5.

CIR v. CA, ROH Auto (BIR Rules and Regulations) Facts: EO41 was promulgated declaring a one-time tax amnestyon unpaid income taxes, later amended to include estate anddonor's taxes and taxes on business, for the taxable years1981 to 1985.Availing itself of the amnesty, R.O.H. Auto Products filed,tax amnesty returnms and paid the amnesty taxes due.Prior to this availment, CIR assessed the ROH deficiencyincome and business taxes in an aggregate amount of P1,410,157.71.ROH wrote back to state that since it had been able toavail itself of the tax amnesty, the deficiency tax notice shouldforthwith be cancelled and withdrawn.The request was denied by the Commissioner on theground that Revenue Memorandum Order No. 4-87, dated 09February 1987, implementing Executive Order No. 41, hadconstrued the amnesty coverage to include only assessmentsissued by the Bureau of Internal Revenue after thepromulgation of the executive order on 22 August 1986 and notto assessments theretofore made. ISSUE: Is ROH covered by the tax amnesty? YES. Was the CIRs position correct? NO.Ratio Decidendi: 1. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to anact of administrative legislation quite contrary to themandate of the law which the regulation ought toimplement.2. The authority of the Secretary of Finance, in conjunction withthe CIR, to promulgate rules and regulations for theenforcement of internal revenue laws cannot becontroverted. Neither can it be disputed that such rules andregulations, as well as administrative opinions and rulings,ordinarily should deserve weight and respect by the courts.Much more fundamental than either of the above, however,is that all such issuances must not override, but mustremain consistent and in harmony with, the law they seek toapply and implement. Administrative rules and regulationsare intended to carry out, neither to supplant nor to modify,the law. 3. If, as the Commissioner argues, EO 41 had not beenintended to include 1981-1985 tax liabilities alreadyassessed prior to 22 August 1986, the law could havesimply so provided in its exclusionary clauses. It did not.The conclusion is unavoidable, and it is that the executiveorder has been designed to be in the nature of a generalgrant of tax amnesty subject only to the cases specifically excepted by it Holding: CA affirmed C OMMISSIONER OF I NTERNAL R

EVENUE V . CA (298 SCRA 83) Topic: Tax exemptioncharitable institutions Facts: Young Mens Christian Association of the Philippines, Inc. (YMCA), a non-stock, non-profit institution, whichconducts various programs and activities that are beneficial to the public pursuant to its religious, educational, andcharitable objectives, is contesting the tax assessment made upon it by the Commissioner of Internal Revenue, citing Article VI, Section 28, paragraph 3 of the 1987 Constitution. Issue and Ruling: 1. W/ N YMCA is exempt from the payment of taxes.NO. W hat is exempted by Article VI, Section 28, paragraph 3 of the 1987 Constitution is not the institution itself; theexemption pertains only to property taxes. Moreover, Section 27 of the National Internal Revenue Code expressly disallows the exemption claimed by YMCA, as it mandates that the income of exempt organizations from any of theirproperties, real or personal, be subject to the tax imposed by the same Code. Thus, YMCA is exempt from the paymentof property tax, but not income tax on the rentals from its property. The bare allegation alone that it is a non-stock,non-profit educational institution is insufficient to justify its exemption from the payment of income tax. Notes: A claim of statutory exemption from taxation should be manifest, and unmistakable from the language of the law on which it is based. Marcos II vs. CA 273 SCRA 47 1997 Facts: Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax assessments and estate tax assessments upon the estate and properties of his late father despite the pendency of the probate proceedings of the will of the late President. On the other hand, the BIR argued that the States authority to collect internal revenue taxes is paramount. Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the

properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate. Issue: Is the contention of Marcos correct? Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceaseds estate, is not a mandatory requirement in the collection of estate taxes. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the existence of government itself. It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based 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 said assessment. In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL vs. CIR GR. No. 155541; January 27, 2004 Facts: During the lifetime of the decedent Juliana vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (PhilTrust). The decedent died on April 3, 1979 but two days after her death, PhilTrust filed her income tax return for 1978 not indicating that the decedent had died. The BIR conducted an administrative investigation of the decedents tax

liability and found a deficiency income tax for the year 1997 in the amount of P318,233.93. Thus, in November 18, 1982, the BIR sent by registered mail a demand letter and assessment notice addressed to the decedent c/o PhilTrust, Sta. Cruz, Manila, which was the address stated in her 1978 income tax return. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce the collection of decedents deficiency income tax liability and serve the same upon her heir, Francisco Gabriel. On November 22, 1984, Commissioner filed a motion to allow his claim with probate court for the deficiency tax. The Court denied BIRs claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. On appeal, the CA held that BIRs service on PhilTrust of the notice of assessment was binding on the estate as PhilTrust failed in its legal duty to inform the respondent of antecedents death. Consequently, as the estate failed to question the assessment within the statutory period of thirty days, the assessment became final, executory, and incontestable. Issue: (1) Whether or not the CA erred in holding that the service of deficiency tax assessment on Juliana through PhilTrust was a valid service as to bind the estate; (2) Whether or not the CA erred in holding that the tax assessment had become final, executory, and incontestable. Held: (1) Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayers death, none of the PhilTrusts acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedents death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment. (2) The assessment was served not even on an heir or the estate but on a completely disinterested party. This improper service was clearly not binding on the petitioner. The most crucial point to be remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondents claim for collection filed with the court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law. Rafael Arsenio S. Dizon, v. CTA and CIR G.R. No. 140944; April 30, 2008 Facts: Jose P. Fernandez died in November 7, 1987. Thereafter, a petition for the probate of his will was filed. The probate court appointed Atty. Rafael Arsenio P. Dizon as administrator of the Estate of Jose Fernandez. An estate tax return was filed later on which showed ZERO estate tax liability. BIR thereafter issued a deficiency estate tax assessment, demanding payment of Php 66.97 million as

deficiency estate tax. This was subsequently reduced by CTA to Php 37.42 million. The CA affirmed the CTAs ruling, hence, the instant petition. The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross estate, no estate tax was due. On the other hand, respondents argue that since the claims of the Estates creditors have been condoned, such claims may no longer be deducted from the gross estate of the decedent. Issue: Whether the actual claims of creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors Held: YES. Following the US Supreme Courts ruling in Ithaca Trust Co. v. United States, the Court held that post-death developments are not material in determining the amount of deduction. This is because estate tax is a tax imposed on the act of transferring property by will or intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the instance of death, the net value of the property transferred should be ascertained, as nearly as possible, as of the that time. This is the date-of-death valuation rule. The Court, in adopting the date-of-death valuation principle, explained that: First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions. Marcos II vs. CA 273 SCRA 47 1997 Facts: Ferdinand Marcos II assailed the decision of the CA declaring the deficiency income tax assessments upon the estate and the properties of his late father final despite the pendency of the probate proceedings of the will of the late president. On the other hand, the BIR argued that the state authority to collect taxes is paramount.

Issue: is the approval of the court mandatory requirement in the collection of taxes? Ruling: No. the enforcement of tax laws and collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interest of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. (Ferdinand R. Marcos II assailed the decision of the Court of Appeals declaring the deficiency income tax assessments and estate tax assessments upon the estate and properties of his late father despite the pendency of the probate proceedings of the will of the late President. On the other hand, the BIR argued that the States authority to collect internal revenue taxes is paramount. Petitioner further argues that "the numerous pending court cases questioning the late president's ownership or interests in several properties (both real and personal) make the total value of his estate, and the consequent estate tax due, incapable of exact pecuniary determination at this time. Thus, respondents' assessment of the estate tax and their issuance of the Notices of Levy and sale are premature and oppressive." He points out the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed by the government to question the ownership and interests of the late President in real and personal properties located within and outside the Philippines. Petitioner, however, omits to allege whether the properties levied upon by the BIR in the collection of estate taxes upon the decedent's estate were among those involved in the said cases pending in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant to the matter at issue. The mere fact that the decedent has pending cases involving ill-gotten wealth does not affect the enforcement of tax assessments over the properties indubitably included in his estate. Issue: Is the contention of Marcos correct? Held: No. The approval of the court, sitting in probate or as a settlement tribunal over the deceaseds estate, is not a mandatory requirement in the collection of estate taxes. There is nothing in the Tax Code, and in the pertinent remedial laws that implies the

necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected. The enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. Taxes are the lifeblood of government and should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the existence of government itself. It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon the subject estate, but the Bureau of Internal Revenue whose determinations and assessments are presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based 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 said assessment. In this instance, petitioner has not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.)

CIR v. AZUCENA REYES JAN. 27, 2006 GR. 159694 The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise the assessment shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 of informing the taxpayer of not only the law, but also of the facts on which an assessment would be made, otherwise, the assessment itself would be invalid. CIR vs Reyes and Reyes vs CIR GR Nos. 159694, 163581Facts: Decedent Tancinco left a 1,292 square-meter residential lot and an old house thereon. The heirs of the decedent received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for t h e a m o u n t o f P 1 4 , 9 1 2 , 2 0 5 . 4 7 , i n c l u s i v e o f

surcharge and interest. The CIR issued a preliminary collection letter to R e ye s , f o l l o w e d b y a F i n a l N o t i c e B e f o r e S e i z u r e . S u b s e q u e n t l y, a W a r r a n t o f Distraint and/or Levy was served upon the estate. Reyes initially protested the notice of levy but then the heirs proposed a compromise settlement of P1,000,000.00. The CIR rejected Reyess offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. As the estate failed to pay its tax liability within the deadline, BIR notified Reyes that the subject property would be sold at public auction on August 8, 2000. Reyes filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that the assessment, letter of demand, and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge or interest. Issue: WON the assessment in this case can be used as a basis for the perfection of a tax compromise against the. Ruling: NO. The 2nd paragraph of Sec. 228 of NIRC is clear and mandatory insofar as taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise the assessment shall be void. RA 8424 has already amended the provisions of Sec. 229 of NIRC on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 of informing the taxpayer of not only the law, but also of the facts on which an assessment would be made, otherwise, the assessment itself would be invalid. Being invalid, the assessment canot be in turn be used as a basis for the perfection of a tax compromise. Hence, it is premature to declare the compromise on the tax liability of t h e e s t a t e p e r f e c t e d a n d consummated considering that the tax assessment is void. While administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -and could effectively protest -- the basis of tax assessments against them.7Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality.