i. False vs. Fraudulent vs. Non-filed Return

Prescriptive Periods

• Failure to file return: 10 years from date of discovery of the omission to file the return
• False return or fraudulent return with intention to evade the tax: 10 years from the date of the discovery of the falsity or fraud

Note: The law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situation into three different classes, namely "falsity," "fraud," and "omission." (Aznar v. CTA, G.R. No. L-20569, 23 August 1974)¹

False Return

Contains wrong information due to mistake, carelessness, or ignorance (Aznar)² Under Section 228 of the NIRC, the taxpayer must be informed in writing of the factual and legal bases of an assessment (Samar-I Electric Cooperative v. CIR, G.R. No. 193100, 10 December 2014)³

Fraudulent Return

Fraud must be alleged and proved as a fact. It must be the product of a deliberate intent to evade taxes. The following constitute prima facie evidence of a false or fraudulent return, not conclusive proof of fraud:

• Substantial understatement of the taxpayer’s sales, receipts or income by more than 30%; or
• Substantial overstatement of deductions by more than 30%. (NIRC, Sec. 248[B])

Such fact in a fraud assessment which has already become final and executory shall be judicially taken cognizance of in a civil or criminal action for the collection thereof. (NIRC, Sec. 222[a]) Note: Mere understatement of gross earnings does not of itself prove fraud. (Yutivo Sons Hardware Company v. CTA, G.R. No. L-13203, 28 January 1961)

False vs. Fraudulent Return

Failure to File Return – Instances

A deficient return which prevented the CIR from computing taxes due; such return is the same as if no return is filed at all (CIR v. Gonzales, G.R. No. L-19495, 24 November 1966)⁴

Failure to report income in the returns which were clearly not exempted from tax – CTA did not treat it as a simple omission since it involved substantial sums (Standard Chartered Bank v. CIR, CTA EB Case No. 731)⁵

Note: Nothing in Sec. 222, final proviso⁶ shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree.