Chapter 19 - Tax Remedies CHAPTER 19 TAX REMEDIES ——— Chapter Overview and Objectives This chapter provides an overview of: 1. tax remedies available to the government in enforcing assessments and collections 2. tax remedies available to the taxpayer in contesting tax assessments or recovering erroneously paid taxes ee ‘TAX REMEDIES: An Introduction Philippine taxes are self-assessing. Taxpayers compute their taxes, fle tax returns, and then pay to the government. The self-assessment method has an inherent risk: under-compliance or non-compliance. ‘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.” n the other hand, taxpayers may be improperly assessed taxes by the government. At times, the taxpayer may erroneously pay taxes. The law frovides the taxpayer procedures for disputing assessments and in Preovering taxes erroneously paid. These procedures are called “taxpayers’ remedies.” ‘TAX REMEDIES OF THE GOVERNMENT PRIMARY REMEDIES OF THE GOVERNMENT 1. ‘Assessment 2, Collection the act or process of determining the tax liability of a taxpayer in ‘ecordance with tax laws. Assessment also pertains to the notice sent by the al wyernment co tre taxpayers informing them of their unpaid or still unpaid tax aenigations coupled with ‘ademand to pay the same. Assessment iS stains to the procedures of the government to enforce payment of on pe Collection Porm delinquent taxpayers. unpaid taxes 685Chapter 19 - Tax Remedies ASSESSMENT | i ‘An assessment calling for the payment of a deficiency tax or unpaid tax cay only be made after the government has established the correct o, reasonably correct amount of tax of the taxpayer Powers of the CIR Relative to the Determination of Correct Tax Relative to the determination of the correct taxes of the taxpayer, the Commissioner of Internal Revenue is empowered to: 2. obtain data and information from third parties b. conduct inventory surveillance ©. examine and inspect the books of accounts of a taxpayer d._ prescribe presumptive gross sales and receipts PRESCRIPTIVE PERIOD OF ASSESSMENT ‘The General Rule: 3 years ‘The law requires that assessment must be made within 3 years from the date of the actual filing of the return or the deadline required by law, whichever is later. Mlustration 1: Early filing or-filing on the deadline Horacio filed his 2019 annual income tax return which was due on April 15, 2020 on March 1, 2020. ‘A rreturn filed before the last day prescribed by law for filing thereof shal be ‘considered filed on such last day (Sec. 203, NIRC). ‘The counting of the prescriptive period shall be reckoned from April 15, 2020. The government must serve the assessment to the taxpayer on or before April 15, 2023. Mlustration 2: Late filing ‘Assume instead that Horacio filed his 2019 annual income tax return on July 1, 2020. Where the return is filed beyond the period prescribed by law, the 3-year period shall be counted from the day the return is filed (Sec. 203, NIRC). Hence, the counting of the prescriptive period shall be reckoned from July 1, 2020. ‘The assessment must be served on or before July 1, 2023. DEADLINES OF VARIOUS TAXES A. Income Tax Returns 1. Annual income tax a. Individual - April 15 of the following year b. Corporation - on the 15* day of the fourth month following the end of the taxpayer's year-end 686Chapter 19 - Tax Remedies 2. Capital gains tax return 1 Capital gains tax return on sale of domestic stocks a. Transactional tum = 30 days fom the date of sale . Annual return - 15 day of the fourth month following the end of the taxpayer's year-end 2. Capital gains tax return on sale of real properties - 30 days fro eal prt fr properties - 3 3. Withholding tax returns 1. Withholding of final tax and fringe benefits tax - 10 days following the month of withholding (manual filing) 2. Withholding tax on compensation income and expanded withholding tax - 10 days from the end of each calendar month; for December, January 15 of the succeeding year B. Transfer Tax Returns 1. Donor’s tax - within 30 days from the date of the donation 2. Estate tax - within 1 year from the date of the decedent's death C. Business Tax Returns 1. Non-VAT Taxpayers - Quarterly Percentage tax (BIR Form 25519) - within 25 days from the end of the quarter 2. VAT Taxpayers ~ Quarterly Value Added Tax (BIR Form 2550Q) - within 25 days from the end of the quarter D. Documentary stamp tax return — within 10 days from end of month the case of late filing, the prescriptive period for assessment shall ‘ementioned deadline of filing of the tax type being filing, the prescriptive period is counted from the Except in be counted from the afor assessed. In cases of late date of filing. ples: Any ‘unpaid tax for a donation made on July 1, 2019 must be assessed on or before July 31, 2022. 2, Any unpaid VAT for the quarter ending August 31, 2020 must be assessed on or before September 25, 2023. -taxpayer’s Fight to modify, change or amend return “ay return, statement of declaration filed within any office authorized to “ANY ive 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. 