Warrant of distraint and levy based on incorrect premise

There are no complications if everything is in black and white. Blurred lines exist even in tax, unfortunately. This is more evident when taxpayers are left in quandary of what remedy to take to protect their rights.

Before, when a taxpayer receives a warrant of distraint and levy (WDL) after it files its protest to a Final Assessment Notice (FAN), it is deemed to have received a decision of the Bureau of Internal Revenue (BIR) that is appealable to the Court of Tax Appeals (CTA). But the Supreme Court (SC) recently ruled in the LRT Case (GR 231238), that a WDL will only be considered a decision by the BIR that is appealable to the CTA when the taxpayer did not file an administrative appeal to the Commissioner of Internal Revenue (CIR). In other words, when a WDL is received by a taxpayer while an administrative appeal on the tax assessment is pending with the CIR, the taxpayer cannot file an appeal to the CTA that questions the validity of the assessment. If that is the case, what should a taxpayer do when it receives a WDL while the administrative appeal is pending with the CIR?

According to the SC, the 30-day period for filing a petition for review to the CTA cannot be reckoned from a taxpayer’s receipt of any of the following issuances: the Preliminary Collection Letter, the Final Notice Before Seizure, the Warrant of Distraint and/or Levy. According to the SC, when an administrative appeal is pending with the CIR, all of these are not final decisions on the appeal to the CIR.

These collection letters remain tentative given the pendency of the taxpayer’s appeal with the CIR. Also, if there is a pending administrative appeal, all of these are issued on the premise that “delinquent taxes” exist, which according to the SC is an incorrect premise.

The SC emphasized that if the assessment is still pending appeal with the CIR when a WDL is issued, it means that the same emanated from a non-demandable assessment. As such, the WDL is void and should be of no force and effect.

If a taxpayer files an appeal of an assessment to the CIR, he must wait for the decision of the CIR on his appeal before he can go to the CTA.

What if the Regional office of the BIR issues a WDL while an administrative is pending with the CIR, what is the remedy of the taxpayer? The SC ruled that the warrant of distraint is a non-demandable assessment. It is void. So, the taxpayer must wait for the decision of the CIR before he can question the validity of the assessment.

What if the Regional office pursue collection despite the administrative appeal that is pending before the CTA? What is the taxpayer’s remedy? It seems that he must still go to the CTA to question the validity of the WDL. But this time, the taxpayer will not be questioning the validity of the assessment, but the propriety of the collection process.

What bothers me though is that the SC, in the LRT Case, is saying that the taxpayer must wait for the Decision of the CIR before going to the CTA since the taxpayer has filed an administrative appeal. But in this case, the SC considered the letter of the Regional Director that denies the administrative appeal as the decision of the CIR. Does it mean that the Regional Director can decide for the CIR in an administrative appeal? It defies logic since it would mean that the Regional Director is allowed to review his own decision that is on appeal not to his office but to the office of the CIR.

It is a welcome development that the SC clarified that issuance of WDL while an appeal is still pending with the CIR is void. This will hopefully deter the BIR from collecting assessments that are still disputed and are not yet final and executory.

But whether the Regional Director can decide for the CIR in an administrative appeal is questionable. Should a taxpayer consider the decision of the Regional Director in an administrative appeal as the decision of the Commissioner that is appealable to the CTA? This is not clear in the LRT Case and I am afraid that this leaves taxpayers vulnerable.

I am a fool to believe that everything can be black and white. I must realize that there will always be shades of grey.

The author is a senior partner of Du-Baladad and Associates Law Offices, a member-firm of WTS Global.

The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual orparticular taxor legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author atirwin.c.nideajr@bdblaw.com.phor call 8403-2001 local 330.