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Atty. S.M.

Cagampang-de Castro

TAXATION REVIEW

TAXATION
Remedies in general
1.Assessments
Prescriptive period For AssessmentA. Period of Assessment3 years after last day for
filing of return
a. Regular return-------3 years from due date (April 15)
b.Late filing---------3 years from date of actual filing
c. Amended return- 3 years from amendment
3 years =1,095 days (3x365 days)
B.
Assessment- condition to collection case in court (203)
Sending within 3 yearsnot receipt within 3 years
C. 3 yr. period interrupted by request for reinvestigation
/reconsideration
Protesting an Assessment-Sec. 228
1. Notice of informal conference2. taxpayer 15 days from receipt of notice to respond
-failure to respond = default
3. Pre- assessment Notice- (PAN)
4. Tax payer 15 days to respond
-failure to respond=default
Commissioner to notify taxpayer of findings
Exceptions:
1. the deficiency tax is a result of mathematical error appearing
on the face of the return;
2. discrepancy has been determined between the tax withheld
and the mount actually remitted by the agent
3. taxpayer who claims refund or tax credit has carried over and
automatically applied the same amount claimed against
estimated tax liabilities for the taxable quarter of the succeeding
year;
4. when excise tax on taxable items has not been paid;
5. when the article (local) or imported by an exempt person had
been sold or transferred to non-exempt entity.
5. Response to pre-assessment notice by taxpayer
5. Formal Letter of demand and Assessment issued
6. Disputed Assessment- Protest shall state facts,
applicable law, rules, regulations on which protest is
basedotherwise protest is void and without force
and effect
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Administrative Protest by filing Request for


reconsideration or reinvestigation with in 30 days from
receipt of assessment
7. Submission of documents (within 60 days from filing
protest)
Administrative decision on a disputed assessmentProtest denied or not acted upon within 180 days from
submission of documents
-personal service
-constructive service(this 60 day and 180 day periods apply to assessments on or after
Jan.1, 1998 when the Tax Reform Act of 1997 took effect)
8. Final, executory demandable assessment, if no appeal
to CTA filed on time.
9. Appeal to Court of Tax Appeal within 30 days from
receipt of decision, or from the lapse of 180 days
period.
-upon appeal BIR lost administrative jurisdiction over
the case
10.
Final Order or decision of CTA- Petition for review
with Court of Appeals within 15 days from notice.
11.

Appeal by certiorari to Supreme Court

2. Compromise, Abate, Refund or Credit Taxes


A.- COMPROMISE of taxes
Grounds for Compromise:
1. doubtful validity of assessment-up to 40%
ALLOWED IN:
a. delinquent accounts
b. cases under protest after final assessment
pending
c. pending collection case in court
2.. financial incapacity of taxpayer up to 10%/20%
a. stopped operations
b. deficit due to impairments of original capital
c. suffering from netwroth deficit
d. taxpayer has no leviable assets
e. taxpayer declared bankrupt or insolvent by
court clear inability to pay assessed tax.
NOT allowed to compromise surcharges
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- in cases closed already


-when information already filed in court
Documentation: Application for compromise; Sworn statement
that he derives no income from any source; latest
audited FS
Approval: Regional Offices- 500,000 or less by Regional Evaluation
Board (REB)
Others:
Php 500,00 up to Php 1M- COmmissioner
Php 1M and above---National Evaluation Board
PRESCRIPTIVE PERIOD TO ENFORCE COMPROMISE : SAME AS IN
CONTRACTS under the civil code
Period to enforce a tax compromise10 years (as in
ordinary written contracts)
B.-Abatement or cancellation of taxes
Grounds to abate/cancel a tax ; liability
a. Tax appears to be unjustly or excessively
assessed
b. Administrative and collection costs involve do
no justify the collection of amount due
SOLE AUTHORITY TO ABATE OR CANCEL:- Commissionergenerally applicable to surcharges and compromise penalties
C. Credit or refund taxes erroneous or illegally received or
penalties imposed without authority.
-2 years to file claim for refund or tax
credit
-both claim for refund and appeal to CTA
must be made within 2 year period
(MANDATORY)
-no need for Commissioners denial;
-if denied, 30 days to appeal to CTA
-if assessment already final and
executory, claiming for refund and
appeal useless.
REFUND Allowed: Rule: the taxpayer who paid can ask
for refund.
(1) where tax has been shifted, seller can still claim but holds in
trust the refund for one who actually paid the tax;
(2) where payer is not the taxpayer- tax on theater goers cannot
be claimed by owner of theater.
(3) where taxpayer is withholding agent- the withholding agent is
directly and independently liable for the correct amount of tax
that should be withheld And for deficiency assessments,
surcharges and penalties.

(4) No tax refund given resulting from availment of incentives


granted under special laws where no actual payment was made.
Doctrine of EQUITABLE RECOUPMENT- when a refund of tax
illegally or erroneously collected or overpaid by a taxpayer is
barred by the statute of limitations, and a tax is being presently
assessed against said taxpayer, such present tax may be
recouped or set-off against the tax, the refund of which has been
barred. Similarly, when the collection of a tax is already barred by
such statute of limitation and the tax payer is entitled to a refund
or credit of a tax illegally or erroneously collected and such refund
is not yet barred, the government may bet off the tax whose
collection is barred against the refund of the tax illegally or
erroneously collected.
D. Tax credit- refers to the amount due to a taxpayer
resulting from an overpayment of a tax liability or erroneous
payment of a tax due.
Tax Credit certificate (TCC) means a certification , duly
issued by the Commissioner or his duly authorized representative,
acknowledging that the grantee-taxpayer named therein is legally
entitled a tax credit, the money value of which maybe used in
payment or in satisfaction of any of his internal revenue tax
liability (except those excluded) or may otherwise be converted
as a cash refund, or may otherwise be disposed of oin the manner
and in accordance with the limitations, if any, as may be
prescribed by the provisions of Rev.Reg. No. 5-2000.
Tax debit memo- a certification issued by the BIR
Commissioner or his representative, acknowledging that the tax
payer named therein has duly paid his internal revenue tax
liability in the form of and through the use of a TCC.
Direct internal revenue tax liability- pertains to the liability
of a person mandated by law to file the tax return and pay the tax
due thereon.
Sources of tax credit:
(a) excess quarterly income taxes paid reflected in the
fiunal adjustment return,
(b) withholding at source of income taxes to the extent that
the amount of such overpayment was not deducted or
applied against income tax due.
(c) Input taxes
(1) zero-rated sales made by VAT registered tax payer
(2) zero rated sales made by VAT registered taxpayer
(3) capital goods imported ot locally purchased by VAT
registered taxable person
(d) unused input taxes
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(e)

excise taxes paid on:


(1) petroleum products sold to tax exempt entities
and international carriers
(2) goods locally produced or manufactured and
actually exported without returning to the philipines
(3) taxes erroneousle or illegally paid or penalties
iomposed without authority.
TCCs can be used to pay direct internal revenue tax liability,
such as income tax, excise tax, doc stamp tax;
NOT be used for withholding tax remittances; tax amnesty;
taxes not administered by BIR; paymentf or compromise penalty.
CIVIL REMEDIES FOR COLLECTION OF TAXES
Remedies available to government to collect taxes1. Adminstrativea. Distraint of personal property
b. Levy on real property
c. Enforcement of forfeiture of property Sec. 224
d. Entering into compromise of tax cases
e. Filing of bonds to assure compliance with certain
tax laws or regulations
f. Requiring proof of filing of income tax retur
before license to engage in business or
occupation of practice of profession is issued
g. Giving rewards to informers who give information
regarding violation of tax laws
h. Imposition o f surcharge, interest and penalties
for non-payment
i. Making arrest, search and seizure in certain
cases
j. Deportation of aliens who violate tax laws
k. Inspection an dexamination of books of accounts
l. Use of national tax register
m.
Inventory taking of stock-in-trade
2. judicial
a. ordinary civil action to collect
b. criminal action
Principles:
1. Estoppel-government is not estopped to collect taxes
because of error of revenue agents
2. CTA may grant injunction and suspend collection of
internal revenue taxes and customs in cases pending
appeal subject to certain conditions. The policy is to
allow luch latitude to the BIR on the prompt and
speedy collection taxes.
Summary procedure:
1. Issuance of warrant of distraint or levy
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2. Seizure of properties
3. Preparation of a duly authenticated certificate (with legal
effect as a legal execution ) issued by the revenue agent to
execute the order of distraint and levy.
4. Publication of Notice of sale at public auction
5. Sale at public auction;
OR forfeiture of real property levied, in favor of government
in certain instances
6. Bill of sale/Deed of Sale
7. Proceeds to be remitted to national treasury as internal
revenue collection
8. registration of tax sale with the Register of Deeds
9. one-year Redemption period from the registration of the sale
at public auction.
10.
Return of property upon redemption
11.
Redemption of forfeited real property- actually a
repurchase because, the ownership is transferred to
government upon forfeiture. Full amount of taxes should be
paid plus interst, penalties and cost/charges due.
12.
Forfeited property, not redeemed shall be resold at
public auction in sealed bids.
13.
Negotiated sale o f forfeited proper allowed if public
bidding fails for two(2) consecutive times.
14. Injunction not available to restrain collection of tax
Sec. 205.
(a)
DISTRAINT of goods, chattels, or effects and other
personal property of whatever character, including stocks
and other securities, debts, credits, bank accounts, and inter
in and rights to personal property; and
LEVY on real property and interest in or rights to real property;
(b)

