Tax-Remedies (Govt-Remedies-Highlights)

TAX REMEDIES UNDER NIRC
interest at the rate of 12% per annum It is a certain amount of money which the taxpayer
(double the legal interest rate pays to compromise a tax violation. Compromise
prescribed in Section 249(A), which penalties are paid in lieu of criminal prosecution,
interest shall be assessed and collected and cannot be imposed in the absence of a showing
from the date prescribed for its that the taxpayer consented thereto. If an offer of
payment until the full payment thereof, compromise is rejected by the taxpayer, the
or upon issuance of a notice and compromise penalty cannot be enforced through an
demand by the CIR, whichever comes action in court or by distraint and levy. The CIR
earlier (Sec. 249 (B), TRAIN). should file a criminal action if he believes that the
taxpayer is criminally liable for violation of the tax
NOTE: The new interest rate shall be applied law as the only way to enforce a penalty
only in cases of deficiency taxes for 2018 (Dimaampao, J. 2015).
onwards. If the deficiency taxes were for earlier
taxable period, it shall be computed pro-rata i.e. Q: A domestic corporation failed to withhold and
20% for 2017 and earlier (under the NIRC) and remit the tax on income received from
the 12% for 2018 onwards (under TRAIN). Philippine sources by a non-resident foreign
corporation. In addition to the civil penalties
3. Delinquency interest – There shall be provided for under the NIRC, a compromise
assessed and collected on the unpaid penalty was imposed for violation of the
amount, interest at the rate of 20% per withholding tax provisions. May the
annum until the amount is fully paid, Commissioner of Internal Revenue legally
which interest shall form part of the enforce the collection of compromise penalty?
tax, in case of failure to pay: (2000 Bar)
- Amount of tax due on any return
required to be filed, or A: NO. There is no showing that the compromise
- Amount of tax due for which no penalty was imposed by the Commissioner of
return is required, or Internal Revenue with the agreement and
- Deficiency tax, or any surcharge conformity of the taxpayer (Wonder Mechanical
on interest thereon on the due Engineering Corporation v. Court of Tax Appeals, et.
date appearing in the notice and al., 64 SCRA 555).
demand of the CIR (Sec. 249 (C),
NIRC). ASSESSMENT PROCESS &
REGLEMENTARY PERIODS
NOTE: Deficiency interest on deficiency income
tax accrues and commences from the date of The assessment process starts with the self-
assessment as shown in the assessment notice. assessment by the taxpayer of his tax liability, the
filing to the tax return, and the payment of the entire
4. Interest on extended payment – tax due shown in his tax return in accordance with
There shall be assessed and collected the methods and within the dates prescribed in the
interest at the rate of 20% per annum law and regulations (Mamalateo 2014).
on the tax or deficiency tax or any part
thereof unpaid from the date of notice Upon discovery of the BIR that the self-assessment
and demand until it is paid: was either deficient or when no return was made by
the taxpayer, the BIR issues deficiency assessment
- If any person required to pay the tax is (Ingles, 2015).
qualified and elects to pay the tax on
installment, but fails to pay the tax or any Deficiency Assessment Process
installment hereof, or any part of such
amount or installment on or before the date A. Tax Audit (including the Letter of Authority)
prescribed for its payment, or B. Issuance of Preliminary Assessment Notice
- Where the CIR has authorized an extension (PAN)
of time within which to pay a tax or a C. Reply
deficiency tax or any part thereof (Sec. 249 D. Issuance Formal Letter of Demand and Final
(D), NIRC). Assessment Notice (FLD/FAN).
E. Disputed assessment
Compromise penalties
A. LETTER OF AUTHORITY (LA)
UNIVERSITY OF SANTO TOMAS

287 FACULTY OF CIVIL LAW
LAW ON TAXATION
It is an official document that authorizes a revenue investigation from the date of receipt of a LA by the
officer to examine and scrutinize a taxpayer’s books taxpayer. If the RO is unable to submit his final
of accounts and other accounting records, in order report of investigation within the 120-day period,
to determine the taxpayer’s correct internal he must then submit a Progress Report to his Head
revenue tax liabilities (Sec. 13, NIRC). of Office, and surrender the LA for revalidation.
There must be a grant of authority before any Q: How many times can a taxpayer be subjected
revenue officer can conduct an examination or to examination and inspection for the same
assessment and the revenue officer must not go taxable year?
beyond authority. Otherwise, the assessment or
examination is a nullity. A: GR: Only once per taxable year
A Letter of Authority should cover a taxable period XPN: [FRC3]

not exceeding one taxable year. The practice of 1. When the CIR determines that Fraud,
issuing LAs covering audit of “unverified prior irregularities, or mistakes were committed
years” is therefore prohibited (CIR v. Sony by the taxpayer
Philippines, Inc., G.R. No. 178697, November 17, 2. When the taxpayer himself requests for the
2010). Re-investigation or re-examination of his
books of accounts and it was granted by the
Cases which need not be covered by a valid LA: commissioner
3. When there is a need to verify the
1. Cases involving civil or criminal tax fraud which taxpayer’s Compliance with withholding
fall under the jurisdiction of the tax fraud and other internal revenue taxes as
division of the Enforcement Services; and prescribed in a Revenue Memorandum
2. Policy cases under audit by the Special Teams in Order issued by the Commissioner
the National Office (RMO 36-99). 4. When the taxpayer’s Capital gains tax
liabilities must be verified
Service of Letter of Authority 5. When the Commissioner chooses to
exercise his power to obtain information
It must be served to the taxpayer within 30 days relative to the examination of other
from its date of issuance; otherwise, it shall become taxpayers (Secs. 5 and 235, NIRC).
null and void. The taxpayer shall then have the right
to refuse the service of this LA, unless the LA is Q: In 2010, pursuant to a LA issued by the
revalidated. Regional Director, Mr. Abcede was assessed
deficiency income taxes by the BIR for the year
Q: How is LA revalidated? How often can it be 2009. He paid the deficiency. In 2011, Mr.
revalidated? Abcede received another LA for the same year
2009, this time from the National Investigation
A: Revalidated through the issuance of a new LA. It Division, on the ground that Mr. Abcede's 2009
can be revalidated: return was fraudulent. Mr. Abcede contested
- only once, if issued by the Regional the LA on the ground that he can only be
Director; investigated once in a taxable year. Decide.
- twice, if issued by the CIR. (2013 Bar)
The suspended LA(s) must be attached to the new
issued LA (RMO 38-88). A: Mr. Abcede’s contention is not correct. While
the general rule is to the effect that for income tax
Tax audit purposes, a taxpayer must be subject to
examination and inspection by the internal revenue
This includes the examination of books of accounts officers only once in a taxable year, this will not
and other accounting records of the taxpayers by apply if there is fraud, irregularity or mistakes as
revenue officers to determine the correct tax determined by the Commissioner. In the instant
liability (Mamalateo, 2014). case, what triggered the second examination is the
findings by the BIR that Mr. Abcede’s 2009 return
Period within which an RO should conduct an was fraudulent, accordingly, the examination is
audit legally justified (Sec. 235, NIRC).
A revenue officer is allowed only 120 days to Principle of estoppel

conduct the audit and submit the required report of

2019 GOLDEN NOTES
288
The error made by a tax official in the assessment of 1. When the finding for any deficiency tax is the
his tax liabilities does not have the effect of relieving result of Mathematical error in the computation
the taxpayer from the obligation to pay the full of the tax appearing on the face of the tax return
amount of his tax liability, for taxes are fixed by law filed by the taxpayer; or
and the government is never estopped to collect the 2. When the Excise tax due on excisable articles
legitimate taxes because of errors committed by its has not been paid; or
agents (Commissioner v. Atlas Consolidated Mining 3. When a Discrepancy has been determined
Co., 102 SCRA 246). between the tax withheld and the amount
actually remitted by the withholding agent; or
Notice of Informal Conference 4. When an article locally purchased or imported
by an Exempt person, such as, but not limited to,
Presently, there is no requirement for the issuance vehicles, capital equipment, machineries and
of a Notice for Informal Conference. R.R. 18-2013 spare parts, has been sold, traded or
deleted such requirement. transferred to non-exempt persons (Sec. 228,
NIRC); or
(B) PRELIMINARY ASSESSMENT NOTICE(PAN) 5. When a taxpayer who opted to claim a refund or
tax credit of excess creditable withholding tax
If after review and evaluation by the Commissioner for a taxable period was determined to have
or his duly authorized representative, as the case Carried over and automatically applied the
may be, it is determined that there exists sufficient same amount claimed against the estimated tax
basis to assess the taxpayer for any deficiency tax or liabilities for the taxable quarter or quarters of
taxes, the said Office shall issue to the taxpayer a the succeeding taxable year (Sec. 3.1.2, R.R. No.
PAN for the proposed assessment. It shall show in 18-2013).
detail the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is In the above-cited cases, a FLD/FAN shall be issued
based (R.R. No. 18-2013, emphasis supplied). outright. (2002 BAR)
NOTE: Prior to the issuance of the PAN, the taxpayer Q: In the investigation of the withholding tax
may be allowed to make voluntary payments of returns of AZ Medina Security Agency (AZ) for
probable deficiency taxes and penalties (RMO 11- the taxable years 1997 and 1998, a discrepancy
2014). between the taxes withheld from its employees
and the amounts actually remitted to the
Requirements of a valid PAN government was found. Accordingly, before the
period of prescription commenced to run, the
1. In writing; and BIR issued an assessment and a demand letter
2. Should inform the taxpayer of the law and the calling for the immediate payment of the
facts on which the assessment is made (Sec. 228, deficiency withholding taxes in the total amount
NIRC) of P250,000.00. Counsel for AZ protested the
assessment for being null and void on the
The sending of PAN to taxpayer to inform him of the ground that no pre-assessment notice had been
assessment made is but part of the “due process issued. Is the contention of the counsel tenable?
requirement in the issuance of a deficiency tax (2002 Bar)
assessment,” the absence of which renders nugatory
any assessment made by the tax authorities. A: NO. The contention of the counsel is untenable.
Therefore, for its failure to send the PAN stating the Sec. 228, NIRC expressly provides that no pre-
facts and the law on which the assessment was assessment notice is required when a discrepancy
made as required by the law, the assessment made has been determined between the tax withheld and
by CIR is void (CIR v. Metro Star Suprema, Inc., G.R. the amount actually remitted by the withholding
No. 185371, December 8, 2010). agent. Since the amount assessed relates to
deficiency withholding taxes, the BIR is correct in
Exceptions to issuance of PAN issuing the assessment and demand letter calling for
the immediate payment of the deficiency
GR: There must be a PAN issued by the BIR before withholding taxes.
issuing a Formal Letter of Demand (FLD)/ Final
Assessment Notice (FAN). Q: Mr. Tiaga has been a law-abiding citizen
diligently paying his income taxes. On May 5,
XPN: PAN is not required in the following instances: 2014, he was surprised to receive an assessment
[MEDEC] notice from the BIR informing him of a

LAW ON TAXATION
deficiency tax assessment as a result of a 1. If there is no need to issue a PAN, because the
mathematical error in the computation of his circumstances show that it fall within the
income tax, as appearing on the face of his exceptions for the issuance of PAN;
income tax return for the year 2011, which he 2. If the taxpayer is in default for failure to respond
filed on April 15, 2012. Mr. Tiaga believes that to a PAN within a period of 15 days from the
there was no such error in the computation of receipt of PAN; or
his income tax for the year 2011. Based on the 3. If the CIR or his duly authorized representative
assessment received by Mr. Tiaga, may he does not agree with the justifications stated by
already file a protest thereon? (2014 Bar) the taxpayer in his reply to the PAN (Domondon,
2014).
A: YES. Mr. Tiaga may consider the assessment
notice as a final assessment notice and his right to The FLD/FAN calling for payment of the taxpayer's
protest within 30 days from receipt may now be deficiency tax or taxes shall state the facts, the law,
exercised by him. rules and regulations, or jurisprudence on which the
assessment is based; otherwise, the assessment shall
When the finding of a deficiency tax is the result of be void (R.R. No. 18-2013).
mathematical error in the computation of the tax
appearing on the face of the return, a pre- The FAN and FLD should always go together. The law
assessment notice shall not be required, hence, the requires that the factual and/or legal bases of the
assessment notice is a final assessment notice (Sec. assessment must be stated, and this requirement is
228, NIRC; RR No. 18-2013). not satisfied by the issuance of FAN alone, a letter of
demand fills up the void and explains to the
(C) REPLY TO PAN taxpayer how the deficiency assessment was
arrived at, including the reasons and legal bases for
Period for the taxpayer to respond to PAN via the assessment (Mamalateo, 2014).
“Reply”
Period to issue FLD/FAN
The taxpayer has 15 days from receipt of PAN to file
a written reply contesting the proposed assessment. If the taxpayer, within 15 days from date of receipt
of the PAN, responds that he/it disagrees with the
Effect of taxpayer’s failure to respond to PAN findings of deficiency tax or taxes, an FLD/FAN shall
be issued within 15 days from filing/submission of
The taxpayer shall be considered in default, in the taxpayer’s response, calling for payment of the
which case, a FLD/FAN shall be issued calling for taxpayer's deficiency tax liability, inclusive of the
payment of the taxpayer's deficiency tax liability, applicable penalties (R.R. No. 18-2013, emphasis
inclusive of the applicable penalties (Par. 2, Sec. supplied).
3.1.1, R.R. No. 18-2013).
NOTE: An FLD/FAN issued beyond 15 days from
For the purpose of contesting in writing the findings filing/submission of the taxpayer’s response to the
contained in a PAN, the regulations use the term PAN shall be valid, provided that, it is issued within
“reply” to distinguish the written objections against the period of limitation to assess internal revenue
a FAN issued by the BIR, where the generic term taxes. The non-observance of the 15-day period,
“protest” or the specific term “request for however, shall constitute an administrative
reconsideration” or “request for reinvestigation” is infraction and the revenue officers who caused the
utilized. delay shall be subject to administrative sanctions
as provided for by law and pertinent revenue
The failure to file a reply to PAN will not bar the issuances (RMO 11-2014).
taxpayer from protesting the FAN because PAN is
not the final assessment which can be protested as NOTE: Upon receipt of the PAN, taxpayer has 15
contemplated under the NIRC. days to reply. Failure to do so, shall cause the
issuance of the FLD/FAN. Issuance of FAN/FLD
(D) FORMAL LETTER OF DEMAND AND FINAL without waiting for the 15-day period to reply to
ASSESSMENT NOTICE (FLD/FAN) PAN is a violation of due process. (CIR vs. Next
Mobile, Inc., CTA EB Case No. 1419, November
Issuance of FLD/FAN
21, 2016)
The CIR or his duly authorized representative may
Q: Who issues the FAN?
issue FLD/FAN:

2019 GOLDEN NOTES
290
A: It shall be issued by the Commissioner or his duly parties, the requirement of Section 228 was
authorized representative. substantially complied with. Respondent had fully
informed petitioner in writing of the factual and
Q: In what form shall the FAN be and what legal bases of the deficiency taxes assessment,
should it contain? which enabled the latter to file an “effective”
protest. Taxpayer’s right to due process was thus
A: not violated (Samar Electric Corp v. CIR, G.R. No.
1. In writing; and 193100, December 10, 2014).
2. Shall state the facts, the law, rules and
regulations, or jurisprudence on which the Q: Taxpayer duly protested a PAN it received
assessment is based, otherwise, the FAN shall from the BIR. Subsequently, the BIR issued a FAN
be void (Sec. 228, NIRC; Sec. 3.1.3, R.R. No. 18- to the taxpayer. The demand letter states: “This
2013). is our final decision based on investigation. If you
disagree, you may appeal the final decision
NOTE: If the FAN is deemed insufficient insofar as within 30 days from receipt hereof, otherwise
compliance with Section 228 of the NIRC is said deficiency tax assessment shall become final,
concerned, such insufficiency can be cured, if the executory and demandable.” Instead of filing a
FLD can show the legal and factual bases relied upon protest on the assessment, the taxpayer filed a
in the issuance of the assessment which the FAN petition for review with the CTA. The BIR filed a
failed to detail. motion to dismiss on the ground that the
taxpayer failed to exhaust administrative
Q: What does the phrase “in writing” under Sec. remedies by filing a protest on the assessment.
228 mean? Should the motion be granted?
A: It does not exclusively mean written words. A: NO. This case is an exception to the rule on
“Writing” consists of letters, word, numbers, or their exhaustion of administrative remedies, i.e., estoppel
equivalent, set down by handwriting, typewriting, on the part of BIR. The taxpayer cannot be blamed
printing, photostating, photographing, magnetic for not filing a protest against the FAN since the
impulse, mechanical or electronic recording, or language used and the tenor of the demand letter
other form of data compilation. Indubitably, figures indicate that it is the final decision of the CIR on the
are also “writings” and if the numerical presentation matter. The CIR must indicate, in a clear and
is understandable enough, then there is no reason unequivocal language, whether its action on a
why it should be automatically rejected as disputed assessment constitutes its final
inadequate compliance with the law (Sevilla, v. CIR, determination thereon in order for the taxpayer
CTA Case 6211, October 4, 2004). concerned to determine when his or her right to
appeal to the tax court accrues. Thus, the CIR is now
Q: Is substantial compliance of the notice estopped from claiming that it did not intend the
requirement under Section 228 of the NIRC FAN to be a final decision (Allied Banking Corp. v.
allowed? CIR, G.R. No. 175097, February 5, 2010).
A: YES. The notice requirement under Section 228 NOTE: An FLD/FAN issued reiterating the
of the NIRC is substantially complied with whenever immediate payment of deficiency taxes and
the taxpayer had been fully informed in writing of penalties previously made in the PAN is a denial of
the factual and legal bases of the deficiency taxes the response to the PAN. A final demand letter for
assessment, which enabled the latter to file an payment of delinquent taxes may be considered a
effective protest. decision on a disputed assess ment. This includes a
disputed PAN. So long as the parties are given the
In the case of Samar I Electric Cooperative v. CIR, the opportunity to explain their side, the requirements
Court held that although the FAN and demand letter of due process are satisfactorily complied with
were not accompanied by a written explanation of (RMO 11-2014).
the legal and factual bases of the assessed deficiency
taxes, the records showed that CIR responded to (E) DISPUTED ASSESSMENT
taxpayer’s letter-protest, explaining at length the
factual and legal bases of the deficiency tax Remedies of the taxpayer after the issuance of a
assessments and denying the protest. FAN
Considering the foregoing exchange of The taxpayer may protest the assessment within 30
correspondence and documents between the days from receipt. Otherwise, the assessment

LAW ON TAXATION
becomes final, executory, demandable and not In sum, as a rule, the government can only file a
appealable to the CTA. proceeding in court to collect once the assessment
has become final and unappealable.
The protest comes in the form of either a written
request for reconsideration or reinvestigation. Assessments are deemed final when:
After the request is filed and received by the BIR, the 1. The taxpayer failed to file a protest 30 days
assessment becomes a disputed assessment (CIR v. from receipt of the assessment
Isabela Cultural Corp., G.R. No. 135210, July 11, 2001). 2. After the 180-day period and the CIR has not yet
acted on the protest, the taxpayer fails to appeal
NOTE: Refer to “Protesting an assessment” under it
Taxpayer’s Remedies for complete discussion on
protest. 3. After 30 days from the receipt of the decision of
the CIR the taxpayer fails to appeal
COLLECTION
Collectibility of tax liability arises in the
The government is given two ways to collect: following instances:
1. Summary or administrative remedies, and
2. Judicial remedies 1. Self-assessed tax shown in the return was not
paid within the date prescribed by law
The legislature may adopt any reasonable method - Internal revenue taxes are self-assessing and
for the effective enforcement of the collection of no further assessment by the government is
taxes, subject to: required to create the tax liability. The taxpayer
is immediately considered as delinquent with
1. The right of the person to notice; and respect to the unpaid amount of tax;
2. The opportunity to be heard. 2. When final assessment is not protested
administratively within 30 days from the date
The power to impose taxes is clothed with the of receipt;
implied authority to devise ways and means to
3. Failure to question assessment served upon the
accomplish collection in the most effective manner.
decedent’s heirs (Marcos II v. Court of Appeals,
Without this implied power, the ends of government
273 SCRA 47);
may fail (CIR v. Pineda, G.R. No. L-22734, September
15, 1967). 4. Non-compliance with the condition laid in the
approval of protest - construed as if no protest
Requisites was filed;
5. Failure to file a timely appeal to the CTA on the
GR: Collection is only allowed when there is already final decision of the Commissioner or his
a final assessment made for the determination of authorized representative on the disputed
the tax due. assessment.
XPN: Judicial action to collect the tax liability is

NOTE: Refer to “Protesting an assessment” under
permitted even without an assessment when the
Taxpayer’s Remedies for complete discussion on
taxpayer:
finality of assessment.
1. Files a false or fraudulent return with intent
Prescriptive periods
to evade the tax, or
2. Fails to file a return.
GR: The prescriptive period to collect taxes due is
five years from the date of assessment.
In the above cases, collection must be done within
10 years after the discovery of falsity, fraud, or
XPNs:
omission.
1. False or fraudulent return with with intent to
evade the tax: within 10 years from discovery
However, once an assessment is made against the
without need of assessment
taxpayer, the government cannot avail of the 10-
2. Failure or omission to file return: within 10
year period in Section 222(A). If the assessment is
years from discovery without need of
made, then the period to collect is five years from
assessment
the assessment and not 10 years (Ingles, 2015).

2019 GOLDEN NOTES
292
3. Waiver in writing executed before the the five- Also, the attempt of the BIR to collect the tax
year period expires: period agreed upon through its Answer with a demand for the taxpayer
to pay the assessed DST in the CTA is not deemed
NIRC v. Civil Code v. Rules of Court compliance with the NIRC which provides that
assessed tax must be collected by distraint or levy
The prescriptive period to assess or collect and/or court proceeding within the prescribed
deficiency tax is governed by NIRC (a special law) period. (China Banking Corporation vs.
and not the Civil Code (a general law). The same can Commissioner of Internal Revenue, G.R. No. 172509,
be said between NIRC and the Rules of Court. Hence, February 04, 2015).
claims for taxes may be collected even after the
distribution of the decedent’s estatae. Claims for Tax is deemed collected for purposes of
estate taxes are exempted from the application of prescriptive periods
the statute of non-claims (Ingles, 2015, citing several
cases). 1. If collection is through summary remedies
(distraint and levy), when the government
Summary: avails of a distraint and levy procedures
prescribed under NIRC.
- Distraint and Levy proceedings are begun
FALSE, FRAUDULENT, by the issuance of warrant and service
REGULAR RETURN
OR FAILURE TO FILE A thereof to the taxpayer (BPI v. CIR, G.R. No.
WAS MADE
RETURN 139736, October 17, 2005).
2. If collection is through judicial remedies (civil

Collection with prior assessment
or criminal), when the government files the
Collection should be complaint with the proper court
made within 5 years - A judicial action for the collection of a tax
from the date of may be initiated by:
assessment, either 1. Filing a complaint with the proper
by: regular trial court, or where the
1. Summary Same assessment is appealed to the CTA; or
proceedings; or 2. By filing an answer to the taxpayer’s
2. Judicial petition for review wherein payment of
proceedings the tax is prayed for (PNOC v. CA, G.R. No.
(Sec.222 [c], 109976, April 26, 2005).
NIRC)
Q: What is the prescriptive period where the
Collection without prior assessment government action is on a bond which the
Collection is within 10 taxpayer executes in order to secure the
years from discovery, of payment of his tax obligation?
the falsity, fraud or
omission to file a return. A: Ten (10) years under Art. 1144 (1) of the Civil
Code and not 3 years under the NIRC. In this case,
the Government proceeds by court action to forfeit
Limited to purely
judicial remedies a bond. The action is for the enforcement of a
(Section 222[A]). contractual obligation (Republic v. Araneta, G.R. No.
L-14142, May 30, 1961).
Q: May the collection of taxes be barred by

Computation of the prescriptive period prescription? Explain your answer. (2001 Bar)
The assesment of the tax is deemed made and the A: YES. The collection of taxes may be barred by
period for collection of the assessed tax begins to prescription. The prescriptive periods for collection
run on the date the assessment notice had been of taxes are governed by the tax law imposing the
released, mailed or sent by the BIR to the taxpayer. tax. However, if the tax law does not provide for
Thus, failure of the BIR to file a warrant of distraint prescription, the right of the government to collect
or serve a levy on taxpayer's properties nor file taxes becomes imprescriptible.
collection case within the prescriptive period is
fatal. TAXPAYER’S REMEDIES

LAW ON TAXATION
Remedies Before Payment 1. In writing;
1. Administrative remedies 2. Addressed to the CIR or his duly athorized
a. Protest of assessment; representative;
i. Reconsideration 3. State the facts, applicable law, rules and
ii. Reinvestigation regulations or jurisprudence on which the
b. Compromise; and protest is based otherwise the protest would
c. Abatement be void; and
4. Must contain the following:
2. Judicial Remedies a. Name of the taxpayer and address for the
immediate past 3 taxable years;
Remedies After Payment b. Nature of the request, specifying the newly
1. Administrative remedies discovered evidence to be presented;
a. Tax refund c. Taxable periods covered by the
b. Tax credit assessment;
2. Judicial remedies d. Amount and kind of tax involved and the
assessment notice number;
Administrative Remedies e. Date of receipt of the assessment notice or
letter of demand;
Guidelines that must be observed with respect f. Itemized statement of the finding to which
to administrative remedies the taxpayer agrees (if any) as basis for the
computation of the tax due, which must be
BASIS GOVERNMENT TAXPAYER paid upon filing of the protest;
If Express Must observe Must observe the g. Itemized schedule of the adjustments to
the legal doctrine of which the taxpayer does not agree;
parameters set exhaustion of h. Statements of facts or law in support of the
forth in the law administrative protest; and
(e.g. procedure remedies. Thus, i. Documentary evidence as it may deem
for distraint of before the necessary and relevant to support its
personal taxpayer may protest to be submitted 60 days from the
property (Sec. question an filing thereof.
207 [A], NIRC), assessment before
for levy on real the CTA, he must Protested assessment is the same as disputed
property (Sec. first file an assessment.
207 B) and administrative
enforcement of protest before the Effect of a protest against an assessment
tax lien (Sec. BIR. (Same is true Prescriptive period provided by law to make
219) with claims for collection by distraint or levy or by a proceeding in
refunds) court is interrupted once a taxpayer protests the
If Implied Both may avail of the usual remedies assessment and requests for its cancellation.
for convenience and expediency.
Period to file protest
(A) PROTESTING AN ASSESSMENT
The taxpayer or its authorized representative or tax
Administrative protest agent may protest administratively against the
FLD/FAN within thirty (30) days from date of
The taxpayer or its authorized representative or tax receipt thereof.
agent may protest administratively against the
aforesaid FLD/FAN within thirty (30) days from Form, content and validity of protest
date of receipt thereof.
The taxpayer protesting an assessment may file a
Administrative protest is the act by the taxpayer of written request for reconsideration or
questioning the validity of the imposition of the reinvestigation defined as follows:
corresponding delinquency increments for internal
revenue taxes as shown in the notice of assessment 1. Request for reconsideration — refers to a plea
and letter of demand. of re-evaluation of an assessment on the basis of
existing records without need of additional
Requisites of a protest evidence. It may involve both a question of fact
or of law or both.

