TAX CASE DIGESTS Submitted By: ME R. RABELAS CIR vs. Philippine Global Communication Inc. G.R. No.

167146 October 31, 2006] Facts: Philippine Global (respondent) is a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondents 1990 income tax liability. BIR sent a letter to respondent requesting the latter to present for examination certain records and documents, but respondent failed to present any document. Respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the following day, 22 April 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax. Phil Global filed two letters of protests, in both letters, respondent requested for the cancellation of the tax assessment. More than eight years after the assessment was presumably issued, respondent received from the CIR a Final Decision dated 8 October 2002 denying the respondents protest against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto. CTA rendered a Decision in favor of respondent on 9 June 2004. It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the assessed deficiency income tax. Thus, since more than three years had lapsed from the time Assessment Notice No. 000688-80-7333 was issued, the CIRs right to collect the same has prescribed in conformity with Section 269 of the National Internal Revenue Code of 1977. Issues: (1) Whether or not CIRs right to collect respondents alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977 (2) Whether or not the prescription on assessment was suspended by virtue of the alleged request of reinvestigation by Phil Global Ruling: Petition was denied. The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all. In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission. If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR. The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this

assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the threeyear prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers further illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers, that is for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court. The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, Among the exceptions, and invoked by the CIR as a ground for this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation. Section 6.Protest. - The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation specifying the following particulars: (a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b) Request for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIRs allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable. On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament that the law on the statute of limitations seeks to prevent.

REPUBLIC OF THE PHILS. VS. FERDINAND MARCOS II et.al. GR Nos. 130371 and 130855 August 4, 2009 FACTS: On January 11, 1996, the Regional Trial Court (RTC) of Pasig City Branch 156, acting as a probate court, in Special Proceeding No. 10279, issued an Order[4] granting letters testamentary in solidum to respondents Ferdinand R. Marcos II and Imelda Trinidad Romualdez-Marcos as executors of the last will and testament of the late Ferdinand E. Marcos. On February 5, 1996, respondent Ferdinand Marcos II filed a Compliance stating that he already filed a bond in the amount ofP50,000.00 as directed by the January 11, 1996 RTC Order and that he took his oath as named executor of the will on January 30, 1996. On March 13, 1996, the RTC issued Letters of Administration[7] to BIR Commissioner LiwaywayVinzons-Chato in accordance with an earlier Order dated September 9, 1994, appointing her as Special Administratrix of the Marcos Estate. ISSUE: WHETHER RESPONDENTS IMELDA R. MARCOS AND FERDINAND R. MARCOS II SHOULD BE DISQUALIFIED TO ACT AND SERVE AS EXECUTORS. HELD: The petition is without merit. The failure to file an income tax return is not a crime involving moral turpitude as the mere omission is already a violation regardless of the fraudulent intent or willfulness of the individual. This conclusion is supported by the provisions of the NIRC as well as previous Court decisions which show that with regard to the filing of an income tax return, the NIRC considers three distinct violations: (1) a false return, (2) a fraudulent return with intent to evade tax, and (3) failure to file a return. The same is illustrated in Section 51(b) of the NIRC which reads: (b) Assessment and payment of deficiency tax xxx In case a person fails to make and file a return or list at the time prescribed by law, or makes willfully or otherwise, false or fraudulent return or list x xx. (Emphasis Supplied) Likewise, in Aznar v. Court of Tax Appeals,[41] this Court observed: To our minds we can dispense with these controversial arguments on facts, although we do not deny that the findings of facts by the Court of Tax Appeals, supported as they are by very substantial evidence, carry great weight, by resorting to a proper interpretation of Section 332 of the NIRC. We believe that the proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud, and (3) omission. Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely, "falsity," "fraud" and "omission." Applying the foregoing considerations to the case at bar, the filing of a fraudulent return with intent to evade tax is a crime involving moral turpitude as it entails willfulness and fraudulent intent on the part of the individual. The same, however, cannot be said for failure to file a return where the mere omission already constitutes a violation. Thus, this Court holds that even if the conviction of respondent Marcos II is affirmed, the same not being a crime involving moral turpitude cannot serve as a ground for his disqualification.

JUDY ANNE L. SANTOS VS.PEOPLE OF THE PHIL et.al. GR No. 173176, August 26, 2008 FACTS: On 19 May 2005, then Bureau of Internal Revenue (BIR) Commissioner Guillermo L. Parayno, Jr. wrote to the Department of Justice (DOJ) Secretary Raul M. Gonzales a letter5 regarding the possible filing of criminal charges against petitioner. In said letter, BIR Commissioner Parayno summarized the findings of the investigating BIR officers that petitioner, in her Annual Income Tax Return for taxable year 2002 filed with the BIR, declared an income of P8,033,332.70 derived from her talent fees solely from ABS-CBN; initial documents gathered from the BIR offices and those given by petitioners accountant and third parties, however, confirmed that petitioner received in 2002 income in the amount of at least P14,796,234.70, not only from ABSCBN, but also from other sources, such as movies and product endorsements; the estimated tax liability arising from petitioners underdeclaration amounted to P1,718,925.52, including incremental penalties; the non-declaration by petitioner of an amount equivalent to at least 84.18% of the income declared in her return was considered a substantial underdeclaration of income, which constituted prima facie evidence of false or fraudulent return under Section 248(B)6 of the NIRC, as amended; and petitioners failure to account as part of her income the professional fees she received from sources other than ABS-CBN and her underdeclaration of the income she received from ABS-CBN amounted to manifest violations of Sections 2547 and 255,8 as well as Section 248(B) of the NIRC, as amended. After an exchange of affidavits and other pleadings by the parties, Prosecution Attorney Olivia Laroza-Torrevillas issued a Resolution9 dated 21 October 2005 finding probable cause and recommending the filing of a criminal information against petitioner for violation of Section 255 in relation to Sections 254 and 248(B) of the NIRC, as amended. The said Resolution was approved by Chief State Prosecutor Jovencito R. Zuno. Pursuant to the 21 October 2005 DOJ Resolution, an Information10 for violation of Section 255 in relation to Sections 254 and 248(B) of the NIRC, as amended, was filed with the CTA on 3 November 2005 and docketed as C.T.A. Crim. Case No. 0-012. However, the CTA First Division, after noting several discrepancies in the Information filed, required the State Prosecutor to clarify and explain the same, and to submit the original copies of the parties affidavits, memoranda, and all other evidence on record.11 Consequently, Prosecution Attorney Torrevillas, on behalf of respondent People, submitted on 1 December 2005 a Compliance with Ex Parte Motion to Admit Attached Information.12 Prosecution Attorney Torrevillas moved that the documents submitted be admitted as part of the record of the case and the first Information be substituted by the attached second Information. The second Information13addressed the discrepancies noted by the CTA in the first Information, by now reading thus: In a Resolution14 dated 8 December 2005, the CTA First Division granted the Peoples Ex Parte Motion and admitted the second Information. The CTA First Division then issued on 9 December 2005 a warrant for the arrest of petitioner.15 The tax court lifted and recalled the warrant of arrest on 21 December 2005 after petitioner voluntarily appeared and submitted herself to its jurisdiction and filed the required bail bond in the amount of P20,000.00.16 In a Resolution18 dated 23 February 2006, the CTA First Division denied petitioners Motion to Quash and accordingly scheduled her arraignment on 2 March 2006 at 9:00 a.m. Petitioner filed a Motion for Reconsideration and/or Reinvestigation,19 which was again denied by the CTA First Division in a Resolution20 dated 11 May 2006. Petitioner received a copy of the 11 May 2006 Resolution of the CTA First Division on 17 May 2006. On 1 June 2006, petitioner filed with the CTA en banc a Motion for Extension of Time to File Petition for Review, docketed as C.T.A. EB. CRIM. No. 001. She filed her Petition for Review with the CTA en bancon 16 June 2006. However, in its Resolution21 dated 19 June 2006, the CTA en banc denied petitioners Motion for Extension of Time to File Petition for Review, ratiocinating that:

ISSUE: WHETHER A RESOLUTION OF A CTA DIVISION DENYING A MOTION TO QUASH IS A PROPER SUBJECT OF AN APPEAL TO THE CTA EN BANC UNDER SECTION 11 OF REPUBLIC ACT NO.9282, AMENDING SECTION 18 OF REPUBLIC ACT NO. 1125. HELD: The Court finds no merit in the petitioners assertion. The petition for review under Section 18 of Republic Act No. 1125, as amended, may be new to the CTA, but it is actually a mode of appeal long available in courts of general jurisdiction. Petitioner is invoking a very narrow and literal reading of Section 18 of Republic Act No. 1125, as amended. Indeed, the filing of a petition for review with the CTA en banc from a decision, resolution, or order of a CTA Division is a remedy newly made available in proceedings before the CTA, necessarily adopted to conform to and address the changes in the CTA. There was no need for such rule under Republic Act No. 1125, prior to its amendment, since the CTA then was composed only of one Presiding Judge and two Associate Judges.27 Any two Judges constituted a quorum and the concurrence of two Judges was necessary to promulgate any decision thereof.28 The amendments introduced by Republic Act No. 9282 to Republic Act No. 1125 elevated the rank of the CTA to a collegiate court, with the same rank as the Court of Appeals, and increased the number of its members to one Presiding Justice and five Associate Justices.29 The CTA is now allowed to sit en banc or in two Divisions with each Division consisting of three Justices. Four Justices shall constitute a quorum for sessions en banc, and the affirmative votes of four members of the Court en banc are necessary for the rendition of a decision or resolution; while two Justices shall constitute a quorum for sessions of a Division and the affirmative votes of two members of the Division shall be necessary for the rendition of a decision or resolution.30 In A.M. No. 05-11-07-CTA, the Revised CTA Rules, this Court delineated the jurisdiction of the CTA en banc31 and in Divisions.32 Section 2, Rule 4 of the Revised CTA Rules recognizes the exclusive appellate jurisdiction of the CTA en banc to review by appeal the following decisions, resolutions, or orders of the CTA Division: SEC. 2. Cases within the jurisdiction of the Court en banc. The Court en banc shall exercise exclusive appellate jurisdiction to review by appeal the following: (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies Bureau of Internal Revenue, Bureau of Customs, Department of Finance, Department of Trade and Industry, Department of Agriculture; (2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction; and (3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and penalties claimed is less than one million pesos; (f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs.

(g) Decisions, resolutions or order on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph; x xx. Although the filing of a petition for review with the CTA en banc from a decision, resolution, or order of the CTA Division, was newly made available to the CTA, such mode of appeal has long been available in Philippine courts of general jurisdiction. Hence, the Revised CTA Rules no longer elaborated on it but merely referred to existing rules of procedure on petitions for review and appeals. Given the foregoing, the petition for review to be filed with the CTA en banc as the mode for appealing a decision, resolution, or order of the CTA Division, under Section 18 of Republic Act No. 1125, as amended, is not a totally new remedy, unique to the CTA, with a special application or use therein. To the contrary, the CTA merely adopts the procedure for petitions for review and appeals long established and practiced in other Philippine courts. Accordingly, doctrines, principles, rules, and precedents laid down in jurisprudence by this Court as regards petitions for review and appeals in courts of general jurisdiction should likewise bind the CTA, and it cannot depart therefrom. CIR vs. PASCOR REALTY & DEVT CORP. GR NO. 128315, June 29, 1999 FACTS: It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively. On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private respondents PRDC, et. al. filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability. On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint filed by the Commissioner of Internal Revenue (BIR) against them. In a letter dated May 17, 1995, the CIR denied the urgent request for reconsideration/reinvestigation of the private respondents on the ground that no formal assessment has as yet been issued by the Commissioner. Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271 on July 21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA has no jurisdiction over the subject matter of the petition, as there was no formal assessment issued against the petitioners. The CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to file an answer within thirty (30) days from receipt of said resolution. The CIR received the resolution on January 31, 1996 but did not file an answer nor did she move to reconsider the resolution. ISSUES: Petitioners submit for the consideration of this Court the following issues: (1 Whether or not the criminal complaint for tax evasion can be construed as an assessment. (2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted. (3) Whether or not the CTA can take cognizance of the case in the absence of an assessment.

In the main, the Court will resolve whether the revenue officers Affidavit-Report, which was attached to the criminal Complaint filed with the Department of Justice, constituted an assessment that could be questioned before the Court of Tax Appeals. HELD: The petition is meritorious. Main Issue: Assessment Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal assessment of private respondents tax liabilities. This position is based on Section 205 of the National Internal Revenue Code, which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment. Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection of taxes, but merely a notice that the amount stated therein is due as tax and that the taxpayer is required to pay the same. Thus, qualifying as an assessment was the BIR examiners Joint Affidavit, which contained the details of the supposed taxes due from respondent for taxable years ending 1987 and 1988, and which was attached to the tax evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private respondents request for reinvestigation of the disputed assessment is properly appealable to the CTA. We agree with petitioner. Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers. True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment. The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers Affidavit merely contained a computation of respondents tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. Respondents maintain that an assessment, in relation to taxation, is simply understood to mean: A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls. Even these definitions fail to advance private respondents case. That the BIR examiners Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an

assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof. The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax evasion charges filed, not of an assessment, as shown thus: This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and Development Corporation and for the same to be referred to the Appellate Division in order to give my client the opportunity of a fair and objective hearing. Additional Issues: Assessment Not Necessary Before Filing of Criminal Complaint Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi,[20] petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both. Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, [21] which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

CIR vs. AZUCENA T. REYES; GR No. 159694, January 27, 2006 FACTS: On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot and an old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village, Makati City. On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedents estate (or estate). Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of Authority on March 14, 1997.

On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or heirs) received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest. On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the heirs on the ground that the subject property had already been sold by the decedent sometime in 1990. On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998. OnJanuary 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it. On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise settlement of P1,000,000.00.

In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the subject property would be published. On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000. As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000. On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that x xx the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest. Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No. 6124. On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is issued. [The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIRs] motion. During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their tax liability.

On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or compromise) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000. On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The motion was granted and the hearing was reset to February 6, 2001. On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or NEB). The CTA granted the motion and reset the hearing to February 27, 2001. On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of procedural red tape requiring the initials of four Deputy Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said documents does not vitiate the perfected compromise. Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess] application for compromise with the BIR cannot be considered a perfected or consummated compromise.

ISSUE: The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second, whether the compromise entered into is also valid. HELD: The Petition is unmeritorious. First Issue: Validity of the Assessment Against the Estate The second paragraph of Section 228 of the Tax Code[12] is clear and mandatory. It provides as follows: Sec. 228. Protesting of Assessment. -x xx xxx xxx

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. In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229[13] prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997. First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient under the new law. To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on which the assessment was based. It does not at all conform to the compulsory requirement under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the law. The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes. Second Issue: Validity of Compromise It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners. Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. Ubilex non distinguit, necnosdistingueredebemos. Where the law does not distinguish, we should not distinguish. LASCONA LAND CO., INC, Pet., vs CIR, Respondent GR No. 171251 March 5, 2012 FACTS: In 1998, the CIR issued an Assessment Notice against herein petitioner informing the latter of its alleged deficiency income tax for the year 1993. Petitioner filed a letter protest, but was denied by the OIC, Regional Director, BIR, Makati City, informing the former that the Notice had become 1. Under Section 228, in case of the inaction of the CIR on the protested assessment, the taxpayer has two options, either: (1) file a petition for reviewwith the CTA within 30 days after the expiration of the 180-day period; or (2)await the final decision of the Commissioner on the disputed assessment andappeal such final decision to the CTA within 30 days from the receipt of a copyof such decision.Taxpayer filed a letter protest against the Assessment Notice issued allegingdeficiency income tax for the year 1993. The protest was denied by the RegionalDirector of the BIR for the reason that the case was not elevated to the Court of TaxAppeals as mandated by the provisions of the last paragraph of Section 228 of theTax Code. By virtue thereof, the said assessment notice has become final, executor and demandable. The Supreme Court held that it is not correct to say that theassessment became final and executory by the sole reason that the taxpayer failedto appeal the inaction of the Commissioner within 30 days after the 180-dayreglementary period because in effect, it limited the remedy of the taxpayer underSection 228 of the NIRC to just one, that is - to appeal the inaction of theCommissioner on its protested assessment after the lapse of the 180-day period. 07 - CIR v. Metro Star Superama, Inc. (2010) Sending of a PAN (pre-assessment notice) as required by Section 228 of NIRC is part of due process requirementin the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by thetax authorties. Failure to send the PAN makes CIR tax assessment VOID.

