TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban JUICY NOTES (PROF.

CABANEIRO) A2011 1
Chapter 6: REMEDIES OF THE GOVERNMENT COMPROMISE
Compromise v. abatement
IN GENERAL  CIR may compromise both civil and criminal liability of the taxpayer
 Unlike compromise which involves a reduction of the taxpayer’s
Remedies of the government liability, abatement of tax means that the entire tax liability of the
1. Tax lien taxpayer is cancelled.
2. Compromise  Compromise and abatement have different grounds.
3. Distraint
4. Levy Grounds for compromise
5. Civil action 1. A reasonable doubt as to the validity of the claim against the
6. Criminal action taxpayer exists; or
7. Forfeiture 2. The financial position of the taxpayer demonstrates a clear
8. Suspension of business operations in violation of VAT inability to pay the assessed tax
9. Enforcement of administrative fine
Grounds for abatement
TAX LIEN 1. When the tax or any portion thereof appears to be unjustly or
excessively assessed.
Tax lien 2. When the administration and collection costs involved do not justify
 Only one property subject to tax the collection of the amount due.
 When a taxpayer neglects or refuses to pay his internal revenue tax
liability after demand, the amount so demanded shall be a lien in Cases that may be compromised
favor of the government from the time the assessment was made by 1. Delinquent accounts
the Commissioner until paid with interest, penalties, and costs that 2. Cases under administrative protest
may secure in addition thereto, upon all property and rights to 3. Cases disputed before the courts
property belonging to the taxpayer. [Section 219, NIRC] 4. Cases for collection already filed in courts
 Lien shall not be valid against any mortgagee, purchaser or 5. Criminal violations except those already filed, and those involving
judgment creditor until notice of such lien shall be filed by the fraud.
Commissioner in the Register of Deeds of the province or city where
the property of the taxpayer is located. Cases that cannot be compromised
 A tax lien created in favor of the government is superior to all other 1. Withholding tax cases
claims and preferences, even to that of a private litigant predicated 2. Criminal tax fraud cases
on a court judgment. 3. Criminal cases already filed in court
4. Delinquent accounts with duly approved schedule of installment
Tax lien and Distraint payments
 Tax lien is directed to the property subject to the tax, regardless of 5. Cases where reduction of payments had already been granted.
the owner. 6. cases already decided and are final and executory
 In distraint, property seized must be that of the taxpayer, although it
need not be the property in respect to which the tax is assessed.

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
Compromise of criminal violation
 In criminal violations, the compromise must be made prior to the
filing of the information in court.
 All criminal violations may be compromised except:
1. those already filed in court; and
2. those involved in fraud.
Limitations on compromise
 In case of large taxpayers or excise taxpayers - not less than 50%
 For cases of financial incapacity, a minimum compromise rate
equivalent to 10% of the basic assessed tax; and
 For other cases, a minimum compromise rate equivalent to 40% of
the basic assessed tax
 Where the basic tax exceeds one million pesos (P1,000,000) or
where the settlement offered is less than the prescribed minimum
rates, the compromise shall be subject to the approval of the
Evaluation Board which shall be composed of the Commissioner and
the four Deputy Commissioners.
Delegation of the power of compromise
 The Commissioner may delegate his power to compromise to the
Deputy Commissioners and the Regional Directors subject to such
limitations and restrictions as may be imposed under rules and
regulations to be promulgated for the purpose.
DISTRAINT AND LEVY
Collection by distraint and levy
 Both are summary administrative enforcement remedies and cannot
be abailed of where the amount of tax involved is not more than
P100.
 Distraint is enforced on personal property of the taxpayer while levy
is enforced on real property.
 IN distraint, forfeiture by the government is not provided, while in
levy, forfeiture is authorized.
 The taxpayer is not given them right of redemption with respect to
distrained personal property, while such right is granted in case of
real property levied upon and sold, or forfeited, to the government.
 Levy may be made before, simultaneously or after distraint.
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JUICY NOTES (PROF. CABANEIRO) A2011 2
 The remedy of distraint and levy may be made repeatedly until the
full amount of the tax due including expenses is satisfied.
 Property in custodia legis may be distrained, subject to the outcome
and effects of the court’s final judgment.
Actual v. constructive distraint
 Actual distraint is resorted to when delinquency in the payment sets
in, that is, when at the time required for payment, a person fails to
pay his tax obligation. It consists of action seizure and distraint of
personal property to the taxpayer.
 In constructive distraint, no actual delinquency is necessary before it
may be resorted to. It may be availed of in the following instances:
a) Taxpayer is retiring from business subject to tax; b) He intends to
leave the Philippines; c) He removes his property therefrom; d) He
hides or conceals his property; or e) He performs any act tending to
obstruct the proceedings for collecting the tax due or which may be
due from him. In addition, constructive distraint may also be
resorted to when the taxpayer is already delinquent.
 Constructive distraint is a preventive remedy whose aim is to
forestall a possible dissipation of the taxpayer’s asset when
delinquency takes place.
 There are different procedures in enforcing actual and constructive
distraint.
How to effect constructive distraint?
 It shall be effected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt covering the
property distrained and obligate himself to preserve the same intact
and unaltered and not to dispose of the same in any manner
whatever without the express authority of the Commissioner.
 If the taxpayer or any other person refuses or fails to sign the
receipt, the revenue officer effecting the constructive distraint shall
proceed to prepare a list of such property and, in the presence of
two witnesses, leave a copy thereof in the premises where the
property distrained is located, after which the said property shall be
deemed to have been placed under constructive distraint.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
Procedure for actual distraint
1. Commencement of distraint proceedings
2. Service of warrant of distraint
3. Notice of sale of distrained property – not less than 20 days
4. Sale of property distrained – public auction
MANNER OF SERVING WARRANT OF DISTRAINT
1. Goods, chattels, effects or other personal property
The officer serving the warrant of distraint shall make or cause to be
made an account of goods, chattels, effects or other personal property
distrained, signed by himself, which includes a statement of the sum
demanded and note of the time and place of the sale.
The copy shall be left either with the owner or person from whose
possession such goods, chattels, or effects or other personal property were
taken, or at the dwelling of business of such person and with someone of
suitable age and discretion.
2. Stocks and other securities
Stocks and other securities shall be distrained by serving a copy of
the warrant of distraint upon the taxpayer and upon the president, manager,
treasure or other responsible officer of the corporation, company or
association, which issued the said stocks or securities.
3. Debts and credits
Debts and credits shall be distrained by leaving with the person
owing the debts or having in his possession or under his control such credits,
or with his agent, a copy of the warrant of distraint.
The warrant of distraint shall be sufficient authority to the person
owing the debts or having his possession or under his control any credits
belonging to the taxpayer to pay to the Commissioner the amount of such
debts or credits.
4. Bank accounts
Bank accounts shall be garnished by serving a warrant of
garnishment upon the taxpayer and upon the president, manager, treasurer
or other responsible officer of the bank.
Upon receipt of the warrant of garnishment, the bank shall turn over
to the Commissioner so much of the bank accounts as may be sufficient to
satisfy the claim of the Government.
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JUICY NOTES (PROF. CABANEIRO) A2011 3
Purchase by government at sale upon distraint
 The Commissioner or his deputy may purchase the property
distrained in behalf of the National Government when:
1. the amount bid for the property under distraint is not equal
to the amount of the tax; or
2. the amount is very much less than the actual market value
of the articles for sale.
 Property so purchased may be resold by the Commissioner or his
deputy.
PROCEDURE ON LEVY OF REAL PROPERTY
1. Service of warrant of levy
2. Advertisement of the sale – 20 days after levy; period of at least 30
days
3. Public sale of the property under levy or forfeiture of the property to
the government for want of bidder
4. Redemption of property or consolidation of ownership and title in the
purchaser
How to effect levy?
 Internal revenue officers shall prepare a duly authenticated
certificate showing the name of the taxpayer and the amount of the
tax and penalty due from him.
 Such certificate shall operate with the force of a legal execution
throughout the Philippines
 Levy shall be effected by writing upon said certificate a description
of the property upon which levy is made. At the same time, written
notice of the levy shall me mailed to or served upon the Register of
Deeds to the province or city where the property is located and upon
the delinquent taxpayer, or if he is absent from the Philippines, to
his agent or manager, or to the occupant of the property in
question.
 A failure of notice is a fatal defect.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
Advertisement of sale
 Within 20 days after levy.
 Posting a notice of sale at least 30 days at the main entrance of the
municipal or city hall and in public and conspicuous place in the city
or municipality where the property is located.
 Publication once a week for three weeks in a newspaper of general
circulation in the municipality or city where the property is located.
Redemption of real property sold
 Delinquent taxpayer have the right to redeem the real property sold
by him or any one for him within one (1) year from the date of sale.
 Taxpayer must pay the amount of public taxes, penalties, and
interest from the date of delinquency to the date of sale, together
with interest on said purchase price at the rate of 15% per annum
from the date of purchase to the date of redemption.
 The owner shall not, however, be deprived of the possession of the
said property and shall be entitled to the rents and other income
thereof until the expiration of the time allowed for its redemption.
Forfeiture to government for want of bidder in sale of real property
 Internal revenue officer conducting the sale of real property levied
shall declare the property forfeited to the Government in satisfaction
of the claim when:
1. here is no bidder for real property exposed for sale; or
2. the highest bid is for an amount insufficient to pay the taxes,
penalties and costs.
Resale of real estate taken for taxes
 The Commissioner shall have charge of any real estate obtained by
the Government in payment or satisfaction of taxes, penalties or
costs arising under the NIRC or in compromise or adjustment or any
claim thereof.
 The Commissioner may, upon giving not less than 20 days notice,
sell and dispose of the said property at public auction or, with the
prior approval of the Secretary of Finance, dispose of the same at
private sale.
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JUICY NOTES (PROF. CABANEIRO) A2011 4
Fatal defects in the levy of real property
1. Failure of sending notice to parties.
2. Mistake in the name of owner of the property
3. Misdescription of the property
4. Inaccurate date of sale as posted or published or sent in notice.
Forefeiture and seizure or property
1. In seizure, a tax lien is being enforced. Any amount in excess of the
tax lien shall be returned to the owner.
2. In forfeiture, the whole amount shall be forfeited in favor of the
government.
FORFEITURE
Forfeiture
 The effect of forfeiture is to transfer the title to the specific thing
from the owner to the government. May be redeemed.
 In case of personal property: The forfeiture of chattels and
removable fixtures of any sort is enforced by seizure and sale or
destruction of the specific forfeited property.
 In case of real property: This forfeiture of real property is
enforced by a judgment of condemnation and sale in a legal action
or proceeding, civil or criminal, as the case may require.
Forfeiture of property used in unlicensed business or dies used for
printing false stamps, etc
 All chattels, machinery, and removable fixtures of any sort used in
the unlicensed production of articles subject to excise tax shall be
forfeited.
 Dies and other equipment used for the printing or making of any
internal revenue stamp, label or tag which is in imitation of or
purports to be a lawful stamp, label or tag shall also be forfeited.
Forfeiture of goods illegally stored or removed
 Unless otherwise specifically authorized by the Commissioner, all
articles subject to excise tax should not be stored or allowed to
remain in a distillery, distillery warehouse, bonded warehouse or
other place where made, after the tax thereon has been paid;
otherwise all such articles shall be forfeited.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
 Articles withdrawn from any such place or from customs custody or
imported into the country without the payment of the required tax
shall likewise be forfeited.
CIVIL AND CRIMINAL ACTIONS
Civil and criminal actions
 Civil and criminal actions and proceedings instituted in behalf of the
Government under the authority of the NIRC or other law enforced
by the Bureau of Internal Revenue shall be brought in the name of
the Government of the Philippines and shall be conducted by legal
officers of the Bureau of Internal Revenue, but no civil or criminal
action for the recovery to taxes or the enforcement of any fine,
penalty or forfeiture under this Code shall be filed in court without
the approval of the Commissioner. [Section 220, NIRC]
 In a fraud assessment which has become final and executory, the
fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.
Civil action
 Civil action, as a mode of tax collection, is resorted to when a tax
liability becomes collectible.
 Collectibility of a tax arises in the following instances:
1. When a tax is assessed but the assessment becomes banal and
unappealable because the taxpayer fails to file an administrative
protest within 30 days.
2. When a protest against the assessment is filed by the taxpayer
and a decision is rendered by the Commissioner but said
decision becomes final, executory and demandable for failure of
the taxpayer to file an appeal within 30 days.
 A civil action may also be filed in order to collect the so called self
assessed tax
 No civil action for recovery of taxes shall be filed without the
approval of Commissioner – also criminal.
Insufficient protest allowing collection case
 In Dayrit v. Cruz [L-39910, September 26, 1988], the Supreme
Court ruled that the request for reconsideration cannot be
considered as a protest against the assessment. According to the
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JUICY NOTES (PROF. CABANEIRO) A2011 5
Supreme Court, the failure of the heirs to substantiate their claim
against the assessment due to the non-submission of their position
paper justified the Commissioner in collecting the estate and
inheritance taxes in the settlement proceedings.
 In Republic v. Ledesma [ L-9759, February 28, 1969], the
Supreme Court held that the taxpayer’s failure to dispute the
assessment effectively by complying with the conditions laid down
by the Bureau of Internal Revenue provided a legal basis for the
government to collect the taxpayer’s liability by ordinary civil action.
Is Commissioner required to rule on a pending protest before filing
a collection case?
 No. In Republic v. Liam Tian Teng Sons, Inc. [16 SCRA
584(1965)], the Supreme Court held that nowhere in the Tax Code
is the Commissioner required to rule first on a taxpayer’s request for
reinvestigation before he can to go court for the purpose of
collecting the tax assessed. According to the Supreme Court, the
legislative policy is to give the Commissioner much latitude in the
speedy and prompt collection of taxes because it is on taxation that
the government depends to obtain the means to carry out its
operations.
 Note however that civil or criminal case is tantamount to denial of
the request for reinvestigation. Thus, the taxpayer may file an
appeal with the Court of Tax Appeals. [Commissioner v. Union
Shipping]
Criminal action
 The filing of a criminal action is one of the recognized modes of
collecting delinquent taxes. Section 105 of the NIRC further states
that the judgment in the criminal case shall not only impose the
penalty but shall also order payment of the taxes subject of the
criminal case as finally decided by the Commissioner.
 Criminal action is, however, not resorted to as a collection remedy
only. There are other cases not involving non-payment of taxes
where criminal action is utilized.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
Important considerations regarding criminal action
1. No criminal action for the recovery of taxes or the enforcement of a
fine shall be filed in court without the approval of the Commissioner.
[Section 220, NIRC]
2. Criminal actions instituted in behalf of the government under the
authority of the NIRC or other law enforcement by the Bureau of
Internal Revenue shall be brought in the name of the government
and shall be conducted by legal officers of the Bureau of Internal
Revenue. [Section 220, NIRC]
3. The acquittal of the taxpayer in a criminal action does not
necessarily result in the exoneration of said taxpayer form his civil
liability to pay taxes.
4. IN a criminal action that was instituted against the taxpayer for
having filed a false and fraudulent return and failure to pay taxes,
the Supreme Court held that the subsequent satisfaction of the tax
liability by payment or prescription will not operate to extinguish the
taxpayer’s criminal liability.
Payment of the tax due after apprehension shall not constitute a
valid defense in any prosecution for violation of any provision of the NIRC or
in any action for forfeiture of untaxed articles. [Section 253, NIRC]
5. Subsidiary imprisonment is provided for in cases of non-payment of
the fine due to the taxpayer’s insolvency but not for failure to pay
the tax due to the taxpayer’s insolvency.
Section 280 provides that: “If the person convicted of violation of
any provisions of this Code has no property with which to meet the fine
imposed upon him by the court or is unable to pay such fine, he shall be
subject to a subsidiary personal liability.”
6. In Ungab v. Cusi, the Supreme Court held that no assessment is
required before a criminal prosecution. This was modified in a later
case, Commissioner v. Court of Appeals, where the Supreme
Court ruled that assessment is necessary before the criminal
prosecution of Fortune Tobacco. The Supreme Court, however,
harmonized this decision with the earlier one. [See later discussion]
7. In cases of violations committed by associations, partnerships, or
corporations, the penalty shall be imposed on the partner, president,
general manager, branch manager, treasurer, officer-in-charge, and
employees responsible for the violation.
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JUICY NOTES (PROF. CABANEIRO) A2011 6
Civil liability in tax criminal cases
 In ordinary criminal cases, the civil liability is incurred by reason of
the offender’s criminal act.
 In taxation, the civil liability to pay taxes arises not because of any
felony but upon the taxpayer’s failure to pay taxes. Criminal liability
in taxation arises as a result of one’s liability to pay taxes.
Consequently, the extinction of one’s criminal liability does not
necessarily result in the extinguishments of his civil liability to pay
taxes.
 “With regard to the tax proper, the state correctly points out in its
brief that the acquittal in the criminal case could operate to
discharge the petitioner from the duty to pay the tax since that duty
is imposed by statute prior to and independent of any attempts on
the part of the taxpayer to evade payment. The obligation to pay
the tax is not amere consequence of the felonious acts charged in
the information, nor is it a mere civil liability derived from crime that
would be wiped out by the judicial declaration that the criminal acts
charged did not exist.” [Castro v. Collector, 4 SCRA 1093]
Need for assessment before criminal action
Ungab v. Cusi [L-41919-24, May 30, 1980]
 Quirico Ungab filed a motion to quash the criminal complaints
against him in view of his pending protest against the assessment
made by the Bureau of Internal Revenue. The Supreme Court ruled
that his contention is without merit. What is involved here is not the
collection of taxes where the assessment of the Commissioner may
be reviewed by the Court of Tax Appeals but a criminal prosecution
for violation of the NIRC which is within the cognizance of the Court
of First Instance (now RTC)
 While there can be no civil action to enforce collection before the
assessment procedures in the NIRC have been followed, there is no
requirement for the precise computation of the tax before there can
be criminal prosecution under the NIRC.
 A crime is complete when the violator has knowingly and willfully
filed a fraudulent return with intent to evade and defeat the tax.
TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban JUICY NOTES (PROF. CABANEIRO) A2011 7
Commissioner of Internal Revenue v. Court of Appeals (1997)
 Assessment required before criminal prosecution of Fortune for tax
evasion can be pursued.
 The Supreme Court differentiated this case from Ungab v. Cusi by
ruling that, even though this is also a criminal prosecution, there
must be a prima facie showing of a willful attempt to evade taxes
before one can proceed with such prosecution. In Ungab, there
was willful attempt to evade taxes while in the case at bar, there
was none, as Fortune was even paying taxes according to the BIR
requirements. Thus, there is still need for a final determination of
the tax due before criminal prosecution can be commenced against
Fortune.

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