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Assessment of Internal Revenue Taxes Definition/nature/effect/basis 1. Meaning of tax assessment – It is the official action of an officer authorized by law in ascertaining the amount of tax due under the law from a taxpayer. This action necessarily involves: a. the computation of the sum due; b. giving notice to that effect to the taxpayer; and c. the making, simultaneously with or sometime after the giving of notice, of a demand upon him for the payment of the tax deficiency stated.
2. Tax audit – is the process of examining, going over, or scrutinizing the
books and records of the taxpayer to ascertain the correctness of the tax declared and paid by the taxpayer. It can only be performed upon a Letter of Authority issued by the Commissioner or Regional Director.
3. Letter of Authority – is a commission granting a revenue officer
assigned to perform assessment functions the power to conduct an examination of the books and records of a taxpayer within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due.
4. Pre-assessment notice - is a written notice given to a taxpayer
informing him of the findings of the BIR officer/s relating to a deficiency in his tax return, indicating therein the law and the facts on which the assessment is made and requiring the taxpayer to respond within a given period, otherwise, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Instances where pre-assessment notice NOT required: a. when the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; b. when the discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; c. 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; d. when the excise tax due on excisable articles has not been paid; e. when an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machinery and spare parts, has been sold, traded or transferred to non-exempt persons.
5. Notice of assessment – a notice given to the taxpayer by the BIR
informing him of the amount of deficiency tax for which the taxpayer is
9. in this instance. or b. 6D.being assessed based on the findings of the BIR upon failure of the taxpayer to respond to the pre-assessment notice or after an examination has been conducted. 8424) 8. less any credits. performing any act tending i. Power of the Commissioner to assess deficiency tax based on best evidence obtainable – Sec. 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. erroneous. or ii. Deficiency – the amount by which the tax properly due exceeds the sum of the amount of the tax shown on a taxpayer’s return plus amounts previously assessed or collected as deficiency. 6. retiring from business subject to tax. c. intending i. Jeopardy assessment – an assessment made demanding immediate payment of the tax due without the usual formalities in instances when the Commissioner believes that if the tax will be collected under normal procedures.A. to obstruct the proceedings for the collection of the tax for the past or current quarter or year. shall be prima facie correct and sufficient for all legal purposes. refunds. false ii. to hide or conceal his property. to render the same totally or partly ineffective unless such proceedings are begun immediately. to leave the Philippines or remove his property therefrom. the collection of such tax is at risk which might result in loss to the government. or b. the amount a taxpayer is deficient in his tax payments. Instances when jeopardy assessment may be issued: When it shall come to the knowledge of the Commissioner that a taxpayer is: a. The return made by the Commissioner.A. 6B of R. or ii. incomplete iii. R. Delinquency – The state of a person upon whom the personal obligation to pay the tax has been fixed by lawful assessment and thereafter fails to pay the tax within the time limited by law. there is reason to believe that any such report is i. 8424 empowers the Commissioner to assess the proper tax and make or amend the return based on the best evidence obtainable (from his own knowledge and from such information as he can obtain through testimony or otherwise) when: a. or other payments due the taxpayer. Requisites of a valid assessment . (Sec. 7.
post-reporting notice or notice for an informal conference after the b. tax audit Pre-assessment notice. addresses. Commissioner has power to decide disputed assessments refunds of internal revenue taxes fees or other charges penalties imposed in relation thereto other matters arising under the NIRC or other laws administered by BIR Exclusive appellate jurisdiction of the CTA. if required Issuance and receipt of Notice of Assessment i. of Finance (review) Exclusive Appellate Jurisdiction of CTA Interpretation of tax laws Deciding tax cases Sec. to examine books. names. and financial statements of i. joint accounts . Exclusive and Original Jurisdiction CIR CIR Review/Appeal Sec. and Take Testimony of Persons To carry out CIR’s function of: Ascertaining correctness of any return Making a return where none has been made Determining the liability of any person for any revenue tax Collecting tax liabilities Evaluating tax compliance Commissioner is empowered: 1. 4. – Power of Commissioner to Obtain Information. to obtain any information such as a. review by Sec. records and other data 2. costs and volume of production b. c.a. insurance companies iv. corporations ii mutual fund companies iii. – Power of Commissioner to Interpret Tax Laws and Decide Tax Cases Power to interpret provisions of NIRC and other tax laws – exclusive and original jurisdiction of CIR. paper. of Finance. the written notice must state the facts and the law upon which the assessment is based Sec. receipts or sales and gross incomes of taxpayers c. regional operating headquarters of MNCs v. and to Summon. 5. must be issued prior to lapse of prescriptive period ii. Examine.
When no tax return has been filed. records or other data. Examination of returns and determination of tax due . management or possession of any object with respect to which a tax is imposed. to cause revenue officers and employees to make a canvass of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax all persons owning or having the care. papers. associations vii. to take testimony of persons concerned 5. to summon the person liable for tax or required to file the return any person having possession books of accounts person custody of the other accounting records care any other person of the liable for tax to appear before the Commissioner or his duly authorized representative to produce such books. the Commissioner’s authority to inquire into bank deposits shall be limited to: Bank deposits of a decedent to determine his/her gross estate Bank deposits of a taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity Waiver in writing of taxpayer’s privilege under Bank Secrecy Law Required when applying for compromise of tax liability by reason of financial incapacity. such waiver constitutes the Commissioner’s authority to inquire into bank deposits of the taxpayer.Tax returns filed by taxpayers as basis for examination . joint ventures or consortia viii. examination may proceed based on other data obtained by Commissioner . and to give testimony 4. However. 6. Sec. Power of Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement A. partnerships Information may be obtained from Any person other than the taxpayer Any office or officer of national and local governments government agencies and instrumentalities including BSP GOCCs 3.vi.
when there is reason to believe that a taxpayer is not declaring his correct income. surveillance and to prescribe presumptive gross sales and receipts .order inventory-taking of goods of goods (to be used as basis for determining taxpayer’s internal revenue liabilities) .may only be modified.to obstruct the proceedings for the collection of the tax for the past or current quarter or year or .when there is reason to believe that any such report is false.is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property .- Tax or deficiency tax assessed payable upon notice and demand from Commissioner or duly authorized representative Tax return. Authority to terminate taxable period . statement or declaration once filed cannot be withdrawn . such information deemed prima facie correct and sufficient for all legal purposes. incomplete or erroneous. . sales or receipts for income tax purposes. conditions: .is performing any act tending .findings shall be used as basis for assessing the taxes for the other months or quarters of the same or different taxable years. Authority to conduct inventory-raking. income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances D.when a report required to be filed is not forthcoming within the time fixed by law. changed or amended within three years from filing before any notice for audit or investigation has been actually served the taxpayer B. . reports and other documents . Commissioner may prescribe a minimum amount of such gross receipts.is retiring from business subject to tax . C.empowers the Commissioner to assess the proper tax based on the best evidence obtainable . sales and taxable base based on the sales.Commissioner shall declare the tax period of any taxpayer terminated at any time when it shall come to the knowledge of the Commissioner that a taxpayer .place the business operations of the taxpayer under observation or surveillance .to render the same totally or partly ineffective unless such proceedings are begun immediately Commissioner shall send the taxpayer: . Failure to submit required returns.Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise.when there is failure to issue receipts and invoices or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made in tax returns. receipts.notice of such decision - . statements. the Commissioner may .
Authority to accredit and register tax agents .application for tax compromise shall not be considered without this written waiver G.taxpayer must execute in writing a waiver of his right under Bank Secrecy Law and other special laws. protests.Commissioner is authorized to inquire into bank deposits of: . such waiver serving as the Commissioner’s authority to inquire into his bank deposits .a decedent to determine his gross estate . Authority of Commissioner to prescribe real property values .Commissioner may prescribe the manner of compliance with any documentary or procedural requirement in connection with the submission or preparation of financial statements accompanying the tax returns.taxes due and payable immediately . E. - H.taxes subject to all the penalties and surcharges prescribed unless paid within the time fixed in the demand made by Commissioner. . Authority of Commissioner to prescribe additional procedural or documentary requirements . and other papers with. statements.- request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter or such portion thereof as may be unpaid .any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity . or who appear before the BIR for and in behalf of taxpayers Creation of National and Regional Accreditation Boards Those whose application for accreditation is denied by the Commissioner of the National or Regional Accreditation Boards may appeal to the Secretary of Finance Secretary of Finance to act on appeal within 60 days from receipt of such appeal Failure of Sec. Authority of Commissioner to inquire into bank deposit accounts .Commissioner shall accredit and register individuals and general professional partnerships and their representatives who prepare and file tax returns. of Finance to act on appeal deemed approval of the application for accreditation of the appellant.Commissioner authorized to divide the Philippines into different zones and assign valuation of real properties in the different zones Value of property for computing any internal revenue tax: whichever is HIGHER between FMV as determined by Commissioner and FMV as shown in the schedule of values of the Provincial and City Assessors F. reports.
Benipayo. 138 SCRA 34 Republic v. 18 SCRA 20 Aznar v. levy and garnishment Cases: CIR v. V. IAC. Memo Order 48-90 (23 April 1990) Counting of the threeyear prescriptive period in issuance of notice of assessment. 4 SCRA 182 Commissioner v. 7-93 Filing of quarterly income tax returns and payment of quarterly income tax by individuals receiving self-employed income Sec. 203 NIRC Sec. CTA. 12-85 Procedure covering administrative protest on assessment by the BIR Commissioner Rev.R. 196 SCRA 335 Bonifacio Sy Po v. 164 SCRA 524 Meralco v. 120880. How to protest or dispute an assessment administratively . prescription: 3 years 10 years 2. 222 (e) NIRC re: Inquiry into any return filed in accordance with the provisions of any tax amnesty law or decree as amended by BP 700 Rep. 18 SCRA 757 Re: prescriptive period to assess Republic v. 117 SCRA 804 Elegado v. 145 SCRA 671 Marcos v. Kerr. 222-223 NIRC Sec. G. Reg. or warrants of distraint. Suspension of prescriptive period/Exceptions Sec. Construction Resources. CTA. Memo Order 20-90 (4 April 1990) – Proper execution of the waiver of the statute of limitations under the NIRC Rev. 58 SCRA 519 Optional: Basa v. Gonzales. Period to assess deficiency tax 1. Protesting an assessment/Remedy before payment A. 203 NIRC of 1997 Secs. Island Garment. Republic. 222-23 NIRC of 1997 Read: Rev. id. 173 SCRA 285 Commissioner v. 153 SCRA 665 Collector v. 195 SCRA 444 Commissioner v. 5 June 1997 B. Dela Rama. CTA. Reg. CTA.Sec. II. CA. 228 NIRC Rev. Savellano.
119 SCRA 329 St. 12-85 Procedure covering administrative protest on assessment by BIR Commissioner 4. 228 NIRC of 1997 1. Rep. Cruz. Dayrit v. CA.R. Stephen School v.Sec. 4. Two ways of protesting administratively a. 120880. 165 SCRA 571 Re: Effect of abandoning the protest Com. final decision of the CIR on the disputed assessment. Cruz. Effect of failure to protest Sec. id. No. id. 133 SCRA 765 Optional: Surigao Electric v. V. 3.. v. 228 NIRC of 1997 Marcos v. 158 SCRA 9 Advertising Asso. Commissioner v. V. When/How to file claim/prescriptive period . 12-85 Sections 4 / 228 NIRC of 1997 Section 228 NIRC of 1997 Mambulao Lumber v. Payment under protest not required under the NIRC 6. 132 SCRA 1 Dayrit v. Algue. Differences and similarities of protest cases under the Tariff and Customs Code 5. Reg. Claims for refund and credit taxes/Remedy AFTER payment A. Request for reinvestigation Rev. Republic. Remedy of the taxpayer if the CIR fails to act on the protest within 180 days from receipt of protest. Wyeth Suaco. 185 SCRA 547 Commissioner v. Collector. CA. CTA 57 SCRA 523 Fabular v. Effect of protest/assessment deemed DISPUTED 2. id. 202 SCRA 125 C. 104 Phil. Commissioner renders a decision on the disputed assessment 1. Reg. 60-day period to submit relevant documents B. Suspension of the prescriptive period to collect 3. island Garment. CA. Remedy of the taxpayer if protest is denied: Appeal to the CTA the 2. Union Shipping. 314 III. / civil action to enforce judgment Commissioner v. Request for reconsideration b. 5 June 1997 Mambulao Lumber Co. Effect of failure to appeal What is the final decision of the CIR on the disputed assessment? Rev. G.
R. He paid his tax liabilities for that year. 204 (3) NIRC as amended by RA 8424 Re: 10% and 40% limit re: compromise amount Requisites if beyond the limit OR the basic tax is greater than P1M Sec..R. Within two years from date of payment to initiate judicial proceedings Section 4 NIRC of 1997 Section 229 NIRC 2. 232 SCRA 321 Collector v. 25 May 1995 San Carlos v. 15 SCRA 318 Gibbs v. 205 SCRA 184 Gibbs v. A taxpayer whose income is withheld at the source will be considered to have paid his tax liability . G. 29 May 1995 CIR v. b. Com. Tokyo Shipping. 195208. Philamlife. CA and Atlas Consolidated. CIR. G.R. 29 May 1995 CIR v. 232 When Gibbs contributed to the withholding tax system. he did not really deposit an amount to the Commissioner of Internal Revenue but actually performed and extinguished his tax obligation for the year concerned. G. If CIR denies the claim or request 30 days from receipt of decision b. Judicial remedy of the taxpayer 1.. 2 SCRA 1007 CIR v. The 2-year period to initiate judicial proceedings not jurisdictional but a positive requirement e.Who may file for refund? Taxpayer/withholding agent Refund without claim Payment under protest not a requirement Sec. Appeal to the Court of Tax Appeals a. No. CA and Citytrust. The two periods (30 days and 2 years) MUST concur CIR v. 234 SCRA 348 B. If CIR fails to act on the protest within 180 days / 30 days to be counted from lapse of the 180-day period. 30-day period to appeal jurisdictional d. 105208. Philamlife. Palanca. 18 SCRA 496 Maceda v. Prieto. TMX Sales. 107 Phil. Macaraig. CIR v. Appeal by filing a petition for Review / Petition for Refund a. 223 SCRA 217 Commissioner v. 68252. 228 SCRA 135 Note: Section 204 as amended by RA 8424: A return filed showing an overpayment shall be considered as a written claim for credit or refund. 229 NIRC of 1997 CIR v. Com. Meaning of supervening causes c.
Com. v. 209 Jurisdiction of the CTA . he appealed to the CTA but was dismissed for having been filed beyond the reglementary period. or when the tax liability falls due. this time for recovery. 190 SCRA 1990 IV. and (2) when the tax liability falls due. For the first time on appeal. His request denied. Cebu Portland v. CTA. After paying under protest.when the same falls due at the end of the year. when it filed its return. saying that there are two alternative reckoning dates for a taxpayer whose income is withheld at source: (1) the end of the tax year. 256 SCRA 661 Optional: Ursal v. when the taxes withheld at source were paid and remitted to the BIR. It is from this date. it raised the issue of P & G Philippines not being the proper party to claim refund. he sued again. id. since ACCRA Investments only knew its tax liability on April 15. CA The Court elaborates on the (second) Gibbs ruling. 1981. however. 204 SCRA 957 The BIR appealed a CTA decision granting to P & G Philippines. 101 Phil. Collector. 1982. Refining Co. Phil. Before it filed its return. ACCRA was not sure of whether it made a profit or not. 22 SCRA 1058 Concepcion already requested for refund of estate and inheritance taxes at the BIR. Jurisdiction of the Court of Tax Appeals RA 1125 – the law creating the CTA A. The Court said he can’t do this because the remedy of contesting the validity of an assessment cannot be revived when there is already a final prior judgment dismissing the same on the ground of prescription. V. this date would be the reckoning date for the prescriptive period and not December 31. Concepcion. V. CA. The Court said BIR should not be allowed to do this because it had all the opportunity to ask about P & G’s capacity or authorization from its parent company at the administrative level. It said that P & G USA instead should make the claim. that the twoyear prescriptive period starts to run with respect to payments effected through the withholding tax system. CA. It is unfair and too late to ask for it now especially because this suit was filed just before the expiration of the two-year prescriptive period. Why was the CTA created? B. Aguilar v. Com. ACCRA Investment vs. Procter and Gamble. In this case.
No. 11 RA 1125 Sec. Reg.R. Reg. Prescriptive period to collect 1. Section 222 – 5 years Com. Savellano. 202 SCRA 125 1. What are the exceptions? Limitations: CIR v. 12 August 1996 Liboro v. 203-231 NIRC Commissioner v. Appeal from the CTA to the Court of Appeals. 206-212 NIRC Secs. 12-93 as amended by Rev. 221-222 NIRC . CA. 3-94 Re: Tax payment by checks and by bank debit memo VII. Wyett Suaco. PG-PMC. 204 SCRA 377 Sec. FINAL decisions of the Commissioner of Internal Revenue on DISPUTED D.C. Reg. Remedies Available to the Government A. 173 SCRA 285 Supreme Court Circular 1-91 as amended by Supreme Court Revised Administrative Circular 1-95 VI. 202 SCRA 125 Rev. 22 SCRA 4 Com. Reg. 3-94 Rev. CTA. assessment Meaning of disputed assessment Who may appeal to the CTA? Sec. Joseph. v. Administrative remedies/Summary remedies Secs. Villa. 14-93 as amended by Rev. v. 218 NIRC Lim v. CA. 111184. 105 Phil. 974 Com. v. E. V. Section 203 – 3 years 2. Wyett Suaco. 5 SCRA 895 Meralco Securities v. Collection of Internal Revenue Taxes A. Distraint of personal property Definition/kind/procedure Secs. 7 RA 1125 as amended by RA 3457 New issues cannot be raised for the first time on appeal. id. G. from the CA to the Supreme Court Prescriptive period Magsaysay Lines v.
