Business Mirror

Atty. Irwin Nidea Jr. discusses the aggressive policy of collection of the BIR and how its disregard of its own rules in the implementation of collection proceedings could be detrimental to the constitutional right to due process of every Filipino.

Collect Tax Assessment that is Final and Executory

By Atty. Irwin C. Nidea Jr. 

The BIR has been aggressive in its collection schemes which in my opinion are trampling upon the constitutional right to due process of every Filipino. It is not a secret that the BIR has been issuing warrants of distraint and levy against the bank accounts and properties of taxpayers that have pending tax assessments. Collection proceedings are pursued, bank accounts are garnished, properties are sold in public auction even if a taxpayer has correctly, timely and properly filed an appeal with the Court of Tax Appeals (CTA).

My colleague, Atty. Unciano touched upon this issue in his article a few weeks ago. I wish to give my additional insights on this embarrassing policy since even multinational companies are being targeted. We are supposed to attract foreign direct investments. But if these investors will feel helpless when the BIR collects a bloated tax assessment, these investors will shy away, and we will never move forward as a nation.

The BIR anchors its alleged colossal powers in Section 11 of the law creating the Court of Tax Appeals (“CTA Charter”). It states that “No appeal taken to the Court of Tax Appeals (CTA) from the decision of the Commissioner of Internal Revenue on a disputed assessment shall suspend the payment, levy, distraint and/or sales of any property of the taxpayer for the satisfaction of his liability xxx” In other words, an appeal to the CTA will not stop the BIR from collecting a disputed tax assessment. So, even if it a case is pending before the CTA and unless the CTA issue and order suspending the payment of tax, the taxpayer has no choice but to surrender his properties to the BIR.

Does this sound, look or feel fair?

It obviously does not. The BIR’s reliance in the CTA Charter is misplaced. The CTA Charter must be read together with the Tax Code and related BIR revenue issuances.

The CTA Charter only states that an appeal to the CTA of a disputed assessment will not stop the BIR from instituting collection proceedings. It must be emphasized though that the manner on how and when collection proceedings must be instituted are governed by different laws or rules which ironically are embedded in the BIR’s own revenue issuances. It is clear from these revenue issuances that the BIR can only collect if a tax assessment has become final and executory.

While the CTA Charter is silent as to when the remedy of enforcement of distraint or levy may be availed of, the Tax Code and its corresponding revenue issuances are clear as to when these remedies may take effect.

The Tax Code provides that the Commissioner of Internal Revenue (“CIR”) or his duly authorized representative may distraint the personal property or levy the real property of the taxpayer upon failure of the latter to pay its delinquent tax. Thus, even if a case that is elevated to the CTA may be subject of collection, the BIR is prohibited by its own rules to pursue collection proceedings if the assessment is not considered delinquent.

RR No. 04-19 defines a delinquent account as a tax due from a taxpayer arising from the audit of the BIR which had been issued Assessment Notices that have become final and executory due to the following instances:

1. Failure to pay the tax due on the prescribed due date provided in the Final Assessment Notice (FAN)/Formal Letter of Demand (FLD) and for which no valid Protest, whether a request for reconsideration or reinvestigation, has been filed within thirty (30) days from receipt thereof;

2. Failure to file an appeal to the Court of Tax Appeals (CTA) or an administrative appeal before the Commissioner of Internal Revenue (CIR) within thirty (30) days from receipt of the decision denying the request for reinvestigation or reconsideration; or

3. Failure to file an appeal to the CTA within thirty (30) days from receipt of the Decision of the CIR denying the taxpayer's administrative appeal to the Final Decision on Disputed Assessment (FDDA).

Also, under Revenue Memorandum Order (RMO) No. 35-2019, garnishment, and levy of properties for delinquent accounts shall be pursued in tax assessments which have become final and executory, to wit:

“In order to protect the interest of the government, civil remedies provided under Section 205 of the National Internal Revenue Code (NIRC), as amended, shall immediately be pursued as soon as the "Form 40-Collectible" reports relative to the following have been received by the offices responsible in the enforcement of collection remedies:

1. List of Unpaid Revenues (Annex "A") — these are self-assessed taxes arising from dishonored checks, the unpaid second installment of income tax due of individual taxpayers and duly validated unpaid tax due per tax returns; and

2. List of Unpaid Tax Assessments (Annex "B") — these are tax assessments arising from an investigation which have become "final and executory" in accordance with existing policies.”

In the said Annex “B” of RMO No. 35-2019, it enumerates the list of tax assessments that are considered final and executory. The list includes (a) unprotested FAN/FLD; (b) unappealed FDDA; (c) unappealed Decision of the Commissioner; and (d) final and executory decisions of Court.

Clearly, a tax assessment will only be considered final and executory when it was unprotested or unappealed. Again, an appeal to the CTA, unless a suspension order is issued, will not stop the BIR from enforcing levy and garnishment against the properties of taxpayers. But as to how and as to when these BIR powers may be exercised are governed not by the CTA Charter but by the BIR’s own revenue issuances. These revenue issuances are categorical in saying that the BIR can only collect if a tax assessment has become final and executory. So, even if an appeal to the CTA will not stop the BIR from garnishing or levying properties, the BIR cannot garnish or levy on a whim. It must follow its own rules which says that its power to garnish and levy properties is limited to assessments that have become final and executory.

The BIR must not collect on tax assessments that have been properly appealed and protested. It must concentrate on low hanging fruits and collect tax assessments that have been ruled upon by the Supreme Court as final and executory.