The UNPAID ESTATE TAXES due on the MARCOS ESTATE.

JURISPRUDENCE:

In the 1997 case of “FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA D. DE GUZMAN, respondents”, GR No. 120880, June 5, 1997, the petitioner assailed the Decision of the Court of Appeals dated November 29, 1994 in CA-G.R. SP No. 31363, where the said appellate court held that the deficiency income tax assessments and estate tax assessment were already final and unappealable and the subsequent levy of real properties was a tax remedy resorted to by the government, sanctioned by Section 213 and 218 of the National Internal Revenue Code.

This summary tax remedy was distinct and separate from the other tax remedies (such as Judicial Civil actions and Criminal actions), and was not affected or precluded by the pendency of any other tax remedies instituted by the government.

BACKGROUNDER

More than seven years since the demise of the late Ferdinand E. Marcos, the former President of the Republic of the Philippines, the matter of the settlement of his estate, and its dues to the government in estate taxes, were still unresolved.

Specifically, petitioner Ferdinand R. Marcos II, the eldest son of the decedent, questioned the actuations of the respondent Commissioner of Internal Revenue in assessing, and collecting through the summary remedy of Levy on Real Properties, estate and income tax delinquencies upon the estate and properties of his father, despite the pendency of the proceedings on probate of the will of the late president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig, Branch 156.

Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and Prohibition with an application for writ of preliminary injunction and/or temporary restraining order on June 28, 1993, seeking to: Annul and set aside the Notices of Levy on real property dated February 22, 1993 and May 20, 1993, issued by respondent Commissioner of Internal Revenue; Annul and set aside the Notices of Sale dated May 26, 1993; and Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from proceeding with the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its Decision 2 on November 29, 1994, ruling that the deficiency assessments for estate and income tax made upon the petitioner and the estate of the deceased President Marcos had already become final and unappealable, and may thus be enforced by the summary remedy of levying upon the properties of the late President, as was done by the respondent Commissioner of Internal Revenue.

Unperturbed, petitioner appealed the CA decision before the Supreme Court.

THE FACTS AS FOUND BY THE COURT OF APPEALS

On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii, USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and examinations of the tax liabilities and obligations of the late president, as well as that of his family, associates and "cronies". Said audit team concluded its investigation with a Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed to file a written notice of the death of the decedent, an estate tax return, as well as several income tax returns covering the years 1982 to 1986, — all in violation of the National Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (penalized under Sections 253 and 254 in relation to Section 252 — a & b) of the National Internal Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of the Estate Tax Return for the estate of the late president, the Income Tax Returns of the Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of petitioner Ferdinand "Bongbong" Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following:

(1) Deficiency estate tax assessment no. FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in the amount of P23,293,607,638.00 Pesos);

(2) Deficiency income tax assessment no. FAC-1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-002451 (against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and P184,009,737.40 representing deficiency income tax for the years 1985 and 1986);

(3) Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463 (against petitioner Ferdinand "Bongbong" Marcos II in the amounts of P258.70 pesos; P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue averred that copies of the deficiency estate and income tax assessments were all personally and constructively served on August 26, 1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr. Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes "D" and "E" of the Petition).

Likewise, copies of the deficiency tax assessments issued against petitioner Ferdinand "Bongbong" Marcos II were also personally and constructively served upon him (through his caretaker) on September 12, 1991, at his last known address at Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes "J" and "J-1" of the Petition).

Thereafter, Formal Assessment notices were served on October 20, 1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan Pambansa, Quezon City.

Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly authorized representative or counsel), to a conference, was furnished the counsel of Mrs. Marcos, Dean Antonio Coronel — but to no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos and the other heirs of the late president, within 30 days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real property against certain parcels of land owned by the Marcoses — to satisfy the alleged estate tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the purpose of satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213 of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein petitioner) calling the attention of the BIR and requesting that they be duly notified of any action taken by the BIR affecting the interest of their client Ferdinand "Bongbong" Marcos II, as well as the interest of the late president — copies of the aforesaid notices were, served on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their counsel of record, "De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office".

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City Hall of Tacloban City.

The public auction for the sale of the eleven (11) parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government.

SUPREME COURT PETITION FILED BY FERDINAND “BONGBONG“ MARCOS II

On June 25, 1993, petitioner Ferdinand "Bongbong" Marcos II filed the instant petition for certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary restraining order and/or writ of preliminary injunction.

SUPREME COURT RULING

The enforcement of tax laws and the collection of taxes is of paramount importance for the sustenance of government. Taxes are the lifeblood of the government and should be collected without unnecessary hindrance.

However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

WHETHER or not the proper avenues of assessment and collection of the said tax obligations were taken by the respondent Bureau was the subject of the Supreme Court's inquiry.

PETITIONER posited that notices of levy, notices of sale, and subsequent sale of properties of the late President Marcos effected by the BIR were null and void for disregarding the established procedure for the enforcement of taxes due upon the estate of the deceased.

The case of Domingo vs. Garlitos was specifically cited to bolster the argument that "the ordinary procedure by which to settle claims of indebtedness against the estate of a deceased, person, as in an inheritance (estate) tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount therefor." This remedy is allegedly, exclusive, and cannot be effected through any other means.

PETITIONER further submitted that the probate court was not precluded from denying a request by the government for the immediate payment of taxes, and should order the payment of the same only within the period fixed by the probate court for the payment of all the debts of the decedent.

In this regard, petitioner cited the case of Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502), where it was held that the court having control over the administration proceedings has jurisdiction to entertain the claim presented by the government for taxes due and to order the administrator to pay the tax should it find that the assessment was proper, and that the tax was legal, due and collectible; that during the pendency of judicial administration over the estate of a deceased person a claim for taxes is presented by the government, the court has the authority to order payment by the administrator; and that in the same way that it has authority to order payment or satisfaction, it also has the negative authority to deny the same.

ON THE OTHER HAND, it was argued by the BIR, that the state's authority to collect internal revenue taxes was paramount. Thus, the pendency of probate proceedings over the estate of the deceased did not preclude the assessment and collection, through summary remedies, of estate taxes over the same.

According to the respondent, claims for payment of estate and income taxes due and assessed after the death of the decedent need not be presented in the form of a claim against the estate. These can and should be paid immediately. The probate court was not the government agency to decide whether an estate is liable for payment of estate of income taxes. Well-settled was the rule that the probate court was a court with special and limited jurisdiction.

CONCEDEDLY, it was within the JURISDICTION of the PROBATE COURT to approve the sale of properties of a deceased person by his prospective heirs before final adjudication; to determine who are the heirs of the decedent; the recognition of a natural child; the status of a woman claiming to be the legal wife of the decedent; the legality of disinheritance of an heir by the testator; and to pass upon the validity of a waiver of hereditary rights.

The PIVOTAL QUESTION the Supreme Court was tasked to resolve in the instant petition referred to the authority of the Bureau of Internal Revenue to collect by the SUMMARY REMEDY of LEVYING upon, and SALE of real properties of the decedent, estate tax deficiencies, WITHOUT the cognition and authority of the court sitting in probate over the supposed will of the deceased.

STRICTLY SPEAKING, the assessment of an inheritance tax did not directly involve the administration of a decedent's estate, although it may be viewed as an incident to the complete settlement of an estate.

In the Philippine experience, the enforcement and collection of estate tax, was executive in character, as the legislature had seen it fit to ascribe this task to the Bureau of Internal Revenue. (Section 3, oNational Internal Revenue Code).

The Government had two ways of collecting the taxes in question. One, by going after all the heirs and collecting from each one of them the amount of the tax proportionate to the inheritance received. Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all property and rights to property belong to the taxpayer for unpaid income tax, was by subjecting said property of the estate which was in the hands of an heir or transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue vs. Pineda, 21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate, or as a settlement tribunal over the deceased was not a mandatory requirement in the collection of estate taxes.

It cannot therefore be argued that the Tax Bureau erred in proceeding with the levying and sale of the properties allegedly owned by the late President, on the ground that it was required to seek first the probate court's sanction.

There was nothing in the Tax Code, and in the pertinent remedial laws that implied the necessity of the probate or estate settlement court's approval of the state's claim for estate taxes, before the same could be enforced and collected.

ON THE CONTRARY, under Section 87 of the NIRC, it is the probate or settlement court which was bidden not to authorize the executor or judicial administrator of the decedent's estate to deliver any distributive share to any party interested in the estate, unless it is shown a Certification by the Commissioner of Internal Revenue that the estate taxes have been paid.

This provision disproved the petitioner's contention that it was the probate court which approved the assessment and collection of the estate tax.

If there is any issue as to the validity of the BIR's decision to assess the estate taxes, this should have been pursued through the PROPER ADMINISTRATIVE AND JUDICIAL AVENUES provided for by law.

Section 229 of the NIRC tells us how:

Sec. 229. Protesting of assessment. — When the Commissioner of Internal Revenue or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation in such form and manner as may be prescribed by implementing regulations within (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable.

If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decision on the protest may appeal to the Court of Tax Appeals within thirty (30) days from receipt of said decision; otherwise, the decision shall become final, executory and demandable. (As inserted by P.D. 1773)

Apart from failing to file the required estate tax return within the time required for the filing of the same, petitioner, and the other heirs never questioned the assessments served upon them, allowing the same to lapse into finality, and prompting the BIR to collect the said taxes by levying upon the properties left by President Marcos.

The Notices of Levy upon real property were issued within the prescriptive period and in accordance with the provisions of the present Tax Code. The deficiency tax assessment, having already become final, executory, and demandable, the same could be collected through the summary remedy of distraint or levy pursuant to Section 205 of the NIRC.

The applicable provision in regard to the PRESCRIPTIVE PERIOD for the assessment and collection of tax deficiency in this instance was Article 223 of the NIRC:

Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes. — (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten (10) years after the discovery of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

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(c) Any internal revenue tax which has been assessed within the period of limitation above prescribed, may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.

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The omission to file an estate tax return, and the subsequent failure to contest or appeal the assessment made by the BIR is fatal to the petitioner's cause, as under the above-cited provision, in case of failure to file a return, the tax may be assessed at any time within ten years after the omission, and any tax so assessed may be collected by levy upon real property within three years following the assessment of the tax. Since the estate tax assessment had become final and unappealable by the petitioner's default as regards protesting the validity of the said assessment, there is now no reason why the BIR cannot continue with the collection of the said tax. Any objection against the assessment should have been pursued following the avenue paved in Section 229 of the NIRC on protests on assessments of internal revenue taxes.

The Bureau of Internal Revenue was the government agency tasked to determine the amount of taxes due upon the subject estate. It’s determinations and assessments are PRESUMED correct and made in GOOD FAITH. The taxpayer has the duty of proving otherwise.

In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously.

The burden of proof is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment.

In the instant case, petitioner had not pointed out one single provision in the Memorandum of the Special Audit Team which gave rise to the questioned assessment, which contained a trace of falsity.

Indeed, the petitioner's attack on the assessment argued mainly on the alleged improbable and unconscionable amount of the taxes charged. But mere rhetoric cannot supply the basis for the charge of impropriety of the assessments made.

Moreover, these objections to the assessments should have been raised, considering the ample REMEDIES afforded the taxpayer by the Tax Code, with the BUREAU OF INTERNAL REVENUE and the COURT OF TAX APPEALS, as described earlier, and could not be belatedly raised now via Petition for Certiorari, under the pretext of grave abuse of discretion.

The course of action taken by the petitioner reflected his disregard or even repugnance of the established institutions for governance in the scheme of a well-ordered society.

The subject tax assessments HAVING BECOME FINAL, EXECUTOR AND ENFORCEABLE, the same could no longer be contested by means of a DISGUISED PROTEST.

In the main, Certiorari may not be used as a substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack against the actuations of government.

There being sufficient service of Notices to herein petitioner (and his mother) and it appearing that petitioner continuously ignored said Notices despite several opportunities given him to file a protest and to thereafter appeal to the Court of Tax Appeals, — the tax assessments subject of this case, upon which the levy and sale of properties were based, could no longer be contested (directly or indirectly) via this instant petition for certiorari.

IN VIEW WHEREOF, the Supreme Court RESOLVED to DENY the present petition. The Decision of the Court of Appeals dated November 29, 1994 was thereby AFFIRMED in all respects.