GUIDE NOTES ON REMEDIES

Q: Who are the Philippine tax authorities?

* (1) Bureau of Internal Revenue - The BIR is the agency of the government which is primarily in
charge of the administration and enforcement of tax laws under the 1997 Tax Code.
(2) Bureau of Customs - The BOC is in charge of the enforcement of tariff and customs tax laws.
(3) Assessors and Treasurers of Local Government Units The assessors and treasurers of
LGUs are in charge of the enforcement of local and real property tax laws.
Q: How are taxes assessed?
* (1) Self-Assessment - Taxpayers are required to file tax returns for various kinds of income
earned which may be subject to tax. Examples are income tax, capital gains tax, donors tax, and
estate tax. When a taxpayer files the tax return, he is actually making a self-assessment.
(2) Deficiency Assessment - Deficiency assessment is an assessment made by the BIR after the
conduct of an investigation or audit when it finds that the tax return filed by the taxpayer contains,
for example, an under-declaration of income, or when the taxpayer does not at all file a tax return.
[NOTE: The provisions on tax remedies found in the 1997 Tax Code refer to the governments
right to make deficiency assessments.]
** The case of Philippine National Oil Company v. Court of Appeals made a distinction between a
self-assessed tax and a BIR-assessed tax. At issue in this case was the validity of the
compromise agreement executed by PNOC pursuant to EO No. 44. Under said law, the CIR was
authorized to compromise delinquent accounts arising, among others, from a self-assessed tax.
According to the Supreme Court, PNOC could not avail of the benefits of EO No. 44 because, for
one, its tax liability was not a self-assessed tax. The High Court differentiated a self-assessed tax
and a BIR-assessed tax in this sense: where tax liabilities are self-assessed, the compromise
payment shall be based on the tax return filed by the taxpayer; on the other hand, where the BIR
already issued an assessment, the compromise payment shall be computed based on the tax
due on the assessment notice.
[Philippine National Oil Company v. Court of Appeals, GR Nos. 109976 and 112800, 26 April
2005.]
Q: How are remedies in taxation classified?
* Remedies in taxation may be grouped as follows:
(1) Remedies of the Government
(a) to make deficiency assessments within 3 or 10 years
(b) to enforce deficiency assessments and collect taxes within 5 years
(i) to effect distraint of personal property
(ii) to effect levy on real property
(iii) to pursue judicial proceeding to collect
(iv) to compromise, abate, or cancel taxes
(v) to enforce tax liens
(vi) to enforce statutory penal provisions
(vii) to enforce forfeiture or property
(2) Remedies of the Taxpayer
(a) to protest against an assessment (administrative claim)
(b) to appeal a decision on a protest to the Court of Tax Appeals (judicial claim)
(c) to compromise taxes
(d) to release property before sale at public auction
(e) to redeem property after sale at public auction
(f) to avail of tax amnesty benefits
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CHAPTER I - REMEDIES IN GENERAL

Sec. 202, Final Deed to Purchaser. - In case the taxpayer shall not redeem the property as herein
provided, the Revenue District Officer shall, as grantor, execute a deed conveying to the purchaser so much of
the property as has been sold, free from all liens of any kind whatsoever, and the deed shall succinctly recite all
the proceedings upon which the validity of the sale depends.

Section 202 shall be discussed in relation to Section 214, which reads:

Sec. 214, Redemption of Property Sold. - Within one (1) year from the date of
sale, the delinquent taxpayer, or any one for him, shall have the right of paying to the
Revenue District Officer the amount of the public taxes, penalties, and interest thereon
from the date of delinquency to the date of sale, together with interest on said purchase
price at the rate of fifteen percent (15%) per annum from the date of purchase to the date
of redemption, and such payment shall entitle the person paying to the delivery of the
certificate issued to the purchaser and a certificate from the said Revenue District Officer
that he has thus redeemed the property, and the Revenue District Officer shall forthwith
pay over to the purchaser the amount by which such property has thus been redeemed,
and said property thereafter shall be free form the lien of such taxes and penalties.
The owner shall not, however, be deprived of the possession of the said property and
shall be entitled to the rents and other income thereof until the expiration of the time
allowed for its redemption.

Q: What is the redemption period for properties of a delinquent taxpayer sold at public auction?
[NOTE: Make a distinction between properties of a delinquent taxpayer and tax delinquent
properties.]
* The case of City Mayor of Quezon City v. Rizal Commercial Banking Corporation dealt with the
interpretation of the redemption period under RA No. 7160, otherwise known as the 1991 Local
Government Code (real property taxes imposed by LGUs), but may be relevant in the
determination of the starting point of the redemption period provided in the 1997 Tax Code
(internal revenue taxes imposed by the National Government).
In the above case, the Supreme Court held that: (1) under PD No. 464, or the Real Property Tax
Code, the one-year redemption period for tax delinquent properties sold at public auction was
counted from the date of registration of sale of the property; (2) under RA No. 7160, or the 1991
Local Government Code, the reckoning point of the redemption period was the date of sale of the
property; and (3) the latter law effectively superseded the older law, such that the redemption
period for tax delinquent properties should be counted from the date of sale of the property.
However, the Supreme Court likewise took note of the Quezon City Revenue Code of 1993,
which provided that the redemption period for tax delinquent properties within the city was
counted from the date of annotation of sale of the property at the proper registry. A special law
prevails over a general law. Thus, the Quezon City Revenue Code of 1993 prevailed over the
1991 Local Government Code in that the redemption period in the case at bar was reckoned, not
from the date of sale of the property, but from the date of annotation of sale of the property at the
proper registry.
[City Mayor of Quezon City v. Rizal Commercial Banking Corporation, GR No. 171033, 3 August
2010.]
Sec. 203, Period of Limitation Upon Assessment and Collection. - Except as provided in Section
222, internal revenue taxes shall be assessed within three (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: Provided, That in a case where a return is filed beyond the period
prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of
this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed
on such last day.

Q: Explain the statute of limitations on assessment and collection of taxes.

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* The CIR has three years counted from the date of actual filing of the return or from the last date
prescribed by law for the filing of such return, whichever comes later, to assess a national internal
revenue tax. When the CIR validly issues an assessment, he has another five years to collect the
national internal revenue tax due thereon by distraint, levy, and/or court proceeding.
[NOTE: Under the 1977 Tax Code, the government had five (5) years to assess and another five
(5) years to collect. By virtue of a 1984 amendment to the 1977 Tax Code, the assessment and
collection periods were both reduced to three (3) years. Today, under the 1997 Tax Code, the
government has three (3) years to assess and five (5) years to collect.]
** The provisions on the statute of limitations on assessment and collection of taxes shall be
construed and applied liberally in favor of the taxpayer and strictly against the government.
*** According to CIR v. Philippine Global Communication, Inc., which cited other promulgated
Supreme Court decisions, the statute of limitations for the collection of taxes must benefit both
the Government and the taxpayer. Significantly, it intends to afford protection to the taxpayer
against unreasonable investigation.
In this case, the assessment was issued on 14 April 1994. [The 1977 Tax Code, as amended,
was the governing law; the CIR had 3 years to assess and another 3 years to collect. Hence, the
CIR had until 13 April 1997 to collect the tax due.] The earliest attempt of the CIR to collect the
tax due based on this assessment was when it filed its Answer in the CTA case on 9 January
2003 which was several years beyond the three-year prescriptive period to collect. The Supreme
Court ruled that the CIR was barred from collecting the assessed tax.
[CIR v. Philippine Global Communication, Inc., GR No. 167146, 31 October 2006.]
Q: How should the statute of limitations or prescriptive period be computed?
* In CIR v. Primetown Property Group, Inc., the taxpayer filed a claim for tax refund or credit of
income tax paid in 1997. Pursuant to Section 229 of the 1997 Tax Code, it had 2 years from the
filing of its final adjusted return to file a claim for tax refund or credit. The CIRs argument was
hinged on Article 13 of the Civil Code which states that a year is understood to mean 365 days.
Hence, the taxpayer had 730 days to file its claim for tax refund or credit. The CIR maintained
st
that the taxpayer filed its claim beyond the two-year prescriptive period, i.e., on the 731 day,
given that the year 2000 was a leap year. On the other hand, the taxpayers contention was
based on Section 31, Chapter VIII, Book I of the Administrative Code of 1987 which says that a
th
year consists of 12 calendar months. Having filed its claim on the last day of the 24 calendar
month from the filing of its final adjusted return, it maintained that its claim was filed within the
prescriptive period.
Clarifying the difference in treatment of legal periods by the Civil Code and the Administrative
Code of 1987, the Supreme Court held that:
(1) Under the Civil Code, a year is equivalent to 365 days, whether it be a regular year or a leap
year.
(2) There exists a manifest incompatibility in the manner of computing legal periods under the two
laws. However, given that the Administrative Code of 1987 is the more recent law, its treatment of
a year, i.e., 24 calendar months, governs the computation of legal periods.
Hence, the taxpayers claim was filed within the reglementary period.
[CIR v. Primetown Property Group, Inc., GR No. 162155, 28 August 2007.]
Q: What is the reckoning point with respect to amended returns?
* In CIR v. Phoenix Assurance Co., Ltd., the taxpayer filed its income tax return for 1952 on 1
April 1953. It amended said return on 30 August 1955. Thereafter, on 24 July 1958, the CIR
assessed deficiency income tax on the basis of the amended return. The CIR contended that his
right to assess had not prescribed inasmuch as the same was availed of within 5 years from the
filing of the amended return. [This case was governed by the old law granting the CIR 5 years to
assess and another 5 years to collect.] The Supreme Court held that where the deficiency
assessment is based on the amended return, which is substantially different from the original
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return, the period of limitation of the right to issue the same should be counted from the filing of
the amended return. Here, the changes and alterations embodied in the amended return
constituted substantial ones, i.e., exclusion of certain items from the gross income. Thus, the
CIRs deficiency assessment was not barred by prescription.
[CIR v. Phoenix Assurance Co., Ltd., GR No. L-19727, 20 May 1965.]
Q: What constitutes a valid assessment?
* In CIR v. Pascor Realty and Development Corporation, it was said that an assessment not only
contains a computation of tax liabilities, but also a demand for payment within a prescribed
period. It signals the time when penalties and interests begin to accrue against the taxpayer.
The Supreme Court ruled that the BIR examiners Joint Affidavit, which was attached to the
criminal complaint filed with the Department of Justice against the taxpayer, did not constitute an
assessment. The Joint Affidavit served the purpose of supporting and substantiating the criminal
complaint for tax evasion, and was not meant to be a notice of the tax due and a demand to the
taxpayer for payment thereof.
[CIR v. Pascor Realty and Development Corporation, GR No. 128315, 29 June 1999.]
** At issue in Adamson v. Court of Appeals was whether the CIRs recommendation letter for the
filing of a criminal complaint against a taxpayer for fraudulent returns and tax evasion can be
considered a formal assessment. The Supreme Court held that the recommendation letter was
not equivalent to a formal assessment. In the context in which it is used in the NIRC, an
assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of
a due tax liability that is there definitely set and fixed. A written communication containing a
computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to
contest or disprove the BIR examiners findings is not an assessment since it is yet indefinite.
[Adamson v. Court of Appeals, GR No. 120935, 21 May 2009.]
*** In Barcelon, Roxas Securities, Inc. v. CIR, the Supreme Court had occasion to say that an
assessment is deemed to have been made within the three-year prescriptive period if notice to
that effect was released, mailed, or sent by the CIR to the taxpayer within said period. Receipt by
the taxpayer within the prescriptive period is not necessary. However, the taxpayer should
actually receive, even beyond the prescriptive period, the assessment notice which was timely
released, mailed, or sent. While a mailed letter is deemed received by the addressee in the
ordinary course of mail, this is still merely a disputable presumption subject to controversion, and
a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption
to prove that the mailed letter was indeed received by the addressee.
Here, petitioner denied receiving the assessment notice and the CIR failed to present substantial
evidence that such notice was indeed mailed or sent by the CIR before his right to assess had
prescribed and that said notice was received by petitioner. Additionally, the Supreme Court ruled
that independent evidence, such as the registry receipt of the assessment notice or a certification
from the Bureau of Posts, would be acceptable.
[Barcelon, Roxas Securities, Inc. v. CIR, GR No. 157064, 7 August 2006.]
Sec. 204, Authority of the Commissioner to Compromise, Abate and Refund or Credit
Taxes. - The Commissioner may
204(A) Compromise the payment of any internal revenue tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) 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:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic
assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board which
shall be composed of the Commissioner and the four (4) Deputy Commissioners.

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Q: What is meant by compromise?

* Article 2028 of the Civil Code defines compromise as an agreement whereby the parties, by
making reciprocal concessions, avoid litigation or put an end to one already commenced. As
applied to taxation, the parties concerned are the taxpayer and the CIR.
Q: When may taxes be subject of a compromise?
* Read RR No. 30-02, as amended by RR No. 08-04, which implements Section 204(A) of the
1997 Tax Code on compromise. These RRs identify: (1) cases which may be compromised and
exceptions thereto; (2) bases for acceptance of compromise settlement; (3) prescribed minimum
percentages of compromise settlement; (4) documentary requirements; and (5) approving
authorities of compromise offers. It states in part:
SEC. 2. CASES WHICH MAY BE COMPROMISED. - The following cases may, upon
taxpayers compliance with the basis set forth under Section 3 of these Regulations, be
the subject matter of compromise settlement, viz:
1.
Delinquent accounts;
2.
Cases under administrative protest after issuance of the Final Assessment
Notice to the taxpayer which are still pending in the Regional Offices, Revenue District
Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement
Service and other offices in the National Office;
3.
Civil tax cases being disputed before the courts;
4.
Collection cases filed in courts;
5.
Criminal violations, other than those already filed in court or those involving
criminal tax fraud.
EXCEPTIONS:
1.
Withholding tax cases, unless the applicant-taxpayer invokes provisions of law
that cast doubt on the taxpayers obligation to withhold;
2.
Criminal tax fraud cases confirmed as such by the Commissioner of Internal
Revenue or his duly authorized representative;
3.
Criminal violations already filed in court;
4.
Delinquent accounts with duly approved schedule of installment payments;
5.
Cases where final reports of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment and the taxpayer is agreeable
to such decision by signing the required agreement form for the purpose. On the other
hand, other protested cases shall be handled by the Regional Evaluation Board (REB)
or the National Evaluation Board (NEB) on a case to case basis;
6.
Cases which become final and executory after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment; and
7.
Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer.
SEC. 3.
BASIS FOR ACCEPTANCE OF
COMPROMISE SETTLEMENT. - The
Commissioner may compromise the payment of any internal revenue tax on the
following grounds:
1.
Doubtful validity of the assessment. - The offer to compromise a delinquent
account or disputed assessment under these Regulations on the ground of reasonable
doubt as to the validity of the assessment may be accepted when it is shown that:
(a)
The delinquent account or disputed assessment is one resulting from a
jeopardy assessment (For this purpose, jeopardy assessment shall refer to a tax
assessment which was assessed without the benefit of complete or partial audit by an
authorized revenue officer, who has reason to believe that the assessment and
collection of a deficiency tax will be jeopardized by delay because of the taxpayers
failure to comply with the audit and investigation requirements to present his books of
accounts and/or pertinent records, or to substantiate all or any of the deductions,
exemptions, or credits claimed in his return); or
(b)
The assessment seems to be arbitrary in nature, appearing to be based on
presumptions and there is reason to believe that it is lacking in legal and/or factual
basis; or
(c)
The taxpayer failed to file an administrative protest on account of the alleged
failure to receive notice of assessment and there is reason to believe that the
assessment is lacking in legal and/or factual basis; or
(d)
The taxpayer failed to file a request for reinvestigation/reconsideration within 30

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days from receipt of final assessment notice and there is reason to believe that the
assessment is lacking in legal and/or factual basis; or
(e)
The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse
decision of the Commissioner, or his authorized representative, in some cases, within
30 days from receipt thereof and there is reason to believe that the assessment is
lacking in legal and/or factual basis; or
(f)
The assessments were issued on or after January 1, 1998, where the demand
notice allegedly failed to comply with the formalities prescribed under Sec. 228 of the
National Internal Revenue Code of 1997; or
(g)
Assessments made based on the Best Evidence Obtainable Rule and there is
reason to believe that the same can be disputed by sufficient and competent evidence;
or
(h)
The assessment was issued within the prescriptive period for assessment as
extended by the taxpayers execution of Waiver of the Statute of Limitations the validity
or authenticity of which is being questioned or at issue and there is strong reason to
believe and evidence to prove that it is not authentic; or
(i) The assessment is based on an issue where a court of competent jurisdiction made
an adverse decision against the Bureau, but for which the Supreme Court has not
decided upon with finality.
2. Financial incapacity. - The offer to compromise based on financial incapacity may be
accepted upon showing that:
(a)
The corporation ceased operation or is already dissolved.
Provided, that tax liabilities corresponding to the Subscription Receivable or Assets
distributed/distributable to the stockholders representing return of capital at the time of
cessation of operation or dissolution of business shall not be considered for
compromise; or
(b)
The taxpayer, as reflected in its latest Balance Sheet supposed to be filed with
the Bureau of Internal Revenue, is suffering from surplus or earnings deficit resulting
to impairment in the original capital by at least 50%, provided that amounts payable or
due to stockholders other than business-related transactions which are properly
includible in the regular accounts payable are by fiction of law considered as part of
capital and not liability, and provided further that the taxpayer has no sufficient liquid
asset to satisfy the tax liability; or
(c)
The taxpayer is suffering from a networth deficit (total liabilities exceed total
assets) computed by deducting total liabilities (net of deferred credits and amounts
payable to stockholders/owners reflected as liabilities, except business- related
transactions) from total assets (net of prepaid expenses, deferred charges, preoperating expenses, as well as appraisal increases in fixed assets), taken from the
latest audited financial statements, provided that in the case of an individual taxpayer,
he has no other leviable properties under the law other than his family home; or
(d)
The taxpayer is a compensation income earner with no other source of income
and the familys gross monthly compensation income does not exceed the levels of
compensation income provided for under Sec. 4.1.1 of these Regulations,
and it
appears that the taxpayer possesses no other leviable or distrainable assets, other
than his family home; or
(e)
The
taxpayer
has
been
declared
by
any
competent
tribunal/authority/body/government agency as bankrupt or insolvent.
The Commissioner shall not consider any offer for compromise settlement on the
ground of financial incapacity of a taxpayer with Tax Credit Certificate (TCC), issued
under the National Internal Revenue Code of 1997 or Executive Order No. 226, on hand
or in transit, or with pending claim for tax refund or tax credit with the Bureau of
Internal Revenue, Department of Finance One-Stop-Shop Tax Credit and Duty
Drawback Center (Tax Revenue Group or Investment Incentive Group) and/or the
courts, or with existing finalized agreement or prospect of future agreement with any
party that resulted or could result to an increase in the equity of the taxpayer at the
time of the offer for compromise or at a definite future time. Moreover, no offer of
compromise shall be entertained unless and until the taxpayer waives in writing his
privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other
general or special laws, and such waiver shall constitute as the authority of the
Commissioner to inquire into the bank deposits of the taxpayer.
Presence of circumstances that would place the taxpayer-applicants inability to pay in
serious doubt can be a ground to deny the application for compromise based on
financial incapacity of the taxpayer to pay the tax.

