Issues, Problems and Solutions in

Tax Audit and Investigation of BIR

Ruperto P. Somera, Ph.D., DBA, CPA
Tax Consultant, Professor/Lecturer
Former Director, Bureau of Internal Revenue
Former Member of the Board of Accountancy
Fellow in Tax Management

STATUTORY BASIS OF ASSESSMENT:

INTERNAL REVENUE CODE
Sec. 6 (A) 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
xxx.

ANY
RETURN,
STATEMENT
OR
DECLARATION FILES IN ANY BIR 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NOT BE WITHDRAWN: PROVIDED, THAT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
RETURNS, STATEMENT OR DECLARATION
HAS, IN THE MEANTIME, BEEN ACTUALLY
SERVED UPON THE TAXPAYER.

Types of Audit and Assessments:

Audit and Investigation

Third Party Info

Matching

Audit of books of
accounts (with LA)
Audit based on face
of return (no LA and
limited to
mathematical
accuracy)
Table audit
Industry audit
Short period audit
No-contact auditsurveillance

Post Audit Review

Normally covered
Assessment arising
by LN
from review
Tax reconciliation
systems
Matching of
Summary Alpha list
of withholding taxes Post Review Audit
/ alpha list of pages
Matching with govt.
info BOC, LGU,
Assessment arising
BSP, IC
from post review
Access to records
audit
Sec. 5 of Tax Code

Audit Notices to Examine Books and

Records Audit Jurisdiction
1. Large taxpayer service top 1,300 corporation
2. Enforcement service
a) National Investigation Division NID
b) Special Investigation Division
c) Revenue District Office (RDO)

Electronic Letters of Authority (eLA)

Under RMO 62-2010, the manual issuances of Las
for all investigating offices under the Regional
Offices, the LTS, the Enforcement Service, and the
various Task Forces and Special Teams authorized by
the CIR has been discontinued. This Order paved the
way for the issuance of electronic Las (BIR Form No.
1966) through the Letter of Authority Monitoring
System (LAMS). In said RMO, the issuance of TVNs
has likewise been stopped, and instead, eLAs were
supposed to be issued for cases to be covered by
TVNs

The Regional Director shall issue the

corresponding Letter of Authority if indications of
fraud have been established, and the same has
been confirmed by the Regional Tax Fraud
Committee (RTFC), composed of the following:

 One LA shall be issued for each taxable

year to include all internal revenue tax
liabilities of the taxpayer. However, for
purposes of verifying tax liabilities of a
decedent, one consolidated LA shall be
issued to cover the estate tax liability
and the income tax liability
for the
immediately preceding year up to the
time of the death of the taxpayer.

 LAs shall be issued only when the

duplicate copy of the tax return of the
taxpayer for the taxable year covered by
the LA is attached thereto. Where the
return of a taxpayer selected for audit
cannot be located, the LA shall be issued
only when there is a certification to that
effect by the Head-Revenue Date Center
for taxpayers covered by ITS RDOs and
by
the
Assistant
Commissioner,
Information Systems Operations Service
for taxpayers covered by non-ITS RDOs.

 The same Revenue Officer/Group

Supervisor shall not be allowed to audit
the same taxpayer for two consecutive
years.
LAs shall be revalidated only the
Regional Directors when there is an
attached progress report of the
investigating Revenue Officer(s) duly
noted by his Group Supervisor and
approved by the Revenue District
Officer/Chief, SID.

PRIORITY TARGET IN
TAXPAYERS AUDIT
Top 100 taxpayers in the district in terms
of gross sales/receipts where there is no
VAT or percentage tax payment for the
current year and the immediately
preceding year.

 Those with substantial increase in

costs of sales and expenses will
mean at least twenty percent (20%)
increase in claimed cost of sales and
expenses over and above the increase in
costs
and
expenses
in
gross
sales/receipts.

INDUSTRY BENCMARKING
Benchmarks will be determined on a per area
(district/town/city), per industry and per tax type
basis.

Initially the top 200 taxpayers (based on gross

sales) will be audited

REVENUE MEMORANDUM
NO. 3-2010
The following policies and guidelines shall be observed in the
audit of 2010 tax returns by the Revenue District Offices:

All taxpayers are considered as possible candidates for

audit.
Priority shall be given to the following taxpayers who
render professional services:
Lawyers;
Doctors;
Engineers;
Accountants; and
Other Professionals

Last Priority status for income tax audit shall be

accorded to those taxpayers with an effective income
tax rate of eighteen percent (18%) (Gross Income x
18%).
Taxpayers with the following effective VAT rate are
also last in the priority for VAT audit:

3% or higher for sale of goods; and

6% for sale of service.
An exception to the Last Priority status shall be those
taxpayers where there are findings/suspicions of underdeclaration of sales/revenues

REVENUE MEMORANDUM
ORDER NO. 22-2011
Amended Audit Criteria for Taxable
Years 2009-2010

To be entitled to the Last Priority for audit status

enunciated under RMO No. 4-2011, the following
conditions
must
concur:
a. Effective Income Tax Rate of 18%;
b. Increase in Income Tax payment by at least 20% from
the immediately preceding year;
c. Full compliance with all the submission and
reportorial requirements (i.e. SLSP, Alphalist, etc.). To
constitute full compliance, all required fields of said
reports must be properly filled-up; and
d. No Letter Notice issued against the taxpayer.

EXCLUDED FROM AUDIT AND

INVESTIGATION BY THE RDOS
Taxpayers under the jurisdiction of the
Large Taxpayers Division in the National
Office and other taxpayers/industries
covered by the Audit Program of the
Enforcement Service

AUDIT NOTICES
- Letter of Authority (LA)
- Tax Verification Notice (TVN)
- Letter Notice (LN)

CONTENTS OF LA
- Name, address and TIN of taxpayer
- Name and designation of revenue officer(s)
authorized to conduct tax audit
- Scope of examination
Kinds of taxes
Period
- Approving official
- Telephone number(s) of BIR office

REQUIREMENTS OF LA
- ITR attached to LA
- No erasures on LA
- LA shall cover only one year; 2008 and unverified
prior years is not allowed, except when signed by CIR
- Audit must be completed within 120 days, unless
revalidated for another 120 days
- Only revenue officers named in LA are authorized
to examine books and records
- Audit must be done in taxpayers place of
business
- Submission of CD for computerized

REVENUE MEMORANDUM
CIRCULAR NO. 62-2010
Starting July 1, 2010, the manual issuance of Las
and TVNs shall be discontinued for all investigating
offices under the Regional Offices, the Large
Taxpayer Service (LTS), the Enforcement Service
(ES), and the various Task Forces and Special Teams
authorized by the Commissioner of Internal
Revenue to conduct audit/investigation.

TAX VERIFICATION NOTICES

TVNs shall be issued only for the
following non-audit cases in Revenue
District Officer with their corresponding
case codes:

Verification and processing of all capital

gains tax returns (TVN-C)
Verification
and
processing
of
withholding tax returns involving property
transactions (TVN-W)

 Verification and processing of estate

and donors tax return, where the gross
estate/gift is below the audit threshold
under the existing audit program (TVNE/TVN-D)
Verification and processing of claims for
tax credit/refund, where the gross
sales/income and claims are below the
audit threshold under the existing audit
program (TVN-TCR).

LETTER OF NOTICE
In the event of taxpayer who has been issued an
LN refutes the discrepancy, it shall be given an
opportunity to reconcile its records with those of
the BIR within ten (10) days from receipt of its LN
and to submit documentary proofs in support of
its arguments.

If after ten (10) days from receipt of Follow-up

Letter, no response was received from the taxpayer,
or it fails to submit the required documents after
filing the protest within the five-day period after
receipt of the LN, the LNTF/concerned investigating
office shall endorse the docket and recommend to
the OCIR through the Overall Head, LNTF, the
issuance of an issue-based LA to cover specifically
Income Tax, VAT, Percentage Tax, and Withholding
Taxes Due to Discrepancy Reflected in the LN. A
Notice for Informal Conference together with the LA
shall be served to the taxpayer.

However, if the audit covered by the LA was

already completed and terminated by the
revenue
officer
assigned
thereto
and
subsequently, an LN is issued by the BIR, another
round of examination will be conducted pursuant
to the LN to determine the accuracy of the sales
and/or purchases declared by the taxpayer in its
tax returns.

Handling LNs
1. LN based on TRS (Tax Reconciliation
System)
2. LN based on Consolidated RELIEF-SLSP
3. LN based on TPM-BOC Data Program
(Third Party Matching-Bureau of
Customs)

BIR Data-Matching
Based on computerized matching of data available under the
Bureaus Integrated Tax System (ITS)

1701
1702
2550Q
2551M
2551Q
etc

MAP
SAWT
SLSPs
Alphalist of employees (Form 1604-CF)
Annual Information Return of
Creditable Taxes withheld
Expanded/Income Payments Exempt
from Withholding tax (Form 1604-E)
List of regular suppliers
Monthly/Quarterly withholding returns

LN- Sources of discrepancies

1. Sales reported by seller vs purchases
reported by the buyer (VAT and income tax)
2. CWT remitted by buyer vs SWT claimed by
seller/supplier (WT)
3. Income reported vs. CWT or FT paid by payor
4. Importations recorded by BOC vs
importations reported in the SLSP (VAT and
income tax)

LNs vs LAs
1. LN = LA (Informal conference stage)
LN prohibits the amendments of the return for
the period covered by the LN
No conversion to LA

2. Taxpayer can still be issued an LA?

Consolidation?
For LN on WT, LN should be consolidated with
the LA if already issued (RMO 28-07)
For LN on TPM-BOC, LN to proceed separately
from LA (RMO 32-07)

LNs vs LAs
3. To protest an LN, taxpayer has to try
explain both his declaration and that of
the Third Party source of the
information
Details of the reconciliation with third
party payor/payee source of discrepancy is
normally attached to LN

POWER OF THE COMMISSIONER TO OBTAIN

INFORMATION, ETC.
In ascertaining the correctness of any return, in
making a return where none been made, or in
determining the liability of any person for any
internal revenue tax, or in collecting any such
liability, or in evaluating tax compliance, the
Commissioner of Internal Revenue is authorized.
1. To examine any book, paper, record or other
data which may be relevant or material to such
inquiry;

2. To obtain on a regular basis from any person

other than the person whose internal revenue
tax liability is subject to audit or investigation,
or from any office or officer of the national and
local governments, government agencies and
instrumentalities, including the Bangko Sentral
ng Pilipinas (BSP) and government-owned or
controlled corporations any information such
as, but not limited to, cost and volume of
production, receipts or sales and gross incomes
of taxpayers.

3. To summon the person liable for tax or required to file a

return, or any officer or employee of such person, or any
person having possession, custody, or care of the books
of accounts and other accounting records containing
entries relating to the business of the person liable of
tax, to appear before the Commissioner or his duly
authorized representative at a time and place specified
in the summons and to produce such books, papers,
records, or other data, and to give testimony.
4. To take such testimony of the person concerned, under
oath.
5. To cause revenue officers and employees to make a
canvass from time to time of any revenue district or
region and inquire after.

REVENUE REGULATION
NO. 10-2010
Exchange of Information Regulation

Provide the necessary guidelines to enable the Bureau

of Internal Revenue (BIR) to respond to a request for
exchange of information pursuant to an existing
international convention or agreement on tax matters
and to implement Republic Act No. 10021 entitled An
Act to Allow the Exchange of Information by the
Bureau of Internal Revenue on Tax Matters Pursuant to
International-Agreed Tax Standards.
Financial Institutions
Foreign Tax Authority

Foreign Tax Authority May be Allowed to Examine

Income Tax Returns of Taxpayers in the Philippines.

Obligation to Maintain Confidentiality

Processing of Requests All requests for information
pursuant to an international convention or agreement
on tax matters shall be coursed through the
International Tax Affairs Division (ITAD) of the BIR.

Access to Records
SEC. 5, NIRC SEC. 5. Power of the
Commissioner to Obtain Information and to
Summon, Examine and Take Testimony of
Persons In ascertaining the correctness of any
return or in making a return when none has
been made, or in determining the liability of any
person for any internal revenue tax or in
collecting any such liability, or in evaluating tax
compliance the Commissioner is authorized

Linkages with Government Data

LGU
BOC
BSP
IC
SEC
Other regulatory agencies
Exchange of information under tax treaties

FAILURE TO SUBMIT REQUIRED

RETURNS, STATEMENTS, REPORTS
AND OTHER DOCUMENTS
When a report required by law as a basis for the
assessment of any national internal revenue tax
shall not be forthcoming within the time fixed by
laws or rules and regulations or when there is
reason to believe that any such report is false,
incomplete or erroneous, the Commissioner
shall assess the proper tax on the best
evidence obtainable.

REVENUE MERANDUM ORDER

NO. 45-2010
Revised guidelines in the requests for the
production of the books of accounts and/or other
records and documents and in the issuance of
Subpoena Duces Tecum for failure of taxpayers to
comply with the requests.

The following policies and guidelines :

1. If the taxpayer, upon receipt of the Letter of Authority
(LA) and checklist of presentation of the requirements
for the audit, or access to records request, the
Revenue Officer (RO) concerned shall send a First
Notice, signed by himself and/or his group supervisor,
to the taxpayer, after ten (10) calendar days from
receipt of the LA and checklist of requirements/ access
to records request, demanding, the taxpayer to furnish
to the RO the requirements previously requested.

2. If the taxpayer ignores the First Notice and continues to

disregard the demand for the submission of the required
documents, a Second and Final Notice, signed by the Head
of Office concerned, shall be sent to the taxpayer after ten
(10) calendar days from receipt of the First Notice.
3. If, after the taxpayers receipt of the Second and Final
Notice, said taxpayer still refuses to comply with the
requirements for the notice, the Head of Officer shall
request for the issuance of a subpoena duces tecum (SDT)
from the Legal Service (National Office), Legal Division
(Regional Office), after ten (10) calendar days from receipt
of the Second and Final Notice.

4. The Legal Service, Legal Division or any other authorized

office shall act on the request from the issuance of SDT
within five (5) calendar days from receipt of such request.
5. The RO must serve immediately the SDT to the taxpayer
and shall return a served copy of the SDT to the office
which issued the same within five (5) calendar days from
the issuance thereof.
6. If the taxpayer refuses to comply with the SDT, the
concerned BIR legal offices shall perform the following
courses of action:

a) File a criminal case against the taxpayer for violation of

Section 5 in relation to Sections 14 and 266 of the National
Internal Revenue Code; and/or
b) Initiate a proceeding to cite the taxpayer for contempt,
under Section 3(f), Rule 71 of the Revised Rules of Court.
7. If the taxpayer subsequently requests for the dismissal of
the cases filed in court and submits the requested
information, the concerned BIR office shall occur with such
request for dismissal upon the submission of the requested
document/s and the payment of penalty by the taxpayer of
ten thousand pesos (P10,000) for the delayed compliance
and violation of pertinent provisions of the revenue
regulations.

Processing of recommendation for issuance of

subpoena. The Prosecution Division or Legal
Division
concerned shall
evaluate the
recommendation for issuance of subpoena
within two (2) working days from receipt and
may take the following alternative actions: (a)
return the case to its origin for further
documentation or action; or (b) prepare the
corresponding subpoena in three copies for initial
and/or signature of the officials concerned.

Service Ideally, the service of the subpoena

should be effected by the revenue officers
assigned to investigate the case. However, such
service may be made by any internal revenue
officer authorized for the purpose.
How service may be effected. a. The subpoena
shall be served handing the original copy thereof
to the individual named therein in person or, if he
refuses to receive it, by tendering it to him
witnessed by another revenue officer
accompanying the server.

Limitation on the best-evidence rule

The taxpayer did not adduce evidence to prove its correct tax
liability. However, it has been established that BIRs
assessment is which factual basis, such failure of the taxpayer
cannot serve as a basis for the Court to confirms its liability for
the amount assessed; otherwise , the Court would thereby be
committing a travesty.
Case was remanded to the CTA for BIR to present further
evidence BIR failed. CTA issued a denial in 2007
(Hantex Trading Co. Inc. v Commissioner of Internal Revenue,
CTA Case No. 5126, February 7, 2007; CIR v Hantex Trading Co.,
Inc. GR 136975, March 31, 2005)

Limitation on the best-evidence rule

BIR or the Courts will not accept a
photocopy as evidence of a claim for
input VAT, expense paid or CWT, etc.

Meaning of Best Evidence

Best evidence
The law allows the BIR access to all
relevant or material records and data
in the person of the taxpayer

Existing Revenue Procedures and

Jurisprudence Governing Assessment
based on the Best Evidence Obtainable
Failure to Submit Required Returns, Statements,
Reports and other Documents when a report
required by laws as a basis for the assessment of
any national internal revenue tax shall not be
forthcoming within the time fixed by laws or
rules and regulations or when there is reason to
believe that any such report is false, incomplete
or erroneous, the Commissioner shall assess the
proper tax on the best evidence obtainable.

In case a person fails to file a required or

other documents at the time prescribed by
laws, or willfully or otherwise files a false
or fraudulent return or other document,
the Commissioner shall make or amend
the return from his own knowledge and
from such information as he can obtain
through testimony or otherwise, which
shall be prima facie correct and sufficient
for all legal purposes.

Assessment based on Estimate: 50% Rule, in

the Absence of Receipts to Prove Actual
Amount of Expense Deduction
If there is showing that expenses have been
incurred but the exact amount thereof cannot
be ascertained due to absence of documentary
evidence, it is the duty of the BIR to make an
estimate of deduction that may be allowable in
computing the taxpayers taxable income
bearing heavily against the taxpayer whose
inexactitude is of his own making. That
disallowance of 50% of the taxpayers claimed
deduction is valid.

Limitation on the best-evidence rule

Based on photocopies of 77 Consumption Entries, an informer reported
that importations of the company were understated in its accounting
BOC was unable to certify the validity of the photocopies because the
originals were either destroyed or lost. Certifications were only issued
based on BC records of importations up to about 60% of the amounts in
the Consumption Entries.
The importations per photocopies of the Consumption Entries were
validated against the companys FS and ITR and BIR concluded that there
was undeclared importation on which basis assessments were issues for
deficiency income tax and VAT
Company refused to be further subjected to investigations because they
already been audited for the subject periods.
A FaAN/demand letter was issued which the company appealed at the
CTA.
(Hantex Trading Co., v CIR, CTA Case No. 5126 February 7, 2007. CIR v Hantex
Trading Co., Inc., GR 136975, March 31, 2005)

Limitation on the best-evidence rule

Assessment can be based on the best evidence obtainable if
taxpayer fails to submit the required returns, statement,
records and other documents (Section 6, NIRC)
Best evidence obtainable cannot include mere photocopies of
records or documents. These have no probative value as basis
for concluding under declaration of importations and
assessment of deficiency income or business tax against a
taxpayer.
Consumption Entries are prepared in several copies; duplicate copies
submitted to other offices should have been accessed.

(Hantex Trading Co., v CIR, CTA Case No. 5126 February 7, 2007.
CIR v Hantex Trading Co., Inc., GR 136975, March 31, 2005)

AMENDMENT OF RETURN
Returns can be amended within three (3)
years from filing. Provided, that no notice
for Audit and examination has been
actually served to the taxpayer.

FRAUDULENT RETURN
A substantial under declaration 30% of
taxable sales, receipts or income, or a
substantial
overstatement
30%
of
deductions shall constitute prima facie
evidence of a false or fraudulent return.

Revalidation of Letters Authority

An LA which is over 120 days from the date of issue
loses its validity and must be revalidated. The rules
on revalidation of LA are:
1. Regional LAs shall be revalidated only by the
Regional Directors when there is an attached
progress report of the investigating Revenue
Officer(s) duly noted by his Group Supervisor and
approved by the RDO/Chief, SID.
2. Revalidation of Letters of Authority shall be
limited to only once in the regional offices and
twice in the National Office after issuance of the
original LA.

3. A revalidation shall be covered by the issuance

of a new Letter of Authority under the
name(s) of the same investigating officer(s),
and the superseded LA(s) shall be attached to
the new LA issued.
4. Requests for revalidation shall be supported
with a progress report on the case and a
justification for said revalidation. The Division
Chief/RDO shall indorse the request for
revalidation, which shall be duly approved or
disapproved by the Assistant Commissioner or
Regional Director.

5. The Division Chief/RDO shall be responsible

for the monthly monitoring of Las issued to
ensure that reports are rendered within the
reglementary 120-day period. The Division
Chief/RDO shall be jointly responsible with
the Revenue Officers for cases with Las
pending beyond the 120-day period.
6. It shall be the duty of the Division Chief/RDO
to immediately to report the Inspection
Service any tax case for which no report of
investigation has been rendered 120 days
after the issuance of an LA.

Beginning June 1, 2010, the rule on the need for

revalidation of Las for failure of the revenue
officials to complete the audit within the
prescribed period shall be withdrawn.
Accordingly, there is no need for revalidation of
the LA even if the prescribed audit period has
been exceeded. However, the failure of the RO
to complete the audit within the prescribed
period shall be subject to the applicable
administrative sanctions.

REMEDIES DURING AUDIT

Submit copy of returns, worksheets, and other reportorial
requirements to revenue officers with covering transmittal
letter
Present only books, records, and other documents covered
by the period under audit
Bank deposits and related records are covered by RA 1405
(Bank Secrecy Law), which cannot be examined by revenue
officers
Make analyses of accounts and comparison of figures
shown in ITR, VAT returns, audited FS, SLS and SLP, alpha
list of compensation income and fringe benefits, inventory,
etc.
Many findings of revenue officers relate to
discrepancies between or among above documents

NOTICE OF INFORMAL CONFERENCE

PURPOSE:
PRESENTATION of AUDIT FINDINGS
Give taxpayer the opportunity to present his side
PERIOD of RESPONSE:
15 DAYS FROM DATE OF RECEIPT OF
NOTICE
EFFECT of FAILURE to RESPOND:
ENDORSEMENT to ASSESSMENT DIVISION
for REVIEW and ISSUANCE of DEFICIENCY
TAX ASSESSMENT

INFORMAL CONFERENCE
Revenue officers
-Will present in an informal manner their
findings
to
the
taxpayer
or
his
representative
-Will verbally explain the source of
information and the bases of their findings
-May or may not sign their findings

Taxpayer may
-Listen passively to the revenue officers
-Explain his position or comment on the
revenue officers findings and submit
documentary evidence
-Ask for another informal conference to give
a more detailed explanation to their findings
-Request for breakdown of findings or source
of the information from revenue officers as
well as the factual and/or legal bases

INFORMAL CONFERENCE
FINDINGS OF FACT
-Undeclared or under-declared income
-Deduction is unsupported or personal in
nature
-Deduction is for another year (before or
after) not for the current year audit
-Income payment is subject to withholding
tax that was not deducted and remitted to
BIR by payor of income

-There is variance between gross sales per

ITC,
VAT
return,
audited
financial
statements, alpha list, summary list of sales,
etc.
-Claimed tax credits are not supported by tax
credit certificates attached to income tax
returns

-Cost and expenses are not direct items;

hence, not part of Cost of Services for
MCIT
-Assessment has prescribed or is not valid
-Taxpayer has committed fraud in filing tax
return
-Nature of asset is ordinary or capital

INFORMAL CONFERENCE
QUESTIONS OF LAW
-Income is subject to or exempt from tax
-Income or expense is realized or unrealized
during the year
-Income payment is subject to or exempt
from expanded withholding tax
-Business expense is ordinary and
necessary of unreasonable in amount

PRELIMINARY ASSESSMENT NOTICE

PURPOSE:
PRESENTATION OF AUDIT PROPOSAL
Give Taxpayer the Opportunity to Present His
Side
CONTENTS:
COMPUTATION of PROPOSED DEFICIENCY
TAX;
DETAILS OF FACTS & LAW, RULES and
REGULATIONS, or JURISPRUDENCE ON
WHICH THE ASSESSMENT IS BASED

PERIOD OF RESPONSE:
15 DAYS FROM DATE OF RECEIPT OF THE
PRELIMINARY ASSESSMENT NOTICE
EFFECT OF FAILURE TO RESPOND:
ISSUANCE OF FORMAL LETTER OF DEMAND

REVENUE REGULATIONS NO. 12-99

PRELIMINARY ASSESSMENT NOTICE (PAN)

If after review and evaluation by the Assessment

Division or by the Commissioner or his duly
authorized representative, and it is determined
that there exists sufficient basis to assess the
taxpayer for any deficiency tax the Assessment
Division shall issue to the taxpayer, at least by
registered mail.

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
assessment notice shall be caused to be
issued by the said Office, calling for
payment of the taxpayers deficiency tax
liability, inclusive of the applicable
penalties.

A Preliminary Assessment Notice (PAN)

for the proposed assessment, shall show
in detail, the facts and the law, rules and
regulations, or jurisprudence on which the
proposed assessment is based.

REMEDIES RELATIVE TO PRELIMINARY

ASSESSMENT NOTICE
-File written request for extension to file Reply to
PAN
-Ask for source of information or breakdown of
certain income and expenses relating to findings of
revenue officers, so that appropriate thereto could
be submitted
-Agree to file Waiver of the Statute of Limitations
for six months (RMO 20-90)
-Request for consolidation of tax audits being done
thru LA and LN

Undisputed issue is not appealable

Issues not properly protested shall be
considered undisputed issues and the
assessment hall become final, executory
and demandable
(Allied Banking Corporation v. The Commissioner of
Internal Revenue, CTA EB No. 157 Re: CTA Case No.
6981, January 2, 2007)

Protest on the PAN cannot be

appealed at the CTA
A Formal Letter of Demand (FLD) received in response
to a protest filed on the Preliminary Assessment Notice
(PAN) states as follows:
Your subject protest
It is requested that the above deficiency tax be paid
immediately upon receipt hereof, inclusive of penalties
incident to delinquency. This is our final decision based
on investigation. If you disagree, you may appeal this
final decision within 30 days from receipt hereof,
otherwise said deficiency assessment shall become
final, executory and demandable.

Protest on the PAN cannot be

appealed at the CTA
Taxpayer erroneously interpreted the wording of the
FLD.
The FLD should be considered as the Fan, which
should be appealed administratively by filling a
request for reconsideration or reinvestigation within
30 days. Denial or inaction on said administrative
appeals is the one appealable to the CTA.
Period to protest expired because an appeal to CTA
(wrong venue) instead of a protest to BIR
(Allied Banking Corporation v. The Commissioner of Internal Revenue, CTA EB
No. 157 Re: CTA Case No. 6981, January 2, 2007)

NO PRE-ASSESSMENT NOTICE IS REQUIRED

1.mathematical error in computing tax liability per
return;
2.discrepancy in tax withheld and amount
remitted;
3.carry-over and automatic application of excess
creditable withholding tax to estimated tax
liabilities;
4.unpaid excise on exciseable articles;
5.transfer of an otherwise taxable article by an
exempt person to a non-exempt person

Court of Tax Appeals:

Absence of PAN does not
invalidate an assessment

Case: (Bank of Philippine

Islands v. CIR, CTA Case No.

7397, April 09, 2008)

Decision:
1. Although issuance of PAN is required, it is not
indispensable. In fact, a taxpayer is not
obligated to protest a PAN and failure on
its/his part to protest a PAN does not result in
the finality of assessment. What the law
requires is the issuance of FAN which is in
substantial compliance of what is mandated
under Section 228 of the NIRC.

FORMAL LETTER OF DEMAND AND

ASSESSMENT NOTICE
PURPOSE:
TO FORMALLY CALL for the PAYMENT of the
DEFICIENCY TAX;

TO SET THE DATE for the IMPOSITION of the

25% SURCHARGE;
TO AFFORD THE TAXPAYER THE FINAL
OPPORTUNITY
TO
PROTEST
ADMINISTRATIVELY.

ASSESSMENT OF INCOME TAX

Assessment is the official action of an officer
authorized by law in ascertaining the amount of tax
due under the law from a taxpayer.
The action necessarily involves:
1.
the computation of the sum due;
2.
the giving of a notice to that effect to
the taxpayer; and
3.
the making, simultaneously with or
sometime after the giving of notice, of
a demand upon him for the payment
of the tax or deficiency stated.

AUTHORITY TO MAKE ASSESSMENTS

The authority to make assessments of internal
revenue taxes is vested by law in the
Commissioner of Internal Revenue. However, it
may be delegated to subordinate officers like
Regional Director.
An assessment made by a subordinate officer has
the same force and effect as that issued by the
Commissioner himself.
There is no assessment if no demand or period of
payment is stated in the notice.

EFFECT OF ASSESSMENTS
An assessment fixes and determines the tax
liability of a taxpayer. Once a tax is assessed, the
taxpayer will owe the government the amount
when the date fixed in the assessment notice for
payment arrives.

REVENUE REGULATIONS NO. 12-99

FORMAL LETTER OF DEMAND AND
ASSESSMENT NOTICE

The formal letter of demand and assessment

notice shall be issued by the Commissioner of
his duly authorized representative. The letter of
demand calling for payment of the taxpayers
deficiency tax or taxes shall state the facts, the
law, rules and regulations, or jurisprudence on
which the assessment is based , otherwise, the
formal letter of demand and assessment notice
shall be VOID.

FORMAL LETTER OF DEMAND

AND ASSESSMENT NOTICE
Shall be sent to the taxpayer only by
registered mail or by personal delivery. If
sent by personal delivery, the taxpayer or
his duly authorized representative shall
acknowledge receipt thereof in the
duplicate copy of the letter of demand.

Prescription Period
Date of mailing is considered the date of filling
of any petition or pleading.
A mailed letter is deemed received by the
addressee in the ordinary course of mail.
However, a direct denial of the receipt thereof
by the addressee shifts the burden of prving
the same to the sender.
(Asia International Auctioneers v. CIR, CTA EB 276, August 03,
2007)

Prescription Period
Failure to present registry return card. Evidence
presented:
Registry Receipt No. xx
Philpost Certification on the delivery and receipt by BIR
BIR Records Divisions Receipt of Important
Communications Delivered showing RN No. xx

Taxpayer failed to prove that the letter mailed (per

evidence provided) is the protest letter for the
subject assessment.
BIR was able to show inconsistencies in the
chronology of events.
(Asia International Auctioneers v. CIR, CTA EB 276, August 03, 2007)

Proof of receipt of FAN

If the taxpayer denies receipt of FAN, burden of
proving that FAN has been received is shifted to
BIR. Failure of the BIR to prove receipt of
assessment notice is fatal.

Court of Tax Appeals:

Case: (Mallari vs. RP,CTA EB Criminal Case No.
002,1-8-08)

Ruling: Where the assessment notice was released

and mailed by BIR to the taxpayer and the original was
not returned to the BIR, the taxpayer is presumed to have
received it. But such presumption is disputable. When the
same is directly denied by taxpayer, the burden to prove
receipt is shifted to the BIR.The transmittal list presented
by BIR is self serving and did not sufficiently establish
receipt of FAN.

CONTENTS:
COMPUTATION OF PROPOSED DEFICIENCY
TAX;
DETAIL OF FACTS and the LAW, RULES and
REGULATIONS, or JURISPRUDENCE on
WHICH THE ASSESSMENT IS BASED.
PERIOD OF RESPONSE:
30 DAYS FROM RECEIPT OF DEMAND
EFFECT OF FAILURE TO RESPOND:
ASSESSMENT
BECOMES
EXECUTORY AND DEMANDABLE

FINAL,

ASSESSMENT
The taxpayer shall be informed in writing
of the law and the facts on which the
assessment is made; otherwise, the
assessment is VOID.

Assessment based on "tentative

tax return
Case: (Magnetic Resonance
Imaging Services v. CIR, CTA Case
No. 6608, October 20, 2009)

Court of Tax Appeals:

Ruling:
Assessment is valid even if it is based on the "tentative
return". The BIR is not prohibited from looking into a
taxpayer's tentative tax return in ascertaining the
correctness of its final return. Under Section 5 of the
Tax Code, the Commissioner of Internal Revenue or
his duly authorized representative is allowed to
examine any book, paper, record or other data which
may be relevant or material in determining the correct
liability of a taxpayer. The law states any return
which is indicative that it includes not only the final
return but also a tentative return.

The Regional Director shall approve the

assessment notices and demand letters
including the reports of investigation, for
cases falling within their respective
jurisdictions. Likewise, the Regional
Directors shall issue Termination Letters.

Assessment flow
Filing of
Return

Administrative 30 days; 180 days

Protest
30 days

Letter of
Authority

Final
Assessment
(FAN)
15 days

Informal
Conference

Preliminary
Assessment
(PAN)

CTA

Post-Audit Review Report

Assessment
is correct
Issue
Assessment Notice

Assessment
is correct

TL not
yet issued

*TL= Termination Letter

Reprimand
examiner

SUMMARY OF ASSESSMENT
CYCLE

Filing of tax return

Law prescribes due date
Tax audit by BIR
120 days + 120 days
Informal Conference
Preliminary Assessment
Notice (PAN)
Reply to PAN
15 days from receipt
Final Assessment Notice
(FAN)
3 years or 10 years
Protest to FAN
30 days from receipt
Supplemental Protest
60 days from filing of
protest

SUMMARY OF ASSESSMENT CYCLE

BIR ACTION
-Cancel assessment
- Deny protest
- Revise assessment
BIR INACTION
Appeal to CTA
Appeal to CTA en banc

180 days from filing of

protest, or supplemental
protest, if any
30 days from date of
receipt of denial of
protest or lapse of 180
days
15 days from date of
receipt; additional 15
days may be granted by
CTA after payment of
docket fee.

Protesting a Case
PROTESTING A CASE
1. PAN
2. FAN
3. PROTEST within 30 days FAILURE: FAN IS FINAL AND
EXECUTORY
4. FDDA Whether appealed or not
5. CTA appeal (division level) within 30 days FAILURE TO
APPEAL FAN IS FINAL AND EXECUTORY
6. CTA decision whether appealed or not
7. En Banc (appeal)
8. En Banc decision whether appealed or not
9. Supreme Court (appeal)
10. Supreme Court (final decision)

Defenses on Assessments
1.
2.
3.
4.
5.

Validity of the assessment

Prescription periods
Legal and factual basis
Validity of the regulations/rulings
Immunities under tax amnesty and other
programs
6. Procedural issues

Assessment is not required for tax evasion

cases
Sec. 269. Exceptions as to period of limitation of
assessment and collection of taxes.-(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 after the collection of such tax may
be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or
omission

REVENUE REGULATIONS
NO. 12-99
The taxpayer or his duly authorized
representative
may
protest
administratively against the aforesaid
formal letter of demand and assessment
notice within thirty (30) days from date of
receipt thereof.

The taxpayer shall state the facts, the

applicable law, rules and regulations,
jurisprudence on which his protest is based,
otherwise, his protest shall be considered
void and without force and effect.

If the taxpayer fails to file a valid protest

against the formal letter of demand and
assessment notice within thirty (30) days
from date of receipt thereof, the
assessment shall become final, executory
and demandable.

The taxpayer may appeal to the Court of

Tax Appeals within thirty (30) days from
the lapse of the said 180-day period,
otherwise, the assessment shall become
final, executory and demandable.
If the protest is denied, in whole or in part,
by the Commissioner, the taxpayer may
appeal to the Court of Tax Appeals within
thirty (30) days from date of receipt of the
said decision, otherwise, the assessment
shall become final, executory and
demandable.

