CM 305 - COLLECTION SUMMARY REMEDIES

Authority to Impose Civil Remedies

After exhausting all possible persuasive collection efforts and the taxpayer still refuses to voluntarily settle its outstanding tax liabilities, the Bureau can exercise its vast coercive power to ensure that the said unpaid tax liabilities are duly and timely collected, in the discharge of its primary mandate to collect the correct taxes for the government.

The authority of the Commissioner of Internal Revenue to distrain, levy, garnish, forfeit or sell, and dispose of the properties of a delinquent taxpayer is anchored on the following provisions of law:

1. Sections 205 (Remedies for the Collection of Delinquent Taxes), 206 (Constructive Distraint of the Property of a Taxpayer), and 207 (Summary Remedies) of the NIRC of 1997, as amended all of which provide for the imposition of civil and judicial remedies in the collection of delinquent taxes;
2. Section 218 (Injunction Not Available to Restrain Collection of Tax of the NIRC, which provides that no court shall have the authority to grant an injunction to restrain the collection of any internal revenue tax, fee or charge imposed under the NIRC; and
3. Section 11 of the Republic Act (RA) No. 1125 (An Act Creating the Court of Tax Appeals (CTA) from a decision of the Commissioner on a disputed assessment shall suspend the payment, levy, distraint, and/or sale of any property of the concerned taxpayer to satisfy the tax liability, unless the CTA itself should suspend the collection of the tax under certain conditions.

DEFINITION OF TERMS

For purposes of this Manual and in order to provide clarity and better understanding of the policies and procedures in the implementation thereof, the words and phrases herein provided are defined as follows:

1. Warrant of Distraint and/or Levy – the authority granted to internal revenue officers to distrain personal property of whatever character and to levy upon the real property and interest in or rights to real property of a delinquent taxpayer.
2. Distraint – refers to the seizure of personal property (tangible and intangible) by the government to enforce the payment of a tax liability. Distraint is of two (2) kinds:
3. Actual Seizure – refers to the act of enforcing/executing the Warrant of Distraint and/or Levy (WDL) through the actual confiscation of the personal property/ies of a delinquent taxpayer. It is done simultaneously or after the service of the WDL upon the taxpayer or any of his/her household with sufficient discretion. It should be done with an assessment, either in the form of final assessment notice, self-assessed but unpaid taxes, and also in the case of a dishonored check;
4. Constructive Seizure/Distraint – refers to the act of listing down the personal properties of the taxpayer in the Constructive Seizure of Personal Properties Seized Under Authority of the NIRC (CSPP) or the filing of the Memorandum Receipt/Notice of Constructive Distraint of Personal Property (CDPP) requiring the taxpayer or any person having possession or control of such property/ies not to dispose the properties distrained without the express authority of the Commissioner of Internal Revenue or his duly authorized representative. This is done when the taxpayer or person in custody of the property distrained refuses to sign the memorandum receipt of the distrainable properties. The distraining officer shall leave a copy thereof in the premises where the property distrained is located in the presence of two (2) credible witnesses, preferably BIR officers. This summary remedy could not be enforced for any unpaid tax liabilities, with or without an assessment, pursuant to existing rules and regulations.
5. Levy – refers to the seizure of real properties and interest in or right to such properties of a delinquent taxpayer by the government in order to enforce the collection of unpaid tax liabilities.
6. Garnishment – a proceeding in the nature of attachment wherein the credits, properties or effects of a delinquent taxpayer in the hands of a third person/entity may be made to satisfy the collection of his/her/its tax liabilities being enforced by a warrant issued by the Bureau of Internal Revenue (BIR).
7. Notice of Tax Lien – a written notice issued by the Commissioner of Internal Revenue to validate the legal claim or charge by the government on the properties of a delinquent taxpayer.
8. Notice of Levy – a written notice of the seizure of a real property by the Commissioner of Internal Revenue, or his/her duly authorized representative, addressed to the City/Municipality Assessor in the case of untitled real properties. It is addressed to the Register of Deeds of the city or province where it is situated in case of titled real properties, for annotation of the same at the back of the Tax Declaration (TD) or at the back of the Title, in order to enforce the collection of delinquent taxes due from a taxpayer.
9. Original Certificate of Title (OCT) – a legal document certifying private ownership of land issued under the Torrens title system of the Philippines. The OCT may be issued either judicially or administratively by the Land Registration Authority (LRA) and recorded in the archives of the Government by the Register of Deeds.
10. Transfer Certificate of Title (TCT) – a legal document certifying private ownership of land upon subsequent transfer of certificate of title derived from the OCT. Such transfer may be through sale or donation by the previous owner to the buyer or done. The TCT may be issued also either judicially or administratively by the LRA and recorded by the Register of Deeds.
11. Condominium Certificate of Title (CCT) – a legal document certifying private ownership of a condominium unit issued by the LRA and recorded by the Register of Deeds.
12. Tax Declaration (TD) – a legal document issued by the City/Municipal Provincial Assessor’s office which serves as basis for real property tax purposes. The Tax declaration contains information on the owner of the property and the kind of property assessed including classification, actual use, area and market value and assessed value thereof.
13. Notice of Encumbrance – a written notice issued by the Commissioner of Internal Revenue to denote/validate the legal claim of the government on the distrained properties of a delinquent taxpayer (e.g. motor vehicles by land, air or water, etc.).

Implementing Offices and Instruments to Implement Summary Remedies

The RDO/Regional Collection Divisions of the Regional Offices and the LTCED/LTDOs of the LTS shall fully utilize the summary remedies provided for by Section 207 of the NIRC of 1997, as amended, by issuing the Preliminary Collection Letter (PCL), Final Notice Before Seizure (FNBS), Warrant of Distraint and/or Levy (WDL), Constructive Seizure of Personal Property Seized Under the Authority  of the NIRC (CSPP), Notice of Actual Seizure of Personal Property (NASPP), Constructive Distraint of Personal Property (CDPP), Notice of Encumbrance (NOE), Notice of Tax Lien (NTL), Notice of Levy (NOL), Notice of Sale (NOS) and Warrant of Garnishment (WG) on all accounts receivables/delinquent accounts (ARs/DAs) that are pending with their respective Offices to be signed and approved by the concerned BIR Official.[1]

The Revenue Officers in charge of collection functions shall immediately proceed in identifying the properties and specific accounts owned by and in the name of the taxpayer which shall be levied, forfeited, seized or garnished in favor of the Government. Consequently, the PCL, FNBS, WDL, NASPP, CSPP, CDPP, NOE, NTL, NOL, NOS and WG shall be sent out to place such identified properties under seizure /forfeiture/ garnishment as a consequence of the failure on the part of the taxpayer to pay the delinquency taxes. All Revenue Officers in charge of this function must ensure that proper annotations regarding the encumbrance, tax lien, levy and garnishment have been made unto the document evidencing the ownership of the taxpayer over such properties/accounts.

Guidelines in Implementing Summary Remedies

Any internal revenue tax which has been assessed within the period of limitation as prescribed in Section 203 and Section 222 (a) of the NIRC of 1997, as amended, may be collected by distraint or levy, or by a proceeding in court within five (5) years following the assessment of the tax, as provided under sections 222 (c) and 222 (d) of the NIRC of 1997, as amended.

The implementation of summary remedies must be made immediately upon recognition of a receivable account, even if such an account is not yet considered as delinquent. The issuance of PCL, FNBS, WDL, NASPP, CSPP, CDPP, NOE, NTL, NOL, NOS and WG shall be available as summary remedies, in accordance with Section 207 of the NIRC of 1997, as amended, in the following cases:

1. When the Final Assessment Notice (FAN) has been issued, whether or not the same is already final, executory and demandable, or a valid administrative protest (i.e., request for reinvestigation or reconsideration) against the FAN was filed by the taxpayer within the reglementary period. The enforcement of the summary remedies on protested cases can be pursued by the Commissioner in order to safeguard the government’s interest. However, the Bureau cannot yet sell or dispose any distrained or levied property unless a final decision on the protested case was already made and such assessment has already become final, executory and demandable.
2. When a receivable was automatically considered as a delinquent account without the need for the issuance of an assessment notice such as unpaid self-assessed tax, dishonored check, etc.
3. When the taxpayer defaulted in the payment of an approved installment plan for the payment of its tax liabilities.
4. Upon issuance by the Commissioner/Regional Director/ACIR-LTS/ACIR-Enforcement Service, of the Final Decision on the Disputed Assessment (FDDA) against the taxpayer or upon issuance by the CTA in Division or En Banc of its decision upholding the assessment, the PCL, FNBS, WDL, CSPP, NASPP, CDPP, NOE, NTL, NOL, and WG shall be immediately issued and served.[2]

The implementation of the summary remedies shall not be suspended or held in abeyance, notwithstanding:

1. The execution of Waiver for the running of the Statute of Limitations for the collection of taxes; or
2. The filing of an application for compromise settlement or abatement of penalties, where such application is still being processed by the concerned BIR offices.

Prioritization in the execution of Summary Remedies

Due to resource limitations, prioritization in the execution of summary remedies is necessary in order to obtain the optimum collection benefits from these receivable accounts. In this light, the following sequence of priorities shall be observed in the implementation of summary remedies for ARs/DAs:

1. Cases wherein the period to collect is about to prescribe within one (1) year;
2. Cases under the “Run After Tax Evaders” (RATE) Program or cases with findings of fraud or clear intent to evade the payment of the tax due and where the fifty percent (50%) surcharge has been imposed;
3. Cases where a taxpayer, with an outstanding tax liability, cannot pay bit retains a number of properties in his possession;
4. Cases where the taxpayer has no intention to pay his outstanding tax liabilities due to any of the following:

               4.1.        Retirement from any business subject to tax;

               4.2.        Intention to leave the Philippines;

               4.3.        Removal of his properties from the Philippines;

               4.4.        Hiding or concealment of his properties; and

               4.5.        Performance of any act that tends to obstruct the collection of the tax due;

5. Cases automatically considered as delinquent accounts, even without the issuance of Assessment Notices (e.g. payment of taxes through dishonored checks; non-payment of the second installment of income taxes; non-payment of the tax due, as indicated in the tax returns filed, etc.);
6. Delinquent accounts with lapsed schedules of installment payments;
7. Receivable accounts where the assessments have become final, executory, and demandable either because of the taxpayer’s failure to file a protest before the BIR within the prescribed period, or are covered by final judgement of the concerned courts in favor of the BIR;
8. Cases involving assessments decided by the Courts in favor of the BIR, but were subsequently appealed by the taxpayer before a higher Court;
9. Cases involving assessments decided by the Courts in favor of the concerned taxpayer, but were subsequently appealed by the BIR before a higher court
10. Protested cases where the Final Decision on Disputed Assessment (FDDA) has already been issued by the BIR; and
11. All other accounts receivable cases.

Notwithstanding the foregoing sequence of priorities, all implementing BIR Offices are not precluded from giving precedence to certain cases over the aforesaid sequence due to compelling and justifiable reasons (e.g. receipt of information that a taxpayer is already disposing of his assets that will be subject to enforcement actions; or setting up of accounts receivable thresholds such that “big-ticket items” are handled  ahead of other cases even if these accounts are not yet about to prescribe, etc.), provided that all necessary enforcement actions have bee carried out prior to the lapse of the prescriptive period for the collection of these receivable accounts.

Any BIR Official who fails to issue and/or execute the WDL within thirty (30) days after the expiration of the time prescribed in Section 207 of the NIRC of 1997, as amended, or who is found guilty of abusing the exercise thereof by competent authority shall be automatically dismissed from the service after due notice and hearing.[3]

Lifting/Cancellation of the Collection Summary Remedies

Collection summary remedies shall only be lifted/cancelled under either of the following conditions:

1. When the delinquent account has been fully settled by the concerned taxpayer, as evidenced by the appropriate proof of payment;
2. When the offer of compromise/abatement has been duly approved and paid by the taxpayer, pursuant to existing rules and regulations;
3. When the original amount of assessment was fully or partially cancelled as a result of reinvestigation or reconsideration of the assessment, and the revised assessment, if any, was already fully paid by the taxpayer and the corresponding ATCA on the cancelled assessment has been issued by the concerned reinvestigating office;
4. When the taxpayer has made an escrow account with any commercial bank, in favor of the BIR in the amount not less tan his/her/its tax liability, including the increments incident to delinquency, or has filed a surety bond with an accredited surety company for an amount not less than double the amount of his/her/its outstanding tax liability;[4]             
5. When the competent court has issued a final and executory order for the filing thereof;
6. Under other meritorious cases, provided the interest of the government is not jeopardized and upon prior approval by the Commissioner; and
7. When the Bureau’s right to assess and/or collect the unpaid tax liability within the prescribed period under the Stature of Limitations has already prescribed.

Delegation of Authority to Approve/Sign Documents on Collection Summary Remedies

To effectively manage the collection of accounts receivables/delinquent accounts, the BIR delineates the authority and responsibility of revenue officials who shall sign, approve, serve, execute and lift warrants and notices as follows:[5]

1. Delegation of Authority to Sign and Approve Documents – The authority to sign/approve and serve/execute the documents below shall be delegated to the following Revenue Officials for the proper enforcement of collection under the jurisdiction of their respective Offices:

               -              Warrant of Distraint and/or Levy and lifting thereof;

               -              Warrant of Garnishment and lifting thereof;

               -              Notice of Tax Lien and lifting thereof;

               -              Notice of Encumbrance and lifting thereof;

               -              Notice of Levy of Real Property and lifting thereof;

               -              Notice of Actual Seizure of Personal Property and lifting thereof;

               -              Constructive Seizure of Personal Property and lifting thereof;

               -              Constructive Distraint of Personal Property and lifting thereof.

2. Delegation of Authority to Serve and Execute – The following Offices are hereby designated to cause the service and execution of the duly approved administrative summary remedies enumerated above:

3. Assistance in the Service and Execution of Warrants/Notices – In undermanned RDOs/LTDOs, the request to provide Deputized/Auxiliary Revenue Officers to aid in the Service and execution of the warrants/notices and other processes must be sought from the concerned Regional/LTS Offices.
4. Lifting – The lifting of the WDL, CSPP, NASPP, CDPP, NOE, NTL, NOL and WG shall be signed/approved by the same person who executed the said warrants. In case the said person has already retired/resigned/ transferred to other offices, the incumbent official of the concerned office shall be the signatory thereof.

[1] RDAO No. 1-2001.

[2] RMO No. 39-2007 and RMO No. 42-2010.

[3] Section 273 of the NIRC of 1997, as amended.

[4] Section 11 of RA No. 1125, as amended by RA No. 4134, applied to this case by analogy.

[5] RDAO No. 1-2001.

[6] Memorandum of Deputy Commissioner Nelson M. Aspe dated 25 July 2007 transferring the responsibility of enforcing collection summary remedies for national office cases, other than LTS cases, from Collection Service to the concerned regional offices having jurisdiction over the taxpayer.

[7] Ibid.