Note: The questions were lifted from previous bar exam questions
TAX REMEDIES OF THE GOVERNMENT
1. Antonio Cruz was appointed by the Regional Trial Court as administrator in the testate proceedings for the settlement of the estate of his deceased father. On February 12, 1987, the Commissioner of Internal Revenue issued a deficiency estate tax assessment for the estate in question in the amount of Php2,816,514.60. The notice of deficiency assessment was received by the administrator on February 19, 1987, which was received by the latter’s office two days later, the administrator requested for reconsideration of the assessment on the ground that the same is contrary to law and is not supported by sufficient evidence. He also requested for a period of fifteen (15) days within which to submit the estate’s position paper.
On August 4, 1988, not having received the promised position paper, the Commissioner filed with the Court a motion for allowance of claim and for an order of payment of estate taxes, praying therein that the administrator be directed to pay the BIR the aforementioned deficiency tax. The administrator opposed the motion alleging that by reason of the pendency of his request for reconsideration, the deficiency assessment has not become final and executory and, therefore, the absence of a decision on the disputed assessment is a bar against the collection of taxes. He further argues that it is the Court of Tax Appeals and not the Regional Trial Court which has exclusive jurisdiction over the claim. Resolve the motion and the issues raised. (1991 Bar)
SUGGESTED ANSWER:
The contention of the Antonio Cruz that it is the Court of Tax Appeals that has jurisdiction over the collection of the estate’s deficiency taxes is unmeritorious. Nor is the filing of the motion for allowance of the claim or order of payment of estate deficiency tax correct. Marcos II vs. Court of Tax Appeals, et al. (G.R. No. 120880, 05 June 1997) has been clear to point out that the enforcement and collection of estate tax is executive in character and the task is especially ascribed to the Bureau of Internal Revenue. The approval of the Regional Trial Court, sitting in probate, is not a mandatory requirement for the collection of taxes.
Moreover, Cruz’s request for reconsideration is a mere pro forma request which does not toll the running of the prescriptive period. (Commissioner of Internal Revenue vs. Philippine Global Communication, Inc., G.R. No. 167146, 31 October 2006) However, without a proper final assessment notice, the collection against the estate of the deceased.
As decided in Atlas Consolidated Mining and Development Corporation vs. Court of Appeals (242 SCRA 289), assessments are prima facie presumed correct and made in good faith. It is the taxpayer and not the BIR who has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed
2. What are the remedies under the National Internal Revenue Code (NIRC) for the collection of delinquent internal revenue taxes?
SUGGESTED ANSWER:
Government remedies for the collection of internal revenue taxes imposed under the NIRC is classified under judicial remedies and administrative remedies. Under judicial remedies are: (a.) criminal proceedings through criminal actions (Section 205[b]); and (b.) civil proceedings through civil actions (Section 228).
On the other hand, the following are available under administrative remedies:
- enforcement of tax lien (Section 219);
- the power of the Commissioner of Internal Revenue to compromise (Section 204[a]);
- distraint on personal property, either actual or constructive (Sections 206 and 207);
- levy on real estate (Section 207[b]);
- enforcement of forfeiture of real and personal properties (Section 224);
- the giving of rewards to informers who give information as to violations of tax laws (Section 282);
- deportation of aliens who violate any tax legislation in the Philippines;
- fixing of performance bond to assure compliance of certain tax laws or regulations; and
- surcharges or penalties for the payment of tax.
3. ABI, a duly registered non-stock private educational institution received a final notice of assessment from the Commissioner of Internal Revenue ordering it to pay deficiency income taxes amounting to Php1,000,000. The aforesaid assessment erroneously classified AVI as a domestic company engaged in trade or business subject to the regular tax of 35% of net income, whereas non-stock private educational institutions like ABI are subject only to 10% tax. Sensing that a great injustice would result in the erroneous classification, counsel for ABI filed an injunction with the local Regional Trial Court praying, among others, to stop the BIR from enforcing the assessment. Will the injunction prosper? (1988 Bar)
SUGGESTED ANSWER:
NO. The injunction filed will not prosper. By express provision of Section 218 of the 1997 NIRC, no court shall have the authority to grant injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the NIRC. Income taxes that are being collected from ABI fall squarely under the ambit of the NIRC. The only exception to this “no injunction rule” is stated under R.A. 1125, as amended by R.A. 9282, that is, when upon appeal of the taxpayer of the Commissioner of Internal Revenue’s decision to the Court of Tax Appeals, the latter court is of the opinion that the collection of the tax will jeopardise the interest of the Government and/or the taxpayer. Further, the taxpayer must either deposit the amount claimed or file a surety bond for not more than double the amount claimed.
SUGGESTED ANSWER:
A compromise penalty could not be imposed by the BIR without the agreement and conformity of the taxpayer. (Philippine International Fair, Inc. v. Collector of Customs) Under Section 204[a] of the 1997 NIRC, the Commissioner of Internal Revenue may compromise taxes under the following circumstances:
- when a reasonable doubt as to the validity of the claim against the taxpayer exists, provided that the minimum compromise entered into is equivalent to 40% of the basic tax; and
- when the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax, provided that the minimum compromise entered into is equivalent to 10% of the basic tax.
In the above instances, the Commissioner is allowed to enter into a compromise only if the basic tax involved does not exceed one million pesos (Php1,000,000.00), and the settlement offered is not less than the prescribed percentages. Additionally, it should be noted that all criminal violations may be compromised except those already filed in court and those involving fraud.
On the other hand, Section 204[b] of the same Code provides for the grounds in which abatement is authorized, to wit:
- when the tax or any portion thereof appears to be unjustly or excessively assessed; or
- when the administration and collection costs involved to not justify the collection of the amount due.
5. R.A. 1125 grants the Court of Tax Appeals the authority to issue an injunction to restrain the collection of internal revenue taxes while taxpayer’s appeal is pending before said court. What statutory requisites should be complied with by the taxpayer before the tax court may grant the injunction? Explain.
SUGGESTED ANSWER:
Under Section 11 of R.A. 1125, as amended by R.A. 9282, the taxpayer must be able to induce the opinion of the Court of Tax Appeals that:
- the collection of the tax would jeopardise the government; or
- the collection of the tax would jeopardise the taxpayer.
Moreover, the taxpayer shall be required to deposit the amount claimed or to file a surety bond for not more than double the amount with the court. Finally, as the Rules of Court applies suppletorily to the Rules of the Court of Tax Appeals, the manner of applying for an injunction under Rule 58 of the Rules of Court should be complied with.
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