BUSINESS TAX – CH 1 NOTES (10/21/22) from: vid lec

Administrative agencies in charge of the collection of taxes

1. Bureau of internal revenue
2. Bureau of customs
3. Duly and lawfully authorized collectors or collecting agencies
4. Provincial treasurers
5. City treasurers
6. Municipal treasurers
7. Department of Finance

Discussion focus: BIR – designated to collect national taxes under the tax code (RA8424, as
amended)

POWERS AND DUTIES OF THE BIR:

- Implements the tax code.
- Under the supervision and control of dept of finance.
- ASSESS and COLLECT: national internal revenue taxes, fees, and charges.
Including the execution of judgments in all cases decided in its favor
by the Court of Tax Appeals and the ordinary courts.
- Interpret the provision of tax codes and other tax laws.
- Decide disputed assessments.

ORGANIZATION OF THE BIR:

- Consists of 1 chief (COMMISSIONER OF INTERNAL REVENUE) and 4 assistant chiefs (DEPUTY
COMMISSIONERS OF INTERNAL REVENUE).
TAX REMEDIES
TWO REMEDIES ARE PROVIDED IN THE NIRC:
1. Remedies of the GOVERNMENT
2. Remedies of the TAXPAYER

REMEDIES OF THE TAXPAYER

A. BEFORE payment of taxes
1. Administrative Remedies (at the BIR level)
- protest against the assessment
- compromise
- the redemption of the property after the sale at a public auction.

2. Judicial Remedies (in COURTS)

- ordinary civil action
- filing of the petition before the Court of Tax Appeals (CTA).

B. AFTER payment of taxes

1. Administrative Remedies (at the BIR level)
- claim for refund or tax credit

2. Judicial Remedies (in COURTS)

- filing of the petition before the Court of Tax Appeals (CTA).

REMEDIES OF THE GOVERNMENT

1. Administrative Remedies (at the BIR level)
a. To make deficiency assessments within 3 or 10 years
b. To enforce deficiency assessments and collect taxes within 5 years. How?
- effect distraint/seizure/confiscate personal property
- levy/charge on real property
- pursue judicial proceedings to collect
- compromise/abate/cancel taxes
- enforce tax liens
- enforce statutory penal provisions
- enforce forfeiture or property

2. Judicial Remedies (in COURTS)

a. Civil
b. Criminal
PRIMARY REMEDIES OF THE GOVERNMENT:
1. Assessment
- act or process of determining the tax liability of a taxpayer in accordance with tax laws.
- may also pertain to notice sent by the government to the taxpayer informing him of his
unpaid tax obligation.

2. Collection
- procedures of the government to enforce payment of unpaid taxes from delinquent
taxpayers.

2 TYPES OF ASSESSMENT AND COLLECTION

1. Ordinary assessment and collection (Sec 203)
- If there was a return filed by a taxpayer, that is not false or fraudulent, the government may
make the assessment within 3 years FROM THE LAST DAY PRESCRIBED BY LAW for the filing
of the return, and NOT FROM THE TIME OF THE PAYMENT.
 IF FILED LATE, the 3-year period shall be counted FROM THE DAY OF THE FILING.
 G/R: WHICHEVER IS LATER.

 IF FALSE OR FRAUDULENT: 10 years

- FALSE: Deviation from truth/fact, intentional or not. NOT subject to criminal liability.
- FRAUDULENT: intentional. MAYBE subjected to criminal liability.

*can the BIR assess and collect beyond 3 years? No.

  SEC 203 does NOT provide a prescriptive period for the collection
 The prescriptive period for abnormal is 5 years from assessment. Hence, it can be
concluded that the prescriptive period for normal is also 5 years.
 Except: when the BIR and taxpayer made a written agreement.

2. Abnormal or extraordinary assessment and collection (Sec 222)

- Resorts to by the government in cases:
a. Taxpayer omits or fails to file his return
b. Taxpayer filed a fraudulent return
c. Taxpayer filed a false return.

 For assessment and collection.

- prescriptive period is 10 years FROM THE DISCOVERY (of a,b,c)
- prescriptive period for the collection: 5 years FROM THE DATE OF FINAL ASSESSMENT.

 Government opts to collect WITHOUT assessment.

- there would be NO PRESCRIPTIVE PERIOD for assessment. The period for collection
prescribes within.
BIR TAX DEADLINES
SEC 204.
1. COMPROMISE THE PAYMENT (grounds):
a. Reasonable doubt
b. Financial incapacity
What is the compromise rate?
- Financial incapacity = 10% of the basic assessed tax.
- Other cases = 40% of the basic assessed tax.

2. ABATE/CANCEL TAX LIABILITIES (grounds):

a. Unjustly or excessively assessed
b. The collection cost is greater than the benefit

CASES THAT MAY BE COMPROMISED (RR 30-2002)/

1. Delinquent accounts
2. Cases under the administrative protest
3. Civil tax cases
4. Collection cases
5. Criminal violation (can’t compromise if already filed in court or if involves fraud)
CASES THAT CANNOT BE COMPROMISED (RR 30-2002)
COMPROMISE VS ABATEMENT

COMPROMISE ABATEMENT
What is it? -reduction of taxpayer’s -cancellation of entire tax
liability. liability.
Who approves it? -CEB, -chief of internal revenue (CIR)
National Evaluation Board, ONLY.
Regional Evaluation Board
may allow

 NEB if:
1. the basic tax is GREATER than 1M; and
2. the settlement rate is BELOW the minimum rate
 NEB is composed of the CIR and 4 deputy commissioners.

 REB if:
1. the assessment issued by RO involving deficiency tax of 500k or less: and
2. the minor criminal violations discovered by the RDO.

 The CIR ALONE can compromise when:

1. the basic tax DO NOT exceed 1M; and
2. the settlement is NOT BELOW the minimum rates.

TRUE, TRUE, TRUE, FALSE

TIME OF COLLECTION
- 5 years after assessment (SEC 222)

HOW TO COLLECT:
1. Civil action – for collection of taxes, this must be filed WITHIN 5 years of assessment.
a. With RTC/MTC = if principal amount of taxes is BELOW 1M.
b. With CTA = if principal amount of taxes is 1M AND ABOVE.

2. Criminal action – to enforce penal provisions filed within 5 years of assessment. May be filed
during pendency of an administrative protest in BIR.

STAGES OF COLLECTION
1. Preliminary collection of letter (PCL)
2. Final Notice before seizure letter
3. Warrant of distraint / levy / garnishment
4. Research of taxpayer properties
5. Notice of tax liens and or notice of levy
6. Seizure of property
7. Auction sale in public if not sold, forfeiture
8. Filing of civil or criminal action (if not enough)

 Preliminary collection of letter (PCL)

- once the assessment received finality, the BIR collection division will send the taxpayer a
PCL signed by the RDO who has jurisdiction over the taxpayer.
- the TP may pay the assessment by: lump sum, installment, or compromise settlement.

 Final Notice before seizure letter

- within 12 days from the issuance of PCL, 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 (under the tax code):
a. seizure of taxpayer’s property
- DISTRAINT if PERSONAL PROPERTY
- LEVY if REAL PROPERTY
- GARNISHMENT if INTANGIBLE, PERSONAL PROPERTY (bank accounts)

 Warrant of distraint / levy / garnishment

- the BIR will issue WDL or WG after his failure to respond to the final notice.

Limitation of WDL
1. D/L shall NOT be availed of where the amount of tax is NOT MORE THAN 100.
2. WDL shall NOT be sent EARLIER THAN 90 DAYS from the date the assessment has
become due.

b. civil or criminal action (CH 2 SEC 205)

SEC 207. SUMMARY REMEDIES (DISTRAINT)

Distraint:
- CIR if the amount is in EXCESS of 1M
- RDO if the amount is 1M or BELOW
- There must be a report to be submitted within 10 days from the receipt of the warrant.
SEC 206. CONSTRUCTIVE DISTRAINT OF THE PROPERTY OF A TAXPAYER
- To safeguard the interest of the government, the commissioner may place under
constructive distraint of the property of a delinquent taxpayer or any TP who In his opinion,
1. Is retiring from any business subject to tax
2. Intending to leave the PH
3. Remove his property therefrom / hide / conceal his property
4. Perform any act tending to obstruct the proceeding for collecting the tax due or which
may be due from him.

TYPES OF DISTRAINT
A. CONSTRUCTIVE – NOT PHYSICALLY TAKEN.
B. DISTRAINT OF INTANGIBLE PROPERTIES
C. ACTUAL DISTRAINT – the officer PHYSICALLY TAKES property.

How is it effected?
- There is a receipt signed by the possessor of the property. And that possessor is obligated to
keep/preserve the property and not dispose it in any manner without the authority of the
BIR.

SEC 208.