The BIR’s power to assess

The power of taxation is one of the inherent powers of the State and is considered an attribute of sovereignty. Its existence is justified by the so-called lifeblood theory. In Commissioner of Internal Revenue (CIR) v. Algue (GR L-28896, 1988) the Supreme Court held that taxes, as the lifeblood of the government, should be collected without unnecessary hindrance. Without taxes, it said, the government would be paralyzed for lack of the motive power to activate and operate it.

The government exercises this power by collecting payments from taxpayers or from tax assessments made after auditing taxpayers’ records.