Internal Revenue or his duly authorized representative may
order suspension or closure of a business establishment for
a period of not less than five (5) days for any of the
following violations:
i. Failure to issue receipts and invoices
ii. Failure to file VAT return as required under the
provisions of Sec. 114 of the Tax Code
iii. Understatement of taxable sales or receipts by 30% or
more of his correct taxable sales or receipt for the
taxable quarter
iv. Failure of any person to register as required under the
provisions of Sec. 236 of the Tax Code
Surcharge, interest and other penalties: The interest on
unpaid amount of tax, civil penalties and criminal penalties
imposed in Title XI of the Tax Code shall also apply to
violations of the provisions of Title IV of the Tax Code.
======================================
TOPIC UNDER THE SYLLABUS:
II. NATIONAL INTERNAL REVENUE CODE
G. Tax remedies under the NIRC
======================================
1. CONCEPT OF ASSESSMENT
What Constitutes an Assessment?
An assessment contains not only a computation of
tax liabilities but also a demand for payment within
the prescriptive period.
There is no form for an assessment. It can be
written anywhere as long as it is signed by the BIR.
Any notice sent to the taxpayer demanding the tax
liability is an assessment.
a. Requisites for valid assessment
The law requires that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void. [Sec. 228]
b. Constructive methods of income determination
Doctrine of Constructive Receipt an income is
constructively received when it is credited, or segregated in
favor of a person. The person may withdraw the said
account anytime without any substantial limitations or
conditions upon which payment or enjoyment is to be made
or exercised.
Examples: Cash and/ or property dividends constructively
received by an individual from a domestic corporation or
from a joint stock company, insurance or mutual fund
TAXATION LAW REVIEWER
companies and regional operating headquarters of
multinational companies, or on the share of an individual in
the distributable net income after tax of a partnership
(except a general professional partnership) of which he is a
partner, or on the share of an individual in the net income
after tax of an association, a joint account, or a joint venture
or consortium taxable as a corporation of which he is a
member or co-venturer. [Sec. 24 B]
Each partner shall report as gross income his distributive
share constructively received in the net income of the
partnership. (Sec. 26)
Assignment of Income Doctrine Ex: A is entitled to his
salary of P10 Million but assigns it to B for unknown
reasons. In this case, both A and B realized income. A
constructively received income (because he was able to
assign and thus has complete control/ dominion over it) and
B actually received it. The income is taxable in the hands of
both A and B.
c. Inventory method for income determination
i. Basis: Revenue Memorandum Circular No. 43-74
ii.
beginning and end of the taxable year.
iii. The increase or decrease in the net worth is adjusted
by adding all non-deductible items and subtracting
therefrom non-taxable receipts.
iv.
other assets in excess of liabilities after accurate and
proper adjustment of non-deductible and non-taxable
items not accounted for in his tax return is deemed to
be unreported income.
Conditions of the Net Worth Method:
1. Inadequate records as prerequisite -
books of account do not clearly reflect his income or he
has no books, or if he has books, he refuses to produce
them;
2. Need for evidence of source of income - That there is
evidence of possible source/ sources of income to
account for the increases in the net worth or
expenditures;
3. A definite starting point or opening net worth - That
there is a fixed starting point or opening net worth
(date beginning with a taxable year or prior to it when
his financial condition can be established with
definiteness);
4. Proper adjustments to conform with income tax laws -
That the circumstances are such that the method does
not reflect his income with accuracy and certainty and
proper and just additions of personal expenses and
non-deductible expenditures were made and correct,
fair and equitable credit were given by way of
eliminating non-taxable items.
Page 108 of 165
d. Jeopardy assessment
A jeopardy assessment is a tax assessment made by an
authorized Revenue Officer without the benefit of complete
assessment and collection of tax will be jeopardized by the
delay cause
audit and investigation requirements and 2) substantiate
any or all claims, deductions or credits in his return.
e. Tax delinquency and tax deficiency
Delinquency means:
Failure to pay:
1. tax due on any return required to be filed, or
2. tax due for which no return is required, or
3. A deficiency tax, or any surcharge or interest
thereon on the due date appearing in the
notice and demand of the Commissioner.
Deficiency means:
- The amount by which the tax imposed
exceeds the amount shown as tax by the
taxpayer on his return. The amount shown on
the return shall be increased by the amounts
previously assessed as a deficiency, and
decreased by the amount previously abated,
credited, return or repaid.
- If no amount is shown as tax by the taxpayer
on his return, or if no return is made, then the
amount by which the tax exceeds the amount
previously assessed (or collected without
assessment) as a deficiency, but such
previously assessed or collected without
assessment shall first be decreased by the
amounts previously abated, credited, return
or repaid.
2. POWER OF COMMISSIONER TO MAKE ASSESSMENTS
AND PRESCRIBE ADDITIONAL REQUIREMENTS FOR TAX
ADMINISTRATION AND ENFORCEMENT.
a. Power to obtain information, summon, examine and
take testimony of persons (Sec. 5)
For the Commissioner to ascertain:
(a) Correctness of any return or in making a return
where none has been made
(b) Liability of any person for any internal revenue tax
or in correcting such liability
(c) Tax compliance
The Commissioner is authorized:
1) To Examine any relevant Book, paper, record or other
data
2) To Obtain any Information (costs, volume of
production, receipts, sales, gross income, etc), on a
TAXATION LAW REVIEWER
regular basis from:
(a) Any person other than the person under
investigation or
(b) Any office or officer of the national/ local
government, government agencies and
instrumentalities (Bangko Sentral, GOCCs)
3) To Summon
(a) The person liable for tax or required to file a return
or
(b) Any officer or employee of such person or
(c) Any person having in his possession/ custody/ care
1. The books of accounts
2. Accounting records of entries relating to the
business of the person liable for tax or any
other person
4) To Produce such books, papers, records and other data
and to give testimony
5) To take the Testimony of the person concerned, under
oath as may be relevant to the inquiry
6) To cause revenue officers and employees to make a
Canvass of any revenue district or region
Nothing in Section 5 shall be construed as granting
the Commissioner the authority to inquire into
bank deposits other than as provided for under
Sec. 6 (F) of the Code (authority to inquire into
bank deposits).
Power to make assessments, prescribe requirements for
tax administration and enforcement (Sec. 6)
1) Examination of returns and determination of tax due -
(a) After a return has been filed the Commissioner or
his representative may authorize
i. Examination of any taxpayer; and
ii. Assessment of the correct amount of tax;
(b) Failure to file a return shall not prevent the
Commissioner from authorizing the examination of
any taxpayer;
Any tax or deficiency tax so assessed shall be paid upon
notice and demand from the Commissioner or his
representative.
Any return, statement or declaration filed in any
authorized office shall not be withdrawn; but within
THREE YEARS from date of filing, the same may be
modified, changed or amended; provided that no
notice for audit or investigation of such return, has in
the meantime, been actually served upon the taxpayer.
2) Failure to submit required returns and other
documents
(a) If a person:
i. Fails to file a required return or report at the
time prescribed or
ii. Willfully or otherwise files a false or
fraudulent return,
Page 109 of 165
 (b) The Commissioner shall Make or Amend the return
from:
i. His own knowledge or
ii. From such information as he can obtain
through testimony or otherwise
iii. Which shall be prima facie correct and
sufficient for all legal purposes
3) Inventory-taking, Surveillance, Presumptive Gross Sales
(a) The Commissioner may, at any time during the
taxable year
v. Order the inventory taking of goods of any
taxpayer; or
vi. May place the business operations of any
person (natural/ juridical) under observation
or surveillance
vii. If there is reason to believe that such person is
not declaring his correct income, sales or
receipts for tax purposes.
viii. The findings may be used as basis for
assessing the taxes and shall be deemed
prima facie correct.
(b) Commissioner may prescribe a minimum amount
of gross receipts, sales and taxable base (taking
into account the sales and income of other persons
engaged in similar business) :
i. When a person has failed to issue receipts as
required by Sec. 113 (Invoice requirements for
VAT-registered persons) and Sec. 237
(Issuance of Receipts or Commercial Invoices);
or
ii. When the books of accounts or records do not
correctly reflect the declarations made or
required to be made in a return,
iii. Such minimum amount shall be prima facie
correct
4) Terminate taxable period -
Commissioner shall declare the tax period of a taxpayer
terminated and send notice to the taxpayer of such
decision with a request for immediate payment of the
tax, when it has come to the knowledge of the
Commissioner: (RIRHO)
(a) That a taxpayer is Retiring from business subject to
tax or
(b) Is Intending to leave the Philippines or
(c) To Remove his property therefrom or
(d) To Hide or conceal his property or
(e) Is performing any act tending to Obstruct the
proceedings for the collection of tax
5) Prescribe Real Property Values -
The Commissioner is authorized to:
(a) Divide the Philippines into different zones or areas
and
TAXATION LAW REVIEWER
(b) Determine the fair market value of real properties
located in each zone or area
For tax purposes, the value of the property shall be
whichever is higher of:
(a) Fair market value as determined by the
Commissioner; or
(b) Fair market value as shown in the schedule of
values of the provincial and city assessors.
6) Authority to Inquire into Bank Deposit
Notwithstanding R.A. 1405 (Bank Secrecy Law) the
Commissioner is authorized to inquire into the Bank
deposits of:
(a) A decedent to determine his gross estate
(b) A taxpayer who has filed an application to
compromise payment of tax liability by reason of
financial incapacity
(c) A taxpayer subject of a request for the supply of
tax information from a foreign tax authority
pursuant to an international convention or
agreement on tax matters to which the Philippines
is a signatory or a party of: Provided, That the
information obtained from banks and financial
institutions may be used by the BIR for tax
assessment, verification, audit and enforcement
purposes.
l not be
considered unless he waives in writing his privilege
under R.A. 1405 and other general or special laws. Such
waiver shall authorize the Commissioner to inquire into
his bank deposits.
The Commissioner shall provide the tax information
obtained from banks and financial institutions pursuant
to a convention or agreement upon request of the
foreign tax authority when such requesting foreign tax
authority has provided information to demonstrate the
relevance of the information under R.A. 10021.
RMC No. 29-2010 publishes R.A.
to Allow the Exchange of Information by the Bureau of
Internal Revenue on Tax Matters Pursuant to
Internationally-Agreed Tax Standards, Amending
Section (F), and 270 of the National Internal Revenue
Code (NIRC) of 1997, as Amended, and for Other
(a) Authority of the Commissioner of Internal
Revenue to inquire into bank deposit accounts
and related information held by financial
institutions
(b) Allowing a Foreign Tax Authority to examine Income
Tax Returns of taxpayers in the Philippines
(c) Authority of the Commissioner of Internal Revenue
to supply information to a Foreign Tax
Authority which is at his disposal
Page 110 of 165
 (d) Penalties, for willful refusal to supply information
(e) Obligation to maintain confidentiality of information
received
(f) Notice to taxpayers regarding respect for exchange
of information
7) Authority to Register tax agents -
(a) The Commissioner shall Accredit and Register,
individuals and general professional partnerships
and their representatives who prepare and file tax
returns and other papers or who appear before the
BIR
(b) The Commissioner shall create national and
regional accreditation boards
Those who are denied accreditation may appeal
the same to the Sec. of Finance who shall rule on
the appeal within 60 days from receipt of such
appeal. Failure of the Sec. of Finance to rule on the
appeal within the said period shall be deemed as
approval for accreditation.
8) Authority to Prescribe Additional Requirements
The Commissioner may prescribe the manner of compliance
with any documentary or procedural requirement for the
submission or preparation of financial statements
accompanying tax returns.
3. WHEN ASSESSMENT IS MADE
Sections 203 and 222 of the NIRC provide for a statute of
limitations on the assessment and collection of internal
revenue taxes in order to safeguard the interest of the
taxpayer against unreasonable investigation. Unreasonable
investigation contemplates cases where the period for
assessment extends indefinitely because this deprives the
taxpayer of the assurance that it will no longer be subjected
to further investigation for taxes after the expiration of a
reasonable period of time. As was held in Republic of the
Phils. vs. Ablaza The law on prescription being a remedial
measure should be interpreted in a way conducive to
bringing about the beneficent purpose of affording
protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law.
Phil. Journalists, Inc. v. CIR, [G.R. 162852, December 16,
2004]
Rules on Prescription
1. When the tax law itself is silent on prescription,
the tax is imprescriptible
2. When no return is required, tax is imprescriptible
NOTE: Remedy of taxpayer is to file a return
TAXATION LAW REVIEWER
a. Prescriptive period for assessment
GENERAL RULE 3 years after the date the return is due or
filed, whichever is later (Sec 203)
Note: A return filed before the last day prescribed by law
for filing shall be considered as filed on the last day.
- False, fraudulent, and non-filing of returns
EXCEPTIONS:
1. Failure to file return: 10 years from date of
discovery of the omission to file the return (Sec.
222A)
2. False or fraudulent return with intention to evade
the tax: 10 years from the date of the discovery of
the falsity or fraud (Sec 222A)
a. Nothing in Sec 222A shall be construed to
authorize the examination and investigation or
inquiry into any tax return filed in accordance with
the provisions of any tax amnesty law or decree.
b. Fraud must be alleged and proved as a fact. It
must be the product of a deliberate intent to
evade taxes. It may be established by the:
intentional and substantial understatement of
the tax liability by the taxpayer (substantial
under declaration of income; >30% of that
declared [Sec. 248])
intentional and substantial overstatement of
deductions of exemptions (>30% of the actual
deductions [Sec. 248])
c. Falsity constitutes a deviation from the truth
due to mistake, carelessness or ignorance.
NOTE:
1. Agreement in writing to the extension of the period
to assess between the CIR and the taxpayer before the
expiration of the 3 year period. Section 222 (b) of the
NIRC provides that 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... 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. The waiver
should be duly notarized. CIR v. Kudos Metal Corp. [G.R.
178087, May 5, 2010]
2. Notice of the assessment must be released, mailed
or sent to the taxpayer within the 3 year period. It is not
required that the notice be received by the taxpayer
within the prescribed period. But the sending of the
notice must clearly be proven. Basilan Estate v. CIR,
[G.R. No. L-22492, September 5, 1967]
Page 111 of 165
Amendment of Return
If the amended return is substantially different from the
original return, the prescriptive period shall be counted from
the filing of the amended return. CIR v. Phoenix Assurance
Co., [L-19727, May 20, 1965]
b. Suspension of running of statute of limitations
1. when the CIR is prohibited from making the
assessment or beginning the distraint or levy or a
proceeding in court, and for 60 days thereafter
2. when the taxpayer requests for a reinvestigation
which is granted by the CIR
3. when the taxpayer cannot be located in the
address given by him in the return, unless he
informs the CIR of any change in his address
4. when the warrant of distraint or levy is duly served
and no property is located
5. when the taxpayer is out of the Philippines (Sec.
223)
4. GENERAL PROVISIONSON ADDITIONS TO THE TAX
a. Civil penalties
A) Penalty: 25%of the amount due, in addition to the
tax required to be paid in case of the following:
RIDT (let s get RID of Tax)
a) Failure to file any Return and pay the tax on
the date prescribed; or
b) Filing a return with an Internal revenue officer
other than those with whom the return is
required to be filed, unless otherwise
authorized by the Commissioner; or
c) Failure to pay the Deficiency tax within the
time prescribed for its payment in the notice
of assessment; or
d) Failure to pay on or before the date
prescribed for its payment:
1. the full or part of the amount of Tax
shown on any return required to be filed;
2. the full amount of tax due for which no
return is required to be filed.
B) Penalty: 50% of the tax or of the deficiency tax, in
case any payment has been made on the basis of a
return before the discovery of the falsity or fraud.
In case of: [ FiFa ]
a) Willful neglect to File the return within the
period prescribed; or
b) False or fraudulent return is willfully made, in
case any payment has been made on the basis
of such return before the discovery of the
falsity or fraud.
TAXATION LAW REVIEWER
Prima facie evidence of a false or fraudulent
return as determined by the Commissioner
pursuant to the rules and regulations
promulgated by the Sec. of Finance:
1. substantial under declaration of taxable
sales, receipts or income failure to report
sales, receipts or income in an amount
exceeding 30% of that declared per return
2. substantial overstatement of deductions
claim of deductions in an amount exceeding
30% of actual deductions
b. Interest
A) There shall be assessed and collected an Interest at
20%per annum on any unpaid amount of tax
B) OR higher rate prescribed by rules and regulations
from the date prescribed for payment until the
amount is fully paid.
C) FROM the date prescribed for its payment until the
full payment.
a) Deficiency Interest in the tax due
b) Delinquency Interest In case of failure to
pay:
4. tax due on any return required to be
filed, or
5. tax due for which no return is required, or
6. A deficiency tax, or any surcharge or
interest thereon on the due date
appearing in the notice and demand of
the Commissioner.
D) Interest shall form part of the tax.
NOTE: Pursuant to Section 249 of the Tax Code, the
imposition of interest on delinquency is mandatory.
Jamora v. Meer, [74 Phil. 22] The imposition of interest
is but a just compensation to the state for the delay in
the payment of the tax, and for the concomitant use by
the taxpayer of funds that rightfully should be in the
government's hands.[BIR Ruling No. 019-03]
E) Interest on extended payment.
a. any person who is qualified and elects to pay
the tax on installment but fails to pay the tax,
or any installment, or any part on or before
the date prescribed; or
b. where the Commissioner has authorized an
extension of time within which to pay a tax or
a deficiency tax or any part thereof,
c. from the date of notice and demand until it is
paid.
Page 112 of 165
5. ASSESSMENT PROCESS
a. Tax audit
b. Notice of informal conference
A written notice informing a taxpayer that the
findings of the audit conducted on his accounting
records indicate that additional taxes or
deficiency assessment has to be paid.
If, after the culmination of an audit, a revenue
officer recommends the imposition of deficiency
tax assessment, this recommendation is
communicated by the BIR to the taxpayer during
an informal conference. The taxpayer shall have
15 days from the receipt of the notice of informal
conference to explain his side.
c. Issuance of preliminary assessment notice
Communication issued by the BIR informing a
taxpayer who has been audited of the findings by
the BIR. The assessment shall be in writing, and
should inform the taxpayer of the law and the
facts on which the assessment is made;
otherwise, the assessment is void.
There is a presumption of correctness and good
faith on the part of the CIR, thus, the burden lies
on the taxpayer. Otherwise, the finding of the CIR
will be conclusive and he will assess the taxpayer.
The same is true even if the CIR is wrong, if the
taxpayer does not controvert it. Cagayan Robina
Sugar Milling v. CA, [G.R. No. 122451, October
12, 2000]
Indeed, Section 228 of the Tax Code clearly requires that the
taxpayer must first be informed that he is liable for
deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with
tax collection without first establishing a valid assessment is
evidently violative of the cardinal principle in administrative
investigations - that taxpayers should be able to present
their case and adduce supporting evidence.
From the provision [of RR 12-99] it is clear that the sending
of a PAN to taxpayer to inform him of the assessment made
is but part of the "due process requirement in the issuance
of a deficiency tax assessment," the absence of which
renders nugatory any assessment made by the tax
authorities. CIR v. METRO STAR SUPERAMA, [G.R. 185371,
December 8, 2010]
TAXATION LAW REVIEWER
d. Notice of informal conference (see above)
e. Issuance of preliminary assessment notice (see
above)
f. Exceptions to issuance of preliminary assessment
notice
Instances where a pre-assessment notice NEED NOT be
given: MET DC
when the finding for deficiency tax is a result of
Mathematical error in the computation of tax
appearing on the face of the return; or
Discrepancy is determined between the tax
withheld and the amount actually remitted by the
withholding agent
a taxpayer who opted to claim a refund or tax
credit was determined to have Carried over and
applied the amount against succeeding tax
liabilities
Excise tax has not been paid
an article locally purchased or imported by an
exempt person has been sold, traded or
Transferred to non-exempt persons
g. Reply to preliminary assessment notice
If the taxpayer disagrees with the PAN, he has 15
days to file a written reply to contest the
proposed assessment.
h. Issuance of formal letter of demand and assessment
notice/ final assessment notice
A notice of assessment is a formal letter of
demand where a declaration of deficiency taxes is
issued to a taxpayer who fails to respond to a pre-
assessment notice within the prescribed period of
time, or whose reply to the PAN was found to be
without merit. This is commonly known as the
final assessment notice.
i. Disputed assessment
j. Administrative decision on a disputed assessment
6. PROTESTING ASSESSMENT
a. Protest of assessment by taxpayer
- Protested assessment
A protest is a vital document which is a formal
declaration of resistance of the taxpayer. It is a
repository of all arguments. It can be used in court in
case of administrative remedies have been exhausted.
It is also the formal act of the taxpayer questioning the
Page 113 of 165
 official actuations of the CIR. This is equivalent to a
pleading.
- When to file a protest
File a request for reinvestigation or reconsideration
within 30 days from receipt of the assessment
- Forms of protest
a. request for reinvestigation a plea for re-
evaluation of an assessment on the basis of
newly discovered or additional evidence that a
taxpayer intends to present in the
reinvestigation. Involves a question of fact or
law or both.
b. request for reconsideration a plea for re-
evaluation of the assessment on the basis of
existing records without need of additional
evidence. Involves a question of fact or law or
both.
b. Submission of documents within 60 days from filing
of protest
Submission of documents within the 60 days period is
optional to the taxpayer. The relevant supporting
documents mentioned in the law refers to such
documents which the taxpayer feels would be
necessary to support his protest and not what the
Commissioner feels should be submitted, otherwise
the taxpayer would always be at the mercy of the BIR
which may require production of such documents
which taxpayer could not produce. Standard
Chartered Bank v. CTA, [CTA Case No. 5696, August
16, 2001]
After the company submitted its letter-reply stating
that it would not comply with the presentation of the
proof of DST payment, no reply was then heard from
the CIR. The company has complied with the requisites
in disputing an assessment, which provides that in
case the protest is not acted upon within 180-days
from the submission of the documents, the taxpayer
adversely affected may appeal to the CTA within 30-
days from the lapse of the 180-day period. Thus, the
tax assessment cannot be considered as final,
executory and demandable. CIR v. First Express
Pawnshop Company, Inc., [G.R. No. 172045-46, June
16, 2009]
c. Effect of failure to protest
Within 60 days from filing of protest, all relevant
supporting documents should have been submitted,
otherwise, the assessment shall become FINAL
(cannot be appealed). (Sec. 228)
TAXATION LAW REVIEWER
7. RENDITION OF DECISION BY COMMISSIONER
a. Denial of protest
-
If protest is denied, elevate the matter with the CIR
within 30 days from receipt of the decision of
duly authorized representative.
(a) Filing of criminal action against taxpayer
Criminal action may be filed during the pendency of an
administrative protest in the BIR
It is not a requirement for the filing thereof that there
be a precise computation and assessment of the tax,
since what is involved in the criminal action is not the
collection of tax but a criminal prosecution for the
violation of the NIRC. Provided, however, that there is a
prima facie showing of a willful attempt to evade taxes.
An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the
violator has knowingly and willfully filed a fraudulent
return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge
on the part of the taxpayer that he has made an
inaccurate return, and the government's failure to
discover the error and promptly to assess has no
connections with the commission of the crime. Ungab
v. Cusi, [L-41919-24, May 30, 1980]
See also CIR v. Pascor Realty, [G.R. No. 128315, June
29,1999], which reached the same conclusion as in
Ungab.
HOWEVER, in the case of CIR v. CA, CTA, & Fortune
Tobacco [G.R. No. 119761, August 29, 1996), the CIR
held a contrary position
b. Issuing a warrant of distraint and levy
- Inaction by commissioner
8. REMEDIES OF TAXPAYER TO ACTION BY COMMISSIONER
Appeal of Protest to the CTA (Judicial Relief)
Grounds:
a. In case of denial of protest
b. In case of inaction by commissioner within 180 days
from submission of documents
Period to appeal:
a. within 30 days from receipt of decision
denying the protest or
b. 30 days from the lapse of 180 day period
Page 114 of 165
 c. Effect of failure to appeal
The decision shall be final, executory and
demandable (NOTE: See the CTA case of Lascona
which gives the taxpayer the option either to
appeal to the CTA after 180 days or to await the
decision of the CIR.)
B. COLLECTION
1. REQUISITES
2. PRESCRIPTIVE PERIODS
1. Local taxes, fees or charges five (5) years from the
date they became due (sec. 194, LGC)
2. When there is fraud or intent to evade the payment of
taxes, fees or charges ten (10) years from discovery of
fraud or intent to evade payment (sec. 194, LGC)
Local taxes, fees or charges may be collected within five
years from the date of assessment by administrative or
judicial action. No such action shall be instituted after the
expiration of such period. [Sec. 194, LGC]
3. DISTRAINT OF PERSONAL PROPERTY INCLUDING
GARNISHMENT
a. Summary remedy of distraint of personal property
- Procedure for distraint and garnishment
1) Report on the distraint (Commencement of distraint
proceedings)
(a) by the distraining officer submitted within 10
days from receipt of the warrant to the Revenue
District Officer or Revenue Regional Officer.
(b) by the Revenue Regional Director - a consolidated
report, as may be required by the Commissioner
The order of distraint may be lifted by the
Commissioner or his representative [Sec. 207(a)]
2) Service of warrant of distraint. Procedures with
respect to:
(a) Goods, effects, chattels and other personal
property
1. a copy of an account of the property
distrained, signed by the officer, shall be left
either with the owner or the person from
whom the property was taken or at the
dwelling or place of business of such person
and with someone of suitable age and
discretion
2. together with a statement of the sum
demanded
3. and also a note of the time and place of sale
(b) Stocks and other Securities
TAXATION LAW REVIEWER
- serving a copy of the warrant upon the
taxpayer AND upon the president, manager,
treasurer or other responsible officer of the
issuing corporation, company, association
(c) Debts and Credits
1. leaving a copy of the warrant with the person
owing the debts or having in his possession
such credits or his agent.
2. the warrant shall be sufficient authority to the
person served to pay to the Commissioner the
amount of such debts or credits
(d) Bank accounts (garnishment)
1. serve a warrant of garnishment upon the
taxpayer AND upon the president, manager,
treasurer or other responsible officer of the
bank
2. bank shall turn over to the Commissioner so
much of the bank accounts as may be
sufficient [Sec.208]
3) Posting of Notice [Sec. 209]
(a) Notice specifying the time and place of sale and
the articles disdained.
(b) The posting shall be made in not less than 2 public
places in the city or municipality where the
distraint is made.
(c) One of the places for posting of such notice is the
Office of the Mayor of such city or municipality.
4) Sale of Property Distrained
- Sale of property distrained and disposition of
proceeds
(a) Release of distrained property upon payment prior
to sale
- Purchase by the government at sale upon distraint
- Report of sale to the BIR
- Constructive distraint to protect the interest of the
government
There may be no actual delinquency.
Taxpayer is prohibited from disposing of the
property and must preserve the same
4. SUMMARY REMEDY ON REAL PROPERTY
a. Advertisement and sale
Advertisement of the time and place of sale, which shall
contain:
a. The amount of tax and penalties due
b. Name of the taxpayer
c. Short description of the property to be sold
The advertisement shall be made within 20 days after
the levy, and the same shall be for a period of at least
30 days. It shall be effected by:
i. posting a notice at the main entrance of the
Page 115 of 165
 municipal building or the city hall and in public and
conspicuous place in the barrio or district where
the property is located
ii. by publication once a week for 3 consecutive
weeks in newspaper of general circulation in the
municipality or city where the property is located
[Sec. 213]
b. Redemption of property sold
Within 1 year from the date of sale, the property may
be redeemed by the delinquent taxpayer or any one
from him, upon the payment of the taxes, penalties and
interest thereon from the date of delinquency to the
date of sale together with interest on purchase price at
15% per annum from the date of sale to the date of
redemption. [Sec. 214]
The owner shall not be deprived of the possession of the
said property and shall be entitled to the rents and other
income thereof until the expiration of the time allowed
for its redemption.
c. Final deed of purchaser
If the property is not redeemed, a final deed of sale shall
be issued to the purchaser.
5. FORFEITURE TO THE GOVERNMENT FORWANT OF
BIDDER
Forfeiture is the divestiture of property without
compensation, in consequence of a default or offense.
a. Remedy of enforcement of forfeitures
- Action to contest forfeiture of chattel
In case of the seizure of personal property under claim of
forfeiture, the owner desiring to contest the validity of
the forfeiture may, at any time before sale or
destruction of the property, bring an action against the
person seizing the property or having possession thereof
to recover the same, and upon giving proper bond, may
enjoin the sale; or after the sale and within six (6)
months, he may bring an action to recover the net
proceeds realized at the sale. [Sec. 231]
b. Resale of real estate taken for taxes
The Commissioner shall have charge of any real estate
obtained by the Government of the Philippines in
payment or satisfaction of taxes, penalties or costs
arising under this Code or in compromise or adjustment
of any claim therefore, and said Commissioner may,
upon the giving of not less than twenty (20) days notice,
sell and dispose of the same of public auction or with
prior approval of the Secretary of Finance, dispose of the
same at private sale. In either case, the proceeds of the
sale shall be deposited with the National Treasury, and
TAXATION LAW REVIEWER
an accounting of the same shall rendered to the
Chairman of the Commission on Audit. [Sec. 216]
c. When property to be sold or destroyed
Forfeited property shall not be destroyed until at
least 20 days from seizure.
d. Disposition of funds recovered in legal proceedings
or obtained from forfeiture
The Revenue District Officer or his duly authorized
representative, other than the officer referred to in
Section 208 of this Code shall, according to rules and
regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, forthwith cause
a notification to be exhibited in not less than two (2)
public places in the municipality or city where the
distraint is made, specifying; the time and place of sale
and the articles distrained. The time of sale shall not be
less than twenty (20) days after notice. One place for the
posting of such notice shall be at the Office of the Mayor
of the city or municipality in which the property is
distrained.
At the time and place fixed in such notice, the said
revenue officer shall sell the goods, chattels, or effects,
or other personal property, including stocks and other
securities so distrained, at public auction, to the highest
bidder for cash, or with the approval of the
Commissioner, through duly licensed commodity or
stock exchanges.
In the case of stocks and other securities, the officer
making the sale shall execute a bill of sale which he shall
deliver to the buyer, and a copy thereof furnished the
corporation, company or association which issued the
stocks or other securities. Upon receipt of the copy of
the bill of sale, the corporation, company or association
shall make the corresponding entry in its books, transfer
the stocks or other securities sold in the name of the
buyer, and issue, if required to do so, the corresponding
certificates of stock or other securities.
Any residue over and above what is required to pay the
entire claim, including expenses, shall be returned to the
owner of the property sold. The expenses chargeable
upon each seizure and sale shall embrace only the actual
expenses of seizure and preservation of the property
pending; the sale, and no charge shall be imposed for
the services of the local internal revenue officer or his
deputy. [Sec. 209]
Page 116 of 165
6. FURTHER DISTRAINT OR LEVY
The remedy of distraint and levy may be repeated if
necessary until the full amount of the tax delinquency due
including all expenses is collected from the taxpayer. [Sec.
217]
Otherwise, a clever taxpayer who is also able to conceal
most of the valuable part of his property would escape
payment of his tax liability by sacrificing an insignificant
portion of his holdings.
7. TAX LIEN
Tax Lien is a legal claim or charge on property, either real or
personal, established by law as a security in default of the
payment of taxes [51 AmJur 881]. Generally, it attaches to
the property irrespective of ownership or transfer thereof
Nature: a lien in favor of the Government of the
Philippines when a person liable to pay a tax neglects or
refuses to do so upon demand
Duration: lien exists from the time assessment is made
by the Commissioner until paid, with interests,
penalties and costs that may accrue in addition thereto
Extent: upon all property and rights to property
belonging to the taxpayer
Effectivity against third persons: only when notice of
such lien is filed by the Commissioner in the Register of
Deeds in the province/ city where the property is
situated [Sec. 219]
NOTE:
A tax lien is superior to judgment claim of private
person.
Attaches not only from the time the warrant was
served BUT from the time tax was due and demandable
(from the time when the assessment was made [Sec.
219].
8. COMPROMISE
a. Authority of the commissioner to compromise and
abate taxes
BIR Commissioner as expressly authorized by the NIRC
subject to certain conditions [Sec. 204, NIRC];
1. Before the complaint is filed with the
to compromise except those involving fraud
2. After the complaint is filed with the
before the information
is filed with the court: the CIR can still
compromise provided the prosecutor must
give consent
3. After information is filed with the court: the
CIR is no longer permitted to compromise
TAXATION LAW REVIEWER
with or without the consent of the Prosecutor
People v. Magdaluyo, [G.R. No. L-16235,
April 20, 1961]
This is more so when the court has
rendered a final judgment. As a mere
agent of the Government, the
Commissioner is not authorized to accept
anything less than what is adjudicated in
favor of the government by virtue of such
final judgment; the government has
already acquired a vested rights.
The BIR Commissioner may compromise
the payment of tax liabilities on the basis
of the doubtful validity of the assessment
if the assessment is based on a decision
by the Supreme Court which is adverse to
BIR. [RR No. 30-02 as amended by RR No.
08-04]
9. CIVIL AND CRIMINAL ACTION
1. Must be brought in the name of the Government
of the Philippines
2. Conducted by legal officers of the BIR
3. In case of actions for recovery of taxes or
enforcement of a fine, penalty or forfeiture, must
be filed with the approval of the Commissioner
[Sec. 220]
a. Suit to recover tax based on false or fraudulent
returns
Prima facie evidence of a false or fraudulent return as
determined by the Commissioner pursuant to the rules
and regulations promulgated by the Sec. of Finance:
a) substantial under declaration of taxable sales,
receipts or income failure to report sales,
receipts or income in an amount exceeding 30% of
that declared per return
b) substantial overstatement of deductions claim of
deductions in an amount exceeding 30% of actual
deductions
C. REFUND
1. GROUNDS AND REQUISITE FOR REFUND
a) taxpayer files in writing with the
Commissioner a claim for credit or refund for:
Taxes erroneously or illegally received
Penalties imposed without authority
Any sum alleged to have been excessively
or in any manner wrongfully collected
Refund the value of internal revenue
stamps when returned in good condition
by the purchaser
Page 117 of 165
 Redeem or change unused stamps
rendered unfit for use and refund their
value upon proof of destruction, in the
discretion of the Commissioner
b) application must be filed within 2 yrs after the
payment of the tax or penalty (no suit or
proceeding shall begun after the expiration of
the said 2 yrs regardless of any supervening
cause that may arise after the payment)
a) a return filed showing an overpayment shall
be considered a written claim for credit or
refund
2. Requirements for refund as laid down by cases
a. Necessity of written claim for refund
b. Claim containing a categorical demand for
reimbursement
c. Filing of administrative claim for refund and the
suit/ proceeding before the CTA within 2 years from date
of payment regardless of any supervening cause
3. Legal basis of tax refunds
Broadly speaking, tax refunds are based on the legal
principle of quasi-contracts or solutio indebiti. The pertinent
rules are found in Arts. 2142 and 2154 of the Civil Code:
Art. 2142. Certain lawful, voluntary and unilateral acts
give rise to the juridical relation of quasi-contract to the
end that no one shall be unjustly enriched or benefited at
the expense of another.
Art. 2154. If something is received when there is no right
to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
Particular references in the NIRC:
Sec. 204 C. Credit or refund taxes erroneously or illegally
received or penalties imposed without authority, refund
the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have
been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax
or penalty: Provided, however, that a return filed
showing an overpayment shall be considered as a written
claim for credit or refund.
Sec. 229. No suit or proceeding shall be maintained in
any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, of any
sum alleged to have been excessively or in any manner
TAXATION LAW REVIEWER
wrongfully collected without authority, or of any sum
alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
xxx
4. Statutory basis for tax refund under the tax code
a. Scope of claims for refund
Taxes erroneously or illegally received
Penalties imposed without authority
Any sum alleged to have been excessively or in
any manner wrongfully collected
Refund the value of internal revenue stamps
when returned in good condition by the
purchaser
Redeem or change unused stamps rendered
unfit for use and refund their value upon proof
of destruction, in the discretion of the
Commissioner
b. Necessity of proof for claim or refund
It partakes of the nature of an exemption and is strictly
construed against the claimant. CIR v. Tokyo Shipping
Ltd., [244 SCRA 332].
c. Burden of proof for claim of refund
The burden of proof is on the taxpayer claiming the
refund that he is entitled to the same CIR v. Tokyo
Shipping Ltd., [244 SCRA 332].
d. Nature of erroneously paid tax/ illegally assessed
collected
Taxes are erroneously paid when a taxpayer pays under
a mistake of fact, such as, he is not aware of an existing
exemption in his favor at the time that payment is
made. Taxes are illegally collected when payments are
made under duress.
e. Tax refund vis--vis tax credit
TAX REFUND TAX CREDIT
Tax refund takes The government issues a Tax
place when there is Credit Certificate covering the
actually a amount determined to be
reimbursement of tax. reimbursable, which is applied
after proper verification against
any sum that may be due to the
taxpayer.
Tax Credit Certificate:
a) may be applied
against any internal
Page 118 of 165
 revenue tax, EXCEPT Commencement of 2-year period
withholding taxes CASE 2-YEAR PERIOD NOTES
b) original copy is STARTS FROM
surrendered to the If the tax sought From date tax
revenue officer to be refunded is was paid [CIR v.
c) no tax refund will be illegally or Victorias
given resulting from erroneously Milling]
availment of collected
incentives granted If the tax is paid From date of There is no
by law where no in installment or the last or final payment until the
actual payment was only in part installment or whole/ entire tax
made (Sec. 204 C) CIR v. Prieto, liability is fully
The following must be established: [G.R. No. L- paid
a) that there was an actual collection and receipt of the 13912,
government of the tax to be recovered and this September 30,
requires actual proof; and 1960]
b) that there is a legal basis for granting the refund or
credit including the verification of compliance with the If the taxpayer From Merely making a
statutory requirements relative to the filing of the merely made a conversion of deposit is not
claims within the reglamentary two-year period. deposit the deposit to equivalent to
Forfeiture of cash refund/ tax credit: payment payment until the
a) Forfeiture of refund in favor of the government when [Union amount is actually
a refund check or warrant remains unclaimed or Garment v. applied to the
uncashed within 5 yrs. from date of mailing or delivery Coll] purpose for which
b) Forfeiture of Tax Credit a tax credit certificate which it was deposited
remains unutilized after 5 yrs. from date of issue, shall
be invalid, UNLESSrevalidated. [Sec. 230] If tax has been From date it A taxpayer who
withheld from falls due at the contributes to the
f. Essential requisites for claim of refund source (through end of the withholding tax
a) a claim for refund or credit has been filed with the withholding taxable year system performs
the Commissioner tax system) Gibbs v. CIR, and extinguishes
b) the suit may be maintained whether or not [G.R. No. L- his tax obligation
such tax/ penalty/ sum has been paid under 17406, for the year
protest November 29, concerned.
c) in any case, suit must be filed in court within 2 1965]
yrs. from date of payment of the tax/ penalty Corporate At the earliest, It is only then that
regardless of any supervening cause that may taxpayer on the date of the corporation
arise after payment the filing of the can ascertain
d) the Commissioner may, even without a adjusted final whether it made
written claim, refund or credit a tax, where on return [ACCPA profits or incurred
the face of the return upon which payment v. CA] losses.
was made, payment appears to be erroneous. If tax was not From the date Before the right
[Sec. 204 C, 229] erroneously or the taxpayer to refund or
illegally paid but becomes credit arises,
5. WHO MAY CLAIM/ APPLY FOR TAX REFUND/ TAX CREDIT the taxpayer entitled to there is absolutely
a. Taxpayer/ withholding agents of non-resident foreign became entitled refund and not no basis to file a
corporation to refund from the date claim with the CIR
because of of payment or commence a
6. PRESCRIPTIVE PERIOD FOR RECOVERY OF TAX supervening CIR v. Don suit in court
ERRONEOULSYOR ILLEGALLY COLLECTED circumstances Pedro Central
Azucarera,
[G.R. No. L-
28467
February 28,
1973]
TAXATION LAW REVIEWER Page 119 of 165
 Section 230 of the NIRC provides for a 2-yr prescriptive
period to be counted "from the date of payment of tax"
for actions for refund of corporate income tax. Thus,
the 2-yr period should be reckoned from the actual
filing of the Adjustment Return or Annual ITR, because
at this point, it can be determined whether there has
been an overpayment of tax. CIR v. CA, CTA & BIR[G.R.
No. 117254, January 21, 1999]
If a Revenue Regulation provides for a prescriptive period
different from the NIRC, then the regulation is invalid and
the NIRC period should be used. PBCom v. CIR, [G.R. No.
112024, January 28, 1999]
Suspension of the 2 yr Prescriptive Period
1. there is a pending litigation between the
government and the taxpayer
2. The Commissioner in that litigated case agreed to
abide by the decision of the SC as to the collection
of taxes relative thereto Panay Electric Co. v.
Collector, [May 28, 1958]
7. OTHER CONSIDERATION AFFECTING TAX REFUNDS
1. Sec. 112 (A)
Zero-Rated or Effectively Zero-Rated Sales. - any
VAT-registered person, whose sales are zero-rated
or effectively zero-rated may, within two (2) years
after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax
due or paid attributable to such sales, except
transitional input tax, to the extent that such input
tax has not been applied against output tax:
Provided, however, That in the case of zero-rated
sales under Section 106(A)(2)(a)(1), (2) and (B) and
Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas
(BSP): Provided, further, That where the taxpayer
is engaged in zero-rated or effectively zero-rated
sale and also in taxable or exempt sale of goods of
properties or services, and the amount of
creditable input tax due or paid cannot be directly
and entirely attributed to any one of the
transactions, it shall be allocated proportionately
on the basis of the volume of sales.
2. Payment Under Protest is NOT Necessary under
NIRC
TAXATION LAW REVIEWER
A suit or proceedings for tax refund may be
maintained whether or not such tax, penalty or
sum has been paid under protest or duress [Sec.
229]
Similarly, payment under protest is not necessary
in refund for local taxes. [Sec. 196 LGC], however,
payment under protest is necessary is case of:
(a) real property taxes [Sec. 252 LGC]
(b) custom duties [Sec2308 TCC]
3. The Commissioner may, even without a written
claim, refund or credit a tax, where on the face of
the return upon which payment was made,
payment appears to be erroneous. (Sec. 229)
4. The partial payment of a tax cannot be a basis for a
tax refund. CIR v. Prieto [G.R. L-11976, August 26,
1961]
5. in case taxes are payable in installments, the two-
year period is counted from the payment of the
last installment. CIR v. Palanca [G.R. No. L-16890,
October 29, 1966]
6. If a taxpayer had lost his right to dispute the
validity of a tax assessment in view of his failure to
he be granted a refund?
NO. The expedient of an appeal from a denial of a
tax request for cancellation of warrant of distraint
and levy cannot be utilized for the purpose of
testing the legality of an assessment, which had
become conclusive and binding on the taxpayer,
there being no appeal, the procedure set forth in
Section 306 (now Sec. 204 C and 229) of the
National Internal Revenue Code is not available to
revive the right to contest the validity of an
assessment once the same had been irretrievably
lost not only by the failure to appeal but likewise
by the lapse of the reglementary period within
which to appeal could have been taken. CIR v.
Concepcion [G.R. No. L-23912, March 15, 1968]
Page 120 of 165