TAX REMEDIES

Government Remedies – The government can resort to its legally mandated procedures to enforce the determination and collection of the
correct amount of tax from the taxpayers.

Taxpayer’s Remedies – The law provides the taxpayer procedures for disputing assessments and in recovering taxes erroneously paid.

GOVERNMENT REMEDIES

1. ASSESSMENT

Assessment - the official action of an officer authorized by law in ascertaining the amount due and giving notice to the taxpayer requiring
payment within a specified time of the tax due from him, including penalties and interests

PRESCRIPTIVE PERIOD OF ASSESSMENT

General Rule: 3 years

- Within three years from the date of filing or deadline whichever is later.
- Example: deficient only

Exception to the 3-year rule:

1. Fraudulent returns
- Gross Income: understated by more than 30%
- Deductions: overstated by more than 30%
2. Willful neglect to file
3. Waiver of statutes of limitation by the taxpayer
- Written agreement between the CIR and the taxpayer before the expiration of the 3-year period for the assessment of taxes
- Note: the CIR have the authority to compromise the payment of internal revenue tax, cancel or abate tax liability or credit or
refund taxes.

PRESCRIPTIVE PERIOD OF ASSESSMENT

With a tax return filed
- Return is non-fraudulent
- Return is fraudulent
Non-filing of tax return
Deadline of Assessment
3 years from the date of filing or deadline
whichever is later
10 years from the discovery of fraud
10 years from the discovery of non-filing

STAGES OF ASSESSMENT

A. Taxpayer Selection

1. High risk and medium risk taxpayers

2. Tax Information
- Tax informants are given rewards based on the taxes collected.
3. Tax Compliance Verification Drive (TCVD) [Tax Mopping}
Locate and identify taxpayers who:
- do not comply with basis tax requirements such as registration, bookkeeping or invoicing.
- Have possible unpaid taxes.
4. Pre-audit of Annual Income Tax Return
- Checking if the facts of the return submitted is correct
- Mathematical computations
- Correctness of exemption claimed, deductions and expenses, MCIT, attachment to annual ITRs and etc.
- Not a regular audit conducted without field investigation.

B. BIR Tax Audit Process

1. Letter of Authority (LA)

LA – official document that authorizes BIR Revenue Officer to examine taxpayer’s books and other accounting records to
determine his correct tax liabilities.
 WHO ISSUES AND APPROVES Las?
Revenue District Officer Regional Director
Large Taxpayer Service Audit Division Assistant Commissioner - LTS

National Investigation Divisions and Special CIR

Investigation Divisions

Requisites for VALID LA:

1. Must be electronic (BIR Form 1966) (manual not allowed)
2. Must be served within 30 days from the date of issuance.
3. 1 LA for 1 taxpayer

2. Tax Verification Notice (TVN)

- Authorizes evaluation or verification of tax on one-time transaction (ONETT) cases such as estate tax, donor’s tax and
CGT.

1 and 2 are Authority to Audit

3. Letter Notice (LN)

- Communication from the BIR national office informing the taxpayer of a finding of significant discrepancy.
- Taxpayers have 5 days from receipt of LN to reconcile the discrepancies.
- If the taxpayer agrees to the finding of discrepancies, pay within 30 days from the receipt of the LN.
- If already paid LN, taxpayer can be claim tax credit if there are findings of deficiency under eLA (regular audit) to the
extent they pertain to the same issues.

C. Mode of Conduct of Investigation

- In the place of the taxpayer’s business

- Revenue officers have 120 days from the serving of the LA
Can be revalidated:
▪ RDO – once
▪ National Office – twice
- Examination frequency: once a year
- Except:
1. Fraud of irregularities
2. Taxpayer request for re-investigation
3. Verification of withholding tax obligation
4. Verification of CGT
5. CIR’s power to obtain information for the audit of third parties.
Two types of subpoenas:
a) Subpoena duces tecum – compelling taxpayers to produce, under penalty of neglect, certain documents sought
therein.
b) Subpoena ad testificandum – a summon to appear and give oral testimony.

D. Determination of Amount or Assessment

 1. Surcharge – late filing and/or late payment of tax
● Simple neglect to file – 25%
● Willful neglect to file – 50%
Both administrative penalty

2. Interest – 12% per annum

3. Compromise Penalty – a settlement for the government not to enforce criminal prosecution.

E. Assessment Proper

1. Notice of Discrepancy 🡪 Discussion of discrepancy – oral 🡪 30 days to PAN

2. Pre-Assessment Notice (PAN)
- written communication informing the taxpayer of his obligation for deficiency tax based on the audit findings.
- Taxpayer has 15 days to reply upon the receipt of PAN.
- Not necessarily an assessment only a legal claim on government’s part.
- Failure to reply make the impending assessment final, demandable and non-appealable.
3. Formal Letter of Demand (FLD) or Final Assessment Notice (FAN)
- Issued when there is partial or full denial of the reply
- Shall be issued within 15 days from filing or submission of the taxpayer’s response or from the issuance of PAN.
- Requisites:
▪ Served within prescriptive period
▪ Information of discrepancy + demand for payment
▪ Detailed discussion of facts and legal basis
▪ Served through registered mail or personal delivery
▪ Preceded by a PAN.
Instances when NO PAN is required:
● Deficiency arises from mathematical error
● Withholding tax deficiency is withheld and remitted
● Tax claim applied with tax credit/tax refund is carried over in the current period (double claim)
● Excise tax on articles has not been paid
● Excisable goods are sold by exempt persons to non-exempt persons.
- Type of taxpayer’s protest:
▪ Motion for reconsideration – on the basis of existing records without need of additional evidence.
▪ Motion for re-investigation – on the basis of newly discovered or additional evidence
4. Final Decision on Disputed Assessment (FDDA)
- The FDDA of the CIR may be communicated to the taxpayer within 180 days from the filing of his protest.

2. COLLECTION

Collection – pertains to the procedures of the government to enforce payment of unpaid taxes from delinquent taxpayers.

It will be enforced by the government once the assessment achieves finality under any of the following:

1. Taxpayer defaulted his administrative remedies

2. Denial by the taxpayer’s protest by the CIR
3. Whether or not on appeal, when the assessment is upheld by the court

STAGES OF COLLECTION

JEOPARDY ASSESSMENT – made by authorized revenue officer without the benefit of a complete or partial audit in light of the
officer’s belief that the assessment and collection of a deficiency tax will be jeopardized by the delays caused by the taxpayer to
comply.

1. Preliminary Collection Letter

- This will be sent once the assessment achieved finality.

2. Final Notice before Seizure Letter

- Sent within 10 days from the issuance of PLC
- If the taxpayer ignores the final notice, the BIR will resort to enforcement of administrative summary remedies
- SUMMARY REMEDIES UNDER NIRC
A. Seizure of Taxpayer’s Property - cannot be used without assessment
▪ Distraint – seizure by the government of tangible or intangible personal property of the taxpayer.
 ▪ Levy - seizure by the government of real properties
▪ Garnishment – seizure or distraint of interest such as bank accounts and credits owned by the taxpayer.

Note: Either or both distraint and levy may be pursued by the authorities charged with the collection of the tax.

B. Civil or criminal action can be used without assessment

- this may be brought within 3 years after the last day required for filing the return or from the actual date of filing whichever is
later
a Ordinary civil action
b. 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.
- RATE program (Run After Tax Evaders) – identify and prosecute high-profile tax evaders. Known personalities such as celebrities
are usually targeted with RATE cases.

3. Warrant of Distraint/Levy or Garnishment

- Served to the taxpayer after his failure to respond to the Final Notice
- Limitation of the Warrant of Distraint and or Levy
1. Distraint or levy shall not be availed of where the amount of tax is not more than P100
2. The WDL shall not be sent earlier than 90 days from the date the assessment has become due and demandable.

4. 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 the properties
of the taxpayer that can be attached to his tax liabilities. LTO, banks, Registry of Deeds

5. Notice of Tax Lien and or Notice of Tax Levy

- Used to validate the legal claims or charge of the government on identified property of the taxpayer either personal or real, as
security for the payment of his tax liabilities.

6. Seizure of Properties

7. Auction sale and/or forfeiture of properties

AUCTION SALE
- Seized properties will be sold at auction sales if the taxpayer did not settle delinquent tax.
- Within 20 days from levy, the revenue officer shall advertise the property for auction sale.
- Auction for at least 30 days.

FORFEITURE OF PROPERTIES
- if failed to raise sufficient amount to cover the taxpayer’s liability for two consecutive auctions, the government will forfeit the
property.
- Title of forfeited properties will be consolidated in the name of Republic of the Philippines
- Taxpayer has one year from the auction sale to redeem the property.
 PRESCRIPTIVE PERIOD OF COLLECTION

Dated 5 years from the date of release of FAN

Undated 5 years from the date of receipt of FAN

Summary of Prescription Rules: Collection

Deadline of Collection Mode of Collection

With a prior assessment 5 years from assessment Summary proceedings or by judicial

action

Without a prior assessment 10 years from discovery of fraud or By judicial action only
falsity

TAXPAYER’S REMEDIES

1. DISPUTING AN ASSESSMENT

1. Upon receipt of the PAN, the taxpayer must explain his position within 15 days.

2. Upon receipt of the FAN/FLD, 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 (rechecking)
B. the receipt of the FAN/FLD - for request for reconsideration

The taxpayer may receive:

1. FDDA***
2. Preliminary collection letter – denied for motion of protest.

***Taxpayer may interpose: What to file: Where to file: When to file:

Administrative Appeal Motion for CIR within 30 days from the receipt of
reconsideration adverse decision

Assessment reached its Administrative Finality

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JUDICIAL REMEDIES
Taxpayer may interpose either: What to file: Where to file: When to file:
Judicial Appeal Petition for review CTA within 30 days from the receipt of
in division adverse decision

At his option Motion for CTA en Banc Within 15 days

reconsideration
Judicial Appeal Petition for review SC Within 15 days
in division
Judicial Appeal Motion for SC en Banc Within 15 days
reconsideration

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 BIR INACTION WITHIN THE 180-DAY PERIOD
The taxpayer may either:
A. Wait for the BIR decision after the lapse of the 180-day period, or
B. 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, the taxpayer may, within 15 days:

A. File a motion for reconsideration or new trial under the same division, or
- An adverse decision of the CTA in division may be appealed to the CTA en banc within 15 days. The CTA may grant an additional
15 day leeway after payment of the docket fee. An adverse decision of the CTA en banc may be appealed within 15 days to the
Supreme Court.

