REMEDIES
TITLE VIII: REMEDIES
SEC. 6. Power of the Commissioner to Make assessments and
Prescribe additional Requirements for Tax Administration and
Enforcement. -
(A) Examination of Returns and Determination of Tax Due. - After
a return has been filed as required under the provisions of this Code, the
Commissioner or his duly authorized representative may authorize the
examination of any taxpayer and the assessment of the correct amount of
tax: Provided, however; That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer.
Any return, statement of declaration filed in any office authorized to
receive the same shall not be withdrawn: Provided, That within three (3)
years from the date of such filing, the same may be modified, changed, or
amended: Provided, further, That no notice for audit or investigation of
such return, statement or declaration has in the meantime been actually
served upon the taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports and
other Documents. - When a report required by law as a basis for the
assessment of any national internal revenue tax shall not be forthcoming
within the time fixed by laws or rules and regulations or when there is
reason to believe that any such report is false, incomplete or
erroneous, the Commissioner shall assess the proper tax on the best
evidence obtainable.
In case a person fails to file a required return or other document at the
time prescribed by law, or willfully or otherwise files a false or fraudulent
return or other document, the Commissioner shall make or amend the
return from his own knowledge and from such information as he can obtain
through testimony or otherwise, which shall be prima facie correct and
sufficient for all legal purposes.
xxx
Under the Tax Code, the powers and duties of the BIR includes the
assessment and collection of all national internal revenue taxes, fees, and
charges.
In this regard, after a tax return has been filed, the BIR is authorized to
examine the taxpayer and assess the correct amount of tax. However, the
failure of the taxpayer to file a return shall not prevent the BIR from examining
the taxpayer.
In the event that the taxpayer failed to provide the required return or
information to the BIR, or if the BIR believes that such report is false,
incomplete or erroneous, then the assessment can be made based on the best
evidence available.
AMENDMENT OF RETURNS: Any return, statement or declaration filed in
any office authorized to receive the same shall not be withdrawn, provided,
that within three (3) years from the date of such filing, the same may be
modified, changed, or amended.
However, the taxpayer may no longer modify, change or amend any return,
statement or declaration if a notice for audit or investigation of such return,
statement or declaration has been actually served upon the taxpayer.
“TENTATIVE” RETURNS: A “Tentative Tax Return” shall be considered as
a final return, unless a final amended return is filed by the concerned
taxpayer. However, once a Letter of Authority or any other notice of audit is
received, taxpayers are barred from making amendments to the tentative tax
returns filed.
This emphasizes that income tax return marked as “Tentative” may also be
the subject of examination pursuant to Section 6(A) of the Tax Code. (RMC
No. 50-2013)
Cesar Nickolai F. Soriano Jr.
1 Arellano University School of Law 2011-0303
TAX REMEDIES
I. ASSESSMENT
ASSESSMENT is a written notice and demand made by the Bureau of
Internal Revenue (BIR) on the taxpayer for the settlement of a due tax liability
that is there definitely set and fixed. It is a written communication containing
a computation by a revenue officer of tax liability, giving the taxpayer an
opportunity to contest or disprove the BIR examiner’s findings (Jose C. Vitug
and Ernesto D. Acosta, Tax Law and Jurisprudence, First Edition, p. 282).
Presumption of Regularity: Tax assessments by tax examiners are
presumed correct and made in good faith. The taxpayer has the duty to prove
otherwise. In the absence of proof of any irregularities in the performance of
duties, an assessment duly made by a Bureau of Internal Revenue examiner
and approved by his superior officers will not be disturbed. All presumptions
are in favor of the correctness of tax assessments. (Bonifacio Sy Po vs. CTA;
GR No. 81446; Aug. 18, 1988)
Presumption of regularity does not apply if assessment is not based on
sufficient evidence: as a general rule, tax assessments by tax examiners are
presumed correct and made in good faith. All presumptions are in favor of the
correctness of a tax assessment. It is to be presumed, however, that such
assessment was based on sufficient evidence. Upon the introduction of the
assessment in evidence, a prima facie case of liability on the part of the
taxpayer is made. If a taxpayer files a petition for review in the CTA and
assails the assessment, the prima facie presumption is that the assessment
made by the BIR is correct, and that in preparing the same, the BIR personnel
regularly performed their duties. This rule for tax initiated suits is premised
on several factors other than the normal evidentiary rule imposing proof
obligation on the petitioner-taxpayer: the presumption of administrative
regularity; the likelihood that the taxpayer will have access to the relevant
information; and the desirability of bolstering the record-keeping
requirements of the NIRC.
However, the prima facie correctness of a tax assessment does not
apply upon proof that an assessment is utterly without foundation,
meaning it is arbitrary and capricious. Where the BIR has come out with
a "naked assessment," i.e., without any foundation character, the
determination of the tax due is without rational basis. In such a situation, the
U.S. Court of Appeals ruled that the determination of the Commissioner
contained in a deficiency notice disappears. (Commissioner of Internal
Revenue vs. Hantex Trading, Inc.)
CRIMINAL COMPLAINT: A criminal complaint filed with the DOJ is not
deemed an assessment. “An assessment contains not only a computation
of tax liabilities, but also a demand for payment within a prescribed
period. It also signals the time when penalties and interests begin to
accrue against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on and
received by the taxpayer. Accordingly, an affidavit, which was
executed by revenue officers stating the tax liabilities of a taxpayer and
attached to a criminal complaint for tax evasion, cannot be deemed an
assessment that can be questioned before the Court of Tax Appeals.
…An assessment informs the taxpayer that he or she has tax liabilities.
But not all documents coming from the BIR containing a computation of
the tax liability can be deemed assessments” (CIR vs. Pascor Realty and
Development Corporation; GR No. 128315; June 29, 1999)
THE ASSESSMENT MUST BE IN WRITING AND STATE THE FACTS AND
THE LAW UPON WHICH IT IS BASED:
The old requirement of merely notifying the taxpayer of the CIR’s findings
was changed in 1998 of informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made, otherwise, the
assessment itself would be invalid (CIR vs. Azucena Reyes, G.R. No. 159694,
January 27, 2006).
 To be simply informed in writing of the investigation being conducted
and of the recommendation for the assessment of the estate taxes due
 is nothing but a perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean that Reyes
already knew the law and the facts on which the assessment was
based. It does not at all conform to the compulsory requirement under
Section 228. (CIR vs. Reyes; GR No. 159694)
 The assessment cannot be based on mere conjectures or presumptions.
(CIR vs. Benipayo)
 The alleged “factual bases” in the advice, preliminary letter and “audit
working papers” did not suffice. There was no going around the mandate
of the law that the legal and factual bases of the assessment be stated
in writing in the formal letter of demand accompanying the assessment
notice (CIR vs. Enron Subic, G.R. No. 166387, January 19, 2009).
 The formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof should inform
the taxpayer of the declaration of deficiency tax against the taxpayer
(CIR vs. Gonzales, G.R. No. 177279, October 13, 2010)
 While the lack of PRN and PAN is a deviation from the requirements
under Sec. 1 and 2 of RR 12-85, the same cannot detract from the fact
that the FAN were issued to and actually received by Menguito in
accordance with Sec. 228 of NIRC.
The stringent requirement that an assessment notice be
satisfactorily proven to have been issued and released or, if
receipt thereof is denied that the said assessment notice have
been served on taxpayer, applies only to FAN but not PRN or
PAN.
The issuance of valid FAN is a substantive pre-requisite to tax collection,
for it contains not only a computation of tax liabilities but also a demand
for payment within a prescribed period, thereby signalling the time when
penalties and interest begin to accrue against the taxpayer and enabling
the latter to determine his remedies thereof. Due process requires that
it must be served on and received by taxpayer. A PRN and PAN do not
bear the gravity of a FAN. The PRN and PAN merely hint at the initial
findings of the BIR against a taxpayer and invited the latter to an
“Informal Conference or Clarificatory Meeting.” Neither notice contains a
declaration of the tax liability of the taxpayer or a demand for payment
thereof. Hence, the lack of such notices inflicts no prejudice on taxpayer
for as long as the latter is property served with the FAN. (CIR vs.
Dominador Menguito, G.R. No. 167560, September 17, 2008)
DELIVERY OF NOTICE (PAN/FAN/FDDA): BIR can notify the taxpayer of
the deficiency taxes due by means of:
1. Personal delivery – Delivering personally a copy of the PAN/FAN/ FDDA
to the party at his registered or known address.
2. Substituted service – Can be resorted to only if party is not present at
the registered or known address.
3. Service by mail – Sending a copy of the notice by registered mail or by
reputable professional courier service
WHO MAY ISSUE NOTICES: The term “duly authorized representative” of
the Commissioner of Internal Revenue (CIR) who may issue the
PAN/FAN/FDDA refers to Revenue Regional Directors, Assistant
Commissioner-Large Taxpayers Service, and Assistant Commissioner-
Enforcement and Advocacy Service. (RMC No. 11-2014)
Jeopardy Assessment: A jeopardy assessment is a tax assessment made
by an authorized Revenue Officer without the benefit of a complete or partial
audit, in light of the RO’s belief that the assessment and collection of the
deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to:
i. Comply with audit and investigation requirements to present his books
of accounts and/or pertinent records
ii. Substantiate all or any of the deductions, exemptions or credits claimed
in his return (Sec. 3[1][a], RR No. 30-02 dated December 16, 2002).
It is usually issued when statutory prescriptive periods for the assessment or
collection of taxes are about to lapse due principally to the taxpayer’s fault.
Compromise: Under Sec. 204(A) of the NIRC as implemented by Sec. 3 of RR
30- 2002, the Commissioner may compromise the payment of any internal
revenue tax when there is “doubtful validity of the assessment” where a
Cesar Nickolai F. Soriano Jr.
2 Arellano University School of Law 2011-0303
TAX REMEDIES
reasonable doubt as to the validity of the claim against the taxpayer exists,
when it is shown that the delinquent account or disputed assessment is one
resulting from a jeopardy assessment.
The doubtful validity of an assessment may be accepted when it is shown that
the disputed assessment is:
1. A Jeopardy Assessment (assessment without the benefit of a complete or
partial audit); or
2. An Arbitrary Assessment (assessment appearing to be based on
presumptions and there is reason to believe that it is lacking legal and/or
factual basis); or
3. The “Best Evidence Obtainable Rule” and there is reason to believe that the
same can be disputed by sufficient and competent evidence. (Sec. 3 of RR
No. 30-2002)
However, in RMC No. 34-2014, the BIR clarified that if the assessment is based
on Best Evidence Obtainable Rule, should not be automatically considered as
a doubtful assessment. Scrutiny as to the surrounding circumstances that led
to the issuance of such an assessment (e.g., assessments based on Revenue
Memorandum Circular No. 23-2000, RMC No. 99-2010, etc.) should be
thoroughly evaluated. The taxpayer's failure to present or submit the required
documents necessary to make the assessment of its tax liability makes it
incumbent to the Bureau to resort to the application of the best evidence
obtainable method to recover unpaid taxes due the government. Therefore,
any assessment made as a result thereof is presumed prima facie correct and
sufficient for all legal purposes.
Best Evidence Obtainable:
SEC. 6. Power of the Commissioner to Make assessments and
Prescribe additional Requirements for Tax Administration and
Enforcement.
xxx
(B) Failure to Submit Required Returns, Statements, Reports and other
Documents. — When a report required by law as a basis for the
assessment of any national internal revenue tax shall not be forthcoming
within the time fixed by laws or rules and regulations or when there is
reason to believe that any such report is false, incomplete or erroneous,
the Commissioner shall assess the proper tax on the best
evidence obtainable.
In case a person fails to file a required return or other document at the
time prescribed by law, or willfully or otherwise files a false or fraudulent
return or other document, the Commissioner shall make or amend the
return from his own knowledge and from such information as he can obtain
through testimony or otherwise, which shall be prima facie correct and
sufficient for all legal purposes.
xxx
Best Evidence Obtainable Rule is different from Best Evidence Rule; hearsay
evidence may be the basis of an assessment but not photocopies: We agree
with the contention of the petitioner that the best evidence obtainable may
consist of hearsay evidence, such as the testimony of third parties or accounts
or other records of other taxpayers similarly circumstanced as the taxpayer
subject of the investigation, hence, inadmissible in a regular proceeding in the
regular courts. 72 Moreover, the general rule is that administrative agencies
such as the BIR are not bound by the technical rules of evidence. It can accept
documents which cannot be admitted in a judicial proceeding where the Rules
of Court are strictly observed. It can choose to give weight or disregard such
evidence, depending on its trustworthiness.
The best evidence obtainable under Section 16 of the 1977 NIRC, as
amended, does not include mere photocopies of records/documents. The
petitioner, in making a preliminary and final tax deficiency assessment against
a taxpayer, cannot anchor the said assessment on mere machine copies of
records/documents. Mere photocopies of the Consumption Entries
have no probative weight if offered as proof of the contents thereof.
The reason for this is that such copies are mere scraps of paper and
are of no probative value as basis for any deficiency income or
business taxes against a taxpayer. The original copies of the
Consumption Entries were of prime importance to the BIR. This is so because
such entries are under oath and are presumed to be true and correct under
penalty of falsification or perjury. Admissions in the said entries of the
importers’ documents are admissions against interest and presumptively
correct.
Resort to estimation allowed: The rule is that in the absence of the accounting
records of a taxpayer, his tax liability may be determined by estimation. The
petitioner is not required to compute such tax liabilities with mathematical
exactness. Approximation in the calculation of the taxes due is justified. To
hold otherwise would be tantamount to holding that skillful concealment is an
invincible barrier to proof. 78 However, the rule does not apply where the
estimation is arrived at arbitrarily and capriciously (Commissioner of Internal
Revenue vs. Hantex Trading Co., Inc.; GR No. 136975; March 31, 2005)
When assessment is deemed made: an assessment is deemed made
when the demand letter or notice is RELEASED, MAILED OR SENT by the BIR
to the taxpayer. The law does not require that the taxpayer receive the notice
within the three-year or ten-year period (CIR vs. Bautista [May 27, 1959)].
So, even if the taxpayer actually received the assessment after the expiration
of the prescriptive period, provided the release thereof was effected before
prescription sets in, the assessment is deemed made on time.
Receipt of the taxpayer of the assessment: the assessment may be
served to the taxpayer personally, or through mail or substituted delivery. (RR
No. 18-2013)
Registered Mail: If the notice to the taxpayer is served by registered mail, and
no response is received from the taxpayer within the prescribed period from
date of the posting thereof in the mail, the same shall be considered actually
or constructively received by the taxpayer. If the same is personally served
on the taxpayer or his duly authorized representative who, however, refused
to acknowledge receipt thereof, the same shall be constructively served on
the taxpayer. (Sec. 3.1.7, RR 12-99)
Presumption of receipt; prerequisite: The presumption that a letter duly
directed and mailed was received in the regular course of mail cannot apply
where none of the required facts to raise this presumption, i.e., that the letter
was properly addressed with postage prepaid and that it was mailed, has been
shown. Mere notations on the records of the tax collector of the mailing of a
notice of a deficiency tax assessment to a taxpayer, made without the
supporting evidence, cannot suffice to prove that such notice was sent and
received; otherwise, the taxpayer would be at the mercy of the revenue
officers, without adequate protection or defense (Nava vs. CIR, G.R. No. L-
19470, January 30, 1965)
ASSESSMENT PROCESS
A. ISSUANCE OF LETTER OF AUTHORITY
LETTER OF AUTHORITY (LOA): is an official document that empowers a
Revenue Officer (RO) to examine and scrutinize a Taxpayer’s books of
accounts and other accounting records, in order to determine the Taxpayer’s
correct internal revenue taxes.
An LOA would include the following information: (1) taxes covered; (2) period
covered; (3) authorized examiners; and (4) authorized signatory.
The BIR has now adopted the electronic LOA format. Taxpayers who received
manual LOA has the right to disregard it and not entertain the BIR officers
who will conduct the audit.
The LOA must be served to the taxpayer within 30 days from its date of
issuance; otherwise, it shall become null and void. The taxpayer shall then
have the right to refuse the service of this LA, unless the LA is revalidated.
It can be revalidated through the issuance of a new LA. It can be revalidated
only once, if issued by the Regional Director; twice, if issued by the CIR. The
suspended LA(s) must be attached to the new issued LA. (RMO No. 38-88)
Period covered should only be one year: an assessment would be declared
illegal if issued WITHOUT a LOA, or even with a LOA, but DEFECTIVE as when
Cesar Nickolai F. Soriano Jr.
3 Arellano University School of Law 2011-0303
TAX REMEDIES
it adds “and unverified prior years” in addition to a specific year to be
examined. (Commissioner of Internal Revenue vs. Sony Philippines, Inc.; GR
No. 178697; Nov. 17, 2010)
Letter Notice: pertains to an automatic assessment issued by the BIR pursuant
to a computerized matching of 3rd party information without taxpayer’s
contact.
Tax Verification Notice: are issued for estate tax purposes. (RMO No. 69-2010)
B. TAX AUDIT
A Revenue Officer is allowed only 120 days from the date of receipt of the
LOA to conduct the audit and submit the required report of investigation. If
the RO is unable to submit his final report of investigation within the 120-day
period, he must then submit a Progress Report to his Head Office, and
surrender the LOA for revalidation.
A taxpayer can only be subjected to an audit of a taxable year only
ONCE; Except in the following cases:
1. Fraud, irregularity or mistakes, as determined by the Commissioner;
2. Taxpayer requests for reinvestigation;
3. Verification of compliance with withholding tax laws and regulations;
4. Verification of capital gains tax liabilities.
5. When the commissioner chooses to exercise his power to obtain
information relative to the examination of other taxpayers under Sec.
5(B). (Sec. 235 of the Tax Code)
SUBMISSION OF DOCUMENTS: Upon receipt of the LOA, the taxpayer will
also receive a checklist of documents that the BIR will require the taxpayer to
submit in connection with the audit.
• First Notice – After 10 days from receipt of the checklist and the taxpayer
did not comply, a First Notice will be sent to the taxpayer.
• Second and Final Notice – After 10 days from receipt of the First Notice
and the taxpayer still did not comply, a Second and Final Notice will be
sent to the taxpayer.
Subpoena Duces Tecum (SDT): After 10 days from receipt of the Second
and Final Notice and the taxpayer still did not comply, the authorized BIR
officer shall request for the issuance of a subpoena from the Assistant
Commissioner, Enforcement and Advocacy Service (National Office) or
Assistant Commissioner, Large Taxpayers Service (Large Taxpayers Service)
or Revenue Regional Directors (Regional Office). (RMO No. 45-2010)
The Assistant Commissioner, Enforcement and Advocacy Service/ Assistant
Commissioner, Large Taxpayers Service/ Revenue Regional Directors shall
evaluate the request within 2 days from receipt. Upon issuance of the
subpoena, the revenue officer shall serve it on the taxpayer within 3 days.
The compliance date for the submission of books of accounts and other
accounting records shall be set on the 14th day from date of issuance of SDT.
Payment of the administrative penalty shall not excuse the taxpayer
summoned from complying with the SDT.
In case of no submission or incomplete presentation of the required books
and records, the issuing office shall forward the case to the Prosecution
Division at the National Office or Legal Division at the Regional Office. The
Action lawyer assigned shall then request for a conference with the assigned
revenue officer. This shall be scheduled on the fifth (5th) working day from
the date set for compliance with the SDT
Within seven (7) working days from the conference, a criminal complaint can
be filed against the taxpayer for violation of Section 266 of the Tax Code for
failure to obey summons.
Once the criminal complaint has been filed, no prosecuting officer of the BIR
shall cause the withdrawal or dismissal of the case, notwithstanding the
subsequent submission of documents indicated in the SDT. (RMO No. 10-
2013)

