Transfer and Business Taxation Tabag Solman 2020 PDF

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SOLUTIONS MANUALTRANSFER & BUSINESS TAXATION, 2020 EditionBy: TABAG & GARCIACHAPTER 1 – SUCCESSION & TRANSFER TAXESTRUE OR FALSE1. TRUE 6. TRUE 11. FALSE 16. TRUE2. TRUE 7. FALSE 12. TRUE 17. FALSE3. TRUE 8. FALSE 13. TRUE 18. TRUE4. FALSE 9. TRUE 14. TRUE 19. TRUE5. FALSE 10. FALSE 15. ...

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! SOLUTIONS!MANUAL! TRANSFER!&!BUSINESS!TAXATION,!2020"Edition! By:!!!TABAG!&!GARCIA! CHAPTER 1 – SUCCESSION & TRANSFER TAXES TRUE OR FALSE 1. TRUE 2. TRUE 3. TRUE 4. FALSE 5. FALSE

6. 7. 8. 9. 10.

TRUE FALSE FALSE TRUE FALSE

11. 12. 13. 14. 15.

FALSE TRUE TRUE TRUE FALSE

MULTIPLE CHOICE 1. D 12. C 23. D 2. A 13. C 24. B 3. D 14. B 25. D 4. C 15. D 26. D 5. C 16. C 27. B 6. A 17. B 28. D 7. B 18. D 29. A 8. A 19. C 30. D 9. B 20. B 31. B 10. A 21. B 32. A 11. D 22. B 33. D **Inheritance and repudiation takes effect upon death of the decedent

16. 17. 18. 19. 20.

TRUE FALSE TRUE TRUE TRUE

34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44.

D B B D B D D B D B B

45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55.

B C D D A B A D** D D B

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

(4) P14,300,000 Citizen/ Resident (# 1 & 2) Family home in the Philippines P8,000,000 Parcel land of with vacation house in Malaysia 5,000,000 Farm land in the Philippines 3,000,000 Shares of stock of a DC 2,000,000 Shares of stock of a foreign corporation the entire business of which is 500,000 in the Philippines, deposited in a bank safety deposit box in Malaysia Receivable from a friend who has no property whatsoever 300,000 Receivables under insurance policies: 200,000 § Life insurance with his estate as revocable beneficiary § Life insurance with his daughter as revocable beneficiary 300,000 § Life insurance with his son as irrevocable beneficiary § Life insurance (group) taken by the employer of the decedent TOTAL GROSS ESTATE P19,300,000 ! ! ! ! !

1"|"! ! T r a n s f e r !

(2) P19,300,000

(3) P11,000,000

NRA with R (# 3) P8,000,000 3,000,000 -

NRA w/o R (# 4) P8,000,000 3,000,000 2,000,000 500,000

-

300,000

P11,000,000

200,000 300,000 P14,300,000

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! ! (P2.2) To Juan

P25,000,000

To Pedro To Maria To Sisa Total Gross Estate

18,000,000 15,000,000 20,000,000 P78,000,000

! (P2.3) Shares of stock (Frozen Co.) [(P8M+3M)/800,000sh x 100,000 shares Shares of stock (Divergent Co..) 100,000 shares x P15 Shares of stock (Lenovo Co..) 100,000 shares x P12 Total Gross Estate (P2.4)

P1,375,000 1,500,000 1,200,000 P4,075,000

(1)P230,0000; (2)P1,100,000; insufficient consideration (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. 2. 3. 4. 5.

TRUE OR FALSE 1. TRUE 2. TRUE 3. TRUE 4. FALSE 5. TRUE

P0; valid sale P0; valid sale P0; valid sale P4,000,000 P6,000,000

6. 7. 8. 9. 10.

FALSE FALSE FALSE TRUE TRUE

1. 2. 3. 4. 5.

11. 12. 13. 14. 15.

FALSE TRUE TRUE FALSE FALSE

16. 17. 18. 19. 20.

P10M P20M P5M P10M P0

TRUE TRUE FALSE TRUE FALSE

! ! !

