SUMMARY DISCUSSION ON TAX REMEDIES NOTE: Issuance of Letter Notices (LN’s) being served by the BIR upon the
Letter Notices (LN’s) being served by the BIR upon the taxpayers
A. Tax Remedies, defined
1. On the part of the government, these are courses of action provided by or
allowed in the law to implement the tax laws or enforce tax collection;
2. On the part of the taxpayer, these are legal actions which a taxpayer can
avail of to seek relief from the undue burden or oppressive effect of tax
laws, or as a means to check possible excesses by revenue officers in the
performance of their duties.
B. Assessment Process
Stage 1 – Tax Audit or Investigation
The BIR conducts an audit by issuing Letter of Authority (LA)
Letter of Authority – is an official document that empowers a Revenue
Officer to examine and scrutinize a taxpayer’s books of accounts and other
accounting records, in order to determine the taxpayer’s correct internal
revenue tax liabilities.
In the absence of such an authority, the assessment or examination is a
nullity.
Persons authorized to issue LA
TAXPAYER PERSON AUTHORIZED
Under the jurisdiction of the National office Commissioner of Internal
Revenue (CIR)
Under the jurisdiction of the regional offices Regional Director
Tax cases need not be covered by an LA
1. Cases involving civil or criminal tax fraud which fall under the jurisdiction of
the National Investigation Division (NID) under the Enforcement and
Advocacy Services (EAS) of the BIR, and
2. Policy cases under audit by the special teams in the National Office.
Effect of the issuance of LA
A tax return, statement or declaration filed by a taxpayer may be modified, changed
or amended within three (3) years from the date of filing.
However, when an LA or investigation of such tax return, statement or declaration
has been actually served upon the taxpayer, amendment shall no longer be
allowed.
who were found to have under declared their sales or purchases through the Third
Party Information Program can be considered a notice of audit or investigation
which will prohibit the taxpayer from amending the return/s subject of such audit
or investigation.
Stage 2 – Issuance of Preliminary Assessment Notice (PAN)
A PAN is a communication issued by the Regional Assessment Division or by the
Commissioner or his duly authorized representative informing a taxpayer who has
been audited of the findings of the revenue officer.
The PAN shall be in writing and shall show in detail the facts and the law, rules and
regulations or jurisprudence on which the proposed assessment is based,
otherwise, the assessment is void.
Mandatory nature of service of PAN prior to Final Assessment Notice (FAN)
As a general rule, issuance of PAN prior to FAN is part of the “due process
requirement”, the absence of which renders nugatory any assessment made by the
tax authorities.
However, as an exception, PAN is not required in the following cases:
 When the finding for any deficiency tax is the result of mathematical error
in the computation of the tax as appearing on the face of the return; 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 a
carried over and automatically applied the same amount claim 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.
Remedy of the taxpayer
The taxpayer has 15 days to reply contesting the finding in the PAN.
Effect of failure to reply
The taxpayer is considered in default and the BIR will then issue a Final Assessment
Notice (FAN).
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Stage 3 – Issuance of Formal Letter of Demand/Final Assessment Notice (FAN) Await the final decision of the CIR or his duly authorized
When issued? representative and appeal such final decision to the CTA within
1. The taxpayer failed to respond to the PAN; or 30 days after the receipt of a copy of such decision (RR18-2013).
2. The reply to the PAN was found to be without merit.
Stage 5 – Denial of Appeal by CTA Division
Prescriptive period Remedies of the Taxpayer
Return filed in not fraudulent Three (3) years from: 1. File motion for reconsideration (MR) before the same CTA Division within
a. Actual filing of return; or 15 days from receipt of the decision.
b. Deadline for filing whichever 2. Then, if the MR is denied, file an appeal with the CTA en banc within 15
is LATER. days from receipt of the decision.
1. Return filed is Fraudulent; or Ten (10) years from discovery.
2. NO return was filed Stage 6 – Denial of Appeal by CTA En Banc
Remedy of the Taxpayer Remedies of the Taxpayer
1. File a protest to the CIR or his authorized representative within 30 days 1. File MR before the CTA en banc within 15 days from receipt of the
from date of receipt of the FAN. decision.
Type of protest: 2. Then, if the MR is denied, file an appeal with the Supreme Court (SC)
a. Request for Reconsideration Division within 15 days from receipt of the decision.
- Refer to a plea of re-evaluation of an assessment on the basis of Stage 7 –Denial of Appeal by SC Division
existing records without need of additional evidence. It may Remedies of the Taxpayer
involve both a question of fact or of law or both. 1. File MR before the same SC Division within 15 days from receipt of the
b. Request for Reinvestigation decision.
- Refer to a plea of re-evaluation of an assessment on the basis of 2. Then, if the MR is denied, file an appeal with the SC en banc within 15 days
newly discovered or additional evidence that a taxpayer intends from receipt of the decision.
to present in the reinvestigation. It may also involve a question of
fact or of law or both. Stage 8 – Denial of Appeal by SC En Banc
2. Submit all supporting documents within 60 days from filing of protest (in Remedy of the Taxpayer
case of request for reinvestigation under RR 18-2013). File MR before the SC en banc within 15 days from receipt of the decision.

