COLLEGE OF ACCOUNTANCY & BUSINESS ADMINISTRATION

TAXATION II

TAX REMEDIES

I. ASSESSMENT OF INTERNAL REVENUE TAXES 5. The Commissioner chooses to exercise his

power to obtain information relative to the
A. PROCEDURAL DUE PROCESS IN TAX examination of other taxpayers (Sec. 235,
ASSESSMENTS NIRC)

a. Power of the Commissioner to make assessments Jurisprudence on LOA:

1. Under Sec. 13 of the NIRC, a letter of authority is
After a return has been filed as required under the the authority given to the appropriate revenue officer
provisions of this Code, the Commissioner or his duly assigned to perform assessment functions for the
authorized representative may authorize the purpose of collecting the correct amount of tax.
examination of any taxpayer and the assessment of Clearly, there must be grant of authority before any
the correct amount of tax, notwithstanding any law revenue officer can conduct an examination or
requiring the authorization of any government agency assessment. Equally important is that the revenue
or instrumentality. The failure to file a return shall not officer so authorized must not go beyond the authority
prevent the Commissioner from authorizing the given. In the absence of such authority, the
examination of any taxpayer (Sec. 6(A), NIRC). assessment or examination is nullity (CIR v. Sony
Phils., Inc., 17 November 2010)
b. Letter of authority and tax audit
2. Sec. C of RMO No. 43-90 dated September 20,
Letter of authority is an official document that 1990 provides that a LOA should cover a taxable
authorizes a revenue officer to examine and period not exceeding one taxable year. The practice
scrutinize a taxpayer’s books of accounts and other of issuing LOA covering audit of unverified prior years
accounting records, in order to determine the are prohibited. If the audit of a taxpayer shall include
taxpayer’s correct internal revenue tax liabilities (Sec. more than one taxable period, the other periods or
13, NIRC). years shall be specifically indicated in the Letter of
Authority. The requirement to specify the taxable
Characteristics of LOA period covered by the LOA is simply to inform the
1. LOA addressed to a revenue officer is taxpayer of the extent of the audit and scope of the
specifically required under the NIRC before an revenue officer’s authority (CIR vs Dela Salle
examination of a taxpayer may be had; University, 9 November 2016, J. Leonen)
2. LOA is valid only for 30 days from date of
issue; 3. The absence of an LOA violated taxpayer's right to
3. LOA gives the revenue officer only a period of due process. An assessment issued on the basis of
10 days from receipt of LOA to conduct his Letter of Notice (LN) is void. An LOA is entirely
examination of the taxpayer. different from a LN. LN is a mere notification. Once an
LN has served its purpose, the revenue office must
Tax audit is examination of books of accounts and properly secure an LOA before examining or
other accounting records, in order to determine the assessing the taxpayer (Medicard Philippines, Inc. v.
taxpayer’s correct internal revenue tax liabilities CIR, 5 April 2017)

How many times that a taxpayer may be audited? c. Informal Conference/Discussion on Discrepancy

GR: Only once per taxable year. If a taxpayer is found to be liable for deficiency tax or
taxes in the course of an investigation or audit
EXPNs: FRC3 conducted by a Revenue Officer, the taxpayer shall
1. Fraud, irregularity or mistakes as determined be informed through a Notice of Discrepancy.
by the CIR (2013 Bar);
2. The taxpayer requests for reinvestigation; The Notice of Discrepancy aims to fully afford the
3. Verification of compliance with withholding tax taxpayer with an opportunity to present and explain
laws and regulations; his side on the discrepancies found.
4. Verification of capital gains tax liabilities; and

