Tax 1 Law on Income Taxation

Francis Manabat Javier, CPA

GENERAL PRINCIPLES OF MODERN

TAXATION
A. Define Taxation
1. As a state power: Taxation refers to the inherent power of a sovereign state acting through its legislature to
impose a proportionate burden upon persons, property rights or transaction to raise revenue to support
government expenditure and as a tool for general and economic welfare.
2. As a process: Taxation refers to the act of imposing a tax by a sovereign state to raise revenue for the use
and support of the government.
B. What are the PURPOSES of taxation?
1. Primary purposes: to raise funds for the expenses of the government: ( also called Revenue purpose)
2. Secondary purpose: as a tool for general, social and economic welfare (also called Regulatory /
Sumptuary / Compensatory purpose)
3. Other purpose: promotion of general welfare, reduction of social inequality, encourages economic growth
and protectionism.
C. IMPORTANCE of taxes
Taxes are important because they are the lifeblood of the Government and so should be calculated without
unnecessary hindrance.
D. Give the NATURE or CHARACTERISTICS of the taxing power
1. It is inherent power of a sovereign state being inherent in sovereignty, the state has the power to
tax even if not expressly granted by the constitution.
2. It is legislative in character taxation is generally exercised by the law-making body of a state.
3. It is subject to inherent and constitutional limitations.
E. What is SCOPE of the power of taxation?
In the absence of inherent and constitutional limitations, the power to tax is comprehensive and unlimited.
It is so comprehensive that in the words of justice Marshall of US Supreme Court, the power to tax includes
the power to destroy. It is an awesome power.
Scope of the legislative taxing power:
1. Subject of Taxation - The person, property, or occupation to be taxed.
2. The amount or rate of tax
3. The purpose for which taxes shall be levied provided they are public purpose
4. The kind of tax to be collected
5. The apportionment of the tax
6. The situs of taxation
7. The method of collection.
F. Where does the power of taxation proceed from?
It proceeds from the necessity of the existence of the government, and since it exists for the people, it can
compel them to pay taxes.
G. What is the basis of taxation?
The reciprocal obligation of protection and support between the state and its citizens. In return for the
protection provided by the state, the people pay taxes. Benefit Protection Theory.
H. Power of judicial REVIEW
Courts cannot inquire into the wisdom of a taxing act. As long as the legislature, in imposing a tax, does
not violate applicable constitutional limitations or restrictions, the courts have no concern with the wisdom
or policy of the exaction, the political or other collateral motives behind it, the amount to be raised, or the
persons, property or other privileges to be taxed.
I. CANONS of tax
1. Proportional to ones ability to pay
2. Certain and not arbitrary
3. Convenient to pay
4. Economical to collect
J. Construction of tax laws
1. Tax laws are prospective, generally.
2. Tax exemptions to be construed strictly.
K. What are the three inherent powers of the state?
1. Taxation
2. Police Power
3. Power of Eminent Domain
L. Give the similarities and distinctions of Taxation, Police Power and Power of Eminent Domain.
Three inherent powers of a state:
1. Power of taxation refer to letter A
2. Power of Eminent Domain it refers to the inherent power of a sovereign state to take private
property for public use upon payment of a just compensation.
3. Police power it refers to the inherent power of a sovereign state to enact laws to promote public
health, public safety, public morals and the common good.
SIMILARITIES:
1. They are indispensable to government existence.
2. They can exist independent of the constitution.
3. They are means by which the state interferes with private rights and properties.

4.
5.

They are generally exercised by the legislature.

They contemplate an equivalent compensation or benefit.

DISTINCTIONS:
Taxation

6
7

Eminent Domain

Police Power

1. As to subject

Imposed upon
persons, property,
rights or transaction

Imposed Upon
private real
properties.

Imposed Upon
persons, property,
Rights or transaction

2. As to purpose

To raise revenue for

government expenses

To acquire
private property
for public use

3. As to limitation

Generally unlimited

Limited to the
fair value of the
expenses of
regulation

4. As to act
involved

Taxpayer pays
taxes

Private property
is taken for
public use

Enforcement of laws
for public welfare
& common good

5. As to benefits
received by the
people

Protection & other

benefits from the
government

Person receives
a just compensation

Protection & other

benefits from the
government

6. As to relationship to non-impairment clause

of the constitution

Inferior

Superior

Superior

For regulation
and control
Limited to the cost of
license fee and other
property control

M. Enumerate and briefly define the principles/characteristics of a SOUND TAX SYSTEM

1. Fiscal adequacy The source of revenue as a whole should provide enough funds to meet the
various expenditures of the government.
2. Administrative feasibility and compliance Tax laws should be easy to understand, capable of
enforcement by the administrative personnel and convenient to the taxpayers as to the modes and
methods and time of payment.
3. Theoretical justice and equality Taxes should be imposed equitably based on the taxpayers
ability to pay and benefits received.
4. Consistency or compatibility with economic goals Tax laws should be consistent with the
economic goals of the state.
N. What are the limitations on the power of taxation?
1. Inherent limitations - those that restrict the power of taxation even though not provided in the
constitution.
a. Taxes must be for public purpose.
b. Exemption of government agencies and instrumentalitities from taxation.
c. Power to tax cannot be delegated to private persons or entities.
d. Tax laws do not apply to properties of foreign government.
e. Tax laws should be applied within the territorial jurisdiction of the state.
f. Double taxation should be avoided.
2.

3.

Constitutional limitations those that limit the power of taxation as embodied in the constitution.
a. Due process of law in taxation and equal protection of the laws.
b. Rule on uniformity and equity in taxation.
c. No imprisonment for non-payment of poll tax.
d. Non-impairment of the obligation of contracts.
e. No appropriation of public money for religious purposes.
f. Exemption of religious, charitable, educational entities, non-profit cemeteries and churches
from property taxation.
g. Exemption from taxation of non-stock, non-profit educational institutions and donations for
educational purposes.
h. Concurrence by a majority of the members of Congress for passage of a law granting tax
exemption.
i. The power of the President to veto a revenue or tariff bill.
j. Non-impairment of the jurisdiction of Supreme Court in tax cases.
Contractual limitations these are restrictions on the taxing power imposed by previously
existing contracts entered into by the government with another party who may be another state or
its own citizens.
a. Franchise granted to its citizen
b. Service contracts on petroleum and other energy operations
c. Agreement with the Asian Development Bank.

O. Give the steps/stages involved under taxation system.

Taxation involves two phases:
1st : Levying or imposition of taxes which is a legislative act
2nd : Collection of taxes an administrative act
a. Assessment
b. Actual tax collection
c. Enforcement of tax laws/criminal prosecution for willful violation of tax laws
P. Define TAXES
Taxes are enforced proportional contributions levied by the state for the support of the government.
Q. What are the essential characteristics, requisites or elements of a tax?
a. A tax is an enforced contribution.
b. It is proportionate in character.
c. It is imposed pursuant to a legislative authority.
d. It is imposed for public purpose.
e. It is generally payable in money.
f. It is levied within the territorial and legal jurisdiction of a state.
R. CLASSIFICATION of taxes
1. What are the kinds of taxes as to subject matter?
a. Personal, poll or capitation tax tax imposed on persons residing within a specified
territory.
Example: Basic Community tax
b. Property tax tax imposed on property, whether real or personal.
Example: Real estate tax
c. Excise tax tax imposed on the exercise of a right or privilege.
Also called Privilege tax
Example: Income tax, estate tax, donors tax, etc.,
2. What are the kinds of taxes as to who bears the burden?
a. Direct tax - tax imposed upon a person who is directly bound to pay it; tax which the
taxpayer cannot shift to another.
Example: Income tax, estate tax, donors tax
b. Indirect tax tax which forms part of the purchase price; tax which the taxpayer can shift
to another.
Example: Excise tax on certain goods, other percentage taxes,
value added tax
3. What are the kinds of taxes as to determination of amount?
a. Specific tax tax based on weight, number or some other standards of weight or
measurement.
Example: Excise tax on distilled spirits, wines, cinematographic films
b. Advalorem tax tax imposed based on the value of the taxable item.
Example: Real state tax
4. What are the kinds of taxes as to purpose?
a. General tax tax imposed for general purposes of the government.
Example: Income tax, value added tax
b. Special tax tax imposed for a special purpose or purposes.
Example: Protective tariff and customs duties,
Special Educational Fund (SEF) Tax,
Special assessments
5. What are the kinds of taxes as to jurisdiction /scope or authority imposing tax?
a. National tax tax imposed on a national and for the national/government.
Example: National Internal Revenue taxes
b. Local tax tax imposed on a local level for the support of local governments.
6. What are the kinds of taxes as to graduation or rate?
a. Proportional tax the tax rate of which is fixed or constant.
Example: Corporate Income Tax, value added tax
b. Progressive tax - the tax rate increases as the taxable amount or tax bracket increases.
Example: Individual income tax, estate tax, donors tax
c. Regressive tax the tax rate decreases as the taxable amount or tax bracket increases.
O. Tax distinguished from OTHER CHARGES and FEES
1. Differentiate tax from toll
TAX
TOLL
a. Demand of sovereignty
b. Generally amount is unlimited

