GENERALPRINCIPLES

I.Concepts,NatureandCharacteristicsofTaxationandTaxes.

TaxationDefined:
Asaprocess,itisameansbywhichthesovereign,throughitslawmakingbody,
raisesrevenuetodefraythenecessaryexpensesofthegovernment.Itismerelyawayof
apportioningthecostsofgovernmentamongthosewhoinsomemeasuresareprivileged
toenjoyitsbenefitsandmustbearitsburdens.
Asapower,taxationreferstotheinherentpowerofthestatetodemandenforced
contributionsforpublicpurposeorpurposes.
RationaleofTaxationTheSupremeCourtheld:
Itissaidthattaxesarewhatwepayforcivilizedsociety.Withouttaxes,the
governmentwouldbeparalyzedforlackofthemotivepowertoactivateandoperateit.
Hence,despitethenaturalreluctancetosurrenderpartofoneshardearnedincometo
thetaxingauthorities,everypersonwhoisablemustcontributehisshareintherunning
ofthegovernment.Thegovernmentforitspartisexpectedtorespondintheformof
tangibleandintangiblebenefitsintendedtoimprovethelivesofthepeopleandenhance
theirmoralandmaterialvalues.Thesymbioticrelationshipistherationaleof
taxationandshoulddispeltheerroneousnotionthatitisanarbitrarymethodof
exactionbythoseintheseatofpower.
Taxationisasymbioticrelationship,wherebyinexchangefortheprotectionthat
thecitizensgetfromthegovernment,taxesarepaid.(CommissionerofInternal
RevenuevsAllegre,Inc.,etal.,L28896,Feb.17,1988)
PurposesandObjectivesofTaxation
1. RevenuetoprovidefundsorpropertywithwhichtheStatepromotesthegeneral
welfareandprotectionofitscitizens.
2. NonRevenue[PR2EP]
a. PromotionofGeneralWelfareTaxationmaybeusedasanimplementofpolice
powerinordertopromotethegeneralwelfareofthepeople.[seeLutzvsAraneta(98
Phil148)andOsmeavsOrbos(G.R.No.99886,Mar.31,1993)]

b. RegulationAsinthecaseoftaxesleviedonexcisesandprivilegeslikethose
imposedintobaccooralcoholicproductsoramusementplaceslikenightclubs,cabarets,
cockpits,etc.
InthecaseofCaltexPhils.Inc.vsCOA(G.R.No.92585,May8,1992),itwasheld
thattaxesmayalsobeimposedforaregulatorypurposeas,forinstance,inthe
rehabilitationandstabilizationofathreatenedindustrywhichisaffectedwithpublic
industryliketheoilindustry.

c. ReductionofSocialInequalitythisismadepossiblethroughtheprogressive
systemoftaxationwheretheobjectiveistopreventtheunderconcentrationofwealthin
thehandsoffewindividuals.
d. EncourageEconomicGrowthintherealmoftaxexemptionsandtaxreliefs,for
instance,thepurposeistograntincentivesorexemptionsinordertoencourage
investmentsandtherebypromotethecountryseconomicgrowth.
e. Protectionisminsomeimportantsectorsoftheeconomy,asinthecaseofforeign
importations,taxessometimesprovideprotectiontolocalindustrieslikeprotective
tariffsandcustoms.
TaxesDefined
Taxesaretheenforcedproportionalcontributionsfrompersonsandpropertylevied
bythelawmakingbodyoftheStatebyvirtueofitssovereigntyforthesupportof
governmentandforpublicneeds.
EssentialCharacteristicofTaxes[LEMP3S]
1. ItisleviedbythelawmakingbodyoftheState
ThepowertotaxisalegislativepowerwhichundertheConstitutiononlyCongress
canexercisethroughtheenactmentoflaws.Accordingly,theobligationtopaytaxesisa
statutoryliability.
2. Itisanenforcedcontribution
Ataxisnotavoluntarypaymentordonation.Itisnotdependentonthewillor
contractualassent,expressorimplied,ofthepersontaxed.Taxesarenotcontractsbut
positiveactsofthegovernment.
3. Itisgenerallypayableinmoney
Taxisapecuniaryburdenanexactiontobedischargedaloneintheformof

moneywhichmustbeinlegaltender,unlessqualifiedbylaw,suchasRA304which
allowsbackpaycertificatesaspaymentoftaxes.
4. ItisproportionateincharacterItisordinarilybasedonthetaxpayersabilityto
pay.
5. ItisleviedonpersonsorpropertyAtaxmayalsobeimposedonacts,
transactions,rightsorprivileges.
6. ItisleviedforpublicpurposeorpurposesTaxationinvolves,andatax
constitutes,aburdentoprovideincomeforpublicpurposes.
7. ItisleviedbytheStatewhichhasjurisdictionoverthepersonsorproperty.The
persons,propertyorservicetobetaxedmustbesubjecttothejurisdictionofthetaxing
state.

TheoryandBasisofTaxation
1. NecessityTheory
Taxesproceeduponthetheorythattheexistenceofthegovernmentisanecessity;
thatitcannotcontinuewithoutthemeanstopayitsexpenses;andthatforthosemeans,
ithastherighttocompelallcitizensandpropertieswithinitslimitstocontribute.
Inacase,theSupremeCourtheldthat:
Taxationisapoweremanatingfromnecessity.Itisanecessaryburdentopreserve
theStatessovereigntyandameanstogivethecitizenryanarmytoresistaggression,a
navytodefenditsshoresfrominvasion,acorpsofcivilservantstoserve,public
improvementsdesignedfortheenjoymentofthecitizenryandthosewhichcomewith
theStatesterritoryandfacilities,andprotectionwhichagovernmentissupposedto
provide.(Phil.GuarantyCo.,Inc.vsCommissionerofInternalRevenue,13SCRA775).
2. TheBenefitsProtectionTheory
Thebasisoftaxationisthereciprocaldutyofprotectionbetweenthestateandits
inhabitants.Inreturnforthecontributions,thetaxpayerreceivesthegeneraladvantages
andprotectionwhichthegovernmentaffordsthetaxpayerandhisproperty.

QualificationsoftheBenefitProtectionTheory:
a. Itdoesnotmeanthatonlythosewhoareabletopayanddopaytaxescanenjoythe

privilegesandprotectiongiventoacitizenbythegovernment.
b. Fromthecontributionsreceived,thegovernmentrendersnospecialor
commensuratebenefittoanyparticularpropertyorperson.
c. Theonlybenefittowhichthetaxpayerisentitledisthatderivedfromhisenjoyment
oftheprivilegesoflivinginanorganizedsocietyestablishedandsafeguardedbythe
devotionoftaxestopublicpurposes.(GomezvsPalomar,25SCRA829)
d. Ataxpayercannotobjecttoorresistthepaymentoftaxessolelybecauseno
personalbenefittohimcanbepointedoutasarisingfromthetax.(LorenzovsPosadas,
64Phil353)
3. LifebloodTheory
Taxesarethelifebloodofthegovernment,beingsuch,theirpromptandcertain
availabilityisanimperiousneed.(CollectorofInternalRevenuevs.GoodrichInternational
RubberCo.,Sept.6,1965)Withouttaxes,thegovernmentwouldbeparalyzedforlackof
motivepowertoactivateandoperateit.

NatureofTaxingPower
1. InherentinsovereigntyThepoweroftaxationisinherentinsovereigntyasan
incidentorattributethereof,beingessentialtotheexistenceofeverygovernment.Itcan
beexercisedbythegovernmenteveniftheConstitutionisentirelysilentonthesubject.
a. Constitutionalprovisionsrelatingtothepoweroftaxationdonotoperateasgrants
ofthepowertothegovernment.Theymerelyconstitutelimitationsuponapowerwhich
wouldotherwisebepracticallywithoutlimit.
b. Whilethepowertotaxisnotexpresslyprovidedforinourconstitutions,its
existenceisrecognizedbytheprovisionsrelatingtotaxation.
InthecaseofMactanCebuInternationalAirportAuthorityvsMarcos,Sept.11,1996,
asanincidentofsovereignty,thepowertotaxhasbeendescribedasunlimitedinits
range,acknowledginginitsverynaturenolimits,sothatsecurityagainstitsabuseisto
befoundonlyintheresponsibilityofthelegislativewhichimposesthetaxonthe
constituencywhoaretopayit.
2. LegislativeincharacterThepowertotaxisexclusivelylegislativeandcannotbe
exercisedbytheexecutiveorjudicialbranchofthegovernment.
3. SubjecttoconstitutionalandinherentlimitationsAlthoughinonedecidedcase
theSupremeCourtcalleditanawesomepower,thepoweroftaxationissubjectto
certainlimitations.MostoftheselimitationsarespecificallyprovidedintheConstitution
orimpliedtherefromwhiletherestareinherentandtheyarethosewhichspringfrom

thenatureofthetaxingpoweritselfalthough,theymayormaynotbeprovidedinthe
Constitution.

ScopeofLegislativeTaxingPower[S2APKAM]
1.
2.
3.
4.
5.
6.

subjectsofTaxation(thepersons,propertyoroccupationetc.tobetaxed)
amountorrateofthetax
purposesforwhichtaxesshallbeleviedprovidedtheyarepublicpurposes
apportionmentofthetax
situsoftaxation
methodofcollection

IsthePowertoTaxthePowertoDestroy?
InthecaseofChurchill,etal.vsConcepcion(34Phil969)ithasbeenruledthat:
Thepowertoimposetaxesisonesounlimitedinforceandsosearchinginextent
sothatthecourtsscarcelyventuretodeclarethatitissubjecttoanyrestriction
whatever,exceptsuchasrestinthediscretionoftheauthoritywhichexerciseit.No
attributeofsovereigntyismorepervading,andatnopointdoesthepowerof
governmentaffectmoreconstantlyandintimatelyalltherelationsoflifethanthrough
theexactionmadeunderit.
AndinthenotablecaseofMcCullochvsMaryland,ChiefJusticeMarshalllaiddown
therulethatthepowertotaxinvolvesthepowertodestroy.
Accordingtoanauthority,theaboveprincipleispertinentonlywhenthereisno
powertotaxaparticularsubjectandhasnorelationtoacasewheresuchrighttotax
exists.Thisoptquotedmaximinsteadofbeingregardedasablanketauthorizationofthe
unrestraineduseofthetaxingpowerforanyandallpurposes,irrespectiveofrevenue,is
morereasonablyconstruedasanepigrammaticstatementofthepoliticalandeconomic
axiomthatsincethefinancialneedsofastateornationmayoutrunanyhuman
calculation,sothepowertomeetthoseneedsbytaxationmustnotbelimitedeven
thoughthetaxesbecomeburdensomeorconfiscatory.Tosaythatthepowertotaxis
thepowertodestroyistodescribenotthepurposesforwhichthetaxingpowermaybe
usedbutthedegreeofvigorwithwhichthetaxingpowermaybeemployedinorderto
raiserevenue(ICooley179181)
ConstitutionalRestraintsRe:TaxationisthePowertoDestroy
Whiletaxationissaidtobethepowertodestroy,itisbynomeansunlimited.Itis
equallycorrecttopostulatethatthepowertotaxisnotthepowertodestroywhilethe
SupremeCourtsits,becauseoftheconstitutionalrestraintsplacedonataxingpower

thatviolatedfundamentalrights.
InthecaseofRoxas,etalvsCTA(April26,1968),theSCremindsusthatalthough
thepoweroftaxationissometimescalledthepowertodestroy,inordertomaintainthe
generalpublicstrustandconfidenceintheGovernment,thispowermustbeusedjustly
andnottreacherously.TheSupremeCourtheld:
Thepoweroftaxationissometimescalledalsothepowertodestroy.Thereforeit
shouldbeexercisedwithcautiontominimizeinjurytotheproprietaryrightsofa
taxpayer.Itmustbeexercisedfairly,equallyanduniformly,lestthetaxcollectorkillthe
henthatlaysthegoldenegg.And,inordertomaintainthegeneralpublictrustand
confidenceintheGovernmentthispowermustbeusedjustlyandnottreacherously.
Thedoctrineseekstodescribe,inanextreme,theconsequentialnatureoftaxation
anditsresultingimplications,towit:
a. Thepowertotaxmustbeexercisedwithcautiontominimizeinjurytoproprietary
rightsofataxpayer;
b. Ifthetaxislawfulandnotviolativeofanyoftheinherentandconstitutional
limitations,thefactalonethatitmaydestroyanactivityorobjectoftaxationwillnot
entirelypermitthecourtstoaffordanyrelief;and
c. Asubjectorobjectthatmaynotbedestroyedbythetaxingauthoritymaynot
likewisebetaxed.(e.g.exerciseofaconstitutionalright)
PowerofJudicialReviewinTaxation
Thecourtscannotreviewthewisdomoradvisabilityorexpediencyofatax.The
courtspowerislimitedonlytotheapplicationandinterpretationofthelaw.
Judicialactionislimitedonlytoreviewwhereinvolves:
1. Thedeterminationofvalidityonthetaxinrelationtoconstitutionalpreceptsor
provisions.
2. Thedetermination,inanappropriatecase,oftheapplicationofthelaw.

AspectsofTaxation
1. Levydeterminationofthepersons,propertyorexcisestobetaxed,thesumor
sumstoberaised,theduedatethereofandthetimeandmanneroflevyingand
collectingtaxes(strictlyspeaking,suchreferstotaxation)
2. Collectionconsistsofthemannerofenforcementoftheobligationonthepartof
thosewhoaretaxed.(thisincludespaymentbythetaxpayerandisreferredtoastax
administration)
Thetwoprocessestogetherconstitutethetaxationsystem.
BasicPrinciplesofaSoundTaxSystem[FAT]

1. FiscalAdequacythesourcesoftaxrevenueshouldcoincidewith,andapproximate
theneedsofgovernmentexpenditure.Neitheranexcessnoradeficiencyofrevenuevis
vistheneedsofgovernmentwouldbeinkeepingwiththeprinciple.
2. AdministrativeFeasibilitytaxlawsshouldbecapableofconvenient,justand
effectiveadministration.
3. TheoreticalJusticethetaxburdenshouldbeinproportiontothetaxpayer
sabilitytopay(abilitytopayprinciple).The1987Constitutionrequirestaxationtobe
equitableanduniform.

II.ClassificationsandDistinction
ClassificationofTaxes
A. AstoSubjectmatter
1. Personal,capitationorpolltaxestaxesoffixedamountuponallpersonsofa
certainclasswithinthejurisdictionofthetaxingpowerwithoutregardtotheamountof
theirpropertyoroccupationsorbusinessesinwhichtheymaybeengagedin.
example:communitytax
2. PropertyTaxestaxesonthingsorpropertyofacertainclasswithinthe
jurisdictionofthetaxingpower.
example:realestatetax
3. ExciseTaxeschargesimposedupontheperformanceofanact,theenjoymentofa
privilege,ortheengaginginanoccupation.
examples:incometax,valueaddedtax,estatetaxordonorstax

B. AstoBurden
1. DirectTaxestaxeswhereinboththeincidenceaswellastheimpactorburden
ofthetaxfacesononeperson.
examples:incometax,communitytax,donorstax,estatetax
2. IndirectTaxestaxeswhereintheincidenceofortheliabilityforthepaymentof
thetaxfallsononeperson,buttheburdenthereofcanbeshiftedorpassedtoanother

person.
examples:VAT,percentagetaxes,customsdutiesexcisetaxesoncertainspecific
goods
ImportantPointstoConsiderregardingIndirectTaxes:
1. Whentheconsumerorenduserofamanufacturerproductistaxexempt,such
exemptioncoversonlythosetaxesforwhichsuchconsumerorenduserisdirectly
liable.Indirecttaxesarenotincluded.Hence,themanufacturercannotclaimexemption
fromthepaymentofsalestax,neithercantheconsumerorbuyeroftheproductdemand
therefundofthetaxthatthemanufacturermighthavepassedontohim.(Phil.Acetylene
Co.inc.vsCommissionerofInternalRevenueet.al.,L19707,Aug.17,1987)
2. Whenthetransactionitselfistheonethatistaxexemptbutthrougherrortheseller
paysthetaxandshiftsthesametothebuyer,thesellergetstherefund,butmustholdit
intrustforbuyer.(AmericanRubberCo.case,L10963,April30,1963)
3. Wheretheexemptionfromindirecttaxisgiventothecontractee,buttheevident
intentionistoexemptthecontractorsothatsuchcontractormaynolongershiftorpass
onanytaxtothecontractee,thecontractormayclaimtaxexemptiononthetransaction
(CommissionerofInternalRevenuevsJohnGotamcoandSons,Inc.,et.al.,L31092,Feb.27,
1987)
4. Whenthelawgrantingtaxexemptionspecificallyincludesindirecttaxesorwhenitis
clearlymanifestthereinthatlegislativeintentiontoexemptembracesindirecttaxes,then
thebuyeroftheproductorservicesoldhasarighttobereimbursedtheamountofthe
taxesthatthesellerspassedontohim.(MacedavsMacaraig,supra)

C. AstoPurpose
1. General/Fiscal/Revenuetaximposedforthegeneralpurposesofthegovernment,
i.e.,toraiserevenuesforgovernmentalneeds.
Examples:incometaxes,VAT,andalmostalltaxes
2. Special/Regulatorytaximposedforspecialpurposes,i.e.,toachievesomesocial
oreconomicneeds.
Examples:educationalfundtaxunderRealPropertyTaxation
D. AstoMeasureofApplication

1. SpecificTaxtaximposedperhead,unitornumber,orbysomestandardofweight
ormeasurementandwhichrequiresnoassessmentbeyondalistingandclassificationof
thesubjectstobetaxed.
Examples:taxesondistilledspirits,wines,andfermentedliquors
2. AdValoremTaxtaxbasedonthevalueofthearticleorthingsubjecttotax.
example:realpropertytaxes,customsduties
E. AstoDate
1. ProgressiveTaxtherateortheamountofthetaxincreasesastheamountofthe
incomeorearning(taxbase)tobetaxedincreases.
examples:incometax,estatetax,donorstax
2. RegressiveTaxthetaxratedecreasesastheamountofincomeorearning(tax
base)tobetaxedincreases.
Note:Wehavenoregressivetaxes(thisisaccordingtoDeLeon)
3. MixedTaxtaxratesarepartlyprogressiveandpartlyregressive.
4. ProportionateTaxtaxratesarefixedonaflattaxbase.
examples:realestatetax,VAT,andotherpercentagetaxes

F. AstoScopeorauthorityimposingthetax
1. NationalTaxtaximposedbytheNationalGovernment.
examples:nationalinternalrevenuetaxes,customsduties
2. Municipal/LocalTaxtaximposedbyLocalGovernmentunits.
examples:realestatetax,professionaltax
RegressiveSystemofTaxationvisvisRegressiveTax
Aregressivetax,mustnotbeconfusedwithregressivesystemoftaxation.
RegressiveTax:taxtherateofwhichdecreasesasthetaxbaseincreases.
RegressiveSystemofTaxation:focusesonindirecttaxes,itexistswhenthereare
moreindirecttaxesimposedthandirecttaxes.
TaxesdistinguishedfromotherImpositions

a. TollvsTax
Tollsumofmoneyfortheuseofsomething,generallyappliedtothe
considerationwhichispaidfortheuseofaroad,bridgeofthelike,ofapublicnature.

TaxvsToll
1. demandof
1. demandof
sovereignty
proprietorship
2. paidforthe
2. paidfortheuse
supportofthe
ofanothers
government
property
3. generally,no
3. amount
limitastoamount dependsonthe
imposed
costof
constructionor
maintenanceofthe
public
improvementused
4. imposedonly
4. imposedbythe
bythegovernment governmentor
privateindividuals
orentities
b. PenaltyvsTax
Penaltyanysanctionsimposedasapunishmentforviolationsoflaworacts
deemedinjurious.
TaxvsPenalty
1. generally
1. designedto
intendedtoraise
regulateconduct
revenue
2. imposedonly
2. imposedbythe
bythegovernment governmentor
privateindividuals
orentities
c. SpecialAssessmentvsTax
SpecialAssessmentanenforcedproportionalcontributionfromownersoflands
especiallyorpeculiarlybenefitedbypublicimprovements.

TaxvsSpecial
Assessment
1. imposedon
1. leviedonlyon
persons,property land
andexcise
2. personal
2. notapersonal
liabilityofthe
liabilityofthe
personassessed
personassessed,
i.e.hisliabilityis
limitedonlytothe
landinvolved
3. basedon
3. basedwholly
necessityaswellas onbenefits
onbenefits
received
4. general
4. exceptional
application(see
bothastimeand
ApostolicPrefect
place
vsTreas.Of
Baguio,71Phil
547)
ImportantPointstoConsiderRegardingSpecialAssessments:
1. Sincespecialassessmentsarenottaxeswithintheconstitutionalorstatutory
provisionsontaxexemptions,itfollowsthattheexemptionunderSec.28(3),Art.VIof
theConstitutiondoesnotapplytospecialassessments.
2. However,inviewoftheexemptingprovisoinSec.234oftheLocalGovernmentCode,
propertieswhichareactually,directlyandexclusivelyusedforreligious,charitableand
educationalpurposesarenotexactlyexemptfromrealpropertytaxesbutareexemptfrom
theimpositionofspecialassessmentsaswell.(seeAban)
3.Thegeneralruleisthatanexemptionfromtaxationdoesnotincludeexemptionfrom
specialassessment.
d. LicenseorPermitFeevsTax
LicenseorPermitfeeisachargeimposedunderthepolicepowerforthe
purposesofregulation.
TaxvsLicense/
PermitFee

1. enforced
contribution
assessedby
sovereignauthority
todefraypublic
expenses
2. forrevenue
purposes
3. anexerciseof
thetaxingpower
4. generallyno
limitintheamount
oftaxtobepaid

5. imposedalso
onpersonsand
property
6. nonpayment
doesnot
necessarilymake
theactorbusiness
illegal

1.
2.
3.

1. legal
compensationor
rewardofan
officerforspecific
purposes
2. forregulation
purposes
3. anexerciseof
thepolicepower
4. amountis
limitedtothe
necessaryexpenses
ofinspectionand
regulation
5. imposedonthe
righttoexercise
privilege
6. nonpayment
makestheactor
businessillegal

Threekindsoflicensesarerecognizedinthelaw:
Licensesfortheregulationofusefuloccupations.
Licensesfortheregulationorrestrictionofnonusefuloccupationsorenterprises
Licensesforrevenueonly

Importanceofthedistinctionsbetweentaxandlicensefee:
1. Somelimitationsapplyonlytooneandnottotheother,andthatexemptionfrom
taxesmaynotincludeexemptionfromlicensefees.
2. Thepowertoregulateasanexerciseofpolicepowerdoesnotincludethepowerto
imposefeesforrevenuepurposes.(seeAmericanMailLinevsCityofButuan,L12647,
May31,1967andrelatedcases)
3. Anextraction,however,maybeconsideredbothataxandalicensefee.
4. Butataxmayhaveonlyaregulatorypurpose.
5. Thegeneralruleisthattheimpositionisataxifitsprimarypurposeistogenerate
revenueandregulationismerelyincidental;butifregulationistheprimarypurpose,the

factthatincidentallyrevenueisalsoobtaineddoesnotmaketheimpositionofatax.(see
ProgressiveDevelopmentCorp.vsQuezonCity,172SCRA629)
e. DebtvsTax
Debtisbaseduponjuridicaltie,createdbylaw,contracts,delictsorquasidelicts
betweenpartiesfortheirprivateinterestorresultingfromtheirownactsoromissions.
TaxvsDebt
1. basedonlaw
1. basedon
contracts,express
orimplied
2. generally,
2. assignable
cannotbeassigned
3. generally
3. maybepaidin
payableinmoney
kind
4. generallynot
4. maybesubject
subjecttosetoffor tosetoffor
compensation
compensation
5. imprisonment 5. no
isasanctionfor
imprisonmentfor
nonpaymentof
nonpaymentof
taxexceptpolltax
debt
6. governedby
6. governedby
specialprescriptive theordinary
periodsprovided
periodsof
forintheTaxCode prescriptions
7. doesnotdraw 7. drawsinterest
interestexcept
whensostipulated,
onlywhen
orincaseofdefault
delinquent
GeneralRule:Taxesarenotsubjecttosetofforlegalcompensation.Thegovernment
andthetaxpayerarenotcreditorsanddebtorsoreachother.Obligationsinthenatureof
debtsareduetothegovernmentinitscorporatecapacity,whiletaxesareduetothe
governmentinitssovereigncapacity(PhilexMiningCorp.vsCIR,294SCRA687;Republic
vsMambulaoLumberCo.,6SCRA622)
Exception:Whereboththeclaimsofthegovernmentandthetaxpayeragainsteach
otherhavealreadybecomedueanddemandableaswellasfullyliquated.(seeDomingovs
Garlitos,L18904,June29,1963)

PertinentCase:
PhilexMiningCorp.vsCommissionerofInternalRevenue
G.R.No.125704,Aug.28,1998

TheSupremeCourtheldthat:Wehaveconsistentlyruledthattherecanbeno
offsettingoftaxesagainsttheclaimsthatthetaxpayermayhaveagainstthegovernment.
Apersoncannotrefusetopayataxonthegroundthatthegovernmentoweshiman
amountequaltoorgreaterthanthetaxbeingcollected.Thecollectionofataxcannot
awaittheresultsofalawsuitagainstthegovernment.
f. TaxDistinguishedfromotherTerms.
1. Subsidyapecuniaryaiddirectlygrantedbythegovernmenttoanindividualor
privatecommercialenterprisedeemedbeneficialtothepublic.
2. Revenuereferstoallthefundsorincomederivedbythegovernment,whether
fromtaxorfromwhateversourceandwhatevermanner.
3. CustomsDutiestaxesimposedongoodsexportedfromorimportedintoacountry.
Thetermtaxesisbroaderinscopeasitincludescustomsduties.
4. Tariffitmaybeusedin3senses:
a. Asabookofratesdrawnusuallyinalphabeticalordercontainingthenamesof
severalkindsofmerchandisewiththecorrespondingdutiestobepaidforthesame.
b. Asdutiespayableongoodsimportedorexported(PDNo.230)
c. Asthesystemorprincipleofimposingdutiesontheimportation/exportationof
goods.
5. InternalRevenuereferstotaxesimposedbythelegislativeotherthandutiesor
importsandexports.
6. MarginFeeacurrencymeasuredesignedtostabilizethecurrency.
7. Tributesynonymouswithtax;taxationimpliestributefromthegovernedtosome
formofsovereignty.

8. Impostinitsgeneralsense,itsignifiesanytax,tributeorduty.Initslimitedsense,
itmeansadutyonimportedgoodsandmerchandise.
InherentPowersoftheState
1. PolicePower
2. PowerofEminentDomain
3. PowerofTaxation
DistinctionsamongtheThreePowers
Taxation Police
Power
PURPOSE
levied

forthe
exercised
purpose to
ofraising promote
revenue
public
welfare
thru
regulation
s
AMOUNTOFEXACTION
nolimit limited
tothe
costof
regulation
s,

issuance
ofthe
licenseor
surveillan
ce
BENEFITSRECEIVED

Eminent
Domain
takingof
propertyfor
publicuse

no
exaction,
compensatio
npaidbythe
government

no
no
direct
special
direct
benefit
ordirect benefits
resultsinthe
benefits buta
formofjust
received healthy
compensatio
butthe
economic n
enjoymen standard
tofthe
ofsociety
privileges or
ofliving damnum
inan
absque
organized injuriais
society
attained
NONIMPAIRMENTOFCONTRACTS
the
contract contracts
impairme maybe
maybe
ntrule
impaired impaired
subsist
TRANSFEROFPROPERTYRIGHTS
taxes
no
propertyis
paid
transfer
takenbythe
become butonly govtupon
partof
restraint paymentof
public
onthe
just
funds
exercise
compensatio
of
n
property
right
exists
SCOPE
affects affects
affectsonly
all
all
the
persons, persons, particular
property property, property
and
privileges, comprehend
excise
andeven ed
rights
BASIS

public
necessity

public
public
necessity necessity,
andthe
private
rightof
propertyis
thestate takenfor
andthe
publicuse
publicto
self
protection
andself
preservati
on
AUTHORITYWHICHEXERCISESTHE
POWER
onlyby onlyby maybe
the
the
grantedto
governme governme public
ntorits ntorits
service,
political political
companies,
subdivisi subdivisio orpublic
ons
ns
utilities
III.LimitationsonthePowerofTaxation
Limitations,Classified
a. InherentLimitationsorthosewhichrestrictthepoweralthoughtheyarenot
embodiedintheConstitution[PNITE]
1.
2.
3.
4.
5.

PublicPurposeofTaxes
NondelegabilityoftheTaxingPower
TerritorialityortheSitusofTaxation
ExemptionoftheGovernmentfromtaxes
InternationalComity

b. ConstitutionalLimitationsorthoseexpresslyfoundintheconstitutionorimplied
fromitsprovision
1. Dueprocessoflaw
2. Equalprotectionoflaw

3. FreedomofSpeechandofthepress
4. Noninfringementofreligiousfreedom
5. Nonimpairmentofcontracts
6. Nonimprisonmentfordebtornonpaymentofpolltax
7. OriginofAppropriation,RevenueandTariffBills
8. Uniformity,EquitabilityandProgressitivityofTaxation
9. DelegationofLegislativeAuthoritytoFxTariffRates,ImportandExportQuotas
10. TaxExemptionofPropertiesActually,Directly,andExclusivelyusedforReligious
Charitable
11. VotingrequirementsinconnectionwiththeLegislativeGrantofTaxExemption
12. NonimpairmentoftheSupremeCourtsjurisdictioninTaxCases
13. TaxexemptionofRevenuesandAssets,includingGrants,Endowments,Donations
orContributionstoEducationInstitutions
c.OtherConstitutionalProvisionsrelatedtoTaxation
1.
2.
3.
4.
5.
6.

SubjectandTitleofBills
PowerofthePresidenttoVetoanitemsinanAppropriation,RevenueorTariffBill
NecessityofanAppropriationmadebeforemoney
AppropriationofPublicMoney
TaxesLeviedforSpecialPurposes
AllotmenttoLGC

InherentLimitations
A.PublicPurposeofTaxes
1. ImportantPointstoConsider:
a. Iftaxationisforapublicpurpose,thetaxmustbeused:

a.1)forthesupportofthestateor
a.2)forsomerecognizedobjectsofgovernmentsor

a.3)directlytopromotethewelfareofthecommunity(taxationasan
implementofpolicepower)
b. Thetermpublicpurposeissynonymouswithgovernmentalpurpose;apurpose
affectingtheinhabitantsofthestateortaxingdistrictasacommunityandnotmerelyas
individuals.
c.Ataxleviedforaprivatepurposeconstitutesatakingofpropertywithoutdue
processoflaw.

 d.Thepurposestobeaccomplishedbytaxationneednotbeexclusivelypublic.
Althoughprivateindividualsaredirectlybenefited,thetaxwouldstillbevalidprovided
suchbenefitisonlyincidental.
e.Thetestisnotastowhoreceivesthemoney,butthecharacterofthepurposefor
whichitisexpended;nottheimmediateresultoftheexpenditurebutrathertheultimate.
g.Intheimpositionoftaxes,publicpurposeispresumed.

2. TestindeterminingPublicPurposesintax
a.DutyTestwhetherthethingtobethreatenedbytheappropriationofpublicrevenue
issomethingwhichisthedutyoftheState,asagovernment.
b.PromotionofGeneralWelfareTestwhetherthelawprovidingthetaxdirectly
promotesthewelfareofthecommunityinequalmeasure.

BasicPrinciplesofaSoundTaxSystem(FAT)
a.FiscalAdequacythesourcesoftaxrevenueshouldcoincidewith,andapproximate
theneedsofgovernmentexpenditure.Neitheranexcessnoradeficiencyofrevenuevis
vistheneedsofgovernmentwouldbeinkeepingwiththeprinciple.
b.AdministrativeFeasibilitytaxlawsshouldbecapableofconvenient,justand
effectiveadministration.
c.TheoreticalJusticethetaxburdenshouldbeinproportiontothetaxpayersability
topay(abilitytopayprinciple).The1987Constitutionrequirestaxationtobeequitable
anduniform.

B.NondelegabilityofTaxingPower
1. Rationale:DoctrineofSeparationofPowers;Taxationispurely
legislative,Congresscannotdelegatethepowertoothers.
2. Exceptions:
a.DelegationtothePresident(Art.VI.Sec.28(2)1987Constitution)

ThepowergrantedtoCongressunderthisconstitutionalprovisiontoauthorizethe
Presidenttofixwithinspecifiedlimitsandsubjecttosuchlimitationsandrestrictionsas
itmayimpose,tariffratesandotherdutiesandimpostsincludetariffsratesevenfor
revenuepurposesonly.Customsdutieswhichareassessedattheprescribedtariffrates
areverymuchliketaxeswhicharefrequentlyimposedforbothrevenueraisingand
regulatorypurposes(GarciavsExecutiveSecretary,et.al.,G.R.No.101273,July3,1992)
b.DelegationstotheLocalGovernment(Art.X.Sec.5,1987Constitution)
Ithasbeenheldthatthegeneralprincipleagainstthedelegationoflegislative
powersasaconsequenceofthetheoryofseparationofpowersissubjecttoonewell
establishedexception,namely,thatlegislativepowermaybedelegatedtolocal
governments.Thetheoryofnondelegationoflegislativepowersdoesnotapplyin
matersoflocalconcern.(PepsiColaBottlingCo.ofthePhil,Inc.vsCityofButuan,et.al.,
L22814,Aug.28,1968)
c.DelegationtoAdministrativeAgencieswithrespecttoaspectsofTaxationnot
legislativeincharacter.

example:assessmentandcollection
3. LimitationsonDelegation
a.ItshallnotcontraveneanyConstitutionalprovisionsorinherentlimitationsof
taxation;
b.ThedelegationiseffectedeitherbytheConstitutionorbyvalidlyenacted
legislativemeasuresorstatute;and
c.Thedelegatedlevypower,exceptwhenthedelegationisbyanexpressprovision
ofConstitutionitself,shouldonlybeinfavorofthelocallegislativebodyofthelocalor
municipalgovernmentconcerned.
4. TaxLegislationvisvisTaxAdministrationEverysystemoftaxationconsists
oftwoparts:

a.theelementsthatenterintotheimpositionofthetax[S2APKAM],ortax
regulation;and

b.thestepstakenforitsassessmentandcollectionortaxadministration
Ifwhatisdelegatedistaxlegislation,thedelegationisinvalid;butifwhatis
involvedisonlytaxadministration,thenondelegabilityruleisnotviolated.

C.TerritorialityorSitusofTaxation

1. ImportantPointstoConsider:
a. TerritorialityorSitusofTaxationmeansplaceoftaxationdependingonthe
natureoftaxesbeingimposed.
b. Itisaninherentmandatethattaxationshallonlybeexercisedonpersons,
properties,andexcisewithintheterritoryofthetaxingpowerbecause:
b.1)Taxlawsdonotoperatebeyondacountrysterritoriallimit.
b.2)Propertywhichiswhollyandexclusivelywithinthejurisdictionofanother
statereceivesnoneoftheprotectionforwhichataxissupposedtobe
compensation.
c. However,thefundamentalbasisoftherighttotaxisthecapacityofthe
governmenttoprovidebenefitsandprotectiontotheobjectofthetax.Apersonmay
betaxed,evenifheisoutsidethetaxingstate,wherethereisbetweenhimandthe
taxingstate,aprivityofrelationshipjustifyingthelevy.
2. FactorstoConsiderindeterminingSitusofTaxation
a. kindandClassificationoftheTax
b. locationofthesubjectmatterofthetax
c. domicileorresidenceoftheperson
d. citizenshipoftheperson
e. sourceofincome
f. placewheretheprivilege,businessoroccupationisbeingexercised

D.ExemptionoftheGovernmentfromTaxes
1. ImportantPointstoConsider:
ReasonsforExemptions:
a.1)Tolevytaxuponpublicpropertywouldrendernecessarynewtaxesonother
publicpropertyforthepaymentofthetaxsolaidandthus,thegovernmentwould
betaxingitselftoraisemoneytopayovertoitself;
a.2)Inorderthatthefunctionsofthegovernmentshallnotbeundulyimpede;and
a.3)Toreducetheamountofmoneythathastobehandedbythegovernmentin
thecourseofitsoperations.
2. Unlessotherwiseprovidedbylaw,theexemptionappliesonlytogovernment
entitiesthroughwhichthegovernmentimmediatelyanddirectlyexercisesits
sovereignpowers(InfantryPostExchangevsPosadas,54Phil866)
3. Notwithstandingtheimmunity,thegovernmentmaytaxitselfintheabsenceof
anyconstitutionallimitations.
4. Governmentownedorcontrolledcorporations,whenperformingproprietary

functionsaregenerallysubjecttotaxintheabsenceoftaxexemptionprovisionsin
theirchartersorlawcreatingthem.
E.InternationalComity
1. ImportantPointstoConsider:
a. Thepropertyofaforeignstateorgovernmentmaynotbetaxedbyanother.
b. Thegroundsfortheaboveruleare:
b.1)sovereignequalityamongstates
b.2)usageamongstatesthatwhenoneenterintotheterritoryofanother,thereis
animpliedunderstandingthatthepowerdoesnotintendtodegradeitsdignityby
placingitselfunderthejurisdictionofthelatter
b.3)foreigngovernmentmaynotbesuedwithoutitsconsentsothatitisuselessto
assessthetaxsinceitcannotbecollected
b.4)reciprocityamongstates
ConstitutionalLimitations
1. DueProcessofLaw
a. Basis:Sec.1Art.3Nopersonshallbedeprivedoflife,libertyorpropertywithout
dueprocessoflawxxx.
Requisites:
1. Theinterestofthepublicgenerallyasdistinguishedfromthoseofa
particularclassrequiretheinterventionofthestate;
2. Themeansemployedmustbereasonablynecessarytotheaccomplishment
forthepurposeandnotundulyoppressive;
3. Thedeprivationwasdoneundertheauthorityofavalidlaworofthe
constitution;and
4. Thedeprivationwasdoneaftercompliancewithfairandreasonablemethod
ofprocedureprescribedbylaw.
Inastringofcases,theSupremeCourtheldthatinorderthatdueprocessof
lawmustnotbedoneinanarbitrary,despotic,capricious,orwhimsicalmanner.
2. EqualProtectionoftheLaw
a. Basis:Sec.1Art.3xxxNorshallanypersonbedeniedtheequalprotectionofthe
laws.

ImportantPointstoConsider:
1.
Equalprotectionofthelawssignifiesthatallpersonssubjecttolegislation
shallbetreatedundercircumstancesandconditionsbothintheprivilegesconferredand
liabilitiesimposed
2.
Thisdoctrineprohibitsclasslegislationwhichdiscriminatesagainstsome
andfavorsothers.
b. RequisitesforaValidClassification
1.Mustnotbearbitrary
2.Mustnotbebaseduponsubstantialdistinctions
3.Mustbegermanetothepurposeoflaw.
4.Mustnotbelimitedtoexitingconditionsonly;and
5.Mustplayequallytoallmembersofaclass.
3. Uniformity,EquitabilityandProgressivityofTaxation
a. Basis:Sec.28(1)Art.VI.Theruleoftaxationshallbeuniformandequitable.The
Congressshallevolveaprogressivesystemoftaxation.
b.ImportantPointstoConsider:
1. Uniformity(equalityorequalprotectionofthelaws)meansalltaxablearticles
orkindsorpropertyofthesameclassshallbetaxedatthesamerate.Ataxisuniform
whenthesameforceandeffectineveryplacewherethesubjectofitisfound.
2. Equitablemeansfair,just,reasonableandproportionatetoonesabilitytopay.
3. ProgressivesystemofTaxationplacesstressondirectratherthanindirect
taxes,oronthetaxpayersabilitytopay
4. Inequalitywhichresultsinsinglingoutoneparticularclassfortaxationor
exemptioninfringesnoconstitutionallimitation.(seeCommissionervs.LingayenGulf
Electric,164SCRA27)
5. Theruleofuniformitydoesnotcallforperfectuniformityorperfectequality,
becausethisishardlyattainable.
4. FreedomofSpeechandofthePress
a. Basis:Sec.4Art.III.Nolawshallbepassedabridgingthefreedomofspeech,of
expressionorofthepressxxx
b.ImportantPointstoConsider:

1.Thereiscurtailmentofpressfreedomandfreedomofthoughtifataxis
leviedinordertosuppressthebasicrightofthepeopleundertheConstitution.

2.Abusinesslicensemaynotberequiredforthesaleorcontributionofprinted
materialslikenewspaperforsuchwouldbeimposingapriorrestraintonpressfreedom


3.However,anannualregistrationfeeonallpersonssubjecttothevalueadded
taxdoesnotconstitutearestraintonpressfreedomsinceitisnotimposedforthe
exerciseofaprivilegebutonlyforthepurposeofdefrayingpartofcostofregistration.
5. NoninfringementofReligiousFreedom
a. Basis:Sec.5Art.III.Nolawshallbemaderespectinganestablishmentof
religionorprohibitingthefreeexercisethereof.Thefreeexerciseandenjoymentof
religiousprofessionandworship,withoutdiscriminationorpreference,shallbe
foreverbeallowed.xxx
b. ImportantPointstoConsider:

1.Licensefees/taxeswouldconstitutearestraintonthefreedomofworshipas
theyareactuallyinthenatureofaconditionorpermitoftheexerciseoftheright.

2.However,theConstitutionortheFreeExerciseofReligionclausedoesnot
prohibitimposingagenerallyapplicablesalesandusetaxonthesaleofreligious
materialsbyareligiousorganization.(seeTolentinovsSecretaryofFinance,235SCRA
630)
6. NonimpairmentofContracts
a. Basis:Sec.10Art.III.Nolawimpairingtheobligationofcontractshallbe
passed.
b. ImportantPointstoConsider:
1. Alawwhichchangesthetermsofthecontractbymakingnewconditions,or
changingthoseinthecontract,ordispenseswiththoseexpressed,impairstheobligation.
2. Thenonimpairmentrule,however,doesnotapplytopublicutilityfranchise
sinceafranchiseissubjecttoamendment,alterationorrepealbytheCongresswhenthe
publicinterestsorequires.

7. Nonimprisonmentfornonpaymentofpolltax
a. Basis:Sec.20Art.III.Nopersonshallbeimprisonedfordebtornonpaymentof
polltax.
b. ImportantPointstoConsider:
1.Theonlypenaltyfordelinquencyinpaymentisthepaymentofsurchargein
theformofinterestattherateof24%perannumwhichshallbeaddedtotheunpaid
amountfromduedateuntilitispaid.(Sec.161,LGC)
2.Theprohibitionisagainstimprisonmentfornonpaymentofpolltax.
Thus,apersonissubjecttoimprisonmentforviolationofthecommunitytaxlawother

thanfornonpaymentofthetaxandfornonpaymentofothertaxesasprescribedby
law.
8. OriginorRevenue,AppropriationandTariffBills
a. Basis:Sec.24Art.VI.Allappropriation,revenueortariffbills,billauthorizing
increaseofthepublicdebt,billsoflocalapplication,andprivatebillsshalloriginate
exclusivelyintheHouseofRepresentatives,buttheSenatemayproposeorconcur
withamendments.
b. Undertheaboveprovision,theSenatorspowerisnotonlytoonlyconcurwith
amendmentsbutalsotoproposeamendments.(TolentinovsSec.ofFinance,supra)
9. DelegationofLegislativeAuthoritytoFixTariffRates,ImportsandExport
Quotas
a. Basis:Sec.28(2)Art.VIxxxTheCongressmay,bylaw,authorizethePresident
tofixwithinspecifiedlimits,andsubjecttosuchlimitationsandrestrictionsasitmay
impose,tariffrates,importandexportquotas,tonnageandwharfagedues,andother
dutiesorimpostswithintheframeworkofthenationaldevelopmentprogramofthe
government.
10. TaxExemptionofPropertiesActually,DirectlyandExclusivelyusedfor
Religious,CharitableandEducationalPurposes
a. Basis:Sec.28(3)Art.VI.Charitableinstitutions,churchesandparsonagesor
conventsappurtenantthereto,mosques,nonprofitcemeteries,andalllands,
building,andimprovementsactually,directlyandexclusivelyusedforreligious,
charitableoreducationalpurposesshallbeexemptfromtaxation.
b. ImportantPointstoConsider:

1.Lestofthetaxexemption:theuseandnotownershipoftheproperty

2.Tobetaxexempt,thepropertymustbeactually,directlyandexclusively
usedforthepurposesmentioned.

3.Thewordexclusivelymeansprimarily.

4.Theexemptionisnotlimitedtopropertyactuallyindispensablebutextends
tofacilitieswhichareincidentaltoandreasonablynecessaryfortheaccomplishmentof
saidpurposes.

5.Theconstitutionalexemptionappliesonlytopropertytax.

6.However,itwouldseemthatunderexistinglaw,giftsmadeinfavoror
religiouscharitableandeducationalorganizationswouldneverthelessqualifyfordonors
gifttaxexemption.(Sec.101(9)(3),NIRC)

11. VotingRequirementsinconnectionwiththeLegislativeGrantfortax
exemption
a. Basis:Sec.28(4)Art.VI.Nolawgrantinganytaxexemptionshallbepassed
withouttheconcurrenceofamajorityofallthemembersoftheCongress.
b. Theaboveprovisionrequirestheconcurrenceofamajoritynotofattendees
constitutingaquorumbutofallmembersoftheCongress.
12. NonimpairmentoftheSupremeCourtsjurisdictioninTaxCases
a. Basis:Sec.5(2)Art.VIII.TheCongressshallhavethepowertodefine,prescribe,
andapportionthejurisdictionofthevariouscourtsbutmaynotdeprivetheSupreme
CourtofitsjurisdictionovercasesenumeratedinSec.5hereof.
Sec.5(2b)Art.VIII.TheSupremeCourtshallhavethefollowingpowers:xxx
(2)Review,revise,modifyoraffirmonappealorcertiorarixxxfinaljudgmentsand
ordersoflowercourtsinxxxallcasesinvolvingthelegalityofanytax,impost,
assessment,ortolloranypenaltyimposedinrelationthereto.
13. TaxExemptionsofRevenuesandAssets,includinggrants,endowments,
donationsorcontributionstoEducationalInstitutions
a. Basis:Sec.4(4)Art.XIV.Subjecttotheconditionsprescribedbylaw,allgrants,
endowments,donationsorcontributionsusedactually,directlyandexclusivelyfor
educationalpurposesshallbeexemptfromtax.
b. ImportantPointstoConsider:
1. Theexemptiongrantedtononstock,nonprofiteducationalinstitutioncovers
income,property,anddonorstaxes,andcustomduties.
2. Tobeexemptfromtaxorduty,therevenue,assets,propertyordonationmustbe
usedactually,directlyandexclusivelyforeducationalpurpose.
3. Inthecaseorreligiousandcharitableentitiesandnonprofitcemeteries,the
exemptionislimitedtopropertytax.
4. Thesaidconstitutionalprovisiongrantingtaxexemptiontononstock,nonprofit
educationalinstitutionisselfexecuting.
5. Taxexemptions,however,ofproprietary(forprofit)educationalinstitutionsrequire
priorlegislativeimplementation.Theirtaxexemptionisnotselfexecuting.
6. Lands,Buildings,andimprovementsactually,directly,andexclusivelyusedfor
educationalpurposedareexemptfrompropertytax,whethertheeducationalinstitution
isproprietaryornonprofit.

c. DepartmentofFinanceOrderNo.13787,datedDec.16,1987

ThefollowingaresomeofthehighlightsoftheDOFordergoverningthetax
exemptionofnonstock,nonprofiteducationalinstitutions:
1.
Thetaxexemptionisnotonlylimitedtorevenuesandassetsderivedfromstrictly
schooloperationslikeincomefromtuitionandothermiscellaneousfeedsuchas
matriculation,library,ROTC,etc.fees,butitalsoextendstoincidentalincomederived
fromcanteen,bookstoreanddormitoryfacilities.
2.
Inthecase,however,ofincidentalincome,thefacilitiesmentionedmustnotonly
beownedandoperatedbytheschoolitselfbutsuchfacilitiesmustbelocatedinsidethe
schoolcampus.Canteensoperatedbymereconcessionairesaretaxable.
3.
Incomewhichisunrelatedtoschooloperationslikeincomefrombankdeposits,
trustfundandsimilararrangements,royalties,dividendsandrentalincomearetaxable.
4.Theuseoftheschoolsincomeorassetsmustbeinconsonancewiththepurposes
forwhichtheschooliscreated;inshort,usemustbeschoolrelated,likethegrantof
scholarships,facultydevelopment,andestablishmentofprofessionalchairs,school
buildingexpansion,libraryandschoolfacilities.

OtherConstitutionalProvisionsrelatedtoTaxation
1. SubjectandTitleofBills(Sec.26(1)1987Constitution)

EveryBillpassedbyCongressshallembraceonlyonesubjectwhichshallbe
expressedinthetitlethereof.
intheTolentinoEVATcase,supra,theEvat,ortheExpandedValueAddedTax
Law(RA7716)wasalsoquestionedonthegroundthattheconstitutionalrequirement
onthetitleofabillwasnotfollowed.
2. PowerofthePresidenttoVetoitemsinanAppropriation,RevenueorTariff
Bill(Sec.27(2),Art.VIofthe1987Constitution)

ThePresidentshallhavethepowertovetoanyparticularitemoritemsinan
Appropriation,RevenueorTariffbillbutthevetoshallnotaffecttheitemoritemsto
whichhedoesnotobject.
3. NecessityofanAppropriationmadebeforemoneymaybepaidoutofthe
Treasury(Sec.29(1),Art.VIofthe1987Constitution)


NomoneyshallbepaidoutoftheTreasuryexceptinpursuanceofan
appropriationmadebylaw.
4. AppropriationofPublicMoneyforthebenefitofanyChurch,Sect,orSystem
ofReligion(Sec.29(2),Art.VIofthe1987Constitution)

Nopublicmoneyorpropertyshallbeappropriated,applied,paidoremployed,
directlyorindirectlyfortheuse,benefit,supportofanysect,church,denomination,
sectarianinstitution,orsystemofreligionorofanypriest,preacher,minister,orother
religiousteacherordignitaryassuchexceptwhensuchpriest,preacher,ministeror
dignitaryisassignedtothearmedforcesortoanypenalinstitution,orgovernment
orphanageorleprosarium.
5. TaxesleviedforSpecialPurpose(Sec.29(3),Art.VIofthe1987Constitution)

Allmoneycollectedoranytaxleviedforaspecialpurposeshallbetreatedasa
specialfundandpaidoutforsuchpurposeonly.Itthepurposeforwhichaspecialfund
wascreatedhasbeenfulfilledorabandonedthebalance,ifany,shallbetransferredto
thegeneralfundsofthegovernment.

AnexampleistheOilPriceStabilizationFundcreatedunderP.D.1956tostabilize
thepricesofimportedcrudeoil.Inadecidecase,itwasheldthatwhereunderan
executiveorderofthePresident,thisspecialfundistransferredfromthegeneralfund
toatrustliabilityaccount,theconstitutionalmandateisnotviolated.TheOPSF,
accordingtothecourt,remainsasaspecialfundsubjecttoCOAaudit(Osmeavs
Orbos,etal.,G.R.No.99886,Mar.31,1993)
6. AllotmenttoLocalGovernments
Basis:Sec.6,Art.Xofthe1987Constitution

LocalGovernmentunitsshallhaveajustshare,asdeterminedbylaw,inthe
nationaltaxeswhichshallbeautomaticallyreleasedtothem.

IV.SitusofTaxationandDoubleTaxation
SitusofTaxation
1. SitusofTaxationliterallymeansthePlaceofTaxation.
2. BasicRulestatewherethesubjecttobetaxedhasasitusmayrightfullylevyand

collectthetax
SomeBasicConsiderationsAffectingSitusofTaxation
1. Protection

Alegalsituscannotbegiventopropertyforthepurposeoftaxationwhereneither
thepropertynorthepersoniswithintheprotectionofthetaxingstate

InthecaseofManilaElectricCo.vsYatco(69Phil89),theSupremeCourtruledthat
insurancepremiumpaidonafireinsurancepolicycoveringpropertysituatedinthe
Phils.aretaxableinthePhils.Eventhoughthefireinsurancecontractwasexecuted
outsidethePhils.andtheinsurancepolicyisdeliveredtotheinsuredtherein.Thisis
becausethePhilippinesGovernmentmustgetsomethinginreturnfortheprotectionit
givestotheinsuredpropertyinthePhils.andbyreasonofsuchprotection,theinsureris
benefitedthereby.
2. ThemaximofMobiliaSequunturPersonamandSitusofTaxation

Accordingtothismaxim,whichmeansmovablefollowtheperson,thesitusof
personalpropertyisthedomicileoftheowner.Thisismerelyafictionoflawandisnot
allowedtostandinthewayoftaxationofpersonaltyintheplacewhereithasitsactual
situsandtherequisitelegislativejurisdictionexists.

Example:sharesofstockmayhavesitusforpurposesoftaxationinastatein
whichtheyarepermanentlykeptregardlessofthedomicileoftheowner,orthestatein
whichhecorporationisorganized.

3. LegislativePowertoFixSitus

Ifnoconstitutionalprovisionsareviolated,thepowerofthelegislativetofixsitus
isundoubted.

Example:ourlawfixesthesitusofintangiblepersonalpropertyforpurposesof
theestateandgifttaxes.(seeSec.104,1997NIRC)

Note:Inthosecaseswherethesitusforcertainintangiblesarenotcategorically
spelledout,thereisroomforapplyingthemobiliarule.
4. DoubleTaxationandtheSitusLimitation(seelatertopic)
CriteriainFixingTaxSitusofSubjectofTaxation
a. PersonsPolltaxmaybelevieduponpersonswhoareresidentsoftheState.

b. RealPropertyissubjecttotaxationintheStateinwhichitislocatedwhether
theownerisaresidentornonresident,andistaxableonlythere.
RuleofLexReiSitae
c. TangiblePersonalpropertytaxableinthestatewhereithasactualsitus
whereitisphysicallylocated.Althoughtheownerresidesinanotherjurisdiction.
RuleofLexReiSitae
d. IntangiblePersonalPropertysitusorpersonalpropertyisthedomicileofthe
owner,inaccordancewiththeprincipleMOBILIASEQUUNTURPERSONAM,said
principle,however,isnotcontrollingwhenitisinconsistentwithexpressprovisionsof
statuteorwhenjusticedemandsthatitshouldbe,aswherethepropertyhasinfacta
situselsewhere.(seeWellsFargoBankv.Collector70PHIL325;Collectorv.Fisher
L11622,January,1961)
e. Incomeproperlyexactedfrompersonswhoareresidentsorcitizensinthe
taxingjurisdictionandeventhosewhoareneitherresidentsnorcitizensprovidedthe
incomeisderivedfromsourceswithinthetaxingstate.
f. Business,Occupation,andTransactionpowertolevyanexcisetaxdepends
upontheplacewherethebusinessisdone,oftheoccupationisengagedinofthe
transactionnotplace.

g. GratuitousTransferofPropertytransmissionofpropertyfromdonorto
donee,orfromadecedenttohisheirsmaybesubjecttotaxationinthestatewherethe
transferorwasacitizenorresident,orwherethepropertyislocated.
V.MultiplicityofSitus

Thereismultiplicityofsituswhenthesamesubjectoftaxation,likeincomeor
intangible,issubjecttotaxationinseveraltaxingjurisdictions.Thishappensdueto:
a. Varianceintheconceptofdomicilefortaxpurposes;
b. Multipledistinctrelationshipthatmayarisewithrespecttointangible
personality;and
c. Theusetowhichthepropertymayhavebeendevoted,allofwhichmayreceive
theprotectionofthelawsofjurisdictionotherthanthedomicileoftheowner
Remedytaxationjurisdictionmayprovide:
a. Exemptionorallowanceofdeductionsortaxcreditforforeigntaxes

b. Enterintotreatieswithotherstates

DoubleTaxation
Two(2)KindsofDoubleTaxation
1. ObnoxiousorDirectDuplicateTaxation(Doubletaxationinitsstrictsense)In
theobjectionableorprohibitedsensemeansthatthesamepropertyistaxedtwicewhen
itshouldbetaxedonlyonce.

Requisites:
1. Samepropertyistaxedtwice
2. Samepurpose
3. Sametaxingauthority
4. Withinthesamejurisdiction
5. Duringthesametaxingperiod
6. Samekindorcharacteroftax

2. PermissiveorIndirectDuplicateTaxation(Doubletaxationinitsbroadsense)
Thisistheoppositeofdirectdoubletaxationandisnotlegallyobjectionable.The
absenceofoneormoreoftheforegoingrequisitesoftheobnoxiousdirecttaxmakesit
indirect.

InstancesofDoubleTaxationinitsBroadSense
1. Ataxonthemortgageaspersonalpropertywhenthemortgagedpropertyisalso
taxedatitsfullvalueasrealestate;
2. Ataxuponacorporationforitscapitalstockasawholeandupontheshareholders
fortheirshares;
3. Ataxuponacorporationforitscapitalstockasawholeandupontheshareholders
fortheirshares;
4. Ataxupondepositionsinthebankfortheirdepositsandataxuponthebankfor
theirpropertyinwhichsuchdepositsareinvested
5. Anexcisetaxuponcertainuseofpropertyandapropertytaxuponthesame
property;and
6. Ataxuponthesamepropertyimposedbytwodifferentstates.
MeanstoReducetheHarshEffectofTaxation
1. TaxDeductionsubtractionfromgrossincomeinarrivingataxableincome
2. TaxCreditanamountsubtractedfromanindividualsorentitystaxliabilityto
arriveatthetotaltaxliability

 Adeductiondifferfromataxcreditinthatadeductionreducestaxableincome
whilecreditreducestaxliability
3. Exemptions
4. TreatieswithotherStates
5. PrincipleofReciprocity
Constitutionality

DoubleTaxationinitsstrictersenseisundoubtedlyunconstitutionalbutthatinthe
broadersenseisnotnecessarilyso.
GeneralRule:OurConstitutiondoesnotprohibitdoubletaxation;hence,itmaynotbe
invokedasadefenseagainstthevalidityoftaxlaws.
a. WhereataxisimposedbytheNationalGovernmentandanotherbythecityfor
theexerciseofoccupationorbusinessasthetaxesarenotimposedbythesamepublic
authority(CityofBaguiovsDeLeon,Oct.31,1968)
b. WhenaRealEstatedealerstaxisimposedforengaginginthebusinessofleasing
realestateinadditiontoRealEstateTaxonthepropertyleasedandthetaxonthe
incomedesiredastheyaredifferentkindsoftax
c. Taxonmanufacturersproductsandanothertaxontheprivilegeofstoring
exportablecoprainwarehouseswithinamunicipalityareimposedasfirsttaxisdifferent
fromthesecond
d. Where,asidefromthetax,alicensefeeisimposedintheexerciseofpolicepower.
Exception:DoubleTaxationwhilenotforbidden,issomethingnotfavored.Such
taxation,ithasbeenheld,should,wheneverpossible,beavoidedandprevented.
a. Doubtsastowhetherdoubletaxationhasbeenimposedshouldberesolvedin
favorofthetaxpayer.Thereasonistoavoidinjusticeandunfairness.
b. ThetaxpayermayseekreliefundertheUniformityRuleortheEqualProtection
guarantee.
FormsofEscapefromTaxation

1.
2.
3.
4.
5.
6.

SixBasicFormsofEscapefromTaxation
Shifting
Capitalization
Transformation
Evasion
Avoidance
Exemption

1. ShiftingTransferoftheburdenofataxbytheoriginalpayerortheoneon
whomthetaxwasassessedorimposedtoanotherorsomeoneelse

Impactoftaxationisthepointatwhichataxisoriginallyimposed.

IncidenceofTaxationisthepointonwhichataxburdenfinallyrestsorsettles
down.

RelationsamongShifting,ImpactandIncidenceofTaxationtheimpactisthe
initialphenomenon,theshiftingistheintermediateprocess,andtheincidenceisthe
result.

KindsofShifting:
a. ForwardShiftingtheburdenoftaxistransferredfromafactorof
productionthroughthefactorsofdistributionuntilitfinallysettlesontheultimate
purchaserorconsumer
b. BackwardShiftingeffectedwhentheburdenoftaxistransferredfrom
theconsumerorpurchaserthroughthefactorsofdistributiontothefactorofproduction
c. OnwardShiftingthisoccurswhenthetaxisshiftedtwoormoretimes
eitherforwardorbackward
2. Capitalization,definedthereductioninthepriceofthetaxedobjectequaltothe
capitalizedvalueoffuturetaxeswhichthepurchaserexpectstobecalledupontopay
3. TransformationThemethodwherebythemanufacturerorproducerupon
whomthetaxhasbeenimposed,fearingthelossofhismarketifheshouldaddthetaxto
theprice,paysthetaxandendeavorstorecouphimselfbyimprovinghisprocessof
productiontherebyturningouthisunitsofproductsatalowercost.
4. TaxEvasionistheuseofthetaxpayerofillegalorfraudulentmeanstodefeator
lessenthepaymentofatax.
IndiciaofFraudinTaxation
a. Failuretodeclarefortaxationpurposestrueandactualincomederivedfrom
businessfortwoconsecutiveyears,and
b. Substantialunderdeclarationofincometaxreturnsofthetaxpayerforfour
consecutiveyearscoupledwithoverstatementofdeduction.
Evasionofthetaxtakesplaceonlywhentherearenoproceeds.Evasionof
Taxationistantamount,fiscallyspeaking,totheabsenceoftaxation.
5. TaxAvoidanceistheusebythetaxpayeroflegallypermissiblealternativetax
ratesormethodofassessingtaxablepropertyorincomeinordertoavoidorreducetax
liability.

 TaxAvoidanceisnotpunishablebylaw,ataxpayerhasthelegalrighttodecrease
theamountofwhatotherwisewouldbehistaxesoraltogetheravoidbymeanswhich
thelawpermits.
DistinctionbetweenTaxEvasionandAvoidance
TaxEvasionvs
TaxAvoidance
accomplished
accomplishedby
bybreakingthe legalprocedures
letterofthelaw ormeanswhich
maybecontrary
totheintentof
thesponsorsof
thetaxlawbut
neverthelessdo
notviolatethe
letterofthelaw

VI.ExemptionfromTaxation
A. TaxExemptionisagrantofimmunity,expressorimplied,toparticularpersonsor
corporationsfromtheobligationstopaytaxes.
B. NatureofTaxExemption
1. Itismerelyapersonalprivilegeofthegrantee
2. Itisgenerallyrevocablebythegovernmentunlesstheexemptionisfoundedona
contractwhichisprotectedfromimpairment,butthecontractmustcontaintheother
essentialelementsofcontracts,suchas,forexample,avalidcauseorconsideration.
3. Itimpliesawaiveronthepartofthegovernmentofitsrighttocollectwhat
otherwisewouldbeduetoit,andinthissenseisprejudicialthereto.
4. Itisnotnecessarilydiscriminatorysolongastheexemptionhasareasonable
foundationorrationalbasis.
C. RationaleoftaxExemption

Publicinterestwouldbesubservedbytheexemptionallowedwhichthelaw
makingbodyconsiderssufficienttooffsetmonetarylossentailedinthegrantofthe
exemption.(CIRvsBotheloShippingCorp.,L21633,June29,1967;CIRvsPAL,
L20960,Oct.31,1968)

D. GroundsforTaxExemptions
1. Maybebasedonacontractinwhichcase,thepublicrepresentedbythe
Governmentissupposedtoreceiveafullequivalenttherefore
2. Maybebasedonsomegroundofpublicpolicy,suchas,forexample,toencourage
newandnecessaryindustries.
3. Maybecreatedinatreatyongroundsofreciprocityortolessentherigorsof
internationaldoubleormultipletaxationwhichoccurwheretherearemanytaxing
jurisdictions,asinthetaxationofincomeandintangiblepersonalproperty
E. Equity,notagroundforTaxExemption

Thereisnotaxexemptionsolelyonthegroundofequity,butequitycanbeusedas
abasisforstatutoryexemption.Attimesthelawauthorizescondonationoftaxeson
equitableconsiderations.(Sec276,277,LocalGovernmentCode)
F. KindsofTaxExemptions
1. Astobasis
a. ConstitutionalExemptionsImmunitiesfromtaxationwhichoriginatefrom
theConstitution
b. StatutoryExemptionsThosewhichemanatefromLegislation
2. Astoform
a. ExpressExemptionWheneverexpresslygrantedbyorganicorstatuteoflaw
b. ImpliedExemptionExistwheneverparticularpersons,propertiesorexcises
aredeemedexemptastheyfalloutsidethescopeofthetaxingprovisionitself
3. Astoextent
a. TotalExemptionConnotesabsoluteimmunity
b. PartialExemptionOnewherecollectionofapartofthetaxisdispensedwith
G. PrinciplesGoverningtheTaxExemption
1. Exemptionsfromtaxationarehighlydisfavoredbylaw,andhewhoclaimsan
exemptionmustbeabletojustifybytheclearestgrantoforganicorstatuteoflaw.
(AsiaticPetroleumvsLlanes,49PHIL466;CollectorofInternalRevenuevs.ManilaJockey
Club,98PHIL670)
2. Hewhoclaimsanexemptionmustjustifythatthelegislativeintendedtoexempt
himbywordstooplaintobemistaken.(VisayanCebuTerminalvsCIR,L19530,Feb.27,
1965)
3. Hewhoclaimsexemptionsshouldconvincinglyprovedthatheisexempt
4. Taxexemptionsmustbestrictlyconstrued(Phil.AcetylenevsCIR,L19707,Aug.17,

1967)
5. TaxExemptionsarenotpresumed.(LealdaElectricCo.vsCIR,L16428,Apr.30,
1963)
6. Constitutionalgrantsoftaxexemptionsareselfexecuting(OpinionNo.130,1987,
Sec.OfJustice)
7. Taxexemptionarepersonal.
8. Deductionsforincometaxpurposespartakeofthenatureoftaxexemptions,
hence,theyarestrictlyconstruedagainstthetaxpayer
9. Ataxamnesty,muchlikeataxexemptionisneverfavoredorpresumedbylaw
(CIRvsCA,G.R.No.108576,Jan.20,1999)
10. Theruleofstrictconstructionoftaxexemptionshouldnotbeappliedto
organizationsperformingstrictlyreligious,charitable,andeducationalfunctions
VII. OtherDoctrinesinTaxation
ProspectivityofTaxLaws
GeneralRule:Taxesmustonlybeimposedprospectively
Exception:Thelanguageofthestatuteclearlydemandsorexpressthatitshallhavea
retroactiveeffect.
ImportantPointstoConsider
1. InordertodeclareataxtransgressingthedueprocessclauseoftheConstitutionit
mustbesoharshandoppressiveinitsretroactiveapplication(FernandezvsFernandez,
99PHIL934)
2. Taxlawsareneitherpoliticalnorpenalinnaturetheyaredeemedlawsofthe
occupiedterritoryratherthantheoccupyingenemy.(HiladovsCollector,100PHIL288)
3. Taxlawsnotbeingpenalincharacter,theruleintheConstitutionagainstthe
passageoftheexpostfactolawscannotbeinvoked,exceptforthepenaltyimposed.
ImprescriptibilityofTaxes
GeneralRule:Taxesareimprescriptible
Exception:Whenprovidedotherwisebythetaxlawitself.
Example:NIRCprovidesforstatutesoflimitationintheassessmentandcollectionof
taxesthereinimposed

ImportantPointtoConsider
1. Thelawonprescription,beingaremedialmeasure,shouldbeliberallyconstrued
toaffordprotectionasacorollary,theexceptionstothelawonprescriptionbestrictly
construed.(CIRvsCA.G.R.No.104171,Feb.24,1999)
DoctrineofEquitableRecoupment
Itprovidesthataclaimforrefundbarredbyprescriptionmaybeallowedtooffset
unsettledtaxliabilitiesshouldbepertinentonlytotaxesarisingfromthesame
transactiononwhichanoverpaymentismadeandunderpaymentisdue.
Thisdoctrine,however,wasrejectedbytheSupremeCourt,sayingthatitwasnot
convincedofthewisdomandproprietarythereof,andthatitmayworktotemptboththe
collectingagencyandthetaxpayertodelayandneglecttheirrespectivepursuitsoflegal
actionwithintheperiodsetbylaw.(CollectorvsUST,104PHIL1062)

TaxpayersSuitItisonlywhenanactcomplainedof,whichmayincludelegislative
enactment,directlyinvolvestheillegaldisbursementofpublicfundsderivedfrom
taxationthatthetaxpayerssuitmaybeallowed.
VIII. InterpretationandConstructionofTaxStatutes
ImportantPointstoConsider:
1. Ontheinterpretationandconstructionoftaxstatutes,legislativeintentionmustbe
considered.
2. Incaseofdoubt,taxstatutesareconstruedstrictlyagainstthegovernmentand
liberallyconstruedinfavorofthetaxpayer.
3. Theruleofstrictconstructionagainstthegovernmentisnotapplicablewherethe
languageofthetaxlawisplainandthereisnodoubtastothelegislativeintent.
4. Theexemptions(orequivalentprovisions,suchastaxamnestyandtax
condonation)arenotpresumedandwhengrantedarestrictlyconstruedagainstthe
grantee.
5. Theexemptions,however,areconstruedliberallyinfavorofthegranteeinthe
following:
a. Whenthelawsoprovidesforsuchliberalconstruction;
b. Exemptionsfromcertaintaxesgrantedunderspecialcircumstancestospecial
classesofpersons;
c. ExemptionsinfavoroftheGovernment,itspoliticalsubdivisions;

d. Exemptionstotraditionalexemptees,suchas,thoseinfavorofcharitable
institutions.
6. Thetaxlawsarepresumedvalid.
7. Thepowertotaxispresumedtoexist.
TAXADMINISTRATIONANDENFORCEMENT
AgenciesInvolvedinTaxAdministration
1. BureauofInternalRevenueandtheBureauofCustomsforinternalrevenue
andcustomslawenforcement.ItisnoteworthytonotethattheBIRislargely
decentralizedinthatagreatextentoftaxenforcementdutiesaredelegatedto
theRegionalDirectorsandRevenueDistrictOfficers.
2. Provincial,CityandMunicipalassessorsandtreasuresforlocalandreal
propertytaxes.
AgentsandDeputiesforCollectionofNationalInternalRevenueTaxes

UnderSec.12ofthe1997NIRC,thefollowingareconstitutedasagentsofthe
Commissioner:
a. TheCommissionerofCustomsandhissubordinateswithrespecttothe
collectionofnationalinternalrevenuetaxesonimportedgoods;
b. Theheadoftheappropriategovernmentofficeandhissubordinateswith
respecttothecollectionofenergytax;and
c. BanksdulyaccreditedbytheCommissionerwithrespecttoreceiptof
paymentsofinternalrevenuetaxesauthorizedtobemadethroughbanks.
BureauofInternalRevenue
PowersandDuties
a. ExclusiveandoriginalpowertointerpretprovisionsoftheNIRCandothertax
laws,subjecttoreviewbytheSecretaryofFinance;

b. AssessmentandCollectionofallnationalinternalrevenuetaxes,feesand
charges;
c. Enforcementofallforfeitures,penaltiesandfinesconnectedtherewith;
d. ExecutionofjudgmentinallcasesdecidedinitsfavorbytheCourtofTax
Appealsandtheordinarycourts.
e. Effectingandadministeringthesupervisoryandpolicepowersconferredtoit
bytheTaxCodeorotherlaws.
f. Obtaininginformation,summoning,examiningandtakingtestimonyofpersons
forpurposesofascertainingthecorrectnessofanyreturnorindeterminingthe
liabilityofanypersonforanyinternalrevenuetax,orincollectinganysuch
liability.
RuleofNoEstoppelAgainsttheGovernment

Itisasettledruleoflawthatintheperformanceofitsgovernmentalfunctions,the
statecannotbeestoppedbytheneglectofitsagentsandofficers.Nowhereisitmore
truethaninthefieldoftaxation(CIRvs.Abad,et.al.,L19627,June27,1968).Estoppel
doesnotapplytoprecludethesubsequentfindingsontaxability(Ibid.)

Theprincipleoftaxlawenforcementis:TheGovernmentisnotestoppedbythe
mistakesorerrorsofitsagents;erroneousapplicationandenforcementoflawby
publicofficersdonotblockthesubsequentcorrectapplicationofstatutes(E.
Rodriguez,Inc.vs.CollectorofInternalRevenue,L23041,July31,1969.)

Similarly,estoppeldoesnotapplytodeprivethegovernmentofitsrighttoraise
defensesevenifthosedefensesarebeingraisedonlyforthefirsttimeonappeal(CIRvs
Procter&GamblePhil.G.R.No.66838,15April1988.)
Exceptions:

TheCourtruledinCommissionerofInternalRevenuevs.C.A.,et.al.G.R.No.117982,
6Feb1997thatlikeotherprinciplesoflaw,thenonapplicationofestoppeltothe
governmentadmitsofexceptionsintheinterestofjusticeandfairplay,aswhere
injusticewillresulttothetaxpayer.
EstoppelAgainsttheTaxpayer

Whiletheprincipleofestoppelmaynotbeinvokedagainstthegovernment,thisis
notnecessarilytrueincaseofthetaxpayer.InCIRvs.Suyac,104Phil819,thetaxpayer

madeseveralrequestsforthereinvestigationofitstaxliabilitiessuchthatthe
government,accedingtothetaxpayersrequest,postponedthecollectionofitsliability.
Thetaxpayercannotlateronbepermittedtoraisethedefenseofprescriptioninasmuch
ashispreviousrequestsforreinvestigationhavetheeffectofplacinghiminestoppel.

NatureandKindsofAssessments

Anassessmentistheofficialactionofanadministrativeofficerdetermining
theamountoftaxduefromataxpayer,oritmaybethenoticetotheeffectthatthe
amountthereinstatedisduefromthetaxpayerthatthepaymentofthetaxor
deficiencystatedtherein.(BisayaLandTransportationCo.vsCIR,105Phil1338)

Classifications:
a. SelfassessmentTaxisassessedbythetaxpayerhimself.Theamountis
reflectedinthetaxreturnthatisfiledbyhimandthetaxispaidatthetimehe
fileshisreturn.(Sec.56[A]{1],1997NIRC)
b. DeficiencyAssessmentThisisanassessmentmadebythetaxassessor
wherebythecorrectamountofthetaxisdeterminedafteranexaminationor
investigationisconducted.Theliabilityisdeterminedandis;therefore,assessed
forthefollowingreasons:
1. Theamountascertainedexceedsthatwhichisshownastaxbythe
taxpayerinhisreturn;
2. Noamountisshowninthereturnor;
3. Thetaxpayerdidnotfileanyreturnatall.(Sec.56[B]]1]and[2]1997
NIRC)
c. IllegalandVoidAssessmentsThisisanassessmentwhereinthetaxassessor
hasnopowertoactatall(VictoriasMillingvs.CTA,L24213,13Mar1968)
d. ErroneousAssessmentThisisanassessmentwhereintheassessorhasthe
powertoassessbuterrsintheexerciseofthatpower(Ibid.)

PrinciplesGoverningTaxAssessments

1.Assessmentsareprimafaciepresumedcorrectandmadeingoodfaith.
Thetaxpayerhasthedutyofprovingotherwise(InterprovincialAutobusvs.CIR,

98Phil290)
Intheabsenceofanyproofofanyirregularitiesintheperformanceofofficial
duties,anassessmentwillnotbedisturbed.(SyPo.Vs.CTA,G.R.No81446,8Aug
1988
Allpresumptionsareinfavoroftaxassessments(Dayritvs.Cruz,L39910,26
Sept.1988)
Failuretopresentproofoferrorintheassessmentwilljustifyjudicial
affirmationofsaidassessments.(CIRvsC.C.G.R.No.104151and105563,10Mar
1995)
Apartychallenginganappraisersfindingofvalueisrequiredtoprovenotonly
thattheappraisedvalueiserroneousbutalsowhatthepropervalueis(Caltex
vs.C.C.G.R.No.104781,10July1998)

2.Assessmentsshouldnotbebasedonpresumptionsnomatterhowlogicalthe
presumptionmightbe.Inordertostandthetestofjudicialscrutinyitmustbebased
onactualfacts.
3.AssessmentisdiscretionaryonthepartoftheCommissioner.Mandamuswill
notlietocompelhimtoassessataxafterinvestigationifhefindsnogroundto
assess.MandamustocompeltheCommissionertoassesswillresultinthe
encroachmentonexecutivefunctions(MeralcoSecuiritiesCorp.vs.Savellano,
L36181andL36748,23Oct1992).
Except:
TheBIRCommissionermaybecompelledtoassessbymandamusifinthe
exerciseofhisdiscretionthereisevidenceofarbitrarinessandgraveabuseof
discretionastogobeyondstatutoryauthority(Macedavs.Macaraig,G.R.No.8829,
8June1993).
4.TheauthorityvestedintheCommissionertoassesstaxesmaybedelegated.An
assessmentsignedbyanemployeeforandinbehalfoftheCommissionerof
InternalRevenueisvalid.However,itissettledthatthepowertomakefinal
assessmentscannotbedelegated.Thepersontowhomadutyisdelegatedcannot
lawfullydelegatethatdutytoanother.(CityLumbervs.Domingo,L18611,30Jan
1964).
5.Assessmentsmustbedirectedtotherightparty.Hence,ifforexample,the

taxpayerbeingassessedisanestateofadecedent,theadministratorshouldbe
thepartytowhomtheassessmentshouldbesent(Republicvs.delaRama,L21108,
29Nov.1966),andnottheheirsofthedecedent
MeansEmployedintheAssessmentofTaxes
A.ExaminationofReturns:ConfidentialityRule

TheTaxCoderequiresthatafterthereturnisfiled,theCommissionerorhisduly
authorizedrepresentativeshallexaminethesameandassessthecorrectamountoftax.
Thetaxorthedeficiencyofthetaxsoassessedshallbepaiduponnoticeanddemand
fromtheCommissionerorfromhisdulyauthorizedrepresentative.Anyreturn,
statementordeclarationfiledinanyofficeauthorizedtoreceivethesameshallnotbe
withdrawn.However,withinthree(3)daysfromthedateofsuchfiling,thesamemaybe
modified,changedoramended,providedthatnonoticeforauditorinvestigationofsuch
return,statementordeclarationhasinthemeantimebeenactuallyserveduponthe
taxpayer.(Sec6[A],1997NIRC)

AlthoughSec.71ofthe1997NIRCprovidesthattaxreturnsshallconstitutepublic
records,itisnecessarytoknowthattheseareconfidentialinnatureandmaynotbe
inquiredintoinunauthorizedcasesunderpainofpenaltyoflawprovidedforinSec270
ofthe1997NIRC.

Theaforesaidrule,however,issubjecttocertainexceptions.Inthefollowingcases,
inquiryintotheincometaxreturnsoftaxpayersmaybeauthorized:
1. Whentheinspectionofthereturnisauthorizeduponthewrittenorderofthe
PresidentofthePhilippines.
2. WheninspectionisauthorizedundertheFinanceRegulationNo.33ofthe
SecretaryofFinance.
3. Whentheproductionofthetaxreturnismaterialevidenceinacriminalcase
whereintheGovernmentisinterestedintheresult.(CuUnjieng,et.al.vs.
Posadas,etc,58Phil360)
4. Whentheproductionorinspectionthereofisauthorizedbythetaxpayer
himself(VeravsCusiL33115,29June1979).

B.AssessmentBasedontheBestEvidenceObtainable
ThelawauthorizestheCommissionertoassesstaxesonthebasisofthebest
evidenceobtainableinthefollowingcases:
1. ifapersonfailstofileareturnorotherdocumentatthetimeprescribedby
law;or
2. hewillfullyorotherwisefilesafalseorfraudulentreturnorotherdocument.
Whenthemethodisused,theCommissionermakesoramendsthereturnfromhis
knowledgeandfromsuchinformationashecanobtainthroughtestimonyorotherwise.
Assessmentsmadeassucharedeemedprimafaciecorrectandsufficientforalllegal
purposes.(Sec.6[B],1997NIRC)
BestEvidenceObtainablereferstoanydata,record,papers,documents,orany
evidencegatheredbyinternalrevenueofficersfromgovernmentofficesoragencies,
corporations,employers,clientsorpatients,tenants,lessees,vendeesandfromallother
sources,withwhomthetaxpayerhadprevioustransactionsorfromwhomhereceived
anyincome,afterascertainingthatareportrequiredbylawasbasisfortheassessment
ofanyinternalrevenuetaxhasnotbeenfiledorwhenthereisreasontobelievethatany
suchreportisfalse,incompleteorerroneous.
AcaseinpointontheuseofthebestevidenceobtainableisSyPovsCTA.Inthat
case,therewasademandmadebytheCommissionerontheSilverCupWineCompany
ownedbypetitionersdeceasedhusbandPoBienSeng.Thedemandwasforthetaxpayer
tosubmittotheBIRforexaminationthefactorysbooksofaccountsandrecords,soBIR
investigatorsraidedthefactoryandseizeddifferentbrandsofalcoholicbeverages.
Theinvestigators,onthebasisofthewinesseizedandtheswornstatementsofthe
factorysemployeesonthequantityofrawmaterialsconsumedinthemanufactureof
liquor,assessedthecorrespondingdeficiencyincomeandspecifictaxes.TheSupreme
Court,onappeal,upheldthelegalityoftheassessment.

C.InventoryTaking,SurveillanceandPresumptiveGrossSalesandReceipts
TheCommissionerisauthorizedatanytimeduringthetaxableyeartoorderthe
inventorytakingofgoodsofanytaxpayerasabasisforassessment.

Ifthereisreasontobelievethatapersonisnotdeclaringhiscorrectincome,sales
orreceiptsforinternalrevenuetaxpurposes,hisbusinessoperationmaybeplaced
underobservationorsurveillance.Thefindingmadeinthesurveillancemaybeusedasa
basisforassessingthetaxesfortheothermonthsorquartersofthesameordifferent
taxableyears.(Sec.6[C],1997NIRC)

D.TerminationofTaxablePeriod
TheCommissionershalldeclarethetaxperiodofataxpayerterminatedatanytime
whenitshallcometohisknowledge:
a.
b.
c.
d.

Thatthetaxpayerisretiringfrombusinesssubjecttotax;
ThatheintendstoleavethePhilippinesorremovehispropertytherefrom;
Thatthetaxpayerhidesorconcealshisproperty;or
Thatheperformsanyacttendingtoobstructtheproceedingsforthecollection
ofthetaxforthepastorcurrentquarteroryearortorenderthesametotally
orpartlyineffectiveunlesssuchproceedingsarebegunimmediately.

Thewrittendecisiontoterminatethetaxperiodshallbeaccompaniedwitha
requestfortheimmediatepaymentofthetaxfortheperiodsodeclaredterminatedand
thetaxfortheprecedingyearorquarter,orsuchportionthereofasmaybeunpaid.Said
taxesshallbedueandpayableimmediatelyandshallbesubjecttoallthepenalties
prescribedunlesspaidwithinthetimefixedinthedemandmadebytheCommissioner
(Sec.6[d],1997NIRC)

E.FixingofRealPropertyValues

Forpurposesofcomputinganyinternalrevenuetax,thevalueofthepropertyshall
bewhicheveristhehigherof:(1)thefairmarketvalueasdeterminedbythe
Commissioner;or(2)thefairmarketvalueasshowninthescheduleofvaluesofthe
ProvincialandCityAssessorsforrealtaxpurposes(Sec6[E],1997NIRC).


F.InquiryintoBankDeposits

ExaminationofbankdepositsenablestheCommissionertoassessthecorrecttax
liabilitiesoftaxpayers.However,bankdepositsareconfidentialunderR.A.1405.
NotwithstandinganycontraryprovisionsofR.A.1405andothergeneralorspeciallaws,
theCommissionerisauthorizedtoinquireintothebankdepositsof;
1. adecedenttodeterminehisgrossestate;and
2.anytaxpayerwhohasfiledanapplicationforcompromiseofhistaxliability
underSec.204(A)(@)oftheTaxCodebyreasonofhisfinancialincapacitytopayhistax
liability.Inthiscase,theapplicationforcompromiseshallnotbeconsideredunlessand
untilhewaivesinwritinghisprivilegeunderR.A.1405,orunderothergeneralorspecial
laws,andsuchwaivershallconstitutetheauthorityoftheCommissionertoinquireinto
bankdepositsofthetaxpayer(Sec.6[F],1997NIRC).

NetWorthMethodinInvestigation

ThebasisofusingtheNetWorthMethodofinvestigationisRevenue
MemorandumCircularNo.4372.Thismethodofinvestigation,otherwiseknownas
inventorymethodofincometaxverificationisaveryeffectivemethodofdetermining
taxableincomeanddeficiencyincometaxduefromataxpayer.

BasicConceptandTheory

Themethodisanextensionofthebasicaccountingprinciple:assetsminusliabilities
equalsnetworth.Thetaxpayer
snetworthisdeterminedbothatthebeginningandattheendofthesametaxableyear.
Theincreaseordecreaseinnetworthisadjustedbyaddingallnondeductibleitemsand
subtractingtherefromnontaxablereceipts.Thetheoryisthattheunexplainedincrease
innetworthofataxpayerispresumedtobederivedfromtaxablesources.

LegalSourceofauthorityforuseoftheMethod


TheCommissionersauthoritytousethenetworthmethodandotherindirect
methodsofestablishingtaxableincomeisfoundinSec.43,1997NIRC.Thisauthorityhas
beenupheldbythecourtsinalonglineofcases,notableamongwhichistheleadingcase
ofPerezvs.CTA,103Phil1167.Themethodisapracticalnecessityifafairandefficient
systemofcollectingrevenueistobemaintained.

Moreover,Sec.6[B],1997NIRC,providesforabroadandgeneralinvestigatory
powertoassessthepropertaxonthebestevidenceobtainablewheneverareport
requiredbylawasbasisfortheassessmentofanynationalinternalrevenuetaxshallnot
beforthcomingwithinthetimefixedbylaworregulation,orwhenthereisreasonto
believethatanysuchreportisfalse,incompleteorerroneous.
Conditionsfortheuseofthemethod
(a) Thatthetaxpayer'sbooksofaccountsdonotclearlyreflecthisincome,
orthetaxpayerhasnobooks,orifhehasbooks,herefusestoproduce
them(InadequateRecords).
TheGovernmentmaybeforcedtoresorttothenetworthmethodof
proofwherethefewrecordsofthetaxpayerweredestroyed;for,torequire
morewouldbetantamounttoholdingthatskillfulconcealmentisaninevitable
barriertoproof.

(b) Thatthereisevidenceofapossiblesourceorsourcesofincometo
accountfortheincreaseinnetworthortheexpenditures(Needfor
evidenceofthesourcesofincome).
Inallleadingcasesonthismatter,courtsareunanimousinholding
thatwhenthetaxcaseiscivilinnature,directproofofsourcesofincomeisnot
essentialthatthegovernmentisnotrequiredtonegateallpossiblenontaxable
sourcesoftheallegednetworthincreases.Theburdenofproofisuponthe
taxpayertoshowthathisnetworthincreasewasderivedfromnontaxable
sources.
AsstatedbytheSupremeCourt,incivilcases,theassessorneednot
provethespecificsourceofincome.Thisreasonableonthebasicassumption
thatmostassetsarederivedfromataxablesourceandthatwhenthisisnot
true,thetaxpayerisinapositiontoexplainthediscrepancy.(Perezvs.CTA,

supra)
However,whenthetaxpayeriscriminallyprosecutedfortaxevasion,
theneedforevidenceofalikelysourceofincomebecomesaprerequisitefora
successfulprosecution.TheburdenofproofisalwayswiththeGovernment.
Convictioninsuchcases,asinanycriminalcase,restsonproofbeyond
reasonabledoubt.

(c) Thatthereisafixedstartingpointoropeningnetworth,i.e.,adate
beginningwithataxableyearorpriortoit,atwhichtimethetaxpayers
financialconditioncanbeaffirmativelyestablishedwithsome
definiteness.
Thisisanessentialcondition,consideredtobethecornerstoneofanet
worthcase.Ifthestartingpointoropeningnetworthisproventobewrong,
thewholesuperstructureusuallyfails.Thecourtshaveuniformlystressed
thatthevalidityoftheresultofanyinvestigationunderthismethodwill
dependentirelyuponacorrectopeningnetworth.
(d)Thatthecircumstancesaresuchthatthemethoddoesnotreflectthe
taxpayersincomewithreasonableaccuracyandcertaintyandproperand
justadditionsofpersonalexpensesandothernondeductible
expendituresweremadeandcorrect,fairandequitablecredit
adjustmentsweregivenbywayofeliminatingnontaxableitems.(Proper
adjustmentstoconformtotheincometaxlaws)

Properadjustmentsfornondeductibleitemsmustbemade.The
followingnondeductibles,asthecasemaybe,mustbeaddedtotheincrease
ordecreaseinthenetworth:
1. personal,livingorfamilyexpenses;
2. premiumspaidonanylifeinsurancepolicy;
3. lossesfromsalesorexchangesofpropertybetweenmembersofthe
family;
4. incometaxespaid;
5. estate,inheritanceandgifttaxes;
6. othernondeductibletaxes;

7.
8.
9.
10.

electionexpensesandotherexpensesagainstpublicpolicy;
nondeductiblecontributions;
giftstoothers;
netcapitalloss,andthelike

Ontheotherhand,nontaxableitemsshouldbedeductedtherefrom.These
itemsarenecessaryadjustmentstoavoidtheinclusionofwhatotherwiseare
nontaxablereceipts.Theyare:
1.
2.
3.
4.
5.
6.

inheritance,giftsandbequestsreceived;
nontaxablecapitalgains;
compensationforinjuriesorsickness;
proceedsoflifeinsurancepolicies;
sweepstakeswinnings;
interestongovernmentsecuritiesandthelike

Increaseinnetwortharenottaxableiftheyareshownnottobetheresult
ofunreportedincomebuttobetheresultofthecorrectionoferrorsinthe
taxpayersentriesinthebooksrelatingtoindebtednesstocertaincreditors,
erroneouslylistedalthoughalreadypaid.(FernandezHermanosInc.vs.CIR,
L21551,30Sept.1969)

EnforcementofForfeituresandPenalties

StatutoryOffensesandPenalties
1. AdditionstotheTax
Additionstothetaxareincrementstothebasictaxincidentduetothe
taxpayersnoncompliancewithcertainlegalrequirements,likethetaxpayers
refusalorfailuretopaytaxesand/orotherviolationsoftaxingprovisions.
Additionstothetaxconsistofthe:

(1)civilpenalty,otherwiseknownassurcharge,whichmayeitherbe25%or
50%ofthetaxdependinguponthenatureoftheviolation;
(2)interesteitherforadeficiencytaxordelinquencyastopayment;
(3)othercivilpenaltiesoradministrativefinessuchasforfailuretofile
certaininformationreturnsandviolationscommittedbywithholdingagents.(Secs.
247to252,1997NIRC)
GeneralConsiderationsontheAdditiontotax
a.Additionstothetaxordeficiencytaxapplytoalltaxes,fees,andcharges
imposedintheTaxCode.
b.Theamountsoaddedtothetaxshallbecollectedatthesametime,inthe
samemanner,andaspartofthetax.
c.Ifthewithholdingagentisthegovernmentoranyofitsagencies,political
subdivisionsorinstrumentalities,oragovernmentownedorcontrolled
corporation,theemployeethereofresponsibleforthewithholdingandremittance
ofthetaxshallbepersonallyliablefortheadditionstothetaxprescribed(Sec.
247[b],1997NIRC)suchasthe25%surchargeandthe20%interestperannumon
thedelinquency(Secs.248and249[C],1997NIRC)

Surcharge
ThepaymentofthesurchargeismandatoryandtheCommissionerof
InternalRevenueisnotvestedwithanyauthoritytowaiveordispensewiththe
collectionthereof.Inonecase,theSupremeCourtheldthatthefactthaton
accountofriotsdirectedagainsttheChineseoncertaindates,theywereprevented
frompayingtheirinternalrevenuetaxesontime,doesnotauthorizethe
Commissionertoextendthetimeprescribedforthepaymentoftaxesortoaccept
themwithouttheadditionalpenalty(LimCoChuivs.Posadas,47Phil460)
TheCommissionerisnotvestedwithanyauthoritytowaiveordispensewith

thecollectiontherof.(CIRvs.CA,supra).Thepenaltyandinterestarenotpenalbut
compensatoryfortheconcomitantuseofthefundsbythetaxpayerbeyondthe
datewhenheissupposedtohavepaidthemtotheGovernment.(Philippine
RefiningCompanyvs.C.A.,G.R.No.1188794,8May1996).
AnextensionoftimetopaytaxesgrantedbytheCommissionerdoesnot
excusepaymentofthesurcharge(CIRvs.CuUnjieng,L26869,6Aug.1975)
Thefollowingcases,however,showtheinstanceswhentheimpositionofthe
25%surchargehadbeenwaived:
1. Wherethetaxpayeringoodfaithmadeamistakeintheinterpretationofthe
applicableregulationstherebyresultingindelayinthepaymentoftaxes.
(ConnelBros.Co.vs.CIR,L15470,26Dec.1963)
2. ASubsequentreversalbytheBIRofapriorrulingrelieduponbythetaxpayer
mayalsobeagroundfordispensingwiththe25%surcharge.(CIRvs.Republic
CementCorp.,L35677,10Aug.1983)
3. WhereadoubtexistedonthepartoftheBureauastowhetherornotR.A.
5431abolishedtheincometaxexemptionsofcorporations(includingelectric
powerfranchisegrantees)exceptthoseexemptunderSec.27(now,Sec.30,
1997NIRC),theimpositionofthesurchargemaybedispensedwith(Cagayan
ElectreicPower&LightCo.vsCIR,G.R.No.60126,25Sept.1985)
4. Inthecaseoffailuretomakeandfileareturnorlistwithinthetimeprescribed
bylaw,notduetowillfulneglect,wheresuchreturnorlistisvoluntarilyfiledby
thetaxpayerwithoutnoticefromtheCIRorotherofficers,anditisshownthat
thefailuretofileitinduetimewasduetoareasonablecause,nosurchargewill
beaddedtotheamountoftaxdueonthereturn.Insuchcase,inordertoavoid
theimpositionofthesurcharge,thetaxpayermustmakeastatementshowing
allthefactsallegedasreasonablecausesforfailuretofilethereturnontimein
theformofanaffidavit,whichshouldbeattachedtothereturn.

Interest

Thisisanincrementonanyunpaidamountoftax,assessedattherateof
twentypercent(20%)perannum,orsuchhigherrateasmaybeprescribedyrules
andregulations,fromthedateprescribedforpaymentuntiltheamountisfully
paid.(Sec.249[A],1997NIRC)

Interestisclassifiedinto:

1. Deficiencyinterest
Anydeficiencyinthetaxdue,asthetermisdefinedinthiscode,shallbe
subjecttotheinterestof20%perannum,orsuchhigherrateasmaybeprescribed
byrulesandregulations,whichshallbeassessedandcollectedfromthedate
prescribedforitspaymentuntilthefullpaymentthereof(Sec.249[B],1997NIRC)

2. Delinquencyinterest
Thiskindofinterestisimposedincaseoffailuretopay:
(1) Theamountofthetaxdueonanyreturnrequiredtobefiled,or
(2) Theamountofthetaxdueforwhichnoreturnisrequired,or
(3) Adeficiencytax,oranysurchargeorinterestthereonontheduedate
appearinginthenoticeanddemandoftheCommissioner.

3.InterestonExtendedPayment
Imposedwhenapersonrequiredtopaythetaxisqualifiedandelectstopaythe
taxoninstallmentundertheprovisionsoftheCode,butfailstopaythetaxorany
installmentthereof,oranypartofsuchamountorinstallmentonorbeforethedate
prescribedforitspayment,orwheretheCommissionerhasauthorizedanextensionof
timewithinwhichtopayataxoradeficiencytaxoranypartthereof.(Sec.249[d],1997
NIRC)

AdministrativeOffenses
1.FailuretoFileCertainInformationReturns
2.FailureofaWithholdingAgenttoCollectandRemitTaxes
3.FailureofaWithholdingAgenttoRefundExcessWithholdingTax

Sourcesofrevenues:
1. Incometax
2.
EstateTaxanddonortax
3.
VAT
4.
Otherpercentagetaxes
5.
Excisetax

6.
Documentarystamptaxes
7. OtherasimposedandprovidedbyBIR
RemediesoftheGovernment

EnumerationoftheRemedies
I. Administrative
1. DistraintofPersonalProperty
2. LevyofRealProperty
3. TaxLien
4. Compromise
5. Forfeiture
6. OtherAdministrativeRemedies
II. Judicial
1. CivilAction
2. CriminalAction
DistraintofPersonalProperty
DistraintSeizurebythegovernmentofpersonalproperty,tangibleorintangible,to
enforcethepaymentoffaces,tobefollowedbyitspublicsale,ifthetaxesarenot
voluntarilypaid.
KINDS
a. ActualThereistakingofpossessionofpersonalpropertyoutofthetaxpayer
intothatofthegovernment.
Incaseofintangibleproperty.Taxpayerisalsodivertedofthepowerof
controlovertheproperty
b. ConstructiveTheownerismerelyprohibitedfromdisposingofhispersonal
property.

Actualvs.

Constructive
Distraint

Madeonthe
Maybemadeon
propertyonlyofa
thepropertyof
delinquenttaxpayer. anytaxpayer
whether
delinquentornot
Thereisactual
Taxpayerismerely
takingor
prohibitedfrom
possessionofthe
disposingofhis
property.
property.
Effectedbyhavinga Effectedby
listofthedistraint requiringthe
propertyorby
taxpayertosigna
serviceorwarrant receiptofthe
ofdistraintor
propertyorby
garnishment.
leavingalistof
same
Animmediatestep Suchimmediate
forcollectionof
stepisnot
taxeswhere
necessary;taxdue
amountdueis
maynotbe
definite.
definiteoritis
beingquestioned.

Requisites:
1.
2.
3.
4.

Taxpayerisdelinquentinthepaymentoftax.
Subsequentdemandforitspayment.
Taxpayermustfailtopaydelinquenttaxattimerequired.
Periodwithintoassessorcollecthasnotyetprescribed.
Incaseofconstructivedistraint,requisiteno.1isnotessential(seeSec.206
TC)

Whenremedynotavailable:

WhereamountinvolveddoesnotexceedP100(Sec.205TC).

Inkeepingwiththeprovisionontheabatementofthecollectionoftaxasthecost
ofsamemightevenbemorethanP100.
Procedure:

1. Serviceofwarrantofdistraintupontaxpayeroruponpersoninpossessionof
taxpayerspersonalproperty.
2. Postingofnoticeisnotlessthantwoplacesinthemunicipalityorcityandnotice
tothetaxpayerspecifyingtimeandplaceofsaleandthearticlesdistrained.
3. Saleatpublicauctiontohighestbidder
4. Dispositionofproceedsofthesale.

Whomayeffectdistraint
1. commissioneror
hisdueauthorized
representative
2. RDO

Amount
Involved
Inexcessof
P1,000,000.
00
P1,000,000.
00orless

HowActualDistraintEffected
1. IncaseofTangibleProperty:
a. Copyofanaccountofthepropertydistrained,signedbytheofficer,left
eitherwiththeownerorpersonfromwhompropertywastaken,atthe
dwellingorplaceofbusinessandwithsomeoneofsuitableageanddiscretion
b. Statementofthesumdemanded.
c. Timeandplaceofsale.
2. Incaseofintangibleproperty:
a. Stocksandothersecurities
Servingacopyofthewarrantupontaxpayeranduponpresident,
manager,treasurerorotherresponsibleofficeroftheissuingcorporation,
companyorassociation.
b. Debtsandcredits
1. Leavingacopyofthewarrantwiththepersonowingthedebtsorhaving
inhispossessionsuchcreditsorhisagent.
2. WarrantshallbesufficientauthorityforsuchpersontopayCIRhis
creditsordebts.

c. BankAccountsgarnishment
1. Servewarrantupontaxpayerandpresident,manager,treasureror
responsibleofficerofthebank.
2. BankshallturnovertoCIRsomuchofthebankaccountsasmaybe
sufficient.
HowconstructiveDistraintEffected
1. Requiretaxpayerorpersoninpossessionto
a. Signareceiptcoveringpropertydistrained
b. Obligatehimtopreservethesameproperties.
c. Prohibithimfromdisposingthepropertyfromdisposingthepropertyin
anymanner,withouttheauthorityoftheCIR.
2. WhereTaxpayerorpersoninpossessionrefusestosign:
a. Officershallpreparelistofthepropertydistrained.
b. Inthepresenceoftwowitnessesofsufficientageanddiscretion,leavea
copyinthepremiseswherepropertyislocated.
GroundsofConstructiveDistraint
1.
2.
3.
4.
5.

Taxpayerisretiringfromanybusinesssubjecttotax.
TaxpayerisintendingtoleavethePhilippines;or
Toremovehispropertytherefrom.
Taxpayerhidesorconcealshisproperty.
Taxpayeractstendingtoobstructcollectionproceedings.

Note:
1. Bankaccountsmaybedistrainedwithoutviolatingtheconfidentialnatureof
bankaccountsfornoinquiryismade.BIRsimplyseizessomuchofthedeposit
withouthavingtoknowhowmuchthedepositsareorwherethemoneyorany
partofitcamefrom.
2. Ifatanytimepriortotheconsummationofthesale,allproperchargesarepaidto
theofficerconductingthesame,thegoodsdistrainedshallberestoredtothe
owner.
3. Whentheamountofthebidforthepropertyunderdistraintisnotequaltothe
amountofthetaxorisverymuchlessthantheactualmarketvalueofarticles,the
CIRorhisdeputymaypurchasethedistrainedpropertyonbehalfofthenational
government.

 LevyofRealProperty
LevyActofseizureofrealpropertyinordertoenforcethepaymentoftaxes.The
propertymaybesoldatpublicsale,ifafterseizure;thetaxesarenotvoluntarily
paid.
Therequisitesarethesameasthatofdistraint.
Procedure:
1. InternationalRevenueofficershallprepareadulyauthenticatedcertificate
showing
a. Nameoftaxpayer
b. Amountoftaxand
c. Penaltydue.
enforceablethroughoutthePhilippines
2. Officershallwriteuponthecertificateadescriptionofthepropertyuponwhich
levyismade.
3. Serviceofwrittennoticeto:
a. Thetaxpayer,and
b. RDwherepropertyislocated.
4. Advertisementofthetimeandplaceofsale.
5. Saleatpublicauctiontohighestbidder.
6. Dispositionofproceedsofsale.
Theexcessshallbeturnedovertoowner.
Redemptionofpropertysoldorforfeited
a. Personentitled:Taxpayeroranyoneforhim
b. Timetoredeem:oneyearfromdateofsaleorforfeiture
Beginsfromregistrationofthedeedofsaleordeclarationofforfeiture.
Cannotbeextendedbythecourts.
c. Possessionpendingredemptionownernotdeprivedofpossession
d. Price:Amountoftaxes,penaltiesandinterestthereonfromdateofdelinquencyto
thedateofsaletogetherwithinterestonsaidpurchasepriceat15%perannum
fromdateofpurchasetodateofredemption.

DistraintandLevycompared

1. Botharesummaryremediesforcollectionoftaxes.
2. BothcannotbeavailedofwhereamountinvolvedisnotmorethanP100.
3. Distraintpersonalproperty
Levyrealproperty
4. Distraintforfeiturebygovernment,notprovided
Levyforfeiturebygovernmentauthorizedwherethereisnobidderorthehighest
bidisnotsufficienttopaythetaxes,penaltiesandcosts.
5. DistraintTaxpayernogiventherightofredemption
LevyTaxpayercanredeempropertieslevieduponandsold/forfeitedtothe
government.
Note:
1. ItisthedutyoftheRegisterofDeedsconcerneduponregistrationofthe
declarationofforfeiture,totransferthetitletothepropertywithoutofanorder
fromacompetentcourt
2. Theremedyofdistraintorlevymayberepeatedifnecessaryuntilthefullamount,
includingallexpenses,iscollected.
EnforcementofTaxLien
TaxLien:
Alegalclaimorchargeonproperty,eitherrealorpersonal,establishedbylawasa
securityindefaultofthepaymentoftaxes.
1. Nature:
AlieninfavorofthegovernmentofthePhilippineswhenapersonliabletopaya
taxneglectsorfailstodosoupondemand.
2.Duration:
ExistsfromtimeassessmentismadebytheCIRuntilpaid,withinterests,penalties
andcosts.
3. Extent:
Uponallpropertyandrightstopropertybelongingtothetaxpayer.
4. Effectivityagainstthirdpersons:
OnlywhennoticeofsuchlienisfiledbytheCIRintheRegisterofDeedsconcerned.
ExtinguishmentofTaxLien
1. Paymentorremissionofthetax
2. Prescriptionoftherightofthegovernmenttoassessorcollect.
3. FailuretofilenoticeofsuchlienintheofficeofregisterofDeeds,purchasesor

judgmentcreditor.
4. Destructionofthepropertysubjecttothelien.
IncaseNos.1and2,thereisnomoretaxliability.Undernos.3and4,the
taxpayerisstillliable.
EnforcementofTaxLienvs.Distraint

Ataxlienisdistinguishedfromdisttraintinthat,indistraintthepropertyseized
mustbethatofthetaxpayer,althoughitneednotbethepropertyinrespecttothetaxis
assessed.Taxlienisdirectedtothepropertysubjecttothetax,regardlessofitsowner.
Note:
1. Thisissuperiortojudgmentclaimofprivateindividualsorparties
2. Attachesnotonlyfromtimethewarrantwasservedbutfromthetimethetax
wasdueanddemandable.
Compromise
Compromise:Acontractwherebytheparties,byreciprocalconcessions,avoidlitigation
orputanendtoonealreadycommenced.
Requisites:
1. Taxpayermusthaveataxliability.
2. TheremustbeanofferbytaxpayerorCIR,ofanamounttobepaidbytaxpayer.
3. Theremustbeacceptanceoftheofferinsettlementoftheoriginalclaim.
Whentaxesmaybecompromised:
1. Areasonabledoubtastothevalidityiftheclaimagainstthetaxpayerexists;
2. Thefinancialpositionofthetaxpayerdemonstratesaclearinabilitytopaythe
assessedtax.
3. Criminalviolations,except:
a. Thosealreadyfiledincourt
b. Thoseinvolvingfraud.
Limitations:
1. Minimumcompromiserate:
a. 10%ofthebasictaxassessedincaseoffinancialincapacity.

b. 40%ofbasictaxassessedothercases.
2. SubjecttoapprovalofEvaluationBoard
a. WhenbasictaxinvolvedexceedsP1,000,000.00or
b. Wheresettlementofferedislessthantheprescribedminimumrates.
DelegationofPowertoCompromise
GR:Thepowertocompromiseorabateshallnotbedelegatedbythecommissioner.
E:TheRegionalEvaluationBoardmaycompromisetheassessmentissuedbythe
regionalofficesinvolvingbasictaxesofP500Korless.
Remedyincaseoffailuretocomply:

TheCIRmayeither:
1. enforcethecompromise,or
2. Regarditasrescindedandinsistsupontheoriginaldemand.
CompromisePenalty
1. Itisacertainamountofmoneywhichthetaxpayerpaystocompromiseatax
violation.
2. Itispaininlieuofacriminalprosecution.
3. Sinceitisvoluntaryincharacter,thesamemaybecollectedonlyifthetaxpayeris
willingtopaythem.
Enforcementofforfeiture
Forfeiture:Impliesadivestitureofpropertywithoutcompensation,inconsequenceofa
defaultoroffense.

Includestheideaofnotonlylosingbutalsohavingthepropertytransferredto
anotherwithouttheconsentoftheownerandwrongdoer.
1. Effect:Transferthetitletothespecificthingfromtheownertothegovernment.
2. Whenavailable:
a. Nobidderfortherealpropertyexposedforsale.
b. Ifhighestbidisforanamountinsufficienttopaythetaxes,penaltiesand
costs.
Withintwodaysthereafter,areturnoftheproceedingisdulymade.
3. Howenforced:
a. Incaseofpersonalpropertybyseizureandsaleordestructionofthe
specificforfeitedproperty.
b. Incaseofrealpropertybyajudgmentofcondemnationandsaleinalegal

4.

5.

6.

7.

actionorproceeding,civilorcriminal,asthecasemayrequire.
Whenforfeitedpropertytobedestroyedorsold:
a. TobedestroyedbyorderoftheCIRwhenthesaleforconsumptionoruse
ofthefollowingwouldbeinjurioustothepublichealthorprejudicialtothe
enforcementofthelaw:(atleast20daysafterseizure)
1. distilledspirits
2. liquors
3. cigars
4. cigarettes,andothermanufacturedproductsoftobacco
5. playingcards
6. Allapparatususedinorabouttheillicitproductionofsucharticles.
b. TobesoldordestroyeddependsuponthediscretionofCIR
1. Allotherarticlessubjecttoexercisetax,(wine,automobile,mineral
products,manufacturedoils,miscellaneousproducts,nonessential
itemsapetroleumproducts)manufacturedorremovedinviolationof
theTaxCode.
2. DiesforprintingormakingIRstamps,labelsandtags,inimitationof
orpurporttobelawfulstamps,labelsortags.
Wheretobesole:
a. Publicsale:provided,thereisnoticeofnotlessthan20days.
b. Privatesale:provided,itiswiththeapprovaloftheSecretaryofFinance.
RightofRedemption:
a. Personalentitledtaxpayeroranyoneforhim
b. Timetoredeemwithinone(1)yearfromforfeiture
c. Amounttobepaidfullamountofthetaxesandpenalties,plusinterestand
costofthesale
d. TowhompaidCommissionerortheRevenueCollectionOfficer
e. Effectoffailuretoredeemforfeitureshallbecomeabsolute.
Note:
TheRegisterofDeedsisdutyboundtotransferthetitleofpropertyforfeited
tothegovernmentwithournecessityofanorderfromacompetentcourt.

OtherAdministrativeRemedies
1. Requiringfilingofbondsinthefollowinginstances:
a. Estateanddonorstax
b. Excisetaxes
c. Exportersbond
d. Manufacturersandimportersbond
2. Requiringproofoffilingincometaxreturns

Beforealicensetoengageintrade,businessoroccupationorto
practiceaprofessioncanbeissued.
3. GivingrewardtoinformersSumequivalentto10%ofrevenues,
surchargesorfeesrecoveredand/orfineorpenaltyimposedandcollectedor
P1,000,000.00percase,whicheverislower.
4. Impositionofsurchargeandinterest.
5. Makingarrest,searchandseizure
Limitedtoviolationsofanypenallaworregulationadministeredby
theBIR,committedwithintheviewoftheInternalRevenueOfficerorEE.
6. Deportationincaseofaliensonthefollowinggrounds
a. KnowinglyandfraudulentlyevadespaymentofIRtaxes.
b. Willfullyrefusestopaysuchtaxanditsaccessorypenalties,after
decisiononhistaxliabilityshallhavebecomefinalandexecutory.
7. Inspectionofbooks
Booksofaccountsandotheraccountingrecordsoftaxpayermustbe
preserved,generallywithinthreeyearsafterdatethetaxreturnwasdueor
wasfiledwhicheverislater.
8. UseofNationalTaxRegister
9. Obtaininginformationontaxliabilityofanyperson
10. InventoryTakingofstockintradeandmakingsurveillance.
11. Prescribingpresumptivegrosssalesorreceipt:
a. Personfailedtoissuereceiptsandinvoices
b. Reasontobelievethatrecordsdonotcorrectlyreflectdeclarationin
return.
12. Prescribingrealpropertyvalues
13. Inquiringintobankdepositaccountsof
a. Adeceasedpersontodeterminegrossestate
b. Anytaxpayerwhofiledapplicationforcompromisebyreasonsof
financialincapacityhistaxliability.
14. RegistrationofTaxpayers.
JudicialRemedies
CivilandCriminalActions:
15. BroughtinthenameoftheGovernmentofthePhilippines.
16. ConductedbyLegalOfficerofBIR
17. MustbewiththeapprovaloftheCIR,incaseofaction,forrecoveryof
taxes,orenforcementofafine,penaltyorforfeiture.
A. CivilAction
Actionsinstitutedbythegovernmenttocollectinternalrevenuetaxesin

regularcourts(RTCorMTCs,dependingontheamountinvolved)
Whenassessmentmadehasbecomefinalandexecutoryforfailureor
taxpayerto:
a. DisputesamebyfilingprotestwithCIR
b. AppealadversedecisionofCIRtoCTA
B. CriminalAction
Adirectmodeofcollectionoftaxes,thejudgmentofwhichshallnotonly
imposethepenaltybutalsoorderpaymentoftaxes.
Anassessmentofataxdeficiencyisnotnecessarytoacriminalprosecution
fortaxevasion,providedthereisaprimafacieshowingofwillfulattempttoevade.
EffectofAcquittalonTaxLiability:

Doesnotexoneratetaxpayerhiscivilliabilitytopaythetaxdue.Thus,the
governmentmaystillcollectthetaxinthesameaction.
Reason:Taxisanobligation,doesnotarisefromacriminalact.
EffectofSatisfactionofTaxLiabilityonCriminalLiability

Willnotoperatetoextinguishtaxpayerscriminalliabilitysincethedutytopaythe
taxisimposedbystatute,independentofanyattemptonpastoftaxpayerstoevade
payment.

Thisistrueincasethecriminalactionisbasedontheacttotaxpayeroffilinga
falseandfraudulenttaxreturnandfailuretopaythetax.
Note:
Thesatisfactionofcivilliabilityisnotoneofthegroundsfortheextinctionof
criminalaction.
PRESCRIPTIVEPERIODS/STATUTEOFLIMITATION
Purpose:
ForpurposesofTaxation,statueoflimitationisprimarilydesignedtoprotectthe
rightsofthetaxpayersagainstunreasonableinvestigationofthetaxingauthoritywith
respecttoassessmentandcollectionofInternalRevenueTaxes.
I. PrescriptionofGovernmentsRighttoAssessTaxes:
A. GeneralRule:
InternalRevenueTaxesshallbeassessedwithinthree(3)yearsafterthelast

dayprescribedbylawforthefilingofthereturnorfromthedaythereturnwas
filed,incaseitisfiledbeyondtheperiodprescribedthereof.(Section203ofthe
TaxCode)

Note:
Areturnfiledbeforethelastdayprescribedbylawforthefilingthereofshallbe
consideredasfiledonsuchlastday.
Incaseareturnissubstantiallyamended,thegovernmentrighttoassessthetax
shallcommencefromthefilingoftheamendedreturn(CIRvs.Phoenix,May20,
1965;Kei&Co.vs.Collector,4SCRA872)
Incomputingtheprescriptiveperiodforassessment,thelatterisdeemedmade
whennoticetothiseffectisreleased,mailedorsentbytheCommissionertothe
correctaddressofthetaxpayer.However,thelawdoesnotrequirethatthe
demand/noticebereceivedwithintheprescriptiveperiod.(BasilanEstates,Inc.
vs.Commissioner21,SCRA17;Republicvs.CAApril30,1987)
Anaffidavitexecutedbyarevenueofficeindicatingthetaxliabilitiesofataxpayer
andattachedtoacriminalcomplaintfortaxevasion,cannotbedeemedan
assessment.(CIRvs.PascoiRealtyCorp.June29,1999)
Atranscriptsheetsarenotreturns,becausetheydonotcontaininformation
necessaryandrequiredtopermitthecomputationandassessmentoftaxes
(SinforoAlcavs.Commissioner,Dec.29,1964)

B.)Exceptions:(Sec.222ic)
1. Wherenoreturnwasfiledwithinten(10)yearsafterthedateofdiscoveryof
theomission.
2. Whereareturnwasfiledbutthesamewasfalseorfraudulentwithinten(10)
yearsfromthediscoveryoffalsityorfraud.
Note:
Fraudulentreturn

vs.
Falsereturn
ThefilingthereofisintendedandItmerelyimpliesa
Deceitfulwiththeaimofevadingthedeviationfromtruthof
correcttaxdue.factwhetherintentional.

NatureofFraud:
a. Fraudisneverpresumedandthecircumstancesconsistingitmustbe
allegedandprovedtoexistbyclear&convincingevidence(Republicvs.Keir,
Sept.30,1966)

b. Thefraudcontemplatedbylawisactualandnotconstructive.Itmust
amounttointentionalwrongdoingwiththesoleobjectofavoidingthetax.A
meremistakeisnotafraudulentintent.(Aznarcase,Aug.23,1974)
c. Afraudassessmentwhichhasbecomefinalandexecutory,thefactoffraud
shallbejudiciallytakencognizanceofinthecivilorcriminalactionforthe
collectionthereof.(Sec.222paragraph(a))
Fraudmaybeestablishedbythefollowing:(BadgesofFraud)
a. Intentionalandsubstantialunderstatementoftaxliabilityofthetaxpayer.
b. Intentionalandsubstantialoverstatementofdeductionsofexemption
c. Recurrenceoftheforegoingcircumstances.
Instances/Circumstancesnegatingfraud:
a. WhentheCommissionerfailsimputefraudintheassessmentnotice/
demandforpayment.
b. WhentheCommissionerfailedtoallegeinhisanswertothetaxpayers
petitionforreviewwhenthecaseisappealedtotheCTA.
c. WhentheCommissionerraisedthequestionoffraudonlyforthefirsttime
inhismemorandumwhichwasfiledtheCTAafterhehadrestedhiscase.
d. WheretheBIRitselfappeared,notsureastotherealamountofthe
taxpayersnetincome.
e. Amereunderstatementofincomedoesnotprovefraud,unlessthereisa
sufficientevidenceshavingfraudulentintent.
3. Wherethecommissionerandthetaxpayer,beforetheexpirationofthethree(3)
yearperiodoflimitationhaveagreeinwritingtotheextensionofsaidperiod.
Note:
Limitations:
a. Theagreementextendingtheperiodofprescriptionshouldbeinwritingand
dulysignedbythetaxpayerandthecommissioner.
b. Theagreementtoextendthesameshouldbemodebeforetheexpirationofthe
periodpreviouslyagreedupon.
4. Wherethereisawrittenwaiverorrenunciationoftheoriginal3yearlimitation
signedbythetaxpayer.
Note:
Limitations:
a. Thewaivertobevalidmustbeexecutedbythepartiesbeforethelapseofthe
prescriptiveperiod.
b. AwaiverisinefficientIitisexecutedbeyondtheoriginalthreeyear.

c. Thecommissionercannotvalidagreetoreducetheprescriptiveperiodtoless
thanthatgrantedbylaw.
C)ImprescriptibleAssessments:
1.Wherethelawdoesnotprovideforanyparticularperiodofassessment,thetax
soughttobeassessedbecomesimprescriptible.
2.Wherenoreturnisrequiredbylaw,thetaxisimprescriptible.
3.Assessmentofunpaidtaxes,wherethebasesofwhichisnotrequiredbylawtobe
reportedinareturnsuchasexcisetaxes.(Carmenvs.AyalaSecuritiesCorp.,Nov.21,
1980)
4.Assessmentofcompensatinganddocumentarystamptax.
II. PrescriptionofGovernmentsRighttoCollectTaxes
A. GeneralRule:
1. WhereanassessmentwasmadeAnyinternalrevenuetaxwhichhasbeen
assessedwithintheperiodoflimitationmaybecollectedbydistraintorlevy
orbyproceedingincourtwithin5yearsfollowingthedateofassessment.
2. Wherenoassessmentwasmadeandareturnwasfiledandthesameisnot
fraudulentorfalsethetaxshouldbecollectedwithin3yearsafterthe
returnwasdueorwasfiled,whicheverislater.
B. Exceptions:
1. Whereafraudulent/falsereturnwithintenttoevadetaxeswasfileda
proceedingincourtforthecollectionofthetaxmaybefiledwithout
assessment,atanytimewithintenyearsafterthediscoveryofthefalsityor
fraud.
Note:
The10yearprescriptiveperiodforcollectorthruactiondoesnotapplyifit
appearsthattherewasanassessment.Insuchcase,theordinary5yearperiod
(now3years)wouldapply(Rep.vs.Ret.,March31,1962)
2. Whenthetaxpayeromitstofileareturnacourtproceedingforthe
collectionofsuchtaxmaybefiledwithoutassessment,atanytimewithin10
yearsafterthediscoveryoftheomission.
3. Waiverofstatuteoflimitationsanyinternalrevenuetax,whichhasbeen
assessedwithintheperiodagreedupon,maybecollectedbedistinctorlevy
ofbyaproceedingincourtwithintheperiodagreeduponinwritingbefore
theexpirationof5yearperiod.

