BIR Ruling No. 032-65

May 3, 1965 BIR RULING NO. 032-65 MEMORANDUM FOR: The Chief, Income Tax Division Thru the Revenue Operations Head (Assessment) There is returned herewith the entire docket covering the transfer tax case of the late CELSO REYES in the amount of P680.56, representing deficiency estate and inheritance taxes. cdt It appears from the records of this case that one Celso Reyes died intestate on February 12, 1945. By a "Deed of Extra-Judicial Settlement" executed on December 25, 1955 and filed with the Bureau of Internal Revenue on December 28, 1955, the heirs adjudicated unto themselves the aforesaid properties. On the basis of the "Deed of Extra-Judicial Settlement" filed, the estate and inheritance taxes were provisionally assessed at P665.64 and paid by the heirs under EST No. 10153 and INH No. 58614, both dated December 29, 1955. On June 12, 1956, an Estate and Inheritance Tax Return showing a gross estate of P82,240.00 was filed by one of the heirs. However, it was ascertained upon investigation that the gross estate amounts to P107,644.60, hence, the proposed assessment in the amount of P680.56 representing deficiency estate and inheritance taxes. The records show no waiver of prescription having been made to that effect. The question presented is whether the Government's right to assess the deficiency tax in question had been barred by the statute of limitations prescribed by the National Internal Revenue Code. Pursuant to Sections 331 and 332 of the Tax Code, the Commissioner of Internal Revenue may assess a tax within 5 years after the corresponding tax return is filed, and after an assessment is made, the Government may, within 5 years from the date of assessment, collect the tax by distraint or levy or by a proceeding in court. However, in the case of a false or fraudulent return with intent to evade tax, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within 10 years after the discovery of the falsity, fraud or omission. In the instant case, the records fail to disclose any evidence of fraud or the filing of a false or fraudulent return. Consequently, the Government in this case has 5 years from the filing of the return within which to assess deficiency estate and inheritance taxes. Inasmuch as more than 5 years had elapsed from the filing of the estate and inheritance tax returns on June 12, 1956, the right of the Government to assess the deficiency tax had already prescribed. While it may be true that the right of the Government to assess the deficiency tax in question had already prescribed, yet we may be able to collect the deficiency tax due as Mr. Jesus Reyes, who is one of the heirs of the late Celso Reyes, signed on October 20, 1956 an "Agreement Form" to pay his tax obligation. Inasmuch as our cause of action will be predicated on a written acknowledgment of the debt by the debtor-taxpayer, the provisions of the New Civil Code, in general, and not that of the National Internal Revenue Code, shall govern this case; so that the action by the Government prescribes in ten years under Article 1144 of the Civil Code and not that provided or prescribed by Sections 331 and 332 of the Tax Code (Rep. of the Phil. vs. Far East American Commercial Co., Inc. and Manila Underwriters Insurance Co., Inc., G.R. No. L-17475 prom. February 28, 1963). Under Article 1155 of the Civil Code, "the prescription of actions is interrupted . . . when there is any written acknowledgment of the debt by the debtor." Consequently, the running of the statute of limitations provided in Article 1144 of the Civil Code was suspended when Mr. Jesus Reyes signed an "Agreement Form" dated October 20, 1956 acknowledging his indebtedness to the Government. (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue