Justifying an extraordinary prescription

At the core of the Commissioner of Internal Revenue’s power is to make tax assessments that enforce the correct payment of taxes. Nonetheless, while tax assessments are presumed to be correct and issued in the ordinary performance of the tax authorities’ duties, there is also a presumption that tax returns have been filed in good faith. Hence, following due process, taxpayers are given the opportunity to dispute assessed irregularities in the taxes they have filed within a practicable period of time.

As a general rule on the prescriptive period of assessment under Section 203 of the Tax Code, the Bureau of Internal Revenue (BIR) has three years to assess deficiency taxes, counting from the last day fixed by the law to file the returns or from the day the returns were actually filed, whichever comes later. This prescriptive period affords taxpayers protection against lengthy and unreasonable investigations.

At the core of the Commissioner of Internal Revenue’s power is to make tax assessments that enforce the correct payment of taxes. Nonetheless, while tax assessments are presumed to be correct and issued in the ordinary performance of the tax authorities’ duties, there is also a presumption that tax returns have been filed in good faith. Hence, following due process, taxpayers are given the opportunity to dispute assessed irregularities in the taxes they have filed within a practicable period of time.

As a general rule on the prescriptive period of assessment under Section 203 of the Tax Code, the Bureau of Internal Revenue (BIR) has three years to assess deficiency taxes, counting from the last day fixed by the law to file the returns or from the day the returns were actually filed, whichever comes later. This prescriptive period affords taxpayers protection against lengthy and unreasonable investigations.

To satisfy the due process requirement, the BIR should set out in its formal notice to the taxpayer the computation by which misdeclarations were ascertained to exceed the 30% threshold. If the taxpayer fails to overcome the presumption of fraud, the prima facie evidence should be sufficient to justify the application of the 10-year period.

Due process requirement No. 2: The tax authorities should not act in a manner that is inconsistent with the invocation of the extraordinary prescriptive period or that would have otherwise misled the taxpayer that the basic three-year period will be applied, prejudicing the taxpayer’s defense.

In the past, the SC regarded the following acts performed by the tax authorities as contradictory to the application of the 10-year prescriptive period: (i) in cases where waivers of the statute of limitations have been executed; and (ii) in cases where assessment notices were hastily issued before the prescription of the basic three-year period.

It must be noted that the extended prescriptive period is granted as a benefit to the BIR only by exception and upon convincing evidence of the taxpayer’s fraud or bad faith. Due process must always be followed on both sides. The BIR’s authority and right to properly assess and collect tax liabilities should always be respected. Likewise, taxpayers have the right to timely defend themselves against allegations of fraud and unreasonable and lengthy examinations.

As common as the idiomatic expression is, honesty is the best policy. I believe that as citizens, we taxpayers inherently and in good faith want to contribute to the betterment of the country. As far as our taxes go, being the lifeblood of the government, most of us strive to honestly comply with the rules and regulations and pay what is due from us. This honesty should be safeguarded by statutory limitations provided under law and not be prejudiced.