Commissioner of Internal Revenue vs Lilia Gonzales

written by Howard

G.R. No. L-19495 – 124 Phil. 1395 – 18 SCRA 757 – Taxation Law – NIRC Rules of Procedure – Tax Assessment – Prescriptive Period – Defective Return 

In 1948, Matias Yusay died leaving behind two heirs, namely, Jose Yusay and Lilia Yusay Gonzales. Jose was appointed as administrator. He filed an estate and inheritance tax return in 1949. The Bureau of Internal Revenue (BIR) conducted a tax audit and the BIR found that there was an under-declaration in the return filed. In 1953 however, a project of partition between the two heirs was submitted to the BIR. The estate was to be divided as follows: 1/3 for Gonzales and 2/3 for Jose. The BIR then conducted another investigation in July 1957 with the same result – there was a huge under-declaration. In February 1958, the Commissioner of Internal Revenue issued a final assessment notice (FAN) against the entire estate. In November 1959, Gonzales questioned the validity of the FAN issued in 1958. She averred that it was issued way beyond the prescriptive period of 5 years (under the old tax code). The return was filed by Jose in 1949 and so the CIR’s right to make an assessment has already prescribed in 1958.

ISSUE: Whether or not Gonzales is correct.

HELD: No. It was found that Jose filed a return which was so defective that the CIR cannot make a correct computation of the taxes due. When a tax return is so defective, it is as if there is no return filed, hence, it is considered that the taxpayer omitted to file a return. As such, the five-year prescriptive period to make an assessment (NOTE: Under the National Internal Revenue Code of 1997, prescriptive period for normal assessment is 3 years) is extended to 10 years. And the counting of the prescriptive period shall run from the discovery of the omission (or fraud or falsity in appropriate cases). In the case at bar, the omission was deemed to be discovered in the re-investigation conducted in July 1957. Hence, the FAN issued in February 1958 was well within the ten year prescriptive period. Gonzales was adjudged to pay the deficiency tax in the FAN, without prejudice to her right to ask reimbursement from Jose’s estate (Jose already died).

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Motion for Reconsideration (April 1967)