MIDTERM EXAM ON BUSINESS TAX

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November 15, 2023 10:00 am.

1. A died leaving a farm land. In his will, he transferred the ownership thereof to B but subject to
the condition that C will have the right to use the land for a period of ten years (usufruct).In the
seventh year however, C died and in C’s will he surrendered his right over the land to B.
A. The transfer is subject to donor’s tax.
B. The transfer is subject to estate tax.
C. The transfer is both an inclusion from the gross estate.
D. The above is tax exempt transfer.

2. Which of the following statements is not correct in succession?

A. Legitimate children share equally in their legitimate of ½ the net distributable estate.
B. When the spouse survives with one legitimate child, the legitimate of the spouse is ¼ of the net
distributable estate.
C. When the spouse survives with two legitimate children, the legitimate of the spouse is ¼ of the
net distributable net estate.
D. The legitimates of the legitimate and illegitimate children takes precedence over the legitimate
of the surviving spouse.

For items 3-5

A decedent left the following properties:
Land in Italy (with PIM unpaid mortgage) P2, 000, 000
Land in Laguna, Philippines 500, 000
Franchise in USA 100, 000
Receivable from debtor in Philippines 70, 000
Receivable from debtor in USA 100, 000
Bank deposits in USA 80, 000
Shares of stock of PLDT, Philippines 75, 000
Shares of stocks of ABC, foreign corporation 75% of the
business in the Philippines 125, 000
Other personal properties 300, 000
Zonal value of the land in Laguna 75, 000
3. If the decedent is a non resident citizen, his gross estate is
a. P3, 650, 000
b. P3, 600, 000
c. P2, 500, 000
d. P2, 650, 000

4. Using the above date, if the decedent is a non-resident alien, his gross estate is
A. P1, 195, 000
B. P945, 000
C. P1, 320, 000
D. P1, 070, 000

5. If in the preceding number reciprocity law can be applied, the gross estate is
A. P1, 050, 000
B. P1, 195, 000
C. P1, 250, 000
D. P1, 070, 000

6. -A died giving B power to appoint a person who will inherit A’s house and lot. B,
however can only choose among C, D, E and F. B decided to transfer the property to C,
in B’s will when he was old already. The transfer from B to C is subject to estate tax.
- During A’s lifetime, he decided to give B as gift his car subject to the condition that if B does not
become a CPA within three, A shall revoke the transfer. In the second year, however, A died. The car can
no longer form part of A’s gross estate.
A. True; True
B. True; False
C. False; True
D. False; False

7. Estate Tax is
a. A property tax because it is imposed on the property transmitted by the decedent to his heirs.
b. An indirect tax because the burden of paying the tax id shifted on the executor or any of the
heirs of the decedent.
c. An excise tax because the object of which is the shifting of economic benefits and enjoyment of
property from the dead to the living.
d. A poll tax because it is also imposed on residents of the Philippines whether Filipino citizens or
not.

8. Estate tax accrues from:

a. The moment of death of the decedent
b. The moment the notice of death is filed
c. The moment the estate tax return is filed
d. The moment the properties are delivered to the heirs

9. The taxpayer in estate tax is:

a. The decedent
b. The estate as a juridical entity
c. The heirs or succession
d. The administrator or executor

10. Who has the personal liability to pay estate tax?

a. The decedent
b. The estate as a juridical entity
c. The heirs or successors
d. The administrator or executor

11. It is a well settled rule that estate taxation is governed by the statute in force at the time of:
a. Creation of the last will and testament or death of the decedent in case of intestate succession.
b. Death of the decedent
c. Filing of the estate tax return
d. Either letter “b” or “c” whichever will result to higher estate tax liability.

12. An executor or administrator, after paying the estate tax, and to escape a future liability for a
deficiency estate tax, must secure a written discharge from personal liability from:
a. The heirs.
b. The Commissioner of Internal Revenue
c. The court where the estate was being settled
d. Need not to secure a written discharge as long as he has a receipt on payment of estate tax.

13. It is a mode of acquisition by virtue of which the property, rights and obligations to the extent of
the value of the inheritance, of a person are transmitted through his death to another or others
either by his will or by operation of law.
a. Succession
b. Donation
c. Prescription
d. Exchanges

14. Which statement is false about succession?

a. The successor inherits all the transmissible property of a decedent including his liabilities.
b. The successor can be made liable for the obligations of the decedent beyond the value of the
asset he received.
c. In succession, fruits and credits maturing after the death of the decedent pass to the heirs even
if the they were not subjected to estate tax.
d. In succession, the successor can refuse the inheritance.

15. Which of the following could legally effect transfer of properties through succession?
I. By virtue of a will
II. By operations of law
III. By onerous transfer

a. I only
b. I and II only
c. I and III only
d. I, II, III

16. An act whereby a person is permitted, with the formalities prescribed by law, to control to a
certain degree the disposition of his estate, to take effect after the death.
a. Contract
b. Trust
c. Will
d. Executor

17. The following are the elements of succession, except:

a. Decedent
b. Estate
c. Heir
d. Executor

18. The properties, rights and obligations of a person which are not extinguished by his death and
those which have accrued thereto since the opening of succession.
a. Inheritance
b. Capital
c. Estate
d. Devisee

19. Succession which results from the designation of an heir, made in a will executed in the form
prescribed by law
a. Legal or intestate succession
b. Testamentary succession
c. Mixed succession
d. Ordinary succession

20. The portion of the decedent’s estate which the law reserves to his compulsory heirs is called:
a. Legitime
b. Free portion
c. Legacy
d. Bequest

21. Which of the following is a valid will?

a. That which reduces the legitime of compulsory heirs
b. That which increase the share of one heir without impairing the legitime of the other heirs.
c. That which transfer the legitime of one heir to the other heir.
d. That which impair the legitime of compulsory heirs.

22. A person who inherits specific personal property thru a will:

a. Devisee
b. Legatee
c. Heir
d. Successor

23. A person who inherits specific real property thru a will:

a. Devisee
b. Legatee
c. Heir
d. Successor

24. Succession wherein the decedent did not leave any will:
a. Voluntary succession
b. Legal succession
c. Mixed succession
d. Testamentary succession

25. One of the following is subject to estate tax on properties situated within the Philippines only
a. Resident citizen
b. Resident alien
c. Non-resident citizen
d. Non-resident alien

26. The personal properties of a non-resident citizen, not citizen of the Philippines, would not be
included in the gross estate if:
a. the intangible personal property in the Philippines.
b. the intangible personal property is in the Philippines and the reciprocity clause of the estate tax
law applies.
c. the tangible personal property is in the Philippines.
d. the personal property is shares of stock of a domestic corporation 90% of whose business is in
the Philippines.

27. All of the following are considered intangible in the Philippines, except:
a. Franchise which must be exercised in the Philippines.
b. Shares, obligations or bonds issued by aby corporation or Sociedad anonima organized or
constituted in the Philippines in accordance with its laws.
c. Shares, obligations, or bonds by any foreign corporation 75% of the business of which is located
in the Philippines.
d. Shares, obligations of bonds issued by any foreign corporation if such shares, obligations, or
bonds have acquired business situs in the Philippines.

28. Part of the estate left by A are preference shares of Maynilad. The shares are listed and traded
in the PSE. Which of the following rules of valuation is correct?
a. The preference shares will be valued using the arithmetic mean between the highest and lowest
quotation at the date nearest the date of death, if none is available on the date of death itself.
b. The preference shares will be valued based on their book value.
c. The preference shares will be valued based on their par value.
d. The preference shares will be valued based on their fair market value as determined by the
Commissioner of Internal Revenue.

29. Binat died on April 13, 2018, leaving the following properties:
• Common stock of Chris Corporation, 2,000 shares, listed in the PSE, highest – P 40; lowest – P 39
• Common stocks of Cristina Corporation, 1,500 shares, not listed in the stock exchange. Cost – P
50 per share; book value – P 45 per share;
• Preference shares of Christopher Corp., 3,000 shares, not listed in the stock exchange. Cost – P
70 per share; book value – P 60 per share; par value – P 50 per share
• Car, cost P 600,000; book value – P 350,000; market value – P 400,000.
• Real Properties, zonal value – P 120,000; assessed value – P 72,000.

The gross estate of Binat is –

a. P 817,500 c. P 824,000
b. P 816,500 d. P 846,500

30. Nila Langaw, Filipina, died in Cambodia leaving the following properties:
House and lot in Cambodia 1,000,000
Vacant lot in Manila 2,000,000
Shares of stock in a domestic Corp., 60% of the business is located in the Philippines 100,000
Shares of stock in a foreign corp., 70% of the business is located in the Philippines 200,000
Car in Manila 500,000
How much is the gross estate?
a. P 3,800,000 c. P 2,500,000
b. P 2,600,000 d. P 2,000,000

31. Based on the preceding number, but assuming the decedent is a non-resident alien, the gross
estate is:
a. P 3,800,000 c. P 2,500,000
b. P 2,600,000 d. P 2,000,000

32. Lolo Sot, 95 years old, had been suffering from various ailments. Motivated by thought of death,
he decided to dispose all his properties to his children and relatives. He executed a last will and
testament disposing all his properties in the Philippines to his relatives. On the same day, he
made donations inter-vivos to his other relatives as to his properties in the United States. Lolo
Sot died three months after disposing all his properties. Should the properties donated by Lolo
Sot to his other relatives be included in the gross estate upon his death?
a. No, because they were not his properties anymore at the time of death.
b. Yes, because the donations were donations mortis causa and should be governed by the rules
on estate taxation.
c. No, if the donor’s tax had been paid already on the donations.
d. No, because they were not transfer in contemplation of death, since the donations were not
simultaneous with the execution of the last will and testament.

33. One of the following donations is not included as part of gross estate.
a. Revocable transfers
b. Transfers with revocation of certain rights
c. Transfer under special power of appointment
d. Transfer in contemplation of death

34. Pedro, decedent, owns a property valued at P 1,500,000 at the time of his death. The said
property was sold by Pedro during his lifetime to Juan for P 700,000 when its value was P
1,200,000. It was agreed by Pedro and Juan that the former will enjoy the income of the
property as long as he lives. For Philippine estate tax purposes, how much will be included in
determining gross estate?
a. P 500,000 c. P 800,000
b. P 1,200,000 d. P 0

35. Based on the preceding number, if the fair market value of the property at the time of death is
only P 600,000, how much is the gross estate?
a. P 500,000 c. P 800,000
b. P 1,200,000 d. P 0

36. Yna died on October 20, 2018. During his lifetime, upon knowing that he had stage 4 cancer,
sold his car to his son for P4M. The fair market value of the car at the time of sale is P 3,000,000
while it is already valued at P 5,000,000 at the time of death. The amount that will be added to
gross estate is:
a. P 1,000,000 c. P 2,000,000
b. P 5,000,000 d. nil

37. The following are transactions and acquisitions exempt from transfer tax, except:
a. transmission from the first heir or donee in favor of another beneficiary in accordance with the
desire of the predecessor
b. Transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary.
c. The merger of usufruct in the owner of the naked title.
d. All bequest, devises, legacies, or transfers to social welfare, cultural and charitable institutions.

38. and 39. What are the two types of transfer tax?

40. What is the term called for succession in favor of the government?

Bonus question. What is the oldest Corporation in the Philippines?