Tax Remedies

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.

Government Tax Remedies

• Assessment - The process of determining the tax liability of a taxpayer.
• Collection - The procedure of enforcing payment of unpaid taxes from delinquent taxpayer.

Assessment Process

Stage 1 – Tax Audit or Investigation

Stage 2 – Issuance of Preliminary Assessment Notice (PAN)
Stage 3 – Issuance of Formal Letter of Demand / Final Assessment Notice (FAN)
Stage 4 – Denial of Protest
Stage 5 – Denial of Appeal by Court of Tax Appeal (CTA) Division
Stage 6 – Denial of Appeal by Court of Tax Appeal (CTA) En Banc
Stage 7 – Denial of Appeal by Supreme Court (SC) Division
Stage 8 – Denial of Appeal by Supreme Court (SC) En Banc

Stage 1: Tax Audit/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.
➢ The taxpayer has 10 days to provide necessary documents and schedules for audit.
➢ Tax cases not covered by an LA:
a. Cases involving civil or criminal tax fraud which fall under the jurisdiction of National Investigation Division of BIR
b. Policy cases under audit by the special teams in the National Office
➢ Effects of issuance of LA:
a. A tax return or declaration filed by a taxpayer may be modified, changed or amended within three (3) years from
the date of filing.
b. 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.

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.
➢ 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, PAN is not required in the following cases:
1. When the finding is a result of mathematical computation on the face of return
2. When the discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding tax agent
3. When an excise tax due on excisable articles has not been paid
 4. When an article locally purchased by an exempt person, has been sold to non-exempt person ➢ The taxpayer has
15 days to reply contesting finding in the PAN.
➢ The taxpayer is considered in default and the BIR will then issue a FAN.

Stage 3: Issuance of Formal Letter of Demand/Final Assessment Notice (FAN)

➢ Issued when: (1) The taxpayer failed to respond to the PAN or (2) The reply to the PAN was found to be without merit.
➢ Remedy of the taxpayer:
1. File a protest to the CIR or his authorized representative within 30 days from the date of receipt of the FAN.
TYPES OF PROTEST (RR-18-2013)
a. Request for reconsideration — Refer to a plea for re-investigation of an assessment on the basis of
existing records without need of additional evidence. It may involve both a question of fact or of law or both.
b. Request for reinvestigation — Refer to a plea of re-evaluation of an assessment on the basis of newly
discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also
involve a question of fact or of law or both.
2. Submit all supporting documents within 60 days from filing of protest (in case of request for reinvestigation under
RR-18-2013)

Stage 4: Denial of Protest

➢ Ways to deny protest:
1. Direct denial of protest (Final Decision on a Disputed Assessment [FDDA])
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 date of submission, the protest may be considered denied.
➢ Remedies of the Taxpayer:
1. Direct Denial — File an appeal with the Court of Tax Appeals (CTA) Division within 30 days from receipt of letter
of denial.
2. Indirect Denial — (a) File an appeal with the CTA Division within 30 days from the lapse of the 180-day period or
(b) await the final decision of the CIR or his duly authorized representative and appeal such final decision to the
CTA within 30 days after the receipt of a copy of such decision.

Stage 5: Denial of Appeal by CTA Division

➢ Remedies of the Taxpayer:
1. File a motion for reconsideration (MR) before the same CTA Division within 15 days from receipt of the decision.
2. Then, if MR is denied, file an appeal with the CTA En Banc within 15 days from receipt of the decision.

Stage 6: Denial of Appeal by CTA EN BANC

➢ Remedies of the Taxpayer:
1. File MR before the CTA En Banc within 15 days from receipt of the decision.
2. Then, if MR is denied, file an appeal with the Supreme Court (SC) Division within 15 days from receipt of the
decision.

Stage 7: Denial of Appeal by SC Division

➢ Remedies of the Taxpayer:
1. File MR before the same SC Division within 15 days from receipt of the decision.
2. Then, if MR is denied, file an appeal with the SC En Banc within 15 days from receipt of the decision.
Stage 8: Denial of Appeal by SC EN BANC
➢ Remedies of the Taxpayer:
1. File MR before the SC En Banc within 15 days from receipt of the decision.
2. Then, if MR is denied, the taxpayer has no more remedy. The assessment shall become final, executory and
demandable.
Note: From the issuance of FAN, all the periods in availing the remedies are mandatory, in which failure to comply shall
result in the assessment being final, executory and demandable

Collection
• The BIR may avail of the remedy of collection when the assessment becomes final, executory and demandable.
• With Prior Assessment Within 5 years from issuance of FAN
• Without Prior Assessment
o Return filed is not false/fraudulent: 3 years from: a) Actual Filing of Return; b) Deadline of filing whichever
is LATER
o Return filed is fraudulent or NO return was filed: 10 years from discovery

Compromise and Abatement

SECTION 204 of the Tax Code provides two remedies to the taxpayer: compromise and abatement.
• Compromise involves the payment of a certain percentage of the tax liability while
• Abatement means cancellation so there will be no payment of the tax liability.

Compromise

Grounds:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Minimum Amounts:
1. For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic assessed
tax; and
2. For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic assessed tax.
Approval of the Evaluation Board is required when:
1. Where the basic tax involved exceeds one million pesos (P1,000,000); or
2. Where the settlement offered is less than the prescribed minimum rates

Composition of the Evaluation Board:

1. Commissioner of Internal Revenue
2. Four (4) Deputy Commissioners

Methods of Collection
BIR can collect delinquent internal revenue taxes through the following:
1. Distraint — the seizure by the government of personal property, tangible or intangible to enforce the payment of taxes.
a. Actual Distraint — personal property is physically seized by the BIR and offered for sale at public auction. The
property is sold to the highest bidder and the proceeds are applied to the payment of the tax due. Distraint of bank
accounts is called Garnishment.
b. Constructive Distraint — the person in possession of personal property is made to sign a receipt, undertaking
that he will preserve the property and will not dispose of the property without the express authority of the BIR.

2. Levy — the seizure by the government of real properties and interest in the rights to such properties in order to enforce
the payment of taxes.
a. Right of redemption —for the period of one (1) year from the date of sale, the property may be redeemed by
the taxpayer. During this period, the taxpayer is not deprived of the possession and fruits from the property.

3. Judicial Proceedings — BIR may (a) file a civil case for collection or (b) file a criminal case (Tax Evasion).

Abatement (is the 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.

Suspension of the Running Statute of Limitations

The prescriptive period for the 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.

Civil Penalties (SIC)

➢ Surcharge
* 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 Commissioner of Internal Revenue
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.
 * 50% surcharge shall be collected in any of the following cases:
1. Willful neglect to file a return on time.
2. There is willful neglect if the taxpayer files only after prior notice in writing from the BIR.

Note: There is a simple neglect (25% surcharge) if the taxpayer voluntarily files the return after the deadline without notice
from the BIR.

➢ Interest — is an increment on any unpaid amount of tax, assessed from the date prescribed for payment until the
amount is fully paid. (12% per annum [beginning January 01, 2018]) (20% - prior 2018)

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; or
b. Upon issuance of a notice and demand by the Commissioner or his authorized representative.

2. Delinquency Interest — Refers to the 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 tax.

Revenue Regulations No. 21-2018:

• Section 5 – NO DOUBLE IMPOSITION OF INTEREST - Upon the effectivity of TRAIN Law, in no case shall the deficiency
and delinquency interest be imposed simultaneously.
• Section 6 – TRANSITORY PROVISION – In cases where the tax liability/ies or deficiency tax/es became due before the
effectivity of the TRAIN Law on January 1, 2018, and where the full payment thereof will only be accomplished after
the said effectivity date, the interest rate shall be applied as follows:
> For the period up to December 31, 2017 – Deficiency and/or delinquency interest at 20%.
> For the period January 1, 2018 until full payment of the tax liability – Deficiency and/or delinquency interest at 12%.
• The double imposition of both deficiency and delinquency interest under Section 249 prior to its amendment will
still apply in so far as the period between the date prescribed for payment until December 31, 2017.

Note: If the tax liabilities or deficiencies became due before the effectivity of the Train Law on Jan. 1, 2018, and if the tax
liabilities or deficiencies were fully paid after the said effectivity date, the previous twenty percent (20%) interest rate
will still apply up to Dec. 31, 2017, and the new twelve percent (12%) interest rate from Jan. 1, 2018 onwards.
Illustration #1:

Mr. A has been assessed a deficiency income tax of P1 million, exclusive of interest and surcharge, for 2018. The tax liability
has remained unpaid, despite the lapse of the June 30, 2020 deadline for payment, as stated in the notice and demand
issued by the Commissioner. The taxpayer paid the deficiency income tax on Feb. 10, 2021. What is the total amount due
on Feb. 10, 2021?

Illustration #2:
Mr. A has been assessed a deficiency income tax of P1 million, exclusive of interest and surcharge, for taxable year 2015.
The tax liability has remained unpaid, despite the lapse of June 30, 2017, the deadline for payment stated in the notice
and demand issued by the Commissioner. Payment was made by the taxpayer only on February 10, 2018. What is the total
amount due on February 10, 2018?