Note:
Distinction
a. Agreementtoextendperiodof vs. b.Agreementrenouncing
Prescription.Itmustbemadebeforethe

periodofprescription
Expirationoftheperiodagreedupontoanagreementwaivingthedefenseof
bevalid.

Prescriptionistillbindingtothe

Taxpayeralthoughmadebeyondsuch

prescriptiveperiod.

4. Wherethegovernmentmakesanotherassessmentonthebasisof
reinvestigationrequestedbythetaxpayertheprescriptiveperiodfor
collectionshouldbecountedfromthelastassessment.(Rep.vs.Lopez,March
30,1963)

5. Wheretheassessmentisrevisedbecauseofanamendedreturntheperiod
forcollectioniscountedfromthelastrevisedassessment.
6. Whereataxobligationissecuredbyasuretybondthegovernmentmay
proceedthruacourtactiontoforfeitabondandenforcesuchcontractual
obligationwithinaperiodoftenyears.
7. Wheretheactionisbroughttoenforceacompromiseenteredintobetween
thecommissionandthetaxpayertheprescriptiveperiodistenyears.
C. Whentaxisdeemedcollectedforpurposesoftheprescriptiveperiod.
1. CollectionbysummaryremediesItiseffectedbysummarymethodswhenthe
governmentavailofdistraintandlevyprocedure.
2. CollectionbyjudicialactionThecollectionbeginsbyfilingthecomplaintwith
thepropercourt.(RTC)
3. Whereassessmentofthecommissionerisprotected&appealedtotheCTA
thecollectionbeginwhenthegovernmentfileitsanswertotaxpayerspetition
forreview.

III. RulesofPrescriptionInCriminalCases

A. Rule:Allviolationsofanyprovisionofthetaxcodeshallprescribeafterfive(5)
years.
Note:
Whenitshouldcommence?:Thefive(5)yearprescriptiveperiodshallbeginto
runfromthe
a. Dayofthecommissionoftheviolation,ifknow.
b. Ifnotknown,fromthetimeofdiscoveryandtheinstitutionofjudicial
proceedingforitsinvestigationandpunishment.
Whenitisinterrupted:
a. Whenaproceedingisinstitutedagainsttheguiltyperson
b. WhentheoffenderisabsentfromthePhilippines.
Whenitshouldrunagain:Whentheproceedingisdismissedforreasonnot
Constitutingjeopardy.
Whendoesthedefenseofprescriptionmayberaised:
a. IncivilcaseIfnotraisedinthelowercourt,itisbailedpermanently.
Ifcannotberaisedforthefirsttimeonappeal.
b. IncriminalcaseItcanberaisedevenifthecasehasbeendecidedbythe
lowercourtbutpendingdecisiononappeal.
IV. InterruptionofthePrescriptivePeriod
1. Wherebeforetheexpirationofthetimeprescribedfortheassessmentofthe
tax,boththecommissionerandthetaxpayerhaveconsentedinwritingtoits
assessmentaftersuchtime,thetaxmaybeassessedpriortotheexpirationof
theperiodagreedupon.
2. Therunningofstatuteoflimitationsonmakinganassessmentandthe
beginningofdistraint/levyoraproceedingincourtforcollectionshallbe
suspendedfortheperiod.
a. DuringwhichtheCommissionerisprohibitedfrommakingthe
assessmentorbeginningdistraint/levyoraproceedingincourtandfor
60daysthereafter;
e.g.
FilingapetitionforreviewintheCTAfromthedecisionofthe
Commissioner.Thecommissionerispreventedfromfilinganordinary
actiontocollectthetax.
WhenCTAsuspendsthecollectionoftaxliabilityofthetaxpayer
pursuanttoSection11ofRA1125uponproofthatitscollectionmay
jeopardizesthegovernmentand/orthetaxpayer.

b. Whenthetaxpayerrequestsforreinvestigationwhichisgrantedby
commissioner.
Note:
Amererequestforreinvestigationwithoutanyactionorthepartof
theCommissionerdoesnotinterrupttherunningoftheprescriptiveperiod.
Therequestmustnotbeamereproformer.Substantialissuesmust
beraised.
c. Whenthetaxpayercannotbelocatedintheaddressgivenbyhiminthe
return.
Note:
IfthetaxpayerinformstheCommissionerofanychangeinaddressthe
statutewillnotbesuspended.
d. Whenthewarrantofdistraintorlevyisdulyserveduponanyofthe
followingperson:
1. taxpayer
2. hisauthorizedrepresentative
3. Memberofhishouseholdwithsufficientdiscretionandnoproperty
couldbelocated.
e. WhenthetaxpayerisoutofthePhilippines.
3. Incriminalcasesforviolationoftaxcodetheperiodshallnotrunwhenthe
offenderisabsentfromthePhilippines.
Note:
Apetitionforreconsiderationofataxassessmentdoesnotsuspendthecriminal
action.
Reason:Norequirementforassessmentofthetaxbeforethecriminalactionmay
beinstituted.
NotaBene:
1. Thelawonprescriptionremedialmeasureshouldbeinterpretedliberallyinorder
toprotectthetaxpayer.
2. Thedefenseofprescriptionmustberaisedbythetaxpayerontime,otherwiseitis
deemedwaived.
3. Thequestionofprescriptionisnotjurisdictional,andasdefenseitmustberaised

reasonablyotherwiseitisdeemedwaived.
4. Theprescriptiveprovidedinthetaxcodeoverridethestatuteofnonclaimsin
thesettlementofthedeceasedsestate.
5. Intheeventthatthecollectionofthetaxhasalreadyprescribed,thegovernment
cannotinvoketheprincipleofEquitablerecumbentbysettingofftheprescribed
taxagainstataxrefusedtowhichthetaxpayerisentitled.

TAXPAYERSREMEDIES

Administrative
(1) BeforePayment
a. Filingofapetitionorrequestforreconsiderationorreinvestigation
(AdministrativeProtest);
b. Enteringintocompromise
(2) AfterPayment
a. Filingofclaimfortaxrefund;and
b. Filingofclaimfortaxcredit
Judicial
(1) Civilaction
a. AppealtotheCourtofTaxAppeals
b. Actiontocontestforfeitureofchattel;and
c. ActionforDamages
(2) CriminalAction
a. FilingofcomplaintagainsterringBureauofInternalRevenueofficials
andemployees.
ADMINISTRATIVEPROTEST

Requestforreconsiderationapleaforthereevaluationofanassessmentonthe
basisofexistingrecordswithoutneedofadditionalevidence.Itmayinvolveaquestionof
factorlaworboth.
Requestforreinvestigationapleaforreinvestigationofanassessmentonthebasis
ofnewlydiscoveredoradditionalevidencethatataxpayerintendstopresentinthe
reinvestigation.Itmayalsoinvolvequestionoffactorlaworboth.
IssuanceofAssessment
Procedure
IssuanceofwrittenaPreliminaryAssessmentNotice(PAN)afterreviewand
evaluationbytheAssessmentDivisionorbytheCommissionerorhisdulyauthorized
representative,asthecasemaybe.AvalidPANshallbeinwritingstatingthelawand
factsonwhichtheassessmentismade.(Sec.228ofthe1997NIRC)
UnderSec.228ofthe1997NIRCaPreAssessmentNoticeshallnotberequiredinthe
followingcases:
a. Whenthefindingforthedeficiencytaxistheresultofmathematicalerrorin
thecomputationofthetaxasappearingonthefaceofthereturn;or
b. Whenadiscrepancyhasbeendeterminedbetweenthetaxwithheldandthe
amountactuallyremittedbythewithholdingagent;or
c. Whenataxpayerwhooptedtoclaimarefundortaxcreditofexcesscreditable
withholdingtaxforataxableperiodwasdeterminedtohavecarriedoverand
automaticallyappliedthesameamountclaimedagainsttheestimatedtax
liabilitiesforthetaxablequarterorquartersofthesucceedingtaxableyear;or
d. Whentheexcisetaxdueonexcisablearticleshasnotbeenpaid;or
e. Whenanarticlelocallypurchasedorimportedbyanexemptperson,suchas,
butnotlimitedto,vehicles,capitalequipment,machineries,andspareparts,has
beensold,tradedortransferredtononexemptpersons.
Ifthetaxpayerfailstorespondwithinfifteen(15)daysfromthedateofreceiptofthe
PAN,heshallbeconsideredindefault,inwhichcase,aformalletterofdemandand
assessmentnoticeshallbecausedtobeissued,callingforpaymentofthetaxpayerstax

liability,inclusiveoftheapplicablepenalties(3.1.2.RevenueRegulationsNo.1299dated
Sept.6,1999).
IssuanceofaFormalLetterofDemandandAssessmentNoticeissuedbythe
Commissionerorhisdulyauthorizedrepresentative.Shallstatethefacts,thelaws,rules
andregulations,orjurisprudenceonwhichtheassessmentisbased,otherwise,theformal
letterofdemandandassessmentnoticeshallbevoid.
FormalLetterofDemandandAssessmentNoticeshallbesenttothetaxpayeronlyby
registeredmailorpersonaldelivery.
Ifsentbypersonaldelivery,thetaxpayerorhisdulyauthorizedrepresentativeshall
acknowledgereceiptthereofintheduplicatecopyoftheletterofdemandshowingthe
following:(a)hisname;(b)signature;(c)designationandauthoritytoactforandin
behalfofthetaxpayer;ifacknowledgedorreceivedbyapersonotherthanthetaxpayer
himself;and(d)dateofreceiptthereof.(3.1.4.RevenueRegulationsNo.1299datedSept.
6,1999).
DisputedAssessment
Taxpayerorhisdulyauthorizedrepresentativemayadministrativelyprotestagainsta
FormalLetterofDemandandAssessmentnoticewithinthirty(30)daysfromdateof
receiptthereof.
Iftheprotestisdeniedinwholeorpart,orisnotacteduponwithinonehundred
eighty(180)daysfromsubmissionofdocuments,thetaxpayeradverselyaffectedbythe
decisionorinactionmayappealtotheCTAwithin30daysfromreceiptofthesaid
decision,orfromlapseoftheonehundred(180)dayperiod:otherwise,thedecision
shallbecomefinalandexecutory
Severalissuesintheassessmentnoticebuttaxpayeronlydisputes/protestsvalidityofsome
oftheissues
Taxpayerrequiredtopaythedeficiencytaxortaxesattributabletothe
undisputedissues.
Collectionlettertobeissuedcallingforthepaymentofdeficiencytax,including

applicablesurchargeand/orinterest.
Noactionshallbetakenonthedisputedissuesuntilpaymentofdeficiencytaxes
onundisputedissues
Prescriptiveperiodforassessmentorcollectionoftaxesondisputedissuesshall
besuspended.
Failureoftaxpayertostatethefacts,theapplicablelaw,rulesandregulations,or
jurisprudenceonwhichhisprotestisbasedshallrenderhisprotestvoidandwithout
forceandeffect.
Contents:
a. Nameofthetaxpayerandaddressfortheimmediatepastthreetaxableyears;
b. Natureofrequestwhetherreinvestigationorreconsiderationspecifyingnewly
discoveredevidencethatheintendstopresentititisarequestfor
reinvestigation;
c. Taxableperiodscoveredbytheassessment;
d. Amountsandkind/softaxinvolved,andAssessmentNoticeNumber;
e. Dateofreceiptofassessmentnoticeorletterofdemand;
f. Itemizedstatementofthefindingstowhichthetaxpayeragrees,ifany,asa
basisforcomputingthetaxdue,whichamountshouldbepaidimmediately
uponthefilingoftheprotest.Forthispurpose,theprotestshallnotbedeemed
validlyfiledunlesspaymentoftheagreedportionofthetaxispaidfirst;
g. Itemizedscheduleoftheadjustmentswithwhichthetaxpayerdoesnotagree;
h. Statementoffactsand/orlawinsupportoftheprotest;and
i. Documentaryevidenceasitmaydeemnecessaryandrelevanttosupportits
protesttobesubmittedwithinsixty(60)daysfromthefilingoftheprotest.If
thetaxpayerfailstocomplywiththisrequirement,theassessmentshallbecome
final(RevenueRegulationNo.1285,datedNov.27,1985.)
Arequestforreconsiderationorreinvestigationofanassessmentshallbe
accompaniedbyawaiveroftheStatuteofLimitationsinfavoroftheGovernment.
EffectoftaxpayersfailuretofileanadministrativeprotestortoappealBIRsdecisionto
theCTA
AsprovidedinSec.228oftheTaxCode,ifthetaxpayerfailstofilean
administrativeprotestwithinthereglementary30dayfromreceiptofthe
assessmentnotice,assessmentbecomesfinal.

 Afterthelapseofthe30dayperiod,theassessmentcannolongerbedisputed
eitheradministrativelyorjudiciallythroughanappealintheCTA.
Assessedalreadytaxcollectible.

LegalBasis
LegalPrincipleofquasicontractsorsolutioindebiti(seeArt.2142&2154ofthe
CivilCode).TheGovernmentiswithinthescopeoftheprincipleofsolutioindebiti(CIR
vs.FiremansFundInsuranceCo)
ScopeofClaims

UnderSec.204and209ofthe1997NIRCtheCommissionermaycreditorrefund
taxes:
(a)Erroneouslyorillegallyassessedorcollectedinternalrevenuetaxes

Taxpayerpaysunderthemistakeoffact,asforinstanceinacasewhereheis
notawareoftheexistingexemptioninhisfavoratthetimepaymentsweremade

Ataxisillegallycollectedifpaymentsaremadeunderduress.

(b)Penaltiesimposedwithoutauthority
(c)Anysumallegedtohavebeenexcessiveorinanymannerwrongfullycollected
Thevalueofinternalrevenuestampswhentheyarereturnedingoodconditionby
thepurchasermayalsoberedeemed.
NecessityofProofforRefundClaims
Refundclaimpartakesofthenatureofanexemptionwhichcannotbeallowed
unlessgrantedinthemostexplicitandcategoricallanguage.(CIRvs.Johnsonand
Sons
Failuretodischargeburdenofgivingproofisfataltoclaim
Itmustbeshownthatpaymentwasanindependentsingleactofvoluntary

paymentofataxbelievedtobedue,collectibleandacceptedbythegovernment,
andwhichtherefore,becomepartofthestatemoneyssubjecttoexpenditureand
perhapsalreadyspentorappropriated(CIRvs.LiYao,L11875,Dec.28,1963).
TAXREFUND
TAXCREDIT
Thereisactually
a
reimbursement
ofthetax

Thegovernment
issuesataxcredit
memocovering
theamount
determinedtobe
reimbursable
whichcanbe
appliedafter
proper
verification,
againstanysum
thatmaybedue
andcollectible
formthetaxpayer

StatutoryRequirementsforRefundClaims
a.Writtenclaimforrefundortaxcreditfiledbythetaxpayerwiththe
Commissioner
Thisrequirementismandatory.
Reasons:(a)toaffordthecommissioneranopportunitytocorrecttheactionof
subordinateofficerand(b)tonotifythegovernmentthatthetaxessoughttobe
refundedareunder
questionandthat,therefore,suchnoticeshouldthenbeborneinmindin
estimatingtherevenueavailableforexpenditure(Bermejovs.CIR87Phil96).
Except:Taxcreditortaxrefundwhereonthefaceofthereturnuponwhich
paymentismade,suchpaymentappearsclearlytohavebeenerroneous.(Sec.229,
1997NIRC).
b.Categoricaldemandforreimbursement
c.Claimforrefundortaxcreditmustbefiledorthesuitproceedingthereofmust
becommencedincourtwithintwo(2)yearsfromdateofpaymentoftaxorpenalty

regardlessofanysuperveningevent.(Sec.204(c)&2291997NIRC)
Requirementaconditionprecedentandnoncompliancetherewithbarsrecovery
(Phil.AcetyleneCo.Inc,vs.Commissioner,CTACaseNo.1321,Nov.7,1962).
Refersnotonlytotheadministrativeclaimthatthetaxpayershouldfilewithin2
yearsfromdateofpaymentswiththeBIR,butalsothejudicialclaimortheaction
forrefundthetaxpayershouldcommencewiththeCTA(seeGibbsvs..Collectorof
InternalRevenue,107Phil232).
TaxpayermayfileanactionforrefundintheCTAevenbeforetheCommissioner
decideshispendingclaimintheBIR(CommissionerofInternalRevenuevs.Palanca
Jr.,L16626,Oct.29,1966).
Suspensionofthe2yaerprescriptiveperiodmaybehadwhen:
(1)thereisapendinglitigationbetweenthetwoparties(governmentand
taxpayer)astothepropertaxtobepaidandoftheproperinterpretationofthe
taxpayerscharterinrelationtothedisputedtax;and
(2)thecommissionerinthatlitigatedcaseagreedtoabidebythedecisionofthe
SupremeCourtastothecollectionoftaxesrelativethereto(PanayElectricCo.,
Inc.vs.CollectorofInternalRevenue103Phil.819)
Evenifthe2yearperiodhaslapsedthesameisnotjurisdictionalandmaybe
suspendedforreasonsofequityandotherspecialcircumstances.(CIRvs.Phil.
AmericanLifeIns.Co.,G.R.No.105208,May29,1995).
2yearprescriptiveperiodforfilingoftaxrefundorcreditclaimcomputedfrom
dateofpaymentoftaxofpenaltyexceptinthefollowing:
Corporations
2yearprescriptiveperiodforoverpaidquarterlyincometaxiscountednot
fromthedatethecorporationfilesitsquarterlyincometaxreturn,butfromthe
datethefinaladjustedreturnisfiledafterthetaxableyear(Commissionerof
InternalRevenuevs.TMXSales,Inc.,G.R.No.83736,Jan.15,1992).
Taxespayableininstallment
2yearperiodiscountedformthepaymentofthelastinstallment(CIRvs
Palanca,Jr.,supra)
WithholdingTaxes
Prescriptiveperiodcountednotfromthedatethetaxiswithheldandremitted

totheBIR,butfromtheendofthetaxableyear(Gibbsvs.CommissionerofInternal
Revenue,supra)
VATRegisteredPersonwhosesalesarezeroratedoreffectivelyzerorated
2yearperiodcomputedfromtheendofthetaxablequarterwhenthesales
transactionsweremade(Sec.112(A)1997NIRC).
InterestonTaxRefund

TheGovernmentcannotberequiredtopayinterestontaxesrefundedtothe
taxpayerunless:
1.TheCommissioneractedwithpatentarbitrariness

Arbitrarinesspresupposesinexcusableorobstinatedisregardoflegalprovisions
(CIRvs.VictoriasMillingCorp.,Inc.L19607,Nov.29,1966).
2.IncaseofIncomeTaxwithheldonthewagesofemployees.

Anyexcessofthetaxeswithheldoverthetaxduefromthetaxpayershallbe
returnedorcreditedwithin3monthsfromthefifteenth(15th)dayofApril.Refundor
creditaftersuchtimeearninterestattherateof6%perannum,startingafterthelapse
ofthe3monthperiodtothedatethereundorcreditismade(Sec79(c)(2)1997NIRC)

APPEALtotheCTA
AdversedecisionorrulingrenderedbytheCommissionerofInternalRevenuein
disputedassessmentorclaimfortaxrefundorcredit,taxpayermayappealthe
samewithinthirty(30)daysafterreceipt.(Sec.11,R.A.No.1125)
Appealequivalenttoajudicialaction
Intheabsenceofappeal,thedecisionbecomesfinalandexecutory.Butwherethe
taxpayeradverselyaffectedhasnotreceivedthedecisionorruling,hecouldnot
appealthesametotheCTAwithin30daysfromnotice.Hence,itcouldnotbecome
finalandexecutory.(Republicvs.DelaRama,18SCRA861)
Motionforreconsiderationsuspendstherunningofthe30dayperiodof
perfectinganappeal.Mustadvancenewgroundsnotpreviouslyallegedtotollthe
reglementaryperiod;otherwise,itwouldbemerelyproforma.(RomanCatholic
Archbishopvs.Coll.,L16683,Jan.31,1962).

RequirementsforAppealinDisputedAssessment
a. Taxassessedhasnotbeenpaid;
b. TaxpayerhasfiledwiththeCommissionerofInternalRevenueapetitionfor
thereconsiderationorcancellationoftheassessment;
c. Finaldecisionorrulinghasbeenrenderedonsuchpetition;
d. SuitorproceedingintheCTAismadewithin30daysfromreceiptofthe
decision
EffectofFailuretoAppealAssessment
a. Taxpayerbarred,inanactionforcollectionofthetaxbythegovernment,from
usingdefenseofexcessiveorillegalassessment.
b. Assessmentisconsideredcorrect.
RequirementsforAppealinRefundandTaxCredit
a. Taxhasbeenpaid;
b. TaxpayerhasfiledwiththeCIRawrittenclaimforrefundortaxcreditwithin
2yearsfrompaymentofthetaxorpenalty;and
c. SuitorproceedingisinstitutedintheCTAalsowithinthesameprescriptive
periodoftwoyearsfromthedateofpaymentregardlessofanysupervening
cause.(seeSecs.204,2291997NIRC).
ACTIONCONTESTINGFORFEITUREOFCHATTEL
Incaseofseizureofpersonalpropertyunderclaimforforfeiture,theownerdesiring
tocontestthevalidityoftheforfeituremaybringanaction:
a. Beforesaleordestructionofthepropertytorecoverthepropertyfromtheperson
seizingthepropertyorinpossessionthereofuponfilingoftheproperbondto
enjointhesale.
b. Afterthesaleandwithin6monthstorecoverthenetproceedsrealizedatthesale
(see.Sec.231,1997NIRC)
Actionispartakesofthenatureofanordinarycivilactionforrecoveryofpersonal

propertyorthenetproceedsofitssalewhichmustbebroughtintheordinarycourts
andnottheCTA.
ACTIONFORDAMAGESAGAINSTREVENUEOFFICIALS
Taxpayermayfileanactionfordamagesagainstanyinternalrevenueofficerby
reasonofanyactdoneintheperformanceofofficialdutyorneglectofduty.Incaseof
willfulneglectofduty,taxpayersrecourseisunderArt27oftheCivilCode.
Revenueofficeractingnegligentlyorinbadfaithorwithwillfuloppressionwouldbe
personallyliable.Heceasestobeanofficerofthelawandbecomesaprivatewrongdoer.
FILINGOFCRIMINALCOMPLAINTAGAINSTREVENUEOFFICERS
Ataxpayermayfileacriminalcomplaintagainstanyofficial,agentoremployeeofthe
BIRoranyotheragencychargedwiththeenforcementoftheprovisionsoftheTaxCode
whocommitsanyofthefollowingoffenses:
1) Extortionorwillfuloppressionthroughtheuseofhisoffice;
2) Willfuloppressionandharassmentofataxpayerwhorefused,declined,turned
downorrejectedanyofhisoffersmentionedinno.5;
3) Knowinglydemandingorreceivingsumsorcompensationnotauthorizedor
prescribedbylaw;
4) Willfullyneglectingtogivereceiptsasbylawrequiredortoperformanyother
dutiesenjoinedbylaw;
5) Offeringorundertakingtoaccomplish,fileorsubmitareportorassessmentona
txpayerwithouttheappropriateexaminationofthebooksofaccountortax
liability,orofferingorundertakingtosubmitareportorassessmentlessthanthe
amountduethegovernmentforanyconsiderationorcompensation;orconspiring
orcolludingwithanotherorotherstodefraudtherevenuesorotherwiseviolate
theprovisionsofthetaxcode;
6) Neglectingorbydesignpermittingtheviolationofthelaworanyfalsecertificate
orreturn;
7) Makingorsigninganyfalseentryorentriesinanybook,ornayfalsecertificate
orreturn;
8) allowingorconspiringorcolludingwithanothertoallowtheunauthorized

withdrawalorrecallofanyreturnorstatementafterthesamehasbeenofficially
receivedbytheBIR;
9) HavingknowledgeorinformationofanyviolationoftheTaxCode,failureto
reportsuchknowledgeorinformationtotheirsuperiorofficer,orasotherwise
requiredbylaw;ND
10) Withouttheauthorityoflaw,demandingoracceptingmoneyorotherthingsof
valueforethecompromiseorsettlementofanychargeorcomplaintforany
violationoftheTaxCode.(see.Sec.269,1997NIRC)
Remediesunderthe
TariffandCustomsCode
A. GovernmentRemedies:
a. Extrajudicial
1. Enforcementortaxlien
Ataxlienattachesonthegoods,regardlessoftheownershipwhilestillin
thecustodyorcontrolofthegovernment
Proceedsofsaleareappliedtothetaxdue.Anydeficiencyorexcessisforthe
accountorcredit,respectivelyofthetaxpayer
Thisisavailedofwhentheimportationisneithernorimproperlymade

2. Seizures
Generallyappliedwhenthepenaltyisfineorforfeiturewhichisimposed
whentheimportationisunlawfulanditmaybeexercisedevenwherethe
articlesarenotornolongerinCustomsCustody,unlesstheimportationis
merelyattempted.

Inthecaseofattemptedimportation,administrativefineorforfeiture
maybeaffectedonly;
a. whilethegoodsarestillwithinthecustomsjurisdiction,or
b. inthehandsorunderthecontroloftheimporterorpersonwhois
awarethereof.

3. SaleofProperty
Propertyinthecustomscustodyshallbesubjecttosaleunderthefollowing
conditions;
a. abandonedarticles;
a. articlesenteredunderwarehousingentrynotwithdrawnnorthe
dutiesandtaxespaidthereonwithintheperiodprovidedunderSection
1908,TCC;
b. seizedproperty,otherthancontraband,afterliabilitytosaleshall
havebeenestablishedbyproperadministrativeorjudicialproceedingsin
conformitywiththeprovisionofthiscode:and
c. Anyarticlessubjecttoavalidlienforcustomsduties,taxesorother
chargescollectiblebytheBureauofCustoms,aftertheexpirationofthe
periodallowedforthesatisfactionofthesame.
Note:GoodsinthecollectorspossessionorofCustomsauthoritiespending
paymentofcustomsdutiesarebeyondthereachofattachment.

b. JudicialAction
Thetaxliabilityoftheimporterconstitutesapersonaldebttothegovernment,
enforceablebyaction(Sec.1204,TCC)
Thisisavailedofwhenthetaxlienislostbythereleaseofthegoods.

B. TaxpayersRemedies
AdministrativeRecourse
Claimforrefundawrittenclaimforrefundmaybesubmittedbytheimporter:

1. Inabatementusessuchas:

a. onmissingpackages;
b. deficienciesinthecontentsofpackagesorshortagebeforearrivalofthe
goodsinthePhilippines;
c. articleslostordestroyedaftersucharrival,
d. articleslostordestroyed
e. deadorinjuredanimals;and
f. formanifestclassicalerrors;(seesection17011708,TCC)

2. Judicialrelief
Indrawbackcaseswherethegoodsarereexported
a. Protest
seetheearlierdiscussionsonCustomsProtestCases
a. Inseizurecases

seeearlierdiscussiononthesubject
b. Settlementofcasebythepaymentoffineorredemptionofforfeited
property
seeearlierdiscussionsonthesubject

Note:TheownerorimportermayabandoneitherexpresslyorByimportation
infavoroftheGovernmentthusrelievinghimselfofthetaxliabilitybutnot
fromthepossiblecriminalliability.
ThetaxpayermayappealtotheCourtofAppealswhichhasexclusive
jurisdictiontoreviewdecisionsoftheCommissionerofCustomincases
involving:

a) liabilityforcustomsduties,feesorothermoneycharges;
b) seizures,detentionorreleaseofpropertyaffected;

c) finesforfeituresorotherpenaltiesimposedinrelationthereto;and
d) othermattersarisingunderthecustomsLaworotherlawsadministered
bytheRevenueofCustoms.

RemediesoftheGovernment
EnumerationoftheRemedies
Administrative
3. DistraintofPersonalProperty
4. LevyofRealProperty
5. TaxLien
6. Compromise
7. Forfeiture
8. OtherAdministrativeRemedies
Judicial
9. CivilAction
10. CriminalAction
DistraintofPersonalProperty
DistraintSeizurebythegovernmentofpersonalproperty,tangibleorintangible,
toenforcethepaymentoffaces,tobefollowedbyitspublicsale,ifthetaxesarenot
voluntarilypaid.
c. ActualThereistakingofpossessionofpersonalpropertyoutofthetaxpayer
intothatofthegovernment.Incaseofintangibleproperty.Taxpayerisalso
divertedofthepowerofcontrolovertheproperty;

d. ConstructiveTheownerismerelyprohibitedfromdisposingofhispersonal
property.
ActualDistraint.

Constructive
Distraint
Madeonthe
Maybemadeon
propertyonlyofa
thepropertyof
delinquenttaxpayer.
anytaxpayer
whether
delinquentornot
Thereisactual
Taxpayerismerely
takingor
prohibitedfrom
possessionofthe
disposingofhis
property.
property.
Effectedbyhavinga
Effectedby
listofthedistraint
requiringthe
propertyorby
taxpayertosigna
serviceorwarrant
receiptofthe
ofdistraintor
propertyorby
garnishment.
leavingalistof
same
Animmediatestep
Suchimmediate
forcollectionof
stepisnot
taxeswhere
necessary;taxdue
amountdueis
maynotbe
definite.
definiteoritis
beingquestioned.

Requisites:
5. Taxpayerisdelinquentinthepaymentoftax.
6. Subsequentdemandforitspayment.
7. Taxpayermustfailtopaydelinquenttaxattimerequired.
8. Periodwithintoassessorcollecthasnotyetprescribed.Incaseofconstructive
distraint,requisiteno.1isnotessential(seeSec.206TC)

Whenremedynotavailable:

WhereamountinvolveddoesnotexceedP100(Sec.205TC).Inkeepingwiththe
provisionontheabatementofthecollectionoftaxasthecostofsamemightevenbe
morethanP100.
Procedure:
5. Serviceofwarrantofdistraintupontaxpayeroruponpersoninpossessionof
taxpayerspersonalproperty.
6. Postingofnoticeisnotlessthantwoplacesinthemunicipalityorcityandnotice
tothetaxpayerspecifyingtimeandplaceofsaleandthearticlesdistrained.
7. Saleatpublicauctiontohighestbidder
8. Dispositionofproceedsofthesale.

Whomayeffectdistraint
3. commissioneror
hisdueauthorized
representative
4. RDO

Amount
Involved
Inexcessof
P1,000,000.
00
P1,000,000.
00orless

HowActualDistraintEffected
3. IncaseofTangibleProperty:
a. Copyofanaccountofthepropertydistrained,signedbytheofficer,left
eitherwiththeownerorpersonfromwhompropertywastaken,atthe
dwellingorplaceofbusinessandwithsomeoneofsuitableageanddiscretion
b. Statementofthesumdemanded.

c. Timeandplaceofsale.
4. Incaseofintangibleproperty:
a. Stocksandothersecurities
Servingacopyofthewarrantupontaxpayeranduponpresident,manager,
treasurerorotherresponsibleofficeroftheissuingcorporation,companyor
association.
b. Debtsandcredits
3. Leavingacopyofthewarrantwiththepersonowingthedebtsorhaving
inhispossessionsuchcreditsorhisagent.
4. WarrantshallbesufficientauthorityforsuchpersontopayCIRhis
creditsordebts.
c. BankAccountsgarnishment
3. Servewarrantupontaxpayerandpresident,manager,treasureror
responsibleofficerofthebank.
4. BankshallturnovertoCIRsomuchofthebankaccountsasmaybe
sufficient.
HowconstructiveDistraintEffected
3. Requiretaxpayerorpersoninpossessionto
a. Signareceiptcoveringpropertydistrained
b. Obligatehimtopreservethesameproperties.
c. Prohibithimfromdisposingthepropertyfromdisposingthepropertyin
anymanner,withouttheauthorityoftheCIR.
4. WhereTaxpayerorpersoninpossessionrefusestosign:

a. Officershallpreparelistofthepropertydistrained.
b. Inthepresenceoftwowitnessesofsufficientageanddiscretion,leavea
copyinthepremiseswherepropertyislocated.
GroundsofConstructiveDistraint
6. Taxpayerisretiringfromanybusinesssubjecttotax.
7. TaxpayerisintendingtoleavethePhilippines;or
8. Toremovehispropertytherefrom.
9. Taxpayerhidesorconcealshisproperty.
10. Taxpayeractstendingtoobstructcollectionproceedings.
Note:
4. Bankaccountsmaybedistrainedwithoutviolatingtheconfidentialnatureof
bankaccountsfornoinquiryismade.BIRsimplyseizessomuchofthedeposit
withouthavingtoknowhowmuchthedepositsareorwherethemoneyorany
partofitcamefrom.
5. Ifatanytimepriortotheconsummationofthesale,allproperchargesarepaidto
theofficerconductingthesame,thegoodsdistrainedshallberestoredtothe
owner.
6. Whentheamountofthebidforthepropertyunderdistraintisnotequaltothe
amountofthetaxorisverymuchlessthantheactualmarketvalueofarticles,the
CIRorhisdeputymaypurchasethedistrainedpropertyonbehalfofthenational
government.
LevyofRealProperty
LevyActofseizureofrealpropertyinordertoenforcethepaymentoftaxes.The
propertymaybesoldatpublicsale,ifafterseizure;thetaxesarenotvoluntarilypaid.
Therequisitesarethesameasthatofdistraint.
Procedure:

7. InternationalRevenueofficershallprepareadulyauthenticatedcertificate
showing
a. Nameoftaxpayer
b. Amountoftaxand
c. Penaltydue.

enforceablethroughoutthePhilippines
8. Officershallwriteuponthecertificateadescriptionofthepropertyuponwhich
levyismade.
9. Serviceofwrittennoticeto:
c. Thetaxpayer,and
d. RDwherepropertyislocated.
10. Advertisementofthetimeandplaceofsale.
11. Saleatpublicauctiontohighestbidder.
12. Dispositionofproceedsofsale.
Theexcessshallbeturnedovertoowner.
Redemptionofpropertysoldorforfeited
e. Personentitled:Taxpayeroranyoneforhim
f. Timetoredeem:oneyearfromdateofsaleorforfeiture
Beginsfromregistrationofthedeedofsaleordeclarationofforfeiture.
Cannotbeextendedbythecourts.

g. Possessionpendingredemptionownernotdeprivedofpossession
h. Price:Amountoftaxes,penaltiesandinterestthereonfromdateofdelinquencyto
thedateofsaletogetherwithinterestonsaidpurchasepriceat15%perannum
fromdateofpurchasetodateofredemption.

DistraintandLevycompared
6. Botharesummaryremediesforcollectionoftaxes.
7. BothcannotbeavailedofwhereamountinvolvedisnotmorethanP100.
8. Distraintpersonalproperty
Levyrealproperty
9. Distraintforfeiturebygovernment,notprovided
Levyforfeiturebygovernmentauthorizedwherethereisnobidderorthehighest
bidisnotsufficienttopaythetaxes,penaltiesandcosts.
10. DistraintTaxpayernogiventherightofredemption
LevyTaxpayercanredeempropertieslevieduponandsold/forfeitedtothe
government.
Note:
5. ItisthedutyoftheRegisterofDeedsconcerneduponregistrationofthe
declarationofforfeiture,totransferthetitletothepropertywithoutofanorder
fromacompetentcourt
6. Theremedyofdistraintorlevymayberepeatedifnecessaryuntilthefullamount,
includingallexpenses,iscollected.
EnforcementofTaxLien
TaxLienalegalclaimorchargeonproperty,eitherrealorpersonal,establishedby
lawasasecurityindefaultofthepaymentoftaxes.

2. Nature:
AlieninfavorofthegovernmentofthePhilippineswhenapersonliabletopaya
taxneglectsorfailstodosoupondemand.\
3. Duration:

ExistsfromtimeassessmentismadebytheCIRuntilpaid,withinterests,penalties
andcosts.
7. Extent:
Uponallpropertyandrightstopropertybelongingtothetaxpayer.
8. Effectivityagainstthirdpersons:
OnlywhennoticeofsuchlienisfiledbytheCIRintheRegisterofDeedsconcerned.
ExtinguishmentofTaxLien
5. Paymentorremissionofthetax
6. Prescriptionoftherightofthegovernmenttoassessorcollect.
7. FailuretofilenoticeofsuchlienintheofficeofregisterofDeeds,purchasesor
judgmentcreditor.
8. Destructionofthepropertysubjecttothelien.
IncaseNos.1and2,thereisnomoretaxliability.Undernos.3and4,thetaxpayer
isstillliable.
EnforcementofTaxLienvs.Distraint

Ataxlienisdistinguishedfromdisttraintinthat,indistraintthepropertyseized
mustbethatofthetaxpayer,althoughitneednotbethepropertyinrespecttothetaxis
assessed.Taxlienisdirectedtothepropertysubjecttothetax,regardlessofitsowner.
Note:
3. Thisissuperiortojudgmentclaimofprivateindividualsorparties

4. Attachesnotonlyfromtimethewarrantwasservedbutfromthetimethetax
wasdueanddemandable.
Compromise
Compromiseacontractwherebytheparties,byreciprocalconcessions,avoid
litigationorputanendtoonealreadycommenced.
Requisites:
4. Taxpayermusthaveataxliability.
5. TheremustbeanofferbytaxpayerorCIR,ofanamounttobepaidbytaxpayer.
6. Theremustbeacceptanceoftheofferinsettlementoftheoriginalclaim.
Whentaxesmaybecompromised:
4. Areasonabledoubtastothevalidityiftheclaimagainstthetaxpayerexists;
5. Thefinancialpositionofthetaxpayerdemonstratesaclearinabilitytopaythe
assessedtax.
6. Criminalviolations,except:
a. Thosealreadyfiledincourt
b. Thoseinvolvingfraud.

Limitations:
3. Minimumcompromiserate:
a. 10%ofthebasictaxassessedincaseoffinancialincapacity.
b. 40%ofbasictaxassessedothercases.
4. SubjecttoapprovalofEvaluationBoard

c. WhenbasictaxinvolvedexceedsP1,000,000.00or
d. Wheresettlementofferedislessthantheprescribedminimumrates.
DelegationofPowertoCompromise
GeneralRule:Thepowertocompromiseorabateshallnotbedelegatedbythe
commissioner.
Exception:TheRegionalEvaluationBoardmaycompromisetheassessmentissued
bytheregionalofficesinvolvingbasictaxesofP500Korless.
Remedyincaseoffailuretocomply:

TheCIRmayeither:
3. enforcethecompromise,or
4. Regarditasrescindedandinsistsupontheoriginaldemand.

CompromisePenalty
4. Itisacertainamountofmoneywhichthetaxpayerpaystocompromiseatax
violation.
5. Itispaininlieuofacriminalprosecution.
6. Sinceitisvoluntaryincharacter,thesamemaybecollectedonlyifthetaxpayeris
willingtopaythem.
Enforcementofforfeiture
Forfeitureimpliesadivestitureofpropertywithoutcompensation,in
consequenceofadefaultoroffense.Itincludestheideaofnotonlylosingbutalsohaving
thepropertytransferredtoanotherwithouttheconsentoftheownerandwrongdoer.
8. Effect:Transferthetitletothespecificthingfromtheownertothegovernment.
9. Whenavailable:

a. Nobidderfortherealpropertyexposedforsale.
b. Ifhighestbidisforanamountinsufficienttopaythetaxes,penaltiesand
costs.
Withintwodaysthereafter,areturnoftheproceedingisdulymade.
10. Howenforced:
c. Incaseofpersonalpropertybyseizureandsaleordestructionofthe
specificforfeitedproperty.
d. Incaseofrealpropertybyajudgmentofcondemnationandsaleinalegal
actionorproceeding,civilorcriminal,asthecasemayrequire.

11. Whenforfeitedpropertytobedestroyedorsold:
c. TobedestroyedbyorderoftheCIRwhenthesaleforconsumptionoruse
ofthefollowingwouldbeinjurioustothepublichealthorprejudicialtothe
enforcementofthelaw:(atleast20daysafterseizure)
1. distilledspirits
2. liquors
3. cigars
4. cigarettes,andothermanufacturedproductsoftobacco
5. playingcards
6. Allapparatususedinorabouttheillicitproductionofsucharticles.

d. TobesoldordestroyeddependsuponthediscretionofCIR
3. Allotherarticlessubjecttoexercisetax,(wine,automobile,mineral
products,manufacturedoils,miscellaneousproducts,nonessentialitems
apetroleumproducts)manufacturedorremovedinviolationoftheTax

Code.
4. DiesforprintingormakingIRstamps,labelsandtags,inimitationof
orpurporttobelawfulstamps,labelsortags.

12. Wheretobesold:
c. Publicsale:provided,thereisnoticeofnotlessthan20days.
d. Privatesale:provided,itiswiththeapprovaloftheSecretaryofFinance.
13. RightofRedemption:
f. Personalentitledtaxpayeroranyoneforhim
g. Timetoredeemwithinone(1)yearfromforfeiture
h. Amounttobepaidfullamountofthetaxesandpenalties,plusinterestand
costofthesale
i. TowhompaidCommissionerortheRevenueCollectionOfficer
j. Effectoffailuretoredeemforfeitureshallbecomeabsolute.

Note:TheRegisterofDeedsisdutyboundtotransferthetitleofpropertyforfeitedtothe
governmentwithournecessityofanorderfromacompetentcourt.
OtherAdministrativeRemedies
18. Requiringfilingofbondsinthefollowinginstances:
a. Estateanddonorstax
b. Excisetaxes
c. Exportersbond
d. Manufacturersandimportersbond

19. Requiringproofoffilingincometaxreturns
Beforealicensetoengageintrade,businessoroccupationortopracticea
professioncanbeissued.
20. GivingrewardtoinformersSumequivalentto10%ofrevenues,surcharges
orfeesrecoveredand/orfineorpenaltyimposedandcollectedorP1,000,000.00
percase,whicheverislower.
21. Impositionofsurchargeandinterest.
22. Makingarrest,searchandseizure
LimitedtoviolationsofanypenallaworregulationadministeredbytheBIR,
committedwithintheviewoftheInternalRevenueOfficerorEE.
23. Deportationincaseofaliensonthefollowinggrounds
c. KnowinglyandfraudulentlyevadespaymentofIRtaxes.
d. Willfullyrefusestopaysuchtaxanditsaccessorypenalties,afterdecision
onhistaxliabilityshallhavebecomefinalandexecutory.
24. Inspectionofbooks
Booksofaccountsandotheraccountingrecordsoftaxpayermustbepreserved,
generallywithinthreeyearsafterdatethetaxreturnwasdueorwasfiled
whicheverislater.
25. UseofNationalTaxRegister
26. Obtaininginformationontaxliabilityofanyperson

27. InventoryTakingofstockintradeandmakingsurveillance.
28. Prescribingpresumptivegrosssalesorreceipt:

c. Personfailedtoissuereceiptsandinvoices

d. Reasontobelievethatrecordsdonotcorrectlyreflectdeclarationinreturn.\
29. Prescribingrealpropertyvalues
30. Inquiringintobankdepositaccountsof
c. Adeceasedpersontodeterminegrossestate
d. Anytaxpayerwhofiledapplicationforcompromisebyreasonsoffinancial
incapacityhistaxliability.
31. RegistrationofTaxpayers.
JudicialRemedies
CivilandCriminalActions:
1. BroughtinthenameoftheGovernmentofthePhilippines.
2. ConductedbyLegalOfficerofBIR
3. MustbewiththeapprovaloftheCIR,incaseofaction,forrecoveryoftaxes,or
enforcementofafine,penaltyorforfeiture.

C. CivilAction
Actionsinstitutedbythegovernmenttocollectinternalrevenuetaxesinregular
courts(RTCorMTCs,dependingontheamountinvolved)
Whenassessmentmadehasbecomefinalandexecutoryforfailureortaxpayerto:
c. DisputesamebyfilingprotestwithCIR
d. AppealadversedecisionofCIRtoCTA
D. CriminalAction
Adirectmodeofcollectionoftaxes,thejudgmentofwhichshallnotonlyimpose

thepenaltybutalsoorderpaymentoftaxes.
Anassessmentofataxdeficiencyisnotnecessarytoacriminalprosecutionfortax
evasion,providedthereisaprimafacieshowingofwillfulattempttoevade.
EffectofAcquittalonTaxLiability:

Doesnotexoneratetaxpayerhiscivilliabilitytopaythetaxdue.Thus,the
governmentmaystillcollectthetaxinthesameaction.
Reason:Taxisanobligation,doesnotarisefromacriminalact.
EffectofSatisfactionofTaxLiabilityonCriminalLiability

Willnotoperatetoextinguishtaxpayerscriminalliabilitysincethedutytopaythe
taxisimposedbystatute,independentofanyattemptonpastoftaxpayerstoevade
payment.

Thisistrueincasethecriminalactionisbasedontheacttotaxpayeroffilinga
falseandfraudulenttaxreturnandfailuretopaythetax.
Note:Thesatisfactionofcivilliabilityisnotoneofthegroundsfortheextinctionof
criminalaction.

PrescriptivePeriods/
StatuteOfLimitation
Purpose:
ForpurposesofTaxation,statueoflimitationisprimarilydesignedtoprotectthe
rightsofthetaxpayersagainstunreasonableinvestigationofthetaxingauthoritywith
respecttoassessmentandcollectionofInternalRevenueTaxes.
PrescriptionofGovernmentsRighttoAssessTaxes:
GeneralRule:InternalRevenueTaxesshallbeassessedwithinthree(3)yearsafterthe
lastdayprescribedbylawforthefilingofthereturnorfromthedaythereturnwas

filed,incaseitisfiledbeyondtheperiodprescribedthereof.(Section203oftheTax
Code)
Note:
1. Areturnfiledbeforethelastdayprescribedbylawforthefilingthereofshall
beconsideredasfiledonsuchlastday.
2. Incaseareturnissubstantiallyamended,thegovernmentrighttoassessthe
taxshallcommencefromthefilingoftheamendedreturn(CIRvs.Phoenix,May
20,1965;Kei&Co.vs.Collector,4SCRA872)
3. Incomputingtheprescriptiveperiodforassessment,thelatterisdeemedmade
whennoticetothiseffectisreleased,mailedorsentbytheCommissionertothe
correctaddressofthetaxpayer.However,thelawdoesnotrequirethatthe
demand/noticebereceivedwithintheprescriptiveperiod.(BasilanEstates,Inc.
vs.Commissioner21,SCRA17;Republicvs.CAApril30,1987)
4. Anaffidavitexecutedbyarevenueofficeindicatingthetaxliabilitiesofa
taxpayerandattachedtoacriminalcomplaintfortaxevasion,cannotbedeemed
anassessment.(CIRvs.PascoiRealtyCorp.June29,1999)
5. Atranscriptsheetsarenotreturns,becausetheydonotcontaininformation
necessaryandrequiredtopermitthecomputationandassessmentoftaxes
(SinforoAlcavs.Commissioner,Dec.29,1964)

Exceptions:(Sec.222ic)
5. Wherenoreturnwasfiledwithinten(10)yearsafterthedateofdiscoveryof
theomission.
6. Whereareturnwasfiledbutthesamewasfalseorfraudulentwithinten(10)
yearsfromthediscoveryoffalsityorfraud.
NatureofFraud:
d. Fraudisneverpresumedandthecircumstancesconsistingitmustbe
allegedandprovedtoexistbyclear&convincingevidence(Republicvs.Keir,

Sept.30,1966)
e. Thefraudcontemplatedbylawisactualandnotconstructive.Itmust
amounttointentionalwrongdoingwiththesoleobjectofavoidingthetax.A
meremistakeisnotafraudulentintent.(Aznarcase,Aug.23,1974)
f. Afraudassessmentwhichhasbecomefinalandexecutory,thefactoffraud
shallbejudiciallytakencognizanceofinthecivilorcriminalactionforthe
collectionthereof.(Sec.222paragraph(a))

Fraudmaybeestablishedbythefollowing:(BadgesofFraud)
d. Intentionalandsubstantialunderstatementoftaxliabilityofthetaxpayer.
e. Intentionalandsubstantialoverstatementofdeductionsofexemption
f. Recurrenceoftheforegoingcircumstances.
Instances/Circumstancesnegatingfraud:
f. WhentheCommissionerfailsimputefraudintheassessmentnotice/
demandforpayment.
g. WhentheCommissionerfailedtoallegeinhisanswertothetaxpayers
petitionforreviewwhenthecaseisappealedtotheCTA.
h. WhentheCommissionerraisedthequestionoffraudonlyforthefirsttime
inhismemorandumwhichwasfiledtheCTAafterhehadrestedhiscase.
i. WheretheBIRitselfappeared,notsureastotherealamountofthe
taxpayersnetincome.
j. Amereunderstatementofincomedoesnotprovefraud,unlessthereisa
sufficientevidenceshavingfraudulentintent.
7. Wherethecommissionerandthetaxpayer,beforetheexpirationofthethree(3)
yearperiodoflimitationhaveagreedinwritingtotheextensionofsaidperiod.
Note:Limitations:

c. Theagreementextendingtheperiodofprescriptionshouldbeinwritingand
dulysignedbythetaxpayerandthecommissioner.
d. Theagreementtoextendthesameshouldbemodebeforetheexpirationofthe
periodpreviouslyagreedupon.
8. Wherethereisawrittenwaiverorrenunciationoftheoriginal3yearlimitation
signedbythetaxpayer.
Note:Limitations:
d. Thewaivertobevalidmustbeexecutedbythepartiesbeforethelapseofthe
prescriptiveperiod.
e. AwaiverisinefficientIitisexecutedbeyondtheoriginalthreeyear.
f. Thecommissionercannotvalidagreetoreducetheprescriptiveperiodtoless
thanthatgrantedbylaw.

ImprescriptibleAssessments:
1. Wherethelawdoesnotprovideforanyparticularperiodofassessment,thetax
soughttobeassessedbecomesimprescriptible.
2. Wherenoreturnisrequiredbylaw,thetaxisimprescriptible.

3. Assessmentofunpaidtaxes,wherethebasesofwhichisnotrequiredbylawtobe
reportedinareturnsuchasexcisetaxes.(Carmenvs.AyalaSecuritiesCorp.,Nov.
21,1980)
4. Assessmentofcompensatinganddocumentarystamptax.

PrescriptionofGovernments

RighttoCollectTaxes
D. GeneralRule:
1. WhereanassessmentwasmadeAnyinternalrevenuetaxwhichhasbeen
assessedwithintheperiodoflimitationmaybecollectedbydistraintorlevyor
byproceedingincourtwithin5yearsfollowingthedateofassessment.
2. Wherenoassessmentwasmadeandareturnwasfiledandthesameisnot
fraudulentorfalsethetaxshouldbecollectedwithin3yearsafterthereturn
wasdueorwasfiled,whicheverislater.
E. Exceptions:
8. Whereafraudulent/falsereturnwithintenttoevadetaxeswasfileda
proceedingincourtforthecollectionofthetaxmaybefiledwithout
assessment,atanytimewithintenyearsafterthediscoveryofthefalsityor
fraud.
Note:The10yearprescriptiveperiodforcollectorthruactiondoesnotapplyif
itappearsthattherewasanassessment.Insuchcase,theordinary5year
period(now3years)wouldapply(Rep.vs.Ret.,March31,1962)
9. Whenthetaxpayeromitstofileareturnacourtproceedingforthe
collectionofsuchtaxmaybefiledwithoutassessment,atanytimewithin10
yearsafterthediscoveryoftheomission.
10. Waiverofstatuteoflimitationsanyinternalrevenuetax,whichhasbeen
assessedwithintheperiodagreedupon,maybecollectedbedistinctorlevyof
byaproceedingincourtwithintheperiodagreeduponinwritingbeforethe
expirationof5yearperiod.
11. Wherethegovernmentmakesanotherassessmentonthebasisof
reinvestigationrequestedbythetaxpayertheprescriptiveperiodfor
collectionshouldbecountedfromthelastassessment.(Rep.vs.Lopez,March
30,1963)
12. Wheretheassessmentisrevisedbecauseofanamendedreturnthe
periodforcollectioniscountedfromthelastrevisedassessment.

13. Whereataxobligationissecuredbyasuretybondthegovernmentmay
proceedthruacourtactiontoforfeitabondandenforcesuchcontractual
obligationwithinaperiodoftenyears.
14. Wheretheactionisbroughttoenforceacompromiseenteredintobetween
thecommissionandthetaxpayertheprescriptiveperiodistenyears.
F. Whentaxisdeemedcollectedforpurposesoftheprescriptiveperiod.
4. CollectionbysummaryremediesItiseffectedbysummarymethodswhenthe
governmentavailofdistraintandlevyprocedure.
5. CollectionbyjudicialactionThecollectionbeginsbyfilingthecomplaintwith
thepropercourt.(RTC)
6. Whereassessmentofthecommissionerisprotected&appealedtotheCTA
thecollectionbeginwhenthegovernmentfileitsanswertotaxpayerspetition
forreview.

RulesofPrescriptioninCriminalCases
Rule:Allviolationsofanyprovisionofthetaxcodeshallprescribeafterfive(5)
years.
Note:
Whenitshouldcommence?
Thefive(5)yearprescriptiveperiodshallbegintorunfromthe:
c. Dayofthecommissionoftheviolation,ifknow.
d. Ifnotknown,fromthetimeofdiscoveryandtheinstitutionofjudicial
proceedingforitsinvestigationandpunishment.
Whenitisinterrupted:
c. Whenaproceedingisinstitutedagainsttheguiltyperson

d. WhentheoffenderisabsentfromthePhilippines.

Whenitshouldrunagain:
WhentheproceedingisdismissedforreasonnotConstitutingjeopardy.
Whendoesthedefenseofprescriptionmayberaised:
c. IncivilcaseIfnotraisedinthelowercourt,itisbailedpermanently;ifcannot
beraisedforthefirsttimeonappeal.
d. IncriminalcaseItcanberaisedevenifthecasehasbeendecidedbythe
lowercourtbutpendingdecisiononappeal.

InterruptionofthePrescriptivePeriod
4. Wherebeforetheexpirationofthetimeprescribedfortheassessmentofthe
tax,boththecommissionerandthetaxpayerhaveconsentedinwritingtoits
assessmentaftersuchtime,thetaxmaybeassessedpriortotheexpirationofthe
periodagreedupon.
5. Therunningofstatuteoflimitationsonmakinganassessmentandthe
beginningofdistraint/levyoraproceedingincourtforcollectionshallbe
suspendedfortheperiod.
DuringwhichtheCommissionerisprohibitedfrommakingtheassessmentor
beginningdistraint/levyoraproceedingincourtandfor60daysthereafter;e.g.
a. FilingapetitionforreviewintheCTAfromthedecisionofthe
Commissioner.Thecommissionerispreventedfromfilinganordinaryactionto
collectthetax.
b. WhenCTAsuspendsthecollectionoftaxliabilityofthetaxpayerpursuant
toSection11ofRA1125uponproofthatitscollectionmayjeopardizesthe
governmentand/orthetaxpayer.
c. Whenthetaxpayerrequestsforreinvestigationwhichisgrantedby

commissioner.
Note:Amererequestforreinvestigationwithoutanyactionorthepartof
theCommissionerdoesnotinterrupttherunningoftheprescriptiveperiod.
Therequestmustnotbeamereproformer.Substantialissuesmustbe
raised.
d. Whenthetaxpayercannotbelocatedintheaddressgivenbyhiminthe
return.
Note:IfthetaxpayerinformstheCommissionerofanychangeinaddressthe
statutewillnotbesuspended.
e. Whenthewarrantofdistraintorlevyisdulyserveduponanyofthe
followingperson:
4. taxpayer
5. hisauthorizedrepresentative
6. Memberofhishouseholdwithsufficientdiscretionandnoproperty
couldbelocated.
f. WhenthetaxpayerisoutofthePhilippines.
g. Incriminalcasesforviolationoftaxcodetheperiodshallnotrunwhen
theoffenderisabsentfromthePhilippines.
Note:Apetitionforreconsiderationofataxassessmentdoesnotsuspendthe
criminalaction.Reason:Norequirementforassessmentofthetaxbeforethe
criminalactionmaybeinstituted.
NotaBene:
6. Thelawonprescriptionremedialmeasureshouldbeinterpretedliberallyinorder
toprotectthetaxpayer.
7. Thedefenseofprescriptionmustberaisedbythetaxpayerontime,otherwiseitis
deemedwaived.
8. Thequestionofprescriptionisnotjurisdictional,andasdefenseitmustberaised

reasonablyotherwiseitisdeemedwaived.
9. Theprescriptiveprovidedinthetaxcodeoverridethestatuteofnonclaimsin
thesettlementofthedeceasedsestate.
10. Intheeventthatthecollectionofthetaxhasalreadyprescribed,thegovernment
cannotinvoketheprincipleofEquitablerecumbentbysettingofftheprescribed
taxagainstataxrefusedtowhichthetaxpayerisentitled.
_______________________________________________________SOMEIMPORTANTPROVISIONSONTHE
TAXREFORMACTOF1997
SEC.2.PowersandDutiesoftheBureauofInternalRevenue.TheBureauof
InternalRevenueshallbeunderthesupervisionandcontroloftheDepartmentof
Financeanditspowersanddutiesshallcomprehendtheassessmentandcollection
ofallnationalinternalrevenuetaxes,fees,andcharges,andtheenforcementofall
forfeitures,penalties,andfinesconnectedtherewith,includingtheexecutionof
judgmentsinallcasesdecidedinitsfavorbytheCourtofTaxAppealsandthe
ordinarycourts.TheBureaushallgiveeffecttoandadministerthesupervisoryand
policepowersconferredtoitbythisCodeorotherlaws.
SEC.3.ChiefOfficialsoftheBureauofInternalRevenue.TheBureauofInternal
RevenueshallhaveachieftobeknownasCommissionerofInternalRevenue,
hereinafterreferredtoastheCommissionerandfour(4)assistantchiefstobe
knownasDeputyCommissioners.
SEC.4.PoweroftheCommissionertoInterpretTaxLawsandtoDecideTax
Cases.ThepowertointerprettheprovisionsofthisCodeandothertaxlawsshall
beundertheexclusiveandoriginaljurisdictionoftheCommissioner,subjectto
reviewbytheSecretaryofFinance.
Thepowertodecidedisputedassessments,refundsofinternalrevenuetaxes,fees
orothercharges,penaltiesimposedinrelationthereto,orothermattersarising
underthisCodeorotherlawsorportionsthereofadministeredbytheBureauof
InternalRevenueisvestedintheCommissioner,subjecttotheexclusiveappellate
jurisdictionoftheCourtofTaxAppeals.
SEC.5.PoweroftheCommissionertoObtainInformation,andtoSummon,
Examine,andTakeTestimonyofPersons.Inascertainingthecorrectnessofany
return,orinmakingareturnwhennonehasbeenmade,orindeterminingthe
liabilityofanypersonforanyinternalrevenuetax,orincollectinganysuch
liability,orinevaluatingtaxcompliance,theCommissionerisauthorized:
(A)Toexamineanybook,paper,record,orotherdatawhichmayberelevant

ormaterialtosuchinquiry;
(B)Toobtainonaregularbasisfromanypersonotherthantheperson
whoseinternalrevenuetaxliabilityissubjecttoauditorinvestigation,or
fromanyofficeorofficerofthenationalandlocalgovernments,government
agenciesandinstrumentalities,includingtheBangkoSentralngPilipinasand
governmentownedorcontrolledcorporations,anyinformationsuchas,but
notlimitedto,costsandvolumeofproduction,receiptsorsalesandgross
incomesoftaxpayers,andthenames,addresses,andfinancialstatementsof
corporations,mutualfundcompanies,insurancecompanies,regional
operatingheadquartersofmultinationalcompanies,jointaccounts,
associations,jointventuresofconsortiaandregisteredpartnerships,and
theirmembers;
(C)Tosummonthepersonliablefortaxorrequiredtofileareturn,orany
officeroremployeeofsuchperson,oranypersonhavingpossession,
custody,orcareofthebooksofaccountsandotheraccountingrecords
containingentriesrelatingtothebusinessofthepersonliablefortax,orany
otherperson,toappearbeforetheCommissionerorhisdulyauthorized
representativeatatimeandplacespecifiedinthesummonsandtoproduce
suchbooks,papers,records,orotherdata,andtogivetestimony;
(D)Totakesuchtestimonyofthepersonconcerned,underoath,asmaybe
relevantormaterialtosuchinquiry;and
(E)Tocauserevenueofficersandemployeestomakeacanvassfromtimeto
timeofanyrevenuedistrictorregionandinquireafterandconcerningall
personsthereinwhomaybeliabletopayanyinternalrevenuetax,andall
personsowningorhavingthecare,managementorpossessionofanyobject
withrespecttowhichataxisimposed.
Theprovisionsoftheforegoingparagraphsnotwithstanding,nothinginthis
SectionshallbeconstruedasgrantingtheCommissionertheauthorityto
inquireintobankdepositsotherthanasprovidedforinSection6(F)ofthis
Code.
SEC.6.PoweroftheCommissionertoMakeassessmentsandPrescribe
additionalRequirementsforTaxAdministrationandEnforcement.
(A)ExaminationofReturnsandDeterminationofTaxDue.Afterareturnhas
beenfiledasrequiredundertheprovisionsofthisCode,theCommissioner
orhisdulyauthorizedrepresentativemayauthorizetheexaminationofany
taxpayerandtheassessmentofthecorrectamountoftax:Provided,however;
ThatfailuretofileareturnshallnotpreventtheCommissionerfrom

authorizingtheexaminationofanytaxpayer.
Anyreturn,statementofdeclarationfiledinanyofficeauthorizedtoreceive
thesameshallnotbewithdrawn:Provided,Thatwithinthree(3)yearsfrom
thedateofsuchfiling,thesamemaybemodified,changed,oramended:
Provided,further,Thatnonoticeforauditorinvestigationofsuchreturn,
statementordeclarationhasinthemeantimebeenactuallyserveduponthe
taxpayer.
(B)FailuretoSubmitRequiredReturns,Statements,Reportsandother
Documents.Whenareportrequiredbylawasabasisfortheassessmentof
anynationalinternalrevenuetaxshallnotbeforthcomingwithinthetime
fixedbylawsorrulesandregulationsorwhenthereisreasontobelievethat
anysuchreportisfalse,incompleteorerroneous,theCommissionershall
assessthepropertaxonthebestevidenceobtainable.
Incaseapersonfailstofilearequiredreturnorotherdocumentatthetime
prescribedbylaw,orwillfullyorotherwisefilesafalseorfraudulentreturn
orotherdocument,theCommissionershallmakeoramendthereturnfrom
hisownknowledgeandfromsuchinformationashecanobtainthrough
testimonyorotherwise,whichshallbeprimafaciecorrectandsufficientfor
alllegalpurposes.
(C)AuthoritytoConductInventorytaking,surveillanceandtoPrescribe
PresumptiveGrossSalesandReceipts.TheCommissionermay,atanytime
duringthetaxableyear,orderinventorytakingofgoodsofanytaxpayerasa
basisfordetermininghisinternalrevenuetaxliabilities,ormayplacethe
businessoperationsofanyperson,naturalorjuridical,underobservationor
surveillanceifthereisreasontobelievethatsuchpersonisnotdeclaringhis
correctincome,salesorreceiptsforinternalrevenuetaxpurposes.The
findingsmaybeusedasthebasisforassessingthetaxesfortheothermonths
orquartersofthesameordifferenttaxableyearsandsuchassessmentshall
bedeemedprimafaciecorrect.
Whenitisfoundthatapersonhasfailedtoissuereceiptsandinvoicesin
violationoftherequirementsofSections113and237ofthisCode,orwhen
thereisreasontobelievethatthebooksofaccountsorotherrecordsdonot
correctlyreflectthedeclarationsmadeortobemadeinareturnrequiredto
befiledundertheprovisionsofthisCode,theCommissioner,aftertakinginto
accountthesales,receipts,incomeorothertaxablebaseofotherpersons
engagedinsimilarbusinessesundersimilarsituationsorcircumstancesor
afterconsideringotherrelevantinformationmayprescribeaminimum
amountofsuchgrossreceipts,salesandtaxablebase,andsuchamountso
prescribedshallbeprimafaciecorrectforpurposesofdeterminingthe

internalrevenuetaxliabilitiesofsuchperson.
(D)AuthoritytoTerminateTaxablePeriod.Whenitshallcometothe
knowledgeoftheCommissionerthatataxpayerisretiringfrombusiness
subjecttotax,orisintendingtoleavethePhilippinesortoremovehis
propertytherefromortohideorconcealhisproperty,orisperformingany
acttendingtoobstructtheproceedingsforthecollectionofthetaxforthe
pastorcurrentquarteroryearortorenderthesametotallyorpartly
ineffectiveunlesssuchproceedingsarebegunimmediately,theCommissioner
shalldeclarethetaxperiodofsuchtaxpayerterminatedatanytimeandshall
sendthetaxpayeranoticeofsuchdecision,togetherwitharequestforthe
immediatepaymentofthetaxfortheperiodsodeclaredterminatedandthe
taxfortheprecedingyearorquarter,orsuchportionthereofasmaybe
unpaid,andsaidtaxesshallbedueandpayableimmediatelyandshallbe
subjecttoallthepenaltieshereafterprescribed,unlesspaidwithinthetime
fixedinthedemandmadebytheCommissioner.
(E)AuthorityoftheCommissionertoPrescribeRealPropertyValues.The
CommissionerisherebyauthorizedtodividethePhilippinesintodifferent
zonesorareasandshall,uponconsultationwithcompetentappraisersboth
fromtheprivateandpublicsectors,determinethefairmarketvalueofreal
propertieslocatedineachzoneorarea.Forpurposesofcomputingany
internalrevenuetax,thevalueofthepropertyshallbe,whicheveristhe
higherof:
(1)thefairmarketvalueasdeterminedbytheCommissioner,or
(2)thefairmarketvalueasshowninthescheduleofvaluesofthe
ProvincialandCityAssessors.

(F)AuthorityoftheCommissionertoinquireintoBankDepositAccounts.
NotwithstandinganycontraryprovisionofRepublicActNo.1405andother
generalorspeciallaws,theCommissionerisherebyauthorizedtoinquire
intothebankdepositsof:

(1)adecedenttodeterminehisgrossestate;and
(2)anytaxpayerwhohasfiledanapplicationforcompromiseofhistax
liabilityunderSec.204(A)(2)ofthisCodebyreasonoffinancial
incapacitytopayhistaxliability.
Incaseataxpayerfilesanapplicationtocompromisethepaymentofhistaxliabilitieson
hisclaimthathisfinancialpositiondemonstratesaclearinabilitytopaythetaxassessed,
hisapplicationshallnotbeconsideredunlessanduntilhewaivesinwritinghisprivilege

underRepublicActNo.1405orunderothergeneralorspeciallaws,andsuchwaiver
shallconstitutetheauthorityoftheCommissionertoinquireintothebankdepositsof
thetaxpayer.
(G)AuthoritytoAccreditandRegisterTaxAgents.TheCommissionershall
accreditandregister,basedontheirprofessionalcompetence,integrityand
moralfitness,individualsandgeneralprofessionalpartnershipsandtheir
representativeswhoprepareandfiletaxreturns,statements,reports,
protests,andotherpaperswithorwhoappearbefore,theBureaufor
taxpayers.Withinonehundredtwenty(120)daysfromJanuary1,1998,the
Commissionershallcreatenationalandregionalaccreditationboards,the
membersofwhichshallserveforthree(3)years,andshalldesignatefrom
amongtheseniorofficialsoftheBureau,one(1)chairmanandtwo(2)
membersforeachboard,subjecttosuchrulesandregulationsasthe
SecretaryofFinanceshallpromulgateupontherecommendationofthe
Commissioner.
Individualsandgeneralprofessionalpartnershipsandtheirrepresentatives
whoaredeniedaccreditationbytheCommissionerand/orthenationaland
regionalaccreditationboardsmayappealsuchdenialtotheSecretaryof
Finance,whoshallruleontheappealwithinsixty(60)daysfromreceiptof
suchappeal.FailureoftheSecretaryofFinancetoruleontheAppealwithin
theprescribedperiodshallbedeemedasapprovaloftheapplicationfor
accreditationoftheappellant.
(H)AuthorityoftheCommissionertoPrescribeAdditionalProceduralor
DocumentaryRequirements.TheCommissionermayprescribethemannerof
compliancewithanydocumentaryorproceduralrequirementinconnection
withthesubmissionorpreparationoffinancialstatementsaccompanyingthe
taxreturns.
SEC.7.AuthorityoftheCommissionertoDelegatePower.TheCommissioner
maydelegatethepowersvestedinhimunderthepertinentprovisionsofthisCode
toanyorsuchsubordinateofficialswiththerankequivalenttoadivisionchiefor
higher,subjecttosuchlimitationsandrestrictionsasmaybeimposedunderrules
andregulationstobepromulgatedbytheSecretaryoffinance,upon
recommendationoftheCommissioner:Provided,however,Thatthefollowing
powersoftheCommissionershallnotbedelegated:
(a)Thepowertorecommendthepromulgationofrulesandregulationsby
theSecretaryofFinance;
(b)Thepowertoissuerulingsoffirstimpressionortoreverse,revokeor
modifyanyexistingrulingoftheBureau;
(c)Thepowertocompromiseorabate,underSec.204(A)and(B)ofthis

Code,anytaxliability:Provided,however,Thatassessmentsissuedbythe
regionalofficesinvolvingbasicdeficiencytaxesofFivehundredthousand
pesos(P500,000)orless,andminorcriminalviolations,asmaybe
determinedbyrulesandregulationstobepromulgatedbytheSecretaryof
finance,uponrecommendationoftheCommissioner,discoveredbyregional
anddistrictofficials,maybecompromisedbyaregionalevaluationboard
whichshallbecomposedoftheRegionalDirectorasChairman,theAssistant
RegionalDirector,theheadsoftheLegal,AssessmentandCollection
DivisionsandtheRevenueDistrictOfficerhavingjurisdictionoverthe
taxpayer,asmembers;and
(d)Thepowertoassignorreassigninternalrevenueofficersto
establishmentswherearticlessubjecttoexcisetaxareproducedorkept.
SEC.203.PeriodofLimitationUponAssessmentandCollection.Exceptasprovided
inSection222,internalrevenuetaxesshallbeassessedwithinthree(3)yearsafterthe
lastdayprescribedbylawforthefilingofthereturn,andnoproceedingincourtwithout
assessmentforthecollectionofsuchtaxesshallbebegunaftertheexpirationofsuch
period:Provided,Thatinacasewhereareturnisfiledbeyondtheperiodprescribedby
law,thethree(3)yearperiodshallbecountedfromthedaythereturnwasfiled.For
purposesofthisSection,areturnfiledbeforethelastdayprescribedbylawforthefiling
thereofshallbeconsideredasfiledonsuchlastday.

SEC.204.AuthorityoftheCommissionertoCompromise,AbateandRefundorCredit
Taxes.TheCommissionermay
(A)CompromisethePaymentofanyInternalRevenueTax,when:
(1)Areasonabledoubtastothevalidityoftheclaimagainstthetaxpayerexists;
or
(2)Thefinancialpositionofthetaxpayerdemonstratesaclearinabilitytopaythe
assessedtax.
Thecompromisesettlementofanytaxliabilityshallbesubjecttothefollowing
minimumamounts:
Forcasesoffinancialincapacity,aminimumcompromiserateequivalentto
tenpercent(10%)ofthebasicassessedtax;and
Forothercases,aminimumcompromiserateequivalenttofortypercent
(40%)ofthebasicassessedtax.
WherethebasictaxinvolvedexceedsOnemillionpesos(P1,000.000)orwherethe
settlementofferedislessthantheprescribedminimumrates,thecompromiseshallbe
subjecttotheapprovaloftheEvaluationBoardwhichshallbecomposedofthe
Commissionerandthefour(4)DeputyCommissioners.

(B)AbateorCancelaTaxLiability,when:
(1)Thetaxoranyportionthereofappearstobeunjustlyorexcessivelyassessed;
or
(2)Theadministrationandcollectioncostsinvolveddonotjustifythecollectionof
the
amountdue.
Allcriminalviolationsmaybecompromisedexcept:(a)thosealreadyfiledincourt,
or(b)thoseinvolvingfraud.
(C)Creditorrefundtaxeserroneouslyorillegallyreceivedorpenaltiesimposedwithout
authority,refundthevalueofinternalrevenuestampswhentheyarereturnedingood
conditionbythepurchaser,and,inhisdiscretion,redeemorchangeunusedstampsthat
havebeenrenderedunfitforuseandrefundtheirvalueuponproofofdestruction.No
creditorrefundoftaxesorpenaltiesshallbeallowedunlessthetaxpayerfilesinwriting
withtheCommissioneraclaimforcreditorrefundwithintwo(2)yearsafterthe
paymentofthetaxorpenalty:Provided,however,Thatareturnfiledshowingan
overpaymentshallbeconsideredasawrittenclaimforcreditorrefund.
ATaxCreditCertificatevalidlyissuedundertheprovisionsofthisCodemaybeapplied
againstanyinternalrevenuetax,excludingwithholdingtaxes,forwhichthetaxpayeris
directlyliable.Anyrequestforconversionintorefundofunutilizedtaxcreditsmaybe
allowed,subjecttotheprovisionsofSection230ofthisCode:Provided,Thattheoriginal
copyoftheTaxCreditCertificateshowingacreditablebalanceissurrenderedtothe
appropriaterevenueofficerforverificationandcancellation:Provided,further,Thatinno
caseshallataxrefundbegivenresultingfromavailmentofincentivesgrantedpursuant
tospeciallawsforwhichnoactualpaymentwasmade.
TheCommissionershallsubmittotheChairmenoftheCommitteeonWaysandMeansof
boththeSenateandHouseofRepresentatives,everysix(6)months,areportonthe
exerciseofhispowersunderthisSection,statingthereinthefollowingfactsand
information,amongothers:namesandaddressesoftaxpayerswhosecaseshavebeen
thesubjectofabatementorcompromise;amountinvolved;amountcompromisedor
abated;andreasonsfortheexerciseofpower:Provided,Thatthesaidreportshallbe
presentedtotheOversightCommitteeinCongressthatshallbeconstitutedtodetermine
thatsaidpowersarereasonablyexercisedandthatthegovernmentisnotunduly
deprivedofrevenues.
CHAPTERII
CIVILREMEDIESFORCOLLECTIONOFTAXES

SEC.205.RemediesfortheCollectionofDelinquentTaxes.Thecivilremediesforthe
collectionofinternalrevenuetaxes,feesorcharges,andanyincrementtheretoresulting

fromdelinquencyshallbe:
(a)Bydistraintofgoods,chattels,oreffects,andotherpersonalpropertyof
whatevercharacter,includingstocksandothersecurities,debts,credits,bank
accountsandinterestinandrightstopersonalproperty,andbylevyuponreal
propertyandinterestinrightstorealproperty;and
(b)Bycivilorcriminalaction.
Eitheroftheseremediesorbothsimultaneouslymaybepursuedinthediscretion
oftheauthoritieschargedwiththecollectionofsuchtaxes:Provided,however,That
theremediesofdistraintandlevyshallnotbeavailedofwheretheamountoftax
involveisnotmorethanOnehundredpesos(P100).
Thejudgmentinthecriminalcaseshallnotonlyimposethepenaltybutshallalso
orderpaymentofthetaxessubjectofthecriminalcaseasfinallydecidedbythe
Commissioner.
TheBureauofInternalRevenueshalladvancetheamountsneededtodefraycosts
ofcollectionbymeansofcivilorcriminalaction,includingthepreservationor
transportationofpersonalpropertydistrainedandtheadvertisementandsale
thereof,aswellasofrealpropertyandimprovementsthereon.
SEC.206.ConstructiveDistraintofthePropertyofaTaxpayer.Tosafeguardthe
interestoftheGovernment,theCommissionermayplaceunderconstructivedistraintthe
propertyofadelinquenttaxpayeroranytaxpayerwho,inhisopinion,isretiringfrom
anybusinesssubjecttotax,orisintendingtoleavethePhilippinesortoremovehis
propertytherefromortohideorconcealhispropertyortoperformanyacttendingto
obstructtheproceedingsforcollectingthetaxdueorwhichmaybeduefromhim.
Theconstructivedistraintofpersonalpropertyshallbeaffectedbyrequiringthe
taxpayeroranypersonhavingpossessionorcontrolofsuchpropertytosignareceipt
coveringthepropertydistrainedandobligatehimselftopreservethesameintactand
unalteredandnottodisposeofthesame;inanymannerwhatever,withouttheexpress
authorityoftheCommissioner.
Incasethetaxpayerorthepersonhavingthepossessionandcontroloftheproperty
soughttobeplacedunderconstructivedistraintrefusesorfailstosignthereceiptherein
referredto,therevenueofficereffectingtheconstructivedistraintshallproceedto
preparealistofsuchpropertyand,inthepresenceoftwo(2)witnessed,leaveacopy
thereofinthepremiseswherethepropertydistrainedislocated,afterwhichthesaid
propertyshallbedeemedtohavebeenplacedunderconstructivedistraint.

SEC.207.SummaryRemedies.

(A)DistraintofPersonalProperty.Uponthefailureofthepersonowingany
delinquenttaxordelinquentrevenuetopaythesameatthetimerequired,the
Commissionerorhisdulyauthorizedrepresentative,iftheamountinvolvedisinexcess
ofOnemillionpesos(P1,000,000),ortheRevenueDistrictOfficer,iftheamountinvolved
isOnemillionpesos(P1,000,000)orless,shallseizeanddistraintanygoods,chattelsor
effects,andthepersonalproperty,includingstocksandothersecurities,debts,credits,
bankaccounts,andinterestsinandrightstopersonalpropertyofsuchpersons;in
sufficientquantitytosatisfythetax,orcharge,togetherwithanyincrementthereto
incidenttodelinquency,andtheexpensesofthedistraintandthecostofthesubsequent
sale.
Areportonthedistraintshall,withinten(10)daysfromreceiptofthewarrant,be
submittedbythedistrainingofficertotheRevenueDistrictOfficer,andtotheRevenue
RegionalDirector:Provided,ThattheCommissionerorhisdulyauthorized
representativeshall,subjecttorulesandregulationspromulgatedbytheSecretaryof
Finance,uponrecommendationoftheCommissioner,havethepowertoliftsuchorderof
distraint:Provided,further,ThataconsolidatedreportbytheRevenueRegionalDirector
mayberequiredbytheCommissionerasoftenasnecessary.
(B)LevyonRealProperty.Aftertheexpirationofthetimerequiredtopaythe
delinquenttaxordelinquentrevenueasprescribedinthisSection,realpropertymaybe
leviedupon,beforesimultaneouslyorafterthedistraintofpersonalpropertybelonging
tothedelinquent.Tothisend,anyinternalrevenueofficerdesignatedbythe
Commissionerorhisdulyauthorizedrepresentativeshallprepareadulyauthenticated
certificateshowingthenameofthetaxpayerandtheamountsofthetaxandpenaltydue
fromhim.Saidcertificateshalloperatewiththeforceofalegalexecutionthroughoutthe
Philippines.
Levyshallbeaffectedbywritinguponsaidcertificateadescriptionofthepropertyupon
whichlevyismade.Atthesametime,writtennoticeofthelevyshallbemailedtoor
servedupontheRegisterofDeedsfortheprovinceorcitywherethepropertyislocated
anduponthedelinquenttaxpayer,orifhebeabsentfromthePhilippines,tohisagentor
themanagerofthebusinessinrespecttowhichtheliabilityarose,oriftherebenone,to
theoccupantofthepropertyinquestion.
Incasethewarrantoflevyonrealpropertyisnotissuedbeforeorsimultaneouslywith
thewarrantofdistraintonpersonalproperty,andthepersonalpropertyofthetaxpayer
isnotsufficienttosatisfyhistaxdelinquency,theCommissionerorhisdulyauthorized
representativeshall,withinthirty(30)daysafterexecutionofthedistraint,proceedwith
thelevyonthetaxpayer'srealproperty.
Withinten(10)daysafterreceiptofthewarrant,areportonanylevyshallbesubmitted

bythelevyingofficertotheCommissionerorhisdulyauthorizedrepresentative:
Provided,however,ThataconsolidatedreportbytheRevenueRegionalDirectormaybe
requiredbytheCommissionerasoftenasnecessary:Provided,further,Thatthe
Commissionerorhisdulyauthorizedrepresentative,subjecttorulesandregulations
promulgatedbytheSecretaryofFinance,uponrecommendationoftheCommissioner,
shallhavetheauthoritytoliftwarrantsoflevyissuedinaccordancewiththeprovisions
hereof.

SEC.208.ProcedureforDistraintandGarnishment.Theofficerservingthewarrant
ofdistraintshallmakeorcausetobemadeanaccountofthegoods,chattels,effectsor
otherpersonalpropertydistrained,acopyofwhich,signedbyhimself,shallbelefteither
withtheownerorpersonfromwhosepossessionsuchgoods,chattels,oreffectsorother
personalpropertyweretaken,oratthedwellingorplaceofbusinessofsuchpersonand
withsomeoneofsuitableageanddiscretion,towhichlistshallbeaddedastatementof
thesumdemandedandnoteofthetimeandplaceofsale.
Stocksandothersecuritiesshallbedistrainedbyservingacopyofthewarrantof
distraintuponthetaxpayeranduponthepresident,manager,treasurerorother
responsibleofficerofthecorporation,companyorassociation,whichissuedthesaid
stocksorsecurities.
Debtsandcreditsshallbedistrainedbyleavingwiththepersonowingthedebtsor
havinginhispossessionorunderhiscontrolsuchcredits,orwithhisagent,acopyofthe
warrantofdistraint.Thewarrantofdistraintshallbesufficientauthoritytotheperson
owningthedebtsorhavinginhispossessionorunderhiscontrolanycreditsbelonging
tothetaxpayertopaytotheCommissionertheamountofsuchdebtsorcredits.
Bankaccountsshallbegarnishedbyservingawarrantofgarnishmentuponthetaxpayer
anduponthepresident,manager,treasurerorotherresponsibleofficerofthebank.
Uponreceiptofthewarrantofgarnishment,thebankshalltunovertotheCommissioner
somuchofthebankaccountsasmaybesufficienttosatisfytheclaimoftheGovernment.

SEC.209.SaleofPropertyDistrainedandDispositionofProceeds.TheRevenue
DistrictOfficerorhisdulyauthorizedrepresentative,otherthantheofficerreferredtoin
Section208ofthisCodeshall,accordingtorulesandregulationsprescribedbythe
SecretaryofFinance,uponrecommendationoftheCommissioner,forthwithcausea
notificationtobeexhibitedinnotlessthantwo(2)publicplacesinthemunicipalityor
citywherethedistraintismade,specifying;thetimeandplaceofsaleandthearticles
distrained.Thetimeofsaleshallnotbelessthantwenty(20)daysafternotice.Oneplace
forthepostingofsuchnoticeshallbeattheOfficeoftheMayorofthecityor
municipalityinwhichthepropertyisdistrained.

Atthetimeandplacefixedinsuchnotice,thesaidrevenueofficershallsellthegoods,
chattels,oreffects,orotherpersonalproperty,includingstocksandothersecuritiesso
distrained,atpublicauction,tothehighestbidderforcash,orwiththeapprovalofthe
Commissioner,throughdulylicensedcommodityorstockexchanges.
InthecaseofStocksandothersecurities,theofficermakingthesaleshallexecuteabill
ofsalewhichheshalldelivertothebuyer,andacopythereoffurnishedthecorporation,
companyorassociationwhichissuedthestocksorothersecurities.Uponreceiptofthe
copyofthebillofsale,thecorporation,companyorassociationshallmakethe
correspondingentryinitsbooks,transferthestocksorothersecuritiessoldinthename
ofthebuyer,andissue,ifrequiredtodoso,thecorrespondingcertificatesofstockor
othersecurities.
Anyresidueoverandabovewhatisrequiredtopaytheentireclaim,includingexpenses,
shallbereturnedtotheownerofthepropertysold.Theexpenseschargeableuponeach
seizureandsaleshallembraceonlytheactualexpensesofseizureandpreservationof
thepropertypending;thesale,andnochargeshallbeimposedfortheservicesofthe
localinternalrevenueofficerorhisdeputy.

SEC.210.ReleaseofDistrainedPropertyUponPaymentPriortoSale.Ifatanytime
priortotheconsummationofthesaleallproperchargesarepaidtotheofficer
conductingthesale,thegoodsoreffectsdistrainedshallberestoredtotheowner.

SEC.211.ReportofSaletoBureauofInternalRevenue.Withintwo(2)daysafterthe
sale,theofficermakingthesameshallmakeareportofhisproceedingsinwritingtothe
Commissionerandshallhimselfpreserveacopyofsuchreportasanofficialrecord.

SEC.212.PurchasebyGovernmentatSaleUponDistraint.Whentheamountbidfor
thepropertyunderdistraintisnotequaltotheamountofthetaxorisverymuchless
thantheactualmarketvalueofthearticlesofferedforsale,theCommissionerorhis
deputymaypurchasethesameinbehalfofthenationalGovernmentfortheamountof
taxes,penaltiesandcostsduethereon.
PropertysopurchasedmayberesoldbytheCommissionerorhisdeputy,subjecttothe
rulesandregulationsprescribedbytheSecretaryofFinance,thenetproceedstherefrom
shallberemittedtotheNationalTreasuryandaccountedforasinternalrevenue.

SEC.213.AdvertisementandSale.Withintwenty(20)daysafterlevy,theofficer
conductingtheproceedingsshallproceedtoadvertisethepropertyorausableportion
thereofasmaybenecessarytosatisfytheclaimandcostofsale;andsuchadvertisement
shallcoveraperiodofaleastthirty(30)days.Itshallbeeffectuatedbypostinganotice

atthemainentranceofthemunicipalbuildingorcityhallandinpublicandconspicuous
placeinthebarrioordistrictinwhichtherealestateliesand;bypublicationonceaweek
forthree(3)weeksinanewspaperofgeneralcirculationinthemunicipalityorcity
wherethepropertyislocated.Theadvertisementshallcontainastatementofthe
amountoftaxesandpenaltiessodueandthetimeandplaceofsale,thenameofthe
taxpayeragainstwhomtaxesarelevied,andashortdescriptionofthepropertytobe
sold.Atanytimebeforethedayfixedforthesale,thetaxpayermaydiscontinueall
proceedingsbypayingthetaxes,penaltiesandinterest.Ifhedoesnotdoso,thesale
shallproceedandshallbeheldeitheratthemainentranceofthemunicipalbuildingor
cityhall,oronthepremisestobesold,astheofficerconductingtheproceedingsshall
determineandasthenoticeofsaleshallspecify.
Withinfive(5)daysafterthesale,areturnbythedistrainingorlevyingofficerofthe
proceedingsshallbeenteredupontherecordsoftheRevenueCollectionOfficer,the
RevenueDistrictofficerandtheRevenueRegionalDirector.TheRevenueCollection
Officer,inconsultationwiththeRevenuedistrictOfficer,shallthenmakeoutanddeliver
tothepurchaseracertificatefromhisrecords,showingtheproceedingsofthesale,
describingthepropertysoldstatingthenameofthepurchaserandsettingouttheexact
amountofalltaxes,penaltiesandinterest:Provided,however,Thatincasetheproceeds
ofthesaleexceedstheclaimandcostofsale,theexcessshallbeturnedovertothe
owneroftheproperty.
TheRevenueCollectionOfficer,uponapprovalbytheRevenueDistrictOfficermay,outof
hiscollection,advanceanamountsufficienttodefraythecostsofcollectionbymeansof
thesummaryremediesprovidedforinthisCode,including;thepreservationor
transportationincaseofpersonalproperty,andtheadvertisementandsubsequentsale,
bothincasesofpersonalandrealpropertyincludingimprovementsfoundonthelatter.
Inhismonthlycollectionreports,suchadvancesshallbereflectedandsupportedby
receipts.

SEC.214.RedemptionofPropertySold.Withinone(1)yearfromthedateofsale,the
delinquenttaxpayer,oranyoneforhim,shallhavetherightofpayingtotheRevenue
DistrictOfficertheamountofthepublictaxes,penalties,andinterestthereonfromthe
dateofdelinquencytothedateofsale,togetherwithinterestonsaidpurchasepriceat
therateoffifteenpercent(15%)perannumfromthedateofpurchasetothedateof
redemption,andsuchpaymentshallentitlethepersonpayingtothedeliveryofthe
certificateissuedtothepurchaserandacertificatefromthesaidRevenueDistrictOfficer
thathehasthusredeemedtheproperty,andtheRevenueDistrictOfficershallforthwith
payovertothepurchasertheamountbywhichsuchpropertyhasthusbeenredeemed,
andsaidpropertythereaftershallbefreeformthelienofsuchtaxesandpenalties.

Theownershallnot,however,bedeprivedofthepossessionofthesaidpropertyand
shallbeentitledtotherentsandotherincomethereofuntiltheexpirationofthetime
allowedforitsredemption.

SEC.215.ForfeituretoGovernmentforWantofBidder.Incasethereisnobidderfor
realpropertyexposedforsaleashereinaboveprovidedorifthehighestbidisforan
amountinsufficienttopaythetaxes,penaltiesandcosts,theInternalRevenueOfficer
conductingthesaleshalldeclarethepropertyforfeitedtotheGovernmentinsatisfaction
oftheclaiminquestionandwithintwo(2)daysthereafter,shallmakeareturnofhis
proceedingsandtheforfeiturewhichshallbespreadupontherecordsofhisoffice.It
shallbethedutyoftheRegisterofDeedsconcerned,uponregistrationwithhisofficeof
anysuchdeclarationofforfeiture,totransferthetitleofthepropertyforfeitedtothe
Governmentwithoutthenecessityofanorderfromacompetentcourt.
Withinone(1)yearfromthedateofsuchforfeiture,thetaxpayer,oranyoneforhim
mayredeemsaidpropertybypayingtotheCommissionerorthelatter'sRevenue
CollectionOfficerthefullamountofthetaxesandpenalties,togetherwithinterest
thereonandthecostsofsale,butifthepropertybenotthusredeemed,theforfeiture
shallbecomeabsolute.

SEC.216.ResaleofRealEstateTakenforTaxes.TheCommissionershallhavecharge
ofanyrealestateobtainedbytheGovernmentofthePhilippinesinpaymentor
satisfactionoftaxes,penaltiesorcostsarisingunderthisCodeorincompromiseor
adjustmentofanyclaimtherefore,andsaidCommissionermay,uponthegivingofnot
lessthantwenty(20)daysnotice,sellanddisposeofthesameofpublicauctionorwith
priorapprovaloftheSecretaryofFinance,disposeofthesameatprivatesale.Ineither
case,theproceedsofthesaleshallbedepositedwiththeNationalTreasury,andan
accountingofthesameshallrenderedtotheChairmanoftheCommissiononAudit.

SEC.217.FurtherDistraintorLevy.Theremedybydistraintofpersonalpropertyand
levyonrealtymayberepeatedifnecessaryuntilthefullamountdue,includingall
expenses,iscollected.

SEC.218.InjunctionnotAvailabletoRestrainCollectionofTax.Nocourtshallhave
theauthoritytograntaninjunctiontorestrainthecollectionofanynationalinternal
revenuetax,feeorchargeimposedbythisCode.

SEC.219.NatureandExtentofTaxLien.Ifanyperson,corporation,partnership,
jointaccount(cuentasenparticipacion),associationorinsurancecompanyliabletopay
aninternalrevenuetax,neglectsorrefusestopaythesameafterdemand,theamount

shallbealieninfavoroftheGovernmentofthePhilippinesfromthetimewhenthe
assessmentwasmadebytheCommissioneruntilpaid,withinterests,penalties,and
coststhatmayaccrueinadditiontheretouponallpropertyandrightstoproperty
belongingtothetaxpayer:Provided,Thatthislienshallnotbevalidagainstany
mortgageepurchaserorjudgmentcreditoruntilnoticeofsuchlienshallbefiledbythe
CommissionerintheofficeoftheRegisterofDeedsoftheprovinceorcitywherethe
propertyofthetaxpayerissituatedorlocated.

SEC.220.FormandModeofProceedinginActionsArisingunderthisCode.Civiland
criminalactionsandproceedingsinstitutedinbehalfoftheGovernmentunderthe
authorityofthisCodeorotherlawenforcedbytheBureauofInternalRevenueshallbe
broughtinthenameoftheGovernmentofthePhilippinesandshallbeconductedby
legalofficersoftheBureauofInternalRevenuebutnocivilorcriminalactionforthe
recoveryoftaxesortheenforcementofanyfine,penaltyorforfeitureunderthisCode
shallbefiledincourtwithouttheapprovaloftheCommissioner.

SEC.221.RemedyforEnforcementofStatutoryPenalProvisions.Theremedyfor
enforcementofstatutorypenaltiesofallsortsshallbebycriminalorcivilaction,asthe
particularsituationmayrequire,subjecttotheapprovaloftheCommissioner.

SEC.222.ExceptionsastoPeriodofLimitationofAssessmentandCollectionof
Taxes.
(a)Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxoroffailure
tofileareturn,thetaxmaybeassessed,oraproceedingincourtforthecollection
ofsuchtaxmaybefiledwithoutassessment,atanytimewithinten(10)yearsafter
thediscoveryofthefalsity,fraudoromission:Provided,Thatinafraudassessment
whichhasbecomefinalandexecutory,thefactoffraudshallbejudiciallytaken
cognizanceofinthecivilorcriminalactionforthecollectionthereof.
(b)IfbeforetheexpirationofthetimeprescribedinSection203forthe
assessmentofthetax,boththeCommissionerandthetaxpayerhaveagreedin
writingtoitsassessmentaftersuchtime,thetaxmaybeassessedwithintheperiod
agreedupon.Theperiodsoagreeduponmaybeextendedbysubsequentwritten
agreementmadebeforetheexpirationoftheperiodpreviouslyagreedupon.
(c)Anyinternalrevenuetaxwhichhasbeenassessedwithintheperiodof
limitationasprescribedinparagraph(a)hereofmaybecollectedbydistraintor
levyorbyaproceedingincourtwithinfive(5)yearsfollowingtheassessmentof
thetax.
(d)Anyinternalrevenuetax,whichhasbeenassessedwithintheperiodagreed
uponasprovidedinparagraph(b)hereinabove,maybecollectedbydistraintor

levyorbyaproceedingincourtwithintheperiodagreeduponinwritingbefore
theexpirationofthefive(5)yearperiod.Theperiodsoagreeduponmaybe
extendedbysubsequentwrittenagreementsmadebeforetheexpirationofthe
periodpreviouslyagreedupon.
(e)Provided,however,Thatnothingintheimmediatelyprecedingandparagraph
(a)hereofshallbeconstruedtoauthorizetheexaminationandinvestigationor
inquiryintoanytaxreturnfiledinaccordancewiththeprovisionsofanytax
amnestylawordecree.
SEC.223.SuspensionofRunningofStatuteofLimitations.TherunningoftheStatute
ofLimitationsprovidedinSections203and222onthemakingofassessmentandthe
beginningofdistraintorlevyaproceedingincourtforcollection,inrespectofany
deficiency,shallbesuspendedfortheperiodduringwhichtheCommissioneris
prohibitedfrommakingtheassessmentorbeginningdistraintorlevyoraproceedingin
courtandforsixty(60)daysthereafter;whenthetaxpayerrequestsforareinvestigation
whichisgrantedbytheCommissioner;whenthetaxpayercannotbelocatedinthe
addressgivenbyhiminthereturnfileduponwhichataxisbeingassessedorcollected:
Provided,that,ifthetaxpayerinformstheCommissionerofanychangeinaddress,the
runningoftheStatuteofLimitationswillnotbesuspended;whenthewarrantof
distraintorlevyisdulyserveduponthetaxpayer,hisauthorizedrepresentative,ora
memberofhishouseholdwithsufficientdiscretion,andnopropertycouldbelocated;
andwhenthetaxpayerisoutofthePhilippines.

SEC.224.RemedyforEnforcementofForfeitures.Theforfeitureofchattelsand
removablefixturesofanysortshallbeenforcedbytheseizureandsale,ordestruction,of
thespecificforfeitedproperty.Theforfeitureofrealpropertyshallbeenforcedbya
judgmentofcondemnationandsaleinalegalactionorproceeding,civilorcriminal,as
thecasemayrequire.

SEC.225.WhenPropertytobeSoldorDestroyed.Salesofforfeitedchattelsand
removablefixturesshallbeeffected,sofaraspracticable,inthesamemannerandunder
thesameconditionsasthepublicnoticeandthetimeandmannerofsaleasare
prescribedforsalesofpersonalpropertydistrainedforthenonpaymentoftaxes.
Distilledspirits,liquors,cigars,cigarettes,othermanufacturedproductsoftobacco,and
allapparatususedIorabouttheillicitproductionofsucharticlesmay,uponforfeiture,
bedestroyedbyorderoftheCommissioner,whenthesaleofthesameforconsumption
orusewouldbeinjurioustopublichealthorprejudicialtotheenforcementofthelaw.
Allotherarticlessubjecttoexcisetax,whichhavebeenmanufacturedorremovedin
violationofthisCode,aswellasdiesfortheprintingormakingofinternalrevenue
stampsandlabelswhichareinimitationoforpurporttobelawfulstamps,orlabelsmay,

uponforfeiture,besoldordestroyedinthediscretionoftheCommissioner.
Forfeitedpropertyshallnotbedestroyeduntilatleasttwenty(20)daysafterseizure.

SEC.226.DispositionoffundsRecoveredinLegalProceedingsorObtainedfrom
Forfeitures.alljudgmentsandmoniesrecoveredandreceivedfortaxes,costs,
forfeitures,finesandpenaltiesshallbepaidtotheCommissionerorhisauthorized
deputiesasthetaxesthemselvesarerequiredtobepaid,andexceptasspecially
provided,shallbeaccountedforanddealtwiththesameway.

SEC.227.SatisfactionofJudgmentRecoveredAgainstanyInternalRevenueOfficer.
WhenanactionisbroughtagainstanyInternalRevenueofficertorecoverdamagesby
reasonofanyactdoneintheperformanceofofficialduty,andtheCommissioneris
notifiedofsuchactionintimetomakedefenseagainstthesame,throughtheSolicitor
General,anyjudgment,damagesorcostsrecoveredinsuchactionshallbesatisfiedby
theCommissioner,uponapprovaloftheSecretaryofFinance,orifthesamebepaidby
thepersonusedshallberepaidorreimbursedtohim.
Nosuchjudgment,damages,orcostsshallbepaidorreimbursedinbehalfofaperson
whohasactednegligentlyorinbadfaith,orwithwillfuloppression.

TITLEX
STATUTORYOFFENSESANDPENALTIES
CHAPTERI
ADDITIONSTOTAX

SEC.247.GeneralProvisions.
(a)TheadditionstothetaxordeficiencytaxprescribedinthisChaptershallapply
toalltaxes,feesandchargesimposedinthisCode.TheAmountsoaddedtothetax
shallbecollectedatthesametime,inthesamemannerandaspartofthetax.
(b)IfthewithholdingagentistheGovernmentoranyofitsagencies,political
subdivisionsorinstrumentalities,oragovernmentownedorcontrolled
corporation,theemployeethereofresponsibleforthewithholdingandremittance
ofthetaxshallbepersonallyliablefortheadditionstothetaxprescribedherein.
(c)theterm"person",asusedinthisChapter,includesanofficeroremployeeofa
corporationwhoassuchofficer,employeeormemberisunderadutytoperform
theactinrespectofwhichtheviolationoccurs.
SEC.248.CivilPenalties.

(A)Thereshallbeimposed,inadditiontothetaxrequiredtobepaid,apenalty
equivalenttotwentyfivepercent(25%)oftheamountdue,inthefollowingcases:
(1)Failuretofileanyreturnandpaythetaxduethereonasrequiredunder
theprovisionsofthisCodeorrulesandregulationsonthedateprescribed;
or
(2)UnlessotherwiseauthorizedbytheCommissioner,filingareturnwithan
internalrevenueofficerotherthanthosewithwhomthereturnisrequired
tobefiled;or
(3)Failuretopaythedeficiencytaxwithinthetimeprescribedforits
paymentinthenoticeofassessment;or
(4)Failuretopaythefullorpartoftheamountoftaxshownonanyreturn
requiredtobefiledundertheprovisionsofthisCodeorrulesand
regulations,orthefullamountoftaxdueforwhichnoreturnisrequiredto
befiled,onorbeforethedateprescribedforitspayment.
(B)Incaseofwillfulneglecttofilethereturnwithintheperiodprescribedbythis
Codeorbyrulesandregulations,orincaseafalseorfraudulentreturniswillfully
made,thepenaltytobeimposedshallbefiftypercent(50%)ofthetaxorofthe
deficiencytax,incase,anypaymenthasbeenmadeonthebasisofsuchreturn
beforethediscoveryofthefalsityorfraud:Provided,Thatasubstantial
underdeclarationoftaxablesales,receiptsorincome,orasubstantial
overstatementofdeductions,asdeterminedbytheCommissionerpursuanttothe
rulesandregulationstobepromulgatedbytheSecretaryofFinance,shall
constituteprimafacieevidenceofafalseorfraudulentreturn:Provided,further,
Thatfailuretoreportsales,receiptsorincomeinanamountexceedingthirty
percent(30%)ofthatdeclaredperreturn,andaclaimofdeductionsinanamount
exceeding(30%)ofactualdeductions,shallrenderthetaxpayerliablefor
substantialunderdeclarationofsales,receiptsorincomeorforoverstatementof
deductions,asmentionedherein.
SEC.249.Interest.
(A)InGeneral.Thereshallbeassessedandcollectedonanyunpaidamountoftax,
interestattherateoftwentypercent(20%)perannum,orsuchhigherrateasmaybe
prescribedbyrulesandregulations,fromthedateprescribedforpaymentuntilthe
amountisfullypaid.
(B)DeficiencyInterest.Anydeficiencyinthetaxdue,asthetermisdefinedinthis
Code,shallbesubjecttotheinterestprescribedinSubsection(A)hereof,whichinterest
shallbeassessedandcollectedfromthedateprescribedforitspaymentuntilthefull
paymentthereof.
(C)DelinquencyInterest.Incaseoffailuretopay:

(1)Theamountofthetaxdueonanyreturntobefiled,or
(2)Theamountofthetaxdueforwhichnoreturnisrequired,or
(3)Adeficiencytax,oranysurchargeorinterestthereonontheduedate
appearinginthenoticeanddemandoftheCommissioner,thereshallbeassessed
andcollectedontheunpaidamount,interestattherateprescribedinSubsection
(A)hereofuntiltheamountisfullypaid,whichinterestshallformpartofthetax.
(D)InterestonExtendedPayment.Ifanypersonrequiredtopaythetaxisqualified
andelectstopaythetaxoninstallmentundertheprovisionsofthisCode,butfailstopay
thetaxoranyinstallmenthereof,oranypartofsuchamountorinstallmentonorbefore
thedateprescribedforitspayment,orwheretheCommissionerhasauthorizedan
extensionoftimewithinwhichtopayataxoradeficiencytaxoranypartthereof,there
shallbeassessedandcollectedinterestattheratehereinaboveprescribedonthetaxor
deficiencytaxoranypartthereofunpaidfromthedateofnoticeanddemanduntilitis
paid.

SEC.250.FailuretoFileCertainInformationReturns.Inthecaseofeachfailureto
fileaninformationreturn,statementorlist,orkeepanyrecord,orsupplyany
informationrequiredbythisCodeorbytheCommissioneronthedateprescribed
therefor,unlessitisshownthatsuchfailureisduetoreasonablecauseandnottowillful
neglect,thereshall,uponnoticeanddemandbytheCommissioner,bepaidbytheperson
failingtofile,keeporsupplythesame,Onethousandpesos(1,000)foreachfailure:
Provided,however,Thattheaggregateamounttobeimposedforallsuchfailuresduringa
calendaryearshallnotexceedTwentyfivethousandpesos(P25,000).

SEC.251.FailureofaWithholdingAgenttoCollectandRemitTax.Anyperson
requiredtowithhold,accountfor,andremitanytaximposedbythisCodeorwho
willfullyfailstowithholdsuchtax,oraccountforandremitsuchtax,oraidsorabetsin
anymannertoevadeanysuchtaxorthepaymentthereof,shall,inadditiontoother
penaltiesprovidedforunderthisChapter,beliableuponconvictiontoapenaltyequalto
thetotalamountofthetaxnotwithheld,ornotaccountedforandremitted.

SEC.252.FailureofaWithholdingAgenttorefundExcessWithholdingTax.Any
employer/withholdingagentwhofailsorrefusestorefundexcesswithholdingtaxshall,
inadditiontothepenaltiesprovidedinthisTitle,beliabletoapenaltytothetotal
amountofrefundswhichwasnotrefundedtotheemployeeresultingfromanyexcessof
theamountwithheldoverthetaxactuallydueontheirreturn
CASESandDOCTRINES
(LutzvsAraneta98Phil148)

Ifobjectiveandmethodsarealikeconstitutionallyvalid,noreasonisseenwhythestate
maynotlevytaxestoraisefundsfortheirprosecutionandattainment.Taxationmaybe
madetheimplementofthestate'spolicepower.Itisinherentinthepowertotaxthata
Statebefreetoselectthesubjectsoftaxationandithasbeenrepeatedlyheldthat
irregularitieswhichresultfromasinglingoutofoneparticularclassfortaxationor
exemptioninfringenoConstitutionallimitation.
Thesugarindustryspromotion,protectionandadvancementthereforeredoundgreatly
tothegeneralwelfare.Thus,thecontentionofplaintiffthattheActwaspromulgatednot
forpublicpurposecannotbeupheld.
(CIRvsAlgue158SCRA9)
Itissaidthattaxesarewhatwepayforcivilizedsociety.Withouttaxes,the
governmentwouldbeparalyzedforlackofthemotivepowertoactivateandoperateit.
Hence,despitethenaturalreluctancetosurrenderpartofone'shardearnedincometo
thetaxingauthorities,everypersonwhoisabletomustcontributehisshareinthe
runningofthegovernment.Thegovernmentforitspart,isexpectedtorespondinthe
formoftangibleandintangiblebenefitsintendedtoimprovethelivesofthepeopleand
enhancetheirmoralandmaterialvalues.Thissymbioticrelationshipistherationaleof
taxationandshoulddispeltheerroneousnotionthatitisanarbitrarymethodofexaction
bythoseintheseatofpower.
(AmericanBibleSocietyvs.CityofManila101PHIL386)
Itwascontendedthatsaidordinancesimposinglicensefeeonthedistributionandsale
ofbiblesandotherreligiousliterature,impairthefreeexerciseofreligion,specifically
therighttodisseminatereligiousinformation.Asbetweentaxationandreligion,thelatter
prevails.
(Lladocvs.CommissionerofInternalRevenue14SCRA292)
TheexemptionunderSec.22(3)Art.VIoftheConstitutiononlycoverstaxesassessedon
cemeteries,churches,andparsonagesorconvents,appurtenanttheretoandalllands,
buildingsandimprovementsusedexclusivelyforreligiouspurposes.Thesetaxesare
propertytaxesascontradistinguishedfromexcisetaxes.Inthecaseatbar,whatsbeing
assessedwasadoneesgifttaxnotonthepropertiesthemselves.Thegifttaxwasan
excisetaxupontheusemadeoftheproperties,upontheexerciseoftheprivilegeof
receivingtheproperties.Thiskindoftaxisnotwithintheexemptingprovisionofthe

constitution.Therefore,thepetitionerassubstitutedbytheHeadoftheDiocese,isliable
topaythesaidgifttax.
TheexemptionunderSec.22(3)Art.VIoftheConstitutiononlycoverspropertytaxes
assessedoncemeteries,churches,andparsonagesorconvents,appurtenanttheretoand
alllands,buildingsandimprovementsusedexclusivelyforreligiouspurposes.
(AbraValleyCollegevs.Aquino162SCRA106)
Thephraseusedexclusivelyforeducationalpurposesisnotlimitedtopropertyactually
indispensablethereforbutextendstofacilities,whichareincidentaltoandreasonably
necessarytotheaccomplishmentofsaidpurposes
(BishopofNuevaSegoviavs.ProvinceofIlocosNorte51PHIL352
Exemptionfrompaymentoflandtax,whichreferstolotsusedashomeofthepriestwho
presideoverthechurchmustincludenotonlythelotactuallyoccupiedbythechurchbut
alsotheadjacentgrounddestinedtomeettheordinaryincidentalusesofman.
(SanMiguelBrewery,Inc.vs.CityofCebu/CebuPortlandCementCo.vs.Naga,Cebu
February20,1973)
ThisisbecausedoubletaxationisnotprohibitedbytheConstitution.Furthermore,
thereisdoubletaxationonlywhenthesamepersonistaxedbythesamejurisdictionfor
thesamepurpose.Inthefirstcase,theannualbusinesstaxisalicensetaxtoengagein
thebusinessofwholesaleliquorinCebuCity.Suchlicensetaxconstitutesaregulatory
measureintheexerciseofpolicepower,whereasthatwhichisimposedbytheordinance
isatypicaltaxorrevenuemeasure.

SubjectMatter:CriminalAction;TaxAssessment

CIRVPASCORREALTY&DEVTCORPet.al.
(GRNo.128315,June29,1999)
Facts:

TheCIRauthorizedcertainBIRofficerstoexaminethebooksofaccountsandother
accountingrecordsofPascorRealtyandDevelopmentCorp.(PRDC)for1986,1987and

1988.Theexaminationresultedinrecommendationfortheissuanceofanassessmentof
P7,498,434.65andP3,015,236.35for1986and1987,respectively.

OnMarch1,1995,Commissionerfiledacriminalcomplaintfortaxevasionagainst
PRDC,itspresidentandtreasurerbeforetheDOJ.Privaterespondentsfiledimmediately
anurgentrequestforreconsiderationonreinvestigationdisputingthetaxassessment
andtaxliability.

OnMarch23,1995,privaterespondentsreceivedasubpoenafromtheDOJin
connectionwiththecriminalcomplaint.Inaletterdated,May17,1995,the
Commissionerdeniedprivaterespondentsrequestforreconsideration(reinvestigation
onthegroundthatnoformalassessmenthasbeenissuedwhichthelatterelevatedto
theCTAonapetitionforreview.TheCommissionersmotiontodismissonthegroundof
theCTAslackofjurisdictioninasmuchasnoformalassessmentwasissuedagainst
privaterespondentwasdeniedbyCTAandorderedtheCommissionertofileananswer
butdidnotinsteadfiledapetitionwiththeCAalleginggraveabuseofdiscretionandlack
ofjurisdictiononthepartofCTAforconsideringtheaffidavit/reportoftherevenue
officersandtheendorsementofsaidreportasassessmentwhichmaybeappealedtohe
CTA.TheCAsustainedtheCTAdecisionanddismissedthepetition.
Issues:
1. Whetherornotthecriminalcomplaintfortaxevasioncanbeconstruedasan
assessment.
2. Whetherornotanassessmentisnecessarybeforecriminalchargesfortaxevasion
maybeinstituted.
Held:

ThefilingofthecriminalcomplaintwiththeDOJcannotbeconstruedasaformal
assessment.NeithertheTaxCodenortherevenueregulationsgoverningtheprotest
assessmentsprovideaspecificdefinitionorformofanassessment.

Anassessmentmustbesenttoandreceivedbythetaxpayer,andmustdemand
paymentofthetaxesdescribedthereinwithinaspecificperiod.Therevenueofficers
affidavitmerelycontainedacomputationofrespondentstaxliability.Itdidnotstatea
demandorperiodforpayment.ItwasaddressedtotheSecretaryofJusticenottothe
taxpayer.Theyjointaffidavitwasmeanttosupportthecriminalcomplaintfortax
evasion;itwasnotmeanttobeanoticeoftaxdueandademandtoprivaterespondents
forthepaymentthereof.ThefactthatthecomplaintwassenttotheDOJ,andnotto
privaterespondent,showsthatcommissionerintendedtofileacriminalcomplaintfor
taxevasion,nottoissueanassessment.

Anassessmentisnotnecessarybeforecriminalchargescanbefiled.Acriminal
chargeneednotonlybesupportedbyaprimafacieshowingoffailuretofilearequired

return.TheCIRhad,insuchtaxevasioncases,discretiononwhethertoissueanassessment,
ortofileacriminalcaseagainstthetaxpayer,ortodoboth.
SubjectMatter:CriminalAction

CIRVCA
G.R.No.119322,June4,1996
Facts:

AtaskforcewascreatedonJune1,1993toinvestigatetaxliabilitiesof
manufacturersengagedintaxevasionschemes.OnJuly1,1993,theCIRissuedRev.
MemoCirc.No.3793whichreclassifiedcertaincigarettebrandsmanufacturedby
privaterespondentFortuneTobaccoCorp.(Fortune)asforeignbrandssubjecttoahigher
taxrate.OnAugust3,1993,Fortunequestionedthevalidityofsaidreclassificationas
beingviolativeoftherighttodueprocessandequalprotectionoflaws.TheCTA,on
September8,1993resolvedthatsaidreclassificationwasofdoubtfullegalityand
enjoineditsenforcement.

Inthemeantime,onAugust3,1993,Fortunewasassesseddeficiencyincome,ad
valoremandVATfor1992withpaymentduewithin30daysfromreceipt.OnSeptember
12,1993,privaterespondentmovedforreconsiderationofsaidassessment.Meanwhile
onSeptember7,1993,theCommissionerfiledacomplaintwiththeDOJagainstprivate
respondentFortune,itscorporateofficersand9othercorporationsandtheirrespective
corporateofficersforallegedfraudulenttaxevasionfornonpaymentofthecorrect
income,advaloremandVATfor1992.ThecomplaintwasreferredtotheDOJTaskForce
onrevenuecaseswhichfoundsufficientbasistofurtherinvestigatethechargesagainst
Fortune.

AsubpoenawasissuedonSeptember8,1993directingprivaterespondentto
submittheircounteraffidavits.Butitfiledaverifiedmotiontodismissoralternatively,a
motiontosuspendbutwasdeniedandthustreatedastheircounteraffidavit.Allmotions
filedthereafterweredenied.

January4,1994,privaterespondentsfiledapetitionforcertiorariandprohibition
withprayerforpreliminaryinjunctionprayingtheCIRscomplaintandprosecutors
ordersbedismissed/setasideoralternatively,thatthepreliminaryinvestigationbe
suspendedpendingdeterminationbyCIRofFortunesmotionforreconsideration/
reinvestigationoftheAugust13,1993assessmentoftaxesdue.

Thetrialcourtgrantedthepetitionforawritofpreliminaryinjunctiontoenjoin
thepreliminaryinvestigationonthecomplaintfortaxevasionpendingbeforetheDOJ,
rulingthatthetaxliabilityofprivaterespondentsfirstbesettledbeforeanycomplaint
forfraudulenttaxevasioncanbeinitiated.

Issue:

Whetherthebasisofprivaterespondentstaxliabilityfirstbesettledbeforeany
complaintforfraudulenttaxevasioncanbeinitiated.
Held:

Fraudcannotbepresumed.Iftherewasfraudonwillfulattempttoevadepayment
ofadvaloremtaxesbyprivaterespondentthroughthemanipulationoftheregistered
wholesalepriceofthecigarettes,itmusthavebeenwiththeconnivanceofcooperation
ofcertainBIRofficialsandemployeeswhosupervisedandmonitoredFortunes
productionactivitiestoseetoitthatthecorrecttaxeswerepaid.Butthereisno
allegation,muchlessevidence,ofBIRpersonnelsmalfeasanceattheveryleast,thereis
thepresumptionthatBIRpersonnelperformedtheirdutiesintheregularcoursein
ensuringthatthecorrecttaxeswerepaidbyFortune.

BeforethetaxliabilitiesofFortunearefinallydetermined,itcannotbecorrectly
assertedthatprivaterespondentshavewillfullyattemptedtoevadeordefeatanytax
underSecs.254and256,1997NIRC,thefactthatataxisduemustfirstbeproved.

AZNARCASE(August23,1974)
Facts:

MatiasAznardiedonMay15,1958.Hisincometaxreturnsfrom1945to1951
wereexaminedbytheBIR.Doubtingthetruthoftheincomethathehadreported,the
Commissionerorderedtheinvestigationofthecaseonthebasisofthenetworth
method.Substantialunderdeclarationsofincomewerediscovered.OnNovember28,
1952,theBIRnotifiedAZNARofataxdelinquencyofP723,032.66whichwaslater
reducedtoP381,096.07uponreinvestigation.

OnFebruary20,1953,AZNARspropertieswereplacedunderdistraintandlevy.
OnApril1,1955,AZNARappealedtotheCTA.TheCTAfoundthatAZNARmade
substantialunderdeclarationsofhisincomeasfollows:heunderdeclaredhisincomefor
1946by227%;564%for1947;95%for1948;486%for1949;946%1950;490%1951.
Issues:

WhetherornottherightoftheCommissionertoassessAZNARsdeficiencyincome
taxesfor1946,1947and1948hadprescribedatthetimetheassessmentwasmade.
Held:

Ontheissueofprescriptionthecountappliedthe10yearprescriptiveperiodand

ruledthatprescriptionhadnotsetin.thecourtopinedthatAZNARsreturnswerefalse
becausetheunderdeclarationofincomeconstitutedadeviationfromthetruth.The
courtstatedthattheordinaryprescriptiveperiodof5years(now3years)wouldapply
undernormalcircumstancesbutwheneverthegovernmentisplacedatadisadvantageas
topreventitslawfulagentfrommakingaproperassessmentoftaxliabilitiesduetofalseor
fraudulentreturnsintendedtoevadepaymentoftaxesorfailuretothereturns,theperiod
of10yearsprovidedforinthelawfromthediscoveryofthefalsity,fraudoromissioneven
seemstobeinadequateandshouldbetheoneenforced.