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Saint Louis University

Case Digest: Taxation II

EXTENT OF CONGRESS POWER RE: TAX ADMINISTRATION


ABAKADA GURO PARTYLIST v. CESAR PURISIMA
G.R. No. 166715 August 14 2008

FACTS:
Congress enacted R.A. 9335 which intends to encourage BIR and BOC officials
and employees to exceed their revenue targets by providing a system of rewards
and sanctions through the creation of a Rewards and incentives Funds and a
Revenue Performance Evaluation Board. The law also includes a congressional
oversight committee to approve or disapprove the implementing rules that the
subject agencies will promulgate. Petitioners question the creation of this oversight
committee on the ground that it violates the doctrine of separation of powers. While
the legislative function is deemed accomplished and completed upon the
enactment and approval of the law, the congressional oversight committee permits
participation in the implementation and enforcement of the law.

ISSUE:
Whether or not the legislative branch violated the doctrine of separation of
powers.

RULING:
To forestall the danger of congressional encroachment beyond the legislative
sphere,the Constitution imposes two basic and related constraints on Congress. It
may not vest itself, any of its committees or its members with either executive or
judicial power. And, when it exercises its legislative power, it must follow the
single, finely wrought and exhaustively considered, procedures specified under
the constitution, including the procedure for enactment of laws and presentment.
Thus, any post-enactment congressional measure such as this should be
limited to scrutiny and investigation. In particular, congressional oversight must be
confined to the following:
(1) Scrutiny based primarily on Congress power of appropriation and budget
hearings conducted in connection with it, its power to ask heads of
departments to appear before and be heard by either of its Houses on any
matter pertaining to their department and its power of confirmation and;
(2) Investigation and monitoring of the implementation of laws pursuant to the
power of Congress to conduct inquiries in aid of legislation.
Administrative regulations enacted by administrative agencies to implement
and interpret the law which they are entrusted to enforce have the force of law and
entitled to respect. Such rules and regulations partakes the nature of a statute and
are just as binding as if they have been written in the statute itself. As such, they
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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Case Digest: Taxation II

have the force and effect of law and enjoy the presumption of constitutionality and
legality until they are set aside with finality in an appropriate case by a competent
court. Congress in the guise of assuming the role of an overseer may not pass upon
their legality by sub-calculated balance of power established by the Constitution. In
exercising discretion to approve or disapprove the IRR based on the determination
of whether or not they confirmed with the provisions of R.A. 9335. Congress
arrogated judicial power unto itself, a power exclusively vested in this Court by the
Constitution.

EXTENT OF CONGRESS POWER RE: TAX ADMINISTRATION


BRITISH AMERICAN TOBACCO v. CAMACHO
G.R. No. 163583 August 20, 2008

FACTS:
Section 145 of the NIRC provides for four tiers of tax rates based on the net
retail price per pack of cigarettes. To determine the applicable tax rates of existing
cigarette brands, a survey of the net retail prices per pack of cigarettes was
conducted as of October 1, 1996.
In lieu to this survey, the applicable tax rate of herein petitioner tax rate of
herein petitioner was thus recommended. Aggrieved, petitioner filed before the RTC
a petition for injunction. While the case is pending R.A. 9334 took effect and
respondent commissioner assessed petitioner applying the said law.

ISSUE:
Whether or not R.A. 8240 as amended by R.A.9334 created grossly
discriminatory classification scheme between old and new brands.

RULING:
Congress sought to. Among others, simplify the whole tax system for sin
products to remove these potential areas of abuse and corruption from both the
side of the taxpayer and the government. Without doubt, the classification freeze
provision was an integral part of this overall plan. This is in line with one of the
avowed objectives of the assailed law to simplify the tax administration and
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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compliance with the tax laws that are about to unfold in order to minimize losses
arising from inefficiencies and tax avoidance scheme, if not outright tax evasion.
R.A. 9334 did not alter this classification freeze provision of R.A. 8240. On the
contrary, Congress affirmed this freezing mechanism by clarifying the wording of
the law. The Court thus reasonably conclude, as the deliberation on R.A. 9334
readily show, that the administrative concerns in tax administration, which moved
Congress to enact the classification freeze provision in R.A. 8240, were merely
continued by R.A. 9334. Indeed, administrative concerns may provide a legitimate,
rational basis for legislative classification.

BIR ISSUANCES AND THE RULES RELEVANT THERETO


COMMISSIONER OF INTERNAL REVENUE v. BURROUGHS LIMITED
G.R. No. 66653

June 19, 1986

FACTS:
Burroughs Limited is a foreign corporation authorized to engage in trade or
business in the Philippines through a branch office. In March 1979, said branch
office applied with the Central Bank for authority to remit to its parent company
abroad branch profit. It thus paid the 15% branch profit remittance tax, pursuant to
Sec. 24 (b) (2) (ii). In a Bureau of Internal Revenue ruling dated January 21, 1980,
the 15% branch profit tax shall be imposed on the branch profits actually remitted
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abroad and not on the total branch profits out of which the remittance is to be
made. Thus, claiming that the 15% profit remittance tax should have been
computed on the basis of the amount actually remitted and not on the amount
before profit remittance tax private respondent filed on December 24, 1980, a
written claim for the refund or tax credit regarding the overpaid branch profit
remittance tax but such was denied.
The Court of Tax Appeals on petition for review decided on the matter and
rendered a decision ordering the Commissioner of Internal Revenue to grant the tax
credit to Private Respondent. Petitioner argued that Memorandum Circular No. 8-82
dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21,
1980.

ISSUE:
Whether the Memorandum Circular No. 8-82 dated March 17, 1982 can be
given retroactive effect in the light of Section 327 of the National Internal Revenue
Code.

RULING:
Petitioner's aforesaid contention is without merit. What is applicable in the
case at bar is still the Revenue Ruling of January 21, 1980 because private
respondent Burroughs Limited paid the branch profit remittance tax in question on
March 14, 1979. Memorandum Circular No. 8-82 dated March 17, 1982 cannot be
given retroactive effect in the light of Section 327 of the National Internal Revenue
Code.
The prejudice that would result to private respondent Burroughs Limited by a
retroactive application of Memorandum Circular No. 8-82 is beyond question for it
would be deprived of the substantial amount overpaid by respondent. And, insofar
as the enumerated exceptions are concerned, admittedly, Burroughs Limited does
not fall under any of them.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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BIR ISSUANCES AND THE RULES RELEVANT THERETO


COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS AND
FORTUNE
G.R. No. 119761 August 29, 1996

FACTS:
Pursuant to R. A. No. 7654, the BIR issued Revenue Memorandum Circular No.
37-93 which in gist reclassified certain products of private respondent particularly
HOPE, MORE and CHAMPION cigarettes as foreign manufactured products. Fortune
requested a review, reconsideration and recall of RMC 37-93 which was
subsequently denied by the BIR. Thus, a petition for review was filed with the CTA
which decided in favor of Fortune explaining that the abovementioned brands were
locally manufactured cigarettes since under R.A. 7654 they were still classified as
locally manufactured cigarettes.

ISSUE:
Whether or not RMC 37-93 valid interpretation of R.A. 7654.

RULING:
The Court held that the hastily promulgated RMC 37-93 has fallen short of a
valid and effective administrative issuance. It should be understandable that when
an administrative rule is merely interpretative in nature, its applicability needs
nothing further than its bare issuance for it gives no real consequence more than
what the law itself already prescribed. When, upon the other hand, the
administrative rule goes beyond merely providing for the means that can facilitate
or render least cumbersome the implementation adds to or increase the burden of
those governed, it behooves the agency to accord at least to be duly inferred,
before that new issuance is given, the force and effect of law.
The BIR not simply interpreted the law; verily, it legislated under its quasilegislative authority. The due observance of the requirements of notice, of hearing
and publication should not have been then ignored.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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Case Digest: Taxation II

BIR ISSUANCES AND THE RULES RELEVANT THERETO


PHILIPPINE BANK OF COMMUNICATION v. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 112024 January 28, 1999

FACTS:
PBCOM filed a claim for tax refund of the creditable taxes withheld by their
lessees with the BIR. Pending the investigation, it filed a petition for review before
the CTA. The court however, denied the request for tax refund or credit on the
ground that it was filed beyond the two-year reglementary period. PBCOM argued
that, in reliance to RMO No. 7-85, the prescriptive period for the tax refund or credit
is not two years but ten (10).

ISSUE:
Whether or not RMC No. 7-85 is valid when it changed the prescriptive period
of two years to ten years.

RULING:

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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When the Acting Commissioner of Internal Revenue issued RMC No. 7-85,
changing the prescriptive period of two years to ten years on claims of excess
quarterly income tax payments such circular created a clear inconsistency with the
provision of Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply interpret the
law; rather it legislated guidelines contrary to the statute passed by Congress.
Revenue memorandum circulars are considered administrative rulings and it
is widely accepted that the interpretation upon a statute by the executive officers,
whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless,
such interpretation is not conclusive and will be ignored if judicially found to be
erroneous. Thus, courts will not countenance administrative issuances that override,
instead of remaining consistent and in harmony with the law they seek to apply and
implement

CASES THAT MAY BE DECIDED BY THE CIR


COMMISSIONER OF INTERNAL REVENUE v. JOSEFINA LEAL
G.R. No. 113459 November 18, 2002
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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FACTS:
Petitioner issued Revenue Memorandum Order No. 15-91 and Revenue
Memorandum Circular 43-91 which imposed a 5% lending investors tax on
pawnshops. Josefina Leal, being an owner and operator of a pawnshop, asked for
reconsideration but the same was denied, hence, she filed a petition for prohibition
with the RTC.
Petitioner herein filed a Motion to Dismiss on the ground that RTC has no
jurisdiction to review the questioned revenue orders and to enjoin their
implementation. Petitioner contends that the subject revenue orders were issued
pursuant to his power to make rulings or opinions in connection with the
implementation of the provisions of internal revenue laws Thus, the case falls
within the exclusive appellate jurisdiction of the CTA pursuant to Section 7(1) of RA
1125.

