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1. What is the "immediacy test"? Explain briefy.Under the Immediacy test which is recognized by the BIR, the reasonable needs of thebusiness are the immediate and reasonably anticipated needs supported by a directcorrelation of anticipated needs to such accumulation of prots.

2. Mirador, Inc., a domestic corporation, led its Annal Income !ax

etrn #or its taxable year 2$$% on April 1&, 2$$'. In the etrn, itrefected an income tax o(erpayment o# )1,$$$,$$$.$$ and indicatedits choice to carry*o(er the o(erpayment as an atomatic tax credita+ainst its income tax liabilities in sbseent years.

-n April 1&, 2$1$, it led its Annal Income !ax etrn #or itstaxable year 2$$' refectin+ a taxable loss and an income taxo(erpayment #or the crrent year 2$$' in the amont o# )&$$,$$$.$$and its income tax o(erpayment #or the prior year 2$$% o#)1,$$$,$$$.$$.

In its 2$$' etrn, the corporation indicated its option to claim #or

re#nd the total income tax o(erpayment o# )1,&$$,$$$.$$

hoose /hich o# the #ollo/in+ statements is correct.

0Ans/er Mirador, Inc. may claim as re#nd the total income tax

o(erpayment o# )1,&$$,$$$.$$ refected in its income taxretrn #or its taxable year 2$$'

Reason3 4ec. 22' In any case, no such suit or proceeding shall be led after theepiration of two !"# years from the date of payment of the ta or penalty regardlessof any super$ening cause that may arise after payment% &ro$ided, howe$er, 'hat the(ommissioner may, e$en without a written claim therefor, refund or credit any ta,where on the face of the return upon which payment was made, such payment

appears clearly to ha$e been erroneously paid.

5. A is a tra(ellin+ salesman /or6in+ #ll time #or 7 46in )rodcts. 8erecei(es a monthly salary pls 59 commission on his sales in a4othern pro(ince /here he is based. 8e re+larly ses his o/n carto maximi:e his (isits e(en to #ar fn+ areas. -ne ne day a +ropo# militants sei:ed his car. 8e /as notied the #ollo/in+ day by thepolice that the marines and the militants had a bloody enconterand his car /as completely destroyed a#ter a +renade hit it.

A /ants to le a claim #or casalty loss. Explain the le+al basis o#yor tax ad(ice.

Ans/er3 It depends.If ) is an employee of a company, he cannot deduct the losses incurred since anindi$idual tapayer who deri$es income from compensation is allowed only personaland additional deductions and the reasonable premiums for health andhospitalization insurance.

If ) is engaged in trade or business, he can deduct the $alue of the car from his grossincome pro$ided he can reco$er only up to the amount of the casualty loss that doesnot eceed its boo* $alue, and that it is not compensated by insurance or otherwise.

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;. In 2$$', arso, a resident

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recipient. 'here is no income realized because nothing -ows to +oels parentsother than a mere return of capital, the capital being the life of the insured.

C. Antonia 4antos, 5$ years old, +ain#lly employed, is the sister o#Ed+ardo 4antos. 4he died in an airplane crash. Ed+ardo is a la/yer

and he ne+otiated /ith the airline company and insrance companyand they /ere able to a a+ree total settlement o# )1$ Million. !his is/hat Antonia /old ha(e earned as somebody /ho /as +ain#llyemployed. Ed+ardo /as her only heir.

Is the )1$ Million sb>ect to estate tax? eason briefy.

Ans/er3+o. 'he estate ta is a ta on the pri$ilege en/oyed by an indi$idual in controlling thedisposition of her properties to ta*e e0ect upon her death. 'he &12 million is not a propertyeisting at the time of the decedents death3 hence it cannot be said that she eercisedcontrol o$er its disposition. 4ince the pri$ilege to transmit property is not eercised by thedecedent, the estate ta cannot be imposed thereon.

4hold Ed+ardo report the )1$ Million as his income bein+AntoniaDs only heir? eason briefy.

5nswer%+o. 'he amount recei$ed in a settlement agreement with the airline company and insurancecompany is an amount recei$ed from the accident insurance co$ering the passenger of theairline company and is in the nature of compensation for personal in/uries and for damagessustained on account of such in/uries, which is ecluded from the gross income of therecipient.