tax remedies lecture1a

8/3/2019 Tax Remedies Lecture1a

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ADMINISTRATIVE REMEDIES

A. GENERAL AUDIT PROCEDURES AND DOCUMENTATION

1. When does the audit process begin?

The audit process commences with the issuance of a Letter of Authority to ataxpayer who has been selected for audit.

2. What is a Letter of Authority?

The Letter of Authority is an official document that empowers a RevenueOfficer to examine and scrutinize a Taxpayers books of accounts and otheraccounting records, in order to determine the Taxpayers correct internalrevenue tax liabilities.

3. Who issues the Letter of Authority?

Letter of Authority, for audit/investigation of taxpayers under the jurisdiction ofNational Office, shall be issued and approved by the Commissioner ofInternal Revenue, while, for taxpayers under the jurisdiction of RegionalOffices, it shall be issued by the Regional Director.

4. When must a Letter of Authority be served?

A Letter of Authority must be served to the concerned Taxpayer within thirty(30) days from its date of issuance, otherwise, it shall become null and void.

The Taxpayer shall then have the right to refuse the service of this LA, unlessthe LA is revalidated.

5. How often can a Letter of Authority be revalidated?

A Letter of Authority is revalidated through the issuance of a new LA.However, a Letter of Authority can be revalidated

Only once, for LAs issued in the Revenue Regional Offices or the RevenueDistrict Offices; or twice, in the case of LAs issued by the National Office.Any suspended LA(s) must be attached to the new LA issued (RMO 38-88).

6. How much time does a Revenue Officer have to conduct an audit?

A Revenue Officer is allowed only one hundred twenty (120) days from thedate of receipt of a Letter of Authority by the Taxpayer to conduct the auditand submit the required report of investigation. If the Revenue Officer isunable to submit his final report of investigation within the 120-day period, hemust then submit a Progress Report to his Head of Office, and surrender theLetter of Authority for revalidation.

7. How is a particular taxpayer selected for audit?

Officers of the Bureau (Revenue District Officers, Chief, Large TaxpayerAssessment Division, Chief, Excise Taxpayer Operations Division, Chief,Policy Cases and Tax Fraud Division) responsible for the conduct of


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audit/investigation shall prepare a list of all taxpayer who fall within theselection criteria prescribed in a Revenue Memorandum Order issued by theCIR to establish guidelines for the audit program of a particular year. The listof taxpayers shall then be submitted to their respective AssistantCommissioner for pre-approval and to the Commissioner of Internal Revenue

for final approval. The list submitted by RDO shall be pre-approved by theRegional Director and finally approved by Assistant Commissioner,Assessment Service (RMOs 64-99, 67-99, 18-2000 and 19-2000).

8. How many times can a taxpayer be subjected to examination and inspectionfor the same taxable year?

A taxpayers books of accounts shall be subjected to examination andinspection only once for a taxable year, except in the following cases:

When the Commissioner determines that fraud, irregularities, or mistakes

were committed by Taxpayer; when the Taxpayer himself requests a re-investigation or re-examination of his books of accounts; when there is a needto verify the Taxpayers compliance with withholding and other internalrevenue taxes as prescribed in a Revenue Memorandum Order issued by theCommissioner of Internal Revenue. When the Taxpayers capital gains taxliabilities must be verified; and when the Commissioner chooses to exercisehis power to obtain information relative to the examination of other Taxpayers(Secs. 5 and 235, NIRC).

9. What are some of the powers of the Commissioner relative to the auditprocess?

In addition to the authority of the Commissioner to examine and inspect thebooks of accounts of a Taxpayer who is being audited, the Commissionermay also: obtain data and information from private parties other than theTaxpayer himself (Sec.5, NIRC); and conduct inventory and surveillance, andprescribe presumptive gross sales and receipts (Sec. 6, NIRC).

10. What is a Notice for Informal Conference ?

A Notice for Informal Conference is a written notice informing a Taxpayer thatthe findings of the audit conducted on his books of accounts and accounting

records indicate that additional taxes or deficiency assessments have to bepaid. If, after the culmination of an audit, a Revenue Officer recommends theimposition of deficiency assessments, this recommendation is communicatedby the Bureau to the Taxpayer concerned during an informal conferencecalled for this purpose. The Taxpayer shall then have fifteen (15) days fromthe date of his receipt of the Notice for Informal Conference to explain hisside.

11. Within what time period must an assessment be made?

An assessment must be made within three (3) years from the last dayprescribed by law for the filing of the tax return for the tax that is beingsubjected to assessment or from the day the return was filed if filed late.However, in cases involving tax fraud, the Bureau has ten (10) years from thedate of discovery of such fraud within which to make the assessment.Any assessments issued after the applicable period are deemed to haveprescribed, and can no longer be collected from the Taxpayer, unless theTaxpayer has previously executed a Waiver of Statute of Limitations.


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12. What is "Jeopardy Assessment"?

A Jeopardy Assessment is a tax assessment made by an authorizedRevenue Officer without the benefit of complete or partial audit, in light of theROs belief that the assessment and collection of a deficiency tax will be

jeopardized by delay caused by the Taxpayers failure to: comply with auditand investigation requirements to present his books of accounts and/orpertinent records, or substantiate all or any of the deductions, exemptions orcredits claimed in his return.

13. What is a Pre-Assessment Notice (PAN)?

The Pre-Assessment Notice is a communication issued by the RegionalAssessment Division, or any other concerned BIR Office, informing aTaxpayer who has been audited of the findings of the Revenue Officer,following the review of these findings. If the Taxpayer disagrees with the

findings stated in the PAN, he shall then have fifteen (15) days from hisreceipt of the PAN to file a written reply contesting the proposed assessment.

14. Under what instances is PAN no longer required?

A Preliminary Assessment Notice shall not be required in any of the followingcases, in which case, issuance of the formal assessment notice for thepayment of the taxpayers deficiency tax liability shall be sufficient:

1. When the finding for any deficiency tax is the result of mathematicalerror in the computation of the tax appearing on the face of the tax return

filed by the taxpayer; or2. When a discrepancy has been determined between the tax withheldand the amount actually remitted by the withholding agent; or3. When a taxpayer who opted to claim a refund or tax credit of excesscreditable withholding tax for a taxable period was determined to havecarried over and automatically applied the same amount claimed againstthe estimated tax liabilities for the taxable quarter or quarters of thesucceeding taxable year; or4. When the excise tax due on excisable articles has not been paid; or5. When an article locally purchased or imported by an exempt person,such as, but not limited to, vehicles, capital equipment, machineries and

spare parts, has been sold, traded or transferred to non-exempt persons.

15. What is a Notice of Assessment/Formal Letter of Demand?

A Notice of Assessment is a declaration of deficiency taxes issued to aTaxpayer who fails to respond to a Pre-Assessment Notice within theprescribed period of time, or whose reply to the PAN was found to be withoutmerit. The Notice of Assessment shall inform the Taxpayer of this fact, andthat the report of investigation submitted by the Revenue Officer conductingthe audit shall be given due course.

The formal letter of demand calling for payment of the taxpayers deficiencytax or taxes shall state the facts, the law, rules and regulations, or

jurisprudence on which the assessment is based, otherwise, the formal letterof demand and the notice of assessment shall be void.

B. TAXPAYERS OBLIGATIONS AND PRIVILEGES

16. What is required of a taxpayer who is being audited?


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A Taxpayer who is being audited is obliged to:

1. Duly acknowledge his receipt of the appropriate Letter of Authority uponits presentation by the Revenue Officer authorized to conduct the audit byaffixing in the Letter of Authority the name of the recipient and the date of

receipt.2. Present within a reasonable period of time, his books of accounts andother related accounting records that may be required by the RevenueOfficer; and

3. Submit the necessary schedules as may be requested by the RevenueOfficer within a reasonable amount of time from his (Taxpayers) receipt ofthe Letter of Authority.

17. What is the recourse of a Taxpayer who cannot submit the documents beingrequired of him within the prescribed period of time?

If a Taxpayer, believing that he cannot present his books of accounts and/orother accounting records, intends to request for more time to present thesedocuments in order to avoid the issuance of a Jeopardy Assessment, theTaxpayer may execute what is referred to as a Waiver of the Statute ofLimitations.

18. What is a Waiver of the Statute of Limitations?

The Waiver of the Statute of Limitations is a signed statement whereby theTaxpayer conveys his agreement to extend the period within which theBureau may validly issue an assessment for deficiency taxes. If a Taxpayer

opts to execute a Waiver of the Statute of Limitations, he shall likewise be, ineffect, waiving his right to invoke the defense of prescription for assessmentsissued after the reglementary period. No Waiver of the Statute of Limitationsshall be considered valid unless it is accepted by a duly authorized Bureauofficial.

19. If a Taxpayer does not agree with the assessment made following an audit,can he protest this Assessment?

Yes, he can. A Taxpayer has the right to contest an assessment, and may doso by filing a letter of protest stating in detail his reasons for contesting the

assessment.

20. What are the characteristics of a valid protest?

A protest is considered valid if it satisfies the following conditions:

1. It is made in writing, and addressed to the Commissioner of InternalRevenue;

2. It contains the information, and complies with the conditions required bySec. 6 of Revenue Regulations No. 12-85; to wit:

(a) Name of the taxpayer and address for the immediate past three (3)

taxable year.(b) Nature of request whether reinvestigation or reconsiderationspecifying newly discovered evidence he intends to present if it is arequest for investigation.

(c) The taxable periods covered.(d) Assessment number.(e) Date of receipt of assessment notice or letter of demand.


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(f) Itemized statement of the findings to which the taxpayer agrees asa basis for computing the tax due, which amount should be paidimmediately upon the filing of the protest. For this purpose, theprotest shall not be deemed validly filed unless payment of theagreed portion of the tax is paid first.

