Income Taxation  Prof. Narvaez, CPA  1st Semester A.Y.

2020 – 2021

AUTHORITY OF THE COMMISSIONER OF INTERNAL REVENUE

Objectives
After this chapter, readers are expected to gain familiarization and demonstrate mastery of the following:
1. Power and duties of BIR
2. Remedies of the Government
3. Remedies of the Taxpayer

Organizational Structure

The Bureau of Internal Revenue (BIR)) is headed by a Commissioner of Internal Revenue and four (4) Deputy Commissioner (Sec.
3, NIRC), each of whom heads the Operations Group, Legal and Inspection Group, Resource and Management Group, and Information
Systems Group. The Commissioner and four (4) Deputy Commissioners, together with 13 Assistant Commissioners for the different services,
comprise the senior level of administrative authority. Supporting them are the nineteen (19) Regional Directors (Sec. 10, NIRC), more than one
hundred fifteen (124) Revenue District Officers (Sec. 9, NIRC), two (2) Extra Large Taxpayers Audit Division, three (3) Large Taxpayers Audit
and Investigation Divisions, and two (2) Large Taxpayer District Offices, and thousands of revenue officers conducting the audit of taxpayers’
books of accounts and accounting records. The revenue officers tasked to audit, develop and file criminal tax cases are assigned at the
National Investigation Division, in the National Office, and at the Special Investigation Division, in the regional offices. 1

Power and Duties of BIR

The Tax Code enumerates the powers and duties of the BIR as follows:
1. To assess and collect national internal taxes, fees and charges;
2. To enforce all forfeitures, penalties and fines connected therewith;
3. To execute judgment in all cases decided in its favor by the CTA and ordinary courts; and
4. To effect and administer the supervisory and police powers conferred upon it by the Tax Code or other special law (Sec. 2, NIRC) 1

1 Mamalateo, 2014, Reviewer on Taxation, Part V Tax Remedies, CH XXIV pg. 527-540

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Powers of the Commissioner

The Commissioner of Internal Revenue has been given broad powers under the Tax Code in order to effectively enforce tax laws and collect
the needed revenues:
I. Power to interpret tax laws and to decide tax cases (Sec. 4)
II. Power to decide disputed assessments, refunds of taxes, fees or other charges, penalties
III. Power to examine books and other accounting records and obtain information
IV. Power to inquire into banks deposits of taxpayers (Sec. 5)
V. Power to assess and collect the correct amount of tax (Sec. 6) 1
VI. Power not to allow withdrawal of any return statement or declaration, although the same may be amended.
VII. Power to delegate powers to subordinate officials (Sec. 7) 1

PART 1: TAX REMEDIES OF THE GOVERNMENT

I. Authority of the Commissioner of Internal Revenue (Sec. 204 of Revised NIRC)
The Commissioner may –
A. Compromise the payment of any internal revenue tax when:
1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
B. Abate or cancel a tax liability when:
1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
2) The administration and collection costs involved do not justify the collection of the amount due;
C. Credit or refund
1) Tax erroneously or illegally received or
2) Penalties imposed without authority,
3) Refund the value of internal revenue stamps when:
a. They are returned in good condition by the purchaser, and
b. In his discretion, redeem or change unused stamps that have been rendered unit for use and
refund their value upon proof of destruction.

No credit or refund of taxes shall be allowed unless

1. WRITTEN CLAIM: The taxpayer files in writing with the Commissioner a claim for credit or refund.
However, a return filed showing an overpayment shall be considered as a written claim for credit.
2. PRESCRIPTION PERIOD: The claim for credit or refund is within two (2) years after the payment
of the tax or penalty (Sec. 204 C)

II. Compromise Settlement of Any Internal Revenue Tax (Sec. 204)

The Commissioner may compromise the payment of any internal revenue tax, when:
1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

The compromise settlement of any tax liability shall be subject to the following minimum amounts:
1) For cause of financial incapacity, a minimum compromise rate equivalent to 10% of the basic assessed tax;
and
2) For other cases, a minimum compromise rate equivalent to 40% of the basic assessed tax.

The compromise shall be subject to the approval of the Evaluation Board which shall be composed of the Commissioner
and the four (4) Deputy Commissioners:
1) Where the basic tax involved P1,000,000, or
2) Where the settlement offered is less than the prescribed minimum rates, Commissioner and the four (4)
Deputy Commissioners.

III. Cases which may be compromised

1) Delinquent accounts except those with duly approved schedule of installment payments;
2) Cases under administrative protest after issuance of the Final Notice of Assessment to the taxpayer which, are
still pending in the Regional Offices, Revenues District Offices, Legal Service, Large Taxpayer Service,
Collection Service, Environment Service and other officers in the National Office;
3) Civil tax cases being disputed before the courts;
4) Collection cases filed before the courts;
5) Criminal violations, other than those already filed in court or those involving criminal tax fraud

IV. Cases which may not be compromised

1) Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the
taxpayer’s obligation to withhold;
2) Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer;
3) Delinquent accounts with duly approved schedule of installment payments;
4) Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized
representative;
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;
6) 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;
7) 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;

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V. Offer to compromise a delinquent account or disputed assessment on the ground of reasonable doubt as to validity of the
assessment
The offer to compromise a delinquent account or disputed assessment on the ground of reasonable doubt as to the
validity of the assessment may be accepted when it is shown that:
1) The delinquent account or disputed assessment is one resulting from a jeopardy assessment; or
2) The assessment seems to be arbitrary in nature, appearing to be based on presumption and there is reason to
believe that it is lacking in legal and/or factual basis; or
3) The assessments were issued on or after January 1, 1998, where the demand notice allegedly failed to comply
with formalities prescribed in the Tax Code; or
4) Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe that the
same can be disputed by sufficient and competent evidence; or
5) The assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s
execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at
issue and there is strong reason to believe and evidence to prove that is not authentic; or
6) The assessment is based on an issue where a court of competent jurisdiction made an advance decision
against the Bureau, but for which the Supreme Court has not decided upon with finality; or
7) The taxpayer failed to file an administrate protest on account of the alleged failure to receive notice of
assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
8) The taxpayer failed to file a request for reinvestigation or reconsideration within 30 days from receipt of final
assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis;
or
9) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner of
Internal Revenue, or his duly authorized representative, in some cases, within 30 days from receipt of such
adverse decision and there is reason to believe that the assessment is lacking in legal and/or factual basis.

VI. Prescribed minimum percentage of compromise in case of doubtful activity

1) 40% of the basic assessed tax;
2) Taxpayer may request in writing a compromise rate lower than 40% subject to prior approval by the National
Evaluation Board;
3) The compromise settlement of the internal revenue tax liabilities of taxpayers is reckoned on a per tax type
assessment basis.

VII. Financial Capacity

A. Minimum percentage of compromise
1) 10% Basis for Compromise
a. Individual whose only source is from employment and whose monthly salary is P10,500 or less, if
single, or P21,000 or less, if married, and has no leviable/ distrainable assets other than family
home;
b. Individual without any source of income;
c. Taxpayer with zero net worth;
d. Taxpayer with negative net worth;
e. Already non-operating companies for a period of 3 years or more as of date of application for
compromise settlement
2) 20% Basis for Compromise
a. Dissolved corporations;
b. Already non-operating companies for a period of less than 3 years;
c. Declared insolvent, bankrupt unless the taxpayer falls under any of the cases subject to a different
percentage.
3) 40% Basis for Compromise
a. Taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital
by at least 50%.
Minimum percentage of compromise also applies to assessment consisting solely of increments
i. The above-prescribed minimum percentage shall likewise apply in compromise
settlement of assessments consisting solely of increments, i.e., surcharges, interest,
etc., based on the total amount assessed.
Situations where offer to compromise settlement on the ground of financial incapacity shall not be
considered.
The Commissioner shall not consider any offer for compromise settlement on the ground of
financial incapacity under the following situations:
i. Taxpayer with Tax Credit Certificate (TCC) issued, on hand, or in transit;
ii. Taxpayer with pending claim for tax refund or tax credit with the BIR, Department of
Finance, One-Stop-Shop Tax Credit and Drawback Duty Center (Tax Revenue Group
or Investment Incentive Group) and/or the court;
iii. Taxpayer with existing finalized agreement or prospect of future agreement with any
party that resulted or could result to increase in equity of the taxpayer at the time of the
offer for compromise or at a definite future time;
iv. Taxpayer does not waive in writing his privilege of the secrecy of bank deposits.

VIII. Approval of offer to compromise

A. Majority of all members of NEB required
Except for offers of compromise where the approval is delegated to the Regional Evaluation Board (REB), all
compromise settlements within the jurisdiction of the National Office (NO) shall be approved by the majority of
all members of the National Evaluation Board (NEB) composed of the Commissioner and the four (4) Deputy
Commissioners.

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B. Decisions granting request have concurrence of the Commissioner

All decisions of the NEB, granting the request of the taxpayer or favorable to the taxpayer, shall have the
concurrence of the Commissioner.
C. Offers of compromise involving basic deficiency of P500,000 or less
Offers of compromise of assessment issued by the Regional Office involving basic deficiency taxes of
P500,000 or less and for minor criminal violations discovered by the Regional and District Offices, shall be
subject to the approval by the REB comprised of the following Officers of the Region:
Chairman – Regional Director
Members – Assistant Regional Director, Chief of Assessment Division, Chief of Collection Division,
Revenue District Officer
D. Compromise offer to be paid by the taxpayer
If the offer to compromise is less than the prescribed minimum percentage of compromise settlement, the
same shall always be subject to the approval of the NEB.

