National Capital Judicial Region Branc ! "ANILA "aria Clara Recolecto# Petitioners, vs. $CASE No% &'()'!*)+,- Co..i##ioner o/ Internal Re0enue and1 te Honora2le Secretar3 o/ Finance Respondents. x-----------------------------------------------x PETITION FOR RE4IE5 Herein is a Petition for Review assailing the constitutionality and validity of Revenue Regulation No. 12- 2013 1 relating to disallowance of expenses if deciency withholding tax is paid during a !"R tax audit. Petitioner# $aria %lara Recolectos# &y undersigned counsel# unto this Honora&le %ourt# respectfully states' 1. Petitioner is a tax payer of legal age# single and a residence at 1 Recto (ve.# $anila) 2. *ithout in any way pre-e+pting any Resolution &y the Honora&le %ourt# petitioner desires to refute the constitutionality and legality of !"R Revenue Regulation No. 12-2013 as &eing ar&itrary# against pu&lic policy# in violation of the due process of law# and against the e,ual protection of the law) 3. -he assailed regulation is here&y reproduced in part# thus' 1 Amending Section 2.58.5, Revenue Regulation No. 2-98, as amended. .Section 1. Scope. --- Pursuant to the Provisions of Sections 34(K) 2 and 244 3 , in relation to Section 245 of the National Internal Revenue ode of !""# ($a% ode), as a&ended, these re'ulations are here() pro&ul'ated to a&end the provisions of Revenue Re'ulation No. 2*"+, as a&ended. Section 2. Amendment. --- Section 2.5+.5 of RR 2*"+, as a&ended, is here() further a&ended to read as follo,s- Section 2.5+.5. Re.uire&ents for /educti(ilit). *** 0n) inco&e pa)&ent ,hich is other,ise deducti(le under the ode shall (e allo,ed as a deduction fro& the pa)or1s 'ross inco&e onl) if it is sho,n that the inco&e ta% re.uired to (e ,ithheld has (een paid to the 2ureau in accordance ,ith Sections 5# and 5+ of this ode. No deduction ,ill also (e allo,ed not,ithstandin' pa)&ents of ,ithholdin' ta% at the ti&e of the audit investi'ation or reinvesti'ation3reconsideration in cases ,here no ,ithholdin' of ta% ,as &ade in accordance ,ith Sections 5# and 5+ of the ode.4 3. R.R. 12-2013 is not reasona&le &ecause it prevents the deductions of expenses su&/ect to %redita&le *ithholding -ax not paid during a !"R tax (udit not withstanding taxpayers0 voluntary co+pliance with his tax o&ligations) 1. 2eduction of expenses will &e disallowed where pay+ent of withholding tax is +ade only at the ti+e of audit investigation or reinvestigation# thus# proper deductions of proper expenses will &e denied even if withholding tax has 2 SECTION 34 (K). Additional Requirements for Deduti!ilit" of Certain #a"ments. $$$ Any Amount paid or payable !ic! is ot!erise deductible "rom, or ta#en into account in computing gross income or "or !ic! depreciation or amorti$ation may be alloed under t!is Section, s!all be alloed as a deduction only i" it is s!on t!at t!e ta% re&uired to be deducted and it!!eld t!ere"rom !as been paid to t!e 'ureau o" (nternal Revenue in accordance it! t!is Section, Sections 58 and 81 o" t!is )ode. * SECTION %44. Aut&orit" of Seretar" of 'inane to #romul(ate Rules and Re(ulations. $$$ +!e Secretary o" ,inance, upon recommendation o" t!e )ommissioner, s!all promulgate all need"ul rules and regulations "or t!e e""ective en"orcement o" t!e provisions o" t!is )ode. 2 &een paid when such pay+ent is e3ected only at the ti+e of the investigation or reinvestigation. 4. 5ection 216 of the National "nternal Revenue %ode already i+poses pertinent additions to the tax or deciency taxes# further# 5ection 217 of the sa+e %ode already i+poses a general interest at the rate of twenty percent 8209: per annu+# or such higher interest rate as +ay &e prescri&ed &y rules and regulations# as well as deciency interest# delin,uency interest and interest on extended pay+ent. ;. 5uch disallowance of expense deduction shall &e had together with taxpayer0s pay+ent of other penalties# surcharges# interests and co+pro+ise# thus# it is indirectly adding additional pay+ent of .penalties< on the part of the taxpayer. 