TAX REMEDIES

Under the Tax Code, the powers and duties of the BIR include the assessment and collection of all national internal revenue taxes, fees, and charges.

In this regard, after a tax return has been filed, the BIR is authorized to examine the taxpayer and assess the correct amount of tax. However, the
failure of the taxpayer to file a return shall not prevent the BIR from examining the taxpayer.

In the event that the taxpayer failed to provide the required return or information to the BIR, or if the BIR believes that such report is false, incomplete or
erroneous, then the assessment can be made based on the best evidence available.

AMENDMENT OF RETURNS: Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn, provided, that
within three (3) years from the date of such filing, the same may be modified, changed, or amended.

However, the taxpayer may no longer modify, change or amend any return, statement or declaration if a notice for audit or investigation of such return,
statement or declaration has been actually served upon the taxpayer.

“TENTATIVE” RETURNS: A “Tentative Tax Return” shall be considered as a final return, unless a final amended return is filed by the concerned taxpayer.
However, once a Letter of Authority or any other notice of audit is received, taxpayers are barred from making amendments to the tentative tax returns filed.

This emphasizes that income tax return marked as “Tentative” may also be the subject of examination pursuant to Section 6(A) of the Tax Code. (RMC No. 50-
2013)

I. ASSESSMENT

ASSESSMENT is a written notice and demand made by the Bureau of Internal Revenue (BIR) on the taxpayer for the settlement of a due tax liability that is
there definitely set and fixed. It is a written communication containing a computation by a revenue officer of tax liability, giving the taxpayer an opportunity to
contest or disprove the BIR examiner’s findings (Jose C. Vitug and Ernesto D. Acosta, Tax Law and Jurisprudence, First Edition, p. 282).

Presumption of Regularity: Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise.
In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved
by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments. (Bonifacio Sy Po vs. CTA; GR No. 81446; Aug.
18, 1988)

Presumption of regularity does not apply if assessment is not based on sufficient evidence: The prima facie correctness of a tax assessment does not
apply upon proof that an assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a
"naked assessment," i.e., without any foundation character, the determination of the tax due is without rational basis. In such a situation, the U.S. Court of
Appeals ruled that the determination of the Commissioner contained in a deficiency notice disappears. (Commissioner of Internal Revenue vs. Hantex Trading,
Inc.)

DUE PROCESS REQUIREMENTS: THE ASSESSMENT MUST BE IN WRITING AND STATE THE FACTS AND THE LAW UPON WHICH IT IS BASED:

The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 of informing the taxpayer of not only the law, but also of the
facts on which an assessment would be made, otherwise, the assessment itself would be invalid (CIR vs. Azucena Reyes, G.R. No. 159694, January 27, 2006).

The alleged “factual bases” in the advice, preliminary letter and “audit working papers” did not suffice. There was no going around the mandate of the law that
the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice (CIR vs. Enron Subic,
G.R. No. 166387, January 19, 2009)

Presumption: Assessments should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. In order to stand the
test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be
made to rest on another presumption. (Collector vs. Benipayo, GR No. L-13656, Jan. 31, 1962)

DELIVERY and RECEIPT OF NOTICE (PAN/FAN/FDDA): BIR can notify the taxpayer of the deficiency taxes due by means of:
1. Personal delivery – Delivering personally a copy of the PAN/FAN/ FDDA to the party at his registered or known address.
2. Substituted service – Can be resorted to only if party is not present at the registered or known address.
3. Service by mail – Sending a copy of the notice by registered mail or by reputable professional courier service

Presumption of receipt: In order for the presumption to arise, the following must be proved:
1. That the letter was properly addressed with postage prepaid; and
2. That it was mailed.

Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary
course of the mail. (Gonzalo Nava vs. CIR, 13 SCRA 103, Jan. 30, 1965)

Shifting of burden to prove actual receipt: However, if the taxpayer denies receipt of the assessment, the burden of proving by competent evidence that the
notice was indeed received by the addressee shifts to the BIR. (Republic vs. Court of Appeals, 149 SCA 351 cited in Barcelon, Roxas Securities, Inc. vs. CIR)

WHO MAY ISSUE NOTICES: The term “duly authorized representative” of the Commissioner of Internal Revenue (CIR) who may issue the PAN/FAN/FDDA
refers to Revenue Regional Directors, Assistant Commissioner-Large Taxpayers Service, and Assistant Commissioner-Enforcement and Advocacy Service. (RMC
No. 11-2014)

When assessment is deemed made: an assessment is deemed made when the demand letter or notice is RELEASED, MAILED OR SENT by the BIR to
the taxpayer. The law does not require that the taxpayer receive the notice within the three-year or ten-year period (CIR vs. Bautista [May 27, 1959)]. So, even
if the taxpayer actually received the assessment after the expiration of the prescriptive period, provided the release thereof was effected before prescription
sets in, the assessment is deemed made on time.
ASSESSMENT PROCESS

A. ISSUANCE OF LETTER OF AUTHORITY

LETTER OF AUTHORITY (LOA): is an official document that empowers a Revenue Officer (RO) to examine and scrutinize a Taxpayer’s books of accounts and
other accounting records, in order to determine the Taxpayer’s correct internal revenue taxes.

A LOA would include the following information: (1) taxes covered; (2) period covered; (3) authorized examiners; and (4) authorized signatory.

The BIR has now adopted the electronic LOA format. Taxpayers who received manual LOA has the right to disregard it and not entertain the BIR officers who
will conduct the audit.

The LOA must be served to the taxpayer within 30 days from its date of issuance; otherwise, it shall become null and void. The taxpayer shall then have the
right to refuse the service of this LOA, unless the LOA is revalidated.

It can be revalidated through the issuance of a new LOA. It can be revalidated only once, if issued by the Regional Director; twice, if issued by the CIR. The
suspended LOA(s) must be attached to the new issued LOA. (RMO No. 38-88)

Period covered should only be one year: Section C of Revenue Memorandum Order (RMO) No. 43-90 dated September 20, 1990, provides that “[a] Letter
of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing LOAs covering audit of "unverified prior years is hereby
prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the LOA.”

An assessment would be declared illegal if issued WITHOUT a LOA, or even with a LOA, but DEFECTIVE as when it adds “and unverified prior years” in addition
to a specific year to be examined. (Commissioner of Internal Revenue vs. Sony Philippines, Inc.; GR No. 178697; Nov. 17, 2010)

If the year subject of assessment is covered by the LOA, assessments pertaining to such year is valid: In CIR vs. Sony Philippines, Inc., the CIR issued a LOA
covering “1997 and unverified prior years”. As a result of the audit, a deficiency VAT assessment was issued based on records from January to March 1998.
The assessment was disallowed because the revenue officers went beyond the scope of their authority for auditing a period beyond one taxable year.

On the other hand, in CIR vs. De La Salle University Inc., the CIR issued a LOA covering “Fiscal Year ending 2003 and Unverified Prior Years.”

An assessment was issued for income tax, VAT and DST for taxable years 2001, 2002 and 2003. The Court held that the LOA issued is not entirely void. The
assessment pertaining to taxable year 2003 is valid. RMO No. 43-90 prohibits the practice of issuing LOAs covering audit of unverified prior years. It does not
say that LOAs which contain unverified prior years is void. The RMO requires that if a taxpayer is audited for more than one taxable year, the BIR must
specify each taxable year or taxable period on separate LOAs.

The assessment for taxable year 2003 is valid because this taxable period is specified in the LOA. DLSU was fully apprised that it was being audited for this
taxable year. Corollarily, the assessments for taxable year 2001 and 2002 are void for having been unspecified on separate LOAs as required under RMO No.
43-90.

Letter Notice (LN): Under the no-contact-audit-approach under RMO No. 30-2003, as supplemented by RMO No. 42-2003, even without conducting a detailed
examination of taxpayer’s books and records, if the computerized/manual matching of sales and purchases/expenses appears to reveal discrepancies, the same
shall be communicated through the issuance of a Letter Notice.

