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GUIDE NOTES ON REMEDIES

Q: Who are the Philippine tax authorities?

* (1) Bureau of Internal Revenue - The BIR is the agency of the government which is primarily incharge of the administration and enforcement of tax laws under the 1997 Tax Code.(2) Bureau of Customs - The BOC is in charge of the enforcement of tariff and customs tax laws.(3)  Assessors and Treasurers of Local Government Units  – The assessors and treasurers ofLGUs are in charge of the enforcement of local and real property tax laws.

Q: How are taxes assessed?

* (1) Self-Assessment - Taxpayers are required to file tax returns for various kinds of incomeearned which may be subject to tax. Examples are income tax, capital gains tax, donor’s tax, andestate tax. When a taxpayer files the tax return, he is actually making a self-assessment.

(2) Deficiency Assessment - Deficiency assessment is an assessment made by the BIR after theconduct of an investigation or audit when it finds that the tax return filed by the taxpayer contains,for example, an under-declaration of income, or when the taxpayer does not at all file a tax return.

[NOTE: The provisions on tax remedies found in the 1997 Tax Code refer to the government’sright to make deficiency assessments.]

** The case of Philippine National Oil Company v. Court of Appeals made a distinction between aself-assessed tax and a BIR-assessed tax. At issue in this case was the validity of thecompromise agreement executed by PNOC pursuant to EO No. 44. Under said law, the CIR wasauthorized to compromise delinquent accounts arising, among others, from a self-assessed tax. According to the Supreme Court, PNOC could not avail of the benefits of EO No. 44 because, forone, its tax liability was not a self-assessed tax. The High Court differentiated a self-assessed taxand a BIR-assessed tax in this sense: where tax liabilities are self-assessed, the compromisepayment shall be based on the tax return filed by the taxpayer; on the other hand, where the BIRalready issued an assessment, the compromise payment shall be computed based on the taxdue on the assessment notice.

[Philippine National Oil Company v. Court of Appeals, GR Nos. 109976 and 112800, 26 April2005.]

Q: How are remedies in taxation classified?

* Remedies in taxation may be grouped as follows:(1) Remedies of the Government –

(a) to make deficiency assessments within 3 or 10 years(b) to enforce deficiency assessments and collect taxes within 5 years –

(i) to effect distraint of personal property(ii) to effect levy on real property(iii) to pursue judicial proceeding to collect(iv) to compromise, abate, or cancel taxes

(v) to enforce tax liens(vi) to enforce statutory penal provisions(vii) to enforce forfeiture or property

(2) Remedies of the Taxpayer –(a) to protest against an assessment (administrative claim)(b) to appeal a decision on a protest to the Court of Tax Appeals (judicial claim)(c) to compromise taxes(d) to release property before sale at public auction(e) to redeem property after sale at public auction(f) to avail of tax amnesty benefits

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CHAPTER I - REMEDIES IN GENERAL

Sec. 202, Final Deed to Purchaser.  - In case the taxpayer shall not redeem the property as herein provided, the Revenue District Officer shall, as grantor, execute a deed conveying to the purchaser so much of

the property as has been sold, free from all liens of any kind whatsoever, and the deed shall succinctly recite allthe proceedings upon which the validity of the sale depends.

Section 202 shall be discussed in relation to Section 214, which reads:

Sec. 214, Redemption of Property Sold.  - Within one (1) year from the date ofsale, the delinquent taxpayer, or any one for him, shall have the right of paying to theRevenue District Officer the amount of the public taxes, penalties, and interest thereonfrom the date of delinquency to the date of sale, together with interest on said purchase

 price at the rate of f ifteen percent (15%) per annum from the date of purchase to the dateof redemption, and such payment shall entitle the person paying to the delivery of thecertificate issued to the purchaser and a certificate from the said Revenue District Officer

that he has thus redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed,and said property thereafter shall be free form the lien of such taxes and penalties.

The owner shall not, however, be deprived of the possession of the said property andshall be entitled to the rents and other income thereof until the expiration of the timeallowed for its redemption.

Q: What is the redemption period for properties of a delinquent taxpayer sold at public auction?[NOTE: Make a distinction between properties of a delinquent taxpayer and tax delinquentproperties.]

* The case of City Mayor of Quezon City v. Rizal Commercial Banking Corporation dealt with theinterpretation of the redemption period under RA No. 7160, otherwise known as the 1991 LocalGovernment Code (real property taxes imposed by LGUs), but may be relevant in thedetermination of the starting point of the redemption period provided in the 1997 Tax Code(internal revenue taxes imposed by the National Government).In the above case, the Supreme Court held that: (1) under PD No. 464, or the Real Property TaxCode, the one-year redemption period for tax delinquent properties sold at public auction wascounted from the date of registration of sale of the property; (2) under RA No. 7160, or the 1991Local Government Code, the reckoning point of the redemption period was the date of sale of the

property; and (3) the latter law effectively superseded the older law, such that the redemptionperiod for tax delinquent properties should be counted from the date of sale of the property.However, the Supreme Court likewise took note of the Quezon City Revenue Code of 1993,which provided that the redemption period for tax delinquent properties within the city wascounted from the date of annotation of sale of the property at the proper registry. A special lawprevails over a general law. Thus, the Quezon City Revenue Code of 1993 prevailed over the1991 Local Government Code in that the redemption period in the case at bar was reckoned, notfrom the date of sale of the property, but from the date of annotation of sale of the property at theproper registry.[City Mayor of Quezon City v. Rizal Commercial Banking Corporation, GR No. 171033, 3 August2010.]

Sec. 203, Period of Limitation Upon Assessment and Collection. - Except as provided in Section222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for thefiling of the return, and no proceeding in court without assessment for the collection of such taxes shall be

begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was fi led. For purposes ofthis Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed

on such last day.

Q: Explain the statute of limitations on assessment and collection of taxes.

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return, the period of limitation of the right to issue the same should be counted from the filing ofthe amended return. Here, the changes and alterations embodied in the amended returnconstituted substantial ones, i.e., exclusion of certain items from the gross income. Thus, theCIR’s deficiency assessment was not barred by prescription.[CIR v. Phoenix Assurance Co., Ltd., GR No. L-19727, 20 May 1965.]

Q: What constitutes a valid assessment?

* In CIR v. Pascor Realty and Development Corporation, it was said that an assessment not onlycontains a computation of tax liabilities, but also a demand for payment within a prescribedperiod. It signals the time when penalties and interests begin to accrue against the taxpayer.The Supreme Court ruled that the BIR examiners’ Joint Affidavit, which was attached to thecriminal complaint filed with the Department of Justice against the taxpayer, did not constitute anassessment. The Joint Affidavit served the purpose of supporting and substantiating the criminalcomplaint for tax evasion, and was not meant to be a notice of the tax due and a demand to thetaxpayer for payment thereof.[CIR v. Pascor Realty and Development Corporation, GR No. 128315, 29 June 1999.]

** At issue in Adamson v. Court of Appeals was whether the CIR’s recommendation letter for thefiling of a criminal complaint against a taxpayer for fraudulent returns and tax evasion can be

considered a formal assessment. The Supreme Court held that the recommendation letter wasnot equivalent to a formal assessment. “In the context in which it is used in the NIRC, anassessment is a written notice and demand made by the BIR on the taxpayer for the settlement ofa due tax liability that is there definitely set and fixed. A written communication containing acomputation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity tocontest or disprove the BIR examiner’s findings is not an assessment since it is yet indefinite.”[Adamson v. Court of Appeals, GR No. 120935, 21 May 2009.]

*** In Barcelon, Roxas Securities, Inc. v. CIR , the Supreme Court had occasion to say that anassessment is deemed to have been made within the three-year prescriptive period if notice tothat effect was released, mailed, or sent by the CIR to the taxpayer within said period. Receipt bythe taxpayer within the prescriptive period is not necessary. However, the taxpayer shouldactually receive, even beyond the prescriptive period, the assessment notice which was timely

released, mailed, or sent. “While a mailed letter is deemed received by the addressee in theordinary course of mail, this is still merely a disputable presumption subject to controversion, anda direct denial of the receipt thereof shifts the burden upon the party favored by the presumptionto prove that the mailed letter was indeed received by the addressee.”Here, petitioner denied receiving the assessment notice and the CIR failed to present substantialevidence that such notice was indeed mailed or sent by the CIR before his right to assess hadprescribed and that said notice was received by petitioner. Additionally, the Supreme Court ruledthat independent evidence, such as the registry receipt of the assessment notice or a certificationfrom the Bureau of Posts, would be acceptable.[Barcelon, Roxas Securities, Inc. v. CIR, GR No. 157064, 7 August 2006.]

Sec. 204, Authority of the Commissioner to Compromise, Abate and Refund or CreditTaxes. - The Commissioner may –

204(A)  Compromise the payment of any internal revenue tax, when:(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or

(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.The compromise settlement of any tax liability shall be subject to the following minimum amounts:For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic

assessed tax; andFor other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than

the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board whichshall be composed of the Commissioner and the four (4) Deputy Commissioners.

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Q: What is meant by compromise?

* Article 2028 of the Civil Code defines compromise as “an agreement whereby the parties, bymaking reciprocal concessions, avoid litigation or put an end to one already commenced.” Asapplied to taxation, the parties concerned are the taxpayer and the CIR.

Q: When may taxes be subject of a compromise?

* Read RR No. 30-02, as amended by RR No. 08-04, which implements Section 204(A) of the1997 Tax Code on compromise. These RRs identify: (1) cases which may be compromised andexceptions thereto; (2) bases for acceptance of compromise settlement; (3) prescribed minimumpercentages of compromise settlement; (4) documentary requirements; and (5) approvingauthorities of compromise offers. It states in part:

SEC. 2. CASES WHICH MAY BE COMPROMISED. - The following cases may, upontaxpayer’s compliance with the basis set forth under Section 3 of these Regulations, bethe subject matter of compromise settlement, viz:

1. Delinquent accounts;2. Cases under administrative protest after issuance of the Final AssessmentNotice to the taxpayer which are still pending in the Regional Offices, Revenue District

Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement

Service and other offices in the National Office;3. Civil tax cases being disputed before the courts;

4. Collection cases filed in courts;5. Criminal violations, other than those already filed in court or those involvingcriminal tax fraud.

EXCEPTIONS:1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law

that cast doubt on the taxpayer’s obligation to withhold;2. Criminal tax fraud cases confirmed as such by the Commissioner of InternalRevenue or his duly authorized representative;

3. Criminal violations already filed in court;4. Delinquent accounts with duly approved schedule of installment payments;5. Cases where final reports of reinvestigation or reconsideration have been

issued resulting to reduction in the original assessment and the taxpayer is agreeableto such decision by signing the required agreement form for the purpose. On the otherhand, other protested cases shall be handled by the Regional Evaluation Board (REB)

or the National Evaluation Board (NEB) on a case to case basis;6. Cases which become final and executory after final judgment of a court, wherecompromise is requested on the ground of doubtful validity of the assessment; and

7. Estate tax cases where compromise is requested on the ground of financialincapacity of the taxpayer.

SEC. 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT. - TheCommissioner may compromise the payment of any internal revenue tax on thefollowing grounds:

1. Doubtful validity of the assessment. - The offer to compromise a delinquentaccount or disputed assessment under these Regulations on the ground of reasonable

doubt as to the validity of the assessment may be accepted when it is shown that:(a) The delinquent account or disputed assessment is one resulting from a jeopardy assessment (For this purpose, “jeopardy assessment” shall refer to a tax

assessment which was assessed without the benefit of complete or partial audit by anauthorized revenue officer, who has reason to believe that the assessment andcollection of a deficiency tax will be jeopardized by delay because of the taxpayer’s

failure to comply with the audit and investigation requirements to present his books ofaccounts and/or pertinent records, or to substantiate all or any of the deductions,exemptions, or credits claimed in his return); or

(b) The assessment seems to be arbitrary in nature, appearing to be based on presumptions and there is reason to believe that it is lacking in legal and/or factualbasis; or

(c) The taxpayer failed to file an administrative protest on account of the allegedfailure to receive notice of assessment and there is reason to believe that theassessment is lacking in legal and/or factual basis; or

(d) The taxpayer failed to file a request for reinvestigation/reconsideration within 30

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days from receipt of final assessment notice and there is reason to believe that theassessment is lacking in legal and/or factual basis; or

(e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adversedecision of the Commissioner, or his authorized representative, in some cases, within30 days from receipt thereof and there is reason to believe that the assessment is

lacking in legal and/or factual basis; or(f) The assessments were issued on or after January 1, 1998, where the demandnotice allegedly failed to comply with the formalities prescribed under Sec. 228 of the

National Internal Revenue Code of 1997; or(g) Assessments made based on the “Best Evidence Obtainable Rule” and there isreason to believe that the same can be disputed by sufficient and competent evidence;

or(h) The assessment was issued within the prescriptive period for assessment asextended by the taxpayer’s execution of Waiver of the Statute of Limitations the validity

or authenticity of which is being questioned or at issue and there is strong reason tobelieve and evidence to prove that it is not authentic; or(i) The assessment is based on an issue where a court of competent jurisdiction made

an adverse decision against the Bureau, but for which the Supreme Court has notdecided upon with finality.

2. Financial incapacity. - The offer to compromise based on financial incapacity may beaccepted upon showing that:(a) The corporation ceased operation or is already dissolved.

Provided, that tax liabilities corresponding to the Subscription Receivable or Assetsdistributed/distributable to the stockholders representing return of capital at the time of

cessation of operation or dissolution of business shall not be considered forcompromise; or(b) The taxpayer, as reflected in its latest Balance Sheet supposed to be filed withthe Bureau of Internal Revenue, is suffering from surplus or earnings deficit resulting

to impairment in the original capital by at least 50%, provided that amounts payable ordue to stockholders other than business-related transactions which are properlyincludible in the regular “accounts payable” are by fiction of law considered as part of

capital and not liability, and provided further that the taxpayer has no sufficient liquidasset to satisfy the tax liability; or(c) The taxpayer is suffering from a networth deficit (total liabilities exceed total

assets) computed by deducting total liabilities (net of deferred credits and amounts payable to stockholders/owners reflected as liabilities, except business- relatedtransactions) from total assets (net of prepaid expenses, deferred charges, pre- 

operating expenses, as well as appraisal increases in fixed assets), taken from thelatest audited financial statements, provided that in the case of an individual taxpayer,he has no other leviable properties under the law other than his family home; or

(d) The taxpayer is a compensation income earner with no other source of incomeand the family’s gross monthly compensation income does not exceed the levels ofcompensation income provided for under Sec. 4.1.1 of these Regulations, and it

appears that the taxpayer possesses no other leviable or distrainable assets, otherthan his family home; or(e) The taxpayer has been declared by any competenttribunal/authority/body/government agency as bankrupt or insolvent.

The Commissioner shall not consider any offer for compromise settlement on the

ground of financial incapacity of a taxpayer with Tax Credit Certificate (TCC), issuedunder the National Internal Revenue Code of 1997 or Executive Order No. 226, on handor in transit, or with pending claim for tax refund or tax credit with the Bureau ofInternal Revenue, Department of Finance One-Stop-Shop Tax Credit and DutyDrawback Center (Tax Revenue Group or Investment Incentive Group) and/or thecourts, or with existing finalized agreement or prospect of future agreement with any party that resulted or could result to an increase in the equity of the taxpayer at the

time of the offer for compromise or at a definite future time. Moreover, no offer of

compromise shall be entertained unless and until the taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other

general or special laws, and such waiver shall constitute as the authority of theCommissioner to inquire into the bank deposits of the taxpayer.

Presence of circumstances that would place the taxpayer-applicant’s inability to pay inserious doubt can be a ground to deny the application for compromise based onfinancial incapacity of the taxpayer to pay the tax.

[Revenue Regulations No. 30-02, 16 December 2002; Revenue Regulations No. 08-04, 19 May2004.]

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** The issue in Philippine National Oil Company v. Court of Appeals was the validity of thecompromise agreement executed by PNOC and Philippine National Bank pursuant to EO No. 44and the 1977 Tax Code. In ruling that the compromise agreement was invalid, the Supreme Courtcited the following reasons: (1) the tax liabilities of PNOC and PNB could not be compromisedunder EO No. 44; (2) their application for compromise was filed beyond the effectivity of EO No.44; and (3) the compromise was contrary to public policy.[Philippine National Oil Company v. Court of Appeals, GR Nos. 109976 and 112800, 26 April2005.]

Q: Who may compromise taxes?

* The case of Security Bank Corporation v. CIR  dealt with the deficiency documentary stamp taxon Security Bank Corporation’s 1983 sales of securities under repurchase agreements. TheSupreme Court held that under Section 204 of the 1977 Tax Code (even the 1997 Tax Code), theBIR Commissioner had the sole power and authority to compromise taxes. The act of certainrevenue officials in accepting Security Bank Corporation’s offer of payment, without theCommissioner’s stamp of approval, was ultra vires and could not have any valid and binding legaleffect upon the BIR.[Security Bank Corporation v. CIR, GR No. 130838, 22 August 2006.]

Q: May a void assessment serve as basis for a compromise?

* According to CIR v. Reyes, an assessment that fails to inform the taxpayer of the law and thefacts on which it is made is void. As a corollary, a void assessment cannot in turn be used as abasis for the perfection of a tax compromise.In the case at bar, Reyes was not informed in writing of the law and the facts on which theassessment of estate taxes had been made. She was merely notified of the findings by the CIR.Consequently, the Supreme Court said, it would be premature to declare that the compromise onthe estate tax liability had been perfected and consummated, considering the earlierdetermination that the assessment against the estate was void.[CIR v. Reyes, GR No. 159694, 27 January 2006.]

Q: What is a compromise penalty?

* In all cases of criminal violations of the 1997 Tax Code, not involving the commission offraudulent acts, payment of compromise penalties may be suggested to the taxpayer in lieu ofcriminal prosecution. Since compromise penalties are only amounts suggested in settlement ofcriminal liability and may therefore not be imposed on the taxpayer, the violation shall be referredto the appropriate office for criminal action in the event the taxpayer refuses to pay the suggestedcompromise penalty. A compromise penalty shall be paid on top of the deficiency basic tax,surcharge, and interest.On the other hand, cases involving fraud, such as acts committed as means of tax evasion, shallbe referred directly to the appropriate office for criminal action.[Revenue Memorandum Order No. 19-07, 8 August 2007.]

** The imposition of compromise penalty is warranted only when both the taxpayer and the CIRconsented thereto. In Wonder Mechanical Engineering Corporation v. Court of Tax Appeals, theCIR made an assessment against the taxpayer for deficiency sales and percentage taxes, 25%surcharge, and compromise penalties. The Supreme Court affirmed the Court of Tax Appeals’decision in deleting the compromise penalties in the absence of proof that the taxpayer agreed orgave his conformity thereto.[Wonder Mechanical Engineering Corporation v. Court of Tax Appeals, GR Nos. L-22805 and L-27858, 30 June 1975.]

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*** CIR v. First Express Pawnshop Company, Inc. has a similar set of facts. The Supreme Courtaffirmed the Court of Tax Appeals’ decision in deleting the compromise penalty in addition to thedeficiency documentary stamp taxes, in the absence of showing that the taxpayer accepted thesame.[CIR v. First Express Pawnshop Company, Inc., GR Nos. 172045-46, 16 June 2009.]

204(B)  Abate or cancel a tax liability, when:(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or(2) The administration and collection costs involved do not justify the collection of the amount due. All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud.

Q: How is compromise different from abatement?

* In People v. Sandiganbayan, the Supreme Court explained abatement or cancellation of a tax. Itdefined abatement as the “diminution or decrease in the amount of tax imposed,” such that toabate is “to nullify or reduce in value or amount.” The Supreme Court went on to say that: “TheBIR may therefore abate or cancel the whole or any unpaid portion of a tax liability, inclusive ofincrements, if its assessment is excessive or erroneous; or if the administration costs involved donot justify the collection of the amount due. No mutual concessions need be made, because anexcessive or erroneous tax is not compromised; it is abated or canceled. Only correct taxesshould be paid.”

Here, the Supreme Court found that although referred to in the pleadings as a compromise, theagreement between the parties was actually an abatement or a cancellation of an unjust,excessively assessed, and unreasonable tax. Compromise is marked by mutual concessions,whereas in abatement or cancellation, no mutual concessions between the taxpayer and the CIRare made.[People v. Sandiganbayan, GR No. 152532, 16 August 2005.]

204(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refundthe value of internal revenue stamps when they are returned in good condition by the purchaser, and, in hisdiscretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon

 proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writingwith the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty:Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit

or refund. A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal

revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversioninto refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code:Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to theappropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund

be given resulting from availment of incentives granted pursuant to special laws for which no actual paymentwas made.The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and

House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, statingtherein the following facts and information, among others: names and addresses of taxpayers whose cases havebeen the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons

for the exercise of power: Provided, That the said report shall be presented to the Oversight Committee inCongress that shall be constituted to determine that said powers are reasonably exercised and that thegovernment is not unduly deprived of revenues.

Q: Who may file a claim for tax refund or credit under this provision?

* Silkair (Singapore) Pte. Ltd. was involved in a series of claims for tax refund or credit for excisetaxes paid on its purchases of aviation jet fuel from Petron Corporation for different taxableperiods. Silkair’s main argument was that it was exempt from payment of excise tax by virtue ofSection 135(b) of the 1997 Tax Code and Article 4(2) of the RP-Singapore Air Transport Agreement. As between Petron, the seller, and Silkair, the buyer, the latter contended that inreality, it paid the excise taxes due on the transactions because said taxes, being indirect taxes,were made part of the purchase price of the aviation jet fuel.The Supreme Court ruled that based on Section 204(c) of the 1997 Tax Code, the statutorytaxpayer (Petron in this case, being the manufacturer of the aviation jet fuel) was the proper party

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that can claim the refund. Section 204(C) of the 1997 Tax Code states in part: “No credit orrefund of taxes or penalties shall be allowed unless the taxpayer files in writing with theCommissioner a claim for credit or refund within two (2) years after the payment of the tax orpenalty:”[Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 171383, 14 November 2008; Silkair (Singapore) Pte.Ltd. v. CIR, GR No. 184398, 25 February 2010.]

** On the basis of CIR v. Smart Communications, Inc., the person entitled to claim a tax refund isthe taxpayer. However, in case the taxpayer does not file a claim for refund of withholding taxes,the withholding agent may file the claim. For this purpose, the taxpayer and the withholding agentneed not be related parties. In view of the foregoing, Smart Communications, Inc. as withholdingagent was allowed to file the claim for tax refund on behalf of Prism Transactive (M) Sdn. Bhd., aMalaysian corporation.[CIR v. Smart Communications, Inc., GR Nos. 179045-46, 25 August 2010.]

Q: When does the two-year prescriptive period under Section 204 apply? When does it notapply?

* The issue in CIR v. Mirant Pagbilao Corporation revolved around whether MPC was entitled to aclaim for tax refund or credit of unutilized input VAT from 1993 to 1996. In ruling that MPC’s claim

was filed out of time, it applied the two-year prescriptive period under Section 112(A) of the 1997Tax Code (the starting point of which is the close of the taxable quarter when the sales wheremade). Corollarily, the Supreme Court held that the two-year prescriptive period under Section204(C) of the 1997 Tax Code (which commences from the date of payment of the tax), wasinapplicable as it pertained to taxes erroneously or illegally paid.[CIR v. Mirant Pagbilao Corporation, GR No. 172129, 12 September 2008; also, CIR v. AichiForging Company of Asia, Inc., GR No. 184823, 6 October 2010.]

Q: Is a written claim for tax credit or refund always required to be filed?

* In CIR v. Acosta, Acosta sought to refund an overpayment of taxes withheld on hercompensation income in the year 1996. At the time she filed her judicial claim, the 1997 TaxCode was already in effect. At issue was whether her amended return indicating an overpayment

of taxes was sufficient compliance with the requirement of a written claim for refund. TheSupreme Court resolved that the prevailing law at that time was the 1977 Tax Code, not the 1997Tax Code.Under Section 230 of the 1977 Tax Code, a claimant must first file a written claim for refund,categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action incourt.Under Section 204(c) of the 1997 Tax Code, “a return filed showing an overpayment shall beconsidered as a written claim for credit or refund.”Hence, applying the old Tax Code, for failure to file a written claim for refund which consisted of acategorical demand of reimbursement, Acosta’s claim must be denied.[CIR v. Acosta, GR No. 154068, 3 August 2007.]

CHAPTER II - CIVIL REMEDIES FOR COLLECTION OF TAXES

To put the topic of remedies of the government in perspective, read Section 228.

Sec. 228, Protesting of Assessment.  - When the Commissioner or his dulyauthorized representative finds that proper taxes should be assessed, he shall first notifythe taxpayer of his findings: provided, however, That a preassessment notice shall not

be required in the following cases:(a) When the finding for any deficiency tax is the result of mathematical error in thecomputation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amountactually remitted by the withholding agent; or(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable

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withholding tax for a taxable period was determined to have carried over andautomatically applied the same amount claimed against the estimated tax liabilities for

the taxable quarter or quarters of the succeeding taxable year; or(d) When the excise tax due on exciseable articles has not been paid; or(e) When the article locally purchased or imported by an exempt person, such as, but not

limited to, vehicles, capital equipment, machineries and spare parts, has been sold,traded or transferred to non-exempt persons.The taxpayers shall be informed in writing of the law and the facts on which the

assessment is made; otherwise, the assessment shall be void.Within a period to be prescribed by implementing rules and regulations, the taxpayershall be required to respond to said notice. If the taxpayer fails to respond, the

Commissioner or his duly authorized representative shall issue an assessment based onhis findings.Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation within thirty (30) days from receipt of the assessmentin such form and manner as may be prescribed by implementing rules and regulations.Within sixty (60) days from filing of the protest, all relevant supporting documents shall

have been submitted; otherwise, the assessment shall become final.If the protest is denied in whole or in part, or is not acted upon within one hundred eighty(180) days from submission of documents, the taxpayer adversely affected by the

decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days fromreceipt of the said decision, or from the lapse of one hundred eighty (180)-day period;otherwise, the decision shall become final, executory and demandable.

* Upon receipt of a valid Preliminary Assessment Notice (PAN), the taxpayer may respond to andseek clarification of the same.** Upon receipt of a valid Final Assessment Notice (FAN), the taxpayer may protest against it byfiling a request for reconsideration or reinvestigation. Thereafter, the taxpayer must submit allrevelant supporting documents. Failure to protest and submit all relevant supporting documentsshall cause the assessment to become final. At this point, the government may resort to distraint,levy, or judicial proceeding to collect.*** If the taxpayer timely files a protest and such protest is denied (or is not acted upon), thetaxpayer may appeal to the CTA by filing a petition for review. Failure to appeal shall cause theassessment to become final. At this point, the government may resort to distraint, levy, or judicialproceeding to collect.**** The government may also:(1) compromise, abate, or cancel taxes;(2) enforce tax liens;

(3) enforce statutory penal provisions; and(4) enforce forfeiture of property.

Sec. 205, Remedies for the Collection of Delinquent Taxes.  - The civil remedies for the collection ofinternal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:

(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocksand other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levyupon real property and interest in rights to real property; and(b) By civil or criminal action.Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged withthe collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of

where the amount of tax involve is not more than One hundred pesos (P100).The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxessubject of the criminal case as finally decided by the Commissioner.

The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civilor criminal action, including the preservation or transportation of personal property distrained and theadvertisement and sale thereof, as well as of real property and improvements thereon.

Q: For the enforcement and collection of deficiency estate taxes, is the approval of the probatecourt necessary?

* The issue in Marcos v. Court of Appeals was whether the BIR had the authority to collect, by thesummary remedy of levying upon and sale of real properties of the decedent, estate taxdeficiencies, without the cognition and authority of the court sitting in probate over the supposedwill of the deceased. The Supreme Court answered in this wise: “There is nothing in the TaxCode, and in the pertinent remedial laws that implies the necessity of the probate or estate

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The issue was whether the filing of the criminal complaints by the DOJ was premature for lack ofa formal assessment. The Supreme Court held that when fraudulent tax returns are involved, nowSection 222(a) of the 1997 Tax Code says that “a proceeding in court for the collection of suchtax may be filed without assessment, at any time within ten (10) years from discovery of thefalsity, fraud or omission.” An assessment of a deficiency is not necessary to a criminalprosecution for willful attempt to defeat and evade the tax. Here, the Supreme Court said,“[a]rguably, the gross disparity in the taxes due and the amounts actually declared by the privaterespondents constitutes badges of fraud.” The Supreme Court likewise confirmed the applicabilityof and upheld the decision in Ungab v. Cusi .[Adamson v. Court of Appeals, GR No. 120935, 21 May 2009.]

