The

Theory of Imprescriptibility in
Criminal Tax Actions
Vincent Paul S. Ventus*

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548
I. Overview of Taxation and the Theory of Imprescriptibility . 549
A. General Principles of Taxation
B. The Theory of Imprescriptibility
II. Criminal Action as a Tax Remedy . . . .. . . . . . . . . . . . . . . . . . . 553
A. The Prior Rule: There Can be No Collection of Taxes in
Criminal Proceedings
B. Presidential Decree No. 69
C. Is Assessment a Prerequisite in Criminal Tax Actions?
D. The Two Facets of Criminal Action in Taxation:
To Penalize or Collect?
III. The Statute of Limitations on Assessment and
Collection of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563
A. The Period of Prescription on Assessment
B. The Period of Prescription on the Collection of Taxes
IV. The Statute of Limitations on Criminal Tax Actions . . . . . . 570
A. The Origin of the Prescriptive Period of Tax Offenses
B. Section 281 of the Tax Code
C. The Case of Duque, Interpreting Section 2 of Act No. 3326
V. The Theory of Imprescriptibility . . . . . . . . . . . . . . . . . . . . . . . 578
A. The Theory of Imprescriptibility under Section 222 (a)
B. The Theory of Imprescriptibility under Section 281 as
Fashioned by Lim, Sr.
VI. Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584
A. Section 222 (a)
B. Section 281
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589

But even as we concede the inevitability and indispensability of taxation,
it is a requirement in all democratic regimes that it be exercised
reasonably and in accordance with the prescribed procedure. If it is not,
then the taxpayer has a right to complain and the courts will come to his
succor. For all the awesome power of the tax collector, he may still be
2005] ImPrescriptibility 549

stopped in his tracks if the taxpayer can demonstrate, as it has here, that
the law has not been observed.1

INTRODUCTION
The power of taxation is an inherent prerogative of sovereignty, the
purpose of which is to secure revenue for the support of the
government. Revenue legislation is not only geared towards the
realization of taxes, but also extends to the enactment of safeguards,
such as statutes of limitations upon assessment and collection, and
upon the right to prosecute criminal offenses.
The limitation on assessment and collection is intended to
safeguard taxpayers against unreasonable investigation. On the other
hand, the limitation upon criminal actions is intended to bar
prosecutions based on aged and untrustworthy evidence, or when, due
to the lapse of reasonable time, no further danger to society is
contemplated from the criminal activity.
In this connection, the Theory of Imprescriptibility (Theory) posits
that certain prescriptive periods in the Tax Code appear to be
imprescriptible: (1) the extraordinary ten-year period under Section
222(a); and (2) the five-year prescriptive period under Section 281.2
This Note intends to determine whether there is basis for the
argument of imprescriptibility for the two prescriptive periods
mentioned. Additionally, this Note will show that, as to the prescriptive
period for criminal tax actions, the Supreme Courts interpretation in
the case of Emilio E. Lim, Sr. v. Court of Appeals3 renders said period

* 04 J.D., Ateneo de Manila University School of Law. The Author is a Legal

Officer in the Office of the City Mayor in San Jose City, Nueva Ecija. This work is
an edited version of the Thesis submitted by the Author as a requirement for
the completion of his degree in the Juris Doctor program from the Ateneo de
Manila University School of Law.
Cite as 50 ATENEO L.J. 547 (2005).

1. Commissioner of Internal Revenue (CIR) v. Algue, 158 SCRA 9, 17 (1988).
2. The National Internal Revenue Code of the Philippines, as amended by
Republic Act No. 8424 [hereinafter TAX CODE].
3. Lim, Sr. v. Court of Appeals (CA), 190 SCRA 616 (1990).
550 ateneo law journal [vol. 50:547

imprescriptible. There is a need to reexamine the ruling in order to

achieve the purpose for which the statute of limitations was established.
In other words, this Note seeks to evaluate whether the statutes of
limitations under the Tax Code (i.e. in relation to the assessment and
collection of taxes, and the institution of criminal tax actions) actually
bestow the benefits intended by the legislature to the taxpayers, or they
are, in reality, a form of Indian giving.4 Such a determination in turn
will contribute towards the formulation of an effective statute of
limitations that will protect and advance the rights and needs of both
the Government and the taxpayer.
Specifically, this Note will analyze the provisions of the Tax Code
governing the different prescription periods it provides, particularly
Sections 203, 222 and 281. Likewise, jurisprudence on taxation relating
to and interpreting the Tax Codes prescriptive periods will be
examined. Finally, the role of criminal tax actions as a remedy, will be
examined, relating it to the analysis of prescriptive periods in the Tax
Code. Annotations on statutes of limitation, in general and as applied to
taxation, will likewise be reviewed.

PART I: OVERVIEW OF TAXATION AND THE THEORY OF IMPRESCRIPTIBILITY

A. General Principles of Taxation

The term taxation defines the power by which the sovereign raises
revenue to defray the necessary expenses of government.5 Taxation is
the mode by which governments make exactions for revenue in order
to support their existence and carry out their legitimate objectives. The
power to tax, an inherent prerogative of sovereignty, has to be availed
of to assure the performance of vital state functions. It is the source of
the bulk of public funds. Without taxes, the machinery of the State will
grind to a halt and all government functions will be paralyzed.6 Taxes

4. WEBSTERS 3RD NEW INTERNATIONAL DICTIONARY 1149 (1976 ed.) (The term
Indian giver is defined as one who gives something to another then takes it
back or expects an equivalent in return).
5. 51 AM. JUR. Taxation 34 (1944).
6. CIR v. Cebu Portland Cement Company, 156 SCRA 535, 541 (1987).
2005] ImPrescriptibility 551

are unquestionably the lifeblood of the Government and their prompt
and certain availability are an imperious need.7
Thus, the principal and basic purpose of taxation is to secure
revenue for the support of the government for it is upon taxation that
the state relies for its existence. Taxation, therefore, embraces two
phases: (1) relating to the levying or imposition of the taxes on persons
or property, (2) the collection of the taxes levied. The first is constituted
by the provisions of law which determine the persons or property to be
taxed, the sum or sums to be raised, the rate thereof, and the time and
manner of levying and receiving and collecting taxes. It definitely and
conclusively establishes the sum to be paid by each person taxed, or to
be borne by each property assessed, and creates a fixed and certain
demand in favor of the state or a subordinate governmental agency, and
a definite and positive obligation on the part of those taxed. The second
is constituted by those provisions that prescribe the manner of
enforcing the obligation on the part of those taxed to pay the demand
thus created. The two processes together constitute the taxation
system.8
Revenue legislation, however, is not altogether geared towards the
realization of taxes. Congress has seen fit to provide for safeguards to
protect taxpayers against possible abuses to the power of taxation.
Accordingly, Congress has provided statutes of limitation upon the
assessment and collection of internal revenue taxes, as well as upon the
right of Government to prosecute criminal offenses.
The statute of limitations upon the right to assess a tax means that
if, after a certain period, a tax, which would have been properly due, is
not ascertained or determined, the government can no longer assess or
inspect the books of account of the taxpayer.9 The same holds true for
the governments right to collect taxes due and its right to file actions
against tax offenders. Once the period established by law for collecting
taxes or filing actions expire, the governments corresponding right to
enforce said action is forever barred by provision of law. The Supreme
Court, in explaining the purpose and significance of a statute of
limitation on assessment and collection, has said:

7. CIR v. Pineda, 21 SCRA 105, 110 (1967).

8. 51 AM. JUR. Taxation 35 (1944).
9. JESUS P. LUKBAN & SEVERINO S. TABIOS, PRINCIPLES AND REMEDIES FOR INCOME TAX
MANAGEMENT 391 (1993).
552 ateneo law journal [vol. 50:547

The law prescribing a limitation of actions for the collection of income

taxes is beneficial to both the Government and its citizens: to the
Government because tax officers would be obliged to act promptly in
the making of assessment, and to citizens because after the lapse of
the period of prescription, citizens would have a feeling of security
against unscrupulous tax agents who will always find an excuse to
inspect the books of taxpayers Without such a legal defense
taxpayers would furthermore be under obligation to always keep their
books and keep them open for inspection subject to harassment by
unscrupulous tax agents.10
Whereas the limitation on assessment and collection intends to
safeguard the interest of taxpayers against unreasonable investigation,
the limitation upon criminal actions on the other hand serves to bar
prosecutions on aged and untrustworthy evidence, as well as to cut off
prosecution for crimes a reasonable time after its completion when no
further danger to society is contemplated from the criminal activity.11

B. The Theory of Imprescriptibility

The Theory posits that taxpayers are unjustly robbed of the benefits of
the statutes of limitations, either through the actual application of law
or by judicial interpretation construing the prescriptive period
established. Specifically, it maintains that in two specific provisions of
the Tax Code, the prescriptive period provided for, although definite
and determinable on its face inasmuch as a period is explicitly laid
down, appears imprescriptible.
First, the extraordinary ten-year period under Section 222(a), the
pertinent portion of which reads:
In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed without assessment, at
any time within ten years after the discovery of the falsity, fraud or
omission; provided, that in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken cognizance of
in the civil or criminal action for the collection thereof 12

10. Republic of the Philippines v. Ablaza, 108 Phil. 1105, 1108 (1960).
11. 22 C.J.S. Criminal Law 223 (1940).
12. TAX CODE, 222(a).
2005] ImPrescriptibility 553

And second, the five-year prescriptive period under Section 281,

which in full, states that:
All violations of any provision of this Code shall prescribe after five
years.
Prescription shall begin to run from the day of the commission of the
violation of the law, and if the same be not known at the time, from the
discovery thereof and institution of judicial proceedings for its
investigation and punishment.
The prescription shall be interrupted when the proceedings are
instituted against the guilty persons and shall begin to run again if the
proceedings are dismissed for reasons not constituting jeopardy.
The term of prescription shall not run when the offender is absent
from the Philippines.
As for the first occurrence of the Theory, as evidenced by Section
222(a), the same is confirmed in the work of one authority of the Tax
Code who posits the view that:
[I]t is essential that the discovery of the falsity or fraud or of failure to
file must have been made within the three-year period following the
general rule (Section 203). The exceptions refer to the ten-year period
when assessment may be made from the date of discovery. The
discovery period cannot be without time limit for otherwise the
purpose of the law would be rendered nugatory.13
Thus, the contention is: if the discovery was not limited by such a
period, then the Philippine Government (Government) may allege any
date it pleases as the date of discovery subject of course to proof the
date of which could be 20, 30, 40, or even 50 years after the date the
return was filed. Consequently, this would not have the effect of
prescription upon the Governments right to assess or collect taxes,
inasmuch as the prescriptive period is counted from the date of
discovery. In this case, the prescription period, in its application, is
alleged to be indefinite. Clearly, such indefiniteness is prejudicial to the
taxpayers who have a right to be protected against unreasonable
investigations after the lapse of the period prescribed.14

13. HECTOR S. DE LEON, THE NATIONAL INTERNAL REVENUE CODE ANNOTATED 806-807
(1998).
14. Vol. 1 Philippine Tax Commission Report, 98 (1939).
554 ateneo law journal [vol. 50:547

With regard to its second application, the Theory has been reduced
into the following words by the Supreme Court:
As Section 354 [Section 281] stands in the statute books (and to this
day it has remained unchanged) it would indeed seem that tax cases,
as the present one are practically imprescriptible for as long as the
period from the discovery and institution of judicial proceedings for
its investigation and punishment, up to the filing of the information in
court does not exceed five years.

The imprescriptibility of the prescriptive period under Section 281

exists for two reasons. First, as stated by the Court, the period from the
discovery up to the institution of judicial proceedings is indeterminate.
What was not stated, though implied, was that such period is veritably
under the control of the Government, which may or may not choose to
institute the required judicial proceedings, thereby precluding the
prescriptive period from running. Second, the phrase from the
discovery thereof and the institution of judicial proceedings has been
interpreted to mean exactly as it is stated, that is, discovery must be
coupled with the institution of judicial proceedings in order for the
prescriptive period to commence. Markedly, such a literal
interpretation not only causes the period of prescription to be
indefinite but virtually amounts to no prescriptive period at all, because,
as will be elaborated upon later, the moment of instituting judicial
proceedings marks both the point at which the prescriptive period shall
begin and the point where it will be interrupted.
In effect, this means that the period does not ever begin to run since
it is interrupted by the very same event from which it commences. Thus,
the judicial interpretation of the phrase from the discovery thereof and
the institution of judicial proceedings renders offenses under the Tax
Code practically imprescriptible because the Governments right to
prosecute such offenses can never be barred by the passage of time.
This gives the Government a veritable Sword of Damocles to eternally
and endlessly hang over the heads of taxpayers, making it fall when
proof and evidence which might have been available to the taxpayer for
his defense, have been eroded by the mere lapse of time.
2005] ImPrescriptibility 555

PART II: CRIMINAL ACTION AS A TAX REMEDY

A. The Prior Rule: There Can be no Collection of Taxes in Criminal

Proceedings
Prior to the enactment of Presidential Decree No. 69 (PD 69)15 on 24
November 1972, the remedies of Government to enforce the collection
of taxes were limited to the administrative remedies of distraint or levy
and the filing of a civil proceeding for the collection of taxes in court. A
review of jurisprudence prior to PD 69 shows that criminal actions
were instituted strictly as a means of penalizing violators of the tax
statutes. In the case of Garcia v. Collector of Internal Revenue,16 when
the plaintiff was sentenced in a criminal case to pay a fine for taking
from a distillery a certain amount of alcohol in order to remove the
same to a distant store without first paying the corresponding specific
tax, he was also subsequently required by the Collector of Internal
Revenue (CIR) to pay the amount of said tax. The plaintiff paid under
protest and thereafter filed a complaint to recover the amount paid.
The Supreme Court upheld the trial court which ruled in favor of the
plaintiff, stating:
In view of the fact that in the former criminal case against the herein
plaintiff, for violation of Section 2727 of the Administrative Code, the
payment of the tax owing from him was not sought, inasmuch as its
sole object was to impose upon the offender the corresponding
penalty, the said tax should have been collected by the Government in
an independent action because the confiscation in the criminal case
was nothing more than an accessory penalty imposed by Article 25 of
the Revised Penal Code and the penalty is an entirely different thing
from the payment of the tax. A violator of a law should suffer the
consequences of his own acts, and one of these consequences is the
aforesaid confiscation.17
In the case, the Supreme Court recognized that the sole object of a
criminal action was to impose a penalty upon the tax offender. Such
criminal action could not have been utilized for the payment of taxes
due (i.e. the corresponding civil liability) inasmuch as the proceeding

15. An Act Amending Certain Sections of the National Internal Revenue Code,
Presidential Decree No. 69 (1972) [hereinafter PD 69].
16. Garcia v. CIR, 66 Phil. 441 (1938).
17. Id. at 442-43.
556 ateneo law journal [vol. 50:547

was not a proper forum, as deemed by law. Hence, it was necessary for
the CIR to institute separate proceedings for the recovery of the tax due.
Unquestionably, this resulted to multiplicity of suits. Still, it could not
be avoided, as the law was clear in establishing the remedies available
to the Government for the collection of taxes.
In the case of People of the Philippines v. Arnault, 18 where the trial
court, in a criminal proceeding for failure or neglect to pay taxes, in
addition to convicting the defendant, further ordered the latter to
indemnify the Government in the amount of tax not paid, the Supreme
Court again ruled that a criminal proceeding was not one of the
remedies provided by law in enforcing the collection of taxes. It
declared:
While Section 73 of the National Internal Revenue Code provides for
the imposition of the penalty for refusal or neglect to pay income tax
or to make a return thereof, by imprisonment or fine, or both, it fails to
provide for the collection of said tax in criminal proceedings. As well
contended by counsel for appellant, Chapters I and II of Title IX of the
National Internal Revenue Code provide only for civil remedies for the
collection of the income tax, and under Section 316, the civil remedy is
either by distraint of goods, chattels, etc. or by judicial action. It is a
commonly accepted principle of law that the method prescribed by
statute for the collection of taxes is generally exclusive, and unless a
contrary intent can be gathered from the statute, it shall be followed
strictly.19

This was followed by the cases of People of the Philippines v. Tierra20

and Republic of the Philippines v. Patanao21 where the Supreme Court
found the respective trial courts in error for having ordered the
indemnification to the Government the amounts of unpaid deficiency
taxes. The Supreme Court in both cases quoted from Arnault,
reiterating that there was no legal sanction for the imposition of
payment of civil indemnity to the Government in a criminal proceeding
for the violation of income tax laws.
The above cases established the former rule that the conviction of a
person in a criminal case arising out of the violation of any penal

18. People v. Arnault, 92 Phil. 252, 254 (1952).

19. Id. at 260.
20. People v. Tierra, 12 SCRA 666, 667 (1964).
21. People v. Patanao, 20 SCRA 712, 713 (1967).
2005] ImPrescriptibility 557

provision of the Tax Code did not amount, at the same time, to a
decision for the payment of unpaid taxes. First, because, according to
the Supreme Court, there was no provision in the Tax Code allowing it.
But more importantly, and corollary to the rule that the civil
indemnification cannot be awarded in a criminal action for violations of
the Tax Code, the conviction or acquittal obtained in the criminal action
did not pose a bar to a civil action to enforce the civil liability of the tax
offender.
This is diametrically opposed to the rule in ordinary criminal cases
where the civil action is deemed instituted with the criminal action. As
the Supreme Court held in Republic v. Patanao:
[I]n applying the principle underlying the civil liability of an offender
under the Penal Code to a case involving the collection of taxes the
court a quo fell into error. The two cases are circumscribed by factual
premises which are diametrically opposed to each other, and are
founded on entirely different philosophies. Under the Penal Code the
civil liability is incurred by reason of the offenders criminal act The
situation under the income tax law is the exact opposite. Civil liability
to pay taxes arises from the fact, for instance, that one has engaged
himself in business, and not because of any criminal act committed by
him. The criminal liability arises upon failure of the debtor to satisfy
his civil obligation. The incongruity of the factual premises and
foundation principles of the two cases is one of the reasons for not
imposing civil indemnity on the criminal infractor of the income tax
law.
xxx
Considering that the Government cannot seek satisfaction of the
taxpayers civil liability in a criminal proceeding under the tax law or,
otherwise stated, since the said civil liability is not deemed included in
the criminal action, acquittal of the taxpayer in the criminal
proceeding does not necessarily entail exoneration from his liability to
pay the taxes The acquittal in the said criminal cases cannot operate
to discharge defendant-appellee from the duty of paying the taxes
which the law requires to be paid, since that duty is imposed by
statute prior to and independently of any attempts by the taxpayer to
evade payment. Said obligation is not a consequence of the felonious
acts charged in the criminal proceeding nor is it a mere civil liability
arising from crime that could be wiped out by the judicial declaration
of non-existence of the criminal acts charged.22

22. Id. at 715-16.

558 ateneo law journal [vol. 50:547

Patanao not only reaffirmed Arnault (which recognized the

exclusiveness of tax collection remedies as provided by law) it also
clarified that the taxpayers civil liability did not arise from the same
cause as that of the civil liability of an offender under the Penal Code. In
the latter, the source of the civil liability is the criminal infraction,
whereas in the former, the civil liability is caused by the Governments
imposition of a tax applicable to the person as in the case for instance
of engaging in some business. Consequently, an acquittal in the criminal
action for a violation of tax laws does not pose a bar to a civil action for
recovery of the tax due.23 This principle is embodied in the present Tax
Code. Under Section 253(a) thereof, the payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution for
violation of any provision of this Code or in any action for the forfeiture
of untaxed articles.24 This is because the duty to pay the tax is imposed
by statute, and is independent of any attempt on the part of the
taxpayer to evade payment.25
Hence, the primacy of law was again reaffirmed. The collection of
taxes could not be enforced in the criminal action for the prosecution of
criminal violations of the then Tax Code because the said Code did not
permit such at the time. It established the remedies available to
Government for the collection of taxes; which remedies, absent a
contrary intent, were deemed exclusive.26

B. Presidential Decree No. 69

Possibly realizing that by expanding the purpose of criminal actions to
include award of the civil indemnity, the number of suits needed to be
filed by the Government would be reduced, Section 10 of PD 69
provided for the amendment of, among others, Section 316 of the then
Tax Code, relating to the collection of delinquent taxes.27 Thus, the law
was amended to say:

23. Tierra, 12 SCRA at 672; Arnault, 92 Phil. at 262.

24. TAX CODE, 253(a).
25. Tierra, 12 SCRA at 672.
26. Arnault, 92 Phil. at 260.
27. An Act to Revise, Amend and Codify the Internal Revenue Laws of the
Philippines, Commonwealth Act No. 466 (1939) [hereinafter TAX CODE OF
1939].
2005] ImPrescriptibility 559

Section 316. Remedies for the collection of delinquent taxes.The
civil remedies for the collection of internal revenue taxes, fees, or
charges and any increment thereto resulting from delinquency shall
be (a) by distraint of goods, chattels, or effects and other personal
property of whatever character, including stocks and other securities,
debts, credits, bank accounts, and interests in and rights to personal
property, and by levy upon real property and interest in or rights to
real property; and (b) by civil or criminal action. Either of these
remedies or both simultaneously may be pursued in the discretion of
the authorities charged with the collection of such taxes; Provided,
however, That the remedies of distraint and levy shall not be availed
of where the amount of tax is not more that one hundred pesos.
The judgment in the criminal case shall not only impose the penalty but
shall also order payment of the taxes subject of the criminal case as
finally decided by the Commissioner of Internal Revenue.28

The enactment of PD 69 served to bolster tax collection remedies by

addressing the perceived failure of the law to provide for the collection
of taxes in criminal actions. In effect, this particular amendment
introduced by PD 69 could be seen as remedial or curative in character
in the sense that it was designed to streamline the collection of
deficiency taxes by making such civil indemnity enforceable in criminal
actions for violations of the Tax Code of 1939. In doing so, the law
reduced the number of suits filed and eliminated duplicity of work on
the part of the Government. Indeed, the intention of the law was
commendable.
Nevertheless, it must be pointed out that the possible effects of
integrating the tasks of punishing violations of tax laws and collecting
taxes in one action were not fully considered at that time and are only
lately being uncovered.

C. Is Assessment a Prerequisite in Criminal Tax Actions?

With collection now possible in criminal actions under tax laws, the
most logical jurisprudential development was to merge the different
natures of both actions, specifically the problem on how to reconcile
collection, as necessarily preceded by an assessment, with criminal
punishment.

28. PD 69, 10 (emphasis supplied). This amendment is now embodied in

205 of the TAX CODE.
560 ateneo law journal [vol. 50:547

The first decision which dealt with such problem was that of Ungab
v. Cusi, Jr. 29 In this case, the Supreme Court ratiocinated that inasmuch
as ones civil liability, while enforceable in a criminal action for
violation of the Tax Code, is founded upon a cause of action wholly
independent of such criminal act, a final assessment determining the
exact amount of a persons tax liability is not necessary in order to
institute criminal proceedings against such person.30 Thus, the Supreme
Court said:
What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed
by the Court of Tax Appeals, but a criminal prosecution for violations
of the National Internal Revenue Code which is within the cognizance
of courts of first instance. While there can be no civil action to enforce
collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal
prosecution under the Code.31

The Court, quoting from Guzik v. United States32 and Mertens Law
of Federal Income Taxation,33 added:
The contention is made, and is here rejected, that an assessment of the
deficiency tax due is necessary before the taxpayer can be prosecuted
criminally for the charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully filed fraudulent
returns with intent to evade and defeat a part or all of the tax.
An assessment of a deficiency is not necessary to a criminal
prosecution for willful attempt to defeat and evade the income tax. A
crime is complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat the tax. The
perpetration of the crime is grounded upon knowledge on the part of
the taxpayer that he has made an inaccurate return, and the
governments failure to discover the error and promptly to assess has
no connections with the commission of the crime.34

29. Ungab v. Cusi, Jr., 97 SCRA 877 (1980).

30. Id. at 878.
31. Id. at 883-84.
32. Guzik v. United States, 54 F.2d 618 (1932).
33. 10 MERTENS LAW OF FEDERAL INCOME TAXATION, 55A.05.
34. Ungab, 97 SCRA at 884.
2005] ImPrescriptibility 561

Here, the Supreme Court distinguished between the functions of a
criminal tax action: that for the purpose of penalizing; and, that for the
purpose of collecting. It stands repeating the Supreme Courts words:
while there can be no civil action to enforce collection before the
assessment procedures of the Code have been followed, there is no
requirement for the precise computation and assessment of the tax
before there can be a criminal prosecution under the Code.
It is clear from Ungab that, for purposes of enforcing collection, the
taxes due must be definitely ascertained, as through the prior requisite
of an assessment. But when the Government intends to merely punish
the tax offender without demanding the civil indemnity, an assessment
is not necessary to institute a criminal action.
The Ungab doctrine was blurred by the subsequent case of
Commissioner of Internal Revenue v. Court of Appeals.35 In this case, the
Court of Appeals upheld the issuance by the trial court of a writ of
preliminary injunction restraining preliminary investigations into
charges of tax evasion filed against Fortune Tobacco. The Supreme
Court, in upholding the decisions of the lower courts, said:
[W]e share with the view of both the trial court and Court of Appeals
that before the tax liabilities of Fortune are first finally determined, it
cannot be correctly asserted that private respondents have willfully
attempted to evade or defeat the taxes sought to be collected from
Fortune. In plain words, before one is prosecuted for [a] willful
attempt to evade or defeat any tax under Sections 253 and 255 of the
Tax Code, the fact that a tax is due must first be proved.
Suppose the Commissioner eventually resolves Fortunes motion for
reconsideration of the assessments by pronouncing that the taxpayer
is not liable for any deficiency assessment, then, the criminal
complaints filed against private respondents will have no leg to stand
on.36
The Supreme Court, however, pointed out that Ungab was not being
overturned. Rather, the Supreme Court seemed to be trying to cut a fine
line between when an assessment is a prerequisite to a criminal action
for evasion of taxes and when it is not. In the process, the Supreme
Court differentiated the facts obtaining in Ungab with those of the
Fortune case.

35. CIR v. CA, 257 SCRA 200, 208 (1996).

36. Id. at 226.
562 ateneo law journal [vol. 50:547

Reading Ungab carefully, the pronouncement therein that deficiency

assessment is not necessary prior to prosecution is pointedly and
deliberately qualified by the Court with [the] following statement
quoted from Guzik v. U.S.: The crime is complete when the violator
has knowingly and willfully filed a fraudulent return with intent to
evade and defeat a part or all of the tax. In plain words, for criminal
prosecution to proceed before assessment, there must be a prima facie
showing of a willful attempt to evade taxes. There was a willful
attempt to evade tax in Ungab because of the taxpayers failure to
declare in his income tax return his income derived from banana
saplings. In the mind of the trial court and the Court of Appeals,
Fortunes situation is quite apart factually since the registered
wholesale price of the goods, approved by the BIR, is presumed to be
the actual wholesale price, therefore, not fraudulent and unless and
until the BIR has made a final determination of what is supposed to be
the correct taxes, the taxpayer should not be placed in the crucible of
criminal prosecution. Herein lies a whale of difference between Ungab
and the case at bar.37
The difference between Ungab and this particular case is heavily
factual in nature. In the former, the taxpayer intentionally omitted his
income derived from banana saplings from his return, whereas in the
latter, the registered wholesale price which served as the basis for
computing Fortunes tax liability was approved by the Bureau of
Internal Revenue (BIR) itself. This consequently negated the assertion
that Fortune had willfully attempted to evade the payment of taxes.
Hence, what may be gleaned from a comparison of the two cases is
that a final assessment of deficiency is a prerequisite to the institution
of a criminal tax action where the determination of the basis of the
taxpayers liability is under the direct supervision of the BIR. But where,
as in the case of Ungab, the violator has knowingly and willfully filed
fraudulent returns with intent to evade and defeat a part or all of the
tax, a final assessment is no longer necessary in order to institute the
criminal action against the tax violator the crime is already complete.
The subsequent case of Commissioner of Internal Revenue v. Pascor
Realty and Development Corporation38 followed Ungabs lead. Here, the
respondents failed to file income tax returns for the years 1986, 1987
and 1988, thereby prompting the BIR to conduct an examination of

37. Id.
38. CIR v. Pascor Realty and Development Corporation, 309 SCRA 402, 404
(1999).
2005] ImPrescriptibility 563

respondents books of account. Eventually, the BIR, upon the judgment
of the CIR, filed a tax evasion case against respondents but without the
prior issuance of an assessment. The respondents contended that a tax
assessment should precede a criminal indictment. The Supreme Court
disagreed, and, relying mainly on Ungab, declared that an assessment
was unnecessary in instituting a criminal complaint for tax evasion. The
Supreme Court reasoned thus:
[P]rivate respondents maintain that the filing of a criminal complaint
must be preceded by an assessment. This is incorrect, because Section
222 of the NIRC specifically states that in cases where a false or
fraudulent return is submitted or in cases of failure to file a return
such as this case, proceedings in court may be commenced without an
assessment. Furthermore, Section 205 of the same Code clearly
mandates that the civil and criminal aspects of the case may be
pursued simultaneously. In Ungab v. Cusi, petitioner therein sought
the dismissal of the criminal complaints for being premature, since his
protest to the CTA had not yet been resolved. The Court held that such
protest could not stop or suspend the criminal action which was
independent of the resolution of the protest in the CTA. This was
because the Commissioner of Internal Revenue had, in such tax
evasion cases, discretion on whether to issue an assessment or to file a
criminal case against the taxpayer or to do both.39
The Supreme Court further declared that a prima facie showing of
failure to file a return was sufficient to support the criminal charge in
Pascor wholly consistent with the Ungab pronouncement.40 Thus, the
Court concluded that the fact of failing to file a return need not be
proven by an assessment.41
In both Ungab and Pascor the willful attempt to evade the payment
of taxes was complete upon the filing of the fraudulent returns. On the
contrary, in the Fortune case there was no such willful attempt,
inasmuch as the tax liability of Fortune was pre-approved by the BIR
and therefore stamped with the imprimatur of validity.

39. Id. at 414.

40. Id. at 415.
41. Id.
564 ateneo law journal [vol. 50:547

D. The Two Facets of Criminal Action in Taxation: To Penalize or to

Collect?
The aforementioned amendment introduced by PD 69 modified the
rulings of the Supreme Court prior to the effectivity of said law. Where
before, the Supreme Court omitted the order of payment of delinquent
taxes in a judgment convicting a taxpayer for willful refusal to pay the
tax, on the ground that the law did not permit such an award in the
criminal case, today, as the law stands, it is now mandatory that the
order of payment of such taxes be included in the judgment rendered
by the court. This mandate is, however, obscured by pronouncements
of the Supreme Court that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax
Code. 42 However, it must be understood that such declarations be
interpreted to mean that criminal actions are first and foremost a
penalty. Their function as a collection remedy is merely secondary.
Criminal actions, therefore, have two facets: as a penalty and as a
collection remedy. Given the two separate collecting and penalizing
facets of a criminal tax action, the following query may be presented:
supposing the three-year period to assess or collect under Section 203
of the NIRC has expired, may the court in a criminal action against the
taxpayer render judgment for payment of the deficient taxes
considering that the criminal action prescribes in five years even if the
period to assess or collect has already expired?
The answer is, when from the civil aspect, the right of the
Government to assess or collect has prescribed, no judgment can be
rendered in a criminal proceeding ordering the taxpayer to pay the
delinquent tax, taking into account the laudable purpose of limiting the
right of the Government to assess and collect to a shorter period of
three years. 43 Thus, if the prescriptive period within which the
Government is permitted to assess or collect deficiency taxes has
expired, it is the corresponding civil liability of the taxpayer that is
remitted. On the other hand, if it is only the criminal action that has
prescribed, it is only the criminal liability that is remitted, the right to

42. Id. at 416.

43. JOSE N. NOLLEDO & MERCEDITA S. NOLLEDO, THE NATIONAL INTERNAL REVENUE
CODE OF THE PHILIPPINES ANNOTATED, 1037 (1993). See, TAX CODE, 203, which
prescribed a three year period from the last day provided for filing a
return within which the Government may make an assessment or collect
judicially.
2005] ImPrescriptibility 565

assess and collect being available to Government inasmuch as the
period to do so still subsists.
To illustrate: Taxpayer A filed a fraudulent return with the intent to
evade the payment of income tax in 2002. On the following year, on June
2003, the BIR discovered the fraud employed by A. On that same year,
on July 2003, upon discovery of the fraud, the BIR filed a complaint for
tax evasion against A with the Department of Justice. Under Section
222(a) of the Tax Code, the BIR has ten years from discovery to assess
or collect the deficiency tax, that is, until June 2013. Under Section 281,
as interpreted in Lim, Sr., the BIR has five years from discovery and
institution of judicial proceedings to exercise its right to prosecute the
crime of tax evasion, that is, until July 2008.
ILLUSTRATION 1

Given the above circumstances, the following conclusions may be
gathered:
1. If the Government timely institutes the proper criminal
action for tax evasion within the period between July 2003
and July 2008, it can seek indemnification not only for
Taxpayer As criminal liability but also for the latters civil
liability as provided by Section 205.
2. If after July 2008, the Government fails to institute the
proper criminal action for tax evasion, it is only Taxpayer
As criminal liability that is extinguished. The Government
may still exercise its right to assess or collect until June 2013.
However, the remedies available to it shall only be by
distraint or levy, or by civil action.
Given the same set of facts, except that the BIR files a complaint
with the Department of Justice against A for tax evasion only on July
2014, the following conclusion may be drawn: if no assessment or no
collection proceeding in court without assessment has been made by
566 ateneo law journal [vol. 50:547

the Government after June 2013, even if the Government institutes the
proper criminal action within five years from July 2014, the time judicial
proceedings for the investigation and punishment for tax evasion were
instituted, the Government cannot demand that the civil indemnity be
enforced in the criminal action for tax evasion. This is because its right
to assess or collect had already expired. In such case, Government may
only seek a redress of Taxpayer As criminal liability.

PART III: THE STATUTE OF LIMITATION ON ASSESSMENT AND COLLECTION OF

TAXES

A. The Period of Prescription on Assessment

Section 203 of the Tax Code provides the general rule as to the
prescriptive period for assessment, thus:
Except as provided in Section 222, internal revenue taxes shall be
assessed within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the expiration of
such period; provided, that in a case where a return is filed beyond the
period prescribed by law, the three-year period shall be counted from
the day the return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing thereof shall
be considered filed on such last day.44
Therefore, where a return has been filed, it being neither false nor
fraudulent, the prescriptive period is within three years after the date
the return was due or was filed, whichever is later. In cases where the
return has been amended after it has been filed, the prescriptive period
begins to run from the filing of the amended return if it is substantially
different from the amended return.45 To count the period from the filing
of the original return will enable taxpayers to evade taxes by simply
reporting losses and deductions in the original return and later filing an
amended return when it is no longer possible for the Government to
make a tax assessment within the prescriptive period.46

44. TAX CODE, 203.

45. CIR v. Phoenix Assurance, 14 SCRA 52, 59 (1965).
46. DE LEON, supra note 13, at 702.
2005] ImPrescriptibility 567

Section 222, on the other hand, provides for the exceptions to the
general rule. Subsection (a) thereof states:
In the case of a false or fraudulent return with intent to evade tax or
failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed without assessment, at
any time within ten years after the discovery of the falsity, fraud or
omission; provided, that in a fraud assessment which has become final
and executory, the fact of fraud shall be judicially taken cognizance of
in the civil or criminal action for the collection thereof.
Thus, in the case of a false or fraudulent return with intent to evade
payment of taxes or of failure to file a return, the Government is given
ten years after the discovery to make a fraud assessment. The purpose
for this extraordinary ten-year period is to provide the Government,
which is placed at a disadvantage, ample time for its agents to properly
assess the taxpayers liabilities.47 Thus, where the return filed by the
taxpayer is a wrong return, the Supreme Court said that it was as if
there was no return filed, and the extraordinary period of ten years
applies. 48 Furthermore, Section 222 has been interpreted by the
Supreme Court to mean that the cases of a false return, the filing of a
fraudulent return and the failure to file a return are considered
separate and distinct from each other. The Supreme Court held that in
these three different cases, the tax may be assessed, or a proceeding in
court for the collection of such tax may be commenced, without
assessment, at any time within ten years after the discovery of the
falsity, fraud or omission.49
The law, however, fails to provide the moment when discovery is
considered to have occurred. Fortunately, the BIR, as the Governments
agent in the enforcement of tax laws, has enacted Revenue
Memorandum Circular No. 101-90 (RMC No. 101-90), which provides

47. Aznar v. Court of Tax Appeals (CTA), 58 SCRA 519, 522 (1974).
48. Butuan Sawmill v. CTA, 16 SCRA 277, 283 (1966).
49. In this regard, the Court distinguished between a false return and a
fraudulent return in that the first merely implies a deviation from the
truth, whether intentional or not; while the second implies an
intentionally deceitful entry with the intent to evade the taxes due.
Furthermore, fraud is a question of fact and the circumstances constituting
fraud must be alleged and proved in court, it is never lightly presumed
because fraud is a serious charge. Aznar, 58 SCRA at 532; CIR v. Ayala
Securities Corp., 70 SCRA 205, 209-10 (1976).
568 ateneo law journal [vol. 50:547

that the discovery happens only after the manner of commission and
the nature of the fraud has been definitely ascertained. Specifically, this
occurs when the BIR renders its final decision and requires the
taxpayer to pay the deficiency tax.50

B. The Period of Prescription on the Collection of Taxes

The period for collecting taxes depends on the existence or non-
existence of an assessment. In the absence of an assessment, Section
203 provides that taxes shall be collected within three years from the
date the return was filed or the prescribed date for its filing, whichever
comes later.51 Moreover, collection in this case may be enforced only by
judicial action. Where there is falsity, fraud or omission, on the other
hand, Section 222 grants the Government ten years to collect the tax
from discovery of the falsity, fraud, or omission.52 Again, collection may
be resorted to only by judicial action.
On the other hand, where an assessment has been made and has
become final, Section 222(c) provides that the tax shall be collected
within five years from the finality of the assessment. Here, the
Government may avail itself of the administrative remedies of distraint
and levy, from the judicial remedies in order to enforce collection of the
tax. However, this provision explicitly refers to taxes which have been
assessed within the extraordinary period contemplating falsity, fraud,
or omission of the return.53 Apparently, there is no specific provision
that supplies the collection period in the case where an assessment has
been made but without falsity, fraud, or omission in the return.
Ideally, it should follow that the general rule for collecting taxes
after an assessment has been made should be found under Section 203

50. Bureau of Internal Revenue, Revenue Memorandum Circular No. 101-90

(Nov. 26, 1990) (Determination of when cause of action for willful failure to
pay deficiency tax occurs; and prescription under Section 280 of the Tax
Code).
51. TAX CODE, 203.
52. Id. 222.
53. 222(c) reads: Any internal revenue tax which has been assessed within
the period of limitation as prescribed in paragraph (a) hereof may be
collected by distraint or levy or by a proceeding in court within five years
following the assessment of the tax.
2005] ImPrescriptibility 569

inasmuch as this provision lays down the general rule for the
prescription of ordinary assessments. However, Section 203 speaks
only of a three-year limitation for collection by a proceeding in court
without assessment. This has led some to believe that the general
prescriptive period for collection after an ordinary assessment has
been made shall likewise be three years counted from the finality of the
assessment.
The lack of a specific provision has been further compounded by
the numerous amendments to the periods of prescription. Historically,
the first Tax Code, effective 15 June 1939, provided for a uniform
prescriptive period for both assessment and collection of taxes. Under
Section 331 thereof (which was the precursor of Section 203), internal
revenue taxes shall be assessed within five years after the return was
filed and no proceeding in court without assessment for the collection
of such taxes shall be begun after the expiration of such period.54
Likewise, Section 332(c) (the precursor of Section 222(c)), provided that
internal revenue taxes that have been assessed may be collected by
distraint or levy or by a proceeding in court, but only if begun within
five years after the assessment. 55 Therefore, it was immaterial to
distinguish which between Section 203 and Section 222 was the basis for
the length of the prescriptive period for collection inasmuch as both
provided for a period of five years.
Subsequently, Batas Pambansa Bilang 700 (BP 700) reduced the five-
year period for both assessment and collection to three years. 56 The
shortened periods of limitation prescribed by BP 700 were made

54. TAX CODE OF 1939, 331.

55. 332(c) of the TAX CODE OF 1939 reads in full: Where the assessment of any
internal-revenue tax has been made within the period of limitation above
prescribed such tax may be collected by distraint or levy or by a
proceeding in court, but only if begun (1) within five years after the
assessment of the tax, or (2) prior to the expiration of any period for
collection agreed upon in writing by the Collector of Internal Revenue and
the taxpayer before the expiration of such five-year period. The period so
agreed upon may be extended by subsequent agreements in writing made
before the expiration of the period previously agreed upon.
56. An Act Amending Sections 318 and 319 of the National Internal Revenue
Code, as Amended, so as to Reduce the Period of Limitation for Assessment
of Internal Revenue Taxes from Five to Three Years, Batas Pambansa
Bilang 700 (1984) [hereinafter BP 700].
570 ateneo law journal [vol. 50:547

applicable to internal revenue taxes beginning taxable year 1984. 57

Again, it was immaterial to point out which provision was the basis for
the prescriptive period of collection since the law provided for a
uniform three-year period.
On 1 January 1998, Republic Act No. 8424 (R.A. No. 8424), otherwise
known as the Tax Reform Act of 1997 again amended the periods of
prescription.58 Curiously, it was only the prescriptive period under now
Section 222(c) that was changed extended from three years to five
years, the same as the period for collection under the Tax Code of 1939.
Significantly, Section 203 of the present Tax Code retained the three-
year period introduced by BP 700. In short, R.A. No. 8424 restored the
original five-year period but applied it to Section 222(c) only. Obviously,
this erased the uniformity of prescriptive periods characteristic of the
1939 and 1977 Tax Codes. Thus, the resulting confusion as to whether
collection must be had within three years or five years from assessment,
absent falsity, fraud, or omission.
Indeed, the manner in which Section 222(c) is worded contributes,
in a large part, to such confusion. It states: any internal revenue tax
which has been assessed within the period of limitation as prescribed
in paragraph (a) hereof Paragraph (a) of Section 222 refers to fraud
assessments and not to ordinary assessments under Section 203. On the
other hand, the 1939 and 1977 Tax Codes merely referred to the period
of limitation above-prescribed. The legislators, in drafting the 1997 Tax
Code, interpreted the word above-prescribed as referring to subsection
(a) of Section 222. Admittedly therefore, those who espouse the view
that collection in ordinary cases must be made within three years from
the filing of return, or from the date when the return is due, whichever
is later, have a valid argument.

57. Bureau of Internal Revenue, Revenue Memorandum Circular No. 33-84,

Publishing Batas Pambansa Bilang 700 amending Sections 318 and 319 of
the National Internal Revenue Code, as amended, reducing the period of
limitation for assessment and collection of internal revenue taxes from
five to three years (Nov. 12, 1984).
58. An Act Amending the National Internal Revenue Code of the Philippines, as
Amended, and for Other Purposes, Republic Act No. 8424 (1998)
[hereinafter R.A. No. 8424].
2005] ImPrescriptibility 571

It is submitted that where an assessment has been made, whether
an ordinary or a fraud assessment, the tax assessed shall be collected
within five years following the assessment. This finds basis in Section
222(c), which more fully provides that,
any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by
distraint or levy or by a proceeding in court within five (5) years
following the assessment of the tax.

That the prescriptive period is five years also finds support in: (1)
case law, which points to Section 222(c) as the prescriptive period for
collection with assessments, even absent falsity, fraud, or omission, (2)
the inability to point out any legal provision stating that the
prescriptive period is three years, and, (3) the principle that statutes of
limitation on assessment and collection must be construed strictly in
favor of Government. Considering the ramifications of such an
argument, it is thus now imperative to discuss, in detail, these three
points.

