Remedies

of the
Government
 Powers of the
1 Bureau & the
Commissioner
 Powers & Duties of the BIR
 Asses and Collect national internal revenue taxes, fees, and
charges
 Enforce all forfeitures, penalties, and fines connected with the
assessment and collection of taxes, fees, and charges
 Execute judgment in all cases decided in its favor by the CTA
and the ordinary courts
 Effect and administer the supervisory and police powers
conferred upon it by the NIRC and other laws

Remedies of the Government: Powers of the BIR, Tax Assessment, Imposition of Penalties
 Powers of the Commissioner
 Interpret tax laws  Authority to delegate power
 Decide tax cases  Make arrests and seizures
 Obtain information and to  Assign internal revenue officers
summon, examine and take  Impose duties on certain officers
testimony of persons
 Suspend business operations of
 Make assessments and a taxpayer
prescribe additional
requirements for tax
administration and enforcement

Remedies of the Government: Powers of the BIR, Tax Assessment, Imposition of Penalties
 Powers of the
Commissioner
Sec. 4. Power of the Commissioner to
Interpret Tax Laws and to Decide Tax Cases
The CIR has the exclusive power to
 Interpret the NIRC and other tax laws,
subject to review by the Secretary of
Finance
 Decide on
Disputed assessments
Refunds of internal revenue taxes,
fees, penalties
Other matters arising from the NIRC,
subject to review by the CTA
Remedies of the Government: Powers of the BIR, Tax Assessment, Imposition of Penalties
Sec. 5. Power to Obtain Information and
to Summon, Examine, and Take
Testimony of Persons
 To ascertain the correctness of any return
 To make a return when none has been
made
 To determine the liability of any person
for any internal revenue taxes
 To collect from any person liable for any
internal revenue tax
 To evaluate tax compliance
 Powers of the
Commissioner
Sec. 6. Power to Make assessments and
Prescribe Additional Requirements for Tax
Administration and Enforcement
 Examine returns and determine tax due
 Make assessments based on the Best
Evidence Obtainable
 Conduct inventory-taking and surveillance
and to prescribe presumptive gross sales
and receipts
 Terminate tax period
 Prescribe real property values
 Accredit and register tax agents
Remedies of the Government: Powers of the BIR, Tax Assessment, Imposition of Penalties
 Prescribe additional procedural and
documentary requirements
 Inquire into bank deposits
CIR can only inquire into bank deposits
• To determine the gross estate of a
decedent
• In applications for compromise based on
financial incapacity
• Pursuant to an international convention
or tax agreement where the Philippines is
a signatory and there has been a
corresponding request from a foreign
jurisdiction
 Best Evidence Obtainable
Any data, record, papers, documents, or any evidence gathered
by internal revenue officers from the government offices or
agencies, corporations, employers, clients or patients, tenants,
lessees, vendees and from all other sources, with whom the
taxpayer had previous transactions or from whom he received any
income.

The rule applies when a tax report required by law

for the purpose of assessment is not available or
when the tax report is incomplete or fraudulent.
 Powers of the
Commissioner
Sec. 7. Authority to Delegate Power Sec. 8. Duty to Ensure the Provision
and Distribution of Forms, Receipts,
General Rule: the CIR may delegate the powers vested in him to any
subordinate official with the rank equivalent to a division chief or Certifications, and Appliances, and the
higher Acknowledgement of Payment of
Taxes
Exceptions:
• Power to recommend the promulgation of rules and regulations
by the Sec. of Finance
• Power to issue rulings of first impression or to reverse, revoke or
modify any existing ruling of the Bureau
• Power to compromise or abate tax liability (if P500,000 or less, he
may delegate)
• Power to assign or reassign officers to establishments where
excise tax articles are produced or kept

Remedies of the Government: Powers of the BIR, Tax Assessment, Imposition of Penalties
2 Tax Assessment
First government remedy
Tax Assessment
General Rule
Taxes are self-assessing and thus do not require the issuance of
an assessment notice in order to establish the tax liability of a
taxpayer
Exceptions
1. Tax period of a taxpayer is terminated;
2. Deficiency tax liability arising from a tax audit conducted by the
BIR;
3. Tax lien;
4. Dissolving corporation
Tax Assessment
Self-Assessment Deficiency Assessment
When the taxpayer This occurs upon discovery
computes his own lability, of the BIR that the self-
files his return, and pays the assessment was either
tax based on his deficient, or when no return
computation was made by the taxpayer
Tax Assessment
 May be delegated by the CIR to revenue officers; there must be a clear
grant of authority embodied in a Letter of Authority (LOA)
 Presumed correct and made in good faith; taxpayer has the duty to
prove otherwise
 Mandamus does not lie to compel the CIR to impose a tax assessment
not found by him to be proper, except when there is grave abuse of
discretion
 Notices (preliminary assessment notice, final letter of demand, final
assessment notice, final decision on a disputed assessment) may be
served through: (a) personal service; (b) substituted service; and (c)
service by mail.
 examination and inspection shall be made only once in a taxable year,
except in fraud, irregularity or mistakes, as determined by the
Commissioner
 Audit or
Tax Issuance of
Issuance of
Investigatio Preliminary
Letter of
n by Assessmen
Authority
Revenue t Notice
Officer

If
meritorious
, the Taxpayer’s
assessmen reply to
t shall be PAN within
Failure to
dismissed 15 days
refute
findings in from
PAN or in receipt
default,
FAN shall
be issued

Assessment Process
 Letter of Authority (LA)

The Letter of Authority is an official document that

empowers a Revenue Officer to examine and
scrutinize a Taxpayer’s books of accounts and other
accounting records, in order to determine the
Taxpayer’s correct internal revenue tax liabilities.
 Requisites of a valid LA
1. It must be issued by the proper approving official (depending
on the investigating office: Regional Director, Assistant Commissioner-Large
Taxpayer Service, Deputy Commissioner-Legal and Inspection Group, CIR or any
authorized official);

2. It must not contain any manually-written character,

notation or erasure (issuance of electronic letter of
authority is mandatory);
3. It must cover only one taxable year, except in fraud cases
and excise tax cases;
4. It must be served to the taxpayer within 30 days.
 When must a Letter of
Authority be served?
A Letter of Authority must be served to the concerned Taxpayer
within thirty (30) days from its date of issuance, otherwise, it shall
become null and void. The Taxpayer shall then have the right to
refuse the service of this LA, unless the LA is revalidated through
the issuance of a new LA. However, a Letter of Authority can be
revalidated—
 Only once, for LAs issued in the Revenue Regional Offices or the
Revenue District Offices; or
 Twice, in the case of LAs issued by the National Office.
 Audit/Investigation
A Revenue Officer is allowed only one hundred
twenty (120) days from the date of receipt of a
Letter of Authority by the Taxpayer to conduct the
audit and submit the required report of
investigation. If the Revenue Officer is unable to
submit his final report of investigation within the
120-day period, he must then submit a Progress
Report to his Head of Office, and surrender the
Letter of Authority for revalidation.
 Audit/Investigation
A taxpayer’s books of accounts shall be subjected to examination and inspection only once
for a taxable year, except in the following cases:
 When the Commissioner determines that fraud, irregularities, or mistakes were
committed by Taxpayer;
 When the Taxpayer himself requests a re-investigation or re-examination of his books
of accounts;
 When there is a need to verify the Taxpayer’s compliance with withholding and other
internal revenue taxes as prescribed in a Revenue Memorandum Order issued by the
Commissioner of Internal Revenue.
 When the Taxpayer’s capital gains tax liabilities must be verified; and
 When the Commissioner chooses to exercise his power to obtain information relative
to the examination of other Taxpayers
Preliminary Assessment
Notice
The Pre-Assessment Notice is a
communication issued by the Regional
Assessment Division, or any other concerned
BIR Office, informing a Taxpayer who has
been audited of the findings of the Revenue
Officer, following the review of these findings.
 Requisites of a valid PAN
1. Must be served to the taxpayer personally, by substituted
service or by mail;
2. Assessment was conducted within the scope of authority
given by a valid LA;
3. Must be in writing and contain the facts and the law on
which the proposed assessment is based;
4. Must be issued by the CIR or his duly authorized
representative.
Reply to PAN

If the Taxpayer disagrees with the findings stated

in the PAN, he shall then have fifteen (15) days
from his receipt of the PAN to file a written reply
contesting the proposed assessment.