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The Revenue Officer who audited the taxpayer’s General Rule: There must be a PAN issued by the
record shall inform the taxpayer, based on initial BIR before issuing a Formal Letter of Demand and
report of investigation, of the discrepancy or Final Assessment Notice.
discrepancies in the payment of his internal revenue
taxes, for the purpose of the Discussion of Exceptions to issuance of PAN [MEDEC]
Discrepancy. 1. When the finding for any deficiency tax is the
result of Mathematical error in the computation
The Discussion of discrepancy shall in no case of the tax as appearing on the face of the tax
extend beyond 30 days from receipt of the Notice of return filed by the taxpayer ;
Discrepancy. It is during the Discussion of 2. When Excise tax due on excisable articles has
Discrepancy that the taxpayer is given opportunity to not been paid;
present his side of the case and explain the 3. When a Discrepancy has been determined
discrepancy found during investigation of the between the tax withheld and the amount
Revenue Officer assigned and submit documents to actually remitted by the withholding agent;
support the explanation or arguments. Should the 4. When an article locally purchased or imported
taxpayer need more time to present the documents, by an Exempt person has been sold, traded or
he may submit such documents after discussion. The transferred to non-exempt person; or
taxpayer must submit all necessary documents that 5. When a taxpayer who opted to claim a refund
support his explanation within 30 days after receipt of or tax credit of excess creditable withholding
the Notice of Discrepancy. tax for a taxable period was determined to
have Carried over and automatically applied
If after being afforded the opportunity to present his the same amount claimed against the
side through the Discussion of Discrepancy, it is still estimated tax liabilities for the taxable quarter
found that the taxpayer is still liable for deficiency tax or quarters of the succeeding taxable year (RR
or taxes and the taxpayer does not address the No. 18-2013).
discrepancy through payment of the deficiency taxes
or the taxpayer does not agree with findings, the Reply to PAN
investigating office shall endorse the case to the
reviewing office and approving official in the National The taxpayer has 15 days from receipt of PAN to file
Office or the Revenue Regional Office, for issuance of a written reply contesting the proposed assessment.
a deficiency tax assessment in the form of a
Preliminary Assessment Notice within 10 days from Note: Failure of the taxpayer to file written reply, he
the conclusion of the Discussion. shall be considered in default. However, the failure to
file a reply to PAN will not bar the taxpayer from
d. Preliminary Assessment Notice (PAN) protesting the FAN because PAN is not the final
assessment which can be protested as contemplated
ASSESSMENT is the official action of an officer under the NIRC.
authorized by law in ascertaining the amount of tax
due under the law from a taxpayer. Jurisprudence on PAN

Requirements of a valid PAN (Sec. 228, NIRC) 1. It is clear that the sending of a PAN to taxpayer to
1. In writing; inform him of the assessment made is but part of the
2. Must show in detail the law and the facts on "due process requirement in the issuance of a
which the assessment is made; and deficiency tax assessment," the absence of which
3. It must be served with the taxpayer through renders nugatory any assessment made by the tax
personal service, if not practicable by authorities. The use of the word "shall" in subsection
registered mail or substituted service. 3.1.2 of RR 12-99 describes the mandatory nature of
the service of a PAN. The persuasiveness of the right
The sending of PAN to taxpayer to inform him of the to due process reaches both substantial and
assessment made is but part of the due process procedural rights and the failure of the CIR to strictly
requirement in the issuance of a deficiency tax comply with the requirements laid down by law and its
assessment, the absence of which renders void any own rules is a denial of Metro Star’s right to due
assessment made by the tax authorities. process. Thus, for its failure to send the PAN stating
the facts and the law on which the assessment was
Note: Issuance of FLD and FAN without waiting for made as required by Section 228 of R.A. No. 8424,
the 15-day period to reply to PAN is not a violation of the assessment made by the CIR is void (CIR v.
due process because obviously PAN is not an Metro Star Superama, Inc., 8 December 2010).
assessment and PAN is only a pre-assessment of
deficiency tax. e. Formal Letter of Demand (FLD) and Final
Assessment Notice (FAN)

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The CIR and his duly authorized representative may lapse of the 180-day period; otherwise, the decision
issue FLD and FAN: shall become final, executory and demandable.
1. If there is no need to issue PAN, because the
circumstances show that it falls within the
exceptions for the issuance of PAN; B. VALID TAX ASSESSMENT AND ITS
2. If the taxpayer is in default for failure to REQUISITES
respond to a PAN within a period of 15 days
from the receipt of PAN; or The taxpayer SHALL be informed in writing of the law
3. If the CIR or his duly authorized representative and the facts on which the assessment is made;
does not agree with the justifications stated by otherwise, the assessment shall be void (Sec. 228,
the taxpayer in his reply to the PAN. NIRC).

The FLD and FAN shall be issued within 15 days from Requisites (2008 Bar):
the filing or submission of the taxpayer’s response or 1. In writing and signed by the BIR;
from the expiration of period to file the response. 2. Contains the law and the facts on which the
assessment is based;
f. Disputed Assessment 3. Contains a demand for payment within the
prescribed period (This demand for payment
The taxpayer may protest the assessment within 30 signals the time "when penalties and interests
days from receipt of FLD and FAN. Otherwise, the begin to accrue against the taxpayer and
assessment becomes final, executory demandable enabling the latter to determine his remedies);
and not appealable to CTA. and
4. Must be served on and received by the
The protest comes in the form of either a written taxpayer.
request for reconsideration or request for
reinvestigation. Note:
1. Assessment contains not only a computation of
After the request for reconsideration or request for tax liabilities but also a demand for payment within
reinvestigation is filed and received by the BIR, the a prescribed period. It also signals the time when
assessment becomes a disputed assessment. penalties and protests begin to accrue against the
taxpayer. To enable to determine his remedies
If the taxpayer does not protest the assessment, the thereon, due process requires that it must be
taxpayer’s liability becomes final, executory and served on and received by the taxpayer (CIR v.
demandable. PASCOR Realty, 29 June 1999).

g. Administrative decision on a disputed assessment 2. The Court of Tax Appeal has no power to make
an assessment at the first instance. On matters
The decision of the Commissioner or his duly such as tax collection, tax refund, and other related
authorized representative shall state the facts, the to the NIRC, the CTA’s jurisdiction is appellate in
applicable law, rules and regulations, or jurisprudence nature. Thus, the BIR first has to make an
on which such decision is based, otherwise, the assessment of taxpayer’s liabilities (SMI-ED
decision shall be void and that the same is his final Technology Corporation v. CIR, 12 November
decision (Sec. 3.1.5, RR 18-2013). 2014, J. Leonen).

Note: A Final Decision on Disputed Assessment What does not constitute an assessment
(FDDA) of the CIR on a disputed assessment differs
from the assessment itself. Hence, the invalidity of 1. A final assessment notice that only contained a
one does not necessarily result to the invalidity of the table of taxes with no other details was
other—unless the law or regulations otherwise insufficient (CIR v. United Salvage and Towage
provide. Otherwise stated, A void FDDA does not ipso (Phils.), Inc, 2 July 2014).
facto render the assessment void. 2. The revenue officers’ Affidavit Report which was
attached to the criminal complaint filed with the
h. Appeal from an administrative decision on disputed DOJ does not constitute an assessment (CIR v.
assessment. PASCOR Realty, 29 June 1999).

If the protest is denied, in whole or in part, or is not Principles governing tax assessments (PAD3)
acted upon by the Commissioner within one hundred
eighty (180) days counted from submission of 1. Prima facie presumed correct and made in good
documents, the taxpayer adversely affected by the faith. However, this should be applied when the
decision or inaction may appeal to the CTA within 30 assessment is utterly without foundation,
days from receipt of the said decision, or from the meaning it is arbitrary and capricious.

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2. Should be based on Actual facts.
3. Discretionary on the part of the Commissioner. Fraudulent returns - implies intentional or deceitful
Mandamus cannot lie to compel the CIR to entry with intent to evade the taxes due.
impose deficiency tax assessment.
4. Must be Directed to the right party. Non-filing of returns – failure or omission to file
5. The authority vested to the Commissioner to returns.
assess tax may be Delegated.
Notes:
Jeopardy Assessment – A delinquency tax 1. The failure to report sales, receipts of income in
assessment made without the benefit of a complete an amount exceeding 30% of that declared per
or partial investigation by an authorize revenue office return, and a claim of deductions in an amount
who has a reason to believe that the assessment and exceeding 30% of actual deductions, shall render
collection of deficiency tax will be jeopardized by the taxpayer liable for SUBSTANTIAL
delay cause by the taxpayer’s failure to comply with UNDERDECLARATION of sales, receipts or
audit and investigation requirements to present his income or for OVERSTATEMENT of deductions
books of accounts and/or pertinent records, or (Sec. 248(B), NIRC). Here, there is a prima
substantiate all or any of the deductions, exemptions facie evidence of a false return.
or credits claimed in his return.
2. Fraud is a question of fact that should be alleged
C. TAX DELINQUENCY AND TAX DEFICIENCY and duly proven. "The willful neglect to file the
required tax return or the fraudulent intent to evade
D. PRESCRIPTIVE PERIOD FOR ASSESSMENT the payment of taxes, considering that the same is
accompanied by legal consequences, cannot be
General Rule: presumed." Fraud entails corresponding sanctions
Internal Revenue Taxes shall be assessed within under the tax law. Therefore, it is indispensable for
3 YEARS after the last day prescribed by law for the the Commissioner of Internal Revenue to include
filing of the return OR from the day the return was the basis for its allegations of fraud in the
filed in a case where a return is filed beyond the assessment notice (CIR v. Fitness By Design, Inc.
period prescribed by law OR from filing of amended 09 November 2016, J. Leonen).
return, if substantial amendment has been made
(Sec. 203, NIRC). Suspension of statute of limitations (Sec. 223, NIRC)

Exception: The running of Statute of Limitations provided in Sec.

1. In the case of a false or fraudulent return with 203 and Sec. 222 of the NIRC on the making of
intent to evade tax or of failure to file a return, assessment and the beginning of distraint or levy or a
the tax may be assessed, OR a proceeding in proceeding in court for collection in respect of any
court for the collection of such tax may be filed deficiency, shall be suspended for the period during:
without assessment at any time within 10 a. Which the Commissioner is prohibited from
YEARS after the discovery of falsity, fraud or making the assessment or beginning distraint or
omission (Sec. 222(A), NIRC). levy or a proceeding in court and for 60 days
2. If before the expiration of the time prescribed in thereafter;
Section 203 for the assessment of the tax, both b. When the taxpayer requests for a reinvestigation
the Commissioner and the taxpayer have which is granted by the Commissioner;
agreed in writing to its assessment after such c. When the taxpayer cannot be located in the
time, the tax may be assessed within the address given by him in the return filed upon
period agreed upon (Sec. 222(B), NIRC). which a tax is being assessed or collected.
However, if the taxpayer informs the
Note: The assessment of the tax is deemed made on Commissioner of any change in address, the
the date the final assessment notice and final running of the Statute of Limitations will not be
decision on disputed assessment had been released, suspended;
mailed or sent by the BIR to the taxpayer. The d. When the warrant of distraint or levy is duly
assessment notice is valid even if the taxpayer served upon the taxpayer, his authorized
received the same after the three-year period from representative, or a member of his household
the date of filing of the tax return (BPI v. CIR, G.R. with sufficient discretion and no property could be
No. 139736, October 17, 2005). located and when the taxpayer is out of the
Philippines.
False returns, fraudulent returns and non-filing of e. When the Commissioner gives an extension for
returns payment of estate tax or any part thereof based
on undue hardship upon the estate or any of the
False returns - implies deviation from the truth, heirs. The extension is 5 years if the estate is
whether intentional or not.

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 settled judicially, 2 years if extrajudicially (Sec. 4. Under Sec. 223 of the NIRC, the running of Statute
91(B)). of Limitations shall be suspended for the period when
the taxpayer cannot be located in the address given
Jurisprudence on suspension of statute of limitations by him in the return filed upon which a tax is being
assessed or collected. However, if the taxpayer
1. The law prescribing a limitation of actions for the informs the Commissioner of any change in address,
collection of the income tax is beneficial both to the the running of the Statute of Limitations will not be
Government and to its citizens; to the Government suspended. However, it applies only if the
because tax officers would be obliged to act promptly Commissioner is not aware of the whereabouts of the
in the making of assessment, and to citizens because taxpayer. Here CIR, by all indications, is well aware
after the lapse of the period of prescription citizens that respondent had moved to its new address in
would have a feeling of security against unscrupulous Laguna as shown by the documents which form part
tax agents who will always find an excuse to inspect of respondent’s records with the BIR. Despite the
the books of taxpayers, not to determine the latter's absence of a formal written notice of respondent’s
real liability, but to take advantage of every change of address, the fact remains that petitioner
opportunity to molest peaceful, law-abiding citizens. became aware of respondent’s new address as
Without such a legal defense, taxpayer would shown by documents replete in its records. As a
furthermore be under obligation to always keep their consequence, the running of the prescriptive period to
books and keep them open for inspection subject to assess respondent was not suspended (CIR v. BASF
harassment by unscrupulous tax agents. The law on Coating Ink Phils., Inc., 26 November 2014).
prescription being a remedial measure should be
interpreted in a way conducive to bringing about the Waiver of statute of limitations
beneficent purpose of affording protection to the
taxpayer within the contemplation of the Commission If before the expiration of the time prescribed in
which recommend the approval of the law (Republic Section 203 for the assessment of the tax, both the
vs Ablaza, 26 July 1960). Commissioner and the taxpayer have agreed in
writing to its assessment after such time, the tax may
2. The request for investigation should be granted or be assessed within the period agreed upon. The
at least acted upon in due course before the period agreed upon may be extended by subsequent
suspension of the statute of limitations may set in. written agreement made before the expiration of the
Thus, the CIR may grant the request for period previously agreed upon (Sec. 222(B), NIRC).
reinvestigation as a requirement for the suspension of
the statute of limitations. In the case at bar, since the The waiver may not necessarily be in the form
request for investigation was not granted before the prescribed by RMO 20-90 or RDAO 05-01 provided
lapse of the prescriptive period, the latter was not that the following conditions are complied with:
suspended. Hence, filing alone of request of a. The waiver is executed before the expiration of
reinvestigation is not sufficient to suspend the running the period to assess or to collect taxes (Date of
of the prescriptive period (CIR v. United Savage and Execution);
Towage, 02 July 2014) b. The waiver is signed by the taxpayer himself, his
duly authorized representative, or by any of the
3. In the present Petition, there is no controversy on responsible officials for corporations; and
the timeliness of the issuance of the Assessment, c. The expiry date of the period agreed upon to
only on the prescription of the period to collect the assess/collect the tax is indicated.
deficiency DST following its Assessment. There was
no showing as to when the said Assessment and The taxpayer has the primary responsibility for the
Assessment Notice were released, mailed or sent by proper preparation of the waiver of the prescriptive
the BIR. Still, it can be granted that the latest date the period for assessing deficiency taxes. Hence, the
BIR could have released, mailed or sent the Commissioner of Internal Revenue (CIR) may not be
Assessment and Assessment Notice to petitioner BPI blamed for any defects in the execution of the waiver.
was on the same date they were received by the Moreover, the principle of estoppel was applicable.
latter, on 20 October 1989. Counting the three-year The execution of the waivers was to the advantage of
prescriptive period, for a total of 1,095 days, [21] from ATC because the waivers would provide to ATC the
20 October 1989, then the BIR only had until 19 sufficient time to gather and produce voluminous
October 1992 within which to collect the assessed records for the audit (Asia Transmission Corp. v CIR
deficiency DST. Clearly, the service of the warrant of GR No. 230861 September 19, 2018).
distraint and/or levy to the petitioner BPI on October
23, 1992 was already beyond the prescriptive period II. TAXPAYER’S REMEDIES
for collection of the deficiency tax. It follows that the
running of the prescriptive period did not toll (BPI v. A. PROTESTING AN ASSESSMENT
CIR, 17 October 2005).