Facts: CIR filed before the Supreme Court a petition for review on certiorari against the CTA-En bancsdecision thatthe assessment made by CIR is Void due to non-service of PAN. CIR assessed Metro Star Superama, Inc (Metrostar) ofdeficiency in valueadded tax and withholding tax for 1999. The following are previous events: On Jan 2001 Regional Director of BIR issued letter of Authority for Revenue Officer to examine Metrostarsbook of account. Due to failure of the latter to present the records a subpoena ducestecum was issued by BIR. On Nov2001, a preliminary 15-day letter was issued to Metrostar wherein BIR stated that a post audit review was held and that itwas found that there was a deficiency in value-added and withholding taxes of around P292,000. On April 11, 2002, Metrostar received Formal Letter of Demand Assessing from Rev. district assessing them P292,000 for deficiency valueaddedand withholding taxes for 1999. With this, Metro star filed a petition for review with CTA wherein the corporationdenied that it received a PAN thus claiming that such assessment made by BIR was not accorded due process. Issues: 1. W/N Metro Star complied with due process requirement of serving PAN before assessment 2. W/N deficiency assessment issued by respondent are void for failure to send PAN Held/Ratio: 1. YES. The Court held that the failure of the respondent to prove receipt of the assessment by the Petitioner leads tothe conclusion that no assessment was issued. Based on jurisprudence, if the taxpayer denies ever having receivedan assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice wasindeed received by the addressee. The onus probandiwas shifted to respondent to prove by contrary evidence thatthe Petitioner received the assessment in the due course of mail. It is essential to prove the fact of mailing is theregistry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by thePetitioner or its authorized representative. In this case, CIR only stated that since FAN (final assessment notice)was served then the PAN should have also been served. CIR, however, failed to support its claim with substantial evidence. With this, the Court held that there was no clear showing that Metrostar actually received the allegedPAN. 2. YES, Section 228 of NIRC clearly requires that taxpayer must first be informed that he is liable for deficiency oftaxes through send of PAN and to proceed heedlessly with tax collection without first establishing a validassessment is violative of ones right for due process. The Court held that the sending of PAN to taxpayer toinform him of the assessment made is but part of the due process requirement in the issuance of deficiency taxassessment the absence of which renders nugatory any assessment made by the tax authority. It is clearly statedin sec 228, that failure to send PAN stating the facts and the law on which the assessment was made, renders theassessment made by CIR void. Commissioner of Internal Revenue v. Azucena Reyes (2006) (informed of basis v. notified of findings) Doctrines: Taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. An invalid assessment notice amounts to lack of due process. An invalid assessment cannot be the basis of a tax compromise. Facts: In 1993, Tancino died and left a house and lot in Dasmarias Village. In 1997, on the basis of an information, the Revenue District of Makati conducted an investigation on Tancinos estate. They issued a Letter of Authority for the regular investigation of the estate tax case. The letter was received by Azucena Reyes, one of Tancinos heirs. On Feb. 1998, a preliminary assessment notice against the estate amounting to P14,580,618.67 was issued by the BIR. On May 1998, the heirs received a Final Assessment (dated April 1998) amounting to P14,912,205.47 inclusive of surcharge and interest. The heirs protested the assessment because the Dasma Property was already sold in 1990 (the property was to be seized for failure to pay tax liabilities). They also proposed several compromises1, pleading financial incapacity, but the BIR rejected the offers. According to the BIR the financial incapacity of the heirs is immaterial as the estate had a total value of P32M. Thus, in 2000, they demanded payment of P18,034,382.13 otherwise,

the property will be auctioned off. The heirs failed to pay and the auction was scheduled. Reyes filed a petition for review in the CTA and applied for the issuance of a writ of preliminary injunction to enjoin the BIR from proceeding with the auction. She assailed that the assessments and investigations were void ab initio. The injunction was issued. Meanwhile, during the pendency of the case, the BIR issued a Rev. Regulation offering delinquent tax payers to compromise liability. The proceedings in the CTA was postponed and Reyes applied for compromise under the Rev. Reg. Reyes paid P1,062,778.20 to the BIR as compromise, however, the compromise was yet to be perfected because the National Evaluation Board (NEB) has not yet approved said compromise. Reyes asked the CTA to declare the compromise perfected but the CTA denied the request, leaving the compromise unapproved. The CTA resumed hearing the petition for review and decided that Reyes should pay P19,504,909.78 as deficiency tax. The CTA said that there could be no valid compromise because the NEB did not approve the application. The CTA also said the assessments were valid because the heirs knew of the findings of the BIR investigation. The CA partly reversed the decision and held that there was no valid assessment and the question on validity of the compromise is still premature. Issues: 1. W/N the assessments were valid. 2. W/N there is a valid compromise under the Revenue Regulation. Held/Ratio: 1. NO. Sec. 228 requires that taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. In the instant case, Reyes was not informed but was merelynotified by the CIR of the findings in the investigation. The requirement of notifying the taxpayers of the findings of the CIR as provided in the old Sec. 229 is now amended by the Tax Reform Act of 1997. Sec. 228 is now the procedure to be followed. When the assessments were sent to the heirs, the amendment was already in effect. Moreover, the Letter of Authority they sent to Reyes was not even notice of the findings but is a mere notice for conducting an investigation. The fact that during this time there was still no regulation issued by the BIR to implement Sec. 228 is of no moment because the law must still be followed even if the RR then existing pertains to the implementation of the old law (Sec 229). The subsequent implementation of a new RR in 1999 should retroact to the time Sec. 228 was promulgated in 1998. The Court also said that a review of the assessments would show lack of basis and insufficiency of figures and deductions. They held that the assessments were arbitrary and based on estimates capriciously arrived at. 2. Because the assessments were VOID, the Court could not decide on whether or not the compromise was valid or not. Commissioner of Internal Revenue v. Pascor Realty and Development Corporation, et al. (1999) Doctrines: Assessment is laying a tax. The word assessment when used in connection with taxation, may have more than one meaning. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay. More commonly, the word assessment means the official valuation of a taxpayers property for purpose of taxation An assessment informs the taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must demand payment of the taxes within a specific period. It is deemed a notice duly sent to the taxpayer. It is considered made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. Facts: BIR Commissioner Jose Ong authorized Revenue Officers Thomas Que, Sonia Estorco and Emmanuel Savellano to examine Pasco Realty and Development Corporation (PRDC) books of accounts and other accounting records. They examined years 1986, 1987, and 1988. They recommended that an assessment be issued in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively. The Commissioner of Internal Revenue filed a criminal complaint in the DOJ against PRDC, its President Rogelio Dio, and its Treasurer VirginaDio. The CIR alleged PRDC evaded taxes amounting to P10,513,671.00. The DOJ subpoenaed PRDC, President Dio and Treasurer Dio. Contesting the complaint, PRDC filed an Urgent Request for Reconsideration/ Reinvestigation of the tax liability. However, in a letter, the CIR denied this because the Commissioner has yet to issue a formal assessment. PRDC filed a petition for review before the Court of Tax Appeals (CTA). CIR filed a Motion to Dismiss claiming that the CTA lacks jurisdiction over the subject matter of the petition due to the absence of a formal assessment. The CTA

denied the motion to dismiss and ordered the CIR to file an answer. Instead of filing an answer or moving to reconsider the resolution, the CIR filed a Petition for Review on Certiorari before the Court of Appeals (CA). It claimed the CTA acted with grave abuse of discretion and without discretion when it considered the affidavit/ report of the revenue officer and the indorsement of the report to the Secretary of Justice as assessment. The CA held that the CTA did not commit grave abuse of discretion when it ruled that the criminal complaint for tax evasion constituted an assessment. The Joint Affidavit of the revenue officers submitted with the criminal complaint already contains sufficient details needed for an assessment. To constitute as an assessment, the following details must be present: kind and amount of tax due, and the period covered. Moreover, the CTA acquired jurisdiction when the CIR denied PRDCs letter concerning the disputing of the assessment. CIR appealed to the SC. Issues: 1. W/N the filing of the criminal complaint with the attached Joint Affidavit can be construed as an assessment. Held/Ratio: 1. NO. There is no specific definition or form of assessment contained in the NIRC and revenue regulations. However, the NIRC provides the specific functions and effects of an assessment. An assessment informs the taxpayer of his liabilities. It must be sent to and received by a taxpayer, and must demand payment of the taxes within a specific period. It is deemed a notice duly sent to the taxpayer. It is considered made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. The taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue. Here, the Joint Affidavit is not an assessment. First, it only contained a computation of PRDCs tax liability. Second, it did not state a demand or a period for payment. Third, it was addressed to the justice secretary and not the taxpayers. Though the Joint Affidavit contains certain details, it continues to remain an assessment because its purpose was merely to support and substantiate the complaint for tax evasion. It was not meant to be a notice of the tax due and a demand of payment to PRDC. Moreover, the fact that it was specifically addressed and sent to the DOJ shows that the CIR intended to file a complaint and not issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. Further, the CIR received a motion for reconsideration of the tax evasion charges and not an assessment. ----------------------Other additional issues: Assessment is not necessary before a criminal complaint may be filed. Section 222 of the NIRC provides that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Procedure on how assessments are issued: Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. The criminal charge need not go through all these. CIR v. FIRST EXPRESS PAWNSHOP (2009) Facts: On December 2001, the CIR assessed several tax deficiencies income tax, VAT, documentary stamp tax and DST along with surcharges against First Express Pawnshop. First Express received the notices on January 3,2001. It filed its written protests to the assessments on February 1, 2001 attaching thereto its General InformationSheet and Balance Sheet. (Relevant fact shown in later part of decision: Apparently, the CIR requested severalother documents loan agreement with lender banks, official receipts of interests received, documentary evidence of donations made, proof of DST payment on subscriptions from First Express after it filed its protest but the latter failed to present them.) The CIR not having responded to the written protests with the 180 days as prescribed by the NIRC, First Express filed petition before the CTA. In its petition, First Express maintained that it was not a lending investor (subject to VAT), its documents were not among those subject to the DST and the pawn tickets it issued were pledges which are subject to tax under section 195. The CIR made a general

opposition that its opposition was valid and binding. First Express in the meantime paid the income tax deficiency. The CTA partially affirmed the assessment of the DST. The CTA en banc affirmed the CTA first division ruling. Issue: Has the assessment reached finality when First Express failed to present the documents demanded by the CIR within 60 days from filing of its protest as prescribed by Section 228 of the NIRC? (The CIR insists that the CTA should not have entertained the petition of First Express because the latter did not submit relevant supporting documents as a requisite to remedy of filing of petition before the said court pursuant to section 228.) Held: First Express complied with the requirement of submitting relevant supporting documents prescribed in section 228 of the NIRC. Hence, the petition was validly entertained by the CTA. Ratio: The SC said that First Express did not fail to file the necessary relevant supporting documents referred to in section 228 of the NIRC. The Court said that First Express attached its GIS and Balance Sheet upon filing of its protest. Also, It said that the CIR cannot insist on requiring First Express to present proof of payment of the DST because the said document does not exist pursuant to the latters claims that it was not liable to pay such in the first place. Finally, the Court said that in referring to relevant supporting documents it must be understood to mean those necessary to support the legal basis in disputing an assessment. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot specify what particular kind of documents the taxpayer has to present otherwise, the taxpayer may be required to present documents that /she cannot submit. First Express having complied with the requirement of section 228 as to submission of relevant supporting documents, the assessment against it did not become final and executor. CIR v. Hantex Trading Co., Inc. (2005) Doctrine: The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The standard is not the form of the record but where it might shed light on the accuracy of the taxpayers return. As a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment. It is to be presumed, however, that such assessment was based on sufficient evidence. Facts: Hantex Trading Co., Inc. is a corporation engaged in the sale of plastic products and importation of synthetic resin and other chemicals for the manufacture of its products. It is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs. In October 1989, Lt. Amoto, Acting Chief of the Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that Hantex had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.97 for the year 1987. The informer based it on the photocopies of 77 Consumption Entries furnished by another informer. The EIIB failed to secure certified copies since the custodian in the Bureau of Customs told them that the original copies had been eaten by termites. The Chief of the Collection Division Merlita Tomas of the Port of Manila could also not authenticate the copies since she did not have the originals. She wrote a letter, merely indicating the entry numbers and the date of release of the imports made by Hantex. The Bureau of Customs Chief of Collection Division Augusto Danganan also could not authenticate the import entries since the originals had also been eaten by termites. He just issued a certification of the entries filed by Hantex. Thus, the EIIB relied on the photocopies and the certifications of Tomas and Danganan and recommended the collection of the tax assessment to the BIR. The BIR conducted an investigation and found out that there was a prima facie case of fraud against Hantex, based on the report of the EIIB. The BIR Commissioner sent a letter dated April 15, 1991 to demand payment of the deficiency income tax of P13,414,226.40 and deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest. Hantex made a protest and stated that since the officers failed to present the original or authenticated copies of the Consumption and Import Entry Accounts. However, the CIR denied the request. The CTA ruled in favor of the BIR and Hantex was ordered to pay. However, the CA reversed the decision and ruled that the assessments were unlawful and baseless since the photocopies were not duly authenticated nor verified under oath by the investigators. Issue: 1. W/N the BIRs assessment against Hantex for deficiency income tax and sales tax for the was based on actual facts

Held/Ratio: 1. NO. The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. The court stated that the law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The BIR Commissioner was correct in saying that the best evidence may consist of hearsay evidence. The general rule is that administrative agencies such as the BIR are not bound by the technical rules of evidence. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The BIR, in making a preliminary and final tax deficiency assessment TAXATION II DIGESTS ALS2014B ATTY. BANIQUED ALS2014B 26 of 162 sof against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer. The Court in Collector of Internal Revenue v. Benipayoruled that the assessment must be based on actual facts. The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished by the informer of the EIIB were furnished by another informer. The BIR or the EIIB could have gotten hold of the originals since these are accomplished in several copies. The BIR acted arbitrarily and capriciously in relying on the machine copies of the Consumption Entries. Also, it should not have considered the certifications made by Tomas and Danganan because they did not authenticate the copies of the Consumption Entries. They just indicated in their letters the numbers of the entries and the dates of release of the imports. CIR v. Kudos Metal Corporation (2010) Facts: Pursuant to a Letter of Authority dated September 7, 1999, the BIR served upon Kudos Metal Corp Notices of Presentation of Records. Kudos failed to comply with these notices. Hence, the BIR issued a SubpeonaDucesTecum dated September 21, 2006. On December 10, 2001, Kudos accountant, executed a Waiver of the Defense of Prescription. This was followed by a second Waiver of Defense of Prescription on February 18, 2003. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices. CTA Division Right to assess has prescribed. Issues of the first waiver: Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves more than P1,000,000. The waiver failed to indicate the date of acceptance. The fact of receipt by the taxpayer of his file copy was not indicated on the original copy. CTA En Banc Agreed only to the second and third grounds. Issue: 1. Whether the right of the government to assess has expired. Held/Ratio: 1. Yes. An assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are provided under Section 222of the NIRC. The period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01issued on August 2, 2001 lay down the procedure for the proper execution of the waiver.7 The first waiver had the following infirmities: 7. 1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but not after ______ 19 ___, which indicates the expiry date of the period agreed upon to assess/collect the tax 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. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 6. The waiver must be executed 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. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. 1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent. 2. The waivers failed to indicate the date of acceptance. 3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers. Estoppel does not apply in this case. In another case8, estoppel was applied as an exception to the statute of limitations on collection of taxes and not on the assessment of taxes. There was a finding that the taxpayer made several requests or positive acts to convince the government to postpone the collection of taxes. In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any request to persuade the BIR to postpone the issuance of the assessments. The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayers right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed.

COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE GLOBAL COMMUNICATIONS, INC. 499 SCRA 53 (2006), THIRD DIVISION (Carpio Morales, J.) The wordings of the Temporary Restraining Order suspended the implementation of the E-VAT law in its entirety, but not the collection of 10% VAT on service under the National Internal Revenue Code. By reason of a legislative franchise, Respondent Philippine Global Communications, Inc. (PGCI) constructs, maintains and operates communications system subject to 3% franchise tax under the Tax Code. However, the said provision of the Tax Code on franchise tax was amended by Section 12 of the Expanded Value Added Tax Law (E-VAT Law) which omitted the 3% franchise tax imposed upon a telecommunications company. A Temporary Restraining Order (TRO) was subsequently issued by the Court in the consolidated cases of Tolentino et al. v. Secretary of Finance, et al., ordering all the respondents to cease and desist from enforcing and/or implementing the EVAT Law. By reason of the suspension of the E-VAT Law, PGCI filed a claim for tax refund before Respondent Commission of Internal Revenue (CIR) stating therein that upon the effectivity of the E-VAT Law, it was no longer required to pay the 3% franchise tax. Due to the inaction of CIR, PGCI filed a case against it before the Court of Tax Appeals (CTA). CTA ruled that BIR should refund the 3% to PGCI.

