A, B, and C, all lawyers, formed a partnership called ABC Law Firm so that they can practice their profession as lawyers. For the year 2012, ABC Law Firm received earnings and paid expenses, among which are as follows: Earnings: (1) Professional/legal fees from various clients (2) Cash prize received from a religious society in recognition of the exemplary service of ABC Law Firm (3) Gains derived from sale of excess computers and laptops Payments: (1) Salaries of office staff (2) Rentals for office space (3) Representation expenses incurred in meetings with clients (A) What are the items in the above mentioned earnings which should be included in the computation of ABC Law Firm's gross income? Explain. (B) What are the items in the above-mentioned payments which may be considered as deductions from the gross income of ABC Law Firm? Explain. (C) If ABC Law Firm earns net income in 2012, what, if any, is the tax consequence on the part of ABC Law Firm insofar as the payment of income tax is concerned? What, if any, is the tax consequence on the part of A, B, and C as individual partners, insofar as the payment of income tax is concerned? (2014 Bar Question)Prior to the VAT law, sales of cars were subject to a sales tax but the tax applied only to the original or the first sale; the second and subsequent sales were not subject to tax. Deltoid Motors, Inc. (Deltoid) hit on the idea of setting up a wholly-owned subsidiary, Gonmad Motors, Inc. (Gonmad), and of selling its assembled cars to Gonmad at a low price so it would pay a lower tax on the first sale. Gonmad would then sell the cars to the public at a higher price without paying any sales tax on this subsequent sale. Characterize the arrangement. (1%)(2013 Bar Question) (A) The plan is a legitimate exercise of tax planning and merely takes advantage of a loophole in the law. (B) The plan is legal because the government collects taxes anyway. (C) The plan is improper; the veil of corporate fiction can be pierced so that the second sale will be considered the taxable sale. (D) The government must respect Gonmad's separate juridical personality and Deltoid's taxable sale to it.The excess over the de minimis limit prescribed shall be considered, along with the "other benefits" under Section 32(B)(7)(e)(iv), NIRC, in determining whether or not the P82,000 threshold has been exceeded. Any excess over the de minimis ceiling may be exempt if it is covered by the unused portion of the P82,000.00 non-taxable "other benefits". Otherwise, any amount in excess of the P82,000.00 threshold becomes subject to tax. The following shall be considered as "de minimis" benefits: 1. Monetized unused vacation leave credits of private employees not exceeding 10 days during the year; Monetized unused vacation and sick leave credits paid to government officials and employees, regardless of the number of days; 3. Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; 4. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500; 5. Uniform and clothing allowance not exceeding P5,000 per annum; 6. Actual medical assistance not exceeding P10,000 per annum; 7, Laundry allowance not exceeding P300 per month; 8. Employees achievement awards, e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; 9. Gifts given during Christmas and major anniversary celebrations not exceeding P50,000 per employee per annum; 10. Daily meal allowance for overtime work and night/graveyard shift not exceeding 25% of the basic minimum wage on a per region basis; 11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive schemes provided that the total annual monetary value received from both CBA and productivity incentive schemes combined do not exceed ten thousand pesos (P 10,000.00) per employee per taxable year In January 2013, your friend got his first job as an office clerk. He is single and lives with his family who depends upon him for financial support. His parents have long retired from their work, and his two (2) siblings are still minors and studying in grade school. In February 2014, he consulted you as he wanted to comply with all the rules pertaining to the preparation and filing of his income tax return. He now asks you the following: (A) Is he entitled to personal exemptions? If so, how much? (1%) (B) Is he entitled to additional exemptions? If so, how much? (1%) (C) What is the effect of the taxes withheld from his salaries on his taxable income? (2014 Bar Question)