CIVIL OR CRIMINAL ACTION

One or both may be pursued simultaneously at the discretion of


the collecting authorities
In criminal cases, judgment should impose both the criminal
penalty PLUS order payment of the taxes
BIR to cover costs of collection, preservation or transportation of
property destrained or levied and advertisement and sale.
Distraint is the seizure by the government of personal property
tangible or intangible, to enforce the payment of taxes, to be
followed by public sale, it the taxes are not paid voluntarily.

() Actual- involves physical transfer of possession of


personal property
(2) constructive- the
owner is merely prohibited frm
disposing of the property, such as:
(a) when taxpayer is retiring from business;
(b) is intending to leave R.P.;
intends to remove or to hide or conceal his property
(d)performs acts tending to obstruct collection of taxes.
Procedure: Owner is required to sign a receipt and obligating
himself to preserve the property unaltered and not to dispose of
the same in any manner whatsoever, without the express
authority of the Commissioner.
If owner refuses to sign receipt, leave a copy of the receipt in
the presence of two witnesses.
Distinction between actual and constructive distraint:
Both are summary remedies for collection of taxes and refer only
to personal property. BUT distinctions are:
1. Actual- made on property of taxpayer; Constructive is on
property of any taxpayer whether or not delinquent;
2. Actual taking of possession; in constructive, the taxpayer is
merely prohibited from disposing of his property;
3. Actual is effected by leaving a list of the property or by
service of a warrant of distraint; constructive, by requiring
the taxpayer to sign a receipt of the property or the revenue
officer leaving a list of property
Requisites of Actual
1. Taxpayer must be delinquent in payment of taxes;
2. Subsequent demand for payment
3. Taxpayer must fail to
pay the delinquent tat at tax time
required;
4. Period to collect tax has not yet prescribed
Rule on Bank Secrecy
BIR simply seizes and garnish bank account, NO inquiry as to
amount of deposit, or where the money or part comes from.
Properties not subject to distraint1. Bond or cash deposit for possession of firearms
2.Property under judicial settlement or custodia legis without
consent of court
. Those exempt from attachment or levy under special laws, such
as GSIS benefits

Disputed tax assessment (DTA)- taxpayer can dispute the


correctness or legality of assessment BOTH in purely
administrative level and in CTA, BUT it does not prohibit the
Commissioner from collecting the tax through the above means.
The CTA has jurisdiction over DTAs.
Sec. 207- Summary remediesA. Distraint of Personal PropertyFor tax delinquency of above Php 1M - BIR
Commissioner;
For Less than Php 1M- Revenue District Officer-shall seize and distraint any goods, chattels etc in
sufficient quantity to satisfy the tax delinquency, the exepnese
of the distraint and the cost of sale;
Report of distraint within 10 days from the receipt of warrant
submitted to RDO and RRD
-BIR Commissioner may lift the distraintt subject to DOF
rules and regulations.
Levy on real property-effected by writng upon the certificate description of
the property upon which the levy is made; written notice of the
levy should be served upon the Register of Deeds and the
taxpayer
-the duly authenticated certificate showing the name of
taxpayer, amounts due and penalty due shall operate with the
force of a legal execution through out the R.P.
-The BIR Commissioner or his representative can lift
warrants of levy in accordance with DOF rules and regulations.
-For estates, the estate is the taxpayer not the heir.
As a rule, warrant of distraint and levy is proof of the finality of
assessment and renders hopeless a request for reconsideration,
being tantamount to an outright denial thereof and k\makes the
request deemed rejected.
Procedure for distraint and Garnishment
- The warrant of distraint shall be left with:
- 1. owner or person in who has possession of the porperty.
- 2. Stocks and other securities- seve upon taxpayer anda
the officer of the company that issued the stocks or
securities;

- 3. debts and credits-served with person in control of the


credits and heshall pay the amount of such debt/credit to
the BIR.
- 4. bank accounts-garnished by serving a warrant of
garnishment upon the taxpayer and the officer of the bank
and
- bank shall turn over to the BIR the amount sufficient to
pay the tax.
Section 209
Sale of Property distrained and disposition of ProceedsA.-Notification in 2 public places in municipality or city where
distraint is made; time and place of sale to be stated; articles
distrained
- within 20 days after levy or from notice to
taxpayer/possessor of property.
Section 213- Advertisement for at least 30 days=
Posting in public places and publication for 3 weeks in a
newspaper of general circulation.
B. Sale at public Auction to highest bidder for cash or
through licensed commodity or stock exchanges (with approval of
Commissioner.
C. Return of Residue over and above tax claim plus expenses,
to owner of goods sold. Expenses shall cover only actual
expenses of seizure and preservation pending the same. No
charges for services of revenue officers.
Section 210-212
A. Release of distraint property- Payment of all taxes and
charges prior to sale.
B. Written report of sale proceedings to Commissioner within
2 days after the sale at public auction
C. Purchase by government- if amount of bid NOT equal to
amount of tax due or very much less than the actual market
value of articlesbid at amount of taxes, penalties and cost
due
D. Forfeiture to government for want of bidder- if there is
no bidder or if bid is for an amount insufficient to pay the
taxes, penalties and costs, property is declared forfeited to
the government in satisfaction of the claim and recorded
accordingly.
Register of Deeds to transfer title to forfeited
property without need of court order.
E. Resale of purchased property by government net proceeds
accounted for as internal revenue and remitted to national
treasury.

F. Further distraint or levy of personal and/or real property


allowed until full amount due is paid. (section 217
D. Redemption of property sold- one year from date of
sale-pay taxes, interest at 15% oer annum from date of purchase to
date of redemption, penalties.
-Property to be returned free and clear of all liens of such taxes
and penalties.
- owner not to be deprived of possession of property and
income from property until expiration of time to redeem.
Tax Lien- is a legal claim or charge on property, real or
personal, established by law as security in default of the
payment of taxes.
-Attaches to property regardless of ownership or transfer
thereof;
- is superior to the claim of private itigant based on a
judgment
-lien attaches not only from the service of the warrant of
distraint or levy but from the time the tax became due and
payable.
-Lien exists from the time when the assessment I smade and after
demand to pay and the taxpayer neglects, refuses to pay taxes
due. Lien extends to interst, penalties, costs that may accrue in
addition to the taxes due.
-Not valid against mortgagee, purchaser or judgment creditor
until notice of such lien is filed in the REGISTER OF Deeds by the
BIR in the mun. or city where property is located.
Extinguishments of tax lien
- 1. payment or remission of tax
- 2. prescription of right to assess or collect
- 3. failure to file notice with the register of deeds
- 4. destruction of the property subject of lien
Exceptions to Period of limitations of assessment (3 yrs)
and collection (5 yrs.) of taxes1. in cases of false or fraudulent return with intent to evade
taxes or failure to file a return-collection case may be filed without assessment within
10 years from the discovery of the fraud, falsity or omission
2. by mutual agreement before expiration of the period,
between BIR and taxpayer to extend the period of assessment

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3. If there was an assessment within the period, coolection


may be done within 5 years following th assessment of the tax- by
distraint, levy or proceeding in court.
4. Collection may be done after five years, if there is an
agreement in writing between the BIR and taxpayer made before
the 5 years expired.
Waiver of period must be before expiration of period of
limitation.
Distinction between false and fraudulent return
false- may be due to mistake, carelessness or ignorance.
Implies mere deviation from the truth , whether or not
intentional
fraudulent- with intent to evade taxes; implies intentional or
deceitful intent to evade taxes
- fraud is never impute, and mere understatement is not
itself fraud.
- Fraud must be actual not constructive; must be intentional
consisting of deception willfully and deliberately done or
resorted to.
Enforcement of forfeiture Sec. 224
Forfeiture implies a divestiture of property without
compensation ion consequence of a default or offense. The effect
of forfeiture is to transfer title to the thing from the owner to the
government.
Forfeiture of chattels and removable fixtures under
Section 224 distinguished from forfeiture under Section
215enforced as follows:
1. in 215- forfeiture occurs when the distraint property ha no
bidder or the bid is so low; Any residue in proceeds excess of
taxes etc. due is returned to property owner; there is a right of
redemption;
2. In 224- forfeiture is by seizure and sale, or destruction of
forfeited property; there may be
SALE of forfeited chattels and
removal of fixtures and all Proceeds of sale goes to government
and accounted for as internal revenue and given to national
treasury; no right of redemption and no return of balance of
proceeds in excess of taxes. Court intervention is necessary.
Satisfacton of judgment s recovered against an revenue
officerJudgment, damages and costs shall be covered by the BIR- But no
reimbursement allowed if the person acted with negligence, bad
faith or willful oppression

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