GUIDE NOTES ON REMEDIES

(NATIONAL INTERNAL REVENUE CODE)

Q: Who are the Philippine tax authorities?
* (1) Bureau of Internal Revenue - The BIR is the agency of the government which is primarily in charge of
the administration and enforcement of tax laws under the 1997 Tax Code.
(2) Bureau of Customs - The BOC is in charge of the enforcement of tariff and customs tax laws.
(3) Assessors and Treasurers of Local Government Units The assessors and treasurers of LGUs are in
charge of the enforcement of local and real property tax laws.
Q: How are taxes assessed?
* (1) Self-Assessment - Taxpayers are required to file tax returns for various kinds of income earned which
may be subject to tax. Examples are income tax, capital gains tax, donors tax, and estate tax. When
a taxpayer files the tax return, he is actually making a self-assessment.
(2) Deficiency Assessment - Deficiency assessment is an assessment made by the BIR after the conduct
of an investigation or audit when it finds that the tax return filed by the taxpayer contains, for example,
an under-declaration of income, or when the taxpayer does not at all file a tax return.
[NOTE: The provisions on tax remedies found in the 1997 Tax Code refer to the governments right to make
deficiency assessments.]
** The case of Philippine National Oil Company v. Court of Appeals made a distinction between a selfassessed tax and a BIR-assessed tax. At issue in this case was the validity of the compromise agreement
executed by PNOC pursuant to EO No. 44. Under said law, the CIR was authorized to compromise delinquent
accounts arising, among others, from a self-assessed tax. According to the Supreme Court, PNOC could not
avail of the benefits of EO No. 44 because, for one, its tax liability was not a self-assessed tax. The High
Court differentiated a self-assessed tax and a BIR-assessed tax in this sense: where tax liabilities are selfassessed, the compromise payment shall be based on the tax return filed by the taxpayer; on the other hand,
where the BIR already issued an assessment, the compromise payment shall be computed based on the tax
due on the assessment notice. [Philippine National Oil Company v. Court of Appeals, GR Nos. 109976 and
112800, 26 April 2005.]
Q: How are remedies in taxation classified?
* Remedies in taxation may be grouped as follows:
(1) Remedies of the Government
(a) to make deficiency assessments within 3 or 10 years
(b) to enforce deficiency assessments and collect taxes within 5 years
(i)
to effect distraint of personal property
(ii) to effect levy on real property
(iii) to pursue judicial proceeding to collect
(iv) to compromise, abate, or cancel taxes
(v) to enforce tax liens
(vi) to enforce statutory penal provisions
(vii) to enforce forfeiture or property
(2) Remedies of the Taxpayer
(a) to protest against an assessment (administrative claim)
(b) to appeal a decision on a protest to the Court of Tax Appeals (judicial claim)
(c) to compromise taxes
(d) to release property before sale at public auction
(e) to redeem property after sale at public auction
(f) to avail of tax amnesty benefits

CHAPTER I - REMEDIES IN GENERAL

Sec. 202, Final Deed to Purchaser. - In case the taxpayer shall not redeem the property as herein
provided, 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.
Section 202 shall be discussed in relation to Section 214, which reads:
Sec. 214, 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 form 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.
Q: What is the redemption period for properties of a delinquent taxpayer sold at public auction?
[NOTE: Make a distinction between properties of a delinquent taxpayer and tax delinquent
properties.]
* The case of City Mayor of Quezon City v. Rizal Commercial Banking Corporation dealt with the interpretation
of the redemption period under RA No. 7160, otherwise known as the 1991 Local Government Code (real
property taxes imposed by LGUs), but may be relevant in the determination of the starting point of the
redemption period provided in the 1997 Tax Code (internal revenue taxes imposed by the National
Government).
In the above case, the Supreme Court held that: (1) under PD No. 464, or the Real Property Tax Code, the
one-year redemption period for tax delinquent properties sold at public auction was counted from the date of
registration of sale of the property; (2) under RA No. 7160, or the 1991 Local Government Code, the
reckoning point of the redemption period was the date of sale of the property; and (3) the latter law effectively
superseded the older law, such that the redemption period for tax delinquent properties should be counted
from the date of sale of the property. However, the Supreme Court likewise took note of the Quezon City
Revenue Code of 1993, which provided that the redemption period for tax delinquent properties within the city
was counted from the date of annotation of sale of the property at the proper registry. A special law prevails
over a general law. Thus, the Quezon City Revenue Code of 1993 prevailed over the 1991 Local Government
Code in that the redemption period in the case at bar was reckoned, not from the date of sale of the property,
but from the date of annotation of sale of the property at the proper registry. [City Mayor of Quezon City v.
Rizal Commercial Banking Corporation, GR No. 171033, 3 August 2010.]
Sec. 203, Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222,
internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period: Provided, That in a case where a return is
filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the
return was filed. For purposes of this Section, a return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such last day.

Q: Explain the statute of limitations on assessment and collection of taxes.

* The CIR has three years counted from the date of actual filing of the return or from the last date prescribed
by law for the filing of such return, whichever comes later, to assess a national internal revenue tax. When the
CIR validly issues an assessment, he has another five years to collect the national internal revenue tax due
thereon by distraint, levy, and/or court proceeding. [NOTE: Under the 1977 Tax Code, the government had
five (5) years to assess and another five (5) years to collect. By virtue of a 1984 amendment to the 1977 Tax
Code, the assessment and collection periods were both reduced to three (3) years. Today, under the 1997 Tax
Code, the government has three (3) years to assess and five (5) years to collect.]
** The provisions on the statute of limitations on assessment and collection of taxes shall be construed and
applied liberally in favor of the taxpayer and strictly against the government.
*** According to CIR v. Philippine Global Communication, Inc., which cited other promulgated Supreme Court
decisions, the statute of limitations for the collection of taxes must benefit both the Government and the
taxpayer. Significantly, it intends to afford protection to the taxpayer against unreasonable investigation.
In this case, the assessment was issued on 14 April 1994. [The 1977 Tax Code, as amended, was the
governing law; the CIR had 3 years to assess and another 3 years to collect. Hence, the CIR had until 13 April
1997 to collect the tax due.] The earliest attempt of the CIR to collect the tax due based on this assessment
was when it filed its Answer in the CTA case on 9 January 2003 which was several years beyond the threeyear prescriptive period to collect. The Supreme Court ruled that the CIR was barred from collecting the
assessed tax. [CIR v. Philippine Global Communication, Inc., GR No. 167146, 31 October 2006.]
Q: How should the statute of limitations or prescriptive period be computed?
* In CIR v. Primetown Property Group, Inc., the taxpayer filed a claim for tax refund or credit of income tax
paid in 1997. Pursuant to Section 229 of the 1997 Tax Code, it had 2 years from the filing of its final adjusted
return to file a claim for tax refund or credit. The CIRs argument was hinged on Article 13 of the Civil Code
which states that a year is understood to mean 365 days. Hence, the taxpayer had 730 days to file its claim
for tax refund or credit. The CIR maintained that the taxpayer filed its claim beyond the two-year prescriptive
period, i.e., on the 731st day, given that the year 2000 was a leap year. On the other hand, the taxpayers
contention was based on Section 31, Chapter VIII, Book I of the Administrative Code of 1987 which says that
a year consists of 12 calendar months. Having filed its claim on the last day of the 24th calendar month from
the filing of its final adjusted return, it maintained that its claim was filed within the prescriptive period.
Clarifying the difference in treatment of legal periods by the Civil Code and the Administrative Code of 1987,
the Supreme Court held that:
(1) Under the Civil Code, a year is equivalent to 365 days, whether it be a regular year or a leap year.
(2) There exists a manifest incompatibility in the manner of computing legal periods under the two laws.
However, given that the Administrative Code of 1987 is the more recent law, its treatment of a year,
i.e., 24 calendar months, governs the computation of legal periods. Hence, the taxpayers claim was
filed within the reglementary period. [CIR v. Primetown Property Group, Inc., GR No. 162155, 28
August 2007.]
Q: What is the reckoning point with respect to amended returns?
* In CIR v. Phoenix Assurance Co., Ltd., the taxpayer filed its income tax return for 1952 on 1 April 1953. It
amended said return on 30 August 1955. Thereafter, on 24 July 1958, the CIR assessed deficiency income
tax on the basis of the amended return. The CIR contended that his right to assess had not prescribed
inasmuch as the same was availed of within 5 years from the filing of the amended return. [This case was
governed by the old law granting the CIR 5 years to assess and another 5 years to collect.] The Supreme
Court held that where the deficiency assessment is based on the amended return, which is substantially

different from the original return, the period of limitation of the right to issue the same should be counted from
the filing of the amended return. Here, the changes and alterations embodied in the amended return
constituted substantial ones, i.e., exclusion of certain items from the gross income. Thus, the CIRs deficiency
assessment was not barred by prescription. [CIR v. Phoenix Assurance Co., Ltd., GR No. L-19727, 20 May
1965.]
Q: What constitutes a valid assessment?
* In CIR v. Pascor Realty and Development Corporation, it was said that an assessment not only contains a
computation of tax liabilities, but also a demand for payment within a prescribed period. It signals the time
when penalties and interests begin to accrue against the taxpayer. The Supreme Court ruled that the BIR
examiners Joint Affidavit, which was attached to the criminal complaint filed with the Department of Justice
against the taxpayer, did not constitute an assessment. The Joint Affidavit served the purpose of supporting
and substantiating the criminal complaint for tax evasion, and was not meant to be a notice of the tax due and
a demand to the taxpayer for payment thereof. [CIR v. Pascor Realty and Development Corporation, GR No.
128315, 29 June 1999.]
** At issue in Adamson v. Court of Appeals was whether the CIRs recommendation letter for the filing of a
criminal complaint against a taxpayer for fraudulent returns and tax evasion can be considered a formal
assessment. The Supreme Court held that the recommendation letter was not equivalent to a formal
assessment. In the context in which it is used in the NIRC, an assessment is a written notice and demand
made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A
written communication containing a computation by a revenue officer of the tax liability of a taxpayer and
giving him an opportunity to contest or disprove the BIR examiners findings is not an assessment since it is
yet indefinite. [Adamson v. Court of Appeals, GR No. 120935, 21 May 2009.]
*** In Barcelon, Roxas Securities, Inc. v. CIR, the Supreme Court had occasion to say that an assessment is
deemed to have been made within the three-year prescriptive period if notice to that effect was released,
mailed, or sent by the CIR to the taxpayer within said period. Receipt by the taxpayer within the prescriptive
period is not necessary. However, the taxpayer should actually receive, even beyond the prescriptive period,
the assessment notice which was timely released, mailed, or sent. While a mailed letter is deemed received
by the addressee in theordinary course of mail, this is still merely a disputable presumption subject to
controversion, and a direct denial of the receipt thereof shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed received by the addressee. Here, petitioner denied
receiving the assessment notice and the CIR failed to present substantial evidence that such notice was
indeed mailed or sent by the CIR before his right to assess had prescribed and that said notice was received
by petitioner. Additionally, the Supreme Court ruled that independent evidence, such as the registry receipt of
the assessment notice or a certification from the Bureau of Posts, would be acceptable. [Barcelon, Roxas
Securities, Inc. v. CIR, GR No. 157064, 7 August 2006.]
Sec. 204, Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The
Commissioner may
204(A) Compromise the payment of any internal revenue tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject to the following minimum
amounts:
For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the
basic assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed
tax. Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement
offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of

the Evaluation Board which shall be composed of the Commissioner and the four (4) Deputy
Commissioners.
Q: What is meant by compromise?
* Article 2028 of the Civil Code defines compromise as an agreement whereby the parties, by making
reciprocal concessions, avoid litigation or put an end to one already commenced. As applied to taxation, the
parties concerned are the taxpayer and the CIR.
Q: When may taxes be subject of a compromise?
* Read RR No. 30-02, as amended by RR No. 08-04, which implements Section 204(A) of the 1997 Tax Code
on compromise. These RRs identify: (1) cases which may be compromised and exceptions thereto; (2) bases
for acceptance of compromise settlement; (3) prescribed minimum percentages of compromise settlement; (4)
documentary requirements; and (5) approving authorities of compromise offers. It states in part:
SEC. 2. CASES WHICH MAY BE COMPROMISED. - The following cases may, upon
taxpayers compliance with the basis set forth under Section 3 of these Regulations, be
the subject matter of compromise settlement, viz:
1. Delinquent accounts;
2. Cases under administrative protest after issuance of the Final Assessment Notice
to the taxpayer which are still pending in the Regional Offices, Revenue District
Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service,
Enforcement Service and other offices in the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in court or those involving criminal
tax fraud.
EXCEPTIONS:
1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that
cast doubt on the taxpayers obligation to withhold;
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal
Revenue or his duly authorized representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments;
5. Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment and the taxpayer is agreeable to
such decision by signing the required agreement form for the purpose. On the other
hand, other protested cases shall be handled by the Regional Evaluation Board
(REB) or the National Evaluation Board (NEB) on a case to case basis;
6. Cases which become final and executory after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment; and
7. Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer.
SEC. 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT. - The
Commissioner may compromise the payment of any internal revenue tax on the
following grounds:
1. Doubtful validity of the assessment. - The offer to compromise a delinquent account
or disputed assessment under these Regulations on the ground of reasonable
doubt as to the validity of the assessment may be accepted when it is shown that:
(a) The delinquent account or disputed assessment is one resulting from a
jeopardy assessment (For this purpose, jeopardy assessment shall refer
to a tax assessment which was assessed without the benefit of complete or

(b)
(c)
(d)
(e)

(f)
(g)
(h)

(i)

partial audit by an authorized revenue officer, who has reason to believe that
the assessment and collection of a deficiency tax will be jeopardized by
delay because of the taxpayers failure to comply with the audit and
investigation requirements to present his books of accounts and/or
pertinent records, or to substantiate all or any of the deductions,
exemptions, or credits claimed in his return); or
The assessment seems to be arbitrary in nature, appearing to be based on
presumptions and there is reason to believe that it is lacking in legal and/or
factual basis; or
The taxpayer failed to file an administrative protest on account of the alleged
failure to receive notice of assessment and there is reason to believe that
the assessment is lacking in legal and/or factual basis; or
The taxpayer failed to file a request for reinvestigation/reconsideration
within 30 days from receipt of final assessment notice and there is reason to
believe that the assessment is lacking in legal and/or factual basis; or
The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse
decision of the Commissioner, or his authorized representative, in some
cases, within 30 days from receipt thereof and there is reason to believe that
the assessment is lacking in legal and/or factual basis; or
The assessments were issued on or after January 1, 1998, where the
demand notice allegedly failed to comply with the formalities prescribed
under Sec. 228 of the National Internal Revenue Code of 1997; or
Assessments made based on the Best Evidence Obtainable Rule and there
is reason to believe that the same can be disputed by sufficient and
competent evidence; or
The assessment was issued within the prescriptive period for assessment
as extended by the taxpayers execution of Waiver of the Statute of
Limitations the validity or authenticity of which is being questioned or at
issue and there is strong reason to believe and evidence to prove that it is
not authentic; or
The assessment is based on an issue where a court of competent
jurisdiction made an adverse decision against the Bureau, but for which the
Supreme Court has not decided upon with finality.

2. Financial incapacity. - The offer to compromise based on financial incapacity may

be accepted upon showing that:
(a) The corporation ceased operation or is already dissolved. Provided, that tax
liabilities corresponding to the Subscription Receivable or Assets
distributed/distributable to the stockholders representing return of capital at
the time of cessation of operation or dissolution of business shall not be
considered for compromise; or
(b) The taxpayer, as reflected in its latest Balance Sheet supposed to be filed
with the Bureau of Internal Revenue, is suffering from surplus or earnings
deficit resulting to impairment in the original capital by at least 50%,
provided that amounts payable or due to stockholders other than businessrelated transactions which are properly includible in the regular accounts
payable are by fiction of law considered as part of capital and not liability,
and provided further that the taxpayer has no sufficient liquid asset to
satisfy the tax liability; or
(c) The taxpayer is suffering from a networth deficit (total liabilities exceed total
assets) computed by deducting total liabilities (net of deferred credits and
amounts payable to stockholders/owners reflected as liabilities, except
business- related transactions) from total assets (net of prepaid expenses,
deferred charges, preoperating expenses, as well as appraisal increases in
fixed assets), taken from the latest audited financial statements, provided

that in the case of an individual taxpayer, he has no other leviable properties

under the law other than his family home; or
(d) The taxpayer is a compensation income earner with no other source of
income and the familys gross monthly compensation income does not
exceed the levels of compensation income provided for under Sec. 4.1.1 of
these Regulations, and it appears that the taxpayer possesses no other
leviable or distrainable assets, other than his family home; or
(e) The taxpayer has been declared by any competent
tribunal/authority/body/government agency as bankrupt or insolvent.
The Commissioner shall not consider any offer for compromise settlement on the
ground of financial incapacity of a taxpayer with Tax Credit Certificate (TCC), issued
under the National Internal Revenue Code of 1997 or Executive Order No. 226, on hand
or in transit, or with pending claim for tax refund or tax credit with the Bureau of
Internal Revenue, Department of Finance One-Stop-Shop Tax Credit and Duty
Drawback Center (Tax Revenue Group or Investment Incentive Group) and/or the
courts, or with existing finalized agreement or prospect of future agreement with any
party that resulted or could result to an increase in the equity of the taxpayer at the
time of the offer for compromise or at a definite future time. Moreover, no offer of
compromise shall be entertained unless and until the taxpayer waives in writing his
privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other
general or special laws, and such waiver shall constitute as the authority of the
Commissioner to inquire into the bank deposits of the taxpayer.
Presence of circumstances that would place the taxpayer-applicants inability to pay in
serious doubt can be a ground to deny the application for compromise based on
financial incapacity of the taxpayer to pay the tax.
[Revenue Regulations No. 30-02, 16 December 2002; Revenue Regulations No. 08-04, 19 May 2004.]
** The issue in Philippine National Oil Company v. Court of Appeals was the validity of the compromise
agreement executed by PNOC and Philippine National Bank pursuant to EO No. 44 and the 1977 Tax Code.
In ruling that the compromise agreement was invalid, the Supreme Court cited the following reasons: (1) the
tax liabilities of PNOC and PNB could not be compromised under EO No. 44; (2) their application for
compromise was filed beyond the effectivity of EO No. 44; and (3) the compromise was contrary to public
policy. [Philippine National Oil Company v. Court of Appeals, GR Nos. 109976 and 112800, 26 April 2005.]
Q: Who may compromise taxes?
* The case of Security Bank Corporation v. CIR dealt with the deficiency documentary stamp tax
on
Security Bank Corporations 1983 sales of securities under repurchase agreements. The Supreme Court held
that under Section 204 of the 1977 Tax Code (even the 1997 Tax Code), the BIR Commissioner had the sole
power and authority to compromise taxes. The act of certain revenue officials in accepting Security Bank
Corporations offer of payment, without the Commissioners stamp of approval, was ultra vires and could not
have any valid and binding legal effect upon the BIR. [Security Bank Corporation v. CIR, GR No. 130838, 22
August 2006.]
Q: May a void assessment serve as basis for a compromise?
* According to CIR v. Reyes, an assessment that fails to inform the taxpayer of the law and the facts on which
it is made is void. As a corollary, a void assessment cannot in turn be used as a basis for the perfection of a
tax compromise.
In the case at bar, Reyes was not informed in writing of the law and the facts on which the assessment of
estate taxes had been made. She was merely notified of the findings by the CIR. Consequently, the Supreme

