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Tax Fraud Penalty Dispute

Victoria Javier received nearly $1 million that was erroneously remitted by Mellon Bank. Mellon Bank filed a complaint claiming the large remittance was a clerical error and sued to recover the funds. On his tax return, Javier reported his income but noted the large sum received was part of ongoing litigation regarding an alleged error. The Commissioner of Internal Revenue ruled the erroneous funds were taxable and imposed a 50% penalty for fraud. However, the Court of Tax Appeals found no evidence of actual or intentional fraud by Javier. He did not conceal the funds or facts of the ongoing case. Mistake of law is not fraud. Therefore, the 50% fraud penalty imposed was unjustified and was deleted.

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272 views1 page

Tax Fraud Penalty Dispute

Victoria Javier received nearly $1 million that was erroneously remitted by Mellon Bank. Mellon Bank filed a complaint claiming the large remittance was a clerical error and sued to recover the funds. On his tax return, Javier reported his income but noted the large sum received was part of ongoing litigation regarding an alleged error. The Commissioner of Internal Revenue ruled the erroneous funds were taxable and imposed a 50% penalty for fraud. However, the Court of Tax Appeals found no evidence of actual or intentional fraud by Javier. He did not conceal the funds or facts of the ongoing case. Mistake of law is not fraud. Therefore, the 50% fraud penalty imposed was unjustified and was deleted.

Uploaded by

Amee Bagtang-daping
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Javier vs CA, GR No L-78953, January 22, 1990

Victoria Javier, wife of the private respondent received from Prudential bank and Trust Company the
amount of USD 999,973.70 remitted by her sister, Mrs. Dolores Vertosa, through some banks in the
US, among which is Mellon Bank,NA.
Mellon Bank filed a complaint against private respondent, his wife and other defendants, claiming
that its remittance of US$1M was a clerical error and should have been US$1,000. On the ground
that the defendants are trustees of an implied trust for the benefit of Mellon Bank with the clear,
immediate and continuing duty to return the said amount from the moment it was received.
Private respondent filed his income tax return for the taxable year 1977 showing a gross income of
PhP 53,053.38 and a net income of PhP 48.053.88 and stating in the footnote of the return that
Taxpayer was a recipient of some money received from abroad which he presumed to be a gift but
turned out to be an error and is now subject to litigation.
Private respondent wrote the BIR that he was paying the deficiency income assessment for the year
1976 but denying that he had any undeclared income for the year 1977 and requested that the
assessment for 1977 be made to wait final court decision on the case filed against him for filing an
allegedly fraudulent return.
CIR reply stating that the amount of Mellon Bank erroneous remittance which were depose is
definitely taxable. The Commission also imposed a 50% fraud penalty against Javier.
ISSUE: WON private respondent is liable for the 50% fraud?
HELD:
Under Sec 72 of the Tax Code, a taxpayer who files a false return is liable to pay a fraud penalty of
50% of the tax due from him of the deficiency tax in case payment has been made on the basis of
the return filed before the discovery of the falsity or fraud. The fraud contemplated by law is actual
and not constructive.
In the case at bar, there was no actual and intentional fraud through willful and deliberate misleading
of the government agency concerned, the BIR. The government was not induced to give up some
legal right and place itself at a disadvantage so as to prevent its lawful agents from proper
assessment of tax liabilities because Javier did not conceal anything. Error or mistake of law is not
fraud.
The imposition of the fraud penalty in this case is not justifies by the extant facts because he did not
conceal the facts that he received an amount of money although it was a subject of litigation.
As ruled by respondent CTA, the 50% surcharge imposed as fraud penalty by the petitioner against
the private respondent in the deficiency assessment should be deleted.

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