IX. Cancellation or Abatement of Tax Liability

A. Bases of abatement of cancellation
The Commissioner may abate or cancel tax liability, when:
1. The tax or any portion thereof appears to be unjustly or excessively assessed;
2. The administration and collection costs involved do not justify the collection of the amount due.
B. Instances when penalties and/or interest imposed may be abated or cancelled on the ground that the imposition is
unjust and excessive
1. When the filing of the return/payment is made at the wrong venue;
2. When the filing of the return/payment of his tax is due to erroneous written official advice of a
revenue officer;
3. When the taxpayer fails to file a return and pay the tax on time due to substantial losses from
prolonged labor dispute, force majeure or legitimate business reverses (note in no. 3 above, the
abatement shall only cover the surcharge and the compromise penalty and NOT the interest);
4. When the assessment is brought about or the result of the taxpayer’s non-compliance with the law
due to a difficult interpretation of the said law.
C. Instances of substantial losses from prolonged labor dispute, force majeure or legitimate business reversed
1. Labor strike for more than 6 months, which has caused the temporary shutdown of business;
2. Public turmoil
3. Natural calamity such as lightning, earthquake, storm, flood and the like;
4. Armed conflicts such as war or insurgency;
5. Substantial losses sustained due to fire, robbery, theft, embezzlement;
6. Continuous heavy losses incurred by the taxpayer for the last two (2) years;
7. Liquidity problem of the taxpayer for the last three (3) years;
8. Such other instances which the Commissioner may deem analogous to the enumeration above;
D. Instances of meritorious circumstances
1. One day late filing and remittance due to failure to beat bank cut-off time (no longer allowed under
RR 4-2012 dated March 28, 2012);
2. Late filing of return due to unresolved issue on classification or valuation of real property (for capital
gains tax cases, etc.);
3. Late remittance of withholding tax on compensation of expatriates for services rendered in the
Philippines pending the issuance by the SEC of the license to the Philippine branch office or
subsidiary, provided, however, that the abatement shall only cover the surcharge and the
compromise penalty and not the interest;
4. Use of wrong tax form but correct amount of tax was remitted;
5. Surcharge erroneously imposed;
6. Wrong use of Tax Credit Certificate (TCC) where the Tax Debit Memo (TDM) was not properly
applied for;
7. Offsetting of taxes of the same kind, i.e., overpayment in one quarter or month is offset against
underpayment in another quarter or month;
8. Automatic offsetting of overpayment of one kind of withholding tax against the underpayment of
another kind;
9. Filing an amended return under meritorious circumstances, provided, however, that abatement
shall cover only the penalties and not the interest;
10. Such other instances with the Commissioner may deem analogous to the enumeration above.
E. Instances where interest is not abated
1. When the taxpayer fails to file a return and pay the tax on time due to substantial losses from
prolonged labor dispute, force majeure or legitimate business reverses;
2. When the taxpayer fails to file the return and pay the correct tax on time due to circumstances
beyond his control;
3. Filing an amended return under meritorious circumstances;
4. Late remittance of withholding tax on compensation of expatriates for services rendered in the
Philippines pending the issuance by the SEC of the license to the Philippine branch office or
subsidiary.
F. Instances where the tax liabilities, penalties and/or interest imposed on taxpayer may be abated or cancelled on
the ground that the administration and collection costs are more than the amount sought to be collected
1. Assessment confirmed by lower court but appealed by the taxpayer to a Higher Court;
2. Assessment reduced after reinvestigation but taxpayer is still contesting reduced Assessment;
3. Withholding tax assessment under meritorious circumstances;
4. Delayed installment payment under meritorious circumstances;
5. Such other instances which the Commissioner may deem analogous to the enumeration above.

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Note: for cases 1 to 4 above, the abatement of the surcharge and the compromise penalty shall be
allowed only upon written application by the taxpayer signifying his willingness to pay the basic tax
and interest or basic tax only, whichever is applicable under the prevailing circumstance.
G. Commissioner has sole authority to abate or cancel
The Commissioner has the sole authority to abate or cancel tax, penalties and/or interest.
H. Processing for abatement or cancellation of tax
1. The application for abatement or cancellation of tax penalties and/or interest should be acted upon
by the processing office within 5 days from receipt by said office.
2. The BIR National Office has 30 days within which to act on the case.

X. Tax Credit or Refund

A. Instances of tax credit or refund
The Commissioner may credit or refund:
1. Taxes erroneously or illegally received or
2. Penalties imposed without authority,
3. Refund the value of internal revenue stamps when:
a. They are returned in good condition by the purchaser, and
b. In his discretion, redeem or change unused stamps that have been rendered unfit for
use and refund their value upon proof of destruction.
B. Filing claim for credit or refund
No credit or refund of the taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty.
C. Return showing overpayment
A return filed showing an overpayment shall be considered as a written claim for the credit or refund.
D. TCC may be applied against any internal revenue tax
A Tax Credit Certificate validly issued under the provisions of the Tax Code may be applied against any
i. internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable.
ii. any request for conversion into refund of unutilized tax credits may be allowed provided
1. Original copy of TCC showing a creditable balance is surrendered to the
appropriate revenue officer for verification and cancellation
2. No cases shall a tax refund be given resulting from availment of incentives granted
pursuant to special laws for which no actual payment was made.
3. Subject to the provisions of Sec. 230 of NIRC on Forfeiture of Cash Refund and of
Tax Credit
E. Application for refund or issuance of TCC for excess input tax credits
a. Refund or TCC may be issued representing the unutilized input tax credits attributable to zero-rated or
effectively zero-rated sales.
b. Only VAT-registered person may file refund or TCC for excess input tax credits
c. For export sales, application may be filed either with the Revenue District Office (RDO) / Large Taxpayer
District Officer (LTDO) having jurisdiction over the taxpayer-applicant or with the Bureau of Internal
Revenue’s VAT Credit Audit Division (VCAD).
d. For effectively zero-rated sales may only be filed with the RDO/ LTDO having taxpayer-applicant.
e. The application may be made only within two (2) years after the close of the taxable quarter when the
importation or purchase was made (Sec. 112 [A] and [B], NIRC)
f. In the proper cases, the Commissioner shall grant a refund for creditable input taxes within 90 days from
the date of submission of the official receipts or invoices and other documents in support of the
application filed (Section 120 [C]).

