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IN GENERAL
Agencies involved in tax administration
1. Bureau of Internal Revenue
2. Bureau of Customs
3. Provincial, city and municipal assessors and treasurers
Bureau of Internal revenue
* Headed by the Commissioner and two Deputy Commissioners
* Assistant Commissioners and Division Chiefs
* Regional Directors
* Revenue District Officers
* Revenue Enforcement Officers or Examiners
POWERS OF THE COMMISSIONER OF INTERNAL REVENUE
General powers of the Commissioner of Internal Revenue
1. Interpret tax laws and to decide tax cases.
2. Obtain information and to summon, examine, and take testimony of persons
.
3. Make assessments and prescribe additional requirements for tax administr
ation and enforcement.
Tax assessment
* An assessment is the official action of an administrative officer in determini
ng the amount of tax due from a taxpayer, or it may be a notice to the effect th
at the amount therein stated is due from a taxpayer as a tax with a demand for p
ayment of the tax or deficiency stated therein.
* An assessment is a finding by the taxing agency that the taxpayer has not paid
his current taxes. It is also a notice to the effect that the amount stated the
rein is due as tax and is a demand for payment thereof.
* The Local Government Code defines assessment as the act or process of determin
ing the value of a property or portion thereof subject to tax, including the dis
covery, listing, classification, and appraisal of properties.
* The BIR assessment is usually embodied in a demand letter or in a BIR form kno
wn as the assessment notice.
Letter of authority
* This is the authority issued by the Revenue Regional Director and given to a r
evenue officer assigned to perform assessment functions to examine taxpayers wit
hin the jurisdiction of the district in order to collect the correct amount of t
ax, or to recommend the assessment of any deficiency tax due in the same manner
that the said acts could have been performed by the Revenue Regional Director hi
mself.
Kinds of assessment
1. Self assessment
2. Deficiency assessment
3. Illegal and void assessment
4. Erroneous assessment
Self assessment
* One in which the tax is assessed by the taxpayer himself.
* The amount of tax is reflected in the tax return that is filed by him and the
tax assessed is paid at the time he files the return. This system of filing of r
eturn and payment of tax is known as the pay-as-you-file system.
* Tax so assessed is known as self assessed tax.
Deficiency assessment
* This is an assessment made by the tax assessor himself whereby the correct amo
unt of the tax is determined after an examination or investigation is conducted.
* The liability is determined and is thereafter assessed for the following reaso
ns:
1. The amount ascertained exceeds that which is shown as the tax by the tax
payer in his return;
2. No amount of tax is shown in the return; or
3. The taxpayer did not file any return at all.
Illegal and void assessment
* This is an assessment wherein the tax assessor has no power to act at all.
Erroneous assessment
* This is an assessment wherein the assessor has the power to assess but errs in
the exercise of the power.
Principles governing tax assessments
1. Assessments are prima facie presumed correct and made in good faith.
2. Assessments should not be based on presumptions but on actual facts.
3. Assessment is discretionary on the Commissioner who cannot therefore be
compelled to assess a tax when he or she believes that there is no basis for suc
h assessment.
4. The authority vested in the Commissioner to assess taxes may be delegate
d. However, it is settled that the power to make final assessments cannot be del
egated.
5. Assessments must be directed to the right party.
Investigative power of the Commissioner; factual basis of assessments
* Inasmuch as assessments are based on facts, the Commissioner is given the powe
r to obtain information which serves as basis for said assessments, and is also
given the means to secure them. [See powers of the Commissioner]
Means employed in the assessment of taxes
1. Examination of returns and determination of the tax due.
2. Assess the proper tax on the best evidence obtainable.
3. Conduct inventory-taking, surveillance and to prescribe presumptive gros
s sales and receipts
4. Issue jeopardy assessments and terminate the taxable period.
5. Prescribe real property values.
6. Inquire into bank deposit accounts.
7. Accredit and register tax agents.
8. Prescribe additional procedural or documentary requirements.
The net worth method
* A very effective method of determining taxable income and the deficiency incom
e tax due thereon is the net worth method or what is otherwise known as the inven
tory method of income tax verification.
* The method is an extension of the accounting principle: Assets minus liabiliti
es equals net worth. The taxpayer s net worth is determined both at the beginning
and at the end of the same taxable year. The increase or decrease in net worth i
s adjusted by adding all non-deductible items and subtracting therefrom non-taxa
ble receipts.
* The legal basis for the use of the net worth method is the authority of the Co
mmissioner to adopt an accounting method that clearly reflects the income.
Conditions for the use of the net worth method
1. That the taxpayer s books do not clearly reflect his income or the taxpaye
r has no books, or if he has books, he refuses to produce them.
2. That there is evidence of a possible source or sources of income to acco
unt for the increases in net worth or the expenditures.
3. That there is a fixed starting point or opening net worth.
4. That the circumstances are such that the method does reflect the taxpaye
r s income with reasonable accuracy and certainty and proper and just additions of
personal expenses and other non-deductible expenditures were made and correct,
fair and equitable credit adjustments were given by way of eliminating non-taxab
le items.
Requisites of a valid assessment
1. Post-reporting notice or notice for an informal conference after the tax
audit.
2. Pre-assessment notice sent to the taxpayer, except in several instances.
3. The taxpayers shall be informed in writing of the law and the facts upon
which the assessment is made.
4. Assessment must be made within the prescriptive period.
Pre-assessment notice
* This is a notice in writing which is sent to the taxpayer at the address indic
ated in his return or at his last known address as stated in his notice of chang
e of address if the Commissioner or his duly authorized representative finds tha
t taxes should be assessed against the taxpayer. As such, the taxpayer is first
notified of said findings before an assessment is issued.
ASSESSMENT
General Rule
* Assessment shall be made within three (3) years after the last day prescribed
by law for the filing of the return or from the day the return was filed in case
the return was filed beyond the period prescribed by law.
Exceptions
1. Assessment may be made within ten (10) years after the discovery of the
falsity, fraud or omission in the following cases:
a. in case of a false or fraudulent return with intent to evade tax; or
b. failure to file a return.
2. In case the Commissioner and the taxpayer agree in writing to a differen
t period before the expiration of the original prescriptive period. The period s
o agreed upon may be extended by subsequent written agreement before the expirat
ion of the period previously agreed upon.
When is assessment deemed made?
* It is not the issue date of the demand and/or notice that is the reckoning poi
nt in prescription but rather it is the date when the demand letter is released,
mailed or sent to the taxpayer that constitutes an actual assessment.
* The Supreme Court held in a case that so long as the release thereof is effect
ed before prescription sets in, the assessment is deemed made on time even thoug
h the same is actually received by the taxpayer after the expiration of the pres
cription period. [Basilan Estates, Inc. v. Commissioner, 21 SCRA 17] The law doe
s not require that the demand or notice be received within the prescriptive peri
od.
Important considerations on prescription of the government s right to assess taxes
1. Date of filing of tax returns
2. Effect of filing of an amended return
3. Effect of the filing of a wrong return (as if no return filed, thus, 10-
year prescriptive period)
4. Period applicable when the law does not require the filing of a return (
10-year prescriptive period unless taxpayer files a return to enable him to avai
l of the benefit of the three-year prescriptive period)
Amended return
* The Supreme Court held that where the amended return is substantially differen
t from the original return, the right of the Bureau of Internal Revenue to asses
s the tax is counted from the filing of the amended return. [Commisioner v. Phoe
nix Assurance Co., Ltd., L-19127, May 20, 1965]
False v. fraudulent return
* Distinction must be made between false returns due to mistakes, carelessness o
r ignorance and fraudulent returns with intent to evade taxes.
* The fraud contemplated by law is actual and not constructive. It must amount t
o intentional wrong doing with the sole object of avoiding the tax. It necessari
ly follows that a mere mistake cannot be considered as fraudulent intent. Thus,
if both the petitioner and the respondent Commissioner committed mistakes in mak
ing the entries in the returns and the assessment respectively under the invento
ry method of determining tax liability, it would be unfair to treat the mistakes
of the petitioner as tainted with fraud and those of the respondent s tax deficie
ncy for each year from 1946 to 1951, inclusive. [Aznar v. Commissioner, L-20569,
August 23, 1974]
Fraud
* Fraud is a question of fact and the circumstances constituting fraud must be a
lleged and proved.
* Fraud must be a product of a deliberate intent to evade taxes. Hence, mere und
erdeclaration does not necessarily imply fraud.
* Fraud must be actual, not constructive. It must amount to intentional wrong do
ing with the sole purpose of avoiding the tax. A mere mistake cannot be consider
ed as fraudulent intent.
Waiver of the statute of limitations
* Section 222(b) of the NIRC allows the taxpayer and the government to extend by
mutual agreement the prescriptive periods for the assessment and collection of
taxes.
* Such agreement must be in writing.
* The waiver must be executed by the parties before the lapse of the three-year
prescriptive period. A waiver is ineffectual if it is executed beyond the origin
al prescriptive period.
* The extended period may again be extended provided the new period be agreed up
on before the lapse of the extended period.
Procedure for waiver of prescriptive period under RMO 20-90
1. Waiver must be in prescribed form
2. Waiver must be signed by the taxpayer himself or his authorized represen
tative
3. The Commissioner or his duly authorized agent must sign the waiver indic
ating the BIR s acceptance of the waiver
COLLECTION
General Rule
* Collection may be instituted within five (5) years following the assessment of
the tax. [Section 222]
Exception
* A proceeding in court for collection, without assessment, may be instituted wi
thin ten (10) years after the discovery of falsity, fraud, or omission in the ca
se of a false or fraudulent return with intent to evade tax or failure to file a
return. [Section 222(a), NIRC]
When does the three-year prescriptive period start to run?
* The period of limitation to collect is counted from the assessment of the tax.
* Assessment is deemed made at the time the demand or assessment notice has been
sent, released or mailed to the taxpayer.
* The actual sending or release to the taxpayer of the assessment notice or dema
nd is, therefore, necessary in order to determine the actual date when the tax b
eing collected was assessed.
When is the tax deemed collected for purposes of the prescriptive period?
* Collection through summary remedies is effectuated by summary methods when the
government avails of the distraint and levy procedure.
* If collection is to be effected through judicial remedies, the collection of t
he tax is begun by the filing of the complaint with the proper court.
* However, if the decision of the Commissioner on a protested assessment is appe
aled to the Court of Tax Appeals, the collection of the tax is considered begun
when the government files its answer to the taxpayer s petition for review.
May there be a judicial action to collect a tax liability even if there is no pr
evious assessment?
* Yes. A proceeding in court for collection without assessment may be instituted
within ten years after the discovery of falsity, fraud, or omission in the case
of a false or fraudulent return with intent to evade tax or failure to file a r
eturn. [Section 222(a), NIRC]
Prescription of the government s right to recover an erroneously refunded tax
* Same as the three-year prescriptive period for making assessments. [Guagua Ele
ctric Co., Inc. v. Commissioner, 19 SCRA 790]
Suspension of the running of the 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 or a proceeding
in court for collection, in respect of any deficiency, shall be suspended under
any of the following circumstances:
1. When the Commissioner is prohibited from making the assessment or beginn
ing the distraint or levy or proceeding in court and for sixty (60) days thereaf
ter;
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 r
eturn filed upon which a tax is being assessed or collected, unless the taxpayer
has informed the Commissioner of any change in address;
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 disc
retion, and no property could be located; and
5. When the taxpayer is out of the Philippines.
Examples when the Commissioner is prohibited from assessing or collecting the ta
x
1. The filing of a petition for review in the Court of Tax Appeals from the
decision of the Commissioner on a protested assessment interrupts the running o
f the prescriptive period for collection. [Republic v. Ker & Co., Ltd., 18 SCRA
207]
2. When the Court of Tax Appeals enjoins the collection of the tax under Se
ction 11 of RA 1125.
Request for reinvestigation which should be granted or acted upon by the Commiss
ioner
* It should be emphasized that a mere request for reinvestigation without any co
rresponding action on the part of the Commissioner does not interrupt the runnin
g of the prescriptive period.
Will an extrajudicial demand on the taxpayer interrupt prescription?
* No. Section 22 of the NIRC enumerates the instances when prescription is inter
rupted. The serving of an extrajudicial demand is not one of them.
IN GENERAL
Remedies of taxpayer
1. Remedy before payment of tax: Protest of assessment
2. Remedy after payment of tax: Claim for tax refund or credit
PROTEST OF ASSESSMENT
Procedure
* Taxpayer may protest administratively the assessment by filing a request for r
econsideration or reinvestigation within thirty (30) days from receipt of the as
sessment.
* Within sixty (60) days from the filing of the protest, taxpayer shall submit a
ll relevant supporting documents, otherwise the assessment becomes final.
* If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer adversely a
ffected by the decision or inaction may appeal to the Court of Tax Appeals withi
n thirty (30) days from receipt of the decision or from the lapse of the one hun
dred eighty (180)-day period; otherwise, the decision shall become final, execut
ory and demandable. [Section 228, NIRC]
* Decision of the Court of Tax Appeals may be appealed to the Court of Appeals t
hrough a verified petition for review within fifteen (15) days from receipt of d
ecision of the CTA. This may be extended for another fifteen (15) days upon prop
er motion and the payment of the full amount of the docket fee before the expira
tion of the reglementary period. No further extension shall be granted except fo
r the most compelling reason and in no case to exceed 15 days. [Section 4, Rule
43, Rules of Court]
* Decision of the Court of Appeals is appealable to the Supreme Court through a
petition for review by certiorari within fifteen (15) days from receipt of the C
A decision.
Disputed assessment
* This is an assessment which has been protested by the taxpayer. Its effect is
to suspend the prescriptive period to collect the tax due.
* Only disputed assessments are appealable to the Court of Tax Appeals. A taxpay
er who received an assessment and who did not protest such assessment cannot fil
e an appeal to the Court of Tax Appeals, as the assessment is not disputed.
Decisions of the Regional Director
* It should be noted that the Regional Director may also render decisions on pro
tests.
* Revenue Regulations 12-85 authorizes appeals to the Court of Tax Appeals from
the decisions of the Regional Directors on administrative protest within the sam
e thirty-day period. Section 7 of Republic Act No. 1125, however, mentions only
decisions of the Commissioner.
* Be that as it may, it is very well within the perimeter of correct procedure i
f the taxpayer, instead of going directly to the Court of Tax Appeals, appeals t
he Regional Director s decision to the Commissioner considering that, after all, i
t is the Commissioner who has the final authority to decide administrative prote
sts.
Two ways of protesting administratively
1. Request for reconsideration: This refers to a plea for re-evaluation of
an assessment on the basis of existing records without need of additional eviden
ce. It may involve a question of fact or law or both.
2. Request for reinvestigation: This refers to a plea for re-evaluation of
an assessment on the basis of newly-discovered or additional evidence. It may al
so involve a question of fact or law or both.
Effect of failure of the taxpayer to file an administrative protest or to appeal
the Commissioner s decision to the Court of Tax Appeals
* The assessment becomes final and unappealable. As such, it makes the assessed
tax collectible.
CLAIMS FOR REFUND AND CREDIT OF TAXES
Refund v. credit
* These are remedies of the taxpayer after payment of the tax.
* Both are modes of recovering taxes which are either erroneously or illegally p
aid to the government.
* Tax refund takes place when there is actually a reimbursement of the tax. In t
ax credit, the government applies the amount determined to be reimbursable, afte
r proper verification, against any sum that may be due and collectible from the
taxpayer.
When may claim for refund or credit be filed?
1. When tax has been erroneously or illegally assessed or collected.
2. When any penalty is claimed to have been collected without authority.
3. When any sum is alleged to have been excessively or in any manner wrongf
ully collected. [Section 229, NIRC]
4. Commissioner is also given the authority to refund the value of internal
revenue stamps when they are returned in good condition by the purchaser and, i
n his discretion, redeem or change unused stamps that have been rendered unfit f
or use and refund their value upon proof of destruction. [Section 204, NIRC]
Nature of erroneously paid or illegally assessed or collected taxes
* There is erroneous payment of taxes when a taxpayer pays under a mistake of fa
ct as for instance in a case where he is not aware of an existing exemption in h
is favor at the time the payment was made. Such payments are held to be not volu
ntary and, therefore, can be recovered or refunded.