687Chapter 19 - Tax Remedies Provided, further, that no notice for audit or investigation of such rety statement or declaration has in the meantime been actually served upon th, taxpayer (Sec. 6 (A), NIRC). For purposes of applying prescription rules, the date of filing of th, amended return shall be considered the actual filing of the return. EXCEPTIONS TO THE 3-YEAR PRESCTIPTION RULE 1. Fraudulent returns 2. Willful neglect to file 3. Waiver of the statutes of limitation by the taxpayer Fraudulent return Fraud involves an intentional and deliberate act on the part of the taxpayer of deceive the government to avoid a tax. The presence of fraud must be proven by clear and convincing evidence. It cannot be justified by mere speculation. In the NIRC however, income tax returns are considered prima facie fraudulent if the gross income is understated by more than 30% or when the deductions claimed is overstated by more than 30%. Willful neglect to file. Unless with a reasonable cause, the failure to file is normally considered willful neglect if the taxpayer incurred multiple instance non-filing, In practice, 3 years of non-filing of tax return is normally considered willful neglect. Note the following rules: Deadline of assessment With a tax return filed = Return is non-fraudulent ‘Syears from date of filing or deadline whichever is late = Returns fraudulent 10 years from the discovery of fraud ‘Non-filing of tax return 10 years from the discovery of non-filing | Waiver of the 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 agree for the temporary suspension of the prescriptive period for not less than 6 months (180 days) to give way to the reinvestigation. So, even if the revised final assessment is rendered to the taxpayer more than 3 years from the date filing of the return so long as it is within the agreed time extension in the waiver, the assessment remains valid, 688Chapter 19 - Tax Remedies Illustration 1 In March 3, 2020, the BIR noti Can the BIR assess the deficien os an error in the 2015 tax return of Mr. Cute. No, The deadline of the return is been assesmenton or before dpi ts 2018, ne “een os mat hove Illustration 2 Supposing 7 same data in illustration 1 except that the deficiency unpaid taxes aused by a deliberate effort on the part of the taxpayer to defraud the government, can the BIR assess the deficiency? Yes. If fraud can be proven beyond reasonable doubt by the BIR, the BIR he to March 3, 2030 to render the assessment. if a td IMlustration 3 In April 7, 2020, the BIR noticed that the taxpayer failed to file his VAT return for the last quarter of 2012. Can the BIR assess the unpaid tax? Yes, Even if the non-filing is discovered after more than 7 years, tis is an instance of non-filing. Remember that taxes are imprescriptible nthe case of fraud or non- filing, The BIR has up to April 7, 2030 to assess the unpaid delinquent taxes. Illustration 4 On june 1, 2018, the BIR assessed P1,000,000 deficiency estate tax on the estate or iecedent who died june 1, 2015. On July 15, 2018, the estate administrator filed for a request for reinvestigation and executed a Waiver of Statutes of res ations which was granted. The BIR rendered the taxpayer 2 revised final igesement for P700,000 deficiency estate tax on October 12, 2019. Is the fevised final assessment valid? ves The perad to mak fiat ssssment extend ora last 6 months by the Waiver ofthe Statutes of Limitations STAGES OF ASSESSMENT ‘selection of taxpayers to be audited it of the taxpayers 3. ‘autsement of taxpayers with unpaid or deficiency tax 1 JON OF TAXPAYERS TO BE AUDITED seu CIR jects taxpayers to be audited based on selection criteria ne ilhed in the BIR's Annual Audit Program. The BIR Annual Audit program ‘identifies high risk taxpayers and medium risk taxpayers to be the Prat priority fOr each year. Aha 689Chapter 19 - Tax Remedies 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 The Tax Compliance Verification Drive also known as Tax Mapping ig intended to locate and identify taxpayers who do not comply with basic tay 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, The 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 A 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 Correctness of the application of the minimum corporate income tax 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 an 690Chapter 19 - Tax Remedies The pre-audit of tax returns i he p ims is not a regular audit. Iti ; within the BIR office without field investigation. sconce entry It the pre-audt penis in a deficiency tax, the revenue officer prepares @ menprendia port. The taxpayer shall be informed via a letter to be ign Ny oe RDO. The letter shall state the deficiency tax resulting from the pre-audit and shall require payment within 15 days. If the taxpayer agrees to the deficiency tax, he shall pay using the Payment Form (BIR Form 0605). Ifthe taxpayer does not pay the deficiency tax, the revenue officer will prepare a report recommending the issuance of an assessment of the taxpayer. If the revenue officer recommends a thorough audit investigation of the taxpayer, the taxpayer will be subjected to a regular audit. ‘THE BIR TAX AUDIT PROCESS 1. Release of Letter of Authority (LA) to the revenue officer 2. Conduct ofthe audit. examination 3. Reporting on the results of examination ‘RELEASE OF LETTER OF A UTHORITY TO THE REVENUE OFFICER What is a Letter of Authority? “authority (lA) is an official document that authorizes BIR Revenue A sect of utr Ce so conse aig eae Order to determine his correct internal revenue tax liabilities. who issues and approves the LAs? ‘Approving official Regional Director Assistant ‘Commissioner-LTS ational Investigation Divisions ‘and | Commissioner of Internal oclal investigation Divisions Revenue requisites for the validity ofan LA: Redrye LA must be served to the taxpayer within 30 days from its date of issuance. |The LA must be an electronic LA (eLA) printed under BIR Form 1966 -ssued under the BIR Letter of Authority Monitoring System (LAMS). 