The Supreme Court (SC) has ruled that the civil action for collection of deficiency taxes is deemed instituted in the criminal case for tax law violations.

Thus, the SC declared that formal assessment by the Bureau of Internal Revenue (BIR) is not required for the imposition of civil liability for unpaid taxes.

With its ruling contained in a full court decision written by Associate Justice Mario V. Lopez, the SC issued guidelines on the prosecution of criminal actions for tax law violations and the corresponding civil liability for unpaid taxes:

“(1) When a criminal action for violation of the tax laws is filed, a prior assessment is not required. Neither is a final assessment a precondition to collection of delinquent taxes in the criminal tax case. The criminal action is deemed a collection case.

“The government must thus prove two things: (a) the guilt of the accused by proof beyond reasonable doubt; and (b) the accused’s civil liability for taxes by competent evidence (other than an assessment).

“(2) If before the institution of the criminal action, the government filed (a) a civil suit for collection, or (b) an answer to the taxpayer’s petition for review before the CTA (Court of Tax Appeals), the civil action or the resolution of the taxpayer’s petition for review shall be suspended before judgment on the merits until final judgment is rendered on the criminal action.

“However, before judgment on the merits is rendered on the civil action, it may be consolidated with the criminal action. In such a case, the judgment in the criminal action shall include a finding of the accused’s liability for unpaid taxes relative to the criminal case. “

The guidelines were issued in deciding the petition filed by Joel C. Mendez, owner-operator of cosmetic and dermatology clinics, who charged criminally in 2006 with violations of Section 255 of the National Internal Revenue Code (NIRC) for not filing his 2002 income tax return (ITR) estimated at P1,522,152.14 and willfully failing to supply correct and accurate information in his 2003 ITR estimated at P2,107, 023.65.

A division of the CTA found Mendez guilty of both criminal charges. He was sentenced to a prison term ranging from one year to two years with a fine of P10,000 in both cases. The tax court’s division did not impose civil liability for unpaid taxes.
Both the BIR and Mendez appealed the division’s ruling before the CTA as a full court which affirmed the ruling.  The BIR, through the Office of the Solicitor General (OSG) challenged the non-imposition of civil liability on Mendez.

When the CTA as a full court affirmed its division’s ruling, both Mendez and the OSG elevated the issue before the SC which granted partially the latter’s petition.  

Applying the guidelines in the case of Mendez, the SC said:

“The prosecution filed a criminal case for tax violation against Joel. The civil action for collection of deficiency taxes is deemed instituted; hence, a formal assessment issued by the CIR (commissioner of internal revenue) is not required for the imposition of civil liability for unpaid taxes.

“The finding of deficiency taxes should have been done at the level of the CTA Division. The Court cannot determine Joel's civil liability for taxes and penalties in this petition. Well-settled is the rule that the Court is not a trier of facts.

“Hence, the proper remedy is to remand the case to the Court in Division to determine the civil liability of the accused Joel in CTA Crim. Case No. 0-013 for willful failure to file or make a return for the taxable year 2002 and in CTA Crim. Case No. 0-015 for willful failure to supply correct and accurate infom1ation in the return for the taxable year 2003.

“Accordingly, the Petition for Review on Certiorari filed by Joel C. Mendez in G.R. No. 208662 is denied for lack of merit. Joel C. Mendez is guilty of the crimes of violation of Section 255 of the 1997 National Internal Revenue Code, as amended, for willful failure to file Income Tax Return for the taxable year 2002 in CTA Crim. Case No. 0-013, and for willful failure to supply correct and accurate information in the Income Tax Return for the taxable year 2003 in CTA Crim. Case No. 0-015.

“He is sentenced to suffer the indeterminate penalty of one ( l) year, as minimum, to two (2) years, as maximum, and is ordered to pay a fine of Pl0,000.00, with subsidiary imprisonment in case he has no property to pay the fine, for each of the criminal offenses.

“The Petition for Review filed by the People of the Philippines in G.R. Nos. 208310-11 is partly granted. The Court of Tax Appeals En Banc' s Decision dated Dec. 11, 2012, and Resolution dated July 8, 2013 in C.T.A. EB Crim. Nos. 014 and 015 are affirmed with modifications.

“CTA Crim. Case No. 0-013 and CTA Crim. Case No. 0-015 are remanded to the Court of Tax Appeals in Division to determine Joel C. Mendez's civil liability for taxes and penalties, in accordance with this Decision. The Court of Tax Appeals in Division is directed to conduct the proceedings with reasonable dispatch.”