Gianna B.

Cantoria
2015-0117

Remedies of the Government:

a. Assessment
b. Collection

2 Kinds of Assessment:

1. Normal/Ordinary assessment and collection – Sec. 203, NIRC

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as

provided in Section 222, internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return is
filed beyond the period prescribed by law, the three (3)-year period shall be counted
from the day the return was filed. For purposes of this Section, a return filed before
the last day prescribed by law for the filing thereof shall be considered as filed on
such last day.

Normal Assessment presupposes that there was a return filed and it is not
fraudulent and not false

2. Abnormal/Extraordinary assessment and collection – Sec. 222, NIRC

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of

Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be filed without assessment, at any time within ten (10) years after the
discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment
of the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement
made before the expiration of the period previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of limitation
as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon
as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by
a proceeding in court within the period agreed upon in writing before the expiration
of the five (5) -year period. The period so agreed upon may be extended by
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subsequent written agreements made before the expiration of the period previously
agreed upon.

(e) Provided, however, That nothing in the immediately preceding and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry
into any tax return filed in accordance with the provisions of any tax amnesty law or
decree.

Procedure in Assessment:

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: Provided, however, That a pre-assessment notice shall not
be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or

(c) 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; or

(d) When the excise tax due on excisable articles has not been paid; or

(e) When the 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.

The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the

taxpayer shall be required to respond to said notice. If the taxpayer fails to respond,
the Commissioner or his duly authorized representative shall issue an assessment
based on his findings.

Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules
and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment shall
become final.
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If the protest is denied in whole or in part, or is not acted upon within one hundred
eighty (180) days from submission of documents, the taxpayer adversely affected by
the decision or inaction may appeal to the Court of Tax Appeals within thirty (30)
days from receipt of the said decision, or from the lapse of one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory and
demandable.
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2015-0117

Map of Assessment Process:

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GENERAL AUDIT PROCEDURES AND DOCUMENTATION

1. When does the audit process begin?The audit process commences with the issuance of a
Letter of Authority to a taxpayer who has been selected for audit.

2. What is a Letter of Authority? The Letter of Authority is an official document that

empowers 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.

3. Who issues the Letter of Authority? Letter of Authority, for audit/investigation of

taxpayers under the jurisdiction of National Office, shall be issued and approved by the
Commissioner of Internal Revenue, while, for taxpayers under the jurisdiction of Regional
Offices, it shall be issued by the Regional Director.

4. When must a Letter of Authority be served? A Letter of Authority must be served to the
concerned Taxpayer within thirty (30) days from its date of issuance, otherwise, it shall
become null and void. The Taxpayer shall then have the right to refuse the service of this LA,
unless the LA is revalidated.

5. How often can a Letter of Authority be revalidated? A Letter of Authority is revalidated

through the issuance of a new LA. However, a Letter of Authority can be revalidated—

Only once, for LAs issued in the Revenue Regional Offices or the Revenue District Offices; or

Twice, in the case of LAs issued by the National Office.

Any suspended LA(s) must be attached to the new LA issued (RMO 38-88).

6. How much time does a Revenue Officer have to conduct an audit?A Revenue Officer is
allowed only one hundred twenty (120) days from the date of receipt of a Letter of
Authority by the Taxpayer to conduct the audit and submit the required report of
investigation. If the Revenue Officer 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 Letter of Authority for revalidation.

7. How is a particular taxpayer selected for audit?Officers of the Bureau (Revenue District
Officers, Chief, Large Taxpayer Assessment Division, Chief, Excise Taxpayer Operations
Division, Chief, Policy Cases and Tax Fraud Division) responsible for the conduct of
audit/investigation shall prepare a list of all taxpayer who fall within the selection criteria
prescribed in a Revenue Memorandum Order issued by the CIR to establish guidelines for
the audit program of a particular year. The list of taxpayers shall then be submitted to their
respective Assistant Commissioner for pre-approval and to the Commissioner of Internal
Revenue for final approval. The list submitted by RDO shall be pre-approved by the Regional
Director and finally approved by Assistant Commissioner, Assessment Service (RMOs 64-99,
67-99, 18-2000 and 19-2000).
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8. How many times can a taxpayer be subjected to examination and inspection for the same
taxable year? A taxpayer’s books of accounts shall be subjected to examination and
inspection only once for a taxable year, except in the following cases:

When the Commissioner determines that fraud, irregularities, or mistakes were committed
by Taxpayer;

When the Taxpayer himself requests a re-investigation or re-examination of his books of

accounts;

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 of Internal Revenue.

When the Taxpayer’s capital gains tax liabilities must be verified; and

When the Commissioner chooses to exercise his power to obtain information relative to the
examination of other Taxpayers (Secs. 5 and 235, NIRC).

9. What are some of the powers of the Commissioner relative to the audit process?In
addition to the authority of the Commissioner to examine and inspect the books of accounts
of a Taxpayer who is being audited, the Commissioner may also:

Obtain data and information from private parties other than the Taxpayer himself (Sec.5,
NIRC); and

Conduct inventory and surveillance, and prescribe presumptive gross sales and receipts
(Sec. 6, NIRC).

10. What is a Notice for Informal Conference ?A Notice for Informal Conference 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 Revenue Officer recommends the imposition of
deficiency assessments, this recommendation is communicated by the Bureau to the
Taxpayer concerned during an informal conference called for this purpose. The Taxpayer
shall then have fifteen (15) days from the date of his receipt of the Notice for Informal
Conference to explain his side.

11. Within what time period must an assessment be made?An assessment must be made
within three (3) years from the last day prescribed by law for the filing of the tax return for
the tax that is being subjected to assessment or from the day the return was filed if filed
late. However, in cases involving tax fraud, the Bureau has ten (10) years from the date of
discovery of such fraud within which to make the assessment.
Any assessments issued after the applicable period are deemed to have prescribed, and can
no longer be collected from the Taxpayer, unless the Taxpayer has previously executed a
Waiver of Statute of Limitations.
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12. What is "Jeopardy Assessment"? A Jeopardy Assessment is a tax assessment made by an

authorized Revenue Officer without the benefit of complete or partial audit, in light of the
RO’s belief that the assessment and collection of a deficiency tax will be jeopardized by
delay caused by the Taxpayer’s failure to:

Comply with audit and investigation requirements to present his books of accounts and/or
pertinent records, or

Substantiate all or any of the deductions, exemptions or credits claimed in his return.

13. What is a Pre-Assessment Notice (PAN)? The Pre-Assessment Notice 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 Revenue Officer, following the review
of these findings.

If the Taxpayer disagrees with the findings stated in the PAN, he shall then have fifteen (15)
days from his receipt of the PAN to file a written reply contesting the proposed assessment.

14. Under what instances is PAN no longer required? A Preliminary Assessment Notice shall
not be required in any of the following cases, in which case, issuance of the formal
assessment notice for the payment of the taxpayer’s deficiency tax liability shall be
sufficient:

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

When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or

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; or

When the excise tax due on excisable articles has not been paid; or

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.

15. What is a Notice of Assessment/Formal Letter of Demand?

A Notice of Assessment is a declaration of deficiency taxes issued to a Taxpayer who fails to

respond to a Pre-Assessment Notice within the prescribed period of time, or whose reply to
the PAN was found to be without merit. The Notice of Assessment shall inform the Taxpayer
of this fact, and that the report of investigation submitted by the Revenue Officer
conducting the audit shall be given due course.
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The formal letter of demand calling for payment of the taxpayer’s deficiency tax or taxes
shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and the notice of assessment
shall be void.

Due process in a tax assessment

As a democratic nation, every Filipino is entitled to due process as enshrined in Section 1,

Article III of the 1987 Philippine Constitution.
When a motorist is pulled over by an enforcer for a traffic violation, he has the right to
clarify or dispute the alleged violation. In a criminal case, a suspect is presumed innocent,
unless proven guilty beyond reasonable doubt.
There is also due process in tax assessments.
Taxation is the lifeblood of the government as it funds the needs of its citizenry in terms of
public infrastructure, education, law and order, and food security. The Bureau of Internal
Revenue (BIR), the government’s main tax agency, was assigned a P1.8 trillion tax
collection target this year. Based on news reports, the BIR’s total revenue take for the first
nine months amounted to P1.3 trillion, up by 10.8% from the same period last year. This
means that the BIR needs to collect P500 billion taxes during the remaining three months
of the year to meet its target. This is a tall order considering that the “ber” months are also
normally the “lean” months.
To meet this gargantuan task, one can expect the BIR to pursue a more aggressive
approach in collecting taxes. But in carrying out its mandate, the BIR must respect the
rights of taxpayers, such as in faithfully observing the taxpayer’s right to substantive and
procedural due process during a tax investigation.
An assessment is formalized through the issuance of the formal assessment notice (FAN),
which must be protested within 30 days from its receipt. Otherwise, the FAN shall become
final and executory. The BIR can then enforce collection by issuing a warrant of
distraint/garnishment.
However, for an assessment to be valid, the corresponding assessment notice must be
properly served and received by the taxpayer. This is in accordance with Section 228 of the
National Internal Revenue Code, which provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made; otherwise, the
assessment shall be void. The assessment regulations (i.e., Revenue Regulations No. 12-99)
explicitly require “the written details on the nature, factual and legal bases of the
deficiency tax assessments.”
In a July 24, 2017 case docketed as CTA EB Case No. 1444, the Court of Tax Appeals (CTA)
struck down a deficiency tax assessment on the basis that the taxpayer did not receive the
assessment notice. In the said case, the taxpayer did not get the assessment notice since it
was addressed and delivered to the taxpayer’s old address. Under existing jurisprudence, in
case of denial of receipt of the assessment notice by the taxpayer, the BIR has the burden
to prove that such assessment was indeed received by the taxpayer. In this case, the court
noted that the BIR failed to prove that the taxpayer had received the assessment notice.
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Citing a Supreme Court decision, the CTA stated that if the BIR was already aware of the
new location of the taxpayer, even in the absence of any formal application for change of
address, it cannot simply pretend lack of knowledge of the change of address and is bound
to send any issuance/notice to the taxpayer’s new location. Without receipt of the
assessment notice, the Court ruled that the taxpayer was deprived of due process as
required under Section 228 of the Tax Code. Consequently, the assessment is deemed null
and void.
Finally, the CTA declared the issued Warrant of Garnishment as illegal, on the strength of
the Supreme Court ruling, that “a void assessment bears no valid fruit.”
The CTA decision, in this case, reminds us of the importance of due process, particularly in
the proper service of an assessment notice. Compliance with the requirements of Section
228 of the Tax Code is not merely a matter of formality; it is a mandatory substantive
requirement. The precepts of due process dictates that every taxpayer must be accorded
the opportunity to produce evidence on its behalf based on the factual and legal grounds
indicated on the assessment notice.
However, to invoke the right to due process, the taxpayer is also expected to come forward
with clean hands. It is incumbent on the taxpayer to inform the BIR of the change in its
address so that the assessment notice can be served accordingly. Failure to inform or
update such information would mean that the data on the BIR’s official record is presumed
to be correct. Relying on the taxpayer’s representation, the BIR’s mailing of notice based on
the address on record would then be considered regular and binding on the taxpayer.
In this case, if the taxpayer had failed to properly notify the BIR of its change of address,
the assessment notice, which is presumed to be properly served, would not likely be
protested on time. Accordingly, the related deficiency tax assessment will be deemed final
and executory. In other words, even assuming for the sake of argument that the deficiency
assessment lacks merit, the taxpayer has no choice but to pay because of its failure to
timely protest the related assessment notice.
The taxpayer’s mailing address is really not a simple data entry in the BIR’s record. Along
with the declaration is the taxpayer’s duty to be transparent and forthright when
transacting with the government and its agencies. Similarly, tax officials cannot
conveniently send notices to a wrong address despite having been advised of its change. In
both instances, the message is loud and clear — tax transactions must be dealt with
following the rules of equity, and not deception. In a democratic mandate, the right to due
process requires mutual respect for the norms of fair play.
Our Civil Code provides that “Ignorance of the law excuses no one from compliance
therewith.” So let’s know our tax laws and regulations (or at least be properly counseled),
so we can exercise our taxpayer rights, which includes the right to due process (and of
course, not lose a case due to a mere technicality).