TAX REMEDIES

27 APRIL 2020
TOPIC OUTLINE

Power/Remedy of
Assessment

Prescription of
Government’s right to assess

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 POWER AND REMEDY OF ASSESSMENT

• Section 56 and Section 71

• Bonifacio Sy Po vs. Court of Tax Appeals (August 18, 1988)
Tax assessments by tax examiners are presumed correct and made in good faith.
The taxpayer has the duty to prove otherwise.  In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a Bureau
of Internal Revenue examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax assessments.

• Collector of Internal Revenue vs. Benipayo (January 31, 1962)

The presumption of correctness of assessment being a mere presumption
cannot be made to rest on another presumption that the circumstances in
1952 and 1953 are presumed to be the same as those existing in 1949 to
1951 and July 1955. In the case under consideration there are no
substantial facts to support the assessment in question 3
 POWER AND REMEDY OF ASSESSMENT

• Meralco Securities Corp. vs. Savellano (October 23, 1982)

Since the office of the Commissioner of Internal Revenue is charged with the administration of
revenue laws, which is the primary responsibility of the executive branch of the government,
mandamus may not he against the Commissioner to compel him to impose a tax assessment not
found by him to be due or proper for that would be tantamount to a usurpation of executive
functions.
• Republic vs. Hizon (December 13, 1999)

Sec. 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in
him under the pertinent provisions of the Code to any subordinate official with the rank equivalent
to a division chief or higher. Revenue Administrative Order No. 10-95 specifically authorizes the
Litigation and Prosecution Section of the Legal Division of regional district offices to institute the
necessary civil and criminal actions for tax collection
*The exceptions under Section 7 (non-delegable powers such as power to recommend rules,
issue rulings, compromise, assignment of officers in other divisions ) are not applicable in the
case at bar.

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 POWER AND REMEDY OF ASSESSMENT

• Commissioner of Internal Revenue vs. Gonzalez (October 13, 2010)

Tax assessments by tax examiners are presumed correct and made in

good faith, and all presumptions are in favor of the correctness of a tax
assessment unless proven otherwise.  We have held that a taxpayers
failure to file a petition for review with the Court of Tax Appeals within the
statutory period rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the defenses of legality
or validity of the assessment and prescription of the Governments right to
assess. Indeed, any objection against the assessment should have been
pursued following the avenue paved in Section 229 (now Section 228) of
the NIRC on protests on assessments of internal revenue taxes.
The determination of probable cause is part of the discretion granted to the
investigating prosecutor and ultimately, the Secretary of Justice. However,
this Court and the CA possess the power to review findings of prosecutors
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in preliminary investigations.
 BIR ASSESSMENT PHASES

Must be served in 30
Letter of Authority (LoA)
days Submit
If Yes Documents
Notice for Informal Conference (NIC)
30 days If No
to file 15 days to
Reply Preliminary Assessment Notice (PAN) file Protest
Subpoena

If No
Final Assessment Notice (FAN) compliance

30 days to file Protest with Request of either: 1) Reconsideration; 2)Reinvestigation. If Reinvestigation +60 Information/
days Court case
Final Decision on Disputed Assessment
(FDDA)- (180 days)
30 days
Motion for Judicial
Pay
Reconsideration Remedies
Collection
Office of the (Court of Tax
Commissioner Proceedings
Appeals)
Steps in the Assessment and Collection of Taxes

1. Issuance of Letter of Authority (LOA)

• The LA is the document which authorizes the BIR officials named therein to audit the
books of the taxpayer. An LOA would include the following information: (1) taxes
covered; (2) period covered; (3) authorized examiners; and (4) authorized signatory.

• The BIR has now adopted the electronic LOA (eLA) format. Taxpayers who received
manual LOA has the right to disregard it and not entertain the BIR officers who will
conduct the audit.

• An LOA should be served on the taxpayer within 30 days from issuance

• Revenue Memorandum Circular No. 75-2018- Any tax assessment without an LOA is a
violation of the taxpayer’s right to due process and is therefore inescapably void.

• Revenue Memorandum Order No 5-2009- Fraud or RATE cases under the jurisdiction of
the National Investigation Division

• Revenue Memorandum Order 69-2010- Signatories of a LOA- Regional Director,

Assistant Commissioner for LT Service, Commissioner 7
Steps in the Assessment and Collection of Taxes

1. Issuance of Letter of Authority (LOA)

• Commissioner of Internal Revenue vs. Sony Philippines, Inc. (November 17, 2010)

The Supreme Court invalidated a LA which covered the taxable periods 1997 and
unverified prior years. This is a violation of the taxpayer’s right to due process and
contravenes Section C of Revenue Memorandum Order No. 43-90 dated September 20,
1990the pertinent portion of which reads:
 
A Letter of Authority should cover a taxable period not exceeding one taxable
year. The practice of issuing L/As covering audit of unverified prior years is hereby
prohibited. If the audit of a taxpayer shall include more than one taxable period, the
other periods or years shall be specifically indicated in the L/A

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Steps in the Assessment and Collection of Taxes

1. Letter Notice vs. LOA

• Under Revenue Memorandum Order 55-2010 (June 15, 2010)- a Letter Notice was
considered upheld by the BIR. A letter notice is a form of audit tool which requires the
recipient to explain the discrepancies noted in the system of the BIR.

• Under RMC 40-2003- An LN is considered a Notice of Audit in which no amendment of

tax returns is allowed after its receipt

• While a Letter notice (LN) was considered a notice of audit in which case no amendment
is allowed after receiving the said LN, a Letter Notice cannot replace an LOA.

