Tax remedies can be viewed both from the standpoint of the government and of the

taxpayer. For the government, tax remedies are means, both substantive and
procedural, to ensure that the taxpayer is declaring and paying the correct amount
of taxes, and to collect the deficiencies when found to be due to the government.
For the taxpayer, tax remedies are also the means to respond to the government's
examination of its books of accounts, to challenge the deficiency found, and to
reduce tax liability through compromise and abatement. In addition, the taxpayer
can, subject to conditions, refund for the tax erroneously or illegally collected.

Remedies of the Government

The tax remedies of the government are (1) Assessment and 2) Collection.

ASSESSMENT
Powers of the Commissioner Determine the Correct Tax
To determine the correct amount of tax, the Commissioner or his duly authorized
representative is authorized to perform the following powers:
a.
To examine any book, paper, record, or other data of any person which may be
relevant or material to ascertain the correctness of any return, to make a return
when none has been made, to determine the liability of any person for any internal
revenue tax, to collect such tax liability and to evaluate tax compliance. (Section
5(A), NIRC); and
b.
To examine any taxpayer and the assessment of the correct amount of tax after a
return has been filed. (Section 6(A), NIRC)
The taxpayer's failure to file a return does not preclude or prevent the
Commissioner or his duly authorized representative
from authorizing the examination of any taxpayer. (Section 6(A), NIRC) The
Commissioner may also issue summon and examine, and take testimony of persons in
ascertaining the correctness of the return filed, in making a return when none has
been made, in determining the liability of any person for any internal revenue tax,
in collecting any such liability, and in evaluating tax compliance.

Assessment and Its Commencement

The term "assessment" refers to the determination of amounts due from a person
obligated to make payments. In the context of national internal revenue collection,
it refers to the determination of the taxes due from a taxpayer under the National
Internal Revenue Code of 1997. (SMI-ED Phil. Technology, Inc. u. Commissioner of
Internal Revenue, G.R. No. 175410, November 12, 2014) Simply, assessment is the
determination of the taxpayer's deficiency tax and the formal demand for the
payment of the same. Deficiency tax arises when the amount of tax imposed and due
under the Tax Code exceeds the amount of tax declared in the return and paid by the
taxpayer.
Taxes are generally self-assessed. They are initially computed and voluntarily paid
by the taxpayer. The government does not have to demand for it. If the tax payments
are correct, the BIR need not make an assessment. (SMI-ED Phil. Technology, Inc. v.
Commissioner of Internal Revenue, G.R. No. 175410, November 12, 2014)

The assessment process starts with the filing of tax return and payment of tax by
the taxpayer. The initial assessment evidenced by the tax return is a self-
assessment of the taxpayer. The tax is primarily computed and voluntarily paid by
the taxpayer without need of any demand from government. If tax obligations are
properly paid, the BIR may dispense with its own assessment.
After filing a return, the Commissioner or his representative may allow the
examination of any taxpayer for assessment of proper tax liability. The failure of
a taxpayer to file his or her return will not hinder the Commissioner from
permitting the taxpayer's examination. The Commissioner can examine records or
other data relevant to his or her inquiry in order to verify the correctness of any
return, or to make a return in case of non-compliance, as well as to determine and
collect tax liability. (Section 56(A), NIRC;
Commissioner of Internal Revenue u. Fitness by Design, Inc., G.R.
No. 215957, November 9, 2016)

Prescriptive Period of Assessment

As a rule, the government, through the Commissioner, has three (3) years to assess
the taxpayer from the filing of the return.
Section 203 of the Tax Code states:
Section 203. Period of Limitation Upon Assessment and Collection. - Except as
provided in Section 222, internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, that in a case where a return
is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
Under Section 203 of the Tax Code, internal revenue taxes must be assessed within
three years counted from the period fixed by law for the filing of the tax return
or the actual date of filing, whichever is later. This mandate governs the question
of prescription of the government's right to assess internal revenue taxes
primarily to safeguard the interests of taxpayers from unreasonable investigation.
Accordingly, the government must assess internal revenue taxes on time so as not to
extend indefinitely the period of assessment and deprive the taxpayer of the
assurance that it will no longer be subjected to further investigation for taxes
after the expiration of reasonable period of time. (Philippine Journalists, Inc.
u. Commissioner of Internal Revenue, G.R. No. 162852, December 16, 2004)

The prescriptive period in making an assessment depends upon whether a tax return
was filed or whether the tax return filed was either false or fraudulent. When a
tax return that is neither false nor fraudulent has been filed, the BIR may assess
within three
(3) years, reckoned from the date of actual filing or from the last day prescribed
by law for filing. (Commissioner of Internal Revenue v.
Fitness by Design, Inc., G.R. No. 215957, November 9, 2016; Section 203, NIRC)

The taxpayer may file a tax return (1) before the deadline prescribed by law, (2)
on the deadline or on the last day prescribed by law, or (3) after the deadline
prescribed by law also known as late filing.
When the taxpayer files a tax return before the deadline or on the deadline
prescribed by law, the three (3)-year prescriptive period to assess shall begin on
the deadline for filing of the tax return prescribed by law. When the taxpaver
files a tax return after the deadline prescribed by law, then the three (3)-year
prescriptive period shall begin on the date of late filing.
Though it becomes a common interpretation that in case an income tax return filed,
for example, on April 15, 2006, the last day for the BIR to assess is on April 15,
2009, or three (3) years thereafter, the BIR has long issued Revenue Memorandum
Circular No. 48-90 on April 23, 1990 which provides that a 3-year prescriptive
period for assessment or collection purposes prescribed under Sections 203 of the
Tax Code shall have an aggregate number of 1,095 days (365 days × 3 years = 1,095
days), reckoned from the date of filing of the return, or from the issuance of the
assessment, as the case may be.
In other words, the 3-year prescriptive period expires on the 1,095th day,
notwithstanding the fact that within the period, there is a leap year which is of
366 days.
In Maersk-Tabacalera Shipping Agency (Filipinas), Inc. U.
Commissioner of Internal Revenue, (CTA Case No. 5006, February 20, 1996), the CTA
held:
"The applicable provision of the law is found in Section 203 of the Tax Code, thus:
Section 203. Period of limitation upon assessment and collection. Except as
provided in the succeeding section, internal revenue taxes shall be assessed within
three years after the last day prescribed by law for the filing of the return, and
no proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three year period shall be
counted from the day the return was filed. For the purposes of this section a
return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day. (As amended by BP 700)

The abovecited law is explicit as it declares in no uncertain terms that the

prescriptive period for the assessment of taxes is three-years counted from the
time the return is filed or the last day prescribed by law for the filing thereof,
whichever is later.

To erase all doubts as to the number of days constituting the three-year period,
the then Commissioner of Internal Revenue, Jose U. Ong, issued RMC No. 48-90
declaring that the period shall have an aggregate number of 1,095 days (365 days ×
3
years = 1,095 days), thus:

Accordingly, in order to have a correct understanding of the procedure in

determining the period of limitation upon assessment and collection when the period
covers a leap year, it shall be understood that years are of 365 days each as
provided in Article 13 of the New Civil Code. Consequently, a 3-year prescriptive
period for assessment or collection purposes prescribed under Sections 203 and
223(c) of the Tax Code shall have an aggregate number of 1,095 days (365 days × 3
years = 1,095 days), reckoned from the date of filing of the return or, from the
issuance of the assessment, as the case may be. In other words, the 3-year
prescriptive period expires on the 1,095th day, notwithstanding the fact that
within the period, there is a leap year which is 366 days.

Period of Assessment in case of an Amended Return

Once a return, statement or declaration is filed, the taxpayer is not allowed to
withdraw the same. However, the taxpayer may modify, change or amend any return,
statement or declaration within three (3) years from filing except when a notice
for audit or investigation of such return, statement or declaration has been
actually served upon the taxpayer. (Section 6(A), NIRC
An amendment of a return may either be formal or substantial.
An amendment of a return that changes the tax liability previously contained in the
original return is a substantial amendment.
Substantial amendments include inclusion or exclusion of an income or claim of
additional expense as a deduction that modify and change the tax liability of the
taxpayer. An amendment that does not change or modify the tax liability contained
in the original return is merely a formal amendment.
In case of a formal amendment, the 3-year prescriptive period shall begin on the
date of filing of the original return, not the date of filing of the amended
return. On the contrary, in case of a substantial amendment, the three 3-year
period shall be counted from the date of filing of the amended return, not on the
filing of
the original return. (Commissioner of Internal Revenue u. Phoenix Assurance Co.
Ltd., G.R. No. L-19727, May 20, 1965)

Exceptions to the Prescriptive Period of Assessment

The exceptions to the 3-year prescriptive period of assessment are (1) in case of
extraordinary circumstance and (2) the execution of waiver of statute of
limitations.

Extraordinary Circumstance
The first exception to the 3-year rule of prescriptive period of assessment is
found in Section 222(A) of the Tax Code which states:
O St
SEC. 222. Exceptions as to Period of Limitation of Assessment i and Collection of
Taxes. -
(a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be filed without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud or omission: Provided, that 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.
When the taxpayer filed a fraudulent or false return with intent to evade tax, or
if the taxpayer did not file a return, the 3-year prescriptive period does not
apply but a longer period of ten (10) years for the government to make an
assessment.
The 10-year prescriptive period to make an assessment will commence from the time
of discovery of falsity or fraudulent return, or after the discovery of the failure
or omission to file a return.
Illustration: A taxpayer filed a fraudulent income tax return for the year 2005 on
April 11, 2006. The BIR discovered the fraud on February 20, 2007. The last day for
the BIR to collect or send an assessment notice is on February 20, 2017. The BIR
has ten (10) years from February 20, 2007, the date of discovery of the fraudulent
return, to assess the taxpayer.
To avail of the extraordinary period of assessment in Section 222(a) of the Tax
Code, the Commissioner of Internal Revenue should show that the facts upon which
the fraud is based is communicated to the taxpayer. The burden of proving that the
facts exist in any
subsequent proceeding is with the Commissioner of Internal Revenue. (Commissioner
of Internal Revenue u. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016)
The proper and reasonable interpretation of Section 222(a)
(previously Section 332 of the Old NIRC should be that in the three different cases
of (1) false return, (2) fraudulent return with intent to evade tax, and (3)
failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten (10)
years after the discovery of the (1) falsity, (2) fraud, or (3) omission.
The law should be interpreted to mean a separation of the three different
situations of false return, fraudulent return with intent to evade tax, and failure
to file a return is strengthened immeasurably by the last portion of the provision
which segregates the situations into three different classes, namely "falsity",
"fraud? and "omission".
That there is a difference between "false return" and "fraudulent return" cannot be
denied. While the first merely implies deviation from the truth, whether
intentional or not, the second implies intentional or deceitful entry with intent
to evade the taxes due.
(Jose Aznar u. Court of Tax Appeals, G.R. No. L-20569, August 23, 1974)
Fraud is a question of fact that should be alleged and duly proven (Commissioner of
Internal Revenue u. Ayala Securities Corp., G.R. No. L-29485, March 31, 1976) The
willful neglect to file the required tax return or the fraudulent intent to evade
the payment of taxes, considering that the same is accompanied by legal
consequences, cannot be presumed. (Commissioner of Internal Revenue u. Air India,
G.R. No. 72443, January 29, 1988) Fraud entails corresponding sanctions under the
tax law. Therefore, it is indispensable for the Commissioner of Internal Revenue to
include the basis for its allegations of fraud in the assessment notice.
(Commissioner of Internal Revenue v. Fitness by Design, Inc., G.R.
Waiver of Statute of Limitation
The second exception to the three (3)-year rule of prescriptive period of
assessment is the execution by the taxpayer of a waiver of statute of limitation. A
waiver of the defense of prescription is a bilateral agreement between a taxpayer
and the BIR to extend the period of assessment and collection to a certain date.
Section 222(6)
of the Tax Code provides:
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes.
b) If before the expiration of the time prescribed in Section 203 for the
assessment of the tax, both the Commissioner and the taxpayer have agreed in
writing to its assessment after such time, the tax may be assessed within the
period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
In this case, the taxpayer and the BIR have agreed to extend the period of
assessment and collections of taxes beyond the 3-year period as provided in Section
203 of the Tax Code. There is no limitation as to length of extension as long as it
is agreed upon by the taxpayer and the BIR. In addition, the extended period may be
further extended by execution of another waiver before the expiration of the
original or the first extension.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a
derogation of the taxpayers' right to security against prolonged and unscrupulous
investigations and must therefore be carefully and strictly construed. (See Ouano
u. Court of Appeals, G.R. No. 129279, 398 SCRA 525, March 4, 2003 citing
People v. Donato, G.R. No. 72969, 198 SCRA 130, June 5, 1991)
The waiver of the statute of limitations is not a waiver of the right to invoke the
defense of prescription. It is an agreement between the taxpayer and the BIR that
the period to issue an assessment and collect the taxes due is extended to a date
certain. The waiver does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the language of the document
is equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes.
Thus, the law on prescription, being a remedial measure, should be liberally
construed in order to afford such protection. As a corollary, the exceptions to the
law on prescription should perforce be strictly construed. (Commissioner of
Internal Revenue u. B.F. Goodrich Phils., Inc., G.R. No. 104171, February 24, 1999)