Stage 4 – Denial of Protest Effect if MR is denied

Ways to Deny Protest The taxpayer has no more remedy. The assessment shall become final, executory
1. Direct denial of protest and demandable.
2. Indirect denial of protest – if the CIR or his duly authorized representative
fails to act on the taxpayer’s protest within 180 days from the date of NOTE: From the issuance of FAN, all the periods in availing the remedies are
submission, the protest may be considered denied. mandatory, in which failure to comply shall result in the assessment being final,
executory and demandable.
Remedy of the Taxpayer
Direct Denial File an appeal with the Court of Tax Appeals (CTA) Division within C. Collection
30 days from receipt of letter of denial. The BIR may avail of the remedy of collection when the assessment
Indirect File an appeal with the CTA Division within 30 days from the lapse becomes final, executory and demandable.
Denial of the 180 day period.
OR Prescriptive period
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With Prior Assessment
Return filed is not false or
fraudulent
Without Prior
Assessment
1. Return filed is fraudulent;
or
2. NO return was filed
Within 5 years from If at any time prior to the consummation of the sale, all proper charges (taxes,
interest and penalties) are paid to the officer conducting the sale, the goods or
issuance of FAN.
effects distrained shall be restored to the owner.
Three (3) years from:
a. Actual filing of return; or 2. Levy – the seizure by the government of real properties and interest in or
b. Deadline for filing rights to such properties in order to enforce the payment of taxes.
whichever is LATER.
Right of Redemption
For a period of one (1) year from the date of sale, the property may be
Ten (10) years from redeemed by the taxpayer. During this period, the taxpayer is not deprived of
discovery the possession and fruits from the property. If the taxpayer fails to redeem the
property, a final deed of sale is executed in favor of the buyer.

