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1 CARIÑO NOTES as transcribed by F.C.

Caceres

HOW MAY IR TAXES BE CLASSIFIED? - It cannot cover “unverified prior years.”


1. Self-assessing revenue taxes - taxpayer assesses himself of his tax - Previous taxable years must be indicated with
liability by preparing the required tax return, filing it and paying the same certainty.
with the BIR within the period required by law. 4. It must be served to the taxpayer within 30 days upon issuance. If
2. Non self-assessing revenue taxes – requires prior assessment by the not served within the prescribed period, it must be revalidated.
tax officials to establish the tax liability of the taxpayer 5. Conduct of audit/examination by revenue officer must be made
within 120 days counted from the date of service of LOA; if not
As a rule, IR taxes are self-assessing IR taxes. completed, audit may continue without the need for revalidation but
the revenue officer may be subject to administrative liability.
WHEN IS AN ASSESSMENT NECESSARY?
1. Tax period is terminated WHEN SHOULD THE PAN BE ISSUED?
2. There is tax deficiency – taxpayer either files a fraudulent or false return When there is sufficient basis to assess the taxpayer for deficiency after
3. For purposes of imposing surcharges and fees the audit.
4. Dissolution of a corporation which is subject to IR taxes
Requisites for a Valid PAN:
HOW SHALL ASSESSMENT BE MADE? 1. It must be issued on the basis of audit/examination pursuant to a
1. Self- assessment LOA.
2. Issuance of an electronic Letter of Authority 2. It must be issued by the CIR or his authorized representative.
3. Audit and Investigation of the Taxpayer 3. It must be in writing and must contain the facts, law, rules, and
4. Issuance of the Preliminary Assessment Notice (PAN) jurisprudence on which the proposed assessment was made.
5. Taxpayer’s reply to PAN 4. It must be served to the taxpayer either personally or by substituted
6. Issuance of the Formal Letter of Demand (FLD) & Final Assessment service or mail.
Notice (FAN)
WHAT IS THE PURPOSE OF PAN? Give the taxpayer the opportunity
LETTER OF AUTHORITY – official document that authorizes a revenue to refute the findings and to give a more accurate and detailed
officer to examine and scrutinize the books of accounts and other explanation against the assessment.
accounting records of the taxpayer to determine his correct tax liability REPLY OF THE TAXPAYER
* LOA must be electronic. (Rev. Memo. 44-2210 / 69-2010) – must be made within 15 days from receipt of PAN

Requisites for a valid LOA: Effect if Taxpayer failed to Reply/Reply is not Satisfactory/If no PAN is
1. LOA must be issued by the proper officer of the BIR, depending on required (Sec.228) – a Final Letter of Demand (FLD) and Final
who is tasked to investigate the taxpayer. Assessment Notice (FAN) will be issued
2. It must not contain manually written characters, notations, or - The taxpayer may protest, if not the FLD and FAN will be final
erasures. and executory.
3. It must cover only ONE taxable year except in tax fraud cases as
may be authorized by the CIR and in the case of excise taxes.
2 CARIÑO NOTES as transcribed by F.C. Caceres

NATURE OF FLD AND FAN: 2. If the taxpayer fails to pay within the prescribed period, the government
It is a notice that the amount stated therein is due as a tax stating may result to remedies to compel/enforce its payment.
the facts, law, rules and regulations and jurisprudence from which 3. Interest and surcharges will start to accrue from the expiration of the
it was based with a demand to pay the amount stated therein within date fixed for payment.
the period mentioned. (Note: If the FLD and FAN do not state the
period of payment, it is VOID.) RULE ON PRESCRIPTION OF TAXES:
General Rule: It does not prescribe. Reasons: Life-blood doctrine;
OTHER REQUISITES TO BE COMPLIED FOR A VALID public policy)
ASSESSMENT: Exception: If the law imposing for the tax provides for its prescription.
1. The FLD & FAN must be issued after the PAN, except Sec. 228.
2. The FLD & FAN must be issued by the CIR or his duly authorized Instances:
representative. a) Taxpayer filed a return and the return is NOT false or fraudulent
3. The FLD & FAN must be served to the taxpayer personally or by - Before the last day of filing – within 3 years from the last day
substituted service or by mail. required to file
4. The FLD & FAN must be sent or released to the taxpayer before - After the last day of filing – within 3 years from the date the return
the lapse of the prescriptive period for the BIR to assess the was filed
taxpayer for IR taxes.
5. The FLD & FAN must be in writing and inform the taxpayer of the b) Taxpayer failed to file a return where the law or regulation requires
facts, law, rules and regulations and jurisprudence from which it it
was based. - 10 years from the BIR discovered the fact of the failure of the filing
6. The assessment must contain a demand to pay the amount stated of the return
therein with the period fixed in the notice. c) Taxpayer filed a return which is false and fraudulent
7. The FLD & FAN must be actually received by the taxpayer. - 10 years from the date of discovery
d) CIR and taxpayer agreed in writing the period to pay the tax
WHEN MAY ASSESSMENT BE CONSIDERED EFFECTIVE & VALID? - Within the period agreed upon
1. Assessment must be sent or released within the prescriptive period. e) Taxpayer and BIR agreed to re-extend the period provided it be
2. Assessment must be actually received by the taxpayer even if such done before the lapse of the extended period for the payment of tax
receipt was after the lapse of the prescriptive period. - Within the re-extended period
f) Taxpayer, after filing the tax return, filed an amended return
 Mere notation is not sufficient proof that the taxpayer actually received - 3 or 10 years from the date the amended return was filed, if it
the FLD & FAN. (Nava v. CIR) substantially amended the return; if not, 3 or 10 years from the date
of filing of the original return or on the last day prescribed by law for
LEGAL EFFECTS OF VALID & EFFECTIVE ASSESSMENT: the filing of the original return, whichever is later
1. Upon arrival of the date of payment of the tax assessed, the taxpayer
becomes indebted to the government for the amount stated therein.
3 CARIÑO NOTES as transcribed by F.C. Caceres

INSTANCES WHEN THE RUNNING OF THE 3/10 YEAR IS Note: If the taxpayer contends that the PAN/FLD & FAN is not correct
SUSPENDED: or not made in good faith, or not sufficient in evidence, the burden of
1. Taxpayer requests for reconsideration or reinvestigation of the proof lies on him. He must show that he is correct in his contention.
assessment which is granted or acted upon by the CIR.
2. Warrant of distraint/levy has been served on the taxpayer or to his FALSE RETURN – a return which contains wrong information due to mistake,
representative or to a member of his household with sufficient carelessness or ignorance; a return where there is no design to mislead
discretion but no property of the taxpayer can be found. but there is mistake or deviation from the truth through negligence or
3. Taxpayer is out of the country. carelessness.
4. Taxpayer cannot be located in the indicated address in the tax
return for which he is being assessed. FRAUDULENT RETURN – a return where the taxpayer deliberately makes
5. During the period the CIR is prohibited from making an assessment false entries or omission intended to deprive the government of taxes
and for a period of 60 days thereafter, or prohibited to initiate a
proceeding or prohibited by a distraint/levy FALSE RETURN FRAUDULENT RETURN
6. Taxpayer’s appeal is pending at the CTA or SC - merely a deviation from the truth - implies that there is intentional
7. Taxpayer request for an itemized information of a disallowed item through mistake, carelessness, or omission or deceitful entry with the
which is not pro-forma. ignorance intent to evade payment of tax

Q: Taxpayer has been duly assessed by the CIR for internal tax liability. - subject to 50% surcharge
Within what period may the CIR collect for its payment? - not subject to 50% surcharge
A: Within 5 years from the date the assessment is made. - taxpayer is subject to criminal
- not necessarily subject to criminal liabilities
WHAT IS THE PROBATIVE VALUE OF A PAN OR FLD & FAN? liabilities
1. It is considered as prima facie presumed correct and made in good
faith. Q: Can the CIR delegate his authority to assess?
2. It is presumed to be based on sufficient evidence. (CIR v. Hantex, Mar. A: Yes (Sec. 7, NIRC). However he cannot delegate the FINAL AUTHORITY
31, 2005) to make an assessment which will be valid and binding until revised,
Reasons: Life-blood theory, presumption on regularity on the modified, or reversed by him.
performance of public duty
DEFICIENCY ASSESSMENT – an assessment made after the examination of
When will it be considered as not done in the regular performance of the taxpayer’s return or records of after independent investigation wherein a
public duty? deficiency in the amount of tax is found.
When the assessment is shown to be without basis. Example:
capricious or arbitrary assessment, merely a naked assessment TAX DEFICIENCY –
(1) Amount of the correct tax due against the taxpayer provided by law
(2) Excess of the correct amount of tax as imposed by law over the
amount stated by the taxpayer in his return.
4 CARIÑO NOTES as transcribed by F.C. Caceres

- Both cannot be resorted to by the government if the tax


Q: Is an assessment necessary before the taxpayer be charged with delinquency is not more than P100.
criminal liability?
A: No. The mere filing of a false/fraudulent return is already a sufficient Distinctions: Domondon, p. 206
probable cause to be prosecuted for violation of the NIRC. Procedure: Sec. 206
Purpose: forestall the hiding or possible dissipation of the
JEOPARDY ASSESSMENT – assessment made without complete or at least personal properties of the taxpayer when he becomes
partial audit where there is a reason to believe that the collection of the tax will delinquent.
be jeopardized by delay because of the taxpayer’s failure to submit or comply
with audit and investigation requirements, to present books of accounts and HOW IS ACTUAL DISTRAINT EFFECTED?
accounting records, or to substantiate exemptions. 1. Service of warrant of distraint by a revenue officer
2. Revenue officer will make an account of the personal
properties of the delinquent taxpayer (name of the taxpayer,
GOVERNMENT REMEDIES
time, date, and place of sale, statement of amount being
demanded and signature of the RO)
3. Copy of such should be left with the person owning or in
I. ADMINISTRATIVE REMEDIES possession of the properties or in the dwelling or place of
business of the taxpayer with someone suitable age and
A. Distraint discretion
Definition: seizure or prohibition from disposal by the  For Intangible properties (Sec. 208)
government on the personal properties of the taxpayer to Sale of stock – serving a copy of the warrant on the
enforce payment of internal revenue taxes to be followed by taxpayer and the President, manager or any person
sale if the taxes are not voluntarily paid. responsible for the company which issued the sales of
stock
TWO KINDS:
EFFECT OR SERVICE OF WARRANT OF DISTRAINT:
1. Constructive distraint – person in possession of the personal 1. Stocks/securities are placed on distraint.
properties is merely obligated to preserve it and not dispose 2. The company is not permitted to allow any transaction by
it without the consent of the government the taxpayer which may prejudice the collection of the tax.
2. Actual distraint – government seizes and takes possession 3. Shares of stock is subject to directions, conditions and
of the personal property to be sold at public auction to satisfy restrictions in the warrant.
internal revenue tax liability
DEBTS
- Both are summary, extrajudicial administrative remedies. Effect: The debtor/agent/person in possession is authorized to
- Both are applicable only to personal properties. pay the debt to the BIR.
5 CARIÑO NOTES as transcribed by F.C. Caceres