[NOTE: Reconciling these three cases together, it appears that the general rule still is that agross disparity in the taxes due and the amounts actually declared by the taxpayer gives causefor the CIR to pursue his/its criminal prosecution for filing a fraudulent tax return, regardless ofwhether a deficiency assessment has been made.The second case, CIR v. Court of Appeals, was decided differently because the facts surroundingit varied from the situation in Ungab v. Cusi and Adamson v. Court of Appeals. In CIR v. Court of Appeals, there arose a legal question on the proper tax base, i.e., whether it should be the (lower)registered wholesale price or the (higher) actual wholesale price. Otherwise stated, the CIR failedto point to a specific law or rule which required that the tax base must be the (higher) actual

wholesale price, non-compliance of which was tantamount to a criminal violation.]

Sec. 206, Constructive Distraint of the Property of A Taxpayer.  - To safeguard the interest of theGovernment, the Commissioner may place under constructive distraint the property of a delinquent taxpayer orany taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the

Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tendingto obstruct the proceedings for collecting the tax due or which may be due from him.The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having

 possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner whatever, without theexpress authority of the Commissioner.

In case the taxpayer or the person having the possession and control of the property sought to be placed underconstructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting theconstructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnessed,

leave a copy thereof in the premises where the property distrained is located, after which the said property shallbe deemed to have been placed under constructive distraint.

Q: Does a custodian of a distrained property, who is a private individual, become a public officerfor that purpose?

* In Azarcon v. Sandiganbayan, the BIR effected a constructive distraint over the truck owned bya certain Ancla which was in the possession of Azarcon. The latter signed the receipt for thedistrained property. Later, a complaint was filed against Azarcon, a private individual, formalversation of public funds. The issue was whether the Sandiganbayan had jurisdiction over theperson of Azarcon. (The Sandiganbayan generally has jurisdiction over crimes or offensescommitted by: (1) a public officer; and (2) a private individual when the complaint charges thatprivate individual either as a co-principal, accomplice, or accessory of a public officer.) TheSupreme Court ruled in the negative, stating that the BIR’s power to authorize a private individualto act as a depositary or custodian could not be stretched to include the power to appoint him as

a public officer.[Azarcon v. Sandiganbayan, GR No. 116033, 16 February 1997.]

Sec. 207, Summary Remedies. -207(A) Distraint of Personal Property.  - Upon the failure of the person owing any delinquent tax ordelinquent revenue to pay the same at the time required, the Commissioner or his duly authorized representative,if the amount involved is in excess of One million pesos (P1,000,000), or the Revenue District Officer, if theamount involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels or

effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, andinterests in and rights to personal property of such persons ;in sufficient quantity to satisfy the tax, or charge,together with any increment thereto incident to delinquency, and the expenses of the distraint and the cost of the

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subsequent sale. A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by the distraining

officer to the Revenue District Officer, and to the Revenue Regional Director: Provided, That the Commissioner orhis duly authorized representative shall, subject to rules and regulations promulgated by the Secretary ofFinance, upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided,

further, That a consolidated report by the Revenue Regional Director may be required by the Commissioner asoften as necessary.

207(B) Levy on Real Property.  - After the expiration of the time required to pay the delinquent tax ordelinquent revenue as prescribed in this Section, real property may be levied upon, before simultaneously orafter the distraint of personal property belonging to the delinquent. To this end, any internal revenue officerdesignated by the Commissioner or his duly authorized representative shall prepare a duly authenticated

certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. Saidcertificate shall operate with the force of a legal execution throughout the Philippines.Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At

the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the provinceor city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, tohis agent or the manager of the business in respect to which the liability arose, or if there be none, to the

occupant of the property in question.In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to sat isfy his tax delinquency, the

Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint, proceed with the levy on the taxpayer's real property.Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to

the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by theRevenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, Thatthe Commissioner or his duly authorized representative, subject to rules and regulations promulgated by theSecretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy

issued in accordance with the provisions hereof.

Sec. 208, Procedure for Distraint and Garnishment . - The officer serving the warrant of distraint shallmake or cause to be made an account of the goods, chattels, effects or other personal property distrained, a

copy of which, signed by himself, shall be left either with the owner or person from whose possession suchgoods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum

demanded and note of the time and place of sale.Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayerand upon the president, manager, treasurer or other responsible officer of the corporation, company or

association, which issued the said stocks or securities.Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession orunder his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall

be sufficient authority to the person owning the debts or having in his possession or under his control anycredits belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits.Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the

 president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant ofgarnishment, the bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient tosatisfy the claim of the Government.

Sec. 209, Sale of Property Distrained and Disposition of Proceeds.  - The Revenue District Officeror his duly authorized representative, other than the officer referred to in Section 208 of this Code shall,according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the

Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places in themunicipality or city where the distraint is made, specifying; the time and place of sale and the articles distrained.The time of sale shall not be less than twenty (20) days after notice. One place for the posting of such notice shall

be at the Office of the Mayor of the city or municipality in which the property is distrained. At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, orother personal property, including stocks and other securities so distrained, at public auction, to the highest

bidder for cash, or with the approval of the Commissioner, through duly licensed commodity or stock exchanges.In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shalldeliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the

stocks or other securities. Upon receipt of the copy of the bill of sale, the corporation, company or associationshall make the corresponding entry in its books, transfer the stocks or other securities sold in the name of thebuyer, and issue, if required to do so, the corresponding certificates of stock or other securities.

 Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to theowner of the property sold. The expenses chargeable upon each seizure and sale shall embrace only the actualexpenses of seizure and preservation of the property pending ;the sale, and no charge shall be imposed for the

services of the local internal revenue officer or his deputy.

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Sec. 210, Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to theconsummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effectsdistrained shall be restored to the owner.

Sec. 211, Report of Sale to Bureau of Internal Revenue.  - Within two (2) days after the sale, theofficer making the same shall make a report of his proceedings in writing to the Commissioner and shall himself preserve a copy of such report as an official record.

Sec. 212, Purchase by Government at Sale Upon Distraint.  - When the amount bid for the propertyunder distraint is not equal to the amount of the tax or is very much less than the actual market value of the

articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of the nationalGovernment for the amount of taxes, penalties and costs due thereon.Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations

 prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury andaccounted for as internal revenue.

Sec. 213, Advertisement and Sale.  - Within twenty (20) days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable port ion thereof as may be necessary to satisfythe claim and cost of sale; and such advertisement shall cover a period of a least thirty (30) days. It shall beeffectuated by posting a notice at the main entrance of the municipal building or city hall and in public and

conspicuous place in the barrio or district in which the real estate lies and; by publication once a week for three(3) weeks in a newspaper of general circulation in the municipality or city where the property is located. Theadvertisement shall contain a statement of the amount of taxes and penalties so due and the time and place of

sale, the name of the taxpayer against whom taxes are levied, and a short description of the property to be sold. At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance ofthe municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall

determine and as the notice of sale shall specify.Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be enteredupon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional

Director. The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make outand deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and

interest: Provided, however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excessshall be turned over to the owner of the property.The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection,

advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for inthis Code, including; the preservation or transportation in case of personal property, and the advertisement andsubsequent sale, both in cases of personal and real property including improvements found on the latter. In his

monthly collection reports, such advances shall be reflected and supported by receipts.

