INFORMER’S REWARD (Sec 282 of the NIRC)  To whom given  persons instrumental in the

discovery of violations of the NIRC and in discovery and seizure of smuggled goods.  Conditions to qualify for the reward:

1. Person is not an internal revenue official or employee, public official, or employee or relative within 6 th degree of consanguinity 2. Voluntarily gives definite and sworn

information:

a) Not yet in the possession of BIR b) Leading to discovery of frauds c) Resulting in:

i. the recovery of revenues, surcharges and fees and/or

ii. conviction of the guilty party. d) Not refer to a case already pending

or previously investigated or examined by the Commissioner or his agents or the SOF or his agents.  Amount of reward: 10% of the revenues,

surcharges or fees recovered and/or fine/penalty imposed, or P1,000,000, whichever is LOWER.

 The same amount shall be given if the offender offered to compromise and such offer has been accepted and collected by the Commissioner.

 If no revenue, surcharge or fees be actually collected, such person is not entitled to a reward

 For discovery and seizure of SMUGGLED GOODS  The cash reward is 10% of the FMV of the smuggled and confiscated goods, or P1,000,000, whichever is LOWER.

 The cash rewards shall be subject to income TAX at the rate of 10%.

 Rule of construction  Statutes offering rewards must be liberally construed in favor of informers and with regard to the purpose for which they are intended, with mere technicality yielding to the substantive purpose of the law. [Penid v. Virata]

IX. PROBLEMS

1. Mr. Sebastian is a Filipino seaman employed by a Norwegian company which is engaged exclusively in international shipping. He and his wife, who manages their business, filed a joint income tax return for 1997 on 15 March 1998. After an audit of the return, the BIR issued on 20 April 2001 a deficiency income tax assessment for the sum of P250,000 inclusive of interest and penalties. For failure of the couple to pay the tax within the period stated in the notice of assessment, the BIR issued on 19 August 2001 a warrant of distraint and levy to enforce collection of the tax. If you are the lawyer of the couple, what possible defense or defenses will you raise in behalf of your clients against the action of the BIR in enforcing collection of the tax by the summary remedies of warrants of distraint and levy? Explain your answer. (2002 Bar) Answer: I will raise the defense of prescription. The right of the BIR to assess prescribes after three years from the last day prescribed by law for filing the return. The

last day for filing the 1997 ITR is on 15 April 1998. Since 20 April 2001 is more than 3 years from that date, BIR’s right to assess had already prescribed.

2. TY Corporation filed its final adjusted IT return for 1993 on 12 April 1994 showing a net loss from operations. After investigation, the BIR issued a pre-assessment notice on 30 March 1996. A final notice and demand letter dated 15 April 1997 was issued, personally delivered to and received by the company’s chief accountant. For willful refusal and failure of TY Corporation to pay the tax, warrants of distraint and levy on its properties issued and served upon it. On 10 January 2002, a criminal charge for violation of the Tax Code was instituted in the RTC with the approval of the Commissioner. The company moved to dismiss the complaint on the ground that an act for violation of any provision of the Tax Code prescribes after five years and in this case, the period commenced to run on 30 March 1996 when the PAN was issued. How will you resolve the motion? (2002 Bar)

Answer: The MTD should not be granted. It is only when the assessment has become final and unappealable that the 5-year period to file a criminal action commences to run. The PAN is not a final assessment which is enforceable by the BIR. IT is the issuance of the final notice and demand letter dated 15 April 1997 and the failure of the taxpayer to protest within 30 days from receipt that made the assessment final and unappealable. The earliest date that the assessment has become final is 16 May 1997, and since the criminal charge was instituted on 10 January 2002, the same was timely filed.

3. In the investigation of the withholding tax returns of AZ Medina Security Agency for the taxable years 1997 and 1998, a discrepancy between the taxes withheld from its employees and the amounts actually remitted to the government was found. Accordingly, before the period of prescription commenced to run, the BIR issued an assessment and a demand letter calling for the immediate payment of the deficiency withholding taxes in the total amount of P250,000. Counsel for AZ Medina protested the assessment for being null and void on the ground that no PAN had been issued. However, the protest was denied. Counsel then filed a petition for prohibition with the CTA to restrain the collection of the tax. Is the contention of the counsel tenable? Will the special civil action for prohibition brought before the CTA under Sec. 11 of RA 1125 prosper? Discuss your answer. (2002 Bar)

Answer: No, the contention of the counsel is untenable. Section 228 of the Tax Code expressly provides that no PAN shall be required when a discrepancy has been determined between the tax withheld and the

amount actually remitted by the withholding agent. Since the amount assessed relates to deficiency withholding taxes, the BIR is correct in issuing the assessment and demand letter calling for the immediate payment of the deficiency withholding taxes. Moreover, the special civil action for prohibition will not prosper, because the CTA has no jurisdiction to entertain the same. The power to issue writ of injunction provided for under Section 11 of RA 1125 is only ancillary to its appellate jurisdiction. The CTA is not vested with original jurisdiction to issue writs of prohibition or injunction independently of and apart from an appealed case. The remedy is to appeal the decision of the BIR (Collector vs. Yuseco 3 SCRA 313)

4. Mr. Chan, a manufacturer of garments, was investigated for failure to file tax returns and to pay taxes for the taxable year 1997. Despite subpoena duces tecum issued to him, he refused to present and submit his books of accounts and allied records. Investigators, therefore, raided his factory and seized several bundles of manufactured garments, supplies and unpaid imported textile materials. After his apprehension and based on the testimony of a former employee, deficiency income and business taxes were assessed against Mr. Chan on April 15, 2000. It was then that he paid the taxes. Criminal action was nonetheless instituted against him in the RTC for violation of the Tax Code. Mr. Chan moved to dismiss the criminal case on the ground that he had already paid the taxes assessed against him. He also demanded the return of the garments and materials seized from his factory. How will you resolve Mr. Chan’s motion? (2002 Bar)

Answer: The MTD should be denied. The satisfaction of the civil liability is not one of the grounds for the extinction of criminal action. Likewise, the payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of the Tax Code (Sec. 253a). However, the garments and materials seized from the factory should be ordered returned because the payment of the tax had released them from any lien that the Government has over them.

5. A taxpayer is suspected not to have declared his correct income in the return filed for 1997. The examiner requested the Commissioner to authorize him to inquire into the bank deposits of the taxpayer so that he could proceed with the net worth method of investigation to establish fraud. May the examiner be allowed to look into the taxpayer’s bank deposits? (2000 Bar)

Answer: NO, as this would be violative of RA 1405, the Bank Secrecy Law. The Commissioner or his representative is allowed to inquire into the bank deposits of a taxpayer only in these three cases:

- For the purpose of determining the gross estate of a decedent

- Where the taxpayer has filed an application for compromise of his tax liability on the ground of financial incapacity

- Where the taxpayer has signed a waiver authorizing the Commissioner to inquire into his bank deposits

6. A Co. a Philippine corporation, is a big manufacturer of consumer goods and has several suppliers of raw materials. The BIR suspects that some of the suppliers are not properly reporting their income on sales to A Co. The CIR therefore:

- Issued an access letter to A Co. to furnish the BIR with information on sales and payments to its suppliers - Issued an access letter to X bank to

furnish the BIR on deposits of some suppliers of A C. on the alleged ground that the suppliers are committing tax evasion.

A Co., X Bank and the suppliers have not been issued by the BIR letter of authority to examine. A Co. and X Bank believe that the BIR is on a fishing expedition and come to you for counsel. What is your advice? (2000 Bar)

Answer: I will advise A Co. and X Bank that the BIR is justified only in getting information from the former but not from the latter. The BIR is authorized to obtain information from other persons other than those whose tax liability is subject to audit or investigation. However, this power shall not be construed as granting the Commissioner the authority to inquire into bank deposits. (Section 5, NIRC)