Taxpayer's Quick Guide in Disputing BIR Tax Assessments (END Tax Notes)

Taxpayer’s Quick Guide in Disputing BIR Tax Assessments Ernesto N. Dayao, Jr., CPA

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Contents A. Stages/Life of a Tax Assessment .................................................................................. 5 B. Letter of Authority (LOA) & BIR Fieldwork/Walkthrough ............................................. 6 1.

When does the BIR audit process begin?.............................................................. 6

2.

What is a Letter of Authority (LOA)? ...................................................................... 6

3.

Differentiate Letter of Authority (LOA) from Letter Notice (LN). ........................... 6

4.

Explain the so-called RELIEF System .................................................................... 7

5.

Who are the taxpayers which will be covered by the RELIEF System? ............... 8

6.

Can a Letter Notice (LN) replace a Letter of Authority (LOA)/e-LOA? ................. 8

7.

Is it possible to convert an LN into a LOA/e-LOA? ............................................... 8

8.

Is the settlement and payment of deficiency tax(es) under LN preclude the BIR from issuing a LOA/e-LOA? .................................................................................... 8

9.

Who are the BIR personnel who are authorized to sign a LOA/e-LOA? .............. 9

10. What is the effect in case the LOA/e-LOA is not signed by the authorized BIR officials?................................................................................................................... 9 11. Who has the authority to serve the LOA/e-LOA? .................................................. 9 12. Is the issuance of a manually-prepared LOA still valid? .................................... 10 13. Can the e-LOA contain more than one taxable year? ......................................... 10 14. Can e-LOA cover an audit for “unverified prior years”? ..................................... 10 15. What is the prescribed period in serving the e-LOA? ......................................... 11 16. Procedures in revalidating e-LOA. ....................................................................... 11 17. Is the issuance of a “Revalidation Notice” valid? ............................................... 11 18. Can the taxpayer amend its/his return after the receipt of the e-LOA? ............. 11 19. How many days should the tax audit/investigation take place after the issuance of the e-LOA? ......................................................................................................... 12 20. What is the effect in case the Revenue Officer’s (ROs) audit/examination exceeded the 120-day period? .............................................................................. 12 21. How to spot a defective e-LOA ............................................................................. 12 22. Tax assessments are presumed correct and made in good faith ...................... 13 23. Is there an instance where the taxpayer can deny the receipt of the e-LOA? ... 13 24. Can a taxpayer be audited for 3 consecutive years? .......................................... 13 25. What is the period of limitation to assess? ......................................................... 13 26. What are the exceptions to the period of limitation to assess? ......................... 14 C. Issuance of Preliminary Assessment Notice (PAN) ................................................... 15 1.

What is a Preliminary Assessment Notice (PAN)? .............................................. 15

2.

What is the content of the PAN? .......................................................................... 15

3.

Is the taxpayer required to be notified of his deficiency tax liabilities through a PAN? ...................................................................................................................... 15

4.

What is the consequence if the BIR fails to issue a PAN and subsequently issues a Final Assessment Notice (FAN) instead? ............................................. 15 Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 1


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5.

What are the instances where the PAN is not required? .................................... 16

6.

Who has the authority to sign and issue the PAN? ............................................ 16

7.

What is the consequence in case the person who signs the PAN has no authority to sign the same? .................................................................................. 16

8.

To whom should the taxpayer submit his response to the PAN? ...................... 16

9.

Is the taxpayer allowed to make voluntary payments prior to the issuance of PAN? ...................................................................................................................... 17

10. Where should the PAN be served? ...................................................................... 17 11. Who has the authority to receive the PAN? ......................................................... 17 12. What is the effect in case the taxpayer fails to respond to the PAN? ................ 17 13. Can the taxpayer pay the deficiency tax reflected per PAN? ............................. 17 14. How can the taxpayer determine if there is a denial of the response to the PAN? ...................................................................................................................... 18 D. Issuance of Final Assessment Notice (FAN) .............................................................. 19 1.

What is a Final Assessment Notice (FAN)? ......................................................... 19

2.

What is the content of the FAN? ........................................................................... 19

3.

What is the effect in case the BIR issued the FAN/FLD in advance or before the issuance of the PAN? ............................................................................................ 19

4.

What is the effect in case the FAN was issued prior to the lapse of the 15 day period to respond to the PAN? ............................................................................. 19

5.

Who has the authority to sign the FAN? .............................................................. 20

6.

What is the consequence in case the person who signs the PAN has no authority to sign the same? .................................................................................. 20

7.

Effect in case the taxpayer denies the receipt of FAN ........................................ 20

8.

Best proof in order to prove that the FAN was received by the taxpayer .......... 20

9.

What is the remedy of the taxpayer in case he receives a FAN from the BIR? . 21

10. What is the effect in case the taxpayer fails to respond to the FAN within 30 days after receipt of the same? ............................................................................ 21 11. Can the FLD/FAN be issued beyond the fifteen (15) days from the filing/submission of the taxpayer’s response to the PAN? ................................ 21 12. In case the taxpayer opts to protest the FAN issued by the BIR, what should be the contents of the protest letter? ........................................................................ 21 13. What is the effect in case the taxpayer fails to state the foregoing in its protest letter? ..................................................................................................................... 22 14. Can the taxpayer do a partial protest? ................................................................. 22 15. Differentiate a written request for reconsideration from request for reinvestigation. ...................................................................................................... 22 16. Procedures in availing request for reconsideration. ........................................... 23 17. Procedures in availing request for reinvestigation. ............................................ 25 18. What is the main procedural difference between request for reconsideration and request for reinvestigation? .......................................................................... 27 19. Presumption of availment of request for reconsideration. ................................. 27 Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 2


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20. To whom should the taxpayer file his letters of protest, requests for reinvestigation/reconsideration and similar correspondences? ....................... 27 21. What is the consequence if the protest, requests for reinvestigation/reconsideration and similar correspondences were mistakenly filed at the wrong office? ...................................................................................... 27 22. Is the request for reconsideration available in a protest to PAN or FDDA? ...... 28 23. What are the indicators in determining the finality of the decision of the Commissioner? ..................................................................................................... 28 24. After the issuance of the FDDA, can the taxpayer accept and settle the assessment contained therein, whether partially or fully? ................................. 29 25. What is the taxpayer’s recourse if he disagrees with the FDDA issued by the Commissioner’s duly authorized representative? .............................................. 29 26. Is the appeal to the Commissioner or Court of Tax Appeals, regarding the FDDA, precludes the taxpayer from voluntarily settling the assessment? ....... 29 27. Grounds which can make the assessment final, executory, and demandable. 29 28. Are the provisions provided for under Revenue Regulations (RR) No. 18-13 extendible?............................................................................................................. 30 E. Modes of Serving the PAN/FLD/FAN/FDDA ................................................................ 31 1.

Modes of serving the PAN/FLD/FAN/FDDA to the taxpayer. ............................... 31

2.

How “Personal Service” should be done. ............................................................ 31

3.

Meaning of “Known Address”? ............................................................................ 31

4.

In case personal service is not practicable, how should the PAN be served to the taxpayer? ......................................................................................................... 31

5.

Procedures to be taken by the BIR examiner for cases involving substituted service .................................................................................................................... 31

6.

Will revenue officers, other than the revenue officer who constructively served the PAN/FLD/FAN/FDDA, fall within the purview of “Disinterested witnesses”? ........................................................................................................... 32

7.

Is the attestation of the barangay official in the constructive service of PAN/FLD/FAN/FDDA a dispensable requirement? .............................................. 32

8.

Essential documentary evidence which can prove that the PAN/FLD/FAN/FDDA was duly received by the taxpayer. ...................................................................... 32

9.

Consequence if the taxpayer denies ever having received an assessment from the BIR .................................................................................................................... 33

10. Can the BIR send the PAN/FLD/FAN/FDDA via mail? ......................................... 33 11. Can the BIR send the PAN/FLD/FAN/FDDA to the duly authorized tax agent/practitioner of the taxpayer? ...................................................................... 33 Revenue Regulations (RR) No. 12-99, as amended ........................................................ 34 SECTION 1.

Scope. .................................................................................................... 34

SECTION 2.

General Principles. ............................................................................... 34

SECTION 3.

Due Process Requirement in the Issuance of a Deficiency Tax Assessment........................................................................................... 34

SECTION 4.

Civil Penalties. ...................................................................................... 38

Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 3


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SECTION 5.

Mode of Procedures in Computing for the Tax and/or Applicable Surcharge. ............................................................................................. 39

SECTION 6.

Suggested Compromise Penalty in Extra-judicial Settlement of a Taxpayer's Criminal Violation. ............................................................. 46

SECTION 7.

Repealing Clause. ................................................................................. 46

SECTION 8.

Effectivity. ............................................................................................. 46

Revenue Memorandum Circular (RMC) No. 38-13 .......................................................... 47 Revenue Memorandum Circular (RMC) No. 39-13 .......................................................... 49 Revenue Memorandum Circular (RMC) No. 11-14 .......................................................... 51 Revenue Memorandum Order (RMO) No. 26-16 .............................................................. 53



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A. Stages/Life of a Tax Assessment

Issuance of Letter of Authority (LOA)

LOA is valid only for 30 days from the date of issue.

BIR Fieldwork/Walkthrough

BIR fieldwork/walkthrough should be done within 120 days after the issuance of LOA.

Issuance of Preliminary Assessment Notice (PAN)

Protest to the PAN and supporting documents should be submitted within 15 days after receipt of the same, otherwise, FAN will automatically be issued by the BIR.

Issuance of Final Assessment Notice (FAN)

Protest to the FAN should be submitted within 30 days after receipt of the same. Supporting documents, on the other hand, must be submitted within 60 days from the time of the filing of the protest, otherwise, the assessment will become final and executory.

Issuance of Final Decision on Disputed Assessment (FDDA)

If the protest of the taxpayer is denied in partial or in full, the Commissioner or his duly authorized representative shall issue a FDDA to the taxpayer.

Court Proceedings

In case the protest of the taxpayer is denied in partial or in full or the protest is not acted upon by the BIR, the taxpayer has the option to elevate the case to the Court of Tax Appeals.



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B. Letter of Authority (LOA) & BIR Fieldwork/Walkthrough 1. When does the BIR audit process begin? The audit process commences with the issuance of a Letter of Authority (LOA) to a taxpayer who has been selected for audit. 2. What is a Letter of Authority (LOA)? A LOA is the authority given to the appropriate revenue officer to examine the books of account and other accounting records of the taxpayer in order to determine the taxpayer's correct internal revenue liabilities and for the purpose of collecting the correct amount of tax, in accordance with Section 5 of the Tax Code, which gives the CIR the power to obtain information, to summon/examine, and take testimony of persons. The LOA commences the audit process and informs the taxpayer that it is under audit for possible deficiency tax assessment.1 There must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity. As part of due process, the purpose of the LOA is not only to give the subject taxpayer notice on the coverage of the tax investigation, but also to prevent the examiner from claiming blanket authority to conduct the audit and investigation.2 3. Differentiate Letter of Authority (LOA) from Letter Notice (LN). Letter of Authority (LOA) Letter Notice (LN) 1. LOA addressed to a revenue officer 1. LN is not found in the NIRC and is is specifically required under the only for the purpose of notifying the NIRC before an examination of a taxpayer that a discrepancy is found taxpayer may be conducted. based on the BIR’s RELIEF System. 2. LOA is valid only for 30 days from 2. LN does not contain such limitation. the date of issue. 3. LOA gives the revenue officer only a period of 120 days from receipt of LOA to conduct his examination of the taxpayer.

3. LN does limitation.3

not

contain

such

1

Commissioner of Internal Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941 November 9, 2016. 2 Dakay Construction and Development Corporation v. CIR, CTA Case EB No. 1294, September 20, 2016. 3 Medicard Philippines Inc. v. Commissioner of Internal Revenue, G.R. No. 222743, April 15, 2017.



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4. Explain the so-called RELIEF System “Preprocessed” RELIEF data refer to historical data on Summary List of Purchases (SLP)/Summary List of Sales (SLS) that were matched with ITS registration information.4 Under the RELIEF System, a revenue officer may begin an examination of the taxpayer even prior to the issuance of LN or even in the absence of an LOA with the aid of a computerized/manual matching of taxpayers’ documents/records. Accordingly, under the RELIEF System, the presumption that the tax returns are in accordance with law and are presumed correct since these are filed under the penalty of perjury are easily rebutted and the taxpayer becomes instantly burdened to explain a purported discrepancy.5 The BIR’s RELIEF System usually compares the taxpayers’ Summary List of Sales (SLS) and Summary List of Purchases (SLP) and base the assessment, if any, on the discrepancies that were noted. For example: Company A bought goods from Company B for P100 (VAT exclusive)6 On the part of Company A, it will record the above-mentioned sales in its SLS. Company B, on the other hand, will record its purchases in its SLP. Both SLS and SLP are submitted with the BIR either manually or electronically on a quarterly basis. The RELIEF system will then compare if there were no discrepancies between the recorded sales and purchases of Company A and Company B. If the system reveals any discrepancy, an assessment will be issued accordingly. Usually the findings under RELIEF System will cover undeclared sales and/or undeclared purchases. There is undeclared sales if the total purchases of one party (the buyer) is greater than the amount declared as sales by the other party (the seller). In this case, possible deficiency income tax may arise based on the computed difference. By using the above-mentioned example, there is undeclared sales in case the parties reflected the following information in their SLS and SLP: SLS (Company A) = 100 SLP (Company B) = 112 Difference 12 (Will be construed as undeclared sales of Company A) Undeclared purchases, on the other hand, arise if the total sales of one party (the seller) is greater than the amount declared as purchases by the other party (the buyer). In here, the BIR may issue possible deficiency income tax and/or deficiency expanded withholding tax for the noted difference.

4

Revenue Memorandum Order (RMO) No. 06-17 Medicard Philippines Inc. v. Commissioner of Internal Revenue, G.R. No. 222743, April 15, 2017 6 Assuming both Companies are VAT-registered entities 5



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For example: SLS (Company A) = 112 SLP (Company B) = 100 Difference 12 (Will be construed as undeclared purchases of Company B) It is easier to dispute undeclared purchases because it can be argued that for income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount or not claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein.7 Lastly, the generation of LN may also arise from the “Preprocessed” BOC data. The said data, on the other hand, refer to importation details showing individual transactions enhanced with registration information matching. 5. Who are the taxpayers which will be covered by the RELIEF System? Access to “Preprocessed” RELIEF and BOC data shall be limited to taxpayers for whom Letters of Authority (LAs) have been issued provided that request for access is covered by a Request Form (RF) duly approved by the concerned Regional Director (RD), Assistant Commissioner (ACIR) or Deputy Commissioner (DCIR).8 6. Can a Letter Notice (LN) replace a Letter of Authority (LOA)/e-LOA? No. Simply put, LN is entirely different and serves a different purpose than a LOA. Due process demands, as recognized under RMO No. 32-2005, that after an LN has serve its purpose, the revenue officer should have properly secured an LOA before proceeding with the further examination and assessment of the taxpayer.9 In case the BIR did not served the LOA to the concerned taxpayer, the assessment will be considered as null and void because the former violated the right of due process of the latter. 7. Is it possible to convert an LN into a LOA/e-LOA? Yes. In case the discrepancies remained unresolved at the end of the 120 day period from the date of the issuance of the LN, the revenue officer (RO) assigned to handle the LN shall recommend the issuance of LA to replace the LN.10 8. Is the settlement and payment of deficiency tax(es) under LN preclude the BIR from issuing a LOA/e-LOA? No. The settlement and payment of the deficiency tax(es) under an LN shall not preclude the Bureau from issuing a Letter of Authority (LOA) covering the comprehensive audit of a taxpayer's tax liability. However, any payment of deficiency tax(es) shall be credited against any assessment that may be made by the appropriate BIR Office pursuant to a notice of investigation or LOA provided the discrepancies

7

CIR v. Phoenix Assurance Co. Ltd., G.R. No. L-19727, May 20, 1965 Revenue Memorandum Order (RMO) No. 06-17 9 Medicard Philippines Inc. v. Commissioner of Internal Revenue, G.R. No. 222743, April 15, 2017 10 Revenue Memorandum Order (RMO) No. 32-05 8



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disclosed by said audit are of the same nature as the discrepancies reflected in the LN.11 9. Who are the BIR personnel who are authorized to sign a LOA/e-LOA? Back then, only the following BIR officials are authorized to issue and sign Letters of Authority: a. Regional Directors; b. Deputy Commissioners; and c. Commissioner. For the exigencies of the service, other officials may be authorized to issue and sign Letters of Authority but only upon prior authorization by the Commissioner himself.12 Starting 2010, in accordance with the computerization endeavors of the BIR, electronic LOA (e-LOA) was born. Now the e-LOA shall bear the name, designation and electronic signature of the approving BIR officials as follows: Investigating Office Approving Official Revenue District Office Regional Director (RDO) LTS13 and its Division

Assistant Commissioner (ACIR) – LTS

ES14 and its Division

Deputy Commissioner – Legal and Inspection Group CIR, or any other authorized Bureau Official.15

Task Forces & Special Team

10. What is the effect in case the LOA/e-LOA is not signed by the authorized BIR officials? Clearly, there must be a grant of authority before any revenue officer can conduct an examination or assessment. Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence of such an authority, the assessment or examination is a nullity.16 11. Who has the authority to serve the LOA/e-LOA? The e-LOA shall be served by any one of the Revenue Officers whose name appear on the e-LOA.

11

Ibid. Revenue Memorandum Order (RMO) No. 43-90 13 Large Taxpayers Service (LTS) 14 Enforcement Service (ES) 15 Revenue Memorandum Order (RMO) No. 44-10 16 Commission of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010 12



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The names of the Revenue Officers (ROs) assigned to a particular case shall be printed on the corresponding electronic LA. The first name on the space provided shall be the lead RO.17 Hence, the taxpayer may refuse to accept the e-LOA in case the person who is serving the same is not included therein. 12. Is the issuance of a manually-prepared LOA still valid? No manually-prepared LA shall be issued after the date of effectivity of the 2010 Audit Program.18 Therefore, taxable period starting 2011 should be covered by e-LOA. 13. Can the e-LOA contain more than one taxable year? Yes, provided that the other periods or years must be specifically and expressly identified. Section C of RMO No. 43-90 provides that: “A Letter of Authority [LOA] should cover a taxable period not exceeding one taxable year. The practice of issuing [LOAs] covering audit of unverified prior years is hereby prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the [LOA].” What this provision clearly prohibits is the practice of issuing LOAs covering audit of unverified prior years. RMO 43-90 does not say that a LOA which contains unverified prior years is void. It merely prescribes that if the audit includes more than one taxable period, the other periods or years must be specified. The provision read as a whole requires that if a taxpayer is audited for more than one taxable year, the BIR must specify each taxable year or taxable period on separate LOAs. Read in this light, the requirement to specify the taxable period covered by the LOA is simply to inform the taxpayer of the extent of the audit and the scope of the revenue officer's authority. Without this rule, a revenue officer can unduly burden the taxpayer by demanding random accounting records from random unverified years, which may include documents from as far back as ten years in cases of fraud audit.19 14. Can e-LOA cover an audit for “unverified prior years”? No. the practice of issuing L/As (LOA) covering audit of "unverified prior years" is hereby prohibited. If the audit of a taxpayer shall include more than one taxable period, the other periods or years shall be specifically indicated in the L/A (LOA).20

17

Revenue Memorandum Order (RMO) No. 44-10 Ibid. 19 Commissioner of Internal Revenue v. De La Salle University, Inc., G.R. Nos. 196596, 198841 & 198941 November 9, 2016. 20 Revenue Memorandum Order (RMO) No. 43-90 18



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15. What is the prescribed period in serving the e-LOA? A Letter of Authority must be served or presented to the taxpayer within 30 days from its date of issue, otherwise, it becomes null and void unless revalidated and the taxpayer has all the right to refuse its service if presented beyond the 30-day period.21 A perusal of the afore-cited revenue memorandum orders and regulations would show that the statements use the terms "must", "shall", and "should", thus, applying the principle in statutory construction, they are couched in terms that impose a duty which is imperative and mandatory in nature. Considering that these guidelines for the examination of returns and issuance of letters of authority to audit are mandatory, a deviation from these obviously renders the result of the audit and examination defective. Hence, the LOA no longer has any force or effect having been served on the taxpayer beyond the prescribed 30-day period. The assessment conducted by the Revenue Officers was already unauthorized, because there was no valid LOA covering it.22 16. Procedures in revalidating e-LOA. Expired LOA should have been revalidated by the BIR in accordance with its own revenue issuances that is by issuing and serving a new LOA with the corresponding notation thereto, including the previous LOA number and date of issue of said LOA instead of just proceeding to issue the expired LOA.23 17. Is the issuance of a “Revalidation Notice” valid? No. The Revalidation Notice stating that the LOA has been revalidated does not cure the infirmities in the issuance of the LOA and the BIR's conduct of examination prior to the said revalidation. Hence, the tax audit and examination conducted by the Revenue Officer pursuant to an invalid LOA as well as the assessment issued as a consequence thereof are null and void.24 The moral of this case is that a new LOA/e-LOA should be issued to the taxpayer. The mere issuance of a revalidation notice to such taxpayer will not suffice. 18. Can the taxpayer amend its/his return after the receipt of the e-LOA? No. A taxpayer is prohibited to amend its/his return if there is a notice of audit or investigation regarding such return.25 LOA is a form of notification, hence, it prohibits the taxpayer in amending his return which is currently being under audit/examination. Therefore, taxpayer is not prohibited to amend returns which are not covered by the LOA.

21

Revenue Audit Memorandum Order (RAMO) No. 02-95 Dakay Construction and Development Corporation v. CIR, CTA Case EB No. 1294, September 20, 2016. 23 Ibid. 24 Ibid. 25 Sec. 6(A) of the NIRC, as amended 22



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19. How many days should the tax audit/investigation take place after the issuance of the e-LOA? A revenue officer shall within one hundred twenty (120) days from the date of the issuance of Letter of Authority conduct his audit and submit his investigation. While the case is pending completion a progress report shall be submitted every end of the month to the head of the audit office, copy furnished the issuing authority. If the final report is not completed within the 120-day period, the revenue officer shall then return the Letter of Authority for revalidation. The revalidation shall be limited to one issuance only and is done by issuing a new Letter of Authority.26 20. What is the effect in case the Revenue Officer’s (ROs) audit/examination exceeded the 120-day period? The LOA/e-LOA will not be invalidated in case the audit/examination of the RO exceeded the 120-day period. In fact, in the case of AFP General Insurance Corp. v. CIR, the court agreed with the observation made by the Court in Division that there is nothing in RMO No. 38-88 and RMC No. 40-2006 that indicates that the LOA will be invalidated if not revalidated within the 120-day period.27 However, the failure of the RO to complete the audit within the prescribed period shall be subject to the applicable administrative sanctions.28 21. How to spot a defective e-LOA The taxpayer should check the following in order to determine if the e-LOA that was issued to them is valid or not: a) Determine if the period under audit/examination is specifically and expressly indicated in the e-LOA. b) Check the authority of the signatory of the e-LOA. c) Check if all BIR officers who are currently conducting the examination is duly indicated in the e-LOA.29 d) Check if the Preliminary Assessment Notice (PAN) and/or Final Assessment Notice (FAN) arose from an existing valid e-LOA and not from an existing LN. If one of the above-mentioned instances are not complied with, the e-LOA issued to the taxpayer is invalid, hence, any tax assessment related thereto is deemed null and void. In case the taxpayer spots any of the above-mentioned instances, it is appropriate to bring this issue in the reply to Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN), and/or with the Court of Tax Appeals (CTA) in order to invalidate the eLOA that was issued by the BIR. Therefore, taxpayers should attack not only the legal issue but also the procedural aspects of tax assessment cases.