 OTHER ADMINISTRATIVE REMEDIES

-Request for change of revenue officers
-Change of venue for settlement of tax
assessment case
-Collection Division
-Legal Division

CONSEQUENCES OF ABSENCE
VALID AND TIMELY PROTEST

OF

- Makes assessment final and executory

- Appeal to CTA is no longer available; CTA
cannot acquire jurisdiction over the case
- Compromise of assessment is still possible

DISPUTED ASSESSMENT
If the Commissioner of his duly authorized
representative fails to act in the taxpayers
protest within one hundred eighty (180) days
from date of submission, the taxpayer, of the
required documents in support of his protest.

The taxpayer may appeal to the Court of Tax

Appeals within thirty (30) days from the
lapse of the said 180-day period, otherwise,
the assessment shall become final,
executory and demandable.
If the protest is denied, in whole or in part,
by the Commissioner, the taxpayer may
appeal to the Court of Tax Appeals within
thirty (30) days from date of receipt of the
said decision, otherwise, the assessment
shall
become
final,
executory
and
demandable

DISPUTED ASSESSMENT
PROTEST:
SHALL CONTAIN
THE FACTS THE APPLICABEL LAW,
RULES
AND
REGULATIONS
OR
JURISPRUDENCE ON WHICH THE
ASSESSMENT IS BASED.

EFFECT OF FAILURE TO APPEAL ON

TIME
ASSSESSMENT BECOMES
FINAL,
EXECUTORY, and
DEMANDABLE

DEFINITION AND NATURE OF SURCHARGE

Surcharge is a civil penalty imposed by law as
addition to the main tax required to be paid.
It is not a criminal penalty but a civil administrative
sanction
DEFINITION OF DELINQUENCY

Delinquency is the failure of the taxpayer to pay

the tax due on the date fixed by law or indicated in
the assessment notice or letter of demand.

EFFECT OF PARTIAL PROTEST:

TAXPAYER IS ASKED TO PAY THE TAXES ON
THE UNDISPUTED ISSUES.
NO ACTION SHALL BE TAKEN ON THE
DISPUTED ISSUES UNTIL THE TAXPAYER
HAS PAID THE DEFICIENCY TAXES ON THE
UNDISPUTED ISSUES.

EFFECT ON PROTEST:
IF QUESTION OF FACT IS INVOLVED AND
RE-INVESTIGATION IS GRANTED, TAXPAYER
SHALL HAVE 60 DAYS TO SUBMIT THE
REQUIRED DOCUMENTS FOR FURTHER
SCRUTINY; IF QUESTION OF LAW IS
INVOLVED, A RULING ON LEGAL ISSUES
WILL BE REQUIRED. PRESCRIPTION IS
SUSPENDED

60-day period for submission of

documents
Non-submission of documents within 60 days does not
render the assessment final. Petitioner only lost is
chance of further contesting the assessment
Petitioner decides whether or not to submit
documents. Non-submission may mean that:
Petitioner finds no need to submit additional
documents; protest letter is sufficient; or
Petitioner failed to comply, thus it can no longer give
justification with regard to its objections as to the
correctness of the assessment.
(CTA Case 6557 as quoted in Prulite UK v. CIR, CTA Case 6774, Sept. 11, 2007)

EFFECT OF DENIAL OF PROTEST:

APPEAL
THE
DECISION
OF
THE
COMMISSIONER WITHIN 30 DAYS TO THE
COURT OF TAX APPEALS.

EFFECT OF INACTION ON
PROTEST WITHIN 180 DAYS:

THE

APPEAL THE DECISION OF DENIAL

DIRECTLY TO THE COURT OF TAX APPEALS

Court of Tax Appeals:

2.

The waivers in question were defective and did not

validly extend the original 3-year prescriptive period
due to following infirmities:
a) Lack of signature of CIR or the defective
manner by which the other revenue official
has accepted and agreed to the waiver
b) Absence of dates of such acceptance
by the BIR; and
c) Failure to show the taxpayer's receipt
of its copies of the subject waivers.

Requisites for a valid waiver under RMO 20-90

1. The waiver must be in the form identified hereof. This form
may be reproduced by the Office concerned but there
should be no deviation from such form. The phrase "but not
after ______ 19 ___" should be filled up. This indicates the
expiry date of the period agreed upon to assess/collect the
tax after the regular three-year period of prescription. The
period agreed upon shall constitute the time within which to
effect the assessment/collection of the tax in addition to the
ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his
duly authorized representative. In the case of a corporation,
the waiver must be signed by any of its responsible
officials.

Soon after the waiver is signed by the taxpayer, the

Commissioner of Internal Revenue or the revenue official
authorized by him, as hereinafter provided, shall sign the
waiver indicating that the Bureau has accepted and agreed
to the waiver. The date of such acceptance by the Bureau
should be indicated. Both the date of execution by the
taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or
before the lapse of the period agreed upon in case a
subsequent agreement is executed.
4. The waiver must be executed in three (3) copies, the
original copy to be attached to the docket of the case, the
second copy for the taxpayer and the third copy for the
Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the original
copy.

3. The following revenue officials are authorized to sign the

waiver.

National office
1. ACIR or HREA for LTS
2. ACIRs for Collection,
Special Operations,
National Assessment,
Excise and Legal on
tax cases pending before
their respective offices.
In the absence of the ACIR,
the Head Executive Assistant
may sign the waiver.
3. Deputy Commissioner
4. Commissioner

-For LTS Cases

-For tax cases involving
not more than P500,000.00

For tax cases greater than

P500,000.00 but not more than P1M
For tax cases involving
more than P1M

B. In the Regional Offices

1.The Revenue District Officer with respect to tax cases still pending
investigation and the period to assess is about to prescribe regardless of amount.
2. The Regional Director, the Assistant Regional Director, the Chief,
Assessment Branch or the Chief, Legal Branch with respect to cases still pending
review and the period to assess/collect is about to prescribe, regardless of
amount.
3. The Regional Director, the Assistant Regional Director, the Chief,
Collection Branch or the Chief, Legal Branch with respect to cases still pending
collection and the period to assess/collect is about to prescribe regardless of
amount.

The prescriptive periods

Prescriptive
Period

Start of running of period

1. Assessment of tax liability

3 years

From filing of return in case of late

filing or as of last day of filing if filed
on or before the deadline

2. Request for reconsideration/protest of

assessment

30 days

From receipt of assessment

3. Submission of documents supporting

protest

60 days

From filing of protest

4. Appeal to the CTA

30 days

From receipt of denial of request for

reconsideration or protest

5. Claim for refund with CIR

2 years

From date of payment or from final

payment if paid in installment

6. Appeal to CTA on denial of claim for

refund with CIR
7. Collection of tax

30 days;
w/n 2 yrs.

From receipt of denial

From date of payment of tax

5 years

From the date of assessment

Doctrine of Imprescriptibility
The stature of limitation for assessment of tax if
a return is filed is within three (3) years from the
last day prescribed by law for the filing of the
last day prescribed by law for the filing of the
return or if filed after the last day, with-in three
years from date of actual filing. If no return is
filed or the return filed is false or fraudulent, the
period to asses is within ten years from
discovery of the omission, fraud or falsity.

Doctrine of Imprescriptibility
Any internal revenue tax which has been
assessed within the period of limitation as
prescribed in paragraph (a) of Sec. 222 may be
collected by distraint or levy or by a proceeding
in court within five (5) years following the
assessment of the tax.

CIVIL REMEDIES

REMEDIES AVAILABLE TO THE TAXPAYER

UNDER THE TAX CODE IN CONNECTION
WITH THE COLLECTION OF TAXES
(1) Administrative Remedies
(a) Before Payment
1) filing a petition for reconsideration or
reinvestigation
2) entering into compromise
(b) After payment
1) filing of claim for tax refund
2) filing of claim for tax credit

(2) Judicial Remedies

(a) Civil action
1) appeal to the Court of Tax Appeals
2) action to contest forfeiture of chattel
3) action for damages
(b) Criminal action
1) filing of criminal complaint against erring
Bureau of Internal Revenue Officials and
employees.

Remedies available to the government

1) Administrative
a) Distraint of personal property;
b) Levy of real property;
c) Enforcement of forfeiture of property;
d) Enforcement of tax lien;
e) Entering into compromise of tax cases;
f) Requiring the filing of bonds;
g) Requiring proof of filing income tax returns;
h) Giving of rewards to informers;
i) Imposition of surcharge and interest

A collection notice cannot substitute a

FAN; Procedural requirements for FAN
necessary.

Case:

(Golden Harvest Global Corporation

v. VIR,CTA 7503, September 18,2009)

The Final Notice before Seizure cannot be treated

ass the assessment notice to inform petitioner of
the factual and legal basis of its liabilities

NOTE: This position reverses their old position that

the notice before seizure will be considered as the
FAN for purposes of the 3-year prescriptive period.

GUIDELINES AS TO FINALITY OF ASSESSMENTS

1. If the assessment is not contested by the
taxpayer with the Commissioner of Internal
Revenue within thirty (30) days from receipt
thereof, the assessment becomes final,
executory and demandable upon the lapse of
the 30-day period for appeal to the Court of
Tax Appeals.
2. The issuance of a warrant of distraint and levy
is proof of the finality of the assessment
because it amounts to an outright denial of
the taxpayers request for reconsideration.

3. If the Commissioner states in his last letter

that the same is his final decision, then such
decision is the one which must be appealed
within the 30-day period to appeal it to the
Court of Tax Appeals.
4. The reply of the Commissioner of Internal
Revenue to a letter of the taxpayer, which
reply rejected the latters contention that the
assessment of his tax liabilities was barred by
prescription and required the taxpayer to pay
the tax not later than or before a certain date
is in legal contemplation the ruling or decision
from which the taxpayer must appeal.

REMEDIES FOR THE COLLECTION OF

DELINQUENT TAXES
A) The civil remedies
1) By distraint of good, chattels, or effects,
and other personal property of whatever
character, including stocks and other
securities, debts, credits, bank accounts, and
interest in and rights to personal property,
2) By levy upon real property; and
B) By criminal action

DEFINITION OF DISTRAINT
Distraint (sometimes also called distress) is the
seizure by the government of personal property,
tangible or intangible, to enforce the payment of
taxes to be followed, by its public sale of the
taxes are not voluntarily paid.

KINDS OF DISTRAINT
Actual distraint here, there is a taking of
possession of the personal property out of the
taxpayer into that of the government Physical
transfer of possession.
Construction distraint Here, the owner is
merely prohibited from disposing of his property.

Protest filed on a warrant of

Distraint is not valid
A warrant of Distraint and Levy cannot be
the subject of an appeal at the CTA
because it does not involve a disputed
assessment but a collection case.
(Central Metro Trade distributors, Inc., v. Commissioner
Guillermo Parayno, Jr., CTA EB Case No. 179, January
3, 2007)

DEFINITION OF LEVY (ON REAL PROPERTY)

Levy, as a summary administration remedy,
refers to the same act of seizure of real property
in order to enforce the payment of taxes.

HOW LEVY EFFECTED

The levy on real property is effected by serving
upon the taxpayer a written notice of levy in the
form of a certificate containing:
1. A description of the property upon which levy
is made;

HOW LEVY EFFECTED

The levy on real property is effected by serving
upon the taxpayer a written notice of levy in the
form of a certificate containing:

1. a description of the property upon which levy

is made;
2. the name of the taxpayer; and
3. the amount of the tax and penalty due from
them.

DEFINITION OF FORFEITURE
Forfeiture implies a divesture of property without
compensation, in consequence of a default or
offense.
In case of personal property The forfeiture of
chattels and removal of fixtures of any sort is
enforced by seizure and sale or destruction of the
specific forfeited property.
In case of real property The forfeiture of real
property is enforced by a judgment of
condemnation and sale in a legal action or
proceeding, civil or criminal, as the case may
require.

DEFINITION OF TAX ALIEN

Tax lien is a legal claim or charge on property,
either real or personal, established by law as a
security in default of the payment of taxes.

DISTRAINT OF PERSONAL PROPERTY

The Commissioner or his duly authorized
representative distraint any goods if the amount
involved is in excess of One Million Pesos
(P1,000,000)
The Revenue District Officer distraint any goods
if the amount involved is One Million Pesos
(P1,000,000) or less

LEVY ON REAL PROPERTY

Levy shall be affected by writing upon said
certificate a description of the property upon
which levy is made. At the same time, written
notice of the levy shall be made to or served
upon the Register of Deeds of the province or
city where the property is located and upon
the delinquent taxpayer, or if he be absent
from the Philippines, to his agent or the
manager of the business in respect to which
the liability arose, or if there be none to the
occupant of the property in question.

GARNISHMENT
Bank accounts shall be garnished by serving a
warrant of garnishment upon the taxpayer and
upon the president, manager, treasurer or other
responsible officer of the bank. Upon receipt of
the warrant of garnishment, the bank shall turn
over to the Commissioner so much of the bank
accounts as may be sufficient to satisfy the claim
of the Government.

SUSPENSION OF RUNNING OF
STATUTE OF LIMITATIONS
(COLLECTION)
1. There is a proceeding in court.
2. For sixty (60) days when the taxpayer
request for a reinvestigation, which is
granted by the Commissioner.

3) When the taxpayer cannot be located

in the address given by him in the
return filed upon which a tax is being
assessed or collected.
4) When the warrant of distraint or levy
is duly served upon the taxpayer.
5) When the taxpayer is out of the
Philippines.

AUTHORITY OF THE COMMISSIONER

TO COMPROMISE, ABATE AND
REFUND OR CREDIT TAXES
The Commissioner may:
Compromise the payment of any internal
revenue tax, when;
A reasonable doubt as to the validity of the
claim against the taxpayer or;
The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.

MINIMUM COMPROMISE SETTLEMENT

1) For cases of financial incapacity, a
minimum compromise rate equivalent
to ten percent (10%) of the basic
assessed tax; and
2)

For other cases, a minimum

compromise rate equivalent to forty
percent (40%) of the basic assessed
tax.

3) Where the basic tax involved exceeds

One Million Pesos (P1,000,000) or
where the settlement offered is less
than the prescribed minimum rates, the
compromise shall be subject to the
approval of the Evaluation Board which
shall
be
composed
of
the
Commissioner and the four Deputy
Commissioner.

Compromise Settlement Coverage

1. Delinquent accounts;
2. Cases under administrative protest (FAN) pending in
the Regional Offices, RDO, Legal Service, LTS,
Collection Service, Enforcement Service and other
offices in the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in
court or those involving criminal tax fraud.

Compromise Settlement
DOUBTFUL VALIDITY
There is reason to believe that the
assessment is lacking in legal and/or
factual basis
Minimum compromise rate 40%

Compromise Settlement
Doubtful validity
1. Failure to file administrative protest for alleged failure to
receive AN
2. Jeopardy assessment
3. Arbitrary assessment
4. Failure to file a request for reinvestigation/ reconsideration
within 30 days from receipt of FAN
5. Failure to appeal to CTA, assessment failed to comply with
Sec. 228
6. Assessments based on Best Evidence Obtainable Rule
7. Questionable validity of the Waiver
8. Issue has been decided by lower courts in favor of taxpayer
but still pending with SC

Compromise Settlement
Financial incapacity
1. Capital deficit by at least 50%-40%
2. Networth deficit (total liabilities exceed total assets) 10%
3. Purely compensation income earner and no other leviable or
distrainable assets, other than his family home 10%
4. Bankrupt/insolvent as declared by competent
tribunal/authority 20%
5. Dissolved corporation 20%
6. Non-operating companies for a period of:

3 years or more 10%

Less than 3 years 20%

*Taxpayer should execute a waiver of his privilege of the secrecy of bank

deposits

Compromise Settlement
Exclusion
1. Withholding tax cases, unless the applicant-taxpayer invokes
provisions of law that cast doubt on the taxpayers obligation
to withhold;
2. Criminal tax fraud cases confirmed CIR or his representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of
installment payments;
5. Cases where taxpayer agreed to pay reduced assessment
6. Cases which taxpayer agreed to pay reduced assessment for
compromise is doubtful validity of the assessment); and
7. Estate tax cases where compromise is requested on the
ground of financial incapacity of the taxpayer.

ABATE OR CANCEL A TAX

LIABILITY, WHEN;
The tax or any portion thereof appears to be
unjustly or excessively assessed; or
The administration and collection costs
involved do not justify the collection of the
amount due.
All criminal may be compromised except (a)
those already filed in court, of (b) those involving
fraud.

TAX CREDIT OR REFUND OF TAXES

The Credit Certificate validly issued under
the provisions of the Internal Revenue
Code may be applied against any internal
revenue tax, excluding withholding taxes,
That in no case shall a tax refund be given
resulting from availment of incentives
granted pursuant to special laws for which
no actual payment was made.

TAX CREDIT OR REFUND OF TAXES

No tax credit or refund of taxes or
penalties shall be allowed unless the
taxpayer files in writing with the
Commissioner a claim for credit or refund
within two (2) years after the payment of
the tax or penalty.

The following guidelines are applicable on tax credit or

refund:
1. The taxpayer files in writing with the Commissioner a
claim for credit or refund;
2. A return filed showing an overpayment shall be
considered as a written claim for credit or refund;
3. No tax refund be given resulting from availment of
incentives granted pursuant to special laws for which
no actual payment was made;
4. The claim must be filed within two (2) years after the
payment or the tax or penalty.

FORFEITURE OF CASH REFUND

A Tax Credit Certificate issued in accordance
with the pertinent provisions of the Code, which
shall remain unutilized after five (5) years from
the date of issue shall, unless revalidated, be
considered invalid and shall not be allowed as
payment for internal revenue tax liabilities of the
taxpayer, and the amount covered by the
Certificate shall revert to the General Fraud.

POWER OF THE COMMISSIONER

TO MAKE ASSESSMENTS
Examination of Returns and Determination of
Tax Due.
Authority
To
Conduct
Inventory-Taking,
Surveillance and to Prescribe Presumptive
Gross Sales and Receipts.
Authority to Terminate Taxable Period.
Authority of the Commissioner to Prescribe
Real Property Values.

Power of the Commissioner to

Suspend the Business Operations of a
Taxpayer
The Commissioner or his authorized
representative is hereby empowered to
suspend the business operations and
temporarily close the establishment of
any person for any of the following
violations.

(a) In the case of a VAT-registered Person

1. Failure to issue receipts or invoices;
2. Failure to file a value-added tax
return as required under Section114; or
3. Understatement of taxable sales or
receipts by thirty percent (30%) or
more of his correct taxable sales or
receipts for the taxable quarter

(b)

Failure of any Person to Register as

Required under Sec. 236

The
temporary
closure
of
the
establishment shall be for the duration of
not less than five (5) days and shall be
lifted only upon compliance with whatever
requirements
prescribed
by
the
Commissioner in the closure order.

All surveillance activities shall be covered by

Mission Orders (MOs). The MOs shall be printed
as accountable forms to be requisitioned by the
Revenue Officials authorized to sign said MOs.
MOs issued should be chronologically recorded
in the Mission Order Register.
Original

: Revenue Officer(s)

2nd Copy

: Investigating Offices /
Divisions file copy

3rd Copy

: Issuing Offices file copy

4th Copy

: Taxpayers copy (in case of

overt surveillance)

Analysis of Surveillance Results

1. Extrapolate the data gathered from the surveillance by
using the following formulas:
To get the Average Daily Sales:
Total Sales During Surveillance
Total No. of Days Under Surveillance

Average Daily
Sales (ADS)

To get the Average Quarterly Sales:

ADS x 30 days x 3 months = Average Quarterly Sales (AQS)

TAX AMNESTY

Case:

(Philippine Banking Corporation v. CIR,

GR 170574, January 30, 2009)

Supreme Court:
As a qualified tax amnesty applicant which has
complied with the requirements of the tax
amnesty program, shall thereafter be immune
from the payment of taxes and appurtenant
civil, criminal or administrative penalties arising
from the failure to pay internal revenue taxes for
taxable year 2005 and prior years.

Tax amnesty qualification

The disqualification under the amnesty law
is exclusive. The BIR cannot expand it by
mere regulation.

Disqualifications added under a BIR issuance

in addition to that provided in the law is not
valid (MBTC vs. CIR,CTA Case No. 269, 3-28-08 )
A tax amnesty is a general pardon and must be liberally
construed. A taxpayer who desires to avail of the
benefits of must only have to comply with the requisites
of the law: (1) payment of amnesty tax; (2) notice of
availment; (3) file SALN (4) file Tax amnesty return.
Compliance of these will qualify a taxpayer to the
benefits of amnesty.

One year contestability of tax amnesty

declaration (Ballast Nedam International B.V.
Philippine Branch v. CIR, September 29, 2009)
The one year period under Section 4 of RA 9840 is not a
condition nor a qualification for the availment of the
benefits of the tax amnesty. Section 6 of RA 9480 did not
attach any qualification as to the immunity and privileges
which a taxpayer may be entitled after submission of the
prescribed requirements and payment of the amnesty tax.

Thank You
and
May GOD Bless You in
all the days of your life