TAX REMEDIES

UNDER THE NIRC

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Tax Remedies in Internal Revenue Taxation
under the NIRC.
Tax remedies in internal revenue taxation takes place when
there is a dispute between the taxpayer and the BIR relative to the:

1. assessment, collection, payment or refund of internal

revenue taxes such as income tax (which includes capital gains
taxes and final taxes on income), estate taxes, donor’s taxes,
etc.,; or

2. compliance with administrative rules and regulations

promulgated for the efficient and effective enforcement of
internal revenue laws.
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SUBJECTS OF TAX REMEDIES IN INTERNAL REVENUE
TAXATION UNDER THE NIRC

1. Assessment of internal revenue taxes

2. Collection of internal revenue taxes
3. Refund of internal revenue taxes
4. Imposition of administrative or civil fines, penalties,
interest of surcharges
5. Promulgation and/or enforcement of administrative
rules and regulations for the efficient and effective
enforcement of internal revenue laws
6. Prosecution of criminal violations of internal revenue
laws
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LEVELS OF TAX REMEDIES IN INTERNAL
REVENUE TAXATION UNDER THE NIRC

1. Remedies at the administrative level

2. Remedies at the judicial level

Both the government and the taxpayers would have

remedies at the administrative level and at the judicial
level.

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ASSESSMENT
 Generally, an assessment is a finding by the taxing
agency that the taxpayer has not paid his correct taxes.

 The ultimate purpose of an assessment is to ascertain

the amount that a taxpayer should pay. This is the
context in which an assessment is issued for internal
revenue taxation.

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ASSESSMENT
Specifically, for internal revenue taxation,
assessment means the determination by the BIR, after
examination of the tax returns filed by the taxpayer, that
additional taxes are still due because the taxpayer has
not paid the correct taxes.

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 An assessment contains not only a
computation of tax liabilities but also a demand for
payment within a prescribed period. It also signals the
time when penalties and interests begin to accrue
against the taxpayer. To enable the taxpayer to
determine his remedies thereon, due process requires
that it must be served on and received by taxpayer.
(CIR v. Pascor, 309 SCRA 402)

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WHAT IS AN ASSESSMENT NOTICE?
An assessment notice is a statement coming from
the appropriate tax authorities that a review of the
taxpayer’s return indicates that there is need to pay
additional taxes.

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BIR EXAMINERS’ AFFIDAVIT-REPORT NOT
CONSIDERED AN ASSESSMENT
An affidavit-report of BIR examiners containing a
computation of tax liabilities, and recommending the
issuance of a notice of assessment, is NOT an assessment
itself which is the subject of a motion for
reconsideration/investigation or protest by the taxpayer.
This is so, because it was not sent to the taxpayer, and does
not demand payment of the tax within a certain period of
time. An assessment is deemed made only when the BIR
releases, mails or sends such notice to the taxpayer.
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SELF-ASSESSED TAX
A tax that the taxpayer himself assesses or computes and
pays to the taxing authority.

It is a tax that is computed and determined by the taxpayer

without the intervention of an assessment by the tax authority to
create the tax liability.

The Tax Code follows the pay-as-you-file system of taxation

under which the taxpayer computes his own tax liability, prepares
the return, and pays the tax as he files the return. The pay-as-you-
file system features a self-assessing tax return.
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PURPOSE OF AN ASSESSMENT
It is relevant to enable the taxpayer to determine his remedies
thereon and to afford the taxpayer his right to due process once
served and received by the taxpayer.

It is likewise relevant in the proper pursuit of judicial and

extrajudicial remedies to enforce the taxpayer’s liabilities and certain
matters that relate to it, such as the imposition of surcharges and
interest, and in the application of statutes of limitations and in the
establishment of tax liens.

The ultimate purpose of assessment is to ascertain the

amount that each taxpayer has to pay.
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REQUISITES OF A VALID ASSESSMENT
1. It must have been issued within the prescriptive period
for the issuance of assessment notices.
2. As a general rule, it may be issued only after a pre-
assessment notice has been served upon the taxpayer.
3. It shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based,
otherwise, the assessment shall be void.
4. The taxpayer must have personally received the
assessment notice or a tax agent/practitioner, who is
appointed by the taxpayer.
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FORMAL REQUISITES FOR THE VALIDITY OF A FORMAL
LETTER OF DEMAND (FLD), AND A FINAL ASSESSMENT
NOTICE (FAN)
1. The formal letter of demand and assessment notice
shall be issued by the Commissioner or his duly
authorized representative.
2. The letter of demand calling for payment of the
taxpayer’s deficiency tax or taxes shall state the facts,
the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the formal
letter of demand and assessment notice shall be void.
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 The taxpayer ought to know the nature of the
assessment so it can properly refute or agree with the
assessment. The underlying reason of the law is the
basic constitutional requirement that no person shall
be deprived of his property without due process of
law.

 The mere issuance by the CIR of the examiner’s

investigation report detailing the factual and legal
bases of the assessment constitutes sufficient
compliance with Sec. 228.
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PRIMA FACIE PRESUMPTION THAT
ASSESSMENTS ARE CORRECT
Settled is the rule that assessments are prima facie
presumed correct and made in good faith. All presumptions
are in favor of the correctness of a tax assessment. It is to be
presumed, however, that such assessment was based on
sufficient evidence. Upon the introduction of the assessment
in evidence, a prima facie case of liability on the part of the
taxpayer is made.

In the absence of proof of any irregularities in the

performance of official duties, an assessment will not be
disturbed. 15
INSTANCES WHERE PRIMA FACIE CORRECTNESS OF A
TAX ASSESSMENT DOES NOT APPLY

The prima facie correctness of a tax assessment

does NOT apply upon proof that an assessment is utterly
without foundation, meaning it is arbitrary and capricious.
Where the BIR has come out with a “naked assessment”
i.e., without any foundation character, the determination
of the tax due is without rational basis.

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Question: Is assessment necessary before a taxpayer may be prosecuted for
willfully attempting in any manner to evade or defeat any tax imposed by the
Internal Revenue Code?
Suggested Answer: No, because of the following reasons which
distinguish a criminal charge from an assessment:

a. Criminal charge need only be supported by a prima facie showing of

failure to file a required return while the fact of failure to file a return need
not be proven by an assessment.

b. Before an assessment is issued, there is, by practice a pre-assessment

notice sent to the taxpayer while such is not so with a criminal charge.

c. A criminal complaint is instituted not to demand payment, but to

penalize the taxpayer for violation of the Tax Code while the purpose of the
issuance of an assessment is to collect the tax.
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 RA No. 1125, Sec. 7(b) (1), last sentence as amended
by RA No. 9282 is explicit in its showing that, “Any provision
of law or the Rules of Court to the contrary notwithstanding,
the criminal action and the corresponding civil action for the
recovery of the civil liability for taxes and penalties shall at
all times be simultaneously instituted with and jointly
determined in the same proceeding by the CTA, the filing of
the criminal action being deemed to necessarily carry with it
the filing of the civil action, and no right to reserve the filing
of such civil action separately from the criminal action will
be recognized.
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TAX DELINQUENCY AS DISTINGUISHED
FROM TAX DEFICIENCY

TAX DELINQUENCY TAX DEFICIENCY

The tax is not paid on The tax paid is lower than
time. that required under the
law.

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JEOPARDY ASSESSMENT
A tax assessment which was assessed without the
benefit of complete or partial audit by an authorized
revenue officer who has reason to believe that the
assessment and collection of a deficiency tax will be
jeopardized by delay because of the taxpayer’s failure to
comply with the audit and investigation requirements to
present his books of accounts and/or pertinent records,
or to substantiate all or any of the deductions,
exemptions, or credits claimed in his return.
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ALTERNATIVE STATEMENT OF GROUNDS FOR
ISSUANCE OF A JEOPARDY ASSESSMENT

The Tax Code provides that “when a report required

by law as a basis for the assessment of any internal
revenue tax shall not be forthcoming within the time fixed
by laws or rules and regulations or when there is reason
to believe that any such report is false, incomplete, or
erroneous, the Commissioner shall assess the proper tax
on the best evidence obtainable. [NIRC of 1997, Sec. 6(B)]

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 Jeopardy assessment may be the subject of a
compromise. Reason: There is reasonable doubt as to
the validity of the assessment.

 The rule on jeopardy assessment does not authorize

the issuance of an assessment notice beyond the
prescriptive period.

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PRESCRIPTIVE PERIOD FOR ASSESSMENT
In general, the period of limitation for making assessments for
all kinds of internal revenue taxes is anytime within three (3) years

1. after the last day prescribed by law for the filing of the
return, or

2. where a return is filed beyond the period prescribed by law,

the three (3) year period shall be counted from the day the return was
filed, or

3. where the return was filed before the last day prescribed by
law for the filing thereof, it shall be considered as filed on such last
day. 23
ALTERNATIVE STATEMENT OF PERIOD TO ASSESS AND
TO COLLECT ALL KINDS OF INTERNAL REVENUE TAXES

The BIR has three (3) years, counted from the date of
actual filing of the return or from the last date prescribed by
law for the filing of such return, whichever comes later, to
assess a national internal revenue tax or to begin a court
proceeding for the collection thereof without an assessment.

In case of a false or fraudulent return with intent to

evade tax or the failure to file any return at all, the prescriptive
period for assessment of the tax due shall be ten (10) years
from discovery by the BIR of the falsity, fraud, or omission.
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ALTERNATIVE STATEMENT OF PERIOD TO ASSESS AND
TO COLLECT ALL KINDS OF INTERNAL REVENUE TAXES

When the BIR validly issues an assessment, within

either the three-year or ten-year period, whichever is
appropriate, then the BIR has another five-year period
within which to collect the national internal revenue tax
due thereon by distraint, levy, and/or court proceeding.

The assessment of the tax is deemed made and the

five-year period for collection begins to run on the date
the assessment notice had been released, mailed or sent
by the BIR to the taxpayer. 25
DISTINGUISH A FALSE RETURN FROM
A FRAUDULENT RETURN
FALSE RETURN FRAUDULENT RETURN

It is merely a deviation from the It implies intentional or deceitful

truth due to mistake, carelessness entry with intent to evade the taxes
or ignorance. due.

It is not subject to the 50% fraud It is subject to the 50% fraud

penalty. penalty.
It does not subject the taxpayer to It may subject the taxpayer to
criminal penalties. criminal penalties.
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REQUISITES FOR PROVING FRAUD
Fraud must be alleged and proven as a fact where
the following requisites must concur:

a. The fraud must be established by evidence; and

b. The evidence of fraud must be clear and
convincing, and not merely preponderant. Upon failure
to establish these two (2) requisites, the presumption
of good faith must prevail.

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EXCEPTIONS OR INSTANCES WHEN THE THREE (3)
YEAR PRESCRIPTIVE PERIOD DOES NOT APPLY
1. In the case of false or fraudulent return to evade the
payment of a tax. At anytime within ten (10) years
after the discovery of the falsity or fraud.
2. In case of failure to file a return. At anytime within ten
(10) years after the discovery of the omission to file a
return.
3. If before the expiration of the three (3) year period for
the assessment of the tax, there is an agreement in
writing between the taxpayer and the BIR
Commissioner. 28
EXTENDED ASSESSMENT
The period agreed upon which may be extended by
subsequent written agreements made before the period
previously agreed upon. The assessment issued in this
instance is known as an “extended assessment”.

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WHAT CONSTITUTES PRIMA FACIE EVIDENCE OF A FALSE
OR FRAUDULENT RETURN TO JUSTIFY THE IMPOSITION
OF A 50% SURCHARGE ON THE DEFICIENCY TAX DUE
FROM A TAXPAYER?

a. A substantial underdeclaration of taxable sales,

receipts, or income, or a substantial overstatement of
deductions, as determined by the CIR pursuant to
rules and regulations to be promulgated by the
Secretary of Finance.

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b. Failure to report sales, receipts, or income in an
amount exceeding thirty percent (30%) of that
declared per tax return constitutes substantial
underdeclaration of sales, receipts, or income.

c. A claim of deductions in an amount exceeding thirty

percent (30%) of actual deductions constitutes
overstatement of deductions.

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d. There is prima facie evidence of a false or fraudulent
return when the taxpayer has willfully and knowingly
filed it with the intent to evade a part or all of the tax
legally due from him.

e. There appears a design to mislead or deceive on the

part of the taxpayer, or at least culpable negligence. A
mistake, not culpable in respect of its value would not
constitute a false return.

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SUSPENSION OF RUNNING OF STATUTE
OF LIMITATIONS
The running of the Statute of Limitations provided in
Sections 203 and 222 on the making of assessment and
the beginning of distraint or levy a proceeding in court for
collection, in respect of any deficiency, shall be
suspended

1. for the period during the Commissioner is

prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty (60)
days thereafter; 33
2. When the taxpayer requests for a reinvestigation which
is granted by the Commissioner;
3. When the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is
being assessed or collected.
4. 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;
5. And when the taxpayer is out of the Philippines.
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WAIVER OF THE PRESCRIPTIVE PERIOD WITHIN
WHICH TO ASSESS INTERNAL REVENUE TAXES
Nature of waiver. It is an agreement between the taxpayer
and the BIR that the period to issue an assessment and
collect the taxes due is extended to a date contained
therein.

The waiver of the statute of limitations, whether an

assessment or collection, should not be construed as a
waiver of the right to invoke the defense of prescription
but rather, an agreement between the taxpayer and the
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BIR to extend the period to a date certain, within which
the latter could still assess or collect the taxes due. The
waiver does not mean that the taxpayer relinquishes the
right to invoke prescription unequivocally.

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REQUISITES FOR AGREEMENT WAIVING
THE THREE YEAR PERIOD
1. Entered before the expiration of the 3 year period for the
assessment of the tax.
2. In writing
3. Signed by both the taxpayer and the BIR Commissioner
4. The waiver must be for a definite period beyond the
ordinary prescriptive periods for assessment and
collection. The period agreed upon can still be extended by
a subsequent written agreement, provided that it is
executed prior to the expiration of the first period agreed
upon.
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CIVIL PENALTIES, ADDITIONS TO THE TAX
Civil penalties. These are the pecuniary penalties
imposed for violation of the NIRC of 1997.

Kinds of civil penalties or surcharges:

1. The 25% surcharge for late filing or late payment; and

2. The 50% willful neglect or fraud surcharge.

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INTEREST
Interest, defined. Interest is the penalty imposed for
detention of tax money which the government could have
utilized productively if paid timely.

Kinds of interest imposed in internal revenue taxation.

The different kinds of interest are:
1. Delinquency interest
2. Deficiency interest
3. Interest on extended payment

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RATES OF INTEREST, IN GENERAL
There shall be assessed and collected on any
unpaid amount of tax, interest at the rate of double the
legal interest rate for loans or forbearance of any money
in the absence of an express stipulation as set by the
Bangko Sentral ng Pilipinas from the date prescribed for
payment until the amount is fully paid. Provided, That in
no case shall the deficiency and the delinquency interest
prescribed under Subsections (B) and (C) hereof, be
imposed simultaneously.
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RATES OF INTEREST, IN GENERAL
TRAIN

General interest on unpaid amount of tax is changed to

12% (at double the rate of legal interest rate for loans or
forbearance of any money in the absence of an express
stipulation as set by the BSP; prevailing BSP – set legal
interest is 6%)

Additional proviso:
Deficieny and delinquency interest shall in no case be
imposed simultaneously.
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WHAT IS A “DEFICIENCY INTEREST” FOR
PURPOSES OF THE INCOME TAX?

“Deficiency interest” for purposes of the income tax

is the interest assessed and collected on any unpaid
amount of tax at the rate of twenty percent (20%) per
annum or such higher rate as may be prescribed by
regulations, from the date prescribed for payment until
the amount is fully paid. [NIRC of 1997, Sec. 249 (A) (B)]

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WHAT IS A “DEFICIENCY INTEREST” FOR
PURPOSES OF THE INCOME TAX?
Effective 1 January 2018, the “deficiency interest”
has been amended by the TRAIN as follows: “Deficiency
interest. – Any deficiency in the tax due, as the term is
defined in this Code, shall be subject to the interest
prescribed in Subsection (A) hereof, which interest shall
be assessed and collected from the date prescribed for
its payment until the full payment thereof, or upon
issuance of a notice and demand by the Commissioner of
Internal Revenue, whichever comes earlier. [NIRC of 1997,
Sec. 249 (B), as amended by the TRAIN] 43
DEFICIENCY INTEREST

TRAIN

The period when deficiency interest shall stop to run is

until full payment OR upon issuance of a notice and
demand by the BIR Commissioner, whichever comes
earlier.

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PURPOSE OF IMPOSING DEFICIENCY INTEREST

The intention of the law is to discourage delay in the

payment of taxes due to the State and in this sense the
surcharge and interest charged are not penal but
compensatory in nature – they are compensation to the
State for the delay in payment, or for the concomitant use
of the funds by the taxpayer beyond the date he is
supposed to have paid them to the State.

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COMPUTATION OF DEFICIENCY INTEREST

Deficiency interest on deficiency income tax accrues

and commences from the date of assessment as shown
in the assessment notice, instead of the date the
complaint for its collection is filed.

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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.

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WHAT IS A “DELINQUENCY INTEREST” FOR PURPOSES
OF INCOME TAX?
“Delinquency interest” is the interest that is required to be paid in
case of failure on the part of the taxpayer to pay:

a. The amount of the tax due on any return required to be filed,

or

b. The amount of the tax due for which no return is required, or

c. A deficiency tax, or any surcharge or interest thereon, on the

due date appearing in the notice and demand of the Commissioner
of Internal Revenue.

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WHAT IS A “DELINQUENCY INTEREST” FOR PURPOSES
OF INCOME TAX?
The delinquency interest to be collected is at the rate of
double the legal interest rate for loans or forbearance of any money
in the absence of an express stipulation as set by the Bangko
Sentral ng Pilipinas from the date prescribed for payment until the
amount is fully paid: Provided, That in no case shall the deficiency
and the delinquency interest be imposed simultaneously.

Illustration: The NIRC of 1997 requires that the donor shall file a donor’s tax
return within 30 days after the gift is made and the tax due thereon shall be
paid at the time of filing.

If the donor’s tax return was filed on February 15, 2018, then the
donor’s tax should be paid on that date. Failure to do so would subject the
donor to delinquency interest. 49
WHEN IS A REVENUE TAX CONSIDERED DELINQUENT?

A revenue tax is considered delinquent where there

is failure on the part of the taxpayer to pay the amount of
the tax due on any return required to be filed; or the
amount of the tax due for which no return is required, or
a deficiency tax, or any surcharge or interest thereon, on
the due date appearing in the notice and demand of the
Commissioner of Internal Revenue.

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SURCHARGE OR SURTAX
Surtax is the amount imposed in addition to the tax
required. They are in the nature of penalties and shall be
collected at the same time, in the same manner and as
part of tax.

The surtaxes or surcharges are referred to in the

NIRC of 1997 as the civil penalties.

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NATURE OF SURCHARGES IMPOSED
AS PENALTIES

They are not to be considered as criminal penalties

but civil administrative sanctions provided primarily as a
safeguard for the protection of state revenue and to
reimburse the government for the heavy expenses of
investigation and loss resulting from the taxpayer’s
fraud. (Castro v. The Collector of Internal Revenue, 4
SCRA 1093)

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WHEN INTEREST AND SURCHARGE ARE NOT DUE
1. Where the deficiency assessment appears to be
controversial, the taxpayer should be held liable only
for the principal amount.
2. Good faith negates imposition of surcharges and
interest. The Supreme Court once said that “good
faith and honest belief that one is not subject to tax
on the basis of previous interpretation of government
agencies tasked to implement the tax law, are
sufficient justification to delete the imposition of
surcharges and interest.
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THE 25% LATE FILING, WRONG FILING, OR LATE
PAYMENT SURTAX OR SURCHARGE
There shall be imposed, in addition to the tax required to be
paid, a penalty equivalent to twenty-five (25%) of the amount due, in
the following cases:

1. Failure to file any return and pay the tax due thereon as
required under the provisions of the NIRC of 1997 or rules and
regulations on the date prescribed; or

2. Unless otherwise authorized by the BIR Commissioner, filing

a return with an internal revenue officer other than those with whom
the return is required to be filed, or
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THE 25% LATE FILING, WRONG FILING, OR LATE
PAYMENT SURTAX OR SURCHARGE
3. Failure to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment; or

4. Failure to pay the full or part of the amount of tax

shown on any return required to be filed under the
provisions of the NIRC of 1997 or rules and regulations or
the full amount of tax due for which no return is required
to be filed on or before the date prescribed for its
payment.
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THE 50% WILLFUL NEGLECT OR FRAUD
SURCHARGE OR SURTAX
The penalty of fifty percent (50%) of the tax or of the deficiency
tax is imposed:

1. In case of a willful neglect to file the return within the period

prescribed by the NIRC of 1997 or by rules and regulations, or

2. In case of a false or fraudulent return is willfully made, and

3. In case any payment has been made on the basis of such

return before the discovery of the falsity or fraud.

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COMPROMISE PENALTY

The amount agreed upon between the taxpayer and

the Government to be paid as a penalty in cases of a
compromise.

Compromise penalty cannot be imposed or

collected without the agreement and conformity of the
taxpayer.

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NO COMPROMISE PENALTY WHERE
THERE IS GOOD FAITH
The “imposition of surcharges and interest under
Sections 248 and 249 of the 1997 NIRC were deleted on
the basis of good faith and honest belief on the part of
SLMC that it is not subject to tax. Thus, following the
ruling of the Court in the said case, SLMC is not liable to
pay compromise penalty under Section 248(A) of the
1997 NIRC. (CIR v. St. Luke’s Medical Center, Inc.), 695
Phil. 867, (2012) cited in CIR v. St. Luke’s Medical
Center, GR No. 203514, Feb. 13, 2017)
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ASSESSMENT PROCESS AND
REGLEMENTARY PERIODS

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 OUTLINE OF TAXPAYER’S
AND GOVERNMENT’S
ADMINISTRATIVE AND JUDICIAL
REMEDIES RELATIVE TO
ASSESSMENTS OF INTERNAL
REVENUE TAXES

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DISPUTED ASSESSMENT
1. Revenue District Officer (RDO) or a higher BIR authorized
officer. Issues a Letter of Authority (LA) authorizing the
examiner to inspect the taxpayer’s books of accounts, other
accounting records, and documents that may be pertinent in
determining whether the taxpayer has paid the correct taxes
and has complied with all the requirements for recording
financial transactions, keeping books of accounting, and others
promulgated by the BIR to ensure determination of the correct
taxes due from the taxpayer.

The examination should be made within the reglementary

period for the issuance of an assessment notice.
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DISPUTED ASSESSMENT
2. Revenue Officer

a. Audits or examines the taxpayer’s records.

b. States in his report whether or not there are violations of the
compliance requirements, whether there are tax deficiencies,
the deficiency taxes, fines and penalties due from the taxpayer.
The report shall also state whether the taxpayer agrees with his
findings that the taxpayer is liable for deficiency taxes, fines
and penalties.

1. if the taxpayer agrees, he pays the tax.

2. if the taxpayer does not agree with the Revenue Officer’s
submitted report of investigation, he does not pay.
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DISPUTED ASSESSMENT
“Notice for informal Conference. – The Revenue Officer who
audited the taxpayer’s records shall, among others, state in his
report whether or not the taxpayer agrees with his findings that
the taxpayer is liable for deficiency tax or taxes. If the taxpayer
is not amenable, based on the said Officer’s submitted report
of investigation, the taxpayer shall be informed, in writing, by
the Revenue District Office or by the Special Investigation
Division, as the case may be (in the case of Revenue Regional
Offices) or by the Chief of Division concerned (in the case of
the BIR National Office) of the discrepancy or discrepancies in
the taxpayer’s payment of his internal revenue taxes for the
purpose of “Informal Conference,” in order to afford the
taxpayer with an opportunity to present his side of the case.
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DISPUTED ASSESSMENT
The informal Conference shall in no case extend beyond thirty
(30) days from receipt of the notice for informal conference. If it is
found that the taxpayer is still liable for deficiency tax or taxes
after presenting his side, and the taxpayer is not amenable, the
Revenue District Officer or the Chief of the Special Investigation
Division of the Revenue Regional Office, or the Chief of Division in
the National Office, as the case may be, shall endorse the case
within seven (7) days from the conclusion of the Informal
Conference to the Assessment Division of the Revenue Regional
Office or to the Commissioner or his duly authorized representative
for issuance of a deficiency tax assessment. Failure on the part of
Revenue Officers to comply with the periods indicated herein shall
be meted with penalty as provided by existing laws, rules and
regulations. 64
DISPUTED ASSESSMENT
3. Assessment Division (Revenue Regional Office) or Commissioner
of Internal Revenue or his duly authorized representative

a. Reviews and evaluates the finding of the Revenue Officer

1. If he finds no sufficient basis, the case is dismissed
2. Determines that there exists sufficient basis to assess the
taxpayer for any deficiency tax, fines and penalties,
3. Issues to the taxpayer, at least by registered mail, a
Preliminary Assessment Notice (PAN) for the proposed
assessment unless the case within the exceptions where there is
no need to issue a PAN in which case there is immediately
issued a formal letter of demand (FLD) and a final assessment
notice (FAN).
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DISPUTED ASSESSMENT
4. Taxpayer responds within fifteen (15) days from receipt of the
PAN why no taxes, fines and penalties should be assessed against him.
5. If the taxpayer fails to respond within fifteen (15) days from date
of receipt of the PAN, he shall be considered in default.

b. If the Commissioner accepts the taxpayer’s explanations to the PAN,

then the proceedings are ended, and the case is closed.

c. If the taxpayer’s response is not acceptable or he is in default

because of failure to respond to the PAN, or there is no need to issue a
PAN, then a formal letter of demand (FLD) and a final assessment notice
(FAN) shall cause to be issued by the Commissioner or his duly
authorized representative calling for payment of the taxpayer’s
deficiency tax liability, inclusive of the applicable penalties.
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DISPUTED ASSESSMENT
4. Taxpayer

a. Does not do anything within thirty (30) days from receipt of the
FLD/FAN
1. the assessment becomes final, executory, demandable and
not appealable to the Court of Tax Appeals; and
2. the BIR could avail of its administrative or judicial remedies
to collect the tax.

b. Administratively protests or disputes the assessment by filing

a request for reconsideration or reinvestigation within thirty (30)
days from receipt of the notice of assessment.
1. Within sixty (60) days from filing of the protest (request for
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DISPUTED ASSESSMENT
reinvestigation), all relevant supporting documents shall be
submitted.
2. If the documents are not seasonably submitted, the
assessment shall become final, executory, demandable, not
appealable to the CTA and the BIR could avail of its
administrative or judicial remedies to collect the tax.

5. Commissioner acts on the administrative protest (request for

reinvestigation) within one hundred eighty (180) days from
receipt of the relevant supporting documents. If the protest is a
request for reconsideration, the Commissioner acts on the same
within one hundred eighty (180) days from filing of the request
for reconsideration.
68
DISPUTED ASSESSMENT
a. The BIR Commissioner grants the protest (request for
reinvestigation or request for reconsideration), the case is
dismissed.

b. The BIR Commissioner denies the administrative protest

(request for reinvestigation or request for reconsideration) or
dispute, or

c. The BIR Commissioner does not act on the administrative

protest (request for reinvestigation within 180 days from
submission of the complete supporting documents or if it’s a
request for reconsideration within 180 days from filing of the
protest) or dispute.
69
DISPUTED ASSESSMENT
6. Taxpayer

a. Receives the BIR Commissioner’s denial of his

administrative protest (whether request for reinvestigation or
reconsideration) or dispute

1. Within thirty (30) days from receipt of the denial,

appeals the decision of the BIR to the CTA in division by
means of a petition for review coupled with a motion for the
issuance of an order suspending the collection of the tax
pending resolution of the petition.

70
DISPUTED ASSESSMENT
2. If the taxpayer does not seasonably interpose an
appeal, the decision of the BIR Commissioner denying his
administrative protest (whether request for reinvestigation or
request for reconsideration), or dispute, the assessment
becomes final, executory, demandable and not anymore
appealable to the CTA. The BIR could then avail of its
administrative or judicial remedies to collect the tax.

3. A denial by the Commissioner’s duly authorized

representative may be elevated to the Commissioner within
thirty (30) days from receipt of the final decision by the
representative.
71
DISPUTED ASSESSMENT
b. Learns of the inaction by the BIR Commissioner or
his duly authorized representative on his
administrative protest or dispute within 180 days from
submission of the required documents to support the
dispute (if a request for reinvestigation) of within 180
days from filing of the request for reconsideration:

1. Within thirty (30) days from the lapse of

180 days from the taxpayer’s submission of all the
72
DISPUTED ASSESSMENT
relevant supporting documents (if a request for
reinvestigation) or from the lapse of 180 days from
filing of the request for reconsideration,

a. must interpose an appeal to the CTA

division by means of a petition for review coupled
with a motion for the issuance of an order suspending
the collection pending the resolution of the petition.

73
DISPUTED ASSESSMENT
Otherwise, the assessment shall become final,
executory, and demandable and not appealable to the
CTA. The BIR could then avail of its administrative or
judicial remedies to collect the tax.

b. If the Commissioner does not act within

the 180 period described above, the taxpayer may
decide to wait for a denial by the BIR and when the
denial is received, the taxpayer would have thirty (30)
74
DISPUTED ASSESSMENT
days from receipt of the denial within which to appeal
to the CTA division. Failing to so appeal, the denial
would attain a state of finality and the BIR could then
avail of its administrative or judicial remedies to
collect the tax.

7. The Court of Tax Appeals (CTA)

a. The CTA division has a period of twelve (12)

75
DISPUTED ASSESSMENT
months from the time the case is submitted for
decision within which to decide.

b. The CTA division grants the petition or reverses

the decision of the BIR Commissioner in which case
the Commissioner may, within fifteen (15) days from
receipt, files a motion for reconsideration or new trial
with the same division. If the BIR does not do
anything, the grant of the petition results to dismissal
of the case against the taxpayer.
76
DISPUTED ASSESSMENT
c. The CTA division dismisses the petition or affirms
the decision of the BIR Commissioner in which case
the taxpayer may, within fifteen (15) days from
receipt, files a motion for reconsideration or new trial
with the same division. If the taxpayer does not do
anything, the dismissal of the petition results to a
case against the taxpayer attaining a state of finality
and BIR could now resort to its administrative or
judicial remedies to collect the tax.

77
DISPUTED ASSESSMENT
d. The party adversely affected by the decision of a
Division of the CTA may file one motion for
reconsideration or new trial with the same division. A
denial of the motion for reconsideration or new trial
may be the subject of a petition for review filed with
the CTA, en banc.

If the decision of the CTA division is not seasonably

questioned by the party adversely affected by the
decision of the CTA, the decision lapses into finality.
78
DISPUTED ASSESSMENT
The assessment then becomes final, executory and
demandable or of no force and effect depending upon
the nature of CTA division’s decision.

e. The CTA division may grant or deny the motion for

reconsideration or new trial.

f. The party adversely affected by the decision of the

CTA division on the motion for reconsideration or new
trial has a period of fifteen (15) days from receipt
79
DISPUTED ASSESSMENT
within which to interpose a petition for review with CTA en banc.

The party adversely affected by the decision of the CTA en

banc, may then file a verified petition for review on certiorari
with the Supreme Court.

The petition shall be filed and served, and with full payment of
the docket and other lawful fees and the deposit for costs within
fifteen (15) days from receipt of the adverse judgment. Before
the expiration of the reglementary period, the Supreme Court may
for justifiable reasons grant an extension of thirty (30) days only
within which to file the petition.
80
DISPUTED ASSESSMENT
8. The Supreme Court

a. Grants the petition and reverses the decision of the

CTA, or

b. Dismisses the petition or affirms the decision of the

CTA

c. A motion for reconsideration may be posed after

which the Supreme Court decision becomes final.
81
UNDISPUTED ASSESSMENT
1. The Commissioner of Internal Revenue files an
ordinary action for the collection of tax before a
regular trial court of the CTA depending upon the
jurisdictional amount.
2. Court that has jurisdiction
a. Municipal or Metropolitan Trial Court. If the basic
amount of the tax to be collected (except interests,
and surcharges) is ₱300,000.00 or less, then the case
should be filed before the proper Municipal or
Metropolitan Trial Court outside of Metropolitan
82
UNDISPUTED ASSESSMENT
Manila or if the court is in Metropolitan Manila area,
then the jurisdictional amount is ₱400,000.00 or less.
(The Rule on Summary Procedure may find
application)

1. The decision of the Municipal or Metropolitan

Trial Court shall be the subject of a notice of appeal
directed to the Regional Trial Court.

2. The decision of the Regional Trial Court in aid of

83
UNDISPUTED ASSESSMENT
its appellate jurisdiction shall be the subject of a
petition for review directed to the CTA, en banc.

3. The decision of the CTA en banc is the subject of

a motion for reconsideration or new trial after which
the matter is elevated to the Supreme Court on a pure
question of law on a petition for review on certiorari
under Rule 45.

84
UNDISPUTED ASSESSMENT
b. Regional Trial Court. If the basic amount of the
tax to be collected (except interests, and surcharges)
is more than ₱300,000.00 but less than ₱1,000,000.00,
the case should be filed before the proper Regional
Trial Court outside of Metropolitan Manila or if the
court is in Metropolitan Manila area, then the
jurisdictional amount is ₱400,000.00 or more but less
than ₱1,000,000.00.

85
UNDISPUTED ASSESSMENT
1. The decision of the RTC shall be the subject of one
motion for reconsideration or new trial, thence of a
petition for review directed to a CTA division.

2. The decision of the CTA division shall be the

subject of a motion for reconsideration or motion for
new trial directed to the same CTA division that
rendered the decision.

86
UNDISPUTED ASSESSMENT
3. The resolution of the CTA division on the subject of
a motion of reconsideration or new trial is the subject
of a petition for review directed to the CTA en banc
after which the matter is elevated to the Supreme
Court on a pure question of law on a petition for
review on certiorari under Rule 45.

87
LETTER OF AUTHORITY
The authority of revenue officers to examine the books
and records of any person is cognizable by the CTA. “It
must be stressed that the assessment of internal revenue
taxes is one of the duties of the BIR” as stated under
Section 2 of the NIRC, the Powers and Duties of the BIR.
“In connection therewith, the CIR may authorize the
examination of any taxpayer and correspondingly make
an assessment whenever necessary.

88
LETTER OF AUTHORITY
Thus, to give more teeth to such power of the CIR, to
make an assessment, the NIRC authorizes the CIR to
examine any book, paper, record, or data of any person.
“The powers granted by law to the CIR are intended,
among other things, to determine the liability of any
person for any national internal revenue tax.”

89
LETTER OF AUTHORITY (LOA)
A LOA is the authority given to the appropriate revenue
officer assigned to perform assessment functions. It
empowers or enables said revenue officer to examine the
books of accounts and other accounting records of a
taxpayer for the purpose of collecting the correct amount of
tax.

A LOA is premised on the fact that the examination of

a taxpayer who has already filed his tax returns is a power
that statutorily belongs only to the Commissioner of Internal
Revenue or his duly authorized representative.
90
LETTER NOTICE COULD NOT TAKE THE PLACE OF THE
MANDATORY LOA BECAUSE THEY ARE DIFFERENT
LETTER OF AUTHORITY (LOA) LETTER NOTICE (LN)
A LOA addressed to a revenue officer A LN is not found in the NIRC and is
is specifically required under the NIRC only for the purpose of notifying the
before an examination of a taxpayer taxpayer that a discrepancy is found
may be had based on the BIR’s RELIEF System.

A LOA is valid only for 30 days from A LN has no such limitation.

date of issue.
A LOA gives the revenue officer only a A LN does not contain such limitation.
period of 30 days from receipt of LOA
to conduct his examination of the
taxpayer.
91
PERIOD TO BE STATED IN LOA

LOA covers only one year. “A Letter of Authority

should cover a taxable period not exceeding one taxable
year. The practice of issuing LOA as covering audit of
“unverified prior years” is hereby prohibited. If the audit
of a taxpayer shall include more than one taxable period,
the other periods or years shall be specifically indicated
in the LOA.” (Revenue Memorandum Order No. 43-90,
Sec. C.3)

92
 A valid LOA does not necessarily clothe validity to an
assessment issued on it, as when the revenue officers
designated in the LOA act in excess or outside of the authority
granted them under said LOA. “The audit process normally
commences with the issuance by the CIR of a Letter of
Authority. The LOA gives notice to the taxpayer that it is under
investigation for possible deficiency tax assessment; at the
same time it authorizes or empowers a designated revenue
officer to examine, verify, and scrutinize a taxpayer’s books
and records, in relation to internal revenue tax liabilities for a
particular period.” (CIR v. Lancaster Phils., Inc. GR No. 183408,
July 12, 2017)
93
TAX AUDIT
 This is the examination of the taxpayer’s tax records
such as books of accounts, original documents in the
form of invoices, purchase orders, vouchers, etc. for
comparison with the returns that are filed.

 The purpose is to determine the true tax liability of the

taxpayer.

94
GENERAL RULE: ONCE A YEAR EXAMINATION, EXCEPTIONS
The books of accounts and accounting records shall be subject to
examination and inspection by internal revenue officers: Provided, That
for income tax purposes, such examination and inspection shall be
made only once in a taxable year, except in the following cases:

1. Fraud, irregularity or mistakes, as determined by the

Commissioner.
2.The taxpayer requests reinvestigation.
3.Verification of compliance with withholding tax laws and
regulations.
4.Verification of capital gains tax liabilities, and
5. In the exercise of the Commissioner’s power under Section 5(B) to
obtain information from other persons in which case, another or
separate examination and inspection may be made.
95
WHAT METHODS MAY BE UTILIZED BY THE COMMISSIONER OF
INTERNAL REVENUE TO DETERMINE THE CORRECT TAXABLE
INCOME OF THE TAXPAYER IF THE LATTER’S RECORD OR METHODS
OF ACCOUNTING ARE NOT REFLECTIVE OF HIS TRUE INCOME?

The general methods that may be used by the CIR for

determining the correct taxable income of the taxpayer if the
latter’s record or methods of accounting are not reflective of
his true income are referred to as the “Constructive Methods
of Income Determination” (also known as the “Indirect
Methods of Income Determination”), or the “Best Evidence
Obtainable Rules”.

96
 Some of the specific methods under the “Constructive Methods of Income
Determination” (also known as the “Indirect Methods of Income Determination”), or
the “Best Evidence Obtainable Rules” may include the following:

a. Net worth method

b. Cash expenditure method
c. Percentage method.
d. Bank deposit method.
e. Unit and value method.
f. Third party information or access to records method.
g. Inventory method.
h. Surveillance and assessment method.

The above methods are not exclusive in character because there may be such
methods used which in the opinion of the BIR Commissioner clearly reflects the
income.
97
CONSTRUCTIVE METHODS OF
INCOME DETERMINATION
The constructive methods of income determination
refers to the instances when the BIR Commission does
not trust the veracity of the contents of a tax return, (such
as in the cases of false or fraudulent returns), no tax
returns were filed or where there is doubt as to the true
income of the taxpayer.

These methods are also known as the “indirect

methods of income determination.”
98
INSTANCES WHERE BIR COMMISSIONER MAY MAKE OR
AMEND A TAX RETURN FROM HIS OWN KNOWLEDGE OR
OBTAINED THROUGH TESTIMONY OR OTHERWISE

a. Upon failure of a person to file a required return.

b. When a person willfully or otherwise file a false or
fraudulent return or other document.

