Tax2 Remedies[1]

7/27/2019 Tax2 Remedies[1]

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TAX REMEDIES

1. Taxpayers Remedies

a. Administrative

a.1. Before Payment of Taxes

a.1.1. Dispute Assessment

a.1.1.1. Reconsideration

a.1.1.2. Reinvestigationa.1.2. Compromise

a.2. After Payment of Taxes

a.2.1. Refund

a.2.2. Credit

b. Judicial

b.1. Civil

b.2. Criminal

c. Substantive Question validity of tax law /

regulation

2. Government Remediesa. Administrative

a.1. Distraint of personal property

a.2. Levy of real property

a.3. Enforcement of forfeiture

a.4. Enforcement of tax lien

a.5. Compromise and abatement

a.6. Civil penaltiesb. Judicial

b.1. Ordinary civil action

b.2. Criminal action

Tax remedies are important for governments regular

collection of revenue in accordance with the lifeblood

doctrine

Safeguards taxpayers rights against arbitrary action

(See flow chart first)

Deadline for Submission of Tax Returns

Date of filing of return is significant to determine the

prescriptive period for assessment

Actual date or deadline for filing, whichever is later,

reckons the prescriptive period for assessment

A mended Returns

Section 6 (A) - 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withdrawn: Provided, That within three (3) years from the date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.

3 years because 3 years within which to conduct or

issue the assessment

Considered filed on the day the amended return is

filed

All taxpayers are subject to audit but the BIR will not

audit all taxpayers

Methods for determining which taxpayer to audit

1. Networth Investigation Method Networth of

taxpayer is disproportionate to the tax being paid by

the taxpayer as when there is an underdeclaration

a. Section 43 - Networth in present year is

higher than previous year yet the tax paid is

minimal

Defenses of taxpayer: Donation, inheritance

gifts, winnings in lottery, income subject to

final taxb. Public display of properties

c. Sole proprietorship engaged in business o

corporate assets and liabilities are required

to be declared

d. Records of other government agencies

e. Third persons

2. Expenditure Method if present years expenditure is

more than the expenditures last year

Ratio : If youre spending more, meaningthere is more income

3. Presumptive Sales Method CIR orders inventory

taking since taxpayer is not issuing the proper officia

receipts. BIR reconstructs your finances based on

Best Evidence Rule

4. Bank Deposit Method Waiver by taxpayer or under

the new BIR return, you need to declare all income

which are subject to final tax5. Inventory method for determining income

a. LIFO First In, Last Outb. FIFO First In, First Out

c. Weighted Average method of assigning

costs cost of goods sold dependent upon

the average acquisition cost of inventory

currently available when sale is done

weighted average cost per unit at the time ofeach sale equals the cost of goods available

for sale divided by the number of units

available

d. Specific Determination method where

each item in the inventory can be identifiedwith a specific purchase and invoice when

each item is sold, the sales return shall also

contain the same; cost of goods sold

depends on which item was sold for that

particular sale6. Cash Expenditure Method creates a presumption

that the taxpayer will be able to spend more only

when there is more income

7. Gross Profit Margin Method / Percentage Method

8. Surveillance Method

Best Evidence are any of the following: (Section 6, NIRC)

*Third Party Information*1. Corporate and accounting records of taxpayer subjec

of the assessment

2. Accounting records of other taxpayers engaged in the

same line of business

3. Data, record, paper, document or any evidence from

other taxpayers who had personal transactions or

from whom the subject taxpayer received any income

4. Record, data, document and information securedfrom government offices or agencies

However, the best evidence obtainable under Section

16 of the 1977 NIRC, as amended, does not include


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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 reasonfor 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. (CIR v. Handtex Trading Co., Inc., G.R.

No. 136975, March 31, 2005)

Grounds for Resorting to Best Evidence in Tax Assessment

1. Failure to submit returns when required by law

2. False, incomplete or erroneous returns

Commissioner may then amend or file correct return based on

best evidence

50% Rule

Applies when there is showing that expenses have

been incurred but the exact amount cannot be

ascertained due to absence of documentary evidence

Effect: Disallowance of 50% of taxpayers claimed

deduction

Commissioner shall make the computation of taxable income

when:

1. No accounting method employed

2. Method employed does not clearly reflect income

Conduct of Audit Letter of Authority

Without letter of authority, the assessment or

examination is a nullity (CIR v. Sony Philippines,

GR 178697)

Must be served upon taxpayer within 30 days from

issuance thereof, otherwise, letter of authority is

invalidated

May be revalidated only once through the issuance of

a new letter of authority if issued by Regional

Director; twice if issued by CIR. Invalidated letter of

authority must be attached to the new letter of

authority (RMO 38-88)

120 days from receipt of letter of authority to conduct

audit

Failure to file report within 120-day period , he must

submit progress report to the Head Office andsurrender the letter of authority for revalidation

Conduct of audit must be within 3years,

exceptionally, 10years for false return, fraudulent

return or failure to file return

Taxpayer must check the following:

a. Issuance date of letter of authority withinprescribed period for assessment and 30days

from issuance thereof

b. Subject of audit and period of audit tax for

year xxxx

c. Name of taxpayer indicated in the letter of

audit

Cases which need not be covered by a valid letter of authority

(RMO 36-99)

1. Cases involving civil or criminal tax fraud which fal

under the jurisdiction of tax fraud division of the

Enforcement Services; and

2. Policy cases under audit by the Special Teams in the

National Office

GR: Taxpayer may be audited only once a year

XPNs:

1. Fraud, irregularities and mistakes were committed by

the taxpayer as determined by CIR

2. Taxpayer requests for reinvestigation and was

granted by CIR

3. Need to verify with taxpayers compliance with

withholding and other revenue taxes under Revenue

Memorandum Order issued by CIR4. Taxpayers capital gains tax liabilities must be

verified

5. Third Party Information Source - Commissione

chooses to exercise his power to obtain information

relative to the examination of other taxpayers (Secs. 5

& 235, NIRC)

Notice of Informal Conference

Written notice informing the taxpayer that findings of

the audit conducted indicate that additional taxes or

deficiency assessments have to be paid

15 days from receipt of notice to explain

Failure to respond = default and the findings will be

submitted for review before the Assessment Division

of the Revenue Regional Office or CIR or his dulyauthorized representative and for issuance o

corresponding deficiency tax assessment (Sec. 3.1.1

RR 12-99)

Purpose is to afford taxpayer opportunity to present

his case

Section 228 When PAN not required (because of obvious

tax deficiency and to require taxpayer to file a reply will delaythe proceedings for collection)

Notice of Informal Conference / Pre-Assessment Notice

NOT Required: (MR-WEL)

1. Finding for deficiency tax is due to mathematica

error in the computation of tax as appearing on the

face of the return

If mathematical error does not appear on the

face of the return, audit is required. Forinstance, error in computation of deductibles

because what appears in the return is merely

the total amount and BIR has no way of

determining the breakdown for deductibles

on the face of the return

2. Discrepancy has been determined between tax

withheld and amount actually remitted by

withholding agent3. Taxpayer who opted to claim a refund or tax credit o

excess creditable withholding tax for taxable period

was determined to have carried over and


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automatically apply the same amount claimed against

estimated tax liabilities for taxable quarter/s of

succeeding taxable year; (situation wherein taxpayer

already filed for refund)

Reason: A taxpayer is no allowed to have double

benefit (refund / credit and application)

4. Excise tax due on excisable articles have not been

paid;

Excise tax is due upon production or

manufacture

5. 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

Assessment

Determination of the correct amount of taxes due to

the government

Official valuation of the taxpayer's property for

purposes of taxation

Technical meaning of assessment is the written notice

by the BIR upon deficiency or non-payment of tax

Real Property Taxation, assessment means the

burdens imposed upon real property which has

benefitted from the public works and expenditures of

the government.

