TAX REMEDIES

Assessment
 It is a written notice to a taxpayer to the effect that the amount stated therein is due as tax and containing a demand for the payment. It
is a finding by the taxing agency that the taxpayer has not paid his correct taxes.
 A notice of assessment contains not only a computation of tax liabilities but also a demand for the payment within a prescribed period. It
also signals the time when penalties and interests begin to accrue

Taxes are self- assessing

 Taxes are generally self-assessing and do not require the issuance of an assessment notice in order to establish the tax liability of a
taxpayer.

Different ways of paying taxes

1. Pay-as-you-file system – Income for individuals and corporation shall be paid by the person subject thereto at the time the return is filed.
2. Installment payment – When income tax due is in excess of P2,000 and the taxpayer is not a corporation, he may elect to pay the tax in two
equal installments. First installment is when the return is filed and the second installment is on or before July 15 following the close of the calendar
year.

Jeopardy Assessment
 a delinquency tax assessment made without the benefit of a complete or partial investigation by a belief that the assessment and
collection of a deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to:

a. Comply with audit and investigation requirements to present his books of accounts and/or pertinent records, or
b. Substantiate all or any of the deductions, exemptions or credits claimed in his return.

Delinquency Tax
 a taxpayer is considered delinquent in the payment of taxes when:
a. Self-assessed tax per return filed by the taxpayer on the prescribed date was not paid at all or only partially paid; or
b. Deficiency tax assessed by the BIR becomes final and executory.

Deficiency Tax
a. The amount by which the tax imposed by law as determined by the CIR or his authorized representative exceeds the amount shown as
tax by the taxpayer upon his return; or
b. If no amount is shown as tax by the taxpayer upon his return is made by the taxpayer, then the amount by which the tax as determined
by the CIR or his authorized representative exceeds the amounts previously assessed or collected without assessment as deficiency.

Powers of the Commissioner

1. Examination of return and determination of tax due
2. Use of the best evidence available
3. Authority to conduct inventory taking, surveillance and prescribe gross sales and receipts if there is reason to believe that the taxpayer is not
declaring his correct income, sales or receipts for internal revenue purposes
4. Authority to terminate taxable period in the following instances:
a. Taxpayer is retiring from business subject to tax;
b. Taxpayer is intending to leave the Philippines or to remove his property therefrom or to hide or conceal his property and
c. Taxpayer is performing any act tending to obstruct the proceedings for the collection of taxes.
5. Authority to prescribe real property values
6. Authority to inquire into bank deposits accounts in the following instances:
a. A decedent to determine his gross estate;
b. Any taxpayter who has filed an application for compromise of his tax liability by reason of financial incapability to pay;
c. A specific taxpayer/s is subject of a request for the supply of tax information a foreign tax authority pursuant to an intentional
convention or agreement on tax matters to which the Philippines is a signatory or a party of. Provided that the requesting foreign tax
authority is able to demonstrate the foreseeable relevance of certain information required to be given to the request.
d. Where the taxpayer has signed a waiver authorizing the Commissioner or his duly authorized representative to inquire into the bank
deposits.
7. Authority to accredit and register tax agents
8. Authority to prescribe additional procedural or documentary requirements.

Prescriptive Period of Assessment

 To secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are beneficial to the
government because tax officers will be obliged to act promptly in the assessment and collection of the taxes, for when such period have
lapsed their right to assess and collect would be barred by the statute of limitations.

1. Where a return was filed:

 The period for assessment is within 3 years after the date the return was due or if the return is filed after the due date prescription will
start on the date the return was filed.

2. If there is failure to file the required return, the period is within 10 years after the date of discovery of the omission to file the return. Date
of discovery must be made within the three-year period following the general rule.

3. If the return is filed but it is false or fraudulent and made with intent to evade the tax, the period is 10 years from the date of discovery of
the falsity or fraud.

