TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B.

Aban
CABANEIRO) A2011

JUICY NOTES (PROF.

Chapter 6: REMEDIES OF THE GOVERNMENT

IN GENERAL
Remedies of the government
1. Tax lien
2. Compromise
3. Distraint
4. Levy
5. Civil action
6. Criminal action
7. Forfeiture
8. Suspension of business operations in violation of VAT
9. Enforcement of administrative fine
TAX LIEN
Tax lien
Only one property subject to tax
When a taxpayer neglects or refuses to pay his internal
revenue tax liability after demand, the amount so
demanded shall be a lien in favor of the government from
the time the assessment was made by the Commissioner
until paid with interest, penalties, and costs that may secure
in addition thereto, upon all property and rights to property
belonging to the taxpayer. [Section 219, NIRC]
Lien shall not be valid against any mortgagee, purchaser or
judgment creditor until notice of such lien shall be filed by
the Commissioner in the Register of Deeds of the province
or city where the property of the taxpayer is located.
A tax lien created in favor of the government is superior to
all other claims and preferences, even to that of a private
litigant predicated on a court judgment.
Tax lien and Distraint
Tax lien is directed to the property subject to the tax,
regardless of the owner.

In distraint, property seized must be that of the taxpayer,

although it need not be the property in respect to which the
tax is assessed.

COMPROMISE
Compromise v. abatement
CIR may compromise both civil and criminal liability of the
taxpayer
Unlike compromise which involves a reduction of the
taxpayers liability, abatement of tax means that the entire
tax liability of the taxpayer is cancelled.
Compromise and abatement have different grounds.
Grounds for compromise
1. A reasonable doubt as to the validity of the claim
against the taxpayer exists; or
2. The financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax
Grounds for abatement
1. When the tax or any portion thereof appears to be unjustly
or excessively assessed.
2. When the administration and collection costs involved do
not justify the collection of the amount due.
Cases
1.
2.
3.
4.
5.

that may be compromised

Delinquent accounts
Cases under administrative protest
Cases disputed before the courts
Cases for collection already filed in courts
Criminal violations except those already filed, and those
involving fraud.

Cases
1.
2.
3.
4.

that cannot be compromised

Withholding tax cases
Criminal tax fraud cases
Criminal cases already filed in court
Delinquent accounts with duly approved
installment payments

schedule

of

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011

JUICY NOTES (PROF.

5. Cases where reduction of payments had already been

granted.
6. cases already decided and are final and executory

Compromise of criminal violation

In criminal violations, the compromise must be made prior
to the filing of the information in court.
All criminal violations may be compromised except:
1. those already filed in court; and
2. those involved in fraud.
Limitations on compromise
In case of large taxpayers or excise taxpayers - not less
than 50%
For cases of financial incapacity, a minimum compromise
rate equivalent to 10% of the basic assessed tax; and
For other cases, a minimum compromise rate equivalent to
40% of the basic assessed tax
Where the basic tax exceeds one million pesos (P1,000,000)
or where the settlement offered is less than the prescribed
minimum rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be composed
of the Commissioner and the four Deputy Commissioners.
Delegation of the power of compromise
The Commissioner may delegate his power to compromise
to the Deputy Commissioners and the Regional Directors
subject to such limitations and restrictions as may be
imposed under rules and regulations to be promulgated for
the purpose.
DISTRAINT AND LEVY
Collection by distraint and levy
Both are summary administrative enforcement remedies
and cannot be abailed of where the amount of tax involved
is not more than P100.

Distraint is enforced on personal property of the taxpayer

while levy is enforced on real property.
IN distraint, forfeiture by the government is not provided,
while in levy, forfeiture is authorized.
The taxpayer is not given them right of redemption with
respect to distrained personal property, while such right is
granted in case of real property levied upon and sold, or
forfeited, to the government.
Levy may be made before, simultaneously or after distraint.
The remedy of distraint and levy may be made repeatedly
until the full amount of the tax due including expenses is
satisfied.
Property in custodia legis may be distrained, subject to the
outcome and effects of the courts final judgment.

Actual v. constructive distraint

Actual distraint is resorted to when delinquency in the
payment sets in, that is, when at the time required for
payment, a person fails to pay his tax obligation. It consists
of action seizure and distraint of personal property to the
taxpayer.
In constructive distraint, no actual delinquency is necessary
before it may be resorted to. It may be availed of in the
following instances: a) Taxpayer is retiring from business
subject to tax; b) He intends to leave the Philippines; c) He
removes his property therefrom; d) He hides or conceals his
property; or e) He performs any act tending to obstruct the
proceedings for collecting the tax due or which may be due
from him. In addition, constructive distraint may also be
resorted to when the taxpayer is already delinquent.
Constructive distraint is a preventive remedy whose aim is
to forestall a possible dissipation of the taxpayers asset
when delinquency takes place.
There are different procedures in enforcing actual and
constructive distraint.
How to effect constructive distraint?