Internal Revenue Taxation, assessment refers to

laying tax to ascertain the amount which the taxpayer

is required to pay

Kinds of Assessment Notices:

1. Pre-Assessment Notice2. Final Assessment Notice

3. Jeopardy Assessment (See discussion on

Compromise)

Pre-Assessment Notice

Requisites for Valid Pre-Assessment:

1. In writing

2. Statement of law and facts on which assessment ismade

Taxpayer should respond within the prescribed

period in implementing rules and regulations 15days from receipt, extendible for not more than

10days (Basis: Rev.Reg. 12-99)

Failure to respond = issuance of assessment

Recall Section 228 when PAN is not required (MR-

WEL)

Final Assessment Notice

Declaration of deficiency taxes issued to the taxpayer

who fails to respond to a PAN within the prescribedperiod, or whose reply is without merit

Issued by CIR or his duly authorized representative

Remedy of taxpayer is to protest the assessment

GR: Self-assessing

XPNs:

1. Improperly accumulated earnings tax [Sec29]

2. Taxable period of taxpayer is terminated [Sec6 (D)]3. Tax lien [Sec219]

4. Dissolving corporation [Sec52(C)]

5. Deficiency or non-payment of taxes

Requisites for Valid Notice of Assessment (Section 228)

1. Computation of tax liabilities

2. Demand for payment

3. Period for payment4. Addressed to taxpayer

5. Statement of law and facts on which assessment is

based

Reasons for requiring statement of law and facts upon which

assessment is based - Taxpayer will be given the opportunity

to intelligently protest the assessment

Importance of Assessment

Government Taxpayer

1. For proper pursuit of

judicial and extrajudicial

remedies in enforcement of

tax liabilities and impositionof surcharges and interest

2. Application of Statute of

Limitation

3. Establishment of tax liens

4. Estimating the revenues

which may be collected by

the government

1. Inform taxpayer o

liabilities

2. Determine period within

which to protest3. Determine prescription o

government claim

Principles Governing Assessments (PAD3)

1. Prima facie presumed correct and made in good faith

taxpayer has the burden of proof to dispute the

assessment2. Must be based on actual facts

3. Discretionary on the part of the Commissioner

(Meralco Securities Corporation v. Savellano, G.R

No. L-36181, October 23, 1982)

4. Directed to the right party

5. Authority of Commissioner to assess taxes may be

delegated (Case)

Assessment made by CIR is not subject to judicialreview because such power is discretionary

Recommendation letter cannot be considered as

formal assessment of tax liability (Adamson v. CA,

G.R. No. 120935, May 21, 2009)

Revenue Officers affidavit containing a computation

of respondents tax liability without stating a period

for payment nor demand for payment cannot beconsidered an assessment. Moreover, the affidavi

was executed for the purpose of filing a criminal case

and it was addressed to the justice secretary. (CIR v

Pascor, G.R. No. 128395)


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Assessments are presumed prima facie correct and

made in good faith. Taxpayer has burden of proving

otherwise. (CIR v. CA, G.R. No. 104151, March 10,

1995)

Mailed assessments are disputably presumed to have

been received by the addressee. (Republic v. CA,

G.R. No. L-38540)

Receipt of letter-assessment coupled with willful

refusal to pay taxes within the allotted period

Void assessments render subsequent proceedingsinvalid and any order emanating from it could never

attain finality (CIR v. Reyes, 480 SCRA 382)

GR: Assessment to be made within 3years after last day

prescribed for filing of return or day return was filed,whichever is later

XPNs:

1. Failure to file return 10years from discovery of

omission

2. False / fraudulent return with intent to evade taxes

10years from discovery of falsity or fraud

3. CIR and taxpayer, prior to the expiration of the three

year period, has agreed in writing to the extension ofthe period (may be further extended prior to

expiration of period previously agreed upon)

4. Written waiver of three year period

Requisites:

a. Entered before the expiration of the 3year

period for assessment of tax

b. In writing

c. Signed by taxpayerd. Must specify a definite date agreed upon

between the parties within which to assess

and collect the tax

e. Signed and accepted by CIR or his duly

authorized representative

f. Date of acceptance must be indicated

5. Return amended substantially prescriptive period

runs from date amended return was filed

Section 6, NIRC amendment may be filed within3years PROVIDED that no notice of audit has

actually been served upon the taxpayer

Return filed cannot be withdrawn original and

amended return stays with the BIR

*Amendment of return is dangerous on the part of the

taxpayer because it prolongs the prescriptive period

for assessment and it is a red flag for the BIR toconduct the audit or assessment

False Return Fraudulent Return Failure to FileReturn

Deviation from thetruth due to

mistake,

carelessness or

ignorance

intention anddeceitful evasion

of tax

Underdeclaration

Overstatement

Omission to file areturn in the date

prescribed by law

Intentional or not Intentional Intentional or not

Not make taxpayer Makes taxpayer Mere omission is

criminally liable liable for crime ofmoral turpitude

(Republic v

Marcos, GR

130371 & 130855)

already a violation(CIR v Bank of

Commerce, CTA

Case No. 654)

10year prescriptive period from discovery and government has thefollowing options:

1. Assess correct tax liability and later on collect it within theperiod of 5years by distraint, levy, or court proceeding

2. File court proceeding for collection of such tax without

assessment

How do you prove intent? How do you differentiate false

returns from fraudulent returns?

(See Aznar case and Ayala case)False Return Fraudulent Returns

Sale of Car Accessories 100K

Sale of Tires 120K

Return filed:Sale of car accessories 120K

Sale of Tires 80K

Return is filed for sale of ca

accessories but no return is filedfor sale of tires (CIR v. AyalaSecurities Corp., G.R. No. L-29485, November 21, 1980)

False and fraudulent return is not presumed and the

burden of proof to prove the return was false andfraudulent lies against the government through BIR

Effect of filing of defective return as if no return

was filed = 10years from discovery of omission in

filing the return (Butuan Sawmills v. CA, GR L-

20601)

Prescriptive period for assessment is for the purpose

of protecting the taxpayers against unreasonable

investigation after a long period of time from the

filing of the return. Moreover, government officers

are obliged to act promptly in the assessment of taxes

Limitation on the right of the government to assess

and collect taxes are not presumed

Basic Principles as to Prescriptive Period for Assessment

1. Tax law is silent on prescription, tax is

imprescriptible

2. No return is required, tax is imprescriptible and may

be assessed at any time

3. Prescription is a matter of defense and must be

proved or established by taxpayer relying on it

4. Defense of prescription is waivable

5. Prescription, as a remedial measure, must beinterpreted liberally in order to protect the taxpayer

6. If the last day falls on a Saturday, Sunday or lega

holiday, the time shall not run until the next working

day (Section 1, Rule 22, RoC)

