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    BIR vs. CA, Spouses Manly

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    Mich Padayao
    The Bureau of Internal Revenue issued a letter to the Manly spouses requiring documentation of cash used to purchase assets after concluding their income tax returns underreported income for several years. While a deficiency assessment is not required for tax evasion prosecution, the fact taxes are owed must be proven first. The BIR used an expenditure method to reconstruct the spouses' income by deducting major cash expenditures from declared income, finding an underdeclaration over 30% which constitutes prima facie evidence of filing a fraudulent return. However, the Secretary of Justice and Court of Appeals dismissed criminal charges against the spouses.

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    BIR vs. CA, Spouses Manly

    Uploaded by

    Mich Padayao
    799 views1 page
    The Bureau of Internal Revenue issued a letter to the Manly spouses requiring documentation of cash used to purchase assets after concluding their income tax returns underreported income for several years. While a deficiency assessment is not required for tax evasion prosecution, the fact taxes are owed must be proven first. The BIR used an expenditure method to reconstruct the spouses' income by deducting major cash expenditures from declared income, finding an underdeclaration over 30% which constitutes prima facie evidence of filing a fraudulent return. However, the Secretary of Justice and Court of Appeals dismissed criminal charges against the spouses.

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    The Bureau of Internal Revenue issued a letter to the Manly spouses requiring documentation of cash used to purchase assets after concluding their income tax returns underreported income for several years. While a deficiency assessment is not required for tax evasion prosecution, the fact taxes are owed must be proven first. The BIR used an expenditure method to reconstruct the spouses' income by deducting major cash expenditures from declared income, finding an underdeclaration over 30% which constitutes prima facie evidence of filing a fraudulent return. However, the Secretary of Justice and Court of Appeals dismissed criminal charges against the spouses.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    799 views1 page

    BIR vs. CA, Spouses Manly

    Uploaded by

    Mich Padayao
    The Bureau of Internal Revenue issued a letter to the Manly spouses requiring documentation of cash used to purchase assets after concluding their income tax returns underreported income for several years. While a deficiency assessment is not required for tax evasion prosecution, the fact taxes are owed must be proven first. The BIR used an expenditure method to reconstruct the spouses' income by deducting major cash expenditures from declared income, finding an underdeclaration over 30% which constitutes prima facie evidence of filing a fraudulent return. However, the Secretary of Justice and Court of Appeals dismissed criminal charges against the spouses.

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    of 1

    IN TAX EVASION CASES, A DEFICIENCY ASSESSMENT IS NOT NECESSARY HOWEVER,

    THE FACT THAT A TAX IS DUE MUST FIRST BE PROVED BEFORE ONE CAN BE
    PROSECUTED FOR TAX EVASION

    BUREAU OF INTERNAL REVENUE vs. COURT OF APPEALS, SPOUSES ANTONIO


    VILLAN MANLY, and RUBY ONG MANLY
    G.R. No. 197590 November 24, 2014
    Del Castillo, J.

    Facts: Respondent Antonio Villan Manly (Antonio) is a stockholder and the Executive Vice-
    President of Standard Realty Corporation, a family-owned corporation. He is also engaged in
    rental business. His spouse, respondent Ruby Ong Manly, is a housewife.

    On April 27, 2005, petitioner Bureau of Internal Revenue (BIR) issued Letter of Authority No. 2001
    00012387authorizing its revenue officers to investigate respondent spouses’ internal revenue tax
    liabilities for taxable year 2003 and prior years. BIR issued a letter to Manly spouses requiring
    them to submit documentary evidence to substantiate the source of their cash purchase of a 256-
    square meter log cabin in Tagaytay City, a Toyota Rav 4 and a Toyota Prado. Since Spouses
    Manly failed to comply with the letter, the revenue officers concluded that Manly’s Income Tax
    Return (ITR) for taxable years 2000, 2001 and 2003 were under declared. And since the under
    declaration exceeded 30% of the reported or declared income, it was considered a prima facie
    evidence of fraud with intent to evade the payment of proper tax due to the government.

    The BIR and the state prosecutor, thus, recommended the filing of criminal cases against
    Spouses Manly for failing to supply correct and accurate information in their ITRs. The Secretary
    of Justice reversed the resolution of the state prosecutor. The CA likewise dismissed the Petition
    for Certiorari by the petitioner BIR.

    Issue: Whether a deficiency assessment is necessary before one can be prosecuted for tax
    evasion

    Held: No. In Ungab v. Judge Cusi, Jr., we ruled that tax evasion is deemed complete when the
    violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part
    or all of the tax. Corollarily, an assessment of the tax deficiency is not required in a criminal
    prosecution for tax evasion. However, in Commissioner of Internal Revenue v. Court of Appeals,
    we clarified that although a deficiency assessment is not necessary, the fact that a tax is due must
    first be proved before one can be prosecuted for tax evasion.

    In the case of income, for it to be taxable, there must be a gain realized or received by the
    taxpayer, which is not excluded by law or treaty from taxation. The government is allowed to resort
    to all evidence or resources available to determine a taxpayer’s income and to use methods to
    reconstruct his income. A method commonly used by the government is the expenditure method,
    which is a method of reconstructing a taxpayer’s income by deducting the aggregate yearly
    expenditures from the declared yearly income. In the case at bar, petitioner used this method to
    determine respondent spouses’ tax liability. Petitioner deducted respondent spouses’ major cash
    acquisitions from their available funds. And since the under declaration is more than 30% of
    respondent spouses’ reported or declared income, which under Section 248(B) of the NIRC
    constitutes as prima facie evidence of false or fraudulent return, petitioner recommended the filing
    of criminal cases against respondent spouses under Sections 254 and 255, in relation to Section
    248(B) of the NIRC.

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