Handling

Asian BIR
Asian Tax Investigation
Institute
Institute ofTaxation
of Taxation
for COOPERATIVES
BY:

Ms. RHODORA G. ICARANOM

Managing Owner, RGI Accounting & Auditing Office
Former BIR Revenue District Officer
 Addressing the BIR eLAs

RMO 7-2020

• To examine any taxpayer and the assessment of the correct

amount of tax, notwithstanding any law requiring the prior
authorization of any government agency or instrumentality.

RGI Accounting & Auditing

 Addressing the BIR eLAs

RMO 7-2020

• To ensure the correctness of availment

of tax exemptions/incentives of
OBJECTIVES cooperatives pursuant to RA 9520

• To effectively monitor tax compliance of

cooperatives

RGI Accounting & Auditing

 Addressing the BIR eLAs

RMO 7-2020 • Cooperatives which transact

business with both members and
non-members whose accumulated
reserves and undivided net savings
is more than Ten Million Pesos
COOPs under (P10,000,000).
Priority Audit
• Cooperatives with income not
related to the main/principal
business/es under their Articles of
Cooperation.
RGI Accounting & Auditing
LEGAL BASIS OF ASSESSMENT:

Any return, statement or declaration filed in

any office authorized to receive the same
shall not be withdrawn: Provided, That
within three (3) years from the date of such
filing , the same may be modified, changed,
or amended: Provided, further, That no
notice for audit or investigation of such
return, statement or declaration has in the
meantime been actually served upon the
taxpayer.
 ASSESSMENT PROCEDURE
RR 12-99
Administrative Reinvestigation /
Filing of
Protest Reconsideration
Return

Final
Letter of Final Decision on
Assessment
Authority Disputed
(FAN)
Assessment

Informal Preliminary
Conference) Assessment
(PAN) Court of Tax
Appeals
 ASSESSMENT PROCEDURE
RR 18-13

Administrative Reinvestigation /
Filing of
Protest Reconsideration
Return

Final
Letter of Final Decision on
Assessment
Authority Disputed
(FAN)
Assessment

Preliminary
Assessment
(PAN) Court of Tax
Appeals
 ASSESSMENT PROCEDURE
RR 7-2018
Administrative Reinvestigation /
Filing of
Protest Reconsideration
Return

Final
Letter of Final Decision on
Assessment
Authority Disputed
(FAN)
Assessment

Informal Preliminary
Conference Assessment
(PAN) Court of Tax
Appeals
 ASSESSMENT PROCEDURE
RR 22-2020
Administrative Reinvestigation /
Filing of
Protest Reconsideration
Return

Final
Letter of Final Decision on
Assessment
Authority Disputed
(FAN)
Assessment
Notice of
Discrepancy Preliminary
(Informal Assessment
Conference) (PAN) Court of Tax
Appeals
 AUDIT PROGRAM

Revenue Memorandum Order No. 19-2015

Mandatory Cases:

1.1 Taxpayers with claims for income tax

refund or issuance of tax credit certificate
(Selection Code: ITR for income tax refund
and ITC for tax credit certificate)
1.2 Taxpayers with claims for Value-Added
Tax (VAT) refund/credit (Selection Code: VTR
for VAT refund and VTC for VAT credit
certificate)
 AUDIT PROGRAM

Revenue Memorandum Order No. 19-2015

1.3 Claims for tax refund/credit of excise tax

under Title VI of the Tax Code, as amended,
regardless of amount (Selection Code: ETRS
for excise tax refund and ETCS for Excise tax
credit certificate)
1.4 Claims for tax refund/credit on
erroneous/double payment of taxes,
regardless of amount (Selection Code:
ERTR claims for tax refund and ERTC for
claims for tax credit certificate)
 AUDIT PROGRAM

Revenue Memorandum Order No. 19-2015

1.5 Request for tax clearance of taxpayers

due to retirement/cessation of business
with gross sales/receipts exceeding P
1,000,000.00 or gross assets exceeding P
3,000,000.00 (Selection Code: TRC)
1.6 Request for tax clearance of taxpayers
undergoing merger/consolidation/split-
up/spin-off and other types of corporate
reorganizations (Selection Code: TMC)
 AUDIT PROGRAM

Revenue Memorandum Order No. 19-2015

1.7 Cases with unresolved Letter Notices (LNs)

(Selection Code: LNA)
1.8 Estate tax returns with other tax liabilities
(Selection Code: EOT)
1.9 Policy cases covered by written directive of
the Commissioner (Selection Code: CIR)
 Letter of Authority

The Revenue Regional Director shall approve and sign eLAs

(thru eLAMS) for all audit cases within his regional jurisdiction,
except:

• Cases involving civil or criminal tax fraud which fall under the
jurisdiction of the National Investigation Division of the
Enforcement Service; and

• Cases under Large Taxpayers Division

• LAs will be issued only for tax returns which correspond with
the existing Audit Program
 Letter of Authority

• The same Revenue Officer/Group Supervisor

shall not be allowed to audit the same taxpayer
for two consecutive years.
REVENUE MEMORANDUM ORDER 45-2010

Revised guidelines in the requests for the

production of the books of accounts and/or
other records and documents and in the
issuance of Subpoena Duces Tecum for
failure of taxpayers to comply with the
requests.
The following policies and guidelines :

1. If the taxpayer, upon receipt of the (1) Letter of

Authority (LA) and checklist of presentation of the
requirements for the audit, or (2) access to records
request, the Revenue Officer (RO) concerned shall send
a First Notice, signed by himself and/or his group
supervisor, to the taxpayer, after ten (10) calendar days
from receipt of the LA and checklist of requirements/
access to records request, demanding, the taxpayer to
furnish to the RO the requirements previously
requested.
2. If the taxpayer ignores the First Notice and continues
to disregard the demand for the submission of the
required documents, a Second and Final Notice, signed
by the Head of Office concerned, shall be sent to the
taxpayer after ten (10) calendar days from receipt of
the First Notice.
3. If, after the taxpayer’s receipt of the Second and Final
Notice, said taxpayer still refuses to comply with the
requirements for the notice, the Head of Office shall
request for the issuance of a subpoena duces tecum
(SDT) from the Legal Service (National Office), Legal
Division (Regional Office), or any other authorized
office, after ten (10) calendar days from receipt of the
Second and Final Notice.
4. The Legal Service, Legal Division or any other
authorized office shall act on the request from the
issuance of SDT within five (5) calendar days from
receipt of such request.
5. The RO must serve immediately the SDT to the
taxpayer and shall return a served copy of the SDT to
the office which issued the same within five (5)
calendar days from the issuance thereof.
6. If the taxpayer refuses to comply with the SDT, the
concerned BIR legal offices shall perform the following
courses of action:
 a)File a criminal case against the taxpayer for violation
of Section 5 in relation to Sections 14 and 266 of the
National Internal Revenue Code; and/or
b) Initiate a proceeding to cite the taxpayer for
contempt, under Section 3(f), Rule 71 of the Revised
Rules of Court.

7. If the taxpayer subsequently requests for the dismissal

of the cases filed in court and submits the requested
information, the concerned BIR office shall occur with
such request for dismissal upon the submission of the
requested document/s and the payment of penalty by
the taxpayer of ten thousand pesos (P10,000) for the
delayed compliance and violation of pertinent
provisions of the revenue regulations.
 REMEDIES DURING AUDIT
•Submit copy of returns, worksheets, and other reportorial
requirements to revenue officers with covering transmittal
letter
•Present only books, records, and other documents covered
by the period under audit
•Bank deposits and related records are covered by RA 1405
(Bank Secrecy Law), which cannot be examined by revenue
officers
•Make analyses of accounts and comparison of figures
shown in ITR, VAT returns, audited FS, SLS and SLP, alpha
list of compensation income and fringe benefits, inventory,
etc. Many findings of revenue officers relate to
discrepancies between or among above documents
REVENUE REGULATIONS NO. 18-2013

Amending Certain Sections of Revenue

Regulations No. 12-99 Relative to the Due
Process Requirement in the Issuance of a
Deficiency Tax Assessment.
SECTION 2. AMENDMENT

Section 3 of RR 12-99 is hereby amended by deleting

Section 3.1.1 thereof which provides for the preparation of
a Notice of Informal Conference

27
“SECTION 3. DUE PROCESS REQUIREMENT IN THE ISSUANCE
OF A DEFICIENCY TAX ASSESSMENT. - Procedure

Ø Preliminary Assessment Notice (PAN). - If there exists

sufficient basis to assess the taxpayer for any deficiency
tax or taxes, a Preliminary Assessment Notice (PAN) for
the proposed assessment shall be issued. It shall show in
detail the facts and the law, rules and regulations, or
jurisprudence on which the proposed assessment is
based.

28
 If the taxpayer fails to respond within fifteen (15)
days from date of receipt of the PAN, he shall be
considered in default, in which case, a Formal Letter of
Demand and Final Assessment Notice (FLD/FAN) shall be
issued calling for payment of the taxpayer's deficiency tax
liability, inclusive of the applicable penalties.

29
 If the taxpayer, within fifteen (15) days from date
of receipt of the PAN, responds that he/it disagrees with
the findings of deficiency tax or taxes, an FLD/FAN shall be
issued within fifteen (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.

30
2. Exceptions to Prior Notice of the Assessment. - Pursuant
to Section 228 of the Tax Code, as amended, a PAN shall
not be required in any of the following cases:

Ø 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;

Ø When a discrepancy has been determined between the

tax withheld and the amount actually remitted by the
withholding agent;

31
Ø 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;

Ø When the excise tax due on excisable articles has not

been paid;

32
Ø 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.

In the above-cited cases, a FLD/FAN shall be issued

outright.

33
3. Formal Letter of Demand and Final Assessment Notice
(FLD/FAN). - The FLD/FAN 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
assessment shall be void.

34
4. Disputed Assessment. - The taxpayer or its authorized
representative or tax agent may protest
administratively against the aforesaid FLD/FAN within
thirty (30) days from date of receipt thereof. The
taxpayer protesting an assessment may file a written
request for reconsideration or reinvestigation defined
as follows:

Ø 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.

35
Ø 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.

36
The taxpayer shall state in his protest:
i. The nature of protest whether reconsideration or
reinvestigation, specifying newly discovered or
additional evidence he intends to present if it is a
request for reinvestigation,

ii. Date of the assessment notice, and

iii. The applicable law, rules and regulations, or

jurisprudence on which his protest is based,
otherwise, his protest shall be considered void and
without force and effect.

37
 If there are several issues involved in the FLD/FAN
but the taxpayer only disputes or protests against the
validity of some of the issues raised, the assessment
attributable to the undisputed issue or issues shall become
final, executory and demandable; and the taxpayer shall be
required to pay the deficiency tax or taxes attributable
thereto, in which case, a collection letter shall be issued to
the taxpayer calling for payment of the said deficiency tax
or taxes, inclusive of the applicable surcharge and/or
interest.

38
Undisputed issue/s - failure to state the facts, the applicable
law, rules and regulations, or jurisprudence in support of the
protest against some of the several issues on which the
assessment is based. The assessment attributable thereto shall
become final, executory and demandable; and the taxpayer shall
be required to pay the deficiency tax or taxes attributable
thereto and a collection letter shall be issued to the taxpayer
calling for payment of the said deficiency tax, inclusive of the
applicable surcharge and/or interest.

39
Requests for reinvestigation - The taxpayer shall submit all
relevant supporting documents in support of his protest within sixty
(60) days from date of filing of his letter of protest, otherwise, the
assessment shall become final.
“Relevant supporting documents” - refer to those documents
necessary to support the legal and factual bases in disputing a tax
assessment as determined by the taxpayer. The sixty (60)-day
period for the submission of all relevant supporting documents shall
not apply to requests for reconsideration.
“the assessment shall become final” shall mean the taxpayer is
barred from disputing the correctness of the issued assessment by
introduction of newly discovered or additional evidence, and the
FDDA shall consequently be denied.

40
 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. No request for
reconsideration or reinvestigation shall be granted on
tax assessments that have already become final,
executory and demandable.

41
 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 Court of Tax Appeals (CTA) within thirty (30)
days from date of receipt of the said decision;

II. Elevate his protest through request for reconsideration to

the Commissioner within thirty (30) days from date of
receipt of the said decision. No request for reinvestigation
shall be allowed in administrative appeal and only issues
raised in the decision of the Commissioner’s duly authorized
representative shall be entertained by the Commissioner.

42
 If the protest is not acted upon by the
Commissioner’s duly authorized representative within one
hundred eighty (180) days counted from the date of filing
of the protest in case of a request reconsideration; or from
date of submission by the taxpayer of the required
documents within sixty (60) days from the date of filing of
the protest in case of a request for reinvestigation, the
taxpayer may either:
I. Appeal to the CTA within thirty (30) days after the
expiration of the one hundred eighty (180)-day period;

II. Await the final decision of the Commissioner’s duly

authorized representative on the disputed assessment.

43
Appeal to the CTA - If the protest or administrative
appeal, as the case may be, is denied, in whole or in
part, by the Commissioner within thirty (30) days from
date of receipt of the said decision. Otherwise, the
assessment shall become final, executory and
demandable.

A motion for reconsideration of the Commissioner’s

denial of the protest or administrative appeal, as the
case may be, shall not toll the thirty (30)-day
period to appeal to the CTA.

44
If the protest or administrative appeal is not acted
upon by the Commissioner within one hundred
eighty (180) days counted from the date of filing of
the protest, the taxpayer may either:
I. Appeal to the CTA within thirty (30) days from
after the expiration of the one hundred eighty
(180)-day period;

II. Await the final decision of the Commissioner on

the disputed assessment and appeal such final
decision to the CTA within thirty (30) days after
the receipt of a copy of such decision.

45
 In case of inaction on protested assessment
within the 180-day period, the option of the
taxpayer to either:
1. File a petition for review with the CTA within 30
days after the expiration of the 180-day period;

2. Await the final decision of the Commissioner or his

duly authorized representative on the disputed
assessment and appeal such final decision to the
CTA within 30 days after the receipt of a copy of
such decision, are mutually exclusive and the
resort to one bars the application of the other.

46
5. Final Decision on a Disputed Assessment
(FDDA). –

The decision of the Commissioner or his duly

authorized representative shall state the:

(i) facts, the applicable law, rules and regulations, or

jurisprudence on which such decision is based,
otherwise, the decision shall be void (see illustration
in ANNEX “C” hereof), and
(ii) that the same is his final decision.

47
6. Modes of Service. – The notice (PAN/FLD/FAN/FDDA) to
the taxpayer herein required may be served by the
Commissioner or his duly authorized representative through
the following modes:

1. The notice shall be served through personal service by

delivering personally a copy thereof to the party at his
registered or known address or wherever he may be found.
A known address shall mean a place other than the
registered address where business activities of the party are
conducted or his place of residence.

In case personal service is not practicable, the notice shall be

served by substituted service or by mail.

48
2. Substituted service can be resorted to when the
party is not present at the registered or known
address under the following circumstances:

q The notice may be left at the party’s registered

address, with his clerk or with a person having
charge thereof.

q If the known address is a place where business

activities of the party are conducted, the notice may
be left with his clerk or with a person having charge
thereof.

49
q If the known address is the place of residence, substituted
service can be made by leaving the copy with a person of
legal age residing therein.

q If no person is found in the party’s registered or known

address, the revenue officers concerned shall bring a
barangay official and two (2) disinterested witnesses to the
address so that they may personally observe and attest to
such absence. The notice shall then be given to said
barangay official. Such facts shall be contained in the
bottom portion of the notice, as well as the names, official
position and signatures of the witnesses.

50
q Should the party be found at his registered or known
address or any other place but refuse to receive the
notice, the revenue officers concerned shall bring a
barangay official and two (2) disinterested witnesses in
the presence of the party so that they may personally
observe and attest to such act of refusal. The notice
shall then be given to said barangay official. Such facts
shall be contained in the bottom portion of the notice, as
well as the names, official position and signatures of the
witnesses.

“Disinterested witnesses” refers to persons of legal age

other than employees of the Bureau of Internal Revenue.

51
3. Service by mail is done by sending a copy of the
notice by registered mail to the registered or
known address of the party with instruction to the
Postmaster to return the mail to the sender after
ten (10) days, if undelivered. A copy of the notice
may also be sent through reputable professional
courier service. If no registry or reputable
professional courier service is available in the
locality of the addressee, service may be done by
ordinary mail.

52
Service to the tax agent/practitioner, who is
appointed by the taxpayer under circumstances
prescribed in the pertinent regulations on
accreditation of tax agents, shall be deemed service
to the taxpayer.”

53
 NOTICE OF INFORMAL CONFERENCE
Now Notice of Discrepancy

PURPOSE:
PRESENTATION of AUDIT FINDINGS
Give taxpayer the opportunity to present his side

EFFECT of FAILURE to RESPOND:

ENDORSEMENT to ASSESSMENT DIVISION for
REVIEW and ISSUANCE of DEFICIENCY TAX
ASSESSMENT
 INFORMAL CONFERENCE
(Now Notice of Discrepancy)

Revenue officers
-Will present in an informal manner their
findings to the taxpayer or his
representative
-Will verbally explain the source of
information and the bases of their findings
-May or may not sign their findings
Taxpayer may
-Listen passively to the revenue officers
-Explain his position or comment on the
revenue officers’ findings and submit
documentary evidence
-Ask for another informal conference to give a
more detailed explanation to their findings
-Request for breakdown of findings or source
of the information from revenue officers as well
as the factual and/or legal bases
 INFORMAL CONFERENCE
(Now Notice of Discrepancy)

FINDINGS OF FACT
-Undeclared or under-declared income
-Deduction is unsupported or personal in nature
-Deduction is for another year (before or after) not
for the current year audit
-Income payment is subject to withholding tax that
was not deducted and remitted to BIR by payor of
income
-There is variance between gross sales per ITR,
VAT return, audited financial statements, alpha list,
summary list of sales, etc.
-Claimed tax credits are not supported by tax credit
certificates attached to income tax returns
 INFORMAL CONFERENCE
(Now Notice of Discrepancy)

QUESTIONS OF LAW
-Income is subject to or exempt from tax
-Income or expense is realized or unrealized
during the year
-Income payment is subject to or exempt from
expanded withholding tax
-Business expense is ordinary and necessary of
unreasonable in amount
-Cost and expenses are not direct items; hence,
not part of “Cost of Services” for MCIT
-Assessment has prescribed or is not valid
-Taxpayer has committed fraud in filing tax return
-Nature of asset is ordinary or capital
 PRELIMINARY ASSESSMENT NOTICE

PURPOSE:
PRESENTATION OF AUDIT PROPOSAL
Give Taxpayer the Opportunity to Present His
Side

CONTENTS:
COMPUTATION of PROPOSED DEFICIENCY
TAX

DETAILS OF FACTS & LAW, RULES and

REGULATIONS, or JURISPRUDENCE ON
WHICH THE ASSESSMENT IS BASED
PERIOD OF RESPONSE:

