Tax remedies under the NIRC

General concepts
Requisites of a valid assessment
After examining the books and records of EDS Corporation, the 2004 final assessment
notice, showing basic tax of 1,000,000, deficiency interest of 400,000, and due date for
payment of April 30, 2007 but without the demand letter, was mailed and released by
the BIR on April 15, 2007. The registered letter, containing the tax assessment, was
received by the EDS Corporation on April 25, 2007. What is an assessment notice?
What are the requisites of a valid assessment? Explain.
An assessment notice is a formal notice to the taxpayer stating that the amount
thereon is due as a tax and containing a demand for the payment thereof. To be valid,
the taxpayer must be informed in writing of the law and the facts on which the
assessment is made.

As tax lawyer of EDS Corporation, what legal defense(s) would you raise against the
assessment? Explain.
I will question the validity of the assessment because of the failure to send the
demand letter which contains a statement of the law and the facts upon which the
assessment is based. If an assessment notice is sent without informing the taxpayer in
writing about the law and facts on which the assessment is made, the assessment is
void.

Tax delinquency vs. tax deficiency

Tax delinquency is the failure to pay: (1) the tax due on any return required to be filed;
or (2) the amount of the tax due for which no return is required; or (3) a deficiency tax,
or any surcharge or interest thereon on the due date appearing in the notice and
demand of the Commissioner. Tax deficiency is the amount by which the tax imposed
exceeds the amount shown as the tax by the taxpayer upon his return; but the amount
so shown on the return shall be increased by the amounts previously assessed (or
collected without assessment) as a deficiency, and decreased by the amount previously
abated, credited, returned or otherwise repaid in respect of such tax; or if no amount is
shown as the tax by the taxpayer upon this return, or if no return is made by the
taxpayer, then the amount by which the tax exceeds the amounts previously assessed
(or collected without assessment) as a deficiency; but such amounts previously
assessed or collected without assessment shall first be decreased by the amounts
previously abated, credited returned or otherwise repaid in respect of such tax.

Prescriptive period for assessment

Except as provided in Section 222, internal revenue taxes shall be assessed within
three 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-year period shall be counted from the
day the return was filed. A return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.
(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 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.
(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.
(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 years following the assessment of the tax.
(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-year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.
(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.

Within what time period must an assessment be made?

An assessment must be made within three years from the last day prescribed by
law for the filing of the tax return for the tax that is being subjected to assessment or
from the day the return was filed if filed late. However, in cases involving tax fraud, the
Bureau has ten years from the date of discovery of such fraud within which to make the
assessment. Any assessments issued after the applicable period are deemed to have
prescribed, and can no longer be collected from the Taxpayer, unless the Taxpayer has
previously executed a Waiver of Statute of Limitations.

Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is

engaged exclusively in international shipping. He and his wife, who manages their
business, filed a joint income tax return for 1997 on March 15, 1998. After an audit of
the return, the BIR issued on April 20, 2001 a deficiency income tax assessment for the
sum of 250,000, inclusive of interest and penalty. For failure of Mr. and Mrs. Sebastian
to pay the tax within the period stated in the notice of assessment, the BIR issued on
August 19, 2001 warrants of distraint and levy to enforce collection of the tax. If you are
the lawyer of Mr. and Mrs. Sebastian, what possible defense or defenses will you raise
in behalf of your clients against the action of the BIR in enforcing collection of the tax by
the summary remedies of warrants of distraints and levy? Explain your answer.
I will raise the defense of prescription. Under the Tax Code, the right of the BIR
to assess prescribes after three years counted from the last day prescribed by law for
the filing of the income tax returns when the said return is filed on time. The last day for
filing the 1997 income tax return is April 15,1998. Since the assessment was issued
only on April 20, 2001, the BIR’s right to assess has already prescribed.

False returns vs. fraudulent returns vs. non-filing of returns

Distinguish a false return from a fraudulent return.
A false return merely implies a deviation from the truth or fact whether intentional
or not; a fraudulent return is intentional and deceitful with the sole aim of evading the
correct tax due.
Non-filling of returns means that no return or a valid and appropriate return was filed on
the day prescribed by law for the filing of tax returns.

