You are on page 1of 49

FREE Online Checking Of Income

Tax Return (ITR) for Errors


Before Filing With BIR.

Limited Time Offer Only
Get Your Free Account Now
by clicking this link
http://www.taxpirin.com










TAXPIRINaimstohelptaxpayerstoprepareandsubmiterrorfreetaxreturns,andaccordingly,
complywithBIRregulations,thus,preventsBIRauditandeliminatestaxassessments.





SECRETS TO PREVENT BIR AUDIT
AND ELIMINATE TAX ASSESSMENTS



By: www.taxpirin.com
and www.philtaxwindow.com


TAXPIRINaimstohelptaxpayerstoprepareandsubmiterrorfreetaxreturns,andaccordingly,
complywithBIRregulations,thus,preventsBIRauditandeliminatestaxassessments.
Page1of47

SECRETS TO PREVENT BIR AUDIT
AND ELIMINATE TAX ASSESSMENTS

We cannot avoid tax, but we can avoid tax audit. Based on experience of tax
consultants, 99% of taxpayers audited by the BIR have tax
findings/assessments.
Aside from the taxpayers regular voluntary tax remittances, the Bureau of
Internal Revenues (BIR) generates revenue through collections coming
from tax assessments. Thus, it is not surprising that the BIR is
strenghtening its audit programs to aggressively conduct audits of
taxpayers records or run after possible tax evaders. The pressure is
continuously on for all taxpayers.
It is common that the BIRs initial assessment would be P200 million,
P100 million, or P50 Million. Even small companies would initially get
P2 million tax assessment for just one taxable year! Thats why,
accountants would think that their bosses will fire them right away upon
receipt of initial tax findings. On the other hand, owners would be
discouraged to grow their businesses because the initial tax assessments
are sometimes greater than their Companies networth.
Taxpayers have fear in dealing with the
BIR officers because of significant tax
assessments. Others even hate the BIR
officers for inflicting so much anxiety and
sleepless nights to the owners and
accountants. Fear no more. The secrets in
removing your fear and worries, how to
reduce or even eliminate tax assessments,
and even how to avoid tax audit will be
discussed.
There are three (3) main secrets in
preventing the BIR audit, and winning
your BIR audit, should it happen.. The acronym is PBA which stands for
(1st) Be Prepared, (2nd) Build Good Relationships, and (3rd) Automate.


Visitwww.taxpirin.comforFreeAccount

Page2of47

SECRET No. 1

BE PREPARED

Most taxpayers are not prepared for the Audit of BIR. Once the taxpayers
or the taxpayers accountants have filed the tax returns, the same are filed
in the cabinets or storage boxes hoping that BIR will not knock on their
doors to examine their books.
Sadly, some taxpayers may resort to areglo with BIR officers because of
the very high tax assessments and their companies could not afford. Some
may even resort to no opening of books and just negotiate the amount to
be paid.
However, Taxpayers may no longer be able to negotiate or make areglo
as in the past.
Why? Because it is apparent that the
BIR is gearing towards computerized
audit. BIR issued Revenue Audit
Memorandum Order (RAMO) 1-
2008, which provides guidelines to
the BIR revenue officers or
examiners on the use of computer-
assisted audit tools and techniques
(CAATTS).
In conducting an audit through
CAATTS, BIR examiners use audit
tools to analyze and evaluate the
financial transactions of the taxpayers. Even if the Examiner will not visit
the taxpayers office to request for various documents and returns he can
generate already the tax assessment. Welcome to the no-contact audit
approach by the BIR.

Visitwww.taxpirin.comforFreeAccount

Page3of47
Visitwww.taxpirin.comforFreeAccount

Years ago, some of the operations of the BIR were already done
electronically, such as the filing of receipts of tax returns and payments
through the Electronic Filing and Payment System (eFPS).
Revenue Regulation (RR) 1-2014 requires all companies to submit
electronically their December 31, 2013 BIR Form 1604CFAlphabetical
List of Employees/Payees of Income Payments. Also, RR 2-2014 requires
individuals and corporate taxpayers to use new tax forms effective year
ended December 31, 2013. The new tax forms are Optical Character
Recognition (OCR), therefore, both are convertible into electronic format.
Again, the taxpayers data will be stored in BIRs database regardless if
the said taxpayers are filing electronically or manually.
However, there is a good news! There is actually no need to worry
about BIR audit if a taxpayer is prepared for it.
Areglo or compromised payment could be avoided if the taxpayers
accounting records and tax returns could stand the audit of the BIR. If a
taxpayer is thoroughly prepared, there is a high probability that he will
not be even audited by the BIR since tax returns with less errors and
exposures are less prioritized in the audit. In case a taxpayer will be
audited, zero or minimal tax assessments will be uncovered by the BIR.

To be PREPARED a taxpayer needs to do or know the following:
a.) Assign or Hire Tax Accountant
b.) BIRs Directions and Issuances
c.) Assessment Rules and Stages
d.) BIRs Rights and Remedies
e.) Taxpayers Rights and Remedies
f.) BIRs Common Audit techniques
g.) BIRs Common Audit Findings
h.) Taxpayers Pre-audit Techniques and Preparations
i.) Tax Planning and Tax Compliance

Page4of47
Visitwww.taxpirin.comforFreeAccount


Assign or Hire Tax Accountant
Several companies particularly small to medium size ones do not assign or
hire tax accountant who will focus on its tax concerns. Large corporations
normally maintain a tax department composed of lawyers and CPAs who
are expert in taxation.
Companies try to save on the cost of assigning or hiring tax accountants
only to be slapped later on with high tax assessments which is higher than
the cost of 20 or even 100 tax accountants.
A tax accountants task includes but not limited to the following:
conduct tax planning and compliance review to ensure that the
company avoids high taxes and tax exposures legally. By the way,
tax avoidance is legal while tax evasion is illegal. Tax planning and
compliance procedures are tax avoidance.
review all tax returns and reports before filing with the BIR to
ensure that the same are accurate, properly presented and reconciled
against records and documents.
ensure that tax reports are filed and paid on time
review the tax implications of the Companys transactions
study tax laws, rules and regulations applicable to the company and
ensure companys compliance thereto
update every now and then with the new tax issuances.

The General Accountants main focus are normally to record all
transactions in the books, generate financial statements on time and be
able to explain the figures to the bosses, prepare and release payments to
creditors and collect receivables from customers (if there is no finance
department). With the volume of tasks assigned to General Accounting,
tax functions discussed above would just be an add-on. This set-up
usually results to high tax asssessments.
So is it beneficial to have a tax accountant on board? Always!

Page5of47
What are the 2014 Directions of BIR?

What is the Collection Target of BIR?
The Bureau of Internal Revenue has set
its collection target at P1.46 trillion for
year 2014 which is 16.16% higher than
its 2013 collection goal of P1.25
trillion. The collection target for year
2015 is P1.6 trillion. These targets
keep on increasing every year.
With these high collection goals and
aggressive audit programs of BIR,
Taxpayers are always under extreme
pressures. However, while the BIR is
pressured to intensify its assessment and collection efforts to meet its
revenue target, the taxpayers, on the other hand, should be well prepared
for BIR examination anytime.

What are the Possible Audit Related Notices that I will Receive?
1. Letter of Authority (eLA)
2. Letter Notice (LN) issued for taxpayers with discrepancies on their
income, sales and purchases, including third-party matching (see
RMO 28-2007, 4-2008, 30-2003).
3. Tax Verification Notice (TVN) (replaced with eLA through RMOs
62-2010, 69-2010) issued for specific tax examination such as
verification and processing of capital gains tax, withholding tax
returns, estate and donors tax returns, claims for tax credit, protested
cases under re-investigations. (see RMOs 33-99, 36-99,66-99, 19-
2000, 24-2000, 30-2000, 13-01, 62-2010, 69-2010)


Visitwww.taxpirin.comforFreeAccount

Page6of47
Visitwww.taxpirin.comforFreeAccount


4. Quarterly VAT Audit specific audit for VAT (see RMO 20-2012)
5. LA from Special Investigation Division (SID) LA for Run After
tax Evaders (RATE) and possible fraud case audit issued by the
Special Investigation Division (SID or Fraud Division). This can be
issued even after the 3 years prescription period.
6. Mission Order for possible violation of bookkeeping rules and
regulations, particularly on non-issuance of sales or receipts and
governing use of Point-of-sale machines (RMO-3-2009);
7. Memorandum of Assignment with a system generated number shall
be issued through the LAMS under the following instances (RMO-
62-2010):
a. Reassignment for the continuation of the audit/investigation to
another revenue officer (RO).
b. Assignment to the original RO of returned cases by the reviewing
office and reassignment to another RO.
c. Reassingment to another RO due to referral of the case to anohter
investigating office (e.g., cases referred to SID by the RDO)
d. Protested cases/cases for reinvestigation.

Is it possible that a Taxpayer will still receive LA after he has
received/completed the LN, VAT Quarterly Audit and other audits?
YES. The LA is the most comprehensive audit of all.

Will All Taxpayers Receive LA every year?
Not all as of now. This is due to shortage of tax examiners (currently at
only 2,500 nationwide) and the related cost of conducting the audit.
However, with the IT Audit Programs of the BIR, 100% LA issuance and
audit of ALL taxpayers will happen sooner than taxpayers expected.
Related discussion of this topic is covered by Ebook titled: How to
Prevent BIR Audit by Being Ahead of BIR IT Audit Programs. Please
visit www.taxpirin.com or www.philtaxwindow.com to get a FREE copy.

Page7of47
Visitwww.taxpirin.comforFreeAccount


Who are the Priority in the Audit of BIR?
The BIR under Revenue Memorandum Order No. 4-2013 dated March 8,
2013 issued policies and guidelines that shall be observed in the
continuing audit of tax returns by the Revenue District Offices:
1. All taxpayers are considered as possible candidates for audit.
2. Priority shall be given to the following taxpayers:
a. Professionals and sole proprietorships whose
income tax due is less than two hundred thousand pesos
(P200,000.00) per annum;
gross revenue is less than forty percent (40%) compared to the
previous years reported gross revenue;
tax payment for each tax type is less than thirty-five percent
(35%) as compared to the previous years tax payment;
b. Those engaged in but not limited to the industries as follows:
Importers/manufacturers/wholesalers/retailers of wrist watches
and jewelry
Petroleum/gasoline dealers
Hotels, motels, pension houses/lodging houses/inns,
dormitories/boarding houses
Real estate industry
Schools, particularly for foreigners (e.g. English School for
Koreans), review centers
Contractors of NGAs, LGUs and government owned and
controlled corporations
Retailers/wholesalers
Restaurants, fast food chains, catering services, bars, coffee shops
Hospitals, clinics, medical/dental laboratories
Establishments/clinics for beauty enhancements
Manufacturers/dealers of beauty and health supplement
Amusement/entertainment/event centers
Advertising agencies
Business processing outsourcing companies
E-commerce industry
Manpower and other recruitment services agencies
Other industries peculiar to the area of jurisdiction of the district
office;
c. Those who fall below the established benchmarks of tax compliance;
and
d. Those who maintained an ending inventory with value of 100% or
more of its gross sales.
It appears in the above priority list that all Taxpayers whether big or small,
corporate or individuals, are effectively targets of BIR audit.

What are the Other Criteria for
Selecting a Taxpayer for Audit?
Other than the priority list mentioned in
RMO 4-2013 (above), the BIR conducts
benchmarking, matching against third-
party declarations, whistleblower or
third party information, results of
surveillance and verification drives, and
other studies in selecting taxpayers to be
sent with LAs.
Benchmarking is the process of determining and comparing the
performance level of taxpayers in a given line of industry as far as Net
VAT Due and Net Income Tax Due are concerned in relation to gross
sales/receipts vis-a-vis profit margin rate for the purpose of setting an
industry standard of taxpayers performance/compliance. (RMO 4-2006).

Page8of47
Visitwww.taxpirin.comforFreeAccount

Page9of47

What is the Purpose of Audit?
The purpose of auditing a tax return is to determine the taxpayer's
substantially correct tax liability. A quality audit is the examination of the
taxpayer's books and records in sufficient depth for the purpose of
ascertaining the correctness and validity of entries and the propriety of
application of tax laws.
To ensure quality audit of tax returns, revenue officers are enjoined to
utilize their technical skills, trainings and experiences, and follow the
minimum audit procedures prescribed in the Handbook on Audit
Procedures and Techniques (Revenue Audit Memorandum Order No. 1-
00)
Taxpayers are given enough time to prove that they have paid the right
amount of taxes. Tax audit is a long process and it does not mean that a
taxpayer is presumed guilty of evading his tax obligation once he is
audited.









Visitwww.taxpirin.comforFreeAccount

Page10of47
What are the Tax Assessment Stages and Related Rules?
ASSESSMENT RULES & STAGES
Visitwww.taxpirin.comforFreeAccount

1st
Notice
(10days)
DeptofJustice
FLD/FAN
(30days Protest;
60days docs)
2nd
Notice
(10days)
3rd
Notice
(10days)
LA
(30days)
Audit/
Deficiency
Subpoena
Duces
Tecum
RDO
SupremeCourt
No
In al
Con ce
15days
ticefor
form
feren
X
CourtofTax
Appeals
30days
PAN
15days
Commissio
ner
180days
The audit process commences with the issuance of a Letter of Authority
(LA) or Tax Verification Notice (TVN) to a taxpayer who has been
selected for audit.
A taxpayer is given 30 days to reply. If there is no reply to the LA, the
first notice which is effectively a follow-up letter is issued. If there is no
reply to the 1st notice within 10 days, the second notice will be issued. If
again there is no reply to the 2nd notice within 10 days, the final notice
will be issued. A subpoena duces tecum is issued by the Legal Division of
the Regional or National Office of BIR if there is no reply to the final
notice within 10 days.

Page11of47
Visitwww.taxpirin.comforFreeAccount

Once the taxpayers case is in Legal Division of BIR, it is more difficult to


settle and involves additional cost because there is a payment for the Legal
Division to return the taxpayers case to the same Revenue Officer
handling the examination. So instead of ignoring the LA and the notices,
it would be better for the taxpayer to communicate and cooperate with the
BIR prior to the issuance of subpoena duces tecum.
On the other hand, once the taxpayer has submitted the requirements, the
Revenue Officer will proceed with the audit. After the examination, BIR
will issue the PAN. If the taxpayer does not reply within 15 days or does
not agree with the assessment, the BIR will issue the Formal letter of
Demand and Final Assessment Notice (FLD/FAN). If a taxpayer disputes
the assessment, he can protest the assessment to the Commissioner of BIR,
Court of Tax Appeals and even to the Supreme Court.
Take note that effective December 15, 2013, Revenue Regulation 18-13
eliminated the Notice for Informal Conference stage and will immediately
proceed with the issuance of PAN after the examination stage. Therefore,
presentation of supporting documents and justification of balances should
be made exhaustively during the audit or examination stage.
The detailed rules of each stage will be discussed in the succeeding pages.
What is a Letter of Authority?
A Letter of Authority (LA) is an official document that empowers a
Revenue Officer to examine and scrutinize a Taxpayers books of accounts
and other accounting records, in order to determine the Taxpayers correct
internal revenue tax liabilities.
Who issues the Letter of Authority?
The Letter of Authority, for audit/investigation of taxpayers under the
jurisdiction of National Office, shall be issued and approved by the
Commissioner of Internal Revenue, while, for taxpayers under the
jurisdiction of Regional Offices, it shall be issued by the Regional
Director.

Who serves the LA?
The electronic LA shall be served by anyone of the ROs whose names
appear on the LA (RMO No. 044-10).
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.
A Taxpayer may also receive the LA for documentation purposes because
there is limit to the number of revalidation and service of LA as discussed
in the next pages.
How does the BIR issue an LA?
Effective J uly 1, 2010, the manual issuance of LAs and TVNs are
discontinued for all BIR investigating offices.
In accordance with the Computerization
endeavors of the the BIR efforts are underway
to expand the functionalities of the Letter of
Authority Monitoring Systems (LAMS). A
number of manual procedures, therefore, are
being automated in order to improve
operational efficiency and provide
management with up-to-date information on
audit activities. Among those significant
developments of these endeavors is the
electronic issuance of LAs, mandating the
investigation of taxpayers by the BIRs various
investigaiting offices, task forces and special teams (RMO Nos. 044-2010,
62-2010, 69-2010)

Page12of47
Visitwww.taxpirin.comforFreeAccount

Page13of47
Visitwww.taxpirin.comforFreeAccount

How does an LA Revalidated?


A Letter of Authority is revalidated through the issuance of a new LA.
How often can an LA be revalidated?
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. Any suspended LA(s) must be
attached to the new LA issued (RMO 38-88).
What are the Revalidation Procedures?
RMO 38-88 issued the following guidelines for a more effective and
efficient investigation and reporting on cases:
1. Revalidation of LA shall be limited to only once in the regional
offices and twice in the National Office after issuance of the original
LA.
2. A revaluation shall be covered by the issuance of a new LA under
the name(s) of the same investigating officer(s), and the superseded
LA(s) shall be attached to the new LA issued.
3. Request for revalidation shall be supported with a progress report on
the case and a justification for said revalidation.
4. 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 reglamentary 120-day period. The Division Chief/RDO shall be
jointly responsible with the Revenue Officers for cases with LA
pending beyond the 120-day period.

Beginning J une 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 applicable
administrative sanctions (RMO NO. 044-10).

Page14of47
Visitwww.taxpirin.comforFreeAccount

6. It shall be the duty of the Division Chief/RDO to report immediately


to the Inspection Service any tax case for which no report of
investigation has been rendered 120 days after the issuance of an
LA.
Who are authorized to receive a Letter of Authority?
LA shall be received by the taxpayer or his duly authorized
representative.
For corporate taxpayer, the following may receive the LA: (a)
Owner/proprietor, (b) President, (c) Finance Manager, (d) corporate
secretary (e) or any duly authorized representative otherwise the LA is
null and void.
How many taxable year is covered in an LA?
A Letter of Authority should cover a taxable period not exceeding one
taxable year. The practice of issuing LAs covering audit of "unverified
prior years" is hereby prohibited. (RMO 43-90)
Is a Letter of Authority with erasures valid?
Erasures shall render the LA null and void. (RMO 28-83).
Any manually written character (alphabetical or numeric), notation or
erasure shall render the eLA invalid (RMO No. 044-10).
Can the same Revenue officer audit a Taxpayer for consecutive years?
The same Revenue Officer/Group Supervisor shall not be allowed to audit
the same taxpayer for two consecutive years. (RMO 36-99)
How long should an Audit be Conducted?
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 which is the Final
Assessment Notice and Formal Letter of Demand.
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,
subject to the changes as provided in RMO 044-10 (see page 14).
Another 120 days will be allowed to the Revenue Officer to complete the
examination and submit his final report, otherwise, he cannot anymore
continue with the audit unless a waiver is signed by the taxpayer. Reports
submitted beyond this period are null and void.
After the second 120-day period, BIR cannot continue with audit the
Company legally. Most examinations are not completed within the first
120 day period or even during the second 120 days.
BIRs recourse is to request the taxpayer
to sign a Waiver of Statute of Limitation
so that the period of examination will be
extended. Unfortunately, most taxpayers
sign such waiver for various reasons (such
as BIR might immediately issue the PAN
or get back on them on next taxable years
audit) so the audit will still proceed even
if legally BIR cannot continue with the
audit.

How many times should a Taxpayer be examined per Taxable Year?
A taxpayers 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 Taxpayers compliance with
withholding and other internal revenue taxes as prescribed in a
Revenue Memorandum Order issued by the Commissioner of
Internal Revenue.
When the Taxpayers capital gains tax liabilities must be verified;
and,

Page15of47
Visitwww.taxpirin.comforFreeAccount

Page16of47
Visitwww.taxpirin.comforFreeAccount

When the Commissioner chooses to exercise his power to obtain


information relative to the examination of Letter of Authority, for
audit/investigation of taxpayers under the jurisdiction of National
Office, shall be issued and approved by the Commissioner of
Internal Revenue, while, for taxpayers under the jurisdiction of
Regional Offices, it shall be issued by the Regional Director.
What are some of the powers of the commissioner relative to the audit
process?
In addition to the authority of the Commissioner to examine and inspect
the books of accounts of a Taxpayer who is being audited, the
Commissioner may also:
Obtain data and information from private parties other than the Taxpayer
himself (Sec.5, NIRC); and
Conduct inventory and surveillance, and prescribe presumptive gross sales
and receipts (Sec. 6, NIRC).
What is a Pre-Assessment Notice (PAN)?
Revenue Regulation (RR) No. 18-13 provides that if after review and
evaluation by the Commissioner or his duly authorized representative as
the case may be, it is determined that there exists sufficient basis to assess
the taxpayer for any deficiency tax or taxes, the said Office shall issue to
the taxpayer a PAN for the proposed assessment. It shall show in detail the
facts and the law, rules and regulations, or jurisprudence on which the
proposed assessment is based.
If the taxpayer fails to respond within 15 days from date of receipt of PAN,
he shall be considered in default, in which case, a Formal Letter of
Demand and Final Assessment Notice (FLD/FAN) shall be issued, calling
for payment of the taxpayers deficiency tax liability, inclusive of the
applicable penalties.
If the taxpayer, within fifteen (15) days from date of receipt of PAN
responds that he/it disagrees with the findings of delinquency tax or taxes,
an FLD/FAN shall be issued within 15 days from the filing/submission of
the taxpayers response, calling for payment of the taxpayers deficiency
tax liability, inclusive of the applicable penalties.

What are the exceptions to issuance of PAN?
The PAN shall not be required in any of the following cases:
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
When a discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
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
When the excise tax due on excisable articles has not been paid; or
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.

In the above-cited cases, a FLD/FAN shall be issued outright.
What are Formal Letter of Demand and Final Assessment Notice
(FLD/FAN)?
RR 18-13 provides that the Formal Letter of Demand and Final
Assessment Notice (FLD/FAN) and shall be issued by the Commissioner
or his duly authorized representative.
The FLD/FAN 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 assessment shall be void.
(RR-12-99)




Page17of47
Visitwww.taxpirin.comforFreeAccount

Page18of47
Visitwww.taxpirin.comforFreeAccount

Administrative Rights and Remedies of Taxpayers


What are the taxpayers remedy if he disputes the assessment?
The taxpayer or his duly authorized representative may protest
administratively against the aforesaid FLD/FAN within 30 days from date
of receipt thereof.
The taxpayer protesting an assessment may file a written request for
reconsideration or reinvestigation as defined as follows:
Request for reconsideration refers to plea or re-evaluation of an
assessment on the basis of existing records without need of additional
evidence. It may involve both a question of fact or of law or both.
Request for reinvestigation refers to a plea of re-evaluation of an
assessment on the basis of newly discovered or additinal evidence that a
taxpayer intends to present in the reinvestigation. It may also involve a
question of fact or of law or both.
The taxpayer shall state in his protest (i) the nature of protest whether
reconsideration or reinvestigatioin, specifying newly discovered or
additional evidence he intends to present if it is a request for
reinvestigation, (ii) date of the assessment notice, and (iii) the applicable
law, rules and regulations, or jurisprudence on which his protest is based,
otherwise, his protest shall be considered void and without force or effect.
If there are several issues involved in the FLD/FAN but the taxpayer only
disputes or protests against the validity of some of the issues raised, the
assessment attributable to the undisputed issue or issues shall become
final, executory and demandable; and the taxpayer shall be required to pay
the deficiency tax or taxes attributable thereto, in which case, a collection
letter shall be issued to the taxpayer calling for payment of the said
deficiency tax or taxes, inclusive of the applicable surcharge abd/or
interest.

If there are several issues involved in the disputed assessment and the
taxpayer fails to state the facts, the applicable law, rules and regulations, or
jurisprudence in support of his protest against some of the several issues
on which the assessment is based, the same shall be considered undisputed
issue or issues, in which case, the assessment attributable thereto shall
become final, executory and demandable; and the taxpayer shall be
required to pay the deficiency tax or taxes attributable thereto and a
collection letter shall be issued to the taxpayer calling for payment of the
said deficiency tax, inclusive of the applicable surcharge and/or interest.
For requests for reinvestigation, the taxpayer shall submit all relevant
supporting documents in support of his protest within sixty (60) days from
date of filing of his letter of protest, otherwise, the assessment shall
become final.

The term relevant supporting documents refer to those documents
necessary to support the legal and factual bases in disputing a tax
assessment as determined by the taxpayer.

The sixty (60)-day period for the submission of all relevant supporting
documents shall not apply to requests for reconsideration.

Furthermore, the term the assessment
shall become final shall mean the
taxpayer is barred from disputing the
correctness of the issued assessment
by introduction of newly discovered or
additional evidence, and the FDDA
shall consequently be denied.

If the taxpayer fails to file a valid
protest against the FLD/FAN within
thirty (30) days from date of receipt
thereof, the assessment shall become
final, executory and demandable.

No request for reconsideration or reinvestigation shall be granted on tax
assessments that have already become final, executory and demandable.

Page19of47
Visitwww.taxpirin.comforFreeAccount

Page20of47
Visitwww.taxpirin.comforFreeAccount


If the protest is denied, in whole or in part, by the Commissioners duly
authorized representative, the taxpayer may either: (i) appeal to the Court
of Tax Appeals (CTA) within thirty (30) days from date of receipt of the
said decision; or (ii) elevate his protest through request for reconsideration
to the Commissioner within thirty (30) days from date of receipt of the
said decision.

No request for reinvestigation shall be allowed in administrative appeal
and only issues raised in the decision of the Commissioners duly
authorized representative shall be entertained by the Commissioner.

If the protest is not acted upon by the Commissioners duly authorized
representative within one hundred eighty (180) days counted from the date
of filing of the protest in case of a request reconsideration; or from date of
submission by the taxpayer of the required documents within sixty (60)
days from the date of filing of the protest in case of a request for
reinvestigation, the taxpayer may either: (i) appeal to the CTA within
thirty (30) days after the expiration of the one hundred eighty (180)-day
period; or (ii) await the final decision of the Commissioners duly
authorized representative on the disputed assessment.

If the protest or administrative appeal, as the case may be, is denied, in
whole or in part, by the Commissioner, the taxpayer may appeal to the
CTA within thirty (30) days from date of receipt of the said decision.
Otherwise, the assessment shall become final, executory and demandable.
A motion for reconsideration of the Commissioners denial of the protest
or administrative appeal, as the case may be, shall not toll the thirty (30)-
day period to appeal to the CTA.

If the protest or administrative appeal is not acted upon by the
Commissioner within one hundred eighty (180) days counted from the
date of filing of the protest, the taxpayer may either: (i) appeal to the CTA
within thirty (30) days from after the expiration of the one hundred eighty
(180)-day period; or (ii) await the final decision of the Commissioner on
the disputed assessment and appeal such final decision to the CTA within
thirty (30) days after the receipt of a copy of such decision.


It must be emphasized, however, that in case of inaction on protested
assessment within the 180-day period, the option of the taxpayer to either:
(1) file a petition for review with the CTA within 30 days after the
expiration of the 180-day period; or (2) await the final decision of the
Commissioner or his duly authorized representative on the disputed
assessment and appeal such final decision to the CTA within 30 days after
the receipt of a copy of such decision, are mutually exclusive and the
resort to one bars the application of the other.

What should be Stated in the Final Decision on a Disputed Assessment
(FDDA)?

The decision of the Commissioner or his duly authorized representative
shall state the (i) facts, the applicable law, rules and regulations, or
jurisprudence on which such decision is based, otherwise, the decision
shall be void, and (ii) that the same is his final decision.

What are the characteristics of a v
protest?
alid
Page21of47
Visitwww.taxpirin.comforFreeAccount

A protest is considered valid if it


satisfies the following conditions:
It is made in writing, and addressed to
the Commissioner of Internal Revenue;
It contains the information, and
complies with the conditions required
by Sec. 6 of Revenue Regulations No.
12-85; to wit:
a.) Name of the taxpayer and address for the immediate past three (3)
taxable year.
b.) Nature of request whether reinvestigation or reconsideration
specifying newly discovered evidence he intends to present if it is a
request for investigation.
c.) The taxable periods covered.
d.) Assessment number.
Page22of47
Visitwww.taxpirin.comforFreeAccount

e.) Date of receipt of assessment notice or letter of demand.


f.) Itemized statement of the findings to which the taxpayer agrees as a
basis for computing the tax due, which amount should be paid
immediately upon the filing of the protest. For this purpose, the
protest shall not be deemed validly filed unless payment of the
agreed portion of the tax is paid first.
g.) The itemized schedule of the adjustments with which the taxpayer
does not agree.
h.) A statement of facts and/or law in support of the protest.
The taxpayer shall state the facts, applicable law, rules and regulations or
jurisprudence on which his protest is based, otherwise, his protest shall be
considered void and without force and effect on the event the letter of
protest submitted by the taxpayer is accepted, the taxpayer shall submit the
required documents in support of his protest within sixty (60) days from
date of filing of his letter of protest, otherwise, the assessment shall
become final, executory and demandable.
It is filed within thirty (30) days from the Taxpayers receipt of the Notice
of Assessment and formal Letter of Demand.
In the event the Commissioners duly authorized representative denies a
Taxpayers protest, what alternative course of action is open to the
Taxpayer? If a protest filed by a Taxpayer be denied by the
Commissioners duly authorized representative, the Taxpayer may request
the Commissioner for a reconsideration of such denial and that his tax case
be referred to the Bureaus Appellate Division. The Appellate Division
serves as a "Court", where both parties, i.e. the Revenue Officer on one
hand, and the Taxpayer on the other, can present testimony and evidence
before a Hearing Officer, to support their respective claims.
What recourse is open to a Taxpayer if his request for reconsideration
is denied or his protest is not acted upon?
Should the Taxpayers request for reconsideration be denied or his protest
is not acted upon within 180 days from submission of documents by the
Commissioner, the Taxpayer has the right to appeal with the Court of Tax
Appeals (CTA).
Any appeal must be done within thirty (30) days from the date of the
Taxpayers receipt of the Commissioners decision denying the request for
reconsideration or from the lapse of the 180 day period counted from the
submission of the documents. (Sec. 228 of the Tax Code, as amended).
If the Taxpayer is not satisfied with the CTAs decision, can he appeal
the decision to a higher Court?
Yes, he can. Decisions of the Court of Tax Appeals may be appealed with
the Court of Appeals within fifteen (15) days from the Taxpayers receipt
of the CTAs decision. In the event that the Taxpayer is likewise
unsatisfied with the decision of the Court of Appeals, he may appeal this
decision with the Supreme Court.
What is the Recourse of the Taxpayer if the Protest is Denied by the
Commissioner?
If the protest is denied, in whole or in part, by
the Commissioner, the taxpayer may appeal to
the court of tax appeals within 30 days from
the date of receipt of the said decision,
otherwise, the assessment shall become final,
executory and demandable.
Provided, however, that if the taxpayer
elevates his protest to the Commissioner
within 30 days from date of receipt of the final
decision of the Commissioners duly
authorized representative, the latters decision
shall not be considered final, executory annd demandable, in which case,
the protest shall be decided by the Commissioner.
What is the Recourse of the Taxpayer if BIR Fails to Act on the
Taxpayers Protest?
If the Commisioner or his duly authorized representative fails to act on the
taxpayers protest within 180 days from the date of submission, by the
taxpayer, of the required documents in support of his protest, the taxpayer
may appeal to the Court of Tax Appeals within 30 days from the lapse of
the said 180-day period, otherwise, the assessment shall become final,
executory and demandable.

Page23of47
Visitwww.taxpirin.comforFreeAccount

Page24of47
Visitwww.taxpirin.comforFreeAccount

What are the Contents of BIRs Decision?


The decision of the Commissioner or his duly authorized representative
shall (a) state the facts, the applicable law, rules and regulations, or
jurisprudence on which such decision is based, otherwise the decision shall
be void, in which case, the same shall not be considered a decision on the
disputed assessment; and (b) that the same is his final decision.
What are the Modes of Service or Delivery of LA, Notices and
Assessments?

The notice (PAN/FLD/FAN/FDDA) to the taxpayer herein required may
be served by the Commissioner or his duly authorized representative
through the following modes:

(i) The notice shall be served through personal service by delivering
personally a copy thereof to the party at his registered or known address or
wherever he may be found. A known address shall mean a place other than
the registered address where business activities of the party are conducted
or his place of residence.

In case personal service is not practicable, the notice shall be served by
substituted service or by mail.
(ii) Substituted service can be resorted to when the party is not present at
the registered or known address under the following circumstances:

The notice may be left at the partys registered address, with his clerk or
with a person having charge thereof.

If the known address is a place where business activities of the party are
conducted, the notice may be left with his clerk or with a person having
charge thereof.

If the known address is the place of residence, substituted service can be
made by leaving the copy with a person of legal age residing therein.


hould the party be found at his registered or known address or any other
Disinterested witnesses refers to persons of legal age other than
ii) Service by mail is done by sending a copy of the notice by registered
copy of the notice may also be sent through reputable professional

If no person is found in the partys
registered or known address, the
revenue officers concerned shall
bring a barangay official and two (2)
disinterested witnesses to the address
so that they may personally observe
and attest to such absence. The notice
shall then be given to said barangay
official. Such facts shall be contained
in the bottom portion of the notice, as
well as the names, official position
and signatures of the witnesses.

S
place but refuse to receive the notice, the revenue officers concerned shall
bring a barangay official and two (2) disinterested witnesses in the
presence of the party so that they may personally observe and attest to
such act of refusal. The notice shall then be given to said barangay official.
Such facts shall be contained in the bottom portion of the notice, as well as
the names, official position and signatures of the witnesses.

employees of the Bureau of Internal Revenue.



(i
mail to the registered or known address of the party with instruction to the
Postmaster to return the mail to the sender after ten (10) days, if
undelivered.

A
courier service. If no registry or reputable professional courier service is
available in the locality of the addressee, service may be done by ordinary
mail.

Page25of47
Visitwww.taxpirin.comforFreeAccount

Page26of47
Visitwww.taxpirin.comforFreeAccount


The server shall accomplish the bottom portion of the notice. He shall also
make a written report under oath before a Notary Public or any person
authorized to administer oath under Section 14 of the NIRC, as amended,
setting forth the manner, place and date of service, the name of the
person/barangay official/professional courier service company who
received the same and such other relevant information. The registry receipt
issued by the post office or the official receipt issued by the professional
courier company containing sufficiently identifiable details of the
transaction shall constitute sufficient proof of mailing and shall be
attached to the case docket.

Service to the tax agent/practitioner, who is appointed by the taxpayer
under circumstances prescribed in the pertinent regulations on
accreditation of tax agents, shall be deemed service to the taxpayer.

What is a Constructive Service?
If the notice to the taxpayer herein required is served by registered mail,
and no response is received from the taxpayer within the prescribed period
from the date of the posting therof in the mail, the same shall be
considered actually or constructively received by the taxpayer.
If the same is personally served on the taxpayer or his duly authorized
representative who, however, refused to acknowledge receipt thereof, the
same shall be constructively served on the taxpayer.
Constructive service thereof shall be effected by leaving the same in the
premises of the taxpayer and this fact of constructive service is attested to,
witnessed and signed by at least 2 revenue officers other than the revenue
officer who constructively served the same. The revenue officer who
constructively served the same shall make a written report of this matter
which shall form part of the docket of this case.

What are the Interest, Civil and Criminal Penalties for Tax
Violations? (RR 12-99)
Taxpayer shall be subjected to the following:
1. Twenty percent (20%) interest. Assessment shall be subject to 20%
interest per annum computed from the last day prescribed by law for
the filing of the tax return
2. Twenty five percent (25%) surcharge. There shall be imposed, in
addition to the basic tax required to be paid, a penalty equivalent to
twenty-five percent (25%) thereof, in any of the following cases:
Failure to file any return and pay the tax due thereon as required
under the provisions of this Code or rules and regulations on the date
prescribed; or
Unless otherwise authorized by the Commissioner, filing a return
with an internal revenue officer other thn those with whom the return
is required to be filed; or
Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment; or

Failure to pay in full or part of the
amount of tax shown on any return
required to be filed under the
provisions of this Code or rules and
regulations, or the full amount of tax
due for which no return is required to
be filed, on or before the date
prescribed for its payment.

3. Fifty percent (50%) surcharge
In case of willful neglect to file the
return within the priod prescribed by the Code, or in the case a false or
fraudulent return is willfully made, the penalty to be imposed shall be
50% of the tax or deficiency tax.

Page27of47
Visitwww.taxpirin.comforFreeAccount

Page28of47
Visitwww.taxpirin.comforFreeAccount


4. Criminal Liability
Section 254 of the Tax Code provides that any person who willfully
attemps in any manner to evade or defeat any tax imposed under this
Code or the payment thereof shall, in addition to other penalties
provided by law, upon conviction thereof, be punished by a fine of not
less than Thirty thousand pesos (P30,000) but not more than One
hundred thousand pesos (P100,000) and suffer imprisonment of not
less than two (2) years but not more than four (4) years.
Can tax returns be amended after receipt of LA? (RR 12-99)
No. Section 6 (A) of the Code provides that any tax return filed by a
taxpayer maybe modified, changed or amended by the taxpayer within 3
years from the date of such filing provided, however, that no notice for
audit or investigation of such return, statement or declaration has in the
meantime, been actually served upon the taxpayer.
Within what time period must an assessment be made?
An assessment must be made within three (3) years from the last day
prescribed by law for the filing of the tax return for the tax that is being
subjected to assessment or from the day the return was filed if filed late.
However, in cases involving tax fraud, the Bureau has ten (10) years from
the date of discovery of such fraud within which to make the assessment.

What is the Effect if assessment is issued after the Prescription
Period?
Any assessments issued after the applicable period are deemed to have
prescribed, and can no longer be collected from the Taxpayer, unless the
Taxpayer has previously executed a Waiver of Statute of Limitations.

Page29of47
Visitwww.taxpirin.comforFreeAccount

What are the Waiver of Statute of Limitation (RMO 20-90)


The Waiver of the Statute of Limitations is a signed statement whereby the
Taxpayer conveys his agreement to extend the period within which the
Bureau may validly issue an assessment for deficiency taxes. If a Taxpayer
opts to execute a Waiver of the Statute of Limitations, he shall likewise be,
in effect, waiving his right to invoke the defense of prescription for
assessments issued after the reglementary period. (BIR web)
Pursuant to Section 223 of the Tax Code, internal revenue taxes may be
assessed or collected after the ordinary prescriptive period, if before its
expiration, both the Commissioner and the taxpayer have agreed in writing
to its assessment and/or collection after said period. The period so agreed
upon may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon. This written agreement
between the Commissioner and the taxpayer is the so-called Waiver of the
Statute of Limitations.
The execution of the waiver should comply with RMO No. 20-90,
otherwise it is null and void.
In the execution of said waiver, the following procedures should be
followed:
1. The waiver must be in the prescribed BIR form. 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.
2. 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.
3. 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 should be signed by the Regional Director or
Commisioner for cases handled by the National Office and for cases
involving more than 1 million pesos.
5. 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.
Can a Taxpayer be assessed without the audit?
Yes. It is called J eopardy Assessment which is a tax assessment made by
an authorized Revenue Officer without the benefit of complete or partial
audit, in light of the ROs belief that the assessment and collection of a
deficiency tax will be jeopardized by delay caused by the Taxpayers
failure to:
a) Comply with audit and investigation requirements to present his
books of accounts and/or pertinent records, or
b) Substantiate all or any of the deductions, exemptions or credits
claimed in his return. (BIR web)

Page30of47
Visitwww.taxpirin.comforFreeAccount

Page31of47
Visitwww.taxpirin.comforFreeAccount

What is required of a taxpayer who is being audited?


A Taxpayer who is being audited is obliged to:
a.) Duly acknowledge his receipt of the appropriate Letter of Authority
upon its presentation by the Revenue Officer authorized to conduct
the audit by affixing in the Letter of Authority the name of the
recipient and the date of receipt.
b.) Present within a reasonable period of time, his books of accounts
and other related accounting records that may be required by the
Revenue Officer; and
c.) Submit the necessary schedules as may be requested by the Revenue
Officer within a reasonable amount of time from his (Taxpayers)
receipt of the Letter of Authority.
What is the recourse of a Taxpayer who cannot submit the documents
being required of him within the prescribed period of time?
If a Taxpayer, believing that he cannot present his books of accounts
and/or other accounting records, intends to request for more time to
present these documents in order to avoid the issuance of a J eopardy
Assessment, the Taxpayer may execute what is referred to as a Waiver of
the Statute of Limitations. (BIR website- Taxpayer rights)
What means are available to the Bureau to compel a Taxpayer to
produce his books of accounts and other records?
A Taxpayer shall be requested in writing, to produce his books of accounts
and other pertinent accounting records, for inspection. If, after the
Taxpayers receipt of the Final written request, he still fails to comply with
the requirements of the notice, the Bureau shall then issue him a Subpoena
Duces Tecum.






Page32of47
Visitwww.taxpirin.comforFreeAccount

What course of action shall the Bureau take if the Taxpayer fails to
comply with the Subpoena Duces Tecum?
If, after the Taxpayer fails, refuses, or neglects to comply with the
requirements of the Subpoena Duces Tecum, the Bureau may:
a.) File a criminal case against the Taxpayer for violation of Section 5
as it relates to Sections 14 and 266, of the NIRC, as amended;
and/or
b.) Initiate proceedings to cite the Taxpayer for contempt, under
Section 3(f), Rule 71 of the Revised Rules of Court.
What alternatives are open to Government for the collection of
delinquent accounts?
Once an assessment becomes final and demandable, the Government may
employ any, or all, of the following remedies for the collection of
delinquent accounts:
a. Distraint of personal property;
b. Levy of real property belonging to the Taxpayer;
c. Civil Action; and
d. Criminal Action.
What is Distraint of Personal Property?
Distraint of personal property involves the seizure by the Government of
personal property tangible or intangible to enforce the payment of
taxes, followed by the public sale of such property, if the Taxpayer fails to
pay the taxes voluntarily.
What is Levy of Real Property?
Levy of real property refers to the same act of seizure, but in this case of
real property, and interest in or rights to such property in order to enforce
the payment of taxes. As in the distraint of personal property, the real
property under levy shall be sold in a public sale, if the taxes involved are
not voluntarily paid following such levy.



In what time period must collection
be made?
Any internal revenue tax, which has
been assessed within the period
prescribed shall be collected within
three (3) years from date of assessment.
However, tax fraud cases may be
collected by distraint or levy or by a
court proceeding within five (5) years
from assessment of the tax or from the
last waiver.
What is the safekeeping Period for Books of Accounts and other
Accounting Records?
RR 17-2013 requires all taxpayers to preserve their books of accounts,
including subsidiary books and other accounting records for a period of ten
(10) years reckoned from the day following the deadline in filing a return
or if filed after the deadline, from the date of filing of the return, for the
taxable year when the last entry was made in the books of accounts.
If the taxpayer has any pending protest or claim for tax credit/refund of
taxes, and the books and records concerned are material to the case, the
taxpayer is required to preserve his/its books of accounts and other
accounting records until the case is finally resolved.
BIRs Common Audit Procedures
BIR has standard audit procedures for each account. Discussed below are
common audit procedures/techniques of BIR:
1. Check registrations
BIR usually requests the Companys registration documents with
Securities and Exchange Commission (SEC) to determine the
Companys nature of business. Registration papers with the BIR would
show the Companys business activity and tax type; VAT or Non-VAT
registration; branches, if any; and, type of tax returns required to be
filed with the Bureau.
Taxpayer should be able to provide updated and correct registration
papers otherwise penalties will be imposed.

Page33of47
Visitwww.taxpirin.comforFreeAccount

Page34of47
Visitwww.taxpirin.comforFreeAccount

2. Summarize, Compare and Derive Variances (within Taxpayers Data).


This is the main procedure of the BIR and most tax assessments result
from this.

BIR would requests the taxpayer to submit the following:
Audited financial statements (FS) duly filed with the BIR
Audited Income Tax returns (ITR) duly filed with the BIR
All tax returns (monthly, quarterly, annual) filed with the BIR
Schedule or details of accounts
Trial balance
General ledger
Subsidiary ledger, in some cases

The BIR officer will do these procedures:
Compare the audited ITR figures with audited FS
Summarize the monthly and quarterly tax returns and compare
with annual returns/alphalists
Compare annual Alphalists with ITR & FS
Compare ITR & FS figures with details or schedules of
accounts, trial balance, general and subsidiary ledgers

For instance monthly 1601C will be summarized then compared
with the figures in BIR Form 1604CF (alphalist). The ITR and FS
figures will be compared with BIR Form 1604CF and schedules.