4. Where the CIR and taxpayer, before the expiration of the 3-year period have agreed in writing to the extension of the period, the period so
agreed upon may thereafter be extended by subsequent agreements in writing made before the expiration of the period previously agreed
upon.
Assessment Process
1. Issuance of a letter of authority
o A letter of authority is an official document that empowers a Revenue Officer (RO) to examine and scrutinize a taxpayer’s books
of accounts and other accounting records, in order to determine the taxpayer’s correct internal revenue tax liabilities.
o It must be served to the taxpayer within 30 days from its date of issuance; otherwise, it shall become null and void.

2. Audit stage
o The Revenue Officer is allowed only 120 days to conduct the audit and submit the required report of investigation from the
date of receipt of a LA by the taxpayer. If the RO is unable to submit his final report of investigation within the 120-day period,
he must then submit a Progress Report to his Head of Office, and surrender the LA for revalidation.

3. Issuance of notice of informal conference

o It is a written notice informing a taxpayer that the findings of the audit conducted on his books of accounts and accounting
records indicate that additional taxes or deficiency assessments have to be paid. If, after the culmination of an audit, a RO
recommends the imposition of deficiency assessments, this is communicated by the Bureau to the taxpayer concerned during
an informal conference called for this purpose.
o The taxpayer has 15 days from the date of his receipt to explain his side.
o If the taxpayer fails to respond within 15 days from date of receipt of the NIC, he shall be considered in default, in which case,
the Revenue District Officer shall endorse the case with the least possible delay to the Assessment Division of the Revenue
Regional Office or to the CIR or his duly authorized representative, as the case may be, for appropriate review and issuance of a
deficiency tax assessment, if warranted.

4. Informal conference
o It is to afford the taxpayer the opportunity to present his case.
o Matters taken up:
a. Discussion on the merits of the assessment
b. Attempt of the taxpayer to convince the examiner to conduct a reinvestigation and/or re-examination
c. Evaluate if submission of the waiver of the statute of limitations is necessarybecause evaluation may extend beyond
3 years
d. Taxpayer to advise the examiner if position paper will be submitted

5. Issuance of preliminary assessment notice

o Preliminary Assessment Notice (PAN)- is a communication issued by the Regional Assessment Division, or any other
concerned BIR Office, informing a taxpayer who has been audited of the findings of the RO, following the review of these
findings.

o Requirements of PAN:
1. In writing; and
2. Should inform the taxpayer of the law and the facts on which the assessment is made

o This is to give the taxpayer the opportunity to refute the findings of the examiner and give a more accurate and detailed
explanation regarding the assessments. The absence of any of the requirements shall render the assessment void.

o If the taxpayer disagrees with the findings stated in the PAN, he have 15 days from receipt of the PAN, to file a written
reply contesting the proposed assessment.
o Failure to reply within 15 days, the taxpayer shall be considered in default, in which case a formal letter of demand and
formal assessment notice (FAN) shall be issued by the BIR.

6. Issuance of Formal Letter of Demand and Assessment Notice.

o FAN 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.
o It shall be issued by the Commissioner or his duly authorized representative.

Disputed Assessment
 When the taxpayer, indicates its protest against the delinquent assessment of the RO and requests for reconsideration, through a letter.
After the request is filed and received by the BIR, the assessment becomes a disputed assessment.
 The taxpayer may protest the assessment within 30 days from receipt otherwise the assessment becomes final, executory, demandable
and not appealable to the CTA.

 The taxpayer may elevate the protest to the CIR within 30 days from receipt of the decision for a request for reconsideration and that his
case is referred to the Bureau’s Appellate Division. Otherwise, it becomes final and appeal to the CTA may be taken.

Protest
 It is the act by the taxpayer of questioning the validity of the imposition of the corresponding delinquency increments for internal
revenue taxes as shown in the notice of assessment and letter of demand.
 Forms of Protest
1. Request for reconsideration - a claim for re-evaluation of the assessment based on existing records without need of additional
evidence. It may involve a question of fact or law or both. It does not toll the statute of limitations.
2. Request for reinvestigation - a claim for re-evaluation of the assessment based on newly-discovered or additional evidence. It may also
involve a question of fact or law or both. It tolls the the statute of limitations.
Submission of Documents within 60 Days from Filing of Protest
 These are documents which the taxpayer feels would be necessary to support his protest and not what the Commissioner feels should be
submitted, otherwise, the taxpayer would always be at the mercy of the BIR which may require production of such documents which
taxpayer could not produce.
 The 60 day period is counted from the filling of the protest.
 Non-submission of the documents renders the assessment final, executory and demandable.

