Tax Remedies: Remedies of the Government

IMPORTANCE OF TAX REMEDIES

• to enhance the government’s tax collection efforts
• to safeguard against arbitrary action

NON-INJUNCTION OF TAX STATUTES

Sec. 218, NIRC: No court shall have the authority to grant injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

EXCEPTION: a decision of the CIR appealed to the CTA does not suspend payment, levy or distraint of taxpayer’s property; but if the CTA finds that collection may jeopardize the interest of the taxpayer or the government, then CTA may suspend or restrain the collection of tax and require the taxpayer to either deposit the amount claimed or to file a surety bond for more than double the amount with the court


Q: During pendency of the appeal in the CTA, the BIR files a civil action for collection of tax in the RTC, what is the remedy of the taxpayer?
A: The taxpayer may file a motion to dismiss in the RTC on the ground that the collection of tax has no basis where the assessment thereof is still under dispute with CTA.

REMEDIES OF THE GOVERNMENT

- these remedies may be pursued singly or simultaneously

1. Tax Lien
- from the moment the tax is due, not from the service of the warrant of distraint
- not valid against a mortgage purchaser or judgment creditor until NOTICE has been filed by CIR with the RD of the province or city where property is located (the tax lien shall be annotated on the title)

2. Compromise
- allowed when:

1. a reasonable doubt as to validity of the claim against the taxpayer exists
2. financial position of the taxpayer demonstrates a clear inability to pay the assessed tax (minimum compromise rate equivalent to 10% of the basic assessed tax and the taxpayer must waive in writing his privilege under the Banking Secrecy Law, such waiver constituting authority of the CIR to inquire into his bank deposits)

Compromise v. ABATEMENT:

• As Effect – C: reduce tax liability; A: cancel the entire tax liability
• As to when proper – C: when there is reasonable doubt as to validity of tax assessment or the taxpayer is financially incapacitated to pay; A: when there is unjust assessment (excessive) or when administration and collection cost do not justify the amount of tax due

GR: compromise of criminal violations is allowed, EXCEPT:

1. those already filed in court
2. those involving fraud

GR: power to compromise is a non-delegable power of CIR, EXCEPT that regional evaluation board may compromise:

1. basic taxes less than P500,000
2. minor criminal violations

NOTA BENE: A compromise penalty is in lieu of a criminal prosecution. If the taxpayer fails to abide by the compromise arrangement, the government has two options:

1. collect the compromised sum; or
2. disregard the compromise and collect the original tax due.

ADDENDUM: But if the taxpayer does not agree to the compromise, a collection action by the government for the compromise penalty does not lie. This is because, by its nature, a compromise is entered into by mutual agreement between parties and the proposed compromise penalty is neither tax nor an administrative penalty for tax delinquency.

Q: May a case still be compromised after final judgment?
A: No, because by virtue of the final judgment, the government had already acquired a vested right.

Q: Can withholding tax be compromised?
A: No. Taxpayer constituted as withholding agent who deducted and withheld at source the tax on income payment made by him holds the taxes as trust funds for the government. He is obligated to remit them to the BIR. His subsequent inability to pay or remit the tax withheld is not a ground for compromise because the withholding tax is not a tax upon the withholding agent but is only a procedure for collection of tax.


3. Distraint and Levy
- summary, extra-judicial or administrative enforcement remedies

DISTRAINT v. LEVY: distraint is to personal property while levy is to real property


KINDS OF DISTRAINT:

1. Actual – when delinquency of the payment sets in; there is actual seizure and distraint
2. Constructive – no actual delinquency ; the owner is prohibited from disposing of his property; preventive remedy to forestall a possible dissipation of the taxpayer’s assets when delinquency takes place

CONSTRUCTIVE DISTRAINT PROPER IF:

1. taxpayer is retiring from any business subject to tax
2. he intends to leave the Philippines
3. he removes his property therefrom
4. he performs any act tending to obstruct the proceedings for collecting the tax due or which may be due from him

PROCEDURE:

• Actual Distraint Procedure

1. commencement of distraint proceedings by CIR (P1M+) or RDO (P1M or less)
2. service of warrant of distraint
3. notice of sale of distrained property to the owner or possessor not less than 20 days from date of sale, and osting in not less than 2 public places in municipality or city where distraint is made
4. sale of property distrained by public auction, highest bidder for cash, or with approval of CIR through duly licensed commodity or stock exchange

EQUITY OF REDEMPTION: payment of all proper charges any time prior to sale

NOTA BENE: A person in possession or having control of property under actual distraint (or levy) may be penalized if upon demand he fails or refuses to surrender the goods, EXCEPT in case of judicial attachment or execution.

• Constructive Distraint Procedure

1. commencement of distraint proceedings
2. service of warrant of constructive distraint
3. taxpayer is required to sign a receipt covering the property distrained and obligate himself to preserve the same; if taxpayer refuses to sign the receipt, the revenue officer shall prepare a list of property distrained and in the presence of two witnesses leave a copy thereof in the premises

• Procedure on Levy of Real Property

1. service of warrant of levy after the expiration of time required to pay the delinquent tax
2. duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and penalty due from him (operate with the force of a legal execution)
3. written notice of levy to the Register of Deeds and the delinquent taxpayer, his agent or manager (if TP is absent), occupant of the property (if no agent/manager); in case government first effected distraint and it is not enough to cover the tax, then CIR shall, within 30d after execution of the distraint, proceed with levy
4. advertisement of the sale within 20d after levy for a period of at least 30d at the main entrance of the municipal building and other public, conspicuous places and publication once a week for 3wks in a newspaper of general circulation
5. public sale of the property under levy at main entrance of the municipal building or on the premises to be sold
6. return of sale within 5d after sale
7. issue certificate of sale; taxpayer is entitled to any residue
8. in case of no bidder, the property shall be declared forfeited to the government

EQUITY OF REDEMPTION: any time prior to sale
RIGHT OF REDEMPTION: within 1yr from date of sale or forfeiture


4. Civil Action

WHEN:

1. when a tax is assessed and the assessment becomes final and unappealable (because TP failed to file administrative protest with BIR within 30d from receipt of assessment)
2. when an administrative protest is denied or is not acted upon within 180d from submission of documents and TP fails to appeal to the CTA

WHERE: regular courts, with approval of CIR except if express delegation to Regional Director; motion to dismiss the complaint should also be filed in the regular courts

HOW: the complaint must be brought in the name of the Government and conducted by a legal officer of the BIR

5. Criminal Action

WHEN: before lapse of 5 years (prescription period)

WHERE: DOJ

HOW: complaint approved by CIR brought in the name of the Government and conducted by a legal officer of the BIR

GROUND: prima facie showing of failure to file a required tax return or a willful attempt to evade taxes; no need for assessment

6. Other Remedies Available

• Forfeiture
• Suspension of Business Operations
• Enforcement of Administrative Sanctions