15. On March 10, 2010, Continental, Inc.

received a preliminary assessment notice (PAN)

dated March 1, 2010 issued by the Commissioner of Internal Revenue (CIR) for
deficiency income tax for 2008. If failed to protest the PAN. The CIR thereupon issued a
final assessment notice (FAN) with letter of demand on April 30, 2010. The FAN was
received by the corporation on May 10, 2010, following which or on May 25, 2010, it
filed its protest against it. The CIR denied the protest on the ground that the assessment
had already become final and executory, the corporation having failed to protest the
PAN. Is the CIR correct? Explain.

A: No. Failure to file a Reply of PAN makes the taxpayer in default and authorises the
revenue official to issue the FAN. However, no liability for additional or deficiency tax
arises from such failure. Indeed, Revenue Regulation No. 12-99 makes the filing of such
Reply to PAN merely directory, i.e the taxpayer may or may not reply to the PAN is for
the CIR to issue a FAN, since the corporation timely filed the protest against the FAN, it
cannot be said that the final assessment notice had already become final and executory.

16. Is the issuance of preliminary assessment notice mandatory? Explain.

A: Yes. Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal requirement. The sending of a PAN to the taxpayer to
inform him of the assessment made is but part of the ‘due process requirement in the
issuance of a deficiency tax assessment, the absence of which renders nugatory any
assessment made by tax authorities.’ The use of the word “shall” in Subsection 3.1.2
describes the mandatory nature of the service of PAN.

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

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

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

b. If the Commission of Internal revenue issues an assessment notice, the taxpayer must
administratively protest or dispute the assessment by filing a motion for reconsideration
or reinvestigation within 30 days from receipt of the notice of assessment (4th par, Sec.
228, NIRC).

18. A. When must an assessment be made? B. What about in the case of a false/fraudulent
return?

A:
 A. Except as provided in Sec. 222 of the 1997 Tax Code, taxes shall be assessed within 3
years after the last day prescribed by law for the filing of the return, and no proceeding in
court without assessment for the collection of such taxes shall be begun after the
expiration of such period. In a case where return is filed beyond the period prescribed by
law, the 3-year period shall be counted from the day the return was filed.

B. In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be filed without assessment, at any time within 10 years after the discovery of the
falsity, fraud, or omission.

19. What are the two types of protest? Distinguish them.

A: There are basically 2 types of protest against an assessment. These are (a) the request
for reconsideration, where the protest is anchored on documents, arguments, and legal
authorities already submitted or presented to the BIR or (b) the request for
reinvestigation, where the protest is grounded on new or additional documents,
arguments, and legal authorities not yet submitted or presented to the BIR.

20. What are the requisites before a taxpayer’s request for reinvestigation may be granted by
the BIR? Discuss briefly.

A: A request for reinvestigation refers to a plea for re-evaluation of an assessment on the

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

21. On June 1, 2003, Global Bank received a final notice of assessment from the BIR for
deficiency documentary stamp tax in the amount of 55 million. On June 30, 2003, Global
Bank filed a request for reconsideration with the Commissioner of Internal Revenue. The
Commissioner denied the request for reconsideration only on May 30, 2006, at the same
time serving on Global Bank a warrant of distraint to collect the deficiency tax. If you
were the counsel, what will be your advice to the bank? Explain.

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

22. A taxpayer received a tax deficiency assessment of 51.2 million from the BIR
demanding payment within 180 days; otherwise, it would collect through summary
remedies. The taxpayer requested for a reconsideration stating the grounds therefor.
 Instead of resolving the request for reconsideration, the BIR sent a Final Notice Before
Seizure to the taxpayer.

May this action of the Commissioner of Internal Revenue be deemed a denial of the
request for reconsideration of the taxpayer to entitle him to appeal to the CTA? Decide
with reasons.

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

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

A. Can the BIR file the civil action for collection, pending decision on the
administrative protest? Explain.

B. As counsel for Valera, what action would you take in order to protect the
interest of your client? Explain your answer.

A:

A. Yes, because there is no prohibition for this procedure considering that the filing of
the civil action for collection during the pendency of an administrative protest constitutes
the final decision of the Commissioner on the protest (CIR v. Union Shipping Corp., 85
SCRA 548 [1990]).

B. I will wait for the filing of the civil action for collection and consider the same as an
appealable decision. I will not file an injunctive suit because it is not an available remedy.
I would then appeal the case to the Court of Appeals and move for the dismissal of the
collection case with the RTC. Once the appeal to the CTA is filed on time the CTA has
 exclusive jurisdiction over the case. Hence, the collection case in the RTC should be
dismissed (Yabes v. Flojo, 115 SCRA 278 [1982]).

24. Spanflex Intl, Inc. received a notice of assessment from the BIR. It seasonably filed a
protest with all the necessary supporting documents, but the BIR failed to act on the
protest. Thirty days from the lapse of 180 days from the filing of its protest, Spanflex still
has not elevated the matter to the CTA. What remedy, if any, can Spanflex take?

A: Spanflex may wait for the final decision on the disputed assessment of the BIR and
appeal it to the CTA within 30 days from receipt of such decision.

25. What is the purpose of the statute of limitations?

A: The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the government and to its citizens; to the government because the tax
officers would be obliged to act promptly in the making of assessment, and to citizens
because after the lapse of the period of prescription, citizens would have a feeling of
security against unscrupulous tax agents who will always find an excuse to inspect the
books of taxpayers, not to determine the latter’s real liability, but to take advantage of
every opportunity to molest peaceful, law-abiding citizens (Republic vs. Ablaza, 108
Phil. 1105).

26. Mia, a compensation income earner, filed her income tax return for the year 2007 on
March 30, 2008. On May 20, 2011, Mia received an assessment notice and letter of
demand covering the year 2007, but the postmark on the envelop shows April 10, 2011.
Her return is not a false and fraudulent return. Can she raise the defense of prescription?

A: No. the 3-year prescriptive period started to run only on April 15, 2008 (and not on
March 30, 2008). Internal revenue taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return (Sec. 203, NIRC). Accordingly, the
period to assess the deficiency tax for 2007 has not yet expired on April 10, 2011.

27. What are the prescriptive periods for the following: a. Assessment; b. Collection; and c.
Filing of Criminal Action.

A:

a. The prescriptive period to make an assessment depends upon whether or not a tax
return was filed and whether or not the tax return was false or fraudulent.

If there was a tax return filed that is not false or fraudulent, the BIR has 3 years from the
date of the filing of return within which to make an assessment, and if the return was filed
before the last day prescribed by law for the filing thereof, the 3-year period shall be
considered as filed on such last day. On the other hand, if the return filed was false or
fraudulent with intent to evade tax, the BIR is given 10 years from the date of discovery
of the falsity or fraud.
If no return was filed, the BIR has 10 years from the date of discovery of the omission
within which to make an assessment.

b. Any internal revenue tax which has been assessed within the period of limitation may
be collected by distraint or levy or by a proceeding in court within 5 years from date of
assessment. The period of limitation to collect is counted from date of assessment. The
period of limitation to collect is counted from the assessment of the tax, not from the time
the income tax return was filed (Gutierrez vs. Collector, G.R. No. L-19537).

c. 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 prescription shall not run when the offender is absent from the Philippines.