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Exacto Ad Absurdum

(Article published in the Jul 27,2011 issue of Manila Standard Today) 

Republic Act No. 8282, the law that expanded the jurisdiction of the Court of Tax Appeals, elevated its rank to the level of a collegiate court with special jurisdiction and enlarged its membership, had in Section 7(b)(1), an obvious purpose: to avoid multiplicity of suits by centralizing in the Court of Tax Appeals the adjudication of big ticket disputes between the taxpayer on the one hand and the Bureau of Internal Revenue or the Bureau of Customs on the other. 

Thus, the last sentence of Section 7(B)(1) provides: “Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of the civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized.”

The presence of certain words of art, namely “Any provision of law …to the contrary notwithstanding”, “shall at all times”, and “being deemed”, clearly indicates the intent of the legislature to stress in no uncertain terms the primacy of its intent to hasten the judicial process of collecting taxes. 


In the light of this intent, it is easy to see why arguing for the need of a final assessment by the Bureau of Internal Revenue of the civil liability of a delinquent taxpayer at the time the Information is filed before a court that is hearing the criminal case against said taxpayer may consider the civil liability of said taxpayer is erroneous.

Before an assessment by the Commissioner becomes final (and thus appealable to the courts), a long and tedious process is mandated by law. The Commissioner or his duly authorized representative is required to initiate the proceedings by notifying the taxpayer of his findings.

Although there are instances, by way of exception, when the issuance of this so-called “Preliminary Assessment Notice” (PAN) or the “15-day letter” (so-called by practitioners because the taxpayer is given by regulation 15 days to respond) is not necessary, ---as in the case of a mere mathematical error made by the taxpayer in his return and discovered by the Bureau, or in the case where the amount remitted to the Bureau by a withholding agent is less than what it had actually remitted, or in the case of a taxpayer who had opted to claim a refund or tax credit who is found to have already carried over and applied the same amount against his estimated tax liabilities (i.e. the taxpayer is claiming as a refund even after he had already used the same as a reduction of his tax liability),--- the general rule is that the taxpayer must be told by the Commissioner where his deficiency lied. The taxpayer must be, says the law, “informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.” 

In no uncertain terms, the Supreme Court in the case of the Com’r of Internal Revenue v. Metro Star Superama, Inc., promulgated on 08 December 2010, ruled that “Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and adduce supporting evidence.”

Only when the taxpayer does not heed the PAN or when the taxpayer presents, at that time, evidence that is, in the mind of the Commissioner, inadequate to change his preliminary assessment, does the Commissioner issue a final notice of assessment, or FAN.  But the “F” for “Final” is not really the fin, or “the end”, and so does not actually close the administrative proceedings.  The taxpayer is still given a chance to file a request for reconsideration or reinvestigation within thirty (30) days from the receipt of the assessment.

Such a request is called a “Protest.”  The protest automatically gives the taxpayer at least sixty (60) days from its filing to improve on the presentation of his case before the Commissioner by submitting additional evidence, which obviously should be of better value than what he had submitted in response to the 15-day letter. 

And only when “…the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of the documents” does the case ripe for elevation by the taxpayer to the Court of Tax Appeals.  The case must be brought up, if the taxpayer so desires, “within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180) day period.”  That decision by the Commissioner on the protest of the taxpayer is called the final notice of assessment, or the FAN.

It is that long process of administratively determining the civil liability of the taxpayer, from the PAN to the FAN, which was dispensed with when the civil liability was automatically instituted with the filing of a criminal case against the erring taxpayer.  To maintain, therefore, that the finally assessed civil liability needs to be stated in the Information, as a condition for the CTA to consider and after trial rule thereon, is clearly contrary to what the law wanted to achieve, i.e. to expedite the collection of taxes in on proceeding.   It is therefore an absurd proposition.