Commissioner of Internal Revenue vs Hon. Raul M.

Gonzalez, Secretary of
Justice, L.M. Camus Engineering Corporation (represented by Luis M. Camus and
Lino D. Mendoza), G.R. No. 177279, October 13, 2010.

Assessment; validity of assessment notice; lack of control number. The formality

of a control number in the assessment notice is not a requirement for its validity; rather
the contents thereof should inform the taxpayer of the declaration of deficiency tax
against the taxpayer. Both the formal letter of demand and the notice of assessment
shall be void if the former failed to state the fact, the law, rules and regulations or
jurisprudence on which the assessment is based, which is a mandatory requirement
under section 228 of the National Internal Revenue Code. 

Tax evasion; failure to comply with subpoena duces tecum not relevant to tax
evasion; forum shopping. A violation of section 266 (failure to obey summons) of the
National Internal Revenue Code (NIRC) involves a separate offense and hence litis
pendencia is not present considering that the outcome of this complaint is not
determinative of the issue as to whether probable cause exists to charge the taxpayer
with the crimes of attempt to evade or defeat tax and willful failure to supply correct and
accurate information and pay tax defined and penalized under sections 254 and 255,
respectively, of the NIRC. For the crime of tax evasion in particular, compliance by the
taxpayer with such subpoena, if any had been issued, is irrelevant. Thus, the Secretary
of Justice erred in holding that the Commissioner of Internal Revenue committed forum
shopping when it filed the complaint for tax evasion during the pendency of its appeal
from the City Prosecutor’s dismissal of the complaint involving the act of disobedience
to the summons in the course of the preliminary investigation on the taxpayer’s correct
tax liabilities for the taxable years 1997, 1998 and 1999. 

Tax evasion; lack of consent by taxpayer under investigation.Lack of consent by

the taxpayer under investigation does not imply that the Bureau of Revenue (BIR)
obtained the information from third parties illegally or that the information received is
false or malicious. Nor does the lack of consent preclude the BIR from assessing
deficiency taxes on the taxpayer based on the documents. In the same vein, the
taxpayer cannot be allowed to escape criminal prosecution under sections 254 and 255
of the National Internal Revenue Code (NIRC) by mere imputation of a “fictitious” or
disqualified informant under section 282 of the NIRC simply because other than
disclosure of the official registry number of the third party “informer,” the BIR insisted on
maintaining the confidentiality of the identity and personal circumstances of said
“informer.” 

Voluntary Assessment Program; Revenue Regulations No. 2-99; Economic

Recovery Assistance Payment (ERAP) Program; immunity. Revenue Regulations
No. 2-99 explained in its Policy Statement that considering the scarcity of financial and
human resources as well as the time constraints within which the Bureau of Internal
Revenue (BIR) has to “clean the [BIR’s] backlog of unaudited tax returns in order to
keep updated and be focused with the most current accounts” in preparation for the full
implementation of a computerized tax administration, the said revenue regulation was
issued “providing for last priority in audit and investigation of tax returns” to accomplish
the said objective “without, however, compromising the revenue collection that would
have been generated from audit and enforcement activities.” The program granted
immunity from audit and investigation of income tax, VAT and percentage tax returns for
1998. It expressly excluded withholding tax returns. Since such immunity from audit and
investigation does not preclude the collection of revenues generated from audit and
enforcement activities, it follows that the BIR is likewise not barred from collecting any
tax deficiency discovered as a result of tax fraud investigations. 

Voluntary Assessment Program; immunity. Availment by the taxpayer of the

voluntary assessment program (VAP) under Revenue Regulations No, 8-2001, as
amended, did not amount to settlement of its assessed tax deficiencies for the period
1997 to 1999, nor immunity from prosecution for filing fraudulent return and attempt to
evade or defeat tax. From the express terms of the said revenue regulations, taxpayer
is not qualified to avail of the VAP granting taxpayers the privilege of last priority in
the audit and investigation of all internal revenue taxes for the taxable year 2000 and all
prior years under certain conditions, considering that, first, it was issued a preliminary
assessment notice (PAN) on February 19, 2001, and, second, it was the subject of
investigation as a result of verified informed filed by a tax informer under section 282 of
the National Internal Revenue Code duly recorded in the BIR officialregistry even prior
to the issuance of the PAN, which are excepted from coverage of the VAP under said
regulations. Moreover, the taxpayer cannot invoke the availment of VAP to foreclose
any subsequent audit of its account books and other accounting records in view of the
strong finding of underdeclaration in its payment of the correct income tax liability by
more than 30% as supported by the written report of the Tax Fraud Division. Under the
regulations, a taxpayer who has availed of the VAP shall not be audited except upon
authorization and approval of the Commissioner of Internal Revenue when there is
strong evidence or finding of understatement in the payment of its correct tax liability by
more than 30% as supported by a written report of the appropriate office detailing the
facts and the law on which such finding is based. 

Voluntary Assessment Program; estoppel. Given the explicit conditions for the grant
of immunity from audit under the said revenue regulations, the Secretary of Justice
erred in declaring that the Commissioner of Internal Revenue is estopped from
assessing any tax deficiency against the taxpayer after the issuance of the documents
of immunity from audit/investigation and settlement of tax liabilities. The State can never
be in estoppel, and this is particularly true in matters involving taxation. The errors of
certain administrative officers should never be allowed to jeopardize the government’s
financial position. 

Voluntary Assessment Program; exception to rule that examination and

inspection should be made only once a taxable year. The discovery of substantial
underdeclarations of income by the taxpayer for taxable years 1997, 1998 and 1999
upon verified information provided by an “informer” under section 282 of the National
Internal Revenue Code (NIRC), as well as the necessity of obtaining information from
third parties to ascertain correctness of the return filed or evaluation of tax compliance
in collecting taxes (as a result of the disobedience to the summons issued by
the Bureau of Internal Revenue against the taxpayer) are circumstances warranting
exception from the general rule in section 235 of the NIRC. 

CIR V ENRON

576 SCRA 212 – Taxation Law – NIRC Remedies – Assessment – Assessment Notice
In 1997, Enron Subic Power Corporation received a pre-assessment notice from the
Bureau of Internal Revenue (BIR). Enron allegedly had a tax deficiency of P2.8 million
for the year 1996. Enron filed a protest. In 1999, Enron received a final assessment
notice (FAN) from the BIR for the same amount of tax deficiency.
Enron however assailed the FAN  because according to Enron the FAN is not compliant
with Section 228 of the National Internal Revenue Code (NIRC) which provides that the
legal and factual bases of the assessment must be contained in the FAN. The FAN
issued to Enron only contained the computation of its alleged tax liability.
The Commissioner of Internal Revenue (CIR) admitted that the FAN did not contain the
legal and factual bases of the assessment however, the CIR insisted that the same has
been substantially complied with already because during the pre-assessment stage, the
representative of Enron has been advised of the said factual and legal bases of the
assessment.
ISSUE: Whether or not there is a valid final assessment notice issued to Enron.
HELD: No. The wording of Section 228 of the NIRC provides:
The taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise the assessment shall be void.
The word “shall” is mandatory. The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and assessment notice. It cannot
be substituted by other notices or advisories issued or delivered to the taxpayer during
the preliminary stage.
BPI