691Chapter 19 - Tax Remedies Manual LAs are no longer allowed. Examiners or revenue officers wi,, conduct audit investigations without an eLA will be subject 4, administrative sanctions. Only one LA shall be issued to the taxpayer. Taxpayers who were inadvertently issued with multiple LAs shall inform the concerned gig officer and formalize his request for cancelation of the other LAs. Other BIR notices to taxpayers: 1. Tax verification notice (TVN) 2, Letter notice (LN) A Tax verification notice authorizes evaluation or verification of tax on one-time transaction (ONETT) cases such as estate tax, donor's tax, and capital gains tax. 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) filings of 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 ot 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 having jurisdiction over the concern taxpayer. The revenue district office will serve the LN to the taxpayer. Reconciliation of discrepancies : Taxpayers have 5 days from recelpt of the LN to reconcile the discrepant? noted therein, If the taxpayer agrees to the finding of discrepancies, he/S must settle any resultant tax liability within 30 days from the receipt 0 LN. 692Chapter 19 — Tax Remedies Timely payment of the LN will entit ff ith corresponding surcharge, interest, and emer petal vn abatement of Consent of LN and eLA ‘axpayers Pmt selected for regular audit by the RDO may likewise be congue ed an LN by the national office. The LN in such case shall jidated 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 a 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 counted from the date of receipt of the Revenue officers have up to oft eLA by the taxpayer within’ nich to conduct the audit and to submit their reports of investigation. vafter the lapse of such period, the eLA must be surrendered and may Be revalidated when needed. requency ofrevandation f TAS len a; evalivalidated once for those issued by Regional Offices or ed by the National s ma} a ie pistrict Offices OF ‘twice in the case of LAs issu‘ Nd eLAs must be attached to the new eLAs. Brice. Suspende mn of taxpayer examination Ladies CY OF shall be subject to examination only once in every taxable taper when when: ye EIR Metermined that fraud, a. THE ted by the taXPayeT. comtaxpayer requested for re-investigation or re-examination. The fos a need to verify the taxpayer’ ‘compliance with withholding tax © Tha other internal revenue (2¥e ap teeaxaver’ capital asf liabilities must be verified. _ The teiR exercises his power to obtain information relative to the eamination of other taxpayers. it irregularities, or mistakes were 693Chapter 19 - Tax Remedies Power of the CIR to obtain information and to summon, examine ay, take testimony of persons : s rH When after reasonable demands, certain documents, information or recg are not forthcoming during the examination, the BIR may issue subpoena , the taxpayer and/or other person in possession of the same to prodye, them. Types of subpoena: 1. Subpoena duces tecum 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 with two consecutive requests to produce his books for examination. 2, Subpoena ad testificandum ‘Asummon upon a person to appear and to give oral testimony. If the requested documents, records, or information cannot be obtained by these means, an assessment will be prepared based on the “best evidence obtainable’ rule. REPORTING ON THE RESULTS OF THE EXAMINATION ‘After the examination, the revenue officer reports the results of his investigation. Finding of 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 the issuance of an assessment to the taxpayer in his report. Determining the Amount of Taxes and Increments to Demand Aside from demanding the unpaid delinquency or deficiency tax, the BIR will also impose increments in the assessment as required by law, such as: a. Surcharge - at the following rate on the basic tax: = Simple neglect to file - 25% - Willful neglect to file - 50% b. Interest - double of the rate prescribed for forbearance of money, this 6 currently 12% per annum ©. Compromise penalty - a settlement for the government not to en" criminal prosecution 694Chapter 19 — Tax Remedies Illustration After the examination, the BIR determined that the taxpayer is deficient by P500,000 for his 2018 income tax payments by july 30,2020, return. The BIR fixed the deadline for tax The income tax return deadline is April pril 15, 2019 while date of scheduled payment is March 31, 2020 covering a total period computed as follows: April 16 to 30, 2019 (30 - 15) No.of days— May 2019 a June 2019 30 July 2019 31 August 2019 31 September 2019 30 October 2019 3 November 2019 30 December 2019 31 January 2020 31 February 2020 29 March 2020 , elt Total ast ‘The assessment ifthe taxpayer pays on or before July 30,2020 shall be: P- 500,000.00 Basic income tax due ‘surcharge (25% x P500,000) 125,000.00 Deficiency interest (P500,000 x 12% x 351/365) 87,698.63 Total P_682,698.63 payment Resttice ne eaxpaye? defaulted on the June 30 scheduled payment of the Asticlency assessment but setts the fax on October 15, 2020, sthe delinquency from July 1, puted as follows: 2020 to October 15, 2020 covers a total period No.of days 31 31 ber 2020 30 -2019 —15 1. .ssment on October 15, 2020 shall be: ome tax due P 682,698.63, uency interest (P682,698.63 x 12% x 107/365) ___24,016.03 B_106,714.66 695Chapter 19 - Tax Remedies Assessment Procedures: ‘The assessment stage involves the following: 1. Pre-Assessment Notice (PAN) 2, Formal Letter of Demand and Final Assessment Notice (FLD/RAN) 3. Final Decision on a Disputed Assessment (FDDA) Note: The Notice of Informal Conference stage before the PAN stage is removed from the procedures of assessment under RR18-2013. Whatis a Preliminary Assessment Notice (PAN)? A PAN is a written communication issued by the Regional Assessmen, Division or any other concerned BIR office informing the taxpayer of his obligation for deficiency tax based on the audit findings of a revenue office, 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 shal make the impending assessment final, demandable and non-appealable, If the taxpayer's 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 responds 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 } AN 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 im case the taxpayer failed to respond. The issuance of an FLD/FAN to the taxpayer is tantamount to a denial of the taxpayer's reply to the PAN (Philippine Health Care Providers vs. CIR). - 696Chapter 19 — Tax Remedies Requisites ofa valid assessment (FLD/FAN) 1. 2. The asses: ithi eS eae al nnoll ter poonled ih he taxpayer of the discovery of unpaid or al Shee ith a demand of the same including penalties. sessment 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 oF 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, @ “show- sause letter” or a letter from a revenue officer granting the taxpiye™ an opportunity to disprove his audit findings dees not qualify as, or substitute for, an assessment. Moreover, affidavit executed by revenue officers containing computations of deficiency taxes to support the criminal complaint against a taxpayer is also mot an assessment (See CIR vs. Pastor Really). Instances where no PAN is required ‘The PAN is required as a matter of proceduiral due process for the taxpayer to be apprised ‘of his obligation. Hence, a FLD/FAN is generally void without a PAN. However, a PAN is not required in the following cases: 4. 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 py the taxpayers ~ 9, whena 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 —ChFried over and automatically applied the same amount claimed ggainst 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; 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. 697Chapter 19 - Tax Remedies ‘An FLD/FAN is issued outright in the aforementioned exceptiona| cases, the FLD/FAN, the docket is cancelled by the Ss IF the taxpay et por closure letter is sent to the taxpayer. IR any dy termination letter or leopardy Assessment? ae i De is one made by an authorized Pevenu officer wi . the benefit of a complete or partial audit in light of the officer’s belie the assessment and collection of a deficiency tax will be jeopardized by yp delays caused by the taxpayer to comply with audit and investigaiy requirements to present his book of accounts and Pertinent records o substantiate all of the deductions, exemptions or credit claimed in jy, return. Dispute of Assessment The FLD/FAN may be administratively protested by the taxpayer by filing. written protest to the BIR within 30 days upon receipt thereof. Types of Taxpayers’ Protest: a. Request for reconsideration is a plea for a reevaluation of assessment on the basis of existing records without need of additions) evidence which may involve a question of facts or of law or both, b, Request for re-investigation is a plea of reevaluation of an assessment on_the_basi wly discovered _or i vi hat the taxpayer intends to present in the reinvestigation which may aso involve a question of fact or of law or both. In case of a request for re-investigation, taxpayers are mandatorily requirel 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 ofthe ‘Statutes of Limitation” for a period of not less than 6 months to give way!" the reinvestigation. The BIR assessment division will settle question of facts. The BIR le! division will settle questions of law, The failure of the taxpayer to seasonably interpose a valid protest stil make the assessment final, executory and demandable and no request reconsideration or reinvestigation shall be granted. Finality of assessment on undisputed issues IF the taxpayer disputes or protests on} raised in the assessment, the assessment attributable to the uncispue issue or issues shall become final, executory and demarcate 698 ly against the validity of some istChapter 19 - Tax Remedies If eran etened | gp ate the facts, the applicable law, rules and te cathe isha bee ence in support of his protest against certain issues, assedembht ape aetiered undisputed issues, in which case, the ul le ereto shi demandable. shall become final, executory and 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 executory. 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 jon that the burden of proving that the It is also noteworthy to ment e taxpayer rests upon the assessment was actually received by th government. {ted Assessment (FDDA) Final Decision on Dispu' nicated to the ‘The FDDA of the CIR may be commu from the filing of his protest. taxpayer within 180 days Resolution of the Protested Assessment: "the protested assessment is. The assessment is. a, Resolved in favor of the taxpayer Cancelled # Resolved with reduction of liability Revised c._ Sustained Enforced Judicial Appeal CIR on a disputed assessment may be judicially protested ‘The FDDA of the py the taxpayer by iling a petition Jor review with the Court of Tax Appeals citer which an adverse ruling may be the subject of a petition for review on atrtiorari before the Supreme Court. However. assessments that achieved ceministrative finality are enforceable by the BIR for collection. COLLECTION Collection will be enforced