Unnumbered BIR Ruling

January 8, 1998 Ms. Rosalia T. Uy c/o Copra Buying Station Villanueva, Misamis Oriental M a d a m : This refers to your request for compromise of our assessment involving the amount of P121,421.07 representing deficiency value-added tax for 1994, under Assessment No. RR 16-191-97 / 098-11-94-003289. cdta Records show that you are engaged in the business of buying copra from farmers and selling it to exporters. On January 17, 1997, you were assessed deficiency value-added tax of P121,421.07, inclusive of interest and surcharge, covered by Assessment Notice No. RR 16-191-97/098-11-94-003289 for 1994. Prior thereto, it was discovered that you failed to register as a VAT taxpayer despite the fact that your business is subject to value-added tax. In your letter dated October 18, 1996, you alleged that the collection of the amount assessed may lead to your bankruptcy. As such, you are offering a compromise of 30% of the basic tax or P21,035.75 pursuant to Section 204 of the Tax Code, as amended. In reply, please be informed that after a careful review of the facts of the case, the laws applicable thereto and the evidence in support thereof, we find your request to be without merit. A compromise under Section 204 (1) (b), of the National Internal Revenue Code, as amended, contemplates a situation wherein the taxpayer is insolvent or in the state of bankruptcy. Insolvency generally denotes the state of a person whose liabilities are more than his assets. [Black's Law Dictionary, p. 937] When alleged by the taxpayer, insolvency must be proved. Such that, a taxpayer who offers to compromise the payment of his tax liabilities on the ground of financial inability waives his privilege under R.A. No 1405 prohibiting inquiry into bank deposits. [De Leon, Fundamentals of Taxation, 1992 ed., p. 190] In your case, you failed to substantiate that you are financially incapacitated to satisfy your tax obligations. In fact, the Revenue Officer's Reports for 1994 and 1996 indicate that your business derived income for the years concerned. Admittedly, our assessment if enforced will adversely affect your business. Nevertheless, a tax compromise is not granted for this reason alone because it is possible that in the future your business will eventually recover. LLcd IN VIEW OF THE FOREGOING, your request is hereby DENIED. This constitutes the final decision of this Office on the matter. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue