Civil Remedies for Delinquent Taxes

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Questions and Answers

Under what circumstance can all remedies for tax collection be used simultaneously?

When there is a claim of overpayment

When the tax due exceeds Php 1,000,000 (correct)

When the taxpayer is retiring from business

When the tax due is Php 10,000 or more

What is the minimum amount of delinquent tax for which remedies cannot be used?

Php 100 or less (correct)

Php 500 or less

Php 1,000 or less

Php 50 or less

Who is responsible for submitting a report after conducting a restraint on a taxpayer’s property?

The officer conducting the restraint (correct)

The Secretary of Finance

The Commissioner of Internal Revenue

The Revenue District Officer

Which entity has the power to lift a constructive distraint on a taxpayer's property?

The Commissioner and authorized representative Signup and view all the answers

When is constructive distraint generally implemented?

When the taxpayer is delinquent in tax payments Signup and view all the answers

What is the primary purpose of distraint in tax collection?

To restrict the taxpayer's ability to sell or move property Signup and view all the answers

What must a taxpayer sign to acknowledge the distraint of their property?

A receipt of acknowledging the distraint Signup and view all the answers

Which of the following can lead to criminal cases in tax collection?

Tax evasion or criminal violations Signup and view all the answers

What happens if a taxpayer refuses to sign the receipt acknowledging distraint?

The BIR creates a list of property with witnesses Signup and view all the answers

What type of property does the levy target in tax collection?

Real properties like land and buildings Signup and view all the answers

Which of the following actions can trigger distraint?

A taxpayer's intent to leave the country Signup and view all the answers

What are the consequences of a criminal case related to tax issues?

Imposition of penalties, imprisonment, or payment of delinquent taxes Signup and view all the answers

Which authority is involved in the signing process for the receipt of acknowledging distraint?

The Commissioner of the BIR Signup and view all the answers

What must occur within 5 days after the sale of a property?

A report of the proceeding must be filed. Signup and view all the answers

What is included in the Certificate of Sale issued by the Revenue Collection Officer?

Exact amount of unpaid taxes, interest, and penalties. Signup and view all the answers

What happens if the highest bid for a property is too low?

The property is forfeited to the government. Signup and view all the answers

How long does a delinquent taxpayer have the right to redeem their property after the sale?

Within 1 year. Signup and view all the answers

What interest rate is applied to the purchase price from the date of sale to redemption?

15% per year. Signup and view all the answers

What is the role of the Revenue District Officer in the property sale process?

To issue the Certificate of Sale after consulting with RCO. Signup and view all the answers

What happens to the property owner during the redemption process?

They are entitled to rent/income generated from the property. Signup and view all the answers

What occurs after a property is redeemed?

The property becomes free from liens. Signup and view all the answers

Which of the following statements about the injunction regarding collection of taxes is correct?

The court cannot issue orders to stop tax collection. Signup and view all the answers

What documentation must the Revenue Collection Officer keep after advancing funds for property sale costs?

Monthly collection reports with receipts. Signup and view all the answers

What document gives the government the authority to seize and sell property due to unpaid taxes?

Serving of Warrant Signup and view all the answers

What must a sale officer do after conducting a sale according to the BIR regulations?

Submit a report of sale within 2 days to the CIR Signup and view all the answers

What is the minimum time that must pass after notifying the owner before a levy can occur?

20 days Signup and view all the answers

Who organizes the sale of property that has been distrained due to tax non-payment?

An authorized representative of the RDO Signup and view all the answers

In the event of a tax property sale, how long must advertising last?

30 days Signup and view all the answers

What must the notification for a sale include according to BIR regulations?

Description of the property for sale Signup and view all the answers

What happens if the highest bid is lower than the amount of tax debt during a sale?

The government has the option to purchase the property Signup and view all the answers

What is the role of the IRO when serving a warrant?

To prepare a certificate for the taxpayer Signup and view all the answers

What must be done with excess funds after the sale of distained property?

Returned to the owner of the property Signup and view all the answers

When a warrant of garnishment is issued, what is the immediate action taken by the bank?

Freeze the taxpayer's account Signup and view all the answers

What is the purpose of a bill of sale in the context of selling stocks and securities?

To document the transfer of ownership Signup and view all the answers

What must occur if a taxpayer pays their unpaid taxes before the sale is finalized?

The property must be returned to the owner Signup and view all the answers

How long does the officer have to submit a report to the CIR after receiving a warrant for levy?

10 days Signup and view all the answers

What happens to the property if the taxpayer does not redeem it within one year?

The government gains ownership of the property. Signup and view all the answers

What is required for the government's lien on property to be effective against third parties?

Filing a notice of lien with the Register of Deeds. Signup and view all the answers

Which of the following is NOT a method for the Commissioner to resell property acquired through forfeiture?

Direct transfer to the original owner. Signup and view all the answers

What does tax amnesty provide the taxpayer concerning tax investigations?

It ensures protection from scrutiny of tax returns filed under it. Signup and view all the answers

Under what condition can the BIR assess and collect taxes due to fraudulent activity?

Within 10 years from the date of fraud discovery. Signup and view all the answers

What is the maximum timeframe for the BIR to collect taxes by distraint or levy once assessed?

5 years from the assessment date. Signup and view all the answers

What is required before a civil or criminal action regarding tax violations can be initiated?

Approval of the CIR. Signup and view all the answers

When can the assessment and collection of taxes be suspended?

When the CIR is legally prohibited from making tax assessments. Signup and view all the answers

What is the primary purpose of Form 227?

To notify CIR of a law officer's judgment. Signup and view all the answers

What happens to funds obtained from legal actions related to tax violations?

They are accounted for like tax payments. Signup and view all the answers

What must the CIR do if they are notified of a lawsuit against an Internal Revenue Officer?

Inform the Solicitor General. Signup and view all the answers

What is the procedure for the sale or destruction of forfeited property?

Public notice and specific conditions apply to the sale. Signup and view all the answers

What are the consequences if the taxpayer cannot be located?

The collection process is suspended. Signup and view all the answers

Study Notes

Civil Remedies for Collecting Delinquent Taxes

Distraint: BIR seizes and holds personal property (goods, chattels, stocks, securities, bank accounts, jewelry) to recover delinquent taxes.
- Constructive Distraint: BIR legally controls property without physically seizing it. Used when: taxpayer is leaving the Philippines, hiding/concealing property, or performing acts to obstruct tax collection.
- How Implemented: Taxpayer must sign a receipt acknowledging the distraint, promising to preserve the property and not dispose of it without the Commissioner's permission. If refused, BIR creates a list of property with two witnesses and leaves a copy where the property is kept.

Who Can Order Distraint

Commissioner or authorized representative: If tax due is more than PhP 1,000,000.
Revenue District Officer: If tax due is PhP 1,000,000 or less.

Reporting Requirements for Distraint

Officer conducting distraint must submit a report to the RDO and RRD within 10 days of receiving the warrant.
Power to Lift Distraint: The Commissioner or authorized representative can lift the distraint based on the rules of the Secretary of Finance.

Levy

BIR seizes and sells real property (land and buildings) to recover delinquent taxes.
How Implemented: IRO prepares a certificate with the taxpayer's name, amount of tax due, and penalties. This certificate acts as legal authority for the government to seize and sell the property in the Philippines.
- Bank's Responsibility: When bank receives the warrant, it will turn over the amount enough to recover taxpayer's unpaid taxes to the CIR.
Notification of Levy: BIR sends a written notice to the Register of Deeds, taxpayer, and occupant of the property.
Timing of Levy: If the personal property seized is not enough, BIR can levy on real property within 30 days after completing the distraint.
Reporting Requirements: Officer conducting the levy must submit a report to the CIR or authorized representative within 10 days after receiving the warrant or levy.

Distraint of Stocks, Securities, Debts, and Credits

Stocks and Securities: BIR gives a copy of the warrant to the taxpayer and the company that issued the tax.
Debts and Credits: BIR provides a copy of the warrant to the person owing the debt and instructs them to pay the debt or transfer the credit to the Commissioner.
Garnishment of Bank Accounts: A warrant of garnishment freezes taxpayer's bank account and collects funds directly from it.

Sale of Property Distrained and Disposition of Proceeds

Notification of Sale: BIR must post the notification of the sale in at least two public places within the city, including the mayor's office. The notification must include the time and place of the sale, description of the property, and timing of the sale.
Who Organizes the Sale: The RDO or an authorized representative (not the officer who made the distraint) organizes the sale.
Timing of the Sale: It cannot happen sooner than 20 days after the notification is posted and after the owner has been notified.
Sale Process:
- Public Auction: Property is sold to the highest bidder.
- Alternative Sale Method: Sale through a licensed commodity or stock exchange with the approval of the CIR.
Sale of Stocks and Securities: The officer must prepare a bill of sale, deliver it to the buyer, provide it to the company that issued the stocks, and record the transfer of ownership in the books. An officer may issue new stock certificates to the buyer if requested.
Disposition of Proceeds: The money from the sale is used to cover:
- Taxpayer's delinquent tax debt.
- Penalties and interest owed.
- Expenses incurred during the distraint process.
Return of Excess Funds and Expenses:
- Any excess funds are returned to the owner of the property.
- Deductible expenses include actual expenses of seizing and preserving the property.
- No additional charges should be imposed.

Purchase by Government at Sale Upon Distraint

Government can purchase distrained property if:
- The highest bid is less than the amount of the tax debt.
- The highest bid is significantly below the market value of the property.
The CIR purchases the property on behalf of the national government.
Government can resell the property and the proceeds go to the National Treasury.
Resale must follow rules set by the SOF.

Advertisement and Sale

After the levy of property, the officer must start advertising the property within 20 days.
The advertisement should run for 30 days through physical posting at city hall and the property, and newspaper or publication once a week for three weeks.
Content of Advertisement:
- Amount of taxes and penalties owed.
- Time and place of sale.
- Name of taxpayer who owns the property.
- Short description of property.
Taxpayer's Opportunity to Stop the Sale:
- The taxpayer can stop the sale by paying the unpaid taxes, interest, and penalties before the date of sale.

Redemption of Property Sold

Right of Redemption:
- The delinquent taxpayer has the right to buy back the property within one year from the date of sale.
To Redeem: Taxpayer must pay the following to the RDO:
- Amount of unpaid taxes, interest, and penalties accumulated from the date of delinquency to the date of sale.
- Interest on the purchase price at 15% per year from the date of sale to redemption.
Redemption Process:
- The person redeeming the property receives a Certificate of Sale issued to the original purchaser and a Certificate of Redemption from the RDO.
- The RDO will pay the original purchaser the amount received from redemption.
- Once redeemed, the property is free from liens.
Possession of the Property:
- The owner is not deprived of possession of the property during the redemption process.
- The owner is entitled to any rent or income generated from the property until the redemption period expires.

Forfeiture to Government for Want of Bidder

If no one bids on the property or the highest bid is too low, the IRO declares the property forfeited to the government.
The IRO submits a report to record the forfeiture within two days.
The Register of Deeds will transfer the title to the government once registered, without the need for a court order.

Redemption After Forfeiture

The taxpayer can redeem the property within one year from the date of forfeiture by paying the taxes, penalties, and other owed amounts.

Injunction Not Available to Restrain Collection of Tax

Courts cannot issue legal orders to stop the BIR from collecting taxes.
Taxpayers cannot use court orders to block or prevent the BIR from collecting taxes.

Tax Collection: Delay, Forfeiture, and Resale

Tax delinquency: If a taxpayer doesn't redeem their property within a year, the government takes ownership through forfeiture.
Forfeiture finality: This forfeiture is final, signifying the government's absolute ownership rights.
Commissioner's authority: The Commissioner of Internal Revenue (CIR) manages real estate acquired through forfeiture by the government.
Real estate resale: The CIR has authority to resell confiscated properties through public auction (with at least 20 days' notice) or private sale (requiring the Secretary of Finance's prior approval).
Proceeds of resale: The proceeds from the property's resale are deposited into the National Treasury.
Financial reporting: The CIR must provide a financial report on the resale to the Chairman of the Commission on Audit (COA).

Tax Lien

Unpaid taxes: If taxpayers fail to pay their taxes after notification, an unpaid amount becomes a lien on their property.
Government's claim: The government acquires a legal claim on the taxpayer's property until the debt is fully repaid.
Lien effectiveness: The lien is not effective against third parties until the Bureau of Internal Revenue (BIR) files a "notice of lien" with the Register of Deeds.

Legal Actions

BIR legal officers: Legal actions (civil or criminal) related to tax violations are filed in the government's name and conducted by the BIR legal officers.
CIR approval: No civil or criminal actions can be filed without the CIR's prior approval.

Further Distraint or Levy

Repeated seizure: The BIR is legally allowed to repeatedly seize real property or personal property until the full debt is settled.

Enforcement of Statutory Penal Provisions

Penalties: Enforcing penalties under tax law can involve criminal or civil action. **
CIR approval: All these actions require the CIR's approval.

Exceptions to Assessment and Collection Period

Fraudulent return or failure to file a return: For fraudulent tax returns or failing to file a return, the BIR has 10 years from the discovery of fraud or omission to assess and collect taxes. This is an exception to the general 3-year time limit.
Written agreement to extend: If the taxpayer and BIR reach a written agreement to extend the assessment period, the assessment period can be extended beyond the initial 3-year limitation. This agreement can be further extended with new written agreements as long as they are signed before the previous agreement expires.

Collection of Assessed Tax (5-year Rule)

Distraint, levy, or court proceedings: The BIR has 5 years from the assessment date to collect the assessed tax using distraint, levy, or court proceedings.

Remedy for Enforcement of Forfeitures

Seizure of personal property: Forfeited personal property (chattels and fixtures) can be seized and either sold or destroyed.
Enforcement of real property forfeiture: Forfeiture of real property (land or buildings) is enforced through a judgment of condemnation and subsequent sale through civil or criminal court proceedings.

Disposition of Funds

Judgment funds management: Funds obtained from legal actions are treated as tax payments.
Accounting: Funds are accounted for and follow the same rules and processes applied to tax revenues, ensuring consistency and uniformity in handling tax revenues.

Satisfaction of Judgment Against Internal Revenue Officer

Notification: If an Internal Revenue officer is sued, they must notify the CIR (through the Solicitor General) to enable the CIR to defend the case on the officer's behalf.
Payment of judgments: The CIR (with the Secretary of Finance's approval) will satisfy the judgment and pay any awarded damages.
Reimbursement: If the officer personally pays the judgment, the CIR reimburses them.
Exclusions: Officers acting in bad faith will not be reimbursed.

When Property to be Sold or Destroyed

Sale of forfeited chattels and fixtures: Forfeited chattels and fixtures can be sold after following public notice and specific sale conditions.
Destruction of illicit items: Distilled spirits, liquors, cigarettes, tobacco products, and apparatus used in illicit production, as well as fake internal revenue stamps and labels, can be destroyed by the CIR. The CIR decides whether to destroy or sell these items.
20-day waiting period: Forfeited property should not be destroyed until 20 days after it is seized. This waiting period allows for potential sales of the property.

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Description

Explore the mechanisms involved in civil remedies for collecting delinquent taxes, focusing specifically on distraint procedures by the BIR. This quiz covers who can order distraint, the implementation process, and reporting requirements. Test your knowledge on tax collection practices and regulations.