CIR v. REYES

G.R. No. 159694, January 27, 2006

FACTS: In 1997, The Regional District Office of South Makati conducted an investigation on the estate left by Maria C. Tancinco who died in 1993. Based on the old Tax Code, a Letter of Authority was issued to Reyes, a heir, without the submission of preliminary findings. In 1998, the CIR issued a Final Assessment Notice (FAN) demanding a payment of 14.9M of taxes including surcharge and interest. The new Tax Reform Act was also made effective in 1998.

In 1999, a Warrant of Distraint was issued due to nonpayment. In 1999 and 2000, Reyes offered compromises but both were rejected. As the estate failed to pay its tax liability within the deadline, the Chief, Collection Enforcement Division, BIR, notified Reyes that the subject property would be sold at public auction. Reyes filed a protest assailing the scheduled auction sale, she asserted that the assessment, letter of demand and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge or interest. Without acting on the protest and offer, the CIR instructed the Collection Enforcement Division to proceed with the auction sale. Consequently, Reyes filed a Petition for Review with the CTA.

During the pendency of the Petition for Review with the CTA, however, the BIR issued a Revenue Regulation and Revenue Memorandum Order offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their tax liability.

Reyes moved for a 2nd postponement of the hearing set, this time on the ground that she had already paid the compromise amount but was still awaiting approval of the National Evaluation Board The CTA granted the motion and reset the hearing. Then, Reyes filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected Compromise. Commenting on the motion, the CIR countered that without the approval of the NEB, the application for compromise with the BIR cannot be considered a perfected or consummated compromise.

The CTA denied the motion, prompting Reyes to file a Motion for Reconsideration Ad Cautelam which was denied but Reyes was told to file a Supplemental Petition for Review, setting forth the new issue of whether there was already a perfected compromise.

Reyes filed a Supplemental Petition for Review with the CTA. Answering the Supplemental Petition, the CIR averred that an application for compromise of a tax liability under the RR No. and RMO requires the evaluation and approval of either the NEB or the Regional Evaluation Board as the case may be. Reyes filed a Motion for Judgment on the Pleadings; the motion was granted.

The CTA rendered a Decision denying the petition. 

Aggrieved, Reyes brought a petition to the CA. In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal in their requirement. The appellate court added, that it was premature to declare as perfected and consummated the compromise of the estate’s tax liability. 

Hence, this Petition.

ISSUES:

1. Whether petitioner’s assessment against the estate is valid.

2. Whether the compromise entered into is also valid.

RULING: The Petition is unmeritorious.

1. No. The second paragraph of Section 228 of the Tax Code is clear and mandatory. It provides that taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void.

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997. RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

2. It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the National Evaluation Board composed of the petitioner and four deputy commissioners. Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not.