2019 GOLDEN NOTES
294
2. Request for reinvestigation — refers to a plea executory and demandable; and the taxpayer
of re-evaluation of an assessment on the basis of shall be required to pay the deficiency tax or
newly discovered or additional evidence that a taxes attributable thereto, in which case, a
taxpayer intends to present in the collection letter shall be issued to the taxpayer
reinvestigation. It may also involve a question of calling for payment of the said deficiency tax or
fact or of law or both. taxes, inclusive of the applicable surcharge
and/or interest.
The taxpayer shall state in his protest:
2. If there are several issues involved in the
1. The nature of protest whether reconsideration disputed assessment and the taxpayer fails to
or reinvestigation, specifying newly state the facts, the applicable law, rules and
discovered or additional evidence he intends regulations, or jurisprudence in support of his
to present if it is a request for reinvestigation, protest against some of the several issues on
2. Date of the assessment notice, and which the assessment is based, the same shall be
3. The applicable law, rules and regulations, or considered undisputed issue or issues, in which
jurisprudence on which his protest is based, case, the assessment attributable thereto shall
otherwise, his protest shall be considered void become final, executory and demandable; and
and without force and effect. the taxpayer shall be required to pay the
deficiency tax or taxes attributable thereto and a
REQUEST FOR REQUEST FOR collection letter shall be issued to the taxpayer
RECONSIDERATION REINVESTIGATION calling for payment of the said deficiency tax,
2. A claim for re-
3. A claim for re-evaluation inclusive of the applicable surcharge and/or
evaluation of the of the assessment based interest.
assessment based on on newly-discovered or
existing records without additional evidence. Q: A taxpayer receives two final assessments,
need of additional one for Net Income Tax (NIT) and one for VAT. If
evidence. the taxpayer would only like to protest the one
4. It may involve 5. a It may also involve a for NIT and not the one for VAT, what should he
question of fact or law question of fact or law or do to file a protest for the NIT?
or both. both.
It does not toll the 6. It tolls the statute of A: The taxpayer should first pay the tax due under
statute of limitations. limitations. the VAT, where he does not intend to file a protest.
NOTE: A motion for reconsideration of the denial of NOTE: This is not payment under protest for this is
the administrative protest does not toll the 30-day neither a tax under the TCC nor a Real Property Tax
period to appeal to the CTA (Fishwealth Canning (RR 12-99).
Corporation v. CIR, G.R. No. 179343, January 21,
2010). Submission of supporting documents
There is a distinction between a request for For requests for reinvestigation, the taxpayer shall
reconsideration and a request for reinvestigation. A submit all relevant supporting documents in
reinvestigation which entails the reception and support of his protest within sixty (60) days from
evaluation of additional evidence will take more date of filing of his letter of protest. Otherwise, the
time than a reconsideration of a tax assessment, assessment shall become final.
which will be limited to the evidence already at
hand; this justifies why the reinvestigation can “Relevant supporting documents”
suspend the running of the statute of limitations on
collection of the assessed tax, while the These refer to those documents necessary to
reconsideration cannot. (BPI v. CIR, G.R. No. 181836, support the legal and factual bases in disputing a tax
July 9, 2014). assessment as determined by the taxpayer.
Protest against validity of some of the issues These are documents which the taxpayer feels
would be necessary to support his protest and not
1. If there are several issues involved in the what the Commissioner feels should be submitted,
FLD/FAN but the taxpayer only disputes or otherwise, the taxpayer would always be at the
protests against the validity of some of the issues mercy of the BIR which may require production of
raised, the assessment attributable to the such documents which taxpayer could not produce
undisputed issue or issues shall become final,

LAW ON TAXATION
(Standard Chartered Bank v. CIR, CTA case No. 5696, Decision on the protest filed
August 16, 2001).
a. Direct grant or denial of protest
The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand Final Decision on a Disputed Assessment (FDDA)
what type of supporting documents should be
submitted. Otherwise, a taxpayer will be at the The decision of the Commissioner or his duly
mercy of the BIR, which may require the production authorized representative shall state:
of documents that a taxpayer cannot submit (CIR vs.
First Express Pawnshop Co., Inc., G.R. Nos. 172045-46, 1. the facts, the applicable law, rules and
June 16, 2009, 607). regulations, or jurisprudence on which such
decision is based, otherwise, the decision shall
The assessment shall become final be void, and
2. That the same is his final decision.
The failure of the taxpayer who requested for a
reinvestigation to submit all relevant supporting b. Indirect denial of protest
documents within the 60-day period shall render
the FLD/FAN “final” by operation of law. He/it shall a. Formal and final letter of demand from the
be barred from disputing the correctness of the BIR to the taxpayer
FLD/FAN by the introduction of newly discovered b. Civil collection can also be considered as
or additional evidence because he/it is deemed to denial of protest of assessment (BIR v.
have lost his/its chance to present evidence. The Union Shipping Corp., G.R. No. 66160, May
BIR shall then deny the request for reinvestigation 21, 1990)
through the issuance of an FDDA.
NOTE: Preliminary collection letter may serve
3. NOTE: The sixty (60)-day period for the as assessment notice (United International
submission of all relevant supporting documents Pictures v. CIR, G.R. No. 110318, August 28,
shall not apply to requests for reconsideration. 1996).
Effect of failure to file protest c. Filing of criminal action against the

taxpayer
4. If the taxpayer fails to file a valid protest against d. Issuance of warrant of distraint and levy to
the FLD/FAN within thirty (30) days from date of enforce collection of deficiency assessment
receipt thereof, the assessment shall become final, is outright denial of the request for
executory and demandable. No request for reconsideration (Hilado v. CIR, CTA case
reconsideration or reinvestigation shall be granted 1256, Feb. 25, 1964).
on tax assessments that have already become final,
executory and demandable c. Inaction by the CIR or his duly authorized
representative
Period to act upon or decide on the protest filed
Remedies of taxapayer in case of denial or inaction
a. By the duly authorized representative
1. Request for investigation – within 180 days  By the CIR’s duly authorized representative
from submission of relevant documents
2. Request for reconsideration - within 180 1. If the protest is denied, in whole or in part,
days from filing of protest the taxpayer may either:
a. appeal to the CTA within 30 days from
b. By CIR date of receipt of the said decision; or
1. In case of protest – within 180 days from b. elevate his protest through request
filing of protest for reconsideration to the CIR within
2. In case of administrative appeal - within 30 days from date of receipt of the
180 days from the filing of administrative said decision.
appeal
No request for reinvestigation shall be
Administrative appeal – request for allowed in administrative appeal and only
reconsideration filed wth the CIR to elevate issues raised in the decision of the CIR’s
the denial made by his duly authorized duly authorized representative shall be
representative

2019 GOLDEN NOTES
296
entertained by the CIR. When the law provided for the remedy to appeal the
inaction of the CIR, it did not intend to limit it to a
2. If the protest is not acted upon, the single remedy of filing an appeal after the lapse of
taxpayer may either: 180-day prescribed period. When a taxpayer
a. appeal to the CTA within 30 days after protested an assessment, he naturally expects the
the expiration of the 180-day period; CIR to decide either positively or negatively. A
or taxpayer cannot be prejudiced if he chooses to wait
b. await the final decision of the CI R’s for the final decision of the CIR on the protested
duly authorized representative on the assessment (Lascona Land Co., Inc. v. CIR, G.R. No.
disputed assessment. 171251, March 5, 2012).
NOTE: Items 1&2 are mutually exclusive. The Q: The FDDA issued by the CIR to Liquigaz
exercise of one option bars the other. merely contained a table of Liquigaz’s
supposed tax liabilities, without providing any
 By the CIR details. The CIR explains that the FDDA still
complied with the requirements of the law as it
a. If the protest or administrative appeal, as was issued in connection with the PAN and
the case may be, is denied, in whole or in FLD/FAN, which had an attachment of the
part, the taxpayer may appeal to the CTA details of discrepancies. Hence, the CIR
within 30 days from date of receipt of the concludes that Liquigaz was sufficiently
said decision. Otherwise, the assessment informed in writing of the factual bases of the
shall become final, executory and assessment. Is the CIR correct?
demandable.
A: NO. It is undisputed that the FDDA merely
A motion for reconsideration of the CIR’s showed Liquigaz’ tax liabilities without any details
denial of the protest or administrative on the specific transactions which gave rise to its
appeal, as the case may be, shall not toll the supposed tax deficiencies. While it provided for the
30-day period to appeal to the CTA. legal bases of the assessment, it fell short of
informing Liquigaz of the factual bases thereof. The
b. If the protest or administrative appeal is CIR erred in claiming that Liquigaz was informed of
not acted upon, the taxpayer may either: the factual bases of the assessment because the
1. appeal to the CTA within 30 days from FDDA made reference to the PAN and FAN/FLD,
after the expiration of the 180-day which were accompanied by details of the alleged
period; or discrepancies.
2. await the final decision of the CIR on the
disputed assessment and appeal such The rules specifically require that the decision of the
final decision to the CTA within 30 days CIR or his duly authorized representative on a
after the receipt of a copy of such disputed assessment shall state the facts, law and
decision. rules and regulations, or jurisprudence on which the
decision is based. Failure to do so would
NOTE: Items 1&2 are mutually exclusive. The invalidate the FDDA. To rule otherwise would
exercise of one option bars the other. tolerate abuse and prejudice. Taxpayers will be
In case of inaction on protested assessment within unable to file an intelligent appeal before the CTA as
the 180-day period, the option of the taxpayer is to they would be unaware on how the CIR or his
either: authorized representative appreciated the defense
raised in connection with the assessment (CIR v.
1. file a petition for review with the CTA within 30 Liquigaz Philippines Corp., G.R. No. 215534, April 18,
days after the expiration of the 180-day period; 2016).
or
2. await the final decision of the Commissioner or Q: What is the effect of a void FDDA?
his duly authorized representative on the
disputed assessment and appeal such final A: FDDA that does not inform the taxpayer in
decision to the CTA within 30 days after the writing of the facts and law on which it is based
receipt of a copy of such decision. renders the decision void. The written notice
requirement for both the FLD and the FAN is in
These options are mutually exclusive and the observance of due process — to afford the taxpayer
resort to one bars the application of the other. adequate opportunity to file a protest on the

LAW ON TAXATION
assessment and thereafter file an appeal in case of A: NO. The rules give a protesting taxpayer three
an adverse decision. options:
However, a void FDDA does not ipso facto render the 1. If the protest is wholly or partially denied by the
assessment void. The assessment remains valid CIR or his authorized representative, then the
notwithstanding the nullity of the FDDA because the taxpayer may appeal to the CTA within 30 days
assessment itself differs from a decision on the from receipt of the whole or partial denial of the
disputed assessment. An FDDA that does not inform protest.
the taxpayer in writing of the facts and law on which 2. If the protest is wholly or partially denied by the
it is based renders the decision void. Therefore, it is CIR's authorized representative, then the
as if there was no decision rendered by the CIR. It is taxpayer may appeal to the CIR within 30 days
tantamount to a denial by inaction by the CIR, which from receipt of the whole or partial denial of the
may still be appealed before the CTA and the protest.
assessment evaluated on the basis of the available 3. If the CIR or his authorized representative
evidence and documents (CIR v. Liquigaz Philippines failed to act upon the protest within 180 days
Corp., G.R. No. 215534, April 18, 2016). from submission of the required supporting
documents, then the taxpayer may appeal to the
Q: A taxpayer received a tax deficiency CTA within 30 days from the lapse of the 180-
assessment of P1.2 Million from the BIR day period.
demanding payment within 10 days, otherwise,
it would collect through summary remedies. The To further clarify the three options: A whole or
taxpayer requested for a reconsideration partial denial by the CIR’s representative may be
stating the grounds therefor. Instead of appealed to the CIR or the CTA. A whole or partial
resolving the request for reconsideration, the denial by the CIR may be appealed to the CTA. The
BIR sent a Final Notice before Seizure to the CIR or the CTA’s authorized representative’s failure
taxpayer. May this action of the Commissioner of to act may be appealed to the CTA. There is no
Internal Revenue be deemed a denial of the mention of an appeal to the CIR from the failure to
request for reconsideration of the taxpayer to act by the CIR's authorized representative.
entitle him to appeal to the Court of Tax
Appeals? Decide with reasons. (2005 Bar) PAGCOR did not wait for the RD or the CIR’s decision
on its protest. PAGCOR made separate and
A: YES, the final notice before seizure was in effect successive filings before the RD and the CIR before
a denial of the taxpayer's request for it filed its petition with the CTA. PAGCOR rendered
reconsideration, not only was the notice the only the second option moot when it formulated its own
response received, its nature, content and tenor rule and “elevated an appeal” to the CIR without any
supports the theory that it was the BIR's final act decision from the RD. The third option states that
regarding the request for reconsideration (CIR v. the remedy for failure to act by the CIR or his
Isabela Cultural Corporation, G.R. No. 135210, July authorized representative is to file an appeal to the
11, 2001). CTA within 30 days after the lapse of 180 days from
the submission of the required supporting
Q: PAGCOR received a FAN on January 17, 2008 documents. PAGCOR clearly failed to do this. If we
for payment of deficiency Fringe Benefit Tax. 7 consider, for the sake of argument, PAGCOR’s
days later, it filed a protest to the FAN addressed submission before the CIR as a separate protest and
to RD Misajon of Revenue Region No. 6 of the not as an appeal, then such protest should be denied
BIR. On August 14, 2008, PAGCOR elevated its for having filed out of time. It is clear that PAGCOR
protest to CIR, there being no action taken failed to make use of any of the three options
thereon as of that date. On March 11, 2009, described above. Indeed, PAGCOR’s lapses in
PAGCOR filed a Petition for Review before the procedure have made the BIR’s assessment final,
CTA alleging respondent’s inaction in its protest. executor and demandable (PAGCOR v. BIR, G.R. No.
CTA Division dismissed the petition for being 208731, January 27, 2016).
filed out of time. CTA En banc affirmed CTA
Division’s ruling. In its Petition for Review before Effect of the failure to appeal by a taxpayer
the SC, PAGCOR argues that its protest before the
CIR on August 14, 2008 starts a new period from The decision or assessment becomes final and
which to determine the last day to file its executory. The assessment is considered correct
petition before the CTA. Is PAGCOR correct? which may be enforced by summary or judicial
remedies. The assessment which has become final

2019 GOLDEN NOTES
298
and executory cannot be superseded by a new assessment; unjustly or

assessment. 2. Financial excessively
incapacity of assessed; or
In an action for the collection of the tax by the the taxpayer 2. The
government, the taxpayer is barred from re-opening administration
the question already decided. and collection
costs involved
In a proceeding for collection of tax by judicial do not justify
action, the taxpayer’s defenses are similar to those the collection
of the defendant in a case for the enforcement of a of the amount
judgment by judicial action. due.
Judicial Remedies Compromise
In case the CIR decides adversely or if no decision In case of tax assessment, compromise is the
yet after the lapse of 180 days, the taxpayer may contract between the government and the taxpayer
appeal to the CTA Division, 30 days from the receipt to setlle the liability.
of the decision or from the lapse of the 180 days
otherwise the decision shall become final, executory Court cannot compel the CIR to compromise in cases
and demandable (RCBC v. CIR, G.R. No. 168498, April when such is allowed, in order to assure that no
24, 2007). improper compromise is made to the prejudice of
the Government.
If the decision is adverse to the taxpayer, he may file
a motion for reconsideration or new trial before the NOTE: Compromise as amount of paid by the
same Division of the CTA within 15 days from notice taxpayer to settle his tax liability is different from
thereof. compromise penalty which is the amount paid by
the taxpayer to compromise tax violation and paid
In case the resolution of a Division of the CTA on a in lieu of criminal prosecution. (Refer to Additions to
motion for reconsideration or new trial is adverse Tax.)
to the taxpayer, he may file a petition for review
with the CTA En Banc. Requisites for Compromise
The ruling or decision of the CTA en banc may be 1. Tax liability of the taxpayer;
appealed with the Supreme Court through a verified 2. An offer of the taxpayer of an amount to be paid
petition for review on certiorari pursuant to Rule 45 by him; and
of the 1997 Rules of Civil Procedure. 3. The acceptance (the CIR or the taxpayer) of the
offer in the settlement of the claim
NOTE: Refer to “Court of Tax Appeals” for complete
discussion on judicial remedies. Authority of the CIR to compromise taxes
COMPROMISE AND ABATEMENT OF TAXES The CIR may compromise the payment of any
internal revenue tax, when:
Compromise vs. Abatement
a. A reasonable doubt as to the validity of the
COMPROMISE ABATEMENT claim against the taxpayer exists provided that
Nature Involves a Involves the the minimum compromise entered into is
reduction of cancellation of equivalent to 40% of the basic tax (Doubtful
the taxpayer’s the entire tax Validity);
liability liability of a b. The financial position of the taxpayer
through a taxpayer. demonstrates a clear inability to pay the
mutual assessed tax provided that the minimum
agreement. compromise entered into is equivalent to 10%
Authorize CIR, REB, NEB CIR of the basic assessed tax (Financial
d Incapacity),
Officer
Grounds 1. Reasonable 1. The tax or any MINIMUM COMPROMISE RATES
doubt as to portion thereof Based on doubtful 40% of the basic
the validity of appears to be validity assessed tax

LAW ON TAXATION
Based on 10% of the basic 8. Assessment was issued within the prescriptive
financialincapacity assessed tax period for assessment as extended by the
taxpayer’s execution of Waiver of the Statute of
Where the basic tax involved exceeds P1M or where Limitations the validity or authenticity of which
the settlement offered is less than the prescribed is being questioned or at issue and there is
minimum rates, the compromise shall be subject to strong reason to believe and evidence to prove
the approval of the National Evaluation Board that it is not authentic (Sec. 3.1, RR 30-2002).
(NEB). In other words, compromise settlement 9. The assessment is based on an issue where a
lower than the minimum amount prescribed above court of competent jurisdiction made an
may be entered subject to the approval of NEB. Adverse decision against the bureau, but for
which the Supreme Court has not decided upon
Offers of compromise of assessments issued by the with finality (R.R. 8-2004).
Regional Offices involving basic deficiency taxes of
P500,000 or less and for minor criminal violations Financial Incapacity
discovered by the Regional and District Offices, shall
be subject to the approval by the Regional The offer for compromise based on financial
Evaluation Board (REB). However, if the offer of incapacity may be accepted upon showing that:
compromise is less than the prescribed rates, the [CoIN BaLD]
same shall always be subject to the approval of the
NEB (RR No. 30-2002). 1. The taxpayer is a Compensation income
earner with no other source of income and
Doubtful Validity the family’s gross monthly compensation
income does not exceed the levels of
There is reasonable doubt on the validity of the compensation income provided for Sec.
assessment when: [JABAW F4] 4.1.1. of RR No. 30-2002 and it appears that
the taxpayer possesses no other
1. The delinquent account or disputed assessment leviable/distrainable assets, other than his
is one resulting from a Jeopardy assessment. family home
2. The assessment seems to be Arbitrary in
nature, appearing to be based on presumptions NOTE: Sec. 4.1.1 of RR 30-2002: “If taxpayer is
and there is reason to believe that it is lacking an individual whose only source of income is
in legal and/or factual basis. from employment and whose monthly salary, if
3. The taxpayer Failed to file an administrative single, is P10,500 or less, or if married, whose
protest on account of the alleged failure to salary together with his spouse is P21,000 per
receive notice of assessment and there is reason month, or less, and it appears that the taxpayer
to believe that the assessment is lacking in legal possesses no other leviable/distrainable assets,
and/or factual basis. other than his family home”
4. The taxpayer Failed to file a request for
reinvestigation/reconsideration within 30 days 2. The taxpayer has been declared by any
from receipt of final assessment notice and competent tribunal/authority/body/
there is reason to believe that the assessment is government agency as Bankrupt or
lacking in legal and/or factual basis. insolvent.
5. The taxpayer Failed to elevate to the CTA an 3. The corporation ceased operation or is
adverse decision of the CIR, or his authorized already Dissolved;
representative, in some cases, within 30 days
from receipt thereof and there is reason to Note: The tax liabilities corresponding to the
believe that the assessment is lacking in legal Subscription Receivable or Assets
and/or factual basis. distributed/distributable to the stockholders
6. The assessment were issued on or after January representing return of capital at the time of
1, 1988, where the demand notice allegedly cessation of operation or dissolution cannot be
failed to comply with the Formalities compromised.
prescribed under Section 228 of the NIRC of
1997. 4. The taxpayer, as reflected in its latest
7. Assessments made based on the “Best Evidence Balance Sheet supposed to be filed with the
Obtainable Rule” and there is reason to believe Bureau of Internal Revenue, is suffering
that the same can be disputed by sufficient and from surplus or earnings deficit resulting to
competent evidence. Impairment in the original capital by at
least 50%;

2019 GOLDEN NOTES
300
5. That amounts payable or due to Commissioner conflict with R.A. 1405 (Secrecy
stockholders other than business-related of Bank Deposits Law)? (1998 Bar)
transactions which are properly includible
in the regular “accounts payable” are by A: The CIR is authorized to inquire into the bank
fiction of law considered as part of capital deposits of:
and not liability, and that the taxpayer has 1. a decedent to determine his gross estate;
no sufficient liquid asset to satisfy the tax 2. any taxpayer who has filed an application for
liability compromise of his tax liability by means of
6. The taxpayer is suffering from a Net worth financial Incapacity to pay his tax liability (Sec.
deficit (total liabilities exceed total assets) 6(F), NIRC).
computed by deducting total liabilities (net
of deferred credits and amounts payable to The limited power of the CIR does not conflict with
stockholders/owners reflected as R.A. No. 1405 because the provisions of the NIRC
liabilities, except business related granting this power is an exception to the Secrecy of
transactions) from total assets (net of pre- Bank Deposits Law as embodied in a later
paid expenses, deferred charges, pre- legislation.
operating expenses, as well as appraisal
increases in fixed assets,) taken from the Furthermore, in case a taxpayer applies for an
latest audited financial statements, application to compromise the payment of his tax
7. In the case of an individual taxpayer, he has liabilities on his claim that his financial position
no other leviable properties under the law demonstrates a clear inability to pay the tax
other than his family home. assessed, his application shall not be considered
unless and until he waives in writing his privilege
Requisites for financial incapacity as ground for under R.A. No. 1405, and such waiver shall
compromise settlement constitute the authority of the CIR to inquire into the
bank deposits of the taxpayer.
1. Clear inability to pay the tax; and
2. The taxpayer must waive in writing his Q: May the CIR compromise the payment of
privilege of the secrecy of bank deposit withholding tax where the financial position of
under RA 1405 or other general or special the taxpayer demonstrates a clear inability to
laws, which shall constitute as the CIR’s pay the assessed tax? (1998 Bar)
authority to inquire into said bank deposits
(Sec. 6 [F], NIRC). A: NO. A taxpayer who is constituted as withholding
agent who has deducted and withheld at source the
Grounds for denial of compromise settlement tax on the income payment made by him holds the
based on financial incapacity [CRAW] taxes in trust for the government (Sec. 58 [D], NIRC)
and is obligated to remit them to the BIR. The
1. If the taxpayer has a Tax Credit Certificate, subsequent inability of the withholding agent to
issued under the NIRC, or pay/remit the taxes withheld is not a ground for
2. If the taxpayer has a pending claim for tax compromise because the withholding tax is not
refund or tax credit with the BIR, Department of a tax upon the withholding agent but it is only a
Finance One-Stop-Shop Tax Credit and Duty procedure for the collection of a tax.
Drawback Center (Tax Revenue Group or
Investment Incentive Group) and/or the courts, Q: May the tax liability of a taxpayer be
or compromised during the pendency of an
3. If the taxpayer has an existing finalized appeal? (1996 Bar)
agreement or prospect of future agreement
with any party that resulted or could result to A: YES, as long as any of the grounds for a
an increase in the equity of the taxpayer at the compromise i.e.; doubtful validity of assessment and
time of the offer for compromise or at a definite financial incapacity of taxpayer is present. A
future time, or compromise of a tax liability is possible at any stage
4. If the taxpayer failed to execute a waiver of his of litigation, even during appeal, although legal
privilege of the secrecy of bank deposits under propriety demands that prior leave of court should
Republic Act No. 1405 or under other general or be obtained (Pasudeco v. CIR, G.R. No. L-39387, June
special laws (R.R. 30-2002). 29, 1982).
Q: Can the CIR inquire into the bank deposits of Q: After the tax assessment had become final
a taxpayer? If so, does this power of the and unappealable, the CIR initiated the filing of

LAW ON TAXATION
a civil action to collect the tax due from NX. After the CA, may correct such abuse if the matter is
several years, a decision was rendered by the appealed to it. In case of arbitrary or capricious
court ordering NX to pay the tax due plus exercise by the CIR of the power to compromise, the
penalties and surcharges. The judgment became compromise can be attacked and reversed through
final and executory, but attempts to execute the judicial process. It must be noted however, that a
judgment award were futile. compromise is considered as other matters arising
under the NIRC which vests the CTA with
Subsequently, NX offered the CIR a compromise jurisdiction and since the decision of the CTA is
settlement of 50% of the judgment award, appealable to the Supreme Court, the Court of
representing that this amount is all he could Appeals is devoid of any power to review a
really afford. Does the CIR have the power to compromise settlement forged by the CIR.
accept the compromise offer? Is it legal and
ethical? (2004 Bar) Limitations on the Power to Compromise a Tax
Liability
A: YES, the CIR has the power to accept the offer of
compromise if the financial position of the taxpayer The CIR is allowed to enter into a compromise only
clearly demonstrates a clear inability to pay the tax if the basic tax involved does not exceed P1M and
(Sec. 204, NIRC). the settlement offered is not less than the
prescribed percentages (Sec. 204 [A], NIRC).
As represented by NX in his offer, only 50% of the
judgment award is all he could really afford. This is 1. Minimum compromise rate:
an offer for compromise based on financial A. For cases of “financial incapacity”
incapacity which the CIR shall not accept unless a. If taxpayer is an individual whose only
accompanied by a waiver of the secrecy of bank source of income is from employment
deposits (Sec. 6 [F], NIRC). The waiver will enable and whose monthly salary, if single is
the CIR to ascertain the financial position of the P10,500 or less or if married, whose
taxpayer, although the inquiry need not be limited salary together with his spouse is
only to the bank deposits of the taxpayer but also as P21,000 per month, or less and it
to his financial position as reflected in his financial appears that the taxpayer possesses no
statements or other records upon which his other available distrainable assets
property holdings can be ascertained. other than his family home – 10%
b. If taxpayer is an individual without any
If indeed, the financial position of NX as determined source of income – 10%
by the CIR demonstrates a clear inability to pay the c. Taxpayer is under any of the following
tax, the acceptance of the offer is legal and ethical conditions
for the ground upon which the compromise was i. zero net worth – 10%
anchored is within the context of the law and the ii. negative net worth – 10%
rate of compromise is well within and far exceeds iii. dissolved corporations – 20%
the minimum prescribed by law which is only 10% iv. already non-operating companies
of the basic tax assessed. for a period of: (a) 3 years or more
as of the date of application for
Q: Does the Court of Appeals have the power to compromise settlement - 10%; (b)
review compromise agreements forged by the less than 3 years – 20%
Commissioner of Internal Revenue and a v. Surplus or earning deficit
taxpayer? Explain. (2010 Bar) resulting to impairment in the
original capital by at least 50% -
A: As a general rule, the Court of Appeals does not 40%
have the power to review compromise agreements vi. Declared insolvent or bankrupt
made between the Commissioner of Internal unless taxpayer falls squarely
Revenue and the tax payer considering that the under any situation as discussed
Commissioner is vested with the authority to above, thus resulting to the
compromise and such authority is exercised application of the appropriate rate
according to his discretion. Such authority should – 10%
be exercised in accordance with the CIR discretion
and courts have no power, as a general rule, to B. For cases of “doubtful validity” – a
compel him to exercise such discretion one way or minimum compromise rate equivalent to
another. If the CIR abuses his discretion by not 40% of the basic tax assessed (Sec. 4, R.R.
following the parameters set by law, the CTA, not 30-2002).

2019 GOLDEN NOTES
302
2. Subject to approval of Evaluation Board: When must compromise be made?

a. When basic tax involved exceeds
P1,000,000; 1. Criminal cases – It must be entered into prior to
b. Where the settlement offered is less than the institution of the corresponding criminal
the prescribed minimum rates (Sec. 204, action arising out of a violation of the provisions
NIRC); of the NIRC. A compromise can never be
c. When the CIR is not authorized to entered into after final judgment because by
compromise. virtue of such final judgment the Government
had already acquired a vested right (Roviro v.
Cases which may be compromised (1998, 2002, Amparo, G.R. No. L- 5482, May 5, 1982).
2005, Bar) [DANC3]
NOTE: A compromise validly entered into
1. Delinquent accounts between the CIR and the taxpayer prior to the
2. Cases under Administrative protest after institution of the corresponding criminal action
issuance of the Final Assessment Notice to the arising out of a violation of the provisions of the
taxpayer which are still pending in the RO, RDO, NIRC becomes a bar to such criminal
Legal Service, Large Taxpayer Service, action(People v. Magdaluyo, G.R. No. L-16235,
Collection Service, Enforcement Service, and Apr. 20, 1965).
other offices in the National Office
3. Cases covered by pre-assessment notices but Extent of Commissioner’s Power to
taxpayer is Not agreeable to the findings of the Compromise Criminal violations:
audit office as confirmed by the review office
4. Civil tax cases disputed before the courts a. Before the complaint is filed with the
5. Collection cases filed in courts Prosecutor’s Office – full discretion to
6. Criminal violations except: compromise except those involving fraud;
a. Those already filed in courts; and b. After the complaint is filed with the
b. Those involving criminal tax fraud (Sec.3, Prosecutor’s Office but before the
R.R. 30-2002). information is filed with the court – can still
compromise provided that the prosecutor
Cases which cannot be compromised [F3EW-CD] gives his consent;
c. After the information is filed with the court –
1. Criminal tax Fraud cases, confirmed as such by no longer permitted to compromise with or
the CIR or his duly authorized representative. without the consent of the Prosecutor
2. Cases where Final reports of reinvestigation or (People v. Magdaluyo, G.R. No. L-1595, April.
reconsideration have been issued resulting to 20, 1961).
reduction in the original assessment and the
taxpayer is agreeable to such decision by 2. Civil cases – Before litigation or at any stage of
signing the required agreement form for the the litigation, even during appeal, although
purpose. legal propriety demands that prior leave of
3. Cases which become Final and executory after court should be obtained.
final judgment of a court, where compromise is
requested on the ground of doubtful validity of Remedies in case the taxpayer refuses or fails to
the assessment. follow the tax compromise
4. Estate tax cases where compromise is
requested on the ground of financial incapacity 1. Enforce the compromise
of the taxpayer. a. If it is a judicial compromise, it can be
5. Withholding tax cases, unless the applicant – enforced by mere execution. A judicial
taxpayer invokes provisions of law that cast compromise is one where a decision based
doubt on the taxpayer’s obligation to withhold. on the compromise agreement is rendered
6. Criminal violations already filed in courts. by the court on request of the parties.
7. Delinquent accounts with duly approved b. Any other compromise is extrajudicial and
schedule of installment payments (Sec. 3, R.R. like any other contract can only be enforced
30-2002). by court action.
NOTE: The CTA may issue an injunction to 2. Regard it as rescinded and insist upon original
prevent the government from collecting taxes demand (Art. 2041, NCC).
under a compromise agreement when such
would be prejudicial to the government. Prescriptive period to enforce compromises

LAW ON TAXATION
As a rule, the obligation to pay tax is based on law. a. Abatement of penalties on assessment
But when, for instance, a taxpayer enters into a confirmed by the lower court but Appealed
compromise with the BIR, the obligation of the by the taxpayer to a higher court.
taxpayer becomes one based on contract. b. Abatement of penalties on Withholding tax
Compromise is a contract whereby the parties, by assessment under meritorious
reciprocal concessions, avoid litigation or put an circumstances.
end to one already commenced (Art. 2028 NCC). c. Abatement of penalties on assessment
Since it is a contract, the prescriptive period to reduced after Reinvestigation but taxpayer
enforce the same is 10 years based on Art. 1144 NCC is still contesting reduced assessment.
reckoned from the time the cause of action accrued. d. Abatement of penalties on Delayed
installment payment under meritorious
Abatement and cancellation of tax liability circumstances.
e. Such Other circumstances which the CIR
Grounds for abatement(Sec. 204[B], NIRC): may deem analogous to the enumeration
1. The tax or any portion thereof appears to be above (Sec. 3, R.R. 13-2001).
unjustly or excessively assessed: [W-SLICE]
Q: Explain the extent of the authority of the CIR
a. The filing of the return/payment is made at to compromise and abate taxes. (1996 Bar)
the Wrong venue.
b. The taxpayer fails to file the return and pay A: The authority of the CIR to compromise
the tax on time due to, encompasses both civil and criminal liabilities of the
i. Substantial losses from prolonged taxpayer. The civil compromise is allowed only in
labor dispute; cases: (1) where the tax assessment is of doubtful
ii. Force majeure; validity, or (2) when the financial position of the
iii. Legitimate business reverses. taxpayer demonstrates a clear inability to pay the
tax. All criminal violations may be compromised
NOTE: The abatement shall only cover the except: (1) those already filed in court, or (2) those
surcharge and the compromise penalty and involving fraud.
not the interest imposed under Sec. 249,
NIRC The compromise settlement of any tax liability shall
be subject to the following minimum amounts: (1)
c. There is Late payment of the tax under ten percent (10%) of the basic assessed tax in case
meritorious circumstances (i.e. Failure to of financial capacity; and (2) forty percent (40%) of
beat bank cut-off time, surcharge the basic assessed tax in other cases.
erroneously imposed.)
Where the basic tax involved exceeds P1 million or
d. The assessment is brought about or where the settlement offered is less than the
resulted from taxpayer’s non-compliance prescribed minimum rates, the compromise shall be
with the law due to a difficult subject to the approval of the Evaluation Board
Interpretation of said law. which shall be composed of the CIR and the four (4)
Deputy Commissioners.
e. The taxpayer fails to file the return and pay
the correct tax on time due to The CIR may also abate or cancel a tax liability
Circumstances beyond his control. when: (1) the tax or any portion thereof appears to
have been unjustly or excessively assessed; or (2)
NOTE: The abatement shall only cover the the administrative and collection costs involved do
surcharge and the compromise penalty and not justify collection of the amount due (Sec. 204,
not the interest. NIRC).
f. The taxpayer’s mistake in payment of his RECOVERY OF TAX ERRONEOUSLY

tax is due to Erroneous written official OR ILLEGALLY COLLECTED
advice of a revenue officer (Sec. 2, R.R. 13-
2001). Remedies of taxpayer after payment
2. The administration and collection costs 1. Tax refund - Actualreimbursement of tax

involved do not justify the collection of the 2. Tax credit – Government issues Tax Credit
amount due: [A-WORD] Certificate (TCC) which may be applied against
any internal revenue tax, excluding withholding

2019 GOLDEN NOTES
304
taxes, for which the taxpayer is directly liable 1. There is tax collected erroneously or illegally, or
(Sec. 204 [C], NIRC). a penalty collected without authority, or a sum
excessively or wrongfully collected (Sec. 229,
All TCCs issued by the BIR shall not be allowed NIRC).
to be transferred or assigned to any person
(RR14-2011). NOTE: Payment under protest is not required.
Grounds for claim for refund and tax credit 2. There must be a written claim for refund filed
by the taxpayer with the CIR (Vda. De Aguinaldo
1. Tax is erroneouslyor illegally assessed or v. CIR, G.R. No. L-19927, February 26, 1965).
collected;
2. Penalty is imposed without authority; and XPNs:
3. Sum collected is excessive or in any manner a. When on the face of the return upon which
wrongfully collected. payment was made, such payment appears
clearly to have erroneously paid - the CIR
Illegally collected tax vis-a-vis erroneously may refund or credit the tax even without a
collected tax written claim (Sec. 229, NIRC).
b. A return filed showing an overpayment
ILLEGALLY ERRONEOUSLY shall be considered as a written claim for
COLLECTED COLLECTED credit or refund (Sec. 204 (C), NIRC).(2002,
TAX TAX 2010 Bar)
Definition There is a No violation of
violation of the law but there 3. Must be a categorical claim for refund or credit;
certain is a mistake in - It is for the CIR to afford an opportunity to
provisions of collection. correct the action of subordinate officers;
tax law or and
statute. - To notify the Government that such taxes
On the part The tax was The payment have been questioned and the notice
of the paid by him was made under should then be borne in mind in estimating
Taxpayer under duress. a mistake of fact. the revenue available for expenditure
On the part The tax was The collection (Bermejo v. CIR, G.R. No. L-3029, July 25,
of the collected in was made based 1950).
Government patent on a
disregard of misapplication 4. Must be filed within 2 years from date of
the law. of the law. payment of the tax or penalty regardless of
any supervening cause that may arise after
Distinguish tax refund from tax credit payment. No suit or proceeding shall be
instituted after the expiration of the such
TAX REFUND TAX CREDIT period; and (2008 Bar)
As to The taxpayer The taxpayer
purpose asks for asks that the 5. The taxpayer must present proof of payment of
restitution of money paid be the tax.
the money paid applied to his
as tax. There is existing tax Q: Congress enacts a law granting grade school
actual liability except and high school students a 10% discount on all
reimbursement withholding school-prescribed textbooks purchased from
taxes any bookstore. The law allows bookstores to
Reckoning 2-yr period to 2-yr period claim the discount in full as a tax credit.
point of file the claim starts from the
the 2-year with the CIR date such credit a. If in a taxable year a bookstore has no tax
period starts after the was allowed – in due on which to apply the tax credits, can the
payment of the case credit is bookstore claim from the BIR a tax refund in
tax or penalty wrongly made lieu of tax credit?
b. Can the BIR require the bookstores to
deduct the amount of the discount from
Requisites for a claim of tax refund or tax credit
their gross income?
(2002, 2005 Bar)
c. If a bookstore closes its business due to
losses without being able to recoup the

LAW ON TAXATION
discount, can it claim reimbursement of the make a refund. The CIR filed a Petition for
discount from the government on the Review with the CA assailing the jurisdiction of
ground that without such reimbursement, the CTA and the Order to make refund to the
the law constitutes taking of private Estate on the ground that no claim for refund
property for public use without just was filed with the BIR.
compensation? (2006 Bar)
a. Is the stand of the CIR correct?
A: b. Why is the filing of an administrative claim
a. No, there is nothing in the law that grants a with the BIR necessary? (2000 Bar)
refund when the bookstore has no tax liability
against which the tax credit can be used. A tax A:
credit is in the nature of a tax exemption and in a. YES, for there was no claim for refund or credit
case of doubt, the doubt should be resolved in that has been duly filed with the CIR which is
strictissimi juris against the claimant (CIR v. required before a suit or proceeding can be filed
Central Luzon Drug, G.R. No. 159647, Apr. 15, in any court (Sec. 229, NIRC). The denial of the
2005). claim by the CIR is the one which will vest the
b. No, tax credit which reduces the tax liability is CTA jurisdiction over the refund case should the
different from a tax deduction which merely taxpayer decide to appeal on time.
reduces the tax base. Since the law allowed the
bookstores to claim the discount in full as a tax b. The filing of an administrative claim for refund
credit, the BIR is not allowed to expand or with the BIR is necessary in order:
contract the legislative mandate (CIR v. i. To afford the CIR an opportunity to
Bicolandia Drug Corporation, G.R. 148083, July consider the claim and to have a chance to
21, 2006). correct the errors of subordinate officers
c. No, if the business continues to operate at a loss (Gonzales v. CTA, G.R. No. 14532, May 26,
and no other taxes are due, thus compelling it to 1965); and
close shop, the credit can never be applied and ii. To notify the Government that such taxes
will be lost altogether (CIR v. Central Luzon have been questioned and the notice
Drug, G.R. No. 159647, Apr. 15, 2005). The grant should be borne in mind in estimating the
of the discount to the taxpayer is a mere revenue available for expenditures
privilege and can be revoked anytime. (Bermejo v. Collector, G.R. No. L-3028, July
29, 1950).
Q: Is a deficiency tax assessment a bar to a claim
for tax refund or tax credit? (2005 Bar) Payment under protest is not a requirement
A: YES, the deficiency tax assessment is a bar to a A suit or proceeding for tax refund may be
tax refund or credit. The taxpayer cannot be entitled maintained “whether or not such tax, penalty or sum
to a refund and at the same time liable for a tax has been paid under protest or duress” (Sec. 204 [3],
deficiency assessment for the same year. The NIRC).
deficiency assessment creates a doubt as to the
truth and accuracy of the Tax Return. Said Return When payment under protest required
cannot therefore be the basis of the refund (CIR v.
CA, G.R. No. 106611, July 21, 1994). It is necessary in claims for refund for real
property taxes under Sec. 252, LGC and for
Q: On June 16, 1997, the BIR issued against the customs duties under Sec. 2308, TCC.
Estate of Mott a notice of deficiency estate tax
assessment, inclusive of surcharge, interest and Rule on government’s liability for interests on
compromise penalty. The Executor of the Estate tax refunds
of Mott filed a timely protest against the
assessment and requested for waiver of the GR: There can be no interest on refund of tax in the
surcharge, interest and penalty. The protest was absence of statutory provison clearly and expressly
denied by the CIR with finality on Sept. 13, 1997. directing or authorizing such payment.
Consequently, the Executor was made to pay the
deficiency assessment on Oct. 10, 1997. The XPNs:
following day, the Executor filed a Petition with 1. If interest is authorized by law;
the CTA praying for the refund of the surcharge, 2. Arbitrariness in the collection of tax;
interest and compromise penalty. The CTA took
cognizance of the case and ordered the CIR to

2019 GOLDEN NOTES
306
3. Under Sec. 79(C)) [2] with respect to extinguishes his tax obligation for the year
income taxes withheld on the wages of the concerned (Gibbs v. CIR, G.R. No. L-17406,
employees. November 29, 1965).
NOTE: An action is not arbitrary when exercised  Overpaid quarterly corporate income tax:
honestly and upon due consideration where there is From the date the final adjustment return is filed
room for two opinions, however much it may be after the end of the taxable year. The period is
believed that an erroneous conclusion was reached. counted from the actual filing, not the last day
Arbitrariness presupposes inexcusable or obstinate allowed by law to file.
disregard of legal provisions (Philex Mining Corp. v.
CIR, G.R. 120324, April 21, 1999). The filing and payment of the quarterly income
tax should only be considered as mere
Tax Refund or Tax Credit may be forfeited to the installments of the annual tax due. These
Government quarterly payments should be treated as
advances or portions of the annual income tax
1. Tax Refund – When a refund check or warrant due, to be adjusted at the end of the year, its Final
remains unclaimed or uncashed within 5 years Adjustment Return(CIR v. TMX Sales, G.R. No.
from date of mailing or delivery. 83736, January 15,1992 reiterated in CIR v. CA,
2. Tax Credit – a Tax Credit Certificate which G.R. No. 117254, January 21, 1999).
remains unutilized after 5 years from date of
issue, shall be invalid. Unless revalidated (Sec. The two-year period for filing tax refund is not
230, NIRC). jurisdictional
Two-year prescriptive period The Supreme Court held that even if the two-year
period had already lapsed, the same is not
No credit or refund of taxes or penalties shall be jurisdictional and may be suspended for reasons of
allowed unless the taxpayer files in writing with the equity and other special circumstances(CIR v. PNB,
CIR a claim for credit or refund within 2 years after 474 SCRA 303).
the payment of the tax or penalty (Sec 204(C), NIRC).
Founded on moral and equitable grounds, the
No suit or proceeding shall be filed after the following circumstances may stay the two-year
expiration of 2 years from the date of payment of the period:
tax or penalty regardless of any supervening cause
that may arise after payment (Sec 229, NIRC). 1. Assurance on the part of the BIR that steps were
being taken to credit taxpayer with the amount
It is necessary that the tax be paid in full, and that sought to be refunded;
the claim for refund in the BIR as well as the 2. An agreement or understanding with the BIR
proceedings in the CTA be commenced within 2 that they await the result of a pending cases
years counted from the payment of the tax. involving similar issue raised in the claim for
refund (Panay Electric Co., Inc. v. CIR, 103 Phil
Thus, as a rule, the two-year prescriptive period 819).
runs from the payment of tax. However, the
following instances provide for different Waiver of prescription in an action for refund
commencement of the two-year period.
GR: The 2-year period is not jurisdictional.
 Tax is paid in installments (For individuals): Therefore, if the government failed to plead
From the date of the final payment prescription in a motion to dismiss or as a defense
 Payments effected through the withholding in its answer to the petition for review, it is deemed
tax system: From the date it falls due at the end waived.
of the taxable year
XPN: Taxpayer amends his petition for review
In case of payments effected through alleging therein a new cause of action and the
withholding tax system, the tax liability is government pleads prescription in his answer to the
deemed paid when the same falls due at the end amended petition for review.
of the tax year. This is because a taxpayer,
resident or non-resident, who contributes to the Q: Alyanna has a pending claim for refund with
withholding tax system, do not really deposit an the CIR. The 2-year period is about to end and
amount to the CIR, but, in truth, performs and

