1. General rule: Collection of taxes is imprescriptible. While this may be so, statutes may provide for periods of prescription,
2. Why is the collection of taxes imprescriptible ? SUGGESTED ANSWER:
a. As a general rule, revenue laws are not intended to be liberally construed, and exemptions are not given retroactive application, considering that taxes are the lifeblood of the government and in Holmes’ memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented. (Commissioner of Internal Revenue v.
Acosta, etc.,G. R. No. 154068, August 3, 2007) However, statutes may provide
for prescriptive periods for the collection of particular kinds of taxes.
b. Tax laws, unlike remedial laws, are not to be applied retroactively. Revenue laws are substantive laws and their application must not be equated with remedial laws. (Acosta, supra)
3. What is the prescriptive period for collecting internal revenue taxes ?
SUGGESTED ANSWER: There are four (4) prescriptive periods for the collection of an internal revenue tax:
a. Collection upon a false or fraudulent return or no return without assessment. In case of a false or fraudulent return with the intent to evade tax or of failure to file a return, “a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission.” [Sec. 222 (a), NIRC of 1997]
b. Collection upon a false or fraudulent return or no return with assessment. Any internal revenue tax which has been assessed (because the return is false or fraudulent with intent to evade tax or of failure to fail a return), within a period of ten (10) years from discovery of the falsity, fraud or omission “may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.” [Sec. 222 (c), in relation to Sec. 222 (a) NIRC of 1997, emphasis supplied]
c. Collection upon an extended assessment. Where a tax has been assessed with the period agreed upon between the Commissioner and the taxpayer in writing (which should initially be within three (3) years from the time the return was filed or should have been filed), or any extensions before the expiration of the period agreed upon, the tax “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 (5) year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.” [Sec. 222 (d), in relation to Secs. 222 (b) and 203, NIRC of 1997, emphasis supplied]
d. Collection upon a return that is not false or fraudulent, or where the assessment is not an extended assessment. “Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) 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 case where a return is filed beyond the period prescribed by law, the three (3) year period shall be computed from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered filed on such last day.” (Sec. 203, NIRC of 1997, emphasis supplied)
When the BIR validly issues an assessment within the three (3)- year period, it has another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer. [Bank of Philippine Islands (Formerly Far East
Bank and Trust Company) v. Commissioner of Internal Revenue, G. R. No.
174942, March 7, 2008 citing BPI v. Commissioner of Internal Revenue, G.R. No. 139736, 17 October 2005, 473 SCRA 205, 222-223]
NOTES AND COMMENTS:
a. Both the former Sec. 269, NIRC of 1977 and Sec.222 of NIRC of 1997 do not refer to a “regular return.” It is clear that in enacting Sec. 222, entitled “Exceptions as to the period of limitation of assessment and collection of taxes,” the NIRC of 1997 has eliminated sub- paragraph c of the former Sec. 269 of the NIRC, also entitled “Exceptions as to the period of limitation of assessment and collection of taxes.” Said Sec. 269 (c), reads “Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.”
A perusal of Sec. 222 of the NIRC is clear that it covers only three scenarios only. 1) No assessment was made upon a false or fraudulent return or omission to file a return; 2) an assessment was made upon a false or fraudulent return or omission to file a return; and 3) an extended assessment issued within a period agreed upon by the Commissioner and the taxpayer. The same scenarios are those referred to in the former Sec. 269 which provided for a prescriptive period for collection of three (3) years.
It is clear therefore that neither Sec. 222 nor the former Sec. 269 provide for an instance where the assessment was made upon a “regular return” or one that is not false or fraudulent, or that there was an agreement to extend the period for assessment.
Resort should therefore be made to the three (3) year period referred to in Sec. 203 of the NIRC of 1997 which reads, “Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) 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 x x x “ (paraphrasing and emphasis supplied)
4. What is a compromise ?SUGGESTED ANSWER: A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. (Art. 2028, Civil Code)
A compromise penalty could not be imposed by the BIR, if the taxpayer did not agree. A compromise being, by its nature, mutual in essence requires agreement. The payment made under protest could only signify that there was no agreement that had effectively been reached between the parties. (Vda. de San Agustin, et al., v. Commissioner of Internal Revenue, G. R. No. 138485, September 10, 2001)
5. What tax cases may be the subject of a compromise ?SUGGESTED ANSWER: The following cases may, upon taxpayer’s compliance with the basis for compromise, be the subject matter of compromise settlement:
a. Delinquent accounts;
b. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS), Collection Service, Enforcement Service and other offices in the National Office;
c. Civil tax cases being disputed before the courts; d. Collection cases filed in courts;
e. Criminal violations, other than those already filed in court, or those involving criminal tax fraud. (Sec. 2, Rev. Regs. No. 30-2002)
6. What tax cases could not be the subject of compromise ?SUGGESTED ANSWER:
a. Withholding tax cases unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold.;
b. Criminal tax fraud cases, confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative;
c. Criminal violations already filed in court;
d. Delinquent accounts with duly approved schedule of installment payments;
e. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis;
f. Cases which become final and executory after final judgment of a court where compromise is requested on the ground of doubtful validity of the assessment; and
g. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. (Sec. 2, Rev. Regs. No. 30- 2002)
7. When may the Commissioner of Internal Revenue compromise the payment of any internal revenue tax ? Alternatively, what are the grounds for a compromise, andwhat are the amounts for which a compromise may be entered into ?
SUGGESTED ANSWER:
a. A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is equivalent to forty percent (40%) of the basic tax; or
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax provided that the minimum compromise entered into is equivalent to ten percent (10%) of the basic assessed tax
In the above instances the Commissioner is allowed to enter into a compromise only if the basic tax involved does not exceed One million pesos (P1,000,000.00), and the settlement offered is not less than the prescribed percentages. [Sec. 204 (A), NIRC of 1997]
In instances where the Commissioner is not authorized, the compromise shall be subject to the approval of the Evaluation Board composed of the Commissioner and the four (4) Deputy Commissioners.
8.
When is the Commissioner of Internal Revenue authorized to abate or cancel a tax liability ?:SUGGESTED ANSWER:
a. The tax or any portion thereof appears to be unjustly or excessively assessed; or
b. The administration and collection costs involved do not justify the collection of the amount due. [Sec. 204 (B), NIRC of 1997]
9. The collection of a tax may not be suspended. Only the Court of Tax Appeals may issue an order suspending the collection of a tax.
10. As a general rule, “No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge.” (Sec. 218, NIRC)“No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal treasurer or the Secretary of Finance, the Secretary of Trade and Industry and Secretary of Agriculture, as the case may be shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.” (Sec. 11, Rep. Act No. 1125, as amended by Sec. 9, Rep. Act No. 9282 )
The Supreme Court may enjoin the collection of taxes under its general judicial power but it should be apparent that the source of the power is not statutory but constitutional.
11. What is the procedure for suspension of collection of taxes ?SUGGESTED ANSWER: Where the collection of the amount of the taxpayer’s liability, sought by means of a demand for payment, by levy, distraint or sale of property of the taxpayer, or by whatever means, as provided under existing laws, may jeopardize the interest of the government or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with the Court of Tax Appeals.
The motion for suspension of the collection of the tax may be filed together with the petition for review or with the answer, or in a separate motion filed by the interested party at any stage of the proceedings. (Sec. 3, Rule 10, RRCTA effective December 15, 2005)