TAX REMEDIES

Chapter Overview and Objectives

This chapter provides an overview of:
1. tax remedies available to the government in enforcing assessments and
collections
2. tax remedies available to the taxpayer in contesting tax assessments or
recovering erroneously paid taxes

TAX REMEDIES: An Introduction

Philippine taxes are self-assessing. Taxpayers compute their taxes, file tax returns,
and then pay to the government. The self-assessment method has an inherent risk:
under-compliance or noncompliance.
The government is not totally at the mercy of taxpayers. The government can
resort to its legally mandated procedures to enforce the determination and
collection of the correct amount of tax from the taxpayers. These procedures are
referred to as “government remedies.”
On the other hand, taxpayers may be improperly assessed taxes by the government.
At times, the taxpayer may erroneously pay taxes. The law provides the taxpayer
procedures for disputing assessments and in recovering taxes erroneously paid.
These procedures are called “taxpayers’ remedies.”
TAX REMEDIES OF THE GOVERNMENT
PRIMARY REMEDIES OF THE GOVERNMENT
1. Assessment
2. Collection

Assessment is the act or process of determining the tax liability of a taxpayer in

accordance with tax laws. Assessment also pertains to the notice sent by the
government to the taxpayers informing them of their unpaid or still unpaid tax
obligations coupled with a demand to pay the same.

Collection pertains to the procedures of the government to enforce payment of

unpaid taxes from delinquent taxpayers.
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ASSESSMENT
An assessment calling for the payment of a deficiency tax or unpaid tax can only
be made after the government has established the correct or reasonably correct
amount of tax of the taxpayer.
Powers of the CIR Relative to the Determination of Correct Tax
Relative to the determination of the correct taxes of the taxpayer, the
Commissioner of Internal Revenue is empowered to:
a. obtain data and information from third parties
b. conduct inventory surveillance
c. examine and inspect the books of accounts of a taxpayer
d. prescribe presumptive gross sales and receipts
PRESCRIPTIVE PERIOD OF ASSESSMENT
The General Rule: 3 years
The law requires that assessment must be made within 3 years from the date of the
actual filing of the return or the deadline required by law, whichever is later.
Illustration 1: Early filing or filing on the deadline
Horacio filed his 2019 annual income tax return which was due on April 15, 2020
on March 1, 2020.
A return filed before the last day prescribed by law for filing thereof shall be
considered filed on such last day (Sec. 203, NIRC). The counting of the
prescriptive period shall be reckoned from April 15, 2020. The government must
serve the assessment to the taxpayer on or before April 15, 2023.
Illustration 2: Late filing
Assume instead that Horacio filed his 2019 annual income tax return on July 1,
2020.
Where the return is filed beyond the period prescribed by law, the 3-year period
shall be counted from the day the return is filed (Sec, 203, NIRC). Hence, the
counting of the prescriptive period shall be reckoned from July 1, 2020. The
assessment must be served on or before July 1, 2023.
DEADLINES OF VARIOUS TAXES
A. Income
Tax Returns
1. Annual
income tax
a. Individual - April 15 of the following year
b. Corporation - on the 15th day of the fourth month following the end of the
taxpayer's year-end
2. Capital gains tax return
1. Capital gains tax return on sale of domestic stocks
a. Transactional return - 30 days from the date of sale
b. Annual return - 15 day of the fourth month following the end of the
taxpayer's year-end
2. Capital gains tax return on sale of real properties - 30 days from the date
of sale
3. Withholding tax returns
1. Withholding of final tax and fringe benefits tax- 10 days following the
month of withholding (manual filing)
2. Withholding tax on compensation income and expanded withholding tax-
10 days from the end of each calendar month: for December,
January 15 of the succeeding year
B. Transfer Tax Returns
1. Donor's tax - within 30 days from the date of the donation
2. Estate tax - within 1 year from the date of the decedent's death
C. Business Tax Returns
1. Non-VAT Taxpayers - Quarterly Percentage tax (BIR Form 2551Q) - within
25 days from the end of the quarter
2. VAT Taxpayers Quarterly - Value Added Tax (BIR Form 2550Q) - within
25 days from the end of the quarter
D. Documentary stamp tax return-within 10 days from end of month
Except in the case of late filing, the prescriptive period for assessment shall be
counted from the aforementioned deadline of filing of the tax type being assessed.
In cases of late filing, the prescriptive period is counted from the date of filing.
Examples:
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1. Any unpaid tax for a donation made on July 1, 2019 must be assessed on or
before July 31, 2022.
2. Any unpaid VAT for the quarter ending August 31, 2020 must be assessed
on or before September 25, 2023.
Taxpayer's right to modify, change or amend return
Any return, statement of declaration filed within any office authorized to receive
the same shall not be withdrawn. Provided, that within 3 years from the date of
such filing, the same may be modified, changed, or amended.

Provided, further, that no notice for audit or investigation of such return, statement
or declaration has in the meantime been actually served upon the taxpayer (Sec. 6
(A), NIRC).
For purposes of applying prescription rules, the date of filing of the amended
return shall be considered the actual filing of the return.
EXCEPTIONS TO THE 3-YEAR PRESCTIPTION RULE
1. Fraudulent returns 2. Willful neglect to file 3. Waiver of the statutes of
limitation by the taxpayer
Fraudulent return
Fraud involves an intentional and deliberate act on the part of the taxpayer of
deceive the government to avoid a tax. The presence of fraud must be proven by
clear and convincing evidence. It cannot be justified by mere speculation. In the
NIRC however, income tax returns are considered prima facie fraudulent if the
gross income is understated by more than 30% or when the deductions claimed is
overstated by more than 30%.
Willful neglect to file
Unless with a reasonable cause, the failure to file is normally considered willful
neglect if the taxpayer incurred multiple instance non-filing. In practice, 3 years of
non-filing of tax return is normally considered willful neglect.
Note the following rules:
Deadline of assessment
With a tax return filed
- Return is non-fraudulent 3 years from date of filing or deadline
whichever is late
- Return is fraudulent 10 years from the discovery of fraud
Non-filing of tax return 10 years from the discovery of non-filing
Waiver of the statutes of limitation by the taxpayer
When the taxpayer requests for a reinvestigation of his assessment which is
granted by the CIR, the CIR and the taxpayer usually agree for the temporary
suspension of the prescriptive period for not less than 6 months (180 days) to give
way to the reinvestigation. So, even if the revised final assessment is rendered to
the taxpayer more than 3 years from the date of filing of the return so long as it is
within the agreed time extension in the waiver, the assessment remains valid.
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Illustration 1
In March 3, 2020, the BIR noticed an error in the 2015 tax return of Mr. Cute. Can
the BIR assess the deficiency?
No. The deadline of the return is April 15, 2016. The deficiency taxes must have
been assessment on or before April 15, 2019.
Illustration 2
Supposing the same data in illustration 1 except that the deficiency unpaid taxes
were caused by a deliberate effort on the part of the taxpayer to defraud the
government, can the BIR assess the deficiency?
Yes. If fraud can be proven beyond reasonable doubt by the BIR, the BIR has up to
March 3, 2030 to render the assessment.
Illustration 3
In April 7, 2020, the BIR noticed that the taxpayer failed to file his VAT return for
the last quarter of 2012. Can the BIR assess the unpaid tax?
Yes. Even if the non-filing is discovered after more than 7 years, this is an instance
of non-filing. Remember that taxes are imprescriptible in the case of fraud or non-
filing. The BIR has up to April 7, 2030 to assess the unpaid delinquent taxes.
Illustration 4
On June 1, 2018, the BIR assessed P1,000,000 deficiency estate tax on the estate of
a decedent who died June 1, 2015. On July 15, 2019, the estate administrator filed
for a request for reinvestigation and executed a Waiver of Statutes of Limitations
which was granted. The BIR rendered the taxpayer a revised final assessment for
P700,000 deficiency estate tax on October 12, 2019, Is the revised final assessment
valid?
Yes. The period to make final assessment is extended for at least 6 months by the
Waiver of the Statutes of Limitations.

STAGES OF ASSESSMENT
1. Selection of taxpayers to be audited 2. Audit of the taxpayers 3. Assessment
of taxpayers with unpaid or deficiency tax
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SELECTION OF TAXPAYERS TO BE AUDITED

The BIR selects taxpayers to be audited based on selection criteria established in
the BIR's Annual Audit Program. The BIR Annual Audit Program identifies high
risk taxpayers and medium risk taxpayers to be the audit priority for each year.

The BIR may also identify taxpayers to be subjected to regular audit from the
following: a. Tax compliance verification drive
b. Information furnished by tax informers
c. Pre-audit of tax returns
d. Direct field observation by revenue officers
Tax Compliance Verification Drive
The Tax Compliance Verification Drive also known as Tax Mapping is intended to
locate and identify taxpayers who do not comply with basic tax requirements such
as registration, bookkeeping or invoicing.
To enforce taxpayer compliance, the BIR instituted a program called “Oplan
Kandado” (OK). Taxpayers' business will be suspended or temporarily closed for
failure to comply with tax regulations.
The tax compliance verification drive may also discover taxpayers with possible
unpaid taxes which may qualify for a detailed audit.
Tax Information
Taxpayers which could be subjected to regular detailed audit may be identified
based on information furnished by tax informants. Tax informants are given
reward based on the taxes collected from such information.
Pre-audit of Annual Income Tax Return
A pre-audit is conducted to verify the following:
1. Mathematical computations of income tax due and payment
2. Correctness and applicability of exemptions claimed by individuals against the
registration records
3. Correctness and validity of deductions and expenses subject to ceiling
limitations
4. Validity of claims for income tax holiday, tax exemption and other claimed tax
incentives
5. Correctness of the application of the minimum corporate income tax
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6. Claimed creditable withholding taxes against tax due and substantiation of

claims through certificates of withholding tax
7. Correct utilization of tax credit certificates which should be duly supported by
an approved
Tax Debit Memo issued by the authorized RDO
8. Correctness of deductions claimed by taxpayers who opted OSD
9. Accuracy and applicability of the computation of the NOLCO
10. Completeness of the required attachment to annual ITRs

690
The pre-audit of tax returns is not a regular audit. It is conducted entirely within
the BIR office without field investigation.
If the pre-audit results in a deficiency tax, the revenue officer prepares a
memorandum report. The taxpayer shall be informed via a letter to be signed by
the RDO. The letter shall state the deficiency tax resulting from the pre-audit and
shall require payment within 15 days.
If the taxpayer agrees to the deficiency tax, he shall pay using the Payment Form
(BIR Form 0605). If the taxpayer does not pay the deficiency tax, the revenue
officer will prepare a report recommending the issuance of an assessment of the
taxpayer.
If the revenue officer recommends a thorough audit investigation of the taxpayer,
the taxpayer will be subjected to a regular audit.
THE BIR TAX AUDIT PROCESS
1. Release of Letter of Authority (LA) to the revenue officer 2. Conduct of the
audit examination 3. Reporting on the results of examination
RELEASE OF LETTER OF AUTHORITY TO THE REVENUE OFFICER
What is a Letter of Authority?
A Letter of Authority (LA) is an official document that authorizes a BIR Revenue
Officer to examine a taxpayer's books of accounts and other accounting records in
order to determine his correct internal revenue tax liabilities.
Who issues and approves the LAs?
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Investigating Office Approving official

Revenue District Office Regional Director
Large Taxpayer Service Audit Divisions Assistant Commissioner-LTS
National Investigation Divisions and Special Commissioner of Internal Revenue
Investigation Divisions
Requisites for the validity of an LA:
1. The LA must be served to the taxpayer within 30 days from its date of issuance.
2. The LA must be an electronic LA (eLA) printed under BIR Form 1966 issued
under the BIR Letter of Authority Monitoring System (LAMS).

