Basic Taxation Law: Tax Remedies

Tax Remedies

I. Remedies of the Government

Remedies have been allowed, in every age and country, for the collection by the government of its revenues.
They have been considered a matter of state necessity.
The existence of the government depending on the regular collection of revenue must, as an object of primary importance, be insured. With this objective in mind, promptness in collection is always desirable, if not imperative.

A. Assessment and Collection
B. Remedies for Collection of Delinquent Taxes
C. No Injunction to Restraint Tax Rule

A. Assessment and Collection

Assessment precedes collection except when the unpaid tax is a tax due per return as in the case of a self-assessed income tax under the pay-as-you file system in which case collection may be instituted without need of assessment pursuant to Section 56 of the NIRC (R.A. 10936).

Sec. 56. Payment and Assessment of Income Tax for Individuals and Corporations.

(A) Payment of Tax.

In General. The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. In the case of tramp vessel, the shipping agents and/ or the husbanding agents, and in their absence, the captains thereof are required to file the return herein provided and pay the tax due thereon before their departure. Upon failure of the said agents or captains to file the return and pay the tax, the Bureau of Customs is hereby authorized to hold vessel and prevent its departure until proof of payment of the tax is presented or a sufficient bond is filed to answer for the tax due.
Installment Payment. When the tax due is in excess of P2,000.00, the taxpayer other than a corporation may elect to pay the tax in two equal installments in which case, the first installment shall be paid at the time the return is filed and the second installment, on or before October 15 following the close of the calendar year. If any installment is not paid on or before the date fixed for its payment, the whole amount of the tax unpaid becomes due and payable, together with the delinquency penalties.

In cases where assessment is necessary, the primordial consideration is its final and unappealable nature.

Collectability of the tax liability attaches only when the assessment becomes final and unappealable.

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 interests 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 taxpayer.

Commissioner's Recommendation Letter Cannot Be Considered as Formal Assessment of Tax Liability

In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed.

A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR examiner's findings is not an assessment since it is yet indefinite.

The recommendation letter of the Commissioner cannot be considered a formal assessment.

Even a cursory perusal of the said letter would reveal three key points: ADPM

It was not addressed to the taxpayers;
There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein;
The letter was never mailed or sent to the taxpayers by the Commissioner.

In fine, the said recommendation letter served merely as the prima facie basis for filing criminal Informations that the taxpayers had violated Sections 45(a) and (d), and 110, in relation to Section 100, as penalized under Section 255, and for violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.

Presumption of Regularity of Assessment

CIR vs. CA, Atlas Consolidated, 242 SCRA 289:

On April 9, 1980, the Commissioner of Internal Revenue, acting on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment notice and demand for payment of the amount of P12.391,070.51 representing deficiency ad valorem percentage and fixed taxes including increments, for the taxable year 1975 against Atlas Consolidated Mining and Development Corporation (ACMDC). Likewise, on the basis the BIR examiner's report in another investigation separately conducted, the Commissioner had another assessment notice, with a demand for the payment of the amount of P13,531,466.80 representing the 1976 deficiency ad ad valorem and business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980.
ACMDC protested both assessments but the same were denied. Assailing the tax liability imposed by the BIR, ACMDC elevated the matter to the Supreme Court, where one of the issues raised was the assessed contractor's tax. ACMDC claimed that the leasing out out its personal properties was a mere isolated transaction, hence should not be subjected to contractor's tax.
HELD:

ACMDC cannot validly claim that the leasing out of its personal properties was merely an isolated transaction.
Its book of accounts shows that several distinct payments were made for the use of its personal properties such as its plane, motorboat and dump truck.
The series of transactions engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from the fact that for the tax years 1975 and 1976 there were profits earned and reported therefor.
It received a rental income of P630,171.56 for tax year 1975, and P2,450,218.62 for tax year 1976.
Assessments are prima facie presumed correct and made in good faith.
Contrary to the theory of ACMDC, it is the taxpayer and not the BIR who has the duty of proving otherwise.
It is an elementary rule that in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed.
Verily, failure to present proof of error in assessments will justify judicial affirmance of said assessment.

Follow-up Letter Reiterating Demand for Payment Considered Notice of Assessment

Republic v. CA & Nielson Company, 149 SCRA 351

In a demand letter dated 16 July 1955, the Commissioner of Internal Revenue assessed Nielson & Company deficiency taxes for the years 1949 to 1952, totaling P14,449.00. This demand was reiterated in three more letters dated 24 April 1956, 19 September 1956, and 9 February 1960. On the theory that the assessment had become final and executory, the Commissioner filed a complaint for collection of the said amount with the then Court of First Instance.
The court a quo rendered a decision against Nielson & Company. On appeal to the Court of Appeals, the decision was reversed, on the ground that there was no proof of receipt by Nielson & Co. of the 16 July 1955 assessment. The BIR filed a petition for review on certiorari, asserting that the assessment letter must be presumed to have been received by Nielson in the ordinary course of mail.
HELD:

While the contention of the petitioner (BIR) is correct that a mailed letter is deemed received by the addressee in the ordinary course of mail, still, this is merely a disputable presumption, subject to the controversy, and a direct denial of the receipt thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee. x x x
Since the petitioner has not adduced proof that private respondent (Nielson & Co.) had in fact received the demand letter of 16 July 1955, it cannot be assumed that private respondent received said letter. Records, however, show that petitioner wrote private respondent a follow-up letter dated September
1956, reiterating its demand for the payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is considered a notice of assessment in itself which was duly received by private respondent in accordance with its own admission.
Under Section 7 of R.A. No. 1125, the assessment is appealable to the Court of Tax Appeals within 30 days from receipt of the letter. The taxpayer's failure to appeal in due time, as in the case at bar, makes the assessment in question final, executory and demandable. Thus, private respondent is now barred from disputing the correctness of the assessment or from invoking any defense that would reopen the question of its liability on the merits.

Assessment Deemed Made

An assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.
CIR v. PASCOR, 309 SCRA 402:

A revenue officer's Affidavit merely contained a computation of respondents' tax liability.
It did not state a demand or a period for payment.
Worse, it was addressed to the justice secretary, not to the taxpayers.

Meaning of Best Evidence

The "best evidence" envisaged in Section 16 of the 1977 NIRC (now Sec. 6 of the present 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.

Such evidence also includes data, record, paper, document or any evidence gathered by internal revenue officers from other taxpayers who had personal transactions or from whom the subject taxpayer received any income; and record, data, document and information secured from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs Commission.
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.
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.

Campbell, Jr. v. Guetersloh, the United States (U.S.):

The Court of Appeals (5th Circuit) declared that it is the duty of the Commissioner of Internal Revenue to investigate any circumstance which led him to believe that the taxpayer had taxable income larger than reported.
Necessarily, this inquiry would have to be outside of the books because they supported the return as filed.

He may take the sworn testimony of the taxpayer;
He may take the testimony of third parties;
He may examine and subpoena, if necessary, traders' and brokers' accounts and books and the taxpayer' book accounts.

The Commissioner is not bound to follow any set of patterns.

The existence of unreported income may be shown by any practicable proof that is available in the circumstances of the particular situation.

Kenny v. Commissioner:

The U.S. Appellate Court declared that where the records of the taxpayer are manifestly inaccurate and incomplete, the Commissioner may look to other sources of information to establish income made by the taxpayer during the years in question.

Existing Revenue Procedures and Jurisprudence Governing Assessment Based on the Best Evidence Obtainable

In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed.

Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously.
The burden of proof is upon the complaining party to show clearly that the assessment is erroneous.
Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment.

Section 6(B) of the National Internal Revenue Code provides:

Section 6(B). Failure to Submit Required Returns, Statements, Reports and other Documents. When 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 laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.
In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.

CIR v. Hantex Trading, 454 SCRA 301:

However, the best evidence obtainable does not include mere photocopies of records/documents.
The BIR, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the 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.
The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer.
United States v. Davey:

The U.S. Court of Appeals (2nd Circuit) ruled that where the accuracy of a taxpayer's return is being checked, the government is entitled to use the original records rather than be forced to accept purported copies which present the risk of error or tampering.

Assessment Based on Estimate: 50% Rule, in the Absence of Receipts to Prove Actual Amount of Expense Deduction

If there is showing that expenses have been incurred but the exact amount thereof cannot be ascertained due to absence of documentary evidence, it is the duty of the BIR to make an estimate of deduction that may be allowable in computing the taxpayer's taxable income bearing heavily against the taxpayer whose inexactitude is of his own making.

That disallowance of 50% of the taxpayer's claimed deduction is valid.

Networth Method of Investigation

Determination of the taxpayer's taxable income through the networth method of investigation is valid.
This is authorized under Section 43 of the NIRC which provides:

The taxable income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner clearly reflects the income.
If the taxpayer's annual accounting period is other than a fiscal year, as defined in Section 22(Q), or if the taxpayer is an individual, the taxable income shall be computed on the basis of the calendar year.

If a taxpayer commits a violation of the law, hiding his income to evade payment of taxes, the Government must be permitted to resort to all evidence or sources available to determine his said income, so that the tax may be collected for public purposes.

There is and there should be a presumption of regularity accorded this action of the Collector of Internal Revenue in assessing the tax on the best evidence obtainable otherwise, it would be impossible to assess taxes due from a dishonest taxpayer.

Perez v. CTA, 103 Phil. 1167:

The Supreme Court accorded judicial imprimatur to net worth method of investigation.
It is an application of the accounting principle—increase in net worth plus non-deductible disbursements minus non-taxable receipts equals net income, thusly —

Net worth — end of taxable year
Less: Net worth —beginning of taxable year
Increase in net worth
Add: Non-deductible expenses/deductions
Less: Non-taxable receipts
Correct net/taxable income
Income tax on taxable income
Less: Amount already paid on
reported taxable income
Deficiency income tax
Add: Surcharge and interest
Total amount due

B. Remedies for Collection of Delinquent Taxes

Some of the important remedies of the government in collecting taxes under the National Internal Revenue Code are the following: DCCTF

Distraint of personal property such as goods, chattels, or effects, including stocks and other securities, debts, credits, bank accounts and interest in and rights to personal property, and levy upon real property and interest in or rights to real property (Sec. 205);
Civil or criminal action (Sec. 205);
Compromise (Sec. 204);
Tax lien (Sec. 219);
Forfeiture (Sec. 224);

1. Distraint and Levy

Distraint is a remedy whereby the collection of the tax is enforced on the goods, chattels, or effects of the taxpayer including other personal property of whatever character as well as stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property.
On the other hand, levy refers to the seizure of real properties and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer.

Levy can be made before, simultaneously, or after the distraint of personal property.

Both remedies are summary in nature and either may be pursued in the discretion of the authorities charged with the collection of tax independently, or simultaneously with civil and criminal action once the assessment becomes final and demandable.
It bears to stress, however, that the remedy of distraint and levy shall not be availed of where the amount of the tax involved is not more than P100.00.

(a) Actual and Constructive Distraint.

Under Section 206, the Commissioner, to safeguard the interest of the Government, may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is: RLO

retiring from any business subject to the tax;
intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property;
intending to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.

Specific Cases When a Notice or Warrant of Constructive Distraint over the Property/ies of a Taxpayer may be Issued

When a taxpayer who applies for retirement from business has a huge amount of assessment pending with the Bureau of Internal Revenue (BIR). An assessment is huge if the amount thereof is equal to or bigger than the networth or equity of the taxpayer;
When a taxpayer who is under tax investigation has a record of leaving the Philippines at least twice a year unless such trips are justified and/ or connected with his business, profession or employment;
When a taxpayer, other than a banking institution, who is under tax investigation has a record of transferring his bank deposits and other valuable personal property/ies from the Philippines to any foreign country;
When the taxpayer uses aliases in bank accounts, other than the name for which he is legally and/ or popularly known;
When the taxpayer keeps bank deposits and owns other property/ ies under the name of other persons, whether or not related to him, and the same are not under any lawful fiduciary or trust capacity;
When a taxpayer's big amount of undeclared income is known to the public or to the BIR by credible means and there is a strong reason to believe that the taxpayer, in the natural course of events, will have a great tendency to hide or conceal his property/ies. For this purpose, the term "big amount of undeclared income" means an amount exceeding 30% of the gross sales, gross receipts or gross revenue declared per return;
When the BIR receives Information or Complaint pertaining to undeclared income in an exceeding 30% of gross sales, gross receipts or gross revenue declared per return of a particular taxpayer and there is enough reason to believe that the said Information is correct as when the Complaint or Information is supported by substantial and credible evidence.

The constructive distraint of personal property shall be effected 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. (Sec. 206)

In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two witnesses, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint. (Ibid.)

Actual distraint, upon the other hand, is resorted to upon the failure of the person owing any delinquent tax or delinquent revenue to pay the same at the time required.

It consists of the seizure of the 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 such persons in sufficient quantity to satisfy the tax, or charge, together with any increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale. (Sec. 207[A])

Distraint shall be instituted by the:

Commissioner or his duly authorized representative

if the amount involved is in excess of P1,000,000.00, or

Revenue District Officer

if the amount involved is P1,000,000.00 or less. (Ibid.)

A report on the distraint shall, within 10 days from receipt of the warrant, be submitted by the distraining officer to the Revenue District Officer, and to the Revenue Regional Director:

Provided, That the Commissioner or his duly authorized representative shall, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, have the power to lift such order of distraint:
Provided, further, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary. (Ibid.)

Procedure for Actual Distraint

The steps or procedure for actual distraint are outlined under Sections 208 to 212 of the NIRC, viz.:

Sec. 208. Procedure for Distraint and Garnishment.

The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale.
Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities.
Debts and credits shall be distrained 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 warrant of distraint shall be sufficient authority to the person owning the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits.
Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the warrant of garnishment, the bank shall turn over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government.

Sec. 209. Sale of Property Distrained and Disposition of Proceeds.

The Revenue District Officer or his duly authorized representative, other than the officer referred to in Section 208 of this Code shall, according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the distraint is made, specifying; the time and place of sale and the articles distrained. The time of sale shall not be less than twenty (20) days after notice. One place for the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained.
At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity or stock exchanges.
In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or association which issued the stocks or other securities. Upon receipt of the copy of the bill of sale, the corporation, company or association shall make the corresponding entry in its books, transfer the stocks or other securities sold in the name of the buyer, and issue, if required to do so, the corresponding certificates of stock or other securities.
Any residue over and above what is required to pay the entire claim, including expenses, shall be returned to the owner of the property sold. The expenses chargeable upon each seizure and sale shall embrace only the actual expenses of seizure and preservation of the property pending ;the sale, and no charge shall be imposed for the services of the local internal revenue officer or his deputy.

Sec. 210. Release of Distrained Property Upon Payment Prior to Sale.

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. 211. Report of Sale to Bureau of Internal Revenue.

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. 212. Purchase by Government at Sale Upon Distraint.

When the amount bid for the property under distraint 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 thereon.
Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to the National Treasury and accounted for as internal revenue.

Summary:

Sec. 208: Procedure for Distraint and Garnishment

Officer serving the warrant of distraint makes an account of the distrained property.
Copy of the account is left with the owner or person from whom the property was taken.

Stocks: Warrant is served on the taxpayer and the company issuing the stock.
Debts: A copy of the warrant is left with the person owing the debt to the taxpayer.
Bank Accounts: A warrant of garnishment is served on the taxpayer and the bank, requiring the bank to surrender the funds to settle the tax debt.

Warrant serves as authority for the debtor to pay the amount to the Commissioner.

Sec. 209: Sale of Property Distrained and Disposition of Proceeds

Revenue officer or authorized representative posts notice of sale in two public places in the municipality.

Notice specifies time, place of sale, and items distrained.
Sale occurs at least twenty days after notice.
One notice posted at the Office of the Mayor.

Property sold at public auction to highest bidder for cash or through licensed exchanges.
For stocks/securities, officer executes bill of sale delivered to buyer, with copy to issuing entity.
Issuer updates records and issues certificates if required.
Surplus after covering claim and expenses returned to the owner.

Sec. 210: Release of Distrained Property Upon Payment Prior to Sale

If all charges paid before sale, the property is returned to the owner.

Sec. 211: Report of Sale to Bureau of Internal Revenue

Officer makes a written report to the Commissioner within two days of the sale.
Officer keeps a copy as an official record.

Sec. 212: Purchase by Government at Sale Upon Distraint

If bid amount is inadequate, Commissioner or deputy may purchase the property on behalf of the government for the taxes, penalties, and costs.
Purchased property may be resold, with proceeds remitted to the National Treasury.

CIR vs. Vda. de Codiñera:

Appeal from the decision of the Court of Tax Appeals. The case hinges on whether the attachment levied upon in Civil Case No. 4862 barred the enforcement of the warrant of distraint issued by the Collector of Internal Revenue.
HELD:

Property levied upon by the order of a competent court may, with the consent thereof, be subsequently distrained, subject to the prior lien of the attachment creditor.
The attachment merely deprives the Collector of Internal Revenue or his agents of the power to divest the Court of its jurisdiction over said property.
It does not impair such rights as the Government may have for the collection of taxes.
While the lien for taxes must be recognized and enforced, the orderly administration of justice requires this to be done by and under the sanction of the court.

Procedure on Levy of Real Property

Sec. 7(B) Levy on Real Property.

After the expiration of the time required to pay the delinquent tax or delinquent revenue as prescribed in this Section, real property may be levied upon, before simultaneously or after the distraint of personal property belonging to the delinquent. To this end, any internal revenue 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 the tax and penalty due from him. Said certificate shall operate with the force of a legal execution throughout the Philippines.
Levy shall be affected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds for the province or city where the property is located and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or if there be none, to the occupant of the property in question.
In case the warrant of levy on real property is not issued before or simultaneously with the warrant of distraint on personal property, and the personal property of the taxpayer is not sufficient to satisfy his 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.
Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by the levying officer to the Commissioner or his duly authorized representative: Provided, however, That a consolidated report by the Revenue Regional Director may be required by the Commissioner as often as necessary: Provided, further, That the Commissioner or his duly authorized representative, subject to rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants of levy issued in accordance with the provisions hereof.

Sec. 213. Advertisement and Sale.

Within twenty (20) days after levy, the officer conducting the proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary to satisfy the claim and cost of sale; and such advertisement shall cover a period of a least thirty (30) days. It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall and in public and conspicuous place in the barrio or district in which the real estate lies and ;by publication once a week for three (3) weeks in a newspaper of general circulation in the municipality or city where the property is located. The advertisement shall contain a statement of the amount of taxes and penalties so due and the time and place of sale, the name of the taxpayer against whom taxes are levied, and a short description of the property to be sold. At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties and interest. If he does not do so, the sale shall proceed and shall be held either at the main entrance of the municipal building or city hall, or on the premises to be sold, as the officer conducting the proceedings shall determine and as the notice of sale shall specify.
Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings shall be entered upon the records of the Revenue Collection Officer, the Revenue District officer and the Revenue Regional Director. The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale, describing the property sold stating the name of the purchaser and setting out the exact amount of all taxes, penalties and interest: Provided, however, That in case the proceeds of the sale exceeds the claim and cost of sale, the excess shall be turned over to the owner of the property.
The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his collection, advance an amount sufficient to defray the costs of collection by means of the summary remedies provided for in this Code, including ;the preservation or transportation in case of personal property, and the advertisement and subsequent sale, both in cases of personal and real property including improvements found on the latter. In his monthly collection reports, such advances shall be reflected and supported by receipts.

Sec. 214. Redemption of Property Sold.

Within one (1) year from the date of sale, the delinquent taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date of sale, together with interest on said purchase price at the rate of fifteen percent (15%) per annum from the date of purchase to the date of redemption, and such payment shall entitle the person paying to the delivery of the certificate issued to the purchaser and a certificate from the said Revenue District Officer that he has thus redeemed the property, and the Revenue District Officer shall forthwith pay over to the purchaser the amount by which such property has thus been redeemed, and said property thereafter shall be free form the lien of such taxes and penalties.
The owner shall not, however, be deprived of the possession of the said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption.

Sec. 215. Forfeiture to Government for Want of Bidder.

In case there is no bidder for real property exposed for sale as herein above provided or if the highest bid is for an amount insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim in question and within two (2) days thereafter, shall make a return of his proceedings and the forfeiture which shall be spread upon the records of his office. It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such declaration of forfeiture, to transfer the title of the property forfeited to the Government without the necessity of an order from a competent court.
Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem said property by paying to the Commissioner or the latter's Revenue Collection Officer the full amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the property be not thus redeemed, the forfeiture shall become absolute.

Summary:

Sec. 7(B): Levy on Real Property

Real property may be levied upon after expiration of the time to pay delinquent tax.
Internal revenue officer prepares a duly authenticated certificate showing taxpayer's name and amount due.
Certificate shall operate with the force of a legal execution throughout the Philippines.
Levy involves describing the property on the certificate and notifying the Register of Deeds and taxpayer.
If real property levy is not simultaneous with personal property distraint, it must occur within 30 days after distraint.

Sec. 213: Advertisement and Sale

Within 20 days after levy, officer advertises property to satisfy claim and sale costs.

Advertisement period: at least 30 days.
Advertisement methods: posting notice at:

municipal building
in the district, and
newspaper publication (once a week for three weeks).

Advertisement content:

amount of taxes/penalties due
time/place of sale
taxpayer's name,
property description.

Taxpayer can stop proceedings by paying dues before sale day.

The ale location determined by officer, as stated in notice.

Post-sale Procedure:

Within 5 days after sale, officer records proceedings with Revenue Collection Officer, District Officer, and Regional Director.
Revenue Collection Officer issues certificate to purchaser, detailing sale proceedings, property, purchaser, and total dues.
Excess proceeds from sale returned to property owner.

Revenue Collection Officer, with District Officer approval, may advance collection costs.
Costs include preservation/transportation of personal property, advertisement, and subsequent sale of both personal and real property, including improvements.

Sec. 214: Redemption of Property Sold

Within 1 year from sale date, delinquent taxpayer can pay:

Public taxes, penalties, interest from delinquency to sale date.
Interest on purchase price (15% per annum) from purchase to redemption date.

Payment entitles person to:

Delivery of certificate issued to purchaser.
Certificate from Revenue District Officer confirming redemption.

Revenue District Officer pays redeemed amount to purchaser.
Property becomes free from tax lien after redemption.
Owner retains possession and entitlement to rents/income until redemption period ends.

Sec. 215: Forfeiture to Government for Want of Bidder

If no bidder or highest bid insufficient, property forfeited to Government.

Officer declares forfeiture, recording the proceedings.
Register of Deeds transfers title to Government without court order upon registration of forfeiture.

Redemption of Forfeited Property:

Within 1 year from forfeiture date, taxpayer or representative can redeem by paying:

Full amount of taxes, penalties, interest, and sale costs.
Failure to redeem makes forfeiture absolute.

Presbitero v. Fernandez, 7 SCRA 627:

It must be noted that in one case, it was held that as an improvement attached to the land, by express provision of law (Sec. 9, Act 4166 ), though not physically so united, sugar quotas are inseparable therefrom, just like servitudes and other real rights over an immovable, and should be considered as immovable or real property.
By implication, the procedure for levy, not distraint, must be followed.

Marcos II v. Court of Appeals, G.R. No. 120880, June 5,1997:

In the case of notices of levy issued to satisfy the delinquent estate tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and exclusively, the heir of the decedent.
Thus, it follows that the services of the notices of levy in satisfaction of the tax delinquencies upon the heir is not required by law.

