CHAPTER 5

Problem 5-1 Determining the Taxability of an Item

Indicate whether the item is taxable or nontaxable with income tax.
1. Overtime pay of a minimum wage earner
2. Statutory minimum wage of MW plus his business income
!. "mount receive in payment of moral damages
#. Money ac$uired through donation
%. Money ac$uired through illegal means
&. Winnings
'. Separation pay due to merger
(. Income derived by )aguio *ity +overnment
,. "vailed vacation leave with pay
1-. xemplary damages
11. .amages for real unreali/ed profits
12. Income earned by 0hilippine government
1!. 0ri/es and awards in sports competition not sanctioned by 0hilippine Olympic Sport *ommittee
1#. Interest income by 0hilippine 1ational 2ed *ross from trust funds
1%. 02"" retirement plan
1&. 3uition fees collected by nonprofit educational institution
1'. Interest income from savings deposit earned by senior citi/en
1(. Interest income from time deposit earned by cooperative
1,. Shelter of the maid wor4ing within the employer5s home
2-. 3hirteen month pay in excess of 0!-6----
21. Separation pay due to voluntary resignation
22. 3erminal leave benefit
Problem 5-2 Determining the Taxability of an Item
Indicate whether the item is taxable or nontaxable with income tax.
1. mergency and ha/ard pay o MW
2. +ains from redemption of share in mutual fund
!. 0ri/es and awards7Magsaysay awards
#. +SIS retirement benefits
%. 0remium received from insurance
&. 0roceeds from life insurance of employee received by the employer
'. .ividend income derived from in the 0hilippines by the 3aiwan +overnment
(. +ains from sale of bond with a maturity of four years
,. +ains from the sale of certificate of indebtedness with a maturity of six years
1-. *ancellation of debt due to service rendered
11. Stoc4 receive due to professional service rendered
12. "ccumulated vacation leave for private employees converted into cash at the end of employment contract
1!. 0ensions6 in general
1#. 0roceed from the sale of land 8capital asset96 01--6---: costs6 012-6---
1%. Interest income
1&. )oard of director5s fee
1'. 2etirement program approved by the )I2
1(. 0rofessional athletes salary
1,. Winning from sweepsta4es or loto
2-. Income derived from smuggling
21. Interest received from life insurance
22. .e minimis clothing6 0#6---
Problem 5-3 True or al!e
Write 3rue if the statement is correct6 or ;alse if the statement is incorrect.
1. If the MW earns other income sub<ect to final tax6 his SMW becomes taxable.
2. If the MW earns other income sub<ect to normal tax6 his SW becomes taxable.
!. "mount received by virtue of settlement of will litigation is not taxable income.
#. 3he proceeds of life insurance ta4en by a corporation who insured the life of its employee who subse$uently
died constitute taxable income
%. "mount received as a consideration for a service rendered shall be excluded from gross income
&. )e$uest refers to real property transferred from one person to another by will
'. Income sub<ect to treaty obligation binding upon the government of the 0hilippines is exempted from taxable
(. 3ermination pay for any cause beyond the control of an employee is not sub<ect to tax6 except if the dismissal is
with a cause.
,. .amages for loss of earning capacity are nontaxable.
1-. "ctual li$uidated damages are taxable
11. 0hysical6 exemplary6 and moral damages except damages for loss of profit in property are not taxable.
12. Income divided by foreign government in the 0hilippines is taxable
1!. "ll pri/es and awards are sub<ect to income tax.
1#. Inventor5s awards are sub<ect to income tax.
1%. Income derived by the political subdivision of the government is not taxable.
1&. Income derived from the property ac$uired by the gift6 devised6 or descent is excluded from gross income.
1'. *apital gains from sale of certificate of indebtedness with maturity of more than five years are sub<ect to
taxable.
1(. Maternity benefits advanced by the employer to the employee are excluded from gross income6 hence exempt
from withholding tax.
Problem 5-" #ulti$le %hoi%e
1. Statement 1: ;or taxation purpose6 1!
th
month pay is a compensation income.
