TX102 (Preferential & Local Taxation and Special Topics)

Instructor: Zandro W. Payocong

Module 3
Tax remedies of the taxpayers and the government

Learning Outcomes:
At the end of the module, the students are expected to:
 Identify and explain the different remedies of the government
 Identify and explain the different remedies of the taxpayers
 Explain the purpose of the Court of Tax Appeals
 Solve cases involving tax disputes

Teaching – Learning Activity (Lesson Proper):

Government Remedies
The government is not totally at the mercy of taxpayers. The government can resort to its legally
mandated procedures to enforce the determination and collection of the correct amount of tax from the
taxpayers. These procedures are referred to as ‘’government remedies’’

PRIMARY REMEDIES OF THE GOVERNMENT

 Assessment is the act or process of determining the tax liability of a taxpayer in accordance with
tax laws. Assessment also pertains to the notice sent by the government to the taxpayer informing
him of his unpaid or still unpaid tax obligation coupled with a demand to pay the same.
 Collection pertains to the procedures of the government to enforce payment of unpaid taxes from
delinquent taxpayers.

ASSESSMENT
An assessment calling for the payment of a deficiency tax or unpaid tax can only be made after the
government has established the correct or the reasonably correct amount of tax of the taxpayer.

Powers of the CIR Relative to Tax the Determination of Correct Tax:

Relative to the determination of the correct taxes of the taxpayer, the Commissioner of Internal Revenue
is empowered to:
a. To obtain data and information from third parties
b. To conduct inventory surveillance
c. To examine and inspect the books of accounts of a taxpayer
d. To prescribe presumptive gross sales and receipts

PRESCRIPTIVE PERIOD OF ASSESSMENT

The law requires that assessment must be made within 3 years from the date of actual filing of the return
or the deadline required by law, whichever is later.

Exception to the 3-year rule:

1. Fraudulent returns
 2. No return was filed by the taxpayer.
 In case of fraudulent returns and non-filing of return, the BIR has up to 10 years from the
discovery of the fraud or non-filing of returns to make assessment.
3. Waiver statutes of limitation by the taxpayer.
 When the taxpayer requests for a reinvestigation of his assessment which is granted by the
CIR, the CIR and the taxpayer usually agrees for the temporary suspension of the prescriptive
period for not less than 6 months to give way for the reinvestigation.

Summary of Prescription Rules: Deadlines of assessment

 With a return filed
a. Return is non-fraudulent - 3 years from date of filing or deadline whichever is late
b. Return is fraudulent - 10 years from the discovery of fraud
 Non-filing of tax return - 10 years from the discovery of non-filing

***Taxpayer’s right to modify, change or amend return

Any return, statement of declaration filed within any office authorized to receive the same shall not be
withdrawn. Provided, that within 3 years from the date of such filing, the same may be modified,
changed, or amended. Provided, further, that no notice for audit or investigation of such return, statement
or declaration has in the meantime been actually served upon the taxpayer. (Sec.6 (A), NIRC)

STAGES OF ASSESSMENT
1. Selection of taxpayer’s to be audited
2. Audit of the taxpayers
3. Assessment of taxpayers with unpaid or deficiency tax

SELECTION OF TAXPAYERS TO BE AUDITED

The BIR selects taxpayers to be audited based on selection criteria established in the BIR’s Annual Audit
Program. The BIR Annual Audit Program identifies high risk taxpayers and medium risk taxpayers to be
the audit priority for each year.

The BIR may also identify taxpayers to be subjected to regular audit from the following:
a) Tax compliance verification drive
b) Information furnished by tax informers
c) Pre-audit of tax returns
d) Direct field observation by revenue officers
Tax Compliance Verification Drive
Tax Compliance Verification Drive also known as Tax Mapping are intended to locate and identify
taxpayers who do not comply with basic tax requirements such as registration, bookkeeping or invoicing.

To enforce taxpayer compliance, the BIR instituted a program called ‘’ Oplan Kandado” (OK).
Taxpayers’ business will be suspended or temporarily closed for failure to comply with tax regulations.

Tax compliance verification drive may also discover taxpayers with possible unpaid
taxes which may qualify for a detailed audit.

Tax Information
Taxpayers which could be subjected to regular detailed audit may be identified based on information
furnished by tax informants. Tax informants are given reward based on the taxes collected from such
information

Pre-audit of Annual Income Tax Return

Pre-audit is conducted to verify the following:
1. Mathematical computations of income tax due and payment
2. Correctness and applicability of exemptions claimed by individuals against the registration
records
3. Correctness and validity of deductions and expenses subject to ceiling limitations
4. Validity of claims for income tax holiday, tax exemption and other claimed tax incentives
5. Correctness of the application of the minimum corporate income tax
6. Claimed creditable withholding taxes against tax due and substantiation of claims through
certificates of withholding tax
7. Correct utilization of tax credit certificates which should be duly supported by an approved Tax
Debit Memo issued by the authorized RDO
8. Correctness of deductions claimed by taxpayers who opted OSD
9. Accuracy and applicability of the computation of the NOLCO
10. Completeness of the required attachment to annual ITRs

The pre-audit of tax return is not a regular audit. It is conducted entirely within the BIR office without
field investigation.

If the pre-audit results to a deficiency tax, the revenue officer prepares a memorandum report. The
taxpayer shall be informed via a letter to be signed by the RDO. The letter
shall state the deficiency tax as a result of the pre-audit and shall require payments within 15 days.

If the taxpayer agrees to the deficiency tax, he shall pay using the Payment Form (BIR Form 0605). If the
taxpayer does not pay the deficiency tax, the revenue officer will prepare a report recommending the
issuance of an assessment to the taxpayer.

If the revenue officer recommends a thorough audit investigation of the taxpayer, the taxpayer will be
subject to a regular audit.

THE BIR TAX AUDIT PROCESS

1. Release of letter of authority (LA) to the revenue officer
2. Conduct of the audit investigation
3. Reporting on the results of examination

RELEASE OF LETTER OF AUTHORITY TO THE REVENUE OFFICER

What is a Letter Authority?
A Letter of Authority (LA)is an official document that authorizes a BIR Revenue Officer to examine a
taxpayer’s books of accounts and other accounting records in order to determine his correct internal
revenue tax liabilities.

Who issues and approves the LAS?

Investigating office Approving official
 Revenue District Office Regional Director
Large Taxpayer Service Audit Divisions Assistant Commissioner-LTS
National Investigation Divisions and Special Commissioner of Internal Revenue
Investigation Divisions

Requisites for the validity of an LA:

1. The LA must be served to the taxpayer within 30 days from its date of issuance.
2. The LA must be an electronic LA(eLA) printed under BIR Form 1966 issued under the BIR Letter of
Authority Monitoring System (LAMS).

Manual LAs are no longer allowed. Examiners or revenue officers who conduct audit investigation
without an eLA will be subjected to administrative sanctions.

Only one LA shall be issued to the taxpayer. Taxpayers who were inadvertently issued with multiple LAS
shall inform the concerned BIR officer and formalize his request for cancellation of the other LA.

Other BIR notices to taxpayers:

1. Tax verification notice (TVN) - A Tax verification notice authorizes evaluation or verification of tax on
one-time transactions(ONETT) cases such as estate tax, donor’s tax and capital gains tax.
2. Letter notice (LN) - A Letter notice 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.

Third party information may be taken by the BIR from Reconciliation of Listing for Enforcement System
(RELIEF) filing for other taxpayers including data gathered by other government agencies or
instrumentalities.

Data Matching Systems

The BIR national office embarked on a program called Data Matching which is basically a data mining
technique intended to match taxpayer’s reported data such as sales against data furnished by third parties
such as purchases of the taxpayer’s customers. Significant discrepancies or variances noted may indicate
the presence of unpaid taxes which must be checked.
Discrepancies noted by the matching systems are forwarded by the national office to the revenue district
office which has jurisdiction to the concerned taxpayer. The revenue district office will serve the LN to
the taxpayer.

Reconciliation of discrepancies
Taxpayers have 5 days from the receipt of the LN to reconcile the discrepancies noted therein. If the
taxpayer agrees to the finding of discrepancies, they must settle any resultant tax liability within 30 days
from the receipt of the LN.

Timely payment of the LN will entitle the taxpayer to abatement of corresponding surcharge, interest and
compromise penalty.

Consolidation of LN and eLA

Taxpayers who are selected for regular audit by the RDO may likewise be concurrently issued with an LN
by the national office. The LN in such case shall be consolidated with the eLA issued for such
examination.

LN payments may be claimed as tax credit

Taxpayers who are selected for regular audit may have paid taxes under an LN. The amount paid under
the LN may be considered as tax credit against any findings of deficiency under the eLA (regular audit) to
the extent that they pertain to the same issues.

CONDUCT OF THE AUDIT EXAMINATION

The examination must be generally conducted in the place of business of the taxpayer.
 Period of investigation - Revenue officers have up to 120 days counted from the date of receipt of
the eLA by the taxpayer in which to conduct the audit and to submit his report of investigation.
After the lapse of such period, the eLA must be surrendered and may be revalidated when needed.
 Frequency of revalidation of LAs - eLAs may be revalidated once for those issued by regional
Offices or Revenue District Offices or twice in the case of LAs issued by the National Office.
Suspended eLAs must be attached to the new eLAs.
 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 request 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 gain tax liabilities must be verified
e. The CIR exercises his power to obtain information relative to the examination of other
taxpayers

Power of the CIR to obtain information and to summon, examine and take testimony of persons
When after reasonable demands, certain documents, information or records are not forthcoming during
the examination, the BIR may issue subpoena to the taxpayer and or other person in possession of the
same to produce them.

Types of subpoena:
1. Subpoena ducestecum - A summon upon the taxpayer or other persons compelling them to produce,
under penalty of neglect, certain documents sought therein. This is usually issued to the taxpayer after his
failure to comply on two consecutive requests to produce his books for examination.
2. Subpoena ad testificandum - A summon upon a person to appear and to give oral testimony.

REPORTING ON THE RESULTS OF THE EXAMINATION

After the examination, the revenue officer reports the results of his investigation.

Finding the Sufficient Basis of Assessment

When the BIR examination or verification determined that there exists a sufficient basis to assess the
taxpayer for any deficiency tax or taxes, the revenue officer shall recommend in his report the issuance of
an assessment to the taxpayer.

ASSESSMENT OF THE TAXPAYER

The assessment stage may involve the issuances of the following notices in sequence:
1. Notice of Informal Conference (RR 7 -2018)
2. Pre – assessment Notice (PAN)
3. Formal Letter of Demand and Final Assessment (FLD/FAN)
4. Final Decision on a Disputed Assessment (FFDA)

What is a Notice of Informal Conference (NIC)?

A “Notice of Informal Conference” is a written notice informing a taxpayer that the findings of the audit
conducted on his books of accounts and accounting records indicate that there is a discrepancy in his tax
payments which has to be paid.
* RR 7-2018 Notice for informal Conference. - The Revenue Officer who audited the taxpayer's records
shall, among others, state in his report whether or not the taxpayer agrees with his findings that the
taxpayer is liable for deficiency tax or taxes. lf the taxpayer is not amenable, based on the said Officer's
submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District
Office or by the Special Investigation Division, as the case may be (in the case of Revenue Regional
Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy
or discrepancies in the taxpayer’s payment of his internal revenue taxes. for the purpose of "informal
Conference," in order to afford the taxpayer with an opportunity to present his side of the case.

The informal Conference shall in no case extend beyond thirty (30) days from receipt of the notice for
informal conference. lf it is found that the taxpayer is still liable for deficiency tax or taxes after
presenting his side, and the taxpayer is not amenable, the
Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional
Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case within
seven (7) days from the conclusion of the informal Conference to the Assessment Division of the
Revenue Regional Office or to the Commissioner or his duly authorized representative for issuance of a
deficiency tax assessment.

Failure on the part of Revenue Officers to comply with the periods indicated herein shall be meted with
penalty as provided by existing laws, rules and regulations."

What is a Preliminary Assessment Notice (PAN)?

A PAN is a written communication issued by the Regional Assessment Division, or any other concerned
BIR office informing the taxpayer of his obligation for deficiency tax based on the audit findings of a
revenue officer.

The taxpayer has up to 15 days from the receipt of the PAN to reply to the proposed assessment. It must
be noted that the PAN is not yet an assessment and does not establish a legal claim on the part of the
government. However, the failure of the
taxpayer to reply to the PAN shall make the impending assessment final, demandable and non –
appealable.

If the taxpayer agrees to the findings in the PAN and pays the tax, the BIR cancels the docket and a
termination letter or closure letter is sent to the taxpayer.
If the taxpayer merely responded that he disagrees with the findings of deficiency, a Formal Letter of
Demand and Final Assessment Notice (FLD/FAN) calling for payment of the tax deficiency will be
issued to the taxpayer.

What is a Formal Letter of Demand and Final Assessment Notice (FLD/FAN)?

An FLD/Fan is a final declaration of deficiency tax issued to a taxpayer:
a. who defaulted by failing to respond to the PAN within 15 days of its receipt
b. whose reply to the PAN is unmeritorious

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 to the taxpayer is tantamount to denial to the taxpayer’s reply to the PAN
(Philippine Health Care Providers vs. CIR)

Requisites of a valid assessment (FLD/FAN):

1. The assessment must be served within the prescriptive period.
2. The assessment must inform the taxpayer of the discovery of unpaid or still unpaid tax coupled
with a demand of the same including penalties.
3. The assessment must show in detail the facts and the law, rules and regulations, or jurisprudence
on which the assessment is based.
4. The assessment must be served through registered mail or by personal delivery and
acknowledged by the taxpayer or his duly authorized representative.
5. The assessment must be preceded by a pre – assessment notice.

An assessment which lacks any of these requisites is void. Hence, a “show – cause letter” or a letter from
a revenue officer granting the taxpayer an opportunity to disprove his audit findings is does not quality, or
substitute, an assessment.

Moreover, affidavit executed by revenue officers containing computations of deficiency taxes to support
the criminal complaint against a taxpayer is also not an assessment. (See CIR vs. Pastor Realty)

Instances where no PAN is required

The PAN is required as a matter of procedural due process for the taxpayer to be apprised of his
obligation. Hence, a FLD/Fan is generally void without a PAN.
1. When the finding of deficiency tax is the result of mathematical error in the computation of the
tax appearing on the face of the tax return filed by the taxpayer;
2. When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent;
3. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax
for a taxable period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
4. When the excise tax due on excisable articles has not been paid;
5. 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.
An FLD/FAN is issued outright in the aforementioned exceptional cases. If the taxpayer pays the
FLD/FAN, the docket is cancelled by the BIR and a termination letter or closure letter is sent to the
taxpayer.

Jeopardy Assessment
Jeopardy assessment is one made by an authorized revenue officer without the benefit of a complete or
partial audit in light of the officer’s belief that the assessment and collection of a deficiency tax will be
jeopardized by the delays caused by the
taxpayer to comply with audit and investigation requirements to present his book of accounts and
pertinent records or substantiate all of the deductions, exemptions or credit claimed in his return.

Dispute of Assessment
The FLD/FAN may be administratively protested by the taxpayer by filing a written protest to the BIR
within 30 days upon receipt thereof.

Types of Taxpayer’s Protest:

1. Request for reconsideration – a plea for a re-evaluation of an assessment on the basis of existing
records without need of additional evidence which may involve question of facts or of law or
both.
2. Request for re-investigation – a plea for re-evaluation of an assessment on the basis of newly
discovered or additional evidence that the taxpayer intends to present in the reinvestigation which
may also involve a question of fact or of law or both

In case of request for re-investigation, taxpayers are mandatorily required to submit relevant supporting
documents within 60 days from the date of filing of the protest. The taxpayer will be required to sign a
“Waiver of the Statutes of Limitation” for a period of not less than 6 months to give way for the re-
investigation.

