Validity to Issue Constructive Distraint on the Real Properties of Florencio G. Pareña, et. al.

July 02, 1998 BIR RULING [DA-297-98] MEMORANDUM TO : The Assistant Commissioner Enforcement Service RE : Validity to Issue Constructive Distraint on the Real Properties of Florencio G . Parea, et . al . This refers to above subject, the preliminary investigation of which have been submitted to the office of the ACIR, IIS on September 25, 1997. As per Memorandum of September 4, 1997 for the Regional Director, Revenue Region No. 5, Valenzuela by Crescente A. Militante, OIC-Chief, Special Investigation Division, Revenue Region No. 5, said Mr. Florencio G. Parea, et. al., and the corporations controlled by him, with address at Parulan, Plaridel, Bulacan did not file income tax returns and that the same own real properties which are particularly described as follows, viz: LexLib DESCRIPTION TCT NO. AREA LOCATION REGISTERED IN OF PROPERTY THE NAME OF Res. Lot w/ Bldg. T-69266 867 sq. m. Plaridel, Bul. Florencio G. Parea Res. Lot w/ Bldg. T-88945 410 sq. m. Plaridel, Bul. Parea Gen. Mdse., Inc. Res. Lot w/ Bldg. T-88946 179 sq. m. Plaridel, Bul. Parea Gen. Mdse., Inc. Res. Lot w/ Bldg. T-88697 900 sq. m. Plaridel, Bul. Parea Gen. Mdse., Inc. It was recommended by Mr. Delano M. Valera, Asst. Regional Director, of the same Revenue Region No. 5 per 1st Indorsement of September 10, 1997, to place the above-enumerated properties of Florencio G. Parea and Parea Gen. Merchandise, Inc., under constructive distraint allegedly authorized by Section 206 of the Tax Code, as amended, which provides, viz; "SEC. 206. Con structive distraint of the property of a taxpayer : To safeguard the interest of the Government, the Commissioner may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or intends to leave the Philippines, or remove his property therefrom, or hide or conceal his property, or perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him. "The constructive distraint of personal property shall be effected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner whatever without the express authority of the Commissioner. xxx xxx xxx It is now your opinion that the summary administrative remedy by distraint, actual or constructive, is only applicable to personal properties as clearly indicated in the aforequoted Section 206 of the Tax Code, as amended, as distinguished from the administrative remedy by levy under Section 213 of the same Code. Hence, this request for resolution. It must be noted that internal revenue taxes are self-assessing, in which case, no further assessment by the Government is required to create the tax liability. An assessment, however, is necessary in the pursuit of judicial and extra-judicial remedies to enforce taxpayer liabilities and other matters relating to it. Thus, an assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability which is definitely set and fixed. A mere written communication containing a computation by a revenue officer of the tax liability, giving the taxpayer an opportunity to contest or disprove the BIR's findings, is not yet an assessment since it is not yet definite. In the event the taxpayer fails to pay his tax liability indicated in the assessment, the BIR has the following remedies for the collection of the delinquent taxes, among others, viz: (1) by distraint of all personal property or levy of real property belonging to the taxpayer; and (2) by civil or criminal action. Pursuant to Section 207 of the same Code, the remedy of distraint shall proceed only if the person owing any delinquent tax or delinquent revenue fails to pay the same at the time required, by the Revenue District Officer, if the amount involved does not exceed Five thousand pesos (P5,000); the Regional Director, if the amount involved is more than Five thousand pesos (P5,000) but does not exceed Twenty thousand pesos (P20,000); and the Commissioner of Internal Revenue, if the amount involved exceeds Twenty thousand pesos (P20,000), who shall then seize and distrain not earlier than three (3) months nor later than six (6) months from receipt of the demand, any goods chattels or effects and the personal property including the stocks and other securities, debts, credits, bank accounts, and interest in any rights to personal property , of such person in sufficient quantity to satisfy the tax, or charge, together with any increment thereto incident to delinquency and the expenses of the distraint and the cost of the subsequent sale. To safeguard, however, the interest of the Government, the Commissioner of Internal Revenue may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion is retiring from any business subject to tax, or intends to leave the Philippines, or remove his property therefrom, or hide or conceal his property, or perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him. . . . (Section 206, NIRC) cdta While constructive distraint of personal property may be allowed pending assessment of the tax liabilities due from the taxpayer, the warrant of distraint cannot, however, be effected in the instant case, since the properties listed to be the subject of the proposed distraint are real properties. Thus, if the properties to be seized or be obligated to pay the delinquencies are real properties, as in this case, the procedure of levy not distraint must be followed. (Presbitero vs. Fernandez, 7 SCRA 625) On the other hand, pursuant to Section 213 of the same Code, levy may be effected only after the expiration of the time required to pay the delinquent tax, viz: "SEC. 213. Levy on real property . After the expiration of the time required to pay the delinquent tax or delinquent revenue in Section 207, real property may be levied upon, before, simultaneously, or after the distraint of personal property belonging to the taxpayer. To this end, any internal revenue officer designated by the Revenue District Officer, or the Revenue Regional Director or the Commissioner of the Internal Revenue, as the case may be, shall prepare a duly authenticated certificate showing the name of the taxpayer and the amounts of the tax and the penalty due from him. Said certificate shall operate with the force of legal execution throughout the Philippines. Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At the same time, the written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the delinquent taxpayer, or, if he is absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose, or, if there is none, to the occupant of the property in question. xxx xxx xxx Thus, from the context of the abovequoted provision, levy of real property may be made only if there has been an assessment demanding payment of the tax liability, and the taxpayer has failed to pay the due tax liability, or that delinquency had set in. While the BIR Revenue District Office has signified to the Office of the Commissioner that the subject taxpayers did not file their income tax returns, and there is a conclusive presumption of tax liabilities of the subject taxpayer and thereby the necessity of placing the taxpayers' properties under distraint or levy, as the case may be, this Office hereby holds that the real properties thus mentioned cannot be the subject of the warrant of distraint, and pending assessment of the taxpayers' delinquent tax liabilities, this Office cannot likewise, levy the property of the said taxpayers. However, since results of the preliminary investigation revealed that the subject taxpayers had failed to file their income tax returns, this Office has the option to either, cause the filing of the return in their behalf, under Section 16(b) of the Tax Code, as amended, which provides as follows: "SEC. 16. Power of the Commissioner to make assessments . "(a) . . . "(b) Failure to submit required returns, statements, reports and other documents . When a report required by law as a basis for assessment of any internal revenue tax shall not be forthcoming within the time fixed by law or regulation or when there is reason to believe that any such report is false incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable. LLpr "In case a person fails to file a required return or other document at the time prescribed by law or willfully or otherwise, files a false return or other documents, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purpose." or directly file a criminal action for tax evasion under Sections 253, 254, 255 and 257 of the Tax Code, as amended, since the proceeding in court may be begun without assessment pursuant to Section 223 of the same Code. Accordingly, since there is an urgency to place the properties of the subject taxpayers under distraint or levy, as the case may be, in order to answer for whatever tax liabilities that the subject taxpayers may have owed to the government and in the meantime the latter cannot do so because of lack of assessment, this Office instead, directs the filing of a criminal case for tax evasion under the aforesaid Sections of the Tax Code, and thereafter file an ancillary remedy for preliminary attachment under Rule 57 of the Rules of Court, of the real properties thus mentioned. cdt (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue