REMEDIES

REMEDIES

 Actions available to:

a. The BIR or government in
enforcing collection of the
proper taxes; or
b. The taxpayer is defending
himself or itself against the
unlawful enforcement of tax
laws.

I. REMEDIES OF THE STATE

Assessment

Remedies of the State

Collection

a. Assessment – notice given to the taxpayer that the

correct taxes have not been paid. To be valid, the
assessment must:
1. State the facts and the law on which its conclusion
is based;
2. Include contain a computation of the tax liabilities,
and
3. Contain a demand for payment within a specified
period.

Time of Assessment
General Rule: Within 3 years after the last day
prescribed by law for filing or from the date of filing
the return, whichever is later.

Except: The 3-year period can be extended in the

following cases:
1. In cases where a false or fraudulent return with
intent to evade the tax is filed:

Period of assessment = Within 10 years after

the discovery of the falsity or fraud.

2. Where there is a failure or omission to file a

return:

Period of assessment = Within 10 years after

the discovery of the failure or omission.

3. Within any period agreed upon by the taxpayer

and the Commissioner of the BIR. Provided, such agreement is entered into before the expiration of the 3-
year period for assessment.

b. Collection
By distrain (seizure) of personal
property
May be pursued
simultaneously
By levy of real property

Collection
By court action (civil or criminal)
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Time of Collection

1. Within 5 years following the assessment; or

2. Within the period agreed upon between the taxpayer and the Commissioner before the expiration of the 5-year
period; or
3. Within 10 years after the discovery of the fraud, falsity, or omission even without assessment thru a proceeding
in court.

Distraint

Seizure of goods, chattels, or effects, and the personal property, including stocks and other securities, debts, credits, bank
accounts, and interest in and rights to personal property in sufficient quantity to satisfy the tax, or charge, together with
any increment thereto incident to delinquency, and the expenses of the distraint and the cost of the subsequent sale.

Levy on Real Property

 May be made before, simultaneously,

or after distraint

The BIR shall prepare a duly authenticated

certificate showing the name of the taxpayer
and the amounts of the tax and penalty due
from him. Said certificate shall operate with
the force of a legal execution throughout the
Philippines.

Levy shall be effected by writing upon said

certificate a description of the property upon
which levy is made. At the same time, written
notice of the levy shall be mailed to or served
upon the Register of Deeds of the province or
city where the property is located and upon
the delinquent taxpayer.

Tax Lien

When a taxpayer refuses or neglects to pay

the tax, a lien accrues against all properties
and property rights of the taxpayer. However,
such tax lien shall not be valid against any mortgagee, purchaser, or judgment creditor until the notice of lien is filed with
the Register of Deeds.

Court Action

a. Civil Action – for the collection of taxes; filed within 5 years of assessment.
1. With the RTC, MTC – if principal amount of taxes (exclusive of charges and penalties) is < P1,000,000.
2. With the CTA – if the principal amount of taxes (exclusive of charges and penalties) is ≥ P1,000,000.

b. Criminal actions - for the enforcement of penal provisions; filed within 5 years of assessment; may be filed during the
pendency of an administrative protest in the BIR.

Suspension of Running of Statue of Limitations

The running of the Statue of Limitations in the assessment and the beginning of distraint or levy or a proceeding in court
for collection shall be suspended:
1. For the period during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or proceedings in court and for sixty (60) days thereafter;

2. When the taxpayer requests for a reinvestigation which is granted by the Commissioner;

3. When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being
assessed or collected.

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 However, the running of the Statute of Limitations will not be suspended if the taxpayer informs the
Commissioner of any change in address;

4. When the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located; and

5. When the taxpayer is out of the Philippines.

Note:

a. Deficiency tax assessments of P100 or less, excluding surcharge and interest, shall no longer be assessed nor
be collected, except where, in a single investigation, several assessments are made against the taxpayer and
the total deficiency tax assessments, excluding surcharge and interest, exceeds P100.

b. General Rule: No court shall have the authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee, or charge imposed by the Tax Code.

Exclude: The CTA can grant a TRO/ Injunction when:

1. The collection of the tax may jeopardize the interest of the government or of the taxpayer, or both;
2. The amount claimed is deposited with the court, or a surety bond for not more than double the amount of
the tax is filed with the court; and
3. The appeal is not frivolous nor dilatory.

c. Allocation of Income and Deductions by the Commissioner (Section 50)

In the case of two or more organizations, trades, or business (whether or not incorporated and whether or not
organized in the Philippines) owned or controlled directly or indirectly by the same interests, the Commissioner
is authorized to distribute, apportion, or allocate gross income or deductions between or among such
organization, trade, or business, if he determines that such distribution, apportionment or allocation is
necessary in order to prevent evasion of taxes or clearly to reflect the income of such organization, trade, or
business (Sec. 50, NIRC).

The BIR Tax Audit Process

1. RELEASE OF What is a Letter Authority?

LETTER OF
AUTHORITY TO A Letter of Authority (LA)is an official document that authorizes a BIR Revenue Officer to
THE REVENUE examine a taxpayer’s books of accounts and other accounting records in order to determine his
OFFICER correct internal revenue tax liabilities.

Who issues and approves the LAS?

Investigating Office Approving Official

Revenue District Office Regional Director
Large Taxpayer Service Audit Divisions Assistant Commissioner-LTS
National Investigation Divisions and Special Commissioner of Internal Revenue
Investigation Divisions

Requisites for the validity of an LA:

1. The LA must be served to the taxpayer within 30 days from its date of issuance.
2. The LA must be an electronic LA(eLA) printed under BIR Form 1966 issued under the BIR
Letter of Authority Monitoring System ( LAMS ).

Manual LAs are no longer allowed. Examiners or revenue officers who conduct audit investigation
without an eLA will be subjected to administrative sanctions.

Only one LA shall be issued to the taxpayer. Taxpayers who were inadvertently issued with multiple
LAS shall inform the concerned BIR officer and formalize his request for cancellation of the other
LA.

Other BIR notices to taxpayers:

1. Tax verification notice (TVN)

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 2. Letter notice ( LN )

A Tax verification notice authorizes evaluation or verification of tax on one-time

transactions(ONETT) cases such as estate tax, donor’s tax and capital gains tax.

A Letter notice is a communication from the BIR national office informing the taxpayer of a finding
of significant discrepancy between sales/purchases reported in his tax return and information
obtained by the BIR from third parties.

Third party information may be taken by the BIR from Reconciliation of Listing for Enforcement
System (RELIEF) filing for other taxpayers including data gathered by other government agencies
or instrumentalities.

Data Matching Systems

The BIR national office embarked on a program called Data Matching which is basically a data
mining technique intended to match taxpayer’s reported data such as sales against data furnished
by third parties such as purchases of the taxpayer’s customers. Significant discrepancies or
variances noted may indicate the presence of unpaid taxes which must be checked.
Discrepancies noted by the matching systems are forwarded by the national office to the revenue
district office which has jurisdiction to the concerned taxpayer. The revenue district office will serve
the LN to the taxpayer.

Reconciliation of discrepancies
Taxpayers have 5 days from the receipt of the LN to reconcile the discrepancies noted therein. If
the taxpayer agrees to the finding of discrepancies, they must settle any resultant tax liability
within 30 days from the receipt of the LN.

Timely payment of the LN will entitle the taxpayer to abatement of corresponding surcharge,
interest and compromise penalty.

Consolidation of LN and eLA

Taxpayers who are selected for regular audit by the RDO may likewise be concurrently issued with
an LN by the national office. The LN in such case shall be consolidated with the eLA issued for such
examination.

LN payments may be claimed as tax credit

Taxpayers who are selected for regular audit may have paid taxes under an LN. The amount paid
under the LN may be considered as tax credit against any findings of deficiency under the eLA
(regular audit) to the extent that they pertain to the same issues.

2. CONDUCT OF The examination must be generally conducted in the place of business of the taxpayer.
THE AUDIT
EXAMINATION Period of investigation Revenue officers have up to 120 days counted from the date of
receipt of the eLA by the taxpayer in which to conduct the audit
and to submit his report of investigation. After the lapse of such
period, the eLA must be surrendered and may be revalidated
when needed.
Frequency of revalidation eLAs may be revalidated once for those issued by regional
of LAs Offices or Revenue District Offices or twice in the case of LAs
issued by the National Office. Suspended eLAs must be attached
to the new eLAs.

Frequency of taxpayer The taxpayer shall be subject to examination only once in every
examination taxable year, except when:
a. The CIR determined that fraud, irregularities, or mistakes were
committed by the taxpayer.
b. The taxpayer request for re-investigation or re-examination.
c. There is a need to verify the taxpayer’s compliance with
withholding tax and other internal revenue taxes
d. The taxpayer’s capital gain tax liabilities must be verified
e. The CIR exercises his power to obtain information relative to
the examination of other taxpayers

Power of the CIR to obtain information and to summon, examine and take testimony of
persons
When after reasonable demands, certain documents, information or records are not forthcoming

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 during the examination, the BIR may issue subpoena to the taxpayer and or other person in
possession of the same to produce them.

Types of subpoena:
1. Subpoena A summon upon the taxpayer or other persons compelling them to produce,
ducestecum - under penalty of neglect, certain documents sought therein. This is usually
issued to the taxpayer after his failure to comply on two consecutive
requests to produce his books for examination.

2. Subpoena ad A summon upon a person to appear and to give oral testimony.

testificandum -

3. REPORTING After the examination, the revenue officer reports the results of his investigation.
ON THE RESULTS
OF THE Finding the Sufficient Basis of Assessment
EXAMINATION When the BIR examination or verification determined that there exists a sufficient basis to assess
the taxpayer for any deficiency tax or taxes, the revenue officer shall recommends in his report the
issuance of an assessment to the taxpayer.

ASSESSMENT OF THE TAXPAYER

The assessment stage may involve the issuances of the following notices in sequence:
1. Notice of Discrepancy (RR 22-2020 )
2. Pre – assessment Notice (PAN)
3. Formal Letter of Demand and Final Assessment (FLD/FAN)
4. Final Decision on a Disputed Assessment (FFDA)

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II. REMEDIES OF THE TAXPAYER

Letter of Authority (LOA)

An LOA is the authority given to the appropriate revenue

officer assigned to performed functions. The LOA empowers or
enables said revenue officer to examine the books of accounts
and other accounting records of a taxpayer for the purposes of
collecting the correct amount of tax.

Unless authorized by the Commissioner or his duly authorized

representative through an LOA, an examination of the
taxpayer cannot ordinarily be undertaken. Thus, a Final
Assessment Notice (FAN) issued on the basis of a mere Letter
of Notice (LN) is void.

Moreover, an LOA must specify the years covered for an

investigation of those years to be valid.

Notice of Discrepancy

If a taxpayer is found to be liable for deficiency tax or taxes in the course of an investigation or audited conducted by a
Revenue Officer, the taxpayer shalt be informed through a Notice of Discrepancy. Such Notice aims to fully afford the
taxpayer with an opportunity to present and explain his side on the discrepancies found. The taxpayer shall then have
five (5) days from the date of his receipt of the Notice of Discrepancy to explain his side. The Discussion of Discrepancy
shall in no case extend beyond thirty (30) days from receipt of the Notice of Discrepancy

Note:

The Notice of Discrepancy, which

replaces the Notice of Informal
Conference, will be issued to the
taxpayer if he is found to be liable for
deficiency taxes during investigation
conducted by a revenue officer.

A Notice of Discrepancy is not yet a

deficiency tax assessment. It only
aims to fully afford the taxpayer with
an opportunity to present and explain
his side on the discrepancies found.

Based on the prescribed template for

the Notice of Discrepancy, the
taxpayer must be able to present and
explain its side on the discrepancies
noted by the BIR within 5 days
from receipt of the notice. Should
the taxpayer need more time to
present documents, he may submit
such documents after the discussion
but within 30 days from receipt of
the Notice of Discrepancy.

The discussion of discrepancies

shall not extend beyond 30 days
from the receipt of the notice.
Within 10 days from the conclusion of
the discussion of discrepancies, the investigating office shall endorse the case for review and approval for issuance of a
Preliminary Assessment Notice if the taxpayer is still found to be liable for deficiency taxes.

RR 22-2020 (Notice of Discrepancy): Section 3 of No. l2-1999, as amended, provides for the preparation of a
Notice of Discrepancy instead of a Notice of Informal Conference. 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

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through a Notice of Discrepancy. The Revenue Officer who audited the taxpayer's records shall, among others, state
in the initial report of investigation his findings of discrepancies.

Based on the Revenue Officer's submitted initial report of investigation, the taxpayer shall be informed, in writing,
by the Revenue District Office or by the Assessment Division/Regional Investigation Division, as the case may be (in
the case of Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office)
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 during the discussion to support his explanation. Should the
taxpayer need more time to present the documents, he/she may submit such documents after the discussion, which
should be 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.

Republic of the Philippines

Department of Finance
BUREAU OF INTERNAL REVENUE

NOTICE OF DISCREPANCY

Date: ___________

FULL NAME OF TAXPAYER

ADDRESS
ADDRESS
TIN: 000-000-000-000

Sir/Ma’am:

Please be advised that we have submitted the report of investigation on your internal tax liabilities for taxable year
_________ to _______ pursuant to Letter of Authority No. ___________________ dated ________ to the Revenue
District Office/Chief of this office.

The said report includes the details of discrepancies (ANNEX A) as a result of the aforestated investigation. Please
take note that this is NOT YET A DEFICIENCY TAX ASSESSMENT.

In observance of procedural due process pursuant to Sec. 228 of the National Internal Revenue Code of 1997 (as
amended by RA 8424) and Sec. 2 of Revenue Regulations No. 7-2018 dated 22 January 2018, you and/or your
authorized representative are invited to a Discussion of Discrepancy at
__________________________________ within five (5) days from the date of receipt hereof to enable
you to present and explain your side on the discrepancies noted by the investigating Revenue Officer.

You may submit at said discussion whatever documentary evidence you may have to reconcile and refute the noted
discrepancies.

Your counsel/authorized representative may assist you at this discussion, or may represent you thereat, should you
be unable to be present on said date. In the event that you shall be represented by your counsel or any other duly

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 authorized representative, said counsel or representative must be so authorized in writing in accordance with the
required authorization document by the BIR.

Please be advised, however, that failure on your part to appear on the scheduled date of discussion without prior
notice to the Bureau, will be construed as a waiver of your right to a discussion of discrepancy and as an indication
that you have no objections to the Bureau’s findings at this level. Furthermore, failure on your part to reconcile and
present valid documentary support against the noted discrepancies will result in the issuance of a deficiency tax
assessment.

Accordingly, a Preliminary Assessment Notice (PAN) covering that aforesaid deficiency tax assessment shall
immediately be sent to you.

We trust, therefore, that this matter will merit your preferential attention.

Very truly yours,

FULL NAME & Signature

Revenue District Officer/Chief of Investigating Office

Noted by:
_________________
Authorized Signatory

Received by:
_____________________________
Full name, position and signature of
Taxpayer or Taxpayer’s authorized representative

Contact details: _________________

Date of receipt: _________________

Pre-assessment Notice or Preliminary Assessment Notice (PAN) and Final Assessment Notice (FAN)

When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings in a Preliminary Assessment Notice (PAN). The PAN shall show in detail the facts and
the law or jurisprudence on which the proposed assessment is based.

The taxpayer is given 15 days to respond from date of receipt of the PAN. If the taxpayer fails to respond to the PAN
within the 15-day period or disagrees therewith, the Commissioner or his duly authorized representative shall issue the
Formal Letter of Demand and Final Assessment Notice (FLD/FAN).

The FLD/FAN shall state the facts, the law, rules and regulations or jurisprudence on which the assessment is based;
otherwise, the assessment shall be void.

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Page |9
Remedies Against Assessment

1. Where Tax Has Not Been Paid

Letter of Authority
 120 days from receipt LOA (Audit)
 Notice of Discrepancy (30 days)
 Preliminary assessment notice (PAN)(15 days)

Receipt of Assessment
Final assessment notice (FAN)

Within 30 days

Protest by Filing with the CIR

Request for Reconsideration Request for Reinvestigation

Within 60 days

Within 180 days

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 Submission of all relevant supporting documents

Within 180 days

Protest is denied OR Not Acted Upon

Note: Within the same 30

days from the time the
protest is denied, the Await the decision: Protest is eventually
taxpayer can also file a denied by the Commissioner
Request for Reconsideration
to the Commissioner
(Administrative Appeal)
Within 30 Within 30 Within 30
days days days

Appeal to the CTA

Contents of the Protest

1. Nature of the protest, whether it is a request for reconsideration or reinvestigation;
2. Newly discovered or additional evidence the taxpayer intends to present if it is a request for reinvestigation;
3. Date of the assessment notice or letter of demand; and
4. The applicable law, rules and regulations, or jurisprudence on which the protest is based.

Note: The taxpayer must state all the aforementioned items. Otherwise, the protest shall be considered void and
without force and effect.

2. Where Tax Has Been Paid

Remedy: Claim for refund of the tax paid on the ground that the tax was erroneously collected, or that the tax was
illegally collected.

Date of Payment of the tax

Within 2
years

File claim for refund with the

Commissioner
Within 2
years

Denial of Claim

Within 30
days

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 Appeal to the CTA

Note:
a. The filing of the claim for refund with the Commissioner and the institution of judicial action with the
Court of Tax Appeals to recover the tax can be done either simultaneously or one after the other within
2-year to protect the interest of the taxpayer.
b. No interest is paid in tax refunds unless direct by law.
c. Even without a claim for refund, the Commissioner of the BIR may award a refund or credit if on the face
of the return the payment was erroneous.

3. Filing a criminal action against the erring or abusive BIR official.

4. Apply for a TRO or Injunction with the CTA.

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 Note:

1. Disputing an assessment - if the tax has not yet been paid

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Summary of Rule: Disputing an assessment

LA Government Side
BIR denial or lapse of 180 - day whichever CTA adverse
NOD PAN FAN comes first decision

30 days 15 days 30 days 60 days 180 days 30 days 15 days

Personal motion Submit petition petition for review on

appearance for supporting for certiorari (SC)
reinvesti - documents review
Submit gation (CTA)
Reply
required
documents OR

motion for Judicial Remedies*

reconsideration 180 days
OR
Wait for BIR action*

Administrative Remedies

*mutually exclusive remedy, adverse decision may be appealed to the CTA within 30 days from receipt

Taxpayer's side

2. Recovery of erroneously paid taxes - if the tax is already paid

Summary of rules: Recovery of erroneously paidestax

Government side

CTA adverse
BIR denial decision

30 days 15 days

Payment of Claim for Petition for Petition for

tax refund review review on
(CTA)* certiorari
(SC)

2 Years

*must be executed even without a BIR decision on the claim for refund

Taxpayer's side

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III. REMEDIES AVAILABLE TO THE STATE AND TAXPAYER

A. Compromise
 Mutual concession or settlement which can
be entered into by the BIR and the
taxpayer even if a (civil) case has been
filed in court.
 There is an offer to pay by the taxpayer
and an acceptance by the Commissioner.
 Called a compromise penalty if paid in lieu
of criminal prosecution.

