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MONTERO // 3A TAX DIGESTS

AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

(Continuation of Prescription of Government’s Right to Assess) there is no waiver of defense of prescription for the remaining tax
deficiencies, it being on record that the Bank continued to raise the issue
COMMISIONER OF INTERNAL REVENUE v. STANDARD of prescription in its Pre-Trial Brief, Joint Stipulations of Facts and Issues,
direct testimonies of its witness, and Memorandum. More so, even CIR did
CHARTERED BANK (Agatep)
not consider such payment of respondent as a waiver of the defense of
[GR. No. 192173; July 29, 2015] prescription, but merely raised the issue of estoppel in her Motion for
“Waiver invalid pag hindi nagcomply so form . . . so may prescription pa rin” Reconsideration.

Recit-Ready: Facts:
Facts: Standard Chartered Bank (Bank) received from the CIR a Formal • On July 14, 2004, Standard Chartered Bank (Bank) received from the CIR
Letter of Demand dated June 24, 2004, for alleged deficiency income tax, a Formal Letter of Demand dated June 24, 2004, for alleged deficiency
final income tax - FCDU, withholding tax on compensation, EWT, final income tax, final income tax - FCDU, withholding tax on compensation,
withholding tax and increments for taxable year 1998 in the aggregate EWT, final withholding tax and increments for taxable year 1998 in the
aggregate amount of P33,326,211.37.
amount of P33,326,211.37.
• In view of CIR’s inaction on the Bank’s protest filed on August 12, 2004,
The bank made a protest of the assessment and on the inaction of the the Bank filed a Petition for Review on March 9, 2005.
CIR, it filed a petition for review in the CTA. CTA Division granted
respondent’s petition on the ground that the CIR’s right to assess has • The CTA in Division granted respondent's petition for the cancellation and
already prescribed. The waivers of Statute of Limitations, executed by the setting aside of the subject Formal Letter of Demand and Assessment
parties (CIR and Taxpayer), presented in evidence by the CIR was not Notices on the ground that petitioner's right to assess respondent for the
deficiency covering taxable year 1998 was already barred by prescription.
given credence because they were not in compliance with the form
Although petitioner offered in evidence copies of the Waivers of Statute of
prescribed by Revenue Memorandum Order. Limitations executed by the parties, for the purpose of justifying the
extension of period to assess respondent, the subject waivers,
Issue/s: particularly the First and Second Waivers dated 20 July 2001 and 4 April
WON the CIR’s right to assess deficiency taxes has prescribed? 2002, respectively, failed to strictly comply and conform with the
—YES provisions of Revenue Memorandum Order (RMO) No. 20-90, citing the
case of Philippine Journalists, Inc. v. CIR. It therefore concluded that
since the aforesaid waivers were invalid, it necessarily follows that the
Held:
subsequent waivers did not in any way cure these defects. Neither did it
YES. CIR can no longer make an assessment for the taxable year 2008 extend the prescriptive period to assess. MR Denied. The CTA En Banc
because the assessment was issued beyond the three year prescriptive affirmed in toto both the aforesaid Decision and Resolution.
period.
Issue:
The waivers agreed in writing by the parties (CIR and Taxpayer) was
WON the CIR’s right to assess deficiency taxes has prescribed?
invalid because they did not conform with the formal requirements
prescribed by RMO No. 20-90 and RDAO No. 05-01. The provisions —YES
explicitly show their mandatory nature requiring strict compliance.
Held/Ratio: Petition DENIED for lack of merit.
Although respondent paid the deficiency WTC and FWT assessments, YES

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

• At the outset, the period for petitioner to assess and collect an internal before the lapse of the period agreed upon in case a subsequent
revenue tax is limited only to three years by Section 203 of the NIRC of agreement is executed.
1997. 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
• As an exception, Section 222 of the NIRC allows the Commissioner and the third copy for the Office accepting the waiver. The fact of receipt by
the Taxpayer to agree in writing, before the expiration of the prescriptive the taxpayer of his/her file copy must be indicated in the original copy to
period, that assessment may be allowed even after the lapse of the three show that the taxpayer was notified of the acceptance of the BIR and the
perfection of the agreement.
year period.
• In this case, the Commissioner should have signed the waivers but only
• In the case of Philippine Journalists, Inc. v. CIR a waiver is not
Assistant Commissioners signed it. Date of Acceptance was not indicated
automatically a renunciation of the right to invoke the defense of
therein. The waivers did not specify the kind and amount of tax due.
prescription. It is a bilateral agreement, thus necessitating the very
signatures of both the CIR and the taxpayer to give birth to a valid
• Further, the tenor of the Waiver of the Statute of Limitations signed by
agreement. Furthermore, indicating in the waiver the date of acceptance
petitioner's authorized representative failed to comply with the prescribed
by the BIR is necessary in order to determine whether the parties (the
requirements of RMO No. 20-90. The subject waiver speaks of a request
taxpayer and the government) had entered into a waiver "before the
for extension of time within which to present additional documents,
expiration of the time prescribed.
whereas the waiver provided under RMO No. 20-90 pertains to the
approval by the Commissioner of Internal Revenue of the taxpayer's
• RMO No. 20-90 and RDAO No. 05-01 outline the procedure for the proper
request for re-investigation and/or reconsideration of pending internal
execution of a waiver. The provisions explicitly show their mandatory
revenue case.
nature requiring strict compliance.

1. The waiver must be in the proper form prescribed by RMO 20-90. The • Taking into consideration the foregoing defects in the First and Second
phrase "but not after __ 19 _", which indicates the expiry date of the Waivers, the period to assess the tax liabilities was never extended.
period agreed upon to assess/collect the tax after the regular three-year Consequently, prescription has already set in.
period of prescription, should be filled up.
• Although respondent paid the deficiency WTC and FWT assessments,
2. The waiver must be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver must there is no waiver of defense of prescription for the remaining tax
be signed by any of its responsible officials. In case the authority is deficiencies, it being on record that the Bank continued to raise the issue
delegated by the taxpayer to a representative, such delegation should be of prescription in its Pre-Trial Brief, Joint Stipulations of Facts and Issues,
in writing and duly notarized. direct testimonies of its witness, and Memorandum. More so, even CIR
did not consider such payment of respondent as a waiver of the defense
3. The waiver should be duly notarized.
of prescription, but merely raised the issue of estoppel in her Motion for
4. The CIR or the revenue official authorized by him must sign the waiver Reconsideration.
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 REPUBLIC v. LIM DE YU (Alarcon)
make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.
[GR. No. L-17438; December 29, 1960]
“Dapat di pa prescribed bago ka mag waive”
5. Both the date of execution by the taxpayer and date of acceptance by
the Bureau should be before the expiration of the period of prescription or
Recit-Ready:

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Facts: Lim de Yu filed her income tax returns for the years 1958 to of the statute on limitations under the Tax Code as a condition on the
1953. BIR assessed her taxes which she paid. BIR assessed her reinvestigation requested.
for income tax deficiency for the same period of 1948 to 1953 in • On July 18, 1958, the BIR issued to her tax assessment notices for the
the total of P22, 450.50. She protested and requested an years 1948 to 1953 totalling P35,379.63. This assessment, like the last
reinvestigation. She signed a “waiver on the statute of limitations one, covered not only the basic deficiency income taxes but also 50%
in the NIRC” on August 30, 1956. In July 18, 1958, BIR assessed thereof as surcharge.
her for the third time for tax deficiency of P35, 379.63 which • Upon respondent’s failure to pay, an action for collection was filed
included a 50% surcharge for the same tax periods. Upon her against her in Court of First Instance in Cotabato on May 11, 1959. After
failure to pay for the taxes due, BIR filed a collection case trial, the suit was dismissed. BIR appeled to the Supreme Court.
against her on May 11, 1958. Respondent alleges that BIR’s • BIR claims that the returns filed by Yu de Lim for 1948 to 1953 are
action to assess and collect has already prescribed as the 5 year fraudulent as they are much less than as computed by the BIR and
period has lapsed. BIR contends that it has 10 years from under par (a) Sec 332 of the Tax Code, it has 10 years from the date of
discovery of fraud to collect from Yu de Lim as her return were discovery of the fraud (May 25, 1955) within which to asses the tax or to
fraudulent, as there was a great disparity from BIR’s assessment file a suit for collection without assessment. They content Yu de Lim can
from the returns filed. no longer question the correctness of the assesments in view of her
failure to raise in the Court of Tax Appeals.
Issue/s:
1) WON the returns filed by respondent for the years 1948 to 1953 Issue/s:
are false and fraudulent—NO 1) WON the returns filed by respondent for the years 1948 to 1953
2) WON taxes due from 1948 to 1953 can still be collected are false and fraudulent—NO
—NO 2) WON taxes due from 1948 to 1953 can still be collected
—No,1948 to 1950; Yes- 1951 to 1953
Held:
1) Fraud was not established by BIR. The prescriptive period then is 5 Held/Ratio: decision of trial court is modified by ordering appellee to pay
years from the filing of the return. Prescriptive period for tax on years appellant the sum of P26,182.00 as deficiency income taxes for the years
1948 to 1950 has already prescribed when Yu de Lim executed a 1951, 1952 and 1953, plus 5% surcharge and 1% monthly interest thereon
“waiver” on August 30, 1956. What is only included in the “waiver” from July 31, 1958 until payment of the full obligation, with costs.
was 1951 and 1953 taxes. With respect to the tax year 1953, as to
which the return was filed by appellee on March 1, 1954, the waiver 1) No. While fraud is alleged, it has not been established by BIR.
was not necessary for the effectivity of the assessment made on July o It is one thing to say that the correctness of respondent’s assessment
18, 1958, since such assessment was well within the original five-year can no longer be challenged on the same technical grounds just
period provided by law. After the assessment on July 18, 1958, stated by BIR and another to say that respondent committed a
appellant had five years within which to file suit for collection pursuant deliberate fraud in her returns.
to Section 332 (c) of the tax code. o On three different occasions, BIR arrived in three highly different
computations.
Facts: ! First, it accepted Yu de Lim’s yearly statement of
• Rita Lim de Yu filed her yearly income tax returns from 1948 to 1953. BIR income from 1945 to 1953 and assessed her for
assessed her taxes due and she paid them accordingly. P2,732.37 which respondent paid.
• On July 17, 1955 BIR issued a deficiency tax assessment for the years ! In 1956, BIR came up with different figures for the
1945 to 1953 in the total amount of P22,450.50. She protested and same period. It assessed respondent with P22, 450.50
requested a reinvestigation. On August 30, 1956, she signed a “waiver” as deficiency tax.

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

! In 1958, the Bureau assessed respondent P35, 379.63 action' as the phrase is used in section 316 of the
for years 1948 to 1953, inclusive of 50% surcharge Tax Code x x x" (Alhambra Cigar and Cigarette
notwithstanding the fact that respondent filed her Manufacturing Company v. The Collector of
return that year and paid for it. Internal Revenue, L-12026, May 29, 1959).

2) Fraud not having been proven, the period of limitation for REPUBLIC v HEIRS OF CESAR JALANDONI (Arcaina)
assessment or collection was five years from the filing of the [GR. No. L-13834; September 20, 1965]
return, according to Section 331 of the Tax Code. The right to
“Hindi lahat ng mistake, fraudulent.”
assess or collect taxes for 1948 to 1950 had already prescribed
when the BIR issued the deficiency tax assessment on July 17,
1956. Recit-Ready:
Facts: On Nov. 19, 1948, Cesar Jalandoni (one of the heirs) filed an
o Tax years 1948 to 1950 cannot be deemed included in the estate and inheritance tax return which the BIR considered as
“waiver of statute of limitations under the NIRC” executed by “partial pending investigation.” Deficiency estate and inheritance
respondent on August 30, 1956. The five year period for
taxes were discovered during the second assessment in January
assessment may be extended upon agreement between the
Commissioner and the taxpayer but such agreement must be 1953. Demands were made to the heirs and the BIR said that the
made before the expiration of the original period. same was still to be considered “partial pending further
investigation of the return (AGAIN!)”. During the third assessment
o With respect to the tax year 1953, as to which the return was (in May 9, 1956, note: 7 years and x months since first filing), it
filed by appellee on March 1, 1954, the waiver was not was found that:
necessary for the effectivity of the assessment made on July (1) The market value of the lands reported filed by Cesar Jalandoni
18, 1958, since such assessment was well within the original
was underdeclared in the amount of over P300k;
five-year period provided by law. After the assessment on July
18, 1958, appellant had five years within which to file suit for (2) 7 lots in Negros Occidental belonging to the deceased were
collection pursuant to Section 332 (c) of the tax code. omitted from the return (total market value of P100,200;
(3) Shares of stock owned by the deceased in Victoria’s Milling
o Appellee's theory that collection could be made only up to the Company etc, although included in the return, were again
end of the period of extension stated in the waiver, namely, underdeclared in the amount of P16,355.36.
December 31, 1958, is without merit. Assessment and
collection are two different processes. Collection may be
Issue/s:
effected within five years after assessment or within the period
for collection agreed upon in writing by the Commissioner of 1. WON the discovered “underdeclarations” were fraudulent – NO.
Internal Revenue and the taxpayer before the expiration of such 2. WON the BIR’s claim has prescribed – YES.
five-year period.
Held:
! "An assessment is not an action or proceeding for 1. NO. First, as regards the 7 lots deliberately omitted, it appears
the collection of taxes. It is merely a notice to the
that 3 of the 7 lots were actually included in the returns; that
effect that the amount therein stated is due as tax
and a demand for the payment thereof. It is a step 1 lot was not included because it belonged to one of the
preliminary, but essential to warrant distraint, if still heirs; and that the 3 remaining lots were already declared in
feasible, and, also, to establish a cause for 'judicial the return submitted by the husband of the heir as part of

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the conjugal property (for income tax purposes). Second, as o Nov. 20, 1948: FIRST ASSESSMENT, which demanded payments
regards the appraisal of the actual value of the properties, the of estate and inheritance taxes stating that the assessment was “to
Court ruled that any mistake in the valuation made by the be considered partial pending investigation of the return. The
representative, the same can only be considered as an amounts were paid.
honest mistake, he being NOT AN EXPERT in appraising real • SECOND RETURN
estate. Moreover, the deficiency assessment was made by the o Jan. 27, 1953: SECOND ASSESSMENT, which stated that there
Collector more than 5 years from the filing of the return, and were deficiency estate and inheritance taxes; demand was made
such an intervening period is SUFFICIENTLY LONG TO on the deceased’s hubby, Bernardino; again, this was “considered
WARRANT AN INCREASE IN VALUE OF REAL ESTATE. partial pending further investigation of the return”. The amounts
Third, as regards the value of the shares of stock that did not tally were paid.
with their book value – this is not indicative of fraud especially • THIRD ASSESSMENT: MAY 9, 1956
when said book value only became known several months o Market value of the lands reported filed by Cesar Jalandoni was
after the death of the deceased. Moreover, stock securities underdeclared in the amount of P365,149.50
frequently fluctuate in value and a mere difference of o 7 lots in Negros Occidental, as belonging to the deceased, including
opinion in relation thereto cannot serve as proper basis for their improvements, were omitted from the return the same having a
assessing an intention to defraud the government. market value of P100,200
2. YES. Since the filing was NOT based on fraud, as discussed o Shares of stock owned by the deceased in the Victoria’s Milling
above, the government’s right to assess has already prescribed Company etc, though included in the return, were undeclared in the
as provided for by Section 331 of the NIRC. The NIRC gives 5 amount of P16,355.36.
years to the government, from filing of the return. In this • As a response to the third assessment, Bernardino wrote a letter to the
case, the first return was filed in 1948, and the last assessment Collector of Internal revenue setting up the defense of prescription,
(basis for this case) was made in 1956. Almost 7-year since more than 5 years had already elapsed from the filing of the
difference. Sorry, CIR. return (Section 331, NIRC).
o Collector: alleged that the return filed by the administrator/heirs
Facts: contained omissions which amount to fraud indicative of an
• Isabel Ledesma died intestate on June 23, 1948 leaving real properties in intention to evade payment of the proper tax due the
Negros Occidental and Rizal, in Manila, Baguio, and personal properties government, the taxes then could still be demanded within 10
consisting of shares of stock in various corporations. years form discovery of falsity.
• Her heirs were her husband Bernardino Jalandoni, and three children • This case was tried on the merits and the Collector-designated Examiner
(Cesar, Angeles and Delfin) Genaro Butas stated that: of the 7 lots not included in the return, 2 were
• FIRST RETURN: Nov. 19, 1948 by Cesar actually declared. No other additional evidence was submitted. The court
o Real and personal properties owned by his deceased mom and held the heirs liable for deficiency taxes and found that the tax returns
surviving dad: total MV = P1,324,555.80 were false, that the substantial understatement of stocks and omission of
o After deducting conjugal share + some expenses = net taxable seven parcels of land evinced an intention to evade the payment of the
estate = P28,148.04 correct amount of tax.
o P542,225.98 = amount subject to inheritance tax Issue/s:

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

1.) WON the discovered “underdeclarations” were fraudulent – NO. by Section 331 of the NIRC. The NIRC gives 5 years to the
2.) WON the BIR’s claim has prescribed – YES government, from filing of the return. In this case, the first return was
filed in 1948, and the last assessment (basis for this case) was made
Held/Ratio: WHEREFORE, the decision appealed from is reversed in 1956. Almost 7-year difference. Sorry, CIR.
and the complaint of appellee is dismissed, No
pronouncement as to costs AZNAR v. COURT OF APPEALS (Austria)
[GR. No. l-20569; August 23, 1974]
1) NO. The underdeclarations were not fraudulent. “10 years prescription to assess your pagkakamali [false], panloloko
[fraudulent] and pag-iwan [failure to return], plus 50% surcharge for a
First, as regards the 7 lots deliberately omitted, it appears that 3 of the 7 fraudulent return”
lots were actually included in the returns; that 1 lot was not
included because it belonged to one of the heirs; and that the 3 Recit-Ready:
remaining lots were already declared in the return submitted by the Facts: The assets and liabilities of the taxpayer were ascertained and it
husband of the heir as part of the conjugal property (for income tax was discovered that from 1946 to 1951, his net worth had
purposes). increased every year, which increases in net worth was very
much more than the income reported during said years. The
Second, as regards the appraisal of the actual value of the properties, findings clearly indicated that the taxpayer did not declare
the Court ruled that any mistake in the valuation made by the correctly the income reported in his income tax returns for
representative, the same can only be considered as an honest the aforesaid years.
mistake, he being NOT AN EXPERT in appraising real estate.
Moreover, the deficiency assessment was made by the Collector more Petitioner, as administrator of the estate of the deceased, Matias
than 5 years from the filing of the return, and such an intervening H. Aznar, seeks a review and nullification of the decision of the
period is SUFFICIENTLY LONG TO WARRANT AN INCREASE IN Court of Tax Appeals ordering the petitioner to pay the
VALUE OF REAL ESTATE. government the sum of P227,691.77 representing deficiency
income taxes for the years 1946 to 1951, inclusive, with the
Third, as regards the value of the shares of stock that did not tally with condition that if the said amount is not paid within thirty days from
their book value – this is not indicative of fraud especially when said the date the decision becomes final, there shall be added to the
book value only became known several months after the death of unpaid amount the surcharge of 5%, plus interest at the rate of
the deceased. Moreover, stock securities frequently fluctuate in value 12% per annum from the date of delinquency to the date of
and a mere difference of opinion in relation thereto cannot serve as payment, in accordance with Section 51 of the National Internal
proper basis for assessing an intention to defraud the government. Revenue Code, plus costs against the petitioner. Moreover, the
lower court imposed the fraud penalty (surcharge of 50%
2) YES. The government’s right has prescribed. authorized in Section 72 of the Tax Code).

Since the filing was NOT based on fraud, as discussed above, the Petitioner insists that there might have been false returns by
government’s right to assess has already prescribed as provided for mistake filed by Mr. Matias H. Aznar as those prepared by his

6
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

accountant employees, but there were returns were no proven foregoing shows that it was not only Mr. Matias H. Aznar who
fraudulent returns with intent to evade taxes that would justify the committed mistakes in his report of his income but also the
imposition of the 50% surcharge authorized by law as fraud respondent Commissioner of Internal Revenue who committed
penalty. The petitioner argues that the period to assess has mistakes in his use of the inventory method to determine the
prescribed when the notice of final and last assessment was petitioner's tax liability.
received by the taxpayer on March 2, 1955, a period of about 8
years had elapsed.

Issue/s:
1) WON the period to assess has prescribed – NO Facts:
2) WON the imposition of the 50% surcharge is proper - NO • Late Matias H. Aznar who died on May 18, 1958, predecessor in interest
of herein petitioner, during his lifetime as a resident of Cebu City, filed
Held: his income tax returns on the cash and disbursement basis.
1) NO. 10 year prescriptive period applies. In the three different • The Commissioner of Internal Revenue having his doubts on the veracity
cases of (1) false return, (2) fraudulent return with intent to evade of the reported income of one obviously wealthy, pursuant to the
tax, (3) failure to file a return, the tax may be assessed, or a authority granted him by Section 38 of the National Internal Revenue
proceeding in court for the collection of such tax may be begun Code, caused B.I.R. Examiner Honorio Guerrero to ascertain the
without assessment, at any time within ten years after the taxpayer's true income for said years by using the net worth and
discovery of the (1) falsity, (2) fraud, (3) omission. The ordinary expenditures method of tax investigation.
period of prescription of 5 years within which to assess tax • The assets and liabilities of the taxpayer during the abovementioned
liabilities under Sec. 331 of the NIRC should be applicable to years were ascertained and it was discovered that from 1946 to 1951,
normal circumstances, but whenever the government is placed at his net worth had increased every year, which increases in net worth
a disadvantage so as to prevent its lawful agents from proper was very much more than the income reported during said years. The
assessment of tax liabilities due to false returns, fraudulent return findings clearly indicated that the taxpayer did not declare correctly the
intended to evade payment of tax or failure to file returns, the income reported in his income tax returns for the aforesaid years.
period of ten years provided for in Sec. 332 (a) NIRC, from the • Respondent Commissioner notified the taxpayer (Matias H. Aznar) of the
time of the discovery of the falsity, fraud or omission even seems assessed tax delinquency to the amount of P723,032.66, plus
to be inadequate and should be the one enforced. compromise penalty.
2) NO. There is no fraudulent return thus it shall not apply. No distinction • The taxpayer requested a reinvestigation which was granted for the
has been made between false returns (due to mistake, carelessness purpose of verifying the merits of the various objections of the taxpayer
or ignorance) and fraudulent returns (with intent to evade taxes). We to the deficiency income tax assessment of November 28, 1952.
can also state that fraudulent intent could not be deduced from • After the reinvestigation, another deficiency assessment to the reduced
mistakes however frequent they may be, especially if such mistakes amount of P381,096.07 dated February 16, 1955, superseded the
emanate from erroneous entries or erroneous classification of items in previous assessment and notice thereof was received by Matias H.
accounting methods utilized for determination of tax liabilities. The Aznar on March 2, 1955.

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

• In determining the unreported income, the respondent Commissioner of March 2, 1955, a period of about 8 years had elapsed and
Internal Revenue resorted to the net-worth method. the five year period provided by law (Sec. 331 of the
• On February 20, 1953, respondent Commissioner of Internal Revenue, National Internal Revenue Code) had already expired.
thru the City Treasurer of Cebu, placed the properties of Matias H. Aznar o The same argument is advanced on the taxpayer's return
under distraint and levy to secure payment of the deficiency income tax for 1947, which was filed on March 1, 1948, and the return
in question. for 1948, which was filed on February 28, 1949.
• Matias H. Aznar filed his petition for review of the case with the Court of • Respondents, on the other hand, are of the firm belief that regarding the
Tax Appeals on April 1, 1955, with a subsequent petition immediately prescriptive period for assessment of tax returns, Section 332 of the
thereafter to restrain respondent from collecting the deficiency tax by National Internal Revenue Code should apply because, as in this case,
summary method, the latter petition being granted. (a,) In the case of a false or fraudulent return with intent to evade tax or
• Upon review, this Court set aside the C.T.A. resolution and required the of a failure to file a return, the tax may be assessed, or a proceeding in
petitioner to deposit with the Court of Tax Appeals the amount court for the collection of such tax may be begun without assessment, at
demanded by the Commissioner of Internal Revenue for the years 1949 any time within ten years after the discovery of the falsity, fraud or
to 1951 or furnish a surety bond for not more than double the amount. omission" (Sec. 332 (a) of the NIRC).
• On March 5, 1962, in a decision signed by the presiding judge and the • Petitioner argues that Sec. 332 of the NIRC does not apply because the
two associate judges of the Court of Tax Appeals, the lower court taxpayer did not file false and fraudulent returns with intent to evade tax,
concluded that the tax liability of the late Matias H. Aznar for the year while respondent Commissioner of Internal Revenue insists contrariwise
1946 to 1951, inclusive should be P227,788.64 minus P96.87 concluding that the very "substantial under-declarations of income for six
representing the tax credit for 1945, or P227,691.77. consecutive years eloquently demonstrate the falsity or fraudulence of
• Petitioner, as administrator of the estate of the deceased, Matias H. the income tax returns with an intent to evade the payment of tax.
Aznar, seeks a review and nullification of the decision of the Court of Tax • The petitioner contested some of the assessment on Aznar’s property,
Appeals ordering the petitioner to pay the government the sum of alleging errors committed by the Court of Tax Appeals:
P227,691.77 representing deficiency income taxes for the years 1946 o in not deducting from the alleged undeclared income of the
to 1951, inclusive, with the condition that if the said amount is not taxpayer for 1946 the proceeds from the sale of jewelries
paid within thirty days from the date the decision becomes final, valued at P30,000;
there shall be added to the unpaid amount the surcharge of 5%, o in not excluding from other schedules of assets of the
plus interest at the rate of 12% per annum from the date of taxpayer
delinquency to the date of payment, in accordance with Section 51 of ! (a) accounts receivable from customers in the
the National Internal Revenue Code, plus costs against the petitioner. amount of P38,000 for 1948, P126,816.50 for
• Petitioner's contention is that the provision of law applicable to this 1950, and provisions for doubtful accounts in the
case is the period of five years limitation upon assessment and amount of P41,810.56 for 1950;
collection from the filing of the returns provided for in Sec. 331 of ! (b) over valuation of hospital and dental buildings
the National Internal Revenue Code". for 1949 in the amount of P32,000 and P6,191.32
o He argues that since the 1946 income tax return could be respectively;
presumed filed before March 1, 1947 and the notice of final ! (c) investment in hollow block business in the
and last assessment was received by the taxpayer on amount of P8,603.22 for 1949;

8
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

! (d) over valuation of surplus goods in the amount of o As to the accounts receivable from the United States
P23,000 for the year 1949; government for the amount of P38,254.90, representing a
! (e) various lands and buildings included in the claim for goods commandered by the U.S. Army during
schedule of assets for the years 1950 and 1951 in World War II, and which amount petitioner claimed should
the total amount of P243,717.42 for 1950 and be included in his net worth as of January 1, 1946,
P62,564.00 for 1951, ! the Court of Tax Appeals correctly concluded that
• [this part made the case long] These issues would depend for their the uncontradicted evidence showed that "the
resolution on determination of questions of facts based on an evaluation collectible accounts of Mr. Aznar from the U.S.
of evidence, and the general rule is that the findings of fact of the Court Government in the sum of P38,254.90 should be
of Tax Appeals supported by substantial evidence should not be added to his assets (under accounts receivable) as
disturbed upon review of its decision (Section 2, Rule 44, Rules of of January 1, 1946. As of December 31, 1947, and
Court). December 31, 1948, the years within which the
o On the question of the alleged sale of P30,000 worth of accounts were paid to him, the 'accounts
jewelries in 1946, which amount petitioner contends should receivable' shall decrease by P31,362.37 and
be deducted from the taxpayer's net worth as of December P6,892.53, respectively.
31, 1946: o Regarding a house in Talisay Cebu, (covered by Tax
! petitioner's accountant testified that on January 1, Declaration No. 8165) which was listed as an asset during
1945, Matias H. Aznar had jewelries worth P60,000 the years 1945 and 1947 to 1951, but which was not listed
which were acquired by purchase during the as an asset in 1946 because of a notation in the tax
Japanese occupation (World War II) and sold on declaration that it was reconstructed in 1947,
various occasions, as follows: 1945, P5,000 and ! the lower court correctly concluded that the
1946, P30,000. reconstruction of the property did not render it
! Mr. Aznar stated to the B.I.R. examiner that valueless during the time it was being
jewelries worth P10,000 were sold in 1945, while reconstructed and consequently it should be listed
his own accountant testified that the same jewelries as an asset as of January 1, 1946, with the same
were sold for only P5,000. Mr. Aznar also testified valuation as in 1945, that is P1,500.
that Mrs. Agustines purchased from his wife o On the question of accounts receivable from customers in
jewelries for P35,000, and yet Mrs. Agustines the amount of P38,000 for 1948, and P123,816.58 for the
herself testified that she bought jewelries for years 1950 and 1951, which were included in the assets of
P30,000 and P15,000 on two occasions, or a total Mr. Aznar for those years by the respondent Commissioner
of P45,000. of Internal Revenue
! petitioner's allegation that jewelries form part of his ! figures were taken from the statements (Exhs. 31
inventory of assets for the purpose of establishing and 32) filed by Mr. Matias H. Aznar with the
his net worth at the beginning of 1946 must be Philippine National Bank when he was intending to
dismissed as without factual basis obtain a loan.

9
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

! To believe the petitioner's argument that the late respondent Commissioner of Internal Revenue's
Mr. Aznar included those figures in his sworn valuation of both properties.
statement only for the purpose of obtaining a ! The reduced valuation for the latter years are due
bigger credit from the bank is to cast suspicion on to allowance for partial loss resulting from the 1949
the character of a man who can no longer defend typhoon. Petitioner did not question the inclusion of
himself. It would be as if pointing the finger of these buildings in the inventory for the years prior
accusation on the late Mr. Aznar that he to 1950, but objected to their inclusion as assets as
intentionally falsified his sworn statements (Exhs. of January 1, 1950, because both buildings were
31 and 32) to make it appear that there were non- destroyed by a typhoon in November of 1949.
existent accounts receivable just to increase his ! therefore, should be eliminated from the petitioner's
assets by fictitious entries so that his credit with the inventory of assets beginning December 31, 1949
Philippine National Bank could be enhanced. o On the issue of investment in the hollow blocks business,
! There is no merit to petitioners argument that those ! We see no compelling reason to alter the lower
statements were only for the purpose of obtaining a court's conclusion that "whatever was spent in the
bigger credit from the bank (impliedly stating that hollow blocks business is an investment, and being
those statements were false) and those accounts an investment, the same should be treated as an
were allegedly back accounts of students of the asset
Southwestern Colleges and were worthless, and if o With respect to the amount representing the value of the
collected, would go to the funds of the school. building,
o As to the questions of doubtful accounts (bad debts), for the ! there is no duplication in the listing as the inventory
amount of P41,810.56 of real property does not include the building in
! it is clear that said amount is taken from Exhibit 31, question.
the sworn statement of financial condition filed by o The inclusion of expenses (labor and raw materials) as part
Mr. Matias H. Aznar with the Philippine National of the hollow block business is sanctioned in the inventory
Bank. method of tax verification,
! it should be reverted to the accounts receivable ! It is a sound accounting practice to include raw
and, consequently, considered as an asset in 1950. materials that will be used for future manufacture.
o On the alleged over valuation of two buildings (hospital Inclusion of direct labor is also proper, as all these
building listed as an asset from 1949-1951 at the basic items are to be embodied in a summary of assets
valuation of P130,000, and which petitioner claims to be (investment by the taxpayer credited to his capital
over valued by P32,000; dentistry building valued by account as reflected in Exhibit 72A, which is a
respondent Commissioner of Internal Revenue at working sheet with entries taken from the journal of
P36,191.34, which petitioner claims to be over valued by the petitioner concerning his hollow blocks
P6,191.34), business.
! We find no sufficient reason to alter the conclusion o As to the question of the real value of the surplus goods
of respondent Court of Tax Appeals sustaining the purchased by Mr. Matias H. Aznar from the U.S. Army to

10
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the effect "as part of my assets I have different (Exh. H), however, clearly shows that said
merchandise from Warehouse 35, Tacloban, Leyte at a total properties were formally conveyed to the
cost of P43,000.00 and valued at no less than P20,000 at Southwestern Colleges only on September 25,
present market value." 1952.
! Petitioner's claim that the goods should be valued ! Undoubtedly, petitioner was the owner of those
at only P20,000 in accordance with an alleged properties prior to September 25, 1952 and said
invoice is not supported by evidence since the properties should form part of his assets as of
invoice was not presented as exhibit. December 31, 1951.
! the statement of Mr. Aznar cannot be questioned in o The uncontested portions of the lower court's decision
the light of clear indications that it was never consisting of the following: must not be considered as an
controverted and it was given at a time long before asset of petitioner since to do so would result in a glaring
the tax controversy arose. duplication of items, are all affirmed:
o The last issue on propriety of inclusion in petitioner's assets ! its conclusions that library books valued at
as made by respondent Commissioner of Internal Revenue P7,041.03, appearing in a journal of the
concerns several buildings which were included in the list of Southwestern Colleges marked as ‘Exhibit 25A,
petitioner's assets as of December 31, 1950. being an investment, should be treated as an asset
! The lower court could not find any evidence of said beginning December 31, 1950;
alleged transfer of ownership from the taxpayer to ! that the expenses for construction to the amount of
the Southwestern Colleges as of December 15, P113,353.70, which were spent for the
1950, an allegation which if true could easily be improvement of the buildings appearing in Exhibit
proven. What is evident is that those buildings were 24 are deemed absorbed in the increased value of
used by the Southwestern Colleges. the buildings as appraised by respondent
! Mr. and Mrs. Matias H. Aznar offered those Commissioner of Internal Revenue at cost after
properties in exchange for shares of stocks of the improvements were made, and should be taken out
Southwestern Colleges, and Exhibit "G" which is as additional assets;
the minutes of the meeting of the Board of Trustees ! that the amount receivable of P5,776 from a certain
of the Southwestern Colleges held on August 6, Benito Chan should be treated as petitioner's asset
1951, shows that Mr. Aznar was amenable to the but the amount of P5,776 representing the value of
value fixed by the board of trustees and that he a house and lot given as collateral to secure said
requested to be paid in cash instead of shares of loan.
stock. But those are not sufficient evidence to • There seems to be no controversy as to the rest of the items listed in the
prove that transfer of ownership actually happened inventory of assets.
on December 15, 1950. • Petitioner also insists that there might have been false returns by
! Petitioner also contends that properties allegedly mistake filed by Mr. Matias H. Aznar as those returns were prepared by
ceded to the Southwestern Colleges in 1951 for his accountant employees, but there were no proven fraudulent returns
P150,000 worth of shares of stocks The evidence

11
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

with intent to evade taxes that would justify the imposition of the 50% o The ordinary period of prescription of 5 years within which to assess
surcharge authorized by law as fraud penalty. tax liabilities under Sec. 331 of the NIRC should be applicable to
normal circumstances, but whenever the government is placed at
Issue/s: a disadvantage so as to prevent its lawful agents from proper
1) WON the right of the Commissioner of Internal Revenue to assessment of tax liabilities due to false returns, fraudulent
assess deficiency income taxes of the late Matias H. Aznar for return intended to evade payment of tax or failure to file returns,
the years 1946, 1947, and 1948 had already prescribed at the the period of ten years provided for in Sec. 332 (a) NIRC, from the
time the assessment was made on November 28, 1952 – NO time of the discovery of the falsity, fraud or omission even seems to
2) WON the lower court properly imposed a surcharge of 50% (Sec.72) be inadequate and should be the one enforced.
– NO o There being undoubtedly false tax returns in this case, We affirm the
conclusion of the respondent Court of Tax Appeals that Sec. 332 (a)
Held/Ratio: WHEREFORE, the decision of the Court of Tax Appeals is of the NIRC should apply and that the period of ten years within
modified in so far as the imposition of the 50% fraud penalty is concerned, which to assess petitioner's tax liability had not expired at the time
and affirmed in all other respects. The petitioner is ordered to pay to the said assessment was made.
Commissioner of Internal Revenue, or his duly authorized representative, the
sum of P151,762.23, representing deficiency income taxes for the years
1946 to 1951, inclusive, within 30 days from the date this decision becomes 2) NO. Apparently, one cannot tax human beings, no matter how much
final. If the said amount is not paid within said period, there shall be added to they resemble characters from children’s television shows.
the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per o The second issue which appears to be of vital importance in this case
annum from the date of delinquency to the date of payment, in accordance centers on the lower court's imposition of the fraud penalty (surcharge
with Section 51 of the National Internal Revenue Code. of 50% authorized in Section 72 of the Tax Code).
o No distinction has been made between false returns (due to mistake,
carelessness or ignorance) and fraudulent returns (with intent to
1) NO. The 10-year prescriptive period, not the ordinary 5 year evade taxes)
prescriptive period shall apply. o The lower court based its conclusion on the petitioner's alleged
o We believe that the proper and reasonable interpretation of said fraudulent intent to evade taxes on the substantial difference between
provision should be that in the three different cases of (1) false return, the amounts of net income on the face of the returns as filed by him in
(2) fraudulent return with intent to evade tax, (3) failure to file a return, the years 1946 to 1951 and the net income as determined by the
the tax may be assessed, or a proceeding in court for the collection of inventory method utilized by both respondents for the same years.
such tax may be begun without assessment, at any time within ten o The lower court based its conclusion on a presumption
years after the discovery of the (1) falsity, (2) fraud, (3) omission. that fraud can be deduced from the very substantial
o That there is a difference between "false return" and "fraudulent disparity of incomes as reported and determined by the
return" cannot be denied. inventory method and on the similarity of consecutive
! While the first merely implies deviation from the truth, disparities for six years.
whether intentional or not, the second implies intentional or
deceitful entry with intent to evade the taxes due.

12
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o Such a basis for determining the existence of fraud o The mistakes committed by the Commissioner of Internal
(intent to evade payment of tax) suffers from an inherent Revenue which also involve very substantial amounts were
flaw when applied to this case. also repeated yearly, and yet we cannot presume therefrom
o It is very apparent here that the respondent the existence of any taint of official fraud.
Commissioner of Internal Revenue, when the inventory o From the above exposition of facts, we cannot but emphatically
method was resorted to in the first assessment, reiterate the well established doctrine that fraud cannot be
concluded that the correct tax liability of Mr. Aznar presumed but must be proven.
amounted to P723,032.66 (Exh. 1, B.I.R. rec. pp. 126- o As a corollary thereto, we can also state that fraudulent intent
129). could not be deduced from mistakes however frequent they may
o After a reinvestigation the same respondent, in another be, especially if such mistakes emanate from erroneous entries
assessment dated February 16, 1955, concluded that or erroneous classification of items in accounting methods
the tax liability should be reduced to P381,096.07. utilized for determination of tax liabilities.
o This is a crystal-clear, indication that even the respondent o We conclude that the 50% surcharge as fraud penalty authorized
Commissioner of Internal Revenue with the use of the inventory under Section 72 of the Tax Code should not be imposed, but
method can commit a glaring mistake in the assessment of eliminated from the income tax deficiency for each year from
petitioner's tax liability. 1946 to 1951, inclusive.
o When the respondent Court of Tax Appeals reviewed o The total sum of P151,859.10 should be decreased by P96.87
this case on appeal, it concluded that petitioner's tax representing the tax credit for 1945, thereby leaving a balance of
liability should be only P227,788.64. P151,762.23."
o The lower court in three instances (elimination of two
buildings in the list of petitioner's assets beginning COMMISSIONER OF INTERNAL REVENUE v. AYALA
December 31, 1949, because they were destroyed by SECURITIES CORPORATION, (BAÑADERA)
fire; elimination of expenses for construction in
[GR. No. L-29485; November 21, 1980]
petitioner's assets as duplication of increased value in
“If the law does not provide a period of prescription then it is imprescriptible
buildings, and elimination of value of house and lot in
so may FOREVER, pero sa tax lang hindi sa pag-ibig”
petitioner's assets because said property was only given
as collateral) supported petitioner's stand on the wrong
Recit-Ready:
inclusions in his lists of assets made by the respondent
Facts: Ayala Securities Corporation claims that the right of CIR to
Commissioner of Internal Revenue, resulting in the very
assess and collect the taxes due from its non-payment of
substantial reduction of petitioner's tax liability by the
improperly accumulated profits or surplus in 1955 has prescribed
lower court.
in accordance with the 5-year prescription period under Section
o The foregoing shows that it was not only Mr. Matias H.
331 of the NIRC since CIR only assessed them in 1961 (six
Aznar who committed mistakes in his report of his income
years). Petitioner claims that its right has not prescribed since
but also the respondent Commissioner of Internal Revenue
improperly accumulated profits are not normally included in a
who committed mistakes in his use of the inventory method
return and that prescription only applies if the law provides so.
to determine the petitioner's tax liability.
Given that the law does not provide a prescription period for such

13
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

taxes, then its right is imprescriptible. • Petitioner alternatively cites United Equipment & Supply Company vs.
Commissioner of Internal Revenue where the court held the following:
Issue: o A perusal of Sections 331 and 332(a)2 will reveal that they
WON CIR’s right to assess the unpaid taxes due to improperly refer to a tax required by law to be reported in a return.
accumulated profits or surplus has prescribed; However, accumulated surplus are never returned for tax
purposes as there is no law requiring that such surplus be
Held: NO. Limitations upon the right of the government to assess and reported in a return for purposes of the 25% surtax. In fact,
collect taxes will not be presumed in the absence of clear legislation to the taxpayers resort to all means and devices to cover up the
contrary and that where the government has not by express statutory fact that they have unreasonably accumulated surplus.
provision provided a limitation upon its right to assess unpaid taxes, such o Therefore, Section 331 limiting the right to assess internal
right is imprescriptible. Even assuming that there is a period of revenue taxes within five years from the date the return was
prescription for surplus tax, Section 332, not Section 331, shall be applied filed or was due does not apply.
since the non-inclusion of the surplus tax in the return is tantamount to an o Neither does Section 332(a) apply given that there can be
evasion of tax that necessarily partakes of a false and/or fraudulent return no failure or omission to file a return where no return is
making the 10 year prescription period of 332(a) of the Tax Code effective. required to be filed by law or by regulation. Therefore the
ten-year period for making an assessment under Section
Facts: 332 does not apply to internal revenue taxes which do not
• The issue concerns the February 21, 1961 assessment by CIR against require the filing of a return.
Respondent Ayala Securities Corporation. o It is well settled limitations upon the right of the government
• CIR assessed respondent for the sum of P758,687.04 on its surplus to assess and collect taxes will not be presumed in the
(improperly accumulated profits) of P2,758,442.37 for its fiscal year absence of clear legislation to the contrary.
ending September 30, 1955. o It follows that in the absence of express statutory provision,
• Respondent claims that the assessment fell under the five-year the right of the government to assess unpaid taxes is
prescriptive period provided in section 3311 of the Tax Code therefore, imprescriptible.
it was made after the expiration of the said five-year prescriptive period
and was of no binding force and effect. Issue: WON CIR’s right to assess the unpaid taxes due to improperly
accumulated profits or surplus has prescribed
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! —NO
1
! SEC.% 331.!Period! of! limitation! upon! assessment! and! collection.! —! Except! as!
provided! in! the! succeeding! section,! internal% revenue% taxes% shall% be% assessed%
within%five%years%after%the%return%was%filed,!and!no!proceeding!in!court!without! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
2
assessment!for!the!collection!of!such!taxes!shall!be!begun!after!the!expiration! !SEC.%332%Exceptions!as!to!period!of!limitation!of!assessment!and!collection!of!
of!such!period.!For!the!purpose!of!this!section!a!return!filed!before!the!last!day! taxes.—!(a)!In!the!case!of!a!false%or%fraudulent%return%with%intent%to%evade%tax%
prescribed!by!law!for!the!filing!thereof!shall!be!considered!as!filed!on!such!last! or%of%failure%to%file%a%return,!the!tax!may!be!assessed,!or!a!proceeding!in!court!
day;!Provided,!That!this!limitation!shall!not!apply!to!cases!already!investigated! for! the! collection! of! such! tax! may! be! begun! without! assessment,! at! any! time!
prior!to!the!approval!of!this!Code.! within%ten%years%after%the%discovery%of%the%falsity,%fraud,%or%omission.!
! !

14
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Held/Ratio: ACCORDINGLY, the Court's decision of April 8, 1976 is set • Even if the 25% surtax were to be deemed subject to prescription,
aside and in lieu thereof, judgment is hereby rendered ordering respondent computed from the filing of the income tax return in 1955, the intent to
corporation to pay the assessment in the sum of P758,687.04 as 25% surtax evade payment of the surtax is an inherent quality of the violation and the
on its unreasonably accumulated surplus, plus the 5% surcharge and 1% return filed must necessarily partake of a false and/or fraudulent character
monthly interest thereon, pursuant to section 51 (e) of the National Internal which would make applicable the 10-year prescriptive period provided in
Revenue Code, as amended by R. A. 2343. With Costs. section 332(a) of the Tax Code and since the assessment was made in
1961 (the sixth year), the assessment was clearly within the 10-year
NO. Limitations upon the right of the government to assess and collect prescriptive period.
taxes will not be presumed in the absence of clear legislation to the
contrary and that where the government has not by express statutory PRESCRIPTION OF GOVERNMENT RIGHT TO ASSESS
provision provided a limitation upon its right to assess unpaid taxes,
such right is imprescriptible. Even assuming that there is a period of CIR v. BASF Coating + INK Phils Inc. (Bello)
prescription for surplus tax, Section 332, not Section 331, shall be [GR. No. 198677; November 26, 2014]
applied since the non-inclusion of the surplus tax in the return is “The suspension of the three-year period to assess applies only if the BIR
tantamount to an evasion of tax that necessarily partakes of a false Commissioner is not aware of the whereabouts of the taxpayer.”
and/or fraudulent return making the 10 year prescription period of
332(a) of the Tax Code effective. Recit-Ready:
• The Court is persuaded by the fundamental principle invoked by petitioner Facts: BASF COATING + INKS PHILS., INC was a corporation which
that limitations upon the right of the government to assess and was duly organized under laws of the Philippines with a term of existence
collect taxes will not be presumed in the absence of clear of fifty (50) years. Its BIR-registered address was at 101 Marcos Alvarez
legislation to the contrary and that where the government has not Avenue, Barrio Talon, Las Piñas City. In a joint special meeting "
by express statutory provision provided a limitation upon its right to
Respondent BOD & Stockholders decided to dissolve the corporation by
assess unpaid taxes, such right is imprescriptible.
shortening its corporate term to March 31, 2001. Subsequently,
• Therefore there is no such time limit on the right of the Commissioner of respondent moved out of its address in Las Piñas City and
Internal Revenue to assess the 25% tax on unreasonably accumulated transferred to Calamba, Laguna.
surplus provided in section 25 of the Tax Code, since there is no express
statutory provision limiting such right or providing for its prescription. Respondent submitted two (2) letters to the Bureau of Internal Revenue
• The record amply shows that respondent corporation is a mere holding (BIR) Revenue District Officer of Revenue District Office (RDO) No. 53,
company of its shareholders through its mother company, a registered co- Region 8, in Alabang, Muntinlupa City. Thereafter, in a Formal
partnership then set up by the individual shareholders belonging to the Assessment Notice (FAN), CIR assessed BASF Coating + Inks Phil, tax
same family and that the prima facie evidence and presumption set up by Deficiencies. " The FAN was sent by registered mail on January 24,
the Tax Code3, therefore applied without having been adequately rebutted 2003 to respondent's former address in Las Piñas City.
by the respondent corporation.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
3
! SEC.% 20.%Holding! and! Investment! Companies.! —! A! corporation! having! therefrom! or! investing! therein,! shall! be! considered! a! holding! company! within!
practically! no! activities! except! holding! property,! and! collecting! the! income! the!meaning!of!section!25.!

15
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Chief of the Collection Section of BIR Revenue Region No. 7, RDO No. old address a Preliminary Assessment Notice but it was "returned to
39, South Quezon City, issued a First Notice Before Issuance of Warrant sender."
of Distraint and Levy, which was sent to the residence of one of
respondent's directors. " Hence, respondent filed a protest letter 2) NO. CTA is correct in holding that the FAN never attained finality
citing lack of due process and prescription as grounds. because respondent never received it, either actually or constructively

Trial on the merits ensued. " CTA ruled: petitioner was actually aware of Facts:
respondent's new address, the former's failure to send the Preliminary • BASF COATING + INKS PHILS., INC was a corporation which was duly
Assessment Notice and FAN to the said address should not be taken organized under laws of the Republic of the Philippines on August 1,
against the latter. Consequently, since there are no valid notices sent to 1990 with a term of existence of fifty (50) years. Its BIR-registered
respondent, the subsequent assessments against it are considered void. address was at 101 Marcos Alvarez Avenue, Barrio Talon, Las Piñas
City.
• In a joint special meeting held on March 19, 2001, majority of the
Issue/s: members of the Board of Directors and the stockholders representing
1) WON the Petitioner Right to Assess is already barred by Prescription? more than two-thirds (2/3) of the entire subscribed and outstanding capital
– YES stock of herein respondent corporation, resolved to dissolve the
2) WON the FAN for Respondent’s tax deficiencies for taxable year 1999 corporation by shortening its corporate term to March 31,
has not yet become final and executory? – No 2001. Subsequently, respondent moved out of its address in Las
Piñas City and transferred to Calamba, Laguna. (medyo important
Held: In ruling for Respondent, Petition DENIED. The Decision of the tong paglipat nila ng address dahil dito magiging base yung lack of due
Court of Tax Appeals En Banc, dated June 16, 2011, and its process)
Resolution dated September 16, 2011, in C.T.A. EB No. 664 • On June 26, 2001, respondent submitted two (2) letters to the Bureau of
(C.T.A. Case No. 7125), are AFFIRMED. Internal Revenue (BIR) Revenue District Officer of Revenue District Office
(RDO) No. 53, Region 8, in Alabang, Muntinlupa City.
1) YES. The provisions mentioned by the CIR on the suspension of the o The 1st Letter, dated April 26, 2001, was a notice of
three-year period to assess apply only if the BIR Commissioner is not respondent's dissolution, in compliance with the
aware of the whereabouts of the taxpayer. requirements of Section 52(c) of the National Internal
Revenue Code.
In the present case, CIR, by all indications, is well aware that o The 2nd Letter dated June 22, 2001, was a manifestation
respondent had moved to its new address in Calamba, Laguna, as indicating the submission of various documents
shown by the following documents which form part of respondent's supporting respondent's dissolution, among which was
records with the BIR. + The RDO sent respondent a letter dated April BIR Form No. 1905, which refers to an update of
24, 2002 informing the latter of the results of their investigation and information contained in its tax registration.
inviting it to an informal conference (two letters were sent to • Thereafter, in a Formal Assessment Notice (FAN) dated January 17,
respondent's new address in Laguna.) + CIR should have been alerted 2003, CIR assessed BASF Coating + Inks Phil the aggregate amount
by the fact that prior to mailing the FAN, petitioner sent to respondent's of P18,671,343.14 representing deficiencies in income tax, value added

16
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

tax, withholding tax on compensation, expanded withholding tax and


documentary stamp tax, including increments, for the taxable year 1999 Issue/s:
(in short, TAX Deficiencies). 1) WON the Petitioner Right to Assess is already barred by
o The FAN was sent by registered mail on January 24, Prescription?
2003 to respondent's former address in Las Piñas City. —YES
• On March 5, 2004, the Chief of the Collection Section of BIR Revenue 2) WON the FAN for Respondent’s tax deficiencies for taxable year
Region No. 7, RDO No. 39, South Quezon City, issued a First Notice 1999 has not yet become final and executory?
Before Issuance of Warrant of Distraint and Levy, which was sent to the —NO
residence of one of respondent's directors.
o On March 19, 2004, respondent filed a protest letter Held/Ratio: Petition DENIED. The Decision of the Court of Tax Appeals En
citing lack of due process and prescription as Banc, dated June 16, 2011, and its Resolution dated September 16, 2011, in
grounds. On April 16, 2004, respondent filed a C.T.A. EB No. 664 (C.T.A. Case No. 7125), are AFFIRMED.
supplemental letter of protest. Subsequently, on June 14,
2004, respondent submitted a letter wherein it attached " Petitioner’s Argument - insofar as respondent's alleged deficiency taxes
documents to prove the defenses raised in its protest for the taxable year1999 are concerned, the running of the three-year
letters. prescriptive period to assess, under Sections 2034 and 2225 of the
• On January 10, 2005, after 180 days had lapsed without action on the
part of petitioner on respondent's protest, the latter filed a Petition !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
for Review with the CTA. Trial on the merits ensued. 4
Sec. 203. Period of Limitation Upon Assessment and Collection.– Except as provided
• On February 17, 2010, the CTA Special First Division promulgated its in Section 222,internal revenue taxes shall be assessed within three (3) years after the last
day prescribed by law for the filing of the return, and no proceeding in court without
Decision, the dispositive portion of which reads, thus: assessment for the collection of such taxes shall be begun after the expiration of such
• WHEREFORE, the Petition for Review is hereby GRANTED. xxx (all the period: Provided, That in a case where a return is filed beyond the period prescribed by law,
tax deficiencies) xxx CANCELLED and SET ASIDE. SO ORDERED. the three (3)-year period shall be counted from the day the return was filed. For purposes of
this Section, a return filed before the last day prescribed by law for the filing thereof shall be
o The CTA Special First Division ruled that since petitioner considered as filed on such last day.
was actually aware of respondent's new address, the
5
Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of
former's failure to send the Preliminary Assessment
Taxes. -
Notice and FAN to the said address should not be (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
taken against the latter. Consequently, since there are no return, the tax may be assessed, or a proceeding in court for the collection of such tax may
be filed without assessment, at any time within ten (10) years after the discovery of the
valid notices sent to respondent, the subsequent falsity, fraud or omission: Provided, That in a fraud assessment which has become final and
assessments against it are considered void. " MR " executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
action for the collection thereof.
denied " CTA EN Banc (b) If before the expiration of the time prescribed in Section 203 for the assessment of the
o The CTA En Banc held that petitioner's right to assess tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after
such time, the tax may be assessed within the period agreed upon.
respondent for deficiency taxes for the taxable year 1999
The period so agreed upon may be extended by subsequent written agreement made
has already prescribed and that the FAN issued to before the expiration of the period previously agreed upon.
respondent never attained finality because respondent did (c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding
not receive it. " MR " denied in court within five (5) years following the assessment of the tax.

17
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

National Internal Revenue Act of 1997 (Tax Reform Act of 1997) was shown by the following documents 8 which form part of respondent's
suspended when respondent failed to notify petitioner, in writing, of its records with the BIR.
change of address, pursuant to the provisions of Section 2236 of the same o The above documents, all of which were accomplished and signed
Act and Section 11 of BIR Revenue Regulation No. 12-857. by officers of the BIR, clearly show that respondent's address is
at Carmelray Industrial Park, Canlubang, Calamba, Laguna. The
1) YES! That the above-mentioned provisions on the suspension of CTA also found that BIR officers, at various times prior to the
the three-year period to assess apply only if the BIR issuance of the subject FAN, conducted examination and
Commissioner is not aware of the whereabouts of the taxpayer. investigation of respondent's tax liabilities for 1999 at the latter's
o In the present case, petitioner, by all indications, is well aware that new address in Laguna as evidenced by the following, in addition
respondent had moved to its new address in Calamba, Laguna, as to the above mentioned records:
! Letter, dated September 27, 2001, signed by Revenue Officer
I Eugene R. Garcia;
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
(d) Any internal revenue tax, which has been assessed within the period agreed upon as
! Final Request for Presentation of Records Before Subpoena
provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a Duces Tecum, dated March 20, 2002, signed by Revenue
proceeding in court within the period agreed upon in writing before the expiration of the five Officer I Eugene R. Garcia.
(5) -year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon. o Moreover, the CTA found that, based on records, the RDO sent
(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof respondent a letter dated April 24, 2002 informing the latter of the
shall be construed to authorize the examination and investigation or inquiry into any tax results of their investigation and inviting it to an informal
return filed in accordance with the provisions of any tax amnesty law or decree.
conference. Subsequently, the RDO also sent respondent another
6
Sec. 223. Suspension of Running of Statute of Limitations. - The running of the letter dated May 30, 2002, acknowledging receipt of the latter's reply
Statute of Limitations provided in Sections 203 and 222 on the making of assessment and
to his April 24, 2002 letter.
the beginning of distraint or levy a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited ! These two letters were sent to respondent's new address
from making the assessment or beginning distraint or levy or a proceeding in court and for in Laguna. Had the RDO not been informed or was not
sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted
by the Commissioner; when the taxpayer cannot be located in the address given by him in
aware of respondent's new address, he could not have
the return filed upon which a tax is being assessed or collected: Provided, that, if the sent the said letters to the said address.
taxpayer informs the Commissioner of any change in address, the running of the Statute of
Limitations will not be suspended; when the warrant of distraint or levy is duly served upon
the taxpayer, his authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and when the taxpayer is out of the !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
8
Philippines. 1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-Added Tax
and Other Percentage Taxes;
7
Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a 2) General Information (BIR Form No. 23-02);
written notice thereof to the Revenue District Officer or the district having jurisdiction over 3) Report on Taxpayer's Delinquent Account, dated June 27, 2002;
his former legal residence and/or place of business, copy furnished the Revenue District 4) Activity Report, dated October 17, 2002;
Officer having jurisdiction over his new legal residence or place of business, the Revenue 5) Memorandum Report of Examiner, dated June 27, 2002;
Computer Center and the Receivable Accounts Division, BIR, National Office, Quezon City, 6) Revenue Officer's Audit Report on Income Tax;
and in case of failure to do so, any communication referred to in these regulations 7) Revenue Officer's Audit Report on Value-Added Tax;
previously sent to his former legal residence or business address as appear in is tax return 8) Revenue Officer's Audit Report on Compensation Withholding Taxes;
for the period involved shall be considered valid and binding for purposes of the period 9) Revenue Officer's Audit Report on Expanded Withholding Taxes;
within which to reply. 10) Revenue Officer's Audit Report on Documentary Stamp Taxes.

18
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o Furthermore, petitioner should have been alerted by the fact that not tarry too long or indefinitely to the prejudice of the
prior to mailing the FAN, petitioner sent to respondent's old address interests of the Government, which needs taxes to run it;
a Preliminary Assessment Notice but it was "returned to sender." and for the taxpayer so that within a reasonable time after
This was testified to by petitioner's Revenue Officer II at its Revenue filing his return, he may know the amount of the
District Office 39 in Quezon City. Yet, despite this occurrence, assessment he is required to pay, whether or not such
petitioner still insisted in mailing the FAN to respondent's old assessment is well founded and reasonable so that he may
address. either pay the amount of the assessment or contest its
o In the instant case, respondent has not properly been informed validity in court x x x. It would surely be prejudicial to the
of the basis of its tax liabilities. Without complying with the interest of the taxpayer for the Government collecting
unequivocal mandate of first informing the taxpayer of the agency to unduly delay the assessment and the collection
government’s claim, there can be no deprivation of property, because by the time the collecting agency finally gets
because no effective protest can be made. It is true that taxes are around to making the assessment or making the collection,
the lifeblood of the government. However, in spite of all its plenitude, the taxpayer may then have lost his papers and books to
the power to tax has its limits. support his claim and contest that of the Government, and
o It bears stressing that, in a number of cases, this Court has what is more, the tax is in the meantime accumulating
explained that the statute of limitations on the collection of interest which the taxpayer eventually has to pay.
taxes primarily benefits the taxpayer. " The following are just
jurisprudence o Likewise, in Republic of the Philippines v. Ablaza, this Court
elucidated that the prescriptive period for the filing of actions for
" You may opt not to read this! collection of taxes is justified by the need to protect law-abiding
o In these cases, the Court exemplified the detrimental effects that the citizens from possible harassment.
delay in the assessment and collection of taxes inflicts upon the
taxpayers. o Also, in Bank of the Philippine Islands v. Commissioner of
Internal Revenue, it was held that the statute of limitations on the
o Thus, in Commissioner of Internal Revenue v. Philippine Global assessment and collection of taxes is principally intended to afford
Communication, Inc., this Court echoed Justice Montemayor's protection to the taxpayer against unreasonable investigations as
disquisition in his dissenting opinion in Collector of Internal Revenue the indefinite extension of the period for assessment deprives the
v. Suyoc Consolidated Mining Company, regarding the potential loss taxpayer of the assurance that he will no longer be subjected to
to the taxpayer if the assessment and collection of taxes are not further investigation for taxes after the expiration of a reasonable
promptly made, thus: period of time.

Prescription in the assessment and in the collection of taxes o Thus, in Commissioner of Internal Revenue v. B.F. Goodrich
is provided by the Legislature for the benefit of both the Phils., Inc., this Court ruled that the legal provisions on prescription
Government and the taxpayer; for the Government for the should be liberally construed to protect taxpayers and that, as a
purpose of expediting the collection of taxes, so that the corollary, the exceptions to the rule on prescription should be strictly
agency charged with the assessment and collection may construed. It might not also be amiss to point out that petitioner's

19
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

issuance of the First Notice Before Issuance of Warrant of Distraint the letter or notice must be properly addressed. It is not enough that
and Levy violated respondent's right to due process because no the notice is sent by registered mail as provided under the said
valid notice of assessment was sent to it. An invalid assessment Revenue Regulation.
bears no valid fruit. The law imposes a substantive, not merely a
formal, requirement. To proceed heedlessly with tax collection Revenue Memorandum Circular 29-2012 (Bello)
without first establishing a valid assessment is evidently violative of
the cardinal principle in administrative investigations: that !
taxpayers should be able to present their case and adduce Revenue Memorandum Order (RMO) No. 20-90 dated April 4, 1990 was
supporting evidence. issued to provide guidelines in the proper execution of the Waiver of the
Statute of Limitations under the National Internal Revenue Code
(hereinafter referred to as “Waiver”). RMO No. 20-90 prescribed the use of
o Thus, in Commissioner of Internal Revenue v. Algue, Inc.,41 this a particular waiver form and required that there should be no deviation
Court held: from such form.
Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. On the other On August 2, 2001, Revenue Delegation Authority Order (RDAO) No. 05-
hand, such collection should be made in accordance with 01 was issued. Aside from authorizing subordinate officials to sign
Waivers, RDAO No. 05-01 introduced a new Waiver form.
law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the
Subsequently, Revenue Memorandum Circular (RMC) No. 06-05 dated
apparently conflicting interests of the authorities and the February 2, 2005 was issued to circularize the salient features of the
taxpayers so that the real purpose of taxation, which is the decision of the Supreme Court in the case of Philippine Journalists, Inc. v.
promotion of the common good, may be achieved. x x x x Commissioner of Internal Revenue, G.R. No. 162852, promulgated on
December 16, 2004, to wit:
o It is an elementary rule enshrined in the 1987 Constitution that no
person shall be deprived of property without due process of law. In “1. A waiver of the statute of limitations under the Tax Code must
balancing the scales between the power of the State to tax and its conform strictly with the provisions of Revenue Memorandum Order
inherent right to prosecute perceived transgressors of the law on No. 20-90 in order to be valid and binding.
one side, and the constitutional rights of a citizen to due process of
law and the equal protection of the laws on the other, the scales x x x” (emphasis supplied)
must tilt in favor of the individual, for a citizen’s right is amply
protected by the Bill of Rights under the Constitution. The statement in RMC No. 06-05 citing the Supreme Court decision that
“a waiver of the statute of limitations under the Tax Code must conform
strictly with the provisions of Revenue Memorandum Order No. 20-90” led
2) NO. CTA is correct in holding that the FAN never attained finality
some to believe that the Waiver form prescribed under RMO No. 20-90
because respondent never received it, either actually or should be used instead of the waiver form mandated under RDAO No. 05-
constructively. 01.
o CIR reliance on the provisions of Section 3.1.7 of BIR Revenue
Regulation No. 12-99 as well as on the case of Nava v. CLARIFICATION
Commissioner of Internal Revenue is misplaced, because in the
said case, one of the requirements of a valid assessment notice is that The aforecited Supreme Court decision pertains to a case involving a tax
assessment for the year 1994 and a waiver executed in 1997. Thus, in

20
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

resolving the case, the relevant BIR issuance is RMO No. 20-90 and not 2. The waiver shall be signed by the taxpayer himself or his duly
RDAO No. 05-01 which took effect only in 2001. authorized representative
3. Signature of the Proper Authority (for 1 million and above the
The provisions of RMO No. 20-90 should be strictly complied with in order CIR must sign)
for a Waiver to be valid. However, the Waiver form prescribed in RMO No. 4. The date of the acceptance by the BIR should be indicated.
20-90 should no longer be used as the same has been revised per RDAO
Both the date of execution by the taxpayer and the date of the
No. 05-01.
acceptance by the BIR should be before the expiration of the
A copy of the Waiver form prescribed under RDAO No. 05-01 is hereto period of prescription or before the lapse of the period agreed
attached as Annex “A” for reference. upon in case a subsequent agreement is executed. (date is
specified)
All concerned revenue officials and employees are hereby enjoined to give 5. The waiver must be executed in 3 copies,
this Circular as wide a publicity as possible. a. the original must be attached to the docket,
b. the second copy for the taxpayer
NOTES: c. the third copy for the office accepting the waiver.
• Note: The BIR has recently issued Revenue Memorandum Circular No. Taxpayer must be furnished a copy of the waiver in order to
29-2012 dated June 29, 2012 where it clarifies that the form to be perfect the agreement since the waiver is not a mere unilateral act.
used for a valid Waiver of the Defense of Prescription under the
Statute of Limitations as prescribed in Sections 203, 222 of the NIRC
of 1997, should be in accordance with the Waiver form prescribed in
RDAO No. 05-01.
• The provisions of RMO No. 20-90 should be strictly complied with in
order for a Waiver to be valid. However, the Waiver form prescribed
in RMO No. 20-90 should no longer be used as the same has been
revised per RDAO No. 05-01.
• The intent and purpose of this waiver is to afford the CIR ample time to
carefully consider the legal and/or factual questions involved in the
determination of the aforesaid tax liabilities.
• It is understood, however, that the undersigned taxpayer/taxpayer
represented, by the execution of the waiver, neither admits in advance
the correctness of the assessment/assessments which may be made for
the year above mentioned nor waives the right to use any legal
remedies accorded by law to secure a credit or refund of such tax that
may have been paid for the same year pursuant to the provisions of
Section 204 & 229 of the NIRC.

PM Reyes Notes:
• Requirements of a valid waiver of the Statute of Limitations
1. The waiver must be in the proper form.

21
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

prescribed; or
IMPOSITION OF PENALTIES
(2) Unless otherwise authorized by the Commissioner, filing a return with
an internal revenue officer other than those with whom the return is
TITLE X (BUGAY) required to be filed; or

STATUTORY OFFENSES AND PENALTIES (3) Failure to pay the deficiency tax within the time prescribed for its
(As amended by RA No. 10021) payment in the notice of assessment; or

(4) Failure to pay the full or part of the amount of tax shown on any return
CHAPTER I required to be filed under the provisions of this Code or rules and
regulations, or the full amount of tax due for which no return is required to
ADDITIONS TO THE TAX be filed, on or before the date prescribed for its payment.

SEC. 247. General Provisions. - (B) In case of willful neglect to file the return within the period prescribed
by this Code or by rules and regulations, or in case a false or fraudulent
(a) The additions to the tax or deficiency tax prescribed in this Chapter return is willfully made, the penalty to be imposed shall be fifty percent
shall apply to all taxes, fees and charges imposed in this Code. The (50%) of the tax or of the deficiency tax, in case, any payment has been
Amount so added to the tax shall be collected at the same time, in the made on the basis of such return before the discovery of the falsity or
same manner and as part of the tax. fraud: Provided, That a substantial under-declaration of taxable sales,
receipts or income, or a substantial overstatement of deductions, as
(b) If the withholding agent is the Government or any of its agencies, determined by the Commissioner pursuant to the rules and regulations to
political subdivisions or instrumentalities, or a government-owned or be promulgated by the Secretary of Finance, shall constitute prima facie
controlled corporation, the employee thereof responsible for the evidence of a false or fraudulent return: Provided, further, That failure to
withholding and remittance of the tax shall be personally liable for the report sales, receipts or income in an amount exceeding thirty percent
additions to the tax prescribed herein. (30%) of that declared per return, and a claim of deductions in an amount
exceeding (30%) of actual deductions, shall render the taxpayer liable for
substantial under-declaration of sales, receipts or income or for
(c) The term 'person', as used in this Chapter, includes an officer or overstatement of deductions, as mentioned herein.
employee of a corporation who as such officer, employee or member is
under a duty to perform the act in respect of which the violation occurs.
SEC. 249. Interest. -
SEC. 248. Civil Penalties. -
(A) In General. - There shall be assessed and collected on any unpaid
amount of tax, interest at the rate of twenty percent (20%) per annum, or
(A) There shall be imposed, in addition to the tax required to be paid, a such higher rate as may be prescribed by rules and regulations, from the
penalty equivalent to twenty-five percent (25%) of the amount due, in the date prescribed for payment until the amount is fully paid.
following cases:
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is
(1) Failure to file any return and pay the tax due thereon as required defined in this Code, shall be subject to the interest prescribed in
under the provisions of this Code or rules and regulations on the date Subsection (A) hereof, which interest shall be assessed and collected

22
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

from the date prescribed for its payment until the full payment thereof. this Chapter, be liable upon conviction to a penalty equal to the total
amount of the tax not withheld, or not accounted for and remitted.
(C) Delinquency Interest. - In case of failure to pay:
SEC. 252. Failure of a Withholding Agent to refund Excess
(1) The amount of the tax due on any return to be filed, or Withholding Tax. - Any employer/withholding agent who fails or refuses
to refund excess withholding tax shall, in addition to the penalties provided
in this Title, be liable to a penalty to the total amount of refunds which was
(2) The amount of the tax due for which no return is required, or
not refunded to the employee resulting from any excess of the amount
withheld over the tax actually due on their return.
(3) A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the Commissioner, there shall be
assessed and collected on the unpaid amount, interest at the rate
PHILIPPINE REFINING COMPANY (now known as
prescribed in Subsection (A) hereof until the amount is fully paid, which
interest shall form part of the tax.2 “UNILEVER”) v. COURT OF APPEALS (Caraan)
[GR. No. 118794; May 8, 1996]
(D) Interest on Extended Payment. - If any person required to pay the “Failure to pay within time prescribed = 25% surcharge + 20% interest, so
tax is qualified and elects to pay the tax on installment under the pay up and shut up ka nalang”
provisions of this Code, but fails to pay the tax or any installment hereof,
or any part of such amount or installment on or before the date prescribed
Recit-Ready:
for its payment, or where the Commissioner has authorized an extension
of time within which to pay a tax or a deficiency tax or any part thereof, Facts: Petitioner PRC was assessed to pay a deficiency tax and they
there shall be assessed and collected interest at the rate hereinabove protested because they claimed that CIR erroneously disallowed
prescribed on the tax or deficiency tax or any part thereof unpaid from the their “bad debts” and “interest expense” although both were
date of notice and demand until it is paid. allowable and legal deductions. The CIR ignored the protest and
issued a warrant of garnishment over PRC’s deposits at City
SEC. 250. Failure to File Certain Information Returns. - In the case of Trust Bank.
each failure to file an information return, statement or list, or keep any
record, or supply any information required by this Code or by the The CTA affirmed with modifications the CIR decision. The CA
Commissioner on the date prescribed therefor, unless it is shown that
affirmed such decision.
such failure is due to reasonable cause and not to willful neglect, there
shall, upon notice and demand by the Commissioner, be paid by the
person failing to file, keep or supply the same, One thousand pesos Issue/s:
(1,000) for each failure: Provided, however, That the aggregate amount to 3) WON all the bad debts claimed by petitioner are deductible
be imposed for all such failures during a calendar year shall not exceed 4) WON the CTA is correct in giving the petitioner 25% surcharge and
Twenty-five thousand pesos (P25,000). 20% interest as penalty

SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax. - Held:
Any person required to withhold, account for, and remit any tax imposed
3) NO. To claim bad debts as a deduction, it must be supported by
by this Code or who willfully fails to withhold such tax, or account for and
remit such tax, or aids or abets in any manner to evade any such tax or evidence that the debt is indeed uncollectible. Mere testimony by
the payment thereof, shall, in addition to other penalties provided for under PRC’s accountant is not sufficient to claim the debts as “worthless”

23
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

and deductible. 1) NO. In order to be considered as “bad debts” and be allowed as


4) YES. The surcharge and the interest assessed to petitioner as penalty deduction, evidentiary support must be provided.
is correct as both find basis in the Tax Code, Sections 248 and 249. o The Court emphasized the requisites to be able to deduct bad debts:
(Read full ratio for the codal provisions) ! There is a valid and subsisting debt;
! The debt must be actually ascertained to be worthless and
Facts: uncollectible during the taxable year;
• Petitioner PRC was assessed by the CIR to pay a deficiency tax for the ! The debt must be charged off during the taxable year; and
year 1985 in the amount of P1,892,584.00. They timely protested such ! The debt must arise from the business or trade of the
assessment as they claimed that CIR erroneously disallowed their “bad taxpayer
debts” and “interest expense” although both were allowable and legal ! Additionally, before a debt can be considered worthless, the
deductions. taxpayer must also show that it is indeed uncollectible even in
• CIR, however, issued a warrant of garnishment over PRC’s deposits at the future
City Trust Bank. o In the case at hand, petitioner failed to comply with such
• Petitioner PRC then elevated the case to the CTA via a petition for review requirements.
on the same ground: the CIR erred in disallowing their claim of deduction o The only evidentiary support given by PRC for its aforesaid claimed
for “bad debts” and “interest expense” deductions was the explanation or justification posited by its financial
o The CTA affirmed the CIR decision with modifications, adviser or accountant, Guia D. Masagana, which the Court considered
reducing the deficiency income tax assessment to as insufficient as such justification was not supported by evidence.
P237,381.26, with surcharge and interest incident to
delinquency 2) YES. Both the 25% surcharge penalty and 20% delinquency interest
o In affirming the CIR’s decision, the CTA maintained the are correct.
disallowance of the supposed bad debts of thirteen (13) o Section 248 of the Tax Code: (25% surcharge)
debtors in the total sum of P395,324.27 ! “Civil Penalties - There shall be imposed, in addition to the
• The Court of Appeals affirmed the CTA’s decision. tax required to be paid, a penalty equivalent to twenty-five
percent (25%) of the amount due, in the following cases:
Issue/s: xxx
1) WON all the bad debts claimed by petitioner are deductible (3) Failure to pay the tax within the time prescribed for its
—NO payment.”
2) WON the CTA is correct in giving the petitioner 25% surcharge and o Section 249 of the Tax Code: (20% interest)
20% interest as penalty ! “Interest – (a) In General. - There shall be assessed and
—YES collected on any unpaid amount of tax, interest at the rate of
twenty percent (20%) per annum, or such higher rate as
Held/Ratio: ACCORDINGLY, the petition at bar is DENIED and the may be prescribed by regulations, from the date prescribed
judgment of respondent Court of Appeals is hereby AFFIRMED, with treble for payment until the amount is fully paid.
costs against petitioner. xxx
(c) Delinquency Interest. - In case of failure to pay:

24
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

(1) The amount of the tax due on any return required to


be filed, or Issue/s:
(2) The amount of the tax due for which no return is WON cement is a mineral product, the sale of which is exempt from sales
required, or tax. – NO.
(3) A deficiency tax, or any surcharge or interest
thereon, on the due date appearing in the notice and demand Held: In ruling for CIR, the Court ruled that cement is a manufactured
of the Commissioner, product, for although it is composed of at least 80% minerals
! there shall be assessed and collected, on the unpaid amount, quarried from mines, such minerals have already been subjected
interest at the rate prescribed in paragraph (a) hereof until the to different manufacturing processes resulting to a chemical
amount is fully paid, which interest shall form part of the tax.” change in their form or texture. Therefore, cement is subject to
o The deficiency tax was correctly assessed and thus should have sales tax and not under Sec. 246 which imposes ad valorem tax
been paid within 30 days from receipt of the demand letter sent on minerals or mineral products. Sec. 246 only contemplates the
by the CIR. act of actually severing the minerals from the mineral lands.
o By reason of petitioner’s default thereon, the delinquency penalties of Since cement is already a manufactured form of minerals, Sec.
25% surcharge and interest of 20% already accrued. 246 will not apply here.
o The fact that petitioner appealed the assessment to the CTA and However, the Court deleted the imposition of the surcharge for
that the same was modified does not relieve petitioner of the this case involves the interpretation of a difficult law, and
penalties incident to delinquency. everyone has been confused including the BIR, if cement is a
o (SC scolding petitioner) Tax laws imposing penalties for mineral or manufactured product.
delinquencies, so we have long held, are intended to hasten tax
payments by punishing evasions or neglect of duty in respect thereof. Facts:
If penalties could be condoned for flimsy reasons, the law imposing • The respondents are manufacturers of cement. CIR issued assessments
penalties for delinquencies would be rendered nugatory, and the against the respondents for deficiency sales tax and surcharge as
maintenance of the Government and its multifarious activities will be manufacturers of cement, totaling P38.5 million (for all the companies) for
adversely affected. the years 1963 to 1967.
CIR v. REPUBLIC CEMENT CORPORATION (Coloquio) o The CIR asserted that cement is a manufactured product
[GR. No. L-35668-72, L-35683; August 10, 1983] and therefore subject to sales tax.
“Yung cement, naprocess mo na so di na mineral yun.” o The respondents on the other hand assert that it is a
mineral product, therefore exempt from sales tax but the
Recit-Ready: CIR denied the protest of the respondents.
Facts: The respondents in this case are cement manufacturers • Upon appeal to the CTA, the CIR’s finding was reversed, the CTA
assessed by the CIR for deficiency sales tax and surcharge. The concluding that cement is a mineral product covered by Sec. 246 of the
respondents asserted that cement is a mineral product therefore Tax Code, and consequently exempt from sales tax.
exempt from sales tax, but the CIR asserted that cement is
actually a manufactured product. The CTA ruled that it is a Issue/s:
mineral product.

25
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

3) WON Cement is a mineral product, the sale of which is exempt from should be based on the selling price of cement which is its actual market
sales tax. value.
- NO • The Court found the argument of the respondents untenable, for the
question of whether cement is a mineral product under Sec. 246 has
Held/Ratio: Petition GRANTED. The decision of the CTA is set aside. already been answered in the negative in several decisions. It is rather a
manufactured product, but the quarried minerals used in its production
NO. Cement is a manufactured product, for the minerals have already are mineral products subject to ad valorem tax on the basis of the value
undergone different manufacturing processes which have changed the of the quarried minerals, and not on the selling price of the cement.
minerals from their original state. • The Court added that while cement is composed of 80% minerals, it is
• The Court found the necessity to recall the history of Sec. 246 of the Tax not merely a blending of raw materials (lime, silica, shale etc.) but a
Code which was amended by RA 1299, in relation to Sec. 188 of the result of a definite process – crushing, grinding, mixing, cooling adding
same code. retarder etc. In short, before it reaches its saleable state, the “mineral
o The original text of Sec. 246 provided that the term gross output products” in the cement have already undergone a chemical change
shall be interpreted as the actual market value of minerals or through the manufacturing process.
mineral products, or bullion from each mine or mineral lands • Therefore, it is not contemplated under Sec. 246 for the ad valorem tax
operated as a separate entity without any deduction from which the provision imposes is only for the act of extracting or severing
mining, milling, refining, transporting handling, marketing or any the minerals from the mines. The selling price of the cement cannot be
other expenses. If the minerals/ mineral products are sold or taken as the market value also of the minerals composing the cement,
consigned abroad by the lessee or owner of the mine under CIF for it was not the cement that was mined, but the minerals composing it.
terms, the actual cost of ocean freight and insurance shall be • As to the correct application of the tax, though the cement is subject to
deducted. The output of any group of contiguous mining claims sales tax, the minerals constituting it fall under Sec. 243, so subject to 1
shall not be subdivided. ½ ad valorem tax on the market value of the quarried raw materials.
o What is confusing here is that the term gross output is the only • Because of the confusion, the respondents, were asserting the
thing defined, but the words minerals and mineral products are application of the case of Cebu Portland Cement Co v. CIR which has
not, therefore taxpayers cannot properly determine how to fix kinda similar facts. The petitioner (APO Portland) in that case was also a
the proper ad valorem tax due from the miners/ owners of cement manufacturer, and claiming for refund of sales taxes:
mineral lands. o APO Portland had been paying sales tax at 7% of the gross
o Upon the release of RA 1299, the word minerals was defined as selling price of cement. But after Sec. 246 was amended by RA
all inorganic substances found in nature whether in solid, liquid 1299, it stopped paying sales tax, and instead paid the ad
or gaseous or any intermediate state. valorem tax on the selling price of the product. It was due to the
o The word mineral products on the other hand, shall mean things wrong interpretation of the law, taxpayers thinking that cement,
produced by the lessee/ concessionaire/ owner of mineral lands, originally categorized as a manufactured product, became
at least 80% of which things must be minerals extracted. categorized as a mineral product upon the release of RA 1299.
• Respondents assert that cement is a mineral product, for it consists of o What is erroneous in this decision is that the Court denied the
80% minerals quarried from its mines, so the imposable ad valorem tax refund not because of the interpretation that cement is already a
mineral product due to RA 1299, but because of the fact that RA

26
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

1299 should not be given retroactive application for such was WON Cagayan Electric is liable to pay the tax? YES
not provided in the law. But it ruled that yes, cement is newly
categorized as a mineral product, due to RA 1299. Held:
• The Court rejected the application of the case and actually overturned it The court noted that congress has the power to make laws regarding tax
here, since cement has always been a manufactured product. After RA exemption. The Constitution states that franchises are subject to
1299, it was not changed into the classification of a mineral product. amendment and repeal by congress. In this case the actual franchise
o This is supported by the discussions on the bill which became agreement also states this. Therefore, Cagayan Electric is liable for the
RA 1299 – the legislators stating that no tax change was period in between the time the tax exemption was removed to the time
envisioned, since cement remained as a manufactured product when it was reenacted.
therefore subject to sales tax. RA 1299 only added the definition
of the words minerals and mineral products. Facts:
• However, the Court ruled that the imposition of surcharge should be • Initial Tax Exemption: Cagayan Electric Power is the holder of a
deleted, for this case involved a controversy as to the proper application legislative franchise (RA 3247), under which its payment of 3% tax on its
of a difficult law. At the start, even BIR was confused if cement is really a gross earnings from the sale of electric current is "in lieu of all taxes and
mineral product or a manufactured product. assessments of whatever authority upon privileges, earnings, income,
• Also, the computation of the tax base for the imposition of the sales tax franchise, and poles, wires, transformers, and insulators of the grantee,
must be the selling price of the cement sold, minus the total cost of the from which taxes and assessments the grantee is hereby expressly
raw materials used in the manufacture of the cement. (I think ha kasi nga exempted" (Sec. 3).
diba the minerals composing it will still be subject to ad valorem tax on • Removal of Exemption: June 27, 1968, RA 5431 amended section 24 of
the basis of the value of the quarried minerals) the Tax Code by making liable for income tax all corporate taxpayers not
specifically exempt under paragraph (c) (1) of said section and section 27
CAGAYAN ELECTRIC V. CIR (Cualoping) of the Tax Code notwithstanding the "provisions of existing special or
[GR. No. 60126; September 25, 1985] general laws to the contrary". Thus, franchise companies were subjected
“Congress decides who gets exemptions and when they get them” to income tax in addition to franchise tax.
• Reenactment of taxexemption: August 4, 1969 franchise was amended
Recit-Ready: by RA 6020.
Facts: • The CIR in a demand letter dated February 15, 1973 required the
Cagayan Electric Power hold a legislative franchise, under which it was petitioner to pay deficiency income taxes for 1968-to 1971. The
subject to 3% tax in lieu of all other taxes. In 1968 RA 5431 Commissioner cancelled the assessments for 1970 and 1971 but insisted
ameneded the tax code and subjected franchise compaies to tax. on those for 1968 and 1969.
Then in 1969 Cagayan Electric’s franchise was specifically • The Tax Court, which on February 26, 1982 held the petitioner liable only
amended and effectively reenacted their previous tax exemption. for the income tax for the period from January 1 to August 3, 1969 or
The CIR assessed the company for tax deficiency and it is now before the passage of Republic Act No. 6020 which reiterated its tax
being contested. exemption.

Issue/s: Issue/s:

27
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

WON Cagayan Electric is liable to pay the tax? YES India airplanes outside the Philippines. On the basis of the said
transactions, the CIR held Air India liable for the payment of
Held/Ratio: P142,471.68 representing 2.5% income tax on its gross Philippine
o The Constitution provides that a franchise is subject to amendment, billings inclusive of the 50% surcharged for willful neglect to file a
alteration or repeal by the Congress when the public interest so requires return as provided in Section 72 of the NIRC.
o Section 1 of petitioner's franchise, RA 3247, provides that it is subject to
the provisions of the Constitution and to the terms and conditions Issue/s:
established in Act No. 3636 whose section 12 provides that the franchise 1) WON Air India is liable to pay the 50% surcharge imposed by
is subject to amendment, alteration or repeal by Congress. Section 72 of the NIRC –NO
o RA 5431, in amending section 24 of the Tax Code by subjecting to 2) WON Air India is liable to pay the income tax imposed upon it –
income tax all corporate taxpayers not expressly exempted therein and in YES
section 27 of the Code, had the effect of withdrawing petitioner's 3) WON Air India is liable to pay the other impositions imposed
exemption from income tax. upon it —YES
o The Tax Court acted correctly in holding that the exemption was restored
by the subsequent enactment on August 4, 1969 of Republic Act No. Held: Air India is ordered to pay the amount of P235,374.94 as
6020 which reenacted the said tax exemption. Hence, the petitioner is deficiency tax, inclusive of interest and surcharges.
liable only for the income tax for the period from January 1 to August 3, 1) NO. There is only a barren claim that the failure of Air India to file a
1969 when its tax exemption was modified by Republic Act No. 5431. return was fraudulent, without any evidence or justification for the
o However, it cannot be denied that the said 1969 assessment appears to same. The willful neglect to file the required tax return or the
be highly controversial. The Commissioner at the outset was not certain fraudulent intent to evade the payment of taxes, considering that
as to petitioner's income tax liability. It had reason not to pay income tax the same is accompanied by legal consequences, cannot be
because of the tax exemption in its franchise. For this reason, it should be presumed. Nonetheless, for failure to file a return, Air India is
liable only for tax proper and should not be held liable for the surcharge subjected to a 25% penalty pursuant to Section 729 of the Tax Code,
and interest. which amounts to P37, 101.95.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
CIR v. AIR INDIA and CTA (De Luis) 9
Sec. 72. Surcharges for failure to render returns and for rendering false and fraudulent
[G.R. No. 72443; January 29, 1988] returns.-In case of willful neglect to file the return or list required under this Title within the
time prescribed by law, or in case a false or fraudulent return or list is willfully made, the
“The willful neglect to file the required tax return or the fraudulent intent to
Commissioner of Internal Revenue shall add to the tax or to the deficiency tax, in case any
evade the payment of taxes, considering that the same is accompanied by payment has been made on the basis of such return before the discovery of the falsity or
legal consequences, cannot be presumed.” fraud, a surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of
any failure to make and file a return or list within the time prescribed by law or by the
Commissioner or other internal revenue officer, not due to willful neglect, the Commissioner
Recit-Ready: of Internal Revenue shall add to the tax twenty-five per centum of its amount, except that,
Facts: Air India is an off-line international carrier organized under the when a return is voluntarily and without notice from the Commissioner or other officer filed
after such time, and it is shown that the failure to file it was due to a reasonable cause, no
laws of India. It is not engaged in air transportation in the such addition shall be made to the tax. The amount so added to any tax shall be collected
Philippines, however, PAL acts as its sales agent. Air India sells at the same time in the same manner and as part of the tax unless the tax has been paid
before the discovery of the neglect, falsity, or fraud, in which case the amount so added
airplane tickets through PAL and these tickets are serviced by Air
shall be collected in the same manner as the tax.

28
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

2) YES. On the basis of the doctrine pronounced in CIR v. British sources with the Philippines and in fact, the P2, 986, 156.00 was derived
Overseas Airways Corporation (BOAC), the revenue derived by Air exclusively from sources outside the Philippines.
India from the sales of airplane tickets through its agent PAL here in • (IMPOSITION OF PENALTIES RULING OF THE CTA) The CTA likewise
the Philippines, must be considered taxable income. Such income is held that the surcharge and interest imposed are improper because
subject to a 2.5% tax under the Tax Code. The total Philippine billings Section 72 of the Tax Code imposes the 50% surcharge in case of willful
of Air India amounts to P2,968,156.00 and 2.5% of this amounts to neglect to file a return or list required within the time prescribed by law, or
P74,203.90. in case of a willfully made false or fraudulent return. In Air India’s case, it
3) YES. Air India is liable to pay the following: (see held 3 for explanations cannot be charged with an intention to defraud the Government by
on each interest/surcharge imposed) willfully failing to file a return because it honestly and sincerely believed
a. 42% maximum interest on deficiency under Section 51 (d) that it is not liable for the tax sought to be imposed upon it. Citing Aznar
b. 60% maximum additional interest under Section 5 (e) (2) as v. Court of Tax Appeals, the CTA ruled that Willful failure to file an
amended by P.D. 1705 income tax return which justifies the imposition of the 50% surcharge, or
c. 10% additional surcharge on unpaid tax under Section 51 (e) what is commonly called the fraud penalty, requires that the failure to file
(2) as amended by P.D. 1705 a return was due to an intent to evade payment of tax legally due, in other
words an intention to defraud the Government of lawful revenue. Mere
Facts: failure to file a return is not in itself, standing alone, evidence of fraud.
• Air India is a foreign corporation organized under the laws of India. It is an • The CIR appealed to the Supreme Court.
off-line international carrier not engaged in the business of air
transportation in the Philippines. Air India is represented in the Philippines Issue/s:
by its general sales agent, Philippine Air Lines, Inc., (PAL) a corporate 1) WON Air India is liable to pay the 50% surcharge imposed by
entity duly organized under the laws of the Philippines. Air India sells Section 72 of the NIRC
airplane tickets in the Philippine through this agent. These tickets are —NO (Note: In the original case this issue was discussed next to the
serviced by Air India airplanes outside the Philippines. income tax issue)
• Air India’s total sales of airplane tickets transacted by PAL during the 2) WON Air India is liable to pay the income tax imposed upon it
fiscal year ending March 31, 1976 amounted to P2,968,156.00. On —YES (Note: First issue discussed by the Court, remember CIR v.
account of the same, the CIR held Air India liable for the payment of BOAC)
P142, 471.68 representing 2.5% income tax on its gross Philippine 3) WON Air India is liable to pay the other impositions imposed upon it
billings for the said fiscal year, inclusive of the 50% surcharge and —YES
interest for willful neglect to file a return as provided under Section 72 of
the NIRC. Held/Ratio: Air India is ordered to pay the amount of P235,374.94 as
• On, February 20, 1981, the Commissioner of Internal Revenue sought the deficiency tax, inclusive of interest and surcharges.
payment of the tax deficiency. (Fact mentioned at the end of the case.
Wow.) 1) NO. There is only a barren claim that the failure of Air India to file a
• (INCOME TAX RULING OF THE CTA) Air India appealed to the Court of return was fraudulent, without any evidence or justification for the
Tax Appeals, which ruled in favor of Air India. It held that Air India is not same. The willful neglect to file the required tax return or the
liable to pay the income tax because it did not derive any income from fraudulent intent to evade the payment of taxes, considering that

29
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the same is accompanied by legal consequences, cannot be is subject to a 2.5% tax under the Tax Code. The total Philippine
presumed. Nonetheless, for failure to file a return, Air India is billings of Air India amounts to P2,968,156.00 and 2.5% of this
subjected to a 25% penalty pursuant to Section 7210 of the Tax amounts to P74,203.90.
Code, which amounts to P37, 101.95. o In CIR v. BOAC, the court ruled that the source of an income is the
o Going through the allegations of the CIR and the Memorandum property, activity or service that produced the income. It is sufficient
submitted by the Solicitor General (not quoted in the original case) on that the income is derived from activity within the Philippines. The sale
behalf of the CIR and on the basis of the same, the Court was not of tickets in the Philippines is the activity that produces the income.
convinced that Air India can be considered to have willfully neglected The situs of the source of income is the Philippines. The flow of wealth
to file the required tax return which warrants the imposition of the 50% proceeded from, and occurred within Philippine territory.
fraud penalty provided in Section 72. o The absence of flight operations to and from the Philippines is not
o In Aznar v. CTA it was held that, the fraud contemplated by law is determinative of the source of income or the situs of income taxation.
actual and not constructive. It must be intentional fraud, consisting of The test of taxability is the source and the source of income is that
deception willfully and deliberately done or resorted to in order to activity which produced the income.
induce another to give up some legal right. Negligence, whether slight 4) YES. Air India is liable to pay the following:
or gross, is not equivalent to the fraud with intent to give up some a. 42% maximum interest on deficiency under Section 51 (d)
legal right. Negligence, whether slight or gross, is not equivalent to the b. 60% maximum additional interest under Section 5 (e) (2) as
fraud with intent to evade the tax contemplated by the law. It must amended by P.D. 1705
amount to intentional wrongdoing with the sole object of avoiding the c. 10% additional surcharge on unpaid tax under Section 51
tax. (e) (2) as amended by P.D. 1705
o 42% maximum interest on deficiency under Section 51(d)
3) YES. On the basis of the doctrine pronounced in CIR v. British ! At the time the tax liability of the Air India accrued, Section
Overseas Airways Corporation (BOAC), the revenue derived by Air 51 (d) of the tax code, before it was amended by
India from the sales of airplane tickets through its agent PAL here in Presidential Decree No. 1705 12, prescribed an interest
the Philippines, must be considered taxable income. Such income rate of 14% per annum, provided that the maximum amount
that could be collected as interest on the tax deficiency will
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! not exceed the amount corresponding to a period of three
10
Sec. 72. Surcharges for failure to render returns and for rendering false and fraudulent
returns.-In case of willful neglect to file the return or list required under this Title within the years. Thus, the maximum interest rate then was 42% (14 x
time prescribed by law, or in case a false or fraudulent return or list is willfully made, the 3). This maximum interest rate is applicable to the Air India
Commissioner of Internal Revenue shall add to the tax or to the deficiency tax, in case any inasmuch as the period between March 31, 1976 (the end
payment has been made on the basis of such return before the discovery of the falsity or
fraud, a surcharge of fifty per centum of the amount of such tax or deficiency tax. In case of of the fiscal year in question) and February 20, 1981 (the
any failure to make and file a return or list within the time prescribed by law or by the time when the petitioner made the assessment in question)
Commissioner or other internal revenue officer, not due to willful neglect, the Commissioner
exceeds three years. P74,203.90 constitutes the tax
of Internal Revenue shall add to the tax twenty-five per centum of its amount, except that,
when a return is voluntarily and without notice from the Commissioner or other officer filed deficiency of the private respondent 42% of this amount is
after such time, and it is shown that the failure to file it was due to a reasonable cause, no P31,165.64.
such addition shall be made to the tax. The amount so added to any tax shall be collected
at the same time in the same manner and as part of the tax unless the tax has been paid
before the discovery of the neglect, falsity, or fraud, in which case the amount so added
shall be collected in the same manner as the tax.

30
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o 60% maximum additional interest under Section 5 (e) (2) as o Under the aforementioned provisions of the tax code, the Air India
amended by P.D. 170511 became liable to pay the 60% additional interest provided in Section
o Section 51 (e) (2) imposes a 20% interest in addition to 51 (e) (2) and the 10% surcharge provided in Section 51 (e) (3) thirty
the interest provided in Section 51 (d). The additional days after February 20, 1981, the date when the Commissioner of
interest is to be computed upon the entire amount of the Internal Revenue sought the payment of the deficiency. More than
tax liability (previous interest included) which remains three years have passed since and yet the account remains unsettled.
unpaid. However, the same Section provides that the Thus, the additional interest and surcharge can be imposed on the
maximum amount that may be collected as interest private respondent as asserted by the petitioner.
cannot exceed the amount corresponding to a period of
three years. In this case, the maximum rate would be
60%. REVENUE REGULATIONS NO. 12-99 (Diploma)
o 10% additional surcharge on unpaid tax under Section 51 (e) (3)
as amended by P.D. 170512 RR 12-99 (From Go with slight changes in formatting)
o This 10% surcharge is imposed for the late payment of
the unpaid tax deficiency and/or unpaid interest SUBJECT: Implementing the Provisions of the National Internal Revenue
assessed in connection therewith, in addition to all other Code of 1997 Governing the Rules on Assessment of National Internal
charges. The additional surcharge is computed on the Revenue Taxes, Civil Penalties and Interest and the Extra-judicial Settlement
amount of tax unpaid, exclusive of all other impositions. of a Taxpayer's Criminal Violation of the Code Through Payment of a
The failure to pay the tax deficiency within the required Suggested Compromise Penalty
period of time upon demand is penalized by this
additional surcharge. Upon such failure to pay, the SECTION 1. Scope. Pursuant to the provisions of Section 244, in relation to
surcharge is automatically due; its imposition is Section 245 of the National Internal Revenue Code of 1997, these
mandatory. Regulations are hereby promulgated to implement the provisions of Sections
6, 7, 204, 228, 247, 248 and 249 on assessment of national internal
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! revenue taxes, fees and charges and to provide the rules governing the
11
(2) Deficiency.-Where a deficiency, or any interest assessed in connection therewith extra-judicial settlement of a taxpayer's criminal violation of the said
under paragraph (d) of this section, or any addition to the taxes provided for in Section
seventy-two of this Code is not paid in full within thirty days from the date of notice and
Code or any of its implementing Regulations through payment of a
demand from the Commissioner of Internal Revenue, there shall be collected upon the suggested compromise penalty.
unpaid amount as part of the tax, interest at the rate of twenty per centum per annum from
the date of such notice and demand until it is paid: Provided, That the maximum amount
that may be collected as interest on deficiency shall in no case exceed the amount SECTION 2. General Principles.
corresponding to a period of three years, the present provisions regarding prescription to 2.1 The surcharge and/or interest herein prescribed shall apply to all taxes,
the contrary notwithstanding. fees and charges imposed under the Code which shall be collected at the
12
(3) Surcharge.-If any amount of tax shown on the return is not paid in full on or
before the date prescribed for its payment under paragrah (a) of this Section, or any same time, in the same manner, and as part of the tax.
amount of deficiency, and any interest assessed in connection therewith, is not paid in full
within the period prescribed in the assessment notice and demand required under
2.2 In case the tax due from the taxpayer is paid on a partial or installment
paragraph (b) of this Section, there shall be collected in addition to the interest precribed
herein and in paragraph (d) above and as part of the tax a surcharge of ten per centum of basis, the interest on the deficiency tax or on the delinquency tax liability of
the amount of tax unpaid.

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AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the taxpayer shall be imposed from due date of the tax until full payment least by registered mail, a Preliminary Assessment Notice (PAN)
thereof. The interest shall be computed based on the diminishing for the proposed assessment, showing in detail, the facts and the law,
balance of the tax, inclusive of interests. rules and regulations, or jurisprudence on which the proposed
assessment is based. If the taxpayer fails to respond within fifteen
SECTION 3. Due Process Requirement in the Issuance of a Deficiency (15) days from date of receipt of the PAN, he shall be considered in
Tax Assessment. default, in which case, a formal letter of demand and assessment
notice shall be caused to be issued by the said Office, calling for
3.1 Mode of procedures in the issuance of a deficiency tax payment of the taxpayer's deficiency tax liability, inclusive of the
assessment: applicable penalties.
3.1.1 Notice for informal conference. The Revenue Officer who
audited the taxpayer's records shall, among others, state in his report 3.1.3 Exceptions to Prior Notice of the Assessment. The notice
whether or not the taxpayer agrees with his findings that the taxpayer for informal conference and the preliminary assessment notice shall
is liable for deficiency tax or taxes. If the taxpayer is not amenable, not be required in any of the following cases, in which case, issuance
based on the said Officer's submitted report of investigation, the of the formal assessment notice for the payment of the taxpayer's
taxpayer shall be informed, in writing, by the Revenue District Office deficiency tax liability shall be sufficient:
or by the Special Investigation Division, as the case may be (in the (i) When the finding for any deficiency tax is the result of
case Revenue Regional Offices) or by the Chief of Division concerned mathematical error in the computation of the tax appearing on the
(in the case of the BIR National Office) of the discrepancy or face of the tax return filed by the taxpayer; or
discrepancies in the taxpayer's payment of his internal revenue taxes, (ii) When a discrepancy has been determined between the tax
for the purpose of "Informal Conference," in order to afford the withheld and the amount actually remitted by the withholding
taxpayer with an opportunity to present his side of the case. If the agent; or
taxpayer fails to respond within fifteen (15) days from date of receipt (iii) When a taxpayer who opted to claim a refund or tax credit of
of the notice for informal conference, he shall be considered in excess creditable withholding tax for a taxable period was determined
default, in which case, the Revenue District Officer or the Chief of the to have carried over and automatically applied the same amount
Special Investigation Division of the Revenue Regional Office, or the claimed against the estimated tax liabilities for the taxable quarter or
Chief of Division in the National Office, as the case may be, shall quarters of the succeeding taxable year; or
endorse the case with the least possible delay to the Assessment (iv) When the excise tax due on excisable articles has not
Division of the Revenue Regional Office or to the Commissioner or his been paid; or
duly authorized representative, as the case may be, for appropriate (v) When an article locally purchased or imported by an exempt
review and issuance of a deficiency tax assessment, if warranted. person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred to
3.1.2 Preliminary Assessment Notice (PAN). If after review and non-exempt persons.
evaluation by the Assessment Division or by the Commissioner or his
duly authorized representative, as the case may be, it is determined 3.1.4 Formal Letter of Demand and Assessment Notice. The
that there exists sufficient basis to assess the taxpayer for any formal letter of demand and assessment notice shall be issued by the
deficiency tax or taxes, the said Office shall issue to the taxpayer, at Commissioner or his duly authorized representative. The letter of

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AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

demand calling for payment of the taxpayer's deficiency tax or taxes shall be required to pay the corresponding deficiency tax or taxes
shall state the facts, the law, rules and regulations, or jurisprudence attributable thereto.
on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be The taxpayer shall submit the required documents in support of his
sent to the taxpayer only by registered mail or by personal delivery. If protest within sixty (60) days from date of filing of his letter of protest,
sent by personal delivery, the taxpayer or his duly authorized otherwise, the assessment shall become final, executory and
representative shall acknowledge receipt thereof in the duplicate copy demandable. The phrase "submit the required documents" includes
of the letter of demand, showing the following: (a) His name; (b) submission or presentation of the pertinent documents for scrutiny
signature; (c) designation and authority to act for and in behalf of the and evaluation by the Revenue Officer conducting the audit. The said
taxpayer, if acknowledged received by a person other than the Revenue Officer shall state this fact in his report of investigation.
taxpayer himself; and (d) date of receipt thereof.
If the taxpayer fails to file a valid protest against the formal letter of
3.1.5 Disputed Assessment. The taxpayer or his duly authorized demand and assessment notice within thirty (30) days from date of
representative may protest administratively against the aforesaid receipt thereof, the assessment shall become final, executory and
formal letter of demand and assessment notice within thirty (30) days demandable.
from date of receipt thereof. If there are several issues involved in the
formal letter of demand and assessment notice but the taxpayer only If the protest is denied, in whole or in part, by the Commissioner, the
disputes or protests against the validity of some of the issues raised, taxpayer may appeal to the Court of Tax Appeals within thirty (30)
the taxpayer shall be required to pay the deficiency tax or taxes days from date of receipt of the said decision, otherwise, the
attributable to the undisputed issues, in which case, a collection letter assessment shall become final, executory and demandable.
shall be issued to the taxpayer calling for payment of the said
deficiency tax, inclusive of the applicable surcharge and/or interest. In general, if the protest is denied, in whole or in part, by the
No action shall be taken on the taxpayer's disputed issues until Commissioner or his duly authorized representative, the taxpayer may
the taxpayer has paid the deficiency tax or taxes attributable to appeal to the Court of Tax Appeals within thirty (30) days from date of
the said undisputed issues. The prescriptive period for assessment receipt of the said decision, otherwise, the assessment shall become
or collection of the tax or taxes attributable to the disputed issues final, executory and demandable: Provided, however, that if the
shall be suspended. taxpayer elevates his protest to the Commissioner within thirty (30)
days from date of receipt of the final decision of the Commissioner's
The taxpayer shall state the facts, the applicable law, rules and duly authorized representative, the latter's decision shall not be
regulations, or jurisprudence on which his protest is based, otherwise, considered final, executory and demandable, in which case, the
his protest shall be considered void and without force and effect. If protest shall be decided by the Commissioner.
there are several issues involved in the disputed assessment and the
taxpayer fails to state the facts, the applicable law, rules and If the Commissioner or his duly authorized representative fails to act
regulations, or jurisprudence in support of his protest against some of on the taxpayer's protest within one hundred eighty (180) days from
the several issues on which the assessment is based, the same shall date of submission, by the taxpayer, of the required documents in
be considered undisputed issue or issues, in which case, the taxpayer support of his protest, the taxpayer may appeal to the Court of Tax

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AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Appeals within thirty (30) days from the lapse of the said 180-day return with an internal revenue officer other than those with whom the
period, otherwise, the assessment shall become final, executory and return is required to be filed; or
demandable. 4.1.3 Failure to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment; or
3.1.6 Administrative Decision on a Disputed Assessment. The 4.1.4 Failure to pay the full or part of the amount of tax shown on any
decision of the Commissioner or his duly authorized representative return required to be filed under the provisions of this Code or rules
shall (a) state the facts, the applicable law, rules and regulations, or and regulations, or the full amount of tax due for which no return is
jurisprudence on which such decision is based, otherwise, the required to be filed, on or before the date prescribed for its payment.
decision shall be void, in which case, the same shall not be
considered a decision on a disputed assessment; and (b) that the 4.2 Fifty Percent (50%) Surcharge:
same is his final decision. 4.2.1 In case of willful neglect to file the return within the period
prescribed by the Code, or in case a false or fraudulent return is
3.1.7 Constructive Service. If the notice to the taxpayer herein willfully made, the penalty to be imposed shall be fifty percent (50%)
required is served by registered mail, and no response is received of the tax or of the deficiency tax, in case any payment has been
from the taxpayer within the prescribed period from date of the made on the basis of such return before the discovery of the falsity or
posting thereof in the mail, the same shall be considered actually or fraud: Provided, That a substantial under declaration of taxable
constructively received by the taxpayer. If the same is personally sales, receipts or income, or a substantial overstatement of
served on the taxpayer or his duly authorized representative who, deductions, as determined by the Commissioner or his duly
however, refused to acknowledge receipt thereof, the same shall be authorized representative, shall constitute prima facie evidence of a
constructively served on the taxpayer. Constructive service thereof false or fraudulent return: Provided, further, That failure to report
shall be considered effected by leaving the same in the premises of sales, receipts or income in an amount exceeding thirty percent (30%)
the taxpayer and this fact of constructive service is attested to, of that declared per return, and a claim of deductions in an amount
witnessed and signed by at least two (2) revenue officers other than exceeding thirty percent (30%) of actual deductions, shall render the
the revenue officer who constructively served the same. The revenue taxpayer liable for substantial under declaration of sales, receipts or
officer who constructively served the same shall make a written report income or for overstatement of deductions, as mentioned herein:
of this matter which shall form part of the docket of this case. Provided, further, that the term "willful neglect to file the return within
the period prescribed by the Code" shall not apply in case the
SECTION 4. Civil Penalties. taxpayer, without notice from the Commissioner or his authorized
4.1 Twenty-Five Percent (25%) Surcharge. ` There shall be imposed, in representative, voluntarily files the said return, in which case, only
addition to the basic tax required to be paid, a penalty equivalent to twenty- 25% surcharge shall be imposed for late filing and late payment of the
five percent (25%) thereof, in any the following cases: tax in lieu of the above 50% surcharge. Conversely, the 50%
surcharge shall be imposed in case the taxpayer files the return only
4.1.1 Failure to file any return and pay the tax due thereon as after prior notice in writing from the Commissioner or his duly
required under the provisions of this Code or rules and regulations on authorized representative.
the date prescribed; or
4.1.2 Unless otherwise authorized by the Commissioner, filing a 4.2.2 Section 6 (A) of the Code provides that any tax return filed by a

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AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

taxpayer "may be modified, changed or amended" by the taxpayer


"within three (3) years from date of such filing" provided, however,
that "no notice for audit or investigation of such return, statement or
declaration has, in the meantime, been actually served upon the
taxpayer. "Thus, if upon investigation, it is determined that the
taxpayer's originally filed tax return is false or fraudulent, such
taxpayer shall remain liable to the 50% civil penalty regardless that
the taxpayer has filed his amended tax return, if the said amended tax
return, however, has been filed only after issuance of the Letter of
Authority for the investigation of the taxpayer's tax return or such
amendment has been made in the course of the said investigation.

SECTION 5. Mode of Procedures in Computing for the Tax and/or


Applicable Surcharge. Shown hereunder are illustrative cases for the
computation and assessment of the tax, inclusive of surcharge (if applicable)
Only one 25% surcharge shall be imposed for late filing of the return and late
and interest:
payment of the tax.

5.1 Late filing and late payment of the tax. ` Illustration: Income tax return
5.2 The tax return is filed on time but filed through an internal revenue
for the calendar year 1998 was due for filing on April 15, 1999 but the
officer other than with whom the return is required to be filed.
taxpayer voluntarily filed his tax return, without notice from the BIR, only on
Illustration: The taxpayer's 1998 income tax return is required to be filed
June 30, 1999. The tax due per return amounts to P100,000. In this case, the
through the authorized agent bank under the jurisdiction of RDO East Makati.
taxpayer shall be liable for delinquency penalties consisting of 25%
But, without prior authorization from the BIR, the taxpayer filed his tax return
surcharge, plus 20% interest per annum, computed from due date of the tax
and paid the tax through the authorized agent bank under the jurisdiction of
until date of payment, computed as follows:
RDO Davao City. Tax due and paid per return is P100,000.00.

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

5.3 Late filing and late payment due to taxpayer's willful neglect.
`Illustration: The taxpayer did not file his income tax return for the calendar
year 1997 which was due for filing on April 15, 1998. He was notified by the
BIR of his failure to file the tax return, for which reason, he filed his tax return
and paid the tax, only after the said notice, on June 30, 1999. The tax due
per return is P100,000.00.

Illustration No. 2: ABC CORPORATION filed its income tax return for
calendar year 1997 and paid on time its income tax shown thereunder,
amounting to P100,000. Said taxpayer was investigated. Upon verification of
its accounting records, it was disclosed that its deduction, from gross
income, of representation expenses in the amount of P200,000.00 did not
meet all the statutory requisites for deductibility. The corporation was duly
notified of the said discrepancy through a Preliminary Assessment Notice.
Based on the 35% income tax rate on corporations applicable in the year
1997, the income tax due after investigation amounts to P170,000.00. After
deduction of income tax paid per return filed, the basic deficiency income tax
amounts to P70,000, excluding penalties. Failing to protest on time against
5.4 Penalty or penalties for deficiency tax. ` As a rule, no surcharge is the preliminary assessment notice, a formal letter of demand and
imposed on deficiency tax and on the basic tax. However, if the amount due assessment notice was issued on May 31, 1999, requiring payment of the
inclusive of penalties is not paid on or before the due date stated on the assessment not later than June 30, 1999.
demand letter, the corresponding surcharge shall be imposed.

Illustration No. 1: Taxpayer filed on time his income tax return for calendar
year 1997 and paid P100,000.00 on April 15, 1998. Upon pre-audit of his
return, it was disclosed that he erroneously computed the tax due. The
correct amount of tax due is P120,000.00. The taxpayer is assessed for
deficiency income tax in a letter of demand and assessment notice issued on
June 30, 1999.

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Illustration No. 3: XYZ CORPORATION filed its income tax return for penalties incident to late payment.
calendar year 1997 with a net taxable income of P500,000.00. At the
applicable income tax rate of 35%for the year 1997, its income tax amounted Illustration: Based on the above Illustration No. 3, Scenario 4, assuming that
to P175,000.00. However, upon investigation, it was disclosed that its the calendar year 1997 deficiency income tax assessment against XYZ
income tax return was false or fraudulent because it did not report a taxable CORPORATION, in the amount of P304,771.67, is not paid by June 30,
income amounting to another P500,000.00. On its net income of 1999, the deadline for payment of the assessment, and assuming further that
P1,000,000.00, per investigation, the income tax due is P350,000.00. this assessment has already become final and collectible. In this case, such
Deducting its payment per return filed, the deficiency, excluding penalties, corporation shall be considered late in payment of the said assessment.
amounted to P175,000.00. It was duly informed of this finding through a Assuming, further, that the corporation pays its tax assessment only by July
Preliminary Assessment Notice. Failing to protest on time against the 31, 1999, the civil penalties for late payment shall be computed as follows:
preliminary assessment notice, a formal letter of demand and assessment
notice was issued on May 31, 1999 calling for payment of the deficiency
income tax on or before June 30, 1999.

In this case, said corporation is liable for the civil penalties of 50% surcharge
for having filed a false or fraudulent return, plus 20% interest per annum on
the deficiency, computed as follows:

5.6 Computation of 20% interest per annum in case of partial or


installment payment of a tax liability.
Illustration No. 1: In case extended payment of the tax is duly authorized.
DEF CORPORATION, due to financial incapacity, requested that it be
allowed to pay its income tax liability per return for calendar year 1998, in the
amount of P1,000,000.00, in four (4) monthly installments, starting April 15,
5.5 Late payment of a deficiency tax assessed. In general, the deficiency 1999. Its request has been duly approved pursuant to Sec. 53 of the Tax
tax assessed shall be paid by the taxpayer within the time prescribed in the Code.
notice and demand, otherwise, such taxpayer shall be liable for the civil

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

In this case, no 25% surcharge shall be imposed for late payment of the tax
since its deadline for payment has been duly extended. However, 20%
interest per annum for the extended payment shall be imposed, computed
based on the diminishing balance of the "unpaid amount", pursuant to the
provisions of Section 249 (D) of the Code.

No 25% surcharge on extended payment shall be imposed provided,


however, that the taxpayer's request for extension of the period within which
to pay is made on or before the deadline prescribed for payment of the tax
due. Conversely, if such request is made after the deadline prescribed for
payment, the taxpayer shall already be treated late in payment, in which
case, the 25% surcharge shall be imposed, even if payment of the
delinquency be allowed in partial amortization.

Example:

Illustration No. 2: Computation of tax delinquency in case of partial payment


of the tax due without prior BIR authorization for extended payment.
Example: GHI CORPORATION did not file its final adjustment income tax
return for the calendar year 1998 which was due on April 15, 1999. The BIR
informed the corporation of its failure to file its said tax return and required
that it file the same, inclusive of the 25% surcharge and 20% interest per

38
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

annum penalties incident to the said omission. On May 15, 1999 it advised Section 6.6 hereof.
that its income tax due for the said year amounts to P1,000,000.00 but,
however, due to its adverse financial condition at the moment, it will be SECTION 6. Suggested Compromise Penalty in Extra-judicial
unable to pay the entire amount, inclusive of the delinquency penalties. Settlement of a Taxpayer's Criminal Violation. Section 204 of the Tax
Hence, on May 15, 1999, it made a partial payment of P400,000.00. Code of 1997 provides that "All criminal violations may be compromised
Assuming that the BIR demanded payment of the unpaid balance of its tax except: (a) those already filed in court, or (b) those involving fraud."
obligation payable by June 15, 1999, the unpaid balance of the corporation's This means that, in general, the taxpayer's criminal liability arising from his
delinquent income tax shall be computed as follows: violation of the pertinent provision of the Code may be settled extra-judicially
instead of the BIR instituting against the taxpayer a criminal action in Court.
A compromise in extra-judicial settlement of the taxpayer's criminal liability
for his violation is consensual in character, hence, may not be imposed on
the taxpayer without his consent. Hence, the BIR may only suggest
settlement of the taxpayer's liability through a compromise.

The extra-judicial settlement of the taxpayer's criminal liability and the


amount of the suggested compromise penalty shall conform with the
schedule of compromise penalties provided under Revenue Memorandum
Order No. 1-90 or as hereafter revised.

SECTION 7. Repealing Clause. Any revenue issuance which is


inconsistent herewith shall be considered repealed, amended, or modified
accordingly.

SECTION 8. Effectivity.

8.1 General Rule. In general, the provisions of these Regulations shall be


effective beginning January 1, 1998 pursuant to the provisions of Section 8
of R.A. No. 8424, otherwise known as the National Internal Revenue Code of
1997.
If the said taxpayer fails to pay the amount of P811,111.17 by June 15, 1999,
no further 25% surcharge for late payment of the tax shall be imposed. 8.2 Computation of Surcharge and Interest on Deficiency Tax Assessment.
Instead, only the 20% interest per annum shall be imposed against the Any deficiency tax assessment issued beginning January 1, 1998 shall be
taxpayer against the taxpayer, computed from due date thereof (i.e., June governed by the rules prescribed in these Regulations.
15, 1999) until paid. If said taxpayer pays the same on partial payment basis,
the 20% interest per annum shall be computed on the diminishing balance 8.3 Other Provisions. Any provision of these Regulations not otherwise
thereof, pursuant to the procedures in the preceding Illustration No. 1, specifically provided in the National Internal Revenue Code of 1997 shall

39
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

take effect fifteen (15) days after publication in any newspaper of general "Willful neglect to file the return within the

circulation. period prescribed by the Code" shall not
apply in case the taxpayer, without notice from
SUMMARY OF RR 12 – 99 PERTINENT TO OUR TOPIC OF IMPOSITION the Commissioner or his authorized
OF PENALTIES (Diploma) representative, voluntarily files the said
return, in which case, only 25% surcharge
The RR covers the assessment of national internal revenue taxes, fees and shall be imposed for late filing and late
charges and to provide the rules governing the extra-judicial settlement of payment of the tax in lieu of the above 50%
a taxpayer's criminal violation of the said Code or any of its implementing surcharge.
Regulations through payment of a suggested compromise penalty. ! False of fraudulent return willfully made
o PROVIDED
A. Applicability: ! A substantial under declaration of taxable sales,
• The surcharge and/or interest applies to all taxes, fees and charges receipts or income, or a substantial overstatement of
imposed under the Code which shall be collected at the same time, in deductions, as determined by the Commissioner or
the same manner, and as part of the tax. his duly authorized representative, shall constitute
• If such is paid on a partial or installment basis, the interest on the prima facie evidence of a false or fraudulent return
deficiency tax or on the delinquency tax liability of the taxpayer shall be • Failure to report sales, receipts or income in
imposed from due date of the tax until full payment thereof. an amount exceeding thirty percent (30%)
o The interest shall be computed based on the diminishing of that declared per return, and a claim of
balance of the tax, inclusive of interests. deductions in an amount exceeding thirty
percent (30%) of actual deductions, shall
B. Grounds for Civil Penalties: render the taxpayer liable for substantial under
• 25% Surcharge declaration.
o Failure to file any return and pay the tax due thereon on the
date prescribed by the rules and regulations • Amendments, Modification and Changes
o Filing a return with an internal revenue officer OTHER than o Must be made within 3 years from date of such filing
those with whom return is required to be filed o REQUISITE: No notice for audit or investigation of such return,
! Unless otherwise authorized by the Commissioner statement or declaration has, in the meantime, been actually
o Failure to pay the full or part of the amount of tax shown on served upon the taxpayer
any return required to be filed, or the full amount of tax due ! If it is determined AFTER investigation, that the
for which no return is required to be filed, on the date originally filed tax return is false or fraudulent, such
prescribed for its payment taxpayer shall remain liable to the 50% civil penalty.
• 50% Surcharge • Regardless that the taxpayer has filed his
o In case any payment has been made on the basis of such return amended tax return, if the said amended tax
before the discovery of the falsity or fraud due to: return, however, has been filed only after
! Willful neglect to file return within the period prescribed issuance of the Letter of Authority for the

40
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

investigation of the taxpayer's tax return or o (a) those already filed in court, or
such amendment has been made in the course o (b) those involving fraud.
of the said investigation. • In general, the taxpayer's criminal liability arising from his violation of the
C. Modes of Procedures in Computing for the Tax/Applicable Surcharge pertinent provision of the Code may be settled extra-judicially instead of
*Check RR for illustrations the BIR instituting against the taxpayer a criminal action in Court.
! Late filing and late payment of the tax but taxpayer voluntarily filed • A compromise in extra-judicial settlement of the taxpayer's criminal
return WITHOUT notice from BIR liability for his violation is consensual in character, hence, may not be
o Tax due + 25% surcharge on tax due + interest imposed on the taxpayer without his consent.
! Filed on time but filed through an internal revenue officer other than • Hence, the BIR may only suggest settlement of the taxpayer's liability
with whom the return is required to be filed through a compromise.
o Tax due + 25% surcharge on tax due LESS amount paid • The extra-judicial settlement of the taxpayer's criminal liability and the
! Late filing and late payment due to taxpayer's willful neglect amount of the suggested compromise penalty shall conform with the
o Tax due + 50% surcharge + interest schedule of compromise penalties provided under Revenue
! Penalties for deficiency tax Memorandum Order No. 1-90 or as hereafter revised.
o Tax due as of pre-aduit – amount paid + interest on
deficiency REVENUE REGULATION 18-2013 (Fajardo, K)
! Late payment of a deficiency tax assessed
o Total deficiency tax assessed + 25% surcharge + interest AMENDING CERTAIN SECTIONS OF REVENUE REGULATIONS NO. 12-
! 20% interest per annum in case of partial or installment payment of 99 RELATIVE TO THE DUE PROCESS REQUIREMENT IN THE
a tax liability ISSUANCE OF A DEFICIENCY TAX ASSESSMENT
o check illustration
o No 25% surcharge shall be imposed for late payment of the SECTION 1. Scope. — Pursuant to the provisions of Section 244, in relation
tax if its deadline for payment has been duly extended to Section 245 of the National Internal Revenue Code of 1997 (Tax Code), as
! BUT if such request for extension is made after the amended, these Regulations are hereby promulgated to amend provisions of
deadline prescribed for payment, the taxpayer shall Revenue Regulations (RR) No. 12-99.
already be treated late in payment, in which case,
the 25% surcharge shall be imposed SECTION 2. Amendment. — Section 3 of RR 12-99 is hereby amended by
o 20% interest per annum for the extended payment shall be deleting Section 3.1.1 thereof which provides for the preparation of a Notice
imposed, computed based on the diminishing balance of of Informal Conference, thereby renumbering other provisions thereof, and
the "unpaid amount", pursuant to the provisions of Section prescribing other provisions for the assessment of tax liabilities. Section 3 of
249 (D) of the Code. RR 12-99 shall now read as follows:

D. Compromise Penalty in Extra-Juidicla Settlement of Taxpayer’s Criminal “SECTION 3. Due Process Requirement in the Issuance of a Deficiency
Violation Tax Assessment. —
• Section 204 of the Tax Code of 1997 provides that: All criminal violations 3.1 Mode of procedure in the issuance of a deficiency tax
may be compromised except: assessment:

41
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

3.1.1 Preliminary Assessment Notice (PAN). — If after review and above-cited cases, a FLD/FAN shall be issued outright.
evaluation by the Commissioner or his duly authorized representative, as
the case may be, it is determined that there exists sufficient basis to 3.1.3 Formal Letter of Demand and Final Assessment Notice
assess the taxpayer for any deficiency tax or taxes, the said Office shall (FLD/FAN). — The Formal Letter of Demand and Final Assessment
issue to the taxpayer a Preliminary Assessment Notice (PAN) for the Notice (FLD/FAN) shall be issued by the Commissioner or his duly
proposed assessment. It shall show in detail the facts and the law, rules authorized representative. The FLD/FAN calling for payment of the
and regulations, or jurisprudence on which the proposed assessment is taxpayer's deficiency tax or taxes shall state the facts, the law, rules and
based (see illustration in ANNEX “A” hereof). If the taxpayer fails to regulations, or jurisprudence on which the assessment is based;
respond within fifteen (15) days from date of receipt of the PAN, he shall otherwise, the assessment shall be void (see illustration in ANNEX “B”
be considered in default, in which case, a Formal Letter of Demand and hereof).
Final Assessment Notice (FLD/FAN) shall be issued calling for payment of
the taxpayer's deficiency tax liability, inclusive of the applicable penalties. 3.1.4 Disputed Assessment. — The taxpayer or its authorized
representative or tax agent may protest administratively against the
If the taxpayer, within fifteen (15) days from date of receipt of the PAN, aforesaid FLD/FAN within thirty (30) days from date of receipt thereof.
responds that he/it disagrees with the findings of deficiency tax or taxes, The taxpayer protesting an assessment may file a written request for
an FLD/FAN shall be issued within fifteen (15) days from filing/submission reconsideration or reinvestigation defined as follows:
of the taxpayer’s response, calling for payment of the taxpayer's (ii) Request for reconsideration — refers to a plea of re-evaluation of an
deficiency tax liability, inclusive of the applicable penalties. assessment on the basis of existing records without need of additional
evidence. It may involve both a question of fact or of law or both. (ii)
3.1.2 Exceptions to Prior Notice of the Assessment. — Pursuant to Request for reinvestigation — refers to a plea of re-evaluation of an
Section 228 of the Tax Code, as amended, a PAN shall not be required in assessment on the basis of newly discovered or additional evidence that
any of the following cases: a taxpayer intends to present in the reinvestigation. It may also involve a
(i) When the finding for any deficiency tax is the result of mathematical question of fact or of law or both.
error in the computation of the tax appearing on the face of the tax return
filed by the taxpayer; or The taxpayer shall state in his protest
(ii) When a discrepancy has been determined between the tax withheld (i) the nature of protest whether reconsideration or reinvestigation,
and the amount actually remitted by the withholding agent; or specifying newly discovered or additional evidence he intends to
(iii) When a taxpayer who opted to claim a refund or tax credit of excess present if it is a request for reinvestigation,
creditable withholding tax for a taxable period was determined to have (ii) date of the assessment notice, and
carried over and automatically applied the same amount claimed against (iii) the applicable law, rules and regulations, or jurisprudence on which
the estimated tax liabilities for the taxable quarter or quarters of the his protest is based, otherwise, his protest shall be considered
succeeding taxable year; or void and without force and effect.
(iv)When the excise tax due on excisable articles has not been paid; or (v)
When an article locally purchased or imported by an exempt person, such If there are several issues involved in the FLD/FAN but the taxpayer only
as, but not limited to, vehicles, capital equipment, machineries and spare disputes or protests against the validity of some of the issues raised, the
parts, has been sold, traded or transferred to non-exempt persons. In the assessment attributable to the undisputed issue or issues shall become

42
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

final, executory and demandable; and the taxpayer shall be required to If the protest is denied, in whole or in part, by the Commissioner’s duly
pay the deficiency tax or taxes attributable thereto, in which case, a authorized representative, the taxpayer may either: (i) appeal to the Court
collection letter shall be issued to the taxpayer calling for payment of the of Tax Appeals (CTA) within thirty (30) days from date of receipt of the
said deficiency tax or taxes, inclusive of the applicable surcharge and/or said decision; or (ii) elevate his protest through request for
interest. reconsideration to the Commissioner within thirty (30) days from date of
receipt of the said decision. No request for reinvestigation shall be
If there are several issues involved in the disputed assessment and the allowed in administrative appeal and only issues raised in the decision of
taxpayer fails to state the facts, the applicable law, rules and regulations, the Commissioner’s duly authorized representative shall be entertained
or jurisprudence in support of his protest against some of the several by the Commissioner.
issues on which the assessment is based, the same shall be considered
undisputed issue or issues, in which case, the assessment attributable If the protest is not acted upon by the Commissioner’s duly authorized
thereto shall become final, executory and demandable; and the taxpayer representative within one hundred eighty (180) days counted from the
shall be required to pay the deficiency tax or taxes attributable thereto date of filing of the protest in case of a request reconsideration; or from
and a collection letter shall be issued to the taxpayer calling for payment date of submission by the taxpayer of the required documents within sixty
of the said deficiency tax, inclusive of the applicable surcharge and/or (60) days from the date of filing of the protest in case of a request for
interest. reinvestigation, the taxpayer may either:
(i) appeal to the CTA within thirty (30) days after the expiration of the
For requests for reinvestigation, the taxpayer shall submit all relevant one hundred eighty (180)-day period; or
supporting documents in support of his protest within sixty (60) days from (ii) await the final decision of the Commissioner’s duly authorized
date of filing of his letter of protest, otherwise, the assessment shall representative on the disputed assessment.
become final. The term “relevant supporting documents” refer to those
documents necessary to support the legal and factual bases in disputing If the protest or administrative appeal, as the case may be, is denied, in
a tax assessment as determined by the taxpayer. The sixty (60)-day whole or in part, by the Commissioner, the taxpayer may appeal to the
period for the submission of all relevant supporting documents shall not CTA within thirty (30) days from date of receipt of the said decision.
apply to requests for reconsideration. Furthermore, the term “the Otherwise, the assessment shall become final, executory and
assessment shall become final” shall mean the taxpayer is barred from demandable. A motion for reconsideration of the Commissioner’s denial
disputing the correctness of the issued assessment by introduction of of the protest or administrative appeal, as the case may be, shall not toll
newly discovered or additional evidence, and the FDDA shall the thirty (30)-day period to appeal to the CTA.
consequently be denied.
If the protest or administrative appeal is not acted upon by the
If the taxpayer fails to file a valid protest against the FLD/FAN within thirty Commissioner within one hundred eighty (180) days counted from the
(30) days from date of receipt thereof, the assessment shall become final, date of filing of the protest, the taxpayer may either: (i) appeal to the CTA
executory and demandable. No request for reconsideration or within thirty (30) days from after the expiration of the one hundred eighty
reinvestigation shall be granted on tax assessments that have already (180)-day period; or (ii) await the final decision of the Commissioner on
become final, executory and demandable. the disputed assessment and appeal such final decision to the CTA within
thirty (30) days after the receipt of a copy of such decision.

43
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

his clerk or with a person having charge thereof. If the known address is
It must be emphasized, however, that in case of inaction on protested the place of residence, substituted service can be made by leaving the
assessment within the 180-day period, the option of the taxpayer to copy with a person of legal age residing therein. If no person is found in
either: the party’s registered or known address, the revenue officers concerned
(1) file a petition for review with the CTA within 30 days after the shall bring a barangay official and two (2) disinterested witnesses to the
expiration of the 180-day period; or address so that they may personally observe and attest to such absence.
(2) await the final decision of the Commissioner or his duly authorized The notice shall then be given to said barangay official. Such facts shall
representative on the disputed assessment and appeal such final be contained in the bottom portion of the notice, as well as the names,
decision to the CTA within 30 days after the receipt of a copy of such official position and signatures of the witnesses.
decision, are mutually exclusive and the resort to one bars the application
of the other. Should the party be found at his registered or known address or any other
place but refuse to receive the notice, the revenue officers concerned
3.1.5 Final Decision on a Disputed Assessment (FDDA). — The shall bring a barangay official and two (2) disinterested witnesses in the
decision of the Commissioner or his duly authorized representative shall presence of the party so that they may personally observe and attest to
state the such act of refusal. The notice shall then be given to said barangay
(i) facts, the applicable law, rules and regulations, or jurisprudence on official. Such facts shall be contained in the bottom portion of the notice,
which such decision is based, otherwise, the decision shall be void (see as well as the names, official position and signatures of the witnesses.
illustration in ANNEX “C” hereof), and “Disinterested witnesses” refers to persons of legal age other than
(ii) that the same is his final decision. employees of the Bureau of Internal Revenue.

3.1.6 Modes of Service. — The notice (PAN/FLD/FAN/FDDA) to the (iii) Service by mail is done by sending a copy of the notice by registered
taxpayer herein required may be served by the Commissioner or his duly mail to the registered or known address of the party with instruction to the
authorized representative through the following modes: Postmaster to return the mail to the sender after ten (10) days, if
undelivered. A copy of the notice may also be sent through reputable
(i) The notice shall be served through personal service by delivering professional courier service. If no registry or reputable professional
personally a copy thereof to the party at his registered or known address courier service is available in the locality of the addressee, service may
or wherever he may be found. A known address shall mean a place other be done by ordinary mail. The server shall accomplish the bottom portion
than the registered address where business activities of the party are of the notice. He shall also make a written report under oath before a
conducted or his place of residence. In case personal service is not Notary Public or any person authorized to administer oath under Section
practicable, the notice shall be served by substituted service or by mail. 14 of the NIRC, as amended, setting forth the manner, place and date of
service, the name of the person/barangay official/professional courier
(ii) Substituted service can be resorted to when the party is not present at service company who received the same and such other relevant
the registered or known address under the following circumstances: The information. The registry receipt issued by the post office or the official
notice may be left at the party’s registered address, with his clerk or with a receipt issued by the professional courier company containing sufficiently
person having charge thereof. If the known address is a place where identifiable details of the transaction shall constitute sufficient proof of
business activities of the party are conducted, the notice may be left with mailing and shall be attached to the case docket.

44
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Service to the tax agent/practitioner, who is appointed by the taxpayer


under circumstances prescribed in the pertinent regulations on
accreditation of tax agents, shall be deemed service to the taxpayer.”

SECTION 3. Amendment. — Section 5 of RR 12-99 is hereby amended by


modifying Section 5.5 thereof which provides for modes of procedures in
computing for the tax and/or applicable surcharge. In cases of late payment
of a deficiency tax assessed, the taxpayer shall be liable for the delinquency
interest provided under Section 249 (C)(3) of the 1997 National Internal
Revenue Code, as amended. Section 5.5 of RR 12-99 shall now read as
follows:

“5.5 Late payment of a deficiency tax assessed. – In general, the


deficiency tax assessed shall be paid by the taxpayer within the time
prescribed in the notice and demand, otherwise, such taxpayer shall be liable
for the delinquency interest incident to late payment.

Illustration 1: Based on the above Illustration No. 3, Scenario 4, assuming


that the calendar year 1997 deficiency income tax assessment against XYZ
CORPORATION, in the amount of P304,771.67, is not paid by June 30,
1999, the deadline for payment of the assessment, and assuming further that
this assessment has already become final and collectible. In this case, such
corporation shall be considered late in payment of the said assessment.
Assuming, further, that the corporation pays its tax assessment only by July
31, 1999, the delinquency interest for late payment shall be computed as
follows: Illustration 2: Based on the immediately preceding Illustration, assuming that
the calendar year 1997 deficiency income tax assessment against XYZ
CORPORATION, in the amount of P304,771.67, is not paid by June 30,
1999, the deadline for payment of the assessment but is instead timely
protested. Assuming further that after exhaustion of all administrative
remedies, the assessment was upheld and became final, executory and
demandable on July 1, 2000. However, payment was made by the taxpayer
only on June 30, 2002. In this case, such corporation shall be considered
late in payment of the said assessment. The civil penalties for late payment
shall be computed as follows:

45
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

SECTION 4. Repealing Clause. — Any rules and regulations or parts thereof


inconsistent with the provisions of these Regulations are hereby repealed,
amended, or modified accordingly.
SECTION 5. Effectivity. —The provisions of these Regulations shall take
effect after fifteen (15) days following publication in any newspaper of
general circulation.
Illustration 3: Assuming that in calendar year 1997, XYZ CORPORATION
filed a false or fraudulent return and was assessed of deficiency basic
income tax amounting to Php100,000. Assuming further that XYZ
REVENUE REGULATION 19 – 2007 (GO)
CORPORATION timely protested the said assessment. After exhaustion of
Aug. 10, 2007
all administrative remedies, the assessment was upheld and became final,
executory and demandable on April 15, 2001. However, payment was made
SUBJECT: The Consolidated Revised Schedule of Compromise Penalties
by the taxpayer only on April 15, 2003. In this case, such corporation shall be
for Violations of the National Internal Revenue Code
considered late in payment of the said assessment. The civil penalties for
late payment shall be computed as follows:
TO: All Internal Revenue Officers and Others Concerned.

46
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

I. OBJECTIVES: 2. Cases involving fraud shall be referred to the concerned Division having
This Order is issued: jurisdiction over the case, for the institution of the corresponding
criminal action.
A. To update and align the Schedule of Compromise Penalties with that of
the penalties provided for in the National Internal Revenue Code of 1997 3. In no case shall the compromise penalty differ in amount from those
(NIRC) and to delete from the coverage thereof certain acts commonly specified in the aforementioned Schedule, except when duly approved
resorted to by taxpayers as means of tax evasion; by the Commissioner or concerned Deputy Commissioner, or in
proper cases, by the Regional Directors.
B. To reflect the changes in the Schedule which include the Code Section,
Nature of Violation, Criminal Penalty Imposed under the NIRC and 4. Although all amounts of compromise penalties incident to violations shall
Amount of Compromise Penalty; be itemized in the assessment notice and/or demand letter, the same
should not form part of assessment notice that reflects deficiency basic
C. To adopt and implement a uniform application of the various compromise tax, surcharge and interest but should appear in a separate
penalties for criminal violations of the NIRC; and assessment notice/demand letter as the amount suggested to the
taxpayer to pay in lieu of criminal prosecution. If paid, the
D. To provide supplemental guidelines on compromise penalties for resident compromise penalties shall be collected and accounted for under the
taxpayers and non-residents as well. usual procedures, as internal revenue collection.

II. POLICIES: 5. Since compromise penalties are only amounts suggested in settlement
In order to attain these objectives, the following are hereby prescribed for the of criminal liability, and may not therefore be imposed or exacted on the
information and strict compliance by all concerned: taxpayer, the violation shall be referred to the appropriate office for
criminal action in the event that a taxpayer refuses to pay the suggested
1. In all cases of criminal violations of the NIRC, not involving the compromise penalty
commission of fraudulent act, it is directed that henceforth, compromise
penalties to be imposed shall follow strictly the amounts in the attached 6. The schedule of compromise penalties herein prescribed shall not
"Revised Schedule of Compromise Penalties", marked as Annex "A" and prevent the Commissioner or his duly authorized representative from
made an integral part hereof. accepting a compromise amount higher than what is provided hereof. A
2. Certain acts/violations which are commonly resorted to by taxpayers as compromise offer lower than the prescribed amount may be accepted
means of tax evasion are deleted from the coverage thereof for having met after approval by the Commissioner of Internal Revenue or the
the requirements of the definition of fraudulent acts. concerned Deputy Commissioner/ Assistant Commissioner/ Regional
Director.
III. GUIDELINES AND INSTRUCTIONS:
1. The internal revenue officers concerned shall apply the Revised 7. In cases were Apprehension Slips were issued, all offers of
Schedule of Compromise Penalties embodied in Annex "A" to ensure compromise shall be made by accomplishing the form as shown in
uniformity of action. Annex "B".

47
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

IV. REPEALING CLAUSE: ANNEX A


All other orders which are inconsistent herewith are hereby repealed or
revoked accordingly.

V. EFFECTIVITY:
This Order shall take effect immediately.

48
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

49
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

50
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

51
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

52
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

ANNEX B

53
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

CRIMINAL ACTION AND OTHER PENALTIES thousand (P30,000) but not more than One hundred thousand pesos
(P100,000) and suffer imprisonment of not less than two (2) years but not
SEC. 253. General Provisions. – more than four (4) years: Provided, That the conviction or acquittal
(a) Any person convicted of a crime penalized by this Code shall, in obtained under this Section shall not be a bar to the filing of a civil suit for
addition to being liable for the payment of the tax, be subject to the the collection of taxes.
penalties imposed herein: Provided, That payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for SEC. 255. Failure to File Return, Supply Correct and Accurate
violation of any provision of this Code or in any action for the forfeiture of Information, Pay Tax Withhold and Remit Tax and Refund Excess
untaxed articles. Taxes Withheld on Compensation. - Any person required under this
(b) Any person who willfully aids or abets in the commission of a crime Code or by rules and regulations promulgated thereunder to pay any tax
penalized herein or who causes the commission of any such offense by make a return, keep any record, or supply correct the accurate
another shall be liable in the same manner as the principal. information, who willfully fails to pay such tax, make such return, keep
(c) If the offender is not a citizen of the Philippines, he shall be deported such record, or supply correct and accurate information, or withhold or
immediately after serving the sentence without further proceedings for remit taxes withheld, or refund excess taxes withheld on compensation, at
deportation. If he is a public officer or employee, the maximum penalty the time or times required by law or rules and regulations shall, in addition
prescribed for the offense shall be imposed and, in addition, he shall be to other penalties provided by law, upon conviction thereof, be punished
dismissed from the public service and perpetually disqualified from holding by a fine of not less than Ten thousand pesos (P10,000) and suffer
any public office, to vote and to participate in any election. If the offender imprisonment of not less than one (1) year but not more than ten (10)
is a Certified Public Accountant, his certificate as a Certified Public years.
Accountant shall, upon conviction, be automatically revoked or cancelled. Any person who attempts to make it appear for any reason that he or
(d) In the case of associations, partnerships or corporations, the penalty another has in fact filed a return or statement, or actually files a return or
shall be imposed on the partner, president, general manager, branch statement and subsequently withdraws the same return or statement after
manager, treasurer, officer-in-charge, and the employees responsible for securing the official receiving seal or stamp of receipt of internal revenue
the violation. office wherein the same was actually filed shall, upon conviction therefore,
(e) The fines to be imposed for any violation of the provisions of this Code be punished by a fine of not less than Ten thousand pesos (P10,000) but
shall not be lower than the fines imposed herein or twice the amount of not more than Twenty thousand pesos (P20,000) and suffer imprisonment
taxes, interest and surcharges due from the taxpayer, whichever is higher. of not less than one (1) year but not more than three (3) years.

SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully SEC. 256. Penal Liability of Corporations. - Any corporation,
attempts in any manner to evade or defeat any tax imposed under this association or general co-partnership liable for any of the acts or
Code or the payment thereof shall, in addition to other penalties provided omissions penalized under this Code, in addition to the penalties imposed
by law, upon conviction thereof, be punished by a fine not less than Thirty

54
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

herein upon the responsible corporate officers, partners, or employees or rules and regulations promulgated thereunder; or
shall, upon conviction for each act or omission, be punished by a fine of (4) Knowingly makes any false entry or enters any false
not less than Fifty thousand pesos (P50,000) but not more than One or fictitious name in the books of accounts or record
hundred thousand pesos (P100,000). mentioned in the preceding paragraphs; or
(5) Keeps two (2) or more sets of such records or books
SEC. 257. Penal Liability for Making False Entries, Records or of accounts; or
Reports, or Using Falsified or Fake Accountable Forms. - 
(6) In any way commits an act or omission, in violation of
(A) Any financial officer or independent Certified Public the provisions of this Section; or
Accountant engaged to examine and audit books of accounts of (7) Fails to keep the books of accounts or records
taxpayers under Section 232 (A) and any person under his mentioned in Section 232 in a native language, English
direction who: or Spanish, or to make a true and complete translation as
(1) Willfully falsifies any report or statement bearing on required in Section 234 of this Code, or whose books of
any examination or audit, or renders a report, including accounts or records kept in a native language, English or
exhibits, statements, schedules or other forms of Spanish, and found to be at material variance with books
accountancy work which has not been verified by him or records kept by him in another language; or
personally or under his supervision or by a member of (8) Willfully attempts in any manner to evade or defeat
his firm or by a member of his staff in accordance with any tax imposed under this Code, or knowingly uses fake
sound auditing practices; or or falsified revenue official receipts, Letters of Authority,
(2) Certifies financial statements of a business enterprise certificates authorizing registration, Tax Credit
containing an essential misstatement of facts or omission Certificates, Tax Debit Memoranda and other
in respect of the transactions, taxable income, deduction accountable forms shall, upon conviction for each act or
and exemption of his client; or omission, be punished by a fine not less than Fifty
(B) Any person who: thousand pesos (P50,000) but not more than One
(1) Not being an independent Certified Public Accountant hundred pesos (P100,000) and suffer imprisonment of
according to Section 232(B) or a financial officer, not less than two (2) years but not more than six (6)
examines and audits books of accounts of taxpayers; or years.
(2) Offers to sign and certify financial statements without
audit; or If the offender is a Certified Public Accountant, his certificate as a Certified
(3) Offers any taxpayer the use of accounting Public Accountant shall be automatically revoked or cancelled upon
bookkeeping records for internal revenue purposes not in conviction.
conformity with the requirements prescribed in this Code In the case of foreigners, conviction under this Code shall result in his

55
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

immediate deportation after serving sentence, without further proceedings cigarettes, who has been found guilty under this Section, shall, upon
for deportation. conviction for each act or omission, be punished by a fine of not less than
Twenty thousand pesos (P20,000) but not more than One hundred
SEC. 258. Unlawful Pursuit of Business. - Any person who carries on thousand pesos (P100,000) and suffer imprisonment for a term of not less
any business for which an annual registration fee is imposed without than six (6) years and one (1) day but not more than twelve (12) years.
paying the tax as required by law shall, upon conviction for each act or
omission, be punished by a fine of not less than Five thousand pesos SEC. 261. Unlawful Use of Denatured Alcohol. - Any person who for
(P5,000) but not more than Twenty thousand pesos (P20,000) and suffer the purpose of manufacturing any beverage, uses denatured alcohol or
imprisonment of not less than six (6) months but not more than two (2) alcohol specially denatured to be used for motive power or withdrawn
years: Provided, That in the case of a person engaged in the business of under bond for industrial uses or alcohol knowingly misrepresented to be
distilling, rectifying, repacking, compounding or manufacturing any article denatured to be
subject to excise tax, he shall, upon conviction for each act or omission, unfit for oral intake or who knowingly sells or offers for sale any beverage
be punished by a fine of not less than Thirty thousand pesos (P30,000) made in whole or in part from such alcohol or who uses such alcohol for
but not more than Fifty thousand pesos (P50,000) and suffer the manufacture of liquid medicinal preparations taken internally, or
imprisonment of not less than two (2) years but not more than four (4) knowingly sells or offers for sale such preparations containing as an
years. ingredient such alcohol, shall upon conviction for each act or omission be
punished by a fine of not less than Twenty thousand pesos (P20,000) but
SEC. 259. Illegal Collection of Foreign Payments. - Any person who not more than One hundred thousand pesos (P100,000) and suffer
knowingly undertakes the collection of foreign payments as provided imprisonment for a term of not less than six (6) years and one (1) day but
under Section 67 of this Code without having obtained a license therefor, not more than twelve (12) years.
or without complying with its implementing rules and regulations, shall,
upon conviction for each act or omission, be punished by a fine of not less Any person who shall unlawfully recover or attempt to recover by
than Twenty thousand pesos (P20, 000) but not more than Fifty thousand distillation or other process any denatured alcohol or who knowingly sells
pesos (P50, 000) and suffer imprisonment of not less than one (1) year or offers for sale, conceals or otherwise disposes of alcohol so recovered
but not more than two (2) years. or redistilled shall be subject to the same penalties imposed under this
Section.
SEC. 260. Unlawful Possession of Cigarette Paper in Bobbins or
Rolls, Etc. - It shall be unlawful for any person to have in his possession SEC. 262. Shipment or Removal of Liquor or Tobacco Products
cigarette paper in bobbins or rolls, cigarette tipping paper or cigarette filter under False Name or Brand or as an Imitation of any Existing or
tips, without the corresponding authority therefor issued by the Otherwise Known Product Name or Brand. - Any person who ships,
Commissioner. Any person, importer, manufacturer of cigar and transports or removes spirituous, compounded or fermented liquors, wines

56
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

or any manufactured products of tobacco under any(sic) other than the more than Sixty thousand pesos (P60,000) and suffer
proper name or brand known to the trade as designating the kind and imprisonment of not less than four (4) years but not more than six
quality of the contents of the cask, bottle or package containing the same (6) years, if the appraised value, to be determined in the manner
or as an imitation of any existing or otherwise known product name or prescribed in the Tariff and Customs Code, including duties and
brand or causes such act to be done, shall, upon conviction for each act or taxes of the articles is more than Fifty thousand pesos (P50,000)
omission, be punished by a fine of not less than Twenty thousand pesos but does not exceed One hundred fifty thousand pesos
(P20,000) but not more than One hundred thousand pesos (P100,000) (P150,000); or
and suffer imprisonment of not less than six (6) years and one (1) day but (d) A fine of not less than Fifty thousand pesos (P50,000) but not
not more than twelve (12) years. more than One hundred thousand pesos (P100, 000) and suffer
imprisonment of not less than ten (10) years but not more than
SEC. 263. Unlawful Possession or Removal of Articles Subject to twelve (12) years, if the appraised value, to be determined in the
Excise Tax without Payment of the Tax. - Any person who owns and/or manner prescribed in the Tariff and Customs Code, including
is found in possession of imported articles subject to excise tax, the tax on duties and taxes, of the articles exceeds One hundred fifty
which has not been paid in accordance with law, or any person who owns thousand pesos (P150,000).
and/or is found in possession of imported tax-exempt articles other than
those to whom they are legally issued shall be punished by: Any person who is found in possession of locally manufactured
(a) A fine of not less than One thousand pesos (P1,000) nor more articles subject to excise tax, the tax on which has not been paid
than Two thousand pesos (P2,000) and suffer imprisonment of in accordance with law, or any person who is found in possession
not less than sixty (60) days but not more than one hundred (100) of such articles which are exempt from excise tax other than
days, if the appraised value, to be determined in the manner those to whom the same is lawfully issued shall be punished with
prescribed in the Tariff and Customs Code, including duties and a fine of not less than (10) times the amount of excise tax due on
taxes, of the articles does not exceed One thousand pesos the articles found but not less than Five hundred pesos (P500)
(P1,000). and suffer imprisonment of not less than two (2) years but not
(b) A fine of not less than Ten thousand pesos (P10,000) but not more than four (4) years.
more than Twenty thousand pesos (P20,000) and suffer
imprisonment of not less than two (2) years but not more than Any manufacturer, owner or person in charge of any article
four (4) years, if the appraised value, to be determined in the subject to excise tax who removes or allows or causes the
manner prescribed in the Tariff and Customs Code, including unlawful removal of any such articles from the place of production
duties and taxes, of the articles exceeds One thousand pesos or bonded warehouse, upon which the excise tax has not been
(P1,000) but does not exceed Fifty thousand pesos (P50,000); paid at the time and in the manner required, and any person who
(c) A fine of not less than Thirty thousand pesos (P30,000) but not knowingly aids or abets in the removal of such articles as

57
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

aforesaid, or conceals the same after illegal removal shall, for the style, Taxpayer Identification Number, and business
first offense, be punished with a fine of not less than ten (10) address of the person or entity.
times the amount of excise tax due on the articles but not less
than One thousand pesos (P1,000) and suffer imprisonment of SEC. 265. Offenses Relating to Stamps. - Any person who commits any
not less than one (1) year but not more than two (2) years. of the acts enumerated hereunder shall, upon conviction thereof, be
punished by a fine of not less than Twenty thousand pesos (P20,000) but
The mere unexplained possession of articles subject to excise tax, the tax not more than Fifty thousand pesos (P50,000) and suffer imprisonment of
on which has not been paid in accordance with law, shall be punishable not less than four (4) years but not more than eight (8) years:
under this Section. (a) Making, importing, selling, using or possessing without
express authority from the Commissioner, any die for printing or
Sec. 264. Failure or refusal to Issue Receipts or Sales or Commercial making stamps, labels, tags or playing cards;
Invoices, Violations related to the Printing of such Receipts or (b) Erasing the cancellation marks of any stamp previously used,
Invoices and Other Violations. - or altering the written figures or letters or cancellation marks on
(a) Any person who, being required under Section 237 to issue internal revenue stamps;
receipts or sales or commercial invoices, fails or refuses to issue (c) Possessing false, counterfeit, restored or altered stamps,
such receipts of invoices, issues receipts or invoices that do not labels or tags or causing the commission of any such offense by
truly reflect and/or contain all the information required to be another;
shown therein, or uses multiple or double receipts or invoices, (d) Selling or offering for sale any box or package containing
shall, upon conviction for each act or omission, be punished by a articles subject to excise tax with false, spurious or counterfeit
fine of not less than One thousand pesos (P1,000) but not more stamps or labels or selling from any such fraudulent box, package
than Fifty thousand pesos (P50,000) and suffer imprisonment of or container as aforementioned; or
not less than two (2) years but not more than four (4) years. (e) Giving away or accepting from another, or selling, buying or
(b) Any person who commits any of the acts enumerated using containers on which the stamps are not completely
hereunder shall be penalized in the same manner and to the destroyed.
same extent as provided for in this Section:
(1) Printing of receipts or sales or commercial invoices Sec. 266. Failure to Obey Summons. - Any person who, being duly
without authority from the Bureau of Internal Revenue; or summoned to appear to testify, or to appear and produce books of
(2) Printing of double or multiple sets of invoices or accounts, records, memoranda or other papers, or to furnish information
receipts; or as required under the pertinent provisions of this Code, neglects to appear
(3) Printing of unnumbered receipts or sales or or to produce such books of accounts, records, memoranda or other
commercial invoices, not bearing the name, business papers, or to furnish such information, shall, upon conviction, be punished

58
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

by a fine of not less than Five thousand pesos (P5,000) but not more than distillery warehouse, bonded warehouse or other place where made, after
ten thousand pesos (P10,000) and suffer imprisonment of not less than the tax thereon has been paid;
one (1) year but not more than two (2) years. otherwise, all such articles shall be forfeited. Articles withdrawn from any
such place or from customs custody or imported into the country without
SEC. 267. Declaration under Penalties of Perjury. - Any declaration, the payment of the required tax shall likewise be forfeited.
return and other statement required under this Code, shall, in lieu of an
oath, contain a written statement that they are made under the penalties of CHAPTER III
perjury. Any person who willfully files a declaration, return or statement PENALTIES IMPOSED ON PUBLIC OFFICERS
containing information which is not true and correct as to every material
matter shall, upon conviction, be subject to the penalties prescribed for SEC. 269. Violations Committed by Government Enforcement
perjury under the Revised Penal Code. Officers. - Every official, agent, or employee of the Bureau of Internal
Revenue or any other agency of the Government charged with the
SEC. 268. Other Crimes and Offenses. - enforcement of the provisions of this Code, who is guilty of any of the
(A) Misdeclaration or Misrepresentation of Manufacturers Subject to offenses herein below specified shall, upon conviction for each act or
Excise Tax. - Any manufacturer who, in violation of the provisions of Title omission, be punished by a fine of not less than Fifty thousand pesos
VI of this Code, misdeclares in the sworn statement required therein or in (P50,000) but not more than One hundred thousand pesos (P100,000)
the sales invoice, any pertinent data or information shall be punished by a and suffer imprisonment of not less than ten (10) years but not more than
summary cancellation or withdrawal of the permit to engage in business fifteen (15) years and shall likewise suffer an additional penalty of
as a manufacturer of articles subject to excise tax. perpetual disqualification to hold public office, to vote, and to participate in
any public election:
(B) Forfeiture of Property Used in Unlicensed Business or Dies Used (a) Extortion or willful oppression through the use of his office or
for Printing False Stamps, Etc. - All chattels, machinery, and removable willful oppression and harassment of a taxpayer who refused,
fixtures of any sort used in the unlicensed production of articles subject to declined, turned down or rejected any of his offers specified in
excise tax shall be forfeited. Dies and other equipment used for the paragraph (d) hereof;
printing or making of any internal revenue stamp, label or tag which is in (b) Knowingly demanding or receiving any fee, other or greater
imitation of or purports to be a lawful stamp, label or tag shall also be sums that are authorized by law or receiving any fee,
forfeited. compensation or reward, except as by law prescribed, for the
performance of any duty;
(C) Forfeiture of Goods Illegally Stored or Removed. - Unless (c) Willfully neglecting to give receipts, as by law required, for any
otherwise specifically authorized by the Commissioner, all articles subject sum collected in the performance of duty or willfully neglecting to
to excise tax should not be stored or allowed to remain in a distillery, perform any other duties enjoined by law;

59
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

(d) Offering or undertaking to accomplish, file or submit a report Provided, further, That the term 'grave misconduct', as defined
or assessment on a taxpayer without the appropriate examination in Civil Service Law, shall include the issuance of fake letters of
of the books of accounts or tax liability, or offering or undertaking authority and receipts, forgery of signature, usurpation of authority
to submit a report or assessment less than the amount due the and habitual issuance of unreasonable assessments.
Government for any consideration or compensation, or conspiring SEC. 270. Unlawful Divulgence of Trade Secrets. - Except as provided
or colluding with another or others to defraud the revenues or in Section 6(F) and 71 of this Code and Section 26 of Republic Act No.
otherwise violate the provisions of this Code; 6388, any officer or employee of the Bureau of Internal Revenue who
(e) Neglecting or by design permitting the violation of the law by divulges to any person or makes known in any other manner than may be
any other person; provided by law information regarding the business, income or estate of
(f) Making or signing any false entry or entries in any book, or any taxpayer, the secrets, operation, style or work, or apparatus of any
making or signing any false certificate or return; manufacturer or producer, or confidential information regarding the
(g) Allowing or conspiring or colluding with another to allow the business of any taxpayer, knowledge of which was acquired by him in the
unauthorized retrieval, withdrawal or recall of any return, discharge of his official duties, shall upon conviction for each act or
statement or declaration after the same has been officially omission, be punished by a fine of not less than Fifty thousand pesos
received by the Bureau of Internal Revenue; (P50,000) but not more than One hundred thousand pesos (P100,000), or
(h) Having knowledge or information of any violation of this Code suffer imprisonment of not less than two (2) years but not more than five
or of any fraud committed on the revenues collectible by the (5) years, or both.
Bureau of Internal Revenue, failure to report such knowledge or
information to their superior officer, or failure to report as Any officer or employee of the Bureau of Internal Revenue who divulges or
otherwise required by law; and makes known in any other manner to any person other than the
(i) Without the authority of law, demanding or accepting or requesting foreign tax authority information obtained from banks and
attempting to collect, directly or indirectly, as payment or financial institutions pursuant to Section 6(F), knowledge or information
otherwise any sum of money or other thing of value for the acquired by him in the discharge of his official duties, shall upon
compromise, adjustment or settlement of any charge or complaint conviction, be punished by a fine of not less than Fifty thousand pesos
for any violation or alleged violation of this Code. (P50,000) but not more than One hundred thousand pesos (P100,000), or
suffer imprisonment of not less than two (2) years but not more than five
Provided, That the provisions of the foregoing paragraph (5) years, or both.
notwithstanding, any internal revenue officer for which a prima
facie case of grave misconduct has been established shall, after SEC. 271. Unlawful Interest of Revenue Law Enforcers in Business. -
due notice and hearing of the administrative case and subject to Any internal revenue officer who is or shall become interested, directly or
Civil Service Laws, be dismissed from the revenue service: indirectly, in the manufacture, sale or importation of any article subject to

60
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

excise tax under Title VI of this Code or in the manufacture or repair or SEC. 273. Penalty for Failure to Issue and Execute Warrant. - Any
sale, of any die for printing, or making of stamps, or labels shall upon official who fails to issue or execute the warrant of distraint or levy within
conviction for each act or omission, be punished by a fine of not less than thirty (30) days after the expiration of the time prescribed in Section 207 or
Five thousand pesos (P5,000) but not more than Ten thousand pesos who is found guilty of abusing the exercise thereof by competent authority
(P10,000), or suffer imprisonment of not less than two (2) years and one shall be automatically dismissed from the service after due notice and
(1) day but not more than four (4) years, or both. hearing.

SEC. 272. Violation of Withholding Tax Provision. - Every officer or CHAPTER IV


employee of the Government of the Republic of the Philippines or any of OTHER PENAL PROVISIONS

its agencies and instrumentalities, its political subdivisions, as well as SEC. 274. Penalty for Second and Subsequent Offenses. - In the case
government-owned or controlled corporations, including the Bangko of reincidence, the maximum of the penalty prescribed for the offense
Sentral ng Pilipinas (BSP), who, under the provisions of this Code or rules shall be imposed.
and regulations promulgated thereunder, is charged with the duty to
deduct and withhold any internal revenue tax and to remit the same in SEC. 275. Violation of Other Provisions of this Code or Rules and
accordance with the provisions of this Code and other laws is guilty of any Regulations in General. - Any person who violates any provision of this
offense herein below specified shall, upon conviction for each act or Code or any rule or regulation promulgated by the Department of Finance,
omission be punished by a fine of not less than Five thousand pesos for which no specific penalty is provided by law, shall, upon conviction for
(P5,000) but not more than Fifty thousand pesos (P50,000) or suffer each act or omission, be punished by a fine of not more than One
imprisonment of not less than six (6) months and one (1) day but not more thousand pesos (P1,000) or suffer imprisonment of not more than six (6)
than two (2) years, or both: months, or both.
(a) Failing or causing the failure to deduct and withhold any
internal revenue tax under any of the withholding tax laws and SEC. 276. Penalty for Selling, Transferring, Encumbering or in any
implementing rules and regulations; way Disposing of Property Placed under Constructive Distraint. - Any
(b) Failing or causing the failure to remit taxes deducted and taxpayer, whose property has been placed under constructive distraint,
withheld within the time prescribed by law, and implementing who sells, transfers, encumbers or in any way disposes of said property,
rules and regulations; and or any part thereof, without the knowledge and consent of the
(c) Failing or causing the failure to file return or statement within Commissioner, shall, upon conviction for each act or omission, be
the time prescribed, or rendering or furnishing a false or punished by a fine of not less than twice the value of the property so sold,
fraudulent return or statement required under the withholding tax encumbered or disposed of but not less than Five Thousand pesos
laws and rules and regulations. (P5,000), or suffer imprisonment of not less than two (2) years and one (1)
day but not more than four (4) years, of both.

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

SEC. 277. Failure to Surrender Property Placed under Distraint and Instruments of Crime. - In addition to the penalty Imposed for the
Levy. - Any person having in his possession or under his control any violation of the provisions of Title X of this Code, the same shall carry with
property or rights to property, upon which a warrant of constructive it the confiscation and forfeiture in favor of the government of the proceeds
distraint, or actual distraint and levy has been issued shall, upon demand of the crime or value of the goods, and the instruments or tools with which
by the Commissioner or any of his deputies executing such warrant, the crime was committed: Provided, however, That if in the course of the
surrender such property or right to property to the Commissioner or any of proceedings, it is established that the instruments or tools used in the illicit
his deputies, unless such property or right is, at the time of such demand, act belong to a third person, the same shall be confiscated and forfeited
subject to an attachment or execution under any judicial process. Any after due notice and hearing in a separate proceeding in favor of the
person who fails or refuses to surrender any of such property or right shall Government if such third person leased, let, chartered or otherwise
be liable in his own person and estate to the Government in a sum equal entrusted the same to the offender: Provided, further, That in case the
to the value of the property or rights not so surrendered but not exceeding lessee subleased, or the borrower, charterer, or trustee allowed the use of
the amount of the taxes (including penalties and interest) for the collection the instruments or tools to the offender, such instruments or tools shall,
of which such warrant had been issued, together with cost and interest if likewise, be confiscated and forfeited: Provided, finally, That property of
any, from the date of such warrant. In addition, such person shall, upon common carriers shall not be subject to forfeiture when used in the
conviction for each act or omission, be punished by a fine of not less than transaction of their business as such common carrier, unless the owner or
Five thousand pesos (P5,000), or suffer imprisonment of not less than six operator of said common carrier was, at the time of the illegal act, a
(6) months and one (1) day but not more than two (2) years, or both. consenting party or privy thereto, without prejudice to the owner's right of
recovery against the offender in a civil or criminal action. Articles which
SEC. 278. Procuring Unlawful Divulgence of Trade Secrets. - Any are not subject of lawful commerce shall be destroyed.
person who causes or procures an officer or employee of the Bureau of
Internal Revenue to divulge any confidential information regarding the SEC. 280. Subsidiary Penalty. - If the person convicted for violation of
business, income or inheritance of any taxpayer, knowledge of which was any of the provisions of this Code has no property with which to meet the
acquired by him in the discharge of his official duties, and which it is fine imposed upon him by the court, or is unable to pay such fine, he shall
unlawful for him to reveal, and any person who publishes or prints in any be subject to a subsidiary personal liability at the rate of one (1) day for
manner whatever, not provided by law, any income, profit, loss or each Eight pesos and fifty centavos (P8.50) subject to the rules
expenditure appearing in any income tax return, shall be punished by a established in Article 39 of the Revised Penal Code.
fine of not more than Two thousand pesos (P2,000), or suffer
Crimes and Other Offenses:
imprisonment of not less than six (6) months nor more than five (5) years,
1. Attempt to evade and defeat tax (Sec. 254)
or both.
2. Failure to file return. Supply correct and accurate information, pay
tax, withhold and remit tax, and refund excess taxes withheld on
SEC. 279. Confiscation and Forfeiture of the Proceeds or compensation (Sec. 255)

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

3. Penal liability of corporations (Sec. 256) OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX
4. Penal liability for making false entries, records or reports, or using APPEALS, AND FOR OTHER PURPOSES
falsified or fake accountable forms (Sec. 257)
5. Unlawful pursuit of business (Sec. 258) Sec. 7 b. Jurisdiction over cases involving criminal offenses as herein
6. Illegal collection of foreign payments (Sec. 259) provided:
7. Unlawful possession of cigarette paper in bobbins or rolls, etc. (Sec.
260) 1. Exclusive original jurisdiction over all criminal offenses arising from
8. Unlawful use of denatured alcohol (Sec. 261) violations of the National Internal Revenue Code or Tariff and Customs
9. Shipment or removal of liquor or tobacco products under false name Code and other laws administered by the Bureau of Internal Revenue or
or brand or as an imitation of any existing or otherwise known the Bureau of Customs: Provided, however, That offenses or felonies
product name or brand (Sec. 262) mentioned in this paragraph where the principal amount o taxes and fees,
10. Unlawful possession or removal of articles subject to excise tax exclusive of charges and penalties, claimed is less than One million pesos
(P1,000,000.00) or where there is no specified amount claimed shall be
without payment of the tax (Sec. 263)
tried by the regular Courts and the jurisdiction of the CTA shall be
11. Failure or refusal to issue receipts or sales or commercial invoices,
appellate. Any provision of law or the Rules of Court to the contrary
violations related to the orienting of such receipts or invoices and
notwithstanding, the criminal action and the corresponding civil action for
other violations (Sec. 264)
the recovery of civil liability for taxes and penalties shall at all times be
12. Offenses relating to stamps (Sec. 265)
simultaneously instituted with, and jointly determined in the same
13. Failure to obey summons (Sec. 266) proceeding by the CTA, the filing of the criminal action being deemed to
14. Declarations under penalties of perjury (Sec. 267) necessarily carry with it the filing of the civil action, and no right to reserve
15. Other crimes and offenses (Sec. 268) the filling of such civil action separately from the criminal action will be
recognized
Penalties Imposed on Public Officers CRIMINAL ACTION and OTHER PENALTIES
1. Violations committed by Government Enforcement Officers (Sec.
269) UNGAB v. CUSI (Layno)
2. Unlawful divulgence of trade secrets (Sec. 270)
[GR. No. L-41919-24; May 30, 1980]
3. Unlawful interest of revenue law enforcers in business (Sec. 271)
“State Prosecutor has authority. No excuse, criminal prosecution can take
4. Violation of withholding tax provision (Sec. 272)
place.”
5. Penalty for failure to issue and execute warrant (Sec. 273)

Recit-Ready:
Republic Act No. 9282
Facts: Petitioner Ungab is imputing grave abuse of discretion against
respondent judge for dismissing his MTQ. Petitioner’s MTQ is
AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX
grounded on his contention that the State Prosecutor cannot
APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF A
prosecute/conduct a preliminary investigation for alleged violation
COLLEGIATE COURT WITH SPECIAL JURISDICTION AND
of the NIRC and its related laws since that is the job of
ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE
city/provincial fiscals. Also, he said that no prosecution can take
CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125, AS AMENDED,
place since CIR has not yet ruled on his assessment protest.

63
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

examination, he discovered that the petitioner failed to report his income


Issue/s: derived from sales of banana saplings.
1) WON State Prosecutor has the authority to conduct the
• BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer"
preliminary investigation and file an information regarding the
to the petitioner informing him that there is due from him (petitioner) the
fraudulent return? amount of P104,980.81, representing income, business tax and forest
2) WON the case must not go on because RTC has not yet acquired charges for the year 1973 and inviting petitioner to an informal
jurisdiction over it given that there’s a pending assessment conference where the petitioner, duly assisted by counsel, may present
protest? his objections to the findings of the BIR Examiner

• Upon receipt of the notice, the petitioner wrote the BIR District Revenue
Held: 1) Yes. The respondent State Prosecutor, although believing that
Officer protesting the assessment, claiming that he was only a dealer or
he can proceed independently of the City Fiscal in the agent on commission basis in the banana sapling business and that his
investigation and prosecution of these cases, first sought income, as reported in his income tax returns for the said year, was
permission from the City Fiscal of Davao City before he started accurately stated.
the preliminary investigation of these cases, and the City Fiscal,
after being shown Administrative Order No. 116, dated December o BIR Examiner Ben Garcia, however, was fully convinced
5, 1974, designating the said State Prosecutor to assist all that the petitioner had filed a fraudulent income tax return
so that he submitted a "Fraud Referral Report," to the Tax
Provincial and City fiscals throughout the Philippines in the
Fraud Unit of the Bureau of Internal Revenue. After
investigation and prosecution of all violations of the National examining the records of the case, the Special Investigation
Internal Revenue Code, as amended, and other related laws, Division of the Bureau of Internal Revenue found sufficient
graciously allowed the respondent State Prosecutor to conduct proof that the herein petitioner is guilty of tax evasion for the
the investigation of said cases, and in fact, said investigation was taxable year 1973 and recommended his prosecution
conducted in the office of the City Fiscal
• Chief of Prosecution Division and CIR approved the prosecution.
State Prosecutor Jesus Acebes who, via Admin. Order No. 116, had
2) What is involved here is not the collection of taxes where the
been designated to assist all Provincial and City Fiscals throughout
assessment of the Commissioner of Internal Revenue may be the Philippines in the investigation and prosecution, if the evidence
reviewed by the Court of Tax Appeals, but a criminal prosecution warrants, of all violations of the NIRC and related laws and to whom
for violations of the National Internal Revenue Code which is the case was assigned, conducted a preliminary investigation of the
within the cognizance of courts of first instance. The crime case, and finding probable cause, filed six information against the
(fraudulent filing of return) is complete when the violator has, as petitioner with the CFI Davao.
in this case, knowingly and willfully filed fraudulent returns with
intent to evade and defeat a part or all of the tax • petitioner filed an MTQ the informations upon the grounds that: (1)
the informations are null and void for want of authority on the part of
the State Prosecutor to initiate and prosecute the said cases; and
(2) the trial court has no jurisdiction to take cognizance of the above-
Facts: entitled cases in view of his pending protest against the assessment
• Sometime in July, 1974, BIR Examiner Ben Garcia examined the made by the BIR Examiner " RTC denied the motion hence
income tax returns filed by the herein petitioner, Quirico P. Ungab, for Petitioner went to SC and asked for a TRO which the Court granted
the calendar year ending December 31, 1973. In the course of his
Issue/s:

64
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

1) WON the State Prosecutor, has has the authority to prosecute the • Besides, it has been ruled that a petition for reconsideration of an
case under the NIRC? assessment may affect the suspension of the prescriptive period for
—YES the collection of taxes, but not the prescriptive period of a criminal
2) WON the filing of the information(s) were premature since CIR has action for violation of law. Obviously, the protest of the petitioner
not resolved his protest regarding the assessments of the RDO? against the assessment of the District Revenue Officer cannot stop
—NO his prosecution for violation of the National Internal Revenue Code.
Accordingly, the respondent Judge did not abuse his discretion in
Held/Ratio: Petition is DISMISSED. The TRO heretofore issued is set aside. denying the motion to quash filed by the petitioner.

1) YES. The respondent State Prosecutor, although believing that he can


proceed independently of the City Fiscal in the investigation and COMMISSIONER OF INTERNAL REVENUE v. COURT OF
prosecution of these cases, first sought permission from the City APPEALS (Lim, J.)
Fiscal of Davao City before he started the preliminary investigation of
[GR. No. 119322; June 4, 1996]
these cases, and the City Fiscal, after being shown Administrative
Order No. 116, dated December 5, 1974, designating the said State “Before one is prosecuted for willful attempt to evade or defeat any tax, the
Prosecutor to assist all Provincial and City fiscals throughout the fact that a tax is due must first be proved.”
Philippines in the investigation and prosecution of all violations of the
National Internal Revenue Code, as amended, and other related laws, Recit-Ready:
graciously allowed the respondent State Prosecutor to conduct the
Facts: The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing
investigation of said cases, and in fact, said investigation was
conducted in the office of the City Fiscal. deficiency income, ad valorem and value-added taxes for the year 1992 to
which Fortune moved for reconsideration of the assessments. Later, the
2) What is involved here is not the collection of taxes where the CIR filed a complaint with the DOJ against the Fortune, its corporate
assessment of the Commissioner of Internal Revenue may be officers, nine (9) other corporations and their respective corporate officers
reviewed by the Court of Tax Appeals, but a criminal prosecution for for alleged fraudulent tax evasion for supposed non-payment by Fortune
violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil of the correct amount of taxes, alleging among others the fraudulent
action to enforce collection before the assessment procedures scheme of making simulated sales to fictitious buyers declaring lower
provided in the Code have been followed, there is no requirement for wholesale prices, as allegedly shown by the great disparity on the
the precise computation and assessment of the tax before there can declared wholesale prices registered in the "Daily Manufacturer's Sworn
be a criminal prosecution under the Code. Statements" submitted by the respondents to the BIR. Such documents
when requested by the court were not however presented by the BIR,
o The crime is complete when the violator has, as in this
case, knowingly and willfully filed fraudulent returns with prompting RTC to grant the prayer for preliminary injunction sought by the
intent to evade and defeat a part or all of the tax. respondent upon the reason that tax liability must be duly proven before
any criminal prosecution be had. CIR relying on the Ungab Doctrine
o The perpetration of the crime is grounded upon knowledge sought the lifting of the writ of preliminary mandatory injuction issued by
on the part of the taxpayer that he has made an inaccurate RTC.
return, and the government's failure to discover the error
and promptly to assess has no connections with the
commission of the crime. Issue/s:
WON a criminal case of tax evasion may be filed before the

65
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

determination of tax due in the assessment? • On July 1993, the CIR issued a RMC No. 37-93 reclassifying best selling
cigarettes bearing the brands Hope, More, and Champion as cigarettes of
Held: NO. CIR misplaced the ruling in Ungab v. Cusi, that the lack of a foreign brands subject to a higher rate of tax.
final determination of Fortune's exact or correct tax liability is not • On August 1993, Fortune Tobacco Corporation (Fortune) questioned the
a bar to criminal prosecution, and that while a precise validity of the reclassification of said brands of cigarettes as violative of its
computation and assessment is required for a civil action to right to due process and equal protection of law.
collect tax deficiencies, the Tax Code does not require such o The CTA ruled that the reclassification made by CIR is of doubtful
computation and assessment prior to criminal prosecution. legality and enjoined its enforcement on September 8, 1993.
Reading Ungab carefully, the pronouncement therein that • In a letter of August 13, 1993, the CIR assessed against Fortune P7.6
deficiency assessment is not necessary prior to prosecution is Billion representing deficiency income, ad valorem and value-added tax
pointedly and deliberately qualified by the Court with following for 1992 with the request that the said amount be paid within thirty (30)
statement quoted from Guzik v. U.S.: "The crime is complete days upon receipt thereof.
when the violator has knowingly and willfully filed a o On September 17, 1993, Fortune moved for reconsideration of the
fraudulent return with intent to evade and defeat a part or all assessments.
of the tax." In plain words, for criminal prosecution to proceed • On September 7, 1993, the CIR filed a complaint with the DOJ against
before assessment, there must be a prima facie showing of Fortune, its corporate officers, nine (9) other corporations and their
a willful attempt to evade taxes. There was a willful attempt to respective corporate officers for alleged fraudulent tax evasion for
evade tax in Ungab because of the taxpayer's failure to declare in supposed non-payment by Fortune of the correct amount of income tax,
his income tax return "his income derived from banana saplings." ad valorem tax and value-added tax for the year 1992.
In the mind of RTC and CA, Fortune's situation is quite apart o The complaint was referred to the DOJ Task Force on revenue
factually since the registered wholesale price of the goods, cases which found sufficient basis to further investigate the
approved by the BIR, is presumed to be the actual wholesale allegations that Fortune, through fraudulent means, evaded payment
price, therefore, not fraudulent and unless and until the BIR of income tax, ad valorem tax, and value-added tax for the year
has made a final determination of what is supposed to be 1992 thus, depriving the government of revenues of P7.5B.
the correct taxes, the taxpayer should not be placed in the o The fraudulent scheme allegedly adopted by Fortune consisted of
crucible of criminal prosecution. Herein lies a whale of making fictitious and simulated sales of Fortunes cigarette products
difference between Ungab and the case at bar. to non-existing individuals and to fictitious entities by declaring
registered wholesale prices with the BIR lower than the actual
Facts: wholesale prices which are required for determination of Fortune’s
• On June 1993, the President created a Task Force to investigate the tax correct tax liabilities.
liabilities of manufacturers engaged in tax evasion scheme to collect from o The ghosts-wholesale buyers then ostensibly sold the products to
them any tax liabilities discovered from such investigation, and to file the customers and other wholesalers/retailers at higher wholesale prices
necessary criminal actions against those who may have violated the tax determined by Fortune.
code. o The tax returns and manufacturer’s sworn statements filed by
Fortune would then declare the fictitious sales it made to the
fictitious buyers as its gross sales.

66
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

• On September 8, 1993, the DOJ Task Force issued a subpoena directing o that the subpoena violates private respondents constitutional right to
Fortune to submit their counter-affidavits. due process, equal protection and presumption of innocence;
o Instead of filing their counter-affidavits, Fortune filed a Verified o that no tax assessment has been issued by the Commission of
Motion to Dismiss and Motion to Suspend, which were denied and Internal Revenue and considering that taxes paid have not been
treated as their counter-affidavit. challenged, no tax liability exists; and
• Fortune filed a MR for the motion to dismiss, a motion to require the o that since Assistant City Prosecutor Baraquia was a former
submission by the BIR of certain documents in further support of their classmate of Presidential Legal Counsel Antonio T. Carpio, the
Verified Motion to Dismiss, and a motion to inhibit the prosecutor. Among former cannot conduct the preliminary investigation in an impartial
the documents sought to be produced are the Daily Manufacturer’s Sworn manner.
Statements which according to CIR were false and fraudulent. • On January 28, 1994, Fortune filed a second supplemental petition, also
o Fortune claimed that without it, there is no evidence to support the seeking to stay the preliminary investigation on the third complaint filed
complaint, hence, warranting its outright dismissal. with the DOJ for alleged fraudulent tax evasion for 1991.
o The panel of prosecutors issued an Omnibus Order denying all of • On January 31, 1994, the lower court admitted the two (2) supplemental
Fortune’s motions. petitions and issued a TRO in both preliminary investigations.
• Fortune filed a petition for certiorari and prohibition with prayer for • On February 7, 1994, RTC issued an order denying CIR’s motion to
preliminary injunction with the RTC, praying that the complaint of the CIR dismiss Fortune’s petition seeking to stay preliminary investigation, ruling
and the orders of the prosecutors be dismissed or set aside, or the that the issue of whether Sec. 127(b) of the National Tax Revenue
preliminary investigation to be suspended pending final determination by Code should be the basis of Fortune’s tax liability, or whether it is
CIR of Fortunes MR of the assessment of the taxes due. Sec. 142(c) of the same Code that applies, as argued by herein
• CIR filed a motion to dismiss the petition on the grounds that Fortune, should first be settled before any complaint for fraudulent
o (a) the trial court is bereft of jurisdiction to enjoin a criminal tax evasion can be initiated.
prosecution under preliminary investigation; • On February 14, 1994, RTC issued an order granting Fortune’s petition
o (b) a criminal prosecution for tax fraud can proceed for a supplemental writ of preliminary injunction, likewise enjoining the
independently of criminal or administrative action; preliminary investigation of the 2 other complaints filed for fraudulent tax
o (c) there is no prejudicial question to justify suspension of the evasion for the taxable years 1990 and 1991.
preliminary investigation; o In granting the supplemental writ, RTC stated that the two other
o (d) private respondents rights to due process was not violated; and complaints are the same as in 1992 complaint, except that the
o (e) selective prosecution is not a valid defense in this jurisdiction. former refer to the taxable years 1990 and 1991.
• RTC issued an order granting the prayer for the issuance of a preliminary • CIR filed a petition for certiorari and prohibition with prayer for preliminary
injunction. injunction before SC.
o Fortune filed with RTC a Motion to Admit Supplemental Petition and o However, the petition was referred to the CA for disposition by virtue
sought the issuance of a writ of preliminary injunction to enjoin the of its original concurrent jurisdiction over the petition.
State Prosecutors from continuing with the preliminary investigation • CA rendered a decision denying the petition.
for alleged fraudulent tax evasion for 1990. o In making such conclusion CA must have understood from CIR’s
o Fortune averred in their motion that no supporting documents or letter-complaint of 14 pages and the joint affidavit of eight revenue
copies of the complaint were attached to the subpoena; officers of 17 pages attached thereto and its annexes, that the

67
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

charge against Fortune is for tax evasion for non-payment of the ! if the MR is denied, it may appeal to the CA within thirty (30)
correct amounts of income tax, ad valorem tax and value added tax, days from receipt of the decision.
NOT necessarily fraudulent tax evasion. ! Here, Fortune received the assessment notice dated August 13,
o Hence, the need for previous assessment of the correct amount 1993 and asking for the payment of the deficiency taxes on
by CIR before Fortune may be charged criminally. August 24, 1993.
Issue/s: ! Within thirty (30) days from receipt thereof, Fortune moved for
3) WON a criminal case of tax evasion may be filed before the reconsideration.
determination of tax due in the assessment? —NO ! The Commissioner has not resolved the request for
reconsideration up to the present.
Held/Ratio: Petition GRANTED. In applying the doctrine of animation, Court o The Court shares with the view of both RTC and CA that before the
rules for the Applicant. tax liabilities of Fortune are first finally determined, it cannot be
correctly asserted that Fortune has willfully attempted to evade or
3) NO. The Court emphasized the doctrine of… defeat the taxes sought to be collected. In plain words, before one is
o Fraud cannot be presumed. prosecuted for willful attempt to evade or defeat any tax under
! If there was fraud or willful attempt to evade payment of ad Sections 253 and 255 of the Tax Code, the fact that a tax is due
valorem taxes by private respondents through the manipulation must first be proved.
of the registered wholesale price of the cigarettes, it must have o Suppose the CIR eventually resolves Fortune’s MR of the
been with the connivance or cooperation of certain BIR officials assessments by pronouncing that the taxpayer is not liable for any
and employees who supervised and monitored Fortunes deficiency assessment, then, the criminal complaints filed against
production activities to see to it that the correct taxes were paid. private respondents will have no leg to stand on.
! But there is no allegation, much less evidence, of BIR o In view of the foregoing reasons, the Court cannot subscribe to CIR’s
personnel’s malfeasance. thesis citing, Ungad v. Cusi, that the lack of a final determination of
! In the very least, there is the presumption that the BIR Fortunes exact or correct tax liability is not a bar to criminal
personnel performed their duties in the regular course in prosecution, and that while a precise computation and assessment is
ensuring that the correct taxes were paid by Fortune. required for a civil action to collect tax deficiencies, the Tax Code
o It is the opinion of both RTC and CA that before Fortune could be does not require such computation and assessment prior to criminal
prosecuted for tax evasion under Sections 253 and 255 of the Tax prosecution.
Code, the fact that the deficiency income, ad valorem and value- o Reading Ungad carefully, the pronouncement that deficiency
added taxes were due from Fortune for the year 1992 should first assessment is not necessary prior to prosecution is pointedly
be established. and deliberately qualified by the Court.
! Fortune received from the CIR the deficiency assessment notices ! The crime is complete when the violator has knowingly and
in the total amount of P7.6B on August 24, 1993. willfully filed a fraudulent return with intent to evade and defeat a
! However, under Section 229 of the Tax Code, the taxpayer has part or all of the tax.
the right to move for reconsideration of the assessment issued ! In plain words, for criminal prosecution to proceed before
by the CIR within 30 days from receipt of the assessment; and assessment, there must be a prima facie showing of a
willful attempt to evade taxes.

68
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

! There was a willful attempt to evade tax in Ungad because of


the taxpayer’s failure to declare in his income tax return his Held:
income derived from banana saplings. 2) NO. Neither the NIRC nor the Revenue Regulations governing the
! In the mind of RTC and CA, Fortune’s situation is quite apart protest of assessments provide a specific definition or form of an
factually since the registered wholesale price of the goods, assessment. However, the NIRC defines the specific functions and
approved by the BIR, is presumed to be the actual effects of an assessment. To consider the affidavit attached to the
wholesale price, therefore, not fraudulent and unless and Complaint as a proper assessment is to subvert the nature of an
until the BIR has made a final determination of what is assessment and to set a bad precedent that will prejudice innocent
supposed to be the correct taxes, the taxpayer should not taxpayers. The Revenue Officers’ Affidavit merely contained a
be placed in the crucible of criminal prosecution. computation of respondents’ tax liability. It did not state a
! Herein lies a whale of difference between Ungad and the case demand or a period for payment.
at bar.
3) NO. Section 222 of the NIRC specifically states that in cases where a
CIR v. PASCOR REALTY AND DEVELOPMENT false or fraudulent return is submitted or in cases of failure to file
CORPORATION (Lim, Q.) a return, such as this case, proceedings in court may be
[GR. No. 128315; June 29, 1999] commenced without an assessment. Furthermore, Section 205 of
“An assessment is not necessary before a criminal charge can be filed” the same Code clearly mandates that the civil and criminal aspects
of the case may be pursued simultaneously.
Recit-Ready:
Facts: BIR Commissioner Jose U. Ong authorized Revenue Officers to Facts:
examine the books of accounts and other accounting records of • By virtue of Letter of Authority No. 001198, then BIR Commissioner Jose
Pascor Realty and Development Corporation (“PRDC”). The U. Ong authorized Revenue Officers to examine the books of accounts
examination resulted in a recommendation for the issuance of an and other accounting records of Pascor Realty and Development
assessment for the years 1986 and 1987. CIR filed a criminal Corporation (“PRDC”) for the years ending 1986, 1987 and 1988.
complaint before the Department of Justice against the • The said examination resulted in a recommendation for the issuance of
PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. an assessment for the years 1986 and 1987.
Dio, alleging evasion of taxes. • Commissioner of Internal Revenue filed a criminal complaint before
the Department of Justice against the PRDC, its President Rogelio A.
Issue/s: Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the
1) WON the Revenue Officers’ Affidavit­Report, which was attached to total amount of P10,513,671.00.
the criminal complaint filed with the Department of Justice, constituted • PRDC, et al. filed an Urgent Request for Reconsideration/ Reinvestigation
an assessment that could be questioned before the Court of Tax disputing the tax assessment and tax liability.
Appeals. –NO • Private respondents received a subpoena from the DOJ in connection
with the criminal complaint filed by the Commissioner of Internal Revenue
2) WON an assessment is necessary before the filing of a criminal (BIR) against them.
complaint. –NO

69
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

• CIR denied the Urgent Request for Reconsideration/ Reinvestigation of constituted an assessment that could be questioned before the
the private respondents on the ground that no formal assessment has yet Court of Tax Appeals.
been issued by the Commissioner. —NO
• PRDC then elevated the Decision of the CIR to the Court of Tax Appeals
• CIR alleges that the Court of Tax Appeals acted with grave abuse of 2) WON an assessment is necessary before the filing of a criminal
discretion and without jurisdiction in considering the affidavit/report of the complaint.
Revenue Officer and the indorsement of said report to the Secretary of —NO
Justice as assessment which may be appealed to the Court of Tax
Appeals. Held/Ratio: The petition is hereby GRANTED. The assailed Decision is
• CIR argues that the filing of the criminal complaint with the Department of REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED.
Justice cannot in any way be construed as a formal assessment of
PRDC’s tax liabilities.
o This position is based on Section 205 of the National Internal 1) NO. Neither the NIRC nor the Revenue Regulations governing the
Revenue Code, which provides that remedies for the protest of assessments provide a specific definition or form of an
collection of deficient taxes may be by either civil or criminal assessment. However, the NIRC defines the specific functions and
action. effects of an assessment. To consider the affidavit attached to the
o Likewise, it cites Section 223(a) of the same Code, which Complaint as a proper assessment is to subvert the nature of an
states that in case of failure to file a return, the tax may be assessment and to set a bad precedent that will prejudice innocent
assessed or a proceeding in court may be begun without taxpayers.
assessment. o As pointed out by PRDC, an assessment informs the taxpayer that he
• PRDC, on the other hand, maintain that an assessment is not an action or or she has tax liabilities. But not all documents coming from the
proceeding for the collection of taxes, but merely a notice that the amount BIR containing a computation of the tax liability can be deemed
stated therein is due as tax and that the taxpayer is required to pay the assessments.
same. o An assessment must be sent to and received by a taxpayer, and
o Thus, qualifying as an assessment was the BIR examiners’ must demand payment of the taxes described therein within a
Joint Affidavit, which contained the details of the supposed specific period.
taxes due from respondent for taxable years ending 1987 and ! Thus, the NIRC imposes a 25% penalty, in addition to the tax
1988, and which was attached to the tax evasion complaint due, in case the taxpayer fails to pay the deficiency tax within
filed with the DOJ. Consequently, the denial by the BIR of the time prescribed for its payment in the notice of
private respondents’ request for reinvestigation of the assessment.
disputed assessment is properly appealable to the CTA. ! Likewise, an interest of 20% per annum, or such higher rate
as may be prescribed by rules and regulations, is to be
Issue/s: collected from the date prescribed for its payment until the full
1) WON the Revenue Officers’ Affidavit­Report, which was attached to payment.
the criminal complaint filed with the Department of Justice, o The issuance of an assessment is vital in determining the period of
limitation regarding its proper issuance and the period within which to

70
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

protest it. Thus, a taxpayer must be certain that a specific o Section 222, the general rule, states that an assessment is not
document constitutes an assessment. Otherwise, confusion would necessary before a criminal charge can be filed. Private
arise regarding the period within which to make an assessment or to respondents failed to show that they are entitled to an exception.
protest the same, or whether interest and penalty may accrue thereon. o Moreover, the criminal charge need only be supported by a prima
o It should also be stressed that the said document is a notice duly sent facie showing of failure to file a required return. This fact need not be
to the taxpayer. Indeed, an assessment is deemed made only proven by an assessment.
when the collector of internal revenue releases, mails or sends o The issuance of an assessment must be distinguished from the filing
such notice to the taxpayer. of a complaint. Before an assessment is issued, there is, by practice,
o In the present case, the Revenue Officers’ Affidavit merely a pre­assessment notice sent to the taxpayer. The taxpayer is then
contained a computation of respondents’ tax liability. It did not given a chance to submit position papers and documents to prove that
state a demand or a period for payment. Worse, it was addressed the assessment is unwarranted. If the Commissioner is unsatisfied, an
to the Justice Secretary, not to the taxpayers. assessment signed by him or her is then sent to the taxpayer
o That the BIR examiners’ Joint Affidavit attached to the Criminal informing the latter specifically and clearly that an assessment has
Complaint contained some details of the tax liabilities of PRDC does been made against him or her.
not ipso facto make it an assessment. ! In contrast, the criminal charge need not go through all these.
! The purpose of the Joint Affidavit was merely to support and The criminal charge is filed directly with the DOJ. Thereafter,
substantiate the Criminal Complaint for tax evasion. Clearly, it the taxpayer is notified that a criminal case had been
was not meant to be a notice of the tax due and a filed against him, not that the Commissioner has issued
demand to the PRDC for payment thereof. an assessment. It must be stressed that a criminal
o The fact that the Complaint itself was specifically directed and sent to complaint is instituted not to demand payment, but to
the Department of Justice and not to private respondents shows that penalize the taxpayer for violation of the Tax Code.
the intent of the Commissioner was to file a criminal complaint
for tax evasion, not to issue an assessment.
o What private respondents received was a notice from the DOJ that a Adamson vs. Court of Appeals (Luna)
criminal case for tax evasion had been filed against them, not a notice [GR. No. 120935/!124557; May 21, 2009]
that the Bureau of Internal Revenue had made an assessment. “No need for an assessment before a criminal case of Tax Evasion may be
o In addition, what PRDC sent to the commissioner was a Motion for a filed; CTA has no jurisdiction on the criminal case of Tax Evasion until CIR
Reconsideration of the tax evasion charges filed, not an assessment. issues an assessment or his inaction.”

2) NO. Section 222 of the NIRC specifically states that in cases where Recit-Ready:
a false or fraudulent return is submitted or in cases of failure to file Facts: A deficiency tax assessment was issued against Petitioners
a return, such as this case, proceedings in court may be relating to their payment of capital gains tax and VAT on their sale
commenced without an assessment. Furthermore, Section 205 of of shares of stock and parcels of land. Subsequent to the
the same Code clearly mandates that the civil and criminal aspects preliminary conference, the CIR filed with the Department of
of the case may be pursued simultaneously. Justice her Affidavit of Complaint against Petitioners. The Court of
Appeals ultimately ruled that, in a criminal prosecution for tax

71
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

evasion, assessment of tax deficiency is not required because the • Lucas Adamson as President of Adamson Management Corporation
offense of tax evasion is complete or consummated when the (AMC) sold common shares of stock to APAC Holding Limited (APAC)
offender has knowingly and willfully filed a fraudulent return with and paid the capital gains tax for the transaction.
intent to evade the tax. • Subsequently, AMC sold to APAC Philippines, Inc. common shares of
stock and paid the capital gains tax therefor.
Issue/s: • CIR Vinzons-Chato issued a “Notice of Taxpayer” to AMC, Adamson,
1) WON the CIR has issued an assessment Therese Adamson (AMC treasurer), and Sara de Los Reyes (AMC
2) WON a criminal prosecution for tax evasion must be preceded by a secretary), informing them of deficiencies on their payment of capital
deficiency tax assessment gains tax and VAT.
3) WON the CTA has jurisdiction on the case • CIR filed w/ the DOJ an Affidavit of Complaint against AMC and Adamson
et al. for violation of the NIRC.
Held: • After preliminary investigation, the state prosecutor found probable cause.
1) NO. The recommendation letter of the Commissioner cannot be • AMC and Adamson et al. then filed a letter request for re-investigation
considered a formal assessment as (a) it was not addressed to the with the Commissioner.
taxpayers; (b) there was no demand made on the taxpayers to pay • Before the CIR could act on their letter-request, AMC, and Adamson et al.
the tax liability, nor a period for payment set therein; (c) the letter was filed a petition for review with the CTA, assailing the CIR’s finding of tax
never mailed or sent to the taxpayers by the Commissioner. It was evasion against them.
only an affidavit of the computation of the alleged liabilities and thus • CIR moved to dismiss the petition, on the ground that it was premature,
merely served as prima facie basis for filing a criminal information. as she had not yet issued a formal assessment of the tax liability of
2) NO. When fraudulent tax returns are involved as in the cases at bar, a Adamson et al.
proceeding in court after the collection of such tax may be begun • In 1994, Adamson, et al. were charged in a criminal case before the RTC
without assessment considering that upon investigation of the Makati. TC ruled that it did NOT have jurisdiction over the criminal case
examiners of the BIR, there was a preliminary finding of gross because the complaints for tax evasion filed by the Commissioner should
discrepancy in the computation of the capital gains taxes due from the be regarded as a decision of the Commissioner regarding the tax
transactions. The Tax Code is clear that the remedies may proceed liabilities of Adamson et al. thus appealable to the CTA. It further held that
simultaneously. the said cases cannot proceed independently of the assessment case
3) NO. While the laws governing the CTA have expanded the jurisdiction pending before the CTA, which has jurisdiction to determine the civil and
of the Court, they did not change the jurisdiction of the CTA to criminal tax liability of Adamson et al.
entertain an appeal only from a final decision of the Commissioner, or • CTA denied the motion to dismiss filed by the Commissioner and
in cases of inaction within the prescribed period. Since in the cases at considered the criminal complaint filed by the Commissioner with the DOJ
bar, the Commissioner has not issued an assessment of the tax as an implied formal assessment, and the filing of the criminal
liability of the Petitioners, the CTA has no jurisdiction. informations with the RTC as a denial of Adamson et al.’s protest
regarding the tax deficiency.
Facts: • CIR filed a petition for review with the CA assailing the trial court’s
dismissal of the criminal cases. The CA reversed the trial court’s decision
and reinstated the criminal complaints. The CA ruled that in a criminal

72
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

prosecution for tax evasion, assessment of tax deficiency is not required o The gross disparity in the taxes due and the amounts actually
because the offense of tax evasion is complete or consummated when declared by Adamson, AMC, etc. constitutes badges of fraud.
the offender has knowingly and willfully filed a fraudulent return with intent
to evade the tax. 3) NO.
o CTA can only entertain an appeal from a final decision or
Issue/s: assessment of the Commissioner, or in cases where the
1) WON CIR’s recommendation letter to DOJ can be considered as a Commissioner has not acted within the period prescribed by the
formal assessment of Adamson et al.’s tax liability NIRC.
—NO o In the cases at bar, the Commissioner has not issued an assessment
2) WON the criminal complaints against Adamson et al. by the DOJ are of the tax liability of private respondents.
premature for lack of a formal assessment
—NO People vs. Kintanar (Pascual)
3) WON the CTA has jurisdiction to take cognizance of both the civil [ December 3, 2010 by the Court of Tax Appeals and affirmed in a Minute
and criminal aspects of the tax liability of Adamson et al. Resolution by the Supreme Court in 20120]
—NO Note: The discussion on this case was mainly based on the decision
promulgated by the CTA as the Supreme Court merely affirmed the decision
Held/Ratio: Petition DENIED. The Court rules for the Court of Appeals. in a Minute Resolution.
“Neglect or omission in filing the ITRs when done with Willful Blindness
1) NO, the letter is NOT an assessment. constitutes a violation of Sec. 255 of the NIRC.
o An assessment is a written notice and demand made by the BIR on
the taxpayer for the settlement of a due tax liability that is definitely set Recit-Ready:
and fixed. It is a written communication containing a computation by a Facts: Spouses Kintanar were independent distributors of products of
revenue officer of the tax liability of a taxpayer and giving him an Forever Living Products, Phil. Inc., who had failed to file their
opportunity to contest or disprove the BIR examiner’s findings is not income tax returns for the years 1999 to 2001. Upon confidential
an assessment since it is yet indefinite. information received by the BIR on the alleged tax evasion
o In this case, the recommendation letter is NOT an assessment. It scheme of the spouses, an investigation was conducted and it
served merely as the prima facie basis for filing criminal informations was found that there was no record of ITRs filed by the spouses
that the taxpayers had violated the Tax Code. during those years. Before the court, the spouses argued, mainly,
that their failure to file their Income Tax Returns was not willfully
2) NO. When fraudulent tax returns are involved, a proceeding in court done as Gloria Kintanar had relied on her husband to file her ITRs
after the collection of such tax may be begun without assessment. for her and that her husband had, in turn, hired and relied upon
o Here, Adamson et al. had already filed the capital gains tax return and an accountant to file their returns. They argued then that they had
the VAT returns, and paid the taxes they have declared due no knowledge of the amounts stated in the ITRs prepared by their
therefrom. Upon investigation of the examiners of the BIR, there was a account or when such were filed.
preliminary finding of gross discrepancy in the computation of the
capital gains taxes, and that VAT had not been paid. Issue/s:

73
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

WON Kintanar had willfully failed to file her ITRs and was thus guilty of o The spouses then filed a petition for review, alleging that
violating Sec. 255 of the NIRC?—YES the Court of Tax Appeals had erred in finding that the
spouses’ failure to file their ITR was willfully done.
Held: ! Gloria Kintanar claims that she had no knowledge
YES. Kintanar should have known what her tax obligations were under the of the contents and filing of her ITR as she had
law and her neglect and omission to comply with such was tantamount to entrusted the same to her husband.
“deliberate ignorance” or “conscious avoidance,” such that she had ! The husband, in turn, claims that he had entrusted
willfully failed to file her ITRs. the filing of the returns to his accountant and so the
latter’s failure to do so could not make him or his
Facts: wife liable.
• Gloria Kintanar and her husband were independent distributors of Issue/s:
products of Forever Living Products, Philippines Inc. WON Kintanar’s failure to file her income tax return was willful?—YES
• Based on a confidential information received by the National Investigation
Division of the BIR on an alleged tax evasion scheme by the spouses, an Held/Ratio:
investigation was conducted to determine the spouses’ tax liabilities.
o A certification issued by the Revenue District Officer stated YES. The natural presumption is that petitioner knows what her tax
that the spouses had no record or file for the years 1999 to obligations are under the law and, as a businesswoman, should have
2001. taken ordinary care of her tax duties and obligations in making sure
• The spouses were then required to submit a list of documents to the that her ITRs were filed.
BIR but the spouses failed to submit. • The elements of Violation of Section 255 for failure to make or file a
o The spouses failed to respond to any of the notices of the return are as follows:
investigation being conducted against them as well as the • The accused is a person required to make or file a return;
orders to submit books of account and other information. • The accused failed to make or file the return at the time
o They also failed to comply with the preliminary assessment required by law; and
notice and it was only when a Formal Letter of Demand was • That failure to make or file the return was willful.
made against them that they responded. • Petitioner cannot argue that she had merely relied on her husband
! They submitted photocopies of their alleged to file her ITR was a valid reason to justify her non-filing, considering
income tax returns and requested for a period of 60 that she should have known from the start that she and her husband
days to submit additional documents. were mandated by law to file separate income tax returns as
! After the lapse of the period, they again failed to independent distributors of FLPPI.
submit. • Neither can petitioner rely on the argument that her
• The spouses were thus charged with violation of Sec. 255 of the husband had hired an account to file their returns for them.
NIRC, and were found guilty by the court based on the evidence • Petitioner should know how much are her tax dues, the details
presented. stated on the ITR, where the same was filed, and other important
facts related to the filing if her ITR.

74
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

• In this case, petitioner testified that she did not even know
how much her tax obligations were and that she did not Facts:
bother to inquire or determine the facts surrounding the • On November 3, 2005, the prosecution filed an information before the
filing of her ITR. CTA against the accused Judy Anne Santos for violation of Section 255
• Such neglect or omission was tantamount to “deliberate of the NIRC, as amended, specifically, for her failure to supply correct and
ignorance” or “conscious avoidance.” (Willful Blindness accurate information when she filed her 2002 annual income tax return.
Doctrine) Said information alleged that the accused under-declared her gross
• Thus, all the elements of the violation were present as it was income when she indicated therein a gross income of P8,033,332.70.
sufficiently proven by the prosecution that petitioner and her • The prosecution presented pieces of evidence based on various
husband were persons required to file or make a return, that they Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307)
had failed to do so, and that such failure to make or file the return issued by various entities (i.e., ABS-CBN, Viva Productions, Star Cinema
was willful. Productions, Regal Entertainment, etc.) with whom the accused
contracted with during the taxable year 2002 along with the related
PEOPLE OF THE PHILIPPINES v. SANTOS (Ocampo) contracts, and alleged that her true total gross income for 2002 amounted
[CTA CRIM. CASE No. O-012; January 16, 2013] to P16,396,234.70.
“CTA: Hindi tax evader si Juday kasi walang willful intent!” • In her defense, the accused alleged that she entrusted all her
transactions (e.g., contract negotiations, contract signing, handling fees)
to her manager, Alfonso Lorenzo. With such set-up, she claimed that she
Recit-Ready:
Facts: Judy Anne Santos was charged with tax evasion for her alleged had no knowledge of how much she was earning per project. She denied
that she willfully filed a false and fraudulent ITR and stated that it was her
failure to supply a correct and accurate information when she filed
her ITR for the taxable year 2002. The prosecution alleged that manager who was in charge of filing the tax returns and the payments
she under-declared her income by P8,362,902. However, she thereof. She also stated she really intended to settle the case were it not
for the opposition by her manager and then counsel.
denied the allegation of willful or fraudulent on her part and stated
she entrusted all her transactions to her manager including the
filing of tax returns and the corresponding tax payments. Issue:
WON the accused may be held liable for violation of Section 255 of the
Issue: WON the accused may be held liable for violation of Section 255 of NIRC, as amended —NO
the NIRC, as amended
Held/Ratio: Wherefore, on the ground of reasonable doubt, accused Judy
Held: NO. The CTA held that the prosecution failed to prove the element Anne Santos y Lumagui is hereby acquitted of the crime charged.
of willfulness on the part of the accused to supply the correct and
No. The CTA found that the records were bereft of any evidence to
accurate information on her subject return. The CTA further held
that willful failure cannot be presumed from mere inadvertent or establish the key element of willfulness on the part of the accused to
negligent acts. However, the CTA held that the accused is still supply the correct and accurate information on her subject return.
o The CTA provided that the elements of willful failure to supply correct
civilly liable for the deficiency income tax corresponding to her
undeclared income receipts. and accurate information are as follows:

75
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

1. That a person is required to supply correct and accurate o However, the CTA held that the accused was still civilly liable for the
information; deficiency income taxes for the taxable year 2002 in the total amount
2. That there is failure to supply correct and accurate information at of P3,418,034.78, including penalties and interests, corresponding to
the time or times required by law or rules and regulations; and the undeclared income receipts by the accused.
3. That such failure to supply correct and accurate information is
done willfully.
o The CTA cited various pronouncements of the Supreme Court on tax
evasion, as follows:
o CIR v. Estate of Toda, Jr: Tax evasion connotes the integration of
three factors: (1) the end to be achieved, i.e., the payment of less
than that known by the taxpayer to be legally due, or the non-
payment of tax when it is shown that a tax is due; (2) an
accompanying state of mind which is described as being evil, in
bad faith, willful or deliberate and not accidental; and (3) a course
of action or failure of action which is unlawful.
o CIR v. Japan Air Lines: The willful neglect to file the required tax
return or the fraudulent intent to evade the payment of taxes,
considering the same is accompanied by legal consequences,
cannot be presumed. The fraud contemplated by law is actual
and constructive. It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted to in order to
induce another to give up some legal right.
o The CTA, thus, held that the element of willful failure to supply correct
and accurate information must be fully established as a positive act or
state of mind. It cannot be presumed nor attributed to mere
inadvertent or negligent acts.
o The CTA held that the prosecution was able to prove that the accused
failed to supply the correct and accurate information in her 2002 ITR
for her failure to declare her other income payments received from
other sources. However, the CTA also held that it is well settled that
mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion.
o The CTA found that the accused was only negligent and such is not
enough to convict her. Negligence, whether slight or gross, is not
equivalent to evade the tax contemplated by law. Fraud must amount
to intentional wrongdoing with the sole subject of avoiding the tax.

76
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

PRESCRIPTION OF CRIMINAL ACTION Issue/s:


WON the action has prescribed.

SEC. 281. Prescription for Violations of any Provision of this Code. - Held: No. In addition to the fact of discovery, there must be a judicial
All violations of any provision of this Code shall prescribe after Five (5) proceeding for the investigation and punishment of the tax
years. offense before the five­year limiting period begins to run. (See
Prescription shall begin to run from the day of the commission of the below for complete law applicable)
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 Section 51(b) of the Tax Code provides that the tax or deficiency so
investigation and punishment. discovered shall be paid upon notice and demand from the CIR.
The prescription shall be interrupted when proceedings are instituted Inasmuch as the final notice and demand for payment of the
against the guilty persons and shall begin to run again if the proceedings deficiency taxes was served on petitioners on July 3, 1968, it was
are dismissed for reasons not constituting jeopardy. only then that the cause of action on the part of the BIR accrued.
The term of prescription shall not run when the offender is absent from the This is so because prior to the receipt of the letter assessment, no
Philippines. violation has yet been committed by the taxpayers.

LIM, SR. v. COURT OF APPEALS (Ong) The offense was committed only after receipt was coupled with the
[GR. No. 48134-37; October 18, 1990] willful refusal to pay the taxes due. The two criminal informations,
“Prescription of criminal action shall begin to run from the discovery AND having been filed on June 23, 1970, are well­ within the five­year
institution of judicial proceedings.” prescriptive period and are not time­barred.

Recit-Ready: Section 354 speaks not only of discovery of the fraud but also
Facts: Spouses Lim filed fraudulent returns for the years 1958 and 1959. institution of judicial proceedings because of the conjunctive
The BIR informed petitioners that they should pay the deficiency “and.”
but they refused despite repeated demands. On July 3, 1968, the In addition to the fact of discovery, there must be a judicial
BIR served their final assessment but they still did not pay. Thus proceeding for the investigation and punishment of the tax
on September 1, 1969, the matter was referred to the Fiscal’s offense before the five­year limiting period begins to run.
Office for investigation and prosecution. They were found guilty Thus it only started when the case was indorsed to the
by the trial court and the CA. In this appeal, petitioners claim that Fiscal’s office on September 1, 1969.
the action has prescribed because the offenses charged
prescribed in 5 years and not 10 years and that the prescriptive Tax cases, such as the present ones, are practically
period commenced to run from April 7, 1965, the date of the imprescriptible for as long as the period from the discovery
original assessment. The respondent claims that the prescriptive and institution of judicial proceedings for its investigation and
period should be counted from July 3, 1968 when the final notice punishment, up to the filing of the information in court does
and demand was served. not exceed five (5) years.

77
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

penalty. This was served on petitioners their final assessment through


their daughter in law on July 3, 1968. They still did not pay.
Facts: • On September 1, 1969, the matter was referred by the BIR to the Manila
• Petitioner spouses Lim were engaged in the dealership of various Fiscal’s Office for investigation and prosecution.
household appliances. They filed income tax returns for the years 1958 • On June 23, 1970, 4 separate criminal informations were filed against
and 1959. petitioners in the Court of First Instance of Manila for violations of Section
• A raid was conducted at their business address and at their premises by 45 and 51, in relation to Section 73 of the NIRC. The trial court found
the NBI. Accounting records which served as bases for an investigation petitioner guilty and were ordered to pay the deficiency (580,588.75 +
undertaken by the BIR. 656,601.80) and a fine of 6000.
• On October 14, 1960, the BIR informed petitioners that revenue • The CA affirmed in toto the decisions of the lower court. 23 days later,
examiners had been authorized to examine their books of account. Emilio Lim died.
• On September 30, 1964, Senior Revenue Examiner Daet found that the • Petitioners:
income tax returns filed by petitioners for the years 1958 and 1959 were o The offenses charged prescribed in 5 years and not 10
false or fraudulent. He recommended an assessment of P835,127 be years and that the prescriptive period commenced to run
made. from April 7, 1965, the date of the original assessment.
• On April 7, 1965, the BIR informed petitioners that there was due from • Respondent:
them the amount of P922,913.04 as deficiency income taxes giving them o Prescriptive period should be counted from July 3, 1968
until May 7, 1965 to pay the amount. when the final notice and demand was served.
• On April 10, 1965, petitioners requested for a reinvestigation. The BIR
expressed willingness to grant such request but on condition that within Issue/s:
10 days from notice, Lim would accomplish a waiver of defense of WON the action has prescribed.
prescription under the Statute of Limitations and that one half of the —NO
deficiency income tax would be deposited with the BIR and the other half
secured by a surety bond. If within the ten­day period the BIR did not hear Held/Ratio: In addition to the fact of discovery, there must be a judicial
from petitioners, then it would be presumed that the request for proceeding for the investigation and punishment of the tax offense
reinvestigation had been abandoned before the five­year limiting period begins to run.
• Petitioner Emilio Lim refused to comply with the above conditions and
reiterated his request for another investigation. NO.
• On January 31, 1967, the BIR informed the petitioners that their o What we are dealing with here are criminal prosecutions for fling
deficiency income tax liabilities had been assessed at P934,000.54 fraudulent income tax returns and for refusing to pay deficiency taxes.
including interest and compromise penalty for late payment. o The governing penal provision is Section 73 in conjunction with
• On March 15, 1967, petitioners wrote the BIR to protest the latest Section 354.
assessment and repeated their request for reinvestigation. o On the 5 year prescriptive period, both parties are in agreement. They
• On October 10, 1967, the BIR decided that there was no cause for differ however in the manner of computation, specifically as to when
reversal of the assessment and they were required to pay deficiency the period should commence.
income taxes amounting to P1,237,190.55 inclusive of interest and

78
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

"Section 73. Penalty for failure to file return or to pay tax.— Anyone o Section 51(b) of the Tax Code provides that the tax or deficiency so
liable to pay the tax, to make a return or to supply information discovered shall be paid upon notice and demand from the CIR.
required under this Code, who refuses or neglects to pay such tax, o Inasmuch as the final notice and demand for payment of the
to make such return or to supply such information at the time or deficiency taxes was served on petitioners on July 3, 1968, it was only
times herein specified in each year, shall be punished by a fine of then that the cause of action on the part of the BIR accrued. This is so
not more than two thousand pesos or by imprisonment for not more because prior to the receipt of the letter assessment, no violation has
than six months, or both. yet been committed by the taxpayers.
"Any individual or any officer of any corporation, or general o The offense was committed only after receipt was coupled with the
copartnership x x x, required by law to make, render, sign or verify willful refusal to pay the taxes due.
any return or to supply any information, who makes any false or o The two criminal informations, having been filed on June 23, 1970,
fraudulent return or statement with intent to defeat or evade the are well­ within the five­year prescriptive period and are not
assessment required by this Code to be made, shall be punished by time­barred.
a fine of not exceeding four thousand pesos or by imprisonment for o With regard to Criminal Cases Nos. 1790 and 1791 which dealt with
not exceeding one year, or both." petitioners' filing of fraudulent consolidated income tax returns with
intent to evade the assessment decreed by law, petitioners contend
"Section 354. Prescription for violations of any provisions of this that the said crimes have likewise prescribed. They advance the view
Code.—All violations of any provision of this Code shall prescribe that the five­year period should be counted from the date of discovery
after five years. of the alleged fraud which, at the latest, should have been October
"Prescription shall begin to run from the day of the commission 15, 1964, the date stated by the Appellate Court in its resolution of
of the violation of the law, and if the same be not known at the April 4, 1978 as the date the fraudulent nature of the returns was
time, from the discovery thereof and the institution of judicial unearthed.
proceedings for its investigation and punishment. o The Court adopts the view of the Solicitor General:
'The prescription shall be interrupted when proceedings are o The crime of filing false returns can be “discovered” only
instituted against the guilty persons and shall begin to run again if after the manner of commission and nature and extent
the proceedings are dismissed for reasons not constituting jeopardy. of fraud have been ascertained. It was only on October
"The term of prescription shall not run when the offender is absent 10, 1967 when the BIR rendered its final decision
from the Philippines.” holding that there was no ground for the reversal of the
assessment
o Petitioners had filed false and fraudulent income tax returns by o Section 354 speaks not only of discovery of the
nondisclosure of the aggregate amount of P2,197,742.92, thereby fraud but also institution of judicial proceedings
depriving the Government in the amount of P1,237,190.55, because of the conjunctive “and.”
representing deficiency income taxes inclusive of interest, surcharges o In addition to the fact of discovery, there must be a
and compromise penalty for late payment. judicial proceeding for the investigation and
o Both agree that the violations could only be committed after service of punishment of the tax offense before the five­year
notice and demand for payment. limiting period begins to run. Thus it only started

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

when the case was indorsed to the Fiscal’s office on


September 1, 1969.

o As Section 354 stands in the statute book (and to this day it has
remained unchanged) it would indeed seem that tax cases, such as
the present ones, are practically imprescriptible for as long as
the period from the discovery and institution of judicial
proceedings for its investigation and punishment, up to the filing
of the information in court does not exceed five (5) years.
o The petition, however, is impressed with merit insofar as it assails the
inclusion in the judgment of the payment of deficiency taxes in
Criminal Cases Nos. 1788­1789. The trial court had absolutely no
jurisdiction in sentencing the Lim couple to indemnify the Government
for the taxes unpaid. The lower court erred in applying Presidential
Decree No. 69, particularly Section 316 thereof, which provides that
"judgment in the criminal case shall not only impose the penalty but
shall order payment of the taxes subject of the criminal case",
because that decree took effect only on January 1, 1973 whereas the
criminal cases subject of this appeal were instituted on June 23, 1970.
Presidential Decree No. 69 has no retroactive application. There is no
legal sanction for the imposition of payment of the civil indemnity to
the government in a criminal proceeding for violation of income tax
laws.
o Considering that under Section 316 of the Tax Code prior to its
amendment the trial could not order the payment of the unpaid taxes
as part of the sentence, the question of whether or not the
supervening death of petitioner Emilio E. Lim, Sr. has extinguished his
tax liability need not concern us. However, with regard to the
pecuniary penalty of fine imposed on the deceased Lim, this is
necessarily extinguished by his death in accordance with Section 89
of the Revised Penal Code.

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MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

smuggled and confiscated goods or One Million Pesos (P1,000,000)


INFORMER’S REWARD per case, whichever is lower, shall be given to persons instrumental in
the discovery and seizure of such smuggled goods.
The cash rewards of informers shall be subject to income tax,
SECTION 282. Informer's Reward to Persons Instrumental in the collected as a final withholding tax, at a rate of ten percent (10%).
Discovery of Violations of the National Internal Revenue Code and in The Provisions of the foregoing Subsections notwithstanding, all
the Discovery and Seizure of Smuggled Goods. - public officials, whether incumbent or retired, who acquired the information
(A) For Violations of the National Internal Revenue Code.- Any in the course of the performance of their duties during their incumbency,
person, except an internal revenue official or employee, or other are prohibited from claiming informer's reward.
public official or employee, or his relative within the sixth degree of
consanguinity, who voluntarily gives definite and sworn information,
not yet in the possession of the Bureau of Internal Revenue, leading
to the discovery of frauds upon the internal revenue laws or violations REVENUE REGULATIONS 16-2010 (NOVEMBER 25, 2010)
of any of the provisions thereof, thereby resulting in the recovery of
SUMMARY RR 16-2010
revenues, surcharges and fees and/or the conviction of the guilty
Prescribes the guidelines, rules and procedures in the filing of
party and/or the imposition of any of the fine or penalty, shall be
confidential information and the investigation of cases arising therefrom.
rewarded in a sum equivalent to ten percent (10%) of the revenues,
surcharges or fees recovered and/or fine or penalty imposed and
A qualified informer shall be rewarded in a sum equivalent to 10%
collected or One Million Pesos (P1,000,000) per case, whichever is
of the revenues, surcharges or fees recovered and/or fine or penalty
lower. The same amount of reward shall also be given to an informer
imposed and collected or P 1,000,000 per case, whichever is lower. The
where the offender has offered to compromise the violation of law
following are disqualified to avail of the informer's reward:
committed by him and his offer has been accepted by the
a. A BIR official or employee or any other incumbent public
Commissioner and collected from the offender: Provided, That should official or employee;
no revenue, surcharges or fees be actually recovered or collected, th
b. Relative within the 6 civil degree of consanguinity of a
such person shall not be entitled to a reward: Provided, further, That
BIR official or employee, or other public official or
the information mentioned herein shall not refer to a case already employee; and
pending or previously investigated or examined by the Commissioner c. Though already retired or otherwise separated from service,
or any of his deputies, agents or examiners, or the Secretary of BIR officials or employees or other public officials who
Finance or any of his deputies or agents: Provided, finally, That the acquired the information in the course of the performance
reward provided herein shall be paid under rules and regulations of their duties during their incumbency.
issued by the Secretary of Finance, upon recommendation of the
Confidential Information against the denounced taxpayer shall be
Commissioner.
under oath and shall be personally executed and filed by the Informer
before the Chief, Prosecution Division, BIR National Office on the following
(B) For Discovery and Seizure of Smuggled Goods.To encourage violations:
the public to extend full cooperation in eradicating smuggling, a cash a. Attempt to evade or defeat tax;
reward equivalent to ten percent (10%) of the fair market value of the b. Failure to file return, supply correct and accurate
information, pay tax, withhold and remit tax and refund

81
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

excess taxes withheld on compensation; case may be, should be given access to the identity or contact details of
c. Failure or refusal to issue receipts or sales or commercial the Informer.
invoices, violations related to the printing of such receipts or
invoices or other violations; Upon the commencement of the investigation process, the
d. Unlawful pursuit of business; assigned investigators shall not divulge to third parties, including the
e. Use of multiple Tax Identification Number/s (TINs); Informer, any information, data or documents gathered during the
f. Making false entries, records or reports or using falsified investigation process. The investigators may only provide the Informer with
or false accountable forms; and updates on the status of the investigation.
g. Other violations of the National Internal Revenue Code In order for an Informer to be entitled to a reward, the Confidential
(NIRC) of 1997. Information given must lead to or be instrumental in the discovery of the
fraud or violation of the provisions of the NIRC of 1997, as amended, or
However, if the estimated basic tax liability arising from the special laws being administered by the BIR, and the same must result in
alleged violation is less than P 1,000,000.00, the confidential information the actual recovery or collection of revenues, surcharges and fees, and/or
should be filed before the Chief, Legal Division of the Revenue Region the conviction of the guilty party or parties, and/or the imposition of any
having jurisdiction over the taxpayer being denounced. A Confidential fine or penalty or the actual collection of a compromise amount, in case of
Information shall be treated as valid only if it meets ALL the following amicable settlement.
requisites: Where there are two (2) or more Informers in the same case, the
a. The Informer is not disqualified. one who gave the information in full satisfaction of the conditions herein
b. The Informer voluntarily provides sworn information on the outlined shall be entitled to the reward. In the event that each Informer
tax fraud or violation of the NIRC of 1997, as amended, meets all conditions fully, the Informer who first furnished the information
allegedly committed by the denounced taxpayer. shall be entitled to the reward. In case two (2) or more persons jointly filed
c. The said information is not yet in the possession of the BIR. the confidential information who are qualified for the reward, they shall
d. The said information does not refer to a case already divide the reward equally among themselves.
pending or previously investigated or examined by the Taxes assessed as a result of a valid Confidential Information, if
Commissioner of Internal Revenue or any of his deputies, involving a commission of criminal fraud established beyond reasonable
agents or examiners, or by the Secretary of Finance or any doubt, shall not be compromised. Unless otherwise provided by relevant
of his deputies or agents. revenue issuances, taxpayer subject of a valid Confidential Information
e. The said information does not refer to or is not exactly shall be excluded from the coverage of any administrative program of the
similar to a previous information filed by another informer Bureau promulgated to facilitate and enhance revenue collection (i.e. VAP,
covering the same taxpayer describing the same scheme VAAP, CTRP, etc.). Consequently, taxpayers who availed of such
or information covering the same taxable year or period. programs are not entitled to the privilege of “last priority in audit or
investigation” or any other benefit to be accorded therein.
In order to protect the identity of the Informer and safeguard the The informer’s claim for reward shall be filed with the Prosecution
strict confidentiality of his information, the name of the Informer or any Division at the BIR National Office or with the Legal Division, Revenue
information appearing in the second copy of the Confidential Information Regional Office, as the case may be. Claims for rewards shall be filed
that may possibly lead to the identity of the said Informer shall be deleted within three (3) years from the date of actual payment, recovery or
by the Records Management Division. From start until completion of the collection of revenues, surcharges and fees, and/or the imposition of any
investigation, the docket of the case shall bear no information on the fine or penalty or the actual collection of a compromise amount, in case of
identity of the Informer. However, in extremely meritorious cases, wherein amicable settlement.
there is a need to communicate with the Informer, the Chief, National The Informer's Reward shall be subject to Income Tax, collected
Investigation Division (NID) or Special Investigation Division (SID), as the as a Final Withholding Tax, at the rate of 10%. The tax shall be withheld
by the Accounting Division and shall be remitted to the BIR in the manner

82
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

provided by law. internal revenue laws or violations of any provision of the NIRC of 1997,
The procedures in the processing of Confidential Information and as amended, resulting in the recovery of revenues, surcharges and
documents and conduct of preliminary investigation at the National Office fees and/or the conviction of the guilty party and/or the imposition of any
and Regional Office are specified in the Regulations. fine or penalty.
2.2 Confidential Information- refers to the sworn written
statement given voluntarily by an Informer. Such statement must
definitely state the facts or acts constituting fraud committed by a person
REVENUE REGULATIONS NO. 16-2010 or entity denounced to have violated or in violation of the NIRC of 1997,
as amended.
SUBJECT: Guidelines, Rules & Procedures in the Filing of th
2.3 Relatives within the Sixth (6 ) Civil Degree of
Confidential Information & Investigation of Cases Consanguinity-this means the father, mother, children,
Arising Therefrom grandchildren, grandfather, grandmother, brothers, sisters, uncles,
aunts, nephews, nieces, first cousins and second cousins of BIR officials
With the advent of the Run After Tax Evaders (RATE) Program in and employees or other public officials or employees.
2005, the Bureau of Internal Revenue (BIR) has received an increased
number of information from concerned citizens against taxpayers, SECTION 3. Disqualifications of Informers for Reward. The following
individual or corporate, who allegedly violated the pertinent provisions of are disqualified to avail of the Informer's Reward:
the National Internal Revenue Code (NIRC) of 1997, as amended. (a) A BIR official or employee or any other incumbent public official or
employee;
Pursuant to Department of Finance (DOF) Regulations No. 1, in th
(b) Relative within the sixth (6 ) civil degree of consanguinity of a BIR
relation to Section 282 of the NIRC of 1997, as amended, a qualified
official or employee, or other public official or employee; and
Informer shall be rewarded in a sum equivalent to ten percent (10%) of the
(c) Though already retired or otherwise separated from service, BIR
revenues, surcharges or fees recovered and/or fine or penalty imposed
officials or employees or other public officials who acquired the
and collected or One Million Pesos (P1,000,000) per case, whichever is
information in the course of the performance of their duties during
lower.
their incumbency.
SECTION 1. Objectives.
SECTION 4. Filing of the Informer’s Confidential Information.
Confidential Information against the denounced taxpayer
(a) To provide guidelines, rules and procedure in the
shall be under oath and shall be personally executed and filed by the
filing of Confidential Information for violations of the NIRC of 1997, as
Informer before the Chief, Prosecution Division, BIR National
amended;
Office on the following violations:
(b) To facilitate the investigation of persons covered
(a) Attempt to Evade or Defeat Tax (Section 254 of the NIRC of
by such Confidential Information; and
1997, as amended);
(c) To delineate the responsibilities of the different BIR offices and
(b) Failure to File Return, Supply Correct and Accurate
units involved in the filing, investigation, disposition of such
Information, Pay Tax, Withhold and Remit Tax and Refund
Confidential Information, and the grant and payment of reward.
Excess Taxes Withheld on Compensation (Section 255
of the NIRC, as amended);
SECTION 2. Definition of Terms.
(c) Failure or Refusal to Issue Receipts or Sales or
2.1 Informer- any qualified person who voluntarily provides
Commercial Invoices, Violations Related to the Printing of
definite and sworn information not yet in the possession of the BIR
such Receipts or Invoices or Other Violations (Section 264 of
nor of public knowledge, leading to the discovery of frauds upon the
the NIRC of 1997, as amended);

83
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

(d) Unlawful Pursuit of Business (Section 258 of the NIRC of 1997, statement. It must specify: 1) the name & address of the taxpayer
as amended); committing the violation; 2) taxable period when the fraud or violation
(e) Use of multiple Tax Identification Number/s (TINs); was committed; 3) the internal revenue law allegedly violated; 4) the
(f) Making False Entries , Records or Reports or Using Falsified address of witnesses, if any; and 5) other facts pertinent to the
or False Accountable Forms (Section 257 of the NIRC, as violation.
amended); and Also, it must be supported by “substantial evidence” or that
(g) Other violations of the NIRC of 1997. amount of relevant evidence which a reasonable mind might accept
as adequate to justify a conclusion, such as the following documents:
However, if the estimated liability arising from the alleged 1. BIR’s Certificate of
violation is less than One Million Pesos (P1,000,000.00), the Registration; 2. Income
Confidential Information should be filed before the Chief, Legal Division of Tax Returns;
the Revenue Region having jurisdiction over the taxpayer being 3. Deed of Absolute Sale;
denounced. 4. License to Operate Business in the Philippines, as issued
The format of the duly sworn Confidential Information shall by the Securities and Exchange Commission (SEC);
be in accordance with the sample attached hereto as Annex “A”. 5. General Information Sheet (GIS) obtained from the
SEC; 6. Audited Financial Statements; and
SECTION 5. Requisites of a Valid Confidential Information. 7. Other relevant documents
Pursuant to Section 282 of the NIRC of 1997, as amended, a
Confidential Information shall be treated as valid only if it meets ALL the The foregoing documents and other “substantial evidence”
following requisites: to be submitted by the Informer must consist of certified true
copies. For this purpose, a certified true copy is a copy which is
(a) The Informer is not disqualified as provided under Section 3 authenticated and signed by the authorized officer of the agency
of this Order. having custody of the original thereof. However, for purposes of
Aside from stating his name and address, the Informer’s duly evaluation, mere photocopies of documents which are within the
sworn Confidential Information shall definitely state that he is not related custody of the denounced taxpayer (i.e. private records) may be
th accepted.
within the sixth (6 ) civil degree of consanguinity to any official or
If the Informer does not have possession or control of such
employee of the BIR, or any other public official or employee.
Otherwise, his Confidential Information shall be treated as invalid. documents, records, or books but he has knowledge of the person who
If the Informer withheld such information in his Confidential has the custody, possession or control thereof, or the place where they
Information and as a result of which he was paid the Informer’s are kept, he shall state in his sworn information the person who has the
reward, he shall, upon discovery of such fact, be liable to the penalty of possession thereof and/or the location where such documents, records
perjury and, in addition, he shall also be required to restitute to the BIR and books are kept.
the amount of reward wrongfully obtained, inclusive of the legal
interest thereon. (c) The said information is not yet in the possession of the BIR.
In the course of the evaluation of the Informer’s
Confidential Information, the Chief, Prosecution Division or the Chief,
(b) The Informer voluntarily provides sworn information on the tax
Legal Division, as the case may be, shall determine from the records
fraud or violation of the NIRC of 1997, as amended, allegedly
of the BIR whether the information being submitted is already
committed by the denounced taxpayer.
reasonably in the possession of the BIR [e.g. the information offered by
The facts mentioned in the information constituting the
the Informer is already available from the BIR’s Third Party
alleged tax evasion or violation of the NIRC of 1997, as amended,
Information (TPI) System or the same is of public knowledge as
must be definite, concise and credible, and not merely a general
when it is already the subject of a newspaper publication or report,

84
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

television or radio broadcast, etc.], or will reasonably come into the shall indicate the date and time the information was received; its Book
possession of the BIR in the course of its operations. Entry Number; the name and address of the Informer; name and
Unless it is established that the information offered by the address of the person denounced; names and addresses of the
Informer is not available from the records of the BIR, the information witnesses, if any; the subject matter of the information; and the list of
shall not be treated as valid. records, documents and books submitted, if any. All the
supporting documents submitted shall be duly identified, marked and
(d) The said information does not refer to a case already sequentially numbered.
pending or previously investigated or examined by the
Commissioner of Internal Revenue or any of his deputies, agents or The First copy of the numbered Confidential Information
examiners, or by the Secretary of Finance or any of his deputies or and its supporting documents shall be retained by the Records
agents. Management Division for filing and reference.
Any information provided in the said Confidential Information,
which had already been filed with the Department of Finance and any of The Second Copy of the numbered Confidential Information
its attached agencies, including the BIR, shall not be treated as a and the attached supporting documents shall be forwarded to the
valid Confidential Information. Enforcement Service for indorsement to the National Investigation
Division (NID) for preliminary investigation and/or audit of the
(e) The said information does not refer to or is not exactly denounced taxpayer.
similar to a previous information filed by another informer covering the
same taxpayer describing the same scheme or information covering the The Third Copy of the numbered Confidential Information
same taxable year or period. and the attached supporting documents shall be forwarded to the Chief,
Prosecution Division, for file and future reference (i.e. for processing of
SECTION 6. Processing of the Confidential Information and claim for reward).
Documents.
The Fourth Copy of the numbered Confidential
(a) At the National Office. Information duly stamped received by the Records Management Division
shall be furnished to the Informer, which shall serve as his identification
Upon receipt of the information together with the or evidence that he is the true informer.
supporting documents, the Chief, Prosecution Division, shall evaluate the
same and shall determine whether it qualifies as a valid Confidential (b) At the Revenue Regional Office.
Information pursuant to Section 5 of this Order.
Upon receipt of the information together with the
If the information is found to be invalid and insufficient, the supporting documents, the Chief, Legal Division, shall evaluate the
Informer, within three (3) days from the receipt of the information, shall same and shall determine whether it qualifies as a valid Confidential
be notified of such findings and the information with the supporting Information pursuant to Section 5 of this Order.
documents should be returned to him. If the information is found to be invalid and insufficient, the
Informer, within three (3) days from the receipt of the information, shall
All four (4) copies of the Confidential Information with its be notified of such findings and the information with the supporting
supporting documents shall be forwarded to the Records documents should be returned to him.
Management Division, BIR National Office, for numbering and
recording in the Confidential Entry Book provided for the purpose. If the information is found to be a valid Confidential
The individual entries to be made in the Confidential Entry Book Information, the Informer shall execute under oath four (4)
copies of his Confidential Information before the Chief, Legal Division,

85
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

and he shall attach one (1) copy of the supporting documents to each
copy of the Confidential Information. In order to protect the identity of the Informer and
accordingly safeguard the strict confidentiality of his information, the name
All four (4) copies of the Confidential Information with its of the Informer or any information appearing in the Second Copy
supporting documents shall be forwarded to the Records (intended for NID/SID) of the Confidential Information that may possibly
Management Division, BIR National Office, for numbering and lead to the identity of the said Informer, shall be deleted by the Records
recording in the Confidential Entry Book provided for the purpose. Management Division. From start until completion of the investigation,
The individual entries to be made in the Confidential Entry Book the docket of the case shall bear no information on the identity of the
shall indicate the date and time the information was received; its Book Informer.
Entry Number; the name and address of the Informer; name and
address of the person denounced; names and addresses of the However, in extremely meritorious cases, wherein there is a
witnesses, if any; the subject matter of the information; and the list of need to communicate with the Informer, the Chief, NID or SID, as the
records, documents and books submitted, if any. All the case may be, should be given access to the identity or contact details of
supporting documents submitted shall be duly identified, marked and the Informer.
sequentially numbered.
SECTION 8. Preliminary Investigation.
The First copy of the numbered Confidential Information (a) At the National Office.
and its supporting documents shall be retained by the Records
Management Division for filing and reference. For cases covered by a sworn Confidential Information –
Upon receipt of the second copy of the Confidential
The Second Copy of the numbered Confidential Information Information and other documents or evidence duly processed by the
and the attached supporting documents shall be forwarded to the Records Management Division, the Chief, NID shall forthwith
Regional Director of the Revenue Region concerned for transmittal to assign the case to any of his investigators for the conduct of a
its Special Investigation Division (SID) for preliminary investigation preliminary investigation to determine whether there exists probable
and/or audit of the denounced taxpayer. cause that tax fraud or a violation of any provision of the NIRC of
1997, as amended, was committed. The assigned investigator has
The Third Copy of the numbered Confidential Information sixty (60) working days from assignment of the Confidential Information
and the attached supporting documents shall be forwarded to the to conduct a preliminary investigation thereon.
Regional Director of the Revenue Region concerned for transmittal to its
Legal Division, for filing and reference (i.e. processing of claim for If there exists probable cause that tax fraud or a violation
reward). of any provision of the NIRC of 1997, as amended, was
committed, a report requesting for the issuance of Electronic Letter
The Fourth Copy of the numbered Confidential of Authority (eLA) shall be prepared. The Chief, NID shall submit the
Information duly stamped received by the Records Management Division report and recommendation on the case to the Assistant Commissioner,
shall be furnished to the Informer, which shall serve as his identification or Enforcement Service, for review of the Deputy Commissioner, Legal &
evidence that he is the true informer. Inspection Group and for approval by the Commissioner who shall
issue the eLA.
The Records Management Division is responsible in observing
strict confidentiality of the contents of the Confidential Information, In cases where the information is deemed insufficient to
except as provided in this Order. establish probable cause that tax fraud or a violation of any provision
of the NIRC of 1997, as amended, was committed, the Informer
SECTION 7. Non-disclosure of the Identity of the Informer shall immediately be notified, within ten (10) working days from

86
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the time the findings was established, that his denunciation shall be (b) At the Regional Office.
referred, for purposes of regular audit, to the appropriate Revenue For those cases which are either directly filed with the Revenue
Region/District Office which has jurisdiction over the taxpayer concerned. Region/District Office or whose investigation had been referred
Whenever the Informer fails to substantiate the allegations in his by the Assistant Commissioner, Enforcement Service, the
Confidential Information or fails to provide addresses, information shall be assigned by the Chief, SID, to any of his
telephone/cellular numbers, and other means by which he investigators for the conduct of a preliminary investigation and
could be contacted, or cannot be reached thereat despite diligent determine the existence of probable cause that tax fraud or a violation of
efforts by the NID, the Confidential Information shall be archived. any provision of the NIRC of 1997, as amended, was committed. The
investigator to whom the information was assigned has sixty (60)
For cases covered by Denunciation Letters or unsworn complaints – working days from receipt thereof to complete the preliminary
In cases where the denunciation is sent through electronic or investigation.
ordinary mail, the Chief, NID, shall assign the same to any of his In cases where the information is deemed insufficient to
investigators. The assigned investigator shall have thirty (30) days establish probable cause that tax fraud or a violation of any provision
therefrom to evaluate the same. of the NIRC of 1997, as amended, was committed, the Informer shall
Within ten (10) working days from receipt of the corresponding be notified within ten (10) working days from the time the that findings
Memo-Assignment from the Chief, NID, the investigator shall send a was established, that his information shall be archived.
letter to the Informer acknowledging receipt of the information and If there exists probable cause that tax fraud or a violation
advising him to submit additional information or other supporting of any provision of the NIRC of 1997, as amended, was committed, a
documents, if necessary. report shall be submitted by the Chief, SID for the approval by the
In cases where the information is deemed insufficient to Regional Director. The report shall be referred by the Regional
establish probable cause that tax fraud or a violation of any provision Director to concerned Revenue District Officer (RDO). The Regional
of the NIRC of 1997, as amended, was committed, the Informer shall Director shall issue the eLA upon request of the said RDO.
be notified within ten (10) working days from the time the findings
was established, that his information shall be forwarded, for SECTION 9. Confidentiality of Investigation.
purposes of regular audit, to the appropriate Revenue Pursuant to Section 270 of the NIRC of 1997, as amended,
Region/District Office which has jurisdiction over the taxpayer upon the commencement of the investigation process, the assigned
concerned. Whenever the Informer fails to investigators shall not divulge to third parties, including the Informer,
substantiate the allegations in his denunciation letter or provide any information, data or documents gathered during the investigation
addresses, telephone/cellular numbers, and other means by which they process. The investigators may only provide the Informer with update on
could be contacted, or cannot be reached thereat despite diligent the status of the investigation.
efforts by the NID, the information shall be archived.
Should the information and evidence provided be deemed SECTION 10. Reporting of Dockets/Cases covered by
sufficient by the investigator, the Informer shall be invited to appear Confidential Information.
and execute under oath a sworn Affidavit of Confidential The NID or SID, as the case may be, shall prepare a report
Information before the Chief, Prosecution Division, as required under which contains the legal and factual basis for the entitlement of
this Order. The informer shall also be made aware that the duly the Informer's Reward. Such report, together with the docket of
executed affidavit of Confidential Information is a prerequisite for the case, shall be forwarded to the Prosecution Division of the
entitlement to the Informer’s Reward. In case the Informer, despite National Office or Legal Division of the Revenue Region, as the case
having been so invited, fails to appear and execute the affidavit of may be, for evaluation. The NID or SID may render a partial report for
information under oath, the NID shall nonetheless pursue the payment of Informer's Reward on undisputed issues of the case which
preliminary investigation. clearly refers to the information contained in the Confidential
Information. The NID or SID shall attach a certification from the

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Revenue Accounting Division confirming that payment has already Bureau promulgated to facilitate and enhance revenue collection
been made by the denounced taxpayer. (i.e. VAP, VAAP, CTRP, etc.). Consequently, taxpayers who availed of
such programs are not entitled to the privilege of “last priority in audit or
SECTION 11. Entitlement of an Informer to a Reward. investigation” or any other benefit to be accorded therein.
In order for an Informer to be entitled to a reward, the Confidential
Information given must lead to or be instrumental in the discovery of the
fraud or violation of the provisions of the NIRC of 1997, as amended, SECTION 15. Procedure for Follow-ups by Informers.
or special laws being administered by the BIR, and the same must th
On or before the tenth (10 ) day of each month following receipt by the
result in the actual recovery or collection of revenues, surcharges and
NID/SID of the denunciation or information, a letter advising the
fees, and/or the conviction of the guilty party or parties, and/or the
Informer about the status of his Confidential Information shall be sent by
imposition of any fine or penalty or the actual collection of a compromise
the concerned office. Pursuant to Section 270 of the NIRC of 1997, as
amount, in case of amicable settlement.
amended, informers may only be told about the current status of their
Where there are two (2) or more Informers in the same case,
denunciation or information, but not the specific actions taken or to be
the one who gave the information in full satisfaction of the conditions
taken thereon, any information, data or documents gathered against the
herein outlined shall be entitled to the reward.
subject taxpayer.
In the event that each Informer meets all conditions fully, the
To ensure confidentiality, any follow-up or request for update of
Informer who first furnished the information shall be entitled to the reward.
status by Informers shall be made in writing by indicating the Informer’s
In case two (2) or more persons jointly filed the
Name and C.I. No. that appear in the confidential information or
Confidential Information who are qualified for the reward, they shall
Memo Assignment Order No. (for unsworn confidential information).
divide the reward equally among themselves.
Follow-ups or requests for status updates which do not indicate the
foregoing information or those made through telephone or those made
personally or those made beyond three (3) years from the filing date
SECTION 12. Amount of Reward to the Informer.
of the Confidential Information shall not be entertained.
The Informer’s reward shall be equivalent to ten percent (10%)
All valid written follow-ups or requests of Informers shall be acted
of the taxes and penalties (or compromise amount, in case of
upon by the assigned investigator within ten (10) working days from
compromise settlement) actually collected as a result of the
the date of receipt. For this purpose, the assigned investigator
Confidential Information, or One Million Pesos (P1,000,000.00) per case,
shall submit a Memorandum Report and a draft letter to the
whichever is lower, pursuant to Section 282 of the NIRC of 1997, as
Informer addressing the concerns and issues being raised by
amended.
the latter. The signatory for Memorandum Report shall be the
Supervisor of the concerned NID/SID group. If the NID/ SID Chief
SECTION 13. Assessment involving a criminal fraud shall
finds the Memorandum Report in order, he shall sign the draft letter
not be compromised.
addressed to the Informer.
Taxes assessed as a result of a valid Confidential
Information, if involving a commission of criminal fraud established
SECTION 16. Claims for Informer’s Reward.
beyond reasonable doubt, shall not be compromised pursuant to the
The Informer’s Claim for Reward shall be filed with the
provisions of Section 204 of the NIRC of 1997, as amended.
Prosecution Division at the BIR National Office or with the Legal
Division, Revenue Regional Office, as the case may be.
SECTION 14. Exclusion from administrative programs that gives
Claims for rewards shall be filed within three (3) years from the
“last priority in audit or investigation” and other benefits.
date of actual payment, recovery or collection of revenues,
Unless otherwise provided by relevant revenue issuances,
surcharges and fees, and/or the imposition of any fine or penalty or
taxpayers subject of a valid Confidential Information shall be
the actual collection of a compromise amount, in case of amicable
excluded from the coverage of any administrative program of the

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settlement. Upon receipt of the approval from the Secretary of Finance


Claims for Reward on cases investigated at the NID for the payment of the claim for Informer's Reward, a Disbursement
1. The Informer/Claimant shall file his claim for reward at the Voucher (DV) together with the supporting documents shall be prepared
Prosecution Division, National Office. by the Enforcement Service and shall be forwarded to the Accounting
2. The Chief, Prosecution Division, shall evaluate the claim and Division for processing of the Claim, subject to budgeting, accounting,
determine whether the Informer is entitled to a reward as detailed in auditing and other pertinent rules and regulations.
this Order. After processing the DV and its supporting documents, the
3. After evaluation, the Chief, Prosecution Division, Accounting Division shall forward the same to the Financial Services
recommendation of approval/denial of the claim, for approval of payment.
Commissioner, Enforcement Service. After approval of Payment, the Financial Services shall
4. After the review by the Assistant Commissioner, Enforcement Service, forward the documents to the General Services Division for the
the recommendation of approval/denial shall be forwarded to preparation of the check, subject to existing Revenue Delegation
the Deputy Commissioner, Legal and Inspection Group. Authority Order and other pertinent rules and regulations.
5. After the review by the Deputy Commissioner, Legal and
Inspection Group, the recommendation of approval/denial shall be SECTION 18. Final withholding tax on Informer’s Reward.
forwarded to the Commissioner of Internal Revenue. The Informer's Reward herein provided shall be subject to
6. Should the Commissioner of Internal Revenue find the claim income tax, collected as a final withholding tax, at the rate of ten percent
meritorious, the same shall be forwarded to the Secretary of Finance (10%), pursuant to Section 282 of the NIRC of 1997, as amended. The
for final approval. Otherwise, the Commissioner of Internal tax shall be withheld by the Accounting Division and shall be remitted
Revenue shall notify the Claimant/Informer of the denial of the to the BIR in the manner provided by law.
claim.
SECTION 19. Repealing Clause.
Claims for Reward on cases investigated at the SID, Revenue Region All existing issuance or portions thereof which are
1. The Informer/Claimant shall file his claim for reward at the Legal inconsistent herewith are hereby repealed.
Division of the concerned Revenue Regional Office.
2. The Chief, Legal Division, shall evaluate the claim and determine SECTION 20. Effectivity.
whether the Informer is entitled to a reward as detailed in this Order. This Revenue Regulations shall take effect immediately.
3. After evaluation, the Chief, Legal Division,
shall forward his recommendation of
approval/denial, to the Regional Director.
4. After the review by the Regional Director, the
recommendation of approval/denial shall be forwarded to the
Deputy Commissioner, Legal and Inspection Group.
5. After the review by the Deputy Commissioner, Legal and ANNEX A
Inspection Group, the recommendation of approval/denial shall be
forwarded to the Commissioner of Internal Revenue. BUREAU OF INTERNAL RENENUE
6. Should the Commissioner of Internal Revenue find merit on the claim, QUEZON CITY
the same shall be forwarded to the Secretary of Finance for final
approval. Otherwise, the Commissioner of Internal Revenue
shall notify the Claimant/Informer of the denial of the claim. Entry No.___________________
__________________
SECTION 17. Payment of Informer's reward. REPUBLIC OF THE PHILIPPINES

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BUREAU OF INTERNAL REVENUE


QUEZON CITY ________________________

AFFIDAVIT Affiant

I, ________________________________________, ______ years


of age, married/single, and a resident of SUBSCRIBED AND SWORN to before me this_____ day of
_______________________________________________, after having ______________, 2010, affiant having exhibited to me his
been duly sworn in accordance with the law, depose and say: ______________________ issued at _______________ on
_________________
1. That I am not a Bureau of Internal Revenue (BIR) official or
employee, or other public official;
2. That I am not related within the sixth civil degree of consanguinity to
NOTARY PUBLIC
any BIR official or employee, or other public official;
3. That I hereby furnish the information that
!
__________________________________
______________________________________________________
______________________________________________________
____________________________ (State definitely and specifically
the facts constituting as grounds for the information and frauds
upon or violations of the internal revenue laws, either contemplated
or already effected.)
4. That to the best of my knowledge and belief, this information is not
yet in the possession of the Bureau of Internal Revenue; nor does
this refer to any case of fraud or violation already pending or
previously investigated or examined by any official or employee of
the BIR or the Department of Finance;
5. That this information is given voluntarily and not for the purpose of
harassing, molesting or in any way prejudicing any person
whatsoever;
6. That I request that this information be held strictly confidential; and
7. That I hereby reserve my right to claim for reward under Section 282
of the National Internal Revenue Code, as amendment.

Done this ___th day of ___________, 20___

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LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

POWER/REMEDY OF COLLECTION Republic Act No. 9282 (March 30 2004)

AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX


COLLECTION IN CASES WHERE ASSESSMENT HAS BECOME FINAL APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF A
AND UNAPPEALABLE
COLLEGIATE COURT WITH SPECIAL JURISDICTION AND
ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE
CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125, AS AMENDED,
SECTION 205. Remedies for the Collection of Delinquent Taxes. – OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX
The civil remedies for the collection of internal revenue taxes, fees or APPEALS, AND FOR OTHER PURPOSES
charges, and any increment thereto resulting from delinquency shall be:
(*Emphasis are made through the underlined and italicized words, no
(a) By distraint of goods, chattels, or effects, and other personal summaries are made so as to ensure no important detail/s is/are omitted
property of whatever character, including stocks and other securities, and so that you can always refer to the original law)
debts, credits, bank accounts and interest in and rights to personal
property, and by levy upon real property and interest in rights to real Section 1. Section 1 of Republic Act No. 1125, as amended is hereby
property; and further amended to read as follows:

(b) By civil or criminal action. "SECTION 1. Court; Justices; Qualifications; Salary; Tenure. -
There is hereby created a Court of Tax Appeals (CTA) which shall
Either of these remedies or both simultaneously may be pursued in be of the same level as the Court of Appeals, possessing all the
the discretion of the authorities charged with the collection of such taxes: inherent powers of a Court of Justice, and shall consist of a
Provided, however, That the remedies of distraint and levy shall not be Presiding Justice and five (5) Associate Justices. The incumbent
availed of where the amount of tax involve is not more than One hundred Presiding Judge and Associate Judges shall continue in office and
pesos (P100). bear the new titles of Presiding Justice and Associate Justices.
The Presiding Justice and the most Senior Associate Justice shall
The judgment in the criminal case shall not only impose the penalty serve as chairmen of the two (2) Divisions. The additional three
but shall also order payment of the taxes subject of the criminal case as (3) Justices and succeeding members of the Court shall be
finally decided by the Commissioner. appointed by the President upon nomination by the Judicial and
Bar Council. The Presiding Justice shall be so designated in his
The Bureau of Internal Revenue shall advance the amounts needed to appointment, and the Associate Justices shall have precedence
defray costs of collection by means of civil or criminal action, including the according to the date of their respective appointments, or when
preservation or transportation of personal property distrained and the the appointments of two (2) or more of them shall bear the same
advertisement and sale thereof, as well as of real property and date, according to the order in which their appointments were
improvements thereon. issued by the President. They shall have the same qualifications,
rank, category, salary, emoluments and other privileges, be
subject to the same inhibitions and disqualifications, and enjoy the
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LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

same retirements and other benefits as those provided for under follows:
existing laws for the Presiding Justice and Associate Justices of
the Court of Appeals. "SEC. 3. Clerk of Court; Division Clerks of Court;
Appointment; Qualification; Compensation. - The CTA shall
"Whenever the salaries of the Presiding Justice and the Associate have a Clerk of Court and three (3) Division Clerks of Court who
Justices of the Court of Appeals are increased, such increases in shall be appointed by the Supreme Court. No person shall be
salaries shall be deemed correspondingly extended to and appointed Clerk of Court or Division Clerk of Court unless he is
enjoyed by the Presiding Justice and Associate Justices of the duly authorized to practice law in the Philippines. The Clerk of
CTA. Court and Division Clerks of Court shall exercise the same powers
and perform the same duties in regard to all matters within the
"The Presiding Justice and Associate Justices shall hold office Court's jurisdiction, as are exercised and performed by the Clerk
during good behavior, until they reach the age of seventy (70), or of Court and Division Clerks of Court of the Court of Appeals, in
become incapacitated to discharge the duties of their office, so far as the same may be applicable or analogous; and in the
unless sooner removed for the same causes and in the same exercise of those powers and the performance of those duties
manner provided by law for members of the judiciary of equivalent they shall be under the direction of the Court. The Clerk of Court
rank." and the Division Clerks of Court shall have the same rank,
privileges, salary, emoluments, retirement and other benefits as
Section 2. Section 2 of the same Act is hereby amended to read as those provided for the Clerk of Court and Division Clerks of Court
follows: of the Court of Appeals, respectively.'

"SEC. 2. Sitting En Banc or Division; Quorum; Proceedings. - Section 4. Section 4 of the same Act is hereby amended to read as
The CTA may sit en banc or in two (2) Divisions, each Division follows:
consisting of three (3) Justices.
"SEC. 4. Other Subordinate Employees. - The Supreme Court
"Four (4) Justices shall constitute a quorum for sessions en banc shall appoint all officials and employees of the CTA, in
and two (2) Justices for sessions of a Division: Provided, That accordance with the Civil Service Law. The Supreme Court shall
when the required quorum cannot be constituted due to any fix their salaries and prescribe their duties."
vacancy, disqualification, inhibition, disability, or any other lawful
cause, the Presiding Justice shall designate any Justice of other Section 5. Section 5 of the same Act is hereby amended to read as
Divisions of the Court to sit temporarily therein. follows:

"The affirmative votes of four (4) members of the Court en banc or "SEC. 5. Disqualifications. - No Justice or other officer or
two (2) members of a Division, as the case may be, shall be employee of the CTA shall intervene, directly or indirectly, in the
necessary for the rendition of a decision or resolution." management or control of any private enterprise which in any way
may be affected by the functions of the Court. Justices of the
Section 3. Section 3 of the same Act is hereby amended to read as Court shall be disqualified from sitting in any case on the same
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LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

grounds provided under Rule one hundred thirty-seven of the inaction shall be deemed a denial;
Rules of Court for the disqualification of judicial officers. No
person who has once served in the Court in a permanent "3. Decisions, orders or resolutions of the Regional Trial
capacity, either as Presiding Justice or as Associate Justice Courts in local tax cases originally decided or resolved by
thereof, shall be qualified to practice as counsel before the Court them in the exercise of their original or appellate
for a period of one (1) year from his retirement or resignation." jurisdiction;

Section 6. Section 6 of the same Act is hereby amended to read as "4. Decisions of the Commissioner of Customs in cases
follows: involving liability for customs duties, fees or other money
charges, seizure, detention or release of property affected,
"SEC. 6. Place of Office. - The CTA shall have its principal office fines, forfeitures or other penalties in relation thereto, or
in Metro Manila and shall hold hearings at such time and place as other matters arising under the Customs Law or other laws
it may, by order in writing, designate." administered by the Bureau of Customs;

Section 7. Section 7 of the same Act is hereby amended to read as "5. Decisions of the Central Board of Assessment Appeals
follows: in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property
"Sec. 7. Jurisdiction. - The CTA shall exercise: originally decided by the provincial or city board of
assessment appeals;
"a. Exclusive appellate jurisdiction to review by appeal, as herein
provided: "6. Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of
"1. Decisions of the Commissioner of Internal Revenue in the Commissioner of Customs which are adverse to the
cases involving disputed assessments, refunds of internal Government under Section 2315 of the Tariff and Customs
revenue taxes, fees or other charges, penalties in relation Code;
thereto, or other matters arising under the National Internal
Revenue or other laws administered by the Bureau of "7. Decisions of the Secretary of Trade and Industry, in the
Internal Revenue; case of nonagricultural product, commodity or article, and
the Secretary of Agriculture in the case of agricultural
"2. Inaction by the Commissioner of Internal Revenue in product, commodity or article, involving dumping and
cases involving disputed assessments, refunds of internal countervailing duties under Section 301 and 302,
revenue taxes, fees or other charges, penalties in relations respectively, of the Tariff and Customs Code, and
thereto, or other matters arising under the National Internal safeguard measures under Republic Act No. 8800, where
Revenue Code or other laws administered by the Bureau of either party may appeal the decision to impose or not to
Internal Revenue, where the National Internal Revenue impose said duties.
Code provides a specific period of action, in which case the
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LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

"b. Jurisdiction over cases involving criminal offenses as herein


provided: "c. Jurisdiction over tax collection cases as herein
provided:
"1. Exclusive original jurisdiction over all criminal offenses
arising from violations of the National Internal Revenue "1. Exclusive original jurisdiction in tax collection
Code or Tariff and Customs Code and other laws cases involving final and executory assessments for
administered by the Bureau of Internal Revenue or the taxes, fees, charges and penalties: Provided,
Bureau of Customs: Provided, however, That offenses or however, That collection cases where the principal
felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges and
amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos
penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal
(P1,000,000.00) or where there is no specified amount Trial Court, Metropolitan Trial Court and Regional Trial
claimed shall be tried by the regular Courts and the Court.
jurisdiction of the CTA shall be appellate. Any provision of
law or the Rules of Court to the contrary notwithstanding, "2. Exclusive appellate jurisdiction in tax collection
the criminal action and the corresponding civil action for the cases:
recovery of civil liability for taxes and penalties shall at all
times be simultaneously instituted with, and jointly "a. Over appeals from the judgments, resolutions
determined in the same proceeding by the CTA, the filing of or orders of the Regional Trial Courts in tax
the criminal action being deemed to necessarily carry with it collection cases originally decided by them, in
the filing of the civil action, and no right to reserve the filling their respective territorial jurisdiction.
of such civil action separately from the criminal action will
be recognized. "b. Over petitions for review of the judgments,
resolutions or orders of the Regional Trial Courts
"2. Exclusive appellate jurisdiction in criminal offenses: in the Exercise of their appellate jurisdiction over
tax collection cases originally decided by the
"a. Over appeals from the judgments, resolutions or Metropolitan Trial Courts, Municipal Trial Courts
orders of the Regional Trial Courts in tax cases originally and Municipal Circuit Trial Courts, in their
decided by them, in their respected territorial jurisdiction. respective jurisdiction."

"b. Over petitions for review of the judgments, Section 8. Section 10 of the same Act is hereby amended to read as
resolutions or orders of the Regional Trial Courts in the follows:
exercise of their appellate jurisdiction over tax cases
originally decided by the Metropolitan Trial Courts, "SEC. 10. Power to Administer Oaths; Issue Subpoena;
Municipal Trial Courts and Municipal Circuit Trial Courts Punish for Contempt. - The Court shall have the power to
in their respective jurisdiction. administer oaths, receive evidence, summon witnesses by
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LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

subpoena duces tecum, subject in all respects to the same party adversely affected by a ruling, order or decision of a Division
restrictions and qualifications as applied in judicial proceedings of of the CTA may file a motion for reconsideration of new trial
a similar nature. The Court shall, in accordance with Rule seventy- before the same Division of the CTA within fifteens (15) days from
one of the Rules of Court, have the power to punish for contempt notice thereof: Provided, however, That in criminal cases, the
for the same causes, under the same procedure and with the general rule applicable in regular Courts on matters of prosecution
same penalties provided therein." and appeal shall likewise apply.

Section 9. Section 11 of the same Act is hereby amended to read as "No appeal taken to the CTA from the decision of the
follows: Commissioner of Internal Revenue or the Commissioner of
Customs or the Regional Trial Court, provincial, city or municipal
"SEC. 11. Who May Appeal; Mode of Appeal; Effect of treasurer or the Secretary of Finance, the Secretary of Trade and
Appeal. - Any party adversely affected by a decision, ruling or Industry and Secretary of Agriculture, as the case may be shall
inaction of the Commissioner of Internal Revenue, the suspend the payment, levy, distraint, and/or sale of any property
Commissioner of Customs, the Secretary of Finance, the of the taxpayer for the satisfaction of his tax liability as provided by
Secretary of Trade and Industry or the Secretary of Agriculture or existing law: Provided, however, That when in the opinion of the
the Central Board of Assessment Appeals or the Regional Trial Court the collection by the aforementioned government agencies
Courts may file an appeal with the CTA within thirty (30) days after may jeopardize the interest of the Government and/or the
the receipt of such decision or ruling or after the expiration of the taxpayer the Court any stage of the proceeding may suspend the
period fixed by law for action as referred to in Section 7(a)(2) said collection and require the taxpayer either to deposit the
herein. amount claimed or to file a surety bond for not more than double
the amount with the Court.
"Appeal shall be made by filing a petition for review under a
procedure analogous to that provided for under Rule 42 of the "In criminal and collection cases covered respectively by Section
1997 Rules of Civil Procedure with the CTA within thirty (30) days 7(b) and (c) of this Act, the Government may directly file the said
from the receipt of the decision or ruling or in the case of inaction cases with the CTA covering amounts within its exclusive and
as herein provided, from the expiration of the period fixed by law original jurisdiction."
to act thereon. A Division of the CTA shall hear the appeal:
Provided, however, That with respect to decisions or rulings of the Section 10. Section 13 of the same Act is hereby amended to read as
Central Board of Assessment Appeals and the Regional Trial follows:
Court in the exercise of its appellate jurisdiction appeal shall be
made by filing a petition for review under a procedure analogous "SEC. 13. Decision, Maximum Period for Termination of
to that provided for under rule 43 of the 1997 Rules of Civil Cases. - Cases brought before the Court shall be decided in
Procedure with the CTA, which shall hear the case en banc. accordance with Section 15, paragraph (1), Article VIII (Judicial
Department) of the 1987 Constitution. Decisions of the Court shall
"All other cases involving rulings, orders or decisions filed with the be in writing, stating clearly and distinctly the facts and the law on
CTA as provided for in Section 7 shall be raffled to its Divisions. A which they are based, and signed by the Justices concurring
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LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

therein. The Court shall provide for the publication of its decision favorable to the national government, the CTA shall issue an order
in the Official Gazette in such form and manner as may best be authorizing the Bureau of Internal Revenue, through the Commissioner to
adopted for public information and use. seize and distraint any goods, chattels, or effects, and the personal
property, including stocks and other securities, debts, credits, bank
"The Justices of the Court shall each certify on their applications accounts, and interests in and rights to personal property and/or levy the
for leave, and upon salary vouchers presented by them for real property of such persons in sufficient quantity to satisfy the tax or
payment, or upon the payrolls under which their salaries are paid, charge together with any increment thereto incident to delinquency. This
that all proceedings, petitions and motions which have been remedy shall not be exclusive and shall not preclude the Court from
submitted to the Court for determination or decision for a period availing of other means under the Rules of Court.
required by the law or the Constitution, as the case may be, have
been determined or decided by the Court on or before the date of Section 14. Retention of Personnel; Security of Tenure; Upgrading of
making the certificate, and no leave shall be granted and no Positions and Salaries. - All existing permanent personnel of the CTA
salary shall be paid without such certificate." shall not be adversely affected by this Act. They shall continue in office
and shall not be removed or separated from the service except for cause
Section 11. Section 18 of the same Act is hereby amended as follows: as provided for by existing laws. Further, the present positions and
salaries of personnel shall be upgraded to the level of their counterparts in
"SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No the Court of Appeals.
civil proceeding involving matter arising under the National
Internal Revenue Code, the Tariff and Customs Code or the Local Section 15. Transitory Provisions. - In consonance with the above
Government Code shall be maintained, except as herein provided, provision, the incumbent Presiding Judge and Associate Judges shall
until and unless an appeal has been previously filed with the CTA comprise a Division pending the constitution of the entire Court.
and disposed of in accordance with the provisions of this Act.
Section 16. Appropriations. - The amount necessary to carry out the
"A party adversely affected by a resolution of a Division of the provisions of this Act shall be included in the General Appropriations Act
CTA on a motion for reconsideration or new trial, may file a of the year following its enactment into law and thereafter.
petition for review with the CTA en banc."
Section 17. Repealing Clause. - All laws, executive orders, executive
Section 12. Section 19 of the same Act is hereby amended as follows: issuances or letter of instructions, or any part thereof, inconsistent with or
contrary to the provisions of this Act are hereby deemed repealed,
"SEC. 19. Review by Certiorari. - A party adversely affected by a amended or modified accordingly.
decision or ruling of the CTA en banc may file with the Supreme
Court a verified petition for review on certiorari pursuant to Rule Section 18. Separability Clause. - If for any reason, any section or
45 of the 1997 Rules of Civil Procedure." provision of this Act shall be declared unconstitutional or invalid, the other
parts thereof not affected thereby shall remain valid.
Section 13. Distraint of Personal Property and/or Levy on Real
Property. - Upon the issuance of any ruling, order or decision by the CTA Section 19. Effectivity Clause - This Act shall take effect after fifteen
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

(15) days following its publication in at least (2) newspapers of general reinvestigation, and (b) that petitioner grants such request. The right to
circulation. collect has indeed prescribed since there was no proof that the
request for reinvestigation was in fact granted/acted upon by the
CIR v. HAMBRECHT AND QUIST PHILIPPINES INC. (Lim, Q.) CIR. Thus, the period to collect was never suspended.
[GR. No. 169225; November 17, 2010.]
“CTA has jurisdiction over ‘Other Matters’” Facts:
• Respondent, Hambrecht and Quist Philippines Inc. (“HQPI”), informed the
Recit-Ready: Bureau of Internal Revenue (BIR), through its West­Makati District Office
Facts: The assessment against Hambrecht & Quist had become final of its change of business address.
and unappelable since there was a failure to protest the same o Said letter was duly received by the BIR­ West Makati on
within the 30-day period provided by law. However, the CTA held February 18, 1993.
that the BIR failed to collect within the prescribed time and thus • On November 4, 1993, HQPI received a tracer letter or follow­up letter
ordered the cancellation of the assessment notice. The CIR dated October 11, 1993 issued by the Accounts Receivable/Billing
disputed the jurisdiction of the CTA arguing that since the Division of the BIR’s National Office and signed by then Assistant Chief
assessment had become final and unappealable, the taxpayer Mr. Manuel B. Mina, demanding for payment of alleged deficiency income
can no longer dispute the correctness of the assessment even and expanded withholding taxes for the taxable year 1989 amounting to
before the CTA. P2,936,560.87.
o On December 3, 1993, HQPI, through its external auditors,
Issue/s: filed its protest letter against the alleged deficiency tax
1) WON the CTA has jurisdiction to rule that the government’s right assessments for 1989.
to collect the tax has prescribed. • The alleged deficiency income tax assessment apparently resulted from
—YES an adjustment made to respondent’s taxable income for the year 1989, on
2) WON the period to collect the assessment has prescribed. account of the disallowance of certain items of expense, namely,
—YES professional fees paid, donations, repairs and maintenance, salaries and
wages, and management fees.
Held: o The latter item of expense, the management fees, made up
1) YES. The appellate jurisdiction of the CTA is not limited to cases which the bulk of the disallowance, the examiner alleging, among
involve decisions of the CIR on matters relating to assessments or others, that petitioner failed to withhold the appropriate tax.
refunds. The CTA Law clearly bestows jurisdiction to the CTA o This is also the same basis for the imposition of the
even on “other matters arising under the National Internal deficiency withholding tax assessment on the management
Revenue Code”. Thus, the issue of whether the right of the CIR to fees. Revenue Regulations No. 6­85 (EWT Regulations)
collect has prescribed, collection being one of the duties of the BIR, is does not impose or prescribe EWT on management fees
considered covered by the term “other matters.” paid to a non­resident.
• On November 7, 2001, nearly eight (8) years later, HQPI’s external
2) YES. Two requisites must concur before the period to enforce auditors received a letter from the CIR, dated October 27, 2001.
collection may be suspended: (a) that the taxpayer requests for
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o The letter advised the HQPI that CIR had rendered a final 1) YES. The jurisdiction of the CTA is governed by Section 7 of
decision denying its protest on the ground that the protest Republic Act No. 1125, as amended, and the term “other matters”
against the disputed tax assessment was allegedly referred to by the CIR in its argument can be found in number (1) of
filed beyond the 30­day reglementary period the aforementioned provision.1
prescribed in then Section 229 of the National Internal o The appellate jurisdiction of the CTA is not limited to cases which
Revenue Code. involve decisions of the CIR on matters relating to assessments or
• HQPI filed a Petition for Review before the Court of Tax Appeals, to refunds. The second part of the provision covers other cases that
appeal the final decision of the CIR denying its protest against the arise out of the National Internal Revenue Code (NIRC) or related
deficiency income and withholding tax assessments issued for taxable laws administered by the Bureau of Internal Revenue (BIR).
year 1989. o The fact that an assessment has become final for failure of the
• CTA Original Division held that the subject assessment notice sent by taxpayer to file a protest within the time allowed only means that the
registered mail on January 8, 1993 to HQPI former place of business validity or correctness of the assessment may no longer be
was valid and binding since respondent only gave formal notice of its questioned on appeal.
change of address on February 18, 1993. Thus, the assessment had o However, the validity of the assessment itself is a separate and
become final and unappealable for failure of respondent to file a distinct issue from the issue of whether the right of the CIR to collect
protest within the 30­day period provided by law. the validly assessed tax has prescribed. This issue of prescription,
• However, the CTA held that: being a matter provided for by the NIRC, is well within the
o (a) the CIR failed to collect the assessed taxes within the jurisdiction of the CTA to decide.
prescriptive period; and
o (b) directed the cancellation and withdrawal of Assessment 2) YES. Two requisites must concur before the period to enforce
Notice No. 001543­89­5668. collection may be suspended: (a) that the taxpayer requests for
• Petitioner’s Motion for Reconsideration and Supplemental Motion for reinvestigation, and (b) that petitioner grants such request. In this
Reconsideration of said Decision filed on October 14, 2004 and case, the request for reinvestigation was not granted.
November 22, 2004, respectively, were denied for lack of merit. o In order to suspend the running of the prescriptive periods for
assessment and collection, the request for reinvestigation must be
Issue/s: granted by the CIR.
1) WON the CTA has jurisdiction to rule that the government’s right to o The mere filing of a protest letter which is not granted does not
collect the tax has prescribed. operate to suspend the running of the period to collect taxes.
—YES
2) WON the period to collect the assessment has prescribed.
1
—YES “Section 7. Jurisdiction.—The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided—
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed
Held/Ratio: WHEREFORE, the petition is DENIED. The assailed Decision of assessments,
1. Decisions ofrefunds
the Commissioner
of internal revenue
of Internal
taxes,
Revenue
fees orinother
casescharges,
involvingpenalties
disputedimposed
the Court of Tax Appeals (CTA) En Banc dated August 12, 2005 is assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto, or other matters arising under the National Internal Revenue Code
AFFIRMED. or other law as part of law administered by the Bureau of Internal Revenue.”
(Emphasis supplied.)
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o In the case at bar, the records show that HQPI filed a request for the disputed assessments was a bar against collection of taxes.
reinvestigation on December 3, 1993, however, there is no indication
that the CIR acted upon respondent’s protest. The request for Issue/s: WON the assessment is final, executory, and demandable
reinvestigation was not granted. Thus, the period to collect was
never suspended. Held: YES. The act of the Commissioner, in filing an action for
allowance of the claim for estate and inheritance taxes, may be
DAYRIT v CRUZ (Tuazon) construed as a denial of the taxpayers’ request for
[GR. No. L-39910; Sept. 26, 1988.] reconsideration. From the date of receipt of the copy of the
“Failed to appeal denial; final and executory; decision on a request for Commissioner’s letter for collection of taxes, the taxpayers must
reinvestigation NOT condition precedent to filing action for collection” contest and dispute the same, and upon denial thereof, they have
a period of 30 days to appeal the case to the Court of Tax
Recit-Ready: Appeals. Failure of the taxpayers to appeal to the Court of Tax
Facts: Petitioners are the children of the deceased Spouses Teodoro. Appeals in due time made the assessments final, executory and
They filed separate estate and inheritance tax returns for the demandable. Also, a decision on a request for reinvestigation is
estates of the late spouses with the BIR. In 1972, the CIR issued not a condition precedent to the filing of an action for collection of
the deficiency estate and inheritance tax assessments. The notice taxes already assessed.
of deficiency assessments was received by Dayrit (one of the
children) and she thereafter asked for a reconsideration of the Facts:
said assessments alleging that the same are contrary to law and • Petitioners are the children of the deceased Spouses Teodoro.
not supported by sufficient evidence. CIR filed a motion for Thereafter, the heirs filed separate estate and inheritance tax returns for
Allowance of Claim against the estates of spouses Teodoro and the estates of the late spouses with the BIR. In 1972, the CIR issued the
for an order of payment of taxes with the CFI praying that deficiency estate and inheritance tax assessments. The notice of
petitioner Dayrit be ordered to pay the BIR the sum of 6M. deficiency assessments were received by Dayrit and she thereafter asked
Petitioners filed 2 separate oppositions alleging that the for a reconsideration of the said assessments alleging that the same are
assessments have not become final and executory. Respondent contrary to law and not supported by sufficient evidence.
Judge issued an order approving the claim of respondent • CIR filed a motion for Allowance of Claim against the estates of spouses
Commissioner and directing the payment of the estate and Teodoro and for an order of payment of taxes with the CFI praying that
inheritance taxes. Dissatisfied, petitioners filed an MR, denied. petitioner Dayrit be ordered to pay the BIR the sum of 6M. Petitioners
Hence this petition. filed 2 separate oppositions alleging that the assessments have not
become final and executory.
Petitioners contend that CFI Judge acted with GADALEJ in granting the • Respondent Judge issued an order approving the claim of respondent
Commissioner's claim for estate and inheritance taxes against the Commissioner and directing the payment of the estate and inheritance
estates of the Teodoro spouses on the ground that due to the taxes. Dissatisfied, petitioners filed an MR, denied. Hence this petition.
pendency of their motion for reconsideration of the deficiency • Petitioners contend that CFI Judge acted with GADLEJ in granting the
assessments, said tax assessments are not yet final and Commissioner's claim for estate and inheritance taxes against the estates
executory. Petitioners stressed that the absence of a decision on of the Teodoro spouses on the ground that due to the pendency of their
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

motion for reconsideration of the deficiency assessments, said tax failure to file a position paper may be construed as abandonment of
assessments are not yet final and executory. Petitioners stressed that the the petitioners' request for reconsideration.
absence of a decision on the disputed assessments was a bar against o Petitioners' contention that the absence of a decision on their
collection of taxes. request for reconsideration of the assessments is a bar to
• Respondent Commissioner contends that petitioners cannot avail of the granting the claim for collection is likewise without merit.
tax amnesty in view of the prior existing assessments issued against the § This Court had occasion to rule that a decision on a
estates of the deceased spouses before the promulgation of P.D. No. 23. request for reinvestigation is not a condition precedent
In support thereof, respondent cited Section 4 of Revenue Regulation No. to the filing of an action for collection of taxes already
15-72, amending Section 4 of Regulation No. 8-12. Respondent assessed.
Commissioner contends further that neither may petitioners' act of filing a § This Court ruled that "nowhere in the Tax Code is
return of a previously untaxed income or wealth in the amount of the Collector of Internal Revenue required to rule first on a
P3,655,595.98 entitled the estates to tax amnesty where petitioners failed taxpayer's request for reconsideration before he can go to
to pay the 10% tax in full within the time frame required under P.D. No. court for the purpose of collecting the tax assessed.
23, and that to allow petitioners to avail of the tax amnesty will render o From the date of receipt of the copy of the Commissioner's letter for
nugatory the provisions of P.D. No. 68. Moreover, said respondent argues collection, petitioners must contest or dispute the same and, upon a
that certiorari is not the proper remedy in that respondent Judge denial thereof, the petitioners have a period of thirty (30) days within
committed no grave abuse of discretion in allowing the claim for collection which to appeal the case to the Court of Tax Appeals. This they failed
of taxes and that if at all, it was merely an error of judgment which can be to avail of.
corrected only on appeal, and in which case the reglementary period for
the same has already prescribed. 2) YES. The petitioners' allegation that the CFI lacks jurisdiction over the
subject of the case is likewise untenable. The assessments having
Issue/s: become final and executory, the CFI properly acquired jurisdiction.
1) WON the BIR can claim the deficiency taxes despite pendency of Neither is there merit in petitioners' claim that the exclusive jurisdiction of
MR. (IMPT) —YES the CTA applies in the case. The aforesaid exclusive jurisdiction of the
2) WON the CFI has jurisdiction to grant the claim for estate and CTA arises only in cases of disputed tax assessments. As noted earlier,
inheritance taxes. petitioners' letter asking for reconsideration of the questioned
—YES assessments cannot be considered as one disputing the assessments
because petitioners failed to substantiate their claim that the deficiency
Held/Ratio: assessments are contrary to law. Petitioners asked for a period of thirty
(30) days within which to submit their position paper but they failed to
1) YES. submit the same nonetheless. Hence, petitioners' letter for a
o Anent petitioners' claim that the tax assessments against the estates reconsideration of the assessments is nothing but a mere scrap of paper.
are not yet final, the court finds the claim untenable. In petitioners' MR,
they requested the Commissioner for thirty (30) days within which to MARCOS v. COURT OF APPEALS (Vanslembrouck)
submit a position paper that would embody their grounds for [GR. No. 120880; June 5,1997]
reconsideration. However, no position paper was ever filed. Such
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

“No approval of probate court needed for collection of estate tax deficiency
by levy and sale of real properties” Facts:
• On September 29, 1989, former President Ferdinand Marcos died in
Recit-Ready: Honolulu, Hawaii, USA.
Facts: Upon the death of former President Marcos, the Marcoses were • A Special Tax Audit Team was created to conduct investigations and
assessed deficiency income tax assessments and estate taxes. examinations of the tax liabilities and obligations of the late president, as
They were sent several notices of assessment. However, they well as that of his family, associates and "cronies".
continuously ignored said Notices despite several opportunities o Said audit team concluded its investigation with a Memorandum dated
given to them to file a protest and thereafter appeal to the CTA. July 26, 1991.
Thus the deficiency tax assessment became final and o The investigation disclosed that the Marcoses failed to file a written
unappealable after the period for filing of opposition had notice of the death of the decedent, an estate tax return, as well as
prescribed. Several pieces of real property were subsequently several income tax returns covering the years 1982 to 1986, -all in
levied on and sold at public auction. Bongbong Marcos sought for violation of the National Internal Revenue Code (NIRC).
the reversal of the ruling of the Court of Appeals to grant CIR's • The Commissioner of Internal Revenue thereby caused:
petition to levy the properties of the late Pres. Marcos to cover the o the preparation and filing of the Estate Tax Return for the estate of the
payment of his tax delinquencies during the period of his exile in late president,
the US. Marcos contends that the properties could not be levied o the Income Tax Returns of the Spouses Marcos for the years 1985 to
to cover the tax dues because they are still pending probate with 1986, and
the court, and settlement of tax deficiencies could not be had, o the Income Tax Returns of petitioner Ferdinand 'Bongbong' Marcos II
unless there is an order by the probate court or until the probate for the years 1982 to 1985.
proceedings are terminated. • On July 26, 1991, the BIR issued the following:
o (1) Deficiency estate tax assessment against the estate of the late
Issue/s: WON the claims for payment of estate and income taxes due and president Ferdinand Marcos in the amount of P23,293,607,638.00
assessed after the death of the decedent need to be presented in the form Pesos;
of a claim against the estate in the probate court? o (2) Deficiency income tax assessment against the Spouses
Ferdinand and Imelda Marcos in the amounts of P149,551.70 and
Held: In ruling for the BIR, the Court held that it was unnecessary to first P184,009,737.40 representing deficiency income tax for the years
secure the consent of the probate court. The BIR is authorized to collect 1985 and 1986;
estate tax deficiency through the summary remedy of levying upon and o (3) Deficiency income tax against petitioner Ferdinand 'Bongbong'
sale of real properties of the decedent without first securing the authority Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos;
of the court sitting in probate over the supposed will of the decedent P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency
because the collection of estate tax is executive in character. income taxes for the years 1982 to 1985.
• The Commissioner of Internal Revenue avers that copies of the
As such, the estate tax is exempted from the statute of non-claims, and deficiency estate and income tax assessments were all personally and
this is justified by the necessity of government funding, immortalized in the constructively served on August 26, 1991 and September 12, 1991 upon
maxim that taxes are the lifeblood of the government.
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last summary tax remedy is distinct and separate from the other tax remedies
known address at No. 204 Ortega St., San Juan, M.M. (such as Judicial Civil actions and Criminal actions), and is not affected or
• Likewise, copies of the deficiency tax assessments issued against precluded by the pendency of any other tax remedies instituted by the
petitioner Ferdinand 'Bongbong' Marcos II were also personally and government.
constructively served upon him (through his caretaker) on September 12, o In the Philippine experience, the enforcement and collection of estate tax,
1991, at his last known address at Don Mariano Marcos St. corner P. is executive in character (not judicial), as the legislature has seen it fit to
Guevarra St., San Juan, M.M. ascribe this task to the Bureau of Internal Revenue.
• Thereafter, Formal Assessment notices were served on October 20, o Thus, it was in Vera vs. Fernandez, that the court recognized the liberal
1992, upon Mrs. Marcos c/o petitioner, at his office, House of treatment of claims for taxes charged against the estate of the decedent.
Representatives, Batasan Pambansa, Quezon City. Moreover, a notice to Such taxes, we said, were exempted from the application of the statute of
Taxpayer inviting Mrs. Marcos (or her duly authorized representative or non-claims, and this is justified by the necessity of government funding,
counsel), to a conference, was furnished the counsel of Mrs. Marcos, immortalized in the maxim that taxes are the lifeblood of the government.
Dean Antonio Coronel - but to no avail. o Taxes assessed against the estate of a deceased person, after
• The deficiency tax assessments were not protested administratively, by administration is opened, need not be submitted to the committee on
Mrs. Marcos and the other heirs of the late president, within 30 days from claims in the ordinary course of administration.
service of said assessments. o In the exercise of its control over the administrator, the court may direct
• Thus, the BIR Commissioner notices of levy on real property against the payment of such taxes upon motion showing that the taxes have been
certain parcels of land owned by the Marcoses - to satisfy the alleged assessed against the estate.
estate tax and deficiency income taxes of Spouses Marcos. o Such liberal treatment of internal revenue taxes in the probate
• Notices of sale at public auction were posted and a public auction for the proceedings extends so far, even to allowing the enforcement of tax
sale of some of the parcels of land took place. There being no bidder, the obligations against the heirs of the decedent, even after distribution of the
lots were declared forfeited in favor of the government. estate's properties.
o Claims for taxes, whether assessed before or after the death of the
Issue: WON the Bureau of Internal Revenue can collect by the deceased, can be collected from the heirs even after the distribution of
summary remedy of levying upon, and sale of real properties of the the properties of the decedent.
decedent, estate tax deficiencies, without the cognition and authority § They are exempted from the application of the statute of non-claims.
of the court sitting in probate over the supposed will of the deceased? § The heirs shall be liable therefor, in proportion to their share in the
—YES
inheritance.
o Thus, the Government has two ways of collecting the taxes in question.
Held/Ratio:
§ One, by going after all the heirs and collecting from each one of them
the amount of the tax proportionate to the inheritance received.
YES. There is no need for the BIR to seek the approval of the probate
§ Another remedy, pursuant to the lien created by Section 315 of the
court to allow the collection and assessment of the deficiency taxes.
Tax Code upon all property and rights to property belong to the
o The deficiency income tax assessments and estate tax assessment are
taxpayer for unpaid income tax, is by subjecting said property of the
already final and unappealable -and-the subsequent levy of real
estate which is in the hands of an heir or transferee to the payment of
properties is a tax remedy resorted to by the government, sanctioned by
the tax due the estate.
Section 213 and 218 of the National Internal Revenue Code. This
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o From the foregoing, it is discernible that the approval of the court, sitting without further notice. In a letter dated October 5, 1957, received
in probate, or as a settlement tribunal over the deceased is not a by the Collector of Internal Revenue on October 7, 1957, Lim Tian
mandatory requirement in the collection of estate taxes. Teng Sons & Co., Inc. reiterated its request for reinvestigation. It
o It cannot therefore be argued that the Tax Bureau erred in proceeding also wrote the Solicitor General on October 8, 1957 requesting
with the levying and sale of the properties allegedly owned by the late that it be allowed to present its explanation together with
President, on the ground that it was required to seek first the probate supporting papers relative to its income tax liability. The Solicitor
court's sanction. General transmitted the letter to the Collection of Internal
o There is nothing in the Tax Code, and in the pertinent remedial laws that Revenue. Thereupon, the Deputy Collector of Internal Revenue
implies the necessity of the probate or estate settlement court's approval informed the taxpayer that its request for reinvestigation would be
of the state's claim for estate taxes, before the same can be enforced and granted provided it executed within ten days a waiver of the
collected. statute of limitations as required in General Circular V-258 dated
o On the contrary, under Section 87 of the NIRC, it is the probate or August 20, 1957.
settlement court which is bidden not to authorize the executor or judicial
administrator of the decedent's estate to deliver any distributive share to In his letter dated December 10, 1957, the Deputy Collector of
any party interested in the estate, unless it is shown a Certification by Internal Revenue extended the period within which to execute and
the Commissioner of Internal Revenue that the estate taxes have file with him the waiver of the statute of limitations to December
been paid. This provision disproves the petitioner's contention that it is 31, 1957, but advised that if no waiver is forthcoming on or before
the probate court which approves the assessment and collection of the said date, judicial action for collection would be instituted without
estate tax. further notice. Receipt of this letter is denied by appellant
o If there is any issue as to the validity of the BIR's decision to assess the company.
estate taxes, this should have been pursued through the proper
administrative and judicial avenues provided for by law. As Lim Tian Teng Sons & Co., Inc. failed to file a waiver of the
statute of limitations, the Collector of Internal Revenue instituted
REPUBLIC v. LIM TIAN TENG SONS and CO., INC. (Villarin, L.) eight months after, specifically on September 2, 1958, an action
[GR. No. L-21731; March 31, 1966] in the Court of First Instance of Cebu for the collection of
“Kapag walang sinabing bawal, ibig sabihin puwede.” deficiency income tax.

Recit-Ready: Issue:
Facts: On January 31, 1957 Lim Tian Teng Sons & Co., Inc. requested WON the lower court has jurisdiction to entertain this case on the ground
reinvestigation of its 1952 income tax liability. The Collector of that the Collector of Internal Revenue has not yet issued his final decision
Internal Revenue did not reply; instead, he referred the case to on its requests for reinvestigation. —YES
the Solicitor General for collection by judicial action.
Held: The Collector of Internal Revenue is authorized to collect
On September 20, 1957 the Solicitor General demanded from Lim delinquent internal revenue taxes either by distraint and levy or by
Tian Teng Sons & Co., Inc. the payment of P15,111.50 within five judicial action or both simultaneously. The only requisite before
days, stating that otherwise judicial action would be instituted he can collect the tax is that he must first assess the same within
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the time fixed by law. And in the case of a false or fraudulent that otherwise judicial action would be instituted without further notice. In
return with intent to evade the tax or of a failure to file a return, a a letter dated October 5, 1957, received by the Collector of Internal
proceeding in court for the collection of such tax may be begun Revenue on October 7, 1957, Lim Tian Teng Sons & Co., Inc. reiterated
without assessment. its request for reinvestigation. It also wrote the Solicitor General on
October 8, 1957 requesting that it be allowed to present its explanation
Facts: together with supporting papers relative to its income tax liability. The
• Lim Tian Teng Sons & Co., Inc., a domestic corporation with principal Solicitor General transmitted the letter to the Collection of Internal
office in Cebu City, engaged in 1951 and 1952, among others, in the Revenue. Thereupon, the Deputy Collector of Internal Revenue informed
exportation of copra. The copra was weighed before shipment in the port the taxpayer that its request for reinvestigation would be granted provided
of departure and upon arrival in the port of destination. The weight before it executed within ten days a waiver of the statute of limitations as
shipment was called copra outturn. To allow for lose in weight due to required in General Circular V-258 dated August 20, 1957.
shrinkage, said exporter collected only 95% of the amount appearing in • In his letter dated December 10, 1957, the Deputy Collector of Internal
the letter of credit covering every copra outturn. The 5% balance Revenue extended the period within which to execute and file with him
remained outstanding until final liquidation and adjustment. the waiver of the statute of limitations to December 31, 1957, but advised
• On March 30, 1953 Lim Tian Teng Sons & Co., Inc. filed its income tax that if no waiver is forthcoming on or before said date, judicial action for
return for 1952 based on accrued income and expenses. Its return collection would be instituted without further notice. Receipt of this letter is
showed a loss of P56,109.98. It took up as part of the beginning inventory denied by appellant company.
for 1952 the copra outturn shipped in 1951 in the sum of P95,500.00 • As Lim Tian Teng Sons & Co., Inc. failed to file a waiver of the statute of
already partially collected, as part of its outstanding stock as of December limitations, the Collector of Internal Revenue instituted eight months after,
31, 1951. specifically on September 2, 1958, an action in the Court of First Instance
• In the audit and examination of taxpayer's 1952 income tax return, the of Cebu for the collection of deficiency income tax.
Collector of Internal Revenue eliminated the P95,500.00 outturn from the • The court rendered judgment declaring the assessment of income tax in
beginning inventory for 1952 and considered it as accrued income for the sum of P15,111.00 due from the defendant to the plaintiff for the year
1951. This increased taxpayer's 1952 net income by P95,500.00 which, 1952 valid, final and executory; condemning the defendant to pay the
considering disallowances in the sum of P9,980.85, raised the taxpayer's same to the plaintiff with interest at one (1) per centum monthly from
net taxable income for 1952 to P50,370.87. Accordingly, in a letter October 28, 1957 until fully paid.
received by Lim Tian Teng Sons & Co., Inc. on January 30, 1957, the • Not satisfied with the decision, the Collector of Internal Revenue moved
Collector of Internal Revenue assessed a deficiency income tax of for its reconsideration on the ground that it did not include the 5%
P10,074.00 and 50% surcharge thereon amounting to P5,037.00 and surcharge for late payment of tax. The motion was denied for the reason
demanded payment thereof not later than February 15, 1957. that the taxpayer has already been ordered to pay a surcharge of 50%.
• On January 31, 1957 Lim Tian Teng Sons & Co., Inc. requested • Both parties appealed, raising only questions of law.
reinvestigation of its 1952 income tax liability. The Collector of Internal
Revenue did not reply; instead, he referred the case to the Solicitor Issue/s:
General for collection by judicial action. 1) WON the lower court has jurisdiction to entertain this case on the
• On September 20, 1957 the Solicitor General demanded from Lim Tian ground that the Collector of Internal Revenue has not yet issued his
Teng Sons & Co., Inc. the payment of P15,111.50 within five days, stating final decision on its requests for reinvestigation.
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

—YES the ordinary courts for its recovery pursuant to Section 306 of the
2) WON the court a quo erred in considering as final and executory the Code. Collection or payment of the tax was not made, to, wait until
assessment contained in the letter of the Collector of Internal after the Collector of Internal Revenue has resolved all issues raised
Revenue dated January 16, 1957. by the taxpayer against an assessment. Republic Act 1125 creating
—NO the Court of Appeals allows the taxpayer to dispute the correctness
3) WON the lower court erred in not imposing on defendant's tax legality of an assessment both in the purely administrative level and in
liability a surcharge of 5% for late payment. said court, but it does not stop the Collector of Internal Revenue from
—YES collecting the tax through any of the means provided for in Section
316 of the Tax Code, except when enjoined by said Court of Tax
Held/Ratio: Decision appealed from is modified. Lim Tian Teng Sons & Co., Appeals.
Inc. is hereby ordered to pay the sum of P10,074.00 as deficiency income
tax for 1952 plus 50% and 5% surcharges thereon for fraud and late 2) NO. Collector's insistence to collect the tax is indicative of the his
payment, respectively, and 1% monthly interest upon said tax of P10,074.00, decision against reinvestigation.
computed from February 16, 1957 until the tax is fully paid. o Taxpayer questions the legality of requiring waiver of the statute of
limitations before the grant of reinvestigation as provided for in
1) YES. The Collector of Internal Revenue is authorized to collect General Circular No.
delinquent internal revenue taxes either by distraint and levy or by o V-258. This question was not raised in the BIR. Suffice it to say in this
judicial action or both simultaneously. connection that General Circular No. V-258 was promulgated pursuant
o The only requisite before he can collect the tax is that he must first to Section 338 of the Tax Code. The authority thereunder of the
assess the same within the time fixed by law. And in the case of a Secretary of Finance to issue rules and regulations for the effective
false or fraudulent return with intent to evade the tax or of a failure to enforcement of the provisions of the Tax Code has been sustained by
file a return, a proceeding in court for the collection of such tax may be this Court in previous cases.
begun without assessment. o Even if we do not count the period from October 8, 1957 (the date
o Section 305 of the same Code withholds from all courts, except the when taxpayer received notice of the denial of its request for
Court of Tax Appeals under Section 11 of Republic Act 1125, the reinvestigation) to December 31, 1957 (the deadline for the
authority to restrain the collection of any national internal-revenue tax, submission of the written waiver of the statute of limitations) in
fee or charge, thereby indicating the legislative policy to allow the reckoning the 30-day period within which the taxpayer may appeal to
Collector of Internal Revenue much latitude in the speedy and prompt the Court of Tax Appeals, said period had long lapsed when the
collection of taxes. The reason is that it is upon taxation that the Collector of Internal Revenue filed the complaint in this case on
government chiefly relies to obtain the means the carry on its September 2, 1958.
operations, and it is of the utmost importance that the modes adopted o Taxpayer failure to appeal to the Court of Tax Appeals in due time
to enforce collection of taxes levied should be summary and interfered made the assessment in question final, executory and demandable.
with as little as possible. And when the action was instituted on September 2, 1958 to enforce
o Moreover, before the creation of the Court of Tax Appeals the remedy the deficiency assessment in question, it was already barred from
of a taxpayer who desired to contest an assessment issued, by the disputing the correctness of the assessment or invoking any defense
Collector of Internal Revenue was to pay the tax and bring an action in that would reopen the question of his tax liability on merits. Otherwise,
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the period of thirty days for appeal to the Court of Tax Appeals would was made. Hence, pursuant to Section 51 (e), quoted earlier, interest
make little sense. on the unpaid tax fell due starting February 16, 1957 and continues to
3) YES. accrue until full payment of the tax.
o Subsection (c), Section 51 of the Tax Code states:
SEC. 51. Assessment and payment of income tax. — YABES v. FLOJO (VILLARIN P)
xxx xxx xxx [GR. No. L-46954, July 20, 1982]
(c) Surcharge and interest in case of delinquency. - To any “type buzzwords here for easy-recall of the case, e.g. Chinese Golden Cat”
sum or sums due and unpaid after the dates prescribed in
subsections (b), (c) and (d) for the payment of the same, Recit-Ready:
there shall be added the sum of five per centum on the Facts: Doroteo Yabes of Calamaniugan Cagayan, who was for
amount of tax unpaid and interest at the rate of one per sometime an exclusive dealer of products of the International
centum a month upon said tax from the time the same Harvester Macleod, Inc., received on or about May 1, 1962, a
became due . . . . (Emphasis supplied) letter from the Commissioner of Internal Revenue dated March
o As may be gleaned from the above-quoted provision, the 5% 27, 1962, demanding payment of the amount of P15,976.81, as
surcharge is mandatory and automatically due, once the tax is not commercial broker’s fixed and percentage taxes plus surcharges
paid on time. "Shall" is the word that law uses a word normally to which Yabes protested on the ground that his agreements with
imperative and a "language of demand". 13 Applicable herein is what the International Harvester Macleod, Inc. were of purchase and
has been said of a similar provision — the present Section 183 of the sale, and not of agency, hence not liable for such kind of taxes.
Tax Code — stating that: To give time for the Commissioner to study the case and several
If the percentage tax on any business is not paid within the other cases similar thereto, Yabes filed, a tax waiver on October
time prescribed above the amount of the tax shall be 20, 1962, extending the period of prescription to December 31,
increased by twenty-five per centum, the increment to be 1967; Doroteo Yabes died on March 13, 1963 and no estate
part of the tax. proceedings were instituted for the settlement of his estate. On
o Said this Court in Lim Co Chui vs. Posadas 14: March 14, 1966, the CTA decided the Constantino “test” case.
This provision is mandatory. It provides a plan which works The CTA ruled that agreements entered into by Constantino with
out automatically. It confers no discretion on the Collector of the International Harvester Macleod, Inc. were of purchase and
Internal Revenue. That, official may not disregard the law sale, and not of agency, hence no commercial broker’s fixed and
and substitute therefor his own personal judgment. percentage fees could be collected, however this Court reversed
o Finally, the Government questions the computation of the delinquency the CTA and ruled in favor of the Commissioner of Internal
interest, due on the deficiency tax, from October 8, 1957. It insists that Revenue. The heirs of Doroteo Yabes filed a revised waiver
payment of such interest should commence from February 15, 1957. further extending the period of prescription to December 31,
Such contention is well-founded. Pursuant to Section 51(d), "the 1970 as requested by the Commissioner. Thereafter, no word
assessment made by the Collector of Internal Revenue shall be paid was received by the petitioners or their lawyers during the interim
... immediately upon notification of the amount of such assessment." of more than three (3) years, but on January 20, 1971, petitioners
Now, the income tax assessment notice gave defendant up to as heirs of the deceased Doroteo Yabes received the summons
February 15, 1957 to pay the deficiency tax in question. No payment and a copy of the complaint filed by the Commissioner on
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

December 4, 1970 with the CFI of Cagayan which seeks to collect demanding payment of the amount of P15,976.81, as commercial
from the petitioners the sum of P 15,976.82, as deficiency broker's fixed and percentage taxes plus surcharges and the sum of
commercial broker’s fixed and percentage taxes, including P2,530 as compromise penalty allegedly due from Yabes for the
surcharges and interest thereon, due from Yabes by reason of the years1956-1960.
latter’s income derived from transactions as dealer of the • On May 11, 1962, Doroteo Yabes, through his counsel, filed with the
products of the International Harvester Macleod, Inc.; Taking the Commissioner's Office his letter protesting the assessment of commercial
complaint as the final decision of the Commissioner on the broker's fixed and percentage taxes plus penalties against him on the
disputed assessment against the deceased taxpayer Doroteo ground that his agreements with the International Harvester Macleod, Inc.
Yabes, petitioners filed on February 12, 1971, a petition for review were of purchase and sale, and not of agency, hence he claimed he was
of said disputed assessment with the CTA. Petitioners filed on the not able to pay such kind of taxes
same day their answer to the complaint before the CFI of • Thereafter, there ensued an exchange of correspondence between the
Cagayan and alleged, by way of special defense, that the CTA lawyers of Doroteo Yabes and the Commissioner.
has exclusive jurisdiction of the action and that there is another • The Commissioner in a letter dated August 3, 1962, informed Doroteo
action of the same nature between the parties relating to the Yabes that he acted as a commercial broker "in accordance with the
same assessment pending before the CTA ruling of this Office in the case of Cirilo D.Constantino" in turn, Doroteo
Yabes, in a letter dated August 22, 1962, requested for an investigation or
Issue: review of the case by the appellate division of the BIR in accordance with
Whether or not the assessment made by the CIR against the deceased standing rules, regulations or practice on the matter.
taxpayer Doroteo Yabes, as contained in the letter dated March 27, 1962, • Yabes also wrote the Commissioner on August 24, 1962, requesting that
has become final, executory and incontestable, after Doroteo Yabes had the appeal be held in abeyance pending final decision of the Case of
received the Commissioner's letter denying the latter's protest against the Cirilo D. Constantino. In reply, the Commissioner informed Doroteo
said assessment on September 18, 1962 and his failure to appeal Yabes in a letter dated September 18, 1962, that the latter's request for
therefrom within the 30-day period contemplated under Section 11, of reinvestigation was denied on the ground that he has not submitted any
Republic Act 1125 —NO evidence to offset the findings of this Office as to warrant a
reinvestigation.
Held: Under the circumstances of this case, what may be considered as • Eight days later or on September 26, 1962, the Commissioner wrote a
final decision or assessment of the Commissioner is the filing of the letter advising Doroteo Yabes that "the administrative appeal ... will be
complaint for collection in the respondent CFI, the summons of held in abeyance pending the resolution of the issues in a similar case
which was served on petitioners on January 20, 1971, and that (referring to the aforesaid Constantino case)”
therefore the appeal with the CTA was filed on time. • To give time for the Commissioner to study the case and several other
cases similar thereto, the lawyers of Doroteo Yabes agreed to file, and
Doroteo Yabes did file a tax waiver on October 20, 1962, extending the
Facts: period of prescription to December 31, 1967.
• Doroteo Yabes of Calamaniugan Cagayan was an exclusive dealer of • Then Doroteo Yabes died and no estate proceedings were instituted for
products of the International Harvester Macleod, Inc. It received on or the settlement of his estate. His widow also died during the pendency of
about May 1, 1962, a letter from the CIR dated March 27, 1962,
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the case. The petitioners are the children of the deceased taxpayer. On 1962, has become final, executory and incontestable, after Doroteo
March 14, 1966, the CTA decided the Constantino "test" case. Yabes had received the Commissioner's letter denying the latter's
• CTA ruled that agreements entered into by Constantino with the protest against the said assessment on September 18, 1962 and his
International Harvester Macleod, Inc. were of purchase and sale, and not failure to appeal therefrom within the 30-day period contemplated
of agency, hence no commercial broker's fixed and percentage fees could under Section 11, of Republic Act 1125
be collected from the said taxpayer. However this Court on February 27, —NO
1970, in G.R. No. L-25926 reversed the CTA’s decision and ruled in favor
of the CIR. Held/Ratio: WHEREFORE, the petition is granted and the writs prayed for
• After a lapse of about five years, the heirs of the deceased Doroteo are hereby issued. The questioned orders dated June 22, 1971, June 7,
Yabes, through their lawyers, received a letter from the Commissioner 1977 and July 21, 1977 are hereby annulled and set aside and the complaint
dated July 27, 1967, requesting that they "waive anew the Statute of filed in Civil Case No. II-7 of the CFI of Cagayan, entitled: "Republic of the
Limitations" and further confirming the previous understanding that the Philippines, plaintiff, versus Nicolasa Jurado Yabes, et al., defendants,"
final resolution of the protest of the deceased Doroteo Yabes was "being should be, as it is hereby, dismissed, the same to be transferred to the CTA
held in abeyance until the Supreme Court renders its decision on a similar to be considered therein as a counterclaim in CTA Case No. 2216. The
case involving the same factual and legal issues brought to it on appeal" temporary restraining order heretofore issued is hereby made permanent.
(referring to the Constantino "test" case). Without costs.
• Cconformably with the request of the Commissioner, the heirs of Doroteo
Yabes filed a revised waiver further extending the period of prescription to NO.
December 31, 1970. o Under the circumstances of this case, what may be considered as final
• Thereafter, no word was received by the petitioners or their lawyers decision or assessment of the Commissioner is the filing of the complaint
during the interim of more than three (3) years, but on January 20, 1971, for collection in the respondent CFI, the summons of which was served
petitioners as heirs of the deceased Doroteo Yabes received the on petitioners on January 20, 1971, and that therefore the appeal with the
summons and a copy of the complaint filed by the Commissioner. Taking CTA was filed on time.
the complaint as the final decision of the Commissioner on the disputed o The respondent CFI can only acquire jurisdiction over this case filed
assessment against the deceased taxpayer Doroteo Yabes, petitioners against the heirs of the taxpayer if the assessment made by the CIR had
filed on February 12, 1971, a petition for review of said disputed become final and incontestable.
assessment with the CTA. o If the contrary is established, as the Court held it to be, considering the
• Later on the same day, February 12, 1971, petitioners filed their answer aforementioned conclusion of the CTA on the finality and incontestability
to the complaint of the Commissioner before the CFI and alleged therein, of the assessment made by the Commissioner is correct, then the CTA
by way of special defense, that the CTA has exclusive jurisdiction of the has exclusive jurisdiction over this case.
action and that there is another action of the same nature between the o Petitioners received the summons in Civil Case No.II-7 of the respondent
parties relating to the same assessment pending before the CTA. CFI on January 20, 1971, and petitioners filed their appeal with the CTA,
on February 12, 1971, well within the thirty-day prescriptive period under
Issue/s: Section 11 of RA No. 1125.
Whether or not the assessment made by the CIR against the deceased o The CTA has exclusive appellate jurisdiction to review on appeal any
taxpayer Doroteo Yabes, as contained in the letter dated March 27, decision of the Collector of Internal Revenue in cases involving disputed
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

assessments and other matters arising under the NIRC. Besides, the judgement creditor
defendant should have been more sensitive and observant. until notice of such lien shall be filed by the CIR in the office of the
Register of Deeds (RoD) of the province or city where the property is
TAX LIEN located.