The same procedures will be followed for Expanded Withholding
Taxes, Final Taxes, VAT and other taxes.
Take note: Tax exposures will be computed for whatever variances
uncovered in the above matching and tie-up procedures. Therefore,
taxpayer should ensure that all figures in the above returns and reports tie-
up. Any variance should be reconciled.
3. Benchmarking and matching against third-party declarations (with
Third Party Data/Information).

Obtain data and information from private parties other than the
Taxpayer himself (Sec.5, NIRC). The taxpayers data or information
will be matched against industry benchmarks. Also, the taxpayers
return declaration will also be matched against another taxpayers
whom they dealt business either as supplier or customer.

Page35of47
Both supplier and customer should match or tie-up. Any significant
discrepancies or variances are basis for the issuance of the letter
notice and subsequent audit.

4. Analytical review (within Taxpayers
Data)

The BIR Officer will do horizontal
and vertical analysis.
Horizontal Analysis looks at
amounts on the financial statements
over the past year(s). BIR will check
the increase or decrease of each
account between this year versus last
year. Any account with material
movement will be scrutinized
further.
Vertical analysis reports each amount on a financial statement as a
percentage of another item.
For example, the vertical analysis of the balance sheet means every
amount on the balance sheet is restated to be a percentage of total
assets. This allows BIR to compare the company's balance sheet to
another company's balance sheet or to the average for its industry.
Vertical analysis of an income statement results in every income
statement amount being presented as a percentage of sales. This allows
BIR to compare the company's income statement to another company's
or to the industry average.
Any account with material increase or decrease versus last year will be
scrutinized further.
The resulting percentages on horizontal and vertical analysis will be
compared with average of the Companys industry.
5. Inquiry/Interview
BIR will conduct interview regarding the nature of business, accounts
and transactions and anything about the financial statement and tax
returns.

Visitwww.taxpirin.comforFreeAccount

Page36of47
Visitwww.taxpirin.comforFreeAccount


6. BIR will also check the taxes on:
transactions with nonresident foreign corporation/s or citizens, if
any
salaries, wages and benefits of key officers
related party transactions
7. On a case to case basis BIR personnel may conduct these:
Check completeness of books, OR and invoices
Check compliance with the invoicing requirements. This is to
ensure that ORs and Invoices supporting revenues, costs and
expenses are registered with BIR and conform with the other
requirements.
Check if there are fraudulent transactions.
Conduct inventory and surveillance, and prescribe presumptive
gross sales and receipts (Sec. 6, NIRC).
Fieldwork. In some cases, BIR officers will visit the Company a
few times but do will not vouch or check the hard copy of
vouchers, ORs or invoices. However, Taxpayer should be ready
anytime these are required to be presented.

BIRs Common Audit Findings
Below are the most common audit findings:
1. Un-reconciled variances, errors and inconsistent balances between the
documents, books, schedules, tax returns and financial statements.
Significant tax assessments of most companies results from these
findings.
2. Un-reconciled variances, errors and inconsistent balances with third
parties such as customers and suppliers. Significant tax assessments of
most companies results from these findings.
3. Incorrect application of tax laws and rates



Page37of47
Visitwww.taxpirin.comforFreeAccount

4. Non-withholding and under withholding on:


Purchases of top 20,000 corporations.
Tax shields particularly allowances of owners and Company
officers
Transactions with Nonresident Foreign Corporations
5. Undeclared or under-declared revenue
6. Other income or miscellaneous income are not subjected to VAT
7. Bloated miscellaneous expenses and other accounts

8. Noncompliance with substantiation and invoicing requirements
9. Incomplete certificates for creditable withholding tax
10. No summary lists of sales and purchases (VAT relief)
11. Unremitted DST on contracts, loan docs and capital
12. Incomplete and missing tax returns and documents
13. Improper presentation in the tax returns
14. Unregistered books of accounts

Taxpayers Pre-audit Techniques and Preparations
1. Comply with all registration requirements. Ensure that your
Companys registration with BIR is updated. Official Receipts,
Invoices and Books of Accounts should also be properly registered.
2. Maintain good accounting records. Implement a computerized
accounting system and systematic safekeeping of documents and
records. Manual accounting or accounting using excel is time-
consuming and prone to errors. A report which takes hours for the
accountant to prepare is generated in the accounting system only in
minutes. Consider investing in an accounting software.
Un-reconciled variances, errors and inconsistent figures which are
the top-most findings of BIR results from messy accounting
records and files.


Page38of47
Visitwww.taxpirin.comforFreeAccount

3. Issue BIR-registered OR for all income


4. Support all expenditures with BIR-registered ORs and Invoices
5. Declare correct income
6. Claim only valid expenses
7. Pay correct taxes on time
8. Do tax planning and tax compliance procedures. In tax planning,
taxpayers avoid or minimize taxes. Tax avoidance is legal whereas
tax evasion is illegal.

Tax Planning and Tax Compliance Procedures
These are the major procedures on tax planning and tax compliance:
1. Know the major tax laws that apply to your Company, to each
account and transactions
2. Examine ALL accounts with Tax implications (VAT, withholding
taxes, income tax)
3. Re-compute or test compute balances. For instance, rent expense in
the books could be re-computed by multiplying the monthly rate
times the number of months. The resulting figure should tie-up to
the rent expense per books.

4. Summarize and Compare:
Summarize tax returns - income tax, VAT, EWT, FWT,
CWT, others (monthly, quarterly, annual)
Compare figures and ensure tie-up of figures found in:
- Documents
- General ledger/subsidiary ledger
- Trial balance
- Schedules and details
- Financial statements (Audited)
- Income Tax Return (Audited)
- VAT, Withholding Taxes, Income Tax (Monthly,
Quarterly, Annual)




For instance, if sales in the Financial Statements is P100 Million,
the figures found in the VAT and income tax returns, books and
documents should also be P100 Million. Discrepancies should be
justifiable otherwise a tax assessment will be imposed.

Consider the client adjusting J ournal Entries (CAJ Es), Proposed
Adjusting J ournal Entries (PAJ Es) of external auditor, and
reconciling items between Financial Statements and Income Tax
Returns

5. Evaluate the tax effects of discrepancies
6. Do vertical and horizontal analysis
7. Check tax effects of material movements from prior period
8. Check tax effects of nonmoving accounts
9. Give recommendation: whether to amend and correct tax returns or
leave as is, whichever is favorable or offers less tax exposure to the
company.













Page39of47
Visitwww.taxpirin.comforFreeAccount

SECRET NO. 2
BUILD GOOD RELATIOSHIPS

The audit of the BIR is also all about relationships. There are hundreds of
ways to build good relationships with tax officers. However, only two
main points will be given emphasis here as follows:
Communicate. If required, taxpayer should communicate with BIR
either verbally or in writing otherwise legal consequences (such as
issuance of subpoena duces tecum, garnishment of bank accounts)
may be imposed to him. Take note of the legal deadlines to submit
reply, request and protest.

Cooperate. BIR requires so many returns, reports, documents and
schedules during examination. Taxpayer should cooperate and
submit such requirements. However, every requirement for
submission to BIR should have gone thorough tax compliance
review and procedures.

Show respect in case the BIR officers will visit your office.
Consider treating them to lunch or dinner or serving coffee.











Page40of47
Visitwww.taxpirin.comforFreeAccount

Page41of47
SECRET NO. 3

AUTOMATE
The volume of work involved in reconciling all figures from
documents, books of accounts, financial statements, schedules and tax
returns is tremendous. This is time-consuming and prone to error if done
manually. Manual accounting and reconciliations even when using excel
program is not advised.

1. Automate your Accounting System. Pls refer to page 38,
paragraph 2. Maintain good accounting records. If you want to ask
for a demo, please visit www.taxpirin.com and fill-up the contact
us page.

2. Automate your review and pre-audit of tax returns. Most
taxpayers do not pre-audit their tax returns, thus BIR tax assessments
are inevitable. Shown below is the normal Taxpayers and BIRs
processes with suggested use of Taxpirin (online tax audit solution)
to ensure error-free tax returns:


Visitwww.taxpirin.comforFreeAccount

Page42of47
Visitwww.taxpirin.comforFreeAccount

Taxpayer Process:
1. Taxpayer process starts when he sells or buys goods or services.
2. As required by BIR regulations, the taxpayer issues BIR registered
invoices and official receipt for the collections.
3. These documents will be summarized in financial reports which are
usually done by bookkeepers or accountants.
4. From the summarized financial records, accountants and
bookkeepers will prepare the tax returns for submission and filing
with the BIR.
5. When the tax returns are ready, these will be filed with the BIR or
submitted to accredited banks for payment.

BIRs Audit Process
6. The BIR performs matching audit and other pre-audit electronic
procedures of taxpayers returns by matching all information within
and with other tax returns/reports and financial statements submitted.
When there are errors, variances or findings, a letter of authority
(LA/LN) is created and issued to the taxpayer. Based on the
experience of our resource tax consultants, 99% of taxpayers
audited by BIR have tax findings. So, the probability that you have
tax exposures is high.
7. If there are no errors, variances or findings, the probability for BIR
audit is very slim.
8. Upon completion of the examination, a pre-assessment notice is
issued to the taxpayer. Then after 15 days, a Final Assessment
Notice (FAN) or Final Demand follows. Subsequent procedures are
discussed already in the previous parts of this Ebook.

When does Taxpirin play a role in the process?
Errors, variances, inconsistencies and findings on the tax returns and
reports and financial statements will trigger the issuance of LA. Thus, the
taxpayer should ensure that all amounts and figures of related accounts in
various tax returns and reports and financial statements submitted to the
BIR are consistent, error-free and reconciled.

Therefore, Taxpirin should be used before the tax returns are filed with
the BIR as shown in the illustration above. Taxpirin will pre-empt or
uncover errors and inconsistencies supposedly detected by the BIR, had
the taxpayer not used Taxpirin. The new process with the use of Taxpirin
will substantially change as the error, inconsistencies or variances are
identified and corrected. Thus, no LA or LN is issued to the taxpayer.
The taxpayer is classified as low priority in the audit, thus, practically
preventing BIR audit. The revised process is shown below:
NewProcesswiththeUseofTaxpirin
Financial
Reports
TaxReturns
(Income,
VAT,EWT,
FBT,WHTC,
FT)
Taxpirin
Setup
Generate
Reconcile
(SGR)
Filing&
Payment
with
BIR
BIR
Matching
PreAudit
ARCHIVE
(NoLOA/
LN)
No/Low
Findings
PreAudit/
Matching




Page43of47
Visitwww.taxpirin.comforFreeAccount

It should be noted that Taxpirin uses similar approach to BIRs Pre-audit


Electronic Procedures, thus you can rectify your errors beforehand. It
should be noted that Taxpirin does not replace the work of the Accountant
or bookkeeper. Rather, it makes them more confident with their work as
Taxpirin enhances and confirms the reliablity of the tax returns for filing.

The use of Taxpirin is very simple and easy as S-G-R. Setup, Generate
and Reconcile. Shown below illustrates this simple and easy process:
Taxpirins Easy&SimpleSGRProcess
Setup Generate Reconcile
CompanyInfo
TaxTypes
ImportAccounts
Mapping
Importbalances
Encodetaxreturns
Generatevariances,
errors&possible
taxassessments
Questions
Adjustments
FinalReport
FinalTaxReturns

What is the process in using Taxpirin?
As an online tax solution, Taxpirin follows SGR (Setup, Generate,
Reconcile Process), a very easy 2 Step +Reconcile system. The process is
discussed in more detail below:
1. Setup. It starts with Setup, wherein all taxpayers information,
applicable tax types are accomplished. Then, the Company accounts
are imported and mapped to specific Standard Chart of Accounts
available in the system. This process is done only once. Succeeding
months process will start immediately with importing of balances
under GENERATE.
Page44of47
Visitwww.taxpirin.comforFreeAccount

Page45of47
Visitwww.taxpirin.comforFreeAccount

2. Generate. This starts with importing of the companys specific


months trial balance that you want to be pre-audited. This process
will take only a few minutes. Then you can now encode the details
of the tax returns balances that you prepared. After encoding the
tax returns balances, a report is generated to determine the errors,
inconsistencies, variances and possible tax assessments. Red font
numbers are findings or possible tax deficiencies and black font
numbers are over-declaration or payments.

3. Reconcile. When there are errors - variances or findings, a series of
questions will prompt and guide the user to make adjustments to
correct the errors or inconsistencies. After eliminating the errors and
inconsistencies, a final report maybe generated to ensure that all
variances are corrected. The user may generate from the system the
final tax returns for submission to the BIR.

These are the additional features and benefits of Taxpirin:
1. Prevents BIR Audit Headache. It identifies and corrects tax errors
or findings before filing your tax returns with the BIR (present and
future tax returns). Then you can reconcile and adjust to eliminate
the errors and inconsistencies.

2. Cures Tax Stress and Hassles. It identifies and computes for tax
errors, inconsistencies or findings for previously filed tax returns
(prior year tax returns). Then you can reconcile and adjust to
eliminate the errors. Thus, prepares you for the BIR audit, if it
happens.

3. Save at least P100,000 per year. No need to hire expensive tax
consultants. Taxpirin is a tax expert at your fingertips. Taxpirin will
guide you on the proper tax treatments of certain transactions based
on BIR updated guidelines and rulings.


Page46of47
Visitwww.taxpirin.comforFreeAccount

4. Avoid costly changes of accounting personnel. Taxpirin retains


records for 10 years so you will avoid the effects of accounting
personnel changes. Such personnel changes disrupts the tax
knowledge continuity which results to unexplained tax variances,
which further results to costly tax assessments.

5. Avoid penalties by filing on time. A tax calendar which reminds
you through email of tax deadlines.

6. Save more money by not hiring a tax consultant who your tax
compliance. The Tax Audit Checklist is available. The checklist
will guide you on your tax planning and compliance and how to
manage the BIR audit, if it happens.

7. Confidentiality of Information, Security and Availability.
a. The server uses high security encryption and hosted in the USA.
b. This system is privately managed and not related to any
government agencies, particularly BIR.
c. A subscriber may opt to withhold certain taxpayer information
(like taxpayers name, TIN, address, etc.).
d. Available anytime (24/7, 365 days in year), anywhere.

8. Tax Alerts and Updates. In cooperation with
www.philtaxwindow.com, subscribers will receive regular tax
updates and articles. Like us on Facebook (fanpage:
www.facebook.com/taxpirinofficial) and follow us on Twitter
(www.twitter.com/taxpirin) for more updates.

How much is the Price of Taxpirin?
You can create your free trial account for 30-days NOW. Subsequently,
Taxpirin is an amazing tax solution for an amazing and very very low
price of P999 pesos per month only. Upgrades apply, please visit its
website.



Create your 30-day Free trial NOW. Visit www.taxpirin.com NOW.


















References:
Other than the specific BIR revenue regulations, circulars, memoranda, orders and issuances, we also
referred to BIR website (taxpayers bill of rights and annual performance reports).

Page47of47
Visitwww.taxpirin.comforFreeAccount