Demand of proprietorship
Amount is limited to the cost and
maintenance of public improvement.
For the use of anothers property
May be imposed by private
individuals or entities

c. For the support of the government

d. May be imposed by the State only

2. Differentiate tax from special assessment

TAX
SPECIAL ASSESSMENT
a. Imposed on persons, property rights
or transactions
b. For the support of the government

Levied only on Lands

Contribution to the cost of
public improvement

c. Regular exaction

Exceptional as to time
and place

3.
TAX
8
9
10

Differentiate tax from license fee

LICENSE FEE

a. Imposed to raise revenue

b. Collected under the power
of government
c. Generally amount is unlimited

For regulation and control

Collected under the police power
11

d. Imposed on persons, property,

rights or transaction
e. Non-payment does not make
the business illegal
4.
TAX
12

Limited to the necessary expenses

of regulation and control
Imposed on the exercise of a
right or privilege
Non-payment makes the
business illegal

Differentiate tax from penalty

PENALTY

a. Imposed to raise revenue

b. May be imposed by the
State only

Imposed to regulate conduct

May be imposed by the
private entity

5. Differentiate tax from customs duty

TAX
CUSTOMS DUTY
a. Imposed upon persons, property,
rights or transactions
b. It comprehends more than the
term customs duty
6.

Imposed on imported or
exported goods
It is also a tax

Differentiate tax from debt

TAX

DEBT

a. Based on law
b. Not assignable
c. Payable in money
d. Not subject to set-off
e. Non-payment may result to
Imprisonment
f. Bears interest only if
delinquent

Based on contract
Assignable
Payable in kind or in money
Subject to set-off
No imprisonment (except when
debt arises from crime)
Interest depend upon the
stipulation of the parties.

7.

Differentiate tax from tithe

TAX
a. Based on law
b. Rates vary

TITHE
Based on religious obligation
Generally fixed at 10% of ones earnings

P. DOUBLE TAXATION
Direct double taxation means taxing twice, on the same purpose, in the same year. To constitute double
taxation the two or more taxes must be:
1.
2.
3.
4.

Imposed on the same property

By the same state or government
During the same taxing period, and
For the same purpose.

Q. Tax Administration
It is a system involving assessment, collection and enforcement of taxes, including the execution of judgment
in all tax cases decided in favor of the BIR by the courts.
R. Powers and duties of the BIR
1.
2.
3.
4.

Assessment and collection of all national internal revenue taxes, fees and charges
Enforcement of all forfeitures, penalties and fines connected therewith
Execution of judgment in all cases decided in its favor by CTA and ordinary courts
Give effect to and administer the supervisory and police power conferred to it by the NIRC or
other laws.

S. Chief official of the BIR

The BIR shall have a chief to be known as Commissioner of internal revenue and four assistant chiefs to be
known as Deputy Commissioners.

TAX ADMINISTRATION AND REMEDIES

1.

What are the government agencies involved in Tax Administration?

a. The Bureau of internal Revenue for NIR Taxes
b. The Bureau of Customs for customs & tariff duties
c. The Provincial, city and municipal assessors and Treasurers for local and real property taxes

2.

Who are the Agents and deputies of the BIR Commissioner?

a. The commissioner of Customs and his subordinates for internal revenue taxes on imported goods
b. The head of the appropriate government office & his subordinate for collection of energy tax
c. Banks duly accredited by the BIR for receipt of internal revenue taxes.

3.

What is assessment? It is the official action of an administrative officer in determining the amount of tax due
from a taxpayer.

4.

What are the kinds of assessments?

1. Self-assessment the tax is assessed by the taxpayer himself
2. Deficiency assessment the tax is assessed by the tax assessor himself
3. Void assessment an assessment wherein the tax assessor has no power to act at all.
4. Erroneous assessment an assessment wherein the assessor the power to assess but commits an error in the
exercise of that power.

5.

What are the means employed in the assessment of taxes?

a. Examination of tax returns (tax-audit)
b. Inventory taking surveillance and use of presumptions gross sales or receipts
c. Prescription of real property values
d. Examination of bank deposits to determine the correct amount of goods estate
e. Requiring of additional documentary evidences

6.

When may the BIR

Ans. Any of the following:
a. When the taxpayer is retiring from business subject to tax
b. When he intends to leave the Philippines
c. When he removes his property from Philippines
d. When he hides or conceals his property
e. When he performs any act tending to obstruct the proceeding for collection of taxes

7.

What is the minimum requirement under the tax code on keeping of Books of Accounts and Records?
Ans. All corporation, companies, partnership or person required by law to pay internal revenue taxes shall keep a
journal and a ledger or their equivalent.

8.

What if the taxpayers quarterly sales receipts or earnings do not exceed P50,000? Ans. The taxpayer is only
required to keep a simplified set of bookkeeping records duly authorized by the Sec. of Finance.

9.

What if the taxpayers quarterly sales, receipts or earnings exceed P150,000?

Ans. The taxpayer is required:
a. To have his books of account audited and examined yearly by an independent CPA
b. The ITR should be accompanied with certified Balance Sheet, Income Statement and schedules or listing of
income producing properties and the corresponding income therefrom.

10. What are additions to the tax?

Ans. They are increments to the basic tax incident to the taxpayers non-compliance w/ certain legal
requirements. They are
a. Civil penalties known as surcharge w/c may either be 25% or 50%
b. Interest either for a deficiency tax or delinquency tax
c. Other civil penalties or administrative fines
11. When is 25% surcharge imposable?
Ans. In the following cases: (25% for each violation)
a. Failure to file the required tax return on time & pay the tax thereon
b. Filing a return with the wrong internal revenues office
c. Failure to pay the deficiency tax within the time prescribed
d. Failure to pay the full amount of tax shown on the return within the time prescribed (25% on the unpaid
balance only)
12. When is the 50% surcharge imposable?
Ans. In any of the following cases:
a. In case of willful neglect to file the return within the period prescribed
b. In case false or fraudulent return is willfully made
13. What is interest and at what rate?

Ans. It is an increment on any unpaid amount of tax assessed at the rate of 20A% per annum.
14. What are the kinds of interest and described each?
a. Deficiency interest it is the interest in the deficiency in the tax due at the rate of 20% per annum from the
date prescribed for its payment until its full payment.
b. Delinquency interest it is the 20% interest imposed for
1. failure to pay the tax on time
2. failure to pay the amount of the tax due on any return required to be filed
15. What are the remedies of the government in the collection of taxes?
1. Adiminstrative action:
a. Tax lien
b. Compromise
c. Distraint and Levy
d. Forfecture
e. Imposition of administrative fines
f. Supervision of business operation
g. Tax-audit
h. Requirement of filing of bonds
i. Requirement of tax register, documents ect.
j. Arrest, reach and seizure in certain cases
k. Termination of taxable year
l. Inquiry into the bank deposits of a decidents, ect
2.

Judicial Action:
a. ordinary civil action
b. Criminal action

16. Distinguish Compromise from Abatement

Ans. A compromise is a contract whereby the parties, by reciprocal concessions, avoid a litigation or to put an
end to one already commenced. It involves reduction of a taxpayers liability. On the other abatement is
authorized when the tax appears to be unjust or excessive.
17. Distinguish distraint from levy?
Distraint (also called distress) is the collection enforcement effected on personal properties, tangible or
intangible. Whereas levy, means the collection enforcement of taxes is effected on the real property of the
delinquent taxpayer.
18. What are the trends of distraint under the tax code?
a. Actual distraint where there is actual seizure of the personal properties of the taxpayer
b. Constructive distraint where the owner is merely prohibited from disposing of his property.
19. What are the requites in order that distraint or levy may be exercised by the government?
Ans. They are the following:
a. The taxpayer must be delinquent in the payment of taxes (except in constructive distraint)
b. There must be a subsequent demand for its payment
c. The taxpayer failed to pay the delinquent tax within the period prescribed
d. The period for assessment or collection has not yet prescribed
20. When may constructive distraint be exercised?
a. See Question 6
21. What is the period of limitation for assessment of taxes? As a rule, where a return was filed and the same was not
erroneous or fraudulent, the prescriptive period for assessment is within three years from date the return was filed
or the date it was required to be filed whichever is later.
Exceptions to the above rule are;
a. Where no return was filed the prescriptive period for assessment is within 10 year the date of the discovery
of the omission to file the return
b. Where there is a return filed but the same is false or fraudulent the prescriptive period for assessment is
within 10 years after the date of the discovery of the falsity or fraud.
c. Where there is a written waiver or renunciation by the taxpayer of the original 3-year period.
22. What is the period of limitation for collection of taxes? Within five years from the date of the assessment or
within the period agreed upon in writing before the expiration of the five (5) year period. However if a return
was filed but no assessment was made, the collection must be made within the period provided for assessment.
23. What are the remedies available to the taxpayer on collection of taxes?
Ans.
1. Administrative remedy (Without Court action)
a. Petition for reconsideration or reinvestigation
b. Enter into Compromise
c. File a claim for tax return
d. File a claim for tax credit

