Warrants of distraint and/or levy
By Aziza Hannah Bacay on April 7, 2022
Taxes are the lifeblood of the government. Thus, Section 218 of the National Internal Revenue Code, as amended, sets out the primordial “no injunction rule” that bars courts from restraining the collection of any national internal revenue tax, fee or surcharge imposed by the Tax Code.
To achieve its mandate to assess and collect taxes, ) is empowered under Section 206 of the Tax Code to exercise the following remedies: issue a distraint of personal property/levy on real property and file a civil or criminal action against a taxpayer. Either or both may be pursued by the BIR.
The summary remedies of distraint on personal property and levy on real property — done through the issuance of a warrant of distraint and/or levy (WDL) — are generally exercisable when the taxpayer fails to pay the delinquent tax at the time required. It presupposes that the tax has already become delinquent. (Constructive distraint on the property of a taxpayer may, however, be implemented by the BIR when the taxpayer performs acts that obstruct the collection of taxes, such as retiring from business or leaving the country.)
The question now is when does a tax become delinquent?
The Tax Code does not contain any specific provision on this. However, in Commissioner of Internal Revenue (CIR) v Marketing Convergence Inc. (CTA EB Case 2109, June 21, 2021), the Court of Tax Appeals (CTA) en banc, citing BIR Revenue Regulations 4-2019, stated that a tax becomes delinquent when the taxpayer:
– fails to pay the tax due in a final assessment notice (FAN) or formal letter of demand that has not been protested, whether for reconsideration or reinvestigation, within the prescribed period;
– fails to file an appeal before the CTA or administrative appeal of the denial of the request for reconsideration or reinvestigation within the prescribed period; or
– fails to file an appeal to the CTA on the denial of the administrative appeal within the prescribed period.
It has been held that if none of the above instances are present, the BIR’s issuance of the WDL will be premature.
It should be noted that Section 11 of Republic Act (RA) 1125, which created the CTA, also provides that “[n]o appeal taken to the CTA from the decision of the [CIR] or the Commissioner of Customs… shall suspend the payment, levy, distraint and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law.” On the basis of the foregoing provision, the BIR may issue WDLs even during the pendency of a case before the CTA.
Section 11 of RA 1125, however, further provides that when in the CTA’s opinion the collection by the CIR or Commissioner of Customs may jeopardize the government’s and/or the taxpayer’s interest, the court — at any stage of the proceeding — may suspend said collection and require the taxpayer to either deposit the amount claimed or file a surety bond for not more than double the amount claimed with the CTA. This proviso is an exception to the no injunction rule. To obtain the suspension, however, the taxpayer should file a motion before the CTA to quash the WDL issued by the BIR, citing the foregoing grounds.
Taxpayers are thus not without remedy when issued a WDL even during a pendency of a case. They may raise valid defenses and arguments as to why they were unable to pay the tax due at the time required or why they were not able to protest within the prescribed period. In one case, the CTA declared a WDL unenforceable when it found that the taxpayer did not receive a FAN prior to the receipt of the WDL in violation of due process. The CTA held that the taxpayer could not be regarded as a delinquent taxpayer when it was not even informed of its tax liabilities and where there was no previous demand to pay taxes. (Golden Harvest Corp. v CIR, CTA Case 7503, Sept. 18, 2009).
In the Marketing Convergence case, the CTA also held that to get injunctive relief, the following must be present: the existence of a clear and unmistakable right that must be protected and an urgent and paramount necessity for the writ to prevent serious damage. In this case, the taxpayer was able to establish that its right to due process was violated and that implementation of the WDL would adversely affect its business.
In summary, while no injunction can be issued to hamper the BIR from its collection efforts since taxes are the lifeblood of the government, taxpayers are not without remedies. Taxpayers may be able to quash a WDL, especially if they were not accorded due process in certain stages of the assessment.
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Aziza Hannah A. Bacay is a junior associate at Mata-Perez, Tamayo and Francisco (MTF Counsel).