Court said, it would be premature to declare that the compromise on the estate tax liability had been perfected
and consummated, considering the earlier determination that the assessment against the estate was void.
[CIR v. Reyes, GR No. 159694, 27 January 2006.]
Q: What is a compromise penalty?
* In all cases of criminal violations of the 1997 Tax Code, not involving the commission of fraudulent acts,
payment of compromise penalties may be suggested to the taxpayer in lieu of criminal prosecution. Since
compromise penalties are only amounts suggested in settlement of criminal liability and may therefore not be
imposed on the taxpayer, the violation shall be referred to the appropriate office for criminal action in the event
the taxpayer refuses to pay the suggested compromise penalty. A compromise penalty shall be paid on top of
the deficiency basic tax, surcharge, and interest.
On the other hand, cases involving fraud, such as acts committed as means of tax evasion, shall be referred
directly to the appropriate office for criminal action. [Revenue Memorandum Order No. 19-07, 8 August 2007.]
** The imposition of compromise penalty is warranted only when both the taxpayer and the CIR consented
thereto. In Wonder Mechanical Engineering Corporation v. Court of Tax Appeals, the CIR made an
assessment against the taxpayer for deficiency sales and percentage taxes, 25% surcharge, and compromise
penalties. The Supreme Court affirmed the Court of Tax Appeals decision in deleting the compromise
penalties in the absence of proof that the taxpayer agreed or gave his conformity thereto. [Wonder
Mechanical Engineering Corporation v. Court of Tax Appeals, GR Nos. L-22805 and L27858, 30 June 1975.]
*** CIR v. First Express Pawnshop Company, Inc. has a similar set of facts. The Supreme Court affirmed the
Court of Tax Appeals decision in deleting the compromise penalty in addition to the deficiency documentary
stamp taxes, in the absence of showing that the taxpayer accepted the same. [CIR v. First Express Pawnshop
Company, Inc., GR Nos. 172045-46, 16 June 2009.]
204(B) Abate or cancel a tax liability, when:
(1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
(2) The administration and collection costs involved do not justify the collection of the amount due.
All criminal violations may be compromised except: (a) those already filed in court, or (b) those
involving fraud.
Q: How is compromise different from abatement?
* In People v. Sandiganbayan, the Supreme Court explained abatement or cancellation of a tax. It defined
abatement as the diminution or decrease in the amount of tax imposed, such that to abate is to nullify or
reduce in value or amount. The Supreme Court went on to say that: The BIR may therefore abate or cancel
the whole or any unpaid portion of a tax liability, inclusive of increments, if its assessment is excessive or
erroneous; or if the administration costs involved do not justify the collection of the amount due. No mutual
concessions need be made, because an excessive or erroneous tax is not compromised; it is abated or
canceled. Only correct taxes should be paid.
Here, the Supreme Court found that although referred to in the pleadings as a compromise, the agreement
between the parties was actually an abatement or a cancellation of an unjust, excessively assessed, and
unreasonable tax. Compromise is marked by mutual concessions, whereas in abatement or cancellation, no
mutual concessions between the taxpayer and the CIR are made. [People v. Sandiganbayan, GR No.
152532, 16 August 2005.]
204(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for

use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be
allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or
penalty: Provided, however, That a return filed showing an overpayment shall be considered as a
written claim for credit or refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied against any
internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable. Any
request for conversion into refund of unutilized tax credits may be allowed, subject to the provisions
of Section 230 of this Code: Provided, That the original copy of the Tax Credit Certificate showing a
creditable balance is surrendered to the appropriate revenue officer for verification and cancellation:
Provided, further, That in no case shall a tax refund be given resulting from availment of incentives
granted pursuant to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the
Senate and House of Representatives, every six (6) months, a report on the exercise of his powers
under this Section, stating therein the following facts and information, among others: names and
addresses of taxpayers whose cases have been the subject of abatement or compromise; amount
involved; amount compromised or abated; and reasons for the exercise of power: Provided, That the
said report shall be presented to the Oversight Committee in Congress that shall be constituted to
determine that said powers are reasonably exercised and that the government is not unduly deprived
of revenues.
Q: Who may file a claim for tax refund or credit under this provision?
* Silkair (Singapore) Pte. Ltd. was involved in a series of claims for tax refund or credit for excise taxes paid
on its purchases of aviation jet fuel from Petron Corporation for different taxable periods. Silkairs main
argument was that it was exempt from payment of excise tax by virtue of Section 135(b) of the 1997 Tax Code
and Article 4(2) of the RP-Singapore Air Transport Agreement. As between Petron, the seller, and Silkair, the
buyer, the latter contended that in reality, it paid the excise taxes due on the transactions because said taxes,
being indirect taxes, were made part of the purchase price of the aviation jet fuel.
The Supreme Court ruled that based on Section 204(c) of the 1997 Tax Code, the statutory taxpayer (Petron
in this case, being the manufacturer of the aviation jet fuel) was the proper party that can claim the refund.
Section 204(C) of the 1997 Tax Code states in part: No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after
the payment of the tax or penalty: [Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 171383, 14 November 2008;
Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 184398, 25 February 2010.]
** On the basis of CIR v. Smart Communications, Inc., the person entitled to claim a tax refund is the taxpayer.
However, in case the taxpayer does not file a claim for refund of withholding taxes, the withholding agent may
file the claim. For this purpose, the taxpayer and the withholding agent need not be related parties. In view of
the foregoing, Smart Communications, Inc. as withholding agent was allowed to file the claim for tax refund on
behalf of Prism Transactive (M) Sdn. Bhd., a Malaysian corporation. [CIR v. Smart Communications, Inc., GR
Nos. 179045-46, 25 August 2010.]
Q: When does the two-year prescriptive period under Section 204 apply? When does it not apply?
* The issue in CIR v. Mirant Pagbilao Corporation revolved around whether MPC was entitled to a claim for
tax refund or credit of unutilized input VAT from 1993 to 1996. In ruling that MPCs claim was filed out of time,
it applied the two-year prescriptive period under Section 112(A) of the 1997 Tax Code (the starting point of
which is the close of the taxable quarter when the sales where made). Corollarily, the Supreme Court held that
the two-year prescriptive period under Section 204(C) of the 1997 Tax Code (which commences from the date
of payment of the tax), was inapplicable as it pertained to taxes erroneously or illegally paid. [CIR v. Mirant

Pagbilao Corporation, GR No. 172129, 12 September 2008; also, CIR v. Aichi Forging Company of Asia, Inc.,
GR No. 184823, 6 October 2010.]
JGGB: In the CIR vs. Mirant & CIR vs. Aichi, this is about the claim of Tax Refund/Tax Credit on Input Taxes on
VAT. Thus, the provision applicable is Sec. 112 OR APPLICATION OF Sec. 110 (B), of which are not claim of
erroneous or illegally collected taxes.
Q: Is a written claim for tax credit or refund always required to be filed?
* In CIR v. Acosta, Acosta sought to refund an overpayment of taxes withheld on her compensation income in
the year 1996. At the time she filed her judicial claim, the 1997 Tax Code was already in effect. At issue was
whether her amended return indicating an overpayment of taxes was sufficient compliance with the
requirement of a written claim for refund. The Supreme Court resolved that the prevailing law at that time was
the 1977 Tax Code, not the 1997 Tax Code.
Under Section 230 of the 1977 Tax Code, a claimant must first file a written claim for refund, categorically
demanding recovery of overpaid taxes with the CIR, before resorting to an action in court.
Under Section 204(c) of the 1997 Tax Code, a return filed showing an overpayment shall be considered as a
written claim for credit or refund. Hence, applying the old Tax Code, for failure to file a written claim for refund
which consisted of a categorical demand of reimbursement, Acostas claim must be denied. [CIR v. Acosta,
GR No. 154068, 3 August 2007.]
CHAPTER II - CIVIL REMEDIES FOR COLLECTION OF TAXES
To put the topic of remedies of the government in perspective, read Section 228.
Sec. 228, Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings: provided, however, That a preassessment notice
shall not be required in the following cases:
(a) When 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) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When 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) When the excise tax due on exciseable articles has not been paid; or
(e) When 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.
The taxpayers shall be informed in writing of the law and the facts on which
theassessment is made; otherwise, the assessment shall be void. Within a period to be
prescribed by implementing rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall become final.

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If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by
the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days
from receipt of the said decision, or from the lapse of one hundred eighty (180)-day
period; otherwise, the decision shall become final, executory and demandable.
JGGB: The taxpayer has two options on inaction or no decision rendered:
(1) File an appeal to the CTA within 30 days from the lapse of the 180 day period; or
(2) Wait for the decision even if the 180 day period had already lapsed and make an appeal within 30 days upon
its receipt (Lascona Case).
* Upon receipt of a valid Preliminary Assessment Notice (PAN), the taxpayer may respond to and seek
clarification of the same.
JGGB: If the taxpayer will not respond on the PAN, it will not prejudice him.
** Upon receipt of a valid Final Assessment Notice (FAN), the taxpayer shall protest against it by filing a
request for reconsideration or reinvestigation, otherwise the FAN will become final and executory. Thereafter,
the taxpayer must submit all revelant supporting documents. Failure to protest and submit all relevant
supporting documents shall cause the assessment to become final. At this point, the government may resort
to distraint, levy, or judicial proceeding to collect.
*** If the taxpayer timely files a protest and such protest is denied (or is not acted upon), the taxpayer may
appeal to the CTA by filing a petition for review. Failure to appeal shall cause the assessment to become final.
At this point, the government may resort to distraint, levy, or judicial proceeding to collect.
**** The government may also:
(1) compromise, abate, or cancel taxes;
(2) enforce tax liens;
(3) enforce statutory penal provisions; and
(4) enforce forfeiture of property.
Sec. 205, Remedies for the Collection of Delinquent Taxes. - The civil remedies for the collection of
internal revenue taxes, fees or charges, and any increment thereto resulting from delinquency shall
be:
(a) By distraint of goods, chattels, or effects, and other personal property of whatever character,
including stocks and other securities, debts, credits, bank accounts and interest in and rights to
personal property, and by levy upon real property and interest in rights to real property; and
(b) By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the authorities
charged with the collection of such taxes: Provided, however, That the remedies of distraint and levy
shall not be availed of where the amount of tax involve is not more than One hundred pesos (P100).
The judgment in the criminal case shall not only impose the penalty but shall also order payment of
the taxes subject of the criminal case as finally decided by the Commissioner.
The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by
means of civil or criminal action, including the preservation or transportation of personal property
distrained and the advertisement and sale thereof, as well as of real property and improvements
thereon.
Q: For the enforcement and collection of deficiency estate taxes, is the approval of the probate court
necessary?

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* The issue in Marcos v. Court of Appeals was whether the BIR had the authority to collect, by the summary
remedy of levying upon and sale of real properties of the decedent, estate tax deficiencies, without the
cognition and authority of the court sitting in probate over the supposed will of the deceased. The Supreme
Court answered in this wise: There is nothing in the Tax Code, and in the pertinent remedial laws that implies
the necessity of the probate or estate settlement courts approval of the states clam for estate taxes, before
the same can be enforced and collected.
The High Court went on to say that the deficiency tax assessment, having already become final, executory,
and demandable, could already be collected through the summary remedy of distraint or levy pursuant to
Section 205 of the 1997 Tax Code. [Marcos v. Court of Appeals, GR No. 120880, 5 June 1997.]
Q: A precise computation and assessment is required for a civil action to collect tax deficiencies. Is such
computation and assessment necessary prior to criminal prosecution for, say, tax evasion?
* In Ungab v. Cusi, the Supreme Court held that an assessment of a deficiency is not necessary to a criminal
prosecution for willful attempt to defeat and evade the income tax. The facts of this case are as follows: Upon
examination of the income tax returns filed by Ungab for the calendar year ended 31 December 1973, the BIR
examiner discovered that Ungab failed to declare his income derived from banana saplings. Ungab received
an assessment representing income tax, business tax, and forest charges, which he filed a protest against.
Meanwhile, six informations were filed against Ungab. His contention was that the filing of the informations
was premature because the CIR had not yet resolved his protest on the assessment. The Supreme Court
ruled that while there can be no civil action to enforce collection before the assessment procedures have been
followed, there is no requirement for the precise computation and assessment of the tax before there can be a
criminal prosecution. A crime is complete when the violator has knowingly and wilfullly filed a fraudulent
return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on
the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the
error and promptly to assess has no connections with the commission of the crime. [Ungab v. Cusi, GR Nos.
L-41919-24, 30 May 1980.]
** Sixteen years later, the decision in CIR v. Court of Appeals was promulgated. In this case, the complaints
filed before the DOJ for investigation charged private respondents with fraudulent concealment of the actual
price of products sold, through declaration of registered wholesale prices lower than the actual wholesale
prices resulting in underpayment of income, ad valorem, and value-added taxes.
In holding that Ungab v. Cusi was inapplicable, the Supreme Court clarified the Ungab v. Cusi decision in this
wise: Reading [Ungab v. Cusi] carefully, the pronouncement therein that deficiency assessment is not
necessary prior to prosecution is pointedly and deliberately qualified by the Court with the following statement
quoted from Guzik v. U.S.: The crime is complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat a part or all of the tax. In plain words, for criminal
prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to evade
taxes. There was a willful attempt to evade tax in [Ungab v. Cusi] because of the taxpayers failure to declare
in his income tax return his income derived from banana saplings. In the mind of the trial court and the Court
of Appeals, Fortunes situation is quite apart factually since the registered wholesale price of the goods,
approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and
until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should
not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between [Ungab v. Cusi]
and the case at bar. [CIR v. Court of Appeals, GR No. 119322, 4 June 1996.]
*** In Adamson v. Court of Appeals, respondents were involved in sales of common shares of stock for which
they had paid capital gains tax and value-added tax. Later, the CIR sent them a Notice of Taxpayer informing
them of deficiencies on their payment of capital gains tax and value-added tax. Meanwhile, the CIR filed a
complaint for violation of the criminal provisions of the Tax Code. Respondents sought to suspend the criminal
proceedings as there was yet no final assessment on their tax liability. (The Notice of Taxpayer they had
earlier received was not equivalent to a formal assessment.) The issue was whether the filing of the criminal
complaints by the DOJ was premature for lack of a formal assessment. The Supreme Court held that when
fraudulent tax returns are involved, now Section 222(a) of the 1997 Tax Code says that a proceeding in court

12

for the collection of such tax may be filed without assessment, at any time within ten (10) years from discovery
of the falsity, fraud or omission. An assessment of a deficiency is not necessary to a criminal prosecution for
willful attempt to defeat and evade the tax. Here, the Supreme Court said, [a]rguably, the gross disparity in
the taxes due and the amounts actually declared by the private respondents constitutes badges of fraud. The
Supreme Court likewise confirmed the applicability of and upheld the decision in Ungab v. Cusi. [Adamson v.
Court of Appeals, GR No. 120935, 21 May 2009.]
[NOTE: Reconciling these three cases together, it appears that the general rule still is that a gross disparity in
the taxes due and the amounts actually declared by the taxpayer gives cause for the CIR to pursue his/its
criminal prosecution for filing a fraudulent tax return, regardless of whether a deficiency assessment has been
made.
The second case, CIR v. Court of Appeals, was decided differently because the facts surrounding it varied
from the situation in Ungab v. Cusi and Adamson v. Court of Appeals. In CIR v. Court of Appeals, there arose
a legal question on the proper tax base, i.e., whether it should be the (lower) registered wholesale price or the
(higher) actual wholesale price. Otherwise stated, the CIR failed to point to a specific law or rule which
required that the tax base must be the (higher) actual wholesale price, non-compliance of which was
tantamount to a criminal violation.]
Sec. 206, Constructive Distraint of the Property of A Taxpayer. - To safeguard 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) witnessed, 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.
Q: Does a custodian of a distrained property, who is a private individual, become a public officer for that
purpose?
* In Azarcon v. Sandiganbayan, the BIR effected a constructive distraint over the truck owned by a certain
Ancla which was in the possession of Azarcon. The latter signed the receipt for the distrained property. Later,
a complaint was filed against Azarcon, a private individual, for malversation of public funds. The issue was
whether the Sandiganbayan had jurisdiction over the person of Azarcon. (The Sandiganbayan generally has
jurisdiction over crimes or offenses committed by: (1) a public officer; and (2) a private individual when the
complaint charges that private individual either as a co-principal, accomplice, or accessory of a public officer.)
The Supreme Court ruled in the negative, stating that the BIRs power to authorize a private individual to act
as a depositary or custodian could not be stretched to include the power to appoint him as a public officer.
[Azarcon v. Sandiganbayan, GR No. 116033, 16 February 1997.]
Sec. 207, Summary Remedies. 207(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or
delinquent revenue to pay the same at the time required, the Commissioner or his duly authorized
representative, if the amount involved is in excess of One million pesos (P1,000,000), or the Revenue
District Officer, if the amount involved is One million pesos (P1,000,000) or less, shall seize and

13

distraint any goods, chattels or effects, and the personal property, including stocks and other
securities, debts, credits, bank accounts, and interests in and rights to personal property of such
persons ;in sufficient quantity to satisfy the tax, or charge, together with any increment thereto
incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale.
A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted by the
distraining officer to the Revenue District Officer, and to the Revenue Regional Director: Provided,
That the Commissioner or his duly authorized representative shall, subject to rules and regulations
promulgated by the Secretary of Finance, upon recommendation of the Commissioner, have the
power to lift such order of distraint: Provided, further, That a consolidated report by the Revenue
Regional Director may be required by the Commissioner as often as necessary.
207(B) Levy on Real Property. - After the expiration of the time required to pay the delinquent tax or
delinquent revenue as prescribed in this Section, real property may be levied upon, before
simultaneously or after the distraint of personal property belonging to the delinquent. To this end, any
internal revenue officer designated by the Commissioner or his duly authorized representative shall
prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax
and penalty due from him. Said certificate shall operate with the force of a legal execution throughout
the Philippines.
Levy shall be affected by writing upon said certificate a description of the property upon which levy is
made. At the same time, written notice of the levy shall be mailed to or served upon the Register of
Deeds for the province or city where the property is located and upon the delinquent taxpayer, or if he
be absent from the Philippines, to his agent or the manager of the business in respect to which the
liability arose, or if there be none, to the occupant of the property in question.
In case the warrant of levy on real property is not issued before or simultaneously with the warrant of
distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his
tax delinquency, the Commissioner or his duly authorized representative shall, within thirty (30) days
after execution of the distraint, proceed with the levy on the taxpayer's real property.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying
officer to the Commissioner or his duly authorized representative: Provided, however, That a
consolidated report by the Revenue Regional Director may be required by the Commissioner as often
as necessary: Provided, further, That the Commissioner or his duly authorized representative, subject
to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the
Commissioner, shall have the authority to lift warrants of levy issued in accordance with the
provisions hereof.
Sec. 208, Procedure for Distraint and Garnishment. - The officer serving the warrant of distraint shall
make or cause to be made an account of the goods, chattels, effects or other personal property
distrained, a copy of which, signed by himself, shall be left either with the owner or person from
whose possession such goods, chattels, or effects or other personal property were taken, or at the
dwelling or place of business of such person and with someone of suitable age and discretion, to
which list shall be added a statement of the sum demanded and note of the time and place of sale.
Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the
taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation,
company or association, which issued the said stocks or securities.
Debts and credits shall be distrained by leaving with the person owing the debts or having in his
possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The
warrant of distraint shall be sufficient authority to the person owning the debts or having in his
possession or under his control any credits belonging to the taxpayer to pay to the Commissioner the
amount of such debts or credits.