PART 1: TAX REMEDIES

Remedy – a method by which a cause of action can be enforced by law or equity. It is a procedure or type of action which may be
availed of by the plaintiff as the means to obtain the relief desired (Florenz D. Regalado, Remedial Law Compendium, Vol. I, p. 20).

I. Remedies for the Collection of Delinquent Taxes.

A. Civil remedies for the collection of internal revenue taxes, fees, or charges, and any increment thereto resulting
from delinquency
The civil remedies for the collection of internal revenue taxes, fees, or charges, and any increment thereto
resulting from delinquency shall be by:
1. Summary proceedings:
a. Distraint of personal property and
b. Levy upon real property and interest in or rights to real property.
2. Judicial proceedings:
a. Civil action; or
b. Criminal action.
B. Summary or judicial proceedings may be simultaneously pursued
Either of the summary or judicial or both simultaneously may be pursued in the discretion of the authorities
charged with the collection of such taxes.
C. Distraint and levy cannot be availed when amount is not more than P100
The remedies of distraint and levy shall not be availed of where the amount of tax involved is not more than
P100.
D. Judgment of criminal case shall also order payment of taxes
The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes
subject of the criminal cases as finally decided by the Commissioner.

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II. Distraint of Personal Property

A. Distinction Between Actual and Constructive Distraint
Actual Distraint Constructive Distraint
1. Personal property is physically taken. 1. Personal property is not physically taken.
2. The taxpayer is already delinquent in payment of 2. There is not yet of a discrepancy, only that the
his taxes. taxpayer is leaving the country or disposing of
his property in fraud of creditors or is in the
process of liquidation.
3. Personal property taken is sold in or in order to 3. Personal property is merely held as security to
satisfy the tax delinquency. answer for any future tax delinquency.
B. Persons who shall seize and distraint personal property (actual distraint)
1. Amount of delinquent tax is more than P1,000,000 – Commissioner or his duly authorized
representative.
2. Amount of delinquent tax is P1,000,000 or less – Revenue District Officer
C. Power to lift order of distraint
The Commissioner or his duly authorized representative shall have the power to lift order of distraint.
D. Release of distraint property upon payment prior to sale
If any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale,
the goods or effects distrained shall be restored to the owner.

III. Levy on Real Property

A. When to levy
After the expiration of the time required to pay the delinquent tax or delinquent revenue, real property may be
levied upon before, simultaneously or after the distraint of personal property belonging to the delinquent
taxpayer.
B. How shall levy be effected
Levy shall be effected by writing upon a duly authenticated certificate showing the name of the taxpayer and
the amount of the tax and penalty due from him a description of the property upon which levy is made.
C. To whom shall the levy be mailed or served
Written notice of the levy shall be mailed to or served upon the:
1. Register of Deeds of the province or city where the property is located, and
2. Upon the delinquent taxpayer,
3. Or if he is absent from the Philippines, to his agent or the manager of the business in respect to
which the liability arose.
4. Or if there is none, to the occupant of the property in question.
D. Redemption of property sold
1. The property sold maybe redeemed by the delinquent taxpayer within one year from the date of
sale by paying:
a. The amount of public taxes,
b. Penalties and
c. Interest thereon from the date of delinquency to the date of sale with
d. 15% interest per annum of the purchase price from date of purchase to the date of
redemption
2. The owner shall not be deprived of the possession of the property sold and shall be entitled to the
rents and other income thereof until the expiration of the time allowed for redemption.
E. Further distraint or levy
The remedy by distraint on personal property and levy on realty maybe repeated if necessary until the full
amount due, including all expenses, is collected.

IV. Garnishment
Refers to a warning to a person in whose hands the effects of another are attached, not to pay the money or deliver the
property or allow withdrawal of deposits of the defendant in his hands (see Reliance Procoma, Inc. v. Phil-Asia Tobacco
Corporation, 57 SCRA 370).

V. Distinction Among Warrant of Distraint, Warrant of Levy and Warrant of Garnishment

a. As to subject matter
b. As to disposition for want
of bidders or bids inadequate
to satisfy tax deficiency
c. As to advertisement for
sale
Distraint
Personal property owned by
and in possession of the
taxpayer
Purchased by the
Government then resold to
meet deficiency.
No advertisement is required
Levy
Real property owned by and
in the possession of the
taxpayer
Forfeited to the Government
then sold to meet the
deficiency.
Advertised once a week for
three weeks
Garnishment
Personal property owned by
the taxpayer but in the
possession of a third party
Purchased by Government
then resold to meet
deficiency.
No advertisement is required

VI. Injunction not Available to Restrain Collection of Tax

A. 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 Tax Code.
B. CTA can issue injunctions
The Court of Tax Appeals can issue injunctions while in the exercise of its appellate jurisdiction in cases
pending before it. This is an exception to no injunction rule.
C. CTA may enjoin collection

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The CTA may enjoin collection of taxes if in its opinion the same may jeopardize the interest of the
government and/or the taxpayer.

VII. Tax lien and Remedy for Enforcement of Statutory Penal Provision
A. Tax lien
A legal claim or charge on property, either real or personal, as security from the payment of a tax obligation
(Hongkong & Shanghai Banking Corporation v. Commissioner, 39 Phil. 145).
B. Remedy for enforcement of statutory penal provision
The remedy for enforcement of statutory penalties of all sorts shall be by criminal or civil action, as the
particular situation may require, subject to the approval of the Commissioner.

If any person liable to pay an internal revenue tax, neglects or refuses to pay the same after demand, the amount shall
be a lien in favor of the Government of the Philippines from the time when the assessment was made by the
Commissioner until paid, with interest penalties, and costs that may accrue in addition thereto upon all property and
rights to property belonging to the taxpayer. However, the tax lien shall not be valid against any mortgagee, purchaser or
judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Registry of Deeds of the
province or city where the property of the taxpayer is situated or located (Sec. 219, NIRC).

VIII. Period for Assessment and Collection (Summarized)

A. Period of limitation upon assessment and collection
a. Period of assessment
Internal revenue taxes shall be assessed within 3 years after the due date, or from the day the
return was filed, where a return is filed beyond the due date (Note: a return filed before the due
date shall be considered as files on such due date).
b. Return filed was not false or fraudulent
i. Collection with prior assessment
1. Assessment shall be made with 3 years from the date of filing of return or from the
last day required by law for filing, if the return was filed before such last day;
2. Collection shall be made within 5 years from the date of assessment, either by:
a. Summary proceedings, or
b. Judicial proceedings
ii. Collection without prior assessment
1. No proceeding in court without assessment for the collection shall be begun after
the expiration of the 3-year period.
c. Return filed was false or fraudulent with intent to evade tax or no return was filed
i. Collection with prior assessment
1. Assessment shall be made at any time within 10 years after discovery of the
falsity, fraud or omission;
2. Collection shall be made within 5 years from the date of assessment, either by:
a. Summary proceedings, or
b. Judicial proceedings
ii. Collection without prior assessment
1. A proceeding in court for the collection of tax may be filed without assessment at
any time within 10 years after the discovery of the falsity, fraud or omission.
d. Extension of assessment
i. If before the expiration of the 3-year period, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time, assessment may be made within the
period agreed.
ii. The period so agreed upon may be extended by the subsequent written agreement before
the expiration of the 5-year period following the assessment by:
a. Summary proceedings, or
b. Judicial proceedings.

IX. Suspension of Running of Statute of Limitation

A. Instances where the running of Statute of Limitation
The running of the period on the making of assessment and the beginning a distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the assessment or beginning distraint or levy or any
proceeding in court and for 60 days thereafter:
1. When the taxpayer requests for a reinvestigation, which is granted by the Commissioner;
2. 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 (except if the taxpayer informs the Commissioner of any change
in address);
3. When the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could be
located;
4. When the taxpayer is out of the Philippines.

PART 2: TAX REMEDIES OF THE TAXPAYER

I. Definition of Terms
A. Assessment
Assessment is the official action of an officer authorized by law in ascertaining the amount of tax due under
the law from a taxpayer.
B. Basis of Assessment

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An assessment is issued by the BIR based on findings of fact and/or law. In fact, the factual and/or legal
bases of the assessment must be stated; otherwise the assessment is null and void.
1. There is a question of fact when the doubt or differences arises as to the truth or falsehood of the
alleged facts (Commissioner v. Court of Appeals and YMCA, 228 SCRA 83). Example,
representation expenses are not substantiated by invoices or receipts
2. There is a question of law when the doubt or differences arises as to what the law is on a certain
state of facts (Commissioner v. Court of Appeals and YMCA supra). Example, gross income for
purposes of computing the minimum corporate income tax does not include miscellaneous or
incidental income.
C. Assessment Notice
Assessment notice is a formal demand sent to the taxpayer requiring payment within a specified time of the
tax due from him including interest and civil penalties.

II. Exceptions to Prior Notice of the Assessment

A. Cases when pre-assessment notice shall not be required (formal letter of demand and final assessment notice shall
be issued outright)
A pre-assessment notice shall not be required in the following cases:
1. 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
2. When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
3. When the taxpayer who opted to claim a refund or tax credit of excess creditable 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 quarters of the succeeding taxable year; or
4. When the excise tax due on excisable articles has not been paid; or
5. When an 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.

III. PROCEDURAL REMEDIES: Due Process in the Issuance of a Deficiency Tax Assessment (Remedy Against an Assessment) (RR
18-2013 as amended under Revenue Regulations No. 7-2018) – to give meaning to the due process clause of the Constitution
involving tax cases and to implement the provisions of the Tax Code:

A. Notice for informal conference

The Revenue Officer who audited the taxpayer’s records shall among others, state in his report whether or not
the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes, as well as the
factual and legal bases.

