Tax notes: Validity of waiver of the statute of limitations

Monday, January 30, 2012

AS A rule, the government is mandated under Section 203 of the Tax Code to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. However, as an exception to the three-year rule, the period of limitation of assessment may be extended by an agreement made between the Commissioner of Internal Revenue and the taxpayer before the expiration of the three-year prescriptive period.

In the execution of waiver of the statute of limitations, strict compliance with the procedure for the proper execution of the waiver, as prescribed under Revenue Memorandum Order (RMO) 20-90 and Revenue Delegation of Authority Order (RDAO) No. 05-01, is required for the waiver to be considered valid. Under RMO 20-90, it is required, among others, that the taxpayer be furnished copies of the accepted waiver and that the fact of receipt by the taxpayer be indicated in the original copy to show that the taxpayer was notified of the acceptance by the Bureau of Internal Revenue (BIR) and the perfection of the agreement.

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The Court of Tax Appeals, in the case of Avon Products Manufacturing, Inc. v. Commissioner of Internal Revenue (CTA EB No. 661 and 663, Nov. 9, 2011) held that non-compliance with the procedural mandate provided under RMO 20-90 would render a waiver incomplete and defective. In the instant case, since the taxpayer was able to prove that it was not furnished copies of the accepted waivers, the CTA rendered the waivers of the statute of limitations executed by the BIR and the taxpayer as invalid and unenforceable. Hence, it did not toll the running of the three-year prescriptive period under Section 203 of the Tax Code.

(Source: Punongbayan & Araullo)