BIR vs. CA, Sps.

Antonio Villan Manly and Ruby Ong AUTHOR:

Manly Expenditure method: a method of reconstructing the taxpayers income by
deducting the aggregate yearly expenditures form the declared yearly income. The
[G.R. No. 197950, November 24, 2014] theory is that when the amount of the money that a taxpayer spends during a
TOPIC: Tax Evasion, determination of probable cause given year exceeds his reported or declared income and the source of such money
is unexplained, it may be inferred that such expenditures represent unreported
PONENTE: Del Castillo income.
FACTS:
1. Antonio Manly is stockholder and EVP of Standard Realty corp, a family owned corporation while at the same time
engaged in rental business. His wife, herein co accused is a housewife.
2. On April 27, 2005, the BIR issued LOA No. 2001 00012387 authorizing its revenue officers to investigate respondent
spouses for internal revenue tax liabilities for the year 2003 and prior years.
3. On June 6, 2005, BIR issued a letter to respondents requiring them to submit documentary eveidence.
4. The Spouses failed to comply, thus on June 23, 2005, the revenue officers executed a joint affidavit purporting to the
declared annual income of the spouses for the years 1998-2003. In the said affidavit, it was alleged that despite the
modest income declared, the spouses were able to acquire valuable properties such as the log house in Tagaytay City,
a Toyota Rav 4 and a Toyota Prado.
5. The revenue officers recommended the filing of criminal cases against the respondents, for failing to supply the
correct and accurate information in their ITRs for the years 2000, 2001 and 2003, punishable under Sec. 254 and 255,
in relation to Sec. 248 (B) of R.A. 8424 (Tax Reform Act of 1997).
6. The State Prosecutor recommended for the filing of criminal charges against respondents: 3 counts of violation of Sec.
254 (attempt to evade or defeat tax), 3 counts of violation of Sec. 255 (failure to supply correct and accurate
information), and 3 counts of violation of Sec. 255 (failure to pay).
7. On July 27, 2009, Justice Secretary Agnes Devanadera reversed the resolution of the State Prosecutor. She found no
willful failure to pay or attempt to evade or defeat the tax on the part of the respondent spouses. She also pointed to
the BIRs failure to issue a deficiency tax assessment against respondents is a prerequisite to the filing of criminal case
for tax evasion.
8. BIR filed a petition for certiorari before the CA, however, the petition was dismissed.
ISSUE(S):
WON the issuance of a deficiency tax assessment is a prerequisite to the filing of criminal case for tax evasion?

HELD: Petition of BIR granted.

RATIO:
1. Tax evasion is deemed complete when the violator has knowingly and willfully filed fraudulent return with intent
to evade and defeat a part or all of the tax. An assessment of the tax deficiency is not required in a criminal
prosecution for tax evasion. However, the fact that a tax is due must be proved before one can be prosecuted for
tax evasion.
2. Since the underdeclaration of the income is more than 30% (133.24%), it constitutes prima facie evidence of false
or fraudulent return.
3. The amount of tax due was specifically alleged in the complaint.
CASE LAW/ DOCTRINE: Tax evasion is deemed complete when the violator has knowingly and willfully filed fraudulent
return with intent to evade and defeat a part or all of the tax.
DISSENTING/CONCURRING OPINION(S):