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GROSS INCOME maturity of more than five (5) years. (Sec.

32 (b), TRA of
1997)
GROSS INCOME – means all income derived from whatever
source, including but not limited to the following: *ALLOWABLE DEDUCTIONS

INCLUSION: [code: STP-IRR-DAP-PS] 1. Optional Standard Deduction – of ten percent (10%) of the
1. compensation for services Gross Income available only to individual other than a non-
2. gross income from trade or business or the exercise of a resident alien provided he signifies in his return his intention to
profession elect OSD, otherwise, itemized deductions apply. Election made
3. gains derived from dealings in property shall be irrevocable for the taxable year (Sec. 34 L)
4. Interests 2. Itemized Deductions – under Sec. 34 A-K, and M
5. Rents 3. Personal and Additional Deductions/Exemptions under Sec. 35
6. Royalties
7. Dividends * ITEMIZED DEDUCTIONS [code: ELIT-BDD-CRC]
8. Annuities 1. expenses
9. Prizes and winnings 2. loses
10. Pensions and 3. interest
11. Partner’s distributive share from the net income of the general 4. taxes
professional partnership (Sec. 32 of TRA of 1997) 5. bad debts
6. depreciation
EXCLUSIONS [code: LAGCIRM] 7. depletion of oil, gas wells and mines
1. proceeds of life insurance policy 8. charitable and other contributions
2. amount received by the insured as return of premium 9. research and development
3. gifts, bequests, devises or descent 10. contribution to pension trust
4. compensation for injuries or sickness
5. income exempt under treaty * NON-DEDUCTIBLE ITEMS
6. retirement benefits, pensions, gratuities (Sec. 36 A)
and others: (F, V, R, S, S, G) 1. Personal living or family expenses;
a. retirement benefits received from foreign 2. Amount paid for new buildings or permanent improvements, or
institution whether public or private betterment to increase the value of any property or estate;
b. veteran’s benefits 3. Any amount expended in restoring property or in making good
c. retirement benefits received from private the exhaustion thereof for which an allowance is or has been
firms whether individual or corporate made; or
d. separation pay 4. Premiums paid on any life insurance policy covering the life
e. SSS of any officer or employee, or of any person financially
f. GSIS interested in any trade or business carried on by the taxpayer ,
7. miscellaneous items: individual or corporate, when the taxpayer is directly or
a. prizes and awards given in recognition of religious, indirectly a beneficiary under such policy.
charitable, scientific, educational, artistic, literary, or civic
achievements (Sec. 36 B) Losses from sales or exchanges of property directly or
CONDITIONS: indirectly –
1. the recipient was selected without any action on 1. Between members of a family (brother, sister of half or full
his part to enter the contest or proceeding blood, spouse, ascendant, lineal descendants);
2. the recipient is not required to render substantial 2. Except in case of distributions in liquidation, between an
future services as a condition to receiving the individual and a corporation – more than 50% in value of the
prize or award outstanding stock of which is owned directly, by or for such an
b. income derived by the government or its political individual; or
subdivisions from the exercise of any essential 3. Except in case of distributions in liquidation, between two
governmental function or from any public utility corporations – more than 50% in value of the outstanding stock
c. income derived from investment in the Philippines by of each of which is owned, directly or indirectly, by or for same
foreign government or financing institutions individual, if either one of such corporation is a personal holding
d. prizes and awards in sports competitions company or a foreign personal holding company; or
e. gain derived from the redemption of shares of stock issued 4. Between the grantor and a fiduciary of any trust; or
by the mutual fund company 5. Between fiduciary of a trust and the fiduciary of another trust,
f. contributions to GSIS, SSS, PAG-IBIG, and union dues if the same person is a grantor with respect to each trust; or
g. benefits in the from of 13th month pay and other benefits 6. Between a fiduciary of a trust and a beneficiary of such trust.
h. gain derived from the sale, exchange, retirement of bonds
debentures or other certificate of indebtedness with a
TAXABLE INDIVIDUALS NON-RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS
(NRA-ETB) Problem:
RESIDENT CITIZENS (RC) > considered as engaged in trade or business if his stay is more A obtained a life insurance policy for B. B is the
 Income from within and without – taxable than 180 days president of A’s corporation. Corp. has an insurable interest in the
life of its officers, so premiums may be paid by the employer A.
NON-RESIDENT CITIZENS (NRC) > We can no longer tax his income from sources without. We Upon the death of B, his designated beneficiaries will receive the
 Income from within can only tax his income from sources within. proceeds.

 When an NRC returns to the Phils., his income ENTITLEMENT OF DEDUCTIONS a. Is the amount representing the proceeds of the life
may also be taxed as Resident Citizen or Non- insurance policy taxable?
Resident Citizen. RC – entitled to deductions because the tax base is taxable b. What about the premium paid by the employer A?
income. Does this amount form part of the gross compensation
Illustration: A, an OCW, arrived in the Phils. sometime in June income?
1998. He will be taxed as a Non-Resident Citizen (NRC) as Gross Income c. Does the amount representing the proceeds of life
regards the income that he earned which covers the period of Less: Allowable deductions insurance policy from part of the estate of the
January to June. Now as regards the income that he will derive ======================= decedent?
upon his arrival from June to December, he will be taxed as Taxable Income
Resident Citizen (RC).
NRC – entitled to deductions because the tax base is taxable Answers:
But if he is not in the Phils. from the period of January to income.
December 1998, he will be taxed as NRC for the said period. a. Let us first make two (2) assumptions. Let us assume that:
RA – entitled to deductions because the tax base is taxable 1. the beneficiary designated is the employer;
If he will return to the Phils. and stay there from January t income. 2. the beneficiary designated is the heir of the
December 1999, he will be taxed as RC for the same period. family of the insured.
NRA-TB – entitled to deductions because the tax base is gross
* NRC must prove to the satisfaction of the BIR Commissioner the income. Their income is subject to 25% tax rate. The Tax Code however, makes no distinction. Regardless
fact of physical presence abroad with the intention to reside therein. of the designated beneficiary is the employer or the heirs, or the
SNRA-NETB – subject to 15% tax rate on their income in the from family of the insured proceeds of life insurance policy should always
* When an NRC decides to return to the Phils., he must prove his of: be excluded.
intention to reside here permanently. S - Salaries
H - Honoraria b. Premiums of life insurance policy paid by the employer
* Now NRC includes OVERSEAS CONTACT WORKERS (OCW), O - Other may form part of compensation income; hence, taxable
IMMIGRANTS, and those who STAY OUTSIDE the Phils. by virtue W - Wages if the beneficiary designated are the heirs or the family
of an employment. E - Emoluments or the employees.
R - Remuneration
RESIDENT ALIEN (RA) It is not taxable compensation income if the designated beneficiary
1. An individual who is not a citizen of the Phils. but a resident of is the employer because that is just a mere return of capital.
the Phils. EXCLUSION FROM GROSS INCOME
* Includes those who consider the Phils. as a second home. c. Proceeds of life insurance policy may be excluded from
*** Transient tourist who just sojourn, their stay is merely the gross estate of the decedent under the following
“PROCEEDS OF LIFE INSURANCE” cases:
temporary, thus may not be considered as RA.
1. if the beneficiary designated is a 3rd person
Subject to tax if : and the designation is irrevocable;
* If an alien stays in the Phils. for a period of more than one (1) 1. the insurer and insured agreed that the amount of the proceeds
year, he is considered as RA. 2. it is a proceed of a group insurance policy.
shall be withheld by the insurer with the obligation to pay interest
in the same, the interest is the one subject to tax; However, it is included in the gross estate of the decedent:
SPECIAL NON-RESIDENT ALIEN ENGAGED IN TRADE OR
BUSINESS (NRA-NETB) 1. if the beneficiary designated in the estate,
2. there is transfer of the insurance policy; executor or administrator of the estate or the
* He must be an alien individual who is not residing in the Phils.
and not engaged in trade or business in the Phils. family of heirs of the decedent;
Example: 2. if the beneficiary designated is a 3rd person
A transferred to B his life insurance policy. The value of and the designation is revocable [see Section
* He is one whose stay in the Phis.is not more than 180 days the policy is P1 M. B paid a consideration amounting to 85 (e)]
P300,000. B continued paying the premiums after the transfer
SPECIAL NON-RESIDENT NOT ENGAGED IN TRADE OR such that the premiums amounted to P200,000. Upon the death
BUSINESS (SNRA-NETB) As far as Sec. 85 (e) is concerned, an employer may be considered
of the insured, the P1 M may be received by the heirs. a 3rd person.
* Those employed by: (ROP)
1. Regional or Area Headquarters of Multinational corporations; Q. Is the full amount of P1 M exempt?
2. Offshore Banking Units; A. NO, only the consideration given and the total premiums paid “AMOUNT RECEIVED BY INSURED AS RETURN OF PREMIUM”
3. Petroleum Service Contractors may be excluded. That is, P1 M less P500,000. Reason for Exclusion: It represents a mere return of capital.
The sources of this return of premium: (L.E.A.) Moral - P100,000. 5. Reasonable private benefit plan may be in the nature of
1. Life Insurance Policy Exemplary - P100,000. pension plan, profit sharing plan, stock bonus plan, or gratuity;
2. Endowment contracts Actual - P 60,000. (hospitalization expenses) 6. The employer must give contribution and no amount shall inure
3. Annuity contracts P 20,000. (repair of car) to the benefit of a particular employee or official. This must be
---Whether the premiums are returned during or at the maturity of P 60,000. (loss of income) established for the common benefit of the employees or officials;
the term mentioned in the contract or upon surrender of thee 7. This can be availed of ONCE.
contract *** All damages awarded are tax-exempt except damages of
representing loss of income. * The subsequent retirement benefits received from another
Problem: private employer is no longer exempt but subject to tax.
A took out an endowment policy amounting to P1 M. Question: Are damages awarded by the Court on account of
He paid premiums amounting to P800,000. Upon the maturity of breach of contract taxable? * If the second employer is a government entity or institution, in
the policy, A received that P1M. which case, that is exempt because the giver here is not a private
How much is the taxable amount? Answer: Qualify your answer. With regards to damages firm. The limitation applies only when the giver of the subsequent
awarded on account of loss of earnings of the contracting party, retirement benefits is another private employer.
Answer: it is taxable.
That is P1,000,000. – value of endowment policy -PHYSICAL DISABILITY BENEFITS
LESS: P 800,000. – representing amount of premium “INCOME EXEMPT UNDER TREATY” * These include death benefit, sickness benefit and other
Reason for the Exclusion: Treaty has obligatory force of contract. disability benefit. Sometimes, the term used is “separation pay”.
======================================
========= Exception: As may be provided for in the treaty. Giver: may either be public or private employer
P 200,000. – taxable amount
*“RETIREMENT BENEFITS, PENSIONS, GRATUITIES AND *Sources of Separation Pay:
*“GIFTS, BEQUESTS and DEVISES” OTHERS” 1. Death of an employee;
Rationale: What is contemplated here are donations which are 2. Physical disability of an employee;
purely gratuitous in character in order that it may be excluded. - VETERAN’S BENEFIT 3. Any other cause beyond the control of the employee or official.
* This may be given by the US Administration.
 Gifts are excluded because these are subject * The recipient must be a resident veteran. Example of no.3
to donor’s tax. a. Retrenchment of employees;
 Bequests and devises are excluded because - BENEFITS GIVEN BY FOREIGN AGENCIES OR INSTITUTIONS b. Installation of labor saving devises;
these may be subject to estate tax. WHETHER PUBLIC OR PRIVATE c. Dissolution of law firm.
 What about remuneratory donations?
Remuneratory donations are subject to income Giver: Foreign government agencies or institutions whether public >Resignation of an employee is a cause within his control.
tax. or private. >But, involuntary resignation is beyond the control of the employee.
EXCEPTIONS to the Rule:>>> the income or fruit of such money Recipient: Resident citizen, non-resident citizen or resident alien. >The most important thing here is that the separation pay was
given by donation, bequests or devise, including the income of Observation: given on account of the above-mentioned sources.
this gift, bequest or devise in cases of transfer of divided interest. Non-resident citizen should not be included in the enumeration >There is no requirement as to age of the employee or official;
since it is already understood that we cannot tax his income from there is also no requirement as to the length of service of the
*“COMPENSATION FOR INJURIES OR SICKNESS” without. We can only tax the income of non=-resident citizen employee or official.
Reason for Exclusion: This is just an indemnification for the injuries derived from sources within. >No requirement also as to the number of availment of benefits.
or damages suffered. This is compensatory in nature.
The same is true with resident alien because we can only tax his -AMOUNT OF THE ACCUMULATED SICK LEAVE AND
The sources are: income from sources within. VACATION LEAVE CREDITS
1. The compensation may be paid by virtue of a suit; The inclusion of NRC and RA in the enumeration are mere  The monetized value of these benefits may be
2. It may be paid by virtue of health insurance, accident insurance surplusage. subject to tax if these will not form part of the
or Workmen’s Compensation Act terminal leave pay.
-RETIREMENT BENEFITS RECEIVED FROM PRIVATE FIRM WHETHER  The monetized value of sick leave credit is
But as regards damages representing loss of anticipated income, INDIVIDUAL OR CORPORATE always tax exempt, if it forms part of the
this is the one that is taxable. terminal leave pay.
Recipient: Private employees or official of such private firm.  As regards UNUSED VACATION LEAVE
If damages are in the nature of moral, exemplary, nominal, CREDIT, this is exempt only if the number of
temperate, actual and liquidated damages, as a rule, these may not REQUISITES: days is 10 days or less in excess of 10 days,
be subject to tax. 1. The private employee or official must be at least 50 years of it is already subject to tax.
age at the time of his requirement;  If the unused sick leave benefit is monetized, if
Example: 2. He must have rendered at least 10 years of service to the the employer allow such practice, and the
If a person suffered injury as a result of a vehicular employer at the time of the retirement; same is given at the end of this year, it is
accident, and an action is filed in court, the Court awards the 3. There must be reasonable private benefit plan – established subject to withholding tax because in this
following: by the employer; case, it does not form part of the terminal
4. The reasonable private benefit plan must be approved by the leave pay.
BIR.  Reason for exemption of terminal leave pay:
The accumulated value of unused sick leave (Mactan Cebu International Airport Authority vs. Marcos, Sept. 11, --- It may be in the nature of bonds. So, foreign government here
and vacation leave credits included in the 1996). may be considered the creditor – possible income here is the
terminal leave pay is exempt from income interest of bonds. Now, loans may be extended – possible
tax because it is one received on account of  It is clear that government-owned and income here is interest on loans.
a cause beyond the control of the employee. controlled corporations is within the
This terminal leave pay is usually given under contemplation of the term “national --- If a foreign government or financing institution made a deposit
a compulsory retirement. Compulsory government”. in a bank, Phil. currency deposit – the income here is the nature
retirement is a cause beyond the control ofte  We need this distinctions because the of interest income.
employee. particular item of exclusion emphasizes the
fact that political subdivisions of the State --- If a foreign government made an investment in a domestic
*“MISCELLANEOUS ITEMS” form part of the Government of the Phils. corporation. It may be considered a stockholder. And a stockhlder
a. Prizes and Awards in Awards Competitions  You must have noticed that there is no is entitled to dividend. Hence, the dividend income received
REQUISITES: provision regarding government-owned and from domestic corporation is tax exempt.
1. Competition and tournament must be controlled corporations. Also, there are no
sanctioned or approved by the National provisions on agencies or instrumentalities of ** If the recipient of such dividend is a resident foreign
Sports Association; the government. The item or income here is corporation that is also tax exempt. It is only subject to tax if the
2. The competition and tournament must also be exempt if the recipient is either the recipient of such dividend is a non-resident foreign corporation.
approved by the Philippine Olympic Government of the Republic of the Phils. or
Committee, whether local or international; the provincial subdivisions of the State such Case: EXIMBANK, which is a consortium of Japanese banks,
whether held in the Phils or outside.(if not as provinces, cities, etc. extended a loan in the amount of S20M to Mitsubishi Metal Corp.,
accredited- 20% tax) a Japanese corporation. The same amount was extended by
* Income derived by a government-owned and controlled Mitsubishi as a loan to Atlas Corp., a domestic corporation.
b. Prizes and Awards made primarily in recognition of: corporation, agency or instrumentality of the government may be
(RCS-SALE) subject to tax. The contract entered into between Mitsubishi Metal
Religious, Charitable, Civic Achievement, Scientific, Athletic, Corp. is denominated as “contract of loan and sale”. It is a
Literary, Educational *Government-owned and controlled corporations are now subject contract of loan because Mitsubishi would lend Atlas S20M. It is
to corporate income tax, except: a contract of sale because under the contract Atlas bound itself
Example: P1 M reward given to Mr. Advincula for his a. SSS to sell the concentrates (this is a mining corp.) that may be
exemplary honesty. This may be excluded from his gross b. GSIS produced by the concentrator machine/equipment purchased
income because it is given in recognition of civic c. Phil. Health Insurance Corp. through the use of the S20M for a period of 15 years.
achievement. He was (1) selected without any action on his d. PCSO
part to enter a contest or proceeding; and (2) he is not e. PAGCOR This being a contract of loan, Mitsubishi is entitled to
required to render substantial future services as a condition to interest on loan.
receiving the award. Situation: A municipality derived income from holding a fiesta.
Rule: The rule is settled that holding a town fiesta is considered ISSUE: Whether or not such interest on loan is subject to Phil.
c. Income derived from public utility or from the exercise of a proprietary function. Therefore, said income is subject to tax. income tax
essential government function by the Government or
political subdivisions of the Phils. Situation: A municipality derived income from the operation of ARGUMENTS: Mitsubishi contended that this is not taxable
public market, electric power plant and other public utilities. because:
Recipient: Government or its Political Subdivision Rule: That income is tax exempt. 1. The source of S20M is a tax exempt entity (EXIMBANK is a
financing institution controlled and financed by a foreign
* Government of the Republic of the Phils or Government of the d. Income derived from investment in the Phils. (1) by government); and
Phils vs. National Government foreign government or (2) financing institutions, owned, 2. Mitsubishi is an agent of EXIMBANK, a tax exempt entity.
controlled or financed by foreign government, regional or
Government of the Republic of the Phils. is synonymous with (3) international financing institutions established by HELD: There was no evidence to the effect that Mitsubishi is an
Government of the Phils. foreign government agent of EXIMBANK. It is a mere allegation that has not been
Government of the Phils. or government of the Phils. – refers to the proven.
government corporate entity through which the functions of the REQUISITES:
government are exercised throughout the Phils., including save 1. Recipient must be: In a contract of loan, once the loan is consummated, the
as the contrary appears from the context, the various arms a. foreign government; amount becomes exclusive property of the borrower. It is no
through which political authority is made effective in the Phils., b. financing institution owned, financed or longer considered the money of EXIMBANK. Hence, the interest
whether pertaining to the autonomous regions, cities, provinces, controlled by foreign government; of such loan should be subject to tax.
municipalities, barangays or other forms of local government. c. regional financing institution, international
These autonomous regions, provincial, city, municipal or financing institution established by foreign The lender is not a tax exempt entity. The creditor here
barangay subdivisions are the political subdivisions. government; is Mitsubishi and it is not a tax exempt entity. Such being the case,
2. It must be an income derived from investment tax exemption must be strictly construed against the taxpayer
National government - refers to the entire machinery of the central in the Phils. and liberally in favor of the government. When you claim
government. This includes the three (3) major departments of the exemption, you should prove it clear and categorical terms.
government: the Executive, the Legislative and the Judiciary Sources of such income:
* The problem may be modified by the examiner. The examiner
may clearly state the Mitsubishi is an agent of EXIMBANK. The
answer is, the interest on loan is tax exempt. Mitsubishi then is
considered as an extension of EXIMBANK. It is as if the lender is
EXIMBANK.

e. 13th month Pay and Benefits


* This applies both to private and public employees.

* Total exclusion should not exceed P30,000 subject to increase


by the Secretary of Finance upon the recommendation of the BIR
Commissioner.

f. Contributions to GSIS, SSS, MEDICARE, PAG-IBIG, and


union dues

* This is a surplusage. Even if this is not mentioned, we cannot tax


that.

g. Sale, exchange, retirement of bonds, debentures and


other certificates of indebtedness with a maturity of more
than FIVE (5) YEARS
- If maturity is less than 5 years, taxable.

Rule: Interest on bonds


1. issued by C.B - exempt
2. if issued by corp.- not exempt

Rule: Redemptions of share in mutual funds:


- only those gains derived from redemption of shares issued by
a mutual fund company are exempt
- it must emanate from a mutual fund
- If the term is not more than 5 years (5 years or less), the gain
derived from the sale, exchange and retirement of the same, may
be subject to tax.

Illustration:
If you are a creditor, you may sell these bonds,
debentures or certificates of indebtedness to another. Hindi mo
na mahintay ang maturity kasi long term. If there is a gain on the
sale of the same, it would be a tax exempt provided that the
bonds, etc., have a maturity or term of more than 5 years.

Retirement of bonds, debenture, etc. --- Nagbayad na


‘yung debtor. There may be gain derived from the same, such as
interest. This time, since the gain is in the nature of interest, it is
subject to tax. But, the gain derived from the sale, exchange or
retirement with a term of more than 5 years, is tax exempt. This
is because exemptions are strictly construed against the taxpayer
and liberally in favor of the government. Interests on bonds,
debentures, etc. are taxable, the provision is clear. It only covers
sale/exchange/retirement of bonds, debentures and other
certificate of indebtedness with a maturity of five years. Strict
interpretation of tax exemption.
TAX REMEDIES Requisites of Assessment:
Distraint of personal property 1. Written notice stating that the amount is due as tax.
 According to the SC, government and taxpayers 1. The subject matter is personal property, stocks and securities, bank 2. Written notice must contain a demand for the payment of such tax.
must stand on reasonably equal terms. accounts, debts and credits.
 Basically, the remedies that may be availed of by 2. In the event that the taxpayer failed to pay the tax, the BIR will issue  Assessment is not a condition sine qua non for
the Government or the taxpayer may be grouped warrant of distraint. purposes of collecting taxes. This is so because
into: 3. The only requirement is posting of notice of sale in 2 public or demand is not required. The rule under Art. 1169
a. Administrative remedies conspicuous places of the NCC that demand is required before a
b. Judicial remedies 4. If the bid is not equal to the amount of tax liability, the BIR may person may incur in delay cannot be applied.
 If the tax law is silent on administrative remedies, purchase the property distrained for and in behalf of the government. Taxpayer incurred in delay if he fails to pay the
the government may still avail of the usual 5. There is no right of redmption tax on date fixed by Tax Code.
administrative remedies such as Distraint of 6. There is that remedy of constructive distraint of personal property.
personal property, or Levy on real property. But  Assessments, made by the BIR Commissioner are
that may be resorted to by the government in the Levy of real property presumed correct. The presumption does not
collection of taxes are: 1. The subject property is real property violate the due process under the Constitution
a. Distraint of personal property 2. What is issued is in the nature of an authenticated certificate because the presumption is merely disputable.
b. Enforcement of tax lien describing the property and stating the name of the taxpayer as well
c. Levy on real property. as the amount due  Normally, the BIR may require the taxpayer to
- Distrain and levy can only be done if notice is 3. Requires not only posting but also publication of the notice of sale in submit reports, documents, books of accounts and
given. a newspaper of general circulation in 3 consecutive weeks. other report to establish his tax liability. In the
4. If the bid is not equal to the tax liability of there is no bidder, the BIR absence of these reports, documents, etc., the BIR
 If the tax law is silent on administrative remedies, may forfeit such real property levied by the government. may determine the tax liability by using other
the taxpayer may still avail of the usual 5. There is right of redemption within 1 year from the date of sale plus methods.
administrative remedies of protest and refund for 15% interest.
purposes of convenience and expediency. 6. There is no such remedy as constructive levy of property.  *The BIR can determine the tax liability of the
taxpayer on the basis of that so-called best
 If the tax law is explicit on administrative Constructive Distraint can only be resorted to under the following evidence obtainable in the absence of said reports
remedies, the taxpayer must observe the principle situation: Code: C.A.R.L.) etc. In one case, agents of the BIR used the books
of exhaustion of administrative remedies. Under 1. When a taxpayer cancels or hides his property of account seized as a result of raid by means of
the Tax Code, if an assessment is made by the BIR, 2. If he performs any act which will obstruct the collection efforts of the search warrant.
the remedy of the taxpayer is to protest first the BIR
assessment. It is the decision of the BIR on that 3. If he is retiring from business subject to tax
disputed assessment that is being appealed to the 4. When he is about to leave the Philippines
CTA.
Enforcement of the tax lien: NET WORTH OR INVENTORY METHOD (also called Net Investigatory
 In claiming for tax refund, the taxpayer have to  If the taxpayer failed despite receipt of notice to Method)
file first a written claim for refund with the BIR pay the BIR, a lien is created against the - This is another method that may be employed by
Commissioner. properties of the taxpayer. the BIR in determining the tax liability of the
taxpayer. This is an expansion of that accounting
 Exception to the Principle of Exhaustion of  It is the discretion of the BIR to avail itself of principle, assets less liabilities equals net worth.
Administrative Remedies: remedies which may result in the expeditious
a. if it involves judicial questions collection of taxes. Assessment is made when it is mailed, released or sent.
b. if it involves disregards of due
process Case: Which is preferred, the claim of the government arising from Example: If it was received by the taxpayer in a particular date (Dec.
c. if it involves an illegal act. tax lien or the claim of the workers predicated on the judgment 5, 1997), you should count the prescriptive period for making an
rendered by the NLRC? assessment from the date it was mailed, released or sent by the BIR and
Judicial Remedies: not from the receipt of the notice of assessment by the taxpayer.
 IF the tax law is silent on judicial remedies, the Held: The claim of the government arising from tax lien is superior
government can still avail of the usual judicial to the claim of a private litigant predicated on a judgment. The assessment may be subject to revision by the BIR. If
remedy. Example: filing an action for collection revised, the prescriptive period will commence to run from the safe when
with the court. Exception: The claim of the laborers may be superior under such revised assessment is mailed, released or sent. So, it is not from the
 If the tax is silent on judicial remedies, the Art. 110 of the Labor Code when the employer was declared bankrupt date the original assessment is mailed etc. but from the date the revised
taxpayer may file a special civil action for of judicial liquidation. assessment has been mailed.
declaratory relief. But this does not apply as far The making of assessment is prescriptible.
as the NLRC or the TCC is concerned because these  *In observing the provisions of the tax code in
particular tax laws are explicit on this judicial regard to distraint or levy, the BIR cannot apply or  The rule is, the BIR may collect taxes with or
remedies. invoke the presumption of regularity in without prior assessment.
 If the tax law is explicit on judicial remedies, the administrative proceedings.
government should observe the provisions of the So, if the procedure had been PRESCRIPTIVE PERIOD FOR MAKING
law. questioned by the taxpayer, it is not for the AN ASSESSMENT & COLLECTION
Example: taxpayer to prove that the procedures under the
The filing of an action for collection NLRC in regard to distraint on levy had been With prior Without prior
with the Court must be complied with. assessment assessment
approved by the BIR Commissioner. I. Return filed is not false 3 years from the 3 years from the
 Revenue taxes are self-assessing taxes. or fraudulent date of actual date of actual
Distinction between the Distraint and Levy filing. If it was filing or from the
a. Return was file filed earlier than last day fixed by GROUNDS FOR THE SUSPENSION OF PRESCRIPTIVE PERIOD IN THE Prosecutor. In effect, it is always in the control of
but there exist the date fixed by law for filing such COLLECTION OF TAXES: (Code: N.A.P.O.C.A.R.) the BIR.
a deficiency the Tax Code. return. 1. No property could be allocated;
b. Return was 2. Agreement between the BIR and the taxpayer to the effect that the
filed but no COLLECTION: prescriptive period shall be suspended pending the negotiation;
payment has Within 3 years 3. If the BIR is Prohibited from a distraint or levy of real property;
been made from the date of 4. If the taxpayer is Out of the Philippines; REMEDIES OF THE TAXPAYER
assessment 5. If the address of the taxpayer Cannot be located;
II. 6. The filing of an Answer to the petition for review executed by a BEFORE PAYMENT, the taxpayer may dispute or protest the assessment.
Failure/Falsify/Fraudulent 10 years from Taxes may be taxpayer with the CTA; He ma also invoke the power of the BIR Commissioner to compromise
a. Intentional the discovery of collected even 7. When a Request for reinvestigation has been granted by the BIR. tax liability.
failure to file a such omission of without prior
return failure, falsity or assessment and PRINCIPLES IN CRIMINAL ACTION If you RECEIVED AN ASSESSMENT by the BIR, the remedies are:
b. False return fraud prescriptive a. File a request for reconsideration of the assessment or this is
c. Fraudulent period is 10 1. The filing of an action requires the approval of the BIR Commissioner. a claim for re-evaluation of the assessment based on the
return COLLECTION: 3 years from the Also, the filing of civil action requires the approval of the BIR existing records.
years from the discovery of Commissioner. BUT this is not jurisdictional. This is merely a formal defect b. File a request for investigation of the assessment --- it is also
date of failure or which can be cured. a claim for a re-evaluation of the assessment on the basis of
assessment. omission, falsity 2. The purpose of filing criminal action is to impose statutory penalties. newly discovered evidence, or additional evidence that the
or fraud. 3. The payment of tax liability does not extinguish the criminal liability taxpayer intends to present in the reinvestigation.
of the taxpayer arising from the violation of the provision of the Tax
Notes: The rule is if prior assessment has been made, the Code. This is so because the civil liability arises from the failure of the WHERE TO FILE: (a) & (b) >>>>> BIR Commissioner
BIR can avail of the administrative and judicial remedy. But if without taxpayer to pay and this does not arise from felonious act. ISSUES which may be raised >>>>> Question of law
prior assessment, the BIR can only avail of the judicial remedies. 4. The acquittal of the taxpayer from criminal liability does not carry or fact or both questions of law and fact
Return must be the one prescribed by the BIR. with it the extinguishments of civil liability. WHEN >>>>> Within
SO, if you file your Books of Accounts in lieu of that return, that does not 5. The penalty of subsidiary imprisonment applies only to the failure of 30 days from receipt of such assessment
constitute return. the taxpayer to pay the penalties. But, the Tax Law is silent on the
failure of the taxpayer to pay his deficiency or delinquency tax. IF the request for investigation or reconsideration has been denied
PRINCIPLES GOVERNING THE FILING OF AN ACTION FOR by the BIR:
COLLECTION BY THE BIR DEFICIENCY VS. DELINQUENCY 1. File a motion for reconsideration of the decision with the BIR; OR
2. Appeal the decision with the CTA.
Collection is proper under the following situations:  In deficiency, the taxpayer filed a return but the
a. BIR assessment is considered final and executory, if no protest same was deficient. Deficiency is the difference *** Motion for reconsideration must raise new grounds, meaning
or dispute has been made by the taxpayer. IF protested by between the tax due and the tax paid. grounds which have not been raised in that request for reconsideration
the taxpayer but he did not appeal, the BIR decision on such or reinvestigation. Otherwise, it is just a pro-forma motion, it will not
protest, the effect is that the BIR decision shall be considered  In delinquency, the taxpayer did not file a return. suspend the period within which to appeal the BIR decision to the CTA
final and executory. which is 30 days from receipt of the BIR decision.
b. IF he appeal the decision of the BIR of the Commissioner to the FALSE RETURN vs. FRAUDULENT RETURN
CTA but he did not appeal the decision of the CTA to CA, the In the case of false return, this is a deviation from the truth. It ISSUES that may be raised on appeal with the CTA >>> Questions of
decision of the CTA shall be final and executory. may be the result of mistake, error, or negligence of the taxpayer. It is Law or fact OR both
c. If he appeal to the CA but the CA decision affirming that not always intentional because it may be the result of an honest opinion
decision of the BIR was not appealed to the SC, CA decision of the CPA. If CTA affirms the decision of the BIR:
shall be final and executory. In fraudulent return, there is always the intent to defraud  Appeal the CTA decision to CA.
d. If appealed to SC but SC affirm the decision of the CA, SC the government to evade taxes. It is always intentional and deliberate.
decision is final and executory. ISSUES >>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Questions
 Criminal action may be suspended if the taxpayer of law
 If the decision of the BIR is final and executory, the is absent from the Philippines. WHEN >>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Within 15
assessment made cannot be questioned. The issue days from receipt of the CA decision
of prescription can no longer be raised except if  FIVE (5) years – the prescriptive period for filing
the BIR submitted the particular issue for the a criminal action for violations of the provision of The taxpayer may, instead of filing a protest, file a written claim for
resolution of the Court, that is considered as the Tax Code. refund.
waiver on the part of the BIR and such issue of
prescription may be subject to resolution.  In the case of refusal to pay the tax, the 5-year REQUISITES FOR FILING REFUND:
 There is no provision in the TAX Code that prohibits prescriptive period will commence to run from the 1. This must be filed within the two (2) year period from the date of
the BIR from filing an action for collection even if date final notice or demand has been served upon payment;
the resolution on the motion for reconsideration on the taxpayer. 2. The fact of withholding must be proven;
the assessment made is still pending. 3. This must be included in the income tax return of the taxpayer;
 When the case is pending before the CTA,  As regards violation of the Tax Code, if the 4. It must be shown that the payment or the amount stated in the return
collection may also be made by filing of an violation is known the 5-year prescriptive period was received by the government.
answer to the petition for review with the CTA. This shall commence to run from the date of the
is tantamount to a filing of collection of tax. This discovery of the violation and the institution of WHERE TO FILE REFUND: --- BIR
will also stop the running of the prescriptive period judicial proceedings for investigation and ISSUES: --- Questions of law or fact OR
for collection of taxes. punishment. The law uses the conjunction “and”. So, --- both OR
 Collection of taxes is prescriptible. it will commence to run only from the time the BIR --- the taxes are
referred the case to the Fiscal’s Office or City illegally or erroneously collected
ILLEGALLY COLLECTED TAX vs. ERRONEOUSLY COLLECTED TAX:
Illegally collected tax means it violates certain provision of
the law. It may not be authorized by a peculiar Tax Law or statute.
Erroneously collected tax means there may be a law
passed but there was a mistake in the collection.

WHEN TO FILE: Within 2 years from the date of payment


> Payment must be proven in contemplation of Tax Law, there is
payment when the tax liability is fully paid. So, if it is payable in
installment, there can only be payment when the final installment has
been paid.