(iii) When assessment is made
(c) Prescriptive period for assessment (2) False, fraudulent, and non-filing
of returns
(d) Suspension of running of statute of limitations
---
Note: What’s the importance of determining when the assessment is made or deemed made? I’ll give you two reasons. First, it is important in order to know if the right to assess has already prescribed. The assessment must be made within the 3-year prescriptive period. Any assessment made thereafter shall be barred. Second, the date in which the assessment was made is the reckoning point of the prescription of the power to collect.
Q: When is an assessment deemed made?
The assessment is deemed to have been made on the date when the demand letter or notice of assessment is released, mailed or sent, even though the same is actually received by the taxpayer after the expiration of the prescriptive period (see BASILAN ESTATES V.CIR[SEPTEMBER 5,1967]).
Note: RR 12-99 [SEPTEMBER 6,1999] provides that if the notice to the taxpayer is served by registered mail and no response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. Further, if the same is personally served and the taxpayer refuses to acknowledge receipt thereof, the same shall be constructively received by the taxpayer.
Q: A was assessed for deficiency taxes on his Feb 1, 2010 income tax returns by the BIR. The formal demand letter and assessment was stamped Jan 31, 2013, denoting the date of its release in the mail.
In Feb 2, 2013, A has not yet received the formal demand letter and assessment. He contends that the assessment is already barred by prescription. Is A correct?
No. The assessment is not barred by prescription.
The BIR has 3 years to assess from the date of last filing. As long as the release of the assessment/demand is effected within the prescriptive period, the assessment is deemed made on time even though the taxpayer actually received the assessment/demand after the expiration of the prescriptive period (see BASILAN ESTATES V.CIR[SEPTEMBER 5,1967]).
Q: What is the exception to the above rule that assessment is deemed made when BIR releases, mails, or sends such notice to taxpayer?
If the receipt is disputed and for this presumption of receipt of mail to apply, the CIR must prove that:
1. The letter was properly addressed
2. The letter was mailed; otherwise, presumption of receipt can’t apply. (see NAVA V.CIR[JANUARY 30,1965])
In REPUBLIC V. CA [APRIL 30, 1987], the Supreme Court held that a direct denial of receipt of a mailed demand letter by the addressee shifts the burden upon the party favored by the presumption of receipt of letter to prove that the mailed letter was indeed received.17
In COMMISSIONER OF INTERNAL REVENUE VS. GJM PHILIPPINES MANUFACTURING, INC. [CTA EB CASE NO. 637, MARCH 6, 2012], the CTA held that if the taxpayer denies receiving the final assessment notice, it is incumbent upon the BIR to prove that the assessment was indeed received by the taxpayer.
17 Also important to note in this case is the ruling that a follow-up letter which reiterates demand for payment of taxes is considered a notice of assessment.
Note: (1) When an estate is under administration, the notice of assessment must be sent to the administrator (see Republic v. Leonor dela Rama [Nov. 29, 1956]) (2) Service of an assessment notice made to the agent of the decedent after the decedent’s death is not effective.
As held in ESTATE OF LATE JULIAN DIEZ V.CIR[JANUARY 27, 2004], service of assessment notice on the trust officer/agent of the decedent made after the death is invalid since at that time the legal relationship between the principal and his agent had been automatically severed by the death of the principal even if the agent continued to act as such by filing the decedent’s ITR. The fact of failure to file a notice of death will not later this effect but will only expose the estate to penalties and will not continue the relationship with the agent.
Q: What is the significance of the taxpayer’s indicating in the previous year’s ITR its new address?
As held in CIR V.BPI AS LIQUIDATOR OF PARAMOUNT ACCEPTANCE CORP [SEPTEMBER 23, 2003], any service of assessment notice on the old address subsequent to such previous year invalidates the assessment.