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Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon
the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant
of garnishment, the bank shall turn over to the Commissioner so much of the bank accounts as may
be sufficient to satisfy the claim of the Government.
Sec. 209, Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer or
his duly authorized representative, other than the officer referred to in Section 208 of this Code shall,
according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of
the Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places
in the municipality or city where the distraint is made, specifying; the time and place of sale and the
articles distrained. The time of sale shall not be less than twenty (20) days after notice. One place for
the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the
property is distrained.
At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or
effects, or other personal property, including stocks and other securities so distrained, at public
auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly
licensed commodity or stock exchanges. In the case of Stocks and other securities, the officer
making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof
furnished the corporation, company or association which issued the stocks or other securities. Upon
receipt of the copy of the bill of sale, the corporation, company or association shall make the
corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer,
and issue, if required to do so, the corresponding certificates of stock or other securities.
Any residue over and above what is required to pay the entire claim, including expenses, shall be
returned to the owner of the property sold. The expenses chargeable upon each seizure and sale shall
embrace only the actual expenses of seizure and preservation of the property pending ;the sale, and
no charge shall be imposed for the services of the local internal revenue officer or his deputy.
Sec. 210, 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.
Sec. 211, Report of Sale to Bureau of Internal Revenue. - 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.
Sec. 212, Purchase by Government at Sale Upon Distraint. - When the amount bid for the property
under distraint is not equal to the amount of the tax or is very much less than the actual market value
of the articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of
the national Government for the amount of taxes, penalties and costs due thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and
regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to
the National Treasury and accounted for as internal revenue.
Sec. 213, Advertisement and Sale. - Within twenty (20) 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 sale; and such advertisement shall cover a period of a least thirty (30)
days. It shall be effectuated by posting a notice at the main entrance of the municipal building or city
hall and in public and conspicuous place in the barrio or district in which the real estate lies and; by
publication once a week for three (3) weeks in a newspaper of general circulation in the municipality
or city where the property is located. The advertisement shall contain a statement of the amount of
taxes and penalties so due and the time and place of sale, the name of the taxpayer against whom
taxes are levied, and a short description of the property to be sold. At any time before the day fixed
for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest.

15

If he does not do so, the sale shall proceed and shall be held either at the main entrance of the
municipal building or city hall, or on the premises to be sold, as the officer conducting the
proceedings shall determine and as the notice of sale shall specify.
Within five (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, the Revenue District officer and the
Revenue Regional Director. The Revenue Collection Officer, in consultation with the Revenue district
Officer, shall then make out and deliver to the purchaser a certificate from his records, showing the
proceedings of the sale, describing the property sold stating the name of the purchaser and setting
out the exact amount of all taxes, penalties and interest: Provided, however, That in case the
proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner
of the property.
The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his
collection, advance an amount sufficient to defray the costs of collection by means of the summary
remedies provided for in this Code, including; the preservation or transportation in case of personal
property, and the advertisement and subsequent sale, both in cases of personal and real property
including improvements found on the latter. In his monthly collection reports, such advances shall be
reflected and supported by receipts.
Sec. 214, 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 form 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.
Sec. 215, Forfeiture to Government for Want of Bidder. - In case there is no bidder for real property
exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the
taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property
forfeited to the Government in satisfaction of the claim in question and within two (2) days thereafter,
shall make a return of his proceedings and the forfeiture which shall be spread upon the records of
his office. It shall be the duty of the Register of Deeds concerned, upon registration with his office of
any such declaration of forfeiture, to transfer the title of the property forfeited to the Government
without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said
property by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of
the taxes and penalties, together with interest thereon and the costs of sale, but if the property be not
thus redeemed, the forfeiture shall become absolute.
Sec. 216, 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 arising under this Code 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 with prior approval of the Secretary of Finance, 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 rendered to the Chairman of the Commission on Audit.

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Sec. 217, Further Distraint or Levy. - The remedy by distraint of personal property and levy on realty
may be repeated if necessary until the full amount due, including all expenses, is collected.
Sec. 218, Injunction not Available to Restrain Collection of Tax. - No court 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.
Q: Explain the governments policy on injunctions that restrain the collection of taxes.
* On whether the courts can restrain the collection of taxes on the ground that their validity is disputed by the
taxpayer, David v. Ramos answered in the negative. The case provided a survey of cases discussing the
prohibition against injunctions that restrain the collection of taxes, eventually ruling that Courts of First
Instance, now Regional Trial Courts, have no jurisdiction to restrain the collection of taxes. [David v. Ramos,
GR No. L-4300, 31 October 1951.]
** In Angeles City v. Angeles Electric Corporation, the ruling of the Supreme Court was that the prohibition on
the issuance of a writ of injunction to enjoin the collection of taxes applied only to national internal revenue
taxes, not to local taxes. Section 218 of the 1997 Tax Code does not have a counterpart provision in the 1991
Local Government Code. Thus, the Supreme Court upheld the RTCs decision in ordering the issuance of the
writ of preliminary injunction enjoining Angeles City and its City Treasurer from levying, selling, and disposing
the properties of Angeles Electric Corporation. However, the High Court likewise noted that injunctions
enjoining the collection of local taxes are frowned upon. [Angeles City v. Angeles Electric Corporation, GR No.
166134, 29 June 2010.]
*** Previously, Section 131 of the 1997 Tax Code exempted from payment of tax all importations of cigars,
cigarettes, distilled spirits, fermented liquors, and wines into the Subic Special Economic Freeport Zone.
Section 6 of RA No. 9334, which was enacted in 2005, amended Section 131 of the 1997 Tax Code,
effectively imposing tax on all importations of the abovementioned products in to the Subic Special Economic
Freeport Zone.
At issue in Republic v. Caguioa was the preliminary injunction granted by Judge Caguioa which stayed the
implementation of RA No. 9334. The Supreme Court nullified Judge Caguioas order granting the preliminary
injunction on the ground that no clear case of abuse was established. Moreover, the Supreme Court stated
that the suspension of the implementation of the assailed law was tantamount to an injunction that restrained
the collection of taxes. [Republic v. Caguioa, GR No. 168584, 15 October 2007.]
Sec. 219, Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account
(cuentas en participacion), association or insurance company liable to pay an internal revenue tax,
neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the assessment was made by the Commissioner
until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property
and rights to property belonging to the taxpayer: Provided, That this lien shall not be valid against
any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the
Commissioner in the office of the Register of Deeds of the province or city where the property of the
taxpayer is situated or located.
Q: What is the nature of a tax lien?
* Does the lien for internal revenue tax follow the property subject to the tax into the hands of a third party
when at the time of transfer, no demand had been made and the purchaser had no notice of the existence of
the lien? In Hongkong & Shanghai Banking Corporation v. Rafferty, the Supreme Court answered in this wise:
When the Hongkong & Shanghai Banking Corporation purchased and acquired these 2,000 ties in February
1015, there was nothing to show that Pujalte & Co. were delinquent taxpayers [for forest charges]. No public
record could be consulted TAX to protect the purchaser from loss by reason of the existence of a secret lien. A
business of ordinary prudence could not be expected to foresee that the personal property which he had
taken in satisfaction of a debt was burdened by a tax. On this date, because no demand had been made and

17

because the plaintiff had no notice of the tax, there was no valid subsisting lien upon the ties. [Hongkong &
Shanghai Banking Corporation v. Rafferty, GR No. L-13188, 15 November 1918.]
** In Republic v. Enriquez, the CIR served a warrant of distraint over two barges owned by Maritime Company
of the Philippines to satisfy various deficiency taxes of said company. Later, the same two barges were
subject to levy on execution by virtue of a civil case filed and won against Maritime Company of the
Philippines. The Supreme Court ruled that the claim of the government predicated on a tax lien is superior to
the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the
warrant of distraint of personal property but from the time the tax became due and payable. Besides, the
distraint was made long before the writ of execution was issued to implement the levy on execution. [Republic
v. Enriquez, GR No. L-78391, 21 October 1988.]
*** Related to the previous case, in CIR v. NLRC, the CIR served a warrant of distraint over four barges
owned by Maritime Company of the Philippines to satisfy various deficiency taxes of said company. Later, the
same four barges were levied upon execution to satisfy a judgment for unpaid wages and other benefits of
employees of Maritime Company of the Philippines. Adopting the rationale in Republic v. Enriquez, the
Supreme Court held that the claim of the government predicated on a tax lien is superior to the claim of a
private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of
distraint of personal property but from the time the tax became due and payable. As in the previous case,
here, the distraint was also made long before the writ of execution was issued to implement the levy on
execution. [CIR v. NLRC, GR No. 74965, 9 November 1994.]
Sec. 220, Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal
actions and proceedings instituted in behalf of the Government under the authority of this Code or
other law enforced by the Bureau of Internal Revenue shall be brought in the name of the Government
of the Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no
civil or criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture
under this Code shall be filed in court without the approval of the Commissioner.
Sec. 221, Remedy for Enforcement of Statutory Penal Provisions. - The remedy for enforcement of
statutory penalties of all sorts shall be by criminal or civil action, as the particular situation may
require, subject to the approval of the Commissioner.
Sec. 222, Exceptions as to Period of Limitation of Assessment and Collection of Taxes. 222(a) In the
case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be
assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at
any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.

Q: Cite instances when the ten-year prescriptive period to assess applies.

* Section 222(a) of the 1997 Tax Code specifies three instances when the running of the threeyear
prescriptive period does not apply. They are: (1) filing a false return; (2) filing a fraudulent return with intent to
evade tax; and (3) failure to file a return. The period within which to assess tax is ten years from discovery of
the fraud, falsification, or omission. Thereafter, the CIR has another five years to collect.
** In CIR v. Tulio, Tulio failed to file his tax returns (covering percentage taxes) for 1986 and 1987. In
September 1989, the CIR discovered Tulios omission. Two final assessment notices were issued in February
1991. The Supreme Courts ruling was that the two assessments were issued well within the ten-year
prescriptive period. [CIR v. Tulio, GR No. 139858, 25 October. 2005.]

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222(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax
may be assessed within the period agreed upon. The period so agreed upon may be extended by
subsequent written agreement made before the expiration of the period previously agreed upon.
Q: What is a waiver of the statute of limitations? What are the requirements for a valid waiver of the statute of
limitations?
* RMO No. 20-90 and RDAO No. 05-01 set the rules for the proper execution of the waiver.
Among these rules are the following:
(1) The waiver must be in proper form prescribed by RMO No. 20-90. The phrase but not after ___ [20___],
which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular threeyear period of prescription, should be filled up.
(2) The waiver must be signed by the taxpayer himself or his duly authorized representative.
(3) The waiver must be duly notarized.
(4) The CIR or the revenue official authorized by him must sign the waiver indicating the BIRs acceptance
and agreement to the waiver, and the date of such acceptance by the BIR should be indicated.
(5) Both the date of execution by the taxpayer and the date of acceptance by the BIR should be prior to the
expiration of the period of prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed.
(6) The waiver must be in three copies: the original copy to be attached to the docket of the case, the
second copy for the taxpayer, and the third copy for the Office accepting the waiver.
[Revenue Memorandum Order No. 20-90, 4 April 1990; Revenue Delegation Authority Order No. 05-01, 2
August 2001.]
** Philippine Journalists, Inc. v. CIR explained the rationale of a waiver of the statute of limitations, thus: A
waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers right to
security against prolonged and unscrupulous investigations and must therefore be carefully and strictly
construed. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of
prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the
BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver
does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where
the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of limitations in the collection of
taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford
such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed.
In this case, the Supreme Court found that the waiver of the statute of limitations was invalid and not binding
for the following reasons: (1) the waiver did not specify a definite agreed date between the BIR and the
taxpayer within which the former could assess and collect revenue taxes; (2) it was signed only by a revenue
district officer, and not by the CIR; (3) the date of acceptance by the BIR could not be ascertained; and (4) the
taxpayer was not furnished a copy of the waiver.
[Philippine Journalists, Inc. v. CIR, GR No. 162852, 16 December 2004.]
*** In the case of CIR v. FMF Development Corporation, the corporation filed its annual income tax return in
April 1996, followed by an amended return filed the next month. In February 1999, the corporations president
executed a waiver of the statute of limitations, which would have extended the assessment period until
October 1999. In dispute was the validity of the waiver. The Supreme Court held that the waiver was
incomplete and defective for non-compliance with the procedures laid down in RMO No. 20-90, to wit: (1) the
taxpayer was not furnished a copy of the waiver; (2) the waiver was signed only by a revenue district officer,
and not by the CIR; and (3) it did not contain the date of acceptance by the BIR. Hence, the waiver did not
validly extend the assessment period.
[CIR v. FMF Development Corporation, GR No. 167765, 30 June 2008.]

19

**** In CIR v. Kudos Metal Corporation, the CIR was unable to assess Kudos Metal Corporation of its tax
liability for the taxable year 1998 within the three-year prescriptive period stated in Section 203 of the 1997
Tax Code. However, the corporations accountant executed two Waivers of the Defense of Prescription on
different dates. The CIR banked on these waivers to sustain the validity of the assessment made against the
corporation. The Supreme Court ruled against the CIR as the two waivers were not compliant with the
procedures laid down in RMO No. 20-90 and RDAO No. 05-01. Due to the defects in the waivers, the period
to assess or collect taxes was not extended. Consequently, the assessments were issued by the CIR beyond
the three-year period and are void.
The Supreme Court enumerated the defects in the waivers, thus: (1) the waivers were executed without the
notarized written authority of the representative to sign the waiver in behalf of the taxpayer; (2) the waivers
failed to indicate the date of acceptance; and (3) the fact of receipt by the taxpayer of its file copy was not
indicated in the original copies of the waivers. [CIR v. Kudos Metal Corporation, GR No. 178087, 5 May 2010.]
222(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed
in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5)
years following the assessment of the tax.
[NOTE: Recall that the government has either 3 years or 10 years to assess. In both cases, the government
has 5 years to collect.]
222(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided
in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within
the period agreed upon in writing before the expiration of the five (5)-year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of the
period previously agreed upon.
222(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall
be construed to authorize the examination and investigation or inquiry into any tax return filed in
accordance with the provisions of any tax amnesty law or decree.
Sec. 223, Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy
a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or collected: Provided,
that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute of
Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with sufficient discretion, and
no property could be located; and when the taxpayer is out of the Philippines. [Emphasis supplied.]
[NOTE: Remember that any suspension of the running of the statute of limitations works to the detriment of
the taxpayer in that the tax authorities are given more time to assess and/or to collect.]
Q: Cite instances on the suspension or interruption of the running of statute of limitations. [Relate the
following cases to Section 222(c).]
* Bank of the Philippine Islands v. CIR is instructive on the topic of suspension of running of the statute of
limitations on collection. [This case was governed by the provisions of the 1977 Tax Code.] In ruling that the
governments right to collect had already prescribed, the Supreme Court made the following points:
(1) A request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive
periods for the assessment and collection of tax, will not suspend the running thereof.

20

(2) Even in the absence of a waiver, the running of the statute of limitations on assessment and collection of
taxes is considered suspended when the taxpayer requests for a reinvestigation which is granted by the
Commissioner. [Section 223, 1997 Tax Code.]
(3) A request for reconsideration refers to a plea for a re-evaluation of an assessment on the basis of
existing records without need of additional evidence, while a request for reinvestigation refers to a plea
for re-evaluation of an assessment on the basis of newly-discovered or additional evidence that a
taxpayer intends to present in the reinvestigation.
(4) The request for reinvestigation must also be granted by the BIR Commissioner to suspend the running of
the statute of limitations. The burden of proof that the taxpayers request for reinvestigation had been
actually granted shall be on the BIR Commissioner.
(5) The Supreme Court had occasion to discuss the case of CIR v. Suyoc Consolidated Mining Co. which
provides one other exception to the statute of limitations on collection of taxes. Generally, a request for
reconsideration or reinvestigation by the taxpayer, in order to suspend the running of the statute of
limitations, must be preceded by a waiver of the statute of limitations. According to CIR v. Suyoc
Consolidated Mining Co., even in the absence of waiver, the taxpayer may be estopped from raising the
defense of prescription when by his repeated requests or positive acts, he has induced government
authorities to delay collection of the assessed tax. [Bank of the Philippine Islands v. CIR, GR No. 139736,
17 October 2005, citing CIR v. Suyoc Consolidated Mining Co., 104 Phil. 819 (1958).]
** Read also CIR v. Philippine Global Communications, Inc. where the Supreme Court said: In this case,
where the taxpayer merely filed two protest letters requesting for a reconsideration, and where the BIR could
not have conducted a reinvestigation because no new or additional evidence was submitted, the running of
statute of limitations cannot be interrupted. Consequently, the governments right to collect the alleged
deficiency tax was barred by prescription. [CIR v. Philippine Global Communications, Inc., GR No. 167146, 31
October 2006.]
Sec. 224, Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and removable fixtures of
any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property.
The forfeiture of real property shall be enforced by a judgment of condemnation and sale in a legal
action or proceeding, civil or criminal, as the case may require.
Sec. 225, When Property to be Sold or Destroyed. - Sales of forfeited chattels and removable fixtures
shall be effected, so far as practicable, in the same manner and under the same conditions as the
public notice and the time and manner of sale as are prescribed for sales of personal property
distrained for the non-payment of taxes.
Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and all apparatus
used I or about the illicit production of such articles may, upon forfeiture, 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 this
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. Forfeited property shall not be destroyed until at least twenty (20)
days after seizure.
Sec. 226, Disposition of Funds Recovered in Legal Proceedings or Obtained from Forfeitures. - 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 except as specially provided, shall be accounted for and dealt with the same way.
Sec. 227, Satisfaction of Judgment Recovered Against any Internal Revenue Officer. When an action
is brought against any Internal Revenue officer to recover damages by reason of any act done in the
performance of official duty, and the Commissioner is notified of such action in time to make defense

21

against the same, through the Solicitor General, any judgment, damages or costs recovered in such
action shall be satisfied by the Commissioner, upon approval of the Secretary of Finance, or if the
same be paid by the person used shall be repaid or reimbursed to him.
No such judgment, damages, or costs shall be paid or reimbursed in behalf of a person who has
acted negligently or in bad faith, or with willful oppression.
CHAPTER III PROTESTING AN ASSESSMENT, REFUND, ETC.
Sec. 228, Protesting of Assessment. - When the Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: provided,
however, That a preassessment notice shall not be required in the following cases:
(a) When 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) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
(c) When 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) When the excise tax due on exciseable articles has not been paid; or
(e) When 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.
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.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the assessment
shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final, executory
and demandable.

Assessment in general
Filing of return

Issuance of Letter of Authority (LA)

Notice of Informal Conference

Audit

22

Preliminary Assessment Notice (PAN)

Final Assessment Notice (FAN)

When a Preliminary Assessment Notice is not required
Filing of return

Final Assessment Notice (FAN)

If protest is denied
Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

JGGB: (if no protest filed the FAN will become final and executory)

Relevant supporting documents are submitted within 60 days

JGGB: (If documents not filed within 60 days, the FAN will become final and executory)

CIR denies protest

Appeal to the CTA within 30 days
Appeal to the CTA En Banc
Appeal to the Supreme Court
If protest is not acted upon
Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

Relevant supporting documents are submitted within 60 days 1

CIRs inaction for 180 days

Appeal to the CTA within 30 days

1 When the taxpayer files the protest and submits his/her/its supporting documents on the same
date, the one hundred eighty-day period shall be reckoned from such date.
23

JGGB: (Or wait for the decision even if the 180 day period had already lapsed
and upon its receipt, appeal to the CTA within 30 days (Lascona Case)

