PHILIPPINE TAX SYSTEM AND INCOME TAXATION

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MODULE 10:PENALTIES AND REMEDIES OF THE TAXPAYER

Penalties and Remedies of the Taxpayer

LEARNING OBJECTIVES
At the end of this module, you are
expected to:
1. Discuss the processes and
procedures of tax assessment;
2. Discuss the remedies of the
government;
3. Discuss the remedies of the taxpayers;
4. identify the prescriptive periods for assessment and collection

Tax Assessment
- This is the formal evaluation of a BIR Officer as authorized by law to ascertain the amount
of tax due paid by the taxpayer.
- It is important to note that:
▪ Assessments are presumed to be prima facie correct and made in good faith. It is the
taxpayer’s duty to prove that such assessments are incorrectly done.
▪ Tax Assessment is deemed completed only when the collector of internal revenue
releases, emails, or sends such notice to the taxpayer.

Course Module
 Tax Assessment Process
Commissioner of
Letter of Authority (LOA)
Internal Revenue
It is a directive granting the assigned internal
revenue officer to:
• perform assessment functions
issues • conduct examination of the books and
records of a taxpayer within the jurisdiction
of the district in order to:
o collect the correct amount of tax, or
Letter of Authority (LOA) o recommend the assessment of any
to the Taxpayer deficiency in tax due

BIR Officer
performs Tax Audit
It is the process of examining thoroughly the
books and records of the taxpayer to ascertain
the correctness of the tax paid by the taxpayer
Tax Audit

Preliminary Findings:
Is the taxpayer liable for
deficiency tax?

If Yes, If No,

The BIR Officer END of the

will issue a assessment
Notice/Informal process
Conference Letter

The taxpayer shall respond

within 15 days from receipt of notice

If the taxpayer If the taxpayer

responds didnot respond

when PAN is not required?

There will be an Informal
Conference between the
taxpayer and the BIR
which both of them will
come to an agreement
regarding the assessed
deficiency tax
Pre-Assessment Notice (PAN)
shall be issued
1. Finding for any deficiency tax is the result of
mathematical error in computation of tax as appearing on
face of return
2. A discrepancy has been determined between the tax
withheld and the amount actually remitted
3. Taxpayer who opted to claim a refund or credit of excess
creditable withholding tax for at taxable period was
determined to have carried over and automatically
applied the same amount claimed against the estimated
tax liabilities for the taxable quarter/s for the succeeding
taxable year/s
4. Excise tax due on excisable articles have not been paid
5. Article locally purchased or imported by an exempt
person
 PHILIPPINE TAX SYSTEM AND INCOME TAXATION
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MODULE 10:PENALTIES AND REMEDIES OF THE TAXPAYER

Sample Letter of Authority

Course Module
Continuation…………………

If the taxpayer
responds

There will be an Informal

Conference between the
taxpayer and the BIR
which both of them will
come to an agreement
regarding the assessed
deficiency tax

If the taxpayer If the taxpayer and

and BIR come to BIR did not come to
an agreement an agreement

END of the Pre-Assessment Notice (PAN)

assessment shall be issued
process

The taxpayer shall respond

within 15 days from receipt of notice

If the taxpayer If the taxpayer did

responds not respond

Commissioner shall Formal Letter of Demand

receive explanation letter or Tax Assessment
from the taxpayer shall be issued

If the Commissioner If the Commissioner

accepts did not accept
explanation letter explanation letter

END of the Formal Letter of Demand

assessment or Tax Assessment
process shall be issued
 PHILIPPINE TAX SYSTEM AND INCOME TAXATION
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MODULE 10:PENALTIES AND REMEDIES OF THE TAXPAYER

Continuation…………………
If the taxpayer is dissatisfied with the tax assessment, the
taxpayer can file a protestrequesting for reconsideration
within 30 days from receiptof such demand.

