Sie sind auf Seite 1von 98

BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

TAX REMEDIES

Question No. 3: (1991)

Apple Computer Corp. (ACC) is a foreign corporation doing business in the


Philippines through a local branch located at Makati, Metro Manila. In 1985, the
local branch applied with the Central Bank for authority to remit to ACC branch
profits amounting to P8,000,000.00. After paying the 15% branch remittance tax
of P1,200,000.00, the branch office remitted to ACC the balance of P6,800,000.00.
In January 1986, the branch office was advised by its, legal counsel that it overpaid
the branch remittance tax since the basis of the computation thereof should be the
amount actually remitted and not the amount applied for. Accordingly, the branch
office applied for a refund in the amount of P180,000.00.

If you were the Commissioner of Internal Revenue, would you grant the
claim for refund?

Answer:

If I were the Commissioner of Internal Revenue, I would allow the claim for
refund. The remittance tax should be computed on the amount actually remitted
(Marubeni Corporation vs. Commissioner , G.R. No. 76573, 14 September 1989).
In the refund of taxes, the claim therefor can be filed within two (2) years from the
time of payment so long as the tax payment was made before an assessment by the
Commissioner has become final (Sec. 230. NIRC).

Question No. 1: (1992)

Mr. Dante Raymundo retired from the government service as Director


of Land Transportation on January 6, 1985. Upon retirement, Mr. Raymundo
received, among other benefits, his terminal leave pay for which the BIR withheld
the sum of P56, 000.00 a week following the date of his retirement.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

On October 17, 1991, following the decision of the Supreme Court that the
money value of the accumulated leave credits/ terminal pay is not subject to
withholding tax. Mr. Raymundo filed a claim for refund of P56, 000.00 with the
Commissioner of Internal Revenue.

1. Is Mr. Raymundo within his rights in claiming a refund of taxes withheld on


his terminal leave following the Supreme Court decision?

Answer:

No. Under section 230 of the NIRC, a suit for the recovery of tax erroneously or
illegally collected cannot be filed after the expiration of two years from the date
payment of tax of tax regardless of any supervening cause that may arise after
payment. Thus, the right of Mr. Raymundo to claim for refund has already
prescribed.

2. If the retiree is within his legal rights in claiming refund of the taxes withheld,
will the BIR automatically grant his claim? Explain your answer.

Answer:

No. Because he must file a written claim.

Comment:

The question expresses that the retiree is “within his legal rights” in claiming
the refund of the taxes withheld. Accordingly, an examinee can assume that all the
requirements have been met with respect to the refund. In this sense, an examinee
may be led to say it can be automatic.

3. Assuming that the BIR denies the claim for refund. What could be the possible
reason or statutory basis for such a denial?

Answer:

The possible reason for a denial would be that the written claim has already
prescribed or that the terminal pay leave is not excluded from income tax. Sec.
230, NIRC (Supra).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

4. Discuss the theory of supervening event as it applies to claims for refund of


erroneously/illegally collected taxes. Can the retiree claim a refund under this
theory? Explain.

Suggested Answer:

The theory of supervening event expresses that an event which is beyond the
control of the parties would allow the recovery of erroneously or illegally collected
taxes provided the proceeding for such recovery is made within the prescriptive
period from the occurrence of such event.

The theory of the supervening event has been abrogated by section 230 of the
NIRC.

Question No.2: (1992)

1. What are the legal remedies of an aggrieved taxpayer both at the


administrative and judicial levels? Describe separately the procedures.

ANSWER:

(a) The administrative and judicial remedies are such as may be provided for in
law imposing the tax. An expression of such remedies in the law should
then be deemed exclusive by the taxpayer. When the law imposing the tax is
silent on remedies, the law and rules and procedures of general application
shall then govern.

(b) Under the NIRC, an aggrieved taxpayer may either (1) dispute an
assessment within thirty days from receipt thereof by filling the
Commissioner of all Internal Revenue a request for reconsideration of
reinvestigation or (2) pay the assessment within the thirty days then file a
written claim with the Commissioner of Internal Revenue for refund within
two years from full and final payment.

Upon an adverse decision of the Commissioner and within thirty days from
receipt of notice of denial, an appeal may be filed with the Court of Tax
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Appeals. However, with respect to claims for refunds, an appeal must also
be filed respect to claims for refunds, an appeal must also be filed within
two years from the date of full and final payment.

From the decision of the Court of Tax Appeals, an appeal or petition for
review by certiorari nay be taken to the Court of Appeals and then to the
Supreme Court in Appropriate cases.

Comment:
An examinee should also be given credit if the remedies under the tariff
and Customs Code were instead discussed.

2) Distinguish between a taxpayer’s remedies in connection with his tax


assessment and/or demand and his claim for refund of taxes alleged to have
been erroneously or illegally collected.

Answer:

A Tax assessment becomes final unless it is disputed or contested within 30


days from receipt thereof by the taxpayer. If the action taken by the Commissioner
on the request for reconsideration is unacceptable to the taxpayer, the latter must
then appeal, by the way of Petition for Review to the Court of Tax Appeals within
thirty days from receipt of the decision of the Commissioner of Internal Revenue.
The taxpayer may also opt pay the tax before the finality of the assessment (e.g.,
within 30 days from receipt of the assessment) and then file within two years a
written claim for the refund of the tax. A denial by the Commissioner of a claim
for refund must be appealed to the CTA within thirty days from receipt of notice of
denial and within two years from the Commissioner on claims for refund may thus
be taken as a denial appealable to the Court of Tax Appeal, in order permit the
appeal to be considered or having been made within the two-year mandatory
period.

3) What are the requisite before a taxpayers request for reinvestigation may be
granted by the BIR? Discuss briefly.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Answer:

A request for re-investigation refers to a plea for re-evaluation of an assessment


on the basis of newly-discovered evidence or additional evidence the taxpayer
intends to present in the re-investigation.

Alternative Answer:

He must file a written protest stating his grounds therefor so that his protest
could be granted.

Comment:

This question involves knowledge of BIR Circulars which are not included in the
BAR Examination coverage.

4. If the request for re-investigation is denied, is it possible or advisable to file


a petition for review with any court or agency as a last resort?

Answer:

A denial of a request for re-investigation on a assessment partakes the nature of


a decision if made by the Commissioner. In this a case an appeal may be filed with
the CTA within thirty days from receipt of the notice of denial.

Alternative Answer:

On the assumption that the denial by the BIR was not made by the Commissioner
himself but by the regional officer, for instance or that the request for re-
investigation is not on an assessment as yet, then it may necessarily constitute a
decision on a disputed assessment from which an appeal may be made to the
Court of Tax Appeals.

The problem did not indicate the subject matter of the request for re-investigation
nor the officials acting for and in behalf of the BIR in the denial of the request for
re-investigation. Assuming that the matters of request for re-investigation were
not an assessment or that the denial was made by a lower official, then there
would still be a need for pursuing a administrative remedies.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Question No. 12: (1992)

Corporation X declared cash dividends in favor of its non-resident stockholders in


the United States from which amount, the tax on dividend income was withheld.

Under the RP-US Tax Treaty, deductions allowed as tax on dividends earned at
source were fixed at lower rates giving rise to overpayment of the tax on dividends
paid to the non-resident US stockholders (Representing the difference between and
the amount supposed to have been withheld under the mentioned tax covenant).

Respondent Commissioner of Internal Revenue argues that Corporation X is not


the real party in interest to prosecute a claim for refund of the overpaid taxes of the
non-resident US stockholders, who are the real parties in interest. But neither could
It maintain an action for refund in a representative capacity having failed to show
proof of authorization.

I will Corporation X’s case prosper? Explain.

Answer:

Yes. A subsidiary, while not the real party in interest, could prosecute a claim of
refund in behalf of its non0resident stockholders by virtue of its being the
withholding agent for the government in respect of the cash dividends it declared
(Comm. Vs. Wander Phils.)

Alternative Answer:

No. the tax is due on the non-resident stockholders. The rule is that the refund
may be claimed by the taxpayer on whom the tax is imposed and who effectively
paid the tax.

Question No. 17: (1993)

Fitness, Inc. is a domestic corporation engaged in the manufacture and sale


of nutritional products. It pays royalties to its foreign licensor. After investigation,
the BIR on December 17, 1974, sent a notice of assessment to Fitness, Inc. for
allegedly failing to remit withholding tax at source for the fourth quarter of 1973
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

on its royalties. It demanded payment of P 3,000,000.00. The notice was received


by Fitness, Inc. on December 19, 1974.

On February 8, 1975, Fitness, Inc., through its counsel, protested the


assessment and requested its cancellation or withdrawal on the ground that it
lacked factual and legal bases. On December 10, 1979, the Commissioner of the
BIR rendered a decision reducing the assessment to P 1,500,000.00.

Fitness, Inc. was not satisfied and on January 18, 1980, it filed a petition for
review of the decision in the CTA to enjoin the enforcement of the assessment. On
February 7, 1980, the BIR issued a warrant of distraint against Fitness, Inc. The
CTA enjoined the collection of the deficiency taxes by virtue of the warrant of
distraint. It was argued by Fitness, Inc. that the right of the BIR to collect its
alleged deficiency taxes had already prescribed. Rule on the argument.

Answer:

The warrant of distraint was served on the taxpayer within the prescriptive
period [then 5 years, now three (3) years]. In Commissioner v. Wyeth Suaco (202
SCRA 125), the court ruled that the prescriptive period provided by law to make
collection by distraint and/or levy or by a proceeding in court is interrupted once a
taxpayer protests the assessment and requests for its cancellation. Thus, when the
taxpayer protested the assessment on 8 February 1975, the prescriptive to collect
was interrupted and resumed on 10 December 1979. When the Commissioner
issued the warrant of distraint on 7 February 1980 it was well within the five-year
(now 3 years) prescriptive period to collect.

Alternative Answers:

a) The Bureau of Internal Revenue (“BIR”) shall assess internal revenue taxes
within three (3) years after the last day in court without assessment for the
collection of such taxes shall be begun after the expiration of such period (Section
203 of the National Internal Revenue Code [“NIRC”]. However, this three (3)-year
prescriptive period shall be suspended when the taxpayer requests for a
reinvestigation and which is granted by the Commission (Section 224 of NIRC). In
case an assessment was made, the tax may be collected within three (3) years from
the date of assessment (Collector of Internal Revenue v. Pineda, 2 SCRA 401;
Umali, Roman A., Reviewer in Taxation, 1985 pp. 486-487; Vitug, Jose C.,
Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1989, p. 255). If the
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

taxpayer asks for a reinvestigation is made, and on the basis of which the BIR
makes another assessment, the three (3)-year period for collection is to be counted
from the last assessment (Rep. V. Lopez, 7 SCRA 566; Rep. V. Acebedo, 22
SCRA 1356; Umali, Roman A., Reviewer in Taxation, 1985 pp. 486-487; Vitug,
Jose C., Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1989, p. 255).

In the case at bar, the running of the three (3)-year prescriptive period for the
BIR to collect taxes started to run only on 10 December 1979, when a final
assessment was made by the BIR reducing the tax due to One Million Five
Hundred Thousand Pesos (P 1,500,000.00). The ccollesction was effected on 7
February 1980, by issuing a warrant of distraint against Fitness, Inc. Hence, the
action of the BIR to collect the deficiency taxes was clearly within the three (3)-
year prescriptive period.

b)The right of the BIR to collect the deficiency taxes has not prescribed, as the
prescriptive period is reckoned from the date of the reduced assessment, which is
December 10, 1979. The BIR has three (3) years from said date to collect.

The reduced assessment is in the nature of a compromise assessment, the first


assessment received by Fitness on December 19, 1974, and protested only on
February 8, 1975, having already become final and binding on Fitness. Applying
the present provisions of the NIRC, Fitness should have protested the assessment
within thirty (30) days from receipt of the same. Failing to do so, the assessment
became final and was presumably merely compromised. The date of such
compromise agreement should then be the basis for computing the prescriptive
period of three (3) years.

Note:

Beginning 1984, the prescriptive period of the right of the government to assess
and collect internal revenue taxes was reduced from five (5) to three (3) years.

Question No. 18: (1993)

On September 19, 1973, the BIR sent a notice of assessment to X to pay P


300,000.00 as forest charges for the year 1970-73. X made a partial payment of P
100,000.00 on September 28, 1973. X died in November 1977. On July 29, 1979,
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

the BIR filed in the Testate Estate Proceedings of X a claim for P 200,000.00 the
unpaid forest charges left by X, the administrator of the estate opposed the claim
on the ground of prescription. Decide.

Answer:

Where assessment was made, the tax may be collected within five (5) years
(now 3 years) from the date of assessment (Collection of Internal Revenue v.
Pineda, 2 SCRA 401; Umali, Roman A., Reviewer in Taxation, 1985, pp. 486-487;
Vitug, Jose C., Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1986, p.
255).

In the case at bar, X on the bases of the notice of assessment, voluntarily made
a partial payment to the Bureau of Internal Revenue in the amount of One Hundred
Thousand Pesos (P 100,000.00). However, it took the BIR almost more than five
(5) years to take the necessary legal action to collect the remaining amount of taxes
due.

This is clearly beyond the five (5) now three (3) year period for the collection
of taxes. Hence, the claim filed by the BIR against the Estate of X for the payment
of Two Hundred Thousand Pesos (P 200,000.00) has prescribed.

Alternative Answers:

a) The claim has prescribed as the BIR has only three (3) years from the date
of the assessment to collect.

b) Taxes are money claims that must be filed with the probate court within the
period provided for in the Rules of Court (Section 1 and 2, Rule 86). In the case of
Domingo v. Garlitos (8 SCRA 443), the court ruled that the claims shall be barred
if filed beyond the prescribed period just like any other money claims. But the
ruling in Garlitos was superseded by Vera v. Fernandez which ruled that estate
taxes are payable even if presented beyond the period in the statute of non-claims
in the Rules of Court.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Question No. 5: (1995)

For failure of Oceanic Company, Inc. (Oceanic), to pay deficiency taxes of


P20 Million, the Commissioner of Internal Revenue issued warrants of distraint on
OCEANIC’s personal properties and levied on its real properties. Meanwhile, the
Department of Labor through the Labor Arbiter rendered a decision ordering
OCEANIC to pay unpaid wages and other benefits to its employees. Four barges
belonging to OCEANIC were levied upon by the sheriff and later sold at public
auction.

The Commissioner of Internal Revenue filed a motion with the Labor Arbiter to
annul the sale and enjoin the sheriff from disposing the proceeds thereof. The
employees of OCEANIC opposed the motion contending the Art. 110 of the Labor
Code gives first preference to claims for unpaid wages.

Resolve the motion. Explain

Answer:

The motion filed by the Commissioner should be granted because the claim
of the government for unpaid taxes are generally preferred over the claims of the
laborers for unpaid wages. The provision of Article 110 of the Labor Code, which
give laborer’s claims for preference applies only in case of bankruptcy and
liquidation of the employer’s business. In the instant case, Oceanic is not under
bankruptcy or liquidation at the time the warrant distraint and levy were issued
hence, the opposition of the employees is unwarranted. (CIR vs. NLRC et al. G.R.
No. 74965, November 9, 1994).

Question No. 13: (1995)

Businessman Stephan Yang filed an income tax return for 1993 showing
business net income of P350,000.00 on which he paid an income tax of
P61,000.00. After filing the return he realized that he forgot to include an item of
business income in 1993 for P50,000.00. Being an honest tax payer, he included
this income in his return for 1994 and paid the corresponding income tax thereon.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

In the examination of his 1993 return the BIR examiner found that Stephen
Yang failed to report this item of P50,000.00 and assessed him a deficiency income
tax on this item, plus a 50% fraud surcharge.

1) Is the examiner correct? Explain.


2) If you were the lawyer of Stephen Yang, what would you have advised
your client before he included in his 1994 return the amount of
P50,000.00 as 1993 income to avoid the fraud surcharge? Explain.
3) Considering that Stephen Yang had already been assessed a deficiency
income tax for 1993 for his failure to report the P50,000.00 income, what
would you advise him to do to avoid penalties for tax delinquency?
Explain.
4) What would you advise Stephen Yang to do with regard to the income
tax he paid for the P50,000.00 in his 1994 return? In case your remedy
fails, what is your other recourse? Explain.
Answer:

1) The examiner is correct in assessing a deficiency income tax for taxable year
1993 but not imposing the 50% fraud surcharge. The amount of all items of
gross must be included in gross income during the year which is received or
realized (Sec. 38, NIRC). The 50% fraud surcharge attaches only if a false or
a fraudulent return is willfully made by Mr. Yang (Sec. 248, NIRC). The
fact that Mr. Yang included the income in his 1994 return any belies any
claim of willfulness but is rather indicative of an honest mistake which was
sought to be rectified by a subsequent act, that is the filing of the 1994
return.
2) Mr. Yang should have amended his 1993 income tax return to allow for the
inclusion of the P50,000 income during the taxable period it was realized.
3) Mr. Yang should file a protest questioning the 50% surcharge and ask for the
abatement thereof.
Alternative Answer:

Mr. Yang should pay the deficiency income tax on or before the day
prescribed for its payment per notice of demand. After payment and within two
years thereafter, he should file a claim for refund of taxes erroneously paid to
recover the excessive surcharge imposed.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

4) Mr. Yang should file a written claim for refund with the Commissioner of
Internal Revenue of the taxes paid on the P50,000.00 income included in
1994 within two years from payment pursuant to Section 204(3) of the Tax
Code. Should this remedy fail in the administrative level, a judicial claim for
refund can be instituted before the expiration of the two year period.

Question No. 14: (1996)

1. Compare the taxpayer’s remedies under the National Internal Revenue


Code and the Tariff and Customs Code.

Answer:

The taxpayer’s remedies under the National Internal Revenue Code may be
categorized into remedies before payment and remedies after payment. The remedy
before payment consists of administrative remedy which is the filing of protest
within 30 days from receipt of assessment, and judicial remedy which is the appeal
of the adverse decision fot he Commissioner on the protest with the Court of
Appeals and finally with the Supreme Court.

The remedy after payment is availed of by paying the assessed tax within 30
days from receipt of assessment and the filing of a claim for refund or tax credit of
these taxes on grounds that thye are erroneously paid within two years form date of
payment. If there is a denial of the claim, appeal to the CTA shall be made within
thirty days from denial but within two years from date of payment. If the
Commissioner fails to tact on the claim for refund or tax credit and the two year
period ids about to expire, the taxpayer should consider the continuous inaction of
the Commissioner as a denial and elevate the case to the CTA before the expiration
to f two year period.

Under the Tariff and Customs Code., taxpayer’s remedies arise only after
payment of duties. The administrative remedies consists of filing a claim for refund
which may take the form of abatement or drawback. The taxpayer can also file a
protest within 15 days from payment if he disagrees with the ruling or decision of
the Collector of Customs regarding the legality or correctness of the assessment of
customs duties. If the decision for the Collector is adverse to the taxpayer, he can
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

notify the Collector within 15 days from receipt of said decision for his desire to
have his case reviewed by the Commissioner. The decision of the Collector on the
taxpayer’s protest. If adverse to the Government, is automatically elevated to the
Commissioner for review: and if such decision is affirmed by the Commissioner,
the same shall be automatically elevated to an finally reviewed by the Secretary of
Finance.

Resort to judicial relief can be had by the taxpayer by appealing the decision
for the Commissioner or of the Secretary of Finance for cases subject to automatic
review within 30day s form the promulgation of the adverse decision to CTA.

2. Discuss briefly the remedies of an importer during the pendency of


seizure proceedings.

Answers:

During the pendency of seizure proceedings the importer may secure the
release of the imported property for legitimate use by posting a bond in an amount
to be fixed by the Collector, conditioned for the payment of the appraised value of
the article and/or any fine, expenses and costs which may be adjudged in the case;
provided that articles the importation of which prohibited by law shall not be
released under bond.

The importer may also offer to pay to the collector a fine imposed by him
upon the property to secure its release or in case of forfeiture, the importer shal
offer to pay for the domestic market value of the seized article, which offer subject
to the approval of the Commissioner may be accepted by the Collector in
settlement of the seizure case, except when there is fraud. Upon payment of the
fine or domestic market value, the property shall be forthwith released and all
liabilities which may or might attach to the property by virtue of the offense which
was the occasion of the seizure and all liability which might have been incurred
under any bond given by the importer in respect to such property shall thereupon
be deemed to be discharged.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Question No. 15: (1997)

A corporation files its income tax return on a calendar year basis.

For the first quarter of 1993, it paid on 30 May 1993 its quarterly income tax
in the amount of P3.0 million. On 20 August 1993, it paid the second quarterly
income tax of P0.5 million. The third quarter resulted in a net loss, and no tax was
paid. For the fourth and final return for 1993, the company reported a net loss for
the year, and the taxpayer indicated in the income tax return that it opted to claim
refund of the quarterly income tax payments.

On 10 January 1994, the corporation filed with the Bureau of Internal


Revenue a written claim for the refund of P3.5 million.
BIR failed to act on the claim for refund; hence, on 02 March 1996, the
corporation filed a petition for review with the Court of Tax Appeals on its claim
for refund of the overpayment of its 1993 quarterly income tax . Bir, in its answer
to the petition, alleged that the claim for refund was filed beyond the reglementary
period.

Did the claim for refund prescribe?

Answer:

The claim for refund has prescribed. The counting of the two year
prescriptive period for filing a claim for refund is counted not from the date when
the quarterly income taxes were paid but on the date when the final adjustment
return of annual income tax return was filed (CIR v. TMX Sales Inc., G.R. No.
83736, January 15, 1992; CIR v. Philam Life Insurance Co., Inc. G.R. No. 105208,
May 29, 1995). It is obvious that the annual income tax return was filed before
January 10, 1994 because the written claim for refund was filed with the BIR on
January 10, 1994. Since the two year prescriptive period is not only a limitation of
action in the administrative stage but also a limitation of action for bringing the
case to the judicial stage, the petition for review filed with the CTA on March 02,
1996 is beyond the reglementary period.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Question No. 16: (1997)

(a) A taxpayer received, on 15 January 1996, as assessment for an internal


revenue tax deficiency. On 10 February 1996, the taxpayer forthwith filed a
petition for review with the Court of Tax Appeals. Could the Tax Court entertain
the petition?

(b) Under the above factual setting, the taxpayer, instead of questioning the
assessment he received in 15 January 1996 paid, on 01 March 1996 the
“deficiency tax” assessed. The taxpayer requested a refund from the Commissioner
by submitting a written claim on
01 March 1997. It was denied. The taxpayer, on 15 March 1997, filed a petition
for review with the Court of Appeals. Could the petition still be entertained?

Answer:

(a) No. Before taxpayer can avail of judicial remedy he must first exhaust
administrative remedies by filing a protest within 30 days from receipt of the
assessment. It is the Commissioner’s decision on the protest that give the Tax
Court jurisdiction over the case provided that the appeal is filed within 30 days
from receipt of the Commissioner’s decision.
An assessment by the BIR is not the Commissioner’s decision from which a
petition for review may be filed with the Court of Tax Appeals. Rather, it is the
action taken by the Commissioner in response to the taxpayer’s protest on the
assessment that would constitute the appealable decision (Section 7, RA 1125).

(b) No, the petition for review can not be entertained by the Court of
Appeals, since decisions of the Commissioner on cases involving claim for tax
refunds are within the exclusive and primary jurisdiction of the Court of Tax
Appeals (Section 7, RA 1125).

VIII. (1998)

Is the BIR authorized to collect estate tax deficiencies by the summary


remedy of levy upon and sale of real properties of the decent without first securing
the authority of the court sitting in probate over the supposed will of the decedent?
[5%]
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

Yes. The BIR is authorized to collect estate tax deficiency through the
summary remedy of levying upon and sale of real properties of a decedent, without
the cognition and authority of the court sitting in probate over the supposed will of
the deceased, because the collection of estate tax is executive in character. As such
the estate tax is exempted from the application of the statute of non-claims, and
this is justified by the necessity of government funding, immortalized in the maxim
that taxes are the lifeblood of the government (Marcos v. CIR. G.R. No. 120880,
June 5, 1997).

Alternative Answer:

Yes, if the tax assessment has already become final, executor and
enforceable. The approval of the court sitting in probate over the supposed will of
the deceased is not a mandatory requirement for the collection of the estate tax.

The probate court is determining issues which are not against the property of
the decedent, or a claim against the estate as such, but is against the interest or
property right which the heir, legatee, devisee, etc. has in the property formerly
held by the decedent. (Marcos v. CIR. G.R. No. 120880, June 5, 1997).

XV. (1998)

An information was filed in court for willful non-payment of income tax the
assessment of which has become final. The accused, through counsel, presented a
motion that he be allowed to compromise his tax liability subject of the
information. The prosecutor indicated his conformity to the motion. Is this
procedure correct? [5%]

Suggested Answer:

No. Criminal violations, if already filed in court, may not be compromised


(Sec. 204[B]. NIRC). Furthermore, the payment of the tax due after apprehension
shall not constitute a valid defense in any prosecution for violation of any
provisions of the Tax Code (Sec. 247(a), NIRC). Finally, there is no showing that
the Bureau of Internal Revenue to whom the conduct of criminal actions are lodged
by the Tax Code.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Alternative Answer

No. If the compromise referred to is the civil aspect, the procedure followed
is not correct. Compromise for the payment of any internal revenue tax shall be
made only by the Commissioner of Internal Revenue or in a proper case the
Evaluation Board of the BIR (Sec. 204, NIRC). Applying the law to the case at bar,
compromise settlement can only be effected by leave of Court.

XVII. (1998)

1. When is a revenue tax considered delinquent? [3%]


2. What constitutes prima facie evidence of a false or fraudulent return?
[2%]

Suggested Answer:

1. A revenue tax is considered delinquent when it is unpaid after the lapse


of the last day prescribed by law for its payment. Likewise, it could also
be considered as delinquent where an assessment for deficiency tax has
become final and the taxpayer has not paid it within the period given in
the notice of assessment.

There is prima facie evidence of a false or fraudulent return when the


taxpayer has willfully and knowingly filed it with the intent to evade a
part or all of the tax legally due from him (Ungab v. Cusi,. 97 SCRA
877). There must appear a design to mislead or deceive on the part of the
taxpayer, or at least culpable negligence. A mistake, not culpable in
respect of its value would not constitute a false return. (Words and
Phrases, Vol. 16. page 173).

XVIII. (1998)

Is the BIR authorized to issue a warrant of garnishment against the bank


account of a taxpayer despite the pendency of his protest against the assessment
with the BIR or appeal with the Court of Tax Appeals? [5%]
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

The BIR is authorized to issue a warrant of garnishment against the bank


account of a taxpayer despite the pendency of protest (Yabes v. Flojo, 15 SCRA
278). Nowhere in the tax Code is the Commissioner required to rule first on the
protest before he can institute collection proceedings on the tax assessed. The
legislative policy is to give the Commissioner much latitude in the speedy and
prompt collection of taxes because it is in taxation that the Government depends to
obtain the means to carry on its operations (Republic v. Tim Tian Teng Sons. Inc,.
16 SCRA 584).

The Commissioner is not authorized to issue the warrant of garnishment


during the pendency of appear with the Court of Tax Appeals because the
assessment is not yet final and unappealable.

Alternative Answer

No. because the assessment has not yet become final, executor and
demandable. The basic consideration in the collection of taxes is whether the
assessment is final and unappealable or the decision of the Commissioner is final,
executor and demandable, the BIR has legal basis to collect the tax liability by
either administrative of judicial action.

XIX. (1998)

CFB Corporation, a domestic corporation engaged in food processing and


other allied activities, received a letter from the BIR assessing it for delinquency
income taxes. CFE filed a letter of protest. One month after, a warrant of distraint
and levy was served on CFB Corporation.

If you were the lawyer engaged by CFB Corporation to contest the


assessment made by the BIR, what steps will you take to protect your client? (5%)

Suggested Answer:

I shall immediately file a motion for reconsideration of the issuance of the


warrant of distraint and levy and seek from the BIR Commissioner a denial of the
protest “in clear and unequivocal language.” This is so because the issuance of a
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

warrant of distraint and levy is not considered as a denial by the BIR of the protest
filed by CFB Corporation (CIR v. Union Shipping Corp,. 185 SCRA 547).

Within thirty (30) days from receipt of such denial “in clear and unequivocal
language,” I shall then file a petition for review with the Court of Tax Appeals.

Alternative Answer:

Within thirty (30) days from receipt of the warrant of distraint and levy. I
shall file a petition for review with the Court of Tax Appeals with an application
for issuance of a writ of preliminary injunction to enjoin the Bureau of Internal
Revenue from enforcing the warrant.

This is the action I shall take because I shall consider the issuance of the
warrant as a final decision of the Commissioner of Internal Revenue which could
be the subject of appeal to the Court of Tax Appeals (Yabes v.Flojo, 15 SCRA
278). The CTA may, however, remand the case to the BIR and require the
Commissioner to specifically rule on the protest. The decision of the
Commissioner, if adverse to my client, would then constitute an appealable
decision.

XX. (1998)

Is assessment necessary before a taxpayer may be prosecuted for willfully


attempting in any manner to evade or defeat any tax imposed by the Internal
Revenue Code? [5%]

Suggested Answer:

No. Assessment is not necessary before a taxpayer maybe prosecuted if there


is a prima facie showing of a willful attempt to evade taxes as in the taxpayer’s
failure to declare a specific item of taxable income in his income tax returns
(Ungab v. Cusi 97 SCRA 877). On the contrary, if the taxes alleged to have been
evaded is computed based on reports approved by the BIR there is a presumption
of regularity of the previous payment of taxes, so that unless and until the BIR has
made a final determination of what is supposed to be the correct taxes, the taxpayer
should not be placed in the crucible of criminal prosecution (CIR v. Fortune
Tobacco Corp,. GR No. 119322, June 4, 1996).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

I. (1999)

A. Co., a Philippine Corporation, filed its 1995 Income Tax Return (ITR) on April
15, 1996 Income Tax Return (ITR) on April 15, 1996, showing a net loss. On
November 10, 1996, it amended its 1995 ITR to show more losses. After a tax
investigation, the BIR disallowed certain deductions claimed by A Co. putting A
Co. in a net income position. As a result, on August 5, 1999. The BIR issued a
deficiency income assessment against A Co. A Co. protested the assessment on the
ground that it has prescribed: Decide (5%)

Suggested Answer:

The right of the BIR to assess the tax has not prescribed. The rule is that
internal revenue taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return. (Section 203, NIRC). However, if the
return originally filed is amended substantially, the counting of the three-year
period starts from the date the emended return was filed. (CIR v. Phoenix
Assurance Co., Ltd., 14 SCRA 52). There is a substantial amendment in this case
because a new return was filed declaring more losses, which can only be done
either (1) in reducing gross income or (2) in increasing the items of deductions,
claimed.

VI. (1999)

A Co., a Philippine corporation, is a big manufacturer of consumer goods


and has several suppliers of raw materials. The BIR suspects that some of the
suppliers are not properly reporting their income on their sales to A Co. The CIR
therefore:

1. Issued an access letter to A Co., to furnish the BIR information on sales and
payments to its suppliers.
2. Issued an access letter to a bank (CX Bank) to furnish the BIR on deposits of
some suppliers of A Co. on the alleged ground that the suppliers are
committing tax evasion.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

A Co., X Bank and the suppliers have not been issued by the BIR letter of
authority to examine. A Co. and X Bank believe that the BIR is on a “fishing
expedition” and come to you for counsel. What is your advice? (10%)

Suggested Answer:

I will advise A Co. and B Co. that the BIR is justified only in getting
information from the former but not from the latter. The BIR is authorized to
obtain information from other persons other than those whose internal revenue tax
liability is subject to audit or investigation. However, this power shall not be
construed as granting the Commissioner the authority to inquire in to bank
deposits. (Section 5, NIRC).

VIII. (1999)

A Co. is the wholly owned subsidiary of B Co., a non-resident German


company. A Co. has a trademark licensing agreement with B Co. On Feb. 10,
1995, A co. remitted to B Co. royalties of P10,000,000, which A Co. subjected to a
WT that the proper WT rate is 10%. ON March 20, 1996, A Co. filed a claim for
refund of P2,500,000 with the BIR. The BIR denied the claim on Nov. 15, 1996.
On Nov. 28, 1996, A Co. filed a petition for review with the CTA. The BIR
attacked the capacity of A Co., as agent, to bring the refund case. Decide the issue.
(5%)

Suggested Answer:

A Co., the withholding agent of the non-resident foreign corporation is


entitled to claim the refund of excess withholding tax paid on the income of said
corporation in the Philippines. Being withholding agent, it is the one held liable for
any violation of the withholding tax law should such a violation occur. In the same
vein, it should be allowed to claim a refund in case of over withholding. (CIR v.
Wander Phil. Inc., GR NO. 68378, April 15, 1988, 160 SCRA 573; CIR v. Procter
& Gamble PMC, 204 SCRA 377).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

V. (2000)

A domestic corporation failed to withhold and remit the tax on income


received from Philippine sources by a non-resident foreign corporation. In addition
to the civil penalties provided for under the Tax Code, a compromise penalty was
imposed for violation of the withholding tax provision. May the Commissioner of
Internal Revenue legally enforce the collection of compromise penalty? (5%)

Suggested Answer:

No. there is no showing that the compromise penalty was imposed by the
Commissioner of internal Revenue with the agreement and conformity of the
taxpayer. (Wonder mechanical Engineering Corporation u. Court of Tax Appeals,
et al., 64 SCRA 555).

XIV. (2000)

Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his
1994 income tax return on March 20, 1995. On December 15, 1995, he left the
Philippines as an immigrant to join his Canada. After the investigation of said
return, the BIR issued a notice of deficiency income tax assessment on April 15,
1998. Mr. Reyes returned to the Philippines as a balikbayan on December 8, 1998.
Finding his name to be in the list of delinquent taxpayers, he filed a protest against
the assessment on the ground that he did not receive the notice of assessment and
that the assessment had prescribed. Will the protest prosper? Explain. (5%)

Suggested Answer:

No. Prescription has not set in because the period of limitations for the
Bureau of Internal Revenue to issue an assessment was suspended during the time
that Mr. Reyes was out of the Philippines or from the period December 15, 1995
up to December 8, 1998. (Sec. 203, both of the NIRC of 1997)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XVI. (2000)

Under what conditions may the Commissioner of Internal Revenue be authorized


to:

a) Compromise the payment of any internal revenue tax? (2%)

Suggested Answer:

The commissioner of Internal Revenue may be authorized to compromise the


payment of any internal revenue tax where:

1) A reasonable doubt as the validity of the claim against the taxpayer


exists; or
2) The financial position of the taxpayer demonstrates a clear inability to
pay the assessed tax.

b) Abate or cancel a tax liability (3%)

Suggested Answer:

The Commissioner of Internal Revenue may abate or cancel a tax liability when:

1) The tax or any portion thereof appears to be unjustly or excessively


assessed; or
2) The administration and collection costs involved do not justify the
collection of the amount. [Sec. 204 (B).NIRC of 1997]

XVII. (2000)

A taxpayer is suspected not to have declared his correct gross income in his
return filed for 1997. The examiner requested the Commissioner to authorize him
to inquire into the bank deposits of the taxpayer so that he could proceed with the
net worth method of investigation to establish fraud. May the examiner be allowed
to look into the taxpayer’s bank deposits? In what cases may the Commissioner or
his duly authorized representative be allowed to inquire or look into the bank
deposits of a taxpayer? (5%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

No. as this would be violative of Republic Act No. 1405, the Bank Deposits
Secrecy Law.

The Commissioner of Internal Revenue or his duly authorized representative may


be allowed to inquire or look into the bank deposits of a taxpayer in the following
cases:

For the purpose of determining the gross estate of a decedent;

a) Where the taxpayer has filed an application for compromise of his tax
liability by reason of financial incapacity to pay, such tax liability. [Sec. 6
(F). NIRC of 1997]
b) Where the taxpayer has signed a waiver authorizing the Commissioner or his
duly authorized representatives to inquire into the bank deposits.

XVIII. (2000)

Describe separately the procedures on the legal remedies under the Tax
Code available to an aggrieved taxpayer both at the administrative and judicial
levels. (5%)

Suggested Answer:

The legal remedies of an aggrieved taxpayer under the Tax Code, both at the
administrative and judicial levels, may be classified into those for assessment,
collection and refund.

The procedures for the administrative remedies for assessment are as follows:

After receipt of the Pre-Assessment Notice, he must within fifteen (15) days
from receipt explain why no additional taxes should be assessed against him.

If the Commissioner of Internal Revenue issues an assessment notice, the


taxpayer must administratively protest or dispute the assessment by filing a motion
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

for reconsideration or reinvestigation within thirty (30) days from receipt of the
notice of assessment. (4th par., Sec. 228, NIRC of 1997)

Within sixty (60) days from filing of the protest, the taxpayer shall submit
all relevant supporting documents.

The judicial remedies of an aggrieved taxpayer relative to an assessment notice are


as follows:

Where the Commissioner of Internal Revenue has not acted on the


taxpayer’s protest within a period of one hundred eighty (180) days from
submission of all relevant documents, then the taxpayer has a period of thirty (30)
days from the lapse of said 180 days within which to interpose a petition for review
with the Court of Tax Appeals.

Should the Commissioner deny the taxpayer’s protest, then he has a period
of thirty (30) days from receipt of said dental within which to interpose a petition
for review with the Court of Tax Appeals.

In both cases the taxpayer must apply with the Court of Tax Appeals for the
issuance of an injunctive writ to enjoin the Bureau of Internal Revenue from
collecting the disputed tax during the pendency of the proceedings.

The adverse decision of the Court of Tax Appeals is appealable to the Court
of Appeals by means of a petition for certiorari within a period of fifteen (15) days
from receipt of the adverse decision, extendible for another period of fifteen (15)
days for compelling reasons, but the extension is not to exceed a total of thirty (30)
days in all.

The adverse decision of the Court of Appeals is Appealable to the Supreme


Court by means of a petition for review on certiorari within a period of fifteen (15)
days from receipt of the adverse decision of the Court of Appeals.

The employment by the Bureau of Internal Revenue of any of the


administrative remedies for the collection of the tax like distrait, levy, etc. may be
administratively appealed by the taxpayer to the Commissioner whose decision is
appealable to the Court of Tax Appeals under other matter arising under the
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

provisions of the National Internal Revenue Code. The judicial appeals starts with
the Court of tax Appeals, and continues in the same manner as shown above.

Should the Bureau of Internal Revenue decide to utilize its judicial tax
remedies for collecting the taxes by means of an ordinary suit filed with the regular
courts for the collection of a sum of money, the taxpayer could oppose the same
going up the ladder of judicial processes from the Municipal Trial Court (as the
case may be) to the Regional Trial Court, to the Court of Appeals, thence to the
Supreme Court.

The remedies of an aggrieved taxpayer on a claim for refund is to appeal the


adverse decision of the Commissioner to the CTA in the same manner outlined
above.

III. (2001)

a) May the collection of taxes be barred by prescription? Explain your


answer. (3%)
b) May the courts enjoin the collection of revenue taxes? Explain your
answer. (2%)

Suggested Answer:

a) Yes. The collection of taxes may be barred by prescription. The


prescriptive periods for collection of taxes are governed by the tax law
imposing the tax. However, if the tax law does not provide for
prescription, the right of the government to collect taxes becomes
imprescriptible.
b) As a general rule, the courts have no authority to enjoin the collection of
revenue taxes. (Sec. 218, NIRC). However, the Court of Tax Appeals is
empowered to enjoin the collection of taxes through administrative
remedies when collection could jeopardize the interest of the government
or taxpayer. (Section 11, RA 1125).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

II. (2002)

Mr. Castro inherited from his father, who died on June 10, 1994, several pieces
of real property in Metro Manila. The estate tax return was filed and the estate tax
due in the amount of P250,000.00 was pain on December 06, 1994. The tax fraud
division of BIR investigated the case on the basis of confidential information given
by Mr. Santos on January 06, 1998 that the return filed by Mr. Castro was
fraudulent and that he failed to declare all properties left by his father with intent to
evade payment of the corrct tax. As a result, a deficiency estate tax assessment of
P1,250,000.00 inclusive of 50% surcharge for fraud, interest and penalty was
issued against him on January 10, 2001. Mr. Castro protested the assessment on the
ground of prescription.

A. Decide Mr. Castro’s protest (2%)


B. What legal requirements must Mr. Santos comply with so that he can claim
his reward) (3%)

Suggested Answer:

A. The protest should be resolve against Mr. Castro. What was filed is
fraudulent return making the prescriptive period for assessment ten (10)
years from discovery of the fraud (Section 222, NIRC). Accordingly, the
assessment was issued within the prescriptive period to make an assessment
based on a fraudulent return.
B. The legal requirements that must be complied by Mr. Santos to the entitle
him to reward are as follows:
1. He should voluntarily file a confidential information under oath with the
Law Division of the Bureau of Internal Revenue alleging therein the
specific violations constituting fraud;
2. The information must not yet be in the possession of the Bureau of
Internal Revenue, or refer to a case already pending of previously
investigated by the Bureau of Internal Revenue;
3. Mr. Santos should not be government employee or a relative of a
government employee within the sixth degree of consanguinity; and
4. The information must result to collection of revenues and/or fines and
penalties (Sec. 282, NIRC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

V. (2002)

A. What must taxpayer to do in order to claim a refund of or tax credit for taxes
and penalties which he alleges to have been erroneously, illegally or
excessively assessed or collected. (3%)
B. Can the Commissioner grant a refund or tax credit even without a written
claim for it? (2%)

Suggested Answer:

A. The taxpayer msust comply wicth the following procedures in claiming a


refund of or tax credit for taxes and penalties swhich he alleges to have been
erroneously illegally or excessively assessed or collected:
1. He should file a written claim for refund with the Commissioner within
two years after the date of payment if the tax or penalty (Sec. 204, NIRC)
2. The claim filed must state a categorical demand for reimbursement
(Bermejo v. Collector, 87 Phil. 96 (1950)).
3. The suit or proceeding for recovery must be commenced on court within
two years from date of payment of the tax or penalty regardless of any
supervening event that will arise after payment (Sec. 229, NIRC).

Note: if the answer is given only number 1, it is suggested that the same
shall be given full credit considering that this is the only requirement for
the Commissioner to acquire jurisdiction over the claim.

B. Yes. When the taxpayer files a return which on its face shows an
overpayment of the tax and the option to refund/claim a tax credit was
chosen by the taxpayer, the Commissioner shall grant the refund or tax credit
without the need for a written claim. This is so, because a return filed
showing an overpayment shall be considered as a written claim for credit or
refund. (Secs. 76 and 204, NIRC). Moreover, the law provides that the
Commissioner may, even without a written claim therefor, refund or credit
any tax where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid (Sec. 229, NIRC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

VII. (2002)

What constitutes prima facie evidence of a false or fraudulent return to


justify the imposition of a 50% surcharge on the deficiency tax due from a
taxpayer? Explain (5%)

Suggested Answer:

There is a prima facie evidence of false or fraudulent return when the


taxpayer substantially underdeclared his taxable sales, receipts or income, or
substantially ovestated his deductions, the taxpayers substantially overstated his
deductions, the taxpayer’s failfure to report sales, receifpt or income in an amount
exceeding 30% of that declared per returnd, and claim of deduction in an amount
exceeding 30% of actual deduction shall render the taxpayer liable for substantial
underdeclaration, respectively, and will justify the imposition of the 50% surcharge
on the deficiency tax due from the taxpayer. (Sec. 248, NIRC).

XIII. (2002)

On March 15, 2000, the BIR issued a deficiency income tax assessment for
the taxable year 1997 against the Valera group of companies in the amount of P10
million. Counsel for Valera protested the assessment and requested a
reinvestigation of the case. During the investigation, it was shown that Valera had
been transferring its properties to other persons. As no additional evidence to
dispute the assessment had been presented, the BIR issued on June 16, 2000
warrants of distant and levy on the properties and ordered the filing of an action in
the Regional Trial Court for the collection of the tax. Counsel for Valera filed an
injunctive suit in Regional Trial Court for the collection of the tax in abeyance
until the decision on the protest was rendered.

a. Can the BIR file the civil action for collection, pending decision on the
administrative protest? Explain. (3%)
b. As counsel for Valera, what action would you take in order to protect the
interest of your client? Explain your answer. (2%)

Suggested Answer:
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

a. Yes, because there is no prohibition for this procedure considering that the
filing of a civil action for collection during the pendency of an
administrative protest constitutes the final decision of the Commissioner on
the protest (CIR v. Union Shipping Corporation, 85 SCRA 548 (1990))0
b. I will wait for the filing of the civil action for collection and consider the
same as an appealable decision. I will not file an injunctive suit because it is
not an available remedy. I would then appeal the case to the court of tax
appeals and move for dismissal of the collection case with the RTC. Once
the appeal to the CTA is filed on time, the CTA has exclusive jurisdiction
over the case. Hence, the collection case in the RTC should be dismissed
(Yabes v. Flojo, 115 SCRA 278 (1982)).

XV. (2002)

On August 5, 1997, Adamson Co., Inc. (Adamson) filed a redquest for


consideration of the deficiency withholding tax assessment on July 10, 1997,
covering the taxable year 1994. After administrative hearings, the original
assessment of P150,000.00 was reduced to P75,000.00 and a modified assessment
was thereafter issued on August 05, 1999. Despite repeated demands, Adamson
failed and refuswed to pay the modified assessment. Consequently, the BIR
brought an action focr collection in the Regional Trial Court on September 15,
2000. Adamson moved to dismiss the action in the ground that the government’s
right to collect the tax by judicial action has prescribed.

Decide the case (5%).

Suggested Answer:

The right of the Government to collect by judicial action has not prescribed.
The filing of the request for reconsideration suspended the running of the
prescriptive period and commenced to run again when a decision on the protest
was made on August 5, 999. It must note that in all cases covered by an assessment
the period to collect shall be five (5) years from the date of the assessment but this
period is suspended by the filing of a request for reconsideration which was acted
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

upon by the commissioner of internal revenue (CIR v. Wyeth Suaco Laboratories,


Inc., 202 SCRA 125 (1991)).

XVI. (2002)

In the investigation of the withholding tax returns of AZ Medina Security


Agency (AZ Medina) for the taxable years 1997 and 1998, a discrepancy between
the taxes withheld from its employees and the amounts actually remitted to the
government was found. Accordingly, before the period of prescription commenced
to run, the BIR issued an assessment and a demand letter calling for the immediate
payment of the deficiency withholding taxes in the total amount of P250,000.00.
Counsel for AZ Medina protested the assessment for being null and void on the
ground that no pre-assessment notice had been issued. However, the protest was
denied. Counsel then filed a petition for prohibition with the court of tax appeals to
restrain the collection of the tax.

a. Is the contention of the counsel tenable? Explain (2%)


b. Will the special civil action for prohibition brought before the CTA under
Sec. 11 of RA No. 1125 prosper? Discuss your answer. (3%)

Suggested Answer:

a. No. the contention of the counsel is untenable. Section 228 of the Tax Code
expressly provides that no pre-assessment notice is required when a
discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent. Since the amount assessed
relates to be deficiency withholding taxes, the BIR is correct in issuing the
assessment and demand letter calling for the immediate payment of the
deficiency withholding taxes. (Sec. 228, NIRC).
b. The special civil action for prohibition will not prosper, because the CTA
has no jurisdiction to entertain the same. The power to issue writ of
injunction provided for under Section 11 of RA 1125 is only ancillary to its
appellate jurisdiction. The CTA is not vested with original jurisdiction to
issue writs of prohibitions or injunction independently of and apart from an
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

appealed case. The remedy is to appeal the decision of the BIR. (Collector v.
Yuseco, 3 SCRA 313 (1961)).

XVII. (2002)

Minolta Philippines, Inc. (Minolta) is an EPZA-registered enterprise enjoying


preferential tax treatment under a special law. Dafter investigation of its
withholding tax returns for the taxable year 19997, the BIR issued a deficiency
withholding tax assessement in the amount of P150,000.00. On May 15, 1999,
becaue of finacial difficulty, the deficiency tax remained unpaid, as a result of
which the assessment became final and executor. The BIR also found that, in
violation of the provisions of the National Internal Revenue Code, Minolta did noe
its final corporate income tax return for the taxable year 1998, because it allegedly
incurred net loss from its operations. On May 17, 2002, the BIR filed with the
Regional Trial Court an action for collection of the deficiency withholding tax for
19997.

a. Will the BIR’s action for collection prosper? As counsel of Minolta, what
action will you take? Explain your answer. (5%)
b. May criminal violation of the Tax Code be compromised? If Minolta makes
voluntary offer to compromise the criminal violations for non-filing and
non-payment of taxes for the year 1998, may the commissioner accept the
offer? Explain (5%)

Suggested Answer:

a. Yes, BIR’s action for collection will prosper because the assessment is
already final and executor. It can already be enforced through judicial action.
As counsel of Minolta, I will introduce evidence that the income payment
was reported by the payees and the income tax was paid thereon in 1997 so
that my client may only be allowed to pay the civil penalties for non-
withholding pursuant to RMO No- 38-83.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Note: it is not clear whether this case of non-withholding/under withholding


or non-remittance of tax withheld. As such, the tax counsel may be open to
other remedies against the assessment.

b. All criminal violation of the Tax Code may be compromised except those
already filed in court or those involving fraud (Section 204, NIRC).
Accordingly, if Minolta makes a voluntary offer to compromise the criminal
violations for non-filing and non-payment of taxes for the year 1998, the
Commissioner may accept the offer which is allowed by law. However, if it
can be established that a tax has not been paid as consequence of non-filing
of the return, the civil liability for taxes may be dealt with independently of
the criminal violations. The compromise settlement of the criminal
violations will not relieve the taxpayers from its civil liability. But the civil
liability for taxes may also be compromised if the financial position of the
taxpayer demonstrates a clear inability to pay the tax.

XVIII. (2002)

Mr. Chan, a manufaturer of garments, was investigated for failure to file tax
returns and to pay taxes for the taxable year 1997 despite the subpoena duces
tecum issued to him; he refused to present and submit his books of accounts and
allied records. Investigators, therefored, raided his factory and seized several
bundles of manufacture garments, supplies and unpaid imported textile materials.
After his apprehension and based on the testimony of a formcer employee,
deficiency income and business taxes were assesed against Mr. Chan on April 15,
2000. It was then that he paid the taxes. Criminal action was nonetheless institutes
against him in the Regional Trial Court for violation of the Tax Code. Mr. Chan
moved to dismiss the criminal case on the ground that he had already paid the taxes
assessed against him. He also demanded the return of the garments and materials
seized from his factory.

How will you resolve Mr. Chan’s motion? (5%)


BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

The motion to dismiss should be denied. The satisfaction of the civil liability
is not one of the grounds for the extinction of criminal action (People v. Ildefonso
Tierra, 12 SCRA 666 (1964)). Likewise, the payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for vioaltion of
any provision of the Tax Code (Sec. 253(a), NIRC). However, the garments and
maerials seized from the factory should be ordered returned because the payment
of the tax had release them from any lien that the Government has over them.

IX. (2003)

8%

X dies in year 2000 leaving a bank deposit of P2,000,000.00 under joint


account with his associate in a law office. Learning of X’s death from the
newspapers, the Commissioner of Internal Revenue wrote to every bank in the
country asking them to disclose to him the amount of deposits that might be
outstanding in his name or jointly with others at the date of his death. May the
bank holding the deposit refuse to comply on the ground of the Secrecy of Bank
Deposit Law? Explain.

Suggested Answer:

No. The Commissioner of Internal Revenue has the authority to inquire into
bank deposit accounts of a decedent to determine his gross estate notwithstanding
the provision s of the Bank Secrecy Law. Hence, the banks holding the deposits in
question may not refuse to disclose the amount of deposits on the ground of
secrecy of bank deposits. (Section 6(F) of the 1997 Tax Code). Th fact that the
deposit is a joint account will not preclude the Commissioner from inquiring
thereon because the law mandates that if a bank has knowledge of the death of a
person, who maintained a bank deposit account alone, or jointly with anotherd, it
shall not allow any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon have been paid.
(Section 97 of the 1997 Tax Code). Hence, to be able to give the required
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

certification, the inclusion of the deposit is imperative, which may be made


possible only through the inquiry made by the Commissioner.

XIV. 2003

8%

X, a taxpayer who believes that an ordinance passed by the City Council of


Pasay is unconstitutional for being discriminatory against hi, want ot know from
you, his tax lawyer, whether or not he can file an appeal. In the affirmatice, he asks
you where such appeal should be made; the Secretary of Finance, or the Secretary
of Justice, or the Court of Tax Appeals, or the regular courts. What would your
advice be to your client, X?

Suggested Answer:

The appeal should be made with the Secretary of Justice, any question on the
constitutionality or legality of tax ordinance ay be raised on appeal with the
Secretary of Justice within 30 days fromthe effectivity thereof. (Sec. 187, LGC;
Hagonoy Market Vendor Association v. Municipality of Hagonoy, 376 SCRA 376
(2002)).

II. (2004)

RC is a law-abiding citizen who pays his real estate taxes promptly. Due to a
series of typhoons and adverse economic conditions, an ordinance is passed by
MM city granting a 50% discount for payment of unpaid real estate taxes for the
preceding year and the condination of all penalties on fines resulting from the late
payment.

Arguing that the ordinance rewards delinquent taxpayer’s and discriminates


against prompt ones, RC demands that he be refunded an amount equivalent to
one-half of the real taxes he pid. The municipal attorney rendered an opinion that
RC cannot be reimbursed because the ordinance did not provide for such
reimbursement. RD files suit to declare the ordinance did not provide void on the
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

ground that it is a class legislation. Will his suit prosper? Explain your answer
briefly. (5%)

Suggested Answer:

a) The suit will prosper. The remission or condonation of taxes due and
payable to the exclusion of taxes already collected does not constitute unfair
discrimination. Each set taxes is a class by itself and the law would be open
to attack as class legislation only if all taxpayers belonging to one class were
not treated alike. (Juan Luna Subdivision, Inc. v. Sarmiento, 91 Phil. 371
(1952)).
b) A law was passed granting tax exemption to certain industries and
investments for a period of five years. But three years later, the law was
repealed. With the repeal, the exemptions were considered revoked by the
BIR, which assessed the investing companies for unpaid taxes effective on
the date of the repeal of the law.

III. (2004)

NPC and KTR companies questioned the assessments on the ground that,
having made their investments in full reliance with the period of exemption
granted by the law, its repeal violated their constitutional right against the
impairment of the obligations and contracts. Is the connection of the companies
tenable or not? Reason briefly.

Suggested Answer:

The contention is not tenable. The exemption granted is in the cnature of


unilateral tax exemption. Since the exemption given is spontaneous on the part of
the legislature and no service or duty or other remunerative conditions have been
imposed on the taxpayers receiving the exemption, it may be revoked at will by
the legislature (Christ Church v. Philadelphia, 24 How. 300 (1860)). What
constitutes an impairment of the obligation of contracts is the revocation of an
exemption which is founded on a valuable considetation because it takes the form
and essence of a contract (Casanovas v. Hord, 8 Phil. 125 (1907); Manila Railroad
Company v. Insular Collector of Customs, 12 Phil. 146 (1915)).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

V. (2004)

A. Due to an uncertainty whether or not a new tax law is applicable to printing


companies, DEF Printers submitted a legal query to the Bureau of Internal
Rebenue on that issue. The BIR issued a ruling that printing companies are
not covered by the new law. Relying on this ruling, DEF Printers did not pay
said tax.
Subsequently, however, the BIR reversed the ruling and issued a new one
stating that the tax cover printing companies. Could the BIR now assess
DEF Printers for back taxes corresponding to the years before the new
ruling? Reason Briefly. (5%)

Suggested Answer:

A. No. Reversal of ruling shall not be given a retroactive application if said


reversal will be prejudicial to the taxpayer. Therefore, the BIR can not assess
DEF Printers for back taxes because it would be violated of the principle of
non-retroactivity of rulings and doing so would insult in grave injustice to
the taxpayer who relied on the first ruling in good faith (Section 246, NIRC;
CIR v. Burroughs, Inc., 142 SCRA 324 (1986)).

B. POR Corp. claimed as a deduction in its tax returns the amount of


P1,000,000 as bad debts. The Corporation was assessed by the
Commissioner of Internal Revenue for deficiency axes on the ground that
the debts cannot be considered as “worthless”, hence, they do not qualify as
bad debts. The company asks for your advice on “What factor will held in
determining whether or not the debts are bad debts?” Answer and explain
briefly. (5%)

Suggested Answer:

B. In other that debts be considered as bad debts because they have become
worthless, the taxpayer should establish that during the year for which the
deduction is sought, a situation developed as a result of which it became
evident in the exercise of sound, objective business judgment that there
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

remained no practical, but only vaguely theoretical, prospect that the debt
would ever be paid (Collector of Internal Revenue v. Goodrich International
Rubber, Co. 21 SCRA 1336 (1967)). “Worthless” is not determined by an
inflexible formula or slide rule calculation, but upon the exercise of sound
business judgment. The factors to be considered include, but are not limited
to the following:
1. The debtor has no property nor visible income;
2. The debtor has been adjudged bankrupt or insolvent;
3. Collateral shares have become worthless; and
4. There are numerous debtors with small amounts of debts and further
action on the accounts sought to be collected.

Alternative Answer:

The following are the factors to be considered in determining whether or not the
debts are bad debts:

1. The debts must be valid and subsisting;


2. The debt is connected with taxpayer’s trade or business, and is not between
related parties;
3. There is an actual ascertainment that the debt is worthless; and
4. The debt is charged-off within the taxable year. (PRC v. CA, 256 SCRA 667
(1996); Revenue Regs. No. 5-99).

IX. (2004)

A. VCC is the administrator of the estate of his father NGC, in the estate
proceedings pending before the MM regional Trial Court. Last year, he
received from the Commissioner of Internal Revenue a deficiency tax
assessment for the estate in the of P1,000,000. But he ignored the notice.
Last month, the BIR effected a levy on the real properties of the estate to pay
the delinquent tax. VCC filed a motion with the probate court to stop the
enforcement and collection of the tax on the ground that the BIR should
have secured first the approval of the probate court, which had jurisdiction
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

over the estate, before levying on its real properties. Is VCC’s contention
correct? (5%)

Suggested Answer:

A. No. VCC’s contention is not correct. The approval of the probate court is
necessary. Payment of estate taxes is a condition precedent for the
distribution of the properties of the decedent and the collection of estate
taxes is executive in nature for which the court is devoid of any jurisdiction.
Hence, the approval of the court sitting in probate, or as a settlement tribunal
is not a mandatory requirement in the collection of estate taxes (Marcos II v.
Court of Appeals, 273 SCRA 47 (1997)).

B. RR disputed a deficiency tax assessment and upon receipt of an adverse


decision by the Commissioner of Internal Revenue, filed an appeal with the
Court of Tax Appeals. While the appeal is pending, the BIR served a warrant
of levy on the properties of RR to enforce the collection of the disputed tax.
Granting arguendo that the BIR can legally levy on the properties, what
could RR do to stop the process? Explain briefly. (5%).

Suggested Answer:

B. RR should file a motion for injunction with the Court of Tax Appeals to stop
the administrative collection process. An appeal to the CTA shall not
suspend the enforcement of the tax liability, unless a motion to that effect
shall have been presented in court and granted by it on the basis that such
collection will jeopardize the interest of the taxpayer or the Government
(Pirovano v. CIR, 14 SCRA 832 (1965)).
The CTA is empowered to suspend the collection of internal revenue taxes
and customs duties in cases pending appeal only when: (1) in the opinion of
the court the collection by the BIR will jeopardized the interest of the
Government and/or the taxpayer; and (2) the taxpayer is willing to deposit
the amount being collected or to file a surely bond for not more than double
the amount of the tax to be fixed by the court. (Section 11, RA No. 1125).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

X. (2004)

A. On March 12, 2001, REN paid his taxes. Ten months later, he realized that
he had overpaid and so he immediately filed a claim for refund with the
Commissioner of Internal Revenue.
On February 27, 2003, he received the decision of the Commissioner
denying REN’s claim for refund. On March 24, 2003, REN filed an appeal
with the Court of Tax Appeals. Was his appeal filed on time or not? Reason.
(5%)

Suggested Answer:

A. The appeal was not filed on time. The two-year period of limitation for filing
a claim for refund is not only da limitation for pursing the claim at the
administrative level but also a limitation for appealing the case to the Court
of Tax Appeals. The law provides that “no suit or proceeding shall be filed
after the expiration of two years from the date of the payment of the tax or
penalty regardless of any supervening cause that may arise after payment
(Section 229, NIRC). Since the appeal was only made on March 24, 2003,
more than two years had already elapsed from the time the taxes were paid
on March 12, 2003. Accordingly, REN had lost his judicial remedy because
of prescription.

B. A law was passed exempting doctors and lawyers from the operation of the
value added tax. Other professional complained and filed a suit questioning
the law being discriminatory and violative of the equal protection clause of
the Constitution since complainants were not given the same exemption. Is
the suit meritorious or not? Reason briefly. (5%)

Suggested Answer:

B. Yes, the suit is meritorious. The VAT is designed for economic efficiency;
hence, should be neutral to those who belong to the same class.
Professionals are a class of taxpayers by themselves who, in compliance
with the rule of equality to taxation, must be treated alike for tax purposes.
Exempting lawyers and doctors from a burden to which other professionals
are subjected will make the law discriminatory and violative of the equal
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

protection clause of the Constitution. While singling out a class for taxation
purposes will not infringe upon this constitutional limitation (Shall v. Vaño,
94 Phil. 389 (1954)), singling out a taxpayer from a class will no doubt
transgress the constitutional limitation (Ormoc Sugar Co. Inc., v. Treasurer
of Ormoc City, 22 SCRA 603 (1968)). Treating doctors and lawyers as a
different class of professionals will not comply with the requirements a
reasonable, hence, valid classification, because the classification is not based
upon substantial distinction which makes real differences. The classification
does not comply with the requirements that it should be germane to the
purpose of the law either. (Pepsi-Cola Bottling Co., Inc. v. City of Butuan,
24 SCRA 789 (1968)).

Another Answer:

No. The suit is not meritorious. The equal protection clause of the
Constitution merely requires that all persons subjected to legislation shall be
treated alike, under like circumstances and conditions, both and in the privileges
conferred and in the liabivlities imposed. The equality in taxation rule is not
violated if classifications or distinctions are made as long as the same based on
rewasonable and substantial differences. (Pepsi-Cola Bottling Co., Inc. V. City of
Butuan, 24 SCRA 789 (1968)).

In the instant case, the professional of doctors and lawyers are not
principally aimed at earning money but for the service of the people. The
exemption granted to doctots and lawyers from the operation of VAT is
justified, as it is not discriminatory against the other professionals because
they have reasonable asnd substantial differences in the conduct of their
professions.

V. (2005)

A taxpayer received a tax deficiency assessment of P1.2 million from the BIR
demanding payment within 10 days, otherwise, it would collect through summary
remedies. The taxpayer requested for reconsidereation stating the grounds therefor.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Instead of resolving the request for reconsideration, the BIR sent a Final Notice
Before Seizure to the taxpayer.

Mat this action of the Commissioner of Internal Revenue de deemeed a denial of


the request for reconsideration of the taxpayer to entitle himto appeal to the Court
of Tax Appeals? Decide with reasons. (5%)

Suggested Answer:

Yes. Cthe action of the Commissioner of Internal Revenue is demed a denial


of the request for reconsideration of the taxpayer, thus entitling him to appeal to
the CTA. The notice was the only response received by the taxpayer and its content
and tenor supports the theory that it was dthe BIT’s final acts regarding the request
focr reconsideration. Fthe very title of the notice indicated that it was a “Final
Notice before Seizure” which means that the taxpayer’s properties will be
subjected to seizure to enforce the deficiency assessment. Thus, in one decided
case, the Supreme Court ruled that the Final notice Before Seizure is a final
decision of the Commissioner on the disputed assessment. (CIR v. Isabela Cultural
Corp., 361 SCRA 71 (2001))

Another Suggested Answer:

No, the Final Notice Before Seizure does not consitute a denial of the
request for reconsideration. The Commissioner is mandated to come out with a
decision clearly stating the facts nd the law upon which it is based and that the
same constitutes his final decision. (Revenue Regulations No. 12-99,
Implementing Sec. 228, NIRC). It cannot merely be implied from the issuance of a
Warrant of Distraint and Levy, (CIR v. Union Shipping Corp., 185 SCRA 547,
(1990)). Since the final notice before seizure is issued ahead of a Warrant of
Distraint and Levy, with more reason that this earlier action cannot be considered
as a denial of the protest.

XIV.(2005)

1) Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant –


Lawyer engaged in the practice of his two professions. He has his main
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

office in Makati City and maintains a branch office is Pasig City; Mr.
Fermin pays his professional tax as a CPA in Makati City and his
professional tax as a lawyer in Pasig City.

a) May Makati City, where he has his main office, require him to pay his
professional tax as a lawyer? Explain.
b) May Quezon City, where he has his residence and where he has also
practices his two professions, go after him for the payment of his
professional tax as a CPA and a lawyer?

Explain. (5%)

Suggested Answer:

a) No. Fermin is given the option to pay either in the city where he practices
his profession or where he maintains his principal office in case he
practices his profession in several places. The professional tax paid as a
lawyer in Pasig City, a place where he practices his profession, will
entitle him to practice his profession in any part of the Philippines
without being subjected to any other national or local tax, license, or fee
for the practice of such profession. (Sec. 139 in relation to 151, Local
Government Code).
b) No. The professional tax shall be paid only once for every taxable year
and the payment shall be made either in the city where he practices his
profession or where he maintains his principal office. The city of
residence cannot require him to pay his professional taxes. (Sec. 139 in
relation to Sec. 151, Local Government Code).

In 1995, the BIR filed before the Department of Justice (DOJ) a criminal complaint
against a corporation and its officers for alleged evasion of taxes. The complaint
was supported by a sworn statement of the BIR examiners showing the
computation of the tax liabilities of the erring taxpayer. The corporation filed a
motion to dismiss the criminal complaint on the ground that there has been, as yet,
no assessment of its tax liability; hence, the criminal complaint was premature. The
DOJ denied the motion on the ground that an assessment of the tax deficiency of
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

the corporation is not a precondition to the filing of a criminal complaint and that
in any event, the joint affidavit of the BIR examiners may be considered as an
assessment of the tax liability of the corporation.

Is the ruling of the DOJ correct? Explain. (5%)

Suggested Answer:

Yes. The ruling of the DOJ in dednying the motion is correct. The issuance
of the deficiency assessment notice prior to prosecution is not necessary because
the facts of the case show that the crime of evasion is complete since the violator
has knowingly and willfully filed a fradulent return ewith intent to evade/defeat a
part or all of the tax. (Ungab v. Cusi, Jr., 97 dSCRA 877 (1980)). What is involved
here is not the collection of taxes but a criminal prosecution for violation of the
National Internal Revenue Code.

However, the contention that the joint affidavit of the BIR examiners
showing the computation of tax liabilities maybe considered an assessment is
erroneous. It is not an assessment which may be entitle the taxpayer to protest.
(CIR v. Pasco Realty & Development Corp., 309 SCRA 402 (1999)). An
assessment is a formal notice to the taxpayer stating that the amount thereon is due
as a tax and containing demand for the payment thereof. (Alhambra Cigar &
Cigarette Mfg. Co. v. Collector, 105 Phil. 1337 (1959)).

VIII. (2006)

On June 1, 2003, Global Bank received a final notice of assessment from the
BIR for deficiency documentary stamp tax in the amount of P5 Million. On June
30, 2003, Global Bank filed a request for reconsideration with the Commissioner
of Internal Revenue. The Commissioner denied the request for reconsideration
only on May 30, 2006, at the same time serving on Global Bank a warrant of
distraint to collect the deficiency tax. If you were its counsel, what will be your
advice to the bank? Explain. 5%
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

The denial of the request for reconsideration is a final decision of the


Commissioner of Internal Revenue. I would advise Global Bank to appeal the
Commissioner’s denial to the Court of Tax Appeals (CTA) within 30 days from
receipt, if the remedy of appeal is still available. I will further advise the bank to
file a motion for injunction with the court of Tax Appeals to enjoin the
Commissioner from enforcing the assessment pending resolution of the appeal.
While an appeal to the CTA will not suspend the payment, levy, distrait, and/or
sale of any property of the taxpayer for the satisfaction of its tax liability, the CTA
is authorized to give injunctive relief if the enforcement would jeopardize the
interest of the taxpayer, as in this case where the assessment has not become final.

Another Suggested Answer:

Since the denial of the protest was made on May 30, 2006, I would assume
that global bank has already lost its right to appeal. The assessment having become
final to failure to file a timely appeal, I will now advise my client to file a request
with the Commissioner of Internal Revenue for a compromise settlement of the tax
assessed, which has already become final by invoking doubtful validity of the
assessment (Sec. 204, NIRC)

Another Suggested Answer:

Since the assessment has already become final, I will now advise Global Bank
to pay the assessment in order to save on the 20% interest which continues to run
indefinitely until the entire obligation is paid (Sec. 249 NIRC). This will also save
the taxpayer and its officers from possible criminal prosecution for non-payment of
taxes considering that in taxation, criminal liability arises as a result of the civil
liability to pay taxes (Republic v. Patanao, L-22356,20 SCRA 712 [1967]).

IX. (2006)

The Commissioner of Internal Revenue issued an assessment for deficiency


income tax for taxable year 2000 last July 31, 2006 in the amount of P10 Million
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

inclusive of surcharge and interest. If the delinquent taxpayer is your client, what
steps will you take? What is your defense? 10%.

Suggested Answer:

Since my client has already lost his right to protest (the assessment having
been issued on July 31, 2006 and that he is already categorize as a delinquent
taxpayer), I will advise him to wait for a collection action to be instituted by the
Commissioner. Once collection is pursued, I will file a petition for review with the
CTA to question the validity of the Commissioner’s action. My defense would be
prescription. Since the assessment was issued beyond the prescriptive period to
assess, the assessment is invalid and any action to collect an invalid assessment is
not warranted (Phil. Journalists, Inc. v. CIR, 447 SCRA 214 [2004]).

Another Suggested Answer:

I will advise my client, who is delinquent taxpayer, to file a request with the
Commissioner of Internal Revenue for the abatement of the entire assessment on
the ground that the same is unjustly assessed (Sec.204, NIRC). I will tell the
commissioner that the assessment having been issued beyond the prescriptive
period, the deficiency income tax would appear to be unjustly assessed which
would justify the abatement or cancellation of the entire assessment.

Another Suggested Answer:

I will immediately file a protest within thirty (30) days form receipt of the
assessment by my client addressed to the Commissioner of Internal Revenue,
alleging prescription as my defense because the assessment was issued beyond
there (3) years as required by law (Sec. 228 and 203, NIRC).

Should the Commissioner deny my protest, I will file an appeal to the court
of Tax Appeals (CTA) within thirty (30) days from receipt of the decision
(Sec.228,NIRC).

Should the CTA Division deny my petition for review, I will file a motion for
reconsideration within 15 days from receipt of the denial. Should at the division
deny my motion for reconsideration, I will appeal to the CTA en banc and from
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

latter’s denial, I will appeal to the supreme court by way of a petition for certiorari
within 15 days from receipt of the en banc decision.

XII. (2006)

Mr. Abraham Eugenio, a pawnshop operator, after having been required by


the Revenue District Officer to pay value added tax pursuant to a Revenue
Memorandum Order (RMO) of the Commissioner of Internal Revenue, filed with
the Regioanal Trial Court an action questioning the validity of the RMO.

If you were the judge, will you dismiss the case? 5%

Suggested Answer:

Yes, a RMO is in reality a ruling or an opritonal issued by the Commissioner


in implementing the provisions of the Tax Code dealing with the taxability of
pawnshops. The power to review rulings issued by the Commissioner is lodged
with the court of tax appeals (CTA) and not with the regional trial court. A ruling
falls within the purview of “other matters arising under the tax code, appealable
only to the CTA” (CIR v. Leal, 392 SCRA 8 (2002)).

XIII. (2006)

Gerry was being prosecuted by the BIR for failure to pay his income tax
liability for calendar year 1999 despite sedveral demand by the BIR in 2002. The
information was filed with the RTC only last June 2006. Gerry filed a motion to
quash the information on the ground or prescription, the information having been
filed beyond the 5-year reglementary period.

If you were judge, will you dismiss the information? Why?

Suggested Answer:

No, the trial court can exercise jurisdiction. Prescription of a criminal action begins
to rum from the fay of the commission of the violation of the law. The criminal
violation was committed when Gerry willfully refused to pay despite repeated
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

demands in 2002. Since the information was filed in June 2006, the criminal case
was instituted within the five-year period required by law (Tupaz v. Ulep, 316
SCRA 118 (1999); Sec. 281, NIRC).

XIV. (2006)

Gold and Silver Corporation gave extra 14th month bonus to all its official
employees in the total amount of P75 Million bonus. The corporation was
reviewed by the BIR the following year, it disallowed as item of deduction the P75
Million bonus the corporation gave its officials and employees on the ground of
unreasonableness. The corporation claimed that the bonus is an ordinary and
necessary expense that should be allowed.

If you were the BIR Commisisoner, how will you resolve the issue? 5%

Suggested Answer:

I will rule against the deductibility of the bonus. The extra bonus is both not
normal to the business and reasonable. Admittedly, there is no fixed test for
determining the reasonableness of a bonus an additional compensation. This
depends upon many factors such as: the payment must bemade in good fait; the
character of the taxpayer’s business; the volume and amount of its net earning; its
locality; the type and extent of the services rendered; the salary policy of the
corporation; the size of the particular business venture, and general economic
conditions (CM Hoskins & Co., Inc. V. CIR, 30 SCRA 434(1969)). Giving an
extra bonus at a time that the company suffers operating losses is not a payment in
good faith and is not normal t the business, hence unreasonable and would not
qualify as ordinary and necessary expense.

XV. (2006)

Lily’s Fashion, Inc. is a garment manufacturer located and registered as a Subic


Bay Freeport Enterprise under Republic Act No. 7227 and non-VAT taxpayer. As
such, it is exempt from payment of all local and national internal revenue taxes.
During mits operations, it purchased various dsupplies and material necessart in
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

the conduct of it manufacturing business. The suppliers of these goods mshifted to


Lily’s Fashion, Inc. the 10% VAT on the purchased items amounting to
P500,000.00. Lily’s Fashion, Inc. filed with the BIR a claim for refund for the
input tax shifted to it by the suppliers.

If you were the Commissione of Internal Revenue, will you allow the
refund? 5%

Suggested Answer:

No. The exemption of Lily’s Fashion, Inc. is not only for taxes for which it
is directly liable, hence, i cannot claim exemption for a tax shifted to it, which is
not all considered a tax to the buyers but a part of the purchase price. Lily’s
Fashion Inc. is not the taxpayer in so far as the passed on tax merely shifted to it.
Only taxpayers are allowed to file a claim for refund (Phil. Acetylene Co. , Inc. v.
CIR, 20 SCRA 1056 (1987)).

III. (2008)

DEF Corporation is a wholly owned subsidiary of DEF, Inc. California,


USA. Starting December 15, 2004.DEF corporation paid annual royalties to DEF,
Inc. for the use of the latter’s software, for which the former, as withholding agent
of the government, withheld and remitted to the BIR the 15% final tax based on the
gross royalty payments. The withholding tax return was filed and the tax remitted
to the BIR on January 10 of the following year. On April 10, 2007 DEF
Corporation filed a written claim for tax credit with the BIR, arising from
erroneously paid income taxes covering the years 2004 and 2005. The following
day, DEF corporation filed a petition for review with the Court of Tax Appeals
involving the tax credit claim for 2004 and 2005.

a.) As a BIR lawyer handling the case, would you raise the defense of
prescription in your answer to the claim for tax credit? Explain. (3%)

Suggested Answer:

a.) Yes. The claim for refund for the 2004 erroneously paid income tax was
filed out of time because the claim was only filed after more than two
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

years had elapsed from the payment thereof. (Section 204 (c) and 229,
NIRC).

b.) Can the BIR lawyer raise the defense that DEF Corporation is not the
proper party to file such claim for tax credit? Explain (3%)

Suggested Answer:

b.) No. The withholding agent who is mandated by law to withhold and
remit the tax on the income of a non-resident in the Philippines becomes
directly liable for the payment of the tax. Therefore, it is the proper party
to file a claim for refund in case of over-withholding, (Commissioner v.
Wander Philippines, Inc., 160 SCRA 573 (1988).

VII. (2008)

After examining the books and records of EDS Corporation, the 2004 final
assessment notice, showing basic tax of P1,000,000, deficiency interest of
P400,000, and due date for payment of April 30, 2007 but without the demand
letter, was ,mailed and released by the BIR on April 15, 2007. The registered letter,
containing the tax assessment, was received by the EDS Corporation on April 25,
2007.

a.) What is an assessment notice? What are the requisites of a valid


assessment? Explain. (3%)

Suggested Answers:

a.) An assessment notice is a formal notice to the taxpayers stating that the
amount thereon is due as a tax and containing a demand for the payment
thereof, (Alhambra Cigar and Cigarette Mfg. Co. v. Collector, 105 PR
1337[1959] CIR v. Pascor Realty and Development Corp., 309 SCRA
402 (1999). To be valid, the taxpayer must be informed in writing of the
law and the facts on which the assessment is made. (section 228, NIRC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Another Suggested Answer:

a.) An assessment is a written notice and demand made by the Bureau on the
taxpayer for the settlement of a tax liability that is due, definitely set and
fixed therein. The requisites of a valid assessment are:
1. It must be made within the prescriptive period to asses; (Section 203,
NIRC)
2. There must be a preliminary assessment previously issued. Except in
those instances allowed by law; 9section 228, NIRC)
3. The taxpayer must be informed in writing about the law and facts on
which the assessment is based; (Section 228, NIRC) and
4. It must be served upon the taxpayer or any of his authorized
representatives. (Estate of Juliana Diez vda. De Gabriel v. CIR, 421
SCRA 266[2004].

b.) As a tax lawyer of EDS Corporation, what legal defense(s) would you
raise against the assessment? Explain. (3%)

Suggested Answer:

b.) I will question the validity of the assessment because of the failure to
send the demand letter which contains a statement of the law and the
facts upon which the assessment is based. If an assessment notice is sent
without informing the taxpayer in writing about the law and facts on
which the assessment is made, the assessment is void. (section 228,
NIRC; Azucena T. Reyes v. CIR,480 SCRA 382 (2006).

XI. (2008)

Pedro Manalo, a Filipino citizen residing in Makati City, owns a vacation


house and lot in San Francisco, California, U.S.A, which he acquired in 2000 for
P15million. On January 10, 2006, he sold said real property to Juan Mayaman,
another Filipino Citizen residing in Quezon City , for P20 million. On February 9,
2006, Manalo filed the capital gains tax return and paid P1.2 million representing
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

6% capital gains tax. Since Manalo did not derive any ordinary income, no income
tax return was filed by him for 2006. After the tax audit conducted in 2007, the
BIR officer assessed Manalo for deficiency income tax computed as follows: P5
million (P20 million less P15 million)x35%=P1.75 million, without the capital
gain tax paid being allowed as tax credit. Manalo consulted a real estate broker
who said that the P1.2 million capital gains tax should be credited from the P1.75
million deficiency income tax.

a.) Is the BIR officer’s tax assessment correct? Explain. (3%)

Suggested Answer:

a.) The BIR officers’ tax assessment is wrong for two reasons. First, the rate
of income tax used is the corporate income tax although the taxpayer is
an individual. Second, the computation of the gain recognized from the
sale did not consider the holding period of the asset. The capital asset
having been held for more than twelve months, only 50% of the gain is
recognized. (Section 39 (B), NIRC).

b.) If you were hired by Manalo as his tax consultant, what advice would
you give him to protect his interest? Explain (3%)

Suggested Answer:

b.) I will advise him to ask for the issuance of the final assessment notice
and request for the crediting of the capital gains tax paid against the
income tax due. The taxpayer should explain that the capital gains tax
was paid in good faith because the property sold is a capital asset, and
considering that was paid is also an income tax it should be credited on
grounds of equity against the income tax assessment. Once the final
assessment is made, I will advise him to protest it within thirty days from
receipt, invoking the holding period and the wrong rate used.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

I. (2009)

True or False

c. The doctrine of equitable recoupment allows taxpayers whose claim for


refund has prescribed to offset tax liabilities with his claim of overpayment.

Suggested Answer:

True. The doctrine arose from common law allowing offsetting of a


prescribed claim for refund against a tax liability arising from the same transaction
on which an overpayment is made ans underpayment is due. The doctrine finds no
application to cases where the taxes involved are totally unrelated, and although it
seems equitable, it is not allowed in our jurisdiction (CIR v. UST, 104 Phil. 1062
[1958]).

X. (2009)

ABCD Corporation (ABCD) is a domestic corporation with individual and


corporate shareholders who are residents of the United States. For the 2nd quarter
of 1983, these U.S based individual and corporate stockholders received cash
dividends from the corporation. The corresponding withholding tax on dividend
income – 30% for individual and 35% for corporate non-resident stockholders –
was deducted at source and remitted to the BIR.

On May 15, 1984, ABCD filed with the Commissioner of Internal Revenue
a formal claim for refund, alleging that under the RP-US tax treaty, the deduction
withheld at source as tax on dividends earned was fixed 25% of said income. Thus,
ABCD asserted that it overpaid the withholding tax due on the cash dividends
given to its non-resident stockholders in the U.S. the Commissioner denied the
claim.

On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals
(CTA) reiterating its demand for refund.

(a) Does ABCD Corporation have the legal personality to file the refund on
behalf of its non-resident stockholders? Why or why not? (3%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

Yes. A withholding agent is not only an agent of the Government but is also
an agent of the taxpayer/ income earner. Hence, ABCD is also an agent of the
beneficial owner of the dividends with respect to the actual payment of the tax to
the Government; such authority may reasonably be held to include the authority to
file a claim for refund and to bring an action for recovery of such claim (CIR v.
Procter & Gamble, 204 SCRA 377, [1991]).

(b) Is the contention of ABCD Corporation correct? Why or why not? (3%)

Suggested Answer:

Yes. The provision of a treaty must take precedence over and above the
provisions of the local taxing statute consonant with the principle of international
comity. Tax treaties are accepted limitations to the power of taxation. Thus, the
CTA should apply the treaty provision so that the claim for refund representing the
difference between the amount actually withheld and paid to the BIR and the
amount due and payable under the treaty, should be granted (Hawaiian-Philippine
Company v. CIR, CTA Case No. 3887, May 31, 1988).

Another Suggested Answer:

The contention of ABCD Corporation that it overpaid the withholding tax is


correct provided it can establish: (1) the existence of RR-US Tax Treaty imposing
a lower rate of tax of 25%; (2) the said tax treaty is applicable to its case; and (3)
its payment with the BIR of a tax based on a higher rate of 30% and 35%,
respectively.

I. (2010)

True or False

B. In criminal cases involving tax offenses punishable under the National Internal
Revenue Code (NIRC), presription is construed strictly against the government.
(1%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

FALSE

[Lim v. Court of appeals, G.R. No. 481134-37, Oct. 18, 1990.]

IV. (2010)

On March 10, 2010, Continental, Inc. received a preliminary assessment


notice (PAN) dated March 1, 2010 issued by the Commissioner of Internal
Revenue (CIR) for deficiency income tax for its taxable year 2008. It failed to
protest the PAN. The CIR thereupon issued a final assessment notice (FAN) with
letter of demand on April 30, 2010. The FAN was received by the corporation on
May 10, 2010, following which or on May 25, 2010, it filed its protest against it.

The CIR denied the protest on the ground that the assessment had already
become final and executory, the corporation having failed to protest the PAN.

Is the CIR correct? Explain. (5%)

Suggested Answer:

No. The issuance of preliminary assessment notice (PAN) does not give rise
to the right of the taxpayer to protest. What can be protested by a taxpayer is the
final assessment notice (FAN) or that assessment issued following the PAN. Since
the FAN was timely protested (within 30 days from receipt thereof, the assessment
did not become final and executory (Sec. 228, NIRC; RR No. 12-99).

VI. (2010)

Based on the Affidavit of the Commissioner of Internal Revenue (CIR), an


Information for failure to file income tax return under Section 255 of the National
Internal Revenue Code (NIRC) was filed by the Department of Justice (DOJ) with
the Manila Regional Trial Court (RTC) against XX, a Manila resident.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XX moved to quash the Information on the ground that the RTC has no
jurisdiction in view of the absence of a formal deficiency tax assessment issued by
the CIR.

Is a prior assessment necessary before an information for violation of


Section 255 of the NIRC could be filed in court? Explain. (4%)

Suggested Answer:

No. In the case of failure to file a return, a proceeding in court for the
collection of the tax, may be filed without an assessment. (Sec. 222(a), NIRC) The
tax can be collected by filing a criminal action with the RTC because a criminal
action is a mode of collecting the tax liability. (Sec 205, NIRC). Besides, the
Commissioner is empowered to prepare a return on the basis of his own
knowledge, and upon such information as he can obtain from testimony or
otherwise, which shall be prima facie correct and sufficient for legal purposes (Sec.
6(B), NIRC; The issuance of a formal deficiency tax assessment, therefore, is not
required.

IX. (2010)

On May 15, 2009, La Manga Trading Corporation received a deficiency


business tax assessment of P1,500,000.00 from the Pasay City Treasurer. On June
30, 2009, the corporation contested the assessment by filing a written protest with
the City Treasurer.

On October 10, 2009, the corporation received a collection letter from the
City Treasurer, drawing it to file on October 25, 2009 an appeal against the
assessment before the Pasay Regional Trial Court (RTC).

A. Was the protest of the corpration filed on time? Explain. (3%)

Suggested Answer:

The protest was filed on time. The taxpayer has the right to protest an
assessment within 60 days from receipt thereof (Sec. 195,LGC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

B. Was the Appeal with the Pasay RTC filed on time? Explain. (3%)

Suggested Answer:

The appeal was not filed on time. When an assessment is protested, the
treasurer has 60 days within which to decide. The taxpayer has 30 days from
receipt of the denial of the protest or from the lapse of the 60 day period to decide,
whichever comes first, otherwise the assessment becomes conclusive and
unappealable. Since no decision on the protest was made, the taxpayer should have
appealed to the RTC within 30 days from the lapse of the period to decide the
protest (Sec. 195,LGC).

II. (2010)

True or False

F. The capitalization rules may be resorted to by the BIR in order to compel


corporate taxpayers to declare dividends to their stockholders regularly.

Suggested Answer:

TRUE.

[Sec. 244, NIRC; Rev. Reg. No. 2-2001 implementing Sec. 29, NIRC.]

Question No. 44 (2012)

The Commissioner of Internal Revenue may not inquire into the bank deposits of a
taxpayer, except:

a. When the taxpayer files a fraudulent return;


b. When the taxpayer offers to compromise the assessed tax based on
erroneous assessment;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

c. When the taxpayer offers to compromise the assessed tax based on financial
incapacity to pay and he authorizes the Commissioner in writing to lock into
his bank record;
d. When the taxpayer did not file his income tax return for the year.

Suggested Answer:

c. Section 6(F), NIRC.

Question No. 45 (2012)

The Commissioner of Internal Revenue issued a BIR ruling to the effect that the
transaction is liable to income tax and value added tax. Upon receifpt of the ruling,
a taxpayer does not agree thereto. What is his proper remedy?

a. File a petition with the Court of Tax Appeals within thirty (30) days from
receipt thereof;
b. File a motion for reconsideration with the Commissioner of Internal
Revenue;
c. File an appeal to the Secretary of Finance within thirty (30) days from
receipt thereof;
d. File an appeal to the Secretary of Justice within thirty (30) days from receipt
thereof.

Suggested Answer:

c. Section 4, NIRC

Question No. 46 (2012)

On April 15, 2011, the Commissioner of Internal Revenue mailed by registered


mail the final assessment notice and the demand letter covering the calendar year
2007 with the QC Post Office. Which statement is correct?

a. The assessment notice is void because it was mailed beyond the prescriptive
period;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

b. The assessment notice is void because it was not received by the taxpayer
within the three-year period from the date of filing of the tax return;
c. The assessment notice is void if the taxpayer can show that the same was
received only after one (1) month from date of filing of the tax return.

Suggested Answer:

d. Section 203, NIRC; BPI v. CIR, GR No. 139736, October 17, 2005.

Question No. 47 (2012)

A Preliminary Assessment Notice (PAN) is not required to be issued by the BIR


before issuing a Final Assessment Notice (FAN) in one of the following cases:

a. When a taxpayer does not pay the 2010 deficiency income tax liability on or
before July 15 of the year;
b. When the finding for any deficiency tax is the result of mathematical error in
the computation of the tax as appearing of the face of the return;
c. When a discrepancy has been determined between the value added tax paid
and the amount due for the year;
d. When the amount of discrepancy shown in the Letter Notice is not paid
within thirty (30) days from date of receipt.

Suggested Answer:

b. Section 228, NIRC

Question No. 48 (2012)

When a proteset against the deficiency income tax assessment was denied by the
BIR Regional Director of Quezon City, the appeal to the Court of Tax Appeals
must be filed by a taxpayer:

a. If the amount of basic tax assessed is P100,000 or more;


b. If the amount of basic tax assessed is P300,000 or more;
c. If the amount of basic tax assessed is P500,000 or more;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

d. If the amount of basic tax assessed is P1 Million or more.

Suggested Answer:

All the choices are correct. All decisions on diputed assessments are appealable to
the CTA (in division) irrespective of the amount (Section 3, RA 9282).

Question no. 49 (2012)

The dtaxpayer received an assessment notice on April 15, 2011 and cfiled its
requests for reinvestigation against the assessment on April 30, 2011. Additional
documentary evidence in support of its protest was submitted by it on June 30,
2011. If no denial of the protest was received by the taxpayer, when is the last day
for the filing of its appeal to the CTA?

a. November 30, 2011;


b. December 30, 2011;
c. January 30, 2012;
d. February 28, 2012.

Suggested Answer:

c. Section 228, NIRC.

Question No. 50 (2012)

Using the same facts in the immediately preceding number, but assuming that the
final decision on the disputed assessment was received by the taxpayer on july 30,
2011, when is the last day for filing of the appeal to the CTA.

a. August 30, 2011;


b. September 30, 2011;
c. December 30, 2011;
d. January 30, 2012
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

a. Section 228, NIRC (nearest answer but not a correct answer).

(Note: The period to appeal is within 30 days from receipt of the final decision by
the Commissioner. The decision was received on July 30, 2011 so the last day to
perfect an appeal with the CTA is August 29, 2011. It is thus clear that the question
did not provide for the CORRECT answer. Hence, it should be treated as a bonus
question.)

Question No. 51 (2012)

Which Court has jurisdiction to determine if the warrant of distraint and levy
issued by the BIR is valid and to rule if the waiver nof the Statute of Limitations
was validly effected?

a. City Court;
b. Regional Trial Court;
c. Court of Tax Appeals;
d. Court of Appeals.

Suggested Answer:

c. Section 7, RA 9282

Question No. 52 (2012)

Which statement belon on compromise of tax liabilvity is correct?

a. Compromise of a tax liability is available only at the administrative level;


b. Compromise of a tax liability is available only before trial at the CTA;
c. Compromise of a tax liability is available even during appeal, provided that
prior leave of court is obtained;
d. Compromise of a tax liability is still available even after the court decision
has become final and executory.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

c. RR 30-2002

Question No. 53 (2012)

In case of fill or partial denial of the written claim for refund or excess input tax
directly attributable to zero-rated sales, or the failure on the part of the
Commissioner to act on the application within 120 days from the date of
submission of complete documents, an appeal must be filed with the CTA:

a. Within thirty (30) days after filing the administrative claim with the BIR;
b. Within sixty (60) days after filing the administrative claim with the BIR;
c. Within one hundred twenty (120) days after filing the administrative claim
with the BIR;
d. Within thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the 120-day period.

Suggested Answer:

e. Section 112(c), NIRC of 1997.

In case of full or partial denial by the CIR, the taxpayer’s recourse is to file
an appeal before the CTA within 30 days from receipt of the decision of the
CIR. However, if after the 120-day period of the CIR fails to act on the
application for tax refund/credit the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days. (CIR v. Aichi Forging Company
of Asia, Inc., GR No. 184823, October 6, 2010).