--- (a) Prescriptive period for assessment (3) False, fraudulent, and non-filing
of returns
---
Note: As a preliminary matters, let’s talk about how to compute the legal period. If we will follow the old Administrative Code and the Civil Code, the BIR may assess the deficiency tax only within 1,095 days because they both state that a year is 365 days. 365 times 3 equals 1095. So, kapag nag-assess ang CIR sa dulo ng 3 year period na may leap year, prescribed na! Bakit? A leap year has 366 days. So 365 + 365 + 366 equals 1096 days!
Kapag may libro or notes ka na ganyan pa rin sinasabi, patay tayo diyan! The doctrine to that effect as laid down in NAMARCO v. Tecson [29 SCRA 70] has been abandoned!
The rule now is very simple. Susundin natin ang Administrative Code of 1987. A year is 12 calendar months. Wag mo na bilangin ang total number of days. So if the CIR assesses in the last day of the last month of the 3-year period, hindi pa prescribed yun. Ano kapag may leap year yung isang taon sa 3-year period. It ain’t gonna matter.
On a serious note, the relevant case is CIR V.PRIMETOWN
PROPERTY [AUGUST 28,2007]. In that case, the taxpayer filed a claim for tax refund of income tax paid in 1997.
Pursuant to Section 229 of the Tax Code, he had two years from the filing of its final adjusted return to file a claim for tax refund or credit. The CIR argued that the taxpayer had 730 days to file its claim given that Article 13 of the Civil Code states that a year is understood to mean 365 days. The taxpayer contended that under the 1987 Administrative Code, a year consists of 12 calendar months and having filed the claim on the last day of the 24th calendar month, the claim was filed within the prescriptive period. The Supreme Court ruled in favor of the taxpayer. There exists a manifest incompatibility between the manner of computing legal periods under the Civil Code and the Administrative Code. Given that the Administrative Code is the more recent law, its treatment of a year governs the computation of legal periods.
Ano kapag the date of which the assessment is due to prescribe falls on a Saturday? As held in CIR V.WESTERN
PACIFIC CORPORATION [MAY 27,1965], where the last day for issuing a tax assessment falls on a Saturday, it may be validly issued the following business day. And anong araw yun? Eh di Monday! What if it’ll prescribe on Sunday? You can still assess on Monday. What if prescription falls due on a legal holiday? You can still assess on the next day which is neither a Saturday, Sunday or a legal holiday.
Read Section 203 and 222, ax Code
Q: When does the government’s right to assess prescribe?
General Rule: The government’s right to assess prescribes in 3 years from the date of the last day of filing.
However:
1. If the return is filed after such date, the 3 year period is reckoned from date of actual filing
2. If the return is filed before the last day, then considered as filed on last day.
Exceptions: Section 222, Tax Code provides for the following instances –
1. False return 2. Fraudulent return 3. Failure to file a return
In such cases, the tax may be assessed or a proceeding in court for collection may be filed without assessment at any time within 10 years from discovery of the falsity, fraud, or omission.
Note: (1) In contrast, the right to collect the tax prescribes in 5 years and the period is reckoned from the date the assessment is made.
(2) May there be a proceeding in court when no assessment is made within the 3 year period? Yes in the case of false return, fraudulent return, or failure to file return. You can file within 10 years from discovery.
Q: What is the effect if the assessment is made beyond the prescribed period?
Assessments made beyond the prescribed period would not be binding on the taxpayer. (see TUPAZ V. ULEP [OCTOBER 1, 1999]; CIRv. AYALA SECURITIES CORPORATION [MARCH 31,1976]
Q: What if the return is incomplete, will the prescriptive period to assess run?
No. As held in REPUBLIC V.MARSMAN DEVELOPMENT COMPANY [APRIL 27,1972], in order that the filing of a return may serve as a starting point of the period for making an assessment, the return must be as substantially complete as to include the needed details on which the full assessment may be made.
Q: What is the reckoning point with respect to amended returns?
