GR No. 163581, 27 January 2006
Facts: By
virtue of a sworn affidavit for reward by one Abad, an investigation was
conducted by BIR on the estate of the deceased Maria Tancinco who died in 1993
leaving a residential lot and old house in Dasma. Without submitting a preliminary finding
report, an LOA was issued and received by Reyes, one of the heirs on 14 March
1997.
Then on 12 Feb 1998, a PAN was issued against
the estate, and a FAN as well as demand letter was issued on 22 April 1998. For
the assessment of P14.9M for estate tax of the estate of Maria Tancinco. On March 11, 1999, the heirs proposed a
compromise settlement of P1,000,000.00.
During those dates, RA 8424 Tax Reform Act was already in effect. RA 8424 stated that the taxpayer must be informed of both the law and facts on which the assessment was based.The notice required under the old law was no longer sufficient under the new law. First, 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 in 1998 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.
Due to
failure to pay tax on the deadline BIR notified on June 6, 2000 that the
subject property would be sold at public auction on August 8, 2000. Reyes filed
a protest with the BIR. Hence the
petition for review filed by Reyes in CTA and a TRO to desist and refrain from
proceeding with the auction sale of the subject property or from issuing a warrant
pending determination of the case and/or unless a contrary order is issued.
CIR filed
a motion saying CTA has no jurisdiction since the assessment against the estate
is already final and executory; and (ii) that the petition was filed out of
time
CTA – Ruled in favour of CIR ordering Reyes to
pay the estate tax amounting to 19M. CTA ratiocinated that there can only be a
perfected and consummated compromise of the estate’s tax liability[,] if the
NEB has approved [Reyes’s] application for compromise in accordance with RR No.
6-2000, as implemented by RMO No. 42-2000.
CA – Partly granted petition. SC – Affirmed,
petition w/o merit.
ISSUE: WON
whether the assessment against the estate is
valid; and, second, whether the compromise entered into is also valid.
HELD: No. Under
the present provisions of the Tax Code and pursuant to elementary due process,
taxpayers must be informed in writing of the law and the facts upon which a tax
assessment is based; otherwise, the assessment is void. Being invalid, the
assessment cannot in turn be used as a basis for the perfection of a tax
compromise. This was clear and mandatory under Section 228.
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 22913 prior
to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax
Reform Act of 1997.
To be simply informed in writing of the
investigation being conducted and of the recommendation for the assessment of
the estate taxes due is nothing but a perfunctory discharge of the tax function
of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes
already knew the law and the facts on which the assessment was based. It does
not at all conform to the compulsory requirement under Section 228. Moreover,
the Letter of Authority received by respondent on March 14, 1997 was for the
sheer purpose of investigation and was not even the requisite notice under the
law.
Validity of Compromise. 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 NEB 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. Ubi lex non distinguit, nec nos
distinguere debemos. Where the law does not distinguish, we should not
distinguish.
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