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011

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It shall be effected by requiring the taxpayer or any person

having possession or control of such property to sign a
receipt covering the property distrained and obligate himself
to preserve the same intact and unaltered and not to
dispose of the same in any manner whatever without the
express authority of the Commissioner.
If the taxpayer or any other person refuses or fails to sign
the receipt, the revenue officer effecting the constructive
distraint shall proceed to prepare a list of such property and,
in the presence of two witnesses, leave a copy thereof in the
premises where the property distrained is located, after
which the said property shall be deemed to have been
placed under constructive distraint.

Procedure for actual distraint

1. Commencement of distraint proceedings
2. Service of warrant of distraint
3. Notice of sale of distrained property not less than 20 days
4. Sale of property distrained public auction
MANNER OF SERVING WARRANT OF DISTRAINT
1. Goods, chattels, effects or other personal property
The officer serving the warrant of distraint shall make or
cause to be made an account of goods, chattels, effects or other
personal property distrained, signed by himself, which includes a
statement of the sum demanded and note of the time and place of
the sale.
The copy shall be left either with the owner or person from
whose possession such goods, chattels, or effects or other personal
property were taken, or at the dwelling of business of such person
and with someone of suitable age and discretion.
2. Stocks and other securities
Stocks and other securities shall be distrained by serving a
copy of the warrant of distraint upon the taxpayer and upon the
president, manager, treasure or other responsible officer of the
corporation, company or association, which issued the said stocks
or securities.

3. Debts and credits

Debts and credits shall be distrained by leaving with the
person owing the debts or having in his possession or under his
control such credits, or with his agent, a copy of the warrant of
distraint.
The warrant of distraint shall be sufficient authority to the
person owing the debts or having his possession or under his
control any credits belonging to the taxpayer to pay to the
Commissioner the amount of such debts or credits.
4. Bank accounts
Bank accounts shall be garnished by serving a warrant of
garnishment upon the taxpayer and upon the president, manager,
treasurer or other responsible officer of the bank.
Upon receipt of the warrant of garnishment, the bank shall
turn over to the Commissioner so much of the bank accounts as
may be sufficient to satisfy the claim of the Government.

Purchase by government at sale upon distraint

The Commissioner or his deputy may purchase the property
distrained in behalf of the National Government when:
1. the amount bid for the property under distraint is not
equal to the amount of the tax; or
2. the amount is very much less than the actual market
value of the articles for sale.
Property so purchased may be resold by the Commissioner
or his deputy.
PROCEDURE ON LEVY OF REAL PROPERTY
1. Service of warrant of levy
2. Advertisement of the sale 20 days after levy; period of at
least 30 days
3. Public sale of the property under levy or forfeiture of the
property to the government for want of bidder
4. Redemption of property or consolidation of ownership and
title in the purchaser
How to effect levy?

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011

JUICY NOTES (PROF.

Internal revenue officers shall prepare a duly authenticated

certificate showing the name of the taxpayer and the
amount of the tax and penalty due from him.
Such certificate shall operate with the force of a legal
execution throughout the Philippines
Levy shall be effected by writing upon said certificate a
description of the property upon which levy is made. At the
same time, written notice of the levy shall me mailed to or
served upon the Register of Deeds to the province or city
where the property is located and upon the delinquent
taxpayer, or if he is absent from the Philippines, to his agent
or manager, or to the occupant of the property in question.
A failure of notice is a fatal defect.

Advertisement of sale
Within 20 days after levy.
Posting a notice of sale at least 30 days at the main
entrance of the municipal or city hall and in public and
conspicuous place in the city or municipality where the
property is located.
Publication once a week for three weeks in a newspaper of
general circulation in the municipality or city where the
property is located.
Redemption of real property sold
Delinquent taxpayer have the right to redeem the real
property sold by him or any one for him within one (1) year
from the date of sale.
Taxpayer must pay the amount of public taxes, penalties,
and interest from the date of delinquency to the date of
sale, together with interest on said purchase price at the
rate of 15% per annum from the date of purchase to the
date of redemption.

The owner shall not, however, be deprived of the possession

of the said property and shall be entitled to the rents and
other income thereof until the expiration of the time allowed
for its redemption.

Forfeiture to government for want of bidder in sale of real

property
Internal revenue officer conducting the sale of real property
levied shall declare the property forfeited to the
Government in satisfaction of the claim when:
1. here is no bidder for real property exposed for sale; or
2. the highest bid is for an amount insufficient to pay the
taxes, penalties and costs.
Resale of real estate taken for taxes
The Commissioner shall have charge of any real estate
obtained by the Government in payment or satisfaction of
taxes, penalties or costs arising under the NIRC or in
compromise or adjustment or any claim thereof.
The Commissioner may, upon giving not less than 20 days
notice, sell and dispose of the said property at public
auction or, with the prior approval of the Secretary of
Finance, dispose of the same at private sale.

Fatal
1.
2.
3.
4.

defects in the levy of real property

Failure of sending notice to parties.
Mistake in the name of owner of the property
Misdescription of the property
Inaccurate date of sale as posted or published or sent in
notice.

Forefeiture and seizure or property

1. In seizure, a tax lien is being enforced. Any amount in
excess of the tax lien shall be returned to the owner.
2. In forfeiture, the whole amount shall be forfeited in favor of
the government.

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FORFEITURE
Forfeiture
The effect of forfeiture is to transfer the title to the specific
thing from the owner to the government.
May be
redeemed.
In case of personal property: The forfeiture of chattels
and removable fixtures of any sort is enforced by seizure
and sale or destruction of the specific forfeited property.
In case of real property: This forfeiture of real property is
enforced by a judgment of condemnation and sale in a legal
action or proceeding, civil or criminal, as the case may
require.
Forfeiture of property used in unlicensed business or dies
used for printing false stamps, etc
All chattels, machinery, and removable fixtures of any sort
used in the unlicensed production of articles subject to
excise tax shall be forfeited.
Dies and other equipment used for the printing or making of
any internal revenue stamp, label or tag which is in
imitation of or purports to be a lawful stamp, label or tag
shall also be forfeited.
Forfeiture of goods illegally stored or removed
Unless
otherwise
specifically
authorized
by
the
Commissioner, all articles subject to excise tax should not
be stored or allowed to remain in a distillery, distillery
warehouse, bonded warehouse or other place where made,
after the tax thereon has been paid; otherwise all such
articles shall be forfeited.
Articles withdrawn from any such place or from customs
custody or imported into the country without the payment
of the required tax shall likewise be forfeited.
CIVIL AND CRIMINAL ACTIONS
Civil and criminal actions

Civil and criminal actions and proceedings instituted in

behalf of the Government under the authority of the NIRC or
other law enforced by the Bureau of Internal Revenue shall
be brought in the name of the Government of the
Philippines and shall be conducted by legal officers of the
Bureau of Internal Revenue, but no civil or criminal action
for the recovery to taxes or the enforcement of any fine,
penalty or forfeiture under this Code shall be filed in court
without the approval of the Commissioner. [Section 220,
NIRC]
In a fraud assessment which has become final and
executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection
thereof.

Civil action
Civil action, as a mode of tax collection, is resorted to when
a tax liability becomes collectible.
Collectibility of a tax arises in the following instances:
1. When a tax is assessed but the assessment becomes
banal and unappealable because the taxpayer fails to
file an administrative protest within 30 days.
2. When a protest against the assessment is filed by the
taxpayer and a decision is rendered by the
Commissioner but said decision becomes final,
executory and demandable for failure of the taxpayer to
file an appeal within 30 days.
A civil action may also be filed in order to collect the so
called self assessed tax
No civil action for recovery of taxes shall be filed without the
approval of Commissioner also criminal.
Insufficient protest allowing collection case
In Dayrit v. Cruz [L-39910, September 26, 1988], the
Supreme Court ruled that the request for reconsideration
cannot be considered as a protest against the assessment.
According to the Supreme Court, the failure of the heirs to
substantiate their claim against the assessment due to the

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TAX REVIEWER: LAW OF BASIC TAXATION IN THE PHILIPPINES BY: Benjamin B. Aban
CABANEIRO) A2011

non-submission of their position paper justified the

Commissioner in collecting the estate and inheritance taxes
in the settlement proceedings.

JUICY NOTES (PROF.

In Republic v. Ledesma [ L-9759, February 28, 1969], the

Supreme Court held that the taxpayers failure to dispute
the assessment effectively by complying with the conditions
laid down by the Bureau of Internal Revenue provided a
legal basis for the government to collect the taxpayers
liability by ordinary civil action.

Is Commissioner required to rule on a pending protest

before filing a collection case?
No. In Republic v. Liam Tian Teng Sons, Inc. [16 SCRA
584(1965)], the Supreme Court held that nowhere in the Tax
Code is the Commissioner required to rule first on a
taxpayers request for reinvestigation before he can to go
court for the purpose of collecting the tax assessed.
According to the Supreme Court, the legislative policy is to
give the Commissioner much latitude in the speedy and
prompt collection of taxes because it is on taxation that the
government depends to obtain the means to carry out its
operations.
Note however that civil or criminal case is tantamount to
denial of the request for reinvestigation. Thus, the taxpayer
may file an appeal with the Court of Tax Appeals.
[Commissioner v. Union Shipping]
Criminal action
The filing of a criminal action is one of the recognized
modes of collecting delinquent taxes. Section 105 of the
NIRC further states that the judgment in the criminal case
shall not only impose the penalty but shall also order
payment of the taxes subject of the criminal case as finally
decided by the Commissioner.
Criminal action is, however, not resorted to as a collection
remedy only. There are other cases not involving nonpayment of taxes where criminal action is utilized.

Important considerations regarding criminal action

1. No criminal action for the recovery of taxes or the
enforcement of a fine shall be filed in court without the
approval of the Commissioner. [Section 220, NIRC]
2. Criminal actions instituted in behalf of the government
under the authority of the NIRC or other law enforcement by
the Bureau of Internal Revenue shall be brought in the name
of the government and shall be conducted by legal officers
of the Bureau of Internal Revenue. [Section 220, NIRC]
3. The acquittal of the taxpayer in a criminal action does not
necessarily result in the exoneration of said taxpayer form
his civil liability to pay taxes.
4. IN a criminal action that was instituted against the taxpayer
for having filed a false and fraudulent return and failure to
pay taxes, the Supreme Court held that the subsequent
satisfaction of the tax liability by payment or prescription
will not operate to extinguish the taxpayers criminal
liability.
Payment of the tax due after apprehension shall not
constitute a valid defense in any prosecution for violation of any
provision of the NIRC or in any action for forfeiture of untaxed
articles. [Section 253, NIRC]
5. Subsidiary imprisonment is provided for in cases of nonpayment of the fine due to the taxpayers insolvency but
not for failure to pay the tax due to the taxpayers
insolvency.
Section 280 provides that: If the person convicted of
violation of any provisions of this Code has no property with which
to meet the fine imposed upon him by the court or is unable to
pay such fine, he shall be subject to a subsidiary personal liability.
6. In Ungab v. Cusi, the Supreme Court held that no
assessment is required before a criminal prosecution. This
was modified in a later case, Commissioner v. Court of
Appeals, where the Supreme Court ruled that assessment
is necessary before the criminal prosecution of Fortune

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Tobacco. The Supreme Court, however, harmonized this

decision with the earlier one. [See later discussion]
7. In cases of violations committed by associations,
partnerships, or corporations, the penalty shall be imposed
on the partner, president, general manager, branch
manager, treasurer, officer-in-charge, and employees
responsible for the violation.
Civil liability in tax criminal cases
In ordinary criminal cases, the civil liability is incurred by
reason of the offenders criminal act.
In taxation, the civil liability to pay taxes arises not because
of any felony but upon the taxpayers failure to pay taxes.
Criminal liability in taxation arises as a result of ones
liability to pay taxes. Consequently, the extinction of ones
criminal liability does not necessarily result in the
extinguishments of his civil liability to pay taxes.
With regard to the tax proper, the state correctly points out
in its brief that the acquittal in the criminal case could
operate to discharge the petitioner from the duty to pay the
tax since that duty is imposed by statute prior to and
independent of any attempts on the part of the taxpayer to
evade payment. The obligation to pay the tax is not amere
consequence of the felonious acts charged in the
information, nor is it a mere civil liability derived from crime
that would be wiped out by the judicial declaration that the
criminal acts charged did not exist. [Castro v. Collector,
4 SCRA 1093]
Need for assessment before criminal action
Ungab v. Cusi [L-41919-24, May 30, 1980]
Quirico Ungab filed a motion to quash the criminal
complaints against him in view of his pending protest

against the assessment made by the Bureau of Internal

Revenue. The Supreme Court ruled that his contention is
without merit. What is involved here is not the collection of
taxes where the assessment of the Commissioner may be
reviewed by the Court of Tax Appeals but a criminal
prosecution for violation of the NIRC which is within the
cognizance of the Court of First Instance (now RTC)
While there can be no civil action to enforce collection
before the assessment procedures in the NIRC have been
followed, there is no requirement for the precise
computation of the tax before there can be criminal
prosecution under the NIRC.
A crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intent to evade and
defeat the tax.

Commissioner of Internal Revenue v. Court of Appeals

(1997)
Assessment required before criminal prosecution of Fortune
for tax evasion can be pursued.
The Supreme Court differentiated this case from Ungab v.
Cusi by ruling that, even though this is also a criminal
prosecution, there must be a prima facie showing of a willful
attempt to evade taxes before one can proceed with such
prosecution. In Ungab, there was willful attempt to evade
taxes while in the case at bar, there was none, as Fortune
was even paying taxes according to the BIR requirements.
Thus, there is still need for a final determination of the tax
due before criminal prosecution can be commenced against
Fortune.

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