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TOPIC 2 – TAX ADMINISTRATION

TAXATION ASPECTS:
1. Policy (Legislation) = Levying or imposition
2. Administration = Assessment and collection

TAXATION ASPECTS INVOLVED IN TAX ADMINISTRATION

– Assessment
– Collection

Which administrative department of the government is in charge of tax administration?

Department of Finance.

Which agency of the Department of Finance is primary tasked for the execution of the National
Internal revenue Code and other tax laws?
• Bureau of Internal Revenue, the principal agency in enforcing the National Internal Revenue Code.
– Head = Commissioner
– Assisted by = 4 deputy commissioners (note: currently there are 5 deputy commissioners)

What are the Powers and Duties of BIR?

– Assess and collect all national internal revenue taxes, fees and charges
– Enforce forfeitures, penalties and fines
– Execute judgments decided in its favor by the Court of Tax Appeals

What are the legal bases of Tax Administration being carried out by theBIR?
 Revenue Regulations (RRs) are issuances signed by the Secretary of Finance, upon
recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules and
regulations for the effective enforcement of the provisions of the National Internal Revenue Code
(NIRC) and related statutes.

 Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions;
prescribe guidelines; and outline processes, operations, activities, workflows, methods and
procedures necessary in the implementation of stated policies, goals, objectives, plans and programs
of the Bureau in all areas of operations, except auditing.

 Revenue Memorandum Circulars (RMCs) are issuances that publish pertinent and applicable
portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR and
other agencies/offices.

What are the Powers of the Internal Revenue Commissioner?

– Interpret Tax laws in order to render a decision
– Decide on tax cases
– Summon and obtain information
– Make assessment and prescribe additional tax requirements

What are the Authorities of the Commissioners?

– To abate or cancel tax liability ( excessively assessed, cost to collect does not justify the
amount due)
– To enter into tax compromise ( financial incapacity of taxpayer/ doubtful assessment)
– To refund taxes ( erroneously or illegally collected)

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Compromise versus Abatement

 compromise involves a reduction of taxpayer’s liability, while abatement cancels the tax liability o0f
the taxpayer.

What are the bases of abatement or cancellation of tax liability?

a. when the tax is unjustly or excessively assessed.
b. when the administration and collection costs involved do not warrant the collection of amount due.

Can The BIR Commissioner prescribe real property values?

• Yes, (Sec. 6E) he is authorized to divide the Philippines into different zones and determine the fair
value of real property in each zone,

When is the Commissioner required to explain any collection short fall or excess?
• When the collection short fall or excess is 15% or more than the target set in the annual national
budget.

COMPLIANCE REQUIREMENTS:
What are the registration requirements with the BIR?
– Registration (Sec 236):
• W/I 10 days from date of first employment ( form 1902)
• On or before the start of the business (form 1901, 1903)

– Renewal , on or before end of January

• P500/business establishment (form 605)

– Registration Update (form 1905), no charge:

• Transfer of place of business
• Closing of business

Are all taxpayers required to pay an annual registration fee of P500?

No, exempted from payment of P500 are:
• cooperatives
• individuals earning purely compensation income
• overseas workers (Sec. 236B)
• Businesses with P100,000 and below earnings/year

How many Taxpayers Identification number should be issued to each taxpayer?

one TIN/person
A person could be a natural person and could be a juridical person.

What are the BIR administrative requirements for doing business?

– Printing of Sales Invoice/Receipts
• Secure an authority to print (form 1906)
– Invoice for sale of goods/ Official Receipts for services and rent
• to be issued in duplicate, duplicate copy to be preserved for at least 3 years.
– Keeping of books of accounts ( journal/ledger)
• Recorded in native language, English or Spanish
• Preserve for at least 3 years
• Need to be audited by a CPA if quarterly gross receipts/earnings is (NIRC more than
P150,000), (TRAIN I more than P3,000,000/year).

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What is TAX MAPPING ?

Announced or un-announced visit by BIR examiner of your business place as part of Compliance
Verification Drive of the Bureau.

AVOID PENALTIES
 Display the following in your Business place:
1. 2303, Certificate of Registration
2. Form 605, Proof of Payment of Annual Business Registration
3. ASK FOR RECEIPT BIR plate
Failure to display, penalty =P1,000

VIOLATION PENALTY
 Non-registration of Business P20,000
 Non-Payment of Annual Registration fee on or before January 31 1,000
 Un-registered Invoice/Receipt P1,000 to P50,000
 Un-registered POS Machine P25,000/unit
 Failure to Attach Inspection sticker P1,000/unit
 Un-registered Books of Accounts P200 to P50,000
 Non-Filing of Tax Returns P1,000/failure, maximum of P25,000/year

Is the Customs Commissioner under the supervision of the BIR Commissioner?

• The Customs Commissioner and his subordinates are agents of the BIR Commissioner with respect
to the collection of national internal revenue taxes on imported goods.(Sec. 12)

Tax Assessment
 It is the determination of tax liability in accordance to the existing TAX laws.
 It is a finding by the taxing agency that the taxpayer has not paid his current taxes.
 It is a notice to the effect that the amount stated therein is due as tax and is a demand for payment
thereof.
 The Local Government Code defines assessment as the act or process of determining the value of a
property or portion thereof subject to tax, including the discovery, listing, classification, and
appraisal of properties.

Distinguish government assessment from assessment notice

• Assessment is the official action of ascertaining the amount of tax due from a taxpayer, done under
the existing law; while,
• assessment notice is a formal demand sent to the taxpayer requiring payment within a specified
time, the tax due, including interest and civil penalties.

Kinds of Assessment
 taxpayer’s self assessment
o the amount of tax is reflected in the tax return that is filed by him and the tax assessed is
paid at the time of filing.
o Tax returns:
 2550M,2550Q,, 2551M for business tax returns
 1700,1701, 1701Q,1702Q, 1702 For Income tax Returns
 1800, 1801 for transfer tax returns

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 government assessment
o this the assessment made by the government tax assessor whereby the presumed correct
amount of the tax is determined after an examination or investigation is conducted.
o Tax deficiency/liability is determined for the following reasons:
 The taxpayer did not file any tax return at all.
 The amount ascertained exceeds that which is shown as the tax of the taxpayer in his
return.

When could the government terminate taxable period?

 Jeopardy assessment, termination of tax period done by the Commissioner if he believes that the
collection of tax is in jeopardy due to delay or other causes.
o May be Issued by the Commissioner when it comes to his knowledge that a taxpayer is
 Retiring from business subject to tax.
 Intending to
 Leave the Philippines
 Remove has property there from
 Hide or conceal his property

Principles governing tax assessments

 government assessments are prima facie presumed correct and made in good faith.
 Assessment is discretionary on the Commissioner who cannot therefore be compelled to assess a
tax when he believes that there is no basis for such assessment.
 The authority vested in the Commissioner to assess tax may be delegated, but the power to make
final assessments cannot be delegate

Rule on estoppel
 The rule of estoppel may not be invoked against the government. It is settled rule of the law that in
the performance of its governmental functions, the State cannot be estopped by the neglect of its
agents and officers.

Means employed in the assessment of taxes

 Examination of returns filed and determination of tax due
 Net worth method
o An extension of the accounting principles: Assets minus liabilities = net worth.
o The increase or decrease in net worth is adjusted by adding back all non-deductible items and
subtracting there from the non-taxable receipts
o The legal basis for the use of the net worth method is the authority of the Commissioner to
adopt an accounting method that clearly reflects the income.

 Conduct inventory taking, surveillance and to prescribe presumptive gross sales and receipts

Requisite of Valid Assessment

 Assessment must be made within the prescriptive period
 Pre-assessment notice must be sent to the taxpayer
 The taxpayer must be informed in writing of the law and the facts upon which the assessment was
made.

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Pre-assessment notice
 Notice sent in writing to the taxpayer about the initial findings that taxes should be assessed against
him.
 REVENUE REGULATIONS NO. 18-2013 Preliminary Assessment Notice (PAN)-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 Preliminary Assessment Notice (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 fifteen (15) days from date of receipt of the PAN, he shall be
considered in default, in which case, a Formal Letter of Demand and Final Assessment Notice
(FLD/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of
the applicable penalties.

When is pre-assessment notice is not required

 When the deficiency is a result of mathematical error as appearing on the face of the return.
 When the deficiency is the difference between the tax withheld claim as tax credit against the
amount actually remitted by the withholding agent.
 When the excise tax due on excisable item has not been paid
 When article of purchased by an exempt person has been sold/transferred to non-exempt person.

Period of Limitation Of Assessment

 Shall be made within three (3) years after the last day prescribed by law for the filing of the return or
from the day the return was filed in case the return was filed beyond the period prescribed by law.
(whichever is longer)
 10 years after discovery of the falsity, fraud or omission in the following cases:
o False or fraudulent return with the intent to evade tax
o Failure to file return.
Fraudulent – intentional (more than 30%)
Error - unintentional ( 30% or less )

Collection
 Pay as you file
 within five (5) years following the assessment of tax
 a proceeding in court for collection, without assessment, may be instituted within ten (10) years after
the discovery of falsity, fraud or omission in the case of a false or fraudulent return with intent to
evade tax or failure to file return.

When is assessment deemed made within the prescriptive period?

 When the demand letter is released, mailed or sent to the taxpayer within the prescriptive period,
not the date when the notice or demand be received by the taxpayer.
 When the amended return is substantially different from the original return, the right of the BIR to
assess the tax is counted from the filing of the amended return.

Suspension of the running of the Statute Limitations

 When the request for reinvestigation is granted by the Commissioner.
 When the government avails of the distraint and levy procedures
 When judicial remedies is availed by filing of complaint in the proper court.
 When the taxpayer is out of the Philippines.

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Is assessment a prerequisite for judicial action?

 Not necessary in the case of failure to file a return or in the case of fraudulent return with the
intent to evade tax.

When is the 5 year collection period start to run?

 Tax which has been subject of assessment may be collected within 5 years from the date of such
assessment.
 the period of limitation to collect is counted from the time the demand or assessment notice has
been sent released or mailed to the taxpayer.
 Where no assessment was made and the return is not false or fraudulent, the prescriptive period for
collection is within 3 years after the return was due or filed, whichever is later.
 When the return is fraudulent with the intent to evade tax, or no tax return is filed, a proceeding in
court for the collection may be filed without assessment, any time within 10 years after discovery of
fraud or omission.

BIR AUDIT PROCEDURES AND DOCUMENTATION

What are the cases when a mandatory audit is required?

RMO 12-2007:
 Taxpayers with claims for Income Tax Refund or Tax Credit Certificate exceeding P100,000
 Taxpayers with claims for VAT refund or request for Tax Credit Certificate exceeding 100,000
 Estate tax returns with gross estate of P10,000,000
 Request for tax clearance due to closing of business, with gross assets or sales/receipts exceeding
P10,000,000
 Request for tax clearance on undergoing merger with gross assets of P10,000,000.

GENERAL AUDIT PROCEDURES AND DOCUMENTATION

1. When does the audit process begin?
The audit process commences with the service of a duly issued electronic Letter of Authority (eLA) to a
taxpayer who has been selected for audit.

2. What is an eLA?
An eLA is a Letter of Authority to examine the taxpayers’ books and records for a particular period. The
eLA is electronically generated and its issuance is through the electronic Letter of Authority Monitoring
System (eLAMS). There are also eLAs issued thru the electronic Tax Information System (eTIS).

3. Who issues the eLA?

 Regional Director
 Assistant Commissioner (ACIR), Large Taxpayers Service
 Deputy Commissioner- Legal Group
 In some instances, the Commissioner is specifically provided as the signatory to the eLAs such as the
Conglomerate Audit Program.

4. How many times can a taxpayer’s books of accounts and records be subjected to examination and inspection?
The said books and records shall be subject to examination and inspection by internal revenue
officers: Provided, That,
 for income tax purposes, such examination and inspection shall be made only once in a
taxable year, except in the following cases:
(a) When the Commissioner determines that fraud, irregularities, or mistakes were
committed;
(b) When the taxpayer requests reinvestigation;

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(c) When there is a need to verify the taxpayer’s compliance with withholding tax
laws and regulations;
(d) When the taxpayer’s capital gains tax liabilities must be verified; and
(e) When the Commissioner chooses to exercise his power under Section 5(B) of the
NIRC to obtain information from other persons, in which case, another or
separate examination and inspection may be made.

5. How is a particular taxpayer selected for audit?

 An audit program is prepared for the purpose of prescribing the policy guidelines for selecting tax
returns that will be subjected to investigation.
Based on the selection criteria, which may vary from year to year, the audit offices select tax
returns that match the selection criteria prescribed in the audit program.
 In the absence of an annual audit program, the Commissioner of Internal Revenue has the authority
to make an assessment pursuant to Section 6(A) of the NIRC, as amended.
 For cases under the Run After Tax Evaders (RATE) Program, preliminary investigation commences
upon receipt of a third-party information or motu propio upon orders of the Commissioners of
Internal Revenue.
 In general, all taxpayers are considered as possible candidates for audit.

6. What are some of the powers of the Commissioner relative to the audit process?
 Power to obtain information, and to summon, examine, and take testimony of persons (Sec. 5, NIRC); and
 Power to make assessments and prescribe additional requirements for tax administration and enforcement
(Sec. 6, NIRC).

7. What is a Notice for Informal Conference?

A Notice for Informal Conference is a written notice informing a taxpayer that the findings of the audit
conducted on his books of accounts and accounting records indicate that additional taxes or deficiency
assessments have to be paid. If, after the culmination of an audit a Revenue Officer recommends the
imposition of deficiency assessments, this recommendation is communicated by the Bureau to the
taxpayer concerned by sending a Notice for Informal Conference to the taxpayer in order to afford the
taxpayer an opportunity to present the side of the case. The Informal Conference shall in no case extend
beyond thirty (30) days from receipt of the Notice of Informal Conference (Section 228, NIRC and RR 7-
2018 dated January 22, 2018)

8. 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. (Section 203, NIRC).
However, in case of false or fraudulent return, or of failure to file a return, the Bureau has ten (10)
years from the date of discovery of such falsity, fraud, or omission within which to make the assessment.
(Section 222, NIRC).
The period to assess may be extended through the execution by the taxpayer of a written Waiver of the
Statute of Limitations before the expiration of the prescriptive period to assess. (Section 222, NIRC)

9. What is a Preliminary Assessment Notice (PAN)?

The PAN is a written communication issued by the Commissioner of Internal Revenue or his duly
authorized representative informing a taxpayer who has been audited of the findings of his deficiency
tax/es, showing in details the facts and the law, rules and regulations, and/or jurisprudence on which
the assessment is based. If the taxpayer disagrees with the findings stated in the PAN, he shall then have
fifteen (15) days from his receipt of the PAN to file a written reply contesting the proposed assessment.
(RR12-1999, as amended by RR 18-2013 dated November 28, 2013)

10. Under what instances is PAN no longer required?

A PAN shall not be required in any of the following cases, in which case, issuance of the Final
Assessment Notice for the payment of the taxpayer’s deficiency tax liability shall be sufficient:
(a) When the finding for any deficiency tax is the result of mathematical error in the

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computation of the tax appearing on the face of the tax return filed by the taxpayer; or
(b) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
(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; or

(d) When the excise tax due on excisable articles has not been paid; or

(e) 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 (Section 228, NIRC).

11. What is a Formal Letter of Demand/Final Assessment Notice (FLD/FAN)?

An FLD/FAN is a written demand to pay deficiency taxes (RR 18-2013 dated November 28, 2013 and
RMC 11-2014 dated February 18, 2014) issued to a taxpayer who fails to respond to a PAN within the
prescriptive period of time, or whose reply to the PAN was found to be without merit, whether in full or
in part. The FAN/FLD calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts,
the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the
FAN/FLD shall be void.

12. What is required of a taxpayer who is being audited?

A taxpayer who is being audited is required to:
 Duly acknowledge his receipt of the appropriate eLA upon its presentation by the RO authorized to
conduct the audit, and affix on the eLA his signature and indicate the date of receipt;
 Present within the required time, his books of accounts and other related accounting records.
The time frame to present the books of accounts should be within the due date indicated in the
communication issued by the BIR stating the checklist of documentary requirements; and
 Submit the necessary schedules as may be requested by the RO as per checklist of requirements within
the required time from his receipt of the eLA.

13. What is the recourse of a taxpayer who cannot submit the documents being required of him within the
prescribed period?
A taxpayer, believing that he cannot present his books of accounts and/or other accounting records,
who intends to request for more time to present these documents may execute what is referred to as a
Waiver of the Defense of Prescription under the Statute of Limitations of the NIRC.
This recourse does not apply when a Subpoena Duces Tecum has already been issued.

14. What is a Waiver of the Defense of Prescription under the Statute of Limitations of the NIRC?
The Waiver of the Defense of Prescription under the Statute of Limitations is a signed written statement,
executed before the expiration of the period to assess or to collect, whereby the taxpayer conveys his
agreement to extend within a specific future date the period within which the Bureau may validly issue
and assessment for and/or collect 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
assessment issued after the reglementary period. No waiver of Statute of Limitations shall be
considered valid unless it is accepted by a duly authorized Bureau official. (RMO 14-2016 dated April 4,
2016)

15. If a taxpayer does not agree with the assessment made following an audit, can he protest this assessment?
Yes, he can. A taxpayer has the right to contest an assessment and may do so by filing:
a) a response to the PAN within 15 days from receipt of the PAN;
b) a Protest to the FLD/FAN within 30 days from date of receipt of the FLD/FAN either through a
Request for Reconsideration or a Request for Reinvestigation.

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o Request for Reconsideration – refers to a plea for re-evaluation of an assessment on the basis of
existing records without need of additional evidence. It may involved a question of fact or of law
or both.
o Request for Reinvestigation – refers to a plea for re-evaluation of an assessment on the basis of
newly discovered or additional evidence that a taxpayer intends to present in the
reinvestigation. It may also involve a question of fact or of law or both. (RR 18-2013 dated
November 28, 2013)

16. What are the characteristics of a valid protest?

The taxpayer must file a protest within thirty (30) days from the date of receipt of the FLD/FAN and shall
state in his protest:
a) The nature of protest whether reconsideration or reinvestigation, specifying the desire for
submission of newly discovered or additional evidence he intends to present if it is a request for
reinvestigation,

b) date of the assessment notice, and

c) the applicable law, rules and regulations or jurisprudence on which his protest is based, otherwise,
his protest will be considered void and without force and effect.

For request 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 issued denying the protest.

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 (RR 18-2013 dated
November 28, 2013)

17. In the event that the protest is denied in whole or in part, or is not acted upon by the Commissioner’s duly
authorized representative, what alternative recourse of action is open to a Taxpayer?
If the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative,
the taxpayer may either:
a) appeal to the Court of Tax Appeals, through a Petition for Review, within thirty (30) days from
receipt of the said decision; or
b) 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 Commissioner’s duly authorized
representative shall be entertained by the Commissioner.

If the protest is not acted upon by the Commissioner’s duly authorized representative within one
hundred eighty (180) days counted from the date of filing of the protest in case a request for
reinvestigation, the taxpayer may either:
1) appeal to the CTA within thirty (30) days after the expiration of the one hundred eighty (180) day
period; or
2) await the final decision of the Commissioner’s duly authorized representative on the disputed
Assessment (Section 228, NIRC and RR 18-2013 dated November 28, 2013)

18. What recourse is open to a Taxpayer if his request for reconsideration (administrative appeal) is denied by
the Commissioner?
If the request for reconsideration is denied by the Commissioner, the taxpayer may appeal such Final
Decision to the CTA, within 30 days after receipt of a copy of such decision (RR 18-13 dated November 28/ 2013)

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19. If the Taxpayer is not satisfied with the CTA’s decision, can he appeal the decision to a higher court?
Yes, he can, Decision of a Division of the Court of Tax Appeals may be appealed with the Court of Tax
Appeals (en banc), within fifteen (15) days from the Taxpayer’s receipt of the questioned Decision or
Resolution. (Revised Rules of CTA)

In the event that the Taxpayer is likewise unsatisfied with the decision of the Court of Tax Appeals (en
banc), he may appeal this decision with the Supreme Court, within fifteen (15) days from receipt of the
Decision/Resolution. (Rules of Court)

20. Can a taxpayer claim a refund or tax credit for erroneously or illegally collected taxes?
Yes, he can. The taxpayer may file a written claim for refund, with the Commissioner of Internal
Revenue, with a categorical demand for the recovery of erroneously or illegally collected taxes, within
two (2) years from the date of payment of the tax or penalty sought to be refunded. Failure of the
taxpayer to file such claim within this prescribed period shall result in the forfeiture of his right to the
refund or tax credit. (Section 229, NIRC). Policies related to filing, processing and approval of tax
credit/refund are provided in RMC Nos. 89-2017 and RMC 17-2018.

21. If a taxpayer has filed a claim for refund and the Bureau has yet to render a decision on this claim, can the
taxpayer elevate his claim to the CTA?

The rules are as follows:

I] Claim for refund under Section 112 of the NIRC of 1997, as amended.

A. Two-Year prescriptive Period

1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter
when the
relevant sales were made. (San Roque)

B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways:
(1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-
Day period, or
(2) file the judicial claim within the thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.

2. The 30-day period always applies, whether there is a denial or inaction on the part of the
Commissioner.
3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San
Roque)

II] Claim for refund under Section 229 of the NIRC of 1997, as amended.
The claim for refund of excessively or erroneously collected taxes under Section 229 should be made
within two (2) years from the date the taxes are paid. Both the administrative and judicial claims should
be brought within the two (2)- year prescriptive period. Otherwise, they shall forever be barred.
Thus, the taxpayer may elevate his claims to the CTA if the two (2) year prescriptive period is about to
expire and the BIR has not yet rendered a decision on his claim. (CBK Power Company Ltd. Vs.
Commissioner of Internal Revenue,750 Phil. 748 [2015])

22. Within what period must collection be made?

Any internal revenue tax, which has been assessed within the period prescribed, shall be collected
within five (5) years from date of assessment (Section 203 and 222 of the NIRC). In cases without an
assessment involving false or fraudulent return or where no return was filed, a proceeding in court for
the collection thereof may be filed within ten (10) years after the discovery of the falsity, fraud, or
omission (Section 222a of the NIRC). Moreover, the period to collect may be extended, if, before the

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expiration of the prescribed period, a valid Waiver of the Statute of Limitations shall have been
executed. (Section 222 of the NIRC).

REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND COLLECTION OF DELINQUENT ACCOUNTS
23. 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, not more than two (2) times, to produce his books of accounts
and other pertinent accounting records, for inspection. If, after the Taxpayer’s receipt of the second
written request, he still fails to comply with the requirements of the notice, the Bureau shall then issue
him a Subpoena Duces Tecum.
24. 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:
 File a criminal case against the Taxpayer for violation of Section 266 (Failure to Obey Summons) as it
relates to Sections 5 & 14, of the NIRC, as amended; and/or
 When the person summoned fails to appear or produce the documents requested, the investigating
officers may proceed to assess based on the best evidence obtainable.
Once the Complaint-Affidavit has been filed for violation of Section 266, no prosecuting officer of the
Bureau shall cause the withdrawal or dismissal of the case, notwithstanding the subsequent submission
of documents indicated in the Subpoena Duces Tecum.

25. What alternatives are open to the Government for collection of delinquent accounts?
Once an assessment or any part thereof becomes final, executory and demandable, the Government may
employ any or all, of the following remedies for the collection of delinquent accounts:
a) Distraint of Personal Property belonging to the taxpayer;
b) Levy upon real property and on the interest in or rights to real property;
c) Civil Action;
d) Tax Lien (Sec. 219, NIRC);
e) Forfeiture (Sec. 224, NIRC); and
f) Criminal Action.
Either of these remedies or simultaneously may be pursued, at the discretion of the authorities charged
with the collection of such taxes, if the taxpayer fails to pay the delinquent taxes voluntarily.
The remedy by distraint of personal property and levy on real property may be repeated, if necessary,
until the full amount of the tax liability, including the increments incident to the delinquency is
collected.
No court shall have the authority to grant an injunction to restrain the collection of any internal revenue
tax, fee or charge imposed under the NIRC of 1997, as amended.

26. What is Distraint of Personal Property?

Distraint of personal property involves the seizure by the Government of any goods, chattels or effects,
and the personal property, including stocks and other securities, debts, credits, bank accounts, and
interest in and rights to personal property of the delinquent taxpayer in sufficient quantity to satisfy the
tax liability, including any increment thereto incident to delinquency. All seized personal properties
shall be sold at public auction after due notice to the owner/possessor of the property and the
publication or posting of such notice.
Garnishment is one way of distraining a personal property of a delinquent taxpayer. It is effected by
serving a warrant of garnishment upon a third party who is in possession and control of the following
properties among others, of the delinquent taxpayer:
a) Salaries of the taxpayer;
b) Deposits with the bank;
c) Stocks and bonds from any private or government offices that safe-keep stocks and bond certificates
e.g. Stock Brokers, Philippine Stock Exchange (PSE), the Bureau of Treasury (BTR) etc.;
d) Rental income of the taxpayer from the lessee/tenant; and
e) Trade and other receivables from customers and other debtors.

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27. What is “Levy on Real Property?

Levy on real property refers to the same act of seizure but, in this case, on real property and the interest
in and rights to such property in order to enforce the collection of the tax unpaid, including delinquency
penalties. As in the distraint of personal property, the property under levy shall be sold in a public sale.
Levy on real property is effected by filing a Notice of Levy with the Register of Deeds where the property
of the delinquent taxpayer is located.
28. What is the period within which to enforce the collection of delinquent accounts?
Any internal revenue tax which has been assessed and was already considered final and executory shall
be collected within five (5) years from the date of the assessment. However, there are cases which are
automatically considered as delinquent accounts even without the issuance of assessment notices (e.g.
payment of taxes through dishonored checks; non-payment of the second installment of income taxes;
non-payment of the tax due as indicated in the tax returns filed, etc.). Such cases should be collected
within five (5) years from the date the check was dishonored; due date for the payment of the 2 nd
installment; date due for the payment of the tax due for tax returns filed, etc., as the case may be.

29. What remedies are available to the taxpayer in the settlement of his tax liabilities?
a) Payment in full including delinquency penalties;
b) Payment in installment including delinquency penalties;
c) Payment through compromise settlement (Revenue Regulations No. 30-2002); and
d) Payment through abatement of penalties (Revenue Regulations No. 13-2001).

30. What are the cases which may be compromised?

a) Delinquent Accounts
b) Cases under Administrative Protest after issuance of the Final Assessment Notice and the cases are
still
pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayers Service (LTS)
and
Collection Service
c) Civil Tax cases being disputed before the courts
d) Collection Cases filed in Courts
e) Criminal Violations, other than those already filed in court or those involving criminal fraud

31. What are the cases which may not be compromised?

a) Withholding Tax Cases, unless applicant invokes provisions of Law that cast doubt on the Taxpayer’s
obligation to withhold
b) Delinquent Accounts with duly approved schedule of installment payment
c) Criminal Tax Fraud Cases confirmed as such by the CIR or his duly authorized representative
d) Criminal violations already filed in Court
e) Cases where final reports of reinvestigation or reconsideration have been submitted resulting to the
reduction of the original assessment and the Taxpayer is agreeable to such findings
f) Cases which become final and executory after final judgement of a court, where compromise is
requested on the ground of doubtful validity
g) Estate Tax cases where compromise is requested on the ground of financial incapacity (Section 2, RR
30-2002)

32. What are the basis for acceptance for compromise settlement?
● Doubtful validity of the assessment. - 40% of the basic tax is the minimum offered amount. The
offer to compromise a delinquent account or disputed assessment under these Regulations on the
ground of reasonable doubt as to the validity of the assessment may be accepted when it is shown
that:
a) The delinquent account or disputed assessment is one resulting from a jeopardy assessment;
or
b) The assessment seems to be arbitrary in nature, appearing to be based on presumptions and
there is reason to believe that it is lacking in legal and/or factual basis; or
c) The taxpayer failed to file an administrative protest on account of the alleged failure to receive
notice of assessment and there is reason to believe that the assessment is lacking in legal and/or
factual basis; or

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d) The taxpayer failed to file a request for reinvestigation/ reconsideration within 30 days from
receipt of final assessment notice and there is reason to believe that the assessment is lacking in
legal and/or factual basis; or
e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the
Commissioner, or his authorized representative, in some cases, within 30 days from receipt
thereof and there is reason to believe that the assessment is lacking in legal and/or factual basis;
or
f) The assessments were issued on or after January 1, 1998, where the demand notice allegedly
failed to comply with the formalities prescribed under Sec. 228 of the National Internal Revenue
Code of 1997; or
g) Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to
believe that the same can be disputed by sufficient and competent evidence; or
h) The assessment was issued within the prescriptive period for assessment as extended by the
taxpayer’s execution of Waiver of the Statute of Limitations the validity or authenticity of which
is being questioned or at issue and there is strong reason to believe and evidence to prove that it
is not authentic.

● Financial incapacity. - 10% of the basic tax is the minimum offered amount. The offer to compromise
based on financial incapacity may be accepted upon showing that:
a) The corporation ceased operation or is already dissolved; or
b) The taxpayer, as reflected in its latest Balance Sheet supposed to be filed with the Bureau of
Internal Revenue, is suffering from surplus or earnings deficit resulting to impairment in the
original capital by at least 50%; or
c) The taxpayer is suffering from a networth deficit (Total Liabilities Exceed Total Assests); or
d) The taxpayer is a compensation income earner with no other source of income; or
e) The taxpayer has been declared by any competent authority as bankrupt or insolvent.

33. What are the instances when the CIR may abate or cancel tax liabilities?
a) Tax or any portion thereof appears to be unjustly or excessively assessed.
b) Administrative and collection cost involved do not justify the amount to be collected.
c) Taxpayer is dead, leaving no distrainable/leviable property.
d) Collection of the delinquent account has been prescribed.

34. What are the Exceptions as to Period of Limitation of Assessment and Collection of Taxes?
a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax
may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment,
at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.
b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed upon.
c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in
paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5)
years following the assessment of the tax.
d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (5) -year period. The period so agreed
upon may be extended by subsequent written agreements made before the expiration of the period
previously agreed upon.
e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall be
construed to authorize the examination and investigation or inquiry into any tax return filed in
accordance with the provisions of any tax amnesty law or decree.

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