BIR Ruling No. 133-10

December 1, 2010 BIR RULING NO. 133-10 000-00 Mr. Danilo A. Lihaylihay 25 Kaunlaran Street, Batasan Hills Quezon City Sir : This refers to your letter dated September 16, 2010 requesting for reconsideration of BIR Ruling No. 054-2010 dated September 15, 2010 issued by this Office denying your claim for reward, alleging that "the narrated facts to Your Honor by the Legal Service and Law Division are all twisted." In reply, we reiterate our position that your request for informer's reward relative to the compromise payments made by Bank of America (BA) on its internal revenue tax case for taxable year 1995 and prior years is denied as held in BIR Ruling No. 085-2010 dated October 6, 2010, based on Memorandum dated July 23, 2007 issued by the Office of the Deputy Commissioner, Legal and Inspection Group, sustaining the findings of the National Investigation Division (NID) under Memorandum dated June 20, 2007. The mere filing of an affidavit denouncing a certain taxpayer does not automatically render an informer entitled to informer's reward. Established guidelines, rules and procedures must be followed in order to ascertain the validity of an informer's claim for reward. Part II of RMO No. 12-93 provides for the proper filing of duly sworn confidential information with the Law Division (then the Legislative, Ruling and Research Divisions), which provides: "II. Filing of Information: Pursuant to Section 5 of Finance Regulations No. 1, in relation to Section 281 of the NIRC, duly sworn confidential information on frauds upon or violations of any of the provisions of the NIRC, shall be filed with the Legislative, Ruling and Research Division (LRRD) for scrutiny and verification to determine if the information given is in accordance with the Regulations. The information must be accompanied with a sworn statement and the informer shall appear in person and execute under oath the statement, specifying the particular violation by the denounced person and the kind of tax or taxes allegedly not paid." Thus, your Affidavit of Denunciation failed to comply with the essential requirements under RMO 12-93. Being the supposed president of Philippine Association of Revenue Informers, Inc. (PARI), it is presumed that you are knowledgeable in the process of filing information, denunciations and claiming for rewards thereafter. Thus, the prescribed filing of sworn and definite information with then Legislative, Ruling and Research Division so as to make the information contained in your Affidavit of Denunciation valid and qualify for a reward, should have been sufficiently followed. Likewise, the mere filing of a duly sworn confidential information by Mr. Cadayona with the Law Division docketed as Confidential Information (C.I.) No. 76-95 does not automatically entitle the informer to the corresponding reward. Part VI of RMO No. 12-93 provides that the qualification in order to be entitled to informer's reward, which states: "VI. Result of the information which deserves reward: In order to entitle an informer to a reward, the information given by him must lead to or be instrumental in the discovery of the fraud upon or violation of any of the provisions of the Internal Revenue Code or special laws being administered by the BIR and results in the actual recovery or collection of revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any fine or penalty or the actual collection of compromise in case of amicable settlement. (Section 1, Republic Act 2338)." Thus, BIR Ruling No. 085-2010 upheld the recommendations under Memorandum dated July 23, 2007 which sustained the findings made by the National Investigation Division in its Memorandum dated June 20, 2007 as to the sufficiency of the confidential information of Mr. Cadayona: "The fact that the case was referred to the Assessment Service, no prima facie case for fraud or tax evasion can be imputed against subject taxpayer based on the information given. The issuance of the Letter of Authority (LOA) was not premised on the information given or on the establishment of fraud but by virtue of a Revenue Special Order (RSO) creating special teams to conduct regular audit on all banks and insurance companies. The LOA issued under the control of the Enforcement Service should be considered as a regular audit and not as an investigation arising from the establishment of fraud or tax evasion." "On the basis of the facts stated in the affidavit, the complaint for tax evasion against subject taxpayer can not be established considering that the supposed scheme can be considered legal and not contrary to law. This is perhaps the reason why the Revenue Officers of the then Tax Fraud Division recommended the endorsement of the case to the Assessment Service to conduct regular audit and verify whether the subject expenses were properly liquidated and duly supported with receipts. Moreover, a perusal of the memorandum report of the Revenue Officers under LOA 18500 would show that it has failed to mention any connection of their findings with the purported schemes of tax evasion as mentioned in the affidavit. The schemes complained of by Mr. Cadayona do not constitute fraud or tax evasion." Moreover, your attached document marked as Annex "E" which you claim that "the Law Division and Legal Service APPROVED the payment of our 15% rewards in the amount of P32,625,531.76", cannot be given weight since the said document is unsigned, thus, unapproved by the Commissioner of Internal Revenue. Without the Commissioner's recommendation and the Secretary of Finance's approval thereof, you are not entitled to the alleged amount. This recommendation and approval is essential not only because it is required by law, but moreso, in order to determine the factual and legal basis of the claim for informer's reward. The instant case clearly exemplifies the necessity of the evaluation and recommendation of the Commissioner and the approval of the Secretary of Finance, as embodied under Section 282 of the 1997 Tax Code, as amended, which states that: "Section 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods. (A) For Violations of the National Internal Revenue Code. Any person, except an internal revenue official or employee, or other public official or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal Revenue, leading to the discovery of frauds upon the internal revenue laws or violations of any of the provisions thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any of the fine or penalty, shall be rewarded in a sum equivalent to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1,000,000) per case, whichever is lower. The same amount of reward shall also be given to an informer where the offender has offered to compromise the violation of law committed by him and his offer has been accepted by the Commissioner and collected from the offender: Provided, That should no revenue, surcharges or fees be actually recovered or collected, such person shall not be entitled to a reward: Provided, further, That the information mentioned herein shall not refer to a case already pending or previously investigated or examined by the Commissioner or any of his deputies, agents or examiners, or the Secretary of Finance or any of his deputies or agents: Provided, finally, That the reward provided herein shall be paid under rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner." (emphasis supplied) Section 15 of Finance Regulation No. 1 of the Department of Finance adheres to the mandates of Section 282 of the Tax Code of 1997 (then Section 281 of the 1977 Tax Code, as amended), that must be complied with prior to the payment of informer's reward, to wit: "SECTION 15. Approval of the Secretary of Finance necessary to payment of reward. In no case shall any amount be paid to the informer without prior approval of the Secretary of Finance. (emphasis supplied) Regardless of the recommendation made by the Legal Service approving your claim under Memorandum dated January 30, 2007, attached to your letter and marked as Annex "F", the actions taken by the Legal Service was still subject to the review, recommendation and/or approval of the Deputy Commissioner for Legal Group. Hence, Memorandum dated July 23, 2007 was issued overturning the recommendation under Memorandum dated January 30, 2007. Based on the recommendation and instruction under Memorandum dated July 23, 2007, you have been duly notified by the Office of the Assistant Commissioner, Legal Service, through Memorandum M-026-2008 dated February 28, 2008 that "your request can not be granted for the following reasons: 1) The information was not instrumental in the collection of the taxes; and 2) The supplemental denunciation did not comply with the requirements of RMO No. 12-93, as it was not subscribed before the Law Division, this Bureau. " In view of the foregoing, we deny your request for reconsideration of BIR Ruling No. 054-2010 which denied the grant of your request for informer's reward. This denial is final. This Office will no longer entertain any further motion/request for reconsideration or other pleadings of similar import. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue