ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 42  October 2021 CPA Licensure Exam  Week No. 13

TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-1701: AUTHORITY of the COMMISSIONER of

INTERNAL REVENUE
1. Authority of the Commissioner of Internal Revenue
a. Authority of the The Commissioner may -
Commissioner (A) Compromise the payment of any internal revenue tax, when:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

(B) Abate or cancel a tax liability, when:

(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.

(C) Credit or refund:

(1) taxes erroneously or illegally received or
(2) penalties imposed without authority,
(3) refund the value of internal revenue stamps when:
(a) they are returned in good condition by the purchaser, and,
(b) in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund
their value upon proof of destruction.

2. Compromise Settlement of Any Internal Revenue Tax

a. Compromise The Commissioner may compromise the payment of any internal revenue tax, when:
settlement any tax (1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or
(2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
The compromise settlement of any tax liability shall be subject to the following 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.

The compromise shall be subject to the approval of the Evaluation Board which shall be composed of the
Commissioner and the four (4) Deputy Commissioners:
(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, Commissioner and the four
(4) Deputy Commissioners.

b. Cases which may be 1) Delinquent accounts except those with duly approved schedule of installment payments;
compromised 2) Cases under administrative protest after issuance of the Final Notice of Assessment to the taxpayer which,
are still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service,
Collection Service, Enforcement Service and other offices in the National Office;
3) Civil tax cases being disputed before the courts;
4) Collection cases filed before the courts;
5) Criminal violations, other than those already filed in court or those involving criminal tax fraud

c. Cases which may not
be compromised
1) Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the
taxpayer’s obligation to withhold;
2) Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer;
3) Delinquent accounts with duly approved schedule of installment payments;
4) Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized
representative;
5) Criminal violations already filed in court;
6) Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in
the original assessment and the taxpayer is agreeable to such decision by signing the required agreement
form for the purpose;
7) Cases which become final and executory after final judgment of a court, where compromise is requested on
the ground of doubtful validity of the assessment;

d. Offer to compromise a The offer to compromise a delinquent account or disputed assessment on the ground of reasonable doubt as to
delinquent account or the validity of the assessment may be accepted when it is shown that:
disputed assessment 1) The delinquent account or disputed assessment is one resulting from a jeopardy assessment; or
on the ground of 2) The assessment seems to be arbitrary in nature, appearing to be based on presumption and there is reason to
reasonable doubt as to believe that it is lacking in legal and/or factual basis; or
the validity of the 3) The assessments were issued on or after January 1, 1998, where the demand notice allegedly failed to comply
assessment with formalities prescribed in the Tax Code; or
4) Assessments made based on the “Best Evidence Obtainable Rule” and there is reason to believe that the same
can be disputed by sufficient and competent evidence; or
5) The assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s
execution of Waiver of the Statute of Limitations the validity or authenticity of which is being questioned or at
issue and there is strong reason to believe and evidence to prove that it is not authentic; or
6) The assessment is based on an issue where a court of competent jurisdiction made an advance decision against
the Bureau, but for which the Supreme Court has not decided upon with finality; or
7) The taxpayer failed to file an administrative protest on account of the alleged failure to receive notice of
assessment and there is reason to believe that the assessment is lacking in legal and/or factual basis; or

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-1701
Week 13: AUTHORITIES of the COMMISSIONER of INTERNAL REVENUE

8) The taxpayer failed to file a request for reinvestigation or reconsideration within 30 days from receipt of final
assessment notice and there is reason to believe that the assessment is lacking in legal and/or factual basis; or
9) The taxpayer failed to elevate to the Court of Tax Appeals (CTA) an adverse decision of the Commissioner of
Internal Revenue, or his duly authorized representative, in some cases, within 30 days from receipt of such
adverse decision and there is reason to believe that the assessment is lacking in legal and/or factual basis.
e. Prescribed minimum 1) 40% of the basic assessed tax;
percentage of 2) Taxpayer may request in writing a compromise rate lower than 40% subject to prior approval by the National
compromise in case Evaluation Board;
of doubtful validity 3) The compromise settlement of the internal revenue tax liabilities of taxpayers is reckoned on a per tax type
assessment basis.

f. Financial incapacity
Minimum percentage
of
compromise Basis for Compromise
10% 1) Individual whose only source is from employment and whose monthly salary is P10,500 or less, if single, or
P21,000 or less, if married, and has no leviable/distrainable assets other than family home;
2) Individual without any source of income;
3) Taxpayer with zero net worth;
4) Taxpayer with negative net worth;
5) Already non-operating companies for a period of 3 years or more as of date of application for compromise
settlement
20% 1) Dissolved corporations;
2) Already non-operating companies for a period of less than 3 years;
3) Declared insolvent, bankrupt unless the taxpayer falls under any of the cases subject to a different percentage.
40% Taxpayer is suffering from surplus or earnings deficit resulting to impairment in the original capital by at least 50%
Minimum percentage The above-prescribed minimum percentage shall likewise apply in compromise settlement of assessments
of compromise also consisting solely of increments, i.e., surcharges, interest, etc. based on the total amount assessed.
applies to assessment
consisting solely of
increments
Situations where offer The Commissioner shall not consider any offer for compromise settlement on the ground of financial incapacity
of compromise under the following situations:
settlement on the 1) Taxpayer with Tax Credit Certificate (TCC) issued, on hand, or in transit;
ground of financial 2) Taxpayer with pending claim for tax refund or tax credit with the BIR, Department of Finance One-Stop-Shop
incapacity shall not be Tax Credit and Drawback Duty Center (Tax Revenue Group or Investment Incentive Group) and/or the court;
considered 3) Taxpayer with existing finalized agreement or prospect of future agreement with any party that resulted or
could result to an increase in the equity of the taxpayer at the time of the offer for compromise or at a
definite future time;
4) Taxpayer does not waive in writing his privilege of the secrecy of bank deposits.

g. Approval of offer to compromise

Majority of all members Except for offers of compromise where the approval is delegated to the Regional Evaluation Board (REB), all
of NEB required compromise settlements within the jurisdiction of the National Office (NO) shall be approved by the majority of all
members of the National Evaluation Board (NEB) composed of the Commissioner and the four (4) Deputy
Commissioners.
Decisions granting All decisions of the NEB, granting the request of the taxpayer or favorable to the taxpayer, shall have the
request have concurrence of the Commissioner.
concurrence of the
Commissioner
Offers of compromise Offers of compromise of assessment issued by the Regional Office involving basic deficiency taxes of P500,000
involving basic or less and for minor criminal violations discovered by the Regional and District Offices, shall be subject
deficiency of P500,000 to the approval by the REB comprised of the following Officers of the Region:
or less Chairman – Regional Director
Members – Assistant Regional Director, Chief of Legal Division, Chief of Assessment Division, Chief of
Collection Division, Revenue District Officer
Compromise offer to be The compromise offer shall be paid by the taxpayer upon filing of the application for compromise settlement. No
paid by the taxpayer application for compromise settlement shall be processed without the full settlement of the offered amount. In
case of disapproval of the application for compromise settlement, the amount paid upon filing of such application
shall be deducted from the total outstanding tax liabilities. (RR No. 9-2013)
Compromise is less than If the offer of compromise is less than the prescribed minimum percentage of compromise settlement, the same
the prescribed minimum shall always be subject to the approval of the NEB.
percentage of
compromise settlement

3. Cancellation or Abatement of Tax Liability

a. Bases of abatement or The Commissioner may abate or cancel a tax liability, when:
cancellation (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.
b. Instances when 1) When the filing of the return/payment is made at the wrong venue;
penalties and/or 2) When the filing of the return/payment of his tax is due to erroneous written official advice of a revenue officer;
interest imposed may 3) When the taxpayer fails to file a return and pay the tax on time due substantial losses from prolonged
be abated or cancelled labor dispute, force majeure or legitimate business reverses
on the ground that the Note: In no. 3) above the abatement shall only cover the surcharge and the compromise penalty and not
imposition is unjust and the interest.
excessive 4) When the assessment is brought about or the result of the taxpayer’s non-compliance with the law due to a
difficult interpretation of the said law;

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY TAX-1701
Week 13: AUTHORITIES of the COMMISSIONER of INTERNAL REVENUE

