July 3, 2003

REVENUE MEMORANDUM CIRCULAR NO. 40-03

SUBJECT :

Effect of the Issuance and Receipt of Letter Notice to the

Taxpayer's Right to Amend its Tax Returns as Provided under
Section 6 of the National Internal Revenue Code

TO

All Internal Revenue Officers and Others Concerned

For the information and guidance of all internal revenue officers and others
concerned, please refer to the attached copy of the memorandum of Deputy
Commissioner Jose Mario C. Buag of the Legal and Inspection Group dated June 9,
2003 clarifying the following issue:
Whether or not the Letter Notice (LN) being served by the Bureau upon
taxpayers who were found to have under-declared their sales or purchases through
the Third Party Information Program can be considered a notice of audit or
investigation which would in effect disqualify the taxpayers concerned from amending
any return which is the subject of such audit or investigation.
The Deputy Commissioner for Legal and Inspection Group opines and I quote:
"LN being served by the Bureau upon taxpayers who were found to have
under-declared their sales or purchases through the Third Party Information
Program can be considered a notice of audit or investigation which would in
effect disqualify the taxpayers concerned from amending any return which is the
subject of such audit or investigation."

Please be guided accordingly.

aCSTDc

(SGD.) GUILLERMO L. PARAYNO, JR.

Commissioner

Memo-011-2003
06-12-2003
Copyright 1994-2006

CD Technologies Asia, Inc.

Taxation 2005

MEMORANDUM
FOR

DEPUTY COMMISSIONER ESTELITA C. AGUIRRE

Chairperson, VAT-PCC

FROM

JOSE MARIO C. BUAG

Deputy Commissioner
Legal & Inspection Group

DATE

June 9, 2003

RE

Unity Printing, Inc.

Amendment of Tax returns after Receipt of Letter Notice

This refers to the Memorandum dated March 19, 2003 requesting for an opinion on
the following issues:
1.

Whether or not Unity Printing, Inc. (Unity for brevity) can still amend
its return after the Letter Notice was served upon it.

2.

Whether or not the Letter Notices (LN for brevity) being served by the
Bureau upon taxpayers who were found to have under-declared their
sales or purchases through the Third Party Information Program can be
considered a notice of audit or investigation which would in effect
disqualify the taxpayers concerned from amending any return which is
the subject of such audit or investigation.

The facts as stated in the said Memorandum are hereby adopted as follows:
Unity is one of those issued an LN on September 16, 2002 under the Voluntary
Assessment and Abatement Program (VAAP for brevity). In the LN, Unity was informed
that based on the computer check and matching of data conducted by the Bureau, if was
found that it has under-declared its purchases for the year 2001. Unity was offered the
opportunity to disclosed voluntarily its undeclared sales and purchases, and pay the
corresponding deficiency taxes through the VAAP. In that same LN, Unity was required to
pay a minimum amount equivalent to 3% and 2% of its under-declaration per LN, for VAT
and income taxes for the years covered.
Unity did not comply with the LN but rather, amended its VAT and income tax
returns for 2001 on September 17, 2002, a day after the LN was issued. It paid a total of
P360,895.90 on its amended returns. In the LN, Unity was required to pay a minimum of
P3,352,448.94 for VAT and income tax deficiencies.
Copyright 1994-2006

CD Technologies Asia, Inc.

Taxation 2005

In reply, please be informed that Section 6 of the 1997 Tax Code provides that:
"SECTION 6.
Power of the Commissioner to Make Assessments
and Prescribe Additional Requirements for Tax Administration and
Enforcement.
(A) Examination of Returns and Determination of Tax Due. After a
return has been filed as required under the provisions of this Code, the
Commissioner or his duly authorized representative may authorize the
examination of any taxpayer and the assessment of the correct amount of tax:
Provided, however, That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer.
The tax or any deficiency tax so assessed shall be paid upon notice and
demand from the Commissioner or from his duly authorized representative.
Any return, statement or declaration filed in any office authorized to
receive the same shall not be withdrawn: Provided, That within three (3) years
from the date of such filing, the same may be modified, changed, or amended:
Provided, further, That no notice for audit or investigation of such return,
statement or declaration has, in the meantime, been actually served upon the
taxpayer:" (Emphasis supplied.)
Accordingly, a taxpayer can amend any return filed in the BIR within three years
from such filing provided that no notice for audit or investigation of such return has been
actually served upon the taxpayer.
However, under Section 4 of Revenue Regulations No. 12-2002, a person found to
have under-reported sales/receipts per data generated by RELIEF system shall be sent a
Letter Notice detailing the amounts involved and what the Bureau requires from that person.
In other words, the issuance of the LN is predicated on the findings through the
Reconciliation for Listing and Enforcement (RELIEF for brevity) System together with the
Integrated Tax System (ITS for brevity) that generated firm and precise data on sales
underdeclarations. Any LN issued therefore presupposes that an audit or investigation had
been made, whether the same is partial or otherwise.
HCDAcE

Thus, in answer to your first query, it is the considered opinion of this Office that
Unity can no longer amend its return after the LN was served upon it.
As to your second query, we fully subscribe to your view and hereby adopt and
reproduce in toto that:
". . . the requirement under the 1997 Tax Code that notice of audit or
Copyright 1994-2006

CD Technologies Asia, Inc.

Taxation 2005

investigation must first be served to the taxpayer before the latter can lose its
right to amend the return within three years after filing is not limited to the
issuance of a Letter of Authority (LA). Although the issuance of LA has been
the standard procedure before an audit is conducted, it does not preclude the
BIR from conducting an investigation without the LA. The computer machine
of ITS data against TPI data and verification of tax returns filed by subject
taxpayer can be considered per se an investigation of tax returns filed with the
Bureau. The audit procedures that can be performed by revenue officers are not
limited by law to the examination of the taxpayer's records. Section 5 of the tax
code gives the Commissioner the power to obtain information, and to summon,
examine and take testimony of persons other than the person whose internal
revenue tax liability is subject of audit or investigation."
Accordingly, this Office opines that LN being served by the Bureau upon taxpayers
who were found to have under-declared their sales or purchases through the Third Party
Information Program can be considered a notice of audit or investigation which would in
effect disqualify the taxpayers concerned from amending any return which is the subject of
such audit or investigation.
For your information and guidance.

Copyright 1994-2006

CD Technologies Asia, Inc.

Taxation 2005