Methods of Collection Rights of the owner during the one (1) – year period of redemption
The BIR can collect delinquent internal revenue taxes through the following means: During the one (1) year period of redemption, the owner shall not be deprived
1. Distraint – the seizure by the government of personal property, tangible or of the possession of the said property and shall be entitled to the rents and
intangible to enforce the payment of taxes. other income thereof until the expiration of the time allowed for its
a. Actual distraint - personal property is physically seized by the BIR and redemption.
offered for sale at public auction. The property is sold to the highest
bidder and the proceeds of the sale are applied to the payment of the 3. Judicial proceedings
tax due. a. Filing of civil case for collection
Garnishment – is the distraint of bank accounts. b. File a criminal case (Tax Evasion)
b. Constructive distraint – the person in possession of personal property
is made to sign a receipt, undertaking that he will preserve the D. Compromise
property and will not dispose of the property without the express Grounds
authority of BIR. 1. A reasonable doubt as to the validity of the claim against the taxpayer
exists; or
Constructive distraint may be availed of in the following cases: 2. The financial position of the taxpayer demonstrates a clear inability to
a. The taxpayer is retiring from any business subject to tax. pay the assessed tax.
b. He intends to leave the Philippines. All criminal violations may be compromised except:
c. He removes his property therefrom. 1. Those already filed in court, or
d. He performs any act tending to obstruct the proceeding for collecting 2. Those involving fraud
the tax due or which may be due from him.
Minimum Amounts
Person authorized to commence distraint proceedings 1. For cases of financial incapacity, a minimum compromise rate equivalent
AMOUNT INVOLVE PERSON AUTHORIZED to ten percent (10%) of the basic assessed tax; and
More than P1,000,000 CIR 2. For other cases, a minimum compromise rate equivalent to forty percent
(40%) of the basic assessed tax.
P1,000,000 or less Revenue District Officer
Instances when approval of the evaluation board is required
Right of pre-emption
1. Where the basic tax involved exceeds one million pesos (P1,000,000); or
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 2. Where the settlement offered is less than the prescribed minimum rates.
Composition of the Evaluation Board
1. CIR
2. Four (4) Deputy Commissioners
E. Abatement or Cancellation of Tax Liability
Grounds
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.
F. Suspension of the running of statute of limitations
The prescriptive period for assessment and the beginning of distraint or
levy or a proceeding in court for collection of any tax deficiency may be
suspended under the following situations:
1. Taxpayer’s request for reinvestigation was granted
2. Taxpayer cannot be located in the address given in the return
3. No property of the taxpayer can be located; or
4. The taxpayer is out of the country
NOTE: The suspension shall be for the duration of the situation plus 60
days thereafter.
G. Civil Penalties
In addition to the basic tax assessed on the taxpayer, the following civil
penalties will also be collected:
1. Surcharge
2. Interest
Surcharge
A 25% surcharge shall be collected in any of the following cases:
1. Failure to file any return and pay the tax due on time.
2. Filing a return with an internal revenue officer other than those with whom
the return is required to be filed, unless authorized by the CIR.
3. Failure to pay the deficiency tax within the time prescribed for its payment
in the notice of assessment.
4. Failure to pay the full or part of the amount of tax shown on any return, or
the full amount of tax due for which no return is required to be filed.
A 50% surcharge shall be collected in any of the following cases:
1. Willful neglect to file the return on time.
2. There is willful neglect if the taxpayer files only after prior notice in writing
from the BIR.
There is simple neglect (25% surcharge) if the taxpayer voluntarily files the return
after the deadline without notice from the BIR.
Prima facie evidence of false or fraudulent return:
1. Substantial overstatement (more than 30%) of deductions.
2. Substantial under declaration (more than 30%) of taxable sales, receipts or
income.
Interest – increment on any unpaid amount of tax, assessed from the date
prescribed for payment until the amount is fully paid.
 Prior to TRAIN Law – twenty percent (20%) per annum.
 Upon effectivity of the TRAIN Law – twelve percent (12%) per annum.
Kinds of interest
1. Deficiency interest – interest imposed on any deficiency tax due, which
interest shall be assessed and collected from the date prescribed for its
payment until (whichever comes first):
a. Full payment thereof;
b. Upon issuance of a notice and demand by the Commissioner or his
authorized representative.
2. Delinquency interest – refers to interest imposed on the failure of the
taxpayer to pay the following:
a. The amount of tax due on any return required to be filed;
b. The amount of the tax due for which no return is required or
c. A deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the CIR or his authorized
representative until the amount is fully paid, which interest shall form
part of the tax.
Double imposition of Interest
 Upon the effectivity of the TRAIN Law, in no case shall the deficiency and
delinquency interest be imposed simultaneously.
Tax Deficiency vs. Tax Delinquency
Tax Deficiency Tax Delinquency
The amount still due and collectible Failure of the taxpayer to pay the tax
from a taxpayer upon audit or due on the date fixed by law or
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 investigation. indicated in the assessment notice
(FAN) or letter of demand.

H. Refund of Taxes
Requisites:
1. A tax erroneously or illegally collected by the BIR;
2. The taxpayer should file a written claim for refund or tax credit with the
CIR within two (2) years from the date of payment of the tax or penalty;
and
3. If the claim for refund is denied by the CIR, file a petition for refund with
the CTA:
a. Within 30 days from receipt of the denial; and
b. Within two (2) years from the date of payment of the tax or penalty

Rules on the commencement of the 2-year period:

a. First, when the tax sought to be refunded is illegally or erroneously
collected, it commences from the date the tax was paid.
b. Second, when the tax is paid only in installments or only in part, it
commences from the date the last or final installment of payment was
made, because for tax purposes, there is no payment until the whole or
entire tax liability is fully paid
c. Third, in case the taxpayer merely made a deposit, it is counted from the
conversion of the deposit to payment
d. And lastly, in the instance that tax has been withheld from source, it is
counted from the date the withholding tax falls due at the end of the
taxable year

-THE END-

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