5) When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his
control, provided however, that abatement shall cover only the surcharge and the compromise penalty and
not the interest;
6) Late payment of the tax under meritorious circumstances.
c. Instances of substantial 1) Labor strike for more than 6 months, which has caused the temporary shutdown of business;
losses from prolonged 2) Public turmoil;
labor dispute, force 3) Natural calamity such as lightning, earthquake, storm, flood and the like;
majeure or legitimate 4) Armed conflicts such as war or insurgency;
business reverses (no. 5) Substantial losses sustained due to fire, robbery, theft, embezzlement;
3 above) 6) Continuous heavy losses incurred by the taxpayer for the last two (2) years;
7) Liquidity problem of the taxpayer for the last three (3) years;
8) Such other instances which the Commissioner may deem analogous to the enumeration above;
d. Instances of meritorious 1) One day late filing and remittance due to failure to beat bank cut-off time (no longer allowed under RR 4-2012
circumstances dated March 28, 2012);
(no. 6 above) 2) Late filing of return due to unresolved issue on classification or valuation of real property (for capital gains tax
cases, etc.);
3) Late remittance of withholding tax on compensation of expatriates for services rendered in the Philippines
pending the issuance by the SEC of the license to the Philippine branch office or subsidiary, provided, however,
that the abatement shall only cover the surcharge and the compromise penalty and not the interest;
4) Use of wrong tax form but correct amount of tax was remitted;
5) Surcharge erroneously imposed;
6) Wrong use of Tax Credit Certificate (TCC) where Tax Debit Memo (TDM) was not properly
applied for;
7) Offsetting of taxes of the same kind, i.e., overpayment in one quarter or month is offset against underpayment
in another quarter or month;
8) Automatic offsetting of overpayment of one kind of withholding tax against the underpayment of another kind;
9) Filing an amended return under meritorious circumstances, provided, however, that abatement shall cover only
the penalties and not the interest;
10) Such other instances which the Commissioner may deem analogous to the enumeration above.
e. Instances where 1) When the taxpayer fails to file a return and pay the tax on time due substantial losses from prolonged
interest is not abated labor dispute, force majeure or legitimate business reverses;
2) When the taxpayer fails to file the return and pay the correct tax on time due to circumstances beyond his
control;
3) Filing an amended return under meritorious circumstances;
4) Late remittance of withholding tax on compensation of expatriates for services rendered in the Philippines
pending the issuance by the SEC of the license to the Philippine branch office or subsidiary.
f. Instances when the tax 1) Assessment confirmed by lower court but appealed by the taxpayer to a higher Court;
liabilities, penalties 2) Assessment reduced after reinvestigation but taxpayer is still contesting reduced Assessment
and/or interest 3) Withholding tax assessment under meritorious circumstances;
imposed on taxpayer 4) Delayed installment payment under meritorious circumstances;
may be abated or 5) Such other instances which the Commissioner may deem analogous to the enumeration above.
cancelled on the ground
that the administration Note: For cases 1 to 4 above, the abatement of the surcharge and the compromise penalty shall be allowed
and collection costs are only upon written application by the taxpayer signifying his willingness to pay the basic tax and interest or
more than the amount basic tax only, whichever is applicable under the prevailing circumstance.
sought to be collected
g. Commissioner has sole The Commissioner has the sole authority to abate or cancel tax, penalties and/or interest.
authority to abate or
cancel
h. Processing for 1) The application for abatement or cancellation of tax, penalties and/or interest should be acted upon by the
abatement or processing office within 5 days from receipt by said office.
cancellation of tax 2) The BIR National Office has 30 days within which to act on the case.

4. Tax Credit or Refund

a. Instances of tax credit or
refund
b. Filing claim for credit or
refund
The Commissioner may credit or refund:
(1) taxes erroneously or illegally received or
(2) penalties imposed without authority,
(3) refund the value of internal revenue stamps when:
(a) they are returned in good condition by the purchaser, and,
(b) in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund
their value upon proof of destruction.
No credit or refund of the taxes or penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty.

c. Return showing A return filed showing an overpayment shall be considered as a written claim for the credit or refund.
overpayment
d. TCC may be applied A Tax Credit Certificate validly issued under the provisions of the Tax Code may be applied against any internal
against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable.
revenue tax

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THOT: We cannot discover new oceans unless we have the courage to lose sight of the shore. - Teen Esteem jb

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