Submit supporting documents

within60 days from date of filing the protest

If protest is denied, If protest has not been acted upon,

appeal the request for reconsideration to the within180 days from the date of submission of
Commissioner of Internal Revenue (CIR) supporting documents,
within30 days from receipt of decision of CIR’s the taxpayer may appeal
duly authorized BIR officer within 30 days from the lapse of the 180-day period
with the Division of CTA

If request for reconsideration is denied The BIR or the Taxpayer

by the CIR, may file one motion for reconsideration
appeal to the Division of the Court of Tax Appeals within15 days from receipt of decision of CTA
(CTA)
within30 days from receipt of decision of CIR

If the motion for reconsiderationis denied

file a Petition for Review with the CTA en banc

If the Petition for Reviewis denied

appeal to the Supreme Court (SC)
within15 days from receipt of decision of CTA en banc

Course Module
Remedies of the Government in Collecting Taxes
1. Administrative Remedies
2. Judicial Remedies

Administrative Remedies
- This refers to the remedies available to the government at the administration level through
the Bureau of Internal Revenue (BIR)
▪ Distraint of personal property
▪ Levy of real property
▪ Enforcement of forfeiture
▪ Enforcement of tax lien
▪ Compromise
▪ Civil penalties

Distraint of personal property

- This is the remedy available to the government whereby tax collection is
enforced through the seizure of goods, chattels or effects, and personal property
of the taxpayer, including stocks and other securities, debts, bank accounts, and
interests.
- Properties subject to distraint:
• Any goods, chattels, or effects
• Shares of stocks, debts, credit, bank accounts, and rights to personal
property

Levy of real property

- This is the remedy available to the government whereby the collection of tax is
enforced through the seizure of real properties of the taxpayer.
- Properties subject to levy:
• Land
• Family home

Enforcement of forfeiture
- This is the divestiture of property without just compensation
- The forfeiture of chattels and removable fixtures of any sort shall be enforced
by the seizure and sale, or destruction, of the specific forfeited property
- The forfeiture of real property shall be enforced by a judgment of
condemnation and sale in a legal action or proceeding, civil or criminal, as
the case may require
- It is to be further noted that in forfeiture, all the proceeds of sale will go to the
government.
- For instance, real property has been levied for tax assessment deficiency.
Forfeiture can be made when this property was offered for public auction, and
there was no bidder, or the highest bid was not sufficient to cover the total
amount of tax liabilities, surcharges, and costs of sale
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MODULE 10:PENALTIES AND REMEDIES OF THE TAXPAYER

Enforcement of tax lien

- Tax Lien is a legal claim on property, whether real or personal, which serves as a
security for the payment of tax delinquency.
- It is to be noted that any excess after paying the tax liability and related
expenses will go to taxpayer.
- Tax lien can be enforced by the following means:
1. Seizure of the property
• This implies that the property will be offered for sale in public. The
amount of proceeds will be applied to satisfy tax liabilities, and any
excess will be returned to the owner of the property
2. Forfeiture of the property
• Confiscation of the property and ownership is transferred to the
government

Compromise(RR No. 7-2001, as amended by RR No. 30-2002)

- The Commissioner may compromise any internal revenue tax when:
1. A reasonable doubt as to the validity of the claim against the taxpayer
exists; or
2. The financial position of the taxpayer demonstrates a clear inability to
pay the assessed tax

- The following shall be considered in a tax compromise agreement:

1. The taxpayer must have a tax liability
2. There must be an offer by the taxpayer or Commissioner of an amount to
be paid by the taxpayer
3. There must be accepted by the Commissioner or taxpayer as the case may
be, of the offer in settlement of the original claim

- Minimum amounts for a compromise settlement

• For cases of financial incapacity 10% of the basic assessed tax
• For other cases 40% of the basic assessed tax

- Cases that may be compromised:

1. Delinquent accounts
2. Cases under administrative protest after issuing the final assessment
notice to the taxpayer are still pending in the Regional Offices, Revenue
District Offices, Legal Service, Large Taxpayer Service, Collection Service,
Enforcement Service, and other offices in the National Office.
3. Civil tax cases being disputed before the courts
4. Collection cases filed in courts

Course Module
 5. Criminal violations other than those already filed in court or those
involving criminal tax fraud
6. Cases covered by pre-assessment notices, but the taxpayer is not
agreeable to the findings of the audit office as confirmed by the review
office

- Cases that cannot be compromised:

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

Civil penalties
- 25% surcharge for late filing or late payment
- 50% willful neglect or fraud surcharge
- 20% interest per annum
Surcharge is a one-time penalty applicable for each and every failure to pay the tax,
in addition to the basic tax due.
• 25% Surcharge:

(1) Failure to file any return and pay the tax due thereon as required
under the provisions of this Code or rules and regulations on the date
prescribed; or

(2) Unless otherwise authorized by the Commissioner, filing a return with

an internal revenue officer other than those with whom the return is
required to be filed; or

(3) Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment; or

(4) Failure to pay the full or part of the amount of tax shown on any
return required to be filed under the provisions of this Code 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.
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MODULE 10:PENALTIES AND REMEDIES OF THE TAXPAYER

• 50% Surcharge:
(1) In case of willful neglect to timely file the return, or
(2) in case a false or fraudulent return is willfully made

Interest
There shall be assessed and collected on any unpaid amount of tax, interest at the
rate of twenty percent (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.

