8/11/2019 Tax Remedies Digest

http://slidepdf.com/reader/full/tax-remedies-digest 1/3

CIR V. ISABELA CULTURAL CORP. (515 SCRA 556)

Facts:

When the Bureau of Internal Revenue disallowed Isabela Cultural

Corporation‘s claimed deductions for the years 1984-1986 in their1986 taxes for expense deductions, to wit:(1) Expenses for auditing services for the year ending 31 December1985;

(2) Expenses for legal services for the years 1984 and 1985; and

(3) Expense for security services for the months of April and May1986.

As such, the former charged the latter for deficiency income taxes.Isabela Cultural Corporation contests the assessment.

Issues and Ruling:

1. For a taxpayer using the accrual method, when do the facts presentthemselves in such a manner that the taxpayer must recognize income

or expense?

The accrual of income and expense is permitted when the all-eventstest has been met. This test requires: (1) fixing of a right to income or

liability to pay; and (2) the availability of the reasonable accuratedetermination of such income or liability. The test does not demandthat the amount of income or liability be known absolutely, only thata taxpayer has at his disposal the information necessary to computethe amount with reasonable accuracy. The all-events test is satisfied

where computation remains uncertain, if its basis is unchangeable;the test is satisfied where a computation may be unknown, but is notas much as unknowable, within the taxable year.2. W/N the deductions were properly claimed by Isabela Cultural

Corporation.

The deductions for expenses for professional fees consisting ofexpenses for legal and auditing services are NOT allowable.

However, the deductions for expenses for security services were properly claimed by Isabela Cultural Corporation. For the legal andauditing services, Isabela Cultural Corporation could have reasonablyknown the fees of those firms that it hired, thus satisfying the ―all-

events test.‖ As such, per Revenue Audit Memorandum Order No. 1-2000, they cannot validly be deducted from its gross income for thesaid year and were therefore properly disallowed by the BIR. As for

the security services, because they were incurred in 1986, they could be properly claimed as deductions for the said year.

Notes:

The requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses paid for legal and

auditing services, are:a. The expense must be ordinary and necessary;

 b. It must have been paid or incurred during the taxable year;

c. It must have been paid or incurred in carrying on the trade or business of the taxpayer; and

d. It must be supported by receipts, records, or other pertinent papers.

Revenue Audit Memorandum Order No. 1-2000, provides that under

the accrual method of accounting, expenses not being claimed as

deductions by a taxpayer in the current year when they are incurred

cannot be claimed as deduction from income for the succeeding year.

Thus, a taxpayer who is authorized to deduct certain expenses and

other allowable deductions for the current year but failed to do so

cannot deduct the same for the next year.

COMMISSIONER OF INTERNAL REVENUE vs. UNION

SHIPPING CORPORATION and THE COURT OF TAX APPEALS

G.R. No. L-66160 May 21, 1990

FACTS: In a letter dated December 27, 1974 petitioner assessed

against Yee Fong Hong, Ltd. and/or herein private respondent

UnionShipping Corporation for deficiency income taxes due for the

years 1971 and 1972. Private respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint

and Levy. In a letter, private respondent reiterated its request for

reinvestigation. Petitioner, again, without acting on the request for

reinvestigation and reconsideration of the Warrant of Distraint and

Levy, filed a collection suit against private respondent.

In 1979, private respondent filed with respondent court a Petition for

Review. The CTA ruled in favor of private respondent. Hence, this is

apetition for review on certiorari

ISSUE: Whether or not the issuance of a warrant of distraint and levy

is proof of the finality of an assessment and is tantamount to an

outright denial of a motion for reconsideration of an assessment.

HELD: The Supreme Court had already laid down the dictum that

the Commissioner should always indicate to the taxpayer in clear andunequivocal language what constitutes his final determination of the

disputed assessment.

There appears to be no dispute that petitioner did not rule on private

respondent's motion for reconsideration but contrary to the above

ruling of this Court, left private respondent in the dark as to which

action of the Commissioner is the decision appealable to the

Court ofTax Appeals. Had he categorically stated that he denies

 private respondent's motion for reconsideration and that his action

constitutes his final determination on the disputed assessment, private

respondent without needless difficulty would have been able to

determine when his right to appeal accrues and the resulting

confusion would have been avoided.

Advertising Associates, Inc. v. Court of Appeals (fulltext)

This case is about the liability of Advertising Associates, lnc. forP382,700.16 as 3% contractor's percentage tax on its rental income

from the lease of neon signs and billboards imposed by section 191 ofthe Tax Code.The Commissioner required Advertising Associates to payP297,927.06 and P84,773.10 as contractor's tax for 1967-1971 and

1972, respectively, including 25% surcharge (the latter amountincludes interest) on its income from billboards and neon signs.The basis of the assessment is the fact that the taxpayer's articles ofincorporation provide that its primary purpose is to engage in general

advertising business. Its income tax returns indicate that its businesswas advertisingAdvertising Associates contested the assessments in its 'letters of

June 25, 1973 (for the 1967-71 deficiency taxes) and March 7, 1974

(for the 1972 deficiency). The Commissioner reiterated the

assessments in his letters of July 12 and September 16,1974.

The taxpayer requested the cancellation of the assessments in its

letters of September 13 and November 21, 1974 (p. 3, Rollo).

 Inexplicably, for about four years there was no movement in the case.Then, on March 31, 1978, the Commissioner resorted to the summaryremedy of issuing two warrants of distraint, directing the collectionenforcement division to levy on the taxpayer's personal properties as

would be sufficient to satisfy the deficiency taxes (pp. 4, 29 and 30,

Rollo). The warrants were served upon the taxpayer on April 18 andMay 25, 1978.More than a year later, Acting Commissioner Efren I. Plana wrote a

letter dated May 23, 1979 in answer to the requests of the taxpayerfor the cancellation of the assessments and the withdrawal of thewarrants of distraint.He justified the assessments by stating that the rental income of

Advertising Associates from billboards and neon signs constitutedfees or compensation for its advertising services. He requested thetaxpayer to pay the deficiency taxes within ten days from receipt ofthe demand; otherwise, the Bureau would enforce the warrants of

distraint. He closed his demand letter with this paragraph:This constitutes our final decision on the matter. If you are notagreeable, you may appeal to the Court of Tax Appeals within 30days from receipt of this letter.

Advertising Associates received that letter on June 18, 1979. Nineteen days later or on July 7, it filed its petition for review. In itsresolution of August 28, 1979, the Tax Court enjoined theenforcement of the warrants of distraint.

The Tax Court did not resolve the case on the merits. It ruled that thewarrants of distraint were the Commissioner's appealable decisions.Since Advertising Associates appealed from the decision of May 23,

1979, the petition for review was filed out of time. It was dismissed.The taxpayer appealed to this Court.

We hold that the petition for review was filed on time. Thereviewable decision is that contained in Commissioner Plana's letterof May 23, 1979 and not the warrants of distraint.

8/11/2019 Tax Remedies Digest

http://slidepdf.com/reader/full/tax-remedies-digest 2/3

 No amount of quibbling or sophistry can blink the fact that said letter,as its tenor shows, embodies the Commissioner's final decisionwithin the meaning of section 7 of Republic Act No. 1125. The

Commissioner said so. He even directed the taxpayer to appeal it tothe Tax Court. That was the same situation in St. Stephen's

 Association and St. Stephen's Chinese Girl's School vs. Collector of Internal Revenue, 104 Phil. 314, 317-318.

The directive is in consonance with this Court's dictum that theCommissioner should always indicate to the taxpayer in clear andunequivocal language what constitutes his final determination of thedisputed assessment. That procedure is demanded by the pressing

need for fair play, regularity and orderliness in administrative action(Surigao Electric Co., Inc. vs. Court of Tax Appeals, L-25289, June28, 1974, 57 SCRA 523).On the merits of the case, the petitioner relies on the Collector's

rulings dated September 12, 1960 and June 20, 1967 that it is neitheran independent contractor nor a business agent (Exh. G and H).As already stated, it considers itself a media company, like anewspaper or a radio broadcasting company, but not an advertising

agency in spite of the purpose stated in its articles of incorporation. Itargues that its act of leasing its neon signs and billboards does not

make it a business agent or an independent contractor. It stresses thatit is a mere lessor of neon signs and billboards and does not perform

advertising services.But the undeniable fact is that neon signs and billboards are primarilydesigned for advertising. We hold that the petitioner is a businessagent and an independent contractor as contemplated in sections 191

and 194(v).However, in view of the prior rulings that the taxpayer is not a

 business agent nor an independent contractor and in view of thecontroversial nature of the deficiency assessments, the 25% surcharge

should be eliminated (C. M. Hoskins & Co., Inc. vs. CIR , L-28383,June 22, 1976, 71 SCRA 511, 519; Imus Electric Co., Inc. vs. CIR ,125 Phil. 1084).Petitioner's last contention is that the collection of the tax had already

 prescribed. Section 332 of the 1939 Tax Code, now section 319 of the

1977 Tax Code, Presidential Decree No. 1158, effective on June 3,1977, provides that the tax may be collected by distraint or levy or bya judicial proceeding begun 'within five years after the assessment ofthe tax".

The taxpayer received on June 18, 1973 and March 5, 1974 thedeficiency assessments herein. The warrants of distraint were servedupon it on April 18 and may 25,1978 or within five years after theassessment of the tax. Obviously, the warrants were issued to

interrupt the five-year prescriptive period. Its enforcement was notimplemented because of the pending protests of the taxpayer and itsrequests for withdrawal of the warrants which were eventuallyresolved in Commissioner Plana's letter of May 23, 1979.

It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint to

interrupt the running of the statute of limitations. He gave thetaxpayer ample opportunity to contest the assessments but at the same

time safeguarded the Government's interest by means of the warrantsof distraint.WHEREFORE, the judgment of the Tax Court is reversed and set

aside. The Commissioner's deficiency assessments are modified byrequiring the petitioner to pay the tax proper and eliminating the 25%

surcharge, interest and penalty. In case of non-payment, the warrants

of distrant should be implemented. The preliminary injunction issued

 by the Tax Court on August 28, 1979 restraining the enforcement of

said warrants is lifted. No costs.

CIR v. Metro Star Superama, Inc., G.R. No. 185371, December 8,

2010

On January 26, 2001, the Regional Director of Revenue of LegazpiCity, issued letter of Authority to examine Metro Stars books ofaccounts and other accounting records for income tax and other

internal revenue taxes for the taxable year 1999.For Metro Stars failure to comply with several requests for the

 presentation of records and Subpoena Duces Tecum, BIR of LegazpiCity proceeded with the investigation based on the best evidenceobtainable preparatory to the issuance of assessment notice.

On April 11, 2002, Metro Star received a Formal Letter of Demanddated April 3, 2002 from Revenue District No. 67, Legazpi City,assessing petitioner the amount of P292,874.16.) for deficiencyvalue-added and withholding taxes for the taxable year 1999.

Subsequently, Revenue District Office No. 67 sent a copy of theFinal Notice of Seizure dated May 12, 2003, which petitionerreceived on May 15, 2003, giving the latter last opportunity to settleits deficiency tax liabilities within ten (10) [days] from receipt

thereof, otherwise respondent BIR shall be constrained to serve andexecute the Warrants of Distraint and/or Levy and Garnishment toenforce collection.

On February 6, 2004, petitioner received from Revenue District

Office No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23

dated May 12, 2003 demanding payment of deficiency value-added

tax and withholding tax payment in the amount of P292,874.16.

On July 30, 2004, petitioner filed with the Office of respondent

Commissioner a Motion for Reconsideration pursuant to Section

3.1.5 of Revenue Regulations No. 12-99.On February 8, 2005, respondent Commissioner, through itsauthorized representative, Revenue Regional Director of RevenueRegion 10, Legaspi City, issued a Decision denying petitioner‘sMotion for Reconsideration. Petitioner, through counsel received saidDecision on February 18, 2005.

Denying that it received a Preliminary Assessment Notice (PAN) andclaiming that it was not accorded due process, Metro Star filed a

 petition for review[4] with the CTA.The CTA-Second Division found merit in the petition of Metro Star

and, on March 21, 2007, rendered a decision, granting the petitionand ordering CIR from collecting the subject taxes. It opined that―[w]hile there [is] a disputable presumption that a mailed letter [is]deemed received by the addressee in the ordinary course of mail, a

direct denial of the receipt of mail shifts the burden upon the party

favored by the presumption to prove that the mailed letter was indeedreceived by the addressee.‖[5] It also found that there was no clearshowing that Metro Star actually received the alleged PAN, dated

January 16, 2002. It, accordingly, ruled that the Formal Letter ofDemand dated April 3, 2002, as well as the Warrant of Distraintand/or Levy dated May 12, 2003 were void, as Metro Star was denieddue process.[6]

The CIR sought reconsideration[7] but the motion was denied. CIRfiled a petition for review[9] with the CTA-En Banc, but the petitionwas dismissed after a determination that no new matters were raised.The motion for reconsideration[10] filed by the CIR was likewise

denied by the CTA-En Banc in its November 18,

2008Resolution.[11]Hence this petition.ISSUES & HELD:

1. Whether or not Metro Star was denied due process? YES.The Court agrees with the CTA that the CIR failed to discharge itsduty and present any evidence to show that Metro Star indeedreceived the PAN dated January 16, 2002. It could have simply

 presented the registry receipt or the certification from the postmasterthat it mailed the PAN, but failed. Neither did it offer any explanationon why it failed to comply with the requirement of service of thePAN. It merely accepted the letter of Metro Star‘s chairman datedApril 29, 2002, that stated that he had received theFAN dated April 3,

2002, but not the PAN; that he was willing to pay the tax ascomputed by the CIR; and that he just wanted to clarify some matterswith the hope of lessening its tax liability.2. Is the failure to strictly comply with notice requirements

tantamount to a denial of due process?Section 228 of the Tax Code clearly requires that the taxpayer mustfirst be informed that he is liable for deficiency taxes through thesending of a PAN. He must be informed of the facts and the law upon

which the assessment is made. The law imposes a substantive, notmerely a formal, requirement. To proceed heedlessly with taxcollection without first establishing a valid assessment is evidentlyviolative of the cardinal principle in administrative investigations -

that taxpayers should be able to present their case and adducesupporting evidence.[14]It is clear that the sending of a PAN to taxpayer to inform him of theassessment made is but part of the ―due process requirement in the

issuance of a deficiency tax assessment,‖ the absence of whichrenders nugatory any assessment made by the tax authorities. The useof the word ―shall‖ in subsection 3.1.2describes the mandatory

nature of the service of a PAN. The persuasiveness of the right to due

 process reaches both substantial and procedural rights and the failureof the CIR to strictly comply with the requirements laid down by lawand its own rules is a denial of Metro Star‘s right to due process.[15]Thus, for its failure to send the PAN stating the facts and the law on

which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.The case of CIR v. Menguito[16] cited by the CIR in support of itsargument that only the non-service of the FAN is fatal to the validity

of an assessment, cannot apply to this case because the issue thereinwas the non-compliance with the provisions of R. R. No. 12-85which sought to interpret Section 229 of the old tax law. RA No.8424 has already amended the provision of Section 229 on protestingan assessment. The old requirement of merely notifying the taxpayer

8/11/2019 Tax Remedies Digest

http://slidepdf.com/reader/full/tax-remedies-digest 3/3

of the CIR‘s findings was changed in 1998 to informing the taxpayerof not only the law, but also of the facts on which an assessmentwould be made. Otherwise, the assessment itself would be

invalid.[17] The regulation then, on the other hand, simply providedthat a notice be sent to the respondent in the form prescribed, and thatno consequence would ensue for failure to comply with that form.The Court need not belabor to discuss the matter of Metro Star‘s

failure to file its protest, for it is well-settled that a void assessment

 bears no fruit.

Lascona Land Co., Inc. v. CIR

On March 27, 1998, the CIR issued Assessment Notice No. 0000047-93-407 against Lascona Land (Lascona) informing the latter of its

alleged deficiency income tax for the year 1993 in the amount ofP753,266.56.Consequently, on April 20, 1998, Lascona filed a letter protest, butwas denied., thus:

―Anent the 1993 tax case of subject taxpayer, please be informedthat while we agree with the arguments advanced in your letter

 protest, we regret, however, that we cannot give due course to yourrequest to cancel or set aside the assessment notice issued to your

client for the reason that the case was not elevated to the Court of TaxAppeals as mandated by the provisions of the last paragraph of

Section 228 of the Tax Code. By virtue thereof, the said assessmentnotice has become final, executory and demandable. In view of theforegoing, please advise your client to pay its 1993 deficiency

income tax liability in the amount of P753,266.56.‖On April 12, 1999, Lascona appealed the decision before the CTA.Lascona alleged that the Regional Director erred in ruling that thefailure to appeal to the CTA within 30 days from the lapse of the 180-

day period rendered the assessment final and executory.The CIR, however, maintained that Lascona's failure to timely file anappeal with the CTA after the lapse of the 180-day reglementary

 period provided under Section 228 of the NIRC resulted to the

finality of the assessment.CTA, in its Decision,7 nullified the subject assessment. It held that incases of inaction by the CIR on the protested assessment, Section 228of the NIRC provided two options for the taxpayer: (1) appeal to the

CTA within thirty (30) days from the lapse of the one hundred eighty(180)-day period, or (2) wait until the Commissioner decides on his

 protest before he elevates the case.The CIR moved for reconsideration. It argued that in declaring the

subject assessment as final, executory and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99 datedSeptember 6, 1999 which reads, thus:If the Commissioner or his duly authorized representative fails to act

on the taxpayer's protest within one hundred eighty (180) days from

date of submission, by the taxpayer, of the required documents in

support of his protest, the taxpayer may appeal to the Court of Tax

Appeals within thirty (30) days from the lapse of the said 180-day

 period; otherwise, the assessment shall become final, executory and

demandable.

On March 3, 2000, the CTA denied the CIR's motion forreconsideration for lack of merit.8 The CTA held that RevenueRegulations No. 12-99 must conform to Section 228 of the NIRC. It

 pointed out that the former spoke of an assessment becoming final,executory and demandable by reason of the inaction by the

Commissioner, while the latter referred to decisions becoming final,executory and demandable should the taxpayer adversely affected by

the decision fail to appeal before the CTA within the prescribed period. Finally, it emphasized that in cases of discrepancy, Section228 of the NIRC must prevail over the revenue regulations.HELD:

The Supreme Court declared that Lascona‘s appeal was timely filedon April 12, 1999 before the CTA. The appeal was made within 30

days after receipt of the copy of the decision, reckoned from March12, 1999 when Lascona received the Letter dated March 3, 1999.

In case the CIR failed to act on the disputed assessment within the

180-day period from date of submission of documents, a taxpayer can

either: (1) file a petition for review with the Court of Tax Appeals

within 30 days after the expiration of the 180-day period; or (2) await

the final decision of the Commissioner on the disputed assessments

and appeal such final decision to the Court of Tax Appeals within 30

days after receipt of a copy of such decision. These options are

mutually exclusive and resort to one bars the application of the other.

In arguing that the assessment became final and executory by the sole

reason that petitioner failed to appeal the inaction of the

Commissioner within 30 days after the 180-day reglementary period,

respondent, in effect, limited the remedy of Lascona, as a taxpayer,

under Section 228 of the National Internal Revenue Code to just one,

that is –  to appeal the inaction of the Commissioner on its protested

assessment after the lapse of the 180-day period. This is incorrect.

The word ―decisions‖ in paragraph 1, Section 7 of Republic Act No.

1125, has been interpreted to mean the decisions of the CIR on the

 protest of the taxpayer against the assessments. Taxpayers cannot be

left in quandary by the Commissioner‘s inaction on the protested

assessment. The taxpayers must be informed informed of its action inorder that the taxpayer should be able to take recourse to the tax court

at the opportune time. Finally, as pointed out by the Court of Tax

Appeals, to adopt the interpretation of the Commissioner will not

only sanction inefficiency, but will likewise condone the Bureau of

Internal Revenue‘s inaction.