ST.

VINCENT’S COLLEGE INCORPORATED

Padre Ramon Street, Estaka, Dipolog City 7100 Philippines
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COLLEGE OF ACCOUNTING EDUCATION

TAX REMEDIES HANDOUT

A. TAX REMEDIES, DEFINED

1. On the part of the government, these are courses of action provided by or allowed in the law to implement
the tax laws pr enforce tax collection;

2. On the part of the taxpayer, these are legal actions which a taxpayer can avail of to seek relief from the undue
burden or oppressive effect of tax laws, or as means to check possible excesses by revenue officers in the
performance of their duties.

B. ASSESSMENT PROCESS
STAGE 1 - TAX AUDIT OR INVESTIGATION

The BIR conducts an audit by issuing Letter of Authority (LA).

The Letter of Authority - is an official document that empowers a Revenue Officer to examine and scrutinize a
taxpayer's book of account and other accounting records, in order to determine the taxpayer's correct internal revenue
tax liabilities.

In the absence of such an authority, the assessment or examination is nullity. (CIR vs. Sony Phils., Inc., 635 SCRA
234).

PERSONS AUTHORIZED TO ISSUE LA

TAXPAYER PERSON AUTHORIZED
Under the jurisdiction of the National Office Commissioner of Internal Revenue (CIR)
Under the jurisdiction of the regional offices Regional Director

TAX CASES NEED NOT BE COVERED BY AN LA

1. Cases involving civil or criminal tax fraud which fall under the jurisdiction of the National Investigation
Division (NID) under the Enforcement and Advocacy Service (EAS) of the BIR; and
2. Policy cases under audit by the special teams in the National Office.

EFFECT IN THE ISSUNCE OF LA

A tax return, statement or declaration file by a taxpayer may be modified, change or amended within three (3) years
from the date of filing.

However, when an LA or investigation of such tax return, statement or declaration has been actually served upon the
taxpayer, amendment shall no longer be allowed.

NOTE: Issuance of Letter Notices (LN's) being served by the BIR upon tax payers who were found to have
underdeclared their sales or purchases through the Third Party Information Program can be considered a notice of audit
or investigation which will prohibit the taxpayer from amending the return/s subject of such audit or investigation.

STAGE 2 – ISSUANCE OF PRELIMINARY ASSESSMENT NOTICE (PAN)

A PAN is a communication issued by the Regional Assessment Division or by the Commissioner or his duty authorized
representative informing a taxpayer who has been audited of the findings of the revenue officer

The PAN shall be in writing and shall show in detail the facts and the law, rules and regulations or jurisprudence on
which the proposed assessment is based, otherwise, the assessment is void.

MANDATORY NATURE OF SERVICE OF PAN PRIOR RO FINAL ASSESSMENT NOTICE (FAN)

As a general rule, issuance of PAN prior to fan is part of the "due process requirement", the absence of which renders
nugatory any assessment made by the tax authorities.

However, as an exception, PAN is not 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
appearing on the face of 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
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 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.

REMEDY OF THE TAXPAYER

The taxpayer has 15 days to reply contesting the finding in the PAN.

EFFECT OF FAILURE TO REPLY

The taxpayer is considered in default and the BIR will then issue a final Assessment Notice.

STAGE 3 - ISSUANCE OF FORMAL LETTER OF DEMAND/FINAL ASSESSMENT NOTICE (FAN)

WHEN ISSUED?
1) The taxpayer failed to respond to the PAN; or
2) The reply to the PAN was found to be without merit.

PERSPECTIVE PERIOD
Three (3) years from:
a. Actual filing of return; or
Return filed is not fraudulent b. Deadline for filing whichever is LATER.
1) Return filed is FRAUDULENT; or Ten (10) years from discovery.
2) NO return was filed

REMEDY OF TAXPAYER
1) File a protest to the CIR or his authorized representative within 30 days from date of receipt of the FAN.

TYPES OF PROTEST (RR 18-2013)

Request for Reconsideration
Refer 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.

Request or Reinvestigation
Refer 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 questions of fact or of law or both.

2) Submit all supporting documents within 60 days from filing of protest (in case of request for reinvestigation under
RR 18-2013).

