(NAR) VOL. 10 NO. 3 / JULY - SEPTEMBER 1999
3.1.1 | Notice for informal conference. — The Revenue Officer who audited the taxpayer's records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case 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 "Informal Conference," in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case with the least possible delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted. |
3.1.2 | Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division or by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A* hereof). f 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 assessment notice shall be caused to be issued by the said Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. |
3.1.3 | Exceptions to Prior Notice of the Assessment. — The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient: |
(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or | |
(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or | |
(iii) 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 | |
(iv) When the excise tax due on excisable articles has not been paid; or | |
(v) 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. | |
3.1.4 | Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B* hereof). The same shall be sent to the taxpayer only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof. |
3.1.5 | Disputed Assessment. — The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, 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. No action shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended. |
The taxpayer shall state the facts, 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. If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts, the applicable law, rules and regulations, or jurisprudence in support of his protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issue or issues, in which case, the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto. | |
The taxpayer shall submit the required 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, executory and demandable. The phrase "submit the required documents" includes submission or presentation of the pertinent documents for scrutiny and evaluation by the Revenue Officer conducting the audit. The said Revenue Officer shall state this fact in his report of investigation. | |
If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable. | |
If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable. | |
In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable: Provided, however, that if the taxpayer elevates his protest to the Commissioner within thirty (30) days from date of receipt of the final decision of the Commissioner's duly authorized representative, the latter's decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the Commissioner. | |
If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable. | |
3.1.6 | Administrative Decision on a Disputed Assessment. — The decision of the Commissioner or his duly authorized representative shall (a) state the 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*), in which case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final decision. |
3.1.7 | Constructive Service. — If the notice to the taxpayer herein required is served by registered mail, and no response is received from the taxpayer within the prescribed period from date of the posting thereof in the mail, the same shall be considered actually or constructively received by the taxpayer. If the same is personally served on the taxpayer or his duly authorized representative who, however, refused to acknowledge receipt thereof, the same shall be constructively served on the taxpayer. Constructive service thereof shall be considered effected by leaving the same in the premises of the taxpayer and this fact of constructive service is attested to, witnessed and signed by at least two (2) revenue officers other than the revenue officer who constructively served the same. The revenue officer who constructively served the same shall make a written report of this matter which shall form part of the docket of this case (see illustration in ANNEX D*). |
4.1.1 | Failure to file any return and pay the tax due thereon as required under the provisions of this Code or rules and regulations on the date prescribed; or |
4.1.2 | Unless otherwise authorized by the Commissioner, filing a return with an internal revenue officer other than those with whom the return is required to be filed; or |
4.1.3 | Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; or |
4.1.4 | Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of this Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment. |
4.2.1 | In case of willful neglect to file the return within the period prescribed by the Code, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner or his duly authorized representative, shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That 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 thirty percent (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: Provided, further, that the term "willful neglect to file the return within the period prescribed by the Code" shall not apply in case the taxpayer, without notice from the Commissioner or his authorized representative, voluntarily files the said return, in which case, only 25% surcharge shall be imposed for late filing and late payment of the tax in lieu of the above 50% surcharge. Conversely, the 50% surcharge shall be imposed in case the taxpayer files the return only after prior notice in writing from the Commissioner or his duly authorized representative. |
4.2.2 | Section 6 (A) of the Code provides that any tax return filed by a taxpayer "may be modified, changed or amended" by the taxpayer "within three (3) years from date of such filing" provided, however, that "no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer." Thus, if upon investigation, it is determined that the taxpayer's originally filed tax return is false or fraudulent, such taxpayer shall remain liable to the 50% civil penalty regardless that the taxpayer has filed his amended tax return, if the said amended tax return, however, has been filed only after issuance of the Letter of Authority for the investigation of the taxpayer's tax return or such amendment has been made in the course of the said investigation. |
Calendar Year 1998 | ||
Income tax due per return |
| P100,000.00 |
Add: 25% surcharge for late filing and late payment (P100,000.00 times 25%) |
| P25,000.00 |
20% int. p.a. from 4-15-99 to 6-30-99 |
|
|
(P100,000.00 times .0415524) | P4,155.24 | P29,155.24 |
|
|
|
Total amount due (excluding suggested compromise for late filing and late payment of the tax) | P129,155.24 | |
| ========= |
Calendar Year 1998 | |
|
|
Income tax due per return | P100,000.00 |
Add: 25% surcharge | P25,000.00 |
Total amount due | P125,000.00 |
Less: Amount paid | P100,000.00 |
Amount still due | P25,000.00 |
| ========= |
Calendar Year 1997 | |
| |
Income tax due per return | P100,000.00 |
Add: 50% surcharge for willful neglect to file the return and late payment of the tax (P100,000 times 50%) | P50,000.00 |
20% int. p.a. fr. 4-15-98 to 6-30-99 |
|
(P100,000.00 times .2415524) | P24,155.24 |
| P74,155.24 |
Total amount due (excluding suggested compromise for late filing and late payment of the tax) | P174,155.24 |
| ========= |
Calendar Year 1997 | |
| |
Tax due per pre-audit | P120,000.00 |
Less: Amount assessed and paid per tax return filed | P100,000.00 |
Deficiency income tax | P20,000.00 |
Add: 20% int. p.a. from 4-15-98 to 6-30-99 |
|
(P20,000.00 times .2415524) | P4,831.05 |
Amount still due | P24,831.05 |
| ========= |
Calendar Year 1997 | |
| |
Income tax due per investigation | P170,000.00 |
Less: Income tax paid per return | P100,000.00 |
Deficiency income tax | P70,000.00 |
Add: 20% int. p.a. fr. 4-15-98 to 6-30-99 (P70,000 times .2415524) | P16,908.67 |
Total amount still due | P86,908.67 |
| ========= |
Calendar Year 1997 | ||
|
|
|
Income tax due per investigation |
| P350,000.00 |
Less: Income tax paid per return |
| P175,000.00 |
Deficiency income tax |
| P175,000.00 |
Add: 50% surcharge for filing a fraudulent or false return (P175,000.00 times 50%) | P87,500.00 |
|
20% int. p.a. fr. 4-15-98 to 6-30-99 (P175,000.00 times .2415524) | P42,271.67 | P129,771.67 |
Total amount due | P304,771.67 | |
| ========== |
Calendar Year 1997
|
|
|
Total deficiency income tax assessed on May 31, 1999 |
| P304,771.67 |
Add: 25% surcharge for late payment (P304,771.67 times 25%) |
| P76,192.92 |
20% interest p.a. from 7-1-99 to 7- 31-99 (P304,771.67 times .0166667) | P5,079.54 | P81,272.46 |
Total amount due (excluding suggested compromise penalty for late payment) |
| P386,044.13 |
|
| ========= |
Calendar Year 1998 | |
| |
Income tax due per return | P1,000,000.00 |
Less: 1st installment of the tax on or before 4-15-99 | P250,000.00 |
Balance as of 4-15-99 | P750,000.00 |
Add: 20% int. p.a. from 4-15-99 to 5-15-99 (P750,000.00 times .0166667) | P12,500.03 |
Amount due on 5-15-99 | P762,500.03 |
Less: 2nd installment on 5-15-99 (P250,000.00 plus P12,500.03 interest) | P262,500.03 |
Balance as of 5-15-99 | P500,000.00 |
Add: 20% int. p.a. from 5-15-99 to 6-15-99 (P500,000.00 times .0166667) | P8,333.35 |
Amount due on 6-15-99 | P508,333.35 |
Less: 3rd installment on 6-15-99 (P250,000.00 plus P8,333.35 interest) | P258,333.35 |
Balance as of 6-15-99 | P250,000.00 |
Add: 20% int. p.a. from 6-15-99 to 7-15-99 (P250,000.00 times .0166667) | P4,166.68 |
4th and final installment on 7-15-99 | P254,166.68 |
| =========== |
Calendar Year 1998 | ||
|
|
|
Income tax due per return |
| P1,000,000.00 |
Add: 25% surcharge for late filing and late payment | P250,000.00 |
|
20% interest per annum from 4-15-99 to 5-15-99 (P1,000,000.00 times .0166667) | P16,666.70 | P266,666.70 |
Amount due as of 5-15-99 |
| P1,266,666.70 |
Less: Partial payment on 5-15-99 |
| P400,000.00 |
Balance as of 5-15-99 |
| P866,666.70 |
Add: 20% interest per annum from 5-15-99 to 6-15-99 (P866,666.70 times .0166667) |
| P 14,444.47 |
Amount still due (exclusive of the suggested compromise penalty for late filing and late payment |
| P 811,111.17 |
Taxable income per return |
| P1,000,000.00 |
Add: Discrepancies per investigation |
|
|
1. Undeclared rental income | P200,000.00 |
|
2. Non-deductible interest expenses | 300,000.00 |
|
3. Undocumented representation expenses | 150,000.00 |
|
4. Non-deductible bad debt expense | 250,000.00 | 900,000.00 |
Taxable income per investigation |
| P1,900,000.00 |
Income tax due thereon (35%) |
| P665,000.00 |
Less: Income tax paid per return |
| 350,000.00 |
Balance |
| P315,000.00 |
Add: 50% surcharge for filing of fraudulent return | P157,500.00 |
|
20% interest per annum from 4-15-96 to 3-15-98 | 63,000.00 | 220,500.00* |
TOTAL AMOUNT DUE |
| P535,500.00* |