TAX REMEDIES
agents constituted as such under the Tax Code and its
BIR Organizational Structure
The Bureau of Internal Revenue (BIR) is headed by a
Commissioner of Internal Revenue and four (4) Deputy
Commissioners (Sec. 3, NIRC), each of whom heads the
Operations Group, Legal and Inspection Group,
Resource and Management Group, and Information
Systems Group. The Commissioner and four (4) Deputy
Commissioners, together with 13 Assistant
Commissioners for the different services, comprise the
senior level of administrative authority. Supporting
them are the nineteen (19) Regional Directors (Sec. 10,
NIRC), more than one hundred fifteen (115) Revenue
District Officers (Sec. 9, NIRC), two (2) Large Taxpayers
Audit and Investigation Divisions and two (2) Large
Taxpayers District Offices, and thousands of revenue
officers conducting the audit of taxpayers’ books of
accounts and accounting records. The revenue officers
tasked to audit, develop and file criminal tax cases are
assigned at the National Investigation Division, in the
National Office, and at the Special Investigation
Division, in the regional offices.
Agents in the Collection of National Internal Revenue
Taxes
The BIR officials are charged with the assessment and
collection of all national internal revenue taxes, fees
and charges, including the VAT and excise taxes on
imported goods as well as penalties and fines for
violations of certain provisions of the 2005 National
Internal Revenue Code (“Tax Code” for brevity) and
special laws administered by the BIR. However, the
following officials are constituted as agents of the
Commissioner of Internal Revenue in the collection of
national internal revenue taxes (Sec. 12, NIRC): (a) the
Commissioner of Customs and his subordinates, with
respect to the collection of value added tax and excise
tax on imported goods;^ (b) the head of the appropriate
government office and his subordinates, with respect to
the collection of energy tax; and (c) the authorized
agent banks, with respect to the receipt of payments of
internal revenue taxes authorized to be made through
banks. Any bank officer or employee involved in this
task shall be subject to the same sanctions and
penalties under Sections 269 (violations committed by
government enforcement officers) and 270 (unlawful
divulgence of trade secrets) of the Tax Code.
Aside from the above-mentioned persons, withholding
implementing regulations are required to deduct and
remit taxes within the prescribed dates to the BIR on
payments of compensation income subject to creditable
withholding tax on wages, certain income payments
subject to expanded withholding tax, passive
investment incomes and capital gains subject to final
tax, and gross incomes paid to non-resident foreign
persons subject to final taxes as well as payments by the
government for goods and services subject to value
added tax or other percentage tax. It will be noted that
these withholding agents are required to strictly comply
with their responsibilities under the law — to deduct
and remit to the BIR the taxes on certain transactions —
without any compensation from government, yet they
are penalized for any failure to comply with such tax
obligations as a withholding agent.
Powers and Duties of BIR
The Tax Code enumerates the powers and duties of the
BIR as follows:
1. To assess and collect national internal taxes, fees, and
charges;
2. To enforce all forfeitures, penalties and fines
connected therewith;
3. To execute judgment in all cases decided in its favor
by the CTA and the ordinary courts; and
4. To effect and administer the supervisory and police
powers conferred upon it by the Tax Code or other
special laws (Sec. 2, NIRC).
The Commissioner of Internal Revenue has been given
broad powers under the Tax Code in order to effectively
enforce tax laws and collect the needed revenues.
These powers include:
1. Power to interpret tax laws and to decide tax eases.
— The power to interpret the provisions of the Tax
Code and other tax laws shall be under the exclusive
and original jurisdiction of the Commissioner, subject to
review by the Secretary of Finance (Sec. 4, NIRC). The
provision was inserted in R.A. 8424, which became
effective on January 1, 1998, in order to avoid situations
where different government agencies like the BIR,
Department of Finance (DOF), Department of Justice
(DOJ), Board of Investments (BOI), and even the Office
of the Executive Secretary sometimes issue conflicting
opinions on the proper interpretation of certain
provisions of the Tax Code and other tax laws.
A legislative rule is in the nature of subordinate
legislation, designed to implement a primary legislation
by providing the details thereof Interpretative rules are
designed to provide guidelines to the law which the
administrative agency is in charge of enforcing.
Accordingly, in considering a legislative rule, a court is
free to make three inquiries: (i) whether the rule is
within the delegated authority of the administrative
agency; (ii) whether it is reasonable; and (iii) whether it
was issued pursuant to proper procedure (Misamis
Oriental Association of Coco Traders v. Department of
Finance Secretary cited in Commissioner of Customs v.
Hypermix Feeds Corporation, GJt. No. 179579, February
1, 2012).
In a leading case, the Supreme Court ruled that the
jurisdiction to review rulings of the Commissioner, in
particular RMO 15-91 and RMC 43-91, implementing
the five percent (5%) lending investor’s tax on
pawnshops, belongs to the CTA, not to the Regional
Trial Courts (RTC). The petition should have been filed
with the CTA, not the RTC. Such revenue orders were
issued pursuant to petitioner’s powers under Section
245 (authority of the Secretary of Finance to
promulgate rules and regulations) of the Tax Code.
Thus, the court stated that “the authority of the
Secretary of Finance ... shall be without prejudice to the
power of the Commissioner of Internal Revenue to
make rulings or opinions in connection with the
implementation of the provisions of internal revenue
laws, including ruling on the classification of articles of
sales and similar purposes.”
2. Power to decide disputed assessments, refunds of
taxes, fees or other charges, penalties. — The power to
decide disputed assessments, refund I tax credit of
taxes, and other matters arising under the Tax Code is
vested with the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals (CTA)
(R.A. 1125, as amended). The jurisdiction of the CTA has
been enlarged under R.A. 9282 (April, 2004) to include
collection of assessed deficiency taxes and criminal tax
cases, where the basic tax assessed is FI million or more.
The assessments issued by the Regional Directors,
Assistant Commissioners, and Deputy Commissioners
may be appealed administratively to the Commissioner.
This is necessary to give the Commissioner an
opportunity to correct whatever mistake has been
committed by his subordinates, pursuant to the
doctrine of exhaustion of administrative appeal. This is
also in conformity with the provisions of the Tax Code,
which provides that the power to decide disputed
assessments arising under the Tax Code or other laws or
portions thereof administered by the BIR is vested in
the Commissioner, subject to the exclusive appellate
jurisdiction of the Court of Tax Appeals.^
While the Secretary of Finance has supervisory powers
over the BIR, an appeal by the taxpayer of the
Commissioner’s decision on the disputed assessment to
the Secretary of Finance or filing a motion for
reconsideration with the Commissioner shall not stop
the running of the 30-day period to make an appeal to
the CTA. The power of review, which implies the power
to reverse or modify, granted to the Secretary of
Finance is limited only on rulings issued by the
Commissioner which are adverse to the taxpayer
pursuant to his power to interpret Tax Code provisions.
The power to interpret the law is different from the
power to decide on disputed assessments.
3. Power to examine books and other accounting
records and obtain information. — In ascertaining the
correctness of any return, or in making a return when
none has been made, or in determining the liability of
any person, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is
authorized:
a. To examine any book, paper, record, or other data
which may be relevant or material to such inquiry;
b. To obtain on a regular basis from any person other
than the person whose internal revenue tax liability is
subject to audit or investigation, or from any office or
officer of the national and local governments,
government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government- owned
or controlled corporations, any information;
c. To summon the person liable for tax or required to
file a return, or any officer or employee of such person,
to appear before the Commissioner or his duly
authorized representative at a time and place specified
in the summons and to produce such books, papers,
records, or other data, and to give testimony;
d. To take such testimony of the person concerned,
under oath, as may be relevant or material to such
inquiry; and
e. To cause revenue officers and employees to canvass
from time to time of any revenue district or region and
inquire after and concerning all persons therein who
may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or
possession of any object with respect to which a tax is
imposed (Sec. 5, NIRC).
While the Supreme Court recognized the power of
taxation of government, it however cautioned the
government to exercise such power to minimize injury
to the proprietary rights of a taxpayer (Roxas V. CTA, 23
SCRA 276).
4. Power to inquire into banks deposits of taxpayers. —
The provisions of the foregoing paragraphs
notwithstanding, nothing shall be construed as granting
the Commissioner the authority to inquire into bank
deposits other than as provided for in Section 6(F) of
the Tax Code (Sec. 5, NIRC). Notwithstanding any
contrary provisions of R.A. 1405 (Bank Secrecy Law) and
other general or special laws, the Commissioner is
authorized to inquire into the bank deposits of:(1) a
decedent to determine his gross estate; and (2) any
taxpayer who has filed an application for compromise of
his tax liability under Section 204(A)(2) of this Code by
reason of financial incapacity to pay his tax liability. The
application to compromise shall not be considered,
unless and until the taxpayer waives in writing his
privilege under R.A. 1405, and such waiver shall
constitute the authority of the Commissioner to inquire
into the bank deposits of the taxpayer (Sec. 6[F], NIRC).
If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone or jointly with
another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified
that the transfer taxes imposed thereon have been
paid. However, the administrator of the estate or any
one of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an
amount not exceeding P20,000 without the said
certification. For this purpose, all withdrawal slips shall
contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by
any one of the joint depositors and such statement shall
be under oath by the said depositors (Sec. 97, NIRC).
Under RA. 10021, as implemented by Revenue
Regulations No. 10-2010 dated October 6, 2010,
Congress allows the CIR to obtain information relating
to bank deposits and other related information held by
financial institutions, as may be requested in writing by
a foreign tax authority of a contracting state to which
the Philippines has an effective tax treaty, subject to
certain conditions.
Garnishment of bank deposits
Garnishment is an administrative remedy
allowed by law to enforce a tax liability. 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 claim of the
Government (Sec. 208, NIRC).
5. Power to assess and collect the correct amount of
tax. — After the return is filed, the Commissioner or his
duly authorized representative may authorize the
examination of any taxpayer and the assessment of the
correct amount of tax. The tax or deficiency tax so
assessed shall be paid upon notice and demand from
the Commissioner or his duly authorized representative
(Sec. 6[A], NIRC).
After the return is filed, the Commissioner or his duly
authorized representative may authorize the
examination of any taxpayer and the assessment of the
correct amount of tax. The tax or deficiency tax so
assessed shall be paid upon notice and demand from
the Commissioner or his duly authorized representative.
However, failure to file a return shall not prevent the
Commissioner from authorizing the examination of any
taxpayer. The tax or any deficiency tax so assessed shall
be paid within the period fixed in the assessment notice
and demand letter from the Commissioner or from his
duly authorized representative.
When a report required by law as a basis for assessment
of any national 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. In case a person fails to file a
required return or other document at the time
prescribed by law, or willfully or otherwise files a false
or fraudulent return or other document, the
Commissioner shall make or amend the return from his
own knowledge and from such information as he can
obtain through testimony or otherwise, which shall be
prima facie correct and sufficient for all legal purposes.
Assessment of correct or proper taxes. — It will be
noted from the above provisions that the Commissioner
is generally required to assess the correct amount of
deficiency tax. However, when any of the circumstances
mentioned in Section 6(B) of the Tax Code is present,
the Commissioner may assess the proper deficiency tax
based on the best evidence obtainable. The reason for
the difference in the statutory provisions and the kind
of assessment that may be made lies, among others, in
the circumstances of the taxpayer (whether cooperative
or uncooperative) as well as the availability of adequate
books and records of taxpayers for purposes of
ascertaining the correctness of his declarations made in
the tax returns.
For reasons of public policy and based on the lifeblood
theory, the assessment made by the Commissioner is
prima facie presumed correct. The burden of proof to
show the incorrectness or inaccuracy of such
assessment or its details lies on the taxpayer, contrary
to the usual presumptions of good faith and innocence.
The revenue officers are also presumed to have taken
into consideration all the facts to which their attention
was called. However, the presumption of correctness of
an assessment, being a mere presumption, cannot he
made to rest on another presumption.
6. Power not to allow withdrawal of any return,
statement or declaration, although the same may be
amended. — Any return, statement or declaration filed
in any office authorized to receive the same shall not be
withdrawn. However, the same may be modified,
changed, or amended within three (3) years from the
date of such filing, provided that no notice for audit or
investigation of such return, statement or declaration
has, in the meantime, been actually served upon the
taxpayer. For purposes of this section, the term “audit
notice” may refer to a letter of authority (LA), a tax
verification notice (TVN), or a letter notice (LN).
There is no provision in the 1997 Tax Code prohibiting
the amendment of a return once a claim for refund has
been filed. It is prohibited only if a notice for audit or
investigation of such return, statement or declaration
has, in the meantime, been actually served upon the
taxpayer (CIR v. Citicorp Capital Phils., CA-GR SPNo.
6855, April 12, 2002).
7. Power to delegate powers to subordinate officials. —
The Commissioner may delegate the powers vested in
him under the Tax Code to any or such subordinate
officials with the rank equivalent to a division chief® or
higher, subject to such limitations and restrictions as
may be imposed by rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the CIR. However, the following
powers of the CIR shall not be delegated:
a. The power to recommend the promulgation of rules
and regulations by the Secretary of Finance;
b. The power to issue rulings of first impression or to
reverse, revoke or modify any existing ruling of the BIR;
c. The-power to compromise or abate any tax liability,
but this power may be delegated to regional offices
where the basic deficiency tax is P500,000 or less or if it
involves minor criminal violations;
d. The power to assign or reassign revenue officials to
establishments where articles subject to excise tax are
stored or kept (Sec. 7, NIRC).
Definition of remedies
“Remedy” is a method by which a cause of action can
be enforced by law or equity. It is the procedure or type
of action which may be availed of by the plaintiff as the
means to obtain the relief desired (Florenz D. Regalado,
Remedial Law Compendium, Vol. I, p. 20).
Types of remedies under the 1997 Tax Code
1. Summary — remedies at the administrative
level that are executed without ceremony or
delay; short or concise;
2. Substantive — remedies provided for by law or
regulation; an essential part or constituent or
relating to what is essential;
3. Procedural — remedies involving law of
pleading, evidence, jurisdiction, etc.;
4. Administrative — remedies available at the
administrative (BIR) level;
5. Judicial — remedies that are enforced through
judicial action, which may be civil or criminal.
Substantive Remedies
1. Imposition of withholding tax on certain income
payments
The Secretary of Finance may, upon the
recommendation of the Commissioner, require the
withholding of a tax on the items of income payable to
natural or juridical persons, residing in the Philippines,
by payor-corporation/ persons as provided for by law,
at the rate of not less than one percent (1%) but not
more than 32% thereof, which shall be credited against
the income tax liability of the taxpayer for the taxable
year (Sec. 57[B], NIRC).
2. Issuance of revenue regulations by administrative
agency
The power to issue regulations is expressly conferred in
the Tax Code. Thus, the Secretary of Finance, upon the
recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the
effective enforcement of the provisions of the Tax Code
(Sec. 244, NIRC). The rules and regulations of the
Bureau of Internal Revenue shall contain, among others,
provisions specifying, prescribing or defining the time
and manner of canvassing revenue regions, forms of
labels, conditions to be observed by revenue officers
respecting the institutions and conduct of legal actions
(Sec. 245, NIRC).
3. Failure to obey summons, including subpoenas
Any person who, being duly summoned to appear to
testify, or to appear and produce books of accounts,
records, memoranda or other papers, or to furnish
information as required under the pertinent provisions
of the Tax Code, neglects to appear or to produce such
books of accounts, records, memoranda or other
papers, or to furnish such information, shall, upon
conviction, be punished TSec. 266, NIRO.
4. Declaration under penalties of perjury
Any declaration, return and other statements required
under the Tax Code, shall, in lieu of an oath, contain a
written statement that they are made under the
penalties of perjury. Any person who willfully files a
declaration, return or statement containing information
which is not true and correct as every material matter
shall, upon conviction, be subject to the penalties
prescribed for peijury under the Revised Penal Code
(Sec. 267, NIRC).
Administrative interpretations should he respected
The interpretation given by the administrative officer
charged by reason of his office to carry out the
provisions of a statute should be respected whenever
such interpretation is assailed by someone who alleges
no reasons of weight to contradict or weaken it
(Commissioner v. Ledesma, 31 SCRA 95).
The law concedes to administrative bodies the authority
to act on and decide claims and applications in
accordance with their judgment, in the exercise of their
adjudicatory capacity. Because of their acquired
expertise in specific matters within the purview of their
respective jurisdictions, the findings of these
administrative bodies merit not only great weight but
also respect and finality. There is a limit, however, to
such a deference paid to the actuations of such bodies.
Clearly, where there has been a failure to interpret and
apply the statutory provisions in question, judicial
power should assert itself. Under the theory of
separation of powers, it is the judiciary, and to the
judiciary alone, that the final say on questions of law in
appropriate cases coming before it is vested (Begosa v.
Philippine Veterans Administration, GJZ. No. L-25916,
April 30,1970).
Principle of legislative approval by re-enactment
The principle of legislative approval of administrative
interpretation of a statute is to the effect that the re-
enactment of a statute substantially unchanged is
persuasive indication of the adoption by Congress of a
prior executive construction. The principle applies with
more cogency in a case where what is involved is not a
mere opinion of the Commissioner of Internal Revenue
or ruling rendered on a mere query, but a Revenue
Memorandum Circular issued to “all internal revenue
officials” by the Commissioner (ABS- CBN Broadcasting
Corporation v. Court of Tax Appeals and Commissioner,
108 SCRA142).
ADMINISTRATIVE REMEDIES OF GOVERNMENT
The power to tax is considered as the strongest of all
the powers of government. It is described as unlimited,
plenary, comprehensive and supreme, in the absence of
constitutional restrictions, the principal check on its
abuse resting in the responsibility of Congress to their
constituents. In enacting R.A. 8424, Congress placed
upon the Bureau of Internal Revenue the duty to
generate adequate national internal revenue taxes to
defray the expenses of government.
Because taxes are the lifeblood of the nation and their
prompt collection is an imperious need, the BIR has
been given ample powers to assess and collect national
internal revenue taxes. The assessment of taxes must,
however, be exercised within the ambit of the law and
its implementing regulations.
A. Power to Assess
The power to assess and collect the correct amount of
tax is vested with the Commissioner of Internal Revenue
under the Tax Code. After the return is filed, the
Commissioner or his duly authorized representative
may authorize the examination of any taxpayer and the
assessment of the correct amount of tax (Sec. 6[A],
NIRC).
“Assess” means to impose a tax; to charge with a tax; to
declare a tax to be payable; to apportion a tax to be
paid or contributed, to ^ rate; to fix or settle a sum to
be paid by way of tax; to set, fix or charge a certain sum
to each taxpayer; to settle determine or fix the amount
of tax to be paid (84 C.J.S., pp. 749-750).
Presumption of correctness
The assessments made by the Commissioner and his
authorized agents are presumed correct. The burden of
proof to show the incorrectness or inaccuracy of such
assessments or the details thereof lies on the taxpayer
(Republic v. Marsman Development Co., 44 SCRA 418).
The burden of proof is on the taxpayer contesting the
validity or correctness of an assessment to prove not
only that the Commissioner of Internal Revenue is
wrong but that the taxpayer is right (Tan Guan v. CTA
and Commissioner, 19 SCRA 90S). The agents of the BIR
will also be presumed to have taken into consideration
all the facts to which their attention was called
(Collector v. Avelino, 3 SCRA 570).
Unless rebutted, all presumptions generally are
indulged in favor of the correctness of the assessment
by the Commissioner against the taxpayer (Cyanamid
Philippines v. Court of Appeals, 322 SCRA 639).
Basis of Assessment
An assessment is issued by the BIR based on findings of
fact and/or law. In fact, the factual and/or legal bases of
the assessment must be stated; otherwise, the
assessment is null and void.
Question of Fact
There is a question of fact when the doubt or difference
arises as to the truth or falsehood of the alleged facts
(Commissioner v. Court of Appeals and YMCA, 298 SCRA
83). Factual findings of administrative agencies which
have acquired expertise in their field are binding and
conclusive on the Supreme Court (Fortich v. Corona,
GJt. No. 131457, April 24,1998).
Examples:
a. Income from the sale of banana saplings was not
included in the income tax return of the taxpayer;
b. Representation expenses are not substantiated by
invoices or receipts;
c. Tax was paid after the deadline prescribed by law for
the filing of return and pasmient of tax.
Question of Law
There is a question of law when the doubt or difference
arises as to what the law is on a certain state of facts
(Commissioner v. Court of Appeals and YMCA, supra).
Examples:
a. Gross income for purposes of computing the
minimum corporate income tax does not include
miscellaneous or incidental income;
b. Additional income tax paid per amended tax return
subsequently filed by taxpayer before receipt of audit
notice is not subject to 25% surcharge;
c. Excess of fair market value over exercise price of a
stock option is considered as additional compensation
income and not as fringe benefit.
Assessment Process
The assessment process starts with the self-assessment
by the taxpayer of his tax liability, the filing of the tax
return, and the payment of the entire tax due shown in
his tax return in accordance with the methods and
within the dates prescribed in the law and regulations
(Secs. 51, 52, 56 [income tax], 90, 91 [estate tax], 103
[donor’s tax], 114[value added tax], and 128[percentage
taxes], NIRC).
The role of the government in the assessment process
includes the following:
1. Examination of books of accounts and other
accounting records of taxpayers by revenue officers to
determine correct tax liability. — In ascertaining the
correctness of any return, or in making a return when
none has been made, or in determining the liability of
any person, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner or his
authorized representative is authorized to examine any
book, paper, record, or other data which may be
relevant or material to such inquiry and to assess the
correct tax liability (Secs. 5[B] and 6[A], NIRC).
The books of accounts, accounting records or
information (such as costs and volume of production,
receipts or sales and gross incomes of taxpayers, and
the names, addresses, and financial statements of
corporations) that may be examined by revenue officers
may be in the possession of the taxpayer under
examination or with third parties, including the national
and local governments, government agencies and
instrumentalities (.e.g., Bangko Sentral ng Pilipinas), and
government-owned or -controlled corporations (Sec.
5[B], NIRC).
If said taxpayer or third parties do not submit the
documents or information requested by the BIR, the
person may be required to testify or the document may
be summoned and required to be presented to the BIR
(Sec. 5[C] and [D], NIRC).
Best evidence obtainable
When a report required by law as a basis for the
assessment of any 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. In case
a person fails to file a required return or other
document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other
document, the Commissioner shall make or amend the
return from his own knowledge and from such
information as he can obtain through testimony or
otherwise, which shall be prima facie correct and
sufficient for all legal purposes (Sec. 6[B], NIRC).
