Handling

Combatting the BIR’s
tax assessment
July 14, 2015
Atty. Olivier D. Aznar, CPA

Partner
Tax Advisory and Compliance Division
© 2014 Punongbayan & Araullo. All rights reserved.
1
Tax Assessment:
process of
determining the
amount of tax due.
2
To determine the correct
amount of tax of the
taxpayer.
Jurisdictional
3
• Within 3 years
• Within 10 Years
• By examining the tax

returns/ books/
records of the
taxpayer
4
5
“SEC 6. Power of the Commissioner to Make
Assessments and Prescribe Additional Requirements for
Tax administration and Enforcement –
(A) Examination of Returns and Determination of Tax

Due. - After a return has been filed, the Commissioner
or his duly authorized representative may authorize the
examination of any taxpayer and the assessment of the
correct amount of tax: Provided, however, that failure
to file a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.”
• General Rule - 3 years from the date of filing

or prescribed date for filing of the tax return,
whichever is later
• In case of failure to file a tax return,

false/fraud return - 10 years from the
discovery of the falsity, fraud, or omission
6
Illustration of the reckoning period:
• Type of tax return – Annual income tax

(for taxable year 2013)
• Due date for filing the income tax return –

April 15, 2014
Date up to which the BIR

Actual Date of filing
may assess the taxpayer
April 15, 2014 April 15, 2017
April 25, 2014 April 25, 2017
April 9, 2014 April 15, 2017
7
Date of filing varies per type of tax return
Type of Return Date of filing

1. Income tax return (BIR Form 1702) April 15 or 15th day of the fourth
month following the close of
fiscal year
2. Creditable Withholding Tax (BIR Form Non- eFPS* – 10th day after the
1601E) end of each month
eFPS** – 11th - 15th depending
on industry grouping
3. Quarterly VAT Return (BIR Form 2550Q) 25th day following the close of
each taxable quarter
* For December return, filing and remittance is on every January 15.

** For December return, e-payment due is on January 20.
10-Year Prescription Period:

False vs. Fraudulent return
False return - implies deviation from truth, whether

intentional or not.
Fraudulent return with intent to evade tax - implies

intentional or deceitful entry with intent to evade
tax.
(Aznar vs. Court of Tax Appeals, G.R. No. L-20569, August 23, 1974, 58 SCRA 519; and Estate of Fidel F. Reyes and Teresita R. Reyes v.
CIR, CTA EB Case No. 189, March 31, 2007)
8
False/ fraudulent tax return and failure to file tax
return
In case of false/fraudulent tax return:

Date up to which the
Date of discovery by
Actual date of filing BIR may assess the
the BIR
taxpayer
April 15, 2014 May 10, 2017 May 10, 2027
In case of failure to file a tax return:

Date up to which the
Date of discovery by
Non-filing BIR may assess the
the BIR
taxpayer
--- May 10, 2017 May 10, 2027
What tolls the running of the prescriptive

period?
BIR’s notice:
• Notice of Audit?
• Preliminary Assessment Notice?
• Final Assessment Notice?
• None of the above?
9
Service of tax assessment
When notice is released, mailed or sent, it is not

required that the notice be received by the taxpayer
within the prescribed period. But the sending of the
notice must be clearly proven.
(Basilan Estate, Inc. vs. CIR, L-22429, Sept. 5, 1967)
End of 3-year prescriptive period: August 31, 2012

Date of Service/Mailing: August 29, 2012
Date of Receipt: September 9, 2012
NOT PRESCRIBED
Proof of fact of mailing
1. Registry receipt issued by the Bureau of Posts

2. Registry return card (signed by taxpayer or
authorized representative)
3. Certification issued by the Bureau of Posts
and other documents executed with the
intervention of Bureau of Posts
10
Waiver of the Statute of Limitations
Waiver of statute of limitations - an agreement

between the taxpayer and the BIR to extend the period
for the issuance of an assessment beyond the 3-year
period prescribed by law
Basis: Section 223 of the Tax Code
(Prescribed waiver form per RMC 29-2012)
11
Validity of the Waiver as a defense
An invalid waiver could not extend the prescriptive

period and will render the assessment INVALID.
The waiver must strictly comply with Section 222(b) of

the Tax Code and with the requirements in RMO 20-90
to be considered valid.
(Philippine Journalists Inc., v. CIR, GR 162852, December 16, 2004)
Requisites of a valid waiver (RMO 20-90)
1. In prescribed form
1.
2. Signed by taxpayer or his authorized
representative (if a corporation – by any of its
responsible officials)
• Must be executed by the taxpayer and
accepted by the BIR prior to the expiration
of the original period or the extended
period under a previous waiver
3. Signed by authorized BIR revenue officials
4. Executed in 3 copies
12
Different stages in a BIR assessment process:
At the BIR level –

1. Receipt of notice of Audit
2. Preliminary Assessment Notice (PAN)
3. Final Assessment Notice (FAN)
4. Final Decision on Disputed Assessment
(FDDA)
13
Receipt of Notice of Audit – Taxpayer’s Action point:
• Submit to the BIR the required documents
14
15
Subpoena Duces Tecum (SDT)
In case of violation of SDT:

Penalty –
Fine: P5,000 to P10,000
plus
imprisonment: 1 year to 2 years
plus
For corporations:
P50,000 to P100,000 for each act or omission
16
PAN – Taxpayer’s Action points:
• File a Reply to PAN within 15 days from the

date of receipt
• Submit documents to support the

arguments/explanations/reconciliations
17
FAN
The Final Assessment Notice (FAN) refers to the

document which contains the final assessment of
the BIR on the taxpayer as regards the taxable year
and/or tax under audit.
Validity of the FAN
Sec. 228, NIRC
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.
18
Forms of protest to the FAN
Request for reconsideration - a plea for a re-

evaluation of an assessment on the basis of existing
records without need of additional evidence. It may
involve a question of fact or law or both. New legal
argument may be presented.
Request for reinvestigation - a plea for re-evaluation

on the basis of newly-discovered evidence or additional
evidence that a taxpayer intends to present in the
reinvestigation. It may involve a question of fact or law
or both.
- 60 day-period to submit all relevant documents
19
Protest
(Revenue Regulation No. 18-2013, November 28, 2013)
The following shall be stated in the protest:

nature of protest
date of assessment notice
applicable laws, rules and regulations, or
jurisprudence on which the protest is based.
Venue for filing protest to FAN

(Revenue Memorandum Circular No. 39-
2013, May 7, 2013)
Receiving office for protest letters

to FAN
The concerned office who signed the assessment
notice shall record and evaluate the protest/request
for reinvestigation or reconsideration. If the
procedure is not followed, the letter of protest or
request shall be considered VOID and without force
and effect.
20
FAN – Taxpayer’s Action points:
• File a valid Protest (Request for

reconsideration or Request for
reinvestigation) within 30 days from the date
of receipt of the FAN
• Submit additional documents within 60 days

from the filing of the protest (for Request for
reinvestigation)
After the FAN . . .
60 INACTION
PAY
days
180 days
Submit
ReInv File CTA
docs appeal
FDDA-denial
FAN Protest w/in 30 days
ReCon
21
22
Final Decision on Disputed Assessment
FDDA:
If the protest is denied, in whole or in part, by

the Commissioner’s duly authorized
representative, the taxpayer may either:
(i) Appeal to the CTA within 30 days; or

(ii) Elevate his protest through request for
reconsideration to the Commissioner within 30
days
© 2013 Punongbayan
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Araullo.All
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rightsreserved.
reserved.
23
Stages of the Assessment Process
LOA PAN FAN FDDA CTA
24
CTA Jurisdiction
Sec 7 of RA1125 provides that the CTA shall

exercise exclusive appellate jurisdiction to
review decisions of the Commissioner of Internal
Revenue in cases involving disputed
assessments, … penalties imposed relation
thereto or other matters arising from the NIRC or
other laws or part of laws administered by the
BIR.
25
Filing an appeal to CTA upon denial of
protest
Failure of a taxpayer to appeal before the CTA the

inaction of the CIR on a protested assessment
within 30 days after the 180-day period does not
render an assessment final and executory.
The taxpayer may await the final decision of the

