Taxation: Statute of Limitations

FOR ASSESSMENT: within 3 years after last day for filing of return or if after deadline, then from actual filing; or 10 years from date of discovery if ITR is fraudulent, false or no ITR was filed

NOTA BENE:

• The fraud must be proved as a fact. When the CIR fails to impute fraud in the assessment notice or demand for payment, or for failure to allege it in his answer to the taxpayer’s petition for review, fraud is negated and precludes the application of the 10-yr period.
• Mere understatement of income in itself does not constitute fraud. To justify the application of the 10-yr prescriptive period, fraud must be the product of a deliberate intent to evade taxes.
• But proof of fraud may be dispensed with when the court takes judicial notice of fraud assessments which have become final and executory in collection cases

ADDENDUM: If return was substantially amended, count the period from filing of amended return.

PRIMA FACIE EVIDENCE OF FRAUD

1. taxpayer substantially underdeclares his taxable sales, receipts or income -- amount that he failed to report exceeds 30%
2. taxpayer substantially overdeclared his deductions -- amount of deduction exceeds 30%

INFORMER'S REWARD, REQUISITES (on Fraudulent Tax Returns)

1. voluntarily filed confidential information under oath with the Law Division of the BIR alleging therein specific violations constituting fraud
2. information must not yet be in possession of BIR or refer to a case already pending or previously investigated by BIR
3. informer must not be a government employee or a relative of the government employee within the 6th degree of consanguinity
4. information must result to collection of revenues and/or fines and penalties

FOR COLLECTION: within 5 years following the assessment of the tax; or within 10 yrs if the Government’s action is on a BOND which the taxpayer executes in order to secure the payment of his tax obligation

FOR CRIMINAL ACTIONS: within 5 yrs from the day of the commission of the violation, or from the discovery thereof and the institution of judicial proceedings for investigation and punishment or from time assessment became final and unappealable

NOTA BENE:

• period does not run if the person is absent from the Philippines
• interrupted when the proceedings are instituted, to run again once proceedings are dismissed for reasons constituting jeopardy
• may be raised even on appeal

Extension of Prescriptive Periods
Government and the taxpayer may enter into mutual agreement in writing PROVIDED THAT:

• the agreement must be entered into before the lapse of the 5-yr period
• but if the agreement provides that the taxpayer is not merely extending the prescriptive period but renouncing his right to invoke the defense of prescription, then even if the agreement was entered into beyond the 5-yr period, it is still binding

Q: If the 5-yr period has already lapsed and the BIR official failed to collect the tax, may he set-off the tax against a claim for tax refund filed by the taxpayer?
A: Set-off is not allowed in this case. The collecting officer should not be encouraged to be negligent in collecting taxes within the prescriptive period.

Interruption of Prescriptive Period

1. when the CIR is prohibited from making the assessment or beginning distraint and levy or a proceeding in court and for 60d thereafter
2. when the taxpayer requests for the reinvestigation which is granted by the CIR
3. when the taxpayer cannot be located in the address given by him in his return
4. when the warrant of distraint and levy is duly served upon the taxpayer or his authorized representative or a member of his household with sufficient discretion and no property could be located
5. when the taxpayer is out of the Philippines