v. 257 SCRA 200 (Lucio Tan/Fortune Tobacco Case) Resolution on the Motion for Reconsideration. 163 SCRA 25 Exception: CTA Sec. Surcharge – 25% 50% a. CA. Applicable interest rate 20 % / Manila Reference Rate : Whichever is higher 2. 220-221 NIRC Ungab v. CTA. 218 NIRC Review: Northern Lines v. 238 SCRA 42 Hongkong and Shanghai Bank v. 3. 3-91 (1-24-91) – Implementing Sec. CA. Levy of Real property Definition/procedure Secs. 248-251 NIRC of 1997 1. Civil Penalties/Surcharges/Interest Sec. 294 of the NIRC/Prescribing a deficiency rate of interest higher than 20% per annum 3. NLRC. No injunction to restrain collection of taxes Sec. Reg. fraudulent return . 224-226 NIRC 4. 3-69 Marcos v. Cusi. Judicial remedies Civil/criminal action Requirements in filing criminal/civil cases Secs. 97 SCRA 877 Com. 11 RA 1125 Conditions for the issuance of injunction B. 219 NIRC of 1997 Rev. Reg. 7 February 1997 VIII. Rafferty. Memo Circular 2-94 Republic v. Enriquez.Rev. Forfeiture Sec. Statutory Offenses and Penalties A. 213-218 NIRC Rev. Reg. Tax lien Sec. 39 SCRA 145 5. 3-69 2. id. False return v. Computation of interest/basis Rev. 216 NIRC Secs. 166 SCRA 608 Commissioner v.
63-91 Issuance of the New TIN (Tax Identification Number) to taxpayers and its use on documents and receipts D. 11-89 Registration of books of accounts Rev. Memo Circular No. Fraud assessment c. Memo Circular 101-90 dated 26 Nov. Compliance requirements 1. Revised penalties Secs.b. 13-93 Re: Issuance and use of TIN Rev. 6 SCRA 886 Issuance/printing of receipts. 4-94 Sec. Keeping of books of accounts 2. 58 SCRA 519 Castro v. Attachments to tax returns: Certificate of tax compliance Rev. 1990 – Determination of when cause of action for wilfull failure to pay deficiency tax accrue and prescription under Sec. Com. Memo Circular 13-82 Procedures in the issuance of permits to use loose leaf books of accounts. 224-228 NIRC as amended by RA 7642 Rev. CA 190 SCRA 616 . 3-90 Secs. 281 NIRC Lim v. Collector. 199 SCRA 824 Aznar v. C. Collector. Payment of tax NOT a valid defense 2. records. invoices and receipts Rev. Prescription of violations of the NIRC Rev. 236-243 NIRC Sec.. 255 as amended by RA 7497 Secs. Mandatory imposition of penalties Cases: Javier v. Reg. Securing tax identification number (TIN) 3. 232-236 NIRC Rev. Persons liable in case taxpayer is a juridical entity c. Crimes/offenses/penalties/forfeitures 1. 263 NIRC B. 253-281 NIRC a. Reg. registration of name/violations/penalties Secs. Reg. Reg. Elements of tax evasion b.
58 SCRA 519 Com. 282 NIRC of 1997 Rev. 97 SCRA 877 People v. Grounds for abating taxes and penalties Conditions Read: RMO 45-93 as amended by RMO 54-93 B. on Audit. Memo Order 1-90 as amended by RMC 17-90 Example schedule of compromise penalties X. Government’s remedy if taxpayer fails to comply with the agreement Sec. Cusi. 218 SCRA 203 . 202 SCRA 450 IX. Subject to limitations a. 12-93 dated 1 February 1993 Guidelines in the filing of confidential information for violation of the NIRC and investigation by authorized revenue officer. Reg. 117 SCRA 704 Penid v. Savellano. v. Or below the prescribed limits 4. Basic tax assessment P1M ii. Com. 204 NIRC of 1997 Rev. If reason is financial incapacity NOT less than 10% of basic tax b. Informer’s Reward Sec. Memo Order 45-93 as amended by RMO 54-93 Example: abatement of penalties Rev. JAL. Memo Order 32-92 as amended by RMO 22-94 Rev. 121 SCRA 166 Com. Cases that cannot be compromise 3. Grounds/reasons for a compromise agreement 2.Ungab v. CTA. Virata. Meralco Securities v. Memo Order No. 12 SCRA 666 Aznar v. of Internal Revenue v. Would require approval of the Board: i. Abatement of tax / Tax Compromise Section 204 NIRC of 1997 A. 2. 12-93 Implementing Guideline for RA 7646 Rev. Tierra. Power to compromise / discretionary power 1. Other cases not less than 40% of basic tax c. Authority of the Commissioner to abate taxes 1.
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