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TAX 2
Rights and Remedies of the
Government Under the NIRC
1 2
Powers of the BIR
§ Self assessment – system under which TP
makes a declaration in the return on the basis
of his assessment and calculates the tax due
Ø Accompanied by payment (“pay-as-you-
file” – Sec. 56(A)(1), NIRC)
§ Deficiency assessment – a notice that is sent
to and received by the taxpayer where the
BIR informs said taxpayer of a deficiency tax
liability with a demand for payment within a
prescribed period
Atty. Terence Conrad H. Bello
3 4
I. POWER OF THE BIR TO OBTAIN
INFORMATION AND MAKE AN
ASSESSMENT
Atty. Terence Conrad H. Bello 2
Powers of the BIR
§ How do tax authorities determine whether TP made a
correct return and paid the correct taxes?
Ø The CIR is empowered to conduct an audit or
examination of the return and make an assessment
upon finding of deficiency
§ The power and duties of the BIR comprehend –
Ø assessment and collection of taxes, fees, and
charges;
Ø enforcement of forfeitures, penalties, and fines;
and
Ø execution of judgments in all cases decided in its
favor by the CTA or regular courts
Slide No. 3 Atty. Terence Conrad H. Bello Slide No. 4
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Powers of the BIR Powers of the BIR

Stages in the assessment and collection of 1. Audit/Investigation Stage

deficiency internal revenue taxes: a. Issuance of Letter of Authority
1. Audit/Investigation Stage b. Conduct of audit/investigation or
examination
2. Assessment Stage
c. Conclusion and setting out of findings in a
3. Collection Enforcement Stage Report of Investigation

Atty. Terence Conrad H. Bello Slide No. 5 Atty. Terence Conrad H. Bello Slide No. 6

5 6

Powers of the BIR Powers of the BIR

2. Assessment Stage 3. Collection Enforcement Stage

a. Notice of Discrepancy • Remedies of the BIR for the collection of
§ TP may submit reply and supporting “delinquent” taxes
documents during discussion of • At what point do taxes become “delinquent”?
discrepancy (but within 30 days from
receipt of the NOD) • Sec. 205: summary/administrative remedies
b. Preliminary Assessment Notice (PAN) (distraint and levy) and judicial remedies (civil
§ TP has 15 days to reply and criminal)
c. Final Assessment Notice (FAN) with Formal
Letter of Demand (FLD)
§ TP has 30 days to protest FAN/FLD
Atty. Terence Conrad H. Bello Slide No. 7 Atty. Terence Conrad H. Bello Slide No. 8

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Powers of the BIR Power of BIR to Obtain Information and Make an Assessment

§ In connection with the BIR’s assessment and
collection mandates, Secs. 5 and 6 of the Tax
Code --
Ø broadly set out the BIR’s investigative and
assessment powers and
Ø identify the allowable means to obtain the
necessary information, documents, records,
reports, and other data in support of an
assessment
Sources of information and means to obtain them (§§ 5 & 6):
§ examine books, papers, records or other data (§5(A))
§ rely on TPI (§ 5(B))
§ issue subpoena duces tecum (§ 5(C))
§ issue subpoena ad testificandum (§ 5(D))
§ conduct tax mapping (§ 5(E))
§ examine returns (§ 6(A))
§ rely on the “best evidence obtainable” (§ 6(B))
§ conduct inventory-taking, surveillance, and presumptive gross sales and
receipts (§ 6(C))
§ terminate taxable period (§ 6(D))
§ Fix real property values (§ 6(E))
§ inquire into bank deposits (§ 6(F))
§ accredit and register tax agents (§ 6(G))
§ prescribe additional procedural or documentary requirements (§ 6(H))

Atty. Terence Conrad H. Bello Slide No. 9 Atty. Terence Conrad H. Bello Slide No. 10

9 10

Investigative Authority Investigative Authority

§ Sec. 5 authorizes CIR to obtain info and to § Sec. 6 authorizes CIR to make assessment and
summon, examine and take testimony of prescribe add’l requirements for tax
persons to: administration and enforcement
Ø Ascertain correctness of return (or in making a
return where none was made)
Ø Determine liability for any internal revenue tax
liability (and to collect such liability)
Ø Evaluate tax compliance

Atty. Terence Conrad H. Bello Slide No. 11 Atty. Terence Conrad H. Bello Slide No. 12

11 12

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Investigative Authority
§ Examination or audit by a revenue officer (RO) is commenced
by the issuance of a Letter of Authority (LOA or L/A) (Sec. 13)
Ø Per Sec. 6(A), “the [CIR] or his duly authorized
representative may authorize the examination of any
taxpayer …” through the issuance of an LOA
Ø Thus, in the absence of an LOA, “the assessment or
examination is a nullity.” CIR v. Sony Phil., Inc., 635 SCRA
234 (2010)
Ø Assessment for deficiency VAT based on 1998 documents
held void since L/A issued to ROs authorized them to
audit tax liabilities for 1997
Ø Assessment void since examiners went beyond the scope
of their authority under the L/A
Atty. Terence Conrad H. Bello Slide No. 13
13
Investigative Authority
1. Administrative summons to TP – 5(C), 6(C)
• In connection with a tax audit, BIR may summon
TP or any officer or employee to appear before
the BIR and bring with him/her books of
accounts and other accounting records and
documents – subpoena duces tecum
Atty. Terence Conrad H. Bello Slide No. 15
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Investigative Authority
§ Once the examiner is armed with an LOA, he may now
proceed to exercise the following powers under Sec.
5(A) - (D) for the purpose ascertaining the correctness
of a return or evaluating tax compliance:
Ø to examine any book, paper, record, or other data
relevant or material to the examination;
Ø to summon the TP to appear before the BIR and
produce such books, papers, record or other data;
Ø to summon third parties and require them to
submit any relevant information; and
Ø to take the testimony of the TP or any such third
party
Atty. Terence Conrad H. Bello Slide No. 14
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Investigative Authority
2. Third party summons – 5(B), (C)
• In connection with a tax audit, BIR may obtain
info from persons other than the TP
• BIR does not limit info-gathering from TP
• Info from third party used to cross check against
info obtained from TP – discrepancy could be
basis for deficiency assessment
• E.g., VAT payments of TP per return are cross-
checked against importations made by TP per
BOC records
Atty. Terence Conrad H. Bello Slide No. 16
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Investigative Authority Investigative Authority

