An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer.
Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals. (
CIR vs Pascor Realty and Development Corp., GR no. 128315, June 29, 1999
)(i) Concept of assessment
(a) Requisites for valid assessment
(b) Constructive methods of income determination
The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by estimation. The petitioner is not required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. However, the rule does not apply where the estimation is arrived at arbitrarily and capriciously. In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine copies of the Consumption Entries in fixing the tax deficiency assessments against the respondent. (
CIR vs Hantex Trading Co., GR no. 136975, March 31, 2005
)The "best evidence" envisaged in Section 16 of the 1977 NIRC [now Sec.
6, 1997 NIRC], as amended, includes the corporate and accounting
records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose of the law is to enable the BIR to get at the taxpayer’s records in whatever form they may be kept. Such records include computer tapes of the said records prepared by the taxpayer in the course of business.68 In this era of developing information-storage technology, there is no valid reason to immunize companies with computer-based, record-keeping capabilities from BIR scrutiny.
The standard is not the form of the record but where it might shed light on the accuracy of the taxpayer’s return
. However, the best evidence obtainable under Section 16 of the 1977 NIRC [now Sec. 6, 1997 NIRC], as amended, does not include mere photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. (CIR vs Hantex Trading Co., GR no. 136975, March 31, 2005
)(c) Inventory method for income determination (d) Jeopardy assessment
(e) Tax delinquency and tax deficiency
(ii) Power of the Commissioner to make assessments and prescribe additional requirements for tax administration and enforcement
(a) Power of the Commissioner to obtain information, and to summon/examine, and take testimony of persons
For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. Sec. 15 of the NIRC, on the other hand, provides that "[w]hen a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe that any such report is false, incomplete, or erroneous, the Commissioner of Internal Revenue shall assess the proper tax on the best evidence obtainable."
Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the initial assessment to be made on the basis of the best evidence available. Having made its initial assessment in the manner prescribed, the commissioner could not have been authorized to issue, beyond the five-year prescriptive period, the second and the third assessments under consideration before us. (
CIR vs BF Goodrich Phils., Inc., GR no. 104171, February 24, 1999
)(iii) When assessment is made
An assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. (
CIR vs Pascor Realty and Development Corp., GR no. 128315, June 29, 1999
)(a) Prescriptive period for assessment
The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. (
BPI vs CIR, GR 139736, October 17, 2005
)Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant. There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. (
CIR vs Primetown Property Group Inc., GR 162155, August 28, 2007
)Considering that the deficiency assessment was based on the amended return which, as aforestated, is substantially different from the original return, the period of limitation of the right to issue the same should be counted from the filing of the amended income tax return. We believe that to hold otherwise, we would be paving the way for taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses and amending the same more than five years later when the Commissioner of Internal Revenue has lost his authority to assess the proper tax thereunder.
The object of the Tax Code is to impose taxes for the needs of the Government, not to enhance tax avoidance to its prejudice. (
CIR vs Phoenix Assurance Co., L-19127, May 20, 1965
)A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the language of the document is equivocal. The Waiver of Statute of Limitations, signed by petitioner’s comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited in time, violating Section 222(b) of the NIRC. (Philippine Journalists, Inc vs CIR, GR 162852, December 16, 2004)
The waiver required under the Tax Code is one which is not unilateral nor can it be said that concurrence to such agreement is a mere formality because it is the very signatures of both the Commissioner and the taxpayer which give birth to such valid agreement. (CIR v. CA, G.R. 115712, Feb. 25, 1999)
A waiver of the statute of limitations being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations must be carefully and strictly construed. (CIR v. FMF Dev’t Corp., 556 SCRA 698) The requirement to furnish the taxpayer a copy of the waiver of the Statute of Limitations is not only to give notice of the existence of the document but of the acceptance by the BIR and the perfection of the agreement. (Phil.
Journalists, Inc. v. CIR, GR 162852, Dec. 16, 2004)
(1) False, fraudulent, and non-filing of returns
Petitioner insists that private respondent committed "falsity" when it sold the property for a price lesser than its declared fair market value. This fact alone did not constitute a false return which contains wrong information due to mistake, carelessness or ignorance. 13 It is possible that real property may be sold for less than adequate consideration for a
bona fide
business purpose; in such event, the sale remains an "arm's length" transaction. In the present case, the private respondent was compelled to sell the property even at a price less than its market value, because it would have lost all ownership rights over it upon the expiration of the parity amendment. (CIR vs BF Goodrich Phils., Inc., GR no.
104171, February 24, 1999)
Fraud cannot be presumed but must be proven. As a corollary thereto, we can also state that fraudulent intent could not be deduced from mistakes however frequent they may be, especially if such mistakes emanate from erroneous entries or erroneous classification of items in accounting methods utilized for determination of tax liabilities. The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes was based merely on a presumption and not on evidence establishing a willful filing of false and fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and deliberately done or resorted to in order to
induce another to give up some legal right. Negligence, whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. (
Aznar vs CTA, GR L-20569, August 23, 1974
) (b) Suspension of running of statute of limitationsPetitioners also argue that the government’s right to assess and collect the subject tax had prescribed. Petitioners admitted in their Motion for Reconsideration before the Court of Appeals that the pool changed its address, for they stated that the pool’s information return filed in 1980 indicated therein its “present address.” The Court finds that this falls short of the requirement of Section 333 [now section 223] of the NIRC for the suspension of the prescriptive period. The law clearly states that the said period will be suspended only “if the taxpayer informs the Commissioner of Internal Revenue of any change in the address.” (
Afisco Insurance vs CA, GR 112675, January 25, 1999
)Sec. 271 [1977 NIRC] (now Sec. 223 of 1997 NIRC) limits the suspension of the running of prescription to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. Only a request for reinvestigation can toll the running of the period of the statute of limitations because it would entail reception and evaluation of additional evidence and will take more time than a request for reconsideration where the evaluation of the evidence is limited only to the evidence already at hand. (CIR v. Phil. Global Communications, 506 SCRA 427)
(iv) General provisions on additions to the tax (a) Civil penalties
(b) Interest
(c) Compromise penalties
It does not appear that petitioner accepted the imposition of the compromise amounts. It is now a well settled doctrine that compromise penalty cannot be imposed or collected without the agreement or conformity of the taxpayer
.
(Wonder Mechanical Engineering vs CTA, GR L-22805 & L-27858, June 30, 1975
)(v) Assessment process (a) Tax audit
(b) Notice of informal conference
Under Rev. Reg. 12-99, a notice of informal conference is sent to the taxpayer informing him of the findings of the audit conducted on his books and records indicating that there is a discrepancy in his tax payments which has to be paid.
However under Rev. Reg. 18-2013 dated Nov. 28, 2013 the requirement for the issuance of a letter of informal conference has been removed.
(c) Issuance of preliminary assessment notice
Sec. 228 of the Tax Code clearly requires that the taxpayer must be informed that he is liable for deficiency taxes through the sending of a Preliminary
Assessment Notice. The sending of a PAN to the taxpayer is to inform him of the assessment made is but part of due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorities. (CIR v. Metro Star Superama, Inc. 637 SCRA 633)
(d) Notice of informal conference [ is this same as (b) above?]
(e) Issuance of preliminary assessment notice [ is this same as (c)?]
(f) Exceptions to issuance of preliminary assessment notice (g) Reply to preliminary assessment notice
(h) Issuance of formal letter of demand and assessment notice/final assessment notice
Tax assessments by tax examiners are presumed correct and made in good faith.
The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.
(
Sy Po vs CTA, GR 81446, August 18, 1988
)An assessment fixes and determines the tax liability of a taxpayer. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Hence, assessments should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. (
CIR vs Island Garment Manufacturing Co., GR L-46644, September 11, 1987
)Taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment shall be void. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to inform the taxpayer of not only the law but also the facts on which an assessment would be made. Failure to comply with Sec. 228 of the Tax Code does not only render the assessment void, but also finds no validation in any provision in the Tax Code. (CIR vs. Reyes, 480 SCRA 382)
A taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against him. This is a mandatory requirement. The advice of a tax deficiency given by the CIR to an employee of Enron as well as the preliminary 5-day letter notice, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. Sec. 228 of the NIRC requires that the legal and factual bases be stated in the formal letter of demand and assessment notice. Otherwise the law and RR 12-99 would be rendered nugatory. In view of the absence of a fair opportunity for Enron to be informed of the bases of the assessment, the assessment was void. This is a requirement of due process. (CIR v. Enron Subic Power Corp. 575 SCRA 212) (i) Disputed assessment
(j) Administrative decision on a disputed assessment
The authority to make tax assessments may be delegated to subordinate officers. Said assessment has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by the latter. (
Oceanic Network Wireless Inc., GR 148380, December 9, 2005
)(vi) Protesting assessment
(a) Protest of assessment by taxpayer (1) Protested assessment (2) When to file a protest (3) Forms of protest
This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof. (
BPI vs CIR, GR 139736, October 17, 2005
)It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a
request for reinvestigation
, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter can not. (BPI vs CIR, GR 139736, October 17, 2005
) (4) Content and validity of protest(b) Submission of documents within 60 days from filing of protest Petitioner cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription. The term “relevant supporting documents” should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. (
CIR vs First Express Pawnshop Company, GR 172045-46, June 16, 2009
)(c) Effect of failure to protest
The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first be disputed by the taxpayer and ruled upon by the Commissioner of Internal Revenue to warrant a decision from which a petition for review may be taken to the Court of Tax Appeals. Where an adverse ruling has been rendered by the Commissioner of Internal Revenue with reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within thirty (30) days after receipt thereof. A request for reconsideration
must be made within thirty (30) days from the taxpayer’s receipt of the tax deficiency assessment, otherwise, the decision becomes final, unappealable and therefore, demandable. A tax assessment that has become final, executory and enforceable for failure of the taxpayer to assail the same as provided in Section 228 can no longer be contested. (
Oceanic Network Wireless Inc., GR 148380, December 9, 2005)
(d) Period provided for the protest to be acted upon (vii) Rendition of decision by Commissioner
(a) Denial of protest
Records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the
Records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the