Tax Remedies Case Digests

Case Digests in Tax Administration, Enforcement, and Remedies
NESTONEL F. ESTRADA JET MARK ORTIZ CARTER PINGAWAN CAMELO SISON
ESTRADA ORTIZ PINGAWAN SISON TAXATION LAW II
ABAKADA GURO PARTYLIST v. CESAR PURISIMA GR 166715, 14 August 2008 FACTS: This petition for prohibition seeks to prevent respondents from implementing and enforcing Republic Act 9335 (Attrition Act of 2005), which was enacted to optimize the revenuegeneration capability and collection of the Bureau of Internal Revenue and the Bureau of Customs. The law intends to encourage BIR and BOC officials and employees to exceed their revenue targets by providing a system of rewards and sanctions through the creation of a Rewards and Incentives Fund and a Revenue Performance Evaluation Board. It covers all officials and employees of the BIR and the BOC with at least six months of service, regardless of employment status. The Fund is sourced from the collection of the BIR and the BOC in excess of their revenue targets for the year, as determined by the Development Budget and Coordinating Committee. Any incentive or reward is taken from the fund and allocated to the BIR and the BOC in proportion to their contribution in the excess collection of the targeted amount of tax revenue. Petitioners, invoking their right as taxpayers filed this petition challenging the constitutionality of RA 9335, a tax reform legislation. They contend that, by establishing a system of rewards and incentives, the law transforms the officials and employees of the BIR and the BOC into mercenaries and bounty hunters as they will do their best only in consideration of such rewards. Thus, the system of rewards and incentives invites corruption. Petitioners also claim that limiting the scope of the system of rewards and incentives only to officials and employees of the BIR and the BOC violates the constitutional guarantee of equal protection. In addition, petitioners assert that the law unduly delegates the power to fix revenue targets to the President as it lacks a sufficient standard on that matter. ISSUE: Whether or not RA 9335 is unconstitutional. HELD: 1. Equal Protection Clause not violated The equal protection clause recognizes a valid classification, that is, a classification that has a reasonable foundation or rational basis and not arbitrary. With respect to RA 9335, its expressed public policy is the optimization of the revenue-generation capability and collection of the BIR and the BOC. Since the subject of the law is the revenue-generation capability and collection of the BIR and the BOC, the incentives and/or sanctions provided in the law should logically pertain to the said agencies. Moreover, the law concerns only the BIR and the BOC because they have the common distinct primary function of generating revenues for the national government through the collection of taxes, customs duties, fees and charges. The Constitution does not require that things which are different in fact be treated in law as though they were the same. The equal protection clause does not forbid discrimination as to things that are different. It does not prohibit legislation which is limited either in the object to which it is directed or by the territory within which it is to operate. 2. There is no undue delegation.
RA 9335 adequately states the policy and standards to guide the President in fixing revenue targets and the implementing agencies in carrying out the provisions of the law. Revenue targets are based on the original estimated revenue collection expected respectively of the BIR and the BOC for a given fiscal year as approved by the DBCC and stated in the BESF submitted by the President to Congress. Thus, the determination of revenue targets does not rest solely on the President as it also undergoes the scrutiny of the DBCC. 3. Section 12 of RA 9335 is unconstitutional. Where Congress delegates the formulation of rules to implement the law it has enacted pursuant to sufficient standards established in the said law, the law must be complete in all its essential terms and conditions when it leaves the hands of the legislature. And it may be deemed to have left the hands of the legislature when it becomes effective because it is only upon effectivity of the statute that legal rights and obligations become available to those entitled by the language of the statute. Subject to the indispensable requisite of publication under the due process clause, the determination as to when a law takes effect is wholly the prerogative of Congress. As such, it is only upon its effectivity that a law may be executed and the executive branch acquires the duties and powers to execute the said law. Before that point, the role of the executive branch, particularly of the President, is limited to approving or vetoing the law. From the moment the law becomes effective, any provision of law that empowers Congress or any of its members to play any role in the implementation or enforcement of the law violates the principle of separation of powers and is thus unconstitutional. Under this principle, a provision that requires Congress or its members to approve the implementing rules of a law after it has already taken effect shall be unconstitutional, as is a provision that allows Congress or its members to overturn any directive or ruling made by the members of the executive branch charged with the implementation of the law. Following this rationale, Section 12 of RA 9335 should be struck down as unconstitutional.
BRITISH AMERICAN TOBACCO v. JOSE ISIDRO CAMACHO GR 163583, 20 August 2008 FACTS: To implement RA 8240, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-97, 2 which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands,or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate survey to determine their current net retail price is conducted. In June 2001 British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a suggested retail price of P9.90 per pack. Pursuant to Sec. 145 (c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack. On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof forthe purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum Order No. 6-2003 5 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail pricesof new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations No. 22-2003 6 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after January 1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively. Respondent Commissioner of the Bureau of Internal Revenue thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike's average net retail price is above P10.00 per pack. Petitioner seeks enjoin the implementation of Section 145 of the NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003 on the ground that they discriminate against new brands of cigarettes, in violation of the equal protection and uniformity provisions of the Constitution. ISSUE: Whether or not the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution. HELD: There is no question that the classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. The four-fold test has been met in the present case. It neither involves a suspect classification nor impinges on a fundamental right. Consequently, the rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protection challenge. It has been held that "in the areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification." Under the rational basis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest. Petitioner's reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted municipal ordinance specifically named and taxed only the Ormoc Sugar Company, and excluded any subsequently established sugar central from its coverage. Thus, the ordinance was found unconstitutional on equal protection grounds because its
terms do not apply to future conditions as well. This is not the case here. The classification freeze provision uniformly applies to all cigarette brands whether existing or to be introduced in the market at some future time. It does not purport to exempt any brand from its operation nor single out a brand for the purpose of imposition of excise tax.
CIR v. BURROUGHS LIMITED, CA GR L-66653, 19 June 1986 FACTS: Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to its parent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paid the 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head office the amount of P6,499,999.30 and paying a remittance tax of 1,147,058.70. Claiming that the 15% profit remittance tax should have been computed on the basis of the amount actually remitted (P6,499,999.30) and not on the amount before profit remittance tax (P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or tax credit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax. Petitioner contends that respondent is no longer entitled to a refund because Memorandum Circular No. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980. ISSUE: Whether or not Burroughs is entitled to a tax refund. HELD: Yes, since What is applicable in the case at bar is still the Revenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branch profit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be given retroactive effect in the light of Section 327 of the National Internal Revenue Code, which provides: Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of any of the rules and regulations promulgated in accordance with the preceding section or any of the rulings or circulars promulgated by the Commissioner shag not be given retroactive application if the revocation, modification, or reversal will be prejudicial to the taxpayer except in the following cases (a) where the taxpayer deliberately misstates or omits material facts from his return or in any document required of him by the Bureau of Internal Revenue; (b) where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the facts on which the ruling is based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 151-152) The prejudice that would result to private respondent Burroughs Limited by a retroactive application of Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly, Burroughs Limited does not fall under any of them.
CIR v. CA, CTA, FORTUNE TOBACCO CORPORATION GR 119761, 29 August 1996 FACTS: On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. The initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. A bill, which later became Republic Act ("RA") No. 7654, was enacted, on 10 June 1993. About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR, which provided: "Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, 'in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made.' "In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE' and 'CHAMPION' being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes. Fortune Tobacco assailed the validity of the RMC since no hearing and publication was made before its effectivity. CIR, on the other hand, contended that is a ruling or opinion of the commissioner of internal revenue interpreting the provisions of the tax code and publication filing of copies thereof with the UP Law Center and prior hearing are not necessary to its validity, effectivity and enforceability. ISSUE: Whether or not the RMC is valid. HELD: A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, evidences that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products.
Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored.
PHILIPPINE BANK OF COMMUNICATIONS v. CIR, CTA, CA GR 112024, 28 January 1999 FACTS: PBCom requested the Commissioner of Internal Revenue, for a tax credit of P5,016,954.00 representing the overpayment of taxes in the first and second quarters of 1985. Thereafter, on July 25, 1988, petitioner filed a claim for refund of creditable taxes withheld by their lessees from property rentals in 1985 for P282,795.50 and in 1986 for P234,077.69. The CTA later rendered a decision which, as stated on the outset, denied the request of petitioner for a tax refund or credit in the sum amount of P5,299,749.95, on the ground that it was filed beyond the two-year reglementary period provided for by law. The petitioners claim for refund in 1986 amounting to P234,077.69 was likewise denied on the assumption that it was automatically credited by PBCom against its tax payment in the succeeding year. Petitioner argues that its claims for refund and tax credits are not yet barred by prescription relying on the applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The circular states that overpaid income taxes are not covered by the two-year prescriptive period under the Tax Code and that taxpayers may claim refund or tax credits for the excess quarterly income tax with the BIR within ten (10) years under Article 1144 of the Civil Code. Respondent Commissioner of Internal Revenue argues that the two-year prescriptive period for filing tax cases in court concerning income tax payments of Corporations is reckoned from the date of filing the Final Adjusted Income Tax Return, which is generally done on April 15 following the close of the calendar year. Since the Final Adjusted Income Tax Return of the petitioner for the taxable year 1985 was supposed to be filed on April 15, 1986, the latter had only until April 15, 1988 to seek relief from the court. Further, respondent Commissioner stresses that when the petitioner filed the case before the CTA on November 18, 1988, the same was filed beyond the time fixed by law, and such failure is fatal to petitioners cause of action. ISSUE: Whether or not PBComs claim for refund is already barred by prescription. HELD: Yes, since it was filed beyond the 2-year reglamentary period. Section 230 of the National Internal Revenue Code (NIRC) of 1977 (now Sec. 229, NIRC of 1997) provides that the taxpayer may file a claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period provided, should be computed from the time of filing the Adjustment Return and final payment of the tax for the year. When the Acting Commissioner of Internal Revenue issued RMC 7-85, changing the prescriptive period of two years to ten years on claims of excess quarterly income tax payments, such circular created a clear inconsistency with the provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the law; rather it legislated guidelines contrary to the statute passed by Congress. It bears repeating that Revenue memorandum-circulars are considered administrative rulings (in the sense of more specific and less general interpretations of tax laws) which are issued from time to time by the Commissioner of Internal Revenue. It is widely accepted that the interpretation placed upon a statute by the executive officers, whose duty is to enforce it, is entitled to great respect by the
courts. Nevertheless, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus, courts will not countenance administrative issuances that override, instead of remaining consistent and in harmony with, the law they seek to apply and implement.
CIR v. JOSEFINA LEAL GR 113459, 18 November 2002 FACTS: The Commissioner of Internal Revenue issued Revenue Memorandum Order (RMO) No. 15-91 dated March 11, 1991, imposing 5% lending investors tax on pawnshops based on their gross income and requiring all investigating units of the Bureau of Internal Revenue (BIR) to investigate and assess the lending investors tax due from them. The issuance of RMO No. 15-91 was an offshoot of petitioners evaluation that the nature of pawnshop business is akin to that of lending investors. Subsequently, petitioner issued Revenue Memorandum Circular (RMC) No. 43-91 dated May 27, 1992, subjecting the pawn ticket to the documentary stamp tax as prescribed in Title VII of the Tax Code. Adversely affected by those revenue orders, herein respondent Josefina Leal, owner and operator of Josefinas Pawnshop in San Mateo, Rizal, asked for a reconsideration of both RMO No. 15-91 and RMC No. 43-91 but the same was denied with finality by petitioner. Consequently, on March 18, 1992, respondent filed with the Regional Trial Court (RTC), Branch 75, San Mateo, Rizal, a petition for prohibition, seeking to prohibit petitioner from implementing the revenue orders. Petitioner, through the Office of the Solicitor General, filed a motion to dismiss the petition on the ground that the RTC has no jurisdiction to review the questioned revenue orders and to enjoin their implementation. Petitioner contends that the subject revenue orders were issued pursuant to his power to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws. Thus, the case falls within the exclusive appellate jurisdiction of the Court of Tax Appeals, citing Section 7 (1) of Republic Act No. 1125. The RTC denied motion to dismiss, holding that the revenue orders are not assessments to implement a Tax Code provision, but are in effect new taxes (against pawnshops) which are not provided for under the Code, and which only Congress is empowered to impose. ISSUE: Whether or not the RTC has the jurisdiction to hear the case. HELD: The questioned issuances of the CIR are actually rulings or opinions of the Commissioner implementing the Tax Code on the taxability of pawnshops pursuant to petitioner's powers under Section 245 of the Tax Code or the power make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including ruling on the classification of articles of sales and similar purposes. Under A 1125, the Court of Tax Appeals has the exclusive appellate jurisdiction to review by appeal, among others, decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other law or part of law administered by the Bureau of Internal Revenue. The law transferred to the CTA jurisdiction over all cases involving said assessments previously cognizable by the RTC, and even those already pending in said courts.
Josefina Leal, being a pawnshop owner, is assailing the revenue orders imposing 5% lending investors tax on pawnshops issued by petitioner. Clearly then, she should have filed her petition with the Court of Tax Appeals, not the RTC. Indeed, the Court of Appeals erred in holding that the RTC order should have been challenged before this Court.
CIR v. SONY PHILIPPINES GR 178697, 17 November 2010 FACTS: On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA 19734) authorizing certain revenue officers to examine Sonys books of accounts and other accounting records regarding revenue taxes for the period 1997 and unverified prior years. On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony protested. Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of demand and the details of discrepancies. One of Sonys contention is its insistence that the revenue officers exceeded their examination of tits books since they included claims beyond 1997, despite the LOAs authority only being limited to 1997 and unverified prior years. It claims that the assessments made by the BIR are void. ISSUE: Whether or not the LOA issued by the CIR is valid. HELD: Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers or enables said revenue officer to examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax. there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. As earlier stated, LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR acting through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998. As pointed out by the CTA-First Division in its April 28, 2005 Resolution, the CIR knew which period should be covered by the investigation. Thus, if CIR wanted or intended the investigation to include the year 1998, it should have done so by including it in the LOA or issuing another LOA.
FITNESS BY DESIGN v. CIR GR 177982, 17 October 2008 FACTS: On March 17, 2004, the Commissioner on Internal Revenue assessed Fitness by Design, Inc. for deficiency income taxes for the tax year 1995 in the total amount of P10,647,529.69. Petitioner protested the assessment on the ground that it was issued beyond the three-year prescriptive period under Section 203 of the Tax Code. Additionally, petitioner claimed that since it was incorporated only on May 30, 1995, there was no basis to assume that it had already earned income for the tax year 1995. A case was later filed against the petitioner to levy its assets in favor of the BIR. During the hearing of the case with the CTA, a preliminary hearing on the issue of prescription was conducted during which petitioners former bookkeeper attested that a former colleague, certified public accountant Leonardo Sablan, illegally took custody of petitioners accounting records, invoices, and official receipts and turned them over to the BIR. The Petitioner then moved that Sablan be subpoenaed. CTA denied petitioners Motion for Issuance of Subpoenas and disallowed the submission by petitioner of written interrogatories to Sablan, who is not a party to the case, and the revenue officers, it finding that the testimony, documents, and admissions sought are not relevant. Besides, the CTA found that to require Sablan to testify would violate Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of informers of violations of internal revenue laws, except when the information is proven to be malicious or false. ISSUE: Whether or not the evidence against Fitness by Design be admissible despite its claim that Sablan unlawfully took the same from the petitioner. HELD: Petitioners lack of consent in the examination of its book taken by Sablan does not imply that the BIR obtained them illegally or that the information received is false or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on the documents. The law allows the BIR access to all relevant or material records and data in the person of the taxpayerand the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect the correct amount of taxes. Section 5 of the Tax Code provides: In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized: (A) To examine any book, paper, record or other data which may be relevant or material to such query;
(B)
(C)
(D) (E)
To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned and controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships and their members; To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representatives at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony; To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; and To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed.
BIR v. OMBUDSMAN GR 115103, 11 April 2002 FACTS: Graft Investigation Officer II Christopher S. Soquilon of the Office of the Ombudsman received information from an informer-for-reward regarding allegedly anomalous grant of tax refunds to Distillera Limtuaco & Co., Inc. and La Tondea Distilleries, Inc. On November 29, 1993, the Ombudsman issued a subpoena duces tecum addressed to Atty. Millard Mansequiao of the Legal Department of the Bureau of Internal Revenue (BIR) ordering him to appear before the Ombudsman and to bring the complete original case dockets of the refunds granted to Limtuaco and La Tondea. The BIR moved to vacate the subpoena duces tecum arguing that (a) the second subpoena duces tecum was issued without first resolving the issues raised in its Manifestation and Motion dated December 8, 1993; (b) the documents required to be produced were already submitted to Graft Investigation Officer II Baldrias; (c) the issue of the tax credit of ad valorem taxes has already been resolved as proper by the Sandiganbayan; (d) the subpoena duces tecum partook of the nature of an omnibus subpoena because it did not specifically described the particular documents to be produced; (e) there was no clear showing that the tax case dockets sought to be produced contained evidence material to the inquiry; (f) compliance with the subpoena duces tecum would violate Sec. 269of the National Internal Revenue Code (NLRC) on unlawful divulgence of trade secrets and Sec. 277 on procuring unlawful divulgence of trade secrets; and (g) Limtuaco and La Tondea had the right to rely on the correctness and conclusiveness of the decisions of the Commissioner of Internal Revenue. BIR insists that the investigative power of the Ombudsman is not unbridled. Particularly on the issue of tax refunds, the BIR maintains that the Ombudsman could validly exercise its power to investigate only when there exists an appropriate case and subject to the limitations provided by law.i[16] Petitioner opines that the fact-finding investigation by the Ombudsman is not the proper case as it is only a step preliminary to the filing of recovery actions on the tax refunds granted to Limtuaco and La Tondea. ISSUE: Whether or not the Ombudsman may investigate cases pending investigation by the BIR. HELD: No less than the 1987 Constitution enjoins that the Ombudsman and his Deputies, as protectors of the people, shall act promptly on complaints filed in any form or manner against public officials or employees of the government, or any subdivision, agency or instrumentality thereof, including government-owned or controlled corporations, and shall, in appropriate case, notify the complainants of the action taken and the result thereof. Plainly, the pendency of an action is not a prerequisite before the Ombudsman can start its own investigation. The Ombudsman Act makes it perfectly clear that the jurisdiction of the Ombudsman encompasses all kinds of malfeasance, misfeasance and nonfeasance that have been committed by any officer or employee xxx during his tenure of office. Concededly, the determination of whether to grant a tax refund falls within the exclusive expertise of the BIR. Nonetheless, when there is a suspicion of even just a tinge of impropriety in the grant of the same, the Ombudsman could rightfully ascertain whether the determination was done in accordance with law and identify the persons who may be held responsible thereto. In that sense,
the Ombudsman could not be accused of unlawfully intruding into and intervening with the BIRs exercise of discretion. The assailed subpoena duces tecum indeed particularly and sufficiently described the records to be produced. There is every indication that petitioner knew precisely what records were being referred to as it even suggested that the tax dockets sought to be produced may not contain evidence material to the inquiry and that it has already submitted the same to Baldrias. The records do not show how the production of the subpoenaed documents would necessarily contravene Sec. 269 of the National Internal Revenue Code (NIRC) on unlawful divulgence of trade secrets and Sec. 277 of the same Code on procuring unlawful divulgence of trade secrets. The documents sought to be produced were only the case dockets of the tax refunds granted to Limtuaco and La Tondea which are public records, and the subpoena duces tecum were directed to the public officials who have the official custody of the said records. We find no valid reason why the trade secrets of Limtuaco and La Tondea would be unnecessarily disclosed if such official records, subject of the subpoena duces tecum, were to be produced by the petitioner BIR to respondent Office of the Ombudsman.
CIR v. HANTEX TRADING CO. GR 136975, 31 March 2005 FACTS: Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.57. Amoto submitted a report to the EIIB Commissioner recommending that an inventory audit of the respondent be conducted by the Internal Inquiry and Prosecution Office (IIPO) of the EIIB., who issued subpoena duces tecum and ad testificandum for the president and general manager of the respondent to appear in a hearing and bring Books of Accounts for the year 1987; Record of Importations of Synthetic Resin and Calcium Carbonate for the year 1987; income tax returns & attachments for 1987; and record of tax payments. However, the respondents president and general manager refused to comply with the subpoena, contending that its books of accounts and records of importation of synthetic resin and calcium bicarbonate had been investigated repeatedly by the Bureau of Internal Revenue (BIR) on prior occasions. Regardless, a case was filed against the respondents. The IIPO relied on the certified copies of the respondents Profit and Loss Statement for 1987 and 1988 on file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the informer. Among the evidences used are the machine copies of the import entries supplied by the informer, which could not be authenticated since the original copies of the said entries filed with the Bureau of Customs had apparently been eaten by termites. However, a certification that the following enumerated entries were filed by the respondent which were processed and released from the Port of Manila after payment of duties and taxes. Hantex assailed the use of the documents since is does not conform with the Best Evidence Rule. It insists that the credibility of the photocopies are questionable since the originals were not presented. ISSUE: Whether or not the certified true copies of the import entries of Hantex are admissible as evidence against them. HELD: 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. However, 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 Court is entitled to use the original records rather than be forced to accept purported copies which present the risk of error or tampering.
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. In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine copies of the Consumption Entries in fixing the tax deficiency assessments against the respondent. 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. However, the rule does not apply where the estimation is arrived at arbitrarily and capriciously.
CIR v. EMBROIDERY AND GARMENTS INDUSTRIES (PHIL.), INC. GR 96262, 22 March 1999 FACTS: On September 22, 1964, on the basis of a sworn report of an informer, the Courts of First Instance of Manila and Bulacan issued search warrants for the seizure of certain documents from the offices of respondent Embroidery and Garments Industries (Phil.), Inc. in Manila and Valenzuela, Bulacan. Armed with the warrants, agents of the Anti-Technical Smuggling Unit, Bureau of Internal Revenue, seized various business records and documents from respondents offices. On January 4, 1966, petitioner assessed respondent the sum of P436,846.44, inclusive of 75% surcharge and penalty as advance sales tax for the years 1959 to 1961 and, on March 23, 1966, assessed deficiency income tax in the sum of P4,799.641.95, inclusive of 50% surcharge and % monthly interest for the years 1960 and 1961. Respondent protested the assessments, petitioner denied the protest. ISSUE: Whether or not the respondent is liable for deficiency income tax and advance sales tax in view of its failure to declare its income realized for the years 1959 to 1961. Whether or not the decision imposing 50% surcharge for fraud was legal and justified. HELD: Findings of fact of the Court of Appeals and even of the tax court are final, binding or conclusive on the parties and upon this Court, which will not be reviewed or disturbed on appeal unless these findings are not supported by evidence, with certain well recognized exceptions, such as (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) When the conclusion is grounded entirely on speculations, surmises or conjectures; When the inference made is manifestly mistaken, absurd or impossible; Where there is grave abuse of discretion; When the judgment is based on a misapprehension of facts; When the findings of fact are conflicting; When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; When the findings of the Court of Appeals are contrary to those of the trial courts; When the findings of fact are conclusions without citation of specific evidence on which they are based; When the Court of Appeals overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and When the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on record.
This case does not come within any of the exceptions.
COMMISSION OF INTERNAL REVENUE v. AQUAFRESH SEAFOODS, INC. GR 170389, 20 October 2010 FACTS: Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land, including improvements thereon, for Php 3,100, 000.00. Aquafresh paid Php 186,000.00, representing the Capital Gains Tax (CGT) and Php 46,500.00, representing the Documentary Stamp Tax (DST)due from the said sale.The Bureau of Internal Revenue (BIR) received a report that the lots sold were undervalued for taxation purposes. After an investigation, BIR concluded that the subject properties were commercial with a zonal value of Php 2,000.00 per square meter. BIR assessed Aquafresh of CGT and DST defencies in the sum of Php 1,372,171.46 and Php 356,267.62, respectively. Aquafresh protested the assessments. Aquafresh's argued that the subject properties were located in Barrio Banica, Roxas, where the pre-defined zonal value was Php 650.00 per square meter based on the Revised Zonal Values of Real Properties in the City of Roxas. Aquafresh argued that since there was already a pre-defined zonal value for properties located in Barrio Banica, the BIR officials had no business re-classifying the subject properties to commercial. ISSUE: Whether the existing Revised Zonal Values of Real Properties in the City of Roxas or the fair market value as determined by BIR will be used as basis for the capital gains tax and documentary tax. HELD: The Revised Zonal Values of Real Properties in the City of Roxas must be followed for purposes of computing the CGT and DST. It is undisputed that at the time of the sale of the subject properties found in Barrio Banica, Roxas City, the same were classified as RR, or residential, based on the 1995 Revised Zonal Value of Real Properties. CIR, thus, cannot unilaterally change the zonal valuation of such properties to commercial without first conducting a re -evaluation of the zonal values as mandated under Section 6(E) of the NIRC. Zonal value is determined for the purpose of establishing a more realistic basis for real property valuation. Since internal revenue taxes, such as CGT and DST, are assessed on the basis of valuation, the zonal valuation existing at the time of the sale should be taken into account
REPUBLIC OF THE PHILIPPINES v. SALUD HIZON
GR 130430, 13 December 1999 FACTS: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner BIR, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More than three years later, the respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the RTC to collect the tax deficiency. Hizon moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by Sec. 221 of the NIRC, and (2) that the action had already prescribed. Over petitioner's objection, the trial court granted the motion and dismissed the complaint. BIR on the other hand contends that respondent's request for reinvestigation of her tax deficiency assessment on November 1992 effectively suspended the running of the period of prescription. ISSUE: Has the action for collection of the tax prescribed? HELD: Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under Sec. 223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable.
PHILIPPINE NATIONAL OIL COMPANY v. COURT OF APPEALS GR 109976, 26 April 2005 FACTS: TirsoSavellano informed the BIR that PNB had failed to withhold the 15% final tax on interest earnings and yields from the money placements of PNOC, which was violative of P.D. 1931 (which withdrew all tax exemptions of GOCCs) Acting on such information, the BIR requested PNOC to settle the aforementioned tax liability; PNOC offered to compromise the same by proposing that it be set-off against a claim by NAPOCOR for tax refund/credit (the amount of the tax refund was supposedly a receivable account of PNOC from NAPOCOR) The proposalwas found premature by the BIR as NAPOCORs claim was still under process, so PNOC amended its offer and offered to pay an amount representing 30% of the basic tax in accordance with E.O. 44; The same was accepted by BIR Commissioner Bienvenido Tan. Meanwhile,Savellano was paid the informers reward (15% of the tax collected from PNOC and PNB); A month after receiving his last installment for the reward, Savellano wrote the BIR to demand payment of the balance of his reward, to which the BIR (through Comm. Tan) replied that Savellano was no longer owed by them as he had already received an amount equal to 15% of the compromise agreement proposed by PNOC; Savellano sought a reconsideration of the decision, questioning the legality of the compromise agreement between the BIR and PNOC. While his Motion for Reconsideration was yet pending with the BIR, Savellano filed a Petition for Review with the CTA claiming Comm. Tan acted with grave abuse of discretion in entering into a compromise agreement with PNOC which immensely lessened his informers reward. Ultimately, new BIR Commissioner Jose Ong, found meritorious Savellanos Motion for Reconsideration and ordered the PNB to pay the deficiency withholding tax on the interest earnings from PNOCs money placements. ISSUES: (1) Was the CTA declaration finding the compromise agreement between the BIR and PNOC valid? (2) Was the CTA finding that the deficiency withholding tax assessment against PNB was already final and unappealable and unenforceable valid? (3) Was the CTA order directing payment of additional informers reward for Savellano valid? HELD: 1. Compromise agreement between PNOC and BIR is void for being contrary to law and public policy. PNOC could not apply for a compromise under E.O. 44 because its tax liability was not a delinquent account or a disputed assessment.
PNOCs tax liability could not be considered a delinquent account because it was not self-assessed as the BIR conducted an investigation after receiving information from Savellano. Nor is there a deficiency assessment present. Neither PNOC nor PNB conducted self-assessment, and neither was there any tax assessment issued by the BIR versus them. PNOC and PNB were both silent about their tax liabilities until they were assessed thereon. 2. The withholding tax assessment vs. PNB had become final and unappealable. The CTA and the CA declared as final and unappealable (and thus unenforceable) the assessment vs PNB since PNB failed to protest it within the 30-day prescribed period. 3. Savellano is entitled to be paid the remainder of his informers reward. Savellano is entitled to additional informers award since the BIR had already collected the full amount of the tax assessment against PNB. (Sec. 316(1) of the 1977 NIRC)
PEOPLE OF THE PHILIPPINES vs. SANDIGANBAYAN, BIENVENIDO A. TAN GR 152532, 16 August 2005 FACTS: In July 1987, Commissioner of Internal Revenue (CIR) Bienvenido Tan, Jr. issued an assessment against San Miguel Corporation (SMC) demanding payment of P342 million in taxes. SMC filed a request for reinvestigation. Tan granted the request and eventually he reduced the tax liability to P302 million. But in October 1987, without any word from SMC, Tan referred the case to the Legal Service Division of the BIR. Various BIR officials reviewed the case and they recommended that SMCs tax liability be reduced to P22 million (a significant reduction from the original P342 million). The reduction was justified by the BIR officials on the ground that the tax examiners had made some errors in computing SMCs tax liability. So SMC was demanded to pay P22 million but then SMC asked for a compromise of P10 million. Again, the matter was referred to various BIR officials who agreed and recommended to Tan that he should accept the compromise offer. Tan accepted the P10 million compromise offer. This resulted to a criminal case against Tan for violation of the Anti-Graft and Corrupt Practices Act. Allegedly, his act of accepting the P10 million compromise offer caused undue injury to the government and it gave SMC unwarranted benefits due to the significantly reduced tax liability. The Sandiganbayan originally convicted Tan but it reversed its own decision upon motion of Tan. ISSUE: Whether or not Tan should have been convicted of the crime charged. HELD: No. It was found by the Sandiganbayan that there was an improper computation in the tax liability of SMC. The error basically imposed tax on top of another tax which if allowed would be unfair to the taxpayer. It was therefore proper to have the tax be reduced from P302 million to P22 million. But is it proper for Tan to accept the P10 million compromise by SMC? Tan is well within his power to accept the P10 million compromise offer. This is actually abatement (not compromise as termed by SMC). Tan is actually prudent to accept the P10 million offer so as to avoid a protracted and costly litigation. Abatement is the diminution or decrease in the amount of tax imposed. It refers to the act of eliminating or nullifying; of lessening or moderating. To abate is to nullify or reduce in value or amount. The CIR has the power to abate or cancel the whole or any unpaid portion of a tax liability, inclusive of increments, if its assessment is excessive or erroneous, or if the administration costs involved do not justify the collection of the amount due. No mutual concessions need be made, because an excessive or erroneous tax is not compromised; it is abated or canceled. Only correct taxes should be paid. Further, Tan cannot be said to have acted in bad faith. He acted upon concurrence and recommendation of the various BIR officials.
CIR v. PASCOR REALTY AND DEVELOPMENT CORP. GR 128315, 29 June 1999 FACTS: Then BIR Commissioner Jose Ong authorized certain Revenue Officers to examine the books of accounts and other accounting records of Pascor Realty for the years 1986-1988 The CIR Comm. filed a criminal complaint against Pascor and some of its officers before the DOJ alleging evasion of taxes; a subpoena was issued by the BIR against Pascor in connection with the criminal complaint. Pascor had filed an Urgent Request for Reconsideration/Reinvestigation but the same was denied as no formal assessment had yet been issued by the CIR Comm., so Pascor elevated the decision to the CTA. The CIR sought to dismiss the petition claiming that the CTA had no jurisdiction, but the CTA denied the motion to dismiss and instead ordered the CIR to file an answer. The CIR, instead of filing an answer, filed the current petition alleging that the CTA acted with grave abuse of discretion and without jurisdiction in considering the report of the revenue officers and its indorsement by the secretary of justice as an assessment (which may be appealable to the CTA). The CTA denied the motion to dismiss yet again, stating that the criminal case for tax evasion is already an assessment and as such they obtained jurisdiction over the dispute; hence, the case at bar. ISSUES: (1) W/n the criminal complaint for tax evasion can be construed as an assessment? (MAIN ISSUE) (2) W/n an assessment is necessary before criminal charges for tax evasion may be instituted? (3) W/n the CTA can take cognizance of the case in the absence of an assessment? HELD: Neither the NIRC nor the regulations governing the protest of assessments provide a specific definition or form of an assessment, but the NIRC does define the specific functions and effects of an assessment, and to consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers. While it is true that an assessment informs the taxpayer that he/she has tax liabilities, not all documents from the BIR containing a computation of the tax liability can be deemed assessments. It must be sent to and received by a taxpayer and must demand payment of the taxes described therein within a specified period. It is deemed made only when the collector of internal revenue releases, mails, or sends such notice to the taxpayer. In the case at bar, the revenue officers affidavit merely contained a computation of Pascors tax liability. It did not state a demand or a period for payment, and was even addressed to the secretary of justice and not Pascor. The fact that it was specifically directed and sent to the DOJ and not Pascor shows that the intent of the CIR Comm. was to file a criminal complaint for tax evasion, not to issue an assessment.
CIR v. RAUL M. GONZALEZ, et al. GR 177279, 13 October 2010 FACTS: Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue Officers of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999. The audit and investigation against LMCEC was precipitated by the information provided by an "informer" that LMCEC had substantial under declared income for the said period. Assessment notices together with a formal letter of demand dated August 7, 2002 were sent to LMCEC through personal service on October 1, 2002.9cra1aw Since the company and its representatives refused to receive the said notices and demand letter, the revenue officers resorted to constructive service10cra1aw in accordance with Section 3, Revenue Regulations (RR) No. 12-99. ISSUE: Whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax). HELD: The Supreme Court held that notice of assessment is different from Pre-Assessment Notice. In Pre Assessment Notice, it does not include to pay the tax. It includes only findings of deficiency taxes by the BIR. In Notice of Assessment, it contains a demand to pay the tax. The Supreme Court further held that Formal Letter of Demand and Notice of Assessment are the same. The Formal Letter of Demand must include the law, fact, rules, regulations and jurisprudence upon which it was base. Control Number is not necessary for the validity of Notice of Assessment.
CIR v. ENRON SUBIC POWER CORPORATION GR 166368, 19 January 2009 FACTS: Enron, a duly registered Subic Bay Freeport Zone enterprise received a formal notice of assessment from the Commissioner of Internal Revenue (CIR) despite filing its protest letter to the preliminary five-day letter. The Company filed a Petition for Review with the Court of Tax Appeals (CTA) since the CIR failed to resolve its protest against the formal notice of assessment within the mandated 180-day period. Enron alleged that the BIR failed to provide the legal and factual bases of the assessment in violation of Section 3.1.4 of Revenue Regulations No. 12.99 Finding for Enron, the CTA held that the assessment notice sent to the Company failed to comply with the requirements of a valid written notice set by the law. The CIRs motion for reconsideration was likewise denied. On appeal, the Court of Appeals (CA) affirmed the decision of the CTA and held that the audit working papers presented to the taxpayer by the BIR in support of the assessment did not substantially comply with Section 228 of the NIRC and RR No. 12-99 because the aforementioned documents failed to show the applicability of the law the BIR cited to the facts of the assessment. The CIR then elevated the case to the SC claiming that Enron was informed of the legal and factual bases of the deficiency assessment against it. ISSUE: Is it mandatory for the BIR to indicate the legal and factual bases of their findings in the assessment? Is the notice requirement satisfied when the BIR advised the taxpayers representative of the tax deficiency during the pre-assessment stage, and furnished the taxpayer of a copy of the audit working papers? HELD: In denying the CIRs petition for review, the SC held that Section 3.1.4 of RR No. 12-99 is explicit that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against it. The Court said that the use of the word shall indicates the mandatory nature of the requirements laid down therein. Even so, taking note of the CTAs findings, the SC held that the CIR merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and compromise penalty due thereon. The Revenue Officers of the CIR in the issuance of the Final Assessment Notice did not provide Enron with the written bases of the law and facts on which the subject assessment is based. The CIR did not bother to explain how it arrived at such an assessment. More so, he failed to mention the specific provision of the Tax Code or rules and regulations which were not complied with by Enron. The SC gave weight to the findings of the CTA and CA that the BIR failed to indicate the factual and legal bases of the deficiency tax assessment as the same merely itemized the deductions disallowed and included these in the gross income, aside from imposing the preferential rate of 5% on some items categorized by Enron as costs. Ultimately, the CIR alleged that during the preassessment stage, they supposedly have advised and informed Enrons representative of the proposed tax deficiency through a preliminary five-day letter apart from furnishing the latter a copy of the audit working paper. However, the SC ruled that (t)he 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.
According to the SC, 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 assessment was made. Hence, the assessment against Enron was declared to be void by reason of the absence of a fair opportunity for Enron to be informed of the aforesaid assessments legal and factual bases.
CIR v. BANK OF THE PHILIPPINE ISLANDS GR 134062, 17 April 2007 FACTS: In October 28, 1988, petitioner assessed BPI of deficiency percentage and documentary stamp tax for the year 1986, in the total amount of P129, 488,056.63. A letter reply by respondent was sent on December 10, 1988 stating among other: ... we shall inform you the taxpayers decision on whether to pay of protest the assessment, CTA ruled that BPI failed to protest on time under Sec 270 of NIRC of 1986. ISSUE: Whether or not the assessments issued to BPI for deficiency percentage and documentary stamp taxes for 1986 had already become final and un-appealable. RULING: In merely notifying BPI of his findings. CIR relied on the provisions of the former Section 270 prior to its amendment by RA 8424. The sentence The taxpayers shall be informed in writing of the law and the facts on which the assessment is made Was not in the old Section 270 but was only later on inserted in the renumbered Section 228 in 1997. Tax assessments by tax examiners are presumed correct and are 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 BIR examiner and approved by his superior officers will not be distributed. All presumptions are in favor of the correctness of tax assessments.
CIR v. REYES GR 159694, 27 January 2006 FACTS: Decedent Tancinco left a 1,292 square-meter residential lot and an old house thereon. The heirs of the decedent received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14, 912,205.47, inclusive of surcharge and interest. The CIR issued a preliminary collection letter to Reyes, followed by a Final Notice before Seizure. Subsequently, a Warrant of Distraint and/or Levy was served upon the estate. Reyes initially protested the notice of levy but then the heirs proposed a compromise settlement of P1, 000,000.00. The CIR rejected Reyess offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. As the estate failed to pay its tax liability within the deadline, BIR notified Reyes that the subject property would be sold at public auction on August 8, 2000. Reyes filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the assessment, letter of demand, and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge or interest. ISSUE: Whether or not the assessment in this case can be used as a basis for the perfection of a tax compromise. HELD: No. The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory insofar as taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs 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. Being invalid, the assessment cannot be in turn be used as a basis for the perfection of a tax compromise. Hence, it is premature to declare the compromise on the tax liability of the estate perfected and consummated considering that the tax assessment is void. While administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of and could effectively protest the basis of tax assessments against them.7 since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality.
PHILIPPINE JOURNALISTS, INC. vs. CIR GR 162852, December 16, 2004 FACTS: On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued Letter of Authority No. 871204 for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine petitioners books of account and other accounting records for internal revenue taxes for the period January 1, 1994 to December 31, 1994. From the examination, the petitioner was told that there were deficiency taxes, inclusive of surcharges, interest and compromise penalty. Then, petitioner, through its Comptroller, Lorenza Tolentino, executed a waiver of statute of limitations pursuant to Sec.223 and Sec.224 and consented to the assessment and collection of taxes which may be found due after the examination at any time after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the NIRC, until the completion of the investigation. Petitioner had a deficiency of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment Notices which informed petitioner of the results of the investigation. A Final Notice Before Seizure was sent to the petitioner but the latter merely questioned the amount of the deficiency and how the same was arrived. A Warrant of Distraint/Levy was received by petitioner for the deficiency. Petitioner filed a Petition for Review with the CTA, contending that no assessment was received by him; that the warrant of distraint/levy was issued prematurely; and that the assessment was made beyond the 3-year period. Regarding the assessment, the CTA ruled that the assessment was sufficiently proven by the receipts of the Post Master. As to the premature distraint/levy and the assessment made beyond the 3-year period, the CTA ruled in favor of the petitioner. The waiver of statute of limitations by the petitioner was invalid which resulted in the lapse of the 3 year period for assessment. Consequently, the petition was granted, declaring the order for payment of deficiency tax null and void. The CIR filed a motion for reconsideration but the same was denied. Undaunted, the CIR filed an appeal with the CA. The CA reversed the ruling of the CTA, stating that the waiver of limitations was valid and that the assessment notices was final and executory. Hence, this appeal. ISSUE: Whether or not the waiver of limitations was invalid, making the assessment beyond the 3 year period? HELD: Yes, the court ruled that the waiver of limitation was invalid, making the assessment beyond the allowable period of 3 years. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. 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 unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.
As found by the CTA, the Waiver of Statute of Limitations, signed by petitioners comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioners waiver became unlimited in time, violating Section 222(b) of the NIRC.
CIR v. KUDOS CORPORATION GR 178087, 05 May 2010 FACTS: On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998. Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt of which was acknowledged by respondents President, Mr. Chan Ching Bio, in a letter dated October 20, 2000. A review and audit of respondents records then ensued. On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a Waiver of the Defense of Prescription, which was notarized on January 22, 2002, received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar (Salazar). This was followed by a second Waiver of Defense of Prescription, executed by Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26, 2003 which was received by respondent on November 12, 2003. Respondent challenged the assessments by filing its Protest on Various Tax Assessments on December 3, 2003 and its Legal Arguments and Documents in Support of Protests against Various Assessments on February 2, 2004. On October 4, 2005, the CTA Second Division issued a Resolution, canceling the assessment notices issued against respondent for having been issued beyond the prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90. On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it ruled that the Assistant Commissioner was authorized to sign the waiver pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found that the first waiver was still invalid based on the second and third grounds stated by the CTA Second Division. ISSUE: Whether or not the court of tax appeals EN Banc erred in ruling that the governments right to assess unpaid taxes of respondent prescribed. HELD: Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but not after ______ 19 ___, which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up. 2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement. A perusal of the waivers executed by respondents accountant reveals the following infirmities: 1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent. 2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers. Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond the three-year period and are void. The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right. As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy. It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they originate. Simply put, the doctrine of estoppel must be sparingly applied.
CIR v. CA, CTA, CARNATION PHILIPPINES, INC. GR 115712, 25 February 1999 Facts: On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation Annual Income Tax Return for taxable year ending September 30, 1981; and its Manufacturers/Producers Percentage Tax Return for the quarter ending September 30, 1981. On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation, through its Senior Vice President Jaime O. Lardizabal, signed three separate "waivers of the Statute of Limitations Under the National Internal Revenue Code". The waivers were not signed by the BIR Commissioner or any of his agents. On August 5, 1987, Carnation received BIR's letter of demand dated July 29, 1987 asking the said corporation to pay P1,442,586.56 as deficiency income tax, P14,152,683.85 as deficiency sales tax and P3,939,913.03 as deficiency sales tax on undeclared sales, all for the year 1981. This demand letter was accompanied by assessment Notices Nos. FAS-4-81-87-005824, FAS-4-81-87-005825 and FAS-4-81-87-005826.In a basic protest dated August 17, 1987, Carnation disputed the assessments and requested a reconsideration and reinvestigation thereof. On September 30, 1987, Carnation filed a supplemental protest. These protests were denied by the BIR Commissioner in a letter dated March 15, 1988. Whereupon, Carnation appealed to the CTA. ISSUE: Whether or not the three (3) waivers signed by the private respondent are valid and binding as to toll the running of the prescriptive period for assessment and not bar the Government from issuing subject deficiency tax assessments. HELD: No. Section 319 of the Tax code earlier quoted is clear and explicit that the waiver of the five-year prescriptive period must be in writing and signed by both the BIR Commissioner and the taxpayer. Here, the three waivers signed by Carnation do not bear the written consent of the BIR Commissioner as required by law. We agree with the CTA in holding "these "waivers" to be invalid and without any binding effect on petitioner (Carnation) for the reason that there was no consent by the respondent (Commissioner of Internal Revenue)." What is more, the waivers in question reveal that they are in no wise unequivocal, and therefore necessitates for its binding effect the concurrence of the Commissioner of Internal Revenue. In fact, in his reply dated April 18, 1995, the Solicitor General, representing the Commissioner of Internal Revenue, admitted that subject waivers executed by Carnation were "for end in consideration of the approval by the Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration of its internal revenue case involving tax assessments for the fiscal year ended September 30, 1981 which were all pending at the time". On this basis neither implied consent can be presumed nor can it be contended that the waiver required under Sec. 319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such an agreements a mere formality because it is the very signatures of both the Commissioner of Internal Revenue and the taxpayer which give birth to such a valid agreement.
RCBC v. CIR GR 170257, 07 September 2011 FACTS: RCBC is private domestic commercial bank engaged in general banking operations. In 1996, it received a Letter of Authority authorizing a special team to inspect its books covering all revenue taxes from January 1994 to December 1995. RCBC executed 2 Waiver of Defense of Prescription under the Statute of Limitations for internal revenue taxed for 1994 and 1995 thereby extending the period of BIR to assess up to December 2000. CIR issued Formal letter of demand in January 2000 which RCBC protested in February 2000. In November 2000, RCB filed a petition for review with CTA. However, RCBC received another formal letter of demand in December 2000. RCBC however paid all tax deficiencies except the assessments for final tax on FCDU income and DST which remained to be the subject of its petition for review. RCBC additionally assailed the validity of the waivers on the ground that it lacked the signature of the CIR. The CTA 1st division upheld the assessment and likewise the CTA en banc denied RCBCs petition. ISSUE: Whether or not RCBC by paying the other tax assessments covered by the waiver is rendered stopped from questioning the validity of said waivers; HELD: RCBC is stopped from questioning the validity of the waivers. Estoppel is clearly applicable to the case. A party is precluded from denying his own acts, admissions, or representations to the prejudice of the other party in order to prevent fraud and falsehood. RCBCs partial payment of the revised assessments issued within the extended period impliedly admitted the validity of the waiver. Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. A party is precluded from denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and falsehood. Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised assessments issued within the extended period as provided for in the questioned waivers, impliedly admitted the validity of those waivers. Had petitioner truly believed that the waivers were 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. RCBCs subsequent action effectively belies its insistence that the waivers are 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.
REPUBLIC OF THE PHILIPPINES v. SALUD V. HIZON GR 130430, 13 December 1999 FACTS: The BIR issued an income tax deficiency assessment to the respondent. The latter, not responding to assessment, was served notices of Levy/Distraint but the BIR no longer acted upon the attachment. After 3 years, the respondent asked for reconsideration regarding the deficiency but the same was denied. Hence, the respondent moved for dismissal based on the ground that: 1.the assessment was not filed upon the authority of the Commissioner since the complaint was not signed by the Commissioner and 2.the action for collection was barred by the 3-year prescription period. The court granted the respondents motion and dismissed the case. ISSUE: 1. Whether or not the assessment was filed upon the authority of the Commissioner? 2. Whether or not the action for collection was barred by prescription? HELD: On the first issue, the Court ruled that the assessment was in fact filed with the authority of the Commissioner. Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIRs Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law. Furthermore, Sec 7 of R.A 8424 of the NIRC authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following: The power to recommend the promulgation of rules and regulations by the Secretary of Finance; The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; The power to compromise or abate under 204(A) and (B) of this Code, any tax deficiency: Provided, however, that assessments issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the 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, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept.
Hence, the assessment was filed with the proper authority from the Commissioner.
However, the Court ruled that the assessment, although filed with the authority of the Commissioner, was barred by prescription. Petitioner argued that respondents request for reinvestigation of her tax deficiency assessment on November 3, 1992 effectively suspended the running of the period of prescription such that the government could still file a case for tax collection. The court does not agree with the petitioner. The request for reconsideration was not filed within the 30 day period hence no request for reconsideration was actually made. So, the period for prescription was not suspended. Consequently, the action is barred by the 3 year prescription period.