Under RMO No. 32-2005, in case the discrepancies remained unresolved at the end of 120 days, the Revenue Officer assigned to handle the LN shall recommend
the issuance of a LOA to replace the LN.

Letter Notice not converted to a LOA is not sufficient: The Court cannot convert the LN into the LOA required under the law.

A LN is entirely different and serves a different purpose than a LOA. Due process demands, as recognized under RMO No. 32-2005, that after an LN has serve
its purpose (i.e., to notify the taxpayer that a discrepancy is found based on the BIR’s RELIEF System), the Revenue Officer should properly secure a LOA before
proceeding with the further examination and assessment of a taxpayer. (MEDICARD Philippines, Inc. vs. Commissioner of Internal Revenue, GR No. 222743,
April 5, 2017)

Tax Verification Notice: are issued for estate tax purposes. (RMO No. 69-2010)

B. TAX AUDIT

A Revenue Officer (RO) is allowed only 120 days from the date of receipt of the LOA to conduct the audit and submit the required report of investigation. If the
RO is unable to submit his final report of investigation within the 120-day period, he must then submit a Progress Report to his Head Office and surrender the
LOA for revalidation.

A taxpayer can only be subjected to an audit of a taxable year only ONCE; Except in the following cases:
1. Fraud, irregularity or mistakes, as determined by the Commissioner;
2. Taxpayer requests for reinvestigation;
3. Verification of compliance with withholding tax laws and regulations;
4. Verification of capital gains tax liabilities.
5. When the commissioner chooses to exercise his power to obtain information relative to the examination of other taxpayers under Sec. 5(B). (Sec. 235 of
the Tax Code)

SUBMISSION OF DOCUMENTS: Upon receipt of the LOA, the taxpayer will also receive a checklist of documents that the BIR will require the taxpayer to
submit in connection with the audit.

• First Notice – After 10 days from receipt of the checklist and the taxpayer did not comply, a First Notice will be sent to the taxpayer.
• Second and Final Notice – After 10 days from receipt of the First Notice and the taxpayer still did not comply, a Second and Final Notice will be sent to the
taxpayer.
Subpoena Duces Tecum (SDT): After 10 days from receipt of the Second and Final Notice and the taxpayer still did not comply, the authorized BIR officer
shall request for the issuance of a subpoena from the Assistant Commissioner, Enforcement and Advocacy Service (National Office) or Assistant Commissioner,
Large Taxpayers Service (Large Taxpayers Service) or Revenue Regional Directors (Regional Office). (RMO No. 45-2010)

The Assistant Commissioner, Enforcement and Advocacy Service/ Assistant Commissioner, Large Taxpayers Service/ Revenue Regional Directors shall evaluate
the request within 2 days from receipt. Upon issuance of the subpoena, the revenue officer shall serve it on the taxpayer within 3 days.

The compliance date for the submission of books of accounts and other accounting records shall be set on the 14th day from date of issuance of SDT.

Payment of the administrative penalty shall not excuse the taxpayer summoned from complying with the SDT.

In case of no submission or incomplete presentation of the required books and records, the issuing office shall forward the case to the Prosecution Division at
the National Office or Legal Division at the Regional Office. The Action Lawyer assigned shall then request for a conference with the assigned revenue officer.
This shall be scheduled on the fifth (5th) working day from the date set for compliance with the SDT

Within seven (7) working days from the conference, a criminal complaint can be filed against the taxpayer for violation of Section 266 of the Tax Code for failure
to obey summons.

Once the criminal complaint has been filed, no prosecuting officer of the BIR shall cause the withdrawal or dismissal of the case, notwithstanding the subsequent
submission of documents indicated in the SDT. (RMO No. 10-2013)

Jeopardy Assessment: A “Jeopardy Assessment” is one made without the benefit of complete or partial audit by an authorized revenue officer, who has
reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer's failure to comply with the audit
and investigation requirements to present his books of accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits
claimed in his return. (Sec. 3[1][a], RR No. 30-02)

This is issued basically to comply with the prescriptive period and to prevent the same from lapsing principally from the taxpayer’s fault. The RO would usually
cause the issuance of a subpoena duces tecum to ensure submission of books of accounts, records and/or documents.

Best Evidence Obtainable:

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration and Enforcement.
xxx
(B) Failure to Submit Required Returns, Statements, Reports and other Documents. — When a report required by law as a basis for the assessment of any
national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such
report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or
other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony
or otherwise, which shall be prima facie correct and sufficient for all legal purposes.
xxx

An assessment based on the best evidence obtainable is justified when any of the following grounds provided by law is clearly established:
1. The report or records requested from the taxpayer are not forthcoming i.e. the records are lost; refusal of the taxpayer to submit such records;
2. The reports submitted are false, incomplete or erroneous.

This is resorted to when a taxpayer fails to obey a subpoena duces tecum and after a criminal case has been instituted for failure to obey summons. (Sec. 2.3,
RMC No. 23-00)

Resort to estimation allowed: The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by estimation. The
petitioner is not required to compute such tax liabilities with mathematical exactness. Approximation in the calculation of the taxes due is justified. To hold
otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. However, the rule does not apply where the estimation is
arrived at arbitrarily and capriciously (Commissioner of Internal Revenue vs. Hantex Trading Co., Inc.; GR No. 136975; March 31, 2005)

C. NOTICE OF INFORMAL CONFERENCE

NOTICE OF INFORMAL CONFERENCE: is a written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and
accounting records indicate additional taxes or deficiency assessments have to be paid.

If, after the culmination of an audit, a Revenue Officer recommends the imposition of deficiency assessments, this recommendation is communicated by the
Bureau to the Taxpayer concerned during an informal conference called for this purpose. The Taxpayer shall then have fifteen (15) days from the date of his
receipt of the Notice for Informal Conference to explain his side.

Note, however, that under RR No. 18-2013, amending RR No. 12-99, the provision requiring an Informal Conference was removed. Thus, if during the audit
process, the BIR determines that there is basis to assess the taxpayer for deficiency taxes, a PAN will be issued. However still, this has been reinstated by RR
No. 7-2018.

D. PRELIMINARY ASSESSMENT NOTICE

PRELIMINARY ASSESSMENT NOTICE (PAN): is a communication issued by the Regional Assessment Division, or any other concerned BIR Office, informing
a Taxpayer who has been audited of the findings of the Revenue Officer, following the review of these findings.

If the Taxpayer disagrees with the findings stated in the PAN, he shall then have fifteen (15) days from his receipt of the PAN to file a written reply contesting
the proposed assessment, otherwise he shall be considered in default. Note, however, that under RR No. 18-13, amending RR No. 12-99, a FAN/FLD will still be
issued after the lapse of the 15 days from the filing of a protest against the PAN.
The PAN is not required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over
and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts,
has been sold, traded or transferred to non-exempt persons. (Sec. 228 of the Tax Code)

Under RR No. 18-13, a FAN/FLD shall be issued outright in the above-enumerated cases.

Contents of the PAN: The PAN must show in detail the facts and the law upon which the assessment is based. Otherwise, the PAN will not be valid and any
resulting assessment will be considered null and void.

Absence of PAN: The issuance of the PAN is part of the due process requirement under RR No. 18-2013. Thus, if the BIR did not issue a PAN or did not give
the taxpayer an opportunity to respond within 15 days from receipt thereof, this will be a violation of the due process right of a taxpayer.

The Supreme Court has already ruled that if a taxpayer is not given an opportunity to respond to a PAN, any resulting assessment will be
considered null and void. (Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371 dated December 8, 2010)

The amendments under RR No. 18-13:

Previously, a PAN issued by the BIR will state the following:

"Pursuant to the provisions of Section 228 of the 1997 NIRC and its implementing Revenue Regulations, you are hereby given the opportunity to present in
writing your side of the case within fifteen (15) days from receipt thereof. However, if you are amenable to pay xxx.”

However, after the effectivity of RR No. 18-2013, a PAN now states the following:
“Pursuant to the provisions of Section 228 of the 1997 NIRC and its implementing Revenue Regulations, you are hereby given fifteen (15) days from receipt
hereof to pay the aforesaid deficiency tax liabilities in a duly authorized agent bank in which you are enrolled using the BIR Payment Form (BIR Form 0605)
attached herewith. Afterwards, submit proof of payment thereof to the __ for updating of your records and cancellation of the herein PAN, if warranted.”

Based on the above amendment, the taxpayer is already directed to pay the deficiency tax indicated in the PAN, unlike in the previous version of the provision
where the taxpayer is merely directed to respond with his side of the case.

Under RMC No. 11-2014, the BIR clarified that this new practice is not violative of the due process rights of the taxpayer, to wit:

“An FLD/FAN issued reiterating the immediate payment of deficiency taxes and penalties previously made in the PAN is a denial of the response to the PAN. A
final demand letter for payment of delinquent taxes may be considered a decision on a disputed assessment (Isabela Cultural Corporation vs. Commissioner of
Internal Revenue, G.R. No. 135210 dated July 11, 2001). This includes a disputed PAN. So long as the parties are given the opportunity to explain their side,
the requirements of due process are satisfactorily complied with (Calma vs. Court of Appeals, G.R. No. 122787 dated February 9, 1999).”

E. FORMAL LETTER OF DEMAND AND ASSESSMENT NOTICE (FLD/FAN)

NOTICE OF ASSESSMENT or FORMAL ASSESSMENT NOTICE (FAN)/FORMAL LETTER OF DEMAND (FLD): is a declaration of deficiency taxes issued
to a Taxpayer who fails to respond to a Pre-Assessment Notice within the prescribed period of time, or whose reply to the PAN was found to be without merit.
The Notice of Assessment shall inform the Taxpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall
be given due course.

Contents: The formal letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the formal letter of demand and the notice of assessment shall be void.

F. DISPUTED ASSESSMENT

PROTEST: is the act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as
shown in the notice of assessment or letter of demand.

It should be filed within 30 days from receipt of the FAN/FLD.

Form of Protest: a protest may be made either through:

a. Request/Motion for Reconsideration: a plea for re-evaluation of an assessment on the basis of existing records without the need of additional evidence
and may raise either questions of law or fact, or both. The additional 60 days applicable to motion for reinvestigation does not apply to requests/motion
for reconsideration.
b. Request/Motion for Reinvestigation: a plea for re-evaluation of an assessment based on newly discovered evidence or additional evidence. Here, the
taxpayer is given 60 days from the filing of the letter of protest to provide all relevant supporting documents – those to support the legal and factual bases
disputing a tax assessment.

Relevant Supporting Documents: The CIR cannot demand other supporting documents, particularly if they do not exist and eventually hold that failure to
provide within the 60-day period makes the assessment final and executory. “The term "relevant supporting documents" should be understood as those
documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR,
which may require the production of documents that a taxpayer cannot submit.” (CIR vs. First Express Pawnshop Company, Inc.; GR No. 172045-46; June 16,
2009)

Suspension of the running of prescriptive period; request for reinvestigation must be accepted: A request for reinvestigation suspends the running
of the prescriptive period. However, if not accepted by the BIR, it does not suspend the running of the prescriptive period. The burden of proof that the
request for reinvestigation has actually been granted rests on the BIR. Such grant may be expressed in its communications with the BIR or implied from the
action of the BIR in response to the request. (Bank of the Philippine Islands vs. Commissioner of Internal Revenue, G.R. No. 139736 dated October 17, 2005)

On the other hand, a request for reconsideration does not suspend the running of the prescriptive period because it only entails evaluation of existing evidence.
Whereas, a request for reinvestigation, where new or additional evidence is provided, the prescriptive period is suspended.

Period of suspension for requests for reinvestigation: the period between the request for reinvestigation and the revised assessment should be subtracted from
the total prescriptive period for the assessment of the tax; and, once the assessment had been reconsidered at the taxpayers’ instance, the period for collection
should begin to run from the date of the reconsidered or modified assessment.

Contents: either should contain: (1) nature of the protest, i.e., if reconsideration or reinvestigation; (2) date of assessment notice; and (3) applicable rules,
law, regulations and jurisprudence. Otherwise, the protest shall be considered void and without force and effect.

Period within which the Commissioner may act on the protest: the Commissioner shall have 180 days to act upon the protest from:
1. Date of filing in case of reconsideration; or
2. Date of submission of the relevant supporting documents or 60 days from filing the request for reinvestigation.

Failure to file a protest: If the taxpayer failed to file a protest, the assessment shall be considered final, executory and demandable and no requests
for either reinvestigation or reconsideration shall be granted. (Sec. 3.1.4 of RR No. 12-99, as amended)

G. FINAL DECISION ON DISPUTED ASSESSMENT

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA): If no protest against the FAN/FLD is filed, or if a request for reinvestigation is filed but the taxpayer
failed to provide relevant supporting documents within 60 days from its filing, or when the protest is expressly denied, an FDDA is issued stating the facts, law,
regulations, rules, jurisprudence from which the decision was based AND that it is the final decision.

ACTIONS BY THE COMMISSIONER/DULY AUTHORIZED REPRESENTATIVE: Within the 180 days, the Commissioner may either (1) deny, directly or
indirectly, the protest; or (2) not act on the protest.

1. DENIAL or FAILURE TO ACT BY COMMISSIONER’S DULY AUTHORIZED REPRESENTATIVE

EXPRESS DENIAL In case of DENIAL by the Commissioner’s duly authorized representative, the taxpayer may either:
1. Appeal to the CTA within 30 days from the receipt of such denial; or
2. Elevate his protest through request for reconsideration to the Commissioner within 30 days from the date of receipt of the said decision.

INACTION: In case the PROTEST IS NOT ACTED UPON by the Commissioner’s duly authorized representative: within 180 days from the date of filing
of the protest or date of submission by the taxpayer of the required documents, the taxpayer may:
1. Appeal to the CTA within 30 days from the expiration of the 180-day period; or
2. Await the final decision of the duly authorized representative.

There is no appeal to the CIR from the failure of the CIR’s authorized representative to act. This option is only available if the authorized
representative made a partial or whole denial of the protest. (PAGCOR vs. BIR, GR No. 208731, Jan. 27, 2016)

RR No. 12-99 is not inconsistent with Sec 228 of the NIRC. It merely implements Sec 228 by establishing guidelines on the nature of decision rendered by the
authorized representative of the CIR on a disputed assessment. The taxpayer is given a choice whether to appeal a decision to the CIR or to the CTA. The
decision of the authorized representative will not attain finality if the taxpayer appeals the same to the CIR who shall then be required to decide on the protest
himself. (Moog Controls Corp. Phil. Branch vs. CIR)

2. DENIAL or FAILURE TO ACT BY THE COMMISSIONER

EXPRESS DENIAL: If the protest or administrative appeal is DENIED, in whole or in part by the Commissioner (note that in administrative appeals, the
denial came from the Commissioner’s authorized representative), he shall issue a FDDA and the taxpayer may appeal to the CTA within 30 days from date of
receipt of the said decision. Otherwise, the assessment shall become final, executory and demandable.

Actions within the 180-day period which are deemed denial of the protest:
a. Formal and final letter of demand from the BIR to the taxpayer.
b. Filing of a collection case before the regular courts for the collection of the tax (Yabes vs. Flojo, G.R. No. L-46954).

If the Commissioner did not rule on the taxpayer’s motion for reconsideration of the assessment, the period to appeal will only start when the respondent
would receive the summons for the civil action for collection of deficiency tax (BIR v. Union Shipping Corp., GR 66160, May 21, 1990)

c. The filing of a criminal action against a taxpayer after the filing of a protest is deemed a denial of such protest. However, the institution of a criminal action
cannot in itself be considered as an assessment. In the first instance, there is already an assessment made by the BIR, and the protest thereon is denied
through the criminal action. In the latter, there is no assessment yet, and the criminal charges filed, cannot be deemed an assessment in itself. (see Pascor
Realty case under [E] Tax Remedies under the NIRC, [a] Assessment)
d. Sending of a Final Notice before seizure, indicating that the CIR is giving the taxpayer “the LAST OPPORTUNITY to settle the assessment”.
e. Sending of a Demand letter, containing a text with the words “final decision” and “appeal”, similar to the tenor of the following:
(1) “This constitutes our final decision on the matter. If you are not agreeable, you may appeal to the CTA within 30 days from receipt of this letter.”
(2) “This is our final decision based on the investigation. If you disagree, you may appeal this final decision within 30 days from receipt hereof, otherwise
said deficiency tax assessment shall become final, executor and demandable.”
f. Referral by the Commissioner of the request for reinvestigation to the Solicitor General, because this shows the insistence of the commissioner to collect
tax.

Issuance of warrant of distraint and levy to enforce collection of deficiency assessment does not in itself constitute a final decision that is appealable to the
Court of Tax Appeals.
The Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the assessment. That
procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action. (Surigao Electric Co., Inc. vs. CTA, GR No. L-25289,
June 28, 1974, cited in Advertising Asscoiates, Inc. vs. CA, GR No. L-59758, Dec. 26, 1984)

INACTION: If the protest or administrative appeal is NOT ACTED UPON by the Commissioner within 180 days counted from the date of filing of the protest,
the taxpayer may:
1. Appeal to the CTA within 30 days from the expiration of the 180 day period; or
2. Await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within thirty (30) days after the receipt
of a copy of such decision.

It must be emphasized, however, that in case of inaction on protested assessment within the 180-day period, the options of the taxpayer are mutually exclusive
and the resort to one bars the application of the other. (Sec. 3.1.4 of RR No. 12-99, as amended by RR No. 18-13)

The taxpayer may await the decision of the Commissioner: When the law provided to appeal the inaction of the CIR, it did not intend to limit it to a single
remedy of filing an appeal after the lapse of the 180-day period. Precisely, when a taxpayer cannot be prejudiced if he chooses to wait for the final decision of
the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the
protested assessment.

This is consistent with Section 3(A)(2), Rule 4 of the Revised Rules of the CTA where it provides that “should the taxpayer opt to await the final decision of the
CIR on the disputed assessment beyond the 180-day period, the taxpayer may appeal such final decision to the Court. (Lascona Land vs. CIR, GR No. 171251,
March 5, 2012)

H. JUDICIAL APPEAL

In case of denial by the Commissioner or his duly authorized representative, or in case of inaction within 180 days (where the taxpayer opted not to await the
decision), the taxpayer must file his judicial appeal with the Court of Tax Appeals within 30 days from (1) the receipt of such denial or (2) the expiration
of the 180 day period.

Procedures from CTA division up to the Supreme Court:

Section 7 of R.A. No. 9282, which amends the jurisdiction of the CTA, and the Revised Rules of the CTA provides the following procedures for judicial appeal:
1. A party adversely affected by a ruling of a division of the CTA may file a motion for reconsideration or new trial before the same division of the CTA within
15 days.
2. A party adversely affected by a ruling of a division of the CTA after a motion for reconsideration may file a petition for review with the CTA en banc within
15 days.
3. A party adversely affected by a ruling of the CTA en banc may file a petition for review on certiorari with the Supreme Court within 15 days.

Effect of failure to file the judicial appeal on time: will render the assessment final, executory and demandable.

The failure to timely perfect an appeal cannot simply be dismissed as a mere technicality, for it is jurisdictional. Thus:

Nor can petitioner invoke the doctrine that rules of technicality must yield to the broader interest of substantial justice. While every litigant must be given the
amplest opportunity for the proper and just determination of his cause, free from the constraints of technicalities, the failure to perfect an appeal within the
reglementary period is not a mere technicality. It raises a jurisdictional problem as it deprives the appellate court of jurisdiction over the appeal. The failure to
file the notice of appeal within the reglementary period is akin to the failure to pay the appeal fee within the prescribed period. In both cases, the appeal is not
perfected in due time. (CIR vs. Fort Bonifacio Development Corporation; GR No. 167606; Aug. 11, 2010)

Protest filed only during period of collection when the assessment has attained finality: General Rule: Once the assessment has become final and
executory, the taxpayer in a collection case cannot go into the merits of the assessment.

Exceptions:
1. Non-service of PAN (CIR vs. Metro Star Superama, Inc., G.R. 185371, December 2010)
2. Waiver on part of the Government (Republic vs. Ker, 18 SCRA 208 [1966])
3. No valid waiver of the prescriptive period on the part of the taxpayer (Philippine Journalists, Inc. vs. CIR, G.R. No. 162852, 16 December 2004, 447 SCRA
214);
4. Defense that the decision has attained finality is not raised by the CIR – deemed a waiver of such defense. (Republic vs. Ker, 18 SCRA 208)
5. The question raised was the prescription of the right of the BIR to collect which is an entirely separate issue from the validity of the assessment. ((Marcos
II vs. CA, G.R. No. 120880)

WITHDRAWAL OF APPEAL: When an appeal is withdrawn, the assailed decision becomes final and executory. (Central Luzon Drug Corporation vs. CIR; GR
No. 181371; March 11, 2011)

The relevant provision in the NIRC for protesting an assessment is Sec. 228, as implemented by RR No. 12-99, as amended by RR No. 18-2013.

II. REMEDIES FOR COLLECTION OF DELINQUENT TAXES

COLLECTION: is only allowed when there is already a final assessment made for the determination of the tax due and must be made within 5 years from such
finality; or 10 years from discovery in case of false or fraudulent return or omission to file one.

The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall be:
1. By distraint of goods, chattels, or effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank
accounts and interest in and rights to personal property, and by levy upon real property and interest in rights to real property; and
2. By civil or criminal action.

DISTRAINT: is the seizure of personal property, tangible or intangible, to enforce the payment of taxes. It is a summary remedy where the seized property
may eventually be sold in a public sale, if the deficiency is not voluntarily paid.
KINDS OF DISTRAINT:
1. Actual distraint – where the possession of the property is transferred from the taxpayer to the government;
2. Constructive distraint – where the taxpayer is prohibited from disposing his property.

PROPERTY SUBJECT OF DISTRAINT: In general, all goods, chattels or effects and other personal property belonging to the taxpayer or in which the taxpayer
has an interest may be seized and distraint in such quantity sufficient to satisfy the tax or charge, the increments and the expenses of the distraint and the cost
of the subsequent sale.

Bank Deposits: may properly be the subject of a garnishment, notwithstanding the Bank Secrecy Law, since the procedure does not include inquiry into the
account.

WHEN APPLICABLE:
1. The taxpayer must be delinquent (except in constructive distraint) in the payment of tax;
2. There must be a subsequent demand for its payment (assessment);
3. The taxpayer must fail to pay the tax at the time required;
4. The period within which to collect the tax has not yet prescribed; and
5. Amount of tax exceeds P100

III. CONSTRUCTIVE DISTRAINT

WHEN APPLICABLE: When, in the opinion of the CIR, the taxpayer is

1. Retiring from any business subject to tax; or
2. Intends to leave the Philippines; or
3. Remove his property therefrom; or
4. Hide or conceal his property; or
5. Perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.

Note that delinquency is not required before a constructive distraint may be effected.

HOW DONE: by (1) requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and
(2) obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner whatever without the express authority of the CIR.

In case of refusal, the Revenue Officer effecting the constructive distraint shall (1) proceed to prepare a list of such property and in the presence of 2
witnesses, (2) leave a copy thereof in the premises where the property distraint is located, after which the said property shall be deemed to have been
placed under the constructive distraint.

In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the
receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2)
witnessed, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed
under constructive distraint.

IV. LEVY; Procedure

DISTRAINT VS. LEVY

DISTRAINT LEVY
Personal property only Real property only
Pre-emption only (no right of redemption) Pre-emption and redemption (w/in 1 year from sale) available.
No forfeiture in favor of government in case there is no Sec. 215 provides that forfeiture is available in case there is no
bidder/bid is insufficient, but BIR may purchase the property. bidder/bid is insufficient.
There is constructive distraint There is NO constructive levy

When Applicable: before or simultaneous with, or after distraint of personal property belonging to the delinquent taxpayer.

In case the levy of real property is issued after the distraint of personal property, the RDO, Regional Director or CIR, shall within 30 days after execution of the
distraint, proceed with the levy on the taxpayer’s real property if the personal property is not sufficient to satisfy the tax delinquency.

Repetition: Remedies of distraint and levy may be repeated if necessary until the full amount due, including all expenses, is collected. (Section 217 of the Tax
Code)

Rights of Owner During Period of Redemption: the owner shall not be deprived of the (1) possession of the property and (2) shall be entitled to the rents
and other income thereof until the expiration of the time allowed for its redemption (Sec. 214, NIRC)

Fofeiture: in case there is no bidder for real property, or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the officer
conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim in question and within 2 days thereafter, shall make a
return of his proceedings and the forfeiture shall be spread upon the records of his office.

The Register of Deeds, upon registration with his office of any such declaration of forfeiture, shall transfer the title of the property forfeited to the Government
without the necessity of an order from a competent court.

The forfeiture need not be for the whole tax liability which could merely be for an amount equivalent to the fair market value of the property. (Castro vs.
Collector, 4 SCRA 1193)

The owner of the property may redeem said property within 1 year from the date of forfeiture by paying:
1. Full amount of taxes and penalties, together with interest thereon; and
2. Costs of sale.
Otherwise, the forfeiture shall be absolute. (Sec. 215, NIRC)

RESALE OF FORFEITED PROPERTIES: the CIR may, upon giving of not less than 20 days notice, sell and dispose of the forfeited properties at a public
auction, or with prior the approval of the Secretary of Finance, dispose the same at a private sale.

Before Sale in Levy and Distraint: the taxpayer may discontinue the proceedings by paying the taxes due together with the penalties and interest. Otherwise
the sale of the levied or distrained property may proceed.

Further Distraint or Levy: the remedy of levy and distraint may be repeated until the full amount due, including all expenses, is collected. (Sec. 217, NIRC)

Injunction Not Available: No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge
imposed by this Code.

Judicial Action: “Any provision of laws or Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery
of Tax Credit shall at all times be simultaneously instituted within the same proceedings and no right to reserve such similar action separately form the criminal
action will be recognized.” (Sec. 7[b][1], RA 1125, as amended by RA 9282)

In criminal actions, the judgment of the court shall not only impose the penalty but likewise order payment of the taxes subject of the criminal case as finally
decided by the CIR. (Sec. 205, Tax Code)

No civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall be filed in court without the
approval of the Commissioner. (Sec. 220, Tax Code) The approval of the Commissioner required for judicial enforcement of tax liability is not jurisdictional; the
lack of such approval merely affects the cause of action or capacity to sue. (Arches vs. Bellosillo, 20 SCRA 32)

V. CIVIL AND CRIMINAL ACTIONS

Aside from the summary remedy of distraint and levy, the BIR may also avail of the remedy of collecting delinquent taxes through the filing of a civil or criminal
action. (Sec. 205[b] of the Tax Code)

Assessment not a pre-requisite for a criminal action for tax evasion: An assessment of a deficiency is not necessary to a criminal prosecution for willful
attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and
defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the
government’s failure to discover the error and promptly to assess has no connections with the commission of the crime (Ungab vs. Cusi, 97 SCRA 877). In plain
words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of willful attempt to evade taxes (CIR vs. CA, 257 SCRA
2000)

Acquittal in tax evasion case not a bar for the filing of civil action for collection: the conviction or acquittal obtained from a criminal action for tax
evasion shall not be a bar to the filing of a civil suit for the collection of taxes. (Sec. 254 of the Tax Code)

VI. TAX LIEN

TAX LIEN: is a charge on all leviable property of the taxpayer to secure the proper payment of the tax, surcharges, interests and costs. (Sec. 219 of the Tax
Code) It attaches:
1. With respect to personal property –when the taxpayer neglects or refuses to pay tax after demand and not from the time the warrant is served;
2. With respect to real property – from time of registration with the register of deeds;

Notice to affect third parties: the lien is not valid against any mortgagee, purchaser, or judgment creditor until notice of such lien shall have been filed in
the proper register of deeds of the province or city where the property of the taxpayer is located. (Sec. 219, Tax Code)

Distinguished from distraint: in the latter, the property seized must be that of the taxpayer, although it need not be the property in respect to which the
tax is assessed; a tax lien, however, is directed to the property subject to the tax regardless of its owner.

Preference of credit: a tax lien due on specific property are absolutely preferred claims against an insolvent taxpayer.

A tax (not due on specific property) due the national government come ninth, and taxes due cities or municipalities come 10 th in the order of preference of
credits on the other assets of the debtor. (Art. 2244, Civil Code)

Likewise, the claim of the government predicated on a tax lien is superior to the claim of the laborers who won in a labor dispute, notwithstanding the provision
in the labor code on worker’s preference (CIR vs. NLRC, 218 SCRA 42).

Extinguishment of tax lien:

1. By payment or remission of the tax
2. By prescription of the right of government to assess or collect
3. By failure to file notice of such tax lien in the office of Register of Deeds
4. By destruction of property subject to tax lien
5. By replacing it with a bond.

VII. COMPROMISE

COMPROMISE: is a contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced. (Art. 2028, New Civil
Code)

GROUNDS FOR COMPROMISE OF CIVIL LIABILITY:

1. Where the assessment is of doubtful validity;
2. When the financial position of the taxpayer demonstrates clear inability to pay the tax.

Under RR No. 30-02, the following can be compromised:

1. Delinquent accounts
2. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices, Revenue
District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office;
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts
5. Criminal violations, other than those already filed in court or those involving criminal tax fraud

CANNOT BE COMPROMISED: The following cases cannot be the subject of a compromise:

1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer's obligation to Withhold
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative
3. Criminal violations already filed in court
4. Delinquent accounts with duly approved schedule of instalment payments
5. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is
agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the
Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis
6. Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment
7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer

MINIMUM AMOUNTS:

Under the Tax Code:

1. For cases of financial incapacity, 10% of the basic tax assessed;
2. For other cases, 40% of the basic tax assessed

Under RR No. 30-02, the following are the minimum amounts:

1. If ground is doubtful validity – 40% of the basic tax assessed

If compromise is lower than the minimum, the taxpayer must file written request citing factual and legal bases and approval of the National Evaluation Board
(NEB) is required.

2. If ground is financial incapacity -

• Taxpayer earns compensation income only and the income is P10,500 if single, or P21,000 if married – 10%
• Taxpayer has no source of income whatsoever – 10%
• Taxpayer has zero or negative net worth – 10%
• Dissolved corporations – 20%
• Non-operating for 3 years or more – 10%
• Non-operating for less than 3 years – 20%
• Declared insolvent or bankrupt – 20%
• Earnings deficit resulting in 50% capital impairment – 40%

APPROVAL: of the National Evaluation Board, composed of the Commissioner and 4 deputy commissioners, shall be necessary if:
a. The basic tax exceeds P1,000,000; or
b. The settlement offered is less than the prescribed minimum rates.

WHEN ALLOWED: A compromise of the tax liability (civil) is possible at any stage of the litigation, even during appeal, although legal propriety demands that
prior leave of court should be obtained. A criminal compromise, however, is proper only if done prior to the filing of the information with the court.

OFFER OF FULL PAYMENT: The compromise offer shall be paid by the taxpayer upon filing of the application for compromise settlement. No application for
compromise settlement shall be processed without the full settlement of the offered amount. In case of disapproval of the application for compromise settlement,
the amount paid upon filing of the aforesaid application shall be deducted from the total outstanding tax liabilities.

Compromise of Assessed Taxes based on Best Evidence Obtainable Under Sec. 204(A) of the NIRC as implemented by Sec. 3 of RR 30- 2002, the
Commissioner may compromise the payment of any internal revenue tax when there is “doubtful validity of the assessment” where a reasonable doubt as to
the validity of the claim against the taxpayer exists, when it is shown that the delinquent account or disputed assessment is one resulting from a jeopardy
assessment.

The doubtful validity of an assessment may be accepted when it is shown that the disputed assessment is:
1. A Jeopardy Assessment (assessment without the benefit of a complete or partial audit); or
2. An Arbitrary Assessment (assessment appearing to be based on presumptions and there is reason to believe that it is lacking legal and/or factual basis); or
3. The “Best Evidence Obtainable Rule” and there is reason to believe that the same can be disputed by sufficient and competent evidence. (Sec. 3 of RR No.
30-2002)

However, in RMC No. 34-2014, the BIR clarified that if the assessment is based on Best Evidence Obtainable Rule, should not be automatically considered as a
doubtful assessment. Scrutiny as to the surrounding circumstances that led to the issuance of such an assessment (e.g., assessments based on Revenue
Memorandum Circular No. 23-2000, RMC No. 99-2010, etc.) should be thoroughly evaluated. The taxpayer's failure to present or submit the required documents
necessary to make the assessment of its tax liability makes it incumbent to the Bureau to resort to the application of the best evidence obtainable method to
recover unpaid taxes due the government. Therefore, any assessment made as a result thereof is presumed prima facie correct and sufficient for all legal
purposes.

VIII. ABATEMENT

ABATEMENT: is the cancellation or withdrawal of an assessment made by the BIR. As it stands, however, based on RMO No. 20-07, the BIR now only processes
application for abatement of surcharges, interest and compromise penalties. Under this RMO, application for abatement of basic tax assessed are not covered
by any existing regulations and therefore will not be processed.

GROUNDS:
1. The tax or any portion thereof appears to have been unjustly or excessively assessed; or
2. The administration and collection costs involved do not justify collection of the amount due

REFUND OR CREDIT: the Commissioner may refund or credit any tax where on the face of the return upon which payment was made such payment appears
clearly to have been erroneously paid.

PROCESS OF ABATEMENT: The process for abatement of taxes under current rules:
1. The Revenue District Office or Large Taxpayer’s Service shall receive the application for abatement, evaluate the same, and prepare a report containing
the basis of the recommendation.
2. The report will be submitted to the Technical Working Committee (TWC) who will review the same and prepare final recommendation for the approval of
the CIR.
3. No application for abatement shall be processed or evaluated without the payment of 100% of the basic tax due

DELEGATION OF THE POWER TO ABATE AND COMPROMISE:

WHAT MAY BE DELEGATED? The power to abate/compromise may be delegated by the Commissioner to the Regional Evaluation Board, in the following
cases:
1. Assessments issued by Regional Offices involving basic deficiency taxes of P500,000;
2. Minor criminal violations

REGIONAL EVALUATION BOARD: shall be composed of the Regional Director as Chairman, the Assistant Regional Director, the heads of the Legal,
Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer. (Sec. 7[c], Tax Code)

IX. CIVIL PENALTIES

SURCHARGE: is a civil penalty imposed by law as addition to the deficiency tax required to be paid. It is a criminal penalty but a civil administrative sanction
provided primarily as a safeguard for the protection of state revenue and to reimburse the government for the heavy expense of investigation and loss resulting
from the taxpayers’ fraud. (Castro vs. Collector of Internal Revenue)

When due:
1. 25% in case of failure to
a. File the return and pay the tax on time;
b. File the return with the proper internal revenue officer (wrong venue);
c. Pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
d. Pay the full or part of the amount of tax shown on any return required to be filed, or the full amount of tax due for which no return is required to be
filed, on or before the date prescribed for its payment.
2. 50% in case:
a. Of willful neglect to file the return within the period prescribed; or
b. A false or fraudulent return is wilfully made.

The following are prima facie evidence of a false or fraudulent return:

a. A substantial underdecalration of sales, receipts or income;
b. A substantial overstatement of deductions.

Substantial underdeclaration/overstatement shall mean more than 30% of the actual sales/deductions.

INTEREST: at the rate of 12% per annum on any unpaid amount of tax. Under the TRAIN, interest is now twice the market rate. As of 2013, the BSP has
pegged the market rate at 6%. Therefore, interest for deficiency or delinquency is now 12% (effective Jan. 1, 2018). Prior to the TRAIN the rate of interest is
20% per annum.

Deficiency Interest: is imposed on any deficiency in the tax due which shall be due from the date prescribed for its payment until full payment thereof.

Delinquency Interest 12% (or 20%, prior to the TRAIN) in case of failure to pay:
a. The amount of tax due on any return required to be filed; or
b. The amount of tax due for which no return is filed;
c. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner. (Sec. 249)

Deficiency plus Delinquency Interests: There is an imposition of 20% delinquency interest per annum on assessments unpaid which shall be computed
from the time stated for its payment in the FAN until paid. This shall be in addition to the 20% deficiency interest imposed on assessments from time it is due
until it is paid. It is possible that the annual interest penalty may amount to 40% per annum. (First Lepanto Taisho Insurance Corp. v. CIR; G.R. No. 197117
dated April 10, 2013)

Note, however, that under the TRAIN, delinquency and deficiency interest shall in no case be imposed simultaneously.

ADMINISTRATIVE PENALTIES: in case of failure to file an information return, statement or list, or keep any record, or supply any information required by
the Tax Code or by the Commissioner on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect,
there shall upon notice and demand by the Commissioner, One Thousand Pesos (P1,000) for each such failure, but not to exceed Twenty Five Thousand
(P25,000) during a calendar year. (Sec. 250)

COMPROMISE PENALTIES: a certain amount of money which the taxpayer pays to compromise the criminal liability of a tax violation. The penalty is paid in
lieu of criminal prosecution and cannot be imposed in the absence of a showing that the taxpayer consented thereto.

Consent of the taxpayer is necessary: A compromise in extra-judicial settlement of the taxpayer's criminal liability for his violation is consensual in character,
hence, may not be imposed on the taxpayer without his consent. Hence, the BIR may only suggest settlement of the taxpayer's liability through a compromise.

X. RIGHT OF THE BIR TO INQUIRE INTO BANK DEPOSITS

GENERAL RULE: the BIR cannot inquire into the bank deposits (whether peso or foreign currency) of a taxpayer

EXCEPTIONS: under the Tax Code, and as amended by R.A. No. 10021, otherwise known as the Exchange of Information on Tax Matters Act of 2009, the BIR
is allowed to inquire into bank deposits in the following cases:

1. The bank account of a decedent to determine his gross estate for estate tax purposes;
2. Any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability.
3. A specific taxpayer subject of a request for supply of information from a foreign tax authority pursuant to an international convention or agreement on tax
matters to which the Philippines is a signatory

Amid strong oppositions against RR No. 1-2014, which requires all withholding agents to submit a detailed list of all payees, the BIR issued an announcement
on August 6, 2014 stating that investments are not subject to the bank secrecy law; only bank deposits and government securities are covered.

The announcement stated that investments which are not bank deposits or government securities such as corporate bonds, purchases of shares of stocks,
purchases of receivables of business, and purchases of foreign exchange are not covered by the bank secrecy law.

XI. PRESCRIPTIVE PERIODS

1. ASSESSMENTS:
a. 3 years, counted from:
1. After the last day prescribed by law for the filing of the return; or
2. After the last day the return was filed, if filed beyond the period prescribed by law.