Failure to submit a valid reply – taxpayer shall be

considered in default and a FAN will be issued
(FAN may still be protested)
 Requisites of a valid Reply
1. Must be made within the said 15-day period; and
2. Must be filed by the taxpayer or his duly authorized
representative, in person or through registered mail with
return card, with the office of the duly authorized
representative of the CIR.
 Formal Assessment Notice
A Notice of Assessment is a declaration of deficiency taxes issued to a
Taxpayer who fails to respond to a Pre-Assessment Notice within the
prescribed period of time, or whose reply to the PAN was found to be
without merit. The Notice of Assessment shall inform the Taxpayer of this
fact, and that the report of investigation submitted by the Revenue Officer
conducting the audit shall be given due course.

The formal letter of demand calling for payment of the taxpayer’s

deficiency tax or taxes shall state the facts, the law, rules and regulations,
or jurisprudence on which the assessment is based, otherwise, the formal
letter of demand and the notice of assessment shall be void.
 Requisites of a valid FAN
1. Must be issued after the issuance of a valid PAN, except for the
instances where a PAN is not required;
2. Must be issued by the CIR of his duly authorized representative;
3. Must be served to the taxpayer before the lapse of the
prescriptive period for making the assessment;
4. Must be in writing and contain the facts and the law on which
the assessment is based;
5. The assessment was conducted within the scope of authority
given by a valid LA.
The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of what such
notice must contain. Just because the CIR issued an advice, a
preliminary letter during the pre-assessment stage and a final notice,
in the order required by law, does not necessary mean that Enron
was informed of the law and facts on which the deficiency tax
assessment was made.
CIR vs. Enron Subic Power Corporation; G.R.No. 166387

“
 It should be emphasized that the stringent requirement that an assessment notice be
satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said
assessment notice have been served on the taxpayer, applies only to formal assessments
prescribed under Section 228 of the National Internal Revenue Code, but not to post-reporting
notices or pre-assessment notices. The issuance of a valid formal assessment is a substantive
prerequisite to tax collection, for it contains not only a computation of tax liabilities but also
a demand for payment within a prescribed period, thereby signaling the time when penalties
and interests begin to accrue against the taxpayer and enabling the latter to determine his
remedies therefor. Due process requires that it must be served on and received by the
taxpayer.
CIR vs. Dominador Menguito; G.R.No. 167560

“
 A post-reporting notice and pre-assessment notice do not bear the
gravity of a formal assessment notice. The post-reporting notice and
pre-assessment notice merely hint at the initial findings of the BIR
against a taxpayer and invites the latter to an informal conference
or clarificatory meeting. Neither notice contains a declaration of the
tax liability of the taxpayer or a demand for payment thereof. Hence,
the lack of such notices inflicts no prejudice on the taxpayer for as
long as the latter is properly served a formal assessment notice.
CIR vs. Dominador Menguito; G.R.No. 167560

“
An assessment is a written notice and demand made
by the BIR on the taxpayer for the settlement of a
due tax liability that is there definitely set and fixed. A
written communication containing a computation by a
revenue officer of the tax liability of a taxpayer and
giving him an opportunity to contest or disprove the
BIR examiners findings is not an assessment since it
is yet indefinite.
Lucas Adamson, et al., vs. CA, et al.; G.R.No. 120935

“
 Instances where PAN is not required
Formal assessment notice for the payment of the taxpayer’s deficiency tax liability shall be sufficient:
1. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax
appearing on the face of the tax return filed by the taxpayer; or
2. When a discrepancy has been determined between the tax withheld and the amount actually remitted
by the withholding agent; or
3. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a
taxable period was determined to have carried over and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
4. Non-payment of excise taxes; or
5. When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt
persons.
Tax Assessment
Disputed Assessment
Takes place when a
taxpayer questions an
assessment or cancel the
same because he believes
that he is not liable therefor
Jeopardy Assessment
Made without the benefit of
complete or partial audit, in
the light of the officer’s belief
that the assessment will be
jeopardized by delay caused
by the taxpayer’s failure to
comply with audit and
investigation requirements, or
to substantiate items claimed
in his return
Prescription of the Right to
Assess
False, Fradulent, Failure
General Waiver
(FFF)

3 years 10 years 10 years

From the last day for

filing the return, or the
day the return was From discovery of the Up to the extended
actually filed, whichever falsity, fraud or omission period agreed upon
is later
Prescription of the Right to
Assess
 Filing of return is the starting point of the period of assessment; return
must be as substantially complete as to include the needed details on
which the full assessment may be made
 For amended returns where amendment is substantial, the counting of
prescriptive period shall be reckoned on the date the substantial
amendment was made; where amendment is superficial, the counting of
prescriptive period is still the original period
 Wrong returns filed shall be considered as though no return was filed at
all – 10-year prescriptive period will apply
 Imposition of
3 Penalties
Civil Penalties
Civil Penalties
SURCHARGE - A civil penalty imposed
by law as an addition to the basic tax
required to be paid. A surcharge
added to the main tax is subject to
interest.
50% Surcharge
 Willful neglect to file return
within the period prescribed by
law
 False or fraudulent return is
willfully made
25% Surcharge
 Failure to file any return AND pay the tax
due (simple neglect)
 Filing a return with an internal revenue
officer other than those with whom the
return is required to be filed
 Failure to pay the deficiency tax within the
time prescribed in the notice of assessment
 Failure to pay full or part of the amount of
tax stated in the return (or full amount
when no return is required) on or before
the date prescribed for its payment
Willful neglect
If the taxpayer voluntarily files the return, without
notice from the BIR – 25% surcharge for late filing and
late payment of the tax

If the taxpayer files the return on after prior notice in

writing from the Bir – 50% surcharge (considered
willful neglect)
False or Fraudulent return
willfully made

Underdeclaration of Sales, Receipts or Income –

failure to report sales, receipts, or income in an
amount exceeding 30% of that declared per
return

Substantial Overstatement of Deductions –

claim of deductions in an amount exceeding 30%
of actual deductions
 LMCECs underddeclaration amounted to P186,773,600.84 in
1997, P150,069,323.81 in 1998, and P163,320,111.13 in 1999.
These figures confirmed that the non-declaration by LMCEC for
the taxable years 1997, 1998, abd 1999 of an amount
exceeding 30% income declared in its returm is considered
substantial underdeclaration of income, which constituted prima
facie evidence of false or fraudulent return under Section
248(B) of the NIRC, as amended
CIR vs. Gonzales; G.R.No. 177279

“
Delinquency tax vs Deficiency
tax
Delinquency tax
When a taxpayer fails to
 Pay the amount of the tax due on
any return required to be filed
 Pay the deficiency tax on the date
appearing in the demand of the
CIR
Deficiency tax
Amount by which the tax imposed by
law as determined by the CIR or his
representative exceeds the amount
shown as ta tax by the taxpayer in his
return; or
If no amount is shown by the taxpayer,
or if no return is made, then the amount
by which the tax as determined by the
CIR or his representative exceeds the
amount previously assessed (or
collected without assessment) as
deficiency
Interest
In General: there shall be assessed and collected on any unpaid amount of tax, interest
at the rate of 20% per annum from the date prescribed for payment until the amount is
fully paid
1. Deficiency interest – 20% per annum on the deficiency (not on the whole tax due)
from the date prescribed for its payment until fully paid
2. Delinquency interest – 20% per annum on the unpaid amount in case of failure to
pay:
i. Amount of tax due on any return required to be filed, or
ii. Amount of tax due for which no return is required, or
iii. Deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the CIR
3. Extended Payment interest – 20% per annum when a taxpayer is qualified and
elects to pay the tax on installment, but fails to pay the tax or any installment
thereof, or pays it beyond the period of payment; or CIR has authorized an extension
of time within which pay a tax or a deficiency tax or any part thereof
Surcharge & Interest
General Rule
Payment of surcharge and interest is mandatory.

