BIR Ruling [DA-316-06]

May 11, 2006 BIR RULING [DA-316-06] Sec. 203 Angara Abello Concepcion Regala & Cruz ACCRA Building, 122 Gamboa Street Legaspi Village, Makati City Attention: Attys. Senen Y. Glinoga and Eric R. Recalde Gentlemen : This refers to your letter dated March 27, 2006 stating that your client, the Heirs of Elisa G. Abello ("Heirs"), have referred to you a letter from the Revenue District Office (RDO) of San Juan, Metro Manila, RDO No. 42, dated March 3, 2006 ("Letter"), which was postmarked March 15, 2006 and received on March 18, 2006, relative to the audit report on the purported estate tax liabilities of the Estate of Elisa G. Abello recommending a deficiency estate tax in the amount of P18,211,291.54, inclusive of interest. You are questioning the legal basis of the belated "recommended assessment," the issuance of which, in your opinion, is legally barred, considering the following undisputed factual circumstances, to wit: 1. December 3, 1997 Elisa G. Abello passed away; 2. February 2, 1998 The Heirs filed a Notice of Death with the BIR; 3. May 29, 1998 The Heirs filed an extension of time to file the Estate Tax Return ("Return") and pay the estate tax ("Tax"); 4. July 4, 1998 The BIR granted the Heirs' request for extension allowing the filing of the Return and payment of the Tax until July 4, 1998; 5. July 3, 1998 The Heirs filed the Return with RDO 42-San Juan, and paid the Tax in the amount of P584,525.00; 6. August 14, 1998 The Heirs filed a request for a Tax Clearance (the "Clearance") with the BIR; 7. July 9, 2003 The Heirs sent a follow-up letter for the issuance of the Clearance to the BIR; and 8. March 6, 2006 The Heirs again sent a follow-up letter to the BIR. No Final Assessment Notice has been issued. From the foregoing, you are requesting that the above letter ("recommended assessment") be set aside and that the corresponding clearance on the Estate of Elisa G. Abello be issued. In reply, please be informed that Section 203 of the 1997 Tax Code, as amended, governs the prescription of the Government's right to assess taxes in ordinary cases. Thus, pertinent portion of Section 203 states as follows: "SEC. 203. Period of Limitation Upon Assessment and Collection . Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return , and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period;" (Emphasis supplied) The question of prescription of the Government's right to assess a tax is important because if such tax is assessed beyond the three-year prescriptive period as stated above, the taxpayer is given the right to protest against the assessment and to appeal to the Court of Tax Appeals (CTA) should the Government's decision on the question of prescription be adverse to his position. HcSCED As above provided, the Government must assess on time, that is to say, not later than three (3) years counted from and after the period fixed by law for the filing of the tax return or the actual date of filing, whichever is the later date. The prescriptive period for assessment starts to run from the filing of the original return if the same is sufficiently complete to enable the Commissioner to intelligently determine the proper amount of tax to be assessed. Likewise, it applies on assessments for deficiency tax resulting from mathematical error in the computation of the tax as appearing on the face of the return. When an assessment is invalid because it was made after the lapse of the prescriptive period, the collection of the tax which is covered by the prescribed assessment becomes ineffectual. Applying the foregoing in the instant case, and granting, for purposes of this discussion, that the inventory of the decedent's estate was complete at the time the estate tax return was filed and that there was no occurrence indicative of fraud, the three-year prescriptive period therefore is counted from July 3, 1998, the actual date of filing of the estate tax return of herein decedent and ended on July 3, 2001. Thus, any assessment made thereon after the lapse of the three-year prescriptive period is invalid. This serves as your authority to further request for the release of the TCL or CAR for the Estate of the late Elisa G. Abello with the Revenue District Office concerned. The release of the TCL or CAR, however, is subject to the verification that the recommended assessment is not for newly discovered properties of the estate and that there was no occurrence of fraud in the filing of the estate tax return. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service