Tax Remedies

Notes in Tax Remedies

February 24, 2009

PRE-ASSESSMENT NOTICE impt!!!

A pre-assessment notice is served by the Government upon the taxpayer under any of the following circumstances:
1. if the taxpayer fails to file a return where return is required;
2. if he files a return but fails to pay the tax;
3. if he files a return and pays the tax, but payment is insufficient because certain deductions claimed are disallowed by the BIR.
After the taxpayers receipt of the pre-assessment notice, any of the following situations can take place:

1.
2.
3.
4.
5.

taxpayer accepts liability and pays the tax as appearing on the pre-assessment notice;
taxpayer disagrees with the pre-assessment notice and responds by explaining that he is not liable;
taxpayer pays the tax and later on files a written claim for refund;
taxpayers enters into a compromise agreement with the BIR;
taxpayer ignores the pre-assessment notice.

The tax code states that the period to respond shall be prescribed by implementing rules and regulations. If the taxpayer fails to
respond within such period (30 days), a final assessment shall issue.
ORDINARY PERIOD FOR ASSESSMENT
The right of the government to asses and later on to collect the tax is subject to prescription, upon the lapse of which it can no
longer exercise this right.
Section 203, of the tax code provides that internal revenue taxes shall be assessed within 3 years after the last day prescribed by
law for the filing of the return. The same provision of law lays down the rules as to when the 3 year prescriptive period for
assessment begins:
1. if the return is filed before the last day prescribed by law for the filing thereof, it shall be considered as filed on the last day;
2. if the return is filed on the last day prescribed by law, then it is considered as filed on such day;
3. if the return is filed beyond the period prescribed by law, the 3 year period shall be counted from the day the return is filed.
So it is clear, that the reckoning point for the 3 year prescriptive period is flexible; if the return is filed on or before the
deadline, the reckoning point is the deadline; if filed beyond the deadline, the reckoning point is the date the return is actually
filed. The 3 year period for assessment begins to run from such a date.
FINAL ASSESSMENT...IMPT!
A final assessment issues:
1. if the taxpayer, having received a pre-assessment notice fails to respond within the period provided for by the rules and
regulations;
2. under the 5 circumstances enumerated under section 228 of the tax code where pre-assessment notice is not necessary
Section 228. enumerates the exceptional circumstances where a pre-assessment notice is not necessary: IMPT!!!

1. 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;
2. when a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding
agent; or
3. 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;
4. when the excise tax due on excisable articles has not been paid, or
5. when an 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.

Under the foregoing circumstances, the taxpayer shall immediately receive a final assessment without the benefit of preassessment notice.
REMEDIES AVAILABLE TO THE GOVERNMENT IN THE COLLECTION OF THE INCOME TAX...VERY IMPT!!
1. ADMINISTRATIVE

a. Distraint of personal property;

b. Levy of personal property
c. Enforcement of forfeiture of property
d. Enforcement of tax lien
e. Requiring the filing of bonds

f. Requiring proof of filing income tax returns

g. Deportation of aliens
h. Inspection of books of accounts.
2. JUDICIAL

a. ordinary civil action

b. criminal action
DISTRAINT- seizure by the government of personal property, tangible or intangible, to enforce the payment of taxes to be

followed by its public sale if the taxes are not voluntarily paid.
Kinds of Distraint

a. Actual- there is taking of possession of the personal property out of the taxpayer into that of the government;
b. Constructive- the owner is merely prohibited from disposing of his property.
LEVY- A summary administrative remedy, seizure of real property to enforce payment of taxes.

A written notice of levy, containing a description of the property upon which levy is made, the name of the taxpayer and the
amounts of the tax and penalty due from them is served upon the taxpayer.
FORFEITURE- a divestiture of property without compensation, in consequence of a default or offense. In case of chattels and

removal of fixtures of any sort, forfeiture is enforced by seizure and sale or destruction of the specific forfeited property. The
forfeiture of real property is enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal,
as the case may require.
TAX LIEN- a legal claim or charge on property either real or personal established by law as a security in default of the payment

of taxes. The tax, together with interest, penalties and cost that may accrue in addition thereto is a lien upon all property and
rights to property belonging to the taxpayer. The lien however, shall not be valid against any mortgagee, purchaser or judgment
creditor until legal notice of such liens should be filed by the Commissioner of internal revenue in the Office of the Register of
Deeds of the province or city where the property of the taxpayer is located. The lien attaches when the taxpayer neglects or
refuses to pay the tax after demand, but relates back from the time when assessment was made by the Commissioner.
REQUIRING THE FILING OF BONDS- Filing of performance bond to secure the payment of taxes or compliance with certain

provisions of tax laws and regulations. This may be required by the BIR for the issuance of a tax clearance.
REQUIRING PROOF OF FILING INCOME TAX RETURNS. Before a license to engage in trade or business or occupation or to

practice a profession can be issued to a person, partnership, association or corporation, he must submit to the officer issuing
such license or permit, proof that he has filed his income tax return during the preceding year and that income taxes due have
been paid thereon.
DEPORTATION OF ALIENS- any alien who

1. knowingly and fraudulently evades the payment of any internal revenue tax or
2. willfully refuses to pay such tax and its accessory penalties after the decision on the tax liability rendered by the
Commissioner of Internal Revenue, or the CTA or any competent judicial tribunal shall have become final and executor, is subject
to deportation. The penalty of deportation is not a bar to any proceeding taken by the government to enforce collection of tax
delinquency.
INSPECTION OF BOOKS OF ACCOUNTS
JUDICIAL ACTION
1. Civil Action- After the assessment made by the Commissioner of Internal Revenue has become final and executory for failure of
the taxpayer to dispute the same and appeal the disputed assessment to the Court of Tax Appeals, the government may institute
civil actions to collect internal revenue taxes in the Regional Trial Court and the Metropolitan Trial Court, City and municipal courts.
2. Criminal Action- maybe pursued by the authorities for the collection of delinquent taxes. An assessment of a tax deficiency is
not necessary to a criminal prosecution for tax evasion. The crime is complete when the violator has knowingly and willfully filed a
fraudulent return or neglected to file a return with intent to evade the tax. If the taxpayer is acquitted, the government may still
collect the tax in a civil action, because the payment of a tax is an obligation imposed by statute and does not arise from a criminal
act.
Prescriptive period for collection.
Where an assessment was made, the period for collection by judicial action or by distraint or levy is within 3 years after the date of
assessment. Where no assessment was made and a return was filed, and the same is not false or fraudulent, the period for
collection by a proceeding in court is within 3 years after the return was due or filed whichever is later, except:
Where a return required to be filed was not filed, or even if filed the same is false or fraudulent, and made with the intent to evade
the tax, the period is ten years after discovery of the omission to file the return or from the discovery of the falsity or fraud. The
other exception relative to the prescriptive periods for assessment are also applicable.
Where the government makes another assessment on the basis of a reinvestigation requested by the taxpayer, or a revised
assessment because of an amended return or as a result of a reinvestigation asked for by the taxpayer, the period is counted from

the last assessment or the last revised assessment.

Where the action is brought to enforce a compromise agreement into between the commissioner and the taxpayer, the prescriptive
period is ten years from the time the cause of action accrues as fixed in the civil code.
The running of the statute of limitation on the making of an assessment, the beginning of distraint or levy or any
proceeding in court for collection is suspended: IMPT!!!!!
1. for the period during which the Commissioner of Internal Revenue is prohibited from making tax assessment or beginning the
distraint or levy or any proceeding in court and for sixty days thereafter;
2. when the taxpayer requests for a reinvestigation which is granted by the commissioner;
3. 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, unless the taxpayer informs the Commissioner of any change in address;
4. when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or with a member of his
household with sufficient discretion and no property could be located; and
5. When the taxpayer is out of the Philippines.

REMEDIES OF THE TAXPAYER

BEFORE PAYMENT
1.
2.

administrative protest
request for reconsideration

3.

request for reinvestigation

4.

judicial protest

AFTER PAYMENT
1.
2.

claim for tax refund

claim for tax credit

1. Administrative Protest (Protest against Assessment)

WHEN: within 30 days from receipt of final assessment notice (FAN)
WHERE: BIR
HOW: written protest, stating facts, applicable law, rules and regulations or jurisprudence o which his protest is
based; if only portions of FAN are disputed, must pay the deficiency tax on undisputed portion
PROCEDURE:
1.
2.

protest against pre-assessment notice (PAN) within 15 days from receipt

protest against FAN within 30 days from receipt

3.

submit relevant documents within 60 days from filing of protest

4.

