Official Position on the Issue of Compromise

April 21, 1989 REVENUE MEMORANDUM CIRCULAR NO. 22-89 SUBJECT : Official Position on the Issue of Compromise TO : The Deputy Commissioners, All Assistant Commissioners, Regional Directors, Revenue District Officers, Chiefs of Branches and All Others Concerned Quoted hereunder for your guidance and compliance is the Memorandum dated April 17, 1989, embodying the official position of this Bureau in regard to compromise of tax cases: cd "This is the official position of the BIR on the issue regarding compromise deals in major tax evasion cases. "The law on the matter is Section 204 of the National Internal Revenue Code, as amended, which provides: "Sec. 204. Authority of the Commissioner to compromise, abate and refund/credit taxes . The Commissioner may "(1) Compromise the payment of any internal revenue tax when "(a) A reasonable doubt as to the validity of the claim against the taxpayer exists; or "(b) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. casia "(2) Abate or cancel a tax liability, when - "(a) The tax or any portion thereof appears to be unjustly or excessively assessed; or "(b) The administration and collection costs involved do not justify the collection of the amount due. "All criminal violations may be compromised except: (a) those already filed in court, and (b) those involving fraud." xxx xxx xxx "(a) those already filed in court "Under this category are the information filed with the Municipal Metropolitan or Regional Trial Courts by the Fiscals/Prosecutors after conducting preliminary investigation. These court cases CAN NO LONGER be the subject of a compromise by the Bureau of Internal Revenue, even if these cases do NOT INVOLVE FRAUD, like non-payment of internal revenue taxes. "(b) those involving fraud "Those are violations where fraud was committed in the filing of returns and the preparation/filing of financial statements. The following violations of the NIRC constitute fraud. "Sec. 253. Attempt to evade or defeat tax . Any person who willfully attempts in any manner to evade or defeat any tax imposed under this code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be fined not more than ten thousand pesos or imprisoned for not more than two years, or both. "Sec. 254. Failure to file return, supply information, pay tax, withhold and remit tax . xxx xxx xxx "Any person who attempts to make it appear for any reason that he or another has in fact filed a return or statement, or actually files a return or statement and subsequently withdraws, the same return or statement after securing the official receiving seal or stamp of receipt of an internal revenue office wherein the same was actually filed shall, upon conviction therefor be fined not less than three thousand pesos or imprisoned for not more than one year, or both. "Sec. 256. Penal liability for making false entries, records or reports . (a) Any independent certified public accountant engaged to examine and audit books of accounts of taxpayers under sub-paragraph (a) of Section 232 and any person under his direction who: "(1) Willfully falsified any report or statement bearing on any examination or audit, or renders a report, including exhibits, statements, schedules or other forms of accountancy work which has not been verified by him personally or under his supervision or by a member of his firm or by a member of his staff in accordance with sound auditing practices, or "(2) Certifies financial statements of a business enterprise containing an essential misstatement of facts or omission in respect of the transactions, taxable income, deduction and exemption of his client, or cd "(b) any person who: xxx xxx xxx "(4) Knowingly makes any false entry or enters any false or fictitious name in the books of accounts or records mentioned in the preceding paragraphs, or "(5) Keeps two or more sets of such records or books of accounts, or xxx xxx xxx "Sec. 264. Offenses relating to stamps . Any person who commits any of the acts enumerated hereunder shall, upon conviction thereof, be fined not more than ten thousand pesos or imprisoned for not more than five years, or both: xxx xxx xxx "(2) Erases the cancellation marks of any stamps previously used or alters the written figures or letters or cancellation marks on internal revenue stamps. "(3) Possesses false, counterfeit, restored or altered stamps, labels or tags or causes the commission of any such offense by another. "(4) Sells or offers for sale any box or package containing articles subject to excise tax with false, spurious or counterfeit stamps or labels or sells from any such fraudulent box, package or container or aforesaid. casia xxx xxx xxx "Sec. 265. Failure to obey summons . Any person who, being duly summoned to appear to testify, or to appear and produce books of accounts, records, memoranda, or other papers, or to furnish information as required under the pertinent provisions of this Code, neglects to appear or to produce such books of accounts, records, memoranda, or other papers, or to furnish such information, shall, upon conviction, be fined not less than one thousand pesos or imprisoned for not more than one year, or both. "Sec. 267. Other crimes and offenses . (a) Misdeclaration or misrepresentation of manufacturers subject to excise tax . Any manufacturer who, in violation of the provision of Title IV (now VI) of this Code misdeclares in the sworn statement required therein or in the sales invoice, any pertinent data or information shall be punished by a summary cancellation or withdrawal of the permit to engage in business as a manufacturer of articles subject to excise tax. xxx xxx xxx "Sec. 269. Unlawful divulgence of trade secrets . Except as provided in Section 74 (now 64) of this Code and Section 26 of Republic Act Numbered 6388, any officer or employee of the Bureau of Internal Revenue who divulges to any person or makes known in any other manner than may be provided by law information regarding the business, income, or estate of any taxpayer, the secrets, operation, style of work, or apparatus of any manufacturer or producer, or confidential information regarding the business of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties, shall upon conviction for each act or omission, be fined in a sum of not less than five thousand pesos but not more than ten thousand pesos, or imprisoned for a term of not less than six months but not more than five years, or both. "Sec. 277. Procuring unlawful divulgence of trade secrets . Any person who causes or procures an officer or employee of the Bureau of Internal Revenue to divulge any confidential information regarding the business, income or inheritance of any taxpayer, knowledge of which was acquired by him in the discharge of his official duties, and which it is unlawful for him to reveal, and any person who publishes or prints in any manner whatever, not provided by law; any income, profits, losses, or expenditures appearing in any income tax return, shall be fined in a sum of not more than two thousand pesos or imprisoned for a term of not less than six months nor more than five years, or both. "Revenue Memorandum Order No. 26-86 provides that these violations cannot be the subject of a compromise even if the same are still pending with the Fiscal's/Prosecutor's Offices. "Re: Tanduay case The complaint is for swindling/estafa under Article 318 of the Penal Code. Crimes/offenses under the Penal Code cannot be the subject of a compromise as it is against public policy. [U.S. vs. Torres, 34 Phil. 995; 999] Thus, the Bureau has not agreed to the withdrawal of the complaint. "The compromise amount of P11 million in this case covers the payment of interest, surcharge and penalty for late payment of specific taxes which is allowed under the above-quoted Section 204 of the National Internal Revenue Code. acd "Generally, the position of this Bureau is that as a matter of policy once a criminal tax case is filed with the prosecution arm of the Government, the power to compromise when allowed by Section 204 of the Tax Code must not be exercised without seeking the prior comment or views of the prosecutor concerned. [Circular No. 11, Department of Justice, January 23, 1956, copy attached]" The salient features of the aforequoted position paper may be summarized as follows: (a) No compromise is allowed in cases involving fraud; (b) No compromise of cases pending in court; (c) No compromise of cases involving violations of Sections 253, 254, 256, 264, 265, 267, 269 and 277, all of the National Internal Revenue Code as amended: (d) Violations which may be the subject of a compromise under Section 204 of the Tax Code, but already pending investigation by the prosecution arm of the government, shall not be compromised without seeking the views and comment of the prosecutor concerned. All revenue officials concerned are hereby enjoined to give this circular as wide a publicity as possible in their respective areas of jurisdiction. cd (SGD.) JOSE U. ONG Commissioner of Internal Revenue TAN 05220-C1831-A-9