Transfer & Business Taxation (Tabag & Garcia) 3rd Edition PDF

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SOLUTIONS MANUAL TRANSFER BUSINESS TAXATION, 3rd Edition : TABAG GARCIA CHAPTER 1 SUCCESSION TRANSFER TAXES TRUE OR FALSE 1. T 2. T 3. T 4. T 5. F MULTIPLE CHOICE 1. D 2. A 3. D 4. C 5. C 6. A 7. B 8. A 9. B 10. A 11. D 6. 7. 8. 9. 10. T F T T T 11. 12. 13. 14. 15. T T T T F 12. 13. 14. 15. 16. 17. ...

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SOLUTIONS MANUAL

TRANSFER & BUSINESS TAXATION, 3rd Edition By: TABAG & GARCIA

CHAPTER 1 – SUCCESSION & TRANSFER TAXES TRUE OR FALSE 1. T 2. T 3. T 4. T 5. F MULTIPLE CHOICE 1. D 2. A 3. D 4. C 5. C 6. A 7. B 8. A 9. B 10. A 11. D

6. 7. 8. 9. 10.

T F T T T

11. 12. 13. 14. 15.

T T T T F

12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

C C B D C B D C B B B

23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33.

D B D D B D A D B A D

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

61. 62. 63. 64. 65. 66. 67. 68. 69. 70.

A A A C D B A C C D

CHAPTER 2 – GROSS ESTATE TRUE OR FALSE – SET A 1. T 6. 2. T 7. 3. F 8. 4. T 9. 5. T 10. TRUE OR FALSE – SET B 1. T 6. 2. F 7. 3. F 8. 4. T 9. 5. T 10. MULTIPLE CHOICE 1. A 16. 2. B 17. 3. D 18. 4. B 19. 5. C 20. 6. C 21. 7. A 22. 8. B 23. 9. A 24. 10. A 25. 11. C 26. 12. B 27.

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T T T T T

11. 12. 13. 14. 15.

T F F T T

16. 17. 18. 19. 20.

F T T T T

F T T T F

11. 12. 13. 14. 15.

T F F T F

16. 17. 18. 19. 20.

T T T F T

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

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

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

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

C D C C C D D C C C B D

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

13. 14. 15.

D A C

28. 29. 30.

D B D

43. 44. 45.

B C B

58. 59. 60.

C C A

Supporting Computations:

23. 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 1,000,000 800,000 200,000 P2,800,000

23. 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

25. 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

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

26. 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 (P10M/100,000) x 1,000 shares = P100,000 P110 x 1,000 shares = P120,000 (P140 + P80/2) x 1,000 shares = P110,000

44.

Land Shares of stock Vintage car Painting

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Consideration received P1,500,000 100,000 50,000 250,000

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

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

INCLUSION IN THE GROSS ESTATE

P300,000

44. 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. PROBLEM SOLVING: PROBLEM 1 (1) P19,300,000

(2) P19,300,000

(3) P11,800,000

Family home in the Philippines Parcel land of with vacation house in Malaysia Farm land in the Philippines Shares of stock of a domestic corporation deposited in a bank safety deposit box in Malaysia 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 Receivables under insurance policies:  Life insurance policy, taken by the decedent on his own life, with his estate as revocable beneficiary  Life insurance policy, taken by the decedent, with his daughter as revocable beneficiary  Life insurance policy, taken by the decedent on his own life, with his son as irrevocable beneficiary  Life insurance (group) taken by the employer of the decedent, with the estate as revocable beneficiary  Property insurance, for a loss of property  Accident insurance, for injury sustained TOTAL GROSS ESTATE

(4) P14,300,000 Citizen/ Resident (# 1 & 2) P8,000,000 5,000,000 3,000,000 2,000,000

NRA with R

NRA w/o R

(# 3) P8,000,000

(# 4) P8,000,000

3,000,000

3,000,000 2,000,000

500,000

500,000

300,000

300,000

300,000

200,000

200,000

200,000

300,000

300,000

300,000

-

-

-

-

-

-

50,000 50,000 P19,300,000

50,000 50,000 P11,800,000

50,000 50,000 P14,300,000

PROBLEM 2 To Juan To Pedro To Maria To Sisa Total Gross Estate

P25,000,000 18,000,000 15,000,000 20,000,000 P78,000,000

PROBLEM 3 1. 2. 3. 4. 5.

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P230,0000 P1,100,000 P0 P5,000,000 P1,000,000 + [1M x (1M x 10% x 1.5)] = P1,150,000

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

MODIFIED IDENTIFICATION EXERCISE A 1. Included 2. Included 3. Excluded 4. Included 5. Excluded 6. Excluded 7. Included * 8. Excluded 9. Excluded** 10. Excluded

11. Included*** 12. Excluded** 13. Excluded** 14. Included 15. Included 16. Included 17. Excluded 18. Excluded** 19. Excluded 20. Included

*Included in the gross estate if the beneficiary is the estate, administrator or executor. In case of doubt, the item should be taxable. **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. EXERCISE B

EXERCISE C 1. 2. 3. 4. 5.

1. 2. 3. 4. 5.

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

P10M P20M P5M P10M P0

CHAPTER 3 – DEDUCTIONS FROM THE GROSS ESTATE TRUE OR FALSE 1. T 2. T 3. T 4. T 5. T 6. F MULTIPLE CHOICE 1. C 2. D 3. D 4. C 5. C 6. B 7. B 8. D 9. C

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7. 8. 9. 10. 11. 12.

T T T F F F

13. 14. 15. 16. 17. 18.

F F T F T T

19. 20. 21. 22. 23. 24.

T T T F T T

25. 26. 27. 28. 29. 30.

T T F T F T

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

C B A A A D D D D

23. 24. 25. 26. 27. 28. 29. 30. 31.

A A A B B B C A C

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

C A C B B C D A D

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

C B A A C C A A A

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

10. A 21. C 32. D 43. D 11. B 22. D 33. C 44. D Supporting Computations: 7. Mourning clothing of the decedent’s surviving spouse Mourning clothing of the decedent’s dependent children Expenses of the wake preceding the burial Publication charges for death notices Telecommunication expenses incurred in informing relatives of the deceased Cost of burial plot Interment fees and charges Expenses for the performance of the rites & ceremonies incident to interment Actual Funeral Expenses Limit: 5% of Gross Estate (P2M x 5%) ALLOWED (Lower Amount) 15. Real property tax for the year 2013 Notarized interest bearing promissory note Accrued interest on the promissory note at the time of death Income tax due for 2013 Allowable deductions (Disregard standard deduction)

54. 55.

B D

P1,500 3,200 40,000 5,000 3,000 20,000 12,000 5,000 P89,700 P100,000 P89,700 P100,000 100,000 20,000 200,000 P420,000

23. Income tax from practice of profession - 2013 Income tax from practice of profession for Jan.-June ‘13 Real property taxes for 2013 Deductible taxes

P300,000 100,000 150,000 P550,000

35.

ERRATUM: Pedro died leaving a car acquired by purchase from Pedro JUAN 41. 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 54. Shares, domestic corporation Tangible personal property Gross Estate

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P500,000 1,500,000 2,000,000

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

ELIT (500,000 x 2,000/2,500) Taxable Estate TAX DUE 1st P500,000 In excess of P500,000 = (1,100,00 x 8%) Estate Tax Due

(400,000) P1,600,000

Gross Estate (Tangible property Phils.) ELIT (1,200,000 x 6,000/10,000,000) Taxable Estate

P6,000,000 (720,000) P5,280,000

P15,000 88,000 P103,000

55.

PROBLEM SOLVING Problem 1 Case A: Case B: Case C: Case D: Case E:

P150,000 P200,000 P150,000 P150,000 P0

Problem 2 ASSUME GROSS ESTATE OF P2,000,000 Embalming charges P15,000 Burial apparel of the decedent 3,500 Cost of coffin 125,000 Mourning apparel of the surviving spouse during the burial 5,000 Mourning apparel of the minor child 2,000 Snacks and drinks during the wake 12,500 Honoraria of priest for daily masses before burial 2,000 Telecommunication charges to inform relatives 1,000 Charges for death notice published in a newspaper 8,000 Cost of video footage of the burial and interment 12,000 Funeral car service during interment 4,000 Honorarium of priest who celebrated the mass during interment 2,000 Cost of tombstone 30,000 ACTUAL FUNERAL EXPENSE P232,000 Vs. Limit (P5% of P2M) 100,000 ALLOWABLE FUNERAL EXPENSE P100,000 NOTE: Hospital bills for two months of confinement before decedent’s death should be charged to “medical expenses” Problem 3 Case A: P100,000

Case B: P333,333 computed as follows: Receivable Collectible portion (400/1,200) x 500,000 Uncollectible portion of the claim

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P500,000 (166,667) P333,33

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

3 Case C: P0. Debtor is not insolvent

Problem 4 DUE FROM PEDRO P200,000 Assets of Pedro P400,000 Less: Due to the BIR for unpaid taxes (200,000) Balance 200,000 Collectible by Juan X 200/600 (66,667) UNCOLLECTIBLE PORTION (Deductible from Juan’s Gross Estate) P133,333 Problem 5 Question 1: P550,000 computed as follows: Unpaid taxes on the estate before death P150,000 Unpaid mortgage on the estate 200,000 125,000 Unpaid loans arising from debt instruments (notarized) 75,000 Unpaid loans arising from debt instruments (not notarized). The debt instrument was issued by a financial institution not requiring notarizations for debt instruments issued Total Deductible Claim Against the Estate P550,00 0 Question 2: P2,097,000 computed as follows Ordinary Deductions: Claim against insolvent person Unpaid taxes on the estate before death Unpaid mortgage on the estate Funeral expenses Actual = P182,000 + 37,500 = P219,500 Limit = P5M x 5% = P250,000 Maximum = P200,000 Judicial expenses Unpaid loans arising from debt instruments (notarized) 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 Total Allowable deduction from the gross estate

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

100,000 125,000 75,000

65,000 1,000,000 82,000 P2,097,00 0

Problem 6 Question 1: P217,500 Question 2: P217,500

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Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

Same answer with question #1. Whether or not the estate was settled judicially is irrelevant in the determination of allowable deduction for judicial expenses.

Solution: Expenditures incurred for the collection of assets and payment of debts Attorneys fees (1/2 were incurred after six months) P40,000 x 1/2 Accountant’s fees Executor’s commission Appraiser’s fees Court fees Cost of preserving and distributing the estate Cost of storing or maintaining the property of the estate Brokerage fees for selling property of the estate Total allowable judicial expenses

Problem 7 Loss due to shipwreck, two (2) months after the decedent’s death. Robbery loss, seven (7) months after the decedent’s death. The decedent’s executor was allowed by the Bureau of Internal Revenue to extend the filing (within the period allowed by the Tax Code) of estate tax return due to a meritorious reason Allowable Deduction

P100,000 20,000

25,000 15,000 2,500 18,000 15,000 12,000 10,000 P217,50 0

P500,000 2,000,000

P2,500,000

Problem 8 Value to take 1st Deduction: Mortgage paid Initial basis 2nd Deduction: Proportionate deduction (750/4,500) x 562,500 Final Basis x Vanishing rate Vanishing Deduction

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

Problem 9 Value to take 1st Deduction: Mortgage paid Initial basis 2nd Deduction: Proportionate deduction (1,500/1,980) x 170,000 Final Basis x Vanishing rate Vanishing Deduction

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P1,500,000 -----P1,500,000 (128,788) P1,371,212 80% P1,096,970

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

Problem 10 Case A: Case B: Case C: Case D: Case E:

P1,000,000 P1,000,000 P1,000,000 P0 P0

Problem 11 Case A: Case B: Case C: Case D: Case E:

P500,000 P500,000 P150,000 P500,000 P0

Problem 12 Case A: P1,000,000 Case B: P500,000 Case C: P0 Case D: P500,000 Case E: P600,000 Case F: P750,000; [ (1M/2) + (500,000/2)]

Problem 13 Gross Estate Funeral expenses Actual P300,000 – 120,000 = P180,000 Limit = P3M x 5% = P150,000 Standard deduction Medical expenses Taxable Estate

P3,000,000 (150,000)

(1,000,000) (400,000) P1,450,000

CHAPTER 4 – PROPERTY RELATIONS TRUE OR FALSE 1. T 2. T 3. T 4. T 5. T MULTIPLE CHOICE 1. A 2. B 3. B* 4. C 5. C

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6. 7. 8. 9. 10.

F F T F F

11. 12. 13. 14. 15.

T F T T F

16. 17. 18. 19. 20.

F T T T T

7. 8. 9. 10. 11.

D D B C D

13. 14. 15. 16. 17.

B D** A D D

19. 20. 21. 22. 23.

C C A A D

25. 26. 27. 28. 29.

C D C A *** D

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

6.

D

12.

C

18.

C

24.

B

30.

D

*Change Aug. 3, 1998 TO August 3, 1988 ** Under conjugal partnership of gains, fruits earned during marriage, regardless of source, are common properties Supporting Computations No. 22 and 23 Gross Estate: Rest House in Batangas Car Commercial land Income from the commercial land Income from exclusive property of the spouse Jewelry owned before the marriage Other properties at the time of her death Gross Estate

Exclusive P2,500,000 1,000,000 5,000,000

Conjugal

500,000 200,000 300,000 P8,800,000

1,000,000 P1,700,000

No. 24 and 25 Gross Estate: Rest House in Batangas Car Commercial land Income from the commercial land Jewelry owned before the marriage Other properties at the time of her death Gross Estate

Exclusive P2,500,000

P2,500,000

Common 1,000,000 5,000,000 500,000 300,000 1,000,000 P7,800,000

No. 26 Conjugal properties Conjugal Deductions: Funeral expenses Actual = P45,000 Limit = (P500,000 + 200,000) x 5% = 35,000 Judicial expenses Claim against the estate Net Conjugal properties Divide Share of the Surviving Spouse

P200,000 (35,000)

(20,000) (45,000) P100,000 2 P50,000

No. 27 Real property, Philippines Real property, USA Funeral expenses

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P4,000,000 5,000,000 (200,000)

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

Judicial expenses (200,000 – 50,000) Claim against insolvent persons Unpaid taxes Balance Standard Deductions Medical expenses (max.allowed) Family Home (P1,500,000/2) Share of the surviving spouse (P8,550,000/2) Net Taxable Estate

(150,000 (50,000) (50,000) P8,550,000 (1,000,000) (500,000) (750,000) (4,275,000) P2,025,000

No. 28 Exclusive Common Total Conjugal real properties P5,000,000 Conjugal family home 1,500,000 Exclusive properties P2,500,000 Total P2,500,000 P6,500,000 P9,000,000 Ordinary Deductions: Funeral expenses (75,000) Actual P300,000 x 25% = P75,000 Limit = 5% x P9M = P450,000 Casualty losses*** (100,000) Miscellaneous deductions (P1M x 75%) (750,000) (825,000) Net P2,400,000 P5,675,000 P8,075,000 Special Deductions: Standard Deductions (1,000,000) Medical expenses (P500,000 x 50%) (250,00) Family Home (1,500,000/2) (750,000) Share of the surviving spouse (5,675,000/2) (2,837,500) Net Taxable Estate P3,275,000 ERRATUM: DISREGARD ….Exclusive Properties are NET of Casualty Losses*** No. 29 ABSOLUTE COMMUNITY OF PROPERTY Properties-Land Other personal property owned before marriage Other personal property acquired during marriage Gross Estate Ordinary Deductions Funeral expenses Judicial expenses Net conjugal before special deductions Share of surviving spouse (P1,800,000/2)

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Exclusive P2,400,000

P2,400,000

Common 1,600,000 500,000 P2,100,000 (200,000) (100,000) P1,800,000 P900,000

Transfer & Business Taxation(3rd Edition) by Tabag and Garcia

No. 30 CONJUGAL PARTNERSHIP OF GAINS Properties-Land Other personal property owned before marriage Other personal property acquired during marriage**** Gross Estate Ordinary Deductions Funeral expenses Judicial expenses Vanishing Deductions***** Net Estate Before Special Deductions Standard deductions Medical expenses Share of the surviving spouse (P200,000/2) Share of surviving spouse (P1,800,000/2)

Exclusive P2,400,000 1,600,000

Common

P500,000 P500,000

P4,000,000

Total

P4,500,000

(200,000) (100,000) (1,120,000) P2,880,000

200,000

P3,080,000 (1,000,000) (500,000) (100,000) P1,480,000

****If silent and unless the problem clearly illustrate that it is exclusive, assume the property is common. Value to take 1st Deduction: Mortgage paid Initial basis 2nd Deduction: Proportionate deduction (1,500/4,500) x 300,000 Final Basis x Vanishing rate Vanishing Deduction

P1,500,0 00 P1,500,000 (100,000) P1,400,000 80% P262,500

*****