A proceeding in court may be filed only after the assessment.

b. Exceptions to the 3 year period:

1. When there is a fraudulent with intent to evade tax. In this case, the prescriptive period is 10 years from discovery.

Rationale for the 10 year assessment period: The ordinary period of prescription of 5 years (now 3 years) within which to assess tax liabilities under Sec.
331 of NIRC should be applicable to normal circumstances, but where the government is placed at a disadvantage so as to prevent its lawful agents from
proper assessment of tax liabilities due to false return, fraudulent returns intended to evade payment of tax or failure to file returns, the period of 10 years
provided in Sec. 332(a) of NIRC, from time of discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced
(Aznar vs. CTA, & CIR, August 23, 1974 – G.R. 20569)

Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved. Fraud is never lightly to be presumed because it is a
serious charge. (CIR vs. Ayala Securities, GR No. L-29485, Nov. 21, 1980)

Fraud is never imputed. The SC will not sustain findings of fraud upon circumstances which, at most, create only suspicion. The mere understatement of a
tax is not itself proof of fraud for the purpose of tax evasion. The fraud contemplated by law is actual and not constructive. It must be intentional fraud,
consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether slight or
gross, is not equivalent to fraud with intent to evade the tax contemplated by law. It must amount to intentional wrongdoing with the sole object of
avoiding the tax. (CIR vs. Javier, 276 Phil. 914, 1991)

2. When the taxpayer filed a false return

A mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of intent to defraud, is sufficient to warrant the application
of the ten (10) year prescriptive period.

3. When the taxpayer failed to file the tax return.

Failure to file a specific return required by law cannot be compensated by filing of a different return: The Supreme Court held that an income tax return
cannot be considered as a return for compensating tax for purposes of computing the period of prescription under the Tax Code, and that the taxpayer
must file a return for the particular tax required by law in order to avail himself of the benefits of the 3-year prescriptive period; otherwise, if he does not
file a return, an assessment may be made within 10 years from discovery thereof. (Butuan Sawmill, Inc. vs. CTA, GR No. L-20601, Feb. 28, 1966)

4. When the BIR grants the taxpayer’s request for reinvestigation.

Even setting aside the difference between a request for reinvestigation and reconsideration, the Tax Code very plainly requires that the request for
reinvestigation had been granted by the BIR Commissioner to suspend the running of the prescriptive periods for assessment and collection.

That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported
by existing jurisprudence.

In Republic vs. Abecedo, the Court held that the act of requesting a reinvestigation alone does not suspend the period. The request should
first be granted, in order to effect suspension. (BPI vs. CIR, GR No. 139736, Oct. 17, 2005)

5. When the taxpayer cannot be located in the address stated in the tax return

Notice is not required if BIR was aware of the whereabouts of the taxpayer: It is true that, the running of the Statute of Limitations shall be suspended
when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected. In addition, Section
11 of RR No. 12-85 states that, in case of change of address, the taxpayer is required to give a written notice thereof to the Revenue District Officer or the
district having jurisdiction over his former legal residence and/or place of business.
 However, the Supreme Court held that the above applies only if the BIR Commissioner is not aware of the whereabouts of the taxpayer.

In CIR vs. BASF Coating + Ink Phils., Inc., the records of the BIR, through documents accomplished and signed by officers of the BIR, clearly showed the
taxpayer’s new address. Moreover, the BIR examiners conducted examination and investigation in the said address. Furthermore, the BIR sent numerous
letters, including the results of the examination, to the new address.

Hence, despite the absence of a formal written notice of respondent's change of address, the fact remains that the BIR became aware of the taxpayer’s
new address as shown by documents replete in its records. As a consequence, the running of the three-year period to assess respondent was not suspended
and has already prescribed. (CIR vs. BASF Coating + Ink Phils. Inc., GR No. 198677, Nov. 26, 2014)

6. When there is a valid waiver

*REQUISITES FOR A VALID WAIVER: The waiver must be:

1. In writing;
2. Agreed to by both the BIR and the taxpayer;
3. Before the expiration of the ordinary prescriptive period for the assessment and collection; and
4. The period of the waiver must be definite (e.g., Until December 31, 2013).

2. COLLECTION: by distraint or levy or by a proceeding in court within 5 years following the assessment of the tax, or 10 years without assessment in
case of false or fraudulent returns with intent to evade the tax or failure to file a return.

3. CRIMINAL LIABILITY: 5 years from the commission or discovery of the violation, whichever comes later. (Sec. 281, NIRC)

COUNTING OF PERIOD: Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject
matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of
days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this
reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal
periods. Lex posteriori derogat priori.

A calendar month is “a month designated in the calendar without regard to the number of days it may contain.” It is the “period of time running from the
beginning of a certain numbered day up to, but not including, the corresponding numbered day of the next month, and if there is not a sufficient number of
days in the next month, then up to and including the last day of that month.” To illustrate, one calendar month from December 31, 2007 will be from January
1, 2008 to January 31, 2008; one calendar month from January 31, 2008 will be from February 1, 2008 until February 29, 2008.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned from the time respondent
filed its final adjusted return on April 14, 1998) consisted of 24 calendar months, should be on April 14, 2000. (CIR vs. Primetown Property Group, Inc.; G.R.
No. 162155; August 28, 2007)

SUSPENSION OF THE RUNNING OF PRESCRIPTIVE PERIOD:

1. For the period during the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days
thereafter;
2. When the taxpayer requests for a reinvestigation which is granted by the Commissioner;
3. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected. (Sec. 223, as discussed
above)

NO SUSPENSION OF RUNNING OF STATUTE OF LIMITATIONS:

1. If the taxpayer informed the Commissioner of any change in address;
2. When the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a member of the household with sufficient
discretion, and no property could be located;
3. When the taxpayer is out of the Philippines.

XII. REFUND

GROUNDS FOR REFUND:

1. Tax is erroneously or illegally collected.
2. Sum collected is excessive or in any manner wrongfully collected.
3. Penalty is collected without authority.

Taxes are erroneously paid when a taxpayer pays under a mistake of fact, such as, he is not aware of an existing exemption in his favor at the time that payment
is made. Taxes are illegally collected when payments are made under duress or when there is no obligation to pay the same.

PRESCRIPTIVE PERIOD: The filing of an administrative case for refund or a case in court must be done within (2) years from the date of payment of
the tax or penalty regardless of any supervening cause that may arise after payment.

Exception: the Commissioner may, even without a written claim therefore, refund or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.

Tax paid in installments: the 2-year period is reckoned from the date the last or final installment or payment, because for tax purposes, there is no payment
until the whole or entire tax liability is fully paid (Collector vs. Prieto, G.R. No. L-11976, August 29, 1961)

End of taxable year vs. date of filing of the final adjusted return: the 2-year period is counted from the filing of the final adjusted return and the payment
of the tax due thereon, NOT from the end of the taxable year (contrary to a VAT refund which is counted from the close of the taxable quarter).
The rationale in computing this period is the fact that it is only then the corporation can ascertain whether it made profits or incurred losses in its business
operations (ACRA Investments vs. Court of Appeals, G.R. No. 96322, December 20, 1991).

Period to file JUDICIAL claim for refund is within the same 2-years: The administrative claim for refund filed before the BIR and the judicial claim after
denial by the BIR must BOTH be filed within the 2 year period. This is different from a VAT refund covered by Sec. 112, which makes the 120-day period (now
90 under the TRAIN) for the CIR to decide mandatory as held by the SC, which may go beyond the 2 year period. In VAT refunds under Sec. 112, only the
ADMNISTRATIVE claim for refund needs to be filed within the 2 year period.

