REMEDIES of the STATE AND TAXPAYER

REMEDIES OF THE STATE

Remedies

National Internal Revenue Code or Tax Code provide solutions to the problems of
the Government in enforcing tax laws and solutions to the problems of the
taxpayer against unlawful enforcement or collection of tax. These solutions are
termed “remedies”, its basic purpose is to maintain equilibrium between the
interest of the state and the taxpayer

Different Remedies Available to the State and Taxpayer

Common Remedies Remedies of the

Remedies of the State
Available to Both Taxpayer
I. Administrative Level (BIR)
Assessment Compromise Protest
Collection Abatement Refund
II. Judicial Level
Civil suit/action Appeal to CTA
Criminal suit/action TRO/Injunction
Criminal suit against erring
BIR officials

Administrative Power of the BIR

a. Assessment and Collection of all national internal revenue taxes, fees and charges

b. Enforcement of all forfeitures, penalties and fines connected therewith

c. Execution of judgments in all cases decided in its favor by the Court of Tax
Appeals (CTA) and the ordinary courts

d. Give effect to and administer the supervisory and police power conferred to it by
the Code or other laws

Assessment

Is a finding by the Taxing authority that the taxpayer has not paid the correct
taxes. It is also called a written notice to a taxpayer to the effect that the amount
stated therein is due as a tax and containing a demand for the payment thereof

Burden of Proof in Pre-Assessment Proceedings

There is a presumption of correctness on the part of the Commissioner of Internal

Revenue; thus, the burden of proof or onus probandi lies on the taxpayer

When Pre-Assessment Notice Not Required

a. 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

b. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent
 c. 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

d. When the excise tax due on excisable articles has not been paid

e. 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

Administrative Collection Remedies of the Government

a. Distraint

- It is the seizure by the Government of personal property, tangible or

intangible, to enforce the payment of taxes

Nature of the warrant of Distraint or Levy

- warrant is a summary procedure “forcing” the taxpayer to pay

Two types of Distraint

1. actual – there is taking of possession of the personal property from the

taxpayer by the government

2. Constructive – the owner is merely prohibited from disposing of his

property

Distinction Between Actual and Constructive Distraints

Actual Distraint Constructive Distraint

Made only on the property of a made on the property of any
delinquent taxpayer taxpayer, whether delinquent or not
there is taking of possession taxpayer is merely prohibited from
disposing of his property
Effected by leaving a list of Effected by requiring the taxpayer
distrained property or by service of to sign a receipt of the property or
a warrant of distraint or by the revenue officer preparing and
garnishment leaving a list of such property

Requisites for the Exercise of the Remedy of Distraint or Levy

i. The taxpayer must be delinquent in the payment of tax

a. Except in constructive distraint

ii. There must be a subsequent demand for its payment

iii. Taxpayer must fail to pay the tax at the same time required

iv. The period within which to assess or collect the tax has not yet
prescribed

Authorize Officer to Seize and Distraint Personal Property

 i. Amount of delinquent tax is more than P1,000,000 –
commissioner or his duly authorized representative

ii. Amount of delinquent tax is P1,000,000 or less – Revenue

District Officer

Procedures for the Actual Distraint or Garnishment

i. Commencement of distraint proceedings by CIR or Revenue

District Officer

ii. Issuance/service of the Warrant of Distraint upon the

delinquent taxpayer

iii. Posting of public auction sale notices in two conspicuous

places in the locality

iv. Public auction sale

Taxpayer’s Property Placed Under Constructive Distraint

If the taxpayer is

i. Retiring from any business subject to tax

ii. Intending to –

a. Leave the Philippines

b. Remove his property therefrom

c. Hide or conceal his property

iii. Performing any act tending to obstruct the proceeding for

collecting the tax due or which may be due from him

Procedures for the Constructive Distraint of Personal Property

i. CIR serves the warrant of constructive distraint to the

delinquent taxpayer

ii. Taxpayer must sign the receipt and obligate himself to

preserve the thing distraint

iii. Upon failure to sign receipt

a. Proceed to prepare a list of such property and

b. 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

b. Levy

- It refers to the act of seizure of real property in order to enforce the

payment of taxes

Procedure for Levy

 i. Prepare a certificate of Levy

ii. Issuance/serve notice to the taxpayer and Registry of Deeds

iii. Advertisement of the public auction sale

iv. Public auction sale

Distinction Between Distraint and Levy

Distraint Levy
Refers to personal property Refers to real property
Forfeiture by the government is not
Forfeiture is authorized
provided
Right of redemption is granted in
Taxpayer is not given the right of
case of real property levied upon
redemption with respect t distraint
and sold, or forfeited to the
personal property
government

Property Levied be Redeemed

- Within 1 year from the date of sale, the property may be redeemed
by the delinquent taxpayer or anyone from him, upon payment of
taxes, penalties and interest thereon from the date of delinquency to
the date of sale, together with interest on purchase price at 15% per
annum from the date of sale to the date of redemption

c. Tax lien

- It is a legal claim or charge on property, either real or personal,

established by law as a security in default of the payment of taxes.
Generally, it attaches to the property irrespective of ownership or
transfer thereof.

Extent and Nature of Lien

- The tax, together with interest, penalties and costs that may accrue in
addition thereto is a lien upon all property and rights to property
belonging to the taxpayer

- Lien shall not be valid against any mortgagee, purchaser or judgment

creditor until notice of such lien shall be filed by the Commissioner of
Internal Revenue on the Office of the Registry of Deeds of the province
or city where the property of the taxpayer is situated or located

- Lien attaches not only from the service of the warrant of distraint but
from the time tax became due and payable

d. Forfeiture of Property

- Divestiture of property distraint or levy. If there is no bidder in the

public sale or if the amount of the highest bid is insufficient to pay the
taxes, penalties and costs, the real property shall be forfeited to the
Government. The effect is to transfer the title of a specific thing from
the owner to the government
 e. Suspension of business operation in violation of VAT

f. Enforcement of Administrative Fine

The remedies of distraint and levy as well as collection by civil and criminal actions
may, in the discretion of the Commissioner, be pursued singly or independently of
each other, or all of them simultaneously

Judicial Remedies of the State

1. Civil actions

- These are actions instituted by the government to collect internal

revenue taxes. It is normally resorted to:

i. When tax is assessed but the assessment becomes final and

unappealable because the taxpayer fails to file an
administrative protest with the CIR within thirty days
from receipt; or

ii. When a protest against assessment is filed and a decision of the

CIR was rendered but the said decision becomes final,
executory, and demandable for failure of the taxpayer to
appeal the decision to the CTA within thirty days from
receipt of the decision

However, the CIR authorization is essential before instituting a civil

or criminal action

Jurisdiction Over Civil Actions

i. Court of Tax Appeals – where the principal amount of taxes

and fees, exclusive of charges and penalties claimed is
P1,000,000 and above. The CTA has a total nine magistrate
divided into three division compose of three justices per
division

ii. Regional Trial Court, Municipal Trial Court, Metropolitan Trial

Court – where the principal amount of taxes and fees,
exclusive of charges and penalties claimed is less than
P1,000,000

2. Criminal actions

- In consonance with the Constitutional limitations “NO person shall be

imprisoned for non-payment of debt or poll tax”. The CIR may initiate
criminal suit against delinquent taxpayer and may be punished behind
bars

Jurisdiction over Criminal Actions

i. Court of Tax Appeal – on criminal offenses arising from

violation of the NIRC and other laws administered by the
BIR, where the principal amount of taxes and fees, exclusive
of charges and penalties claimed is P1,000,000 and above
 ii. Regional Trial Court, Municipal Trial Court, Metropolitan Trial
Court – on criminal offenses arising from violations of the
NIRC and other laws administered by the BIR, where the
principal amount of taxes, fees, exclusive of charges and
penalties claimed is less than P1,000,000 or where there is
no specified amount of claimed.

May Criminal Actions be Filed During the Pendency of an Administrative Protest

in the BIR

- Yes, it is not a requirement for the filing of criminal complaint to have

a precise computation and assessment of the tax, since what is
involved in the crime action is not the collection of tax but a criminal
prosecution for the violation of NIRC

REMEDIES OF THE STATE

Remedies of Taxpayer

a. Administrative – within the BIR

a. Protest

b. Refund

b. Judicial – with the courts

a. Appeal to CTA

b. Temporary restraining order/injunction from CTA and

c. Filing criminal suit against erring BIR officials

Protest

 A challenge against an assessment

 Filing a petition for reconsideration (questioning facts or law of the case) or

Reinvestigation (newly-discovered evidences that could change BIR assessment)
within thirty days from receipt of assessment with Commission of Internal
Revenue. And sixty days from filing of protest, all relevant supporting documents
should have been submitted, otherwise, the assessment shall become FINAL –
cannot be disturbed

Refund

 Remedy of a taxpayer in case of excessive or erroneous payment of a tax with

the BIR

i. Tax is collected erroneously or illegally

ii. Penalty is collected without authority

iii. Sum collected is excessive

Different Judicial Remedies Available to Taxpayer

 a. Civil Action

a. Appeal to the Court of Tax Appeals – within thirty days from receipt of
decision on the protest or from the lapse of 180 days due to inaction of
the Commissioner whichever comes first

b. Action for damages against a revenue officer by reason of any act done in
the performance of official duty

b. Criminal action

a. Filing of criminal complaint against erring BIR official and employees

b. Injunction – when the CTA in its opinion the collection by the BIR may
jeopardize taxpayer

c. Action to contest forfeiture of chattel – in case of seizure of personal property

before its sale or destruction may file a case with CTA to retrieve, enjoin or
recover the amount

CTA issuance of TRO/Injunction Against a Collection of Tax

General Rule: No action shall suspend the collection, payment, levy or distraint, and/or
sale of any property of the taxpayer

Exception: CTA is empowered to suspend the collection of internal revenue taxes

and custom duties only when there was a –

i. Showing that collection of the tax may jeopardize the interest of the
government and/or the taxpayer

ii. Deposit of the amount claimed or file a surety bond for not more than
double the amount of tax with the Court when required; and

iii. Showing by taxpayer that appeal is not frivolous nor dilatory

Bond is not required when

1. Method employed by the collector to collect the tax was not sanctioned by law

2. Order of CTR to effect collection of the tax through summary administrative

proceedings had been issued well beyond the 3-year period of limitation

Requisites of Tax Refund or Tax Credit

1. Claim must be in writing

2. It must be filed with the CIR within two years after the payment of the tax or
penalty

3. Show proof of payment

Government Liability for Interest on Tax Refund

Government cannot be required to pay interest on taxes refunded to the taxpayer

in the absence of a statutory provision clearly or expressly directing or
authorizing such payment

Tax Credit Certificate

 1. In lieu of cash payment, tax warrants or certificate may be applied against any
internal revenue tax, EXCEPT withholding taxes

2. Original copy is surrendered to the revenue office

3. Must be used within a period of 5 years

COMMON REMEDIES

Remedies Available to the State and Taxpayer

1. Compromise

- Mutual concession between the taxpayer and the government in

settling a tax deficiency amicably

Requisites for Compromise

a. Taxpayer must have a tax liability

b. There must be an offer (by the taxpayer of an amount to be paid by the

taxpayer)

c. There must be an acceptance (by the Commissioner or taxpayer as the

case may be) of the offer in the settlement of the original claim

Cases that may be Compromised

a. Delinquent accounts

b. Cases under administrative protests

c. Civil tax cases filed in courts

d. Criminal violations, other than those already files in court or those

involving criminal tax frauds

Cases that Cannot be Compromised

a. Criminal violation of NIRC already filed in court

b. Cases involving fraud

Grounds for Compromise

a. Reasonable doubt as to validity of the claim against the taxpayer

exists; or

a. delinquent account or disputed assessment is one resulting from a

jeopardy assessment

b. assessment seems to be arbitrary in nature, appearing to be based

on presumptions

c. taxpayer failed to file an administrative protest on account of the

alleged failure to receive notice of assessment or preliminary
assessment
 d. taxpayer failed to file a request for reinvestigation/reconsideration
within 30 days from receipt of final assessment notice

e. taxpayer failed to elevate to the CTA an adverse decision of the

Commissioner, or his authorized representative, in some cases,
within 30 days from receipt thereof

b. the financial position of the taxpayer demonstrates a clear inability to

pay the assessed tax

a. the corporation ceased operation or is already dissolved; or

b. taxpayer is suffering from surplus or earning deficit resulting to

impairment in the original capital by at least 50%; or

c. taxpayer is suffering from a net worth deficit computed by

deducting total liabilities from total assets, taken from the latest
audited financial statements; or

d. the taxpayer is compensation earner with no other source of

income and the family’s gross monthly compensation does not
exceed (P10,500/month if single, P21,000/month if married), and
that it appears that the taxpayer possesses no other
leviable/distrainable assets, other than his family home

Compromise to be valid under the grounds of clear financial inability of a

taxpayer must be accompanied by waiver of R.A 1405 otherwise known as
the secrecy of bank deposit law

Minimum Compromise Rates

a. in case of financial incapacity:

MCR = 10% of the basic assessed tax

b. other cases:

MCR = 40% of the basic assessed tax

Remedy in case Taxpayer Refuses or Fails to Abide Tax Compromise

a. enforce the compromise by court action

b. if it is judicial compromise, it can be enforced by mere execution.

Judicial compromise is one where a decision based on the compromise
agreement is rendered by the court on request of the parties

Compromise Penalty

- it is an amount of money which the taxpayer pays to compromise a tax

violation. This is paid in lieu of criminal prosecution

2. Abatement

- A tax may be cancelled or obliterated upon the authority of the BIR

under certain circumstances

Grounds for Abatement

 a. Tax or any portion thereof appears to be unjustly or excessively
assessed;

a. When the filing of the return/payment is made at the wrong venue

b. When the taxpayer’s mistake in payment of his tax is due to

erroneous written official advice of a revenue officer

c. When the taxpayer fails to file the return and pay the tax on time
due to substantial losses from prolonged labor dispute, force
majeure, legitimate business reverses, provided, however, the
abatement shall only cover the surcharge and the interest imposed
under Sec. 249 of the NIRC

d. When the assessment is brought about or the result of taxpayer’s

non-compliance with the law due to a difficult interpretation of the
said law

e. When the taxpayer fails to file the return and pay the correct tax
on time due to circumstances beyond his control, provided,
however, the abatement shall only cover the surcharge and interest
impost under Sec. 249 of the NIRC

b. The administration and collection costs involved do not justify the

collection of the amount due

c. The commissioner may also, even without a claim therefore, refund or

credit any tax where on the face of the return upon which payment was
made such payment appears clearly to have been erroneously paid

LIMITATION TO REMEDIES

Limitations to the Assessment Power of the State

 Prescription – through the lapse of time, a right may either be extinguished or

acquired. The power of the state to assess (investigate/audit) taxpayer shall
prescribe after 3 YEARS from the date the return is due (required y law) or filed,
whichever is later

Exceptions:

1. Failure to file return: 10 YEARS from the date of discovery of the omission
to file the return

2. False or fraudulent return with intention to evade the tax: 10 YEARS from
the date of discovery of the falsity or fraud

Commencement of Prescriptive Period of an Amended Return

 If the amendment return is substantially different from the original return, the
prescriptive period shall be counted from the filing of the amendment return.
But the said shall run from the filing of the original return if the same is
sufficiently complete to enable the Commissioner to make a proper assessment

When substantive:
 - Substantial under-declaration (exceeding 30% of that declared) of
taxable sales, receipts or income, or substantial overstatement
(Exceeding 30% of actual deductions) of deductions

Limitation to the Collection Power of the State

State’s power to collect tax shall prescribe within:

o 5 years – from the assessment or within period for collection agreed upon
in writing before expiration of the 5-year period

o 10 years – without assessment in case of false or fraudulent return with

intent to evade or failure to file return

Grounds for Suspension of the Running of the Statute Limitations

a. When the CIR is prohibited (by TRO) from making the assessment or beginning
the distraint or levy or a proceeding in court and for sixty days thereafter

b. When the taxpayer requests for a reconsideration which is granted by the CIR

c. When the taxpayer cannot be located in the address given by him in the return,
unless he informs the CIR of any change in his address

d. When the warrant of distraint or levy is duly served, and no property is located;
and

e. When the taxpayer is out of Philippines

Prescriptive Periods for the Violation of Any Provision of the Tax Code

Should be filed within FIVE YEARS from the day of the commission of the
violation of the law, and if the same be not know, from the discovery thereof and
the institution of the judicial proceedings for its investigation and punishment

Different Prescriptive Periods for Protest

a. A protest must be file within 30 days from receipt of assessment

b. Submit supporting documents within 60 days from the date of filing of protest

c. If protest is denied; appeal the matter to the Division of Court of Tax

Appeals within 30 days from the receipt of final decision of CIR or if the CIR
fails to act on the protest within 180 days from the date of submission of
evidentiary documents by taxpayer, at the option of the taxpayer

d. Appeal within 15 days to the CTA en banc from the receipt of the Division of
the CTA denial decision

e. Appeal to the Supreme Court within 15 days from the receipt of the CTA en
banc denial decision

Prescriptive Periods for Refund

a. Claim for refund must be made within 2 years from the date of payment
b. In case of the CIR’s denial of the claim for refund, the 30-day period to appeal
with the CTA must be within the 2-year preemptory period for instituting judicial
action