BPI v. COMMISSIONER OF INTERNAL REVENUE GR 139736, 17 October 2005 FACTS: The BIR issued an Assessment for a deficiency of Documentary Stamp Tax (DST). The petitioner filed a protest letter, requesting for reconsideration with BIR however the latter did not reply. Instead, BIR issued a warrant for distraint/levy against petitioner BPI. The petitioner did not hear from BIR until September 11, 1997 when then Commissioner Liwayway Vinzons-Chado, denied its request for reconsideration. Subsequently, the petitioner filed a petition for review with the CTA, raising the defense of prescription. The CTA denied the petition and held that the period of prescription had not yet prescribed nonetheless, it held that the petitioner was not liable for the deficiency of DST. On appeal, the CA reversed the ruling of CTA on the issue of DST tax and held that the petitioner was indeed liable for DST. ISSUE: Whether or not the right of the respondent to collect from petitioner BPI is barred by prescription? HELD: Yes, the Court ruled that the period to collect has already prescribed. The BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has another three years after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer. In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter suspended the running of the prescriptive period for collecting the assessed DST. This Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that there is no valid ground for suspending the running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed liberally in his favor.
BPI vs. COMMISSIONER OF INTERNAL REVENUE. GR 174942, 07 March 2008 FACTS: Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly created and existing under the laws of the Republic of the Philippines with principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City. Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment notice (PAN) dated November 26, 1986. Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN. On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency withholding tax at source (Swap Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63, respectively, for the years 1982 to 1986. On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner filed a supplemental protest. On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on the Swap Transactions with the then Central Bank (page 240, BIR Records). Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank. Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994. On August 9, 2002, respondent issued a final decision on petitioners protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the same as closed and terminated. On the other hand, the deficiency DST assessment in the amount of P24,587,174.63 was reiterated and the petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner received a copy of the said decision on January 15, 2003. Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court.On August 31, 2004, the Court rendered a Decision denying the petitioners Petition for Review. ISSUE: Whether or not the tax court erred in holding that the collection of alleged deficiency tax has not prescribed. HELD: The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700.Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer. As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency.
Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90.At any rate, the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest. The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the governments right to collect the deficiency.
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL v. CIR GR 155541, 27 January 2004 FACTS: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative investigation of the decedents tax liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedents deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied BIRs claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIRs service on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedents death. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the assessment became final, executory, and incontestable. ISSUES: 1. Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through PhilTrust was a valid service as to bind the estate. 2. Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable. HELD: 1. Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayers death, none of the PhilTrusts acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedents death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment. 2. The assessment was served not even on an heir or the estate but on a completely disinterested party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondents claim for collection filed with the court only on
November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law.
COMMISSIONER OF INTERNAL REVENUE v. AZUCENA T. REYES GR 159694, 27 January 2006 FACTS: Decedent Tancinco left a 1,292 square-meter residential lot and an old house thereon. The heirs of the decedent received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest. The CIR issued a preliminary collection letter to Reyes, followed by a Final Notice before Seizure. Subsequently, a Warrant of Distraint and/or Levy was served upon the estate. Reyes initially protested the notice of levy but then the heirs proposed a compromise settlement of P1,000,000.00. The CIR rejected Reyess offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. As the estate failed to pay its tax liability within the deadline, BIR notified Reyes that the subject property would be sold at public auction on August 8, 2000. Reyes filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the assessment, letter of demand, and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge or interest. ISSUE: Whether the assessment can be used as a basis for the perfection of a tax compromise HELD: No. The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory insofar as taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs 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. Being invalid, the assessment cannot be in turn be used as a basis for the perfection of a tax compromise. Hence, it is premature to declare the compromise on the tax liability of the estate perfected and consummated considering that the tax assessment is void. While administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the basis of tax assessments against them. Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality.
PHILIPPINE NATIONAL OIL COMPANY v. THE HON. COURT OF APPEALS GR 109976, 26 April 2005 FACTS: The BIR requested PNOC to settle its liability for taxes on the interests earned by its money placements with PNB and which PNB did not withhold. PNOC made an offer to compromise its tax liability. PNOC proposed to set-off its tax liability against a claim for tax refund/credit of the National Power Corporation. The amount of the claim for tax refund/credit was supposedly a receivable account of PNOC from NAPOCOR. The BIR sent a demand letter to PNB, as withholding agent, for the payment of the final tax on the interest earnings and/or yields from PNOC's money placements with the bank. On the same date, the BIR also mailed a letter to PNOC informing it of the demand letter sent to PNB. PNOC reiterated its proposal to settle its tax liability through the set-off of the said tax liability against NAPOCOR'S pending claim for tax refund/credit. The BIR replied that the proposal for set-off was premature since NAPOCOR's claim was still under process. PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC proposed a compromise by paying 30% of the basic tax, in accordance with the provisions of Executive Order (E.O.) No. 44. Then BIR Commissioner Bienvenido A. Tan accepted the compromise. ISSUE: Whether the assessment is enforceable HELD: Yes. The CTA and the Court of Appeals declared as final and unappealable, and thus, enforceable, the assessment against PNB, since PNB failed to protest said assessment within the 30day prescribed period. The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax liability on the interest earnings and/or yields from PNOC's money placements with the bank. It had 30 days from receipt to protest the BIR's assessment. PNB, however, did not take any action as to the said assessment so that upon the lapse of the period to protest, the withholding tax assessment against it, dated 8 October 1986, became final and unappealable, and could no longer be disputed. The courts may therefore order the enforcement of this assessment. The BIR demand letter, dated 16 January 1991, is not a new assessment against PNB. It only demanded from PNB the payment of the balance of the withholding tax assessed against it on 08 October 1986. The same demand letter also has no substantial effect or impact on the resolution of the present case. At best, the demand letter, dated 16 January 1991, constitute a useful reference for the courts in computing the balance of PNB's tax liability, after applying as partial payment thereon the amount previously received by the BIR from PNOC pursuant to the compromise agreement.
COMMISSIONER OF INTERNAL REVENUE v. DOMINADOR MENGUITO GR 167560, 17 September 2008 FACTS: BIR Baguio received information that Petitioner [herein respondent] has undeclared income from Texas Instruments and Club John Hay, prompting the BIR to conduct another investigation. Through a letter dated July 28, 1997, Spouses Dominador Menguito and Jeanne Menguito (Spouses Menguito) were informed by the Assessment Division of the said office that they have underdeclared sales totaling P48,721,555.96 (Exhibit 11, p. 83, BIR records). This was followed by a Preliminary Ten (10) Day Letter dated August 11, 1997, informing Petitioner [herein respondent] that in the investigation of his 1991, 1992 and 1993 income, business and withholding tax case, it was found out that there is still due from him the total sum of P34,193,041.55 as deficiency income and percentage tax. On September 2, 1997, the assessment notices subject of the instant petition were issued. These were protested by Ms. Jeanne Menguito, through a letter dated September 28, 1997 (Exhibit 14, p. 112, BIR Records), on the ground that the 40% deduction allowed on their computed gross revenue, is unrealistic. Ms. Jeanne Menguito requested for a period of thirty (30) days within which to coordinate with the BIR regarding the contested assessment. On October 10, 1997, BIR Baguio replied, informing the Spouses Menguito that the source of assessment was not through the disallowance of claimed expenses but on data received from Club John Hay and Texas Instruments Phils., Inc. Said letter gave the spouses ten (10) days to present evidence (Exhibit 15, p. 110, BIR Records). ISSUE: Whether post-reporting notice and pre-assessment notice are necessary HELD: No. While the lack of a post-reporting notice and pre-assessment notice is a deviation from the requirements under Section 1 and Section 2 of Revenue Regulation No. 12-85, the same cannot detract from the fact that formal assessments were issued to and actually received by respondents in accordance with Section 228 of the National Internal Revenue Code which was in effect at the time of assessment. It should be emphasized that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer, applies only to formal assessments prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-assessment notices. The issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be served on and received by the taxpayer. A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer and invites 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 the taxpayer for as long as the latter is properly served a formal assessment notice. In the case of respondent, a formal assessment notice
was received by him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the CTA.