However, it is believed that the revenue officer’s report
should be complete and must indicate clearly the
method(s) used in estimating the tax liability, the
particular method adopted in preference to some other
methods, and additional circumstances supporting the
correctness of his estimate of the tax liability, in order
that it will carry great weight.
In one case, the court sustained the use of the doctrine
of best evidence obtainable, where the conductor’s
daily reports were allowed to be used instead of the
freight tickets issued by a common carrier, for purposes
of computing the documentary stamp tax thereon
(Interprovincial Autobus Co. v. Commissioner, 98 Phil.
290).
Networth method of investigation
In the leading U.S. case of Holland v. U.S. (348 U.S. 121),
the net worth method was described succinctly as
follows: “If the government can prove with reasonable
certainty the taxpayer’s net worth, that is, the excess of
assets and liabilities at a given date or starting point,
generally December 31 of a given year if the taxpayer is
on the calendar year basis, and if the government is
then able to prove by independent evidence such as
bank deposits or purchases of assets, that the
taxpayer’s net worth has increased at the end of the
taxable year in question, then the inference is
reasonable and therefore permissible that the increase
in the net worth plus a reasonable allowance for living
expenses for the period and plus or minus adjustments
for other items, such as taxes paid, insurance premiums,
depreciation and others, represents the income of the
taxpayer.”
The use of the net worth method is supported by
Section 43 of the 1997 Tax Code which allows the
Commissioner to use any method of computation or
accounting which would more clearly reflect the income
of the taxpayer (Collector v. Avelino, 3 SCRA 57).
2. Preparation of tentative findings and holding of
informal conference. — Soon after the completion of
the tax audit, the revenue officer will render a written
report, stating therein whether or not the factual and
legal basis of his findings and whether or not the
taxpayer agrees with his findings. If the taxpayer is not
amenable, the taxpayer shall be informed in writing by
the Revenue District Officer or by the Chief of Division
{e.g., Special Investigation Division) concerned of the
discrepancies in the taxpayer’s payment of his taxes, for
the purpose of informal conference, in order to afford
the taxpayer with an opportunity to present his side of
the case. If the taxpayer fails to respond within 15 days
from date of receipt of the notice for informal
conference, he shall be considered in default, in which
case, the Revenue District Officer or the Chief of the
Division shall endorse the case with the least possible
delay to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly
authorized representative, for appropriate review and
issuance of deficiency tax assessment, if warranted (Sec.
3.1.1, Rev. Regs. No. 12-99, September 6, 1999). [NOTE:
Rev. Regs. No. 18-2013, November 28, 2013, removed
the informal conference stage].
Administrative due process
Due process demands that the person be duly informed
of the charges against him. He cannot be convicted of
an offense with which he was not charged.
Administrative proceedings are not exempt from basic
and fundamental procedural principles, such as the
right to due process in investigations and hearings. The
right to substantive and procedural due process is
applicable in administrative proceedings (Civil Service
Commission v. Luctis, GJt. No. 127838, January 21,
1999), The essence of due process is that a party be
afforded reasonable opportunity to be heard and to
submit any evidence he may have in support of his
defense. In administrative proceedings, due process
simply means the opportunity to explain one’s side or
the opportunity to seek a reconsideration of the action
or ruling complained of. A formal or trial-type hearing is
not, at all times, necessary (Padilla v. Sto. Tomas, 243
SCRA 155).
Principle of estoppel
The error made by a tax official in the assessment of his
tax liabilities does not have the effect of relieving the
taxpayer from the obligation to pay the full amount of
his tax liability, for taxes are fixed by law and the
government is never estopped to collect the legitimate
taxes because of errors committed by its agents
(Commissioner v. Atlas Consolidated Mining Co., 102
SCRA 246). However, like other principles, the principle
of estoppel also admits of exceptions in the interest of
justice and fair play. The Commissioner is precluded
from adopting a position inconsistent with one
previously taken where injustice would result therefrom
or where there has been a misrepresentation to the
taxpayer (Balmaceda v. Corominas & Co., 66 SCRA 553).
The principle is rooted in the notion of sovereignty
formerly nutshelled in the ancient maxim that “The king
can do no wrong.” In this view of infallibility of the
State, any mistakes committed by the agents of the
sovereign, namely; government officials and employees,
are their own and cannot bind the government, which
CEinnot be placed in estoppel on account of the
misteikes of its agents (Tax Practice and Procedure in
the Philippines, T.P. Matic, Jr., p. 321).
Power to allocate income and deductions among
affiliated taxpayers
In the case of two or more organizations, trades or
businesses (whether or not incorporated and whether
or not organized in the Philippines owned or controlled
directly or indirectly by the same interests, the
Commissioner is authorized to distribute, apportion or
allocate gross income or deductions between or among
such organization, trade or business, if he determines
that such distribution, apportionment or allocation is
necessary in order to prevent evasion of taxes or clearly
to reflect the income of any such organization, trade or
business (Sec. 50, NIRO).
The purpose of such authority given to the
Commissioner is to place a controlled taxpayer on tax
parity with an uncontrolled taxpayer, by determining
the true net income from the property and business of
such controlled taxpayer, using the uncontrolled
taxpayers as the standard.
3. Issuance of Preliminary Assessment Notice (PAN). —
If after review and evaluation by the Assessment
Division or by the Commissioner or his duly authorized
representative, it is determined that there exists
sufficient basis to assess the taxpayer for any deficiency
tax(es), said office shall issue to the taxpayer, at least by
registered mail, a PAN for the proposed assessment,
showing in detail, the facts and the law, rules and
regulations, or jurisprudence on which the proposed
assessment is based, and it shall the taxpayer to reply to
the findings within 15 days from the date of receipt of
the PAN. If the taxpayer fails to respond within 15 days
from date of receipt of the PAN, he shall be considered
in default, in which case, a formal letter of demand and
assessment notice shall be caused to be issued by said
office, calling for payment of the taxpayer’s deficiency
tax liability, inclusive of the applicable penalties (Sec.
3.1.2, Rev. Regs. No. 12-99).
4. Reply. — For purposes of contesting in writing the
findings of the revenue officers contained in a PAN, the
regulations use the term ""reply” to distinguish the
written objection(s) against a FAN issued by the BIR,
where the generic term “protest,” or the specific term
“request for reconsideration” or “request for
reinvestigation” is utilized.
Hereunder are the distinctions between “reply” and
“protest:”
1. A taxpayer is generally given under the regulations
fifteen days from the date of receipt of the PAN within
which to make his written “reply” thereto, while he is
given under the law 30 days from the date of receipt
within which to file his “protest” against the FAN.
2. Due to the shorter time given to the taxpayer to
make the “reply,” a taxpayer generally does not
respond in an adequate manner to the specific findings
of the revenue officer. On the other hand, the “protest”
is usually sufficient and comprehensive to explain the
legal and factual bases why the assessment is incorrect,
and certain documentary evidence not presented
during the preliminary assessment phase and legal
authorities and jurisprudence relevant to the findings of
the revenue officers are submitted or presented.
3. Most often than not, the taxpayer himself normally
handles the aspect of the preliminary assessment
process, hoping that he could still convince the revenue
officer of the correctness or reasonableness of the
taxpayer’s position. However, they generally do sloppy
jobs as taxation is a highly technical and complicated
matter. It is best to leave tax matters in the hands of the
professionals. During the formal assessment stage, a
taxpayer is almost always represented by his tax agent
or consultant.
4. Failure to reply to a PAN makes the taxpayer in
default and authorizes the revenue official to issue the
FAN. However, no liability for additional or deficiency
tax arises from such failure to file a reply. In view of this
principle, it can be said that the filing of a “reply” to
PAN is directory on the part of the taxpayer. On the
other hand, failure to file a timely “protest” to a FAN
makes the formal assessment notice final and
executory, and the taxpayer loses his right to contest
the assessment, at the administrative and judicial levels,
even if such assessment is weak or has no legal basis.
Because of this tax consequence, it behooves upon the
taxpayer to file such “protest” within 30 days from date
of receipt of the assessment. In other words, the filing
of a protest against an assessment is mandatory and
had to be made on a timely manner.
Tax amnesty as a defense
Tax amnesty partakes of an absolute waiver by the
government of its right to collect what is due it and to
give tax evaders who wish to relent a chance to start
with a clean slate. A tax amnesty, much like a tax
exemption, is never favored or presumed in law. The
grant of a tax amnesty, similar to a tax exemption, must
be construed strictly against the taxpayer and liberally
in favor of the taxing authority.
5. Issuance of Formal Assessment Notice (FAN) and
letter of demand. — The formal letter of demand and
assessment notice shall be issued by the Commissioner
or his duly authorized representative. The letter of
demand calling for payment of the taxpayer’s deficiency
tax(es) shall state the facts, the law, rules and
regulations, or jurisprudence on which assessment is
based; otherwise, the formal letter of demand and
assessment notice shall be void. The same shall be sent
to the taxpayer only by registered mail or by personal
delivery. If sent by personal delivery, the taxpayer or his
authorized representative shall acknowledge receipt
thereof in the duplicate copy of the letter of demand,
showing the following: (a) his name; (b) signature; (c)
designation and authority to act for and in behalf of the
taxpayer, if received by a person other than the
taxpayer himself; and (d) date of receipt thereof.^
FAN (BIR Form 17.08) contains the following
information: name, address, and TIN of the taxpayer;
kind of tax; period covered; basic tax assessed,
surcharge, interest, and compromise penalty, if any; and
the date when such deficiency tax must be paid.
Generally, the date of payment is about thirty days from
the date of mailing or release of the formal assessment,
although in some cases, there is a delay in the signing
and release of such formal assessment notice.
The FAN and letter of demand should always go
together. The reason for this is that the information
given in the FAN is inadequate for the taxpayer to make
a good evaluation of the correctness of the formal
assessment. Since the law requires that the factual
and/or legal bases of the assessment must be stated,
and this requirement is not satisfied by the issuance of
FAN alone, a letter of demand thus fills up the void and
explains to the taxpayer how the deficiency assessment
was arrived at, including the reasons and legal bases for
the assessment.
The taxpayer shall be informed in writing of the law and
the facts on which the assessment is made; otherwise,
the assessment shall be void. Applying the provisions of
Section 228 of the Tax Code, the Tax Court was rather
lenient in favor of the government in its earlier
decisions. Thus:
1. If the assessment notice is deemed insufficient
insofar as compliance with Section 228
(protesting of assessment) of the T eix Code is
concerned, such insufficiency can be cured, if
the demand letter can show the legal and
factual bases relied upon in the issuance of the
assessment which the assessment notice failed
to detail. The rule requiring the BIR to inform
the taxpayer in writing of the laws and the facts
on which the assessment is made runs parallel
to the due process clause for it is believed that
it is only through a detailed appraisal of its basis
that the taxpayer may be able to dispute the
imposition or agree with it.
2. Although petitioner did not receive the notice
of assessment sent by respondent
Commissioner, it may not complain of lack of
due process. In one case, petitioner was given
the opportunity to be heard and to present, as
it did, its side of the controversy by respondent
Court acting on petitioner’s motion for
reconsideration and modifying the decision to
reduce petitioner’s tax liability. Absence of
previous notice is not itself a substantial defect;
what the law abhors is the lack of opportunity
to be heard.
Assessments are prima facie presumed correct and
made in good faith. The taxpayer has the duty of
proving otherwise. In the absence of proof of any
irregularities in the performance of official duties, an
assessment will not be disturbed. All presumptions are
in favor of the correctness of tax assessments. Failure to
present proof of error in the assessment will justify
judicial affirmation of said assessment.
TTie assessment notice must be personally delivered or
meiiled to the address shown in the income tax return
covered by the assessment, unless a written notice of
the change of address duly received by the appropriate
revenue office was previously made by the taxpayer or
his authorized representative. It is always important to
indicate and stamp on the assessment notice, demand
letter, and the envelope containing the assessment
notice and demand letter the eocact date of receipt by
the person who received the same, and such receiving
person must immediately forward the same to the
official in charge of tax matters. This will ensure the
filing of a written protest against the assessment within
thirty days from the date of receipt thereof by the office
and not by the officer in charge of tax matters.
It must also be noted that the final assessment notice
must be protested by the taxpayer within the 30-day
period, despite the fact that exactly the same issues
were raised by the revenue officers in the preliminary
assessment notice, which were objected to, adequately
explained, and supported by factual and legal
arguments submitted by the taxpayer or his authorized
representative at the preliminary assessment stage. The
protest against the final assessment notice is not the
same as the reply to the preliminary assessment notice,
in the same manner that the preliminary assessment
notice does not ripen into a final assessment notice if
not duly issued or deemed issued within the three-year
period the BIR may make an assessment.
Where the taxpayer is appealing on the ground that the
assessment is erroneous, it is incumbent upon him to
prove what the correct and just liability is by a full and
fair disclosure of all pertinent data.
Legal effects of issuance of FAN/DL
a. The issuance of the FAN/DL legally creates tax liability
of the taxpayer which is being demanded in the
accompanying letter of demand.
b. If the taxpayer files a timely protest against the
FAN/DL, the assessment does not become final and
executor. The taxpayer may file a supplemental protest,
containing the additional or new evidence and
arguments in support of its protest, within the next 60
days from the date of filing of the protest letter.
c. The taxpayer does not have to pay the deficiency tax
assessment in filing the protest letter, but the 20%
deficiency interest per annum shall start to run from the
date the tax is due up to the date of payment of the
deficiency tax.
d. The business of the taxpayer does not become illegal
by non-reason of the non-payment of the assessed
national internal revenue tax, unlike local business tax,
which must be paid upon the filing of the protest.
6. Filing of administrative protest by the taxpayer
against the assessment. — The taxpayer or his duly
authorized representative may protest administratively
against the aforesaid formal letter of demand and
assessment notice within 30 days from date of receipt
thereof This period is known as the “30-day period” in
this book. If there are several issues involved in the
formal letter of demand and assessment notice but the
taxpayer only disputes or protests against the validity of
some of the issues raised, the taxpayer shall be required
to pay the deficiency tax or taxes attributable to the
undisputed issues, in which case, 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. No action shall be taken on the
taxpayer’s disputed issues until the taxpayer has paid
the deficiency tax or taxes attributable to the said
undisputed issues. The prescriptive period for
assessment or collection of the tax or taxes attributable
to the disputed issues shall be suspended.
The taxpayer shall state the facts, the applicable law,
rules and regulations, or jurisprudence on which his
protest is based; otherwise, his protest shall be
considered void and without force and effect. 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 (Sec. 3.1.5,
Rev. Regs. No. 12-99).
If the taxpayer fails to file a valid protest against the
formal letter of demand and assessment notice within
30 days from date of receipt thereof, the assessment
shall become final, executory and demandable.
7. Submission of documentary evidence and arguments.
— The taxpayer shall submit the required documents in
support of his protest (i.e., request for reinvestigation)
within 60 days from date of filling of his letter of
protest; otherwise, the assessment shall become final,
executory and demandable. This period is referred to as
the “60-day period.” The phrase “submit the required
documents” includes submission or presentation of the
pertinent documents for scrutiny and evaluation by the
Revenue Officer conducting the audit. The said Revenue
Officer shall state this fact in his report of investigation.
If the protest is denied, in whole or in part, by the
Commissioner, the taxpayer may appeal to the Court of
Tax Appeals within 30 days from date of receipt of the
said decision, otherwise, the assessment shall become
final, executory and demandable (Sec. 228, NIRC; Sec.
3.1.5, Rev. Regs. No. 12-99).
However, the counting of the 180-day period will start
to run from the filing of the protest letter (i.e., request
for reconsideration), and if the respondent failed to
render his decision within 180 days from the filing of his
protest letter, petitioner has 30 days therefrom to file
an appeal with the CTA.«
8. Denial of protest by the Commissioner or his
authorized representative. — The decision of the
Commissioner or his duly authorized representative
shall (a) state the facts, the applicable law, rules and
regulations, or jurisprudence on which such decision is
based; otherwise, the decision shall be void; and (b)
that the same is his final decision (Sec. 3.1.6, Rev. Regs.
No. 12-99).
In general, if the protest is denied, in whole or in part,
by the Commissioner or his duly authorized
representative, the taxpayer may appeal to the Court of
Tax Appeals within 30 days from date of receipt of the
said decision; otherwise, the assessment shall become
final, executory and demandable. However, if the
taxpayer elevates his protest to the Commissioner
within 30 days from date of receipt of the final decision
of the Commissioner’s duly authorized representative,
the latter’s decision shall not be considered final,
executory and demandable, in which case, the protest
shall be decided by the Commissioner.
9. Appeal by the taxpayer of the final decision of the
Commissioner or his authorized representative on the
disputed assessment to the Court of Tax Appeals. — If
the Commissioner or his duly authorized representative
fails to act on the taxpayer’s protest within 180 days
from date of submission, by the taxpayer, of the
required documents in support of his protest, the
taxpayer may appeal to the Court of Tax Appeals within
30 days from the lapse of the said 180-day period,
otherwise, the assessment shall become final, executory
and demandable (Sec. 228, NIRC).
B. Power to Collect Taxes
Delinquency tax v. deficiency tax
A taxpayer is considered delinquent in the payment of
his tax when (a) the self-assessed tax per return filed by
the taxpayer on the prescribed date was not paid at all
or was only partially paid; or (b) the deficiency tax
assessed by the BIR became final and executory.
The term “deficiency” means: (1) The amount by which
the tax imposed by law [Title II (Income Tax)] as
determined by the Commissioner or his authorized
representative exceeds the amount shown as the tax by
the taxpayer upon his return; or (2) If no amount is
shown as the tax by the taxpayer upon his return, or if
no return is made by the taxpayer, then the amount by
which the tax as determined by the Commissioner or
his- authorized representative exceeds the amounts
previously assessed (or collected without assessment)
as a deficiency (See Sec. 56[B], NIRC).
Distinction between remedies in the collection of
deficiency tax and delinquency tax
a. A delinquent tax can immediately be collected
administratively through the issuance of the
warrant of distraint and levy, and/or by judicial
action, while a deficiency tax can be collected
also through administrative and/or judicial
remedies but has to go through the process of
filing the protest against the assessment by the
taxpayer and denial of such protest by the BIR.
b. The filing of a civil action for the collection of
the delinquent tax in the ordinary court is a
proper remedy, while the filing of a civil action
at the ordinary court for the collection of a
deficiency tax during the pendency of the
protest may be the subject of a motion to
dismiss. In addition to the motion to dismiss at
the ordinary court, a petition for review must
be filed by the taxpayer with the CTA within the
30-day period prescribed in R.A. 1125, as
amended to toll the running of the prescriptive
period.
c. A delinquent tax is subject to administrative
penalties, such as 25% surcharge, interest, and
compromise penalty. A deficiency tax is
generally not subject to the 25% surcharge,
although subject to interest and compromise
penalty.
After a Final Assessment Notice and Demand Letter
have been issued by the BIR, next stage is the collection
thereof
Administrative remedies of the government to collect
assessed taxes
The remedies of the government for the collection of
national internal revenue taxes can be classified into
administrative remedies and judicial remedies. The
administrative remedies are:
1. Tax lien;
2. Distraint of personal property, or levy of real
property, or garnishment of bank deposits;
3. Sale of property;
4. Forfeiture;
5. Compromise and abatement;
6. Penalties and fines; and
7. Suspension of business operations.
The judicial remedies of the government are civil
action and criminal action.
Tax lien
“Tax lien” is understood to denote a legal claim or
charge on property, either real or personal, as security
for the payment of some debt or obligation (Hongkong
& Shunghui Banking Corporation V. Commissioner, 39
Phil. 145).
When a taxpayer neglects or refuses to pay his internal
revenue tax liability after demand, the amount so
demanded shall be a lien in favor of the government
from the time assessment was made by the
Commissioner until paid with interest, penalties and
costs that may accrue in addition thereto upon all
property and rights to property belonging to the
taxpayer.
The lien shall not be valid against any mortgagee,
purchaser or judgment creditor until notice of such lien
shall be filed by the Commissioner in the office of the
Register of Deeds of the province or city where the
property of the taxpayer is situated or located (Sec. 219,
NIRC).
The claim of the government predicated on a tax lien is
superior to the claim of a private litigant predicated on
a judgment. The tax claim must be given preference
over any other claim of any other creditor, in respect of
any and all properties of the insolvent. There is no merit
in the contention of the National Labor Relations
Commission that taxes are absolutely preferred claims
only with respect to movable or immovable properties
on which they are due (Republic v. Peralta, 150 SCRA
37).
The tax lien attaches not only from the service of the
warrant of distraint of personal property but from the
time the tax became due and payable.
The power of the court in execution of judgments
extends only to properties unquestionably belonging to
the judgment debtor. Execution sales affect the rights of
the judgment debtor only, and the purchaser in an
auction sale acquires only such right as the judgment
debtor had at the time of sale.
The sheriff is not authorized to attach or levy on
property not belonging to the judgment debtor.
The term “tax” is used in a broad sense encompassing
all government revenues collectible by the
Commissioner under the Tax Code, whether or not
involving taxes in the strict technical sense thereof {e.g.,
forest charges) (Commissioner v. National Labor
Relations Commission and Maritime Company of the
Phil^ 238 SCRA 42).
BIR may collect the deficiency tax due from one heir
only or from all the heirs in proportion to their
inheritance received. — After the closure of the estate
proceedings of Atanacio Pineda and the distribution of
the estate to his heirs, the CIR tried to collect from one
of the heirs deficiency income tax due from the estate.
The respondent appealed to the CTA alleging that he
was appealing “only that proportionate part or portion
pertaining to him as one of the heirs.” The CTA found
respondent Pineda liable only for the payment
corresponding to his share of the tax assessed. The CIR
appealed to the Supreme Court and proposed to hold
respondent liable not only for his share in the tax but
for the payment of all the taxes found by the CTA to be
due from the estate. The Supreme Court granted the
petition and ruled that Pineda was liable for the
assessment as an heir and as a holder-transferee of
property belonging to the estate/taxpayer. As an heir,
he was individually answerable for the part of the tax
proportionate to the share he received from the
inheritance. His liability, however, cannot exceed the
amount of his share. As a holder of property belonging
to the estate, he was liable for the tax up to the amount
of the property in his possession. The reason was that
the government has a lien on the property received by
him from the estate for unpaid income taxes for which
said estate was liable (CIR v. Pineda, G.R. No. L-22734,
September 15,1967).
Distraint, levy, or garnishment
Distraint of personal property
Distraint is a remedy whereby the collection of
delinquent taxes is enforced on the goods, chattels or
effects and other personal property of whatever
character of the taxpayer, including stocks and other
securities, debts, credits, bank accounts and interests in
and rights to personal property (Sec. 205[a], NIRC).
a. Actual distraint is resorted to when at the time
required for payment, a person fails to pay his
delinquent tax obligation (Sec. 207[A], NIRC). Distraint
consists in the actual seizure and taking possession of
personal property of the taxpayer.
b. Constructive distraint is issued where no actual tax
delinquency of the taxpayer is necessary before the
same is resorted to by government. It may be availed of
when the taxpayer is retiring from any business subject
to tax; he intends to leave the Philippines; he removes
his property therefrom; or he performs any act tending
to obstruct the proceedings for collecting the tax due or
which may be due from him. Constructive distraint shall
be effected by requiring the taxpayer or any person
having possession or control of the personal property to
sign a receipt covering the property distrained and
obligate himself to preserve the same intact and
unaltered and not to dispose of the same in any manner
whatever, without the express authority of the
Commissioner (Sec. 206, NIRC). It is a preventive
remedy to forestall hiding or possible dissipation of the
taxpayer’s assets when tax delinquency takes place.
“Garnishment” refers to a warning to a person in whose
hands the effects of another are attached, not to pay
the money or deliver the property or allow withdrawal
of deposits of the defendant in his hands (see Reliance
Procoma, Inc. v. Phil-Asia Tobacco Corporation,
57SCRA370).
Levy of real property
Levy is a remedy whereby the collection of delinquent
taxes is enforced on the real property belonging to the
delinquent taxpayer. Levy shall be effected by writing
upon an authenticated certificate showing the name of
the taxpayer and the amounts of the tax and penalty
due, a description of the property upon which levy is
made. At the same time, written notice of the levy shall
be mailed to or served upon the Register of Deeds of
the province or city where the property is located and
upon the delinquent taxpayer, or if he be absent from
the Philippines, to his agent or the manager of the
business in respect to which the liability arose, or if
there be none, to the occupant of the property in
question (Sec. 207, NIRC).
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 (Sec.
217, NIRC). The reason for this provision was succinctly
explained by the court as follows: If a full discharge of
the tax liability is to be the result of the distraint and
levy, this would permit a clever taxpayer who is able to
conceal most of the valuable part of his property from
the revenue officers to escape payment of his tax
liability, by sacrificing an insignificant portion of his
holdings (Castro V. Collector, 6 SCRA 8 8 6 ).
Distraint and levy proceedings are validly begun or
commenced by the issuance of the warrant and service
thereof on the taxpayer. — Under Section 223(c) of the
Tax Code, it is not essential that the warrant be fully
executed so that it can suspend the running of the
statute of limitations on the collection of the tax. It is
enough that the proceedings have validly begun and
that their execution has not been suspended by reason
of the voluntary desistance of the CIR. Jurisprudence
establishes that distraint and levy proceedings are
validly begin or commenced by the issuance of the
warrant and service thereof on the taxpayer (BPI v.
Commissioner, G.R. No. 139736, October 17,2005).
Sale of property
The Revenue District Officer or his duly authorized
representative shall, upon recommendation of the
Commissioner, forthwith cause a notification to be
exhibited in not less than two public places in the
municipality or city where the distraint is made,
specifying the time and place of sale and the articles
distrained. The time of sale shall not be less than twenty
days after notice to the owner or possessor of the
property and the publication or posting of such notice.
One place for the posting of such notice shall be at the
Office of the Mayor of the city or municipality in which
the property is distrained.
At the time and place fixed in such notice, the said
revenue officer shall sell the goods, chattels, or effects,
or other personal property, including stocks and other
securities so distrained, at public auction to the highest
bidder for cash, or with the approval of the
Commissioner, through duly licensed commodity or
stock exchanges.
In the case of stocks and other securities, the officer
making the sale shall execute a bill of sale which he shall
deliver to the buyer, and a copy thereof furnished the
corporation, company or association which issued the
stocks or other securities. Upon receipt of the copy of
the bill of sale, the corporation, company or association
shall make the corresponding entry in its books, transfer
the stocks or other securities sold in the name of the
buyer, and issue, if required to do so, the corresponding
certificates of stock or other securities.
Any residue over and above what is required to pay the
entire claim, including expenses, shall be returned to
the owner of the property sold. The expenses
chargeable upon each seizure and sale shall embrace
only the actual expenses of seizure and preservation of
the property pending the sale, and no charge shall be
imposed for the services of the local internal revenue
officer or his deputy (Sec. 209, NIRC).
Within twenty days after levy, the officer conducting
the proceedings shall proceed to advertise the property
or a usable portion thereof as may be necessary to
satisfy the claim and cost of sale; and such
advertisement shall cover a period of at least thirty
days. It shall be effectuated by posting a notice at the
main entrance of the municipal building or city hall and
in a public and conspicuous place in the barrio or district
in which the real estate lies and by publication once a
week for three (3) weeks in a newspaper of general
circulation in the municipality or city where the
property is located. The advertisement shall contain a
statement of the amount of taxes and penalties so due
and the time and place of sale, the name of the
taxpayer against whom taxes are levied, and a short
description of the property to be sold. At any time
before the day fixed for the sale, the taxpayer may
discontinue all proceedings by paying the taxes,
penalties and interest. If he does not do so, the sale
shall proceed and shall be held either at the main
entrance of the municipal building or city hall, or on the
premises to be sold, as the officer conducting the
proceedings shall determine and as the notice of sale
shall specify (Sec. 213, NIRO.
Forfeiture
Forfeiture of property for want of bidder. — In case
there is no bidder for the real property in the public sale
or if the amount of the highest bid is insufficient to pay
the taxes, penalties and costs, the property shall be
declared forfeited to the Government. The Register of
Deeds concerned shall, upon registration of the
declaration for forfeiture, transfer the title of the
property to the Government without the necessity of an
order from a competent court.
Within one year from the date of such forfeiture, the
taxpayer or anyone for him, may redeem said property
by paying the full amount of taxes, penalties, interests
and costs of sale, but if the property is not thus
redeemed, the forfeiture shall become absolute (Sec.
215, NIRC).
Compromise and abatement
Compromise
The Commissioner may compromise any national
internal revenue tax when (a) a reasonable doubt as to
the validity of the claim against the taxpayer exists, or
(b) the financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be
subject to the following minimum amounts:
1. For cases of financial incapacity, a minimum
compromise rate equivalent to 10% of the basic tax
assessed; and
2. For other cases, a minimum compromise rate
equivalent to 40% of the basic tax assessed.
Where the basic tax involved exceeds ₱1,000,000 or
where the settlement offered is less than the prescribed
minimum rates, the compromise shall be subject to the
approval of the National Evaluation Board which shall
be composed of the Commissioner and the Deputy
Commissioners.
All criminal violations may be compromised, except (a)
those already filed in court, or (b) those involving fraud
(Sec. 204[A], NIRO.
The taxpayer’s offer to compromise shall not be
considered, unless and until he waives in writing his
privilege under R.A. 1405 or under other general or
special laws, and such waiver shall constitute the
authority of the Commissioner to inquire into his bank
deposits (Sec. 6[F], NIRC).
Should the BIR formally accept the offer of compromise
based on doubtful validity of the assessment made by
the taxpayer, the remaining basic tax (i.e., 60% of the
basic tax) plus all the surcharges and deficiency
interests shall be deemed waived and cancelled. In the
case of offer to compromise based on financial
incapacity, if accepted by the CIR, the remaining 90% of
the basic tax plus all penalties shall be waived.
Effective after 15 days from publication in a newspaper
of general circulation of Revenue Regulations No. 9-
2013 dated May 10, 2013, all decisions of the National
Evaluation Board, granting request of taxpayer to
compromise, shall have the concurrence of the
Commissioner of Internal Revenue. The compromise
offer shall be paid first by the taxpayer upon filing of the
application for compromise settlement. No application
for compromise shall be processed without the full
settlement of the offered amount. In case of
disapproval, the amount paid upon filing shall be
deducted from the total outstanding tax liabilities.
Abatement
When the tax or any portion thereof appears to be
unjustly or excessively assessed, or when the
administration and collection costs involved do not
justify the collection of the amount due, the tax may be
abated; i.e., the entire tax liability of the taxpayer is
cancelled (Sec. 204[B], 1997 Tax Code).
The power to compromise or abate shall not be
delegated by the Commissioner, except in the following
cases: (a) assessments issued by regional offices
involving basic taxes of ₱500,000 or less; and (b) minor
criminal violations. These cases may be compromised by
a regional evaluation board (Sec. 7, NIRC).
Penalties and fines
Compromise and compromise penalty compared:
Similarities:
1. They both imply mutual agreement. A compromise
penalty cannot be imposed in the absence of a showing
that the taxpayer consented thereto. If the
Commissioner’s offer of compromise is rejected by the
taxpayer, the Commissioner cannot enforce it but he
may file a criminal action against the taxpayer for the
tax violation (Commissioner v. Fireman’s Fund Insurance
Co., 148 SCRA 315).
2. The Commissioner has no power to impose and
collect the compromise penalties in the absence of a
compromise agreement validly entered into between
the taxpayer and the Commissioner (Mithi ng Bayan
Cooperative Marketing Association v. Araneta, 2 SCRA
879). However, where in an appeal to the CTA, the
taxpayer has expressed his willingness to pay
compromise penalties, said amounts may be collected
as part of the judgment (Commissioner v. Guerrero, 19
SCRA 205).
3. The right to enter into an agreement, including the
amount to be paid in settlement of a tax violation, is
discretionary to the Commissioner or the taxpayer.
Distinctions:
1. Definition and nature of violation being
compromised'. A compromise penalty is an amount of
money paid by a taxpayer to compromise a tax violation
that he has committed, which may be the subject of
criminal prosecution, while a compromise is an amount
of money paid by the taxpayer to settle his civil liability
for tax assessed by the government.
2. Basis of amount paid: In compromise, the basis of the
amount paid is the basic tax assessed; in compromise
penalty, the basis is the gross sales or receipts during
the year or the tax due.
3. Minimum amount prescribed: In compromise, the
law sets a limit as to the amount that may be accepted
by the government, depending on the legal grounds
used by the taxpayer; in compromise penalty, the
amount set depends on the nature of the tax violation
and the minimum amount is generally not less than
₱1,000.
JUDICIAL REMEDIES OF GOVERNMENT
The main function of the BIR is to raise revenues for the
operations of government. To effect collection of
delinquent taxes, the BIR may resort to judicial actions
under the Tax Code. Civil and criminal actions and
proceedings instituted in behalf of the Government
under the authority of this Code or other laws enforced
by the BIR shall be brought in the name of the
Government of the Philippines and shall be conducted
by legal officers of the BIR, but no civil or criminal
actions for recovery of taxes or the enforcement of any
fine, penalty or forfeiture under this Code shall be filed
in court without the approval of the Commissioner fSec.
220, NIRC).
No court shall have the authority to grant an injunction
to restrain the collection of any national internal
revenue tax, fee or charge imposed by the Tax Code
(Sec. 218, NIRC). However, the Court of Tax Appeals is
given the power to restrain the collection of national
internal revenue taxes, subject to certain conditions
(Sec. 7, RA. 1125).
Civil action
There are two (2) ways by which the civil tax liability of
a taxpayer is enforced by the government through civil
actions. These are: (1) by filing a civil case for the
collection of a sum of money with the proper regular
court (i.e., Municipal Court or Regional Trial Court), if
basic tax assessed is less than PI million, or with the
CTA, where the basic tax assessed amounts to PI million
or more; and (2) by filing an answer to the petition for
review filed by the taxpayer with the Court of Tax
Appeals.
When the Commissioner of Internal Revenue files a civil
action for the collection of taxes, it is the Republic of
the Philippines that is the party plaintiff, not the
Commissioner of Internal Revenue. But when it is the
taxpayer that files a petition for review in the Court of
Tax Appeals, the respondent is the Commissioner of
Internal Revenue, not the Republic of the Philippines.
Jurisdiction over civii actions
Civil action is available to and initiated by the
government only when a tax liability becomes
delinquent and collectible. Effective April, 2004,
jurisdiction over civil actions for the collection of
delinquent taxes with basic tax amounting to PI million
or more shall be filed with the CTA. The RTC retains
jurisdiction over basic tax in the amounts up to less than
PI million.
When collectibility of tax liability arises
1. Self-assessed tax shown in the return was not paid
within the date prescribed by law
Internal revenue taxes are self-assessing and no further
assessment by the government is required to create the
tax liability, where the taxpayer merely filed his tax
return showing an amount of tax due, without paying
the same or paying only a portion thereof. In such a
case, the taxpayer is immediately considered as
delinquent with respect to the unpaid amount of tax.
2. Final assessment is not protested administratively
within 30 days from date of receipt
The assessment may be protested administratively by
filing a request for reconsideration or reinvestigation
within 30 days from receipt of the assessment in such
form and manner as may be prescribed by
implementing rules and regulations. Otherwise, the
assessment shall become final (Sec. 229, NIRC). The
filing of the protest within the 30-day period is
mandatory and is not extendible, and if the BIR imposes
certain conditions for the approval of such protest, said
conditions must be satisfied with by the taxpayer.
Failure to question assessment served upon the
decedents heirs. — Apart from failing to file the
required estate tax return, petitioner and the other
Marcos heirs failed to question the assessments served
on them as heirs of the late President Ferdinand
Marcos, thereby allowing said assessments to lapse into
finality. Said assessments having become final and
executory, the same may be collected by summary
remedy of distraint or levy (Marcos II v. Court of
Appeals, 273 SCRA 47).
3. Non-compliance with the condition laid in the
approval of protest
The protest letter filed by the taxpayer or his authorized
agent, provided it is not considered as pro forma, is
generally approved by the Commissioner. In some
instances, the Commissioner imposes certain conditions
or requires the filing of position papers in granting the
request for reinvestigation or reconsideration, in order
to adequately evaluate the validity of the arguments
and documents mentioned in the protest letter. Thus,
failure of the taxpayer to comply with such condition
within the time granted him is construed as if no protest
was filed by him.
Estate and inheritance taxes were assessed against the
estate of spouses Marta Teodoro and Don Toribio
Teodoro. The heirs then filed a request for
reconsideration of the assessments and asked that they
be given 30 days within which to submit their position
paper in support of their claim. The position paper was
not submitted. When the Government sought to collect
the tax liabilities in the settlement proceedings on the
estate, the heirs interposed the defense that the
assessments have not become final and executory. The
Supreme Court ruled that the request for
reconsideration cannot be considered as a protest
against the assessment. The failure of the heirs to
substantiate their claim against the assessment due to
the non-submission of their position paper justified the
Commissioner’s action in collecting the tax in the court
settlement proceedings (Dayrit v. Cruz, 165 SCRA 571).
4. Failure to file a timely appeal to the CTA on the final
decision of the Commissioner or his authorized
representative on the disputed assessment. — Taxpayer
filed with the BIR a request for reinvestigation after he
was assessed deficiency income tax. Subsequently, a
letter-decision demanding payment was issued by BIR.
Since the taxpayer did not appeal, a civil action for
collection was filed by the Government. The court ruled
that the taxpayer’s failure to appeal the decision to the
Court of Tax Appeals deprived him of the right to
question the Commissioner’s authority to collect the tax
within the prescriptive period provided by law (Basa v.
Republic, 138 SCRA 34).
Where the taxpayer failed to comply with a condition
laid down by the Commissioner for the reinvestigation
of the case and its failure to appeal to the CTA made the
assessment final and executory, so that if an action to
collect the tax assessment is filed by the government in
the ordinary court, this is akin to an action to enforce a
judgment such that no inquiry can be made thereon as
to the merits of the original case or the justness of the
judgment relied upon (Mambulao Lumber Co. V.
Republic, 132 SCRA 1). [NOTE: A civil action to collect an
assessment that has become final and executory is now
required to be filed with the CTA under RA.. 9282,
where the basic tax assessed is FI million or more.]
Collection of tax through the filing of the BIR’s answer in
the petition for review filed by the taxpayer with the
CTA. — The fact that no civil action to collect the
taxpayer’s tax liability was filed by the Government (in
the RTC) is no ground for claiming that the right of the
Government to collect said liability had already
prescribed. The Supreme Court ruled that prescription
had not set in inasmuch as the Government’s answer in
the CTA was filed well within the prescriptive period
prescribed by law (Fernandez Hermanos, Inc. v.
Commissioner, 29 SCRA 552). In other words, the
answer filed by the government in the Court of Tax
Appeals was tantamount to the filing of a civil action for
collection in the regular court. Incidentally, when action
for collection is filed in the regular courts, prescription is
tolled.
When to go to court?
As a general rule, the BIR can file a civil action for the
collection of a tax that has become delinquent or
collectible within five (5) years from the date of
assessment. Thus, in the leading case of Republic v. Lim
Tian Teng Sons (16 SCRA 584), the Supreme Court held
that nowhere in the Tax Code is the Commissioner
required to rule first on the taxpayer’s request for
reinvestigation before he can go to court for the
purpose of collecting the tax assessed. The legislative
policy is to give the Commissioner much latitude in the
speedy and prompt collection of taxes because it is on
taxation that the Government depends to obtain the
means to carry on its operations. The Court further said
that when the Commissioner did not reply to the
taxpayer’s request for reconsideration and instead
referred the case to the Solicitor General for judicial
collection, this was indicative of his decision against
reinvestigation. Failure on the part of the taxpayer to
file the appeal to the CTA makes the final decision of
the Commissioner on the disputed assessment final and
executory.
Distraint and levy proceedings are validly begun or
commenced by the issuance of the warrant and service
thereof on the taxpayer. — Under Section 223(c) of the
Tax Code, it is not essential that the warrant be fully
executed so that it can suspend the running of the
statute of limitations on the collection of the tax. It is
enough that the proceedings have validly begun and
that their execution has not been suspended by reason
of the voluntary desistance of the CIR. Jurisprudence
establishes that distraint and levy proceedings are
validly begun or commenced by the issuance of the
warrant and service thereof on the taxpayer (BPI v.
Commissioner, GJl. No. 139736, October 17,2005).
However, the filing of a civil action in the regular court
(RTC) to collect a tax which was the subject of a pending
protest in the BIR was a justifiable basis for the taxpayer
to appeal to the CTA and to move for a dismissal in the
trial [regular] court of the Government’s action to
collect the tax liability under dispute (Yabes v. Flojo, 115
SCRA278).
Another exception relates to an action to collect on the
bonds, which is an action separate and distinct from an
action to collect taxes. Article 1144 of the Civil Code
which provides that actions upon a written contract
must be brought within ten (10) years from the time the
right of action accrues, finds a fitting application
(Republic V. Dorego, GJl. No. L-16594, April 26, 1962). It
appearing that said bonds were executed on June 12
and 29, 1946, the right of the government to collect the
amounts covered thereby, prescribed on June 12 and
29,1956. The complaint was filed on February 18,1953.
Who approves the filing of civil action?
No civil or criminal action for the recovery of taxes or
the enforcement of any fine, penalty or forfeiture under
this Code shall be filed in court without the approval of
the Commissioner (Sec. 220, NIRC). However, a Regional
Director may also approve the filing of civil actions for
collection of delinquent tax, if this power is expressly
delegated to him by the Commissioner under an
appropriate revenue memorandum [or administrative]
order on the matter (Republic v. Hizon, 320 SCRA 574).
Complaints in civil actions for the collection of
delinquent taxes are required to be approved by the
Solicitor General before they are filed. However, BIR
legal officers deputized as Special Attorneys and
stationed outside Metro Manila may file verified
complaints without the approval of the Solicitor
General, provided that the Solicitor General is furnished
a copy of the complaint, and thereafter, the Solicitor
General files a notice of appeeirance in the court where
the action is filed. If the complaint is found to be
improperly filed, a motion to dismiss is filed with the
court (Republic v. Domecillo, CA.-GJl. SP No. 17676,
February 9,1990).
Respondents in a civil action for the collection of tax
Parties who are not included in an assessment made by
the Commissioner of Internal Revenue cannot be made
respondents in an appeal from a particular assessment,
and no judgment can be rendered against such parties
because any such judgment would be an encroachment
on the prerogative of the Commissioner to make an
assessment and would further violate the rule on due
process and the exhaustion of administrative remedies.
Moreover, under Section 7 of R.A. 1125, only the
Commissioner of Internal Revenue and the
Commissioner of Customs may be sued before the
Court of Tax Appeals in appropriate cases (Gotamco &
Sons v. Commissioner, CTA Case No. 165, August
12,1965).
The stockholders of a corporation that has tax
delinquency cannot be made liable for the obligations of
the corporation. The obligations of the corporation are
not those of the stockholders, for it is a basic rule that a
corporation is vested by law with a personality separate
and distinct from those of the persons composing it as
well as from that of any other legal entity to which it
may be related (Sunio V. National Labor Relations
Commission, 127 SCRA 390). It is, however, possible for
stockholders to be held personally liable for the unpaid
tax liabilities of a defunct corporation as when the
assets of the corporation have passed into the hands of
its stockholders (Tan Tiong Bio v. Commissioner, 100
Phil. 86). Also, a stockholder who has unpaid
subscriptions is liable for the debts of the corporation
(Lumanlan v. Cura, 59 Phil. 746).
Criminal actions
A. Under the 1997 Tax Code
Two common crimes punishable under the Tax Code
which are filed by the BIR are as follows:
1. Attempt to evade or defeat tax. — Any person who
willfully attempts in any manner to evade or defeat any
tax imposed under the Tax Code or the payment
thereof, in addition to other penalties provided by law,
upon conviction thereof, be punished. The conviction or
acquittal obtained under this Section shall not be a bar
to the filing of a civil suit for the collection of taxes (Sec.
254, NIRO.
To establish the existence of fraud, the following
requisites must be present and established by
competent evidence:
a. The end to be achieved — the objective is to pay an
amount of tax that is less than that known by the
taxpayer to be legally due;
b. The accompanying state of mind — the state of mind
is variously described as being evil, in bad faith,
deliberate and not accident, or willful; and
c. The overt act done or scheme used by the taxpayer,
which must be tinged with some element of deceit,
misrepresentation, trick, device, concealment or
dishonesty (“Fraud under Tax,” Balter).