Administrative Code of 1987, being the more recent

law, governs the computation of legal periods a

year is composed of 12months (no. of days is

irrelevant) (CIR v. Primetown Property Group, Inc.,

531 SCRA 436)

Statute of Limitations

ASSESSMENT

GR: Within 3years (Section 203, NIRC) from date prescribed


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by law for filing of return or date return is filed, whichever is

later

XPT: (Section 222, NIRC) 10years from discovery

1. No return filed

2. False or fraudulent return with intent to evade

counted from date of discovery

3. Waiver / agreement between the taxpayer and theCIR

COLLECTION

Different Manner of Collection

1. Withholding Tax System

a. Final withholding tax constitutes final

settlement of tax due (no need to include in

returns)

Final withholding agent is the statutory

taxpayer / person liable for the payment of

tax and person entitled to claim refund or

credit thereof

b. Creditable withholding tax

2. Pay as you File SystemXPN: Income tax of an individual taxpayer where taxdue is more than 2,000 installment payment is

allowed 1st installment on April 15 and 2nd

installment on June 15

GR: 5 years from assessment

*Period is not specifically provided for in Section 203 and

Section 222 so the rules of the implementing agency, BIR,

prevails 5years according to the BIR websiteXPT:

1. False or fraudulent return or non-filing of return

AND without assessment 10 years from discovery

by judicial proceedings only2. False or fraudulent return or non-filing of return but

assessment was issued 5years from assessment by

administrative or judicial proceedings

3. Period agreed upon by CIR and taxpayer / Extended

Assessment before the expiration of the 5year

period reckoned from date of assessment (date ofassessment must be within the period agreed upon)

Defense of prescription is not jurisdictional and must

be raised seasonably

When assessment is mailed or released to taxpayer,

considered as date of actual assessment and as long

as assessment is released within the prescriptiveperiod, it is deemed made on time even if received bytaxpayer after the expiration of the period. (Basilan

Estate v. CIR, 21 SCRA 17)

Prescription is an affirmative defense, hence, it is the

taxpayer who shall prove that a return has been filed

(Republic v. Marsman, G.R. No. L-18986, April 27,

1972 ; Taligaman Lumber v. CIR, 4 SCRA 842)

If wrong return was filed, the 10-year prescriptive

period will still apply even if information in the

return can enable BIR to assess the tax liability

(Butuan v. CTA, G.R. No. L-20601)

Collection by judicial action is deemed instituted

upon the filing of the corresponding complaint in

court and in case of summary remedies, upon service

of distraint and levy on taxpayer or persons or entity

authorized to receive the same. (Diluangco v. CIR, 4

SCRA 263)

Taxpayer cannot invoke prescription where

government is suing on the bond executed and filed

by them to guaranty the payment in 6monthly

installments of tax liability which is separate anddistinct from the obligations of the parties.(Republic

v. Araneta, 2 SCRA 144)

Where government seeks to recover erroneously

refunded taxes, the prescriptive period for assessmen

of tax applied because the government is in effectasking taxpayer to pay the amount refunded, thus, i

is an assessment for deficiency tax. (Guagua v. CIR,

19 SCRA 790)

Assessment of inheritance tax does not directly

involve the administration of the decedents estate

although it may be viewed as an incident to the

complete settlement of an estate. It is not against the

property of the decedent, nor is it a claim against theestate as such, but it is against the interest or property

right. There must be liberal treatment of claims for

taxes charged against the estate of the decedent

Approval of the court sitting in probate or as

settlement tribunal over the deceased is not a

mandatory requirement in the collection of estate

taxes. (Marcos v. CA, 273 SCRA 47)

The law is silent as to whether taxes may be collected

pending resolution of the protest. BIR usually

resolves protest before proceeding for collection of

taxes is commenced (Atty. Kasala)

Resort to judicial collection in order to make

enforcement imprescriptible (upon rendition of finajudgment)

Fraud is a question of fact and circumstances; must be actualand amount to intentional wrongdoing

GOVERNMENT REMEDIES

Remedies for Collection of Delinquent Taxes

1. Distraint of personal property and Levy of rea

property

2. Civil or Criminal Action

3. Compromise

4. Tax Lien5. Forfeiture

6. Civil Penalties

Delinquency Tax Deficiency Tax

Self-assessed taxpayer return

filed within prescribed period

for filing was not paid or

merely partially paid

Amount as shown in the

return is fully paid BUT

amount of tax imposed by

law as determined by CIR o

authorized representative

exceeds the amount shown as

tax in the return


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Deficiency tax assessed byBIR is final and executory

No amount shown as tax

amount as determined by CIRor authorized representative

exceeds amounts previously

assessed or collected without

assessment as deficiency

Can be immediately collected

administratively through

issuance of warrant of

distraint and levy, and/orjudicial action

Can be collected through

administrative or judicial

remedies but has to go

through process of filingprotest by taxpayer against

assessment and denial of

protest by BIR

Remedy: Filing of civil action

for collection in ordinary

court

Filing of civil action for

collection during pendency of

protest is subject to a motionto dismiss

Subject to administrativepenalties 25% surcharge,

interest and compromise

penalty

Generally not subject toadministrative penalties

Distraint and Levy

Distraint remedy whereby the collection of tax is enforced

on the goods, chattels or effects of the taxpayer including

personal property of whatever character as well as stocks and

other securities, debts, credits, bank accounts and interest in

and rights to personal property

Levy seizure of real properties and interest in or rights to

such properties for the satisfaction of taxes due from the

delinquent taxpayer

Distraint Levy

Summary in nature and may be pursued independently orsimultaneously with civil and criminal action once assessment

becomes final and demandable (Central v. CIR, CTA Case No.

4312, December 21, 1988)

Not available when amount of tax is Php100 or less

Delinquent OR any taxpayer Only for delinquent taxpayers

Personal property Real property

Actual or Constructive

Government may purchase:

1. Bid amount is not

equal to tax due

2. Bid amount less than

actual market value

Forfeiture to government:

1. No bidder

2. Highest bid is

insufficient to pay

taxes, penalties and

costs

No redemption - Government

to resell property purchased

Right of redemption 1year

from date of forfeiture

Distraint may be:

1. Actual2. Constructive

Against Delinquent or Any TaxpayerGrounds

1. Retiring from business subject to tax

2. Intending to leave Philippines or remove, conceal or

hide property

3. Intending to perform acts tending to obstruct

proceedings for collecting the tax due or which may

be due from him

~Section 6(D) , NIRC - Authority to terminate taxable period

upon same grounds under Section 206 by declaration of the

Commissioner of termination at any time and sending o

notice of such decision to the taxpayer with a request for the

immediate payment of the tax for the period declared to beterminated and for tax of preceding year or quarter or such

portion thereof which is unpaid. Tax is due and immediately

payable and shall be subject to all penalties herein prescribed

UNLESS paid within the time fixed in the demand made by

the Commissioner.

