TAX REMEDIES

TAX ADMINISTRATION AND ENFORCEMENT

IN GENERAL
Agencies involved in tax administration
1. Bureau of Internal Revenue
2. Bureau of Customs
3. Provincial, city and municipal assessors and treasurers
Bureau of Internal revenue
* Headed by the Commissioner and two Deputy Commissioners
* Assistant Commissioners and Division Chiefs
* Regional Directors
* Revenue District Officers
* Revenue Enforcement Officers or Examiners
POWERS OF THE COMMISSIONER OF INTERNAL REVENUE
General powers of the Commissioner of Internal Revenue
1. Interpret tax laws and to decide tax cases.
2. Obtain information and to summon, examine, and take testimony of persons
.
3. Make assessments and prescribe additional requirements for tax administr
ation and enforcement.

Power to interpret tax laws

* The power to interpret the provisions of the NIRC and other tax laws shall be
under the exclusive and original jurisdiction of the Commissioner.
* This power is subject to review by the Secretary of Finance.
Jurisdiction of Commissioner re. tax cases
* The Commissioner has the power to decide:
1. disputed assessments;
2. refunds of the internal revenue taxes, fees, or other charges;
3. penalties imposed in relation thereto; or
4. other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue.
* This is subject to the exclusive appellate jurisdiction of the Court of Tax Ap
peals.
Power of the Commissioner to obtain information, and to summon, examine, and tak
e testimony of persons
* Commissioner has power to obtain information and to summon, examine, and take
testimony of persons in:
1. ascertaining the correctness of any return; or
2. in making a return when none has been made; or
3. in determining the liability of any person for any internal revenue tax;
or
4. in collecting any such liability; or
5. in evaluating tax compliance.
* Such power includes:
1. To examine any book, paper, record or other data which may be relevant o
r material to such inquiry.
2. To obtain on a regular basis from any person other than the person whose
internal revenue tax liability is subject to audit or investigation, or from an
y office or officer of the national and local governments, government agencies a
nd instrumentalities any information.
3. To summon the person liable for tax or required to file a return, or any
officer or employee of such persons, or any person having possession, custody,
or care of the books of accounts and other accounting records, or any other pers
on, to appear before the Commissioner or his duly authorized representative.
4. To take such testimony of the person concerned, under oath, as may be re
levant or material to such inquiry.
5. To cause revenue officers and employees to make a canvass from time to t
ime of any revenue district or region and inquire after and concerning persons t
herein who may be liable to pay any internal revenue tax.
Power of the Commissioner to make assessments and prescribe additional requireme
nts for tax administration and enforcement
1. Examination of returns and determination of the tax due.
2. Assess the proper tax on the best evidence obtainable.
3. Conduct inventory-taking, surveillance and to prescribe presumptive gros
s sales and receipts
4. Issue jeopardy assessments and terminate the taxable period.
5. Prescribe real property values.
6. Inquire into bank deposit accounts.
7. Accredit and register tax agents.
8. Prescribe additional procedural or documentary requirements.

Examination of returns and determination of the tax due

* After the filing of the return, the Commissioner or his duly authorized repres
entative may authorize the examination of any taxpayer and the assessment of the
correct amount of tax.
* However, failure to file a return does not prevent the Commissioner from autho
rizing the examination of the taxpayer.
* Any return, statement or declaration filed in any office authorized to receive
the same shall not be withdrawn.
* However, such may be modified, changed or amended within three (3) years from
the date of their filing provided no notice for audit or investigation for such
return, statement or declaration has been actually served upon the taxpayer.
Assess the proper tax on the best evidence obtainable
* A Commissioner is given the power to assess deficiency tax based on the best e
vidence obtainable:
1. when a report required by law as a basis for the assessment of any natio
nal internal revenue tax shall not be forthcoming within the time limit fixed by
law or rules and regulations; or
2. when there is reason to believe that any such report is false, incomplet
e or erroneous.
* In Bonifacia Sy Po. V. CTA, the Supreme Court upheld the assessment made by th
e Commissioner on the basis of the bottles of wine seized and the sworn statemen
ts of the former employees of the Silver Cup Wine Factory for failure of the lat
ter s proprietor to submit the factory s book of accounts and related records despit
e repeated demands by the BIR.
Conduct inventory-taking, surveillance and to prescribe presumptive gross sales
and receipts
* Commissioner may, at any time during the taxable year, order inventory-taking
of goods of any taxpayer as a basis for determining his internal revenue tax lia
bilities.
* Commissioner may also place the business operations of any person, natural or
juridical, under observation or surveillance if there is reason to believe that
such person is not declaring his correct income, sales or receipts for internal
revenue tax purposes.
* Commissioner may also prescribe presumptive gross sales and receipts in the fo
llowing instances:
1. When it is found that a person has failed to issue receipts and invoices
in violation of the NIRC; or
2. When there is reason to believe that the books of accounts or other reco
rds do not correctly reflect the declarations made or to be made in a return.
* Under the presumptive gross sales or receipts method, the Commissioner, after
taking into account the sales, receipts, income, or other taxable base of other
persons engaged in similar situations or circumstances or after considering othe
r relevant information, prescribe a minimum amount of such gross receipts, sales
, and taxable base.
* Such amount so prescribed shall be prima facie correct for purposes of determi
ning the internal revenue tax liabilities of such person.
Issue jeopardy assessments and terminate the taxable period
* A jeopardy assessment is one issued by the Commissioner if he believes that th
e collection of the tax is in jeopardy due to delay and other causes.
* The Commissioner may issue a jeopardy assessment when it comes to his knowledg
e that a taxpayer is:
1. retiring from business subject to tax; or
2. intending
a. to leave the Philippines; or
b. to remove his property therefrom; or
c. to hide or conceal his property; or
3. performing any act tending to obstruct the proceedings for the collectio
n of the tax for the past or current quarter or year or to render the same total
ly or partly ineffective.
* In such cases, the Commissioner may assess and collect the tax immediately wit
hout the usual formalities. Among others, the Commissioner shall:
1. declare the tax period of such taxpayer terminated any time; and
2. send the taxpayer a notice of such decision together with a request for
the immediate payment of the tax for the period so declared terminated and the t
ax for the preceding year or quarter, or such portion thereof as may be unpaid.
* Said taxes shall be due and payable immediately and shall be subject to all th
e penalties prescribed by law, unless paid within the time fixed in the demand m
ade by the Commissioner.
Prescribe real property values
* Commissioner is empowered to divide the Philippines into different zones or ar
eas and to determine the fair market value of real properties located in each zo
ne or area after consultation with private and public appraisers.
* For purposes of computing any internal revenue tax, the value of the property
shall be, whichever is higher of:
1. the fair market value as determined by the Commissioner; or
2. the fair market value as shown by the schedule of values of the Provinci
al and City Assessors.
Inquire into bank deposit accounts
* Commissioner may inquire into the bank deposits of:
1. a decedent to determine his gross estate; and
2. any taxpayer who has filed an application for compromise of his tax liab
ility by reason of financial incapacity to pay his tax liability.
* There is really no conflict with RA 1405 or the Law on Secrecy of Bank Deposit
s Act in case of compromises due to the financial inability to pay of the taxpay
er since an application for compromise shall not be considered unless and until
the taxpayer waives in writing his privilege under RA 1405. Such waiver constitu
tes the authority of the Commissioner to inquire into the bank deposits of the t
axpayer.
RULE ON ESTOPPEL AND SOME COMPLIANCE REQUIREMENTS
Rule on no estoppel against the government
* It is a settled rule of law that in the performance of its governmental functi
ons, the State cannot be estopped by the neglect of its agents and officers. Now
here is this more true than in the field of taxation. [Commissioner v. Procter a
nd Gamble Co., G.R. No. 66838, April 15, 1988]
* Similarly, estoppel does not apply to deprive the government of its right to r
aise defenses even if these defenses are being raised for the first time on appe
al. [Commissioner v. Procter and Gamble Co., G.R. No. 66838, April 15, 1988] How
ever, this was reversed in a subsequent resolution issued by the Supreme Court i
n the same case. [Commissioner v. Procter and Gamble Co., G.R. No. 66838, Decemb
er 2, 1991, Resolution)]
Estoppel against the taxpayer
* While the principle of estoppel may not be invoked against the government, thi
s is not necessarily true in the case of the taxpayer.
Some compliance requirements
* All corporations, companies, partnerships or persons required by law to pay in
ternal revenue taxes shall keep a journal and a ledger or their equivalents.
* Those earning below P50,000 quarterly may adopt a simplified set of bookkeepin
g records.
* Those earning more than P150,000 quarterly shall have their books of accounts
audited and examined yearly by independent certified public accountants.
* They have option to keep subsidiary books as the needs of their business may r
equire.
* All books or records must be in a native language, English or Spanish, If not,
translate to these languages.
* All the books of accounts, including the subsidiary books and other accounting
records, shall be preserved for a period beginning from the last entry in such
book until the last day prescribed by Section 203 within which the Commissioner
is authorized to make an assessment.
* Said books and records may be examined only once in a taxable year, with some
exceptions.
ASSESSMENT OF INTERNAL REVENUE TAXES

Tax assessment
* An assessment is the official action of an administrative officer in determini
ng the amount of tax due from a taxpayer, or it may be a notice to the effect th
at the amount therein stated is due from a taxpayer as a tax with a demand for p
ayment of the tax or deficiency stated therein.
* An assessment is a finding by the taxing agency that the taxpayer has not paid
his current taxes. It is also a notice to the effect that the amount stated the
rein is due as tax and is a demand for payment thereof.
* The Local Government Code defines assessment as the act or process of determin
ing the value of a property or portion thereof subject to tax, including the dis
covery, listing, classification, and appraisal of properties.
* The BIR assessment is usually embodied in a demand letter or in a BIR form kno
wn as the assessment notice.
Letter of authority
* This is the authority issued by the Revenue Regional Director and given to a r
evenue officer assigned to perform assessment functions to examine taxpayers wit
hin the jurisdiction of the district in order to collect the correct amount of t
ax, or to recommend the assessment of any deficiency tax due in the same manner
that the said acts could have been performed by the Revenue Regional Director hi
mself.
Kinds of assessment
1. Self assessment
2. Deficiency assessment
3. Illegal and void assessment
4. Erroneous assessment
Self assessment
* One in which the tax is assessed by the taxpayer himself.
* The amount of tax is reflected in the tax return that is filed by him and the
tax assessed is paid at the time he files the return. This system of filing of r
eturn and payment of tax is known as the pay-as-you-file system.
* Tax so assessed is known as self assessed tax.
Deficiency assessment
* This is an assessment made by the tax assessor himself whereby the correct amo
unt of the tax is determined after an examination or investigation is conducted.
* The liability is determined and is thereafter assessed for the following reaso
ns:
1. The amount ascertained exceeds that which is shown as the tax by the tax
payer in his return;
2. No amount of tax is shown in the return; or
3. The taxpayer did not file any return at all.
Illegal and void assessment
* This is an assessment wherein the tax assessor has no power to act at all.
Erroneous assessment
* This is an assessment wherein the assessor has the power to assess but errs in
the exercise of the power.
Principles governing tax assessments
1. Assessments are prima facie presumed correct and made in good faith.
2. Assessments should not be based on presumptions but on actual facts.
3. Assessment is discretionary on the Commissioner who cannot therefore be
compelled to assess a tax when he or she believes that there is no basis for suc
h assessment.
4. The authority vested in the Commissioner to assess taxes may be delegate
d. However, it is settled that the power to make final assessments cannot be del
egated.
5. Assessments must be directed to the right party.
Investigative power of the Commissioner; factual basis of assessments
* Inasmuch as assessments are based on facts, the Commissioner is given the powe
r to obtain information which serves as basis for said assessments, and is also
given the means to secure them. [See powers of the Commissioner]
Means employed in the assessment of taxes
1. Examination of returns and determination of the tax due.
2. Assess the proper tax on the best evidence obtainable.
3. Conduct inventory-taking, surveillance and to prescribe presumptive gros
s sales and receipts
4. Issue jeopardy assessments and terminate the taxable period.
5. Prescribe real property values.
6. Inquire into bank deposit accounts.
7. Accredit and register tax agents.
8. Prescribe additional procedural or documentary requirements.
The net worth method
* A very effective method of determining taxable income and the deficiency incom
e tax due thereon is the net worth method or what is otherwise known as the inven
tory method of income tax verification.
* The method is an extension of the accounting principle: Assets minus liabiliti
es equals net worth. The taxpayer s net worth is determined both at the beginning
and at the end of the same taxable year. The increase or decrease in net worth i
s adjusted by adding all non-deductible items and subtracting therefrom non-taxa
ble receipts.
* The legal basis for the use of the net worth method is the authority of the Co
mmissioner to adopt an accounting method that clearly reflects the income.
Conditions for the use of the net worth method
1. That the taxpayer s books do not clearly reflect his income or the taxpaye
r has no books, or if he has books, he refuses to produce them.
2. That there is evidence of a possible source or sources of income to acco
unt for the increases in net worth or the expenditures.
3. That there is a fixed starting point or opening net worth.
4. That the circumstances are such that the method does reflect the taxpaye
r s income with reasonable accuracy and certainty and proper and just additions of
personal expenses and other non-deductible expenditures were made and correct,
fair and equitable credit adjustments were given by way of eliminating non-taxab
le items.
Requisites of a valid assessment
1. Post-reporting notice or notice for an informal conference after the tax
audit.
2. Pre-assessment notice sent to the taxpayer, except in several instances.
3. The taxpayers shall be informed in writing of the law and the facts upon
which the assessment is made.
4. Assessment must be made within the prescriptive period.
Pre-assessment notice
* This is a notice in writing which is sent to the taxpayer at the address indic
ated in his return or at his last known address as stated in his notice of chang
e of address if the Commissioner or his duly authorized representative finds tha
t taxes should be assessed against the taxpayer. As such, the taxpayer is first
notified of said findings before an assessment is issued.

When pre-assessment notice not required

1. When the finding for any deficiency tax is the result of a mathematical
error in the computation of the tax as appearing on the face of the return;
2. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent;
3. When a taxpayer who opted to claim a refund or tax credit of excess cred
itable withholding tax for a taxable period was determined to have carried over
and automatically applied the same amount claimed against the estimated tax liab
ilities for the taxable quarter or quarters of the succeeding taxable year;
4. When the excise tax due on excisable articles has not been paid; or
5. When an article locally purchased or imported by an exempt person, such
as, but not limited to, vehicles, capital equipment, machineries and spare parts
, has been sold, traded or transferred to non-exempt persons.
Deficiency v. delinquency
* Deficiency is the amount by which the tax due exceeds the sum of the amount of
the tax shown on a taxpayer s return plus amounts previously assessed or collecte
d as deficiency, less any credits, refunds, or other payments due the taxpayer,
i.e. the amount a taxpayer is deficient in his tax payments.
* Delinquency is the state of a person upon whom the personal obligation to pay
the tax has been fixed by lawful assessment and he thereafter fails to pay the t
ax within the time prescribed by law.

PERIOD OF LIMITATION UPON ASSESSMENT AND COLLECTION

ASSESSMENT
General Rule
* Assessment shall be made within three (3) years after the last day prescribed
by law for the filing of the return or from the day the return was filed in case
the return was filed beyond the period prescribed by law.
Exceptions
1. Assessment may be made within ten (10) years after the discovery of the
falsity, fraud or omission in the following cases:
a. in case of a false or fraudulent return with intent to evade tax; or
b. failure to file a return.
2. In case the Commissioner and the taxpayer agree in writing to a differen
t period before the expiration of the original prescriptive period. The period s
o agreed upon may be extended by subsequent written agreement before the expirat
ion of the period previously agreed upon.
When is assessment deemed made?
* It is not the issue date of the demand and/or notice that is the reckoning poi
nt in prescription but rather it is the date when the demand letter is released,
mailed or sent to the taxpayer that constitutes an actual assessment.
* The Supreme Court held in a case that so long as the release thereof is effect
ed before prescription sets in, the assessment is deemed made on time even thoug
h the same is actually received by the taxpayer after the expiration of the pres
cription period. [Basilan Estates, Inc. v. Commissioner, 21 SCRA 17] The law doe
s not require that the demand or notice be received within the prescriptive peri
od.
Important considerations on prescription of the government s right to assess taxes
1. Date of filing of tax returns
2. Effect of filing of an amended return
3. Effect of the filing of a wrong return (as if no return filed, thus, 10-
year prescriptive period)
4. Period applicable when the law does not require the filing of a return (
10-year prescriptive period unless taxpayer files a return to enable him to avai
l of the benefit of the three-year prescriptive period)

Amended return
* The Supreme Court held that where the amended return is substantially differen
t from the original return, the right of the Bureau of Internal Revenue to asses
s the tax is counted from the filing of the amended return. [Commisioner v. Phoe
nix Assurance Co., Ltd., L-19127, May 20, 1965]
False v. fraudulent return
* Distinction must be made between false returns due to mistakes, carelessness o
r ignorance and fraudulent returns with intent to evade taxes.
* The fraud contemplated by law is actual and not constructive. It must amount t
o intentional wrong doing with the sole object of avoiding the tax. It necessari
ly follows that a mere mistake cannot be considered as fraudulent intent. Thus,
if both the petitioner and the respondent Commissioner committed mistakes in mak
ing the entries in the returns and the assessment respectively under the invento
ry method of determining tax liability, it would be unfair to treat the mistakes
of the petitioner as tainted with fraud and those of the respondent s tax deficie
ncy for each year from 1946 to 1951, inclusive. [Aznar v. Commissioner, L-20569,
August 23, 1974]
Fraud
* Fraud is a question of fact and the circumstances constituting fraud must be a
lleged and proved.
* Fraud must be a product of a deliberate intent to evade taxes. Hence, mere und
erdeclaration does not necessarily imply fraud.
* Fraud must be actual, not constructive. It must amount to intentional wrong do
ing with the sole purpose of avoiding the tax. A mere mistake cannot be consider
ed as fraudulent intent.
Waiver of the statute of limitations
* Section 222(b) of the NIRC allows the taxpayer and the government to extend by
mutual agreement the prescriptive periods for the assessment and collection of
taxes.
* Such agreement must be in writing.
* The waiver must be executed by the parties before the lapse of the three-year
prescriptive period. A waiver is ineffectual if it is executed beyond the origin
al prescriptive period.
* The extended period may again be extended provided the new period be agreed up
on before the lapse of the extended period.
Procedure for waiver of prescriptive period under RMO 20-90
1. Waiver must be in prescribed form
2. Waiver must be signed by the taxpayer himself or his authorized represen
tative
3. The Commissioner or his duly authorized agent must sign the waiver indic
ating the BIR s acceptance of the waiver
COLLECTION
General Rule
* Collection may be instituted within five (5) years following the assessment of
the tax. [Section 222]
Exception
* A proceeding in court for collection, without assessment, may be instituted wi
thin ten (10) years after the discovery of falsity, fraud, or omission in the ca
se of a false or fraudulent return with intent to evade tax or failure to file a
return. [Section 222(a), NIRC]
When does the three-year prescriptive period start to run?
* The period of limitation to collect is counted from the assessment of the tax.
* Assessment is deemed made at the time the demand or assessment notice has been
sent, released or mailed to the taxpayer.
* The actual sending or release to the taxpayer of the assessment notice or dema
nd is, therefore, necessary in order to determine the actual date when the tax b
eing collected was assessed.

When is the tax deemed collected for purposes of the prescriptive period?
* Collection through summary remedies is effectuated by summary methods when the
government avails of the distraint and levy procedure.
* If collection is to be effected through judicial remedies, the collection of t
he tax is begun by the filing of the complaint with the proper court.
* However, if the decision of the Commissioner on a protested assessment is appe
aled to the Court of Tax Appeals, the collection of the tax is considered begun
when the government files its answer to the taxpayer s petition for review.
May there be a judicial action to collect a tax liability even if there is no pr
evious assessment?
* Yes. A proceeding in court for collection without assessment may be instituted
within ten years after the discovery of falsity, fraud, or omission in the case
of a false or fraudulent return with intent to evade tax or failure to file a r
eturn. [Section 222(a), NIRC]
Prescription of the government s right to recover an erroneously refunded tax
* Same as the three-year prescriptive period for making assessments. [Guagua Ele
ctric Co., Inc. v. Commissioner, 19 SCRA 790]
Suspension of the running of the Statute of Limitations
* The running of the Statute of Limitations provided in Sections 203 and 222 on
the making of assessment and the beginning of distraint or levy or a proceeding
in court for collection, in respect of any deficiency, shall be suspended under
any of the following circumstances:
1. When the Commissioner is prohibited from making the assessment or beginn
ing the distraint or levy or proceeding in court and for sixty (60) days thereaf
ter;
2. When the taxpayer requests for a reinvestigation which is granted by the
Commissioner;
3. When the taxpayer cannot be located in the address given by him in the r
eturn filed upon which a tax is being assessed or collected, unless the taxpayer
has informed the Commissioner of any change in address;
4. When the warrant of distraint or levy is duly served upon the taxpayer,
his authorized representative, or a member of his household with sufficient disc
retion, and no property could be located; and
5. When the taxpayer is out of the Philippines.
Examples when the Commissioner is prohibited from assessing or collecting the ta
x
1. The filing of a petition for review in the Court of Tax Appeals from the
decision of the Commissioner on a protested assessment interrupts the running o
f the prescriptive period for collection. [Republic v. Ker & Co., Ltd., 18 SCRA
207]
2. When the Court of Tax Appeals enjoins the collection of the tax under Se
ction 11 of RA 1125.
Request for reinvestigation which should be granted or acted upon by the Commiss
ioner
* It should be emphasized that a mere request for reinvestigation without any co
rresponding action on the part of the Commissioner does not interrupt the runnin
g of the prescriptive period.
Will an extrajudicial demand on the taxpayer interrupt prescription?
* No. Section 22 of the NIRC enumerates the instances when prescription is inter
rupted. The serving of an extrajudicial demand is not one of them.