Mr. Castro inherited from his father, who died on June 10, 1994, several pieces of real
property in Metro Manila. The estate tax return was filed and the estate tax due in the
amount of 250,000 was paid on December 06, 1994. The Tax Fraud Division of the BIR
investigated the case on the basis of confidential information given by Mr. Santos on
January 06, 1998 that the return filed by Mr. Castro was fraudulent and that he failed to
declare all properties left by his father with intent to evade payment of the correct tax.
As a result, a deficiency estate tax assessment for 1,250,000, inclusive of 50%
surcharge for fraud, interest and penalty, was issued against him on January 10, 2001.
Mr. Castro protested the assessment on the ground of prescription. Decide Mr. Castro’s
protest.
The protest should be resolved against Mr. Castro. What was filed is a fraudulent
return making the prescriptive period for assessment ten years from discovery of the
fraud pursuant to the Tax Code. Accordingly, the assessment was issued within the
prescriptive period to make an assessment based on a fraudulent return.

Suspension of the 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:
(1) the Commissioner is prohibited from making the assessment or beginning distraint
or levy or a 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: Provided, that, if the taxpayer informs
the Commissioner of any change in address, the running of the Statute of Limitations
will not be suspended;
(4) 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
(5) when the taxpayer is out of the Philippines.

Civil penalties
New rule on delinquency interest and deficiency interest
There shall be assessed and collected on any unpaid amount of tax, interest at the rate
of twenty percent (12%) from the date prescribed for payment until the amount is fully
paid: Provide, that in no case shall the deficiency and the delinquency interest
prescribed be imposed simultaneously.

Surcharge
Compromise penalty
If any person required to pay the tax is qualified and elects to pay the tax on installment
under the provisions of this Code, but fails to pay the tax or any installment hereof, or
any part of such amount or installment on or before the date prescribed for its payment,
or where the Commissioner has authorized an extension of time within which to pay a
tax or a deficiency tax or any part thereof, there shall be assessed and collected interest
at the rate hereinabove prescribed on the tax or deficiency tax or any part thereof
unpaid from the date of notice and demand until it is paid.

Assessment process and reglementary periods

Letter of Authority
What is a Letter of Authority? The Letter of Authority is an official document that
empowers a Revenue Officer to examine and scrutinize a Taxpayer's books of accounts
and other accounting records, in order to determine the Taxpayer's correct internal
revenue tax liabilities.

Who issues the Letter of Authority?

Letter of Authority, for audit/investigation of taxpayers under the jurisdiction of
National Office, shall be issued and approved by the Commissioner of Internal
Revenue, while, for taxpayers under the jurisdiction of Regional Offices, it shall be
issued by the Regional Director.

When must a Letter of Authority be served?

A Letter of Authority must be served to the concerned Taxpayer within thirty days
from its date of issuance, otherwise, it shall become null and void. The Taxpayer shall
then have the right to refuse the service of this LA, unless the LA is revalidated.

How often can a Letter of Authority be revalidated?

A Letter of Authority is revalidated through the issuance of a new LA. However, a
Letter of Authority can be revalidated. Only once, for LAs issued in the Revenue
Regional Offices or the Revenue District Offices; or Twice, in the case of LAs issued by
the National Office. Any suspended LA(s) must be attached to the new LA issued.

How much time does a Revenue Officer have to conduct an audit? A Revenue Officer is
allowed only one hundred twenty days from the date of receipt of a Letter of Authority by
the Taxpayer to conduct the audit and submit the required report of investigation. If the
Revenue Officer is unable to submit his final report of investigation within the 120-day
period, he must then submit a Progress Report to his Head of Office, and surrender the
Letter of Authority for revalidation.
How is a particular taxpayer selected for audit? Officers of the Bureau (Revenue District
Officers, Chief, Large Taxpayer Assessment Division, Chief, Excise Taxpayer
Operations Division, Chief, Policy Cases and Tax Fraud Division) responsible for the
conduct of audit/investigation shall prepare a list of all taxpayer who fall within the
selection criteria prescribed in a Revenue Memorandum Order issued by the CIR to
establish guidelines for the audit program of a particular year. The list of taxpayers shall
then be submitted to their respective Assistant Commissioner for pre-approval and to
the Commissioner of Internal Revenue for final approval. The list submitted by RDO
shall be pre-approved by the Regional Director and finally approved by Assistant
Commissioner, Assessment Service.

