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TAX REMEDIES Taxpayers Remedies a. Administrative a.1. Before Payment of Taxes a.1.1. Dispute Assessment a.1.1.1. Reconsideration a.1.1.2. Reinvestigation a.1.2. Compromise a.2. After Payment of Taxes a.2.1. Refund a.2.2. Credit b. Judicial b.1. Civil b.2. Criminal c. Substantive Question validity of tax law / regulation Government Remedies a. Administrative a.1. Distraint of personal property a.2. Levy of real property a.3. Enforcement of forfeiture a.4. Enforcement of tax lien a.5. Compromise and abatement a.6. Civil penalties b. Judicial b.1. Ordinary civil action b.2. Criminal action Tax remedies are important for governments regular collection of revenue in accordance with the lifeblood doctrine Safeguards taxpayers rights against arbitrary action



4. 5.

(See flow chart first) Deadline for Submission of Tax Returns Date of filing of return is significant to determine the prescriptive period for assessment Actual date or deadline for filing, whichever is later, reckons the prescriptive period for assessment Amended Returns Section 6 (A) - Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has in the meantime been actually served upon the taxpayer. 3 years because 3 years within which to conduct or issue the assessment Considered filed on the day the amended return is filed All taxpayers are subject to audit but the BIR will not audit all taxpayers 6. 7. 8.

the taxpayer as when there is an underdeclaration a. Section 43 - Networth in present year is higher than previous year yet the tax paid is minimal Defenses of taxpayer: Donation, inheritance, gifts, winnings in lottery, income subject to final tax b. Public display of properties c. Sole proprietorship engaged in business or corporate assets and liabilities are required to be declared d. Records of other government agencies e. Third persons Expenditure Method if present years expenditure is more than the expenditures last year Ratio : If youre spending more, meaning there is more income Presumptive Sales Method CIR orders inventory taking since taxpayer is not issuing the proper official receipts. BIR reconstructs your finances based on Best Evidence Rule Bank Deposit Method Waiver by taxpayer or under the new BIR return, you need to declare all income which are subject to final tax Inventory method for determining income a. LIFO First In, Last Out b. FIFO First In, First Out c. Weighted Average method of assigning costs cost of goods sold dependent upon the average acquisition cost of inventory currently available when sale is done; weighted average cost per unit at the time of each sale equals the cost of goods available for sale divided by the number of units available d. Specific Determination method where each item in the inventory can be identified with a specific purchase and invoice when each item is sold, the sales return shall also contain the same; cost of goods sold depends on which item was sold for that particular sale Cash Expenditure Method creates a presumption that the taxpayer will be able to spend more only when there is more income Gross Profit Margin Method / Percentage Method Surveillance Method

Methods for determining which taxpayer to audit 1. Networth Investigation Method Networth of taxpayer is disproportionate to the tax being paid by

Best Evidence are any of the following: (Section 6, NIRC) *Third Party Information* 1. Corporate and accounting records of taxpayer subject of the assessment 2. Accounting records of other taxpayers engaged in the same line of business 3. Data, record, paper, document or any evidence from other taxpayers who had personal transactions or from whom the subject taxpayer received any income 4. Record, data, document and information secured from government offices or agencies However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include

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mere photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The 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. (CIR v. Handtex Trading Co., Inc., G.R. No. 136975, March 31, 2005) Grounds for Resorting to Best Evidence in Tax Assessment 1. Failure to submit returns when required by law 2. False, incomplete or erroneous returns Commissioner may then amend or file correct return based on best evidence 50% Rule Applies when there is showing that expenses have been incurred but the exact amount cannot be ascertained due to absence of documentary evidence Effect: Disallowance of 50% of taxpayers claimed deduction Commissioner shall make the computation of taxable income when: 1. No accounting method employed 2. Method employed does not clearly reflect income Conduct of Audit Letter of Authority Without letter of authority, the assessment or examination is a nullity (CIR v. Sony Philippines, GR 178697) Must be served upon taxpayer within 30 days from issuance thereof, otherwise, letter of authority is invalidated May be revalidated only once through the issuance of a new letter of authority if issued by Regional Director; twice if issued by CIR. Invalidated letter of authority must be attached to the new letter of authority (RMO 38-88) 120 days from receipt of letter of authority to conduct audit Failure to file report within 120-day period , he must submit progress report to the Head Office and surrender the letter of authority for revalidation Conduct of audit must be within 3years, exceptionally, 10years for false return, fraudulent return or failure to file return Taxpayer must check the following: a. Issuance date of letter of authority within prescribed period for assessment and 30days from issuance thereof b. Subject of audit and period of audit tax for year xxxx c. Name of taxpayer indicated in the letter of audit

Cases which need not be covered by a valid letter of authority: (RMO 36-99) 1. Cases involving civil or criminal tax fraud which fall under the jurisdiction of tax fraud division of the Enforcement Services; and 2. Policy cases under audit by the Special Teams in the National Office GR: Taxpayer may be audited only once a year XPNs: 1. Fraud, irregularities and mistakes were committed by the taxpayer as determined by CIR 2. Taxpayer requests for reinvestigation and was granted by CIR 3. Need to verify with taxpayers compliance with withholding and other revenue taxes under Revenue Memorandum Order issued by CIR 4. Taxpayers capital gains tax liabilities must be verified 5. Third Party Information Source - Commissioner chooses to exercise his power to obtain information relative to the examination of other taxpayers (Secs. 5 & 235, NIRC) Notice of Informal Conference Written notice informing the taxpayer that findings of the audit conducted indicate that additional taxes or deficiency assessments have to be paid 15 days from receipt of notice to explain Failure to respond = default and the findings will be submitted for review before the Assessment Division of the Revenue Regional Office or CIR or his duly authorized representative and for issuance of corresponding deficiency tax assessment (Sec. 3.1.1, RR 12-99) Purpose is to afford taxpayer opportunity to present his case

Section 228 When PAN not required (because of obvious tax deficiency and to require taxpayer to file a reply will delay the proceedings for collection) Notice of Informal Conference / Pre-Assessment Notice NOT Required: (MR-WEL) 1. Finding for deficiency tax is due to mathematical error in the computation of tax as appearing on the face of the return If mathematical error does not appear on the face of the return, audit is required. For instance, error in computation of deductibles because what appears in the return is merely the total amount and BIR has no way of determining the breakdown for deductibles on the face of the return 2. Discrepancy has been determined between tax withheld and amount actually remitted by withholding agent 3. Taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for taxable period was determined to have carried over and

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automatically apply the same amount claimed against estimated tax liabilities for taxable quarter/s of succeeding taxable year; (situation wherein taxpayer already filed for refund) Reason: A taxpayer is no allowed to have double benefit (refund / credit and application) 4. Excise tax due on excisable articles have not been paid; Excise tax is due upon production or manufacture Article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons

Issued by CIR or his duly authorized representative Remedy of taxpayer is to protest the assessment

GR: Self-assessing XPNs: 1. Improperly accumulated earnings tax [Sec29] 2. Taxable period of taxpayer is terminated [Sec6 (D)] 3. Tax lien [Sec219] 4. Dissolving corporation [Sec52(C)] 5. Deficiency or non-payment of taxes Requisites for Valid Notice of Assessment (Section 228) 1. Computation of tax liabilities 2. Demand for payment 3. Period for payment 4. Addressed to taxpayer 5. Statement of law and facts on which assessment is based Reasons for requiring statement of law and facts upon which assessment is based - Taxpayer will be given the opportunity to intelligently protest the assessment Importance of Assessment Government 1. For proper pursuit of judicial and extrajudicial remedies in enforcement of tax liabilities and imposition of surcharges and interest 2. Application of Statute of Limitation 3. Establishment of tax liens 4. Estimating the revenues which may be collected by the government Taxpayer 1. Inform taxpayer of liabilities 2. Determine period within which to protest 3. Determine prescription of government claim


Assessment Determination of the correct amount of taxes due to the government Official valuation of the taxpayer's property for purposes of taxation Technical meaning of assessment is the written notice by the BIR upon deficiency or non-payment of tax Real Property Taxation, assessment means the burdens imposed upon real property which has benefitted from the public works and expenditures of the government. Internal Revenue Taxation, assessment refers to laying tax to ascertain the amount which the taxpayer is required to pay

Kinds of Assessment Notices: 1. Pre-Assessment Notice 2. Final Assessment Notice 3. Jeopardy Assessment Compromise) Pre-Assessment Notice




Requisites for Valid Pre-Assessment: 1. In writing 2. Statement of law and facts on which assessment is made Taxpayer should respond within the prescribed period in implementing rules and regulations 15days from receipt, extendible for not more than 10days (Basis: Rev.Reg. 12-99) Failure to respond = issuance of assessment Recall Section 228 when PAN is not required (MRWEL)

Principles Governing Assessments (PAD3) 1. Prima facie presumed correct and made in good faith taxpayer has the burden of proof to dispute the assessment 2. Must be based on actual facts 3. Discretionary on the part of the Commissioner (Meralco Securities Corporation v. Savellano, G.R. No. L-36181, October 23, 1982) 4. Directed to the right party 5. Authority of Commissioner to assess taxes may be delegated (Case) Assessment made by CIR is not subject to judicial review because such power is discretionary Recommendation letter cannot be considered as formal assessment of tax liability (Adamson v. CA, G.R. No. 120935, May 21, 2009) Revenue Officers affidavit containing a computation of respondents tax liability without stating a period for payment nor demand for payment cannot be considered an assessment. Moreover, the affidavit was executed for the purpose of filing a criminal case and it was addressed to the justice secretary. ( CIR v. Pascor, G.R. No. 128395)

Final Assessment Notice Declaration of deficiency taxes issued to the taxpayer who fails to respond to a PAN within the prescribed period, or whose reply is without merit

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Assessments are presumed prima facie correct and made in good faith. Taxpayer has burden of proving otherwise. (CIR v. CA, G.R. No. 104151, March 10, 1995) Mailed assessments are disputably presumed to have been received by the addressee. ( Republic v. CA, G.R. No. L-38540) Receipt of letter-assessment coupled with willful refusal to pay taxes within the allotted period Void assessments render subsequent proceedings invalid and any order emanating from it could never attain finality (CIR v. Reyes, 480 SCRA 382)

criminally liable

liable for crime of moral turpitude (Republic v Marcos, GR 130371 & 130855)

already a violation (CIR v Bank of Commerce, CTA Case No. 654)

10year prescriptive period from discovery and government has the following options: 1. Assess correct tax liability and later on collect it within the period of 5years by distraint, levy, or court proceeding 2. File court proceeding for collection of such tax without assessment

GR: Assessment to be made within 3years after last day prescribed for filing of return or day return was filed, whichever is later XPNs: 1. Failure to file return 10years from discovery of omission 2. False / fraudulent return with intent to evade taxes 10years from discovery of falsity or fraud 3. CIR and taxpayer, prior to the expiration of the three year period, has agreed in writing to the extension of the period (may be further extended prior to expiration of period previously agreed upon) 4. Written waiver of three year period Requisites: a. Entered before the expiration of the 3year period for assessment of tax b. In writing c. Signed by taxpayer d. Must specify a definite date agreed upon between the parties within which to assess and collect the tax e. Signed and accepted by CIR or his duly authorized representative f. Date of acceptance must be indicated 5. Return amended substantially prescriptive period runs from date amended return was filed Section 6, NIRC amendment may be filed within 3years PROVIDED that no notice of audit has actually been served upon the taxpayer Return filed cannot be withdrawn original and amended return stays with the BIR *Amendment of return is dangerous on the part of the taxpayer because it prolongs the prescriptive period for assessment and it is a red flag for the BIR to conduct the audit or assessment False Return Deviation from the truth due to mistake, carelessness or ignorance Intentional or not Not make taxpayer Fraudulent Return intention and deceitful evasion of tax Underdeclaration Overstatement Intentional Makes taxpayer Failure to File Return Omission to file a return in the date prescribed by law Intentional or not Mere omission is

How do you prove intent? How do you differentiate false returns from fraudulent returns? (See Aznar case and Ayala case)
False Return Sale of Car Accessories 100K Sale of Tires 120K Return filed: Sale of car accessories 120K Sale of Tires 80K Fraudulent Returns Return is filed for sale of car accessories but no return is filed for sale of tires (CIR v. Ayala Securities Corp., G.R. No. L29485, November 21, 1980)

False and fraudulent return is not presumed and the burden of proof to prove the return was false and fraudulent lies against the government through BIR Effect of filing of defective return as if no return was filed = 10years from discovery of omission in filing the return (Butuan Sawmills v. CA, GR L20601) Prescriptive period for assessment is for the purpose of protecting the taxpayers against unreasonable investigation after a long period of time from the filing of the return. Moreover, government officers are obliged to act promptly in the assessment of taxes Limitation on the right of the government to assess and collect taxes are not presumed

Basic Principles as to Prescriptive Period for Assessment 1. Tax law is silent on prescription, tax is imprescriptible 2. No return is required, tax is imprescriptible and may be assessed at any time 3. Prescription is a matter of defense and must be proved or established by taxpayer relying on it 4. Defense of prescription is waivable 5. Prescription, as a remedial measure, must be interpreted liberally in order to protect the taxpayer 6. If the last day falls on a Saturday, Sunday or legal holiday, the time shall not run until the next working day (Section 1, Rule 22, RoC) Administrative Code of 1987, being the more recent law, governs the computation of legal periods a year is composed of 12months (no. of days is irrelevant) (CIR v. Primetown Property Group, Inc., 531 SCRA 436) Statute of Limitations ASSESSMENT GR: Within 3years (Section 203, NIRC) from date prescribed

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by law for filing of return or date return is filed, whichever is later XPT: (Section 222, NIRC) 10years from discovery 1. No return filed 2. False or fraudulent return with intent to evade counted from date of discovery 3. Waiver / agreement between the taxpayer and the CIR COLLECTION Different Manner of Collection 1. Withholding Tax System a. Final withholding tax constitutes final settlement of tax due (no need to include in returns) Final withholding agent is the statutory taxpayer / person liable for the payment of tax and person entitled to claim refund or credit thereof 2. b. Creditable withholding tax Pay as you File System XPN: Income tax of an individual taxpayer where tax due is more than 2,000 installment payment is allowed 1st installment on April 15 and 2nd installment on June 15

GR: 5 years from assessment *Period is not specifically provided for in Section 203 and Section 222 so the rules of the implementing agency, BIR, prevails 5years according to the BIR website XPT: 1. False or fraudulent return or non-filing of return AND without assessment 10 years from discovery by judicial proceedings only 2. False or fraudulent return or non-filing of return but assessment was issued 5years from assessment by administrative or judicial proceedings 3. Period agreed upon by CIR and taxpayer / Extended Assessment before the expiration of the 5year period reckoned from date of assessment (date of assessment must be within the period agreed upon) Defense of prescription is not jurisdictional and must be raised seasonably When assessment is mailed or released to taxpayer, considered as date of actual assessment and as long as assessment is released within the prescriptive period, it is deemed made on time even if received by taxpayer after the expiration of the period. (Basilan Estate v. CIR, 21 SCRA 17) Prescription is an affirmative defense, hence, it is the taxpayer who shall prove that a return has been filed (Republic v. Marsman, G.R. No. L-18986, April 27, 1972 ; Taligaman Lumber v. CIR, 4 SCRA 842) If wrong return was filed, the 10-year prescriptive period will still apply even if information in the return can enable BIR to assess the tax liability (Butuan v. CTA, G.R. No. L-20601)

Collection by judicial action is deemed instituted upon the filing of the corresponding complaint in court and in case of summary remedies, upon service of distraint and levy on taxpayer or persons or entity authorized to receive the same. (Diluangco v. CIR, 4 SCRA 263) Taxpayer cannot invoke prescription where government is suing on the bond executed and filed by them to guaranty the payment in 6monthly installments of tax liability which is separate and distinct from the obligations of the parties.( Republic v. Araneta, 2 SCRA 144) Where government seeks to recover erroneously refunded taxes, the prescriptive period for assessment of tax applied because the government is in effect asking taxpayer to pay the amount refunded, thus, it is an assessment for deficiency tax. ( Guagua v. CIR, 19 SCRA 790) Assessment of inheritance tax does not directly involve the administration of the decedents estate although it may be viewed as an incident to the complete settlement of an estate. It is not against the property of the decedent, nor is it a claim against the estate as such, but it is against the interest or property right. There must be liberal treatment of claims for taxes charged against the estate of the decedent. Approval of the court sitting in probate or as settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. (Marcos v. CA, 273 SCRA 47) The law is silent as to whether taxes may be collected pending resolution of the protest. BIR usually resolves protest before proceeding for collection of taxes is commenced (Atty. Kasala) Resort to judicial collection in order to make enforcement imprescriptible (upon rendition of final judgment)

Fraud is a question of fact and circumstances; must be actual and amount to intentional wrongdoing GOVERNMENT REMEDIES Remedies for Collection of Delinquent Taxes 1. Distraint of personal property and Levy of real property 2. Civil or Criminal Action 3. Compromise 4. Tax Lien 5. Forfeiture 6. Civil Penalties Delinquency Tax Self-assessed taxpayer return filed within prescribed period for filing was not paid or merely partially paid Deficiency Tax Amount as shown in the return is fully paid BUT amount of tax imposed by law as determined by CIR or authorized representative exceeds the amount shown as tax in the return

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Deficiency tax assessed by BIR is final and executory

Can be immediately collected administratively through issuance of warrant of distraint and levy, and/or judicial action Remedy: Filing of civil action for collection in ordinary court Subject to administrative penalties 25% surcharge, interest and compromise penalty

No amount shown as tax amount as determined by CIR or authorized representative exceeds amounts previously assessed or collected without assessment as deficiency Can be collected through administrative or judicial remedies but has to go through process of filing protest by taxpayer against assessment and denial of protest by BIR Filing of civil action for collection during pendency of protest is subject to a motion to dismiss Generally not subject to administrative penalties

proceedings for collecting the tax due or which may be due from him ~Section 6(D) , NIRC - Authority to terminate taxable period upon same grounds under Section 206 by declaration of the Commissioner of termination at any time and sending of notice of such decision to the taxpayer with a request for the immediate payment of the tax for the period declared to be terminated and for tax of preceding year or quarter or such portion thereof which is unpaid. Tax is due and immediately payable and shall be subject to all penalties herein prescribed UNLESS paid within the time fixed in the demand made by the Commissioner. Constructive Distraint May be Resorted to: (RITAOUC) 1. Taxpayer applies for retirement from business with a huge amount of pending assessment Huge Amount equal to or bigger than networth or equity of taxpayer 2. Taxpayer under tax investigation has record of leaving Philippines twice a year Exceptions: a. Trips are justified b. Trips are connected with business, profession or employment Taxpayer, other than banking institution who is under tax investigation and has a record of transferring bank deposits and other valuable personal properties from Philippines to any foreign country Taxpayer uses aliases in bank accounts other than the name which he is legally and/or popularly known Taxpayer keeps bank deposits and owns other property/ies under the name of other persons, whether related to him, and the same are not under any lawful fiduciary or trust capacity Taxpayers big amount of undeclared income is known to the public or to the BIR by credible means and there is strong reason to believe that taxpayer, in natural course of events, will have a great tendency to hide or conceal property/ies Big Amount of Undeclared Income amount exceeding 30% of the gross sales, gross receipts or gross revenue declared per return 7. When BIR receives information or complaint pertaining to undeclared income in an amount exceeding 30% of the gross sales, gross receipts or gross revenue declared per return of a particular taxpayer and there is enough reason to believe that said information is correct as when the complaint or information is supported by substantial and credible evidence

Distraint and Levy Distraint remedy whereby the collection of tax is enforced on the goods, chattels or effects of the taxpayer including personal property of whatever character as well as stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property Levy seizure of real properties and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer Distraint Levy Summary in nature and may be pursued independently or simultaneously with civil and criminal action once assessment becomes final and demandable (Central v. CIR, CTA Case No. 4312, December 21, 1988) Not available when amount of tax is Php100 or less Delinquent OR any taxpayer Only for delinquent taxpayers Personal property Real property Actual or Constructive Government may purchase: Forfeiture to government: 1. Bid amount is not 1. No bidder equal to tax due 2. Highest bid is 2. Bid amount less than insufficient to pay actual market value taxes, penalties and costs No redemption - Government Right of redemption 1year to resell property purchased from date of forfeiture Distraint may be: 1. Actual 2. Constructive Against Delinquent or Any Taxpayer Grounds 1. Retiring from business subject to tax 2. Intending to leave Philippines or remove, conceal or hide property 3. Intending to perform acts tending to obstruct


4. 5.


Procedure for Distraint (Section 208, NIRC) Sign Receipt of Warrant 1. Preserve

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Not to dispose

consummation of sale (Section 210, NIRC) Property levied upon order of competent court may, with consent of competent court, be subsequently distrained subject to the prior lien of attachment of the creditor (CIR v. Flores vda. De Codinera, G.R. No. L-9675, September 28, 1957)

Refuse or Fails to Sign Receipt of Warrant 1. List property/ies 2. 2 witnesses 3. Leave a copy in the premises of property distrained Stocks and other Securities Service of warrant upon 1. Taxpayer AND 2. President, manager, treasurer or other responsible officer of the corporation, company or association which issued the stocks or securities Debts and Credits Leaving warrant upon 1. Debtor OR 2. Creditor or person having control of such credit or his agent *Warrant is sufficient authority to pay CIR the amount of such debt or credit Bank Accounts Service of warrant upon 1. Taxpayer 2. President, manager, treasurer or other responsible officer of the bank (turn over such amount in bank account as may be sufficient to satisfy the claim of the government) Actual Distraint seizure of property in quantity sufficient to satisfy: 1. Tax or charge 2. Increment incident to delinquency 3. Expenses of distraint 4. Cost of subsequent sale Who shall institute distraint Depends on the amount of tax due 1. More than 1Million CIR or duly authorized representative 2. 1Million or less RDO *CIR or duly authorized representatives have the power to lift such order Procedure for Sale of Distraint (Section 209, NIRC) 1. Notification in not less than 2 public places time and place of sale 2. Time of sale not less than 20days after notice to owner or possessor of property 3. Publication or posting of notice 4. Highest bidder for cash OR if stocks and securities, with approval of the commissioner through duly licensed commodity or stock exchanges (bill of sale delivered to buyer and furnished to corporation) 5. Bid price actual expenses of seizure expenses for preservation (no charge for services of local internal revenue officer) 6. Excess owner of property 7. GOVERNMENT may purchase when: (Section 212, NIRC) a. Amount bid is not equal to amount or tax b. Amount bid is less than actual market value May subsequently be resold Release of distrained property payment prior to

Procedure for Levy of Real Property 1. Authenticated Certificate showing: a. Amount of tax due b. Penalty due c. Description of property Certificate = force of legal execution throughout the Philippines 2. Certificate mailed and served to the following: a. Register of Deeds where property is located b. Delinquent taxpayer OR if he is absent from the Philippines, agent or manager of the business If none, occupant of the property in question 3. Advertise property within 20days after the levy and for a period of 30days containing the following information: a. Tax due b. Penalties due c. Time and place of sale d. Name of taxpayer e. Description of property sold 4. Posting of notice 5. Publication once a week for 3 consecutive weeks in newspaper of general circulation 6. Sale of property 7. Certificate showing: a. Proceedings of sale b. Description of property sold c. Name of purchaser d. Amount of taxes, penalties and interest 8. Bid price claim of government cost of sale 9. Excess owner of property 10. Redemption period of 1year from date of sale by taxpayer or anyone for him Redemption price = taxes + penalties + interest from date of delinquency to date of sale + interest on purchase price @ 15% per annum from date of purchase to date of redemption *Owner should not be deprived of possession of the property and shall be entitled to rents and other income thereof until the expiration of the redemption period 11. Forfeiture to Government: a. No bidder b. Highest bid is for an amount insufficient to pay taxes, penalties and costs 12. Registration of declaration of forfeiture *Sale may be discontinued by payment of taxes, penalties and interests prior to sale Improvement attached to the land by express

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provision of law, though not physically so united, are inseparable therefrom That sale would take place on December 15, 1940 and everyday thereafter is general and indefinite and deprives the taxpayer of his opportunity to protect his rights. (Cabrera v. Provincial Treasurer of Tayabas, C.A. No. 502, January 29, 1946) The tax was held bad because the owner's name had been written in the roll as "Ida F. Hawthorn" instead of "Ida J. Hanthorn" ; Property shall so be described as to be easily identified both by owner and by person desiring to bid ; Where one sale embraces two different taxes, a vital defect in either tax invalidates the whole sale ; Failure to adequately describe the property in tax roll and notice of sale amounts to an irregularity, informality and failure that impaired the substantial rights of the taxpayer. (Valencia v. Jimenez, G.R. No. 4406, October 23, 1908)

Requisites for Constituting Tax Liens 1. Neglects or refuses to pay tax 2. After demand for a certain amount Forfeiture Enforced by seizure and sale or destruction of specific forfeited property Forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action, civil or criminal (Section 224, NIRC) Need not be for the whole tax liability and can merely be for the amount equivalent to the FMV of the property (Castro v. CIR, 4 SCRA 1193)

Principles of Distraint and Levy 1. May be resorted to anytime but only after reasonable efforts to collect tax by ordinary methods of collection 2. Should be resorted to before or simultaneously with court action 3. Not be issued for collection of compromise penalty 4. Sale, transfer or encumbrance of property constructively distrained without consent of CIR shall be punished by: a. Fine not less than twice the value of the property sold, transferred or encumbered but not less than Php5,000 b. Imprisonment of not less than 2years and 1day but not more than 4years or both 5. Fails or refuses to surrender property under distraint and levy liable in his own person and estate for the value of the property or rights not surrendered but not exceeding amount of taxes, penalties and interests from date of warrant 6. Distraint and levy may be repeated if necessary until full amount due including expenses is collected Tax Liens Legal claim or charge on property established by law as a security for the payment of tax obligations Superior to all other claims and preferences (Velos v. CIR, G.R. No. 48602, February 26, 1943; Republic v. Peralta, G.R. No. 56568, May 20, 1987) only in case of insolvency of taxpayer Creates a lien in favor of the government from the time the assessment was made by the CIR and until paid, with interests, penalties and costs that may accrue, upon all property and rights to property of the taxpayer Lien attaches not only from the service of warrant but from the time tax became due and payable Lien not valid upon mortgagee, purchaser or judgment creditor until lien is filed in RD by the CIR