1. Case Law Points to 222 (c) as Basis for the Five-Year Period
In the early case of Collector of Internal Revenue v. Servando de los
Angeles,59 the question posed was What is the prescriptive period for
collection under ordinary circumstances, absent falsity, fraud or
omission, where an assessment has been issued?60 The Supreme Court
ruled that the collection period was five years from the assessment of
the tax. Admittedly, at the time the case was decided, the uniform
period of five years found in Sections 331 and 332 of the Tax Code of
1939 was in force. But what was significant about this case was that the
Supreme Court applied the five-year period in Section 332(c), to the
case of ordinary assessments. It stated:
We are not concerned here with the exception embodied in
subdivision (a) of the section, because this is not a case of a false or
fraudulent return or of a failure to file a return. Neither are we
concerned with the exception contained in subdivision (b), it not
appearing that a different period has been consented to by both the
Collector of Internal Revenue and the taxpayer. But the exception
prescribed in subdivision (c) applies to the present case, because the

59. CIR v. de los Angeles, 101 Phil. 1026 (1957).

60. Id. at 1028.
572 ateneo law journal [vol. 50:547

tax now sought to be collected appears to have been assessed within

five years after the return in accordance with section 331.
Having been assessed within the time fixed by law, the tax in question
could, pursuant to subdivision (c) of section 332, be collected by
distraint or levy or by court proceeding, only if begun within five
years after the assessment of the tax. After the expiration of that
period of limitation, collection of the tax by any of those methods
would be without authority of law.61

It is explicitly clear from the foregoing that Section 332(c) of the Tax
Code of 1939, presently Section 222(c) of the present Tax Code, applies
to both ordinary and fraud assessments.
In the case of Republic of the Philippines v. Ledesma,62 the Supreme
Court noted that under Section 331 of the Tax Code of 1939, internal
revenue taxes shall be assessed within five years after the last day
prescribed by law for the filing of the return, and if there is no
assessment a proceeding in court for collection must be commenced
within the same period.63 The Court went on to state that under Section
332(c), where an assessment is made, the court proceeding must be
filed within five years thereafter.64 In other words, as long as there is
timely assessment, the Government has an additional five years within
which to bring an action for collection.
In Republic of the Philippines v. Salud Hizon,65 the Supreme Court,
finding that the collection case of the Government was not barred by
prescription, quoted Section 223(c) of the 1977 Tax Code which
provided that, any internal revenue tax which has been assessed
within the period of limitation above-prescribed may be collected by
distraint or levy or by a proceeding in court within three years
following the assessment of the tax.66
All the above-cited cases involved assessments which have been
issued under ordinary circumstances, that is, without falsity, fraud or

61. Id. at 1029-30.

62. Republic of the Philippines v. Ledesma, 19 SCRA 455 (1967).
63. Id. at 457.
64. Id.
65. Republic of the Philippines v. Salud Hizon, 320 SCRA 574 (1999).
66. Id. at 582.
2005] ImPrescriptibility 573

omission. And in each case, the Supreme Court applied what is
presently Section 222(c) of the Tax Code, providing for a five-year
period to collect taxes where an assessment has been made. Therefore,
the rule is that collection of taxes must be made within five-years from
assessment regardless of the existence or non-existence of falsity, fraud
or omission of the return.

2. Absence of Legal Provision Stating that the Period is Three Years

Section 222(c) is the only provision in the Tax Code which makes
mention of what the period should be for the collection of taxes where
an assessment has been made. Section 203 is deafeningly silent on this.
It only provides that a proceeding in court without assessment for the
collection of taxes may be had within three years from the filing of the
return, or the date when it is due, whichever is later. Evidently it does
not give any indication as to what the period should be in cases where
an assessment has been made. Those who advocate the view that the
period of collection in ordinary cases where an assessment has been
made should follow the three-year period based on Section 203 have
therefore no legal provision to support their stance. Thus, it would
seem reasonable to adopt the period under Section 222(c) inasmuch as
this at least specifically pertains to collection of taxes with assessment.

3. The Five-Year Period is Consistent with Established Principle

Finally, the longer period of five years is more in accord with the
principle that statutes of limitations barring the assessment and
collection of taxes justly due and unpaid receive a strict construction in
favor of the Government, and the limitations in such cases will not be
presumed in absence of clear legislation to the contrary.67 This longer
period also gives the Government more time to collect, thereby
achieving the obvious intent of the legislators in extending the period to
collect from three years to five years.
To recapitulate, collection under ordinary circumstances must be
completed within five years from the date of final assessment, or if no
assessment has been made, within three years and only by judicial
action after the last day prescribed by law for the filing of the return
or on the date the return was filed, whichever comes later. Under the
extraordinary circumstances of falsity, fraud or omission, a proceeding

67. 10 MERTENS LAW OF FEDERAL INCOME TAXATION 57.02 (1985).

574 ateneo law journal [vol. 50:547

in court without assessment for the collection of the tax may be filed at
any time within ten years from the discovery of the falsity, fraud or
omission. Where a fraud assessment has been issued, collection may
also be had within five years from the finality of the fraud assessment.

PART IV: THE STATUTE OF LIMITATION ON CRIMINAL TAX ACTIONS

A. The Origin of the Prescriptive Period of Tax Offenses

The earliest statute of limitation governing tax crimes was Act No. 3326,
a special law which provided for the periods of prescription for
violations penalized by special acts and municipal ordinances.68 It was
enacted in 1926, way before the Tax Code of 1939. Up to the present, Act
No. 3326 continues to apply to special acts that do not otherwise
establish a period of prescription for criminal proceedings.
The pertinent portion of Section 1 reads:
That all offenses against any law or part of law administered by the
Bureau of Internal Revenue shall prescribe after five years.69
The subsequent section, on the other hand, states:
Prescription shall begin to run from the day of the commission of the
violation of the law, and if the same be not known at the time, from the
discovery thereof and the institution of judicial proceedings for its
investigation and punishment.
The prescription shall be interrupted when proceedings are instituted
against the guilty person and shall be dismissed for reasons not
constituting jeopardy.70

When the Tax Code of 1939 was enacted, said Sections 1 and 2 of Act
No. 3326 were incorporated into the Code as Section 354 thereof.
Significantly, the second paragraph of Section 354, and presently

68. An Act to Establish Periods of Prescription for Violations Penalized by

Special Acts and Municipal Ordinances and to Provide When Prescription
Shall Begin to Run, Act No. 3326, as amended (1926) [hereinafter Act No.
3326].
69. Id. 1.
70. Id. 2.
2005] ImPrescriptibility 575

Section 281 of the Tax Code, contain the exact language found in the
aforequoted Section 2 of Act No. 3326.
That Section 281 of the Tax Code, governing the prescription of
criminal offenses in the Tax Code, originated from Act No. 3326 can be
gleaned from the foregoing excerpt from the case of People of the
Philippines v. Ching Lak.71
Evidently, appellee was charged with an offense against a law
administered by the Collector of Internal Revenue, for it appears from
Section 9 of Republic Act No. 55, that the execution of all its provisions
was entrusted to the Collector of Internal Revenue; and in accordance
with Section 1 of Act 3585 which amended Act 3326, all offenses against
any law or part of law administered by the Collector of Internal
Revenue shall prescribe after five years. Acts 3326 and 3585 were not
repealed by Act 3815, the Revised Penal Code. It follows that Article 90
of the said Code providing for the prescription of crimes would not
apply to prescription of violations of special laws or parts of laws
administered by the Bureau of Internal Revenue, in view of the
provisions of Article 10. The prescriptive law applicable is Act 3326, as
amended by Act 3585.72

The significance of the relation of Section 281 to Act No. 3326 is

explained by the following postulate: if a certain law is derived from a
prior law, and to an extent, copies the exact language of the prior law,
then the interpretation ascribed to the prior law must necessarily also
apply to the later law. It is submitted that since Section 281 finds its
origin in Act No. 3326, and to the extent that pertains to taxation, copies
the exact language of Act No. 3326, then, the interpretations ascribed to
Act No. 3326 must necessarily apply also to Section 281.

B. Section 281 of the Tax Code

Section 281 of the Tax Code, governing the prescriptive period for
criminal tax actions, provides for two modes of determining the start of
prescription. The first-level or mode of prescription deals with the case
where the commission of the offense was known at the time it was
committed. Here, prescription sets in from the time of the commission
of the offense. On the other hand, in case the commission of the offense

71. People v. Ching Lak, 103 Phil. 1149 (1958).

72. Id. at 1149.
576 ateneo law journal [vol. 50:547

was not known at the time it was committed, prescription begins only
from the time of discovery of the offense and the institution of judicial
proceedings for its investigation and punishment this is the second-
level of prescription.73 An offense under the Tax Code is considered
discovered only after the manner of commission and the nature and
extent of the fraud has been definitely ascertained. This occurs when
the BIR renders its final decision and requires the taxpayer to pay the
delinquency tax.74
Determining when prescription begins is therefore a matter of
whether the offense is known or unknown at the time of its commission.
The following cases illustrate instances when an offense is considered
known or not, and more importantly, the two modes of prescription
under Section 281.

1. The First Mode of Prescription Under Section 281: When the

Commission of the Offense is Known
In the case of Petronila C. Tupaz v. Honorable Benedicto B. Ulep,75 the
petitioner was charged under an information for nonpayment of
deficiency corporate income tax for the year 1979 amounting to
P2,369,085.46, in violation of Section 51(b) in relation to Section 273 of
the Tax Code of 1977.76 It was alleged by the petitioner, among others,
that the offense has already prescribed.77 She claimed that inasmuch as
the preliminary investigation was filed with the Department of Justice
only on 8 June 1989, and the offense was committed on April 1980 when
she filed the income tax return covering the taxable year 1979, the
offense had prescribed as provided by Section 281 declaring that
criminal tax actions shall prescribe in five years. The facts however,
show that the BIR had issued a notice of assessment on 16 June 1984
which the Supreme Court found to be well-within the five-year period
for making assessments.78 The Supreme Court held that it was only

73. TAX CODE, 281.

74. Revenue Memorandum Circular No. 101-90, 2(d).
75. Tupaz v. Ulep, 316 SCRA 118, 121 (1999).
76. Id. at 121.
77. Id. at 125.
78. Id. at 126. The assessment issued covered the taxable year 1979, prior to
the date of effectivity of Batas Pambansa Blg. 700, which applies only to

2005] ImPrescriptibility 577

when the assessment had become final and unappealable that the five-
period commenced to run. Particularly, the Supreme Court stated:
[P]etitioner was charged with failure to pay deficiency income tax
after repeated demands by the taxing authority. In Lim, Sr. v. Court of
Appeals, we stated that by its nature the violation could only be
committed after service of notice and demand for payment of the
deficiency taxes upon the taxpayer. Hence, it cannot be said that the
offense has been committed as early as 1980, upon filing of the income
tax return. This is so because prior to the finality of the assessment,
the taxpayer has not committed any violation for nonpayment of the
tax. The offense was committed only after the finality of the
assessment coupled with taxpayers willful refusal to pay the taxes
within the allotted period. In this case, when the notice of assessment
was issued on 16 July 1984, the taxpayer still had thirty days from
receipt thereof to protest or question the assessment. Otherwise, the
assessment would become final and unappealable. As she did not
protest, the assessment became final and unappealable on 16 August
1984. Consequently, when the complaint for preliminary investigation
was filed with the Department of Justice on 8 June 1989, the criminal
action was instituted within the five (5) year prescriptive period.79
Tupaz is a clear example of a first-level case wherein the offense
committed was known to the BIR. Thus, the prescriptive period,
applying Section 281, commences to run from the commission of the
offense. In this case, the violation was for willful refusal to pay
deficiency income taxes which can only be committed once notice and
demand for payment had been made to the taxpayer.80 Prior to this, the
taxpayer cannot be said to be in violation for willfully refusing to pay
the taxes. Such an offense is only committed after the finality of the
assessment coupled with the taxpayers willful refusal to pay the tax
within the allotted period.81
Significantly, ones attention is called to the Supreme Courts
statement that when the complaint for preliminary investigation was

assessments and collections beginning taxable year 1984. Prior to this date,
the period to assess and collect under ordinary circumstances was five
years.
79. Id. at 128.
80. TAX CODE, 255.
81. Tupaz, 316 SCRA at 128.
578 ateneo law journal [vol. 50:547

filed with the Department of Justice on 8 June 1989, the criminal action
was instituted within the five-year period.82
ILLUSTRATION 2

It was on 16 August 1984 that the assessment became final and
unappealable. Therefore, it was on this date that the prescriptive
period began to run since this was the date the offense was committed,
such offense being known. This prescriptive period consequently
lapsed five years after or on 16 August 1989.

2. Prescriptive Period Interrupted by Preliminary Investigation

It appears that inasmuch as the filing of the preliminary investigation
was the event taken by the Court to be well-within the five-year period,
and thus the basis for ruling that the criminal action was timely
instituted, it may be concluded that it is the filing of the preliminary
investigation with the Department of Justice that tolls the prescriptive
period. This is in accord with the Revised Rules of Criminal Procedure
which provides that, where a preliminary investigation is required, the
filing of such investigation institutes the criminal action.83 Section 281
itself provides that the prescriptive period shall be interrupted when
proceedings are instituted against the guilty persons and shall begin to
run again if the proceedings are dismissed for reasons not constituting
jeopardy.84 The point where the period commences and is interrupted
is important in illustrating the prescriptibility of what has been termed
as a first-level case. Such prescriptibility, however, shall later be shown
as absent on the second level.

82. Id.
83. The Revised Rules of Criminal Procedure, A.M. No. 00-5-03-SC, rule 110,
1(a) (2000).
84. TAX CODE, 281.
2005] ImPrescriptibility 579

3. The Second Mode of Prescription Under Section 281: When the

Commission of the Offense is Unknown
In the case of Emilio E. Lim, Sr. v. Court of Appeals,85 petitioners Emilio
Lim and his spouse were prosecuted for filing fraudulent consolidated
income tax returns with intent to evade the payment of taxes.86 The
petitioners contended that the offense has prescribed inasmuch as five
years had already lapsed from the date of discovery of the alleged fraud.
The Solicitor General, in behalf of the Government, countered that the
crime of filing false returns was deemed discovered only after the
manner of the commission, and the nature and extent of the fraud has
been definitely ascertained. Moreover, the Solicitor General argued that
when Section 354 spoke of from the discovery thereof and the
institution of judicial proceedings, it meant exactly that: in addition to
the fact of discovery, there must be a judicial proceeding for the
investigation and punishment of the tax offense before the five-year
limiting period can begin to run.87
The Supreme Court favored the Government, ruling in this wise:
The Court is inclined to adopt the view of the Solicitor General. For
while that particular point might have been raised in the Ching Lak
case, the Court, at that time, did not give a definite ruling which would
have settled the question once and for all. As Section 354 (now 281)
stands in the statute books (and to this day it has remained
unchanged) it would indeed seem that tax cases, as the present one
are practically imprescriptible for as long as the discovery and
institution of judicial proceedings for its investigation and
punishment, up to the filing of information in court, does not exceed
five years.
xxx
Unless amended by the Legislature, Section 354 stays in the Tax Code
as it was written during the days of the Commonwealth. And as it is,
must be applied regardless of its apparent one-sidedness in favor of
the Government. In criminal cases, statutes of limitations are acts of
grace, a surrendering by the sovereign of its right to prosecute. They
receive a strict construction in favor of the Government and

85. Lim, Sr. v. CA, 190 SCRA 616, 618 (1990).

86. Id. at 618.
87. Id. at 624.
580 ateneo law journal [vol. 50:547

limitations in such cases will not be presumed in the absence of clear

legislation.88
Lim, Sr., is a clear illustration of the second mode of prescription
under Section 281 wherein the offense committed was not known at
the time of its commission. Here, the unknown offense was the filing of
fraudulent consolidated income tax returns with intent to evade tax.
Being so unknown, the five-year prescription period commenced from
the discovery and institution of judicial proceedings. Noticeably, the
Supreme Court did not bother to determine when the discovery
actually took place.89 It concentrated on the date when the judicial
proceedings were instituted, merely stating:
As Section 354 stands in the statute books (and to this day it has
remained unchanged) it would indeed seem that tax cases, such as the
present ones, are practically imprescriptible for as long as the period
from the discovery and institution of judicial proceedings for its
investigation and punishment, up to the filing of the information in
court does not exceed five years.90
In the case, the petitioners alleged that the discovery was made on
15 October 1964. On the other hand, the Solicitor General claimed that
discovery occurred on 10 October 1967. The filing of the preliminary
investigation was made on 1 September 1969. The Supreme Court held
that the prescriptive period was initiated on this later date.91
ILLUSTRATION 3

88. Id. at 625-26.

89. Petitioners advanced the view that the date of discovery was Oct. 15, 1964,
the same date stated by the Court of Appeals in its resolution as the date
the fraudulent nature of the returns was unearthed. The Solicitor General,
on the other hand, claimed that discovery occurred only after the manner
of commission and the nature and extent of the fraud have been definitely
ascertained. It was only on Oct. 10, 1967 when the BIR rendered its final
decision holding that there was no ground for the reversal of the
assessment and therefore required the petitioners to pay P1,237,190.55 in
deficiency taxes that the tax infractions were discovered. See Lim, Sr., 190
SCRA at 624. Regrettably, the Supreme Court did not state which date was
the true date of discovery.
90. Lim, Sr., 190 SCRA at 625.
91. Id. at 624.
2005] ImPrescriptibility 581

To summarize, the prescriptive period for offenses, the commission
of which were concealed from the Government is five years, was
reckoned from the institution of judicial proceedings for the
investigation and punishment thereof. And, as noticed by Justice
Gutierrez, Jr., making the discovery of the fraud and institution of
judicial proceedings conjunctive renders meaningless the date of
discovery.

4. The Difficulty with Accepting Lim, Sr.

There are two problems with the interpretation ascribed by the
Supreme Court to the prescriptive period under the second mode in
Section 281. First, as acknowledged by the Supreme Court, the period
renders tax cases in this class practically imprescriptible.92 Here, the
imprescriptibility referred to is the indefinite interval from the time of
discovery up to the institution of judicial proceedings. This is similar to
the alleged imprescriptibility due to Section 222. In this case, from the
time of discovery, perpetuity could pass, and the offense will still not
have prescribed for lack of the required judicial proceedings. Thus, a
simple crime of tax evasion can, upon discovery, fail to prescribe even
after fifty years, should Government choose not to institute the judicial
proceedings mentioned. This is clearly unfair to the taxpayer since he
stands to be imprisoned in the event the Government suddenly, after an
absurdly long period, decides to pursue the tax evasion case and file the
necessary action in court. By that time obviously, books of account or
other pieces of evidence that the taxpayer can utilize for his defense
will have already been corroded by time.
But the second problem seems to have escaped the Supreme Court.
Essentially, it lies in the fact that prescription is made to run technically
from the institution of judicial proceedings for the investigation and

92. Id. at 625.

582 ateneo law journal [vol. 50:547

punishment of the offense. In effect, the point of commencement and

the point of interruption of the prescriptive period are one and the
same. The point of commencement according to Lim, Sr. is the
institution of judicial proceedings which was interpreted to be the filing
of the preliminary investigation. On the other hand, as shown in Tupaz,
the preliminary investigation also interrupts the running of the
prescriptive period. Therefore, the filing of the preliminary
investigation starts and simultaneously interrupts the period, resulting
in no period at all!

C. The Case of Duque, Interpreting Section 2 of Act No. 3326

In People of the Philippines v. Duque, 93 the Supreme Court was tasked to
interpret Section 2 of Act No. 3326, as amended. Herein lies another
example of judicial recognition of the imprescriptibility.
In this case, the appellants contended that a literal reading of
Section 2 suggested that two elements must coincide for the
prescriptive period to commence: first, the element of discovery of the
commission of the violation of the special law; and second, the
institution of judicial proceedings for its investigation and punishment.
He therefore concluded that because the co-existence of these two
requirements was necessary under Section 2 of Act No. 3326, the
relevant prescriptive period will never begin to run. He thus contended
that the provisions of the Revised Penal Code should instead apply and
the offense should be considered to have already prescribed. The
Supreme Court, in addressing the issue of imprescriptibility, said:
[W]e do not think there is any real need for such a literal reading of
Section 2. As is well-known, initiation of proceedings for preliminary
investigation of the offense normally marks the interruption of the
period of prescription. Under appellant Duques literal reading, the
prescription period would both begin and be interrupted by the same
occurrence; the net effect would be that the prescription period would
not have effectively begun, having been rendered academic by the
simultaneous interruption of that same period The applicable well-
known principles of statutory interpretation are that statutes must be
construed in such a way as to give effect to the intention of the
legislative authority, and so as to give a sensible meaning to the
language of the statute and thus avoid nonsensical or absurd results,
departing to the extent unavoidable from the literal language of the

93. People v. Duque, 212 SCRA 607 (1992).

2005] ImPrescriptibility 583

statute. Appellants literal reading would make nonsense of Section 2
of Act No. 3326.
In our view, the phrase institution of judicial proceedings for its
investigation and punishment may be either disregarded as
surplusage or should be deemed preceded by the word until. Thus,
Section 2 may be read as:
Prescription shall begin to run from the day of the commission of the
violation of the law; and if the same be not known at the time, from the
discovery thereof; or as:
Prescription shall begin to run from the day of the commission of the
violation of the law, and if the same be not known at the time, from the
discovery thereof and until institution of judicial proceedings for its
investigation and punishment.94
Indeed, Justice Gutierrez, Jr., the ponente of the aforequoted
decision, stated in his concurring opinion in Lim, Sr., that:
Again, to make discovery of the fraud and institution of judicial
proceedings conjunctive seems to me illogical because the judicial
proceedings always come after discovery. The date of discovery
becomes meaningless under our decision. Perhaps the law needs
amendment to make it clearer.95

PART V: THE THEORY OF IMPRESCRIPTIBILITY

The Theory of Imprescriptibility thus manifests itself in these two
provisions of the Tax Code.
First, as posited by Professor De Leon96 and echoed by then Judge
Saga of the Court of Tax Appeals (CTA)97 in his dissenting opinion in the

94. Id. at 614-15.

95. Lim, Sr., 190 SCRA at 628.
96. DE LEON, supra note 13, at 590.
97. An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA),
Elevating its Rank to the Level of a Collegiate Court with Special
Jurisdiction and Enlarging its Membership, Amending for the Purpose
Certain Sections of Republic Act No. 1125, as Amended, Otherwise Known
as the Law Creating the Court of Tax Appeals, and for Other Purposes,
Republic Act No. 9282 (2004) (R.A. 9282 expanded the jurisdiction of the
CTA and elevated its rank to the level of a collegiate court, thereby
granting the Presiding Judge and Associate Judges of said court the title of
Presiding Justice and Associate Justice, respectively).
584 ateneo law journal [vol. 50:547

CTA case of Menguito v. Commissioner of Internal Revenue,98 the Theory

exists in cases of fraud, falsity or omission of the returns, where the
Governments right to make an assessment appears perpetual for until
and unless discovery takes place, the ten-year prescriptive period fails
to run, thereby rendering nugatory the purpose of the statute of
limitation.
And second, quoting the Supreme Court in Lim, Sr.:
As Section 354 stands in the statute books (and to this day it has
remained unchanged) it would indeed seem that tax cases, such as the
present ones, are practically imprescriptible for as long as the period
from the discovery and institution of judicial proceedings for its
investigation and punishment, up to the filing of the information in
court does not exceed five years.99
In both instances, the law establishes a determinate period which,
however, upon application, appears imprescriptible. In other words, it
turns out to be an indeterminate or indefinite period, or even worse, it
amounts to no period at all.

A. The Theory of Imprescriptiblity under Section 222 (a)

The pertinent portion of Section 222(a) reads:
In the case of a false or fraudulent return with intent to evade tax or
failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed without assessment, at
any time within ten years after the discovery of the falsity, fraud or
omission.

98. Dominador Menguito v. CIR, CTA Case No. 5886, Apr. 2, 2002. The facts of
this case, briefly, are as follows: Petitioner Menguito was engaged in the
restaurant business. His books of account for the years 1991, 1992, and
1993 were examined by BIR resulting in findings of deficiency percentage
and income taxes. Before BIR could issue an assessment, it received
information that Petitioner had underdeclared income such that a new
investigation was conducted. On Sept. 2, 1997, the BIR issued assessment
notices to Petitioner. The latter protested, and filed the present case
seeking the cancellation of the deficiency income and percentage tax
assessments on the ground of prescription. The CTA held that there was
indeed fraud thus making the ten-year period applicable. It found that the
assessments were made within this ten-year period.
99. Lim, Sr., 190 SCRA at 625.
2005] ImPrescriptibility 585

Imprescriptibility, in this instance, manifests itself from the time the
return is filed until the date the fraud, falsity, or omission is discovered.
It is argued, in the words of Judge Saga, that this interval is perpetual for
until the time discovery takes place, prescription does not set in, and
the taxpayer is placed at the mercy of the BIR who may stretch the
Governments right to assess or collect indefinitely, even 10, 20, or 50
years from the time the return was filed.100
[T]he majority seems to hold the view that in cases of fraud, falsity or
omission, the Governments right to make an assessment is perpetual,
for unless and until the discovery takes place, the ten-year period does
not begin to run. I believe that such an application of Section 223 is
rather stretched beyond its limit.
For me, the discovery of the falsity or fraud or of failure to file must
take place within the three-year period provided for under Section
203. The discovery period cannot be without time limit for otherwise
the purpose of the law in fixing prescriptive periods would be
rendered nugatory.101
He reasoned that the prescriptive period on assessment was
designed to afford taxpayers security against unscrupulous tax agents
who will always find an excuse to inspect the books of taxpayers not to
determine the latters real liability, but to take advantage of every
opportunity to molest peaceful, law-abiding citizens. 102 Judge Saga
further supported his argument by citing Section 235 of the Tax Code
mandating that books of account and other accounting records be
preserved by the taxpayer for a period beginning from the last entry in
each book until the last day prescribed by Section 203 Said provision
implies that the records of the taxpayer must be preserved only for a
period of three years from the date of the last entry made therein.103
To demonstrate the argument of imprescriptibility, the following
illustration is given (see Illustration 4):
ILLUSTRATION 4

100. Menguito, CTA Case No. 5886, Apr. 2, 2002.

101. Id. (citing Republic v. Ablaza, 108 Phil. 1105 (1960)).
102. Id.
103. Id.
586 ateneo law journal [vol. 50:547

The concern here is not with the ten-year period from discovery
which clearly commences and lapses at a definite point in time. What is
alleged to be imprescriptible, as shown in the illustration, is the interval
from the year 1990 up to the time of discovery. Admittedly, such an
interval can run perpetually and the Governments right to assess or
collect the tax will still not prescribe.
Herein lies precisely the Theory of Imprescriptibility. For while the
law sets down a definite period of ten years, the actual prescriptive
period could run beyond that which the taxpayer might have
contemplated.

B. The Theory of Imprescriptibility under Section 281 as Fashioned by

Lim, Sr.
The law provides that all violations of any provision of the Tax Code
prescribe after five years. 104 The five-year prescriptive period
commences to run from the day of the commission of the violation of
the law, and if the same is not known at the time, from the discovery
thereof and the institution of judicial proceedings for its investigation
and punishment.105 Moreover, the period of prescription is interrupted
when proceedings are instituted against the tax violator and shall run
again in the event the proceedings are dismissed for reasons not
constituting jeopardy.106 Neither will prescription run if the offender is
absent from the Philippines.107
On its face, the law appears reasonable enough. The prescriptive
period for instituting an action for criminal violations of the Tax Code

104. TAX CODE, 281.

105. Id.
106. Id.
107. Id.
2005] ImPrescriptibility 587

shall be five years. The Theory of Imprescriptibility appears upon a re-
examination of when the prescriptive period is to commence. Where
the commission of the offense is known, the prescriptive period runs
from the time of commission. Here, there is no Theory of
Imprescriptibility, as shown in Tupaz. On the other hand, where the
commission of the offense is unknown, then prescription begins from
the time of discovery and the institution of judicial proceedings. This is
where the problem of imprescriptibility arises.
Section 281, in part, states:
Prescription shall begin to run from the day of the commission of the
violation of the law, and if the same be not known at the time, from the
discovery thereof and the institution of judicial proceedings for its
investigation and punishment.108
The first problem of imprescriptibility under the aforementioned
second mode pertains to the indefinite period from the time of
discovery up to the institution of judicial proceedings.
ILLUSTRATION 5

As acknowledged by the Supreme Court in Lim, Sr., tax offenses
which are unknown at the time of their commission are practically
imprescriptible for as long as the period for discovery and institution of
judicial proceedings, up to the filing of information does not exceed five
years.109 Here, the Supreme Court itself admitted that prescription
does not run until the institution of judicial proceedings. Thus, the
interval from discovery up to said judicial proceedings could be
perpetual or imprescriptible.
Before delving into the second problem, it is important at this
juncture to examine the phrase judicial proceedings for the

108. Id.
109. Lim, Sr., 190 SCRA at 625.
588 ateneo law journal [vol. 50:547

investigation and punishment thereof inasmuch as it plays a crucial

role in the determination of the prescriptive period in question. In Lim,
Sr., the period was only deemed commenced upon the filing of the
complaint with the Fiscals Office.110 This is buttressed by RMC No. 101-
90, paragraph 2(d) of which provides:
The 5-year prescriptive period in Section 280 of the Tax Code does not
commence to run by the mere fact of discovery. This must be coupled
by judicial proceedings such as a preliminary investigation before the
Prosecutors Office, before the 5-year limitation period begins to run.111
In Tupaz, on the other hand, the Supreme Court impliedly held that
the filing of the preliminary investigation with the Department of
Justice tolled the prescriptive period. Although not explicitly stated, it
could be deduced from counting the dates that the filing of the
preliminary investigation had tolled the prescriptive period. Otherwise,
the offense in this case would have prescribed. Pertinently, the facts
showed that the prescriptive period commenced from the finality of the
assessment on 16 August 1984. The complaint for preliminary
investigation was filed on 8 June 1989, about 4 years, 10 months and 8
days from the time prescription had set in. Had the BIR filed the
complaint a little over two months later, the period would not have
tolled and the offense would have prescribed. 112
Reading both Lim, Sr. and RMC No. 101-90 together with Tupaz, one
is led to the conclusion that the institution of judicial proceedings for
the investigation and punishment of the offense marks both the
commencement and interruption of the prescriptive period.

110. In other words, in addition to the fact of discovery, there must be a judicial
proceeding for the investigation and punishment of the tax offense before
the five-year limiting period begins to run. It was on Sept. 1, 1969 that the
offenses subject of Criminal Cases Nos. 1790 and 1791 were indorsed to the
Fiscals Office for preliminary investigation. Inasmuch as a preliminary
investigation is a proceeding for investigation and punishment of a crime,
it was only on Sept. 1, 1969 that the prescriptive period commenced. See
Lim, Sr., 190 SCRA at 624.
111. Revenue Memorandum Circular No. 101-90, 2(d). It would be well to note
that, as of this writing, this circular has not been amended or repealed by
any subsequent circular, revenue regulation, ruling or administrative
order of the BIR.
112. See Tupaz v. Ulep, 316 SCRA 118, 128 (1999).
2005] ImPrescriptibility 589

Hence, there is a second problem, where the prescriptive period
begins and is interrupted by the same occurrence (i.e. the institution of
judicial proceedings), the net effect will be that the prescriptive period
will not have effectively begun, having been rendered academic by the
simultaneous interruption of that same period.
To illustrate this situation the following example is given: In 1995,
Taxpayer A filed his income tax returns which contained substantial
underdeclarations of income for the purpose of evading the payment of
taxes. It was only after five years, in 2000, that the BIR discovered the
fraud employed by A. The BIR filed the complaint for tax evasion with
the Department of Justice only ten years after discovery, or in 2010.
Taxpayer A strongly argued for the dismissal of the complaint on the
ground that the offense had prescribed (see Illustration 6).
ILLUSTRATION 6

Under the current interpretation ascribed by Lim, Sr. to the second
mode under Section 281, the offense has not yet prescribed. In fact, the
prescriptive period will start in 2010, upon the filing of the complaint
with the Department of Justice. It can thus be seen that what
purportedly was a five-year prescription period could be extended
indefinitely by the mere inaction of the Government to the prejudice of
the taxpayer. Worse, the simultaneous commencement and
interruption of the period amounts to no period at all, rendering the
law ineffectual.

PART VI: ANALYSIS

As demonstrated, the imprescriptibility of the statutes of limitations, as
explained, can either take the form of an indefinite period thereby
negating the purpose for establishing a period of limitation, or worse, it
could mean that the statute of limitation provided by law is plainly
inoperative, amounting to the inexistence of a formerly functional
prescriptive period as found in the case of Lim, Sr. Regardless of the
590 ateneo law journal [vol. 50:547

form imprescriptibility takes, it clearly negates any possible efficacy of

the prescriptive period.
A different problem arises when one is forced to question the
validity of the prescriptive periods and the statutes which give them life.
Must one call for an amendment of the laws providing for such or is it
more logical to let imprescriptibility stay?