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Steps in the Assessment and Collection of Taxes

1. Letter Notice vs. LOA

• Medicard vs. Commissioner of Internal Revenue (April 5, 2017, G.R. No. 222743)

The SC ruled that LOA cannot be dispensed with just because none of the financial books or
records being physically kept was examined. The SC opined that the statutory requirement
of issuance of a LOA is not dependent on whether the taxpayer may be required to
physically open his books or financial records, but only on whether a taxpayer is being
subject to examination. A LN is issued only for the purpose of notifying the taxpayer that a
discrepancy is found based on the BIR’s Relief System and nothing more.

The Court also took note of Revenue Memorandum Order (RMO) 32-2005, which states that
in case the discrepancies shown in the LN remained unresolved within 120 days from
issuance of the LN, the revenue officer shall recommend the issuance of a LOA to replace
the LN. Thus, following this RMO, due process requires that the revenue officer should
secure first a LOA before proceeding with the further examination and assessment of a
taxpayer. The Court cannot convert or treat the LN into the LOA required under the law. If no
LOA is secured, the assessment on the basis of LN is void.

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Prescription of government’s right to assess

• Assuming there is a VALID LOA, what is the limitation of the BIR to assess?
The period to assess must follow the limitation set under Section 203

Section 203. Period of Limitation Upon Assessment and Collection. – Except

as provided in Section 222, internal revenue taxes shall be assessed within three
(3) years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return
is filed beyond the period prescribed by law, the three (3)-year period shall be
counted from the day the return was filed. For purposes of this Section, a return
filed before the last day prescribed by law for the filing thereof shall be considered
as filed on such last day.

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 Prescription of government’s right to assess
• Prescription is for the benefit of both the government and the taxpayer:

− Government – expedites the collection of taxes so that the BIR will not tarry too long
or indefinitely to the prejudice of the interest of the government.
− Taxpayer – So that within a reasonable time after filing his return, he may know the
amount of taxes he is required to pay, whether or not the assessment is well founded
and reasonable so that he may either pay the amount or contest its validity in court.

• As a general rule, the BIR can assess deficiency taxes within 3 years from the last day
imposed by the Tax Code to file the tax return.

• If the taxpayer filed the tax return after the last day (late filing), the 3-year period begins
from the date of actual filing.

• If the BIR did not issue a Formal Assessment Notice/ Formal Letter of Demand (FAN/FLD)
within the 3-year period, it is barred from assessing the taxpayer.

• Period to assess is DIFFERENT from the Period to collect. The BIR has 5 years from
assessment to collect the tax.
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Prescription of government’s right to assess

• Exceptions to the 3-year assessment period:

Section 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes.

− When there is a 1) false or 2) fraudulent return with intent to evade tax, or

3) failure to file return. In this case, the prescriptive period is 10 years from
discovery of falsity, fraud, or omission.
− When the taxpayer and BIR executed a valid written waiver within the
prescriptive period
Section 223. Suspension of Running of Statute of Limitations.
• When the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty (60) days
thereafter . (Example- ECQ)
• When the taxpayer cannot be located in the address stated in the tax
return, unless the taxpayer informed of the change in address
• When taxpayer is out of the Philippines

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 Prescription of government’s right to assess
• Commissioner of Internal Revenue vs. Goodrich Phils., Inc. (February 24, 1999)

The fact that private respondent sold its real property for a price less than its
declared fair market value did not by itself justify a finding of false return. Since
private respondent declared the said sale in its 1974 Income Tax Return, the BIR
should have issued the questioned assessment within the five-year prescriptive
period. Moreover, since the BIR failed to prove that respondent's 1974 return had
been filed fraudulently with intent to evade the payment of the correct amount of
tax, or that it had failed to file a return at all, the period for assessments had
obviously prescribed.

• Basilan Estates, Inc. vs. Commissioner of Internal Revenue (September 25,

1967)
 
Even granting that notice had been received by the petitioner late, as alleged,
under Section 331 of the Tax Code requiring five years within which to assess
deficiency taxes, the assessment is deemed made when notice to this effect is
released, mailed or sent by the Collector to the taxpayer and it is not required that
the notice be received by the taxpayer within the aforementioned five-year period
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 Prescription of government’s right to assess
• Nava vs. Commissioner of Internal Revenue (January 30, 1965)
Mere notations on the records of the tax collector of the mailing of a notice of a deficiency tax
assessment to a taxpayer, made without the taxpayer's intervention, notice or control, and
without adequate supporting evidence, cannot suffice to prove that such notice was sent and
received; otherwise, the taxpayer would be at the mercy of the revenue officers, without
adequate protection and defense.

• Republic of the Philippines vs. Court of Appeals (April 30, 1987)

As correctly observed by the respondent court in its appealed decision, while the contention
of petitioner is correct that a mailed letter is deemed received by the addressee in the
ordinary course of mail, still, this is merely a disputable presumption, subject to controversion,
and a direct denial of the receipt thereof shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed received by the addressee.
 
Since petitioner has not adduced proof that private respondent had in fact received the
demand letter of 16 July 1955, it can not be assumed that private respondent received said
letter. Records, however, show that petitioner wrote private respondent a follow-up letter
dated 19 September 1956, reiterating its demand for the payment of taxes as originally
demanded in petitioner's letter dated 16 July 1955. This follow-up letter is considered a notice
of assessment in itself which was duly received by private respondent in accordance with its
own admission. 15