Effect of Failure to Protest

 It makes the FAN final and executory, and the taxpayer loses his right to contest the assessment, at the administrative and judicial levels.
Thus the filing of the protest within 30 days from the receipt of the assessment would be mandatory for the taxpayer to use the other
administrative and judicial remedies.

Remedy of Taxpayer in case of Denial of Protest

 The remedy is to appeal such decision to the CTA within 30 days from receipt of the decision otherwise, the assessment will become final,
executor and demandable.
 If the taxpayer elevates his protest to the CIR within 30 days from date of receipt of the final decision of the CIR’s duly authorized
representative, such decision will not be final and executory.

Remedy In Case of Inaction by Commissioner within 180 days from Submission of Documents
 The taxpayer has two alternative options:
1. File a petition for review with the CTA within 30 days after the expiration of the 180-day period; or
2. Wait for the final decision of the CIR on the disputed assessment and appeal the final decision to the CTA within 30 days from the
receipt of the decision

Effect of Failure to Appeal

 The decision or assessment becomes final and executory.

Informer’s Reward
 Given to persons
o In the discovery of violations of the NIRC; and
o In the discovery and seizure of smuggled goods.
 Amounts of Reward
1. For discovery of violations of the NIRC - The amount of reward shall be whichever is lower between:
a. 10% of the revenues, surcharges or fees recovered and/or fine/penalty imposed; or
b. One Million Pesos (P1, 000,000)
2. For discovery and seizure of smuggled goods - a cash reward equivalent to whichever is lower between:
a. 10% of the fair market value of the smuggled and confiscated goods; or
b. One Million Pesos (P1, 000,000)

Prescriptive Period for Collection of Tax

1. Where an assessment was made - period for collection (by distraint or levy or by a proceeding in court) is within 3 years following the
assessment has been released, mailed, or sent.)
2. In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, a proceeding in court for the collection of such tax
may be filed without assessment, at any time within 10 years after the discovery of the falsity, fraud or omission.

Judicial Remedies of a Taxpayer

1. Appeal to the CTA in division – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of
the CIR.
2. Appeal to the CTA en banc – the party adversely affected by the decision of a CTA division may file a motion for reconsideration or new
trial within 15 days from receipt of the decision with the CTA division. If the MR is denied file a petition for review with the CTA en banc.
3. Appeal to the SC – within 15 days from the receipt of the decision of the CTA.
4. By way of special civil action – Petition for certiorari, prohibition and mandamus to the SC in cases of grave abuse of discretion, lack or
excess of jurisdiction.
5. Action to contest forfeiture of chattel, at any time before the sale or destruction thereof, to recover the same, and upon giving proper
bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net proceeds realized at the sale
6. Action for damages against a RO by reason of any act done in the performance of official duty.
7. Injunction – when the CTA is in the opinion that the collection by the BIR may jeopardize taxpayer.

Claim for Refund

a. Refund is an actual reimbursement of tax.
b. This is a remedy after the payment of tax liability.

Tax Credit Certificate

 It is validly issued under the provisions of the NIRC and may be applied against any internal revenue tax, excluding withholding taxes, for
which the taxpayer is directly liable. (Sec. 204 [C], NIRC)

Government Remedies
1. Distraint of personal property
 It is a summary remedy whereby the collection of tax is enforced on the goods, chattels or effects of the taxpayer (including other
personal property of whatever character as well as stocks and other securities, debts, credits, bank accounts and interest in or rights to
personal property.) The property may be offered in a public sale, if taxes are not voluntarily paid.
 Kinds of Distraint:
1. Actual – resorted to when there is actual delinquency in tax payment.
 2. Constructive – a preventive remedy which aims at forestalling a possible dissipation of the taxpayer’s assets when delinquency sets in.
Hence, no actual delinquency in payment is necessary.

2. Levy of real property

 It is the seizure of real property and interest in or rights to such properties for the satisfaction of taxes due from the delinquent taxpayer.
 It may be made before, simultaneously or after the distraint of personal property of the same taxpayer.
 Procedure for Levy
1. Preparation of a duly authenticated certificate which shall operate with force of a legal execution throughout the Philippines.
2. Service of the written notice to the:
a. Delinquent taxpayer, or
b. If he is absent from the Philippines, to his agent or the manager of the business in respect to which the liability
arose, or
c. If there be none, the occupant of the property.
d. The Registry of Deeds of the place where the property is located shall also be notified;
3. Advertisement of the time and place of sale within 20 days after the levy by posting of notice and by publication for three
consecutive weeks.
4. Sale at a public auction.
5. Disposition of proceeds of sale.
6. Residue to be returned to the owner.
 Right of Redemption
- within 1 year from the date of sale, the taxpayer or anyone for him, may pay to the Revenue District Officer the total amount
of the following:
1. Public taxes;
2. Penalties;
3. Interest from the date of delinquency to the date of sale; and
4. Interest on said purchase price at the rate of 15% per annum from the date of sale to the date of redemption.
 The owner shall not be deprived of the property until the expiration of the redemption period and shall be entitled to rents and other
income until the expiration of the period for redemption. (Sec. 214, NIRC)
 The remedy of distraint and levy may be repeated if necessary until the full amount of the tax delinquency due including all expenses is
collected from the taxpayer. (Sec. 217, NIRC) Otherwise, a clever taxpayer who is able to conceal most of the valuable part of his property
would escape payment of his tax liability by sacrificing an insignificant portion of his holdings.

3. Enforcement of forfeiture
 Forfeiture transfers the title to the specific thing from the owner to the government. Also there would no longer be any further levy for
such would be for the total satisfaction of the tax due. (Sec 215, NIRC)
 Forfeiture is the divestiture of property without compensation, in consequence of a default or offense. The property forfeited is
transferred to another without consent of the defaulting taxpayer or wrongdoer.

4. Enforcement of tax lien

 Tax lien is a legal claim or charge on property, personal or real, established by law as a sort of security for the payment of tax obligations.
 It is enforced as payment of tax, interest, penalties, costs upon the entire property and rights to property of the taxpayer. However, to
be valid against any mortgagee, purchaser or judgment creditor, notice of such lien has to be filed by CIR with the Registry of Deeds. (Sec.
219, NIRC)
 Tax lien is applied:
1. With respect to personal property – Tax lien attaches when the taxpayer neglects or refuses to pay tax after
demand and not from the time the warrant is served (Sec. 219, NIRC)
2. With respect to real property – from time of registration with the register of deeds.

5. Compromise and Abatement

 What is a Compromise?
It is an agreement between two or more persons who, amicably settle their differences on such terms and conditions as they may agree
on to avoid any lawsuit between them. It implies the mutual agreement by the parties in regard to the thing or subject matter which is to
be compromised. It is a contract whereby the parties, by reciprocal concessions avoid litigation or put an end to one already commenced.

 When must compromise be made?

1. Criminal cases – Compromise must be made prior to the filing of the information in court.
2. Civil cases – Before litigation or at any stage of the litigation, even during appeal, although legal propriety demands that prior
leave of court should be obtained.

 What are the cases which may be compromised?

1. Delinquent accounts
2. Cases under Administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in
the RO, RDO, Legal Service, Large Taxpayer Service, Collection Service, Enforcement Service, and other offices in the National
Office
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts
5. Criminal violations except:
a. Those already filed in courts; and
b. Those involving criminal tax fraud. (Sec.3, RR 30-2002)

 What are the cases which cannot be compromised?