Question No. 54 (2012)

The submission of the required documents within sixty (60) days from the filing of
the protest is available only where:

a. The taxpayer previously filed a Motion for Reconsideration with the BIR
official;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

b. The taxpayer previously filed a request for reconsideration with the BIR
official;
c. The taxpayer previously filed a request for reinvestigation with the BIR
official
d. The taxpayer previously filed an extension to file a protest with the BIR
official.

Suggested Answer:

c. Section 228, NIRC: RCBC v. CIR.

Question No. 55 (2012)

The prescriptive for the collection of the deficiency tax assessment will be toiled:

a. If the taxpayer files a request for reconsideration with the Asst.


Commissioner;
b. If the taxpayer files a request for reinvestigation that is approved by the
Commissioner of Internal Revenue;
c. If the taxpayer changes his address in the Philippines that is communicated
to the BIR official;
d. If a warrant of levy is served upon the taxpayer’s real property in Manila.

Suggested Answer:

b. Section 223, NIRC; BPI v. Commissioner, GR No. 139736, October 17,


2005.

Question No. 56 (2012)

Which statement is correct? The collekction of a deficiency tax assessment by


distraint levy:

a. May be repeated, if necessary, until the full amount due, including all
expenses, is collected;
b. Must be done successively, first by distraint and then by levy;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

c. Automatically covers the bank deposits of a delinquent taxpayer;


d. May be done only once during the taxable year.

Suggested Answer:

a. Section 217, NIRC.

Question No. 57 (2012)

The prescriptive period to file a criminal action is:

a. Ten (10) years from the date of discovery of the commission of fraud or
non-filing of tax return;
b. Five (5) years from the date of issuance of the final assessment notice;
c. Three (3) years from the filing of the annual tax return;
d. Five (5) years from the commission of the violation of the law, and if the
same be not known at the time, from the discovery thereof and the institution
of judicial proceedings for its investigation and punishment.

Suggested Answer:

d. Section 281, NIRC

Question No. 58 (2012)

The accused’s mere reliance on the representations made by his accountant, with
deliberate refusal or avoidance to verify the contents of mhis tax return and to
inquire on its authenticity constitutes:

a. Simple negligence;
b. Gross negligence;
c. Willful blindness;
d. Excusable negligence.

Suggested Answer:

c. People v. Kintanar, CTA E.B. Criminal Case No. 006, December 3, 2010
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Question No. 59 (2012)

The acquittal of the accused in the criminal action for the failure to file income tax
return and failure to supple correct informationwill have the following
consequence;

a. The CTA will automatically exempt the accused from any civil liability;
b. The CTA will still hold the taxpayer liable for deficiency income tax
liability in all cases, since preponderance of evidence is merely required for
tax cases;
c. The CTA will impose civil or tax liability only if there was a final
assessment notice issued by the BIR against the accused in accordance with
the prescribed procedures for issuing assessments, which was presented
during the trial;
d. The CTA will impose civil or tax liability, provided that a computation of
the tax liability is presented during the trial.

Suggested Answer:

c or d. Republic vs. Patano, GR No. L-22356, July 1, 1967; (Castro v. Collector of


Internal Revenue, GR No. L-12174, April 26, 1962).

Question No. 60 (2012)

X Corporation has excess income payment for the year 2008, which it chose to
carry over in 2009. Infiling its 2009 corporate income tax return, ir signified its
intention (by checking the small box “refund” at the bottom of the return) to get a
refund of the overpaid amount in 2008. Can the refund be allowed or not, and if
disallowed, does X Corporation lose the claimed amount?

a. X Corporation may not get the refund because the decision to carry over in
2008 was irrevocable for that year, and it may not change that decision in
succeeding years;
b. X Corporation may not get the refund in 2009, but the amount being claimed
as refund may be utilized in succeeding years until fully exhausted because
there is no prescriptive period for carry over of excess income tax payments;
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

c. X Corporation may get the refund, provided that it will no longer carry over
such amount or utilize the same against its income tax liability in the future;
d. X Corporation may file instead a claim of tax credit, in lieu or refund.

Suggested Answer:

b. Section 76, NIRC

The carry over of excess income tax payment is no longer limited to the
succeeding taxable year. Utilized excess income tax payments may now be
carried over to the succeeding taxable years until fully utilized. In addition,
the option to carry over excess income tax payments is now revocable.
Hence, unutilized excess income tax payments may no longer be refunded.
(Belle Corp. v. CIR, GR No. 181298, January 10, 2011).

Question No. 64 (2012)

Which statement on prescriptive period is true?

a. The prescriptive period to assess taxes in the National Internal Revenue


Code and the Local Government Code are the same;
b. Local taxes shall be assessed within five (5) years from the date they became
due;
c. Action for the collection of local taxes may be instituted after the expiration
of the period to assess and to collect the tax;
d. Local taxes may be assessed within ten (10) years from discovery of the
underpayment of tax which does not constitute fraud.

Suggested Answer:

c. Section 194, RA 7160

Essay Type Question No. VI (2012)

The BIR issued in 2010 a final assessment notice and demand letter against
X Corporation covering deficiency income tax for the year 2008 in the maount of
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

P10 Million. X Coporation earlier reqeuested the advice of a lawyer on whether or


not it should file a request for reconsderation or a request for investigation. The
lawyer said it does not matter whether the protest filed against the assessment is a
request for reconsideration or a request for reinvestigation, because it has the same
consequences or implications.

a. What are the differences between a request for reconsideration and a request
for reinvestigation? (5%)
b. Do you agree with the advice of the lawyer? Explain your answer. (5%)

Suggested Answer:

a. Request for Reconsideration – plea for evaluation of assessment on the basis


of existing records without need of presentation of additional evidence. It
does not suspend the period to collect the deficiency tax.
Request for Reinvestigation – plea for reevaluation on the basis of newly
discovered evidence on the basis of newly discovered evidence which are to
be introduced for examination for the first time. It suspends the prescriptive
period to collect.

b. No. In view of the aforesaid difference between Request for Reconsideration


and Request for Reinvestigation.

Essay Type Question No. VII (2012)

a. May the bank deposit peso and foreign currency – of an individual taxpayer
be disclosed by a commercial bank to the Commissioner of Internal
Revenue, in connection with a tax investigation being conducted by revenue
official, without violating the relevant bank secrecy laws? Explain your
answer. (5%)
b. In 2011 the Commissioner of the U.S. Internal Revenue Service (IRS)
requested in writing the Commissioner of Internal Revenue to get the
information from a bank in the Philippines, regarding the deposits of a U.S.
Citizen residing in the Philippines, who is under examination by the officials
of the US IRS, pursuant to the US-Philippine Tax Treaty and other existing
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

laws. Should the BIR Commissioner agree to obtain such information from
the bank and provide the same to the IRS? Explain your answer. (5%)
c. Is the bank secrecy law in the Philippines violated when the BIR issues a
Warrant of Garnishment directed against a domestic bank, requiring it not to
allow any withdrawal from any existing bank deposit of the delinquent
taxpayer mentioned in the Warrant and to freeze the same until the tax
delinquency of said taxpayer is settled with the BIR? Explain your answer.
(5%)

Suggested Answer:

a. No. As a general rule, bank deposits of an individual taxpayer may not be


disclosed by a commercial bank to the Commissioner. As exceptions, the
Commissioner is authorized to inquire in the bank deposits of: (1) a decedent
to determine his gross estate; and (2) any taxpayer who has filed an
application for compromise of his liability by reason of financial incapacity
to pay has tax liability.
In a case a taxpayer files an application to compromise the payments of his
tax liabilities on his claim that his financial position demonstrates a clear
inability to pay the tax assessed, his application shall not be considered
unless and until he waives in writing his privilege under Republic Act No.
1405 (Bank Secrecy law) or under other general or special law, and such
waiver shall constitute the authority of the Commissioner to inquire into the
bank deposits of the taxpayer (Section 6, NIRC).

b. Yes. The Commissioner should agree to the request pursuant to the principle
of international comity. The Commissioner of Internal Revenue has the
authority to inquire into bank deposit accounts and related information held
by financial institutions of a specific taxpayer subject of a request for the
supply of tax information from a foreign tax authority pursuant to an
international convention or agreement to which the Philippines is a signatory
or party of (Section 3, RA 10021).

c. No. Garnishment is an administrative remedy allowed by law to enforce a


tax liability. Bank accounts shall be garnished by serving a warrant of
president, manager, treasurer or other responsible officer of the bank. Upon
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

receipt of the warrant of garnishment, the bank shall turn over to the
Commissioner so much of the bank accounts as may be sufficient to satisfy
the claim of the Government (Section 208, NIRC).

Essay Type Question No. VIII (2012)

In the examination conducted by the revenue official against the corporate


taxpayer in 2010, BIR issued a final assessment notice and demand letter which
states: “it is requested that the above deficiency tax be paid immediately upon
receipt hereof, inclusive of penalties incident to delinquency. This is our final
decision based on investigation. If myou disagree, you may appeal this final
decision within thirty (30) days from receipt hereof, otherwise and demandable.”
The assessment was immediately filing its protest against the assessment and
without a denial thereof by the BIR. If you were the judge, would you deny the
petition for review filed by the taxpayer and consider the case as prematurely filed?
Explain your answer. (5%)

Suggested Answer:

No, the petition for review should not be denied. The case is an exception to
the rule on exhaustion of administrative remedies. The BIR is stopped from
caliming that the filing of the petition for review is prematuren because the
taxpayer failed to exhaust all administrative remedies. The statement of the BIR in
its Final Assessment Notice and Demand Letter led the taxpayer to conclude that
only the final judicial ruling in his favor would be accepted by the BIR. The
taxpayer cannnot be blamed for not filing a protest against the Formal Letter of
Demand with Assessment Notices since the language used and the tenor of the
demand letter indicate that it is the final decision of the respondent on the matter.
The CIR should indicate, in a clear and unequivocal language, whether his action
on a disputed assessment constitutes his final determination thereon in order for the
taxpayer concerned to determine when his or her right to appeal to the tax court
accrues. Although there was no direct reference for the taxpayer to bring the matter
directly reference for the taxpayer to bring the matter directly ttothe CTA, it cannot
be denid that the word “appeal” under prevailing tax laws refers to the filing of a
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

petition for review with the CTA (Allied Bank vs. CIR, GR No. 175097, February
5, 2010).

Essay Type Question No. IX (2012)

On April 16, 2012, the corporation filed its annual corporate income tax
return for 2011 showing an overpayment of income tax of P1 Million, which is to
be carried over the succeeding year(s). On May 15, 2012, the corporation sought
advice from you and said that it contemplates to file an amended return for 2011,
which shows tha tinsted of carryover of the excess income tax payment, the same
shall be considered as a claim for tax refund and the small box shown “refund” in
the return will be filled up. Within the year, the corporation will file the formal
request for refund for the excess payment.

a. Will you recommend to the corporation such a course of action and justify
that the amended return is the latest official act of the corporation as to how
it may treat such overpayment of tax or should you consider the option
granted to taxpayers as irrevocable, once previously exercised by it? Explain
your answer (5%);
b. Should the petition for review filed with the CTA on the basis on the
amended tax return be denied by the BIR and the CTA, could the
corporation still carry over such excess payment for income tax in the
succeeding years, considering that there is no prescriptive period provided
for in the income tax law with respect to carry over of excess income tax
payments? Explain your answer. (5%)

Suggested Answers:

a. Once the option to carry-over and apply the excess quarterly income tax
against income tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered IRREVOCABLE for
the taxable year period and no application for tax refund or issuance of tax
credit certificate shall be allowed therefor (Section 76, NIRC).
b. Yes. The carry-over of excess income tax payments is no longer limited to
the succeeding taxable years until full utilized. In addition, the option to
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

carry-over excess income tax payments is now irrevocable. Hence,


unutilized excess income tax payments may no longer be refunded (Belle
Corp. v. CIR, GR No. 181298, January 10, 2011).

Essay Type Question No. X (2012)

Explain the following statements:

a. The acquittal of the taxpayer in a criminal action under the Tax Code does
not necessarily result in exoneration of said taxpayer from his civil liability
to pay (3%);
b. Should the accused be found guilty beyond reasonable doubt for violation of
Section 225 of the Tax Code (for failure to file tax return or to supply correct
information), the imposition of the imposition of the civil liability by the
CTA should be automatic and no assessment notice from the BIR is
necessary. (2%)

Suggested Answers:

a. In taxation the taxpayer becomes criminally liable because of a civil


liability. While he may be acquitted on the criminal case, his acquittal could
not operate to discharge him from the duty to pay tax, since that duty is
imposed by statute prior to and independent of any attempt on the taxpayer
to evade payment. The obligation to pay the tax is not a mere consequence
of the felonious acts charged in the information, nor is a mere civil liability
derived from crime that would be wiped out by the judicial declaration that
the criminal acts charged did not exist (Castro v. Collector of Internal
Revenue, L-12174, April 26, 1962).
b. Yes. If the failure to file tax return or to supply correct information resulted
to unpaid taxes the amount of which is proven during trial, the CTA shall not
only impose the criminal penalty but likewise order the payment of the civil
liability (Section 205(b), NIRC). As a matter of fact, it is well recognized
that in the case of failure to file a return, a proceeding in the court for the
collection of the tax may be filed without the need of an assessment, which
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

recognizes that the civil liability of a taxpayer maybe established without the
need of an assessment (Section 222 (a) NIRC).

I. (2013)

In its final adjustment return for the 2010 taxable year, ABC Corp. had
excess tax credits arising from its over withholding of income payments. It opted
to carry over the excess tax credits to the following year. Subsequently, ABC Corp.
changed its mind and applied for a refund of the excess tax credits.

Will the claim for refund prosper? (6%)

Suggested Answer:

No. The claim for refund will not prosper. While the law gives the taxpayer
an option whether to carry-over or claim as refund the excess tax credits shown
on its final adjustment return, once the option to carry-over has been made, such
option shall be considered irrevocable for that taxable period and no application for
cash refund or issuance of a tax credit certificate shall be allowed (section 76,
NICR; CIR v. PL Management International Phils., Inc., G.R. No. 160949, April 4,
2011, 647 SCRA 721).

VIII. (2013)

Mr. Amado leased a piece of land owned by the Municipality of


pinagsabitan and built a warehouse on the property for his business operations. The
Municipal Assessor assessed Mr. Amado for real property taxes on the land and
the warehouse. Mr. Amado objected to the assessment, contending that he should
not be asked to pay realty taxes on the land since it is municipal property.

Was the assessment proper? (5%)


BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

Yes, the assessment is proper. The lands, although owned by the


Municipality, is not exempt from real property tax because the beneficial use has
been granted to a taxable person (Section 234(a), LGC).

X. (2013)

In 2010, pursuant to a letter of authority (LA) issued by the Regional


Director, Mr. Abcede was assessed for deficiency income taxes by the BIR for the
year 2009. He paid the deficiency. In 2011, Mr. Abcede received another LA for
the same year 2009, this time from the National Investigation Division, on the
ground that Mr. Abcede’s 2009 return was fraudulent.

Mr. Abcede contested the LA on the ground that he can only be investigated
once in a taxable year. Decide. (7%)

Suggested Answer:

The contention of Mr. Abcede is not tenable. While the general rule is to the
effect that for income tax purposes, a taxpayer must be subject to examination and
inspection by internal revenue officers only once in a taxable year, this will not
apply if there is fraud, irregularity or mistakes as determined by the Commissioner.
In the instant case, what triggered the second examination is the findings by the
BIR that Mr. Abcede’s 2009 return was fraudulent, accordingly, the examination
is legally justified (Section 235, NIRC).

XII. (2013)

You are the retained tax counsel of ABC Corp. Your client informed you
that they have been directly approached with a proposal by a BIR insider (i.e., a
middle rank NIR official) on the tax matter they have referred to you for handling.
The BIR insider’s proposal is to settle the matter the matter by significantly
reducing the assessment, but he will get 50% of the savings arising from the
reduced assessment.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

What the tax, criminal and ethical considerations will you take into account
in giving your advice? Explain the relevance of each of these considerations. (9%)

Suggested Answer:

I will advise my client not to accept the settlement proposal but instead pay
entire amount of tax that is legally due to the government.

On the tax aspect, I will tell my client that a proposed assessment covering
deficiency taxes which are legally due must be full paid to exonerate the taxpayer
from further tax liabilities. The unwarranted reduction of the proposed assessment
into half and the payment thereof will not close the case but can be re-opened
anytime within ten years from discovery so as to collect the correct amount of
taxes from ABC Corp.

The act of deliberately paying an amount of tax that is less than what is
known by client to be legally due through a cause of action that is unlawful is
considered as tax evasion. I will advise my client that conniving with a BIR insider
to reduce the proposed assessment for a fee is unlawful which can expose the
officers of the corporation to criminal liability. Likewise, the payment to be made
to the BIR official of 50% of the savings constitutes direct bribery punishable
under the revised penal code.

Insofar as the BIR officer is concerned he will also be a principal to direct


bribery and to the criminal violations penalized under section 269 of the tax code.

On ethical grounds, agreeing to the settlement scheme being proposed by the


BIR insider is agreeing to perpetration of a dishonest act. Since taxation is
symbiotic relationship, fair dealing on both sides is of paramount importance. I
will remind my client that taxpayers owe honesty to government just as
government owes fairness to taxpayers (CIR v. Tokyo Shipping Co., Ltd., G.R.
No.68252, May 26, 1995).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

V. (2013)

Mr. Alvarez is in the retail business. He received a deficiency tax assessment


from the BIR containing only the computation of the deficiency tax and the
penalties, without any explanation of the factual and legal bases for the assessment.

Is the assessment valid? (1%)

(a) The assessment is valid; all that Mr. Alvarez has to know is the amount
of the tax.
(b) The assessment is invalid; the law requires a statement of the facts and
the law upon which the assessment is based.
(c) The assessment is valid but Mr. Alvarez can still contest it.
(d) The assessment is invalid because Mr. Alvarez has no way to determine
if the computation is erroneous.

Suggested Answer:

b) The assessment is invalid; the law requires a statement of the facts and
the law upon which the assessment is based (Section 228, NIRC,
Azucena Reyes v. Commissioner of the Internal Revenue, G.R. No.
163581, January 27, 2006).

XI. (2013)

Taxpayer A was required by the BIR to sign and submit a waiver of the
statute of limitations on the assessment period to give the BIR more time to
complete its investigation. The BIR accepted the waiver but failed to indicate the
date of its acceptance.

What is the legal status if the waiver? (1%)

(a) The waiver is valid because of the date of acceptance is immaterial and
unimportant.
(b) The waiver is invalid; the taxpayer cannot be required to waive the
statute of limitations.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

(c) The waiver is invalid; the date of acceptance is crucial in accounting the
start of the period of suspension of the prescriptive periods.
(d) The waiver is valid, having been accepted by the BIR.