When Tax lien in favor of the Government may arise:


SECTION 219. Nature and Extent of Tax Lien. – If any person, Personal property – from the time the tax became due and payable.
corporation, partnership, joint-account (cuentas en participacion), Real property – from the time of registration with the RoD.
association or insurance company liable to pay an internal revenue tax,
neglects or refuses to pay the same after demand, the amount shall be a CIR v. NLRC, DEPUTY CITY SHERIFF CARMELO V. CACHERO,
lien in favor of the Government of the Philippines from the time when the MARITIME COMPANY OF THE PHILIPPINES, DOMINGO C. NIANGAR,
assessment was made by the Commissioner until paid, with interest, DANIEL C. SABINO, FERNANDO S. TULIAO and TULMAR TRADING
penalties, and costs that may accrue in addition thereto upon all property CORPORATION, (Villarivera)
and rights to property belonging to the taxpayer; Provided, That this lien [GR. No.74965; November 9, 1994]
shall not be valid against any mortgagee, purchaser or judgement creditor “Gusto ng CIR to annul the sheriff’s sale of 4 barges ni Maritime OR bigay sa
until notice of such lien shall be filed by the Commissioner in the office of kanila (BIR) ang proceeds pambayad sa tax due ni Maritime Co.”
the Register of Deeds of the province or city where the property of the
taxpayer is situated or located. Recit-Ready:
Facts: The P17.28M deficiency tax assessment of the BIR to Maritime
Co. became final and executory as Maritime did not contest it.
Despite not contesting, Maritime did not pay its tax liability.
Notes: Therefore, the CIR issued its “Receipt for Goods, Articles, and
A “tax lien” denotes a legal claim or charge on property, whether real or Things Seized under Authority of the NIRC”2 on 6 barges, among
personal, as security for the payment of some debt or obligation. others. Subsequently however, as a result of losing a labor case,
4 of the 6 barges were levied upon execution by respondent
When a taxpayer deputy sheriff to satisfy the judgment for unpaid wages and other
liable to pay an internal revenue tax benefits of employees of Maritime.
neglects or refuses to pay his tax liability after demand,
the amount so demanded shall be a lien in favor of the government The respondents said that the distraint was not valid because the
from the time the assessment was made by the CIR Receipt for Goods, Articles, and Things Seized” was not signed;
until paid, with interest, penalties and costs that may accrue thereto and so the 4 barges were sold at a public auction.
upon all property and rights to property belonging to the taxpayer.

Tax lien not valid against any



mortgagee, 2
This receipt is required by Sec.206 of the NIRC as proof of the constructive distraint of
purchaser, or property. It is an undertaking by the taxpayer or person in possession of the property
covered that he will preserve the property and deliver it upon order of the court or the CIR.
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Hence, this petition to annul the public auction sale; or deliver the tax, documentary stamp tax, income tax and withholding taxes in the total
proceeds to the BIR. amount of P17,284,882.45.
• The assessment became final and executory because it was not
Issue/s: contested; and despite of not contesting, Maritime did not pay the tax
1) WON the constructive distraint on the barges is valid despite not being liability. The Commissioner of Internal Revenue issued warrants of
signed; and despite a writ of execution subsequently levied upon the distraint of personal property and levy of real property of private
same property by the deputy sheriff of Manila to satisfy the claims of respondent.
employees in an NLRC Case. – YES. Distraint was valid because there • On April 16, 1985 a "Receipt for Goods, Articles, and Things
was a previously signed Receipt. Seized under Authority of the National Internal Revenue Code" was
2) WON payment on a judgment for salaries and wages are preferred executed, covering, among other things, six barges identified as MCP-
over taxes. NO. This only applies to bankruptcy and judicial liquidation 1,2,3,4,5 and 6. This receipt is required § 206 of the NIRC as proof of the
cases. constructive distraint of property. It is an undertaking by the taxpayer or
person in possession of the property covered that he will preserve the
Held: property and deliver it upon order of the court or the Internal Revenue
1) In ruling for the CIR, the SC held that there was a previous Receipt Commissioner.
signed and valid involving the same 4 barges in a previous case • The receipt was not actually signed. This circumstance has given rise to
involving Maritime Co. Consequently therefore, the subject barges the question in this case as it appears that four of the barges placed
were no longer unquestionably the property of Maritime Co. And under constructive distraint were levied upon execution by respondent
considering that the levy pertaining to the labor case came later, the deputy sheriff of Manila on July 20, 1985 to satisfy a judgment for unpaid
same is invalid. wages and other benefits of employees of respondent Maritime Company
of the Philippines.
The SC is also quick to add that: “It is settled that the claim of the • The four barges were sold by respondent deputy sheriff at a public
government predicated on a tax lien is superior to the claim of a private auction on August 12, 1985.
litigant predicated on a judgment.” • LA- Denied the petition to annul the sale or deliver the proceeds of the
same
2) Labor Code. Art. 110. — In the event of bankruptcy or liquidation of an • Hence, this petition by the CIR to annul the public auction sale OR deliver
employer's business, his workers shall enjoy first preference as the proceeds from the sale to the BIR.
regards wages due them for services rendered during the period prior
to the bankruptcy or liquidation xxx. Issue/s:
1) WON the constructive distraint on the barges is valid despite not
being signed; and despite a writ of execution subsequently levied
Facts: upon the same property by the deputy sheriff of Manila to satisfy
• On January 12, 1984, the Commissioner of the Internal Revenue sent two the claims of employees in an NLRC Case.
– YES. Distraint was valid because there was a previously signed
letters of demand to the respondent Maritime Company of the Philippines
Receipt.
for deficiency common carrier's tax, fixed tax, 6% Commercial Broker's 2) WON payment on a judgment for salaries and wages are preferred
over taxes.
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

– NO. This only applies to bankruptcy and judicial liquidation cases. COMPROMISE & ABATEMENT

Held/Ratio: Petition GRANTED.


SECTION 204. Authority of the Commissioner to Compromise, Abate
1) YES. The distraint is valid. and Refund or Credit Taxes. - The Commissioner may -
o Yes for the 2 barges (MCP Nos. 1 and 4), it is settled that the claim of
(A) Compromise the payment of any internal revenue tax, when:
the government predicated on a tax lien is superior to the claim of a
private litigant predicated on a judgment.
(1) A reasonable doubt as to the validity of the claim against the
o The tax lien attaches not only from the service of the warrant of taxpayer exists; or
distraint of personal property but from the time the tax became due
and payable. (2) The financial position of the taxpayer demonstrates a clear
o Besides, the distraint on the subject properties of the Maritime inability to pay the assessed tax.
Company of the Philippines as well as the notice of their seizure were
The compromise settlement of any tax liability shall be subject to
made by petitioner, through the Commissioner of the Internal
the following minimum amounts:
Revenue, long before the writ of the execution was issued by the
Regional Trial Court of Manila, Branch 31. For cases of financial incapacity, a minimum compromise rate
o There is no question then that at the time the writ of execution was equivalent to ten percent (10%) of the basic assessed tax; and
issued, the two (2) barges, MPC-1 and MCP-4, were no longer
properties of the Maritime Company of the Philippines. The power of For other cases, a minimum compromise rate equivalent to forty
the court in execution of judgments extends only to properties percent (40%) of the basic assessed tax.
unquestionably belonging to the judgment debtor. Execution sales
Where the basic tax involved exceeds One million pesos (P1,000.000) or
affect the rights of the judgment debtor only, and the purchaser in an where the settlement offered is less than the prescribed minimum rates,
auction sale acquires only such right as the judgment debtor had at the compromise shall be subject to the approval of the Evaluation Board
the time of sale. It is also well-settled that the sheriff is not authorized which shall be composed of the Commissioner and the four (4) Deputy
to attach or levy on property not belonging to the judgment debtor. Commissioners.
2) NO. Salaries and wages are only preferred in bankruptcy and
judicial liquidation cases. (B) Abate or cancel a tax liability, when:
o Art. 110. Worker preference in case of bankruptcy. — In the event of
(1) The tax or any portion thereof appears to be unjustly or
bankruptcy or liquidation of an employer's business, his workers shall excessively assessed; or
enjoy first preference as regards wages due them for services
rendered during the period prior to the bankruptcy or liquidation, any (2) The administration and collection costs involved do not justify
provision of law to the contrary notwithstanding. Unpaid wages shall the collection of the amount due.
be paid in full before other creditors may establish any claims to a
All criminal violations may be compromised except: (a) those
share in the assets of the employer.
already filed in court, or (b) those involving fraud.
o This case does not involve the liquidation of employer’s
business. (C) Credit or refund taxes erroneously or illegally received or penalties
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

imposed without authority, refund the value of internal revenue stamps Facts:
when they are returned in good condition by the purchaser, and, in his Petitioner Rovero arrived at Makati Airport from Bangkok. It was
discretion, redeem or change unused stamps that have been rendered discovered that he brought along with him undeclared 259 pieces of
unfit for use and refund their value upon proof of destruction. No credit or
jewelry appraised at P23,736. The jewelry was, therefore, seized as
refund of taxes or penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or refund within two (2) property subject to forfeiture.
years after the payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a written Rovero was found guilty of the charge. The forfeiture was waived and in
claim for credit or refund. lieu thereof a fine in an amount equal to three times the appraised value of
the jewelry was imposed. He appealed the Decision to the CFI of Manila
A Tax Credit Certificate validly issued under the provisions of this Code and subsequently to the Supreme Court but it was denied.
may be applied against any internal revenue tax, excluding withholding
taxes, for which the taxpayer is directly liable. Any request for conversion
into refund of unutilized tax credits may be allowed, subject to the After the decision has become final, Petitioner and Bureau of Customs
provisions of Section 230 of this Code: Provided, That the original copy of entered into a compromise agreement and they decided to reappraise the
the Tax Credit Certificate showing a creditable balance is surrendered to value of the jewelries from P23,736 to P9,880.
the appropriate revenue officer for verification and cancellation: Provided,
further, That in no case shall a tax refund be given resulting from During the proceedings for execution, the petitioner that he has paid all his
availment of incentives granted pursuant to special laws for which no obligations arising from the case based on the reappraised value of
actual payment was made.
P9,880 which the execution court disagrees with.
The Commissioner shall submit to the Chairmen of the Committee on
Ways and Means of both the Senate and House of Representatives, every Issue:
six (6) months, a report on the exercise of his powers under this Section, WON there was a proper compromise agreement?
stating therein the following facts and information, among others: names —NO
and addresses of taxpayers whose cases have been the subject of
abatement or compromise; amount involved; amount compromised or Held:
abated; and reasons for the exercise of power: Provided, That the said The right of compromise claimed is not applicable at this stage of the
report shall be presented to the Oversight Committee in Congress that judicial proceedings. For the Government, the time for compromise is
shall be constituted to determine that said powers are reasonably over. There no longer is any necessity or reason for its exercise.
exercised and that the government is not unduly deprived of revenues. COMPROMISE is defined as a contract whereby the parties in interest by
giving, promising or retaining something or otherwise making reciprocal
concessions, avoid litigation or terminate one already commenced.
ROVERO v. AMPARO (Agatep)
[G.R. No. L-5482; May 5, 1952]
Here, as far as the Republic is concerned, the period for compromise had
“The purpose of a compromise is to avoid litigation or when it is already
definitely ended. The original controversy about the legality of the seizure
existing, to end one. So if there is already a final judgment, there is no more
of the jewelry, the imposition of the fine treble the appraised value of
need for a compromise”
P23,736 has not only been taken to court, but it has been finally decided
by the highest Tribunal. There is no longer any uncertainty as to the result
Recit-Ready:
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

of the litigation because the Government has definitely and finally won it. • After promulgation of the decision of the Supreme Court, Rovero wrote to
In other words, there is nothing more to compromise. By the attempted so- the Commissioner of Customs a letter stating that the pieces of jewelry
called compromise in the form of reappraisal, the Government had nothing was still pending in this Tribunal, and petitioning for a reappraisal of said
to gain but much to lose in the form of several thousand pesos. jewelry. The jewelry were reappraised at P9,880. The Commissioner of
Customs forwarded the reappraisal to the Secretary of Finance
requesting for the setting aside of the original appraisal which the
Facts: Secretary granted and the P9,880 appraisal was approved. A
• Petitioner Rovero arrived at Makati Airport from Bangkok. He brought with compromise agreement was then made lowering the value of the
him several pieces of baggage, among which was a Chinese vase which appraisal. Note that this happened after the promulgation of the decision
he declared and valued at P15. In the course of the examination of said of the Supreme Court.
Chinese vase, it was found to contain a tin can containing undeclared 259 • The Solicitor-General moved for execution of the decision of the CFI,
pieces of jewelry appraised at P23,736. The jewelry was, therefore, which have been affirmed by this Tribunal. Petitioner asked for the denial
seized as property subject to forfeiture. Rovero admitted that the of the motion on the ground that the judgment had already been satisfied,
belonged to him, he having bought them in Bangkok for $4,353 and that claiming that under Official Receipt No. B-2361606, the fine in lieu for
he purposely concealed them because he was afraid that he might be forfeiture plus surcharge and other legal charges had already been paid,
robbed and that he did not then have enough cash with which to pay the including sales tax. Incidentally, it should be here stated that according to
duties and taxes which he figured to amount to about P6,000. Evidently, Exhibit M entitled RECEIPT, dated August 23, 1951, Rovero received
the Customs officials were not impressed by his explanation. from the Collector of Customs the 259 pieces of jewelry after he had paid
• Rovero was found guilty for Violation of the Administrative Code and the corresponding duty and all charges and the fine based on the
sentenced to pay a fine of P2,500, with subsidiary imprisonment in case reappraised value, based on the compromise agrrement, of P9,880 (not
of insolvency, plus costs. In the decision, it was found that Rovero had the original appraisal of P23,736).
attempted to import the jewelry by fraudulent entry; that it was not the first
time that Rovero was guilty of fraudulent entry against the Government. Issue:
For this reason the Commissioner of Customs declared that the seizure of WON there was a proper compromise agreement?
said 259 pieces of jewelry was proper. —NO
• The forfeiture was waived and in lieu thereof a fine in an amount equal to
three times the appraised value of the jewelry was imposed, it being Held/Ratio: Motion is DENIED.
understood that the jewelry may be delivered to Rovero upon payment of
the legal duties, compensating tax and other charges due thereon, plus o It is argued that the parties to a case may enter into a compromise about
the fine, and that upon his failure to take delivery of the articles, and after even a final judgment and it is contended by petitioner that the
the decision has become final the jewelry will be sold at public auction for reappraisal was proper.
the satisfaction of the Government's claim. § The contention may be correct as regards private parties and who are
• Rovero appealed the case to the CFI of Manila and later on appealed to therefore free to do with what they own or what is awarded to them, as
the SC. The decision appealed from was affirmed, with costs. they please. Not so, however in the present case. Here, the
Commissioner of Customs is not a private party and is not the owner
of the money involved in the fine based on the original appraisal. He is
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

a mere agent of the Government and acts as a trustee of the money decided by the court, and because Rovero considered it immaterial, never
or property in his hands or coming thereto by virtue of a favorable questioned the amount of said appraisal.
judgment. Unless expressly authorized by his principal or by law, he is § That contention cannot be accepted. That the amount of the appraisal
not authorized to accept anything different from or anything less than was material from the beginning, is to us obvious. The imposed on
what is adjudicated in favor of the Government. Rovero for the fraudulent importation of jewelry was based on this
o The right of compromise claimed is not applicable at this stage of the same appraisal. Naturally, if he lost the case as he did, the fine based
judicial proceedings. For the Government, the time for compromise is on said appraisal will have to be paid by him. But even if he won the
over. There no longer is any necessity or reason for its exercise. case, said original appraisal was still material because he would have
COMPROMISE is defined as a contract whereby the parties in interest by to pay the ordinary customs duties on said jewelry just the same
giving, promising or retaining something or otherwise making reciprocal based on the original appraisement.
concessions, avoid litigation or terminate one already commenced. o Furthermore, regardless of the final decision of the court, which as
o Here, as far as the Republic is concerned, the period for compromise had already stated, definitely decided the validity of the original appraisal, it
definitely ended. The original controversy about the legality of the seizure would seem that the original appraisal had become final. Rovero never
of the jewelry, the imposition of the fine treble the appraised value of filed a protest questioning the propriety and correctness of the amount
P23,736 has not only been taken to court, but it has been finally decided thereof.
by the highest Tribunal. There is no longer any uncertainty as to the result o In the course of the court's deliberations over this case, the possibility of
of the litigation because the Government has definitely and finally won it. fraud, even connivance on the part of the Customs officials, was
In other words, there is nothing more to compromise. By the attempted mentioned. To some members the proceedings leading to the reappraisal
so-called compromise in the form of reappraisal, the Government had were not free from suspicion, what with the seeming haste with which the
nothing to gain but much to lose in the form of several thousand pesos. reappraisal requested by Rovero was considered, recommended and
o Petitioner argues that if the Commissioner of Customs may refund money then as it were rushed to the Department of Finance for approval; the
erroneously or illegally received, or fines imposed without authority, that it readiness, and conformity of said officials to compromise a final judgment
to say, money already in the Treasury of the Philippines, with more by the highest Court of the land in favor of the Government, when by such
reason may he compromise a judgment not yet executed. compromise the Government had nothing to gain but much to lose, and
§ The argument is not flawless. It refers to money erroneously or the approval by said officials of the relatively small amount of the
illegally received, or fines imposed without authority. In the present reappraisal which is less than one-half of the original appraisal, which as
case, there is no money erroneously or illegally received. A fine was already stated, Rovero himself never questioned or protested for about
imposed, yes, but it was pursuant to law and presumably with four years. But, that is neither here nor there; that question is not involved
authority. That very question of the authority of the Commissioner to in the present case and we shall assume that everything as far as the
seize the jewelry and impose the fine in lieu of forfeiture was taken on Customs officials are concerned, is above board, only that they
appeal to the Courts, which finally decided that the fine was legal and misinterpreted the law and overestimated their authority.
authorized.
o Petitioner argues that if the Commissioner of Customs may refund money REVENUE REGULATION NO. 30-2002
erroneously or illegally received, or fines imposed without authority, that it
o Petitioner insinuated that the original appraisement of the jewelry in (December 16, 2002) (Alarcon)
the amount of P23,736 is not final because it was not in issue in the case
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o On the other hand, other protested cases shall be handled by the


SEC. 1. SCOPE AND OBJECTIVES. Regional Evaluation Board (REB) or the National Evaluation Board
Pursuant to Sec 244 of NIRC, these Regulations are hereby promulgated (NEB) on a case to case basis; 

for the purpose of: 6. Cases which become final and executory after final judgment of a
• implementing Sections 7(c), 204(A) and 290 of the same Code, court, where compromise is requested on the ground of doubtful
• superseding Revenue Regulations (RR) Nos. 6-2000 and 7-2001 validity of the assessment; and 

7. Estate tax cases where compromise is requested on the ground of
SEC. 2. CASES WHICH MAY BE COMPROMISED. financial incapacity of the taxpayer. 

Upon compliance by the applicant-taxpayer of Section 3 of these
Regulations, the following may be the subject matter of COMPROMISE SEC. 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT
SETTLEMENT: 1. Doubtful Validity of Assesment - Offer to compromise a delinquent
1. Delinquent accounts; 
 account or disputed assessment on the ground of reasonable doubt as
2. Cases under administrative protest to the validity of the assessment when it is shown that:
o after issuance of the Final 
Assessment Notice to the taxpayer a) one resulting from a jeopardy assessment
which are still pending in the Regional Offices, Revenue District § jeopardy assessment- tax assessment which was assessed
Offices, Legal Service, Large Taxpayer Service (LTS), Collection without the benefit of complete or partial audit by an authorized
Service, Enforcement Service and other offices in the National revenue officer, who has reason to believe that the assessment
Office; 
 and collection of a deficiency tax will be jeopardized by delay
3. Civil tax cases being disputed before the courts; 
 because of the taxpayer’s failure to comply with the audit and
4. Collection cases filed in courts; 
 investigation requirements to present his books of accounts
5. Criminal violations, other than those already filed in court or those and/or pertinent records, or to substantiate all or any of the

involving criminal tax fraud. 
 deductions, exemptions, or credits claimed in his return); 

b) The assessment seems to be arbitrary in nature,
EXCEPTIONS: o appearing to be based on presumptions and
1. Withholding tax cases, o there is reason to believe that it is lacking in legal and/or factual
o unless the applicant-taxpayer invokes provisions of law that cast basis; or 

doubt on the taxpayer’s obligation to withhold; c) The taxpayer failed to file an administrative protest on account
2. Criminal tax fraud cases confirmed as such by the Commissioner of of the alleged failure to receive notice of assessment and there
Internal Revenue or his duly authorized representative; 
 
is reason to believe that the assessment is lacking in legal and/or
3. Criminal violations already filed in court; 
 factual basis; or
4. Delinquent accounts with duly approved schedule of installment d) The taxpayer failed to file a request for reinvestigation/

payments; 
 
reconsideration within 30 days from receipt of final
5. Cases where final reports of reinvestigation or reconsideration have assessment notice and there is reason to believe that the

been issued resulting to reduction in the original assessment and the assessment is lacking in legal and/or factual basis; or 

taxpayer is agreeable to such decision by signing the required e) The taxpayer failed to elevate to the Court of Tax Appeals
agreement form for the purpose. (CTA) an adverse decision of the Commissioner, or his
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

authorized representative, in some cases, within 30 days from o provided further that the taxpayer has no sufficient liquid asset
receipt thereof and there is reason to believe that the assessment to satisfy the tax liability; or 

is lacking in legal and/or factual basis; or 
 o The taxpayer is suffering from a networth deficit (total
f) The assessments were issued on or after January 1, 1998, liabilities exceed total assets)
where the demand notice allegedly failed to comply with the o computed by deducting total liabilities from total assets
formalities prescribed under Sec. 228 of the National Internal o Total liabilities: (net of deferred credits and amounts
Revenue Code of 1997; or 
 payable to stockholders/owners reflected as liabilities,
g) Assessments made based on the “Best Evidence Obtainable except business- related transactions)
Rule” and there is reason to believe that the same can be disputed o Total Assets: (net of prepaid expenses, deferred charges,
by sufficient and competent evidence; or 
 pre-operating expenses, as well as appraisal increases in
h) The assessment was issued within the prescriptive period for fixed assets)
assessment as extended by the taxpayer’s execution of Waiver o taken from the latest audited financial statements, provided
of the Statute of Limitations the validity or authenticity of which is that in the case of an individual taxpayer, he has no other
being questioned or at issue and there is strong reason to believe leviable properties under the law other than his family home;
and evidence to prove that it is not authentic. 
 or
o The taxpayer is a compensation income earner with
2. Financial incapacity. - The offer to compromise based on financial no other source of income and
incapacity may be accepted upon showing that: o the family’s gross monthly compensation income does not
o The corporation ceased operation or is already exceed the levels of compensation income provided for under
dissolved.-Provided, that Sec. 4.1.1 of these Regulations,
1. tax liabilities corresponding to the Subscription Receivable or o and it appears that the taxpayer possesses no other leviable
2. Assets distributed/distributable to the stockholders or distrainable assets, other than his family home; or 

representing return of capital o The taxpayer has been declared by any competent
at the time of cessation of operation or dissolution of business tribunal/authority/body/government agency as
shall NOT be considered for compromise; or 
 bankrupt or insolvent. 

o The taxpayer, as reflected in its latest Balance Sheet
supposed to be filed with the Bureau of Internal The Commissioner shall NOT consider any offer for compromise
Revenue, is suffering from surplus or earnings deficit settlement on the ground of
resulting to impairment in the original capital by at o financial incapacity of a taxpayer with Tax Credit Certificate(TCC),
least 50%, issued under:
o provided that 1. National Internal Revenue Code of 1997 or
§ amounts payable or due to stockholders other than 2. Executive Order No. 226, on hand or in transit, or
business-related transactions which are properly includible o with pending claim for tax refund or tax credit with the
in the regular “accounts payable” o Bureau of Internal Revenue,
are by fiction of law considered as part of capital and NOT o Department of Finance One-Stop-Shop Tax Credit and Duty
liability, and Drawback Center (Tax Revenue Group or Investment Incentive
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Group) than his family home


o and/or the courts, or 1.2 Individual, without any source 10%
o with existing finalized agreement or prospect of future agreement with of income
any party that resulted or could result to an increase in the equity of the 1.3 Under any of the following 10%
taxpayer at the time of the offer for compromise or at a definite future conditions:
time. 1.3.1 Zero net worth computed
in accordance with Sec. 3.2 (c)
Moreover, NO offer of compromise shall be entertained unless and until hereof
the taxpayer waives in writing his privilege of the secrecy of bank 1.3.2 Negative net worth 10%
deposits under Republic Act No. 1405 or under other general or special computed in accordance with Sec.
laws, and such waiver shall constitute as the authority of the 3.2 (c) hereof
Commissioner to inquire into the bank deposits of the taxpayer. 1.3.3. Dissolved Corporations 20%
1.3.4 Already non-operating
Presence of circumstances that would place the taxpayer- companies for a period of:
applicant’s inability to pay in serious doubt can be a ground to deny a) three (3) years or more as 10%
the application for compromise based on financial incapacity of the of date of application for
taxpayer to pay the tax. compromise settlement
b) Less than 3 years 20%
SEC. 4. PRESCRIBED MINIMUM PERCENTAGES OF COMPROMISE 1.3.5 Surplus or earnings deficit 40%
SETTLEMENT. – The compromise settlement of the internal revenue tax resulting to impairment in the
liabilities of taxpayers, reckoned on a per tax type assessment basis, shall original capital by at least 50%
be subject to the following minimum rates based on the basic assessed 1.3.6 Declared insolvent or 20%
tax: bankrupt,
o Unless, taxpayer falls
§ For Cases of Financial Incapacity squarely under any
1.1 Individual 10% situation as discussed
o only source of income is above, thus resulting to
employment whose monthly the application of the
salary is: appropriate rate
if single, P10,500 or less
if married, salary with § For cases of “doubtful validity” – A minimum compromise rate
spouse is P21,000 per equivalent to forty percent (40%) of the basic assessed tax. The
month taxpayer may, nevertheless, request for a compromise rate lower
o appears that taxpayer has than forty percent (40%): Provided, however, that he shall be
no other leviable / required to
distrainable assets, other (1) submit his request in writing
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

(1) stating therein the reasons, legal and/or factual, why he should Moreover, additional requirements prescribed under the existing
be entitled to such lower rate: Revenue Memorandum Order (RMO) shall still be complied with
(2) Provided, further, that for applications of compromise settlement unless amended and/or expanded by an amendatory RMO.
based on doubtful validity of the assessment involving an offer
lower than the minimum forty percent (40%) compromise rate, the SEC. 6. APPROVAL OF OFFER OF COMPROMISE. - Except for offers
same shall be subject to the prior approval by the NEB. of compromise where the approval is delegated to the REB pursuant to
The herein prescribed minimum percentages shall likewise apply in the succeeding paragraph, all compromise settlements within the
compromise settlement of assessments consisting solely of jurisdiction of the National Office (NO) shall be
increments, i.e., surcharge, interest, etc., based on the total amount • approved by a majority of all the members of the NEB
assessed. • composed of the Commissioner and the four (4) Deputy
Commissioners.
SEC. 5. DOCUMENTARY REQUIREMENTS. –
1. If the application for compromise is premised under Sec. 4.1.1 hereof, All decisions of the NEB, granting the request of the taxpayer or
the taxpayer-applicant shall submit with his application favorable to the taxpayer, shall have the concurrence of the
(a) a certification from his employer on his prevailing monthly Commissioner.
salary, including allowances; and
(b) a sworn statement that he has no other source of income other Offers of compromise of assessments issued by the Regional Offices
than from employment. involving basic deficiency taxes of Five Hundred Thousand Pesos
2. If the application is premised under Sec. 4.1.2 hereof, the taxpayer- (P500,000) or less and for minor criminal violations discovered by the
applicant shall submit with his application a sworn statement that he Regional and District Offices, shall be subject to the approval by the
derives no income from any source whatever. Regional Evaluation Board (REB), comprised of the following Officers of
3. If the application is premised under Sec. 4.1.3 hereof, a copy of the the Region:
applicant's latest audited financial statements or audited Account
Information Form filed with the BIR shall be submitted with the Regional Director – Chairman Members:
application. Nonetheless, for situation under Sec. 4.1.3.3 hereof, the i. Assistant Regional Director 

“Notice of Dissolution” submitted to SEC or other similar or equivalent ii. Chief, Legal Division 

document should likewise be submitted. For situation under Sec. 4.1.3.6, iii. Chief, Assessment Division 

a copy of the order declaring bankruptcy or insolvency shall be iv. Chief, Collection Division 

submitted. v. Revenue District Officer having jurisdiction over the 
taxpayer-
applicant 
Provided, however, that if the offer of compromise is less
In all cases of offer based on financial incapacity, Waiver of the Secrecy than the prescribed rates set forth in Sec. 4 hereof, the same shall
of Bank Deposit under R.A. 1405 and Sworn Statement saying that he always be subject to the approval of the NEB. 
The compromise
has no Tax Credit Certificate(TCC) on hand or in transit or claim for tax offer may be paid before or after the approval of the offer of
refund or TCC under the National Internal Revenue Code of 1997 and compromise by the Board (NEB or REB), at the option of the
Executive Order No. 226 pending in any office shall be submitted. taxpayer. In case of disapproval of compromise offer previously
paid, the same shall be dealt with in accordance with the prevailing
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

procedures embodied in the Revenue Memorandum Order issued


for this purpose, including amendments thereto. 
 SECTION 1. SCOPE – Pursuant to Section 244 of the NIRC (Code), these
Regulations are hereby promulgated for the purpose of implementing
SEC. 7. REPORT OF THE COMMISSIONER ON THE EXERCISE OF Section 204(B), in relation to Sections 7(c) and 290 of the same Code,
HIS AUTHORITY TO COMPROMISE TO THE CONGRESSIONAL regarding the authority of the Commissioner of Internal Revenue
OVERSIGHT COMMITTEE. – The Commissioner shall submit to the (Commissioner) to abate or cancel internal revenue tax liabilities of
Congressional Oversight Committee through the Chairmen of the certain taxpayers based on any of the following grounds, viz:
Committee on Ways and Means of both the Senate and House of
Representatives, every six (6) months of each calendar year, a report on (1) The tax/or any portion thereof appears to be unjustly or
the exercise of his powers to compromise the tax liabilities of excessively assessed; or
taxpayers. In this regard, the REB should submit to the Commissioner all (2) The administration and collection costs involved do not justify
the necessary reports and data in due time for the latter to be able to the collection of the amount due.
submit the required reports to the Congressional Oversight Committee. 

SECTION 2. INSTANCES WHEN THE PENALTIES AND/OR INTEREST
SEC. 8. REPEALING CLAUSE. – These Regulations supersede Revenue IMPOSED ON THE TAXPAYER MAY BE ABATED/CANCELLED ON
Regulations No. 6-2000, and Revenue Regulations No. 7-2001. All other THE GROUNDT THAT THE IMPOSITION THEREOF IS UNJUST OR
issuances inconsistent with the provisions of these Regulations are hereby EXCESSIVE –
amended, modified or repealed accordingly. 

2.1. When the filing of the return/payment of the tax is made at the wrong
SEC. 9. EFFECTIVITY. – The provisions of these Regulations shall take venue;
effect after fifteen (15) days following publication in any newspaper of
general circulation except for cases the compromise of which have been 2.2. When taxpayer’s mistake in payment of his tax is due to erroneous
confirmed by the Secretary of Finance in which case these Regulations written official advice of a revenue officer;
shall take effect immediately upon publication.
2.3. When taxpayer fails to file the return and pay the tax on time due to
substantial losses from prolonged labor dispute, force majeure,
legitimate business reverses such as in the following instances,
REVENUE REGULATION NO. 13-2001 (Sept. 27, 2001)
provided, however, that the abatement shall only cover the surcharge
and the compromise penalty and not the interest imposed under
Section 249 of the Code:
SUBJECT: Implementing Section 204(B), in Relation to Section 290 of the 2.3.1 Labor strike for more than 6 months which has caused the
Tax Code of 1997, Regarding Abatement or Cancellation of the Internal temporary shutdown of business;
Revenue Tax Abilities 2.3.2. Public turmoil;
2.3.3 Natural calamity such as lightning, earthquake, storm, flood
TO: All Internal Revenue Officers and Others Concerned and the like;
2.3.4 Armed conflicts such as war or insurgency;
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

2.3.5 Substantial losses sustained due to fire, robbery, theft, the license to the Philippine branch office/subsidiary,
embezzlement; provided, however, that the abatement shall only cover the
2.3.6 Continuous heavy losses incurred by the taxpayer for the surcharge and the compromise penalty and not the interest;
last 2 years; 2.6.9 Wrong use of Tax Credit Certificate (TCC) where Tax Debit
2.3.7 Liquidity problem of the taxpayer for the last 3 years; or Memo (TDM) was not properly applied for; and
2.3.8 Such other instances which the Commissioner may deem 2.6.10 Such other instances which the Commissioner may deem
analogous to the enumeration above analogous to the enumeration above.

2.4 When the assessment is brought about or the result of taxpayer’s non- 2.7 Other cases similar/synonymous thereto.
compliance with the law due to a difficult interpretation of said law;
SECTION 3. INSTANCES WHEN THE TAX LIABILITIES, PENALTIES
2.5 When the taxpayer fails to file the return and pay the correct tax on AND/OR INTEREST IMPOSED ON TAXPAYER MAY BE
time due to circumstances beyond his control, provided, however, that ABATED/CANCELLED ON THE GROUND THAT THE
abatement shall cover only the surcharge and the compromise ADMIINSTRATION AND COLLECTION COSTS ARE MORE THAN THE
penalty and not the interest; AMOUNT SOUGHT TO BE COLLECTED – when the administration and
collection costs, including cost of litigation, are much more than the
2.6 Late payment of the tax under meritorious circumstances such as: amount that may be collected from the taxpayer, the assessment may be
reduced through abatement, or entirely cancelled pursuant to Section
2.6.1 One day late filing and remittance due to failure to beat 204(B) of the code. The instances that may fall under this category are the
bank cut-off time; following:
2.6.2 Use of wrong tax form but correct amount of tax was
remitted; 3.1 Abatement of penalties on assessment confirmed by lower court but
2.6.3 Filing an amended return under meritorious circumstances, appealed by the taxpayer to a higher court;
provided, however, that abatement shall cover only the 3.2 Abatement of penalties on withholding tax assessment under
penalties and not the interest; meritorious circumstances;
2.6.4 Surcharge erroneously imposed; 3.3 Abatement of penalties on delayed installment payment under
2.6.5 Late filing of return due to unresolved issue on meritorious circumstances;
classification/valuation of real property (for CGT cases, etc.); 3.4 Abatement of penalties on assessment reduced after reinvestigation
2.6.6 Offsetting of taxes of the same kind, i.e., overpayment in but taxpayer is still contesting reduced assessment; and
one quarter/month is offset against underpayment in another 3.5 Such other instances which the Commissioner may deem analogous
quarter/month; to the enumeration above
2.6.7 Automatic offsetting of overpayment of one kind of
withholding tax against the underpayment of another kind; For items 3.1 to 3.4 above, the abatement of the surcharge and
2.6.8 Late remittance of withholding tax on compensation of compromise penalty shall be allowed only upon written application by the
expatriates for services rendered in the Philippines pending taxpayer signifying his willingness to pay the basic tax and interest or
the issuance of the Securities and Exchange Commission of basic tax only, whichever is applicable under the prevailing circumstance.
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

said office. The BIR National Office has 30 days within which to act on
SECTION 4. THE COMMISSIONER HAS THE SOLE AUTHORITY TO the case.
ABATE OR CANCEL TAX, PENALTIES AND/OR INTEREST – The
Commissioner has the sole authority to abate or cancel internal revenue SECTION 6. REPORT OF THE COMMISISONER TO THE
taxes, penalties and/or interest pursuant to Section 204(B), in relation to CONGRESSIONAL OVERSIGHT COMMITTEE (COC). – The
Section 7(c), both of the Code. This authority is generally applicable to Commissioner shall submit to the Congressional Oversight Committee
surcharge and compromise penalties only, however, in meritorious (COC), through the Chairmen of the Committee on Ways and Means of
instances, the Commissioner may likewise abate the interest as well as both the Senate and the House of Representatives, every 6 months of
basic tax assessed, provided, however, that cases for abatement or each calendar year, a report on the exercise of his power to abate or
collection of tax, penalties and/or interest by the Commissioner shall be cancel tax liabilities, penalties and/or interest imposed on taxpayers. In
coursed through the following officials: this regard, all the originating offices which processed the application for
abatement or cancellation of tax, penalties and/or interest shall likewise
4.1 The Deputy Commissioner (Operations Group), who shall constitute a prepare for this activity/process (abatement) all the reports being prepared
Technical Working Committee (TWC) for the evaluation and review of any in the collection of taxes under the compromise power of the
application for abatement or cancellation of tax, penalties and/or interest Commissioner, unless the Commissioner provides otherwise.
processed by the Revenue District Office (RDO) as reviewed by the
Regional Office (RO), or by the Large Taxpayers’ Service’s Collection or SECTION 7. TRANSITORY PROVISIONS. – Dockets that are already in
Audit Division and Large Taxpayers District Office (LTDO) as reviewed by the National Office as of the effectivity of these Regulations shall no longer
the Large Taxpayers Service (LTS), or by Collection Enforcement be returned to the Region but shall be processed taking into consideration
Division/Withholding Agent and Monitoring Division as reviewed by the the recommendation of the originating office, although subject to review
Collection Service, or by the Legal Service, or any other office that has and modification by the National Office.
jurisdiction over the case; and
4.2 The Deputy Commissioner (Legal and Inspection Group), who shall SECTION 8. REPEALING CLAUSE. – All existing rules and regulations or
evaluate the legal issue involved in the case. rulings or parts thereof, which are contrary to or inconsistent with the
provisions of these Regulations are hereby amended, or repealed
The application for abatement or cancellation of tax, penalties and/or accordingly.
interest should state the reasons and causes for such request.
Documentary proofs for the underlying reasons and causes aforestated SECTION 9. EFFECTIVITY. – The provisions of these Regulations shall
should be appended to the “Application for the Abatement or Cancellation take effect fifteen (15) days after publication in any newspaper of general
of Tax, Penalties and/or Interest (Annex “A”). On the other hand, denial of circulation.
the application for abatement or cancellation of tax, penalties and/or
interest should state the reasons therefor.
REVENUE REGULATION No. 4-2012 (March 28, 2012)

SECTION 5. PROCESSING TIME – The application for abatement or Amending RR No 13-2001


cancellation of tax, penalties and/or interest should be acted upon by the
processing office and reviewing office within 5 days from receipt by
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

SECTION 1. SCOPE – Pursuant to the provisions of Section 244 of the deem analogous to the enumeration above.
NIRC of 1997, as amended, these Regulations are hereby promulgated to
amend RR No. 13-2001. SECTION 3. REPEALING CLAUSE – All rules and regulations or parts
thereof inconsistent with the provisions of these Regulations are hereby
SECTION 2. AMENDMENT – Section 2.6 of RR No, 13-2001 is hereby repealed accordingly.
amended by deleting Section 2.6.1 thereof which provides that penalties
and/or interest imposed on the taxpayer may be abated or cancelled on SECTION 4. EFFECTIVITY – The provisions of these Regulations shall
the ground of one day late filing and remittance due to failure to beat the take effect fifteen days following publications in any newspaper of general
bank cut-off time. Accordingly, Section 2.6 of RR No. 13-2001 shall now circulation.
read
2.6 Late payment of the tax under meritorious
circumstances such as: SUMMARY OF RR NO 13-2001, AS AMENDED BY RR NO 4-2012:

2.6.1 Use of wrong tax form but correct amount of tax was RR No. 13-2001 talks about the authority of the Commissioner of Internal
remitted; Revenue (Commissioner) to abate or cancel internal revenue tax
2.6.2 Filing an amended return under meritorious liabilities of certain taxpayers based on any of the following grounds,
circumstances, provided, however, that abatement shall viz:
cover only the penalties and not the interest;
2.6.3 Surcharge erroneously imposed; (1) The tax/or any portion thereof appears to be unjustly or
2.6.4 Late filing of return due to unresolved issue on excessively assessed. What are the instances when the CIR can
classification/valuation of real property (for CGT cases, do this?
etc.); • When the filing of the return/payment of the tax is made at the
2.6.5 Offsetting of taxes of the same kind, i.e., overpayment wrong venue;
in one quarter/month is offset against underpayment in • When taxpayer’s mistake in payment of his tax is due to erroneous
another quarter/month; written official advice of a revenue officer;
2.6.6 Automatic offsetting of overpayment of one kind of • When taxpayer fails to file the return and pay the tax on time
withholding tax against the underpayment of another kind; due to substantial losses from prolonged labor dispute, force
2.6.7 Late remittance of withholding tax on compensation of majeure, legitimate business reverses such as in the following
expatriates for services rendered in the Philippines pending instances, provided, however, that the abatement shall only cover
the issuance of the Securities and Exchange Commission the surcharge and the compromise penalty and not the interest
of the license to the Philippine branch office/subsidiary, imposed under Section 249 of the Code:
provided, however, that the abatement shall only cover the o Labor strike for more than 6 months which has caused the
surcharge and the compromise penalty and not the interest; temporary shutdown of business;
2.6.8 Wrong use of Tax Credit Certificate (TCC) where Tax o Public turmoil;
Debit Memo (TDM) was not properly applied for; and o Natural calamity such as lightning, earthquake, storm, flood
2.6.19 Such other instances which the Commissioner may and the like;
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o Armed conflicts such as war or insurgency; o Late remittance of withholding tax on compensation of
o Substantial losses sustained due to fire, robbery, theft, expatriates for services rendered in the Philippines pending
embezzlement; the issuance of the Securities and Exchange Commission
o Continuous heavy losses incurred by the taxpayer for the of the license to the Philippine branch office/subsidiary,
last 2 years; provided, however, that the abatement shall only cover the
o Liquidity problem of the taxpayer for the last 3 years; or surcharge and the compromise penalty and not the interest;
o Such other instances which the Commissioner may deem o Wrong use of Tax Credit Certificate (TCC) where Tax Debit
analogous to the enumeration above Memo (TDM) was not properly applied for; and
o Such other instances which the Commissioner may deem
• When the assessment is brought about or the result of taxpayer’s analogous to the enumeration above.
non-compliance with the law due to a difficult interpretation of • Other cases similar/synonymous thereto.
said law;
• When the taxpayer fails to file the return and pay the correct tax (2) The administration and collection costs involved do not justify the
on time due to circumstances beyond his control, provided, collection of the amount due. When can the CIR do this?
however, that abatement shall cover only the surcharge and the
compromise penalty and not the interest; The administration and collection costs, including cost of litigation, are
• Late payment of the tax under meritorious circumstances such much more than the amount that may be collected from the taxpayer, the
as: assessment may be reduced through abatement, or entirely cancelled
o One day late filing and remittance due to failure to beat pursuant to Section 204(B) of the code. The instances that may fall under
bank cut-off time; (THIS WAS DELETED through RR 4- this category are the following:
2012. This is the amended provision)s • Abatement of penalties on assessment confirmed by lower court but
o Use of wrong tax form but correct amount of tax was appealed by the taxpayer to a higher court;
remitted; • Abatement of penalties on withholding tax assessment under
o Filing an amended return under meritorious circumstances, meritorious circumstances;
provided, however, that abatement shall cover only the • Abatement of penalties on delayed installment payment under
penalties and not the interest; meritorious circumstances;
o Surcharge erroneously imposed; • Abatement of penalties on assessment reduced after reinvestigation
o Late filing of return due to unresolved issue on but taxpayer is still contesting reduced assessment; and
classification/valuation of real property (for CGT cases, • Such other instances which the Commissioner may deem analogous
etc.); to the enumeration above
o Offsetting of taxes of the same kind, i.e., overpayment in
one quarter/month is offset against underpayment in For the [first 4 items], the abatement of the surcharge and compromise
another quarter/month; penalty shall be allowed only upon written application by the taxpayer
o Automatic offsetting of overpayment of one kind of signifying his willingness to pay the basic tax and interest or basic tax
withholding tax against the underpayment of another kind; only, whichever is applicable under the prevailing circumstance.
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

NOTE: This power of the CIR is generally applicable to surcharge and been processed, analyzed and recommended for approval/disapproval.
compromise penalties only, however, in meritorious instances, the However, it has come to the attention of the National Office that
Commissioner may likewise abate the interest as well as basic tax applications for abatement and/or compromise settlement have been
assessed, provided, however, that cases for abatement or collection of tax, forwarded by the investigating offices to the TWGs without any evaluation
and recommendation as to whether the application can be approved or not
penalties and/or interest by the Commissioner shall be coursed through the
and leave the initial analysis of the case to the latter which is supposed to
other BIR officials (check main RR). be the reviewing office.

Revenue Memorandum Order 20-2007 (RMO 20-2007) Inasmuch as the responsibilities/functions of the concerned offices were
already spelled-out in the existing issuances, this Order is thus issued to
(Austria)
mandate the concerned offices to be mindful of their responsibilities with
regards to the processing of application for compromise settlement and
abatement cases for a simplified processing of application for availing
SUBJECT: Simplified Processing of Application to Avail Taxpayer’s taxpayer's remedies.
Remedies Under Section 204(A), Compromise Settlement, and Section
204(B), Abatement, Both of the National Internal Revenue Code of 1997 II. Policies

TO: All IR Offices, Employees and Others Concerned (a) Abatement


Under existing rules, the BIR processes applications for the abatement of
only the surcharges, interests and compromise penalties. Any application
I. Background for the abatement of the basic tax assessed or any portion thereof, if any,
The National Internal Revenue Code of 1997 (Code) particularly, Sections are not covered by any existing regulations and therefore shall not be
204(A) and (B), in relation to Section 7, empowers the Commissioner of processed.
Internal Revenue (CIR) to compromise or abate internal revenue tax
liabilities as a sort of taxpayer's remedy. These provisions have been The RDO/investigating offices of the LTS having jurisdiction over the
implemented by several Revenue Regulations (RR), particularly RR Nos. taxpayer-applicant shall, upon receipt of the application for abatement
6-2000, 7-2001 and 30-2002, for compromise settlement, and RR No. 13- together with the required supporting documents, process the application,
2001, for abatement. These RRs provided for the guidelines and make the necessary evaluation and prepare a report containing its
procedures in the processing of the application for compromise settlement recommendation to the duly constituted Technical Working Committee
and abatement, including the offices which are tasked to process and (TWC). The report shall likewise state the basis of the recommendation as
approve the applications. provided under Section 204(B) of the Code and RR No. 13-2001

Based on the aforesaid RRs, receiving, processing and evaluation of the The TWC shall review the report and recommendation of the investigating
application, including the initial recommendation for the offices and thereafter prepare the final recommendation for the approval of
approval/disapproval thereof, were lodged in the Revenue Regional the Commissioner.
Offices thru the Revenue District Offices, for regional office cases and to
the ACIR/HREA of the Large Taxpayers Service thru its investigating In all instances, no application for abatement shall be initially
Offices being the offices which have jurisdiction over the taxpayers. processed/evaluated by the investigating office without the payment of
Technical Working Groups (TWG) were created, both in the National 100% of the basic tax.
Office and the Regional Offices, to review applications and make the final
recommendation to the approving authority, after the said application has (b) Compromise Settlement
Pursuant to Section 204(A), in relation to Section 7, of the Code, as
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

implemented by RR Nos. 6-2000, 7-2001 and 30-2002, payments already made pursuant to these applications shall be
recommendation/final report on the application for compromise shall be treated as partial or installment payments of the assessments.
signed/approved as herein stated:
III. Effectivity
1) Concerned Regional Evaluation Board (REB) This Order takes effect immediately.
o Regional office cases involving basic tax assessment
amounting to Five hundred thousand pesos (P500,0000) or LILIAN B. HEFTI
less, and minor criminal violations discovered by regional and OIC-Commissioner of Internal Revenue
district officials which were already delegated to the REB.

