1. CIR v. Kudos Metal, G.R. No.

178087, May 5, 2010

2. Samar I electric coop v. CIR, GR No. 193100, December 10, 2014

FACTS:
Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal office at Barangay
Carayman, Calbayog City.

July 13, 1999 and April 17, 2000 –

Petitioner filed its 1998 and 1999 income tax returns, respectively. Petitioner filed its 1997, 1998, and
1999 Annual Information Return of Income Tax Withheld on Compensation, Expanded and Final
Withholding Taxes on February 17, 1998, February 1, 1999, and February 4, 2000, in that order.

November 13, 2000 -

respondent issued a duly signed Letter of Authority (LOA) No. 1998 00023803.

Petitioner cooperated in the audit and investigation conducted by the Special Investigation Division of
the BIR by submitting the required documents on December 5, 2000.

October 19, 2001 -

Respondent sent a Notice for Informal Conference which was received by petitioner in November 2001;
indicating the allegedly income and withholding tax liabilities of petitioner for 1997 to 1999.

In response, petitioner sent a letter dated November 26, 2001 to respondent maintaining its
indifference to the latter’s findings and requesting details of the assessment.

December 13, 2001 –

Petitioner executed a Waiver of the Defense of Prescription under the Statute of Limitations, good until
March 29, 2002.

February 28, 2002 -

Respondent issued a Preliminary Assessment Notice (PAN). The PAN was received by petitioner on April
9, 2002, which was protested on April 18, 2002.

July 8, 2002 -
Respondent dismissed petitioner’s protest and recommended the issuance of a Final Assessment Notice

September 15, 2002 -

Petitioner received a demand letter and assessments notices (Final Assessment Notices) for the alleged
1997, 1998, and 1999 deficiency withholding tax in the amount of [P]3,760,225.69, as well as deficiency
income tax covering the years 1998 to 1999 in the amount of [P]440,545.71, or in the aggregate amount
of [P]4,200,771.40.

April 10, 2003 –

Final Decision on Disputed Assessment, petitioner was still held liable for the alleged tax liabilities
DECISION OF LOWER COURT:
(1) CTA First Division - ordered petitioner to pay CIR deficiency withholding tax on compensation in the
aggregate amount of P2,690,850.91

ISSUE:
whether the 1997 and 1998 assessments on withholding tax on compensation were issued within the
prescriptive period provided by law; and whether the assessments were issued in accordance with
Section 228 of the NIRC of 1997.

RULING:
Yes.

SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in Section
222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed
by law for the filing of the return, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period: Provided, That in a
case where a return is filed beyond the period prescribed by law, the three (3)-year period shall
be counted from the day the return was filed. For purposes of this Section, a return filed before
the last day prescribed by law for the filing thereof shall be considered as filed on such last day.

Section 203 sets the three-year prescriptive period to assess, the following exceptions are
provided under Section 222 of the NIRC of 1997, viz.:

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may be
filed without assessment, at any time within ten (10) years after the discovery of the falsity,
fraud or omission: Provided, That in a fraud assessment which has become final and executory,
the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the
collection thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax,
both the Commissioner and the taxpayer have agreed in writing to its assessment after such
time, the tax may be assessed within the period agreed upon. The period so agreed upon may
be extended by subsequent written agreement made before the expiration of the period
previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding
in court within the period agreed upon in writing before the expiration of the five (5)-year
period. The period so agreed upon may be extended by subsequent written agreements made
 before the expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding Section and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry into any tax
return filed in accordance with the provisions of any tax amnesty law or decree. (Emphasis
supplied.)

it was petitioner’s substantial underdeclaration of withholding taxes in the amount of P2,690,850.91

which constituted the “falsity” in the subject returns – giving respondent the benefit of the period under
Section 222 of the NIRC of 1997 to assess the correct amount of tax “at any time within ten (10) years
after the discovery of the falsity, fraud or omission.”

the proper and reasonable interpretation of said provision should be that in the three different cases of
(1) false return,
(2) fraudulent return with intent to evade tax,
(3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within ten years after the discovery of the (1) falsity,
(2) fraud,
(3) omission.

There is a difference between “false return” and “fraudulent return” cannot be denied. While
the first merely implies deviation from the truth, whether intentional or not, the second implies
intentional or deceitful entry with intent to evade the taxes due.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the
NIRC should be applicable to normal circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false
returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten
years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission
even seems to be inadequate and should be the one enforced.

SEC. 228. Protesting of Assessment. – x x x xxx x

The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void.

3.1.4 Formal Letter of Demand and Assessment Notice. – The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative.
The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be void. The same shall be
sent to the taxpayer only by registered mail or by personal delivery. x x x
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the written
details on the nature, factual and legal bases of the subject deficiency tax assessments.

Considering the foregoing exchange of correspondence and documents between the parties, we find
that the requirement of Section 228 was substantially complied with. Respondent had fully informed
petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled the
latter to file an "effective" protest, ·much unlike the taxpayer's situation in Enron. Petitioner's right to
due process was thus not violated.
3. Adamson v. CA, GR No. 120935, May 21, 2009

FACTS:

A deficiency tax assessment was issued against Petitioners relating to their payment of capital gains tax
and VAT on their sale of shares of stock and parcels of land. Subsequent to the preliminary conference,
the CIR filed with the Department of Justice her Affidavit of Complaint against Petitioners. The Court of
Appeals ultimately ruled that, in a criminal prosecution for tax evasion, assessment of tax deficiency is
not required because the offense of tax evasion is complete or consummated when the offender has
knowingly and willfully filed a fraudulent return with intent to evade the tax.

ISSUES:

(1) Did the CIR issue an assessment?

(2) Must a criminal prosecution for tax evasion be preceded by a deficiency tax assessment?
(3) Does the CTA have jurisdiction on the case?

HELD:

(1) NO. The recommendation letter of the Commissioner cannot be considered a formal assessment as
(a) it was not addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the
tax liability, nor a period for payment set therein; (c) the letter was never mailed or sent to the
taxpayers by the Commissioner. It was only an affidavit of the computation of the alleged liabilities and
thus merely served as prima facie basis for filing criminal informations.

(2) YES. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the
collection of such tax may be begun without assessment considering that upon investigation of the
examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the
capital gains taxes due from the transactions. The Tax Code is clear that the remedies may proceed
simultaneously.

(3) NO. While the laws governing the CTA have expanded the jurisdiction of the Court, they did not
change the jurisdiction of the CTA to entertain an appeal only from a final decision of the Commissioner,
or in cases of inaction within the prescribed period. Since in the cases at bar, the Commissioner has not
issued an assessment of the tax liability of the Petitioners, the CTA has no jurisdiction.
4. Medicard v. CIR, G.R. No. 222743, April 5, 2017

MEDICARD was ordered by the CTA to pay CIR VAT deficiency at 220 million pesos plus 20% interest per
annum from January 25, 2007.

Finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT Returns, the CIR
informed MEDICARD and issued a Letter Notice (LN). A PAN was issued against MEDICARD for deficiency
VAT. A FAN was received by MEDICARD on January 4, 2008 for alleged deficiency VAT for taxable year
2006 in the total amount of Pl 96,614,476.69,10 inclusive of penalties.

More importantly, MEDICARD raised the issue of lack of Letter of Authority (LOA) on the part of the
revenue officer who conducted the examination. The CIR, on the other hand, posits that the LN is
enough compliance with the LOA requirement, arguing that the use of computers to detect
discrepancies dispenses with the requirement of LOA.

Furthermore, the CIR argued that the amounts earmarked and eventually paid by MEDICARD to medical
service providers form part of gross receipts for VAT purposes. The CTA EB sided with the CIR.

ISSUE: Can the LN replace the LOA requirement? What is the status of the assessment?

No, the LN cannot replace the LOA requirement.

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment
functions. In the absence of such an authority, the assessment or examination is a nullity.

The LN cannot replace the LOA required under the law even if the same was issued by the CIR himself.
Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts per data
generated under the RELIEF system. Upon receipt of the LN, a taxpayer may avail of the BIR's Voluntary
Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said program, the BIR
may avail of administrative and criminal remedies, particularly closure, criminal action, or audit and
investigation. Since the law specifically requires an LOA and RMO No. 32-2005 requires the conversion
of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the rug, as the
CIR would have it. In fact, Revenue Memorandum Circular No. 40-2003 considers an LN as a notice of
audit or investigation only for the purpose of disqualifying the taxpayer from amending his returns.

The revenue officers not having authority to examine MEDICARD in the first place, the assessment
issued by the CIR is inescapably void.
ISSUE: Can the LOA requirement be dispensed with, considering that MEDICARD's books have not
been physically examined?

No, the LOA requirement cannot be dispensed with even if MEDICARD's books have not been physically
examined.

Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives
before an examination "of a taxpayer" may be made. The requirement of authorization is therefore not
dependent on whether the taxpayer may be required to physically open his books and financial records
but only on whether a taxpayer is being subject to examination.
An LOA cannot be dispensed with just because none of the financial books or records being physically
kept by MEDICARD was examined.

ISSUE: Are the amounts earmarked and eventually paid by MEDICARD to the medical service
providers part of gross receipts for VAT purposes?

No, the amounts earmarked and eventually paid by MEDICARD to its medical service providers do not
form part of gross receipts for VAT purposes.

The CTA EB overlooked that the definition of gross receipts under. RR No. 16-2005 merely presumed
that the amount received by an HMO as membership fee is the HMO's compensation for their services.
As a mere presumption, an HMO is, thus, allowed to establish that a portion of the amount it received as
membership fee does NOT actually compensate it but some other person, which in this case are the
medical service providers themselves. It is a well-settled principle of legal hermeneutics that words of a
statute will be interpreted in their natural, plain and ordinary acceptation and signification, unless it is
evident that the legislature intended a technical or special legal meaning to those words. The Court
cannot read the word "presumed" in any other way.

The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC that
would extend the definition of gross receipts even to amounts that do not only pertain to the services to
be performed by another person, other than the taxpayer, but even to amounts that were indisputably
utilized not by MEDICARD itself but by the medical service providers.

ISSUE: Is it not that MEDICARD's act of earmarking constitutes an exercise of ownership, thereby
proving that the amounts earmarked form part of gross receipts for VAT purposes?

No, such act of earmarking does not constitute an exercise of ownership.

MEDICARD's act of earmarking or allocating 80% of the amount it received as membership fee at the
time of payment that weakens the ownership imputed to it. By earmarking or allocating 80% of the
amount, MEDICARD unequivocally recognizes that its possession of the funds is not in the concept of
owner but as a mere administrator of the same. For this reason, at most, MEDICARD's right in relation to
these amounts is a mere inchoate owner which would ripen into actual ownership if, and only if, there is
underutilization of the membership fees at the end of the fiscal year. Prior to that, MEDICARD is bound
to pay from the amounts it had allocated as an administrator once its members avail of the medical
services of MEDICARD's healthcare providers.

5. CIR v. Next Mobile, G.R. No. 212825, December 7, 2015

PRINCIPLE: Section 203 of the 1997 NIRC mandates the BIR to assess internal revenue taxes within 3
years from the last day prescribed by law for the filing of the tax return or the actual date of filing of
such return, whichever comes later. Hence, an assessment notice issued after the three-year
prescriptive period is not valid and effective. Exceptions to this rule are provided under Section 222 of
the NIRC.
FACTS: After submission of its returns for the year 2001, NM received a copy of the LOA given by the BIR
to Revenue Officer (RO) NLC, covering January to December of 2001. 5 waivers were signed by NM's
finance director to extend the prescriptive period of assessment.

