BAR EXAMINATION

TAX REMEDIES

Question No. 3: (1991)

Apple Computer Corp. (ACC) is a foreign corporation doing business in the Philippines
through a local branch located at Makati, Metro Manila. In 1985, the local branch applied with
the Central Bank for authority to remit to ACC branch profits amounting to P8,000,000.00.
After paying the 15% branch remittance tax of P1,200,000.00, the branch office remitted to
ACC the balance of P6,800,000.00. In January 1986, the branch office was advised by its, legal
counsel that it overpaid the branch remittance tax since the basis of the computation thereof
should be the amount actually remitted and not the amount applied for. Accordingly, the
branch office applied for a refund in the amount of P180,000.00.

If you were the Commissioner of Internal Revenue, would you grant the claim for
refund?

Answer:

If I were the Commissioner of Internal Revenue, I would allow the claim for refund. The
remittance tax should be computed on the amount actually remitted (Marubeni Corporation vs.
Commissioner , G.R. No. 76573, 14 September 1989). In the refund of taxes, the claim therefor
can be filed within two (2) years from the time of payment so long as the tax payment was
made before an assessment by the Commissioner has become final (Sec. 230. NIRC).

Question No. 1: (1992)

Mr. Dante Raymundo retired from the government service as Director of Land
Transportation on January 6, 1985. Upon retirement, Mr. Raymundo received, among other benefits, his
terminal leave pay for which the BIR withheld the sum of P56, 000.00 a week following the date of his
retirement.

On October 17, 1991, following the decision of the Supreme Court that the money value of the
accumulated leave credits/ terminal pay is not subject to withholding tax. Mr. Raymundo filed a claim
for refund of P56, 000.00 with the Commissioner of Internal Revenue.

1. Is Mr. Raymundo within his rights in claiming a refund of taxes withheld on his terminal leave
following the Supreme Court decision?
ANSWER:

No. Under section 230 of the NIRC, a suit for the recovery of tax erroneously or illegally collected
cannot be filed after the expiration of two years from the date payment of tax of tax regardless of any
supervening cause that may arise after payment. Thus, the right of Mr. Raymundo to claim for refund
has already prescribed.

2. If the retiree is within his legal rights in claiming refund of the taxes withheld, will the BIR
automatically grant his claim? Explain your answer.

ANSWER:

No. Because he must file a written claim.

COMMENT:

The question expresses that the retiree is “within his legal rights” in claiming the refund of the taxes
withheld. Accordingly, an examinee can assume that all the requirements have been met with respect to
the refund. In this sense, an examinee may be led to say it can be automatic.

3. Assuming that the BIR denies the claim for refund. What could be the possible reason or statutory
basis for such a denial?

ANSWER:

The possible reason for a denial would be that the written claim has already prescribed or that the
terminal pay leave is not excluded from income tax. Sec. 230, NIRC (Supra).

4. Discuss the theory of supervening event as it applies to claims for refund of erroneously/illegally
collected taxes. Can the retiree claim a refund under this theory? Explain.

SUGGESTED ANSWER:

The theory of supervening event expresses that an event which is beyond the control of the parties
would allow the recovery of erroneously or illegally collected taxes provided the proceeding for such
recovery is made within the prescriptive period from the occurrence of such event.

The theory of the supervening event has been abrogated by section 230 of the NIRC.

QUESTION NO.2: (1992)

1. What are the legal remedies of an aggrieved taxpayer both at the administrative and judicial
levels? Describe separately the procedures.

ANSWER:
 (a) The administrative and judicial remedies are such as may be provided for in law imposing the
tax. An expression of such remedies in the law should then be deemed exclusive by the
taxpayer. When the law imposing the tax is silent on remedies, the law and rules and
procedures of general application shall then govern.

(b) Under the NIRC, an aggrieved taxpayer may either (1) dispute an assessment within thirty days
from receipt thereof by filling the Commissioner of all Internal Revenue a request for
reconsideration of reinvestigation or (2) pay the assessment within the thirty days then file a
written claim with the Commissioner of Internal Revenue for refund within two years from full
and final payment.

Upon an adverse decision of the Commissioner and within thirty days from receipt of notice of
denial, an appeal may be filed with the Court of Tax Appeals. However, with respect to claims
for refunds, an appeal must also be filed respect to claims for refunds, an appeal must also be
filed within two years from the date of full and final payment.

