REVISITING RULES ON WARRANT ON DISTRAINT AND/OR LEVY
By: Atty. Aziza Hannah Bacay on February 11,2021.
The Bureau of Internal Revenue (BIR) has the power to enforce the collection of unpaid taxes either through summary administrative remedies, such as the issuance of a warrant of distraint and/or levy (WDL), or judicial ones, such as filing a civil or criminal action against the taxpayer.
For the former, the BIR may seize the taxpayer’s personal properties, including but not limited to, stocks, securities, debts, credits, bank accounts and rights to personal properties, when he or she fails to pay his or her delinquent tax within the required period. Furthermore, the bureau may levy on the delinquent taxpayer’s real properties, simultaneously or after the distraint of personal properties.
Under Revenue Memorandum Order 35-2019, issued on July 8, 2019, the BIR may issue a WDL without sending a Preliminary Collection Letter and Final Notice Before Seizure to the delinquent taxpayer.
The BIR’s power to distraint and/or levy properties must, however, yield to the taxpayer’s constitutional right to not be deprived of property without due process. In several cases, the courts reiterated that the due-process requirements in tax assessments are not mere formality, but mandatory substantive ones.
In Commissioner of Internal Revenue (CIR) v. Manila Medical Services Inc. (CTA EB Case 2014, CTA Case 8907, Sept. 1, 2020), the CTA, sitting en banc, invalidated the WDL because the examiners who prepared the Notice of Informal Conference and Preliminary Assessment Notice (PAN) are not the ones named in the Letter of Authority, thus they are not vested with authority to conduct the audit investigation.
Similarly, in Barrio Fiesta Manufacturing Corporation v. CIR (CTA Case 9880, Sept. 18, 2019), the CTA invalidated the WDL because the taxpayer did not receive the PAN and Final Assessment Notice (FAN), as required by law. In this case, the taxpayer only received the WDL. The CTA emphasized that any assessment that failed to comply with the due-process requirements under Section 228 of the Tax Code and Revenue Regulations 12-99, as amended, shall be declared void.
Furthermore, in some instances, the BIR issues a WDL even while the assessment is subject of a case pending before the CTA. This is permitted under Section 11 of Republic Act 1125, which says that no appeal taken by the court shall suspend the payment, levy or distraint of the taxpayer’s property for the satisfaction of his or her tax liability. This is also in line with Section 218 of the Tax Code, as amended, which provides for the non-interference policy in the collection of taxes.
In this regard, the possible remedy for the taxpayer is to move for the quashing of the warrant or the suspension of the payment, levy or distraint on the ground that the collection may jeopardize the interest of the government and/or the taxpayer and subject to payment of a surety bond not more than double the amount involved in the case.
The Supreme Court, in some cases, declared the WDL void, suspended the collection of taxes and did not even require the taxpayer to file a surety bond because it found that the method used in the collection of tax is not sanctioned by law. Thus, the illegal assessment or collection of taxes that would substantially violate the rights of taxpayers is enough ground for the quashing or lifting of the warrants (CIR v. Avelino, G.R. L-9202 [Nov. 19, 1956]; CIR v. Reyes, G.R. L-8685 [Jan. 31, 1957]; Spouses Pacquiao v. CIR, G.R. 213394 [April 6, 2016]).
In CIR v. Pilipinas Shell Petroleum Corporation (G.R. 197945, July 9, 2018), the Supreme Court held that “the BIR may summarily enforce collection only when it has accorded the taxpayer administrative due process, which vitally includes the issuance of valid assessment.”
While the summary administrative remedies are intended to expedite the BIR’s tax-collection measures, the validity of their adoption would depend on the bureau’s compliance with due-process requirements.