Tax Remedies – Part 2
Florendo Dauz Jr., CPA, MBA, MSA
Tax Remedies of the Government
PRIMARY REMEDIES
1. Assessment
2. Collection
Prescriptive period of Assessment
Within three years from the date of the actual filing of the return or
deadline required by law, whichever is later.
EXCEPTIONS TO THE 3-YEAR PRESCRIPTIVE
1. Fraudulent Returns
2. Willful neglect to file
3. Waiver of the statutes of limitation by the taxpayer
Assessment
STAGES OF ASSESSMENT
1. Selection of the Taxpayer to be audited
2. Audit of taxpayers
3. Assessment of taxpayers with unpaid or deficiency tax
Assessment
1. Selection of the Taxpayer to be audited
The BIR selects taxpayers to be audited based on its Annual Audit
Program. It may also identify taxpayers for audit through:
a. Tax Compliance verification drive
b. Information furnished by tax informers
c. Pre-audit of tax returns
d. Direct field observations by revenue officers
Assessment
2. Audit of taxpayers
BIR Audit Process
[Link] of Letter of Authority (LA) to the revenue officer
2. Conduct of the audit examination
3. Reporting of the results of examination
A Letter of Authority (LA) is an official document that authorizes a BIR
Revenue Officer to examine a taxpayer’s books or accounts and other
accounting records in order to determine the correct tax.
Assessment
Who issues and approves the LAs
Investigating Office Approving Official
Revenue District Office Regional Director
Large Taxpayer Service Audit Division Assistant Commissioner - LTS
National Investigation Division and Commissioner of Internal
Special Investigation Division Revenue
Requisites of a valid LA
[Link] LA must be served to the taxpayer within 30 days from its date of issuance.
[Link] LA must be an electronic LA (eLA) printed under BIR from 1966 issued under the BIR Letter
of Authority Monitoring System (LAMS).
Revalidation
- Can be revalidated ONCE if issued by Regional Office or Revenue District
Office
- TWICE if issued by the National office
Assessment
Other BIR notices to taxpayers
[Link] Verification Notice (TVN) – authorizes the verification of One-
time transactions (ONETT) cases such as estate tax, donor’s tax, and
capital gains tax.
2. Letter of Notice (LN) – 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
Assessment
Data Matching System
Discrepancies noted by the matching system 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.
Period of investigation
120 days counted from the date of receipt of the eLA by the taxpayer.
After the lapse of such period, the eLA must be surrendered and may
be revalidated when needed.
Assessment
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.
Assessment
REPORTING ON THE RESULTS OF THE EXAMINATION
After the examination, the revenue officer reports the results of his investigation and
recommend the issuance of assessment to the taxpayer.
Aside from the Tax Deficiency (Tax Due), the BIR will impose the following:
[Link] –
Simple Neglect – 25%
Willful Neglect – 50%
2. Interest – 12% per annum.
3. Compromise Penalty – a settlement for the government not to enforce criminal
prosecution
Example: P1,000 per document not filed.
ASSESSMENT PROCEDURE
1. Pre-Assessment Notice (PAN) – letter issued by the Regional Assessment
Division informing the taxpayer of its tax deficiency.
Taxpayer has 15 days upon receipt to reply to the assessment. Failure to reply makes the
assessment final and demandable.
2. Formal Letter of Demand and Final Assessment Notice (FLD/ FAN) – a final
declaration of tax deficiency issue to taxpayers who:
a. Defaulted by failing to respond to the PAN within 15 days of its receipt
b. Replied to the PAN but is not meritorious
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 is equivalent to denial of the taxpayer’s reply to the PAN.
ASSESSMENT
3. 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:
Resolution Assessment is
1. Resolved in favor of the taxpayer Cancelled
2. Resolved with reduction of liability Revised
3. 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 (CTA).
Subsequent petition for review on certiorari before the Supreme Court may be filed.