Forfeiture Proceeds of sale will go to the coffers of the government

Seizure Residue after satisfaction of tax liability and expenses taxpayer May still be subjected to criminal action even if property has already been forfeited Civil Action Resorted to when tax liability becomes collectible (when assessment becomes final and unappealable or decision of CIR becomes final and executory) 1. Taxpayer fails to file administrative protest (reconsideration or reinvestigation) within 30days from receipt of assessment ~60days to file supporting documents etc. 2. Protest filed but decision of CIR denying protest in whole or part was not appealed to CTA within 30days from receipt of decision ~Inaction for 180days from submission of document Once action for collection is filed with regular courts, the taxpayer can no longer assail the legality or validity of the assessment. (CIR v. Gonzales, G.R. No. L-19495, November 1966) Right of government to object to the defense of prescription may be waived if it litigated the issue of prescription and submitted such resolution for resolution of the court (Republic v. Ker & Co., G.R. No. L-21609, September 29, 1966) When fraudulent tax returns are involved in a proceeding in court for the collection of tax, the action may be begun without assessment Civil action for tax collection filed with regular courts cannot be instituted without the approval of the CIR (Section 220, NIRC) BUT not jurisdictional but one relating to capacity to sue or affects cause of action

Section 7, RA8424 CIR may delegate powers to any subordinate official with the rank equivalent to a division chief or higher XPT: (not including delegation of administration and enforcement of revenue laws and regulations) 1. The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

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2. 3.


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 Sec. 204 (A) and (B) of this Code, any tax liability: Provided, however, That assessments issued by the regional offices involving basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor criminal violations, as may be determined by rules and regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. Compromise





7. 8.

Parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced (Article 2028, NCC) Agreement between two or more persons to amicably settle their differences on terms they can agree on to avoid lawsuits Compromise Penalty amount of money which a taxpayer pays to compromise a tax violation (paid in lieu of criminal prosecution) and cannot be imposed in the absence of showing that taxpayer consented thereto Grounds for Compromise 1. Doubtful validity - Reasonable doubt as to validity of claim against taxpayer exists 2. Financial incapacity of taxpayer to pay Doubtful Validity (JARE-ABWA) 1. Delinquent account or disputed assessment results from Jeopardy Assessment Jeopardy Assessment Tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer who has reason to believe that the assessment and collection of deficiency tax will be jeopardized (because BIR needs to comply with the prescriptive periods for assessment and collection) by delay because of the failure of taxpayer to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records or to substantiate all or any of deductions, exemptions or credits claimed in his return Remedy of taxpayer in case of jeopardy assessment waive statute of limitations 2. Assessment seems to be arbitrary appearing to be 9.

based on presumptions and there is reason to believe that it is lacking in legal and/or factual basis Taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment or preliminary assessment and there is reason to believe that it is lacking in legal and/or factual basis Taxpayer failed to file request for reinvestigation/reconsideration within 30days from receipt of final assessment notice and there is reason to believe that it is lacking in legal and/or factual basis Taxpayer failed to elevate to CTA an adverse decision within 30days from receipt thereof and there is reason to believe that it is lacking in legal and/or factual basis Assessment was issued on or after January 1, 1998 where the demand notice allegedly failed to comply with the formalities prescribed under Section 228 of 1997 Tax Code Assessments based on Best Evidence Obtainable Rule and there is reason to believe that it is lacking in legal and/or factual basis Assessment issued within prescriptive period for assessment as extended by the taxpayers execution of waiver of statute of limitations, the validity or authenticity of which is being questioned or at issue and there is reason to believe that evidence to prove that it is not authentic Assessment based on issue where a court of competent jurisdiction made and adverse decision against BIR but for which the SC has not decided upon with finality

Financial Incapacity (OD2IM) 1. Corporation ceased operation or is dissolved 2. Taxpayer is suffering from surplus or earnings deficit resulting to impairment in original capital by at least 50% 3. Taxpayer suffering from networth deficit as shown in latest audited financial statement Networth Deficit = Total assets Total liabilities Total assets net of prepaid expenses, deferred charges, pre-operating expenses, appraisal increases in fixed assets Total liabilities net deferred credits Taxpayer is a compensation income earner with no other source of income AND familys gross monthly income does not exceed (Php10,500 if single and Php21,000 if married - per month) the levels of compensation income under Sec. 4.1.1 of RR 7-2001 AND is without other leviable / distrainable assets other than his family home 5. Taxpayer has been granted by SEC or any competent tribunal a moratorium or suspension of payments to creditors OR is bankrupt OR insolvent *Waiver in writing of secrecy of bank deposits required 4.

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Cases which may be Compromised: (RR 7-2001) 1. Delinquent accounts 2. Cases under administrative protest after the issuance of final assessment notice are still pending before RDO, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in National Offices 3. Civil tax cases before regular courts prior to litigation, pending litigation, even during appeal leave of court XPT: Final judgment because by such, the government acquires a vested right ( Roviro v. Amparo, G.R. No. L-5482, May 5, 1952) 4. 5. 6. Collection cases filed in courts Criminal violations other than those already filed in courts OR those involving criminal tax fraud Cases covered by pre-assessment notices but taxpayer is not agreeable to the findings of the audit office as confirmed by the review office

e. f.

d.2. Less than 3years 20% Surplus or earnings deficit resulting to impairment of original capital by at least 50% - 40% Declared insolvent or bankrupt XPT taxpayer falls under any of the abovementioned situations 10%

Cases which cannot be Compromised 1. Withholding taxes XPT: invokes provisions of law that casts doubt on taxpayers obligation to withhold 2. Tax fraud cases XPT: Confirmed as such by CIR or duly authorized representatives Criminal violations already filed in court Delinquent accounts with duly approved schedule of installment payments Final reports of reinvestigation or reconsideration resulted to reduction of original assessment and taxpayer is agreeable and signs the agreement form Cases which became final and executory after final judgment where compromise is grounded on doubtful validity of assessment Estate tax cases where compromise is based on financial incapacity of the taxpayer

Minimum percentages apply to compromise of assessments consisting solely on increments like surcharge, interest, etc. based on total amount assessed Power to compromise vested in CIR discretionary and cannot be reviewed or interfered with by the courts. Cannot be compelled by court to exercise such discretion. (People v. Desiderio, G.R. No. L20805, November 29, 1965) BUT CIR may delegate his power to Deputy Commissioners and Regional Directors subject to restrictions which may be imposed and promulgated. CIR may grant compromise only if basic tax involved does not exceed 1Million AND settlement offered is not less than the prescribed percentages. Where CIR is not authorized to do so (more than 1Million or compromise rate is less than the prescribed rates), such is subject to the approval of the Evaluation Board (CIR and 4 Deputy Commissioners)

Abatement - cancellation of entire tax liability Grounds for Abatement 1. Tax or any portion is unjustly or excessively assessed 2. Administration and collection costs involved do not justify the collection of the amount due RMO 20-07 Civil Penalties Section 248, NIRC 1. 25% of amount due in the following cases: a. Failure to file return and pay tax due b. Filing a return with an internal revenue officer other than those to whom return is required to be filed UNLESS otherwise authorized by the Commissioner c. Failure to pay deficiency tax within time prescribed in notice of assessment d. Failure to pay full or part of tax due as shown in the return e. Failure to pay full amount due for which no return is filed 2. 50% of tax or deficiency tax a. Willful neglect to file return within time prescribed b. Filing of false or fraudulent returns Substantial underdeclaration of taxable sales and substantial overstatement of taxable sales as determined by CIR shall constitute prima facie evidence of false or fraudulent return Substantial underdeclaration of taxable sales, receipt or income claim of

3. 4. 5. 6. 7.

Minimum Percentages of Compromise Settlements for Doubtful Validity of Assessments 40% of basic tax assessed Minimum Percentages of Compromise Settlements for Financial Incapacity Generally, 10% of basic tax assessed 1. Individual compensation income taxpayer 10% IF monthly salary does not exceed a. Php10,500 if single b. Php21,000 if married AND taxpayer does not possess other leviable or distrainable property other than his family home 2. Individual taxpayer without any source of income 10% 3. Taxpayer is under any of the following conditions a. Zero networth 10% b. Negative networth 10% c. Dissolved corporations 20% d. Non-operating corporations for d.1. 3years or more as of date of application for compromise 10%

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deductions in an amount exceeding 30% of that declared in the return Substantial overstatement of taxable sales, receipt or income failure to report sales, receipts or income in an amount exceeding 30% of that declared in the return Interest Section 249, NIRC 20% per annum or such higher rate as may be prescribed, from date prescribed for payment until amount is fully paid Deficiency interest any deficiency tax is subject thereto under Section 249 Delinquency interest - assessed and collected until amount is fully paid, which shall form part of the tax in case of failure to pay: 1. Amount of tax due on any return required to be filed 2. Amount of tax due for which no return is required 3. Deficiency tax or surcharge or interest on due date appearing in notice and demand of CIR Interest on extended payment taxpayer qualified to pay tax or any installment on or before date prescribed for payment or was authorized by CIR an extension of time within which to pay the tax or deficiency tax and taxpayer fails to pay the tax or any installment thereof, 20% interest per annum shall be imposed on tax or deficiency tax from date of notice and demand until fully paid (Section 249, 1997 NIRC) Compromise Penalty Certain amount of money which taxpayer pays to compromise a tax violation in lieu of criminal prosecution and cannot be imposed in the absence of showing that taxpayer consented thereto If compromise penalty is rejected by taxpayer, it cannot be enforced thru an action for collection in court or by levy or distraint

waives in writing his privilege of secrecy of bank deposits. The waiver shall constitute as the authority of the Commissioner to inquire into the bank deposits of the taxpayer. In cases where the basic tax assessed has been adjusted as a result of reconsideration/reinvestigation and the taxpayer has signified in writing his conformity to the adjusted assessment, said taxpayer can no longer request for compromise based on doubtful validity of the assessment. Nonetheless, should the taxpayer still not agree to the adjusted assessment, but he wants to avail of the Program, the offer for compromise settlement shall be decided on a case to case basis, but in no instance shall it be lower than the minimum percentage rates prescribed by law. Any offer of compromise on the ground of doubtful validity of the assessment involving a compromise offer of less than 40% of the basic assessed tax shall state compelling or strong reasons for such offer. All such offers shall be approved by the National Evaluation Board (NEB). Assessments confirmed by a lower court but appealed by the taxpayer to a higher court cannot also be compromised on the ground of doubtful validity of the assessment. The NEB shall have the authority to approve offers of compromise on the following: 1) offers less than the minimum prescribed minimum rates; 2) on delinquent accounts or disputed tax cases as well as on minor/major criminal violations (other than criminal tax fraud cases already filed in courts) of taxpayers under the jurisdiction of the National Office; and 3) on delinquent accounts or disputed tax cases involving assessments where the basic assessed tax, on a per tax type basis, exceeds P 500,000.00, and of major criminal violations (other than criminal tax fraud cases and criminal cases already filed in courts) of taxpayers under the jurisdiction of the Regional Offices (ROs). The Regional Evaluation Board (REB) shall have the authority to approve offers of compromise of deficiency assessments issued by the ROs involving basic assessed tax, on a per tax type basis, of P 500,000.00 or less, and of minor criminal violations of taxpayers discovered by the Regional Office/Revenue District Office having jurisdiction over said taxpayers. The prescribed minimum percentages shall likewise apply to offers of compromise settlements of assessment/deficiencies/findings consisting solely of increments (i.e. surcharge, interest, etc.) based on total amount assessed. Tax Credit Certificates/Tax Debit Memos shall not be allowed as payment in the offers of compromise. The evaluation of the offers of compromise shall be done on a per tax type basis. The deadline for the filing of application for compromise offer shall be one or before November 15, 2001.

No Injunction to Restrain Tax Collection (Section 218, NIRC) Reason: Lifeblood doctrine XPT: Pending appeal before CTA and collection will jeopardize the interest of the government or taxpayer *Deposit amount claimed / file surety bond for not more than double the amount of the amount with court (Bond is not an absolute requirement)

REVENUE MEMORANDUM ORDER NO. 22-2001 issued October 5, 2001 prescribes the guidelines and procedures for evaluating, processing and accepting offers of compromise settlement of delinquent accounts and disputed assessments, including those already filed in court. No offer for compromise settlement by reason of financial incapacity shall be considered unless and until the taxpayer

Criminal Liability

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5years from commission or discovery of violation, whichever is later. Commences to run only after the receipt of the final notice and demand and taxpayer refuses to pay. In case of protested assessment, the period starts to run from final notice and demand which disposes of the protest

Incurred by reason of offenders criminal acts

Incurred from the fact that one has engaged himself in business and not from a criminal act Criminal liability arises from failure to pay civil obligation = no indemnity for nonpayment

Suspension of Prescriptive Period 1. Before expiration of time prescribed for assessment and taxpayer and CIR agreed in writing to its assessment tax may be assessed within the period agreed upon. Waiver must be within the 3year prescriptive period. Taxpayers renunciation of the right to invoke prescription as a defense although executed beyond the prescriptive period is binding upon the taxpayer. (Alca v. CTA, G.R. No. L-24624, November 27, 1968) 2. CIR is prohibited from making the assessment or beginning distraint or levy or court proceeding and for 60days thereafter, such as a pending petition for review in CTA from the decision on the protested assessment. Filing of petition interrupts the prescriptive period XPT: Filing of criminal case does not suspend the prescriptive period 3. 4. 5. 6. Taxpayer requests for a reinvestigation which is granted by the CIR Taxpayer cannot be located in the address given by taxpayer in the return Warrant of distraint or levy is served and no property could be located Taxpayer is out of the Philippines Request for reconsideration without stating the date of receipt of tax assessment does not suspend the running of prescriptive period

Subsequent satisfaction of tax liability does not extinguish the criminal liability (People v. Tierra, G.R. No. L-17177-80, December 28, 1964) Assessment Pre-assessment required Demand for payment notice

Tax Evasion Filed directly with DOJ Not a demand for payment but to penalize taxpayer

Differentiate Ungab case from Fortune Tobacco case. (RE: prosecution for tax evasion without assessment) Ungab v. Cusi, G.R. No. L-41919-24, May 30, 1980 failure to file return so prosecution for tax evasion was allowed even pending protest against assessment Fortune Tobacco Taxpayers Remedies 1. 2. Administrative protest against the assessment and is filed prior to payment Claim for refund filed with CIR after payment Protest against Assessment (Section 228) 1. By filing a request for reconsideration 2. By filing a request for reinvestigation Within 30days from receipt of assessment 60days from filing of protest to submit supporting documents Requsites for Protest: 1. In writing 2. Addressed to CIR 3. Accompanied by waiver of Statute of Limitations in favor of the government. Without the waiver, prescriptive period will not be tolled ( BPI v CIR, GR 139736) if reconsideration because the CIR will not entertain any reconsideration without the corresponding waiver Not required in reinvestigation because the prescriptive period is automatically tolled 4. Statement of facts, applicable law, rules and regulations or jurisprudence on which the protest is based, otherwise, protest is void 5. Contain the following: a. Name of taxpayer and address for the immediate past 3years b. Nature of request with specification of newly discovered evidence to be presented c. Taxable periods covered by assessment

Criminal Actions Must be with approval of CIR For collection of taxes and enforcement of statutory penalties No need for precise computation and formal assessment in order to file a criminal complaint Crime is complete when violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax Civil liability arises not as a consequence of felonious acts but because of failure to pay taxes. Extinction of ones criminal liability does not necessarily result in the extinguishment of civil liability Prescriptive period for collection is 5years Civil liability to pay Taxes

Civil liability arising from a Crime

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d. e. f.


Amount and kind of tax involved and assessment notice number Date of receipt of assessment notice or letter of demand Itemized statement of finding to which taxpayer agree (if any) as a basis for computation of tax due which must be paid upon filing of protest Itemized schedule of adjustments to which taxpayer does not agree

always indicate to the taxpayer what constitutes his final determination of disputed assessments Forms of Denial of Protest 1. Direct Denial administrative decision stating the facts, applicable laws, rules and regulations or jurisprudence 2. Indirect Denial a. Formal and final letter of demand from BIR to taxpayer b. Civil collection (BIR v. Union Shipping Corp., GR 66160, May 21, 1990) c. Preliminary collection letter (United International Pictures v. CIR, GR 110318, August 28, 1996) d. Criminal action e. Warrant of distraint and levy to collect entire deficiency assessment (Hilado v. CIR, CTA 1256, February 25, 1964) 3. Inaction 180days from submission of documents Protest denied or not acted upon within 180days from submission of supporting documents = appeal to CTA within 30days from receipt of decision or lapse of 180days Reason for 180-day period It is disheartening enough to a taxpayer to be kept waiting for an indefinite period for the ruling. It would make matters more exasperating for the taxpayer if the doors of justice would be closed for such relief until after the Commissioner would have, at his personal convenience, given his go signal. (Commissioner of Customs v. CTA, GR 82618, March 16, 1989 , unreported)

Non-submission of supporting documents = assessment becomes final and unappealable Protested assessment interrupts the prescriptive period for collection by distrant or levy CIR or duly authorized representative finds that proper taxes should be assessed notify taxpayer of findings by issuing a pre-assessment notice If protest is denied, taxpayer may file for reconsideration or reinvestigation within 15days from notice thereof No appeal of decision to CTA = final and executory If CTA rules against the taxpayer, taxpayer may appeal to CTA En Banc then to the SC under Rule45 After appeal to CTA is perfected and after CTA acquires jurisdiction, CIR may amend the assessment even if for the purpose of increasing the tax ( CIR v. Batangas Trans. Co., GR L-9692) Amended assessment is no longer proper after appeal to CTA is perfected and CTA acquires jurisdiction because the amended assessment is no longer the disputed assessment (CIR v Guerrero, 19 SCRA 205) Reinvestigation Re-evaluation based in newly discovered evidence or additional evidence Tolls the running of statute of limitations

Reconsideration Re-evaluation of existing records Not toll the running of prescriptive period for collection of assessed tax

Considered as Denial of Request for Reconsideration or Reinvestigation: Filing of an action for allowance of claim for estate and inheritance taxes (Dayrit v. Cruz, 165 SCRA 571) GR: Warrant of distraint is proof of finality of assessment, tantamount to denial of reconsideration Exceptions: 1. CIR v. Algue, GR L-28896 Protest filed four days after taxpayer received the notice of assessment and such was not considered in the issuance of the warrant of distraint and levy. 30days reglementary period suspended 2. Advertising Associates, Inc. v. CA, 133 SCRA 766 Reviewable decision of the BIR is the letter where he clearly directs the taxpayer to appeal to the CTA and not the warrant of distraint and levy. This is in consocnance with the dictum that the CIR should

Effect of Failure to Appeal 1. Decision or assessment becomes final and executory 2. In an action for collection by the government, taxpayer is barred from reopening the question already decided 3. Assessment is considered correct and may be enforced by summary or judicial remedies 4. Assessment which has become final and executory cannot be superseded by a new assessment Reasons for the rule requiring CIRs unequivocal language on his action on the protest (CIR v. BPI, GR 134062, April 17, 2007) 1. It would obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration 2. On the part of CIR, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and define decision thereon in the first instance 3. This would also deter the CIR from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appeallable to CTA 4. This rule of conduct would meet a pressing need for

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fair play, regularity and orderliness in administrative action Claim for Refund (Section 229) Claim for refund or credit duly filed with CIR first before filing a suit or proceeding before court for recovery Suit or proceeding may be maintained whether or not tax, penalty, sum has been paid under protest or duress Tax refund is in the nature of tax exemption and must be construed strictissimi juris burden of proving entitlement thereto rests with the taxpayer

1. 2.

