The Court of Tax Appeals (RA. 9282 which amended RA.

1125)

Level and composition

1. Level of Court of Appeals
2. 1 Presiding justice and 5 associate justices

Powers of the Court of Tax Appeals

1. To administer oaths
2. To receive evidence
3. To summon witnesses by subpoena
4. To require the production of papers or documents by subpoena duces tecum
5. To punish for contempt
6. To promulgate rules and regulations for the conduct of its business
7. To assess damage against the appellant if the appeal to the CTA is found to be frivolous or dilatory
8. To suspend the collection of the tax pending appeal
9. To render a decision on cases brought before it
10. To issue an order authorizing distraint of personal property and/or levy on real property upon the
issuance of any rule, order or decision favorable to the government.

JURISDICTION:

I. Exclusive appellate jurisdiction to review by appeal

a. Decisions of he CIR in cases involving:
i. Disputed assessments
ii. Refunds of internal revenue taxes
iii. Fees or other charges
iv. Penalties in relation thereto
v. Other matters arising under the NIRC or other laws administered by the BIR

b. Inaction by the CIR in cases involving

i. Disputed assessments
ii. Refunds of internal revenue taxes
iii. Fees or other charges
iv. Penalties in relation thereto
v. Other matters arising under the NIRC or other laws administered by the BIR where the
NIRC provides specific period of action, in which case the inaction shall be deemed a
denial.

c. Decisions, orders, resolution of the RTC in :

i. Local tax cases originally decided or resolved by them in the exercise of their original or
appellate jurisdiction.
ii. Tax collection cases originally decided by them in their respective territorial
jurisdiction
iii. Tax collection cases decided by the RTC in its appellate jurisdiction originally decided
by the MTC, MCTC in their respective jurisdiction

d. Decisions of the Commissioner of Customs in cases involving liability for:

i. Customs duties
ii. Fees or other money charges
iii. Seizures
iv. Detention or release of property affected
v. Fines
 vi. Forfeitures
vii. Other penalties in relation thereto
viii. Other matters arising under the Customs law or other laws administered by the Bureau
of Customs

e. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals

f. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs which are adverse to the Government
under Section. 2315 of the Tariff and Customs Code

g. Decisions of the Secretary of Trade and Industry in the case of non-agricultural product,
commodity or article

h. Decisions of the Secretary of Agriculture in the case of agricultural products, commodity or

article involving dumping and countervailing duties

i. In criminal offenses over appeals from the judgments, resolutions or orders of the RTC in tax
cases originally decided by them or in their appellate jurisdiction.

II. Exclusive Original Jurisdiction

a. Over all criminal offenses arising from violation of the NIRC or Tariff and Customs Code and
other laws administered by the BIR or the Bureau of Customs except where the principal
amount of taxes and fees exclusive of charges and penalties claimed IS AT LEAST 1 million.

b. Tax collection cases involving final and executory assessments for taxes, fees, charges and
penalties where the principal amount of taxes and fees exclusive of charges and penalties
claimed is AT LEAST 1 million. (If principal amount is less than 1 million -- shall be tried by
the proper MTC/RTC.)

IMPORTANT TO REMEMBER:
1. The 30 day period for appeal to the CTA is jurisdictional and non-extendible.
2. Failure of the taxpayer to appeal to the CTA within the reglementary period makes a tax
assessment final, executory and demandable.
3. Appeal taken to the CTA does not automatically suspend the payment, levy, distraint, and/or sale
of any property of the taxpayer for the satisfaction of his tax liability
4. CIR may also make reassessment by increasing or decreasing a previous assessment even during
appeal
5. Section 218 – no court shall have authority to grant an injunction to restrain the collection of any
internal revenue tax, fee or charge – court refer only to ordinary courts.

CTA may suspend tax collection pending appeal, REQUISITES:

1. In the opinion of the court, the collection pending appeal may jeopardize the interest of the
government and/or taxpayer
2. The taxpayer is willing to deposit the amount claimed or to file a surety bond for not more than
double the amount of the tax with the Court
3. The taxpayer shows that the appeal is not frivolous nor for the purpose merely to delay the
collection of the tax.
** CTA not authorized to issue writs of injunction or prohibition independently of and apart from an
appealed case.

RENDITION and CONTENT

1. cases appealed to the CTA must be decided within 12 moths from the date of submission – this
period is merely directory not mandatory.
2. Decision must be :
a. IN WRITING
b. Stating CLEARLY and DISTINCTLY the FACTS and the LAW on which they are based
c. SIGNED by the justices concurring therein

Appeal from decision of CTA en banc:

⇒ file with the Supreme Court verified petition for review on certiorari under Rule 45 of Rules of Court
within 15 days from the notice of the award judgment, final order or resolution.