* Taxes are illegally collected when payments are made under duress.
Requisites for refund or credit
1. A written claim for refund or credit must first be filed with the Commis
sioner;
2. The claim for refund or credit must be a categorical demand for reimburs
ement; and
3. It must be filed within two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after payment.
Note: Payment under protest is not required. Section 229 of the NIRC provides
that a suit or proceeding for refund or credit may be maintained whether or not
such tax, penalty, or sum has been paid under protest or duress.
When payment under protest required
1. In real property protest cases
2. Protest in customs cases
Why is a written claim for refund necessary?
1. To afford the Commissioner an opportunity to correct the action of subor
dinate officers.
2. To notify the government that the 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.
Two things to be established before refund or credit is granted
1. There was an actual collection and receipt by the government of the tax
sought to be recovered. This requires factual proof.
2. There is legal basis for granting the refund or credit.
Procedure for refund or credit
1. File claim in writing with the Commissioner. This is a condition precede
nt before one can file action with the Court of Tax Appeals for refund or credit
.
2. If claim is denied or is not acted upon by the Commissioner, the taxpaye
r must file an appeal to the Court of Tax Appeals within thirty (30) days after
receipt of the decision of the Commissioner.
3. Both the written claim and the appeal to the Court of Tax Appeals must b
e filed within the two-year prescriptive period.
The two-year prescriptive period for overpaid quarterly corporate income tax
* In the case of an overpaid quarterly income tax for corporations, the prescrip
tive period of two years within which a claim for refund should be filed is coun
ted, not from the time the corporation files its quarterly income tax return and
pays the tax thereon, but from the date the final, adjustment return is filed a
fter the end of the taxable year. [Commissioner v. TMX Sales, Inc., 205 SCRA 184
]
Prescriptive period for taxes withheld
* In the case of taxes withheld under the withholding tax system, the two-year p
rescriptive period for refunds is counted not from the date the tax is withheld
and remitted to the Bureau of Internal Revenue but from the end of the taxable y
ear.
Taxes payable in installments
* In cases of taxes which are payable in installments, the two-year prescriptive
period is counted from the payment of the last installment. [Commissioner v. Pa
lanca, 18 SCRA 496]
Suspension of the two-year prescriptive period
* The period for claiming claims for refund is suspended provided two conditions
are present:
1. There is a pending litigation between the two parties, i.e. the governme
nt and the taxpayer as to the proper tax to be paid and of the proper interpreta
tion of the taxpayer s charter in relation to the disputed tax; and
2. The Commissioner in that disputed case agreed to abide by the decision o
f the Supreme Court as to the collection of the tax relative thereto. [Panay Ele
ctric Co. v. Collector, L-10574, May 28, 1958]
Refund without claim
* The Commissioner may, even without a written claim therefor, refund or credit
any tax, where on the face of the return upon which payment was made, such payme
nt appears clearly to have been erroneously made.
Forfeiture of refund and tax credit
* A refund check or warrant which shall remain unclaimed or uncashed within five
(5) years from the date said warrant or check was mailed or delivered shall be
forfeited in favor of the Government and the amount thereof shall revert to the
general fund.
* A tax credit certificate which shall remain unutilized after five (5) years fr
om the date of issue shall, unless revalidated, be considered invalid.
Equitable recoupment
* It is a principle which allows a taxpayer whose claim for refund has been barr
ed due to prescription to recover said tax by setting off the prescribed refund
against a tax that may be due and collectible from him.
* This rule is not applicable in the Philippine jurisdiction.
Legal capacity of withholding agents to claim tax refund
* Corporate withholding agents in the Philippines of non-resident foreign corpor
ations are entitled to claim the refund of excess withholding tax paid on income
of said corporations in the Philippines.
* The Supreme Court ruled that a withholding agent should be allowed to claim th
e tax refund because, under the law, it is the one who is held liable for any vi
olation of the withholding tax law should such a violation occur. [Commissioner
v. Wander Phils., Inc., G.R. No. 68378, April 15, 1988]
Interest on tax refunds
* The rule on this matter is that the government cannot be required to pay inter
est on taxes refunded to the taxpayer. [Sweeney v. Commissioner, L-12178, August
21, 1959]
* Exceptions
1. When the Commissioner acted with patent arbitrariness. Arbitrariness pre
supposes inexcusable or obstinate disregard of legal provisions. [Commissioner v
. Victorias Milling Corp., et.al., L-19667, November 29, 1966]
2. In cases of refunds or credits made after three months from April 15 to
employees for any excess of the taxes withheld, the rate of which is six percent
(6%) per annum. [Section 79, NIRC]
IN GENERAL
Remedies of the government
1. Tax lien
2. Compromise
3. Distraint
4. Levy
5. Civil action
6. Criminal action
7. Forfeiture
8. Suspension of business operations in violations of VAT
9. Enforcement of administrative fine
TAX LIEN
Tax lien
* When a taxpayer neglects or refuses to pay his internal revenue tax liability
after demand, the amount so demanded shall be a lien in favor of the government
from the time the assessment was made by the Commissioner until paid with intere
st, penalties, and costs that may accrue in addition thereto, upon all property
and rights to property belonging to the taxpayer. [Section 219, NIRC]
* Lien shall not be valid against any mortgagee, purchaser or judgment creditor
until notice of such lien shall be filed by the Commissioner in the Register of
Deeds of the province or city where the property of the taxpayer is located.
COMPROMISE
Compromise v. abatement
* Unlike compromise which involves a reduction of the taxpayer s liability, abatem
ent of tax means that the entire tax liability of the taxpayer is cancelled.
* Compromise and abatement have different grounds.
Grounds for compromise
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.
Grounds for abatement
1. When the tax or any portion thereof appears to be unjustly or excessivel
y assessed.
2. When the administration and collection costs involved do not justify the
collection of the amount due.
Compromise of criminal violations
* All criminal violations may be compromised except:
1. those already filed in court; and
2. those involving fraud.
Limitations on compromise
* For cases of financial incapacity, a minimum compromise rate equivalent to 10%
of the basic assessed tax; and
* For other cases, a minimum compromise rate equivalent to 40% of the basic asse
ssed tax.
* Where the basic tax exceeds one million pesos (P1,000,000) or where the settle
ment 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 C
ommissioner and the four Deputy Commissioners.
Delegation of the power of compromise
* The Commissioner may delegate his power to compromise to the Deputy Commission
ers and the Regional Directors subject to such limitations and restrictions as m
ay be imposed under rules and regulations to be promulgated for the purpose.
DISTRAINT AND LEVY
Collection by distraint and levy
* Both are summary administrative enforcement remedies and cannot be availed of
where the amount of tax involved is not more than P100.
* Distraint is enforced on personal property of the taxpayer while levy is enfor
ced on real property.
* In distraint, forfeiture by the government is not provided, while in levy, for
feiture is authorized.
* The taxpayer is not given the right of redemption with respect to distrained p
ersonal property, while such right is granted in case of real property levied up
on and sold, or forfeited, to the government.
* Levy may be made before, simultaneously or after distraint.
Actual v. constructive distraint
* Actual distraint is resorted to when delinquency in the payment sets in, that
is, when at the time required for payment, a person fails to pay his tax obligat
ion. It consists of actual seizure and distraint of personal property of the tax
payer.
* In constructive distraint, no actual delinquency is necessary before it may be
resorted to. It may be availed of in the following instances: a) Taxpayer is re
tiring from business subject to tax; b) He intends to leave the Philippines; c)
He removes his property therefrom; d) He hides or conceals his property; or e) H
e performs any act tending to obstruct the proceedings for collecting the tax du
e or which may be due from him. In addition, constructive distraint may also be
resorted to when the taxpayer is already delinquent.
* Constructive distraint is a preventive remedy whose aim is to forestall a poss
ible dissipation of the taxpayer s asset when delinquency takes place.
* There are different procedures in enforcing actual and constructive distraint.
How to effect constructive distraint?
* It shall be effected by requiring the taxpayer or any person having possession
or control of such property to sign a receipt covering the property distrained
and obligate himself to preserve the same intact and unaltered and not to dispos
e of the same in any manner whatever without the express authority of the Commis
sioner.
* If the taxpayer or any other person refuses or fails to sign the receipt, the
revenue officer effecting the constructive distraint shall proceed to prepare a
list of such property and, in the presence of two witnesses, leave a copy thereo
f in the premises where the property distrained is located, after which the said
property shall be deemed to have been placed under constructive distraint.
Procedure for actual distraint
1. Commencement of distraint proceedings
2. Service of warrant of distraint
3. Notice of sale of distrained property
4. Sale of property distrained
Manner of serving warrant of distraint
1. Goods, chattels, effects or other personal property
The officer serving the warrant of distraint shall make or cause to be m
ade an account of the goods, chattels, effects or other personal property distra
ined, signed by himself, which includes a statement of the sum demanded and note
of the time and place of the sale.
A copy shall be left either with the owner or person from whose possessi
on such goods, chattels, or effects or other personal property were taken, or at
the dwelling of business of such person and with someone of suitable age and di
scretion.
2. Stocks and other securities
Stocks and other securities shall be distrained by serving a copy of the
warrant of distraint upon the taxpayer and upon the president, manager, treasur
er or other responsible officer of the corporation, company or association, whic
h issued the said stocks or securities.
3. Debts and credits
Debts and credits shall be distrained by leaving with the person owing t
he debts or having in his possession or under his control such credits, or with
his agent, a copy of the warrant of distraint.
The warrant of distraint shall be sufficient authority to the person owi
ng the debts or having in his possession or under his control any credits belong
ing to the taxpayer to pay to the Commissioner the amount of such debts or credi
ts.
4. Bank accounts
Bank accounts shall be garnished by serving a warrant of garnishment upo
n the taxpayer and upon the president, manager, treasurer or other responsible o
fficer of the bank.
Upon receipt of the warrant of garnishment, the bank shall turn over to
the Commissioner so much of the bank accounts as may be sufficient to satisfy th
e claim of the Government.
Purchase by government at sale upon distraint
* The Commissioner or his deputy may purchase the property distrained in behalf
of the National Government when:
1. the amount bid for the property under distraint is not equal to the amou
nt of the tax; or
2. the amount is very much less than the actual market value of the article
s offered for sale.
* Property so purchased may be resold by the Commissioner or his deputy.
Procedure on levy of real property
1. Service of warrant of levy
2. Advertisement of the sale
3. Public sale of the property under levy or forfeiture of the property to
the government for want of bidder
4. Redemption of property or consolidation of ownership and title in the pu
rchaser
How to effect levy?
* Internal revenue officer shall prepare a duly authenticated certificate showin
g the name of the taxpayer and the amount of the tax and penalty due from him.
* Such certificate shall operate with the force of a legal execution throughout
the Philippines.
* Levy shall be effected by writing upon said certificate a description of the p
roperty upon which levy is made. At the same time, written notice of the levy sh
all be mailed to or served upon the Register of Deeds of the province or city wh
ere the property is located and upon the delinquent taxpayer, or if he is absent
from the Philippines, to his agent or manager, or to the occupant of the proper
ty in question.
Advertisement of sale
* Posting a notice of sale at least 30 days at the main entrance of the municipa
l or city hall and in a public and conspicuous place in the city or municipality
where the property is located
* Publication once a week for three weeks in a newspaper of general circulation
in the municipality or city where the property is located
Redemption of real property sold
* Delinquent taxpayer have the right to redeem the real property sold by him or
any one for him within one (1) year from the date of sale.
* Taxpayer must pay the amount of public taxes, penalties, and interest from the
date of delinquency to the date of sale, together with interest on said purchas
e price at the rate of 15% per annum from the date of purchase to the date of re
demption.
* The owner shall not, however, be deprived of the possession of the said proper
ty and shall be entitled to the rents and other income thereof until the expirat
ion of the time allowed for its redemption.
Forfeiture to government for want of bidder in sale of real property
* Internal revenue officer conducting the sale of real property levied shall dec
lare the property forfeited to the Government in satisfaction of the claim when:
1. there is no bidder for real property exposed for sale; or
2. the highest bid is for an amount insufficient to pay the taxes, penaltie
s and costs.
Resale of real estate taken for taxes
* The Commissioner shall have charge of any real estate obtained by the Governme
nt in payment or satisfaction of taxes, penalties or costs arising under the NIR
C or in compromise or adjustment of any claim thereof.
* The Commissioner may, upon giving not less than 20 days notice, sell and dispo
se of the said property at public auction or, with the prior approval of the Sec
retary of Finance, dispose of the same at private sale.
FORFEITURE
Forfeiture
* The effect of forfeiture is to transfer the title to the specific thing from t
he owner to the government.
* In case of personal property: The forfeiture of chattels and removable fixture
s of any sort is enforced by seizure and sale or destruction of the specific for
feited property.
* In case of real property: The forfeiture of real property is enforced by a jud
gment of condemnation and sale in a legal action or proceeding, civil or crimina
l, as the case may require.
Forfeiture of property used in unlicensed business or dies used for printing fal
se stamps, etc.
* All chattels, machinery, and removable fixtures of any sort used in the unlice
nsed production of articles subject to excise tax shall be forfeited.
* Dies and other equipment used for the printing or making of any internal reven
ue stamp, label or tag which is in imitation of or purports to be a lawful stamp
, label or tag shall also be forfeited.
Forfeiture of goods illegally stored or removed
* Unless otherwise specifically authorized by the Commissioner, all articles sub
ject to excise tax should not be stored or allowed to remain in a distillery, di
stillery warehouse, bonded warehouse or other place where made, after the tax th
ereon has been paid; otherwise, all such articles shall be forfeited.
* Articles withdrawn from any such place or from customs custody or imported int
o the country without the payment of the required tax shall likewise be forfeite
d.
CIVIL AND CRIMINAL ACTIONS
Civil and criminal actions
* Civil and criminal actions and proceedings instituted in behalf of the Governm
ent under the authority of the NIRC or other law enforced by the Bureau of Inter
nal Revenue shall be brought in the name of the Government of the Philippines an
d shall be conducted by legal officers of the Bureau of Internal Revenue, but no
civil or criminal action for the recovery of taxes or the enforcement of any fi
ne, penalty or forfeiture under this Code shall be filed in court without the ap
proval of the Commissioner. [Section 220, NIRC]
* 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.
Civil action
* Civil action, as a mode of tax collection, is resorted to when a tax liability
becomes collectible.
* Collectibility of a tax arises in the following instances:
1. When a tax is assessed but the assessment becomes final and unappealable
because the taxpayer fails to file an administrative protest.
2. When a protest against the assessment is filed by the taxpayer and a dec
ision is rendered by the Commissioner but said decision becomes final, executory
and demandable for failure of the taxpayer to file an appeal.
* A civil action may also be filed in order to collect the so-called self assess
ed tax.
* No civil action for the recovery of taxes shall be filed without the approval
of the Commissioner.
Insufficient protest allowing collection case
* In Dayrit v. Cruz [L-39910, September 26, 1988], the Supreme Court ruled that
the request for reconsideration cannot be considered as a protest against the as
sessment. According to the Supreme Court, the failure of the heirs to substantia
te their claim against the assessment due to the non-submission of their positio
n paper justified the Commissioner in collecting the estate and inheritance taxe
s in the settlement proceedings.
* In Republic v. Ledesma [L-19759, February 28, 1969], the Supreme Court held th
at the taxpayer s failure to dispute the assessment effectively by complying with
the conditions laid down by the Bureau of Internal Revenue provided a legal basi
s for the government to collect the taxpayer s liability by ordinary civil action.