Digested Cases in Taxation (on Assessment, Levy and Distraint, and Statute of Limitations)

CIR vs. CA, Atlas Consolidated
242 SCRA 289
GR No. 104151 March 10, 1995
"Assessments are prima facie presumed correct and made in good faith. So that, in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed."

 

FACTS: The Commissioner of Internal Revenue served two notices and demand for payment of the respective deficiency ad valorem and buiness taxes for taxable years 1975 and 1976 against the respondent Atlas Consolidated Mining and Development Corporation (ACMDC). The latter protested both assessments but the same were denied, hence it filed two separate petitions for review in the Court of Tax Appeals. The CTA rendered a consolidated decision holding, inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for 1975 and 1976 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral, the refining and smelting charges should be deducted, in addition to freight and insurance charges.
    However, the tax court held ACMDC liable for the amount consisting of 25% surcharge for late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax and such contractor's tax for leasing out of its personal properties. ACDMC elevated the matter to the Supreme Court claiming that the leasing out was a mere isolated transaction, hence should not be subjected to contractor's tax.

 

ISSUE: Is the claim of the private respondent, with respect to the contractor's tax, impressed with merit?

 

HELD: No. It is being held that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of the tax code. However such conclusion cannot be made with respect to the contractor's tax being imposed on ACMDC. It 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, motor boat 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 during the period there were profits earned and reported therefor. The allegation of ACMDC that it did not realize any profit from the leasing out of its said personal properties, since its income therefrom covered only the costs of operation such as salaries and fuel, is not supported by any documentary or substantial evidence.
    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. All presumptions are in favor of tax assessments. Verily, failure to present proof of error in assessments will justify judicial affirmance of said assessment.

REPUBLIC vs. CA, and NIELSON & CO.,INC.
149 SCRA 351
GR No. L-38540 April 30, 1987
"The follow-up letter reiterating demand for payment could be considered a notice of assessment in itself if duly received by the taxpayer."

 

FACTS: The petitioner sought the review on certiorari of the decision of the respondent Court of Appeals reversing the decision of the then Court of First Instance of Manila which ordered private respondent Nielson & Co., Inc. to pay the Government the amount of P11,496.00 as ad valorem tax, occupation fees, additional residence tax and 25% surcharge for late payment, for the years 1949 to 1952. Petitioner claims that the demand letter of 16 July 1955 showed an imprint indicating that the original thereof was released and mailed on 4 August 1955 by the Chief, Records Section of the Bureau of Internal Revenue, and that the original letter was not returned to said Bureau; thus, said demand letter must be considered to have been received by the private respondent. According to petitioner, if service is made by ordinary mail, unless the actual date of receipt is shown, service is deemed complete and effective upon the expiration of five (5) days after mailing. As the letter of demand dated 16 July 1955 was actually mailed to private respondent, there arises the presumption that the letter was received by private respondent in the absence of evidence to the contrary. More so, where private respondent did not offer any evidence, except the self-serving testimony of its witness, that it had not received the original copy of the demand letter dated 16 July 1955.

 

ISSUE: Was notice of assessment or demand properly served to the respondent? Should the receipt by the respondent of the succeeding follow-up demand notices be construed as receipt of the original demand?

 

HELD: As to the first issue, no. As correctly observed by the respondent court in its appealed decision, while the contention of petitioner 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 controversion, 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. Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16 July 1955, it can not be assumed that private respondent received said letter.       As to the second issue, Yes. Records show that petitioner wrote private respondent a follow-up letter dated 19 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. And consequently, under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within thirty (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.

COLLECTOR OF INTERNAL REVENUE vs. VDA. DE CODIÑERA
102 PHIL 1165
GR No. L-9675, September 28, 1957
"The property levied by a competent court may, with the consent thereof, be distrained, subject to the prior lien of the attachment creditor."