ISSUE: Whether or not PGCI was exempted from paying franchise taxes during the effectivity of the TRO suspending the enforcement of the E-VAT Law

HELD: Under Section 12 of the E-VAT Law, the 3% franchise tax on telephone and/or telegraph systems and radio broadcasting stations to which category PGCI belongs was omitted. Under Section 3 of the E-VAT Law, however, PGCIs sale of services is subject to VAT, thus, under the E-VAT Law, PGCI ceased to be liable to pay the 3% franchise tax. It instead is made liable to pay 10% VAT on sale of services. The effectivity of the E-VAT Law was, however, suspended, by this Court when it issued a TRO pending the resolution of the Tolentino et al. cases challenging the constitutionality of the law. The wording of the order leaves no doubt that what was restrained by the TRO was the implementation of the E-VAT law in its entirety. That the provisions of the Tax Code, prior to their amendment by the E-VAT Law, were to apply in the interim, that is, while the TRO in Tolentino et al. was effective, is clearly reflected in Revenue Memorandum Circular No. 27-94 issued by CIR which directed all internal revenue officers to comply with the following directives, to wit: 3. All VAT and non-VAT persons shall be governed by the provisions of the National Internal Revenue Code prior to its amendment by Republic Act No. 7716 x xxx 5. All other amendments of the NIRC made by RA 7716 shall be considered ineffective until the Supreme Court has declared otherwise. With the issuance of the TRO, the enforcement and/or implementation of the entire E-VAT law was stopped. The abolition of the 3% franchise tax on telecommunications companies, and its replacement by the 10% VAT, was effective and implemented only on January 1, 1996. Thus, PGCIs claim for refund of the franchise tax must fail. To grant a refund of the franchise tax it paid prior to the effectivity and implementation of the VAT would create a vacuum and thereby deprive the government from collecting either the VAT or the franchise tax

CIR vs. Philippine Global Communication Inc. [G.R. No. 167146 October 31, 2006] Facts: Philippine Global (respondent) is a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on 15 April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials to examine the books of account and other accounting records of respondent, in connection with the investigation ofrespondents 1990 income tax liability. BIR sent a letter to respondent requesting the latter to present for examination certain records and documents, but respondent failed to present any document. Respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the following day, 22 April 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency income tax. Phil Global filed two letters of protests, in both letters, respondent requested for the cancellation of the tax assessment. More than eight years after the assessment was presumably issued, respondent received from the CIR a Final Decision dated 8 October 2002 denying the respondents protest against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto. CTA rendered a Decision in favor of respondent on 9 June 2004. It decided that the protest letters filed by the respondent cannot constitute a request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the assessed deficiencyincome tax. Thus, since more than three years had lapsed from the time Assessment Notice No. 000688-80-7333 was

issued, the CIRs right to collect the same has prescribed in conformity with Section 269 of the National Internal Revenue Code of 1977. Issues: (1) Whether or not CIRs right to collect respondents alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977 (2) Whether or not the prescription on assessment was suspended by virtue of the alleged request of reinvestigation by Phil Global Held: Petition was denied. The law prescribed a period of three years from the date the return was actually filed or from the last date prescribed by law for the filing of such return, whichever came later, within which the BIR may assess a national internal revenue tax. However, the law increased the prescriptive period to assess or to begin a court proceeding for the collection without an assessment to ten years when a false or fraudulent return was filed with the intent of evading the tax or when no return was filed at all. In such cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or omission. If the BIR issued this assessment within the three-year period or the ten-year period, whichever was applicable, the law provided another three years after the assessment for the collection of the tax due thereon through the administrative process of distraint and/or levy or through judicial proceedings. The three-year period for collection of the assessed tax began to run on the date the assessment notice had been released, mailed or sent by the BIR. The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not dispute the CIRs claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the threeyear prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. Court has also clarified that the statute of limitations on the collection of taxes should benefit both the Government and the taxpayers further illustrated the harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers, that is for the purpose of expediting the collection of taxes, so that the agency charged with the assessment and collection may not tarry too long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the assessment he is required to pay, whether or not such assessment is well founded and reasonable so that he may either pay the amount of the assessment or contest its validity in court. The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, Among the exceptions, and invoked by the CIR as a ground for this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation. Section 6.Protest. - The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation specifying the following particulars: x xxx For the purpose of protest herein (a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both.

(b) Request for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIRs allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings. The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax. If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable. On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are burdened with the costs of preserving their books and records. This is the predicament that the law on the statute of limitations seeks to prevent. PROTECTORS SERVICES, INC., V CA ET. AL. G.R. No 118176, April 12, 2000 Facts: Petition Protectors Services, Inc., (PSI) is a contractor engaged in recruiting security guards for clients. After an audit investigation, the BIR assessed PSI deficiency percentage taxes including surcharges, penalties and interests of P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985, respectively. On December 7, 1987, respondent CIR sent demand letters for payment of said assessments for 1983 and 1984 on December 10, 1987, but denied receiving the notice of deficiency tax for 1985. Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and 1984 assessments, claiming that gross receipts subject to percentage tax should exclude salaries of the security guards, employers share of SSS, SIF and Medicare contributions. Without formally acting thereon, the BIR sent a follow-up letter dated July 12, 1988 for the settlement of the taxes based on its computation, plus additional documentary stamp taxes of P2,025 on PSIs capitalization for 1983 and 1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the total unsettled tax to P2,851,805.16. On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41 deficiency expanded withholding tax. The following day, PSI filed its second protest for the 1983 and 1984 assessments and included for the first time its protest against the 1985 assessment. On November 9, 1990, the BIR denied the protests stating that salaries of security guards are part of taxable gross receipts for determination of contractors tax. PSI filed a petition for review on December 5, 1990 with the CTA averring that assessments for documentary stamp and expanded withholding taxes and without basis having been paid on July 22, 1988; the period for collection of the 1985 assessment letter therefore, the period to collect the percentage taxes for the first, second and third quarter of 1984 has lapsed, the assessment letter therefore having been sent on December 10, 1987, or beyond 3 years from filing of the quarterly returns, and that the base amount was erroneous since salaries of security guards, employers share of SSS, SIF and medicare contributions should not form part of taxable gross receipts. The CTA dismissed the petition stating that: (1) the assessments were made within the 3-year prescriptive period which should be reckoned from January 20, 1985, the date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the protest letter having filed only on January 12, 1988, or 33 days from December 10, 1987, the request for reinvestigation was filed out of time. On review by the CA, the CTAs

decision was affirmed. Issues: Whether or not the CTA has jurisdiction to act on the petition for review filed before it. Whether or not the assessments against PSI for deficiency percentage tax for 1983 and 1984 were made within the prescriptive period. Whether or not the period for collection of taxes for taxable years 1983, 1984 and 1985 has already prescribed. Whether or not the assessments are correct. Held: An assessment maybe administratively protested within 30 days from receipt thereof; otherwise, the assessment shall become final and unappealable. In this case, PSI received the assessments on December 10, 1987 and protested the 1983 and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the protests were filed out of time and PSI can no longer dispute the correctness of assessment. The CTA correctly dismissed the appeal for lack of jurisdiction. Petitioners contention that the Governments right to assess and collect the 1983, 1984 and 1985 assessments had already prescribed in view of BP700, which reduced the prescriptive period for assessment and collection of internal revenue taxes to 3 yrs, lacks merit BP700 was approved on April 5, 1984. The 3-year prescriptive period for assessment and collection of revenue taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the par 1983 was still covered by the 5-year statutory prescriptive period. The 3-year prescriptive period for assessment of contractors tax should be computed at the time of filing of the final annual percentage tax return, when it can be finally acclaimed if the taxpayer still has an unpaid tax, and not from the tentative quarterly payments. As to the contention that for failure of the BIR to commence collection of the 1983, 1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the governments right to collect the tax has prescribed, the court ruled that the suspension of the running of the statute of limitations for tax collection for the period during which the commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and 60 days thereafter. In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the case to the SC, hoping for a review in the favor. The actions taken by petitioner before the CTA and the SC suspended the running of the statute of limitation. As to the correctness of the assessment, it was held that contractors tax on gross receipts imposed on business agents including private detective watchman agencies, was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term gross receipts means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under the subcontract arrangement. Hence, gross receipts could not be diminished by employers SSS, SIF and medicare contributions. Furthermore, it has been consistently ruled by the BIR that thesalaries paid to security guards should form part of the gross receipts subject to tax. COMMISSIONER OF INTERNAL REVENUE, petitioner vs. PHILIPPINE GLOBAL COMMUNICATIONS, INC., respondent.G.R. no. 144696, August 16, 2006; Carpio, J. This case revolves around the issue on the business tax liability of a franchise grantee during the time that the enforcement of the VAT law is suspended. It must be recalled that R.A. No. 7716 (EVAT) was enacted in 1993 to take effect fifteen (15) days after its complete publication in the Official Gazette or in at least two (2) newspaper of general circulation whichever comes earlier. Having been published earlier in the Malaya and the Journal on May 28, 1994. This law placed all franchise grantees (except water, gas and electric utilities) within the coverage of the VAT. However, the SC issued a TRO on June 30, 1994, enjoining the enforcement and/or implementation of the said law due to consolidated cases filed assailing its constitutionality. (Tolentino, et al. vs. Secretary of Finance). The TRO was only lifted on October 30, 1995 and the EVAT law was implemented beginning January 1, 1996. During the time that the implementation of the EVAT was suspended, respondent continued to pay the franchise tax. Later it filed a claim for refund of these franchise taxes paid (from 2nd quarter of

1994 to 4th quarter of 1995) amounting to P70, 795,150.51. It was the respondents position that the passage of the EVAT law removed them from the ambit of the franchise tax and that the TRO issued in Tolentino et. al. enjoining the enforcement of the said lawdid not have the effect of extending the obligation to pay the 3% franchise tax since the exemption from or removal of liability for said 3% franchise tax under the EVAT law was not an issue in those cases. For failure of the BIR to act on the claim for refund, it was elevated to the CTA. The CTA granted the claim and was affirmed by the CA. Issue: When the franchise tax is replaced by the VAT but the latters enforcement is temporarily enjoined, will this exempt the franchise grantee from any business tax liability? The SC ruled that the abolition of the 3% franchise tax on telecommunication companies, and its replacement by the 10% VAT, was effective and implemented only on January 1, 1996. This means that the abolition and replacement must take place at the same time. Thus, respondents claim for refund must fail. It was further pointed out by the SC that To grant a refund of the franchise it paid prior to the effectivity and implementation of the VAT would create a vacuum and thereby deprive the government from collecting either the VAT or the franchise tax. Exemption from taxes is never presumed. It must be based on positive grant by the legislature in language too clear to be mistaken and too categorical to be misinterpreted. To uphold the right of the government to impose the tax is based on the principle that taxes are the lifeblood of the Government and their prompt and certain availability are an imperious need. (Commissioner vs. Pineda, 21 SCRA 105)