TAXPAYER’S OBLIGATIONS AND PRIVILEGES

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I. General Audit Procedures and Documentation

 The audit process begins with the delivery of a properly issued electronic Letter of Authority
(eLA) to a taxpayer who has been chosen for audit. The eLA which is issued from either
electronic Letter of Authority Monitoring System (eLAMS) or electronic Tax Information System
(eTIS) is a letter of authorization to review the taxpayer's books and records for a specific period.

 Taxpayer’s books of accounts and records is subjected to inspection and examination by internal
revenue officers for income taxation purposes only once in a taxable year except in such cases
when (1) fraud, irregularities, or mistakes were determined by the Commissioner, (2) taxpayer
request reinvestigation, (3) verification of taxpayer’s compliance with withholding tax laws and
regulations, (4) verification of taxpayer's capital gains tax liabilities, and (5) the commissioner
chooses to exercise his power under section 5(B) of the NIRC to obtain information from other
persons, in which case, another or separate examination and inspection may be made.

 The audit offices examine tax returns that satisfy the selection criteria prescribed in the audit
program and select a particular taxpayer for audit based on the selection criteria, which may
vary from year to year. Under section 6(A) of the NIRC, as amended, the Commissioner of
Internal Revenue has the ability to make an evaluation in the absence of an annual auditing
process. In essence, all taxpayers are considered potential audit candidates, however in
situations under the Run After Tax Evaders (RATE) Program, initial investigation begins upon
receipt of third-party data or motu propio on order of the Internal Revenue Commissioners.

 The Commissioner has the authority to obtain information, to summon, examine and take
testimony of persons, make assessments, and prescribe additional requirements for tax
administration and enforcement in relative to the audit process.

 The eLAs for the investigation of taxpayers under the jurisdiction of Regional District Offices
(RDO), Regional Investigation and Divisions (RID) and Assessment Divisions shall be issued by the
Regional Director. While under the investigating divisions under the Large Taxpayers Service
(LTS), including Large Taxpayers District Offices (LTDO) shall be issued by Assistant
Commissioner (ACIR). Also, the National Investigation Division (NID) shall be issued by the
Commissioner of Internal Revenue or Deputy Commissioner of the Legal Group through the
electronic Letter of Authority Monitoring System (eLAMS).

 A Notice for Informal Conference is a written notice informing a taxpayer that the results of the
audit conducted on his accounting records indicate that additional taxes or deficiency
assessments have to be paid. If, after the culmination of an audit a Revenue Officer
recommends the imposition of deficiency assessments, this recommendation is communicated
by the Bureau to the taxpayer concerned by sending a Notice for Informal Conference to the
 taxpayer in order to afford the taxpayer an opportunity to present the side of the case in no
case extend beyond thirty (30) days from receipt of the notice.

 A Notice for Informal Conference is a written statement notifying a taxpayer that the results of
an audit on his accounting records indicates paying additional taxes or deficiency evaluations. If
a Revenue Officer advises the application of deficiency assessments at the conclusion of an
audit, the Bureau notifies the taxpayer by sending a Notice for Informal Conference to the
taxpayer in order to give the taxpayer an opportunity to present his or her side of the case,
which should not exceed thirty (30) days from the receipt of notice.

 Internal revenue taxes shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return (Section 203, NIRC). However, in case of false or fraudulent
return, or of failure to file a return, the Bureau has ten (10) years from the date of discovery of
such cases within which to make the assessment. The period to assess may be extended by
subsequent written agreements made before the expiration of the period previously agreed
upon. (Section 222, NIRC).

 The Preliminary Assessment Notice (PAN) is a note issued by the Commissioner or his authorized
representative advising a taxpayer who has been audited of the findings of his delinquent taxes,
detailing the facts as well as the legislation, rules and regulations, and jurisprudence on which
the assessment is based. If the taxpayer disagrees with the results, he has fifteen (15) days from
the date of receipt of the PAN to file a complaint to the proposed assessment.
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 Taxpayer can file a petition to the decision of a division of Court of Tax Appeals (CTA) to the CTA
(en banc), within fifteen (15) days from the receipt of the questioned decision or resolution.
Likewise, if the taxpayer is still unsatisfied with the decision of the CTA (en banc), they may
appeal this decision with the Supreme Court within the same prescriptive period.

 A taxpayer has two (2) years from the date of payment of the tax or penalty sought to be
refunded to make a claim for refund or tax credit for erroneously or unlawfully collected taxes.
However, failing to file such a claim within the required time frame will result in the taxpayer's
right to a refund or tax credit being forfeited.

 If a taxpayer has filed a claim for refund and the Bureau has not yet render a decision, there are
two (2) rules to be follow.

 Claim for refund under Section 112 of the NIRC of 1997, as amended. (a) Two-
year prescriptive period or (b) 120+30-day period where a taxpayer can file an
appeal in one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the judicial
claim within the thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.
 Claim for refund under Section 229 of the NIRC of 1997, as amended. The
taxpayer may elevate his claims to the CTA if the two (2) year prescriptive
period is about to expire and the BIR has not yet rendered a decision on his
claim.

 Any internal revenue tax, which has been assessed within the period prescribed, shall be
collected within five (5) years from date of assessment (Section 203 and 222 of the NIRC). In
cases without an assessment involving false or fraudulent return or where no return was filed, a
proceeding in court for the collection thereof may be filed within ten (10) years after the
discovery of such cases. Moreover, it may be extended, if, before the expiration of the
prescribed period, a valid Waiver of the Statute of Limitations shall have been executed.
(Section 222 of the NIRC).

II. REMEDIES OF THE BUREAU IN THE AUDIT PROCESS AND COLLECTION OF DELINQUENT
ACCOUNTS

 A Taxpayer shall be requested, in writing, not more than two (2) times, to produce his books
of accounts and other pertinent accounting records, for inspection. If, after the Taxpayer’s
receipt of the second written request, he still fails to comply with the requirements of the
notice, the Bureau shall then issue him a Subpoena Duces Tecum.
 If, still the taxpayer fails to comply with the Subpoena Duces Tecum, the Bureau may file a
criminal case against the taxpayer for violation of Section 266 (Failure to Obey Summons)
and proceed to assess based on the best evidence obtainable. Once the Complaint-Affidavit
has been filed, no prosecuting officer of the Bureau shall cause the withdrawal or dismissal
of the case, notwithstanding the subsequent submission of documents indicated.

 Once an assessment or any part thereof becomes final, executory and demandable, the
Government may (1) distraint a personal property belongs to the taxpayer, (2) levy upon
real property and on the interest in or rights to real property, (3) civil action, (4) tax lien, (5)
forfeiture and (6) criminal action for the collection of the full amount of the delinquent
accounts. Under NIRC of 1997, no court shall have the authority to grant an injunction to
restrain the collection of any internal revenue tax, fee, or charge.

 Distraint of personal property involves the seizure by the Government of any goods and
personal property of the delinquent taxpayer in sufficient quantity to satisfy the full amount
of tax liability which will be sold at public auction after due notice to the owner/possessor of
the property and the publication or posting of such notice.