“Annex A”

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Revenue Region No. 8 -Makati
________________

The President
ABC Company
Address 1234
TIN: xxx-xxx-xxx

DETAILS OF DISCREPANCIES
I. INCOME TAX

 Income on excess of standard input tax to actual input tax, P3,026,642.23 – Verification disclosed that you failed to
close excess of standard input tax from sales to government to other income/expenses in violation of Section 4.114-2
of Revenue Regulations No. 16-2005 as amended by RR 4-2007 which states that, “xxx if actual input VAT attributable
to sale to government is less than seven percent (7%) of gross payment, the difference must be closed to expense or
cost.” Hence, the said excess was assessed pursuant to Section 32 of the National Internal Revenue Code as
amended.
Schedule 1:

 Undeclared Income, P18,857,558.00 – Comparison of your receipts per VAT Returns as against your declared income
per Income Tax Returns filed yielded a discrepancy of P18,857,558.00. The same was added to your gross income
pursuant to Section 32 of the NIRC and subject to income tax pursuant to Section 27 of the same Code.
Schedule 2:

 Overclaimed Interest Expense, P63,209.48 – Verification disclosed that there was an overclaimed interest expense
amounting to P63,209.48 in violation of Section 34(B)(1) of the NIRC which states that “the amount of interest paid or
incurred within a taxable year on indebtedness in connection with the taxpayer's profession, trade or business shall be
allowed as deduction from gross income: Provided, however, that the taxpayer's otherwise allowable deduction for
interest expense shall be reduced by forty-two percent (42%) of the interest income subjected to final tax…”
Schedule 3:
 Disallowed Expenses due to non-withholding tax, P3,881,688.42 - Verification disclosed that you have not withheld the
appropriate withholding tax due on your income payments enumerated hereunder. Section 34 (K) of the NIRC, as
amended, expressly provides that “ … any amount paid or payable which is otherwise deductible from, or taken into
account in computing the gross income or for which depreciation or amortization maybe allowed under this Section,
shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been
paid to the Bureau of Internal Revenue in accordance this Section of this Code..” Hence, the aforementioned expenses
have been disallowed pursuant to the above provision of the law.

Schedule 4:

Note: The above disallowed expenses due to non-withholding shall be allowed as deduction from gross income upon payment of the
corresponding withholding tax due thereof pursuant to Section 6 of Revenue Regulations No. 14-2002 amending Section 2.58.5 of RR 2-
98 as amended.

 Net Operating Loss Carry-Over (NOLCO), P1,072,224.88 - Investigation disclosed that your operation showed taxable
income instead of net operating loss as previously claimed in your ITR. The tax benefit of this amount has already been
forwarded to succeeding periods as provided for under Section 34(D) (3) of the NIRC which states that:

“The net operating loss of the business or enterprise for any taxable year immediately
preceding the current taxable year, which had not been previously offset as deduction from
gross income shall be carried over as deduction from gross income for the next three (3)
consecutive taxable years immediately following the year of such loss.”

 Excess Minimum Corporate Income Tax (MCIT) Carried Over to Succeeding Period, P584,956.21 – The
minimum corporate income tax paid was not allowed as tax credit against the computed deficiency income tax,
considering that the said amount shall be carried over and credited against the normal income tax for the three (3)
immediately succeeding taxable year in compliance with the provision imposed under Section 27 (E) (1) (2) of the Tax
Code.

 Excess credits carried forward to succeeding year, P6,463,857.47 - Excess tax credit carried over to succeeding period
in the amount of P6,463,857.47 was deducted from the total allowable tax credit considering that the said amount has
been credited against the estimated quarterly income tax liabilities for the taxable quarter of the succeeding taxable
years pursuant to Section 76 of 1997 NIRC.

II. EXPANDED WITHHOLDING TAX

 Basic expanded withholding tax due, P309,522.11 - Since you have failed to withhold/remit the correct withholding tax
due on several income payments previously disallowed as deductions from gross income (refer to Schedule 4), you are
still liable to pay the deficiency withholding tax thereon pursuant to Section 2.57.1 of Revenue Regulations No. 2-98, as
amended.
PERIOD OF PRESCRIPTION

Since you/your authorized representative had executed a waiver of the defense of prescription under the
statute of limitations prescribed in Sections 203 and 222, and other related provisions of the National Internal Revenue
Code on December 23, 2010 and have consented to the assessment and/or collection of tax or taxes of said year which
may be found due after investigation/reinvestigation/re-evaluation at any time before or after the lapse of the period of
limitations fixed by said sections of the National Internal Revenue Code but not later than June 20, 2011, however, you
had executed subsequent waiver of the defense of prescription on March 17, 2011 and January 17, 2012 extending the
prescriptive period, but not later than June 30, 2012 and June 30, 2013 respectively, the period of prescription, therefore,
is further suspended from the date of execution up to June 30, 2013.

FILING OF VALID PROTEST

In case you disagree to our proposed assessment, you or your authorized representative may protest administratively
against the aforesaid Preliminary Assessment Notice (PAN) within fifteen (15) days from date of receipt thereof and submit the
same at the Assessment Division, this Region, located at 3rd Floor, BIR Bldg., 313 Gil Puyat Avenue, Makati City, stating the
facts, the applicable laws, rules and regulations or jurisprudence in support of your protest, otherwise, it shall be considered
void and without force and effect, pursuant to Section 228 of the NIRC in accordance with Revenue Regulation Nos. 12-85 and
12-99. However, if you are amenable to the proposed assessment, whether in whole or in part, it is requested that you settle
first the tax attributable to the undisputed issue before an action can be taken on your protest otherwise, Formal Assessment
Notice will be issued to protect the interest of the government.

Very truly yours,

XXXXXXXXXXXXXXXX
COMMISSIONER OF INTERNAL REVENUE
By:

XXXXXXXXXXXXXXXXX
Regional Director