Commissioner of Internal Revenue vs Kudos Metal Corporation

January 1, 2013

Taxation – Prescription – Waiver of the Statute of Limitations – Estoppel 

In April 1999, Kudos Metal Corporation (KMC) filed its annual income tax return (ITR). In September 1999, the Bureau of Internal Revenue (BIR) advised KMC that it will be subjected to a tax audit. In September 2000, a subpoena duces tecum was issued against KMC but the latter failed to comply. In December 2001, about 4 months before the expiration of the government to make an assessment (April 2002), Nelia Pasco, accountant of KMC, executed a waiver of the statute of limitations (SOL) in favor of BIR. A tax audit then ensued. In February 2003, another such waiver was executed by Pasco. The audit continued. Finally, in September 2003 – more than three years from the filing of KMC of its ITR, a formal assessment notice (FAN) was issued by the Commissioner of Internal Revenue (CIR) demanding KMC to pay P25 million in taxes.

KMC protested the FAN on the ground that it was issued beyond the prescriptive period; that it was issued beyond the prescriptive period because there was no valid waiver of the SOL (in particular, the first waiver) because Pasco was not authorized by KMC to execute the same; that even if Pasco is authorized, the same is still void because it did not indicate the acceptance date of the BIR; that a copy of the waiver was not furnished to KMC.

The CIR argued that KMC is already in estoppel because it acquiesced or it allowed the audit conducted by the BIR after the two waivers executed by Pasco.

ISSUE: Whether or not KMC is in estoppels.

HELD: No. Apparently, Pasco was not authorized by KMC to execute the waiver. Even if KMC allowed the subsequent tax audit after such waiver it did not bar KMC to raise the issue of prescription. This is reinforced by the fact that the waiver is  infirm because of the lack of the date of acceptance as well as the fact that a copy thereof was not furnished to KMC. These two are among the requirements provided for by Section 222 of the National Internal Revenue Code (NIRC) as to a valid waiver of the SOL. The provisions in Section 222 of NIRC provides for a detailed procedure that must be strictly followed by the BIR in order that the taxpayer will have a valid waiver. The BIR cannot now hide behind the doctrine of estoppel to cover its failure to comply with the law.


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