ASSESSMENT Concept of assessment The notice that the amount therein stated is due as a tax, with a demand for

payment within a stated period of time. 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.

2. A letter-notice that did not provide, even in a general way, reasons why deficiency taxes were being collected 3. An affidavit by a revenue officer stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion. 4. A pre-assessment notice signed by a revenue official. 5. A deficiency assessment outside the scope of the letter of authority (a nullity). The following may be considered assessments: 1. A letter from the Commissioner demanding the amount of a rubber check previously paid by a taxpayer, if it declares the tax to be payable and demands the settlement thereof. 2. A preliminary collection letter, if it was the initial notice received by the taxpayer regarding his internal revenue tax liabilities, a. and if it can be proven that the taxpayer did not receive any assessment notice, b. and no follow up letter was sent nor was a preliminary conference arranged. An assessment is relevant: 1. as an essential step towards the initiation of administrative proceeding or judicial action to collect taxes, 2. to enforce taxpayer liabilities and matters relating to it (imposition of surcharges and interest), 3. to apply the statute of limitations, 4. to the establishment of tax liens, 5. in estimating the revenues that may be collected by the government in the coming year.

The official action of the administrative officer in determining the tax due from a taxpayer. 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; and 3. Contain a demand for payment within the prescribed period. The following are not considered assessments: 1. A letter containing a computation of supposed liabilities, giving the taxpayer an opportunity to show the incorrectness of the findings, or urging the taxpayer to produce his books or records for verification, or to present his side.

Constructive methods of income determination 1. Percentage method The computed amount of revenues based on the percentage computation is compared to the amount of revenues reflected on the return. The percentages used may be obtained from the taxpayer, industry publication, prior years audit results, or third parties. The comparison will provide an indication on the possibility of revenue being understated. 2. Net worth method A method of reconstructing income which is based on the theory that if the taxpayers net worth has increased in a given year in an amount larger than his reported income, he has understated his income for that year. The net worth on a fixed starting date is compared with the net worth on a fixed ending date. Any increase in net worth is presumed to be income not declared for tax purposes. The difficulty of establishing the opening net worth of a tax payer has led to the Cohan Rule which is the use of estimates or approximations of the amount of cash and other asserts where the taxpayer lacks adequate records. 3. Bank deposit method The bank records of the taxpayer are analyzed and the BIR estimates income on the basis of the total bank deposits after eliminating non-income items. This method stands on the premise that deposits represent taxable income unless otherwise explained as being non-taxable items. This method may be used only where the BIR has been legally allowed access to the taxpayers bank records. 4. Cash expenditure method Assumes that the excess of a taxpayers expenditures during the tax period over his reported income for that period is taxable to the extent not disproved otherwise

5. Unit and value method The determination or verification of gross receipts may be computed by applying price and profit figures to the known ascertainable quality of business of the taxpayer. 6. Third party information or access to records method The BIR may require third parties, public or private to supply information to the BIR, and thus, 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 Bangko Sentral ng Pilipinas and government-owned or controlled corporations, 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 or multinational companies, joint accounts, associations, joint ventures or consortia and registered partnerships, and their members. 7. Surveillance and assessment method A letter sent by the Bureau of Internal Revenue to a taxpayer asking him to explain within a period of fifteen (15) days from receipt why he should not be the subject of an assessment notice. It is part of the due process rights of a taxpayer. As a general rule, the BIR could not issue an assessment notice without first issuing a pre-assessment notice because it is part of the due process rights of a taxpayer to be given notice in the form of a pre-assessment notice, and for him to explain why he should not be the subject of an assessment notice.

Inventory method for income determination Also called Net worth method; see above

a. to obstruct the proceedings for the collection of the tax for the past or current quarter or year; or b. to render the same totally or partly ineffective unless such proceedings are begun immediately (Sec. 6 (D), R.A. 8424) Jeopardy assessment is an indication of the doubtful validity of the assessment, hence it may be subject to a compromise. [Sec. 3.1 (a), Rev. Regs. No. 6-2000] Tax delinquency and tax deficiency Delinquency Tax Deficiency Tax

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 taxpayers 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. An assessment made demanding immediate payment of the tax due without the usual formalities in instances when the Commissioner believes that if the tax will be collected under normal procedures, the collection of such tax is at risk which might result in loss to the government. 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. Instances when jeopardy assessment may be issued: When it shall come to the knowledge of the Commissioner that a taxpayer is: 1. retiring from business subject to tax; or 2. intending (a) to leave the Philippines or remove his property there from; or (b) to hide or conceal his property; 3. performing any act tending

A taxpayer is considered a. The amount by which the delinquent in the payment of tax imposed by law as taxes when: determined by the CIR or his authorized representative a. Self-assessed tax per return exceeds the amount shown filed by the taxpayer on the as tax by the taxpayer upon prescribed date was not paid his return (The taxpayer filed at all (The taxpayer did not a return but the same was file a return ) or only partially deficient. Deficiency is the paid; or difference between the tax due and the tax paid.); or b. Deficiency tax assessed by the BIR becomes final and b. If no amount is shown as executory. 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 Collection

Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement a) Power of the Commissioner to obtain information, and to summon/examine, and take testimony of persons The Commissioner is authorized: (A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry; (B) 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 BangkoSentralngPilipinas and government-owned or -controlled corporations, 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; (C) 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 Commissioner 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;

Can immediately be collected administratively through the issuance of a warrant ofdistraint and levy,and/or judicial action Civil Action The filing of a civilaction for thecollection of the delinquent tax in theordinary court is aproper remedy The filling of a civil action at the ordinary court for collection during the pendency of protest 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 penalties such as 25% surcharge, interest, and compromise penalty A deficiency tax is generally not subject to the 25% surcharge, although subject to interest and compromise penalty

Grounds for suspension of prescriptive periods: (D) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; and (E) 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. The Commissioner has no authority to inquire into bank deposits other than as provided for in Section 6(F) of this Code. When assessment is made When it is released, mailed or sent by the collector of internal revenue to the taxpayer within the three-year or ten-year period, as the case may be. Prescriptive period for assessment (1) False, fraudulent, and non-filing of returns Ten (10) years from the discovery of the falsity, fraud or omission to file the return. a) Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter b) Taxpayer requests for Reinvestigation which is granted * A request for reconsideration alone does not suspend the period to assess/collect. c) Taxpayer cannot be located in the address given in the return filed, except if the taxpayer informs the Commissioner of a change in address the prescriptive period will not be suspended d) When the warrant is duly served upon the taxpayer and no property could be located. (proper only for suspension of the period to collect) e) When the taxpayer is out of the Phils. f) When there is an Answer filed by the BIR to the petition for review in the CTA where the court justified this by saying that in the answer filed by the BIR, it prayed for the collection of taxes. General provisions on additions to the tax a) Civil penalties Suspension of running of statute of limitations b) Interest 1) Periods suspended: (a) periods for assessment (b) beginning of distraint or levy (c) proceeding in court for collection * This is an increment on any unpaid amount of tax, assessed at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed y rules and regulations, from the date prescribed for payment until the amount is fully paid. (Sec. 249 [A], 1997 NIRC)

Additions to the tax consist of the: (1) civil penalty, otherwise known as surcharge, which may either be 25% or 50 % of the tax depending upon the nature of the violation; (2) interest either for a deficiency tax or delinquency as to payment Interest is classified into: 1. Deficiency interest - Any deficiency in the tax due shall be subject to the interest of 20% per annum, or such higher rate as may be prescribed by rules and regulations, which shall be assessed and collected from the date prescribed for its payment until the full payment thereof (Sec. 249 [B], 1997 NIRC) 2. Delinquency interest - This kind of interest is imposed in case of failure to pay: (3) other civil penalties or administrative fines such as for failure to file certain information returns and violations committed by withholding agents. General Considerations on the Addition to tax a. Additions to the tax or deficiency tax apply to all taxes, fees, and charges imposed in the Tax Code. b. The amount so added to the tax shall be collected at the same time, in the same manner, and as part of the tax. c. If the withholding agent is the government or any of its agencies, political subdivisions or instrumentalities, or a government owned or controlled corporation, the employee thereof responsible for the withholding and remittance of the tax shall be personally liable for the additions to the tax prescribed (Sec. 247[b], 1997 NIRC) such as the 25%

surcharge and the 20% interest per annum on the delinquency (Secs. 248 and 249 [C], 1997 NIRC)

Assessment process Assessments prima facie correct. Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. (Sy Po v. CTA, GRN L- 81446 August 18, 1988.) 1. Tax audit the process of examining, going over, or scrutinizing the books and records of the taxpayer to ascertain the correctness of the tax declared and paid by the taxpayer. It can only be performed upon a Letter of Authority issued by the Commissioner or Regional Director. 2. Notice of informal conference A written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and accounting records indicate that additional taxes or deficiency assessments have to be paid. If, after the culmination of an audit, a Revenue Officer recommends the imposition of deficiency tax assessments, this recommendation is communicated by the Bureau to the taxpayer concerned during an informal conference called for this purpose, the taxpayer shall have 15 days from receipt of the notice of informal conference to explain his side. 3. Issuance of preliminary assessment notice (PAN) Communication issued by the Regional Assessment Division or any other concerned BIR office, informing a taxpayer who has been audited of the findings of the Revenue Officer, following the review of these findings. The assessment shall be in writing, and should inform the taxpayer of the law and the facts on which the assessment is made; otherwise, the assessment is void.

Exceptions to Issuance of PAN (a) The finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or (b) A discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or (c) A taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or (d) The excise tax due on excisable articles has not been paid; or(e) The article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. Sec. 3.1.3, RR 12-99 4. Reply to PAN Within 15 days, the taxpayer has to file a written reply contesting the proposed assessment if he disagrees with the findings of the PAN. For purposes of contesting a PAN, the regulations used the word reply to distinguish it from the written objections to a FAN wherein the generic word protest or specific term request for reconsideration or request for reinvestigation is used. Failure of the taxpayer to file a reply would now enable the RO to issue a FAN. However no liability for additional or deficiency tax arises from such failure. If fails to respond, he shall be considered in default. A formal letter of demand or assessment notice shall be issued by the Assessment Division of the Revenue Regional Office or the Commissioner or his authorized representative.

5. Final Assessment Notice (FAN) - Issuance of formal letter of demand and assessment notice General rule: Taxes are self-assessing and do not require the issuance of an assessment notice in order to establish the tax liability of a taxpayer. Exceptions: 1. Tax period of a taxpayer is terminated (Sec. 6 (d), NIRC) 2. Deficiency tax liability arising from a tax audit conducted by a BIR (sec 56b, NIRC) 3. Tax lien (Sec. 219, NIRC) 4. Dissolving Corporation (Sec. 52 (c), NIRC) Notice of Assessment is a formal letter of demand where a declaration of deficiency taxes is issued to a taxpayer who fails to respond to a pre-assessment notice within the prescribed period of time, or whose reply to the PAN was found to be without merit. This is commonly known as the Final Assessment Notice. An assessment contains not only a computation of under declaration of taxable sales, receipts or income, or a substantial overstatement of deductions. 6. Disputed assessment When the taxpayer, indicates its protest against the delinquent assessment of the RO and requests for reconsideration, through a letter. After the request is filed and received by the BIR, the assessment becomes a disputed assessment. CIR v. Isabela Cultural Corp., GR 135210, July 11, 2001

7. Administrative decision on a disputed assessment * The taxpayer may elevate the protest to the CIR within 30 days from receipt of the decision for a request for reconsideration and that his case is referred to the Bureaus Appellate Division. Otherwise, it becomes final and appeal to the CTA may be taken. But where the taxpayer adversely affected has not received the decision or ruling, he could not appeal the same to the CTA within 30 days from notice. Hence, it could not become final and executory (Republic vs. De la Rama, 18 SCRA 861) Motion for reconsideration suspends the running of the 30 day period of perfecting an appeal. Must advance new grounds not previously alleged to toll the reglementary period; otherwise, it would be merely pro-forma(Roman Catholic Archbishop vs. Coll., L-16683, Jan. 31, 1962)

Protesting assessment It is the act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal revenue taxes as shown in the notice of assessment and letter of demand. Protest of assessment by taxpayer Protest is a vital document which is a formal declaration of resistance of the taxpayer. It is a repository of all arguments. It can be used in court in case of administrative remedies have been exhausted. It is also the formal act of the taxpayer questioning the official actuations of the CIR. This is equivalent to a pleading. Protested assessment The taxpayer files an administrative protest against the assessment. Such protest may either be a request for reconsideration or for reinvestigation. Prescriptive period provided by law to make collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer protests the assessment and requests for its cancellation. When to file a protest : Within thirty (30) days from receipt of assessment. Submission of documents within 60 days from filing of protest All relevant documents should be filed, otherwise assessment becomes final and cannot be appealed.

Submission of documents within the 60 days period is optional to the taxpayer. The relevant supporting documents mentioned in the law refers to such documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be submitted, otherwise the taxpayer would always be at the mercy of the BIR which may require production of such documents which taxpayer could not produce. (Standard Chartered Bank v. CTA, Case No. 5696, Aug. 16, 2001) Forms of protest Request for reconsideration A claim for re-evaluation of the assessment based on existing records without need of additional evidence. It may involve a question of fact or law or both. It does not toll the statute of limitations. Request for reinvestigation A claim for re-evaluation of the assessment based on newly-discovered or additional evidence. It may also involve a question of fact or law or both. It tolls the statute of limitations.

Effect of failure to protest It makes the FAN final and executory, and the taxpayer loses his right to contest the assessment, at the administrative and judicial levels. Thus, the filing of the protest within 30 days from the receipt of the assessment would be mandatory for the taxpayer to use the other administrative and judicial remedies.

Direct Denial Rendition of decision by Commissioner a. Denial of protest Commissioners actions equivalent to denial of protest: 1. Filing of criminal action against taxpayer 2. Issuing a warrant of distraint and levy These actions of the CIR serve as bases for appeal to the CTA. b. Inaction by Commissioner The protest is not acted upon by the Commissioner within 180 days from submission of documents. Remedies of taxpayer to action by Commissioner a) In case of denial of protest * Appeal the decision to the Court of Tax Appeals (CTA) within 30 days from receipt of decision denying the protest. * If the taxpayer elevates his protest to the CIR within 30 days from date of receipt of the final decision of the CIRs duly authorized representative, such decision will not be final and executory. b) In case of inaction by Commissioner within 180 days from submission of documents The taxpayer has two alternative options: 1. File a petition for review with the CTA within 30 days after the expiration of the 180-day period; or 2. Wait for the final decision of the CIR on the disputed assessment and appeal the final decision to the CTA within 30 days from the receipt of the decision. The decision of the Commissioner or his duly rep. shall a. state the facts, applicable law, rules and regulations or jurisprudence on which his protest is based, otherwise the protest shall be considered void and without force and effect, in which case the same shall not be considered a decision a disputed assessment and b. that the same is his final decision.

Indirect Denial a. Commissioner did not rule on the taxpayers MR of the assessment it was only when respondent received summons on the civil action for the collection of deficiency income tax that the period to appeal commenced to run. b. Referral by the Commissioner of request for reinvestigation to the Solicitor General c. Reiterating the demand for immediate payment of the deficiency tax due to taxpayers continued refusal to execute waiver d. Preliminary collection letter may serve as assessment notice

Effect of failure to appeal The decision or assessment becomes final and executory. In an action for the collection of the tax by the government, the taxpayer is barred from re-opening the question already decided. The assessment is considered correct which may be enforced by summary or judicial remedies. In a proceeding for collection of tax by judicial action, the taxpayers defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action. The assessment which has become final and executory cannot be superseded by a new assessment.

Collection 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 failed to file a protest 30 days from receipt of the assessment 2. After the 180 day period and the CIR hasnot yet acted on the protest the taxpayer fails to appeal it 3. After 30 days from the receipt of thedecision of the CIR the taxpayer fails to appeal. Prescriptive periods Distraint of personal property including garnishment

Summary remedy of distraint of personal property Procedure for distraint and garnishment The officer serving the warrant shall make an account of the goods distrained. A copy signed by him shall be left with the owner or to the person in possession of the goods to which list shall be added a statement of the sum demanded and note of the time and place of sale. Stocks and securities warrant of distraint shall be served upon the taxpayer and upon the president, manager, treasurer or other responsible officer of cooperation, company or association, which issued the said stocks.

Assessment was made

False or fraudulent return or failure to file a return, A proceeding in court for the collection of such tax may be filed without assessment - at any time within ten (10) years after the discovery of the falsity, fraud or omission.

By distraint or levy or by a proceeding in court- within three (3) years following the assessment released, mailed, or sent.

Debts and Credits serving the warrant of distraint upon the taxpayer and the person owing such debts. Such warrant is sufficient authority to the person owning the debts or having possession or under his control any credits. The warrant of distraint is sufficient authority to such person to pay the Commissioner; Bank Accounts serving the warrant upon the taxpayer and upon the president, manager, treasurer and other responsible officer of the bank. Upon receipt of the warrant, the bank shall turn over to the Commissioner the amount sufficient to satisfy the claim.

Purchase by the government at sale upon distraint Sale of property distrained and disposition of proceeds a. Notice of the sale must specify the time and place of sale and the articles distrained; b. The Notice must be exhibited in not less than 2 public places; one of such places shall be at the Office of the Mayor; c. The time of sale shall not be less than 20 days after notice to the owner or possessor of the property and the publication or posting of such notice. d. The sale shall be at public auction to the highest bidder for cash or with the approval of the Commissioner, through duly licensed commodity or stock exchanges. e. In case of stocks or securities, the officer making the sale shall execute a bill of sale which shall deliver to the buyer and a copy thereof furnished the corporation, company, or association which issued the stocks or other securities. f. Residue over and above what is required to pay the entire claim, including expenses, shall be returned to the owner of the property sold. Release of distrained property upon payment prior to sale If at any time prior to the consummation of the sale, all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner. a. When the amount for the bid property under distraint is not equal to the amount of the tax; b. When the amount for the bid is very much less than the actual market value of the articles for sale; The property purchased may be resold by the Commissioner or his deputy. Report of sale to BIR Within two (2) days after the sale, the officer making the same shall make a report of his proceedings in writing to the Commissioner and shall himself preserve a copy of such report as an official record. Constructive distraint to protect the interest of the government The Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him. The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same ;in any manner whatever, without the express authority of the Commissioner.

In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnesses, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint. Summary remedy of levy on real property Advertisement and sale 1. Twenty days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of the sale and such advertisement shall be for a period of at least 30 days. 2. The notice of sale shall: be posted at the main entrance of the municipal building; and public and conspicuous place in the barrio or district; and be published once a week for three consecutive weeks in a newspaper of general circulation. 3. Right of Pre-emption At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties, and interest.

4. 5 days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the Revenue Collection Officer (RCO), the RDO and Revenue Regional Director. 5. A certificate of sale shall be delivered to the purchaser. 6. Excess of the proceeds of the sale shall be delivered to the taxpayer.

Redemption of property sold Within one (1) year from the date of sale, the delinquent taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed, and said property thereafter shall be free from the lien of such taxes and penalties. The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption.

Final deed of purchaser In case the taxpayer shall not redeem the property, the Revenue District Officer shall, as grantor, execute a deed conveying to the purchaser so much of the property as has been sold, free from all liens of any kind whatsoever, and the deed shall succinctly recite all the proceedings upon which the validity of the sale depends. Forfeiture to government for want of bidder Remedy of enforcement of forfeitures Action to contest forfeiture of chattel In case of the seizure of personal property under claim of forfeiture, the owner desiring to contest the validity of the forfeiture may, at any time before sale or destruction of the property, bring an action against the person seizing the property or having possession thereof to recover the same, and upon giving proper bond, may enjoin the sale; or after the sale and within six (6) months, he may bring an action to recover the net proceeds realized at the sale. Resale of real estate taken for taxes The Commissioner shall have charge of any real estate obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties or costs or in compromise or adjustment of any claim therefore, and said Commissioner may, upon the giving of not less than twenty (20) days notice, sell and dispose of the same of public auction or dispose of the same at private sale.

In either case, the proceeds of the sale shall be deposited with the National Treasury, and an accounting of the same shall be rendered to the Chairman of the Commission on Audit. When property to be sold or destroyed Upon forfeiture, distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus used in or about the illicit production of such articles may be destroyed by order of the Commissioner, when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law. All other articles subject to excise tax, which have been manufactured or removed in violation of the Code, as well as dies for the printing or making of internal revenue stamps and labels which are in imitation of or purport to be lawful stamps, or labels may, upon forfeiture, be sold or destroyed in the discretion of the Commissioner (Sec. 225) Forfeited property shall not be destroyed until at least twenty (20) days after seizure. Disposition of funds recovered in legal proceedings or obtained from forfeiture All judgments and monies recovered and received for taxes, costs, forfeitures, fines and penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required to be paid and shall be accounted for and dealt with the same way. *** see related discussions under Tax Remedies of the Government

Requirements for refund as laid down by cases 1) Necessity of written claim for refund Refund This requirement is mandatory. Except: Grounds and requisites for refund Grounds a. Tax is erroneously or illegally collected. b. Sum collected is excessive or in any manner wrongfully collected. c. Penalty is collected without authority. Requisites a. There must be a written claim with the CIR, as it would enable the CIR to correct the errors of his subordinate and to notify the government; b. Must be a categorical claim for refund or credit; c. Must be filed within 2 years after the payment of the tax or penalty otherwise no refund or credit could be taken. No suit or proceeding shall be instituted after the expiration of the 2 year period regardless of any supervening cause that may arise after payment; and d. Present proof of payment of the tax. Where on the face of the return upon which payment is made, such payment appears clearly to have been erroneous. Reasons: a. to afford the commissioner an opportunity to correct the action of subordinate officer and b. to notify the government that the taxes sought to be refunded are under question and that, therefore, such notice should then be borne in mind in estimating the revenue available for expenditure(Bermejo vs. CIR, 87 Phil 96) 2) Claim containing a categorical demand for reimbursement 3) Filing of administrative claim for refund and the suit/proceeding before the CTA within 2 years from date of payment regardless of any supervening cause The requirement is a condition precedent and noncompliance therewith bars recovery. It refers not only to the administrative claim that the taxpayer should file within 2years from date of payments with the BIR, but also the judicial claim or the action for refund the taxpayer should commence with the CTA.