LAW ON TAXATION
the CIR has yet to decide on the claim. What must final adjustment return of the corporation on Apr.
Alyanna do to pursue her claim for refund? 15, 1986.
A: A claim for refund must be filed with the BIR and Taxpayer’s remedy in case of denial of claim for
the commencement of the proceedings in the CTA refund
must be done within the 2-year period from the date
of full payment of the tax or penalty regardless of The taxpayer may appeal to CTA in case of denial by
any supervening event. Thus, Alyanna must CIR of the claim for refund. It must be filed within 30
commence the proceedings with the CTA before the days from receipt of the decision of the CIR but not
end of the 2-year period without waiting for the to exceed the 2-year period from date of payment of
decision of the CIR. the tax or penalty regardless of any supervening
cause that may arise after payment.
Q: On Mar. 12, 2001, REN paid his taxes. Ten
months later, he realized that he had overpaid In case the decision of the CIR takes too long and the
and immediately filed a claim for refund with 2-year period is about to end, proceedings in the
the CIR. On Feb. 27, 2003, he received the CTA must be commenced and there would no longer
decision of the CIR denying REN's claim for be any need to wait for the decision of the CIR.
refund. On Mar. 24, 2003, REN filed an appeal
with the CTA. Was his appeal filed on time or Distinction of remedies in tax assessment and
not? (2004 Bar) claim for refund
A: NO, his appeal was not filed on time. The 2-year Against an Assessment
period for filing a claim for refund is not only a A tax assessment becomes final unless it is
limitation for pursuing the claim at the disputed or contested within 30 days from
administrative level but also for appealing the case receipt thereof by the taxpayer. If the action
to the CTA. The law provides that "no suit or taken by the CIR on the request for
proceeding shall be filed after the expiration of 2 reconsideration is unacceptable to the taxpayer,
years from the date of the payment of the tax or the latter must then appeal, by way of Petition for
penalty regardless of any supervening cause that Review to the CTA within 30 days from receipt of
may arise after payment. Since the appeal was only the decision of the CIR.
made on Mar. 24, 2003, more than two years had The taxpayer may also opt to pay the tax before
already elapsed from the time the taxes were paid the finality of the assessment (e.g., within 30 days
on Mar. 12, 2003. Accordingly, REN had lost his from receipt of the assessment) and then file
judicial remedy because of prescription. within 2 years a written claim for the refund of
the tax.
Q: XCEL Corp. filed its quarterly income tax Claim for Refund (Sec. 229)
return for the first quarter of 1985 and paid A denial by the CIR of a claim for refund must be
P500.000 on May 15, 1985. In the subsequent appealed to the CTA within 30 days from receipt
quarters, XCEL suffered losses. On Apr. 15, 1986 of notice of denial and within 2 years from the
it declared a net loss of P1,000,000 in its annual day of full and final payment.
income tax return. After failing to get a refund, Continued inaction by the CIR on claims for
XCEL filed on Mar. 1, 1988 a case with the CTA to refund may thus be taken as a denial appealable
recover the P500.000 in taxes paid on May 15, to the CTA, in order to permit the appeal to be
1985. Is the action to recover the taxes filed considered or having been made within the two-
timely? (1994 Bar) year mandatory period.
A: The action for refund was filed with the CTA on Excess input VAT (Sec. 112) vs. Excessively
time. In the case of overpaid quarterly corporate collected tax (Sec. 229):
income tax, the two-year period for filing claims for
refund in the BIR as well as in the institution of an In a claim for refund or credit of “excess” input VAT
action for refund in the CTA, the two-year under Section 110(B) and Section 112(A), the input
prescriptive period for tax refunds is counted from VAT is not “excessively” collected as understood
the filing of the final, adjustment return under under Section 229. At the time of payment of the
Sec. 67 of the NIRC, and not from the filing of the input VAT the amount paid is the correct and proper
quarterly return and payment of the quarterly tax. amount. The person legally liable for the input VAT
The CTA action on Mar. 1, 1988 was clearly within cannot claim that he overpaid the input VAT by the
the reglementary 2-year period from the filing of the mere existence of an “excess” input VAT. The term

2019 GOLDEN NOTES
308
“excess” input VAT simply means that the input VAT taxpayer as a subsidy, a refund, or an incentive to
available as credit exceeds the output VAT. encourage investment (Fort Bonifacio Development
Corporation v. Comm., G.R. No. 173425, January 22,
From the plain text of section 229, it is clear that 2013).
what can be refunded or credited is a tax that is
“erroneously, illegally, excessively or in any manner Statutory basis for tax refund
wrongfully collected.” In short, there must be a
wrongful payment because what is paid, or part of Tax refunds are not founded principally on
it, is legally due. legislative grace. It is based on legal principle which
underlies in all quasi-contracts abhorring a person’s
Distinction between the application of the 2- unjust enrichment at the expense of another. The
Year prescriptive period under Sec. 112 and Sec. dynamic of erroneous payment of tax fits to a tee the
229 prototypic quasi-contract, solutio indebiti, which
covers not only mistake in fact but also mistake in
1. Under Sec. 112, the 2-year prescriptive period law (J. Dimaampao, 2015).
applies only to the administrative claim before
the CIR and not to judicial claim before the CTA The Government is not exempt from the application
because the taxpayer always has 30 days from of solutio indebiti. Indeed, the taxpayer expects fair
the decision of the CIR or from the lapse of the dealing from the Government, and the latter has the
120-day period even after the lapse of 2 years duty to refund without any unreasonable delay
from the taxable quarter where the sales were what it has erroneously collected (CIR. v. Fortune
made (CIR v. Mindanao Geothermal II Tobacco, Corp., G.R. No. 167274-75, July 21, 2008).
Partnership, 713 SCRA 645, [2014]).
The pertinent laws governing this principle are
Thus, it is only the administrative claim that found in Article 2142 and Article 2154 of the New
must be filed within the two-year prescriptive Civil Code.
period; the judicial claim need not fall within
the two-year prescriptive period. Provisions of the NIRC regarding refund
2. Under Section 229, the decision of the CIR is 1. Corporations entitled to refund of excess
appealable to the CTA sitting in division within estimated quarterly income paid as shown on
30 days after the receipt but must be within the its final adjustment return (Sec. 75 and 76,
2-year period from payment or filing of the final NIRC)
adjusted return. Thus, if the Commissioner 2. Claims for refund of VAT-registered persons,
denies the claim for refund within the 2-year whose sales are zero-rated or effectively zero-
period, the remedy is to file an appeal with the rated, with regard to their creditable input tax
CTA 30 days from the receipt of such denial. due, except transitional input tax, to the extent
But, such 30-day period must also be within the that such input tax has not been applied against
2-year period. For example, if there are only 10 output tax (Sec. 112, NIRC)
days left within such 2-year period, then, the 3. Locally produced or manufactured goods,
taxpayer has only 10 days within which to whether in their original state or as ingredients,
appeal his claim. However, if there is an inaction any excise tax paid thereon shall be credited or
on the part of the Commissioner and the 2-year refunded upon submission of proof of actual
period is about to lapse, the remedy is to file an exportation (Sec. 130(d), NIRC)
appeal also with the CTA. 4. National Internal Revenue Tax: a) erroneously
or illegally assessed or collected; b) any penalty
Transitional input tax credit is a form of tax claimed to have been collected without
credit, not tax refund authority; or c) any sum allegedly to have been
excessively or in any manner wrongfully
A transitional input tax credit is not a tax refund per collected, may be recovered in a suit or
se but a tax credit. Prior payment of taxes is not proceeding for that purpose (Sec. 229 and Sec.
required before a taxpayer could avail of 204(c), NIRC)
transitional input tax credit. A tax credit is not
synonymous to tax refund. Tax refund is defined as Proof for claim or refund
the money that a taxpayer overpaid and is thus
returned by the taxing authority. Tax credit, on the Evidence that may be presented that would best
other hand, is an amount subtracted directly from substantiate claim for tax refund:
one’s total tax liability. It is any amount given to a

LAW ON TAXATION
The pertinent invoices, receipts, and export sales
documents are the best and competent pieces of
evidence required to substantiate a taxpayer’s claim
for tax credit or refund. No evidence which has not
been formally offered shall be considered and
where the pertinent invoices or receipts
purportedly evidencing the VAT paid by the
taxpayer were not submitted, the court may not
determine the veracity of the amount of VAT that
the taxpayer paid. Mere allegations of the figures in
the amended return are not sufficient proof of the
amount of its refund entitlement (Atlas Consolidated
Mining and Development Corporation v. CIR, 546
SCRA 150).
Burden of proof for claim of refund
GR: Being in the nature of a claim for exemption,

refund is construed in strictissimi juris against the
entity claiming the refund and in favor of the taxing
power. This is the reason why a claimant must
positively show compliance with the statutory
requirements provided for under the NIRC in order
to successfully pursue one's claim (Winebrenner &
Iñigo Insurance Brokers, Inc. v. CIR, G.R. No. 206526,
January 28, 2015).
In order to discharge this burden, the law intends

the filing of an application for a refund to
necessarily include the filing of complete
supporting documents to prove entitlement for the
refund. Otherwise, the mere filing of an application
without any supporting document would be as good
as filing a mere scrap of paper (Hedcor v. CIR, G.R. No.
207575, July 15, 2015).
XPN: The contention that a tax refund takes on the

nature of a tax exemption does not apply where the
claim for refund is premised on erroneous payment
of tax.

2019 GOLDEN NOTES
310
Proper party to claim refund or tax credit is given the right to appeal the decision or ruling of
the Commissioner.
GR: The “taxpayer” is the person entitled to claim a
tax refund. He is the “party adversely affected” who
XPN: Under the following situations:
CASE THE ONE ENTITLED FOR THE REFUND REASON

The taxpayer (even if the tax was shifted The sales tax is imposed directly on the
by the taxpayer to his customers as in seller. Once recovered, the seller must
Where the tax has sales tax and even if the tax has been billed hold the refunded taxes in trust for the
been shifted as a separate item in the invoice) (CIR v. individual purchasers who advanced
American Rubber, G.R. No. L-19667, payment thereof and whose name must
November 29, 1966). appear on his record
Theater goers can claim the illegally The amount collected (the illegal
exacted taxes not the theater owners municipal taxes) from the theater goers
(Medina v. Baguio, G.R. No. L-4060, August by theater owners are owned by the
29, 1952). theater goers. Only owners of property
Where the payer is
have the right to claim it. The theater
not the taxpayer
owners merely acted as agents of the
theater goers and as such they cannot
claim the amount illegally imposed by
the municipality (Medina v. Baguio, ibid.).
1. The withholding agent (CIR v. Procter 1. The withholding agent is considered a
and Gamble, G.R. No. L-66838, ‘taxpayer” under the NIRC as he is
December 2, 1991) personally liable for the withholding tax
2. Withholding agent may file a claim for as well as for deficiency assessments,
refund for taxes which was withheld surcharges, and penalties, should the
and paid on behalf of a non-resident amount of the tax withheld be finally
foreign corporation (Filipinas Synthetic found to be less than the amount that
Fiber Corporation v CA, G.R. Nos. should have been withheld under law.”
118498 & 124377, October 12, 1999).
3. In case the taxpayer does not file a 2. As an agent of the taxpayer, the
Where the payer is claim for refund, the withholding agent withholding agent has the authority to
the withholding has the right to file the claim, even file the necessary income tax return and
agent when it is unrelated to, or is not a to remit the tax withheld to the
wholly owned subsidiary of, the government impliedly includes the
principal taxpayer (CIR vs. Smart authority to file a claim for refund and to
Communications, Inc, G.R. Nos. 179045- bring an action for recovery of such
46, August 25, 2010). claim.” (CIR v. Smart Communications,
Inc., ibid).
NOTE: Since this is merely an exception,
the rule is that the withholding agent is
not considered as the taxpayer, hence he
is not entitled to a tax amnesty due for the
taxpayer’s account.
Where the donor’s Donee is the proper party to claim the
tax was assumed by refund of the donor’s tax (even if the tax
the donee was advanced by the donor)

LAW ON TAXATION
Proper party to question/seek a tax refund in the petroleum manufacturer would not pass on
indirect taxes the excise taxes as part of the purchase price
(Silkair Singapore PTE. Ltd. v. CIR, GR 171383 &
The proper party is the statutory taxpayer, the 172379, Nov. 14, 2008).
person on whom the tax is imposed by law and who
paid the tax even when he shifts the burden thereof Q: Chevron filed a claim for refund or tax credit
to another because once shifted, it is no longer in the for the excise taxes paid on its importation of
nature of a tax, but part of the purchase price or the petroleum products that it had sold to the Clark
cost of goods or services sold (Exxon Mobil Development Corporation (CDC), en entity
Petroleum and Chemical Holdings, Inc. vs. CIR, G.R. exempt from direct and indirect taxes. Is
No. 180909, January 19, 2011; Silkair (Singapore) Chevron entitled to the tax refund or tax credit?
Pte., Ltd. v. CIR, G.R. No. 166482, January 25, 2012).
A: Excise tax is a tax on property; hence, the
Q: Silkair purchased aviation jet fuel from exemption from the excise tax expressly granted
Petron for use on Silkair international flights. under Section 135 of the NIRC must be construed in
Silkair, contending that it is exempt from the favor of the petroleum products on which the excise
payment of excise taxes, filed a formal claim for tax was initially imposed. Accordingly, the excise
refund with the CIR. Silkair claims that it is taxes that Chevron paid on its importation of
exempt from the payment of excise tax under petroleum products subsequently sold to CDC were
the NIRC, specifically Sec. 135, and under Art. 4 illegal and erroneous, and should be credited or
of the Air Transport Agreement between the refunded to Chevron in accordance with Sec. 204 of
Governments of the Republic of the Philippines NIRC.
and the Republic of Singapore (Air Agreement).
The CIR denied the claim contending that since Chevron, being the statutory taxpayer, paid the
the liability for the excise tax payment is excise taxes on its importation on the petroleum
imposed by law on Petron as the manufacturer products. Pursuant to Section 135(c), petroleum
of the petroleum products, any claim for refund products sold to entities that are by law exempt
should only be made by Petron as the statutory from direct and indirect taxes are exempt from
taxpayer. excise tax. Inasmuch as its liability for the payment
of the excise taxes accrued immediately upon
a. Decide whether or not Silkair is the proper importation and prior to the removal of the
party to claim a refund for the excise taxes petroleum products from the customs house,
paid. Chevron was bound to pay, and actually paid such
b. What is the proper remedy of the Silkair? taxes. But the status of the petroleum products as
exempt from the excise taxes would be confirmed
A: only upon their sale to CDC. Consequently, the
a. Silkair is not the proper party to claim a refund payment of the excise taxes by Chevron upon its
for the excise taxes paid. The SC held that “the importation of petroleum products was deemed
proper party to question, or seek a refund of an illegal and erroneous upon the sale of the petroleum
indirect tax is the statutory taxpayer, the person products to CDC.
on whom the tax is imposed by law and who paid
the same even if he shifts the burden thereof to In cases involving excise tax exemptions on
another.” petroleum products under Section 135 of the NIRC,
the Court has consistently held that it is the
Excise tax on petroleum is an indirect tax. statutory taxpayer, not the party who only bears the
Although the burden to pay an indirect tax can economic burden, who is entitled to claim the tax
be passed on to the purchaser of the goods, the refund or tax credit. The general rule applies here
liability to pay the indirect tax remains with the because Chevron did not pass on to CDC the excise
petroleum manufacturer or seller. When the taxes paid on the importation of the petroleum
manufacturer or seller decides to shift the products, the latter being exempt from indirect
burden of the excise tax to the tax-exempt taxes (Chevron Phil. Inc. v. CIR, G.R. No. 210836,
purchaser, the tax becomes a part of the price of September 01, 2015).
the commodity. Thus, in this case, the petroleum
manufacturer who is the statutory taxpayer is Q: Does a withholding agent have the right to file
the proper party to claim the refund. an application for tax refund? Explain. (2005
Bar)
b. The exempt entity’s remedy is to invoke its tax
exemption before buying the petroleum so that

2019 GOLDEN NOTES
312
TAX REMEDIES UNDER THE NIRC
A: YES. A withholding agent should be allowed to (SYSTRA Phil., Inc. v. CIR, G.R. No. 176290, September
claim for tax refund, because under the law said 21, 2007).
agent is the one who is held liable for any violation
of the withholding tax law should such violation The exercise of an option is irrevocable and a
occur (Commissioner of Internal Revenue v. Wander decision to carry-over and apply tax overpayment
Philippines Inc., 160 SCRA 570, 1988). continues until the overpayment has been fully
applied to tax liabilities (until fully exhausted) (CIR
Furthermore, since the withholding agent is made vs. McGeorge Food Industries, Inc., G.R. No. 174157,
personally liable to deduct and withhold any tax October 20, 2010).
under Section 53(c) of the NIRC, it is imperative that
he be considered the taxpayer for all legal intents NOTE: Under the old provision, the option to carry-
and purposes. Thus, by any reasonable standard, over the excess or overpaid income tax for a given
such person should be regarded as a party in taxable year is limited to the immediately
interest to bring suit for refund of taxes succeeding taxable year only. In contrast, under
(Commissioner of Internal Revenue v. Procter and Section 76 of the NIRC of 1997, the application of the
Gamble Philippines Manufacturing Corporation and option to carry over the excess of creditable tax is
CTA, 204 SCRA 377, 1991). not limited only to the immediately following
taxable year but extends to the next succeeding
Corporate taxpayer’s options in case of excess taxable years. The clear intent in the amendment
quarterly income taxes paid under section 76 is to make the option, once
exercised, irrevocable for the “succeeding taxable
If the sum of the quarterly tax payments made years” (Asiaworld Properties Philippines Corporation
during the said taxable year exceeds the total tax v. CIR, G.R. No. 171766, July 29, 2010).
due on the entire taxable income of that year, the
corporation shall either: Failure to signify preference in the return does
not bar outright a claim for refund
a. Carry-over the excess credit against the
estimated quarterly income tax liabilities for The corporation must signify its intention by
the taxable quarters of the succeeding taxable marking the corresponding option box provided in
years; or the final adjustment return (FAR). While a taxpayer
b. be credited (TCC); or is required to mark its choice in the form provided
c. refunded with the excess amount paid (Sec 76, by the BIR, this requirement is only for facilitating
NIRC). tax collection to ease tax administration,
particularly the self-assessment and collection
The above options are alternative and not aspects.
cumulative in nature, that is, the choice of one
precludes the other. The logic behind the rule is to Failure to signify one's intention in the FAR does not
ease tax administration, particularly the self- mean outright barring of a valid request for a
assessment and collection aspects (Republic v. Team refund, should one still choose this option later on.
(Phils.) Energy Corp., G.R. No. 188016, January 14, Despite the failure of taxpayer to make the
2015). appropriate marking in the BIR form, the filing of its
written claim effectively serves as an expression of
The Irrevocability Rule its choice to request a tax refund, instead of a tax
credit. To assert that any future claim for a tax
Once the option to carry-over and apply the excess refund will be instantly hindered by a failure to
quarterly income tax against income tax due for the signify one's intention in the FAR is to render
taxable quarters of the succeeding taxable years has nugatory the clear provision that allows for a two-
been made, such option shall be considered year prescriptive period (Philam Asset Management
irrevocable for that taxable period and no Inc. v. CIR, G.R. Nos. 156637/162004, December 14,
application for cash refund or issuance of a tax 2005).
credit certificate shall be allowed therefor (Sec 76,
NIRC). Claim for tax refund or credit of excess and
unutilized creditable withholding tax (CWT)
The phrase “such option shall be considered
irrevocable for that taxable period” means that the The requirements for entitlement of a corporate
option to carry over the excess tax credits of a taxpayer for a refund or the issuance of TCC
particular taxable year can no longer be revoked involving excess withholding taxes are as follows:
(TIF)

LAW ON TAXATION
1. That the claim for refund was filed within the excess tax credits twice. In the given problem, ABC
two-year reglementary period pursuant to Corp. opted to carry-over its excess tax credits for
Section 229 of the NIRC; the 2010 taxable year. Consequently, ABC Corp. can
2. When it is shown on the ITR that the income no longer revoke its choice to carry-over the excess
payment received is being declared part of the tax credits and instead claim for a refund.
taxpayer's gross income; and
3. When the fact of withholding is established by a Q: In its 1997 ITR, PM Management
copy of the withholding tax statement, duly International Inc. expressly signified that it had
issued by the payor to the payee, showing the a CWT of P1.2M for taxable year 1997 to be
amount paid and income tax withheld from that claimed as tax credit in taxable year 1998.
amount. However, due to its net-loss position in 1998, the
taxpayer was unable to claim the P1.2M as tax
The contention of the BIR that a taxpayer in claim credit.
for tax refund should submit its quarterly returns to
On April 12, 2000, the taxpayer filed with BIR a
show that it did not carry-over the excess
written claim for the refund of the P1.2M
withholding tax to the succeeding quarter is without
unutilized CWT for taxable year 1997. Is the
merit. When the taxpayer is able to establish prima
taxpayer entitled to refund?
facie its right to the refund by testimonial and object
evidence, the BIR should present rebuttal evidence A: NO. Inasmuch as the respondent already opted to
to shift the burden of evidence back to the taxapayer carry over its unutilized CWT of P1.2M to taxable
(Republic v. Team (Phils.) Energy Corp., G.R. No. year 1998, the carry-over could no longer be
188016, January 14, 2015). converted into a claim for tax refund because of the
irrevocability rule provided in Section 76 of the
There is no question that those who claim must not NIRC of 1997. Thereby, the respondent became
only prove its entitlement to the excess credits, but barred from claiming the refund.
likewise must prove that no carry-over has been
However, in view of its irrevocable choice, the
made in cases where refund is sought. Proving that
respondent remained entitled to utilize that amount
no carry-over has been made does not
of P1.2M as tax credit in succeeding taxable years
absolutely require the presentation of the
until fully exhausted. In this regard, prescription did
quarterly ITRs.The rule is that any document,
not bar it from applying the amount as tax credit
other than quarterly ITRs may be used to establish
considering that there is no prescriptive period for
that indeed the non-carry over clause has been
the carrying over of the amount as tax credit in
complied with, provided that such is competent,
subsequent taxable years (CIR vs. PL Management
relevant and part of the records. Thus, quarterly
International Philippines, Inc., April 4, 2011).
ITRs are not indispensable in a claim for refund
for no court can limit a party to the means of
proving a fact for as long as they are consistent GOVERNMENT REMEDIES
with the rules of evidence and fair play. To stress,
what the NIRC merely requires is to sufficiently CLASSIFICATION OF GOVERNMENT REMEDIES
prove the existence of the non-carry over of excess
CWT in a claim for refund (Winebrenner & Iñigo 1. Administrative remedies
Insurance Brokers, Inc. v. CIR, G.R. No. 206526, a. Tax lien
January 28, 2015). b. Distraint of personal property; levy and
sale of real property
Q: In its final adjustment return for the 2010 c. Forfeiture of real property to the
taxable year, ABC Corp. had excess tax credits government for want of bidder
arising from its over-withholding of income d. Suspension of business operation
payments. It opted to carry over the excess tax e. Non-availability of injunction to restrain
credits to the following year. Subsequently, ABC collection of tax
Corp. changed its mind and applied for a refund
of the excess tax credits. Will the claim for 2. Judicial remedies
refund prosper? (2013 Bar) a. Ordinary civil action;
b. Criminal action
A: NO; it is barred by the irrevocability rule. If the
corporation opts to carry-over its excess credit in Administrative remedies
the final adjustment return, its choice shall be
irrevocable for that taxable period. The purpose of (1) TAX LIEN
this rule is to prevent a taxpayer from claiming

2019 GOLDEN NOTES
314
It is a legal claim or charge on property, personal or (2) DISTRAINT AND LEVY

real, established by law as a sort of security for the
payment of tax obligations (HSBC v. Rafferty, 39 Phil. Distraint is a summary remedy in which the
145). collection of tax is enforced on the taxpayer’s
personal property. When enforced to taxpayer’s
Tax in itself is not a lien even upon the property personal property not in his possession, it is called
against which it is assessed, unless expressly made so garnishment. Meanwhile, levy is enforced on real
by statute. property.
Nature and extent of tax lien Distinctions among warrants of distraint,

garnishment and levy
When a taxpayer neglects or refuses to pay his tax
liability after demand, the amount shall be a lien in GARNISHMEN
DISTRAINT LEVY
favor of the Government from the time when the T
assessment was made by the CIR until paid, with Subject matter
interests, penalties, and costs that may accrue in Personal Personal Real property
addition thereto upon all property and rights to property property owned and in
property belonging to the taxpayer. Provided, that owned by and owned by the the
this lien shall not be valid against any mortgagee, in possession taxpayer but in possession of
purchaser or judgment creditor until notice of such of the the possession the taxpayer
lien shall be filed by the CIR in the Register of Deeds taxpayer of the third
of the province or city where the property is party
situated or located (Sec. 219, NIRC).
Acquisition by the Gov’t
5. The claim of the government predicated on a
tax lien is superior to the claim of a private litigant Personal Personal Real property
predicated on a judgment. The tax claim must be property property subject to levy
given preference over any other claim of any other distrained are garnished are is forfeited to
creditor, in respect of any and all properties of the purchased by purchased by the
insolvent (Republic v. Peralta, 150 SCRA 37). the the Government
Government Government then sold to
When tax lien is applied and resold to and resold to meet the
meet meet deficiency.
1. With respect to personal property – Tax lien deficiency. deficiency.
attaches when the taxpayer neglects or refuses
to pay tax after demand. Thus, the tax lien Advertisement of Sale
attaches not from the service of the warrant of No No newspaper Newspaper
distraint of personal property but from the time newspaper publication publication is
the tax became due and payable. publication required required once
required a week for 3
2. With respect to real property – from time of consecutive
registration with the Register of Deeds. weeks.
The residue, if any, goes back to the taxpayer or Requisites for the exercise of distraint and levy
owner of the property. (DeF –DeP)
Extinguishment of Tax Lien 1. Taxpayer is delinquent in payment of tax;

2. There must be subsequent demand to pay;
1. By payment or remission of the tax 3. Taxpayer failed to pay delinquent tax on time;
2. By prescription of the right of government to and
assess or collect 4. Period within which to assess and collect the
3. By failure to file notice of such tax lien in the tax due has not yet prescribed.
office of Register of Deeds
4. By destruction of property subject to tax lien Similarities between distraint and levy
5. By replacing it with a bond
1. Summary in nature
NOTE: A buyer in an execution sale acquires only 2. Requires notice of sale
the rights of the judgment creditor.

LAW ON TAXATION
3. May not be resorted to if the amount involved is Upon failure to pay the delinquent tax at the
less than P100 time required, the proper officer shall seize and
distraint any goods, chattels, or effects, and the
Distraint personal property, including stocks and other
securities, debts, credits, bank accounts and
It is a summary remedy whereby the collection of interests in and rights to personal property of
tax is enforced on the goods, chattels or effects of the the taxpayer in sufficient quantity to satisfy the
taxpayer (including other personal property of tax, expenses of distraint and the cost of the
whatever character as well as stocks and other subsequent sale (Sec. 207 [A], NIRC).
securities, debts, credits, bank accounts and interest
in or rights to personal property.) The property may Procedure that must be observed in effecting
be offered in a public sale, if taxes are not voluntarily actual distraint:
paid.
1. Commencement of distraint proceedings
Distinguish lien from distraint by the CIR or his duly authorized
representatives or by the revenue district
LIEN DISTRAINT officer as the case may be
Directed The property Need not be 2. Service of warrant of distraint upon
against subject to the directed against taxpayer or upon any person in possession
what tax the property of the property
subject to tax
To whom The property The property To whom warrant of distraint is served:
directed itself regardless should be
of the present presently owned 1. As to tangible goods:
owner of the by the taxpayer a. The owner or person in possession; or
property b. Someone of suitable age and discretion
at the dwelling or place of business of
Q: Who is authorized to issue the warrant of such person.
distraint? 2. As to stocks and/or securities:
a. Upon the taxpayer; and
A: b. President, manager, treasurer or other
1. CIR or his duly authorized representative – if the responsible officer of the corporation.
amount involved is in excess of P1 million; or
2. Revenue District Officer – if the amount involved 3. As to debts/credits:
is P1 million or less (Sec. 207 [A], NIRC). a. Upon the person owing the debt; or
b. The person having control over the
Effect of service of warrant of distraint (or levy) credit or his agent.
Its timely service suspends the running of the 4. As to bank accounts:

prescriptive period to collect the tax deficiency in a. Upon the taxpayer and
the sense that the disposition of the attached b. The president, manager, treasurer or
properties might well take time to accomplish, other responsible officer of the bank.
extending even after the lapse of the statutory
period for collections (Republic v. Hizon, G.R. No. NOTE: Distraint of bank accounts is called
130430, December 13, 1999). garnishment.
Kinds of distraint 3. Posting of notice in not less than 2 public

places in the municipality or city and notice
1. Actual distraint – resorted to when at the time to taxpayer specifying the time and place of
required for payment, a person fails to pay his sale and the articles distrained
delinquent tax obligation (Sec. 207 [A], NIRC). 4. Release of distrained property upon
Distraint consists in the actual seizure and payment prior to sale
taking possession of personal property of the The taxpayer may recover his property
taxpayer. prior to the consummation of the sale if, at
any time prior to the consummation of the
How actual distraint effected: sale, all proper charges are paid to the
officer conducting the sale, the goods or

2019 GOLDEN NOTES
316
effects distrained shall be restored to the It is the taking of personal properties, cash
owner (Sec. 210, NIRC). or sums of money owned by a delinquent
taxpayer which is in the possession of a
5. Sale at public auction to be held not less third party (i.e. bank accounts.) Bank
than 20 days after notice to the owner or accounts are garnished by serving a
possessor of the property and publication warrant upon the taxpayer and upon the
or posting of such notice president, manager, treasurer, or other
responsible officer of the bank.
Rules governing the sale
Q: Is the BIR authorized to issue a warrant of
a. The sale must be held at the time and garnishment against the bank account of a
place stated in the notice. taxpayer despite the pendency of taxpayer’s
b. It may be conducted by the Revenue protest against the assessment with the BIR or
Officer or through a licensed commodity appeal with the CTA? (1998 Bar)
or stock exchange.
c. If the sale is conducted by the Revenue A: YES, the BIR is authorized to issue a warrant of
Officer, it must be a public auction and garnishment against the bank account of a taxpayer
the property shall be sold to the highest despite the pendency of protest (Yabes v. Flojo, GR L-
bidder for cash. 46954 July 20, 1982). Nowhere in the NIRC is the CIR
d. If the sale is through a licensed required to first, rule on the protest before he can
commodity or stock exchange, it must institute collection proceedings on the tax assessed.
be with the approval of the CIR. The legislative policy is to give the CIR much latitude
e. In case of stocks and other securities, in the speedy and prompt collection of taxes
the officer making the sale shall execute because it is in taxation that the Government
a bill of sale, which shall be delivered to depends to obtain the means to carry on its
the buyer and to the corporation, operations.
company or association which issued
the stocks or other securities. Upon NOTE: The taxpayer may request that the warrant
receipt of the copy of the bill of sale, an be lifted. The CIR may, in his discretion, allow the
entry of transfer should be made in the lifting of the order of distraint. He may ask for a
company or association’s book and a bond as a condition for the cancellation of the
corresponding certificate of stock shall warrant (Sec. 207, NIRC).
be issued if required.
f. Residue over and above what is 2. Constructive distraint – a preventive remedy
required to pay the entire claim, which aims at forestalling a possible dissipation
including expenses, shall be returned to of the taxpayer’s assets when delinquency sets
the owner of the property sold. in. No actual tax deliquency of the taxpayer is
g. The officer making the sale shall make necessary before the same is resorted to by
a written report of the proceedings to government.
the CIR within 2 days after the sale (Sec.
211, NIRC). How constructive distraint is effected:
6. Purchase by government at sale upon It is effected by requiring the taxpayer or any

distraint person having possession of the property:
The CIR or his deputy may purchase the 1. To sign a receipt covering the property
property in behalf of the National distrained;
Government for the amount of taxes, 2. To obligate himself to preserve it intact and
penalties and cost due thereon when the unaltered; and
bid amount for the property under distraint 3. Not to dispose of it without the express
is: authority of the CIR.
a. Not equal to the amount of tax; or
b. Very much less than the actual market Cases when constructive distraint is proper [CARL]
value of the property offered for sale
(Sec. 212, NIRC). 1. Retirement from any business subject to the
tax;
Garnishment

LAW ON TAXATION
2. Intending to leave the philippines or to remove Property levied upon by the order of a competent
his property therefrom; or to hide or conceal his court can be subsequently distrained. Such property
property; may, with the consent of such court, be
3. Intending to perform any act tending to subsequently distrained, subject to the prior lien of
obstruct the proceedings for collecting the tax the attachment creditor (CIR v. Flores, G.R. No. L-
due or which may be due from him (Sec. 206, 9675, September 28, 1957).
NIRC).
Disctinction between the two kinds of distraint
Specific cases when Notice or Warrant of
Constructive Distraint over the Property/ies of a ACTUAL CONSTRUCTIVE
Taxpayer may be Issued[LRT-CUBA] Nature Summary remedy
Subject Personal property
1. Taxpayer has a record of Leaving the matter
Philippines at least twice a year, unless such Availabilit Cannot be availed of if tax is not
business is justified and/or connected with his y more than P100.
trade, business or profession; To whom Delinquent Any taxpayer
2. Taxpayer applying for Retirement from made taxpayer (delinquent or not)
business has a huge amount of assessment How made Taking of Mere prohibition
pending with the BIR; possession from disposing the
or transfer property
NOTE: An assessment is huge if the amount of control
thereof is equal to or bigger than the networth How Leaving a Requiring taxpayer
or equity of the taxpayer. effected list of to sign a receipt or
property leaving a list of such
3. Taxpayer has record of Transferring his bank distrained property
deposits and other personal properties in the or service of
Phil. to any foreign country except if taxpayer is warrant
a banking institution; Effect on Immediate Merely to prevent
4. The BIR receives information or Complaint collection step to the taxpayer from
pertaining to undeclared income in an amount collect disposing his
of more than 30% of gross sales, receipt or property
revenue, and there is enough reason to believe
that said information is correct as when it is Levy
supported by substantial and credible
evidence; It is the seizure of real property and interest in or
5. There is big amount of Undeclared income rights to such properties for the satisfaction of taxes
known to the public and to the BIR and there is due from the delinquent taxpayer.
a strong reason to believe that the taxpayer will
hide or conceal his property; When levy on real property may be made:
6. Taxpayer keeps Bank deposits and other
properties under the name of other persons, It may be made before, simultaneously or after the
whether or not related to him, and the same are distraint of personal property of the same taxpayer.
not under any lawful fiduciary or trust capacity; It may be effected by serving upon the taxpayer a
7. Taxpayer uses Aliases in bank accounts other written notice of levy in the form of a duly
than the name for which he is legally and/or authenticated certificate prepared by Revenue
popularly known (Revenue Memorandum Order District Officer containing: [DNA]
No. 5- 2001).
1. Description of the property upon which levy is
In case taxpayer or person having possession of the made;
property refuses or fails to sign the receipt: 2. Name of the taxpayer;
3. Amount of tax and penalty due.
The officer shall:
1. Prepare a list of such property; and Procedure that must be observed in levy of real
2. Leave a copy of such list in the premises where property:
the property is located, in the presence of 2
witnesses. 1. Preparation of a duly authenticated certificate
which shall operate with force of a legal
execution throughout the Philippines;

2019 GOLDEN NOTES
318
2. Service of the written notice to the: the property, for it was forfeited (Sec. 214,
a. Delinquent taxpayer, or NIRC).
b. If he is absent from the Philippines, to his
agent or the manager of the business in Effect of the redemption to the property sold:
respect to which the liability arose, or
c. If there be none, the occupant of the It shall entitle the taxpayer, the delivery of the
property, certificate issued to the purchaser and a
d. The Registry of Deeds of the place where certificate from the Revenue District Officer
the property is located shall also be that he has redeemed the property. The
notified; Revenue District Officer shall pay the
purchaser the amount by which such property
Q: Suppose an auction sale of land for the has been redeemed and said property shall be
collection of delinquent taxes was held, is notice free from lien of such taxes and penalties (Sec.
by publication enough or must there be 214, NIRC).
personal service of notice?
Person entitled to the possession of the
A: Notice by publication is not enough there must be property levied:
a personal notice to the registered owner of the
property for cases involving an auction sale of land The owner shall not be deprived of the
for the collection of delinquent taxes are in property until the expiration of the
personam (Talusan v. Tayag, G.R. No. 133698, April 4, redemption period and shall be entitled to
2001). rents and other income until the expiration of
the period for redemption (Sec. 214, NIRC).
NOTE: Failure of the heirs to receive a copy of
notices of levy does not bar its effectivity since the Final deed of purchaser:
taxpayer is in fact the estate (Marcos II vs. CA).
In case the taxpayer shall not redeem the
3. Advertisement of the time and place of sale property, the Revenue District Officer (RDO)
within 20 days after the levy by posting of shall, as grantor, execute a deed conveying to
notice and by publication for three consecutive the purchaser so much of the property as has
weeks; been sold, free from all liens of any kind
4. Sale at a public auction; whatsoever, and the deed shall succinctly
recite all the proceedings upon which the
The taxpayer may recover his property prior to validity of the sale depends (Sec. 204, NIRC).
the consummation of the sale. At any time
before the day fixed for the sale, the taxpayer 6. Further distraint and levy.
may discontinue all proceeding by paying the
taxes, penalties and interest (Sec. 213, NIRC). The remedy of distraint and levy may be
repeated if necessary until the full amount of
5. Redemption of property sold; the tax delinquency due including all expenses
is collected from the taxpayer (Sec. 217, NIRC).
Within 1 year from the date of sale, the Otherwise, a clever taxpayer who is able to
taxpayer or anyone for him, may pay to the conceal most of the valuable part of his
Revenue District Officer the total amount of property would escape payment of his tax
the following: liability by sacrificing an insignificant portion of
a. Public taxes; his holdings.
b. Penalties;
c. Interest from the date of delinquency to NOTE: Further distraint and levy does not
the date of sale; and apply when the real property was forfeited to
d. Interest on said purchase price at the rate the government for it is in satisfaction of the
of 15% per annum from the date of sale to claim in question (Sec 215, NIRC).
the date of redemption.
(3) FORFEITURE OF REAL PROPERTY
NOTE: If the property was forfeited in favor of
the government: the Redemption price shall BIR is allowed to forfeit the property subject to levy
include only the taxes, penalties and interest only if:
plus costs of sale – no interest on purchase
price since the Government did not “purchase” 1. There is no bidder; or

LAW ON TAXATION
2. The bid amount is insufficient to pay the taxes, property
penalties and costs (Sec 215, NIRC). seized
Disposition Excess not Excess
Forfeiture of the returned to returned to
proceeds of the taxpayer taxpayer
It is the divestiture of property without sale
compensation, in consequence of a default or
offense. It transfers the title to the specific thing (4) SUSPENSION OF BUSINESS OPERATION
from the owner to the government. Also, there
would no longer be any further levy for such would The CIR or his authorized representative is
be for the total satisfaction of the tax due. empowered to suspend the business operations and
temporarily close the business establishment of any
NOTE: The erring taxpayer may still be criminally person for any of the following violations:
prosecuted even if the property has already been
forfeited (Garcia v. Coll., 66 Phil. 441). 1. In the case of VAT-registered person:
a. Failure to issue receipts or invoices;
Redemption of forfeited property: b. Failure to file a VAT return as required
under Sec. 114; or
The Register of Deeds shall transfer the title of c. Understatement of taxable sales or receipts
forfeited property to the Government without by 30% or more of his correct taxable sales
necessity of a court order. or receipts for the taxable quarter.
Within 1 year from the date of forfeiture, the 2. Failure of any person to Register as required
taxpayer, or any one for him may redeem said under Sec. 236: The temporary closure of the
property by paying to the CIR or Revenue Collection establishment shall be for the duration of not
Officer the full amount of the taxes and penalties, less than 5 days and shall be lifted only upon
together with interest thereon and the costs of sale, compliance with whatever requirements
but if the property be not thus redeemed, the prescribed by the CIR in the closure order (Sec.
forfeiture shall become absolute (Sec. 215, NIRC). 115 NIRC).
Resale of Real Estate Taken for Taxes (5) NON-AVAILABILITY OF INJUNCTION TO

RESTRAIN COLLECTION OF TAX
The CIR shall have charge of any real estate obtained
by the Government in payment or satisfaction of GR: No court shall have the authority to grant an
taxes, penalties or costs or in compromise or injunction to restrain the collection of any national
adjustment of any claim. internal revenue, tax, fee or charge (Sec. 219, R.A.
8424).
The CIR may:
1. Sell and dispose of the same of public auction XPNs:
upon the giving of not less than twenty (20) 1. Filing of Injunction with the CTA as an incident
days notice, or to its appellate jurisdiction
2. Dispose of the same at private sale with prior a. Showing that collection of the tax may
approval of the Secretary of Finance. jeopardize the interest of the government
and/or the taxpayer;
In either case, the proceeds of the sale shall be b. Deposit of the amount claimed or file a
deposited with the National Treasury, and an surety bond
accounting of the same shall rendered to the c. Showing by taxpayer that appeal is not
Chairman of the Commission on Audit (Sec. 216, frivolous nor dilatory
NIRC)
2. The SC, on exceptional cases of suits
Difference between forfeiture and seizure to questioning the constitutionality of a tax law
enforce a tax lien (Tolentino v. Executive Secretary)
3. In case of local taxes, RTCs may issue an
FORFEITURE SEIZURE injunction upon a suit questioning their validity
Ownership is Taxpayer NOTE: In the case of the collection of local taxes,
Ownership transferred to retains there is no express prohibition in the Local
the ownership of Government Code prohibiting courts from
Government issuing an injunction to restrain local

2019 GOLDEN NOTES
320
governments from collecting taxes. Such

statutory lapse or intent, however it may be
viewed, may have allowed preliminary
injunction where local taxes are involved
(Angeles City v. Angeles Electric Corporation, G.R.
No. 166134 [2010]).
Reason: The Lifeblood doctrine requires that the

collection of taxes cannot be enjoined, without
taxation, a government can neither exist nor endure.

LAW ON TAXATION
Figure 1. Process of Assessment from Self-Assessment, Issuance of Preliminary Assessment and Notice,
to Protesting Final Assessment Notice
NOTE: 30 days to serve

to taxpayer from date of
issuance

2019 GOLDEN NOTES
322
Figure 2. Government Remedies if FLD/FAN becomes final

LAW ON TAXATION
Figure 3. Taxpayer’s remedies upon issuance of FLD/FAN

2019 GOLDEN NOTES
324

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TAX REMEDIES UNDER NIRC

UNIVERSITY OF SANTO TOMAS

A Letter of Authority should cover a taxable period XPN: [FRC3]

A revenue officer is allowed only 120 days to Principle of estoppel

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

XPN: Judicial action to collect the tax liability is

UNIVERSITY OF SANTO TOMAS

2. If collection is through judicial remedies (civil

Q: May the collection of taxes be barred by

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

Effect of failure to file protest c. Filing of criminal action against the

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

and executory cannot be superseded by a new assessment; unjustly or

Judicial Remedies Compromise

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

2. Subject to approval of Evaluation Board: When must compromise be made?

UNIVERSITY OF SANTO TOMAS

f. The taxpayer’s mistake in payment of his RECOVERY OF TAX ERRONEOUSLY

2. The administration and collection costs 1. Tax refund - Actualreimbursement of tax

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

Burden of proof for claim of refund

GR: Being in the nature of a claim for exemption,

In order to discharge this burden, the law intends

XPN: The contention that a tax refund takes on the

UNIVERSITY OF SANTO TOMAS

XPN: Under the following situations:

CASE THE ONE ENTITLED FOR THE REFUND REASON

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

It is a legal claim or charge on property, personal or (2) DISTRAINT AND LEVY

Nature and extent of tax lien Distinctions among warrants of distraint,

Extinguishment of Tax Lien 1. Taxpayer is delinquent in payment of tax;

UNIVERSITY OF SANTO TOMAS

Its timely service suspends the running of the 4. As to bank accounts:

Kinds of distraint 3. Posting of notice in not less than 2 public

UNIVERSITY OF SANTO TOMAS

6. Purchase by government at sale upon It is effected by requiring the taxpayer or any

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

UNIVERSITY OF SANTO TOMAS

Resale of Real Estate Taken for Taxes (5) NON-AVAILABILITY OF INJUNCTION TO