BIR Ruling

August 16, 1996 MEMORANDUM FOR: The Commissioner This refers to the tax case of ATTY. PERPETUA M. BOCANEGRA involving the amount of P27,554.33 as deficiency income tax covering the year 1981 under Assessment No. 22-5-04A-064104-81 dated April 15, 1986. cdtech Records show that an Assessment Notice was sent by registered mail on April 21, 1986 to the taxpayer at the address given in her 1981 return, however, the said notice was returned to sender for being unclaimed. On June 26, 1987, taxpayer filed a letter dated June 23, 1987 with the defunct Receivable Accounts Division informing the Bureau of her receipt of the Final Tracer of June 17, 1987 relative to the above assessment and informing further of her availment of Tax Amnesty under Executive Order No. 41 by paying P8,575.77 under CR No. B9067037 dated November 3, 1986. The then Regional Director F. Viray, in her letter of August 8, 1991, informed the taxpayer that her availment of Tax Amnesty under E.O. No. 41 is not valid as the above assessment had been pending as of August 21, 1986 (Date of effectivity of E.O. No. 41) Mrs. Viray's decision finding taxpayer's availment of tax amnesty to be invalid was based on Rev. Reg. No. 14-86, implementing E.O. No. 41 which provides as follows: "Section 1. Scope . These regulations shall cover all cases of voluntary declaration of increase in net worth for the year beginning 1981 and ending with the tax year 1985, and the filing of statement of assets, liabilities and net worth as of the said dates." "Section 2. Who may avail . This tax amnesty may be availed of by any natural or juridical person who has heretofore failed to declare the correct amount of taxable income from 1981 to 1985." She further stated that "based on the above-cited regulations, to be entitled to the benefits provided by E.O. No. 41, the claimant must have voluntarily disclosed his previously untaxed income or wealth and paid the amnesty tax. Where the disclosure of such previously untaxed income or wealth was not voluntary but rather the accompaniment or result of a tax case or tax assessment already pending as of August 21, 1986, the claimant is not entitled to the full benefits of E.O. 41. Said tax assessment already existing on or before August 21, 1986, shall not be covered by the amnesty." This issue of Tax Amnesty availment has been decided by the Supreme Court's Third Division in its Decision promulgated on January 20, 1995 in G.R. No. 108358 entitled "CIR, Petitioner vs. The Hon. Court of Appeals, R.O.H. Auto Products Philippines, Inc. and the Hon. Court of Tax Appeals, Respondents, affirming in toto the Decision of the Court of Appeals sustaining the earlier decision of the Court of Tax Appeals. In deciding the subject Petition, the Supreme Court quoted the resolution rendered by the Court of Tax Appeals as follows: "Respondent (herein petitioner Commissioner) failed to present any case or law which proves that an assessment can withstand or negate the force and effects of a tax amnesty. This burden of proof on the petitioner (herein respondent taxpayer) was created by the clear and express terms of the executive order's intention qualified availers of the amnesty may pay an amnesty tax in lieu of said unpaid taxes which are forgiven (Section 2, Section 5, Executive Order No. 41, as amended). More specifically, the plain provisions in the statute granting tax amnesty for unpaid taxes for the period January 1, 1981 to December 31, 1985 shifted the burden of proof on respondent to show how the issuance of an assessment before the date of the promulgation of the executive order could have a reasonable relation with the objective periods of the amnesty, so as to make petitioner still answerable for a tax liability which, through the statute, should have been erased with the proper availment of the amnesty. "Additionally, the exceptions enumerated in Section 4 of Executive Order No. 41, as amended do not indicate any reference to an assessment or pending investigation aside from one arising from information furnished by an informer. . . . Thus, we deem that the rule in Revenue Memorandum Order No. 4-87 promulgating that only assessments issued after August 21, 1986 shall be abated by the amnesty is beyond the contemplation of Executive Order No. 41, as amended." On appeal by the Commissioner to the Court of Appeals, the decision of the tax court was affirmed. The appellate court further observed: "In the instant case, examining carefully the words used in Executive Order No. 41, as amended, we find nothing which justifies petitioner Commissioner's ground for denying respondent taxpayer's claim to the benefits of the amnesty law. Section 4 of the subject law enumerates, in no uncertain terms, taxpayers who may not avail of the amnesty granted. . . . "Admittedly, respondent taxpayer does not fall under any of the . . . exceptions. The added exception urged by petitioner Commissioner based on Revenue Memorandum Order No. 4-87, further restricting the scope of the amnesty clearly amounts to an act of administrative legislation quite contrary to mandate of the law which the regulation ought to implement." "xxx xxx xxx " Lastly, by its very nature, a tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it, and in this sense, prejudicial thereto, particularly to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate . (Republic vs. Intermediate Appellate Court. 196 SCRA 335, 340 [1991] citing Commissioner of Internal Revenue vs. Botelho Shipping Corp., 20 SCRA 487) To follow [the restrictive application of Revenue Memorandum Order No. 4-87 pressed by petitioner Commissioner would be to work against the raison d'etre of E.O. 41, as amended, i.e., to raise government revenues by encouraging taxpayers to declare their untaxed income and pay the tax due thereon. (E.O. 41, first paragraph)]"3 (emphasis supplied) It should also be noted that taxpayer's case does not fall under any of the exceptions enumerated under Section 4 of E.O. No. 41, as amended. In view of the foregoing, it is respectfully recommended that the above deficiency income tax be cancelled and this case considered closed and terminated. Respectfully submitted: (SGD.) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) ALICIA P. CLEMENO Assistant Commissioner Legal Service Recommendation APPROVED: (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue