Due process rulings

ON Dec. 5, 2011, the Bureau of Internal Revenue (BIR) through the Office of Commissioner Internal Revenue issued BIR Ruling No. 479-2011 in response to Aguirre Pawnshop Company Inc.’s (requestor) request for confirmatory ruling on the tax implications of distributing remaining assets of the corporation to its stockholders by way of liquidating dividends.

The requestor invoked past precedents issued by the BIR such as BIR Ruling No. 039-02 dated Nov. 11, 2002, in arguing among others that it is not subject to income tax either on its transfer of the properties to its shareholder as liquidating dividend or in its receipt of the surrendered shares of the stockholder.

The BIR replied as follows: “In reply, please be informed that it is the position of this Office that your request cannot be granted for lack of legal basis under the National Internal Revenue Code of 1997, as amended. Consequently, the previously issued BIR Ruling No. 039-02 cited in your letter and the BIR Rulings cited in the said ruling are reversed and set aside.” No further discussion was made by the BIR.

I am sure the requestor might have been surprised by the simplicity of the BIR’s answer. Several questions come to mind. Was the previous BIR Rulings cited by the requestor not considered as legal basis? What were the reasons for overturning these previous BIR Rulings? Are there qualifications on the denial of this request?

Considering that the requestor filed its request for ruling on Aug. 18, 2010, it took more than a year to issue this simple and unqualified denial. The least that the BIR could have done in the spirit of fairness and consistent with the principles of due process was to educate or inform the requestor the reasons and rationale behind its denial. After all, the BIR’s mandate of issuing rulings was to clear out any doubts on matters involving our tax laws, issues rulings of interpretation or clarification.

No less than Section 1, Article III (Bill of Rights) of the 1987 Constitution. Section 1 reads:

“Section 1. No person shall be deprived of life, liberty, or property without due process of law, nor shall any person be denied the equal protection of the laws.”

The author understands the need for the BIR to generate more tax revenue. But what about the taxpayer who had the humility to seek the opinion of the BIR on tax matters? Is asking for an explanation for the decision of the BIR just plain fair?

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