G.R. No. 220835 . July 26, 2017. COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SYSTEMS TECHNOLOGY INSTITUTE, INC., Respondent.
FACTS

Respondent Systems Technology Institute, Inc. (STI) filed its tax returns for the fiscal year ending March 31, 2003. To extend the three-year prescriptive period for assessment under the National Internal Revenue Code (NIRC), STI executed three successive Waivers of the Defense of Prescription in 2006 and 2007, the last extending the period until June 30, 2007. On June 28, 2007, the Commissioner of Internal Revenue (CIR) issued a Formal Assessment Notice for deficiency taxes. STI protested, and the CIR issued a Final Decision on Disputed Assessment on August 17, 2009. STI appealed to the Court of Tax Appeals (CTA).
The CTA Second Division cancelled the assessments, ruling they were issued beyond the prescriptive period due to defective waivers. It found the waivers invalid for non-compliance with Revenue Memorandum Order (RMO) No. 20-90, such as lacking a notarized acceptance by the CIR or his authorized representative at the time of STI’s signing. The CTA En Banc affirmed. The CIR filed this petition, arguing the waivers were valid and that STI was estopped from invoking prescription due to its active participation in the reinvestigation.

ISSUE

Whether the right of the government to assess deficiency taxes against STI for fiscal year 2003 is already barred by prescription.

RULING

Yes, the assessments are barred by prescription. The Supreme Court affirmed the CTA En Banc’s decision. The legal logic rests on the mandatory nature of the requirements for a valid waiver of the statute of limitations under the tax code. Section 222(b) of the NIRC allows the period for assessment to be extended by a written agreement, but such waivers must be strictly construed against the government. Jurisprudence, citing RMO No. 20-90 and subsequent cases, mandates that waivers must comply with specific formalities to be valid, including that the CIR or his duly authorized representative must sign and accept the waiver, which must be notarized.
Here, the waivers were defective. Crucially, the CIR’s representative accepted the waivers only after STI had already signed them, and such acceptance was not notarized concurrently with STI’s execution. This violates the requirement that the waiver must be executed in the manner prescribed by administrative issuances, which have the force of law. A defective waiver does not effectively extend the prescriptive period. Consequently, the three-year period to assess, which began after STI filed its return, expired before the CIR issued the assessment on June 28, 2007. The Court also rejected the CIR’s estoppel argument, holding that a taxpayer’s mere participation in a reinvestigation does not constitute estoppel nor cure a waiver’s invalidity. The burden of ensuring valid waivers lies with the BIR. Thus, the assessment was correctly cancelled.