15 DAYS FROM DATE OF RECEIPT OF THE

PRELIMINARY ASSESSMENT NOTICE

EFFECT OF FAILURE TO RESPOND:

ISSUANCE OF FORMAL LETTER OF

DEMAND
 PRE-ASSESSMENT NOTICE
REMEDIES RELATIVE TO PAN

-Ask for source of information or breakdown of

certain income and expenses relating to findings of
revenue officers, so that appropriate documents
thereto could be submitted
-Agree to file “Waiver of the Statute of Limitations”
for six months (RMO 20-90)
-Request for consolidation of tax audits being done
thru LA and LN
 RR 18-13 (amending RR 12-99)

3.1.1 Preliminary Assessment Notice (PAN).

Xxx xxx xxx

If the taxpayer fails to respond within fifteen (15)

days from date of receipt of the PAN, he shall be
considered in default, in which case, a Formal
Letter of Demand and Final Assessment Notice
(FLD/FAN) shall be issued calling for payment of the
taxpayer's deficiency tax liability, inclusive of the
applicable penalties.
 RR 18-13 (amending RR 12-99)

If the taxpayer, within fifteen (15) days from date of

receipt of the PAN, responds that taxpayer disagrees
with the findings of deficiency tax or taxes, an FLD/FAN
shall be issued within fifteen (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.
It is an elementary rule enshrined in the 1987 Constitution that no
person shall be deprived of property without due process of law.
In balancing the scales between the power of the State to tax and
its inherent right to prosecute perceived transgressors of the law
on one side, and the constitutional rights of a citizen to due process
of law and the equal protection of the laws on the other, the scales
must tilt in favor of the individual, for a citizen’s right is amply
protected by the Bill of Rights under the Constitution. Thus, while
‘taxes are the lifeblood of the government,’ the power to tax has its
limits, in spite of all its plenitude.
When Pre-Assessment Notice is NOT Required
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 of tax 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 the excisable articles has not been
paid;
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.
 FORMAL LETTER OF DEMAND AND
ASSESSMENT NOTICE

PURPOSE:
TO FORMALLY CALL for the PAYMENT of the
DEFICIENCY TAX;

TO SET THE DATE for the IMPOSITION of the

25% SURCHARGE;

TO AFFORD THE TAXPAYER THE FINAL

OPPORTUNITY TO PROTEST
ADMINISTRATIVELY.
 ASSESSMENT OF INCOME TAX

Assessment is the official action of an officer authorized

by law in ascertaining the amount of tax due under the
law from a taxpayer.
The action necessarily involves:
1. the computation of the sum due;
2. the giving of a notice to that effect to the
taxpayer; and
3. the making, simultaneously with or
sometime after the giving of notice, of
a demand upon him for the payment of
the tax or deficiency stated.
AUTHORITY TO MAKE ASSESSMENTS

The authority to make assessments of internal revenue taxes is

vested by law in the Commissioner of Internal Revenue. However,
it may be delegated to subordinate officers like Regional Director.
An assessment made by a subordinate officer has the same force
and effect as that issued by the Commissioner himself.
There is no assessment if no demand or period of payment is
stated in the notice.
 EFFECT OF ASSESSMENTS

An assessment fixes and determines the tax

liability of a taxpayer. Once a tax is assessed,
the taxpayer will owe the government the
amount when the date fixed in the
assessment notice for payment arrives.
Proof of receipt of FAN

If the taxpayer denies receipt of FAN, burden of

proving that FAN has been received is shifted to
BIR. Failure of the BIR to prove receipt of
assessment notice is fatal.
 Court of Tax Appeals:
Case: (Mallari vs. RP,CTA EB Criminal Case No.
002,1-8-08)

Ruling: Where the assessment notice was

released and mailed by BIR to the taxpayer and
the original was not returned to the BIR, the
taxpayer is presumed to have received it. But
such presumption is disputable. When the same is
directly denied by taxpayer, the burden to prove
receipt is shifted to the BIR. In this case, the
transmittal list presented by BIR is self serving
and did not sufficiently establish receipt of FAN.
Assessment based on "tentative
tax return“

Case: (Magnetic Resonance

Imaging Services v. CIR, CTA Case
No. 6608, October 20, 2009)
 Court of Tax Appeals:
Ruling:

Assessment is valid even if it is based on the

"tentative return". The BIR is not prohibited from
looking into a taxpayer's tentative tax return in
ascertaining the correctness of its final return.
Under Section 5 of the Tax Code, the
Commissioner of Internal Revenue or his duly
authorized representative is allowed to examine
any book, paper, record or other data which may
be relevant or material in determining the correct
liability of a taxpayer. The law states “any return”
which is indicative that it includes not only the
“final return” but also a “tentative return”.
The Regional Director shall approve the
assessment notices and demand letters
including the reports of investigation, for
cases falling within their respective
jurisdictions in the Regional level.
 SUMMARY OF ASSESSMENT
CYCLE

•Filing of tax return Law prescribes due date

•Tax audit by BIR 180 days
•(Informal Conference)
• NOTICE OF DISCREPANCY 30 DAYS
•Preliminary Assessment
Notice (PAN)
•Reply to PAN 15 days from receipt
•Final Assessment Notice
(FAN) 3 years or 10 years
•Protest to FAN 30 days from receipt
•Supplement to the Protest 60 days from filing of
protest
SUMMARY OF ASSESSMENT CYCLE
• BIR ACTION • 180 days from filing of
-Cancel assessment protest, or supplemental
- Deny protest protest, if any
- Revise assessment
• 30 days from date of receipt
of denial of protest or lapse
• BIR INACTION of 180 days

• Appeal to CTA • 15 days from date of

receipt; additional 15 days
may be granted by CTA
• Appeal to CTA en banc after payment of docket fee.
A collection notice cannot substitute a
FAN; Procedural requirements for FAN
necessary.

Case: (Golden Harvest Global Corporation

v. VIR,CTA 7503, September 18,2009)
The Final Notice before Seizure cannot be
treated as the assessment notice to inform
petitioner of the factual and legal basis of its
liabilities
EFFECT OF FAILURE TO APPEAL ON
TIME

ASSSESSMENT BECOMES
FINAL,
EXECUTORY, and
DEMANDABLE
EFFECT OF PARTIAL PROTEST:

TAXPAYER IS ASKED TO PAY THE TAXES ON

THE UNDISPUTED ISSUES.

NO ACTION SHALL BE TAKEN ON THE

DISPUTED ISSUES UNTIL THE TAXPAYER
HAS PAID THE DEFICIENCY TAXES ON THE
UNDISPUTED ISSUES.
EFFECT OF DENIAL OF PROTEST:

APPEAL THE DECISION OF THE

COMMISSIONER WITHIN 30 DAYS TO THE
COURT OF TAX APPEALS.
EFFECT OF INACTION ON THE
PROTEST WITHIN 180 DAYS:

APPEAL THE DECISION OF DENIAL

DIRECTLY TO THE COURT OF TAX APPEALS
WAIVER OF THE DEFENSE OF
PRESCRIPTION UNDER THE
STATUTE OF LIMITATIONS
 Fraud Case

Prima Facie Evidence of Fraud:

Failure to report sales, receipts or income

in an amount exceeding thirty percent
(30%) of that declared per return, and a
claim of deductions in an amount
exceeding (30%) of actual deductions,
shall render the taxpayer liable for
substantial underdeclaration of sales,
receipts or income or for overstatement of
deductions, as mentioned herein.
 Fraud Case

Aznar vs. Collector, 8 SCRA 519:

The fraud contemplated by law is actual and
not constructive. It must be intentional fraud,
consisting of deception willfully and
deliberately done or resorted to in order to
induce another to give up some legal right.
Negligence, whether slight or gross, is not
equivalent to the fraud with intent to evade
the tax contemplated by the law. It must
amount to intentional wrong-doing with the
sole object of avoiding the tax.
 Fraud Case

It necessarily follows that a mere mistake

cannot be considered as fraudulent intent,
and if both petitioner and respondent
Commissioner of Internal Revenue committed
mistakes in making entries in the returns and
in the assessment, respectively, under the
inventory method of determining tax liability, it
would be unfair to treat the mistakes of the
petitioner as tainted with fraud and those of
the respondent as made in good faith.
LEGAL BASIS OF ASSESSMENT:

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 as required under the provisions of
this Code, the Commissioner or his duly
authorized representative may authorize the
examination of any taxpayer and the
assessment of the correct amount of tax:
 LEGAL BASIS OF ASSESSMENT:

The tax or any deficiency tax so assessed

shall be paid upon notice and demand
from the Commissioner or from his duly
authorized representative.
 Fraud Case

Prima Facie Evidence of Fraud:

Failure to report sales, receipts or income

in an amount exceeding thirty percent
(30%) of that declared per return, and a
claim of deductions in an amount
exceeding (30%) of actual deductions,
shall render the taxpayer liable for
substantial underdeclaration of sales,
receipts or income or for overstatement of
deductions, as mentioned herein.
 Fraud Case

Aznar vs. Collector, 8 SCRA 519:

The fraud contemplated by law is actual and
not constructive. It must be intentional fraud,
consisting of deception willfully and
deliberately done or resorted to in order to
induce another to give up some legal right.
Negligence, whether slight or gross, is not
equivalent to the fraud with intent to evade
the tax contemplated by the law. It must
amount to intentional wrong-doing with the
sole object of avoiding the tax.
 Fraud Case