If the taxpayer is not amenable, based on the said Officer’s submitted report of investigation, the taxpayer
shall be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the
case may be (in the case of Revenue Regional Offices) or by the Chief of Division concerned (in the case of
the BIR National Office) of the discrepancy or discrepancies in the taxpayer’s payment of his internal revenue
taxes for the purpose of “Informal Conference,” in order to afford the taxpayer with an opportunity to present
his side of the case.

The informal Conference shall in no case extend beyond thirty (30) days from receipt of the notice for informal
conference.

If it is found that the taxpayer is still liable for deficiency tax or taxes after presenting his side, and the taxpayer
is not amenable, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue
Regional Office, or the Chief of the Division in the National Office, as the case may be, shall endorse the case
with seven (7) days from the conclusion of the Informal Conference to the Assessment Division of the
Revenue Regional Office or to the Commissioner or his duly authorized representative for issuance of a
deficiency tax assessment.

Failure on the part of Revenue Officers to comply with the periods indicated herein shall be meted with penalty
as provided by existing laws, rules and regulations.

B. Preliminary Assessment Notice (PAN)

If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be,
it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the
said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment.

It shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed
assessment is based

The taxpayer has to respond within 15 days from date of receipt of the PAN.

C. Formal letter of demand assessment notice

If the taxpayer fails to respond within 15 days from date of receipt of the PAN, he shall be considered in
default, in which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued
calling for payment of the taxpayer’s deficiency tax liability, inclusive of the applicable penalties.

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If the taxpayer, within 15 days from date of receipt of the PAN, responds that he/it disagrees with the findings
of deficiency tax or taxes, an FLD/FAN shall be issued within fifteen 15 days from date of receipt of the PAN,
responds that he/it disagrees with the deficiency tax or taxes, an FLD/FAN shall be issued within 15 days from
filing/submission of the taxpayer’s response, calling for payment of the taxpayer’s deficiency tax liability,
inclusive of the applicable penalties.

The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by the Commissioner
or his duly authorized representative.

The FLD/FAN 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 assessment shall be void.

ADMINISTRRATIVE REMEDIES
The legal remedies available to taxpayers at the administrative level will depend on whether or not payment of the
deficiency tax assessment was made.
i. Before payment of the deficiency tax assessment, the taxpayer’s remedy is to file a written protest within 30
days from date of receipt of the formal assessment notice. The timely filing of a written protest against the
assessment is mandatory; otherwise, the assessment will become final (Sec. 228).
ii. After the payment of the deficiency tax assessment was made, his remedy is to file a written claim for refund
or tax credit with the appropriate government agency – the Bureau of Internal Revenue or the Department of
Finance One Stop Shop Center. The taxpayer need not pay the deficiency tax assessment under protest nor
is he required to write a letter of the BIR protesting said assessment at the time of payment (Sec. 240 (C) and
229).

D. Protest the assessment

The taxpayer or its authorized representative or tax agent may protest administratively against the aforesaid
FLD/FAN within 30 days from date of receipt thereof.

The taxpayer protesting an assessment may file a written request for reconsideration or reinvestigation.

Request for reconsideration refers to a plea of re-evaluation of an assessment on the basis of existing records
without need of additional evidence. It may involve both a question of fact or of law or both.

Request for reinvestigation refers to a plea of re-evaluation of an assessment on the basis of newly
discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve
a question of fact or of law or both.

E. Submit all relevant supporting documents to the BIR

For requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his
protest within 60 days from date of filing of his letter of protest, otherwise, the assessment shall become final.

The term “relevant supporting documents” refer to those documents necessary to support the legal and factual
bases in disputing a tax assessment as determined by the taxpayer.

The sixty (60) – day period for the submission of all relevant supporting documents shall not apply to requests
for reconsideration.

Furthermore, the term “the assessment shall become final” shall mean the taxpayer is barred from disputing
the correctness of the issued assessment by introduction of newly discovered or additional evidence, and the
FDDA shall consequently be denied.

JUDICIAL REMEDIES

F. Appeal to Court of Tax Appeals (CTA) division or request for reconsideration to the Commissioner
If the protest is denied, in whole or in part, by the Commissioner’s duly authorized representative, the taxpayer
may either:
1. Appeal to the Court of Tax Appeals (CTA) within 30 days from date of receipt of the said
decision; or
2. Elevate his protest through request for reconsideration to the Commissioner within 30 days
from date of receipt of the said decision.

No request for reinvestigation shall be allowed in administrative appeal and only issues raised in the decision
of the Commissioner’s duly authorized representative shall be entertained by the Commissioner.

If the protest is not acted upon by the Commissioner’s duly authorized representative within 180 days counted
from the date of filing of the protest in case of a request for reconsideration; or from date of submission by the
taxpayer of the required documents within 60 days from the date of filing of the protest in case of a request for
reinvestigation, the taxpayer may either:
1. Appeal to the CTA within 30 days after the expiration of the 180-day period; or
2. Await the final decision of the Commissioner’s duly authorized representative on the disputed
assessment.

If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the
Commissioner, the taxpayer may appeal to the CTA within 30 days from the date of receipt of the said
decision. Otherwise, the assessment shall become final, executory and demandable.

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A motion for reconsideration of the Commissioner’s denial of the protest or administrative appeal, as the case
may be, shall not toll the thirty (30)-day period to appeal to the CTA.

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 either:
1. Appeal to the CTA within 30 days from after 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 30 days after the receipt of a copy of such decision.

It must be emphasized, however, that in the case of inaction on protested assessment within the 180-day
period, the option of the taxpayer to either:
1. File a petition for review with the CTA within 30 days after the expiration of the 180-day
period; or
2. Await the final decision of the Commissioner or his duly authorized representative on the
disputed assessment and appeal such final decision to the CTA within 30 days after the
receipt of a copy of such decision, are mutually exclusive and the resort to one bars the
application of the other.
3.
G. File an appeal with the CTA en banc
15 days from the date of receipt of adverse decision of a CTA division.

H. File a verified petition for review with Supreme Court

15 days from the receipt of adverse decision or ruling of the CTA en banc.

SUBSTANTIAL REMEDIES
1. Questioning the constitutionality or validity of tax statues or regulations
2. Non-retroactivity of rulings (Sec. 246)
3. Failure to inform the taxpayer in writing of the legal and factual bases of assessment makes it void (Sec. 228)
4. Preservation of books of accounts and once-a-year examination
5. Publication of RMC and RMO (Commissioner v. Michel Lhuiler Pawnshop, G.R. No. 150947, July 15, 2003)
6. Power of CIR to distribute or allocate gross income and deductions does not include the power to compute
“theoretical interests” to the controlled taxpayer’s transactions (Sec 43).
7. Availment of tax amnesty

IV. Remedy Against an Erroneously or Illegally Paid Tax

A. File a formal claim for refund
File a formal claim for refund with the BIR within 2 years from the date of payment of the tax.
B. Submit the relevant documents
Submit the relevant documents within 60 days from filing of claim for refund.
C. File an appeal with CTA
File an appeal with CTA, raising questions of facts and/or law within 30 days (but within the 2-year period
required for filing a formal claim for refund):
1. From receipt of final unfavorable decision on the claim for refund or
2. From the lapse of 180 days
Notes:
1. If the tax is paid in installments, the two-year period shall be counted from the date of final payment.
2. The filing of the claim for refund with the BIR and the institution of judicial action with the CTA to recover
the tax can be done either simultaneously or one after the other within the 2-year period to protect the
interest of the taxpayer.
D. File an appeal with the CTA en banc
15 days from date of receipt of adverse decision of a CTA division
E. File a verified petition for review with Supreme Court
15 days from the receipt of adverse decision or ruling of the CTA en banc

V. Refund or Credit Even Without Written Claim and Forfeiture of Refund

A. Refund or credit even without written claim
The Commissioner may, even without written claim therefor, refund or credit any tax, where the face of the
return upon which payment was made, such payment appears clearly to have been erroneously paid.
B. Forfeiture of refund
A refund check or warrant which shall remain unclaimed or uncashed within 5 years from the date the said
warrant or check was mailed or delivered, shall be forfeited in favor of the Government and the amount shall
revert to the general fund.
C. Forfeiture of tax credit
A Tax Credit Certificate issued, which shall remain unutilized after 5 years from the date of issue, shall, unless
revalidated, be considered invalid, and shall not allowed as payment for internal revenue tax liabilities of the
taxpayer, and the amount covered by the certificate will revert to the general fund.

VI. Instances that suspend the running of the two-year peremptory period
A. Suspension of the running of the two-year peremptory period
1. If the Commissioner made the taxpayer asking for refund believe that he would be credited for the
overpayment.

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2. If there is an agreement between the taxpayer and the agent of the Commissioner that they would wait
for the decision of the SC to guide them in the settlement of the question or questions involved in the
fraud.

VII. Court of Tax Appeals (CTA)

A. Creation of CTA
There is hereby created a Court of Tax Appeals (CTA) which shall be the same level as the Court of Appeals,
possessing all the inherent powers of a Court of Justice (Sec. 1, R.A. No. 1125, as amended by R.A. No.
9282)
B. Composition of CTA
The CTA shall consist of a Presiding Justice and eight (8) Associate Justices (Sec. 1, R.A. No. 1125, as
amended by R.A. No. 9503)
C. Sitting En Banc or Division
The CTA may sit en banc or in three (3) Divisions, each Division consisting of three (3) Justices (Sec. 2, R.A.
No. 1125, as amended by R.A. No. 9503).
D. What will Constitute a Quorum
Five (5) Justices shall constitute a quorum for sessions en banc and two (2) Justices for session of Division
(Sec. 2, R.A. No. 1125, as amended by R.A. No. 9503).
E. Rendition of a Decision or a Resolution
The affirmative votes of five (5) members of the Court en Banc shall be necessary to reverse a decision of a
Division but a simple majority of the Justices present necessary to promulgate a resolution or decision in all
cases or two (2) members of a Division, as the case may be, shall be necessary fo the rendition of a decision
or resolution in the Division Level (Sec. 2, R.A. No. 1125, as amended by R.A. No. 9503)
F. Jurisdiction of the CTA (Sec. 7, R.A. No. 1125, as amended)
The CTA shall exercise:
1. Exclusive appellate jurisdiction to review by appeal;
2. Jurisdiction over cases involving criminal offenses;
3. Jurisdiction over tax collection cases.
G. Exclusive appellate jurisdiction
The CTA shall exercise exclusive appellate jurisdiction to review by appeal:
1. Decision of the CIR in cases involving disputed assessments, refunds of internal revenues, fees or
other charges, penalties in relation thereto, or other matters arising under NIRC or other laws
administered by the BIR;
2. Inaction by the CIR in cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters arising under NIRC or other
laws administered by the BIR, where the NIRC provides a specific period for action, in which case
the inaction shall be deemed a denial;
3. Decisions, order, or resolutions of the Regional Trial Court in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or
other money charges, seizure, detention or release of property affected, fines, forfeitures or other
penalties, in relation thereto, or other matters arising under the Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review
from decisions of the Commissioner of Customs which are adverse to the Government under Sec.
2315 of the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry in the case of non-agricultural product, commodity
or article, and the Secretary of Agriculture in the case of agricultural products, commodity or article,
involving dumping and countervailing duties under Section 301 of the Tariff and Customs Code, and
safeguard measures under R.A. No. 8800, where either party may appeal the decision to impose or
not to impose said duties.

H. Jurisdiction over cases involving criminal offenses

The CTA shall exercise jurisdiction over cases involving criminal offenses:
1. Exclusive original jurisdiction over all criminal offenses arising from violations of the NIRC or Tariff
and Customs Code and other laws administered by the BIR or the BOC.
2. Appellate jurisdiction (to be tried by regular courts) on:
a. Offenses or felonies where the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than P1,000,000 or
b. Where there is no specified amount claimed.
3. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from judgment, resolutions or orders of the Regional Trial Court in tax cases
originally decided by them, in their respective territorial jurisdictions;
b. Over petitions for review of the judgments, resolutions or order of the Regional Trial Courts in
the exercise of their appellate jurisdiction over tax cases originally decided by the
Metropolitan Circuit Trial Courts in their respective jurisdictions.
4. Jurisdiction over tax collection cases
a. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties.

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b. Collection cases where the principal amount of taxes and fees, exclusive of charges and
penalties, claimed is less than P1,000,000 shall be tried by the proper Municipal Court,
Metropolitan Trial Court and Regional Trial Court.
c. Exclusive appellate jurisdiction in tax collection cases:
1. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in
tax collection cases originally decided by them, in their respective territorial jurisdictions.
2. Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax collection cases decided by
the Metropolitan Trial Courts and Municipal Circuit Trial Courts, in their respective
jurisdictions.

SOURCES:

[1] Mamalateo, 2014, Reviewer on Taxation, Part V Tax Remedies, CH XXIV pg. 527-540
[2] Revised National Internal Revenue Code of 1997 (NIRC)
[3] Florenz D. Regalado, Remedial Law Compendium, Vol. I, p. 20
[4] Reliance Procoma, Inc. v. Phil-Asia Tobacco Corporation, 57 SCRA 370
[5] Hongkong & Shanghai Banking Corporation v. Commissioner, 39 Phil. 145
[6] Commissioner v. Court of Appeals and YMCA, 228 SCRA 83
[7] RR 18-2013 as amended under Revenue Regulations No. 7-2018
[8] Commissioner v. Michel Lhuiler Pawnshop, G.R. No. 150947, July 15, 2003
[9] Sec. 1, R.A. No. 1125, as amended by R.A. No. 9282
[10] Sec. 1, R.A. No. 1125, as amended by R.A. No. 9503
[11] Sec. 7, R.A. No. 1125, as amended

QUESTIONS:

1. Can the Commissioner of Internal Revenue inquire into the bank deposits of a taxpayer? If so, does this power of the Commissioner
conflict with R.A. 1405, Secrecy of Bank Deposits Law?
2. Is the BIR authorized to issue a warrant of garnishment against the bank account of a taxpayer despite the pendency of his protest
against the assessment with the BIR or appeal with the Court of Tax Appeals?
3. State and discuss briefly whether the following cases may be compromised or may not be compromised;
a. Delinquent accounts;
b. Cases under administrative protest, after issuance of the final assessment notice to the taxpayer, which are still pending;
c. Criminal tax fraud cases
d. Criminal violations already filed in court
e. Cases where final reports of reinvestigation or reconsideration have been issued resulting in the reduction of the original
assessment agreed to by the taxpayer when he signed the required agreement form.
4. Under what conditions may the Commissioner of Internal Revenue be authorized to compromise the payment of any internal
revenue tax?
5. Under what conditions may the Commissioner of Internal Revenue be authorized to abate or cancel tax liability?
6. When is an internal revenue tax considered delinquent?
7. What must a taxpayer do in order to claim a refund of, or tax credit of, taxes and penalties which he alleges to have been
erroneously, illegally or excessively assessed or collected?
8. Can the Commissioner grant a refund or tax credit without a written claim for it?

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