In 2005, BIR sent NM a Preliminary Assessment Notice (PAN) to which the latter replied. Later, NM
received a Formal Letter of Demand (FLD) to pay various tax deficiencies amounting to 313 million
pesos.

On November 23, 2005, NM filed its protest against the FLD and requested the reinvestigation. BIR
denied the protest. NM filed a Petition for Review before the CTA.

In the CTA, NM argued that the CIR's right to assess NM's deficiency taxes had already prescribed,
invoking the lack of authority on the part of the person who signed the waviers. The CTA ruled in favor
of NM and said that the 5 waivers of the statute of limitations were not valid and binding; thus, the
three-year period of limitation within which to assess deficiency taxes was not extended. It also held
that the records belie the allegation that respondent filed false and fraudulent tax returns; thus, the
extension of the period of limitation from 3 to 10 years does not apply.

ISSUE #1: Had the CIR's right to assess respondent's deficiency taxes already prescribed?

No, the CIR's right to assess NM's deficiency taxes had NOT yet prescribed.

Section 222(b) of the NIRC 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. This is a waiver.

RMO No. 20-90 and RDAO 05-01 must be strictly complied with in order for such a waver to be valid.
Thus, a waiver of assessment period is invalid if, for example:

[1] It does not specify a definite agreed date between the BIR and the taxpayer within which the former
may assess and collect revenue taxes;
[2] It has been signed only by a revenue district officer, not the Commissioner;
[3] It has no date of acceptance;
[4] The taxpayer was not furnished a copy of the BIR-accepted waiver;
[5] The person who executed the waivers had no notarized written board authority to sign the waivers
in behalf of the corporation; or
[6] The fact of receipt by the taxpayer of its file copy was not indicated in the original copies of the
waivers.

In this case, both are at fault because NM deliberately executed defective waivers and raised the same
problem to avoid its tax liablity. On the other hand, the BIR's negligence or failure to comply with the
abovementioned regulations is so gross that it amounts to malice and bad faith.

Although it is true that waivers of this kind must be carefully and strictly construed because they are in
derogation of the taxpayer's right to security against prolonged and unscrupulous investigations, there
are 5 reasons why the CTA's decision should be reversed.

[1] The parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two
parties to a controversy are equally culpable or guilty and they shall have no action against each other.
[2] To uphold the validity of the waivers parties must come to court with clean handswould be
consistent with the public policy embodied in the principle that taxes are the lifeblood of the
government.
[3] Parties must come to court with clean hands. NM should not be allowed to benefit from the defects
in its own waivers.
[4] NM is estopped from questioning the validity of its own waivers. It allowed the government to rely
on the defective waivers without raising them as soon as possible. In fact, in its protest, it did not
mention this.
[5] Finally, this is a highly suspicious situation. The BIR miserably failed to exact from NM compliance
with its own rules while NM raised the same invalidity it caused to avoid its tax liability. Such a situation
is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their responsibility to
pay taxes by mere expedient of hiding behind technicalities.

ISSUE #2: Is the 10-year period of limitation for assessments of false and fraudulent returns applicable in
this case?

No, the longer 10-year period is not applicable. Applicable is the normal 3-year period.

Records failed to establish, even by prima facie evidence, that NM filed false and fraudulent returns on
the ground of substantial under-declaration of income in respondent Next Mobile's Annual ITR for
taxable year ending December 31, 2001.

SUMMARY: Next Mobile (NM) lost the case. The CIR succeeded in convincing the Supreme Court that
the CTA was wrong in invalidating the waivers.

1. CIR v. PNB, G.R. No. 180290, September 29, 2014

FACTS:
In several transactions, respondent PNB allegedly earned income and paid the corresponding income
taxes due which were collected and remitted by various payors as withholding agents to the BIR during
the taxable year 2000. Respondent filed its income tax return for taxable year 2000 declaring no income
tax liability as it incurred a net loss in the amount of P11,318,957,602.00 and a gross loss of
P745,713,454.00 from its Regular Banking Unit transactions. However, respondent had a 10% final
income tax liability of P210,364,280.00 on taxable income of P1,959,931,182.00 earned from its Foreign
Currency Deposit Unit transactions for the same year. Likewise, in the same return, it reported a total
amount of P245,888,507.00 final and creditable withholding taxes which was applied against the final
income tax due of P210,364,280.00 leaving an overpayment ofP35,524,227.00.