Cases for Study:

Cabrera v. Tayabas CA No. 502, January 29, 1946:

The Provincial Treasurer of Tayabas issued a notice for the sale at public auction of numerous real properties forfeited for tax delinquency "on December 15, 1940 at 9 a.m. and everyday thereafter, at the same place and hour until all the properties shall have been sold to the highest bidder."
Copy of the notice was sent by registered mail to Nemesio Cabrera, but the envelope containing the same was returned with the remark "Unclaimed," undoubtedly because Nemesio Cabrera had died in 1935. The sale of the land involved herein was executed on May 12, 1941.
Thereafter, Basilia Cabrera filed a complaint in the then Court of First Instance of Tayabas attacking the validity of the sale on the grounds that she was not notified thereof, and that although the land had remained in the assessment booking in the name of Nemesio Cabrera, a former owner, she has become the registered owner since 1934 when a Torrens title was issued to her by the register of deeds of Tayabas.
HELD:

Under Commonwealth Act No. 470, Section 35, the Provincial Treasurer is enjoined to set forth in the notice, among other particulars, the date of the tax sale. We are of the opinion that this mandatory requirement was not satisfied in the present case, because the announcement that the sale would take place on December 15, 1940 and everyday thereafter, is as general and indefinite as a notice for the sale "within this or next year" or "some time within the month of December." In order to enable a taxpayer to protect his rights, he should at least be apprised of the exact date of the proceeding by which he is to lose his property. When we consider the fact that the sale in favor of the appellant was executed on May 12, 1941, or nearly five months after December 15, 1940, the violation of the mandatory requirement becomes more obvious.
Likewise, the appellee was admittedly not notified of the auction sale, and this also vitiates the proceeding. She is the registered owner of the land, and since 1934, has become liable for taxes thereon. For all purposes, she is the delinquent taxpayer "against whom the taxes were assessed," referred to in Section 34 of Commonwealth Act No. 470. It cannot be Nemesio Cabrera for the latter's obligation to pay ended where the appellee's liability began.

Antonia Valencia v. Juan Jimenez, No. 4406, October 23, 1908:

An action to set aside a sale of real estate to defendant Jimenez for unpaid taxes and the transfer of a one-half interest therein by him to defendant Fuster was brought before the then Court of First Instance of Manila on the ground that the tax sale was invalid by reason of defects in the proceedings to impose the tax.
The most serious of these irregularities are the following:

the error in the name of the owner
the assessment; and
defect in the description of the property.

HELD:

In Marx D. Hanthorn (148 U.S., 172), where it does not even appear that under the law of the State of Oregon the tax was a personal one, the tax sale was held bad because the owner's name had been written in the roll as "Ida F. Hawthorn" instead of "Ida J. Hanthom."

Under the Municipal Law of the Philippines, Sections 74 to 78, the tax is primarily a personal one and is enforceable against realty only in the event of a deficiency of personalty, whereas in the City of Manila its character is somewhat qualified by the provision in Section 47 of the charter making the levy on personalty a cumulative remedy only.
Nevertheless, the requirement of the statute is so imperative that the rule of the Hanthorn case is manifestly applicable here.

The most vital requisite of an assessment that the property shall be so described as to be easily identified both by the owner and by the persons desiring to bid therefore.

The description prior to those in the deed are all more or less defective, but those in the assessment roll for 1902 and in the final notice of the tax sale are so confused and inadequate as not only to fail to give notice to a stranger of the location of the property, but as to be incapable of verification by a person familiar with it.
This is especially true of the description in the notice of sale, which of all the steps in the proœdure is the one calling for a most definite and intelligible description.
It is settled doctrine that where one sale embraces two different taxes, a vital defect in either tax invalidates the whole sale, so that considered apart from the notice of sale, the rather understandable description in the roll of 1901 does not cure the vice in that of 1902.
We are satisfied that the failure to adequately describe the property both in the tax roll and in the notice of sale amounted to an "irregularity, informality and failure that impaired the substantial rights of the taxpayer," within the meaning of Sections 84 and 86 of the Municipal Code, and upon this failure we are content to rest our judgment, affirming that part of the judgment of the Court of First Instance declaring the sale and deed of the assessor and collector of the City of Manila to Juan Jimenez y Mijares, and the deed of the latter to Gabriel Fuster y Fuster invalid and awarding to plaintiff the possession of the property described in the complaint.

Similarly, it was held in Velayo v. Ordoreza, et al., G.R. No. L-9061, November 18, 1957, that the owner of property registered under the Torrens System is justified in relying upon the description given in his certificate of title as the one officially identifying the property.

The sale for non-payment of tax of the property with a description distinct and different from that which appears in its certificate of title cannot be sanctioned without impairing the full faith and credence which the title is meant to command and, hence, affects the essence of the Torrens System.

Some Principles Governing Distraint and Levy

The distraint and levy shall be effected anytime the situation so demands but only after reasonable efforts have been exerted to collect the tax by ordinary methods of collection.
Distraint and levy should be resorted to before court action although it may be done simultaneously.
If there is already a court action, a warrant of distraint and levy should be issued simultaneously with such filing.
Warrant of distraint and levy shall not be issued for the collection only of a compromise penalty for the violation of internal revenue laws and regulations.
A notice of tax lien should be filed with the Office of the Register of Deeds before or simultaneously with the issuance of a warrant of distraint and levy. (See Revenue Memo. Order No. 20-68 dated February 18, 1966)
Any taxpayer whose property has been placed under constructive distraint, who sells, transfers, encumbers or in any way disposes of said property, or any part thereof, without the knowledge and consent of the Commissioner, shall, upon conviction for each act or omission, be punished by a fine not less than twice the value of the property so sold, encumbered, or disposed of, but not less than P5,000.00, or suffer imprisonment of not less than two (2) years and one day but not more than four (4) years or both. (Sec. 276)
Any person who fails or refuses to surrender property placed under distraint and levy shall be liable in his own person and estate to the Government in a sum equal to the value of the property or rights not so surrendered but not exceeding the amount of the taxes (including penalties and interest) for the collection of which such warrant had been issued, together with the costs and interest if any, from the date of such warrant. In addition, such person shall, upon conviction for each act or omission, be punished by a fine of not less than P5,000.00, or suffer imprisonment of not less than six months and one day but not more than two years, or both. (Sec. 277)
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)

2. Civil Action

A civil action is resorted to when a tax liability becomes collectible, that is, the assessment becomes final and unappealable, or the decision of the Commissioner has become final, executory, and demandable.
This occurs when:

A tax is assessed and the taxpayer fails to file an administrative protest by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment (Sec. 228, NIRC);
A protest against the assessment is filed by the taxpayer but the Commissioner's decision denying in whole or in part the said protest, was not appealed to the Court of Tax Appeals within 30 days from receipt of such decision.

It must be stressed that within 60 days from filing of the protest, all relevant supporting documents should be submitted, otherwise, the assessment shall become final.

Failure on the part of the Commissioner to act upon a protest within 180 days from the submission of the documents shall be considered a denial of the protest; the taxpayer must appeal to the Court of Tax Appeals within 30 days from the lapse of the 180 days; otherwise, the assessment shall become final and demandable. (Sec. 228, ibid.)

Republic v. Lim Tian Teng Sons, Inc., 16 SCRA 584:

The High Court held that when the Commissioner did not reply to the taxpayer's request for reconsideration and instead referred the case to the Solicitor General for judicial collection, this was indicative of his decision against reinvestigation.
This is therefore another instance where the Commissioner's action is in effect a decision of denial which is appealable to the Court of Tax Appeals.

Yabes v. Flojo, 115 SCRA 278:

It was ruled that the filing of a civil action in court to collect a tax which was the subject of a pending protest in the BIR was a justifiable basis for the taxpayer to appeal to the Court of Tax Appeals and to move for the dismissal in the trial court of the Government's action to collect the tax under dispute.

CIR v. Lillia Yusay Gonzales, 18 SCRA 757:

But once an action for collection is filed with the regular court, the taxpayer can no longer assail the legality or validity of the assessment.
A disputed assessment falls within the exclusive jurisdiction of the Court of Tax Appeals.

Augusto Basa v. Republic, 138 SCRA 34:

Likewise, the prescription of the Government's right to assess is no longer available as a defense in a civil action for collection; the same should have been ventilated before the Court of Tax Appeals.

Republic v. Ker & Co., 18 SCRA 207:

But the right of the Government to object to the defense of prescription may be waived if it litigated the issue of prescription and submitted said issue for the resolution of the court.