 

FACTS: The Collector of Internal Revenue sent a warrant of distraint and levy against the properties of Restituto Codiñera for collection of certain deficiency specific tax. However, it could not be effected in view of the attachment of the said properties of the CFI-Manila of another case. After seven years, the Collector of Internal Revenue issued a warrant of distraint and levy commanding the City Treasurer of Cebu City to distrain the goods, chattels, or effects and other personal property of whatever character, and levy upon the real property and interest in or rights to real property of the estate of the deceased. The heirs of the deceased filed the action with the CTA barring the government to collect said deficiency on the ground of prescription therefore praying to declare null and void, and of no legal force and effect the warrant of distraint and levy which the respondent issued on March 7, 1955.

 

ISSUE: Does the attachment made by a court in a civil case over certain properties of a taxpayer bar the government from enforcing a warrant of distraint and levy over the aforesaid properties in order to collect the taxes due?

 

HELD: No. There may be a valid reason for non-distraint of the property which was due to the attachment of the CFI-Manila in another case. However, such property levied by 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 the power to divest the Court of its jurisdiction over said property but it does not impair such rights as the Government may have for the collection of taxes.

 

CABRERA vs. THE PROVINCIAL TREASURER OF TAYABAS
GR No. 502, January 29, 1946
"The taxpayer should at least be apprised of the exact date of the proceeding by which she is to lose her property. Failure of the taxpayer to accordingly correct or change name in the assessment record cannot supplant such absence of notice."

 

FACTS: The Provincial Treasurer of Tayabas issued a notice for the sale at public auction of the real properties of Nemesio Cabrera forfeited for tax delinquency on December 15, 1940. The letter sent to Nemesio Cabrera was returned marked “Unclaimed” for the latter was already dead in 1935. The land was actually sold in a rescheduled public auction sale on May 1941 to Catigbac and was finalized in May 1942. Basilia Cabrera, the registered owner of the land subject to attachment, filed a complaint with the CFI-Tayabas against the Provincial Treasurer and Catigbac attacking the validity of the sale on the grounds that she was not notified, even though the property had remained in the assessment book in the name of Nemesio Cabrera, because she became the registered owner thereof since 1934 when a Torrens Title was issued to her by the Register of Deeds of Tayabas.

 

ISSUE: Is there a need for new notices if the land was not sold on the date specified in the previous notice?

 

HELD: Yes. Under the law, even if the notice state that the sale would take place on a specified date and every day thereafter, it is a general and indefinite notice. In order to protect the taxpayer’s rights, the taxpayer should at least be apprised of the exact date of the proceeding by which she is to lose her property. Besides, the appellee admittedly being not notified also vitiates the proceeding. She is the registered owner of the land and had become liable for taxes thereon. For all purposes, she is the delinquent taxpayer "against whom the taxes were assessed." It cannot be Nemesio for the latter's obligation to pay ended where Basilia's liability began.
   Basilia may be criticized for failure to have changed the name in the assessment record. However, such circumstance, nevertheless, cannot supplant the absence of notice.

 

MAMBULAO LUMBER CO. vs. REPUBLIC
132 SCRA 1
GR No. L-37061, September 5, 1984
"Forest charges are internal revenue taxes and the BIR has the sole power and duty to collect them. Thus, an assessment made by the Bureau of Forestry cannot be considered an assessment made by the BIR."

 

FACTS: The Bureau of Forestry sent a demand letter dated January 15, 1949 to Mambulao Lumber Co. demanding for the payment of forest charges and surcharges. Mambulao protested the assessment. On August 29,1958, the BIR likewise wrote a letter to the company demanding payment, which subsequently requested reinvestigation. The BIR gave the company twenty (20) days from receipt within which to submit the results of its verification of payments. For failure to comply and failure to pay its tax liability despite demands, CIR filed a complaint for collection with CFI-Manila on August 25, 1961. The CFI-Manila and Court of Appeals decided against Mambulao ordering it to pay the tax liability. Petitioner argued that the collection is barred by the statute of limitations under Sections 332 of the NIRC. As stated, the collection should be made within the five (5) year period. From 1949 (date when the Bureau of Forestry assessed and demand payment as forestry charges and surcharges) up to 1961 (date of filing of complaint), it is already more than five years.

