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I. Assessment of Internal Revenue Taxes

A. Definition/nature/effect/basis
1. Meaning of tax assessment – It is the official action
of an officer authorized by law in ascertaining the
amount of tax due under the law from a taxpayer. This
action necessarily involves:
a. the computation of the sum due;
b. giving notice to that effect to the
taxpayer; and
c. the making, simultaneously with or
sometime after the giving of notice, of a
demand upon him for the payment of the
tax deficiency stated.

2. Tax audit – is the process of examining, going over, or

scrutinizing the books and records of the taxpayer to
ascertain the correctness of the tax declared and paid
by the taxpayer. It can only be performed upon a
Letter of Authority issued by the Commissioner or
Regional Director.

3. Letter of Authority – is a commission granting a

revenue officer assigned to perform assessment
functions the power to conduct an examination of the
books and records of a taxpayer within the jurisdiction
of the district in order to collect the correct amount of
tax, or to recommend the assessment of any
deficiency tax due.

4. Pre-assessment notice - is a written notice given to

a taxpayer informing him of the findings of the BIR
officer/s relating to a deficiency in his tax return,
indicating therein the law and the facts on which the
assessment is made and requiring the taxpayer to
respond within a given period, otherwise, the
Commissioner or his duly authorized representative
shall issue an assessment based on his findings.
Instances where pre-assessment notice NOT required:
a. when the finding for any deficiency tax is
the result of mathematical error in the
computation of the tax as appearing on
the face of the return;
b. when the discrepancy has been
determined between the tax withheld and
the amount actually remitted by the
withholding agent;
c. when a taxpayer who opted to claim a
refund or tax credit of excess creditable
withholding tax for a taxable period was
determined to have carried over and
automatically applied the same amount
claimed against the estimated tax
liabilities for the taxable quarter or
quarters of the succeeding taxable year;
d. when the excise tax due on excisable
articles has not been paid;
e. when an article locally purchased or
imported by an exempt person, such as,
but not limited to, vehicles, capital
equipment, machinery and spare parts,
has been sold, traded or transferred to
non-exempt persons.

5. Notice of assessment – a notice given to the

taxpayer by the BIR informing him of the amount of
deficiency tax for which the taxpayer is being assessed
based on the findings of the BIR upon failure of the
taxpayer to respond to the pre-assessment notice or
after an examination has been conducted.

6. Deficiency – the amount by which the tax properly

due exceeds the sum of the amount of the tax shown
on a taxpayer’s return plus amounts previously
assessed or collected as deficiency, less any credits,
refunds, or other payments due the taxpayer; the
amount a taxpayer is deficient in his tax payments.

Delinquency – The state of a person upon whom the personal obligation

to pay the tax has been fixed by lawful assessment and thereafter fails to
pay the tax within the time limited by law.

7. Jeopardy assessment – an assessment made

demanding immediate payment of the tax due without
the usual formalities in instances when the
Commissioner believes that if the tax will be collected
under normal procedures, the collection of such tax is
at risk which might result in loss to the government.

Instances when jeopardy assessment may be issued:

When it shall come to the knowledge of the Commissioner that a taxpayer
a. retiring from business subject to tax; or
b. intending
i. to leave the Philippines or
remove his property therefrom;
ii. to hide or conceal his property;
c. performing any act tending
i. to obstruct the proceedings for
the collection of the tax for the
past or current quarter or year;
ii. to render the same totally or
partly ineffective unless such
proceedings are begun
immediately. (Sec. 6D, R.A.
8. Power of the Commissioner to assess deficiency
tax based on best evidence obtainable – Sec. 6B
of R.A. 8424 empowers the Commissioner to assess
the proper tax and make or amend the return based on
the best evidence obtainable (from his own knowledge
and from such information as he can obtain through
testimony or otherwise) when:
a. a report required by law as a basis for the
assessment of any national internal
revenue tax shall not be forthcoming
within the time fixed by laws or rules and
regulations; or
b. there is reason to believe that any such
report is
i. false
ii. incomplete
iii. erroneous.

The return made by the Commissioner, in this instance, shall be prima facie
correct and sufficient for all legal purposes.