From the filing of the amended return if the amendment is substantial. In CIR V. PHOENIX [MAY 20, 1965], the taxpayer filed its ITR for 1952 on 1 April 1953. It amended the said return on 30 August 1955. Thereafter, on 24 July 1958, the CIR assessed deficiency income tax on the basis of the amended return contending that his right to assess has not yet prescribed inasmuch as the same was availed of within 5 years18 from the filing of the amended return. The Supreme Court ruled that where the deficiency assessment is based on the amended return, which 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 return. In this case, the changes and alterations embodied in the amended return constituted substantial ones and thus the CIR’s deficiency assessment was not barred by prescription.
Q: Is there a difference between a false return and a fraudulent return?
18 Note that the case was governed under the old law which provides for 6 tears to assess and another 5 years to collect.
Yes. A false return merely implies deviation from the truth, whether intentional or not, while a fraudulent return refers to an intentional evasion of tax. (see AZNAR V.CTA[AUGUST 23,1974])
Q: A filed his tax return in 2000. The CIR assessed A for deficiency taxes in 2004 alleging fraud in its complaint. Has the right to assess prescribed?
Yes. As held in REPUBLIC V. LIM DE YU [APRIL 30, 1964], it is not enough the fraud is alleged in the complaint, it must be proven and established.
Q: The CIR contends that seven lots were deliberately omitted by A in his return filed as the representative of the heirs. A contends that the lots were excluded because one belonged to one of the heirs, three were already declared in the return of the surviving spouse, and three were actually included. Is there a deliberate intent to evade taxes on the part of A?
No. As held in REPUBLIC V. HEIRS OF CESAR JALANDONI [SEPTEMBER 20,1965], the omission as described above was not deliberate and did not amount to fraud indicative of an intention to evade payment of the proper tax due the government.
Q: May the period of assessment be extended?
Yes. Before the expiration of the 3-year prescriptive period, both the CIR and the taxpayer may agree in writing to extend the period of assessment. The period so agreed upon may be further extended by subsequent written agreement made before the expiratiton of the period previously agreed upon (see Section 222(b), Tax Code)
Q: What are the requirements of a valid waiver of the statute of limitations?
As provided in RMO No. 20-90:
1. The waiver must be in the proper form 2. The waiver shall be signed by the taxpayer
himself or his duly authorized representative.
3. Signature of the proper authority (For tax cases involving Php 1 million or above, the
CIR must sign) indicating that the BIR has accepted and agreed to the waiver
4. The date of the acceptance by the BIR should be indicated. Both the dae of execution by the taxpayer and the date of the acceptance by the BIR should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
5. The waiver must be executed in 3 copies, the original to be attached to the docket, the second copy for the taxpayer and the third copy for the Office accepting the waiver.
Taxpayer must be furnished a copy of the waiver in order to perfect the agreement since the waiver is not a mere unilateral act Note: (1) The signatures of both the CIR and the taxpayer are required for a waiver of the prescriptive period, thus a unilateral waiver on the part of the taxpayer does not suspend the prescriptive period (CIR v. CA [February 25, 1999])
Q: What is the effect of failure to conform to the requirements of a waiver of the statute of limitations?
A waiver of the statute of limitations under the Tax Code must conform strictly with the provisions of Revenue Memorandum Order No. 20-90 in order to be valid and binding. (See RMC 06-05 [February 2, 2005]; PHILIPPINE JOURNALISTS INC. V. CIR [DECEMBER 16,2004]).
The period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the 3-year period. RMO 20-90 and RDAO 05-01 lay down the procedure for the proper execution of the waiver. If not followed, any assessment issued by the BIR beyond the 3-year period is void. (CIR V. KUDOS METAL CORP [MAY 5,2010]; see also AVON PRODUCTS V.CIR[MAY 13,2010])
Note: RMC No. 29-2012 [June 29, 2012] clarifies the form to be used for Waiver of the Statute of Limitations. In RMO 20-90, there is a particular waiver form attached as an Annex. Revenue Delegation Authority Order (RDAO) No.