26

Sec. 3 of DOF Department Order No. 06-99 AFP General Insurance Corp. v. CIR, CTA EB Case No. 1223, January 4, 2016 28 Revenue Memorandum Order (RMO) No. 44-10 29 The taxpayer should maintain a log-book and photocopy of the IDs of the ROs in order to prove whether or not such ROs have the authority to conduct the said audit/investigation. 27



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22. Tax assessments are presumed correct and made in good faith Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.30 23. Is there an instance where the taxpayer can deny the receipt of the e-LOA? Yes. The taxpayer may deny/refuse the receipt of LOA/e-LOA in the following cases: a) In case the person who serves the same has no authority to do so. Note that the electronic LA shall be served by any one of the ROs whose names appear on the LA/e-LOA.31 If the RO is not duly indicated in the e-LOA, the taxpayer has the right to reject the receipt of the same. For verification purposes, it is advisable for the taxpayer to check and verify the ID of the examiner who is serving the e-LOA and compare it to the list of names indicated therein. b) If the LOA/e-LOA was served beyond the 30-day mandatory period.32 24. Can a taxpayer be audited for 3 consecutive years? As a general rule, taxpayers should be audited for 2 consecutive years only. However,33 if the taxpayer has been audited for the last two (2) years and has been again selected for audit on the current or 3rd year, the RDO/LTD/LTAD shall submit a written explanation to the Commissioner, copy furnished the DCIR-OG for Regional cases, as to why such taxpayer shall be subjected to audit for three (3) succeeding years, unless the RDO/LTD/LTAD has established that such taxpayer has an under declaration of sales/income or overstatement of expenses/deductions by at least 30% (prima facie evidence of fraud).34 Based on RMO 64-2016, the 3-year consecutive audit of the same taxpayer can be approved by the regional director or assistant commissioner who heads the investigating office. 25. What is the period of limitation to assess? Internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall begun after the expiration of such period: Provided, that in a case where a return is filed beyond the period prescribed by law, the return is filed beyond the three (3)-year period shall be counted from the day

30

CIR v. Traders Royal Bank, G.R. No. 167134, March 18, 2015 Revenue Memorandum Order (RMO) No. 44-10 32 Revenue Audit Memorandum Order (RAMO) No. 01-00, as confirmed by the case of AFP General Insurance Corp. v. CIR, CTA EB Case No. 1223, January 4, 2016. 33 This is the exception to the general rule 34 Revenue Memorandum Order (RMO) No. 19-15 31



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the return was filed. A return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such day.35 In case an amended return is filed, the period of limitation of the right to issue an assessment should be counted from the filing of the amended return if it is substantially different from the original return. However, the prescriptive period to assess shall commence from the filing of the original return if it is sufficiently complete to enable the BIR to intelligently determine the proper amount to be assessed. 26. What are the exceptions to the period of limitation to assess? a. In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment,, at any time within 10 years after the discovery of the falsity, fraud or omission: Provided, that in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. b. If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. c. Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. d. Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5)-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. e. Provided, however, That nothing in the immediately preceding Section and paragraph (a) hereof 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.36

35 36

Sec. 203 of the NIRC, as amended Sec. 222 of the NIRC, as amended



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C. Issuance of Preliminary Assessment Notice (PAN) 1. What is a Preliminary Assessment Notice (PAN)? If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment.37 The PAN is a communication issued by the Regional Assessment Division, or any other concerned BIR Office, informing a Taxpayer who has been audited of the findings of the Revenue Officer, following the review of these findings. The taxpayer should not be wary in case he received a PAN from the BIR. The taxpayer should instead prepare a protest letter contesting the BIR’s findings and submit all relevant documents in order to support his contention. 2. What is the content of the PAN? It shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based. This is consonant with the provision of the Tax Code which states that the taxpayer shall be informed in writing of the law and the facts on which the assessment is made.38 3. Is the taxpayer required to be notified of his deficiency tax liabilities through a PAN? Yes. Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN (Preliminary Assessment Notice). He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations — that taxpayers should be able to present their case and adduce supporting evidence.39 4. What is the consequence if the BIR fails to issue a PAN and subsequently issues a Final Assessment Notice (FAN) instead? The absence of a PAN is fatal to the validity of an assessment.40 It is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorities.41

37

Sec. 3.1.1 of Revenue Regulations (RR) No. 12-99, as amended Sec. 228 of the National Internal Revenue Code (NIRC), as amended 39 Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010 40 Direct Container Line Phils., Inc. v. CIR, CTA Case No. 7616, August 4, 2014. 41 Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010 38



END Tax Notes

5. What are the instances where the PAN is not required? Pursuant to Section 228 of the Tax Code, as amended, a PAN shall not be required in any of the following cases: a.

When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or

b.

When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

c.

When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

d.

When the excise tax due on excisable articles has not been paid; or

e.

When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

In the above-cited cases, a Formal Letter of Demand (FLD)/ Final Assessment Notice (FAN) shall be issued outright.42 6. Who has the authority to sign and issue the PAN? The following persons have the authority to sign and issue the PAN: a. b. c. d.

Commissioner of Internal Revenue (CIR); Revenue Regional Directors; Assistant Commissioner-Large Taxpayers Service; or Assistant Commissioner-Enforcement and Advocacy Service.43

7. What is the consequence in case the person who signs the PAN has no authority to sign the same? Similar to the rules on e-LOA, in the absence of such an authority, the assessment or examination is a nullity.44 8. To whom should the taxpayer submit his response to the PAN? Taxpayers shall submit/file their responses to the PAN with the duly authorized representative of the Commissioner who signed the PAN.45

42

Sec. 3.1.2 of Revenue Regulations (RR) No. 12-99, as amended Revenue Memorandum Circular (RMC) No. 11-14 44 Commission of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010 45 Revenue Memorandum Circular (RMC) No. 11-14 43



END Tax Notes

9. Is the taxpayer allowed to make voluntary payments prior to the issuance of PAN? Yes. Prior to the issuance of the PAN, the taxpayer may be allowed to make voluntary payments of probable deficiency taxes and penalties.46 10. Where should the PAN be served? The notice (PAN/FLD/FAN/FDDA) shall first be served to the taxpayer's registered address before the same may be served to the taxpayer's known address, or in the alternative, may be served to the taxpayer's registered address and known address simultaneously.47 11. Who has the authority to receive the PAN? The taxpayer or his duly authorized representatives. 12. What is the effect in case the taxpayer fails to respond to the PAN? If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. If the taxpayer, within fifteen (15) days from date of receipt of the PAN, responds that he/it disagrees with the findings of deficiency tax or taxes, an FLD/FAN shall be issued within fifteen (15) days from filing/submission of the taxpayer's response, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.48 From the foregoing, it can be deduced that a FAN will still be issued whether or not the taxpayer protest the findings of the BIR. In fact, the BIR has issued an order which states that the protest against Preliminary Assessment Notice (PAN) is optional/not mandatory.49 But it will benefit the taxpayer if he opts to respond to the PAN so that the amount that will be reflected per FAN will be at reduced amounts and will only reflect contested issues. 13. Can the taxpayer pay the deficiency tax reflected per PAN? Yes, the taxpayer may opt to pay the deficiency tax reflected per PAN if he agrees with the findings of the BIR. In this case, a FLD/FAN shall be issued to formalize the assessment, and Payment Form 0605 shall be duly prepared, filed and paid to acknowledge and provide evidence for the settlement of the assessment or portion of the assessment paid.50 However, the taxpayer should ensure to get an Authority to Cancel Assessment (ATCA) from the BIR to evidence the cancellation of the assessment.51

46

Ibid. Commission of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010 48 Sec. 3.1.1 of Revenue Regulations (RR) No. 12-99, as amended 49 Revenue Memorandum Order (RMO) No. 26-16 50 Ibid. 51 Ibid. 47



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14. How can the taxpayer determine if there is a denial of the response to the PAN? If there is a FLD/FAN issued reiterating the immediate payment of deficiency taxes and penalties previously made in the PAN is a denial of the response to the PAN.52

52

Revenue Memorandum Circular (RMC) No. 11-14



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D. Issuance of Final Assessment Notice (FAN) 1. What is a Final Assessment Notice (FAN)? The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by the Commissioner or his duly authorized representative to the taxpayer after 15 days following the receipt of the PAN. 2. What is the content of the FAN? The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the assessment shall be void.53 The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that the requirement of informing the taxpayer of the legal and factual bases of the assessment and the decision made against him is mandatory. The requirement of providing the taxpayer with written notice of the factual and legal bases applies both to the FLD/FAN and the FDDA.54 3. What is the effect in case the BIR issued the FAN/FLD in advance or before the issuance of the PAN? It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived shall be deprived of property without due process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus while taxes are the lifeblood of the government, the power to tax has its limits, in spite of all its plenitude.55 In the case of Pacquiao v. Milabao, it can be inferred that the BIR had no intention of giving the taxpayer to be heard on her arguments against the PAN, if any. Clearly, respondent failed to observe due process when BIR issued the FLD/FAN even before petitioner supposedly receive the PAN.56 It is worthy to note that the FLD/FAN was issued 2 days before the issuance of PAN. In this case, the CTA upheld the supremacy of the Constitution and declared the assessment void and nugatory. 4. What is the effect in case the FAN was issued prior to the lapse of the 15 day period to respond to the PAN? The assessment is still void. It is well settled that the right of the taxpayer to respond to the PAN is an important part of the due process requirement in the issuance of a 53

Sec. 3.1.3 of Revenue Regulations (RR) No. 12-99, as amended Commissioner of Internal Revenue v. Liquigaz Philippines Corp., G.R. Nos. 215534 & 215557, April 18, 2016 55 Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010 56 Dionisia D. Paquiao v. Milabao, CTA Case No. 9039, May 30, 2017 54



END Tax Notes 57

deficiency tax assessment. Hence, the BIR should respect the 15-day period to respond to the PAN before it issues the FAN. 5. Who has the authority to sign the FAN? The following persons have the authority to sign and issue the FAN: a. b. c. d.

Commissioner of Internal Revenue (CIR); Revenue Regional Directors; Assistant Commissioner-Large Taxpayers Service; or Assistant Commissioner-Enforcement and Advocacy Service.58

6. What is the consequence in case the person who signs the PAN has no authority to sign the same? Similar to the rules on e-LOA and PAN, in the absence of such an authority, the assessment or examination is a nullity.59 7. Effect in case the taxpayer denies the receipt of FAN If the taxpayer denies having received an assessment from the BIR, it then becomes incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. Here, the onus probandi has shifted to the BIR to show by contrary evidence that the taxpayer indeed received the assessment in the due course of mail. It has been settled that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion, the direct denial of which shifts the burden to the sender to prove that the mailed letter was, in fact, received by the addressee. The BIR's failure to prove the taxpayer's receipt of the assessment leads to no other conclusion but that no assessment was issued.60 8. Best proof in order to prove that the FAN was received by the taxpayer To prove the fact of mailing, it is essential to present the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer or its authorized representative. And if said documents could not be located, the CIR should have, at the very least, submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document executed with its intervention. The Court does not put much credence to the self-serving documentations made by the BIR personnel, especially if they are unsupported by substantial evidence establishing the fact of mailing.

57

CIR v. Hermano (San) Miguel Febres Cordero Medical Education Foundation, Inc., CTA EB No. 1151, February 17, 2015 58 Revenue Memorandum Circular (RMC) No. 11-14 59 Commissioner of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697, November 17, 2010 60 Commissioner of Internal Revenue v. GJM Philippines Manufacturing, Inc., G.R. No. 202695, February 29, 2016



END Tax Notes

While it is true that an assessment is made when the notice is sent within the prescribed period, the release, mailing, or sending of the same must still be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention, notice or control, and without adequate supporting evidence cannot suffice. Otherwise, the defenseless taxpayer would be unreasonably placed at the mercy of the revenue offices.61 9. What is the remedy of the taxpayer in case he receives a FAN from the BIR? The taxpayer or its authorized representative or tax agent may protest administratively against the aforesaid FLD/FAN within thirty (30) days from date of receipt thereof. 62 Also, if the taxpayer agrees with the issues that were raised by the BIR in the FAN, he has the option to pay the noted deficiency taxes and the penalties related thereto. 10. What is the effect in case the taxpayer fails to respond to the FAN within 30 days after receipt of the same? If the taxpayer fails to file a valid protest against the FLD/FAN within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable. No request for reconsideration or reinvestigation shall be granted on tax assessments that have already become final, executory and demandable.63 11. Can the FLD/FAN be issued beyond the fifteen (15) days from the filing/submission of the taxpayer’s response to the PAN? Yes. An FDL/FAN issued beyond fifteen (15) days from filing/submission of the taxpayer's response to the PAN shall be valid, provided that, it is issued within the period of limitation to assess internal revenue taxes. The non-observance of the fifteen (15)-day period, however, shall constitute an administrative infraction and the revenue officers who caused the delay shall be subject to administrative sanctions as provided for by law and pertinent revenue issuances.64 12. In case the taxpayer opts to protest the FAN issued by the BIR, what should be the contents of the protest letter? Taxpayer shall state in his protest the following details: a. The nature of protest whether reconsideration or reinvestigation, specifying newly discovered or additional evidence he intends to present if it is a request for reinvestigation; b. Date of the assessment notice; and c. The applicable law, rules and regulations, or jurisprudence on which his protest is based.65

61

Ibid. Sec. 3.1.4 of Revenue Regulations (RR) No. 12-99, as amended 63 Ibid. 64 Revenue Memorandum Circular (RMC) No. 11-14 65 Sec. 3.1.4 of Revenue Regulations (RR) No. 12-99, as amended 62



END Tax Notes

13. What is the effect in case the taxpayer fails to state the foregoing in its protest letter? The taxpayer’s protest shall be considered void and without force and effect.66 14. Can the taxpayer do a partial protest? Yes. If there are several issues involved in the FLD/FAN but the taxpayer only disputes or protests against the validity of some of the issues raised, the assessment attributable to the undisputed issue or issues shall become final, executory and demandable; and the taxpayer shall be required to pay the deficiency tax or taxes attributable thereto, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax or taxes, inclusive of the applicable surcharge and/or interest.67 15. Differentiate a reinvestigation.

written

request

for

reconsideration

from

request

for

Request for reconsideration Request for reinvestigation As to Definition: Refers to a plea of re-evaluation of an Refers to a plea of re-evaluation of an assessment on the basis of existing assessment on the basis of newly records without need of additional discovered or additional evidence that a evidence. It may involve both a question taxpayer intends to present in the of fact or of law or both. reinvestigation. It may also involve a question of fact or of law or both.68 As to the suspension of the 3 year prescription period: Shall not suspend the prescriptive period Shall suspend the prescriptive period to to collect. collect.69 As to evidence: Limited to the evidence already at hand. Entails the reception and evaluation of Hence, submission of additional additional evidence.70 Failure to submit documents are not required. supporting documents within 60 days from the filing of the protest letter will make the assessment final and executory. As to the approval of the Commissioner: Can be availed so long as the request is BIR Commissioner must first grant the duly indicated in the protest letter. request for reinvestigation.71

It is advisable to protest under reconsideration if the issue/s involved are purely legal and industry specific, hence, cannot be solved by mere submission of supporting documents. As you know there are many grey areas in tax which are currently 66

Ibid. Ibid. 68 Sec. 3.1.4 of Revenue Regulations (RR) No. 12-99, as amended 69 Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 139736, October 17, 2005 70 Ibid. 71 Ibid. 67



END Tax Notes

unresolved as of this date. For these instances, it is proper leave those matters to the Courts. Also, one of the advantages of this request is that it will not stop the running of the 3-year prescriptive period to assess. The rationale of the suspension is that a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot.72 In the case of BPI v. CIR,73 the Supreme Court held that the assessment for the taxable year 1985 has already prescribed due to the fact that the request for reconsideration was filed by the taxpayer on June 23, 1989 while the decision of the BIR was issued only on August 4, 1998, which is way beyond the 3-year prescription to assess. Request for reinvestigation, on the other hand, should be pleaded in case the BIR conducts and issue an assessment notice based on the table audit that they have conducted and the taxpayer has reasonable grounds to refute such findings by presenting additional supporting documents. Table audit means that the examiner shall only compare the figures per taxpayer’s books/audited financial statements (AFS) versus per tax returns filed and assess the taxpayer base on the difference that were noted. And due to the voluminous document request of the BIR, the taxpayer fails to submit all documents on time. This is very unfair to the taxpayer because the assessment in this case is based on mere presumptions. Ideally, the BIR should first gather the required facts by going to the taxpayer’s premises and conduct interviews/inspect supporting documents which can corroborate with the facts that were gathered. However, due to lack of personnel/manpower, the BIR usually do their audit this way. As a result, majority of assessments are bloated and devoid of merit. The BIR always argue the presumption of regularity on their side. Note that tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments.74 Hence, taxpayers should always be diligent in checking the veracity of the tax assessment issued by the BIR since some issues are not based on facts but on mere presumptions. 16. Procedures in availing request for reconsideration.75 1st Step: Indicate the taxpayer’s intention to avail the same in the protest letter. Also, it is required on the part of the taxpayer to indicate in the date of the assessment, facts, law, rules and regulations, or jurisprudence on which his protest is based. 2nd Step: File the protest letter with the BIR within thirty (30) days from the receipt of the FAN. 72

Bank of the Philippine Islands v. Commissioner of Internal Revenue, G.R. No. 181836, July 9, 2014 Ibid. 74 Commissioner of Internal Revenue v. Traders Royal Bank, G.R. No. 167134, March 18, 2015 & Sy Po v. Court of Tax Appeals, 247 Phil. 487 (1988) 75 Sec. 3.1.4 of Revenue Regulations (RR) No. 12-99, as amended 73



END Tax Notes

3rd Step: In case the protest is denied, in whole or in part, by the Commissioner's duly authorized representative, the taxpayer may either: (i) (ii)

Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the said decision; or Elevate his protest through request for reconsideration to the Commissioner within thirty (30) days from date of receipt of the said decision.

OR If the protest is not acted upon by the Commissioner's duly authorized representative within one hundred eighty (180) days counted from the date of filing of the protest in case of a request reconsideration, the taxpayer may either: (i) (ii)

Appeal to the CTA within thirty (30) days after the expiration of the one hundred eighty (180)-day period; or Await the final decision of the Commissioner's duly authorized representative on the disputed assessment.

However, the taxpayer should bear in mind that the above-mentioned options are mutually exclusive and resort to one bars the application of the other.76 From the foregoing, it can be deduced that the assessment may be appealed further to the Commissioner of Internal Revenue (CIR) in case there is a partial or whole denial of the assessment made by the Commissioner’s duly authorized representative. Note that the taxpayer is given an opportunity under the law to elevate the case with the Commissioner. Hence, the taxpayer should study the cost and benefit of appealing the contested assessment with the CIR versus the amount that will be incurred in case the same is elevated to the judicial level. Thereafter, the taxpayer should choose the option that is more favourable to him. 4th Step (in case the protest is elevated to the Commissioner): If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the Commissioner, the taxpayer may: (i) (ii)

Appeal to the CTA within thirty (30) days from date of receipt of the said decision; or File a motion for reconsideration to the Commissioner. However, the filing of the motion shall not toll the thirty (30)-day period to appeal to the CTA.

OR If the protest or administrative appeal is not acted upon by the Commissioner within one hundred eighty (180) days counted from the date of filing of the protest, the taxpayer may either: (i)

76

Appeal to the CTA within thirty (30) days from after the expiration of the one hundred eighty (180)-day period; or

Lascona Land Co., Inc. vs. Commissioner of Internal Revenue, G.R. No. 171251, March 5, 2012



(ii)

END Tax Notes

Await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within thirty (30) days after the receipt of a copy of such decision.

However, the taxpayer should bear in mind that the above-mentioned options are mutually exclusive and resort to one bars the application of the other.77 17. Procedures in availing request for reinvestigation.78 1st Step: Indicate the taxpayer’s intention to avail the same in the protest letter. Also, it is required on the part of the taxpayer to indicate in the date of the assessment, facts, law, rules and regulations, or jurisprudence on which his protest is based. 2nd Step: File the protest letter with the BIR within thirty (30) days from the receipt of the FAN. 3rd Step: The taxpayer shall submit all relevant supporting documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final. The term "the assessment shall become final" means that the failure of the taxpayer who requested for a reinvestigation to submit all relevant supporting documents within the sixty (60)-day period shall render the FLD/FAN "final" by operation of law. He/it shall be barred from disputing the correctness of the FLD/FAN by the introduction of newly discovered or additional evidence because he/it is deemed to have lost his/its chance to present these evidence. The BIR shall then deny the request for reinvestigation through the issuance of an FDDA.79 The term "relevant supporting documents" refer to those documents necessary to support the legal and factual bases in disputing a tax assessment as determined by the taxpayer. Rationale: The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit.80 4th Step: In case the protest is denied, in whole or in part, by the Commissioner's duly authorized representative, the taxpayer may either: (i) (ii)

Appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the said decision; or Elevate his protest through request for reconsideration to the Commissioner within thirty (30) days from date of receipt of the said decision.

77

Ibid. Sec. 3.1.4 of Revenue Regulations (RR) No. 12-99, as amended 79 Revenue Memorandum Circular (RMC) No. 11-14 80 Commissioner of Internal Revenue v. First Express Pawnshop Company, Inc., G.R. Nos. 17204546, June 16, 2009 78



END Tax Notes

OR If the protest is not acted upon by the Commissioner's duly authorized representative within one hundred eighty (180) days counted from the date of filing of the protest in case of a request reconsideration, the taxpayer may either: (i) (ii)

Appeal to the CTA within thirty (30) days after the expiration of the one hundred eighty (180)-day period; or Await the final decision of the Commissioner's duly authorized representative on the disputed assessment.

However, the taxpayer should bear in mind that the above-mentioned options are mutually exclusive and resort to one bars the application of the other. From the foregoing, it can be deduced that the assessment may be appealed further to the Commissioner of Internal Revenue (CIR) in case there is a partial or whole denial of the assessment made by the Commissioner’s duly authorized representative. Note that the taxpayer is given an opportunity under the law to elevate the case with the Commissioner. Hence, the taxpayer should study the cost and benefit of appealing the contested assessment with the CIR versus the amount that will be incurred in case the same is elevated to the judicial level. Thereafter, the taxpayer should choose the option that is more favourable to him. 5th Step (in case the protest is elevated to the Commissioner): If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the Commissioner, the taxpayer may: (i) (ii)

Appeal to the CTA within thirty (30) days from date of receipt of the said decision; or File a motion for reconsideration to the Commissioner. However, the filing of the motion shall not toll the thirty (30)-day period to appeal to the CTA.

OR If the protest or administrative appeal is not acted upon by the Commissioner within one hundred eighty (180) days counted from the date of filing of the protest, the taxpayer may either: (i) (ii)

Appeal to the CTA within thirty (30) days from after the expiration of the one hundred eighty (180)-day period; or Await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within thirty (30) days after the receipt of a copy of such decision.

However, the taxpayer should bear in mind that the above-mentioned options are mutually exclusive and resort to one bars the application of the other.81

81

Lascona Land Co., Inc. vs. Commissioner of Internal Revenue, G.R. No. 171251, March 5, 2012



END Tax Notes

18. What is the main procedural difference between request for reconsideration and request for reinvestigation? In request for reinvestigation, the taxpayer is required to submit supporting documents within 60 days after the filing of the protest letter with the BIR. Otherwise, the assessment will become final and executory. In request for reconsideration, the taxpayer is not required to submit supporting documents and the only available remedy is to wait for the final decision of the BIR representative, appeal to the Commissioner of Internal Revenue (CIR), or appeal to the Court of Tax Appeals within the prescribed period/s. 19. Presumption of availment of request for reconsideration. An order issued by the BIR states that all protest shall be considered a request for reconsideration, unless said protest clearly indicates that the request is for reinvestigation.82 However, this is contrary to the requirement that protest should state whether the taxpayer is availing request for reconsideration or reinvestigation. Note that failure to expressly state the same will make the taxpayer’s protest void and without force and effect.83 Therefore, in my opinion there is no presumption regarding the availment of request for reconsideration because this is contrary to the prevailing revenue regulation. Hence, it is much safer for the taxpayer to expressly indicate in the protest whether or not he is availing request for reconsideration or reinvestigation to prevent possible disputes in the future. 20. To whom should the taxpayer file his letters of protest, requests for reinvestigation/reconsideration and similar correspondences? All letters of protest, requests for reinvestigation/reconsideration and similar correspondences shall only be filed by the taxpayers or their duly authorized representatives, in person or through registered mail with return card, with the following persons who signed the Preliminary Assessment Notices (PANs), FANs and Formal Letters of Demand: a. Office of the concerned Regional Director (RD); b. Office of the Assistant Commissioner-Large Taxpayers Service (ACIR-LTS); or c. Assistant Commissioner-Enforcement Service (ACIR-ES)84 21. What is the consequence if the protest, requests for reinvestigation/reconsideration and similar correspondences were mistakenly filed at the wrong office? This is detrimental to the taxpayer because if the aforesaid procedures are not followed, then the letters of protest, requests for reinvestigation/reconsideration and similar correspondences shall be considered void and without force and effect.85

82

Revenue Memorandum Order No. 26-16 Sec. 3.1.4 of Revenue Regulations (RR) No. 12-99, as amended 84 Revenue Memorandum Circular (RMC) No. 39-13 85 Ibid. 83



END Tax Notes

22. Is the request for reconsideration available in a protest to PAN or FDDA? No. A request for Reinvestigation shall be available in a protest to a FAN/FLD only. After the issuance of a FDDA, a request for Reinvestigation shall no longer be available as a taxpayer remedy.86 23. What are the indicators in determining the finality of the decision of the Commissioner? The following are indicators which determines the finality of the decision of the Commissioner: a. Receipt of “Final Decision on Disputed Assessment” (FDDA) This is the final decision issued by the Commissioner or his duly authorized representative with regard to protested assessment. All decisions on protest to the FAN, whether the taxpayer's protest is accepted or denied partially or wholly, shall be communicated to the taxpayer through the issuance of a Final Decision on a Disputed Assessment (FDDA).87 b. Receipt of “Final Notice Before Seizure” “Final Notice Before Seizure” should be considered as a denial of request for reconsideration of the disputed assessment. The Notice should be deemed as the taxpayer's last act, since failure to comply with it would lead to the distraint and levy of the taxpayer's properties. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR's final act regarding the request for reconsideration. The very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that respondent was being given "this LAST OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy.88 c. Receipt of “final demand letter for payment of delinquent taxes” A letter reiterating the demand of the BIR for the settlement of the assessment already made and for the immediate payment of a certain sum in spite of the vehement protest of the taxpayer is tantamount to a denial of the reconsideration or protest of the assessment. This certainly is a clear indication of the firm stand of the commissioner against the reconsideration of the disputed assessment, in view of the continued refusal of the taxpayer to execute the waiver of the period of limitation upon the assessment in question. This being so, the said letter amounted to a decision on a disputed or protested assessment.89 So long as the parties are given the opportunity to explain their side, the requirements of due process are satisfactorily complied with.90

86

Revenue Memorandum Order No. 26-16 Revenue Memorandum Order No. 26-16 88 Commissioner of Internal Revenue vs. Isabela Cultural Corp., G.R. No. 135210, July 11, 2001 89 Commissioner of Internal Revenue vs. Ayala Securities Corp., et al., G.R. No. L-29485, March 31, 1976 90 Revenue Memorandum Circular (RMC) No. 11-14 87



END Tax Notes

d. The tenor of commissioner's letter A letter of demand from the commissioner demanding not only the payment of a certain amount but also giving a warning that in the event the taxpayer fails to pay he would be constrained to enforce the collection thereof by means of legal remedies, unquestionable constitutes the final action taken by the commissioner on the taxpayer's several requests for reconsideration and recomputation. The tenor of the letter, specifically the statement regarding the resort to legal remedies, unmistakably indicated the final nature of the determination made by the commissioner of the taxpayer's deficiency franchise tax liability."91 24. After the issuance of the FDDA, can the taxpayer accept and settle the assessment contained therein, whether partially or fully? Yes. After the issuance of the FDDA, the taxpayer may accept and settle the assessment contained therein, partially or fully. Payment Form 0605 shall be prepared, filed and paid for the assessment accepted and settled by the taxpayer.92 25. What is the taxpayer’s recourse if he disagrees with the FDDA issued by the Commissioner’s duly authorized representative? If the FDDA were issued by the Commissioner's duly authorized representative, the taxpayer shall within thirty (30) days from receipt of the FDDA file a motion for reconsideration with the Commissioner of Internal Revenue or appeal to the Court of Tax Appeals. In appealing the protest to the Court of Tax Appeals, the taxpayer shall manifest and state that the appeal pertains only to the portion of the FDDA not settled and paid and attached to their appeal a copy of the duly filed and paid Payment Form 0605.93 26. Is the appeal to the Commissioner or Court of Tax Appeals, regarding the FDDA, precludes the taxpayer from voluntarily settling the assessment? No. Appeal to the Commissioner or to the Court of Tax Appeals of the FDDA, shall not preclude the taxpayer from voluntarily settling the assessment, partially or fully. Payment Form 0605 shall be duly prepared, filed and paid and the taxpayer shall manifest before the Court of Tax Appeals the fact of settlement of the assessment, partially or fully, present the duly filed and paid Payment Form 0605, and file a motion for dismissal with prejudice as to the assessment or portions thereof that has been settled and paid on the ground that the appealed disputed assessment has become moot and academic.94 27. Grounds which can make the assessment final, executory, and demandable. An assessment shall become final, executory and demandable due to, among others, the following grounds:

91

Surigao Electric Co., Inc. vs. Court of Tax Appeals, et al., G.R. No. L-25289, June 28, 1974 Revenue Memorandum Order (RMO) No. 26-16 93 Ibid. 94 Ibid. 92



END Tax Notes

a. Failure of the taxpayer to file a valid protest within thirty (30) days from receipt of the Formal Letter of Demand and Final Assessment Notice (FLD/FAN); b. Failure of the taxpayer to submit all relevant documents in support of his protest by way of request for reinvestigation within sixty (60) days from the date of filing thereof; c. Failure of the taxpayer to appeal to the Commissioner of Internal Revenue or the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the FDDA issued by the Commissioner's duly authorized representative; d. Failure of the taxpayer to appeal to the CTA within thirty (30) days from date of receipt of the FDDA issued by the Commissioner; e. Failure of the taxpayer to timely file a motion for reconsideration or new trial before the CTA Division or failure to appeal to the CTA En Banc and Supreme Court based on existing Rules of Procedure; or f. Failure of the taxpayer to receive any assessment notices because it was served in the address indicated in the BIR's registration database and the taxpayer transferred to a new address or closed/ceased operations without updating and transferring its BIR registration or cancelling its BIR registration as the case may be, through the accomplishment and filing of BIR Form No. 1905 — Application for Registration Information Update, as prescribed by pertinent issuance and/or amendments thereto.95 28. Are the provisions provided for under Revenue Regulations (RR) No. 18-13 extendible? No. All the periods provided for under RR No. 18-2013 is mandatory and nonextendible.96

95 96

Revenue Memorandum Order No. 26-16 Ibid



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E. Modes of Serving the PAN/FLD/FAN/FDDA 1. Modes of serving the PAN/FLD/FAN/FDDA to the taxpayer. a. b. c. d.

Personal Service; Substituted Service; Service by Mail; or Service to the tax agent/practitioner who is appointed by the taxpayer.

2. How “Personal Service” should be done. The notice shall be served through personal service by delivering personally a copy thereof to the party at his registered or known address or wherever he may be found.97 3. Meaning of “Known Address”? A known address shall mean a place other than the registered address where business activities of the party are conducted or his place of residence.98 4. In case personal service is not practicable, how should the PAN be served to the taxpayer? In case personal service is not practicable, the notice shall be served by substituted service or by mail.99 5. Procedures to be taken by the BIR examiner for cases involving substituted service Substituted service can be resorted to when the party is not present at the registered or known address under the following circumstances: The notice may be left at the party's registered address, with his clerk or with a person having charge thereof. If the known address is a place where business activities of the party are conducted, the notice may be left with his clerk or with a person having charge thereof. If the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein. If no person is found in the party's registered or known address, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses to the address so that they may personally observe and attest to such absence. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. Should the party be found at his registered or known address or any other place but refuse to receive the notice, the revenue officers concerned shall bring a barangay 97

Sec. 2 of Revenue Regulations (RR) No. 18-13, as amended Ibid. 99 Ibid. 98



END Tax Notes

official and two (2) disinterested witnesses in the presence of the party so that they may personally observe and attest to such act of refusal. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. "Disinterested witnesses" refers to persons of legal age other than employees of the Bureau of Internal Revenue.100 6. Will revenue officers, other than the revenue officer who constructively served the PAN/FLD/FAN/FDDA, fall within the purview of “Disinterested witnesses”? No. "Disinterested witnesses" refers to persons of legal age other than employees of the Bureau of Internal Revenue.101 Note that the new regulation prevents the collusion of revenue examiners in relation to the serving of the PAN/FLD/FAN/FDDA. Back then, revenue examiners, other than the examiner who serves the same, may testify with regard to constructive receipt. However, it can be deduced that such attestation constitutes a self-serving evidence because the examiners may collude and simulate the constructive service of the PAN/FLD/FAN/FDDA. 7. Is the attestation of the barangay official in the constructive service of PAN/FLD/FAN/FDDA a dispensable requirement? No, in fact the attestation of the barangay official is an indispensable requirement when the BIR opted to use substituted service. By the use of the conjunctive "and" will exclude the efficacy of any one of the alternatives standing alone.102 Therefore, it can be deduced that substituted service should be witnessed by the following parties: a. Barangay Official; and b. Two (2) Disinterested Witnesses. 8. Essential documentary evidence which can prove that the PAN/FLD/FAN/FDDA was duly received by the taxpayer. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. And if said documents cannot be located, Respondent at the very least, should have submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts.103

100

Sec. 3.1.6(ii) of Revenue Regulations (RR) No. 12-99, as amended Ibid. 102 China Banking Corporation v. Members of the HDMF Board of Trustees, G.R. No. 131787, May 19, 1999 103 Fabtech Export Industries, Inc. v. CIR, CTA Case No. 8435, April 30, 2014. 101



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9. Consequence if the taxpayer denies ever having received an assessment from the BIR Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee.104 10. Can the BIR send the PAN/FLD/FAN/FDDA via mail? Yes. Service by mail is done by sending a copy of the notice by registered mail to the registered or known address of the party with instruction to the Postmaster to return the mail to the sender after ten (10) days, if undelivered. A copy of the notice may also be sent through reputable professional courier service. If no registry or reputable professional courier service is available in the locality of the addressee, service may be done by ordinary mail. The server shall accomplish the bottom portion of the notice. He shall also make a written report under oath before a Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the manner, place and date of service, the name of the person/barangay official/professional courier service company who received the same and such other relevant information. The registry receipt issued by the post office or the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing and shall be attached to the case docket.105 11. Can the BIR send the PAN/FLD/FAN/FDDA to the duly authorized tax agent/practitioner of the taxpayer? Yes. Service to the tax agent/practitioner, who is appointed by the taxpayer under circumstances prescribed in the pertinent regulations on accreditation of tax agents, shall be deemed service to the taxpayer.106

104

Republic vs. Court of Appeals, 149 SCRA 351 Sec. 3.1.6(iii) of Revenue Regulations (RR) No. 12-99, as amended 106 Ibid. 105



END Tax Notes 107

Revenue Regulations (RR) No. 12-99, as amended

SUBJECT: Implementing the Provisions of the National Internal Revenue Code of 1997 Governing the Rules on Assessment of National Internal Revenue Taxes, Civil Penalties and Interest and the Extra-judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Payment of a Suggested Compromise Penalty TO

:

All Internal Revenue Officers and Others Concerned

SECTION 1. Scope. Pursuant to the provisions of Section 244 , in relation to Section 245 of the National Internal Revenue Code of 1997, these Regulations are hereby promulgated to implement the provisions of Sections 6 , 7 , 204 , 228 , 247 , 248 and 249 on assessment of national internal revenue taxes, fees and charges and to provide the rules governing the extra-judicial settlement of a taxpayer's criminal violation of the said Code or any of its implementing Regulations through payment of a suggested compromise penalty. SECTION 2. General Principles. 2.1

The surcharge and/or interest herein prescribed shall apply to all taxes, fees and charges imposed under the Code which shall be collected at the same time, in the same manner, and as part of the tax.

2.2

In case the tax due from the taxpayer is paid on a partial or installment basis, the interest on the deficiency tax or on the delinquency tax liability of the taxpayer shall be imposed from due date of the tax until full payment thereof. The interest shall be computed based on the diminishing balance of the tax, inclusive of interests.

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.108 3.1

Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1

Preliminary Assessment Notice (PAN). — If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX "A" hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. If the taxpayer, within fifteen (15) days from date of receipt of the PAN, responds that he/it disagrees with the findings of deficiency tax or taxes, an FLD/FAN shall be issued within fifteen (15) days from filing/submission of the taxpayer's response, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.

107 108

Amended by Revenue Regulations (RR) No. 18-13 Ibid.



END Tax Notes

3.1.2

Exceptions to Prior Notice of the Assessment. — Pursuant to Section 228 of the Tax Code, as amended, a PAN shall not be required in any of the following cases:

(i)

When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or When the excise tax due on excisable articles has not been paid; or When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

(ii) (iii)

(iv) (v)

In the above-cited cases, a FLD/FAN shall be issued outright. 3.1.3

Formal Letter of Demand and Final Assessment Notice (FLD/FAN). — The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by the Commissioner or his duly authorized representative. The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the assessment shall be void (see illustration in ANNEX "B" hereof).

3.1.4

Disputed Assessment. — The taxpayer or its authorized representative or tax agent may protest administratively against the aforesaid FLD/FAN within thirty (30) days from date of receipt thereof. The taxpayer protesting an assessment may file a written request for reconsideration or reinvestigation defined as follows:

(i)

Request for reconsideration — refers to a plea of re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. Request for reinvestigation — refers to a plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or of law or both.

(ii)

The taxpayer shall state in his protest (i) the nature of protest whether reconsideration or reinvestigation, specifying newly discovered or additional evidence he intends to present if it is a request for reinvestigation, (ii) date of the assessment notice, and (iii) the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect. If there are several issues involved in the FLD/FAN but the taxpayer only disputes or protests against the validity of some of the issues raised, the assessment attributable to the undisputed issue or issues shall become final, executory and demandable; and the taxpayer shall be required to pay the deficiency tax or taxes attributable thereto, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax or taxes, inclusive of the applicable surcharge and/or interest.



END Tax Notes

If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the assessment attributable thereto shall become final, executory and demandable; and the taxpayer shall be required to pay the deficiency tax or taxes attributable thereto and a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. For requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final. The term "relevant supporting documents" refer to those documents necessary to support the legal and factual bases in disputing a tax assessment as determined by the taxpayer. The sixty (60)-day period for the submission of all relevant supporting documents shall not apply to requests for reconsideration. Furthermore, the term "the assessment shall become final" shall mean the taxpayer is barred from disputing the correctness of the issued assessment by introduction of newly discovered or additional evidence, and the FDDA shall consequently be denied. If the taxpayer fails to file a valid protest against the FLD/FAN within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable. No request for reconsideration or reinvestigation shall be granted on tax assessments that have already become final, executory and demandable. If the protest is denied, in whole or in part, by the Commissioner's duly authorized representative, the taxpayer may either: (i) appeal to the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the said decision; or (ii) elevate his protest through request for reconsideration to the Commissioner within thirty (30) days from date of receipt of the said decision. No request for reinvestigation shall be allowed in administrative appeal and only issues raised in the decision of the Commissioner's duly authorized representative shall be entertained by the Commissioner. If the protest is not acted upon by the Commissioner's duly authorized representative within one hundred eighty (180) days counted from the date of filing of the protest in case of a request reconsideration; or from date of submission by the taxpayer of the required documents within sixty (60) days from the date of filing of the protest in case of a request for reinvestigation, the taxpayer may either: (i) appeal to the CTA within thirty (30) days after the expiration of the one hundred eighty (180)-day period; or (ii) await the final decision of the Commissioner's duly authorized representative on the disputed assessment. If the protest or administrative appeal, as the case may be, is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the CTA within thirty (30) days from date of receipt of the said decision. Otherwise, the assessment shall become final, executory and demandable. A motion for reconsideration of the Commissioner's denial of the protest or administrative appeal, as the case may be, shall not toll the thirty (30)-day period to appeal to the CTA. If the protest or administrative appeal is not acted upon by the Commissioner within one hundred eighty (180) days counted from the date of filing of the protest, the taxpayer may either: (i) appeal to the CTA within thirty (30) days from after the expiration of the one hundred eighty (180)-day period; or (ii) await the final decision of Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 36


END Tax Notes

the Commissioner on the disputed assessment and appeal such final decision to the CTA within thirty (30) days after the receipt of a copy of such decision. It must be emphasized, however, that in case of inaction on protested assessment within the 180-day period, the option of the taxpayer to either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner or his duly authorized representative on the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision, are mutually exclusive and the resort to one bars the application of the other. 3.1.5

Final Decision on a Disputed Assessment (FDDA). — The decision of the Commissioner or his duly authorized representative shall state the (i) facts, the applicable law, rules and regulations, or jurisprudence on which such decision is based, otherwise, the decision shall be void (see illustration in ANNEX "C" hereof), and (ii) that the same is his final decision.

3.1.6

Modes of Service. — The notice (PAN/FLD/FAN/FDDA) to the taxpayer herein required may be served by the Commissioner or his duly authorized representative through the following modes:

(i)

The notice shall be served through personal service by delivering personally a copy thereof to the party at his registered or known address or wherever he may be found. A known address shall mean a place other than the registered address where business activities of the party are conducted or his place of residence. In case personal service is not practicable, the notice shall be served by substituted service or by mail.

(ii)

Substituted service can be resorted to when the party is not present at the registered or known address under the following circumstances: The notice may be left at the party's registered address, with his clerk or with a person having charge thereof. If the known address is a place where business activities of the party are conducted, the notice may be left with his clerk or with a person having charge thereof. If the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein. If no person is found in the party's registered or known address, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses to the address so that they may personally observe and attest to such absence. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. Should the party be found at his registered or known address or any other place but refuse to receive the notice, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses in the presence of the party so that they may personally observe and attest to such act of refusal. The notice Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 37


END Tax Notes

shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. "Disinterested witnesses" refers to persons of legal age other than employees of the Bureau of Internal Revenue. (iii)

Service by mail is done by sending a copy of the notice by registered mail to the registered or known address of the party with instruction to the Postmaster to return the mail to the sender after ten (10) days, if undelivered. A copy of the notice may also be sent through reputable professional courier service. If no registry or reputable professional courier service is available in the locality of the addressee, service may be done by ordinary mail. The server shall accomplish the bottom portion of the notice. He shall also make a written report under oath before a Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the manner, place and date of service, the name of the person/barangay official/professional courier service company who received the same and such other relevant information. The registry receipt issued by the post office or the official receipt issued by the professional courier company containing sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing and shall be attached to the case docket. Service to the tax agent/practitioner, who is appointed by the taxpayer under circumstances prescribed in the pertinent regulations on accreditation of tax agents, shall be deemed service to the taxpayer."

SECTION 4. Civil Penalties. 4.1

Twenty-Five Percent (25%) Surcharge. — There shall be imposed, in addition to the basic tax required to be paid, a penalty equivalent to twenty-five percent (25%) thereof, in any the following cases:

4.1.1

Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or

4.1.2

Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or

4.1.3

Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or

4.1.4

Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.

4.2

Fifty Percent (50%) Surcharge:

4.2.1

In case of willful neglect to file the return within the period prescribed by the Code, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 38


END Tax Notes

made on the basis of such return before the discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner or his duly authorized representative, shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding thirty percent (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein: Provided, further, that the term "willful neglect to file the return within the period prescribed by the Code" shall not apply in case the taxpayer, without notice from the Commissioner or his authorized representative, voluntarily files the said return, in which case, only 25% surcharge shall be imposed for late filing and late payment of the tax in lieu of the above 50% surcharge. Conversely, the 50% surcharge shall be imposed in case the taxpayer files the return only after prior notice in writing from the Commissioner or his duly authorized representative. 4.2.2

Section 6 (A) of the Code provides that any tax return filed by a taxpayer "may be modified, changed or amended" by the taxpayer "within three (3) years from date of such filing" provided, however, that "no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer." Thus, if upon investigation, it is determined that the taxpayer's originally filed tax return is false or fraudulent, such taxpayer shall remain liable to the 50% civil penalty regardless that the taxpayer has filed his amended tax return, if the said amended tax return, however, has been filed only after issuance of the Letter of Authority for the investigation of the taxpayer's tax return or such amendment has been made in the course of the said investigation.

SECTION 5. Mode of Procedures in Computing for the Tax and/or Applicable Surcharge. Shown hereunder are illustrative cases for the computation and assessment of the tax, inclusive of surcharge (if applicable) and interest: 5.1

Late filing and late payment of the tax. — Illustration: Income tax return for the calendar year 1998 was due for filing on April 15, 1999 but the taxpayer voluntarily filed his tax return, without notice from the BIR, only on June 30, 1999. The tax due per return amounts to P100,000. In this case, the taxpayer shall be liable for delinquency penalties consisting of 25% surcharge, plus 20% interest per annum, computed from due date of the tax until date of payment, computed as follows: Calendar Year 1998 Income tax due per return Add: 25% surcharge for late filing and late payment (P100,000.00 times 25%) 20% int. p.a. from 4-15-99 to 6-30-99 (P100,000.00 times .0415524)

P100,000.00 P25,000.00 P4,155.24

Total amount due (excluding suggested compromise for late filing and late payment of the tax)

P29,155.24

P129,155.24 =========



END Tax Notes

Only one 25% surcharge shall be imposed for late filing of the return and late payment of the tax. 5.2

The tax return is filed on time but filed through an internal revenue officer other than with whom the return is required to be filed. — Illustration: The taxpayer's 1998 income tax return is required to be filed through the authorized agent bank under the jurisdiction of RDO East Makati. But, without prior authorization from the BIR, the taxpayer filed his tax return and paid the tax through the authorized agent bank under the jurisdiction of RDO Davao City. Tax due and paid per return is P100,000.00. Calendar Year 1998 Income tax due per return Add: 25% surcharge Total amount due Less: Amount paid Amount still due

5.3

P100,000.00 P25,000.00 ————— P125,000.00 P100,000.00 ————— P25,000.00 =========

Late filing and late payment due to taxpayer's willful neglect. — Illustration: The taxpayer did not file his income tax return for the calendar year 1997 which was due for filing on April 15, 1998. He was notified by the BIR of his failure to file the tax return, for which reason, he filed his tax return and paid the tax, only after the said notice, on June 30, 1999. The tax due per return is P100,000.00. Calendar Year 1997 Income tax due per return

P100,000.00

Add: 50% surcharge for willful neglect to file the return and late payment of the tax (P100,000 times 50%) 20% int. p.a. fr. 4-15-98 to 6-30-99 (P100,000.00 times .2415524)

P24,155.24 —————

P50,000.00

P74,155.24 —————

Total amount due (excluding suggested compromise for late filing and late payment of the tax) P174,155.24 ========= 5.4

Penalty or penalties for deficiency tax. — As a rule, no surcharge is imposed on deficiency tax and on the basic tax. However, if the amount due inclusive of penalties is not paid on or before the due date stated on the demand letter, the corresponding surcharge shall be imposed. Illustration No. 1: Taxpayer filed on time his income tax return for calendar year 1997 and paid P100,000.00 on April 15, 1998. Upon pre-audit of his return, it was disclosed that he erroneously computed the tax due. The correct amount of tax due is P120,000.00. The taxpayer is assessed for deficiency income tax in a letter of demand and assessment notice issued on June 30, 1999. Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 40


END Tax Notes

Calendar Year 1997 Tax due per pre-audit Less: Amount assessed and paid per tax return filed Deficiency income tax Add: 20% int. p.a. from 4-15-98 to 6-30-99 (P20,000.00 times .2415524) Amount still due

P120,000.00 P100,000.00 ————— P20,000.00

P4,831.05 ————— P24,831.05 =========

Illustration No. 2: ABC CORPORATION filed its income tax return for calendar year 1997 and paid on time its income tax shown thereunder, amounting to P100,000. Said taxpayer was investigated. Upon verification of its accounting records, it was disclosed that its deduction, from gross income, of representation expenses in the amount of P200,000.00 did not meet all the statutory requisites for deductibility. The corporation was duly notified of the said discrepancy through a Preliminary Assessment Notice. Based on the 35% income tax rate on corporations applicable in the year 1997, the income tax due after investigation amounts to P170,000.00. After deduction of income tax paid per return filed, the basic deficiency income tax amounts to P70,000, excluding penalties. Failing to protest on time against the preliminary assessment notice, a formal letter of demand and assessment notice was issued on May 31, 1999, requiring payment of the assessment not later than June 30, 1999. Calendar Year 1997 Income tax due per investigation Less: Income tax paid per return

P170,000.00 P100,000.00 —————

Deficiency income tax P70,000.00 Add: 20% int. p.a. fr. 4-15-98 to 6-30-99 (P70,000 times .2415524) P16,908.67 ————— Total amount still due P86,908.67 ========= Illustration No. 3: XYZ CORPORATION filed its income tax return for calendar year 1997 with a net taxable income of P500,000.00. At the applicable income tax rate of 35% for the year 1997, its income tax amounted to P175,000.00. However, upon investigation, it was disclosed that its income tax return was false or fraudulent because it did not report a taxable income amounting to another P500,000.00. On its net income of P1,000,000.00, per investigation, the income tax due is P350,000.00. Deducting its payment per return filed, the deficiency, excluding penalties, amounted to P175,000.00. It was duly informed of this finding through a Preliminary Assessment Notice. Failing to protest on time against the preliminary assessment notice, a formal letter of demand and assessment notice was issued on May 31, 1999 calling for payment of the deficiency income tax on or before June 30, 1999. In this case, said corporation is liable for the civil penalties of 50% surcharge for having filed a false or fraudulent return, plus 20% interest per annum on the deficiency, computed as follows:



END Tax Notes

Calendar Year 1997 Income tax due per investigation Less: Income tax paid per return

P350,000.00 P175,000.00 ————— P175,000.00

Deficiency income tax Add: 50% surcharge for filing a fraudulent or false return (P175,000.00 times 50%) P87,500.00 20% int. p.a. fr. 4-15-98 to 6-30-99 (P175,000.00 times .2415524) P42,271.67 P129,771.67 ————— ————— Total amount due P304,771.67 ========= 5.5

Late payment of a deficiency tax assessed. — In general, the deficiency tax assessed shall be paid by the taxpayer within the time prescribed in the notice and demand, otherwise, such taxpayer shall be liable for the delinquency interest incident to late payment. Illustration 1: Based on the above Illustration No. 3, Scenario 4, assuming that the calendar year 1997 deficiency income tax assessment against XYZ CORPORATION, in the amount of P304,771.67, is not paid by June 30, 1999, the deadline for payment of the assessment, and assuming further that this assessment has already become final and collectible. In this case, such corporation shall be considered late in payment of the said assessment. Assuming, further, that the corporation pays its tax assessment only by July 31, 1999, the delinquency interest for late payment shall be computed as follows: Calendar Year 1997 Income tax due per investigation Less: Income tax paid per return Deficiency income tax Add: 50% surcharge for filing a fraudulent or false return (P175,000.00 times 50%) 20% int. p.a. fr. 4-15-98 to 7-31-99 (P175,000.00 times .258630) Total amount due Add:

20% delinquency interest p.a. from 7-1-99 to 7-31-99 Basic Tax 175,000.00 Surcharge 87,500.00 20% int. p.a. fr. 4-15-98 to 6-30-99 42,271.67 ––––––––––– Total 304,771.67 (P304,771.67 times .0166667)

P350,000.00 P175,000.00 ––––––––––– P175,000.00

P87,500.00 P45,260.27 ––––––––––– P307,760.27

P5,079.54 –––––––––––

Total amount due (excluding suggested compromise Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 42


END Tax Notes

penalty for late payment)

P312,839.81 ==========

Illustration 2: Based on the immediately preceding Illustration, assuming that the calendar year 1997 deficiency income tax assessment against XYZ CORPORATION, in the amount of P304,771.67, is not paid by June 30, 1999, the deadline for payment of the assessment but is instead timely protested. Assuming further that after exhaustion of all administrative remedies, the assessment was upheld and became final, executory and demandable on July 1, 2000. However, payment was made by the taxpayer only on June 30, 2002. In this case, such corporation shall be considered late in payment of the said assessment. The civil penalties for late payment shall be computed as follows: Calendar Year 1997 Income tax due per investigation Less: Income tax paid per return Deficiency income tax Add: 50% surcharge for filing a fraudulent or false return (P175,000.00 times 50%) 20% int. p.a. fr. 4-15-98 to 6-30-2002 (P175,000.00 times .841644) Total amount due

P350,000.00 P175,000.00 ––––––––––– P175,000.00

P87,500.00 P147,287.70 ––––––––––– P409,787.70

Add:

20% delinquency interest p.a. from 7-2-2000 to 6-30-2002 Basic Tax 175,000.00 Surcharge 87,500.00 20% int. p.a. fr. 4-15-98 to 7-1-00 (.4427397) 77,479.45 ––––––––– Total 339,979.45 (P339,979.45 times .3989041) P135,619.20 ––––––––––– Total amount due (excluding suggested compromise penalty for late payment) P545,406.90 ========== Illustration 3: Assuming that in calendar year 1997, XYZ CORPORATION filed a false or fraudulent return and was assessed of deficiency basic income tax amounting to Php100,000. Assuming further that XYZ CORPORATION timely protested the said assessment. After exhaustion of all administrative remedies, the assessment was upheld and became final, executory and demandable on April 15, 2001. However, payment was made by the taxpayer only on April 15, 2003. In this case, such corporation shall be considered late in payment of the said assessment. The civil penalties for late payment shall be computed as follows: Calendar Year 1997 Total deficiency income tax assessment

P100,000.00



Add:

END Tax Notes

50% surcharge for filing a fraudulent or false return 20% interest p.a. from 4-15-1998 to 4-15-2003 (P100,000 x 20% x 5) Delinquency Interest 20% interest p.a. from 4-15-2001 to 4-15-2003 Basic Tax 100,000.00 Surcharge 50,000.00 20% int. p.a. fr. 4-15-98 to 4-15-01 60,000.00 –––––––––– Total 210,000.00 (P210,000.00 x 20% x 2)

Total Amount Due as of April 15, 2003 (excluding suggested compromise penalty for late payment)

5.6

P50,000.00 P100,000.00

P84,000.00 ––––––––––– P334,000.00 ==========

Computation of 20% interest per annum in case of partial or installment payment of a tax liability. — Illustration No. 1: In case extended payment of the tax is duly authorized. — DEF CORPORATION, due to financial incapacity, requested that it be allowed to pay its income tax liability per return for calendar year 1998, in the amount of P1,000,000.00, in four (4) monthly installments, starting April 15, 1999. Its request has been duly approved pursuant to Sec. 53 of the Tax Code. In this case, no 25% surcharge shall be imposed for late payment of the tax since its deadline for payment has been duly extended. However, 20% interest per annum for the extended payment shall be imposed, computed based on the diminishing balance of the "unpaid amount", pursuant to the provisions of Section 249 (D) of the Code. No 25% surcharge on extended payment shall be imposed provided, however, that the taxpayer's request for extension of the period within which to pay is made on or before the deadline prescribed for payment of the tax due. Conversely, if such request is made after the deadline prescribed for payment, the taxpayer shall already be treated late in payment, in which case, the 25% surcharge shall be imposed, even if payment of the delinquency be allowed in partial amortization. Example: Calendar Year 1998 Income tax due per return Less: 1st installment of the tax on or before 4-15-99 Balance as of 4-15-99 Add: 20% int. p.a. from 4-15-99 to 5-15-99 (P750,000.00 times .0166667) Amount due on 5-15-99 Less: 2nd installment on 5-15-99 (P250,000.00 plus P12,500.03 interest)

P1,000,000.00 P250,000.00 —————— P750,000.00 P12,500.03 —————— P762,500.03 P262,500.03 ——————



END Tax Notes

Balance as of 5-15-99 Add: 20% int. p.a. from 5-15-99 to 6-15-99 (P500,000.00 times .0166667)

P500,000.00

Amount due on 6-15-99 Less: 3rd installment on 6-15-99 (P250,000.00 plus P8,333.35 interest) Balance as of 6-15-99 Add: 20% int. p.a. from 6-15-99 to 7-15-99 (P250,000.00 times .0166667)

P8,333.35 —————— P508,333.35 P258,333.35 —————— P250,000.00 P4,166.68 —————— P254,166.68 ===========

4th and final installment on 7-15-99

Illustration No. 2: Computation of tax delinquency in case of partial payment of the tax due without prior BIR authorization for extended payment. — Example: GHI CORPORATION did not file its final adjustment income tax return for the calendar year 1998 which was due on April 15, 1999. The BIR informed the corporation of its failure to file its said tax return and required that it file the same, inclusive of the 25% surcharge and 20% interest per annum penalties incident to the said omission. On May 15, 1999 it advised that its income tax due for the said year amounts to P1,000,000.00 but, however, due to its adverse financial condition at the moment, it will be unable to pay the entire amount, inclusive of the delinquency penalties. Hence, on May 15, 1999, it made a partial payment of P400,000.00. Assuming that the BIR demanded payment of the unpaid balance of its tax obligation payable by June 15, 1999, the unpaid balance of the corporation's delinquent income tax shall be computed as follows: Calendar Year 1998 Income tax due per return Add: 25% surcharge for late filing and late payment 20% interest per annum from 4-15-99 to 5-15-99 (P1,000,000.00 times .0166667)

P1,000,000.00 P250,000.00

P16,666.70 —————

Amount due as of 5-15-99 Less: Partial payment on 5-15-99 ————— Balance as of 5-15-99P866,666.70 Add: 20% interest per annum from 5-15-99 to 6-15-99 (P866,666.70 times .0166667) Amount still due (exclusive of the suggested compromise penalty for late filing and late payment

P266,666.70 ————— P1,266,666.70 P400,000.00

P14,444.47 ————— P811,111.17 =========

If the said taxpayer fails to pay the amount of P811,111.17 by June 15, 1999, no further 25% surcharge for late payment of the tax shall be imposed. Instead, only the 20% Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 45


END Tax Notes

interest per annum shall be imposed against the taxpayer against the taxpayer, computed from due date thereof (i.e., June 15, 1999) until paid. If said taxpayer pays the same on partial payment basis, the 20% interest per annum shall be computed on the diminishing balance thereof, pursuant to the procedures in the preceding Illustration No. 1, Section 6.6 hereof. SECTION 6. Suggested Compromise Penalty in Extra-judicial Settlement of a Taxpayer's Criminal Violation. Section 204 of the Tax Code of 1997 provides that "All criminal violations may be compromised except: (a) those already filed in court, or (b) those involving fraud." This means that, in general, the taxpayer's criminal liability arising from his violation of the pertinent provision of the Code may be settled extra-judicially instead of the BIR instituting against the taxpayer a criminal action in Court. A compromise in extra-judicial settlement of the taxpayer's criminal liability for his violation is consensual in character, hence, may not be imposed on the taxpayer without his consent. Hence, the BIR may only suggest settlement of the taxpayer's liability through a compromise. The extra-judicial settlement of the taxpayer's criminal liability and the amount of the suggested compromise penalty shall conform with the schedule of compromise penalties provided under Revenue Memorandum Order No. 1-90 or as hereafter revised. SECTION 7. Repealing Clause. Any revenue issuance which is inconsistent herewith shall be considered repealed, amended, or modified accordingly. SECTION 8. Effectivity. 8.1

General Rule. — In general, the provisions of these Regulations shall be effective beginning January 1, 1998 pursuant to the provisions of Section 8 of R.A. No. 8424, otherwise known as the National Internal Revenue Code of 1997.

8.2

Computation of Surcharge and Interest on Deficiency Tax Assessment. — Any deficiency tax assessment issued beginning January 1, 1998 shall be governed by the rules prescribed in these Regulations.

8.3

Other Provisions. — Any provision of these Regulations not otherwise specifically provided in the National Internal Revenue Code of 1997 shall take effect fifteen (15) days after publication in any newspaper of general circulation.

(SGD.) EDGARDO B. ESPIRITU Secretary Department of Finance Recommending Approval: (SGD.) BEETHOVEN L. RUALO Commissioner Bureau of Internal Revenue



END Tax Notes

May 2, 2013 Revenue Memorandum Circular (RMC) No. 38-13 SUBJECT: TO

:

Clarifying the Implication of Legal Petition Notices/Declarations and Similar Documents on the Audit/Assessment Process All Internal Revenue Officers and Others Concerned

Background It has been observed that there is a proliferation of Legal Petition Notices (LPNs)/Declarations and similar documents coming from taxpayers and practitioners questioning the validity of the electronic Letters of Authority (eLAs) issued. Even as we repeatedly reply to these LPNs reiterating the validity of the eLAs pursuant to Sections 6 (A) and 10 (c) of the National Internal Revenue Code of 1997 (Tax Code), as amended, these taxpayers/practitioners persist on sending LPNs, thinking that LPNs, will stop or defer the investigation process. However, it is evident that they misconstrue the consequence of these LPNs and are ignoring the long established procedures for audit, assessment and protesting deficiency assessments. Henceforth, there is a need to make taxpayers understand the implication of these LPNs in the process and/or certain procedures related to audit, such as issuance of Subpoena Duces Tecum (SDT) and assessment notices, to prevent any attempt by taxpayers and practitioners to thwart and undermine the authority of the Bureau to exercise its functions provided by law. Clarification I.

On the Audit/Investigation Pursuant to Issued Letters of Authority

The normal process and/or procedures related to audit/investigation arising from eLA issued will not be suspended notwithstanding the receipt of LPN pertaining to the case. Moreover, the National Office shall no longer entertain any LPN questioning the validity and enforceability of the eLA duly issued by the concerned Regional Director for the audit of taxpayer within the region inasmuch as the issue has already been clarified under RMC No. 6-2013. Thus, there shall be no impediment on the investigation of the taxpayer's internal revenue tax liabilities and the eventual recommendation for an issuance of SDT, if warranted, in accordance with Revenue Memorandum Order (RMO) Nos. 45-2010 and 88-2010. II. On the Issuance of Preliminary Assessment Notice (PAN), Formal Letter of Demand (FLD) and Final Assessment Notice (FAN) Correspondingly, upon receipt of the PAN or FLD and FAN, the taxpayer is given fifteen (15) or thirty (30) days, as the case may be, to rebut the assessment upon his compliance with the requirements of filing a protest pursuant to Revenue Regulations (RR) No. 12-99 . Thus, any LPN, declaration or any similar document protesting the assessment addressed to the Commissioner or any official in the National Office without the issuance of a Final Decision on Disputed Assessment (FDDA) from the regional office shall be considered premature and invalid. III.

Responsibility of Taxpayers on Their LPN

As stated in Section 9 of RR No. 11-2006, as amended, and clarified in RMC No. 6-2013, the BIR can refuse to transact official business with tax agents/practitioners who are not accredited before it. Therefore, the responsibility is on taxpayers to ensure that the tax agents/practitioners whom they choose to engage are accredited with the BIR. Aside from Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 47


END Tax Notes

knowing whether consultants are accredited or not, taxpayers are forewarned to be more circumspect in scrutinizing the credibility and competence of the consultants and the veracity of the contents of the LPN/Declaration or any document before affixing their signature therein since these documents will not gain merit and may lead to adverse consequences, such as the filing of the necessary charges in court. All concerned revenue officials and employees are hereby enjoined to give this Circular as wide a publicity as possible. (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue



END Tax Notes

April 4, 2013 Revenue Memorandum Circular (RMC) No. 39-13 SUBJECT:

Receipt of Protest Letter on Final Assessment Notices and Final Decision on Disputed Assessments All Internal Revenue Officers and Others Concerned

TO

:

I.

Background

It has been observed that substantial number of tax cases covered by Final Assessment Notices (FANs) and Formal Letters of Demand which had been reported by the Regional Assessment Divisions under the prescribed Monthly Summary of Taxes AssessedUnprotested (BIR Form 40.00) were still allowed to be referred to the concerned investigating office for reinvestigation, notwithstanding that the assessments were already final and executory. Further, since they have become delinquent accounts, they are already subject to enforcement collection through summary remedies under Sections 205, 206 and 207 of the National Internal Revenue Code (NIRC) of 1997, as amended. However, taxpayers alleged that their protest letters had been filed with other offices of the Bureau before the prescribed deadline under existing regulations and that the same failed to reach the concerned Regional Assessment Divisions before the submission of the BIR Form 40.00 report to other concerned offices. II.

