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CIR v. FMF DEVELOPMENT CORPORATION

FACTS:

The case involves the validity of a waiver executed by FMF Development Corporation ("FMF") to extend the period to assess internal revenue taxes. FMF filed its Corporate Annual Income Tax Return for taxable year 1995, initially declaring a loss of P3,348,932. However, it filed an amended return afterwards, declaring a lower loss of P2,826,541. Pre-assessment notices were issued by the Bureau of Internal Revenue (BIR) to FMF, prompting FMF to file a protest and request for reconsideration/reinvestigation.

FMF's President executed a waiver to extend the assessment period until October 31, 1999. Subsequently, FMF received amended pre-assessment notices from the BIR and raised the argument that the period to assess had already prescribed, invoking the invalidity of the waiver. The BIR, however, insisted that the waiver was valid.

FMF filed a petition for review with the Court of Tax Appeals (CTA), which ruled in its favor, granted the petition, and cancelled the assessment notice. The CTA held that the waiver did not comply with the procedures set forth in Revenue Memorandum Order (RMO) No. 20-90. The Court of Appeals affirmed the decision of the CTA. The Commissioner of Internal Revenue sought reconsideration, but it was denied. Hence, the Commissioner filed a petition for review on certiorari, raising the issues concerning the validity of the waiver and the prescription of the period to assess.

ISSUES:

  1. Whether or not respondent's waiver of the statute of limitations was validly executed.

  2. Whether or not the period to assess had prescribed.

  3. Whether or not the Court of Appeals correctly disregarded petitioner's substantive argument.

RULING:

  1. The Court of Appeals affirmed the decision of the Court of Tax Appeals, which granted the petition and cancelled the assessment notice, ruling that the waiver did not extend the three-year prescriptive period for the BIR to make a valid assessment. The Court found that the waiver did not comply with the procedures laid down in Revenue Memorandum Order (RMO) No. 20-90: it did not state the dates of execution and acceptance, it was not signed by the Commissioner of Internal Revenue, and FMF was not furnished a copy of the waiver signed by the Revenue District Officer. Therefore, Assessment Notice No. 33-1-00487-95 was nullified as it was time-barred.

PRINCIPLES:

  • A waiver of the statute of limitations must comply with the requirements set forth in the law and administrative issuances, such as Revenue Memorandum Order (RMO) No. 20-90.

  • Failure to comply with the prescribed procedures in executing a waiver may render it invalid and ineffective in extending the period to assess.

  • The Commissioner of Internal Revenue must sign the waiver for assessments involving amounts of more than P1 million.

  • The taxpayer must be furnished a copy of the waiver signed by the authorized representative of the Bureau of Internal Revenue.