Suggested Answer:

(c) The waiver is invalid; the date of acceptance is crucial in accounting the
start of the period of suspension of the perspective period (Commissioner
v. Kudos Metal Corp., G.R. No. 178087, May 5, 2010.

XII. (2013)

Taxpayer Andy receive on January 3, 2010 a preliminary assessment notice


(PAN) form the BIR, stating that he had fifteen (15) days from its receipt to
comment or to file a protest. Eight (8) days later (or on January 11, 2010), before
he could comment or file a protest, Andy received the final assessment notice
(FAN).

Decide on the validity of the FAN. (1%)

(A) The FAN is invalid; Andy was not given the chance to respond to the
FAN, in violation of his due process right to assess prescribed;
(B) The FAN is invalid for being premature;
(C) The FAN is valid since it was issued before the right to assess
prescribed;
(D) The FAN is valid. There is no legal requirement that the FAN should
await the protest to the PAN because protest to the PAN is not
mandatory.

Suggested Answer:

(A) The FAN is invalid; Andy was not given the chance to respond to the
PAN, in violation of his due process rights (Section 228, NICR; RR No.
12-99).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XIX. (2013)

Mr. A was preparing his income tax return and had some doubt on whether a
commission he earned should be declared for the current year of the succeeding
year. He sought the opinion of his lawyer who advised him to report the
commission in the succeeding year. He heeded his lawyer’s advice and reported
the commission in the succeeding year. The lawyer’s advice turned out to be
wrong; in Mr. A’s petition against the BIR assessment, the court ruled against Mr.
A.

Is Mr. A guilty of fraud? (1%)

(A) Mr. A is not guilty of fraud as he simply followed the advice of his
lawyer;
(B) Mr. A is guilty of fraud; he deliberately did not report the commission in
the current year when he should have done so;
(C) Mr. A’s lawyer should pay the tax for giving the wrong advice;
(D) Mr. A is guilty for failing to consult his accountant.

Suggested Answer:

(A) Mr. A is not guilty of fraud as he simply followed the advice of his
lawyer (CIR v. CA, G.R. No. 119322, June 4, 1996).

XX. (2013)

The BIR, through the commissioner, instituted a system requiring taxpayers


to submit to the BIR a summary list of their sales and purchases during the year,
indicating the name of the seller or the buyer and the amount. Based on these lists,
the BIR discovered that in 2004 ABC Corp. purchased for XYZ Corp. goods worth
P5, 000,000. XYZ Corp. did not declare these for income tax purposes as its
reported gross sales for 2004 was only P1, 000,000.’

Which of the following defenses may XYZ Corp. interpose in an assessment


against it by the BIR? (1%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

(A) The BIR has no authority to obtain third party information to assess
taxpayers;
(B) The third-party information is inadmissible as hearsay evidence;
(C) The system of requiring taxpayers to submit third party information is
illegal for violating the right to privacy;
(D) None of the above.

Suggested Answer:

(D) None of the above (Sections 5&6, NIRC).

I. (2014)

On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of
assessment against Blue Water Industries Inc. (BWI), a domestic corporation,
informing the latter of its alleged deficiency corporate income tax for the year
2009. On April 20, 2012, BWI filed a letter protest before the BIR contesting said
assessment and demanding that the same be cancelled or set aside.

However, on May 19, 2013, that is, after more than a year from the filing of
the letter protest, the BIR informed BWI that the latter’s letter protest was denied
on the ground that the assessment had already become final, executory and
demandable. The BIR reasoned that its failure to decide the case within 180 days
from filing of the letter protest should have prompted BWI to seek recourse before
the Court of Tax Appeals (CTA) by filing a petition for review within thirty (30)
days after the expiration of the 180-day period as mandated by the provisions of
the last paragraph of Section 228 of the National Internal Revenue Code (NIRC).
Accordingly, BWI’s failure to file a petition for review before the CTA rendered
the assessment final, executory and demandable.

Is the contention of the BIR correct? Explain. (5%)

Suggested Answer:

No, the contention of BIR is not correct. The right of BWI to consider the
inaction of the Commissioner on the protest within 180 days as an appealable
decision is only optional and will not make the assessment final, executory and
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

demandable (Section 228, NIRC; Lascona Land Co., Inc. v. CIR,G.R. No. 171251,
March 5, 2012, 667 SCRA 455).

XIII. (2014)

Hopeful Corporation obtained a loan from Generous Bank and executed a


mortgage on its real property to secure the loan. When Hopeful Corporation failed
to pay the loan, Generous Bank extrajudicially foreclosed the mortgage on the
property and acquired the same as the highest bidder. A month after the
foreclosure, Hopeful Corporation exercised its right of redemption and was able to
redeem the property.

Is Generous Bank liable to pay capital gains tax as a result of the foreclosure
sale? Explain. (4%)

Suggested Answer:

No. In a foreclosure of a real estate mortgage, the capital gains tax accrues
only after the lapse of the redemption period because it is only then that there
exists a transfer of property. Thus, if the right to redeem the foreclosed property
was exercised by the mortgagor before expiration of the redemption period, as in
this case, the foreclosure is not a taxable event (See RR No. 4-99; Supreme
Transliner, Inc. v. BPI Family Savings Bank, Inc., G.R. No. 165617, February 25,
2011).

XXIX. (2014)

Doña Evelina, a rich widow engaged in the business currency exchange, was
assessed a considerable amount of local business taxes by the City Government of
Bagnet by virtue of Tax Ordinance No. 24. Despite her objections thereto, Doña
Evelina paid the taxes. Nevertheless, unsatisfied with the said Tax Ordinance ,
Doña Evelina, through her counsel Atty. ELP, filed a written claim for recovery of
said local business taxes and contested the assessment. Her claim was denied, and
so Atty. ELP elevated her case to the Regional Trial Court (RTC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

The RTC declared Tax Ordinance No. 24 null and void and without legal
effect for having been enacted in violation of the publication requirement of tax
ordinances and revenue measures under the Local Government Code (LGC) and on
the ground of double taxation. On appeal, the Court of Tax Appeals (CTA)
affirmed the decision of the RTC. No motion for reconsideration was filed and the
decision became final and executory. (4%)

(A) If you are Atty. ELP, what advice will you give Doña Evelina so that she
can recover the subject local business taxes?
(B) If Doña Evelina eventually recovers the local business taxes, must the same
be considered as income taxable by the national government?

Suggested Answer:

(A) The remedy availed of by Doña Evelina to question the validity of the
assessment was to file a written claim for recovery which was denied by
the city treasurer. It appears that after the denial, the judicial remedies were
properly pursued. Since the decision by the CTA had already become final
and executory, the counsel should advice Doña Evelina to press for the
execution of the judgement. Should the city treasurer refuse to refund the
local taxes paid, they should push for the issuance of a writ of execution by
the CTA to force the local treasurer to make the refund.
(B) Yes, subject to the tax benefit rule. The local business tax paid is a
business connected tax hence, deductible from gross income. If at the time
of its deduction it resulted to a tax benefit to Doña Evelina, then the
recovery will form part of gross income to the extent of the tax benefit on
the previous deduction (Section 34(C)(1), NIRC).

IX. (2015)

For calendar year 2011, FFF, Inc., a VAT-registered corporation, reported


unutilized excess input VAT in the amount of P1,000,000.00 attributable to its
zero-rated sales. Hoping to impress his boss, Mr. G, the accountant of FFF, Inc.,
filed with the Bureau of Internal Revenue (BIR) on January 31, 2013 a claim for
tax refund/credit of the P1,000,000 unutilized excess input VAT of FFF, Inc. for
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

2011. Not having received any communication from the BIR, Mr. G filed a
Petition for Review with the CTA on March 15, 2013, praying for the tax
refund/credit of the P1,000,000.00 unutilized excess input VAT of FFF, Inc, for
2011.

(A) Did the CTA acquire jurisdiction over the petition of FFF, Inc? (2%)
(B) Discuss the proper procedure and applicable time periods for
administrative and judicial claims for refund/credit of unutilized excess
input VAT. (4%)

Suggested Answers:

(A) The CTA has not acquired jurisdiction over the Petition of FFF, Inc.,
because the judicial claim has been prematurely filed on March 15, 2013.
The Supreme Court ruled that the 30-day period after the expiration of
the 120-day period fixed by law for the Commissioner of Internal
Revenue to act on the claim for refund is jurisdictional and failure to
comply would bar the appeal and deprive the Court of Tax Appeals of its
jurisdiction to entertain the appeal (CIR v. Aichi Forging Company of
Asia, Inc., G.R. No. 183421, October 22, 2014, 632 SCRA 422).

In this case, Mr. G filed the administrative claim on January 31, 2013.
The petition for relief should have been filed on June 30,2013. Filing the
judicial claim on March 15, 2013 is premature, thus the CTA did not
acquire jurisdiction.

(B) The administrative claim must be filed with the Commissioner of Internal
Revenue (CIR) within two years from the close of the taxable quarter
when the zero –rated sales were made. The CIR has 120 days from the
date of submission of complete documents in support of the claim to
decide. If the CIR decides within the 120-days period or the 120-day
period expires without the CIR rendering a decision, the taxpayer has 30
days to file petition for review with the CTA reckoned from the receipt of
adverse decision or from the lapse of the 120-day period.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

As a general rule, the 30-day period to appeal is both mandatory and


jurisdictional. As an exception to the general rule, premature filing is allowed only
if filed between December 10, 2003 and October 5,2010, when BIR Ruling No.
DA-489-03 was still in force prior to the reversal of the aforesaid ruling by the
CTA in the Aichi case on October 6, 2010, (Mindanao II Geothermal Partnership
v. CIR, G.R. No. 204745, December 8, 2014, 713 SCRA 645).

XII. (2015)

Mr. H decided to sell the house and lot wherein he and his family have lived
for the past 10 years, hoping to buy and move to a new house and lot closer to his
children’s school. Concerned about the capital gains tax that will due on the sale of
their house, Mr. H approaches you as a friend advise, if it is possible for the sale of
their house to be exempted from capital gains tax and the condition they must
comply with the avail themselves of said exemption. How will you respond? (4%)

Suggested Answer:

I would advise Mr. H, that he may be exempted from the payment of the
capital gains tax on the sale or disposition of the house and lot where his family
lives because the sale of principal residence by a natural person is exempt,
provided the following conditions are complied with, viz:

1. The proceeds of the sale is fully utilized in acquiring or constructing new


principal residence within 18 calendar months from the date of sale or
disposition;
2. The historical cost or adjusted basis of the real property sold or disposed
will be carried over the new principal residence built or acquired;
3. The commissioner has been duly notified, through a prescribed return,
within 30 days from the date of the sale or disposition of the person’s
intention to avail of the tax exemption; and
4. The exemption was availed only once every 10 years (Sec. 24(d) (2,
NIRC).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XIII. (2015)

GGG, Inc. offered to sell through competitive bidding its shares in HHH
Corp. equivalent to 40% of the total outstanding capital stock of the latter. JJJ, Inc.
acquired the said shares in HHH Corp. as the highest bidder. Before it could secure
a certificate authorizing registration/tax clearance for the transfer of the shares of
stock to JJJ, Inc., GGG, Inc. had to request a ruling from the BIR confirming that
its sale of the said shares was at fair market value and was thus not subject to
donor’s tax. In BIR ruling No. 012-14, the CIR held that the selling price for the
shares of stock of HHH Corp. was lower than their book value, so the difference
between the selling price and the book value of said shares was a taxable donation.
GGG, Inc. requested the Secretary of Finance to Review BIR Ruling No.012-14,
but the Secretary affirmed said ruling. GGG, Inc, filed with court of appeals a
Petition for Review under Rule 43 of the Revised Rules of Court. The Court of
Appeals, However, dismissed the Petition for lack of jurisdiction declaring that it is
the CTA which has jurisdiction over the issues raised. Before which court should
GGG, Inc. seek recourse from the adverse ruling of the Secretary of Finance in the
exercise of the latter’s power of review? (3%)

Suggested Answer:

GGG, Inc should seek revourse with the court of Tax Appeals (CTA) which
has jurisdiction .

There is no provision in law that expressly provides where exactly the


adverse ruling of the Secretary of Finance under Section 4 of the NIRC Is
appealable.However, RA,No. 1125, as amended,addresses the seeming gap in tha
law as its vests upon the CTA,albeit impliedly, with jurisdiction over the case as
“other matters” arising under the NIRC Or others laws administered by the
BIR.Furthermore, the supreme Court held that the jurisdiction to review the rulings
of the Secretary of Finance on the issues raised against a ruling of the
Commissioner of the internal Revenue, pertains to the Court of Tax Appeals in the
exercise of its appelate jurisdictionb (Philamlife v. The Sec. Of Financenand CIR,
G.R No. 210987,November 24, 2014).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XX. (2015)

After filing an information for violation of Section 254 of the National


Internal Revenue Code (Attempt to Evade or Defeat Tax) with the CTA, the Public
Prosecutor manifested that the people is reserving the right to file the
corresponding civil action for the recovery of the civil liability for taxes. As
counsel for the accused, comment on the People’s manifestation. (3%)

Suggested Answer:

The manifestation is not proper. The criminal action and the corresponding
civil action for the recovery of the civil liability for taxes for taxes and penalties
shall at all times be simultaneously instituted with, and jointly determined in the
same proceeding before the Court of Tax Appeal (CTA). The filing of the criminal
action is deemed to necessarily carry with it the filing of the civil action, and no
right to reserve the filing of such civil action separately from the criminal action
shall be recognized (Sec. 7(b) (1) of Republic Act. No. 9282; Judy Anne Santos v.
People, G.R. No.173176, August 26, 2008,563 SCRA 341).

XXI. (2015)

MMM, Inc, a domestic telecommunications company, handles incoming


telecommunication services for non-resident foreign companies by relaying
international calls within the Philippines. To broaden the coverage of its
telecommunications services throughout the country, MMM, Inc. entered into
various interconnection agreements with local carriers. The non-resident foreign
corporations pay MMM, Inc in US dollars inwardly remitted through Philippine
banks, in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas

MMM, Inc. filed its Quarterly VAT Returns for 2000. Subsequently, MMM,
Inc. timely filed with the BIR and administrative claim for the refund of the
amount of P6,321,486.50, representing excess input VAT attributable to its
effectively zero-rated sales in 2000. The BIR ruled to deny the claim for refund of
MMM, Inc. because the VAT official receipts submitted by MMM, Inc. to
substantiate said claim did not bear the words “zero-rated” as required under
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Section 4.108-1 of Revenue Regulations (RR) No. 7-95. On appeal, the CTA
division and the CTA en banc affirmed the BIR ruling.

MMM, Inc. appealed to the Supreme Court arguing that the NIRC itself did
not provide for such a requirement. RR No. 7-95 should not prevail over a
taxpayer’s substantiate right to claim tax refund or credit.

(A) Rule on the appeal of MMM, Inc. (3%)


(B) Will your answer in (A) be any different if MMM, Inc. was claiming
refund of excess input VA attributable to its effectively zero-rated sales
in 2012? (2%)

Suggested Answer:

(A) The appeal of MMM, Inc. must be denied. MMM, Inc’s position that the
requirements under RR No. 7-95 should not prevail over a taxpayer’s
substantiate right to claim tax refund or credit is unmeritorious. The
Secretary of Finance has the authority to promulgate the necessary rules
and regulations for the effective enforcement of the provisions of the
National Internal Revenue Code (NIRC). Such rules and regulations are
given weight and respects by the courts in view of the rule-making
authority given to those who formulate them and their specific expertise
in their respective fields.

An applicant for a claim for tax refund or tax credit must not only prove
entitled to the claim, but also compliance with all the documentary and
evidentiary requirements. Consequently, the Court of Tax Appeal (CTA),
and the CTA en banc correctly ruled that the failure to indicate the words
‘zero-rated’ on the invoices and receipts issued by a taxpayer, would
result in the denial of the claim for refund or tax credit (Eastern
Telecommunications Philippines, Inc. v. CIR, G.R. No. 183531, March
25,2015).

(B) No, my answer will not be different if the claim for refund is for
effectively zero-rated sales in 2012. The requirements to print the word
“zero-rated” is no longer by mere regulations, but it’s now clearly
provided by law as follows- “If the sale is subject to zero percent (0%)
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

value-added tax, the term “zero-rates sales” shall be written or printed


prominently on the invoice or receipt. Failure to comply with this
invoicing requirement is fatal to a claim for refund of input taxes
attributable to the zero-rated sale (Sec. 113 (B)(2) (c), NIRC).

Moreover, as recently ruled by the Supreme Court, the subsequent


incorporation of Sec.4.108-1 of RR 7-95 in Sec. 113 of the NIRC as
introduced in R.A. No. 9337, actually confirmed the validity of the
imprinting requirement on VAT invoices or official receipts-a case
falling under the principle of legislative approval of administrative
interpretation by reenactment (Northern Mindanao Power Corp. v. CIR,
G.R. No. 185115, February 18, 2015)

X. (2016)

Congress issued a law allowing a 20% discount on the purchases of senior


citizens from, among others, recreation centers. This 20% discount can then be
used by the sellers as a “tax credit.” At the initiative of BIR, however, Republic
Act NO. (RA) 9257 was enacted amending the treatment of the 20% discount as a
“tax deduction.” Equity Cinema filed a petition with the RTC claiming that RA
9257 is unconstitutional as it forcibly deprives sellers a part of the price without
just compensation.

(a) What is the effect of converting the 20% discount form a “tax credit”
to a “tax deduction”? (2.5%)
(b) If you are the judge, how will you decide the case? Briefly explain
your answer. (2.5%)

Suggested Answer:

(a) The effect of converting the 20% discount form a “tax credit” to a
“tax deduction” is that the tax benefit enjoyed by sellers of goods and
services to senior citizens is effectively reduced. A tax credit reduces
the tax liability while a tax deduction merely reduces the tax base.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Under the tax credit scheme, the establishments are paid back 100%
of the discount they give to senior citizens.

(b) I will decide in favor of the Constitutionality of the law. The 20%
discount as well as the tax deduction scheme is a valid exercise of the
police power of the State (Manila Memorial Park Inc. v. Department
of Social Welfare and Development, 711 SCRA 302 (2013).