by the government once the assessment achieves 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 699Chapter 19 - Tax Remedies B. Denial of the taxpayer's protest by the CIR Or his authoring representative Whether or not on appeal, when the assessment is upheld by the couyy Collection is enforceable once assessment became final and executory ‘Though valid and seasonably made, an appeal interposed by the before the CTA does not suspend the payment, levy, distraint and or sae, any property of the taxpayer for the satisfaction of his liability (Seq. 11 py 1125, as amended by RA 9282). i ion of tax collection Nena ial have the authority to grant an injunction to restrain te collection of any national internal revenue tax, fee or charge imposed by ti, NIRC (See Sec. 218, NIRC). The CTA, however, is authorized to suspend tie collection of taxes when it may jeopardize the interest of the taxpays, and/or the government (Sec. 11, RA 1125). Payment under Protest To avoid the imposition of interest, penalties or charges on a contests assessment, a taxpayer may pay the contested assessment under protes, ‘The taxpayer can file a claim for refund later when the disputed assessme 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. 6. 7. Imposition of administrative penalties and fines Suspension of business operations Entering into a 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 Not 6. Seizure of properties 7. Auction sale and/or forfeitur i 8. Filing of civil oreriminal action PrOPE™tiCS tice of Tax Levy 700Chapter 19 — Tax Remedies Precanivany 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 over 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 toapproval by the BIR- Installment payments offer 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 taxpay r in any installment will make the entire balance due and demandable. Compromise payments offer the taxpayer a chance for a reduced tax payments 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. FINAL NOTICE BEFORE SEIZURE LETTER {ithin 10 days from the issuance of the Preliminary Collection Letter, the BIR sends the taxpayer the Final Notice before Seizure Letter. Ifthe taxpayer ignorés the final notice, the BIR will resort to enforcement of administrative summary remedies. |. Summary Remedies under the NIRC: 4, 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 ofthe 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 interests such as bank accounts and credits owned by the taxpayer Fither or both distraint and levy may be pursued b; iti yy the authoriti with the collection of the tax. Hes charged 701Chapter 19 ~ Tax Remedies WARRANT OF DISTRAINT/LEVY s ‘The Warrant of Distraint and or Levy (WDL) or a iat zi Gomishmenti served to the taxpayer after his failure to respond to the otice, Limitation of the Warrant of Distraint and or Levy : 1. Distraint or levy shall not be availed of where the amount of tax ig nop 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 to the 90-day rule: ace : Delinquent taxes may be collected immediately by distraint or levy in easeg 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. 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 Assessors Office, Registry of Deeds, Land Transportation Office, Securities ané Exchange Commission, business bureaus, and local banks. NOTICE OF TAX LIEN (NTL) OR NOTICE OF LEVY The Notice of Tax Lien or Notice of Levy is used to validate the legal claimsor 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 prop in the case of real property. z Tax liens will make the government a Properties of the delinquent taxpayer. Who shall. conduct the distraint? a. The CIR or his duly authori: ; . escern 'Y authorized representative - if the amount involl priority claimant on the identifi b. The revenue district oficer- if the amount involved is PIM or less 702Chapter 19 - Tax Remedies om of properties to be distrained sons i erarities Piece an as goods, chattels, effects, stocks and other stoperties brcalicks : i pank accounts and interest or rights to personal properties in sufficient quantity to cover the following: 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 vnaltered and not to dispose it without the express authority ofthe 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 Tocated, after which the said property shall be deemed to have been placed under. constructive distraint. When a constructive distraint may be made? The purpose of constructive distraint is to protect the interest of the government when, in the opinitn of the CIR, the taxpayer ist a vesptiring from a business subject tO fax E. intending to leave the Philippines P gntending to remove his Proper) conceal the same 4. intending to perform an act tending to obstruct the proceedings for Collecting the tax due from him ‘ro whom is the warrant of distraint 07 garnishment served? Te ror goods, chattels, effects. Or ‘other personal properties ~ to the possessor of the goods distrained 2, For stocks and other securities ~ 10 the taxpayer and upon the president, a surer or responsible officer of the corporation, company manager, or association 3, For debts and jossession oF Ul <4, For bank accounts other responsible officials which issued the said stocks credits - to the person ‘owning the debts or having in inder his control such credit, or with his agent to the president, manager, treasurer, cashier or 703Chapter 19 - Tax Remedies on Real Prope! , i The revenue officer shall prepare a duly authenticated certificate showing f tax and penalty due from hi the name of the taxpayer and the amount of ‘ f and indicate therein the description of the property upon which the levy g made. Said certificate shall operate with the force of a legal execution throughout the Philippines (See Sec. 207 (B), NIRC). Levy on real property may be done before, simultaneous with, or after the distraint of personal property. ‘AUCTION SALE OF SEIZED PROPERTY : Seized properties will be sold at auction sales if the taxpayer did not settle the delinquent tax. Within 20 days from levy, the revenue officer conducting the proceeding shall advertise the property for auction sale for at least 39, days. The property shall be awarded to the highest bidder. The proceeds of the sale’ shall be used to satisfy the taxpayer’s unpaid tar liabilities. The excess proceeds of the sale will be return to the taxpayer. FORFEITURE OF TAXPAYER'S PROPERTY When the amounts offered by bidders in two consecutive auction sales fail to raise a 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. Further distraint or Levy Further distraint or levy may be made when the proceeds of the auction sale fail to satisfy the unpaid tax. 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 (See Sec. 205, NIRC). The RATE Program To prosecute criminal violations of the NIRC, the BIR insti t 7 stituted the “Run After Tax Evaders (RATE) program. The RATE program is intended t0 identify and prosecute high-profile tax evaders. Known personalities such celebrities are usually targeted with RATE cases, an effort commonly 704, 4Chapter 19 - Tax Remedies erceived as a deli . paren a deliberate display of the BIR’s serious resolve for erring ‘Assessment is not necessary for criminal prosecution Assessment is not a requirement in the prosecution of criminal cases for violation of internal revenue laws. (CIR vs. Pascor Realty & Development Corp, et. al. (GR. No. 128815 dated June 28, 1999) 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. (Ibid.) Hence, collection of tax may be made without a prior assessment ifthere isa criminal intent to evade payment of taxes such as in the case of: a. Filing ofa fraudulent return b. Willful neglect to file areturn ‘Areturn is generally deemed fraudulent when there i: a. Failure to report an income exceeding 30% of that declared per return E. Overstatement of deductions exceeding 30% of the 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 | officers of the BIR. No civil or criminal action for shall be conducted by legal she 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 dave of release of the final assessment to the taxpayer to make collection (Bank of the Philippine Islands ys CIR, GR. No. 139736). When the demand letters is undated, the 5-year prescriptive period is Wed from the date of receipt of the assessment notice Gardine Pacific Finance vs. CIR, CTA Case No. 6195). | illustration 1 On july 15 2015, Mr, A filed his 2014 income tax return which should have been = enn aril 15, 2015. He paid the tax on August 15, 2015. The BIR issued a Jency assessment on August 2, 2017. ‘The deadline to enforce collection shall be on or before August 2, 2022. S 705Chapter 19 - Tax Remedies Mlustration 2 On March 3, 2015, the BIR sent an undated assessment letter. The assesy covered the unpaid estate tax ofa decedent which should have been paid i 5, 2014. The estate administrator ret The deadline to enforce collection shall be on or before March 18, 2020 since y, assessment is undated. fa ecived the assessment on March 18, 291¢°* Mlustration 3 rer did not file an income tax return for the year 2006. The pj, The taxpays discovered the non-filing on May 4, 2013. The BIR issued a delinqueng, assessment on July 15, 2015. ‘The deadline to enforce collection is on or before July 15, 2020. Suspension of the Statutes of Limitation The prescriptive period for assessment and collection may be suspendeg under the following circumstances: a. Request for reinvestigation of the taxpayer which is granted by the CIR b. When the Commissioner is prohibited from making an assessment or from beginning distraint or levy or a proceeding in court? When the taxpayer cannot be located in the address given by him? cd. When the warrant of distraint or levy is served and no properties can be located e. When the taxpayer is out of the Philippines Note: 1. The suspension shall run for the period during which the CIR is so prohibited pls (60 days thereafter. 2. If the taxpayer informed the CIR of any change in address, the running ofthe statutes of limitation will not be suspended. ‘Summary of Prescription Rules: Collection Deadline of collection | Mode of collection With a prior 5 years from assessment | Summary proceedingsot assessment by judicial action Without a prior 10 years from discovery | By judicial action only assessment of fraud or falsity TAX REMEDIES OF THE TAXPAYER 1, Disputing an assessment - if the tax has not yet paid the assessment 2. Recovery of erroneously paid taxes - if the tax has already paid 706 |Chapter 19 ~ Tax Remedies DISPUTING AN ASSESSMENT 1. Upon receipt of the Pre-Assessment Notice, the taxpayer must explain his position within 15 days. 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 iseues an adverse decision, the taxpayer may interpose either a/an: vuudicial appeal ~ file a petition for review with the Court of Tax “Appeals (CTTA) within 30 days from the receipt of adverse decision b. a uiministrative appeal ~ file a motion for reconsideration with the CIR within 30 days from the receipt of the adverse decision ‘The final decision (FDDA) of the CIR may be appealed to the CTA within 30 days from 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 the BIR decision after the lapse of the 180-day period, or | be File a petition for review with the CTA within 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 must wait for BIR action and cannot proceed to the CTA until the BIR denies his administrative appeal. 4. Upon receipt of an adverse ruling from the CTA, thé ‘within'15 days: oe 707Chapter 19 ~ Tax Remedies a. File a motion for reconsideration or new trial under the 5, division, or ‘An adverse decision of the CTA in division may be appealed to the cry, banc within 15 days. The CTA may grant an additional 15 day leeway a payment of the docket fee. An adverse decision ofthe CTA en bane may, appealed within 15 days to the Supreme Court. ime 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 fy, 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 matters questioned by the examiner b, Factual and legal bases supporting the taxpayer's position c. Prayer for full or partial cancellation of the PAN Requirements for the validity of a protest: 1, The taxpayer must indicate the nature of protest (ie. request for reconsideration or request for reinvestigation) (See CIR vs. Philipie Global Communications, GR. No. 167146, October 31, 2006). 2, The taxpayer must state the a notice. 3. The taxpayer should state the fac licable_law, tegulations or jurisprudence on which the protest is based. 4. The protest must be filed by the taxpayer or his/her duly authorized representatives, in person or thre ist ail with return card with the concerned Regional Director, Assistant Commissioner-LTS or Assistant Commissioner-Enforcement Service, as the case may be (RNC 39-2013). 5. All relevant documents must be submitted within 60 days from the filing of the request for reinvestigation, Suspension of the prescriptive period It is settled under jurisprudence that th ir e 60-day period applies only to request for re-investigation but not to ar, y Period. applies only ‘equest for reconsideration. The suspension of the prescriptive peri i E request for re-investigation The setate coarng ena hot, by itself, suspends the running The prescriptive period of collection wi grants the request for re-investigati (Phils.), inc, GRNo. 197515).Chapter 19 - Tax Remedies protest ‘needs to be categorical e S Twos to tilted enh ood aise all issues in the FAN/FLD that he oo at el bac each objection individually by stating the facts, law, Cael He ions, and jurisprudence supporting his position. It must be assessments on uncontested issues will become final, executory, and demandable by the government. Summary of Rule: Disputing an assessment Government side FAN BIR denial or lapse of 180- cia wer comes fl adverse [ NFIC [ PAN day whichever comes first em [_--plt---> --> 15 days 30 days 30 days petition for certiorari (sc) Petition for review supporting (cra) documents Personal ‘motion appearance for Reinvesti- gation nN Reply oR ' Judicial remedies” Motion * for >| wait for 81R action Recons- deration smedies Si ‘Administrative ret remedy, adverse decision may be appeated tothe CTA within 30 days from smrutualy exclusive receipt - Taxpayer's side ~~ edy of last resort: compromise wer who has exhausted vit the remedies may settle his tax liability by rompromise payment. jad conditions which wl Compromise, however, is permissible only I be discussed later. 709Chapter 19 - Tax Remedies RECOVERY OF ERRONEOUSLY PAID TAXES Procedures: _ froni/the 1. File a Claim for refund or cae within 2 years date gy payment of the tax (Sec. 229, NIRC). ; 2. When the claim for refund or credit is denied. by an authoring representative of the CIR, the taxpayer may 4 i Ps tion for reconsideration within 30 days from receipt of the eniat an within the two-year prescriptive period from the date of payment o! - tax. 3. Anadverse final decision of the CIR shall be appealed by filing a petition for review before the CTA within 30 days from receipt of the fng decision (Sec. 11 RA 1125) and within the two-year prescriptive periog, 4, Ifthe BIR did not act on the claim for refund or credit, the taxpayer mus, file a petition for review before the CTA before the expiration of the two-year prescriptive period. An adverse decision of the CTA may be appealed in the same division within 15 days. An adverse decision of the concerned CTA division may be appealed to the CTA, en banc within 15 days. 5. An adverse decision of the CTA shall be appealed within 15 days to the Supreme Court. These procedural requirements apply not only to taxes paid in error bit also those paid under protest or duress (Sec. 229, NIRC). Note on administrative procedures It must be noted that aside from complying with the rules on deadlines, al required taxpayer procedures for his administrative remedies must be executed within the two-year prescriptive period and, in case of adverse decision, the taxpayer must have interposed a case for the recovery of the tax with the CTA on or before the expiration of such period, The failure todo so shall result in the forfeiture of the tax subject of the claim. When the taxpayer discovered the erroneous Payment when the 2-yeat Period was about to lapse, he may file a claim for refund or credit simultaneously with the institution of a c ae before the CTA. ase for the recovery of the Claim for refund or credit Tax refunds or credit are in the n: construed against the tax, evidence to substantiate hi: lature of a tax exemption and are high Payer. The taxpayer must present convil 's entitlement to refund or credit. 710Chapter 19 — Tax Remedies When is _ When isan application fora claim for refund or eed not necessary? pies resrn led shthing a overpayment by itself considered a claim for iricrediterts iv payer need not file an application for claim for refund When is a claim for r refund or credit not a. Documentary stamp tax cate b. Payment on tax assessments that became final and executory* *This is not payment under protest Counting of the 2-year Prescriptive Period 1. The 2-year period is counted from the date of filing of the Final Adjusted Return, not from the date of the quarterly income tax payments. 2. For VAT payments, the 2-year period is counted from the date of filing of the quarterly VAT return, not from the monthly payments 3. If tax is paid in installment, the 2-year period is counted from the last installment For withholding taxes por Final withholding tax - the 2-year period is counted from the 25% day after the close of each calendar quarter riod is counted from the i tax - the 2-year pe b. Creditable withholdin; ‘close of the quarter during last day of the month following the which withholding was made ammary of Rules: Recovery of Erroneously Paid Taxes .- Government side ~ A er BIR denial ‘Adverse decision 30 days "Fs days” payment of Claim for Petition for |. Petition for tax refund review (CTA)* >| review on certiorar 2years J) (50) pe executed even without a BIR decision on the claim for refund -- Taxpayer's side 71Chapter 19 - Tax Remedies Forfeiture of refund Refund check or warrant issued by the BIR must be claimed or encashed within five years from the date said warrant or check was mailed or delivered; otherwise, the same will be forfeited in favor of the Government and the amount thereof shall revert to the general fund. (Sec. 230 (A), NIRC) Forfeiture of tax credit A tax credit certificate issued in accordance with the provision of the NIRC must be utilized within 5 years from the date of issue. Unless revalidated, a tax credit which remains unutilized after such period shall be considered invalid and shall not be allowed as payment for internal revenue tax liabilities of the taxpayer. It is also noteworthy to mention that a tax credit certificate is no longer assignable under current tax regulations. Action to Contest Forfeiture of Chattel In case of the seizure of personal property under claim of forfeiture, the owner desiring to contest the validity of the forfeiture may, at any time before the sale or destruction of the property, bring an action against the person seizing the property or having possession thereof to recover the same, and upon giving proper bond, may enjoin the sale; or after the sale and within (6) months, he may bring an action to recover the net proceeds realized from the sale (Sec. 231, NIRC). AUTHORITY OF THE CIR TO COMPROMISE, ABATE, AND REFUND OR CREDIT TAXES AUTHORITY 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 tax ‘payer demonstrates a clear inability to Pay the assessed tax. Minimum of compromise settlements: a, 10% of the basic assessed tax - in cases of financial i 'b, 40% of the basic assessed tax - fee 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. 712Chapter 19 — Tax Remedies 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 within the judgment and discretion of the Commissioner of Internal Revenue, except in the following cases: Compromise by the NEB ‘The NEB shall approve the compromise offer when: 1, the basic tax involved exceeds P1,000,000 or 2. the settlement offered is less than the prescribed minimum rates Composition of the NEB: a. The Commissioner of Internal Revenue b. The four Deputy Commissioners ‘All the decisions of the NEB, favorable or unfavorable, shall have the concurrence of the Commissioner. Compromise by the REB: The REB shall approve the offer for compromise for: a, Assessments issued by Regional Offices involving a basic deficiency tax of P500,000 or less b. Minor criminal violations discovered by Regional and District Offices Composition of the REB: Regional Director - as chairman Assistant Regional Director Chief, Legal Division Chief, Assessment Division Chief, Collection Division Revenue District Officer having jurisdiction over the taxpayer-applicant repose If the offer of 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 does not exceed PIM, and the settlement is not below the prescribed percentages. 713Chapter 19 - Tax Remedies What may be compromised? . Delinquent accounts Pending cases under administrative protest Civil tax cases being disputed before the courts Collection cases filed in courts Criminal violations other than: a. Those already filed in courts b. Those involving criminal tax fraud i 6. Cases covered by pre-assessment notices contested by the taxpayer Sop pe What cannot be compromised? 1. Withholding tax cases 2. Criminal tax fraud cases 3. Criminal violations already filed in courts ‘ 4. Delinquent accounts with duly approved schedule of instalimen payments 5. Cases of reduced assessment agreed upon by the taxpayer 6. Cases which have become final and executory after final Judgment of court AUTHORITY OF THE CIR TO ABATE TAXES Under Section 204(B) of the NIRC, the CIR is authorized to abate or cancela tax liability under the following conditions: 1 ‘The tax or any portion of it which appears to be unjustly or excessively assessed. 2, The administrative or collection costs 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 m0 distrainable or leviable Property. 5. The taxpayer is a corporation who has already dissolved and subscribed shares of stock have been fully paid. 4 6. The tax case has already prescribed, involved do not justify the 714