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 for reconsideration after which the final decision can no
longer be appealed.
2. RECOVERY OF ERRONEOUSLY PAID TAXES

Procedures:

2 YEARS
File a Claim for refund or credit
within (2 years) from the date of payment of the tax (Sec. 229, NIRC)

If denied, the taxpayer may file a petition for reconsideration

(within 30 days) from receipt of the denial and within the two-year prescriptive period from the date of payment of the
tax.

An adverse final decision of the CIR shall be appealed by filing a petition for review before the CTA
within 30 days from receipt of the final decision (Sec. 11 RA1125) and within the two-year prescriptive period whichever comes first.
If the BIR did not act on the claim for refund or credit, the taxpayer must 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 not a I appealed to the CTA, en banc within 15 days.

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 but also those paid under protest or duress (Sec. 229, NIRC).

Insert here:
 REMEDIES OF: GOVERNMENT TAXPAYER
LOA Must be served within 30 days from the date of issuance.
(Letter of Authority)
NOD Oral discussion of discrepancy Must explain his side, bring documents
(Notice of Discrepancy) Shall be made within 30 days from the receipt of NOD
PAN Should be served within 10 days from discussion of discrepancy. Taxpayers have 15 days to make a
(Pre-Assessment Notice) (PAN - ini10) WRITTEN reply upon the receipt of PAN.
(only optional, not mandatory)
Written communication informing the taxpayer of his obligation for
deficiency tax based on the audit findings. Failure to reply makes the impending
assessment, final demandable and
Not necessarily an assessment, only a legal claim on the government’s non-appealable.
part.
Reply/disputes should be categorical

FLD or FAN
(Formal Letter of Demand or
Final Assessment Notice)
Issued when there is partial or full denial of the reply. Issued to those Must file a formal protest in 30 days upon
that are not disputed in reply to PAN. receipt of FAN
Shall be issued within 15 days from filing or submission of the Types of protest:
taxpayer’s response or from the issuance of PAN. -Request for reconsideration - No new
issues or evidence to be raised
Requisites:
-Served within prescriptive period -Request for re-investigation - new issues
-Information of discrepancy + demand for payment or evidence will be raised
-Detailed discussion of facts and legal basis
-Served through registered mail or personal delivery In the case of request for re-investigation,
-Preceded by a PAN. the taxpayer must submit the necessary
documents in support of his position
Instances when NO PAN is required: within 60 days from the date of filing of the
-Deficiency arises from mathematical error protest
-Withholding tax deficiency is withheld and remitted
-Tax claim applied with tax credit/tax refund is carried over in the
current period (double claim)
-Excise tax on articles has not been paid
-Excisable goods are sold by exempt persons to non-exempt persons.

FDDA The FDDA of the CIR may be communicated to the taxpayer within 180 The taxpayer shall wait for BIR action
(Final Decision on Disputed days from the filing of his protest. within 180 days which shall be counted
Assessment) from the protest.

The taxpayer may receive:

1. FDDA*** - denied for motion of protest.
2. Preliminary collection letter – proceed for collection

***Taxpayer may interpose: What to file: Where to file: When to file:

Administrative Appeal Motion for CIR within 30 days from the receipt of
reconsideration adverse decision

Assessment reached its Administrative Finality

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 DEADLINES OF VARIOUS TAXES
Income Tax Returns
1. Annual Income Tax
a. Individual April 15 of the ff year
on the 15th day of the 4th month following the end of the taxpayer's
b. Corporation year end.

2. Capital Gains Tax

a. CGT on sale of Domestic Stocks
i. Transaction return
ii. Annual Return
b. CGT on sale of Real Properties
30 days from the date of sale
15th day of the 4th month following the end of the taxpayer's year
end.
30 days from the date of sale

3. Withholding Tax Returns

a. Withholding of Final & Fringe Benefit
Tax 10 days following the month of withholding (manual filing)

b. 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.
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
Business Tax Returns
1. Non-VAT Taxpayers within 25 days from EOQ (BIR Form 2551Q)
2. VAT Taxpayers within 25 days from EOQ (BIR Form 2550Q)
2. Excise Tax Before removal from production or customs
Except:
Non-essential services - 10 days EOM
Metallic mineral or mineral products - within 15 days after the
calendar qrtr of removal
Documentary Stamp Tax
Documentary Stamp Tax within 5 days from EOM