1. Criminal tax Fraud cases, confirmed as such by the CIR or his duly authorized representative.
2. Cases where Final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original
assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose.
3. Cases which become Final and executory after final judgment of a court, where compromise is requested on the ground of
doubtful validity of the assessment.
4. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer.
 5. Withholding tax cases, unless the applicant – taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation
to withhold.
6. Criminal violations already filed in courts.
7. Delinquent accounts with duly approved schedule of installment payments.

 What are the grounds for a compromise?

1. Doubtful validity of assessment; or
2. Financial incapacity

 What are the requisites in order that compromise settlement on the ground of financial incapacity may be allowed?
1. Clear inability to pay the tax; and
2. The taxpayer must waive in writing his privilege of the secrecy of bank deposit under RA 1405 or other general or special
laws, which shall constitute as the CIR’s authority to inquire into said bank deposits (Sec. 6 [F], NIRC)

 Who may compromise tax cases?

The CIR may compromise with respect to criminal and civil cases arising from violations of the NIRC as well as the payment of any internal
revenue tax when:
a. A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is
equivalent to 40% of the basic tax; or
b. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax provided that the minimum compromise
entered into is equivalent to 10% of the basic assessed tax

 Distinguish Compromise from Abatement.

Compromise
Involves a reduction of the taxpayer’s liability.
Officers authorized to compromise: CIR and
Regional Evaluation Board
Grounds:
2. Reasonable doubt as to the validity of
assessment;
3. Financial incapacity of the taxpayer
Abatement
Involves the cancellation of the entire tax liability of a
taxpayer.
Officer authorized to abate or cancel tax, penalties and/or
interest: CIR
Grounds:
1. The tax or any portion thereof appears to be unjustly or
excessively assessed; or
2. The administration and collection costs involved do not
justify the collection of the amount due.

6. Civil penalties
 Civil penalties are imposed in addition to the tax required to be paid.
 Surcharge
It is a civil penalty imposed by law as an addition to the main tax required to be paid. It is a civil administrative sanction provided as
a safeguard for the protection of the State revenue and to reimburse the government for the expenses of investigation and the loss
resulting from the taxpayer’s fraud. A surcharge added to the main tax is subject to interest.
 Surcharge Rates
1. Twenty-five percent (25%) of the amount due, in the following cases:
a. Failure to File any return and pay the tax due thereon as required under the provisions of the NIRC or rules and
regulations on the date prescribed
b. Failure to pay the deficiency tax within the Time prescribed for its payment in the notice of assessment
c. Unless otherwise authorized by the CIR, filing a return with an internal revenue officer Other than those with whom
the return is required to be filed
d. Failure to Pay the full or part of the amount of tax shown on any return required to be filed under the provisions of
the NIRC or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or
before the date prescribed for its payment (Sec 248 [A], NIRC)
2. The penalty shall be fifty percent (50%) of the tax or of the deficiency tax, in the following cases:
a. Willful neglect to file the return within the period prescribed; or
b. False or fraudulent return is willfully made (Sec. 248 [B], NIRC)
A prima facie evidence of false or fraudulent return arises when there is: under-over
1. A substantial under declaration of taxable sales, receipts or income; when there is failure to report sales, receipts or
income in an amount exceeding 30% of that declared per return.
2. A substantial overstatement of deductions (Sec. 248, NIRC) (There is a substantial overstatement of deductions
where a claim of deduction exceeds 30% of actual deductions.)
 Interest
There shall be assessed and collected on any unpaid amount of tax, interest at the rate of 20% per annum, or such higher rate as
may be prescribed by rules and regulations, from the date prescribed for payment until the amount is fully paid. (Sec. 249, NIRC)
Kinds of Interest:
1. Deficiency Interest- Any deficiency in the tax due, as the term is defined in the NIRC, shall be subject to the
interest prescribed in subsec. A hereof, which interest shall be assessed and collected from the date
prescribed for payment until the amount is fully paid (Sec. 249, NIRC)
2. Delinquency Interest
In case of failure to pay:
1. The amount of the tax due on any return required to be filed; or
2. The amount of the tax due for which no return is required; or
3. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice
and demand of the CIR.