Statement 2: 1!
th
month of less than 0!-6--- is taxable compensation income.
a9 Only statement 1 is correct.
b9 Only statement 2 is correct.
c9 )oth statements are correct.
d9 )oth statements are incorrect.
2. Statement 1: Insurance premium paid by the employer for the life insurance of the employee6 where
the beneficiary is the employer is a taxable compensation income of the employee.
Statement 2: =pon death of the insured employee6 the proceeds of the life insurance is taxable against
the beneficiary.
a9 Only Statement 1 is correct.
b9 Only statement 2 is correct.
c9 )oth statements are correct.
d9 )oth statements are incorrect.
!. )oth "ra and 2ica covered by a )I2 approved employer5s pension plan. "ra retired from employment at the
age of %2 after serving the same employer for 12 years. 2ica retired at the age of %1 after serving the same
employer for 1- intermittent services.
a9 Only the retirement pay of "ra is tax exempt.
b9 Only the retirement pay if 2ica is tax exempt.
c9 )oth the retirement pay of "ra and 2ica are tax exempt.
d9 )oth the retirement pay of "ra and 2ica are taxable.
#. William +alam was retired by his employer corporation in 2--" and paid 016---6--- as a retirement gratuity
without any deduction for withholding tax. 3he corporation became ban4rupt in 2--). *an the )I2 sub<ect the
016---6--- retirement gratuity to income tax>
;irst answer: ?es6 if the retirement gratuity was paid based on the reasonable pension plan where William
+alam was %- years old and has served the corporation for 1- years.
Second answer: 1o6 if William +alam was forced by the corporation to retire.
a9 )oth answers are wrong.
b9 )oth answers are correct.
c9 ;irst answer is correct6 the second answer is wrong.
d9 ;irst answer is wrong6 the second answer is correct.
%. @?A *o. too4 two insurance on the life of its 0resident6 Mr. ". In one policy6 the beneficiary is the corporation
to compensate it for its expected loss in case of death of its president. 3he other policy designates Mr. "5s wife
as its irrevocable beneficiary.
Buestion 17"re the insurance premium paid by @?A *o. in both policies deductible>
Buestion 27Will the insurance proceeds be treated as income sub<ect to tax by corporation and by the wife>
a9 ?es to 1
st
and no to 2
nd
$uestions.
b9 ?es to both $uestions.
c9 1o to 1
st
$uestion and yes to 2
nd
$uestion.
d9 1o to both $uestions.
&. 3he widow of your best friend had been paid 016---6--- account of the life insurance policy of the deceased
husband. She as4s you whether she should declare the amount for income tax purpose or for estate tax purpose.
;irst advice: 3he proceeds of life insurance paid to beneficiary upon the death of insured are exempt from
income tax and need not be declared for income tax purposes.
Second advice: 3he proceeds of life insurance would have to be declared for estate tax purpose if the
designation of the beneficiary was irrevocableC otherwise it needs not to be declared.
a9 )oth advices are correct.
b9 1
st
advice is correct and 2
nd
advice is wrong.
c9 )oth advices are wrong.
d9 1
st
advice is wrong and 2
nd
is correct.
'. 3he following are the re$uirements to exempt retirement pay due to old age from taxation exempt.
a9 SSS or +SIS retirement pay.
b9 $uitable retirement program approved by the )I2 *ommissioner.
c9 3he retiree should have been employed for at least 1- years and retiring at the age of at least %- years old.
d9 2etirement pay should have been availed of for the first time.
(. Which of the following is classifiable as a taxable separation pay>
a9 Separation pay due to optional retirement
b9 Separation pay due to reorgani/ation of the company
c9 Separation pay due to company5s brin4 of ban4ruptcy
d9 Separation pay due to death6 sic4ness or disability
,. Which of the following is a common for non7taxable pension benefits
i. 3he retiring employees have been in service of the same employer for at least 1- uninterrupted years.
ii. 3he retiring employee is not less than %- years of age at the time of retirement.
*hoices
a9 I and ii c9 ii only
b9 I only d9 1one
1-. Which of the following income earned in the 0hilippines by a citi/en is sub<ect to income tax>
a9 Winnings in 0hilippine *harity Sweepsta4e Dottery
b9 Interest on government bonds as stipulated on the bond issue
c9 +ains sale of !7year bond
d9 Ealue of property received as gift
11. " *." registered cooperative is not sub<ect to which of the following tax>
a9 Output E"3
b9 ;inal tax on interest income
c9 ;inal tax on foreign currency income
d9 Input E"3
12. 3he law excludes some items of income from taxation because
a9 3he transformation of these income into economic gain are not essentially the result of labor or efforts of
taxpayer.
b9 3he law or treaty provides that they are not taxable.
c9 Some of these items are <ust return of capital.
d9 "ll of the above.
1!. 3he following are the exclusions from gross income6 except6
a9 0roceeds of life c9 gifts6 be$uest and devises.
insurance policies.
b9 2etirement benefits d9 pri/es and winnings.
1#. Which of the following is excluded from the gross taxable income>
a9 2etirement benefits c9 2affle pri/es
b9 Earious winnings d9 2ent income
1%. Which of the following is taxable income>
i. Insurance premium paid by employer on the life insurance policy of the employee where the designated
beneficiary is the relative of the employee
ii. Insurance policy paid by employer on the life insurance policy of the employee where the designated
beneficiary is the employer.
iii. 3he income tax of the employee paid by the employer as part of employee5s benefit.
iv. 3he income tax of the employee advanced by the employer deduction against future income of employee.
*hoices:
a9 i only c9 ii and iii only
b9 I and iv only d9 iii only
Problem 5-5 #ulti$le Choi%e
Select the letter that contains the best answer.
1. ddie resigned from his employment and received 02%6--- separation pay. +lory received 0!-6--- as her
terminal pay due to retrenchment legally enforced by her employer. Foseph received 0!%6--- termination pay
when he was dismissed due to gross negligence.
a9 Only the separation pay of ddie is taxable.
b9 Only the terminal pay of +lory is not taxable.
c9 Only the termination pay of Foseph and +lory are not taxable.
d9 Only the separation pay of ddie and Foseph are not taxable.
2. Which of the following is taxable>
a9 SSS and +SIS benefit
b9 Social security benefits received by a bali4bayan from employer abroad.
c9 Separation pay received by a %-7year old employee due to the retrenchment program of the employer.
d9 Interest income on time deposit.
!. Which of the following exclusion from gross income is not provided by special laws>
a9 0ri/es and awards on religious and educational achievement.
b9 Winnings from lotto.
c9 Winnings from 0hilippine *harity Sweepsta4es.
d9 Interest and capital gains on land covered by Dand 2eform under the purchaser tenant program.
#. 3he proceeds of insurance ta4en by a corporation on the life of the 0resident to identify it against
Doss in case of his death is
a9 0art of taxable income of the corporation.
b9 3axable income of the corporation.
c9 0artly exempt6 partly taxable.
d9 xempt from income tax.
%. Mr. 3so5s building with a boo4 value of 026---6--- was ra/ed by fire. 3he insurance company paid
016#--6---. 3he 016#--6--- proceeds is
a9 3axable in full. c9 tax exempt.
b9 Sub<ect to final tax. d9 any of the above.
&. Which of the following maybe excluded from the gross income of a taxpayer>
a9 Income derived from be$uest and devices.
b9 Interest on proceeds of life insurance policies.
c9 Interest received from a domestic corporation.
d9 1one of the above.
'. Which of the following is considered as taxable income>
a9 Separation pays due to sic4ness.
b9 Separation pays due to death.
c9 Separation pays due to voluntary resignation.
d9 2etirement pay of 0!6--- per month.
(. Which of the following is a taxable income>
a9 SSS contribution deducted from salary.
b9 SSS sic4ness benefits.
c9 1!
th
month pay in excess of 0!-6---.
d9 0assive income earned by a citi/en from sources outside the 0hilippines.
,. 3he following are taxable compensation for in<uries except
a9 Interest from nontaxable damages.
b9 *ompensatory li$uidated damages.
c9 .amages for loss of goods and other belongings.
d9 .amages for unreali/ed profit.
1-. which of the following cases is retirement benefit excluded from taxable income>
a9 3he retiree is #% years of age and has been in the service for more than 2- years.
b9 3he retiree is %- years of age and has been in the service for lesser than 1- years.
c9 3he retiree is more than %- years of age and has been in the service of the same employer for 1% years.
d9 3he retiree is less than %- years and has been in the service of the same employer for 1- years.
Problem 5-& Taxable Com$en!ation
"n employee received the following for the period:
2eimbursements of his medical expenses received from SSS 0 1 62%-
% days sic4 leave paid by SSS '%-
"vailed 1-7day sic4 leave pay included in by the employer
In the semi7monthly pay of the employee 16%--
Gow much is the amount of taxable compensation>
a9 0!6%-- c9 026---
b9 0262%- d9 016%--
Problem 5-' (ontaxable Com$en!ation
" MW employee received a ta4e home pay amounting to 02126--- inclusive of 1!
th
month pay of 01'6%--. 3he
02126--- is net of 01!6%-- withholding tax and 026--- SSS contribution. In addition6 he earned a 02-6--- as other
income sub<ect to normal tax.
Gow much is the total amount of his taxable income>
a9 0 2-6--- c9 022(6---
b9 02126--- d9 02#%6%--
Problem 5-) Taxable an* (ontaxable Com$en!ation
Fennifer6 a taxpayer who is single6 received a net pay of 02&%6--- for the year. 3he amount is net of 0%-6---
withholding tax6 0&6--- payment for advances6 and 0#6--- SSS contribution. 3his is inclusive of 02'6--- 1!
th
month pay and 0%6--- *hristmas bonus 8de minimis9.
Gow much is the taxable and nontaxable compensation income>
3axable 1ontaxable
a9 02&%6--- 0!!6---
b9 02(%6--- 0!&6---
c9 02(,6--- 0!&6---
d9 02,%6--- 0!-6---
Problem 5-+ Tax-Exem$t Contribution!
3homas pay slip reported the following:
1et ta4e home pay 0 1!6---
.eductions made:
SSS contributions !--
0ag7ibig contributions 1--
=nion dues contributions 1--
Office party contributions '%
*haritable contributions 2%
Withholding income tax #--
3homas taxable compensation income and tax exempt contributions would be
*ompensation 3ax7exempt *ontributions
a9 01!6--- 016---
b9 01!61-- 0 ,--
c9 01!6%-- 0 %--
d9 01!6&-- 0 #--
Problem 5-1, Em$loyer-! .enefit!
@ was hired with a condition 8due to the nature of his wor49 that he will be a stay7in. "t monthly salary of 01%6---
per month6 he was also provided with free lodging valued at 026--- per month and free meals6 valued at 0!6--- per
month.
3he taxable monthly compensation income of the employee is
a9 02-6--- c9 01'6---
b9 01(6--- d9 01%6---
Problem 5-11 Taxable .enefit!
" managerial employee en<oys the following monthly benefits:
2ent apartment
Insurance premium 8employer is beneficiary9
2eimbursement of personal expenses
Which of the following are sub<ect to income tax>
a9 01--6--- c9 02-6---
b9 0 '-6--- d9 0 7-7
Problem 5-12 Pro%ee*! of life In!uran%e
3win4le *o. Insured Mr. 2odrigo 0a<ama6 its 0resident for 0%--6---. Mr. 0a<ama died and twin4le *o. received the
proceeds of the insurance after paying insurance premium of 0%-6---. 3he reportable taxable income would be
a9 0%--6--- c9 0 1-6---
b9 0 %-6--- d9 0 7 - 7

Problem 5-13 In%ome from life In!uran%e
Mrs. Eina Duchina was insured under an endowment policy with value of 0%--6---. 3otal premiums paid by her
during the term of premium payments on the on the policy was 0#,-6--- from which there was a return of
premiums of 0 #-6---. "t the maturity of the policy6 Mrs. Duchina received 0%--6---. 3he income of Mrs. Duchina
under the policy is
a9 0%--6--- c9 0 1-6---
b9 0 %-6--- d9 0 7 - 7
Problem 5-1" Ca!h /urren*er 0alue
@ paid a monthly insurance premium of 01-6--- for ! full years. 3he average is for 026---6---. "t the end of !
rd
year6 a cash surrender value of 02'-6--- was received by the insured.