Afford the collector the opportunity to correct the action of the subordinate officer Notify government that taxes has been questioned and such must be borne in mind in estimating the revenue available for expenditure Basis of tax refunds unjust enrichment Tax Credit Reimbursable amount is applied against the sum due or collectible

Tax Refund Actual reimbursement of tax

Grounds for Claim for Refund: 1. Erroneously paid 2. Illegally assessed or collected 3. Penalty collected without authority 4. Sum excessively or wrongfully collected 5. Internal revenue stamps (Section 204, NIRC) Prescriptive period: Must be filed within 2years, regardless of any supervening cause which may arise, reckoned from: 1. Date of actual payment 2. Last installment (individual income taxpayer with tax due of more than 2,000) 3. Creditable withholding tax when the credit is used Persons entitled to refund: 1. Taxpayer 2. Direct Taxpayer 3. Final Withholding Agent Supervening cause refers to a subsequent law repealing the law under which the tax was collected When taxpayer is a corporation, the 2-year period is from filing of its final adjustment return not on the date when taxes were paid on a quarterly basis (Philippine Bank of Communications v. CIR, GR 112024, January 28, 1999) Final adjustment return is where the amounts of the gross receipts and deductions have been audited and adjusted which is reflective of the results of the operations of a business enterprise. It is only when the return covering the whole year is filed that the taxpayer will be able to ascertain whether a tax is still due or refund can be claimed based on the adjusted and audited figures. (Bank of the Philippine Island v. CIR, GR 144653, August 28, 2001) CIR may, even without written claim, refund or credit any tax IF on the face of the return upon which payment was made, payment appears to be clearly erroneously paid or when there is overpayment Person claiming refund or credit has the burden of proving the factual basis of their claims and showing legislative intent to entitle him to such claims ( Atlas Consolidated Mining and Development Corp. v. CIR, GR 145526, march 16, 2007)

Refund claims are in the nature of an exemption and must be strictly construed against claimant and claimant must prove compliance with the requisites

Requirements for Tax Refund: 1. Written claim for refund 2. Claim for refund must categorically demand for reimbursement of the overpaid amount 3. Must be filed within 2years from date of payment of tax or penalty regardless of supervening cause Ordinary claim for tax credit would prescribe in 10years under Article 1144 of NCC Where period of 2years is about to end, the suit or proceeding must be started in CTA before the end of the 2year period without awaiting the decision of CIR Because delay of the CIR in rendering the decision does not extend the peremptory period (Gibbs v. CIR and CTA, GR L-13453) 4. Tax must have been paid in full Computation of 2year Period 1. Tax paid by installments counted from date of final payment (CIR v Prieto, GR L-11976) 2. Tax under Withholding System end of taxable year or when tax liability falls due (Gibbs v CIR, GR L17406) 2year prescriptive period commences to run, at the earliest, on the date of filing of the adjusted final tax return (CIR v Asia Australia Express Ltd, GR 85956) Filing or quarterly income tax returns and payment thereof should only be considered mere installments of income tax due to be adjusted at the end of the calendar or fiscal year (CIR v TMX Sales, Inc. GR 83736) 2year prescriptive period for payment of tax for corporate dissolution is counted from approval of SEC of the plan for dissolution (BPI v CIR, GR 144653) Requisites for Claim for Refund of Creditable Withholding Tax: 1. Claim filed with CIR within 2years from payment of tax 2. It is shown on the return that the income payment received was declared as part of the gross income

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

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Fact of withholding is established by copy of statement showing amount paid to taxpayer and amount of tax withheld Section 112 VAT Refund For VAT only 2year prescriptive period is counted from the close of the taxable quarters where the sales were made Appeal after 120days from inaction Section 228
Administrative Protest

await the result of the pending case IRREVOCABILITY RULE Prevents the taxpayer from claiming twice the excess of quarterly tax paid 1. As automatic credit against taxes for the taxable quarters of succeeding years for which no tax credit certificate has been issued; and 2. Tax credit for which a tax credit certificate has been issued but will be claimed for tax refund BUT if corporation who opted for tax credit ceased operations, it will be allowed to claim tax refund. Example: (Excess Creditable Withholding Tax)
Year 1 Tax due: 100K Creditable Tax: 120K 20K creditable left Year 2 (Loss) Taxpayer may: 1. Refund 2. Credit Year 3 (Loss) Taxpayer may credit only because refund is already beyond the 2year prescriptive period

Section 229 Tax Refund Applies to ANY internal revenue taxes 2year prescriptive period is counted from date of payment Appeal 2years payment within from

Appeal may be made after the lapse of 180days from submission of supporting documents or protest, whichever is earlier

Claim for refund of unutilized VAT payments must be within 2years from close of taxable quarter when the relevant sales were made pertaining to input VAT regardless of whether paid or not. Reckoning frame would always be the end of quarter when sales or transactions was made. (Section 112(A), NIRC) Section 204(C) and Section 229 not applicable because 2year prescriptive period is counted from date of payment and such apply only to erroneous payment or illegal collection. (CIR v Mirant Pagbilao Corporation , 65 SCRA 164) VAT registered person whose sales are zero-rated or effectively zero-rated may apply for tax credit certificate or refund with CIR because CIR has 120days from submission of supporting documents to render a decision. Further, decision issued by CIR within 120day period or inaction for 120day period gives taxpayer 30days after which to file an appeal with CTA. (CIR v Aichi Forging Company of Asia, Inc. , 632 SCRA 422) In section 76, corporate taxpayer has option of claiming refund or claiming credit and such is alternative. However, failure to indicate a choice will not bar a valid request for refund if chosen later on since the requirement is only for purpose of easing tax administration (Philam Asset Management Inc v. COR. 447 SCRA 772) Person entitled to refund is the statutory taxpayer any person subject to tax (Section 22, NIRC)

Tax Credit Certificate may be sold by the taxpayer at a discount An availment of tax credit due to reasons other than erroneous or wrongful collection may have a different prescriptive period and absent any period in tax laws or special laws, the prescribed period is 10years according to Article 1144 of NCC

2-Year Prescriptive Period is not jurisdictional and may be suspended for reasons of equity and other special circumstances (CIR v Philamlife, 244 SCRA 446): 1. Assurance on the part of BIR that steps were being undertaken to credit taxpayer with the amount sought to be refunded 2. Agreement or understanding with BIR that they will