691
Manual LAs are no longer allowed. Examiners or revenue officers who conduct
audit investigations without an eLA will be subject to administrative sanctions.
Only one LA shall be issued to the taxpayer. Taxpayers who were inadvertently
issued with multiple LAs shall inform the concerned BIR officer and formalize his
request for cancelation of the other LAS.
Other BIR notices to taxpayers:
1 Tax verification notice (TVN)
2. Letter notice (LN)
A Tax verification notice authorizes evaluation or verification of tax on one-time
transaction (ONETT) cases such as estate tax, donor's tax, and capital gains tax.
A Letter notice is a communication from the BIR national office informing the
taxpayer of a finding of significant discrepancy between sales/purchases reported
in his tax return and information obtained by the BIR from third parties.
Third party information may be taken by the BIR from Reconciliation of Listing
for Enforcement System (RELIEF) filings of other taxpayers including data
gathered by other government agencies or instrumentalities.
Data Matching Systems
The BIR national office embarked on a program called Data Matching which is
basically a data mining technique intended to match taxpayer's reported data such
as sales against data furnished by third parties such as purchases of the taxpayer's
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customers. Significant discrepancies or variances noted may indicate the presence

of unpaid taxes which must be checked.
Discrepancies noted by the matching systems are forwarded by the national office
to the revenue district office having jurisdiction over the concerned taxpayer. The
revenue district office will serve the LN to the taxpayer.
Reconciliation of discrepancies
Taxpayers have 5 days from receipt of the LN to reconcile the discrepancies noted
therein. If the taxpayer agrees to the finding of discrepancies, he/she must settle
any resultant tax liability within 30 days from the receipt of the LN.

692
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Timely payment of the LN will entitle the taxpayer to abatement of corresponding

surcharge, interest, and compromise penalty.
Consolidation of LN and eLA
Taxpayers who are selected for regular audit by the RDO may likewise be
concurrently issued an LN by the national office. The LN in such case shall be
consolidated with the eLA issued for such examination.
LN payments may be claimed as tax credit
Taxpayers who are selected for regular audit may have paid taxes under an LN.
The amount paid under the LN may be considered as a tax credit against any
findings of deficiency under the eLA (regular audit) to the extent that they pertain
to the same issues.
CONDUCT OF THE AUDIT EXAMINATION
The examination must be generally conducted in the place of business of the
taxpayer.
Period of investigation
Revenue officers have up to 120 days counted from the date of receipt of the eLA
by the taxpayer within which to conduct the audit and to submit their reports of
investigation. After the lapse of such period, the eLA must be surrendered and may
be revalidated when needed.
Frequency of revalidation of LAS
The eLAs may be revalidated once for those issued by Regional Offices or
Revenue District Offices or twice in the case of LAs issued by the National Office.
Suspended eLAs must be attached to the new eLAs.
Frequency of taxpayer examination
The taxpayer shall be subject to examination only once in every taxable year,
except when:
a. The CIR determined that fraud, irregularities, or mistakes were committed by
the taxpayer.
b. The taxpayer requested for re-investigation or re-examination.
c. There is a need to verify the taxpayer's compliance with withholding tax and
other internal revenue taxes.
d. The taxpayer's capital gains tax liabilities must be verified.
e. The CIR exercises his power to obtain information relative to the examination of
other taxpayers.
Power of the CIR to obtain information and to summon, examine and take
testimony of persons
When after reasonable demands, certain documents, information or records are not
forthcoming during the examination, the BIR may issue subpoena to the taxpayer
and/or other person in possession of the same to produce them.
Types of subpoena:
1. Subpoena duces tecum
A summon upon the taxpayer or other persons compelling them to produce, under
penalty of neglect, certain documents sought therein. This is usually issued to the
taxpayer after his failure to comply with two consecutive requests to produce his
books for examination.
2. Subpoena ad testificandum
A summon upon a person to appear and to give oral testimony.
If the requested documents, records, or information cannot be obtained by these
means, an assessment will be prepared based on the “best evidence obtainable”
rule.
REPORTING ON THE RESULTS OF THE EXAMINATION
After the examination, the revenue officer reports the results of his investigation.
Finding of Sufficient Basis of Assessment
When the BIR examination or verification determined that there exists a sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the revenue officer
shall recommend the issuance of an assessment to the taxpayer in his report.
Determining the Amount of Taxes and Increments to Demand
Aside from demanding the unpaid delinquency or deficiency tax, the BIR will also
impose increments in the assessment as required by law, such as: a. Surcharge - at
the following rate on the basic tax:
- Simple neglect
to file - 25% -
Willful neglect to file - 50%
b. Interest - double of the rate prescribed for forbearance of money, this is
currently 12% per annum
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c. Compromise penalty - a settlement for the government not to enforce criminal

prosecution

694
Illustration
After the examination, the BIR determined that the taxpayer is deficient by
P500,000 for his 2018 income tax return. The BIR fixed the deadline for tax
payments by July 30, 2020.
The income tax return deadline is April 15, 2019 while date of scheduled payment
is March 31, 2020 covering a total period computed as follows:
No. of days
April 16 to 30, 2019 (30-15) 15
May 2019 31
June 2019 30
July 2019 31 August 2019 31 September
2019 30
October 2019 31
November 2019 30 December 2019 31
January 2020 31
February 2020 29
March 2020 31
Total 351

The assessment if the taxpayer pays on or before July 30, 2020 shall be:
Basic income tax due P 500,000.00
Surcharge (25 % x P500,000) 125,000.00
Deficiency interest (P500,000 x 12% x 351/365) 57,698.63
Total P 682,698.63
Delinquent payment
Assume the taxpayer defaulted on the June 30 scheduled payment of the deficiency
assessment but settles the tax on October 15, 2020.
The delinquency from July 1, 2020 to October 15, 2020 covers a total period
computed as follows:

No. of days July 2020

31
August 2020 31
September 2020 30
October 2019 15
Total 107
The assessment on October 15, 2020 shall be:
Basic income tax due P 682,698.
63
Delinquency interest (P682,698.63 x 12% x 107/365) 24,016.
03
Total P 706,714.
66
Assessment Procedures:
The assessment stage involves the following:
1. Pre-Assessment Notice (PAN) 2. Formal Letter of Demand and Final
Assessment Notice (FLD/FAN) 3. Final Decision on a Disputed Assessment
(FDDA)
Note: The Notice of informal Conference stage before the PAN stage is removed from the
procedures of assessment under RR18-2013.

What is a Preliminary Assessment Notice (PAN)?

A PAN is a written communication issued by the Regional Assessment Division or
any other concerned BIR office informing the taxpayer of his obligation for
deficiency tax based on the audit findings of a revenue officer.
The taxpayer has up to 15 days from the receipt of the PAN to reply to the
proposed assessment. It must be noted that the PAN is not yet an assessment and
does not establish a legal claim on the part of the government. However, the failure
of the taxpayer to reply to the PAN shall make the impending assessment final,
demandable and non-appealable.
If the taxpayer's agrees to the findings in the PAN and pays the tax, the BIR
cancels the docket and a termination letter or closure letter is sent to the taxpayer.
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If the taxpayer merely responds that he disagrees with the findings of deficiency, a
Formal Letter of Demand and Final Assessment Notice (FLD/FAN) calling for
payment of the tax deficiency will be issued to the taxpayer.
What is a Formal Letter of Demand and Final Assessment Notice
(FLD/FAN)?
An FLD/FAN is a final declaration of deficiency tax issued to a taxpayer:
a. who defaulted by failing to respond to the PAN within 15 days of its receipt
b. whose reply to the FAN is unmeritorious.
The FLD/FAN shall be issued within 15 days from the filing or submission of the
taxpayer's response or within 15 days from the issuance of the PAN in case the
taxpayer failed to respond.

The issuance of an FLD/FAN to the taxpayer is tantamount to a denial of the

taxpayer's reply to the PAN (Philippine Health Care Providers vs. CIR).

696
Requisites of a valid assessment (FLD/FAN)
1. The assessment must be served within the prescriptive period.
2. The assessment must inform the taxpayer of the discovery of unpaid or still
unpaid tax coupled with a demand of the same including penalties.
3. The assessment must show in detail the facts and the law, rules and regulations,
or jurisprudence on which the assessment is based.
4. The assessment must be served through registered mail or by personal delivery
and acknowledged by the taxpayer or his duly authorized representative.
5. The assessment must be preceded by a pre-assessment notice.
An assessment which lacks any of these requisites is void. Hence, a “show-cause
letter” or a letter from a revenue officer granting the taxpayer an opportunity to
disprove his audit findings does not qualify as, or substitute for, an assessment.
Moreover, affidavit executed by revenue officers containing computations of
deficiency taxes to support the criminal complaint against a taxpayer is also not an
assessment (See CIR vs. Pastor Realty).
Instances where no PAN is required
The PAN is required as a matter of procedural due process for the taxpayer to be
apprised of his obligation. Hence, a FLD/FAN is generally void without a PAN.
However, a PAN is not required in the following cases:
1. When the finding of deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the
taxpayer;
2. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent,
3. 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 carried over and
automatically applied the same amount claimed against the estimated tax
liabilities for the taxable quarter or quarters of the succeeding taxable year; or
4. When the excise tax due on excisable articles has not been paid;
5. 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.

An FLD/FAN is issued outright in the aforementioned exceptional cases.

If the taxpayer pays the FLD/FAN, the docket is cancelled by the BIR and a
termination letter or closure letter is sent to the taxpayer.
What is Jeopardy Assessment?
Jeopardy assessment is one made by an authorized revenue officer without the
benefit of a complete or partial audit in light of the officer's belief that the
assessment and collection of a deficiency tax will be jeopardized by the delays
caused by the taxpayer to comply with audit and investigation requirements to
present his book of accounts and pertinent records or substantiate all of the
deductions, exemptions or credit claimed in his return.
Dispute of Assessment
The FLD/FAN may be administratively protested by the taxpayer by filing a
written protest to the BIR within 30 days upon receipt thereof.
Types of Taxpayers’ Protest:
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a. Request for reconsideration is a plea for a reevaluation of an assessment on

the basis of existing records without need of additional evidence which may
involve a question of facts or of law or both.
b. Request for re-investigation is a plea of reevaluation of an assessment on
the basis of newly discovered or additional evidence that the taxpayer intends to
present in the reinvestigation which may also Involve a question of fact or of law
or both.
In case of a request for re-investigation, taxpayers are mandatorily required to
submit relevant supporting documents within 60 days from the date of filing of the
protest. The taxpayer will be required to sign a “Waiver of the Statutes of
Limitation” for a period of not less than 6 months to give way to the
reinvestigation.
The BIR assessment division will settle question of facts. The BIR legal division
will settle questions of law.
The failure of the taxpayer to seasonably interpose a valid protest shall make the
assessment final, executory and demandable and no request for reconsideration or
reinvestigation shall be granted.
Finality of assessment on undisputed issues
If the taxpayer disputes or protests only against the validity of some issues raised
in the assessment, the assessment attributable to the undisputed issue or issues shall
become final, executory and demandable.

698
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If the taxpayer failed to state the facts, the applicable law, rules and regulations or
jurisprudence in support of his protest against certain issues, the same shall be
considered undisputed issues, in which case, the assessment attributable thereto
shall become final, executory and demandable.
The failure of the taxpayer to validly protest the FLD/FAN within 30 days upon
release thereof shall result in the assessment becoming final and executory.
In such case, the taxpayer shall lose his right to refute the findings,
except when: a. The taxpayer did not receive the FAN
b. The taxpayer availed of the amnesty program
It is also noteworthy to mention that the burden of proving that the assessment was
actually received by the taxpayer rests upon the government.
Final Decision on Disputed Assessment (FDDA)
The FDDA of the CIR may be communicated to the taxpayer within 180 days from
the filing of his protest.
Resolution of the Protested Assessment:
If the protested assessment is The assessment is
a. Resolved in favor of the taxpayer Cancelled
b. Resolved with reduction of liability Revised
c. Sustained Enforced

Judicial Appeal
The FDDA of the CIR on a disputed assessment may be judicially protested by the
taxpayer by filing a petition for review with the Court of Tax Appeals after which
an adverse ruling may be the subject of a petition for review on certiorari before
the Supreme Court. However, assessments that achieved administrative finality are
enforceable by the BIR for collection.

COLLECTION
Collection will be enforced by the government once the assessment achieves
finality under any of the following instances:

A. When the taxpayer defaulted in his administrative remedies

a. Failure of the taxpayer to seasonably respond to the PAN
b. Failure of the taxpayer to seasonably protest the FLD/FAN
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B. Denial of the taxpayer's protest by the CIR or his authorized representative

C. Whether or not on appeal, when the assessment is upheld by the court
Collection is enforceable once assessment became final and executory
Though valid and seasonably made, an appeal interposed by the taxpayer before
the CTA does not suspend the payment, levy, distraint and or sale of any property
of the taxpayer for the satisfaction of his liability (Sec. 11, RA 1125, as amended
by RA 9282)
Non-injunction of tax collection
No court shall have the authority to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge imposed by the NIRC (See Sec.
218, NIRC). The CTA, however, is authorized to suspend the collection of taxes
when it may jeopardize the interest of the taxpayer and/or the government (Sec 11,
RA 1125)

Payment under Protest

To avoid the imposition of interest, penalties or charges on a contested assessment,
a taxpayer may pay the contested assessment under protest. The taxpayer can file a
claim for refund later when the disputed assessment is partially or wholly decided
in his favor.
Government Remedies to Enforce Collections:
1. Imposition of tax lien
2. Seizure of the taxpayer's properties (distraint or levy)
3. Auction sale and or forfeiture of taxpayer's properties
4. Filing of civil or criminal action against the taxpayer
5. Imposition of administrative penalties and fines
6. Suspension of business operations
7. Entering into a tax compromise with the taxpayer

STAGES OF COLLECTION
1. Preliminary Collection Letter
2. Final Notice before Seizure Letter
3. Warrant of Distraint/Levy or Garnishment
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4. Research of taxpayer properties

5. Notice of Tax Lien and or Notice of Tax Levy
6. Seizure of properties
7. Auction sale and/or forfeiture of properties
8. Filing of civil or criminal action

PRELIMINARY COLLECTION LETTER

Once the assessment achieved finality, the BIR Collection Division will send the
taxpayer a Preliminary collection letter signed by the RDO who has jurisdiction
over the taxpayer.
The taxpayer may pay the
assessment either by: a. lump sum
payment
b. installment payment
c. compromise settlement
Note: Installment payment and compromise settlement are subject to approval by the BIR.

Installment payments, offer the taxpayer a chance to settle the tax conveniently
without causing him cash flow problems. However, installments are subject to
interest. Furthermore, the default of the taxpayer in any installment will make the
entire balance due and demandable. Compromise payments offer the taxpayer a
chance for a reduced tax payments but are granted only under rigid conditions.
The BIR will furnish the taxpayer a termination letter or closure letter upon full
payment of the tax.
FINAL NOTICE BEFORE SEIZURE LETTER
Within 10 days from the issuance of the Preliminary Collection Letter, the BIR
sends the taxpayer the Final Notice before Seizure Letter.
If the taxpayer ignores the final notice, the BIR will resort to enforcement of
administrative summary remedies.
Summary Remedies under the NIRC:
1. Seizure of taxpayer's property
a. Distraint
b. Levy
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2. Civil or criminal action

Distraint - the seizure by the government of tangible or intangible personal
property of the taxpayer to enforce the collection of taxes
Levy- the seizure by the government of real properties of the taxpayer to enforce
the collection of taxes
Garnishment - the seizure or distraint of interests such as bank accounts and credits
owned by the taxpayer
Either or both distraint and levy may be pursued by the authorities charged with
the collection of the tax.

WARRANT OF DISTRAINT/LEVY
The Warrant of Distraint and or Levy (WDL) or a Warrant of Garnishment is
served to the taxpayer after his failure to respond to the Final Notice.
Limitation of the Warrant of Distraint and or Levy
1. Distraint or levy shall not be availed of where the amount of tax is not more than
P100.
2. The WDL shall not be sent earlier than 90 days from the date the assessment has
become due and demandable.
Exception to the 90-day rule:
Delinquent taxes may be collected immediately by distraint or levy in
cases where: a. The amount shown in the return is not paid on time.
b. The individual taxpayer fails to pay the second installment of his income tax.
RESEARCH OF TAXPAYER PROPERTIES
If the taxpayer fails to pay his delinquent accounts after the service of the WDL,
the revenue officer shall look for properties of the taxpayer that can be attached to
his tax liabilities.
Taxpayer properties may be identified from records of the City Assessor's Office,
Registry of Deeds, Land Transportation Office, Securities and Exchange
Commission, business bureaus, and local banks.
NOTICE OF TAX LIEN (NTL) OR NOTICE OF LEVY
The Notice of Tax Lien or Notice of Levy is used to validate the legal claims or
charge of the government on identified property of the taxpayer either personal or
real, as security for the payment of his tax liability. The Tax liens are annotated at
the back of the title document of the property in the case of real property.
 lOMoARcPSD|14955611

Tax liens will make the government a priority claimant on the identified properties
of the delinquent taxpayer.

Distraint of Personal Property

Who shall conduct the distraint?
a. The CIR or his duly authorized representative - if the amount involved is in
excess of P1M
b. The revenue district officer - if the amount involved is P1M or less

Extent of properties to be distrained

Personal properties such as goods, chattels, effects, stocks and other securities,
debts, credits, bank accounts and interest or rights to personal properties shall be
seized in sufficient quantity to cover the following: a. Tax due
b. Penalties and interests
c. Expenses of distraint
d. Costs of selling the properties
Constructive Distraint
By constructive distraint, the government freezes the taxpayer's property by
requiring the taxpayer or the person having possession or control of the property to
sign a receipt obligating him to preserve the same intact and unaltered and not to
dispose it without the express authority of the CIR.
In case the taxpayer or the person having the possession and control of the property
sought to be placed under constructive distraint refuses or fails to sign the receipt
herein referred to, the revenue officer effecting the constructive distraint shall
proceed to prepare a list of such property and, in the presence of two witnessed,
leave a copy thereof in the premises where the property distrained is located, after
which the said property shall be deemed to have been placed under constructive
distraint.
When a constructive distraint may be made?
The purpose of constructive distraint is to protect the interest of the government
when, in the opinion of the CIR, the taxpayer is:
a. retiring from a business subject to tax
b. intending to leave the Philippines
 lOMoARcPSD|14955611

c. intending to remove his property or conceal the same

d. intending to perform an act tending to obstruct the proceedings for collecting the
tax due from him

To whom is the warrant of distraint or garnishment served?

1. For goods, chattels, effects, or other personal properties - to the possessor
of the goods distrained
2. For stocks and other securities - to the taxpayer and upon the president,
manager, treasurer or responsible officer of the corporation, company or
association which issued the said stocks
3. For debts and credits - to the person owning the debts or having in
possession or under his control such credit, or with his agent
4. For bank accounts - to the president, manager, treasurer, cashier or other
responsible officials Levy on Real Property
The revenue officer shall prepare a duly authenticated certificate showing the name
of the taxpayer and the amount of tax and penalty due from him and indicate
therein the description of the property upon which the levy is made. Said certificate
shall operate with the force of a legal execution throughout the Philippines (See
Sec. 207 (B), NIRC).
Levy on real property may be done before, simultaneous with, or after the distraint
of personal property.
AUCTION SALE OF SEIZED PROPERTY
Seized properties will be sold at auction sales if the taxpayer did not settle the
delinquent tax. Within 20 days from levy, the revenue officer conducting the
proceeding shall advertise the property for auction sale for at least 30 days. The
property shall be awarded to the highest bidder.
The proceeds of the sale shall be used to satisfy the taxpayer's unpaid tax liabilities.
The excess proceeds of the sale will be return to the taxpayer.
FORFEITURE OF TAXPAYER'S PROPERTY
When the amounts offered by bidders in two consecutive auction sales fail to raise
a sufficient amount to cover the taxpayer's liability, the government will forfeit the
property. Title to forfeited properties will be consolidated in the name of the
Republic of the Philippines.
Taxpayer's right of redemption
The taxpayer has up to one year from the date of auction sale or forfeiture within
which to redeem the property.
 lOMoARcPSD|14955611

Further distraint or Levy

Further distraint or levy may be made when the proceeds of the auction sale fail to
satisfy the unpaid tax
CIVIL OR CRIMINAL ACTION
The government may alternatively or simultaneously pursue filing civil or
criminal action against the taxpayer with the summary remedies of distraint or levy
(See Sec. 205, NIRC).

The RATE Program

To prosecute criminal violations of the NIRC, the BIR instituted the “Run After
Tax Evaders (RATE) program. The RATE program is intended to identify and
prosecute high-profile tax evaders. Known personalities such as celebrities are
usually targeted with RATE cases, an effort commonly
 lOMoARcPSD|14955611

perceived as a deliberate display of the BIR's serious resolve for erring taxpayers.
Assessment is not necessary for criminal prosecution
Assessment is not a requirement in the prosecution of criminal cases for violation
of internal revenue laws. (CIR vs Pascor Realty & Development Corp, et al. (GR
No. 128315 dated June 29, 1999) The judgment in the criminal case shall not only
impose the penalty, but shall also order payment of the taxes subject of the
criminal case as finally decided by the Commissioner. [Ibid.)
Hence, collection of tax may be made without a prior assessment if there is a
criminal intent to evade payment of taxes such as in the case of: a. Filing of a
fraudulent return
b. Willful neglect to file a return
A return is generally deemed fraudulent when there is
a Failure to report an income exceeding 30% of that declared per return
b. Overstatement of deductions exceeding 30% of the actual allowable deductions
Civil and criminal actions and proceedings instituted in behalf of the Government
under the authority of the NIRC and other laws enforced by the BIR shall be
brought in the name of the Government of the Philippines and shall be conducted
by legal officers of the BIR. No civil or criminal action for the recovery of taxes or
enforcement of any fine, penalty or forfeiture under the Code shall be filed in court
without the authority of the CIR.
PRESCRIPTIVE PERIOD OF COLLECTION
The government has 5 years from the date of release of the final assessment to the
taxpayer to make collection (Bank of the Philippine Islands vs. CIR G.R. No.
139736).
When the demand letters is undated, the 5-year prescriptive period is counted from
the date of receipt of the assessment notice (Jardine Pacific Finance vs. CIR, CTA
Case No. 6195).

Illustration 1
On July 15 2015, Mr. A filed his 2014 income tax return which should have been
filed April 15, 2015. He paid the tax on August 15, 2015. The BIR issued a
deficiency assessment on August 2, 2017.

The deadline to enforce collection shall be on or before August 2, 2022

 lOMoARcPSD|14955611

Illustration 2
On March 3, 2015, the BIR sent an undated assessment letter. The assessment
covered the unpaid estate tax of a decedent which should have been paid March
5,2014. The estate administrator received the assessment on March 18, 2015.
The deadline to enforce collection shall be on or before March 18, 2020 since the
assessment is undated.
Illustration 3
The taxpayer did not file an income tax return for the year 2006. The BIR
discovered the nonfiling on May 4, 2013. The BIR issued a delinquency
assessment on July 15, 2015.
The deadline to enforce collection is on or before July 15, 2020.
Suspension of the Statutes of Limitation
The prescriptive period for assessment and collection may be suspended under the
following circumstances:
a. Request for reinvestigation of the taxpayer which is granted by the CIR
b. When the Commissioner is prohibited from making an assessment or from
beginning distraint or levy or a proceeding in court¹
c. When the taxpayer cannot be located in the address given by him²
d. When the warrant of distraint or levy is served and no properties can be located
e. When the taxpayer is out of the Philippines
Note:
1. The suspension shall run for the period during which the CIR is so prohibited plus 60 days
thereafter.
2. If the taxpayer informed the CIR of any change in address, the running of the statutes of
limitation will not be suspended.

Summary of Prescription Rules: Collection

Deadline of collection Mode of collection
With a prior assessment 5 years from assessment Summary proceedings or by
judicial action
Without a prior assessment 10 years from discovery of By judicial action only
 lOMoARcPSD|14955611

fraud or falsity

TAX REMEDIES OF THE TAXPAYER

1. Disputing an assessment - if the tax has not yet paid the
assessment 2. Recovery of erroneously paid taxes - if the
tax has already paid

706
DISPUTING AN ASSESSMENT
1. Upon receipt of the Pre-Assessment Notice, the taxpayer must explain his
position within 15 days.
2. Upon receipt of the Formal Assessment Notice/Formal Letter of Demand,
the taxpayer must file a formal protest in 30 days.
Types of protest:
a. Request for reconsideration - no new issues or evidence to be raised
b. Request for re-investigation - new issues or evidence will be raised
In the case of request for re-investigation, the taxpayer must submit the necessary
documents in support of his position within 60 days from the date of filing of the
protest.
3. The taxpayer shall wait for BIR action within 180 days which shall be counted
from:
a. the submission of documents - for request for re-investigation
b. the receipt of the FAN/FLD - for request for reconsideration
BIR denial or adverse decision
If a duly authorized representative of the CIR denies the protest or issues an
adverse decision, the taxpayer may interpose either a/an:
a. Judicial appeal - file a petition for review with the Court of Tax Appeals
(CTA) within 30 days from the receipt of adverse decision
b. Administrative appeal - file a motion for reconsideration with the CIR
within 30 days from the receipt of the adverse decision
 lOMoARcPSD|14955611

The final decision (FDDA) of the CIR may be appealed to the CTA within 30 days
from receipt of the adverse decision.
BIR inaction within the 180-day period
The BIR may not act on the protest within the 180-day period. The taxpayer
may either: a. Wait for the BIR decision after the lapse of the 180-day
period, or
b. File a petition for review with the CTA within 30-days from the lapse of the
180-day period (Judicial appeal).
These two options are mutually exclusive. Hence, if the taxpayer opted for the
first option, the taxpayer must wait for BIR action and cannot proceed to the CTA
until the BIR denies his administrative appeal.
4. Upon receipt of an adverse ruling from the CTA, the taxpayer may, within 15
days:

a. File a motion for reconsideration or new trial under the same division, or
An adverse decision of the CTA in division may be appealed to the CTA en banc within 15
days. The CTA may grant an additional 15 day leeway after payment of the docket fee. An
adverse decision of the CTA en banc may be appealed within 15 days to the Supreme Court.

b. File a petition for review on certiorari to the Supreme Court

An adverse ruling from the Supreme Court may be subject to a motion for reconsideration after
which the final decision can no longer be appealed.

Content of Reply to PAN

The taxpayer's reply to the PAN shall include:
a. Explanation on matters questioned by the examiner
b. Factual and legal bases supporting the taxpayer's position
c. Prayer for full or partial cancellation of the PAN
Requirements for the validity of a protest:
1. The taxpayer must indicate the nature of protest (ie. request for reconsideration
or request for reinvestigation) (See CIR vs. Philippine Global Communications,
GR No. 167146, October 31, 2006).
2. The taxpayer must state the date of the assessment notice.
 lOMoARcPSD|14955611

3. The taxpayer should state the facts, the applicable law rules and regulations or
jurisprudence on which the protest is based.
4. The protest must be filed by the taxpayer or his/her duly authorized
representatives, in person or through registered mail with return card with the
concerned Regional Director, Assistant Commissioner-LTS or Assistant
Commissioner-Enforcement Service, as the case may be (RMC 39-2013).
5. All relevant documents must be submitted within 60 days from the filing of the
request for reinvestigation.
Suspension of the prescriptive period
It is settled under jurisprudence that the 60-day period applies only to a request for
reinvestigation but not to a request for reconsideration.
The suspension of the prescriptive period applies only upon approval of the request
for reinvestigation. The act of requesting for re-investigation does not, by itself,
suspends the running of the prescriptive period of collection. The prescriptive
period of collection will be suspended only when the BIR grants the request for re-
investigation (CIR vs. United Salvage and Towage (Phils.), Inc., GR No. 197515).

708
Protest needs to be categorical
The taxpayer shall categorically raise all issues in the FAN/FLD that he objects to
and backs each objection Individually by stating the facts, law, rules and
regulations, and jurisprudence supporting his position. It must be recalled that
assessments on uncontested issues will become final, executory, and demandable
by the government.
 lOMoARcPSD|14955611

Summary of Rule: Disputing an assessment

*Mutually exclusive remedy, adverse decision may be appealed to the CTA within 30 days from
receipt

The remedy of last resort: Compromise

A taxpayer who has exhausted all the remedies may settle his tax liability by way
of compromise payment. Compromise, however, is permissible only under rigid
conditions which will be discussed later.

RECOVERY OF ERRONEOUSLY PAID TAXES

Procedures:
 lOMoARcPSD|14955611

1. File a Claim for refund or credit within 2 years from the date of payment of the
tax (Sec 229, NIRC).
2. When the claim for refund or credit is denied by an authorized representative of
the CIR, the taxpayer may file a petition for reconsideration within 30 days from
receipt of the denial and within the two-year prescriptive period from the date of
payment of the tax.
3. An adverse final decision of the CIR shall be appealed by filing a petition for
review before the CTA within 30 days from receipt of the final decision (Sec. 11
RA 1125) and within the twoyear prescriptive period.
4. If the BIR did not act on the claim for refund or credit, the taxpayer must file a
petition for review before the CTA before the expiration of the two-year
prescriptive period.
An adverse decision of the CTA may be appealed in the same division within 15
days. An adverse decision of the concerned CTA division may be appealed to the
CTA, en banc within 15 days.
5. An adverse decision of the CTA shall be appealed within 15 days to the
Supreme Court.
These procedural requirements apply not only to taxes paid in error but also those
paid under protest or duress (Sec. 229, NIRC).
Note on administrative procedures
It must be noted that aside from complying with the rules on deadlines, all required
taxpayer procedures for his administrative remedies must be executed within the
two-year prescriptive period and, in case of adverse decision, the taxpayer must
have interposed a case for the recovery of the tax with the CTA on or before the
expiration of such period. The failure to do so shall result in the forfeiture of the
tax subject of the claim.
When the taxpayer discovered the erroneous payment when the 2-year period was
about to lapse, he may file a claim for refund or credit simultaneously with the
institution of a case for the recovery of the same before the CTA.

Claim for refund or credit

Tax refunds or credit are in the nature of a tax exemption and are highly construed
against the taxpayer. The taxpayer must present convincing evidence to
substantiate his entitlement to refund or credit.
lOMoARcPSD|14955611

710
 lOMoARcPSD|14955611

When is an application for a claim for refund or credit not necessary?

A tax return filed showing an overpayment is by itself considered a claim for
refund. Hence, the taxpayer need not file an application for claim for refund or
credit.
When is a claim for refund or credit
not allowed? a. Documentary stamp tax
b. Payment on tax assessments that became final and executory*
*This is not payment under protest

Counting of the 2-year Prescriptive Period

1. The 2-year period is counted from the date of filing of the Final Adjusted
Return, not from the date of the quarterly income tax payments.
2. For VAT payments, the 2-year period is counted from the date of filing of the
quarterly VAT return, not from the monthly payments
3. If tax is paid in installment, the 2-year period is counted from the last installment
4. For withholding taxes
a. Final withholding tax - the 2-year period is counted from the 25 day after the
close of each calendar quarter
b. Creditable withholding tax- the 2-year period is counted from the last day of
the month following the close of the quarter during which withholding was made
Summary of Rules: Recovery of Erroneously Paid Taxes

* Must be executed even without a BIR decision on the claim for refund
 lOMoARcPSD|14955611

711
Forfeiture of refund
Refund check or warrant issued by the BIR must be claimed or encashed within
five years from the date said warrant or check was mailed or delivered; otherwise,
the same will be forfeited in favor of the Government and the amount thereof shall
revert to the general fund. (Sec. 230 (A), NIRC)
Forfeiture of tax credit
A tax credit certificate issued in accordance with the provision of the NIRC must
be utilized within 5 years from the date of issue. Unless revalidated, a tax credit
which remains unutilized after such period shall be considered invalid and shall not
be allowed as payment for internal revenue tax liabilities of the taxpayer.
It is also noteworthy to mention that a tax credit certificate is no longer assignable
under current tax regulations.
Action to Contest Forfeiture of Chattel
In case of the seizure of personal property under claim of forfeiture, the owner
desiring to contest the validity of the forfeiture may, at any time before the sale or
destruction of the property, bring an action against the person seizing the property
or having possession thereof to recover the same, and upon giving proper bond,
may enjoin the sale; or after the sale and within (6) months, he may bring an action
to recover the net proceeds realized from the sale (Sec. 231, NIRC)
AUTHORITY OF THE CIR TO COMPROMISE, ABATE, AND REFUND
OR CREDIT TAXES AUTHORITY TO COMPROMISE
Conditions for compromise:
The CIR may compromise the payment of internal revenue tax when:
a. A reasonable doubt exist as to the validity of the claim against the taxpayer
exists.
b. The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.
Minimum of compromise settlements:
a. 10% of the basic assessed tax - in cases of financial incapacity
b. 40% of the basic assessed tax - for other cases
 lOMoARcPSD|14955611

Compromise is generally considered by tax experts as the remedy of last resort or

the last-ditch remedies. In some cases, compromise can be a win-win solution for
both the government and the taxpayer.

712
Who will approve the offer of compromise by
taxpayers? a. Office of the Commissioner of
Internal Revenue
b. National Evaluation Board (NEB)
c. Regional Evaluation Board (REB)
The compromise of taxes is within the judgment and discretion of the
Commissioner of Internal Revenue, except in the following cases.
Compromise by the NEB
The NEB shall approve the compromise offer when:
1. the basic tax involved exceeds P1,000,000 or
2. the settlement offered is less than the prescribed minimum rates
Composition of the NEB:
a. The Commissioner of Internal Revenue
b. The four Deputy Commissioners
All the decisions of the NEB, favorable or unfavorable, shall have the concurrence
of the Commissioner.
Compromise by the REB:
The REB shall approve the offer for compromise for
a. Assessments issued by Regional Offices involving a basic deficiency tax of
P500,000 or less
b. Minor criminal violations discovered by Regional and District Offices
Composition of the REB:
a. Regional Director - as chairman
b. Assistant Regional Director
c. Chief, Legal Division
d. Chief, Assessment Division
 lOMoARcPSD|14955611

e. Chief, Collection Division

f. Revenue District Officer having jurisdiction over the taxpayer-applicant
If the offer of compromise is less than the prescribed rates, the same shall always
be subject to the approval of the NEB.
The CIR alone can enter into compromise when the basic tax involved does not
exceed P1M, and the settlement is not below the prescribed percentages.

713
What may be compromised?
1. Delinquent accounts
2. Pending cases under administrative protest
3. Civil tax cases being disputed before the courts 4. Collection cases filed in
courts 5. Criminal violations other than:
a. Those already filed in courts
b. Those involving criminal tax fraud
6. Cases covered by pre-assessment notices contested by the taxpayer

What cannot be compromised?

1. Withholding tax cases
2. Criminal tax fraud cases
3. Criminal violations already filed in courts
4. Delinquent accounts with duly approved schedule of installment payments
5. Cases of reduced assessment agreed upon by the taxpayer
6. Cases which have become final and executory after final judgment of a court

AUTHORITY OF THE CIR TO ABATE TAXES

Under Section 204 (B) of the NIRC, the CIR is authorized to abate or cancel a tax
liability under the following conditions:
1. The tax or any portion of it which appears to be unjustly or excessively assessed.
2. The administrative or collection costs involved do not justify the collection of
the amount due.
 lOMoARcPSD|14955611

3. The taxpayer is dead, leaving no distrainable or leviable property.

4. The taxpayer is abroad leaving no forwarding address with no distrainable or
leviable property. 5. The taxpayer is a corporation who has already dissolved
and all subscribed shares of stock have been fully paid.
6. The tax case has already prescribed.

714