9. Requisites of a valid assessment

a. post-reporting notice or notice for an
informal conference after the tax audit
b. Pre-assessment notice, if required
c. Issuance and receipt of Notice of
i. must be issued prior to
lapse of prescriptive period
ii. the written notice must
state the facts and the law
upon which the assessment
is based

Sec. 4. – Power of Commissioner to Interpret Tax Laws and Decide Tax Cases

Power to interpret provisions of NIRC and other tax laws – exclusive and original
jurisdiction of CIR; review by Sec. of Finance.
Commissioner has power to decide
disputed assessments
refunds of internal revenue taxes
fees or other charges
penalties imposed in relation thereto
other matters arising under the NIRC or other laws
administered by BIR
Exclusive appellate jurisdiction of the CTA.

Exclusive and Original Review/Appeal

Interpretation of tax laws CIR Sec. of Finance (review)
Deciding tax cases CIR Exclusive Appellate
Jurisdiction of CTA
Sec. 5. – Power of Commissioner to Obtain Information, and to Summon, Examine,
and Take Testimony of Persons

To carry out CIR’s function of:

Ascertaining correctness of any return
Making a return where none has been made
Determining the liability of any person for any revenue tax
Collecting tax liabilities
Evaluating tax compliance

Commissioner is empowered:

1. to examine books, paper, records

and other data
2. to obtain any information such as
a. costs and volume of production
b. receipts or sales and gross incomes of taxpayers
c. names, addresses, and financial statements of
i. corporations
ii mutual fund companies
iii. insurance companies
iv. regional operating headquarters of MNCs
v. joint accounts
vi. associations
vii. joint ventures or consortia
viii. partnerships

Information may be obtained from

Any person other than the taxpayer
Any office or officer of
national and local governments
government agencies and instrumentalities including
3. to summon
the person
liable for tax or
required to file the return
any person having
possession books of accounts of the
custody of the other accounting records liable for tax
any other person

to appear before the Commissioner or his duly authorized representative

to produce such books, papers, records or other data, and
to give testimony

4. to take testimony of persons concerned

5. to cause revenue officers and employees to

make a canvass of any revenue district or region and
inquire after and concerning
all persons therein who may be liable to pay any internal revenue tax
all persons owning or having the care, management or possession
of any object with respect to which a tax is imposed.

However, the Commissioner’s authority to inquire into bank deposits shall be limited
Bank deposits of a decedent to determine his/her gross estate
Bank deposits of a taxpayer who has filed an application for
compromise of his tax liability by reason of financial incapacity
Waiver in writing of taxpayer’s privilege under Bank Secrecy Law
Required when applying for compromise of tax liability by reason of
financial incapacity; such waiver constitutes the Commissioner’s
authority to inquire into bank deposits of the taxpayer.

Sec. 6. Power of Commissioner to Make Assessments and Prescribe Additional

Requirements for Tax Administration and Enforcement

A. Examination of returns and determination of tax due

- Tax returns filed by taxpayers as basis for examination
- When no tax return has been filed, examination may proceed based on other
data obtained by Commissioner
- Tax or deficiency tax assessed payable upon notice and demand from
Commissioner or duly authorized representative
- Tax return, statement or declaration once filed cannot be withdrawn
- may only be modified, changed or amended within three years from
filing before any notice for audit or investigation has been actually
served the taxpayer

B. Failure to submit required returns, statements, reports and other documents

- empowers the Commissioner to assess the proper tax based on the best
evidence obtainable
- Commissioner shall make or amend the return from his own knowledge
and from such information as he can obtain through testimony or
otherwise; such information deemed prima facie correct and sufficient for
all legal purposes.
- when a report required to be filed is not forthcoming within the
time fixed by law.
- when there is reason to believe that any such report is false,
incomplete or erroneous.

C. Authority to conduct inventory-raking, surveillance and to prescribe presumptive

gross sales and receipts
- when there is reason to believe that a taxpayer is not declaring his correct
income, sales or receipts for income tax purposes, the Commissioner may
- order inventory-taking of goods of goods (to be used as basis for
determining taxpayer’s internal revenue liabilities)
- place the business operations of the taxpayer under observation or
- findings shall be used as basis for assessing the taxes for the other months or
quarters of the same or different taxable years.
- when there is failure to issue receipts and invoices or when there is reason to
believe that the books of accounts or other records do not correctly reflect the
declarations made in tax returns, Commissioner may prescribe a minimum
amount of such gross receipts, sales and taxable base based on the sales,
receipts, income or other taxable base of other persons engaged in similar
businesses under similar situations or circumstances

D. Authority to terminate taxable period

- Commissioner shall declare the tax period of any taxpayer terminated at any
time when it shall come to the knowledge of the Commissioner that a
- is retiring from business subject to tax
- is intending to leave the Philippines or to remove his property therefrom or
to hide or conceal his property
- is performing any act tending
- to obstruct the proceedings for the collection of the tax for the past
or current quarter or year or
- to render the same totally or partly ineffective unless such
proceedings are begun immediately
- Commissioner shall send the taxpayer:
- notice of such decision
- request for the immediate payment of the tax for the period so declared
terminated and the tax for the preceding year or quarter or such portion
thereof as may be unpaid
- taxes due and payable immediately
- taxes subject to all the penalties and surcharges prescribed unless
paid within the time fixed in the demand made by Commissioner.

E. Authority of Commissioner to prescribe real property values

- Commissioner authorized to divide the Philippines into different zones and
assign valuation of real properties in the different zones
- Value of property for computing any internal revenue tax: whichever is
HIGHER between

FMV as determined by Commissioner

FMV as shown in the schedule of values of the Provincial and City

F. Authority of Commissioner to inquire into bank deposit accounts

- Commissioner is authorized to inquire into bank deposits of:
- a decedent to determine his gross estate
- any taxpayer who has filed an application for compromise of his tax
liability by reason of financial incapacity
- taxpayer must execute in writing a waiver of his right under Bank
Secrecy Law and other special laws, such waiver serving as the
Commissioner’s authority to inquire into his bank deposits
- application for tax compromise shall not be considered without this
written waiver

G. Authority to accredit and register tax agents

- Commissioner shall accredit and register individuals and general professional
partnerships and their representatives who prepare and file tax returns,
statements, reports, protests, and other papers with, or who appear before
the BIR for and in behalf of taxpayers
- Creation of National and Regional Accreditation Boards
- Those whose application for accreditation is denied by the Commissioner of
the National or Regional Accreditation Boards may appeal to the Secretary of
- Secretary of Finance to act on appeal within 60 days from receipt of such
- Failure of Sec. of Finance to act on appeal deemed approval of the application
for accreditation of the appellant.

H. Authority of Commissioner to prescribe additional procedural or documentary

- Commissioner may prescribe the manner of compliance with any
documentary or procedural requirement in connection with the submission or
preparation of financial statements accompanying the tax returns.

Sec. 203 NIRC

Sec. 222-223 NIRC
Sec. 228 NIRC

Rev. Reg. 12-85 Procedure covering administrative protest on

assessment by the BIR Commissioner
Rev. Reg. 7-93 Filing of quarterly income tax returns and
payment of quarterly income tax by individuals receiving self-employed
Sec. 222 (e) NIRC re: Inquiry into any return filed in accordance with
the provisions of any tax amnesty law or decree as amended by BP 700

Rep. V. IAC, 196 SCRA 335

Bonifacio Sy Po v. CTA, 164 SCRA 524
Meralco v. Savellano, 117 SCRA 804
Elegado v. CTA, 173 SCRA 285
Commissioner v. Island Garment, 153 SCRA 665
Collector v. Benipayo, 4 SCRA 182
Commissioner v. Construction Resources, 145 SCRA 671
Marcos v. CA, G.R. 120880, 5 June 1997

B. Period to assess deficiency tax

1. prescription: 3 years 10 years

2. Suspension of prescriptive period/Exceptions

Sec. 203 NIRC of 1997

Secs. 222-23 NIRC of 1997


Rev. Memo Order 20-90 (4 April 1990) – Proper execution of the waiver
of the statute of limitations under the NIRC
Rev. Memo Order 48-90 (23 April 1990) Counting of the three-year
prescriptive period in issuance of notice of assessment, or warrants of
distraint, levy and garnishment


CIR v. CTA, 195 SCRA 444

Commissioner v. Gonzales, 18 SCRA 757
Re: prescriptive period to assess
Republic v. Kerr, 18 SCRA 20
Aznar v. CTA, 58 SCRA 519

Optional: Basa v. Republic, 138 SCRA 34

Republic v. Dela Rama, id.