In its second amended return, respondent’s income tax overpayment of P35,524,227.00 consisted of the
balance of the prior year's (1999) excess credits of P9,057,492.00 to be carried-over as tax credit to the
succeeding quarter/year and excess creditable withholding taxes for taxable year 2000 in the amount of
P26,466,735.00 which respondent opted to be refunded.

On November 11, 2002, respondent filed a claim for refund or the issuance of a tax credit certificate in
the amount of P26,466,735.40 for the taxable year 2000 with the BIR.

Due to BIR’s inaction on its administrative claim, it appealed before the CTA division by way of a Petition
for Review which rendered a decision in its favor. On appeal, the Court of Tax Appeals En Banc sustained
the First Division’s ruling. Hence, this petition for review.

Petitioner contends that respondent failed to prove that the creditable withholding taxes are duly
supported by valid certificates of creditable tax withheld at source, the actual remittance of the alleged
withheld taxes to the BIR; and to discharge its burden of proving its entitlement to a refund.
Respondent, on the other hand, alleged that it complied with all the requirements for judicial claim for
refund of unutilized creditable withholding taxes and that the The fact of withholding was sufficiently
established by the 622 creditable withholding tax certificates. It further alleged that it need not prove
the actual remittance of withheld taxes to the Bureau of Internal Revenue because the remittance is the
responsibility of the payor or withholding agent and not the payee.

ISSUE
Are the creditable withholding tax certificates sufficient to support claim of refund by respondent?

HELD:
Yes. In Banco Filipino Savings and Mortgage Bank v. Court of Appeals, the court declared that a certificate
of creditable tax witheld at source is complete in the relevant details that would aid the courts in the
evaluation of any claim for refund of excess creditable withholding taxes. Such certificate must emanate
from the payor itself, and not merely from the payee, and must indicate the name of the payor, the income
payment basis of the tax withheld, the amount of the tax withheld and the nature of the tax paid. It is not
necessary for the person who executed and prepared the certificate of creditable tax withheld at source
to be presented and to testify personally to prove the authenticity of the certificates. Moreover, the
figures appearing in the withholding tax certificates can be taken at face value since these documents
were executed under the penalties of perjury. Thus, upon presentation of a withholding tax certificate
complete in its relevant details and with a written statement that it was made under the penalties of
perjury, the burden of evidence then shifts to the Commissioner of Internal Revenue to prove that the
certificate is not complete, false or was not issued regularly.

Furthermore, proof of actual remittance is not a condition to claim for a refund of unutilized tax
credits. Under Sections 57 and 58 of the 1997 National Internal Revenue Code, as amended, it is the
payor-withholding agent, and not the payee-refund claimant such as respondent, who is vested with the
responsibility of withholding and remitting income taxes.

Hence, Petition for Review is denied.

2. SM Investments Corp v CIR, CTA Case No. 9322, November 18, 2019

(no digest)

3. CIR v. Gonzales, G.R. No. 177279, October 13, 2010

Facts:

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.
a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on January
19, 2001

Based on data obtained from an "informer" and various clients of LMCEC... it was discovered that LMCEC
filed fraudulent tax returns with substantial underdeclarations of taxable income for the years 1997,
1998 and 1999.

Petitioner thus assessed the... company of total deficiency taxes

The Preliminary Assessment Notice (PAN) was received by LMCEC on February 22, 2001.

