COLLEGE OF ACCOUNTANCY & BUSINESS ADMINISTRATION

TAXATION I

MODULE 2
ORGANIZATION AND FUNCTIONS OF THE
BUREAU OF INTERNAL REVENUE

A. RULE MAKING AUTHORITY OF SECRETARY OF effect that the amount stated therein is due as a
FINANCE tax and containing a demand for the payment
thereof.
The Secretary of Finance, upon recommendation of
the Commissioner, shall promulgate all needful rules General rule: Taxes are self-assessing and thus,
and regulations for the effective enforcement of the do not require the issuance of an assessment
provisions of the NIRC (Sec. 244, NIRC). This is so notice in order to establish the tax liability of a
because BIR is under the supervision and control of taxpayer. Exceptions: 1. Tax period of a
the Department of Finance (Sec. 2, NIRC). taxpayer is terminated [Sec. 6(D), NIRC]; 2.
Deficiency tax liability arising from a tax audit
The product of such rule-making power is the conducted by the BIR [Sec. 56(B), NIRC]; 3. Tax
Revenue Regulations. Revenue Regulations are lien [Sec. 219, NIRC]; and 4. Dissolving
issuances signed by the Secretary of Finance, upon corporation [Sec. 52(c), NIRC].
recommendation of the Commissioner, that specify,
prescribe or define rules and regulations for effective b. Enforcement of all forfeitures, penalties and
enforcement of the provisions of the Tax Code. fines;
c. Execution of judgments in all cases decided in its
Below is the example of Revenue Regulations issued favor (by the CTA and regular courts);
by the Bureau of Internal Revenue. d. Give effect and administer the supervisory and
police powers conferred to it by the NIRC and other
laws;
e. Recommend to the Secretary of Finance all
needful rules and regulations for the effective
enforcement of the provisions of the NIRC.

2. Chief officials of the BIR

The BIR is headed by the Commissioner of Internal
Revenue and six (6) Deputy Commissioners, who
lead the following divisions:
a. Operations group
b. Legal Inspection group
c. Resource and Management group
d. Information Systems group
e. Prosecution group
f. Special Concerns group

Note: This setup is not consistent with Section 3,

NIRC which provides only four assistant chiefs.

3. Powers and duties of the Commissioner of Internal

Revenue

B. JURISDICTION, POWER AND FUNCTIONS OF a. Power to interpret tax law and decide tax
THE COMMISSIONER OF INTERNAL REVENUE cases (Section 4, NIRC).

1. Power and duties of the BIR (JEnAReS) 1. Interpret provisions of this Code and other tax
a. Assessment and collection of all national internal laws subject to review of the Secretary of Finance
revenue taxes, fees and charges; (Quasi-legislative)

Assessment is a finding by the taxing authority 2. Decide: (Quasi-judicial)

that the taxpayer has not paid the correct taxes. a. disputed assessment
It is also a written notice to a taxpayer to the
“Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” -FRANKLIN D. ROOSEVELT