ISSUE:
Whether or not the RTC has jurisdiction over the case.

RULING:
The Court ruled in the negative, Section 7(1) of R.A. 1125 explicitly laid down
the jurisdiction of the CTA, which states that the CTA has exclusive appellate
jurisdiction to review by appeal:
Decisions of the Commissioner of internal revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters under the National Internal Revenue
Code or other laws or part of the law administered by the Bureau of Internal
Revenue

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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NATURE AND SCOPE OF LETTER OF AUTHORITY


COMMISSIONER OF INTERNAL REVENUE v. SONY PHILIPPINES INC.
G.R. No. 178697 November 17, 2010

FACTS:
The CIR issued Letter of Authority to examine the books of accounts and
other accounting records of Sony regarding revenue taxes for the period 1997 and
unverified prior year. The respondent questioned the assessment of its books of
accounts regarding January- March 1998 since it is beyond the coverage of the LOA.

ISSUE:
Whether or not the LOA issued by the CIR is valid.

RULING:
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the
authority given to appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said revenue officer to examine the books of
accounts and other accounting records of a taxpayer for the purpose of collecting
the correct amount of tax.
Clearly, there must be a grant of authority before any revenue officer can
conduct an examination or assessment. Equally important is that the revenue
officer so authorized must not go beyond the authority given. In the absence of
such an authority, the assessment or examination is a nullity.
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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The LOA, particularly the phrase and unverified prior year violated Section
C of the Revenue Memorandum Order No. 43-90 which states:
A Letter of Authority should cover a taxable period not exceeding one taxable year.
The practice of issuing L/A covering audit of unverified prior years is hereby
prohibited. If the audit of taxpayer shall include more than one taxable period, the
other pertinent period shall be specifically indicated in the L/A.

SUMMON PERSONS, TAKE TESTIMONY


FITNESS BY DESIGN v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 177982 October 17, 2008

FACTS:
Petitioner Corporation was assessed by the CIR for deficiency income taxes
based on information disclosed by a former employee of petitioner. Petitioner
questioned the manner of which the documents reached the BIR since they were
submitted without its consent. That such act implies that BIR obtained the
documents illegally and that the information received is false or malicious.
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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ISSUE:
Whether or not Petitioner is correct.

RULING:
Section 5 of the Tax Code Authorized the Commissioner, in ascertaining the
correctness of any return, or in making a return when none has been made, or in
determining the liability of any person for any internal revenue tax, or in collecting
any such liability, or in evaluating tax compliance:
(C) To summon the person liable for tax or required to file a return, or any person
having possession, custody, or care of the books of accounts and other accounting
records containing entries relating to the business of the person liable for tax, to
appear before the Commissioner or his duly authorized representatives at a time
and place specified in the summons and to produce such books, papers, records or
other data, and to give testimony.
Thus, the law allows BIR access to all relevant or material records and date in
the person of the taxpayer, and the BIR can accept documents which cannot be
admitted in a judicial proceeding where the Rules of Court are strictly observed. To
require the consent of the taxpayer would defeat the intent of the law to help the
BIR assess and collect the correct amount of taxes.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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RULES ON CONFIDENTIALITY OF TAX RETURNS


BUREAU OF INTERNAL REVENUE v. OFFICE OF THE OMBUDSMAN
G.R. No. 115103 April 11, 2002

FACTS:
The Ombudsman issued a subpoena duces tecum to the legal department of
the BIR to bring the complete case dockets of refunds granted to Limtuaco and La
Tondena. The BIR refused to do so arguing that to allow such it would violate the
rule on divulgence of trade secrets.

ISSUE:
Whether the subpoena duces tecum violate trade secrets.

RULING:
The court was not persuaded. The records do not show how production of the
subpoenaed documents would necessarily contravene Sec 269(now 270) of the
NIRC on unlawful divulgence of trade secrets and Sec. 277(now 278) of the same
Code on procuring unlawful divulgence of trade secrets.
The documents sought to be produced were only case dockets of the tax
refunds granted to Limtuaco and La Tondena which are public records and the
subpoena duces tecum were directed to the public officials who have the official
custody of the said records.
The court found no valid reason why the trade secrets of Limtuaco and La
Tondena would be unnecessarily disclose of such official records, subject of the
subpoena duces tecum, were to be produced by the petitioner BIR to respondent
Office of the Ombudsman.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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POWER TO MAKE A RETURN


COMMISSION OF INTERNAL REVENUE v. HANTEX TRADING CO., INC.
G.R. No. 136975 March 31, 2005

FACTS:
Hantex Trading Co. INC. is a domestic corporation engaged in the sale of
plastic products, it imports synthetic resin and other chemicals for the manufacture
of its products. Under Section 1301 of the Tariff and Customs Code the Bureau of
Customs requires Hantex to file an Import Entry and Internal Revenue Declaration.
Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic
Intelligence and Investigation Bureau, received confidential information that the
1987 importations of the respondent were understated in its accounting records,
based on photocopies of 77 Consumption Entries furnished by another informer.
Acting on the said report, Jose T. Almonte, issued Mission Order No. 398-89 for the
audit and investigation of the importations of Hantex for 1987. The IIPO issued
subpoena duces tecum and ad testificandum for the president and general manager
of the respondent. This however was refused by the respondents president
contending that its books of account and records of importation of synthetic resin
and calcium bicarbonate had been investigated repeatedly by the BIR on prior
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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occasions. Due to the refusal of the respondent the IIPO secured certified copies of
the Profit and Loss Statements for 1987 filed by the respondent with the
SEC. However, the IIPO failed to secure certified copies of the respondents 1987
Consumption Entries from the Bureau of Customs.
Only machine copies of the Consumption Entries, Series of 1987, submitted
by the informer, as well as excerpts from the entries certified by Tomas and
Danganan have been shown and became the basis of the tax liability of the
respondent arising from the unreported sale. The EIIB Commissioner Almonte
thereafter transmitted the entire docket of the case to the BIR and recommended
the collection of the total tax assessment from the respondent. Respondent wrote
the Commissioner of Internal Revenue protesting the assessment on the ground
that the assessment has no factual as well as legal basis. It is also assailed by the
respondent that the assessment of deficiency sales tax is also likewise baseless and
unfounded.

ISSUE:
Whether the final assessment of the petitioner against the respondent for
deficiency income tax and sales tax for the latters 1987 importation of resins and
calcium bicarbonate is based on competent evidence warrant by law.

RULING:
The court rules that the best evidence obtainable under Section 16 of the
1977 NIRC, as amended, does not include mere photocopies of records or
documents. Mere photocopies of the Consumption Entries have no probative weight
if offered as proof of the contents thereof. The reason for this is that such copies are
mere scraps of paper and are of no probative value as basis for any deficiency
income or business taxes against a taxpayer.
The rule is that in the absence of the accounting records of a taxpayer, his
tax liability may be determined by estimation. The petitioner is not required to
compute such tax liabilities with mathematical exactness. Approximation in the
calculation of the taxes due is justified. However, the rule does not apply where the
estimation is arrived at arbitrarily and capriciously.
The Supreme Court held that the computations of the EIIB and the BIR on the
quantity and costs of the importations of the respondent for 1987 have no factual
basis, hence, arbitrary and capricious. The presumption of the correctness of an
assessment, being a mere presumption, cannot be made to rest on another
presumption; the assessment must be based on facts.
POWER TO MAKE A RETURN
COMMISSIONER OF INTERNAL REVENUE v. EMBROIDERY AND GARMENTS
INDUSTRIES INC.
G.R. No. 96262
March 22, 1999

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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FACTS:
Acting upon a sworn report by an informer the on the basis of a sworn report
of an informer, the Courts of First Instance of Manila and Bulacan issued search
warrants for the seizure of certain documents from the offices of respondent
Embroidery and Garments Industries (Phil.), Inc. in Manila and Bulacan. Armed with
the warrants, agents of the Anti-Technical Smuggling Unit, Bureau of Internal
Revenue, seized various business records and documents from respondent's offices.
On January 4, 1966, petitioner assessed respondent the sum of P436,846.44,
inclusive of 75% surcharge and penalty as advance sales tax for the years 1959 to
1961 and, on March 23, 1966, assessed deficiency income tax in the sum of
P4,799,641.95, inclusive of 50% surcharge and 1/2% monthly interest for the years
1960 and 1961 which the respondent protested. Acting upon said protest the
petitioner issued to respondent a revised assessment requiring the latter to pay the
amount of P2,756,241.68, inclusive of 50% surcharge and 1/2% monthly interest as
deficiency income tax for the years 1959 to 1961 as well as payment of advance
sales tax and 75% surcharge corresponding to the same years.
On January 7, 1971, respondent filed with the Bureau of Internal Revenue a
protest disputing the revised assessments and requesting further investigation
which was denied. Thus respondent filed with the Court of Tax Appeals a petition for
review of the disputed tax assessments. The Court of Tax Appeals rendered decision
finding respondent not liable for deficiency income tax and advance sales tax
assessed against it, and accordingly, reversed the BIR decision. In its decision, the
Court of Tax Appeals held that the assessments were doubtful validity as they were
based on incompetent evidence which consist of an informant's report and the
sworn statement of the disgruntled former general manager of respondent that in
the years in question respondent sold all its dollar quotas to local Chinese textile
traders at an overprice or premium on the dollar value of textile importation of 80%
for suiting materials and 70.% for women's clothing materials and faked its invoices
to reduce its costs of importation.

ISSUE:
Whether or not the Court of Appeals erred in not holding that respondent is
liable for deficiency income tax and advance sales tax.

RULING:

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The court finds that the issues raised by the petitioner in the petition for
review on certiorari of the decision of the Court of Appeals before the Supreme
Court are clearly factual and must be resolved on the basis of the evidence adduced
before the tax court. It is a fundamental rule that on appeal via certiorari from a
decision of the Court of Appeals to the Supreme Court issues to be raised may only
be questions of law, which must be distinctly set forth. The said case does not fall
into the exemptions granted by law.
Thus the Court affirmed the appealed decision of the Court of Appeals finding
the respondent not liable for deficiency income tax and advance sales. The tax
court ruled that the assessments must be based on actual facts and proved by
competent evidence, not imposed based on unverified information supplied by an
informant, or disputed presumptions.

FIXING OF REAL PROPERTY VALUES:


COMMISSION OF INTERNAL REVENUE v. AQUAFRESH SEAFOODS, INC.
G.R. No. 170389 October 20, 2010
FACTS:
Respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels
of land, located at Barrio Banica, RoxasCity. Capital Gains Tax (CGT) and
Documentary Stamp Tax (DST) were paid by the respondent and subsequently,
Revenue District Officer Gil G. Tabanda issued Certificate Authorizing Registration
No. 1071477.
The Bureau of Internal Revenue (BIR), however, received a report that the lots
sold were undervalued for taxation purposes. This prompted the Special
Investigation Division (SID) of the BIR to conduct an ocular inspection over the
properties. After the investigation, the SID concluded that the subject properties
were commercial with a zonal value of Php2,000.00 per square meter.
Two assessment notices were then given to the respondent concerning tax
deficiencies in connection to the sale of the real properties. This however was
protested by Aquafresh which was later on denied by the BIR. The case was then
filed before the Court of Tax Appeal which rendered a decision in favor of the
respondent contending that the existing Revised Zonal Values in the City of Roxas
should prevail for purposes of determining respondent's tax liabilities.
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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ISSUE:
Whether or not the Court of Tax Appeal En Banc committed grave error in
applying the fair market value based on the Zonal Valuation of a residential land as
tax base in the computation of Capital Gains Tax and Documentary Stamp Tax
deficiencies of the respondent.

RULING:
In determining the value of CGT and DST arising from the sale of a property,
the power of the CIR to assess is subject to Section 6(E) of the NIRC. While the CIR
has the authority to prescribe real property values and divide the Philippines into
zones, the law is clear that the same has to be done upon consultation with
competent appraisers both from the public and private sectors. It is undisputed that
at the time of the sale of the subject properties found in Barrio Banica, Roxas City,
the same were classified as "RR," or residential, based on the 1995 Revised Zonal
Value of Real Properties. Petitioner, thus, cannot unilaterally change the zonal
valuation of such properties to "commercial" without first conducting a re-evaluation
of the zonal values as mandated under Section 6(E) of the NIRC. The petitioner's act
of re-classifying the subject properties from residential to commercial cannot be
done without first complying with the procedures prescribed by law.
Petitioners reliance to Section 2 (a) of the Zonal Valuation Guidelines, to
justify its action is untenable. In applying the predominant use of property as the
basis for the computation of the Capital Gains and Documentary Stamp Taxes, it
should be noted that it shall apply only when the real property is located in an area
or zone where the properties are not yet classified and their respective zonal
valuation are not yet determined. In this case the subject properties were already
part of the 1995 Revised Zonal Value of Real Properties which classified the same as
residential with a zonal value of Php650.00 per square meter; thus, Section 2 (a)
clearly has no application.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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NON-DELEGABLE POWERS
REPUBLIC OF THE PHILIPPINES v. SALUD V. HIZON
G.R. No. 130430 December 13, 1999

FACTS:
Sometime in July 1986, the BIR issued to respondent Hizon a deficiency
income tax assessment of covering the fiscal year 1981-1982. More than three
years later, respondent wrote the BIR requesting a reconsideration of her tax
deficiency assessment. The BIR, in a letter and filed a case with the Regional Trial
Court to collect the tax deficiency. The complaint was signed by Norberto Salud,
Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the
Bureau's Regional Director in Pampanga.
Respondent moved to dismiss the case on two grounds: (1) that the complaint was
not filed upon authority of the BIR Commissioner as required by Sec 221 of the
National Internal Revenue Code, and (2) that the action had already prescribed.
Over petitioner's objection, the trial court, on August 28, 1997, granted the motion
and dismissed the complaint.

ISSUE:
Whether or not the institution of the civil case for collection of taxes was
without the approval of the commissioner in violation of Section 221 of the National
Internal Revenue Code.

RULING:
There is no question that the National Internal Revenue Code explicitly
provides that in the matter of filing cases in Court, civil or criminal, for the collection
of taxes, the approval of the commissioner must first be secured. An action will not
prosper in the absence of the commissioner's approval. Thus, in the instant case,
the absence of the approval of the commissioner in the institution of the action is
fatal to the cause of the plaintiff.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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The court finds that the complaint filed in this case was signed by the BIR's
Chief of Legal Division for Region 4 and verified by the Regional Director, there was,
therefore, compliance with the law. The refusal of the lower court to recognize RAO
No. 10-95 and, by implication, RAO No. 5-83 which states that, Memoranda,
circulars and orders emanating from bureaus and agencies whether in the purely
public or quasi-public corporations are mere guidelines for the internal functioning
of the said offices. They are not laws which courts can take judicial notice of is
erroneous. The rule is that as long as administrative issuances relate solely to
carrying into effect the provisions of the law, they are valid and have the force of
law.
The Commissioner's power to approve the filing of tax collection cases is not
one of the exceptions found in Section 7 of the NIRC and thus therefore can be
validly delegated by the BIR Commissioner.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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AUTHORITY TO ABATE AND COMPROMISE


PHILIPPINE NATIONAL OIL COMPANY v. COURT OF APPEALS
G.R. No. 109976 April 26, 2005

FACTS:
Private respondent Tirso B. Savellano submitted a sworn statement informing
the Bureau of Internal Revenue that Philippine National Bank had failed to hold the
15% final tax on interest earnings and/or yields from the money placements of
Philippine National Oil Company (PNOC) with the said bank, in violation of
Presidential Decree (P.D.) No. 1931. P.D. No. 1931 withdrawing all tax exemptions of
government-owned and controlled corporations.
BIR then requested PNOC to settle its tax liability which the PNB failed to
withhold. PNOC replied in a letter offering BIR a compromise by setting off its tax
liability claim against a claim for tax refund from NAPOCOR, then pending with the
BIR. The BIR replied to this letter stating that the proposed set off was not possible
as the claim was premature since it was still pending. Another offer was made by
PNOC proposing a compromise by paying 30% of the basic tax in accordance with
the provisions of E.O.44.
The BIR Commissioner Tan accepted the compromise thus PNOC was able to
pay its tax liability equivalent to 30% of the total tax on interest earnings and/or
yields from its money placement with PNB. Savellano was then paid the informers
reward through 4 installments.
Savellano through a counsel demands the full payment of his informers
reward which the BIR replied to that he was already paid the equivalent of 15% of
the amount paid by PNOC in pursuant to a compromise agreement. An agreement
which was further explained by Commissioner Tan to be in accordance with the
provisions of E.O. 44 RMO no. 39-86 and RMO no. 4-87.
Savellano was prompted to file a case claiming that BIR Commissioner Tan
acted "with grave abuse of discretion and/or whimsical exercise of jurisdiction" in
entering into a compromise agreement that resulted in "a gross and unconscionable
diminution" of his reward. He prays for the for the enforcement and collection of
the total tax assessment against taxpayer PNOC and/or withholding agent PNB; and
the payment to him by the BIR Commissioner of the 15% informer's reward on the
total tax collected.
Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB,
demanded that PNB pay deficiency withholding tax on the interest earnings and/or
yields from PNOC's money placements. Which was protested by PNB but the BIR
denied PNB's protest on the ground that it was filed out of time and, thus, the
assessment had already become final.
The Petitions for Review on Certiorari filed separately by PNOC and PNB was
then consolidated since they involved identical parties and factual background, and
the resolution of related, if not exactly, the same issues.
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ISSUE:
Whether or not PNOC could not apply for a compromise under E.O. No. 44
because its tax liability was not a delinquent account or a disputed assessment as
of 31 December 1985.

RULING:
E.O. No. 44 granted the BIR Commissioner or his duly authorized
representatives the power to compromise any disputed assessment or delinquent
account pending as of 31 December 1985, upon the payment of an amount equal to
30% of the basic tax assessed.
The disputed assessments or delinquent accounts that the BIR Commissioner
could compromise under E.O. No. 44 are defined under Revenue Regulation (RR) No.
17-86 are delinquent account which refers to the amount of tax due on or before
December 31, 1985 from a taxpayer who failed to pay the same within the time
prescribed for its payment arising from (1) a self assessed tax, whether or not a tax
return was filed, or (2) a deficiency assessment issued by the BIR which has become
final and executory and disputed assessment.
Although it is clear that the self-assessing system governs Philippine internal
revenue taxes. The dissenting opinion itself defines self-assessed tax as, "a tax that
the taxpayer himself assesses or computes and pays to the taxing authority",
neither PNOC nor PNB, the taxpayer and the withholding agent, respectively,
conducted self-assessment in this case. There is no showing that in the absence of
the tax assessment issued by the BIR against them, that PNOC and/or PNB would
have voluntarily admitted their tax liabilities.
It has been held by the court that PNOC and PNB cannot validly avail of a
compromise under E.O. No. 44 thus the compromise agreement entered into by
PNOC and former BIR Commissioner Tan is with no legal effect.

