FACTS:

In this case, Enron Subic Power Corporation (Enron), a domestic corporation registered as a freeport enterprise, filed its annual income tax return for the year 1996, indicating a net loss. The Bureau of Internal Revenue (BIR) subsequently informed Enron of a proposed deficiency income tax. Enron disputed the proposed deficiency assessment and later received a formal assessment notice from the Commissioner of Internal Revenue (CIR) requiring payment of the alleged deficiency income tax. Enron protested the deficiency tax assessment, and due to the non-resolution of its protest within the prescribed period, Enron filed a petition for review in the Court of Tax Appeals (CTA). Enron argued that the deficiency tax assessment failed to provide the legal and factual bases of the assessment, and also questioned the substantive validity of the assessment. The CTA granted Enron's petition and ordered the cancellation of the deficiency tax assessment. The CIR appealed the CTA decision to the Court of Appeals (CA), but the CA affirmed the ruling. The CIR now assails the CA decision, arguing that Enron was adequately informed of the legal and factual bases of the deficiency assessment.

ISSUES:

1. Whether or not the formal assessment notice issued by the Commissioner of Internal Revenue (CIR) to Enron Subic Power Corporation (Enron) complied with the requirements of a valid notice under the National Internal Revenue Code (NIRC) and Revenue Regulations (RR) No. 12-99.

2. Whether or not Enron was properly informed of the legal and factual bases of the deficiency tax assessment against it.

RULING:

1. The Supreme Court affirmed the decision of the Court of Appeals (CA) that the formal assessment notice issued by the CIR to Enron was void for failure to comply with the requirements of a valid written notice under the NIRC and RR No. 12-99. The SC rejected the argument that Enron was properly informed of its tax deficiency through the preliminary five-day letter, advice of tax deficiency, and audit working papers. The SC emphasized that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made against it, as mandated by Section 228 of the NIRC and RR No. 12-99. The alleged factual bases provided by the CIR did not suffice to fulfill this requirement. The assessment in question was declared void due to the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it.

PRINCIPLES:

• A taxpayer must be informed in writing of the legal and factual bases of a tax assessment made against it, as mandated by Section 228 of the NIRC and RR No. 12-99.

• The legal requirements for issuing a preliminary or final notice informing a taxpayer of a tax deficiency assessment are distinct from the requirement of stating the legal and factual bases of the assessment in the formal letter of demand and assessment notice.

• The absence of a fair opportunity for a taxpayer to be informed of the legal and factual bases of a tax assessment renders the assessment void.