Theories on Taxation

1. Which of the following is not subject to tax as a corporation? (A) Business partnerships. (B) Insurance companies. (C) Joint stock companies. (D) General professional partnership. 2. A partnership formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business. (A) Joint venture. (B) Trading partnership. (C) General professional partnership. (D) Joint accounts. 3. Which of the following is a general professional partnership? (A) Partnership organized by a lawyer, engineer and a CPA to provide professional advice.

(B) A partnership organized by a group of CPAs for the common practice of accountancy. (C) A partnership organized by a group of CPAs for the purpose of selling real properties. (D) General partnership organized by group of engineers engaged in manufacturing of equipment. 4. Which of the following statements is most correct? Statement 1. For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation. Statement 2. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership.

(A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 5. Which of the following statement is most correct? (A) The tax imposed on corporations is not imposed only upon such corporations as are organized and operated for profit. (B) A corporation, firm or association, no matter how created or organized, or what the purpose of its organization may be, is subject to tax, except as provided in Sec. 30, relative to the exemptions from tax on corporations. (C) A corporation is not exempt simply and only because it is primarily not organized and operated for profit.

(D) All of the above. 6. Which of the following statements is most correct? (A) The tax imposed by law on corporations is not imposed only upon such corporations as are organized and operated for profit. (B) Any corporation, firm or association, no matter how created or organized, or what the purpose of its organization may be, is subject to tax. (C) A corporation is not exempt simply and only because it is primarily not organized and operated for profit. (D) All of the choices. 7. The following are passive income, except: (A) Royalties, Prices and Winnings more than P10,000. (C) Interest from Philippine currency bank.

(C) Shares of individual partners in the net profits of taxable partnerships. (D) Stock dividends from domestic corporations. 8. Which of the following is exempt from income tax? (A) A club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or individual. (B) A corporation or association organized exclusively for holding title to property, collecting income therefrom, and turning the entire amount thereof, less expenses, to an organization which itself is exempt from income tax. (C) Building and loan associations.

(D) None of the above. 9. Which of the following statements is most correct? Statement 1. All joint ventures regardless of the purpose these are created are exempt from income taxation. Statement 2. The term “domestic”, when applied to corporation, means created or organized in the Philippines or under the laws of a foreign country as long as it maintains a Philippine Branch. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 10. Which of the following statements is most correct? Statement 1. All wealth that flows into the taxpayer’s hand other than mere return of capital is income.

Statement 2. All earnings are taxable with income tax. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 11. The term applies to a foreign corporation not engaged in trade or business within the Philippines. (A) Resident foreign corporation. (B) Nonresident foreign corporation. (C) Multinational corporation. (D) Nonresident domestic corporation. 12. The term applies to a foreign corporation engaged in trade or business within the Philippines. (A) Resident foreign corporation. (B) Nonresident foreign corporation. (C) Multinational corporation.

(D) Nonresident domestic corporation. 13. Which of the following corporation shall be taxed upon its taxable income derived during each year form all sources within and without the Philippines? (A) Domestic corporation. (B) Resident foreign corporation. (C) Nonresident foreign corporation. (D) None of the above. 14. Effective January 1, 2009, the rate of corporate income tax shall be (A) 35%. (B) 32%. (C) 30%. (D) 25%. 15. Which of the following statements is not correct? (A) Resident foreign corporations are subject to income tax based on net income from sources within the Philippines.

(B) Domestic corporations are subject to income tax based on net income from all sources. (C) Nonresident foreign corporations are subject to income tax based on gross income from sources within the Philippines. (D) Private educational corporations are subject to income tax based on the net income from sources within the Philippines at the tax rate of 10%. 16. Interest on indebtedness is an allowable and itemized deduction provided that the following requisites are present, except: (A) The debt is related to the taxpayer’s trade or business.

(B) The interest is legally due and interest payment must be in writing. (C) The interest is on indebtedness incurred between related parties. (D) The interest is paid or accrued during the taxable year. 17. What interest expense can be deducted from gross income? (A) Interest expense on money borrowed to buy government bonds. (B) Interest expense on money borrowed to finance petroleum operations. (C) Interest expense between a corporation and the controlling individual. (D) None of the above. 18. Which of the following statements is most correct? Statement 1.

Interest paid or incurred in the acquisition of fixed assets may be capitalized to the asset account. Statement 2. An individual on the cash basis of accounting shall deduct interest paid in advance in the year that the principal is paid. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 19. Which of the following statements is not correct? In the case of corporations adopting the fiscal-year accounting period, the taxable income shall be computed without regard of the specific date when specific sales, purchases and other transactions occur.

(B) The corporations’ income and expenses for the fiscal shall be deemed to have been earned and spent equally for each month of the period. (B) The corporate income tax shall be applied on the amount computed by multiplying the number of months covered by the new rate within the fiscal year by the taxable income of the corporation for the period, divided by twelve. (D) None of the above. 20. They include all organizations with substantially all the salient features of a corporation and are taxable as a “corporation”. (A) Joint stock companies. (B) Joint accounts or cuentas en participacion. (C) Associations.

(D) Joint ventures. 21. It is a commercial undertaking by two or more persons, but it is different from a partnership in that it involves the disposition of a single lot of goods or the completion of a single project. (A) Joint stock companies. (B) Joint accounts or cuentas en participacion. (C) Associations. (D) Joint ventures. 22. Effective January 1, 2000, the President, upon recommendation of the Secretary of Finance, may allow corporations the option to be taxed at what percent of gross income, after satisfying certain conditions? (A) 30%. (B) 25%. (C) 15%. (D) 10%. 23. Which of the following statements is most correct?

Statement 1. All foreign corporations are taxable only for income earned within the Philippines. Statement 2. All Filipino citizens are taxable for their income earned within and outside the Philippines. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 24. The law excludes some items of income from taxation because (A) The transformation of these incomes into economic gain is not essentially the result of labor or efforts of taxpayer. (B) The law or treaty provides that they are not taxable. (C) Some of these items are just return of capital.

(D) All of the above. 25. For optional corporate income tax purposes, which of the following shall be included in cost of goods sold for a trading or merchandising concern? (A) Invoice cost of the goods sold. (B) Import duties. (C) Freight in transporting the goods to the place where the goods are actually sold. (D) All costs of production of finished goods. 26. Which of the following statements is not correct? (A) The option to be taxed based on gross income shall be available only to firms whose ratio of cost of sales to gross sales or receipts from all sources does not exceed fifty-five percent.

(B) Cost of goods sold shall include all business expenses whether directly or not directly incurred to produce the merchandise to bring them to their present location and use. (C) The election of the gross income tax option by the corporation shall be irrevocable for three (3) consecutive taxable years during which the corporation is qualified under the scheme. (D) The term gross income derived from business shall be equivalent to gross sales less sales returns, discounts and allowances and cost of goods sold. 27. Which of the following is not allowed to avail of the Optional Standard Deduction? (A) Resident citizen.

(B) Resident corporation. (C) Domestic corporation. (D) Nonresident corporation. 28. Which of the following statements is most correct? For purposes of the Optional Standard Deduction, gross income means: (A) If a trading concern, gross profit from sales. (B) If a service concern, gross receipts less direct cost of services. (C) Means gross profit from sales, or gross receipts or revenues less direct cost of services, plus all other items of gross income. (D) Includes the net capital gain. 29. What is the minimum corporation income tax (MCIT) rate imposed upon any domestic corporation on its gross income within and without the Philippines?

(A) 15%. (B) 10%. (C) 5%. (D) 2%. 30. Which of the following statement is most correct? Statement 1. The MCIT shall be imposed upon a domestic corporation or a resident foreign corporation whenever such corporation has a zero or negative taxable income. Statement 2. The MCIT shall be imposed upon a domestic corporation or a resident corporation when the amount of minimum corporation income tax is greater that the normal income tax due from such corporation. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 31.

Which of the following expenses of the business would be allowed as deduction from its business income? (A) Insurance premium on life insurance of employee where the employer is the beneficiary. (B) Donation made to employees. (C) Losses incurred on transaction with related party. (D) Regular repairs of business property. 32. Which of the following statements is most correct? Statement 1. Deductible business expenses must be ordinary and necessary. Statement 2. Expenses from previous period which were not deducted from previous period’s income could be deducted from income in the current period.