STAGE 4 - DENIAL OF PROTEST

WAYS TO DENY PROTEST
1) Direct denial protest
2) Indirect denial protest - if the CIR or his duly representative fails to act on the taxpayer's protest within 180 days
from date of submission, the protest may be considered denied.

REMEDY OF THE TAXPAYER

DIRECT DENIAL File an appeal with the Court of Tax Appeals
(CTA) Division within 30 days from receipt
of letter of denial.
INDIRECT DENIAL File an appeal with the CTA Division within
30 days from the lapse of the 180 day
period.

Or
Await the final decision of the cir or his duly
authorized representative and the appeal such
final decision to the CTA within 30 days after
the receipt of a copy of such decision (RR18-
2013)

STAGE 5 - DENIAL OF APPEAL BY CTA DIVISION

REMEDIES OF THE TAXPAYER
1) File motion for reconsideration (MR) before the same CTA Division within 15 days from receipt of the decision.
2) Then, if the MR is denied, file an appeal with the CTA en banc within 15 days from receipt of the decision.

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 STAGE 6 - DENIAL OF APPEAL BY CTA EN BANC
REMEDIES OF THE TAXPAYER
1) File MR before the CTA en banc within 15 days from receipt of decision
2) Then, if the MR is denied, file an appeal with the Supreme Court (SC) Division within 15 days from receipt of
decision.

STAGE 7 - DENIAL OF APPEAL BY SC DIVISION

REMEDIES OF THE TAXPAYER
1) File MR before the same SC Division within 15 days from receipt of the decision
2) Then, if the MR is denied, file an appeal with the SC en banc within 15 days from receipt of the decision.

STAGE 8 - DENIAL OF APPEAL BY SC EN BANC

REMEDY OF THE TAXPAYER
File MR before the SC en banc within 15 days from receipt of the decision.

EFEECT IF MR IS DENIED
The taxpayer has no more remedy. The assessment shall become final, executory and demandable.

NOTE: From the issuance of FAN, all periods in availing the remedies are mandatory, in which failure tk comply shall
result in the assessment being final, executory and demandable.

C. COLLECTION
The BIR may avail of the remedy of collection when the assessment becomes final, executory and demandable.

PRESCRIPTIVE PERIOD
With Prior Assessment Within 5 years from issuance
of FAN
Without Prior Assessment Return filed is not false or Three (3) years from:
fraudulent a. Actual filing of return; or
b. Deadline for filing
whichever is LATER.
1) Return filed is Ten (10) years from
FRAUDULENT; or discovery.
2) NO return was files

METHODS OF COLLECTION
The BIR can collect delinquent internal revenue taxes through the following means:

1. Distraint - the seizure by the government of personal property, tangible or intangible to enforce the payment of
taxes.
a. Actual Distraint-personal property is physically seized by the BIR and offered for sale at public auction. The
property is sold to the highest bidder and the proceeds of the sale are applied to the payment of the tax due.
Garnishment- is the distraint of bank accounts.

b. Constructive Distraint - the person in possession of personal property is made to sign a receipt, undertaking
that he will preserve the property and will not dispose of the property without the express authority of Bureau
of Internal Revenue (BIR).
Constructive distraint may be availed of in the following cases:
a) The taxpayer is retiring from any business subject to tax.
b) He intends to leave the Philippines.
c) He removes his property therefrom.
d) He performs any act tending to obstruct the proceeding for collecting the tax due or which may be due from
him.

PERSON AUTHORIZED TO COMMENCE DISTRAINT PROCEEDINGS

AMOUNT INVOLVE PERSON AUTHORIZED
More than P1,000,000, CIR
P1,000,000 or less Revenue District Officer

RIGHT OF PRE-EMPTION
If at any time prior to the consummation of the sale, all proper charges (taxes, interest and penalties) are paid to the
offices conducting the sale, the goods or effects distrained shall be restored to the owner.

2. Levy- the seizure by the government of real sale, the property may be redeemed by the taxpayer. During this period,
the taxpayer is not deprived of the possession and fruits of the property. If the taxpayer fails to redeem the property,
a final deed of sale is executed in favor of the buyer.

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 RIGHTS OF THE OWNER DURING THE ONE (1) - YEAR LERIOD OF REDEMPTION
During the one (1) year period of redemption, the owner shall not be deprived of the possession of the said property and
shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption.

