RGM3 - Assessment 11.26.2018

How to deal with tax assessments?
Atty. RG Moreno III
©2017 Grant Thornton International Ltd. All rights reserved.

Remedies of the State
• Collection with Prior Assessment

– Assessment must be made within 3 years
• Exception 10 years from date of discovery of
failure to file, falsity or fraud
– Collection must be made within 5 years from
Assessment
• Distraint of Personal property
• Levy of Personal Property
• Judicial Proceeding (Civil/Criminal)
Nature of assessment
ASSESSMENT is the official action of an officer

authorized by law in ascertaining the amount of tax due
under the law from a taxpayer.
The term assessment involves:
- Giving notice of assessment
- Computation of the sum due
- Issuance of notice of demand upon the taxpayer
for the payment of the tax or deficiency stated

The BIR has the power
SEC 6. Power of the Commissioner to Make

Assessments and Prescribe Additional Requirements
for Tax administration and Enforcement –
(A) Examination of Returns and Determination of Tax

Due. - After a return has been filed, the Commissioner or
his duly authorized representative may authorize the
examination of any taxpayer and the assessment of the
correct amount of tax: Provided, however, that failure to file
a return shall not prevent the Commissioner from
authorizing the examination of any taxpayer.

How long should I worry about a BIR tax audit or
assessment?
GENERAL RULE
3
(Section 203, Tax Code)
years

How long should I worry about a BIR tax audit or
assessment?
EXCEPTION:
FAILURE to file Return
10 FALSE Return
FRAUDULENT Return (with intent
to evade tax)
10 years from discovery of falsity,

fraud or omission (Section 222, Tax Code)

Reckoning of 10-year prescriptive period
A false return was filed on April 15, 1990, and the falsity
was discovered only on March 8, 1991. The assessment
for the 1989 deficiency income tax was issued on
January 9,1995.
Supreme Court: The assessment was made well within

the 10-year prescriptive period reckoned from March 8,
1991.
(Commissioner of Internal Revenue v. Estate of Benigno P. Toda,

GR 147188, September 14, 2004)

False vs. Fraudulent return
False return - implies deviation from truth, whether

intentional or not.
Fraudulent return with intent to evade tax - implies
intentional or deceitful entry with intent to evade tax; actual
and not constructive
Negligence, whether slight or gross, is not equivalent to
fraud with intent to evade the tax contemplated by law. It
must amount to intentional wrongdoing with the sole
object of avoiding the tax.
(Aznar vs. Court of Tax Appeals, G.R. No. L-20569, August 23, 1974, 58 SCRA 519; and Estate of Fidel F. Reyes and
Teresita R. Reyes v. CIR, CTA EB Case No. 189, March 31, 2007)

What constitutes "false return" which warrants the
application of the ten-year prescriptive period?
1. Substantial underdeclaration (30%) constitutes prima facie

evidence of false and fraudulent return [Section 248(B) of
the Tax Code]
- Substantial underremittance of the withholding tax
returns on compensation (Samar-I Electric Cooperative,
Inc. v. CIR, CTA EB Case No. 462, March 11, 2010)
2. Absence of income in the return (filing of deficient returns),

tantamount to an omission to file returns (UCPB V. CIR,
CTA EB 567 re CTA Case No. 7259, January 12, 2011,
and CIR v. Gonzales, No. L-19495, November 24, 1966)

Reckoning of prescriptive period of
assessment:
Where do I begin?

Reckoning of prescriptive period of assessment
A. Returns filed earlier than the last day of filing shall be

counted from the last day prescribed for filing of the
return.
Type of return Prescribed Actual date of Reckoning

filing deadline filing period
ITR (1702) April 15 April 10 April 15

Reckoning of prescriptive period of assessment
B. Returns filed beyond the period prescribed by law shall

be counted from the day the return was filed.
Type of return Prescribed Actual date of Reckoning

filing deadline filing period
ITR (1702) April 15 April 20 April 20

Date of filing varies per type of tax return
Type of Return Date of filing

1. Income tax return (BIR Form 1702) April 15 or 15th day of the fourth
month following the close of fiscal
year
2. Creditable Withholding Tax (BIR Form Non- eFPS* – 10th day after the
1601E) end of each month
eFPS** – 11th - 15th depending on
industry grouping
3. Quarterly VAT Return (BIR Form 2550Q) 25th day following the close of
each taxable quarter
* For December return, filing and remittance is on every January 15.

** For December return, e-payment due is on January 20.

When an assessment is made

An assessment is deemed made within the prescriptive

period when the notice of assessment is released,
mailed or sent to the taxpayer within the prescriptive
period.
Notice of assessment = Final Assessment Notice

(FAN)

Prescribed
Taxpayer received the eLA and preliminary
assessment notice (PAN) all within the 3-
year prescriptive period, but the final
assessment notice (FAN) was released,
mailed or sent beyond the 3-year
assessment period.

Waiver of statute of limitations - an agreement
between the taxpayer and the BIR to extend the period
for the issuance of an assessment beyond the 3-year
period prescribed by law
Basis: Section 223 of the Tax Code
(Prescribed waiver form per RMC 29-2012)

An invalid waiver could not extend the prescriptive period and
will render the assessment INVALID.
The waiver must strictly comply with Section 222(b) of the

Tax Code and with the requirements in RMO 20-90 to be
considered valid.
(Philippine Journalists Inc., v. CIR, GR 162852, December 16, 2004)

1. In prescribed form
1.
2. Signed by taxpayer or his authorized
representative (if a corporation – by any of its
responsible officials)
• Must be executed by the taxpayer and
accepted by the BIR prior to the expiration of
the original period or the extended period
under a previous waiver
3. Signed by authorized BIR revenue officials
4. Executed in 3 copies
How often can I be examined ?
Only once for a taxable year, except in the following

cases:
1. When the Commissioner determines that fraud,
irregularities, or mistakes were committed by the
taxpayer
2. When the taxpayer himself requests a re-
investigation or re-examination of his books of
accounts

How often can I be examined ?
3. When there is a need to verify a taxpayer’s compliance

with withholding and other internal revenue taxes as
prescribed in a Revenue Memorandum Order issued by
the CIR
4. When the taxpayer’s capital gains tax liabilities must be
verified
5. When the CIR exercises his power to obtain information
relative to the examination of other taxpayers (Secs. 5
and 235, NIRC).

What types of assessments would I receive?

Types of audit notices
1. Electronic Letter of Authority (eLA)

2. Memorandum of Assignment (MOA)
3. Letter Notices (LN)
4. Mission Orders (MO)

Electronic Letter of Authority (eLA)

Letter of authority
Scope:
1. Audit or investigation of all internal revenue taxes,

including withholding taxes.
2. Claims for tax refund/credit, audit of taxpayers retiring

from business or undergoing corporate reorganization
and other cases where TVNs were previously
authorized for audit/verification of tax liabilities and
other audit-related activities.

Letter of authority
Coverage: Only one taxable year (CY or FY) except:
(a) Tax fraud cases authorized by the

Commissioner or Deputy Commissioner
(b) Excise tax cases

Rule on LAs with "unverified prior years"
Section C of Revenue Memorandum Order No. 43-90 dated

September 20, 1990 provides:
"3. A Letter of Authority should cover a taxable period
not exceeding one taxable year. The practice of issuing L/As
covering audit of "unverified prior years" is hereby
prohibited. If the audit of a taxpayer shall include more than
one taxable period, the other periods or years shall be
specifically indicated in the L/A." (Underscoring supplied)
(CIR v. Sony Philippines, Inc., GR 178697, November 17, 2010, CIR v.
De La Salle University, Incorporated, CTA EB 671, June 8, 2011)

Validity of LAs
- An LA must be served upon the taxpayer or his

authorized representative within thirty (30) days from date
of issue otherwise it becomes invalid.
- Rule that the examination should be completed within

120 days from the date of issuance of LA and
requirement for its revalidation of LAs in case of failure to
complete the audit within the 120-day period -
withdrawn. (RMO 44-2010)

Effect of failure to revalidate an LA
Failure of the revenue officer to complete the audit

within 120 days shall be subject him/her to
administrative sanctions.
- RMC 23-09 (May 08, 2009) and RMO 44-2010,

(May 12, 2010)

Memorandum of Assignment (MOA)

(Revenue Memorandum Order No. 069-10)
Coverage:
1. Reassignment for the continuation of the

audit/investigation to another RO due to
resignation/retirement/transfer of the original RO.
2. Assignment to the original RO of returned cases by
the reviewing office and reassignment to another
RO of returned cases in case of
resignation/retirement/transfer of the original RO.

(Revenue Memorandum Order No. 062-10)
3. Reassignment to another RO due to referral of the

case to another investigating office (e.g., cases
referred to SID by the RDO)
4. ONETT cases (capital gains tax/creditable
withholding tax and DST involving transfers of real
property or shares of stock and donor's tax)
5. Protested cases/cases for reinvestigation.
6. Refunds of foreign embassies and its personnel
(RMC 080-10)

Letter Notice (LN)

Nature and coverage of Letter Notices (LNs)
Coverage
- Issued for under-declaration of sales and over-
claimed purchases discovered under the
Reconciliation of Listing for Enforcement
System (RELIEF) and TPM – BOC Data
Program.
- Covers only the tax indicated therein on a given
particular period or quarter

Mission Orders (MO)

Mission Orders (MO)
Coverage: All surveillance and stock-taking activities

Purpose:
To monitor taxpayers on non-compliance with
requirements on issuance of receipts, filing of returns,
declaration of taxable transactions, taxpayer
registration, and payment of correct amount of taxes.

How are tax returns/taxpayers selected for audit?
Tax returns/ taxpayers for audit/ investigation are

selected in a variety of ways, including:
o Audit program
o Benchmarking analysis
o Matching of records (RELIEF)
o Third party information
o Routine tax compliance drive
o Newspaper reports, etc.

Basic assessment process
Selection of Investigation
Filing of tax
tax return for (Conduct of
return and Issuance of Issuance of
audit and examination
payment of PAN FAN/FDDA
issuance of and informal
tax
audit notice conference)

Serving of letter of assessment (LA)
Letter of Assessment (LA) - must be served upon the

taxpayer or his authorized representative within thirty
(30) days from date of issue otherwise it becomes
invalid.

What happens upon issuance of audit notice?
 Revenue Examiner issues Letter of Authority (LA) and

checklist of presentation of the requirements for the
audit.
 Revenue Examiner requests the taxpayer, in writing, to
make available for inspection, the pertinent books of
accounts, accounting records and particular or specific
documents indicating therein the time and date within
which these records should be made available.

What happens upon issuance of audit notice?
 Revenue Examiner examines the books of accounts and

other accounting records in the taxpayer's office or place
of business or in the office of the Bureau of Internal
Revenue.

What should taxpayers do upon receipt of letter
request for documents
1. Prepare all required documents for submission to BIR –

Photocopy
2. If voluminous, examiner usually requests that
documents be recorded and submitted in CD form.
Taxpayer may also request examiner to examine the
documents in the office, instead of submitting the hard
copies to the BIR. (Best to document agreement.)
3. Ensure that examiner sign list of documents submitted
and include a transmittal letter – for future reference
especially when documents are lost or new examiner
assumes audit/investigation.
Notice of submission of documents
(Revenue Memorandum Order No. 45-2010, May 12, 2010)
o The documents required by the BIR for examination

should be presented within 10 days from date of
receipt of letter of assessment and checklist of
requirements.
o In case a taxpayer fails or refuses to present or
submit required documents, BIR issues first notice,
signed by the Revenue Officer (RO) and/or his group
supervisor.

Notice of submission of documents
(Revenue Memorandum Order No. 45-2010, May 12, 2010)
• If the taxpayer ignores the First Notice and continues to

disregard the demand for the submission of the
required documents, a Second and Final Notice,
signed by the Head Office concerned, shall be sent to
the taxpayer after 10 calendar days from receipt of the
First Notice.

BIR remedy in case of non-submission of documents
(Revenue Memorandum No. 45-2010 and 8-2014)
o SDT is issued 10 days after receipt of the Second

and Final notice
o BIR's courses of action of the taxpayer refuses to
comply with the SDT:
 file a criminal case against the taxpayer
 initiate a proceeding to cite the taxpayer for
contempt

Preliminary Assessment Notice (PAN)

Informal Conference (INFOCON)
RR 7-18 amends RR No.18-13

A Notice for Informal Conference must be issued to the

taxpayer prior to issuance of PAN. The taxpayer shall be
informed by writing of discrepancies noted during the
audit.
The Info Con shall not last for not more than 30 days
upon receipt of the taxpayer.

If the Taxpayer is liable to deficiency taxes after

presenting his position, and taxpayer is not amenable to
the tax assessment, BIR shall endorse the case within
seven (7) days from conclusion of Info Con.
Failure on the part of the Revenue Officers to comply

with the periods indicated herein shall be meted with
penalty as provided by existing laws, rules and
regulations.

o Notice given to the taxpayer prior to the issuance of a

Final Assessment Notice (FAN)
o Shows in detail, the facts and law, rules and
regulations or jurisprudence on which the proposed
assessments are based.

Exceptions to issuance of PAN
1. Finding is a result of mathematical error

2. Discrepancy between tax withheld and remitted by the
withholding agent
3. Taxpayer claiming a refund/ tax credit of excess CWT
who carried over/applied the same amount claimed
against their estimated tax liabilities
4. Unpaid excise taxes
5. Tax exempt importations transferred to non-tax-
exempt persons

Decision on PAN
Taxpayers confirms
agree
agreement in writing;
pays tax liability
Taxpayer issues reply to

the PAN
disagree
15 days
BIR issues the FAN

Replying to the PAN
1. Submit the written reply to the PAN within the 15-day

period
2. Request for an extension, in writing, if not ready
3. Address the factual and legal basis of the findings
4. Support the arguments and reconciliations with
documentary evidences
5. Exert effort to seek an audience with the revenue officer to
further explain the positions taken
6. If having difficulties with ROs but you believe that your
arguments are meritorious, elevate matter to next in rank.
7. Exhaust all options to resolve the issues, cancel or reduce
the assessment at the PAN stage

Final Assessment Notice (FAN)

Final Assessment Notice
The Final Assessment Notice (FAN) refers to the

document which contains the final assessment of the
BIR on the taxpayer as regards the taxable year
and/or tax under audit.

Decision on FAN
Taxpayers confirms
agree
agreement in writing;
pays tax liability
disagree Taxpayer files protest

to the FAN
Taxpayer

FAN involving several issues
Taxpayer agrees with

findings in the FAN
o Taxpayer shall pay deficiency tax inclusive of

applicable interest and/or surcharge.
o If there are several issues in the assessment and
taxpayer agrees with the validity of some of the
issues raised in the FAN, the taxpayer shall be
required to pay the deficiency taxes on the
undisputed issues.

Protest to the FAN
 Taxpayer must submit its protest to the FAN

within 30 days from receipt of the assessment.
 If protest fails to state the factual/legal
arguments, the items will be deemed
unprotested and shall become final,
executory and demandable

Request for reconsideration - a plea for a re-
evaluation of an assessment on the basis of existing
records without need of additional evidence. It may
involve a question of fact or law or both. New legal
argument may be presented.
Request for reinvestigation - a plea for re-evaluation
on the basis of newly-discovered evidence or additional
evidence that a taxpayer intends to present in the
reinvestigation. It may involve a question of fact or law
or both.
- 60 day-period to submit all relevant documents
The following shall be stated in the protest:
 nature of protest
 date of assessment notice
 applicable laws, rules and regulations, or
jurisprudence on which the protest is based.

Receiving office for protest letters
to FAN
The concerned office who signed the assessment
notice shall record and evaluate the protest/request
for reinvestigation or reconsideration. If the
procedure is not followed, the letter of protest or
request shall be considered VOID and without force
and effect.

• File a valid Protest (Request for reconsideration
or Request for reinvestigation) within 30 days
from the date of receipt of the FAN
• Submit additional documents within 60 days

from the filing of the protest (for Request for
reinvestigation)

60 INACTION
PAY
days
180 days
Submit
ReInv File CTA
docs appeal
FDDA-denial
FAN Protest w/in 30 days
ReCon

Final Decision on Disputed Assessment
FDDA:
If the protest is denied, in whole or in part, by the

Commissioner’s duly authorized representative, the
taxpayer may either:
(i) Appeal to the CTA within 30 days; or

(ii) Elevate his protest through request for
reconsideration to the Commissioner within 30
days
CTA Jurisdiction
Sec 7 of RA1125 provides that the CTA shall

exercise exclusive appellate jurisdiction to review
decisions of the Commissioner of Internal
Revenue in cases involving disputed
assessments, … penalties imposed relation
thereto or other matters arising from the NIRC or
other laws or part of laws administered by the
BIR.

Filing an appeal to CTA upon denial of protest
Failure of a taxpayer to appeal before the CTA the

inaction of the CIR on a protested assessment within 30
days after the 180-day period does not render an
assessment final and executory.
The taxpayer may await the final decision of the CIR

and, within 30 days from receipt of the decision, appeal
the decision with the CTA.
(Lascona Land Co., Inc. v. CIR, GR 171251, March 5, 2012)

Decision to appeal assessment at CTA
1. Cost-benefit considerations
2. Strength of the case
3. Company policy
4. Legal issues that cannot be resolved at BIR level
5. Recurring legal issues

End of presentation
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RGM3 - Assessment 11.26.2018

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How to deal with tax assessments?

Atty. RG Moreno III

©2017 Grant Thornton International Ltd. All rights reserved.

• Collection with Prior Assessment

ASSESSMENT is the official action of an officer

©2017 Grant Thornton International Ltd. All rights reserved.

SEC 6. Power of the Commissioner to Make

(A) Examination of Returns and Determination of Tax

©2017 Grant Thornton International Ltd. All rights reserved.

©2017 Grant Thornton International Ltd. All rights reserved.

10 years from discovery of falsity,

©2017 Grant Thornton International Ltd. All rights reserved.

Supreme Court: The assessment was made well within

(Commissioner of Internal Revenue v. Estate of Benigno P. Toda,

©2017 Grant Thornton International Ltd. All rights reserved.

False return - implies deviation from truth, whether

©2017 Grant Thornton International Ltd. All rights reserved.

1. Substantial underdeclaration (30%) constitutes prima facie

2. Absence of income in the return (filing of deficient returns),

©2017 Grant Thornton International Ltd. All rights reserved.

©2017 Grant Thornton International Ltd. All rights reserved.

A. Returns filed earlier than the last day of filing shall be

Type of return Prescribed Actual date of Reckoning

ITR (1702) April 15 April 10 April 15

©2017 Grant Thornton International Ltd. All rights reserved.

B. Returns filed beyond the period prescribed by law shall

Type of return Prescribed Actual date of Reckoning

ITR (1702) April 15 April 20 April 20

©2017 Grant Thornton International Ltd. All rights reserved.

Type of Return Date of filing

* For December return, filing and remittance is on every January 15.

©2017 Grant Thornton International Ltd. All rights reserved.

©2017 Grant Thornton International Ltd. All rights reserved.

An assessment is deemed made within the prescriptive

Notice of assessment = Final Assessment Notice

©2017 Grant Thornton International Ltd. All rights reserved.

©2017 Grant Thornton International Ltd. All rights reserved.

Basis: Section 223 of the Tax Code

(Prescribed waiver form per RMC 29-2012)

©2017 Grant Thornton International Ltd. All rights reserved.

The waiver must strictly comply with Section 222(b) of the

(Philippine Journalists Inc., v. CIR, GR 162852, December 16, 2004)

©2017 Grant Thornton International Ltd. All rights reserved.

Only once for a taxable year, except in the following

©2017 Grant Thornton International Ltd. All rights reserved.

3. When there is a need to verify a taxpayer’s compliance

©2017 Grant Thornton International Ltd. All rights reserved.

©2017 Grant Thornton International Ltd. All rights reserved.

1. Electronic Letter of Authority (eLA)

©2017 Grant Thornton International Ltd. All rights reserved.

©2017 Grant Thornton International Ltd. All rights reserved.

1. Audit or investigation of all internal revenue taxes,

2. Claims for tax refund/credit, audit of taxpayers retiring

©2017 Grant Thornton International Ltd. All rights reserved.

Coverage: Only one taxable year (CY or FY) except:

(a) Tax fraud cases authorized by the

©2017 Grant Thornton International Ltd. All rights reserved.

Section C of Revenue Memorandum Order No. 43-90 dated

©2017 Grant Thornton International Ltd. All rights reserved.

- An LA must be served upon the taxpayer or his

- Rule that the examination should be completed within

©2017 Grant Thornton International Ltd. All rights reserved.