2. Failure to file return, supply correct and accurate
information, pay tax, withhold and remit tax and refund
excess taxes withheld on compensation. — Any person
required under the Tax Code or by rules and regulations
promulgated there under to pay any tax, make a return,
keep any record, or supply correct and accurate
information, who willfully fails to pay such tax, make
such return, keep such record, or supply such correct
and accurate information, or withhold or remit taxes
withheld, or refund excess taxes withheld on
compensation, at the time or times required by law or
rules and regulations shall, in addition to other penalties
provided by law, upon conviction thereof, be punished.
In Criminal Case No. 0-013 (for non-filing of tax return
under Section 255 of the Tax Code), the elements that
must be established are; (a) the accused was a person
required to make or file a return; (b) the accused failed
to make or file the return at the time required by law;
and (c) the failure to make or file the return was willful.
As to the first element. It has been established that the
accused is a resident Filipino citizen and that he is the
sole proprietor of “Mendez Body and Face Salon and
Spa” in Quezon City. The accused was earning income
for 2001 to 2003 through the ad placements, the
vehicles registered in his name, and the numerous
travels he took in said years. As to the second element,
he did not file his ITR with RDO 39, South Quezon and
there were no records of returns filed for said years as
certified by the RDO. As to the third element, although
the accused did not earn any income in 2002, his
purchases and expenditures prove that he has
knowledge that he has substantial income, which was
used on such, and his denial of income connotes his
attempt to conceal said Income by not filing his tax
return. Also, the habitual failure to file his ITR for 2001
and 2002, despite findings that he was earning income,
then shows the willfulness of his non-filing for 2002.
In Criminal Case No. 0-015 (for failure to supply correct
information), the elements that must be established
are: (a) the accused is a person required under the Tax
Code or by rules and regulation to pay any tax, make a
return, keep any record or supply correct and accurate
information; (b) the accused failed to supply correct and
accurate information at the time or times required by
law or rules and regulations; and (c) such failure to
supply information is willful. The prosecution has
already the first element. Regarding the second
element, the accused filed his ITR for 2003 with RDO
Calasiao, Pangasinan for his “Mendez Weight Less
Center” located at Dagupan City. However, it was
discovered that there are several other branches
registered with the BIR under the name of the accused
as the sole owner. Taking into consideration the bulk of
circumstantial evidence proving the accused’s ability to
spend on the previously mentioned expenditures and
purchases during 2003, the accused earned substantial
income during said year. These findings contradict the
declaration made by the accused in the ITR he filed that
he suffered a net loss during the year. The accused also
failed to file his ITRs for his income earned from the
operation of the other branches of his business for
2003. As to the third element, the accused is considered
to have knowledge that he has the obligation to declare
and file ITR for taxes from all sources, and despite his
knowledge, he failed to file his ITR on his income from
other businesses, making it appear that his only source
of income was from the operation of his branch in
Dagupan City (People v. Mendez, Crim Case No. 0-013,
January 5, 2011; People v. Wong Yan Tak, et al. [Pin AT
Pac Mart], CTA Crim. Case No. 0-090, October 17,2012).
For failure of the State Prosecutor to submit the records
of preliminary investigation, the CTA dismissed the case
without prejudice (People v. Tambunting, Crim. Case
No. 0-200, May 17, 2011).
The accused, as President of Jadewell Parking Systems
Corporation, should at the very least have been aware
of who is authorized to sign Jadewell’s income tax
returns and other tax filings. Accused, as president and
general manager of Jadewell, could not even explain
how a certain Via Aguas was able to sign some tax
returns and payment forms, despite the allegation of
the defense that said Via Aguas is not an employee of
Jadewell. Accused also submitted into evidence Income
tax returns which were unsigned. Knowing all these,
accused did not even inquire as to whether Jadewell’s
income tax returns were being properly filed and
whether the information contained therein is true and
accurate. This “deliberate avoidance” or “omission” on
the part of the accused leads this court to conclude that
the supply of false and incorrect information was willful
emd done with the toowledge of the accused (People v.
Rogelio A. Tan, CTA Crim. Case No. 0-064, June
27,2012).
Any person who attempts to make it appear for any
reason that he or another has in fact filed a return or
statement, or actually files a return or statement and
subsequently withdraws the same return or statement
after securing the official receiving seal or stamp of
receipt of an internal revenue office where the same
was actually filed shall, upon conviction therefor, be
punished (Sec. 255, NIRC).
Although the accused may have failed to file the estate
tax return, the accused should be exempted from
criminal liability as she was prevented to do so due to
an insuperable cause made by no less than the
government. From February 1986, the accused and her
family were forcibly placed on exile in Hawaii until
November 1994, when they returned to the country.
The properties of President Marcos were sequestered
and placed under the control and possession of the
government after which forfeiture proceedings were
filed before the Sandiganbayan Court. Why would the
government require accused to comply with her
obligation when it had taken away the means by which
she could comply with the requirements of the law.
Logically, a legal heir who does not possess knowledge
or information regarding the total value of the estate of
the decedent would not dare execute a return under
oath under pain of criminal liability. In the same
manner, the accused cannot be expected or pay the tax
due on the estate of her deceased husband during the
time she had no record in her possession and control
with which she could assess the value of the gross
estate and the deductions allowed thereto to determine
the estate tax liability.
Under Section 83 of the Tax Code, the law presumes
that the person filing the return has personal
knowledge regarding the extent and value of the
properties of the decedent. Otherwise, the requirement
that the return must contain the itemized list of his
assets under oath serves no purpose. In order to
establish a willful violation of said provision, it is
incumbent upon the prosecution to prove that on 28
September 1998 and within 90 days thereafter, the
accused while in Hawaii personally knew the extent and
total value of the estate of the late president. At the
time of the filing of the criminal complaint against the
accused, the latter was not yet in any way the executor
or administrator of the estate and only after the filing of
the complaint that the accused was designated by the
court as co-administrator. The Marcoses were totally
isolated from the rest of the world. They were not
afforded means of communication and transportation
for the accused to have complied with the requirement
of filing of return and payment of tax. From the
foregoing facts, the forcible expulsion of the accused
from the country was a form of disability similar to the
exculpatory cause enumerated in the Tax Code.
Accordingly, the court found the accused’s failure to file
the return and to pay the estate tax due was not willful,
and the prosecution’s scanty evidence failed to
establish the element of criminal intent (People v.
Imelda R. Marcos, Crim. Case No. d.9I.24-38283,April
20,2007).
Important principles on criminal actions
Some important principles in the collection^^texes
through criminal action are:
1. No criminal action for the recovery of taxes or the
enforcement of any fine, penalty or forfeiture shall be
filed in court without the approval of the
Commissioner.^ The Commissioner, through
administrative issuances, has delegated this power to
file criminal actions against delinquent taxpayers to his
subordinate officials in the legal service.
For failure of the State Prosecutor to comply with the
order to submit to the CTA the written approval issued
by the CIR to file the case and the records of the
preliminary investigation, the case was dismissed,
without prejudice (People V. Renne Samala, Crim. Case
No. 0-214, September 1, 2011).
Criminal actions instituted on behalf of the Government
under the authority of the Tax Code or other laws,
enforced by the BIR, shall be brought in the name of the
Government, of the Philippines and shall be conducted
by the legal officers of the BIR. However, it does not
preclude the BIR from seeking the assistance of
experienced litigators from the Department of Justice in
the prosecution of the criminal action. Criminal cases
are filed in the name of “People of the Philippines
versus the accused taxpayer” in order to differentiate it
from civil cases for the collection of delinquent taxes
which are filed in the name of “Republic of the
Philippines versus the delinquent taxpayer.
The Solicitor General is the principal law officer and
legal defender of the government. — In its resolution
dated 15 November 2000, the Supreme Court denied
the Petition for Review on Certiorari submitted by the
Commissioner of Internal Revenue for non-compliance
with the procedural requirement of verification explicit
in Section 4, Rule 7, of the 1997 Rules of Civil Procedure
and, furthermore, because the appeal was not pursued
by ' the Solicitor General. When the motion for
reconsideration filed by petitioner was likewise denied,
petitioner filed the instant motion seeking an
elucidation on the supposed discrepancy between the
pronouncement of this Court, on one hand, that would
require the participation of the Office of the Solicitor
General and pertinent provisions of the Tax Code, on
the other hand, that allow the legal officers of the BIR to
institute and conduct action in behalf of the
Government under Section 220 of the Tar Reform Act of
1997 (RA. 8424 effective 1 January 1998).
Ordered to comment, the Office of the Solicitor General
expressed the view that under Section 220 of the Tax
Reform Act, amending Section 221 of the 1993 Tax
Code, the primary responsibility to conduct civil and
criminal actions lies with the legal officers of the BIR,
such that it is no longer necessary for BIR legal officers
to be deputized by the Office of the Solicitor General or
the Secretary of Justice before they can commence any
action under the 1997 Tax Code.
The institution or commencement before a proper court
of civil and criminal actions and proceedings arising
under the Tax Reform Act which “shall be conducted by
legal officers of the Bureau of Internal Revenue” is not
in dispute. An appeal from such court, however, is not a
matter of right. Section 220 of the Tax Reform Act must
not be understood as overturning the long established
procedure before this Court in requiring the Solicitor
General to represent the interest of the Republic. This
Court continues to maintain that it is the Solicitor
General who has the primary responsibility to appear
for the government in appellate proceedings. This
pronouncement finds justification in the various laws
defining the Office of the Solicitor General, beginning
with Act No. 135, which took effect on 16 June 1901, up
to the present Administrative Code of 1987.
Aware that the dismissal of the petition could have
lasting effect on government revenues, the lifeblood of
the state, the Court heeds the plea of petitioner for a
chance to prosecute the case. Relative to the lack of
verification required of petitions, the Supreme Court
has held in a number of instances that such a deficiency
can be excused or dispensed with in meritorious cases,
the defect being neither jurisdictional nor always fataL,
Verification is mainly intended to ensure that the
allegations in the pleadings are true and correct and not
mere speculations (Commissioner v. La Suerte Cigar and
Cigarette Factory, GJt. No. 144942, July 4,2002).
3. The grant of a motion to dismiss a criminal case must
be based upon the judge’s o ^ personal conviction that
there was no case against the accused. The trial judge
must himself be convinced that there was indeed no
sufficient evidence against the accused, and this
conclusion can be arrived at only after an assessment of
the evidence in the possession of the prosecution. What
is imperatively required is the trial judge’s own
assessment of such evidence, it not being sufficient for
the valid and proper exercise of judicial discretion
merely to accept the prosecution’s word for its
supposed insufficiency of evidence.®
4. The acquittal of the taxpayer in a criminal action
under the Tax Code does not necessarily result in
exoneration of said taxpayer from his civil liability to pay
taxes. In ordinary criminal cases, the civil liability in
incurred by reason of the offender’s criminal act. Article
100 of the Revised Penal Code provides that every
person criminally liable for a felony is also civilly liable.
In tax cases, the civil liability to pay taxes arises not
because of any felony but upon the taxpayer’s failure to
pay taxes. Criminal liability in taxation arises as a result
of one’s failure to pay his tax liabilities. Moreover, while
Section 73 of the old Tax Code has provided the
imposition of the penalty of imprisonment or fine, or
both, for refusal or neglect to pay income tax or to
make a return thereof, it failed to provide the collection
of said tax in criminal proceedings. The only civil
remedies provided for the collection of taxes are
distraint or goods, chattels, etc., or by judicial action,
which remedies are generally exclusive in the absence
of a contrary intent from the legislator.
The acquittal of the taxpayer in a criminal action under
the Tax Code does not necessarily result in exoneration
of said taxpayer from his civil liability to pay taxes. —
With regard to the tax proper, the , acquittal in the
criminal case could not operate to discharge the
petitioner from the duty to pay the tax, which the law
requires to be paid, since that duty is imposed by
statute prior to and independent of any attempt on the
part of the taxpayer to evade payment. The obligation
to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a
mere civil liability derived from a crime that would be
wiped out by the judicial declaration that the criminal
acts charged did not exist.
5. Under existing provision of law, the judgment in the
criminal [tax] case shall not only impose the penalty but
shall also order payment of the taxes subject of the
criminal case as finally decided by the Commissioner.®
However, the Court said: “While the accused is guilty
beyond reasonable doubt for violation of Section 255
(Failure to file return or to supply correct information),
this court will not impose the alleged tax liabilities,
considering that there was no assessment issued
against the accused. The computations presented by
the prosecution to prove civil liabilities may not be used
because the BIR did not follow the assessment
procedures provided for in the Tax Code, and the civil
liabilities for the non-payment of tax may not be
determined and imposed” (People v. Jose Mendez, CTA
Crim. Case No. 013 and,015, January 5,2011).
6. Under RA. 9282, the filing of the criminal case implies
also the filing of the civil case. In fact, no reservation for
the filing of the civil case may be made under this new
law, unlike that of a felony under the Revised Penal
Code. Accordingly, not only are the individuals but also
the corporations who participated in the commission of
the offense are included in the information, although
the corporations can only be held civilly liable.
The filing of the criminal action implies the filing also of
the civil action, and no reservation thereto may be
made. — As to the civil aspect, the same is deemed
instituted with the criminal case, and shall be jointly
determined in the same proceedings by the CTA
pursuant to Section 7(b)(1) of R.A. 9282. Corollarily,
there is the rule that an accused acquitted of a criminal
charge may, nevertheless, be held in the same case
civilly liable, where the facts established by the
evidence so warrants.'^
Deficiency and delinquent taxes may be collected
through civil or criminal actions. — Under existing
provision of law, the remedies for the collection of
national internal revenue taxes resulting from
delinquency shall be by civil or criminal action, and the
judgment in the criminal [tax] case shall not only impose
the penalty but shall also order payment of the taxes
subject of the criminal case as finally decided by the
Commissioner. Also, under R.A. 9282, the filing of the
criminal case implies also the filing of the civil case. In
fact, no reservation for the filing of the civil case may be
made under this new law, unlike that of a felony under
the Revised Penal Code. Accordingly, not only are the
individuals but also the corporations who participated
in the commission of the offense are included in the
information, although the corporations can only be held
civilly liable.
‘‘Willful” means not merely voluntary, hut with a bad
purpose; corruptly; a voluntary act is a free, intelligent,
and intentional act. — The assessment notices were
issued by the BIR to the taxpayer. The accused admitted
during the hearing on December 7, 2000 the existence
of the assessment notices, which were proven to have
been sent by registered mail. He also admitted that he
received the Warrant of Distraint and Levy and Demand
Letter, demanding the payment of the deficiency taxes
stated in the assessment notices. He admitted too that
he ignored the demand for the payment of the
deficiency taxes. There is no other conclusion that can
be drawn, except that the accused willfully did not pay
his deficiency tax liabilities. The word “willful” in a
statute, means “not merely voluntary, but with a bad
purpose; in other words, corruptly.” A voluntary act is a
free, intelligent, and intentional act. Furthermore, the
accused admitted that he paid P50,000 to two BIR
regional office employees to settle his tax liabilities
without asking for any receipt. This reveals a conscious
effort to evade his 1993 tax liabilities. The act of bribing
the BIR employees constitutes an overt act on the part
of the accused that showed his deliberate and willful
refusal to pay his deficiency tax liabilities to the
government.®
The accusedPs mere reliance on the representations
made by his accountant, with deliberate refusal or
avoidance to verify the contents of his income tax
return and to inquire on its authenticity constitutes
‘Willful blindness.— ‘'Willfulness” was characterized as
a state of mind that may be inferred from the
circumstances of the case. Thus, proof of willfulness
may be, and usually is, shown by circumstantial
evidence alone. Another circumstance which convinced
this Court to infer the presence of “willfulness” on the
part of the accused not to file his income tax returns is
his admission that he signed the income tax returns but
failed to read all the contents, and that he did not
personally file his income tax returns, and did not verify
from the BIR if his income tax returns were actually
filed. “
Petitioner’s sole reliance on her husband to file their
income tax returns is not a valid reason to justify her
non-filing, considering that she knew from the start that
she and her husband are mandated by law to file their
income tax returns. The petitioner testified that she
does not even know how much was her tax obligation,
nor did she bother to inquire or determine the facts
surrounding the filing of her income tax returns. Such
neglect or omission, as aptly found by the former
Second Division, is tantamount to “deliberate
ignorance” or “conscious avoidance.”^^
The Marcoses were totally isolated fmm the rest of the
world; they were not afforded the means of
communication and transportation and were not
allowed to receive visitors in Hawaii; thus, it was
impossible for the accused to have complied with the
requirement of filing and paying any of her tax
obligations. — The BIR filed criminal complaints against
Imelda Marcos for failure to pay income tax; failure to
give a written notice of death; failure to pay estate
taxes; and failure to file income and estate tax returns.
Mrs. Marcos, in her counter-affidavit, stated that the
Marcoses were forcibly evicted from the country and
brought to Hawaii in 1986, leaving most of their
personal and real properties under the possession and
control of the government. Finding probable cause, the
DOJ filed information against Imelda Marcos.
The court took judicial notice of the forcible eviction of
the Marcoses out of the country. The Marcoses were
totally isolated from the rest of the world. They were
not afforded the means of communication and
transportation and were not allowed to receive visitors
in Hawaii. Thus, it was impossible for the accused to
have complied with the requirement of filing and paying
any of her tax obligations. Likewise, even though she
wanted to do so, their sudden departure from the
country prevented the accused from bringing her
personal record and documents with which she could
assess or determine her income for the year 1985 to
prepare her income tax return. Consequently, failing on
the part of the prosecution to substantiate through
competent evidence that the accused willfully,
unlawfully and feloniously neglected to file and pay her
income tax return for the year 1985, she could not be
held criminally liable.
The court finds merit in the argument that the failure on
the part of the accused to file the estate tax return and
to pay the estate tax is not willful. Although the accused
may have failed to comply with what is required by law,
the accused should be exempted from criminal liability
as she was prevented to do due to an insuperable cause
made by no less than the government; i.e., as early as
February, 1986, accused and her family were forcibly
placed on exile in Honolulu, Hawaii until November,
1991, when they returned to the country; the
properties of President Ferdinand Marcos were
sequestered and placed under the control and
possession of the government after which forfeiture
proceedings were filed before the Sandiganbayan Court.
As pointed out by the defense, why would the
government require accused to comply with her
obligations when it had taken away the very means by
which she could comply with the requirements of the
law? Logically, a legal heir who does not possess a
knowledge or information regarding the total value of
the estate of the decedent would not dare execute a
return “under oath” under pain of criminal liability. In
the same manner, it is error to expect that the accused
would pay the tax due on the estate of her late husband
during the alleged time under which she was made to
Jjay when she had no records in her possession and
control with which she could assess the gross value of
the late president’s estate at the time of his death and
the deductions allowed from the gross estate to
determine the estate tax liability.
On the whole, underscoring the finding of the Court
that accused’s failure to comply with her tax obligation
was due to causes beyond her control, there is no doubt
that the element of “wilfullness” for crimes involving
the violation of the NIRC, as alleged in the information
in these five criminal complaints, is lacking. In short, the
prosecutor’s evidence did not pass the test of moral
certainty that there was “willful disobedience” on the
part of the accused with the intention to evade and
defeat the payment of the tax.^®
6. With regard to the tax proper, the acquittal in the
criminal case could not operate to discharge the
petitioner from the duty to pay the tax, which the law
requires to be paid, since that duty is imposed by
statute prior to and independent of any attempt on the
part of the taxpayer to evade payment. The obligation
to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a
mere civil liability derived from a crime that would be
wiped out by the judicial declaration that the criminal
acts charged did not exist.
7. All violations of any [penal] provision of the Tax Code
shall prescribe after five (5) years. Prescription shall
begin to run from the day of the commission of the
violation of the law, and if the same be not known at
the time, from the discovery thereof and the institution
of judicial proceedings for its investigation and
punishment. The prescription shall be interrupted when
proceedings are instituted against the guilty persons
and shall begin to run again if the proceedings are
dismissed for reasons not constituting jeopardy. The
term of prescription shall not run when the offender is
absent from the Philippines.’^® However, a petition for
reconsideration of an assessment may affect the
suspension of the prescriptive period for the collection
of taxes, but not the prescriptive period of a criminal
action for violation of law.
When the civil action arising out of a tax delinquency is
extinguished by prescription, considering that under the
law, the Government has only five years from date of
assessment of tax within which to collect the tax, it is
still possible for such tax to be collected by criminal
action inasmuch as actions of this kind prescribe only
after the lapse of five years counted from the discovery
of the crime and the institution of proceedings for its
investigation and punishment}'^
8. In a criminal action that was instituted against the
taxpayer for having filed a false and fraudulent return
and for failure to pay taxes, the subsequent satisfaction
of the tax liability by payment or prescription will not
operate to extinguish the taxpayer’s criminal liability.
Whether under the Tax Code or Revised Penal Code, the
satisfaction of civil liability is not one of the grounds for
extinction of criminal action.
9. If a person convicted for violation of any of the
provisions of the Tax Code has no property with which
to meet the fine imposed upon him by the court, or is
unable to pay such fine, he shall be subject to a
subsidiary personal liability. This provision corrected the
lack of authority for the courts to impose subsidiary
penalty in case of insolvency on the part of the
taxpayer, which he is sentenced to pay.
10. Any person convicted of a crime penalized by the
Tax Code shall, in addition to being liable for the
payment of the tax, shall be subject to the penalties
imposed herein. Payment of the tax due after
apprehension shall not constitute a valid defense in any
prosecution for violation of any provision of this Code or
in any action for the forfeiture of untaxed articles.^®
11. If the Commissioner is convinced that the taxpayer
is criminally liable, he should institute criminal
proceedings and not arbitrarily impose a penalty.
However, if the BIR official accepts the payment of
compromise penalty offered by the taxpayer for
violation of a specific provision of law imposing criminal
liability, the criminal liability of the taxpayer for such
violation shall be obliterated.

12. Taxes are the lifeblood of government and every

citizen is duty bound to pay taxes and to pay taxes in
the right amount. Therefore, technicalities will have to
yield to the government interest of the nation to
enforce its laws against tax evasion, especially where
the amounts involved are huge. Procedural rules should
not be applied with rigidity especially when to do so
would result in manifest failure or miscarriage of justice.
Rules of procedure should not be applied in a very
technical sense, for they are adopted to help secure,
not override, substantial justice.

13. The guilt of the accused must be established beyond

reasonable doubt. — Joseph Typingco is the alleged
President and authorized officer of Fiesta Pack, Inc. He
was charged for violation of Section 255 (Failure to file
return and to supply correct information), in relation to
Sections 253(d) [Officers of corporation on whom
penalties may be imposed] and 256 (Penalty liability of
corporations) of the