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AUTHORITY TO ABATE AND COMPROMISE


PEOPLE OF THE PHILIPPINES v. SANDIGANBAYAN and BIENVENIDO A. TAN
JR.
G.R. No. 152532 August 16, 2005

FACTS:
Pursuant to Letter of Authority No. ATD-035-STO dated January 2, 1986 and
Memorandum of Authority dated March 3, 1986, an investigation was conducted by
Bureau of Internal Revenue (BIR) examiners on the ad valorem and specific tax
liabilities of San Miguel Corp. (SMC) covering the period from January 1, 1985 to
March 31, 1986. It was found out in the investigation that SMC have a deficiency
amounting to more than Php 300,000,000.00.
SMC protested the assessment on the ground that the said tax deficiency was
already paid and the computation of the ad valorem tax deficiency was erroneous
since the BIR examiners disallowed the deduction of the price differential (cost of
freight from brewery to warehouse) and ad valorem tax. The tax liabilities was then
reduced and pursuant to this the SMC, in a letter dated August 31, 1988 thru a
certain Avendano offered the amount of P10,000,000.00 for the settlement of the
assessment.
The offer was then accepted by former BIR Commissioner Bienvenido A. Tan
Jr. who was charged with "having wilfully, unlawfully and criminally caused undue
injury to the government by effecting a compromise of the tax liabilities" of SMC
amounting toP302,051,048.93 for only P10,000,000, a "compromise that is grossly
disadvantageous to the government." In no uncertain terms, the assailed Resolution
of the Sandiganbayan acquitted him of violating Section 3(e) of Republic Act No.
3019 (the Anti-Graft Law).

ISSUE:
Whether or not the acceptance of Php 10,000,000.00 as allegedly a
compromise is gross and therefore illegal.

RULING:

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The Sandiganbayan did not gravely abuse its discretion when it upheld
private respondents acceptance of SMCs compromise offer of P10 million.
Although it has been repeatedly said that the offer by SMC was in a form of
compromise the court held that what was entered into by the parties was not a
compromise but was abatement. The disallowance on deducting the price
differential and ad valorem tax will result to a higher base for taxes and this is
erroneous because a tax cannot be impose on another tax.
Thus, no mutual concessions need be made, because an excessive or
erroneous tax is not compromised; it is abated or cancelled. Ultimately it should be
noted that only correct and proper taxes should be paid.

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ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. HON. RAUL M. GONZALEZ
G.R. No. 177279 October 13, 2010
FACTS:
The Tax Fraud Division (TFD), National Office, conducted a fraud investigation
for all internal revenue taxes to ascertain/determine the tax liabilities of respondent
L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and
1999. The audit and investigation against LMCEC was precipitated by the
information provided by an "informer" that LMCEC had substantial under declared
income.
It was discovered that LMCEC filed fraudulent tax returns with substantial
under declarations of taxable income. Petitioner thus assessed the company of total
deficiency taxes amounting The Preliminary Assessment Notice (PAN) was received
by LMCEC on February 22, 2001. Assessment notices together with a formal letter of
demand were then sent to LMCEC through personal service on October 1, 2002 but
was refused so the revenue officers resorted to constructive service in accordance
with Section 3, Revenue Regulations (RR) No. 12-9911.
One of the ground raise by the LMCEC in its protest is that the assessment
was invalid for not bearing serial numbers and should be shown to have been
validly served by an Affidavit of Constructive Service executed and sworn to by the
revenue officers who served the same. Petitioner on its answer stated that the lack
of control number in the assessment notice is a mere office requirement in the
Assessment Service for the purpose of internal control and monitoring; hence, the
unnumbered assessment notices should not be interpreted as irregular or
anomalous.

ISSUE:
Whether or not the lack of control number in a formal letter of demand or
assessment shall render the said document as invalid.

RULING:
A notice of assessment as define in the tax laws is a declaration of deficiency
taxes issued to a taxpayer who fails to respond to a Pre-Assessment Notice (PAN)
within the prescribed period of time, or whose reply to the PAN was found to be
without merit. It shall state the fact, the law, rules and regulations or jurisprudence
on which the assessment is based; otherwise the formal letter of demand and the
notice of assessment shall be void.
The control number is not one of those required by law to be placed a valid
notice of assessment. The Formal Letter of Demand dated August 7, 2002 contains
not only a detailed computation of LMCECs tax deficiencies but also details of the
specified discrepancies, explaining the legal and factual bases of the assessment
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making such a valid notice of assessment. Pursuant to Section 6(B) of the NIRC
(third party information) and in accordance with the procedure laid down in RMC No.
23-2000 the investigating revenue officers resorted to the "Best Evidence
Obtainable" for the proper determination of the companys internal revenue tax
liabilities.
Thus what is controlling in the determination of a valid notice of assessment
is not the formality of placing a control number but the contents of the said
assessment notice.

ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. ENRON SUBIC
POWERCORPORATION
G.R. No. 166387 January 19, 2009
FACTS:
The Bureau of Internal Revenue, through a preliminary five-day
letter, informed it of a proposed assessment of an alleged deficiency income tax.
Enron disputed the proposed deficiency assessment in its first protest letter which
was unresolved prompting Enron to file a petition for review on Court of Tax Appeals
(CTA) arguing that the deficiency tax assessment disregarded the provisions of
Section 228 of the National Internal Revenue Code (NIRC), as amended, and Section
3.1.4 of Revenue Regulations (RR) No. 12-99by not providing the legal and factual
bases of the assessment.
The CTA in its resolution granted Enrons petition and ordered the
cancellation of its deficiency tax assessment for the year 1996. This was affirmed by
the Court of Appeals ruling that the audit working papers did not substantially
comply with Section 228 of the NIRC and RR No. 12-99 because they failed to show
the applicability of the cited law to the facts of the assessment.
The CIR now argues before the Supreme Court that respondent was informed
of the legal and factual bases of the deficiency assessment against it.

ISSUE:
Whether or not the issued Notice of Assessment by the CIR to Enron followed
the legal requirements of law thus rendering it valid.

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RULING:
It has been clearly provided in Section 228 of the NIRC that the taxpayer shall
be informed in writing of the law and the facts on which the assessment is made.
Otherwise, the assessment is void. The formal letter of demand calling for payment
of the taxpayers deficiency tax or taxes shall state the fact, the law, rules and
regulations or jurisprudence on which the assessment is based.
In the present case, the CIR merely issued a formal assessment and indicated
there in the supposed tax, surcharge, interest and compromise penalty due. The
Revenue Officers of the the CIR in the issuance of the Final Assessment Notice did
not provide Enron with the written bases of the law and facts on which the subject
assessment is based. The CIR likewise failed to mention the specific provision of the
Tax Code or rules and regulations which were not complied with by Enron.
The court rules that the advice of tax deficiency, given by the CIR to an
employee of Enron, as well as the preliminary five-day letter, are not valid
substitutes for the mandatory notice in writing of the legal and factual bases of the
assessment. These steps are mere perfunctory discharges of the CIRs duties in
correctly assessing a taxpayer.
Therefore, due to the lack of the formal requisites provided by law the notice
of assessment issued by CIR to Enron is invalid.

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ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. BANK OF THE PHILIPPINE
ISLANDS
G.R. No. 134062 April 17, 2007
FACTS:
Petitioner Commissioner of Internal Revenue (CIR) issued two notice of
assessment to respondent Bank of the Philippine Islands (BPI) for its deficiency
percentage and documentary stamp taxes for the year 1986.
Both notices of assessment contained the following note:
Please be informed that your [percentage and documentary stamp taxes have]
been assessed as shown above. Said assessment has been based on return (filed
by you) (as verified) (made by this Office) (pending investigation) (after
investigation). You are requested to pay the above amount to this Office or to our
Collection Agent in the Office of the City or Deputy Provincial Treasurer of xxx
BPI through its counsel sent a reply stating that the deficiency assessments
issued by CIR are no assessments at all because it did not follow with the
mandatory requirements of law and that the taxpayer is not informed, even in the
vaguest terms, why it is being assessed a deficiency. The letter likewise include the
statement As soon as this is explained and clarified in a proper letter of
assessment, we shall inform you of the taxpayers decision on whether to pay or
protest the assessment.
The CIR replied through a letter stating that the letter sent by BPI does not
qualify as a protest, not deserving of any rejoinder by the office as no valid issue
was raised against the validity of the assessment but still the CIR explained the
basis of the assessments.

ISSUE:
Whether or not the assessments issued to BPI for deficiency percentage and
documentary stamp taxes for 1986 is valid.

RULING:
Admittedly, the CIR did not inform BPI in writing of the law and facts on which
the assessments of the deficiency taxes were made. He merely notified BPI of his
findings, consisting only of the computation of the tax liabilities and a demand for
payment thereof within 30 days after receipt because the CIR relied on the
provisions of the former Section 270 prior to its amendment by RA 8424 (also
known as the Tax Reform Act of 1997). Accordingly, when the assessments were
made pursuant to the former Section 270, the only requirement was for the CIR to
"notify" or inform the taxpayer of his "findings." Nothing in the old law required a
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written statement to the taxpayer of the law and facts on which the assessments
were based.
The court likewise rule that BPI, being fully aware of the valid assessment
failed to protest the assessments within the 30-day period provided in the former
Section 270 rendering the assessment final and unappealable. BPI was, from then
on, barred from disputing the correctness of the assessments or invoking any
defense that would reopen the question of its liability on the merits.

ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. PASCOR REALTY AND
DEVELOPMENT CORPORATION
G.R. No. 128315 June 29, 1999
FACTS:
Pursuant to a Letter of Authority BIR Commissioner Jose U. Ong authorized
Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to
examine the books of accounts and other accounting records of Pascor Realty and
Development Corporation which examination resulted in a recommendation for the
issuance of an assessment for tax liabilities.
On March 1, 1995, the Commissioner of Internal Revenue filed a criminal
complaint before the Department of Justice against the PRDC. The CIR denied the
urgent request for reconsideration/reinvestigation of the private respondents on the
ground that no formal assessment has yet been issued by the Commissioner.
Private respondents then elevated the Decision of the CIR to the Court of Tax
Appeals. The CTA in it resolution stated that it agrees with petitioners' contentions,
that the criminal complaint for tax evasion is the assessment issued, and that the
letter denial is the decision properly appealable to it. Respondent's ground of denial,
therefore, that there was no formal assessment issued, is untenable.
The Court of Appeals in its decision held that the tax court committed no
grave abuse of discretion in ruling that the Criminal Complaint for tax evasion filed
by the Commissioner of Internal Revenue with the Department of Justice constituted
an "assessment" of the tax due, and that the said assessment could be the subject
of a protest.
ISSUE:
Whether or not the criminal complaint for tax evasion can be construed as an
assessment.
RULING:
The court agrees with the petitioner that indeed no exact definition of
assessment has been provided for in law, likewise in NIRC however, the NIRC
defines the specific functions and effects of an assessment. The court rules that not
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all documents coming from the BIR containing a computation of the tax liability can
be deemed assessments. An assessment must be sent to and received by a
taxpayer, and must demand payment of the taxes described therein within a
specific period.
The fact that the Complaint itself was specifically directed and sent to the
Department of Justice and not to private respondents shows that the intent of the
commissioner was to file a criminal complaint for tax evasion, not to issue an
assessment. Although the revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a criminal case for tax evasion.
Thus, what private respondents received was a notice from the DOJ that a
criminal case for tax evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment which they could validly
protest.

ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. AZUCENA T. REYES
G.R. No. 159694 and 163581

January 27, 2006

FACTS:
Maria C. Tancinco died, leaving a residential lot and an old house thereon. On
the basis of a sworn information-for-reward filed by a certain Raymond Abad,
Revenue District Office No. 50 conducted an investigation on the decedents estate.
Without the required preliminary findings being submitted, it issued Letter of
Authority No. 132963 for the regular investigation of the estate tax case. Azucena
Reyes, one of the decedents heirs, received the Letter of Authority. Meanwhile, the
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National Internal Revenue Code (NIRC) of 1997 was passed. Subsequently, the
Bureau of Internal Revenue issued a final estate tax assessment notice and a
demand letter, inclusive of surcharge and interest based on the old Tax Code. Reyes
protested the assessment to no avail. After protesting the warrant issued, Reyes
offered a compromise but the same was also denied.

ISSUE:
Is there a valid assessment against the estate?

RULING:
No.
The NIRC of 1997 was already in effect when the assessment was issued.
Under the said Code, taxpayers shall be informed in writing of the law and the
facts on which the assessment is made, otherwise, the assessment shall be void.
The assessment merely stated the amount of liability to be shouldered by the estate
and the law upon which such liability is based. However, the estate was not
informed in writing of the facts on which the assessment of estate taxes had been
made. The estate was merely informed of the findings of the CIR. Section 228 of the
NIRC being remedial in nature can be applied retroactively even though the
tax investigation was conducted prior to the laws passage. Consequently, the
invalid assessment notice cannot be a basis of a compromise, any proceeding
emanating from the invalid assessment is void including the issuance of the Warrant
of Distraint and/or levy.

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STATUTE OF LIMITATION ON ASSESSMENT OF INTERNAL REVENUE TAXES


PHILIPPINE JOURNALISTS, INC. v. COMMISSIONER OF INTERNAL REVENUE
G.R. No. 162852 December 16, 2004

FACTS:
After the examination of Philippine Journalists, Inc.s (PLJI) books, said
corporation was found to allegedly have deficiency income taxes for the calendar
year 1994 based on its income tax return. When invited to an informal conference,
PLJIs representative executed a waiver of the statute of limitation in relation to the
payment of the deficiency. On December of 1998, a final notice with demand was
given to PLJI. Despite the waiver it previously executed, PLJI questioned the validity
of the assessment stating that it was issued more than three years from the
payment of the deficient taxes.
ISSUE:
Is the waiver of the statute of limitations valid and binding on PLJI?
RULING:
No.
The National Internal Revenue Code prescribes a specific form for such
waivers. Under the law, the waiver must state the specific length of time for the
waiver to be effective. It is not a complete waiver of the right to invoke the defense
of prescription; instead it is an agreement between the taxpayer and the BIR to
settle the tax liability within a certain amount of time. In the instant case, the
waiver did not state the date within which it is to be effective, this made it a
complete waiver of the right in contravention to law. Thus, the waiver is void and
prescription has already set in.

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STATUTE OF LIMITATION ON ASSESSMENT OF INTERNAL REVENUE TAXES


COMMISSIONER OF INTERNAL REVENUE v. KUDOS METAL CORPORATION
G.R. No. 178087 May 5, 2010
FACTS:
Kudos Metal Corporation filed its income tax return for 1998 on April 1999.
Subsequently the BIR issued three notices of Presentation of Records to Kudos to no
avail. The BIR eventually issued a subpoena ducestecum to secure the records for
review and audit. On December 2001, Kudos through its accountant executed a
waiver of defense of prescription. This was followed by a second waiver executed on
February 2003. After the investigation, a final letter of demand and notice of
assessment was eventually issued on September 2003 and received by Kudos on
November of the same year. Kudos protested the assessment and raised the
prescription of BIRs right to issue an assessment for the year 1998.
ISSUE/S:
Are the waivers valid and binding on Kudos?
Is Kudos estopped from questioning the assessment?
RULING:
No.
The waivers are not valid and binding since they do not conform with the
prescribed form provided for by law. The court pointed out that: 1) the waivers were
executed without the notarized written authority of the accountant to sign the
waiver in behalf of respondent, 2) the waivers failed to indicate the date of
acceptance, and 3) the fact of receipt by the respondent of its file copy was not
indicated in the original copies of the waivers. Thus it could not be determined
whether or not such waivers were received within the three year period before
prescription sets in.
Estoppel cannot apply in the present case. It cannot be used to give validity
to an act prohibited by law. The law is clear as to when the BIR may issue
assessments and in this case it issued them outside of the three year period. There
is no showing that Kudos convinced the CIR to delay assessment, which fault lies
with the CIR.

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STATUTE OF LIMITATION ON ASSESSMENT OF INTERNAL REVENUE TAXES


COMMISSIONER OF INTERNAL REVENUE v. COURT OF APPEALS
G.R. No. 115712 February 25, 1999

FACTS:
On January 15, 1982, Carnation Phils. Inc. (Carnation), filed its Corporation
Annual Income Tax Return for taxable year ending September 30, 1981; and its
Manufacturers/Producers Percentage Tax Return for the quarter ending September
30, 1981.On October 13, 1986, March 16, 1987 and May 18, 1987, Carnation,
through its Senior Vice President Jaime O. Lardizabal, signed three separate
"waivers of the Statute of Limitations Under the National Internal Revenue Code".
These waivers were not signed by the BIR commissioner or any of his agents. On
August 1987, Carnation received the BIRs letter of demand for the payment of
deficiency taxes in relation to its 1981 income tax return. Carnation protested on
the basis of prescription.
ISSUE:
Are the unsigned waivers valid and binding?
RULING:
No.
The tax code is clear on the requirement that waivers should be in writing
and signed by the commissioner or his representatives as it is an agreement
between the BIR and the taxpayer. Waiver of the statute of limitations under the
NIRC, to a certain extent, is a derogation of the taxpayers right to security against
prolonged and unscrupulous investigations and must therefore be carefully and
strictly construed. As such, the BIR cannot claim that it impliedly consented to the
agreement without signing it. Thus, the running of the prescriptive period was not
tolled and the BIR can no longer issue its assessment.

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STATUTE OF LIMITATION ON ASSESSMENT OF INTERNAL REVENUE TAXES


RIZAL COMMERCIAL BANKING CORPORATION v. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 170257 September 7, 2011
FACTS:
Rizal Commercial Banking Corporation (RCBC) filed its Corporation Annual
Income Tax Returns for Foreign Currency Deposit Unit for the calendar years 1994
and 1995.On August 15, 1996, RCBC received Letter of Authority issued by CIR for
the examination the books of accounts and other accounting records for all internal
revenue taxes from January 1, 1994 to December 31, 1995. On January 23, 1997,
RCBC executed two Waivers of the Defense of Prescription Under the Statute of
Limitations of the National Internal Revenue Code covering the internal revenue
taxes due for the years 1994 and 1995, effectively extending the period of the
Bureau of Internal Revenue (BIR) to assess up to December 31, 2000. Subsequently,
on January 27, 2000, RCBC received a Formal Letter of Demand together with
Assessment Notices from the BIR for the deficiency tax assessments. RCBC filed a
protest on February 24, 2000 and later submitted the relevant documentary
evidence to support it. Much later on November 20, 2000, it filed a petition for
review before the CTA, pursuant to Section 228 of the 1997 Tax Code. On December
6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices
dated October 20, 2000, following the reinvestigation it requested, which drastically
reduced the original amount of deficiency taxes. On the same day, RCBC paid the
deficiency taxes as assessed by the BIR however, it refused to pay the assessments
for deficiency onshore tax and documentary stamp tax which remained to be the
subjects of its petition for review. RCBC argued that the waivers of the Statute of
Limitations which it executed on January 23, 1997 were not valid because the same
were not signed or conformed to by the respondent CIR as required under Section
222(b) of the Tax Code.

ISSUE:
Is RCBC estopped from questioning the validity of the waivers it executed?

RULING:
Yes.

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RCBC is considered estopped through its partial payment of the revised


assessments within the extended period provided in the said waivers. Thus, it had
impliedly admitted the validity of the said waivers. Had it believed that the waiver
was invalid and that the period to assess had effectively prescribed, RCBC could
have refused to make any payment based on any assessment against it. Since there
is no prescription, RCBC cannot escape its liability for the deficiency taxes assessed.

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INSTANCES WHERE THE RUNNING OF THE PRESCRIPTIVE PERIOD IS


SUSPENDED
REPUBLIC OF THE PHILIPPINES v. SALUD V. HIZON
G.R. No. 130430 December 13, 1999
FACTS:
The BIR issued an income tax deficiency assessment to the respondent. The
latter, not responding to assessment, was served notices of Levy/Distraint but the
BIR no longer acted upon the attachment. After 3 years, the respondent asked for
reconsideration regarding the deficiency but the same was denied. Hence, the
respondent moved for dismissal based on the ground that: 1.the assessment was
not filed upon the authority of the Commissioner since the complaint was not signed
by the Commissioner and 2.the action for collection was barred by the 3-year
prescription period. The court granted the respondents motion and dismissed the
case.
ISSUE:
Is the action for collection was barred by prescription?
RULING:
Yes.
The Court ruled that the assessment, although filed with the authority of the
Commissioner, was barred by prescription. Petitioner argued that respondents
request for reinvestigation of her tax deficiency assessment on November 3, 1992
effectively suspended the running of the period of prescription such that the
government could still file a case for tax collection. The court does not agree with
the petitioner. The request for reconsideration was not filed within the 30 day period
hence no request for reconsideration was actually made. So, the period for
prescription was not suspended. Consequently, the action is barred by the 3 year
prescription period.

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INSTANCES WHERE THE RUNNING OF THE PRESCRIPTIVE PERIOD IS


SUSPENDED
BANK OF THE PHILIPPINE ISLANDS v. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 139736 October 17, 2005
FACTS:
The BIR issued an Assessment for a deficiency of Documentary Stamp Tax
(DST). The petitioner filed a protest letter, requesting for reconsideration with BIR
however the latter did not reply. Instead, BIR issued a warrant for Distraint/levy
against petitioner BPI. The petitioner did not hear from BIR until September 11,
1997 when then Commissioner LiwaywayVinzons-Chado, denied its request for
reconsideration. Subsequently, the petitioner filed a petition for review with the CTA,
raising the defense of prescription. The CTA denied the petition and held that the
period of prescription had not yet prescribed nonetheless; it held that the petitioner
was not liable for the deficiency of DST. On appeal, the CA reversed the ruling of
CTA on the issue of DST tax and held that the petitioner was indeed liable for DST.
ISSUE:
Is the right of the respondent to collect from petitioner BPI is barred by
prescription?
RULING:
Yes.
The Court ruled that the period to collect has already prescribed. The BIR has
three years, counted from the date of actual filing of the return or from the last date
prescribed by law for the filing of such return, whichever comes later, to assess a
national internal revenue tax or to begin a court proceeding for the collection
thereof without an assessment. In case of a false or fraudulent return with intent to
evade tax or the failure to file any return at all, the prescriptive period for
assessment of the tax due shall be 10 years from discovery by the BIR of the falsity,
fraud, or omission. When the BIR validly issues an assessment, within either the
three-year or ten-year period, whichever is appropriate, then the BIR has another
three years after the assessment within which to collect the national internal
revenue tax due thereon by distraint, levy, and/or court proceeding. The
assessment of the tax is deemed made and the three-year period for collection of
the assessed tax begins to run on the date the assessment notice had been
released, mailed or sent by the BIR to the taxpayer. In their Decisions, both the CTA
and the Court of Appeals found that the filing by petitioner BPI of a protest letter
suspended the running of the prescriptive period for collecting the assessed DST.
This Court, however, takes the opposing view, and, based on the succeeding
discussion, concludes that there is no valid ground for suspending the running of
the prescriptive period for collection of the deficiency DST assessed against
petitioner BPI. The statute of limitations on assessment and collection of taxes is for
the protection of the taxpayer and, thus, shall be construed liberally in his favor.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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INSTANCES WHERE THE RUNNING OF THE PRESCRIPTIVE PERIOD IS


SUSPENDED
BANK OF THE PHILIPPINE ISLANDS v. COMMISSIONER OF INTERNAL
REVENUE
G.R. No. 174942 March 7, 2008
FACTS:
Following a pre-assessment notice on deficiency tax filed by respondent in
1986, the latter sent final demand to petitioner on April 7, 1989. Petitioner filed a
protest and a waiver of the Statutes of Limitations was effected until December 31,
1994. On August 9, 2002, respondent issued a final decision on petitioners protest
ordering the withdrawal and cancellation of the deficiency withholding tax
assessment in the amount of P190,752,860.82 and considered the sane as close
and terminated but the documentary stamp tax of P24,587,174.63 was reiterated.
Thereafter petition for review was filed with CTA. The court denied the petition.
ISSUE:
Is the collection of the deficiency DST is barred by prescription?
RULING:
In order to determine whether the prescriptive period for collecting the tax
deficiency tolled by BPIs filing of the protest letters dated April 7, 1989. Section 20
of the Tax Code must be examined: The running of the Statute of Limitations on
the making of assessment and the beginning of distraint or levy or a proceeding in
court of collection shall be suspended for the period when the taxpayer requests
for re-investigation which is granted by the Commissioner. In order to suspend the
running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by CIR. There is nothing in this case which indicates,
expressly or impliedly, that the CIR had granted the request for re-investigation filed
by BPI. What is reflected is the silence and inaction of the CIR. Given the
prescription of the Governments claim, we no longer deem it necessary to pass
upon the validity of the assessment.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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PROCESS OF ASSESSMENT
ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL v. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 155541 January 27, 2004
FACTS:
During the lifetime of the decedent Juliana De Gabriel, her business affairs
were managed by the Philippine Trust Company (PhilTrust). The decedent died on
April 3, 1979 but two days after her death, PhilTrust filed her income tax return for
1978 not indicating that the decedent had died. The BIR conducted an
administrative investigation of the decedents tax liability and found a deficiency
income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18,
1982, the BIR sent by registered mail a demand letter and assessment notice
addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address
stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner
of Internal Revenue issued warrants of distraint and levy to enforce the collection of
decedents deficiency income tax liability and serve the same upon her heir,
Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his
claim with probate court for the deficiency tax. The Court denied BIRs claim against
the estate on the ground that no proper notice of the tax assessment was made on
the proper party. On appeal, the CA held that BIRs service on PhilTrust of the notice
of assessment was binding on the estate as PhilTrust failed in its legal duty to inform
the respondent of antecedents death. Consequently, as the estate failed to
question the assessment within the statutory period of thirty days, the assessment
became final, executory, and incontestable.
ISSUE:
Is the respondents claim for collection filed beyond the 5 year prescriptive
period?
RULING:
Yes.
The respondents claim was beyond the prescribed period. There was no
assessment served on the estate as to the alleged underpayment of tax. Absent this
assessment, no proceeding could be initiated in court for collection of said tax;
therefore, it could not have become final, executory and incontestable.
Respondents claim for collection filed with the court only on November 22, 1984
was barred for having been made beyond the five-year prescriptive period set by
law.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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PROCESS OF ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. AZUCENA T. REYES
G.R. No. 159694

January 27, 2006

FACTS:
Maria C. Tancinco died, leaving a residential lot and an old house thereon. The
Revenue District Office conducted an investigation on the decedents estate and it
issued a Return Verification Order but without the required preliminary findings
being submitted. It issued Letter of Authority for the regular investigation of the
estate tax case. The BIR, issued a preliminary assessment notice against the estate
in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent
received a final estate tax assessment notice and a demand letter, both dated April
22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest.
The Commissioner of Internal Revenue issued a preliminary collection letter to
Reyes, followed by a Final Notice before Seizure. Subsequently, a Warrant of
Distraint and/or Levy was served upon the estate, followed by Notices of Levy on
Real Property and Tax Lien against it. Reyes protested the notice of levy. However,
the heirs proposed a compromise settlement but it was rejected by the CIR. As the
estate failed to pay its tax liability within the deadline, the BIR notified Reyes that
the subject property would be sold at public auction. Reyes filed a protest with the
BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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assessment, letter of demand, and the whole tax proceedings against the estate are
void ab initio.

ISSUE:
Whether or not the assessment against the estate is valid.

RULING:
No.
The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory insofar as
taxpayers shall be informed in writing of the law and the facts on which the
assessment is made, otherwise the assessment shall be void.
In this case, Reyes was not informed in writing of the law and the facts on
which the assessment of estate taxes had been made. She was merely notified of
the findings by the CIR. RA 8424 has already amended the provisions of Sec. 229 of
NIRC on protesting an assessment. The old requirement of merely notifying the
taxpayer of the CIRs findings was changed in 1998 of informing the taxpayer of not
only the law, but also of the facts on which an assessment would be made,
otherwise, the assessment itself would be invalid. On February 12, 1998, a
preliminary assessment notice was issued against the estate and on April 22, 1998,
the final estate tax assessment notice and demand letter, was also issued. During
those dates, RA 8424 was already in effect. Thus, the CIR should have required the
assessment officers of the BIR to follow the clear mandate of the new law.
Aside from that, to proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in
administrative law that the taxpayer be accorded due process. A void assessment
bears no valid fruit.