Appeal to the CTA En Banc

Appeal to the Supreme Court
Q:What is a Letter of Authority?
* Section 13 of the 1997 Tax Code provides that: Subject to the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform
assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional
Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or
to recommend the assessment of any deficiency tax due in the same manner that the said acts could have
been performed by the Revenue Regional Director himself. In other words, the Letter of Authority (LA/LOA) is
the authority given to the revenue officer to perform assessment functions.
** A Letter of Authority should cover a taxable period not exceeding one taxable year. The practice of issuing
LAs covering audit of unverified prior years is prohibited. If the audit of a taxpayer shall include more than
one taxable period, the other periods shall be specifically indicated in the LA. [Revenue Memorandum Order
No. 43-90, 20 September 1990.]
*** In CIR v. Sony Philippines, Inc., the relevant Letter of Authority covered the period 1997 and unverified
prior years. However, the deficiency VAT assessment the CIR arrived at was based on records from January
to March 1998. It was the CIRs contention that the LA, although it stated the period 1997 and unverified prior
years, should be understood to mean the fiscal year ended 31 March 1998. The Supreme Court held that
clearly, the CIR, acting through the revenue officers, went beyond the scope of their authority as indicated in
the LA. Hence, the deficiency VAT assessment made on the basis thereof must be disallowed. [CIR v. Sony
Philippines, Inc., GR No. 178697, 17 November 2010.]
**** Effective 1 July 2010, the manual issuance of LAs has been discontinued. In place thereof, electronic LAs
shall be issued through the Letter of Authority Monitoring System (LAMS).
Q: What is a Letter Notice? Is it equivalent to a Letter of Authority?
* A Letter Notice is a discrepancy notice issued by the CIR after conducting data matching processes,
informing the taxpayer of findings of discrepancy, e.g., under-declared sales and overclaimed purchases. An
LN shall cover only the tax indicated therein on a given particular period or quarter, e.g., VAT liabilities for
2002 3rd quarter. Compared with a Letter of Authority, the coverage of an LA is more comprehensive than that
of an LN. [Revenue Memorandum Order No. 42-2003, 23 October 2003.]
** RMO No. 55-10 provides that a Letter Notice shall be treated as a notice of audit or investigation in the
absence of evident error or clear abuse of discretion. In order to expedite the processing of LN cases, the
issuance of Notices of Informal Conference may immediately commence, even without the prior issuance of
Letters of Authority. On the basis of RMO No. 55- 10, it appears that an LN is effectively equated to an LA.
[NOTE: Relate this revenue issuance to Section 13 of the 1997 Tax Code which essentially states that a
revenue officer shall be authorized to perform assessment functions on the strength of an LA, and not merely
an LN.] [Revenue Memorandum Order No. 55-10, 11 June 2010.]
Q: What constitutes a valid assessment?

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* The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing
the taxpayer of not only the law, but also of the facts on which an assessment would be made. In CIR v.
Reyes, the Supreme Court spoke of the now mandatory requirement to inform the taxpayer of the law and the
facts on which the assessment is made. It said: To be simply informed in writing of the investigation being
conducted and of the recommendation for the assessment of the estate taxes due is nothing but a perfunctory
discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes
already knew the law and the facts on which the assessment was based. It does not at all conform to the
compulsory requirement under Section 228. [CIR v. Reyes, GR No. 159694, 27 January 2006.]
Q: Discuss the rule that all presumptions are in favor of the correctness of a tax assessment. Is there an
exception to the rule?
* In Sy Po v. Court of Tax Appeals, the late Po Bien Sing was the sole proprietor of Silver Cup Wine Factory,
engaged in the manufacture and sale of compounded liquors. He was assessed deficiency income tax and
specific tax for various years after the BIR conducted investigation. At issue was whether the deficiency
assessments had valid and legal bases. In ruling that the deficiency assessments were valid, the Supreme
Court noted that the BIRs resort to the best evidence obtainable was warranted by the circumstances as the
taxpayer failed to respond to the BIRs subpoena duces tecum. Moreover, the High Court found that the tax
figures arrived at by the CIR after investigation were by no means arbitrary as they were made on the basis of
the quantity of wine bottles seized during the raid conducted, as well as sworn statements of the
proprietorships former employees. Tax assessments by tax examiners are presumed correct and made in
good faith. The taxpayer has the duty to prove otherwise. [Sy Po v. Court of Tax Appeals, GR No. L-81446,
18 August 1988.]
** In CIR v. Hantex Trading Co., Inc., the taxpayer was engaged in the importation of synthetic resin.
Prompted by confidential information that the taxpayer under-declared its importations for 1987, the CIR
issued subpoena duces tecum and ad testificandum against it. However, the taxpayer failed to comply with
said subpoena. The CIR then issued a deficiency income tax assessment on the basis of photocopies of
import entries and financial statements. The Supreme Court held that under Section 16 of the 1977 Tax Code
(now Section 6 of the 1997 Tax Code), best evidence obtainable does not include mere photocopies of
records or documents. Moreover, while the Supreme Court agreed that as a general rule, tax assessments by
tax examiners are presumed correct and made in good faith, the rule does not apply when the CIR comes out
with a naked assessment, i.e., an assessment that is without any foundation and hence, arbitrary and
capricious.
[CIR v. Hantex Trading Co., Inc., GR No. 136975, 31 March 2005.]
Q: Is receipt by the taxpayer of the Final Assessment Notice, without the Preliminary Assessment Notice,
sufficient?
* In CIR v. Metro Star Superama, Inc., the taxpayer received a Final Assessment Notice, but denied receiving
a Preliminary Assessment Notice. The issue was whether receipt of only the FAN amounted to a denial of due
process. The Supreme Court answered in the affirmative, thus: Indeed, Section 228 of the Tax Code clearly
requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a
PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations
that taxpayers should be able to present their case and adduce supporting evidence. [CIR v. Metro Star
Superama, Inc., GR No. 185371, 8 December 2010.]
Q: What happens when a taxpayer fails to timely protest an assessment? [NOTE: Remember that appealable
to the CTA is a decision that refers not to the assessment itself, but to one made on the protest against such
assessment.]
* In CIR v. Bank of the Philippine Islands, the taxpayer failed to timely file a protest on the assessment made
against it. The Supreme Court discussed the implications of a taxpayers failure to protest an assessment

25

within the thirty-day period. (1) The assessment shall become final. The taxpayer will then be barred from
disputing the correctness of the assessment or invoking any defense that will reopen the question of its
liability on the merits. (2) There arises a presumption of correctness of the tax assessment. [CIR v. Bank of
the Philippine Islands, GR No. 134062, 17 April 2007.]
** When a taxpayer files a protest and the CIR acts upon said protest, the taxpayer has 30 days from receipt
thereof to file a judicial claim. If the protest is not acted upon within 180 days from submission of documents,
the taxpayer has 30 days from the lapse thereof to file a judicial claim. In CIR v. Isabela Cultural Corporation
and Oceanic Wireless Network, Inc. v. CIR, the Supreme Court stated that a final demand letter for payment
of delinquent taxes may be considered a decision on a disputed or protested assessment, and thus may be
appealed to the CTA, if the letter indicates to the taxpayer in clear and unequivocal language that it
constitutes the CIRs final action on the disputed assessment. [CIR v. Isabela Cultural Corporation, GR No.
135210, 11 July 2001; Oceanic Wireless Network, Inc. v. CIR, GR No. 148380, 9 December 2005.]
*** In Allied Banking Corporation v. CIR, a Preliminary Assessment Notice was sent to Allied Banking
Corporation for deficiency documentary stamp tax and gross receipts tax. Petitioner filed a protest against it.
Thereafter, petitioner received a Formal Letter of Demand with Assessment Notices, in response to which
petitioner filed a claim with the CTA. At issue was whether in filing the judicial claim, without filing a protest
against the Formal Letter of Demand, petitioner failed to exhaust its administrative remedies.
The Supreme Court held that procedurally, it is the FAN, and not the PAN, which should be protested
administratively. If the rules were to be strictly applied, the dismissal of the judicial claim was proper for failure
to exhaust administrative remedies. However, the Supreme Court likewise held that the case constituted an
exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the party of the administrative
agency concerned. The Formal Letter of Demand could be considered a final decision of the CIR appealable
to the CTA because the words used taken together led petitioner to believe that it was the final decision of the
CIR on the letter-protest it filed and that the available remedy was to appeal the same to the CTA. [Allied
Banking Corporation v. CIR, GR No. 175097, 5 February 2010.]
Q: What happens when a taxpayer fails to timely appeal to the CTA?
* When a taxpayer files a protest, he has 60 days from filing of the protest to submit all relevant supporting
documents. If the protest is not acted upon within 180 days from submission of documents, the taxpayer has
30 days from the lapse thereof to file a judicial claim. In Rizal Commercial Banking Corporation v. CIR, the
taxpayer failed to appeal to the CTA within 30 days upon the lapse of 180 days from submission of
documents. The Supreme Court held that compliance with the thirty-day period was jurisdictional. As a
consequence of the taxpayers failure to appeal to the CTA within the thirty-day period, the assessment
became final, executory, and demandable. [Rizal Commercial Banking Corporation v. CIR, GR No. 168498,
16 June 2006, citing Ker & Company, Ltd. v. Court of Tax Appeals, GR No. L-12396, 31 January 1962.]
** When a taxpayer files a protest, he has 60 days from filing of the protest to submit all relevant supporting
documents. If the protest is not acted upon within 180 days from submission of documents, the taxpayer has
30 days from the lapse thereof to file a judicial claim. In CIR v. First Express Pawnshop Company, Inc., the
taxpayer filed its protest and submitted all relevant supporting documents on the same date. Within 30 days
upon the lapse of 180 days from that date, the taxpayer appealed to the CTA. The issue was whether the
judicial claim was premature. The Supreme Court ruled that the starting point of the 180 days was the date
the protest and the relevant supporting documents were simultaneously filed. Hence, the judicial claim was
not premature.
Additionally, the Supreme Court indicated that the term relevant supporting documents were those
documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer.
The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of
supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may
require the production of documents that a taxpayer cannot submit. [CIR v. First Express Pawnshop
Company, Inc., GR No. 172045, 16 June 2009.]

26

Sec. 229, Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, of any sum alleged to have been excessively or in any manner wrongfully collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
Procedure for recovery of internal revenue tax
Payment

Administrative claim filed with the CIR within 2 years2

Claim is deniedClaim is not acted upon

Appeal to the CTA within 30 days

but always within 2 years from payment

Judicial claim filed with the CTA

within 2 years from payment
JGGB: The 2 year period is counted from the date of payment regardless of the supervening event that will give rise to a
tax refund or tax credit.
Q: When does the two-year prescriptive period under Section 204 in relation to Section 229 apply? When
does it not apply?
* A taxpayer claiming for a tax refund or credit of creditable withholding tax must comply with the following
requisites:
(1) The administrative and judicial claims must be filed within two years from the date of payment of the tax
[Section 229, 1997 Tax Code]; (2) It must be shown on the return that the income received was declared
as part of the gross income [RR No. 6-85]; and
(3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the
payee showing the amount paid and the amount of the tax withheld [RR No. 6-85]. In CIR v. Far East
Bank & Trust Company, while the taxpayer timely filed its claim for refund, it failed to prove that its
income derived from rentals and sale of real property was included in its gross income as reflected in its
return. It also failed to prove the fact of withholding as ordinarily established by Certificates of Creditable
Tax Withheld at Source. [CIR v. Far East Bank & Trust Company, GR No. 173854, 15 March 2010.]