99
ISSUANCE OF PRE-ASSESSMENT NOTICE OR
PRELIMINARY ASSESSMENT NOTICE (PAN)

“If after review and evaluation by the Commissioner

or his duly authorized representative, as the case may be,
it is determined that there exists sufficient basis to
assess the taxpayer for any deficiency tax or taxes, the
said Office shall issue to the taxpayer a Preliminary
Assessment Notice (PAN) for the proposed assessment.
It shall show in detail the facts and the law, rules and
regulations, or jurisprudence on which the proposed
assessment is based.
100
A PRE-ASSESSMENT NOTICE SHALL NOT BE REQUIRED
IN THE FOLLOWING CASES:

1. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return filed by the
taxpayer; or
2. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
3. When a taxpayer who has opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
4. When the excise tax due on excisable articles has not been paid; or
5. When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.

In the above-cited cases, a FLD/FAN shall be issued outright.

101
PERIOD FOR RESPONDING TO PAN
“Within a period to be prescribed by implementing
rules and regulations, the taxpayer shall be required to
respond to said notice.”

The period to respond as prescribed by rules and

regulations. If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the PAN, he shall be
considered in default.

102
WHO ISSUES THE FORMAL LETTER OF DEMAND
(FLD) AND FINAL ASSESSMENT NOTICE (FAN)

The Commissioner or his duly authorized

representative may issue a final letter of demand (FLD)
and a final assessment notice (FAN).

103
INSTANCES WHEN FLD/FAN ARE ISSUED:
1. If there is no need to issue a preliminary assessment
notice, because the circumstances show that it fall
within the exceptions for the issuance of a preliminary
assessment;
2. If the taxpayer is in default for failure to respond to
the preliminary assessment notice with a period of 15
days from receipt of the PAN; or
3. If the Commissioner or his duly authorized
representative does not agree with the justifications
stated by the taxpayer in his reply to the PAN.
104
CONTENTS OF FLD/FAN
The FLD/FAN calling for payment of the taxpayer’s deficiency
tax or taxes shall state the
1. facts,
2. the law,
3. rules and regulations
4. or jurisprudence
a. on which the assessment is based;
b. otherwise the assessment shall be VOID,
5. a computation of tax liabilities,
6. but also a demand for payment within a prescribed period.

It also signals the time when penalties and interests begin to

accrue against the taxpayer.
105
COLLECTION

Collection refers to the procedures and methods

utilized by the BIR to ensure that the taxpayer pays the
taxes, fees and penalties that are due to the government.
They may involve various administrative and judicial
remedies.

106
REQUISITES BEFORE A TAXPAYER MAY BE
REQUIRED TO PAY THE ASSESSED TAX
1. There must be an assessment that has become final, executory
and collectible.
2. The amount being collected must be part of the government’s
accounts receivable.
3. The amount being collected must not have been written-off or
cancelled.
4. The right of the government to collect has not yet prescribed.
5. The proper procedure for collection whether administrative or
judicial are followed.
6. The taxpayer can still be located.
7. The government is not enjoined from collecting the tax.
107
PREREQUISITE BEFORE THE GOVERNMENT MAY AVAIL
OF ADMINISTRATIVE OR JUDICIAL REMEDIES TO
COLLECT TAXES
1. The taxes must be part of the Accounts Receivable or
Delinquent Account (AR/DA) before the government may
collect taxes through its administrative and judicial
remedies.
2. The AR/DA must not have been written-off or cancelled.
3. The amounts being collected must not have been the
subject of Authority to Cancel Assessment (ATCA).
4. The ARs/DA are not closed.
5. The amounts collected are not part of suspense ARs/DAs.
108
PRESCRIPTIVE PERIODS FOR COLLECTION OF THE TAX
1. In the case of a false or fraudulent return with intent to
evade tax or failure to file a return, 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
falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact
of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof. (NIRC OF 1997,
Sec. 222 (a)

2. Any internal revenue tax covered by a false or fraudulent

return with intent to evade tax or of failure to file a return
109
PRESCRIPTIVE PERIODS FOR COLLECTION OF THE TAX
which has been assessed at any time within ten (10) years
after the discovery of the falsity, fraud or omission: may be
collected by distraint or levy or by a proceeding in court within
five (5) years following the assessment of the tax. [Sec. 222
(c) in relation to Sec. 222 (a)]

3. Any internal revenue tax, which has been assessed within the
period agreed upon by the parties, may be collected by
distraint or levy or by a proceeding in court within the period
upon in writing before the expiration of the 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. (Section 222 (d) 110
PRESCRIPTIVE PERIODS FOR COLLECTION OF THE TAX

4. Provided, however, That nothing in the immediately

preceding and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into
any tax return filed in accordance with the provisions of any
tax amnesty law or decree. [Sec. 222 (e)]

111
PRESCRIPTIVE PERIODS FOR COLLECTION OF
INTERNAL REVENUE TAXES
1. Within five (5) years from the issuance of an assessment
notice where there was a return filed, the return is not false
and fraudulent, and the assessment is not an extended one
which is issued after an agreement between the taxpayer
and the BIR to suspend the running of the prescriptive
period. (RMO No. 11-2014)
2. Where the internal revenue tax has been assessed within
the period of ten (10) years after the discovery of falsity,
fraud or omission in the filing of the tax return the
prescriptive period for collection is within five (5) years
following the assessment of the tax. [Sec. 222 (c)]
112
PRESCRIPTIVE PERIODS FOR COLLECTION OF
INTERNAL REVENUE TAXES

3. Where the assessment was issued within a period agreed

upon between the taxpayer and the BIR, this is an extended
assessment which could be collected within a period of
five (5) years from issuance of the assessment. [Sec. 222
(d) in relation to Sec. 222 (b)]
4. A period of ten (10) years from the discovery of fraud
applies where there is a fraud but no tax return was filed.

113
WHEN AN ASSESSMENT IS CONSIDERED
AS HAVING BEEN MADE
The date when the notice is released, mailed or sent to
the taxpayer is the day when it is made or issued, and not the
date of the notice.

The rule that an assessment is deemed made for the

purpose of giving effect to such assessment when the notice
is released, mailed or sent to the taxpayer to effectuate the
assessment requires that the notice be sent to the taxpayer
and not merely to a disinterested party.

114
MAY THE COLLECTION OF TAXES BE
BARRED BY PRESCRIPTION?
Answer: Yes. The collection of taxes may be barred
by prescription.

The prescriptive period for collecting internal

revenue taxes is generally five (5) years from the
issuance of an assessment notice. In case of a false or
fraudulent return where there is an assessment, or in the
instance of an extended assessment, the prescriptive
period within which to collect is five (5) years from the
issuance of the assessment. Where the return is false or
115
MAY THE COLLECTION OF TAXES BE
BARRED BY PRESCRIPTION?

fraudulent, or no return was filed, the deficiency taxes

may be collected even without an assessment within ten
(10) years from discovery of the falsity, fraud or failure to
file the tax return.

Collection of taxes undertaken by the BIR beyond

the periods above stated would be barred by prescription.

116
NOTE:
The prescriptive run despite the supervening event
of filing the protest with the BIR and the petition for
review with the CTA because an assessment notice that
has attained a state of finality could not anymore be re-
opened. This is so because this would prejudice tax
collection.

117
EVENTS THAT INTERRUPT THE PRESCRIPTIVE PERIOD
TO COLLECT TAX
The beginning of distraint or levy, a proceeding in
court for collection, in respect of any deficiency, shall be
suspended for the period

1. When the CIR is prohibited from beginning distraint,

or levy or a proceeding in court and for sixty (60)
days thereafter.
2. When the taxpayer request for and is granted a re-
investigation by the Commissioner.
118
EVENTS THAT INTERRUPT THE PRESCRIPTIVE PERIOD
TO COLLECT TAX
The prescription of an action to collect a taxpayer’s
deficiency income tax assessment is interrupted when
the taxpayer requests for a review or reconsideration of
said assessment, and starts to run again when said
request is denied. (CIR v. Capitol Subdivision Inc., 10
SCRA 773)

3. When the taxpayer could not be located in the

address given by him in the return filed upon which
the tax is being collected.
119
EVENTS THAT INTERRUPT THE PRESCRIPTIVE PERIOD
TO COLLECT TAX
4. When the warrant of distraint and 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.
5. When the taxpayer is out of the Philippines.
6. When before the expiration of the three (3) year period for
assessment, there is an agreement in writing between the BIR
Commissioner and the taxpayer, the assessed tax may be
collected within the period agreed upon in writing before the
expiration of the five (5) year period, or any subsequent written
agreements made before the expiration of the period previously
agreed upon.
120
EVENTS THAT INTERRUPT THE PRESCRIPTIVE PERIOD
TO COLLECT TAX

7. When by the taxpayer’s repeated requests or positive

acts the Government has been, for good reasons,
persuaded to postpone collection to make him feel
that the demand was not unreasonable or that no
harassment or injustice is meant by the Government.
The taxpayer is by his own acts estopped from
raising the defense of prescription.

121
INSTANCE WHERE THE COMMISSIONER OF INTERNAL
REVENUE IS PROHIBITED FROM MAKING THE
ASSESSMENT, OR COLLECTING OR INSTITUTING A
PROCEEDING IN COURT

When in the opinion of the CTA the collection by the

BIR may jeopardize the interest of the Government and or
the taxpayer the Court at any stage of the proceedings
may suspend the said collection and require the taxpayer
either to deposit the amount claimed or to file a surety
bond for not more than double the amount with the court.
(RA No. 1125, Sec. 11, 2nd par.)
122
UNACTED REQUEST FOR RECONSIDERATION OF
ASSESSMENT DOES NOT SUSPEND PERIOD TO COLLECT

A request for reconsideration of the assessment by

the taxpayer which was not considered or acted upon by
the Commissioner does NOT suspend the running of the
period for filing of an action for collection.

123
NATURE OF REQUEST FOR REINVESTIGATION WHICH, IF
GRANTED, SUSPENDS THE STATUTE OF LIMITATIONS

Reinvestigation of a prior assessment which paves

the way for a new or revised assessment.

124
REQUEST FOR RECONSIDERATION OR REINVESTIGATION MUST
CONTAIN A VALID WAIVER AND MUST BE GRANTED BY THE
COMMISSIONER OTHERWISE THE PRESCRIPTIVE PERIOD TO ASSESS
AND COLLECT IS NOT SUSPENDED

The Supreme Cout had consistently ruled in a number of

cases that a request for reconsideration or reinvestigation by the
taxpayer, without a valid waiver of the prescriptive periods for the
assessment and collection of tax, as required by the Tax Code and
implementing rules, will not suspend the running thereof.

Furthermore, the act of requesting a reinvestigation alone

does not suspend the period. The request should first be granted,
in order to effect suspension.
125
WHO HAS THE BURDEN OF PROOF TO SHOW THAT THE
MOTION FOR REINVESTIGATION HAS BEEN GRANTED

The burden of proof that the taxpayer’s request for

reinvestigation had been actually granted shall be on
the BIR Commissioner. The grant may be expressed in
communications with the taxpayer or implied from the
actions of the BIR Commissioner or his authorized
representatives in response to the request for
reinvestigation. The grant must have eventually resulted
in the issuance of an amended assessment. (BPI v. CIR,
GR No. 139736, Oct. 17, 2005)
126
 On the basis of the grant of reinvestigation, the period
between the request for reinvestigation and the revised
assessment should be SUBTRACTED from the total
prescriptive period for the assessment of the tax; and,
once the assessment had been reconsidered at the
taxpayer’s instance, the period for collection should
begin to run from the date of the reconsidered or
modified assessment.

127
STATUTORY PERIODS FOR COLLECTION REFER ONLY TO
COURT ACTION AND NOT TO THE SUMMARY
PROCEDURES FOR COLLECTION

The timely service of a warrant of distraint or levy

suspends the running of the period to collect the tax
deficiency in the sense that the disposition of the attached
properties might well take time to accomplish, extending even
after the lapse of the statutory period for collections.
(Advertising Associates, Inc. v. CA, et. al., 133 SCRA 765;
Palanca v. CIR, 114 Phil. 203)

In the above cases, the BIR did not file any collection
128
STATUTORY PERIODS FOR COLLECTION REFER ONLY TO
COURT ACTION AND NOT TO THE SUMMARY
PROCEDURES FOR COLLECTION

case in court but merely relied on the summary remedy

of distraint and levy to collect the tax deficiency.

Thus, the enforcement of tax collection through

summary proceedings may be carried out beyond the
statutory period.

129
UNDER SEC. 223 (C) OF 1977, AS AMENDED [NOW SEC.
222 (C) OF THE NIRC OF 1997, AS AMENDED] THE
WARRANT OF DISTRAINT AND/OR LEVY NEED NOT BE
FULLY EXECUTED TO SUSPEND THE PRESCRIPTIVE
PERIOD FOR COLLECTION OF THE TAX.

It is enough that the proceedings have validly

began or commenced and that their execution has not
been suspended by reason of the voluntary desistance
of the BIR Commissioner.

Existing jurisprudence establishes that distraint

130
UNDER SEC. 223 (C) OF 1977, AS AMENDED [NOW SEC.
222 (C) OF THE NIRC OF 1997, AS AMENDED] THE
WARRANT OF DISTRAINT AND/OR LEVY NEED NOT BE
FULLY EXECUTED TO SUSPEND THE PRESCRIPTIVE
PERIOD FOR COLLECTION OF THE TAX.

and levy proceedings are validly begun or commenced

by the issuance of the warrant and service thereof on
the taxpayer.

