TAX REMEDIES UNDER THE NIRC

Remedies in General
1. Taxpayer’s Remedies

These are legal actions which a taxpayer can avail to seek relief from the undue burden or
oppressive effect of tax laws, or as means to check possible excesses by revenue officers
in the performance of their duties.

Remedies before payment

1. Administrative remedies
a. Protest of assessment;
i. Reconsideration
ii. Reinvestigation
b. Compromise; and
c. Abatement
2. Judicial Remedies

Remedies after payment

1. Administrative remedies
a. Tax refund
b. Tax credit
2. Judicial remedies

2. Government Remedies

These are courses of action provided or allowed in the law to implement the tax laws or
enforce tax collection.

1. Administrative remedies
a. Tax lien
b. Distraint and levy
c. Forfeiture of real property
d. Suspension of business operation
e. Non-availability of injunction to restrain collection of tax
2. Judicial remedies
a. Ordinary civil action
b. Criminal action

Importance of tax remedies

1. To the government - For the regular collection of revenue necessary for the existence of the
government.
2. To the taxpayer - They are safeguards of the taxpayer’s rights against arbitrary action.

Subjects of tax remedies in internal revenue taxation

They include the action of the BIR where there may be controversy between the taxpayer
and the State such as:
1. Assessment of internal revenue taxes
2. Collection of internal revenue taxes
3. Refund of internal revenue taxes
4. Imposition of administrative or civil fines, penalties, interests or surcharges; promulgation
and/or enforcement of administrative rules and regulations for the effective and efficient
enforcement of internal revenue laws
5. Prosecution of criminal violations of internal revenue laws.
 TAX ASSESSMENT

The term assessment refers to the determination of amounts due from a person obligated
to make payments. In the context of national internal revenue collection, it refers to the
determination of the taxes due from a taxpayer.

Meaning of tax assessment – It is the official action of an officer authorized by law in ascertaining
the amount of tax due under the law from a taxpayer. This action necessarily involves:
a. the computation of the sum due;
b. giving notice to that effect to the taxpayer; and
c. the making, simultaneously with or sometime after the giving of notice, of a demand upon
him for the payment of the tax deficiency stated.

Importance of a tax assessment

TO THE GOVERNMENT TO THE TAXPAYER

1. In the proper pursuit of judicial and 1. To inform the taxpayer of his

extrajudicial remedies to enforce liabilities;
taxpayer liabilities and certain matters 2. To determine the period within which
that relate to it, such as the imposition to protest.
of surcharges and interests; 3. To determine prescription of
2. In the application of the Statute of government claim.
Limitations;
3. In the establishment of tax liens; and
4. In estimating the revenues that may be
collected by the government.

Nature of an assessment
It is merely a notice to the effect that the amount stated therein is due as tax and containing
a demand for the payment. (Alhambra Cigar Mfg. Co. v. CIR, GR L-23226, Nov. 28, 1967)

Requisites for valid assessment

The assessment must:

1. Be in writing and signed by the BIR;
2. Contain the law and the facts on which the assessment is made;
3. Contain a demand for payment within the prescribed period; (Sec. 228, NIRC) and
4. Must be served on and received by the taxpayer.

Notice of Assessment is a written notice to a taxpayer to the effect that the amount stated therein
is due as tax and containing a demand for the payment. It is a finding by the taxing agency that the
taxpayer has not paid his correct taxes.

A notice of assessment contains not only a computation of tax liabilities but also a demand for the
payment within a prescribed period. It also signals the time when penalties and interests begin to
accrue.

Modes of Service

1. Personal service,
2. Service by mail, or
3. Substituted delivery

Service to the tax agent/practitioner, who is appointed by the taxpayer, shall be deemed service to
the taxpayer (RR 18-2013).
When assessment is made?
An assessment is deemed made for the purpose of giving effect thereto (the assessment is
valid and the BIR can proceed to collect) if:
1. Made within the period of 3 or 10 years, as the case may be; and
2. Notice of the assessment (official or formal or final assessment notice) is released,
mailed, or sent to the taxpayer also within the same period

An assessment is deemed made only when the Collector of Internal Revenue RELEASES,
MAILS OR SENDS such notice to the taxpayer (CIR, v. Pascor Realty and Development
Corporation, et. al. G.R. No. 128315, June 29, 1999). It is not required that the notice be received
by the taxpayer within the prescribed period.

It is required that the taxpayer should actually receive, even beyond the prescriptive period,
the assessment notice which was timely released, mailed and sent . The 3-year period for collection
of the assessed tax begins to run on the date the assessment has been released, mailed, or sent.

Principles governing tax assessments

1. Prima facie presumed correct and made in good faith

Settled is the rule that assessments are prima facie presumed correct and made in good
faith, with the taxpayer having the burden of proving otherwise (FELS Energy, Inc. V. The
Province of Batangas, et al., G.R. No. 168557, February 16, 2007). In the absence of any
irregularities in the performance of official duties, anassessment will not be disturbed.
Failure to present proof of error in assessments will justify judicial affirmance of said
assessment (ACMDC v. CA, 242 SCRA 289).

The burden of proof is on the taxpayer contesting the validity or correctness of an

assessment to prove not only that the Commissioner of Internal Revenue is wrong but the
taxpayer is right. Otherwise, the presumption in favor of correctness of tax assessment
stands.

Reasons for presumption of correctness of assessments

a. Lifeblood Theory
b. Presumption of regularity in the performance of public functions.
c. The likelihood that the taxpayer will have access to the relevant information.
d. The desirability of bolstering the record-keeping requirements of the NIRC.

When prima facie correctness of a tax assessment does not apply: Upon proof that an
assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the
BIR has come out with a “naked assessment” i.e., without any foundation character, the
determination of the tax due is without rational basis (CIR v. Hantex Trading Co. Inc., G.R,
No. 136975, March 31, 2005).

2. Should be based on Actual facts (CIR vs. Benipayo);

However, in the absence of the accounting records of a taxpayer, his tax liability may be
determined by estimation. The CIR is not required to compute such tax liabilities with
mathematical exactness. Approximation in the calculation of the taxes due is justified.
However, the rule does not apply where the estimation is arrived at arbitrarily and
capriciously (CIR v. Hantex Trading Co. Inc., G.R, No. 136975, March 31, 2005).

An assessment on estimates is prima facie valid and lawful where it does not appear to
have been arrived at arbitrarily or capriciously. The burden of proof is upon the
complaining party to show clearly that the assessment is erroneous. Failure to present proof
of error in the assessment will justify the judicial affirmance of the said assessment (RMC
23-2000).

3. Discretionary on the part of the Commissioner

 Mandamus cannot lie to compel the CIR to impose deficiency tax assessment. The CIR’s
power to assess is a discretionary one (Meralco v. Sevillano, G.R. No. L-46245, October
23, 1982).

4. Must be Directed to the right party

An affidavit, which was executed by the revenue officers stating the tax liabilities of the
taxpayer and attached to a criminal complaint for tax evasion cannot be deemed a valid
assessment, not having been received by the taxpayer and thus the taxpayer was not
informed of the law and facts in which the assessment was made (CIR v. Pascor Realty
Dev. Corp., G.R. No 128315, June 19, 1999).

5. The authority vested in the Commissioner to assess taxes may be Delegated (Sec.7, NIRC).

The authority to make tax assessments may be delegated to subordinate officers. Said
assessment has the same force and effect as that issued by the CIR if not revised or
reviewed by the latter (Oceanic Network Wireless Inc. v. CIR, GR 148380, December 9,
2005).

Before the delegated revenue officer can consuct examination or assessment, there must be
a clear grant of authority. This authority is embodied in a Letter of Authoriry (LOA) (CIR
vs. Sony Philippines, Inc. GR No. 178697, November 17, 2010).

Constructive methods of income determination

If the taxpayer’s record or methods of accounting are not reflective of his true income, what
methods may be utilized by the CIR to determine the correct taxable income of the taxpayer?
1. Net worth method
2. Cash expenditure method
3. Percentage method
4. Bank deposit method
5. Unit and value method
6. Third party information or access to records method
7. Surveillance and assessment method
8. Such methods as in the opinion of the BIR Commissioner clearly reflect the income

Net worth method

A method of reconstructing income which is based on the theory that if the taxpayer’s net worth
has increased in a given year in an amount larger than his reported income, he has understated his
income for the year.

It is a method of determining income where a government can prove with reasonable certainty the
increase of taxpayer’s net worth at a given date by reasonable inference with independent evidence
such as bank deposits or purchase of assets (U.S. case of Holland v. U.S., 348, U.S., 121).

It is supported by Section 43 of the NIRC which allows the CIR to use any method of computation
or accounting which would more clearly reflect the income of the taxpayer (Collector v. Avelino,
3 SCRA 57).

To compute for taxpayer’s net worth, the formula is

ASSETS – LIABILITIES = NETWORTH.
His net worth at the beginning of the taxable year is then compared with his net worth at the end
of the year. Any increase in the net worth is presumed to be income not declared for tax purposes.

Presumption: The unexplained increase in net worth of the taxpayer is derived from taxable
sources.
The inference is disputable in the sense that the taxpayer is not precluded from adducing evidence
to show that the excess were derived from items which are excluded from gross income.

Inventory method for income determination

The International Accounting Standard enumerated the following:

1. Last In – First Out (LIFO) A method of assigning costs to both inventory
2. First In – First Out (FIFO) and cost of goods sold. With regard to LIFO
the assumption is that the most recent
inventory is the one sold first as compared to
FIFO wherein the inventory items are sold in
the order they are acquired.
3. Weighted Average A method of assigning cost which requires that
we compute the weighted average cost per unit
at the time of each sale, equals the cost of
goods available for sale divided by the units
available. Thus, the cost of goods sold would
be dependent on the average acquisition cost of
the inventory currently available when a sale is
done.
4. Specific identification A meticulous method wherein each item in
inventory can be identified with a specific
purchase and invoice, when each item is sold
the sales record should also contain the same.
Thus the cost of goods sold would depend on
which item was sold for that particular sale.

Different kinds of assessments

1. Pre-Assessment – informs the taxpayer of the findings of the examiner who recommends a
deficiency assessment. The taxpayer is usually given 10 days from notice within which to
explain his side.
2. Self-Assessment – one in which the tax is assessed by the taxpayer himself.
3. Official Assessment – issued by the BIR in case the taxpayer fails to respond to the pre-
assessment, or his explanation is not satisfactory to the CIR.
4. Illegal and Void Assessment – tax assessor has no power to assess at all.
5. Erroneous Assessment – assessor has power to assess but errs in the exercise thereof.
6. Jeopardy Assessment – a delinquency tax assessment made without the benefit of a
complete or partial investigation by a belief that the assessment and collection of a
deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to:
a. Comply with audit and investigation requirements to present his books of accounts
and/or pertinent records, or
b. Substantiate all or any of the deductions, exemptions or credits claimed in his
return.

This is issued when the revenue officer finds himself without enough time to conduct an
appropriate or thorough examination in view of the impending expiration of the prescriptive period
for assessment. To prevent the issuance of a jeopardy assessment, the taxpayer may be required to
execute a waiver of the statute of limitations.

Q: Do all types of taxes require issuance of assessment?

General Rule: Internal Revenue Taxes are self-assessing and do not require the issuance of an
assessment notice in order to establish the tax liability of a taxpayer (Tupaz v.Ulep, 316 SCRA
118). The NIRC follows the pay-as-you-file system of taxation under which the taxpayer computes
his own tax liability, prepares the return, and pays the tax as he files the return.

Exceptions:
1. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC)
 2. In case of deficiency tax liability arising from a tax audit conducted by the BIR (Sec. 56
[B], NIRC)
3. Tax lien (Sec. 219, NIRC)
4. Dissolving corporation (Sec. 52 [c], NIRC)
5. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)

Tax delinquency and tax deficiency

Delinquency Tax – a taxpayer is considered delinquent in the payment of taxes when:

a. Self-assessed tax per return filed by the taxpayer on the prescribed date was not paid at all
or only partially paid; or
b. Deficiency tax assessed by the BIR becomes final and executory.

Deficiency Tax –
a. The amount by which the tax imposed by law as determined by the CIR or his authorized
representative exceeds the amount shown as tax by the taxpayer upon his return; or
b. If no amount is shown as tax by the taxpayer upon his return is made by the taxpayer, then
the amount by which the tax as determined by the CIR or his authorized representative
exceeds the amounts previously assessed or collected without assessment as deficiency.

Delinquency Tax Deficiency Tax

WHEN
a) Self-assessed tax per return filed by the a) The amount by which the tax imposed by
taxpayer on the prescribed date was not law as determined by the CIR or his
paid at all or only partially paid; or authorized representative exceeds the
amount shown as tax by the taxpayer upon
b) Deficiency tax assessed by the BIR his return; or
becomes final and executory and the
taxpayer has not paid it within the period b) If no amount is shown as tax by the
given in the notice of assessment taxpayer upon his return is made by the
taxpayer, then the amount by which the tax
as determined by the CIR or his authorized
representative exceeds the amounts
previously assessed or collected without
assessment as deficiency (Sec. 56[B],
NIRC).
Collection
Can immediately be collected administratively Can be collected through administrative and/or
through the issuance of a warrant of distraint judicial remedies but has to go through the
and levy, and/or judicial action process of filling the protest by the taxpayer
against the assessment and the denial of such
protest by the BIR
Civil Action
The filing of a civil action for the collection of The filling of a civil action at the ordinary court
the delinquent tax in the ordinary court is a for collection during the pendency of protest
proper remedy may be the subject of a motion to dismiss. In
addition to a motion to dismiss, the taxpayer
must file a petition for review with the CTA to
toll the running of the prescriptive period
Penalties
A delinquent tax is subject to administrative A deficiency tax is generally not subject to the
penalties such as 25% surcharge, interest, and 25% surcharge, although subject to interest
compromise penalty and compromise penalty

Power of the commissioner to make assessments and prescribe additional requirements for
tax administration and enforcement

The CIR or his duly authorized representative is authorized to use the following powers:
(Sec. 6, NIRC)
 1. Examination of return and determination of tax due
2. Use of the best evidence available
3. Authority to conduct inventory taking, surveillance and prescribe gross sales and
receipts if there is reason to believe that the taxpayer is not declaring his correct
income, sales or receipts for internal revenue purposes
4. Authority to terminate taxable period in the following instances:
i. Taxpayer is retiring from business subject to tax;
ii. Taxpayer is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property and
iii. Taxpayer is performing any act tending to obstruct the proceedings for the
collection of taxes.
5. Authority to prescribe real property values
6. Authority to inquire into bank deposits accounts in the following instances:
i. A decedent to determine his gross estate;
ii. Any taxpayer who has filed an application for compromise of his tax
liability by reason of financial incapability to pay;
iii. A specific taxpayer/s is subject of a request for the supply of tax information
a foreign tax authority pursuant to an intentional convention or agreement
on tax matters to which the Philippines is a signatory or a party of. Provided
that the requesting foreign tax authority is able to demonstrate the
foreseeable relevance of certain information required to be given to the
request. (Sec. 3 & 8, RA 10021)
iv. Where the taxpayer has signed a waiver authorizing the Commissioner or
his duly authorized representative to inquire into the bank deposits.
7. Authority to accredit and register tax agents
8. Authority to prescribe additional procedural or documentary requirements.

Additional provisions under TRAIN Law

Best Evidence Obtainable

Any data, record, papers, documents or any evidence gathered by internal revenue officers
from government offices/agencies, corporations, employees, clients, patients, tenants, lessees,
vendees and from all other sources with whom the taxpayer had previous transactions or from
whom he received any income.

When may the CIR assess the tax on best obtainable evidence?

1. When a return is required by law as a basis for assessment of internal revenue tax
shall not be forthcoming within the time fixed by law or regulation (No return
filed); or
2. Any return which is False, Incomplete or Erroneous. (Sec. 6, NIRC)

This rule applies when a tax report is required by law for the purpose of assessment and it
is not available or when the report is incomplete or fraudulent (Sy Po vs. CTA).

The "best evidence" includes the corporate and accounting records of the taxpayer who is
the subject of the assessment process, the accounting records of other taxpayers engaged in the
same line of business, including their gross profit and net profit sales. Such evidence also includes
data, record, paper, document or any evidence gathered by internal revenue officers from other
taxpayers who had personal transactions or from whom the subject taxpayer received any income;
and record, data, document and information secured from government offices or agencies.

The law allows the BIR access to all relevant or material records and data in the person of
the taxpayer. It places no limit or condition on the type or form of the medium by which the record
subject to the order of the BIR is kept. The purpose of the law is to enable the BIR to get at the
taxpayer's records in whatever form they may be kept. Such records include computer tapes of the
said records prepared by the taxpayer in the course of business.

The best evidence obtainable may consist of hearsay evidence, such as the testimony of
third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer
subject of the investigation. As a rule, administrative agencies such as the BIR are not bound by
the technical rules of evidence (CIR v. Hantex Trading Co., Inc., GR No. 136975, March 31, 2005).

Instances when CIR may make or amend a tax return

The CIR shall make or amend the return from his own knowledge and from such information as
he can obtain through testimony or otherwise:
1. In case a person fails to file a required return or other document at the time prescribed by
law; or
2. Willfully or otherwise files a false or fraudulent return or other document (Sec. 6(B),
NIRC).

When CIR shall compute income for taxation

The CIR shall compute income for taxation in accordance with the method as in his opinion clearly
reflects income:
1. If no method of accounting was employed by the taxpayer, or
2. The accounting method employed does not clearly reflect the income (Sec. 43, NIRC).

Power of the commissioner to obtain information, and to summon/examine, and take

testimony of persons

This power is for ascertaining the correctness of any return, or in making a return when none
has been made, or in determining the liability of any person for any internal revenue tax, or in
collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:
1. To examine any book, paper, record, or other data which may be relevant or material to
such inquiry;
2. To obtain on a regular basis from any person other than the person whose internal revenue
tax liability is subject to audit or investigation, or from any office or officer of the national
and local governments, government agencies and instrumentalities, including the BSP and
GOCCs, any information such as, but not limited to, costs and volume of production,
receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint accounts, associations, joint
ventures of consortia and registered partnerships, and their members;
3. To summon the person liable for tax or required to file a return, or any officer or employee
of such person, or any person having possession, custody, or care of the books of accounts
and other accounting records containing entries relating to the business of the person liable
for tax, or any other person, to appear before the CIR or his duly authorized representative
at a time and place specified in the summons and to produce such books, papers, records,
or other data, and to give testimony;
4. To take such testimony of the person concerned, under oath, as may be relevant or material
to such inquiry; and
5. To cause revenue officers and employees to make a canvass from time to time of any
revenue district or region and inquire after and concerning all persons therein who may be
liable to pay any internal revenue tax, and all persons owning or having the care,
management or possession of any object with respect to which a tax is imposed. (Sec. 5,
NIRC)
Prescriptive period for assessment

Rationale of prescriptive periods

To secure the taxpayers against unreasonable investigation after the lapse of the period
prescribed. They are beneficial to the government because tax officers will be obliged to act
promptly in the assessment and collection of the taxes, for when such period have lapsed their right
to assess and collect would be barred by the statute of limitations.

Basic rules on prescription

1. When the tax law itself is silent on prescription, the tax is imprescriptible;
2. When no return is required, tax is imprescriptible and tax may be assessed at any time
as the prescriptive periods provided in Sec. 203 and 222, NIRC are not applicable.
Remedy of the taxpayer is to file a return for the prescriptive period to commence.

Note: Limitation on the right of the government to assess and collect taxes will not be
presumed in the absence of a clear legislation to the contrary.
3. Prescription is a matter of defense, and it must be proved or established by the party
(taxpayer) relying upon it.
4. Defense of prescription is waivable, such defense is not jurisdictional and must be
raised seasonably, otherwise it is deemed waived.
5. The law on prescription, being a remedial measure, should be interpreted liberally in
order to protect the taxpayer.
6. If the last day of the period falls on a Saturday, a Sunday or a legal holiday in the place
where the Court sits, the time shall not run until the next working day. (Sec. 1, Rule 22,
Rules of Court)

Important Prescriptive Periods:

1. Period to assess tax

2. Period to collect tax
3. Period to file a criminal action (Mamalateo, 2014)

Assessment and collection by the government of the tax due must be made within the
prescribed period as provided by the Tax Code; otherwise, the right of the government to collect
will be barred.

After the expiration of the prescriptive period, the government loses the right to assess a
tax; any assessment thereafter made is invalid.

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in
Section 222 (false or fraudulent return or failure to file a return where the prescriptive period to
assess is 10 years from discovery), internal revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the return, and no proceeding (the BIR cannot
file a collection case in court if the tax is NOT assessed within 3 years in the case of a return filed
which is NOT false or fraudulent) in court without assessment for the collection of such taxes shall
be begun after the expiration of such period: Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-year period shall be counted from the day the
return was filed. For purposes of this Section, a return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on such last day.

The general rule as to the prescriptive period for assessment is that where a return was
filed, the period is within 3 years after the date the return was due or was filed which is not false
or fraudulent, whichever comes later. Thus, if the income tax return due on April 15, 2011 was
filed on April 10, 2011, the 3-year period is counted from April 16, 2011 (the law says “after” not
“on)

The 3-year prescriptive period starts to run 1 day after the last day prescribed by law for
the filing of the return or from the date the return was actually filed whichever comes later.
 The last day prescribed by law for the filing of the ITR of individuals is April 15, when
will the 3-year prescriptive period to assess start to run if:
1. 1. The return is filed on January 5 – April 16
2. The return is filed on April 15 – April 16
3. The return is filed on July 1 – July 1

Prescriptive Period to Prescriptive Period to

Assess Collect

Return which is NOT false or 3 years after the last day 3 years from the date of
fraudulent prescribed by law for filing or assessment (3 years from the
from the day the return was date the taxpayer received the
actually filed, whichever formal/official/final
comes later assessment notice)
False or fraudulent return or 10 years after the discovery by 5 years from the date of
for failure to file a return the BIR of the falsity, fraud or assessment if the assessment
omission was made; if no assessment
was made a case in court may
be filed by the BIR anytime
within 10 years after
discovery of falsity, fraud or
omission

[VIP!] The general rule as to the prescriptive period for collection by judicial action or by
distraint or levy where an assessment was made, is within 3 years after the date of assessment
(there is NO express provision under the New NIRC regarding prescriptive period to collect in
case a return is filed and said return is NOT false or fraudulent unlike under the old NIRC. Hence,
apply Section 222c by analogy); where no assessment was made and a return was filed and the
return is not false, fraudulent, the period for collection is the same as the period for assessment,
that is, within 3 years after the return was due or filed, whichever comes later.

The prescriptive period for enforcing a tax compromise is 10 years from the time the right
of action accrues as fixed in the Civil Code.

Prescriptive periods for making assessments

General Rule: The right to assess must be done within three years from the date of:
1. Actual filing of the return, or
2. From the last date prescribed by law for the filing of such return, whichever is later.

Why “whichever is later”? This is to benefit the government, so they have more time to make the
assessment on the taxpayer (Ingles, 2015).

Exceptions:
1. False or fraudulent return with intent to evade tax: within 10 years from discovery of falsity
or fraud
2. Failure to file any return at all: within 10 years from discovery of omission to file a return
3. Waiver of statute of limitations in writing, which must be made before the expiration of
the period of assessment of taxes: period agreed upon.

NOTE: The period agreed upon may be extended by subsequent written agreements made before
the period previously agreed upon.

Rationale for Prescriptive Period or Statute of Limitations for Assessments

This is for the benefit of both the government and taxpayers. Reasons:
1. The government is benefited because the officers would be obliged to act properly and
promptly in making assessments.
 2. The taxpayers are benefited because after the lapse of the period of prescription, they would
have a feeling of security against unscrupulous tax agents who will take advantage of every
opportunity to molest law-abiding citizens.
3. Without such legal defense, the taxpayers would furthermore be under obligation to always
keep their books and to keep them open for inspection subject to harassment by
unscrupulous tax agents.

Thus, for the purpose of safeguarding taxpayers from any unreasonable examination,
investigation or assessment, our tax laws provide a statute of limitations in the collection of taxes
as well as their assessments (Domondon, 2014, citing several cases).

Determining whether prescription to assess had set in

The important date to remember is the date when the demand letter or notice is released or
mailed or sent by the CIR to the taxpayer.

Provided the release was effected before the prescription sets in, the assessment is deemed
made on time, even if the taxpayer actually receives if after the prescriptive period.

However, the fact that the assessment notice was mailed before the prescription period sets
in must be proved with substantial evidence by the CIR. The presumption that a letter duly directed
and mailed was received in the regular course of mail cannot be applied if there is no substantial
evidence to prove that the notice was indeed sent (Ingles, 2015).

Return as the starting point of the prescriptive period

Tax return refers to the form prescribed by the BIR showing basic information about the taxpayer
and the computation of his tax liability, which is required to be filed within the periods prescribed
by law and used as the basis for payment of tax assess by the taxpayer. Two types of returns are
(a) original and (b) amended return (Mamalateo, 2014).

In order that the filing of return may serve as the starting point of the period of the making of
assessment, the return must be substantially complete as to include the needed details on which
the full assessment may be made.

If the taxpayer files an amended return which is substantially different from the original return, the
period of prescription of the right to issue the deficiency assessment should be counted from the
filing of the amended return and not the original return. To hold otherwise would pave the way for
taxpaeyrs to evade payment of taxes by simply reorting in their original return heavy losses and
amending the same after the CIR has lost his authority to assess the proper tax.

Amendment considered Substantial

1. There is under declaration (exceeding 30% of that declared) of taxable sales, receipts or
income; or
2. There is overstatement (exceeding 30% of deductions) (Sec. 248(B), NIRC).

If the taxpayer files the wrong return, it is as though the taxpayer filed no return at all. This is
true even if all the necessary information was reflected in the erroneous return. In situations like
this, the 10-year prescriptive period will apply (Ingles, 2015, citing several cases).

When is a return considered filed for purposes of prescription?

When the return is valid and appropriate.
1. Valid – When it has complied substantially with the requirements of law.
2. Appropriate – When it is a return for the particular tax required by law.

What is the effect of filing a defective return?

If the return was defective, it is as if no return was filed. The corollary prescription will be
10 years from and after the discovery of the failure or omission and not the 3 year prescriptive
period. There is an omission when the taxpayer failed to file a return for the particular tax required
by law. (Butuan Sawmill v. CTA, GR L-20601, Feb. 28, 1966)

Waiver of the Statute of Limitations

Section 222 (b) of the NIRC, as amended, provides that the CIR or her duly authorized
representative and the taxpayer or its authorized representative may agree in writing as to a specific
future date within which to assess the taxpayer for internal revenue taxes for a given taxable period,
before the expiration of the period to assess taxes.

The waiver of the Statute of Limitations should not be construed as a waiver of the right to
invoke the defense of prescription but rather an agreement between the taxpayer and the BIR to
extend the period to a date certain, within which the latter could still assess or collect taxes due.
The waiver does not mean that the taxpayer relinquishes the right to invoke prescription
unequivocally (BPI v. CIR, GR No. 139736, October 17, 2005).

A waiver of the statute of limitation under the NIRC, to a certain extent, is a derogation of
the taxpayer’s right to security against prolonged and unscrupulous investigations and must
therefore be carefully and strictly construed (Phil. Journalists, Inc. v. CIR, G.R. No. 162852,
December 16, 2004).

The CIR cannot validly agree to reduce the prescriptive period to less than that granted by
law because it would result to the detriment of the State. Such reduction diminishes the
Government’s opportunity to collect taxes (Republic v. Lopez, G.R. L-18007, March 30, 1967).

The taxpayer’s waiver of statute of limitation does not cover taxes already prescribed
(Republic v. Lim De Yu, G.R. No. L-17438, April 30, 1964).

Extended assessement

An assessment issued as a result of the waiver of the prescriptive period is known as an

“extended assessment”, which has a prescriptive period for collection of five (5) years from the
time of issuance of the assessment.

Guidelines on proper execution of waivers

1. The waiver may be, but not necessarily, in the form prescribed by RMO No. 20-90 or
RDAO No. 05-01. The taxpayer's failure to follow the aforesaid forms does not invalidate
the executed waiver, for as long as the following are complied with:
a. The Waiver of the Statute of Limitations under Section 222 (b) and (d) shall be
executed before the expiration of the period to assess or to collect taxes. The date
of execution shall be specifically indicated in the waiver.
b. The waiver shall be signed by the taxpayer himself or his duly authorized
representative. ln the case of a corporation, the waiver must be signed by any of its
responsible officials;
c. The expiry date of the period agreed upon to assess/collect the tax after the regular
three-year period of prescription should be indicated;
2. Except for waiver of collection of taxes which shall indicate the particular taxes assessed,
the waiver need not specify the particular taxes to be assessed nor the amount thereof, and
it may simply state "all internal revenue taxes" considering that during the assessment
stage, the Commissioner of lnternal Revenue or her duly authorized representative is still
in the process of examining and determining the tax liability of the taxpayer.
3. Since the taxpayer is the applicant and the executor of the extension of the period of
limitation for its benefit in order to submit the required documents and accounting records,
the taxpayer is charged with the burden of ensuring that the waivers of statute of limitation
are validly executed by its authorized representative. The authority of the taxpayer's
representative who participated in the conduct of audit or investigation shall not be
thereafter contested to invalidate the waiver.
 4. The waiver may be notarized. However, it is sufficient that the waiver is in writing as
specifically provided by the NIRC, as amended.
5. Considering that the waiver is a voluntary act of the taxpayer, the waiver shall take legal
effect and be binding on the taxpayer upon its execution thereof.
6. lt shall be the duty of the taxpayer to submit its duly executed waiver to the CIR or officialis
previously designated in existing issuances or the concerned revenue district officer or
group supervisor as designated in the Letter Of Authority/Memorandum of Assignment
who shall then indicate acceptance by signing the same. Such waiver shall be executed and
duly accepted prior to the expiration of the period to assess or to collect. The taxpayer shall
have the duty to retain a copy of the accepted waiver.
7. Note that there shall only be two (2) material dates that need to be present on the waiver:
a. The date of execution of the waiver by the taxpayer or its authorized representative;
and
b. The expiry date of the period the taxpayer waives the statute of limitations
8. Before the expiration of the period set on the previously executed waiver, the period earlier
set may be extended by subsequent written waiver (RMO 14-2016).

Effect of failure to conform to the requirements of waiver of the statute of limitations

It is invalid and ineffective to extend the prescriptive period to assess taxes (CIR v. Next
Mobile Inc., G.R. No. 212825, December 07, 2015).

Taxpayer estopped from questioning validity of waivers

In case a taxpayer executed five waivers and delivered them to CIR, one after the other and
allowed the latter to rely on them and did not raise any objection against their validity until he was
assessed, said taxpayer is estopped from questioning the validity of its waivers. The application of
estoppel is necessary to prevent the undue injury that the government would suffer because of the
cancellation of assessment of taxpayer’s tax liabilities (CIR v. Next Mobile Inc., G.R. No. 212825,
December 07, 2015).

Taxpayer is also estopped from questioning the waiver if it had impliedly admitted the
validity of the said waivers. Had it believed that the waiver was invalid and that the period to assess
had effective prescribed, the taxpayer could have refused to make any payment based on any
assessment against it (RCBC v. CIR, G.R. 170257, September 7, 2011).

NOTE: The period to assess can likewise be suspended under Section 223 of the NIRC. Refer to
“Suspension of prescriptive periods” for complete discussion.

False, fraudulent, and non-filing of returns

FALSE RETURN FRAUDULENT RETURN FAILURE TO FILE A RETURN

Contains wrong Intentional and deceitful with the Omission to file a return in the
information due to sole aim of evading the correct tax date prescribed by law
mistake, carelessness or due
ignorance (Aznar v. CTA,
G.R. No. L-20569, August
23, 1974)
Deviation from the truth, Intentional or deceitful entry with Omission can be intentional or not
whether intentional or not intent to evade the taxes due.
Does not make the Filing a fraudulent return will make The mere omission is already a
taxpayer criminally liable the taxpayer liable for the crime of violation regardless of the
moral turpitude as it entails fraudulent intent or willfulness of
willfulness and fraudulent intent on the individual (CIR vs. Bank of
the part of the individual (Republic Commerce, CTA EB Case No.
v. Marcos II, G.R. Nos. 130371 & 654, March 14, 2011).
130855, August 4, 2009, 595 SCRA
 43).
Not subject to 50% Subject to 50% penalty surcharge Not subject to 50% penalty
penalty surcharge surcharge
The tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the falsity, fraud or
omission.

Fraud not presumed for neglect to file required return

Fraud is a question of act and the circumstances constituting fraud must be alled and proved
in the court. Fraud is never lightly to be presumed because it is a serious charge. Hence, if fraud is
not proven, the Government cannot use the 10-year period to make the assessment (CIR v. Ayala
Securities Corporation, G.R. No. L-29485, March 31, 1976).

It is not enough that fraud is alleged in the complaint, it must be established (Republic v.
Lim De Yu, G.R. L-17438, April 30, 1964, wherein the BIR was not even sure of the net income
of the taxpayer).

Claiming fictitious expenses as deductions is a proof of falsity or fraud in the income tax
return (Tan Guan v. CTA, G.R. L-23676, April 27, 1967).

An honest mistake as to the valuation of the property cannot be indicative of fraud

(Republic v. Heirs of Jalandoni, G.R. No. L-18384, September 20, 1965).

Return considered fraudulent

Fraud is never presumed and the circumstances constituting it must be alleged and proved
to exist by clear and convincing evidence. It may be established by the:
1. Intentional and substantial understatement of tax liability by the taxpayer;
2. Intentional and substantial overstatement of deductions of exemptions; and/or
b. Recurrence of the above circumstances

Return considered false

When there is a deviation from the truth due to mistake, carelessness or ignorance.

Q: What constitutes prima facie evidence of a false or fraudulent return to justify the imposition
of a 50% surcharge on the deficiency tax due from a taxpayer? Explain. (2002 Bar)

A: There is a prima facie evidence of false or fraudulent return when the taxpayer substantially
underdeclared his taxable sales, receipts or income, or substantially overstated his deductions. The
taxpayer’s failure to report sales, receipts or income in an amount exceeding 30% of that declared
per return, and a claim of deduction in an amount exceeding 30% of actual deduction shall render
the taxpayer liable for substantial underdeclaration and overdeclaration, respectively, and will
justify the imposition of the 50% surcharge on the deficiency tax due from the taxpayer (Sec. 248,
NIRC).

Importance of distinguishing between a “false return” and a “fraudulent return”

The two returns are different but have the same prescriptive periods to be assessed, which
is 10-years. The importance in distinguishing the two lies in the application of the penalty
surcharge.

Actual fraud, not constructive fraud, is subject to 50% penalty surcharge. For the surcharge
to apply, it must be intentional fraud.

Negligence, whether slight or gross, is not equivalent to fraud with intent to evade the tax
contemplated by law (Ingles, 2015).
 Just because the 10-year period applies, it doesn’t nescessarily mean that the taxpayer will
be penalized with the 50% surcharge. When a taxpayer files a false return and not a fraudulent
one, the 10-year period applies but the 50% surcharge will not (Aznar v. CTA, G.R. No. L-20569,
August 23, 1974).

When is an amendment considered substantial?

1. There is under declaration (exceeding 30% of that declared) of taxable sales, receipts
or income; or
2. There is overstatement (exceeding 30% of deductions) (Sec. 248, NIRC)

When does the taxpayer’s liability attach?

Only after receipt of the letter-assessment was coupled with the willful refusal to pay the
taxes due within the allotted period.

Suspension of running of statute of limitations

Grounds for suspension of the prescriptive periods?

1. When taxpayer cannot be Located in the address given by him in the return, unless
he informs the CIR of any change in his address thru a written notice to the BIR;
2. When the taxpayer is Out of the Philippines (Sec. 223, NIRC)
4. When the Warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative or a member of his household with sufficient discretion and
no property is located (proper only for suspension of the period to collect);
5. Where the CIR is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court for 60 days thereafter, such as where there is a Pending
petition for review in the CTA from the decision on the protested assessment
(Republic v. Ker & Co., GR L-21609);
6. Where CIR and the taxpayer Agreed in writing for the extension of the assessment,
the tax may be assessed within the period so agreed upon (Sec. 222 [b], NIRC);
7. When the taxpayer Requests for reinvestigation which is granted by the
Commissioner (Collector v. Suyoc Consolidated Mining Co., GR L-11527, Nov. 25,
1958);
Note: A request for reconsideration alone does not suspend the period to
assess/collect.
8. When there is an Answer filed by the BIR to the petition for review in the CTA
(Hermanos v. CIR, GR. No. L-24972. Sept. 30, 1969) where the court justified this
by saying that in the answer filed by the BIR, it prayed for the collection of taxes.

When Commissioner is prohibited from making the assessment or collection of taxes in a

proceeding in court

When in the opinion of the CTA, the collection by the BIR may jeopardize the interest of
the Government and/or the taxpayer, the Court in any stage of the proceeding may suspend the
said collection and require the taxpayer either to deposit the amount claimed or to file a surety
bond for not more than double the amount with the Court (Sec. 11, R.A. No. 1125).

Q. Do the provisions of the Civil Code on suspension of the prescriptive period by extrajudicial
demand suspend the running period of prescription of actions in tax collection cases?

A. NO. The provisions of the NIRC being a special law take precedence over the provisions of the
Civil Code, a general law. Furthermore, the provisions of the NIRC were crafted to ensure
expeditious collection of tax money to ensure the continuous delivery of government services.

TAX COLLECTION

The government is given two ways to collect:

1. Summary or administrative remedies, and
2. Judicial remedies
 The legislature may adopt any reasonable method for the effective enforcement of the
collection of taxes, subject to:
1. The right of the person to notice; and
2. The opportunity to be heard.

The power to impose taxes is clothed with the implied authority to devise ways and means
to accomplish collection in the most effective manner. Without this implied power, the ends of
government may fail. (CIR v. Pineda, GR L-22734, Sept. 15, 1967)

Requisites:
Collection is only allowed when there is already a final assessment made for the
determination of the tax due. Assessments are deemed final when:
1. The taxpayer fails to file a protest 30 days from receipt of the assessment
2. After the 180 day period and the CIR has not yet acted on the protest the taxpayer
fails to appeal it
3. After 30 days from the receipt of the decision of the CIR the taxpayer fails to appeal.

Exception:
Judicial action to collect the tax liability is permitted even without an assessment when the
taxpayer:
1. Files a false or fraudulent return with intent to evade the tax, or
2. Fails to file a return.

In the above cases, collection must be done within 10 years after the discovery of falsity, fraud,
or omission.

However, once an assessment is made against the taxpayer, the government cannot avail of the
10-year period in Section 222(A). If the assessment is made, then the period to collect is five years
from the assessment and not 10 years (Ingles, 2015).

In sum, as a rule, the government can only file a proceeding in court to collect once the
assessment has become final and unappealable.

Collectibility of tax liability arises in the following instances:

1. Self-assessed tax shown in the return was not paid within the date prescribed by law -
Internal revenue taxes are self-assessing and no further assessment by the government is
required to create the tax liability. The taxpayer is immediately considered as deliquent
with respect to the unpaid amount of tax;
2. When final assessment is not protested administratively within 30 days from the date of
receipt;
3. Failure to question assessment served upon the decedent’s heirs (Marcos II v. Court of
Appeals, 273 SCRA 47);
4. Non-compliance with the condition laid in the approval of protest - construed as if no
protest was filed;
5. Failure to file a timely appeal to the CTA on the final decision of the Commissioner or his
authorized representative on the disputed assessment.

Prescriptive periods

General Rule:
1. Where an assessment was made - period for collection (by distraint or levy or by a
proceeding in court) is within 3 years following the assessment has been released,
mailed, or sent. (BPI v. CIR, GR 139736, Oct. 17, 2005)
2. In the case of a false or fraudulent return with intent to evade tax or of failure to file
a return, a proceeding in court for the collection of such tax may be filed without
assessment, at any time within 10 years after the discovery of the falsity, fraud or
omission. (Sec.222 [a], NIRC)
Exceptions
1. The same exceptions relative to the prescriptive periods for assessment are also
applicable.
2. If the government makes another assessment or the assessment made is revised, the
prescriptive period for collection of such tax should be counted from the date the last
or revised assessment was made.
3. Where an action is brought to enforce a compromise, the prescriptive period is 10
years from the time the right of action accrues as fixed in the Civil Code. (Art. 1144
[1], NCC)

When it comes to self-assessed taxes where a return is filed by the taxpayer. The taxpayer
is the one to assess himself and such assessment is deemed to be adopted by the government. Thus,
the filing of the return would also be the date of the assessment.

Collection With Prior Assessment Collection should be made within 5 years from
the date of assessment or from the filing of the
return, either by:
1. Summary proceedings; or
2. Judicial proceedings (Sec.222 [c],
NIRC)

Collection Without Prior Assessment Collection should be made within 10 years

after the discovery of falsity or fraud or non-
filing and it should only be by judicial
proceeding (Sec. 222 [a], NIRC)

The assessment of the tax is deemed made and the period for collection of the assessed tax
begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the
taxpayer. Thus, failure of the BIR to file a warrant of distraint or serve a levy on taxpayer's
properties nor file collection case within the prescriptive period is fatal.

Also, the attempt of the BIR to collect the tax through its Answer with a demand for the
taxpayer to pay the assessed DST in the CTA is not deemed compliance with the NIRC which
provides that assessed tax must be collected by distraint or levy and/or court proceeding within the
prescribed period. (China Banking Corporation vs. Commissioner of Internal Revenue, G.R. No.
172509, February 04, 2015).

Tax is deemed collected for purposes of prescriptive periods

1. If collection is through summary remedies (distraint and levy), when the government avails
of a distraint and levy procedures prescribed under NIRC.
- Distraint and levy proceedings are begun by the issuance of warrant and service
thereof to the taxpayer (BPI v. CIR, G.R. No. 139736, October 17, 2005).
2. If collection is through judicial remedies (civil or criminal), when the government files the
complaint with the proper court
- A judicial action for the collection of a tax may be initiated by:
i. Filing a complaint with the proper regular trial court, or where the
assessment is appealed to the CTA; or
ii. By filing an answer to the taxpayer’s pettion for review wherein payment
of the tax is prayed for (PNOC v. CA, G.R. No. 109976, April 26, 2005).

SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court (EXCEPT the CTA)
shall have the authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by this Code.

The government is never estopped (because of the Lifeblood Doctrine; except if the
collection period has already expired) to collect legitimate taxes because of the error committed
by its agent.
Action of Commissioner on request for reinvestigation
The Commissioner of Internal Revenue is not required by the Tax Code to rule (or decide)
first on a taxpayer’s request for reinvestigation before he can go to court of the purpose of
collecting the tax assessed. On the contrary, Section 218 withholds from all courts, except the
Court of Tax Appeals, the authority to restrain the collection of any national internal revenue tax,
fee or charge thereby indicating the legislative policy to allow the Commissioner much latitude in
the speedy and prompt collection of taxes. Taxes, being the chief sources of revenue for the
Government to keep it running, must be paid immediately and without delay.

The “court” mentioned by Section 218 refers only to ordinary courts because under Section
11 of RA No. 1125, as amended, the Court of Tax Appeals is empowered to suspend the
collection of internal revenue taxes and customs duties in cases pending appeal subject to certain
conditions ([1] The appeal is meritorious [2] Taxpayer must file a bond). The legislative policy is
to allow the CIR much latitude on the prompt and speedy collection of taxes.