CIR v. Marily Development: Who Bears the Burden on Prescription — and When the CTA May Raise an LOA Issue

In Commissioner of Internal Revenue v. Marily Development Corporation (G.R. No. 263794, April 2, 2025), the Supreme Court Second Division partially granted the CIR’s petition, reversed the CTA En Banc, and remanded the case to the CTA Second Division to determine Marily Development Corporation’s 2006 tax liabilities. The Court held that the CTA’s power to decide issues not raised by the parties is not unbridled, that cancelling an assessment for lack of a Letter of Authority (LOA) was improper when LOA validity was never put in issue, and that prescription is a defense the taxpayer must prove. This post is part of the Day in Court series.

Case details #

What happened #

On June 8, 2011, the CIR issued a Formal Assessment Notice (FAN) assessing Marily Development Corporation (MDC) for deficiency income tax, VAT, expanded withholding tax (EWT), and withholding tax on compensation (WTC) for calendar year 2006 totaling ₱8,104,781.30. MDC protested. On December 29, 2017, MDC received a Preliminary Collection Letter. On January 25, 2018, MDC filed a Petition for Review with the CTA.

During trial, the CIR manifested that it would not present evidence or witnesses. The CTA Second Division cancelled the assessments on September 10, 2020 for lack of proof that the examination was authorized by an LOA, and alternatively for prescription under the ordinary three-year period in Section 203 of the Tax Code (finding Section 222’s 10-year period inapplicable for want of fraud evidence).

In a motion for reconsideration and/or new trial, the CIR argued that LOA issuance was never raised as an issue, attached LOA No. 2000-000158676 (received by MDC on July 12, 2007), and argued for a 10-year period. The Division denied that motion on February 11, 2021.

The CTA En Banc in CTA EB No. 2450 affirmed the Division’s cancellation (Decision dated May 31, 2022; reconsideration denied October 12, 2022), holding that the CTA may examine LOA validity even if not specifically put in issue because it goes to intrinsic validity of the assessment, and that the CIR could not equate MDC’s failure to present returns with non-filing for Section 222(a) purposes. The CIR then petitioned the Supreme Court.

The issue before the court #

The Supreme Court had to resolve, among other things:

1. Whether the CTA properly cancelled the assessment for lack of a proved LOA when LOA validity was never raised by the parties and no LOA was in the trial record in a way that allowed that finding under Prime Steel Mill limits.
2. Who bears the burden on prescription, and whether MDC could claim the three-year limitation without proving the filing dates of its 2006 returns.

The ruling #

The Supreme Court partially granted the CIR’s petition, reversed the CTA En Banc Decision and Resolution in CTA EB No. 2450, and remanded CTA Case No. 9756 to the CTA Second Division to determine MDC’s CY 2006 tax liabilities in light of the Decision, with dispatch.

CTA authority over unraised issues is limited #

Citing Prime Steel Mill, Inc. v. Commissioner of Internal Revenue, the Court reiterated that the CTA may rule on issues not raised by the parties only when two conditions concur: the issue is necessary for orderly disposition, and resolution must not require additional evidence — it must rest solely on factual bases already of record. The Court held those limits were not met for a sua sponte LOA-validity cancellation here: the parties never put LOA existence in issue, so the CTA should not have voided the assessment on that ground. Tax assessments are presumed correct and made in good faith; raising an unpleaded LOA defect “conjures up secondary issues and factual matters that need to be adjudicated upon based on evidence or lack thereof.”

The Court further noted that the CIR later attached LOA No. 2000-000158676 in its motion for reconsideration (received by MDC on July 12, 2007), and that the Division should have acted on the motion to allow presentation of that LOA subject to MDC’s right to examine and object — consistent with a liberal approach to ascertaining the truth in tax cases.

Prescription is a defense; the taxpayer must prove it #

The Court held that prescription of the statute of limitations for assessment and collection is a matter of defense. The burden is on the taxpayer to prove that the full period of limitation has expired — including when the period started running and when it was fully accomplished.

MDC did not offer in evidence its 2006 Annual Income Tax Return and VAT returns. Without proof of actual filing, MDC could not avail of the three-year prescription defense for those taxes. The Court stated that there is no presumption that the taxpayer duly filed its returns; on that record, the BIR had 10 years to assess under the Section 222(a) discussion as applied by the Court. For certain EWT and WTC periods, the Court noted unreadability of filing dates or assessments issued beyond three years where filing dates were established, and remanded factual determination of remaining liabilities rather than trying those fact questions under Rule 45.

Our insights #

LOA doctrine remains important — but pleading and proof matter #

This remand does not erase the substantive rule that a valid LOA is part of due process in a BIR audit. The Decision itself cites Commissioner of Internal Revenue v. Mcdonald’s Philippines Realty Corp. for the proposition that identifying authorized revenue officers in an LOA is a jurisdictional requirement of a valid assessment, and it cautioned the CIR for inadequate handling — including waiving evidence presentation and submitting the LOA only after losing below. What Marily adds is a procedural limit: the CTA cannot cancel for a missing LOA when that issue was never joined and the record does not support a Prime Steel-compliant finding. Related LOA-scope doctrine appears in CIR v. Sony Philippines.

Prescription burden mirrors other limitation fights #

CIR v. Telstar Manufacturing focuses on defective waivers and who bears the cost of an invalid extension. Marily focuses on who must prove the ordinary limitation period expired in the first place. Together they show that “prescription” is not a slogan: the party invoking the clock must supply the dates and documents that make the clock run.

CTA En Banc dissenters below tracked parts of the SC result #

At the CTA En Banc level, Presiding Justice Roman G. Del Rosario dissented (joined by others), arguing that the presumption of regularity includes issuance of a valid LOA absent contrary evidence, and that MDC’s failure to offer 2006 income tax and VAT returns left no basis to hold those assessments prescribed. The Supreme Court quoted those prescription observations with approval. The SC holding, however, rests on its own Prime Steel and burden-of-proof analysis rather than simply adopting the En Banc dissent as the decision below.

What this means for taxpayers #

If you are litigating a deficiency assessment before the CTA:

• If you intend to attack the assessment for lack or invalidity of an LOA, raise and prove that issue — do not assume the CTA will cancel sua sponte when the LOA was never put in controversy.
• If you invoke prescription, offer the returns (or other competent proof) showing filing dates so the three-year period can be reckoned; without that proof, the defense may fail for income tax and VAT.
• Treat collection letters and late petitions carefully: MDC reached the CTA after a December 2017 Preliminary Collection Letter and a January 2018 petition — but the Supreme Court remanded on LOA/prescription doctrine, not as a free pass on the underlying amounts.
• Expect remands when the CTA cancelled on an unraised LOA theory or an under-proven prescription theory; the case is not over until liabilities are redetermined under the correct burdens.

Summary #

CIR v. Marily Development Corporation partially granted the CIR’s petition, reversed the CTA En Banc’s cancellation of roughly ₱8.1 million in CY 2006 deficiency assessments, and remanded for determination of MDC’s liabilities. The Supreme Court cabined the CTA’s power to decide unraised issues, held that cancelling for a missing LOA was improper when LOA validity was never put in issue, and placed the burden of proving prescription on the taxpayer — who failed to present 2006 income tax and VAT returns. Use Decision spelling Marily (not the “Marilyn” variant that appears in some docket URLs). For related reading, see CIR v. Telstar Manufacturing on waiver/prescription and CIR v. Sony Philippines on LOA scope.

Sources #

Primary sources

• LawPhil.net — G.R. No. 263794 Decision, April 2, 2025
• Supreme Court of the Philippines — G.R. No. 263794 case page (URL uses “Marilyn”; Decision text uses Marily)