Commissioner of Internal Revenue vs. Reyes

A tax assessment is void if the taxpayer is not informed in writing of the law and the facts on which it is based, pursuant to Section 228 of the Tax Code, and such void assessment cannot serve as a basis for a perfected compromise.

Maria C. Tancinco died on July 8, 1993, leaving a residential lot and house in Dasmariñas Village, Makati City. Based on a sworn information-for-reward, the Bureau of Internal Revenue investigated the estate and issued assessment notices in 1998. The heirs protested, claiming the property had been sold in 1990, and proposed several compromise settlements, eventually paying a portion while awaiting National Evaluation Board approval.

• The Estate and Investigation: Maria C. Tancinco died on July 8, 1993, leaving a 1,292 square-meter residential lot and house in Makati City. Based on a sworn information-for-reward filed by Raymond Abad, Revenue District Office No. 50 conducted an investigation of the decedent's estate and issued a Letter of Authority for regular investigation, which heir Azucena T. Reyes received on March 14, 1997.
• The Assessment: The BIR issued a preliminary assessment notice on February 12, 1998, and a final estate tax assessment notice and demand letter on April 22, 1998, amounting to P14,912,205.47. These notices did not inform the taxpayer in writing of the law and facts on which the assessment was based.
• Protest and Collection Efforts: The heirs protested, claiming the property had been sold in 1990, and proposed compromise settlements. The CIR rejected the offers, citing the estate's gross value as sufficient to settle the liability, and demanded payment. Upon failure to pay, the BIR issued warrants of distraint and levy, and scheduled a public auction.
• CTA Petition and Compromise Application: Reyes filed a Petition for Review with the CTA to enjoin the auction. Pending the case, she applied for a compromise settlement under RR No. 6-2000 and RMO No. 42-2000, paid P1,062,778.20, and sought a declaration that the compromise was perfected without National Evaluation Board (NEB) approval.

• Validity of Assessment: Petitioner argued that the assessment was valid and that respondent was aware of the law and facts because she proposed compromises and partially paid the tax due.
• Retroactivity: Petitioner maintained that Section 228 of the Tax Code and Revenue Regulation No. 12-99 should not apply retroactively to assessments issued under the old law (Section 229) and old regulations (RR 12-85).

• Due Process/Validity of Assessment: Respondent countered that the assessment was void for violating Section 228 of the Tax Code and due process, as she was not informed in writing of the law and facts underlying the assessment.
• Perfected Compromise: Respondent argued that the compromise was perfected upon acceptance and payment, not requiring National Evaluation Board approval.

• Validity of Assessment: Whether the estate tax assessment is valid despite failing to inform the taxpayer in writing of the law and facts on which it is based.
• Validity of Compromise: Whether the compromise settlement of the estate's tax liability was already perfected and consummated.

• Validity of Assessment: The assessment is void. Section 228 of the Tax Code, as amended by Republic Act No. 8424, mandates that taxpayers be informed in writing of the law and facts underlying the assessment; mere notification of findings is insufficient. This procedural requirement applies retroactively. Revenue Regulation No. 12-99, being interpretive, also applies retroactively from the date of the law's effectivity. The old regulation (RR 12-85) cannot prevail over the amended law. Lack of notice violates due process, rendering the assessment void and incapable of supporting collection.
• Validity of Compromise: The compromise was not perfected. A void assessment cannot serve as the basis for a compromise. Furthermore, under Section 204(A), compromises exceeding one million pesos require National Evaluation Board approval, which was not obtained.

• Written Notice Requirement for Tax Assessments — Section 228 mandates that taxpayers be informed in writing of the law and facts on which an assessment is made; otherwise, the assessment is void. Mere notification of findings is insufficient. The Court applied this doctrine to invalidate the assessment notices that merely relied on the old law's requirement of notifying the taxpayer of the findings.
• Retroactivity of Remedial/Interpretive Statutes and Regulations — Remedial statutes and interpretive administrative rules that do not create new or take away vested rights apply retroactively from the date of the law's effectivity. The Court applied this to hold that Section 228 and RR 12-99 applied to assessments issued after the effectivity of RA 8424, even if issued under old regulations.
• Perfection of Tax Compromise — A tax compromise exceeding one million pesos or offering less than minimum rates requires National Evaluation Board approval; a void assessment cannot be the basis of a perfected compromise. The Court applied this to hold that the compromise was not perfected absent NEB approval and because the underlying assessment was void.

• "The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void."
• "To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence."
• "Although taxes are the lifeblood of the government, their assessment and collection 'should be made in accordance with law as any arbitrariness will negate the very reason for government itself.'"

• Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940) — Cited as controlling precedent for the cardinal principle in administrative investigations that taxpayers should be able to present their case and adduce supporting evidence.
• Philippine Petroleum Corp. v. Municipality of Pililla, Rizal, 198 SCRA 82 (1991) — Followed for the rule that in case of discrepancy between the law and its implementing regulation, the former necessarily prevails.
• Marcos II v. CA, 273 SCRA 47 (1997) — Cited for the principle that tax assessment and collection must be made in accordance with law, negating arbitrariness.

• Section 228, National Internal Revenue Code (RA 8424) — Requires taxpayers to be informed in writing of the law and facts on which an assessment is made; otherwise, the assessment is void. Applied to invalidate the assessment for lack of factual and legal basis in the notice.
• Section 204(A), National Internal Revenue Code — Requires National Evaluation Board approval for compromises where basic tax exceeds P1 million or settlement is below minimum rates. Applied to hold that the compromise was not perfected absent NEB approval.
• Section 229, NIRC of 1977 (Old Law) — Required only notifying the taxpayer of findings. Distinguished and held superseded by Section 228.
• Article 5, Civil Code — Provides that acts executed against the mandatory provisions of law are void. Applied to render the assessment void for non-compliance with the mandatory requirements of Section 228.

Consuelo Ynares-Santiago, Ma. Alicia Austria-Martinez, Romeo J. Callejo Sr., Minita V. Chico-Nazario