(A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 33. Which of the following statements is most correct? Statement 1. Bad debt is an expense in the books of accounts when a provision is made for it. Statement 2. Bad debt is a deduction from the gross income when the account is written off. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 34. Which of the following statements is not correct? (A) A deduction for bad debt is not available when a provision for it is made.

(B) A deduction for bad debt is available only when a write off is made. (C) There is no deduction for bad debt when there is a surety for the debtor against whom collection may be enforced. (D) A deduction for uncollectible account is available to a taxpayer whether he is on the cash or accrual method of accounting. 35. Which of the following statements is not correct? (A) The deduction of an individual for contributions subject to limitation should not exceed ten percent (10%) of his taxable income from business, trade or practice of profession before deduction for contribution.

(B) The deduction of a corporation for contributions subject to limitation should not exceed five percent (5%) of its taxable income from business or trade before deduction for contribution. (C) Contributions to media in its fund drive for the relief of calamity victims are deductible from gross income. (D) Contributions of canned goods to student organizations during the Christmas season for distribution to Baguio City Jail inmates are deductible from gross income. 36. Which of the following statements is not correct? (A) When related to the acquisition and/or improvement of land and building, must be capitalized.

(B) If not related to land and building, may be treated as an outright deduction. (C) If not related to land and building, may be treated as a deferred expense which may be amortized. (D) Cannot be deducted because it has unlimited life. 37. Which of the following statements is most correct? Statement 1. Expenditures of private educational institutions for expansion of school facilities may be outright deductions, or capitalized. Statement 2. Research and development costs may be outright deduction or deferred expense. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above.

38. Which of the following can not avail of the Net Operating Loss Carry-Over (NOLCO)? (A) Domestic corporation. (B) Resident corporation. (C) General business partnership. (D) General professional partnership. 39. Which of the following statements is most correct? Statement 1. A net operating loss is the excess of allowable deductions over the gross income from business or practice of profession for a taxable year. Statement 2. A net operating loss which had not previously been deducted from gross income shall be carried over as deduction only the next year immediately following the year of such loss.

(A) Statement 1 only. (B) Statement 2 only. (C) Both statements are correct. (D) None of the above. 40. A domestic corporation was registered with the Bureau of Internal Revenue on January 1, 2004. What year would be the first MCIT be imposed on such corporation? (A) 2004. (B) 2007. (C) 2008. (D) 2010. 41. Which of the following corporations shall be subject to an income tax equivalent to thirty percent (30%) of its taxable income derived in the preceding taxable year from all sources within the Philippines? (A) Nonresident foreign corporation. (B) Resident foreign corporation.

(D) Domestic corporation. None of the above. 42. A tax imposed in the nature of a penalty to the corporation to deter tax avoidance of shareholders who avoid paying the dividends tax on the earnings distributed to them by the corporation. (A) Minimum corporate income tax. (B) Optional corporate income tax. (C) Improperly accumulated earnings tax. (D) Capital gains tax. 43. A taxable partnership may be subject to the following income taxes except: (A) MCIT. (B) Gross income tax. (C) Improperly accumulated earning tax. (D) None of the above. 44. Which of the following statements is not correct?

(A) Income from a general partnership is constructively received by a partner when his share in the net income is credited to his capital account. (B) Income from a taxable partnership is constructively received by a partner in the same taxable year that the partnership determined its net income after tax. (C) Any distribution of dividend made to shareholders of a corporation shall be deemed to have been made form the most recently accumulated earnings or surplus. (D) Accumulated profits of any year distributed to a shareholder of a corporation shall be considered dividend subject to final tax on the distributee in the year received.

45. Which of the following statements is most correct? Statement 1. A gain from a sale of shares of a domestic corporation shall be considered derived from the Philippines regardless of where the shares are sold. Statement 2. A gain from a sale of shares of a foreign corporation shall be considered derived from the country where the corporation was created or organized. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 46. What foreign tax may be taken as a tax credit against the Philippine income tax? (A) Foreign income tax. (B) Foreign war-profit tax.