Clarification

In order to avoid the conduct of unwarranted reinvestigation cases, to prevent the undue accumulation of delinquent accounts, and to obviate the premature enforcement of summary remedies against the concerned taxpayers, the guidelines for receipt of protest letters and other similar correspondences are clarified as follows: 1. All letters of protest, requests for reinvestigation/reconsideration and similar correspondences shall only be filed by the taxpayers or their duly authorized representatives, in person or through registered mail with return card, with the Office of the concerned Regional Director (RD), Assistant Commissioner-Large Taxpayers Service (ACIR-LTS) and Assistant Commissioner-Enforcement Service (ACIR-ES), who signed the Preliminary Assessment Notices (PANs), FANs and Formal Letters of Demand, for proper recording of the protests, and evaluation if the same is in accordance with Section 228 of the NIRC, as implemented by Revenue Regulations No. 12-99 . If the aforesaid procedures are not followed, then the letters of protest, requests for reinvestigation/reconsideration and similar correspondences shall be considered void and without force and effect. The abovementioned revenue officials shall be primarily responsible in ensuring the preparation of a complete/accurate report on all protests that were filed in their respective offices and the prompt submittal thereof to the Commissioner of Internal Revenue (CIR) every Monday of each week in hard and soft copies. The soft copy of the report shall be emailed to [email protected] and [email protected]. The format of the Report on Protest Letters Received Covering Final Assessment Notices and Final Decisions on Disputed Assessments is hereto attached as Annex "A". 2. Based on this weekly report, the Office of the CIR shall create a database of all letters of protest, requests for reinvestigation/reconsideration and similar correspondences Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 49


END Tax Notes

received by the different offices of the Bureau. The information contained therein can be provided to the other concerned offices, subject to the CIR's approval of the release of such information and upon written request of the concerned revenue official. The said database shall be regularly updated for purposes of providing accurate information on the matter to all concerned officials and employees. 3. In the event that no letter of protest, request for reinvestigation/reconsideration and similar communication has been received during any given week, the herein prescribed report shall nevertheless be accomplished and submitted within the same period with the notation "No Letter of Protest or Request for Reinvestigation/Reconsideration Received". 4. Any letter of protest, request for reinvestigation/reconsideration, or other similar communication allegedly filed by any taxpayer but are not included in the aforementioned database shall be deemed as not officially filed with the Bureau and shall not be used as basis for the grant of any request for reinvestigation/reconsideration of any FAN or Final Decision on Disputed Assessment (FDDA) issued against the taxpayer. 5. These guidelines and policies shall be strictly observed until such time that a more sophisticated and information technology-driven document receipting and tracking system has been put in place. 6. All letters of protest, requests for reinvestigation/reconsideration or similar correspondences that will be accepted from taxpayers beginning April 15, 2013 shall be guided by this Circular. All internal revenue officials and employees are enjoined to provide this Circular as wide a publicity possible. (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue



END Tax Notes

February 18, 2014 Revenue Memorandum Circular (RMC) No. 11-14 SUBJECT:

TO:

Clarifying Certain Issues Relative to Due Process Requirement in the Issuance of a Deficiency Tax Assessment Pursuant to Revenue Regulations (RR) 12-99, as Amended by RR 18-2013 All Internal Revenue Officers and Others Concerned

This Circular is issued to clarify certain issues relative to the amendments introduced to Revenue Regulations (RR) 12-99 by RR 18-2013. i. RR 12-99, as amended by RR 18-2013, provides that the Commissioner or his duly authorized representative shall issue the Preliminary Assessment Notice (PAN), Formal Letter of Demand/Final Assessment Notice (FLD/FAN) and Final Decision on Disputed Assessment (FDDA). The term "duly authorized representative" therein refers to Revenue Regional Directors, Assistant Commissioner-Large Taxpayers Service, and Assistant Commissioner-Enforcement and Advocacy Service. Accordingly, pursuant to Revenue Memorandum Circular No. 39-2013, taxpayers shall submit/file their responses to the PAN and protests (requests for reconsideration/reinvestigation) to the FLD/FAN with the duly authorized representative of the Commissioner who signed the PAN and FLD/FAN. Protests in the nature of requests for reconsideration of taxpayers elevated to the Commissioner arising from inactions or adverse decisions of the "duly authorized representatives" shall be filed with the Office of the Commissioner. i. Prior to the issuance of the PAN, the taxpayer may be allowed to make voluntary payments of probable deficiency taxes and penalties. ii. An FLD/FAN issued reiterating the immediate payment of deficiency taxes and penalties previously made in the PAN is a denial of the response to the PAN. A final demand letter for payment of delinquent taxes may be considered a decision on a disputed assessment (Commissioner of Internal Revenue vs. Isabela Cultural Corporation; G.R. No. 135210; July 11, 2001). This includes a disputed PAN. So long as the parties are given the opportunity to explain their side, the requirements of due process are satisfactorily complied with (Calma vs. Court of Appeals; G.R. No. 122787; February 9, 1999). iii. An FDL/FAN issued beyond fifteen (15) days from filing/submission of the taxpayer's response to the PAN shall be valid, provided that, it is issued within the period of limitation to assess internal revenue taxes. The non-observance of the fifteen (15)-day period, however, shall constitute an administrative infraction and the revenue officers who caused the delay shall be subject to administrative sanctions as provided for by law and pertinent revenue issuances. iv. RR 12-99, as amended by RR 18-2013, provides that "[f]or requests for reinvestigation, the taxpayer shall submit all relevant supporting documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final." The term "the assessment shall become final" means that the failure of the taxpayer who requested for a reinvestigation to submit all relevant supporting documents within the sixty (60)-day period shall render the FLD/FAN "final" by operation of law. He/it shall be barred from disputing the correctness of the FLD/FAN by the introduction of newly discovered or additional evidence because he/it is deemed to have lost his/its chance to Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 51


END Tax Notes

present these evidence. The BIR shall then deny the request for reinvestigation through the issuance of an FDDA. v. The notice (PAN/FLD/FAN/FDDA) shall first be served to the taxpayer's registered address before the same may be served to the taxpayer's known address, or in the alternative, may be served to the taxpayer's registered address and known address simultaneously. All other issuances inconsistent herewith are hereby repealed or modified accordingly. All concerned are hereby enjoined to be guided accordingly and give this Circular as wide a publicity as possible. This Circular shall take effect immediately. (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue



END Tax Notes

June 13, 2016 Revenue Memorandum Order (RMO) No. 26-16 SUBJECT TO : I.

: Policies and Guidelines in Handling Disputed Assessments All Internal Revenue Officials, Employees and Others Concerned

Objectives

In line with Section 228 of the National Internal Revenue Code, as amended, and pursuant to Revenue Regulations No. 18-2013 which amends certain Sections of Revenue Regulations No. 12-99 relative to the Due Process Requirement in the issuance of a deficiency tax assessment, this Order is hereby issued to prescribe policies, uniform guidelines and procedures in handling disputed assessments, and in issuing Final Decision on Disputed Assessment (FDDA) and revision thereof by the Commissioner of Internal Revenue. II.

Policies and Guidelines 1. A taxpayer must be given an opportunity, if he/she/it so chooses, to explain his/her/its objection to an assessment and present necessary documents in support of his/her/its objection, before a FDDA is issued. 2. Protest against Preliminary Assessment Notice (PAN) is optional/not mandatory. 3. Formal Letter of Demand and Final Assessment Notice (FLD)/(FAN) shall be issued fifteen (15) days from date of receipt by the taxpayer of the PAN, whether the same was protested or not. 4. If the taxpayer shall upon receipt of the PAN, accepts and pays the assessment either partially or fully, a FLD/FAN shall be issued to formalize the assessment, and Payment Form 0605 shall be duly prepared, filed and paid to acknowledge and provide evidence for the settlement of the assessment or portion of the assessment paid. 5. Within thirty (30) days from receipt of the FLD/FAN, the taxpayer shall either: a. Accept the assessment, fully or partially, and pay the amount due on the assessment accepted, or b. Protest the assessment fully or partially by filing either of the following remedy, and the filing of one precludes the filing of the other remedy: i.

Request for Reconsideration if the taxpayer is not going to submit any other additional evidence or documents and merely pleas for a re-evaluation of an assessment;

ii.

Request for a Reinvestigation on the basis of newly discovered evidence or if the taxpayer intends to present or submit additional evidence or documents.

6. After the issuance of the FAN/FLD, the taxpayer accepts and settles/pays the assessment in full, Payment Form 0605 shall be duly prepared, filed and paid as evidenced of the settlement of the assessment. If the taxpayer accepts and settle/pays the assessment in part, and protests the remaining portion, Payment Form 0605 shall be prepared, filed and paid for that portion of the assessment accepted and settled, Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 53


END Tax Notes

and a FDDA shall be issued for the portion of the assessment not settled and resolved. For that portion of the assessment resolved in favor of the taxpayer, an Authority to Cancel Assessment (ATCA) shall be prepared to evidence the cancellation of the assessment. 7. If a request for Reinvestigation was made, the taxpayer shall submit all the relevant supporting documents in support of his/her/its protest within sixty (60) days from the date of the filing of the taxpayer's letter of protest. Evaluation of the protest shall be based exclusively on the documents submitted within this period, and no further document shall be accepted after the expiration of the said period. The assessment shall become final and executory in the event the taxpayer fails to submit the relevant supporting documents within this 60 days period, and a Collection Letter and other collection remedies such as but not limited to garnishment, warrant and levy shall be issued against the taxpayer. 8. All decisions on protest to the FAN, whether the taxpayer's protest is accepted or denied partially or wholly, shall be communicated to the taxpayer through the issuance of a Final Decision on a Disputed Assessment (FDDA). 9. All protest shall be considered a request for reconsideration, unless said protest clearly indicates that the request is for reinvestigation. 10. A request for Reinvestigation shall be available in a protest to a FAN/FLD only. After the issuance of a FDDA, a request for Reinvestigation shall no longer be available as a taxpayer remedy. 11. If the protest is not acted upon by the Commissioner's duly authorized represented * within 180 days counted from the date of the filing of the protest in the case of a request for reconsideration, or from the lapse of the 60 days period to submit relevant document in the case of a request for reinvestigation, and the taxpayer appeals to the Court of Tax Appeals within 30 days after the expiration of the 180 days period, an FDDA shall be issued automatically. 12. All the periods provided for under RR No. 18-2013 is mandatory and non-extendible. 13. After the issuance of the FDDA, the taxpayer may accept and settle the assessment contained therein, partially or fully. Payment Form 0605 shall be prepared, filed and paid for the assessment accepted and settled by the taxpayer. If the FDDA were issued by the Commissioner's duly authorized representative, the taxpayer shall within thirty (30) days from receipt of the FDDA file a motion for reconsideration with the Commissioner of Internal Revenue or appeal to the Court of Tax Appeals. In appealing the protest to the Court of Tax Appeals, the taxpayer shall manifest and state that the appeal pertains only to the portion of the FDDA not settled and paid and attached to their appeal a copy of the duly filed and paid Payment Form 0605. 14. Appeal to the Commissioner or to the Court of Tax Appeals of the FDDA, shall not preclude the taxpayer from voluntarily settling the assessment, partially or fully. Payment Form 0605 shall be duly prepared, filed and paid and the taxpayer shall manifest before the Court of Tax Appeals the fact of settlement of the assessment, partially or fully, present the duly filed and paid Payment Form 0605, and file a motion for dismissal with prejudice as to the assessment or portions thereof that has been settled and paid on the ground that the appealed disputed assessment has become moot and academic. Whatever you do, work at it with all your heart, as working for the Lord, not for men. (Colossians 3:23) 54


END Tax Notes

15. An assessment shall become final, executory and demandable due to, among others, the following grounds: a. Failure of the taxpayer to file a valid protest within thirty (30) days from receipt of the Formal Letter of Demand and Final Assessment Notice (FLD/FAN); b. Failure of the taxpayer to submit all relevant documents in support of his protest by way of request for reinvestigation within sixty (60) days from the date of filing thereof; c. Failure of the taxpayer to appeal to the Commissioner of Internal Revenue or the Court of Tax Appeals (CTA) within thirty (30) days from date of receipt of the FDDA issued by the Commissioner's duly authorized representative; d. Failure of the taxpayer to appeal to the CTA within thirty (30) days from date of receipt of the FDDA issued by the Commissioner; e. Failure of the taxpayer to timely file a motion for reconsideration or new trial before the CTA Division or failure to appeal to the CTA En Banc and Supreme Court based on existing Rules of Procedure; or f.

III.

Failure of the taxpayer to receive any assessment notices because it was served in the address indicated in the BIR's registration database and the taxpayer transferred to a new address or closed/ceased operations without updating and transferring its BIR registration or cancelling its BIR registration as the case may be, through the accomplishment and filing of BIR Form No. 1905 — Application for Registration Information Update, as prescribed by pertinent issuance and/or amendments thereto.

Repealing Clause

All revenue issuances and portions thereof inconsistent with this Order are hereby amended or repealed accordingly. IV.

Effectivity

This Order shall take effect immediately. (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue


Taxpayer's Quick Guide in Disputing BIR Tax Assessments (END Tax Notes)

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