PROCESS OF ASSESSMENT
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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Case Digest: Taxation II

PHILIPPINE NATIONAL OIL COMPANY v. COURT OF APPEALS


G.R. No. 109976

April 26, 2005

FACTS:
BIR's first letter was addressed to PNOC, requesting it to settle its tax
liability. The BIR subsequently sent another letter, to PNB, as withholding agent,
demanding payment of the tax it had failed to withhold on the interest earnings
and/or yields from PNOC's money placements. PNOC wrote the BIR three
succeeding letters offering to compromise its tax liability. PNB, on the other hand,
did not act on the demand letter it received. The BIR and PNOC eventually reached
a compromise agreement on 22 June 1987. Private respondent Savellano
questioned the validity of the compromise agreement because the reduced amount
of tax collected from PNOC, by virtue of the compromise agreement, also
proportionately reduced his informer's reward. Private respondent Savellano then
requested the BIR Commissioner to review and reconsider the compromise
agreement. Acting on the request of private respondent Savellano, the new BIR
Commissioner declared the compromise agreement to be without basis and issued
the demand letter, against PNB, as the withholding agent for PNOC to pay
deficiency withholding tax on the interest earnings and/or yields from money
placement. This BIR letter was received by PNB on February 6, 1991, and was
protested by it through a letter, dated April 11, 1991. The BIR denied PNB's protest
on the ground that it was filed out of time and, thus, the assessment had already
become final.
PNB appealed to the Department of Justice the BIR assessment, dated 16
January 1991, for deficiency withholding tax alleging that its appeal to the DOJ was
sanctioned under P.D. No. 242, which provided for the administrative settlement of
disputes between government offices, agencies, and instrumentalities, including
government-owned and controlled corporations.

ISSUE:
Whether or not the assessment against PNB become final and unappealable.

RULING:
In this case, the Court finds that the significant BIR assessment, should be
the one issued by the BIR against PNB on October 8, 1986.
The BIR issued on October 8, 1986 an assessment against PNB for its
withholding tax liability on the interest earnings and/or yields from PNOC's money
placements with the bank. It had 30 days from receipt to protest the BIR's
assessment. PNB, however, did not take any action as to the said assessment so
that upon the lapse of the period to protest, the withholding tax assessment against
it, dated October 8, 1986, became final and unappealable, and could no longer be
disputed. The courts may therefore order the enforcement of this assessment.
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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The BIR demand letter, dated January 16, 1991, is not a new assessment
against PNB. It only demanded from PNB the payment of the balance of the
withholding tax assessed against it on October 8, 1986. The same demand letter
also has no substantial effect or impact on the resolution of the present case. At
best, the demand letter, dated January 16, 1991, constitute a useful reference for
the courts in computing the balance of PNB's tax liability, after applying as partial
payment thereon the amount previously received by the BIR from PNOC pursuant to
the compromise agreement.

PROCESS OF ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. DOMINADOR MENGUITO
G.R. No. 167560 September 17, 2008

FACTS:
Dominador Menguito is engaged in the restaurant and/or cafeteria business.
BIR Baguio received information that respondent has undeclared income from Texas
Instruments and Club John Hay, prompting the BIR to conduct investigation.
Spouses Dominador and Jeanne Menguito were informed by the Assessment
Division of the said office that they have under declared sales. This was followed by
a Preliminary Ten Day Letter informing respondent that in the investigation of his
1991, 1992 and 1993 income, business and withholding tax case, it was found out
that there is deficiency income and percentage tax.
On September 2, 1997, assessments were issued. These were protested by
Ms. Jeanne Menguito, on the ground that the 40% deduction allowed on their
computed gross revenue, is unrealistic. Ms. Jeanne Menguito requested for a period
of thirty days within which to coordinate with the BIR regarding the contested
assessment. BIR Baguio replied, informing the Spouses Menguito that the source of
assessment was not through the disallowance of claimed expenses but on data
received from Club John Hay and Texas Instruments Phils., Inc.

ISSUE:
Whether or not the taxpayers right to due process is violated for nonissuance of a post-reporting notice and pre-assessment notice.

RULING:

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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The stringent requirement that an assessment notice be satisfactorily proven


to have been issued and released or, if receipt thereof is denied, that said
assessment notice have been served on the taxpayer, applies only to formal
assessments prescribed under Section 228 of the NIRC, but not to post-reporting
notices or pre-assessment notices. The issuance of a valid formal assessment is a
substantive prerequisite to tax collection, for it contains not only a computation of
tax liabilities but also a demand for payment within a prescribed period, thereby
signalling the time when penalties and interests begin to accrue against the
taxpayer and enabling the latter to determine his remedies therefore. Due process
requires that it must be served on and received by the taxpayer.
A post-reporting notice and pre-assessment notice do not bear the gravity of
a formal assessment notice. The post-reporting notice and pre-assessment notice
merely hint at the initial findings of the BIR against a taxpayer and invites the latter
to an "informal" conference or clarificatory meeting. Neither notice contains a
declaration of the tax liability of the taxpayer or a demand for payment thereof.
Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long as
the latter is properly served a formal assessment notice.

PROCESS OF ASSESSMENT
COMMISSIONER OF INTERNAL REVENUE v. METRO STAR SUPERAMA, INC.
G.R. No. 185371

December 8, 2010

FACTS:
The Regional Director of BIR issued Letter of Assessment for Revenue Officer
to examine Metro Stars book of account. Due to failure of the latter to present the
records, a subpoena duces tecum was issued BIR. A preliminary 15-day letter was
issued to Metro Star wherein the BIR stated that a post audit review was held and it
was ascertained that there was deficiency value-added and withholding taxes due
from petitioner. Metro Star received Formal Letter of Demand assessing from
Revenue District assessing them for deficiency value-added and withholding taxes
for 1999. Metro Star filed a petition for review with the CTA alleging that the
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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corporation did not received a Pre-Assessment Notice, thus claiming that such
assessment made by the BIR was not accorded due process.

ISSUE:
Whether or not the taxpayers right to due process is violated for nonissuance of a pre-assessment notice.

RULING:
The sending of a Pre-Assessment Notice to taxpayer to inform him of the
assessment made is but part of the "due process requirement in the issuance of a
deficiency tax assessment," the absence of which renders nugatory any assessment
made by the tax authorities. The use of the word "shall" in subsection 3.1.2
describes the mandatory nature of the service of a PAN. The persuasiveness of the
right to due process reaches both substantial and procedural rights and the failure
of the CIR to strictly comply with the requirements laid down by law and its own
rules is a denial of Metro Stars right to due process. Thus, for its failure to send the
Pre-Assessment Notice stating the facts and the law on which the assessment was
made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR
is void.
The case of CIR v. Menguito cannot be applied to this case because the issue
therein was the non-compliance with the provisions of R. R. No. 12-85 which sought
to interpret Section 229 of the old tax law. RA No. 8424 has already amended the
provision of Section 229 on protesting an assessment. The old requirement of
merely notifying the taxpayer of the CIRs findings was changed in 1998 to
informing the taxpayer of not only the law, but also of the facts on which an
assessment would be made. Otherwise, the assessment itself would be invalid. The
regulation then, on the other hand, simply provided that a notice be sent to the
respondent in the form prescribed, and that no consequence would ensue for failure
to comply with that form.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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Case Digest: Taxation II

GOVERNING PRINCIPLES CONCERNING ASSESSMENT


COMMISSIONER OF INTERNAL REVENUE v. HON. RAUL M. GONZALEZ
G.R. No. 177279

October 13, 2010

FACTS:
The BIR National Office conducted a fraud investigation for all internal
revenue taxes to determine the tax liabilities of L. M. Camus Engineering
Corporation for the taxable years 1997, 1998 and 1999 due to the information
provided by an informer that it had substantial under declared income for the said
period. It was discovered that LMCEC filed fraudulent tax returns with substantial
under declarations of taxable income. Petitioner thus assessed the company. The
Preliminary Assessment Notice was received by LMCEC on February 22, 2001 and on
October 1, 2002 an assessment notice together with a formal letter of demand was
sent to LMCEC through personal service but was refused so the revenue officers
resorted to constructive service. LMCEC in its protest raised that the assessment
was invalid for not bearing serial numbers and should be shown to have been
validly served by an Affidavit of Constructive Service executed and sworn to by the
revenue officers who served the same. Petitioner on its answer stated that the lack
of control number in the assessment notice is a mere office requirement in the
Assessment Service for the purpose of internal control and monitoring therefore the
unnumbered assessment notices should not be interpreted as irregular or
anomalous.

ISSUE:
Whether or not the control number must be indicated in the notice of
assessment to be valid.

RULING:
The formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should inform the
taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal
letter of demand and the notice of assessment shall be void if the former failed to
state the fact, the law, rules and regulations or jurisprudence on which the
assessment is based, which is a mandatory requirement under Section 228 of the
NIRC. Section 228 of the NIRC provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made. Otherwise, the
assessment is void.
The Formal Letter of Demand dated August 7, 2002 contains not only a
detailed computation of LMCECs tax deficiencies but also details of the specified
discrepancies, explaining the legal and factual bases of the assessment. It also
reiterated that in the absence of accounting records and other documents
necessary for the proper determination of the companys internal revenue tax
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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liabilities, the investigating revenue officers resorted to the "Best Evidence


Obtainable" as provided in Section 6(B) of the NIRC (third party information) and in
accordance with the procedure laid down in RMC No. 23-2000 dated November 27,
2000.