How many times can a taxpayer be subjected to examination and inspection for the
same taxable year? A taxpayer’s books of accounts shall be subjected to examination
and inspection only once for a taxable year, except in the following cases:
(1) When the Commissioner determines that fraud, irregularities, or mistakes were
committed by Taxpayer;
(2) When the Taxpayer himself requests a re-investigation or re-examination of his
books of accounts;
(3) When there is a need to verify the Taxpayer’s compliance with withholding and other
internal revenue taxes as prescribed in a Revenue Memorandum Order issued by the
Commissioner of Internal Revenue.
(4) When the Taxpayer’s capital gains tax liabilities must be verified; and
(5) When the Commissioner chooses to exercise his power to obtain information relative
to the examination of other Taxpayers.

Notice of Informal Conference

The Revenue Officer who audited the taxpayer's records shall, among others, state in
his report whether or not the taxpayer agrees with his findings that the taxpayer is liable
for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's
submitted report of investigation, the taxpayer shall be informed, in writing, by the
Revenue District Office or by the Special investigation Division, as the case may be (in
the case of Revenue Reqional Offices) or by the Chief of Division concerned (in the
case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer’s
payment of his internal revenue taxes, for the purpose of "lnformal Conference,” in order
to afford the taxpayer with an opportunity to present his side of the case.
The lnformal Conference shall in no case extend beyond thirty days from receipt of the
notice for informal conference. lf it is found that the taxpayer is still liable for deficiency
tax or taxes after presenting his side, and the taxpayer is not amenable, the Revenue
District Officer or the Chief of the Special lnvestiqation Division of the Revenue Regional
Office, or the Chief of Division in the National Office, as the case may be, shall endorse
the case within seven days from the conclusion of the lnformal Conference to the
Assessment Division of the Revenue Reqional Office or to the Commissioner or his duly
authorized representative for issuance of a deficiency tax assessment.
Failure on the part of Revenue Officers to comply with the periods indicated herein shall
be meted with penalty as provided by existing laws, rules and regulations."
The Notice of Informal Conference is a written statement issued by the BIR informing
the taxpayer of the discrepancies in the taxpayer’s tax payments for the purpose of
conducting an informal conference wherein the taxpayer will be given an opportunity to
present his side of the case.

Issuance of Preliminary Assessment Notice

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 excisable 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 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 days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty days from
receipt of the said decision, or from the lapse of one hundred eighty-day period;
otherwise, the decision shall become final, executory and demandable.

Mr. Tiaga has been a law-abiding citizen diligently paying his income taxes. On May 5,
2014, he was surprised to receive an assessment notice from the Bureau of Internal
Revenue (BIR) informing him of a deficiency tax assessment as a result of a
mathematical error in the computation of his income tax, as appearing on the face of his
income tax return for the year 2011, which he filed on April 15, 2012. Mr. Tiaga believes
that there was no such error in the computation of his income tax for the year 2011.
Based on the assessment received by Mr. Tiaga, may he already file a protest thereon?
Yes. Mr. Tiaga may consider the assessment notice as a final assessment notice and
his right to protest within 30 days from receipt may now be exercised by him. When the
finding of a deficiency tax is the result of mathematical error in the computation of the
tax appearing on the face of the return, a pre-assessment notice shall not be required,
hence the assessment notice is a final assessment notice.

What is a Pre-Assessment Notice (PAN)?

The Pre-Assessment Notice is a communication issued by the Regional
Assessment Division, or any other concerned BIR Office, informing a Taxpayer who has
been audited of the findings of the Revenue Officer, following the review of these
findings. If the Taxpayer disagrees with the findings stated in the PAN, he shall then
have fifteen days from his receipt of the PAN to file a written reply contesting the
proposed assessment.

What is "Jeopardy Assessment"?

A Jeopardy Assessment is a tax assessment made by an authorized Revenue
Officer without the benefit of complete or partial audit, in light of the RO’s belief that the
assessment and collection of a deficiency tax will be jeopardized by delay caused by
the Taxpayer’s failure to coomply with audit and investigation requirements to present
his books of accounts and/or pertinent records; or substantiate all or any of the
deductions, exemptions or credits claimed in his return.