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! MULTIPLE CHOICE 1. A 2. B 3. D 4. B 5. C 6. C 7. A 8. B 9. A 10. A 11. A 12. B 13. D 14. A 15. C

16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

D C B D A D B A B A C C C D B

31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45.

D C B A A B D C B C C C B B/C B

46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60.

C D C C B D D C C C B D C C A

61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74.

A A A C D B A C C D C A D D

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

P79,000 67,500 150,000 400,000 120,000 P816,500

Bank deposit in the foreign branch of a domestic bank Bank deposit in Makati branch of a foreign bank Shares of stock issued by a domestic corporation (certificate kept in Canada) Franchise exercised in Manila Receivable, debtor from Mindanao Total Exclusion from the gross estate

P500,000 300,000 1,000,000

(23).

800,000 200,000 P2,800,000

(24). House and lot, family home in Quezon City Bank deposit in Makati branch of a foreign bank Shares of stock issued by a domestic corporation (certificate kept in Canada) Franchise exercised in Manila Receivable, debtor from Mindanao Total Inclusion from the gross estate

P1,500,000 300,000 1,000,000 800,000 200,000 P3,800,000

(26). Shares of stocks, domestic corp. (certificate kept in UK) Shares of stocks, domestic corp. (certificate kept in Phils.) Franchise exercised in the Phils. Receivables, debtor is from Phils. Intangibles subject to reciprocity

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P250,000 100,000 200,000 50,000 P600,000

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(27). Land & building, Philippines House and lot, Philippines Shares of stocks, domestic corp. (certificate kept in UK) Shares of stocks, domestic corp. (certificate kept in Phils.) Franchise exercised in the Phils. Receivables, debtor is from Phils. Gross Estate

(33). (34). (35). (36).

P2,000,000 3,500,000 250,000 100,000 200,000 50,000 P6,100,000

(P12M/100,000) x 1,000 shares = P120,000 P100 x 1,000 shares = P100,000; Par Value=P10M/100,000 = P100/share P100 x 1,000 shares = P100,000 (P140 + P80/2) x 1,000 shares = P110,000

(44). Consideration received Land P1,500,000 Shares of stock 100,000 Vintage car 50,000 Painting 250,000 INCLUSION IN THE GROSS ESTATE (48).

FMV upon transfer P1,500,000 50,000 80,000 400,000

FMV upon death P2,000,000 150,000 100,000 500,000

Gross Estate None. Valid sale None. Valid sale P50,000 250,000 P300,000

Includible in the Gross Estate = FMV @ time of “+” less Consideration received = P300k-P100k = P200,000

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. Robbery loss Allowable Deduction

P500,000 P2,000,000 P2,500,000

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

P500,000 P500,000

(P3.2) P5,715,000 computed as follows: Ordinary Deductions: Claim against insolvent person (500,000-400,000) Unpaid taxes on the estate before death Unpaid mortgage on the estate Funeral expenses (no longer allowed under TRAIN Law) Judicial expenses (no longer allowed under TRAIN Law) Unpaid loans arising from debt instruments (notarized)

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P100,000 150,000 200,000 125,000

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! Unpaid loans arising from debt instruments (not notarized). The debt instrument was issued by a financial institution not requiring notarizations for debt instruments issued Casualty loss Special Deductions: Standard deduction Medical expenses (no longer allowed under TRAIN Law) Total Allowable deduction from the gross estate

75,000

65,000 5,000,000 P5,715,000

(P3.3) (Claim Against Insolvent Persons) Case A: P100,000 Case B: P333,333 computed as follows: Receivable Collectible portion (400/1,200) x 500,000 Deductible claim (Uncollectible portion)

P500,000 (166,667) P333,333

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) Collectible (400/800) x 500,000 Deductible Claim against Insolvent Persons

P500,000 (250,000) P250,000

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

P100,000 100,000 P200,000

(P3.5) P133,333 computed as follows: Debtor’s (Pedro) Assets Taxes payable by Pedro to the BIR (gov’t is a priority creditor) Assets of Pedro after deducting unpaid taxes Receivable from Pedro (CAIP) Collectible amount from Pedro (allocated): (200/600) x 200,000 Deductible Claim (uncollectible) against Insolvent Person (P3.6) P262,500 computed as follows: Value to take 1st Deduction: Mortgage paid Initial basis 2nd Deduction: Proportional deduction (750/4,500) x 562,500 Final Basis x Vanishing rate Vanishing Deduction

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P400,000 (200,000) P200,000 P200,000 (66,667) P133,333

P937,500 (187,500) P750,000 (93,750) P656,250 40% P262,500

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(P3.7) STANDARD DEDUCTION CASE A P5,000,000 B P5,000,000 C P5,000,000 D P500,000 E 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).

Domestic shares of 2,000 shares inherited 6 years ago House and lot, family home, located in Davao, inherited 2 years ago Jewelry items, in the Philippines at the time of death Jewelry items kept in a vault abroad Bank deposit in a Philippine branch of a U.S. bank Interest from bank deposit (after death) Transfer for Public Use (donation to the gov’t provided in his will) GROSS ESTATE ORDINARY DEDUCTIONS: Funeral expenses Judicial expenses, abroad Judicial expenses, Philippines Claims against the estate Transfer for Public Use Vanishing deductions (Shares of stocks = None; House and Lot = Allowed) SPECIAL DEDUCTIONS Standard Deduction (TRAIN Law) Family Home Medical Expenses RA 4917 NET TAXABLE ESTATE Value to take 1st Deduction: Mortgage paid Initial basis 2nd Deduction: Proportionate deduction (1,500/15,850) x P370,000 Final Basis x Vanishing rate Vanishing Deduction

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P8,000,000 2,000,000 400,000 200,000 5,000,000 250,000 P15,850,000 120,000 250,000 1,171,987** 5,000,000 2,000,000 -

(1,541,987)

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

P1,500,000 P1,500,000 (35,016) P1,464,984 80% P1,171,987**

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(P3.10) Question No. 1 TFPU House and Lot in Makati (Family Home) Farm Lot Other real properties Claim against insolvent person Transfer in contemplation of death Total Gross Estate

P300,000 1,500,000 825,000 15,000,000 225,000 1,250,000 P19,100,000

Allowable Deductions Funeral expenses Judicial expenses TFPU (correct amount) Claim against insolvent person Unpaid mortgage on farm lot Standard deduction Medical expenses Family Home TAXABLE NET ESTATE

Question No. 2 Value to take

(300,000)* * (225,0000)** (75,000)** (5,000,000) (1,500,000) P12,000,000

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)

7"|"! ! T r a n s f e r !

P12,000,000

Vanishing Deduction***

(96,859)

TAXABLE NET ESTATE

P11,903,141

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(P3.11) Question No. 1 VALUE TO TAKE (LAND)

P1,250,000

MORTGAGE PAID

(50,000)

INITIAL BASIS

1,200,000

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

(65,625)

FINAL BASIS

P1,134,375

VANISHING DEDUCTION %

40%

VANISHING DEDUCTION

P453,750

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

Question No. 2 Gross Estate

P12,800,000

Correct Losses, Indebtedness, Taxes (LIT)

(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

(200,000)

Net taxable estate

TRUE OR FALSE 1. TRUE 2. TRUE 3. TRUE 4. TRUE 5. FALSE

6. 7. 8. 9. 10.

FALSE TRUE FALSE TRUE TRUE

-

P4,446,250

11. 12. 13. 14. 15.

TRUE FALSE TRUE FALSE TRUE

16. 17. 18. 19. 20.

TRUE TRUE TRUE TRUE FALSE

! ! ! ! ! ! ! ! ! ! !

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! MULTIPLE CHOICE 1. C 2. D 3. C 4. D 5. A 6. A 7. A 8. D 9. D 10. C

11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

D D A A B B B C A C

21. 22. 23. 24. 25. 26. 27. 28. 29. 30.

D C C A C B B D A B

31. 32. 33. 34. 35. 36. 37. 38. 39. 40.