(C) Foreign excess-profit tax. (D) Any foreign national tax. 47. A corporation which is included in exempt corporations under Section 30 of the NIRC (e. g. , organized and operated for charitable purposes) which did not file its articles of incorporation and by-laws with the BIR (A) Is required to file an income tax return and pay the income tax. (B) Is required to file an income tax return although not required to pay the income tax. (C) Needs to file only an information return and will not be required to pay the income tax. (D) Needs to file an information return and pay the income tax.

48. Which is not a creditable withholding income tax? (A) Expanded withholding income tax. (B) Withholding income tax on passive income. (C) Withholding income tax at source. (D) Withholding income tax on compensation income. 49. Which of the following statements is not correct? (A) A capital asset may be an asset connected or not connected with the trade or business of the taxpayer. (B) An asset used in business which is subject to amortization is an ordinary asset. (C) Inventory is ordinary asset. (D) An asset held in business as investment is ordinary asset. 50.

The term “capital assets” includes (A) Stock in trade or other property included in the taxpayer’s inventory. (B) Real property not used in trade or business of the taxpayer. (C) Property primarily for sale to customers in the ordinary course of his trade or business. (D) Property used in the trade or business of the taxpayer and subject to depreciation. 51. Which of the following statements is most correct? Statement 1. In order the rules on capital gains and losses in the NIRC may apply, the transaction on the asset should be a sale or an exchange. Statement 2. There may be an ordinary loss of a capital asset.

(A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 52. Which of the following statements is most correct? Statement 1. Capital losses can be deducted only from capital gains. Statement 2. Ordinary losses can be deducted from any gross income item, including capital gains. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 53. On general rules on capital gains and losses, which statement is not correct? (A) Capital gains and losses of corporations are always considered at 100%, regardless of the length of the holding period of the asset.

(B) The net capital loss of one year can be carried over to the succeeding year. (C) Capital gains and losses for individuals, estates and trusts, take into account the holding period of the capital asset. (D) Capital losses are always deductible only to the extent of capital gains. 54. Capital losses are deductible from (A) Ordinary gains only. (B) Capital gains only. (C) Both ordinary and capital gains. (D) None of the above. 55. Which of the following methods of depreciation shall be allowed for income tax purposes? (A) Straight-line method. (B) Declining-balance method. (C) Sum-of-the-years-digit method.

(D) All of the above. 56. Which of the following statements is most correct? Statement 1. All joint ventures regardless of the purpose these are created are exempt from income taxation. Statement 2. The term “domestic”, when applied to corporation, means created or organized in the Philippines or under the laws of a foreign country as long as it maintains a Philippine Branch. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 57. The allowance for deduction of net operating loss carry over (NOLCO) shall be limited only to net operating losses accumulated beginning (A) January 1, 1998.

(B) January 1, 1999. (C) January 1, 2009. (D) January 1, 2000. 58. This term shall mean the excess of allowable deductions over gross income of the business in a taxable year. (A) Net capital loss. (B) Net operating loss. (C) Net taxable income. (D) None of the above. 59. In case of cash sale of shares of stocks not traded through the local stock exchange, the selling price shall be the (A) Total consideration per deed of sale. (B) Sum of money and the fair market value of the property received. (C) Fair market value of the property received. (D) None of the above. 60.

In the case of exchange, the selling price shall be the (A) Total consideration per deed of sale. (B) Sum of money and the fair market value of the property received. (C) Fair market value of the property received. (D) None of the above. 61. Income payments to partners of a general professional partnership amounting to P720,000 or less are subject to (A) Creditable withholding tax of 15%. (B) Final withholding tax of 10%. (C) Creditable withholding tax of 10%. (D) Capital gains tax. 62. The basis of computing depreciation of an asset is the (A) Acquisition cost of the property. (B) Fair market value of the property.

(C) Adjusted basis for computing the loss on the sale of property. (D) Reappraised value of the property. 63. It is a commercial undertaking by two or more persons, but it is different from a partnership in that it involves the disposition of a single lot of goods or the completion of a single project. (A) Joint stock companies. (B) Joint accounts or cuentas en participacion. (C) Associations. (D) Joint ventures. 64. Which of the following statements is not a requisite for deduction of bad debts? (A) There must be an existing indebtedness to the taxpayer and this must be valid and legally demandable.

(B) The debt must have a maturity of not more than 5 years. (C) The debt must actually be charged off the books of accounts of the taxpayer as of the end of the taxable year. (D) The debt must actually be ascertained worthless and uncollectible as of the end of the taxable year. 65. Which of the following statements is most correct? Statement 1. All foreign corporations are taxable only for income earned within the Philippines. Statement 2. All Filipino citizens are taxable for their income earned within and outside the Philippines. (A) Statement 1 only. (B) Statement 2 only.

(C) Both statements. (D) None of the above. 66. Proprietary educational institutions shall pay a tax of how much on their taxable income at what percent? (A) Thirty percent (30%). (B) Twenty-five percent (25%). (C) Ten percent (10%). (D) Fifteen percent (15%). 67. The share of a partner from the distributable net income after deducting the corporate income tax of a business partnership is subject to (A) Creditable withholding tax of 10%. (B) Final withholding tax of 10%. (C) Capital gains tax. (D) Tax under Section 24 (A). 68. Which of the following statement is most correct?

Statement 1. A general co-partnership is a partnership wherein part or all of its income is derived from the conduct of trade or business and is subject to corporate income tax. Statement 2. The share of a partner in the partnership’s distributable net income of a year, even if not actually received, will be considered constructively received by the partner in the same year that the net income of the partnership is determined, and will be subject to a final withholding tax of 10%, as if dividend. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements.

(D) None of the above. 69. Which of the following statement is most correct? Statement 1. The MCIT shall be imposed upon a domestic corporation or a resident foreign corporation whenever such corporation has a zero or negative taxable income. Statement 2. The MCIT shall be imposed upon a domestic corporation or a resident foreign corporation when the amount of minimum corporation income tax is greater that the normal income tax due from such corporation. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 70.

Stock dividends received by a domestic corporation or by a resident foreign corporation from a domestic corporation shall (A) Not subject to tax. (B) Be subject to 15% final tax. (C) Subject to 10% final tax. (D) None of the above. 71. Which of the following statements is most correct? Statement 1. Taxable partnerships are required to file cumulative quarterly declarations and a final return because they are taxed as corporations. Statement 2. The net distributable net income of a taxable partnership shall include incomes which are subjected to final tax as well as those that are exempted from income tax.

(A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 72. Which of the following statements is most correct? Statement 1. Salaries received by a partner from a general professional partnership is not considered gross compensation income but as part of his share in the distributable net income of the partnership. Statement 2. Salaries received by a partner from a business partnership are considered gross compensation income. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 73.

Which of the following corporations shall pay a tax equal to thirty-five percent (35%), now thirty percent (30%), of the gross income received during the each taxable year from all sources within the Philippines? (A) Domestic corporation. (B) Resident foreign corporation. (C) Nonresident foreign corporation. (D) None of the above. 74. Which of the following shall pay a tax of ten percent (10%) of their taxable income? Statement 1. Regional or are headquarters. Statement 2. Regional operating headquarters. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 75.

A tax imposed in the nature of a penalty to the corporation to deter tax avoidance of shareholders who avoid paying the dividends tax on the earnings distributed to them by the corporation. (A) Minimum corporate income tax. (B) Optional corporate income tax. (C) Improperly accumulated earnings tax. (D) Capital gains tax. 76. An international air carrier doing business in the Philippines shall pay a tax of (A) Three percent (3%) on its gross receipts. (B) Two and one-half percent (2? %) of its Gross Philippine Billings. (C) Two percent (2%) on its Gross Philippine Billings. (D) One and one-half percent (1? %) on its gross receipts.

77. A cinematographic film owner, lessor, or distributor shall pay a tax of (A) Twenty-five percent (25%) of its gross income from all sources within the Philippine. (B) Seven and one-half percent (7 ? %) of gross rentals, lease or charter fees from leases. (C) Four and one-half percent (4 ? %) of gross rentals or fees. (D) Two and one-half (2? %) of gross income from all sources within the Philippines. 78. A nonresident owner or lessor of vessels chartered by chartered by Philippine nationals shall be subject to a tax of (A) Twenty-five percent (25%) of its gross income from all sources within the Philippine.

(B) Seven and one-half percent (7 ? %) of gross rentals, lease or charter fees from leases. (C) Four and one-half percent (4 ? %) of gross rentals or fees. (D) Two and one-half (2? %) of gross income from all sources within the Philippines. 79. Rentals, charters and other fees derived by a nonresident lessor of aircraft, machineries and other equipment shall be subject to a tax of (A) Twenty-five percent (25%) of its gross income from all sources within the Philippine. (B) Seven and one-half percent (7 ? %) of gross rentals, lease or charter fees from leases.

(C) Four and one-half percent (4 ? %) of gross rentals or fees. (D) Two and one-half (2? %) of gross income from all sources within the Philippines. 80. If the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the gross income derived by such educational institutions or hospitals from all sources, what tax rate shall be imposed on the entire taxable income starting January 1, 2009? (A) Thirty percent (30%). (B) Twenty-five percent (25%). (C) Ten percent (10%). (D) Fifteen percent (15%). 81.

Which of the following statement is most correct? Statement 1. An accumulation of earnings or profits (including undistributed earnings or profits of prior years) is unreasonable if it is not necessary of for the purpose of the business, considering all the circumstances of the case. Statement 2. The term “reasonable needs of the business” are hereby construed to mean the immediate needs of the business, including reasonably anticipated needs. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements. (D) None of the above. 82.

For purposes of implementing the provisions on improperly accumulated earnings tax, the following constitute accumulation of earnings for the reasonable needs of the business except: (A) Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of the corporation as of Balance Sheet date, inclusive of accumulations taken from other years. (B) Earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditures as approved by the Board of Directors or equivalent body.

(C) Earnings reserved for building, plants or equipments acquisition as approved by the Board of Directors or equivalent body. (D) None of the above. 83. The Improperly Accumulated Earnings Tax (IAET) is imposed on improperly accumulated taxable income earned starting January 1, 1998 by domestic corporations as defined under the Tax Code and which are classified as closely-held corporations at the rate of (A) Twenty percent (20%). (B) Fifteen percent (15%). (C) Ten percent (10%). (D) Five percent (5%). 84. The Improperly Accumulated Earnings Tax (IAET) shall not apply to which of the following corporations?

(A) Banks and other non-bank financial intermediaries. (B) Insurance companies. (C) Publicly-held corporation. (D) All of the above. 85. The Improperly Accumulated Earnings Tax (IAET) shall apply to which of the following corporations? (A) Taxable partnership. (B) Joint ventures. (C) A branch of a foreign corporation. (D) All of the above. 86. In determining the improperly accumulated earnings, which of the following is not deducted from the taxable net income? (A) Dividends actually or constructively paid. (B) Income tax paid for the whole year.

(C) Amount reserved for the reasonable needs at the business. (D) Income subject to final tax. 87. Which of the following statement is most correct? Statement 1. Once the profits have been subjected to improperly accumulated earnings tax, the same shall no longer be subject to the same tax in later years even if not declared as dividends. Statement 2. Profits which have been subjected to improperly accumulated earnings tax when finally declared as dividends shall be subject to tax on dividends. (A) Statement 1 only. (B) Statement 2 only. (C) Both statements.

(D) None of the above. 88. To avoid payment of the Improperly Accumulated Earnings Tax (IAET), when must the dividends be declared and paid or issued? (A) Not later than one year following the close of the taxable year. (B) Not later than the 15th day following the close of the taxable year. (C) Not later than the 60th day following the close of the taxable year. (D) None of the above. 89. If the closely-held corporation fails to declare and pay or issued dividends within the period required, when shall the Improperly Accumulated Earnings Tax (IAET) be paid?

(A) Within thirty (30) days following the end of the fiscal year. (B) Within twenty-five (25) days following the end of the calendar year. (C) Within fifteen (15) days after one year following the close of the taxable year. (D) None of the above. 90. Which of the following statement is most correct? Statement 1. The fact that any corporation is a mere holding company or investment company shall be prima facie evidence of a purpose to avoid the tax upon its shareholders or members.

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