NECESSITY OF ASSESSMENT BEFORE FILING OF CRIMINAL COMPLAINT


QUIRICO P. UNGAB v. HON. VICENTE N. CUSI, JR.
G.R. No. L-41919-24

May 30, 1980

FACTS:
BIR Examiner Ben Garcia examined the income tax returns filed by Quirico P.
Ungab, for the calendar year ending December 31, 1973. In the course of his
examination, he discovered that the petitioner failed to report his income derived
from sales of banana saplings. As a result, the BIR District Revenue Officer sent a
"Notice of Taxpayer" to the petitioner informing him that there is due from him the
amount of P104,980.81, representing income, business tax and forest charges for
the year 1973 and inviting petitioner to an informal conference where the petitioner
may present his objections to the findings of the BIR Examiner. Upon receipt of the
notice, the petitioner wrote the BIR District Revenue Officer protesting the
assessment, claiming that he was only a dealer or agent on commission basis in the
banana sapling business and that his income, as reported in his income tax returns
for the said year, was accurately stated. BIR Examiner Ben Garcia, however, was
fully convinced that the petitioner had filed a fraudulent income tax return so that
he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of
Internal Revenue. After examining the records of the case, the Special Investigation
Division of the Bureau of Internal Revenue found sufficient proof that the herein
petitioner is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution.

ISSUE:
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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Whether or not assessment is necessary before filing a criminal complaint.

RULING:
What is involved here is not the collection of taxes where the assessment of
the Commissioner of Internal Revenue may be reviewed by the Court of Tax
Appeals, but a criminal prosecution for violations of the NIRC which is within the
cognizance of courts of first instance. While there can be no civil action to enforce
collection before the assessment procedures provided in the Code 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 Code.
An assessment of a deficiency is not necessary to a criminal prosecution for
wilfull attempt to defeat and evade the income tax. A crime is complete when the
violator has knowingly and wilfully filed a fraudulent return with intent to evade and
defeat the tax. The perpetration of the crime is grounded upon knowledge on the
part of the taxpayer that he has made an inaccurate return, and the government's
failure to discover the error and promptly to assess has no connections with the
commission of the crime.

NECESSITY OF ASSESSMENT BEFORE FILING OF CRIMINAL COMPLAINT


COMMISSIONER ON INTERNAL REVENUE v. COURT OF APPEALS
G.R. No. 119322 June 4, 1996

FACTS:
In a letter of August 13, 1993 which was received by Fortune on August 24,
1993, the Commissioner assessed against Fortune the total amount of
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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P7,685,942,221.66 representing deficiency income, ad valorem and value-added tax


for the year 1992 with the request that the said amount be paid within thirty (30)
days upon receipt thereof. Fortune on September 17, 1993 moved for
reconsideration of the assessments.
On September 7, 1993, the Commissioner of Internal Revenue filed a
complaint with the Department of Justice against respondent Fortune, its corporate
officers, nine other corporations and their respective corporate officers for alleged
fraudulent tax evasion for supposed non-payment by Fortune of the correct amount
of income tax, ad valorem tax and value-added tax for the year 1992.

ISSUE:
Whether or not assessment is necessary before filing a criminal complaint.

RULING:
Before one is prosecuted for wilful attempt to evade or defeat any tax under
Sections 253 and 255 of the Tax code, the fact that a tax is due must first be
proved.
For criminal prosecution to proceed before assessment, there must be a
prima facie showing of a wilful attempt to evade taxes. In this case the registered
wholesale price of the goods, approved by the BIR, is presumed to be the actual
wholesale price, therefore, not fraudulent and unless and until the BIR has made a
final determination of what is supposed to be the correct taxes, the taxpayer should
not be placed in the crucible of criminal prosecution.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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NECESSITY OF ASSESSMENT BEFORE FILING OF CRIMINAL COMPLAINT


COMMISSIONER OF INTERNAL REVENUE v. PASCOR REALTY AND
DEVELOPMENT CORPORATION
G.R. No. 128315 June 29, 1999

FACTS:
The CIR authorized certain BIR officers to examine the books of accounts and
other accounting records of Pascor Realty and Development Corp. (PRDC) for 1986,
1987 and 1988. The examination resulted in recommendation for the issuance of an
assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively.
The Commissioner filed a criminal complaint for tax evasion against PRDC, its
president and treasurer before the DOJ. Private respondents filed immediately an
urgent request for reconsideration on reinvestigation disputing the tax assessment
and tax liability. The Commissioner denied private respondents request for
reconsideration/reinvestigation on the ground that no formal assessment has been
issued which the latter elevated to the CTA on a petition for review. The
Commissioners motion to dismiss on the ground of the CTAs lack of jurisdiction
denied by CTA and ordered the Commissioner to file an answer. Instead of
complying with the order of CTA, Commissioner filed a petition with the CA alleging
grave abuse of discretion and lack of jurisdiction on the part of CTA for considering
the affidavit/report of the revenue officers and the endorsement of said report as
assessment which may be appealed to the CTA. The CA sustained the CTA decision
and dismissed the petition.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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ISSUE:
Whether or not assessment is necessary before filing a criminal complaint.

RULING:
Section 222 of the NIRC specifically states that in cases where a false or
fraudulent return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment. Furthermore,
Section 205 of the same Code clearly mandates that the civil and criminal aspects
of the case may be pursued simultaneously. To reiterate, said Section 222 states
that an assessment is not necessary before a criminal charge can be filed. This is
the general rule. Private respondents failed to show that they are entitled to an
exception. Moreover, the criminal charge need only be supported by a prima
facie showing of failure to file a required return. This fact need not be proven by an
assessment.
The issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-assessment
notice sent to the taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or her is then sent to the
taxpayer informing the latter specifically and clearly that an assessment has been
made against him or her. In contrast, the criminal charge need not go through all
these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is
notified that a criminal case had been filed against him, not that the commissioner
has issued an assessment. It must be stressed that a criminal complaint is instituted
not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

NECESSITY OF ASSESSMENT BEFORE FILING OF CRIMINAL COMPLAINT


COMMISSIONER OF INTERNAL REVENUE v. HON. RAUL M. GONZALEZ
G.R. No. 177279 October 13, 2010

FACTS:
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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The BIR National Office conducted a fraud investigation for all internal
revenue taxes to determine the tax liabilities of L. M. Camus Engineering
Corporation for the taxable years 1997, 1998 and 1999 due to the information
provided by an informer that it had substantial under declared income for the said
period. LMCEC failed to comply with the subpoena duces tecum issued in
connection with the tax fraud investigation, hence, a criminal complaint was
instituted by the BIR for violation of Section 266 of the NIRC against LMCEC, Luis M.
Camus and Lino D. Mendoza, the latter two were sued in their capacities as
President and Comptroller, respectively. Camus and Mendoza assail the validity of
the complaint and further aver that the company had already undergone a series of
routine examinations for the years 1997, 1998 and 1999 for under the NIRC, only
one examination of the books of accounts is allowed per taxable year. The Chief
State Prosecutor, the Secretary of Justice and the Court of Appeals dismissed the
complaint instituted by the BIR. Hence, this petition was filed before the Supreme
Court.

ISSUE:
Whether or not assessment is necessary before filing a criminal complaint.

RULING:
An assessment of a tax deficiency is not necessary to a criminal prosecution
for tax evasion. The crime is complete when the taxpayer has knowingly and wilfully
filed a fraudulent return with intent to evade and defeat the tax. The perpetration of
the crime is grounded upon knowledge on the part of the taxpayer that he has
made an inaccurate return and the governments failure to discover the error and to
promptly assess the same has no connection with the commission of the crime.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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RETROACTIVE EFFECT: PROCEDURES IN SEC. 228 OF THE NIRC


COMMISSIONER OF INTERNAL REVENUE v. AZUCENA T. REYES
G.R. No. 159694 January 27, 2006

FACTS:
Maria C. Tancinco died, leaving a residential lot and an old house thereon. The
Revenue District Office conducted an investigation on the decedents estate and it
issued a Return Verification Order but without the required preliminary findings
being submitted. It issued Letter of Authority for the regular investigation of the
estate tax case. The BIR, issued a preliminary assessment notice against the estate
in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent
received a final estate tax assessment notice and a demand letter, both dated April
22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest.
The Commissioner of Internal Revenue issued a preliminary collection letter to
Reyes, followed by a Final Notice before Seizure. Subsequently, a Warrant of
Distraint and/or Levy was served upon the estate, followed by Notices of Levy on
Real Property and Tax Lien against it. Reyes protested the notice of levy. However,
the heirs proposed a compromise settlement but it was rejected by the CIR. As the
estate failed to pay its tax liability within the deadline, the BIR notified Reyes that
the subject property would be sold at public auction. Reyes filed a protest with the
BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the
assessment, letter of demand, and the whole tax proceedings against the estate are
void ab initio.

ISSUE:
Whether or not Sec. 228 of the NIRC can be applied retroactively.

RULING:
By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

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Saint Louis University

Case Digest: Taxation II

The general rule is that statutes are prospective. However, statutes that are
remedial, or that do not create new or take away vested rights, do not fall under the
general rule against the retroactive operation of statutes. Clearly, Section 228
provides for the procedure in case an assessment is protested. The provision does
not create new or take away vested rights. In both instances, it can surely be
applied retroactively. Moreover, RA 8424 does not state, either expressly or by
necessary implication, that pending actions are excepted from the operation of
Section 228, or that applying it to pending proceedings would impair vested rights.
The non-retroactive application of Revenue Regulation No. 12-99 is of no
moment, considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the
provisions of the Tax Code. While it is desirable for the government authority or
administrative agency to have one immediately issued after a law is passed, the
absence of the regulation does not automatically mean that the law itself would
become inoperative.
Moreover, an administrative rule interpretive of a statute, and not declarative
of certain rights and corresponding obligations, is given retroactive effect as of the
date of the effectivity of the statute. RR 12-99 is one such rule. Being interpretive of
the provisions of the Tax Code, even if it was issued only on September 6, 1999, this
regulation was to retroact to January 1, 1998, a date prior to the issuance of the
preliminary assessment notice and demand letter.

By: Francis Corales, Charles Dumasi, Jasmine Leona Monteclaro & Kathleen Joy Mosuela

Page 54