C. NOTICE OF INFORMAL CONFERENCE
NOTICE OF INFORMAL CONFERENCE: is a written notice informing a
taxpayer that the findings of the audit conducted on his books of accounts
and accounting records indicate additional taxes or deficiency assessments
have to be paid.
If, after the culmination of an audit, a Revenue Officer recommends the
imposition of deficiency assessments, this recommendation is communicated
by the Bureau to the Taxpayer concerned during an informal conference called
for this purpose. The Taxpayer shall then have fifteen (15) days from the date
of his receipt of the Notice for Informal Conference to explain his side.
Note, however, that under RR No. 18-13, amending RR No. 12-99, the
provision requiring an Informal Conference has already been removed. Thus,
if during the audit process, the BIR determines that there is basis to assess
the taxpayer for deficiency taxes, a PAN will be issued.
D. PRELIMINARY ASSESSMENT NOTICE
PRELIMINARY ASSESSMENT NOTICE (PAN): is a communication issued
by the Regional Assessment Division, or any other concerned BIR Office,
informing a Taxpayer who has been audited of the findings of the Revenue
Officer, following the review of these findings.
If the Taxpayer disagrees with the findings stated in the PAN, he shall then
have fifteen (15) days from his receipt of the PAN to file a written reply
contesting the proposed assessment, otherwise he shall be considered in
default. Note, however, that under RR No. 18-13, amending RR No. 12-99, a
FAN/FLD will still be issued after the lapse of the 15 days from the filing of a
protest against the PAN.
The PAN is not required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error
in the computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and
the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding
taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When the 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. (Sec. 228
of the Tax Code)
Under RR No. 18-13, a FAN/FLD shall be issued outright in the above-
enumerated cases.
Absence of PAN: The PAN must show in detail the facts and the law upon
which the assessment is based. Otherwise, the PAN will not be valid and any
resulting assessment will be considered null and void.
The issuance of the PAN is part of the due process requirement under RR No.
18-2013. Thus, if the BIR did not issue a PAN or did not give the taxpayer an
opportunity to respond within 15 days, this will be a violation of the due
process right of a taxpayer.
The Supreme Court has already ruled that if a taxpayer is not given an
opportunity to respond to a PAN, any resulting assessment will be
considered null and void. (Commissioner of Internal Revenue vs. Metro
Star Superama, Inc., G.R. No. 185371 dated December 8, 2010)
The amendments under RR No. 18-13:
Previously, a PAN issued by the BIR will state the following:
"Pursuant to the provisions of Section 228 of the 1997 NIRC and its
implementing Revenue Regulations, you are hereby given the opportunity to
Cesar Nickolai F. Soriano Jr.
4 Arellano University School of Law 2011-0303
TAX REMEDIES
present in writing your side of the case within fifteen (15) days from receipt
thereof. However, if you are amenable to pay xxx.”
However, after the effectivity of RR No. 18-2013, a PAN now states the
following:
“Pursuant to the provisions of Section 228 of the 1997 NIRC and its
implementing Revenue Regulations, you are hereby given fifteen (15) days
from receipt hereof to pay the aforesaid deficiency tax liabilities in a duly
authorized agent bank in which you are enrolled using the BIR Payment Form
(BIR Form 0605) attached herewith. Afterwards, submit proof of payment
thereof to the __ for updating of your records and cancellation of the herein
PAN, if warranted.”
Based on the above amendment, the taxpayer is already directed to pay the
deficiency tax indicated in the PAN, unlike in the previous version of the
provision where the taxpayer is merely directed to respond with his side of
the case.
Under RMC No. 11-2014, the BIR clarified that this new practice is not violative
of the due process rights of the taxpayer, to wit:
“An FLD/FAN issued reiterating the immediate payment of deficiency taxes
and penalties previously made in the PAN is a denial of the response to the
PAN. A final demand letter for payment of delinquent taxes may be considered
a decision on a disputed assessment (Isabela Cultural Corporation vs.
Commissioner of Internal Revenue, G.R. No. 135210 dated July 11, 2001).
This includes a disputed PAN. So long as the parties are given the opportunity
to explain their side, the requirements of due process are satisfactorily
complied with (Calma vs. Court of Appeals, G.R. No. 122787 dated February
9, 1999).”
E. NOTICE OF ASSESSMENT (FAN/FLD)
NOTICE OF ASSESSMENT or FORMAL ASSESSMENT NOTICE
(FAN)/FORMAL LETTER OF DEMAND (FLD): is a declaration of deficiency
taxes 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. The Notice of Assessment shall inform the Taxpayer of this
fact, and that the report of investigation submitted by the Revenue Officer
conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayer’s deficiency
tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter
of demand and the notice of assessment shall be void.
F. PROTEST
PROTEST: is the act by the taxpayer of questioning the validity of the
imposition of the corresponding delinquency increments for internal revenue
taxes as shown in the notice of assessment or letter of demand.
It should be filed within 30 days from receipt of the FAN/FLD.
Form of Protest: a protest may be made either through:
a. Request/Motion for Reconsideration: a plea for re-evaluation of an
assessment on the basis of existing records without the need of
additional evidence and may raise either questions of law or fact, or both.
The additional 60 days applicable to motion for reinvestigation does not
apply to requests/motion for reconsideration.
b. Request/Motion for Reinvestigation: a plea for re-evaluation of an
assessment based on newly discovered evidence or additional evidence.
Here, the taxpayer is given 60 days from the filing of the letter of protest
to provide all relevant supporting documents – those to support the legal
and factual bases disputing a tax assessment.
Relevant Supporting Documents: The CIR cannot demand other
supporting documents, particularly if they do not exist and eventually hold
that failure to provide within the 60-day period makes the assessment final
and executory. “The term "relevant supporting documents" should be
understood as those documents necessary to support the legal basis in
disputing a tax assessment as determined by the taxpayer. The BIR can only
inform the taxpayer to submit additional documents. The BIR cannot demand
what type of supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit.” (CIR vs. First Express Pawnshop
Company, Inc.; GR No. 172045-46; June 16, 2009)
Suspension of the running of prescriptive period: A request for
reinvestigation suspends the running of the prescriptive period. However, if
not accepted by the BIR, it does not suspend the running of the
prescriptive period. The burden of proof that the request for reinvestigation
has actually been granted rests on the BIR. Such grant may be expressed in
its communications with the BIR or implied from the action of the BIR in
response to the request. (Bank of the Philippine Islands vs. Commissioner of
Internal Revenue, G.R. No. 139736 dated October 17, 2005)
On the other hand, a request for reconsideration does not suspend the
running of the prescriptive period because it only entails evaluation of existing
evidence. Whereas, a request for reinvestigation, where new or additional
evidence is provided, the prescriptive period is suspended.
Period of suspension for requests for reinvestigation: the period between the
request for reinvestigation and the revised assessment should be subtracted
from the total prescriptive period for the assessment of the tax; and, once the
assessment had been reconsidered at the taxpayers’ instance, the period for
collection should begin to run from the date of the reconsidered or modified
assessment.
Contents: either should contain: (1) nature of the protest, i.e., if
reconsideration or reinvestigation; (2) date of assessment notice; and (3)
applicable rules, law, regulations and jurisprudence. Otherwise, the protest
shall be considered void and without force and effect.
Period within which the Commissioner may act on the protest: the
Commissioner shall have 180 days to act upon the protest from:
1. Date of filing in case of reconsideration; or
2. Date of submission of the relevant supporting documents or 60 days
from filing the request for reinvestigation.
Failure to file a protest: If the taxpayer failed to file a protest, the
assessment shall be considered final, executory and demandable and no
requests for either reinvestigation or reconsideration shall be granted. (Sec.
3.1.4 of RR No. 12-99, as amended)
G. FINAL DECISION ON DISPUTED ASSESSMENT
FINAL DECISION ON DISPUTED ASSESSMENT (FDDA): If no protest
against the FAN/FLD is filed, the assessment becomes final and executory and
an FDDA is issued stating the facts, law, regulations, rules, jurisprudence from
which the decision was based AND that it is the final decision.
The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary five-day letter, were not valid
substitutes for the mandatory notice in writing of the legal and
factual bases of the assessment. These steps were mere perfunctory
discharges of the CIR’s duties in correctly assessing a taxpayer. The
requirement for issuing a preliminary or final notice, as the case may be,
informing a taxpayer of the existence of a deficiency tax assessment is
markedly different from the requirement of what such notice must contain.
Just because the CIR issued an advice, a preliminary letter during the pre-
assessment stage and a final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law and facts on which
the deficiency tax assessment was made. The law requires that the
legal and factual bases of the assessment be stated in the formal
letter of demand and assessment notice. Thus, such cannot be
presumed. (CIR vs. Enron Subic Power Corporation; GR No. 166387; Jan.
19, 2009)
ACTIONS BY THE COMMISSIONER: Within the 180 days, the
Commissioner may either (1) deny, directly or indirectly, the protest; or (2)
not act on the protest.
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Express Denial: The protest may be denied by an administrative decision
on a disputed assessment, stating the facts, applicable law, rules and
regulations or jurisprudence on which such decision is based otherwise, the
decision shall be void in which case the same shall not be considered a
decision on a disputed assessment and that the same is his final decision. (RR
12-99)
Actions within the 180-day period which are deemed denial of the
protest:
a. Formal and final letter of demand from the BIR to the taxpayer.
b. Filing of a collection case before the regular courts for the collection
of the tax (Yabes vs. Flojo, G.R. No. L-46954).
If the Commissioner did not rule on the taxpayer’s motion for
reconsideration of the assessment, the period to appeal will only start
when the respondent would receive the summons for the civil action for
collection of deficiency tax (BIR v. Union Shipping Corp., GR 66160, May
21, 1990)
c. Issuance of warrant of distraint and levy to enforce collection of
deficiency assessment (Hilado v. CIR. CTA case 1256, Feb. 25, 1964),
except:
(1) When the protest was not taken into account before the warrant of
distraint and levy was issued;
(2) When the taxpayer is left in the dark as to which action of the
commissioner is appealable
d. The filing of a criminal action against a taxpayer after the filing of a
protest is deemed a denial of such protest. However, the institution of a
criminal action cannot in itself be considered as an assessment. In the
first instance, there is already an assessment made by the BIR, and the
protest thereon is denied through the criminal action. In the latter, there
is no assessment yet, and the criminal charges filed, cannot be deemed
an assessment in itself. (see Pascor Realty case under [E] Tax Remedies
under the NIRC, [a] Assessment)
e. Sending of a Final Notice before seizure, indicating that the CIR is
giving the taxpayer “the LAST OPPORTUNITY to settle the assessment”.
f. Sending of a Demand letter, containing a text with the words “final
decision” and “appeal”, similar to the tenor of the following:
(1) “This constitutes our final decision on the matter. If you are not
agreeable, you may appeal to the CTA within 30 days from receipt
of this letter.”
(2) “This is our final decision based on the investigation. If you
disagree, you may appeal this final decision within 30 days from
receipt hereof, otherwise said deficiency tax assessment shall
become final, executor and demandable.”
g. Referral by the Commissioner of the request for reinvestigation to the
Solicitor General, because this shows the insistence of the commissioner
to collect tax.
h. Service of a Preliminary Collection Letter, since it presupposes the
existence of a valid assessment notice. (United International Pictures v.
CIR, GR 110318, Aug. 28, 1996)
H. ADMINISTRATIVE APPEAL
ADMINISTRATIVE APPEAL: In case of DENIAL by the Commissioner’s
duly authorized representative, the taxpayer may either:
1. Appeal to the CTA within 30 days from the receipt of such denial; or
2. Elevate his protest through request for reconsideration to the
Commissioner within 30 days from the date of receipt of the said
decision.
In case the PROTEST IS NOT ACTED UPON by the Commissioner’s duly
authorized representative: within 180 days from the date of filing of the
protest or date of submission by the taxpayer of the required documents, the
taxpayer may:
1. Appeal to the CTA within 30 days from the expiration of the 180-day
period; or
2. Await the final decision of the Commissioner.
In the second option, if the decision of the Commissioner is to deny the
 protest, the taxpayer may either:
a. Appeal to the CTA within 30 days from receipt of the denial; or
b. File a motion for reconsideration with the Commissioner. However,
such motion for reconsideration will not toll the 30 day period to
appeal to the CTA.
No request for reinvestigation shall be allowed for administrative appeal and
only issues raised in the decision shall be entertained.
RR No. 12-99 is not inconsistent with Sec 228 of the NIRC. It merely
implements Sec 228 by establishing guidelines on the nature of decision
rendered by the authorized representative of the CIR on a disputed
assessment. The taxpayer is given a choice whether to appeal a decision to
the CIR or to the CTA. The decision of the authorized representative will not
attain finality if the taxpayer appeals the same to the CIR who shall then be
required to decide on the protest himself (Moog Controls Corp. Phil. Branch
vs. CIR)
I. JUDICIAL APPEAL
If the protest or administrative appeal is DENIED, in whole or in part by the
Commissioner (note that in administrative appeals, the denial came from
the Commissioner’s authorized representative), the taxpayer may appeal to
the CTA within 30 days from date of receipt of the said decision. Otherwise,
the assessment shall become final, executory and demandable.
If the protest or administrative appeal is NOT ACTED UPON by the
Commissioner within 180 days counted from the date of filing of the protest,
the taxpayer may:
1. Appeal to the CTA within 30 days from the expiration of the 180 day
period; or
2. Await the final decision of the Commissioner on the disputed assessment
and appeal such final decision to the CTA within thirty (30) days after
the receipt of a copy of such decision.
It must be emphasized, however, that in case of inaction on protested
assessment within the 180-day period, the option of the taxpayer are mutually
exclusive and the resort to one bars the application of the other. (Sec. 3.1.4
of RR No. 12-99, as amended by RR No. 18-13)
Procedures from CTA division to Supreme Court:
Section 7 of R.A. No. 9282, which amends the jurisdiction of the CTA, and the
Revised Rules of the CTA provides the following procedures for judicial appeal:
1. A party adversely affected by a ruling of a division of the CTA may file a
motion for reconsideration or new trial before the same division of the
CTA within 15 days.
2. A party adversely affected by a ruling of a division of the CTA after a
motion for reconsideration may file a petition for review with the CTA en
banc within 15 days.
3. A party adversely affected by a ruling of the CTA en banc may file a
petition for review on certiorari with the Supreme Court within 15 days.
Effect of failure to file the judicial appeal on time: will render the
assessment final, executory and demandable.
The failure to timely perfect an appeal cannot simply be dismissed as a mere
technicality, for it is jurisdictional. Thus:
Nor can petitioner invoke the doctrine that rules of technicality must yield to
the broader interest of substantial justice. While every litigant must be given
the amplest opportunity for the proper and just determination of his cause,
free from the constraints of technicalities, the failure to perfect an appeal
within the reglementary period is not a mere technicality. It raises
a jurisdictional problem as it deprives the appellate court of jurisdiction over
the appeal. The failure to file the notice of appeal within the reglementary
period is akin to the failure to pay the appeal fee within the prescribed period.
In both cases, the appeal is not perfected in due time. (CIR vs. Fort Bonifacio
Development Corporation; GR No. 167606; Aug. 11, 2010)
Protest filed only during period of collection when the assessment
has attained finality: General Rule: Once the assessment has become
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final and executory, the taxpayer in a collection case cannot go into the merits
of the assessment.
Exceptions:
1. Non-service of PAN (CIR vs. Metro Star Superama, Inc., G.R. 185371,
December 2010)
2. Waiver on part of Government (Republic vs. Ker, 18 SCRA 208 [1966])
3. No valid waiver of the prescriptive period on the part of the taxpayer
(Philippine Journalists, Inc. vs. CIR, G.R. No. 162852, 16 December
2004, 447 SCRA 214);
4. Defense that the decision has attained finality is not raised by the CIR –
deemed a waiver of such defense. (Republic vs. Ker, 18 SCRA 208)
5. The question raised was the prescription of the right of the BIR to collect
which is an entirely separate issue from the validity of the assessment.
((Marcos II vs. CA, G.R. No. 120880)
WITHDRAWAL OF APPEAL: When an appeal is withdrawn, the assailed
decision becomes final and executory. (Central Luzon Drug Corporation vs.
CIR; GR No. 181371; March 11, 2011)
The relevant provision in the NIRC for protesting an assessment is Sec. 228,
as implemented by RR No. 12-99, as amended by RR No. 18-2013.
II. REMEDIES FOR COLLECTION OF DELINQUENT TAXES
COLLECTION: is only allowed when there is already a final assessment made
for the determination of the tax due and must be made within 5 years from
such finality; or 10 years from discovery in case of false or fraudulent return
or omission to file one.
APPROVAL OF COURT SITTING ON PROBATE NOT NECESSARY FOR
COLLECTION OF DEFICIENCY ESTATE TAX: There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the
probate or estate settlement court's approval of the state's claim for estate
taxes, before the same can be enforced and collected. Apart from failing to
file the required estate tax return within the time required for the filing of the
same, petitioner, and the other heirs never questioned the assessments
served upon them, allowing the same to lapse into finality, and prompting the
BIR to collect the said taxes by levying upon the properties left by President
Marcos. The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax
Code. The deficiency tax assessment, having already become final,
executory, and demandable, the same can now be collected through
the summary remedy of distraint or levy pursuant to Section 205 of
the NIRC. (Ferdinand Marcos II vs. CA, CIR: GR No. 120880; June 5, 1997)
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The
civil remedies for the collection of internal revenue taxes, fees or charges,
and any increment thereto resulting from delinquency shall be:
(a) By distraint of goods, chattels, or effects, and other personal property
of whatever character, including stocks and other securities, debts, credits,
bank accounts and interest in and rights to personal property, and by levy
upon real property and interest in rights to real property; and
(b) By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the
discretion of the authorities charged with the collection of such
taxes: Provided, however, That the remedies of distraint and levy shall not
be availed of where the amount of tax involve is not more than One
hundred pesos (P100).
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.
The Bureau of Internal Revenue shall advance the amounts needed to
defray costs of collection by means of civil or criminal action, including the
preservation or transportation of personal property distrained and the
advertisement and sale thereof, as well as of real property and
 improvements thereon.
DISTRAINT: is the seizure of personal property, tangible or intangible, to
enforce the payment of taxes. It is a summary remedy where the seized
property may eventually be sold in a public sale, if the deficiency is not
voluntarily paid.
KINDS OF DISTRAINT:
1. Actual distraint – where the possession of the property is transferred
from the taxpayer to the government;
2. Constructive distraint – where the taxpayer is prohibited from disposing
his property.
PROPERTY SUBJECT OF DISTRAINT: In general, all goods, chattels or
effects and other personal property belonging to the taxpayer or in which the
taxpayer has an interest may be seized and distraint in such quantity sufficient
to satisfy the tax or charge, the increments and the expenses of the distraint
and the cost of the subsequent sale.
Bank Deposits: may properly be the subject of a garnishment,
notwithstanding the Bank Secrecy Law, since the procedure does not include
inquiry into the account.
WHEN APPLICABLE:
1. The taxpayer must be delinquent (except in constructive distraint) in the
payment of tax;
2. There must be a subsequent demand for its payment (assessment);
3. The taxpayer must fail to pay the tax at the time required;
4. The period within which to collect the tax has not yet prescribed; and
5. Amount of tax exceeds P100.00
ACTUAL DISTRAINT; PROCEDURE:
1. Seizure: any goods, chattels or effects, and the personal property,
including stocks and other securities, debts, credits, bank accounts, and
interests in and rights to personal property of such persons in sufficient
quantity to (1) satisfy the tax, or charge, together with any increment
thereto incident to delinquency, and (2) the expenses of the distraint
and (3) the cost of the subsequent sale, upon the failure of the person
owing any delinquent tax or delinquent revenue to the pay the same,
by:
a. The Commissioner – if the amount involved is in excess of
P1,000,000; or
b. The Revenue District Officer – if the amount involved is P1,000,000
or less.
2. Accounting of goods: shall be made by the levying officer within 10
days from receipt of the warrant.
3. Copy of warrant: shall be signed by the levying officer and left either:
a. To the owner or person from whose possession such goods,
chattels, or effects or other personal property were taken; or
b. At the dwelling or place of business of such persons AND with
someone of suitable age and discretion
4. Info on List: shall include:
a. A statement of the sum demanded; and
b. Note the time and place of sale
5. Manner of distraint:
a. Stocks and other securities: by serving a copy of the warrant of
distraint upon: (1) the taxpayer; and (2) upon the president,
manager, treasurer, or other responsible officer of the corporation,
company or association, which issued the said stocks or securities.
b. Debts and credits: by leaving with the persons owing the debts
or having in his possession or under his control such credits, or with
his agent, a copy of the warrant of distraint.
c. Bank accounts: by serving a warrant of distraint upon the (1)
taxpayer; and (2) the president, manager, treasurer or other
responsible officer of the bank.
d. Sugar quota: is considered real property and is thus subject to
levy, not distraint. (Presbitero vs. Fernandez, 7 SCRA 625)
6. Notations: The officer levying the distraint shall forthwith cause a
notation to be exhibited in not less than 2 public places in the
municipality or city where the distraint is made, specifying: (1) time
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and place of sale; and (2) the articles distrained.
7. Time of Sale: shall not be less than 20 days after notice to the owner
or possessor and the publication or posting of such notice.
8. Public Auction: to be conducted at the time and place specified in the
notice, and the goods distrained shall be sold to the highest bidder for
cash, or with the approval of the CIR, through duly licensed commodity
or stock exchanges.
9. Bill of Sale: in case of stock and other securities, the officer shall
execute a bill of sale which he will deliver to the buyer and a copy
thereof furnished to corporation, company or association which issued
the stocks or other securities.
10. Proceeds higher or lower:
a. If the proceeds is higher than the deficiency taxes, including
penalties and incident costs of the distraint and sale, the excess
shall be returned to the owner of the property sold.
b. Bids are not equal or is very much less than the actual market value
of the distrained goods: the CIR or his deputy may purchase
the same in behalf of the National Government for the amount of
the taxes, penalties and costs due thereon.
III. CONSTRUCTIVE DISTRAINT
SEC. 206. Constructive Distraint of the Property of a Taxpayer.
- To safeguard the interest of the Government, the Commissioner may
place under constructive distraint the property of a delinquent taxpayer or
any taxpayer who, in his opinion, is retiring from any business subject to
tax, or is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property or to perform any act tending
to obstruct the proceedings for collecting the tax due or which may be due
from him.
The constructive distraint of personal property shall be affected 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 dispose of
the same ;in any manner whatever, without the express authority of the
Commissioner.
In case the taxpayer or the person having the possession and control of
the property sought to be placed under constructive distraint refuses or
fails to sign the receipt herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of such property and,
in the presence of two (2) witnessed, leave a copy thereof in the premises
where the property distrained is located, after which the said property shall
be deemed to have been placed under constructive distraint.
WHEN APPLICABLE: When, in the opinion of the CIR, the taxpayer is
1. Retiring from any business subject to tax; or
2. Intends to leave the Philippines; or
3. Remove his property therefrom; or
4. Hide or conceal his property; or
5. Perform any act tending to obstruct the proceedings for collecting the
tax due or which may be due from him.
Note that delinquency is not required before a constructive distraint may be
effected.
HOW DONE: by (1) requiring the taxpayer or any person having possession
or control of such property to sign a receipt covering the property distrained
and (2) obligate himself to preserve the same intact and unaltered and not to
dispose of the same in any manner whatever without the express authority of
the CIR.
In case of refusal, the Revenue Officer effecting the constructive distraint
shall (1) proceed to prepare a list of such property and in the presence of 2
witnesses, (2) leave a copy thereof in the premises where the property
distraint is located, after which the said property shall be deemed to have
been placed under the constructive distraint.
IV. LEVY; Procedure
DISTRAINT VS. LEVY and cost of sale, the excess shall be turned over to the owner of the
property.
DISTRAINT LEVY
Personal property only Real property only H. RIGHT OF REDEMPTION:
Pre-emption only (no right of Pre-emption and redemption (w/in i. PERIOD: 1 year from the date of sale
redemption) 1 year from sale) available. ii. BY WHOM: taxpayer, or anyone for him.
No forfeiture in favor of Sec. 215 provides that forfeiture is iii. HOW: payment of the (1) amount of taxes due, penalties and
government in case there is no available in case there is no interest from the date of delinquency to the date of sale, (2)
bidder/bid is insufficient, but BIR bidder/bid is insufficient. together with the interest on the purchase price at the rate of 15%
may purchase the property. per annum from the date of purchase to the date of redemption.
There is constructive distraint There is NO constructive levy iv. EFFECT:
(1) The payment shall entitle the person paying to the delivery of
A. When Applicable: before or simultaneous with, or after distraint of the certificate issued to the purchaser and a certificate from
personal property belonging to the delinquent taxpayer. the RDO that he has thus redeemed the property;
(2) The RDO shall forthwith pay over to the purchaser the amount
In case the levy of real property is issued after the distraint of personal by which such property has thus been redeemed;
(3) Said property shall be free from the lien of such taxes and
property, the RDO, Regional Director or CIR, shall within 30 days after
execution of the distraint, proceed with the levy on the taxpayer’s real penalties
v. FAILURE TO REDEEM: in case the taxpayer shall not redeem the
property if the personal property is not sufficient to satisfy the tax
delinquency. property, the RDO shall, as grantor, execute a deed conveying to
the purchaser so much of the property as has been sold, free from
Repetition: Remedies of distraint and levy may be repeated if necessary all liens of any kind whatsoever, and the deed shall succinctly recite
all the proceedings upon which the validity of the sale depends.
until the full amount due, including all expenses, is collected. (Section 217 of
the Tax Code) (Sec. 202, NIRC)

B. Certificate: the RDO, Revenue Regional Director or the CIR, as the case I. RIGHTS OF OWNER DURING PERIOD OF REDEMPTION: the
owner shall not be deprived of the (1) possession of the property and
may be, shall prepare a duly authenticated certificate showing:
i. The name of the taxpayer; (2) shall be entitled to the rents and other income thereof until the
ii. The amounts of the tax and penalty due form him. expiration of the time allowed for its redemption (Sec. 214, NIRC)

C. Levy effected by: writing upon said certificate a description of the
property upon which the levy is made.
D. Written notice: at the same time, a written notice of the levy shall be
mailed to or served upon (1) the Register of Deeds of the province or
city where the property is located and (2) upon the delinquent taxpayer,
or if he is absent from the Philippines, (i) to his agent or his manager of
the business in respect to which the liability arose, or, if there be none,
(ii) to the occupant of the property in question.
A failure of notice is a fatal defect. (Cabrera vs. Provincial Treasurer of
Tayabas, 75 Phil. 780)
J. FORFEITURE
FORFEITURE: in case there is no bidder for real property, or if the highest
bid is for an amount insufficient to pay the taxes, penalties and costs, the
officer conducting the sale shall declare the property forfeited to the
Government in satisfaction of the claim in question and within 2 days
thereafter, shall make a return of his proceedings and the forfeiture shall be
spread upon the records of his office.
The Register of Deeds, upon registration with his office of any such
declaration of forfeiture, shall transfer the title of the property forfeited to
the Government without the necessity of an order from a competent court.

E. Advertisement: within 20 days after levy, the officer conducting the
proceedings shall advertise the property or a usable portion thereof as
may be necessary to satisfy the claim and cost of sale; and such
advertisement shall cover a period of at least 30 days.
It shall be effected by:
1. Posting a notice at the main entrance of the municipal building or
city hall and in a public and conspicuous place in the barrio or
district in which the real estate lies; and
2. Publication once a week for 3 weeks in a newspaper of general
circulation in the municipality or city where the property is located.
The forfeiture need not be for the whole tax liability which could merely be
for an amount equivalent to the fair market value of the property. (Castro
vs. Collector, 4 SCRA 1193)
The owner of the property may redeem said property within 1 year from
the date of forfeiture by paying:
1. Full amount of taxes and penalties, together with interest thereon;
and
2. Costs of sale.
Otherwise, the forfeiture shall be absolute. (Sec. 215, NIRC)

The advertisement shall contain: RESALE OF FORFEITED PROPERTIES: the CIR may, upon giving of not
less than 20 days notice, sell and dispose of the forfeited properties at a public
1. A statement of the amount of taxes and penalties due;
2. Time and place of sale; and auction, or with prior the approval of the Secretary of Finance, dispose the
same at a private sale.
3. Name of the taxpayer against whom taxes are levied; and
4. A short description of the property to be sold.
K. BEFORE SALE IN LEVY AND DISTRAINT: the taxpayer may
Failure of notice, mistake in the owner’s name, misdescription of the discontinue the proceedings by paying the taxes due together with the
property or inaccurate date of sale are fatal defects. (Velayo vs. penalties and interest. Otherwise the sale of the levied or distrained
Ordoveza, 102 Phil. 385) property may proceed.

L. FURTHER DISTRAINT OR LEVY: the remedy of levy and distraint may

F. Sale: shall be conducted either at the main entrance of the municipal
building or city hall, or on the premises to be sold, as the officer be repeated until the full amount due, including all expenses, is collected.
conducting the proceeding shall determine and as the notice of sale shall
(Sec. 217, NIRC)
specify.
M. INJUNCTION NOT AVAILABLE: No court shall have the authority to
G. Proceeds in excess: in case the proceeds of the sales exceed the claim grant an injunction to restrain the collection of any national internal
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 revenue tax, fee or charge imposed by this Code.
N. JUDICIAL ACTION:
“Any provision of laws or Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the recovery of Tax Credit
shall at all times be simultaneously instituted within the same proceedings
and no right to reserve such similar action separately form the criminal action
will be recognized.” (Sec. 7[b][1], RA 1125, as amended by RA 9282)
In criminal actions, the judgment of the court shall not only impose the
penalty but likewise order payment of the taxes subject of the criminal case
as finally decided by the CIR. (Sec. 205, Tax Code)
No civil or criminal action for the recovery of taxes or the enforcement of any
fine, penalty or forfeiture under this Code shall be filed in court without the
approval of the Commissioner. (Sec. 220, Tax Code) The approval of the
Commissioner required for judicial enforcement of tax liability is not
jurisdictional; the lack of such approval merely affects the cause of action or
capacity to sue. (Arches vs. Bellosillo, 20 SCRA 32)
V. CIVIL AND CRIMINAL ACTIONS
Aside from the summary remedy of distraint and levy, the BIR may also avail
of the remedy of collecting delinquent taxes through the filing of a civil or
criminal action. (Sec. 205[b] of the Tax Code)
Assessment not a pre-requisite for a criminal action for tax evasion:
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 vs. Cusi, 97 SCRA
877). In plain words, for criminal prosecution to proceed before assessment,
there must be a prima facie showing of willful attempt to evade taxes (CIR
vs. CA, 257 SCRA 2000)
Acquittal in tax evasion case not a bar for the filing of civil action for
collection: the conviction or acquittal obtained from a criminal action for tax
evasion shall not be a bar to the filing of a civil suit for the collection of taxes.
(Sec. 254 of the Tax Code)
VI. TAX LIEN
TAX LIEN: is a charge on all leviable property of the taxpayer to secure the
proper payment of the tax, surcharges, interests and costs. (Sec. 219 of the
Tax Code) It attaches:
1. With respect to personal property –when the taxpayer neglects or
refuses to pay tax after demand and not from the time the warrant is
served;
2. With respect to real property – from time of registration with the register
of deeds;
Notice to affect third parties: the lien is not valid against any mortgagee,
purchaser, or judgment creditor until notice of such lien shall have been filed
in the proper register of deeds of the province or city where the property of
the taxpayer is located. (Sec. 219, Tax Code)
Distinguished from distraint: in the latter, the property seized must be
that of the taxpayer, although it need not be the property in respect to which
the tax is assessed; a tax lien, however, is directed to the property subject to
the tax regardless of its owner.
Preference of credit: a tax lien due respectively on specific property are
absolutely preferred claims against an insolvent taxpayer.
A tax (not due on specific property) due the national government come ninth,
and taxes due cities or municipalities come 10th in the order of preference of
credits on the other assets of the debtor. (Art. 2244, Civil Code)
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Likewise, the claim of the government predicated on a tax lien is superior to
the claim of the laborers who won in a labor dispute, notwithstanding the
provision in the labor code on worker’s preference (CIR vs. NLRC, 218 SCRA
42).
Extinguishment of tax lien:
1. By payment or remission of the tax
2. By prescription of the right of government to assess or collect
3. By failure to file notice of such tax lien in the office of Register of Deeds
4. By destruction of property subject to tax lien
5. By replacing it with a bond.
VII. COMPROMISE
COMPROMISE: is a contract whereby the parties, by reciprocal concessions,
avoid litigation or put an end to one already commenced. (Art. 2028, New
Civil Code)
GROUNDS FOR COMPROMISE OF CIVIL LIABILITY:
1. Where the assessment is of doubtful validity;
2. When the financial position of the taxpayer demonstrates clear inability
to pay the tax.
Under RR No. 30-02, the following can be compromised:
1. Delinquent accounts
2. Cases under administrative protest after issuance of the Final
Assessment Notice to the taxpayer which are still pending in the Regional
Offices, Revenue District Offices, Legal Service, Large Taxpayer Service
(LTS), Collection Service, Enforcement Service and other offices in the
National Office;
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts
5. Criminal violations, other than those already filed in court or those
involving criminal tax fraud
CANNOT BE COMPROMISED: The following cases cannot be the subject
of a compromise:
1. Withholding tax cases, unless the applicant-taxpayer invokes provisions
of law that cast doubt on the taxpayer's obligation to Withhold
2. Criminal tax fraud cases confirmed as such by the Commissioner of
Internal Revenue or his duly authorized representative
3. Criminal violations already filed in court
4. Delinquent accounts with duly approved schedule of instalment
payments
5. Cases where final reports of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment and the taxpayer
is agreeable to such decision by signing the required agreement form for
the purpose. On the other hand, other protested cases shall be handled
by the Regional Evaluation Board (REB) or the National Evaluation Board
(NEB) on a case to case basis
6. Cases which become final and executory after final judgment of a court,
where compromise is requested on the ground of doubtful validity of the
assessment
7. Estate tax cases where compromise is requested on the ground of
financial incapacity of the taxpayer
MINIMUM AMOUNTS:
Under the Tax Code:
1. For cases of financial incapacity, 10% of the basic tax assessed;
2. For other cases, 40% of the basic tax assessed
Under RR No. 30-02, the following are the minimum amounts:
1. If ground is doubtful validity – 40% of the basic tax assessed
If compromise is lower than the minimum, the taxpayer must file written
request citing factual and legal bases and approval of the National Evaluation
Board (NEB) is required.
2. If ground is financial incapacity -
  Taxpayer earns compensation income only and the income is
P10,500 if single, or P21,000 if married – 10%
 Taxpayer has no source of income whatsoever – 10%
 Taxpayer has zero or negative net worth – 10%
 Dissolved corporations – 20%
 Non-operating for 3 years or more – 10%
 Non-operating for less than 3 years – 20%
 Declared insolvent or bankrupt – 20%
 Earnings deficit resulting in 50% capital impairment – 40%
APPROVAL: of the National Evaluation Board, composed of the
Commissioner and 4 deputy commissioners, shall be necessary if:
a. The basic tax exceeds P1,000,000; or
b. The settlement offered is less than the prescribed minimum rates.
WHEN ALLOWED: A compromise of the tax liability (civil) is possible at any
stage of the litigation, even during appeal, although legal propriety demands
that prior leave of court should be obtained. A criminal compromise, however,
is proper only if done prior to the filing of the information with the court.
OFFER OF FULL PAYMENT: The compromise offer shall be paid by the
taxpayer upon filing of the application for compromise settlement. No
application for compromise settlement shall be processed without the full
settlement of the offered amount. In case of disapproval of the application for
compromise settlement, the amount paid upon filing of the aforesaid
application shall be deducted from the total outstanding tax liabilities.
VIII. ABATEMENT
ABATEMENT: is the cancellation or withdrawal of an assessment made by
the BIR. As it stands, however, based on RMO No. 20-07, the BIR now only
processes application for abatement of surcharges, interest and compromise
penalties. Under this RMO, application for abatement of basic tax assessed
are not covered by any existing regulations and therefore will not be
processed.
GROUNDS:
1. The tax or any portion thereof appears to have been unjustly or
excessively assessed; or
2. The administration and collection costs involved do not justify collection
of the amount due
REFUND OR CREDIT: the Commissioner may refund or credit any tax where
on the face of the return upon which payment was made such payment
appears clearly to have been erroneously paid.
PROCESS OF ABATEMENT: The process for abatement of taxes under
current rules:
1. The Revenue District Office or Large Taxpayer’s Service shall receive
the application for abatement, evaluate the same, and prepare a report
containing the basis of the recommendation.
2. The report will be submitted to the Technical Working Committee
(TWC) who will review the same and prepare final recommendation for
the approval of the CIR.
3. No application for abatement shall be processed or evaluated without
the payment of 100% of the basic tax due
DELEGATION OF THE POWER TO ABATE AND COMPROMISE:
SEC. 7. Authority of the Commissioner to Delegate Power. - The
Commissioner may delegate the powers vested in him under the pertinent
provisions of this Code to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such limitations and
restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of finance, upon recommendation of the
Commissioner: Provided, however, That the following powers of the
Commissioner shall not be delegated:
xxx
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this
Cesar Nickolai F. Soriano Jr.
10 Arellano University School of Law 2011-0303
TAX REMEDIES
Code, any tax liability: Provided, however, That assessments issued by the
regional offices involving basic deficiency taxes of Five hundred thousand
pesos (P500,000) or less, and minor criminal violations, as may be
determined by rules and regulations to be promulgated by the Secretary
of finance, upon recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional evaluation
board which shall be composed of the Regional Director as Chairman, the
Assistant Regional Director, the heads of the Legal, Assessment and
Collection Divisions and the Revenue District Officer having jurisdiction
over the taxpayer, as members; and
xxx
WHAT MAY BE DELEGATED? The power to abate/compromise may be
delegated by the Commissioner to the Regional Evaluation Board, in the
following cases:
1. Assessments issued by Regional Offices involving basic deficiency taxes
of P500,000;
2. Minor criminal violations
IX. CIVIL PENALTIES
SURCHARGE: is a civil penalty imposed by law as addition to the deficiency
tax required to be paid. It is a criminal penalty but a civil administrative
sanction provided primarily as a safeguard for the protection of state revenue
and to reimburse the government for the heavy expense of investigation and
loss resulting from the taxpayers’ fraud. (Castro vs. Collector of Internal
Revenue)
When due:
1. 25% in case of failure to
a. File the return and pay the tax on time;
b. File the return with the proper internal revenue officer (wrong
venue);
c. Pay the deficiency tax within the time prescribed for its payment in
the notice of assessment; or
d. Pay the full or part of the amount of tax shown on any return
required to be filed, 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% in case:
a. Of willful neglect to file the return within the period prescribed; or
b. A false or fraudulent return is wilfully made.
The following are prima facie evidence of a false or fraudulent return:
a. A substantial underdecalration of sales, receipts or income;
b. A substantial overstatement of deductions.
Substantial underdeclaration/overstatement shall mean more than 30%
of the actual sales/deductions.
INTEREST: at the rate of 20% per annum on any unpaid amount of tax.
Deficiency Interest: is imposed on any deficiency in the tax due which shall
be due from the date prescribed for its payment until full payment thereof.
Delinquency Interest 20% in case of failure to pay:
a. The amount of tax due on any return required to be filed; or
b. The amount of tax due for which no return is filed;
c. A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner. (Sec. 249)
There is an imposition of 20% delinquency interest per annum on
assessments unpaid which shall be computed from the time stated for its
payment in the FAN until paid. This shall be in addition to the 20% deficiency
interest imposed on assessments from time it is due until it is paid. It is
possible that the annual interest penalty may amount to 40% per annum.
(First Lepanto Taisho Insurance Corp. v. CIR; G.R. No. 197117 dated April 10,
2013)
ADMINISTRATIVE PENALTIES: in case of failure to file an information
return, statement or list, or keep any record, or supply any information
required by the Tax Code or by the Commissioner on the date prescribed
therefor, unless it is shown that such failure is due to reasonable cause and
not to willful neglect, there shall upon notice and demand by the
Commissioner, One Thousand Pesos (P1,000) for each such failure, but not
to exceed Twenty Five Thousand (P25,000) during a calendar year. (Sec. 250)
COMPROMISE PENALTIES: a certain amount of money which the taxpayer
pays to compromise the criminal liability of a tax violation. The penalty is paid
in lieu of criminal prosecution, and cannot be imposed in the absence of a
showing that the taxpayer consented thereto.
Coverage: "All criminal violations may be compromised except: (a) those
already filed in court, or (b) those involving fraud." (Sec. 204 of the Tax Code)
Based on the above provision of the NIRC, under Sec. 6 of RR No. 12-99, in
general, the taxpayer's criminal liability arising from his violation of the
pertinent provision of the Code may be settled extra-judicially instead of the
BIR instituting against the taxpayer a criminal action in Court.
Except: those already filed in court or those involving criminal tax fraud. (Sec.
6 of RR No. 12-99)
Consent of the taxpayer is necessary: A compromise in extra-judicial
settlement of the taxpayer's criminal liability for his violation is consensual in
character, hence, may not be imposed on the taxpayer without his consent.
Hence, the BIR may only suggest settlement of the taxpayer's liability through
a compromise.
X. RIGHT OF THE BIR TO INQUIRE INTO BANK DEPOSITS
GENERAL RULE: the BIR cannot inquire into the bank deposits (whether
peso or foreign currency) of a taxpayer
EXCEPTIONS: under the Tax Code, and as amended by R.A. No. 10021,
otherwise known as the Exchange of Information on Tax Matters Act of 2009,
the BIR is allowed to inquire into bank deposits in the following cases:
1. The bank account of a decedent to determine his gross estate for estate
tax purposes;
2. Any taxpayer who has filed an application for compromise of his tax
liability by reason of financial incapacity to pay his tax liability.
3. A specific taxpayer subject of a request for supply of information from a
foreign tax authority pursuant to an international convention or
agreement on tax matters to which the Philippines is a signatory
Amid strong oppositions against RR No. 1-2014, which requires all withholding
agents to submit a detailed list of all payees, the BIR issued an announcement
on August 6, 2014 stating that investments are not subject to the bank secrecy
law; only bank deposits and government securities are covered.
The announcement stated that investments which are not bank deposits or
government securities such as corporate bonds, purchases of shares of stocks,
purchases of receivables of business, and purchases of foreign exchange are
not covered by the bank secrecy law.
XI. PRESCRIPTIVE PERIODS
1. ASSESSMENTS:
a. 3 years, counted from:
1. After the last day prescribed by law for the filing of the return;
or
2. After the last day the return was filed, if filed beyond the
period prescribed by law.
A proceeding in court may be filed only after the assessment.
b. Exceptions to the 3 year period:
1. When there is a valid waiver.*
2. When there is a fraudulent or false return with intent to evade tax.
In this case, the prescriptive period is 10 years from discovery.**
3. When the taxpayer failed to file the tax return.
Cesar Nickolai F. Soriano Jr.
11 Arellano University School of Law 2011-0303
TAX REMEDIES
4. When the BIR grants the taxpayer’s request for reinvestigation.
5. When the taxpayer cannot be located in the address stated in the
tax return
*REQUISITES FOR A VALID WAIVER: The waiver must be:
1. In writing;
2. Agreed to by both the BIR and the taxpayer;
3. Before the expiration of the ordinary prescriptive period for the
assessment and collection; and
4. The period of the waiver must be definite (e.g., Until December 31,
2013).
Nature: The waiver of the statute of limitations, whether on assessment
or collection, should not be construed as a waiver of the right to
invoke the defense of prescription but, rather, an agreement
between the taxpayer and the BIR to extend the period to a date certain,
within which the latter could still assess or collect taxes due. The waiver
does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally (Philippine Journalists, Inc. vs. CIR, G.R. No.
162852, 16 December 2004, 447 SCRA 214)
A waiver of statute of limitations, to a certain extent, is a derogation of
the taxpayer’s right to security against prolonged and unscrupulous
investigations and must therefore be carefully and strictly construed. The
waiver of statute of limitations is not a waiver of a right to invoke the
defense of prescription as erroneously held by the CA. It is an agreement
between the taxpayer and the BIR that the period to issue an assessment
and collect the taxes due is extended to a date certain. The waiver does
not mean that the taxpayer relinquishes the right to invoke prescription
unequally particular where the language of the document is equivocal.
For the purpose of safeguarding taxpayers from an unreasonable
examination, investigation or assessment, our tax law provides a statute
of limitations in the collection of taxes. The law of prescription being a
remedial measure should be liberally construed in order to afford such
protection. The exception to the law on prescription should perforce be
strictly construed (Philippine Journalists, Inc. vs. CIR, December 16,
2004 – G.R. No. 162852).
Indefinite extension: The indefinite extension of the period for
assessment is unreasonable because it deprives the said taxpayer of the
assurance that he will no longer be subjected to further investigation for
taxes after the expiration of a reasonable period of time (Philippine
Journalists, Inc. vs. Commissioner of Internal Revenue, G.R. No. 162852,
16 December 2004, 447 SCRA 214)
Invalidity of waiver cannot be invoked if the taxpayer partially paid the
assessment: Had petitioner truly believed that the waiver was invalid and
that the assessments were issued beyond the prescriptive period, then
it should not have paid the reduced amount of taxes in the revised
assessment. RCBC’s subsequent action effectively belies its insistence
that the waiver is invalid. The records show that on December 6, 2000,
upon receipt of the revised assessment, RCBC immediately made
payment on the uncontested taxes. Thus, RCBC is estopped from
questioning the validity of the waivers. To hold otherwise and allow a
party to gainsay its own act or deny rights which it had previously
recognized would run counter to the principle of equity which this
institution holds dear. (RCBC vs. CIR, GR No. 170257 dated September
7, 2011)
**A proceeding in court may be filed even without assessment. In cases
where the fraud assessment has become final and executor, the fact of
fraud shall be judicially taken cognizance of in the civil or criminal action
for the collection thereof.
Rationale for the 10 year assessment period: The ordinary period of
prescription of 5 years within which to assess tax liabilities under Sec.
331 of NIRC should be applicable to normal circumstances, but where
the government is placed at a disadvantage so as to prevent its lawful
agents from proper assessment of tax liabilities due to false return,
fraudulent returns intended to evade payment of tax or failure to file
returns, the period of 10 years provided in Sec. 332(a) of NIRC, from
 time of discovery of the falsity, fraud or omission even seems to be
inadequate and should be the one enforced (Aznar vs. CTA, & CIR,
August 23, 1974 – G.R. 20569)
2. COLLECTION: by distraint or levy or by a proceeding in court within
5 years following the assessment of the tax, or 10 years without
assessment in case of false or fraudulent returns with intent to evade
the tax or failure to file a return.
3. CRIMINAL LIABILITY: 5 years from the commission or discovery of
the violation, whichever comes later. (Sec. 281, NIRC)
COUNTING OF PERIOD: Both Article 13 of the Civil Code and Section 31,
Chapter VIII, Book I of the Administrative Code of 1987 deal with the same
subject matter — the computation of legal periods. Under the Civil Code, a
year is equivalent to 365 days whether it be a regular year or a leap year.
Under the Administrative Code of 1987, however, a year is composed of 12
calendar months. Needless to state, under the Administrative Code of 1987,
the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of computing
legal periods under the Civil Code and the Administrative Code of 1987. For
this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative
Code of 1987, being the more recent law, governs the computation of legal
periods. Lex posteriori derogat priori.
A calendar month is “a month designated in the calendar without regard to
the number of days it may contain.” It is the “period of time running from
the beginning of a certain numbered day up to, but not including, the
corresponding numbered day of the next month, and if there is not a sufficient
number of days in the next month, then up to and including the last day of
that month.” To illustrate, one calendar month from December 31, 2007 will
be from January 1, 2008 to January 31, 2008; one calendar month from
January 31, 2008 will be from February 1, 2008 until February 29, 2008.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987
to this case, the two-year prescriptive period (reckoned from the time
respondent filed its final adjusted return on April 14, 1998) consisted of 24
calendar months, should be on April 14, 2000. (CIR vs. Primetown Property
Group, Inc.; G.R. No. 162155; August 28, 2007)
SUSPENSION OF THE RUNNING OF PRESCRIPTIVE PERIOD:
1. For the period during the Commissioner is prohibited from making the
assessment or beginning 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
Commissioner;
3. When the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected. (Sec. 223)
NO SUSPENSION OF RUNNING OF STATUTE OF LIMITATIONS:
1. If the taxpayer informed the Commissioner of any change in address;
The suspension of the three-year period to assess applies only if the BIR
Commissioner is not aware of the whereabouts of the taxpayer. Hence,
despite the absence of a formal written notice of respondent's change of
address, the fact remains that petitioner became aware of respondent's
new address as shown by documents replete in its records. As a
consequence, the running of the three-year period to assess respondent
was not suspended and has already prescribed. (CIR vs. BASF Coating
+ Inks Phils., GR No. 198677 dated November 26, 2014)
2. When the warrant of distraint or levy is duly served upon the taxpayer,
his authorized representative, or a member of the household with
sufficient discretion, and no property could be located;
3. When the taxpayer is out of the Philippines.
XII. BADGES OF FRAUD
Fraud, for purposes of the statute of limitations, may be established by:
1. Intentional and substantial understatement of tax liability by the
Cesar Nickolai F. Soriano Jr.
12 Arellano University School of Law 2011-0303
TAX REMEDIES
taxpayer;
2. Intentional and substantial overstatement of deductions or exemption;
and/or
3. Recurrence of the foregoing circumstances.
FALSE vs. FRAUDULENT RETURN: the first one implies a deviation from
the truth or fact, whether intentional or not, while the second is intentional
and deceitful with the aim of evading the correct tax due.
TAX EVASION: connoted the integration of three factors:
1. The end to be achieved, i.e., the payment of less than that known by
the taxpayer to be legally due, or the non-payment of tax when it is
shown that a tax is due;
2. An accompanying state of mind which is described as being “evil” or “in
bad faith,” “wilful,” deliberate and not accidental; and
3. A course of action or failure of action which is unlawful. (CIR vs. Estate
of Benigno Toda Jr; GR No. 147188; Sept. 14, 2004)
Fraud-related cases:
1. Fraud must be the product of a deliberate intent to evade taxes
(Jalandoni vs. Republic)
2. Simple statement that return filed was not fraudulent does not disprove
existence of fraud (Tayengco vs. Collector)
3. Substantial under-declarations of income for six consecutive five years
demonstrate fraudulence of return (Perez vs. CTA)
4. Presence of fictitious expenses, with no evidence presented, proves
existence of fraud (Tan Guan vs. Commissioner)
However, the courts did not consider the tax returns filed as false
or fraudulent with intent to evade payment of tax in the following
cases:
1. Mere understatement in the tax return will not necessarily imply fraud
(Jalandoni vs. Republic)
2. Sale of a real property for a price less than its fair market value is not
necessarily a false return (Commissioner vs. Ayala Securities).
3. Fraud is a question of fact and the circumstances constituting fraud must
be alleged and proved in the trial court (Commissioner vs. Ayala
Securities).
4. Fraud is never imputed and the courts never sustain findings of fraud
upon circumstances that only create suspicion (Commissioner vs. Javier)
5. Mistakes of revenue officers on three different occasions remove element
of fraud (Aznar vs. CTA and Collector).
XIII. REFUND
GROUNDS FOR REFUND:
1. Tax is erroneously or illegally collected.
2. Sum collected is excessive or in any manner wrongfully collected.
3. Penalty is collected without authority.
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 or when there is no obligation to pay the same.
PRESCRIPTIVE PERIOD: The filing of an administrative case for refund or
a case in court must be done within (2) years from the date of payment of
the tax or penalty regardless of any supervening cause that may arise after
payment:
Provided, however, that the Commissioner may, even without a written claim
therefore, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to have been
erroneously paid.
Tax paid in installments: the 2-year period is reckoned from the date the
last or final installment or payment, because for tax purposes, there is no
payment until the whole or entire tax liability is fully paid (Collector vs. Prieto,
G.R. No. L-11976, August 29, 1961)
End of taxable year vs. date of filing of the final adjusted return: the
2-year period is counted from the filing of the final adjusted return and the exemption and is strictly construed against the claimant. The burden of proof
payment of the tax due thereon, NOT from the end of the taxable year is on the taxpayer claiming the refund that he is entitled to the same
(contrary to a VAT refund which is counted from the close of the taxable (Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., G.R. No.
quarter). 68282, May 26, 1995, 244 SCRA 332)

The rationale in computing this period is the fact that it is only then the Payment under protest: is NOT a pre-requisite for filing a refund, unlike in
corporation can ascertain whether it made profits or incurred losses in its real property taxes (Sec. 252, Local Government Code) and customs duties
business operations (ACRA Investments vs. Court of Appeals, G.R. No. 96322, (Sec. 2308, Tariff and Customs Code).
December 20, 1991).
TAX CREDIT VS. TAX REFUND:
Period to file judicial claim for refund is within the same 2-years: The
administrative claim for refund filed before the BIR and the judicial claim after They are essentially modes of recovering taxes that have been either
denial by the BIR must BOTH be filed within the 2 year period. This is different erroneously or illegally paid to the government. REFUND takes place when
from a VAT refund covered by Sec. 112, which makes the 120-day period for there is actual reimbursement. TAX CREDIT takes place upon the issuance of
the CIR to decide mandatory as held by the SC. a tax certificate or tax credit memo, which can be applied against any sum
that may be due and collected from the taxpayer.
As such, the SC has repeatedly held that the claim for refund with the BIR
and the subsequent appeal to the CTA must be filed within the 2-year period. TAX CREDIT TAX REFUND
“If, however, the Collector takes time in deciding the claim, and the period of Works by applying the refundable Any tax on income that is paid in
2 years is about to end, the suit or proceeding must be started in the CTA amount, as shown on the final excess of the amount due the
before the end of the 2-year period without awaiting the decision of the adjustment return (FAR) of a given government may be refunded,
Collector.” (CIR vs. Victorias Milling Co., & CTA January 03, 1968 – G.R. L- taxable year, against the estimated provided that a taxpayer properly
24108) quarterly income tax liabilities of applies for the refund (Philam Asset
the succeeding taxable year. Management, Inc. vs. CIR, G.R.
The time for bringing an action for a refund of income tax, fixed by statute, Nos. 156637/162004, December
is not extended by the delay of the Collector of Internal Revenue in giving 14, 2005).
notice of the rejection of such claim (Koppel (Phil), Inc. vs. CIR, G.R. No. L- There is no prescriptive period for Prescribes after two years from the
10550, September 19, 1961) the carrying over of the same (CIR filing of the FAR (Sec. 229, NIRC).
vs. BPI, G.R. No. 178490, July 7,
Based on the foregoing, an administrative claim for refund may be filed in the 2009); It may be repeatedly carried
morning and the judicial claim therefor filed in the afternoon, provided they over to succeeding taxable years
are both within 2 years from date of payment. until fully utilized.
When granted, the BIR issues a Tax When granted, given in cash.
Note, however, that the administrative claim is a pre-requisite for the filing of Credit Certificate which can be
the judicial claim, since no suit or proceeding may be maintained in any court applied against any tax liability
for refund until a claim for refund or credit has been duly filed with the (except withholding taxes or
Commissioner. (Sec. 229 of the Tax Code) indirect taxes)

Suspension of the 2-year prescriptive period:
1. When there is a pending litigation between the Government and the
taxpayer; and
2. The CIR in that litigated case agreed to abide by the decision of the SC
as to the collection of taxes relative thereto (Panay Electric Co. vs.
Collector, G.R. No. L-10574, May 28, 1958).
REQUISITES:
1. There must be a written claim with the CIR, as it would enable the CIR
to correct the errors of his subordinate and to notify the government;
The Commissioner may, even without a written claim for therefor, refund
or credit any tax:
a. Where on the face of the return upon which payment was made,
such payment appears clearly to have been erroneously paid (Sec.
229, par. 2 of the Tax Code), or
Note that under Sec. 204(C) of the Tax Code, a return filed showing
an overpayment shall be considered as a written claim for credit or
refund.
b. When the petitioner paid the disputed assessments under protest
before filing his petition for review with the CTA (Vda. de San
Agustin vs. CIR, G.R. No. 138485, September 10, 2001).
2. It must be a categorical claim for refund or credit;
3. It must be filed within 2 years after the payment of the tax or penalty
otherwise no refund or credit could be taken. No suit or proceeding shall
be instituted after the expiration of the 2 year period regardless of any
supervening cause that may arise after payment;
4. Present proof of payment of the tax.
Nature; Burden of Proof: a tax refund partakes of the nature of an
Cesar Nickolai F. Soriano Jr.
13 Arellano University School of Law 2011-0303
TAX REMEDIES
Pursuant to the foregoing cases, the choice of the taxpayer, whether tax
refund or tax credit, may be deduced as follows:
1. Tax refund, when the taxpayer files a written claim for the same,
although it failed to signify its intention in its return (Philam Asset
Management, Inc. vs. CIR, G.R. Nos. 156637/162004, December 14,
2005, with respect to its 1997 FAR).
2. Tax credit, when the taxpayer filled out the portion “Prior Year’s Excess
Credits” in its FAR (Philam Asset Management, Inc. vs. CIR, G.R. Nos.
156637/162004, December 14, 2005, with respect to its 1998 FAR, and
CIR vs. BPR, G.R. No. 178490, July 7, 2009).
3. Tax credit for the succeeding taxable years after tax credit was chosen
for the prior taxable year (CIR vs. BPI, G.R. No. 178490, July 7, 2009).
IRREVOCABILITY RULE: if the sum of the quarterly tax payments* made
during the said taxable year is greater than the total tax due on the entire
taxable income of that year, the corporation is entitled to either:
a. Carry-over the excess credit (Tax Credit); or
b. Be credited or refunded with the excess amount paid (Tax Refund).
Once the option to carry-over and apply the excess quarterly income tax
against the income tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered irrevocable for that
taxable period** and no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor. (Sec. 76 of the Tax Code)
*“Tax payments” should include taxes withheld by customers under the
withholding tax system and the 2-year period is reckoned from the filing of
the annual income tax return:
A taxpayer, resident or non-resident, who contributes to the withholding tax
system, does not really deposit an amount to the BIR Commissioner, but, to
perform or extinguish his tax obligation for the year concerned. He is paying
his tax liabilities for that year. Consequently, a taxpayer whose income is
withheld at the source will be deemed to have paid his tax liability when the
same falls due at the end of the tax year. It is from this latter date then, or
when the tax liability falls due, that the 2-year prescriptive period under Sec.
306 of the Revenue Code starts to run with respect to payments effected
through the withholding tax system. It is of no consequence whatever that a
claim for refund or credit against the amount withheld at the source may have
been presented and may have remained unresolved since the delay of the
Collector is rendering the decision does not extend the peremptory period
fixed by the statute (Finley J. Gibbs & Diane P. Gibbs vs. CIR, CTA, November
29, 1965 – GR. L-17406)
**“That taxable period” shall pertain only to the period where there was
excess payments of tax. Accordingly, if in the succeeding period, there is still
excess quarterly payments over the income tax due for the year, that amount
(excluding that of the previous year) may be applied for a TCC or refund.
In case the taxpayer files a refund for the excess tax initially opted to be
credited, and the same is denied, he may still continue to claim the same as
a tax credit.
No prescription: the excess tax payment has no prescriptive period and may
be claimed as a credit for the succeeding taxable years even beyond the 2-
year period for filing a refund.
ILLUSTRATION: X Corporation had excess tax payments during 2013
amounting to P4M and opted to carry-over as tax credit to the succeeding
taxable year the said overpayment by putting an "x" mark on the
corresponding box. During 2014, it had an excess tax payments totaling P9M,
petitioner indicated in its tax return that the same is to be refunded.
1. Can X Corporation validly file in 2014 a request for the refund
of the excess tax credits pertaining to 2013?
No. It is clear that once a corporation exercises the option to carry-over, such
option is irrevocable "for that taxable period." Having chosen to carry-over
the excess quarterly income tax, the corporation cannot thereafter choose to
apply for a cash refund or for the issuance of a tax credit certificate for the
amount representing such overpayment.
When the taxpayer made no “tick” in the return and subsequently
filed a refund: Despite the failure of Philam to make the appropriate marking
in the BIR from, the filing of its written claim effectively serves as an
expression of its choice to request a tax refund, instead of a tax credit. To
assert that any future claim for refund will be instantly hindered by a failure
to signify one’s intention in the FAR is to render nugatory the clear provision
that allows for a 2-year prescriptive period. When circumstances show that a
choice of tax credit has been made, it should be respected. But when
indubitable circumstances clearly show that another choice – a tax refund –
is in order, it should be granted. “Technicalities and legalisms, however
exalted, should not be misused by the government to keep money not
belonging to it and thereby enrich itself at the expense of its law abiding
citizens.
WHO MAY APPLY FOR A TAX REFUND OR TAX CREDIT CERTIFICATE:
the taxpayer or the withholding agent of the non-resident.
A “taxpayer” is any person subject to tax imposed by the Tax Code. Under
Sec. 53(c), the withholding agent who is required to deduct and withhold any
tax is made “personally liable for such tax” and is indemnified against any
claims and demands which the stockholder might wish to make in questioning
the amount of payments effected by the withholding agent in accordance with
the provisions of NIRC. The withholding agent is directly and independently
liable for the correct amount of the tax that should be withheld from the
dividend remittances. The withholding agent is, moreover, subject to and
liable for deficiency assessments, surcharges and penalties should the amount
of the tax withheld be finally found to be less than the amount that should
have been withheld under the law. A “person liable for tax” has been held to
be a “person subject to tax” and “subject to tax” both connote legal obligation
or duty to pay a tax. By any reasonable standard, such a person should be
regarded as a part-in-interest or as a person having sufficient legal interest,
to bring a suit for refund of taxes he believes were illegally collected from him
(CIR vs. Procter & Gamble Philippines Manufacturing Corporation, & CTA,
December 2, 1991 – G.R. No. 66838)

The SC explained the phrase "for that taxable period" in Commissioner of

Internal Revenue v. Bank of the Philippine Islands and held that the phrase
merely identifies the excess income tax, subject of the option, by referring to
the "taxable period when it was acquired by the taxpayer."

Hence, the controlling factor for the operation of the irrevocability rule is that
the taxpayer chose an option; and once it had already done so, it could no
longer make another one. (United International Pictures AB vs. CIR)

2. If in case the refund is denied, can X Corporation still carry-over

the excess tax credits in succeeding years?

Yes. In this case, petitioner opted to carry-over its 2013 excess income tax as
tax credit for the succeeding taxable years. Such option to carry-over is not
limited to the following taxable year 2014, but should apply to the succeeding
taxable years until the whole amount of the 2013 excess tax credits would be
fully utilized.

X Corporation has chosen that option for its 2013 excess tax credits. Thus, it
is no longer entitled to a tax refund corresponding to it. Nonetheless, the
amount will not be forfeited in the governments favor, because it may be
claimed by petitioner as tax credits in the succeeding taxable years. (Philam
Asset Management Inc. vs. Commissioner of Internal Revenue)

It is worthy to note that unlike the option for refund of excess income tax,
which prescribes after two years from the filing of the Final Adjustment Return
(FAR), there is no prescriptive period for the carrying over of the same.
Therefore, the excess income tax credit of X Corporation, which it acquired in
2013 and opted to carry over, may be repeatedly carried over to succeeding
taxable years, i.e., to 2014, 2015, 2016, and so on and so forth, until actually
applied or credited to a tax liability of X Corporation. (CIR vs. BPI)
Cesar Nickolai F. Soriano Jr.
14 Arellano University School of Law 2011-0303
TAX REMEDIES