The BIR assessment division will settle question of facts. The BIR legal division will settle questions of
law.

The failure of the taxpayer to reasonably interpose a valid protest shall make the assessment final,
executor and demandable and no request for reconsideration or re-investigation shall be granted.

Finality of assessment on undisputed issues

If the taxpayer disputes or protests only against the validity of some issues raised in the assessment, the
assessment attributable to the undisputed issue or issues shall become final, executor and demandable.

If the taxpayer failed to state the facts, the applicable law, rules and regulations or jurisprudence in
support of his protest against certain issues, the same shall be considered undisputed issues, in which
case, the assessment attributable thereto shall
become final, executor and demandable.

The failure of the taxpayer to validly protest the FLD/FAN within 30 days upon release thereof shall
result in the assessment becoming final and executor.
In such case, the taxpayer shall lose his right to refute the findings, except when:
a. The taxpayer did not receive the FAN
b. The taxpayer availed of the amnesty program

It is also noteworthy to mention that the burden of proving that the assessment was actually received by
the taxpayer rests
upon the government.

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:

If the protested assessment is The assessment is
a. Resolved in favor of the taxpayer Cancelled
b. Resolved with reduction of liability Revised
c. Sustained Enforced

Judicial Appeal
The FFDA 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 after which an adverse ruling may be the subject of a
petition for review on certiorari before the Supreme Court. However, assessments that achieved
administrative finality are enforceable by the BIR for collection.

COLLECTION
Collection will be enforced by the government once the assessment achieved finality under any of the
following instances:
A. When the taxpayer defaulted in his administrative remedies
a. Failure of the taxpayer to seasonably respond to the PAN
b. Failure of the taxpayer to seasonably protest the FLD/FAN
B. Denial of the taxpayer’s protest by the CIR or his authorized representative
C. Whether or not on appeal, when the assessment is upheld by the court

Collection is enforceable once assessment became final and executory

Though valid and seasonably made, an appeal interposed by the taxpayer before the CTA does not
suspend the payment, levy, distraint and or slae of any property of the taxpayer for the satisfaction of his
liability. (Sec 11, RA 1125, as amended by RA 9282)

Non – injunction of tax collection

No court shall have the authority to grant an injunction to restrain the collection of any national internal
revenue tax, fee or charge imposed by the NIRC. (See Sec 218, NIRC). The CTA, however, is authorized
to suspend the collection of taxes when it may be jeopardizing the interest of the taxpayer and or the
government (Sec 11, RA 1125).

Payment under Protest

To avoid the imposition of interest, penalties or charges on a contested assessment, a taxpayer may pay
the contested assessment under protest. The taxpayer can file a claim for refund later when the disputed
assessment is partially or wholly decided in his favor.

Government Remedies to Enforce Collections:

1. Imposition of tax lien
2. Seizure of the taxpayer’s properties (distraint or levy)
3. Auction sale and or forfeiture of taxpayer’s properties
4. Filing of civil or criminal action against the taxpayer
5. Imposition of administrative penalties and fines
6. Suspension of business operations
7. Entering into tax compromise with the taxpayer

STAGES OF COLLECTION
1. Preliminary collection Letter
2. Final Notice before Seizure Letter
3. Warrant of Distraint/Levy or Garnishment
4. Research of Taxpayer properties
5. Notice of Tax Lien and or Notice of Tax Levy
6. Seizure of properties
7. Auction sale and or forfeiture of properties
8. Filing of civil or criminal action

1. PRELIMINARY COLLECTION LETTER

Once the assessment achieved finality, the BIR Collection Division will send the taxpayer a Preliminary
collection letter signed by the RDO who has jurisdiction to the taxpayer.

The taxpayer may pay the assessment either by:

a. Lump sum payment
b. Installment payment
c. Compromise settlement
Note: Installment payment and compromise settlement are subject to approval by the BIR.

Installment payment offers the taxpayer a chance to settle the tax conveniently without causing him cash
flow problems. However, installments are subject to interest. Furthermore, the default of the taxpayer in
any installment will make the entire balance due and demandable. Compromise payment offers the
taxpayer a chance for a reduced tax payment but are granted only under rigid conditions.

The BIR will furnish the taxpayer a termination letter or closure letter upon full payment of the tax.

2. FINAL NOTICE BEFORE SEIZURE LETTER

Within 10 days from the issuance of the Preliminary Collection Letter, the BIR sends the taxpayer the
Final Notice before Seizure Letter.
If the taxpayer ignores the final notice, the BIR will resort to enforcement of administrative summary
remedies.

Summary of Remedies under NIRC:

1. Seizure of taxpayer’s property
a. Distraint
b. Levy
2. Civil or criminal action

Distraint – the seizure by the government of tangible or intangible personal property of the taxpayer to
enforce the collection of taxes

Levy – the seizure by the government of real properties of the taxpayer to enforce the collection of taxes.

Garnishment – the seizure or distraint of interest such as bank accounts and credits owned by the taxpayer

Either or both distraint and levy may be pursued by the authorities charged with the collection of the tax.

3. WARRANT OF DISTRAINT/LEVY
The Warrant of Distraint and or Levy (WDL) or a Warrant of Garnishment is served to the taxpayer after
his failure to respond to the Final Notice.

Limitation of the Warrant of Distraint and or Levy

1. Distraint or levy shall not be availed of where the amount of tax is not more than P100.
2. The WDL shall not be sent earlier than 90 days from the date the assessment has become due and
demandable.

Exception of the 90-day rule:

Delinquent taxes may be collected immediately by distraint or levy in cases where:
a. The amount shown in the return is not paid on time.
b. The individual taxpayer fails to pay the second installment of his income tax.

Distinction among Warrant of Distraint, Warrant of Levy and Warrant of Garnishment

Distraint Levy Warrant
As to subject matter Personal property Real property owned Personal property
owned by and in by and in the owned by taxpayer but
possession of the possession of the in the possession of a
taxpayer. taxpayer. third party.
As to disposition for Purchased by the Forfeited to the Purchased by
want of bidders or Government then Government then sold Government then
bids inadequate to resold to meet to meet the deficiency. resold to meet
satisfy tax deficiency deficiency. deficiency.
As to advertisement for No advertisement is Advertised once a No advertisement is
sale required. week for three weeks. required.

4. RESEARCH OF TAXPAYER PROPERTIES

If the taxpayer fails to pay his delinquent accounts after the service of the WDL, the revenue officer shall
look for properties of the taxpayer that can be attached to his tax liabilities.

Taxpayer properties may be identified from records of the City’s Assessor’s Office, Registry of Deeds,
Land Transportation Office, Securities and Exchange Commission, business bureaus and local banks.
5. NOTICE OF TAX LIEN (NTL) OR NOTICE OF LEVY
The Notice of Tax Lien or Notice of Levy is used to validate the legal claims or charge of the government
on identified property of the taxpayer either personal or real, as security for the payment of his tax
liability.

The tax liens are annotated at the back of the title document of the property in the case of real property.

Tax liens will make the government a priority claimant on the identified properties of the delinquent
taxpayer.

6. SEIZURE OF PROPERTIES
Distraint of Personal Property
Who shall conduct the distraint?
1) Amount of delinquent tax is more than P1,000,000 - Commissioner or his duly authorized
representative
2) Amount of delinquent tax is P1,000,000 or less - Revenue District Officer

Extent of Properties to be Distraint

Personal properties such as goods, chattels, effects, stocks and other securities, debts, credits, bank
accounts an interest or rights to personal properties shall be seized in sufficient quantity to cover the
following:
a. Tax due
b. Penalties and interests
c. Expenses of distraint
d. Costs of selling the properties

Constructive Distraint
By constructive distraint, the government freezes the taxpayer's property by requiring the taxpayer or the
person having possession or control of the property to sign a receipt obligating him to preserve the same
intact and unaltered and not to dispose it without the express authority of the CIR.

In case the taxpayer or the person having the possession and control of the property sought to be placed
under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer
effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of
two witnessed, leave a copy thereof in the premises where the property distrained is located, after which
the said property shall be deemed placed under constructive distraint.

When constructive distraint be made?

The purpose of constructive distraint is to protect the interest of the government when, in the opinion of
the CIR, the taxpayer is:
a. retiring from a business subject to tax
b. intending to leave the Philippines
c. intending to remove his property or conceal the same
d. intending to perform an act tending to obstruct the proceedings for collecting the tax due from him

Distinction Between Actual and Constructive Distraint

Actual Distraint
 1) Personal property is physically taken.
2) The taxpayer is already delinquent in payment of his taxes.
3) Personal property taken is sold to satisfy the tax delinquency.

Constructive Distraint
1) Personal property is not physically taken.
2) There is no leaving yet of a discrepancy, only that the taxpayer is leaving the country or disposing
of his property in fraud of creditors or is in the process of liquidation.
3) Personal property is merely held as security to answer for any future tax delinquency.

Whom the warrant of distraint or garnishment is served?

1. For goods, chattels, or effects, or other personal properties - to the possessor of the goods distrained.
2. For stocks and other securities - to the taxpayer and upon the president, manager, treasurer or
responsible officer of the corporation, company or association which issued the said stock.
3. For debts and credits - to the person owning the debts or having in possession or under his control such
credit, or with his agent.
4. For bank accounts - to the president, manager, treasurer, cashier, or other responsible officials.

Levy on Real Property

The revenue officer shall prepare a duly authenticated certificate showing the name of the taxpayer and
the amount of tax and penalty due from him and indicate therein the description of the property upon
which the levy is made. Said certificate shall operate with the force of a legal execution throughout the
Philippines.

Levy on real property may be done before, simultaneous or after the distraint of personal property.

7. AUCTION SALE AND FOREITURE OF PROPERTIES

AUCTION SALE OF SEIZED PROPERTY
Seized properties will be sold at auction sale if the taxpayer didn’t settle the delinquent tax. Within 20
days from levy, revenue officer conducting the proceeding shall advertise the property for auction sale for
at least 30 days. The property shall be awarded to the highest bidder.

The proceeds of the sale shall be used to satisfy the taxpayer's unpaid tax liabilities. The excess proceeds
of the sale shall be returned to the taxpayer.

FORFEITURE OF TAXPAYER'S PROPERTY

When the amounts offered by bidders in two consecutive auction sales fail to raise sufficient amount to
cover the taxpayer's liability, the government will forfeit the property. Title to forfeited properties will be
consolidated in the name of the Republic of the Philippines.

Taxpayer's right of redemption

The taxpayer has up to one year from the date of auction sale or forfeiture within which to redeem the
property.

Redemption of property sold

1) The property sold may be redeemed by the delinquent taxpayer within one year from the date of sale
by paying:
 a) the amount of public taxes,
b) penalties and
c) interest thereon from the date of delinquent to the date of sale with
d) 15% interest per annum from the date of purchase to the date redemption. (Sec. 214, NIRC).
2) The owner shall not be deprived of the possession of the property sold and shall be entitled to the rents
and rent income thereof until the expiration of the time allowed for redemption.

Further distraint or Levy

Further distraint or levy may be made when the proceeds of the auction sale fail to satisfy the unpaid tax.

8. CIVIL OR CRIMINAL ACTION

The government may alternatively or simultaneously pursue filing civil or criminal action against the
taxpayer with the summary remedies of distraint or levy.

The RATE Program

To prosecute criminal violations of the NIRC, the BIR instituted the "Run After Tax Evaders
(RATE) Program." The RATE program is intended to identify and prosecute high-profile tax evaders.
Known personalities such as celebrities are usually targeted with RATE cases- an effort commonly
perceived as a deliberate display of the BIR's serious resolve for erring taxpayers.

Assessment is not necessary for criminal prosecution

Assessment is not a requirement in the prosecution of criminal cases for violation of internal revenue
laws. The judgment in the criminal case shall not only impose the penalty but shall also order payment of
the taxes subject of the criminal case as finally decided by the Commissioner.

Hence, collection of tax may be made without a prior assessment if there is a criminal intent to evade
payment of taxes such as in the case of:
a. filing a fraudulent return
b. willful neglect to file a return

A return is generally deemed fraudulent when there is:

a. failure to report an income exceeding 30% of that declared per return
b. overstatement of deductions exceeding 30% of actual allowable deductions

Civil and criminal actions and proceedings instituted in behalf of the government under the authority of
the NIRC and other laws enforced by the BIR shall be brought in the name of the Government of the
Philippines and shall be conducted by legal officers of the BIR. No civil or criminal action for the
recovery of taxes or enforcement of any fine, penalty or forfeiture under the code shall be filed in court
without the authority of the CIR.

PRESCRIPTIVE PERIOD OF COLLECTION

The government has 5 years from the date of release of the final assessment to the taxpayer to make
collection. When the demand letter is undated, the 5-year prescriptive period is counted from the date of
receipt of assessment notice.

Suspension of the Statutes of Limitation

The prescriptive period for assessment and collection may be suspended under the following
circumstances:
a. Request for reinvestigation of the taxpayer which is granted by the CIR
b. When the CIR is prohibited from making an assessment or from beginning distraint or levy or a
proceeding in court.
c. When the taxpayer can't be located in the address given by him
d. When the warrant of restraint or levy is served and no properties can be located.
e. When the taxpayer is out of the Philippines.
Note:
1. Suspension shall run for the period during which the CIR is so prohibited plus 60 days thereafter
2. If the taxpayer is informed the CIR of any change in address, the running of the statutes of limitation
will not be suspended.

Summary of Prescription Rules: Collection

w/ a prior assessment
w/o a prior assessment
Deadline of collection Mode of collection
5 years from assessment Summary proceedings/Judicial
action
10 years from discovery of fraud Judicial action only
or falsity

Summary: Remedies of the taxpayer

a. Where tax has not been paid
 Protest or dispute the assessment – request for reconsideration or reinvestigation, which must be
made within 30 days from receipt of the assessment, and within 60 days from filing of protest, all
relevant supporting documents shall have been submitted otherwise assessment shall become
final.
 Appeal to the Court of Tax Appeals - If protest is denied or is not acted upon by the CIR within
180 days, after the submission of documents, the taxpayer adversely affected, may appeal within
30 days from receipt of said decision to the Court of Tax Appeals.

b. Where tax has been paid

 Remedy – claim for a refund.
 Grounds for claiming for refund
o Tax was erroneously collected
o Tax was illegally collected

c. Request for refund

 File a written claim to the CIR within 2 years from date of payment of the tax
 Within the period of 2 years also, institute judicial action with CTA for the recovery of the tax.

Taxpayers Remedies
1. Disputing an assessment
2. Recovery of erroneously paid taxes

Taxpayers may be improperly assessed taxes by the government. At times, the taxpayer may erroneously
pay taxes. The law provides the taxpayer procedures for disputing assessments and in recovering taxes
erroneously paid. These procedures are called ‘’taxpayers remedies’’.
1. Disputing an assessment - if the tax has not yet been paid

Taxpayer's side - Recovery of erroneously paid taxes - if the tax is already paid

Summary of rules: Recovery of erroneously paid taxes

Government side

Taxpayer's side
I. DISPUTING AN ASSESSMENT
1. Upon receipt of the Pre-Assessment Notice (PAN), the taxpayer must explain his position within 15
days.
2. Upon receipt of the Formal Assessment Notice/Formal Letter of Demand, the taxpayer must file a
formal protest in 30 days.
Types of Protest
a. Request for reconsideration - no new issues or evidence to be raised
b. Request for re-investigation - new issues or evidence will be raised
 In the case of request for re-investigation, the taxpayer must submit the necessary documents in
support of his position within 60 days
from the date of filing of the protest.
3. The taxpayer shall wait for BIR action within 180 days which shall be counted from:
a. The submission of documents - for request for re-investigation
b. The receipt of the FAN/FLD - for request for reconsideration

BIR denial or adverse decision

If a duly authorized representative of the CIR denies the protest or issues an adverse decision, the
taxpayer may interpose either a/an:
a. Judicial appeal - file a petition for review with the CTA within 30 days from the receipt of the adverse
decision
b. Administrative appeal - file a motion for reconsideration with the CIR within 30 days from the receipt
of adverse decision

The final decision (FDDA) of the CIR may be appealed to the CTA within 30 days from the receipt of the
adverse decision.

BIR inaction within the 180-day period

The BIR may not act on the protest within the 180-day period. The taxpayer may either:
a. Wait for BIR decision after the lapse of the 180-day period, or
b. File a petition for review with the CTA w/in 30-days from the lapse of the 180-day period (Judicial
appeal)

These two options are mutually exclusive. Hence, if the taxpayer opted for the first option, the taxpayer
can no longer proceed to the CTA.

4. Upon the receipt of an adverse ruling from the CTA, the taxpayer may, w/in 15 days:
a. file a motion for reconsideration or new trial under the same division, or
An adverse decision of the CTA in division may be appealed to the CTA w/in 15 days. The CTA
may grant additional 15 days leeway after payment of the docket fee. An adverse decision of the
CTA may be appealed w/in 15 days to the Supreme Court.
b. File a petition for review on certiorari to the Supreme Court
An adverse ruling from the Supreme Court may be subject to a motion for reconsideration after
which the final decision can no longer be appealed.

Content of Reply to PAN

The taxpayer's reply to the PAN shall include:
a. Explanation on the matters questioned by the examiner
b. Factual and legal bases supporting the taxpayer's position
c. Prayer for full of partial cancellation of the PAN

Requirement for the validity of a protest:

1. The taxpayer must indicate the nature of protest.
2. The taxpayer must state the date of the assessment notice.
3. The taxpayer should state the facts, the applicable law, rules, and regulations or jurisprudence on w/c
the protest is based.
4. The protest must be filed by the taxpayer or their duly authorized representatives, in person or through
registered mail w/ return card w/ the concerned Regional director, Assistant Commissioner-LTS or
Assistant- Commissioner-Enforcement Service, as the case may be.
5. All relevant documents must be submitted w/in 60 days from the filing of the request for re-
investigation.

Suspension of the prescriptive period

It's settled under jurisprudence that the 60-day period applies only to a request for re-investigation and not
to a request for reconsideration.

The suspension of the prescriptive period applies only upon approval of the request for re-investigation.
The act of requesting for re-investigation doesn’t, by itself, suspends the running of the prescriptive
period of collection. The prescriptive period of collection will be suspended only when the BIR grants the
request for re-investigation.
Protest needs to be categorical
The taxpayer shall categorically raise all issues in the FAN/FLD that he objects and individually backs his
objection by stating the facts, law, rules and regulations and jurisprudence supporting his position. It must
be recalled that the assessments on uncontested issues will become final, executor and demandable by the
government.

II. RECOVERY OF ERRONEOUSLY PAID TAXES

AUTHORITY OF THE CIR TO COMPROMISE, ABATE, AND REFUND OR CREDIT TAXES
AUHTORITY TO COMPROMISE
Conditions for Compromise:
The CIR may compromise the payment of internal revenue tax, when:
a. A reasonable doubt exist as to the validity of the claim against the taxpayer exists
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

Minimum of compromise settlements:

a. 10% of the basic assessed tax - in case of financial incapacity
b. 40% of the basic assessed tax - for other cases

Compromise is generally considered by tax experts as the remedy of last resort or the last ditch remedies.
In some cases, compromise can be a win-win solution for both the government and the taxpayer.
Who will approve the offer of compromise by taxpayers?
a. Office of the Commissioner of Internal Revenue
b. National Evaluation Board (NEB)
c. Regional Evaluation Board (REB)

The compromise of taxes is w/in the judgment and discretion of the Commissioner of Internal Revenue,
except in the ff. cases:
Compromise by the NEB
The NEB shall approve the offer compromise when:
1. the basic tax involved exceeds P1M or
2. the settlement offered is less than the prescribed minimum rates
Composition of the NEB:
a. The CIR
 b. The four Deputy Commissioners
All the decisions of the NEB, favorable or unfavorable, shall have the concurrence of the CIR.

Compromise by the REB:

The REB shall approve the offer for compromise for:
a. Assessment issued by Regional offices involving basic deficiency tax of P500,000 or less
b. Minor criminal violations discovered by Regional and District offices
Composition of the REB:
a. Regional director - as chairman
b. Assistant Regional Director
c. Chief, Legal Division
d. Chief, Assessment Division
e. Chief, Collection Division
f. Revenue District Officer having jurisdiction of the taxpayer-applicant

If the offer of the compromise is less than the prescribed rates, the same shall always be subject to the
approval of the NEB. The CIR alone can enter into compromise when the basic tax involved doesn’t
exceed P1M and the settlement isn’t below the prescribed percentages.

What may be compromised?

1. Delinquent accounts
2. Pending cases under administrative protest
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts
5. Criminal violations other than:
a. Those already filed in courts
b. Those involving criminal tax fraud
6. Cases covered by pre-assessment notice contested by the taxpayer

What can't be compromised?

1. Withholding taxes
2. Criminal tax fraud cases
3. Criminal violations already filed in courts
4. Delinquent accounts with duly approved schedule of installment payments
5. Cases of reduced assessment agreed upon by the taxpayer
6. Cases which has become final and executor after final judgment of a court

AUTHORITY OF THE CIR TO ABATE TAXES

Under Section 204 of the NIRC, the CIR is authorized to abate or cancel a tax liability under the ff.
conditions:
1. The tax or any portion of which appears to be unjustly or excessively assessed
2. The administrative or collection costs involved don’t justify the collection of the amount due
3. The taxpayer is dead, leaving no distrainable or leviable property
4. The taxpayer is abroad leaving no forwarding address with no distrainable or leviable property
5. The taxpayer is a corporation who already dissolved and all subscribed shares of stock have been
fully paid
6. The tax case has already prescribed
COURT OF TAX APPEALS
a. Creation of CTA
There is hereby created a court of tax appeals (CTA) which shall be the same level as the court of appeals,
possessing all the inherent powers of a court of justice. (Sec.1, R.A. No. 1125, as amended by R.A. No.
9282)

b. Composition of CTA
The CTA shall consist of a presiding justice and 8 associate justice. (sec. 1 R.A. No. 1125, as amended by
R.A. No. 9503)

c. Sitting En Banc or Division

The CTA may sit en banc or in three divisions, each division consisting of three justices (Sec. 2 R.A. No.
1125, as amended by R.A. No. 9503).

d. What will constitute a Quorum

Five (5) justices shall constitute a quorum for sessions en banc and Two (2) justices for session of a
division (Sec. 2 R.A. No. 1125, as amended by R.A. No. 9503).

e. Rendition of a decision or a resolution

The affirmative votes of five members of the court en banc shall be necessary to reverse a decision of a
division but a simple majority of the justices present necessary to promulgate a resolution or decision in
all cases or 2 members of a division level (Sec. 2 R.A. No. 1125, as amended by R.A. No. 9503).

f. Jurisdiction of the CTA (sec.7, R.A. no.1125 as amended)

The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal
(b) Jurisdiction over cases involving criminal offenses
(c) Jurisdiction over tax collection cases.

g. Exclusive appellate jurisdiction

The CTA shall exercise exclusive appellate jurisdiction to review by appeal:
(1) Decision of the CIR in cases involving disputed assessments, refunds of internal revenues, fees or
other charges, penalties in relation there to, or other matters arising under NIRC or other laws
administered by the BIR;
(2) Inactions by the CIR in cases involving disputed assessments, refund of internal revenues taxes, fees
or other charges, penalties in relation there to, or other matters arising under NIRC or other laws
administered by the BIR, where NIRC provides a specific period of action, in which case the inaction
shall be deemed a denial;
(3) Decisions, order, or resolution of the regional trial court in local tax cases originally decide or
resolved by them in the exercise if their original or appellate jurisdiction;
(4) Decision of the commissioner of customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties, in
relation there to, or other matter arising under customs;
(5) Decisions of the central board of assessment appeals in the exercise of its appellate jurisdiction over
cases involving the assessment and taxation of real property originally decided by the provincial or city
board of assessment appeals;
(6) Decisions of the secretary of finance on customs cases elevated to him automatically for review from
decisions of the commissioner of customs which are adverse to the government under Sec.2315 of the
Tariff and customs code;
(7) Decisions of the secretary of trade and industry in the case of agricultural product, commodity or
article, and the secretary of agriculture in the case of agricultural products, commodity or article,
involving dumping and countervailing duties under Section 301 and 301, respectively, of the tariff and
customs code, and safeguard
measures under R.A. No. 8800, where either party may appeal the decisions to impose or not impose said
duties.

h. Jurisdiction over cases involving criminal offenses

The CTA shall exercise jurisdiction over cases involving criminal offenses;
(1) Exclusive original jurisdiction over all criminal offenses arising from violation of the NIRC or Tariff
and Customs Code and other laws administered by the BIR or the BOC: provided, however that offenses
or felonies where the principal amount of taxes and fees, exclusives of charges and penalties, claimed is
less than P1,000,000 or where of the CTA shall be appellate.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from review of the judgment, resolution or orders of the regional trial court in
tax cases originally decided by them, in their respective territorial jurisdictions;
(b) Over petitions for review of the judgments, resolutions or orders of the regional trial court in
the excise of their appellate jurisdiction over tax cases originally decided by the metropolitan
circuit trial court in their respective jurisdictions.

i. Jurisdiction over tax collection cases

The CTA shall exercise jurisdiction over tax collection cases:
(1) Exclusive original jurisdiction in tax collection cases involving final and executor assessment for
taxes, fees, charges and penalties: provided, however, that collection cases where the principal amount of
taxes and fees, exclusive of charges and penalties, claimed is less than P1,000,000 shall be tried by the
proper Municipal
Court, Metropolitan Trial Court Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgment resolution or orders of the regional trial court in tax
collection cases originally decided by them, in their respective territorial jurisdictions.
(b) Over petitions for review of the judgments, resolutions or orders of the regional trial courts in
the exercise of their appellate jurisdiction over tax collection cases decide by the metropolitan
trial court and municipal circuit trial court, in their respective jurisdictions.
References:
Banggawan, Rex B., Business and transfer taxation: laws principles and applications. 2019 edition.
Baguio City: Real Excellence Publishing, copyright 2019.
https://www.bir.gov.ph/
http://cta.judiciary.gov.ph/