It is only logical to require that the Warrant of

Distraint and/or Levy be, at the very least, served upon
131
UNDER SEC. 223 (C) OF 1977, AS AMENDED [NOW SEC.
222 (C) OF THE NIRC OF 1997, AS AMENDED] THE
WARRANT OF DISTRAINT AND/OR LEVY NEED NOT BE
FULLY EXECUTED TO SUSPEND THE PRESCRIPTIVE
PERIOD FOR COLLECTION OF THE TAX.

the taxpayer in order to suspend the running of the

prescriptive period for collection of the assessed tax,
because it may only be upon the service of the Warrant
that the taxpayer is informed of the denial by the BIR of
any pending protest of said taxpayer, and the resolute
intention of the BIR to collect the tax assessed.
132
NIRC of 1997, SEC. 222 (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 in
court within five (5) years following the
assessment of the tax.

133
NIRC of 1997, SEC. 222 (C)
In the case of a false or fraudulent return with intent
to evade tax or of failure to file a 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 falsity,
fraud, or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud
shall be judicially taken cognizance of in the civil or
criminal action fro the collection thereof.

134
TAXPAYER’S
REMEDIES

135
PROTESTING AN ASSESSMENT
Protest, defined. As used in internal revenue taxation, protest
is the act by the taxpayer of questioning the validity of the imposition
of the corresponding delinquency increments for internal revenue
taxes as shown in the formal letter of demand and final assessment
notice. (FLD/FAN)

It may be in the nature of a request for reinvestigation or

request for reconsideration of the assessment issued by internal
revenue officers.

A protested assessment is sometimes referred to as a

“disputed assessment.”
136
PROTEST UNDER THE NIRC OF 1997 DISTINGUISHED
FROM PROTEST UNDER THE OTHER TAX LAWS
Protests under the NIRC of 1997 as well Under the Customs Modernization and
as under the Local Government Code Tariff Act (CMTA), payment of the
for local taxes does not require payment protested customs duties is a
of the taxes being protested. requirement.

So also, under the provisions of the

Local Government Code for real
property taxes, where the issue is
reasonableness or excessiveness of the
tax being collected, payment under
protest is required, but not where the
issue is validity or legality of the tax, or
solution indebiti.

137
PROTEST UNDER THE NIRC OF 1997 DISTINGUISHED
FROM PROTEST UNDER THE OTHER TAX LAWS

Protests under the NIRC of 1997 For real property taxation, the
should be filed within thirty (30) protest is to be filed at the time
days from receipt of the of the payment of the tax being
assessment notice. protested.

Under the Customs

Modernization and Tariff Act
(CMTA), the protest should be
filed at the time the payment of
the additional tax or within
fifteen (15) days thereafter.
138
TO WHOM PROTEST FILED
Taxpayers shall submit/file their protests (requests
for reconsideration/reinvestigation) to the FLD/FAN with
the duly authorized representative of the Commissioner
who signed the FLD/FAN.

Protests in the nature of requests for

reconsideration of taxpayers elevated to the
Commissioner arising from inactions or adverse
decisions of the “duly authorized representatives” shall
be filed with the Office of the Commissioner.
139
PROTESTING ASSESSMENTS UPON ECOZONES

Where the assessment and letter of demand is

made for any deficiency, 5% special income tax due from
PEZA-registered enterprises registered under and
operating pursuant to the Special Economic Zone Act, as
implemented by the Philippine Economic Zone Authority
(PEZA), the letter of protest must be filed with the BIR
informing in the process the Treasurer of the
city/municipality concerned with a copy of the protest
letter filed with the BIR.
140
MANNER OF FILING PROTEST
All letters of protest, requests for
reinvestigation/reconsideration and similar
correspondences shall only be filed by the taxpayers or
their duly authorized representatives, in person or through
registered mail with return card, with the Office of the
concerned Regional Director (RD), Assistant
Commissioner – Large Taxpayers Service (ACIR-LTS) and
Assistant Commissioner – Enforcement Service (ACIR-
ES), who signed the Preliminary Assessment Notices
141
MANNER OF FILING PROTEST
(PANs), FANs and Formal Letters of Demand, for proper
recording of the protests, and evaluation if the same is in
accordance with Section 228 of the NIRC, as
implemented by Revenue Regulations No. 12-99.

If the aforesaid procedures are not followed, then

the letters of protest, requests for
reinvestigation/reconsideration and similar
correspondences shall be considered VOID and without
force and effect.
142
PROTESTED ASSESSMENT
A protested assessment is one whose validity is
questioned by the taxpayer. It has the same meaning as a
disputed assessment.

A protested assessment could NOT be the subject of

collection by the BIR because there is no final determination
yet of the amount due from the taxpayer or whether the
taxpayer is indeed liable for the payment of the tax.

Under the NIRC of 1997, to administratively protest or

dispute assessment means the same.
143
JURISPRUDENTIAL GUIDELINES FOR PROTESTING
ASSESSMENTS OF INTERNAL REVENUE TAXES

When the Commissioner or his duly authorized

representative finds that proper taxes should be
assessed, he shall first notify the taxpayer of his findings.

The taxpayers shall be informed in writing of the law

and the facts on which the assessment is made;
otherwise, the assessment shall be VOID.

Such assessment may be protested administratively

144
JURISPRUDENTIAL GUIDELINES FOR PROTESTING
ASSESSMENTS OF INTERNAL REVENUE TAXES

by filing a request for reconsideration or reinvestigation

within thirty (30) days from receipt of the assessment in
such form and manner as may be prescribed by
implementing rules and regulations.

Within sixty (60) days from filing of the protest, all

relevant supporting documents shall have been
submitted; otherwise, the assessment shall become
final.
145
JURISPRUDENTIAL GUIDELINES FOR PROTESTING
ASSESSMENTS OF INTERNAL REVENUE TAXES

If the protest is denied in whole or in part, or is not

acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from receipt
of the said decision, or from the lapse of the 180 day
period; otherwise, the decision shall become final,
executory and demandable.

146
PERIOD TO FILE PROTEST

The taxpayer or its duly authorized representative or

tax agent may protest administratively against the Formal
Letter of Demand and the Final Assessment Notice
(FLD/FAN) within thirty (30) days from date of receipt
thereof.

147
COMPUTATION OF THE 30 DAY PERIOD WITHIN WHICH
TO DISPUTE ASSESSMENT

The 30 day period is counted from receipt by the taxpayer

of the assessment. The burden is on the Commissioner to
show when the taxpayer received the assessment.

The presumption that “a letter duly directed and mailed

was received in the regular course of mail” (ROC, Rule 131,
Sec. 5(v), Rule 131), is disputable subject to controversion.
Once receipt of the assessment is denied, the burden to prove
receipt is shifted to the party favored by the presumption of
receipt, in this case the BIR.
148
ASSESSMENT DEEMED MADE

An assessment is deemed made only when the

collector of internal revenue releases, mails or
sends such notice to the taxpayer. A revenue
officer’s Affidavit merely contained a computation of
respondent’s tax liability. It did not state a demand or
a period for payment. Worse, it was addressed to the
justice secretary, not to the taxpayers. (CIR v. Pascor,
309 SCRA 402)
149
WHEN ASSESSMENT IS DEEMED MADE
OR ISSUED

It is well settled that an assessment is deemed

made when notice to this effect is released, mailed, or
sent by the Collector (now Commissioner) to the taxpayer
and it is not required that the notice be received by the
taxpayer within the aforementioned five-year period (now
three years). (Basilan Estates, Inc. v. The CIR, et al., 21
SCRA 17)

150
WHAT ARE THE DIFFERENCES BETWEEN A REQUEST FOR RECONSIDERATION
AND A REQUEST FOR REINVESTIGATION AS A MODE OF PROTEST?

REQUEST FOR RECONSIDERATION REQUEST FOR REINVESTIGATION

It does not suspend the running of the
prescriptive period for collection of taxes.
It does not require the presentation of newly
discovered or additional evidence.
The period of 60 days for submission of the
relevant supporting documents does not find
application to a request for reconsideration.
The failure of the CIR to act on the request for
reconsideration after a period of 180 days from
the filing thereof authorizes the taxpayer to file a
petition for review with the CTA within a period
of 30 days from the expiration of such 180 day
period.
It suspends the running of the prescriptive
period.
It requires the presentation of newly discovered
or additional evidence.
The period of 60 days for submission of the
relevant supporting documents finds application
to a request for reinvestigation.
For a request for reinvestigation, the period is
the expiration of the 180 day period from the
submission of the complete supporting
documents.
151
FORM OF PROTEST

The taxpayer protesting an assessment may file a

written request for

1. reconsideration
2. or reinvestigation.

152
TWO KINDS OF PROTEST TO AN ASSESSMENT

1. Request for reconsideration – refers to a plea for a re-

evaluation of an 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.

2. Request for reinvestigation – refers to a plea for re-

evaluation of an assessment on the basis of newly discovered or
additional evidence that a taxpayer intends to present in the
reinvestigation.

It may also involve a question of fact or law or both.

153
SEC. 223 OF THE TAX CODE OF 1997,
AS AMENDED

The running of the prescriptive period for collection

of taxes can only be suspended by a request for
reinvestigation, not a request for reconsideration.

154
CONTENT AND VALIDITY OF PROTEST
The taxpayer shall state in his protest:

1. the nature of protest whether reconsideration or

reinvestigation, specifying newly discovered or additional
evidence he intends to present if it is a request for
reinvestigation,
2. date of the assessment notice, and
3. The applicable law, rules and regulations, or jurisprudence
on which his protest is based,
4. Otherwise, his protest shall be considered VOID and
without force and effect.
155
SUMMARY OF REQUIREMENTS FOR AN ADMINISTRATIVE
PROTEST OR DISPUTE

a. The taxpayer must comply with the formal requisites

for the protest in the form of a request for
reconsideration or reinvestigation.
b. The protest must be filed within the reglementary
period of thirty (30) days from receipt of the
FLD/FAN.
c. If required, the proper taxes must be paid on the
undisputed issues.

156
SUMMARY OF REQUIREMENTS FOR AN ADMINISTRATIVE
PROTEST OR DISPUTE
d. If the protest is in the form of a request for reinvestigation
then the relevant supporting documents must be submitted
within sixty (60) days from date of filing of his letter of
protest.
e. There must be a waiver of the prescriptive period for
collection of the tax. (in BPI v. CIR, GR No. 139736, Oct. 17,
2005 citing various cases that, a request for
reconsideration or reinvestigation by the taxpayer, without
a valid waiver of the prescriptive periods for the
assessment and collection of tax, as required by the Tax
Code and implementing rules, will not suspend the running
thereof. 157
EFFECT OF FAILURE TO STATE THE FACTS, THE
APPLICABLE LAW, RULES AND REGULATIONS OR
JURISPRUDENCE IF THERE ARE SEVERAL ISSUES
INVOLVED IN THE DISPUTED ASSESSMENT.

If there are several issues involved in the disputed

assessment and the taxpayer fails to state the facts,
the applicable law, rules and regulations, or
jurisprudence in support of his protest against some of
the several issues on which the assessment is based,
the same shall be considered undisputed issue or
issues.
158
GENERAL RULE:

NO PRIOR PAYMENT OF THE ASSESSED

INTERNAL REVENUE TAX IS REQUIRED WHEN
PROTESTED OR DISPUTED.

159
EXCEPTIONS:
1. If there are several issues involved in the FLD/FAN but
the taxpayer only disputes or protests against the
validity of some of the issues raised, the assessment
attributable to the undisputed issue or issues shall
become final, executory and demandable; and the
taxpayer shall be required to pay the deficiency tax or
taxes attributable thereto, in which case, a collection
letter shall be issued to the taxpayer calling for
payment for the said deficiency tax or taxes, inclusive
of the applicable surcharge and/or interest.
160
EXCEPTIONS:
2. If there are several issues involved in the disputed
assessment and the taxpayer fails to state the facts, the
applicable law, rules and regulations, or jurisprudence in
support of his protest against some of the several issues
on which the assessment is based, the same shall be
considered undisputed issue or issues, in which case, the
taxpayer shall be required to pay the corresponding
deficiency tax or taxes attributable thereto and a collection
letter shall be issued to the taxpayer calling for payment of
the said deficiency tax, inclusive of the applicable
surcharge and/or interest. 161
REQUESTS FOR REINVESTIGATION REQUIRES
SUBMISSION OF COMPLETE SUPPORTING DOCUMENTS

For requests for reinvestigation, the taxpayer shall

submit the required documents in support of his protest
within sixty (60) days from date of filing of his letter of
protest, otherwise, the assessment shall become final,
executory and demandable.

Within sixty (60) days from the filing of the protest,

all relevant supporting documents shall have been
submitted, otherwise, the assessment shall become final.
162
EFFECT OF FAILURE TO FILE PROTEST
1. If the taxpayer fails to file a valid protest against the
FLD/FAN within thirty (30) days from date of receipt
thereof,

a. the assessment shall become final, executory and

demandable.
b. No request for reconsideration or reinvestigation shall
be granted on tax assessments that have already become
final, executory and demandable.

Such an assessment notice is referred to as an

undisputed assessment which could not be appealed to
the CTA. 163
EFFECT OF FAILURE TO FILE PROTEST

2. The BIR has a period of five (5) years from making of

the assessment within which to avail of its judicial
and administrative remedies to collect the tax.

