Tax 2

DIGESTED BY: SITTE NAJMA SAMBITORY

18. COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION

FACTS:
Kudos Metal Corporation filed its Income Tax Return (ITR) on April 1999 for taxable year
1998. However, pursuant to Letter of Authority, the BIR issued three notices of Presentation of
Records to Kudos but Kudos did not comply with the said notice. The BIR then issued subpoena
duces tecum, thus the review and audit of the record ensued. However, on December 2001, Pasco,
the accountant of Kudos executed an affidavit of Waiver of Prescription duly notarized and was
received by BIR and accepted the same by Assistant Commissioner Salazar. Pasco executed
second waiver on February 2003 following the process undergone by the first waiver she
executed.The BIR later issued a Preliminary Notice of Assessment followed by Formal Demand letter
to Kudos asking them to settle their tax liabilities for the year 2008 covering the following:

Income Tax 9,693,897.85

VAT 13,962,460.90
EWT 1,712,336.76
Withholding Compensation Tax 247,353.24
Penalties 8,000.00
TOTAL 25,624,048.76

On appeal, the Court of Tax Appeal en banc affirmed the decision of the CTA Second Division
ruling that the government’s right to assess taxes has already prescribed. BIR appealed then
appealed to the Supreme Court.

ISSUE:
Whether or not the right of the government to assess taxes has already prescribed despite the
waivers executed by the accountant of Kudos.

HELD:
Supreme Court affirmed the decision of the CTA en banc stating that Section 222of tax code
provide that the period to assess and collect taxes may only be extended upon written agreement
between the CIR and the taxpayer following the procedures laid down on RMO 20.90 and RDAO 05-
01 such as:
1. Waiver must in official form and the expiration period must be stated.
2. Waiver must be notarized and must be signed by the duly authorized representative in case
of representation.
3. The revenue officer must sign the waiver indicating that the BIR has accepted and agreed to
the waiver.
4. Both the date of execution by the taxpayer and the acceptance by the revenue officer
should be before the expiration of the period agreed upon in case of subsequent waiver.
5. The fact of receipt by the taxpayer of his file copy must be indicated din the original. In the
above case, there is not written authorization given by the management of Kudos to Pasco to execute
such waiver. The date of execution of the waiver was not indicated to show if it was executed before
the lapsed of the agreed period in the first waiver. The fact of the acceptance of the file copy of the
taxpayer was not indicated on the original. The second waiver was filed after the lapsed of the agreed
period in the first waiver which was on December 2002. These shows that the waivers were
incomplete and defective thus not in accordance with the procedures provided for. Thus, due to the
defective waivers, the prescriptive period of 3-years was not extended and it remained 3 years in this
case thus the government’s right as already prescribed making the assessment in effective