§ Informer’s Reward – major source of information § Informer’s Reward

of the BIR
§ Informer’s reward: requirements (§ 282)
Ø Qualified person
Ø Definite and sworn info
Ø Not yet in BIR’s possession
Ø Leading to discovery of frauds or violations
of the NIRC
Ø Resulting to recovery of taxes, fees, charges
Ø Reward is 10% or P1 million of amount
recovered, whichever is lower
§ Meralco Securities Corp. v. Savellano
Ø Decision of CIR that no taxes due is a valid
exercise of discretion in the performance of
official duty which cannot be controlled or
reversed by mandamus
Ø Since respondent judge may not order by
mandamus the CIR to issue the assessment, no
deficiency tax can be assessed and collected
Ø Since nothing is collected, informer’s reward not
due

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Investigative Authority Power to Make Assessment

§ Informer’s Reward A. Examination of returns – 6(A)

§ Fitness by Design, Inc. v. CIR • Examination is for the purpose of assessing the
correct amount of taxes

Atty. Terence Conrad H. Bello Slide No. 20

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Power to Make Assessment
B. Failure to submit required returns, statements,
reports and other docs – 6(B)
• When a report required by law as basis for
assessment not forthcoming
• Or when there is reason to believe that such
report is false, incomplete or erroneous
• CIR may assess taxes on the basis of the “best
evidence obtainable” (Sy Po v. CTA)
Atty. Terence Conrad H. Bello Slide No. 21
21
Power to Make Assessment
D. Termination of Taxable Period – 6(D):
• If TP retiring from business
• Intending to leave PH
• Remove or conceal property
• Performing any act to obstruct proceedings for
collection for current or past quarter or year
• CIR may declare tax period terminated and shall
send TP notice of decision with demand for
immediate payment
Atty. Terence Conrad H. Bello Slide No. 23
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Power to Make Assessment
C. Inventory-taking, surveillance – 6(C)
• BIR may order inventory-taking as basis for
determining internal revenue tax liabilities –
rarely exercised by BIR
• BIR may conduct surveillance if there is reason to
believe that TP not declaring correct income or
sales/receipts
• BIR may prescribe presumptive gross receipts (if
TP failed to issue O/Rs, invoices; or there is
reason to believe books of accounts do not
correctly reflect true income)
Atty. Terence Conrad H. Bello Slide No. 22
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Power to Make Assessment
E. Prescribe zonal values – 6(E)
• CIR may prescribe FMV of real properties
• Upon mandatory consultation with competent
appraisers both from private and public sectors
• and with prior notice to affected TP
• zonal values subject to automatic adjustment every
three years based on current phil. valuation
standards
• publication a requirement for validity
• For purposes of computing internal revenue taxes,
the value of the property is whichever is the higher
between the zonal value and the FMV as shown in
the schedule of values of provincial and city
assessors
Atty. Terence Conrad H. Bello Slide No. 24
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Power to Make Assessment Power to Make Assessment

E. Prescribe zonal values – 6(E) F. Inquiry into bank deposits – 6(F)

• CIR v. Aquafresh Seafoods, Inc. • 6(F) an exception to RA 1405
• Reclassification of zonal values cannot be done • CIR may inquire into bank deposits of decedent
without first complying with the procedures to determine gross estate
prescribed by law (i.e., consult with competent
• And of TP applying for compromise of internal
appraisers)
revenues taxes on the ground of financial
• Rationale: zonal valuation was established with the incapacity
objective of having an efficient tax administration by
minimizing the use of discretion in the determination
of the tax base on the part of the administrator on
one hand and the TP on the other hand

Atty. Terence Conrad H. Bello Slide No. 25 Atty. Terence Conrad H. Bello Slide No. 26

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Power to Make Assessment Power to Make Assessment

G. Accreditation of tax agents – 6(G)
• Accreditation of agents who prepare and file tax
returns, statements, protests and who appear
before the BIR for TPs
• Supposedly to professionalize tax practice and
weed out fixers
• Lawyers exempted from this requirement (only
SC can regulate the practice of law)
§ If the TP is found to be liable for deficiency tax in
the course of an investigation conducted by an
examiner, shall be informed of the findings through
the issuance of a “Notice of Discrepancy”
Ø The findings are embodied in a Report of
Investigation prepared by the examiner after
completing the audit and investigation

Atty. Terence Conrad H. Bello Slide No. 27 Atty. Terence Conrad H. Bello Slide No. 28

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Power to Make Assessment Power to Make Assessment