2 CIR v. PNB (G.R. No. 161997, Oct. 25, 2005): When the taxpayer files a claim for refund of its advance income tax payment, i.e. a lump
sum payment to cover future tax obligations, and not for the recovery of erroneously, excessively, illegally or wrongfully collected tax or
penalty, the 2-year prescriptive period does not apply. Instead, Article 1144 of the Civil Code prevails and that period would be 10 years.

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** Sometime in 1985, RMC No. 7-85 was issued. It stated that overpaid income taxes were not covered by the
two-year prescriptive period under the 1977 Tax Code and that taxpayers could claim tax refunds or credits for
the excess quarterly income tax with the BIR within 10 years under Article 1144 of the Civil Code. Later, RMC
No. 7-85 was nullified for being inconsistent with the 1977 Tax Code. In Philippine Bank Communications v.
CIR, petitioners claim was filed beyond the two-year prescriptive period, but within the ten-year period.
Having relied on RMC No. 7-85, petitioner invoked the applicability of said nullified revenue issuance. The
Supreme Court denied petitioners claim. [Philippine Bank Communications v. CIR, GR No. 112024, 28
January 1999.]
*** In CIR v. Philippine National Bank, the bank issued to the BIR a check for Php 180 million, representing its
advance income tax payment for its 1991 operations and was remitted in response to the late President
Aquinos call to generate more revenues for national development. Thereafter, the bank requested that it be
allowed to apply its unutilized advance income tax payment of about Php 73.3 million to its future gross
receipts tax liability. The CIR denied the banks request. The bank appealed to the CTA, but the latter
dismissed the judicial claim for having been filed beyond the two-year prescriptive period under Section 229 of
the 1997 Tax Code. The Supreme Court ruled in favor of the bank, holding that an availment of tax credit due
for reasons other than the erroneous or wrongful collection of taxes, as in this case, would not be covered by
the two-year prescriptive period. By virtue of Article 1144 of the Civil Code, the period would be 10 years.
Hence, the banks claim for tax credit was not yet barred by prescription. [CIR v. Philippine National Bank, GR
No. 161997, 25 October 2005.]
**** The issue in CIR v. Mirant Pagbilao Corporation revolved around whether MPC was entitled to a claim for
tax refund or credit of unutilized input VAT from 1993 to 1996. In ruling that MPCs claim was filed out of time,
it applied the two-year prescriptive period under Section 112(A) of the 1997 Tax Code (the starting point of
which is the close of the taxable quarter when the sales where made). Corollarily, the Supreme Court held that
the two-year prescriptive period under Section 204(C) of the 1997 Tax Code (which commences from the date
of payment of the tax), was inapplicable as it pertained to taxes erroneously or illegally paid. [CIR v. Mirant
Pagbilao Corporation, GR No. 172129, 12 September 2008; also, CIR v. Aichi Forging Company of Asia, Inc.,
GR No. 184823, 6 October 2010.]
Q: Who may file a claim for tax refund or credit under this provision?
* Silkair (Singapore) Pte. Ltd. was involved in a series of claims for tax refund or credit for excise taxes paid
on its purchases of aviation jet fuel from Petron Corporation for different taxable periods. Silkairs main
argument was that it was exempt from payment of excise tax by virtue of Section 135(b) of the 1997 Tax Code
and Article 4(2) of the RP-Singapore Air Transport Agreement. As between Petron, the seller, and Silkair, the
buyer, the latter contended that in reality, it paid the excise taxes due on the transactions because said taxes,
being indirect taxes, were made part of the purchase price of the aviation jet fuel.
The Supreme Court ruled that based on Section 204(c) of the 1997 Tax Code, the statutory taxpayer (Petron
in this case, being the manufacturer of the aviation jet fuel) was the proper party that can claim the refund.
Section 204(C) of the 1997 Tax Code states in part: No credit or refund of taxes or penalties shall be allowed
unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after
the payment of the tax or penalty: [Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 171383, 14 November 2008;
Silkair (Singapore) Pte. Ltd. v. CIR, GR No. 184398, 25 February 2010.]
** On the basis of CIR v. Smart Communications, Inc., the person entitled to claim a tax refund is the taxpayer.
However, in case the taxpayer does not file a claim for refund of withholding taxes, the withholding agent may
file the claim. For this purpose, the taxpayer and the withholding agent need not be related parties. In view of
the foregoing, Smart Communications, Inc. as withholding agent was allowed to file the claim for tax refund on
behalf of Prism Transactive (M) Sdn. Bhd., a Malaysian corporation. [CIR v. Smart Communications, Inc., GR
Nos. 179045-46, 25 August 2010.]
Q: What are the special rules in computing the two-year prescriptive period for filing suit?

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In the case of corporations

Tax paid in installments
Sale of property levied, seized or
distrained
Purchase by or forfeiture in favor of the
Government
Excise tax on domestic petroleum
products
Excise tax on imported petroleum
products
Value-added tax and other percentage
taxes

From the time of filing of Final Adjustment Return and

final payment of tax
From the time of payment of last installment
At the time of application of proceeds to tax deficiency
At the time of purchase or forfeiture
At the time of removal from place of production
At the time of release from customshouse
From the time of filing of quarterly VAT return, i.e.
within 25 days after the close of each taxable quarter

Sec. 230, Forfeiture of Cash Refund and of Tax Credit.

230(A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the pertinent
provisions of this Code, which shall remain unclaimed or uncashed within five (5) years from the date
the said warrant or check was mailed or delivered, shall be forfeited in favor of the Government and
the amount thereof shall revert to the general fund.
230(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent
provisions of this Code, which shall remain unutilized after five (5) years from the date of issue, shall,
unless revalidated, be considered invalid, and shall not be allowed as payment for internal revenue
tax liabilities of the taxpayer, and the amount covered by the certificate shall revert to the general
fund.
230(C) Transitory Provision. - For purposes of the preceding Subsection, a tax credit certificate
issued by the Commissioner or his duly authorized representative prior to January 1, 1998, which
remains unutilized or has a creditable balance as of said date, shall be presented for revalidation with
the Commissioner or his duly authorized representative or on before June 30, 1998.
Sec. 231, 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.
Q: Does a taxpayer have any other remedy apart from those provided in the 1997 Tax Code?
* Every so often, to enhance revenue administration and collection, the National Government enacts tax
amnesty laws covering unpaid internal revenue taxes for specific taxable periods. For example, see RA No.
9480, a tax amnesty law covering the taxable year 2005 and prior years. Under Section 6(a) of RA No. 9480,
the taxpayer shall be immune from the payment of taxes, as well as additions thereto, and the appurtenant
civil, criminal or administrative penalties under the 1997 Tax Code arising from the failure to pay any and all
internal revenue taxes for taxable year 2005 and prior years. [Republic Act No. 9480, 24 May 2007.]
** In Philippine Health Care Providers, Inc. v. CIR, the Supreme Court categorically stated that documentary
stamp taxes are within the coverage of RA No. 9480. Hence, in view of the taxpayers compliance with the
requirements of said tax amnesty law, its tax liabilities were extinguished. [Philippine Health Care Providers,
Inc. v. CIR, GR No. 167330, 18 September 2009.]
======

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Sec. 246, Non-Retroactivity of Rulings. Any revocation, modification or reversal of any of the rules
and regulations promulgated in accordance with the preceding Sections or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different
from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
Q: Discuss the rule on non-retroactivity of rulings.
* Rulings or circulars promulgated by the CIR have no retroactive application where to so apply them would
be prejudicial to taxpayers. In ABS-CBN Broadcasting Corporation v. Court of Tax Appeals, the Supreme
Court disallowed the retroactive application of a Revenue Memorandum Circular because to do so would hold
the taxpayer liable for deficiency withholding income taxes three years after the fact. The taxpayer was no
longer in a position to withhold taxes due from foreign corporations because it had already remitted all film
rentals and no longer had any control over them. [ABS-CBN Broadcasting Corporation v. Court of Tax
Appeals, GR No. L-52306, 12 October 1981.]
** In several cases, the retroactive application of revenue issuances was disallowed because the taxpayer
would have suffered substantial economic prejudice, i.e., assessment and payment of deficiency taxes in
large sums. [CIR v. Burroughs Limited, GR No. L-66653, 19 June 1986; CIR v. Benguet Corporation, GR No.
145559, 14 July 2006.]
*** As a general rule, issuances by the BIR shall not be given retroactive application if it would be prejudicial
to the taxpayer, except when, for instance, the taxpayer acted in bad faith. In CIR v. Court of Appeals, the
Supreme Court had occasion to say that there must be convincing evidence of bad faith which imports
dishonest purpose or some moral obliquity and conscious doing of wrong. It partakes of the nature of fraud; a
breach of a known duty through some motive of interest or ill will. In this instance, the Supreme Court found
that the taxpayer was not guilty of acting with bad faith.
On the other hand, CIR v. Philippine Health Care Providers, Inc. defined good faith as "that state of mind
denoting honesty of intention and freedom from knowledge of circumstances which ought to put the holder
upon inquiry; an honest intention to abstain from taking any unconscientious advantage of another, even
through technicalities of law, together with absence of all information, notice, or benefit or belief of facts which
render transaction unconscientious." Likewise in this case, the Supreme Court found that the taxpayer was
not guilt of acting with bad faith. [CIR v. Court of Appeals, GR No. 117982, 6 February 1997; CIR v. Philippine
Health Care Providers, Inc., GR No. 168129, 24 April 2007.]
**** An administrative rule interpretative of a statute, and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of effectivity of the statute. In CIR v. Reyes, a Revenue
Regulation issued in September 1999 was made to retroact to 1 January 1998, i.e., the date of effectivity of
the 1997 Tax Code. [CIR v. Reyes, GR Nos. 159694 & 163581, 27 January 2006.]

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