt will undergo scrutiny first by the BIR, these items shall be included first in the gross estate before deducting the same for estate tax purposes.

EXERCISE B

EXERCISE C

1. P0; valid sale 2. P0; valid sale 3. P0; valid sale 4. P4,000,000 5. P6,000,000

1. P10M 2. P20M 3. P5M 4. P10M 5. P0

TRUE OR FALSE 1. TRUE

6. FALSE 11. FALSE 16. TRUE

2. TRUE

7. FALSE 12. TRUE 17. TRUE

3. TRUE

8. FALSE 13. TRUE 18. FALSE

4. FALSE 9. TRUE 14. FALSE 19. TRUE 5. TRUE 10. TRUE 15. FALSE 20. FALSE

MULTIPLE CHOICE 1. A 16. D 31. C 46. C 61. A 2. B 17. C 32. C 47. D 62. A 3. D 18. B 33. B 48. C 63. A 4. B 19. D 34. A 49. C 64. C

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 2 of 42

5. C 20. A 35. B 50. B 65. D 6. C 21. D 36. B 51. D 66. B 7. A 22. A 37. D 52. D 67. A 8. B 23. A 38. B 53. C 68. C 9. A 24. B 39. B 54. C 69. C 10. A 25. C 40. C 55. C 70. D 11. A 26. C 41. C 56. B 71. C 12. B 27. C 42. C 57. D 72. A 13. D 28. C 43. B 58. C 73. D 14. A 29. D 44. B 59. C 74. D 15. C 30. B 45. B 60. A

Supporting Computations (Multiple Choice): (22). Common stock-Sunchamp [(P40+39)/2] x 2,000 shares P79,000 Common stock – AgriNurture (1,500 shares x P45) 67,500 Preferred stock – Greenery (3,000 shares x P50 par value) 150,000 Car @ FMV 400,000 Real properties @ zonal value 120,000 Total Exclusion from the gross estate P816,500

(23). Bank deposit in the foreign branch of a domestic bank P500,000 Bank deposit in Makati branch of a foreign bank 300,000 Shares of stock issued by a domestic corporation 1,000,000 (certificate kept in Canada) Franchise exercised in Manila 800,000 Receivable, debtor from Mindanao 200,000 Total Exclusion from the gross estate P2,800,000 (24). House and lot, family home in Quezon City P1,500,000 Bank deposit in Makati branch of a foreign bank 300,000 Shares of stock issued by a domestic corporation 1,000,000 (certificate kept in Canada) Franchise exercised in Manila 800,000 Receivable, debtor from Mindanao 200,000 Total Inclusion from the gross estate P3,800,000 (26). Shares of stocks, domestic corp. P250,000 (certificate kept in UK) Shares of stocks, domestic corp. 100,000 (certificate kept in Phils.) Franchise exercised in the Phils. 200,000 Receivables, debtor is from Phils. 50,000 Intangibles subject to reciprocity P600,000

(27). Land & building, Philippines P2,000,000 House and lot, Philippines 3,500,000 Shares of stocks, domestic corp. (certificate kept in UK) 250,000 Shares of stocks, domestic corp. (certificate kept in Phils.) 100,000 Franchise exercised in the Phils. 200,000 Receivables, debtor is from Phils. 50,000 Gross Estate P6,100,000

(33).

"(P12M/100,000) x 1,000 shares = P120,000

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 3 of 42

(34). (35). (36).

"P100 x 1,000 shares = P100,000; Par Value=P10M/100,000 = P100/share "P110 x 1,000 shares = P110,000 "(P140 + P80/2) x 1,000 shares = P110,000

(44). Consideration FMV upon transfer FMV upon death Gross Estate received Land P1,500,000 P1,500,000 P2,000,000 None. Valid sale Shares of stock 100,000 50,000 150,000 None. Valid sale Vintage car 50,000 80,000 100,000 P50,000 Painting 250,000 400,000 500,000 250,000 INCLUSION IN THE GROSS ESTATE P300,000

(48). P200,000

"Includible in the Gross Estate = FMV @ time of “+” less Consideration received = P300k-P100k =

CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE

PROBLEM SOLVING

(P3.1) (a) P2,500,000 computed as follows: Loss due to shipwreck, two (2) months after the decedent’s death. P500,000 Robbery loss P2,000,000 Allowable Deduction P2,500,000

(b) P500,000 computed as follows: Loss due to shipwreck, two (2) months after the decedent’s death. P500,000 Allowable Deduction P500,000

(P3.2) P5,715,000 computed as follows: Ordinary Deductions: Claim against insolvent person (500,000-400,000) P100,000 Unpaid taxes on the estate before death 150,000 Unpaid mortgage on the estate 200,000 Funeral expenses (no longer allowed under TRAIN Law) Judicial expenses (no longer allowed under TRAIN Law) Unpaid loans arising from debt instruments (notarized) 125,000 Unpaid loans arising from debt instruments (not notarized). The debt 75,000 instrument was issued by a financial institution not requiring notarizations for debt instruments issued Casualty loss 65,000 Special Deductions: Standard deduction Medical expenses (no longer allowed under TRAIN Law) Total Allowable deduction from the gross estate

5,000,000 P5,715,000

(P3.3) (Claim Against Insolvent Persons) Case A: P100,000

Case B: P333,333 computed as follows: Receivable P500,000 Collectible portion (400/1,200) x 500,000 (166,667) Deductible claim (Uncollectible portion) P333,333

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 4 of 42

Case C: P0. Debtor is not insolvent

Case D: P250,000 Total Assets Taxes payable (Gov’t is a priority creditor) Assets after deducting unpaid taxes

P1,200,000 (800,000) P400,000

Receivable (CAIP) P500,000 Collectible (400/800) x 500,000 (250,000) Deductible Claim against Insolvent Persons P250,000

(P3.4) P200,000 computed as follows: Uncollectible receivable from Juan P100,000 Uncollectible receivable from Manuel 100,000 Total P200,000

(P3.5) P133,333 computed as follows: Debtor’s Assets P400,000 Taxes payable (Gov’t is a priority creditor) (200,000) Assets after deducting unpaid taxes P200,000 Receivable (CAIP) P200,000 Collectible (200/600) x 200,000 (66,667) Deductible Claim against Insolvent Persons P133,333

(P3.6) P262,500 computed as follows: Value to take P937,500 st (187,500) 1 Deduction: Mortgage paid Initial basis P750,000 nd 2 Deduction: Proportionate deduction (750/4,500) x 562,500 (93,750) Final Basis x Vanishing rate Vanishing Deduction

P656,250 40% P262,500

(P3.7) STANDARD DEDUCTION CASE A B C D E

P5,000,000 P5,000,000 P5,000,000 P500,000 P500,000

(P3.8) FAMILY HOME Case A: P0 Case B: P5,000,000 Case C: P0; exclusive property of the surviving spouse Case D: P10,000,000 Case E: P12M/2 = P6,000,000 Case F: [ 5M + (5,000,000/2)] = P7,500,000 (P3.9) Question 1: P7,308,013; Question 2: P7,308,013;

(Decedent: Resident Citizen) (Decedent: Resident Alien) (same computation with Q#1).

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 5 of 42

Domestic shares of 2,000 shares inherited 6 years ago

P8,000,000

House and lot, family home, located in Davao, inherited 2 years ago Jewelry items, in the Philippines at the time of death

2,000,000 400,000

Jewelry items kept in a vault abroad

200,000

Bank deposit in a Philippine branch of a U.S. bank

5,000,000

Interest from bank deposit (after death)

-

Transfer for Public Use (donation to the gov’t provided in his will)

250,000

GROSS ESTATE

P15,850,000

ORDINARY DEDUCTIONS: Funeral expenses, Philippines

-

Judicial expenses, abroad

-

Judicial expenses, Philippines

-

Claims against the estate

120,000

Transfer for Public Use

250,000

Vanishing deductions (Shares of stocks = None; House and Lot = Allowed)

1,171,987** (1,541,987)

SPECIAL DEDUCTIONS Standard Deduction (TRAIN Law)

5,000,000

Family Home

2,000,000

Medical Expenses

-

RA 4917 NET TAXABLE ESTATE

- (7,000,000) P7,308,013

Value to take P1,500,000 st 1 Deduction: Mortgage paid Initial basis P1,500,000 nd 2 Deduction: Proportionate deduction (1,500/15,850) x P370,000 (35,016) Final Basis P1,464,984 x Vanishing rate 80% Vanishing Deduction P1,171,987**

(P3.10) Question No. 1 TFPU

P300,000

House and Lot in Makati (Family Home)

1,500,000

Farm Lot Other real properties Claim against insolvent person Transfer in contemplation of death Total Gross Estate

825,000 15,000,000 225,000 1,250,000 P19,100,000

Allowable Deductions Funeral expenses

-

Judicial expenses

-

TFPU (correct amount)

(300,000)* *

Claim against insolvent person

(225,0000)**

Unpaid mortgage on farm lot Standard deduction Medical expenses Family Home TAXABLE NET ESTATE

(75,000)** (5,000,000) (1,500,000) P12,000,000

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 6 of 42

Question No. 2 Value to take

P575,000

Mortgage paid (P150,000-P75,000)

(75,000)

Initial Basis

500,000

Proportional deduction (500/19,100) x 600,000**

(15,707)

Final Basis

484,293

Vanishing deduction rate

20%

Vanishing Deduction***

P96,859

NET ESTATE without VD (from Q#1)

P12,000,000 (96,859)

Vanishing Deduction*** TAXABLE NET ESTATE

P11,903,141

(P3.11) Question No. 1 VALUE TO TAKE (LAND) MORTGAGE PAID INITIAL BASIS

P1,250,000 (50,000) 1,200,000

Proportionate Deduction: (1,200/12,800 x P700,000**) FINAL BASIS

(65,625) P1,134,375

VANISHING DEDUCTION % VANISHING DEDUCTION

40% P453,750

Correct ELIT + TFPU: =1,200k+100k-300k-600k+300k TFPU=P700,000***

Question No. 2 Gross Estate Correct Losses, Indebtedness, Taxes (LIT)

P12,800,00 0 (400,000)

TFPU

(300,000)

Vanishing deduction

(453,750)

Standard deduction

(5,000,000)

Family Home

(2,000,000)

Medical expenses (repealed under TRAIN Law) Death benefits under RA4917 Net taxable estate

(200,000) P4,446,250

TRUE OR FALSE

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 7 of 42

1. TRUE

6. FALSE 11. TRUE 16. TRUE

2. TRUE

7. TRUE 12. FALSE 17. TRUE

3. TRUE

8. FALSE 13. TRUE 18. TRUE

4. TRUE

9. TRUE 14. FALSE 19. TRUE

5. FALSE 10. TRUE 15. TRUE 20. FALSE

MULTIPLE CHOICE 1. C 11. D 21. D 31. D 2. D 12. D 22. C 32. A 3. C 13. A 23. C 33. A 4. D 14. A 24. A 34. C 5. A 15. B 25. C 35. D 6. A 16. B 26. B 36. A 7. A 17. B 27. B 37. A 8. D 18. C 28. D 38. A 9. D 19. A 29. A 39. C 10. C 20. C 30. B 40. B

Supporting Computation (Multiple Choice): (6.) A Real property tax for the year 2017 P100,000 Notarized interest bearing promissory note 100,000 Accrued interest on the promissory note at the time of death 20,000 Income tax due for 2013 200,000 Allowable deductions P420,000 (12). D Income tax from practice of profession , 2017 P300,000 Income tax from practice of profession for Jan.-June, 2018 100,000 Real property taxes for 2016 and 2017 150,000 Business taxes for 2017 100,000 Deductible taxes P650,000

(29). A Value to take/Initial Basis Mortgage paid Initial basis

P900,000 (50,000) 850,000

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 8 of 42

nd

2 Deduction: (850/1,000 x P100,000**)

(85,000) Final Basis P765,000 x Vanishing rate 40% VANISHING DEDUCTION P306,000 ** Mortgage P150,000 – 50,000

(39). C Gross Estate P6,000,000 (Tangible property Phils.; with reciprocity) Prorated LIT (1,200,000 x 6,000/10,000,000) (720,000) Standard deduction (500,000) Taxable Estate P4,780,000

(40). B Shares, domestic corporation P500,000 Tangible personal property 1,500,000 Gross Estate 2,000,000 Prorated LIT (500,000 x 2,000/2,500) (400,000) Standard deduction (500,000) Taxable Estate P1,100,000 TAX DUE Estate Tax Due (P1.1M x 6%)

P66,000

CHAPTER 4 – PROPERTY RELATIONS PROBLEM SOLVING P4.1 ACP CPG 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

C C C C C C E E C C C E C E

E C C C E C E C C C C E E C (All fruits or income e are common property under CPG. Hence, the property purchased shall be classified as common. 15. E E

P4.2 Absolute Community of Property (ACoP) a) P12,400,000

b) P19,500,000

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&oe=5E3FD6FE&dl=1

07/02/2020, 10H56 AM Page 9 of 42

c) P9,750,000 d) P17,150,000 Exclusive Land inherited during marriage

Common

Total

P24,000,000

Other personal property owned before marriage

P16,000,000

Other personal property acquired during marriage

5,000,000

Total Deductions:

P24,000,000 P21,000,000 P45,000,000

Casualty loss

(500,000)

Funeral expenses (no longer allowed under TRAIN Law)

-

Judicial expenses (no longer allowed under TRAIN Law)

-

Unpaid Taxes

(400,000)

Claims against the estate

(600,000)

Vanishing deduction**

(11,600,000)

Net estate before special deduction and share of the surviving spouse Standard deduction

P12,400,000 P19,500,000 P31,900,000

(13,100,000)

(5,000,000)

Medical expenses (no longer allowed under TRAIN Law)

-

Share of the Surviving Spouse (19,500,000/2)

(9,750,000)

NET TAXABLE ESTATE

P17,150,000

VANISHING DEDUCTION** Value to Take/Initial Basis Proportional Deduction (15,000/45,000 x P1,500,000) Final Basis

P15,000,000 (500,000) P14,500,000

x Vanishing Deduction % Vanishing Deduction

80% P11,600,000

Conjugal Partnership of Gains (CPG) e) P28,400,000

f) P3,500,000 g) P1,750,000 h) P25,150,000 Exclusive Land inherited during marriage Other personal property owned before marriage

Total

16,000,000

Other personal property acquired during marriage Total Deductions:

Common

P24,000,000

5,000,000 P40,000,000 P5,000,000

Unpaid Taxes

(400,000)

Claims against the estate

(600,000)

Casualty Loss

(500,000)

Funeral expenses

-

Judicial expenses Vanishing deduction (same computation)

(11,600,000)

Net estate before special deduction and share of the P28,400,000 P3,500,000 surviving spouse Standard deduction Medical expenses Share of the Surviving Spouse (3,500,000/2) NET TAXABLE ESTATE

P45,000,000

(13,100,000) P31,900,000 (5,000,000) (1,750,000) P25,150,000

https://cdn.fbsbx.com/v/t59.2708-21/80047660_2273266482…=18669a49270fd784ac24af5921788750&o...