CIR vs Kudos metal corp gr 178057, May 5 2010 Del Castillo (re.

Waiver WON considered as renunciation

of right of taxpayer to invoke defense of prescription);

Q: Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served
upon Kudos Metal Corp (KMC) three Notices of Presentation of Records. KMC failed to comply with these
notices, hence, the BIR issued a Subpoena Duces Tecum. A review and audit of respondent’s records then
ensued. On December 10, 2001, KMC’s accountant, executed a Waiver of the Defense of Prescription and
another on Feb. 18, 2003. The waivers were executed without the notarized written authority of KMC to
the accountant to sign the waiver in behalf of KMC. The waivers failed to indicate the date of acceptance.
The fact of receipt by KMC of its file copy was not indicated in the original copies of the waivers.

On August 25, 2003 the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against
KMC. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998,
dated September 26, 2003 which was received by KMC on November 12, 2003.

CIR admits that it issued assessment notices beyond the three-year prescriptive period, but claims that
the period was extended by the two waivers executed by the accountant of KMC.

CIR also claims that KMC is now estopped from claiming prescription since by executing the waivers, KMC
was the one which asked for additional time to submit the required documents.

Rule on the claims of the CIR.

A: The CIR is not correct.

Under Section 222 (b) of the NIRC, it provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the expiration of
the three-year period.

There is a detailed procedure1 for the proper execution of the waiver, which the BIR must strictly follow.

Here, the waivers executed by KMC’s accountant reveals the following infirmities:

1. The waivers were executed without the notarized written authority of the accountant to sign the
waiver in behalf of KMC.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the KMC of its file copy was not indicated in the original copies of the waivers.

1RMO 20-9017 issued on April 4, 1990 and RDAO 05-0118 issued on August 2, 2001 lay down the procedure for the proper
execution of the waiver, to wit:

1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase “but not after ______ 19 ___”, which
indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription, should be filled up.

2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation,
the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a
representative, such delegation should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed
to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the
revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by
the taxpayer or his duly authorized representative.

5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the
period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.

6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy
for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy
must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection
of the agreement.
Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently,
the assessments were issued by the BIR beyond the three-year period and are void.

As to the claim of estoppel by the CIR, the Court ruled that the doctrine of estoppel is predicated on, and
has its origin in equity which is justice according to natural law and right. As such, the doctrine of estoppel
cannot give validity to an act that is prohibited by law or one that is against public policy. Since there is a
detailed procedure on waiver which was not complied with, the doctrine of estoppel cannot be invoked
by the CIR to cover its failure to follow its own issuances.

RMO 14-2016
GUIDELINES
1. The waiver may be, but not necessarily, in the form prescribed by RMO No. 20-90 or RDAO No.
05-01. The taxpayer's failure to follow the aforesaid forms does not invalidate the executed
waiver, for as long as the following are complied with:

a) The Waiver of the Statute of Limitations under Section 222 (b) and (d) shall be executed
before the expiration of the period to assess or to collect taxes. The date of execution
shall be specifically indicated in the waiver.
b) The waiver shall be signed by the taxpayer himself or his duly authorized
representative. ln the case of a corporation, the waiver must be signed by any of its
responsible officials;
c) The expiry date of the period agreed upon to assess/collect the tax after the regular
three-year period of prescription should be indicated;

2. Except for waiver of collection of taxes which shall indicate the particular taxes assessed, the
waiver need not specify the particular taxes to be assessed nor the amount thereof, and it may
simply state "all internal revenue taxes" considering that during the assessment stage, the
Commissioner of lnternal Revenue or her duly authorized representative is still in the process of
examining and determining the tax liability of the taxpayer.

3. Since the taxpayer is the applicant and the executor of the extension of the period of limitation
for its benefit in order to submit the required documents and accounting records, the taxpayer is
charged with the burden of ensuring that the waivers of statute of limitation are validly executed
by its authorized representative. The authority of the taxpayer's representative who participated
in the conduct of audit or investigation shall not be thereafter contested to invalidate the waiver.

4. The waiver may be notarized. However, it is sufficient that the waiver is in writing as specifically
provided by the NIRC, as amended.

5. Considering that the waiver is a voluntary act of the taxpayer, the waiver shall take legal effect
and be binding on the taxpayer upon its execution thereof.

6. lt shall be the duty of the taxpayer to submit its duly executed waiver to the Commissioner of
lnternal Revenue or officials previously designated in existing issuances or the concerned revenue
district officer or group supervisor as designated in the Letter of Authority/Memorandum of
Assignment who shall then indicate acceptance by signing the same. Such waiver shall be
executed and duly accepted prior to the expiration of the period to assess or to collect. The
taxpayer shall have the duty to retain a copy of the accepted waiver.

7. Note that there shall only be two (2) material dates that need to be present on the waiver:

a) The date of execution of the waiver by the taxpayer or its authorized

representative; and
b) The expiry date of the period the taxpayer waives the statute of
limitations

8. Before the expiration of the period set on the previously executed waiver, the period earlier set
may be extended by subsequent written waiver made in accordance with this Order.
 1. BIR vs CA gr 197590 Nov 24 2014, Del Castillo (what constitute a prima facie false or fraudulent
return?)

Q: Explain briefly the EXPENDITURE METHOD.

A: It is a method of reconstructing a taxpayer’s income by deducting the aggregate yearly expenditures
from the declared yearly income.

The theory of this method is that when the amount of the money that a taxpayer spends during a given
year exceeds his reported or declared income and the source of such money is unexplained, it may be
inferred that such expenditures represent unreported or undeclared income.

Q: Distinguish INCOME from CAPITAL.

A: INCOME denotes a flow of wealth during a definite period of time, while CAPITAL is a fund or property
existing at one distinct point in time.

Q: Is assessment of tax deficiency required in the prosecution for tax evasion?

A: In Ungab v. Judge Cusi, Jr., we ruled that tax evasion is deemed complete when the violator has
knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the
tax. Corollarily, an ASSESSMENT OF THE TAX DEFICIENCY IS NOT REQUIRED in a criminal prosecution for
tax evasion. HOWEVER, in Commissioner of Internal Revenue v. Court of Appeals, we clarified that
although a deficiency assessment is not necessary, the fact that a tax is due must first be proved before
one can be prosecuted for tax evasion.

Q: What constitute a PRIMA FACIE FALSE OR FRAUDULENT RETURN?

When the underdeclaration is more than 30% of TP’s reported or declared income, it constitutes as prima
facie evidence of false or fraudulent return under Section 248(B) of the NIRC.

Bureau of Internal Revenue vs. Court of Appeals, 741 SCRA 536, G.R. No. 197590 November 24, 2014
1. Direct injury suit /test - no longer applicable
2. Fee Doctrine of Usage - charitable exemption
3. Who exercise power of taxation
4. Double taxation
5. Franchise
6. Doctrine of Estoppel does not apply in Taxation Except: there is negligence on the part of govt.
7. Tax amnesty and tax exemption
Not qualified
A. Withholding agent
B. Govt. Employees violating AMLA
C. Govt. Employees - graft and corruption
D. Cases decided with finality
E. Schedule of payment already approved.
8. Validity of Revenue Regulation
9. Sound tax system
10. Business Taxes
11. Income Taxation: Final withholding tax and Income Tax does not impose together
12. Doctrine of Constructive Receipt income - taxable income not necessarily physically on your
pocket
13. Doctrine of Command Control and Ownership - money entrusted to someone else. taxable to
holder - if allowed to be used . if not allowed, not taxable
14. Donation to unborn
15. Conversion Theory / doctrine of Involuntary conversion
16. Subjects of capital gains tax - foreclosure of mortgages
17. Doctrine of Proprietary interest- corp. Using shares of stocks
18. Recapture rule
19. equitable tax benefit rule
20. Tax refund
21. Tax credit
22. Indv. Tax payer Corp.
23. Tax payer Inside ecozone
24. Doctrine of twin prescriptive period
25. Prescription period - only for invalid payment