A. Section 222 (a)

The imprescriptibility in Section 222(a) of the Tax Code pertains
solely to the interval from the time of filing the return up to the time
that fraud is discovered, discovery being reckoned from the time that
the BIR renders its final decision and requires the taxpayer to pay the
deficiency tax. The argument for imprescriptibility, in this case, is that
until and unless discovery happens, the prescriptive period will not run.
Consequently, the prescriptive period contravenes its very essence of
delimiting the period beyond which the right to assess or collect
without assessment can no longer be effected. As a solution, some
advance the idea that the time to make the discovery must itself have a
period, and the period limiting discovery must be three years
corresponding to the general period under Section 203 of the Tax Code.
Yet, despite such argument, it is submitted that the interval from filing
the return up to discovery is, to a certain extent, imprescriptible and
should remain that way. This is because of the circumstances of falsity,
fraud, or omission present in the return, which prevents the
Government from properly determining the amount of taxes due. The
fraud effectively precludes the BIR from performing its mandate as
agent of the Government charged with the administration and
enforcement of tax laws.
This situation is much like the case of an accused who cannot be
served processes because he is hiding. The prescriptive period of
crimes does not run if the accused is absent in the Philippines or, when
he is in the country, but the proceedings to prosecute him is suspended
for causes imputable to him. The same can be said of the prescriptive
period in Section 222(a). The fraud is perpetrated by the taxpayer
against the Government, thus precluding the latter from prosecuting
the tax liabilities of the taxpayer. Following the principle in criminal
cases, the prescriptive period in the aforementioned section must be
deemed held in abeyance for the duration that the Government, by
reason of the fraud imputable to the taxpayer, is precluded from
performing its task of assessing or collecting the proper taxes. In this
sense, imprescriptibility under Section 222(a) only operates in a limited
2005] ImPrescriptibility 591

sense because, following logic, it is not perpetual but merely suspended
by reason of fraud. Once commenced, it expires after a definite period
of ten years.
Thus, the proposition to delimit the time of discovery to three years
cannot be sustained primarily because the period is actually
prescriptible. However, it is merely held in abeyance during the time
that the fraud committed remains concealed from the knowledge of the
Government.
There are other reasons to discard the three-year theory. First,
there is nothing in Section 222(a) that states or implies that discovery
must be made within the three-year period provided for the
assessment and collection of taxes under ordinary circumstances as
provided by Section 203. Rather Section 222(a) deals with the situation
where fraud or falsity taints the return or where such return was not
filed at all. Under these circumstances, the Government is placed at a
disadvantage such that the Legislature deemed it proper to extend the
period to assess and collect to ten years so as not to unduly deprive the
Government of taxes rightfully due. This is equitable because the
extended ten-year period provides the Government with ample time to
review and ascertain the proper amount of taxes due, such
ascertainment having been obscured or made more difficult by the
falsity, fraud or omission employed by the taxpayer.
Secondly, imposing the three-year period upon the time to discover
would technically reduce the period of ten years to a mere three years.
To graphically illustrate:
ILLUSTRATION 7

If the BIR fails to discover the fraud in 2003, it may no longer

institute assessment or collection proceedings against the tax evader.
In effect, the extraordinary ten-year period is reduced to merely three
years and unless the BIR discovers the fraud employed within three
years from the return, it is forever barred from assessing or collecting
the taxes. This could not have possibly been the intention of the
592 ateneo law journal [vol. 50:547

legislature in granting BIR an extraordinary ten-year period to assess

or collect in the event of fraud, falsity, or omission. Section 222(a) was
intended to be an exception. To make it dependent upon the period
under Section 203 will render this exception ineffectual.
Thirdly, the fact that an indefinite interval exists between the time
the fraudulent or false return is filed and the time the fraud, falsity or
omission is discovered does not render nugatory the purpose of the
prescriptive period. In fact, this enhances the purpose of the
prescriptive period which is to provide the Government ample time to
determine and ascertain the true amount of taxes due, the task of which
is made more difficult by the fraud perpetrated by the taxpayer.
Because there is falsity, fraud or omission, the problem of
determining the correct amount of taxes due is the fault of the taxpayer.
Essentially therefore, the justification for delay is imputable to him.
Consequently, the Government should not be placed at a disadvantage
but rather must be allowed enough time to determine and effectively
collect the proper amount of taxes due. It should not be burdened with
a time limit for discovering the taxpayers craftiness. To do so will
encourage the taxpayer to devise better and more complicated means
to delay the discovery of the fraud.
Lastly, the prescriptive periods for assessment and collection in
taxation are not like prescription of offenses, and hence, generally
demand a different construction. This is because of the essential role of
taxes in the administration and operation of Government. It has been
said and reiterated many times that taxes are the lifeblood of the
government and their prompt and certain availability an imperious
need.113 Consequently, periods of prescription barring the assessment
and collection of taxes justly due and unpaid should receive a strict
construction in favor of the government and limitations in such cases
will not be presumed in the absence of clear legislation.114 This strict
construction in favor of the Government supports the justification for a
limited imprescriptible period in cases where falsity, fraud, or omission
taints the return.

113. CIR v. Pineda, 21 SCRA 105, 110 (1967) (citing Bull v. U.S., 295 U.S. 247
(1935)); Vera v. Fernandez, 89 SCRA 199, 204 (1979); Sison, Jr. v. Ancheta,
130 SCRA 655, 660 (1984).
114. CIR v. Ayala Securities Corp., 101 SCRA 231, 235 (1980).
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B. Section 281
Under Section 281 of the Tax Code, prescriptibility depends upon
whether or not the offense is known or unknown. Where the offense is
known, prescription commences immediately at the time of
commission. This is because the Government already has knowledge
that an offense has been committed to its detriment and thus there is
no valid reason for it to delay prosecution of the offense. At the same
time, it is aware that it must act with haste to punish the wrongdoer
and rectify the wrong committed against it. As explained earlier, there
is no imprescriptibility in this case the prescriptive period is
prescriptible.
On the other hand, where the offense is unknown, prescription
commences only upon discovery in conjunction with the institution of
judicial proceedings. This time, the period of prescription is considered
imprescriptible for two reasons: first, the interval from discovery up to
the institution of judicial proceedings is indefinite until and unless
Government institutes judicial proceedings, prescription does not even
begin, and second, the institution of judicial proceedings marks the
point of commencement as well as the time prescription is deemed
interrupted. In the second instance, prescription does not run at all, the
period being simultaneously commenced and halted.
The first reason adduced is to some extent similar to the argument
of imprescriptibility under Section 222(a). Both cases possess intervals
said to result in perpetuity. Under Section 222(a), the perpetual interval
alluded to is the time from the filing of the return up to discovery,
whereas under Section 281, the interval is the time from discovery up to
the institution of judicial proceedings.
Nevertheless, the conclusion reached in Section 222(a) finding the
said period prescriptible cannot apply to Section 281 for the following
reasons:
First, the constructions ascribed to the two periods must
necessarily differ. Statutes of limitation on the assessment and
collection of taxes should receive a strict construction in favor of
Government. This is because of the essential role of taxes in the
administration and operation of Government. Statutes fixing the
prescriptive periods of crimes, on the other hand, are in the nature of
an amnesty granted by the state, declaring that after a certain time,
oblivion shall be cast over the offense. These kinds of statutes of
limitations must be liberally construed in favor of the accused and
strictly against the Government. Section 281 is one such statute. It
594 ateneo law journal [vol. 50:547

applies to all criminal violations of the Tax Code. Notice must be given
to the fact that Section 281 is included in Chapter IV, Title X of the Tax
Code which is instructively titled Other Penal Provisions. Therefore,
inasmuch as Section 281 must be construed in favor of the accused-
taxpayer, all interpretations of said section must incline towards
prescriptibility. Obviously, to interpret such period as running
perpetually violates the aforementioned statutory construction rule as
well as the rights of the so-called taxpayer-accused. The proper
interpretation, therefore, must be to construe prescription under
Section 281 as running from the discovery of the fraud alone, without
conjunction to the institution of judicial proceedings for the
punishment and investigation of the crime.
Secondly, and more importantly, the institution of judicial
proceedings marks the beginning and halting of the prescriptive period.
In other words, the prescriptive period under Section 281 will both
begin and be interrupted by the same occurrence the institution of
judicial proceedings or the filing of the complaint for preliminary
investigation. The net effect of this is that the prescriptive period will
never begin, having been rendered academic by the simultaneous
interruption of that same period. What is ironic about this is that the
purpose of establishing a prescriptive period is to bar the Governments
right to punish the tax offender insofar as the grace period granted by
the legislature for the proper exercise of such right has expired. Making
the prescriptive period commence from the moment the Government
files a complaint with the Department of Justice, which is precisely the
very object sought to be barred, practically defeats the very purpose of
fixing said period.
Congress could not possibly have intended this. Neither could
Congress have intended for a taxpayer criminally charged for a
violation of the Tax Code to stand at the mercy of the Government, who
may choose to exercise its right to prosecute at a time most favorable to
it.
For these reasons, it is proposed that the phrase from the
discovery thereof and the institution of judicial proceedings for its
investigation and punishment should be amended to read as from
discovery only, without the need of instituting judicial proceedings. The
particular portion of Section 281 would then read as:
Prescription shall begin to run from the day of the commission of the
violation of the law; and if the same be not known at the time, from
the discovery thereof;
2005] ImPrescriptibility 595

This is in consonance with the essence and purpose for which the
prescriptive period is established, that is, as an act of grace granted by
the State, relinquishing its power to prosecute the criminal act. This
also promotes the objective of preventing the litigation of stale claims
which work prejudice to the taxpayer-accused. And finally, this
interpretation harmonizes the Tax Code with the well-established
principle that penal laws must be construed liberally in favor of the
accused.

CONCLUSION
This Note has argued that the prescriptive periods for the assessment
and collection of taxes on one hand, and the prescriptive period for
criminal tax actions on the other, are both imprescriptible. Hence, the
Theory of Imprescriptibility. The Theory posits that the period of
prescription is imprescriptible because it either possessed an indefinite
character such that the period can run perpetually, or that the law was
improperly construed. This Note anchors the Theory upon the position
of Professor De Leon, an authority in taxation echoed in the dissenting
opinion of Judge Saga in the Court of Tax Appeals case of Menguito, and
upon the decision rendered by the Supreme Court in the case of Lim, Sr.
However, the manifestation that prescription could run endlessly
does not immediately signify a clamor to reinterpret or amend the law.
This Note delved deeper and analyzed the components of each
prescriptive period, determining the point of commencement and
interruption, and taking it with the pretext of fixing the particular
period.
Thus, the conclusion was arrived at that the imprescriptibility of the
period for assessment and collection of taxes, if fraud is present, was
justified on the ground that it was necessary in order to give the
Government, placed at a disadvantage due to said fraud, ample time to
ascertain the correct amount of taxes. Though seemingly prejudicial to
the taxpayer, since Government may then allege any date as the point of
discovery, this is justified by the fact that the fraud was caused by the
taxpayer himself.
On the other hand, the prescription of offenses under the Tax Code
was found not only to be imprescriptible but also in contravention with
the purpose for which it was established. The period proved itself
incapable of ever running. Such a period is therefore equivalent to no
period at all. Thus the law needs to be amended in order for it to
function as a true safeguard for taxpayers against stale claims and
abusive conduct on the part of the Governments agents. Furthermore,
596 ateneo law journal [vol. 50:547

an amendment of the period of prescription for tax offenses is

necessary in order to fulfill the essence of such statute as an act of
repose and amnesty by the Government in favor of the taxpayer. It must
be remembered that the statute in this case pertains to the prescription
of criminal offenses of the Code. It cannot be overly emphasized that
the taxpayer stands to be criminally punished for an offense that could
have been committed 40, 50, or 60 years ago. Indeed, without an
effective statute of limitations, tax offenses are veritable Swords of
Damocles endlessly hanging over the heads of unfortunate taxpayers.
The aforequoted excerpt from the case of Commissioner v. Algue
leads one to the proper direction but even as we concede the
inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer has a right to
complain and the courts will come to his succor.115 The law fixing the
prescriptive period for tax offenses is without a doubt, an empty law,
more imaginary than real. Thus, the problem of imprescriptibility must
be addressed through amendment by Congress. In the meantime, the
taxpayers should seek relief from the courts of justice.

115. CIR v. Algue, 158 SCRA 9, 17 (1988) (emphasis supplied).

2005] ImPrescriptibility 597