Grounds for Compromise:

1. Reasonable doubt as to the validity of the

claim against the taxpayer:
a. The delinquent account or disputed
assessment is one resulting from a
jeopardy assessment;
b. The assessment is lacking in legal
and/or factual basis; or
c. The taxpayer failed to file an
administrative protest on account of the
alleged failure to receive notice of
assessment, or
d. The demand notice allegedly failed to
comply with the formalities prescribed
under Section 228 of the Tax Code; or
e. The assessment was made based on
the “Best Evidence Obtainable Rule”
under Section 6(B) of the Tax Code,
and there is reason to believe that the same can be disputed by sufficient and competent evidence; or
f. The assessment was issued within the prescriptive period for assessment as extended by the taxpayer’s
execution of a Waiver of the Statute of Limitations. However, the validity or authenticity of such waiver is
being questioned or at issue, and there is strong reason to believe and evidence to prove that the same is not
authentic or
g. The assessment is based on an issue where a court of competent jurisdiction has made an adverse decision
against the BIR. However, the Supreme Court has not decided upon the case with finality.

2. Financial inability to the taxpayer to pay

 The compromise must be accompanied by a waiver under the Secrecy of Bank Deposit Law.

Amounts of Compromise Settlement

 The BIR has a schedule of compromise penalties for various violations of the Tax Code. A compromise penalty
may differ than the prescribed amounts as long it is approved by the Commissioner, but shall not go below the
following minimum amounts:
a. For cases of financial incapacity, a minimum compromise rate equivalent to ten percent (10%) of the basic
assessed tax.
b. For other cases (doubtful validity), a minimum compromise rate equivalent to forty percent (40%0 of the
basic assessed tax.

Approval of the Compromise

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, the compromise shall be subject to the
approval of the National Evaluation Board (NEB) which shall be composed of the Commissioner and four (4)
Deputy Commissioners.

Cases Which May Not Be Compromised

1. Withholding tax cases, in general;
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized
representative; (Examples of fraud: (1) discrepancies between receipts per taxpayer’s copy and amount in
purchaser’s copy; (2) possession or use of multiple set of invoices; (3) misrepresentation; (4) falsification; and (5)
keeping 2 or more sets of books.
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments;

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 5. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the
original assessment, and the taxpayer is agreeable to such decision by signing the required agreement form for
the purpose.
6. In general, (a) cases which have become final and executory (except where compromise is requested on the
ground of final incapacity) and(b) estate tax cases (except where compromise is requested on the ground of
doubtful validity of the assessment).

B. Abate or Cancel a Tax Liability

The Commissioner has the authority to abate or cancel the surcharge, interest, and compromise penalties.

Grounds to Abate or Cancel a Tax Liability

1. The tax or any portion thereof appears to be unjustly or excessively assessed;

The following are instances when the penalties and/or interest imposed on the taxpayer may be abated or
cancelled on the ground that the imposition thereof is unjust or excessive:
a. When the filing of the return or payment of the tax is made at the wrong venue;
b. When the taxpayer’s mistake in payment of his tax is due to the erroneous written official advice of a revenue
officer;
c. When the taxpayer fails to file the return and pay the tax on time due to substantial losses from prolonged
labor dispute, force majeure, or legitimate business reverses, or to other circumstances beyond the control of
the taxpayer. However, the abatement shall only cover the surcharge and the compromise penalty, and not
the interest imposed under Section 249 of the Tax Code.
d. When the assessment is the result of taxpayer’s non-compliance with the law due to a difficult interpretation
of said law.

2. The administrative and collection costs involved do not justify the collection of the amount due.

REMEDIES OF THE TAXPAYER

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 or 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 a 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).

Letter of Authority – is an official document that empowers a Revenue Officer to examine and scutinize a taxpayer’s
books of accounts 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 a 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

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1) Cases involving civil or criminal tax fraud which fall
under the jurisdiction of the National Investigation
Division (NID) under the Enforcement and Advocacy
Services (EAS) of the BIR; and

2) Policy cases under audit by the special teams in the

National Office.

EFFECT OF THE ISSUANCE OF LA

A tax return, statement or declaration filed by a taxpayer

may be modified, changed 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 taxpayers 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
duly 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

TO 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 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 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.

REMEDY OF THE TAXPAYER

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

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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

PRESCRIPTIVE PERIOD
Return filed is not fraudulent Three (3) years from:
a. Actual filing of return; or
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 THE 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 for 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 a question 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 of protest

2) Indirect denial of protest – If the CIR or his duly authorized 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
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.

STAGE 6 – DENIAL OF APPEAL BY CTA EN BANC

REMEDIES OF THE TAXPAYER

P a g e | 18
1) File MR before the CTA en banc within 15 days from receipt of the decision.
2) Then, if the MR is denied, file an appeal with the Supreme Court (SC) Division within 15 days from receipt of the
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.

EFFECT 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 the periods in availing the remedies are mandatory, in which failure to 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 Three (3) years from:
or fraudulent a. Actual filing of return; or
b. Deadline for filing

Whichever is LATER
1. Return filed is Ten (10) years from discovery
FRAUDULENT;
or
2. NO return was filed

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

P a g e | 19
 Officcer

Distinction among Warrant of Distraint, Warrant of Levy and Warrant of Garnishment

Distraint Levy Garnishment
a. As to subject Personal property owned by Real property owned by and Personal property owned by
matter and in possession of the in the possession of the taxpayer but in the
taxpayer. taxpayer. possession of a third party.

b. As to disposition Purchased by the Forfeited to the Government Purchased by Government

for want of bidders or Government then resold to then sold to meet the then resold to meet
bids meet deficiency. deficiency. deficiency.
inadequate to satisfy
tax deficiency
c. As to No advertisement is Advertised once a week for No advertisement is required.
advertisement for required. three weeks.
sale

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
officer conducting the sale, the goods or effects distrained shall be restored to the owner.

2) Levy- the seizure by the government of real properties and interest in or rights to such properties in order to enforce
the payment of taxes.

RIGHT OF REDEMPTION

For period of one (1) year from the date of sale,

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

RIGHTS OF THE OWNER DURING THE ONE (1) -

YEAR PERIOD 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.

The redemption price is comprised of the

purchase price plus 15% interest per annum
from the date of purchase to the date
redemption. (Sec. 214, NIRC)

Note:
Redemption of property sold 1) The property sold may be redeemed by the delinquent taxpayer within one year
from the date of sale by paying:
a) the amount of public taxes,
b) penalties and
c) interest thereon from the date of delinquent to the date of sale with
d) 15% interest per annum from the date of purchase to the date redemption.
(Sec. 214, NIRC).
2) The owner shall not be deprived of the possession of the property sold and shall
be entitled to the rents and rent income thereof until the expiration of the time
allowed for redemption.

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

D. COMPROMISE

P a g e | 20
GROUNDS
1) A reasonable doubt as to 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:

1) Those already filed in court; or
2) 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 OF STATUTE OF LIMITATIONS

The prescriptive 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 can not be located in the address given in the 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 of 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 filed, 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 the full or part of the amount of tax shown on any return, or the full amount of tax due for which no
return is required 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 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:

P a g e | 21
1) Substantial overstatement (more than 30%) of deductions.
2) Substantial under declaration (more than 30%) of taxable sales, receipts or income.

INTEREST

Interest is an 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 interest for failure of the taxpayer to pay the following:

a. The amount of tax due on 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.

Interest Rate
§ TRAIN Law = 12%

Simultaneous Imposition

§ TRAIN Law = Not allowed

TAX DEFICIENCY VS. TAX DELINQUENCY

TAX DEFICIENCY TAX DELINQUENCY

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

H. REFUND OF TAXES

REQUISITES:

1) Sec. 112 - Refunds of Tax Credits of Input VAT. Applicable in the case of a taxpayer who is engaged in zero rated sale
or effectively ze o rated sale.

Sec. 229 - 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 WITHIN TWO (2) YEARS from the DATE OF
PAYMENT of the tax or penalty; and

3) If the claim for refund is denied by the CIR, file a petition for refund with the 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.

4) Processing Period - The BIR commissioner, under the law, has (90 days under TRAIN Law for refund of input vat),
counting from the date the applicant-taxpayer submits complete documents on his claim.

If the claim for VAT refund or credit is not acted upon by the Commissioner within the 90-day period as required by law,
such “inaction shall be deemed a denial” of the application for tax refund or credit.”

Process Flow for the Assessment and Collection of Taxes

*The discussion of discrepancies shall not extend beyond 30 days from
the receipt of the notice

Filing of Returns Within three (3) years FLD/FAN

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 Issuance NOD 5 PAN 15
days * days
of LA

Served w/in 30 Audit terminated Paid w/in Protested Not paid/ Not
days in 120 days 30 days w/in 30 Protested w/in
days 30 days

Claim for refund Assessment Final

A

2 years after payment

Admin & Judicial

Granted Remedies (w/in 5 yrs)

No Yes
SC (15 days) CTA (30 days) TCC/Gov’t
Check End

Final Decision
End For
execution
____________________________________________________________________________________

A Protest w/in 30 days

Reconsideration Reinvestigation
-Not suspend collection -60 days to submit docs
-Suspends collection

CIR inaction 180 CIR decision after

CIR decision days 180 days

End Yes Favorable No Favorable

No Yes
Final SC (15 CTA (30
decision days) **B days) *A
Adverse End

End
Note:

I. Appeal Court of Tax Appeals – If the protest is denied, in whole or in part, by the Commissioner,
the taxpayer may appeal to the CTA within 30 days:
1. From the receipt of the adverse (unfavourable) decision or
P a g e | 23
 2. From the lapse of the 180 days period (new provision)

II. Appeal to CTA en banc- 15 days from the date of receipt of decision of a CTA division.

The CTA is a court of special jurisdiction and can only take cognizance of such matters as are clearly
within its jurisdiction.

In other words, an original action for refund cannot be brought directly to the CTA. It has to be filed
first with the CIR and it can be brought only to the CTA in case of the CIR’s denial of the claim or
because of inaction for a period of 180 days from the time of the filing of the supporting documents.

Note
* A. CTA Division – if CTA division denies petition for review, file a motion for reconsideration (MR) within 15 days
from receipt with the Division. If MR is denied, appeal to CTA En Banc within 15 days from denial of motion

Note: CTA Division may require posting of bond

**B. CTA En Banc – if denied, appeal to SC Division within 15 days by petition for review (Rule 45)

If the Taxpayer is not satisfied with the CTA’s decision, can he appeal the decision to a higher court?

Yes, he can, Decision of a Division of the Court of Tax Appeals may be appealed with the Court of Tax Appeals
(en banc), within fifteen (15) days from the Taxpayer’s receipt of the questioned Decision or Resolution.
(Revised Rules of CTA)

In the event that the Taxpayer is likewise unsatisfied with the decision of the Court of Tax Appeals (en banc), he
may appeal this decision with the Supreme Court, within fifteen (15) days from receipt of the
Decision/Resolution. (Rules of Court)

(RA 1125 ) Section 18. Appeal to the Supreme Court. - Any party adversely affected by any ruling, order or
decision of the Court of tax Appeals may appeal therefrom to the Supreme Court by filing with the said Court a
notice of appeal and with the Supreme Court a petition for review, within thirty days from the date he receives
notice of said ruling, order or decision. If, within the aforesaid period, he fails to perfect his appeal, the said
ruling, order or decision shall become final and conclusive against him

If no decision is rendered by the Court within thirty days from the date a case is submitted for decision, the
party adversely affected by said ruling, order or decision may file with said Court a notice of his intention to
appeal to the Supreme Court, and if, within thirty days from the filing of said notice of intention to appeal, no
decision has as yet been rendered by the Court, the aggrieved party may file directly with the Supreme Court an
appeal from said ruling, order or decision, notwithstanding the foregoing provisions of this section.

a. Creation of CTA

There is hereby created a court of tax appeals (CTA) which shall be the same level as the court of appeals,
possessing all the inherent powers of a court of justice. (Sec.1, R.A. No. 1125, as amended by R.A. No. 9282)
b. Composition of CTA

The CTA shall consist of a presiding justice and 8 associate justice.( sec. 1 R.A. No. 1125, as amended by R.A. No.
9503)
c. Sitting En Banc or Division

The CTA may sit en banc or in three division, each division consisting of three justices (Sec. 2 R.A. No. 1125, as
amended by R.A. No. 9503).
d. What will constitute a Quorum

Five (5) justices shall constitute a quorum for sessions en banc and Two (2) justices for session of a division (Sec. 2
R.A. No. 1125, as amended by R.A. No. 9503).

The Supreme Court shall be composed of the Chief Justice and fourteen Associate Justices. It may sit en
banc or in its discretion, in divisions of three, five, or seven Members. Any vacancy shall be filled within ninety days
from the occurrence thereof.

P a g e | 24
 REVIEW QUESTIONS
Problem 1: (Tax Assessment/Refund Procedures) Instruction: Determine the last day to exercise the rights of the
taxpayer.

Case A:
Date of tax return filed April 15, 2011
Date of material non-inclusion of income discovered June 20, 2012
Question: When is the last day to amend the tax return?

Case A: April 15, 2014 - The return, statement or declaration can be modified, changed or amended from
within three years from the date of filing as long as no tax investigation has been served to the taxpayer. (Sec. 6(A),
NIRC)

Case B:
Date of tax return filed April 15, 2011
Date of tax return amended October 20, 2012
Question: When is the deadline to assess tax return?

Case B: October 20, 2015 - If the tax deficiency is due to simple neglect, the prescriptive period of tax
assessment is within 3 years starting from the date of filing the return (Sec. 203, NIRC), or its amendment.

Case C:
Date of fraudulent tax return filed April 15, 2011
Date when tax fraud was discovered by BIR April 15, 2015
Question: When is the deadline to file a proceeding in court for tax collection?

Case C: April 15, 2025 - If the ITR is fraudulent or no tax return was filed, 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. (Sec. 222 (a), NIRC)

Case D:
Date of tax return was not filed April 15, 2011
Date when the omission was discovered by BIR April 15, 2012
Question: When is the deadline to assess tax return?

Case D: April 15, 2022 - If the ITR is fraudulent or no tax return was filed, 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. (Sec. 222 (a), NIRC)

Case E:
Date of tax erroneously paid April 15, 2011
Date of claim for refund was filed with BIR May 20, 2013
No decision on the claim of refund was made
Question: When is the last day to appeal to the CTA?

Case E: No need to appeal. The prescribed period of filing for the refund is already expired. The filing of refund
should have been made within two years after the payment of tax or penalty. It was filed within 2 years, one month, and
5 days after the date of erroneous payment, hence, not appealable anymore.

Case F:
Date of tax erroneously paid June 10, 2011
Date of claim for refund was filed with BIR March 3, 2012
Date of BIR decision of denial was received April 5, 2013
Question: When is the last day to appeal to the CTA?

Case F: May 5, 2013. The filing of refund was appropriately made within the 2 year prescribed period. The
denial was received on April 5, 2013. The filing of appeal to CTA should be made within 30 days from the receipt of denial
from the BIR.

Case G:
Date of assessment was received January 2, 2011
Petition for reconsideration was filed with BIR January 12, 2011
Documents to support petition submitted January 22, 2011
P a g e | 25
No decision on the protest as of July 12, 2011
Question: When is the last day to appeal to the CTA?

Case G: August 20, 2011. If the BIR has no response after the submission of supporting documents to serve as
evidence for the protest, the last day to appeal to the CTA should be made within 30 days from the lapse of the 180 day
period from the submission of the supporting documents.

Computation of days:
After January 22, 2011 Days
January 9
February 28
March 31
April 30
May 31
June 30
July 21
Total number of days as of July 21 180
Plus 30 days after the 180 days
July 10
August 20
Total day on August 20 30

Case H:
Assessment received January 5, 2011
Petition for reconsideration filed with BIR February 1, 2011
Documents to support petition submitted February 7, 2011
Decision of BIR denying the petition March 22, 2011

2nd request for reconsideration filed with BIR March 30, 2011
Decision on 2nd request denied April 12, 2011
Question: When is the last day to appeal to the CTA?

Case H: May 4, 2011. The last day to appeal to the CTA should be made within 30 days from the receipt of the
denial of the BIR. The 30 days is determined as follows:
Days
First denial of the BIR – March 22, 2011
to 2nd request for reconsideration – March 30, 2011 8
2nd denial of the BIR – April 12, 2011
to May 4, 2011 to complete the 30 day period 22
Total days as of May 4, 2011 30

Case I:
Date when assessment was received October 1, 1999
Petition for reconsideration was filed with BIR October 9, 1999
BIR decision of denial was received July 2, 2000
Second request for reconsideration was filed with the BIR July 15, 2000
Date revised assessment was received July 5, 2001
Question: The last day to appeal to the Court of Tax Appeals is on:

Case I: August 4, 2001.

The 30-day period is counted from the date the revised assessment is received.

Case J:
Date of appeal to the CTA April 21, 2011
Date of adverse decision of the CTA June 1, 2011
Date the CTA adverse decision received June 10, 2011
Question: When is the last day to appeal to the Supreme Court?

Case J: June 25, 2011. The appeal to CTA should be made within 15 days from date of unfavorable decision
from CTA was received (June 10 plus 15 days).

Case K:
Date of appeal to the CTA June 10, 2011
Date of adverse decision of the CTA June 20, 2011

P a g e | 26
Date the CTA adverse decision received June 25, 2011
Question: When is the last day to appeal to the Supreme Court?

Case K: July 10, 2011. The appeal to SC should be made within 15 days from date of receipts of the
unfavorable decision of CTA (June 25 plus 15 days).

Case L:
Date of tax erroneously paid June 10, 2011
Date of claim for refund was filed with BIR June 10, 2012
Date of refund check received July 15, 2012
Date when BIR decision to grant refund was delivered August 1, 2012
Question: If the refund check was not encashed, when is the starting date for the government to forfeit it?

Case L: August 2, 2017. The date of grant for refund was received on August 1, 2012. The refund check (dated
July 15, 2012) should be encashed within 5 years from the date the grant for refund was delivered (August 1, 2012). The
check should be encashed from August 1, 2012 to August 1, 2017. It will be forfeited on August 2, 2017.

Case M:
Date of tax erroneously paid June 10, 2011
Date of claim for refund was filed with BIR June 10, 2012
Date of tax credit certificate July 30, 2012
Date when BIR decision was received August 21, 2012
Question: If the tax credit certificate was not utilized or revalidated, when is the starting date for the government to
revert it to the general fund?

Case M: July 31, 2017. For tax credit, the five year prescriptive period should start from the date of issuance. In
this case, the date of issuance should be the date of tax credit certificate. The expiry date would therefore start on July
31, 2017.

Case N:
Date the real property was levied January 5, 2011
Date the real property levied was sold March 1, 2011
Question: When is the last day to redeem the real property?

Case N: March 1, 2011. Within 1 year from the date of sale.

Case O: On July 15,2015, Mr. A filed his 2014 income tax return which should have been filed April 15,2015. He paid the
tax on Aug. 15,2015. The BIR issued a deficiency assessment on Aug. 2,2017.

The deadline to enforce collection shall be on or before_______________

Aug. 2,2022.

Note:

Suspension of the Statutes of Limitation

The prescriptive period for assessment and collection may be suspended under the following circumstances:
a. Request for reinvestigation of the taxpayer which is granted by the CIR
b. When the CIR is prohibited from making an assessment or from beginning distraint or levy or a proceedings in court.
c. When the taxpayer can't be located in the address given by him
d. When the warrant of restraint or levy is served and no properties can be located.
e. When the taxpayer is out of the Philippines.

Note:
1. Suspension shall run for the period during which the CIR is so prohibited plus 60 days thereafter
2. If the taxpayer is informed the CIR of any change in address, the running of the statutes of limitation will not be
suspended.

Summary of Prescription Rules: Collection

Deadline of collection Mode of collection
w/ a prior assessment 5 years from assessment Summary proceedings/Judicial action
w/o a prior assessment 10 years from discovery of fraud or falsity Judicial action only

P a g e | 27
Problem 2: (Distraint vs. Levy) Miss Malou Lugui was assessed with tax liability of P250,000 exclusive of penalty. The
financial status of Miss Lugui when the demand for payment is as follows:

Total properties:
Real Property P200,000
Personal Property 100,000
Total liabilities, exclusive of tax 150,000

Required:
a. Assuming that a distraint proceeding was carried out instead, which of the above properties would be issued with
warrant of distraint?
b. If all the properties of Miss Lugui have a realizable value of P200,000 after payment of her P150,000 liabilities and
possible cost of the proceedings, would it be possible for the government to carry out the distraint and levy
proceeding simultaneously to effect the conversion of Miss Lugui’s assets into cash?
c. If, after the properties of Miss Lugui were sold in public auction only P200,000 was realized and used as payment of
her tax liabilities, would this extinguish the unpaid tax liabilities of Miss Lugui?

Answer
a. Since distraint is imposed only on personal property, the personal property with a value of P100,000 shall be
subjected to distraint.

b. Yes, levy of real property and distraint of personal property can be done simultaneously (Sec. 207B of the Tax Code).
See also Section 205 of NIRC.

c. No, the unpaid portion will remain as tax liability of Lugui because Miss Lugui did not avail of the compromise tax
settlement. The remedy by distraint of personal property and levy on realty may be repeated if necessary until the full
amount due, including all expenses, is collected (Sec. 217, NIRC).

Problem 3: (Constructive Distraint) A taxpayer's property was placed under a constructive distraint. The property
was originally acquired for P400,000 and at the time of constructive distraint, it has accumulated depreciation of
P200,000. If the taxpayer sold the said property for P250,000 without the consent of the BIR Commissioner, how much is
the minimum statutory fine that the BIR can impose against him?

answer
Statutory fine (P250,000 x 2) P500,000

Any taxpayer whose property has been placed under constructive distraint, and disposed the same without the knowledge
and consent of the Commissioner shall be punished by a fine of not less than twice the value of the property sold,
encumbered or disposed of, but not less than P5,000 or suffer imprisonment of not less than 2 years and 1 day but not
more than 4 years or both. (Sec. 206, NIRC)

The P5,000 fine is applicable only when the computed amount (selling price x 2) is lower than P5,000.

Problem 4: (Levy of Real Property ) After proper proceedings, the real property of X was levied by the government to
satisfy his tax liability which has been delinquent for 5 years. The real property is a boarding house with an average
income of P60,000 per month. X received the total amount of assessment as follows:
Basic income tax unpaid P1,000,000
Surcharge (P1,000,000 x 50%) 500,000
Interest (P1,000,000 x 20% x 5years) 1,000,000
Total amount due per assessment, October 15, 200A P2,500,000

The property was sold for public auction for P4,000,000 on January 15, 200B. Cost of advertisement amounts to P20,000.
It was stipulated in the contract that the related capital gains tax and documentary stamp tax shall be paid by X.

Required:
1. How much is the excess amount of the sale over the claim and cost of sale that should be turned over to X?

2. If X decided to redeem the real property on October 15, 200B, how much is the redemption price?

3. How much is the excess income of the real property over the interest expense from the time of auction sale to the
time of redemption?

answer

P a g e | 28
1. New
Sales price P4,000,000
Less: Total amount per assessment P2,500,000
Surcharge 0
Interest (P2,500,000 x 20% x 3/12) 125,000 2,625,000
Net amount after public taxes, penalties and interest P 1,375,000
Less: Capital gains tax (P4,000,000 x 6%) P 240,000
DST (P4,000,000 x 1.5%) 60,000
Cost of advertising 20,000 320,000
Excess amount to be returned to X P 1,055,000

1. Old
Sales price P4,000,000
Less: Total amount per assessment P2,500,000
Surcharge (P2,500,000 x 25%) 625,000
Interest (P2,500,000 x 20% x 3/12) 125,000 3,250,000
Net amount after public taxes, penalties and interest P 750,000
Less: Capital gains tax (P4,000,000 x 6%) P 240,000
DST (P4,000,000 x 1.5%) 60,000
Cost of advertising 20,000 320,000
Excess amount to be returned to X P 430,000

2.
Purchase price P4,000,000
Add: Interest (P4,000,000 x 15% x 9/12) 450,000
Redemption price P4,450,000

The redemption price is comprised of the purchase price plus 15% interest per
annum from the date of purchase to the date redemption. (Sec. 214, NIRC)

3.
Total rent income (P60,000 x 9 months) P540,000
Less: Interest expense to redeem the property 450,000
Excess income P 90,000

The owner shall not, however, 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. (Sec. 214, NIRC)

Problem 5: (Compromise ) The following cases are available from the records of the BIR resulting from compromise
proposals of corporation:
Basic Tax Surcharge Interest
Delinquent accounts P500,000 P125,000 P100,000
Pending cases under administrative protest 900,000 450,000 180,000
Criminal violation not filed in courts 1,000,000 250,000 200,000
Withholding tax cases 2,000,000 500,000 400,000
Criminal violations filed in courts 5,000,000 2,500,000 1,000,000
Totals P9,400,000 P3,825,000 P1,880,000

Required: How much is the amount of compromise allowed using the following reasons (independent assumptions):

Case 1: Financial incapacity

Case 2: Financial incapability due to surplus deficit resulting to impairment in original capital by at least 50%.
Case 3: Doubtful validity of assessment.

Case 1 – Financial incapacity.

Delinquent accounts P 500,000
Pending cases under administrative protest 900,000
Criminal violation not filed in courts 1,000,000
Total basic tax P2,400,000
Multiplied by applicable compromise rate 10%
Amount of compromise P 240,000

Case 2 – Financial incapability due to surplus deficit resulting to impairment in original capital by at least 50%.
Delinquent accounts P 500,000
Pending cases under administrative protest 900,000
Criminal violation not filed in courts 1,000,000

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Total basic tax P2,400,000
Multiplied by applicable compromise rate 40%
Amount of compromise P 960,000

Case 3 – Doubtful validity of assessment.

Delinquent accounts P 500,000
Pending cases under administrative protest 900,000
Criminal violation not filed in courts 1,000,000
Total basic tax P2,400,000
Multiplied by applicable compromise rate 40%
Amount of compromise P 960,000

COURT OF TAX APPEALS

a. Creation of CTA

There is hereby created a court of tax appeals (CTA) which shall be the same level as the court of appeals, possessing all
the inherent powers of a court of justice. (Sec.1, R.A. No. 1125, as amended by R.A. No. 9282)
b. Composition of CTA

The CTA shall consist of a presiding justice and 8 associate justice.( sec. 1 R.A. No. 1125, as amended by R.A. No. 9503)
c. Sitting En Banc or Division

The CTA may sit en banc or in three division, each division consisting of three justices (Sec. 2 R.A. No. 1125, as amended
by R.A. No. 9503).
d. What will constitute a Quorum

Five (5) justices shall constitute a quorum for sessions en banc and Two (2) justices for session of a division (Sec. 2 R.A.
No. 1125, as amended by R.A. No. 9503).
e. Rendition of a decision or a resolution

The affirmative votes of five members of the court en banc shall be necessary to reverse a decision of a division but a
simple majority of the justices present necessary to promulgate a resolution or decision in all cases or 2 members of a
division level (Sec. 2 R.A. No. 1125, as amended by R.A. No. 9503).
f. Jurisdiction of the CTA(sec.7, R.A. no.1125 as amended)

The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal
(b) Jurisdiction over cases involving criminal offenses
(c) Jurisdiction over tax collection cases.
g. Exclusive appellate jurisdiction

The CTA shall exercise exclusive appellate jurisdiction to review by appeal:

(1) Decision of the CIR in cases involving disputed assessments, refunds of internal revenues, fees or other charges,
penalties in relation there to, or other matters arising under NIRC or other laws administered by the BIR;
(2) Inactions by the CIR in cases involving disputed assessments, refund of internal revenues taxes, fees or other
charges, penalties in relation there to, or other matters arising under NIRC or other laws administered by the
BIR, where NIRC provides a specific period of action, in which case the inaction shall be deemed a denial;
(3) Decisions, order, or resolution of the regional trial court in local tax cases originally decide or resolved by them in
the exercise if their original or appellate jurisdiction;
(4) Decision 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, in relation there
to, or other matter arising under customs;
(5) Decisions of the central board of assessment appeals in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals;
(6) Decisions of the secretary of finance on customs cases elevated to him automatically for review from decisions of
the commissioner of customs which are adverse to the government under Sec.2315 of the Tariff and customs
code;
(7) Decisions of the secretary of trade and industry in the case of agricultural product, commodity or article, and the
secretary of agriculture in the case of agricultural products, commodity or article, involving dumping and
countervailing duties under Section 301 and 301, respectively, of the tariff and customs code, and safeguard
measures under R.A. No. 8800, where either party may appeal the decisions to impose or not impose said duties.

h. Jurisdiction over cases involving criminal offenses

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The CTA shall exercise jurisdiction over cases involving criminal offenses;
(1) Exclusive original jurisdiction over all criminal offenses arising from violation of the NIRC or Tariff and Customs
Code and other laws administered by the BIR or the BOC: provided, however that offenses or felonies where the
principal amount of taxes and fees, exclusives of charges and penalties, claimed is less than P1,000,000 or where
of the CTA shall be appellate.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from review of the judgment, resolution or orders of the regional trial court in tax cases
originally decided by them, in their respective territorial jurisdictions;
(b) Over petitions for review of the judgments, resolutions or orders of the regional trial court in the excise of
their appellate jurisdiction over tax cases originally decided by the metropolitan circuit trial court in their
respective jurisdictions.
i. Jurisdiction over tax collection cases

The CTA shall exercise jurisdiction over tax collection cases:

(1) Exclusive original jurisdiction in tax collection cases involving final and executor assessment for taxes, fees,
charges and penalties: provided, however, that collection cases where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than P1,000,000 shall be tried by the proper Municipal Court,
Metropolitan Trial Court Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgment resolution or orders of the regional trial court in tax collection cases
originally decided by them, in their respective territorial jurisdictions.
(b) Over petitions for review of the judgments, resolutions or orders of the regional trial courts in the exercise of
their appellate jurisdiction over tax collection cases decide by the metropolitan trial court and municipal
circuit trial court, in their respective jurisdictions.

Note:

The Supreme Court of the Philippines, being the highest court, is the final arbiter of all tax controversy.

The SC is headed by a Chief Justice with 14 Associate Justices.

MULTIPLE CHOICE

1. Inaction by the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties in relation thereto, or other matters arising under NIRC or other laws administered by the BIR, where the
NIRC provides a specific period of action, in which case the inaction shall be deemed a denial, shall be appealed to
the:
A. Secretary of Finance B. Court of Tax Appeals C. Court of Appeals D. Supreme Court

2. The court of tax appeals is composing of:

A. 1 justice and 2 associate justices
B. 1 justice and 5 associate justices
C. 1 justice and 8 associate justices
D. 1 justice and 14 associate justices

3. How many votes shall be necessary to reverse a decision of a Division of the Court of Tax Appeals?
A. Five affirmative votes of members of the Court en banc
B. Five affirmative votes of the Justices of present during the deliberation
C. Simple majority of the justices present during the deliberation
D. Votes unnecessary because decision of a Division cannot reversed.

4. The court of tax appeals shall have an exclusive appellate jurisdiction to review by appeal over the following except
A. Decision of the Commissioner of Customs
B. Inaction by the Commissioner of Internal Revenue
C. Decision of the Commissioner of Internal Revenue
D. Decision of the City Board of Assessment Appeals

5. Julia an importer protested an assessment and. classification by the collector of customs. However, the collector of
customs denied Julia's protest. Hence, Julia went to appeal adverse decision by the collector of customs with the
Commissioner of Custom, which of the following statement is correct in case the Commissioner decides to favour or
deny Julia?
I. Adverse decision against Julia appeal to Court of Tax Appeal.
II. Adverse decision against the government appeal to Court of Tax Appeal.
III. Adverse decision against Julia appeal to Secretary of Finance.
IV. Adverse decision against the government appeal to the Secretary of Finance.

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 A. I and II B. III and IV C. I and IV D. I, II, III, and IV

6. The Court of Tax Appeals shall have an exclusive appellate jurisdiction to review by appeal cases of nonagricultural
product, commodity or article decided by
A. Secretary of Finance C. Secretary of Trade
B. Secretary of Agriculture D. Commissioner of Internal Revenue

7. The Court of Tax Appeals shall have exclusive appellate jurisdiction over
A. Criminal cases arising from violations of the National Internal Revenue Code where the principal amount of taxes
if P2,000,000
B. Criminal cases arising from violations of the Tariff and Customs Code where the principal amount of taxes is
P1,000,000.
C. Criminal cases arising from violation of law administered by the Bureau of Customs where the principal amount
involved is P500,000.
D. Tax collections cases involving final and executor assessments for taxes, fees, charges and penalties cases where
the principal amount of taxes and fees, exclusive of charges and penalties, claimed is P1,500,000.

8. All criminal cases arising from violation of the provisions of the National Internal Revenue Code where the principal
claim does not exceed P1,000,000 shall be under the exclusive jurisdiction of
A. Commissioner of Internal Revenue C. Municipal of Trial Court
B. Court of Tax Appeals D. Court of Appeals

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