 

ISSUE: Has the period of filing of collection complaint prescribed?

 

HELD: No. The action for collection is not barred by prescription. The basis of the complaint filed on August 1961 was the demand letter made by the CIR on August 29, 1958 and not the demand letter of the Bureau of Forestry on January 1949. So that the reckoning date of the 5-year period should be from the date of the BIR letter and not that of the Bureau of Forestry. This must be so because forest charges are internal revenue taxes and the BIR has the sole power and duty to collect them.

FERNANDOS HERMANOS, INC. vs. COMMISSIONER
29 SCRA 552
GR No. No. L-21551, September 30, 1969
"The filing of an answer to taxpayer's petition for review is considered as institution of judicial action."

 

FACTS: The Commissioner of Internal Revenue assessed the petitioner investment corporation of deficiency income taxes for the years 1950 to 1954 and for 1957. There were two conflicting dates of assessment, which are vital to the compliance with the statute of limitations, based on each claim of the petitioner and the respondent; the Commisioner's record of date of assesment is February 27, 1956 while the petitioner believes the demand was made on December 27, 1955 so that, as the petitioner corporation claims, the Commissioner's action to recover its tax liability should be deemed to have prescribed for failure on the part of the Commissioner to file a complaint for collection against it in an appropriate civil action.

 

ISSUE: Has the action for collection prescribed?

 

HELD: No. It has been held that "a judicial action for the collection of a tax is begun by the filing of a complaint with the proper court of first instance, or where the assessment is appealed to the Court of Tax Appeals, by filing an answer to the taxpayer's petition for review wherein payment of the tax is prayed for." This is but logical for where the taxpayer avails of the right to appeal the tax assessment to the Court of Tax Appeals, the said Court is vested with the authority to pronounce judgment as to the taxpayer's liability to the exclusion of any other court. In the present case, regardless of whether the assessments were made on February 24 and 27, 1956, as claimed by the Commissioner, or on December 27, 1955 as claimed by the taxpayer, the government's right to collect the taxes due has clearly not prescribed, as the taxpayer's appeal or petition for review was filed with the Tax Court on May 4, 1960, with the Commissioner filing on May 20, 1960 his Answer with a prayer for payment of the taxes due, long before the expiration of the five-year period to effect collection by judicial action counted from the date of assessment.

 

REPUBLIC vs. ARANETA
2 SCRA 144
GR No. L-14142, May 30, 1961
"Where the tax obligation is secured by a bond, the prescriptive period for the action for the forfeiture of the bond is governed by the Civil Code."

 

FACTS: The Solicitor General, in behalf of the Republic of the Philippines, filed before CFI of Manila an action against the defendant Araneta, as principals, and Manila Surety, as surety, to recover the internal revenue taxes including surcharges, the payment of which was guaranteed by a bond executed when the first extrajudicial demand for payment was made. The appellant-taxpayers contend that the appellee's cause of action has prescribed, because the action for recovery of internal revenue taxes and surcharge due brought on 22 February 1957, was not commenced within the period of five years after the assessment dated 15 May 1948 had been made, as provided for in Section 331 of the Tax Code.

 

ISSUE: Has the action to recover the taxes due from the taxpayer and the surety already prescribed?

 

HELD: No. The appellant-taxpayers cannot invoke prescription under the provisions of Section 331 of the NIRC because the government is suing on the bond executed and filed by them to guarantee payment in 6 monthly installments of the tax liability due from 1946 to 1948, which is a separate and distinct obligation of the parties thereto. The action to enforce the obligation on the bond executed on March 18, 1949, having been filed in court on February 22, 1957, was within the 10-year prescriptive period to enforce a written contractual obligation, as set by the Civil Code.

 

MARCOS II vs. CA
273 SCRA 47
GR No. 120880, June 5, 1997
"The approval of the court sitting in probate is not a mandatory requirement in the collection of estate taxes."
"In case of failure to file a return, the tax may be assessed at anytime within 10 years after the omission."

 

FACTS: Bongbong Marcos sought for the reversal of the ruling of the Court of Appeals to grant CIR's petition to levy the properties of the late Pres. Marcos to cover the payment of his tax delinquencies during the period of his exile in the US. The Marcos family was assessed by the BIR after it failed to file estate tax returns. However the assessment were not protested administratively by Mrs. Marcos and the heirs of the late president so that they became final and unappealable after the period for filing of opposition has prescribed. Marcos contends that the properties could not be levied to cover the tax dues because they are still pending probate with the court, and settlement of tax deficiencies could not be had, unless there is an order by the probate court or until the probate proceedings are terminated.
    Petitioner also pointed out that applying Memorandum Circular No. 38-68, the BIR's Notices of Levy on the Marcos properties were issued beyond the allowed period, and are therefore null and void.

 

ISSUE: Are the contentions of Bongbong Marcos correct?

 

HELD: No. The deficiency income tax assessments and estate tax assessment are already final and unappealable -and-the subsequent levy of real properties is a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and is not affected or precluded by the pendency of any other tax remedies instituted by the government.
  The approval of the court, sitting in probate, or as a settlement tribunal over the deceased's estate is not a mandatory requirement in the collection of estate taxes. On the contrary, under Section 87 of the NIRC, it is the probate or settlement court which is bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid. This provision disproves the petitioner's contention that it is the probate court which approves the assessment and collection of the estate tax.
   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 Sec.223 of the NIRC, 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 3 years (now 5 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 no reason why the BIR cannot continue with the collection of the said tax.

REPUBLIC vs. HIZON
320 SCRA 574
GR No. 130430, December 13, 1999
"A request for reconsideration of the tax assessment does not effectively suspend the running of the precriptive period if the same is filed after the assessment had become final and unappealable."

 

FACTS: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner BIR, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties.
    More than three years later, the respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the RTC to collect the tax deficiency. Hizon moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by Sec. 221 of the NIRC, and (2) that the action had already prescribed. Over petitioner's objection, the trial court granted the motion and dismissed the complaint.
    BIR on the other hand contends that respondent's request for reinvestigation of her tax deficiency assessment on November 1992 effectively suspended the running of the period of prescription.

 

ISSUE: Has the action for collection of the tax prescribed?

 

HELD: Yes. Sec. 229 of the NIRC mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under Sec. 223(c). Although the Commissioner acted on her request by eventually denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable.

CIR vs. VILLA
22 SCRA 3
GR No. L-23988, January 2, 1968
"What may be the subject of a judicial review is the decision of the Commissioner on the protest against assessment, not the assessment itself."

 

FACTS: The spouses Villa filed joint income tax returns for the years 1951 to 1956. The BIR issued assessments for deficiency of income tax for the said years. Without contesting the said assessments with the CIR, they filed a petition for review with the CTA. The CTA took cognizance of the of the appeal and rendered favorable judgment to the spouses. The CIR appealed to the SC questioning the jurisdiction of the CTA.

 

ISSUE: Is an appeal to the CTA proper in this case? Is the CTA vested with jurisdiction?

 

HELD: No. The rule is that where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment.  Since in the instant case the taxpayer appealed the assessment of the Commissioner of Internal Revenue without previously contesting the same, the appeal was premature and the Court of Tax Appeals had no jurisdiction to entertain said appeal. For, as stated, the jurisdiction of the Tax Court is to review by appeal decisions of Internal Revenue on disputed assessments. The Tax Court is a court of special jurisdiction. As such, it can take cognizance only of such matters as are clearly within its jurisdiction.

Word of the Week

"The letter killeth, but the spirit giveth life."

 

The quote from 2 Corinthians 3:6 if taken scholarly would normally be understood as referring to the way scriptures, canons, and statutes are to be read, interpreted and explained.

 

Literally, this "word," the "word of the week," its letters as well as its spirit does not only kill, does not only claim life, but burry you deep underground. Alas, this has been killing me softly, and its spirit has been diggin' my grave. This has been a habit and i want it out as badly as i want it to be. hahayzz..

 

The work files up, the opportunities have been pounding doors, but as usual, the very last minute of the day is the sweetest time to move your hands and swiftly grind away the heap.

 

Dictionary.com defines the "word" as brief as this..

pro·cras·ti·na·tion

  /proʊˌkræstəˈneɪʃən, prə‐/ Show Spelled[proh-kras-tuh-ney-shuhn, pruh‐]  (noun) - the act or habit of procrastinating, or putting off or delaying, especially something requiring immediate attention: She was smart, but her constant procrastination led her to be late with almost every assignment.

  

Meanwhile, wikipedia defines it this way...

 

In psychology, procrastination refers to the act of replacing high-priority actions with tasks of lower priority, or doing something from which one derives enjoyment, and thus putting off important tasks to a later time. In accordance with Freud, the Pleasure principle may be responsible for procrastination; humans do not prefer negative emotions, and handing off a stressful task until a further date is enjoyable. The concept that humans work best under pressure provides additional enjoyment and motivation to postponing a task. Some psychologists cite such behavior as a mechanism for coping with the anxiety associated with starting or completing any task or decision. Other psychologists indicate that anxiety is just as likely to get people to start working early as late and the focus should be impulsiveness. That is, anxiety will cause people to delay only if they are impulsive.

Schraw, Wadkins, and Olafson have proposed three criteria for a behavior to be classified as procrastination: it must be counterproductive, needless, and delaying. Similarly, Steel (2007) reviews all previous attempts to define procrastination, indicating it is "to voluntarily delay an intended course of action despite expecting to be worse off for the delay."

Procrastination may result in stress, a sense of guilt and crisis, severe loss of personal productivity, as well as social disapproval for not meeting responsibilities or commitments. These feelings combined may promote further procrastination. While it is regarded as normal for people to procrastinate to some degree, it becomes a problem when it impedes normal functioning. Chronic procrastination may be a sign of an underlying psychological disorder. Such procrastinators may have difficulty seeking support due to social stigma and the belief that task-aversion is caused by laziness, low willpower or low ambition.

 

Luckily for me, this has been working for quite some time, with of course some few good results. But i know this is wrong, and bad, and ugly.. and this should be arrested, and killed, and burried, and forgotten...
 

 

Digested Cases in Taxation (on criminal prosecution and taxpayers' suits)

UNGAB vs. CUSI

97 SCRA 877
GR No. L-41919-24 May 30, 1980
"An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade the income tax."

FACTS: The BIR filed six criminal charges against Quirico Ungab, a banana saplings producer, for allegedly evading payment of taxes and other violations of the NIRC. Ungab, subsequently filed a motion to quash on the ground that (1) the information are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2)that the trial court has no jurisdiction to take cognizance of the case in view of his pending protest against the assessment made by the BIR examiner. The trial court denied the motion prompting the petitioner to file a petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the information filed.

ISSUE: Is the contention that the criminal prosecution is premature since the CIR has not yet resolved the protest against the tax assessment tenable?

HELD: No. 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 violations of the National Internal Revenue Code which is within the cognizance of courts 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.
   An assessment of a deficiency is not necessary to a criminal prosecution for wilful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and wilfully 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.

 

CIR vs. CA
257 SCRA 200
GR No. 119322 June 4, 1996
"Before one is prosecuted for willful attempt to evade or defeat any tax, the fact that a tax is due must first be proved."

FACTS: The CIR assessed Fortune Tobacco Corp for 7.6 Billion Pesos representing deficiency income, ad valorem and value-added taxes for the year 1992 to which Fortune moved for reconsideration of the assessments. Later, the CIR filed a complaint with the Department of Justice against the respondent Fortune, its corporate officers, nine (9) other corporations and their respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune of the correct amount of taxes, alleging among others the fraudulent scheme of making simulated sales to fictitious buyers declaring lower wholesale prices, as allegedly shown by the great disparity on the declared wholesale prices registered in the "Daily Manufacturer's Sworn Statements" submitted by the respondents to the BIR. Such documents when requested by the court were not however presented by the BIR, prompting the trial court to grant the prayer for preliminary injuction sought by the respondent upon the reason that tax liabiliity must be duly proven before any criminal prosecution be had. The petitioner relying on the Ungab Doctrine sought the lifting of the writ of preliminary mandatory injuction issued by the trial court.

ISSUE: Whose contention is correct?

HELD: In view of the foregoing reasons, misplaced is the petitioners' thesis citing Ungab v. Cusi, that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to criminal prosecution, and that while a precise computation and assessment is required for a civil action to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to criminal prosecution.

    Reading Ungab carefully, the pronouncement therein that deficiency assessment is not necessary prior to prosecution is pointedly and deliberately qualified by the Court with following statement quoted from Guzik v. U.S.: "The crime is complete when the violator has knowingly and wilfully filed a fraudulent return with intent to evade and defeat a part or all of the tax." In plain words, for criminal prosecution to proceed before assessment, there must be a prima facie showing of a wilful attempt to evade taxes. There was a wilful attempt to evade tax in Ungab because of the taxpayer's failure to declare in his income tax return "his income derived from banana sapplings." In the mind of the trial court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not fraudulent and unless and until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a whale of difference between Ungab and the case at bar.

 

CIR vs. PASCOR
309 SCRA 402
GR No. 128315 June 29, 1999
 "An assessment is not necessary before a criminal charge can be filed."

FACTS: The BIR examined the books of account of Pascor Realty and Devt Corp for years 1986, 1987 and 1988, from which a tax liability of 10.5 Million Pesos was found. Based on the recommendations of the examiners, the CIR filed an information with the DOJ for tax evasion against the officers of Pascor. Upon receipt of the subpoena, the latter filed an urgent request for reconsideration/reinvestigation with the CIR, which was immediately denied upon the ground that no formal assessment has yet been issued by the Commisioner. Pascor elevated the CIR's decision to the CTA on a petition for review. The CIR filed a Motion to Dismiss on the ground of lack of jurisdiction of CTA as there was no formal assessment made against the respondents. The CTA dismissed the motion, hence this petition.

ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?

HELD: No. Section 222 of the NIRC states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an 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.

MACEDA vs. MACARAIG, JR.
197 SCRA 771
GR No. 88291 May 31, 1991
"A taxpayer may question the legality of a law or regulation when it involves illegal expenditure of public money."

FACTS: Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary, Secretary of Finance, Commissioner of Internal Revenue, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power Corporation (NPC) from indirect tax and duties. RA 358, RA 6395 and PD 380 expressly grant NPC exemptions from all taxes whether direct or indirect. In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs including the NPC but granted the President and/or the Secretary of Finance by recommendation of the FIRB the power to restore certain tax exemptions. Pursuant to the latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the NPC. The actions of the respondents were thus questioned by the petitioner by this petition for certiorari, prohibition and mandamus with prayer for a writ of preliminary injunction and/or restraining order. To which public respondents argued, among others, that petitioner does not have the standing to challenge the questioned orders and resolution because he was not in any way affected by such grant of tax exemptions.

ISSUE: Has a taxpayer the capacity to question the legality of the resolution issued by the FIRB restoring the tax exemptions?

HELD: Yes. In this petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the Philippines." Public respondent argues that petitioner must show that he has sustained direct injury as a result of the action and that it is not sufficient for him to have a mere general interest common to all members of the public. The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada when it involves illegal expenditure of public money. The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.

GONZALES vs. MARCOS
65 SCRA 624
GR No. L-31685 July 31, 1975
"With the absence of any pecuniary or monetary interest owing from the public, a taxpayer may not have the right to question the legality of an issuance creating a trust for the benefit of the people but purely funded by charity."

FACTS: The petitioner questioned the validity of EO No. 30 creating the Cultural Center of the Philippines, having as its estate the real and personal property vested in it as well as donations received, financial commitments that could thereafter be collected, and gifts that may be forthcoming in the future. It was likewise alleged that the Board of Trustees did accept donations from the private sector and did secure from the Chemical Bank of New York a loan of $5 million guaranteed by the National Investment & Development Corporation as well as $3.5 Million received from President Johnson of the United States in the concept of war damage funds, all intended for the construction of the Cultural Center building estimated to cost P48 million. The petition was denied by the trial court arguing that with not a single centavo raised by taxation, and the absence of any pecuniary or monetary interest of petitioner that could in any wise be prejudiced distinct from those of the general public.

ISSUE: Has a taxpayer the capacity to question the validity of the issuance in this case?

HELD: No. It was therein pointed out as "one more valid reason" why such an outcome was unavoidable that "the funds administered by the President of the Philippines came from donations [and] contributions [not] by taxation." Accordingly, there was that absence of the "requisite pecuniary or monetary interest." The stand of the lower court finds support in judicial precedents. This is not to retreat from the liberal approach followed in Pascual v. Secretary of Public Works, foreshadowed by People v. Vera, where the doctrine of standing was first fully discussed. It is only to make clear that petitioner, judged by orthodox legal learning, has not satisfied the elemental requisite for a taxpayer's suit. Moreover, even on the assumption that public funds raised by taxation were involved, it does not necessarily follow that such kind of an action to assail the validity of a legislative or executive act has to be passed upon. This Court, as held in the recent case of Tan v. Macapagal, "is not devoid of discretion as to whether or not it should be entertained." The lower court thus did not err in so viewing the situation.

ABAYA vs. EBDANE, JR.
515 SCRA 720
GR No. 167919,  February 14, 2007
"A taxpayer need not be a party to the contract to challenge its validity."

FACTS: The petitioners, Plaridel M. Abaya who claims that he filed the instant petition as a taxpayer, former lawmaker, and a Filipino citizen, and Plaridel C. Garcia likewise claiming that he filed the suit as a taxpayer, former military officer, and a Filipino citizen, mainly seek to nullify a DPWH resolution which recommended the award to private respondent China Road & Bridge Corporation of the contract for the implementation of the civil works known as Contract Package No. I (CP I). They also seek to annul the contract of agreement subsequently entered into by and between the DPWH and private respondent China Road & Bridge Corporation pursuant to the said resolution.

ISSUE: Has petitioners the legal standing to file the instant case against the government?

HELD: Petitioners, as taxpayers, possess locus standi to file the present suit. Briefly stated, locus standi is a right of appearance in a court of justice on a given question. More particularly, it is a party’s personal and substantial interest in a case such that he has sustained or will sustain direct injury as a result of the governmental act being challenged.  Locus standi, however, is merely a matter of procedure and it has been recognized that in some cases, suits are not brought by parties who have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest. Consequently, the Court, in a catena of cases, has invariably adopted a liberal stance on locus standi, including those cases involving taxpayers.

    The prevailing doctrine in taxpayer’s suits is to allow taxpayers to question contracts entered into by the national government or government- owned or controlled corporations allegedly in contravention of law. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. Significantly, a taxpayer need not be a party to the contract to challenge its validity.