CIR has 180 days to decide

5.

in case of denial or lapse of 180-day period, taxpayer has 30 days to bring his protest to the CTA en
division

WHEN PAN IS NOT REQUIRED:

1.
2.

finding for any deficiency tax is the result of mathematical error in computation of tax as appearing on
face of return
a discrepancy has been determined between the tax withheld and the amount actually remitted

3.

taxpayer who opted to claim a refund or credit of excess creditable withholding tax for at taxable period
was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter/s for the succeeding taxable year/s

4.

excise tax due on excisable articles have not been paid

5.

article locally purchased or imported by an exempt person

2. Request for Reconsideration a plea for re-evaluation of an assessment on the basis of EXISTING RECORDS
without need of additional evidence (question of law or fact or both)
3. Request for Reinvestigation a plea for reinvestigation of an assessment on the basis of NEWLY-DISCOVERED
EVIDENCE that a taxpayer intends to present in the reinvestigation (question of law or fact or both)
- in either case, the request must be accompanied by a WAIVER of the statute of limitations in favor of the
government
4. Judicial Protest
PROCEDURE
1.
2.

within 30 days from denial of protest by CIR or from lapse of 180-day period, appeal to CTA division
if CTA division denies, motion for reconsideration within 15 days from receipt

3.

within 15 days from denial of motion, appeal to CTA en banc

4.

appeal to SC within 15 days by petition for review (Rule 45)

5. Refund/Credit
- based on the legal principle of quasi-contract or solutio indebiti
- in the nature of an exemption, which cannot be allowed unless granted in the most explicit and categorical
language
- strictly construed against the claimant (proof of claim must be established)
- partial payment of a tax cannot be the basis for a tax refund
- interest on taxes refunded may not be paid by the Government to the taxpayer, UNLESS: (a) the CIR acted with
patent arbitrariness (inexcusable or obstinate disregard for legal provision); and (b) in the case of income
taxes withheld on the wages of employees, which must be refunded within 3 mos from April 15
Tax Refund vs. Tax Credit

R: takes place when there is actually a reimbursement of the tax

C: the Government issues a tax certificate or tax credit memo covering the amount determined to be
reimbursable, which can be applied after proper verification against any sum that may be due and
collectible from the taxpayer

Requisites for Recovery

1.
2.
3.

there was an actual collection and receipt by the Government of the tax sought to be recovered (factual
proof)
legal basis for the granting of refund or credit, including verification of compliance with the statutory
requirements relative to the filing of claims within the reglementary 2-yr period
in case of corporations, must signify whether to avail of tax refund or tax credit in the corporate income
tax return

Q: Are income tax returns actionable documents which must be specifically denied by the Government,
otherwise it would constitute an admission to the allegation that payment has in fact already been
made and therefore the taxpayer no longer has to submit proof of claim of refund?
A: Income tax returns are not actionable documents because the action is not based on the income tax returns but
on the entitlement of the taxpayer to tax refund. Therefore, his claim for refund must be supported by proof.

NOTA BENE: If proof of claim for refund is established, the BIR should refund without any unreasonable delay

Q: Is tax deficiency assessment a bar to tax refund or credit claim?

A: Yes. The deficiency assessment creates a doubt as to the truth and accuracy of the return. Said return cannot
therefore be the basis of refund or credit.
Statutory Requirements for Refund/Credit Claims
1.
2.

written claim for refund or tax credit must be filed by the taxpayer with the CIR
the claim must be a categorical demand for reimbursement

3.

both administrative and judicial claims for refund/credit must be filed within 2 years from date of payment
regardless of any supervening cause (in case of corporations, the 2-year period is counted from the date
final adjusted return was filed at end of taxable year)

Q: Suppose A filed his claim for tax refund with the BIR within the 2-yr reglementary period but it is
only after two years have lapsed before BIR rendered a decision and it is one of denial. A now files an
appeal of the BIRs decision with the CTA within the 30-day period to appeal. Will As action prosper?
A: No, As action will not prosper. Although A filed his claim for refund with the BIR within the 2-yr prescriptive
period, he failed to file the same within the same period with the CTA. The rule is that the taxpayer need wait for
the action of CIR on his claim for refund before he can take his claim to the CTA. The 2-yr period must be complied
with in both the BIR and CTA, regardless of any supervening cause.
WHEN 2-YR PRESCRIPTIVE PERIOD SUSPENDED
1.
2.

there is a pending litigation between the two parties

the CIR in that litigated case agreed to abide by the decision of the SC

WHY WRITTEN CLAIM IS NECESSARY:

1.
2.

to afford CIR an opportunity to correct action of subordinates

to notify Government that taxes sought to be refunded are under question and that, therefore, such notice
should be borne in mind in estimating the revenue available for expenditure

GR: Government is not liable for interest on tax refund, UNLESS:

CIR acted with patent arbitrariness

int eh case of income taxes withheld on wages of employees, which must be refunded within 3 months
from April 15

PRINCIPLE OF EQUITABLE RECOUPMENT allows a taxpayer whose claim for a refund has been barred due to
prescription (lapse of more than 2yrs counted from date of payment) to recover said tax by setting off the
prescribed refund against a tax that may be due and collectible from him; NOT ALLOWED in the Philippines because
it puts a premium on the taxpayers neglect to enforce or assert his rights under the law