It necessarily follows that a mere mistake

cannot be considered as fraudulent intent,
and if both petitioner and respondent
Commissioner of Internal Revenue committed
mistakes in making entries in the returns and
in the assessment, respectively, under the
inventory method of determining tax liability, it
would be unfair to treat the mistakes of the
petitioner as tainted with fraud and those of
the respondent as made in good faith.
AUTHORITY OF THE COMMISSIONER
TO COMPROMISE, ABATE AND
REFUND OR CREDIT TAXES
The Commissioner may:

• Compromise the payment of any internal

revenue tax, when;
• A reasonable doubt as to the validity of the
claim against the taxpayer or;
• The financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.
MINIMUM COMPROMISE SETTLEMENT

1) For cases of financial incapacity, a

minimum compromise rate equivalent
to ten percent (10%) of the basic
assessed tax; and

2) For other cases, a minimum

compromise rate equivalent to forty
percent (40%) of the basic assessed
tax.
3) Where the basic tax involved exceeds
One Million Pesos (P1,000,000) or
where the settlement offered is less
than the prescribed minimum rates, the
compromise shall be subject to the
approval of the Evaluation Board which
shall be composed of the
Commissioner and the four (4)
Deputy Commissioner.
 ABATE OR CANCEL A TAX
LIABILITY, WHEN;

• The tax or any portion thereof appears to

be unjustly or excessively assessed; or
• The administration and collection costs
involved do not justify the collection of the
amount due.

“All criminal may be compromised except (a)

those already filed in court, of (b) those
involving fraud.”
 TAX CREDIT OR REFUND OF TAXES

The Credit Certificate validly issued under

the provisions of the Internal Revenue
Code may be applied against any internal
revenue tax, excluding withholding taxes,

That in no case shall a tax refund be given

resulting from availment of incentives
granted pursuant to special laws for which
no actual payment was made.
TAX CREDIT OR REFUND OF TAXES

No tax credit or refund of taxes or

penalties shall be allowed unless the
taxpayer files in writing with the
Commissioner a claim for credit or refund
within two (2) years after the payment of
the tax or penalty.
The following guidelines are applicable on tax credit or refund:
1. The taxpayer files in writing with the Commissioner a
claim for credit or refund;
2. A return filed showing an overpayment shall be
considered as a written claim for credit or refund;
3. No tax refund be given resulting from availment of
incentives granted pursuant to special laws for which
no actual payment was made;
4. The claim must be filed within two (2) years after the
payment or the tax or penalty.
 EXCEPTIONS AS TO PERIOD OF
LIMITATION OF ASSESSMENT AND
COLLECTION OF TAXES

Assessment:
1) In the case of a false or fraudulent return
2) 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.
 DUE PROCESS IN THE ISSUANCE OF
DEFICIENCY TAX ASSESSMENT -2018 until RR
22-2020

• Amends Revenue Regulations 18-2013

• Mode of Procedure in the Issuance of Deficiency Tax:
NOTICE OF INFORMAL CONFERENCE –
RO shall state in his report whether
a) the taxpayer agrees with findings, that the taxpayer is liable for
deficiency tax/es,
b) if the taxpayer is NOT amenable, he shall be informed in writing by the
RDO/Chief of division of the discrepancy/ies in order to afford an
opportunity for taxpayer to present their side of the case.
 SUMMARY OF ASSESSMENT CYCLE
• Filing of tax return Law prescribes due date
• Tax audit by BIR 180 days
• Notice of Discrepancy
(formerly Informal Conference) not more than 30 days
• Preliminary Assessment 15days
Notice (PAN)
• Reply to PAN 15 days from receipt
• Final Assessment Notice
(FAN) 3 years or 10 years
• Protest to FAN 30 days from receipt
• Supplemental Protest 60 days from filing of
protest
116
 REVENUE REGULATIONS NO. 22-2020

Amending Certain Sections of:

• Revenue Regulations No. 12-1999, as
Amended by
• Revenue Regulations No. 18-2013 and
• Revenue Regulations No. 7-2018,
Relative to the Due Process Requirement
in the issuance of a Deficiency Tax
Assessment
“SECTION. 3. Due Process Requirement in the
Issuance of a Deficiency Tax Assessment. ---

3.1 Mode of procedure in the issuance of a

deficiency tax assessment:

3.1.1 Notice of Discrepancy. – If a taxpayer is

found to be liable for deficiency tax or taxes in the
course of an investigation conducted by a
Revenue Officer, the taxpayer shall be informed
through a Notice of Discrepancy. The Notice of
Discrepancy aims to fully afford the taxpayer
with an opportunity to present and explain his
side on the discrepancies found.
Revenue Officer:

• initial report of investigation his findings of

discrepancies.

