Suspension of the Running of the Statute of Limitations
Prescription in national internal revenue taxation limits the power of the government to assess a deficiency tax and to begin collection by distraint, levy, or court action. A valid Formal Letter of Demand or Final Assessment Notice must be issued within the applicable assessment period, unless the period has been extended by a valid waiver or suspended by law.
The ordinary period for assessment is three years from the last day prescribed by law for filing the return, or from the day the return was actually filed if filed late. In cases of a false return, fraudulent return with intent to evade tax, or failure to file a return, the tax may be assessed, or a proceeding in court for collection may be begun without assessment, within ten years from discovery of the falsity, fraud, or omission.
Section 223 of the National Internal Revenue Code governs suspension. It pauses the running of the periods in Sections 203 and 222 on the making of an assessment and on the beginning of distraint, levy, or a court proceeding for collection, in respect of a deficiency tax.
Nature and Effect
Suspension does not create a new prescriptive period. It merely excludes from the computation the time during which a statutory ground for suspension exists, and the remaining balance of the period runs again when the ground ceases.
Suspension is different from extension by waiver. A waiver is a written agreement made before prescription expires, while suspension operates by force of law upon the occurrence of a statutory ground. An invalid or late waiver does not preserve the government's right unless an independent ground for suspension or an applicable exceptional period exists.
Because prescription protects taxpayers against stale assessments and collection actions, the government must be able to identify the specific statutory ground and the period actually suspended when it relies on suspension to justify a late FLD/FAN or collection action.
Grounds for Suspension
| Ground | Effect on Prescription | Important Limitation |
|---|---|---|
| The Commissioner is prohibited from making the assessment or from beginning distraint, levy, or a court proceeding. | The period is suspended while the legal prohibition exists and for sixty days thereafter. | A mere pending administrative protest or appeal does not by itself prohibit assessment or collection unless a law or court order actually bars the Commissioner from acting. |
| The taxpayer requests a reinvestigation and the request is granted by the Commissioner. | The period is suspended for the time attributable to the granted reinvestigation. | A mere request is insufficient; the reinvestigation must be granted, expressly or by acts clearly showing that the BIR reopened the case for further factual review. |
| The taxpayer cannot be located at the address given in the return upon which the tax is being assessed or collected. | The period is suspended while the taxpayer cannot be located at the address supplied to the BIR. | There is no suspension if the taxpayer informed the Commissioner of a change of address and the BIR failed to use the updated address. |
| A warrant of distraint or levy is duly served, but no property can be located. | The collection period is suspended because the BIR has attempted enforced collection but could not find leviable or distrainable property. | The warrant must be duly served on the taxpayer, authorized representative, or a household member with sufficient discretion; defective service does not support suspension. |
| The taxpayer is out of the Philippines. | The period is suspended during the taxpayer's absence from the country. | For juridical taxpayers, the analysis usually turns on registered address, authorized representatives, and whether the BIR was prevented in fact or law from assessment or collection. |
Commissioner Legally Prohibited from Acting
This ground applies when the Commissioner is legally barred from making an assessment or from beginning collection. The clearest examples are court orders suspending collection, statutory restraints that temporarily bar enforcement, or other legal prohibitions that make BIR action impermissible during the period of restraint.
The additional sixty days after the prohibition ends belongs only to this ground. It gives the BIR a short period to act after the legal barrier is lifted, but it does not automatically attach to the other grounds for suspension.
An appeal to the Court of Tax Appeals does not automatically suspend collection. Collection is suspended only when the court grants suspension upon the required showing and, when required, upon the posting of a bond or deposit; without such order, the Commissioner is not legally prohibited from collecting.
Granted Reinvestigation
A reinvestigation is a request for the BIR to reevaluate an assessment on the basis of newly discovered or additional evidence. It differs from a reconsideration, which asks the BIR to review the assessment on the existing record and does not, by itself, require new factual inquiry.
Only a granted reinvestigation suspends prescription. The rule prevents a taxpayer from asking the BIR to reopen and reexamine the case, consuming time for additional factual review, and later asserting that the government lost its remedy because it accommodated the taxpayer's request.
The grant may be express, as when the BIR issues a written action allowing reinvestigation, or implied from official acts clearly showing that the BIR accepted additional evidence and reopened the factual basis of the assessment. Mere silence, routine receipt of letters, or unresolved correspondence is not enough.
In relation to a FLD/FAN, a reinvestigation usually affects the period for collection after a valid assessment has already been made. It does not cure a FLD/FAN issued after the assessment period had already expired, because there is no valid assessment to preserve.
Taxpayer Cannot Be Located
The address given in the return is critical because it is the address on which the BIR may rely for assessment and collection notices. When the taxpayer cannot be located at that address, the statute recognizes that the taxpayer's unavailability should not allow prescription to run against the government.
The suspension is unavailable if the taxpayer notified the Commissioner of a change of address. Once proper notice of the new address is given, the BIR must use that address, and its failure to do so cannot be converted into a suspension of prescription.
The ground requires more than an unsupported claim of non-location. The BIR should be able to show that the notice or collection process could not be served because the taxpayer was not found at the address on record and that the taxpayer had not properly updated the BIR before the relevant action.
Warrant Served but No Property Located
This ground concerns collection rather than the making of an assessment. The BIR must have served a warrant of distraint or levy in the manner contemplated by the Code, and despite that valid service, no property of the taxpayer could be located for enforcement.
The ground reflects the principle that a taxpayer should not benefit from the running of prescription when the government has timely begun enforced collection but cannot find property to distrain or levy. It does not apply where the BIR merely prepared a warrant without valid service, or where inaction rather than unsuccessful enforcement caused the delay.
Taxpayer Outside the Philippines
When the taxpayer is outside the Philippines, the running of prescription is suspended during the absence. The rule is most direct for individual taxpayers because physical absence may impair service, examination, or collection.
For corporations and other juridical entities, the relevant inquiry is usually whether the entity remains reachable through its registered address, resident agent, officers, or authorized representatives. A corporation does not become unavailable merely because a particular officer is abroad if the BIR can still validly serve the taxpayer through recognized channels.
Effect on the FLD/FAN
The FLD/FAN is the operative assessment notice that states the tax due and demands payment after the assessment process reaches final administrative determination. For prescription purposes, the assessment must be made within the remaining unsuspended period.
An assessment is not timely merely because a notice was internally prepared before the deadline. The notice must be released, mailed, or sent to the taxpayer within the prescriptive period as properly extended or suspended, and it must be addressed and served in a manner consistent with due process.
A Preliminary Assessment Notice does not itself make the assessment and does not stop the running of prescription. It is part of the due process sequence before the FLD/FAN, but the BIR must still issue the FLD/FAN within the applicable period unless suspension or a valid waiver keeps the period open.
Computation
The computation starts with the original prescriptive period, identifies the date on which the suspension ground began, excludes the suspended interval, and resumes the count when the ground ends. For the legal-prohibition ground, the count resumes only after the prohibition ends and the additional sixty days have passed.
If prescription had already expired before the alleged suspension ground arose, there is no remaining period to suspend. Suspension pauses a live period; it does not revive a power to assess or collect that the law has already barred.
When a valid assessment is issued within the suspended or remaining assessment period, the validity of that assessment still depends on compliance with substantive and procedural requirements, including adequate notice of the factual and legal bases of the deficiency. Suspension affects timeliness only, not the separate requirement that the assessment be valid in form and substance.
Consequences of Expiration
If the assessment period expires without a valid FLD/FAN, the deficiency assessment is void, and collection based on that assessment cannot proceed. The government cannot rely on administrative delay, internal review, or ongoing audit activity as substitutes for a statutory suspension ground.
If the assessment was timely but the collection period expires, the assessment may remain a formal determination of liability, but the administrative and judicial remedies to collect are barred. Suspension of collection must therefore be established independently when the BIR acts after the collection period.
The practical effect of Section 223 is narrow but decisive: it protects the government's remedies only in the specific situations named by law, and only for the period during which the statutory reason for suspension actually exists.