05-01 was issued in August 2, 2001 prescribing a new waiver form to be used. With the decision of the SC in PHILIPPINE JOURNALISTS INC. V.CIR[DECEMBER 16,2004], RMC No. 06-05 was issued on February 2, 2005 citing the said decision that "a waiver of the statute of limitations under the Tax Code must conform strictly with the provisions of Revenue Memorandum Order No. 20-90.”
This led some to believe that the Waiver form prescribed under RMO No. 20-90 should be used instead of the waiver form mandated under RDAO No. 05-01. RMC No.
29-2012 clarifies that while the provisions of RMO No. 20-90 should be strictly complied with in order for a Waiver to be valid, the Waiver form prescribed in RMO No. 20-90 should no longer be used as the same has been revised per RDAO No. 05-01.
In SMC STOCK TRANSFER SERVICE CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE [CTACASE NO.7944, JANUARY 10,2012], the CTA held that the waiver of the Statute of Limitations executed by the taxpayer is defective if: (a) It fails to indicate the fact of receipt by the taxpayer of his file copy of the waiver – The Court noted that the fact of receipt by the taxpayer must be indicated in the original copy, which is to be attached to the docket of the case; (b) It fails to indicate the specific kind of tax and the amount of tax due – if the amount of tax were not indicated in the said waiver, there is no agreement to speak of; (c) It was not duly notarized; (d) Both the acceptance by the BIR and the execution by the taxpayer of the subsequent waiver was made at a time when the period previously agreed upon had already lapsed. See also UNION CEMENT CORPORATION VS. COMMISSIONER OF
INTERNAL REVENUE [CTA CASE NO. 6842, JANUARY 18, 2012];EAST ASIA POWER RESOURCES CORPORATION V.CIR [CTA CASE NO.7936,FEBRUARY 6, 2012]; NEXT MOBILE, INC. VS.COMMISSIONER OF INTERNAL REVENUE, CTA CASE
NO.7965,DECEMBER 11,2012
A waiver of the defense of prescription which does not indicate the date of acceptance by the BIR does not toll the running of the three-year prescriptive period. FIRST
GAS POWER CORPORATION VS. CIR,CTA CASE NO.7281, SEPTEMBER 24,2012
Q: ABC Bank executed two Waivers of the Defense of Prescription covering internal revenue taxes due for the years 1994 and 1995, extending the period of the BIR to assess up to December 31, 2000. A Formal Letter of Demand was issued by the BIR which was protested by ABC Bank. Another Formal Letter of Demand was received by ABC with a reduced assessment which was paid by ABC on the same day except for two other taxes. ABC argues that the waivers it executed were not valid because it was not signed or conformed to by the CIR. Are the waivers valid?
Yes. Partial payment of the assessment issued within the extended period to assess as provided in the Waiver of Defense of Prescription is an implied admission of the validity of the waiver. (RCBC v.
CIR [September 7, 2011])
Q: Can the waiver cover taxes already prescribed?
No. As held in REPUBLIC V. LIM DE YU [APRIL 30, 1964], the waiver of the statute of limitations executed by the taxpayer cannot be deemed to include taxes already prescribed.
Q: Can the doctrine of estoppel be applied as an exception to the statute of limitations?
No. In CIR V. KUDOS METAL CORPORATION [MAY 5, 2010], the Supreme Court held that the doctrine of estoppels cannot be applied as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver.
--- (a) Suspension of running of statute of
limitations
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Read Section 223, Tax CodeQ: When is the running of the period of prescription suspended?
It is suspended when:
1. The CIR was prohibited from making the assessment or beginning distraint/levy and for 60 days thereafter19
2. Taxpayer requests reinvestigation which is granted by the CIR
3. Taxpayer cannot be located in address 4. A warrant of distraint and levy is served (not
only issued) and no property could be found 5. Taxpayer is out of the Philippines