REMEDIES OF THE TAXPAYER

IN GENERAL
Remedies of taxpayer
1. Remedy before payment of tax: Protest of assessment
2. Remedy after payment of tax: Claim for tax refund or credit
PROTEST OF ASSESSMENT
Procedure
* Taxpayer may protest administratively the assessment by filing a request for r
econsideration or reinvestigation within thirty (30) days from receipt of the as
sessment.
* Within sixty (60) days from the filing of the protest, taxpayer shall submit a
ll relevant supporting documents, otherwise the assessment becomes final.
* If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer adversely a
ffected by the decision or inaction may appeal to the Court of Tax Appeals withi
n thirty (30) days from receipt of the decision or from the lapse of the one hun
dred eighty (180)-day period; otherwise, the decision shall become final, execut
ory and demandable. [Section 228, NIRC]
* Decision of the Court of Tax Appeals may be appealed to the Court of Appeals t
hrough a verified petition for review within fifteen (15) days from receipt of d
ecision of the CTA. This may be extended for another fifteen (15) days upon prop
er motion and the payment of the full amount of the docket fee before the expira
tion of the reglementary period. No further extension shall be granted except fo
r the most compelling reason and in no case to exceed 15 days. [Section 4, Rule
43, Rules of Court]
* Decision of the Court of Appeals is appealable to the Supreme Court through a
petition for review by certiorari within fifteen (15) days from receipt of the C
A decision.
Disputed assessment
* This is an assessment which has been protested by the taxpayer. Its effect is
to suspend the prescriptive period to collect the tax due.
* Only disputed assessments are appealable to the Court of Tax Appeals. A taxpay
er who received an assessment and who did not protest such assessment cannot fil
e an appeal to the Court of Tax Appeals, as the assessment is not disputed.
Decisions of the Regional Director
* It should be noted that the Regional Director may also render decisions on pro
tests.
* Revenue Regulations 12-85 authorizes appeals to the Court of Tax Appeals from
the decisions of the Regional Directors on administrative protest within the sam
e thirty-day period. Section 7 of Republic Act No. 1125, however, mentions only
decisions of the Commissioner.
* Be that as it may, it is very well within the perimeter of correct procedure i
f the taxpayer, instead of going directly to the Court of Tax Appeals, appeals t
he Regional Director s decision to the Commissioner considering that, after all, i
t is the Commissioner who has the final authority to decide administrative prote
sts.
Two ways of protesting administratively
1. Request for reconsideration: This refers to a plea for re-evaluation of
an assessment on the basis of existing records without need of additional eviden
ce. It may involve a question of fact or law or both.
2. Request for reinvestigation: This refers to a plea for re-evaluation of
an assessment on the basis of newly-discovered or additional evidence. It may al
so involve a question of fact or law or both.
Effect of failure of the taxpayer to file an administrative protest or to appeal
the Commissioner s decision to the Court of Tax Appeals
* The assessment becomes final and unappealable. As such, it makes the assessed
tax collectible.
CLAIMS FOR REFUND AND CREDIT OF TAXES
Refund v. credit
* These are remedies of the taxpayer after payment of the tax.
* Both are modes of recovering taxes which are either erroneously or illegally p
aid to the government.
* Tax refund takes place when there is actually a reimbursement of the tax. In t
ax credit, the government applies the amount determined to be reimbursable, afte
r proper verification, against any sum that may be due and collectible from the
taxpayer.
When may claim for refund or credit be filed?
1. When tax has been erroneously or illegally assessed or collected.
2. When any penalty is claimed to have been collected without authority.
3. When any sum is alleged to have been excessively or in any manner wrongf
ully collected. [Section 229, NIRC]
4. Commissioner is also given the authority to refund the value of internal
revenue stamps when they are returned in good condition by the purchaser and, i
n his discretion, redeem or change unused stamps that have been rendered unfit f
or use and refund their value upon proof of destruction. [Section 204, NIRC]
Nature of erroneously paid or illegally assessed or collected taxes
* There is erroneous payment of taxes when a taxpayer pays under a mistake of fa
ct as for instance in a case where he is not aware of an existing exemption in h
is favor at the time the payment was made. Such payments are held to be not volu
ntary and, therefore, can be recovered or refunded.
* Taxes are illegally collected when payments are made under duress.
Requisites for refund or credit
1. A written claim for refund or credit must first be filed with the Commis
sioner;
2. The claim for refund or credit must be a categorical demand for reimburs
ement; and
3. It must be filed within two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after payment.
Note: Payment under protest is not required. Section 229 of the NIRC provides
that a suit or proceeding for refund or credit may be maintained whether or not
such tax, penalty, or sum has been paid under protest or duress.
When payment under protest required
1. In real property protest cases
2. Protest in customs cases
Why is a written claim for refund necessary?
1. To afford the Commissioner an opportunity to correct the action of subor
dinate officers.
2. To notify the government that the taxes sought to be refunded are under
question and that, therefore, such notice should be borne in mind in estimating
the revenue available for expenditure.
Two things to be established before refund or credit is granted
1. There was an actual collection and receipt by the government of the tax
sought to be recovered. This requires factual proof.
2. There is legal basis for granting the refund or credit.
Procedure for refund or credit
1. File claim in writing with the Commissioner. This is a condition precede
nt before one can file action with the Court of Tax Appeals for refund or credit
.
2. If claim is denied or is not acted upon by the Commissioner, the taxpaye
r must file an appeal to the Court of Tax Appeals within thirty (30) days after
receipt of the decision of the Commissioner.
3. Both the written claim and the appeal to the Court of Tax Appeals must b
e filed within the two-year prescriptive period.
The two-year prescriptive period for overpaid quarterly corporate income tax
* In the case of an overpaid quarterly income tax for corporations, the prescrip
tive period of two years within which a claim for refund should be filed is coun
ted, not from the time the corporation files its quarterly income tax return and
pays the tax thereon, but from the date the final, adjustment return is filed a
fter the end of the taxable year. [Commissioner v. TMX Sales, Inc., 205 SCRA 184
]
Prescriptive period for taxes withheld
* In the case of taxes withheld under the withholding tax system, the two-year p
rescriptive period for refunds is counted not from the date the tax is withheld
and remitted to the Bureau of Internal Revenue but from the end of the taxable y
ear.
Taxes payable in installments
* In cases of taxes which are payable in installments, the two-year prescriptive
period is counted from the payment of the last installment. [Commissioner v. Pa
lanca, 18 SCRA 496]
Suspension of the two-year prescriptive period
* The period for claiming claims for refund is suspended provided two conditions
are present:
1. There is a pending litigation between the two parties, i.e. the governme
nt and the taxpayer as to the proper tax to be paid and of the proper interpreta
tion of the taxpayer s charter in relation to the disputed tax; and
2. The Commissioner in that disputed case agreed to abide by the decision o
f the Supreme Court as to the collection of the tax relative thereto. [Panay Ele
ctric Co. v. Collector, L-10574, May 28, 1958]
Refund without claim
* The Commissioner may, even without a written claim therefor, refund or credit
any tax, where on the face of the return upon which payment was made, such payme
nt appears clearly to have been erroneously made.
Forfeiture of refund and tax credit
* A refund check or warrant which shall remain unclaimed or uncashed within five
(5) years from the date said warrant or check was mailed or delivered shall be
forfeited in favor of the Government and the amount thereof shall revert to the
general fund.
* A tax credit certificate which shall remain unutilized after five (5) years fr
om the date of issue shall, unless revalidated, be considered invalid.
Equitable recoupment
* It is a principle which allows a taxpayer whose claim for refund has been barr
ed due to prescription to recover said tax by setting off the prescribed refund
against a tax that may be due and collectible from him.
* This rule is not applicable in the Philippine jurisdiction.
Legal capacity of withholding agents to claim tax refund
* Corporate withholding agents in the Philippines of non-resident foreign corpor
ations are entitled to claim the refund of excess withholding tax paid on income
of said corporations in the Philippines.
* The Supreme Court ruled that a withholding agent should be allowed to claim th
e tax refund because, under the law, it is the one who is held liable for any vi
olation of the withholding tax law should such a violation occur. [Commissioner
v. Wander Phils., Inc., G.R. No. 68378, April 15, 1988]
Interest on tax refunds
* The rule on this matter is that the government cannot be required to pay inter
est on taxes refunded to the taxpayer. [Sweeney v. Commissioner, L-12178, August
21, 1959]
* Exceptions
1. When the Commissioner acted with patent arbitrariness. Arbitrariness pre
supposes inexcusable or obstinate disregard of legal provisions. [Commissioner v
. Victorias Milling Corp., et.al., L-19667, November 29, 1966]
2. In cases of refunds or credits made after three months from April 15 to
employees for any excess of the taxes withheld, the rate of which is six percent
(6%) per annum. [Section 79, NIRC]

COURT OF TAX APPEALS

Law creating the CTA

* Republic Act No. 1125
Why was the CTA created?
1. To have a centralized body well-versed in tax matters a regular court fo
rming part of the judicial system which could exclusively hear and determine tax
cases.
2. To prevent delay in the disposition of tax cases in view of the backlog
of civil and criminal cases in the regular courts. [Ursal v. Court of Tax Appeal
s, 101 Phil 209]
Nature of the CTA
1. It is a judicial, not merely an administrative, body.
2. It is a court of special jurisdiction and, as such, can only take cogniz
ance of such matters as are clearly within its jurisdiction.
3. It is not governed strictly by the technical rules of evidence.
Organization, quorum and disposition of cases by the CTA
* The CTA is composed of a Presiding Judge and two Associate Judges, each of who
m is appointed by the President from a list of nominees prepared by the Judicial
and Bar Council. Such appointments need no confirmation.
* Any two judges of the CTA shall constitute a quorum and the concurrence of two
judges shall be necessary to promulgate any decision thereof. [Sections 1 and 2
, RA 1125]
* Cases brought before the CTA shall be decided within thirty (30) days after th
e submission thereof for decision, which shall be in writing, stating clearly an
d distinctly the facts and the law on which they are based, and signed by the ju
dges who concurred therewith. [Section 12, RA 1125]. This requirement, however,
is merely directory.
Jurisdiction of the CTA
* CTA shall exercises exclusive appellate jurisdiction to review by appeal the f
ollowing:
1. Decisions of the Commissioner of Internal Revenue involving disputed ass
essments; refunds of internal revenue taxes, fees or other charges; penalties im
posed in relation thereto; or other matters arising under the NIRC or other law
or part of law administered by the Bureau of Internal Revenue.
2. Decisions of the Commissioner of Customs in cases involving liability fo
r customs duties, fees or other money charges; seizure, detention or release of
property affected; fines, forfeitures, or other penalties imposed in relation th
ereto; or other matters arising under the Customs Law or other law or part of la
w administered by the Bureau of Customs. [Section 7, RA 1125]
* Jurisdiction over decisions of the Local Board of Assessment Appeals is now lo
dged with the Central Board of Assessment Appeals.
Necessity of decisions in order to vest the CTA with jurisdiction
* Decisions of either the Commissioner of Internal Revenue or the Commissioner o
f Customs is of the essence in appeal of cases to the CTA for it is axiomatic in
taxation that mere assessments of the Commissioner are not appealable to the CT
A. It is settled that assessments are not decisions of the Commissioner.
* In a case, the Supreme Court held that the word decision in Section 7 of RA 1125
means decisions of the Commissioner on the protest of the taxpayer against the
assessments. Definitely, the word does not signify the assessment itself. [Commi
ssioner v. Villa, L-23988, January 20, 1968]
* In much the same way that mere assessments are not appealable, rulings of the
Commissioner are not likewise appealable to the CTA.
Compromise penalties and the CTA
* Collection of compromise penalties comes within the scope of Section 7 of RA 1
125 which speaks of penalties imposed in relation thereto; and that therefore it f
ollows that the CTA has jurisdiction thereon. [U.S. Life Insurance Co. v. Commis
sioner, CTA Case No. 1267, December 29, 1964]
What decision is appealable?
* When it constitutes the final action taken by him or his authorized deputies w
ith respect to the taxpayer s liability.
* The appealable decision is that letter of denial where the Commissioner not on
ly demanded payment of the amount assessed but wherein he also gave the warning
that in the even the taxpayer failed to pay the same, the Commissioner would be
constrained to enforce the collection thereof by means of the remedies prescribe
d by law. [Surigao Electric Co. v. Court of Tax Appeals, 57 SCRA 523]
* Issuance of a warrant of distraint or levy does not constitute a denial of the
protest or a final action by the Commission on the protest. [Commissioner v. Un
ion Shipping, 85 SCRA 547]
* However, the filing of a judicial action for collection, i.e. criminal and civ
il action during the pendency of an administrative protest, constitutes a denial
of the protest. [Commissioner v. Union Shipping] In such a situation, the taxpa
yer may file an appeal with the Court of Tax Appeals.

Whose decisions are appealable?

* Decisions of the Commissioner of Internal Revenue are by statutory provision a
ppealable to the CTA but it appears that under Revenue Regulations 12-85, decisi
ons of the Regional Director of a revenue region in the BIR are also appealable.
* There is a court ruling to the effect that the decisions of Regional Directors
may be appealed to the CTA. [Fortalez, Jr. v. Collector, Resolution, CTA Case N
o. 1527, December 22, 1964]
* Appeals in customs cases seem to be limited only to decisions of the Commissio
ner of Customs.
Who may appeal to the CTA?
* Any person, association or corporation affected by a decision of the Commissio
ner of Internal Revenue or the Collector of Customs or any Provincial or City Bo
ard of Assessment Appeals may file an appeal in the CTA.
Collection case in RTC while appeal pending in the Court of Tax Appeals
* If the Bureau of Internal Revenue, during the pendency of the appeal in the Co
urt of Tax Appeals, files a civil action in the RTC for collection of the tax li
ability, the taxpayer may file a motion in the RTC for the dismissal of the case
on the ground that there is no basis for collecting the tax due where the asses
sment thereof is still under dispute in the Court of Tax Appeals.
Tax collection not suspended during appeal
* An appeal to the CTA from a decision of the Commissioner shall not suspend the
payment or collection of the tax liability of the taxpayer unless a motion to t
hat effect shall have been presented to the CTA and granted by it on the ground
that such collection jeopardizes the interest of the government and/or the taxpa
yer.
No injunction to restrain tax collection
* General Rule: No court shall have the authority to grant an injunction to rest
rain the collection of any national internal revenue tax, fee or charge imposed
by the NIRC. [Section 218, NIRC]
* Exception: CTA may suspend or restrain the collection of the tax when, in its
opinion, the collection of the tax may jeopardize the interest of the government
and/or the taxpayer. [Section 11, RA 1125]
Requisites for injunction
1. That the collection of the tax may jeopardize the interest of the govern
ment and/or the taxpayer.
2. That the taxpayer is willing to deposit the amount equal to the taxes as
sessed or to file a bond amounting to not more than twice the value of the tax b
eing assessed.
3. That the CTA may issue an injunction only in the exercise of its appella
te jurisdiction.
The thirty-day prescriptive period of appeal
* The thirty-day prescriptive period starts to run from the date the taxpayer re
ceives the appealable decision of the Commissioner.
* The 30-day period is jurisdictional. The failure of the taxpayer to appeal fro
m a decision of the Commissioner on time renders the assessment final, executory
and demandable.
* Requests or motions filed by the taxpayer with the BIR for the reconsideration
of the Commissioner s decision operate to suspend the running of the prescriptive
period of appeal to the CTA.
* However, mere reiterations of previous petitions for reconsideration do not su
spend the running of the prescriptive period. Pro-forma motions, which do not ra
ise new issues, will not suspend the period.
Non-extendibility of the 30-day period through tax refunds
* Where the assessment of a disputed tax has become final and executory on accou
nt of the failure of the taxpayer to appeal within the reglementary 30-day perio
d, the assessment may no longer be disputed through the simple expedient of payi
ng the protested tax and then by subsequently claiming it as a refund within the
period of two years from date of payment.
Interlocutory orders
* Interlocutory orders of the CTA are not appealable.
Appeal from decisions of the CTA
* One motion for reconsideration may be allowed for decisions of the CTA.
* Decisions of the CTA are appealed to the Court of Appeals through a verified p
etition for review. [Sections 1 and 5, Rule 43, Rules of Court]
* Appeals period is fifteen (15) days from receipt of the decision or judgment.
The Court of Appeals may grant an additional period of fifteen (15) days only wi
thin which to the file the petition for review. No further extension shall be gr
anted except for the most compelling reasons and in no case to exceed fifteen (1
5) days. [Section 4, Rule 43, Rules of Court]
Findings of fact of CTA not reviewable
* Findings of fact of the CTA, when supported by substantial evidence, is final.
Damages in CTA proceedings
* Section 16 of RA 1125 provides that where an appeal is found to be frivolous or
that proceedings have been instituted merely for delay, the CTA may assess dama
ges against the appellant in an amount not exceeding P500 which shall be collect
ed in the same manner as fine or other penalties authorized by law.

REMEDIES OF THE GOVERNMENT

IN GENERAL
Remedies of the government
1. Tax lien
2. Compromise
3. Distraint
4. Levy
5. Civil action
6. Criminal action
7. Forfeiture
8. Suspension of business operations in violations of VAT
9. Enforcement of administrative fine
TAX LIEN
Tax lien
* When a taxpayer neglects or refuses to pay his internal revenue tax liability
after demand, the amount so demanded shall be a lien in favor of the government
from the time the assessment was made by the Commissioner until paid with intere
st, penalties, and costs that may accrue in addition thereto, upon all property
and rights to property belonging to the taxpayer. [Section 219, NIRC]
* Lien shall not be valid against any mortgagee, purchaser or judgment creditor
until notice of such lien shall be filed by the Commissioner in the Register of
Deeds of the province or city where the property of the taxpayer is located.
COMPROMISE
Compromise v. abatement
* Unlike compromise which involves a reduction of the taxpayer s liability, abatem
ent of tax means that the entire tax liability of the taxpayer is cancelled.
* Compromise and abatement have different grounds.
Grounds for compromise
1. A reasonable doubt as to the validity of the claim against the taxpayer
exists; or
2. The financial position of the taxpayer demonstrates a clear inability to
pay the assessed tax.
Grounds for abatement
1. When the tax or any portion thereof appears to be unjustly or excessivel
y assessed.
2. When the administration and collection costs involved do not justify the
collection of the amount due.
Compromise of criminal violations
* All criminal violations may be compromised except:
1. those already filed in court; and
2. those involving fraud.
Limitations on compromise
* For cases of financial incapacity, a minimum compromise rate equivalent to 10%
of the basic assessed tax; and
* For other cases, a minimum compromise rate equivalent to 40% of the basic asse
ssed tax.
* Where the basic tax exceeds one million pesos (P1,000,000) or where the settle
ment offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the Evaluation Board which shall be composed of the C
ommissioner and the four Deputy Commissioners.
Delegation of the power of compromise
* The Commissioner may delegate his power to compromise to the Deputy Commission
ers and the Regional Directors subject to such limitations and restrictions as m
ay be imposed under rules and regulations to be promulgated for the purpose.
DISTRAINT AND LEVY
Collection by distraint and levy
* Both are summary administrative enforcement remedies and cannot be availed of
where the amount of tax involved is not more than P100.
* Distraint is enforced on personal property of the taxpayer while levy is enfor
ced on real property.
* In distraint, forfeiture by the government is not provided, while in levy, for
feiture is authorized.
* The taxpayer is not given the right of redemption with respect to distrained p
ersonal property, while such right is granted in case of real property levied up
on and sold, or forfeited, to the government.
* Levy may be made before, simultaneously or after distraint.
Actual v. constructive distraint
* Actual distraint is resorted to when delinquency in the payment sets in, that
is, when at the time required for payment, a person fails to pay his tax obligat
ion. It consists of actual seizure and distraint of personal property of the tax
payer.
* In constructive distraint, no actual delinquency is necessary before it may be
resorted to. It may be availed of in the following instances: a) Taxpayer is re
tiring from business subject to tax; b) He intends to leave the Philippines; c)
He removes his property therefrom; d) He hides or conceals his property; or e) H
e performs any act tending to obstruct the proceedings for collecting the tax du
e or which may be due from him. In addition, constructive distraint may also be
resorted to when the taxpayer is already delinquent.
* Constructive distraint is a preventive remedy whose aim is to forestall a poss
ible dissipation of the taxpayer s asset when delinquency takes place.
* There are different procedures in enforcing actual and constructive distraint.
How to effect constructive distraint?
* It shall be effected by requiring the taxpayer or any person having possession
or control of such property to sign a receipt covering the property distrained
and obligate himself to preserve the same intact and unaltered and not to dispos
e of the same in any manner whatever without the express authority of the Commis
sioner.
* If the taxpayer or any other person refuses or fails to sign the receipt, the
revenue officer effecting the constructive distraint shall proceed to prepare a
list of such property and, in the presence of two witnesses, leave a copy thereo
f in the premises where the property distrained is located, after which the said
property shall be deemed to have been placed under constructive distraint.
Procedure for actual distraint
1. Commencement of distraint proceedings
2. Service of warrant of distraint
3. Notice of sale of distrained property
4. Sale of property distrained
Manner of serving warrant of distraint
1. Goods, chattels, effects or other personal property
The officer serving the warrant of distraint shall make or cause to be m
ade an account of the goods, chattels, effects or other personal property distra
ined, signed by himself, which includes a statement of the sum demanded and note
of the time and place of the sale.
A copy shall be left either with the owner or person from whose possessi
on such goods, chattels, or effects or other personal property were taken, or at
the dwelling of business of such person and with someone of suitable age and di
scretion.
2. Stocks and other securities
Stocks and other securities shall be distrained by serving a copy of the
warrant of distraint upon the taxpayer and upon the president, manager, treasur
er or other responsible officer of the corporation, company or association, whic
h issued the said stocks or securities.
3. Debts and credits
Debts and credits shall be distrained by leaving with the person owing t
he debts or having in his possession or under his control such credits, or with
his agent, a copy of the warrant of distraint.
The warrant of distraint shall be sufficient authority to the person owi
ng the debts or having in his possession or under his control any credits belong
ing to the taxpayer to pay to the Commissioner the amount of such debts or credi
ts.
4. Bank accounts
Bank accounts shall be garnished by serving a warrant of garnishment upo
n the taxpayer and upon the president, manager, treasurer or other responsible o
fficer of the bank.
Upon receipt of the warrant of garnishment, the bank shall turn over to
the Commissioner so much of the bank accounts as may be sufficient to satisfy th
e claim of the Government.
Purchase by government at sale upon distraint
* The Commissioner or his deputy may purchase the property distrained in behalf
of the National Government when:
1. the amount bid for the property under distraint is not equal to the amou
nt of the tax; or
2. the amount is very much less than the actual market value of the article
s offered for sale.
* Property so purchased may be resold by the Commissioner or his deputy.
Procedure on levy of real property
1. Service of warrant of levy
2. Advertisement of the sale
3. Public sale of the property under levy or forfeiture of the property to
the government for want of bidder
4. Redemption of property or consolidation of ownership and title in the pu
rchaser
How to effect levy?
* Internal revenue officer shall prepare a duly authenticated certificate showin
g the name of the taxpayer and the amount of the tax and penalty due from him.
* Such certificate shall operate with the force of a legal execution throughout
the Philippines.
* Levy shall be effected by writing upon said certificate a description of the p
roperty upon which levy is made. At the same time, written notice of the levy sh
all be mailed to or served upon the Register of Deeds of the province or city wh
ere the property is located and upon the delinquent taxpayer, or if he is absent
from the Philippines, to his agent or manager, or to the occupant of the proper
ty in question.
Advertisement of sale
* Posting a notice of sale at least 30 days at the main entrance of the municipa
l or city hall and in a public and conspicuous place in the city or municipality
where the property is located
* Publication once a week for three weeks in a newspaper of general circulation
in the municipality or city where the property is located
Redemption of real property sold
* Delinquent taxpayer have the right to redeem the real property sold by him or
any one for him within one (1) year from the date of sale.
* Taxpayer must pay the amount of public taxes, penalties, and interest from the
date of delinquency to the date of sale, together with interest on said purchas
e price at the rate of 15% per annum from the date of purchase to the date of re
demption.
* The owner shall not, however, be deprived of the possession of the said proper
ty and shall be entitled to the rents and other income thereof until the expirat
ion of the time allowed for its redemption.
Forfeiture to government for want of bidder in sale of real property
* Internal revenue officer conducting the sale of real property levied shall dec
lare the property forfeited to the Government in satisfaction of the claim when:
1. there is no bidder for real property exposed for sale; or
2. the highest bid is for an amount insufficient to pay the taxes, penaltie
s and costs.
Resale of real estate taken for taxes
* The Commissioner shall have charge of any real estate obtained by the Governme
nt in payment or satisfaction of taxes, penalties or costs arising under the NIR
C or in compromise or adjustment of any claim thereof.
* The Commissioner may, upon giving not less than 20 days notice, sell and dispo
se of the said property at public auction or, with the prior approval of the Sec
retary of Finance, dispose of the same at private sale.
FORFEITURE
Forfeiture
* The effect of forfeiture is to transfer the title to the specific thing from t
he owner to the government.
* In case of personal property: The forfeiture of chattels and removable fixture
s of any sort is enforced by seizure and sale or destruction of the specific for
feited property.
* In case of real property: The forfeiture of real property is enforced by a jud
gment of condemnation and sale in a legal action or proceeding, civil or crimina
l, as the case may require.
Forfeiture of property used in unlicensed business or dies used for printing fal
se stamps, etc.
* All chattels, machinery, and removable fixtures of any sort used in the unlice
nsed production of articles subject to excise tax shall be forfeited.
* Dies and other equipment used for the printing or making of any internal reven
ue stamp, label or tag which is in imitation of or purports to be a lawful stamp
, label or tag shall also be forfeited.
Forfeiture of goods illegally stored or removed
* Unless otherwise specifically authorized by the Commissioner, all articles sub
ject to excise tax should not be stored or allowed to remain in a distillery, di
stillery warehouse, bonded warehouse or other place where made, after the tax th
ereon has been paid; otherwise, all such articles shall be forfeited.
* Articles withdrawn from any such place or from customs custody or imported int
o the country without the payment of the required tax shall likewise be forfeite
d.
CIVIL AND CRIMINAL ACTIONS
Civil and criminal actions
* Civil and criminal actions and proceedings instituted in behalf of the Governm
ent under the authority of the NIRC or other law enforced by the Bureau of Inter
nal Revenue shall be brought in the name of the Government of the Philippines an
d shall be conducted by legal officers of the Bureau of Internal Revenue, but no
civil or criminal action for the recovery of taxes or the enforcement of any fi
ne, penalty or forfeiture under this Code shall be filed in court without the ap
proval of the Commissioner. [Section 220, NIRC]
* In a fraud assessment which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or criminal action for the
collection thereof.
Civil action
* Civil action, as a mode of tax collection, is resorted to when a tax liability
becomes collectible.
* Collectibility of a tax arises in the following instances:
1. When a tax is assessed but the assessment becomes final and unappealable
because the taxpayer fails to file an administrative protest.
2. When a protest against the assessment is filed by the taxpayer and a dec
ision is rendered by the Commissioner but said decision becomes final, executory
and demandable for failure of the taxpayer to file an appeal.
* A civil action may also be filed in order to collect the so-called self assess
ed tax.
* No civil action for the recovery of taxes shall be filed without the approval
of the Commissioner.
Insufficient protest allowing collection case
* In Dayrit v. Cruz [L-39910, September 26, 1988], the Supreme Court ruled that
the request for reconsideration cannot be considered as a protest against the as
sessment. According to the Supreme Court, the failure of the heirs to substantia
te their claim against the assessment due to the non-submission of their positio
n paper justified the Commissioner in collecting the estate and inheritance taxe
s in the settlement proceedings.
* In Republic v. Ledesma [L-19759, February 28, 1969], the Supreme Court held th
at the taxpayer s failure to dispute the assessment effectively by complying with
the conditions laid down by the Bureau of Internal Revenue provided a legal basi
s for the government to collect the taxpayer s liability by ordinary civil action.

Is Commissioner required to rule on a pending protest before filing a collection

case?
* No. In Republic v. Liam Tian Teng Sons, Inc. [16 SCRA 584(1966)], the Supreme
Court held that nowhere in the Tax Code is the Commissioner required to rule fir
st on a taxpayer s request for reinvestigation before he can go to court for the p
urpose of collecting the tax assessed. According to the Supreme Court, the legis
lative policy is to give the Commissioner much latitude in the speedy and prompt
collection of taxes because it is on taxation that the government depends to ob
tain the means to carry out its operations.
* Note however that a civil or criminal case is tantamount to a denial of the re
quest for reinvestigation. Thus, the taxpayer may file an appeal with the Court
of Tax Appeals. [Commissioner v. Union Shipping]
Criminal action
* The filing of a criminal action is one of the recognized modes of collecting d
elinquent taxes. Section 105 of the NIRC further states that the judgment in the
criminal case shall not only impose the penalty but shall also order payment of
the taxes subject of the criminal case as finally decided by the Commissioner.
* Criminal action is, however, not resorted to as a collection remedy only. Ther
e are other cases not involving non-payment of taxes where criminal action is ut
ilized.
Important considerations regarding criminal action
1. No criminal action for the recovery of taxes or the enforcement of a fin
e shall be filed in court without the approval of the Commissioner. [Section 220
, NIRC]
2. Criminal actions instituted in behalf of the government under the author
ity of the NIRC or other law enforced by the Bureau of Internal Revenue shall be
brought in the name of the government and shall be conducted by legal officers
of the Bureau of Internal Revenue. [Section 220, NIRC]
3. The acquittal of the taxpayer in a criminal action does not necessarily
result in the exoneration of said taxpayer from his civil liability to pay taxes
.
4. In a criminal action that was instituted against the taxpayer for having
filed a false and fraudulent return and failure to pay taxes, the Supreme Court
held that the subsequent satisfaction of the tax liability by payment or prescr
iption will not operate to extinguish the taxpayer s criminal liability.
Payment of the tax due after apprehension shall not constitute a valid de
fense in any prosecution for violation of any provision of the NIRC or in any ac
tion for forfeiture of untaxed articles. [Section 253, NIRC]
5. Subsidiary imprisonment is provided for in cases of non-payment of the f
ine due to the taxpayer s insolvency but not for failure to pay the tax due to the
taxpayer s insolvency.
Section 280 provides that: If the person convicted for violation of any pr
ovisions of this Code has no property with which to meet the fine imposed upon h
im by the court, or is unable to pay such fine, he shall be subject to a subsidi
ary personal liability.
6. In Ungab v. Cusi, the Supreme Court held that no assessment is required
before a criminal prosecution. This was modified in a later case, Commissioner v
. Court of Appeals, where the Supreme Court ruled that assessment is necessary b
efore the criminal prosecution of Fortune Tobacco. The Supreme Court, however, h
armonized this decision with the earlier one. [See later discussion]
7. In cases of violations committed by associations, partnerships, or corpo
rations, the penalty shall be imposed on the partner, president, general manager
, branch manager, treasurer, officer-in-charge, and employees responsible for th
e violation.
Civil liability in tax criminal cases
* In ordinary criminal cases, the civil liability is incurred by reason of the o
ffender s criminal act.
* In taxation, the civil liability to pay taxes arises not because of any felony
but upon the taxpayer s failure to pay taxes. Criminal liability in taxation aris
es as a result of one s liability to pay his taxes. Consequently, the extinction o
f one s criminal liability does not necessarily result in the extinguishments of h
is civil liability to pay taxes.
* With regard to the tax proper, the state correctly points out in its brief that
the acquittal in the criminal case could not operate to discharge the petitione
r from the duty to pay the tax since that duty is imposed by statute prior to an
d independent of any attempts on the part of the taxpayer to evade payment. The
obligation to pay the tax is not a mere consequence of the felonious acts charge
d in the information, nor is it a mere civil liability derived from crime that w
ould be wiped out by the judicial declaration that the criminal acts charged did
not exist. [Castro v. Collector, 4 SCRA 1093]

Need for assessment before criminal action

Ungab v. Cusi [L-41919-24, May 30,1980}
* Quirico Ungab filed a motion to quash the criminal complaints against him in v
iew of his pending protest against the assessment made by the Bureau of Internal
Revenue. The Supreme Court ruled that his contention is without merit. What is
involved here is not the collection of taxes where the assessment of the Commiss
ioner may be reviewed by the Court of Tax Appeals but a criminal prosecution for
violation of the NIRC which is within the cognizance of the Court of First Inst
ance (now RTC).
* While there can be no civil action to enforce collection before the assessment
procedures in the NIRC have been followed, there is no requirement for the prec
ise computation of the tax before there can be criminal prosecution under the NI
RC.
* A crime is complete when the violator has knowingly and willfully filed a frau
dulent return with intent to evade and defeat the tax.
Commissioner of Internal Revenue v. Court of Appeals (1997)
* Assessment required before criminal prosecution of Fortune for tax evasion can
be pursued.
* The Supreme Court differentiated this case from Ungab v. Cusi by ruling that,
even though this is also a criminal prosecution, there must be a prima facie sh
owing of a willful attempt to evade taxes before one can proceed with such prose
cution. In Ungab, there was willful attempt to evade taxes while, in the case at
bar, there was none, as Fortune was even paying taxes according to the BIR requ
irements. Thus, there is still need for a final determination of the tax due bef
ore criminal prosecution can be commenced against Fortune.

