TAXPAYERS REMEDIES

ASSESSMENT PROCESS

1. Letter of Authority 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 LOA?
CIR for those units reporting directly under him
Regional Directors for taxpayers covered by his particular region. If the CIR has already issued an LA to
investigate a particular taxpayer, the RD shall desist from issuing another LA for the same taxpayer.

Where no letter of Authority Needed:
cases involving civil/criminal tax fraud which fall under the jurisdiction of the tax fraud division of the
enforcement services, and
policy cases under audit by the special teams in national offices

Requirements for a valid LOA
1. Name of the BIR officer authorized
2. Taxable year should be indicated (1 LOA for each taxable year)
3. Type of taxes covered in the examination (normally all national revenue taxes)
4. Should be properly signed by the CIR

2. Issuance of Pre-Assessment Notice (PAN)

RR 18-2013 , Sec. 3.1.1 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 15 days from date of receipt of the PAN, responds that he/it disagrees with the findings of
deficiency tax or taxes, an FLD/FAN shall be issued within 15 days from filing/submission of the taxpayers
response, calling for payment of the taxpayers deficiency tax liability, inclusive of the applicable penalties.


When PAN no longer required or
When FAN may be issued without prior issuance of PAN (Sec. 228, NIRC/ Sec. 3.1.2, RR 18-2013)

a) finding for any deficiency tax is the result of mathematical errors
b) discrepancy has been determined between tax withheld and 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 liabilities for the taxable quarter or quarters of the succeeding taxable year
d) when the excise tax due has not been paid
e) when an article locally purchased or imported by an exempt person has been sold, traded, or transferred to
a non-exempt person

BURDEN OF PROOF- there is a presumption of correctness and good faith on the part of the CIR, thus, the
burden lies on the taxpayer. Otherwise, the finding of the CIR will be conclusive and he will assess the taxpayer.
The same is true even if the CIR is wrong, if the taxpayer does not convert it (Cagayan Robina Sugar Milling vs. CA)
Reasons: Lifeblood Theory, presumption of regularity in the performance of public functions.

NOTE: assessments by the BIR must have on its face the law and facts upon which the presumption is made.


3. Formal Assessment Stage

RR 18-2013, Sec. 3.1.3 The Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by
the Commissioner or his duly authorized representative. The FLD/FAN calling for payment of the taxpayers
deficiency 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.

4. Protest of Assessment (Sec. 228,NIRC)

a) File a request for reinvestigation or reconsideration within 30 days form receipt of assessment/FAN
request for reinvestigation a plea for re-evaluation of an assessment on the basis of newly
discovered additional evidence that a taxpayer intends to present in the reinvestigation; Involves a
question of fact or law or both; suspends the running of the prescriptive period as BIR needs time
to decide.
request for reconsideration a plea for re-evaluation of the assessment on the basis of existing
records without need of additional evidence. Involves question of fact or law or both (RR 12-85);
does not suspend the running of the prescriptive period.

b) Within 60 days from the filing of the protest, all relevant supporting documents should have been
submitted, otherwise, the assessment shall become final (cannot be appealed)

c) Appeal of protest to the CTA (judicial relief) Sec.228, NIRC last paragraph:
Grounds
o If protest is denied in whole or in part
or
o is not acted upon within 180 days from submission of documents (within which to act on the
protest)

Appellate Court: CTA (division first)

Period to appeal:
o within 30 days from the receipt of decision denying protest
or
o 30 days form the lapse of the 180 day period (of inaction)

Effect of failure to appeal: the decision shall become final, executory and demandable.

Lascona Doctrine: gives the taxpayer two options in case of inaction by the CIR 1) to appeal to the CTA within
30 days from the lapse of the 180 day period OR 2) to wait for CIR to issue the decision and then appeal, if adverse,
to the CTA within 30 days form the receipt of the decision by the taxpayer. (These two remedies are mutually
exclusive)

If taxpayer is not satisfied with the CTA Divisions ruling:

a) he may first file a motion for reconsideration before the same division of the CTA within 15 days
from notice thereof (sec.11, RA1125)

b) then, a party adversely affected by a resolution of a division of the CTA on a motion for recon may
file a petition for review with the CTA en banc (sec.18, RA 1125)

If the taxpayer is not satisfied with the decision of the CTA en banc, a party adversely affected may file with
the SC (within 15 days from the receipt of the CTA en banc decision) a verified petition for review on certiorari
pursuant to Rule 45 of the Rules of Court. (sec. 19, RA 1125)

Requisites of a valid assessment: (Sec. 228, NIRC)
1. in writing
2. must state the law and facts upon which the assessment is based

otherwise, the assessment shall be void

Assessment Prima facie correct
Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to
prove otherwise.



PRESCRIPTIVE PERIOD OF ASSESSMENT

a) General Rule: (Sec. 203, NIRC)
3 years after the last day prescribed by law for the filing of the return
or
3 years from the day the return was filed, in case a return is filed beyond the prescribed period by law
a return filed before April 15 shall be considered filed on that date

Prescriptive Period for the collection of taxes:
5 years from assessment or within period for collection agreed upon in writing before expiration of the 5
year period (Sec. 222c)
10 years after discovery in case of false or fraudulent return with intent to evade or failure to file return,
without need for an assessment (sec.222)


b) Exceptions: Tax may be assessed or a proceeding in court for the collection may be filed without assessment:
failure to file a return 10 years from date of discovery or omission to file the return (Sec. 222A, NIRC)
false or fraudulent return with intention to evade tax 10 years from the date of the discovery of falsity or
fraud (Sec. 222A, NIRC)

Fraudulent Return a product of a deliberate
intent or deceitful entry with intent to evade taxes
due; fraud must be alleged and proved as a fact

False Return constitutes a deviation from the
truth (whether intentional or not) due to mistake,
carelessness, or ignorance


Presumption of fraud in filing of return (Sec. 248B):

1. intentional and substantial understatement of the tax liability by the taxpayer (substantial underdeclaration
of sales, receipts or income in an amount exceeding 30% of that declared)

2. intentional and substantial overstatement of deductions (expenses or costs) exceeding 30% of the actual
deductions


When assessment deemed made/ Notice of assessment
It is not the date of issue of the demand or notice that is the reckoning point in prescription but rather it is
the date when the demand letter is released, mailed or sent to the taxpayer that constitutes assessment

SC held in a case that so long as the release thereof is effected before prescription sets in, the assessment is
deemed made on time even though the same is actually received by the taxpayer after the expiration of the
prescriptive period (Basilan Estate vs CIR, 21 SCRA 17) . The law does not require that the demand or notice be
received within the prescriptive period.

Waiver of the Statute of Limitations (Sec.222B, NIRC)
Allows the taxpayer and the government to extend by mutual agreement the prescriptive periods for the
assessment and collection of taxes. Such an agreement must be in writing.
The waiver must be signed by the parties before the lapse of the 3-year period. A waiver is ineffectual if it
is executed beyond the original prescriptive period
the extended period may be again extended provided the new period be agreed upon before the lapse of the
extended period

Procedure/Requisites of a valid waiver- RMO 20-90 (Phil. Journalists, Inc. vs. CIR):
1. Waiver must be in accordance with the prescribed form
2. Waiver must be signed by the taxpayer himself or his authorized representative
3. The Commissioner or his duly authorized agent must sign the waiver indicating the BIRs acceptance of the
waiver.

Note: sign the waiver before the lapse of the 3-yr-period by anyone authorized; indicate the specific date until when the extension
is supposed to be; a copy of the waiver should be given to the taxpayer; BIR should show that the taxpayer has received a copy


Grounds for Suspension of the Running of the Statute of Limitation (Sec. 223, NIRC)
1. when the CIR is prohibited from making the assessment or beginning the distraint or levy or a proceeding
in court, and for 60 days thereafter
2. when the taxpayer requests for a reinvestigation which is granted by the CIR
3. When the taxpayer cannot be located in the address given by him in the return, unless he informs the CIR
of any change in his address
4. when the warrant of distraint or levy is duly served and no property is located
5. when the taxpayer is out of the Philippines



COMPROMISE, ABATEMENT & REFUND OF TAXES

A) COMPROMISE involves a reduction of the taxpayers liability

Grounds for compromise (Sec. 204 A)
1. A reasonable doubt as to the validity of the claim against the taxpayer exists (doubtful validity of assessment)
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax (financial incapacity)

Limitations for compromise of tax liability
For cases of financial incapacity, a minimum compromise rate equivalent to 10% of the basic assessed tax; and for
other cases, a minimum compromise rate equivalent to 40% of the basic assessed tax.

Compromise subject to approval of Evaluation Board (composed of Commissioner and 4 Deputy Commissioners)
when basic tax involved exceeds P1,000,000 or
where the settlement offered is less that the prescribed minimum rates

In case of large taxpayers or excise taxpayers not less than 50%

Criminal violations not subject to compromise (Sec.204 B 2)
a) those already filed in court
b) those involving fraud

*Note: case in DOJ level may still be compromised (so long as info is not yet filed in court)

Cases not subject to compromise
1. Withholding tax cases
2. Criminal tax fraud cases
3. Criminal violations already filed in court
4. Delinquent accounts with duly approved schedule of instalment payments
5. cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original
assessment and the taxpayer is agreeable to such decision
6. cases which become final and executory after final judgment in court (sec. 2, RR 7-2001)

Delegation of the power to compromise
The Commissioner may delegate his power to compromise to the Deputy Commissioners and the Regional
Directors subject to such limitations and restrictions as may be imposed under rules and regulations to be promulgated for
the purpose


B) ABATEMENT (of tax) means the entire tax liability of the taxpayer is cancelled


Grounds for abatement (Sec. 204 B)
1. The tax or any portion thereof appears to be unjustly or excessively assessed; or
2. The administration and collection costs involved do not justify the collection of the amount due.


C) CLAIM FOR REFUND OR EXCESS TAXES
Remedy after payment in cases where tax was erroneously or illegally collected.
No case or proceeding shall be maintained in any court for the recovery of any tax, fee, or charge erroneously or
illegally collected until written claim for refund or credit has been filed with local treasurer. (Sec.196, LGC/ Sec.
229, NIRC)
No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner
a claim for credit or refund within 2 years after the payment of the tax or penalty; provided, however, that a return
filed showing an overpayment shall be considered as a written claim for credit or refund. (Sec. 204 C)

When are there erroneously paid, or illegally assessed or collected taxes?
Taxes are erroneously paid when a taxpayer pays under a mistake of fact, such as, he is not aware of an existing
exemption in his favour at the time the time that payment is made. Taxes are illegally collected when payments are made
under duress.

Tax Credit Certificate (TCC) [sec.204 C]
a) may be applied against any interval revenue tax, EXCEPT withholding taxes
b) original copy of the TCC showing a creditable balance is surrendered to the revenue officer for verification and
cancellation
c) no tax refund will be given resulting from availment of incentives granted pursuant to special laws for which no
actual payment was made

NOTES:


Taxable year 2009 of Mr. A

April 15, 2010 Filed a return
February 1, 2012 found out that some of sales were tax exempt; the return was erroneously paid
April 13, 2012 filed a claim for refund on excess income tax payment with BIR (administrative)

*BIR had no feedback

April 14, 2012 filed another claim for refund with the CTA (judicial)


The 2-yr prescriptive period shall apply to both the administrative (BIR) and judicial (CTA) level.
AICHI doctrine does not apply if tax sought to be refunded is illegally or erroneously collected.
Purpose: Sec. 204(C) and Sec. 229, NIRC
There is no specific period for BIR Commissioner to act on claim for refund


D) CLAIM FOR REFUND OF EXCESS INPUT VAT (Sec. 112, NIRC)

Does the 2-yr prescriptive period apply to the BIR (administrative) and CTA (judicial) level?
o No. Only to the administrative level
o Wait 120 days for decision/inaction of BIR before application can be had in CTA (within 30 days from
denial or inaction when appeal can be made)
Is the 120-day rule mandatory & jurisdictional? Yes.
AICHI Doctrine
1. Reckoning of prescriptive period (within 2 years after the close of the taxable quarter when the sales were
made)
2. Compliance of 120-30 rule (administrative)
3. Observance of 120-30 rule (mandatory and jurisdictional)