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Tax Remedies Under the NIRC I. Assessment of Internal Revenue Taxes a. Definition, Nature and effect: i. Tax Assessment a finding by the tax authority that that the taxpayer d. Excise tax due or excisable articles has not been paid; or e. 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. v. Formal Assessment Notice a notice given to the taxpayer by the BIR

has not paid the correct taxes, a written notice to a taxpayer to the effect that the amount stated is due as a tax and containing a demand for the payment thereof. ii. Tax Audit a systematic review of an individual s or an organization s

informing him of the amount of deficiency tax for which the taxpayer is being assessed based on the findings of the BIR upon failure of the taxpayer to respond to a PAN or after and examination has been conducted. Serially numbered, accountable form of the government. 1. If the taxpayer was not able to refute the findings in PAN or if he is in default, a FAN shall be issued by the Commissioner. 2. Taxpayers shall be informed in writing of the law and the facts on which the assessment is made otherwise, the assessment shall be void. vi. Deficiency/Delinquency 1. Delinquent when: a. Self-assessed tax per return filed by the taxpayer on the prescribed date was not paid at all or partially paid; b. Deficiency tax assessed by the BIR became final and executor. 2. Deficient when: a. Amount by which the tax imposed by law exceeds the amount shown as tax by the taxpayer upon his return; or b. If no amount is shown as the tax by the taxpayer upon his return or if no return is made by the taxpayer, then the amount which the tax as determined by the commissioner or

account. The process of examining, going over, or scrutinizing the books and records of the taxpayer. It can only be performed upon a letter of authority issued by the Commissioner or Regional Director. iii. Letter of authority/ audit notice an official document that empowers

a revenue officer to examine and scrutinize a tax payer s books of accounts and other accounting records, in order to determine the taxpayer s correct internal revenue tax liabilities. iv. Pre-assessment notice a communication issued by the Regional

Assessments Division, or any concerned BIR office informing a tax payer who has been audited of the findings of the Revenue Officer following a review of these findings. 1. When not required: (MDwaEtcEA) a. The finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return; or b. Discrepancy has been determined between with held and the amount actually remitted by withholding agent; or c. A taxpayer 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 taxable quarter or quarters of succeeding taxable year; or

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representative exceeds the amounts previously assessed. Delinquency Can be immediately collected administratively through the issuance of a warrant of distraint and levy and or judicial action The filing of a civil action for the collection in the ordinary court is a proper remedy Deficiency Same process but has to go through the process of filing the protest against the assessment and the denial of such protest by the BIR. Filing of a civil action at the ordinary court for the collection of a deficiency tax during the pendency of protest may be the subject of a motion to dismiss. In addition to a motion to dismiss, the taxpayer must file a petition for review with the CTA to toll the running of the prescriptive period. Subject to administrative penalties such as 25% surcharge, interest and compromise penalty. Generally not subject to the 25% surcharge although subject to interest and compromise penalty. d. c. Authority b. When there is a reason to believe that any such report is false, incomplete or erroneous. i. Best Evidence Obtainable any data,

record, papers, documents, or any evidence gathered by the IR officers from government offices/agencies, corporations, employees, clients,

patients, tenants, lessees, vendees and from all other sources with whom the taxpayer had previous

transactions or from whom he had received income. to conduct inventory taking

surveillance and prescribe gross sales and receipts for IR purposes. Authority to terminate taxable period in the following instances: i. Taxpayer is retiring from business subject to tax;

vii.

Jeopardy Assessment

tax assessment made by an authorized

ii.

Taxpayer is intending to leave the Philippines or to remove, conceal, or hide his property;

Revenue Officer without the benefit of complete or partial audit, in light of the RO s belief thath the assessment and collection of a deficiency tax will be jeopardized by delay cause by taxpayer s failure to: 1. Comply with audit and investigation requirements to present his books of accounts and or pertinent records; or 2. Substantiate all or any of the deductions, exemptions or credits claimed in his return. viii. Power of the Commissioner to Assess Deficiency Tax 1. 2. Examination of return and determination of tax due; Use of best evidence obtainable a. When a report or return required to be filed shall be forthcoming within the time fixed by law; iv. iii.

Taxpayer

is

performing

any

act

tending to obstruct the proceedings for the collection of taxes; Authority to inquire into bank deposit accounts in the following instances: 1. A decedent to determine his gross estate; 2. Any taxpayer who has filed an application his for tax of

compromise of liability by

reason

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financial incapability to pay his tax liability. e. f. g. Authority to prescribe real property values; Authority to accredit and register tax agents; Authority to prescribe additional procedural or documentary requirements. b. Period to assess deficiency tax i. Prescription 1. Ordinary 3 years a. After the last day prescribed by law for the filing of the return b. Where a return was filed beyond the period prescribed by law, counted form the day the return was filed; c. Where the return was filed before the last day prescribed by law for the filing thereof it shall be considered as filed on such last day 2. Extraordinary 10 years from the discovery of the nonfiling iv. v. vi. II. ii. iii. i. Post-reporting notice or notice for an informal conference after the tax audit. Pre-assessment notice, if required Issuance and receipt of Notice of Assessment 1. 2. Must be issued prior to lapse of prescriptive period The written notice must state the fact and the law upon which the assessment is based. Protesting and assessment/ Remedy before payment a. How to protest or dispute an assessment administratively i. ii. iii. When to file within 30 days from receipt of the FAN Where to file CIR Other requirements 1. 2. Submission of relevant documents Payment under protest not required under NIRC

Effect of protest/ assessment deemed disputed Suspension of the prescriptive period to collect Two ways of protesting administratively 1. Request for reconsideration a plea for reevaluation of an

of the return or fraudulent or false return. ii. Suspension of prescriptive period/ exceptions 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 and levy is duly served and no property is located. 5. c. When the taxpayer is out of the Philippines. viii. Protest 2. vii. 2.

assessment on the basis of existing records without need of additional evidence which may involve a question of fact or law or both. Request for reinvestigation a plea for the reinvestigation of the assessment on the basis of the newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also be a question of law or fact or both. Effect of failure to protest/ failure to submit relevant documents. 1. If the taxpayer fails to respond, the CIR or his duy authorized representative shall issue an assessment based on his findings. The assessment shall become final.

Requisites of a valid assessment

Differences and Similarities of protest cases NIRC LGC

Tariff and customs code

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Payment in protest Yes GR: no ER: if the taxpayer on no be raised in a protest with reference to the particular item or items constituting the subject matter Single of protest.

disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the efficiency attributable undisputed tax or to issues. taxes the No

adjustment

refers to the entire content of one

liquidation, including all duties, fees, surcharges or fines incident. Period protest for filing a Within 15 days from the receipt of the ruling or decision of the The assessment may be protested by filing a request for reconsideration or Within 60 days from receipt of the notice of

action shall be taken on the taxpayer s disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the

undisputed issues Subject of protest When decision Collector whereby a ruling of is or the made for The assessment that wiil be the subject of protest of the taxpayer is the FAN Notice assessment issued by the Where to file Period to decide cases of

Collector (classification and appraisal of the imported goods) Collector of Customs 30 days after

reinvestigation

within 30

assessment

days from receipt of the assessment CIR 180 days from receipt of written protest Local treasurer 60 days from

liability

local treasurer.

duties, fees, or other money charge is the may Where to appeal in case of denial of protest

termination of hearing

receipt of written protest

determined, adverse party

1.

Comm BoC

of

1. 2.

CTA division CTA en banc

Court Competent Jurisdiction

of

protest such ruling or decision.

2. 3.

CTA division CA en banc

In case the decision of The scope of protest shall be limited to the subject matter of a single adjustment or other independent but any the collector to is the

unfavorable

government, there is an automatic review by the Commissioner or Finance Sec.

transaction;

number of issues may

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b. CIR renders a decision on the disputed assessment i. Period to decide documents ii. CIR s actions equivalent to denial protest 1. 2. c. Filing of civil/ criminal case against taxpayer. Issuing a warrant of distraint and levy within 180 days from submission of relevant a. Define i. ii. iii. Taxpayer- any person subject to tax Withholding agent Tax Credit the government issues a tax credit certificate or a tax

credit memo covering the amount determined to be reimbursable can be applied after proper verification against any sum that may be due and collectible from the taxpayer. iv. may appeal to b. Tax Refund actual reimbursement of the tax.