ADDITIONS TO THE TAX

Additions to the tax

* Additions to the tax are increments to the basic tax incident to the taxpayer s
non-compliance with certain legal requirements like the taxpayer s refusal or fail
ure to pay taxes on time and/or violations of taxing provisions in the law.
What are the additions to the tax?
1. Civil penalty or surcharge
2. Interest
3. Other civil penalties and administrative fines
Civil penalty or surcharge
* The civil penalty or surcharge may either be 25% or 50% of the tax depending o
n the nature of the violation.
* The payment of the surcharge is mandatory and the Commissioner is not vested w
ith any authority to waive or dispense with the collection thereof.
* An extension of time to pay taxes granted by the Commissioner does not excuse
payment of the surcharge.
* The 50% surcharge is not a criminal penalty but a civil or administrative sanc
tion provided primarily as a safeguard for the protection of the State revenue a
nd to reimburse the government for the heavy expense of investigation and the lo
ss resulting from the taxpayer s fraud.
Cases where the civil penalties or surcharges are imposed
1. 25%
a. Failure to file any return and to pay the tax due thereon as required by
the NIRC or rules
b. Filing a return with an internal revenue officer other than those with w
hom the return is required to be filed.
c. Failure to pay the deficiency tax within the time prescribed for its pay
ment in the notice of assessment.
d. Failure to pay the full or part of the amount of tax shown on any return
, or the full amount of tax due for which no return is required to be filed, on
or before the date prescribed for its payment.
2. 50%
a. In case of willful neglect to file the return within the period prescrib
ed by the NIRC or rules
b. In case a false or fraudulent return is willfully made
Substantial underdeclaration or overdeclaration
* A substantial underdeclaration of taxable sales, receipts or income, or a subs
tantial overstatement of deductions shall constitute prima facie evidence of a f
alse or fraudulent return.
* Failure to report sales, receipts or income in an amount exceeding 30% of that
declared per return and a claim of deductions in an amount exceeding 30% of act
ual deductions shall render the taxpayer liable for substantial underdeclaration
of sales, receipts or income or for overstatement of the deductions.
Interest
* This is an increment on any unpaid amount of tax assessed at the rate of 20% p
er annum or such higher rate as may be prescribed by the regulations from the da
te prescribed for payment until the amount is fully paid.
Classes of interest
1. Deficiency interest
2. Delinquency interest
3. Interest on extended payment
Deficiency interest
* Any deficiency in the tax due shall be subject to the interest of 20% per annu
m which shall be assessed and collected from the date prescribed for its payment
until the full payment thereof.
When delinquency interest imposed?
* Delinquency interest is imposed in case of failure to pay:
1. The amount of the tax due on any return required to be filed; or
2. The amount of tax due for which no return is required; or
3. A deficiency tax or any surcharge or interest thereon on the due date ap
pearing in the notice and demand of the Commissioner.
* Rate is 20% per annum until the amount is fully paid which interest shall form
part of the tax.
Interest on extended payment
* This is imposed when taxpayer has opted to pay by installment but he fails to
pay the tax or any installment on the prescribed date for payment.
* It is also imposed where Commissioner has authorized the extension of the time
for payment of the tax.
Administrative fines or penalties
1. Failure to file certain information returns
2. Failure of a withholding agent to collect and remit the tax
3. Failure of a withholding agent to refund excess withholding tax

STATUTORY OFFENSES AND THEIR PENALTIES

General points re. crimes and offenses

* Any person convicted of a crime penalized by the NIRC shall, in addition to be
ing liable for the payment of the tax, be subject to the penalties imposed in th
e Code.
* Payment of the tax due after apprehension shall not constitute a valid defense
 in any prosecution for violation of any provision of the NIRC or in any action
for the forfeiture of untaxed articles.
* Any person who willfully aids or abets in the commission of a crime penalized
in the NIRC or who causes the commission of any such offense by another shall be
liable in the same manner as the principal.
* If the offender is not a Filipino citizen, he shall be deported immediately af
ter serving the sentence without further proceeding for deportation.
* If the offender is a public officer or employee, the maximum penalty prescribe
d for the offense shall be imposed and, in addition, he shall be dismissed from
the public service and perpetually disqualified from holding any public office,
to vote and to participate in any election.
* If the offender is a Certified Public Accountant, his certificate as a CPA sha
ll, upon conviction, be automatically revoked or cancelled.
* In the case of associations, partnerships or corporations, the penalty shall b
e imposed on the partner, president, general manager, branch manager, treasurer,
officer-in-charge, and employees responsible for the violation.
Give examples of crimes and offenses
1. Attempt to evade or defeat tax
Any person who willfully attempts in any manner to evade or defeat any ta
x imposed under the NIRC or the payment thereof.
2. Failure to file return, supply correct and accurate information, pay tax
, withhold and remit tax and refund excess taxes withheld on compensation
3. Unlawful pursuit of business
Any person who carries on any business for which an annual registration f
ee is imposed without paying the tax as required by law.
4. Unlawful possession or removal of articles subject to excise tax without
payment of the tax
5. Failure or refusal to issue receipts or sales or commercial invoices, vi
olations related to the printing of such receipts or invoices and other violatio
ns
Prescription for violations of any provision of the NIRC
* All violations of any provision of the NIRC shall prescribe after five (5) yea
rs.
* Prescription shall begin to run from the day of the commission of the violatio
n of the law, and if the same be not known at the time, from the discovery there
of and the institution of judicial proceedings for its investigation and punishm
ent.
* The prescription shall be interrupted when proceedings are instituted against
the guilty persons and shall begin to run again if the proceedings are dismissed
for reasons not constituting jeopardy.
* The term of prescription shall not run when the offender is absent from the Ph
ilippines.
When is informer s reward given?
* An informer s reward is given to persons instrumental in the:
1. discovery of violations of the NIRC; and
2. discovery and seizure of smuggled goods.
Requisites for informer s reward for violations of the NIRC
* This may be claimed by any person, except an internal revenue official or empl
oyee, or other public official or employee, or his relatives within the sixth de
gree of consanguinity.
* Person voluntarily gives definite and sworn information, not yet in the posses
sion of the Bureau of Internal Revenue. Information should not refer to a case
already pending or previously investigated or examined by the Commissioner or an
y of his agents.
* Information leads to the discovery of frauds upon the internal revenue laws or
violations of any of the provisions thereof.
* There is recovery of revenues, surcharges and fees and/or the conviction of th
e guilty party and/or the imposition of any fine or penalty. In the reverse, if
no revenue, surcharges or fees be actually recovered or collected, such person s
hall not be entitled to a reward.
* Reward shall be equivalent to ten percent (10%) of the revenues, surcharges or
fees recovered and/or any fine or penalty imposed and collected or P1,000,000 p
er case, whichever is lower.
* The same amount of reward shall be also given to an information where the offe
nder has offered to compromise the violation of law committed by him and his off
er has been accepted by the Commissioner and collected from the offender.
Discovery and seizure of smuggled goods
* To encourage the public to extend full cooperation in eradicating smuggling, a
cash reward equivalent to 10% of the fair market value of the smuggled and conf
iscated goods or P1,000,000 per case, whichever is lower.
Reward subject to income tax
* The cash rewards of informers shall be subject to income tax collected as a fi
nal withholding tax, at the rate of ten percent (10%).
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216
TAX REMEDIES

BERCHOKE CACLES TAXATION MABUHAY EDITION 2000