XI. (2016)

Soaring Eagle paid its excise tax liabilities with Tax Credit Certificates
(TCCs) which it purchased through the One Stop Shop Inter-Agency Tax Credit
Center (Center) of the Department of Finance. The Center is a composited body of
the DOF, BIR, BOC and the BOI. The TCCs were accepted by the BIR as
payments. A year after, the BIR demanded the payment of alleged deficiency
excise taxes on the ground that Soaring Eagle is not qualified transferee of the
TCCs it purchased from other BOI-registered companies. The BIR argued that the
TCCs are subject to post-audit as a suspensive condition. On the other hand,
Soaring Eagle countered that it is a buyer in good faith and for value who merely
relied on the Center’s representation of the genuineness and validity of the TCCs.
If it is ordered to pay the deficiency, Soaring Eagle claims the same is confiscatory
and a violation of due process. Is the assessment against Soaring Eagle valid?
Explain (5%)

Suggested Answer:

No. The assessment is invalid because the TCC’s used by Soaring Eagle are
valid and effective. A TCC is an undertaking by the government through the BIR
or DOF, acknowledging that a taxpayer is entitled to a certain amount of tax credit
form either an overpayment of income taxes, a direct benefit granted by law or
other sources and instances granted by law such as on specific unused input taxes
and excise taxes on certain goods. As such, tax credit is transferable in accordance
with pertinent laws, rules, and regulations (Pilipinas Shell Petroleum Corp. v.
Commissioner of Internal Revenue, 541 SCRA 315 (2007).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XIV. (2016)

Lucky V Corporation (Lucky) owns a 10 storey building on a 2,000 square


meter lot in the City of Makati. It sold the lot and building to Rainier for P80
Million. One month after, Rainier sold the lot and building to Healthy Smoke
Company (HSC) for P200 Million. Lucky filed its annual tax return and declared
its gain from the sale of the lot and building in the amount of P750,000.00.

An investigation conducted by the BIR revealed that two months prior to the
sale of the properties to Rainier, Lucky received P40 million from HSC and not
from Rainier. Said amount of P40 million was debited by HSC and reflected in its
trial balance as “other inv. – Lucky Bldg.” The month after, another P40 million
was reflected in HSC’s trial balance as “other inv. - Lucky Bldg.” The BIR
concluded that there is tax evasion since the real buyer of the properties of Lucky
is HSC and not Rainier. It is issued an assessment for deficiency income tax in the
amount of P79 million against Lucky. Lucky argues that it resorted to tax
avoidance or a tax saving device which is allowed by the NIRC and BIR rules
since it paid the correct taxes based on its sale to Rainer. On the other hand,
Rainier and HSC also paid the prescribed taxes arising from the sale by Rainier to
HSC. Is the BIR correct in assessing taxes on Lucky? Explain (5%)

Suggested Answer:

Yes. The sale of the property by Lucky V Corporation (Lucky) to Rainer and
consequently the sale by Rainer to HSC being prompted more on the mitigation of
tax liabilities than for legitimate business purposes, therefore, constitute tax
evasion. The real buyer form Lucky is HBC as evidenced by the direct receipt of
payments by the former form the latter where the latter recorded “other
investments - Lucky Building”. The scheme of resorting to a two-step transaction
in selling the property to the ultimate buyer in order to escape paying higher taxes
is considered as outside of those lawful means allowed in mitigating tax liabilities
which makes Lucky criminally and civilly liable. Hence, the BIR is correct in
assessing taxes on Lucky (CIR v. Estate of Benigno P. Toda Jr., 438 SCRA 290
(2004).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XVI. (2016)

Amor Powers, Inc. (API) is a domestic corporation registered with the BIR
as a value-added taxpayer. API incurred excess input VAT in the amount of P500,
000,000.00 on August 3, 2008. Hence, it filed with the BIR an administrative claim
for the refund or credit of these input taxes on August 5, 2010. Without waiting for
the CIR to act on its claim, API filed a Petition for Review with the CTA on
September 15, 2010 before the lapse of two years after the close of the taxable
quarter concerned.

In its Comment on the Petition, the CIR argues that API’s Petition should be
dismisses as it was filed before the lapse of the 120-day period given to the CIR by
Sec. 112 (D) of the NIRC, which became effective on January 1, 1998. For the
CIR, the 120-day period is mandatory and jurisdictional so that any suit filed
before its expiration is premature and, therefore dismissible.

API, on the other hand, invokes BIR Ruling NO. DA-489-03 issued by the
CIR on Decembver 10, 2003 in answer to a query posed by the Department of
Finance regarding the propriety of the actions taken by Lazi Bay Resources
Development Inc., which filed an administrative calim for refund with the CIR
with the CTA, BIR Ruling NO. DA-489-03 stated that the taxpayer-claimant need
not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA.

Will API’s Petition for Review prosper? Decide with reasons. (5%)

Suggested Answer:

Yes. The petition for review filed by API falls within the exmption formt eh
mandatory 120 + 30-day requirement in pursuing a judicial remedy for a claim of
refund of input taxes attributable to zero-rated sales. All claims for refund filed
between October 6, 2003 when BIR Ruling No. DA-489-03 was issued until the
promulgation of the decision by the Supreme Court ruling on the period by which a
taxpayer may pursue a judicial remedy for a claim for refund, must follow the
period prescribed in the BIR Ruling (CIR v. Aichi Forging of Asia, Inc., 632
SCRA 422 (2010).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XVII. (2016)

The requisites for a valid waiver of the three-year (3-year) prescriptive


period for the BIR to assess taxes due in the taxable year are prescribed by
Revenue Memorandum Order (RMO) No. 20-90:

1. The waiver must be in the proper form prescribed by RMO 20-90


2. The waiver must be signed by the taxpayer himself or his duly authorized
representative.

In the case of a corporation, the waiver must be signed by any of its


responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.


4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date of
such acceptance by the BIR should be indicated. However, before signing
the waiver, the CIR or the revenue official authorized by him must make
sure that the waiver is in the prescribed form, duly notarized and executed
by the taxpayer of his duly authorized representative.
5. Both the date execution by the taxpayer and date of acceptance by the
Bureau should before the expiration of the period of prescription or before
the lapse of the period agreed upon in case a subsequent agreement is
executed.
6. The waiver must be executed in three copies, the original copy to be
attached to the docket of the case, the second copy for the taxpayer and the
third copy for the Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy must be indicated in the original copy to show
that the taxpayer was notified of the acceptance of the BIR and the
perfection of the agreement.

After being assessed by the BIR will alleged deficiency income taxes, VVV
Corporation (VVV) through Enrique, its President executed a waiver of the
prescriptive period. The waiver was signed by Revenue District Officer (RDO)
Alfredo. However, the waiver did not state the date of execution by the taxpayer
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

and date of acceptance by the BIR. Enrique was also not furnished a copy of the
waiver by the BIR.

VVV claims that the waiver is void due to non-compliance with RMO 20-
90. Hence, the period for assessment had already prescribed. Moreover, since the
assessment involves P2 million, the waiver should have been signed by the CIR
and instead of a mere RDO. On the other hand, the BIR contends that the
requirements of RMO NO. 20-90 are merely directory; that the execution of the
waiver VVV was a enunciation of its right to invoke prescription and that the
government cannot be stopped by the mistakes committed by its revenue officers.
Is the VVV liable? Explain, (5%)

Suggested Answer:

No. The waiver was executed after VVV Corporation (VVV) was assessed
for deficiency income taxes obviously to justify the assessment made after
prescription had set in. This is the reason why VV is invoking prescription due to
the alleged invalidity of the waiver for failure to comply with requisites set forth
under RMO 20-90. A waiver executed beyond the prescriptive period is ineffective
(CIR v. The Stanley Works Sales (Phil’s), Inc. 743 SCRA 642 (2014).

XX. (2016)

Patrick is a successful businessman in the United States and he is a sole


proprietor of a supermarket which has a gross sales of S10 million and an annual
income of S3 million. He went to the Philippines on a visit and, in a party, he saw
Atty. Agaton who boasts of being a tax expert. Patrick asks Atty. Agaton: if he
(Patrick) decides to reacquire his Philippine citizenship under RA 9225, establish
residence in this country, and open a supermarket in Makati City, will the BIR tax
him on the income he earns form his U.S business? If you were Atty. Agaton, what
advice will you give Patrick? (5%).

Suggested Answer:

I will advise Patrick that once he re-acquires his Philippine citizenship and
establishes his residence in this country, his income tax classification would then
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

be a resident ‘citizen’. A resident citizen is taxable on all his income, whether


derived within or without the Philippines; accordingly the income he earns form
his business abroad will now be subject to the Philippine income tax (Sec. 23,
NIRC).

Alternative Answer:

If Patrick becomes a dual citizen under RA 9225 in our country, he shall be


allowed to acquire real properties and engage himself in business here just like an
ordinary Filipino without renouncing his foreign citizenship. In addition, his
income abroad will not be taxed here. These are among the incentives we have
extended to former Filipinos under the Dual Citizenship Law so that they will
encourage to come home and invest in our country.

II. (2017)

Wreck Corporation is a domestic corporation engaged in the business of


importing, refining and selling petroleum products. During the period from
September 1, 2014 to December 31, 2014, Wreck Corporation imported 225
million liters of Jet A-1 aviation fuel and paid the excise taxes thereon. Seventy-
five percent (75%) of the total volume of aviation fuel imported were actually sold
to international carriers of Philippine and foreign registries for their use or
consumption outside of the Philippines in the period from November 1, 2014, to
December 31, 2014. Wreck Corporation did not pass eon to the international
carriers the excise taxes it paid on the importation of petroleum products.

On June 25, 2015, Wreck Corporation filed an administrative claim for


refund or issuance of tax credit certificate amounting to the excise taxes it had paid
on the importation of 225 million liters of Jet A-1 aviation fuel.

If you were the Commissioner of Internal Revenue, will you grant Wreck
Corporation’s administrative claim for refund or issuance of tax credit certificate?
Explain your answer. (6%)

Suggested Answer:
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Yes, but only the excise tax which corresponds to the 75% of the total
volume of aviation fuel imported that were actually sold to the international
carriers. Wreck Corporation, as the statutory taxpayer who is directly liable to pay
the excise tax on its petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international carriers, the latter
having been granted exemption from the payment of said excise tax under Sec.
135(a) of the NIRC (CIR v. Pilipinas Shell Petroleum Corporation, GR No.
188497, February 19, 2014).

III. (2017)

Vanderful, Inc.’s income tax return for taxable year 2015 showed an
overpayment due to excess creditable withholding taxes in the amount of
P750,000. The company opted to carry over the excess income tax credits as tax
credit against its quarterly income tax liabilities for the next succeeding years. For
taxable year 216, the company’s income tax return showed an overpayment due to
excess creditable withholding taxes in the amount of P1,100,000, which included
the carry-over from year 2015 in the amount of P750,000 because its operations
resulted in a net loss hence, there was no application for any tax liability. This
time, the company opted and marked the box “To be refunded” in respect of the
total amount of P1,100,000.

Vanderful, Inc. now files in the BIR a claim for refund of unutilized
overpayments of P1,100,000. Is the claim meritorious? (4%)

Suggested Answer:

No, but only to the extent of the amount of P750,000 which was carried over
from year 2015. Section 76 of the NIRC of 19997 clearly states: Once the option to
carry-over and apply the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has been made, such option
shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefor. Section 76
expressly states that the option shall be considered irrevocable for that taxable
period referring to the period comprising the succeeding taxable years. Section 76
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

further states that no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor referring to that taxable period comprising the
succeeding taxable years (Asiaworld Properties Philippine Corporation v. CIR, GR
No. 171766, July 29, 2010).

X. (2017)

On January 27, 2017, Ramon, the comptroller of Vantage Point, Inc.,


executed a document entitled “Waiver of the Statute of Limitations” in connection
with the BIR’s investigation of the tax liabilities of the company for the year 2012.
However, the Board of Directors of Vantage Point, Inc., did not adopt a board
resolution authorizing Ramon to execute the waiver.

On October 14, 2017, Vantage Point, Inc., received a preliminary assessment


notice from the BIR indicating its deficiency withholding taxes for the year 2012.
Vantage Point, Inc., filed its protest. On October 30, 2017, the BIR issued a formal
letter of demand and final assessment notice. Vantage Point, Inc., again file a
protest. The Commissioner of Internal Revenue denied the protests and directed
the collection of the assessed deficiency taxes.

Accordingly, Vantage Point, Inc., filed a petition for review in the CTA to seek
the cancellation and withdrawal of the assessment on the ground of prescription.

a) What constitutes a valid waiver of the statute of limitations for the


assessment and collection of taxes? Explain your answer. (3%)

Suggested Answer:

a) Generally, a valid waiver of the statute of limitations for the assessment and
collection of taxes must be executed by the taxpayer and accepted by the
BIR prior to the expiration of the period which it seeks to extend. The same
must also be executed by the taxpayer or his duly authorized representative,
or in the case of a corporation, it must be signed by any of its responsible
officers (CIR v. Kudos Metal Corporation, GR No. 178087, May 5, 2010,
620 SCRA 232, 243, 244). Such requirements must be met considering that a
waiver of the statute of limitation under the NIRC, to a certain extent, is a
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

derogation of the taxpayer’s right to security against prolonged and


unscrupulous investigations and must therefor be carefully and strictly
construed (Philippines Journalists, Inc. v. CIR, GR No. 162852, December
16, 2004).

b) Has the right of the Government to assess and collect deficiency taxes from
Vantage Point, Inc. for the year 2012 prescribed? Explain your answer. (3%)

Suggested Answer:

b) Yes, the final assessment was issued beyond the three-year prescriptive
period to make an assessment (Section 203, 1997 NIRC, as amended). The
Waiver did not extend the three-year prescriptive period, since it was
executed after the expiration of such period.

XIV. (2017)

Globesmart Services, Inc. received a final assessment notice with formal


letter of demand from the BIR for deficiency income tax, value-added tax and
withholding tax for the taxable year 2016 amounting to P48 million. Globesmart
Services, Inc., filed a protest against the assessment, but the Commissioner of
Internal Revenue denied the protest. Hence, Globesmart Service, Inc. filed a
petition for review in the CTA with an urgent motion to suspend the collection of
tax.

After hearing, the CTA Division issued a resolution granting the motion to
suspend but required Globesmart Services, Inc., to post a surety bond equivalent to
the deficiency assessment within 15 days from notice of the resolution. Globesmart
Services, Inc. moved for the partial reconsideration of the resolution and for the
reduction of the bond to an amount it could obtain.

The CTA division issued another resolution reducing the amount of the surety
bond to P24 million. The latter amount was still more than the net worth of
Globesmart Services, Inc., as reported in its audited financial statements.

a) May the collection of taxes be suspended? Explain your answer. (3%)


BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Suggested Answer:

a) Yes. As provided by RA No. 1125, as amended by RA No. 9282, that when


in the opinion of the Court the collection by the aforementioned government
agencies may jeopardize the interest of the Government and/or the taxpayer,
the Court at any stage of the proceeding may suspend the collection and
require the taxpayer either to deposit the amount claimed or to file a surety
bond for not more that double the amount with the court.

b) Is the CTA Division justified in requiring Globesmart Services, Inc., to post


a surety bond as a condition for the suspension of the deficiency tax
collection? Explain your answer. (3%)

Suggested Answer:

b) No. Supreme Court in the Tridharma Case cited the case of Pacquiao v.
Court of Tax Appeals (GR No. 213394, April 6, 2016) where it ruled that the
CTA should first conduct a preliminary hearing for the proper determination
of the necessity of a surety bond or the reduction thereof. If the conduct of
its preliminary hearing, the CTA must balance the scale between the
inherent power of the State to tax and its right to prosecute perceived
transgressors of the law, on one side, and the constitutional rights of
petitioners to due process of law and the equal protection of the laws, on the
other. In this case, the CTA failed to consider that the amount of the surety
bond that it is asking Globesmart Services, Inc. to pay is more than its net
worth. It is, thus, necessary for the CTA to first conduct a preliminary
hearing to give the taxpayer an opportunity to prove its inability to come up
with such amount.
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

XVI. (2017)

The BIR assessed the Babuyan Water District (BWD) with deficiency
income taxes amounting to P8.5 million, inclusive of interest and surcharge. The
BWD disputed the assessment, and argued that it was a wholly-owned government
entity performing essential government functions. However, the BIR denied the
protest.

The BWD filed a petition for arbitration in the Office of the Secretary of
Justice pursuant to Sections 66 to 71, Chapter 14, Book IV of the Administrative
Code of 1987 to assail the denial of its protest, and to seek the proper interpretation
of Section 32(B)(7)(b) of the Tax Code that excluded from gross income the
income derived by the Government or its political subdivisions. The Secretary of
Justice rendered a decision declaring the BWD exempt from the payment of
income tax.

The Commissioner of Internal Revenue appealed to the CTA on the sole


ground that the Secretary of Justice had no jurisdiction to review the assessment of
the BIR.

Is the appeal meritorious? Explain your answer. (4%)

Suggested Answer:

No. Section 7(a) of RA No. 1125, as amended by RA 9282 enumerates the


CTA’s exclusive appellate jurisdiction to review by appeal certain decisions or
inaction but not that of a Secretary of Justice.

Moreover, despite the issue involves the CIR’s assessment, however,


Section 7(a)(1) of the same law, specifically the phrase “other matters arising
under the National Internal Revenue” must be read together with words preceding
it, i.e., “decisions of the Commissioner of internal Revenue in cases involving
disputed assessments, x x x”, following the statutory construction principle of
ejusdem generis (CIR v. CTA (Second Division) and Petron Corporation, GR No.
207843, July 15, 2015).
BAR EXAMINATION QUESTIONS AND ANSWERS IN TAXATION

Alternative Answer:

Yes. GOCCs are taxable entities and they are not exempt from BIR
assessment and collection, unless their charter or the law creating them provides
otherwise. Hence, is case of tax dispute between a GOCC and the BIR, the
controversy is cognizable and appealable to the CTA. The issue cannot be resolved
by the DOJ.

PD 242 is a general law that deals with administrative settlement or


adjudication of disputes, claims, and controversies between or among government
offices, agencies and instrumentalities, including GOCCs; whereas, RA 1125 (the
law creating CTA) is a special law. A special law prevails over a general law. The
fact that PD 242 is the more recent law is of no significance, CTA has jurisdiction
when a GOCC is assessed taxes. Disputes, claims, and controversies falling under
RA 1125, even though solely among government offices, agencies, and
instrumentalities, including GOCCs, remain solely in the exclusive jurisdiction of
the CTA.

[Note: (on recent jurisprudence not covered by the 2017 Bar Syllabus) The
Supreme Court held in Commissioner of Internal Revenue v. Secretary of Justice
and PAGCOR (GR No. 177387, November 9, 2016) that the Secretary of Justice
does not have any jurisdiction to review any disputed assessments arising under the
Tax Code. The Secretary of Justice should have desisted from dealing with the
petition and referred the matter to the Court of Tax Appeals that has jurisdiction
over appeals on the decisions of the BIR in tax assessment cases].