(g) The itemized schedule of the adjustments with which the taxpayerdoes not agree.(h) A statement of facts and/or law in support of the protest.

The taxpayer shall state the facts, applicable law, rules and regulations orjurisprudence on which his protest is based, otherwise, his protest shall beconsidered void and without force and effect on the event the letter ofprotest submitted by the taxpayer is accepted, the taxpayer shall submitthe required documents in support of his protest within sixty (60) daysfrom date of filing of his letter of protest, otherwise, the assessment shallbecome final, executory and demandable.

It is filed within thirty (30) days from the Taxpayers receipt of the Noticeof Assessment and formal Letter of Demand.

21. In the event the Commissioners duly authorized representative denies aTaxpayers protest, what alternative course of action is open to theTaxpayer?

If a protest filed by a Taxpayer be denied by the Commissioners dulyauthorized representative, the Taxpayer may request the Commissioner for areconsideration of such denial and that his tax case be referred to the

Bureaus Appellate Division. The Appellate Division serves as a "Court",where both parties, i.e. the Revenue Officer on one hand, and the Taxpayeron the other, can present testimony and evidence before a Hearing Officer, tosupport their respective claims.

22. What recourse is open to a Taxpayer if his request for reconsideration isdenied or his protest is not acted?

Should the Taxpayers request for reconsideration be denied or his protestis not acted upon within 180 days from submission of documents by theCommissioner, the Taxpayer has the right to appeal with the Court of Tax

Appeals (CTA).

Any appeal must be done within thirty (30) days from the date of theTaxpayers receipt of the Commissioners decision denying the request forreconsideration or from the lapse of the 180 day period counted from thesubmission of the documents. (Sec. 228 of the Tax Code, as amended).

23. If the Taxpayer is not satisfied with the CTAs decision, can he appeal thedecision to a higher Court?

Yes, he can. Decisions of the Court of Tax Appeals may be appealed with theCourt of Appeals within fifteen (15) days from the Taxpayers receipt of theCTAs decision. In the event that the Taxpayer is likewise unsatisfied with thedecision of the Court of Appeals, he may appeal this decision with theSupreme Court.

24. Can a Taxpayer claim a refund or tax credit for erroneously or illegallycollected taxes?


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Yes, he can. The Taxpayer may file such a claim with the Commissioner ofInternal Revenue (Sec.229, NIRC), within two (2) years from the payment ofthe tax or penalty sought to be refunded. Failure of the Taxpayer to file sucha claim within this prescribed period shall result in the forfeiture of his rightto the refund or tax credit.

25. If a Taxpayer has filed a claim for refund and the Bureau has yet to render adecision on this claim, can the Taxpayer elevate his claim to the CTA?

Yes, he can, if the two (2) year period stated above is about to end, and theCommissioner has yet to render a decision on the claim. (Gibbs v. Collector,L-13453, February 29, 1960).

C. REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND

COLLECTION OF DELINQUENT ACCOUNTS

26. What means are available to the Bureau to compel a Taxpayer to produce hisbooks of accounts and other records?

A Taxpayer shall be requested, in writing, not more than two (2) times, toproduce his books of accounts and other pertinent accounting records, forinspection. If, after the Taxpayers receipt of the second written request, hestill fails to comply with the requirements of the notice, the Bureau shall thenissue him a Subpoena Duces Tecum.

27. What course of action shall the Bureau take if the Taxpayer fails to complywith the Subpoena Duces Tecum?

1. If, after the Taxpayer fails, refuses, or neglects to comply with therequirements of the Subpoena Duces Tecum, the Bureau may:

2. File a criminal case against the Taxpayer for violation of Section 5 as itrelates to Sections 14 and 266, of the NIRC, as amended; and/or

3. Initiate proceedings to cite the Taxpayer for contempt, under Section 3(f),Rule 71 of the Revised Rules of Court.

28. What alternatives are open to Government for the collection of delinquentaccounts?

1. Once an assessment becomes final and demandable, the Governmentmay employ any, or all, of the following remedies for the collection ofdelinquent accounts:

2. Distraint of personal property;3. Levy of real property belonging to the Taxpayer;4. Civil Action; and5. Criminal Action.

29. What is "Distraint of Personal Property"?

Distraint of personal property involves the seizure by the Government of

personal property - tangible or intangible - to enforce the payment of taxes,followed by the public sale of such property, if the Taxpayer fails to pay thetaxes voluntarily.

30. What is "Levy of Real Property"?

Levy of real property refers to the same act of seizure, but in this case of realproperty, and interest in or rights to such property in order to enforce the


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payment of taxes. As in the distraint of personal property, the real propertyunder levy shall be sold in a public sale, if the taxes involved are notvoluntarily paid following such levy.

31. In what time period must collection be made?

Any internal revenue tax, which has been assessed within the periodprescribed shall be collected within three (3) years from date of assessment.However, tax fraud cases may be collected by distraint or levy or by a courtproceeding within five (5) years from assessment of the tax or from the lastwaiver.

tax remedies lecture1a

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