Sec. 214, Redemption of Property Sold.  - Within one (1) year from the date of sale, the delinquenttaxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the

 public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together withinterest on said purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to thedate of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to

the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property,and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such propertyhas thus been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties.The owner shall not, however, be deprived of the possession of the said property and shall be entitled to therents and other income thereof until the expiration of the time allowed for its redemption.

Sec. 215, Forfeiture to Government for Want of Bidder. - In case there is no bidder for real propertyexposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to theGovernment in satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his

 proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of theRegister of Deeds concerned, upon registration with his office of any such declaration of forfeiture, to transferthe title of the property forfeited to the Government without the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by paying to the Commissioner or the latter's Revenue Collection Off icer the full amount of the taxes and penalt ies,together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall

become absolute.

Sec. 216, Resale of Real Estate Taken for Taxes.  - The Commissioner shall have charge of any realestate obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costsarising under this Code or in compromise or adjustment of any claim therefore, and said Commissioner may,

upon the giving of not less than twenty (20) days notice, sell and dispose of the same of public auction or with

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 prior approval of the Secretary of Finance, dispose of the same at private sale. In either case, the proceeds of thesale shall be deposited with the National Treasury, and an accounting of the same shall rendered to the Chairman

of the Commission on Audit.

Sec. 217, Further Distraint or Levy. - The remedy by distraint of personal property and levy on realty maybe repeated if necessary until the full amount due, including all expenses, is collected.

Sec. 218, Injunction not Available to Restrain Collection of Tax.  - No court shall have the authorityto grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by thisCode.

Q: Explain the government’s policy on injunctions that restrain the collection of taxes.

* On whether the courts can restrain the collection of taxes on the ground that their validity isdisputed by the taxpayer, David v. Ramos answered in the negative. The case provided a surveyof cases discussing the prohibition against injunctions that restrain the collection of taxes,eventually ruling that Courts of First Instance, now Regional Trial Courts, have no jurisdiction torestrain the collection of taxes.[David v. Ramos, GR No. L-4300, 31 October 1951.]

** In  Angeles City v. Angeles Electric Corporation, the ruling of the Supreme Court was that theprohibition on the issuance of a writ of injunction to enjoin the collection of taxes applied only tonational internal revenue taxes, not to local taxes. Section 218 of the 1997 Tax Code does nothave a counterpart provision in the 1991 Local Government Code. Thus, the Supreme Courtupheld the RTC’s decision in ordering the issuance of the writ of preliminary injunction enjoining Angeles City and its City Treasurer from levying, selling, and disposing the properties of AngelesElectric Corporation. However, the High Court likewise noted that injunctions enjoining thecollection of local taxes are frowned upon.[Angeles City v. Angeles Electric Corporation, GR No. 166134, 29 June 2010.]

*** Previously, Section 131 of the 1997 Tax Code exempted from payment of tax all importationsof cigars, cigarettes, distilled spirits, fermented liquors, and wines into the Subic SpecialEconomic Freeport Zone. Section 6 of RA No. 9334, which was enacted in 2005, amendedSection 131 of the 1997 Tax Code, effectively imposing tax on all importations of theabovementioned products in to the Subic Special Economic Freeport Zone.

 At issue in Republic v. Caguioa was the preliminary injunction granted by Judge Caguioa whichstayed the implementation of RA No. 9334. The Supreme Court nullified Judge Caguioa’s ordergranting the preliminary injunction on the ground that no clear case of abuse was established.Moreover, the Supreme Court stated that the suspension of the implementation of the assailedlaw was tantamount to an injunction that restrained the collection of taxes.[Republic v. Caguioa, GR No. 168584, 15 October 2007.]

Sec. 219, Nature and Extent of Tax Lien.  - If any person, corporation, partnership, joint-account(cuentas en participacion), association or insurance company liable to pay an internal revenue tax, neglects or

refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippinesfrom the time when the assessment was made by the Commissioner until paid, with interests, penalties, andcosts that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer:

Provided, That this lien shall not be valid against any mortgagee purchaser or judgment creditor until notice ofsuch lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city wherethe property of the taxpayer is situated or located.

Q: What is the nature of a tax lien?

* Does the lien for internal revenue tax follow the property subject to the tax into the hands of athird party when at the time of transfer, no demand had been made and the purchaser had nonotice of the existence of the lien? In Hongkong & Shanghai Banking Corporation v. Rafferty , theSupreme Court answered in this wise: “When the Hongkong & Shanghai Banking Corporationpurchased and acquired these 2,000 ties in February 1015, there was nothing to show thatPujalte & Co. were delinquent taxpayers [for forest charges]. No public record could be consulted

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to protect the purchaser from loss by reason of the existence of a secret lien. A business ofordinary prudence could not be expected to foresee that the personal property which he hadtaken in satisfaction of a debt was burdened by a tax. On this date, because no demand hadbeen made and because the plaintiff had no notice of the tax, there was no valid subsisting lienupon the ties.”[Hongkong & Shanghai Banking Corporation v. Rafferty, GR No. L-13188, 15 November 1918.]

** In Republic v. Enriquez , the CIR served a warrant of distraint over two barges owned byMaritime Company of the Philippines to satisfy various deficiency taxes of said company. Later,the same two barges were subject to levy on execution by virtue of a civil case filed and wonagainst Maritime Company of the Philippines. The Supreme Court ruled that “the claim of thegovernment predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personalproperty but from the time the tax became due and payable.” Besides, the distraint was madelong before the writ of execution was issued to implement the levy on execution.[Republic v. Enriquez, GR No. L-78391, 21 October 1988.]

*** Related to the previous case, in CIR v. NLRC , the CIR served a warrant of distraint over fourbarges owned by Maritime Company of the Philippines to satisfy various deficiency taxes of saidcompany. Later, the same four barges were levied upon execution to satisfy a judgment for

unpaid wages and other benefits of employees of Maritime Company of the Philippines. Adoptingthe rationale in Republic v. Enriquez , the Supreme Court held that “the claim of the governmentpredicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. Thetax lien attaches not only from the service of the warrant of distraint of personal property but fromthe time the tax became due and payable.” As in the previous case, here, the distraint was alsomade long before the writ of execution was issued to implement the levy on execution.[CIR v. NLRC, GR No. 74965, 9 November 1994.]

Sec. 220, Form and Mode of Proceeding in Actions Arising under this Code.   - Civil andcriminal actions and proceedings instituted in behalf of the Government under the authority of this Code or otherlaw enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the

Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no civil or criminalaction for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filedin court without the approval of the Commissioner.

Sec. 221, Remedy for Enforcement of Statutory Penal Provisions. - The remedy for enforcementof statutory penalties of all sorts shall be by criminal or civil action, as the particular situation may require,subject to the approval of the Commissioner.

Sec. 222, Exceptions as to Period of Limitation of Assessment and Collection of Taxes.222(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax maybe assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any timewithin ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessmentwhich has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or

criminal action for the collection thereof.

Q: Cite instances when the ten-year prescriptive period to assess applies.

* Section 222(a) of the 1997 Tax Code specifies three instances when the running of the three-

year prescriptive period does not apply. They are: (1) filing a false return; (2) filing a fraudulentreturn with intent to evade tax; and (3) failure to file a return. The period within which to assesstax is ten years from discovery of the fraud, falsification, or omission. Thereafter, the CIR hasanother five years to collect.

** In CIR v. Tulio, Tulio failed to file his tax returns (covering percentage taxes) for 1986 and1987. In September 1989, the CIR discovered Tulio’s omission. Two final assessment noticeswere issued in February 1991. The Supreme Court’s ruling was that the two assessments wereissued well within the ten-year prescriptive period.[CIR v. Tulio, GR No. 139858, 25 October. 2005.]

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222(b)  If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both theCommissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may beassessed within the period agreed upon. The period so agreed upon may be extended by subsequent writtenagreement made before the expiration of the period previously agreed upon.

Q: What is a waiver of the statute of limitations? What are the requirements for a valid waiver of

the statute of limitations?

* RMO No. 20-90 and RDAO No. 05-01 set the rules for the proper execution of the waiver. Among these rules are the following:(1) The waiver must be in proper form prescribed by RMO No. 20-90. The phrase “but not after

 ___ [20___],” which indicates the expiry date of the period agreed upon to assess/collect thetax after the regular three-year period of prescription, should be filled up.

(2) The waiver must be signed by the taxpayer himself or his duly authorized representative.(3) The waiver must be duly notarized.(4) The CIR or the revenue official authorized by him must sign the waiver indicating the BIR’s

acceptance and agreement to the waiver, and the date of such acceptance by the BIR shouldbe indicated.

(5) Both the date of execution by the taxpayer and the date of acceptance by the BIR should beprior to the expiration of the period of prescription or before the lapse of the period agreedupon in case a subsequent agreement is executed.

(6) The waiver must be in three copies: the original copy to be attached to the docket of the case,the second copy for the taxpayer, and the third copy for the Office accepting the waiver.

[Revenue Memorandum Order No. 20-90, 4 April 1990; Revenue Delegation Authority Order No.05-01, 2 August 2001.]

** Philippine Journalists, Inc. v. CIR explained the rationale of a waiver of the statute oflimitations, thus: “A waiver of the statute of limitations under the NIRC, to a certain extent, is aderogation of the taxpayers’ right to security against prolonged and unscrupulous investigationsand must therefore be carefully and strictly construed. The waiver of the statute of limitations isnot a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue anassessment and collect the taxes due is extended to a date certain. The waiver does not mean

that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where thelanguage of the document is equivocal. For the purpose of safeguarding taxpayers from anyunreasonable examination, investigation or assessment, our tax law provides a statute oflimitations in the collection of taxes. Thus, the law on prescription, being a remedial measure,should be liberally construed in order to afford such protection. As a corollary, the exceptions tothe law on prescription should perforce be strictly construed.”In this case, the Supreme Court found that the waiver of the statute of limitations was invalid andnot binding for the following reasons: (1) the waiver did not specify a definite agreed datebetween the BIR and the taxpayer within which the former could assess and collect revenuetaxes; (2) it was signed only by a revenue district officer, and not by the CIR; (3) the date ofacceptance by the BIR could not be ascertained; and (4) the taxpayer was not furnished a copy ofthe waiver.[Philippine Journalists, Inc. v. CIR, GR No. 162852, 16 December 2004.]

*** In the case of CIR v. FMF Development Corporation, the corporation filed its annual incometax return in April 1996, followed by an amended return filed the next month. In February 1999,the corporation’s president executed a waiver of the statute of limitations, which would haveextended the assessment period until October 1999. In dispute was the validity of the waiver. TheSupreme Court held that the waiver was incomplete and defective for non-compliance with theprocedures laid down in RMO No. 20-90, to wit: (1) the taxpayer was not furnished a copy of thewaiver; (2) the waiver was signed only by a revenue district officer, and not by the CIR; and (3) itdid not contain the date of acceptance by the BIR. Hence, the waiver did not validly extend theassessment period.

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[CIR v. FMF Development Corporation, GR No. 167765, 30 June 2008.]

**** In CIR v. Kudos Metal Corporation, the CIR was unable to assess Kudos Metal Corporationof its tax liability for the taxable year 1998 within the three-year prescriptive period stated inSection 203 of the 1997 Tax Code. However, the corporation’s accountant executed two Waiversof the Defense of Prescription on different dates. The CIR banked on these waivers to sustain thevalidity of the assessment made against the corporation. The Supreme Court ruled against theCIR as the two waivers were not compliant with the procedures laid down in RMO No. 20-90 andRDAO No. 05-01. Due to the defects in the waivers, the period to assess or collect taxes was notextended. Consequently, the assessments were issued by the CIR beyond the three-year periodand are void.The Supreme Court enumerated the defects in the waivers, thus: (1) the waivers were executedwithout the notarized written authority of the representative to sign the waiver in behalf of thetaxpayer; (2) the waivers failed to indicate the date of acceptance; and (3) the fact of receipt bythe taxpayer of its file copy was not indicated in the original copies of the waivers.[CIR v. Kudos Metal Corporation, GR No. 178087, 5 May 2010.]

222(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years

following the assessment of the tax.

[NOTE: Recall that the government has either 3 years or 10 years to assess. In both cases, thegovernment has 5 years to collect.]

222(d)  Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period

agreed upon in writing before the expiration of the five (5)-year period. The period so agreed upon may beextended by subsequent written agreements made before the expiration of the period previously agreed upon.

222(e)  Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall beconstrued to authorize the examination and investigation or inquiry into any tax return filed in accordance withthe provisions of any tax amnesty law or decree.

Sec. 223, Suspension of Running of Statute of Limitations.  - The running of the Statute ofLimitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levya proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which

the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding incourt and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by theCommissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which atax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in

address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy isduly served upon the taxpayer, his authorized representative, or a member of his household with sufficientdiscretion, and no property could be located; and when the taxpayer is out of the Philippines. [Emphasis supplied.] 

[NOTE: Remember that any suspension of the running of the statute of limitations works to thedetriment of the taxpayer in that the tax authorities are given more time to assess and/or tocollect.]

Q: Cite instances on the suspension or interruption of the running of statute of limitations. [Relatethe following cases to Section 222(c).]

* Bank of the Philippine Islands v. CIR is instructive on the topic of suspension of running of thestatute of limitations on collection. [This case was governed by the provisions of the 1977 TaxCode.] In ruling that the government’s right to collect had already prescribed, the Supreme Courtmade the following points:(1) A request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of theprescriptive periods for the assessment and collection of tax, will not suspend the running thereof.(2) Even in the absence of a waiver, the running of the statute of limitations on assessment andcollection of taxes is considered suspended “when the taxpayer requests for a reinvestigationwhich is granted by the Commissioner.” [Section 223, 1997 Tax Code.]

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(3) A request for reconsideration refers to a plea for a re-evaluation of an assessment on thebasis of existing records without need of additional evidence, while a request for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additionalevidence that a taxpayer intends to present in the reinvestigation.(4) The request for reinvestigation must also be granted by the BIR Commissioner to suspend therunning of the statute of limitations. The burden of proof that the taxpayer’s request forreinvestigation had been actually granted shall be on the BIR Commissioner.(5) The Supreme Court had occasion to discuss the case of CIR v. Suyoc Consolidated MiningCo.  which provides one other exception to the statute of limitations on collection of taxes.Generally, a request for reconsideration or reinvestigation by the taxpayer, in order to suspendthe running of the statute of limitations, must be preceded by a waiver of the statute of limitations. According to CIR v. Suyoc Consolidated Mining Co., even in the absence of waiver, the taxpayermay be estopped from raising the defense of prescription when by his repeated requests orpositive acts, he has induced government authorities to delay collection of the assessed tax.[Bank of the Philippine Islands v. CIR, GR No. 139736, 17 October 2005, citing CIR v. SuyocConsolidated Mining Co., 104 Phil. 819 (1958).]

** Read also CIR v. Philippine Global Communications, Inc. where the Supreme Court said: “Inthis case, where the taxpayer merely filed two protest letters requesting for a reconsideration, andwhere the BIR could not have conducted a reinvestigation because no new or additional evidence

was submitted, the running of statute of limitations cannot be interrupted.” Consequently, thegovernment’s right to collect the alleged deficiency tax was barred by prescription.[CIR v. Philippine Global Communications, Inc., GR No. 167146, 31 October 2006.]

Sec. 224, Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixturesof any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. Theforfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.

Sec. 225, When Property to be Sold or Destroyed. - Sales of forfeited chattels and removable fixturesshall be effected, so far as practicable, in the same manner and under the same conditions as the public noticeand the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment

of taxes.Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used I orabout the illicit production of such articles may, upon forfeiture, be destroyed by order of the Commissioner,

when the sale of the same for consumption or use would be injurious to public health or prejudicial to theenforcement of the law. All other articles subject to excise tax, which have been manufactured or removed in violation of this Code, as

well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purportto be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the Commissioner.Forfeited property shall not be destroyed until at least twenty (20) days after seizure.

Sec. 226, Disposition of Funds Recovered in Legal Proceedings or Obtained fromForfeitures.  - All judgments and monies recovered and received for taxes, costs, forfeitures, fines and penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required tobe paid, and except as specially provided, shall be accounted for and dealt with the same way.

Sec. 227, Satisfaction of Judgment Recovered Against any Internal Revenue Officer.  - Whenan action is brought against any Internal Revenue officer to recover damages by reason of any act done in the

 performance of official duty, and the Commissioner is notified of such action in time to make defense against thesame, through the Solicitor General, any judgment, damages or costs recovered in such action shall be satisfiedby the Commissioner, upon approval of the Secretary of Finance, or if the same be paid by the person used shall

be repaid or reimbursed to him.No such judgment, damages, or costs shall be paid or reimbursed in behalf of a person who has actednegligently or in bad faith, or with willful oppression.

CHAPTER III – PROTESTING AN ASSESSMENT, REFUND, ETC.

Sec. 228, Protesting of Assessment.  - When the Commissioner or his duly authorized representativefinds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided, however,That a preassessment notice shall not be required in the following cases:(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as

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appearing on the face of the return; or(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the

withholding agent; or(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the

estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or(d) When the excise tax due on exciseable articles has not been paid; or(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,

capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required torespond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representativeshall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigationwithin thirty (30) days from receipt of the assessment in such form and manner as may be prescribed byimplementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting

documents shall have been submitted; otherwise, the assessment shall become final.If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days fromsubmission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of

Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty(180)-day period; otherwise, the decision shall become final, executory and demandable.

 Assessment in general

Filing of return Issuance of Letter of Authority (LA)

 Audit

Notice of Informal Conference

Preliminary Assessment Notice (PAN)

Final Assessment Notice (FAN)

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When a Preliminary Assessment Notice is not required  

Filing of return

Final Assessment Notice (FAN)

If protest is denied

Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

Relevant supporting documents are submitted within 60 days

 Appeal to the CTA within 30 days

 Appeal to the CTA En Banc

 Appeal to the Supreme Court

CIR denies protest

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If protest is not acted upon

Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

Relevant supporting documents are submitted within 60 days1 

 Appeal to the CTA within 30 days

 Appeal to the CTA En Banc

 Appeal to the Supreme Court  

1 When the taxpayer files the protest and submits his/her/its supporting documents on the same date, the one hundred

eighty-day period shall be reckoned from such date.

CIR’s inaction for 180 days

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Q: What is a Letter of Authority?

* Section 13 of the 1997 Tax Code provides that: “Subject to the rules and regulations to beprescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue

Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction ofthe district in order to collect the correct amount of tax, or to recommend the assessment of anydeficiency tax due in the same manner that the said acts could have been performed by theRevenue Regional Director himself.” In other words, the Letter of Authority (LA/LOA) is theauthority given to the revenue officer to perform assessment functions.

** A Letter of Authority should cover a taxable period not exceeding one taxable year. Thepractice of issuing LAs covering audit of “unverified prior years” is prohibited. If the audit of ataxpayer shall include more than one taxable period, the other periods shall be specificallyindicated in the LA.[Revenue Memorandum Order No. 43-90, 20 September 1990.]

*** In CIR v. Sony Philippines, Inc., the relevant Letter of Authority covered “the period 1997 andunverified prior years.” However, the deficiency VAT assessment the CIR arrived at was basedon records from January to March 1998. It was the CIR’s contention that the LA, although itstated “the period 1997 and unverified prior years,” should be understood to mean the fiscal yearended 31 March 1998. The Supreme Court held that clearly, the CIR, acting through the revenueofficers, went beyond the scope of their authority as indicated in the LA. Hence, the deficiencyVAT assessment made on the basis thereof must be disallowed.[CIR v. Sony Philippines, Inc., GR No. 178697, 17 November 2010.]

**** Effective 1 July 2010, the manual issuance of LAs has been discontinued. In place thereof,electronic LAs shall be issued through the Letter of Authority Monitoring System (LAMS).

Q: What is a Letter Notice? Is it equivalent to a Letter of Authority?

* A Letter Notice is a discrepancy notice issued by the CIR after conducting data matchingprocesses, informing the taxpayer of findings of discrepancy, e.g., under-declared sales and over-claimed purchases. An LN shall cover only the tax indicated therein on a given particular periodor quarter, e.g., VAT liabilities for 2002 3

rd  quarter. Compared with a Letter of Authority, the

coverage of an LA is more comprehensive than that of an LN.[Revenue Memorandum Order No. 42-2003, 23 October 2003.]

** RMO No. 55-10 provides that a Letter Notice shall be treated as a “notice of audit orinvestigation in the absence of evident error or clear abuse of discretion.” In order to expedite theprocessing of LN cases, the issuance of Notices of Informal Conference may immediatelycommence, even without the prior issuance of Letters of Authority . On the basis of RMO No. 55-10, it appears that an LN is effectively equated to an LA. [NOTE: Relate this revenue issuance toSection 13 of the 1997 Tax Code which essentially states that a revenue officer shall be

authorized to perform assessment functions on the strength of an LA, and not merely an LN.][Revenue Memorandum Order No. 55-10, 11 June 2010.]

Q: What constitutes a valid assessment?

* The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998to informing the taxpayer of not only the law, but also of the facts on which an assessment wouldbe made. In CIR v. Reyes, the Supreme Court spoke of the now mandatory requirement to informthe taxpayer of the law and the facts on which the assessment is made. It said: “To be simply

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informed in writing of the investigation being conducted and of the recommendation for theassessment of the estate taxes due is nothing but a perfunctory discharge of the tax function ofcorrectly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew thelaw and the facts on which the asse