- no right of redemption
BANK ACCOUNTS - authenticated certificate
- account of properties to be
SALE OF THE PROPERTY DISTRAINED (Sec. 209) distrained is prepared by the
revenue officer
 Redemption of personal properties is not allowed. They - Publication is required
are sold at the public auction - Publication for the auction under Sec. 213.
 Purchase by the government – Sec. 212 sale is not required.
 If there is excess on the proceeds, the taxpayer is
allowed to it. C. Forfeiture (Sec. 268(b), (c), 279, 250, 231, 224, 80(B), 131(a),
 If the amount is insufficient to pay the tax liability, the 215)
taxpayer is still liable and the BIR may order further Definition: property of the taxpayer is taken by and ownership
distraint, levy, or resort to other available remedies to thereof is transferred to the government for violation of the
compel payment. NIRC.
SEIZURE OF PROPERTY
B. Levy (Sec. 205, 207, 213, 215-217) FORFEITURE
TO ENFORCE TAX LIEN
Definition: seizure of real properties and interest in or rights to All proceeds will go to the Excess of the proceeds after
such properties for the satisfaction of taxes due from the Government. (US v. Soria) deduction of the expenses
delinquent taxpayer will go to the taxpayer. (BPI
v. Trinidad)
REQUISITES FOR A VALID DISTRAINT/LEVY:
1. The taxpayer must be delinquent. D. Enforcement of tax lien (Sec. 141, 219)
2. There must be a subsequent demand for its payment. Definition: “charge on property established by law as security
3. The taxpayer must fail to pay the delinquent tax at the time for payment of tax obligation” (Hong Kong & Shanghai Banking
required. Corp. v. Property, 39 Phil 145)
4. The period within which to collect the tax has not yet
prescribed. - Not automatically become a lien even if taxpayer is
delinquent. It is only so when the law prescribes that
DISTRAINT LEVY his delinquency is a lien.
- personal property - real property
NATURE:
- If there is no highest bidder, - if there is no highest bidder, 1. Burden on the property of the taxpayer
the personal property will be the property is forfeited in 2. Warning to prospective buyers of the property, proceeds of
purchased by the favor of the government sale should be applied first to the lien
Government. 3. Tax lien attaches to the property even if such was sold to
- with right of redemption another
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4. Not binding to any mortgager, purchaser, or judgment a. Assessment issued by the Regional Officers involving
creditor until registered with the ROD basic deficiency taxes of P500,000 or less; and
5. Superior claim over a judgment claim of a judgment creditor b. Minor criminal violations, discovered by regional and
district. (Sec. 7(c), NIRC)
HOW MAY A TAX LIEN BE ENFORCED?
1. If the property is already in possession or control of the WHAT ARE THE CASES SUBJECT TO COMPROMISE?
Government, the tax lien can be enforced by sale of the
property. Not subject to
2. If the property is not yet in the possession or control of the Subject to compromise
compromise
Government, it can be enforced through seizure and sale by 1. Delinquent accounts 1. Withholding tax cases
way of distraint or levy. 2. Cases under unless the applicant-
administrative protest after taxpayer invokes
Note: It is important that the properties or the rights thereto issuance of the FAN to the provisions of law that cast
involved here belong to the taxpayer. taxpayer which are still doubt on the taxpayer’s
MODES OF EXTINGUISHMENT OF A TAX LIEN: pending in the RO, RDO, obligation to withhold
1. Full payment of remission of the tax Legal Service, Large 2. Criminal tax fraud cases
2. Prescription on the right of the Government to collect or Taxpayer Service, confirmed as such by the
assess Collection Service, CIR or his duly-authorized
3. Destruction of the property subject to tax lien Enforcement Service and representative
4. Failure to register the tax lien with the ROD concerned. other officers of the 3. Delinquent accounts
National Office with duly approved
Note, however, that in #s 3 and 4, the tax liability of the 3. Civil tax cases being schedule of installment
taxpayer still subsists. disputed before the courts payments
4. Collection cases filed in 4. Cases where the final
E. Compromise of taxes (Sec. 204) courts reports of reinvestigation or
- An agreement whereby the parties, by making a reciprocal 5. Criminal violations other reconsideration have been
concessions, avoid litigation or put an end to one already than those already filed in issued resulting to
commenced. (Art. 2208, NCC) court or those involving reduction in the original
criminal tax fraud assessment and the
WHO MAY COMPROMISE TAX LIABILITY? taxpayer is agreeable to
The CIR is the only official vested with the power and such decision by signing
discretion to compromise civil and criminal cases arising the required agreement
from violations of the Tax Code. He cannot be compelled to form for the purpose. On
exercise such discretion. However, the Regional Evaluation the other hand, other
Board may enter into a compromise on: protested cases shall be
handled by the Regional
7 CARIÑO NOTES as transcribed by F.C. Caceres

Evaluation Board or the Compromise may be disregarded if compromise penalty was not
National Evaluation Board followed. The CIR may then pursue criminal action. (CIR v. Abad,
on a case-to-case basis June 27, 1968)
5. Cases which become
final and executory after F. Filing of bonds (Sec. 91(b), 158-160)
final judgment of a court G. Giving rewards to tax evader informers (Sec. 282)
where compromise is Q: A corporation was not included in the list of taxpayers
requested on the ground of furnished to the Government which committed tax evasion
financial incapacity of the but is among those investigated and assessed of tax
taxpayer deficiency resulting from the direct & logical consequence
given by an informer. Is the latter entitled to award?
Offer of compromise by a taxpayer which was rejected by A: Yes, informer should be given the reward for it is within the
subordinate officials is FINAL. intent of Sec. 282.

GROUNDS: H. Threat of surcharge and interest (Sec. 248-249)


1. Doubtful validity of the assessment
2. Financial incapacity of the taxpayer. SURCHARGES - At the rate of 25% (failure to pay) or 50%
(willful fraud and non-submission of return or there is substantial
Requirements: under declaration of at least 30%)
a. Written waiver of his privileges under the Bank Secrecy
Law Q: The taxpayer reported in his tax return sales of amounting
b. Sworn statement that he has no tax credit certification to P90,000. Upon audit, it was found out that the actual sales
on hand or in transit and that he has no claim for tax amounted to P150,000. Is the taxpayer subject to surcharge?
refund pending with the BIR. If yes, at what rate?
A: Yes, he is liable to surcharges at the rate of 50% for there is
Authority of the CIR to compromise is discretionary with him, substantial under declaration of sales in his return which
hence, he cannot be compelled to exercise it in one way or another. exceeded 30%.
(Koppel Phils v. Collector of IR, Sept. 21, 1958)
Q: Is the filing of a false return sufficient to give rise to the
A compromise made by a subordinate official is preliminary only
imposition of the 50% surcharge?
an subject to the approval of the CIR. A: No. It must be willful so as to evade the payment of taxes.
Compromise penalty may be imposed only if the taxpayer agrees.
General Rule: Imposition of surcharges CANNOT be
dispensed with because the payment of taxes on the date
prescribed is mandatory so as to discourage delay in its
payment. (CIR v. Phil. Banking Commerce). It is a matter of
8 CARIÑO NOTES as transcribed by F.C. Caceres

public policy. (CIR v. Collin Bros., Aug. 1991). An advice of a B. Criminal Action
counsel is not sufficient to be exempted from the payment of III. OTHER MINOR REMEDIES
surcharges. (CIR vs. Inter-ocean Lines, Jul. 30, 1990) A. Making of arrests and seizures
B. Examination of books of accounts and records
Exception: If due to difficult interpretation of provisions of the C. Obtaining of information on tax liability of taxpayers
NIRC, then the taxpayer may be excused. D. Prescribing of gross sales/receipts
E. Inventory taking of tax
Payment of surcharges may be dispensed with if the failure to F. Termination of period to pay tax liability
pay the tax liability on time was due to a debatable or G. Prescribing real property values
controversial matter not yet resolved (Tuazon v. Lingad, 58 H. Inquiry on bank deposits
SCRA 170) OR if the taxpayer relied on the previous ruling I. Request cancellation of registration with the BIR
which was subsequently reversed. (CIR v. Republic Cement, J. Deportation of aliens
134 SCRA 46) K. Use of national tax register

Note: Fraud is not presumed and must be proven by the BIR.


Mere mistake is not fraud.

INTEREST – increment on the amount tax assessed at the rate


of 20% per annum or such higher rate as may be described from
the date prescribed by the rules and regulations – from the date
prescribed until full payment (Sec. 249)

I. Abatement (Sec. 204(B))

COMPROMISE ABATEMENT
- reduction on the tax liability - entire tax liability is
cancelled
- assessment is excessive or
erroneous
- administration costs do not
justify the collection of the tax
due

II. JUDICIAL REMEDIES


A. Civil Action

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