SELF-ASSESSMENT/PAY AS YOU FILE SYSTEM

GENERAL RULE
Section 203 of the Tax Code, the government has three years from the
last day a taxpayer is required to file a return, or three years from date
the return is actually filed if the same is filed belatedly to assess
deficiency taxes.

EXCEPTION
In case there is FRAUD or FALSE RETURN, or FAILURE TO FILE A TAX
RETURN, the government has 10 years from discovery to assess
deficiency taxes.

TAX FRAUD – schemes or machinations employ by taxpayers to defeat

or evade collection of a tax.
Example:
 Under declaration of gross sales/receipt/ income by more than
30% is a prima facie evidence of fraud;
 Overstatement of allowable deduction and expenses by more
than 30% is a prima facie evidence of fraud;
 Maintaining a dummy;
 Keeping 2 or multiple sets of books of accounts;
 Keeping two or multiple sets of official receipt or sales invoice;
 Failure to issue official receipt or sales invoice;
 Failure to register;
FALSE RETURN – It is not reflective of what is true.

FAILURE TO FILE A RETURN

ASSESSMMENT OF DEFICIENCY TAX

1. Issuance of a LETTER OF AUTHORITY (LOA) – a letter informing a
taxpayer that he is under tax audit or investigation for a specific
taxable year. He is also being informed of the specific Revenue
Officer/s authorized to conduct the said audit or tax
investigation.

LETTER NOTICE – is letter informing the taxpayer that there are

discrepancy in the figures declared in his tax returns vis- a-vis
the data gathered by the BIR from third party information.

MISSION ORDER – a written document instructing an internal

revenue officer to conduct specific act/s in connection with
mandates of the BIR.

 Together with that LOA is the First Request for the

production of accounting records.

2. If the taxpayer submits the required accounting records, the

Revenue Officer will conduct a tax audit or investigation.

IF THERE IS NO DISCREPANCY IF THERE IS/ARE

DISCREPANCY/IES
 The Revenue Officer will The Revenue District Officer
recommend for the closure of will issue a NOTICE OF
the tax audit or investigation. DISCREPANCY/IES

3. If the taxpayer agrees with the findings on the Notice of

Discrepancy/ies and pay the corresponding deficiency taxes due
thereon, the Revenue Officer will recommend for the closure of
the tax audit or investigation.

4. If the taxpayer does not agree with the findings on the Notice of
Discrepancy/ies, the Revenue District Officer elevates the case to
the Regional Director.

5. The Regional Director reviews the findings of the Revenue

District Officer then issue Preliminary Assessment Notice (PAN).

6. After 15 days from the issuance of PAN, the Regional Director

issues Final Assessment Notice (FAN)

 FAN – is a notice informing a taxpayer of his/her tax/es

deficiency and a demand for payment of the said tax/es.

7. The taxpayer has 30 days to file a PROTEST on the said

assessment.

 The protest may be by way of RECONSIDERATION or

REINVESTIGATION.

a) PROTEST by way of RECONSIDERATION

  If the protest does not involve newly discovered
evidence or raises a pure legal issue only.
 Taxpayer must file his/her protest within 30 days
from receipt of the FAN otherwise the assessment
will become FINAL, EXECUTORY and
DEMANDABLE.

b) PROTEST by way of REINVESTIGATION.

 If the protest involves newly discovered evidence.
 Taxpayer must file his/her protest within 30 days
from receipt of the FAN otherwise the assessment
will become FINAL, EXECUTORY and
DEMANDABLE.

 Taxpayer must submit the newly discovered

evidence within 60 days from the filing of the said
protest otherwise the assessment will become
FINAL, EXECUTORY and DEMANDABLE

8. If the protest is DENIED by the Regional Director, the taxpayer

has two options:

a. Elevate the case to the Commissioner of Internal

Revenue within 30 days from receipt of the denial of the
protest; or
b. File a petition for review before the Court of Tax Appeals
within 30 days from receipt of the denial of the protest.
Note: When the Regional Director issues a Final Decision on a
Disputed Assessment, he may now proceed to collection through
summary remedies under RMO 42-2010.

 What if the protest was not acted by the Regional Director or the
Commissioner of Internal Revenue?

9. In case of inaction on the part of the RD or the CIR, the taxpayer

has two options:

a. To file a petition for review before the CTA within 30

days from the expiration of the 180 days of inaction by
the RD of CIR.
b. To await the decision of the RD or CIR.

10. Supposing the Protest was DENIED by the CIR and the
taxpayer elevated the case to CTA however CTA ruled in favor of
CIR, the taxpayer has the option to further elevate the case to
the CTA en banc.

11. If the CTA en banc rule in favor of the CIR, the taxpayer
could further elevate the matter to the Supreme Court. THE
DECISION OF THE SUPREME COURT WILLL BE FINAL

WHAT IF THE TAXPYER FAILED OR REFUSED TO SUBMIT HIS/HER

ACCOUNTING RECORDS?
The BIR may resort to assessment based on best evidence obtainable
“COHAN RULE” – The BIR disallows 50% of the allowable deduction
claimed.

When can the BIR resort to assessment based on best evidence

obtainable?
 If the report or accounting records are not forthcoming?
After service two notices the taxpayer
failed to submit the required accounting
records, the revenue officer will
recommend the issuance of a subpoena
duces tecum.
Two kinds of subpoena
1. Subpoena ad testificandum.
2. Subpoena duces tecum

 If the accounting records or report are false or

erroneous.

WHAT HAPPENS IF THE ASSESSMENT BECOMES FINAL, EXECUTORY

AND DEMANDABLE?
The BIR now could resort to SUMMARY REMEDIES involving distraint
of personal properties and levy of real properties of the taxpayer.

The BIR will sell personal and real properties of a delinquent taxpayer
through a public auction. In case there is no buyer, said properties will
be forfeited in favor of the Republic of the Philippines.
In case of forfeited real properties, taxpayer has a one year redemption
period.

In case the assessment has already become FINAL, EXECUTORY, and

DEMANDABLE, what are the option or remedy left to taxpayers?
The taxpayer may apply for a COMPROMISE.

What are the two kinds of compromise available to taxpayer?

1. Compromise based on DOUBTFUL VALIDITY.
Minimum of 40% of the basic deficiency tax.

2. Compromise based on FINANCIAL INCAPACITY

Minimum of 10% of the basic deficiency tax.