Execution of Waiver Under RMO No. 20-90

The proper execution of the waiver of the statute of limitations under the Tax Code
was previously implemented by Revenue Memorandum Order No. 20-90, dated April 4,
1990. Under Revenue Memorandum Order No. 20-90, internal revenue taxes may be
assessed or collected after the ordinary prescriptive period, if before its
expiration, both the Commissioner and the taxpayer have agreed in writing to its
assessment and/or collection after said period.
The period so agreed upon may be extended by subsequent written agreement made
before the expiration of the period previously agreed upon. This written agreement
between the Commissioner of Internal Revenue or his duly authorized officer and the
taxpayer is the so-called "Waiver of the Statute of Limitations."
Pursuant to Revenue Memorandum Order No. 20-90, the following procedures should be
followed:
1. The waiver must be in the form identified in Revenue
Memorandum Order No. 20-90.
a.
The form may be reproduced by the BIR office concerned but there should be no
deviation from such form.
b.
The phrase "but not after _ 19 _" should be filled up.
This indicates the expiry date of the period agreed upon to assess/collect the tax
after the regular three
(3)-year period of prescription.
C.
The period agreed upon shall constitute the time within which to effect the
assessment/collection of the tax in addition to the ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed by any of
its responsible officials.
3. After the waiver is signed by the taxpayer, the Commissioner of Internal Revenue
or the revenue official authorized by him shall sign the waiver indicating that the
BIR has accepted and agreed to the waiver.
4. The date of such acceptance by the BIR should be indicated.
5. Both the date of execution by the taxpayer and date of acceptance by the BIR
should be before the expiration of the period of prescription or before the lapse
of the period agreed upon in case a subsequent agreement is executed.
6. The waiver must be executed in three (3) copies, the original copy to be
attached to the docket of the case, the second copy for the taxpayer and the third
copy for the Office accepting the waiver. The fact of receipt by the taxpayer of
his/her file copy shall be indicated in the original copy.
7. The above procedures shall be strictly followed.
On August 2, 2001, the BIR issued Revenue Delegation of
Authority No. 05-01 amending the authority of the revenue officials to sign and
accept the waiver. In addition, Revenue Delegation of Authority Order No. 05-01
requires that the authorized revenue official shall ensure that the waiver is duly
accomplished and signed by the taxpayer or his authorized representative before
affixing his signature to signify acceptance of the same. In case the authority is
delegated by the taxpayer to a representative, the concerned revenue official shall
see to it that such delegation is in writing and duly notarized. The waiver shall
not be accepted by the concerned BIR office and official unless duly notarized.
Notably, Revenue Delegation of Authority Order No. 05-01 makes as an additional
requirement that the delegation of authority by the taxpayer to a representative to
sign the waiver must be in writing and duly notarized. In addition, the waiver
itself must also be notarized before it may be accepted by the BIR or its
officials.
The requirement that the delegation of authority to a representative of the
taxpayer must be notarized is emphasized by the Supreme Court in Commissioner of
Internal Revenue v.
Kudos Metal Corporation (G.R. No. 178087, May 5, 2010) when the Supreme Court
invalidated the waiver for failure to comply to such requirement
The procedures set forth in Revenue Memorandum Order No.
20-90 are not merely directory but must be carefully and strictly construed.
(Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852,
December 16, 2004) The prescriptive period on when to assess taxes benefits both
the government and the taxpayer. Exceptions extending the period to assess must,
therefore,
be strictly construed. (Commissioner of Internal Revenue v. Kudos Metal
Corporation, G.R. No. 178087, May 5, 2010)

Effect of a Defective Waiver

A waiver that does not comply with the procedures set forth in Revenue Memorandum
Order No. 20-90 and Revenue Delegation of Authority Order No. 05-01 is an
incomplete and defective waiver.
The waiver document that is incomplete and defective does not toll or extend the
three (3)-year prescriptive period. (Philippine Journalists, Inc. u. Commissioner
of Internal Revenue, G.R. No.
162852, December 16, 2004) A defective waiver does not validly extend the original
three (3)-year prescriptive period. (Commissioner of Internal Revenue v. FMF
Development Corporation, G.R. No.
167765, June 30, 2008)
The taxpayer has the primary responsibility for the proper preparation of the
waiver of the prescriptive period for assessing deficiency taxes. Hence, the
Commissioner of Internal Revenue may not be blamed for any defects in the execution
of the waiver. (Asian Transmission Corporation U. Commissioner of Internal Revenue,
G.R. No. 230861, September 19, 2018)
Thus, an assessment issued after the 3-year period that was not extended due to an
incomplete and defective waiver is a null and void assessment for having been
issued beyond the prescriptive period. In essence, the government losses its right
to assess after the
3-year period.

Estoppel in Period of Prescription

In Collector of Internal Revenue U. Suyoc Consolidated Mining
Company (G.R. No. L-11527, November 25, 1958), the doctrine of estoppel prevented
the taxpayer from raising the defense of prescription against the efforts of the
government to collect the assessed tax. However, it must be stressed that in the
said case, estoppel was applied as an exception to the statute of limitations on
collection of taxes and not on the assessment of taxes, as the BIR was able to make
an assessment within the prescribed period.
More important, there was a finding that the taxpayer made several requests or
positive acts to convince the government to postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second
final return filed on November 28, 1946 was
made on February 11, 1947. Upon receipt of this assessment, respondent requested
for at least one year within which to pay the amount assessed although it reserved
its right to question the correctness of the assessment before actual payment.
Petitioner granted an extension of only three months. When it failed to pay the tax
within the period extended, petitioner sent respondent a letter on November 28,
1950 demanding payment of the tax as assessed, and upon receipt of the letter
respondent asked for a reinvestigation and reconsideration of the assessment. When
this request was denied, respondent again requested for a reconsideration on April
25, 1952, which was denied on May 6, 1953, which denial was appealed to the
Conference Staff. The appeal was heard by the Conference Staff from September 2,
1953 to July 16, 1955, and as a result of these various negotiations, the
assessment was finally reduced on July 26, 1955. This is the ruling which is now
being questioned after a protracted negotiation on the ground that the collection
of the tax has already prescribed.

