Title
Marcos II vs. Court of Appeals
Case
G.R. No. 120880
Decision Date
Jun 5, 1997
The BIR enforced tax collection on Marcos estate via levy and sale, upheld by courts as valid despite probate proceedings; assessments deemed final due to lack of timely protest.
tax law
tax collection
probate court
A

Case Summary (G.R. No. 120880)

Factual Background

The undisputed facts, as adopted from the Court of Appeals, begin with the death of former President Ferdinand Marcos on September 29, 1989. A Special Tax Audit Team was created on June 27, 1990 and completed its inquiry with a memorandum dated July 26, 1991, which found failures to file an estate tax return and several income tax returns for tax years 1982 to 1986. On July 26, 1991 the Bureau of Internal Revenue issued deficiency assessments: a deficiency estate tax assessment against the estate of the late President in the amount of P23,293,607,638.00, and deficiency income tax assessments against the Spouses Marcos and against petitioner for various tax years. The BIR asserted that copies of the assessments were served in August and September 1991 and that formal assessment notices were served on October 20, 1992.

Procedural History

The BIR, asserting finality of the assessments by reason of nonprotest, issued notices of levy on real properties on February 22, 1993 and May 20, 1993, and notices of sale on May 26, 1993. Public auction of the subject parcels occurred on July 5, 1993 and, for lack of bidders, the lots were forfeited to the government. In June 1993 petitioner sought relief in the Court of Appeals by way of a petition for certiorari and prohibition under Rule 65, Rules of Court, with a prayer for temporary restraining order and preliminary injunction. The Court of Appeals dismissed the petition on November 29, 1994, holding that the assessments had become final and unappealable and that the BIR could enforce collection by the summary remedy of levy and sale pursuant to Section 213 and related provisions of the NIRC. Petitioner then sought review in the Supreme Court.

Issues Presented

The Supreme Court framed the dispositive question as whether the BIR properly resorted to the summary tax remedy of levying upon and selling real properties claimed to belong to the late President to collect alleged deficiency estate and income taxes, notwithstanding the pendency of probate proceedings for the decedent’s will and petitioner’s objections to the manner and timing of the levy and sale. Subsidiary issues included whether the levy notices were issued in violation of Revenue Memorandum Circular No. 38-68, whether the pendency of other civil actions (including cases in the Sandiganbayan) rendered the estate’s value incapable of determination, and whether petitioner was denied due process by lack of personal service of the levy notices.

Parties’ Contentions

Petitioner contended that the probate proceeding for the allowance of the decedent’s will vested exclusive custody of estate properties in the probate court and precluded summary collection by the BIR; he relied on Domingo vs. Garlitos and related authorities to argue that claims against the estate must be presented to the probate court and that the probate court may deny immediate payment of taxes. Petitioner also asserted that the BIR violated Revenue Memorandum Circular No. 38-68 by issuing levy notices beyond the period prescribed therein and that petitioner, as a compulsory heir, was not validly served with the notices of levy and sale, depriving him of due process. The respondents argued that assessment and collection of internal revenue taxes is an executive function assigned to the Bureau of Internal Revenue by Sec. 3 of the NIRC, that the probate court’s special jurisdiction does not render it the exclusive forum for determining tax liabilities, and that the BIR may enforce final and unappealable assessments by distraint, levy, and sale pursuant to Section 205 and Section 213 of the NIRC. Respondents further maintained that the assessments had become final for failure to protest under Section 229, such that collection within the three-year collection period under Sec. 223 was proper.

Court of Appeals Ruling

The Court of Appeals held that the deficiency estate and income tax assessments had become final and unappealable for lack of timely protest, and that the subsequent levy and sale of real properties constituted a lawful summary tax remedy authorized by Section 213 and related provisions of the NIRC. The appellate court found sufficient service, constructive or actual, of the assessments and later formal notices on petitioner, his mother, and their counsel, and it rejected petitioner’s contention that the pendency of probate or other civil actions prevented the BIR’s summary collection.

Supreme Court’s Ruling

The Supreme Court affirmed the Court of Appeals’ decision. The Court resolved that the BIR acted within its statutory powers to assess and to collect by distraint, levy, and sale. The Court denied petitioner’s Rule 65 petition and affirmed the appellate court’s dismissal. The Court expressly declared that the collection of estate taxes by the BIR did not require prior approval of the probate court, and that the remedies provided in the NIRC and its implementing regulations furnish the proper avenues to contest assessments and derail collection.

Legal Basis and Reasoning

The Court began from the premise that taxes are essential to government and that the collection of internal revenue taxes is vested by law in the Bureau of Internal Revenue. The Court explained that estate tax assessment is executive in character under the statutory scheme and that the probate court’s supervisory role over estate administration does not convert it into the sole forum for the determination or collection of taxes. The Court relied on statutory provisions in the NIRC to explain the assessment and collection regime: Section 229 prescribes the administrative protest remedy and the thirty-day period; Sec. 223 permits assessment in cases of failure to file within ten years of discovery and authorizes collection by levy within three years following assessment. Having found that petitioner and the other heirs failed to protest administratively, the Court concluded the assessments became final, executory and demandable, thereby authorizing distraint and levy under Section 205 and sale under Section 213.

Application of Precedent

The Court considered precedents recognizing the probate court’s limited and special jurisdiction over estate administration and the court’s power to control distribution. Nevertheless, the Court distinguished those authorities from the present statutory scheme and reiterated prior decisions that taxes assessed against an estate may be collected by the government independently of the probate claims process. The Court cited Vera vs. Fernandez for the proposition that tax claims are liberally treated in probate but are not confined to the probate claims committee, and it cited Pineda and related cases for the proposition that the government may collect taxes from heirs or by subjecting estate property to tax liens. The

...continue reading

Analyze Cases Smarter, Faster
Jur helps you analyze cases smarter to comprehend faster, building context before diving into full texts. AI-powered analysis, always verify critical details.

About Privacy Terms