REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Revenue Region No. 4
City of San Fernando, Pampanga

February 24, 2022

FORMAL LETTER OF DEMAND

PART I

DIZON LANDS REALTY AND DEVELOPMENT CORPORATION

Angeles – Magalang Rd
Pandan, Angeles City

Gentlemen:

Please be informed that after investigation pursuant to Letter of Authority No. 21A-2020-
00000268/eLA201600050903 dated July 13, 2020, there have been found due from deficiency Income
Tax, Value Added Tax, Expanded Withholding Tax, Improperly Accumulated Earnings Tax,
Withholding Tax Compensation and Administrative Penalties for the taxable year 2019, as shown
hereunder:

Assessment No.: 21A-E-2006303467

Assessment No. 21AE1904255759

Deficiency Income Tax

Taxable Net Income Per Return P 40,248,146.00
Add: Disallowed - Best Evidence Obtainable Rule P 6,705,454.00
Disallowed Representation & Entertainment 340,041.98
Disallowed Expenses due to Non-Withholding 2,537,091.00 9,582,586.98
Taxable Net Income Per Audit P 49,830,732.98
Multiply by Regular Income Tax Rate 30%
Income Tax Due P 14,949,219.89
Less: Tax Payments & Credits for the year
Creditable Income Tax P 5,373,963.00
Quarterly Income Tax Payment 397,722.00
Annual Income Tax Payment 6,302,759.00
Less: Unsubstantiated Creditable Income Tax - 5,373,963.00 6,700,481.00

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Tax Due P 1,192,919.54
Less: Tax Remitted 187,535.75
Basic Expanded Withholding Tax Due P 1,005,383.79
Add: 12% Interest (from 01/11/2020 to 10/15/2021) 333,181.43
Total Deficiency Expanded Withholding Tax P 1,338,565.23

Deficiency Value Added Tax

Total Sales Per Return P 96,551,524.00
Less: Exempt Sales Per Return - 6,028,124.00
Add: Unaccounted Source of Cash 571,455.70
Vatable Sales Per Audit P 91,094,855.70
Output Tax P 10,931,382.68
Less: VAT Payments & Input Tax Credits
VAT Payments P 9,609,411.00

Basic Value Added Tax Deficiency P 1,321,971.68

Add: 12% Interest (from 01/26/2020 to 3/15/2022) 343,271.98
Total Deficiency Value Added Tax P 1,665,243.66

Deficiency Expanded Withholding Tax

Income Payments subject to EWT
Purchase of Goods P 9,551,939.50 @ 1% 95,519.40
Purchase of Services 1,784,533.00 @ 2% 35,690.66
Professional Fee & Commission 219,468.00 @ 10% 21,946.80
Undeclared Purchases - Opex 5,357.14 @ 1% 53.57
Total Tax Due P 153,210.43

Deficiency Improperly Accumulated Earnings Tax

Taxable Income P 40,248,146.00
Add: Income subjected to Final Tax 3,446.00
Total P 40,251,592.00
Less: Income Tax Paid (excludes Tax Credits without Form 2307) 6,700,481.00
Total P 33,551,111.00
Add: Retained Earnings, Prior Years 130,519,778.00
Accumulated Earnings as of December 31, 2019 P 164,070,889.00
Less: Amount that may be Retained
- 100,000.00
(100% of Paid-up Capital as of December 31, 2019)
Improperly Accumulated Taxable Income P 163,970,889.00
Multiply by IAET rate 10.00%
Basic Improperly Accumulated Earnings Tax Deficiency P 16,397,088.90
Add: 25% Surcharge P 4,099,272.23

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Less: EWT Paid 117,636.76
Basic Expanded Withholding Tax Deficiency P 35,573.67
Add: 12% Interest (from 01/11/2020 to 3/15/2022) 9,415.16
Total Deficiency Expanded Withholding Tax P 44,988.83

Deficiency Withholding Tax on Compensation

Total Deficiency Tax inclusive of Interest & Penalty ₱ 37,492,352.65

The complete details covering the aforementioned discrepancies established during the
investigation of this case are shown in the accompanying ANNEX A of this letter.

The complete details covering the aforementioned discrepancies established during the
investigation of this case are shown in the accompanying ANNEX A of this letter.

The 12% interest per annum was imposed following the provisions of Section 249(B) of the
National Internal Revenue Code of 1997, as amended by the Train Law and following the guidelines of
Section of RR 21 – 2018.

In view thereof, you are requested to pay your deficiency Income Tax, Value Added Tax,
Expanded Withholding Tax, Improperly Accumulated Earnings Tax and Withholding Tax Compensation
through the duly authorized agent bank in which you are enrolled within the time shown in the enclosed
final assessment notice.

We hope that you will give this matter your preferential attention.

Very truly yours,

CAESAR R. DULAY
COMMISSIONER OF INTERNAL REVENUE

By:

JOSEPH M. CATAPIA
Regional Director

R-4-1/DCV/JPC
DIZON LANDS REALTY AND DEVELOPMENT CORPORATION/FLD
TIN:229-820-650
MJBA _____
DCV _____
JCJ ______
VDD _____
JPC _____

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 ANNEX A

DIZON LANDS REALTY AND DEVELOPMENT CORPORATION

TIN: 229-820-650
Angeles – Magalang Rd
Pandan, Angeles City

Letter of Authority No.: 21A-2020-00000268

DETAILS OF DISCREPANCIES

1.) INCOME TAX

a. In the course of the audit, no invoices or receipts were submitted to support the expenses
claimed per return, except for Salaries & Allowances and Representation &
Entertainment. Hence, the audit was conducted pursuant to Section 2.4(c) of Revenue
Memorandum Circular No. 23-2000 and Section 6(B) of the National Internal Revenue
Code of 1997, as amended. Below are the details of disallowed purchases & expenses:

Add (Deduct) Adjustments per audit:

Deductions Disallowed
Particulars Disallowance
Per ITR Expenses
Commissions 130,380.00 50% 65,190.00
Communication, Light, & Water 647,498.00 50% 323,749.00
Fuel & Oil 1,706,944.00 50% 853,472.00
Miscellaneous 31,425.00 50% 15,712.50
Office Supplies- mat'ls. 72,032.50 50% 36,016.25
Office Supplies- service 8,571.50 50% 4,285.75
Professional Fees 89,088.00 50% 44,544.00
Security Services 2,483,402.00 50% 1,241,701.00
Taxes & Licenses 402,712.00 50% 201,356.00
Tolling Fees 59,694.00 50% 29,847.00
Transportation & Travel 37,623.00 50% 18,811.50
Subdivision Maintenance 6,879,461.00 50% 3,439,730.50
b. Audit disclosed that Representation & Entertainment exceeded the expense ceiling
pursuant to Revenue Regulations No.: 10-2002. Thus, the excess was disallowed for
income tax purposes as follows:

Use/Possession of unregistered Computerized Accounting System 50,000.00

Non-filing of Form 1702Q for the third quarter of 2019 1,000.00
Non-filing of Form 1601C- months of Jan., Jul-Dec.) 8,000.00

TOTAL ADMINISTRATIVE PENALTY 84,000.00

c. Audit revealed Salaries & Wages were not properly subjected to compensation
withholding tax pursuant to Section 24(A), 78 & 79 of the National Internal Revenue
Code of 1997, as amended. Thus pursuant to Section 34(K) of the National Internal
Revenue Code of 1997, as amended, expenses not subjected to withholding were
disallowed for income tax purposes as follows:

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 GRAND TOTAL 27,920,640.16

-
d. Tax Credits amounting to P 5,373,963.00 were disallowed for failure to substantiate
pursuant to Section 2.58.3 of Revenue Regulations No. 2-98.

The above findings resulted to deficiency income tax of P 10,002,970.69, pursuant to

Section 27(A) of the National Internal Revenue Code of 1997, as amended.

2.) VALUE-ADDED TAX

a. Audit revealed an under-declaration of commission expense & professional fees

amounting to P 539,008.50 & P 32,447.20, respectively which tantamount to
unaccounted source of cash, hence subjected to VAT.

b. In the course of the audit, no invoices or receipts were submitted to support the input
tax claimed per return. Hence, pursuant to Section 4.110-8(A) of Revenue Regulations
No. 16-2005 and Section 110(A) of the National Internal Revenue Code of 1997, as
amended, the total input tax claimed disallowed.

The above findings resulted to deficiency Value Added Tax of P 1,665,243.66 pursuant
to Section 106 of the National Revenue Code of 1997, as amended.

3.) EXPANDED WITHHOLDING TAX

a. Your Company is listed as Top Withholding Agents. Thus, pursuant to Revenue

Regulations No. 11-2018, all of your income payments should be subjected to expanded
withholding taxes. Below summarizes the detailed analysis and applicable expanded
withholding tax:

Taxable Net Income per ITR

Professional Fee &

Account Name Per ITR Purchase of Purchase of Commission @ 10%
Goods @ 1% Services @ 2%
Commissions 130,380.00 130,380.00
Communication, Light, & Water 647,498.00 647,498.00 ###
Fuel & Oil 1,706,944.00 1,706,944.00 ###
Miscellaneous 31,425.00 31,425.00 ###
Office Supplies- mat'ls. 72,032.50 72,032.50 ###
Office Supplies- service 8,571.50 8,571.50 ###
Professional Fees 89,088.00 89,088.00
Representation & Entertainment 573,522.00 573,522.00 ###
Salaries & Allowances 3,639,869.00 ###
Security Services 2,483,402.00 457,624.50 ###
SSS, Philhealth, HDMF Contribution 111,772.00 - -
Taxes & Licenses 402,712.00 - -
Tolling Fees 59,694.00 59,694.00 ###
Transportation & Travel 37,623.00 37,623.00 ###
Subdivision Maintenance 6,879,461.00 6,879,461.00 ###
Meals 862,077.00 862,077.00
The above findings resulted to deficiency Expanded Withholding Tax of P 44,988.83,
pursuant to Section 57(A) of the National Revenue Code of 1997, as amended.

4. IMPROPERLY ACCUMULATED EARNINGS INCOME TAX

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 a. An unappropriated retained earnings in excess of paid capital amounting to P
163,970,889.00 was subjected to improperly accumulated earnings tax pursuant to
Revenue Regulations No. 2-2001.

The above findings resulted to improperly accumulated earnings tax of P 24,755,111.89,

pursuant to Section 29 of the National Revenue Code of 1997, as amended and Revenue
Regulations No. 2-2001.

5. COMPENSATION WITHHOLDING TAX

a. Verification and comparison of records disclosed that salaries & wages of the subject
taxpayer’s employees were not properly subjected to withholding of tax on compensation
pursuant to Section 24(A) of of the National Internal Revenue Code of 1997, as amended.

The above findings resulted to deficiency compensation withholding tax amounting to P

1,024,037.58, pursuant to Section 78 and 79 of the National Revenue Code of 1997, as amended.

It is requested that your aforesaid deficiency income tax, value-added tax, expanded
withholding tax, and administrative penalties be paid immediately upon receipt hereof, inclusive
of penalties incident to delinquency, otherwise, a Formal Letter of Demand and Assessment
Notice shall be issued.

JOSEPH M. CATAPIA
Regional Director
R-4-1/DCV/JPC
DIZON LANDS REALTY AND DEVELOPMENT CORPORATION/FLD
TIN:229-820-650
MJBA _____
DCV _____
JCJ ______
VDD _____
JPC _____

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