2.

Judicial remedy (through court action)

a. Appeal to the Court of Tax appeals and Supreme Court (within the reglementary period)
b. Action for damages
c. Criminal action against BIR officers or employees

24. What is the prescriptive period for a claim for tax refund?
The claim for tax refund in the BIR as well as any action or proceeding for tax refund in the Court of Tax appeals
should be both commenced within 2 years counted from the date of the payment of the tax, regardless of any
supervening cause.
25. What is the net worth method or inventory method of reporting unreported income for individuals?
It is an application of accounting principle that an increase in net-worth plus non-deductible disbursements less
non-taxable receipts equals net income.
The format of computation is shown as follows:
*Net worth, end of taxable year
Less: Net worth, beg. of taxable year
Increase in net worth
Add: Non Deductible disbursements
Total
Less: Non-taxable receipts
Correct net income
Less: Personal exemptions
Correct taxable income
Income tax on the correct taxable income
Less: Tax paid based on reported income
Deficiency income tax
Add: Surcharge (25% or 50%) P xx
Interest (at 20% annum)
xx
Total tax due

Pxx
xx
Pxx
xx
Pxx
xx
Pxx
xx
Pxx
Pxx
xx
Pxx
xx
Pxx

*Net worth = Total Assets Total liabilities

1.

Period of Limitation upon Assessment and Collection.

Internal revenue taxes shall be assessed within 3 years
1) After the due date, or
2) From the day the return was filed, where a return is filed beyond the due date.
Note: A return filed before the due date shall be considered as filed on such due date.
Exercise: Determine the last day to make valid assessment.
a.
b.
c.

2.

Individual income tax return on compensation income earned in 2001 was filed on April 15, 2002.
Decedent died January 1, 2001. Estate tax return was filed on September 1, 2001.
Donation was given on March 14, 2001. Donors tax was filed on March 31, 2001.

Authority of the Commissioner of Internal Revenue.

a. The Commissioner may:
1) Compromise the payment of any internal revenue tax.
2) Abate or cancel tax liability
3) Credit or refund:
a) taxes erroneously or illegally received or penalties imposed without authority,
b) the value of internal revenue stamps when returned in good condition by the purchaser,
c) the value, upon proof of destruction, of unused stamps that are unfit for use.
b.

Payment of tax may be compromised when:

1) A reasonable doubt as to validity of the claim against the taxpayer exists; or
2) The financial position of the taxpayer demonstrates a clear in ability to pay the assessed tax.
Notes: (new provisions)
a)

Prescribed minimum compromise rates

1) Financial incapacity 10% of the basic assessed tax.
2) Other cases 40% of the basic assessed tax.

b) Compromise settlement subject to approval of the Evaluation Board composed of the

Commissioner and the four (4) Deputy Commissioners:
1) Where the basic tax exceeds P1,000,000 or
2) Where the settlement offered is less than the prescribed minimum rates.
c.

Tax Liability may be abated or cancelled when:

1) The tax or any portion thereof appears to be unjustly r excessively assessed; or
2) The administration and collection costs involved do not justify the collection of the amount due
Note: All criminal violations may be compromised except:
a. Those already in court, or

b.
d.

Those involving fraud

Tax credit or refund

1) 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 2 years after the payment of the tax or penalty.
2) A return filed showing an overpayment shall be considered as a written claim for credit or refund. (new
provision)
3) A Tax Credit Certification validly issued under the provisions of the tax Code may be applied against
any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable, (new
provision)

A. REMEDIES OF THE GOVERNMENT

3.

Remedies for the collection of Delinquent Taxes

a. The civil remedies for the collection of internal revenue taxes, fees, or charges, and any increment thereto
resulting from delinquency shall be by:
1) Summary proceedings:
a) Distraint of personal property and
b) Levy upon real property and interest in or rights to real property.
2) Judicial proceedings:
a) Civil action or
b) Criminal action
b.