As such, the SC has repeatedly held that the claim for refund with the BIR and the subsequent appeal to the CTA must be filed within the 2-year period. “If,
however, the Collector takes time in deciding the claim, and the period of 2 years is about to end, the suit or proceeding must be started in the CTA before the
end of the 2-year period without awaiting the decision of the Collector.” (CIR vs. Victorias Milling Co., & CTA January 03, 1968 – G.R. L-24108)

The time for bringing an action for a refund of income tax, fixed by statute, is not extended by the delay of the Collector (now Commissioner) of Internal
Revenue in giving notice of the rejection of such claim (Koppel (Phil), Inc. vs. CIR, G.R. No. L-10550, September 19, 1961)

Based on the foregoing, an administrative claim for refund may be filed in the morning and the judicial claim therefor filed in the afternoon, provided they are
both within 2 years from date of payment.

Note, however, that the administrative claim is a pre-requisite for the filing of the judicial claim, since no suit or proceeding may be maintained in any court for
refund until a claim for refund or credit has been duly filed with the Commissioner. (Sec. 229 of the Tax Code)

Suspension of the 2-year prescriptive period:

1. When there is a pending litigation between the Government and the taxpayer; and
2. The CIR in that litigated case agreed to abide by the decision of the SC as to the collection of taxes relative thereto (Panay Electric Co. vs. Collector, G.R.
No. L-10574, May 28, 1958).

REQUISITES:
1. There must be a written claim with the CIR, as it would enable the CIR to correct the errors of his subordinate and to notify the government;

The Commissioner may, even without a written claim for therefor, refund or credit any tax:
a. Where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid (Sec. 229, par. 2 of
the Tax Code), or

Note that under Sec. 204(C) of the Tax Code, a return filed showing an overpayment shall be considered as a written claim for credit or refund.

b. When the petitioner paid the disputed assessments under protest before filing his petition for review with the CTA (Vda. de San Agustin vs. CIR, G.R.
No. 138485, September 10, 2001).

2. It must be a categorical claim for refund or credit;

3. It must be filed within 2 years after the payment of the tax or penalty otherwise no refund or credit could be taken. No suit or proceeding shall be instituted
after the expiration of the 2 year period regardless of any supervening cause that may arise after payment;
4. Present proof of payment of the tax.

Nature; Burden of Proof: a tax refund partakes of the nature of an exemption and is strictly construed against the claimant. The burden of proof is on the
taxpayer claiming the refund that he is entitled to the same (Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd., G.R. No. 68282, May 26, 1995,
244 SCRA 332)

Payment under protest: is NOT a pre-requisite for filing a refund, unlike in real property taxes (Sec. 252, Local Government Code) and customs duties (Sec.
2308, Tariff and Customs Code).

EXCESS PAYMENTS OF TAX:

If the sum of the quarterly tax payments made during the said taxable year is greater than the total tax due on the entire taxable income of that year, the
taxpayer may either: (1) carry-over the excess credit (Tax Credit); or (2) be credited or refunded with the excess amount paid (Tax Refund). The taxpayer will
signify his choice by ticking the corresponding box in the return.

TAX CREDIT TAX REFUND

Works by applying the refundable amount, as shown on the final adjustment
return (FAR) of a given taxable year, against the estimated quarterly income
tax liabilities of the succeeding taxable year.
There is no prescriptive period for the carrying over of the same (CIR vs. BPI,
G.R. No. 178490, July 7, 2009); It may be repeatedly carried over to
succeeding taxable years until fully utilized.
Any tax on income that is paid in excess of the amount due the government
may be refunded, provided that a taxpayer properly applies for the refund
(Philam Asset Management, Inc. vs. CIR, G.R. Nos. 156637/162004,
December 14, 2005).
Prescribes after two years from the filing of the FAR (Sec. 229, NIRC).

No grant or approval is required from the Commissioner but subject to BIR Needs to be granted by the Commissioner. And if so granted, may be payable
audit as to proof of existence. in case (actual refund) or may be in the form of a Tax Credit Certificate, which
can be used to reduce tax liability.

IRREVOCABILITY RULE: Once the option to carry-over and apply the excess quarterly income tax against the income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period** and no application for cash refund or issuance
of a tax credit certificate shall be allowed therefor. (Sec. 76 of the Tax Code)

**“That taxable period” shall pertain only to the period where there was excess payments of tax. Accordingly, if in the succeeding period, there is still excess
quarterly payments over the income tax due for the year, that amount (excluding that of the previous year) may be applied for a TCC or refund.
In case the taxpayer files a refund for the excess tax initially opted to be credited, and the same is denied, he may still continue to claim the same as a tax
credit.

ILLUSTRATION: X Corporation had excess tax payments during 2013 amounting to P4M and opted to carry-over as tax credit to the succeeding taxable
year the said overpayment by putting an "x" mark on the corresponding box. During 2014, it had an excess tax payments totaling P9M, petitioner indicated
in its tax return that the same is to be refunded.

1. Can X Corporation validly file in 2014 a request for the refund of the excess tax credits pertaining to 2013?

No. It is clear that once a corporation exercises the option to carry-over, such option is irrevocable "for that taxable period." Having chosen to carry-over the
excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount
representing such overpayment.

The SC explained the phrase "for that taxable period" in Commissioner of Internal Revenue v. Bank of the Philippine Islands and held that the phrase merely
identifies the excess income tax, subject of the option, by referring to the "taxable period when it was acquired by the taxpayer."

Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no
longer make another one. (United International Pictures AB vs. CIR)

2. If in case the refund is denied, can X Corporation still carry-over the excess tax credits in succeeding years?

Yes. In this case, petitioner opted to carry-over its 2013 excess income tax as tax credit for the succeeding taxable years. Such option to carry-over is not
limited to the following taxable year 2014, but should apply to the succeeding taxable years until the whole amount of the 2013 excess tax credits would be
fully utilized.

X Corporation has chosen that option for its 2013 excess tax credits. Thus, it is no longer entitled to a tax refund corresponding to it. Nonetheless, the
amount will not be forfeited in the governments favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years. (Philam Asset
Management Inc. vs. Commissioner of Internal Revenue)

It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the Final Adjustment Return
(FAR), there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of X Corporation, which it acquired in 2013
and opted to carry over, may be repeatedly carried over to succeeding taxable years, i.e., to 2014, 2015, 2016, and so on and so forth, until actually applied
or credited to a tax liability of X Corporation. (CIR vs. BPI)

When the taxpayer made no “tick” in the return and subsequently filed a refund: Despite the failure of Philam to make the appropriate marking in
the BIR from, the filing of its written claim effectively serves as an expression of its choice to request a tax refund, instead of a tax credit. To assert that any
future claim for refund will be instantly hindered by a failure to signify one’s intention in the FAR is to render nugatory the clear provision that allows for a 2-
year prescriptive period. When circumstances show that a choice of tax credit has been made, it should be respected. But when indubitable circumstances
clearly show that another choice – a tax refund – is in order, it should be granted. “Technicalities and legalisms, however exalted, should not be misused by the
government to keep money not belonging to it and thereby enrich itself at the expense of its law abiding citizens.

WHO MAY APPLY FOR A TAX REFUND OR TAX CREDIT CERTIFICATE: the taxpayer or the withholding agent of the non-resident.

A “taxpayer” is any person subject to tax imposed by the Tax Code. Under Sec. 53(c), the withholding agent who is required to deduct and withhold any tax is
made “personally liable for such tax” and is indemnified against any claims and demands which the stockholder might wish to make in questioning the amount
of payments effected by the withholding agent in accordance with the provisions of NIRC. The withholding agent is directly and independently liable for the
correct amount of the tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable for deficiency
assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under
the law. A “person liable for tax” has been held to be a “person subject to tax” and “subject to tax” both connote legal obligation or duty to pay a tax. By any
reasonable standard, such a person should be regarded as a part-in-interest or as a person having sufficient legal interest, to bring a suit for refund of taxes he
believes were illegally collected from him (CIR vs. Procter & Gamble Philippines Manufacturing Corporation, & CTA, December 2, 1991 – G.R. No. 66838)