BACC 2 INCOME TAXATION
LOPEZ, CPA
TAX REMEDIES
TAX REMEDIES
-are procedures or actions available both to the government
to collect taxes and to the taxpayer to avoid abuses in the
payment of taxes.
Remedies on the part of the Government
1. Tax assessment
2. Compromise
3. Tax lien
4. Levy or Distraint, and etc.
Remedies on the part of the taxpayer
1. Disputing an assessment
2. Compromise
3. Tax refund
4. Amendment of returns and etc
ASSESSMENT
-by nature, internal revenue taxes are self-assessing. When
the taxpayer earns income, he has the responsibility to
compute, file and pay his tax to the BIR.
a. Determining of the correctness of tax due in
accordance with the prevailing tax laws;
b. Giving a written notice of the finding to the taxpayer
c. Issuing a demand for the payment of tax liability of
tax deficiency within a specified period;
Tax Assessment is a formal letter made by the BIR demanding
the taxpayer to settle his tax liability within the indicated
period. Assessment is not yet an action for the collection of
taxes.
Kinds of Tax Assessment
1. Self-Assessment – made by the taxpayer himself
reflecting the amount of tax due in the ITR.
2. Prospective Assessment – a pre-assessment notice which
informs the taxpayer about the findings by the tax
examiner regarding the taxpayer’s tax deficiency. The is
usually given 15 days from notice to explain his side.
3. Deficiency Assessment – an assessment made by a tax
assessor showing the correct amount of tax after tax
audit.
4. Jeopardy Assessment – an assessment without the
benefit of complete or partial tax audit intended to
prevent the delay of the assessment and collection of
taxes cause by the taxpayer’s failure to comply with tax
investigation requirements and substantiate his records
with proper documents.
5. Disputed Assessment – a tax assessment that is being
questioned by the taxpayer as to its validity or legality
and asks the same to be cancelled.
6. Final Assessment – an official assessment which was not
disputed or appealed by the taxpayer within the
prescribed period and has become final and executory.
7. Illegal or Void Assessment – made by a BIR officer
without authority or assessment made in violation of law
FRANKLIN D.
PRE-ASSESSMENT NOTICE
- A letter that requests explanation from the taxpayer
stating the reason why he should not be subject to
assessment notice.
1. Notice for Informal Conference (NIC) – to be sent by the
Revenue Officer to the taxpayer with noted tax
discrepancy. The taxpayer is given 15 days from date of
receipt of the notice for unofficial meeting.
2. Preliminary Assessment Notice (PAN) – the result of the
review conducted by the Assessment Division has
established sufficient basis to assess the taxpayer for any
deficiency tax. The taxpayer is given 15 days to contest
the amount being assessed.
When Pre-Assessment Notice not required
1. Tax deficiency is due to mathematical error
2. Tax discrepancy has been determined between the tax
withheld and the amount actually remitted by the
withholding agent.
Requisites of a Valid Assessment
1. The tax official and the taxpayer have no agreement
made during the pre-assessment stage.
2. It must be in writing
3. It must be state the facts, law, rules and regulations or
jurisprudence on which the assessment is made;
otherwise, the assessment notice shall be rendered
NULL and VOID.
When to Effect Tax Assessment.
1. Before a tax return is filed.
a. After prescription period expired
b. If the taxpayer intends to leave the country or close
business (Jeopardy Assessment)
2. After a fraudulent tax return is uncovered
Ways to Contest the Validity of an Assessment
1. Motion for Reconsideration – review of existing records
without the need of additional evidence.
2. Motion for Reinvestigation – review and have a second
look on the newly discovered or additional evidence.
3. Motion for Withdrawal – taxpayer request BIR or Court
to remove a tax plea bargain he entered because he was
pressured to accept the agreement which he believe not
his best interest.
4. Motion for Cancellation – taxpayer request BIR or Court
to stop the tax assessment due to prescription and
violation of due process of law.
 Kinds of Distraint
1. Constructive Distraint – the gov’t prohibits the
taxpayer from disposing his personal property to
enforce collection of taxes.
2. Actual Distraint – the gov’t takes possessions of the
taxpayer’s personal property and sells the same
through public auction to settle the latter’s unpaid
tax liabilities.

Levy of Real Property

- Is the seizure by the government of immovable property
in order to enforce the payment of taxes. As in distraint,
the property may be sold at a public sale if, after seizure,
the taxes are not voluntarily paid.

OTHER COLLECTION REMEDIES

1. Imposition of injunction
Injunction is a restraining order issued by the court
having jurisdiction over the filed intended to forbid the
continuance of the action of law for purposes of due
process. The imposition of injunction is only applicable
within the discretion of the Tax Court.
2. Tax Lien – a legal claim granted to the government to
secure the proper payment of the tax, surcharges,
interest and costs on all property subject to levy or
Assessment Period distraint. Seizure the proceeds of the property are
applied to satisfy the tax liability and any excess thereof
Prescriptive Periods of Tax Assessment will be return to the taxpayer. Forfeiture no part of the
Summary Application proceeds goes to the taxpayer because the property is
Income Tax Return Filed Assessment Period confiscated in favour of the government.
Violation: 3. Forfeiture – implies taking of property without
compensation as a result of an offense committed.
1) Simple Neglect
4. Compromise – is a contract whereby the parties, by
 ITR without fraud within 3 years from the
reciprocal concessions, avoid litigation or put an end to
filing of ITR
one already commenced. As a rule, all criminal violations
may be compromised except those (a) already filed in
2) Wilful neglect court, or (b) involving fraud.(Sec. 204(A) NIRC)
 ITR with fraud or within 10 years from the
omission discovery of fraud or When to effect Compromise – available only to
omission Commissioner
OR 1. A reasonable doubt as to the validity of the claim
No assessment needed against the taxpayer exists
2. The financial position of the taxpayer demonstrates
Court proceeding for tax clear inability to pay the assessed tax.
collection within 10 years Requisites of Tax compromise agreement
from the discovery of fraud 1. The tax payer must have liability
or omission 2. There must an offer by the taxpayer or Commissioner of
an amount to be paid by the taxpayer.
3. There must be an acceptance by both taxpayer and
Collection Remedies Available to Government Commissioner as the case may be, of the offer in
1. Administrative Remedies settlement of the original claim.
a. Distraint of Personal Property Cases which may be Compromised
- Seizure by the Gov’t of personal property (tangible 1. Delinquent accounts
or intangible) to enforce the payment of taxes, 2. Cases under administrative protest after issuance of FAN
followed by its public auction/sale if taxes accruing to the taxpayer which are still pending in the Regional
thereto are not voluntarily paid. This shall not be offices, RDO, Legal Services, Large Taxpayer Services,
availed if the amount of tax involved is not more Enforcement Services and other offices in the National
than P100.00. Offices.
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts
5. Criminal violations, other than those already filed in
court or those involving criminal frauds.
Minimum Compromise Percentage
Revenue Regulations No. 7-2001
A. 10% of basic tax assessed due to financial incapability for
a. Individual taxpayer
b. An individual without any income
c. Zero net worth, negative net worth taxpayer
d. Non operating companies for a period of 3 years or
more as of date of application for compromise
B. 20% of basic tax assessed due to financial incapability for
a. Dissolved Corporation
b. Non operating companies for a period of less than 3
years
c. Corporations declared insolvent or bankrupt
C. 40% basic tax assessed due to financial incapability for
surplus or earnings deficit resulting to impairment in the
original capital by at least 50%
D. 40% for doubtful validity of assessment
5. Filing of Bonds – is mostly applicable to customs duties
and excise taxes.
6. Requiring Proof of Filing Income tax Return
7. Informer’s Reward – 10% of the FMV or P1,000,000
whichever is lower per case (applicable for smuggled or
confiscated goods) less 10% Final Tax.
8. Making Arrest, Search and Seizure
9. Deportation in Case of Aliens
10. Inspection of Books
11. National Tax Register
12. Civil and Criminal actions
Civil actions – is one that is brought to enforce, redress
or protect private rights. In general, all types of legal
actions other than criminal proceedings are civil actions.
Criminal Actions – is a penal prosecution. It is an action,
suit or cause instituted to punish an infraction of the
criminal laws. In criminal cases the burden of proof is on
the BIR. Mere suspicious and mere doubts on the
intention of the taxpayer are not sufficient proof of
fraud. Fraud is never presumed; it must be proven.
