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TAX- Remedies - taxx
- Income Taxation
Income Taxation (Polytechnic University of the Philippines)
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TAX REMEDIES
I.
Kinds of Assessment
a. Self-assessment – When the taxpayer computes his own liability, files his
return and pays the tax based on his computation
b. Deficiency assessment – this occurs upon discovery of the BIR that the selfassessment was either deficient or when no return was made by the taxpayer
II.
Difference between Tax Deficiency and Tax Delinquency
a. Deficiency – amount still due and collectible from the taxpayer upon audit or
investigation.
b. Delinquency – the partial or total amount of tax not paid on time
Illustration:
If a taxpayer computes an income tax due of P2,000,000 and pays only
P1,000,000 or none at all, then there is delinquency tax. However, if a taxpayer
computes an income tax due of P2,000,000, but the BIR finds out that there are
undeclared income and the correct income tax due should have been P3,000,000,
then there is deficiency tax.
III.
Deficiency Assessment Process
a. Selection of tax payers to be audited (Based on Annual Audit Program)
i. Tax compliance verification drive (Tax Mapping)
ii. Information furnished by tax informers
iii. Pre – audit of tax returns
iv. Direct field observation by revenue officers
b. Issuance of letter of authority (LOA)
c. Conduct of Tax audit
d. Issuance of Preliminary Assessment Notice (PAN)
e. Reply
f. Issuance of Formal Letter of Demand(FLD)/Final Assessment Notice (FAN)
g. Disputed Assessment
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FIG 1. PROCEDURE FOR ASSESSMENT:
Legend:
= Discretionary upon the Commissioner on Internal Revenue
= Period to file
= Days within receipt of the Notice
*Note: The prescriptive period for “assessment” shall be 10 years from the discovery of none
filing or false or fraudulent return.
Taxpayer filed the return on time and it is
not fraudulent or false
1. An omission or failure to file the
return
Deadline of Submission of Tax
Payment of Taxes
2. If there was a return filed, it was
fraudulent, or;
3. The t
f l
1)
2)
PRELIMINARY ASSESSMENT NOTICE
(PAN)
BIR
Authorized Agent Bank
a. Bank Debit System
b. Over-the-counter
Transfers
c. Credit Facilities
Tax
FILE A REPLY
w/in 15 days from receipt of PAN
REPEAT
PAN
FAILED TO FILE A REPLY
FILED A REPLY, DISAGREES
WITH FINDINGS OF
DEFICIENCY TAX
DECLARE TAXPAYER IN DEFAULT
FINAL ASSESSMENT NOTICE (FAN) AND
DEMAND TO PAY
w/in 30 days from receipt of FAN
Pay/Collection of Taxes
IV.
File a PROTEST (Taxpayer)
Letter of Authority - It is an official document that authorizes a revenue officer 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
• Should cover a taxable period not exceeding one taxable year.
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•
•
•
V.
It must be served to the taxpayer within 30 days from its date of issuance;
otherwise, it shall become null and void.
It must be served in an electronic LA (eLA) copy under BIR Form 1966
Revalidation of LOA is allowed; once if issued by Regional Director, twice if by
CIR
Tax Audit - This includes the examination of books of accounts and other accounting
records of the taxpayers by revenue officers to determine the correct tax liability
• Maximum of 120 days’ audit
• GR: Can be conducted only once per taxable year
XPN: [FRC3]
i. When the CIR determines that Fraud, irregularities, or
mistakes were committed by the taxpayer
ii. When the taxpayer himself requests for the Reinvestigation or re-examination of his books of accounts
and it was granted by the commissioner
iii. When there is a need to verify the taxpayer’s Compliance
with withholding and other internal revenue taxes as
prescribed in a Revenue Memorandum Order issued by the
Commissioner
iv. When the taxpayer’s Capital gains tax liabilities must be
verified
v. When the Commissioner chooses to exercise his power to
obtain information relative to the examination of other
taxpayers (Secs. 5 and 235, NIRC).
VI.
Preliminary Assessment Notice (PAN)
• If after review and evaluation by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer a PAN for the proposed assessment.
Requirements of a valid PAN
1.
2.
In writing; and
Should inform the taxpayer of the law and the facts on which the assessment
is made (Sec. 228, NIRC)
GR: There must be a PAN issued by the BIR before issuing a Formal Letter of
Demand (FLD)/ Final Assessment Notice (FAN).
XPN: PAN is not required in the following instances:
[MEDEC]
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1. When the finding for any deficiency tax is the result of Mathematical
error in the computation of the tax appearing on the face of the tax
return filed by the taxpayer; or
2. When the Excise tax due on excisable articles has not been paid; or
3. When a Discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
4. When an 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 (Sec. 228, NIRC); or
5. 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 (Sec. 3.1.2, R.R. No. 18-2013).
VII.
VIII.
IX.
Reply to PAN
15 days from receipt of the PAN to reply
You may:
AGREE – Pay corresponding deficiency, termination letter will be sent
DISAGREE – Formal letter of Demand and Final Assessment Notice
calling for payment of tax deficiency will be issued to tax payer
What would happen in case of failure to reply to PAN?
Ans: PAN shall make the impending assessment final, demandable and
non – appealable
Formal Letter of Demand (FLD) / Final Assessment Notice (FAN)
a. When to be issued?
i. If there is no need to issue a PAN, because the
circumstances show that it falls within the exceptions for
the issuance of PAN;
ii. 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
iii. If the CIR or his duly authorized representative does not agree with the
justifications stated by the taxpayer in his reply to the PAN
b. 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.
Tax Payer’s Remedies
a. Remedies Before Payment
1. Administrative remedies
a. Protest of assessment;
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Reconsideration
Reinvestigation
b. Compromise; and
c. Abatement
2. Judicial Remedies
i.
ii.
b. Remedies After Payment
1. Administrative remedies
a. Tax refund
b. Tax credit
2. Judicial remedies
X.
Protesting an Assessment
•
•
Should be filed within 30 days upon receipt of FAN
If the taxpayer fails to file a valid protest against the FLD/FAN within thirty
(30) days from date of receipt thereof, the assessment shall become final,
executory and demandable.
a. Request for reconsideration — refers to a plea of re-evaluation
of an assessment on the basis of existing records without need of
additional evidence. It may involve both a question of fact or of law
or both.
b. Request for reinvestigation — refers to a plea of re-evaluation of an
assessment on the basis of newly discovered or additional evidence that a
taxpayer intends to present in the reinvestigation. It may also involve a
question of fact or of law or both.
XI.
Compromise - case of tax assessment, compromise is the contract between the
government and the taxpayer to settle the liability.
The CIR may compromise the payment of any internal revenue tax, when:
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 (Doubtful Validity);
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 (Financial Incapacity),
a.
What may be compromised
What cannot be compromised
Delinquent Accounts
Withholding tax cases
Pending cases under administrative protest
Criminal tax fraud cases
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What may be compromised
What cannot be compromised
Civil cases being disputed before the courts
Criminal violations already filed in
courts
Collection cases filed in courts
Delinquent accounts with duly approved
schedule of installment payments
Criminal violations other than already filed
or involving criminal tax fraud
Cases of reduced assessment agreed
upon by the tax payer
Cases covered by pre – assessment notices
contested by the tax payer
Cases which have become final and
executory after final judgement of a
court
XII.
Abatement – involves the cancellation of the entire tax liability of taxpayer
a. Only the commissioner of BIR may approved abatement
b. Grounds for abatement (Sec. 204, NIRC)
i. The tax or any portion thereof appears to be unjustly or excessively
assessed
ii. The administration and collection costs involved do not justify the
collection of the amount due.
XIII.
Judicial Remedies
See Flowchart below.
Please take note that Judicial Remedies Starts from the Appeal to the CTA
Division onwards.
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FIG 2. PROTEST UNDER THE NIRC
FINAL ASSESSMENT NOTICE (FAN) & Demand to pay
Within 30 days from receipt of FAN
FILE A PROTEST
2 KINDS OF PROTEST
Request for reconsideration – 60 day period NOT applicable
Request for reinvestigation – suspends action of CIR
for 60 days from filing of protest
TAXPAYER MUST SUBMIT COMPLETE SET OF DOCUMENTS W/IN
60 DAYS
CIR IS GIVEN 180 DAYS TO DECIDE
PROTEST
INACTION FOR 180
TAXPAYER OPTED TO WAIT FOR CIR’s
Within 30 days from denial/lapse of 180
APPEAL TO CTA DIVISION
Within 15 days from receipt of
MOTION FOR RECONSIDERATION OR NEW
TRIAL WITH THE CTA DIVISION
Within 15 days from receipt of
APPEAL TO CTA EN BANC
Within 15 days from receipt of
APPEAL TO SUPREME COURT
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XIV.
Tax Refund or Tax Credit
a. Tax refund - Actualreimbursement of tax
b. Tax credit – Government issues Tax Credit Certificate (TCC) which may be
applied against any internal revenue tax, excluding withholding taxes, for
which the taxpayer is directly liable
(Sec. 204 [C], NIRC).
Grounds for claim for refund and tax credit
1.
2.
3.
Tax is erroneously or illegally assessed or collected;
Penalty is imposed without authority; and
Sum collected is excessive or in any manner wrongfully collected.
Tax Refund or Tax Credit may be forfeited to the Government
Tax Refund – When a refund check or warrant remains unclaimed or
uncashed within 5 years from date of mailing or delivery.
2. Tax Credit – a Tax Credit Certificate which remains unutilized after 5 years
from date of issue, shall be invalid. Unless revalidated (Sec. 230, NIRC).
1.
•
•
•
XV.
All TCCs issued by the BIR shall not be allowed to be transferred or assigned
to any person (RR14-2011).
There must be a written claim for refund filed by the taxpayer with the CIR
Must be filed within 2 years from date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment.
Government Remedies
a. Administrative remedies
i. Tax lien - It 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 by seizure and by
sale of property.
ii. Distraint of personal property; levy and sale of real
property
1. Distraint - Seizure by the government of tangible or
intangible PERSONAL Properties
2. Levy - Seizure by the government of tangible or
intangible REAL Properties
3. Garnishment - Seizure or distraint of interest such as
bank accounts and credits owned by taxpayer
4.
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iii. Forfeiture of real property to the government for want of
bidder
Definition: It is the divestiture of property without
compensation, in consequences of a default or offense. It
transfer the title to the specific thing from the owner to the
government.
iv. Suspension of business operation
v. Non-availability of injunction to restrain collection of tax
Exception: CTA may suspend the collection of taxes when it
may jeopardize the interest of the tax payer and/or the
government
b. Judicial remedies
i. Ordinary civil action;
ii. Criminal action
XVI.
Prescriptive period for Assessment
Deadline of Assessment
With a tax return is filed
•
Return is not Fraudulent
3 years from date of filling or deadline whichever is late
•
Return is Fraudulent
10 years from the discovery of fraud
Non – filing of tax return
10 years from the discovery of non - filing
Waiver of Statute of limitation in case of request for reinvestigation
XVII.
Prescriptive period for 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 falsity
By judicial action only
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XVIII.
Additions to Tax
a. Surcharge – at the following rate on the basic tax:
i. Simple neglect to file and pay – 25%
ii. Fraudulent or Willful neglect – 50%
b. Interest – Double of the rate prescribed for forbearance of money, this is 12%
c. Compromise penalty – Settlement not to enforce criminal prosecution
Illustration:
Ex. After the examination, the BIR determined that the taxpayer is deficient by P500,000 for
his 2018 income tax return. The BIR fixed the deadline for tax payments by July 30,2020.
The Income Tax Return deadline is April 15, 2019 while date of scheduled payment is March
31, 2020 covering a total period of 351 days.
The assessment if the tax payer pays on or before July 30,2020 shall be:
Basic Income Tax due
P500,000.00
Surcharge (500,000 x 25%)
125,000.00
Deficiency Interest (500,000 x 12% x 351/365)
Total
57,698.63
P682,698.63
Assume the taxpayer defaulted on the June 30 scheduled payment of the deficiency
assessment but settles the tax on October 15, 2020. The delinquency from July 1, 2020 to
October 15, 2020 covers a total period of 107 days. Thus in October 15, 2020 the total tax
liability is P706,714.66. Details are as follows:
Basic Income Tax due
P682,698.63
Deficiency Interest (682,698.63x 12% x 107/365)
Total
XIX.
57,698.63
P682,698.63
Powers of BIR
a. Assessment and collection of taxes
b. Enforcement of all forfeitures, penalties and fines and judgements in all cases
decided in its favor by the courts
c. Giving effect to and administering the supervisory and police powers
conferred to it by the NIRC and other laws
d. Assignment of internal revenue officers and other employees to other duties
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e. Provision and distribution of forms, receipts, certificates, stamps etc. to proper
officials
f. Issuance of receipts and clearances
g. Submission of annual report, pertinent information to Congress and reports to
the congressional oversight committee in matters of taxation
XX.
Expanded jurisdiction of Court of tax appeals
Through the enactment of Republic Act No. 9282, the jurisdiction of the CTA has been
expanded to include not only civil tax cases but also cases that are criminal in nature,
as well as local tax cases, property taxes and final collection of taxes.
CTA’s Exclusive Appellate Jurisdiction
•
Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under the National Internal
Revenue Code or other law or part of law administered by the Bureau of Internal
Revenue;
•
Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges; seizure, detention or release of property
affected; fines, forfeitures or other penalties imposed in relation thereto; or other
matters arising under the Customs Law or other law or part of law administered by
the Bureau of Customs [Rep. Act. No. 1125, (1954), Sec. 7];
•
In automatic review cases where such decisions of the Commission of Customs
favorable to the taxpayer is elevated to the Secretary of Finance (Sec. 2315, TCC); and
•
Decisions of the Secretary of Trade and Industry, in the case of non-agricultural
product, commodity or article, or the Secretary of Agriculture, in the case of
agricultural product, commodity or article, in connection with the imposition of the
Anti-Dumping Duty, Countervailing and Safeguard Duty [Republic Act Nos. 8751 and
8752, (1999) Sec. 301 (a) and (p), and Republic Act 8800].
Disclaimer: This is only a compilation of various tax notes and resources that I have,
patterned to the coverage of your ComEx in INTX, the figures and illustration shown above
are not my own work, CTTO.
PS: Life lesson that you should learn from tax remedies: Kahit ilang ulet ka mareject, do not
give up you always have remedies or recourse. If you want it, fight for it until the end same
is true with your BSA/CPA Journey, you may experience failure and rejection sometimes but
you are the only one who would decide whether you easily accept that you lost or will you
continue and take appropriate actions ☺ - J.Hilario
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