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 b. refunds of internal revenue taxes, fees and investigation of such return, has in the meantime,
charges been actually served upon the taxpayer.
c. penalties imposed in relation thereto
d) other matters arising from this Code or other 2. Failure to submit required returns and other
laws or portions thereof administered by the BIR documents If a person i. fails to file a required return
subject to the exclusive appellate jurisdiction of the or report at the time prescribed or ii. willfully or
CTA. otherwise files a false or fraudulent return, The
Commissioner shall Make or Amend the return from
b. Power to obtain information, summon, i. his own knowledge or ii. from such information as
examine and take testimony of persons he can obtain through testimony or otherwise which
(Section 5, NIRC). shall be prima facie correct and sufficient for all legal
purposes
1. For the Commissioner to ascertain:
a. correctness of any return or in making a return 3. Inventory-taking, Surveillance, Presumptive Gross
where none has been made Sales A. Commissioner may, at any time during the
b. liability of any person for any internal revenue taxable year (a) order the inventory taking of goods
tax or in correcting such liability of any taxpayer or (b) may place the business
c. tax compliance The Commissioner is authorized: operations of any person (natural/juridical) under
1. to Examine any relevant Book, paper, record observation or Surveillance, if there is reason to
or other data believe that such is not declaring his correct income,
2. to Obtain any information (costs, volume of sales or receipts for tax purposes. The findings may
production, receipts, sales, gross income, etc), be used as basis for assessing the taxes and shall be
on a regular basis from: i. any person other than deemed prima facie correct. B. Commissioner may
the person under investigation or ii. any office or prescribe a Minimum amount of gross receipts, sales
officer of the national/local government, gov‘t and taxable base (taking into account the sales and
agencies and instrumentalities (Bangko Sentral, income of other persons engaged in similar
gov‘t owned and controlled corporations) (e.g. business): i. When a person has failed to issue
LTO, Register of Deeds) receipts as required by sec.113 (Invoice
3. to Summon i. the person liable for tax or requirements for VAT-registered persons) and Sec.
required to file a return or ii. any officer or 237 (Issuance of Receipts or Commercial Invoices)
employee of such person or iii. any person or ii. When the books of accounts or records do not
having in his possession/custody/care -- the correctly reflect the declarations made or required to
books of accounts, -- accounting records of be made in a return, Such minimum amount shall be
entries relating to the business of the person considered correct.
liable for tax or any other person -- to produce
such books, papers, records, and other data and 4. Terminate taxable period Commissioner shall
to give testimony declare the tax period of a taxpayer Terminated and
4. to take the Testimony of the person send notice to the taxpayer of such decision with a
concerned, under oath as may be relevant to the request for immediate payment of the tax when it
inquiry has come to the knowledge of the Commissioner:
5. to cause revenue officers and employees to a. that a taxpayer is retiring from business subject
make a Canvass of any revenue district or region to tax or
Nothing in Section 5 shall be construed as b. is intending to leave the Phils. or
granting the Commissioner the authority to c. to remove his property therefrom or
inquire into bank deposits other than as provided d. to hide or conceal his property or e) is
for under sec. 6 (F) of the Code. performing any act tending to obstruct the
proceedings for the collection of tax
c. Power to make assessments, prescribe
additional requirements for tax administration 5. Prescribe Real Property Values The Commissioner
and enforcement (Section 6, NIRC) is authorized to:
a. Divide the Phils. into different zones or areas
1. Examination of returns and determination of tax and
due b. Determine the fair market value of real
a. After a return has been filed the Commissioner properties located in each zone or area For tax
or his representative may authorize the examination purposes, the value of the property shall be
of any taxpayer and assessment of the correct whichever is higher of: a) Fair market value as
amount of tax; determined by the Commissioner; or b) Fair market
b. Failure to file a return shall not prevent the value as shown in the schedule of values of the
commissioner from authorizing the examination of provincial and city assessors.
any taxpayer; * Any tax or deficiency tax so
assessed shall be paid upon notice and demand from 6. Authority to Inquire into Bank Deposit
the Commissioner or his representative * Any return, Notwithstanding R.A. 1405 (Bank Secrecy Law) the
statement or declaration filed in any authorized office Commissioner is authorized to inquire into the Bank
shall not be withdrawn; but within three years from deposits of:
date of filing, the same may be modified, changed or a. A decedent to determine his gross estate
amended; provided that no notice for audit or
“Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” -FRANKLIN D. ROOSEVELT

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 b. A taxpayer who has filed an application to functions to establishments where articles subject to
compromise payment of tax liability by reason of excise tax are produced or kept (Sec. 16) 17.
financial incapacity. The taxpayer’s application for Authority to assign or reassign internal revenue
compromise shall not be considered unless he waives officers and employees of the BIR to other or special
in writing his privilege under RA 1405 and other duties connected with the enforcement or
general or special laws. Such waiver shall authorize administration of the revenue laws (Sec. 17)
the Commissioner to inquire into his bank deposits.
C. NON-RETROACTIVITY OF RULINGS
7. Authority to Register tax agents
a. The Commissioner shall accredit and Register, The rulings of the BIR are not retroactive. Any
individuals and general professional partnerships and revocation, modification, or reversal of any of the
their rep. who prepare and file tax returns and other rules and regulations promulgated or any of the
papers or who appear before the BIR rulings or circulars promulgated by the CIR shall not
b. The Commissioner shall create national and be given retroactive application if it will be prejudicial
regional accreditation boards. Those who are denied to the taxpayers, except in the following cases:
accreditation may appeal the same to the Sec. Of 1. Where the taxpayer deliberately misstates or
Finance who shall rule on the appeal within 60 days omits material facts from his return or any
from receipt of such appeal. Failure to do so within document required of him by the BIR;
the prescribed period shall be deemed as approval 2. Where the facts subsequently gathered by the
for accreditation. BIR are materially different from the facts on which
the ruling is based; or
8. Authority to Prescribe Additional Requirements. 3. Where the taxpayer acted in bad faith (Sec.
The Commissioner may prescribe the manner of 246, NIRC).
compliance with any documentary or procedural
Requirement for the submission or preparation of NOTE: If the revocation is due to the fact that the
financial statements accompanying tax returns. regulation is erroneous or contrary to law, such
revocation shall have retroactive operation as to
d. Authority to Delegate Power (Section 7, affect past transactions, because a wrong
NIRC) construction of the law cannot give rise to a vested
right that can be invoked by a taxpayer.
1. The Commissioner may delegate the powers
vested in him to - subordinate officials with rank Question: Will errors or mistakes of administrative
equivalent to Division Chief or higher, subject to officials bind the government as to the collection of
limitations/restrictions imposed under the rules and taxes?
regulations.
Answer: GR: Errors or mistakes of administrative
The following powers shall NOT be delegated (RICA) officials (including the BIR) should never be allowed
a. power to Recommend the promulgation of rules to jeopardize the financial position of the
and regulations by the Sec. of Finance government. Reason: Taxes are the lifeblood of the
b. power to Issue rulings of first impression or to nation through which the government agencies
Reverse, revoke modify any existing rule of the BIR continue to operate and with which the State effects
c. power to Compromise or Abate any tax liability its functions for the welfare of its constituents (CIR
provided however that the regional evaluation board v. Citytrust and CTA, G.R. No. 106611, July 21,
may compromise: 1994).
1. assessments issued by regional offices involving
deficiency taxes of P500,000 or less and XPN: For the purpose of safeguarding taxpayers from
2. minor criminal violations as may be determined any unreasonable examination, investigation or
by the rules and regulations assessment, our tax law provides a statute of
3. discovered by regional and district officials limitations in the collection of taxes. Thus, the law on
Regional Evaluation Board is composed of: i. prescription, being a remedial measure, should be
Regional Director as Chairman ii. Asst. Regional liberally construed in order to afford such protection.
Director iii. Heads of the Legal, Assessment and As a corollary, the exceptions to the law on
Collection Div. iv. Revenue District Officer having prescription should perforce be strictly construed
jurisdiction over the taxpayer (CIR v. Goodrich Philippines Inc., G.R No. 104171,
d. power to Assign or reassign internal revenue February 24, 1999).
officers to establishments where articles subject to
excise tax are kept. V. SECTIONS 8, 14, 15, 16, 17 NOTE: In the Citytrust case, which involves a claim
(Other Powers) for refund, the error or neglect was the failure of the
Solicitor General to present its evidence, as counsel
2. Duty to ensure the provision and distribution of for the CIR, due to the unavailability of the necessary
forms, receipts, certificates, and appliances, and the records from BIR, prompting the Solicitor to submit
acknowledgment of payment of taxes (Sec. 8) 14. the case for decision without presenting any
Authority to administer oaths and to take testimony evidence. While in Goodrich, the error committed
(Sec. 14) 15. Authority to make arrests and seizures refers to the neglect of the BIR to make assessment
(Sec. 15) 16. Authority to employ, assign or reassign within the 3-year period as required in Sec. 203,
internal revenue officers involved in excise tax NIRC.
“Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” -FRANKLIN D. ROOSEVELT

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PRACTICAL EXERCISES: c. Department of Finance
d. Court of Justice
1. These refer to the rules or orders having force of
law issued by the executive branch of the 9. Which of the following is not among the
government to ensure uniform application of the tax administrative powers of the Bureau of Internal
law Revenue?
a. Revenue regulations a. Compromise tax assessments
b. BIR rulings b. Distraint of personal property of delinquent
c. Memorandum Orders taxpayer
d. Local Tax ordinances c. Render court decision concerning tax dispute
d. Levy of real property of delinquent taxpayer
2. Tax administration is a system involving
enforcement of taxes through the use of 10. The tax assessment is being asked to be
a. Tax legislation cancelled because there is question as to its validity
b. Tax legislation and assessment or legality
c. Tax imposition and collection a. Jeopardy assessment
d. Tax assessment and collection b. Disputed assessment
c. Illegal assessment
3. Which of the following is not within the scope of d. Deficiency assessment
authority of the BIR Commissioner?
a. To exercise the levying function of Taxation 11. Total assets minus total liabilities is equal to
b. To interpret tax laws a. Net Worth
c. To assess and collect BIR taxes b. Owner's Capital
d. To decide cases involving National Internal c. Shareholder's equity
Revenue Taxes d. All of the above

4. The following instances allow the BIR 12. Which of the following statement is not correct?
Commissioner to inquire or examine the bank a. Only the national government exercises the
deposits of taxpayers, except inherent power of taxation.
a. To determine the gross estate of a decedent b. The power to tax by the local government units is
b. When the taxpayer filed an application for a delegated power granted by the Constitution and
compromise of his tax liability other special laws
c. The taxpayer waives his right in writing the c. National legislation is exercised by the Congress
confidentiality of the bank deposits d. Interpretation of Tax Laws is done by the
d. When the taxpayer fails the lifestyle check test Legislative branch of the government
and shows unexplained wealth
13. Which of the following statement is NOT correct?
5. The BIR is under the supervision of the (2012 BAR)
a. Department of Budget a. In case of doubt, statutes levying taxes are
b. Bureau of Customs constructed strictly the government;
c. Department of Finance b. The construction of a statute made by his
d. Department of Trade and Industry predecessors is not binding upon the successor, if
thereafter he becomes satisfied that a different
6. Which of the following is not an activity involving construction should be given;
tax administration? c. The reversal of a ruling shall not generally be
a. Execution of judgement decided by the court in given retroactive application, if said reversal will be
favor of the BIR prejudicial to the taxpayer;
b. Passage of tax laws and ordinances through the d. A memorandum circular promulgated by the CIR
legislature that imposes penalty for violations of certain rules
c. Computation of tax due and payable need not be published in a newspaper of general
d. Taxpayer's compliance to pay tax obligation circulation or official gazette because it has the force
and effect of law.
7. Which of the following statements is correct?
a. Levying and collection of taxes are legislative 14. Which of the Following defines the country's tax
function Policy?
b. Assessment and Collection are administrative a. Philippine Constitution
functions b. National Internal Revenue Law
c. Enacting of tax laws and its interpretation are c. Pari Materia Principle
legislative function d. Tax Transformation
d. Levying and impositions are juridical functions
15. Taxation co-exist with the four elements of the
8. It has the executive supervision and control over state which includes all, except:
tax administration a. Government
a. Bureau of Internal Revenues b. Property
b. Bureau of Customs c. Sovereignty
d. Territory
“Taxes, after all, are dues that we pay for the privileges of membership in an organized society.” -FRANKLIN D. ROOSEVELT

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