Commissioner of Internal Revenue vs Azucena Reyes

Taxation Contents of a Formal Assessment Notice

FACTS:
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In
1997, a tax audit was conducted on the estate. Meanwhile, the National
Internal Revenue Code (NIRC) of 1997 was passed. Eventually in 1998, the
estate was issued a final assessment notice (FAN) demanding the estate
to pay P14.9 million in taxes inclusive of surcharge and interest; the
estates liability was based on Section 229 of the [old] Tax Code. Azucena
Reyes, one of the heirs, protested the FAN. The Commissioner of Internal
Revenue (CIR) nevertheless issued a warrant of distraint and/or levy.
Reyes again protested the warrant but in March 1999, she offered a
compromise and was willing to pay P1 million in taxes. Her offer was
denied. She continued to work on another compromise but was eventually
denied. The case reached the Court of Tax Appeals where Reyes was also
denied. In the Court of Appeals, Reyes received a favorable judgment.
ISSUE:
Whether or not the formal assessment notice is valid.

HELD:
No. The NIRC of 1997 was already in effect when the FAN was issued.
Under Section 228 of the NIRC, 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 case at bar, the FAN
merely stated the amount of liability to be shouldered by the estate and
the law upon which such liability is based. However, the estate was not
informed in writing of the facts on which the assessment of estate taxes
had been made. The estate was merely informed of the findings of the
CIR. Section 228 of the NIRC being remedial in nature can be applied
retroactively even though the tax investigation was conducted prior to the
laws passage. Consequently, the invalid FAN cannot be a basis of a
compromise, any proceeding emanating from the invalid FAN is void
including the issuance of the warrant of distraint and/or levy.