Considering the functions and effects of a PAN vis a vis a FAN, it is clear that the
assessment contemplated in Sections 203 and 222 of the National Internal Revenue
Code refers to the service of the FAN upon the taxpayer. A PAN merely informs the
taxpayer of the initial findings of the Bureau of Internal Revenue. It contains the
proposed assessment, and the facts, law, rules, and regulations or jurisprudence on
which the proposed assessment is based. It does not contain a demand for payment but
usually requires the taxpayer to reply within 15 days from receipt. Otherwise, the
Commissioner of Internal Revenue will finalize an assessment and issue a FAN. The
PAN is a part of due process. It gives both the taxpayer and the Commissioner of
Internal Revenue the opportunity to settle the case at the earliest possible time without
the need for the issuance of a FAN.
On the other hand, a FAN contains not only a computation of tax liabilities but also a
demand for payment within a prescribed period. As soon as it is served, an obligation
arises on the part of the taxpayer concerned to pay the amount assessed and
demanded. It also signals the time when penalties and interests begin to accrue against
the taxpayer. Thus, the National Internal Revenue Code imposes a penalty, in addition
to the tax due, in case the taxpayer fails to pay the deficiency tax within the time
prescribed for its payment in the notice of assessment. Likewise, an interest, or such
higher rate as may be prescribed by rules and regulations, is to be collected from the
date prescribed for payment until the amount is fully paid. Failure to file an
administrative protest within 30 days from receipt of the FAN will render the assessment
final, executory, and demandable.

Issuance of Formal Letter of Demand/ Final Assessment Notice

A Notice of Assessment is a declaration of deficiency taxes issued to a Taxpayer who
fails to respond to a Pre-Assessment Notice within the prescribed period of time, or
whose reply to the PAN was found to be without merit. The Notice of Assessment shall
inform the Taxpayer of this fact, and that the report of investigation submitted by the
Revenue Officer conducting the audit shall be given due course. The formal letter of
demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the assessment is
based, otherwise, the formal letter of demand and the notice of assessment shall be
void

Disputed assessment
Requisites
Prescriptive periods
A final assessment notice was issued by the BIR on June 13, 2000, and received by the
taxpayer on June 15, 2000. The taxpayer protested the assessment on July 31, 2000.
The protest was initially given due course, but was eventually denied by the
Commissioner of Internal Revenue in a decision dated June 15, 2005. The taxpayer
then filed a petition for review with the Court of Tax Appeals (CTA), but the CTA
dismissed the same. Assume that the CTA’s decision dismissing the petition for review
has become final. May the Commissioner legally enforce collection of the delinquent
tax? Explain.
No. The protest was filed out of time and, therefore, did not suspend the running
of the prescriptive period for the collection of the tax. Once the right to collect has
prescribed, the Commissioner can no longer enforce collection of the tax liability against
the taxpayer pursuant to the Tax Code.

Taxpayer’s remedies
Protesting an assessment
Period to file protest
What are the differences between a request for reconsideration and a request for
reinvestigation?
1. A request for reinvestigation suspends the running of the prescriptive period for
collection of taxes while a motion for reconsideration does not.
2. A request for reinvestigation requires the presentation of newly discovered or
additional evidence while a motion for reconsideration does not.
3. The period of 60 days for submission of the relevant supporting documents finds
application only to a request for reinvestigation and not to a request for reconsideration.
4. The failure of the Commissioner of Internal Revenue to act on the request for
reconsideration after a period of 180 days from filing thereof authorizes the taxpayer to
file a petition for review with the CTA within a period of 30 days from the expiration of
such 180 day period while for a request for reinvestigation the period is the expiration of
the 180 day period from the submission of the complete supporting documents.

Submission of supporting documents

Effect of failure to file protest
A final assessment notice was issued by the BIR on June 13, 2000, and received by the
taxpayer on June 15, 2000. The taxpayer protested the assessment on July 31, 2000.
The protest was initially given due course, but was eventually denied by the
Commissioner of Internal Revenue in a decision dated June 15, 2005. The taxpayer
then filed a petition for review with the Court of Tax Appeals (CTA), but the CTA
dismissed the same. Is the CTA correct in dismissing the petition for review? Explain
your answer.
Yes. The protest was filed beyond the prescribe period of 15 days. Hence, the
CTA does not acquire jurisdiction over the matter.

A taxpayer received, on 15 January 1996, an assessment for an internal revenue tax

deficiency. On 10 February 1996, the taxpayer forthwith filed a petition for review with
the Court of Tax Appeals. Could the Tax Court entertain the petition?
No. The Tax Code requires that before taxpayer can avail of judicial remedy, he
must first exhaust administrative remedies by filing a protest within 30 days from receipt
of the assessment. It is the Commissioner's decision on the protest that give the Tax
Court jurisdiction over the case provided that the appeal is filed within 30 days from
receipt of the Commissioner’s decision. An assessment by the BIR is not the
Commissioner's decision from which a petition for review may be filed with the Court of
Tax Appeals. Rather, it is the action taken by the Commissioner in response to the
taxpayer's protest on the assessment that would constitute the appealable decision.

Under the above factual setting, the taxpayer, instead of questioning the assessment he
received on 15 January 1996, paid on 01 March 1996 the "deficiency tax" assessed.
The taxpayer requested a refund from the Commissioner by submitting a written claim
on 01 March 1997. It was denied. The taxpayer, on 15 March 1997, filed a petition for
review with the Court of Appeals. Could the petition still be entertained?
No, the petition for review cannot be entertained by the Court of Appeals. The
decisions of the Commissioner on cases involving claim for tax refunds are within the
exclusive and primary jurisdiction of the Court of Tax Appeals without filing its protest
against the assessment and without a denial thereof by the BIR.

If you were the judge, would you deny the petition for review filed by the taxpayer and
consider the case as prematurely filed? Explain you answer.
No, the Petition for Review should not be denied. The case is an exception to the
rule on exhaustion of administrative remedies. The BIR is estopped from claiming that
the filing of the Petition for Review is premature because the taxpayer failed to exhaust
all administrative remedies. The statement of the BIR in its Final Assessment Notice
and Demand Letter led the taxpayer to conclude that only a final judicial ruling in his
favor would be accepted by the BIR. The taxpayer cannot be blamed for not filing a
protest against the Formal Letter of Demand with Assessment Notices since the
language used and the tenor of the demand letter indicate that it is the final decision of
the respondent on the matter. The CIR should indicate, in a clear and unequivocal
language, whether his action on a disputed assessment constitutes his final
determination thereon in order for the taxpayer concerned to determine when his or her
right to appeal to the tax court accrues. Although there was no direct reference for the
taxpayer to bring the matter directly to the CTA, it cannot be denied that the word
“appeal” under prevailing tax laws refers to the filing of a Petition for Review with the
CTA.

On March 27, 2012, the Bureau of Internal Revenue (BIR) issued a notice of
assessment against Blue Water Industries Inc. (BWI), a domestic corporation, informing
the latter of its alleged deficiency corporate income tax for the year 2009. On April 20,
2012, BWI filed a letter protest before the BIR contesting said assessment and
demanding that the same be cancelled or set aside. However, on May 19, 2013, that is
after more than a year from the filing of the letter protest, the BIR informed BWI that the
latter’s letter protest was denied on the ground that the assessment had already
become final, executory and demandable. The BIR reasoned that its failure to decide
the case within 180 days from filing of the letter protest should have prompted BWI to
seek recourse before the CTA by filing a petition for review within 30 days after the
expiration of the 180- day period as mandated by the provisions of the last paragraph of
Section 228 of the NIRC. Accordingly, BWI’s failure to file a petition for review before
the CTA rendered the assessment final, executory and demandable. Is the contention of
the BIR correct? Explain.
No, the contention of BIR is not correct. The right of BWI to consider the inaction
of the Commissioner on the protest within 180 days as an appealable decision is only
optional and will not make the assessment final, executory and demandable.

Decision of the Commissioner on the protest filed

Period to act upon or decide on protest filed
Remedies of the taxpayer in case the Commissioner denies the protest or fails to act on
the protest
Effect of failure to appeal
Compromise and abatement of taxes
The Commissioner may:
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
of the basic assessed tax; and
For other cases, a minimum compromise rate equivalent to forty percent of the basic
assessed tax.
Where the basic tax involved exceeds One million pesos 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 Deputy Commissioners.

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.

Under what conditions may the Commissioner of Internal Revenue be authorized to:
Compromise the payment of any internal revenue tax?
The Commissioner of Internal Revenue may be authorized to compromise the
payment of any internal revenue tax where:
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.

State and discuss briefly whether the following cases may be compromised or may not
be compromised: Delinquent accounts;
Delinquent accounts may be compromised if either of the two conditions is
present: (1) the assessment is of doubtful validity, or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the tax.