Exceptions
1. When there is good faith and honest belief that one is not subject to
tax on the basis of previous interpretation of government agencies
2. When the imposition of a tax statute was controversial
Illustration:
Nevah Agen forgot to file on April 15. She filed on June 30.

Late filing and late payment of tax; No BIR intervention

 25% surcharge for late filing and late payment
 20% general interest from date due up to time paid

Tax due + Penalties

Illustration:
Nevah Agen paid on April 15, but she paid to the wrong agent bank.

Tax return filed on time; Wrong venue

 25% surcharge only
 No interest charge because tax was paid on time

Pay the surcharge (no need to pay the tax due)

Illustration:
Nevah Agen did not pay on April 15. BIR sent her a demand letter to
pay by June 30. She paid on June 30.

Late filing and late payment; Willful neglect

 50% surcharge
 20% general interest from the date due (not from demand) up to
time paid

Pay the tax + penalties

Illustration:
Nevah Agen filed her income tax return on time (April 15) and paid
P100,000. Upon pre-audit, it was discovered that there was an error
in computation. The correct amount due was P120,000. She was
assessed for deficiency income tax in a letter of demand and
assessment notice, telling her to pay by June 30. She did.

Paid on time; error in computation resulting to deficiency tax

 20% deficiency interest imposed on the deficiency tax from date
due up to time paid
 No surcharge
 Illustration:
Nevah Agen filed her income tax return on time (April 15) and paid P175,000
for its income tax (it declared a P500,000 net taxable income). However, the
BIR discovered that it did not report a taxable income of another P500,000.
This amounted to a deficiency income tax of another P175,000. They were
informed by a PAN, but they failed to protest. A formal letter of demand and
assessment notice was issued to them on May 31 demanding them to pay by
June 30. They paid.

False and fraudulent return

 50% surcharge (deficiency tax is the base)
 20% deficiency interest imposed on deficiency tax from date due up to time
paid
 Illustration:
Nevah Agen did not pay on June 30, the deadline for the payment of the
assessment. She paid on July 31. Thus, she shall be considered late in payment
of the said assessment.

Late payment of deficiency tax assessed

 50% surcharge (computed from deficiency tax assessed)
 20% deficiency interest (imposed on deficiency tax)
 25% surcharge (failure to pay deficiency tax)
 20% delinquency interest (imposed on total unpaid amount she was
supposed to pay on June 30)
Illustration:
If a taxpayer requests to pay his income tax liability in installment and
request is approved – NO 25% surcharge for late filing and payment
since its deadline has been duly extended

If taxpayer does not pay on time – 20% extended payment interest

If request for extension of the period within which to pay is made on

or before the deadline prescribed for payment of tax due – NO 25%
surcharge

If request for extension is made after the deadline prescribed for

payment – 25% surcharge (late payment)
Failure to File Certain Information
Returns

General Rule
Failure to file any information return, statement or list, or keep record, or supply any
information required on the date prescribed therefore, the taxpayer shall be liable to
pay One Thousand (P1,000.00) Pesos for each such failure. The aggregate amount for
all such failures during the calendar year shall not exceed twenty five thousand
(P25,000.00) pesos.

Exceptions
When failure is due to reasonable cause and not due to willful neglect
Failure of a Withholding Agent to
Collect and Remit Tax

Any person required to withhold, account for, and remit any tax
imposed by this Code or who willfully fails to withhold such tax, or
account for and remit such tax, or aids or abets in any manner to evade
any such tax or the payment thereof, shall, in addition to other penalties
provided for under this Chapter, be liable upon conviction to a penalty
equal to the total amount of the tax not withheld, or not accounted for
and remitted. Sec. 251., NIRC
Failure of a Withholding Agent
to refund Excess Withholding
Tax
Any employer/withholding agent who fails or refuses to refund excess
withholding tax shall, in addition to the penalties provided in this Title,
be liable to a penalty to the total amount of refunds which was not
refunded to the employee resulting from any excess of the amount
withheld over the tax actually due on their return. Sec. 252., NIRC
Thank you!