[Revenue Regulations No. 30-02, 16 December 2002; Revenue Regulations No. 08-04, 19 May
2004.]
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** The issue in Philippine National Oil Company v. Court of Appeals was the validity of the
compromise agreement executed by PNOC and Philippine National Bank pursuant to EO No. 44
and the 1977 Tax Code. In ruling that the compromise agreement was invalid, the Supreme Court
cited the following reasons: (1) the tax liabilities of PNOC and PNB could not be compromised
under EO No. 44; (2) their application for compromise was filed beyond the effectivity of EO No.
44; and (3) the compromise was contrary to public policy.
[Philippine National Oil Company v. Court of Appeals, GR Nos. 109976 and 112800, 26 April
2005.]
Q: Who may compromise taxes?
* The case of Security Bank Corporation v. CIR dealt with the deficiency documentary stamp tax
on Security Bank Corporations 1983 sales of securities under repurchase agreements. The
Supreme Court held that under Section 204 of the 1977 Tax Code (even the 1997 Tax Code), the
BIR Commissioner had the sole power and authority to compromise taxes. The act of certain
revenue officials in accepting Security Bank Corporations offer of payment, without the
Commissioners stamp of approval, was ultra vires and could not have any valid and binding legal
effect upon the BIR.
[Security Bank Corporation v. CIR, GR No. 130838, 22 August 2006.]
Q: May a void assessment serve as basis for a compromise?
* According to CIR v. Reyes, an assessment that fails to inform the taxpayer of the law and the
facts on which it is made is void. As a corollary, a void assessment cannot in turn be used as a
basis for the perfection of a tax compromise.
In the case at bar, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR.
Consequently, the Supreme Court said, it would be premature to declare that the compromise on
the estate tax liability had been perfected and consummated, considering the earlier
determination that the assessment against the estate was void.
[CIR v. Reyes, GR No. 159694, 27 January 2006.]
Q: What is a compromise penalty?
* In all cases of criminal violations of the 1997 Tax Code, not involving the commission of
fraudulent acts, payment of compromise penalties may be suggested to the taxpayer in lieu of
criminal prosecution. Since compromise penalties are only amounts suggested in settlement of
criminal liability and may therefore not be imposed on the taxpayer, the violation shall be referred
to the appropriate office for criminal action in the event the taxpayer refuses to pay the suggested
compromise penalty. A compromise penalty shall be paid on top of the deficiency basic tax,
surcharge, and interest.
On the other hand, cases involving fraud, such as acts committed as means of tax evasion, shall
be referred directly to the appropriate office for criminal action.
[Revenue Memorandum Order No. 19-07, 8 August 2007.]
** The imposition of compromise penalty is warranted only when both the taxpayer and the CIR
consented thereto. In Wonder Mechanical Engineering Corporation v. Court of Tax Appeals, the
CIR made an assessment against the taxpayer for deficiency sales and percentage taxes, 25%
surcharge, and compromise penalties. The Supreme Court affirmed the Court of Tax Appeals
decision in deleting the compromise penalties in the absence of proof that the taxpayer agreed or
gave his conformity thereto.
[Wonder Mechanical Engineering Corporation v. Court of Tax Appeals, GR Nos. L-22805 and L27858, 30 June 1975.]

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*** CIR v. First Express Pawnshop Company, Inc. has a similar set of facts. The Supreme Court
affirmed the Court of Tax Appeals decision in deleting the compromise penalty in addition to the
deficiency documentary stamp taxes, in the absence of showing that the taxpayer accepted the
same.
[CIR v. First Express Pawnshop Company, Inc., GR Nos. 172045-46, 16 June 2009.]
204(B) Abate or cancel a tax liability, when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the amount due.
All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud.

Q: How is compromise different from abatement?

* In People v. Sandiganbayan, the Supreme Court explained abatement or cancellation of a tax. It
defined abatement as the diminution or decrease in the amount of tax imposed, such that to
abate is to nullify or reduce in value or amount. The Supreme Court went on to say that: The
BIR may therefore abate or cancel the whole or any unpaid portion of a tax liability, inclusive of
increments, if its assessment is excessive or erroneous; or if the administration costs involved do
not justify the collection of the amount due. No mutual concessions need be made, because an
excessive or erroneous tax is not compromised; it is abated or canceled. Only correct taxes
should be paid.
Here, the Supreme Court found that although referred to in the pleadings as a compromise, the
agreement between the parties was actually an abatement or a cancellation of an unjust,
excessively assessed, and unreasonable tax. Compromise is marked by mutual concessions,
whereas in abatement or cancellation, no mutual concessions between the taxpayer and the CIR
are made.
[People v. Sandiganbayan, GR No. 152532, 16 August 2005.]
204(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund
the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty:
Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit
or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any internal
revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any request for conversion
into refund of unutilized tax credits may be allowed, subject to the provisions of Section 230 of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is surrendered to the
appropriate revenue officer for verification and cancellation: Provided, further, That in no case shall a tax refund
be given resulting from availment of incentives granted pursuant to special laws for which no actual payment
was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the Senate and
House of Representatives, every six (6) months, a report on the exercise of his powers under this Section, stating
therein the following facts and information, among others: names and addresses of taxpayers whose cases have
been the subject of abatement or compromise; amount involved; amount compromised or abated; and reasons
for the exercise of power: Provided, That the said report shall be presented to the Oversight Committee in
Congress that shall be constituted to determine that said powers are reasonably exercised and that the
government is not unduly deprived of revenues.

Q: Who may file a claim for tax refund or credit under this provision?
* Silkair (Singapore) Pte. Ltd. was involved in a series of claims for tax refund or credit for excise
taxes paid on its purchases of aviation jet fuel from Petron Corporation for different taxable
periods. Silkairs main argument was that it was exempt from payment of excise tax by virtue of
Section 135(b) of the 1997 Tax Code and Article 4(2) of the RP-Singapore Air Transport
Agreement. As between Petron, the seller, and Silkair, the buyer, the latter contended that in
reality, it paid the excise taxes due on the transactions because said taxes, being indirect taxes,
were made part of the purchase price of the aviation jet fuel.
The Supreme Court ruled that based on Section 204(c) of the 1997 Tax Code, the statutory
taxpayer (Petron in this case, being the manufacturer of the aviation jet fuel) was the proper party
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that can claim the refund. Section 204(C) of the 1997 Tax Code states in part: No credit or
refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or
penalty:
[Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 171383, 14 November 2008; Silkair (Singapore) Pte.
Ltd. v. CIR, GR No. 184398, 25 February 2010.]
** On the basis of CIR v. Smart Communications, Inc., the person entitled to claim a tax refund is
the taxpayer. However, in case the taxpayer does not file a claim for refund of withholding taxes,
the withholding agent may file the claim. For this purpose, the taxpayer and the withholding agent
need not be related parties. In view of the foregoing, Smart Communications, Inc. as withholding
agent was allowed to file the claim for tax refund on behalf of Prism Transactive (M) Sdn. Bhd., a
Malaysian corporation.
[CIR v. Smart Communications, Inc., GR Nos. 179045-46, 25 August 2010.]
Q: When does the two-year prescriptive period under Section 204 apply? When does it not
apply?
* The issue in CIR v. Mirant Pagbilao Corporation revolved around whether MPC was entitled to a
claim for tax refund or credit of unutilized input VAT from 1993 to 1996. In ruling that MPCs claim
was filed out of time, it applied the two-year prescriptive period under Section 112(A) of the 1997
Tax Code (the starting point of which is the close of the taxable quarter when the sales where
made). Corollarily, the Supreme Court held that the two-year prescriptive period under Section
204(C) of the 1997 Tax Code (which commences from the date of payment of the tax), was
inapplicable as it pertained to taxes erroneously or illegally paid.
[CIR v. Mirant Pagbilao Corporation, GR No. 172129, 12 September 2008; also, CIR v. Aichi
Forging Company of Asia, Inc., GR No. 184823, 6 October 2010.]
Q: Is a written claim for tax credit or refund always required to be filed?
* In CIR v. Acosta, Acosta sought to refund an overpayment of taxes withheld on her
compensation income in the year 1996. At the time she filed her judicial claim, the 1997 Tax
Code was already in effect. At issue was whether her amended return indicating an overpayment
of taxes was sufficient compliance with the requirement of a written claim for refund. The
Supreme Court resolved that the prevailing law at that time was the 1977 Tax Code, not the 1997
Tax Code.
Under Section 230 of the 1977 Tax Code, a claimant must first file a written claim for refund,
categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action in
court.
Under Section 204(c) of the 1997 Tax Code, a return filed showing an overpayment shall be
considered as a written claim for credit or refund.
Hence, applying the old Tax Code, for failure to file a written claim for refund which consisted of a
categorical demand of reimbursement, Acostas claim must be denied.
[CIR v. Acosta, GR No. 154068, 3 August 2007.]
CHAPTER II - CIVIL REMEDIES FOR COLLECTION OF TAXES

To put the topic of remedies of the government in perspective, read Section 228.
Sec. 228, Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he shall first notify
the taxpayer of his findings: provided, however, That a preassessment notice shall not
be required in the following cases:
(a) 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; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable

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withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold,
traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable.