Either of the summary or judicial or both simultaneously may be pursuant in the discretion of the authorities
charged with the collection of such taxes.

c.

The remedies of distraint and levy shall not be availed of where the amount of tax involved is not more than
P100.

d.

The judgement in the criminal case:

1) shall not only impose the penalty but
2) shall also order payment of the taxes

4.

Actual and Constructive Distraint.

a. Actual distraint The physical taking of the taxpayers personal property to
answer for his tax deficiency.
b.

Constructive distraint The service of a notice upon the taxpayer that he could not dispose of his personal
property until he has paid his tax deficiency.

Notes: 1. Persons who shall seize and distraint personal property (actual distraint):
(new provision)
a.
b.

Amount of delinquent tax is more than P1,000,000 Commissioner or his duly authorized
representative.
Amount of delinquent tax is P1,000,000 or less Revenue District Officer

2. The commissioner or his duly authorized representative shall have the power to
lift order of distraint
5.

Distinction Between Actual and Constructive Distraint

Actual Distraint
a. Personal property is physically taken

Constructive Distraint
a. Personal property is not
physically taken
b. There is no findings yet of
a discrepancy, only that the
taxpayer is leaving the
country or disposing of his
properly the fraud of
creditors or is in the
process of liquidation.

b. The taxpayer is already delinquent

6.

Levy on Real Property.

a.

After the expiration of the time required to pay the delinquent tax or delinquent revenue, real property may
be levied upon before, simultaneously or after the distraint of personal property belonging to the delinquent.

b.

Levy shall be effected by writing upon a duly authenticated certificate showing the name of the taxpayer and
the amount to the tax and penalty due from him a description of the property upon which levy is made.

c.

Written notice of the levy shall be mailed to or served upon the:

a.

After the expiration of the time required to pay the delinquent tax or delinquent revenue, real property
may be levied upon before, simultaneously or after the distraint of personal property belonging to the
delinquent.

b.

Levy shall be affected by writing upon a duly authenticated certificate showing the name of the taxpayer
and the amount to the tax and penalty due from him a description of the properly upon which levy is
made.

c.

Written notice of the levy shall be mailed to or served upon the:

1) Register of Deeds of the province or city where the property is located and
2) upon the delinquent taxpayer,
3) or if he is absent from the Philippines, to his agent or the manager of the business in respect to
which the liability arose
4) or if there is none, to the occupant of the property in question.

7. Distinctions: Among Warrant of Distraint, Warrant of Levy and Warrant of Garnishment.

Distraint
Personal
property
owned by and in
possession of the

Levy
Real property owned by
and in possession of the
Taxpayer

Garnishment
Personal property
owned by the
taxpayer but in the
possession of a third
party.

b. As to disposition for
want of bidders or
bids inadequate to satisfy
tax deficiency.

Purchased by the
Government
then
resold
to
meet
deficiency.

Forfeited
to
Government then
sold to meet
deficiency.

Purchased
by
Government then
resold to meet
deficiency.

c. As to advertisement for
sale

No advertisement is
required.

Advertisement once
A week for three weeks.

a.

As to subject
Matter

the
the

No advertisement is
required.

8.

Release of Distrained Property Upon Payment Prior to Sale.

If 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.

9.

Redemption of Property Sold.

a. The property sold may be redeemed by the delinquent taxpayer within on year from the date of sale by
paying:
1) the amount of public taxes,
2) penalties and
3) interest thereon from the date of delinquency to the date of sale together with
4) 15% interest per annum of the purchase price from the date of purchase to the date of redemption.
b.

The owner shall not be deprived of the possession of the property sold and shall be entitled to the rents and
other income thereof until the expiration of the time allowed for redemption.

10. 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.
11. Injunction not Available to Restrain Collection of Tax.
a. No court shall have the authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by the Tax Code.
b. The Court of Tax Appeals can issue injunctions while in the exercise of its appellate jurisdiction in cases
pending before it. This is an exception to injunction rule.
c. The CTA may enjoin collection of taxes if in its opinion the same may jeopardize the interest of the
government and/or the taxpayer.
12. Tax Lien.
a. A legal claim or charge on property, either real or personal, as security from the payment of a tax obligation.
13. 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.
14. Period for Assessment and Collection (Summarized).
a.

Return filed as not false or fraudulent.

1) Collection with prior assessment

a) Assessment shall be made within 3 years from the date of
Filing of return or from the last day required by law for filing, if the return was filed before such
last day.
b) Collection shall be made within 5 years (new provision) from the date of assessment, either by:
(1) Summary proceedings, or
(2) Judicial proceedings

b.

2) Collection without prior assessment.

a) No proceeding in court without assessment for the collection shall be begun after the expiration of
the 3-year period.
Return filed was false or fraudulent with intent to evade tax or no return was filed.
1) Collection with prior assessment.
a) Assessment shall be made at any time within 10 years after discovery of the falsity, fraud or
omission.
b) Collection shall be made within 5 years (new provision) from the date of assessment, either by:
(1) Summary proceedings or
(2) Judicial proceedings.
2) Collection without prior assessment.
a) A proceeding in court for the collection of tax may be filed without assessment, at any time within
10 years after the discovery of the falsity, fraud or omission.

c.

If before the expiration of the 3-year period, both the Commissioner and the taxpayer have agreed in writing
to its assessment after such time
1) Assessment may be made within the period agreed.
2) The period so agreed upon may be extended by subsequent written agreement before the expiration of
the period previously agreed upon.
3) Collection shall be made within the period agreed upon in writing before the expiration of the 5 year
period following the assessment by:
a) Summary proceedings, or
b) Judicial proceedings.

15. Suspension of Running of Statute of Limitation.

a.

The running of the 3-year period or the 10-year period on the making of assessment and the beginning of
distraint or levy or a proceeding in court for collection, in respect to any deficiency, shall be suspended:
1) 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 60 days thereafter.
2) When the taxpayer requests for reinvestigation which is granted by the Commissioner.
3) When the taxpayer cannot be located in the address given by him in the return filed upon which, tax is
being assessed or collected (except if the taxpayer informs the Commissioner of any change in address).

16. Exercises:
a.

Income tax return for 1996 income was filed April 2, 2000. Tax per return was P20,000. Tax per BIR audit
was P50,000.
Q1 Last day for assessment. _________________________________________
Q2 Suppose assessment was made on April 17, 2003, what is the defense of the
taxpayer? ____________________________________________________
Q3 Suppose the return filed was fraudulent and was discovered by BIR on June
5, 2002, when is the last day for assessment? ________________________

b.

Income tax return for 2000 was filed June 10, 2001.
Q1 Last day to make valid assessment. ________________________________
Q2 Suppose assessment was made on June 30, 2004, will it be valid? ________
Q3 Suppose no return was filed for 2000 income, and the failure to file return
was known to the BIR on January 5, 2002, when is the last day for
assessment? __________________________________________________

c.

Income tax return for 2000 income was filed April 12, 2001. Deficiency tax of P100,000 was assessed on
October 1, 2003, Warrant of distraint was issued on June 5, 2004.
Q1 Last day to make valid assessment . ________________________________
Q2 Last day to issue valid warrant of distraint to collect the tax. _____________
Q3 Assume issuance of warrant of distraint was on October 10, 2009, is the
issuance valid? ________________________________________________

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d.

Mr. Cruz filed an income tax return for the calendar year 2000 on March 10, 2001. The BIR issued a
deficiency income tax on April 10, 2002 which has become final. When is the last day for the BIR to collect?
___________________

e.

Date of decedents death July 5, 2001.

Date the estate tax return was filed January 2, 2002. ______________________
Last day for the BIR to make an assessment - _____________________________

B. REMEDIES OF THE TAXPAYER

17. Assessment defined.
Assessment is a notice to the taxpayer requiring payment within a specified time of the tax due from him
including interest and civil penalties.
18. Protesting of Assessment.
a.

When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he
shall notify the taxpayer of his findings.

b.

A preassessment notice shall not be required in the following cases: (new provision):
1) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax
as appearing on the face of the return or
2) When a discrepancy has been determined between the tax withheld and the amount actually remitted by
the withholding agent; or
3) When the taxpayer who opted to claim a refund or tax credit of excess creditable 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
4) When the excise tax due on excisable articles has not been paid; or
5) When an 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 nonexempt persons.

c.
d

The taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void (new provision)

d. Within a period to be prescribed by the implementing rules and regulations, the

taxpayer shall be required to respond to said notice. If the taxpayer fails 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.

19. Remedy Against an Assessment.

a.

Protest the assessment administratively.

