TAX NOTES

Substituted Filing
Substituted Filing is when the employers annual return (BIR Form 1604CF) may be
considered as the substitute Income Tax Return (ITR) of employee inasmuch as the
information provided in his income tax return (BIR Form 1700) would exactly be the
same information contained in the employers annual return (BIR Form No. 1604-CF).
Exclusion v. Deduction
A tax exclusion reduces the amount that a taxpayer reports as his gross income.
A tax deduction is an expense that is subtracted from GROSS income when calculating
net or taxable income.
False Return v. Fraudulent Return
False Return - TP filed an income tax return knowing it to be false in a material way
Fraudulent Return Interest
Deficiency Interest - imposed on deficiency not amount of tax due; 20% per annum
Delinquency Interest - imposed on the tax due (interest earning interest); 20% per
annum
Delinquency Tax - can be immediately collected administratively through issuance of a
warrant of distraint/levy and/or through judicial action
Deficiency Tax - can be collected also through administrative and/or judicial remedies
but has to go through the process of filing the protest by the TP against the assessment
and the denial of such protest by the CIR
Letter of Authority - authority given to Revenue Officer (from CIR/Revenue Director)
to perform assessment functions
- should cover a taxable period not exceeding 1 taxable year
Issuance of Injunction
GR: No court can issue an injunction, as provided under Section 218, NIRC.
E: Section 11, RA 9282 provides that an injunction may be issued by the CTA to restrain
the collection of taxes when in the opinion of the Court the collection may jeopardize
the interest of the Government and/or the taxpayer, the Court at any stage of the
proceeding may suspend the said collection and require the taxpayer either to deposit the
amount claimed or to file a surety bond for not more than double the amount with the
Court.

Note:
* TROs and injunctions issued by courts other than the CTA against the BIR should be
annulled and canceled for lack of jurisdiction.
* The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes
is applied only to NIR taxes, not to local taxes. However, the SC noted that such
injunctions enjoining the collection of local taxes are frowned upon.
Sec. 204. Authority
REFUND/CREDIT taxes

of

Commissioner

to

COMPROMISE

ABATE

COMPROMISE (no more compromise after final judgment) - agreement whereby the
parties, by making reciprocal concessions concessions, avoid litigation or put an end to
one already commenced
1) a REASONABLE DOUBT as to validity of the claim against the TP exists - 40%
of basic assessed tax
2) FINANCIAL POSITION of TP demonstrates CLEAR INABILITY TO PAY the
assessed tax - min. 10% of the basic assessed
ABATE - diminution or decrease in the amount of tax imposed such that to abate is to
nullify or reduce in value or amount
1) Tax or any portion thereof appears to be unjustly or excessively assessed
2) The administration and collection costs involved do not justify the collection of
the amount due
***ALL CRIMINAL VIOLATIONS MAY BE COMPROMISED EXCEPT THOSE
ALREADY FILED IN COURT OR THOSE INVOLVING FRAUD.
CREDIT - within 2 years after the payment of the tax or penalty
Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, Provided, however, that a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
VALID DISTRAINT OR LEVY
1. TP must be DELINQUENT!!!
2. There must be a subsequent demand for its payment
3. The TP must fail to pay the delinquent tax at the time required
4. The period within which to collect the tax has not yet prescribed
DISTRAINT - seizure by the government of personal property, tangible, or intangible, to
enforce the payment of taxes, to be followed by its public sale, if the taxes are not
voluntarily paid

GARNISHMENT - is the taking of personal properties usually cash or sums of money

owned by the delinquent TP which is in the possession of a third party
LEVY - seizure of real properties and interest in or rights to such properties for the
satisfaction of taxes due from the delinquent TP
Grounds for Refund or Credit of Internal Revenue Taxes: (2 years from date of
payment)
1. Tax was illegally collected - no law that authorizes collection of tax
2. Tax was excessively collected
3. Tax was paid through a mistaken belief that TP should pay the tax - solutio indebiti
Other than erroneous or wrongful collection of taxes - 10 years
Tax Refund - physical return of the sum erroneously paid
Tax Credit - application of reimbursable amount against any sum that may be due and
collectible from the TP
ESTATE TAX RETURN
When required:
1. When estate is subject to estate tax
2. When, though exempt from tax, the gross value of the estate exceeds PhP 200, 000
3. Regardless of the gross value of the estate when the said estate consists of
registered or registerable property such as real property, motor vehicle, shares
of stock or other similar property for which a clearance from the BIR is required
as a condition precedent for the transfer of ownership thereof in the name of the
transferee
When filed:
GR: Within 6 months from the death of decedent
E: The CIR, in meritorious cases, grant an extension not exceeding 30 days for filing the
return
When paid:
GR: At time the return is filed by executor, administrator or heirs
E: The CIR, if he finds that the payment on the due date would impose undue hardship,
may grant an extension of:
1. Not to exceed 5 years in case the estate is settled judicially
2. Not to exceed 2 years in case the estate is settled extrajudicially

What are the elements of tax evasion?

Tax evasion connotes the integration of three factors:
(1) end to be achieved, i.e. the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that the tax is due;
(2) an accompanying state of mind which is known as evil, in bad faith, willful,
or deliberate and not accidental; and
(3) a course of action or a failure of action which is unlawful.
What is tax evasion?
Tax evasion is the opposite of tax avoidance. Under this scheme, the taxpayer employs
means outside the lawful means and will merit the tax payer civil and even criminal
sanctions for his fraudulent acts.
FORGOTTEN EVIDENCE
- does not qualify as newly found evidence that merits a new trial
- newly discovered evidence, warranting a trial de novo, or "forgotten evidence" which
can no longer be considered on appeal
Be that as it may, even if Atlas has complied with the affidavits-of-merits requirement, its
prayer for a new trial would still not prosper. First, Atlas is guilty of inexcusable
negligence in the prosecution of its case. It is duty-bound to ensure that all proofs
required under the rules are duly presented. Atlas has indeed repeatedly asserted that in
its action for the instant judicial claim, the CTA is bound by its rules and suppletorily by
the Rules of Court. It certainly has not exercised the diligence required of a litigant who
has the burden of proof to present all that is required. Second, forgotten evidence, not
presented during the trial nor formally offered, is not newly found evidence that merits a
new trial. Third, and most importantly, it goes against the orderly administration of
justice to allow a party to submit forgotten evidence which it could have offered with the
exercise of ordinary diligence, more so when a decision has already been rendered.
In fine, we reiterate our consistent ruling that actions for tax refund, as in the instant case,
are in the nature of a claim for exemption and the law is not only construed instrictissimi
juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to
an exemption is strictissimi scrutinized and must be duly proven. (Atlas vs. CIR, Feb. 18,
2008)
TAXPAYERS SUIT
Jurisprudence dictates that a taxpayer may be allowed to sue where there is a claim that
public funds are illegally disbursed or that public money is being deflected to any
improper purpose, or that public funds are wasted through the enforcement of an invalid
or unconstitutional law or ordinance.
DIRECT v. INDIRECT TAX

The direct tax is the tax that is directly demanded from and paid by the taxpayers.
The Indirect tax is the tax that is demanded from a certain person in the intention as well
as expectation that the particular person shall indemnify himself at the expense of
another.
GROSS RECEIPTS TAX; liability of thrift banks - Section 7 of R.A. No. 8424
provides that the provision of Section 17 of R.A. 7906 shall continue to be in force and
effect only until December 31, 1999. Effective January 1, 2000, all thrift banks, whether
in operation as of that date or thereafter, shall no longer enjoy tax exemption as provided
under Section 17 of R.A. 7906, thereby subjecting all thrift banks to taxes, fees and
charges in the same manner and at the same rate as banks and other financial
intermediaries. Centennial Bank is, therefore, subject to the gross receipts tax imposed
under Section 121 of the Tax Code of 1997 effective January 1, 2000. (BIR Ruling No.
005-2002 dated January 11, 2002)
RR 6 - 2013 UNLISTED SHARES
(c.2) Definition of "fair market value" of the Shares of Stock. For purposes of this
Section, "fair market value" of the shares of stock sold shall be:
(c.2.1) x x x
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges, the
value of the shares of stock at the time of sale shall be the fair market value. In
determining the value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the liability values is the indicated value of the equity. For purposes of this
section, the appraised value of real property at the time of sale shall be the higher of (1)
The fair market value as determined by the Commissioner, or (2) The fair market value as
shown in the schedule of valued fixed by the Provincial and City Assessors, or (3) The
fair market value as determined by Independent Appraiser.
IMMEDIACY TEST
To determine the "reasonable needs" of the business in order to justify an accumulation of
earnings, the Courts of the United States have invented the so-called "Immediacy Test"
which construed the words "reasonable needs of the business" to mean the immediate
needs of the business, and it was generally held that if the corporation did not prove an
immediate need for the accumulation of the earnings and profits, the accumulation
was not for the reasonable needs of the business, and the penalty tax would apply.
IAET - 10% of the improperly accumulated taxable income
E:
A) publicly held corporations
B) Banks and other nonbank financial intermediaries

C) Insurance companies
Sec. 13, RA 7166
Any provision of law to the contrary notwithstanding any contribution in cash or in kind to any
candidate or political party or coalition of parties for campaign purposes, duly reported to the
Commission shall not be subject to the payment of any gift tax.
1987 Consti
Section 5. Each local government unit shall have the power to create its own sources of
revenues and to levy taxes, fees and charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic policy of local autonomy. Such taxes,
fees, and charges shall accrue exclusively to the local governments.