ADDITIONS TO TAX
Surcharge is a civil penalty imposed by law in additions to the
main tax required to be paid due to delinquency or
misrepresentation of taxes.
Delinquency means failure on the part of the taxpayer to pay
the tax due on the date fixed by law or indicated in the
assessment notice or letter of demand.
Misrepresentation may result from fraudulent returns
reported to the BIR by the taxpayer.
SURCHARGES
A. Simple Neglect – 25%
1. Fails to file any return and pay the tax due thereon
2. Files income tax returns in a wrong Revenue
District Office
3. Fails to pay the deficiency tax within the time
prescribed for its payment in the notice of
assessment.
4. Fails to pay the full or part of the amount of tax
shown on any return required to be filed.
B. Willful Neglect – 50%
1. Willful (intentionally) neglects to file the return
with the period prescribed by the Tax Code or by
rules and regulations, TRIAN Law
2. Presents false or fraudulent return to the BIR.
FALSE or FRAUDULENT RETURN
1. Intentional substantial under declaration of income
2. Intentional substantial overstatement of deductions
3. Intentional under declaration of selling price and
overvaluation of cost of property sold
4. Recurrence of understatement of income or
overstatement of deductions for more than one taxable
year.
Failure to report sales, receipts or income in an amount
exceeding thirty percent (30%) per declared tax return, and a
claim of deductions in an amount exceeding thirty percent
(30%) of actual deductions is considered false or fraudulent
return. (Sec. 248, NIRC)
INTEREST
in general, rules and regulations require that from the date
prescribed for payment until the amount is fully paid, an
interest of twenty percent (20%) per annum or such higher
rate as determined by the BIR shall be imposed on the basic
tax unpaid after due date. (Sec. 249, NIRC)
REMEDIES AVAILABLE TO TAXPAYER
ADMINISTRATIVE REMEDIES
1. Tax Avoidance
2. Amendment of Tax Returns
a. Amendment is made within three (3) years from the
date of filing of such returns
b. No notice for audit or investigation of such return
has been served to the taxpayer.
3. Protesting an Assessment – the taxpayer is given 30 days
from the receipt of the notice of assessment. This is
made by filing a petition for reconsideration or
reinvestigation of the tax assessment against him.
4. Applying for No Audit Program (NAP) – for a taxpayer to
qualify for NAP, he must satisfy all of the following:
a. Income tax payment for the current taxable year
must exceed the income tax payment for the base
year at least 20%
 b. Ratio of income tax payment to gross sales/receipts
for the current taxable year must at least equal to
that of the base year. (Sec. 3, Rev. Reg. 9-2006)
5. Entering into a Compromise
6. Filing of Claim for Tax Credit
7. Filing of Claim for Refund
JUDUCIAL REMEDIES
1. Civil Action
a. Appeal to the Court of Tax Appeals (CTA) – if the
protest is denied in whole or in part, or is not acted
upon within 180 days from submission of
documents, the taxpayer adversely affected by the
decision or inaction may appeal to the CTA within 30
days from receipt of the said decision, or from the
lapse of the 180 day period; otherwise the decision
shall become final and executor and demandable.
The CTA is a regular court that specializes in tax
cases headed by a Senior Justice and assisted by 5
Associate Justices. To have a quorum, there should
be 4 Justices in en banc, and 2 Justices in Session of
Division. Tax cases pass in this Court must be
resolved within 30 days.
Sec 1 of R.A. 9282, the amendment of certain
sections of R.A. 1125, provides that the Court of Tax
Appeals (CTA), which shall be of the same level of
the Court of Appeals (CA), shall possess all the
inherent powers of a Court of Justice.
The BIR or the Government cannot make an appeal
to the CTA. (Acting Collector of customs vs. Court of
Appeals, Oct. 31, 1957)
b. Secure Injunction Order from CTA
c. Appeal from CTA to the Supreme Court (SC) – this
should be filed within 15 days from the receipt of
the decision of the CTA. (SC Circular No. 1-91, Feb 27,
1991)
2. Criminal Action
The tax payer could file a complaint against erring BIR
officials and employees who commit any of the
delinquencies specified in the Tax Code, like extorting,
conspiring to violate the provision of the Code, etc. (Sec.
269, NIRC)
3. Other Judicial Remedies
a. Action for Damages against Revenue Officers
b. Action to Contest Forfeiture of Chattel