Remedy of the Taxpayer i. If protest denied 1. In partially or in whole by the Commissioner

Administrative claim for refund i. Cases where refund not allowed 1. Compromise the payment of any internal revenue tax when: (10% of the basic assessed tax in case of financial incapacity, 40% other cases, if Exceeds Php 1M, compromise shall be subject to the approval of evaluation board a. Reasonable doubt as to the validity of the claim against the taxpayer exists; or b. The financial position of the taxpayer

CTA within 30 days from date of receipt of said decision otherwise final and executory. 2. If denied partially or in whole by duly authorized representative within 30 days from receipt of decision,

elevate protest to commissioner ( not final and executory) 3. Appeal to CTA the final decision of the CIR on the disputed assessment within 30 days from receipt of decision. ii. If CIR fails to act on the protest within 180 days 1. May appeal to CTA within 30 days after the lapse of 180 day period or wait for CIR s decision. iii. Effect of Failure to Appeal to the Assessment of CTA 1. 2. The decision or assessment becomes final and executor; The taxpayer is barred in an action for the collection of the tax by the government from re-opening the question already decided; 3. The assessment is considered correct which may be enforced by summary or judicial remedies; 4. In a proceeding for collection of tax by judicial action, the taxpayer s defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action; and 5. The assessment which has become final and executor cannot be superseded by a new assessment. III. Claims for refund and credit of taxes/ Remedy After Payment 2. ii. 2.

demonstrates a clear inability to pay the assessed tax. Abate or cancel a liability when: a. Tax or any portion thereof appears to be unjustly or excessively assessed; or b. The administration and collection costs involved do not justify the collection of the amount due. Refund without claim (payment under protest not a requirement) 1. Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition No credit or refund of taxes 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

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or penalty provided that a return filed showing overpayment shall be considered as a written claim for credit or refund. 3. Recovery of tax erroneously or illegally collected a. No suit or proceeding shall be maintained in any court for the recovery hereafter alleged to have been erroneously o illegally assessed or collected without authority but such suit or proceeding may be maintained whether or not such tax, penalty, or sum has been paid under protest or duress. b. In any case no suit shall be filed after the expiration of 2 years from the date of payment of the tax or penalty regardless of any supervening cause that may rise after payment. i. Provided: that the Cir may, even without a written claim therefor, refund or credit any tax where on the face of the return upon which payment was made, such payment appears clearly to thave been viii. vi. vii. v. 3. 2. 1. Within two years from date of payment to initiate judicial proceedings supervening causes a. 30-day period to appeal jurisdictional

The 2-year period to initiate judicial proceedings not jurisdictional but a positive requirement The two periods (30 days and 2 years) MUST concur Gibbs v. Com., 107 Phil. 232 1. When Gibbs contributed to the withholding tax system, he did not really deposit an amount to the Commissioner of Internal Revenue but actually performed and extinguished his tax obligation for the year concerned. He paid his tax liabilities for that year. A taxpayer whose income is withheld at the source will be considered to have paid his tax liability when the same falls due at the end of the year. It is from this date, or when the tax liability falls due, that the two-year prescriptive period starts to run with respect to payments effected through the withholding tax system. Com. V. Concepcion, 22 SCRA 1058 1. Concepcion already requested for refund of estate and inheritance taxes at the BIR. His request denied, he appealed to the CTA but was dismissed for having been filed beyond the reglementary period. After paying under protest, he sued again, this time for recovery. The Court said he can t do this because the remedy of contesting the validity of an assessment cannot be revived when there is already a final prior judgment dismissing the same on the ground of prescription.

erroneously paid. c. Remedy of taxpayer i. CIR no decision 1. Petition for refund must be filed with the CTA within 2 years from date of payment of tax ii. iii. CIR Renders a decision Appeal to the Court of Tax Appeals 1. If CIR denies the claim or request 30 days from receipt of decision 2. If CIR fails to act on the protest within 180 days / 30 days to be counted from lapse of the 180-day period. iv. Appeal by filing a petition for Review / Petition for Refund ix.

Com. V. Procter and Gamble, 204 SCRA 957 1. he BIR appealed a CTA decision granting to P & G Philippines. For the first time on appeal, however, it raised the issue of P & G Philippines not being the proper party to

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claim refund. It said that P & G USA instead should make the claim. The Court said BIR should not be allowed to do this because it had all the opportunity to ask about P & G s capacity or authorization from its parent company at the administrative level. It is unfair and too late to ask for it now especially because this suit was filed just before the expiration of the two-year prescriptive period. x. ACCRA Investment vs. CA 1. The Court elaborates on the (second) Gibbs ruling, saying that there are two alternative reckoning dates for a taxpayer whose income is withheld at source: a. b. the end of the tax year, and when the tax liability falls due. In this case, since ACCRA Investments only knew its tax liability on April 15, 1982, when it filed its return, this date would be the reckoning date for the prescriptive period and not December 31, 1981, when the taxes withheld at source were paid and remitted to the BIR. Before it filed its return, ACCRA was not sure of whether it made a profit or not.

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