2014 (Taxation) Bar Exam Questions: Question 24

[Answer / discuss the question below. Or see 2014 bar exam Taxation Instructions; 2014 Taxation essay and multiple choice Questions: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28 and 29; See also 2014 Bar Exam: Information, Discussions, Tips, Questions and Results]

XXIV.

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: (6%)

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?

3 comments

  1. A. None. The computations of the earnings of ABC law firm has no applicatin here because GPPs are not subject to income tax. (RMC No. 3-2012 on tax implication of GPPs)

    B. None. The allowance of deductions on gross income of ABC corporation finds no application here for the same reason above.

    C. None. Income tax of ABC does not apply here for the same reason above. However, the partners A, B, and C are liable for their individual income tax based on their proportional shares subject to the proper set up of inclusions and deductions on gross income as provided by the tax code and RMC 3-2012.

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