II. Protesting an assessment/Remedy before payment

A. How to protest or dispute an assessment administratively

Sec. 228 NIRC of 1997

1. Effect of protest/assessment deemed DISPUTED
2. Suspension of the prescriptive period to collect
3. Two ways of protesting administratively
a. Request for reconsideration
b. Request for reinvestigation
Rev. Reg. 12-85 Procedure covering administrative protest on assessment by BIR
4. Differences and similarities of protest cases
under the Tariff and Customs Code
5. Payment under protest not required under the
6. 60-day period to submit relevant documents

B. Effect of failure to protest

Sec. 228 NIRC of 1997

Marcos v. CA, G.R. No. 120880, 5 June 1997
Mambulao Lumber Co. v. Rep., 132 SCRA 1
Dayrit v. Cruz, 165 SCRA 571
Re: Effect of abandoning the protest
Com. V. Wyeth Suaco, 202 SCRA 125

C. Commissioner renders a decision on the disputed assessment

1. Remedy of the taxpayer if protest is denied:

Appeal to the CTA the final decision of the CIR
on the disputed assessment.
2. Remedy of the taxpayer if the CIR fails to act on
the protest within 180 days from receipt of
3. Effect of failure to appeal
4. What is the final decision of the CIR on the
disputed assessment?

Rev. Reg. 12-85

Sections 4 / 228 NIRC of 1997
Section 228 NIRC of 1997

Mambulao Lumber v. Republic, id. / civil action to enforce judgment

Commissioner v. island Garment, id.
Dayrit v. Cruz, id.
Commissioner v. Union Shipping, 185 SCRA 547
Commissioner v. Algue, 158 SCRA 9
Advertising Asso. V. CA, 133 SCRA 765
Optional: Surigao Electric v. CTA 57 SCRA 523
Fabular v. CA, 119 SCRA 329
St. Stephen School v. Collector, 104 Phil. 314

III. Claims for refund and credit taxes/Remedy AFTER payment

A. When/How to file claim/prescriptive period

Who may file for refund? Taxpayer/withholding agent
Refund without claim

Payment under protest not a requirement

Sec. 204 (3) NIRC as amended by RA 8424
Re: 10% and 40% limit re: compromise amount
Requisites if beyond the limit OR the basic tax is greater than

Sec. 229 NIRC of 1997

CIR v. Philamlife, G.R. 105208, 29 May 1995

CIR v. Tokyo Shipping, G.R. 68252, 25 May 1995
San Carlos v. CIR, 228 SCRA 135
Note: Section 204 as amended by RA 8424: A return filed showing an
overpayment shall be considered as a written claim for credit or
CIR v. CA and Citytrust, 234 SCRA 348

B. Judicial remedy of the taxpayer

1. Appeal to the Court of Tax Appeals

a. If CIR denies the claim or request
30 days from receipt of decision
b. If CIR fails to act on the protest
within 180 days / 30 days to be
counted from lapse of the 180-day
2. Appeal by filing a petition for Review / Petition for Refund
a. Within two years from date of
payment to initiate judicial
Section 4 NIRC of 1997
Section 229 NIRC

b. Meaning of supervening causes

c. 30-day period to appeal
d. The 2-year period to initiate judicial
proceedings not jurisdictional but a
positive requirement
e. The two periods (30 days and 2
years) MUST concur

CIR v. Philamlife, G.R. No. 195208, 29 May 1995

CIR v. CA and Atlas Consolidated, 232 SCRA 321
Collector v. Prieto, 2 SCRA 1007
CIR v. Palanca, 18 SCRA 496
Maceda v. Macaraig, 223 SCRA 217
Commissioner v. TMX Sales, 205 SCRA 184
Gibbs v. Com., 15 SCRA 318
Gibbs v. Com., 107 Phil. 232
When Gibbs contributed to the withholding tax system, he
did not really deposit an amount to the Commissioner of
Internal Revenue but actually performed and extinguished
his tax obligation for the year concerned. He paid his tax
liabilities for that year. A taxpayer whose income is withheld
at the source will be considered to have paid his tax liability
when the same falls due at the end of the year. It is from
this date, or when the tax liability falls due, that the two-
year prescriptive period starts to run with respect to
payments effected through the withholding tax system.

Com. V. Concepcion, 22 SCRA 1058

Concepcion already requested for refund of estate and
inheritance taxes at the BIR. His request denied, he
appealed to the CTA but was dismissed for having been filed
beyond the reglementary period. After paying under protest,
he sued again, this time for recovery. The Court said he
can’t do this because the remedy of contesting the validity
of an assessment cannot be revived when there is already a
final prior judgment dismissing the same on the ground of

Com. V. Procter and Gamble, 204 SCRA 957

The BIR appealed a CTA decision granting to P & G
Philippines. For the first time on appeal, however, it raised
the issue of P & G Philippines not being the proper party to
claim refund. It said that P & G USA instead should make the
claim. The Court said BIR should not be allowed to do this
because it had all the opportunity to ask about P & G’s
capacity or authorization from its parent company at the
administrative level. It is unfair and too late to ask for it now
especially because this suit was filed just before the
expiration of the two-year prescriptive period.

ACCRA Investment vs. CA

The Court elaborates on the (second) Gibbs ruling, saying
that there are two alternative reckoning dates for a taxpayer
whose income is withheld at source:
1) the end of the tax year, and
2) when the tax liability falls due. In this case, since
ACCRA Investments only knew its tax liability on April
15, 1982, when it filed its return, this date would be
the reckoning date for the prescriptive period and not
December 31, 1981, when the taxes withheld at
source were paid and remitted to the BIR. Before it
filed its return, ACCRA was not sure of whether it
made a profit or not.

Cebu Portland v. Collector, id.

Aguilar v. CA, 190 SCRA 1990
IV. Jurisdiction of the Court of Tax Appeals

RA 1125 – the law creating the CTA

A. Why was the CTA created?
Phil. Refining Co. v. CA, 256 SCRA 661
Optional: Ursal v. CTA, 101 Phil. 209
B. Jurisdiction of the CTA
C. FINAL decisions of the Commissioner of Internal Revenue on
DISPUTED assessment
D. Meaning of disputed assessment
E. Who may appeal to the CTA?
Sec. 11 RA 1125
Sec. 7 RA 1125 as amended by RA 3457

Limitations: New issues cannot be raised for the first time on appeal.
What are the exceptions?

CIR v. PG-PMC, 204 SCRA 377

Sec. 218 NIRC

Lim v. CTA, 105 Phil. 974

Com. v. Villa, 22 SCRA 4
Com. v. Joseph, 5 SCRA 895
Meralco Securities v. Savellano, id.

V. Appeal from the CTA to the Court of Appeals, from the CA to the Supreme

Prescriptive period
Magsaysay Lines v. CA, G.R. No. 111184, 12 August 1996
Liboro v. CA, 173 SCRA 285

Supreme Court Circular 1-91 as amended by

Supreme Court Revised Administrative Circular 1-95

VI. Collection of Internal Revenue Taxes

A. Prescriptive period to collect

1. Section 203 – 3 years
2. Section 222 – 5 years

Com. v. Wyett Suaco, 202 SCRA 125

Rev. Reg. 12-93 as amended by Rev. Reg. 3-94

Rev. Reg. 14-93 as amended by Rev. Reg. 3-94
Re: Tax payment by checks and by bank debit memo

VII. Remedies Available to the Government

A. Administrative remedies/Summary remedies

Secs. 203-231 NIRC

Commissioner v. Wyett Suaco, 202 SCRA 125
1. Distraint of personal property
Secs. 206-212 NIRC
Secs. 221-222 NIRC
Rev. Reg. 3-69

2. Levy of Real property

Secs. 213-218 NIRC
Rev. Reg. 3-69
Marcos v. CA, id.

3. Forfeiture
Sec. 216 NIRC
Secs. 224-226 NIRC

4. Tax lien
Sec. 219 NIRC of 1997
Rev. Memo Circular 2-94
Republic v. Enriquez, 166 SCRA 608
Commissioner v. NLRC, 238 SCRA 42
Hongkong and Shanghai Bank v. Rafferty, 39 SCRA 145

5. No injunction to restrain collection of taxes

Sec. 218 NIRC
Review: Northern Lines v. CTA, 163 SCRA 25
Exception: CTA Sec. 11 RA 1125
Conditions for the issuance of injunction

B. Judicial remedies

Civil/criminal action
Requirements in filing criminal/civil cases
Secs. 220-221 NIRC
Ungab v. Cusi, 97 SCRA 877
Com. v. CA, 257 SCRA 200 (Lucio Tan/Fortune Tobacco Case)
Resolution on the Motion for Reconsideration, 7 February 1997

VIII. Statutory Offenses and Penalties

A. Civil Penalties/Surcharges/Interest

Sec. 248-251 NIRC of 1997

1. Applicable interest rate 20 % / Manila Reference

Rate : Whichever is higher
2. Computation of interest/basis

Rev. Reg. 3-91 (1-24-91) – Implementing Sec. 294 of the

NIRC/Prescribing a deficiency rate of interest higher than 20% per

3. Surcharge – 25% 50%

a. False return v. fraudulent return

b. Fraud assessment
c. Mandatory imposition of penalties


Javier v. Com., 199 SCRA 824

Aznar v. Collector, 58 SCRA 519
Castro v. Collector, 6 SCRA 886
B. Issuance/printing of receipts, registration of

Secs. 236-243 NIRC

Sec. 263 NIRC

C. Compliance requirements

1. Keeping of books of accounts

2. Securing tax identification number (TIN)
3. Attachments to tax returns: Certificate of tax
Rev. Reg. 3-90
Secs. 232-236 NIRC
Rev. Reg. 11-89 Registration of books of accounts

Rev. Memo Circular 13-82 Procedures in the issuance of permits to use

loose leaf books of accounts, records, invoices and receipts

Rev. Reg. 13-93 Re: Issuance and use of TIN

Rev. Memo Circular No. 63-91 Issuance of the New TIN (Tax
Identification Number) to taxpayers and its use on documents and

D. Crimes/offenses/penalties/forfeitures

1. Revised penalties

Secs. 224-228 NIRC as amended by RA 7642

Rev. Reg. 4-94
Sec. 255 as amended by RA 7497
Secs. 253-281 NIRC

a. Elements of tax evasion

b. Persons liable in case taxpayer is a juridical entity
c. Payment of tax NOT a valid defense

2. Prescription of violations of the NIRC

Rev. Memo Circular 101-90 dated 26 Nov. 1990 – Determination of

when cause of action for wilfull failure to pay deficiency tax
accrue and prescription under Sec. 281 NIRC

Lim v. CA 190 SCRA 616

Ungab v. Cusi, 97 SCRA 877
People v. Tierra, 12 SCRA 666
Aznar v. CTA, 58 SCRA 519
Com. v. JAL, 202 SCRA 450

IX. Abatement of tax / Tax Compromise

Section 204 NIRC of 1997

A. Authority of the Commissioner to abate taxes

1. Grounds for abating taxes and penalties

2. Conditions

Read: RMO 45-93 as amended by RMO 54-93

B. Power to compromise / discretionary power

1. Grounds/reasons for a compromise agreement

2. Cases that cannot be compromise
3. Subject to limitations
a. If reason is financial incapacity NOT less than 10% of
basic tax
b. Other cases not less than 40% of basic tax
c. Would require approval of the Board:
i. Basic tax assessment P1M
ii. Or below the prescribed limits
4. Government’s remedy if taxpayer fails to
comply with the agreement
Sec. 204 NIRC of 1997

Rev. Reg. 12-93 Implementing Guideline for RA 7646

Rev. Memo Order 45-93 as amended by RMO 54-93 Example:
abatement of penalties
Rev. Memo Order 32-92 as amended by RMO 22-94
Rev. Memo Order 1-90 as amended by RMC 17-90
Example schedule of compromise penalties

X. Informer’s Reward

Sec. 282 NIRC of 1997

Rev. Memo Order No. 12-93 dated 1 February 1993

Guidelines in the filing of confidential information for violation of the NIRC and
investigation by authorized revenue officer.

Meralco Securities v. Savellano, 117 SCRA 704

Penid v. Virata, 121 SCRA 166
Com. of Internal Revenue v. Com. on Audit, 218 SCRA 203