3. Judicial proceedings
a. Filing of civil case for collection
b. File a criminal case (Tax evasion)

D. COMPROMISE
GROUNDS
1) A reasonable doubt as to the validity of the validity of the claim against the taxpayer exists; or
2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

All criminal violations may be compromised except:

a) Those already files in court; or
b) Those involving fraud.

MINIMUM AMOUNTS
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.

INSTANCES WHEN APPROVAL OF THE EVALUATION BOARD IS REQUIRED

1) Where the basic tax involved exceeds one million pesos (P1,000,000); or
2) Where the settlement offered is less than the prescribed minimum rates.

COMPOSITION OF THE EVALUATION BOARD

1) CIR
2) four (4) Deputy Commissioners

E. ABATEMENT OR CANCELLATION OF TAX LIABILITY

GROUNDS
1) The tax or any portion thereof appears to be unjustly or excessively assessed; or
2) The administration and collection costs involved do not justify the collection of the amount due.

F. SUSPENSION OF THE RUNNING STATUTE OF LIMITATIONS

The prescribed period for assessment and the beginning of distraint or levy or a proceeding in court for collection of
any tax deficiency may be suspended under the following situations:
1) Taxpayer's request for reinvestigation was granted;
2) Taxpayer's cannot be located in the address given in return;
3) No property of the taxpayer can be located; or
4) The taxpayer is out of the country.

NOTE: The suspension shall be for the duration the situation plus 60 days thereafter.

G. CIVIL PENALTIES
In addition to the basic tax assessed on the taxpayer, the following civil penalties will also be collected:
1) Surcharge
2) Interest
3) Penalties

SURCHARGE
A 25% surcharge shall be collected in any of the following cases:
1) Failure to file any return and pay the tax due on time.
2) Filing a return with an internal revenue officer other than those with whom the return is required to be files,
unless authorized by the Commissioner of Internal Revenue.
3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.
4) Failure to pay full or part of the amount of tax shown on any return, or the full amount of tax due for which no
return is requires to be filed.

A 50% surcharge shall be collected in any of the following cases:

1) Willful neglect to file the return on time.
2) There is willful neglect if the taxpayer files only after prior notice in writing from the BIR.

There is a simple neglect (25% surcharge) if the taxpayer voluntarily files the return after the deadline without notice
from the BIR.
Prima facie evidence of false or fraudulent return:

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 1) Substantial overstatement (more than 30%) of deductions.
2) Substantial under declaration (more than 30%) of taxable sales, receipts or income.

INTEREST
Interest is am increment on any unpaid amount of tax, assessed at the rate of twenty percent (20%) per annum, from
the date prescribed for payment until the amount is fully paid.

KINDS OF INTEREST
1) Deficiency interest - refers to the interest imposed on the amount still due and collectible from a taxpayer after audit
or investigation.
2) Delinquency interest - refers to the interest for failure of the taxpayer to pay the following:
a. The amount of tax due in any return required to be filed;
b. The amount of the tax due for which no return is required; or
c. A deficiency tax, or any surcharge or interest there-on on the due date appearing in the notice and demand of
the CIR.
3) Interest on extended payment - refers to the interest imposed on the following cases:
a. Any person who fails to pay the tax or any installment, or any part of such amount or installment on or before the
date prescribed for its payment; or
b. Where the CIR has authorized an extension of time within which to pay a tax or a deficiency tax.

TAX DEFICIENCY VS. TAX DELINQUENCY

TAX DEFICIENCY TAX DELINQUENCY
The amount still due and collectible from a Failure of the taxpayer to pay the tax due due
taxpayer upon audit or investigation. on the date fixed by law or indicated in the
assessment notice (FAN) or letter of demand.

H. REFUND OF TAXES
REQUISITES:
1) A tax was erroneously or illegally collected by the BIR;
2) The taxpayer should file a written claim for refund or tax credit with the CIR WHITHIN TWO (2) YEARS from
the DATE OF PAYMENT of tax or penalty; and
3) If the claim for refund is denied by the CIR, file a petition claim for refund with CTA.
a. Within 30 days from receipt of the denial; AND
b. Within two (2) years from the date of payment of the tax or penalty.

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