B.

Assessment Process
1. Tax audit- This includes the examination of books of accounts and other accounting records of
the taxpayers by revenue officers (RO) to determine the correct tax liability. What is the document
required before the BIR may audit the records of the taxpayer? Letter of Authority (LOA).
1. Letter of Authority- This LOA is the authority given to the appropriate revenue officer
assigned to perform assessment functions and empowers the said revenue officer to examine the
books and records of the taxpayer for the purpose of collection of the correct amount of taxes.
 CIR v. Sony, GR 178697, 17 Sept. 2010
 Medicard Philippines v. CIR, GR 222743, 5 April 2017
 Who may issue? It’s the CIR or his duly authorized representative.
 When to serve? It should be served or presented to the taxpayer within 30 days from its
date of issue; otherwise it becomes null and void, unless revalidated.
 Revalidation- Revalidation is done by issuing a new LOA or by just simply stamping the
words 'REVALIDATED' on the face of the copy of the LOA issued. It can be revalidated only
once, if issued by the Regional Director; twice, if issued by the CIR. The suspended LOAs
must be attached to the new issued LOA (RMO 38-88).
 Not covered- Cases which need not be covered by a valid LOA:
1. Cases involving civil or criminal tax fraud which fall under the jurisdiction of the tax fraud
division of the Enforcement Services; and
2. Policy cases under audit by the Special Teams in the National Office (RMO 36-99).

2. Frequency of Audit Examination- Sec. 235 General Rule

 Exceptions
Section 235. Preservation of Books and Accounts and Other Accounting Records. – All the books
of accounts, including the subsidiary books and other accounting records of corporations,
partnerships, or persons, shall be preserved by them for a period beginning from the last entry in
each book until the last day prescribed by Section 203 within which the Commissioner is
authorized to make an assessment. The said books and records shall be subject to examination
and inspection by internal revenue officers: Provided, That for income tax purposes, such
examination and inspection shall be made only once in a taxable year, except in the following
cases:
(a) Fraud, irregularity or mistakes, as determined by the Commissioner;
(b) The taxpayer requests reinvestigation;
(c) Verification of compliance with withholding tax laws and regulations;
 (d) Verification of capital gains tax liabilities; and
(e) In the exercise of the Commissioner’s power under Section 5(B) to obtain information from
other persons in which case, another or separate examination and inspection may be made.
Examination and inspection of books of accounts and other accounting records shall be done in
the taxpayer’s office or place of business or in the office of the Bureau of Internal Revenue. All
corporations, partnerships or persons that retire from business shall, within ten (10) days from
the date of retirement or within such period of time as may be allowed by the Commissioner in
special cases, submit their books of accounts, including the subsidiary books and other
accounting records to the Commissioner or any of his deputies for examination, after which they
shall be returned. Corporations and partnerships contemplating dissolution must notify the
Commissioner and shall not be dissolved until cleared of any tax liability.

Any provision of existing general or special law to the contrary notwithstanding, the books of
accounts and other pertinent records of tax-exempt organizations or grantees of tax incentives
shall be subject to examination by the Bureau of Internal Revenue for purposes of ascertaining
compliance with the conditions under which they have been granted tax exemptions or tax
incentives, and their tax liability, if any

General Rule: The said books and records shall be subject to examination and inspection by internal
revenue officers: Provided that for income tax purposes, such examination and inspection shall be
made only once in a taxable year.
Exceptions:
1. Fraud, irregularity or mistakes, as determined by the Commissioner;
2. The taxpayer requests reinvestigation;
3. Verification of compliance with withholding tax laws and regulations;
4. Verification of capital gains tax liabilities; and
5. In the exercise of the Commissioner's power under Section 5(B) to obtain information from other
persons in which case, another or separate examination and inspection may be made.

ii. Preliminary Assessment Notice (PAN) - RR 12-99, RR 18-2013, RMC 11- 2014

REVENUE REGULATIONS NO. 12-99 implements the provisions of the Tax Code of 1997 relative to
the rules on assessment of national internal revenue taxes, fees and charges, as well as provides
the rules for the extra-judicial settlement of a taxpayer's criminal violation of the said Code or any
of its implementing Regulations through payment of a suggested compromise penalty. As a general
principle, in case the tax due from the taxpayer is paid on a partial or installment basis, the interest
on the deficiency tax or on the delinquency tax liability of the taxpayer will be imposed from due
date of the tax until full payment thereof. The interest will be computed based on the diminishing
balance of the tax, inclusive of interests.

REVENUE REGULATIONS NO. 18-2013 amends certain sections of Revenue Regulations (RR) No. 12-
99 relative to the due process requirement in the issuance of a deficiency tax assessment. Prior to
its amendment by RR No. 18-2013, RR No. 12- 1999 required the BIR to issue the Notice of Informal
Conference to the taxpayer if the latter disagrees with the BIR’s findings based on its investigation.
RR No. 12-1999 also provided that failure of the taxpayer to respond within fifteen (15) days from
date of receipt of the Notice for Informal Conference, shall result in the taxpayer’s default – in which
case, the report will be endorsed for appropriate review and issuance of a deficiency tax
assessment, if warranted. However, on November 28, 2013, former Finance Secretary Cesar V.
Purisima issued RR No. 18-2013 and amended RR No. 12-1999 to delete the requirement of Notice
of Informal Conference.

REVENUE MEMORANDUM CIRCULAR NO. 11-2014 clarifies certain issues relative to the
amendments introduced by RR 18-2013 on the issuance of a deficiency tax assessment.

• The term “duly authorized representative”, insofar as this term is used to identify who may issue the
Preliminary Assessment Notice (PAN), Formal Letter of Demand/Final Assessment Notice (FLD/FAN) and
Final Decision on Disputed Assessment (FDDA) under RR No. 12-99, as amended by RR No. 18-2013, refers to
Revenue Regional Directors, Assistant Commissioner-Large Taxpayers Service, and Assistant Commissioner-
Enforcement and Advocacy Service.

• Thus, taxpayers shall file their responses to the PAN and protests to the FLD/ FAN with the duly authorized
representative of the Commissioner who signed the PAN and FLD/FAN.

• Prior to the issuance of the PAN, the taxpayer may be allowed to make voluntary payments of probable
deficiency taxes and penalties.

• An FLD/FAN issued reiterating the immediate payment of deficiency taxes and penalties previously made
in the PAN is a denial of the response to the PAN.

• A final demand letter for payment of delinquent taxes may be considered a decision on a disputed
assessment, including a disputed PAN.

• An FLD/FAN issued beyond 15 days from filing/submission of the taxpayer’s response to the PAN shall be
valid, provided that it is issued within the period of limitation to assess internal revenue taxes.

• The term “the assessment shall become final” under RR No. 12-99, as amended by RR No. 18-2013, means
that the failure of the taxpayer who requested for reinvestigation to submit all relevant supporting
documents within the 60-day period shall render the FLD/FAN “final” by operation of law.

• Upon finality of the assessment, the taxpayer shall be barred from disputing the correctness of the
FDL/FAN by the introduction of newly discovered or additional evidence, because the taxpayer is deemed to
have lost his chance to present the evidence. The BIR shall then deny the request for reinvestigation through
the issuance of an FDDA.

• The notice (PAN/FLD/FAN/FDDA) shall first be served at the taxpayer’s known address, or in the
alternative, may be served at the taxpayer’s registered address and known address simultaneously.

1. Definition- A pre-assessment notice (PAN) is a communication issued by the BIR informing the
taxpayer who has been audited of the findings of the Revenue Officer, following the review of these
findings. A PAN is issued when the taxpayer disagrees with the findings of the Revenue Officer as
discussed during the informal conference.
2. Purpose and Nature
Purpose: This is basically to notify the taxpayer that there are some discrepancies.
Nature: PAN is mandatory. Without the PAN, the Final Assessment Notice or whatever the BIR
will issue is null and void. This is part of our civil due process.

3. Response- The taxpayer has 15 days from the date of receipt of the PAN to respond thereto by
filing a reply.

 If the taxpayer, within 15 days from the date of the receipt of the PAN, responds that
he disagrees with the findings of deficiency tax or taxes, an FLD/FAN shall be issued
within 15 days from filing/submission of the taxpayer’s response, calling for payment
of the taxpayer’s deficiency tax liability, inclusive of the applicable penalties.

 The failure of the taxpayer to respond within 15 days from the date of the receipt of
the PAN shall make him in default, in which case, a Formal Letter of Demand and
Final Assessment Notice (FLD/FAN) shall be issued calling for payment of the
taxpayer’s deficiency tax liability, inclusive of applicable penalties.

 Exceptions- Pursuant to Sec. 228 of the Tax Code, as amended, a PAN shall not be required
in any of the following cases:
a. When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
b. When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
c. 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
d. When the excise tax due on excisable articles has not been paid; or
e. When the 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.
iii. Final Assessment Notice (FAN) / Formal Letter of Demand (FLD)
1. Definition- It is a declaration of deficiency taxes issued to a taxpayer who fails to respond
to a PAN within the prescribed period of time, or whose reply to the PAN was found to be without
merit. FAN or FLD is essentially a demand letter for the payment of taxes.
2. Nature- The taxpayer should not ignore the FAN, because once this final assessment has
been ignored, this FAN will be final and executory, and that signals the government to avail of its
own remedies to collect taxes from the taxpayer.
3. When issued- The CIR or his duly authorized representative may issue FLD/FAN:
1. If there is no need to issue a PAN, because the circumstances show that it fall
within the exceptions for the issuance of PAN;
2. If the taxpayer is in default for failure to respond to a PAN within a period of 15
days from the receipt of PAN; or
3. If the CIR or his duly authorized representative does not agree with the
justifications stated by the taxpayer in his reply to the PAN.
4. Contents:
1. The facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the FAN shall be void.
2. A demand for the payment of taxes, penalties, and surcharges within a specific
due dates.
5. Effect- This is the time the penalties or interests will begin to run on the taxpayer. It’s not
on the PAN, but on the FAN.
 CIR v. Pascor Realty Development, GR 128315, 29 Jun 1999
 CIR v. Hantex Trading, G.R. No. 136975, 31 Mar 2005
 CIR v. Liquigaz, GR 215534, 18 Apr 2016
C. Taxpayer’s Administrative Remedies
i. Protest
1. Definition- It is an act of the taxpayer questioning the validity of the imposition of
the corresponding delinquency increments for internal revenue taxes as shown in the FAN or the
FLD.
2. To whom filed- Under the existing Revenue Regulations, there are 2 personalities
to which the taxpayer may file the protest:
1. To the Regional Director; or
2) To the CIR.
3. Distinguished from Protest from other tax laws
 As to payment under protest- The provision on payment of tax under protest
as provided in Section 252 of the LGC applies only on cases involving Real
Property Tax (RPT) assessments; whereas, the protest contemplated here
applies to cases involving internal revenue taxes, i.e. income, indirect (value-
added and percentage taxes), excise and documentary stamp taxes.
 As to period of filing- Under Section 252 of the LGC, the protest in writing
must be filed within thirty (30) days from payment of the tax; whereas, here
the protest is filed within 30 days from the date of receipt of the FAN or the
FLD.
4. When to file a protest- This is filed within 30 days from the date of receipt of the
FAN or the FLD.