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Bir V. Ca: GR. No. 197590, Nov. 24, 2014

1) The BIR investigated Antonio and Ruby for tax liabilities from 2003 and prior years after discovering they purchased a Php17M log cabin in Tagaytay with cash despite Antonio only declaring modest income. 2) Revenue officers concluded the tax returns were undeclared after the spouses failed to prove the source of the cash purchases, with the underdeclaration exceeding 30% of reported income which is evidence of tax evasion. 3) The Court ruled there was probable cause to file criminal charges for tax evasion, as tax evasion is deemed complete once a fraudulent return is filed with intent to evade taxes, and the government can use expenditure methods to reconstruct income when expenditures exceed declared income.

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Jezreel Y. Chan
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105 views2 pages

Bir V. Ca: GR. No. 197590, Nov. 24, 2014

1) The BIR investigated Antonio and Ruby for tax liabilities from 2003 and prior years after discovering they purchased a Php17M log cabin in Tagaytay with cash despite Antonio only declaring modest income. 2) Revenue officers concluded the tax returns were undeclared after the spouses failed to prove the source of the cash purchases, with the underdeclaration exceeding 30% of reported income which is evidence of tax evasion. 3) The Court ruled there was probable cause to file criminal charges for tax evasion, as tax evasion is deemed complete once a fraudulent return is filed with intent to evade taxes, and the government can use expenditure methods to reconstruct income when expenditures exceed declared income.

Uploaded by

Jezreel Y. Chan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BIR v.

CA
GR. No. 197590, Nov. 24, 2014

Doctrine: Tax evasion is deemed 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. An assessment of the tax
deficiency is not required in a criminal prosecution for tax evasion. Although it is not necessary, the fact
that a tax is due must first be proven before one can be prosecuted for tax evasion.
Facts:
Antonio is a stock holder and the EVP of Standard Realty Corporation, a family-owned corporation. He is
also engaged in rental business. He is married to Ruby, a housewife. The BIR investigated the spouses’
internal revenue tax liabilities for 2003 and prior years.
On June 6, 2005, petitioner issued a letter, requiring them to submit documentary evidence to substantiate
the source of their cash purchase of a 256-sq.m. log cabin in Tagaytay worth Php17M. However, they
failed to comply. Hence, the revenue officers executed a joint affidavit on Antonio’s declared or reported
annual income. They realized that despite his modest income for years, he was able to buy luxurious
items (vacation house, cars.) Since respondent spouses failed to show the source of their cash purchases,
revenue officers concluded that the ITRs were undeclared. Since the underdeclaration exceeded 30% of
the reported income, it was considered prima facie evidence of fraud with intent to evade the payment of
proper taxes due to the government.
Respondent spouses denied the accusations, alleging that they used their accumulated savings from the
past 24 years. The criminal complaint should also be dismissed for failure to issue a deficiency
assessment against them.
The State Prosecutor recommended the filing of criminal charges against them, based on Secs. 254 and 25
of the NIRC. SOJ reversed. CA affirmed, dismissing the certiorari.
Issue: W/N there is probable cause to file criminal charges against the respondent spouses? YES.
Held:
Tax evasion is deemed 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. An assessment of the tax deficiency is not required
in a criminal prosecution for tax evasion. Although it is not necessary, the fact that a tax is due must first
be proven before one can be prosecuted for tax evasion.
In the case of income, for it to be taxable, there must be a gain realized or received by the taxpayer, which
is not excluded by law or treaty from taxation. The government is allowed to resort to all evidence or
resources available to determine a taxpayer’s income and to use methods to reconstruct his income. A
method commonly used by the government is the expenditure method, which is a method of
reconstructing a taxpayer’s income by deducting the aggregate yearly expenditures from the declared
yearly income. The theory of this method is that when the amount of the money that a taxpayer spends
during a given year exceeds his reported or declared income and the source of such money is
unexplained, it may be inferred that such expenditures represent unreported or undeclared income. This
was done by the petitioners in the present case.
The amount of tax due from respondent spouses was specifically alleged in the Complaint-Affidavit. The
computation, as well as the method used in determining the tax liability, was also clearly explained. The
revenue officers likewise showed that the underdeclaration exceeded 30% of the reported or declared
income. Apparently, the revenue officers considered respondent Antonio’s rental business to be the likely
source of their unreported or undeclared income due to his unjustified refusal to allow the revenue
officers to inspect the building.
The defense of having sufficient savings is self-serving as they did not present any evidence to support
this. Hence, since there is no evidence to suggest that the money they used to buy the properties was from
an existing fun, it is safe to assume that the money is income other than a mere return on capital. There is
a manifest showing that they underdeclared their income. There is a huge disparity between their annual
income and their cash acquisition.

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