In view of the above findings, assessment notices together with a formal letter of demand dated August
7, 2002 were sent to LMCEC through personal service on October 1, 2002

On May 21, 2003, petitioner,... referred to the Secretary of Justice for preliminary investigation its
complaint against LMCEC... it was alleged that despite the receipt of the final assessment notice and
formal demand letter on

October 1, 2002, LMCEC failed and refused to pay the deficiency tax assessment... which had become
final and executory as a result of the said taxpayer's failure to file a protest thereon within the thirty
(30)-day... reglementary period... contending that LMCEC cannot be held liable whatsoever for the
alleged tax deficiency which had become due and demandable

They also assail as invalid the assessment notices which bear no serial numbers... petitioner disagreed
with the contention of LMCEC that the complaint filed is not criminal in nature, pointing out that LMCEC
and its officers Camus and Mendoza were being charged for the criminal offenses... defined and
penalized under Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of
the NIRC.

On the lack of control number in the assessment notice, petitioner explained that such 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

On September 22, 2003, the Chief State Prosecutor issued a Resolution[27] finding no sufficient
evidence to establish probable cause against respondents LMCEC, Camus and Mendoza.

On... the required prior determination of fraud... ruled that (1) there was no prior determination of
fraud

Petitioner appealed to respondent Secretary of Justice but the latter denied its petition for review

On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish the existence of
the following circumstances indicating fraud in the settlement of LMCEC's tax liabilities: (1) there must
be intentional and substantial understatement of tax liability by... the taxpayer; (2) there must be
intentional and substantial overstatement of deductions or exemptions; and (3) recurrence of the
foregoing circumstances.
second, the claim... that the tax fraud investigation was precipitated by an alleged "informant" has not
been corroborated nor was it clearly established, hence there is no other conclusion but that the Bureau
engaged in a "fishing expedition"

Petitioner filed the criminal complaint against the private respondents for violation of the following
provisions of the NIRC,... Respondent Secretary concurred with the Chief State Prosecutor's conclusion
that there is insufficient evidence to establish probable cause to charge private respondents... the
assessment notices... are unnumbered, hence irregular and suspect

Issues:

whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to
Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax).

Ruling:

a preliminary investigation should first be conducted to determine if a... prima facie case for tax fraud
exists

[t]he crime is complete when the [taxpayer] has x x x knowingly and willfully filed [a] fraudulent [return]
with intent to evade and defeat x x x the tax." Thus, respondent

Secretary erred in holding that petitioner committed forum shopping when it filed the... present
criminal complaint during the pendency of its appeal from the City Prosecutor's dismissal of I.S. No. 00-
956 involving the act of disobedience to the summons in the course of the... preliminary investigation on
LMCEC's correct tax liabilities for taxable years 1997, 1998 and 1999.

Respondent Secretary, however, fully concurred with private respondents' contention that the
assessment notices were invalid for being unnumbered and the tax liabilities therein stated have already
been settled and/or terminated.

As it is, 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.

Principles:

The rationale for dismissing the complaint on the ground of lack of control number in the assessment...
notice likewise betrays a lack of awareness of tax laws and jurisprudence, such circumstance not being
an element of the offense.

4. People v. Gloria Kintanar, CTA EB Crim No. 006, December 3, 2010

In People v. Gloria Kintanar (CTA EB Crim. No. 006, Dec. 3, 2010), Ms. Kintanar was charged with failure
to make or file her income tax returns (ITR), violating Section 255 of the 1997 National Internal Revenue
Code (NIRC), as amended. She claimed that she did not actively participate in the filing of her joint ITR
with her husband since she entrusted such duty to the latter who, in turn, hired an accountant to
perform their tax responsibilities. She testified that she did not know how much her tax obligation was;
nor did she bother to inquire or determine the facts surrounding the filing of her ITRs. Despite several
notices and subpoena received by the accused, only an unsupported protest letter made by her husband
was filed with the Bureau of Internal Revenue (BIR). The Court of Tax Appeals (CTA) En Banc found her
neglect or omission tantamount to “deliberate ignorance” or “conscious avoidance”. As an experienced
businesswoman, her reliance on her husband to file the required ITR without ensuring its full
compliance showed clear indication of deliberate lack of concern on her part to perform her tax
obligations. This ruling was sustained by the Supreme Court (SC) in 2012.