POWERS of the COMMISSIONER (Sec. 6 and 7)

1. Examination of Returns and determination of tax due
2. Assess the proper tax on the best evidence obtainable in case taxpayer fails to submit required
returns, statements or when there is reason to believe that any report is false, incomplete or
erroneous.
3. Amend the return from his own knowledge and from such information as he can obtain through
testimony or otherwise when the taxpayer fails to file a required return or other documents at the
time prescribed by law or willfully or otherwise files a false or fraudulent return or other
document. Such amended return shal be prima facie correct and sufficient for al legal purposes
4. Authority to conduct inventory-taking and/or surveillance IF there is a reason to believe that such
person is not declaring his correct income, sale or receipts for internal revenue tax purposes.
5. Prescribe presumptive gross sales and receipts when it is found that a taxpayer has failed to issue
receipts and invoices in violation of the requirements of this code, or when there is reason to
believe that the books of account or other records do not correctly reflect the declarations made.
6. Terminate the taxable period in the following circumstances comes to the knowledge of the
Commissioner:
a. Taxpayer is retiring from business subject to tax
b. Taxpayer is intending to leave the Philippines
c. Taxpayer is intending to remove his property therefrom or hide or conceal
d. Taxpayer is performing any act tending to obstruct the proceedings for the collection of the
tax or to render the same totally or partly ineffective unless such proceedings are begun
immediately.
7. Prescribe real property values
8. Inquire into bank deposit accounts of:
a. A decedent to determine his gross estate
b. Any taxpayer who has filed an application for compromise of his tax liability under Sec.
204(A)(2) of the NIRC by reason of financial incapacity to pay his tax liability.
9. Authority to accredit and register tax agents
10. Prescribe additional procedural or documentary requirements
11. The power to recommend the promulgation of rules and regulations by the Secretary of Finance
12. The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of
the Bureau
13. The power to comprise the payment of any internal revenue tax or abate or cancel any tax liability
14. The power to credit or refund taxes erroneously or illegally received or penalties imposed without
authoryt.
15. The power to assign or reassign internal revenue officers to establishments where articles subject
to excise tax are produced or kept.
IMPORTANT NOTES:
1. Under Sec. 6(1) a tax payer who filed a return/statement/declaration may within 3 years from
filing may amend, modify or change his return PROVIDED no notice for audit or investigation of
such return has in the meantime been actually served upon the taxpayer.
2. Compromise – all criminal violations may be compromised EXCEPT:
a. Those already filed in court
b. Those involving FRAUD

WHEN MAY BIR MAKE AN ASSESSMENT

1. When a RETURN IS FILED. Within 3 years after the last day prescribed by law for the filing of
the return, or if filed beyond the period prescribed by law, counted from such period filed
whichever is later
2. When a taxable period of a taxpayer is pre-terminated
3. When no return is filed when due

WHEN A PRE-ASSESSMENT NOTICE NOT REQUIRED:

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

ASSESSMENT
⇒ Merely a notice to the effect that the amount stated there in is due as a tax and containing a demand
for the payment thereof
⇒ Assessment is deemed made under sec. 203 and 222 when:
i. It is made within the period of 3 or 10 years as the case may be
ii. Notice to that effect is released, mailed or sent to the taxpayer also within the same
period.

FORMS OF ASSESSMENT
a. Formal Assessment Notice (FAN)
b. Letter Demanding Payment Of Erroneously Refunded Amount (Guagua Electric Co V. Cir),
Or Amount Paid By Bouncing Check (Republic V. Limaco & De Guzman)
c. Letter From Revenue Officer Granting Opportunity To Disprove Findings (Show-Cause
Letter)
d. Follow-Up Letter Duly Received By Taxpayer Within Prescriptive Period. (Taxpayer Denied
Receipt Of Original Demand Letter And Ass. Notice) (Republic V. Nielson & Co)

WHEN MUST ASSESSMENT BE MADE? (Sec. 203 & 222, NIRC)

1. Return was filed
⇒ Not false or fraudulent – 3 yrs from filing
⇒ False or fraudulent – 10 yrs from date of discovery of filing of false or fraudulent
return
 2. No return was filed
⇒ 10 years from date of discovery of omission
⇒ If assessment due date falls on Saturday, government has next business day within
which to assess (cir v. Western pacific corp)
⇒ Normal year has 365 days; leap year, 366 days (cir v. Namarco)

WHEN IS ASSESSMENT DEEMED MADE?

⇒ Issue date of assessment notice is not reckoning point for prescription
⇒ Date assessment notice and demand letter is released, mailed or sent to taxpayer constitutes
actual assessment (Republic v. Limaco & de Guzman)
⇒ Presumption of receipt in regular course of mail applies, if it was properly addressed,
postage was prepaid, and was mailed. If one element is absent, presumption does not lie
(enriquez v. Sunlife of canada)

VALIDITY OF ASSESSMENT
⇒ Assessment is valid, even if notice merely contains the amount of taxes being assessed,
without any details on how said amounts were arrived at, provided:
a. The report of investigation on which assessment was based has been sent to
taxpayer; and
b. Said report details the findings, the facts and the law on which proposed
assessments were based. (Phil. Mining Service Corp. vs. CIR, CTA Case No. 5725,
July 25, 2002)
⇒ Sec. 228 of Tax Code requires BIR to inform taxpayer in writing of the laws and facts on
which assessment is made. Failure to do so shall void the assessment.
⇒ Rule runs parallel to the due process clause.
⇒ Insufficiency of assessment notice may be cured by the demand letter which shows the legal
and factual basis relied upon in issuance of assessment (PNZ Marketing vs. CIR, CTA Case
No. 5726, Dec. 14, 2001).

ASSESSMENT NOTICE
⇒ Preliminary collection letter presupposes the existence of valid assessment notice.
⇒ Preliminary collection letter shall serve as assessment notice, if it was initial notice received
by taxpayer, taxpayer did not receive any assessment notice, and no follow-up letter was
sent or preliminary conference was arranged.
⇒ 30-day period to protest shall commence from date of receipt of preliminary collection
letter. (United International Pictures vs. CIR, CTA Case No. 5884, Jan. 5, 2002)
⇒ If taxpayer denies having received the assessment notice, burden of proof is shifted to BIR.
⇒ Mere certification from Post Office on delivery of letter to taxpayer is not enough.
⇒ BIR should show that registered letter certified by PO actually contained assessment notice
(United International Pictures vs. CIR, supra).

GOVERNMENT REMEDIES:

I. Administrative Remedies
A. Summary Remedy
i. DISTRAINT OF PERSONAL PROPERTY -- Is the seizure by the government of personal property,
tangible or intangible to enforce the payment of taxes, to be followed by its public sale, if the taxes
are not voluntarily paid
a) 2 kinds of distraint
a. ACTUAL DISTRAINT – where there is a taking of possession of the personal property out
of the taxpayer into that of the government.
b. CONSTRUCTIVE DISTRAINT – owner is merely prohibited from disposing of his
personal property

b) Requisites
a. The taxpayer must be delinquent in the payment of tax
b. There must be a subsequent demand for its payment
c. Taxpayer must fail to pay the delinquent tax at the time required
d. The period within which to assess or collect the tax has not yet prescribed
e. Amount of tax exceeds Php100.00
**Note: for constructive distraint – tax delinquency is not essential

c) Property Subject to Distraint

a. In general – all goods, chattels or effects and other personal property belonging to the
taxpayer or in which the taxpayer has na interest may be seized and distraint in such
quantity sufficient to satisfy the tax or charge, the increments and the expenses of the
distraint and the cost of the subsequent sale.
b. Bank accounts may be distraint notwithstanding RA 1405 since no inquiry in made

d) How Distraint Effected/Served

a. Tangible property
i. Officer serving the warrant of distrait shall make or cause to be made an account of the
goods, chattels, effects or other personal property distraint
ii. The copy must be signed by such officer
iii. Copy left wither with the owner or person from whose possession such goods were taken
or at the dwelling or place of business of such person and with someone of suitable age
and discretion.
b. Intangible Property
i. Stocks and other securities – serving a copy of the warrant of distraint upon the taxpayer
and upon the president, manager, treasurer or other responsible officer of the
corporation, company or association which issued the said stocks and securities.
ii. Debts and credits – by leaving with the person owing the debts or having in his possession
or under his control such credit or with his agent, a copy of the warrant of distraint.
Service of the warrant of distraint on the taxpayer (creditor) is not required by law.
iii. Bank accounts – garnished by serving a warrant of garnishment upon the taxpayer and
upon the president, manager, treasurer or other responsible officer of the bank.

e) Procedure for Distraint of Personal Property

a. Service of the warrant of distriant upon the taxpayer or upon the person in possession of
the taxpayer’s personal property
b. Posting of notice in not less than 2 public places in the municipality or city and notice to the
taxpayer specifying the time and place of sale and the articles distrianed
c. Sale at public auction to the highest bidder
d. Disposition of the proceeds of the sale
 f) Other Important Matters
a. Residue to be returned to the owner of the property sold.
b. Expenses chargeable shall embrace only the actual expense of seizure and preservation of
the property pending the sale
c. No right of redemption by the taxpayer after the sale pf personal property at public auction
d. CIR may purchase when the amount of the bid for the property under distraint is not equal
to the amount of the tax or is very much less than the actual market value of the articles
offered for sale – taxpayer is not liable for any deficiency.

ii. CONSTRUCTIVE DISTRAINT – purpose is to safeguard the interest of the government.

iii. LEVY OF REAL PROPERTY – refers to the same act of seizure of real property in order to enforce
the payment of taxes. As in distraint, the property may be sold at public sale, if after seizure, the
taxes are not voluntarily paid.

a) Requisites
a. The taxpayer must be delinquent in the payment of tax
b. There must be a subsequent demand for its payment
c. Taxpayer must fail to pay the delinquent tax at the time required
d. The period within which to assess or collect the tax has not yet prescribed
e. Amount of tax exceeds Php100.00

b) How Levy Effected

a. Serving upon the taxpayer a written notice of levy in the form of a duly authenticated
certificated prepared by the RDO containing:
i. Description of the property upon which levy is made
ii. Name of taxpayer
iii. Amount of the tax and penalty due

c) Procedure
a. Preparation of a duly authenticated certificate showing the name of the taxpayer and the
amount of the tax and penalty due. Certificate operates with the force of a legal execution
throughout the Philippines.
b. Certificate shall include a description of the property upon which levy is made
c. Service of written notice to the delinquent taxpayer or occupant of the property; and to the
Register of Deeds of the province where property is located
d. Advertisement of the time and place of sale of the property within 20 days after levy, and it
shall cover a period of 30 days.
e. Sale at public auction to the highest bidder
f. Disposition of proceeds of sale (excess shall be turned over to the owner of the property

d) Forfeiture by Government
a. In case there is no bidder for the property or if the highest bid is for an amount insufficient
to pay the taxes, penalties and costs, Internal Revenue Officer declare the property
forfeited in satisfaction of the claim
b. Register of Deeds transfer the title to the property without the necessity of an order from a
competent court.
c. LIABILTY FOR DEFICIENCY – forfeiture however does not operate as a total discharge
of the claim.
d. EXCESS – taxpayer is not entitled to the excess. He has a right of redemption
e. Right of redemption by delinquent taxpayer or any one for him.
 f. Time of redemption – within one year from the date of sale (begins to run from the
registration of the deed of sale or declaration of forfeiture)

B. FORFEITURE – divestiture of property without compensation, in consequence of a default or

offense. It id directed against the res, the property itself and its effect is to transfer the title to the
specific thing from the owner to the government.

i. Specific Cases if Forfeiture:

a) Real property levied upon for tax delinquency and exposed for sale, where there is no bidder
or if the highest bid is in an amount insufficient to pay the taxes, penalties, and costs. Here, a
judgment of condemnation is not required since the taxpayer may exercise his right of
redemption.
b) Unless otherwise specifically authorized, all articles subject to excise tax which are stored or
allowed to remain in a distillery warehouse, bonded warehouse, or other place where made,
after the tax theron has been paid; and such articles withdrawn from such place or from
customs custody or imported into the country without the payment of the required.
c) All chattels, machinery and removable fixtures of any sort used in the unlicensed production of
articles subject to excise tax
d) Dies and other instruments used for the printing or making of any internal revenue stamp,
label or tag which is in imitation of or purports to be a lawful stamp, label or tag
e) Articles subject to excise taxes, the tax on which has not been paid found in the possession of
any person
f) Liquor or tobacco shipped, transported or removed under a false name or brand.

ii. Other Important Points

a) In case of sale of forfeited goods – all proceeds go to the government
b) Summary detention prior to forfeiture – when revenue officer has reasons to believe that:
a. The lawful tax has not been paid
b. Package has been or is being removed in violation of law
**BUT summary detention cannot continue beyond 7 days without due
process of law or intervention of the officer to whom such detention is to be
reported.

C. Tax Lien – a legal claim or charge on property, either real or personal, established by law as a security
in default of the payment of taxes
⇒ Lien attaches from time of assessment (not only from service of warrant of destraint/levy) until
paid
⇒ Lien on real property is not valid against mortgagee, purchaser, or judgment creditor until it is
filed with register of deeds (sec. 219, nirc)
⇒ Tax due on goods imported tax free is lien on goods superior to all charges, regardless of possessor
(sec. 131(a), nirc)

i. Extinguishment or discharge of tax lien:

a) Absolute – no more tax liability when:
a. Payment or remission of the tax
b. Prescription of the right of the government to assess or collect
b) Just on the particular property – liability still exist:
a. Failure to file notice of such lien in the office of the Register of Deeds, as against any
mortgagee, purchaser or judgment creditor
b. By destruction of the property subject to the lien
D. Compromise – contract whereby the parties, by reciprocal concessions, avoid a lititgation or put an
end to one already commenced (Art. 2028 NCC)
i. Requisites
a) Taxpayer must have a tax liability
b) There must be an offer of an amount to be paid by the taxpayer
c) There must be an acceptance of the offer in settlement of the original claim

ii. When Allowed:

a) Civil Cases
a. When there is reasonable doubt as to the validity of the claim against the taxpayer
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

b) Criminal Cases
a. All criminal violations may be compromised, except those already filed in court or
involving fraud (Sec. 204(A), NIRC)

iii. When Not Allowed:

a) Civil Cases:
a. Liability of taxpayer with respect to surcharges
b. Cases finally decided by the courts

b) Criminal cases
a. Those already filed in court
b. Those involving fraud

iv. Minimum compromise rates:

a) Financial incapacity – 10% of the basic assessed tax
b) Other cases – 40% of basic assessed tax

v. Other Important Points:

a) Power to compromise is not absolute. BOC commissioner is not authorized to accept anything
less than what is adjudicated by the court in favor of gov’t that has become final and executory
(rovero v. Amparo)
b)

E. Abatement of Tax Liabilities -- means entire tax liability is cancelled

i. When
a) The tax or any portion thereof appears to be unjustly or excessively assessed
b) The administration and collection costs involved do not justify the collection of the amount
due

ii. Power to compromise or abate shall not be delegated by CIR, except:

a) Regional Assessments – P500T OR LESS
b) Minor Criminal Violations (Sec. 204(B)& Sec. 7, NIRC)

F. Refund or Credit of Taxes

i. What may be refunded/credited
a) Credit or refund taxes erroneously or illegally received or penalties imposed without authority
b) Refund the value of internal revenue stamps when they are returned in good conditions by the
purchaser
 c) In his (CIR) discretion, redeem or change unused stampt that have been rendered unfit for use
and refund their value upon proof of destruction

G. Imposition of Surcharge – is the amount imposed by law as addition to the main tax in case of
delinquency
i. The following surcharge shall be imposed:

CASES WHEN SURCHARGE MAY BE IMPOSED SURCHARGE

a) False or fraudulent return willfully made
• It must appear that the taxpayer had an intention to evade
the payment of tax in filing a false return. 50%
b) Willful neglect to file return (where BIR discovered
before taxpayer could voluntarily file) 50%
c) Willful neglect to file return (BUT taxpayer
voluntarily filed before BIR discovers and before 25%
notice)
d) Neglect to file a return and pay, BUT NOT
WILLFUL. In the following cases of failure:
a) To file any return and pay the tax thereon as required
under the tax code or rules and regulations on the date
prescribed
b) To pay the deficiency tax, within the time prescribed for 25%
its payment in the notice of assessment
c) To pay the full or part of the amount of tax shown on
any return required to be filed under the tax code or
rules and regulation, or the full amount of tax due for
which no return is required to be filed
e) Return is not filed with the proper officer designated
by law 25%

Important Notes:
• Substantial under-declaration PRIMA FACIE evidence of a false or fraudulent return
• Under the tax code, failure to report sales receipts, or income in an amount exceeding 30% of that
declared per return shall be considered substantial under declaration.
• The imposition of surcharge and interest in case of DELINQUENCY is MANDATORY
• False return – merely implies a deviation from the truth or fact whether intentional or not
• Fraudulent return – is intentional and deceitful with the aim of evading the correct tax due (Aznar vs.
CIR)

H. Imposition of Interest
i. Types of interest
a) Deficiency Interest
b) Delinquency Interest
a. Failure to pay the amount of the tax due on any return to be filed
b. Failure to pay the amount of the tax due for which no return is required
c. Failure to pay a deficient tax, or any surcharge or interest thereon.

I. Deportation In Cases of Aleins

 i. Grounds: Any alien who
a) Knowingly and fraudulently evades the payment of any internal revenue tax
b) Willfully refuses to pay such tax and its accessory penalties after the decision on his tax
liability has become final and executory

II. Judicial Remedies – CRIMINAL or CIVIL ACTION

⇒ Civil or criminal action for the collection of taxes may be pursued in the discretion of the authorities
charged with the collection of taxes without or together with the pursuit of distraint and levy.
⇒ Case to be filed in the name of the Government Of The Philippines (sec. 220, nirc)
⇒ No civil or criminal case may be filed without approval of the commissioner
⇒ Civil action is resorted to when tax liability becomes collectible

CIVIL ACTION

Collectibility Of Delinquent Tax

⇒ Final assessment is not protested within 30 days from date of receipt (marcos ii v. Cir), or
protested but BIR conditions are not complied with by taxpayer (dayrit v. Cruz; republic v.
Ledesma)
⇒ Self-assessed tax shown in return is not paid within date prescribed by law (2nd installment)
⇒ Protest against assessment is denied by BIR (basa v. Republic), or 180 day period lapses and
taxpayer failed to appeal to CTA within 30 days from date of receipt or from lapse of 180 day
period (lascona realty corp. V. Cir)

Who Approves?
⇒ CIR, REGIONAL DIRECTOR (Arches v. Bellosillo), OR LEGAL DIVISION (Republic v.
Hizon)
⇒ SOLGEN, OR BIR SPECIAL ATTORNEYS OUTSIDE METRO MANILA, AFFIRMED BY
SOLGEN (Republic v. Domecillo)

Where Filed?
⇒ RTC (less than P1 M)
⇒ CTA (P1 M or more)

How Civil Action Begun?

1. File complaint with RTC
2. File answer in CTA to taxpayer’s petition for review and pray for payment of tax; hence, even if no
RTC case was filed, right to collect has not prescribed (mambulao lumber v. Republic)

CRIMINAL ACTION
Ordinary Criminal Cases
⇒ The civil liability is incurred by reason of the offender’s criminal act.
⇒ Every person criminally liable for a felony is also civilly liable (Art. 100, RPC)

Tax Evasion 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.
⇒ Sec. 73 of the old Tax Code has provided the imposition of penalty of imprisonment or fine, or
both, for refusal or neglect to pay income tax or to make a return thereof, but it failed to provide
 the collection of said tax in criminal proceedings. The only remedies provided for collection of
taxes are distraint of goods, etc. or by judicial action, which remedies are generally exclusive, in
the absence of a contrary intent from the legislator (Republic vs. Patanao, 20 SCRA 712).

Sec. 220, 2005 NIRC: Form and Mode of Proceeding in Actions Arising under this Code
⇒ Civil and criminal actions and proceedings instituted in behalf of the Government under the
authority of this Code or other law 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.
⇒ 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. 7(b), RA 8292: Jurisdiction of CTA over Cases involving Criminal Offenses
⇒ Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action
and the corresponding civil action for the recovery of civil liability for taxes and penalties shall
at all times be simultaneously instituted with, and jointly determined in the same proceeding by
the CTA, the criminal action being deemed to necessarily carry with it the filing of the civil
action, and no right to reserve the filing of such civil action separately from the criminal action
will be recognized.

Sec. 205, 2005 NIRC: Remedies for the Collection of Delinquent Taxes
⇒ The judgment in the criminal 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.

Sec. 253(a), 2005 NIRC: General Provisions

– Any person convicted of a crime penalized under this Code shall, in addition to being liable
for the payment of the tax, be subject to the penalties imposed herein: Provided, That
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.

Other Important Points to Remember

• Subsequent payment of tax liability or extinguishment of tax liability thru prescription will not
operate to absolve taxpayer’s criminal liability (people v. Tierra)
• Subsidiary imprisonment can be imposed in case of insolvency of taxpayer as regards tax he is
sentenced to pay (1 day for every 8.50)
• Penalty shall be imposed on partner, president, Gen. Mgr., treasurer, or officer responsible for
violation

FILING OF CRIMINAL ACTION DURING PENDENCY OF PROTEST

⇒ Assessment is not necessary to criminal prosecution for willful attempt to evade tax
⇒ Crime is complete when violator has knowingly and willfully filed fraudulent return with intent
to evade tax
⇒ What is involved here is not collection of taxes where assessment may be reviewed by rtc but
criminal prosecution for violation of tax code
⇒ There is no precise computation and assessment of tax before there can be criminal prosecution
⇒ There can be no civil action to enforce collection before assessment procedures have been
followed [ungab v. Cusi (1980)]

CRIMINAL CHARGE WITHOUT ASSESSMENT

⇒ Assessment is not necessary before criminal charge (for non-filing of return) is filed
 ⇒ Criminal charge need only be proved by prima facie showing of failure to file required return
and such fact need not be proved by an assessment
⇒ Issuance of assessment is different from filing of complaint for criminal prosecution [cir v.
Pascor realty & dev corp (1999)]

CRIMINAL CHARGE MUST HAVE ASSESSMENT

⇒ For criminal prosecution to proceed before assessment, prima facie showing of willful attempt to
evade tax must exist. Here the Court held that an assessment is essential before a criminal
action may be instituted because without an assessment, there can be no cause of action since
don’t know yet what the liability is or if there is a liability and how much the liability is. [CIR v.
Fortune Tobacco (1997)]

How to Reconcile?
⇒ Fortune’s situation is factually apart from ungab
⇒ Reg. Wholesale price approved by bir presumed actual price
⇒ Not fraudulent unless bir has final determination of what is correct tax
⇒ Prel. Inv. May be enjoined under exceptional circumstances

REMEDIES OF TAXPAYERS

Administrative Remedy

1. Before Payment Of Tax

a) PROTEST OF ASSESSMENT
⇒ Filing a petition or request for reconsideration or reinvestigation
b) Enter Into Compromise

2. After Payment Of Tax

a) TAX CREDIT
⇒ where taxpayer asks that the money so paid be applied to his existing tax liability
b) REFUND
⇒ where taxpayer asks for restitution of the money paid as tax

Requisites for Tax Refund/Credit

1. Claim for refund/credit must be in writing
2. It must be filed with the CIR within 2 years after the payment of the tax or penalty
3. It should:
a. Clearly state the amount being claimed and the ground/s relied upon
b. Be accompanied with all pertinent papers in support of the claim
** Mere objection does not amount to a request for refund/credit BUT a return filed showing an
overpayment shall be considered a written claim for tax refund/credit

When Written Claim NOT NECESSARY

⇒ Where on the face of the return upon which payment was made, such tax appears clearly to
have been erroneously paid (Sec. 229)

JUDICIAL REMEDY
1. APPEAL TO COURT OF TAX APPEALS
2. Action to Contest forfeiture of chattel. When
 a. Before sale or destruction of the property, bring an action against the person seizing the
property or having possession to recover the same and upon giving proper bond may
enjoin the sale
b. After the sale and within 6 months he may bring an action to recover the net proceeds
realized at the sale

⇒ Is an ordinary civil action for recovery of personal property under Rule 60 RoC, Ordinary
courts have jurisdiction and not CTA
⇒
3. Action for Damages

PROTEST
⇒ Valid protest of an assessment is one assailing the formal assessment notice (FAN) and the letter
of demand, not the preliminary assessment notice (PAN). PAN is required merely to inform the
taxpayer of the proposed assessment.
⇒ Failure to protest within 30 days will make the formal assessment notice final and executory.
⇒ Failure to respond to PAN within 15 days will render taxpayer in default and a FAN would
subsequently be issued (Cebu Rosver Pawnshop vs. CIR, CTA Case No. 6425, Mar. 17, 2003).

DENIAL OF PROTEST
⇒ Direct denial -- Letter of CIR states in clear terms his denial of protest.
⇒ Indirect denial
 Final notice before seizure constitutes as a decision on a protested assessment; hence,
appealable to the CTA (CIR vs. Isabela cultural corp, 361 scra 71 (2004)
 Issuance by BIR of warrant of distraint and levy constitutes a denial of the protest.

COUNTING OF 180-DAY PERIOD

⇒ Since the petitioner did not submit any document in support of his protest within sixty days from
the filing of its protest, the counting of the 180-day period was from the filing of the protest.
Accordingly, when respondent failed to render his decision within 180 days from the filing of his
protest, petitioner has 30 days therefrom to file an appeal to CTA (Oceanic Wireless Network vs.
CIR, CTA Case No. 6111, Nov. 3, 2004)

APPEALS
Administrative Appeal
⇒ Decision of regional director may be appealed to commissioner
⇒ Prior exhaustion of adm remedies gives adm authorities prior opportunity to decide
controversies within their competence (aguinaldo industries corp. V. Cir)

Judicial Appeal
⇒ Final decision of CIR may be appealed to CTA
⇒ Where a taxpayer filed a valid protest within 30 days from date of receipt of assessment and on
same day also filed with CTA a petition for review, there is yet no final decision of cir on the
protest that is appealable to CTA (moog controls corp vs. Cir, cta case no. 6700, oct 18, 2004)
⇒ CTA division decision is appealed to CTA en banc
⇒ CTA en banc decision appealed to supreme court

PETITION FOR REVIEW

 ⇒ The 30-day period to appeal is jurisdictional and failure to comply would bar the appeal and
deprive the CTA of its jurisdiction. Such period is mandatory, and it is beyond the power of the
courts to extend the same (Chan Kian vs CTA, 105 Phil 906 (1959).
⇒ The options granted to the taxpayer in case of inaction by the CIR is mutually exclusive and
resort to one bars the application of the other. Petition for review was filed out of time (more
than 30 days after lapse of 180 days), and petitioner did not file MR or appeal; hence, disputed
assessment became final and executory
⇒ After availing of the first option (filing petition for review with CTA), petitioner cannot
successfully resort to the second option (awaiting final decision of CIR) on the pretext that there
is yet no final decision on the disputed assessment because of CIR’s inaction.
⇒ Assessments are presumed to be correct unless otherwise proven (RCBC vs CIR, GR No.
168498, Apr 24, 2007).

PRESCRIPTION
Sec. 203, 2005 NIRC: Period of Limitation upon Assessment and Collection
⇒ Except as otherwise provided in Sec. 222, taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return.
⇒ No proceeding in court without assessment for the collection of taxes shall be begun after the
expiration of prescriptive period.

Sec. 222(a), 2005 NIRC: Exceptions as to Period of Limitation of Assessment and Collection of Taxes
⇒ In case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax may be filed without
assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission.

Sec. 281, 2005 NIRC: Prescription for Violations of any Provision of this Code
⇒ All violations of any provision of this 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.
⇒ 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.

Other Important Points to Remember

⇒ The 3-year period within which to assess any deficiency tax commences after the last day
prescribed by law for the filing of the income tax return or the actual date of filing whichever is
LATER.
⇒ For VAT, each taxable quarter shall have its own prescriptive period. VAT return is filed quarterly
and a final return is not required at the end of the year.
⇒ In case of creditable withholding taxes, the 3-year period shall be counted shall be counted from
the last day required by law for filing monthly remittance return. Each monthly return is already
a complete return. The annual information return submitted to BIR is just an annual report of
income payments and taxes withheld and is not in the nature of a final adjustment return.
⇒ Request for clarification on the assessment made by the taxpayer does not suspend the running of
the statute of limitations
⇒ Mere filing of the protest letter without requesting for a reinvestigation does not suspend the
running of the prescriptive period to collect (Phil Global Communications vs. CIR, CTA EB Case
No. 37, Feb. 2005)
REQUISITES OF A VALID WAIVER
⇒ Waiver must be in the form identified in RMO 20-90;
⇒ Expiry date of period agreed upon is indicated in the waiver;
⇒ Waiver form requires statement of the kind of tax and amount of tax due; if not indicated in the
waiver, there is no agreement;
⇒ Waiver is signed by taxpayer or his authorized representative. In case of corporation, waiver is
signed by any responsible official.
⇒ CIR or his authorized representative shall sign waiver indicating that BIR has accepted and
agreed to the waiver;
⇒ Date of acceptance by BIR is indicated;
⇒ Date of execution and acceptance by BIR should be before expiration of prescriptive period;
⇒ Waiver is executed in 3 copies; second copy is for taxpayer. Fact of receipt by the taxpayer should
be indicated in the original copy.
⇒ (Pfizer, Inc. vs. CIR, CTA Case No. 6135, Apr. 21, 2003; FMF Dev. Corp. vs. CIR, CTA Case No.
6153, Mar. 20, 2003)
⇒ Phil. Journalists vs. CIR, supra).
⇒ Waiver must indicate definite expiration date agreed upon by CIR and taxpayer
⇒ Waiver should state date of acceptance by BIR. Without the date, it cannot be determined whether
waiver was accepted before expiration of 3-year period.
⇒ Taxpayer must be furnished copy of accepted waiver. Under RMO 20-90, second copy of waiver is
for taxpayer. Fact of receipt by taxpayer of his copy should be indicated in the original copy (

VALIDITY OF WAIVER
⇒ Waiver signed by Comptroller is valid, even without letter or certificate of authority to execute
waiver. RMO 20-90 provides waiver must be signed by any of its responsible officials. Law merely
requires that waiver be signed by any of corporation’s responsible officials, not necessarily an
authorized representative or officer (Phil. Journalists vs. CIR, GR No. 162852, Dec 16, 2004)
⇒ Waiver is valid even if it did not specify the kind and amount of taxes covered, if at the time it was
executed, the BIR had not yet come up with preliminary findings. At that stage, the kind and
amount of tax due were still unascertainable (Oceanic Wireless Network vs. CIR, CTA Case No.
6111, Nov 3, 2004)
⇒ Waiver is not valid if signed only by the taxpayer and attested to by a RDO, not by the
Commissioner, or signed after the lapse of the 3-year period (Mirant Navotas Corp. vs. CIR, CTA
Case No. 5949, Feb. 3, 2003).

Important Case Law

Aznar vs. CIR

⇒ Distinction between false return and fraudulent return
⇒ Here the return was merely false which implies a mere deviation from the truth or fact whether
intentional or not.

CIR vs. Toda

⇒ Illustrates clear example of tax evasion
⇒ Tax evasion connotes the integration of 3 factors:
1. The end to be achieve, i.e. the payment of loess than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;
2. An accompanying state of mind which is described as being “evil”, in “bad faith”, “willful”,
“deliberate” and “not accidental”
 3. A course of action or failure of action which is unlawful
⇒ Court held that the sale was merely a tax ploy, a sham and without business purpose and economic
substance. Doubtless, the execution of the two sales was calculated to mislead the BIR with the
end in view of reducing the consequent tax liability.

Philippine Journalist, Inc. vs. CIR

⇒ Issue is WON the waiver of Statute of limitation covering the period during which the BIR may
assess is valid and binding on the petitioner – NO
⇒ The Court pointed out the following defect in the waiver which violated BIR RMO 20-90:
1. It did not specify a definite agreed date between the BIR and petitioner, within which the
former may assess and collect revenue taxes.
2. The waiver was not signed by the CIR considering the amount involved is more than P1M.
3. The taxpayer was not furnished a copy of the wavier.

Republic vs. CA (Philippine Global)

⇒ If the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the
latter to prove by competent evidence that such notice was indeed received by the addressee.
⇒ The Court held that while a mailed letter is deemed received by the addressee in the course of mail
this is merely a disputable presumption, subject to controversy and a direct denial therof shifts the
burden on the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.

CIR vs. Isabela Cultural Corporation

⇒ Non-reply of CIR to request for reconsideration construed as denial of request for reconsideration
when a final notice to pay has been given without the CIR actually responding to taxpayer that
MR was denied.
⇒ The Court held that the final notice before seizure cannot but be considered as the Com’s decision
disposing of the request for reconsideration filed by respondent, who received no other response to
its request. Not only was the Notice the only response received; its content and tenor supported the
theory that it was the Com’s final act regarding the request for reconsideration. The very title
expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly
stated that respondent was being given “this last opportunity” to pay.

CIR vs. Algue

⇒ A deviation from the general rule, in this case the Court ruled that while ordinarily a warrant of
distraint and levy, following a request for reconsideration of an assessment is considered the CIR’s
final decision, the receipt of which triggers the start of the 30 day period of appeal, where however,
the warrant was issued without taking into account the request for reconsideration (since the
request apparently was mislaid by the BIR), the 30 day period should start only after the CIR acts
on the request for reconsideration (BUT NOTE that now, if the CIR fails to render decision within
180 days after the MR or the submission of the supporting documents (60) was made, then
APPEAL TO CTA MUST BE MADE, otherwise the right to appeal will be lost)

PROCEDURE
TAX RETURN FILED
(law prescribes due date, ex. Income tax April 15 of
following end of taxable year)
 
TAX AUDIT BY BIR
(120 days + additional 120 days may be requested by RO)


INFORMAL CONFERENCE


PRELIMINARY ASSESSMENT NOTICE (PAN)


Reply to PAN
(Within 15 days from Receipt)


FINAL ASSESSMENT NOTICE (FAN)


PROTEST TO FAN
(within 30 days from receipt of FAN)


SUPPLEMENTAL PROTEST/SUPPORTING
DOCUMENTS TO SUPPORT PROTEST
(within 60 days upon filing of protest/if no supporting
documents must inform CIR so that decision may be
rendered. Note that if no supporting documents is
submitted, the 180 days is reckoned from the date protest
was filed)


BIR ACTION:
1. Cancel assessment
2. Revise assessment
3. Deny protest
OR
BIR INACTION

(CIR has only 180 days to make decision, if no

decision is made within that period, APPEAL to
CTA without waiting for decision of CTA)


APPEAL TO CTA
 (Within 30 days from the decision of the BIR OR
within 180 days from the submission of the
supporting documents or if no supporting
documents from the date the protest was filed
whichever comes first)

IMPORTANT: This is jurisdiction, if appeal not

made within the period prescribe, right to appeal is
lost and decision of CIR becomes, final and
executory!!!


APPEAL TO CTA EN BANC
(15 days from date of receipt; additional 15 days may be
granted by CTA after payment of docket fee.)


APPEAL TO SC
(Via petition for review on certiorari under Rule 45)
Within 15 days from notice of award/judgment