Commissioner of Internal Revenue vs.

Reyes
G.R. No. 159694. January 27, 2006

Facts:
In 1993, Maria Tancino died leaving behind an estate worth P32 million. In 1997, a tax
audit was conducted on the estate. Meanwhile, the National Internal Revenue Code (NIRC) of
1997 was passed. Eventually in 1998, the estate was issued a final assessment notice (FAN)
demanding the estate to pay P14.9 million in taxes inclusive of surcharge and interest; the estate’s
liability was based on Section 229 of the [old] Tax Code. Azucena Reyes, one of the heirs,
protested the FAN. The Commissioner of Internal Revenue (CIR) nevertheless issued a warrant of
distraint and/or levy. Reyes again protested the warrant but in March 1999, she offered a
compromise and was willing to pay P1 million in taxes. Her offer was denied. She continued to
work on another compromise but was eventually denied. The case reached the Court of Tax
Appeals where Reyes was also denied. In the Court of Appeals, Reyes received a favorable
judgment.
Issue:
Whether or not the formal assessment notice is valid.
Held:
No. The NIRC of 1997 was already in effect when the FAN was issued. Under Section 228
of the NIRC, taxpayers shall be informed in writing of the law and the facts on which the
assessment is made: otherwise, the assessment shall be void. In the case at bar, the FAN merely
stated the amount of liability to be shouldered by the estate and the law upon which such liability
is based. However, the estate was not informed in writing of the facts on which the assessment of
estate taxes had been made. The estate was merely informed of the findings of the CIR. Section
228 of the NIRC being remedial in nature can be applied retroactively even though the tax
investigation was conducted prior to the law’s passage. Consequently, the invalid FAN cannot be
a basis of a compromise, any proceeding emanating from the invalid FAN is void including the
issuance of the warrant of distraint and/or levy.