Gow much is the amount of income to be reported>
a9 0!&-6--- c9 01-6---
b9 02'-6--- d9 0 7 - 7
Problem 5-15 (ontaxable an* taxable *amage!
rnie )arron6 an entrepreneur6 met an accident and was able to claim the following damages:
"ctual damages for unreali/ed profit 0 1--6---
"ctual damages for lost products 2--6---
xemplary damages %-6---
Moral damages %-6---
Interest on nontaxable damages 2-6---
"ctual li$uidated damages (-6---
Gow much damages are taxable and not taxable>
3axable 1ontaxable
a9 0!(-6--- 012-6---
b9 0!--6--- 02--6---
c9 02--6--- 0!--6---
d9 012-6--- 0!(-6---
Problem 5-1& Com$en!ation from In1urie!
Mr. "rango was in<ured in a vehicular accident in 2--b. he incurred and paid medical expenses of 02-6--- and legal
fees of 01-6--- during the year. In 2--c6 he received 0'-6--- as settlement from the insurance company which
insured the car owned by the other party involved in the accident.
;rom the above payment and transaction6 what is the amount of taxable income accruing to Mr. "rango in 2--*>
a9 0 7-7 c9 0 '-6---
b9 0#-6--- d9 0 %-6---
Problem 5-1' Taxable an* (ontaxable Terminal $ay
3he heir6 upon the death of an employee6 received the following amounts:
3erminal pay 0 &-6---
Dife Insurance %--6---
SSS death benefit 1-6---
.onation of relatives #-6---
What amount of these receipts is taxable and not taxable with income tax>
3axable 1ontaxable
a9 0&1-6--- 0 7 - 7
b9 0%--6--- 011-6---
c9 011-6--- 0%--6---
d9 0 7 - 7 0&1-6---
Problem 5-1) Taxability of Termination Pay
Falos<os was dismissed from his employment due to ma<or infraction committed and received 01--6--- termination
pay. =nder the 3ax *ode final pay received due to involuntary separation is not taxable. Which of the following is
true>
a9 Falos<os5 01--6--- termination pay is taxable because he was terminated due to cause within his control.
b9 Falos<os5 01--6--- termination pay is not taxablr because his termination is not voluntary.
c9 Falos<os5 01--6--- termination pay is not taxable because it is against his will.
d9 Falos<os5 01--6--- termination pay is taxable because it is due to cause which is beyond his control.
Problem 5-1+
.uring the year6 a resident citi/en received the following among others:
Dast pay upon resignation from 1
st
employment 0 1--6---
Separation pay due to closure of his 2
nd
employer '-6---
2etirement pay received from SSS as member 1%-6---
Which is the reportable income from data above>
a902-6--- c901%-6---
b901'-6--- d901--6---

Problem 5-2, (ontaxable Re%ei$t!
ddie +il received the following cash during a taxable year:
"ctual damages for in<uries suffered 0!-6---
Separation pay due to sic4ness 1--6---
SSS retirement benefits %--6---
Inheritance from his grandparents 1--6---
Gow much amount of cash receipts is sub<ect to income taxation>
a907-7 c901!-6---
b901--6--- d92!-6---
Problem 5-21 /enior Citi2en-! In%ome
Which of the following income earned each year year by a senior citi/en is not taxable income>
a9 01--6--- salary for year 1
b9 0%6--- interest income for year 2
c9 01-6--- interest income for year !
d9 0%-6--- business income for year #
Problem 5-22 /enior Citi2en-! In%ome
Dolo 2ado is a &-7year old retired employee. ;or the year6 he received the following income:
Income from his various consultation fees 0%-6---
Interest income from %7year time deposit 1-6---
Interest in credit cooperative where he is a member %6---
Interest income from ban4 savings deposit #6---

Gis income sub<ect to income tax is
a9 0&,6--- c90 #6---
b9 01#6--- d9 07-7
Problem 5-23 3ift!4 .e5ue!t! an* De6i!e!
0andoy received the following gifts during the year
*hristmas gifts from his employer 0 %6---
+ifts from relatives on account of his birthday 1--6---
Inheritance from his grandfather %--6---
.onations from his friends !-6---
Gow much is the total gifts sub<ect to income tax>
a9 0&!%6---
b9 0!%6---
c9 0%6---
d9 07-7
Problem 5-2" 3ift!4 .e5ue!t! an* De6i!e!
On march 1 2--)6 Mayumi received a building property from his parents in heritance with fair mar4et value of
016---6---. 3his property was ac$uired for 0(6---6--- five years ago by his parents. 3he monthly rental income of
the property is 01--6--- with an average monthly expense of 02-6---.
Mayumi5s income sub<ect to income tax for the year 2--) is
a9 01162--6--- c9 0 ,&-6---
b9 01-6,&-6--- d9 0 (--6---
Problem 5-25 (ontaxable Pri2e! an* A7ar*!
0recious Dara received cash amounting to 016---6--- plus a house and lot amounting to 0!6---6--- for winning as
Ms. International.
Gow much tax exempt from award of Ms.Dara>
a9 0 #6---6--- c9 0 16---6---
b9 0 !6---6--- d9 0 7-7
Problem 5-2& (ontaxable 8inning! an* A7ar*!
Manny 0acman6 a boxing champion received the following winnings during the taxable year:
Dotto70hilippines 0 1-6---6---
)oxing price 2%6---6---
+ambling winnings 1--6---
2affle7refrigerator 2-6---
3he nontaxable winningH pri/es would be
a9 01-6---6--- c9 0 1-612-6---
b9 01-6-2-6--- d9 0 !%612-6---
Problem 5-2' (ontaxable 8inning! Pri2e! an* A7ar*!
Onyo4 Eelasco6 a national athlete received the following during the year:
2amon Magsaysay award 0 %-6---
"thlete of the year award 1--6---
0ri/e7Follibee raffle %6---
0ri/e for winning the silver Olympic medal %--6---
+ift from Mr. "lfred Dim 2%-6---
*ar from 1issan as a gift 16---6---
Winnings70hilippine sweepsta4e 1--6---
+ambling winnings %--6---
3he total winningsH awards and pri/es are not sub<ect to income tax is
a9 026%-%6---
b9 026---6---
c9 016,-%6---
d9 016,--6---
Problem 5-2) In6e!tment in 3o6ernment bon*!
3he following earnings were reali/ed from the investment in %7year government bonds:
Interest income 0 &-6---
+ain from the sale of bonds classified as capital asset securities 1#-6---
Gow much is the total income tax>
a9 0 216--- c9 0 ,6---
b9 0 126--- d9 0 7-7
Problem 5-2+ 3ain from /ale of .on*!
