(BDB Laws Tax Law For Business appears in the opinion section of BusinessMirror every
Thursday. BDB Law is an affiliate of Punongbayan & Araullo (P&A).
Informal due process
The first stage of the assessment process begins with the issuance of the letter of authority and a request for presentation of records. The revenue officer (RO) then conducts his investigation and the audit of the taxpayers books. After this stage, the taxpayer should receive a notice of informal conference and a copy of the ROs tentative findings. The notice requires the taxpayer to appear before the Bureau of Internal Revenue (BIR) to explain any noted discrepancies or other findings of the RO. The commissioner or his duly authorized representative is mandated by the Tax Code to first notify the taxpayer of the findings through a notice of informal conference. Thus, the RO who audited the taxpayers records shall, among other things, state in his report whether the taxpayer agrees with the findings that the taxpayer is liable for deficiency taxes. If the taxpayer is not amenable, he shall then be informed, in writing, of the discrepancies in the taxpayers payment of his internal revenue taxes, for the purpose of informal conference, in order to afford the taxpayer an opportunity to present his side of the case. For the RO to determine that the taxpayer is agreeable to his findings, there must be constant communication between the two during the course of the investigation. This is appropriate since the RO may find it necessary to request additional documents that may either support his findings for deficiency or remove such findings from his report. On the taxpayers part, the ROs requests for additional documents may give him an idea regarding the focus of the ROs investigation, thus enabling him to prepare any supporting documents that will remove any discrepancy noted.
The informal conference is one of the methods by which the BIR complies with the due- process requirement that the taxpayer be informed of the nature of the assessment against him. Failure on the part of the BIR to issue the notice of informal conference may render any subsequent assessment void, unless the taxpayers situation falls under any of the five exceptions when a notice of informal conference and preliminary assessment notice are not required. Other than as a due-process requirement, the taxpayer may not see any practical need to attend the informal conference, considering that he is still given opportunities to respond to the assessment in the succeeding stages of the assessment processhe may file a reply to the preliminary assessment notice (PAN), and later a protest against the final assessment notice (FAN). However, the taxpayer should also consider the time factor in the PAN and FAN stages. When the PAN is issued, the taxpayer is given 15 days to file his reply, whereas when the FAN is issued, the taxpayer shall have 30 days to file his protest and another 60 days from the filing of the protest to submit all relevant supporting documents. These time periods provide a very limited time within which the taxpayer can prepare his reconciliations and explanations. This is especially disadvantageous in situations when there are a lot of noted discrepancies or the taxpayer has voluminous records. The informal conference provides a medium through which the taxpayer can present his explanations and reconciliations to the RO. This enables the taxpayer and the RO to further narrow down the deficiency-tax assessment before any formal assessment is issued. Moreover, unlike in the PAN and FAN stages, the time periods involved may be extended at the discretion of the RO if so requested by the taxpayer. In such an informal conference, the RO and the taxpayer will meet informally for the purpose of discussing the ROs findings and any discrepancy after the investigation of the taxpayers returns, books and supporting documents. The taxpayer may then go over the records of the case and request clarification from the RO regarding any of the noted discrepancies. The taxpayer may also inquire as to which supporting documents may be presented to remove the deficiency findings. The informal conference need not even be concluded after just one meeting. It is possible that several meetings may take place, as long as the RO and the taxpayer agree. It is a continuing process until all possible explanations and modes of discussion are exhausted. When the taxpayer and the RO fail to reach any further agreement, the ROs report is then submitted for review, and the preliminary assessment notice shall be issued subsequently. On the other hand, it is entirely possible that the taxpayer is able to fully explain the discrepancies to the RO. In this case, the RO shall submit a report of no discrepancy for review. Another option available to the taxpayer is to offer payment for any tax-deficiency assessment made by the RO. In this way, the taxpayer cuts short the assessment process before any formal assessment is issued. These are, of course, still subject to review by higher authorities. Thus, far from being a mere paper compliance with due process, the informal conference is a useful opportunity that should be utilized by the taxpayer to limit his tax- deficiency assessments and to cut short the assessment process.