Tax Remedies

Notes in Tax Remedies
February 24, 2009

PRE-ASSESSMENT NOTICE impt!!!

A pre-assessment notice is served by the Government upon the taxpayer under any of the following circumstances:
1. if the taxpayer fails to file a return where return is required; 
2. if he files a return but fails to pay the tax;
3. if he files a return and pays the tax, but payment is insufficient because certain deductions claimed are disallowed by the BIR.

After the taxpayer’s receipt of the pre-assessment notice, any of the following situations can take place:
1. taxpayer accepts liability and pays the tax as appearing on the pre-assessment notice;
2. taxpayer disagrees with the pre-assessment notice and responds by explaining that he is not liable;
3. taxpayer pays the tax and later on files a written claim for refund;
4. taxpayers enters into a compromise agreement with the BIR;
5. taxpayer ignores the pre-assessment notice.

The tax code states that the period to respond shall be prescribed by implementing rules and regulations. If the taxpayer fails to respond within such period (30 days), a final assessment shall issue. 

ORDINARY PERIOD FOR ASSESSMENT

The right of the government to asses and later on to collect the tax is subject to prescription, upon the lapse of which it can no longer exercise this right. 

Section 203, of the tax code provides that internal revenue taxes shall be assessed within 3 years after the last day prescribed by law for the filing of the return. The same provision of law lays down the rules as to when the 3 year prescriptive period for assessment begins:

1. if the return is filed before the last day prescribed by law for the filing thereof, it shall be considered as filed on the last day; 
2. if the return is filed on the last day prescribed by law, then it is considered as filed on such day;
3. if the return is filed beyond the period prescribed by law, the 3 year period shall be counted from the day the return is filed.

So it is clear, that the reckoning point for the 3 year prescriptive period is flexible; if the return is filed on or before the deadline, the reckoning point is the deadline; if filed beyond the deadline, the reckoning point is the date the return is actually filed. The 3 year period for assessment begins to run from such a date.

FINAL ASSESSMENT...IMPT!

A final assessment issues:
1. if the taxpayer, having received a pre-assessment notice fails to respond within the period provided for by the rules and regulations;
2. under the 5 circumstances enumerated under section 228 of the tax code where pre-assessment notice is not necessary

Section 228. enumerates the exceptional circumstances where a pre-assessment notice is not necessary:  IMPT!!!

1. when the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return;
2. when a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or
3. when a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year;
4. when the excise tax due on excisable articles has not been paid, or 
5. when an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded, or transferred to non-exempt persons.

Under the foregoing circumstances, the taxpayer shall immediately receive a final assessment without the benefit of pre-assessment notice.


REMEDIES AVAILABLE TO THE GOVERNMENT IN THE COLLECTION OF THE INCOME TAX...VERY IMPT!!

1. ADMINISTRATIVE
a. Distraint of personal property;
b. Levy of personal property
c. Enforcement of forfeiture of property
d. Enforcement of tax lien
e. Requiring the filing of bonds
f. Requiring proof of filing income tax returns
g. Deportation of aliens
h. Inspection of books of accounts.  

2. JUDICIAL
a. ordinary civil action
b. criminal action


DISTRAINT- seizure by the government of personal property, tangible or intangible, to enforce the payment of taxes to be followed by its public sale if the taxes are not voluntarily paid.

Kinds of Distraint
a. Actual- there is taking of possession of the personal property out of the taxpayer into that of the government; 
b. Constructive- the owner is merely prohibited from disposing of his property.

LEVY- A summary administrative remedy, seizure of real property to enforce payment of taxes.

A written notice of levy, containing a description of the property upon which levy is made, the name of the taxpayer and the amounts of the tax and penalty due from them is served upon the taxpayer.

FORFEITURE- a divestiture of property without compensation, in consequence of a default or offense. In case of chattels and removal of fixtures of any sort, forfeiture is enforced by seizure and sale or destruction of the specific forfeited property. The forfeiture of real property is enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.

TAX LIEN- a legal claim or charge on property either real or personal established by law as a security in default of the payment of taxes. The tax, together with interest, penalties and cost that may accrue in addition thereto is a lien upon all property and rights to property belonging to the taxpayer. The lien however, shall not be valid against any mortgagee, purchaser or judgment creditor until legal notice of such liens should be filed by the Commissioner of internal revenue in the Office of the Register of Deeds of the province or city where the property of the taxpayer is located. The lien attaches when the taxpayer neglects or refuses to pay the tax after demand, but relates back from the time when assessment was made by the Commissioner. 

REQUIRING THE FILING OF BONDS- Filing of performance bond to secure the payment of taxes or compliance with certain provisions of tax laws and regulations. This may be required by the BIR for the issuance of a tax clearance.

REQUIRING PROOF OF FILING INCOME TAX RETURNS. – Before a license to engage in trade or business or occupation or to practice a profession can be issued to a person, partnership, association or corporation, he must submit to the officer issuing such license or permit, proof that he has filed his income tax return during the preceding year and that income taxes due have been paid thereon.

DEPORTATION OF ALIENS- any alien who 
1. knowingly and fraudulently evades the payment of any internal revenue tax or 
2. willfully refuses to pay such tax and its accessory penalties after the decision on the tax liability rendered by the Commissioner of Internal Revenue, or the CTA or any competent judicial tribunal shall have become final and executor, is subject to deportation. The penalty of deportation is not a bar to any proceeding taken by the government to enforce collection of tax delinquency.

INSPECTION OF BOOKS OF ACCOUNTS

JUDICIAL ACTION
1. Civil Action- After the assessment made by the Commissioner of Internal Revenue has become final and executory for failure of the taxpayer to dispute the same and appeal the disputed assessment to the Court of Tax Appeals, the government may institute civil actions to collect internal revenue taxes in the Regional Trial Court and the Metropolitan Trial Court, City and municipal courts. 

2. Criminal Action- maybe pursued by the authorities for the collection of delinquent taxes. An assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion. The crime is complete when the violator has knowingly and willfully filed a fraudulent return or neglected to file a return with intent to evade the tax. If the taxpayer is acquitted, the government may still collect the tax in a civil action, because the payment of a tax is an obligation imposed by statute and does not arise from a criminal act.


Prescriptive period for collection.

Where an assessment was made, the period for collection by judicial action or by distraint or levy is within 3 years after the date of assessment. Where no assessment was made and a return was filed, and the same is not false or fraudulent, the period for collection by a proceeding in court is within 3 years after the return was due or filed whichever is later, except:

Where a return required to be filed was not filed, or even if filed the same is false or fraudulent, and made with the intent to evade the tax, the period is ten years after discovery of the omission to file the return or from the discovery of the falsity or fraud. The other exception relative to the prescriptive periods for assessment are also applicable. 

Where the government makes another assessment on the basis of a reinvestigation requested by the taxpayer, or a revised assessment because of an amended return or as a result of a reinvestigation asked for by the taxpayer, the period is counted from the last assessment or the last revised assessment. 

Where the action is brought to enforce a compromise agreement into between the commissioner and the taxpayer, the prescriptive period is ten years from the time the cause of action accrues as fixed in the civil code.

The running of the statute of limitation on the making of an assessment, the beginning of distraint or levy or any proceeding in court for collection is suspended: IMPT!!!!!

1. for the period during which the Commissioner of Internal Revenue is prohibited from making tax assessment or beginning the distraint or levy or any proceeding in court and for sixty days thereafter; 

2. when the taxpayer requests for a reinvestigation which is granted by the commissioner;

3. when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected, unless the taxpayer informs the Commissioner of any change in address;

4. when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or with a member of his household with sufficient discretion and no property could be located; and

5. When the taxpayer is out of the Philippines.