COMMISSIONER OF INTERNAL REVENUE v. METRO STAR SUPERAMA, INC. GR 185371, 8 December 2010 FACTS: On January 26, 2001, the Regional Director of Revenue of Legazpi City, issued letter of Authority to examine Metro Stars books of accounts and other accounting records for income tax and other internal revenue taxes for the taxable year 1999. For Metro Stars failure to comply with several requests for the presentation of records and Subpoena Duces Tecum, BIR of Legazpi City proceeded with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice. On April 11, 2002, Metro Star received a Formal Letter of Demand dated April 3, 2002 from Revenue District No. 67, Legazpi City, assessing petitioner the amount of P292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999. Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May 12, 2003, which petitioner received on May 15, 2003, giving the latter last opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce collection. On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency valueadded tax and withholding tax payment in the amount of P292,874.16. On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99. On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioners Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18, 2005. Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a petition for review with the CTA. The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered a decision, granting the petition and ordering CIR from collecting the subject taxes. It also found that there was no clear showing that Metro Star actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was denied due process. The CIR sought reconsideration but the motion was denied. CIR filed a petition for review with the CTA-En Banc, but the petition was dismissed after a determination that no new matters were raised. The motion for reconsideration filed by the CIR was likewise denied by the CTA-En Banc in its November 18, 2008 Resolution. ISSUE: Whether Metro Star was denied due process
HELD: Yes. The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply presented the registry receipt or the certification from the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the PAN. It merely accepted the letter of Metro Stars chairman dated April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but not the PAN; that he was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some matters with the hope of lessening its tax liability. Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and adduce supporting evidence. It is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorities. The use of the word shall in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Stars right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.
COMMISSIONER OF INTERNAL REVENUE v. HON. RAUL M. GONZALEZ GR 177279, 13 October 2010 FACTS: Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue Dakila B. Fonacier, Revenue Officers of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999. The audit and investigation against LMCEC was precipitated by the information provided by an "informer" that LMCEC had substantial underdeclared income for the said period. For failure to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section 266 of the NIRC. Based on data obtained from an "informer" and various clients of LMCEC, it was discovered that LMCEC filed fraudulent tax returns with substantial underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus assessed the company of total deficiency taxes amounting to P430,958,005.90 (income tax - P318,606,380.19 and value-added tax [VAT] - P112,351,625.71) covering the said period. The Preliminary Assessment Notice (PAN) was received by LMCEC on February 22, 2001. Assessment notices together with a formal letter of demand dated August 7, 2002 were sent to LMCEC through personal service on October 1, 2002. Since the company and its representatives refused to receive the said notices and demand letter, the revenue officers resorted to constructive service in accordance with Section 3, Revenue Regulations (RR) No. 12-99. ISSUE: Whether the control number in an assessment notice is a requirement for its validity HELD: The formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof which should inform the taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under Section 228 of the NIRC. Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made. Otherwise, the assessment is void.
QUIRICO P. UNGAB v. HON. VICENTE N. CUSI, JR. GR L-41919-24, 30 May 1980 FACTS: Sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the course of his examination, he discovered that the petitioner failed to report his income derived from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing him that there is due from him (petitioner) the amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the records of the case, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his prosecution. In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the Commissioner of Internal Revenue approved the prosecution of the petitioner. ISSUE: Whether an assessment is necessary before a taxpayer can be prosecuted for violation of the NIRC HELD: No. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. 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 willfuly 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.
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by the petitioner.
COMMISSIONER ON INTERNAL REVENUE v. CA GR 119322, 4 June 1996 FACTS: Fortune Tobacco Corporation ("Fortune Tobacco"), engaged in the manufacture of different brands of cigarettes, registered "Champion," "Hope," and "More" cigarettes. BIR classified them as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. A 45% Ad Valorem taxes were imposed on these brands. Then Republic Act ("RA") No. 7654 was enacted 55% for locally manufactured foreign brand while 45% for locally manufactured brands. 2 days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR saying since there is no showing who the real owner/s are of Champion, Hope and More, it follows that the same shall be considered locally manufactured foreign brand for purposes of determining the ad valorem tax - 55%. BIR sent via telefax a copy of RMC 37-93 to Fortune Tobacco addressed to no one in particular. Then Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. ISSUE: Whether it is necessary for the BIR to follow the legal requirements when it issued its RMC HELD: Yes. The CIR may not disregard legal requirements in the exercise of its quasi-legislative powers which publication, filing, and prior hearing. When an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. BUT when, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially increases the burden of those governed, the agency must accord, at least to those directly affected, a chance to be heard, before that new issuance is given the force and effect of law. RMC 37-93 cannot be viewed simply as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654 which subjects mentioned brands to 55% the BIR not simply interpreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored.
CIR v. PASCOR REALTY AND DEVELOPMENT CORPORATION GR 128315 29 June 1999 FACTS: The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. The Commissioner filed a criminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately an urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability. The Commissioner denied private respondents request for reconsideration/reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the CTA on a petition for review. The Commissioners motion to dismiss on the ground of the CTAs lack of jurisdiction denied by CTA and ordered the Commissioner to file an answer. Instead of complying with the order of CTA, Commissioner filed a petition with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report of the revenue officers and the endorsement of said report as assessment which may be appealed to the CTA. The CA sustained the CTA decision and dismissed the petition. ISSUE: Whether an assessment is necessary before criminal charges for tax evasion may be instituted HELD: No. An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both. Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
COMMISSIONER OF INTERNAL REVENUE v. HON. RAUL M. GONZALEZ GR 177279, 13 October 2010 FACTS: Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue Dakila B. Fonacier, Revenue Officers of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999. The audit and investigation against LMCEC was precipitated by the information provided by an "informer" that LMCEC had substantial underdeclared income for the said period. For failure to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section 266 of the NIRC. Based on data obtained from an "informer" and various clients of LMCEC, it was discovered that LMCEC filed fraudulent tax returns with substantial underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus assessed the company of total deficiency taxes amounting to P430,958,005.90 (income tax - P318,606,380.19 and value-added tax [VAT] - P112,351,625.71) covering the said period. The Preliminary Assessment Notice (PAN) was received by LMCEC on February 22, 2001. Assessment notices together with a formal letter of demand dated August 7, 2002 were sent to LMCEC through personal service on October 1, 2002. Since the company and its representatives refused to receive the said notices and demand letter, the revenue officers resorted to constructive service in accordance with Section 3, Revenue Regulations (RR) No. 12-99. ISSUE: Whether the assessment is valid HELD: Yes. Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise. We have held that a taxpayers failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Governments right to assess. Indeed, any objection against the assessment should have been pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal revenue taxes. Records bear out that the assessment notice and Formal Letter of Demand dated August 7, 2002 were duly served on LMCEC on October 1, 2002. Private respondents did not file a motion for reconsideration of the said assessment notice and formal demand; neither did they appeal to the Court of Tax Appeals. Section 228 of the NIRC provides the remedy to dispute a tax assessment within a certain period of time. It states that an assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment by the taxpayer. No such administrative protest was filed by private respondents seeking reconsideration of the August 7, 2002 assessment notice and formal letter of demand. Private respondents cannot belatedly assail the said assessment, which they allowed to lapse into finality, by raising issues as to its validity and
correctness during the preliminary investigation after the BIR has referred the matter for prosecution under Sections 254 and 255 of the NIRC.
CIR v. AZUCENA T. REYES GR 159694, 27 January 2006 FACTS: Decedent Tancinco left a 1,292 square-meter residential lot and an old house thereon. The heirs of the decedent received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest. The CIR issued a preliminary collection letter to Reyes, followed by a Final Notice Before Seizure. Subsequently, a Warrant of Distraint and/or Levy was served upon the estate. Reyes initially protested the notice of levy but then the heirs proposed a compromise settlement of P1,000,000.00. The CIR rejected Reyess offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. As the estate failed to pay its tax liability within the deadline, BIR notified Reyes that the subject property would be sold at public auction on August 8, 2000. Reyes filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the assessment, letter of demand, and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge or interest. ISSUE: Whether the procedure outlined in Section 228 of the NIRC can be applied retroactively HELD: The procedure for protesting an assessment under the Tax Code, being procedural in nature, can be applied retroactively. The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes. Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights.

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NESTONEL F. ESTRADA JET MARK ORTIZ CARTER PINGAWAN CAMELO SISON

ESTRADA ORTIZ PINGAWAN SISON TAXATION LAW II

ESTRADA ORTIZ PINGAWAN SISON TAXATION LAW II

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This case does not come within any of the exceptions.

ESTRADA ORTIZ PINGAWAN SISON TAXATION LAW II

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REPUBLIC OF THE PHILIPPINES v. SALUD HIZON

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ESTRADA ORTIZ PINGAWAN SISON TAXATION LAW II

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ESTRADA ORTIZ PINGAWAN SISON TAXATION LAW II

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