Issuance of FAN – procedure for issuance of assessment per § 228 and Rev. Regs. 12-99 (as
amended by Rev. Regs. 18-2013, as further amended by Rev. Regs. 7-2018, and as further Gen. procedure for disputing assessment
amended by Rev. Regs. 22-2020):
(FAN/FLD) (§ 228):
a. Notice of Discrepancy (formerly Notice for Informal Conference) –Discussion of
Discrepancy to be held not more than 30 days from receipt of NOD § File written protest within 30 days from receipt
§ TP may present documents during the NOD; if more time needed TP may
submit documents within 30 days from receipt of the NOD of FAN – must contain factual and legal basis
§ If TP found to be still liable for deficiency taxes after presenting his side,
RDO/SID shall endorse the case to the reviewing office in the RRO/NO within 10 § Submit relevant supporting documents –
days from conclusion of the DOD for issuance of the PAN
within 60 days from filing written protest
b. Preliminary Assessment Notice (PAN) – 15 days to reply, otherwise considered in
default § Appeal to CTA – within 30 days from receipt of
§ Exceptions to notice for informal conference and PAN: (i) mathematical error; (ii)
discrepancy between amount withheld and amount remitted; (iii) double claim; final decision on disputed assessment or within
(iv) non-payment of excise tax; and (v) exempt person transfers articles to non-
exempt persons 30 days from lapse of 180 days from
c. Final Assessment Notice (FAN) with Formal letter of demand (FLD) – must contain submission of relevant supporting documents
factual and legal basis of assessment

Atty. Terence Conrad H. Bello Slide No. 29 Atty. Terence Conrad H. Bello Slide No. 30

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Power to Make Assessment Power to Make Assessment

What constitutes an assessment? BIR sometimes not What constitutes an assessment?

clear that it is assessing the TP
CIR v. Pascor Realty and Dev. Corp.
§ Not all documents coming from the BIR containing
a computation of tax liability can be deemed an
assessment
§ An assessment must be sent to and received by the
TP, and must demand payment of the taxes within a
prescribed period
§ Thus, a criminal complaint for tax evasion is not an
assessment since it does not state a demand or
period for payment; it is addressed to the DOJ and
not to the TP
Atty. Terence Conrad H. Bello
FBDC v. CIR
§ An assessment is a written notice and demand
made by the BIR on the TP for the settlement of a
due tax liability that is there definitely set and fixed
§ Thus, undated letter directing TP to pay an amount
equivalent to disallowed input tax, surcharge,
penalties and interest to be verified by Assessment
Division of the BIR was held not equivalent to an
assessment since TP’s liability was neither definite
and final considering that the same was still subject
to audit verification nor was payment demanded
from TP within a prescribed period
Slide No. 31 Atty. Terence Conrad H. Bello Slide No. 32

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Power to Make Assessment
What constitutes an assessment?
Summary: Pascor Realty and FBDC
§ An assessment must be sent to and
received by the TP, and must demand
payment of the taxes within a prescribed
period
§ An assessment is a written notice and
demand made by the BIR on the TP for the
settlement of a due tax liability that is
there definitely set and fixed
Atty. Terence Conrad H. Bello Slide No. 33
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Power to Make Assessment
Presumption of correctness of assessment
Sy Po v. CTA
§ Where TP asserts that the CIR’s assessment is erroneous, it is
incumbent upon him to prove what is the correct and just
liability by a full and fair disclosure of all pertinent data in his
possession. Otherwise, if TP confines himself to proving that
the tax assessment is wrong, the tax court proceedings would
settle nothing, and the way would be left open for subsequent
assessments and appeals in interminable succession
§ Tax assessments by tax examiners are presumed correct and
made in good faith. TP 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 BIR examiner and
approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments
§ Rationale for “best evidence obtainable rule” – swift collection
of revenues and to encourage TPs to maintain adequate records
Atty. Terence Conrad H. Bello Slide No. 35
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Power to Make Assessment
What constitutes an assessment? Effect of follow-up letter
Republic v. CA
§ Held: Presumption that mailed letter is received
by addressee in the ordinary course of the mail is
merely a presumption, and is subject to
controversion, and a direct denial of the receipt
thereof shifts the burden on the party favored by
the presumption to prove that the mailed letter
was indeed received by the addressee
§ However, CIR wrote TP a follow-up letter dated
September 19, 1956; this letter is a notice of
assessment in itself which was duly received by
TP in accordance with its own admission
Atty. Terence Conrad H. Bello Slide No. 34
34
Power to Make Assessment
Presumption of correctness of assessment; exception
Portillo v. CIR
§ TP was assessed a deficiency based on the discrepancy between income
declared by TP in the his ITR and the income payment report submitted
by his employer
§ The government’s deficiency assessment is generally afforded a
presumption of correctness
§ Presumption of correctness generally prohibits a court from looking
behind the CIR’s determination even though it may be based on hearsay
or other evidence inadmisible at trial
§ Justification for the rule: government’s strong need to accomplish swift
collection of the revenues and the need to encourage TP record-keeping
§ However, the need for tax collection does not serve to excuse the
government from providing some factual foundation for its assessments
§ The presumption of correctness does not apply when the government’s
assessment falls within a narrow but important category of a “naked
assessment” without any foundation whatsoever
§ Instead of conducting an audit of the TP’s books, the CIR chose to rely on
the presumption
Atty. Terence Conrad H. Bello Slide No. 36
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Power to Make Assessment Power to Make Assessment

Presumption of correctness of assessment; exception Assessment must be based on actual facts

CIR v. Hantex Trading Co., Inc.
§ EIIB wanted to audit the books of accounts of TP on its importation of CIR v. Benipayo
resin based on its initial findings from infi supplied by an informant
that TP underdeclared its importations. The informant relied on § Assessment based on findings that during
photocopies of 77 Consumption Entries, which another informer
supplied
1949 to 1951, ratio of adults and children
§ EIIB transmitted case docket to BIR and recommended issuance of patronizing theatre was 3 to 1
assessment
§ TP refused to cooperate with the EIIB and the BIR and did not submit
§ However, during years in question (1952 to
documents, so CIR argued that the BIR may rely on th “best evidence 1955), trend was reversed, i.e., 1 to 3
obtainable”
§ Held: where the records of the TP are manifestly inaccurate and § Examiner concluded that TP must have
incomplete, the CIR may look to other sources of info to establish fraudulently issued tax-free children’s tickets
income of the TP during the years in question to avoid payment of amusement tax
§ Best evidence obtainable may consist of hearsay evidence
§ However, best evidence obtainable does not include mere § Held: assessment void for lack of factual basis
photocopies of records/documents

Atty. Terence Conrad H. Bello Slide No. 37 Atty. Terence Conrad H. Bello Slide No. 38

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Power to Make Assessment Power to Make Assessment

Assessment must be based on actual facts
CIR v. Benipayo
§ In order to stand the test of judicial scrutiny,
an assessment must be based on actual
facts
§ The presumption of correctness of an
assessment, being a mere presumption,
cannot be made to rest on another
presumption
§ Assessment should not be based on mere
presumptions, no matter how logical said
presumptions may be
Atty. Terence Conrad H. Bello
Assessment must be based on actual facts
Chemical Ind. of the Phil., Inc. v. CIR
§ Assessment arising from disallowance of
interest on a loan the proceeds of which
were allegedly used to purchase stock of
affiliate without factual basis
§ BIR findings that loan proceeds used for
non-business purpose based on increase in
“Investments in Affiliated Co’s” account
§ TP, however, was able to explain why
account increased
Slide No. 39 Atty. Terence Conrad H. Bello Slide No. 40

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II. COLLECTION OF UNPAID TAXES
Atty. Terence Conrad H. Bello
41
A. Distraint, Garnishment, Levy and Seizure
Sec. 205: Remedies for the Collection of Delinquent
Taxes
§ As a general rule, delinquency must have set
in already before the BIR may avail of the
collection enforcement remedies under Sec.
205
Atty. Terence Conrad H. Bello Slide No. 43
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A. Distraint, Garnishment, Levy and Seizure
Sec. 205: Remedies for the Collection of Delinquent
Taxes
• “The civil remedies for the collection of internal
revenue taxes, fees, or charges, and any increment
thereto resulting from delinquency shall be:”
§ By distraint of personal property and levy of
real property
§ By civil or criminal action
• Either of these remedies or both simultaneously
may be pursued in the discretion of revenue
authorities
41 Atty. Terence Conrad H. Bello Slide No. 42
42
A. Distraint, Garnishment, Levy and Seizure
When does “delinquency” set in?
1. A self-assessed tax is not paid (assessment not necessary;
the BIR may proceed to collection enforcement under Sec.
205)
2. The protest against the FAN/FLD is denied in whole or in
part, i.e., the BIR issues a “Final Decision on Disputed
Assessment” (FDDA)
3. FAN/FLD becomes final and executory for:
§ failure to timely file protest within 30 days;
§ failure to submit relevant supporting docs w/in 60
days; and
§ failure to appeal the FDDA to the CTA
Atty. Terence Conrad H. Bello Slide No. 44
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A. Distraint, Garnishment, Levy and Seizure A. Distraint, Garnishment, Levy and Seizure

§ However, if the BIR opts to enforce collection via a Two types of distraint:
1. Actual –
civil action for collection, the assessment must be
a. Who?
final and executory (San Juan v. Vasquez; Yabes v. § Delinquent TP
Flojo) – Assessment needed
• By way of exception, a proceeding in court for 2. Constructive –
a. Who?
the collection of the tax may be filed even § Delinquent TP
without an assessment, in the case of a – Assessment needed
fraudulent return with intent to evade payment § TP intending to evade
of tax (Sec. 222(a)) – Assessment not necessary; enough that
administrative procedures (leading to issuance
of an assessment) are commenced
Atty. Terence Conrad H. Bello Slide No. 45 Atty. Terence Conrad H. Bello Slide No. 46

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A. Distraint, Garnishment, Levy and Seizure A. Distraint, Garnishment, Levy and Seizure

What is constructive distraint of property? (§ 206) How is constructive distraint effected?

§ It is a preventive remedy of the Government which aims at
forestalling a possible dissipation of the TP’s assets when
delinquency sets in. Hence, actual delinquency is not
necessary before this can be resorted to
What are the instances when constructive distraint may be
availed of?
§ When the CIR believes that the TP:
– is retiring from any business subject to tax; or
– intends to leave the Philippines; or
– intends to remove his property from the Phil.; or
– intends to hide or conceal his property or
– performs any act tending to obstruct the proceedings
for collecting the tax due
Atty. Terence Conrad H. Bello Slide No. 47
§ The TP will be required to sign a receipt covering the property
distrained and obligate himself to preserve it intact and unaltered and
not to dispose of it in any manner whatever, without express
authority of CIR
§ If the TP refuses, the revenue officer will prepare a list of the
properties distrained and will leave a copy thereof in the premises, in
the presence of witnesses
What is the procedure for actual distraint?
1. Commencement of distraint proceedings (§ 207(A))
2. Service of warrant of distraint (§ 208)
3. Notice of sale of distrained property (§ 209)
4. Release of distrained property, prior to sale (§ 210)
5. Sale of property distrained (§ 209)
6. Purchase by Government at sale upon distraint (§ 212)
Atty. Terence Conrad H. Bello Slide No. 48

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A. Distraint, Garnishment, Levy and Seizure
What is the procedure for levy of real property?
1. Commencement of levy proceedings (§ 207(B))
2. Service of warrant of levy (§ 207(B))
3. Advertisement for sale (§ 213)
4. Public sale of the property under levy
5. Redemption of property sold (§ 214)
6. Forfeiture to the gov’t for want of bidder (§
215)
7. Resale of real estate taken for taxes (§ 216)
8. Further distraint and levy (§ 217)
Atty. Terence Conrad H. Bello Slide No. 49
49
B. Civil Action
Republic v. Lim Tian Teng Sons & Co.
§ Republic Act 1125 creating the CTA allows the
TP to dispute the correctness or legality of an
assessment both in the purely administrative
level and in said court, but it does not stop or
prohibit the CIR from collecting the tax
through any of the means provided for in
Section 316 of the Tax Code, except when
enjoined by said CTA under sec. 11
§ Nowhere in the Tax Code is the CIR required
to rule first on a TP’s request for
reinvestigation before he can go to court for
the purpose of collecting the tax assessed*
Atty. Terence Conrad H. Bello Slide No. 51
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B. Civil Action
Requirement for the institution of civil and
criminal actions –
§ Institution of civil and criminal actions for
the recovery of taxes and enforcement of
any fine, penalty or forfeiture under the
NIRC requires the approval of the CIR (§
220)
Atty. Terence Conrad H. Bello Slide No. 50
50
B. Civil Action
San Juan v. Vasquez
§ The determination of the correctness or
incorrectness of a tax assessment to which the TP
is not agreeable falls within the jurisdiction of the
CTA and not of the CFI, for under the aforequoted
provision of law, the Court of Tax Appeals has
exclusive appellate jurisdiction to review on
appeal any decision of the CIR in cases involving
disputed assessments and other matters arising
under the NIRC or other law or part of law
administered by the BIR
§ Thus, the BIR may not institute a collection case
before regular courts while the TP is still disputing
the correctness of the assessment
Atty. Terence Conrad H. Bello Slide No. 52
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B. Civil Action
Yabes v. Flojo
§ The CFI cannot lawfully acquire jurisdiction
over a contested assessment made by the
CIR against the deceased TP, which has not
yet become final and executory, and which
assessment is still pending before the CTA
§ CTA has exclusive jurisdiction over
disputed assessments; CFI should have
dismissed the case
Atty. Terence Conrad H. Bello Slide No. 53
53
B. Civil Action
How do you reconcile Yabes and San Juan, on one hand,
with Lim Tian Teng, on the other hand?
§ Lim Tian Teng’s holding that “nowhere in the Tax Code
is the [CIR] required to rule first on a [TP’s] request for
reinvestigation before he can go to court for the
purpose of collecting the tax assessed” is an obiter
dictum
§ The assessment in Lim Tian Teng was already final and
executory (TP failed to appeal the decision on the
protest -- the referral of the matter to the OSG for
collection -- to the CTA); hence, the civil suit for
collection was proper
§ Yabes and San Juan involved disputed assessments
(hence, not yet final and executory)
Atty. Terence Conrad H. Bello Slide No. 55
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B. Civil Action
Must the assessment be final and executory before the BIR can collect the
tax deficiency?
§ It depends on the collection remedy availed of by the BIR
– The assessment need not be final and executory before the BIR
can avail of the summary remedies of distraint and levy (see §
11, RA 1125, as amended by RA 9282; RP v. Lim Tian Teng)
– The assessment must be final and executory before the BIR may
institute a civil case for collection of deficiency tax (see Yabes,
San Juan, and § 7(b)(2)(c) of RA 1125, as amended by RA 9282)
– In the case of a false or fraudulent return with intent to evade
tax or of failure to file a return . . . a [civil or criminal]
proceeding in court for the collection of such tax may be filed
without assessment . . . . (§ 222(a), NIRC)
» Note: under § 7(b)(1) of RA 1125, as amended by RA
9282, the civil liability is deemed instituted along with the
criminal action; no right to reserve civil aspect is allowed
Atty. Terence Conrad H. Bello Slide No. 54
54
B. Civil Action
Question: the BIR issued a FAN; without
waiting for the TP to file a protest, the BIR
issued a warrant of distraint and levy on the
properties of the TP to collect the tax
deficiency. Is the BIR’s action valid?
§ While an assessment need not be final
and executory before the BIR may avail of
the summary remedies of distraint and
levy, there is good ground to argue that
the BIR’s action is not valid on the ground
of denial of due process
Atty. Terence Conrad H. Bello Slide No. 56
56
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C. Criminal Action C. Criminal Action

CIR v. Pascor Realty and Dev. Corp. Ungab v. Cusi

§ Filing of criminal case need not be preceded
by an assessment
§ NIRC § 222 specifically states that in case
where a false or fraudulent return is filed or
failure to file a return, as in this case,
proceedings in court may be commenced
without an assessment
§ NIRC § 205 mandates that civil and criminal
aspect may be pursued simultaneously
Atty. Terence Conrad H. Bello
§ Held: What is involved here is not the collection of taxes
where the assessment of the CIR may be reviewed by the
CTA, but a criminal prosecution for violations of the NIRC
which is cognizable by CFIs. While there can be no civil action
to enforce collection before the assessment procedures
under the NIRC have been followed, there is no requirement
for the precise computation and assessment of the tax before
there can be a criminal prosecution under the NIRC
§ An assessment not necessary to a criminal prosecution for
willful attempt to defeat and evade taxes. 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 TP that he has made an inaccurate return,
and the gov’t’s failure to discover the error and promptly to
assess has no connection with the commission of the crime
Slide No. 57 Atty. Terence Conrad H. Bello Slide No. 59

57 59

C. Criminal Action C. Criminal Action

Steps in development of criminal case under the RATE Program § Substantial under-declaration of income and
(RMO 27-2010):
§ In all RATE cases, an internal preliminary investigation must substantial overstatement of deductions as
be first be conducted to establish prima facie evidence of prima facie evidence of fraud (Sec. 248(B))
fraud or tax evasion – no-contact audit
§ LOA issued for formal investigation – contact audit
§ If evidence not enough to prove TP’s guilt beyond reasonable
doubt, but there exists clear and convincing evidence that
fraud has been committed – PAN/FAN issued with 50% fraud
surcharge - CIVIL
§ If evidence is enough to prove TP’s guilt beyond reasonable
doubt, complaint affidavit will be prepared for filing with the
DOJ - CRIMINAL

Atty. Terence Conrad H. Bello Slide No. 60 Atty. Terence Conrad H. Bello Slide No. 61

60 61

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C. Criminal Action C.
People v. Kintanar: “Willful Blindness” Doctrine
§ “Willful” in tax crimes means voluntary, intentional violation of a
known legal duty, and bad faith or bad purpose need not be shown
§ TP’s sole reliance on her husband to file their ITRs is not a valid
reason to justify her non-filing, considering that she knew from the
start that she and her husband are mandated by law to file their
ITRs
§ Being an experienced businesswoman, TP ought to know and
understand all the matters concerning her business. This includes
knowledge and awareness of her tax obligation in connection with
her business. TP should know how much are her tax dues, the
details stated on the ITRs, where the same are filed, and other
important facts related to the filing of her ITRs; after all, these
matters concern her finances
§ Neglect or omission (to ensure filing of ITR, to know how much
taxes are due, or inquire on the facts surrounding the ITR) is
tantamount to “deliberate ignorance” or “conscious avoidance”
Atty. Terence Conrad H. Bello Slide No. 62 Atty. Terence Conrad H. Bello
62 63
D. Anti-Injunction Rule D.
General Rule –
§ No court shall have the authority to grant an
injunction to restrain the collection of national
internal revenue tax, fee or charge imposed by the
NIRC (§ 218, NIRC)
§ No appeal taken to the CTA . . . shall suspend the
payment, levy, distraint and/or sale of any
property of the taxpayer for the satisfaction of his
tax liability (§ 11, RA 1125, as amended by RA
9282)
Exception –
§ Where collection of the tax may jeopardize the
interest of the Government and/or the TP (RA
1125 § 11; Rule 10, Revised Rules of the CTA)
Atty. Terence Conrad H. Bello Slide No. 64 Atty. Terence Conrad H. Bello
64 65
11/21/20
Criminal Action
People v. Judy Anne Santos
§ TP acquitted; all elements proven except element of
“willfulness”
§ “Willfulness” cannot be presumed from mere
inadvertent or negligent acts
§ While TP negligent, such is enough to convict
§ Negligence, whether slight or gross, is not equivalent
to the fraud with intent to evade tax contemplated by
law. Fraud must amount to intentional wrongdoing
with the sole objective of avoiding the tax. Court also
took note of TP’s intent to settle which negates motive
to commit fraud
Slide No. 63
Anti-Injunction Rule
Churchill v. Rafferty
§ The mere fact that a tax is illegal, or that the law,
by virtue of which it is imposed, is
unconstitutional, does not authorize a court of
equity to restrain its collection by injunction
§ Ratio: It is upon taxation that the Government
chiefly relies to obtain the means to carry on its
operations, and it is of the utmost importance that
the modes adopted to enforce the collection of
the taxes levied should be summary and interfered
with as little as possible
Slide No. 65
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D. Anti-Injunction Rule D. Anti-Injunction Rule

CIR v. Cebu Portland Cement Co.
§ Held: The argument that the assessment cannot as yet be
enforced because it is still being contested loses sight of
the urgency of the need to collect taxes as “the lifeblood
of the government”
§ If the payment of taxes could be postponed by simply
questioning their validity, the machinery of the state
would grind to a halt and all government functions would
be paralyzed
§ This is the reason for the existence of the anti-injunction
rule
§ To require CIR to actually refund to TP the amount of the
judgment debt, which he will later have the right to
distrain for payment of its sales tax liability is in our view
an idle ritual
Atty. Terence Conrad H. Bello Slide No. 66
§ General Rule: Sec. 11, RA 1125 (as amended by RA
9282): an appeal to the CTA from the decision of the
CIR will not suspend the payment, levy, distraint
and/or sale of property of the TP for the satisfaction
of his tax liability
§ Exception: When, in the view of the CTA, the
collection will jeopardize the interest of the
Government and/or the taxpayer, the CTA may
suspend the said collection and require the taxpayer
either to deposit the amount claimed or to file a
surety bond
o Whenever the method employed by the CIR in
the collection of tax is not sanctioned by law, the
bond requirement to suspend collection of tax
may be dispensed with. Sps. Pacquiao v. CTA,
G.R. No. 213394, April 6, 2016
Atty. Terence Conrad H. Bello Slide No. 67

66 67

E. Compromise and Abatement F. Compromise and Abatement

§ What are the two main grounds which
authorizes the CIR to compromise the
payment of internal revenue taxes?
i. Doubtful validity of the assessment –
minimum compromise rate is 40% of
basic tax assessed
ii. Financial incapacity – minimum
compromise rate is 10% of basic tax
assessed
Atty. Terence Conrad H. Bello
When may the CIR abate or cancel a tax
liability?
i. When the tax or a portion thereof
appears to be unjustly or excessively
assessed
ii. When administrative and collection costs
involved do not justify the collection of
the amount due
Slide No. 68 Atty. Terence Conrad H. Bello Slide No. 69

68 69

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F. Compromise and Abatement

BIR Rul. 111-99

§ Application for abatement appreciated on
the basis of the merit of each individual
case
§ Thus, CIR may not abate en masse
imposable penalties on the 895 barangays
of Manila in connection with delayed
remittance of withholding taxes
BIR Rul. 59-01 III. IMPOSITION OF SURCHARGE,
§ Reliance in good faith on tax ruling as a INTEREST & COMPROMISE
basis for abatement PENALTY
Atty. Terence Conrad H. Bello Slide No. 70 Atty. Terence Conrad H. Bello 71

70 71

A. Civil Penalties A. Civil Penalties

When does the 25% surcharge apply (§ 248(A))?
1. Failure to file return and pay tax due thereon within
prescribed period
2. Filing return with internal revenue officer other than
with whom return is required to be filed
3. Failure to pay deficiency tax within time prescribed
for its payment in the notice of assessment
4. Failure to pay full or part of the amount of tax
shown on return on or before date required for its
payment
5. Failure to pay full amount of the tax due for which
no return is required to be filed on or before the
date required for its payment
When does the 50% surcharge apply (§ 248(B))?
1. Willful neglect to file the return within the
prescribed period
2. False or fraudulent return is willfully made
§ Question: When is there prima facie evidence of
a false or fraudulent return?
§ Answer: “substantial” (i.e., more than 30%)
underdeclaration of sales, receipts or income;
substantial overstatement of deductions

Atty. Terence Conrad H. Bello Slide No. 72 Atty. Terence Conrad H. Bello Slide No. 73

72 73

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A. Civil Penalties A. Civil Penalties

CIR v. Javier CIR v. Japan Airlines

§ Fraud contemplated by law is actual not § Fraud is not presumed (mere allegation of
constructive fraud not enough); must be established as a
§ It must be intentional fraud, consisting of fact by the BIR
deception willfully and deliberately done or § Good faith as a defense against fraud
resorted to in order to induce another to give surcharge
up some legal right
§ Negligence, whether slight or gross, is not
equivalent to the fraud with intent to evade
tax
§ It must amount to intentional wrong-doing
with the sole objective of avoiding the tax
Atty. Terence Conrad H. Bello Slide No. 74 Atty. Terence Conrad H. Bello Slide No. 75

74 75

A. Civil Penalties A. Civil Penalties

PICOP v. CIR BIR Rul. 2-95

§ Where TP failed to pay taxes on account of
the fact that it based its actions upon reliance
to certain official acts or rulings, the 25%
surcharge is not imposable upon TP as it was
only acting in complete honesty and good
faith when it did not pay the sales tax
§ TP requested waiver of surcharges and
penalties arising from failure to withhold and
remit withholding taxes
§ TP cited lack of funds following the
demolition of the YMCA building, which was
its main source of income
§ Ruling: imposition of surcharge mandatory,
therefore cannot be waived

Atty. Terence Conrad H. Bello Slide No. 76 Atty. Terence Conrad H. Bello Slide No. 77

76 77

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A. Civil Penalties A. Civil Penalties

BIR Rul. 48-99 BIR Rul. 205-99

§ TP paid DST on purchase of real property at wrong
venue (paid at RDO of buyer; should have been
paid at seller’s RDO)
§ Ruling: 25% surcharge waived
§ RMO directing payment at seller’s RDO at the time
of the sale was at its experimental stage and had
not yet been widely disseminated so as to inform
taxpaying public about the repeal of previous
rulings allowing payment of DST at payor’s
residence
Atty. Terence Conrad H. Bello Slide No. 78
§ TP suffered business reverses
§ Had no cash flow to pay income tax liabilities
§ Intended to use its TCCs to pay taxes
§ Revalidation of TCCs, however, took some time to
secure despite best efforts exerted by TP (repeated
follow-ups, phone calls and personal visits)
§ Ruling: in view of justifiable circumstances,
surcharge and penalty waived, but not interest
Atty. Terence Conrad H. Bello Slide No. 79

78 79

A. Civil Penalties A. Civil Penalties

BIR Rul. 78-98
§ TP unable to pay withholding taxes on the last day due
to change in payment system; RDO officials also could
not give a definitive answer on the new payment
system
§ TP’s tender of a manager’s check was not accepted by
AAB
§ Ruling: penalties and surcharges waived
§ CIR was convinced that TP attempted to pay
withholding tax on the last day (thru the MC), but due
to confusion on the implementation of new payment
system was unable to do so
Atty. Terence Conrad H. Bello Slide No. 80
4. May the BIR waive the imposition of the 25% surcharge?
a. General rule: no; imposition of the 25% surcharge is
mandatory for cases falling under §248(A)
b. Exception: the BIR has waived the 25% surcharge in
justifiable circumstances, e.g.:
i. TP mistakes arising from a difficult interpretation
of the law
ii. Change in BIR payment policies resulting in
confusion
iii. Other justifiable circumstances
5. May the BIR waive the 50% fraud in cases of willful
neglect to file return, or false or fraudulent returns
willfully made? No. Are there exceptions? None
Atty. Terence Conrad H. Bello Slide No. 81

80 81

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A. Civil Penalties
6. Questions
a. Example 1 (penalty for deficiency tax):
§ TP filed its ITR for taxable year 1997 in April 15, 1998
and paid income tax of P100,000
§ After a tax investigation, the BIR disallowed P200,000
of the TP’s representation expenses for failure to
meet the statutory requisites for deductibility
§ Disallowance resulted in a deficiency tax of P70,000;
TP issued an assessment
§ Question: should BIR impose a 25% surcharge on the
P20,000 deficiency tax in the assessment?
§ (No; see § 248(A)(3))
Atty. Terence Conrad H. Bello Slide No. 82
82
A. Civil Penalties
3. Questions
a. Example 3 (late payment of a deficiency tax assessed):
§ Based on example 2, assuming that the 1997
deficiency income tax assessment against the TP,
consisting of the basic tax of P175,000 + 50%
surcharge + interest, is paid only by the TP on July
31, 1999; assuming further that the assessment
became final and executory for failure to file a
timely protest
§ Is the TP liable for an additional 25% surcharge?
§ (Yes, under § 248(A)(3); liable also for additional
interest on the entire amount (which includes the
50% surcharge and interest)
Atty. Terence Conrad H. Bello Slide No. 84
84
11/21/20
A. Civil Penalties
6. Questions
a. Example 2 (50% fraud penalty):
§ TP filed its ITR for taxable year 1997 in April 15, 1998
with a net taxable income of P500,000
§ After a tax investigation, the BIR discovered that the
TP’s ITR is false or fraudulent since it did not report
willfully certain income amounting to P500,000
§ On its net income per investigation of P1 million, the
income tax due is P350,000; the resulting basic tax
deficiency is P175,000 since the TP paid only income tax
of P175,000 per its return filed; assessment issued on
May 31, 1999 demanding payment of the deficiency tax
on or before June 30, 1999
§ Question: should BIR impose a 50% surcharge on the
P175,000 deficiency tax in the assessment?
§ (Yes; filing of a false or fraudulent return triggers the
automatic imposition of the 50% surcharge under §
248(B))
Atty. Terence Conrad H. Bello Slide No. 83
83
B. Interest
Cagayan Electric v. CIR
§ However, it cannot be denied that the 1969
assessment was highly controversial. The CIR at
the outset was not certain as to TP’s income tax
liability. TP had reason not to pay income tax
because of the tax exemption in its franchise
§ For this reason, TP should only be liable for the
tax proper, and should not be held liable for
surcharge and interest
Atty. Terence Conrad H. Bello Slide No. 85
85
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B. Interest B. Interest

§ Statutory basis: Sec. 249 § Relevant periods:

§ Two types of interest: Ø Due date prescribed for payment of the basic
Ø Deficiency interest – 20% [now 12% per TRAIN] tax;
interest imposed on the deficiency in the basic Ø Due date appearing in the notice and demand
tax due; accrues from the date prescribed for its of the Commissioner; and
payment until full payment
Ø Date of actual payment
Ø Delinquency interest – 20% [now 12% per TRAIN]
imposed in case of failure to pay a deficiency tax,
or any surcharge or interest thereon on the due
date appearing in the notice and demand (i.e.,
FAN/FLD or the FDDA)
Atty. Terence Conrad H. Bello Slide No. 86 Atty. Terence Conrad H. Bello Slide No. 87

86 87

B. Interest B. Interest

§ Relevant periods:
Ø Due date prescribed for payment of the basic
tax;
Ø Due date appearing in the notice and demand Due Date for Due Date in Actual
of the Commissioner; and Pay’t Demand Payment

Ø Date of actual payment

20% Deficiency 20% Delinquency

Interest Interest
Base: basic tax deficiency Base: basic tax, surcharge,
accrued deficiency interest
Atty. Terence Conrad H. Bello Slide No. 88 Atty. Terence Conrad H. Bello Slide No. 89

88 89

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B. Interest B. Interest

§ “Overlapping” 20% interest prescribed by the CTA in

decided assessment cases
§ Manner of computing interest adopted by the BIR in
Rev. Regs. 18-2013
§ Is this legal?
Due Date for Due Date in Actual § TRAIN AMENDMENT: IN NO CASE SHALL THE
Pay’t Demand Payment DEFICIENCY AND DELINQUENCY INTEREST … BE
IMPOSED SIMULTANEOUSLY
§ TRAIN AMENDMENT: DEFICIENCY AND DELINQUENCY
20% Delinquency INTEREST NOW “AT THE RATE OF DOUBLE THE LEGAL
20% Deficiency Interest INTEREST RATE FOR LOANS OR FORBEARANCES OF ANY
Interest MONEY IN THE ABSENCE OF ANY EXPRESS STIPULATION
40%! AS SET BY THE [BSP]”
§ 6% x 2 = 12%

Atty. Terence Conrad H. Bello Slide No. 90 Atty. Terence Conrad H. Bello Slide No. 91

90 91

B. Interest B. Interest

Republic v. Heras § RP v. Heras, 32 SCRA 507 (1970) – “Collection of

§ Collection of interest is not punitive in nature,
but compensatory; it is compensation to the
State for the delay in the payment of the tax
§ It is the charge for the use by the taxpayer of
funds that rightfully should have been in the
government coffers and utilized for the ends
thereof
Atty. Terence Conrad H. Bello
interest is not punitive in nature, but compensatory;
it is compensation to the State for the delay in the
payment of the tax”
§ Only penalties that the BIR is authorized to impose
in addition to the deficiency tax those found in Sec.
248(A) and (B) – 25% or 50% surcharge
§ Double imposition of 20% interest amounts to
an unjust collection of an additional penalty,
rather than mere compensation to the State for
delay in the payment of the tax
Slide No. 92 Atty. Terence Conrad H. Bello Slide No. 93

92 93

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B. Interest B. Interest

§ Taxable year 2000; deficiency income tax of P1 million that

has become final and executory Basic deficiency tax P1,000,000
§ Deadline for payment prescribed in assessment is April 15, Surcharge (25%) 250,000
2003
Deficiency interest (20% on P1M): 4/16/01 – 400,000
§ Payment made on April 15, 2004
4/15/03
Basic deficiency tax P1,000,000 Total amount due P1,650,000
Surcharge (25%) 250,000 Add: delinquency interest (20% on P1.65M): 330,000
Deficiency interest (20% on P1M): 4/16/01 – 600,000 4/16/03 – 4/15/04
4/15/04 Total amount due P1,980,000
Total amount due P1,850,000
Add: delinquency interest (20% on P1M): 200,000
4/15/03 – 4/15/04
Total amount due P2,050,000
Atty. Terence Conrad H. Bello Slide No. 94 Atty. Terence Conrad H. Bello Slide No. 95

94 95

C. Compromise Penalty C. Compromise Penalty

§ Criminal violations may be compromised, CIR v. Lianga Bay Logging Co., Inc.
except: § BIR assessed TP 25% surcharge for allegedly
Ø Those already filed in court, or removing forest products without auxiliary
Ø Those involving fraud invoices; TP assessed also compromise
penalty
§ Held: Imposition of compromise penalty must
be with the conformity of the TP, otherwise
the imposition is illegal

Atty. Terence Conrad H. Bello Slide No. 96 Atty. Terence Conrad H. Bello Slide No. 97

96 97

24