6. -he i+plication of disallowance as provided for under the assailed Revenue Regulation clearly results to an oppressive tax syste+ prohi&ited under the %onstitution. =. Pursuant to Revenue $e+orandu+ >rder 8R$>: No. 62-2010# a -ax -reaty Relief (pplication 8--R(: +ust &e led prior to the rst taxa&le event# hence# it +ay &e argued that once a --R( is led# a withholding agent +ay withhold tax on a pay+ent +ade to a treaty country resident at a rate specied in a treaty with the contracting country# su&/ect to a nal conr+ation via a ruling. "f said ruling denies the --R(# the withholding agent +ust re+it an additional withholding tax lia&ility. 7. -he enact+ent of RR 12-2013 gives rise to a situation where the taxpayer0s otherwise voluntary co+pliance with law is +ade +ore oppressive and &urdenso+e &y reason of the disallowance in clear violation of the %onstitutional prohi&ition against ta?ing of private property without due process of the law. 10. "n the case of (!!>-- @(!>R(->R"A5# "N%. B5. %"R 1 # the 5upre+e %ourt ruled in favor of the taxpayer and disagreed with the !"R0s ndings citing that the ti+ing of withholding on co+pensation +ust &e upon pay+ent only. -he %ourt in said case ruled i+proper when the !"R disallowed the deductions due to the therein petitioner &ecause of the petitioner0s non-withholding and non- - )+A )ase No. 5.18, ,ebruary 1/, 2001. 3 re+ittance of any tax upon the accrual of the salaries# wages and co++issions. 11. "n the sa+e vain# the 5upre+e %ourt in the case of 566ISSI5N7R 58 IN$7RN09 R7:7N;7 :S. IS02790 ;9$;R09 5RP5R0$I5N 4 ruled that following the accrual +ethod of accounting# an expense though the a+ount of which is an esti+ate only# +ust &e clai+ed in the year when the sa+e was incurred and not when the sa+e is paid. -hus# indiscri+inate disallowance of proper expenses denitely deprives the taxpayers certain su&stantial tax reliefs regardless of due pay+ent on investigation or reinvestigation. 12. Revenue Regulations No. 12-77 ; superseding Revenue Regulations No. 12-=4# sets forth in 5ection 3 thereof the procedural steps governing ad+inistrative protests. >ne of the re+edies a3orded taxpayers under said issuance is the ling of a written re,uest for reconsideration or reinvestigation with an additional right to appeal any adverse decision with the %ourt of -ax (ppeals pursuant to 5ection 6 of Repu&lic (ct No. 1124' a. Cnder a&ove-cited Regulation# no action shall &e ta?en on the taxpayer0s disputed issues until the taxpayer has paid the deciency tax or taxes attri&uta&le to the said undisputed issues. &. %onsidering the a&ove provision of the regulation# it will &e clearly inferred that the &asic law itself and the supporting revenue regulation only de+and that taxpayer pay upon protest the undisputed portion of the tax ,uestioned. c. -hat disallowance of expenses when paid at the ti+e of investigationDreinvestigation is a +anifest circu+vention of the clear provisions of the law for depriving the taxpayer to exercise a right or re+edy lawfully a3orded to hi+. 13. Herein petitioner recogniEes that the law li?ewise gives taxpayers certain re+edies to collect fro+ 5 1.R. No. 1.22*1, ,ebruary 12, 200.. / 2ated September /, 1999. 4 the govern+ent illegally andDor i+properly collected taxes# however# &eing in the nature of -ax Refund or -ax %redit# such re+edies do not ensure that expenses not deducted shall &e re+itted &ac? to the taxpayers account considering the stringent +easures that the -ax laws i+ple+ent when it co+es to such re+edies availa&le to the taxpayers. 11. (s provided for under 5ections 201 8%: 6 and 227 of the National "nternal Revenue %ode# -ax recovery or refunds +ay cover the following pay+ents' 8a: erroneously or illegally assessed or collected internal revenue taxes) 8&: penalties i+posed without authority) and# 8c: su+ alleged to have &een excessive or in any +anner wrongfully collected. 14. However# in 7660N;79 0N/ <0N0I/0 0=;I90R :S. 566ISSI5N7R = the %ourt reiterated that &eing in the nature of an exe+ption fro+ taxation# a clai+ for refund is strictly construed against the clai+ant and the failure to discharge said &urden is fatal to the clai+. 1;. -he aforesaid strict construction of clai+s for tax refunds andDor credit places the taxpayer0s initially strictly construed right to tax exe+ption to another strict construction of the law# should his exe+ptions &e converted into tax refundDcredit &y reason of the assailed disallowance. 16. -his Petition is not intended to delay the resolution of any pending nor future case &ut solely necessitated &y the foregoing. PRA6ER PRA$"5A5 %>N5"2ARA2# it is respectfully prayed of this Honora&le %ourt that the herein Petition for Review as to the . SECTION %)4. Aut&orit" of t&e Commissioner to Com*romise+ A!ate and Refund or Credit Ta,es. $$$$ ). )redit o" re"und ta%es erroneously or illegally received or penalties imposed it!out aut!ority, re"und t!e value o" internal revenue stamps !en t!ey are returned in good condition by t!e purc!aser, and in !is discretion, redeem or c!ange unused stamps t!at !ave been rendered un"it "or use and re"und t!eir value upon proo" o" destruction. No credit or re"und o" ta%es or penalties s!all be alloed unless t!e ta%payer "iles in riting it! t!e )ommissioner a claim "or credit or re"und it!in to 324 years a"ter t!e payment o" t!e ta% or penalty5 6rovided, !oever, t!at a return "iled s!oing an overpayment s!all be considered as a ritten claim "or credit or re"und. 3%%%4 8 )A-1.R. No. S6-1/-*2, 7arc! *0, 1990. 5 constitutionality and legality of the assailed regulation &e (2$"--A2 and %>N5"2ARA2 &y the Honora&le %ourt in its resolution of the Petition and thus -H(- RABANCA RAFC@(-">N 12-2013 !A 2A%@(RA2 CN%>N5-"-C-">N(@ (N2 >G N> AGGA%- *H(-5>ABAR. Petitioner prays for such further and other reliefs /ust and e,uita&le under the circu+stances. $anila# $arch 1=# 2011. ATT6% CHICHA6 CRU7 $SG8- %ounsel for Petitioner Cnit 1# H !uilding# Recto# $anila "!P No. 12314) 01D10D73 I $anila P-R No. 12314) 01D10D73 I $anila Roll No. 12314) 04D04D73 $%@A No. " I 001231) 7D07D73 $%@A No. "" I 004;6=) 7D07D73 4ERIFICATION9CERTIFICATION OF NON'FORU" SHOPPING RAPC!@"% >G -HA PH"@"PP"NA5 : %"-J >G $(N"@( : 5.5. "# $aria %lara Recolectos# of legal age# single and a resident of 1 Recto (ve.#$anila state under oath that' 1. " a+ the petitioner in the a&ove entitled case) 2. -he facts stated in the a&ove co+plaint are true and correct to the &est of +y?nowledge and authentic records) 3. " have not co++enced any action or led any clai+ involving the sa+e issuesin any court# tri&unal or ,uasi- /udicial agency and# to the &est of +y?nowledge# no such other action or clai+ is pending in the+) and# 1. "f " should learn that the sa+e or si+ilar action or clai+ has &een led or ispending after its ling# " shall report that fact within ve 84: days fro+ noticeto the court or where the co+plaint or initiatory pleading has &een led. $anila# $arch 1=# 2011. 6 "ARIA CLARA RECOLECTOS $SG8- JURAT 5C!5%R"!A2 (N2 5*>RN to &efore +e# in the %ity of $anila# this 1=th dayof $arch# 2011# the aKant exhi&iting her %-% No. 12314;6= issued at the %ity of $anila on Lanuary =# 2011 and the 2river0s @icense No. N24-012314; issued &y the @and -ransportation >Kce on Luly 1# 2011. ATT6% ABE O% GA8O $SG8- Notary Pu&lic for $anila Cnit 1# H !uilding# Recto# $anila (ppoint+ent No. 123# until 2ec. 31# 2011 "!P No. 12314) 01D10D73 I $anila P-R No. 12314) 01D10D73 I $anila Roll No. 12314) 04D04D73 $%@A No. " I 001231) 7D07D73 $%@A No. "" I 004;6=) 7D07D73 5erial No. of %o++ission $-123 2oc. No. 11) Page No. 23) !oo? No. B) 5eries of 2011. 7
United States v. James E. Jackson, Sidney Stein, Fred Fine, Alexander Trachtenberg, William Norman and George Blake Charney, 257 F.2d 830, 2d Cir. (1958)