The BIR could then file an ordinary action for

collection of sum of money with the regular courts or
with the CTA depending upon the jurisdictional amount.

Where the principal amount of the tax is ₱1 million

or higher, the case should be filed with the CTA.
164
WHAT ARE THE REQUISITES BEFORE A TAXPAYER’S REQUEST
FOR REINVESTIGATION MAY BE GRANTED BY THE BIR?
The requisites for the grant of the protest, dispute,
reconsideration or reinvestigation are the following:

a) Showing that the protest was seasonably filed within thirty

(30) days from receipt of the assessemnt notice.
b) Compliance with the formal requirements for an
administrative protest.
c) Proof that the assessment is wrong.
d) Proof that the assessment is merely a presumption and
not based on actual facts.
e) Showing of the correct and just assessment.
165
BURDEN ON PROTESTING TAXPAYER TO PROVE NON-
LIABILITY FOR DEFICIENCY TAX

In case of disputed assessments, the burden of

proof is on the taxpayer to establish the fact that it is
indeed not liable for any deficiency taxes subject of the
assessment.

The failure to show documents that would

substantiate a claim that no deficiency taxes are due,
would result to upholding the validity of the assessment
for deficiency income taxes.
166
PERIOD TO ACT UPON OR DECIDE ON THE
PROTEST FILED
The period within which the BIR Commissioner should
act, decide a protest that is seasonably filed depends upon the
nature of the protest.

1. A protest in the nature of a motion for reconsideration.

Within 180 days from submission of the motion for
reconsideration.

2. A protest in the nature of a motion for reinvestigation.

Within 180 days from submission of the complete supporting
documents. 167
 What is appealable to the CTA is the “decision” of
the CIR on disputed assessment and not the assessment
itself.

An assessment becomes a disputed assessment

after a taxpayer has filed its protest to the assessment in
the administrative level.

Thereafter, the CIR either issues a decision on the

disputed assessment or fails to act on it and is, therefore,
considered denied.
168
 The taxpayer may then appeal the decision on the
disputed assessment or the inaction of the CIR. As such,
the Final Decision on Disputed Assessment (FDDA) is not
the only means that the final tax liability of a taxpayer is
fixed, which may then be appealed by the taxpayer.

Under the law, inaction on the part of the CIR may

likewise result in the finality of a taxpayer’s tax liability as
it is deemed a denial of the protest filed by the latter,
which may also be appealed before the CTA.
169
TAXPAYER’S REMEDIES IN CASE THE COMMISSIONER
DENIES THE PROTEST

a. In case of denial of protest

If the protest is denied, in whole or in part, by the

Commissioner’s duly authorized representative, the
taxpayer may either:

1. appeal to the Court of Tax Appeals (CTA) within

thirty (30) days from date of receipt of the said decision;
or
170
TAXPAYER’S REMEDIES IN CASE THE COMMISSIONER
DENIES THE PROTEST

2. elevate his protest through request for

reconsideration to the Commissioner within thirty
(30) days from date of receipt of the said decision.
No request for reinvestigation shall be allowed in
administrative appeal and only issues raised in the
decision of the Commissioner’s duly authorized
representative shall be entertained by the
Commissioner.

171
TAXPAYER’S REMEDIES IN CASE THE COMMISSIONER
DENIES THE PROTEST

If the protest or administrative appeal, as the case may

be, is denied, in whole or in part, by the Commissioner, the
taxpayer may APPEAL to the CTA within thirty (30) days from
date of receipt of the said decision. Otherwise, the
assessment shall become final, executory and demandable.

A motion for reconsideration of the Commissioner’s

denial of the protest or administrative appeal, as the case
may be, shall NOT toll the thirty (30) – day period to appeal to
the CTA.
172
THREE (3) OPTIONS AVAILABLE TO
A PROTESTING TAXPAYER
1. If the protest is wholly or partially denied by the CIR or his
authorized representative, then the taxpayer may appeal to
the CTA within 30 days from receipt of the whole or partial
denial of the protest.
2. If the protest is wholly or partially denied by the CIR’s
authorized representative, then the taxpayer may appeal to
the CIR within 30 days from receipt of the whole or partial
denial of the protest.
3. If the CIR or his authorized representative failed to act upon
the protest within 180 days from submission of the required
supporting documents, then the taxpayer may appeal to the
CTA within 30 days from the lapse of the 180-day period. 173
 To further clarify the 3 options: A whole or partial
denial by the CIR’s authorized representative may be
appealed to the CIR or the CTA. A whole or partial denial
by the CIR may be appealed to the CTA.

The CIR or the CIR’s authorized representative’s

failure to act may be appealed to the CTA. There is no
mention of an appeal to the CIR from the failure to act by
the CIR’s authorized representative, (Pagcor vs. BIR et al.,
GR No. 208731, 1/27/16)
174
TAXPAYER’S REMEDIES IN CASE OF INACTION
BY THE COMMISSIONER ON THE PROTEST
1. If the protest is not acted upon by the
Commissioner’s duly authorized representative
2. within 180 days
3. counted
a. from the date of filing of the protest in case of a
request for reconsideration;
b. or from date of submission by the taxpayer of the
required documents within 60 days from the date
of filing of the protest in case of a request for
reinvestigation, 175
TAXPAYER’S REMEDIES IN CASE OF INACTION
BY THE COMMISSIONER ON THE PROTEST

4. the taxpayer may either:

a. appeal to the CTA within 30 days after the

expiration of the 180-day period;

b. or await the final decision of the

Commissioner’s duly authorized representative on
the disputed assessment.
176
EFFECT OF FAILURE TO APPEAL
If the taxpayers fail to file a petition for review under
Rule 42 of the Rules of Court with the CTA division within
thirty (30) days from receipt of the denial of the protest
(dispute) of the final letter of demand (FLD) and the final
assessment notice (FAN), the same shall become final,
executory and demandable.

The BIR could then utilize its administrative or

judicial remedies for collecting the tax.
177
COMPROMISE
A compromise is a contract whereby the parties,
through mutual agreement, make reciprocal concessions,
in order to avoid a litigation or put an end to one already
commenced. (Civil Code of the Phils., Art. 2028)

A compromise agreement is a contract whereby the

parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced.

178
COMPROMISE IS A MODE OF ESCAPE
FROM TAXATION
Compromise is one way of escaping the burden of
taxation only in those instances where the law specifically
provides for it.

179
EFFECT OF COMPROMISE
When given judicial approval, a compromise
agreement becomes more than a contract binding upon
the parties. Having been sanctioned by the court, it is
entered as a determination of a controversy and has the
force and effect of a judgment. It is immediately
executory and not appealable, except for vices of consent
or forgery. The non-fulfillment of its terms and conditions
justifies the issuance of a writ of execution; in such an
instance, execution becomes a ministerial duty of the
court.
180
COMPROMISE REQUIRES MUTUAL AGREEMENT
BETWEEN THE BIR AND THE TAXPAYER
A compromise penalty could not be imposed by the
BIR, if the taxpayer did not agree. A compromising being,
by its nature, mutual in essence requires agreement. The
payment made under protest could only signify that there
was no agreement that had effectively been reached
between the parties.

A compromise penalty could not be imposed by the

BIR without the agreement and conformity of the
taxpayer. 181
COMPROMISE REQUIRES MUTUAL AGREEMENT
BETWEEN THE BIR AND THE TAXPAYER
A compromise by its very nature implies mutual
agreement by the parties in regard to the thing or subject
matter which is to be compromised.

An offer of compromise does not, therefore, assume

the category of compromise until it is voluntarily accepted
by the other party, and no obligation arises or created by a
simple offer or suggestion coming from one of the parties
without acceptance by the other.
182
STATE POLICY TOWARDS COMPROMISE
Settlement of disputes by way of compromise is an
accepted, nay, desirable practice encouraged by courts of
law and administrative tribunals.

Compromises are to be favored, and that

compromises entered into in good faith cannot be set
aside, but this rule is not without qualification. A court
may still reject a compromise or settlement when it is
repugnant to law, morals, good customs, public order, or
public policy.
183
STATE POLICY TOWARDS COMPROMISE

Compromise may be the favored method to settle

disputes, but when it involves taxes, it may be subject to
closer scrutiny by the courts. A compromise agreement
involving taxes would affect not just the taxpayer and the
BIR, but also the whole nation, the ultimate beneficiary of
the tax revenue collected.

184
AUTHORITY OF COMMISSIONER OF INTERNAL
REVENUE TO COMPROMISE

The Commissioner of Internal Revenue is

authorized to compromise the payment of any internal
revenue tax.

185
THE POWER TO COMPROMISE TAXES IS
DISCRETIONARY IN CHARACTER SUBJECT
TO JUDICIAL REVIEW

The discretionary authority to compromise granted

to the BIR Commissioner is never meant to be absolute,
uncontrolled and unrestrained. No such unlimited power
may be validly granted to any officer of the government,
except perhaps in cases of national emergency.

186
THE POWER TO COMPROMISE TAXES IS
DISCRETIONARY IN CHARACTER SUBJECT
TO JUDICIAL REVIEW
It is generally true that purely administrative and
discretionary functions may not be interfered with by the
courts; but when the exercise of such functions by the
administrative officer is tainted by a failure to abide by the
command of the law, then it is incumbent on the courts to set
matters right, with the Supreme Court having the last say on the
matter. The discretionary power of the BIR Commissioner to
enter into compromises cannot be superior over the power of
judicial review by the courts.
187
BIR COMPROMISE STRICTLY CONSTRUED

A compromise agreement must be strictly

interpreted and must be understood as including only
matters specifically determined therein or which, by
necessary inference from its word must be deemed
included.

188
WHEN COMPROMISE SUBJECT TO THE APPROVAL
OF THE NATIONAL EVALUATION BOARD (NEB)

1. Where the basic tax involved exceed P1 million; or

2. Where the settlement offered is less than the prescribed
minimum rates.

Except for offers of compromise where the approval is

delegated to the Regional Evaluation Board (REB), all compromise
settlements within the jurisdiction of the National Office (NO) shall
be approved by a majority of all the members of the National
Evaluation Board (NEB). All decisions of the NEB, granting the
request of the taxpayer or favorable to the taxpayer, shall have the
concurrence of the Commissioner.
189
WHEN COMPROMISE SUBJECT TO THE
APPROVAL OF THE NATIONAL EVALUATION
BOARD (NEB)
The compromise offer shall be paid by the taxpayer
upon filing of the application for compromise
settlement. No application for compromise settlement
shall be processed without the full settlement of the
offered amount. In case of disapproval of the
application for compromise settlement, the amount
apid upon filing of the aforesaid application shall be
deducted from the total outstanding tax liabilities.
190
TAX CASES WHICH MAY BE THE SUBJECT OF A
COMPROMISE SETTLEMENT WITH THE BIR
1. Delinquent accounts.
2. Cases under administrative protest after issuance of the
Final Assessment Notice to the taxpayer which are still
pending in the Regional Offices, Revenue District Offices,
Legal Service, Large Taxpayer Service (LTS), Collection
Service, Enforcement Service and other offices in the
National Office.
3. Civil tax cases being disputed before the courts.
4. Collection cases filed in courts.
5. Criminal violations, other than those already filed in court,
or those involving criminal tax fraud.
191
TAX CASES WHICH COULD NOT BE THE SUBJECT
OF COMPROMISE WITH THE BIR
1. Withholding tax cases unless the applicant-taxpayer
invokes provisions of law that cast doubt on the
taxpayer’s obligation to withhold.
2. Criminal tax fraud cases, confirmed as such by the
Commissioner of Internal Revenue or his duly authorized
representative.
3. Criminal violations already filed in court.
4. Delinquent accounts with duly approved schedule of
installment payments.
5. Cases where final reports of reinvestigation or
192
TAX CASES WHICH COULD NOT BE THE SUBJECT
OF COMPROMISE WITH THE BIR
reconsideration have been issued resulting to reduction in the
original assessment and the taxpayer is agreeable to such
decision by signing the required agreement form for the
purpose. On the other hand, other protested cases shall be
handled by the Regional Evaluation Board (REB) or the National
Evaluation Board (NEB) on a case to case basis.
6. Cases which become final and executory after final judgment of
a court where compromise is requested on the ground of
doubtful validity of the assessment.
7. Estate tax cases where compromise is requested on the ground
of financial incapacity of the taxpayer.
193
WITHHOLDING TAX CASES MAY NOT BE THE SUBJECT
OF A COMPROMISE UNLESS THE ISSUE IS THE LEGALITY
OF THE REQUIREMENT TO WITHHOLD

A withholding agent who withheld the tax but failed

to remit the amount to the Government is disqualified
from applying for a compromise settlement because he
is being made accountable as an agent, who held funds
in trust for the Government.

194
EXTENT OF BIR COMMISSIONER’S AUTHORITY
TO ENTER INTO A COMPROMISE

Commissioner may enter into a compromise when:

1. A reasonable doubt exist as to the validity of the

claim against the taxpayer provided that the minimum
compromise entered into is equivalent to 40% of the
basic tax.

2. The financial position of the taxpayer demonstrates

a clear inability to pay the assessed tax provided that
195
EXTENT OF BIR COMMISSIONER’S AUTHORITY
TO ENTER INTO A COMPROMISE

the minimum compromise entered into is equivalent

to 10% of the basic tax.