Constructive Distraint May be Resorted to: (RITAOUC)

1. Taxpayer applies for retirement from business with a

huge amount of pending assessment

Huge Amount equal to or bigger than networth or

equity of taxpayer

2. Taxpayer under tax investigation has record o

leaving Philippines twice a year

Exceptions:

a. Trips are justifiedb. Trips are connected with business

profession or employment

3. Taxpayer, other than banking institution who is unde

tax investigation and has a record of transferring

bank deposits and other valuable personal properties

from Philippines to any foreign country

4. Taxpayer uses aliases in bank accounts other than thename which he is legally and/or popularly known

5. Taxpayer keeps bank deposits and owns othe

property/ies under the name of other personswhether related to him, and the same are not under

any lawful fiduciary or trust capacity

6. Taxpayers big amount of undeclared income i

known to the public or to the BIR by credible means

and there is strong reason to believe that taxpayer, innatural course of events, will have a great tendency to

hide or conceal property/ies

Big Amount of Undeclared Income amoun

exceeding 30% of the gross sales, gross receipts or

gross revenue declared per return

7. When BIR receives information or complainpertaining to undeclared income in an amoun

exceeding 30% of the gross sales, gross receipts or

gross revenue declared per return of a particular

taxpayer and there is enough reason to believe that

said information is correct as when the complaint or

information is supported by substantial and credible

evidence

Procedure for Distraint (Section 208, NIRC)

Sign Receipt of Warrant

1. Preserve


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2. Not to dispose

Refuse or Fails to Sign Receipt of Warrant

1. List property/ies

2. 2 witnesses

3. Leave a copy in the premises of property distrained

Stocks and other Securities Service of warrant upon

1. Taxpayer AND

2. President, manager, treasurer or other responsible

officer of the corporation, company or association

which issued the stocks or securities

Debts and Credits Leaving warrant upon

1. Debtor OR

2. Creditor or person having control of such credit or his

agent*Warrant is sufficient authority to pay CIR the amount of such

debt or credit

Bank Accounts Service of warrant upon

1. Taxpayer

2. President, manager, treasurer or other responsible

officer of the bank (turn over such amount in bankaccount as may be sufficient to satisfy the claim ofthe government)

Actual Distraint seizure of property in quantity sufficient to

satisfy:

1. Tax or charge

2. Increment incident to delinquency

3. Expenses of distraint

4. Cost of subsequent sale

Who shall institute distraint

Depends on the amount of tax due

1. More than 1Million CIR or duly authorizedrepresentative

2. 1Million or less RDO

*CIR or duly authorized representatives have the power to lift

such order

Procedure for Sale of Distraint (Section 209, NIRC)1. Notification in not less than 2 public places time

and place of sale

2. Time of sale not less than 20days after notice to

owner or possessor of property

3. Publication or posting of notice

4. Highest bidder for cash OR if stocks and securities,

with approval of the commissioner through dulylicensed commodity or stock exchanges (bill of saledelivered to buyer and furnished to corporation)

5. Bid price actual expenses of seizure expenses for

preservation (no charge for services of local internal

revenue officer)

6. Excess owner of property

7. GOVERNMENT may purchase when: (Section 212,

NIRC)

a. Amount bid is not equal to amount or taxb. Amount bid is less than actual market value

May subsequently be resold

Release of distrained property payment prior to

consummation of sale (Section 210, NIRC)

Property levied upon order of competent court may

with consent of competent court, be subsequently

distrained subject to the prior lien of attachment of

the creditor (CIR v. Flores vda. De Codinera, G.R.

No. L-9675, September 28, 1957)

Procedure for Levy of Real Property

1. Authenticated Certificate showing:a. Amount of tax due

b. Penalty due

c. Description of property

Certificate = force of legal execution throughout the

Philippines2. Certificate mailed and served to the following:

a. Register of Deeds where property is located

b. Delinquent taxpayer OR if he is absent from

the Philippines, agent or manager of the

business

If none, occupant of the property in question

3. Advertise property within 20days after the levy and

for a period of 30days containing the following

information:

a. Tax dueb. Penalties due

c. Time and place of sale

d. Name of taxpayer

e. Description of property sold

4. Posting of notice

5. Publication once a week for 3 consecutive weeks in

newspaper of general circulation

6. Sale of property7. Certificate showing:

a. Proceedings of sale

b. Description of property sold

c. Name of purchaserd. Amount of taxes, penalties and interest

8. Bid price claim of government cost of sale

9. Excess owner of property

10. Redemption period of 1year from date of sale bytaxpayer or anyone for him

Redemption price = taxes + penalties + interest from

date of delinquency to date of sale + interest on

purchase price @ 15% per annum from date o

purchase to date of redemption

*Owner should not be deprived of possession of the

property and shall be entitled to rents and other

income thereof until the expiration of the redemptionperiod

11. Forfeiture to Government:

a. No bidder

b. Highest bid is for an amount insufficient to

pay taxes, penalties and costs

12. Registration of declaration of forfeiture

*Sale may be discontinued by payment of taxes, penalties and

interests prior to sale

Improvement attached to the land by express


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provision of law, though not physically so united, are

inseparable therefrom

That sale would take place on December 15, 1940

and everyday thereafter is general and indefinite and

deprives the taxpayer of his opportunity to protect his

rights. (Cabrera v. Provincial Treasurer of Tayabas,

C.A. No. 502, January 29, 1946)

The tax was held bad because the owner's name had

been written in the roll as "Ida F. Hawthorn" instead

of "Ida J. Hanthorn" ; Property shall so be describedas to be easily identified both by owner and by

person desiring to bid ; Where one sale embraces two

different taxes, a vital defect in either tax invalidates

the whole sale ; Failure to adequately describe the

property in tax roll and notice of sale amounts to anirregularity, informality and failure that impaired the

substantial rights of the taxpayer. (Valencia v.

Jimenez, G.R. No. 4406, October 23, 1908)

Principles of Distraint and Levy

1. May be resorted to anytime but only after reasonable

efforts to collect tax by ordinary methods of

collection2. Should be resorted to before or simultaneously with

court action3. Not be issued for collection of compromise penalty

4. Sale, transfer or encumbrance of property

constructively distrained without consent of CIR

shall be punished by:

a. Fine not less than twice the value of the

property sold, transferred or encumbered but

not less than Php5,000

b. Imprisonment of not less than 2years and1day but not more than 4years or both

5. Fails or refuses to surrender property under distraint

and levy liable in his own person and estate for the

value of the property or rights not surrendered but notexceeding amount of taxes, penalties and interests

from date of warrant

6. Distraint and levy may be repeated if necessary until

full amount due including expenses is collected

Tax Liens

Legal claim or charge on property established by law as a

security for the payment of tax obligations

Superior to all other claims and preferences (Velos v.

CIR, G.R. No. 48602, February 26, 1943; Republic v.

Peralta, G.R. No. 56568, May 20, 1987) only incase of insolvency of taxpayer

Creates a lien in favor of the government from the

time the assessment was made by the CIR and until

paid, with interests, penalties and costs that may

accrue, upon all property and rights to property of the

taxpayer

Lien attaches not only from the service of warrant but

from the time tax became due and payable

Lien not valid upon mortgagee, purchaser or

judgment creditor until lien is filed in RD by the CIR

Requisites for Constituting Tax Liens

1. Neglects or refuses to pay tax

2. After demand for a certain amount

Forfeiture

Enforced by seizure and sale or destruction of specificforfeited property

Forfeiture of real property shall be enforced by a

judgment of condemnation and sale in a legal action

civil or criminal (Section 224, NIRC)

Need not be for the whole tax liability and can

merely be for the amount equivalent to the FMV of

the property (Castro v. CIR, 4 SCRA 1193)

Forfeiture Seizure

Proceeds of sale will go to the

coffers of the government

Residue after satisfaction of

tax liability and expenses

taxpayer

May still be subjected to criminal action even if property has

already been forfeited

Civil Action

Resorted to when tax liability becomes collectible (whenassessment becomes final and unappealable or decision of CIR

becomes final and executory)

1. Taxpayer fails to file administrative protes

(reconsideration or reinvestigation) within 30days

from receipt of assessment

~60days to file supporting documents etc.

2. Protest filed but decision of CIR denying protest in

whole or part was not appealed to CTA within30days from receipt of decision

~Inaction for 180days from submission of document

Once action for collection is filed with regular courts

the taxpayer can no longer assail the legality o

validity of the assessment. (CIR v. Gonzales, G.R.

No. L-19495, November 1966)

Right of government to object to the defense o

prescription may be waived if it litigated the issue of

prescription and submitted such resolution for

resolution of the court (Republic v. Ker & Co., G.R.

No. L-21609, September 29, 1966)

When fraudulent tax returns are involved in a

proceeding in court for the collection of tax, the

action may be begun without assessment Civil action for tax collection filed with regular

courts cannot be instituted without the approval of

the CIR (Section 220, NIRC) BUT not jurisdictional

but one relating to capacity to sue or affects cause o

action

Section 7, RA8424 CIR may delegate powers to any

subordinate official with the rank equivalent to a division chief

or higher XPT: (not including delegation of administration and

enforcement of revenue laws and regulations)

1. The power to recommend the promulgation of ruleand regulations by the Secretary of Finance;


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2. The power to issue rulings of first impression or to

reverse, revoke or modify any existing ruling of the

Bureau;

3. The power to compromise or abate, under Sec. 204

(A) and (B) of this Code, any tax liability: Provided,

however, That assessments issued by the regional

offices involving basic deficiency taxes of Fivehundred 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 theRevenue District Officer having jurisdiction over the

taxpayer, as members; and

4. The power to assign or reassign internal revenue

officers to establishments where articles subject to

excise tax are produced or kept.

Compromise

Parties, by making reciprocal concessions, avoid litigation or

put an end to one already commenced (Article 2028, NCC)

Agreement between two or more persons to amicably settle

their differences on terms they can agree on to avoid lawsuits

Compromise Penalty amount of money which a taxpayer

pays to compromise a tax violation (paid in lieu of criminalprosecution) and cannot be imposed in the absence of showing

that taxpayer consented thereto

Grounds for Compromise1. Doubtful validity - Reasonable doubt as to validity of

claim against taxpayer exists

2. Financial incapacity of taxpayer to pay

Doubtful Validity (JARE-ABWA)

1. Delinquent account or disputed assessment resultsfrom Jeopardy Assessment

Jeopardy Assessment Tax assessment which was

assessed without the benefit of complete or partial

audit by an authorized revenue officer who has

reason to believe that the assessment and collection

of deficiency tax will be jeopardized (because BIRneeds to comply with the prescriptive periods forassessment and collection) by delay because of the

failure of taxpayer to comply with the audit and

investigation requirements to present his books of

accounts and/or pertinent records or to substantiate

all or any of deductions, exemptions or credits

claimed in his return

Remedy of taxpayer in case of jeopardy assessment waive statute of limitations

2. Assessment seems to be arbitrary appearing to be

based on presumptions and there is reason to believe

that it is lacking in legal and/or factual basis

3. Taxpayer failed to file an administrative protest on

account of the alleged failure to receive notice of

assessment or preliminary assessment and there is

reason to believe that it is lacking in legal and/or

factual basis4. Taxpayer failed to file request for

reinvestigation/reconsideration within 30days from

receipt of final assessment notice and there is reason

to believe that it is lacking in legal and/or factua

basis

5. Taxpayer failed to elevate to CTA an adverse

decision within 30days from receipt thereof and there

is reason to believe that it is lacking in legal and/or

factual basis

6. Assessment was issued on or after January 1, 1998where the demand notice allegedly failed to comply

with the formalities prescribed under Section 228 of

1997 Tax Code

7. Assessments based on Best Evidence Obtainable

Rule and there is reason to believe that it is lacking in

legal and/or factual basis

8. Assessment issued within prescriptive period forassessment as extended by the taxpayers executionof waiver of statute of limitations, the validity or

authenticity of which is being questioned or at issue

and there is reason to believe that evidence to prove

that it is not authentic

9. Assessment based on issue where a court of

competent jurisdiction made and adverse decision

against BIR but for which the SC has not decided

upon with finality

Financial Incapacity (OD2IM)

1. Corporation ceased operation or is dissolved

2. Taxpayer is suffering from surplus or earnings deficiresulting to impairment in original capital by at least

50%

3. Taxpayer suffering from networth deficit as shown in

latest audited financial statement

Networth Deficit = Total assets Total liabilities

Total assets net of prepaid expenses, deferred

charges, pre-operating expenses, appraisal increases

in fixed assets

Total liabilities net deferred credits

4. Taxpayer is a compensation income earner with noother source of income AND familys gross monthly

income does not exceed (Php10,500 if single and

Php21,000 if married - per month) the levels o

compensation income under Sec. 4.1.1 of RR 7-2001

AND is without other leviable / distrainable assets

other than his family home

5. Taxpayer has been granted by SEC or any competen

tribunal a moratorium or suspension of payments tocreditors OR is bankrupt OR insolvent

*Waiver in writing of secrecy of bank deposits required


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Cases which may be Compromised: (RR 7-2001)

1. Delinquent accounts

2. Cases under administrative protest after the issuance

of final assessment notice are still pending before

RDO, Legal Service, Large Taxpayer Service (LTS),

Collection Service, Enforcement Service and other

offices in National Offices3. Civil tax cases before regular courts prior to

litigation, pending litigation, even during appeal

leave of court

XPT: Final judgment because by such, the

government acquires a vested right (Roviro v.

Amparo, G.R. No. L-5482, May 5, 1952)

4. Collection cases filed in courts

5. Criminal violations other than those already filed in

courts OR those involving criminal tax fraud6. Cases covered by pre-assessment notices but

taxpayer is not agreeable to the findings of the audit

office as confirmed by the review office

Cases which cannot be Compromised

1. Withholding taxes

XPT: invokes provisions of law that casts doubt ontaxpayers obligation to withhold

2. Tax fraud cases

XPT: Confirmed as such by CIR or duly authorized

representatives

3. Criminal violations already filed in court

4. Delinquent accounts with duly approved schedule of

installment payments5. Final reports of reinvestigation or reconsideration

resulted to reduction of original assessment and

taxpayer is agreeable and signs the agreement form

6. Cases which became final and executory after finaljudgment where compromise is grounded on doubtful

validity of assessment

7. Estate tax cases where compromise is based on

financial incapacity of the taxpayer

Minimum Percentages of Compromise Settlements forDoubtful Validity of Assessments 40% of basic tax assessed

Minimum Percentages of Compromise Settlements for

Financial Incapacity Generally, 10% of basic tax assessed

1. Individual compensation income taxpayer 10% IF

monthly salary does not exceed

a. Php10,500 if singleb. Php21,000 if married

AND taxpayer does not possess other leviable or

distrainable property other than his family home

2. Individual taxpayer without any source of income

10%

3. Taxpayer is under any of the following conditions

a. Zero networth 10%

b. Negative networth 10%

c. Dissolved corporations 20%d. Non-operating corporations for

d.1. 3years or more as of date of

application for compromise 10%

d.2. Less than 3years 20%

e. Surplus or earnings deficit resulting to

impairment of original capital by at least

50% - 40%

f. Declared insolvent or bankrupt XPT

taxpayer falls under any of the

abovementioned situations 10%

Minimum percentages apply to compromise o

assessments consisting solely on increments likesurcharge, interest, etc. based on total amoun

assessed

Power to compromise vested in CIR discretionary

and cannot be reviewed or interfered with by the

courts. Cannot be compelled by court to exercisesuch discretion. (People v. Desiderio, G.R. No. L-

20805, November 29, 1965) BUT CIR may delegate

his power to Deputy Commissioners and Regiona

Directors subject to restrictions which may be

imposed and promulgated.

CIR may grant compromise only if basic tax involved

does not exceed 1Million AND settlement offered is

not less than the prescribed percentages. Where CIRis not authorized to do so (more than 1Million or

compromise rate is less than the prescribed rates)

such is subject to the approval of the Evaluation

Board (CIR and 4 Deputy Commissioners)

Abatement - cancellation of entire tax liability

Grounds for Abatement

1. Tax or any portion is unjustly or excessively assessed

2. Administration and collection costs involved do nojustify the collection of the amount due

RMO 20-07

Civil Penalties

Section 248, NIRC

1. 25% of amount due in the following cases:

a. Failure to file return and pay tax dueb. Filing a return with an internal revenue

officer other than those to whom return is

required to be filed UNLESS otherwise

authorized by the Commissioner

c. Failure to pay deficiency tax within time

prescribed in notice of assessment

d. Failure to pay full or part of tax due as

shown in the return

e. Failure to pay full amount due for which noreturn is filed

2. 50% of tax or deficiency tax

a. Willful neglect to file return within time

prescribed

b. Filing of false or fraudulent returns

Substantial underdeclaration of taxable sales and

substantial overstatement of taxable sales as

determined by CIR shall constitute prima facie

evidence of false or fraudulent returnSubstantial underdeclaration of taxable

sales, receipt or income claim o


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deductions in an amount exceeding 30% of

that declared in the return

Substantial overstatement of taxable sales,

receipt or income failure to report sales,

receipts or income in an amount exceeding

30% of that declared in the return

Interest

Section 249, NIRC

20% per annum or such higher rate as may be prescribed, from

date prescribed for payment until amount is fully paid

Deficiency interest any deficiency tax is subject thereto

under Section 249

Delinquency interest - assessed and collected until amount isfully paid, which shall form part of the tax in case of failure to

pay:

1. Amount of tax due on any return required to be filed

2. Amount of tax due for which no return is required

3. Deficiency tax or surcharge or interest on due date

appearing in notice and demand of CIR

Interest on extended payment taxpayer qualified to

pay tax or any installment on or before date

prescribed for payment or was authorized by CIR an

extension of time within which to pay the tax or

deficiency tax and taxpayer fails to pay the tax or any

installment thereof, 20% interest per annum shall be

imposed on tax or deficiency tax from date of notice

and demand until fully paid (Section 249, 1997

NIRC)

Compromise Penalty

Certain amount of money which taxpayer pays tocompromise a tax violation in lieu of criminal

prosecution and cannot be imposed in the absence of

showing that taxpayer consented thereto

If compromise penalty is rejected by taxpayer, it

cannot be enforced thru an action for collection in

court or by levy or distraint

No Injunction to Restrain Tax Collection (Section 218, NIRC)

Reason: Lifeblood doctrine

XPT: Pending appeal before CTA and collection will

jeopardize the interest of the government or taxpayer

*Deposit amount claimed / file surety bond for not more than

double the amount of the amount with court (Bond is not anabsolute requirement)

REVENUE MEMORANDUM ORDER NO. 22-2001 issued

October 5, 2001 prescribes the guidelines and procedures for

evaluating, processing and accepting offers of compromise

settlement of delinquent accounts and disputed assessments,including those already filed in court.

No offer for compromise settlement by reason of financial

incapacity shall be considered unless and until the taxpayer

waives in writing his privilege of secrecy of bank deposits.

The waiver shall constitute as the authority of the

Commissioner to inquire into the bank deposits of the

taxpayer.

In cases where the basic tax assessed has been adjusted as a

result of reconsideration/reinvestigation and the taxpayer hassignified in writing his conformity to the adjusted assessment,

said taxpayer can no longer request for compromise based on

doubtful validity of the assessment. Nonetheless, should the

taxpayer still not agree to the adjusted assessment, but he

wants to avail of the Program, the offer for compromise

settlement shall be decided on a case to case basis, but in no

instance shall it be lower than the minimum percentage rates

prescribed by law.

Any offer of compromise on the ground of doubtful validity ofthe assessment involving a compromise offer of less than 40%

of the basic assessed tax shall state compelling or strong

reasons for such offer. All such offers shall be approved by the

National Evaluation Board (NEB).

Assessments confirmed by a lower court but appealed by the

taxpayer to a higher court cannot also be compromised on theground of doubtful validity of the assessment.

The NEB shall have the authority to approve offers of

compromise on the following: 1) offers less than the minimum

prescribed minimum rates; 2) on delinquent accounts or

disputed tax cases as well as on minor/major criminal

violations (other than criminal tax fraud cases already filed in

courts) of taxpayers under the jurisdiction of the National

Office; and 3) on delinquent accounts or disputed tax casesinvolving assessments where the basic assessed tax, on a per

tax type basis, exceeds P 500,000.00, and of major criminal

violations (other than criminal tax fraud cases and criminal

cases already filed in courts) of taxpayers under thejurisdiction of the Regional Offices (ROs).

The Regional Evaluation Board (REB) shall have the authority

to approve offers of compromise of deficiency assessments

issued by the ROs involving basic assessed tax, on a per tax

type basis, of P 500,000.00 or less, and of minor criminalviolations of taxpayers discovered by the Regional

Office/Revenue District Office having jurisdiction over said

taxpayers.

The prescribed minimum percentages shall likewise apply to

offers of compromise settlements of

assessment/deficiencies/findings consisting solely ofincrements (i.e. surcharge, interest, etc.) based on total amountassessed.

Tax Credit Certificates/Tax Debit Memos shall not be allowed

as payment in the offers of compromise. The evaluation of the

offers of compromise shall be done on a per tax type basis.

The deadline for the filing of application for compromise offer

shall be one or before November 15, 2001.

Criminal Liability


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5years from commission or discovery of violation,

whichever is later.

Commences to run only after the receipt of the final

notice and demand and taxpayer refuses to pay. In

case of protested assessment, the period starts to run

from final notice and demand which disposes of the

protest

Suspension of Prescriptive Period

1. Before expiration of time prescribed for assessmentand taxpayer and CIR agreed in writing to its

assessment tax may be assessed within the period

agreed upon. Waiver must be within the 3year

prescriptive period.

Taxpayers renunciation of the right to invoke

prescription as a defense although executed beyond

the prescriptive period is binding upon the taxpayer.

(Alca v. CTA, G.R. No. L-24624, November 27, 1968)

2. CIR is prohibited from making the assessment or

beginning distraint or levy or court proceeding and

for 60days thereafter, such as a pending petition forreview in CTA from the decision on the protested

assessment. Filing of petition interrupts theprescriptive period

XPT: Filing of criminal case does not suspend the

prescriptive period

3. Taxpayer requests for a reinvestigation which is

granted by the CIR

4. Taxpayer cannot be located in the address given bytaxpayer in the return

5. Warrant of distraint or levy is served and no property

could be located

6. Taxpayer is out of the Philippines

Request for reconsideration without stating the date

of receipt of tax assessment does not suspend the

running of prescriptive period

Criminal Actions

Must be with approval of CIR

For collection of taxes and enforcement of statutory

penalties

No need for precise computation and formal

assessment in order to file a criminal complaint

Crime is complete when violator has knowingly and

willfully filed a fraudulent return with intent to evade

and defeat the tax

Civil liability arises not as a consequence of

felonious acts but because of failure to pay taxes.

Extinction of ones criminal liability does notnecessarily result in the extinguishment of civil

liability

Prescriptive period for collection is 5years

Civil liability arising from a

CrimeCivil liability to pay Taxes

Incurred by reason of

offenders criminal acts

Incurred from the fact thaone has engaged himself in

business and not from a

criminal act

Criminal liability arises from

failure to pay civil obligation

= no indemnity for non

payment

Subsequent satisfaction of tax liability does no

extinguish the criminal liability (People v. Tierra

G.R. No. L-17177-80, December 28, 1964)

Tax Evasion Assessment

Filed directly with DOJ Pre-assessment notice

required

Not a demand for payment

but to penalize taxpayer

Demand for payment

Differentiate Ungab case from Fortune Tobacco case. (RE

prosecution for tax evasion without assessment)

Ungab v. Cusi, G.R. No. L-41919-24, May 30, 1980 failure to file return so prosecution for tax evasion

was allowed even pending protest against assessment

Fortune Tobacco -

Taxpayers Remedies

1. Administrative protest against the assessment and isfiled prior to payment

2. Claim for refund filed with CIR after payment

Protest against Assessment (Section 228)

1. By filing a request for reconsideration

2. By filing a request for reinvestigation

Within 30days from receipt of assessment60days from filing of protest to submit supporting documents

Requsites for Protest:

1. In writing

2. Addressed to CIR

3. Accompanied by waiver of Statute of Limitations in

favor of the government. Without the waiver

prescriptive period will not be tolled (BPI v CIR, GR

139736) if reconsideration because the CIR will not

entertain any reconsideration without thecorresponding waiver

Not required in reinvestigation because the

prescriptive period is automatically tolled

4. Statement of facts, applicable law, rules and

regulations or jurisprudence on which the protest is

based, otherwise, protest is void

5. Contain the following:

a. Name of taxpayer and address for the

immediate past 3yearsb. Nature of request with specification o

newly discovered evidence to be presented

c. Taxable periods covered by assessment


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d. Amount and kind of tax involved and

assessment notice number

e. Date of receipt of assessment notice or letter

of demand

f. Itemized statement of finding to which

taxpayer agree (if any) as a basis for

computation of tax due which must be paidupon filing of protest

g. Itemized schedule of adjustments to which

taxpayer does not agree

Non-submission of supporting documents =

assessment becomes final and unappealable

Protested assessment interrupts the prescriptive

period for collection by distrant or levy

CIR or duly authorized representative finds that

proper taxes should be assessed notify taxpayer of

findings by issuing a pre-assessment notice

If protest is denied, taxpayer may file for

reconsideration or reinvestigation within 15days from

notice thereof

No appeal of decision to CTA = final and executory

If CTA rules against the taxpayer, taxpayer mayappeal to CTA En Banc then to the SC under Rule45

After appeal to CTA is perfected and after CTA

acquires jurisdiction, CIR may amend the assessment

even if for the purpose of increasing the tax (CIR v.

Batangas Trans. Co., GR L-9692)

Amended assessment is no longer proper after appeal

to CTA is perfected and CTA acquires jurisdictionbecause the amended assessment is no longer the

disputed assessment (CIR v Guerrero, 19 SCRA

205)

Reconsideration Reinvestigation

Re-evaluation of existingrecords

Re-evaluation based in newlydiscovered evidence or

additional evidence

Not toll the running of

prescriptive period for

collection of assessed tax

Tolls the running of statute of

limitations

Considered as Denial of Request for Reconsideration or

Reinvestigation:

Filing of an action for allowance of claim for estate

and inheritance taxes (Dayrit v. Cruz, 165 SCRA 571)

GR: Warrant of distraint is proof of finality of assessment,

tantamount to denial of reconsiderationExceptions:

1. CIR v. Algue, GR L-28896 Protest filed four days

after taxpayer received the notice of assessment and

such was not considered in the issuance of the

warrant of distraint and levy. 30days reglementary

period suspended

2. Advertising Associates, Inc. v. CA, 133 SCRA 766

Reviewable decision of the BIR is the letter where he

clearly directs the taxpayer to appeal to the CTA andnot the warrant of distraint and levy. This is in

consocnance with the dictum that the CIR should

always indicate to the taxpayer what constitutes his

final determination of disputed assessments

Forms of Denial of Protest

1. Direct Denial administrative decision stating the

facts, applicable laws, rules and regulations or

jurisprudence2. Indirect Denial

a. Formal and final letter of demand from BIR

to taxpayer

b. Civil collection (BIR v. Union Shipping

Corp., GR 66160, May 21, 1990)

c. Preliminary collection letter (United

International Pictures v. CIR, GR 110318,

August 28, 1996)

d. Criminal action

e. Warrant of distraint and levy to collecentire deficiency assessment (Hilado v. CIR

CTA 1256, February 25, 1964)

3. Inaction 180days from submission of documents

Protest denied or not acted upon within 180days from

submission of supporting documents = appeal to

CTA within 30days from receipt of decision or lapse

of 180days

Reason for 180-day period It is disheartening

enough to a taxpayer to be kept waiting for an

indefinite period for the ruling. It would make

matters more exasperating for the taxpayer if the

doors of justice would be closed for such relief until

after the Commissioner would have, at his persona

convenience, given his go signal. (Commissioner of

Customs v. CTA, GR 82618, March 16, 1989unreported)

Effect of Failure to Appeal

1. Decision or assessment becomes final and executory2. In an action for collection by the government

taxpayer is barred from reopening the question

already decided

3. Assessment is considered correct and may beenforced by summary or judicial remedies

4. Assessment which has become final and executory

cannot be superseded by a new assessment

Reasons for the rule requiring CIRs unequivocal language on

his action on the protest (CIR v. BPI, GR 134062, April 17,

2007)

1. It would obviate all desire and opportunity on the par

of the taxpayer to continually delay the finality of theassessment and consequently, the collection of theamount demanded as taxes by repeated requests for

recomputation and reconsideration

2. On the part of CIR, this would encourage his office to

conduct a careful and thorough study of every

questioned assessment and render a correct and

define decision thereon in the first instance

3. This would also deter the CIR from unfairly making

the taxpayer grope in the dark and speculate as towhich action constitutes the decision appeallable to