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Section 228 of the 1997 NIRC clearly provides that an Pro-forma protest is a mere scrap of paper and
assessment may be protested administratively by tantamount to non-filing of protest.
filing a request for reconsideration or reinvestigation
within thirty (30) days from receipt thereof in such For requests for reinvestigation, the taxpayer shall
form and manner as may be prescribed by submit all relevant supporting documents in support
implementing rules and regulations. Within 60 days of his protest within sixty (60) days from date of filing
from filing of the protest, all relevant supporting of his letter of protest, otherwise, the assessment
documents shall have been submitted; otherwise, the shall become final by operation of law. The term
assessment shall become final. “relevant supporting documents” refer to those
documents necessary to support the legal and factual
If the protest is denied, in whole or in part, or is not bases in disputing a tax assessment as determined
acted upon by the Commissioner within one hundred by the taxpayer. The sixty (60)-day period for the
eighty (180) days counted from submission of submission of all relevant supporting documents shall
documents, the taxpayer adversely affected by the not apply to requests for reconsideration.
decision or inaction may appeal to the CTA within 30 Furthermore, the term “the assessment shall become
days from receipt of the said decision, or from the final” shall mean the taxpayer is barred from disputing
lapse of the 180-day period; otherwise, the decision the correctness of the issued assessment by
shall become final, executory and demandable. introduction of newly discovered or additional
evidence, and the FDDA shall consequently be
Disputed Assessment (Sec. 3.1.4, RR 18-2013) denied.

The taxpayer or its authorized representative or tax If the taxpayer fails to file a valid protest against the
agent may protest administratively against the FLD/FAN within thirty (30) days from date of receipt
aforesaid FLD/FAN within thirty (30) days from date of thereof, the assessment shall become final, executory
receipt thereof. and demandable. No request for reconsideration or
reinvestigation shall be granted on tax assessments
The taxpayer protesting an assessment may file a that have already become final, executory and
written request for reconsideration or reinvestigation demandable.
defined as follows:
Jurisprudence on disputed assessment:
a. Request for reconsideration — refers to a plea of
re-evaluation of an assessment on the basis of 1. The running of the prescriptive period for collection
existing records without need of additional of taxes can only be suspended by a request for
evidence. It may involve both a question of fact reinvestigation, not a request for reconsideration.
or of law or both. It does not toll the running of Undoubtedly, a reinvestigation, which entails the
prescriptive period. It does not require a reception and evaluation of additional evidence, will
reception of evidence because the records or take more time than a reconsideration of a tax
documents are already in the hands of the BIR. assessment, which will be limited to the evidence
The running of the 180-day period starts from the already at hand; this justifies why the former can
filing of letter-protest. suspend the running of the statute of limitations on
b. Request for reinvestigation — refers to a plea of collection of the assessed tax, while the latter cannot
re-evaluation of an assessment on the basis of (BPI v. CIR, 9 July 2014). Nonetheless, the statute of
newly discovered or additional evidence that a limitations shall be suspended only when the requests
taxpayer intends to present in the reinvestigation. for a reinvestigation is granted by the Commissioner.
It may also involve a question of fact or of law or
both. It tolls the running of prescriptive period. It 2. The term "relevant supporting documents" should
requires a reception of newly discovered be understood as those documents necessary to
evidence and other evidence which are not support the legal basis in disputing a tax assessment
submitted to the BIR despite diligence effort as determined by the taxpayer. The BIR can only
within 60 days from filing of letter-protest. The inform the taxpayer to submit additional documents.
running of the 180-day period starts from The BIR cannot demand what type of supporting
submission of documents. documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may
The taxpayer shall state in his protest (i) the nature of require the production of documents that a taxpayer
protest whether reconsideration or reinvestigation, cannot submit. Here, respondent submitted its protest
specifying newly discovered or additional evidence he attaching the GIS and Balance Sheet. Therefore,
intends to present if it is a request for reinvestigation, respondent has complied with the requisites in
(ii) date of the assessment notice, and (iii) the disputing an assessment pursuant to Sec. 228 of the
applicable law, rules and regulations, or jurisprudence tax code (CIR v. First Express Pawnshop, 06 June
on which his protest is based, otherwise, his protest 16, 2009).
shall be considered void and without force and effect.
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Period for the Commissioner to decide on the protest
filed If the protest or administrative appeal, as the case
may be, is denied, in whole or in part, by the
Request for reconsideration - within one hundred Commissioner, the taxpayer may appeal to the CTA
eighty (180) days counted from filing of letter of within thirty (30) days from date of receipt of the said
protest. decision. Otherwise, the assessment shall become
final, executory and demandable. A motion for
Request for reinvestigation - within one hundred reconsideration of the Commissioner’s denial of the
eighty (180) days counted from submission of protest or administrative appeal, as the case may be,
documents shall not toll the thirty (30)-day period to appeal to the
CTA.
Note:
1. If the protest is denied, in whole or in part, or is If the protest or administrative appeal is not acted
not acted upon by the Commissioner within one upon by the Commissioner within one hundred eighty
hundred eighty (180) days counted from filing of (180) days counted from the date of filing of the
letter-protest in case of request for protest, the taxpayer may either: (i) appeal to the CTA
reconsideration or submission of documents in within thirty (30) days from after the expiration of the
case of request for reinvestigation, the taxpayer one hundred eighty (180)-day period; or (ii) await the
adversely affected by the decision or inaction final decision of the Commissioner on the disputed
may appeal to the CTA within 30 days from assessment and appeal such final decision to the
receipt of the said decision, or from the lapse of CTA within thirty (30) days after the receipt of a copy
the 180-day period; otherwise, the decision shall of such decision. It must be emphasized, however,
become final, executory and demandable (Sec. that in case of inaction on protested assessment
228, NIRC). within the 180-day period, the option of the taxpayer
2. The BIR is authorized to issue a warrant of to either: (1) file a petition for review with the CTA
garnishment against the bank account of a within 30 days after the expiration of the 180-day
taxpayer despite the pendency of protest. period; or (2) await the final decision of the
Nowhere in the NIRC is the CIR required to first, Commissioner or his duly authorized representative
rule on the protest before he can institute on the disputed assessment and appeal such final
collection proceedings on the tax assessed. The decision to the CTA within 30 days after the receipt of
issuance of warrant of garnishment is equivalent a copy of such decision, are mutually exclusive and
to the denial of protest. the resort to one bars the application of the other

Inaction during the 180-day period/appeal to the CTA B. RECOVERY OF TAX ERRONEOUSLY OR
ILLEGALLY COLLECTED
If the protest is denied, in whole or in part, by the
Commissioner’s duly authorized representative, the a. Grounds for filing a claim for refund or issuance of
taxpayer may either: (i) appeal to the Court of Tax a tax credit certificate
Appeals (CTA) within thirty (30) days from date of 1. Tax is erroneously or illegally assessed or
receipt of the said decision; or (ii) elevate his protest collected;
through request for reconsideration to the 2. Penalty is imposed without authority; and
Commissioner within thirty (30) days from date of 3. Sum collected is excessive or in any manner
receipt of the said decision. No request for wrongfully collected.
reinvestigation shall be allowed in administrative
appeal and only issues raised in the decision of the Statutory basis of tax refund:
Commissioner’s duly authorized representative shall The Government is not exempt from the application of
be entertained by the Commissioner. solution indebiti. Indeed, the taxpayer expects fair
dealing from the Government, and the latter has the
If the protest is not acted upon by the Commissioner’s duty to refund without any unreasonable delay what it
duly authorized representative within one hundred has erroneously collected.
eighty (180) days counted from the date of filing of the
protest in case of a request reconsideration; or from Erroneously vs Illegally Collected
date of submission by the taxpayer of the required
documents within sixty (60) days from the date of Erroneously collected occurs when there is a mistake
filing of the protest in case of a request for in collection of tax but no violation of the law. The
reinvestigation, the taxpayer may either: (i) appeal to payment was under the mistake of fact or based on a
the CTA within thirty (30) days after the expiration of misapplication of the law. On the other hand, illegally
the one hundred eighty (180)-day period; or (ii) await collected exists when there is a violation of certain
the final decision of the Commissioner’s duly provisions of tax law or statute. The tax was paid by
authorized representative on the disputed the taxpayer under duress and collected in patent
assessment. disregard of the law.

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 e. Distinguish from input value-added tax refund
b. Requisites for filing a claim for refund or issuance
of a tax credit certificate Under Sec. 112 of the NIRC, the 2-year prescriptive
1. There is tax collected erroneously or illegally or a period applies only to the administrative claim before
penalty collected without authority and sum the CIR and not to judicial claim before the CTA
excessively or wrongfully collected; because the taxpayer has always 30 days from the
2. There must be a written claim for refund filed by decision of the CIR or from the lapse of the 90-day
the taxpayer with the CIR (see the exceptions period even after the lapse of 2 years from the
below); taxable quarter where the sales were made. Thus, it
3. Must be a categorical claim for refund or credit; is only the administrative claim that must be filed
4. Must be filed within 2 years from the date of within the two-year prescriptive period; the judicial
payment of the tax or penalty regardless of any claim need not fall within the two-year prescriptive
supervening cause that may arise after payment. period.
5. The taxpayer must present proof of payment of
the tax and submit documentary and evidentiary Under Sec. 229, the decision of the CIR is appealable
requirements (2009 Bar). to the CTA sitting in division within 30 days after the
receipt but must be within the 2-year period from the
Note: Written claim for refund is not necessary when, payment of tax or filing of the final adjusted return in
on the face of the return, the payment appears clearly case of corporate income tax. Therefore, the
to have erroneously paid or when the tax return administrative claim together with judicial claim must
clearly showing an overpayment. In other words, the be filed within the 2-year prescriptive period.
petition for review shall be filed with the CTA within 30
days from receipt of the denial or inaction of the CIR Nature of Transitional Input Tax Credit
which must not exceed 2 years from payment of tax. A transitional input tax credit is not a tax refund per se
but a tax credit. Prior payment of taxes is not required
c. Period for filing a claim for refund or issuance of a before a taxpayer could avail of transitional input tax
tax credit certificate credit. A tax credit is not synonymous to tax refund.

No suit or proceeding shall be filed after the expiration Tax refund is defined as the money that a taxpayer
of 2 years from the date of payment of the tax or overpaid and is thus returned by the taxing authority.
penalty regardless of any supervening cause that Tax credit, on the other hand, is an amount
may arise after payment (Sec. 229, NIRC) subtracted directly from one’s total tax liability.
Notes:
1. It is necessary that the tax be paid in full, and e. Refunds of Corporate Taxpayers
that the claim for refund in the BIR as well as the
proceedings in the CTA be commenced within 2 If the sum of the quarterly tax payments made during
years counted from the payment of the tax. the said taxable year exceeds the total tax due on the
2. When a tax is paid in installments, the two-year entire taxable income of that year, the corporation
prescriptive period shall run from the date of final shall either:
payment. a. Carry-over the excess credit against the
3. When the payment is effected through the estimated quarterly income tax liabilities for the
withholding tax system, the two-year prescriptive taxable quarters of the succeeding taxable years;
period shall run from the date it falls due at the b. Be credited (TCC); or
end of the taxable year. c. Refunded with the excess amount paid.
4. When there is an overpayment of quarterly
corporate income tax, the two-year prescriptive
period shall run from the date the final The Irrevocability Rule
adjustment return is filed after the end of the Once the option to carry-over and apply the excess
taxable year. quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has
d. Proper party to file a claim for refund or tax credit been made, such option shall be considered
irrevocable for that taxable period and no application
GR: The taxpayer is the person entitled to claim a for cash refund or issuance of tax credit certificate
refund. shall be allowed therefor.
EXP:
1. When the tax has been shifted. Note: The carry-over of excess income tax payments
2. Where the payor is not the taxpayer. is no longer limited to the succeeding taxable year.
3. Where the payor is the withholding agent Unutilized excess income tax payments may now be
4. Where the donor’s tax was assumed by the carried over to the succeeding taxable years until fully
donee. utilized. In addition, the option to carry-over excess
income tax payments is now irrevocable. Hence,