3he following transaction of an individual taxpayer transpired during the taxable year:
Investment in a '7year6 016---6--- face value bonds 0,,-6---
Interest received from bond investment 12-6---
+ain from the sale of bonds on maturity date 11-6---
Gow much is the taxable income>
a9 0 7-7 c9 0 !&6---
b9 0 2#6--- d9 0 &-6---
Problem 5-31 (ontaxable Intere!t In%ome
" nonresident alien earned the following interest income:
Interest income from peso savings deposit 0%-6---
Interest from expanded foreign currency deposit 8converted to peso9 1--6---
Interest from yield deposit !-6---
Gow much of the above income is nontaxable>
a9 0 !-6--- c9 0 (-6---
b9 0 %-6--- d9 0 1--6---
Problem 5-32 In6e!tor-! in%ome
"lberto invented a device that helps paraly/ed people wal4. 3he government approved its patent. .uring its first
year of commercial activities6 the following items wre reported in relation to yhe invention:
Income from the sale invented products 0%6---6---
*ost of produced products 16---6---
Sale of technology 26---6---
2esearch and development costs (--6---
Inventor5s "chievement "ward !--6---
Gow much is the nontaxable income of "lberto as inventor>
a9 0&62--6--- c9 0#6---6---
b9 0%6---6--- d9 0 !--6---
Problem 5-33 Coo$erati6e In%ome
" *." registered cooperative reported a total income of 0%--6--- inclusive of 01-6--- interest in ban4 savings
deposit. 3he taxable income of this cooperative would be
a9 0 %1-6--- c9 0 1-6---
b9 0 %--6--- d9 0 7-7
Problem 5-3" Coo$erati6e In%ome
)aguio7)enguet *ooperative has the following income during the taxable year:
Interest income from members 0%6---6---
Income from coop groceries !6---6---
Interest income from foreign currency deposit 26---6---
Interest income from time deposit 16---6---
Gow much is the income tax paid by )aguio7)enguet *ooperative>
a9 0 1%-6--- c9 0 !%-6---
b9 0 2--6--- d9 0 162--6---
Problem 5-35 Retirement .enefit 9Com$rehen!i6e:
Mr. Mario Matiyaga6 %- years old6 rendered service as a security guard of "nscor *orporation. Ge had a monthly
salary of 0%6--- before retirement in October !16 2--x. Ge received 0%--6--- retirement benefits in accordance
with reasonable private benefit plan maintained by "nscor *o.
2e$uired: *ompute for the amount to be included in the gross income of Mr. Matiyaga for 2--x based on the
following independent assumptions:
19 Ge received the retirement benefit for the first time after serving for 1- years.
29 Ge received the retirement benefit for the second time.
!9 Ge has served the company for 1- noncontinuous years.
Problem 5-3& Ex%lu!ion from 3ro!! In%ome ;Com$rehen!i6e<
Mr. Fose Eelarde received the following items for the taxable year 2--':
Winnings from charity horse race sweepsta4e from 0*SO 0 %--6---
Winnings from gambling6 net of 0'--6--- loss from gambling (--6---
Interest on government debt securities 1--6---
.amages awarded by the court for breach of contact
Iof which #-J is damages for unreali/ed profitsK 16---6---
+ain from redemption of shares in mutual fund !--6---
+ain from sale of bonds with maturity of more than five years &-6---
+ain from friends 2--6---
2e$uired: *ompute the total amount of exclusion from gross income.
Problem 5-3' Ex%lu!ion from 3ro!! In%ome ;Com$rehen!i6e<
Mr. rasto ;uentes received the following:
2eturn of his life insurance premium pais within 2% years 026---6---
with annual premium of 01%6---
0roceeds of his mother5s life insurance paid within !- years
with annual premium of 0%6--- 16---6---
*ash gift from his missionary friends %-6---
Gouse and lot inherited from his mother !6---6---
2ent income from house and lot inherited 1--6---
2e$uired: *ompute for the following:
19 "mount to be excluded from gross income
29 "mount to be included as gross income
Problem 5-3) Taxability of Tran!ferre* Re%ei6e*
Miss "urma 3andana served as a nurse for Fudge Maximo Daxa for thirty years. Since she has been serving for long
period of time6 the <udge included in his last will and testament an amount of 016%--6--- as a payment for her
service.
Buestion: Is the transfer excluded from income taxation if received by Miss 3andana upon the death of Fudge Daxa>
Problem 5-3+ In%ome /ub1e%t to (ormal Tax
*ristiflor )uduhan received the following items for the taxable year 2--x:
0roceeds of life insurance of his decedent husband with premiums
paid amounting to 02--6---. Mrs. )uduhan is an irrevocable
beneficiary 0 16%--6---
.onation from friends and relatives 1-6---
*ompensation for actual damages for in<uries suffered
by her husband 2--6---
.ividend income %-6---
Interest on ban4 deposits 26---
0ri/es for winning as Mrs. )eautiful of 3awi73awi 2%6---
SSS death benefits of his husband 2-6---
2e$uired: *ompute for the gross income to be included in the income tax return of Mrs. )uduhan sub<ect to noramal
or tabular tax.