In Kudos Metal Corporation, the doctrine of estoppel was not applied an exception
to the statute of limitations on the assessment of taxes considering that there is
a detailed procedure for the proper execution of the waiver, which the BIR must
strictly follow. As often declared by the Supreme Court, the doctrine of estoppel
is predicated on, and has its origin in, equity which, broadly defined, is justice
according to natural law and right. (La Naval Drug Corporation U.
Court of Appeals, G.R. No. 103200, August 31, 1994) As such, the doctrine of
estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy. (Ouano v. Court of Appeals, G.R. No. 129279, March 4, 2003)
It should be resorted to solely as a means of preventing injustice and should not
be permitted to defeat the administration of the law, or to accomplish a wrong or
secure an undue advantage, or to extend beyond them requirements of the
transactions in which they originate. (C & S Fishfarm Corporation
u. Court of Appeals, G. R. No. 122720, December 16, 2002) Simply put, the doctrine
of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure
to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated
earlier, the BIR failed to verify whether a notarized written authority was given
by the respondent to its accountant, and to indicate the date of acceptance and the
receipt by the respondent of the waivers. Having caused the defects in the waivers,
the BIR must bear the consequence. It cannot shift the blame to the taxpayer.
(Commissioner of Internal Revenue v. Kudos Metal Corporation, G.R. No. 178087, May
5, 2010)

'To stress, a waiver of the statute of limitations, being a derogation of the

taxpayer's right to security against prolonged and unscrupulous investigations,
must be carefully and strictly construed. (Philippine Journalists, Inc. v.
Commissioner of Internal Revenue, G.R. No.
162852, December 16, 2004)
Simply, under the principle of estoppel, the party who caused the defect and
infirmity of the waiver shall not be allowed to assail or challenge the validity of
the waiver.

Effect If the Government and Taxpayer are In Pari Delicto in the Execution of
Waiver of the Statute of Limitation
Latin for "in equal fault," in pari delicto connotes that two or more people are at
fault or are guilty of a crime. Neither courts of law nor equity will interpose to
grant relief to the parties, when an illegal agreement has been made, and both
parties stand in pari delicto. (Constantino u. Heirs of Constantino, Jr., G.R. No.
181508,
October 2, 2013)
In tax cases specifically in the execution of waiver, in pari delicto means the
government and the taxpayer are both at fault and responsible in causing the
incompleteness and defect of a waiver.
The issue now is if both the government and the taxpayer are at fault resulting to
the incomplete and defective waiver, what is the status of the waiver and the
assessment arising from such waiver?
This was answered by the Supreme Court in Commissioner of Internal Revenue U. Next
Mobile, Inc.
(formerly Nextel
Communications Phils., Inc.) (G.R. No. 212825, December 7, 2015).
In this case, the BIR and the taxpayer knew the defect and infirmities of the
waiver and yet they continued dealing with each other. The Supreme Court thus
ruled:
"To be sure, both parties in this case are at fault.
Here, respondent, through Sarmiento, executed five Waivers in favor of petitioner.
However, her authority to sign these Waivers was not presented upon their
submission to the BIR. In fact, later on, her authority to sign was questioned by
respondent itself, the very same entity that caused her to sign such in the first
place. Thus, it is clear that respondent violated RMO No.
20-90 which states that in case of a corporate taxpayer, the waiver must be signed
by its responsible officials and RDAO 01-05 which requires the presentation of a
written and notarized authority to the BIR.

Similarly, the BIR violated its own rules and was careless in performing its
functions with respect to these Waivers. It is very clear that under RDAO 05-01, it
is the duty of the authorized revenue official to ensure that the waiver is duly
accomplished and signed by the taxpayer or his authorized representative before
affixing his signature to signify acceptance of the same.
It also instructs that in case the authority is delegated by the taxpayer to a
representative, the concerned revenue official shall see to it that such delegation
is in writing and duly notarized. Furthermore, it mandates that the waiver should
not be accepted by the concerned BIR office and official unless duly notarized.
Vis-a-vis the five Waivers it received from respondent, the BIR has failed, for
five times, to perform its duties in relation thereto: to verify Ms. Sarmiento's
authority to execute them, demand the presentation of a notarized document
evidencing the same, refuse acceptance of the Waivers when no such document was
presented, affix the dates of its acceptance on each waiver, and indicate on the
Second Waiver the date of respondent's receipt thereof.
Both parties knew the infirmities of the Waivers yet they continued dealing with
each other on the strength of these documents without bothering to rectify these
infirmities. In fact, in its Letter Protest to the BIR, respondent did not even
question the validity of the Waivers or call attention to their alleged defects.

In this case, respondent, after deliberately executing defective waivers, raised

the very same deficiencies it caused to avoid the tax liability determined by the
BIR during the extended assessment period. It must be remembered that by virtue of
these Waivers, respondent was given the opportunity to gather and submit documents
to substantiate its claims before the CIR during investigation. It was able to
postpone the payment of taxes, as well as contest and negotiate the assessment
against it. Yet, after enjoying these benefits, respondent challenged the validity
of the Waivers when the consequences thereof were not in its favor. In other words,
respondent's act of impugning these Waivers after benefiting therefrom and allowing
petitioner to rely on the same is an act of bad faith.

