Tax Articles

When One Appeal Is Not Enough

By: Atty. Irwin C. Nidea, Jr.

Irwin C. Nidea Jr. Senior Partner   +632 8403-2001 loc.330 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

In a tax assessment, taxpayers are given the option to file a Motion for Reconsideration (MR) to the Commissioner of Internal Revenue (CIR) when it receives an adverse decision from CIR’s subordinate officials, i.e., Regional Director or Assistant Commissioner. If the CIR denies the taxpayer’s MR, there is no judicial appeal and the assessment becomes final and executory, then a warrant of distraint and levy (WDL) follows. This is the usual procedure – the CIR must issue a final decision on disputed assessment (FDDA) before it can release a WDL. In this scenario, the taxpayer must appeal the FDDA to the court within 30 days from receipt and not wait for the WDL.

But do you know that there are times when a WDL is received by a taxpayer ahead of the FDDA? In other words, collection proceeding is instituted by the BIR even if a taxpayer’s protest is still pending at the office of the CIR. What should a taxpayer do when this happens?

One view is that the taxpayer must consider a WDL as the CIR’s final decision on the assessment. Thus, the taxpayer must appeal to the CTA to question the “decision” on the assessment. The contrary view, however, is that a WDL is not the decision contemplated under the rules. If a taxpayer opts to appeal the WDL, the court can acquire jurisdiction, but it can only decide on the validity of the collection proceedings and not of the assessment.
What happens if after receiving a WDL and the taxpayer files a judicial appeal questioning the validity of the same, but the CIR subsequently issue an FDDA?

In a recent case, the CTA said that a taxpayer may appeal a WDL to court primarily to question the validity of the BIR’s right to collect. But if an FDDA is issued by the CIR after the taxpayer’s receipt of a WDL, the taxpayer must appeal the FDDA to the court separately. When a taxpayer files a judicial appeal within 30 days from receiving an FDDA, it may do so because the assessment has not yet become final and executory. The assessment is thus appealable. However, as neither final nor executory, such an assessment may be subject to change prior to and separate from the judgment of a court, such as when the CIR and a taxpayer enter into a compromise agreement while judicial proceedings are ongoing. The BIR thus cannot claim that since taxpayer filed an appeal to the WDL, the same has become his "final decision" and that the administrative Decision is consequently void. (CTA 10384).

Since WDL and a subsequent FDDA are both appealable, does this mean that a taxpayer is supposed to appeal two cases at the CTA with the same subject tax assessment – one questioning the assessment and another questioning the collection? This would mean two separate legal costs, including two separate filing fees.

Also, our discussion above assumes that the FDDA is averse to the taxpayer. What if it is not and the CIR now wants to reverse itself by questioning in court his own FDDA that he issued in favor of the taxpayer? The CTA ruled that a memorandum, comment, or opposition is not the proper venue for protesting the CIR's decision on a disputed assessment. The CIR, not being the taxpayer under assessment, would not have the authority to file a Petition for Review against his administrative decision.

Tax remedies evolve over time. Taxpayers must also be aware of these developments because a misstep would mean that a tax assessment will become final and executory and more importantly paying in full what the BIR has assessed, plus interest and penalties.