The taxpayer shall file a request for reconsideration or reinvestigation with the BIR within 30 days from
receipt of the assessment notice.

b.

Submit all relevant supporting documents to the BIR.

Within 60 days from filing of protest, all relevant supporting documents should be submitted; otherwise the
assessment shall become final

c.

Appeal to Court of Tax Appeals (CTA), and case will be raffled to a CTA division
Appeal to the CTA within 30 days:
1) From receipt of the adverse (unfavorable) decision of the CIR; or
2) From the lapse of the 180-day period from filing of the protests supporting documents.
Notes: a. There is now a 180-day rule for the BIR to decide on an administrative
appeal .
b. Failure to appeal to Court of Tax Appeals shall make the BIRs decision
final, executory and demandable.

e
d.
e.

In case of an adverse decision of the CTA division. The petitioner must first file a motion for reconsideration
or a motion for new trial with the same division within 15 days from receipt of the said adverse decision. In
case of denial of the said motion.
Appeal to the Court of Tax Appeals en banc within 15 days after receipt of the denial of the motion the CTA
division. In case of adverse decision of the CTA en banc. The petitioner must first file a motion for
reconsideration or for new trial with the CTA en banc before the former could appeal with the Supreme Court

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f.

Appeal to the Supreme Court within 15 days after receipt of unfavorable final decision of the CA, raising
questions of law.

20. Remedy Against an Erroneously or Illegally Paid Tax.

a.

File a formal claim for refund with the BIR within 2 years from the date of payment of the tax.

b.

Within 30 days (and within 2 years from the payment made) from receipt of final unfavorable decision on
the claim for refund, file an appeal with CTA division, raising questions of facts and/or law.

c. In case of an adverse decision of the CTA division. The petitioner must first file a motion for reconsideration
or a motion for new trial with the same division within 15 days from receipt of the said adverse decision. In
case of denial of the said motion.
d. Appeal to the Court of Tax Appeals en banc within 15 days after receipt of the denial of the motion the CTA
division. In case of adverse decision of the CTA en banc. The petitioner must first file a motion for
reconsideration or for new trial with the CTA en banc before the former could appeal with the Supreme Court
e. Appeal to the Supreme Court within 15 days after receipt of unfavorable final decision of the CA, raising
questions of law.
Notes: a. If the tax is paid in installment, the two-year period shall be counted
from the date of payment.
b. The filing of the claim for refund with the BIR and the institution of
judicial action with the CTA to recover the tax can be done either
simultaneously or one after the other within the 2-year period to protect
the interest of the taxpayer.

f
g
h

21. The Commissioner may, even without written claim therefor, refund or credit any tax, where the face of the
return upon which payment was made, such payment appears clearly to have been erroneously paid.
22. Instances that Suspend the Ruling of the Two-year Peremptory Period.
a. If the Commissioner made the taxpayer asking for refund believe that he would be credited for the
overpayment.
b. If there is an agreement between the taxpayer and the agent of the Commissioner that they would wait for
the decision of the SC to guide them in the settlement of the question or questions involved in the fraud.
23. Forfeiture of Refund.
A refund check or warrant which shall remain unclaimed or uncashed within 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 shall
revert to the general fund.
24. Forfeiture of Tax Credit.
A tax credit certificate issued, which shall remain unutilized after 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 will revert to the general fund.
25. Transitory Provision.
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 on or before June 30, 1998.
26. Exercises:
a. 2000 net income of private educational institution was P200,000.
Tax per return filed on April 10, 2001
Correct tax (P200,000 x 10%)
Excess tax erroneously paid

P 70,000
20,000
P50,000

Q1 Last day to file claim for refund with Commissioner of Internal

Revenue. ___________________________________________________
Q2 Last day to institute judicial action. ______________________________
Q3 Suppose the claim for refund was filed on September 10, 2002 and was denied
by the Commissioner of Internal Revenue. Decision of the CIR denying the
refund was received by the taxpayer on January 10, 2003, what is the remedy of
the taxpayer? ____________________________________________________
Q4 Suppose claim for refund was filed on September 10, 2002 and the decision of
the CIR denying the claim was received by the taxpayer on April 15, 2003, can
the taxpayer appeal to the CTA? _____________________________________
b.

Date when assessment was received

Petition for reconsideration was filed with BIR
BIR decision on denial was received

- October 1, 2000
- October 9, 2000
- March 2, 2001

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Last day to appeal to Court of Tax Appeals?

E N D

13