Judicial Remedies
- This refers to the remedies available to the government that is administered through
judicial action
▪ Civil action
▪ Criminal action

Civil Action
After the assessment made by the Commissioner of Internal Revenue has
become final and executory for the failure of the taxpayer to dispute the same
and appeal the disputed assessment to the Court of Tax Appeals, the
government may institute civil actions to collect internal revenue taxes in the
Regional Trial Court and the Metropolitan Trial Court, City and municipal
courts.

Criminal Action
Maybe pursued by the authorities for the collection of delinquent taxes. An
assessment of a tax deficiency is not necessary to criminal prosecution for tax
evasion. The crime is complete when the violator has knowingly and willfully
filed a fraudulent return or neglected to file a return with the intent to evade
the tax. If the taxpayer is acquitted, the government may still collect the tax in
a civil action because a tax payment is an obligation imposed by statute and
does not arise from a criminal act.

Course Module
Remedies of the Taxpayers
Remedies before Payment
1) Administrative Protest
- This is the protest against assessment and is filed before payment
- WHEN: within 30 days from receipt of final assessment notice (FAN)
- WHERE: BIR
- HOW: written protest, stating facts, applicable law, rules and regulations or
jurisprudence o which his protest is based;
- PROCEDURE:
1. Protest against pre-assessment notice (PAN) within 15 days from receipt
2. Protest against final assessment notice (FAN) within 30 days from receipt
3. Submit relevant documents within 60 days from the filing of a protest
4. CIR has 180 days to decide
5. In case of denial or lapse of 180-day period, a taxpayer has 30 days to bring
his protest to the CTA en banc

2) Request for Reconsideration

- This is a plea for re-evaluation of an assessment on the basis of existing records
without the need for additional evidence

3) Request for Re-investigation

- This is a plea for re-investigation of an assessment on the basis of newly-
discovered evidence that a taxpayer intends to present in the re-investigation.

4) Judicial Protest
- PROCEDURE:
1. Within 30 days from the denial of protest by CIR or from lapse of 180-day
period, appeal to CTA division
2. If CTA division denies, motion for reconsideration within 15 days from
receipt
3. Within 15 days from the denial of the motion, appeal to CTA en banc
4. Appeal to SC within 15 days by petition for review (Rule 45)

Remedies after Payment

1) Claim for Tax Refund
- This is an actual reimbursement of the tax
2) Claim for Tax Credit
- In this remedy, the government issues a tax certificate or tax credit memo covering
the amount determined to be reimbursable, which can be applied after proper
verification against any sum that may be due and collectible from the taxpayer
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MODULE 10:PENALTIES AND REMEDIES OF THE TAXPAYER

Prescriptive Periods for Assessment and Collection

Assessment of the Tax Liability
▪ Three (3) Years
o Commences to run after the date:
when the return is due (last day prescribed by law for filing) Whichever is
when the return is filed LATER
▪ Ten (10) Years when:
o No tax return is filed or
o Tax return is false or fraudulent with intent to evade the tax
Collection of the Tax Liability
▪ Five (5) years from assessment
▪ Ten (10) years if without assessment, and in case of false or fraudulent returns with the
intention of evading tax payment

End of Module 10

Links to Supplemental Readings

1. http://www.chanrobles.com/legal6nircmain.htm#.WW14qRUrLIU
2. https://www.bir.gov.ph/index.php/tax-code.html#title1
3. https://www.bir.gov.ph/index.php/tax-code.html#title2

Links to Other Video Lectures

1. https://www.youtube.com/watch?v=ykAicdg5KLY
2. https://www.youtube.com/watch?v=HBubIaqcvfs
3. https://www.youtube.com/watch?v=hfZE7DTLAZ0

References
National Internal Revenue Code of 1997. (n.d.). Retrieved from https://www.bir.gov.ph/index.php/tax-
code.html.
Aduana, N. L. (2012). Simplified and procedural handbook on income taxation (2nd Edition ed.). Quezon
City: C & E Publishing Inc.
Garcia, E. R., & Tabag, E. D. (2014). Income Taxation (3rd Edition ed.). Quezon City: Good Dreams
Publishing .
Valencia, E. G. (2016). Income Taxation (7th Edition ed.). Baguio City: Valencia Educational Supply .

Course Module