In the above instances, the Commissioner is allowed

to enter into a compromise only if the basic tax
involved does not exceed One million pesos
(P1,000,000.00), and the settlement offered is not less
than the prescribed percentages.

196
ABATEMENT

It is the diminution or decrease in the amount of tax

imposed.

197
DISTINGUISH COMPROMISE
FROM ABATEMENT OF TAXES
COMPROMISE ABATEMENT

Limitation as While the Commissioner of Internal Revenue has the There is no limitation with
to authority authority to enter into a compromise and abate taxes, regard to the absolute
the authority of the Commissioner to compromise is amount or percentages to
limited only if the basic tax involved does not exceed be abated.
One million pesos (P1,000,000.00), and the settlement
offered is not less than the prescribed percentages

Grounds The grounds for compromise are either doubt as to the The grounds for abatement
validity of the claim against the taxpayer or the financial are the tax or any portion
position of the taxpayer demonstrates a clear inability to thereof appears to be
pay. unjustly or excessively
assessed; or the
administration and
collection costs involved do
not justify the collection of
the amount due.
198
DISTINGUISH COMPROMISE
FROM ABATEMENT OF TAXES

COMPROMISE ABATEMENT

Limitation In compromise there is a requirement that if the No such limitation.

with ground is reasonable doubt as to the validity of
regard to the claim against the taxpayer exists provided
that the minimum compromise entered into is
amount.
equivalent to forty percent (40%) of the basic tax
and in case the ground is the financial position of
the taxpayer demonstrates a clear inability to
pay the assessed tax provided that the minimum
compromise entered into is equivalent to ten
percent (10%) of the basic assessed tax.

199
NATURE OF ERRONEOUSLY PAID TAX
ILLEGALLY ASSESSED AND COLLECTED

The term “erroneous or illegal tax” is one levied

without statutory authority.

200
TAX CREDIT, DEFINED
An amount subtracted from an individual’s or entity’s tax
liability to arrive at the total tax liability. A tax credit reduces
the taxpayer’s liability dollar for dollar, compared to a
deduction which reduces taxable income upon which the tax
liability is calculated. (Black’s Law Dictionary, 6th ed.)

Tax credit may also refer to the amount due to a taxpayer

resulting from an overpayment of a tax liability or erroneous
payment of a tax due.

It is the second definition that is referred to in an

application for a tax credit. 201
DIFFERENCES BETWEEN A TAX CREDIT
AND A TAX REFUND
It may be that there is no essential difference
between a tax refund and a tax credit since both are
modes of recovering taxes erroneously or illegally paid to
the government.

Yet, there are unmistakable formal and practical

differences between the two modes.

a. Formally, a tax refund requires a physical return of

202
DIFFERENCES BETWEEN A TAX CREDIT
AND A TAX REFUND
of the sum erroneously paid by the taxpayer, while a tax
credit involves the application of the reimbursable
amount against any sum that may be due and collectible
from the taxpayer.

b. For a refund to be made there must always have

been a tax paid while there need not be any taxes paid in
order to have a tax credit. For example in the case of a
tax credit for unutilized input VAT arising from export
sales.
203
DIFFERENCES BETWEEN A TAX CREDIT
AND A TAX REFUND

c. On the practical side, the taxpayer to whom the

tax is refunded would have the option, among others, to
invest for profit the returned sum, an option not
proximately available if the taxpayer chooses, instead to
receive a tax credit.

204
REFUND OF INTERNAL REVENUE TAXES, DEFINED

Refund of internal revenue taxes is the return to the

taxpayer of taxes he has paid erroneously because he is
exempted under a statute or a provision of the 1987
Constitution, or he has erroneously paid the same in the
belief that he is subject to the tax, or there was a
collection by the BIR in its belief that there is a law that
authorizes the collection, or the BIR collected more than
that which is allowed under the law.

205
TAX CREDIT CERTIFICATE, DEFINED
A certification, duly issued to the taxpayer named therein,
by the BIR Commissioner or his duly authorized representative,
reduced in a BIR Accountable Form in accordance with the
prescribed formalities, acknowledging that the grantee-
taxpayer named therein is legally entitled to a tax credit, the
money value of which may be used in payment or in
satisfaction of any of his internal revenue tax liability (except
those excluded), or may be converted as a cash refund, or may
otherwise be disposed of in the manner and in accordance
with the limitations, if any, as may be prescribed by the
provisions of Revenue Regulations.
206
THE GROUNDS FOR FILING A CLAIM FOR
REFUND OR TAX CREDIT ARE:
a. The tax has been erroneously or illegally assessed or
collected. The term “erroneous or illegal tax” is one
levied without statutory authority.
b. The penalty have been collected without authority.
c. The tax has been excessively or in any manner
wrongfully collected.
d. The tax was paid by mistake. (Solutio indebiti) Under
the principle of solutio indebiti, the government has to
restore the sums representing erroneous payment of
taxes.
207
THE GROUNDS FOR FILING A CLAIM FOR
REFUND OR TAX CREDIT ARE:

But even if the elements of solutio indebiti are present,

the six (6) year prescriptive period is not applicable
because the tax law specifically provides for the
period of two (2) years.
e. Failure to use excess income tax credits against
quarterly income taxes for the next taxable year.
f. There are unused excess VAT input credits.

208
 There is no requirement to present the Income Tax
Return (ITR) or Final Adjustment Return (FAR) of the
succeeding year in requesting a tax refund.

 The law merely requires the filing of the FAR for

the preceding - not the succeeding - taxable year.

209
 No automatic crediting of excess estimated quarterly
income tax liabilities for the succeeding taxable year
under Sec. 69 (now Sec. 76) of the Tax Code.

 Prior verification and approval by the CIR is

required. The availment of the remedy of tax credit
is not absolute and mandatory.

210
THREE (3) OPTIONS OF TAXPAYER IF THE SUM
OF ITS QUARTERLY TAX PAYMENTS DURING THE
TAXABLE YEAR IS NOT EQUAL TO THE TOTAL
TAX DUE FOR THAT YEAR:

1. Pay the balance of the tax still due;

2. Carry-over the excess credit; or
3. Be credited or refunded the amount paid.

211
OPTIONS OF TAXPAYER WHOSE QUARTERLY
PAYMENTS EXCEED ITS INCOME TAX DUE

Section 76 of the NIRC of 1997 provides that a

taxpayer has the option to file a claim for refund or to
carry-over its excess income tax payments.

212
HOW THE TAXPAYER MAKES HIS CHOICE OF
REFUND OR TAX CREDIT

The corporation must signify in its annual corporate

adjustment return (by marking the option box provided in
the BIR Form No. 1702), the Final Adjustment Return
(FAR) its intention, whether to request for a refund or
claim for an automatic tax credit for the succeeding
taxable year. These two options are alternative in nature.
The choice of one precludes the other.

213
FAILURE TO MAKE APPROPRIATE MARKINGS IN
THE FAR DOES NOT DEPRIVE THE TAXPAYER OF
A RIGHT TO REFUND.
With the failure of the taxpayer to make the
appropriate marking, the filing of the written claim for
refund effectively serves as an expression of the choice
to request for a tax refund, instead of a tax credit. The
Tax Code allows the refund of taxes to a taxpayer that
claims it in writing within two years after payment of the
taxes erroneously received by the BIR.

214
EXCESS TO BE CREDITED FOR THE SUCCEEDING
TAXABLE YEAR ONLY.

The option is to carry-over and apply the excess

quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable quarters.

The carrying forward of any excess or overpaid

income tax for a given taxable year is limited to the
succeeding taxable year only.

215
TAXPAYER IS ENTITLED TO A TAX REFUND EVEN
BEYOND THE TAXABLE YEAR FOLLOWING THAT
IN WHICH THE TAX CREDIT ARISES.
If the excess income tax paid in a given taxable year have
not been entirely used by a taxable corporation against its
quarterly income tax liabilities for the next taxable year, the
unused amount of the excess may still be refunded, provided
that the claim for such a refund is made within two years after
payment of the tax.

Even the phrase “succeeding taxable year” in the second

paragraph of Sec. 69 (now Sec. 76) is a limitation that applies
only to a tax credit, not a tax refund. 216
ONCE A CORPORATE TAXPAYER HAS CHOSEN A
TAX CREDIT IT COULD NOT ANYMORE ASK FOR A
REFUND

Once the taxpayer has exercised the option to carry-

over and to apply the excess quarterly income tax against
income tax due for the taxable quarters of the
succeeding taxable years, such option is IRREVOCABLE
for that taxable period and no application for cash refund
or issuance of a tax credit certificate shall be allowed.

217
REQUISITES OR CONDITIONS FOR A
REFUND OF TAXES, IN GENERAL:
1. A written claim of refund is filed by the taxpayer with
the Commissioner of Internal Revenue.
2. The claim for refund must be a categorical demand
for reimbursement.
3. The claim for refund or tax credit must be filed with
the Commissioner, or the suit or proceeding therefor
must be commenced in court within two (2) years
from date of payment of the tax or penalty regardless
of any supervening cause.
218
STATUTORY BASIS FOR TAX REFUND OR CREDIT OF
TAXES UNDER THE TAX CODE
The Commissioner of Internal Revenue may:

1. credit or refund taxes erroneously or illegally received

or penalties imposed without authority,
2. refund the value of internal revenue taxes when they
are returned in good condition by the purchaser, and,
3. in his discretion, redeem or change unused stamps
that have been rendered unfit for use, and
4. refund their value upon proof of destruction. [NIRC OF
1997, Sec. 204 (C)] 219
BURDEN OF APPLICANT FOR TAX REFUND

Since an action for a tax refund partakes of the

nature of an exemption, which cannot be allowed unless
granted in the most explicit and categorical languange, it
is strictly construed against the claimant who must
discharge such burden convincingly.

The burden of proof is upon him who claims the

exemption and he must be able to justify his claim by the
clearest grant under Constitutional or statutory law, and
he cannot be permitted to rely upon vague implications.
220
PROPER PARTY TO CLAIM FOR REFUND
OR TAX CREDIT
 A withholding agent has the right to file a claim for
refund of the withholding taxes of its foregin parent
company. The Supreme Court once “ruled that
inasmuch as it is an agent of government for the
withholding of the proper amount of tax, it is also an
agent of its foreign parent company with respect to
the filing of the necessary income tax return and with
respect to actual payment of the tax to the
government.
221
PROPER PARTY TO CLAIM FOR REFUND
OR TAX CREDIT

 For purposes of applying for a tax refund or credit, a

withholding tax agent is a taxpayer but for purposes
of tax amnesty a withholding tax agent is not a
taxpayer.

 A “person liable for tax” has been held to be a “person

subject to tax” and properly considered a “taxpayer”.

222
PROPER PARTY TO CLAIM FOR REFUND
OR TAX CREDIT
 While the withholding agent has the right to recover
the taxes erroneously or illegally collected, he
nevertheless has the obligation to remit the same to
the principal taxpayer.

 In indirect taxes, like an excise tax, the proper party

who can question or seek a refund of the tax is the
person on whom the tax is imposed by law and who
paid the tax even when he shifts the burden thereof to
another. 223
GOVERNMENT REMEDIES

The remedies that are available to the government

for the collection of internal revenue taxes are the:

1. administrative, and
2. judicial remedies
a. Criminal proceedings through criminal
actions
b. Civil proceedings through civil actions
224
OUTLINE OF VARIOUS STAGES
OF GOVERNMENT REMEDIES

1. Administrative remedies

a. Assessment
b. Collection
c. Refund

225
OUTLINE OF VARIOUS STAGES
OF GOVERNMENT REMEDIES
2. Judicial Remedies
a. Civil proceedings through civil actions
1. Assessment
2. Collection
3. Refund

b. Criminal proceedings through criminal

actions

1. Collection
226
ADMINISTRATIVE REMEDIES FOR
INTERNAL REVENUE TAXATION
1. Enforcement of tax lien.
2. Distraint of personal property, either actual or
constructive.
3. Levy on real estate, and its sale.
4. Further distraint and levy.
5. Enforcement of forfeiture of real and personal
properties.
6. Suspension of business operations.
7. Non-availability of injunction to restrain collection of
tax. 227
OTHER ADMINISTRATIVE REMEDIES
8. Non-issuance of clearances for travel. Under PD No.
1183, the BIR furnishes the DFA with a list of
delinquent taxpayers who are not allowed to travel.
9. The power of the Commissioner of Internal Revenue
to compromise.
10. The giving of rewards to informers who give
information as to violations of tax laws.
11. Deportation of aliens who violate any tax legislation of
the Philippines.
12. Filing of performance bond to assure compliance with
228
OTHER ADMINISTRATIVE REMEDIES
certain tax laws or regulations.
13. Surcharges or penalties for the payment of tax.
14. Authority of the Commissioner of Internal Revenue to
effect arrests in certain cases.
15. Power of the Commissioner of Internal Revenue to
obtain information, examine, summon and take
testimony from government officers or agencies and
other persons.
16. Authority of tax officers to examine and inspect books
of accounts and other accounting records of the
taxpayer. 229
NO HIERARCHY OF ADMINISTRATIVE
REMEDIES

The BIR may pursue any or all of the remedies

simultaneously, or independently, in the discretion of the
authorities charged with the collection of such taxes.