• the taxpayer shall be informed, in writing, by the

Revenue District Office or by Assessment
Division/Regional Investigation Division, of the
discrepancy or discrepancies in the taxpayer’s
payment of his internal revenue taxes, for the purpose
of the “Discussion of Discrepancy”.
The Discussion of Discrepancy shall in no case extend beyond thirty (30)
days from receipt of the Notice of Discrepancy. It is during the Discussion
of Discrepancy that the taxpayer is given the opportunity to present his side of
the case and explain the discrepancy found during the investigation of the
Revenue Officer assigned and submit documents to support the explanation
or arguments.

If the taxpayer disagrees with the discrepancy/discrepancies detected

during the audit/investigation, the taxpayer must present an explanation
and provide documents to support his explanation.

The documents must be submitted during the discussion. Should the

taxpayer need more time to present the documents, he may submit such
documents after the discussion. The taxpayer must submit all necessary
documents that supports his explanation within thirty (30) days after receipt of
the Notice of Discrepancy.
If after being afforded the opportunity to present his side through the Discussion
of Discrepancy, it is still found that the taxpayer is still liable for deficiency tax or
taxes and the taxpayer does not address the discrepancy through payment of
the deficiency taxes or the taxpayer does not agree with the findings, the
investigating office, shall endorse the case to the reviewing office and approving
official in the National Office or the Revenue Regional Office, for issuance of a
deficiency tax assessment in the form of a Preliminary Assessment Notice within
ten (10) days from the conclusion of the Discussion.

Failure on the part of Revenue Officers to comply with the periods indicated
herein shall be meted with penalty as provided by existing laws, rules and
regulations.

xxx xxx xxx”

 ASSESSMENT PROCESS
Filed within 30 days
from receipt of FAN

5. 6.
1. Final Administrative
Filing of Assessment Protest
Return (FAN)

2. 7.
30 days 8.
Letter of Final from
Judicial
Authority Decision on receipt
Reply within 15 Appeal
days from receipt disputed
60-180-30
4. assessment
3.NOD Preliminary (FDDA) or
30 days from
Assessment Inaction receipt of
decision
(PAN)
8.
Appeal to 122
Commissioner
Letter Of Authority Letter Notice
• LOA is addressed to a RO is • LN is not found in the NIRC and
specifically required under is only for the purpose of
the NIRC before an notifying the TP that a
examination of a taxpayer discrepancy is found based on
may be had the BIR’s RELIEF system
• LOA is valid only for 30 • LN has no such limitation of
days from date of issue days
• LOA gives only RO a period • LN does not contain such
of 10 days from receipt of limitation
LOA to conduct
examination of the
taxpayer
RMO 42-2003 – considers an LN as notice for
audit and investigation only for the purpose of
disqualifying the taxpayer from amending his
returns.

Not having the authority to examine

MEDICARD in the first place, the assessment
issued by the CIR is inescapably VOID.
CIR vs Sony Philippines, Inc.
Clearly, there must be a grant of authority before any
revenue officer can conduct an examination or
assessment. Equally important is that the revenue
officer so authorized must not go beyond the
authority given. In the absence of such authority, the
assessment or examination is a nullity.
Bonifacio Land Corp vs CIR
CTA Case No. 9068

• valid LOA - July 15, 2009

• PAN - Dec 20,
2011
• FAN - Mar
01,2012
• Protest - Mar 29, 2012
• MOA - May 08,
2012
No New LOA
• FDDA - May 15,
2012
Royal Class Trading &
Transportation Corp.

CTA en banc

Tax Assessment:

Php151.30 Million
Linde Philippines, Inc.
FY Sept 2007

CTA 3rd Division

Tax Assessment:
Php62.4M

ISSUE:
Assessed by RO who
were not authorized by a LOA
CTA invalidated the assessment due to lack of
authority to conduct the same.

NO ID, NO ENTRY

NO LOA, NO ASSESSMENT!
 DCCCO vs CIR
Art. 61. (RA 9520) Tax and Other Exemptions. Cooperatives transacting business with
both members and non-members shall not be subjected to tax on their transactions
with members. In relation to this, the transactions with the cooperative shall not be
subject to any taxes and fees, including but not limited to final taxes on members’
deposits and documentary tax. Xxx

This amendment of Article 61 of RA 9520, specifically providing that members of

cooperatives are not subject to final taxes on their deposits, affirms the
interpretation of the BIR that Section 24(B)(1) of the NIRC does not apply to
cooperatives and confirms that such ruling carries out the legislative intent. Under
the legislative approval of administrative interpretation by reenactment, the
reenactment of a statute substantially unchanged is persuasive indication of the
adoption by Congress of a prior executive construction.

130
 DCCCO vs CIR

This exemption extends to members of cooperatives. It must be

emphasized that cooperatives exist for the benefit of their members.
In fact, the primary objective of every cooperative is to provide
goods and services to its members to enable them to attain
increased income, savings, investments, and productivity.
Therefore, limiting the application of the tax exemption to
cooperatives would go against the very purpose of a credit
cooperative. Extending the exemption to members of cooperatives,
on the other hand, would be consistent with the intent of the
legislature.

131
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133