2) CIR DIGEST of RMO 20-2007


o Other cases which were not delegated
o Cases which, by law, have been entrusted to the CIR Prescribes the policies for simplified processing of application to avail
taxpayer’s remedies, compromise settlement and abatement provided under
3) National Evaluation Board (NEB) Sections 204(A) and 204 (B), NIRC
o Cases where the basic tax exceeds One million pesos Under existing rules, the BIR processes applications for the abatement of
(P1,000,000) or where the settlement offered is less than the only the surcharges, interests and compromise penalties. Any application for
prescribed minimum amount (10% for cases of financial the abatement of the basic tax assessed or any portion thereof, if any, are
incapacity; 40% for cases of doubtful validity of the not covered by any existing regulations and therefore shall not be processed.
assessment) which, by law, have been entrusted to the NEB
The Revenue District Office (RDO)/investigating offices of the Large
Prior to its approval/disapproval, application for compromise Taxpayers Service (LTS) having jurisdiction over the taxpayer-applicant
settlement shall likewise be processed, evaluated and recommended shall, upon receipt of the application for abatement together with the required
by the investigating offices having jurisdiction over the taxpayer- supporting documents, process the application, make the necessary
applicant. Processing and evaluation of regional office cases shall be evaluation and prepare a report containing its recommendation (with the
undertaken by the respective district offices while LTS cases shall be basis stated) to the duly constituted Technical Working Committee (TWC).
processed and evaluated by the LTS investigating offices before The TWC shall review the report and recommendation of the investigating
submitting the recommendation thereon to the respective TWGs. The offices and thereafter prepare the final recommendation for approval of the
concerned TWG shall review the submitted report and Commissioner.
recommendation and prepare its final recommendation for the
approval of the CIR/REB/NEB. In all instances, no application for abatement shall be initially
processed/evaluated by the investigating office without the payment of 100%
In all instances, application for compromise settlement shall not be of the basic tax.
forwarded to the TWGs without being processed, evaluated and
provided with recommendation by the originating office. The recommendation/final report on the application for compromise
settlement shall be signed/approved by the following:
The concerned RDO/head of the LTS investigating office is hereby a) Concerned Regional Evaluation Board (REB)
directed to require all applicants to pay the basic tax assessed, for o Regional office cases involving basic tax assessment amounting to P
abatement cases, and the offers of compromise, for compromise 500,000 or less, and minor criminal violations discovered by regional
settlement, upon filing of the application for abatement/compromise and district officials which were already delegated to the REB.
settlement before the application can be initially processed. In case of b) Commissioner of Internal Revenue (CIR)
ultimate disapproval of the application by the approving authority,
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o Other cases which were not delegated any increment thereto resulting from delinquency shall be:
o Cases which, by law, have been entrusted to the CIR
c) National Evaluation Board (NEB) (a) By distraint of goods, chattels, or effects, and other personal
o Cases where the basic tax exceeds P 1,000,000 or where the property of whatever character, including stocks and other
settlement offered is less than the prescribed minimum amount (10% securities, debts, credits, bank accounts and interest in and rights
for cases of financial incapacity; 40% for cases of doubtful validity of to personal property, and by levy upon real property and interest
the assessment) which, by law, have been entrusted to the NEB in rights to real property; and

Prior to its approval/disapproval, application for compromise settlement shall


(b) By civil or criminal action.
likewise be processed, evaluated and recommended by the investigating
offices having jurisdiction over the taxpayer-applicant. Processing and
evaluation of regional office cases shall be undertaken by the respective Either of these remedies or both simultaneously may be pursued in the
district offices while LTS cases shall be processed and evaluated by the LTS discretion of the authorities charged with the collection of such taxes:
investigating offices before submitting the recommendation thereon to the Provided, however, That the remedies of distraint and levy shall not be
respective Technical Working Groups (TWGs). The concerned TWG shall availed of where the amount of tax involve is not more than One hundred
review the submitted report and recommendation and prepare its final pesos (P100).
recommendation for approval of the CIR/REB/NEB.
The judgment in the criminal case shall not only impose the penalty but
In all instances, application for compromise settlement shall not be forwarded shall also order payment of the taxes subject of the criminal case as finally
to the TWGs without being processed, evaluated and provided with decided by the Commissioner.
recommendation by the originating office.
The Bureau of Internal Revenue shall advance the amounts needed to
The concerned RDO/head of the LTS investigating office is directed to defray costs of collection by means of civil or criminal action, including the
require all applicants to pay the basic tax assessed, for abatement cases, preservation or transportation of personal property distrained and the
and the offers of compromise, for compromise settlement, upon filing of the advertisement and sale thereof, as well as of real property and
application for abatement/compromise settlement before the same can be improvements thereon.
initially processed. In case of ultimate disapproval of the application by the
approving authority, payments already made pursuant to these applications
SEC. 206. Constructive Distraint of the Property of A Taxpayer. - To
shall be treated as partial or installment payments of the assessments. safeguard the interest of the Government, the Commissioner may place
under constructive distraint the property of a delinquent taxpayer or any
CIVIL REMEDIES FOR COLLECTION (DISTRAINT & LEVY) taxpayer who, in his opinion, is retiring from any business subject to tax, or
is intending to leave the Philippines or to remove his property therefrom or
TAX CODE to hide or conceal his property or to perform any act tending to obstruct
CHAPTER II the proceedings for collecting the tax due or which may be due from him.

CIVIL REMEDIES FOR COLLECTION OF TAXES The constructive distraint of personal property shall be affected by
requiring the taxpayer or any person having possession or control of such
property to sign a receipt covering the property distrained and obligate
SEC. 205. Remedies for the Collection of Delinquent Taxes. - The civil himself to preserve the same intact and unaltered and not to dispose of
remedies for the collection of internal revenue taxes, fees or charges, and the same ;in any manner whatever, without the express authority of the
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Commissioner. showing the name of the taxpayer and the amounts of the tax and penalty
due from him. Said certificate shall operate with the force of a legal
In case the taxpayer or the person having the possession and control of execution throughout the Philippines.
the property sought to be placed under constructive distraint refuses or
fails to sign the receipt herein referred to, the revenue officer effecting the Levy shall be affected by writing upon said certificate a description of the
constructive distraint shall proceed to prepare a list of such property and, property upon which levy is made. At the same time, written notice of the
in the presence of two (2) witnesses, leave a copy thereof in the premises levy shall be mailed to or served upon the Register of Deeds for the
where the property distrained is located, after which the said property shall province or city where the property is located and upon the delinquent
be deemed to have been placed under constructive distraint. taxpayer, or if he be absent from the Philippines, to his agent or the
manager of the business in respect to which the liability arose, or if there
SEC. 207. Summary Remedies. - be none, to the occupant of the property in question.

(A) Distraint of Personal Property. - Upon the failure of the person In case the warrant of levy on real property is not issued before or
owing any delinquent tax or delinquent revenue to pay the same at the simultaneously with the warrant of distraint on personal property, and the
time required, the Commissioner or his duly authorized representative, if personal property of the taxpayer is not sufficient to satisfy his tax
the amount involved is in excess of One million pesos (P1,000,000), or the delinquency, the Commissioner or his duly authorized representative shall,
Revenue District Officer, if the amount involved is One million pesos within thirty (30) days after execution of the distraint, proceed with the levy
(P1,000,000) or less, shall seize and distraint any goods, chattels or on the taxpayer's real property.
effects, and the personal property, including stocks and other securities,
debts, credits, bank accounts, and interests in and rights to personal Within ten (10) days after receipt of the warrant, a report on any levy shall
property of such persons in sufficient quantity to satisfy the tax, or charge, be submitted by the levying officer to the Commissioner or his duly
together with any increment thereto incident to delinquency, and the authorized representative: Provided, however, That a consolidated report
expenses of the distraint and the cost of the subsequent sale. by the Revenue Regional Director may be required by the Commissioner
as often as necessary: Provided, further, That the Commissioner or his
A report on the distraint shall, within ten (10) days from receipt of the duly authorized representative, subject to rules and regulations
warrant, be submitted by the distraining officer to the Revenue District promulgated by the Secretary of Finance, upon recommendation of the
Officer, and to the Revenue Regional Director: Provided, That the Commissioner, shall have the authority to lift warrants of levy issued in
Commissioner or his duly authorized representative shall, subject to rules accordance with the provisions hereof.
and regulations promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, have the power to lift such order of SEC. 208. Procedure for Distraint and Garnishment. - The officer
distraint: Provided, further, That a consolidated report by the Revenue serving the warrant of distraint shall make or cause to be made an
Regional Director may be required by the Commissioner as often as account of the goods, chattels, effects or other personal property
necessary. distrained, a copy of which, signed by himself, shall be left either with the
owner or person from whose possession such goods, chattels, or effects
(B) Levy on Real Property. - After the expiration of the time required to or other personal property were taken, or at the dwelling or place of
pay the delinquent tax or delinquent revenue as prescribed in this Section, business of such person and with someone of suitable age and discretion,
real property may be levied upon, before simultaneously or after the to which list shall be added a statement of the sum demanded and note of
distraint of personal property belonging to the delinquent. To this end, any the time and place of sale.
internal revenue officer designated by the Commissioner or his duly
authorized representative shall prepare a duly authenticated certificate Stocks and other securities shall be distrained by serving a copy of the
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

warrant of distraint upon the taxpayer and upon the president, manager, the corporation, company or association shall make the corresponding
treasurer or other responsible officer of the corporation, company or entry in its books, transfer the stocks or other securities sold in the name
association, which issued the said stocks or securities. of the buyer, and issue, if required to do so, the corresponding certificates
of stock or other securities.
Debts and credits shall be distrained by leaving with the person owing the
debts or having in his possession or under his control such credits, or with Any residue over and above what is required to pay the entire claim,
his agent, a copy of the warrant of distraint. The warrant of distraint shall including expenses, shall be returned to the owner of the property sold.
be sufficient authority to the person owning the debts or having in his The expenses chargeable upon each seizure and sale shall embrace only
possession or under his control any credits belonging to the taxpayer to the actual expenses of seizure and preservation of the property pending
pay to the Commissioner the amount of such debts or credits. the sale, and no charge shall be imposed for the services of the local
internal revenue officer or his deputy.
Bank accounts shall be garnished by serving a warrant of garnishment
upon the taxpayer and upon the president, manager, treasurer or other SEC. 210. Release of Distrained Property Upon Payment Prior to
responsible officer of the bank. Upon receipt of the warrant of Sale. - If at any time prior to the consummation of the sale all proper
garnishment, the bank shall turn over to the Commissioner so much of the charges are paid to the officer conducting the sale, the goods or effects
bank accounts as may be sufficient to satisfy the claim of the Government. distrained shall be restored to the owner.

SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within two
The Revenue District Officer or his duly authorized representative, other (2) days after the sale, the officer making the same shall make a report of
than the officer referred to in Section 208 of this Code shall, according to his proceedings in writing to the Commissioner and shall himself preserve
rules and regulations prescribed by the Secretary of Finance, upon a copy of such report as an official record.
recommendation of the Commissioner, forthwith cause a notification to be
exhibited in not less than two (2) public places in the municipality or city SEC. 212. Purchase by Government at Sale Upon Distraint. - When
where the distraint is made, specifying; the time and place of sale and the the amount bid for the property under distraint is not equal to the amount
articles distrained. The time of sale shall not be less than twenty (20) days of the tax or is very much less than the actual market value of the articles
after notice to the owner or possessor of the property as above specified offered for sale, the Commissioner or his deputy may purchase the same
and the publication or posting of such notice. One place for the posting of in behalf of the national Government for the amount of taxes, penalties
such notice shall be at the Office of the Mayor of the city or municipality in and costs due thereon.
which the property is distrained.
Property so purchased may be resold by the Commissioner or his deputy,
At the time and place fixed in such notice, the said revenue officer shall subject to the rules and regulations prescribed by the Secretary of
sell the goods, chattels, or effects, or other personal property, including Finance, the net proceeds therefrom shall be remitted to the National
stocks and other securities so distrained, at public auction, to the highest Treasury and accounted for as internal revenue.
bidder for cash, or with the approval of the Commissioner, through duly
licensed commodity or stock exchanges.
SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy,
the officer conducting the proceedings shall proceed to advertise the
In the case of Stocks and other securities, the officer making the sale shall property or a usable portion thereof as may be necessary to satisfy the
execute a bill of sale which he shall deliver to the buyer, and a copy claim and cost of sale; and such advertisement shall cover a period of a
thereof furnished the corporation, company or association which issued least thirty (30) days. It shall be effectuated by posting a notice at the main
the stocks or other securities. Upon receipt of the copy of the bill of sale, entrance of the municipal building or city hall and in public and
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

conspicuous place in the barrio or district in which the real estate lies and said Revenue District Officer that he has thus redeemed the property, and
by publication once a week for three (3) weeks in a newspaper of general the Revenue District Officer shall forthwith pay over to the purchaser the
circulation in the municipality or city where the property is located. The amount by which such property has thus been redeemed, and said
advertisement shall contain a statement of the amount of taxes and property thereafter shall be free from the lien of such taxes and penalties.
penalties so due and the time and place of sale, the name of the taxpayer
against whom taxes are levied, and a short description of the property to The owner shall not, however, be deprived of the possession of the said
be sold. At any time before the day fixed for the sale, the taxpayer may property and shall be entitled to the rents and other income thereof until
discontinue all proceedings by paying the taxes, penalties and interest. If the expiration of the time allowed for its redemption.
he does not do so, the sale shall proceed and shall be held either at the
main entrance of the municipal building or city hall, or on the premises to
SEC. 215. Forfeiture to Government for Want of Bidder. - In case there
be sold, as the officer conducting the proceedings shall determine and as
is no bidder for real property exposed for sale as herein above provided or
the notice of sale shall specify.
if the highest bid is for an amount insufficient to pay the taxes, penalties
and costs, the Internal Revenue Officer conducting the sale shall declare
Within five (5) days after the sale, a return by the distraining or levying the property forfeited to the Government in satisfaction of the claim in
officer of the proceedings shall be entered upon the records of the question and within two (2) days thereafter, shall make a return of his
Revenue Collection Officer, the Revenue District officer and the Revenue proceedings and the forfeiture which shall be spread upon the records of
Regional Director. The Revenue Collection Officer, in consultation with the his office. It shall be the duty of the Register of Deeds concerned, upon
Revenue district Officer, shall then make out and deliver to the purchaser registration with his office of any such declaration of forfeiture, to transfer
a certificate from his records, showing the proceedings of the sale, the title of the property forfeited to the Government without the necessity
describing the property sold stating the name of the purchaser and setting of an order from a competent court.
out the exact amount of all taxes, penalties and interest: Provided,
however, That in case the proceeds of the sale exceeds the claim and
Within one (1) year from the date of such forfeiture, the taxpayer, or any
cost of sale, the excess shall be turned over to the owner of the property.
one for him, may redeem said property by paying to the Commissioner or
the latter's Revenue Collection Officer the full amount of the taxes and
The Revenue Collection Officer, upon approval by the Revenue District penalties, together with interest thereon and the costs of sale, but if the
Officer may, out of his collection, advance an amount sufficient to defray property be not thus redeemed, the forfeiture shall become absolute.
the costs of collection by means of the summary remedies provided for in
this Code, including the preservation or transportation in case of personal
SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner
property, and the advertisement and subsequent sale, both in cases of
shall have charge of any real estate obtained by the Government of the
personal and real property including improvements found on the latter. In
Philippines in payment or satisfaction of taxes, penalties or costs arising
his monthly collection reports, such advances shall be reflected and
under this Code or in compromise or adjustment of any claim therefore;
supported by receipts.
and said Commissioner may, upon the giving of not less than twenty (20)
days notice, sell and dispose of the same of public auction or with prior
SEC. 214. Redemption of Property Sold. - Within one (1) year from the approval of the Secretary of Finance, dispose of the same at private sale.
date of sale, the delinquent taxpayer, or any one for him, shall have the In either case, the proceeds of the sale shall be deposited with the
right of paying to the Revenue District Officer the amount of the public National Treasury, and an accounting of the same shall rendered to the
taxes, penalties, and interest thereon from the date of delinquency to the Chairman of the Commission on Audit.
date of sale, together with interest on said purchase price at the rate of
fifteen percent (15%) per annum from the date of purchase to the date of
SEC. 217. Further Distraint or Levy. - The remedy by distraint of
redemption, and such payment shall entitle the person paying to the
personal property and levy on realty may be repeated if necessary until
delivery of the certificate issued to the purchaser and a certificate from the
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

the full amount due, including all expenses, is collected. on Assessments Upheld by the Court of Tax Appeals.

INJUNCTION I. LEGAL PROVISIONS

Under Section 11 of R.A. No. 1125, as amended by R.A. No. 9282, no


SECTION 218. Injunction not Available to Restrain Collection of Tax. appeal taken to the Court of Tax Appeals (CTA) from the decision of the
– No court shall have the authority to grant an injunction to restrain the Commissioner of Internal Revenue on a disputed assessment shall
collection of any national internal revenue tax, fee or charge imposed by suspend the payment, levy, distraint, and/or sale of any property of
this Code. the taxpayer for the satisfaction of his tax liability, unless the CTA
suspends the collection under certain conditions.

REPUBLIC ACT NO. 9282 Also, under Section 13 of said law, upon the issuance of any ruling, order
or decision of the CTA favorable to the national government, the CTA shall
SECTION 11. Section 18 of the same Act is hereby amended as follows: issue an order authorizing the Bureau of Internal Revenue to seize and
distraint any goods, chattels, or effects, and the personal property,
"SEC. 18. Appeal to the Court of Tax Appeals En including stocks and other securities, debts, credits, bank accounts, and
Banc. – No civil proceeding involving matter arising interests in and rights to personal property and/or levy the real property of
under the National Internal Revenue Code, the Tariff and the taxpayer in sufficient quantity to satisfy the tax together with any
Customs Code or the Local Government Code shall be increment thereto incident to delinquency.
maintained, except as herein provided, until and unless
an appeal has been previously filed with the CTA and Moreover, under Section 218 of the Tax Code, no court (except the CTA)
disposed of in accordance with the provisions of this Act. shall have the authority to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge imposed by said Code.
"A party adversely affected by a resolution of a Division
of the CTA on a motion for reconsideration or new trial, II. SCOPE
may file a petition for review with the CTA en banc."
This Memorandum Order covers the following:
"SEC. 19. Review by Certiorari. – A party adversely affected by a
decision or ruling of the CTA en banc may file with the Supreme Court a 1. Disputed assessments finally decided by the Commissioner or
verified petition for review on certiorari pursuant to Rule 45 of the 1997 Regional Director, as the case may be, against the taxpayer.
Rules of Civil Procedure."
2. Assessments upheld by the CTA in Division whether or not
appealed to the CTA En Banc, or upheld by the CTA En Banc
Revenue Memorandum Order 39-2007 whether or not appealed to the Supreme Court.
Issuance of Warrants of Distraint and Garnishment, and/or Levy on
Disputed Assessments Finally Decided by the Bureau Against Taxpayer III. ISSUANCE AND SERVICE OF WARRANTS OF DISTRAINT
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

AND GARNISHMENT, AND/OR LEVY suspend the payment, levy, distraint, and/or sale of any property of the
taxpayer for the satisfaction of his tax liability
Upon issuance by the Commissioner or Regional Director of the final E: When the CTA suspends the collection under certain conditions.
decision on the disputed assessment against the taxpayer or upon
issuance by the CTA in Division or En Banc of its decision upholding the Section 13:
assessment, Warrants of Distraint and Garnishment, and/or Levy When CTA issued any ruling, order or decision favorable to the national
shall forthwith be immediately issued and served. government. à CTA shall order BIR to seize and distraint any property of
the taxpayer to satisfy the tax and any increment thereto incident to
IV. EFFECTIVITY delinquency

This Order takes effect immediately. Section 218:


Only the CTA à authority to grant injunction to restrain the collection of any
Summary: national internal revenue taxes and such.

Revenue Memorandum Order No. 39-2007 issued on December 13, 2007


prescribes the issuance of Warrants of Distraint and Garnishment, and/or REVENUE MEMORANDUM ORDER NO. 042-10 (May 4, 2010)
Levy on disputed assessments finally decided by the BIR against the (Bugay)
taxpayer on assessments upheld by the Court of Tax Appeals (CTA).
SUBJECT : Prohibition on the Issuance of Temporary Restraining
Orders on the Collection of Taxes Against the Bureau of
This covers disputed assessments finally decided by the Commissioner of Internal Revenue By Courts Other than the Court of Tax Appeals, the
Internal Revenue (CIR) or Regional Director, as the case may be, against Issuance of Warrants of Distraint and Garnishment, and/or Levy on
the taxpayer and assessments upheld by the CTA in Division whether or Final Decisions of the Bureau of Internal Revenue on Disputed
not appealed to the CTA En Banc, or upheld by the CTA En Banc whether Assessments, Cases Filed Before the Court of Tax Appeals, and the
Sale of Property Distrained and Garnished
or not appealed to the Supreme Court
TO : All Internal Revenue Officers and Others Concerned
Upon Issuance by the CIR or Regional Director of the final decision on the
disputed upholding the assessment, Warrants of Distraint and I. Legal Provisions
Garnishment, and/or Levy shall forthwith be immediately issued and
served. Under Section 218 of the National Internal Revenue Code as amended,
(herein referred to as the Tax Code) NO COURT (except the CTA) shall
have the authority to grant an injunction to restrain the collection of any
NOTES:
national internal revenue tax, fee or charge imposed by the said Tax
I. LEGAL PROVISION Code. This prohibition shall apply to all collection activities, including
imposition and collection of taxes prescribed in tax laws; issuance of
Section 11: warrants of distraint and garnishment, and/or levy on final decisions of the
GR: No appeal taken to the Court of Tax Appeals (CTA) from the decision of Bureau of Internal Revenue on disputed assessments, cases filed before
the Commissioner of Internal Revenue on a disputed assessment shall the Court of Tax Appeals, and the sale of property distrained and
MONTERO // 3A TAX DIGESTS
AGATEP •ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

garnished. Please refer to the following cases for reference, Zuño vs. Judge Arnulfo
G. Cabredo, A.M. No. RTJ-03-1779, April 30, 2003; Republic of the
Moreover, pursuant to Section 11 of Republic Act No. 1125 — An Act Philippines vs. Judge Ramon S. Caguioa, A.M. No. RTJ-07-2063 June 26,
Creating the Court of Tax Appeals, as amended by Republic Act No. 9282, 2009; Commissioner of Customs vs. Judge Ramon S. Caguioa, A.M. No.
no appeal taken to the Court of Tax Appeals from the decision of the RTJ-07-2064 June 26, 2009; Charles T. Burns, Jr. vs. Judge Ramon S.
Bureau of Internal Revenue on a disputed assessment shall suspend the Caguioa, A.M. No. RTJ-07-2006 June 26, 2009.
payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability, unless the Court of Tax Appeals suspends III. Issuance and Service of Warrants of Distraint and Garnishment,
the collection under certain conditions. and/or Levy and/or Notice of Tax Liens

Furthermore, when deemed proper, the Bureau of Internal Revenue or its Upon issuance by the Commissioner or its authorized representatives of
duly authorized agent, may cause the issuance of a Notice of Tax Lien to the final decision on the disputed assessment against the taxpayer or
safeguard the interest of the national government pursuant to Section 219 upon filing of a Petitioner for Review before the Court of Tax Appeals in
of the 1997 Tax Code as well as other issuances by the Bureau of Division or En Banc of its decision upholding the assessment, Warrants of
Internal Revenue. Distraint and Garnishment, and/or Levy shall forthwith be immediately
issued and served pursuant to the provisions
II. Issuance of Injunction or Temporary Restraining Orders (TRO) By of Revenue Memorandum Order No. 39-2007 and other rules, regulations,
Courts and issuances of the Bureau of Internal Revenue when applicable.

In Section 218 of the 1997 Tax Code, it is very clear and explicit that Moreover, in order to safeguard the interest of the Government, the Tax
injunctions are not available to restrain collection of taxes. No court shall Code under Section 206 authorizes the Bureau of Internal Revenue to
have the authority to grant an injunction to restrain the collection of any place under constructive distraint the property of a delinquent taxpayer or
national internal revenue tax, fee or charge imposed by said Code. any taxpayer who, in his opinion:
1. is retiring from any business subject to tax, or
By way of exception pursuant to Section 11 of Republic Act No. 1125 as 2. is intending to leave the Philippines or
amended, it is only the Court of Tax Appeals that has judicial jurisdiction to 3. is intending to remove his property therefrom or
suspend the collection of taxes but only under certain conditions that is 4. is intending to hide or conceal his property or
when in its opinion the collection by the Bureau of Internal Revenue may 5. is intending to perform any act tending to obstruct the proceedings
jeopardize the interest of the government and/or the taxpayer and which for collecting the tax due or which may be due from him.
case the Court of Tax Appeals may suspend the collection of taxes and
require the taxpayer either to deposit the amount claimed or to file a surety IV. Effectivity
bond for not more than double the amount being assessed.
This Order takes effect immediately.
Thus, temporary restraining orders or injunctions issued by courts other
than the Court of Tax Appeals against the Bureau of
Internal Revenue contrary to the foregoing provision should be annulled
and cancelled for lack of jurisdiction. The concerned legal officers of the
Bureau of Internal Revenue are instructed to immediately take the
necessary legal remedy to annul and cancel the temporary
restraining order or injunction together with an appropriate administrative
case against the erring judge whenever the circumstances so warrant.
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

PRESCRIPTION OF THE GOVERNMENT’S RIGHT TO COLLECT distraint or levy or by a proceeding in court within five (5) years following
the assessment of the tax.

REMEDIES IN GENERAL (d) Any internal revenue tax, which has been assessed within the period
SEC. 203. Period of Limitation Upon Assessment and Collection. – agreed upon as provided in paragraph (b) hereinabove, may be collected
Except as provided in Section 222, internal revenue taxes shall be by distraint or levy or by a proceeding in court within the period agreed
assessed within three (3) years after the last day prescribed by law for upon in writing before the expiration of the five (5) -year period. The period
the filing of the return, and no proceeding in court without assessment for so agreed upon may be extended by subsequent written agreements
the collection of such taxes shall be begun after the expiration of such made before the expiration of the period previously agreed upon.
period: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day (e) Provided, however, That nothing in the immediately preceding and
the return was filed. For purposes of this Section, a return filed before the paragraph (a) hereof shall be construed to authorize the examination and
last day prescribed by law for the filing thereof shall be considered as filed investigation or inquiry into any tax return filed in accordance with the
on such last day. provisions of any tax amnesty law or decree.

CIVIL REMEDIES FOR COLLECTION OF TAXES SEC. 223. Suspension of Running of Statute of Limitations. – The
SEC. 222. Exceptions as to Period of Limitation of Assessment and running of the Statute of Limitations provided in Sections 203 and 222 on
Collection of Taxes. – the making of assessment and the beginning of distraint or levy a
proceeding in court for collection, in respect of any deficiency, shall be
(a) In the case of a false or fraudulent return with intent to evade tax suspended for the period during which the Commissioner is prohibited
or of failure to file a return, the tax may be assessed, or a proceeding in from making the assessment or beginning distraint or levy or a proceeding
court for the collection of such tax may be filed without assessment, at any in court and for sixty (60) days thereafter; when the taxpayer requests for
time within ten (10) years after the discovery of the falsity, fraud or a reinvestigation which is granted by the Commissioner; when the
omission: Provided, That in a fraud assessment which has become final taxpayer cannot be located in the address given by him in the return filed
and executory, the fact of fraud shall be judicially taken cognizance of in upon which a tax is being assessed or collected: Provided, that, if the
the civil or criminal action for the collection thereof. taxpayer informs the Commissioner of any change in address, the running
of the Statute of Limitations will not be suspended; when the warrant of
(b) If before the expiration of the time prescribed in Section 203 for the distraint or levy is duly served upon the taxpayer, his authorized
assessment of the tax, both the Commissioner and the taxpayer have representative, or a member of his household with sufficient discretion,
agreed in writing to its assessment after such time, the tax may be and no property could be located; and when the taxpayer is out of the
assessed within the period agreed upon. The period so agreed upon may Philippines.
be extended by subsequent written agreement made before the expiration
of the period previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by

1
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

THE GUAGUA ELECTRIC LIGHT PLANT COMPANY, INC. v.


CIR and CA (Caraan) Facts:
[GR. No. L-23611; April 24, 1967] • Guagua Electric Light Plant Co. (“Guagua”) was a grantee of municipal
“Right to collect TAX prescribes in three (3) years, as governed by the TAX franchises by virtue of Act 667 in Pampanga. It reported a gross income
CODE; not 6 years as provided by the Civil Code” of P1,133,003.44 during the period of January 1, 1947 to November 1956
and paid thereon a franchise tax at 5%.
Recit-Ready: • (March 25, 1957) However, it believed that it should pay franchise tax at
Facts: Guagua was a grantee of municipal franchises. It reported a the lower rates provided for in its franchises instead of the 5% rate. It filed
gross income of P1,133,003.44 and paid 5% franchise tax. It a claim for refund for allegedly overpaid franchise tax amounting to
believed that it should have paid lower taxes (1% or 2% based on P35,593.98 on its gross receipts realized from January 1, 1947 to
Act 667) so it filed for refund. November 1956.
• The CIR denied refund of franchise tax corresponding to the period prior
The SC released a decision saying that that electric franchise to the fourth quarter of 1951 on the ground that the right to its refund had
holders under Act 667 are liable at the 5% franchise tax. Cir then prescribed. He, however, granted refund on the rest totaling to
assessed Guagua for deficiency franchise tax. Thereafter, P16,593.87.
Guagua was given a revised assessment on the ground that the • Guagua appealed to the CTA.
right to assess and collect the tax corresponding to the period • Pending the appeal to the CTA, the Supreme Court ruled in Hoa Hin Co.,
prior to January 1, 1956 has prescribed. It received P16,593.87 Inc. v. David that electric franchise holders under Act 667 are liable at the
as refund. 5% franchise tax provided for in the NIRC.
o (March 2, 1961) CIR then assessed Guagua for deficiency franchise
Issue/s: tax from 1951 to 1960 in the total amount of P42,879.42.
1) WON the rate of 5% in the NIRC (instead of the 1% or 2% for o Guagua contested the deficiency assessment and contended that the
franchises) impairs the obligation of contract and is therefore same is violative of its franchises; that the computation of the gross
unconstitutional receipts is contrary to rules; and that the right to assess and/or collect
2) WON the government is precluded from recovering the P16,593.87 the tax has prescribed.
representing the amount refunded on the grounds of prescription • (August 21, 1961) The appellate division of the BIR recommended that
the right to assess and collect the tax corresponding to the period prior to
Held: January 1, 1956 has prescribed and issued the revised assessment with
1) NO. Guagua, whose franchises were similarly granted under Act 667, P16,593.87 given as refund to Guagua.
being similarly situated as the taxpayers-franchise holders in previous • Guagua was still not satisfied.
cases already decided by the Court, shall likewise be subject to the
5% rate. Issue/s:
2) YES. CIR claims that prescription of its right to collect is six (6) years, 1) WON the rate of 5% in the NIRC (instead of the 1% or 2% for
based on the Civil Code. The Court said that that was wrong seeing as franchises) impairs the obligation of contract and is therefore
what is involved is deficiency franchise tax; thus, the Tax Code must unconstitutional
be followed. —NO

2
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

2) WON the government is precluded from recovering the P16,593.87 o Our above conclusion absolving Guagua Electric from the payment of
representing the amount refunded on the grounds of prescription the sum of P16,593.87 has removed the necessity of discussing
—YES Guagua Electric's assertion that the Government is precluded from
recovering the said sum because it failed to set it up as a counterclaim
Held/Ratio: Wherefore, the judgment appealed from is affirmed. in C.T.A. Case No. 508.

1) NO. The constitutionality of collecting franchise tax at the rate of 5%


of the gross receipts based on the NIRC, instead of Act 667, has VERA v. FERNANDEZ (Coloquio)
already been settled by the Court in several cases. [GR. No. L-31364; March 30, 1979]
o Guagua Electric, whose franchises were similarly granted under Act “Bat mo pinipilit na Rules of Court magapply diba nga taxes issue dito dapat
667, being similarly situated as the taxpayers-franchise holders in NIRC aralin mo bro.”
those cases already decided by the Court, shall likewise be subject to
the 5% rate. Recit-Ready:
Facts: Deficiency income taxes for the years 1963 and 1964 incurred by
2) YES. The Tax Code governs prescription of the right to collect deceased Luis D. Tongoy, were claimed against his estate. The
taxes, not the Civil Code. Administrator of his estate opposed such claims, stating that they
o The CIR seeks the recovery of the amount of P16,593.87 allegedly have already been barred by prescription under Rule 86 of the
erroneously refunded to Guagua. Said amount represents the Rules of Court. The CFI denied the claim for taxes, thus this
difference between the tax computed at 5% pursuant to the Tax Code petition.
and the tax at 1% or 2% under its franchises.
! This, in effect, is an assessment for deficiency franchise tax. Issue/s:
o CIR further maintains that the prescription of the right to recover the WON the government’s claim for taxes has already been barred by
amount of P16,593.87 is governed by Article 1145(2) in relation to prescription under Rule 86 of the Rules of Court. – NO
Articles 1154 and 1155 of the Civil Code.
! Hence, prescription will set in only after the expiration of six Held: NO. Rule 86 does not contemplate the claim for taxes, for it only
(6) years mentions claims for money against the decedent arising from
! CIR concludes by saying that such 6 years has not yet contracts, funeral expenses, money judgments against the
expired decedent, and expenses for his last sickness. What should be
o As stated above, the demand on the taxpayer by the CIR to pay the applied in this case is the NIRC, which states that claims for
sum of P16,593.87 is in effect an assessment for deficiency franchise taxes need not even be field during the ordinary course of the
tax. administration. In fact, even after the distribution of the estate,
! Being a deficiency franchise tax, the right to assess or collect such may still be collected from the heirs who shall be liable in
the same is governed by Section 331 [203 of the current] of proportion to their shares in the inheritance. Taxes are the
the Tax Code rather than by Article 1145 of the Civil Code. lifeblood of the government and ultimately for the benefit of the
! A special law (Tax Code) shall prevail over a general law people, therefore the latter cannot be prejudiced by the negligent
(Civil Code). omission of government officials to collect taxes.

3
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Facts: o The provision enumerates all different claims which may be


• Deficiency income taxes for the years 1963 and 1964 were claimed made (from contracts, funeral expenses etc.). Applying an
against the Estate of the late Luis D. Tongoy, incurred by the deceased old rule of statutory construction, if a statute enumerates the
during his lifetime. things upon which it is to operate, everything else must
o Total amount: P3,254.80 with 5% surcharge, 1% monthly necessarily by excluded by implication.
interest and comrpromise penalties. • Assessment, collection and recovery of taxes as well as the matter
• The Administrator of the Estate opposed such claims, stating that it is of prescription thereof are governed by the NIRC, and not by other
already barred under Rule 86 of the Rules of Court, for it was filed laws.
beyond the period prescribed under the aforesaid provision. • Taxes assessed against the estate of a deceased person, need not
• The CFI denied the claim, and the subsequent motion for be submitted during the ordinary course of administration, for the
reconsideration filed was likewise denied, thus this petition. court may direct payment of such taxes upon showing that these
have already been assessed.
Issue/s: o Taxes may even be claimed after the distribution of the
WON the claims for deficiency income taxes have already been barred estate among the heirs, who shall be liable thereof in
for being filed beyond the period provided under Rule 86 of the Rules proportion to their share in the inheritance.
of Court. • The basic reason for this is that, taxes are the lifeblood of the
— NO government, and their prompt and certain availability are imperious
need.
Held/Ratio: Petition GRANTED. The order appealed from is reversed. o The general rule is that the government is excepted from
the operation of the principle of estoppel. The neglect or
NO. The Court emphasized that a claim for taxes is governed by the omission of government officials to collect taxes should not
NIRC, and may be collected even after the distribution of the estate. be allowed to bring detriment to the people.
• Rule 86 of the Rules of Court invoked by the Administrator of the • Furthermore, the NIRC states that payment of income tax shall be a
Estate states that: “All claims for money against the decedent, lien in favor of the Government from the time the assessment was
arising from contracts, express or implied, whether the same be due, made by the CIR until it is paid.
not due or contingent, all claims for funeral expenses and expenses • Assuming arguendo that the claim for taxes has to be filed within the
for the last sickness of the decedent and judgment for money time prescribed under Rule 86, the latter states that the claim may
against the decedent, must be filed within the time limited in the still be filed even after the period prescribed in the notice, if filed
notice, otherwise they are barred forever..” before an order of distribution is entered. This is allowed on
• The same rule also adds that: “in the notice provided, the court shall equitable considerations, for a period not exceeding 1 month.
state the time for the filing of the claims against the estate, which o In this case, the petitioners filed a claim for the payment of
shall not be more than 12 nor less than 6 months after the date of the taxes, after the period prescribed in the notice but
the first publication of the notice” before the order of distribution was entered. In the absence
o The Court pronounced that a perusal of such provision of any valid ground justifying the denial of the claim, it
shows that it makes no mention of claims for monetary should have been granted by the CFI considering that it is a
obligations of the decedent created by law, such as taxes. claim for taxes – for the benefit of the people at large.

4
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Republic of the Philippines v. Limcaco (Cualoping) board the "SS Steel Ranger". The specific tax due thereon amounted to
[GR. No. L-13081; August 31, 1962] P6,000.00, at the rate of P3.00/ thousand.
“Period runs from assessment (when there is a demand)” • On July 15, 1946, LDGC, paid to the Bureau of Customs, the sum of
P1,000.00 in cash and P5,000.00 in PNB Check. The cigarettes were
Recit-Ready: released to LDGC. The said check, however, was subsequently
Facts: LDGC is the business of importing cigarettes. It executed two dishonored by the bank, for lack of funds.
bonds with VSIC to guarantee the payment of associated taxes. • On June 17, 1948, the CIR, demanded from LDGC, the payment of the
LDGC filed with customs papers covering their shipment of 2 aforesaid sum of P5,000.00 as deficiency specific tax, due on the
million cigarettes, which had a tax due of 6000. In 1946 LDGC imported cigarette. The said amount remained unpaid, notwithstanding
then paid the tax 1000 in case and 5000 by a PNB check so that repeated demands upon the LDGC and VSIC. LDGC and VSIC both sent
their shipment could be released. However the check bounced, letters to the Solgen to request the case to be deferred since they were
so the CIR demanded the deficiency due (in 1948). Following "willing to make representations with the CIR with a view to settling the
nonpayment after repeated demands, a case was filed in 1953 (7 matter amicably".
years after 1st payment, 5 years after demand). • On February 18, 1953, plaintiff filed a complaint with the CFI of Manila,
praying for the forfeiture of the bonds and payment of the sum of P5,000,
Issue/s: plus interest.
WON action has been barred by the statute of limitations? NO • After due hearing, the Tax Court held that the action had prescribed.

Held: The lower court wrongly held that the 5 year prescription period Issue/s:
started to run at the time the first payment was made. The SC WON action has been barred by the statute of limitations? NO
held that the period should actually start to run from the time of
assessment, which was when the letter of demand was issued. Held/Ratio:
The letter fixed a tax to be payable and a demandable settlement.
The first payment was simply the date of tender of payment, not NO. Plaintiff-appellant's action has not prescribed.
of assessment. Even assuming that the earlier date is the date of o Under Sec. 332 (c) of the Tax Code, the collection of the tax summary
assessment, it was suspended when LGDC wrote two letter to methods or by judicial action shall be effected within five (5) years after
the assessment of the tax.
the solgen to request for deferment of judicial action to be taken.
o Here, Tax Court observed that "the taxes in question must have been
assessed at the earliest on June 27, 1946, when a return (importer's
Facts: declaration) was filed or at the latest on July 15, 1946, when payment
• In 1946, "Limaco & De Guzman Commercial Co., Inc." (LDGC) was was made…” and concluded that the action had prescribed since it was
engaged in the importation of cigarettes. To guarantee payment of the instituted 7 years later on February 8, 1953.
revenue taxes due to the government plaintiff, LDGC and the Visayan o The assessment in question was not issued on July 14, 1946, but on
Surety & Insurance Corporation (VSIC), executed two importers Bonds, June 17, 1948. When the CIR received information from the Bureau of
Customs that the said sum of P5,000.00 was not paid (for lack of funds),
holding themselves jointly and severally liable to pay. On June 27, 1946,
he immediately issued a letter dated June 17, 1948, addressed to the
LDGC filed with the Bureau of Customs, entry papers covering shipment LDGC assessing and demanding from the latter the payment of the said
of 2 million "Spud" cigarettes it had imported from New York, U.S., on P5,000.00.

5
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

o July 15, 1946 was simply the date of tender of payment. The right to taxes. On Jan. 20, 1951, the CIR issued income tax assessment
collect the amount of P5,000.00 began only after the P5,000.00 — notices to Ret. Criminal actions were filed against Ret for
rubber check was dishonored. When the tax was paid in cash and in violations of Sections 45, 51, and 72 of the old Tax Code. On
check on July 15, 1946, the plaintiff-appellant had a right to rely that said
Sept. 21, 1957, the Republic filed a case for collection of Ret’s
payment fully settled the specific taxes due on the imported cigarettes.
The cigarettes would not have been released, had plaintiff-appellant deficiency taxes totaling P103,245.73 plus 5% surcharge and 1%
been aware that the payment did not fully settle the said specific taxes. monthly interest. Ret filed a motion to dismiss, claiming that the
o The action to assess and collect the unpaid tax commenced anew on cause of action had already prescribed.
June 14, 1948, when a letter of demand for the amount of said rubber-
check had been sent to LDGC. This letter should be deemed to be an Issue/s:
assessment because it declared and fixed a tax to be payable against WON the action to collect Ret’s deficiency taxes has prescribed
the party liable thereto, and demanded the settlement thereof. Judicial
—YES
action having been instituted on February 18, 1953, the five-year period
for collection had not then elapsed.
Held: The action to collect Ret’s deficiency taxes has prescribed
o Even assuming that July 15, 1946 is the date of assessment, still the because the court action filed on Sept. 21, 1957 is beyond the 5-
action to collect is not barred by the statute of limitations, because the year prescriptive period counted from the assessment made by
statute was suspended. When the rubber-check was dishonored and the BIR on Jan. 20, 1951. Despite the statutory 10-year
demand letters were sent by the plaintiff-appellant and the Solicitor
prescriptive period for fraudulent returns, once an assessment
General to LDGC, LDGC wrote two letters to the Solgen requesting for
the deferment of the judicial action to be taken by the latter towards the against the taxpayer is made, the government cannot avail of the
collection of the obligation. This being the case, the prescriptive period to 10-year prescriptive period in Section 332a (now Section 222a).
effect the collection of the tax which allegedly commenced on July 15, The assessment takes the case out of the said provision and
1946, was interrupted. "The prescription of actions is interrupted when places it under Section 332a (now Section 222c), which gives the
they are filed before the court, when there is any written extrajudicial government a period of only 5 years from the date of the
demand by the creditors and when there is any written acknowledgment assessment to collect any tax due.
of the debt by the debtor."

Facts:
• On February 23, 1949, Damian Ret filed with the BIR his Income Tax
REPUBLIC v. RET (De Luis) Return for the year 1948, where he made it appear that his net income
[GR. No. L-13754; March 31, 1962] was only P2,252.53 with no income tax liability.
“In cases where there was an omission, falsity, or fraud on the part of the tax • The BIR found out later that the return was fraudulent since Ret's
payer, an assessment takes out the case from the 10-year prescriptive income, derived from his sales of office supplies to different provincial
period and the period to collect is 5 years from the assessment.” government offices, totaled P94,198.76. The BIR assessed him
P34,907.33, as deficiency income tax for 1948, inclusive of the 50%
surcharge for rendering a false and/or fraudulent return.
Recit-Ready: • Ret failed to file his Income Tax return for 1949, notwithstanding the fact
Facts: Damian Ret filed his ITR with the BIR and the latter discovered that he earned a net income of P150,447.32, also from sale of office
that it was fraudulent. On Jan. 13, 1951, the CIR made an supplies. His income, as assessed for tax purposes, showed a
extrajudicial demand from Ret for the payment of the deficiency deficiency tax of P68,338.40 for 1949, inclusive of the 50% surcharge.

6
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

• On January 13, 1951, the CIR demanded from Ret the payment of the of the filing of the two criminal cases, the nature of which
above sums, but he failed and refused to pay the said amounts. covered the subject-matter of the civil complaint; and there was
• On January 20, 1951, the CIR issued income tax assessment notices need for the criminal charges to be determined first by the lower
to Ret, urging him to pay the sums mentioned, but with the same result. court, before a civil action for the collection of the tax could be
• Upon recommendation of the CIR, Ret was criminally prosecuted for a resorted to. In other words, the criminal action constituted a
violation of Sections 45[a], 51[d] and 72, of the N.I.R.C. penalized under prejudicial question, which should be resolved before the Civil
Sec. 73. He pleaded guilty to the two cases and was sentenced to pay a Action for collection, could be filed.
fine of P300.00 in each. o The extrajudicial demand written by the CIR on January 13,
• On September 21, 1957, the Republic filed the a case for collection of 1951 suspended the period of prescription.
Ret's deficiency taxes in the total sum of P103,245.73, plus 5% o The collection income tax through judicial action is
surcharge and 1% monthly interest. imprescriptible by virtue of certain rules of statutory construction
• Ret filed Motion to Dismiss, claiming that the "cause of action had and the case of Estate of De la Viña v. Government of the
already prescribed.” Philippine Islands, holding that "the statutes of limitations do not
• The Republic argued that the collection case has not yet prescribed run against the State; and this principle is applicable to action
because: brought for the collection of taxes.”
o The provisions of section 332(c)1 of the N.I.R.C. do not apply to o Assuming arguendo that the action is prescriptible, then the
income taxes pursuat to the case Collector vs. Avelino and provisions of Art. 1144 of the New Civil Code on prescription of
CTA, wherein it was held that section 331 and 332 of the Tax actions, which provides for a ten-year period, is applicable,
Code "merely apply to internal revenue taxes in general and not inasmuch as aside from sections 331, 332 and 51 (d), there is
to income taxes, the collection of which is specifically provided no provision in the Revenue Code, which deals on the limitation
in section 51 (d), which refers only to the collection of income of action for the collection of income tax thru judicial action.
tax through the summary remedies of distraint and levy within
three years after the return was filed or should have been filed. Issue/s:
After the lapse of the three year period, collection of income WON the action to collect Ret’s deficiency taxes has prescribed
taxes must be had through judicial action. However, the period —YES
of limitation for the collection of income taxes through judicial
action is nowhere to be found in law or jurisprudence.
Held/Ratio: Petition DENIED. The Republic’s cause of action has already
o Granting the applicability of Section 332, the government has 10
years to collect the deficiency taxes computed from the prescribed.
discovery of falsity, fraud, or omission, pursuant to subsection
(a) of the same provision. YES. The action to collect Ret’s deficiency taxes has prescribed.
o The government was prohibited from going to court for the o The prescriptive period of 5 years in Section 332 applies to collection
collection of the taxes due from the defendant-appellee, in view of taxes through judicial action.
! In Collector vs. Avelino and CTA the court was referring to
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
1
Where the assessment of any internal revenue tax has been made within the period of
collection of taxes through summary proceeding and not by
limitation above prescribed such tax may be collected by distraint or levy or by a proceeding court action.
in court, but only if begun (1) within five years after the assessment of the tax, or (2) period o Under Section 332(a), the government has two alternatives: (1) to
to the expiration of any period for collection agreed upon in writing by the Collector of
Internal Revenue and the taxpayer before the expiration of such five-year period. The assess the tax within 10 years from the discovery of the falsity, fraud
period so agreed upon may be extended by subsequent agreements in writing made before or omission, or (2) to file an action in court for the collection of
the expiration of the period previously agreed upon.

7
MONTERO // 3A TAX DIGESTS
AGATEP • ALARCON • ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO • GUZMAN
LAYNO • LIM, J. • LIM, Q. • LUNA • OCAMPO • ONG • PASCUAL • REYES • ROCILLO • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

such tax without assessment also within 10 years from the REPUBLIC OF THE PHILIPPINES VS. ACEBEDO (Diploma)
discovery of the falsity, fraud, or omission. [G.R. No. L-20477; March 29, 1968]
! In the case at bar, an assessment had been made and this “12 years = It’s just a little too late, a little too wrong and I can’t wait - Jojo”
fact has taken out the case from the realms of the
provisions of section 332(a) and placed it under the
Recit-Ready:
mandates of section 332(c), under which the 5-year
prescriptive period should be applied. Facts: A notice of assessment was issued to Acebedo in 1949 for
! The CIR made the assessment on January 20, 1951 and deficiency income tax in 1948. The government filed the suit for
had up to January 20, 1956 to file the necessary action. It collection only in Dec. 27, 1961, over 12 years since the notice of
was only on September 5, 1957, that an action was filed in assessment. Acebedo moved to dismiss the case on the ground
Court for the collection of alleged deficiency income tax - far of prescription, which the lower court accepted. The present case
beyond the 5-year period.
is the appeal of the Government appealed.
o The principle of prejudicial question does not apply in the case at bar.
The present complaint against Ret is not for the recovery of civil
liability arising from the offense of falsification; it is for the collection of
Issue/s: WON the government’s right to collect has prescribed
deficiency income tax.
o The said criminal cases would not effect, one way or
Held: Yes. Sec. 332(c) of the NIRC provides that collection is valid and
another, the running of the prescriptive period for the
commencement of the civil suit. The criminal actions are exempted as to period of limitation and assessment and collection
entirely separate and distinct from the present civil suit. of taxes only if begun (1) within five years after the assessment
There is nothing in the law, which would have stopped the of the tax, or (2) prior to the expiration of any period for
plaintiff-appellant from filing this civil suit simultaneously collection agreed upon in writing by the Collector of Internal
with or during the pendency of the criminal cases. Revenue and the taxpayer before the expiration of such five-year
o The extrajudicial demand written by the CIR on January 13, 1951
period. The collection was not filed within the 5-year period from
could not have suspended the running of the statute of limitations.