230
TAX LIEN
- a legal claim or charge on property, either real or
personal, as security for the tax obligation.

231
NATURE OF TAX LIEN
The unpaid tax constitutes as a burden upon all property and
property rights belonging to the delinquent taxpayer. The lien is a
warning to all potential buyers of that property that any proceeds of
the sale should first be applied to the tax delinquency.

The notice of lien usually made upon real property is filed by

the BIR Commissioner in the office of the Register of Deeds of the
province or city where the property of the taxpayer is situated or
located.

The lien shall not be valid against any mortgage, purchaser or

judgment creditor until the filing of the above notice of lien.
232
TAX LIEN SUPERIOR TO JUDGMENT CLAIM
OF PRIVATE PROPERTY

A tax lien attaches NOT ONLY from the service of

the warrant of distraint of personal property BUT from the
time the tax become due and payable.

233
WORKER PREFERENCE IN CASE OF
BANKRUPTCY
Article 110 of the Labor Code which provides that “in the
event of bankruptcy or liquidation of an employer’s business,
his workers shall enjoy first preference during the period prior
to the bankruptcy or liquidation, any of the provision of the law
in the contrary notwithstanding” applies only in case of
bankruptcy or judicial liquidation of employer.

Thus, where there is no bankruptcy or judicial liquidation

of a tax delinquent employer, unpaid taxes shall have first
preference over the claim of workers.
234
DISTRAINT AND LEVY
 The issuance of a warrant of distraint and levy is one of the
methods for collection of internal revenue taxes.

Summary Remedies for Collection of Delinquent Internal

Revenue Taxes:
1. Distraint of goods, chattels, or effects, and other
personal property of whatever character, including stocks
and other securities, debts, credits, bank accounts, and
interest in and rights to personal property, and by
2. Levy upon real property and interest in or rights to real
property.
235
 The summary remedies of distraint and levy shall not
be availed of where the amount of tax involved is not
more than Ᵽ100.00.

 The enforcement of tax collection through summary

proceedings may be carried out beyond the statutory
period. The taxpayer cannot invoke prescription.

 The remedy by distraint of personal property and levy

on realty may be repeated if necessary until the full
amount due, including all expenses, is collected. 236
DISTINCTION BETWEEN CONSTRUCTIVE
AND ACTUAL DISTRAINT
CONSTRUCTIVE DISTRAINT
Procedure The BIR does not take physical possession of
the personal property.
Basis There is no finding yet of a discrepancy, only
that the taxpayer is leaving the country or
disposing of his property in fraud of creditors or
is in the process of liquidation.
Disposition of the The personal property is merely held as
personal property security to answer for any future tax
delinquencies.
Purpose Its purpose is protection of government
revenues and ensure that there are properties
of the taxpayer which the government could
proceed against after a determination of the
amount of deficiency taxes.
ACTUAL DISTRAINT
The personal property is physically
taken.
The taxpayer is already delinquent in
the payment of his taxes.
The personal property is taken to be
sold at public auction in order to
satisfy the tax delinquencies.
The deficiency taxes are already
determined.
237
DISTRAINT

In distraint, the personal property of the delinquent

taxpayer shall be taken to be sold at public auction.

238
OUTLINE CLASSIFICATION OF DISTRAINT

1. Classification of distraint as to who issues it:

a. Administrative distraint
b. Judicial distraint

2. Classification as to purpose:
a. Constructive distraint as a mode for the protection
of government revenues
b. Actual distraint as a mode for collecting delinquent
taxes.

239
OUTLINE CLASSIFICATION OF DISTRAINT

3. Classification as to possessor of property subject to

distraint.

a. Actual distraint where the property is in the

possession of the delinquent taxpayer.

b. Garnishment where the property is in the

possession of a third party.

240
ACTUAL DISTRAINT
– the physical taking of the taxpayer’s personal
property to be sold at public auction. The sales proceeds
shall then be applied to answer for the tax deficiency.

This is the physical taking of goods, chattels, or

effects, and other personal property of whatever
character, including stocks and other securities, debts
credits, bank accounts, and interest in and rights to
personal property.

It is exercised for the purpose of collecting taxes. 241

GARNISHMENT
The taking of personal properties, usually cash or
sums of money, owned by a delinquent taxpayer which is
in the possession of a third party, usually a bank.

 Bank accounts shall be garnished by serving a warrant

of garnishment upon the taxpayer and upon the
president, manager, treasurer, or other responsible officer
of the bank. Upon receipt of the warrant of garnishment,
the bank shall turn over to the Commissioner so much of
the bank accounts as may be sufficient to satisfy the
claims of the Government. 242
GARNISHMENT NOT A VIOLATION OF THE
BANK DEPOSIT SECRECY LAWS
The prohibition against examination of or inquiry into a
bank deposit under RA 1405 does not preclude its being
garnished to insure satisfaction of a judgment. Indeed there is
no real inquiry in such a case, and if existence of the deposit is
disclosed, the disclosure is purely incidental to the execution
process. It is hard to conceive that it was ever within the
intention of Congress to enable debtors to evade payment of
their just debts, even if ordered by the Court, through the
expedient of converting their assets into cash and depositing
the same in a bank.
243
CONSTRUCTIVE DISTRAINT OR
“PREVENTIVE EMBARGO”
The service of notice upon a taxpayer not to dispose
of his personal property until determination and payment
of his tax liability.

Its purpose is to protect government revenues by

ensuring that upon a finding of tax liability, there are
personal properties available to the satisfaction of the
said liability.
244
GROUNDS FOR EFFECTING
CONSTRUCTIVE DISTRAINT

The delinquent taxpayer or any taxpayer

1. is retiring from any business subject to tax, or

2. is intending to leave the Philippines, or to
3. remove his property from the Philippines or to
4. hide or conceal his property, or to
5. perform any act
a. tending to obstruct the proceedings for collecting
the tax due or which may be due from him.
245
HOW CONSTRUCTIVE DISTRAINT IS EFFECTED

1. requiring the taxpayer or any person

2. having possession or control of the property
3. to sign a receipt covering the property distrained, and
4. obligates himself
a. to preserve the same intact and unaltered and
b. not to dispose of the same in any manner whatever,
without the express authority of the BIR
Commissioner.

246
DISTRAINT AS TO WHO ISSUES:

1. Judicial distraint. This is the warrant of distraint

issued by a court in order to enforce the collection of
a tax.

2. Administrative distraint. This is the distraint issued by

the BIR.

247
DISTINCTIONS BETWEEN A WARRANT OF DISTRAINT,
WARRANT OF LEVY, AND WARRANT OF GARNISHMENT
DISTRAINT LEVY GARNISHMENT

As to subject matter Personal property Real property Personal property

owned by and in the owned by and in the owned by the
possession of the possession of the taxpayer but in the
taxpayer. taxpayer. possession of the
third party.
As to disposition for Personal property Real property Personal property
Want of Bidders or distrained or subject to levy is distrained or
Bids Inadequate to garnished are forfeited to the garnished are
Satisfy Tax purchased by the Government, then purchased by the
Deficiency Government and sold to meet the Government and
resold to meet the deficiency. resold to meet the
deficiency. deficiency.
248
DISTINCTIONS BETWEEN A WARRANT OF DISTRAINT,
WARRANT OF LEVY, AND WARRANT OF GARNISHMENT
DISTRAINT LEVY GARNISHMENT
As to There is no Sale of real property subject to There is no newspaper
Advertisement of newspaper levy is required to be published publication required for
Sale publication required once a week for three weeks in the sale of personal
for the sale of a newspaper of general property distrained or
personal property circulation in the municipality or garnished.
distrained or city where the property is
garnished. located.

As to right of There is no right of There is a right of redemption There is no right of

redemption redemption with with regard to real property redemption with regard
regard to personal levied and sold at public to personal property
property distrained or auction. distrained or garnished
garnished that has that has been sold.
been sold.

249
LEVY
The act of collecting a tax by means of seizing real
property in order to be sold at public auction, the
proceeds applied to satisfy a tax delinquency.

250
EFFECT OF SERVICE OF WARRANT OF
DISTRAINT AND LEVY ON PRESCRIPTIVE
PERIODS
The timely service of a warrant of distraint or levy
SUSPENDS the running of the period to collect the tax
deficiency in the sense that the disposition of the
attached properties might well take time to accomplish
extending even after the lapse of the statutory period for
collections.

251
EFFECT OF SERVICE OF WARRANT OF
DISTRAINT AND LEVY ON PRESCRIPTIVE
PERIODS
Thus, the enforcement of tax collection through
summary proceedings may be carried out beyond the
statutory period. The statutory period for collection
applies only where a court suit is availed of for tax
collection.

252
TIME WHEN LEVY IS MADE
After expiration of the time required to pay the
delinquent taxes or delinquent revenue before,
simultaneously or after the distraint of personal property
belonging to the delinquent taxpayer.

If the personal property of the delinquent is not

sufficient to satisfy his tax delinquency, the BIR
Commissioner or his duly authorized representative shall,
within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer’s real property.
253
DIFFERENCE BETWEEN FORFEITURE AND
SEIZURE TO ENFORCE A TAX LIEN

1. Ownership. In forfeiture, ownership is transferred to

the government, taxpayer retains ownership of
property seized.

2. Disposition of proceeds of sale. In forfeited property,

excess not returned to taxpayer, reverse is true with
seizure.

254
FORFEITURE

Under forfeiture, the real property of the taxpayer is

taken from him by the government. Ownership of the
forfeited property is transferred to the Government. The
property is either sold, and the proceeds applied to the
tax delinquency or if the property is illegal, it is destroyed
under government supervision.

255
WHEN REAL PROPERTY FORFEITED TO THE
GOVERNMENT FOR WANT OF BIDDER

In case there is no bidder for real property exposed

for sale or 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 the
property forfeited to the Government in satisfaction of
the claim in question and within 2 days thereafter, shall
make a return of his proceedings and the forfeiture which
shall be spread upon the records of his office.
256
PERIOD OF REDEMPTION OF FORFEITED
REAL PROPERTY

Within one year from the date of such forfeiture, the

taxpayer, or anyone 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
penalties, together with interest thereon and the costs of
sale, but if the property be not thus redeemed, the
forfeiture shall become absolute.

257
POWER OF THE COMMISSIONER TO SUSPEND
THE BUSINESS OPERATIONS OF A TAXPAYER
The Commissioner or his authorized representative
is hereby empowered to suspend the business
establishment of any person for any of the following
violations:

a. In the case of a VAT registered person

1. failure to issue receipts or invoices
2. failure to file a VAT return as required under Sec.
114; or
258
POWER OF THE COMMISSIONER TO SUSPEND
THE BUSINESS OPERATIONS OF A TAXPAYER
3. Understatement of taxable sales or receipts by thirty
percent (30%) or more of his correct taxable sales or receipts
for the taxable quarter.

b. Failure of any person to register as required under Section

236. – The temporary closure of the establishment shall be
for the duration of not less than five (5) days and shall be
lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.

259
INJUNCTION NOT AVAILABLE TO RESTRAIN
COLLECTION OF TAX
No court shall have the authority to grant an injunction to
restrain the collection of any national internal revenue tax, fee
or charge imposed under this Code. (NIRC of 1997, Sec. 218)

No appeal taken to the CTA from the decision of the

Commissioner of Internal Revenue xxx, as the case may be
shall suspend the payment, levy, distraint, and/or sale of any
property of the taxpayer for the satisfaction of his tax liability
as provided by existing law. (RA No. 1125, Sec. 11, 4th par.)
REASON: Lifeblood theory
260
NO “INJUNCTION” RULE DOES NOT APPLY
TO COURT OF TAX APPEALS OR THE
SUPREME COURT
The provisions of RA 1125 which authorizes the Court of
Tax Appeals, to issue an injunction prohibiting the Bureau of
Internal Revenue from collecting the tax assessed is
considered as an EXCEPTION to the no injunction rule
contained in Sec. 218 of the NIRC.

The Supreme Court may enjoin the collection of taxes

under its general judicial power but it should be apparent that
the source of the power is not statutory but constitutional.
261
WHO MAY FILE MOTION FOR SUSPENSION OF
COLLECTION OF INTERNAL REVENUE TAX

An interested party may file a motion for the

suspension of the collection of the tax liability.

262
WHEN TO FILE THE MOTION TO SUSPEND
COLLECTION OF A TAX

The motion for suspension of the collection of the

tax may be filed together with the petition for review or
with the answer, or in a separate motion filed by the
interested party at any stage of the proceedings.

263
GROUNDS FOR FILING A MOTION FOR
SUSPENSION OF COLLECTION OF INTERNAL
REVENUE TAX

Where the collection of the amount of the taxpayer’s

liability is sought by means of a demand for payment, by
levy, distraint or sale of any property of the taxpayer or by
whatever means, as provided under existing law, may
jeopardize the Government or the taxpayer, an interested
party.

264
CONDITIONS FOR ISSUANCE BY THE COURT OF
TAX APPEALS OF AN ORDER SUSPENDING THE
COLLECTION OF A TAX

The court may require the taxpayer either to deposit

the amount claimed or file a surety bond for not more
than double the amount with the court.

265
COURTS CLOTHED WITH AUTHORITY WHETHER
TO DISPENSE WITH BOND REQUIREMENT

It was once held that “the courts were clothed with

authority to dispense with the requirement “if the method
employed by the Collector of Internal Revenue in the
collection of tax is not sanctioned by law.” (Spouses
Pacquiao v. The CTA, etc., et. al. GR No. 213394, April 6,
2016)

266