(BDB Laws Tax Law For Business appears in the opinion section of BusinessMirror every

Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).

Informal due process

The first stage of the assessment process begins with the issuance of the letter of
authority and a request for presentation of records. The revenue officer (RO) then
conducts his investigation and the audit of the taxpayers books. After this stage, the
taxpayer should receive a notice of informal conference and a copy of the ROs tentative
findings. The notice requires the taxpayer to appear before the Bureau of Internal
Revenue (BIR) to explain any noted discrepancies or other findings of the RO.
The commissioner or his duly authorized representative is mandated by the Tax Code to
first notify the taxpayer of the findings through a notice of informal conference. Thus, the
RO who audited the taxpayers records shall, among other things, state in his report
whether the taxpayer agrees with the findings that the taxpayer is liable for deficiency
taxes. If the taxpayer is not amenable, he shall then be informed, in writing, of the
discrepancies in the taxpayers payment of his internal revenue taxes, for the purpose of
informal conference, in order to afford the taxpayer an opportunity to present his side of
the case.
For the RO to determine that the taxpayer is agreeable to his findings, there must be
constant communication between the two during the course of the investigation. This is
appropriate since the RO may find it necessary to request additional documents that
may either support his findings for deficiency or remove such findings from his report.
On the taxpayers part, the ROs requests for additional documents may give him an
idea regarding the focus of the ROs investigation, thus enabling him to prepare any
supporting documents that will remove any discrepancy noted.




The informal conference is one of the methods by which the BIR complies with the due-
process requirement that the taxpayer be informed of the nature of the assessment
against him. Failure on the part of the BIR to issue the notice of informal conference may
render any subsequent assessment void, unless the taxpayers situation falls under any
of the five exceptions when a notice of informal conference and preliminary assessment
notice are not required.
Other than as a due-process requirement, the taxpayer may not see any practical need
to attend the informal conference, considering that he is still given opportunities to
respond to the assessment in the succeeding stages of the assessment processhe
may file a reply to the preliminary assessment notice (PAN), and later a protest against
the final assessment notice (FAN).
However, the taxpayer should also consider the time factor in the PAN and FAN stages.
When the PAN is issued, the taxpayer is given 15 days to file his reply, whereas when
the FAN is issued, the taxpayer shall have 30 days to file his protest and another 60
days from the filing of the protest to submit all relevant supporting documents. These
time periods provide a very limited time within which the taxpayer can prepare his
reconciliations and explanations. This is especially disadvantageous in situations when
there are a lot of
noted discrepancies or the taxpayer has voluminous records.
The informal conference provides a medium through which the taxpayer can present his
explanations and reconciliations to the RO. This enables the taxpayer and the RO to
further narrow down the deficiency-tax assessment before any formal assessment is
issued. Moreover, unlike in the PAN and FAN stages, the time periods involved may be
extended at the discretion of the RO if so requested by the taxpayer.
In such an informal conference, the RO and the taxpayer will meet informally for the
purpose of discussing the ROs findings and any discrepancy after the investigation of
the taxpayers returns, books and supporting documents. The taxpayer may then go
over the records of the case and request clarification from the RO regarding any of the
noted discrepancies. The taxpayer may also inquire as to which supporting documents
may be presented to remove the deficiency findings.
The informal conference need not even be concluded after just one meeting. It is
possible that several meetings may take place, as long as the RO and the taxpayer
agree. It is a continuing process until all possible explanations and modes of discussion
are exhausted. When the taxpayer and the RO fail to reach any further agreement, the
ROs report is then submitted for review, and the preliminary assessment notice shall be
issued subsequently. On the other hand, it is entirely possible that the taxpayer is able to
fully explain the discrepancies to the RO. In this case, the RO shall submit a report of no
discrepancy for review. Another option available to the taxpayer is to offer payment for
any tax-deficiency assessment made by the RO. In this way, the taxpayer cuts short the
assessment process before any formal assessment is issued. These are, of course, still
subject to review by higher authorities.
Thus, far from being a mere paper compliance with due process, the informal
conference is a useful opportunity that should be utilized by the taxpayer to limit his tax-
deficiency assessments and to cut short the assessment process.