Based on the foregoing, the willful blindness doctrine was applied by the CTA, as sustained by SC on
cases where there is a natural presumption that the taxpayer knows his/her tax obligations under the
law considering the factual circumstances of the case, such as being a businesswoman or official of a
company. This case set a precedent that mere reliance on a representative or agent (i.e., accountant or
husband) is not a valid ground to justify any noncompliance in tax obligations. The taxpayer must
inquire, check and validate whether or not his/her representative or agent has complied with the
taxpayer’s tax responsibilities.

However, in the recent case of People v. Judy Ann Santos (CTA Crim. Case no. 012, Jan. 16, 2013), the
CTA Division seemed to have a change of heart and acquitted Ms. Santos despite having almost the
same circumstances as that of the case of Ms. Kintanar. In this case, Ms. Santos was accused of failure to
supply correct and accurate information in her ITR. She claimed that by virtue of trust, respect and
confidence, she has entrusted her professional, financial and tax responsibilities to her manager since
she was 12 years old. She participated and maintained her intention to settle the case, and thus
provided all the documents needed as well as payment of her taxes. The element of willfulness was not
established and the CTA found her to be merely negligent. The CTA also noted the intention of Ms.
Santos to settle the case, which negates any motive to commit fraud. This was affirmed by the SC in its
resolution issued April 2013.

THE DIFFERENCES
“Willful blindness” is defined in Black’s Law Dictionary as “deliberate avoidance of knowledge of a crime,
especially by failing to make a reasonable inquiry about suspected wrongdoing, despite being aware that
it is highly probable.” A “willful act” is described as one done intentionally, knowingly and purposely,
without justifiable excuse.

“Willful” in tax crimes means voluntary, intentional violation of a known legal duty, and bad faith or bad
purpose need not be shown. It is a state of mind that may be inferred from the circumstances of the
case; thus, proof of willfulness may be, and usually is, shown by circumstantial evidence alone.
Therefore, to convict the accused for willful failure to file ITR or submit accurate information, it must be
shown that the accused was (1) aware of his/her obligation to file annual ITR or submit accurate
information, but that (2) he/she, or his/her supposed agent, nevertheless voluntarily, knowingly and
intentionally failed to file the required returns or submit accurate information. Bad faith or intent to
defraud need not be shown.

As can be observed in the first case, the accused knew that she had to timely file and supply correct and
accurate information of the joint ITR with the BIR in relation to the profession or the position she holds.
The knowledge was presumed based on the fact that Ms. Kintanar is an “experienced” businesswoman,
having been an independent distributor of a product for several years. However, despite this knowledge,
the CTA found that she voluntarily, knowingly and intentionally failed to fulfill her tax responsibilities by
not participating in the filing of the ITR and ensuring that everything was filed correctly and accurately.
As compared with the Santos case, which the SC affirmed, the element of “voluntarily, knowingly and
intentionally” was taken differently by the CTA in consideration of the facts of the case. Ms. Santos fully
entrusted her tax obligations and finances to her manager since she was a child. It can be said that she is
not an “experienced” manager of her finances and taxes since she never handled such task, as
compared with the situation of Ms. Kintanar, who is considered an experienced businesswoman who
manages her business as well as her financial and tax responsibilities -- which is expected of somebody
in her position (i.e., president and/or businessperson).

The concept of willful blindness doctrine is new in Philippine jurisprudence. The application of this
doctrine by the CTA in the said cases was guided by the appreciation of the facts and the pieces of
evidence produced by the prosecution and accused to prove the non-existence of willfulness. However,
defined and clear standards in its application must be done as guidance for future application. This is
necessary to avoid arbitrary application and to encourage proper use of the doctrine by both parties in
the case.
5. People v. Judy Ann Santos, CTA Crim Case No. 012, January 16, 2013

Facts:

The accused, Judy Anne Santos is charged for filing a false and fraudulent Income Tax Return (“ITR”)
for the taxable year 2002 by indicating therein a gross income of P 8, 003,332.70, when in truth and
in fact her correct income for taxable year 2002 is P 16, 396, 234.70. She is prosecuted for violation
Section 255 of the 1997 NIRC as amended for her failure to supply correct and accurate information,
which resulted to an income tax deficiency in the amount of P 1, 395,116.24, excluded interest and
penalties thereon in the amount of P 1, 319, 500. 94, or in the aggregate income tax deficiency of P
2, 714,617.18.

Issue:

Whether or not the accused may be held liable for violation of Section 255 of the National Internal
Revenue Code, as amended.

Held:

Section 255 enumerates the following offenses:

a. Willful failure to pay tax;

b. Willful failure to make a return;
c. Willful failure to keep any record;
d. Willful failure to supply correct and accurate information;
e. Willful failure to withhold or remit taxes withheld; or
f. Willful failure to refund excess taxes withheld on compensation.

One of the offenses above-enumerated is willful failure to supply correct and accurate information,
which is being attributed to the accused. The elements of the said offense are as follows:

1. That a person is required to supply correct and accurate information;

2. That there is failure to supply correct and accurate information at the time or times required
by law or rules and regulations; and
3. That such failure to supply correct and accurate information is done wilfully.

Require to supply Correct and Accurate Information

Based on the records of the case, the accused unequivocally admitted that as early as eight (8) years
old, she entered the entertainment industry, and that at present is an established movie actress,
celebrity endorser and showbiz personality. Further, for the subject taxable year 2002, she admitted
that she entered into contracts for her engagement as a professional entertainer, movie actress, and
product endorser. With this, accused is required to file an income tax return for all her income from
all sources.

The prosecution was able to prove that the accused, earning her professional income as an
entertainer is required to file an income tax return, as she did, and that accused apparently supplied
correct and accurate information thereof.
Failure to Supply Correct and Accurate Information at the Time Required by Law

The prosecution was able to prove the element of failure to supply correct and accurate information
at the time required by law.

The prosecution presented that there were:

a. Undeclared income form ABS-CBN Broadcasting Corporation

b. Undeclared income from Viva Productions, Inc.
c. Undeclared income from Star Cinema Productions, Inc.
d. Undeclared income from Regal Entertainment, Inc.
e. Undeclared income from Century Canning Corporation

From the foregoing, the prosecution was able to show that from the declared Gross Taxable
Professional Income of the accused in the amount of P 8, 003, 332.70, in her ITR for the taxable year
2002, accused has an aggregate amount of P16, 396, 234.70, or a gross underdeclaration of P 8, 362,
902.00.

Willful Failure to Supply Correct and Accurate Information

As early discussed, the prosecution was able to prove that the accused failed to supply correct and
accurate information in her ITR for the year2002 for her failure declare her other income payments
received from other sources.

However, it is well settled that mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion.

Based on the records of the case, the accused denied the signature appearing on top of the name
“Judy Anne Santos” in the ITR for taxable year 2002, presented by the prosecution, and that the
Certified Public Accountant, who’s participation is limited to the preparation of the Financial
Statements attached to the return, likewise, denied signing the return on behalf of the accused.
Further, the working papers were all provided by the manager of the accused.

The Court, therefore, finds the records bereft of any evidence to establish the element of wilfulness
on the part of the accused to supply the correct and accurate information on her subject return.

The Court, however, only finds the accused negligent; and such is not enough to convict her in the
case at bench.

Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax
contemplated by law. Fraud must amount to intentional wrong-doing with the sole object of
avoiding the tax.

The Court also notes the intention of the accused to settle the case were it not for the opposition of
her Manager and then counsel, which negated any motive of the accused to commit fraud.

In sum, the Court finds the failure of the prosecution to establish the guilt of the accused beyond
the required reasonable doubt.