REPUBLIC OF THE PHILIPPINES, PLAINTIFF-APPELLANT, VS. FELIX B. ACEBEDO, DEFENDANT-APPELLEE.

Republic versus Acebedo

The Case

This is a suit by the Republic of the Philippines against Felix B. Acebedo for the collection of a deficiency income tax for the year 1948. The Republic sued to collect; the taxpayer raised the defense that the right of action had already prescribed. The case matters because it fixes the rule on the prescriptive period for collecting an assessed internal revenue tax, and it tells us exactly when a request for reinvestigation, or a written waiver of the statute of limitations, can suspend or extend that period. It is a staple in tax procedure and in civil law on prescription.

Procedural History

The Republic filed its complaint in the Court of First Instance on December 27, 1961. After the defendant filed his answer, but before trial began, he moved to dismiss on the ground of prescription. The court received evidence on the motion and, on September 1, 1962, issued an order finding the motion meritorious and dismissing the complaint. The Republic appealed from that order of dismissal, and the case reached the Supreme Court on appeal.

Facts

The Bureau of Internal Revenue assessed a deficiency income tax against Acebedo for the year 1948, and the notice of assessment was issued on September 24, 1949. On October 11, 1949, the taxpayer asked for a reinvestigation of the assessment. There is no evidence that this request was considered or acted upon. On October 23, 1950, the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment, but the warrant was never followed up.

On October 6, 1951, a letter signed for the defendant by one Troadio Concha again requested a reinvestigation of his tax liability, and nothing came of this request either. On February 9, 1954, the defendant's lawyers wrote the Collector informing him that their client's books were ready at their office for examination. The Collector replied only on October 4, 1955, more than a year later, requiring the defendant to specify his objections to the assessment and to execute the enclosed forms for waiver of the statute of limitations, with a warning that collection would be enforced unless the waiver was submitted within ten days.

The only written waiver in the record is one signed by the defendant on December 17, 1959. The Republic filed its complaint for collection on December 27, 1961.

Issues

• Whether or not the action for collection of the deficiency income tax was begun within five years after the assessment of the tax.
• Whether or not the written waiver of the statute of limitations signed by the taxpayer on December 17, 1959 was effective to extend the period for collection.
• Whether or not the taxpayer's various requests for reinvestigation or reconsideration suspended the running of the prescriptive period.

Applicable Provisions

Section 332, subsection (c), of the National Internal Revenue Code governs the period for collection and provides:

Where the assessment of any internal-revenue tax has been made with the period of limitation above prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

This provision supplies the five-year period counted from the assessment, and it requires that any agreement extending that period be in writing and made before the five years expire.

Ruling

On the first issue, the Court held that the suit was not begun within five years after the assessment. The assessment was made in 1949, and the complaint was filed only on December 27, 1961.

On the second issue, the Court held that the written waiver dated December 17, 1959 was ineffective because it was executed beyond the original five-year limitation. The statute itself requires that the agreement be made before the expiration of the five-year period, and a waiver executed after prescription has set in cannot revive the right of action.

On the third issue, the Court rejected the contention that the requests for reinvestigation suspended prescription. The trial court's ruling was logical, the Court said, otherwise there would be no point to the legal requirement that the extension of the original period be agreed upon in writing. The Court acknowledged that a taxpayer may in some cases be in estoppel to claim prescription, as where by his repeated requests or positive acts the Government has been persuaded to postpone collection. But here the taxpayer's requests were unheeded until October 4, 1955, and up to that date the delay could not be attributed to him at all. By October 4, 1955, more than five years had elapsed since the assessment, so prescription had already set in and subsequent events were immaterial.

Doctrine

The action to collect an assessed internal revenue tax must be begun within five years after the assessment, or prior to the expiration of a period for collection agreed upon in writing by the Collector and the taxpayer before the expiration of the five-year period. A waiver of the statute of limitations executed after the five-year period has expired is ineffective and cannot revive the right of action. A mere request for reinvestigation or reconsideration does not suspend the running of the prescriptive period. A taxpayer may be estopped to claim prescription where, by his repeated requests or positive acts, the Government was persuaded to postpone collection, but the estoppel does not arise where the requests were not acted upon and the delay is not attributable to the taxpayer.

Disposition

The order of dismissal appealed from was affirmed, without pronouncement as to costs. The Republic lost, and the complaint was dismissed on the ground of prescription.

Remember This

The one line to memorize: a waiver of the statute of limitations must be executed within the original five-year period, and a request for reinvestigation does not suspend prescription. Examiners use this case to test the five-year collection period under Section 332 and the limits of estoppel against a taxpayer claiming prescription.