CTA

4. This rule of conduct would meet a pressing need for


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fair play, regularity and orderliness in administrative

action

Claim for Refund (Section 229)

Claim for refund or credit duly filed with CIR first

before filing a suit or proceeding before court forrecovery

Suit or proceeding may be maintained whether or not

tax, penalty, sum has been paid under protest orduress

Tax refund is in the nature of tax exemption and must

be construed strictissimi juris burden of proving

entitlement thereto rests with the taxpayer

Grounds for Claim for Refund:

1. Erroneously paid

2. Illegally assessed or collected

3. Penalty collected without authority

4. Sum excessively or wrongfully collected

5. Internal revenue stamps (Section 204, NIRC)

Prescriptive period: Must be filed within 2years, regardless ofany supervening cause which may arise, reckoned from:

1. Date of actual payment

2. Last installment (individual income taxpayer with tax

due of more than 2,000)

3. Creditable withholding tax when the credit is used

Persons entitled to refund:

1. Taxpayer

2. Direct Taxpayer

3. Final Withholding Agent

Supervening cause refers to a subsequent law

repealing the law under which the tax was collected

When taxpayer is a corporation, the 2-year period is

from filing of its final adjustment return not on the

date when taxes were paid on a quarterly basis(Philippine Bank of Communications v. CIR, GR

112024, January 28, 1999) Final adjustment return iswhere the amounts of the gross receipts and

deductions have been audited and adjusted which is

reflective of the results of the operations of a business

enterprise. It is only when the return covering the

whole year is filed that the taxpayer will be able to

ascertain whether a tax is still due or refund can be

claimed based on the adjusted and audited figures.

(Bank of the Philippine Island v. CIR, GR 144653,August 28, 2001)

CIR may, even without written claim, refund or

credit any tax IF on the face of the return upon which

payment was made, payment appears to be clearly

erroneously paid or when there is overpayment

Person claiming refund or credit has the burden of

proving the factual basis of their claims and showing

legislative intent to entitle him to such claims (AtlasConsolidated Mining and Development Corp. v. CIR,

GR 145526, march 16, 2007)

Two-fold purpose of Tax Refund (Bermejo v CIR, 87 Phil 96)

1. Afford the collector the opportunity to correct the

action of the subordinate officer

2. Notify government that taxes has been questioned

and such must be borne in mind in estimating the

revenue available for expenditure

Basis of tax refunds unjust enrichment

Tax Refund Tax Credit

Actual reimbursement of tax Reimbursable amount iapplied against the sum due

or collectible

Refund claims are in the nature of an exemption and

must be strictly construed against claimant andclaimant must prove compliance with the requisites

Requirements for Tax Refund:

1. Written claim for refund

2. Claim for refund must categorically demand for

reimbursement of the overpaid amount

3. Must be filed within 2years from date of payment o

tax or penalty regardless of supervening cause Ordinary claim for tax credit would

prescribe in 10years under Article 1144 o

NCC

Where period of 2years is about to end, the

suit or proceeding must be started in CTA

before the end of the 2year period withou

awaiting the decision of CIR Because delay

of the CIR in rendering the decision does no

extend the peremptory period (Gibbs v. CIR

and CTA, GR L-13453)4. Tax must have been paid in full

Computation of 2year Period

1. Tax paid by installments counted from date of fina

payment (CIR v Prieto, GR L-11976)

2. Tax under Withholding System end of taxable year

or when tax liability falls due (Gibbs v CIR, GR L-

17406)

2year prescriptive period commences to runat the earliest, on the date of filing of the

adjusted final tax return (CIR v Asia

Australia Express Ltd, GR 85956)

Filing or quarterly income tax returns and payment

thereof should only be considered mere installments

of income tax due to be adjusted at the end of the

calendar or fiscal year (CIR v TMX Sales, Inc. GR

83736)

2year prescriptive period for payment of tax fo

corporate dissolution is counted from approval of

SEC of the plan for dissolution (BPI v CIR, GR

144653)

Requisites for Claim for Refund of Creditabl

Withholding Tax:

1. Claim filed with CIR within 2years from payment otax

2. It is shown on the return that the income paymen

received was declared as part of the gross income


15/15

P a g e | 15

3. Fact of withholding is established by copy of

statement showing amount paid to taxpayer and

amount of tax withheld

Section 229

Tax Refund

Section 112

VAT Refund

Section 228Administrative Protest

Applies to ANY

internal revenue

taxes

For VAT only -

2year prescriptiveperiod is counted

from date of

payment

2year prescriptiveperiod is counted

from the close of

the taxable

quarters where the

sales were made

-

Appeal within

2years from

payment

Appeal after

120days from

inaction

Appeal may be

made after the

lapse of 180days

from submissionof supporting

documents or

protest, whichever

is earlier

Claim for refund of unutilized VAT payments must

be within 2years from close of taxable quarter when

the relevant sales were made pertaining to input VAT

regardless of whether paid or not. Reckoning frame

would always be the end of quarter when sales ortransactions was made. (Section 112(A), NIRC)

Section 204(C) and Section 229 not applicable

because 2year prescriptive period is counted from

date of payment and such apply only to erroneous

payment or illegal collection. (CIR v Mirant

Pagbilao Corporation , 65 SCRA 164)

VAT registered person whose sales are zero-rated or

effectively zero-rated may apply for tax creditcertificate or refund with CIR because CIR has

120days from submission of supporting documents to

render a decision. Further, decision issued by CIR

within 120day period or inaction for 120day period

gives taxpayer 30days after which to file an appeal

with CTA. (CIR v Aichi Forging Company of Asia,

Inc. , 632 SCRA 422)

In section 76, corporate taxpayer has option of

claiming refund or claiming credit and such is

alternative. However, failure to indicate a choice willnot bar a valid request for refund if chosen later on

since the requirement is only for purpose of easing

tax administration (Philam Asset Management Inc v.

COR. 447 SCRA 772)

Person entitled to refund is the statutory taxpayer

any person subject to tax (Section 22, NIRC)

2-Year Prescriptive Period is not jurisdictional and may besuspended for reasons of equity and other special

circumstances (CIR v Philamlife, 244 SCRA 446):

1. Assurance on the part of BIR that steps were being

undertaken to credit taxpayer with the amount sought

to be refunded

2. Agreement or understanding with BIR that they will

await the result of the pending case

IRREVOCABILITY RULE

Prevents the taxpayer from claiming twice the excess o

quarterly tax paid

1. As automatic credit against taxes for the taxable

quarters of succeeding years for which no tax creditcertificate has been issued; and

2. Tax credit for which a tax credit certificate has been

issued but will be claimed for tax refund

BUT if corporation who opted for tax credit ceased operations

it will be allowed to claim tax refund.

Example: (Excess Creditable Withholding Tax)Year 1 Year 2 Year 3

Tax due: 100K

Creditable Tax: 120K

20K creditable left

(Loss)

Taxpayer may:

1. Refund2. Credit

(Loss)

Taxpayer may credit

only because refund isalready beyond the 2-

year prescriptive period

Tax Credit Certificate may be sold by the taxpayer at

a discount

An availment of tax credit due to reasons other than

erroneous or wrongful collection may have a

different prescriptive period and absent any period intax laws or special laws, the prescribed period is10years according to Article 1144 of NCC

Date post:	02-Apr-2018
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