* Upon receipt of a valid Preliminary Assessment Notice (PAN), the taxpayer may respond to and
seek clarification of the same.
** Upon receipt of a valid Final Assessment Notice (FAN), the taxpayer may protest against it by
filing a request for reconsideration or reinvestigation. Thereafter, the taxpayer must submit all
revelant supporting documents. Failure to protest and submit all relevant supporting documents
shall cause the assessment to become final. At this point, the government may resort to distraint,
levy, or judicial proceeding to collect.
*** If the taxpayer timely files a protest and such protest is denied (or is not acted upon), the
taxpayer may appeal to the CTA by filing a petition for review. Failure to appeal shall cause the
assessment to become final. At this point, the government may resort to distraint, levy, or judicial
proceeding to collect.
**** The government may also:
(1) compromise, abate, or cancel taxes;
(2) enforce tax liens;
(3) enforce statutory penal provisions; and
(4) enforce forfeiture of property.
Sec. 205, Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of
internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:
(a) By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks
and other securities, debts, credits, bank accounts and interest in and rights to personal property, and by levy
upon real property and interest in rights to real property; and
(b) By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with
the collection of such taxes: Provided, however, That the remedies of distraint and levy shall not be availed of
where the amount of tax involve is not more than One hundred pesos (P100).
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.
The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by means of civil
or criminal action, including the preservation or transportation of personal property distrained and the
advertisement and sale thereof, as well as of real property and improvements thereon.

Q: For the enforcement and collection of deficiency estate taxes, is the approval of the probate
court necessary?
* The issue in Marcos v. Court of Appeals was whether the BIR had the authority to collect, by the
summary remedy of levying upon and sale of real properties of the decedent, estate tax
deficiencies, without the cognition and authority of the court sitting in probate over the supposed
will of the deceased. The Supreme Court answered in this wise: There is nothing in the Tax
Code, and in the pertinent remedial laws that implies the necessity of the probate or estate
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settlement courts approval of the states clam for estate taxes, before the same can be enforced
and collected.
The High Court went on to say that the deficiency tax assessment, having already become final,
executory, and demandable, could already be collected through the summary remedy of distraint
or levy pursuant to Section 205 of the 1997 Tax Code.
[Marcos v. Court of Appeals, GR No. 120880, 5 June 1997.]
Q: A precise computation and assessment is required for a civil action to collect tax deficiencies.
Is such computation and assessment necessary prior to criminal prosecution for, say, tax
evasion?
* In Ungab v. Cusi, the Supreme Court held that an assessment of a deficiency is not necessary
to a criminal prosecution for willful attempt to defeat and evade the income tax. The facts of this
case are as follows: Upon examination of the income tax returns filed by Ungab for the calendar
year ended 31 December 1973, the BIR examiner discovered that Ungab failed to declare his
income derived from banana saplings. Ungab received an assessment representing income tax,
business tax, and forest charges, which he filed a protest against. Meanwhile, six informations
were filed against Ungab. His contention was that the filing of the informations was premature
because the CIR had not yet resolved his protest on the assessment. The Supreme Court ruled
that while there can be no civil action to enforce collection before the assessment procedures
have been followed, there is no requirement for the precise computation and assessment of the
tax before there can be a criminal prosecution. A crime is complete when the violator has
knowingly and wilfullly filed a fraudulent return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has
made an inaccurate return, and the government's failure to discover the error and promptly to
assess has no connections with the commission of the crime.
[Ungab v. Cusi, GR Nos. L-41919-24, 30 May 1980.]
** Sixteen years later, the decision in CIR v. Court of Appeals was promulgated. In this case, the
complaints filed before the DOJ for investigation charged private respondents with fraudulent
concealment of the actual price of products sold, through declaration of registered wholesale
prices lower than the actual wholesale prices resulting in underpayment of income, ad valorem,
and value-added taxes.
In holding that Ungab v. Cusi was inapplicable, the Supreme Court clarified the Ungab v. Cusi
decision in this wise: Reading [Ungab v. Cusi] carefully, the pronouncement therein that
deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified
by the Court with the following statement quoted from Guzik v. U.S.: The crime is complete when
the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a
part or all of the tax. In plain words, for criminal prosecution to proceed before assessment, there
must be a prima facie showing of a willful attempt to evade taxes. There was a willful attempt to
evade tax in [Ungab v. Cusi] because of the taxpayers failure to declare in his income tax return
his income derived from banana saplings. In the mind of the trial court and the Court of Appeals,
Fortunes situation is quite apart factually since the registered wholesale price of the goods,
approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and
unless and until the BIR has made a final determination of what is supposed to be the correct
taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a
whale of difference between [Ungab v. Cusi] and the case at bar.
[CIR v. Court of Appeals, GR No. 119322, 4 June 1996.]
*** In Adamson v. Court of Appeals, respondents were involved in sales of common shares of
stock for which they had paid capital gains tax and value-added tax. Later, the CIR sent them a
Notice of Taxpayer informing them of deficiencies on their payment of capital gains tax and
value-added tax. Meanwhile, the CIR filed a complaint for violation of the criminal provisions of
the Tax Code. Respondents sought to suspend the criminal proceedings as there was yet no final
assessment on their tax liability. (The Notice of Taxpayer they had earlier received was not
equivalent to a formal assessment.)
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The issue was whether the filing of the criminal complaints by the DOJ was premature for lack of
a formal assessment. The Supreme Court held that when fraudulent tax returns are involved, now
Section 222(a) of the 1997 Tax Code says that a proceeding in court for the collection of such
tax may be filed without assessment, at any time within ten (10) years from discovery of the
falsity, fraud or omission. An assessment of a deficiency is not necessary to a criminal
prosecution for willful attempt to defeat and evade the tax. Here, the Supreme Court said,
[a]rguably, the gross disparity in the taxes due and the amounts actually declared by the private
respondents constitutes badges of fraud. The Supreme Court likewise confirmed the applicability
of and upheld the decision in Ungab v. Cusi.
[Adamson v. Court of Appeals, GR No. 120935, 21 May 2009.]
[NOTE: Reconciling these three cases together, it appears that the general rule still is that a
gross disparity in the taxes due and the amounts actually declared by the taxpayer gives cause
for the CIR to pursue his/its criminal prosecution for filing a fraudulent tax return, regardless of
whether a deficiency assessment has been made.
The second case, CIR v. Court of Appeals, was decided differently because the facts surrounding
it varied from the situation in Ungab v. Cusi and Adamson v. Court of Appeals. In CIR v. Court of
Appeals, there arose a legal question on the proper tax base, i.e., whether it should be the (lower)
registered wholesale price or the (higher) actual wholesale price. Otherwise stated, the CIR failed
to point to a specific law or rule which required that the tax base must be the (higher) actual
wholesale price, non-compliance of which was tantamount to a criminal violation.]
Sec. 206, Constructive Distraint of the Property of A Taxpayer. - To safeguard the interest of the
Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or
any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the
Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending
to obstruct the proceedings for collecting the tax due or which may be due from him.
The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having
possession or control of such 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.
In case the taxpayer or the person having the possession and control of the property sought to be placed under
constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnessed,
leave a copy thereof in the premises where the property distrained is located, after which the said property shall
be deemed to have been placed under constructive distraint.

Q: Does a custodian of a distrained property, who is a private individual, become a public officer
for that purpose?
* In Azarcon v. Sandiganbayan, the BIR effected a constructive distraint over the truck owned by
a certain Ancla which was in the possession of Azarcon. The latter signed the receipt for the
distrained property. Later, a complaint was filed against Azarcon, a private individual, for
malversation of public funds. The issue was whether the Sandiganbayan had jurisdiction over the
person of Azarcon. (The Sandiganbayan generally has jurisdiction over crimes or offenses
committed by: (1) a public officer; and (2) a private individual when the complaint charges that
private individual either as a co-principal, accomplice, or accessory of a public officer.) The
Supreme Court ruled in the negative, stating that the BIRs power to authorize a private individual
to act as a depositary or custodian could not be stretched to include the power to appoint him as
a public officer.
[Azarcon v. Sandiganbayan, GR No. 116033, 16 February 1997.]
Sec. 207, Summary Remedies. 207(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or
delinquent revenue to pay the same at the time required, the Commissioner or his duly authorized representative,
if the amount involved is in excess of One million pesos (P1,000,000), or the Revenue District Officer, if the
amount involved is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels or
effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and
interests in and rights to personal property of such persons ;in sufficient quantity to satisfy the tax, or charge,
together with any increment thereto incident to delinquency, and the expenses of the distraint and the cost of the

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subsequent sale.
A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by the distraining
officer to the Revenue District Officer, and to the Revenue Regional Director: Provided, That the Commissioner or
his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of
Finance, upon recommendation of the Commissioner, have the power to lift such order of distraint: Provided,
further, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as
often as necessary.

207(B) Levy on Real Property. - After the expiration of the time required to pay the delinquent tax or
delinquent revenue as prescribed in this Section, real property may be levied upon, before simultaneously or
after the distraint of personal property belonging to the delinquent. To this end, any internal revenue officer
designated by the Commissioner or his duly authorized representative shall prepare a duly authenticated
certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him. Said
certificate shall operate with the force of a legal execution throughout the Philippines.
Levy shall be affected by writing upon said certificate 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 for 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.
In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on
personal property, and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the
Commissioner or his duly authorized representative shall, within thirty (30) days after execution of the distraint,
proceed with the levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to
the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the
Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That
the Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the
Secretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy
issued in accordance with the provisions hereof.

Sec. 208, Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall
make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a
copy of which, signed by himself, shall be left either with the owner or person from whose possession such
goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such
person and with someone of suitable age and discretion, to which list shall be added a statement of the sum
demanded and note of the time and place of sale.
Stocks and other securities shall be distrained by 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 or securities.
Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or
under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall
be sufficient authority to the person owning the debts or having in his possession or under his control any
credits belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits.
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. 209, Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer
or his duly authorized representative, other than the officer referred to in Section 208 of this Code shall,
according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the
Commissioner, forthwith cause a notification to be exhibited in not less than two (2) 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 (20) days after 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.

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Sec. 210, Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the
consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects
distrained shall be restored to the owner.

Sec. 211, Report of Sale to Bureau of Internal Revenue. - Within two (2) days after the sale, the
officer making the same shall make a report of his proceedings in writing to the Commissioner and shall himself
preserve a copy of such report as an official record.

Sec. 212, Purchase by Government at Sale Upon Distraint. - When the amount 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, the Commissioner or his deputy may purchase the same in behalf of the national
Government for the amount of taxes, penalties and costs due thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations
prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and
accounted for as internal revenue.

Sec. 213, Advertisement and Sale. - Within twenty (20) 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 a least thirty (30) days. It shall be
effectuated by posting a notice at the main entrance of the municipal building or city hall and in 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.
Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered
upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional
Director. The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make out
and deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the
property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and
interest: Provided, however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess
shall be turned over to the owner of the property.
The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection,
advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for in
this Code, including; the preservation or transportation in case of personal property, and the advertisement and
subsequent sale, both in cases of personal and real property including improvements found on the latter. In his
monthly collection reports, such advances shall be reflected and supported by receipts.

Sec. 214, Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent
taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the
public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together with
interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the
date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to
the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property,
and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property
has thus been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties.
The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the
rents and other income thereof until the expiration of the time allowed for its redemption.

Sec. 215, Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property
exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes,
penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the
Government in satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his
proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of the
Register of Deeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer
the title of the property forfeited to the Government without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by
paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall
become absolute.

Sec. 216, Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge of any real
estate obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costs
arising under this Code or in compromise or adjustment of any claim therefore, and said Commissioner may,
upon the giving of not less than twenty (20) days notice, sell and dispose of the same of public auction or with

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prior approval of the Secretary of Finance, dispose of the same at private sale. In either case, the proceeds of the
sale shall be deposited with the National Treasury, and an accounting of the same shall rendered to the Chairman
of the Commission on Audit.

Sec. 217, Further Distraint or Levy. - 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. 218, Injunction not Available to Restrain Collection of Tax. - No court shall have the authority
to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this
Code.

Q: Explain the governments policy on injunctions that restrain the collection of taxes.
* On whether the courts can restrain the collection of taxes on the ground that their validity is
disputed by the taxpayer, David v. Ramos answered in the negative. The case provided a survey
of cases discussing the prohibition against injunctions that restrain the collection of taxes,
eventually ruling that Courts of First Instance, now Regional Trial Courts, have no jurisdiction to
restrain the collection of taxes.
[David v. Ramos, GR No. L-4300, 31 October 1951.]
** In Angeles City v. Angeles Electric Corporation, the ruling of the Supreme Court was that the
prohibition on the issuance of a writ of injunction to enjoin the collection of taxes applied only to
national internal revenue taxes, not to local taxes. Section 218 of the 1997 Tax Code does not
have a counterpart provision in the 1991 Local Government Code. Thus, the Supreme Court
upheld the RTCs decision in ordering the issuance of the writ of preliminary injunction enjoining
Angeles City and its City Treasurer from levying, selling, and disposing the properties of Angeles
Electric Corporation. However, the High Court likewise noted that injunctions enjoining the
collection of local taxes are frowned upon.
[Angeles City v. Angeles Electric Corporation, GR No. 166134, 29 June 2010.]
*** Previously, Section 131 of the 1997 Tax Code exempted from payment of tax all importations
of cigars, cigarettes, distilled spirits, fermented liquors, and wines into the Subic Special
Economic Freeport Zone. Section 6 of RA No. 9334, which was enacted in 2005, amended
Section 131 of the 1997 Tax Code, effectively imposing tax on all importations of the
abovementioned products in to the Subic Special Economic Freeport Zone.
At issue in Republic v. Caguioa was the preliminary injunction granted by Judge Caguioa which
stayed the implementation of RA No. 9334. The Supreme Court nullified Judge Caguioas order
granting the preliminary injunction on the ground that no clear case of abuse was established.
Moreover, the Supreme Court stated that the suspension of the implementation of the assailed
law was tantamount to an injunction that restrained the collection of taxes.
[Republic v. Caguioa, GR No. 168584, 15 October 2007.]
Sec. 219, Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account
(cuentas en participacion), association or insurance company liable to pay an internal revenue tax, neglects or
refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines
from the time when the assessment was made by the Commissioner until paid, with interests, penalties, and
costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer:
Provided, That this 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.

Q: What is the nature of a tax lien?

* Does the lien for internal revenue tax follow the property subject to the tax into the hands of a
third party when at the time of transfer, no demand had been made and the purchaser had no
notice of the existence of the lien? In Hongkong & Shanghai Banking Corporation v. Rafferty, the
Supreme Court answered in this wise: When the Hongkong & Shanghai Banking Corporation
purchased and acquired these 2,000 ties in February 1015, there was nothing to show that
Pujalte & Co. were delinquent taxpayers [for forest charges]. No public record could be consulted
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to protect the purchaser from loss by reason of the existence of a secret lien. A business of
ordinary prudence could not be expected to foresee that the personal property which he had
taken in satisfaction of a debt was burdened by a tax. On this date, because no demand had
been made and because the plaintiff had no notice of the tax, there was no valid subsisting lien
upon the ties.
[Hongkong & Shanghai Banking Corporation v. Rafferty, GR No. L-13188, 15 November 1918.]
** In Republic v. Enriquez, the CIR served a warrant of distraint over two barges owned by
Maritime Company of the Philippines to satisfy various deficiency taxes of said company. Later,
the same two barges were subject to levy on execution by virtue of a civil case filed and won
against Maritime Company of the Philippines. The Supreme Court ruled that 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 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. Besides, the distraint was made
long before the writ of execution was issued to implement the levy on execution.
[Republic v. Enriquez, GR No. L-78391, 21 October 1988.]
*** Related to the previous case, in CIR v. NLRC, the CIR served a warrant of distraint over four
barges owned by Maritime Company of the Philippines to satisfy various deficiency taxes of said
company. Later, the same four barges were levied upon execution to satisfy a judgment for
unpaid wages and other benefits of employees of Maritime Company of the Philippines. Adopting
the rationale in Republic v. Enriquez, the Supreme Court held that 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 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. As in the previous case, here, the distraint was also
made long before the writ of execution was issued to implement the levy on execution.
[CIR v. NLRC, GR No. 74965, 9 November 1994.]
Sec. 220, 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 Bureau of Internal Revenue shall be brought in the name of the Government of the
Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but 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. 221, Remedy for Enforcement of Statutory Penal Provisions. - The remedy for enforcement
of statutory penalties of all sorts shall be by criminal or civil action, as the particular situation may require,
subject to the approval of the Commissioner.

Sec. 222, Exceptions as to Period of Limitation of Assessment and Collection of Taxes.

222(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may
be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.

Q: Cite instances when the ten-year prescriptive period to assess applies.

* Section 222(a) of the 1997 Tax Code specifies three instances when the running of the threeyear prescriptive period does not apply. They are: (1) filing a false return; (2) filing a fraudulent
return with intent to evade tax; and (3) failure to file a return. The period within which to assess
tax is ten years from discovery of the fraud, falsification, or omission. Thereafter, the CIR has
another five years to collect.
** In CIR v. Tulio, Tulio failed to file his tax returns (covering percentage taxes) for 1986 and
1987. In September 1989, the CIR discovered Tulios omission. Two final assessment notices
were issued in February 1991. The Supreme Courts ruling was that the two assessments were
issued well within the ten-year prescriptive period.
[CIR v. Tulio, GR No. 139858, 25 October. 2005.]
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222(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written
agreement made before the expiration of the period previously agreed upon.

Q: What is a waiver of the statute of limitations? What are the requirements for a valid waiver of
the statute of limitations?
* RMO No. 20-90 and RDAO No. 05-01 set the rules for the proper execution of the waiver.
Among these rules are the following:
(1) The waiver must be in proper form prescribed by RMO No. 20-90. The phrase but not after
___ [20___], which indicates the expiry date of the period agreed upon to assess/collect the
tax after the regular three-year period of prescription, should be filled up.
(2) The waiver must be signed by the taxpayer himself or his duly authorized representative.
(3) The waiver must be duly notarized.
(4) The CIR or the revenue official authorized by him must sign the waiver indicating the BIRs
acceptance and agreement to the waiver, and the date of such acceptance by the BIR should
be indicated.
(5) Both the date of execution by the taxpayer and the date of acceptance by the BIR should be
prior to the expiration of the period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.
(6) The waiver must be in three copies: the original copy to be attached to the docket of the case,
the second copy for the taxpayer, and the third copy for the Office accepting the waiver.
[Revenue Memorandum Order No. 20-90, 4 April 1990; Revenue Delegation Authority Order No.
05-01, 2 August 2001.]
** Philippine Journalists, Inc. v. CIR explained the rationale of a waiver of the statute of
limitations, thus: A waiver of the statute of limitations under the NIRC, to a certain extent, is a
derogation of the taxpayers right to security against prolonged and unscrupulous investigations
and must therefore be carefully and strictly construed. The waiver of the statute of limitations is
not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain. The waiver does not mean
that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the
language of the document is equivocal. For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure,
should be liberally construed in order to afford such protection. As a corollary, the exceptions to
the law on prescription should perforce be strictly construed.
In this case, the Supreme Court found that the waiver of the statute of limitations was invalid and
not binding for the following reasons: (1) the waiver did not specify a definite agreed date
between the BIR and the taxpayer within which the former could assess and collect revenue
taxes; (2) it was signed only by a revenue district officer, and not by the CIR; (3) the date of
acceptance by the BIR could not be ascertained; and (4) the taxpayer was not furnished a copy of
the waiver.
[Philippine Journalists, Inc. v. CIR, GR No. 162852, 16 December 2004.]
*** In the case of CIR v. FMF Development Corporation, the corporation filed its annual income
tax return in April 1996, followed by an amended return filed the next month. In February 1999,
the corporations president executed a waiver of the statute of limitations, which would have
extended the assessment period until October 1999. In dispute was the validity of the waiver. The
Supreme Court held that the waiver was incomplete and defective for non-compliance with the
procedures laid down in RMO No. 20-90, to wit: (1) the taxpayer was not furnished a copy of the
waiver; (2) the waiver was signed only by a revenue district officer, and not by the CIR; and (3) it
did not contain the date of acceptance by the BIR. Hence, the waiver did not validly extend the
assessment period.
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[CIR v. FMF Development Corporation, GR No. 167765, 30 June 2008.]

**** In CIR v. Kudos Metal Corporation, the CIR was unable to assess Kudos Metal Corporation
of its tax liability for the taxable year 1998 within the three-year prescriptive period stated in
Section 203 of the 1997 Tax Code. However, the corporations accountant executed two Waivers
of the Defense of Prescription on different dates. The CIR banked on these waivers to sustain the
validity of the assessment made against the corporation. The Supreme Court ruled against the
CIR as the two waivers were not compliant with the procedures laid down in RMO No. 20-90 and
RDAO No. 05-01. Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the CIR beyond the three-year period
and are void.
The Supreme Court enumerated the defects in the waivers, thus: (1) the waivers were executed
without the notarized written authority of the representative to sign the waiver in behalf of the
taxpayer; (2) the waivers failed to indicate the date of acceptance; and (3) the fact of receipt by
the taxpayer of its file copy was not indicated in the original copies of the waivers.
[CIR v. Kudos Metal Corporation, GR No. 178087, 5 May 2010.]
222(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in
paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years
following the assessment of the tax.

[NOTE: Recall that the government has either 3 years or 10 years to assess. In both cases, the
government has 5 years to collect.]
222(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period
agreed upon in writing before the expiration of the five (5)-year period. The period so agreed upon may be
extended by subsequent written agreements made before the expiration of the period previously agreed upon.

222(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be
construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with
the provisions of any tax amnesty law or decree.

Sec. 223, Suspension of Running of Statute of Limitations. - The running of the Statute of
Limitations provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy
a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which
the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in
court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a
tax is being assessed or collected: Provided, that, if the taxpayer informs the Commissioner of any change in
address, the running of the Statute of Limitations will not be suspended; when the warrant of distraint or levy is
duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and when the taxpayer is out of the Philippines. [Emphasis supplied.]

[NOTE: Remember that any suspension of the running of the statute of limitations works to the
detriment of the taxpayer in that the tax authorities are given more time to assess and/or to
collect.]
Q: Cite instances on the suspension or interruption of the running of statute of limitations. [Relate
the following cases to Section 222(c).]
* Bank of the Philippine Islands v. CIR is instructive on the topic of suspension of running of the
statute of limitations on collection. [This case was governed by the provisions of the 1977 Tax
Code.] In ruling that the governments right to collect had already prescribed, the Supreme Court
made the following points:
(1) A request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the
prescriptive periods for the assessment and collection of tax, will not suspend the running thereof.
(2) Even in the absence of a waiver, the running of the statute of limitations on assessment and
collection of taxes is considered suspended when the taxpayer requests for a reinvestigation
which is granted by the Commissioner. [Section 223, 1997 Tax Code.]
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(3) A request for reconsideration refers to a plea for a re-evaluation of an assessment on the
basis of existing records without need of additional evidence, while a request for reinvestigation
refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additional
evidence that a taxpayer intends to present in the reinvestigation.
(4) The request for reinvestigation must also be granted by the BIR Commissioner to suspend the
running of the statute of limitations. The burden of proof that the taxpayers request for
reinvestigation had been actually granted shall be on the BIR Commissioner.
(5) The Supreme Court had occasion to discuss the case of CIR v. Suyoc Consolidated Mining
Co. which provides one other exception to the statute of limitations on collection of taxes.
Generally, a request for reconsideration or reinvestigation by the taxpayer, in order to suspend
the running of the statute of limitations, must be preceded by a waiver of the statute of limitations.
According to CIR v. Suyoc Consolidated Mining Co., even in the absence of waiver, the taxpayer
may be estopped from raising the defense of prescription when by his repeated requests or
positive acts, he has induced government authorities to delay collection of the assessed tax.
[Bank of the Philippine Islands v. CIR, GR No. 139736, 17 October 2005, citing CIR v. Suyoc
Consolidated Mining Co., 104 Phil. 819 (1958).]
** Read also CIR v. Philippine Global Communications, Inc. where the Supreme Court said: In
this case, where the taxpayer merely filed two protest letters requesting for a reconsideration, and
where the BIR could not have conducted a reinvestigation because no new or additional evidence
was submitted, the running of statute of limitations cannot be interrupted. Consequently, the
governments right to collect the alleged deficiency tax was barred by prescription.
[CIR v. Philippine Global Communications, Inc., GR No. 167146, 31 October 2006.]
Sec. 224, Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures
of any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property. The
forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may require.

Sec. 225, When Property to be Sold or Destroyed. - Sales of forfeited chattels and removable fixtures
shall be effected, so far as practicable, in the same manner and under the same conditions as the public notice
and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment
of taxes.
Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used I or
about the illicit production of such articles may, upon forfeiture, be destroyed by order of the Commissioner,
when the sale of the same for consumption or use would be injurious to public health or prejudicial to the
enforcement of the law.
All other articles subject to excise tax, which have been manufactured or removed in violation of this Code, as
well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport
to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the Commissioner.
Forfeited property shall not be destroyed until at least twenty (20) days after seizure.

Sec. 226, Disposition of Funds Recovered in Legal Proceedings or Obtained from

Forfeitures. - All judgments and monies recovered and received for taxes, costs, forfeitures, fines and
penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required to
be paid, and except as specially provided, shall be accounted for and dealt with the same way.

Sec. 227, Satisfaction of Judgment Recovered Against any Internal Revenue Officer. - When
an action is brought against any Internal Revenue officer to recover damages by reason of any act done in the
performance of official duty, and the Commissioner is notified of such action in time to make defense against the
same, through the Solicitor General, any judgment, damages or costs recovered in such action shall be satisfied
by the Commissioner, upon approval of the Secretary of Finance, or if the same be paid by the person used shall
be repaid or reimbursed to him.
No such judgment, damages, or costs shall be paid or reimbursed in behalf of a person who has acted
negligently or in bad faith, or with willful oppression.
CHAPTER III PROTESTING AN ASSESSMENT, REFUND, ETC.

Sec. 228, Protesting of Assessment. - When the Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided, however,
That a preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as

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appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
(c) 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; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative
shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from
submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of
Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and demandable.

Assessment in general

Filing of return

Issuance of Letter of Authority (LA)

Audit
Notice of Informal Conference

Preliminary Assessment Notice (PAN)

Final Assessment Notice (FAN)

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When a Preliminary Assessment Notice is not required

Filing of return

Final Assessment Notice (FAN)

If protest is denied
Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

Relevant supporting documents are submitted within 60 days

CIR denies protest

Appeal to the CTA within 30 days

Appeal to the CTA En Banc

Appeal to the Supreme Court

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If protest is not acted upon

Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

Relevant supporting documents are submitted within 60 days

CIRs inaction for 180 days

Appeal to the CTA within 30 days

Appeal to the CTA En Banc

Appeal to the Supreme Court

When the taxpayer files the protest and submits his/her/its supporting documents on the same date, the one hundred
eighty-day period shall be reckoned from such date.