A Proceeding in Court after the Collection of Tax May Be Begun without Assessment

The law is clear.
When fraudulent tax returns are involved, a proceeding in court after the collection of such tax may be begun without assessment.
Adamson v. Court of Appeals, 588 SCRA 27:

The private respondents filed the capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom.
Upon investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC Philippines, Limited.
The examiners also found that the VAT had not been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the amounts actually declared by the private respondents constitutes badges of fraud.
Thus, the applicability of Ungab v. Cusi, 97 SCRA 877, is evident to the cases at bar.

In this seminal case, this Court ruled that there was no need for precise computation and formal assessment in order for criminal complaints to be filed against him.

It quoted Merten's Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:

An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax.
A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax.
The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime.

It should be noted that a civil action for tax collection filed with the regular courts cannot be instituted without the approval of the Commissioner. (Sec. 220, NIRC)
Arches v. Bellosillo, 20 SCRA 33:

But in one case, it was held that the approval by the Commissioner of Internal Revenue of a civil action for the collection of taxes is not jurisdictional, but one relating to capacity to sue or affecting the cause of action only.
The High Court went on saying further that there was no grave abuse of discretion on the part of the municipal court in ruling that the express approval of the Revenue Commissioner himself was not necessary.
The court relied upon Memorandum Order No. V-634 of the Revenue Commissioner, approved by the Finance Secretary, wherein the former's functions regarding the administration and enforcement of revenue laws and regulations — powers broad enough to cover the approval of court actions — were expressly delegated to the Regional Directors.

As amended by Republic Act No. 8424, the NIRC is now even more categorical.

Section 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following:

The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau;
The power to compromise or abate under Section 204(A) and (B) of this Code, any tax deficiency: Provided, however, That assessments issued by the Regional Offices involving basic deficiency taxes of P500,000.00 or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and
The power to assign or re-assign internal revenue officers to establishments where articles subject to excise tax are produced or kept.

None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases.

Oceanic Wireless Network, Inc. v. CIR, 477 SCRA 205:

The Supreme Court upheld the validity of the demand letter dated January 24, 1991 signed and issued by the Chief of the Accounts Receivable and Billing Division ratiocinating that the issuance thereof does not fall under any of the exceptions that have been mentioned as non-delegable.

3. Criminal Action

Like in the institution of civil action for collection, a criminal action cannot be instituted without the approval of the Commissioner of Internal Revenue.
The remedy of criminal action is resorted to not only for collection of taxes but also for enforcement of statutory penalties of all sorts. (Sec. 221, NIRC)

The judgment in the criminal case shall not only impose the penalty but shall also order the payment of the taxes subject of the criminal case as finally decided by the Commissioner. (Sec. 205, ibid.)

This civil liability arises not as a consequence of a felonious act but because of the taxpayer's failure to pay taxes.
Hence, the extinction of one's criminal liability does not necessarily result in the extinguishment of his civil liability, thus:
Republic v. Patanao, 20 SCRA 712:

In applying the principle underlying the civil liability of an offender under the Penal Code to a case involving the collection of taxes, the court a quo fell into error.
The two cases are circumscribed by factual premises which are diametrically opposed to each other, and are founded on entirely different philosophies.
Under the Penal Code, the civil liability is incurred by reason of the offender's criminal act, stated differently, the criminal liability gives birth to the civil obligation such that generally, if one is not criminally liable under the Penal Code, he cannot become civilly liable thereunder.
The situation under x x x the tax law is the exact opposite.

Civil liability to pay taxes arises from the fact, for instance, that one has engaged himself in business, and not because of any criminal act committed by him.
The criminal liability arises upon failure of the debtor to satisfy his civil obligation.

The incongruity of the factual premises and foundation principles of the two cases is one of the reasons for not imposing civil indemnity on the criminal infraction of the tax law.

People v. Tierra, 12 SCRA 666:

In the same manner, the subsequent satisfaction of a tax liability will not operate to extinguish the criminal liability.

People v. Gregorio Balagtas, L-10210, July 29, 1959:

Moreover, subsidiary imprisonment for failure to pay the tax in case of insolvency cannot be imposed in criminal cases involving violations of the provisions of the Tax Code.

Gaw, Jr. v. CIR, 873 SCRA 42:

Civil action filed to assail the Final Decision on Disputed Assessment is not deemed instituted with the criminal case for tax evasion.
Rule 111, Section 1(a) of the Rules of Court provides that what is deemed instituted with the criminal action is only the action to recover civil liability arising from the crime.
Civil liability arising from a different source of obligation, such as when the obligation is created by law, such civil liability is not deemed instituted with the criminal action.
It is well-settled that the taxpayer's obligation to pay the tax is an obligation that is created by law and does not arise from the offense of tax evasion.
As such, the civil liability is not deemed instituted in the criminal case.

Criminal Complaint for Tax Evasion Distinguished from Assessment

The issuance of an assessment must be distinguished from the filing of a complaint.
Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer.

The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted.
If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her.

In contrast, the criminal charge need not go through all these.

The criminal charge is filed directly with the DOJ.
Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment.
It must be stressed that a criminal complaint is instituted not to demand payment but to penalize the taxpayer for violation of the Tax Code.

Quirico Ungab v. Hon. Cusi 97 SCRA 877

Six Informations were filed with the then Court of First Instance of Davao City against Quirico Ungab for violation of the National Internal Revenue Code.
Ungab filed a Motion to Quash on the ground that the trial court has no jurisdiction to take cognizance of the cases in view of his pending protest against the assessment made by the BIR examiner.
HELD:

The contention is without merit.
What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals but a criminal prosecution for violation of the National Internal Revenue Code, which is within the cognizance of the Court of First Instance.
While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code.
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of a law.
Obviously, the protest of the petitioner against the assessment of the Revenue District Officer cannot stop his prosecution for violation of the National Internal Revenue Code.

4. Compromise

A compromise is an agreement between two or more persons who, to avoid a lawsuit, amicably settle their differences on such terms as they can agree on.

A compromise by its very nature implies mutual agreement by the parties in regard to the thing or subject matter which is to be compromised.
An offer of compromise does not, therefore, assume the category of a compromise until it is voluntarily accepted by the other party, and no obligation arises or is created by a simple offer or suggestion coming from one of the parties without acceptance by the other.

CIR v. Abad, 23 SCRA 1132:

A compromise penalty, on the other hand, is a certain amount of money which the taxpayer pays to compromise a tax violation.
Compromise penalties are paid in lieu of criminal prosecution, and cannot be imposed in the absence of a showing that the taxpayer consented thereto.
If an offer of compromise is rejected by the taxpayer, the compromise penalty cannot be enforced through an action in court or by distraint and levy.
The Commissioner of Internal Revenue should file a criminal action if he believes that the taxpayer is criminally liable for violation of the tax law as the only way to enforce a penalty.

Cases Which May Be Compromised

The following cases may, upon taxpayer's compliance with the basis set forth under Section 3 of Revenue Regulations No. 7-2001 (as amended by Rev. Regs. No. 30-2002), be the subject matter of compromise settlement, viz.:

Delinquent accounts;
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;
Civil tax cases being disputed before the courts, e.g., MTC, RTC, CTA, CA, SC;
Collection cases filed in courts;
Criminal violations other than those already filed in court or those involving criminal tax fraud; and
Cases covered by pre-assessment notices but taxpayer is not agreeable to the findings of the audit office as confirmed by the review office.

The Commissioner may compromise any internal revenue tax when:

A reasonable doubt as to the validity of the claim against the taxpayer exists; or
The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. (Sec. 204, NIRC)

Basis for Acceptance of Compromise Settlement

The Commissioner may compromise the payment of any internal revenue tax on the following grounds:

Doubtful validity of the assessment.

The offer to compromise a delinquent account of disputed assessment under these Regulations on the ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown that:

The delinquent account or disputed assessment is one resulting from a jeopardy assessment. (For this purpose, "jeopardy assessment" shall refer to a tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer, who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer's failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in his return); or
The assessment seems to be arbitrary in nature appearing to be based on presumptions and there is reason to believe that it is lacking in legal and /or factual basis; or
The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of assessment or preliminary assessment and there is reason to believe that the assessment is lacking in legal and/ or factual basis; or
The taxpayer failed to file a request for reinvestigation /reconsideration within 30 days from receipt of final assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner, or his authorized representative, in some cases, within 30 days from receipt thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
The assessment were issued on or after January 1, 1998, where the demand notice allegedly failed to comply with the formalities prescribed under Section 228 of the Tax Code of 1997; or
Assessments made based on the "Best Evidence Obtainable Rule" and there is reason to believe that the same can be disputed by sufficient and competent evidence;
The assessment was issued within the prescriptive period for assessment as extended by the taxpayer's execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at issue and there is strong reason to believe and evidence to prove that it is not authentic;
The assessment is based on an issue where a court of competent jurisdiction made an adverse decision against the bureau, but for which the Supreme Court has not decided upon with finality.

Financial incapacity.

The offer to compromise based on financial incapacity may be accepted upon showing that:

The corporation ceased operation or is already dissolved; or
The taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%; or
The taxpayer is suffering from a networth deficit computed by deducting total liabilities(net of deferred credits) from total assets (net of pre-paid expenses, deferred charges, pre-operating expenses, as well as appraisal increases in fixed assets), taken from the latest audited financial statements; or
The taxpayer is a compensation income earner with no other source of income and the family's gross monthly compensation income does not exceed the levels of compensation income provided for under Section 4.1.1 of Revenue Regulations 7-2001 and it appears that the taxpayer possesses no other leviable/distrainable assets, other than his family home; or
The taxpayer has been granted by the Securities and Exchange Commission (SEC) or by any competent tribunal a moratorium or suspension of payments to creditors, or otherwise declared bankrupt or insolvent.

The Commissioner shall not consider any offer for compromise settlement by reason of financial incapacity unless and until the taxpayer waives in writing his privilege of the secrecy of bank deposits under Republic Act No. 1405 or under other general or special laws, and such waiver shall constitute as the authority of the Commissioner to inquire into the bank deposits of the taxpayer.
The compromise settlement is subject to the following minimum amounts:

For cases of financial incapacity, a minimum compromise rate of 10% of the basic assessed tax;
For other cases, a minimum compromise rate equivalent to 40% of the basic tax assessed.

Where the basic tax involved exceeds P1,000,000.00 or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the Evaluation Board composed of the Commissioner and the four Deputy Commissioners.

Prescribed Minimum Percentages of Compromise Settlement

The compromise settlement of the internal revenue tax liabilities of taxpayers, reckoned on a per tax type assessment basis, shall be subject to the following minimum rates based on the basic assessed tax:

For cases of "financial incapacity"

If taxpayer is an individual whose only source of income is from employment and whose monthly salary, if single is P10,500.00 or less, or if married, whose salary together with his spouse is P21,000.00 per month, or less and it appears that the taxpayer possesses no other leviable distrainable assets other than his family home; 10%
If taxpayer is an individual without any source of income; 10%
Where the taxpayer is under any of the following conditions:

Zero networth computed in accordance with Section 3.2(c) hereof; 10%
Negative networth computed in accordance with Section 3.2(c) hereof; 10%
Dissolved corporations; 20%
Already non-operating companies for a period of:

three years or more as of the date of application for compromise settlement; 10%
Less than three years; 20%

Surplus or earnings deficit resulting to impairment in the original capital by at least 50%; 40%
Declared insolvent or bankrupt unless taxpayer falls squarely under any situation as discussed above, thus resulting to the application of the appropriate rate.

For cases of "doubtful validity"

A minimum compromise rate equivalent to 40% of the basic assessed tax.
The taxpayer may, nevertheless request for a compromise rate lower than 40%;

Provided, however, That he shall be required to submit his request in writing stating therein the reasons, legal and /or factual why he should be entitled to such lower rate;
Provided, further, That for applications of compromise settlement based on doubtful validity of the assessment involving an offer lower than the minimum 40% compromise rate, the same shall be subject to the prior approval by the NEB.

The herein prescribed minimum percentages shall likewise apply in compromise settlement of assessments consisting solely of increments, i.e., surcharge, interest, etc., based on the total amount assessed.
The power to compromise is vested in the Commissioner of Internal Revenue.

This power is discretionary, and once exercised by the Commissioner cannot be reviewed or interfered with by the courts.
In other words, it is an exclusive power of the Commissioner.
He cannot be compelled to exercise such discretion in one way or another.

But the Commissioner may delegate his power to the Deputy Commissioners and the Regional Directors subject to such restrictions as may be imposed under rules and regulations to be promulgated for the purpose. (Rev. Regs. No. 7-2001)
People v. Magdaluyo, 1 SCRA 991:

A compromise validly entered into between the Commissioner and the taxpayer prior to the institution of the corresponding criminal action arising out of a violation of the provisions of the Tax Code is a bar to such criminal action.

Abatement.

Compromise is different from abatement which is a cancellation of the entire tax liability.
Abatement is authorized when:

the tax or any portion thereof appears to be unjustly or excessively assessed;
the administration and collection costs involved do not justify the collection of the amount due.

When may violations of tax laws/cases be compromised.

In criminal violations, the compromise must be made prior to the filing of the information in court.
Under Section 204, NIRC, criminal violations already filed in court or those fraud cannot be compromised.
In civil cases, compromise may be entered into before litigation or at any stage of the litigation, even during appeal, although legal propriety demands that prior leave of court should be obtained.
Roviro v. Amparo, 91 Phil. 228:

But a compromise can never be entered into after final judgment, because by virtue of such final judgment, the Government had already acquired a vested right.

Cases Which Cannot Be Compromised

Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer's obligation to withhold;
Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative;
Criminal violation already filed in court;
Delinquent accounts with duly approved schedule of installment payments;
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;

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
Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.

5. Tax Liens

"Sec. 219. If any person, corporation, partnership, joint account (cuentas en participacion), association or insurance company liable to pay any internal revenue tax, neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the Government of the Philippines from the time when the assessment was made by the Commissioner until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property and rights to property belonging to the taxpayer: Provided, That his 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."
A tax lien is a legal claim or charge on property (whether real or personal) established by law as a sort of security for the payment of tax obligations.

It is more extensive in scope than the jus retentionis in Civil Law.

A tax lien created in favor of the government is superior to all other claims or preferences.
An unpaid internal revenue tax, together with related interest, penalties and costs, constitutes a lien in favor of the government from the time an assessment therefor is made and until paid, upon all property and rights to property belonging to the taxpayer.

Under the aforequoted Section 219, however, the lien is not valid against any mortgagee, purchaser, or judgment creditor until notice of such lien shall have been filed in the register of deeds of the province or city where the property of the taxpayer is located.

CIR v. NLRC, G.R. No. 74965 (1994):

It has been held however that a buyer in an execution sale acquires the rights of the judgment creditor subject to a NIRC tax lien (which did not appear to have been registered) not only from the moment the warrant of distraint is served but upon the accrual of the tax.

Government's Claim Predicated on a Tax Lien Is Superior to Claim Based on Judgment

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment.
The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable.

Besides, the distraint on the subject properties of Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of Internal Revenue, long before the writ of execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then that the time the writ of execution was issued, the two (2) barges, MCP-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines.

The power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor.
Execution sales affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such rights as the judgment debtor has at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.

6. Forfeiture

The forfeiture of chattels and removable fixtures of any sort shall be enforced by the seizure and sale, or destruction, of the specific forfeited property.
The forfeiture of real property shall be enforced by a judgment of condemnation and salein a legal action or proceeding, civil or criminal, as the case may require. (Sec. 224, NIRC)
The forfeiture need not be for the whole tax liability which could merely be for the amount equivalent to the fair market value of the property.

Forfeiture and seizure distinguished.

In seizure for the enforcement of tax lien, the residue, after deducting the tax liability and expenses, will go to the taxpayer.
In forfeiture, all the proceeds of the sale will go to the coffers of the government.

A taxpayer in forfeiture or seizure cases to enforce tax lien may still be subject to criminal action even if his property has been forfeited.

7. Civil Penalties

"Sec. 248. Civil Penalties. -

(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due in the following cases:

(1) Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or
(2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or
(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or
(4) Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud;

Provided, That a substantial underdeclaration of taxable sales, receipt or income, or a substantial overstatement of deductions as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent return;
Provided further, that failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding thirty percent (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein.

C. No Injunction to Restrain Tax Collection

An injunction is not available to restrain collection of tax.
No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee, or charge imposed by the NIRC. (Sec. 218)

Rationale of the No Injunction Rule

It is a wise and reasonable precaution for the security of the government.
No government could exist that permitted its collection to be delayed by every litigious man or very embarrassed man, to whom delay was more important than the payment of taxes.
This general rule admits one exception, i.e., when the decision of the Commissioner is pending appeal before the Court of Tax Appeals," the said court may enjoin the collection of taxes if such collection will jeopardize the interest of the government and/or the taxpayer.

In such case, the Court at any stage of the proceeding may suspend the collection of the tax 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.
The posting of a bond is not an absolute requirement, its imposition lies within the sound discretion of the Tax Court.

Bond should be dispensed under exceptional cases

Pacquiao v. CTA, 789 SCRA 19:

The Supreme Court echoed the recognized exceptions to the filing of the required bond, viz.:

The taxpayer need not file a bond if the method employed by the collector in the collection of the tax is not sanctioned by law; and
The order of the Collector of Internal Revenue to effect collection of the alleged income taxes through summary administrative proceeding had been issued well beyond the three-year period of limitation.

The purpose of the rule is not only to prevent jeopardizing the interest of the taxpayer, but more importantly, to prevent the absurd situation wherein the court would declare that the collection by the summary methods of distraint and levy was violative of law, and then, in the same breath, require the taxpayer to deposit or file a bond as a prerequisite for the issuance of a writ of injunction.

II. Statute of Limitations

The right of the government to assess and collect internal revenue taxes is subject to the statute of limitations provided under the Tax Code, as follows:

Sec. 203. Period of Limitation Upon Assessment and Collection.

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 a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted 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 as filed on such last day.

Sec. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.

In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed or 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:

Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be as essed within the period agreed upon.

The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (1) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.
Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (2) hereinabove, 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.

Provided, however, That nothing in the immediately preceding and paragraph (1) hereof shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree.

The defense of prescription is not jurisdictional and must be raised seasonably, otherwise it is deemed waived.

The prescribed period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended

If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests against the validity of some of the issues raised the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest.

No action shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues.
The prescribed period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended.

Prescriptive periods for assessment and collection

A. Assessment of the Tax Liability

Three years

commences to run after the last day prescribed by law for the filing of the return.

if the return is filed before the due date, the prescriptive period begins to run only after said due date
if the return is filed beyond the period fixed by law or beyond the due date, the three-year period shall be counted from the day the return was filed.

But if the return was amended substantially, the period starts from the filing of the amended return.

Ten (10) years

when

no return is filed, or
the return is false or fraudulent with intent to evade the tax,

the prescriptive period commences from the date of discovery

When the assessment notice or the demand letter of the BIR is sent by mail, the date when the demand letter or notice of assessment is mailed, released or sent to the taxpayer is considered the date of actual assessment, and as long as the same is released within the prescriptive period, assessment is deemed made on time even though the same is actually received by the taxpayer after the expiration of the prescriptive period.

Since prescription is an affirmative defense, it is incumbent upon the taxpayer to prove that a return had been filed by him, otherwise, there is a basis for the BIR to assess the tax within the 10-year period on the ground that no return was filed by him.
If what was filed was a wrong return, the 10-year prescriptive period will still apply.
This is true even if the information embodied in the wrong return could enable the BIR to assess the tax liability of the taxpayer.
Demand Letter Issued by the Bureau of Forestry Not an Assessment

Mambulao Lumber Co. v. Republic, 132 SCRA 1:
On January 15, 1949, the Bureau of Forestry demanded from Mambulao Lumber Company the payment of assessed forest charges and surcharges.
The company protested the assessment.
On August 29, 1958, the Acting Commissioner of Internal Revenue likewise wrote a letter to the company demanding payment, which subsequently requested reinvestigation.
The BIR gave the company 20 days within which to submit its verification of payments.
For failure of the company to comply, the BIR, on August 25, 1961, filed a complaint for collection with the then Court of First Instance.
The company raised the defense of prescription, arguing that from January 15, 1949, when the Bureau of Forestry made an assessment and demand for payment up to the filing of the complaint for collection on August 25, 1961, more than five years had elapsed.
HELD:

The action for collection is not barred by prescription.
The demand letter of the Acting Commissioner of Internal Revenue dated August 29, 1958, was the basis of the complaint filed in the case and not the demand letter of the Bureau of Forestry dated January 15, 1949.
This must be so because forest charges are internal revenue taxes and the sole power and duty to collect the same is lodged with the Bureau of Internal Revenue and not with the Bureau of Forestry.

B. Collection of the Tax

Three years

from assessment involving neither false nor fraudulent return within which to collect tax due;

Five years

from assessment involving false or fraudulent returns or failure to file a return;

Ten (10) years

without assessment, and in case of false or fraudulent returns with intent to evade the tax or failure to file a return.

Under paragraph (c) of Section 222, an internal revenue tax which has been assessed within the prescribed period may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax.

This is likewise true in case of self-assessed taxes like income tax, wherein the date of the actual filing of the return is considered as the date when the tax is said to have been assessed.
Collection by judicial action is deemed instituted upon filing of the corresponding complaint in the court of competent jurisdiction, and in the case of summary remedies, upon service of the distraint and levy on the taxpayer or persons or entity authorized to receive the same.
The CIR has three (3) years from issuance of an assessment involving neither false nor fraudulent return within which to collect tax due.

CIR v. United Salvage and Towage (Phils.), Inc., 729 SCRA 113:

The Supreme Court held that when the CIR validly issues an assessment within the three-year period, it has another three 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-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.

Filing of Answer to Taxpayer's Petition for Review Considered as Institution of Judicial Action

Fernandez Hermanos Inc v. CIR 29 SCRA 552
Republic v. Araneta 2 SCRA 144

Approval of the Court Sitting in Probate Not a Mandatory Requirement in the Collection of Estate Taxes

Ferdinand Marcos II v. CA 273 SCRA 47

In the Philippine experience, the enforcement and collection of estate tax is exclusive in character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal Revenue. x x x
Vera v. Fernandez, 89 SCRA 199:

The Supreme Court recognized the liberal treatment of claims for taxes charged against the estate of the decedent.
Such taxes were exempted from the application of the statute of non-claims, and this is justified by the necessity of government funding, immortalized in the maxim that taxes are the lifeblood of the government.
Vectigalia nervi sunt rei publicae - taxes are the sinews of the state. x x x

Such liberal treatment of internal revenue taxes in the probate proceedings extends so far, even to allowing the enforcement of tax obligations against the heirs of the decedent, even after distribution of the estate's properties.
From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased is not a mandatory requirement in the collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction. There is nothing in the Tax Code, and in the pertinent remedial laws, that implies the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same can be enforced and collected.
On the issue of prescription, the omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, as under Section 223, NIRC, (now Sec. 222) in case of failure to file a return, the tax may be assessed at anytime within 10 years after the omission, and any tax so assessed may be collected by levy upon real property within three years (now within five years) following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax.
Fraudulent or False Return.

The difference between a "false" return and a "fraudulent" return is that a false return merely implies a deviation from the truth or fact whether intentional or not, whereas a fraudulent return is intentional and deceitful with the aim of evading the correct tax due.
As earlier discussed, when what was filed was a false or fraudulent return, the 10-year prescriptive period applies.
The 10-year period is counted from the discovery of fraud or falsity, not from the filing of the return. Within this prescriptive period, the Government has two options: either to assess the correct tax liability, and later on collect the same within the period of five years by distraint, levy, or by a proceeding in court (Sec. 222[c]), or to file a proceeding in court for the collection of such tax without assessment. (Sec. 222[a])

What Constitutes Fraud.

Gomez v. Domingo, CTA Case No. 1168, February 15, 1964:

Fraud is a question of fact that cannot be presumed but must be sufficiently established. Mere understatement of the income in itself does not constitute fraud.
It must be proven as a fact that there was intentional and substantial understatement of tax liability.

Tan Guan v. Court of Tax Appeals, 19 SCRA 903:

Fraud was likewise found to exist in a case where there was substantial and intentional overstatement of deductions or exemptions, like the presence of fictitious expenses which were claimed by the taxpayer as deductions from gross income.

CIR v. Ayala Securities Corporation 70 SCRA 204:

Fraud is a question of fact and the circumstances constituting fraud must be alleged and proved in the court below. The finding of the trial court as to its existence and non-existence is final and cannot be reviewed by the Supreme Court unless clearly shown to be erroneous. Fraud is never lightly to be presumed because it is a serious charge.

Aznar v. CTA, 58 SCRA 519:

The fraud contemplated by law is actual and not constructive. It must amount to intentional wrongdoing with the sole object of avoiding the tax.
It necessarily follows that a mere mistake cannot be considered as fraudulent intent and if both the taxpayer and the Commissioner of Internal Revenue committed mistakes in making the entries in the returns and in the assessment respectively under the inventory method of determining tax liability (the Commissioner upon reinvestigation concluded that the tax liability should be reduced), it would be unfair to treat the mistakes of the taxpayer as tainted with fraud.

Prima facie Evidence of a False or Fraudulent Return

A substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false a fraudulent return.
Failure to report sales, receipts or income in an amount exceeding 30% of that declared per return, and a claim of deductions in an amount exceeding 30% of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein.

C. Criminal Liability

Five years

from commission or discovery of the violation, whichever is later.

The cause of action for willful failure to pay deficiency tax occurs when the final notice and demand for the payment thereof is served on the taxpayer.
The five-year prescriptive period commences to run only after receipt of the final notice and demand and the taxpayer refuses to pay.
In case of a protested assessment, the five-year period starts from the receipt of the final notice and demand disposing of the protest.
As regards the filing of false and fraudulent returns, the crime can be considered "discovered" only after the commission and the nature and extent of the fraud have been definitely ascertained. Upon this point, Section 281 of the NIRC states:

All violations of any provision of this Code shall prescribe after five years.

Prescription shall begin to run from the day of the commission of the violation of the law, and if the same be not known at the time, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.

Lim, Sr. v. Court of Appeals, 190 SCRA 616

From the foregoing, the conjunctive word "and" connotes that in addition to the fact of discovery, there must be a judicial proceeding for investigation and punishment of the tax offense before the five-year limiting period begins to run. It would indeed seem that tax cases are practically imprescriptible for as long as the period for its investigation and punishment, up to the filing of the information in court does not exceed five years.

Previous assessment is not necessary before a criminal action may be filed against a taxpayer.
Gaw, Jr., v. CIR 873 SCRA 42:

The government can file a criminal case for tax evasion against any taxpayer who willfully attempts in any manner to evade or defeat any tax imposed in the Tax Code or the payment thereof.
The crime of tax evasion is committed by the mere fact that the taxpayer knowingly and willfully filed a fraudulent with intent to evade and defeat a part or all of the tax.
It is therefore not required t at a tax deficiency assessment must first be sued for a criminal prosecution for tax evasion to prosper.

Suspension of Prescriptive Periods

If before the expiration of the time prescribed for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax maybe assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.
Republic v. Acebedo, 22 SCRA 1356:

Note that the waiver must be executed within the three-year prescriptive period prescribed under Section 203, otherwise said waiver shall be ineffectual.

Alca v. Court of Tax Appeals, 26 SCRA 137:

A taxpayer's renunciation of the right to invoke prescription as a defense, although executed beyond the prescriptive period, is binding upon the taxpayer.

Appositely, the requisites for a valid waiver of the three-year prescriptive period for the BIR to assess taxes due in the taxable year are prescribed by Revenue Memorandum Order (RMO) No. 20-90:

The waiver must be in the proper form prescribed by RMO-20-90;
The waiver must be signed by the taxpayer himself or his duly authorized representative.

In the case of a corporation, the waiver must be signed by any of its responsible officers.
In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized;

The waiver should be duly notarized;
The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver.

The date of such acceptance by the BIR should be indicated.
However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative;

Both the date of execution by the taxpayer and date of acceptance by the Bureau 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;
The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver.

The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.

Under peculiar circumstances, non-compliance with the requisites for the validity of the waiver of the statute of limitations does not invalidate the Waivers

CIR v. Next Mobile, Inc., 776 SCRA 343, 361-363

The Supreme Court ruled that the Waivers are still valid even though they failed to conform to RMO 20-90 and RDAO 05-01, ratiocinating in this wise:

First, the parties in this case are in pari delicto or "in equal fault."

In pari delicto connotes that the two parties to a controversy are equally culpable or guilty and they shall have no action against each other. However, although the parties are in pari delicto, the Court may interfere and grant relief at the suit of one of them, where public policy requires its intervention, even though the result may be that a benefit will be derived by one party who is in equal guilt with the other.
Here, to uphold the validity of the Waivers would be consistent with the public policy embodied in the principle that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need. Taxes are the nation's lifeblood through which government agencies continue to operate and which the State discharges its functions for the welfare of its constituents.As between the parties, it would be more equitable if petitioner's lapses were allowed to pass and consequently uphold the Waivers in order to support this principle and public policy.

Second, the Court has repeatedly pronounced that parties must come to court with clean hands.

Parties who do not come to court with clean hands cannot be allowed to benefit from their own wrongdoing. Following the foregoing principle, respondent should not be allowed to benefit from the flaws in its own Waivers and successfully insist on their invalidity in order to evade its responsibility to pay taxes.

Third, respondent is estopped from questioning the validity of its Waivers.

While it is true that the Court has repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of limitations for assessment of taxes, the Court finds that the application of the doctrine is justified in this case. Verily, the application of estoppel in this case would promote the administration of the law, prevent injustice and avert the accomplishment of a wrong and undue advantage. Respondent executed five Waivers and delivered them to petitioner, one after the other. It allowed petitioner to rely on them and did not raise any objection against their validity until petitioner assessed taxes and penalties against it. Moreover, the application of estoppel is necessary to prevent the undue injury that the government would suffer because of the cancellation of petitioner's assessment of respondent's tax liabilities.

Finally, the Court cannot tolerate this highly suspicious situation.

In this case, the taxpayer, on the one hand, after voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On the other hand, the BIR miserably failed to exact from respondent compliance with its rules. The BIR's negligence in the performance of its duties was so gross that it amounted to malice and bad faith. Moreover, the BIR was so lax such that it seemed that it consented to the mistakes in the Waivers. Such a situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their responsibility to pay taxes by mere expedient of hiding behind technicalities.

It is true that petitioner was also at fault here because it was careless in complying with the requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the provisions imposing administrative liabilities upon the officers responsible for these errors.

The BIR's right to assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers, especially in cases like this where the taxpayer is obviously in bad faith.

The running of the prescriptive period on the making of an assessment and collection of taxes is likewise suspended:

When the Commissioner of Internal Revenue is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter, such as when there is a pending petition for review in the CTA from the decision on the protested assessment, the filing of such petition interrupts the running of the prescriptive period for collection.

But the filing of a criminal case against the taxpayer does not suspend the prescriptive period; the criminal actions for the tax violation is entirely separate and distinct from the civil action;

When the taxpayer requests for a reinvestigation which is granted by the Commissioner.

Generally, the prayer for reinvestigation must be favorably acted upon, but in one case, the Court's ruling was to the effect that the prescriptive period is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.

When the taxpayer cannot be located in the address given by him in the return;
When the warrant of distraint and levy is duly served and no property could be located;
When the taxpayer is out of the Philippines.

Prescription: Suspension of the Statutory Period for Collection

Republic v. Hizon 320 SCRA 574

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