From the decision of the Court of Tax Appeals, an appeal or petition for review by certiorari nay
be taken to the Court of Appeals and then to the Supreme Court in Appropriate cases.

COMMENT:
An examinee should also be given credit if the remedies under the tariff and Customs Code
were instead discussed.

2) Distinguish between a taxpayer’s remedies in connection with his tax assessment and/or
demand and his claim for refund of taxes alleged to have been erroneously or illegally collected.

ANSWER:

A Tax assessment becomes final unless it is disputed or contested within 30 days from receipt
thereof by the taxpayer. If the action taken by the Commissioner on the request for reconsideration is
unacceptable to the taxpayer, the latter must then appeal, by the way of Petition for Review to the
Court of Tax Appeals within thirty days from receipt of the decision of the Commissioner of Internal
Revenue. The taxpayer may also opt pay the tax before the finality of the assessment (e.g., within 30
days from receipt of the assessment) and then file within two years a written claim for the refund of the
tax. A denial by the Commissioner of a claim for refund must be appealed to the CTA within thirty days
from receipt of notice of denial and within two years from the Commissioner on claims for refund may
thus be taken as a denial appealable to the Court of Tax Appeal, in order permit the appeal to be
considered or having been made within the two-year mandatory period.

3) What are the requisite before a taxpayers request for reinvestigation may be granted by the BIR?
Discuss briefly.
ANSWER:

A request for re-investigation refers to a plea for re-evaluation of an assessment on the basis of
newly-discovered evidence or additional evidence the taxpayer intends to present in the re-
investigation.

ALTERNATIVE ANSWER:

He must file a written protest stating his grounds therefor so that his protest could be granted.

COMMENT:

This question involves knowledge of BIR Circulars which are not included in the BAR Examination
coverage.

4. If the request for re-investigation is denied, is it possible or advisable to file a petition for review
with any court or agency as a last resort?

ANSWER:

A denial of a request for re-investigation on a assessment partakes the nature of a decision if made by
the Commissioner. In this a case an appeal may be filed with the CTA within thirty days from receipt of
the notice of denial.

ALTERNATIVE ANSWER:

On the assumption that the denial by the BIR was not made by the Commissioner himself but by the
regional officer, for instance or that the request for re-investigation is not on an assessment as yet,
then it may necessarily constitute a decision on a disputed assessment from which an appeal may be
made to the Court of Tax Appeals.

The problem did not indicate the subject matter of the request for re-investigation nor the officials
acting for and in behalf of the BIR in the denial of the request for re-investigation. Assuming that the
matters of request for re-investigation were not an assessment or that the denial was made by a lower
official, then there would still be a need for pursuing a administrative remedies.

QUESTION No. 12: (1992)

Corporation X declared cash dividends in favor of its non-resident stockholders in the United States
from which amount, the tax on dividend income was withheld.

Under the RP-US Tax Treaty, deductions allowed as tax on dividends earned at source were fixed at
lower rates giving rise to overpayment of the tax on dividends paid to the non-resident US stockholders
(Representing the difference between and the amount supposed to have been withheld under the
mentioned tax covenant).
Respondent Commissioner of Internal Revenue argues that Corporation X is not the real party in interest
to prosecute a claim for refund of the overpaid taxes of the non-resident US stockholders, who are the
real parties in interest. But neither could It maintain an action for refund in a representative capacity
having failed to show proof of authorization.

I will Corporation X’s case prosper? Explain.

ANSWER:

Yes. A subsidiary, while not the real party in interest, could prosecute a claim of refund in behalf of its
non0resident stockholders by virtue of its being the withholding agent for the government in respect of
the cash dividends it declared (Comm. Vs. Wander Phils.)

ALTERNATIVE ANSWER:

No. the tax is due on the non-resident stockholders. The rule is that the refund may be claimed by the
taxpayer on whom the tax is imposed and who effectively paid the tax.

Question No. 17: (1993)

Fitness, Inc. is a domestic corporation engaged in the manufacture and sale

of nutritional products. It pays royalties to its foreign licensor. After investigation,
the BIR on December 17, 1974, sent a notice of assessment to Fitness, Inc. for
allegedly failing to remit withholding tax at source for the fourth quarter of 1973
on its royalties. It demanded payment of P 3,000,000.00. The notice was received
by Fitness, Inc. on December 19, 1974.

On February 8, 1975, Fitness, Inc., through its counsel, protested the

assessment and requested its cancellation or withdrawal on the ground that it
lacked factual and legal bases. On December 10, 1979, the Commissioner of the
BIR rendered a decision reducing the assessment to P 1,500,000.00.

Fitness, Inc. was not satisfied and on January 18, 1980, it filed a petition for
review of the decision in the CTA to enjoin the enforcement of the assessment.
On February 7, 1980, the BIR issued a warrant of distraint against Fitness, Inc. The
CTA enjoined the collection of the deficiency taxes by virtue of the warrant of
distraint. It was argued by Fitness, Inc. that the right of the BIR to collect its
alleged deficiency taxes had already prescribed. Rule on the argument.

Answer:
 The warrant of distraint was served on the taxpayer within the prescriptive
period [then 5 years, now three (3) years]. In Commissioner v. Wyeth Suaco (202
SCRA 125), the court ruled that the prescriptive period provided by law to make
collection by distraint and/or levy or by a proceeding in court is interrupted once
a taxpayer protests the assessment and requests for its cancellation. Thus, when
the taxpayer protested the assessment on 8 February 1975, the prescriptive to
collect was interrupted and resumed on 10 December 1979. When the
Commissioner issued the warrant of distraint on 7 February 1980 it was well
within the five-year (now 3 years) prescriptive period to collect.

Alternative Answers:

a) The Bureau of Internal Revenue (“BIR”) shall assess internal revenue taxes
within three (3) years after the last day in court without assessment for the
collection of such taxes shall be begun after the expiration of such period (Section
203 of the National Internal Revenue Code [“NIRC”]. However, this three (3)-year
prescriptive period shall be suspended when the taxpayer requests for a
reinvestigation and which is granted by the Commission (Section 224 of NIRC). In
case an assessment was made, the tax may be collected within three (3) years
from the date of assessment (Collector of Internal Revenue v. Pineda, 2 SCRA 401;
Umali, Roman A., Reviewer in Taxation, 1985 pp. 486-487; Vitug, Jose C.,
Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1989, p. 255). If the
taxpayer asks for a reinvestigation is made, and on the basis of which the BIR
makes another assessment, the three (3)-year period for collection is to be
counted from the last assessment (Rep. V. Lopez, 7 SCRA 566; Rep. V. Acebedo, 22
SCRA 1356; Umali, Roman A., Reviewer in Taxation, 1985 pp. 486-487; Vitug, Jose
C., Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1989, p. 255).

In the case at bar, the running of the three (3)-year prescriptive period for the
BIR to collect taxes started to run only on 10 December 1979, when a final
assessment was made by the BIR reducing the tax due to One Million Five
Hundred Thousand Pesos (P 1,500,000.00). The ccollesction was effected on 7
February 1980, by issuing a warrant of distraint against Fitness, Inc. Hence, the
action of the BIR to collect the deficiency taxes was clearly within the three (3)-
year prescriptive period.
 b) The right of the BIR to collect the deficiency taxes has not prescribed, as the
prescriptive period is reckoned from the date of the reduced assessment, which is
December 10, 1979. The BIR has three (3) years from said date to collect.

The reduced assessment is in the nature of a compromise assessment, the

first assessment received by Fitness on December 19, 1974, and protested only on
February 8, 1975, having already become final and binding on Fitness. Applying
the present provisions of the NIRC, Fitness should have protested the assessment
within thirty (30) days from receipt of the same. Failing to do so, the assessment
became final and was presumably merely compromised. The date of such
compromise agreement should then be the basis for computing the prescriptive
period of three (3) years.

Note:

Beginning 1984, the prescriptive period of the right of the government to

assess and collect internal revenue taxes was reduced from five (5) to three (3)
years.

Question No. 18: (1993)

On September 19, 1973, the BIR sent a notice of assessment to X to pay P

300,000.00 as forest charges for the year 1970-73. X made a partial payment of P
100,000.00 on September 28, 1973. X died in November 1977. On July 29, 1979,
the BIR filed in the Testate Estate Proceedings of X a claim for P 200,000.00 the
unpaid forest charges left by X, the administrator of the estate opposed the claim
on the ground of prescription. Decide.

Answer:

Where assessment was made, the tax may be collected within five (5) years
(now 3 years) from the date of assessment (Collection of Internal Revenue v.
Pineda, 2 SCRA 401; Umali, Roman A., Reviewer in Taxation, 1985, pp. 486-487;
Vitug, Jose C., Compendium of Tax Law and Jurisprudence, 2nd Rev., Ed., 1986, p.
255).
 In the case at bar, X on the bases of the notice of assessment, voluntarily
made a partial payment to the Bureau of Internal Revenue in the amount of One
Hundred Thousand Pesos (P 100,000.00). However, it took the BIR almost more
than five (5) years to take the necessary legal action to collect the remaining
amount of taxes due.

This is clearly beyond the five (5) now three (3) year period for the collection
of taxes. Hence, the claim filed by the BIR against the Estate of X for the payment
of Two Hundred Thousand Pesos (P 200,000.00) has prescribed.

Alternative Answers:

a) The claim has prescribed as the BIR has only three (3) years from the date
of the assessment to collect.

b) Taxes are money claims that must be filed with the probate court within
the period provided for in the Rules of Court (Section 1 and 2, Rule 86). In the
case of Domingo v. Garlitos (8 SCRA 443), the court ruled that the claims shall be
barred if filed beyond the prescribed period just like any other money claims. But
the ruling in Garlitos was superseded by Vera v. Fernandez which ruled that estate
taxes are payable even if presented beyond the period in the statute of non-
claims in the Rules of Court.

Question No. 5: (1995)

For failure of Oceanic Company, Inc. (Oceanic), to pay deficiency taxes of

P20 Million, the Commissioner of Internal Revenue issued warrants of distraint on
OCEANIC’s personal properties and levied on its real properties. Meanwhile, the
Department of Labor through the Labor Arbiter rendered a decision ordering
OCEANIC to pay unpaid wages and other benefits to its employees. Four barges
belonging to OCEANIC were levied upon by the sheriff and later sold at public
auction.

The Commissioner of Internal Revenue filed a motion with the Labor Arbiter to
annul the sale and enjoin the sheriff from disposing the proceeds thereof. The
employees of OCEANIC opposed the motion contending the Art. 110 of the Labor
Code gives first preference to claims for unpaid wages.

Resolve the motion. Explain

Answer:

The motion filed by the Commissioner should be granted because the claim
of the government for unpaid taxes are generally preferred over the claims of the
laborers for unpaid wages. The provision of Article 110 of the Labor Code, which
give laborer’s claims for preference applies only in case of bankruptcy and
liquidation of the employer’s business. In the instant case, Oceanic is not under
bankruptcy or liquidation at the time the warrant distraint and levy were issued
hence, the opposition of the employees is unwarranted. (CIR vs. NLRC et al. G.R.
No. 74965, November 9, 1994).

Question No. 13: (1995)

Businessman Stephan Yang filed an income tax return for 1993 showing
business net income of P350,000.00 on which he paid an income tax of
P61,000.00. After filing the return he realized that he forgot to include an item of
business income in 1993 for P50,000.00. Being an honest tax payer, he included
this income in his return for 1994 and paid the corresponding income tax thereon.

In the examination of his 1993 return the BIR examiner found that Stephen
Yang failed to report this item of P50,000.00 and assessed him a deficiency income
tax on this item, plus a 50% fraud surcharge.

1) Is the examiner correct? Explain.

2) If you were the lawyer of Stephen Yang, what would you have advised
your client before he included in his 1994 return the amount of
P50,000.00 as 1993 income to avoid the fraud surcharge? Explain.
3) Considering that Stephen Yang had already been assessed a deficiency
income tax for 1993 for his failure to report the P50,000.00 income, what
would you advise him to do to avoid penalties for tax delinquency?
Explain.
 4) What would you advise Stephen Yang to do with regard to the income
tax he paid for the P50,000.00 in his 1994 return? In case your remedy
fails, what is your other recourse? Explain.
Answer:

1) The examiner is correct in assessing a deficiency income tax for taxable year
1993 but not imposing the 50% fraud surcharge. The amount of all items of
gross must be included in gross income during the year which is received or
realized (Sec. 38, NIRC). The 50% fraud surcharge attaches only if a false or
a fraudulent return is willfully made by Mr. Yang (Sec. 248, NIRC). The
fact that Mr. Yang included the income in his 1994 return any belies any
claim of willfulness but is rather indicative of an honest mistake which was
sought to be rectified by a subsequent act, that is the filing of the 1994
return.
2) Mr. Yang should have amended his 1993 income tax return to allow for the
inclusion of the P50,000 income during the taxable period it was realized.
3) Mr. Yang should file a protest questioning the 50% surcharge and ask for the
abatement thereof.

Alternative Answer:

Mr. Yang should pay the deficiency income tax on or before the day
prescribed for its payment per notice of demand. After payment and within two
years thereafter, he should file a claim for refund of taxes erroneously paid to
recover the excessive surcharge imposed.

4) Mr. Yang should file a written claim for refund with the Commissioner of
Internal Revenue of the taxes paid on the P50,000.00 income included in
1994 within two years from payment pursuant to Section 204(3) of the Tax
Code. Should this remedy fail in the administrative level, a judicial claim for
refund can be instituted before the expiration of the two year period.

Question No. 14: (1996)

1. Compare the taxpayer’s remedies under the National Internal Revenue Code and the
Tariff and Customs Code.
Answer:

The taxpayer’s remedies under the National Internal Revenue Code may be categorized
into remedies before payment and remedies after payment. The remedy before payment consists
of administrative remedy which is the filing of protest within 30 days from receipt of assessment,
and judicial remedy which is the appeal of the adverse decision fot he Commissioner on the
protest with the Court of Appeals and finally with the Supreme Court.

The remedy after payment is availed of by paying the assessed tax within 30 days from
receipt of assessment and the filing of a claim for refund or tax credit of these taxes on grounds
that thye are erroneously paid within two years form date of payment. If there is a denial of the
claim, appeal to the CTA shall be made within thirty days from denial but within two years from
date of payment. If the Commissioner fails to tact on the claim for refund or tax credit and the
two year period ids about to expire, the taxpayer should consider the continuous inaction of the
Commissioner as a denial and elevate the case to the CTA before the expiration to f two year
period.

Under the Tariff and Customs Code., taxpayer’s remedies arise only after payment of
duties. The administrative remedies consists of filing a claim for refund which may take the form
of abatement or drawback. The taxpayer can also file a protest within 15 days from payment if he
disagrees with the ruling or decision of the Collector of Customs regarding the legality or
correctness of the assessment of customs duties. If the decision for the Collector is adverse to the
taxpayer, he can notify the Collector within 15 days from receipt of said decision for his desire to
have his case reviewed by the Commissioner. The decision of the Collector on the taxpayer’s
protest. If adverse to the Government, is automatically elevated to the Commissioner for review:
and if such decision is affirmed by the Commissioner, the same shall be automatically elevated
to an finally reviewed by the Secretary of Finance.

Resort to judicial relief can be had by the taxpayer by appealing the decision for the
Commissioner or of the Secretary of Finance for cases subject to automatic review within 30day
s form the promulgation of the adverse decision to CTA.

2. Discuss briefly the remedies of an importer during the pendency of seizure

proceedings.

Answers:

During the pendency of seizure proceedings the importer may secure the release of the
imported property for legitimate use by posting a bond in an amount to be fixed by the Collector,
conditioned for the payment of the appraised value of the article and/or any fine, expenses and
costs which may be adjudged in the case; provided that articles the importation of which
prohibited by law shall not be released under bond.
 The importer may also offer to pay to the collector a fine imposed by him upon the
property to secure its release or in case of forfeiture, the importer shal offer to pay for the
domestic market value of the seized article, which offer subject to the approval of the
Commissioner may be accepted by the Collector in settlement of the seizure case, except when
there is fraud. Upon payment of the fine or domestic market value, the property shall be
forthwith released and all liabilities which may or might attach to the property by virtue of the
offense which was the occasion of the seizure and all liability which might have been incurred
under any bond given by the importer in respect to such property shall thereupon be deemed to
be discharged.

Question No. 15: (1997)

A corporation files its income tax return on a calendar year basis.

For the first quarter of 1993, it paid on 30 May 1993 its quarterly income tax in the
amount of P3.0 million. On 20 August 1993, it paid the second quarterly income tax of P0.5
million. The third quarter resulted in a net loss, and no tax was paid. For the fourth and final
return for 1993, the company reported a net loss for the year, and the taxpayer indicated in the
income tax return that it opted to claim refund of the quarterly income tax payments.

On 10 January 1994, the corporation filed with the Bureau of Internal Revenue a written
claim for the refund of P3.5 million.
BIR failed to act on the claim for refund; hence, on 02 March 1996, the corporation filed
a petition for review with the Court of Tax Appeals on its claim for refund of the overpayment
of its 1993 quarterly income tax . Bir, in its answer to the petition, alleged that the claim for
refund was filed beyond the reglementary period.

Did the claim for refund prescribe?

Answer:

The claim for refund has prescribed. The counting of the two year prescriptive period for
filing a claim for refund is counted not from the date when the quarterly income taxes were
paid but on the date when the final adjustment return of annual income tax return was filed
(CIR v. TMX Sales Inc., G.R. No. 83736, January 15, 1992; CIR v. Philam Life Insurance Co., Inc.
G.R. No. 105208, May 29, 1995). It is obvious that the annual income tax return was filed
before January 10, 1994 because the written claim for refund was filed with the BIR on January
10, 1994. Since the two year prescriptive period is not only a limitation of action in the
administrative stage but also a limitation of action for bringing the case to the judicial stage, the
petition for review filed with the CTA on March 02, 1996 is beyond the reglementary period.

Question No. 16: (1997)

 (a) A taxpayer received, on 15 January 1996, as assessment for an internal revenue tax
deficiency. On 10 February 1996, the taxpayer forthwith filed a petition for review with the
Court of Tax Appeals. Could the Tax Court entertain the petition?

(b) Under the above factual setting, the taxpayer, instead of questioning the assessment
he received in 15 January 1996 paid, on 01 March 1996 the “deficiency tax” assessed. The
taxpayer requested a refund from the Commissioner by submitting a written claim on
01 March 1997. It was denied. The taxpayer, on 15 March 1997, filed a petition for review with
the Court of Appeals. Could the petition still be entertained?

Answer:

(a) No. Before taxpayer can avail of judicial remedy he must first exhaust administrative
remedies by filing a protest within 30 days from receipt of the assessment. It is the
Commissioner’s decision on the protest that give the Tax Court jurisdiction over the case
provided that the appeal is filed within 30 days from receipt of the Commissioner’s decision.
An assessment by the BIR is not the Commissioner’s decision from which a petition for review
may be filed with the Court of Tax Appeals. Rather, it is the action taken by the Commissioner
in response to the taxpayer’s protest on the assessment that would constitute the appealable
decision (Section 7, RA 1125).

(b) No, the petition for review can not be entertained by the Court of Appeals, since
decisions of the Commissioner on cases involving claim for tax refunds are within the exclusive
and primary jurisdiction of the Court of Tax Appeals (Section 7, RA 1125).

VIII. (1998)

Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy upon and
sale of real properties of the decent without first securing the authority of the court sitting in probate
over the supposed will of the decedent? [5%]

Suggested Answer:

Yes. The BIR is authorized to collect estate tax deficiency through the summary remedy of
levying upon and sale of real properties of a decedent, without the cognition and authority of the
court sitting in probate over the supposed will of the deceased, because the collection of estate tax is
executive in character. As such the estate tax is exempted from the application of the statute of non-
claims, and this is justified by the necessity of government funding, immortalized in the maxim that
taxes are the lifeblood of the government (Marcos v. CIR. G.R. No. 120880, June 5, 1997).

Alternative Answer:
 Yes, if the tax assessment has already become final, executor and enforceable. The approval
of the court sitting in probate over the supposed will of the deceased is not a mandatory requirement
for the collection of the estate tax.

The probate court is determining issues which are not against the property of the decedent, or
a claim against the estate as such, but is against the interest or property right which the heir, legatee,
devisee, etc. has in the property formerly held by the decedent. (Marcos v. CIR. G.R. No. 120880, June
5, 1997).

XV. (1998)

An information was filed in court for willful non-payment of income tax the assessment of which
has become final. The accused, through counsel, presented a motion that he be allowed to compromise
his tax liability subject of the information. The prosecutor indicated his conformity to the motion. Is this
procedure correct? [5%]

Suggested Answer:

No. Criminal violations, if already filed in court, may not be compromised (Sec. 204[B]. NIRC).
Furthermore, the payment of the tax due after apprehension shall not constitute a valid defense in
any prosecution for violation of any provisions of the Tax Code (Sec. 247(a), NIRC). Finally, there is no
showing that the Bureau of Internal Revenue to whom the conduct of criminal actions are lodged by
the Tax Code.

Alternative Answer

No. If the compromise referred to is the civil aspect, the procedure followed is not correct.
Compromise for the payment of any internal revenue tax shall be made only by the Commissioner of
Internal Revenue or in a proper case the Evaluation Board of the BIR (Sec. 204, NIRC). Applying the
law to the case at bar, compromise settlement can only be effected by leave of Court.

XVII. (1998)

1. When is a revenue tax considered delinquent? [3%]

2. What constitutes prima facie evidence of a false or fraudulent return? [2%]

Suggested Answer:

1. A revenue tax is considered delinquent when it is unpaid after the lapse of the last day
prescribed by law for its payment. Likewise, it could also be considered as delinquent
where an assessment for deficiency tax has become final and the taxpayer has not paid it
within the period given in the notice of assessment.
 There is prima facie evidence of a false or fraudulent return when the taxpayer has
willfully and knowingly filed it with the intent to evade a part or all of the tax legally due
from him (Ungab v. Cusi,. 97 SCRA 877). There must appear a design to mislead or deceive
on the part of the taxpayer, or at least culpable negligence. A mistake, not culpable in
respect of its value would not constitute a false return. (Words and Phrases, Vol. 16. page
173).

XVIII. (1998)

Is the BIR authorized to issue a warrant of garnishment against the bank account of a
taxpayer despite the pendency of his protest against the assessment with the BIR or
appeal with the Court of Tax Appeals? [5%]

Suggested Answer:

The BIR is authorized to issue a warrant of garnishment against the bank account of a
taxpayer despite the pendency of protest (Yabes v. Flojo, 15 SCRA 278). Nowhere in the tax Code is
the Commissioner required to rule first on the protest before he can institute collection proceedings
on the tax assessed. The legislative policy is to give the Commissioner much latitude in the speedy and
prompt collection of taxes because it is in taxation that the Government depends to obtain the means
to carry on its operations (Republic v. Tim Tian Teng Sons. Inc,. 16 SCRA 584).

The Commissioner is not authorized to issue the warrant of garnishment during the pendency
of appear with the Court of Tax Appeals because the assessment is not yet final and unappealable.

Alternative Answer

No. because the assessment has not yet become final, executor and demandable. The basic
consideration in the collection of taxes is whether the assessment is final and unappealable or the
decision of the Commissioner is final, executor and demandable, the BIR has legal basis to collect the
tax liability by either administrative of judicial action.

XIX. (1998)

CFB Corporation, a domestic corporation engaged in food processing and other allied activities,
received a letter from the BIR assessing it for delinquency income taxes. CFE filed a letter of protest. One
month after, a warrant of distraint and levy was served on CFB Corporation.

If you were the lawyer engaged by CFB Corporation to contest the assessment made by the BIR,
what steps will you take to protect your client? (5%)

Suggested Answer:

I shall immediately file a motion for reconsideration of the issuance of the warrant of distraint
and levy and seek from the BIR Commissioner a denial of the protest “in clear and unequivocal
language.” This is so because the issuance of a warrant of distraint and levy is not considered as a
denial by the BIR of the protest filed by CFB Corporation (CIR v. Union Shipping Corp,. 185 SCRA 547).
 Within thirty (30) days from receipt of such denial “in clear and unequivocal language,” I shall
then file a petition for review with the Court of Tax Appeals.

Alternative Answer:

Within thirty (30) days from receipt of the warrant of distraint and levy. I shall file a petition
for review with the Court of Tax Appeals with an application for issuance of a writ of preliminary
injunction to enjoin the Bureau of Internal Revenue from enforcing the warrant.

This is the action I shall take because I shall consider the issuance of the warrant as a final
decision of the Commissioner of Internal Revenue which could be the subject of appeal to the Court of
Tax Appeals (Yabes v.Flojo, 15 SCRA 278). The CTA may, however, remand the case to the BIR and
require the Commissioner to specifically rule on the protest. The decision of the Commissioner, if
adverse to my client, would then constitute an appealable decision.

XX. (1998)

Is assessment necessary before a taxpayer may be prosecuted for willfully attempting in any
manner to evade or defeat any tax imposed by the Internal Revenue Code? [5%]

Suggested Answer:

No. Assessment is not necessary before a taxpayer maybe prosecuted if there is a prima facie
showing of a willful attempt to evade taxes as in the taxpayer’s failure to declare a specific item of
taxable income in his income tax returns (Ungab v. Cusi 97 SCRA 877). On the contrary, if the taxes
alleged to have been evaded is computed based on reports approved by the BIR there is a
presumption of regularity of the previous payment of taxes, so that 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 (CIR v. Fortune Tobacco Corp,. GR No. 119322, June 4, 1996).

I. (1999)
A. Co., a Philippine Corporation, filed its 1995 Income Tax Return (ITR) on April 15, 1996
Income Tax Return (ITR) on April 15, 1996, showing a net loss. On November 10, 1996, it
amended its 1995 ITR to show more losses. After a tax investigation, the BIR disallowed certain
deductions claimed by A Co. putting A Co. in a net income position. As a result, on August 5,
1999. The BIR issued a deficiency income assessment against A Co. A Co. protested the
assessment on the ground that it has prescribed: Decide (5%)

SUGGESTED ANSWER:

The right of the BIR to assess the tax has not prescribed. The rule is that internal revenue
taxes shall be assessed within three years after the last day prescribed by law for the filing of the
return. (Section 203, NIRC). However, if the return originally filed is amended substantially, the
counting of the three-year period starts from the date the emended return was filed. (CIR v.
Phoenix Assurance Co., Ltd., 14 SCRA 52). There is a substantial amendment in this case
because a new return was filed declaring more losses, which can only be done either (1) in
reducing gross income or (2) in increasing the items of deductions, claimed.

VI. (1999)

A Co., a Philippine corporation, is a big manufacturer of consumer goods and has several
suppliers of raw materials. The BIR suspects that some of the suppliers are not properly reporting
their income on their sales to A Co. The CIR therefore:

1. Issued an access letter to A Co., to furnish the BIR information on sales and payments to its
suppliers.

2. Issued an access letter to a bank (CX Bank) to furnish the BIR on deposits of some suppliers
of A Co. on the alleged ground that the suppliers are committing tax evasion.

A Co., X Bank and the suppliers have not been issued by the BIR letter of authority to
examine. A Co. and X Bank believe that the BIR is on a “fishing expedition” and come to you
for counsel. What is your advice? (10%)

SUGGESTED ANSWER:

I will advise A Co. and B Co. that the BIR is justified only in getting information from
the former but not from the latter. The BIR is authorized to obtain information from other
persons other than those whose internal revenue tax liability is subject to audit or investigation.
However, this power shall not be construed as granting the Commissioner the authority to
inquire in to bank deposits. (Section 5, NIRC).
 VIII. (1999)

A Co. is the wholly owned subsidiary of B Co., a non-resident German company. A Co.
has a trademark licensing agreement with B Co. On Feb. 10, 1995, A co. remitted to B Co.
royalties of P10,000,000, which A Co. subjected to a WT that the proper WT rate is 10%. ON
March 20, 1996, A Co. filed a claim for refund of P2,500,000 with the BIR. The BIR denied the
claim on Nov. 15, 1996. On Nov. 28, 1996, A Co. filed a petition for review with the CTA. The
BIR attacked the capacity of A Co., as agent, to bring the refund case. Decide the issue. (5%)

SUGGESTED ANSWER:

A Co., the withholding agent of the non-resident foreign corporation is entitled to claim
the refund of excess withholding tax paid on the income of said corporation in the Philippines.
Being withholding agent, it is the one held liable for any violation of the withholding tax law
should such a violation occur. In the same vein, it should be allowed to claim a refund in case of
over withholding. (CIR v. Wander Phil. Inc., GR NO. 68378, April 15, 1988, 160 SCRA 573;
CIR v. Procter & Gamble PMC, 204 SCRA 377).