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Q: What is a Letter of Authority?
* Section 13 of the 1997 Tax Code provides that: Subject to the rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue
Officer assigned to perform assessment functions in any district may, pursuant to a Letter of
Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of
the district in order to collect the correct amount of tax, or to recommend the assessment of any
deficiency tax due in the same manner that the said acts could have been performed by the
Revenue Regional Director himself. In other words, the Letter of Authority (LA/LOA) is the
authority given to the revenue officer to perform assessment functions.
** A Letter of Authority should cover a taxable period not exceeding one taxable year. The
practice of issuing LAs covering audit of unverified prior years is prohibited. If the audit of a
taxpayer shall include more than one taxable period, the other periods shall be specifically
indicated in the LA.
[Revenue Memorandum Order No. 43-90, 20 September 1990.]
*** In CIR v. Sony Philippines, Inc., the relevant Letter of Authority covered the period 1997 and
unverified prior years. However, the deficiency VAT assessment the CIR arrived at was based
on records from January to March 1998. It was the CIRs contention that the LA, although it
stated the period 1997 and unverified prior years, should be understood to mean the fiscal year
ended 31 March 1998. The Supreme Court held that clearly, the CIR, acting through the revenue
officers, went beyond the scope of their authority as indicated in the LA. Hence, the deficiency
VAT assessment made on the basis thereof must be disallowed.
[CIR v. Sony Philippines, Inc., GR No. 178697, 17 November 2010.]
**** Effective 1 July 2010, the manual issuance of LAs has been discontinued. In place thereof,
electronic LAs shall be issued through the Letter of Authority Monitoring System (LAMS).
Q: What is a Letter Notice? Is it equivalent to a Letter of Authority?
* A Letter Notice is a discrepancy notice issued by the CIR after conducting data matching
processes, informing the taxpayer of findings of discrepancy, e.g., under-declared sales and overclaimed purchases. An LN shall cover only the tax indicated therein on a given particular period
rd
or quarter, e.g., VAT liabilities for 2002 3 quarter. Compared with a Letter of Authority, the
coverage of an LA is more comprehensive than that of an LN.
[Revenue Memorandum Order No. 42-2003, 23 October 2003.]
** RMO No. 55-10 provides that a Letter Notice shall be treated as a notice of audit or
investigation in the absence of evident error or clear abuse of discretion. In order to expedite the
processing of LN cases, the issuance of Notices of Informal Conference may immediately
commence, even without the prior issuance of Letters of Authority. On the basis of RMO No. 5510, it appears that an LN is effectively equated to an LA. [NOTE: Relate this revenue issuance to
Section 13 of the 1997 Tax Code which essentially states that a revenue officer shall be
authorized to perform assessment functions on the strength of an LA, and not merely an LN.]
[Revenue Memorandum Order No. 55-10, 11 June 2010.]
Q: What constitutes a valid assessment?
* The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an assessment would
be made. In CIR v. Reyes, the Supreme Court spoke of the now mandatory requirement to inform
the taxpayer of the law and the facts on which the assessment is made. It said: To be simply
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informed in writing of the investigation being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the
law and the facts on which the assessment was based. It does not at all conform to the
compulsory requirement under Section 228.
[CIR v. Reyes, GR No. 159694, 27 January 2006.]
Q: Discuss the rule that all presumptions are in favor of the correctness of a tax assessment. Is
there an exception to the rule?
* In Sy Po v. Court of Tax Appeals, the late Po Bien Sing was the sole proprietor of Silver Cup
Wine Factory, engaged in the manufacture and sale of compounded liquors. He was assessed
deficiency income tax and specific tax for various years after the BIR conducted investigation. At
issue was whether the deficiency assessments had valid and legal bases. In ruling that the
deficiency assessments were valid, the Supreme Court noted that the BIRs resort to the best
evidence obtainable was warranted by the circumstances as the taxpayer failed to respond to
the BIRs subpoena duces tecum. Moreover, the High Court found that the tax figures arrived at
by the CIR after investigation were by no means arbitrary as they were made on the basis of the
quantity of wine bottles seized during the raid conducted, as well as sworn statements of the
proprietorships former employees. Tax assessments by tax examiners are presumed correct
and made in good faith. The taxpayer has the duty to prove otherwise.
[Sy Po v. Court of Tax Appeals, GR No. L-81446, 18 August 1988.]
** In CIR v. Hantex Trading Co., Inc., the taxpayer was engaged in the importation of synthetic
resin. Prompted by confidential information that the taxpayer under-declared its importations for
1987, the CIR issued subpoena duces tecum and ad testificandum against it. However, the
taxpayer failed to comply with said subpoena. The CIR then issued a deficiency income tax
assessment on the basis of photocopies of import entries and financial statements. The Supreme
Court held that under Section 16 of the 1977 Tax Code (now Section 6 of the 1997 Tax Code),
best evidence obtainable does not include mere photocopies of records or documents.
Moreover, while the Supreme Court agreed that as a general rule, tax assessments by tax
examiners are presumed correct and made in good faith, the rule does not apply when the CIR
comes out with a naked assessment, i.e., an assessment that is without any foundation and
hence, arbitrary and capricious.
[CIR v. Hantex Trading Co., Inc., GR No. 136975, 31 March 2005.]
Q: Is receipt by the taxpayer of the Final Assessment Notice, without the Preliminary Assessment
Notice, sufficient?
* In CIR v. Metro Star Superama, Inc., the taxpayer received a Final Assessment Notice, but
denied receiving a Preliminary Assessment Notice. The issue was whether receipt of only the
FAN amounted to a denial of due process. The Supreme Court answered in the affirmative, thus:
Indeed, 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. To proceed heedlessly with tax collection without first establishing
a valid assessment is evidently violative of the cardinal principle in administrative investigations
that taxpayers should be able to present their case and adduce supporting evidence.
[CIR v. Metro Star Superama, Inc., GR No. 185371, 8 December 2010.]
Q: What happens when a taxpayer fails to timely protest an assessment? [NOTE: Remember that
appealable to the CTA is a decision that refers not to the assessment itself, but to one made on
the protest against such assessment.]
* In CIR v. Bank of the Philippine Islands, the taxpayer failed to timely file a protest on the
assessment made against it. The Supreme Court discussed the implications of a taxpayers
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failure to protest an assessment within the thirty-day period. (1) The assessment shall become
final. The taxpayer will then be barred from disputing the correctness of the assessment or
invoking any defense that will reopen the question of its liability on the merits. (2) There arises a
presumption of correctness of the tax assessment.
[CIR v. Bank of the Philippine Islands, GR No. 134062, 17 April 2007.]
** When a taxpayer files a protest and the CIR acts upon said protest, the taxpayer has 30 days
from receipt thereof to file a judicial claim. If the protest is not acted upon within 180 days from
submission of documents, the taxpayer has 30 days from the lapse thereof to file a judicial claim.
In CIR v. Isabela Cultural Corporation and Oceanic Wireless Network, Inc. v. CIR, the Supreme
Court stated that a final demand letter for payment of delinquent taxes may be considered a
decision on a disputed or protested assessment, and thus may be appealed to the CTA, if the
letter indicates to the taxpayer in clear and unequivocal language that it constitutes the CIRs final
action on the disputed assessment.
[CIR v. Isabela Cultural Corporation, GR No. 135210, 11 July 2001; Oceanic Wireless Network,
Inc. v. CIR, GR No. 148380, 9 December 2005.]
*** In Allied Banking Corporation v. CIR, a Preliminary Assessment Notice was sent to Allied
Banking Corporation for deficiency documentary stamp tax and gross receipts tax. Petitioner filed
a protest against it. Thereafter, petitioner received a Formal Letter of Demand with Assessment
Notices, in response to which petitioner filed a claim with the CTA. At issue was whether in filing
the judicial claim, without filing a protest against the Formal Letter of Demand, petitioner failed to
exhaust its administrative remedies.
The Supreme Court held that procedurally, it is the FAN, and not the PAN, which should be
protested administratively. If the rules were to be strictly applied, the dismissal of the judicial claim
was proper for failure to exhaust administrative remedies. However, the Supreme Court likewise
held that the case constituted an exception to the rule on exhaustion of administrative remedies,
i.e., estoppel on the party of the administrative agency concerned. The Formal Letter of Demand
could be considered a final decision of the CIR appealable to the CTA because the words used
taken together led petitioner to believe that it was the final decision of the CIR on the letter-protest
it filed and that the available remedy was to appeal the same to the CTA.
[Allied Banking Corporation v. CIR, GR No. 175097, 5 February 2010.]
Q: What happens when a taxpayer fails to timely appeal to the CTA?
* When a taxpayer files a protest, he has 60 days from filing of the protest to submit all relevant
supporting documents. If the protest is not acted upon within 180 days from submission of
documents, the taxpayer has 30 days from the lapse thereof to file a judicial claim. In Rizal
Commercial Banking Corporation v. CIR, the taxpayer failed to appeal to the CTA within 30 days
upon the lapse of 180 days from submission of documents. The Supreme Court held that
compliance with the thirty-day period was jurisdictional. As a consequence of the taxpayers
failure to appeal to the CTA within the thirty-day period, the assessment became final, executory,
and demandable.
[Rizal Commercial Banking Corporation v. CIR, GR No. 168498, 16 June 2006, citing Ker &
Company, Ltd. v. Court of Tax Appeals, GR No. L-12396, 31 January 1962.]
** When a taxpayer files a protest, he has 60 days from filing of the protest to submit all relevant
supporting documents. If the protest is not acted upon within 180 days from submission of
documents, the taxpayer has 30 days from the lapse thereof to file a judicial claim. In CIR v. First
Express Pawnshop Company, Inc., the taxpayer filed its protest and submitted all relevant
supporting documents on the same date. Within 30 days upon the lapse of 180 days from that
date, the taxpayer appealed to the CTA. The issue was whether the judicial claim was premature.
The Supreme Court ruled that the starting point of the 180 days was the date the protest and the
relevant supporting documents were simultaneously filed. Hence, the judicial claim was not
premature.
Additionally, the Supreme Court indicated that the term relevant supporting documents were
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those documents necessary to support the legal basis in disputing a tax assessment as
determined by the taxpayer. The BIR can only inform the taxpayer to submit additional
documents. The BIR cannot demand what type of supporting documents should be submitted.
Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit.
[CIR v. First Express Pawnshop Company, Inc., GR No. 172045, 16 June 2009.]
Sec. 229, Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority,
of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any
sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid.

Procedure for recovery of internal revenue tax

Payment

Administrative claim filed with the CIR within 2 years

Claim is denied

Claim is not acted upon

Appeal to the CTA within 30 days

but always within 2 years from payment
Judicial claim filed with the CTA
within 2 years from payment

CIR v. PNB (G.R. No. 161997, Oct. 25, 2005): When the taxpayer files a claim for refund of its advance income tax
payment, i.e. a lump sum payment to cover future tax obligations, and not for the recovery of erroneously, excessively,
illegally or wrongfully collected tax or penalty, the 2-year prescriptive period does not apply. Instead, Article 1144 of the
Civil Code prevails and that period would be 10 years.