4. Nature of erroneously paid tax/illegally assessed collected Legal basis of tax refunds Legal principle of quasi-contracts or solutioindebiti. The Government is within the scope of the principle of solutioindebiti. Statutory basis for tax refund under the Tax Code 1. Scope of claims for refund The Commissioner may credit or refund taxes: a) Erroneously or illegally assessed or collected internal revenue taxes b) Penalties imposed without authority c) Any sum alleged to have been excessive or in any manner wrongfully collected. 2. Necessity of proof for claim or refund Refund claim partakes of the nature of an exemption which cannot be allowed unless granted in the most explicit and categorical language. Failure to discharge burden of giving proof is fatal to claim. It must be shown that payment was an independent single act of voluntary payment of a tax believed to be due, collectible and accepted by the government, and which therefore, become part of the state moneys subject to expenditure and perhaps already spent or appropriated. 3. Burden of proof for claim of refund Written claim for refund or tax credit filed by the taxpayer with the Commissioner. Taxpayer pays under the mistake of fact, as for instance in a case where he is not aware of the existing exemption in his favor at the time payments were made. A tax is illegally collected if payments are made under duress. 5. Tax refund vis--vis tax credit Tax refund Requires a physical return of the sum erroneously paid by the taxpayer. The taxpayer to whom the tax is refunded would have the option, among others, to invest for profit the returned sum, an option not proximately available if the taxpayer chooses instead to receive a tax credit. Tax credit Generally refers to an amount that is subtracted directly from ones total tax liability, an allowance against the tax itself, or a deduction from what is owned. Reduces the tax due, including whenever applicable the income tax that is determined after applying the corresponding tax rates to taxable income.

It may be that there is no essential difference between a tax refund and a tax credit since both are moves of recovering taxes erroneously or illegally paid to the government. (Commissioner of Customs v. Philippine Phosphate Fertilizer Corporation, G. R. No. 144440, September 1, 2004)

Other consideration affecting tax refunds 6. Essential requisites for claim of refund 1. The claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of the payment of the tax. 2. It is shown on the return of the recipient that the income payment received was declared as part of the gross income; and 3. The fact of withholding is established by a copy of a statement duly issued by the payee showing the amount paid and the amount of tax withheld there from. Who may claim/apply for tax refund/tax credit Taxpayer/withholding agents of non-resident foreign corporation A withholding agent is subject to and liable for deficiency assessments, surcharges and penalties should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under the law. A person liable for tax has been held to be a person subject to tax and properly considered a taxpayer. xxx By any reasonable standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes. Prescriptive period for recovery of tax erroneously or illegally collected Two (2) years from the date of payment of the tax or penalty. a. Taxpayer may file an action for refund in the CTA even before the Commissioner decides his pending claim in the BIR. b. Suspension of the 2-year prescriptive period may be had when: i. there is a pending litigation between the two parties (government and taxpayer) as to the proper tax to be paid and of the proper interpretation of the taxpayers charter in relation to the disputed tax; and ii. the commissioner in that litigated case agreed to abide by the decision of the Supreme Court as to the collection of taxes relative thereto. c. Even if the 2-year period has lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances. d. 2-year prescriptive period for filing of tax refund or credit claim computed from date of payment of tax of penalty except in the following: i. Corporations: 2-year prescriptive period for overpaid quarterly income tax is counted not from the date the corporation files its quarterly income tax return, but from the date the final adjusted return is filed after the taxable year. ii. Taxes payable in installment: 2-year period is counted form the payment of the last installment.

iii. Withholding Taxes Prescriptive period counted not from the date the tax is withheld and remitted to the BIR, but from the end of the taxable year. iv. VAT Registered Person whose sales are zerorated or effectively zero-rated : 2-year period computed from the end of the taxable quarter when the sales transactions were made. e. Interest on Tax Refund: The Government cannot be required to pay interest on taxes refunded to the taxpayer unless: i. The Commissioner acted with patent arbitrariness ii. In case of Income Tax withheld on the wages of employees. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions (CIR vs.Victorias Milling Corp., Inc. L-19607, Nov. 29,1966)