AMALIA B. AGPAD COMMISSIONER OF INTERNAL REVENUE vs.

KUDOS METAL CORPORATION FACTS: Kudos Metal Corporation filed its Income Tax Return (ITR) on April 1999 for taxable year 1998. However, pursuant to Letter of Authority, the BIR issued three notices of Presentation of Records to Kudos but Kudos did not comply with the said notice. The BIR then issued subpoena duces tecum, thus the review and audit of the record ensued. However, on December 2001, Pasco, the accountant of Kudos executed an affidavit of Waiver of Prescription duly notarized and was received by BIR and accepted the same by Assistant Commissioner Salazar. Pasco executed second waiver on February 2003 following the process undergone by the first waiver she executed. The BIR later issued a Preliminary Notice of Assessment followed by Formal Demand letter to Kudos asking them to settle their tax liabilities for the year 2008 covering the following: Income Tax 9,693,897.85 VAT 13,962,460.90 EWT 1,712,336.76 Withholding Compensation Tax 247,353.24 Penalties 8,000.00 TOTAL 25,624,048.76 On appeal, the Court of Tax Appeal en banc affirmed the decision of the CTA Second Division ruling that the governments right to assess taxes has already prescribed. BIR appealed then appealed to the Supreme Court. ISSUE: Whether or not the right of the government to assess taxes has already prescribed despite the waivers executed by the accountant of Kudos. HELD: Supreme Court affirmed the decision of the CTA en banc stating that Section 222 of tax code provide that the period to assess and collect taxes may only be extended upon written agreement between the CIR and the taxpayer following the procedures laid down on RMO 20.90 and RDAO 05-01 such as: 1. Waiver must in official form and the expiration period must be stated. 2. Waiver must be notarized and must be signed by the duly authorized representative in case of representation. 3. The revenue officer must sign the waiver indicating that the BIR has accepted and agreed to the waiver. 4. Both the date of execution by the taxpayer and the acceptance by the revenue officer should be before the expiration of the period agreed upon in case of subsequent waiver.

5. The fact of receipt by the taxpayer of his file copy must be indicated din the original. In the above case, there is not written authorization given by the management of Kudos to Pasco to execute such waiver. The date of execution of the waiver was not indicated to show if it was executed before the lapsed of the agreed period in the first waiver. The fact of the acceptance of the file copy of the taxpayer was not indicated on the original. The second waiver was filed after the lapsed of the agreed period in the first waiver which was on December 2002. These shows that the waivers were incomplete and defective thus not in accordance with the procedures provided for. Thus, due to the defective waivers, the prescriptive period of 3-years was not extended and it remained 3 years in this case thus the governments right as already prescribed making the assessment in effective.