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Q: When does the two-year prescriptive period under Section 204 in relation to Section 229
apply? When does it not apply?
* A taxpayer claiming for a tax refund or credit of creditable withholding tax must comply with the
following requisites:
(1) The administrative and judicial claims must be filed within two years from the date of payment
of the tax [Section 229, 1997 Tax Code];
(2) It must be shown on the return that the income received was declared as part of the gross
income [RR No. 6-85]; and
(3) The fact of withholding must be established by a copy of a statement duly issued by the payor
to the payee showing the amount paid and the amount of the tax withheld [RR No. 6-85].
In CIR v. Far East Bank & Trust Company, while the taxpayer timely filed its claim for refund, it
failed to prove that its income derived from rentals and sale of real property was included in its
gross income as reflected in its return. It also failed to prove the fact of withholding as ordinarily
established by Certificates of Creditable Tax Withheld at Source.
[CIR v. Far East Bank & Trust Company, GR No. 173854, 15 March 2010.]
** Sometime in 1985, RMC No. 7-85 was issued. It stated that overpaid income taxes were not
covered by the two-year prescriptive period under the 1977 Tax Code and that taxpayers could
claim tax refunds or credits for the excess quarterly income tax with the BIR within 10 years under
Article 1144 of the Civil Code. Later, RMC No. 7-85 was nullified for being inconsistent with the
1977 Tax Code. In Philippine Bank Communications v. CIR, petitioners claim was filed beyond
the two-year prescriptive period, but within the ten-year period. Having relied on RMC No. 7-85,
petitioner invoked the applicability of said nullified revenue issuance. The Supreme Court denied
petitioners claim.
[Philippine Bank Communications v. CIR, GR No. 112024, 28 January 1999.]
*** In CIR v. Philippine National Bank, the bank issued to the BIR a check for Php 180 million,
representing its advance income tax payment for its 1991 operations and was remitted in
response to the late President Aquinos call to generate more revenues for national development.
Thereafter, the bank requested that it be allowed to apply its unutilized advance income tax
payment of about Php 73.3 million to its future gross receipts tax liability. The CIR denied the
banks request. The bank appealed to the CTA, but the latter dismissed the judicial claim for
having been filed beyond the two-year prescriptive period under Section 229 of the 1997 Tax
Code. The Supreme Court ruled in favor of the bank, holding that an availment of tax credit due
for reasons other than the erroneous or wrongful collection of taxes, as in this case, would not be
covered by the two-year prescriptive period. By virtue of Article 1144 of the Civil Code, the period
would be 10 years. Hence, the banks claim for tax credit was not yet barred by prescription.
[CIR v. Philippine National Bank, GR No. 161997, 25 October 2005.]
**** The issue in CIR v. Mirant Pagbilao Corporation revolved around whether MPC was entitled
to a claim for tax refund or credit of unutilized input VAT from 1993 to 1996. In ruling that MPCs
claim was filed out of time, it applied the two-year prescriptive period under Section 112(A) of the
1997 Tax Code (the starting point of which is the close of the taxable quarter when the sales
where made). Corollarily, the Supreme Court held that the two-year prescriptive period under
Section 204(C) of the 1997 Tax Code (which commences from the date of payment of the tax),
was inapplicable as it pertained to taxes erroneously or illegally paid.
[CIR v. Mirant Pagbilao Corporation, GR No. 172129, 12 September 2008; also, CIR v. Aichi
Forging Company of Asia, Inc., GR No. 184823, 6 October 2010.]
Q: Who may file a claim for tax refund or credit under this provision?
* Silkair (Singapore) Pte. Ltd. was involved in a series of claims for tax refund or credit for excise
taxes paid on its purchases of aviation jet fuel from Petron Corporation for different taxable
periods. Silkairs main argument was that it was exempt from payment of excise tax by virtue of
Section 135(b) of the 1997 Tax Code and Article 4(2) of the RP-Singapore Air Transport
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Agreement. As between Petron, the seller, and Silkair, the buyer, the latter contended that in
reality, it paid the excise taxes due on the transactions because said taxes, being indirect taxes,
were made part of the purchase price of the aviation jet fuel.
The Supreme Court ruled that based on Section 204(c) of the 1997 Tax Code, the statutory
taxpayer (Petron in this case, being the manufacturer of the aviation jet fuel) was the proper party
that can claim the refund. Section 204(C) of the 1997 Tax Code states in part: No credit or
refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or
penalty:
[Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 171383, 14 November 2008; Silkair (Singapore) Pte.
Ltd. v. CIR, GR No. 184398, 25 February 2010.]
** On the basis of CIR v. Smart Communications, Inc., the person entitled to claim a tax refund is
the taxpayer. However, in case the taxpayer does not file a claim for refund of withholding taxes,
the withholding agent may file the claim. For this purpose, the taxpayer and the withholding agent
need not be related parties. In view of the foregoing, Smart Communications, Inc. as withholding
agent was allowed to file the claim for tax refund on behalf of Prism Transactive (M) Sdn. Bhd., a
Malaysian corporation.
[CIR v. Smart Communications, Inc., GR Nos. 179045-46, 25 August 2010.]
Q: What are the special rules in computing the two-year prescriptive period for filing suit?
In the case of corporations
Tax paid in installments
Sale of property levied, seized or distrained
Purchase by or forfeiture in favor of
Government
Excise tax on domestic petroleum products
Excise tax on imported petroleum products
Value-added tax and other percentage taxes

the

From the time of filing of Final

Adjustment Return and final
payment of tax
From the time of payment of
last installment
At the time of application of
proceeds to tax deficiency
At the time of purchase or
forfeiture
At the time of removal from
place of production
At the time of release from
customshouse
From the time of filing of
quarterly VAT return, i.e. within
25 days after the close of each
taxable quarter

Sec. 230, Forfeiture of Cash Refund and of Tax Credit.

230(A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the pertinent
provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date the said
warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof
shall revert to the general fund.

230(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent
provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall, unless
revalidated, be considered invalid, and shall not be allowed as payment for internal revenue tax liabilities of the
taxpayer, and the amount covered by the certificate shall revert to the general fund.

230(C) Transitory Provision. - For purposes of the preceding Subsection, a tax credit certificate issued by
the Commissioner or his duly authorized representative prior to January 1, 1998, which remains unutilized or has
a creditable balance as of said date, shall be presented for revalidation with the Commissioner or his duly
authorized representative or on before June 30, 1998.

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Sec. 231, Action to Contest Forfeiture of Chattel. - In case of the seizure of personal property under
claim of forfeiture, the owner desiring to contest the validity of the forfeiture may, at any time before sale or
destruction of the property, bring an action against the person seizing the property or having possession thereof
to recover the same, and upon giving proper bond, may enjoin the sale; or after the sale and within six (6)
months, he may bring an action to recover the net proceeds realized at the sale.

Q: Does a taxpayer have any other remedy apart from those provided in the 1997 Tax Code?
* Every so often, to enhance revenue administration and collection, the National Government
enacts tax amnesty laws covering unpaid internal revenue taxes for specific taxable periods. For
example, see RA No. 9480, a tax amnesty law covering the taxable year 2005 and prior years.
Under Section 6(a) of RA No. 9480, the taxpayer shall be immune from the payment of taxes, as
well as additions thereto, and the appurtenant civil, criminal or administrative penalties under the
1997 Tax Code arising from the failure to pay any and all internal revenue taxes for taxable year
2005 and prior years.
[Republic Act No. 9480, 24 May 2007.]
** In Philippine Health Care Providers, Inc. v. CIR, the Supreme Court categorically stated that
documentary stamp taxes are within the coverage of RA No. 9480. Hence, in view of the
taxpayers compliance with the requirements of said tax amnesty law, its tax liabilities were
extinguished.
[Philippine Health Care Providers, Inc. v. CIR, GR No. 167330, 18 September 2009.]

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======
Sec. 246, Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the preceding Sections or any of the rulings or circulars
promulgated by the Commissioner shall not be given retroactive application if the revocation, modification or
reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any document required of
him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from the
facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.

Q: Discuss the rule on non-retroactivity of rulings.

* Rulings or circulars promulgated by the CIR have no retroactive application where to so apply
them would be prejudicial to taxpayers. In ABS-CBN Broadcasting Corporation v. Court of Tax
Appeals, the Supreme Court disallowed the retroactive application of a Revenue Memorandum
Circular because to do so would hold the taxpayer liable for deficiency withholding income taxes
three years after the fact. The taxpayer was no longer in a position to withhold taxes due from
foreign corporations because it had already remitted all film rentals and no longer had any control
over them.
[ABS-CBN Broadcasting Corporation v. Court of Tax Appeals, GR No. L-52306, 12 October
1981.]
** In several cases, the retroactive application of revenue issuances was disallowed because the
taxpayer would have suffered substantial economic prejudice, i.e., assessment and payment of
deficiency taxes in large sums. [CIR v. Burroughs Limited, GR No. L-66653, 19 June 1986; CIR v.
Benguet Corporation, GR No. 145559, 14 July 2006.]
*** As a general rule, issuances by the BIR shall not be given retroactive application if it would be
prejudicial to the taxpayer, except when, for instance, the taxpayer acted in bad faith. In CIR v.
Court of Appeals, the Supreme Court had occasion to say that there must be convincing evidence
of bad faith which imports dishonest purpose or some moral obliquity and conscious doing of
wrong. It partakes of the nature of fraud; a breach of a known duty through some motive of
interest or ill will. In this instance, the Supreme Court found that the taxpayer was not guilty of
acting with bad faith.
On the other hand, CIR v. Philippine Health Care Providers, Inc. defined good faith as "that state
of mind denoting honesty of intention and freedom from knowledge of circumstances which ought
to put the holder upon inquiry; an honest intention to abstain from taking any unconscientious
advantage of another, even through technicalities of law, together with absence of all information,
notice, or benefit or belief of facts which render transaction unconscientious." Likewise in this
case, the Supreme Court found that the taxpayer was not guilt of acting with bad faith.
[CIR v. Court of Appeals, GR No. 117982, 6 February 1997; CIR v. Philippine Health Care
Providers, Inc., GR No. 168129, 24 April 2007.]
**** An administrative rule interpretative of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of effectivity of the statute. In
CIR v. Reyes, a Revenue Regulation issued in September 1999 was made to retroact to 1
January 1998, i.e., the date of effectivity of the 1997 Tax Code.
[CIR v. Reyes, GR Nos. 159694 & 163581, 27 January 2006.]

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