Cases under administrative protest, after issuance of the final assessment notice to the
taxpayer, which are still pending.
These may be compromised, provided that it is premised upon doubtful validity of
the assessment or financial incapacity to pay.

Criminal tax fraud cases.

These may not be compromised, so that the taxpayer may not profit from his
fraud, thereby discouraging its commission.

Criminal violations already filed in court;

These may not be compromised in order that the taxpayer will not profit from his
criminal acts.

Cases where final reports of reinvestigation or reconsideration have been issued

resulting in the reduction of the original assessment agreed to by the taxpayer when he
signed the required agreement form.
Cases where final reports of reinvestigation or reconsideration have been issued
resulting in the reduction of the original assessment agreed to by the taxpayer when he
signed the required agreement form, cannot be compromised. By giving his conformity
to the revised assessment, the taxpayer admits the validity of the assessment and his
capacity to pay the same.

Under what conditions may the Commissioner of Internal Revenue be authorized to

abate or cancel a tax liability?
The Commissioner of Internal Revenue may 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.

Recovery of tax erroneously or illegally collected

Grounds, requisites, and period for filing a claim for refund or issuance of a tax credit
certificate
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 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 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.

State the conditions required by the Tax Code before the Commissioner of Internal
Revenue could authorize the refund or credit of taxes erroneously or illegally received.
The conditions are:
1. A written claim for refund is filed by the taxpayer with the Commissioner of Internal
Revenue;
2. The claim for refund must be a categorical demand for reimbursement;
3. The claim for refund or tax credit must be filed with the Commissioner, or the suit or
proceeding therefore must be commenced in court within 2 years from date of payment
of the tax or penalty regardless of any supervening cause.

In its final adjustment return for the 2010 taxable year, ABC Corp. had excess tax
credits arising from its over withholding of income payments. It opted to carry over the
excess tax credits to the following year. Subsequently, ABC Corp. changed its mind and
applied for a refund of the excess tax credits. Will the claim for refund prosper?
No. The claim for refund will not prosper. While the law gives the taxpayer an
option whether to carry-over or claim as refund the excess tax credits shown on its final
adjustment return, once the option to carry over has been made, such option shall be
considered irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed.

DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Starting
December 15, 2004. DEF Corporation paid annual royalties to DEF, Inc., for the use of
the latter's software, for which the former, as withholding agent of the government,
withheld and remitted to the BIR the 15% final tax based on the gross royalty payments.
The withholding tax return was filed and the tax remitted to the BIR on January 10 of the
following year. On April 10, 2007, DEF Corporation filed a written claim for tax credit
with the BIR, arising from erroneously paid income taxes covering the years 2004 and
2005. The following day, DEF Corporation filed a petition for review with the Court of
Tax Appeals involving the tax credit claim for 2004 and 2005. As a BIR lawyer handling
the case, would you raise the defense of prescription in your answer to the claim for tax
credit? Explain.
Yes. The claim for refund for the 2004 erroneously paid income tax was filed out
of time because the claim was only filed after more than two years had elapsed from the
payment thereof.

Proper party to file claim for refund or tax credit

ABCD Corporation (ABCD) is a domestic corporation with individual and corporate
shareholders who are residents of the United States. For the 2nd quarter of 1983, these
U.S.-based individual and corporate stockholders received cash dividends from the
corporation. The corresponding withholding tax on dividend income 30% for individual
and 35% for corporate non-resident stockholders was deducted at source and remitted
to the BIR. On May 15,1984, ABCD filed with the Commissioner of Internal Revenue a
formal claim for refund, alleging that under the RP-US Tax Treaty, the deduction
withheld at source as tax on dividends earned was fixed at 25% of said income. Thus,
ABCD asserted that it overpaid the withholding tax due on the cash dividends given to
its non-resident stockholders in the U.S. the Commissioner denied the claim. On
January 17, 1985, ABCD filed a petition with the Court of Tax Appeals (CTA) reiterating
its demand for refund. Does ABCD Corporation have the legal personality to file the
refund on behalf of its non-resident stockholders? Why or why not?
Yes, withholding agents is not only an agent of the government but is also an
agent of the taxpayer/income earner. Hence, ABCD is also an agent of the beneficial
owner of the dividends with respect to the actual payment of the tax to the government,
such authority may reasonably be held to include the authority to file a claim for refund
and to bring an action for recovery of such for refund and to bring an action for recovery
of such claim.