CM 305.3 - DISTRAINT OF PERSONAL PROPERTY
Distraint of personal property is effected as a remedy to enforce tax collection when a person owning any delinquent tax fails to pay the same at the time required. The remedy of distraint shall be exercised by persons authorized under Section 207(A) of the NIRC of 1997, as amended, as follows:
- The Commissioner of Internal Revenue or his duly authorized representative in cases where the amount involved is in excess of One Million Pesos (Php 1,000,000); and
- Revenue District Officer if the amount involved is One Million Pesos (Php 1,000,000) or less.
The aforementioned revenue officers/seizure agents shall seize and distrain any goods, chattels or personal effects, personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property of the delinquent taxpayer in sufficient quantity to satisfy the tax or charge, together with any increments thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale;
Any currency deposit, shares of stock, rentals, income, salaries of the taxpayer, trade or non-trade receivables, etc., may be garnished. However, accrued salaries of a government employee cannot be garnished because it still forms part of the public fund if it is in the hands of the disbursing officer.
A Revenue Officer/Seizure Agent cannot legally break and enter the personal dwelling of a delinquent taxpayer for the purpose of seizing personal property, except when there is a lawful order from competent and appropriate court and similar instrumentalities of the government. The Revenue Officer may however forcibly enter other buildings of the subject taxpayer, such as stores, warehouses, etc. to enforce the WDL.
Stock and other securities shall be distrained by serving a copy of the Warrant of Distraint and Levy (WDL):
- Upon the taxpayer;
- Upon the president, manager, treasurer or other responsible officer of the corporation, company or association, that issued the said shares of stocks;
- Upon the bank and other financial institutions issuing bonds, securities and other commercial papers or instruments.
Other personal properties shall be distrained by serving a copy of the Warrant of Distraint and Levy (WDL) to the appropriate Registry Office [e.g. LTO, Maritime Industry Authority (MARINA)/Civil Aeronautics Authority of the Philippines (CAAP), Intellectual Property Office (IPO), banks and posts offices that are in physical possession/custody of personal properties via their safety deposit box facilities, etc.].
Debts and credits shall be distrained by leaving a copy of the WDL with the person owing the debts or having in his possession or under his control any credit belonging to the taxpayer. The WDL shall be accomplished by a letter signed by the Revenue District Officer instructing the addressee to seize, distrain, and turn-over to the Bureau the debts or credits belonging to the delinquent taxpayer sufficient to satisfy his tax liability and its increments.
Any taxpayer who sells, transfers, encumbers, or in any way disposes of his properties placed under constructive distraint shall, upon conviction be:
- Fined in a sum of not less than twice the value of the property sold, encumbered, or disposed of, but not less than Five Thousand Pesos (Php5,000.00); or
- Imprisoned for not less than two (2) years and one (1) day but not more than four (4) years, or both.
A report on the distraint or garnishment shall be submitted to the following Revenue Officials by the Seizure Agent/Revenue Officer within ten (10) days from the date of receipt of the assigned warrant for service:
- Revenue District Officer and to the Regional Director, thru the Chief, Collection Division, for regional cases;
- Chief, Large Taxpayers District Office (LTDO) and Assistant Commissioner of Internal Revenue (ACIR) – Large Taxpayers Service, thru the Chief, Large Taxpayers Collection and Enforcement Division (LTCED), for LTDO and LT cases.
A consolidated report of distraint personal property shall be submitted to the Commissioner by the Regional Director and the ACIR, Large Taxpayers Service, thru the ACIR, Collection Service.
Procedures in the Actual Seizure of Personal Property
The Revenue Officer/Seizure Agent shall:
- Fill-up the Notice of Actual Seizure Personal Property (NASPP) – BIR Form 2802 – (Annex 300-1.32) for signature by the authorized signatory;
- Make arrangements with a reputable hauling/handling company for the hauling/transportation of the seized personal properties;
- Proceed to the place where the personal properties of the subject taxpayer is located and list-down the goods, chattels, effects, or other personal property to be seized/distrained in the NASPP;
- Serve the duly accomplished NASPP with the list of the personal property/ies seized/distrained to the taxpayer or person having possession or control of such taxpayer’s property/ies. If the taxpayer or person having possession or control of such taxpayer’s property fails or refuses to receive and acknowledge the same, request at least two (2) credible witnesses preferably BIR officers, to sign in the NASPP, as witnesses to the service and actual seizure;
- Recite to the taxpayer or person having possession or control of such taxpayer’s property his obligations under the NIRC of 1997, as amended, and inform him/her that the seized/distrained properties will be sold to the highest bidder at a public auction, at a time/date and place of which he/she will be notified accordingly, in order to satisfy the tax liabilities;
Subject to prior approval of the Secretary of Finance, upon recommendation by the Commissioner pursuant to existing rules and regulations, the Regional Director may exercise his discretion to dispose of the low-value distrained properties thru negotiated sale in lieu of public auction, if the expected cost of sale thereof will be substantially more than the proceeds therefrom.
- Instruct the hauling/handling company to load the personal properties seized into the truck/vehicle and deliver the same to the Office of the RDO for safekeeping. However, in case of space limitations or where the storage of the seized properties at the office of the RDO is deemed impracticable, necessary arrangements for deliveryman storage to a designated warehouse/facility can be made, subject to prior written approval by the Regional Director/ACIR-LTS;
- Exercise due diligence in safeguarding, preserving and maintaining the seized/distrained personal properties in good condition to avoid their loss, pilferage, deterioration, etc.
- Record the details of the seized/distrained personal properties in the Registry of Seized Personal Properties being maintained in the district/LTS office for the purpose; and
- If the taxpayer fails to pay the tax liability, including the increments incident to delinquency, and the cost of preservation and transportation of the seized/distrained personal properties, within twenty (20) days form the date of service of the NASPP, proceed with the auction sale of the seized/distrained properties (Refer to CM 305.5. Sale of Distrained Property and Disposition of Proceeds/CM 307-Monitoring Warrant Enforcement).
CM 305.3.1. CONSTRUCTIVE DISTRAINT/SEIZURE OF PROPERTY
The remedy of constructive distraint of personal property can be pursued by the BIR under any of the following grounds or instances:
- The taxpayer intends to retire from any business subject to tax.
Example – When a taxpayer who applies for retirement from business has a substantial amount of assessment pending with the BIR. An assessment may be considered substantial if the amount thereof is equal to or higher than the net worth or equity of the taxpayer during the current taxable year.
- The taxpayer intends to leave the Philippines
Example – When a taxpayer who is under tax investigation has a record of leaving the Philippines of a least twice over a twelve (12)-month period, unless such trips are justified and/or connected with his business, profession or employment.
- The taxpayer intends to remove his property from the Philippines
Example – When a taxpayer, other than a banking institution, who is under tax investigation has a record of transferring his bank deposits and other valuable personal property/ies from the Philippines to any foreign country.
- The taxpayer intends to hide or conceal his property under the following instances or scenarios:
4.1. When the taxpayer who is under tax investigation tries to hide or conceal his personal property to prevent discovery thereof by tax authorities;
4.2. When the taxpayer uses aliases in bank accounts, other than the name for which he is legally and/or popularly known;
4.3. When the taxpayer keeps bank deposits and owns other property/ies under the name or in the possession or control of other persons, whether or not related to him, and the same are not under any lawful agency, fiduciary or trust capacity;
4.4. When a taxpayer’s undeclared income is known to the public or to the BIR by credible means and there is a strong reason to believe that the taxpayer, in the natural course of events, will have a great tendency to hide or conceal his property/ies. For this purpose, the term “undeclared income” means an amount exceeding by at least thirty percent (30%) of the gross sales, gross receipts, or gross revenue declared per return; and
4.5. When the BIR receives information or complaint pertaining to undeclared income in an amount exceeding by at least thirty percent (30%) of gross sales, gross receipts or gross revenue declared per return of a particular taxpayer and there is enough reason to believe that the said information is correct as when the complaint or information is supported by substantial and credible evidence.
- The taxpayer intends to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him.
- Such other situations analogous to the foregoing enumeration.
Authority to Effect Constructive Distraint
The Commissioner may place under constructive distraint the property of the following:
- Delinquent taxpayer; or
- Any taxpayer who, in his opinion, would tend to do any of the acts enumerated in item 4 above.
It should be noted that constructive distraint is only a safeguard for and not a means of collection of the tax. Unlike in actual distraint, there is no definite tax due in constructive distraint.
The power to exercise constructive distraint may be delegated by the Commissioner pursuant to Section 7 of the NIRC of 1997, as amended, to any subordinate official with the rank equivalent to a Division Chief or higher.
The mere service of a Notice of Constructive Distraint is sufficient if the subject of the constructive distraint is bank deposit, shares of stocks, account receivables, etc.
The taxpayer or any person having possession or control of such taxpayer’s property is obligated not to dispose of the property and to preserve the same intact and unaltered. The aforementioned obligations shall be continuously complied with, unless the contrary is permitted through express authority of the Commissioner.
Procedures in the Constructive Distraint/Seizure of Personal Property
The Revenue Officer/Seizure Agent shall:
- Fill up the BIR Form No. 2901-Constructive Seizure of Personal Property Seized
Under the Authority of the NIRC-CSPP (Annex 300-1.33)/Constructive Distraint of Personal Property- CDPP (Annex 300-1.34) for signature by the authorized signatory;
- Proceed to the place where the personal properties of the subject taxpayer is located and list down the goods, chattels, effects, or other personal property to be seized/distrained in the approved CSPP;
- Serve the duly accomplished CSPP with the list of the personal property seized/distrained to the taxpayer or person having possession or control of such taxpayer’s property. If the taxpayer or person having possession or control of such property fails or refuses to receive and acknowledge the same, request at least two (2) credible witnesses preferably BIR officers to sign in the CSPP as witnesses to the service of the CSPP. The said property shall, thereafter, be deemed to have been placed under constructive seizure;
- Recite to the taxpayer or person having possession or control of such taxpayer’s property his obligations under the NIRC of 1997, as amended, and inform him/her to preserve the said properties, placed under constructive seizure, intact and unaltered and not to dispose of the same in any manner whatever, without the prior consent or authority of the Commissioner of Internal Revenue or his duly authorized representative; and
- If the taxpayer fails to pay the tax liability, including the increments incidents to delinquency, and the cost of preservation and transportation of the seized/distraint personal properties, within twenty (20) days from the service of the CSPP, proceed with the actual seizure of the personal properties, placed under constructive seizure (Refer to CM 305.3 – Distraint of Personal Property).
 Section 276 of the NIRC of 1997, as amended.
 Section 206 of the NIRC of 1997, as amended.
 Section 206 of the NIRC of 1997, as amended; Section 2 of RMC No. 5-2001 and RMO No. 42-2010.
 RDAO No. 1-2001.
 Section 4 of RMC No. 5-2001.