BIR's right to collect has expired

WHEN one is facing a tax assessment case we resort to exhaust all possible and available legal remedies that the law provides for the taxpayer. One of the possible and available remedies is for the taxpayer to request for a reinvestigation of the case.

Under Revenue Regulations (RR) No. 18-2013, request for reinvestigation refers to a plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or of law or both.

This request, however, cannot be granted without a return of favor to the Bureau of Internal Revenue (BIR).As a rule, when the taxpayer requests for a reinvestigation which is granted by the Commissioner of the BIR, the running of prescriptive period of the BIR to assess and collect shall be suspended. Consequently, the five (5)-year prescriptive period for BIR to collect the tax assessment shall be suspended.

WHEN DOES THE SUSPENSION OF THE FIVE (5)-YEAR PRESCRIPTION PERIOD TO COLLECT COMMENCE?

In G.R. No. 197515 (Commissioner of Internal Revenue vs. United Salvage and Towage (Phils.), Inc.), the Supreme Court (SC) said that the request for reinvestigation should be granted or at least acted upon in due course before the suspension of the statute of limitations to collect may set in.

In the instant case, the final assessment notice (FAN) was issued by the BIR on January 9, 1996 and the taxpayer requested for a reinvestigation on March 14, 1997. However, the BIR granted such request only on January 22, 2001 or after five (5) years from the date of the issuance of the FAN. Further, the BIR issued Preliminary Collection Letter only on February 21, 2002.

The BIR argued that its right to collect the tax assessment has not yet prescribed. The five (5)-year prescriptive period to collect was interrupted when the taxpayer filed its request for reinvestigation. Thus, the period for tax collection should have begun to run from the date of the reconsidered or modified assessment.

This argument failed to persuade the SC. The Court emphasized the rule that the Commissioner of the BIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations. The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension.

The Court pointed out that while the request for reinvestigation was made on March 14, 1997, the same was only acted upon by the BIR on January 22, 2001 which is beyond the three (3) year statute of limitations from the issuance of the FAN on January 9, 1996. Further, the Court stressed that the Preliminary Collection Letter was only issued on February 21, 2002 which is clearly five (5) long years had already lapsed before collection was pursued by the BIR.

Moreover, the Court rejected the BIR’s argument that the taxpayer’s act of elevating its protest to the Court of Tax Appeals has fortified the continuing interruption of the BIR’s prescriptive period to collect. The Court found the argument flawed at best because the taxpayer was merely exercising its right to resort to the proper Court and does not in any way deter the BIR’s right to collect taxes from the taxpayer under existing laws.

The Court also elucidated that the statute of limitations on the collection of taxes was enacted to benefit and protect the taxpayers. Just as the government is interested in the stability of its collections, the taxpayers are also entitled to an assurance that they will not be subjected to further investigation for tax purposes after the expiration of a reasonable period of time.

While it is true that taxes are the lifeblood of the government, it must be exercised fairly, equally and uniformly so as not for the tax collector to kill the “hen that lays the golden egg.”

Nikkolai F. Canceran

Let’s Talk Tax

Punongbayan and Araullo