Effect of Compromise Settlement in the Tax Liability of Taxpayer

March 21, 1991 BIR RULING NO. 049-91 E.O. 44 000-00 049-91 Gentlemen : This refers to your letter dated December 20, 1989 requesting a ruling on the following questions, viz: cdt "1. Did the taxpayer's payment of 10% under Executive Order No. 44, nullify the forfeiture of the property of Wilmeg Iron Mines Co., Inc. on 1979 public auction? "2. Did the taxpayer's payment of 10% under Executive Order No. 44, extinguish her criminal liability in the case filed by the Prosecution Division in 1982, with the Ministry of Justice? "3. Did the taxpayer's payment of 10% under Executive Order No. 44 authorize Natividad M. Vda. de Fajardo to request for the cancellation of the annotation of tax lien and Notice of levy for her subdivision under the name of Ramewil Realty Sales and Development Enterprises? "4. Did the committee created by the Commissioner to reduce the 30% compromise settlement rate ignores the taxpayer's ownership of 2,250,000 shares of stock of Farmont Mines Co., Inc. with a paid-up value of P225,000,000.00 as of 1980, as registered in the Securities and Exchange Commission?" It appears that Wilmeg Iron Mines Co., Inc. doing business under the name and style of Ramewil Realty Sales & Development Enterprises (Ramewil), incurred a tax liability for the taxable year 1973 in the amount of P402,938.92; that due to its inability to settle the same, the BIR levied upon the real property of Ramewil covered by TCT No. 192773; that said property have been sold at public auction but apparently, for lack of buyers from the public, the same was declared forfeited in favor of the government; that despite said declaration of forfeiture, it was never registered in the name of the Government because the owner could not produce and deliver to the BIR the owner's duplicate Transfer Certificate of Title (TCT); that notwithstanding then Acting Commissioner Ruben B. Ancheta's status report to the Prime Minister dated August 16, 1983 to the effect that a petition for replacement of said owner's duplicate TCT filed with the Regional Trial Court, Branch IV, Quezon City, on April 23, 1982 is still pending, the Chief, Litigation Division in her Memorandum dated November 6, 1990 stated that no records could be found among the various cases being handled by the Litigation Division; that as of January 19, 1980 you have ascertained that Natividad Fajardo (supposedly a major shareholder of Ramewil) was registered with the Securities and Exchange Commission (SEC) as the owner of 2,250,000 shares of Farmont Mines Co., Inc. with a total paid up value of P225,000,000.00; that the letter of then Deputy Commissioner Romulo M. Villa dated January 25, 1985 states that the Fajardos has no land, shares of stocks, or other assets against which the tax deficiency of the Fajardos and/or Ramawil could be enforced; that in January, 1982, the Prosecution Division filed with the Task Force for Revenue matters, Ministry of Justice, a criminal case versus Natividad Montes Vda. de Fajardo for fraud and non-payment of income tax of Wilmeg (Ramawil) for 1973 amounting to P402,938.92; that subsequently, said tax liability was settled pursuant to Executive Order No. 44; and that Natividad Fajardo paid 10% of the aforesaid tax liability as compromise settlement thereof. On April 22, 1988, the Register of Deeds of Quezon City issued a certification stating that TCT Nos. 275418, 275419, 275424, 275425, and 275333 have been issued regularly to and in the name of Ramawil; and that the annotation of tax lien under PE-4138 and Notice of Levy under PE-6191 have already been cancelled by PE Nos. 4147 and 4148. cdtech In reply, please be informed as follows: 1. Since the BIR accepted the compromise settlement of 10% of the amount of P402,938.92 which was the original liability of the taxpayer for the taxable year 1973, the BIR in effect opted to waive its lien and abandoned its right to register the forfeited property covered by TCT No. 192778 in the name of the Government. 2. The taxpayer's payment of 10% under Executive Order No. 44 is a ground for the dropping of the criminal action (if already filed in court) of the delinquent taxpayer, pursuant to Section 6 of Revenue Regulations No. 17-86 in relation to Sec. 4 of the aforesaid Order. 3. It appears that the cancellation of the tax lien and notice of levy over certain real properties described in the certification of the Register of Deeds dated April 22, 1988 and the compromise settlement arrived at as settlement of its 1973 tax deficiency in the amount of P402,938.92 are not connected. But the fact that the cancellation of the tax lien was effected by the Register of Deeds for properties described in his certification dated April 22, 1988 indicates that a settlement of 10% of other tax liabilities (other than 1973) was already effected and such a settlement justified the request of Natividad Fajardo (shareholder of Ramawil) for the cancellation or lifting of the tax liens on her subdivision lots. 4. The Committee which passed upon Ramawil's application for a compromise settlement at the reduced rate of 10% might have been aware of Mrs. Fajardo's shareholdings at Farmont Mines Co., Inc.; but they found that it is not connected to Ramawil's application for compromise settlement because of the separate corporate personality of the two corporations where Mrs. Fajardo is both a shareholder. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner