without prior assessment should be made within 3 years from the date of filing of return or date return is due, whichever is LATER [based on Sec. 203, NIRC] by judicial proceedings should be made within ten years after the discovery of the falsity, fraud or omission to file a return. by judicial proceedings
Waiver of prescriptive period
If tax was assessed within the different period agreed upon by the Commissioner and the taxpayer, it 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 5-yr period. [Sec. 222d, NIRC]
REMEDIES OF THE GOVERNMENT IN COLLECTION
Administrative
(1) Distraint of Personal Property including garnishment deposit
(2) Summary remedy of levy on real property (3) Forfeiture to the government for want of
bidder
(4) Further Distraint or Levy (5) Tax Lien
(6) Compromise and Abatement (7) Penalties and Fines
Judicial (1) Civil (2) Criminal
Distraint of Personal Property
Distraint – remedy enforced on the goods, chattels, or effects, and other personal property of whatever character including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property [Sec. 205(a), NIRC]
Kinds of Distraint: (1) Constructive Distraint (2) Actual Distraint
Constructive Distraint – may be placed by the Commissioner on any taxpayer to safeguard the interest of the Government [Sec. 206, NIRC]. Delinquency of the taxpayer is not necessary. Grounds for Constructive Distraint:
When in the opinion of the Commissioner, (1) the taxpayer is retiring from any business
subject to tax; or
(2) the taxpayer is intending to leave the Philippines; or
(3) the taxpayer is intending to remove his property from the Philippines or to hide or conceal his property; or
(4) the taxpayer is planning to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him (Sec. 206, NIRC)
How constructive distraint is effected: (1) Signing of receipt by the taxpayer
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 dispose of the same in any manner whatever, without the express authority of the Commissioner
(2) If the taxpayer refuses to sign the receipt: signing of receipt by revenue officer in the presence of two witnesses
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In case the taxpayer or the person having the possession and control of the property 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 (2) witnesses, leave a copy thereof in the premises where the property distrained is located [Sec. 206, NIRC]
Note: In constructive distraint, the property is not actually confiscated or seized by the revenue officer.
Actual distraint - placed on a person who owes any delinquent tax or delinquent revenue [see
Sec. 207, NIRC]; involves actual seizure of the
property
Garnishment– taking of personal properties, usually cash or sums of money, owned by a delinquent taxpayer which is in the possession of a third party
Distraint of intangible properties [Sec. 208,
NIRC]
(1) Stocks and other securities: by serving a copy of the warrants of distraint on the taxpayer, AND upon the president, manager, treasurer or other responsible officer of the corporation, company or association which issued the stocks or securities.
(2) Debts and credits: by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The person owing the debts shall then pay the Commissioner instead of his creditor (taxpayer) on the strength of such warrant. (3) Bank accounts: by serving a warrant of
garnishment upon the taxpayer AND upon the president, manager, treasurer or other responsible officer of the bank. The bank shall then turn over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government. (NOTE: distraint of bank accounts is called GARNISHMENT)
Procedure for Actual Distraint
(A) Commencement of Distraint Proceedings Who issues the warrant of distraint:
(1) Commissioner or his duly authorized representative – where the amount involved is more than P1M
(2) Revenue District Officer – where the amount involved is P1M or less [Sec.
207(A), NIRC]
(B) Service of Warrant of Distraint How actual distraint is effected:
The proper officer shall seize and distraint any goods, chattels, or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts and interests in and rights to personal property of the taxpayer in sufficient quantity to satisfy the tax, expenses of distraint and the cost of the subsequent sale. [Sec. 207(A), NIRC]
(C) Report on the Distraint
A report shall be submitted by the distraining officer to the Revenue District Officer, and to the Revenue Regional Director.
(D) Power of the CIR or proper officer to lift the order of distraint
The taxpayer may request that the warrant be lifted. The commissioner may, in his discretion, allow the lifting of the order of distraint. He may ask for a bond as a condition for the cancellation of the warrant. [Sec. 207(A), NIRC] (E) Notice of Sale of Distrained Properties
(1) The Revenue District Officer or his duly authorized representative (not the officer who served the warrant), shall cause a notification of the public sale to be posted in not less than two (2) public places in the municipality or city (one of which is the Office of the Mayor) where the distraint was made.
(2) The notice shall specify the time and place of the sale. The time of sale shall not be less than twenty (20) days after notice to the owner and the publication or posting of such notice. [Sec. 209, NIRC]
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(F) Sale at Public Auction
(1) At the time of the public sale, the revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained at a PUBLIC AUCTION, to the HIGHEST BIDDER for CASHor with the approval of the Commissioner, through a DULY LICENSED COMMODITY or STOCK EXCHANGES.
(2) Any residue over and above what is required to pay the entire claim, including expenses of sale and distraint, shall be RETURNED to the owner of the property sold. Expenses shall be limited to actual
expenses of SEIZURE and
PRESERVATION of the property pending the sale, no charge shall be imposed for the services of the local internal revenue officer or his deputy. [Sec. 209, NIRC] (3) If the proceeds from the sale of the
distrained properties are not sufficient to
satisfy the tax delinquency, the
Commissioner or his duly authorized representative shall within thirty (30) days after execution of the distraint, proceed with the levy on the taxpayer’s real property. [Sec. 207(B), NIRC]
(G) Release of the Properties from Distraint If at any time prior to the consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner. [Sec.
210, NIRC]
(H) Purchase by the government at sale upon distraint
If the amount offered by the highest bidder is not equal to the amount of the tax or is very much less than the actual market value of the articles offered for sale, the Commissioner or his deputy may purchase the same in behalf of the National Government for the amount of taxes, penalties and costs due. The property so purchased may be resold by the Commissioner or his deputy. [Sec. 212, NIRC]
(I) Report of sale to BIR
Within two (2) days after the sale, the officer making the same shall make a report of his proceedings in writing to the Commissioner and shall himself preserve a copy of such report as an official record. [Sec. 211, NIRC]
Summary Remedy of Levy on Real Property
Levy– seizure of real property, an interest in or rights to such property in order to enforce the payment of taxes. [Sec. 205, NIRC] The real property under levy shall be sold in a public sale, if the taxes involved are not voluntarily paid following such levy.
When levy may be effected: after the expiration of time required to pay the delinquent tax, real property may be levied upon, before, simultaneously or after the distraint of personal property belonging to the delinquent. [Sec.
207(B), NIRC]
In case the warrant of levy is NOT issued before or simultaneously with the warrant of distraint on the personal property AND the personal property of the taxpayer is not sufficient to satisfy his tax delinquency: the CIR or his duly authorized representative shall within 30 days after execution of the distraint, proceed with the levy on the taxpayer’s real property. [Sec. 207(B),
NIRC]
Procedure for Levy
(A) Issuance of Warrant of Levy
(1) The IR officer designated by the Commissioner or his duly authorized representative shall prepare a DULY AUTHENTICATED CERTIFICATE showing the name of the taxpayer and the amounts of tax and penalty due from him. (2) This certificate shall operate with the
force of LEGAL EXECUTION throughout the Philippines.
(3) The certificate shall contain a description of the property upon which levy is made. [Sec. 207(B), NIRC]
(B) Service of the Warrant
(1) Levy shall be effected by writing upon said certificate a description of the property upon which levy is made.
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(2) At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the taxpayer (If he is absent from the Philippines: to his agent or manager of business in respect to which the liability arose or to the occupant of the property in question). [Sec. 207(B), NIRC]
(C) Advertisement of the Sale
(1) Within twenty (20) days after the levy, the officer conducting the proceedings shall proceed to advertise for SALE the property or a portion as may be necessary to satisfy the claim and costs of sale. Such advertisement shall cover a period of at least thirty (30) days. The notice shall be posted at the main entrance of the city or municipal all AND in a public and conspicuous place in the barrio or district where the real property lies. The notice must also be published in a newspaper of general circulation in the place where the property is located, once a week for three (3) weeks.
(2) CONTENTS of notice: statement of amount of taxes, and penalties due, time and place of sale, name of taxpayer, short description of property. [Sec. 213, NIRC] (D) Sale
The sale shall be held either at the main entrance of the municipal or city hall or on the premises to be sold. Property will be awarded to the highest bidder. In case the proceeds of the sale exceeds the claim and costs of sale, the excess shall be turned over to the owner of the property. [Sec. 213, NIRC]
(E) Forfeiture in Favor of the Government If there is no bidder for the real property OR if the highest bid is not sufficient to pay the taxes, penalties and costs, the IR Officer conducting the sale shall declare the property FORFEITED to the GOVERNMENT in satisfaction of the claim. [Sec. 215, NIRC]
(F) Redemption of Property Sold
(1) At any time before the day fixed for the sale, the taxpayer may discontinue all proceeding
by paying the taxes, penalties and interest.
[Sec. 213, NIRC]
(2) Within one (1) year from the date of sale, the taxpayer or anyone for him, may pay to the Revenue District Officer the total amount of the following: public taxes + penalties + interest from the date of delinquency to the date of sale + interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of sale to the date of redemption. [Sec. 214, NIRC]
Note: If the property was forfeited in favor of the government, the redemption price shall include only the taxes, penalties and interest plus costs of sale – no interest on purchase price since the Government did not “purchase” the property anyway, it was forfeited)
Note: The taxpayer-owner shall not be deprived of possession of the said property and shall be entitled to rents and other income until the expiration of the period for redemption [Sec. 214, NIRC]
(G) Final Deed of Purchaser
After the period of redemption, a final deed of sale is issued in favor of the purchaser.
Forfeiture to Government for Want of Bidder
Forfeiture implies a divestiture of property without compensation in consequence of a default or offense. The effect of forfeiture is to transfer the title of the specific thing from the owner to the government. [De Leon, NIRC
Annotated, p. 412]
Instances when forfeiture is appropriate
(1) All chattels, machinery, and removable fixtures of any sort used in the unlicensed production of articles [Sec.
268, NIRC]
(2) Dies and other equipment used for the printing or making of any internal revenue stamp, label or tag which is in imitation of or purports to be a lawful stamp, label or tag. [Sec. 268, NIRC]
(3) Liquor or tobacco shipped under a false name or brand [Sec. 262, NIRC]
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Remedy of enforcement of forfeitures
(1) Forfeiture of chattels and removable fixtures: enforced by the seizure, sale or destruction of the specific forfeited property.
(2) Forfeiture of real property: enforced by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require [Sec. 224, NIRC]
When property to be sold or destroyed
(1) Forfeited chattels and removable fixtures – sold in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes
(2) Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco and all apparatus used in or about the illicit production of such articles – destroyed by the order of the Commissioner when the sale or use would be injurious to public health pr prejudicial to the enforcement of the law (3) All other articles subject to excise tax
manufactured or removed in violation of the Code, dies for the printing or making of internal revenue stamps and labels – sold or destroyed in the discretion of the Commissioner
(4) Forfeited property shall not be destroyed until at least 20 days after seizure. [Sec. 225,
NIRC]
Resale of real estate taken for taxes (RR No. 22- 2002)
(1) All acquired/forfeited properties transferred in the name of the Republic of the Philippines, having passed the one-year redemption period, shall be converted into cash from the date of acquisition or forfeiture.
(2) The sale of acquired/forfeited real properties shall be by sealed bids in a public auction to be witnessed by a representative of the COA.
(3) The Notice of Sale of the acquired real properties shall be published once a week for two (2) consecutive weeks in a newspaper of general circulation in the Philippines which must be completed at least 20 days prior to the date of such public auction.
(4) Unless the Commissioner of Internal Revenue provides otherwise, the Minimum Bid Price/Floor Price shall be the latest fair market value as determined by the Commissioner or the fair market value shown in the latest tax declaration issued by the provincial, city or municipal assessor, whichever is higher, pursuant to Sec. 6(E) of the Tax Code.
(5) Anyone could bid except foreign nationals, corporate or otherwise, and those qualified under existing laws, rules and regulations, including employees of the Bureau of Internal Revenue.
(6) Bidders shall be required to post a bond in cash or manager’s check in an amount representing 10% of the minimum bid price at least one day before the scheduled public auction.
(7) Unless the Commissioner allows extension of time to pay, in meritorious cases, the winning bidder shall pay the full amount of his bid cash or manager’s check within two days after receipt of notice of award.
(8) All taxes and expenses relative to the issuance of title shall be borne by the winning bidder.
(9) The winning bidder shall be responsible at his own expense for the ejectment of squatters and/or occupants, if any, of the auctioned property.
(10) Negotiated or private sale shall be resorted to as a consequence of failed public bidding for two consecutive times.
(11) Negotiated or private sale shall in all cases be approved by the Secretary of Finance. (12) Public auction sale shall be approved by the
Commissioner or his authorized
representative.
(13) The Government reserves the right to reject or cancel any or all bids.
Disposition of funds recovered in legal proceedings or obtained from forfeiture
All judgments and monies recovered and received for taxes, costs, forfeitures, fines and penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required to be paid, and except as specially provided, shall be accounted for and dealt within the same way. [Sec. 226, NIRC]
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Further distraint or levy
The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full amount due, including all expenses, is collected. [Sec. 217, NIRC]
Tax lien
Tax liens
(1) 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 CIR until paid with interest, penalties, and costs that may accrue in addition thereto upon
ALL PROPERTY AND RIGHTS TO
PROPERTY BELONGING to the taxpayer. (2) HOWEVER, the 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 Office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located. [Sec. 219, NIRC]
Seizure under forfeiture vs. Seizure to enforce a tax lien
In the former all the proceeds derived from the sale of the thing forfeited are turned over to the Collector of Internal Revenue; in the latter, the residue of such proceeds over and above what is required to pay the tax sought to be realized, including expenses, is returned to the owner of the property. [BPI v. Trinidad]
Compromise
Authority of the Commissioner to compromise and abate taxes
Compromise- to reduce the amount of tax payable
Grounds for a compromise:
The Commissioner may compromise the payment of any internal revenue tax in the following cases:
(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. (FINANCIAL INCAPACITY)
Limits of the Commissioner’s power to compromise:
(1) For cases of financial incapacity: a minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax
(2) For other cases: a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax
Note: When the basic tax involved exceeds One Million Pesos (P1,000,000), or where the settlement offered is less than the prescribed minimum rates, the compromise must be approved by the Evaluation Board (composed of the Commissioner and 4 deputy commissioners) Abatement- to cancel the entire amount of tax