D A A C D A A A C B

Supporting Computation (Multiple Choice): (6.) A Real property tax for the year 2017 Notarized interest bearing promissory note Accrued interest on the promissory note at the time of death Income tax due for 2013 Allowable deductions

P100,000 100,000 20,000 200,000 P420,000

(12). D Income tax from practice of profession , 2017 Income tax from practice of profession for Jan.-June, 2018 Real property taxes for 2016 and 2017 Business taxes for 2017 Deductible taxes

P300,000 100,000 150,000 100,000 P650,000

(29). A Value to take/Initial Basis Mortgage paid Initial basis 2nd Deduction: (850/1,000 x P100,000**) Final Basis x Vanishing rate VANISHING DEDUCTION

P900,000 (50,000) 850,000 (85,000) P765,000 40% P306,000

** Mortgage P150,000 – 50,000

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

9"|"! ! T r a n s f e r !

P6,000,000 (720,000) (500,000) P4,780,000

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

P500,000 1,500,000 2,000,000 (400,000) (500,000) P1,100,000 P66,000

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

ACP C C C C C C E E C C C E C E

15.

E

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

P4.2 Absolute Community of Property (ACoP) a) P12,400,000 b) P19,500,000 c) P9,750,000 d) P17,150,000

Land inherited during marriage Other personal property owned before marriage Other personal property acquired during marriage Total Deductions: Casualty loss Funeral expenses (no longer allowed under TRAIN Law) Judicial expenses (no longer allowed under TRAIN Law) Unpaid Taxes Claims against the estate Vanishing deduction**

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Exclusive P24,000,000

P24,000,000

Common P16,000,000 5,000,000 P21,000,000

Total

P45,000,000

(500,000) (400,000) (600,000) (11,600,000)

(13,100,000)

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! Net estate before special deduction and share of the surviving spouse Standard deduction Medical expenses (no longer allowed under TRAIN Law) Share of the Surviving Spouse (19,500,000/2) NET TAXABLE ESTATE VANISHING DEDUCTION** Value to Take/Initial Basis Proportional Deduction (15,000/45,000 x P1,500,000) Final Basis x Vanishing Deduction % Vanishing Deduction

P12,400,000

P19,500,000

P31,900,000 (5,000,000) (9,750,000) P17,150,000

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

Land inherited during marriage Other personal property owned before marriage Other personal property acquired during marriage Total Deductions: Unpaid Taxes Claims against the estate Casualty Loss Funeral expenses Judicial expenses Vanishing deduction (same computation) Net estate before special deduction and share of the surviving spouse Standard deduction Medical expenses Share of the Surviving Spouse (3,500,000/2) NET TAXABLE ESTATE

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Exclusive P24,000,000 16,000,000 P40,000,000

Common

5,000,000 P5,000,000

Total

P45,000,000

(400,000) (600,000) (500,000) (11,600,000) P28,400,000

P3,500,000

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

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P4.3

Decedent: Non-resident alien a) P1,621,396 b) P4,451,136 c) P3,346,964 d) P200,818 Exclusive properties, Phils. Conjugal properties, Phils.* LIT** Vanishing Deductions *** Transfer for Public Use **** Net Estate Share of the Surviving Spouse (4,451,136/2) Standard deduction Net Taxable Estate x Estate Tax Rate Estate Tax Due

Exclusive P2,000,000

(178,604) (200,000) P1,621,396

Common

Total

P5,000,000 (548,864)

P7,000,000

P4,451,136

P6,072,532 (2,225,568) (500,000) P3,346,964 6% P200,818

*The problem is silent as to reciprocity, hence, the gross estate should include tangible and intangible properties within the Philippines. **LIT: Funeral expenses PJudicial expenses Claim against the estate 1,725,000 TOTAL ELIT P1,725,000 X 7,000/22,000 ALLOWABLE ELIT

P548,864

***VANISHING DEDUCTIONS: Value to take P500,000 1st Deduction: Mortgage paid Initial basis P500,000 2nd Deduction: Proportionate deduction (500/7,000) x (548,864 + 200,000) (53,490) ...