G.R. No. L-18007 - Republic vs. Lopez

On December 6, 1950, Benito H. Lopez filed his income tax returns for that year.
On November 13, 1952, the Bureau of Internal Revenue (BIR) issued an assessment demanding payment of a deficiency income tax amounting to P245,100.29.
Lopez, via counsel, requested reconsideration on November 30, 1952, which was subsequently denied in a letter dated July 14, 1953.
Lopez reiterated his request for reconsideration with further communications on November 14 and December 11, 1953.
As a result of the reinvestigation prompted by these requests, on May 29, 1954, the assessment was reduced to P120,346.14.

Satisfied by the reduced assessment, Lopez indicated in his July 1, 1954, letter his intention to settle the tax obligation by the end of that month.
Lopez subsequently failed to effectuate the settlement and, on July 9, 1955, pleaded for another reinvestigation.
The second reinvestigation, which resulted in an additional deficiency tax of P6,019.00, brought the total deficiency to P26,365.14; however, Lopez did not make payment notwithstanding repeated demands.
On January 16 and February 11, 1956, Lopez initiated a third reinvestigation, conditions for which were set by the BIR.

The BIR, in its letter dated February 25, 1956, agreed to the third reinvestigation on the condition that Lopez waive the running of the statute of limitations.
Notably, instead of an unconditional waiver, Lopez imposed a deadline, fixing the period “not beyond December 31, 1957” for the government to complete its reinvestigation.

Ignoring the imposed deadline, on March 23, 1960, the BIR issued an assessment for the same total deficiency of P26,365.14.

A collection suit was filed on August 15, 1960, for nonpayment of the assessed deficiency tax.
On September 30, 1960, Lopez (the defendant-appellee) filed a motion to dismiss the complaint on the ground that the action had prescribed.
The Court of First Instance of Baguio, on November 2, 1960, sustained the motion to dismiss, holding that the statutory period for assessment and collection had elapsed as a result of Lopez’s imposed waiver.

The government, appealing the dismissal, attacked the validity of Lopez’s “Waiver of the Statute of Limitations” on several grounds:

It was filed on a form provided by the BIR.
The government argued that it was estopped from attacking the waiver because it was executed under the Bureau’s demand.

The government contended that, even after deducting the time consumed by the reinvestigation process, its action was brought within the legally provided five-year prescriptive period, as per Section 332 of the National Internal Revenue Code.
Additionally, the government criticized the procedural irregularity whereby Lopez failed to appeal the Collector’s ruling to the Court of Tax Appeals as required under Republic Act No. 1125, thus waiving his defenses.

The dramatic reduction of the tax from an original amount of P245,100.29 to a significantly lower amount of P120,346.14 (and ultimately, a total of P26,365.14 after the additional deficiency) raised questions regarding the competence and diligence of the revenue examiner.
The taxpayer's subsequent actions—first promising to pay and then failing to do so, despite further reassessments—cast doubt on the reliability and consistency of the tax collection operations.

Whether the taxpayer’s imposition of a prescriptive deadline (i.e., “not beyond December 31, 1957”) in the waiver form is binding and operative for computing the fixed five-year prescriptive period provided under Section 332 of the National Internal Revenue Code.
Whether, after deducting the time consumed during the reinvestigation period (specifically from January 16, 1956, to April 22, 1960), the government’s collection suit was filed within the remaining statutory period.
Whether the taxpayer’s failure to appeal the Collector’s ruling to the Court of Tax Appeals pursuant to Republic Act No. 1125 constitutes a waiver of any defenses against the assessment, thus precluding any subsequent objections.