On the other hand, the stringent requirements in RMO 20-90 and RDAO 05-01 are in
place precisely because the BIR put them there. Yet, instead of strictly enforcing
its provisions, the BIR defied the mandates of its very own issuances. Verily, if
the BIR was truly determined to validly assess and collect taxes from respondent
after the prescriptive period, it should have been prudent enough to make sure that
all the requirements for the effectivity of the Waivers were followed not only by
its revenue officers but also by respondent. The BIR stood to lose millions of
pesos in case the Waivers were declared void, as they eventually were by the CTA,
but it appears that it was too negligent to even comply with its most basic
requirements.

The BIR's negligence in this case is so gross that it amounts to malice and had
faith. Without doubt, the BIR knew that waivers should conform strictly to RMO 20-
90 and RDAO 05-01 in order to be valid. In fact, the mandatory nature of the
requirements, as ruled by this Court, has been recognized by the BIR itself in its
issuances such as Revenue Memorandum Circular No. 6-2005, among others.
Nevertheless, the BIR allowed respondent to submit, and it duly received, five
defective Waivers when it was its duty to exact compliance with MO 20-90 and RDAO
05-01 and follow the procedure dictated therein. It even openly admitted that it
did not require respondent to present any notarized authority to sign the
questioned Waivers. The BIR failed to demand respondent to follow the requirements
for the validity of the Waivers when it had the duty to do so, most especially
because it had the highest interest at stake. If it was serious in collecting
taxes, the BIR should have meticulously complied with the foregoing orders, leaving
no stone unturned.

The general rule is that when a waiver does not comply with the requisites for its
validity specified under RMO No. 20-90 and RDAO 01-05, it is invalid and
ineffective to extend the prescriptive period to assess taxes. However, due to its
peculiar circumstances, We shall treat this case as an exception to this rule and
find the Waivers valid for the reasons discussed below.

First, the parties in this case are in pari delicto or "in equal fault." In pari
delicto connotes that the two parties to a controversy are equally culpable or
guilty and they shall have no action against each other. However, although the
parties are in pari delicto, the Court may interfere and grant relief at the suit
of one of them, where public policy requires its intervention, even though the
result may be that a benefit will be derived by one party who is in equal guilt
with the other.

Here, to uphold the validity of the Waivers would be consistent with the public
policy embodied in the principle that taxes are the lifeblood of the government,
and their prompt and certain availability is an imperious
need. Taxes are the nation's lifeblood throush which government agencies continue
to operate and which the State discharges its functions for the welfare of its
constituents. As between the parties, it would be more equitable if petitioner's
lapses were allowed to pass and consequently uphold the Waivers in order to support
this principle and public policy.

Second, the Court has repeatedly pronounced that parties must come to court with
clean hands. Parties who do not come to court with clean hands cannot be allowed to
benefit from their own wrongdoing. Following the foregoing principle, respondent
should not be allowed to benefit from the flaws in its own Waivers and successfully
insist on their invalidity in order to evade its responsibility to pay taxes.

m Third, respondent is stopped from questioning the validity of its Waivers. While
it is true that the Court has repeatedly held that the doctrine of estoppel must be
sparingly applied as an exception to the statute of limitations for assessment of
taxes, the Court finds that the application of the doctrine is justified in we this
case. Verily, the application of estoppel in this case would promote the
administration of the law, prevent injustice and avert the accomplishment of a
wrong and undue advantage.
Respondent executed five Waivers and delivered them to petitioner, one after the
other. It allowed petitioner to rely on them and did not raise any objection
against their validity until petitioner assessed taxes and penalties against it.
Moreover, the application of estoppel is necessary to prevent the undue injury that
the government would suffer because of the cancellation of petitioner's assessment
of respondent's tax liabilities.

Finally, the Court cannot tolerate this highly suspicious situation. In this case,
the taxpayer, on the one hand, after voluntarily executing waivers, insisted on
their invalidity by raising the very same defects it caused. On the other hand, the
BIR miserably failed to exact from respondent compliance with its rules. The BIR's
negligence in the performance of its duties was so gross that it amounted to malice
and bad faith. Moreover, the BIR was so lax such that it seemed that it consented
to the mistakes in the Waivers. Such a situation is dangerous and open to abuse by
unscrupulous taxpayers who intend to escape their responsibility to pay taxes by
mere expedient of hiding behind technicalities.

It is true that petitioner was also at fault here because it was careless in
complying with the requirements of RMO No. 20-90
and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing
the provisions imposing administrative liabilities upon the officers responsible
for these errors. The BIR's right to assess and collect taxes should not be
jeopardized merely because of the mistakes and lapses of its officers, especially
in cases like this where the taxpayer is obviously in bad faith.

From the foregoing, when the government and the taxpayer are in pari delicto,
public policy dictates that the validity of the waiver must be upheld resulting to
a valid extension of the period of prescription to make an assessment.

RMO No. 14-2016 repealed RMO No. 20-90

Exactly twenty-six (26) years after the issuance of Revenue Memorandum Order No.
20-90, the BIR issued Revenue Memorandum Order No. 14-2016 on April 4, 2016
revising the guidelines relative to the execution of waiver of the statute of
limitations under Section 222 in relation to Section 203 of the Tax Code.
Revenue Memorandum Order No. 14-2016 repealed Revenue
Memorandum Order No. 20-90 and Revenue Delegation of Authority Order No. 05-01
which imposed the very strict requirements for a valid waiver. Revenue Memorandum
Order No. 14-2016 was issued because of a rampant practice by the taxpayers to
contest the validity of their own waivers of the statute of limitations after
having been availed of the benefits thereof. Thus, the BIR sees a clear necessity
to revise the procedures provided for the execution of such waivers.
Under Revenue Memorandum Order No. 14-2016, the following relaxed guidelines shall
now govern the execution of waiver of the statute of limitations:
1. The waiver may be, but not necessarily, in the form prescribed by Revenue
Memorandum Order No. 20-90 or Revenue Delegation of Authority Order No. 05-01. The
taxpayer's failure to follow the aforesaid forms does not invalidate the executed
waiver, for as long as the following are complied with:
a.
The Waiver of the Statute of Limitations under Section 222(b) and (d) shall be
executed before the expiration of the period to assess or to collect taxes.
The date of execution shall be specifically indicated in the waiver.

or his duly authorized representative. In the case of a corporation, the waiver

must be signed by any of its responsible officials.
c.
The expiry date of the period agreed upon to assess/ collect the tax after the
regular three (3)-year period of prescription should be indicated.
Except for waiver of collection of taxes which shall indicate the particular taxes
assessed, the waiver need not specify the particular taxes to be assessed nor the
amount thereof, and it may simply state "all internal revenue taxes" considering
that during the assessment stage, the Commissioner of Internal Revenue or his duly
authorized representative is still in the process of examining and determining the
tax liability of the taxpayer.
Since the taxpayer is the applicant and the executor of the extension of the period
of limitation for its benefit in order to submit the required documents and
accounting records, the taxpayer is charged with the burden of ensuring that the
waivers of statute of limitation are validly executed by its authorized
representative. The authority of the taxpayer's representative who participated in
the conduct of audit or investigation shall not be thereafter contested to
invalidate the waiver.
The waiver may be notarized. However, it is sufficient that the waiver is in
writing as specifically provided by the NIRC, as amended.
Considering that the waiver is a voluntary act of the taxpayer, the waiver shall
take legal effect and be binding on the taxpayer upon its execution thereof.
It shall be the duty of the taxpayer to submit its duly executed waiver to the
Commissioner of Internal Revenue or official previously designated in existing
issuances or the concerned revenue district officer or group supervisor as
designated in the Letter of Authority/Memorandum of Assignment who shall then
indicate acceptance by signing the same. Such waiver shall be executed and duly
accepted prior to the expiration of the period to assess or to collect. The
taxpayer shall have the duty to retain a copy of the accepted waiver.

need to be present on the waiver.

3. The date of execution of the waiver by the taxpayer or its authorized
representative, and
b.
The expiry date of the period the taxpayer waives the statute of limitations.
8. Before the expiration of the period set on the previouely executed waiver, the
period earlier set may be extended by subsequent written waiver made in accordance
with Revenue Memorandum Order No. 14-2016.
Notably, the burden of ensuring the validity of the waiver of the statute of
limitation now rests with the taxpayer. Thus, as it stands now, the taxpayer should
focus not only on the procedural or technical issues but also on the merits or the
strength of its substantive factual and legal bases against a tax assessment of the
BIR.
Revenue Memorandum Circular No. 141-2019
On December 20, 2019, the BIR issued Revenue Memorandum
Circular No. 141-2019 reiterating the salient points arising from Revenue
Memorandum Order No. 14-2016 on the proper execution of waivers of defense of
prescription. While it is premised as a
"reiteration" of the procedures laid down by Revenue Memorandum Order No. 14-2016,
it appears that Revenue Memorandum Circular No. 141-2019 now provides for the
recent BIR guidelines on the proper execution of waiver of defense of prescription.
Under Revenue Memorandum Circular No. 141-2019, the new guidelines are:
a.
The waiver is a unilateral and voluntary undertaking which shall take legal effect
and be binding on the taxpayer immediately upon his execution thereof.
b.
The waiver need not specify the type of taxes to be assessed nor the amount
thereof.
C.
d.
It is no longer required that the delegation of authority to a representative be in
writing and notarized.
The taxpayer cannot seek to invalidate his waiver by contesting the authority of
his own representative.

e.
It is the duty of the taxpayer to submit his waiver to the
BIR officiale prior to the expiration of the period to 08sess or to collect, as the
case may be.
f.
In addition to the previously authorized officials, the RDO or Group Supervisor as
designated in the Letter of Authority or Memorandum of Assignment can accept the
waiver.
8: The date of acceptance of the BIR officer is no longer required to be indicated
for the waiver's validity.
h.
The taxpayer shall have the duty to retain a copy of the submitted waiver.
Notarization of the waiver is not a requirement for ite validity.
j.
There is no strict format for the waiver. The taxpayer may utilize any form with no
effect on its validity.
As stated, it is clearly apparent that the taxpayer is charged with the burden of
ensuring that the waiver is validly executed when submitted to the BIR. Thus, the
taxpayer must ensure that the waiver is (1) executed before the expiration of the
period to asses or to collect taxes, (2) indicates the expiry date of the extended
period,
(3) indicates the type of tax (for waiver of the prescriptive period to collect);
and (4) is signed by his authorized representative.

As stated, it is clearly apparent that the taxpayer is charged with the burden of
ensuring that the waiver is validly executed when submitted to the BIR. Thus, the
taxpayer must ensure that the waiver is (1) executed before the expiration of the
period to asses or to collect taxes, (2) indicates the expiry date of the extended
period,
(3) indicates the type of tax (for waiver of the prescriptive period to collect;
and (4) is signed by his authorized representative.

Suspension of Running of Statute of Limitations

The 3-year or 10-year period to make an assessment and the beginning of a distraint
or levy proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period in the following instances:
a.
During which the Commissioner is prohibited from making the assessment;
b.
Beginning distraint or levy or a proceeding in court and for sixty (60) days
thereafter;
C.
When the taxpayer requests for a reinvestigation which is granted by the
Commissioner; and
d.
When the taxpayer cannot be located in the address given by him in the return filed
upon which a tax is being assessed or collected.

If the taxpayer informs the Commissioner of Internal Revenue of any change in

address, the running of the statute of limitations will not be suspended when:
a.
The warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and
b.
No property could be located; and when the taxpayer is out of the Philippines.
(Section 223, NIRC)
In case of estate tax and when the estate requests for an extension of payment of
taxes, the running of the statute of limitations for assessment as provided in
Section 203 of the Tax Code shall be suspended for the period of such extension.
(Section
91(B), NIRC)

Jeopardy Assessment
Jeopardy assessment refers to a tax assessment which was assessed without the
benefit of complete or partial audit by an authorized revenue officer, who has
reason to believe that the assessment and collection of a deficiency tax will be
jeopardized by delay because of the taxpayer's failure to comply with the audit and
investigation requirements to present his books of accounts and/or pertinent
records, or to substantiate all or any of the deductions, exemptions, or credits
claimed in his return. (Section 3, Revenue Regulations No. 30-2002).

GENERAL BIR TAX AUDIT PROCESS

In the conduct of tax assessment, the BIR generally follows the following tax audit
process:
a.
Issuance of Letter of Authority (LOA);
b.
Conduct of Audit Examination;
C.
Reporting of Results of Examination through issuance of Notice of Informal
Conference (NIC);
d. Issuance of Preliminary Assessment Notice (PAN);
E. Issuance of Formal Letter of Demand and Final
Assessment Notice (FLD/FAN); and
F. Issuance of Final Decision on Disputed Assessment

ISSUANCE OF LETTER OF AUTHORITY

Letter of Authority
A Letter of Authority (LOA) is the authority given to the appropriate revenue
officer assigned to perform assessment functions. It empowers or enables said
revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax. A LOA is premised
on the fact that the examination of a taxpayer who has already filed his tax
returns is a power that statutorily belongs only to the CIR himself or his duly
authorized representatives. (Medicard Philippines, Inc. v. Commissioner of Internal
Revenue, G.R. No.
222743, April 5, 2017; Commissioner of Internal Revenue v. Sony Philippines, Inc.,
G.R. No. 178697, November 12, 2010)
A LOA is the authority given to the appropriate revenue officer to examine the
books of account and other accounting records of the taxpayer in order to determine
the taxpayer's correct internal revenue liabilities and for the purpose of
collecting the correct amount of tax, in accordance with Section 5 of the Tax Code,
which gives the CIR the power to obtain information, to summon/examine, and take
testimony of persons. The LOA commences the audit process and informs the taxpayer
that it is under audit for possible deficiency tax assessment. (Commissioner of
Internal Revenue v.
De La Salle University, Inc., G.R. No. 196596, 198841, & 198941,
November 9, 2016)
A Revenue Officer assigned to perform assessment functions in any district may,
pursuant to a LOA issued by the Revenue Regional Director, examine taxpayers within
the jurisdiction of the district in order to collect the correct amount of tax, or
to recommend the assessment of any deficiency tax due in the same manner that the
said acts could have been performed by the Revenue Regional Director himself.
(Section 13, NIRC)
On May 12, 2010, the BIR issued Revenue Memorandum Order
No. 44-2010 mandating the issuance of an electronic LOA (e-LOA).
Thus, starting taxable year 2011, BIR will no longer issue manually
prenared L.OA