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unutilized excess income tax payments may no privilege of the secrecy of bank deposit under RA
longer be refunded. (Belle Corp. v. CIR, G.R. No. 1405 or other general or special laws.
181298, January 10, 2011) 2. The subsequent inability of the withholding agent
to pay or remit the taxes withheld is not a ground
for compromise because the withholding tax is not
C. POWER OF COMMISSIONER OF INTERNAL a tax upon the withholding agent but it is only a
REVENUE TO COMPROMISE procedure for the collection of a tax (1998 Bar).
3. A compromise of a tax liability is possible at any
Compromise Abatement stage of litigation, even during appeal, although
Nature Involves a reduction Involves the legal propriety demands that prior leave of court
of the taxpayer’s cancellation of the should be obtained.
liability through a entire tax liability of
mutual agreement. a taxpayer. D. NON-RETROACTIVITY OF RULINGS
Authorized CIR CIR
Officer REB The rulings of the BIR are not retroactive. Any
Grounds 1. Reasonable doubt 1. The tax or any revocation, modification, or reversal of any of the
as to the validity of portion thereof rules and regulations promulgated or any of the
assessment appears to be rulings or circulars promulgated by the CIR shall not
2. Financial unjustly or be given retroactive application if it will be prejudicial
incapacity of the excessively to the taxpayers, except in the following cases:
taxpayer assessed 1. Where the taxpayer deliberately misstates or
2. The omits material facts from his return or any
administration and document required of him by the BIR;
collection costs 2. Where the facts subsequently gathered by the
involved do not BIR are materially different from the facts on which
justify the collection the ruling is based; or
of the amount due. 3. Where the taxpayer acted in bad faith (Sec. 246,
NIRC).
Authority of the CIR to compromise taxes
NOTE: If the revocation is due to the fact that the
The CIR may compromise the payment of any regulation is erroneous or contrary to law, such
internal revenue tax, when: revocation shall have retroactive operation as to
a. A reasonable doubt as to validity of the claim affect past transactions, because a wrong
against the taxpayer exists provided that the construction of the law cannot give rise to a vested
minimum compromise entered into is equivalent right that can be invoked by a taxpayer.
to 40% of the basic assessed tax;
b. The financial position of the taxpayer
demonstrates a clear inability to pay the IV. GOVERNMENT REMEDIES
assessed tax provided that the minimum
compromise entered into is equivalent to 10% of A. CLASSIFICATION
the basic assessed tax.
a. Administrative Remedies:
Where the basic tax involved exceeds 1 million pesos 1. Tax lien
or where the settlement offered is less than the 2. Distraint of personal property, levy and sale of
prescribed minimum rates, the compromise shall be real property
subject to the approval of the Evaluation Board which 3. Forfeiture of real property to the government
shall be composed of the Commissioner and 4 for want of bidder
Deputy Commissioners [Sec. 204(A), NIRC] 4. Suspension of business operation
5. Non-availability of injunction to retrain
All criminal violations may be compromised except: a. collection of tax.
Those already filed in court; or b. those involving
fraud. Tax lien – is a legal claim or charge on property,
personal or real, established by law as a sort of
Notes: security for the payment of tax obligations.
1. Sec. 6(F) of the NIRC provides that in case a
taxpayer files an application to compromise the When tax lien is applied
payment of his tax liabilities on his claim that his 1. With respect to personal property – Tax lien
financial position demonstrates a clear inability to attaches when the taxpayer neglects or refuses
pay the tax assessed, his application shall not be to pay tax after demand. Thus, the tax lien
considered unless and until he waives in writing his attaches from the time the tax became due and
payable.

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2. With respect to real property – From time of c. the appeal filed before the CTA is not frivolous
registration with the Register of Deeds. nor dilatory.
Note:
Distraint and Levy – Distraint is a summary remedy in a. Exceptions to the requirement of posting of
which the collection of tax is enforced on the bond:
taxpayer’s personal property. When enforced to a  Prescription of administrative action for
taxpayer’s personal property not in his possession, it collection;
is called garnishment. Meanwhile, levy is enforced on  Method of collection contrary to law. E.g. the
real property. collection is patently in violation of the law.

Requisites for the exercise of distraint and levy 2. The SC, on exceptional cases of suits questioning
1. Taxpayer is delinquent in payment of tax; the constitutionality of a tax law.
2. There must be subsequent demand to pay;
3. Taxpayer failed to pay delinquent tax on time; 3. In cases of local taxes, the RTCs may issue an
and injunction upon a suit questioning their validity. This is
4. Period within which to assess and collect the tax because there is no express provision in the LGC
due has not yet prescribed. prohibiting courts from issuing an injunction to restrain
local governments from collecting taxes.
Notes: Nevertheless, the granting of injunction against the
1. The BIR’s power to garnish the taxpayer’s bank collection of taxes is frowned upon. Hence, it must be
deposits is not suspended even though the BIR’s granted with extreme caution.
final decision on disputed assessment was
appealed to the CTA. This is because the b. Judicial Remedies
continued existence of government depends on 1. Ordinary civil actions
tax revenue (2011 Bar Question). 2. Criminal actions

Forfeiture of real property – It occurs when there is no In civil cases involving the collection of internal
bidder or the bid amount is insufficient to pay the revenue taxes, prescription is construed strictly
taxes, penalties and costs (Sec. 215, NIRC). It against the government and liberally in favor of the
transfers the title to the specific thing from the owner taxpayer. In criminal cases involving tax offenses
to the government. punishable under the National Internal Revenue Code
(NIRC), prescription is construed strictly against the
The RD shall transfer the title of forfeited property to taxpayer and liberally in favor of the government.
the Government without necessity of a court order.
Within 1 year from the date of forfeiture, the taxpayer Proceedings before the CTA in the exercise of its
may redeem said property by paying to the CIR or exclusive original jurisdiction are in the nature of trial
Revenue Collection Officer the full amount of the de novo.
taxes and penalties, together with interest thereon
and the costs of sale. If the property is not redeemed,
the forfeiture shall become absolute.

Suspension of business operation (Sec. 115, NIRC)

The CIR or his authorized representative is
empowered to suspend the business operations and
temporarily close the business establishment of any
persons for any of the following violations

Non-availability of injunction to retrain collection of tax

GR: No Court shall have the authority to grant an

injunction to restrain the collection of any national
internal revenue tax, fee or charge.

EXPN:
1. Filing of injunction with the CTA as an incident to
its appellate jurisdiction showing that:
a. the collection of the tax may jeopardize the
interest of the government and/or the taxpayer;
b. the deposit of the amount claimed or file a
surety bond;

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