CIR and, within 30 days from receipt of the
decision, appeal the decision with the CTA.
(Lascona Land Co., Inc. v. CIR, GR 171251, March 5, 2012)
© 2013 Punongbayan
Punongbayan&&Araullo.
Araullo.All
Allrights
rightsreserved.
reserved.
26
BIR AUDIT FINANCIAL AUDIT
• No principle of • Principle of
materiality materiality
• Could be 100% • Sampling/ test basis
examination • Accounting and
• Tax rules/ regulations Auditing rules
• BIR examiners • Independent CPA
Common issues:
• Reconciliation of amounts per books vs. per

tax returns
• Substantiation requirement
• Issues with counterparties (suppliers,
customers, etc.)
27
SUGGESTED ACTION POINTS:
Preventive
•Review of tax returns
•Tax compliance review
•Tax study/ tax retainer
•Attend seminars/ Tax forums
Remedial
•Assistance on Tax Assessment
28
29

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Combatting the BIR’s

July 14, 2015

Atty. Olivier D. Aznar, CPA

© 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. All rights reserved.

• By examining the tax

© 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. All rights reserved.

(A) Examination of Returns and Determination of Tax

© 2014 Punongbayan & Araullo. All rights reserved.

• General Rule - 3 years from the date of filing

• In case of failure to file a tax return,

© 2014 Punongbayan & Araullo. All rights reserved.

• Type of tax return – Annual income tax

• Due date for filing the income tax return –

© 2014 Punongbayan & Araullo. All rights reserved.

Date up to which the BIR

April 15, 2014 April 15, 2017

April 25, 2014 April 25, 2017

April 9, 2014 April 15, 2017

© 2014 Punongbayan & Araullo. All rights reserved.

Type of Return Date of filing

* For December return, filing and remittance is on every January 15.

© 2012 Punongbayan & Araullo. All rights reserved.

10-Year Prescription Period:

False return - implies deviation from truth, whether

Fraudulent return with intent to evade tax - implies

© 2012 Punongbayan & Araullo. All rights reserved.

In case of false/fraudulent tax return:

April 15, 2014 May 10, 2017 May 10, 2027

In case of failure to file a tax return:

--- May 10, 2017 May 10, 2027

© 2014 Punongbayan & Araullo. All rights reserved.

What tolls the running of the prescriptive

© 2014 Punongbayan & Araullo. All rights reserved.

When notice is released, mailed or sent, it is not

End of 3-year prescriptive period: August 31, 2012

© 2012 Punongbayan & Araullo. All rights reserved.

Proof of fact of mailing

1. Registry receipt issued by the Bureau of Posts

© 2012 Punongbayan & Araullo. All rights reserved.

Waiver of statute of limitations - an agreement

Basis: Section 223 of the Tax Code

(Prescribed waiver form per RMC 29-2012)

An invalid waiver could not extend the prescriptive

The waiver must strictly comply with Section 222(b) of

(Philippine Journalists Inc., v. CIR, GR 162852, December 16, 2004)

Requisites of a valid waiver (RMO 20-90)

Different stages in a BIR assessment process:

At the BIR level –

© 2014 Punongbayan & Araullo. All rights reserved.

Receipt of Notice of Audit – Taxpayer’s Action point:

• Submit to the BIR the required documents

© 2014 Punongbayan & Araullo. All rights reserved.

© 2014 Punongbayan & Araullo. All rights reserved.

In case of violation of SDT:

© 2014 Punongbayan & Araullo. All rights reserved.

• File a Reply to PAN within 15 days from the

• Submit documents to support the