Tax Remedies

TAX REMEDIES
❖ Government – these are courses of action provided by or allowed in the law to

implement the tax laws or enforce tax collection
❖ Taxpayer – these are legal actions which a taxpayer can avail of to seek relief from the
undue burden or oppressive effect of tax laws, or as a means to check possible excesses
by revenue officers in the performance of their duties
ASSESSMENT PROCESS: Stages of BIR Audit Investigation
Stage 1: Tax Audit or Investigation
• The BIR conducts an audit by issuing Letter of Authority (LA/LOA)

❑ LETTER OF AUTHORITY - is an official document that empowers a Revenue Officer to
examine and scrutinize a taxpayer’s books of accounts and other accounting records, in
order to determine the taxpayer’s correct internal revenue tax liabilities
• The taxpayer has 10 days to provide necessary documents and schedules for audit
➢ After 10 days and the taxpayer haven’t provided the necessary documents,
another letter will be sent to call for an informal conference to conduct initial
assessments of past documents – meeting with BIR officer to set another
schedule to provide the necessary documents
• Tax cases not covered by an LA (no need for LA)
1. Cases involving civil or criminal tax fraud which fall under the jurisdiction of National
Investigation Division of BIR
2. Policy cases under audit by the special teams in the National Office
❖ Effects of issuance of LA
1. A tax return or declaration filed by a taxpayer may be modified, changed, or
amended within three (3) years from the date of filing.
2. However, when an LA or investigation of such tax return, statement or declaration
has been actually served upon the taxpayer amendment shall no longer be allowed
(even if you haven’t consumed the three years given)
Stage 2: Issuance of Preliminary Assessment Notice (PAN)
❑ PRELIMINARY ASSESSMENT NOTICE (PAN) - is a communication issued by the Regional
Assessment Division or by the Commissioner or his duly authorized representative
informing a taxpayer who has been audited o the findings of the revenue officer.
• As a general rule, issuance of PAN prior to FAN is part of the ‘due process requirement’,
the absence of which renders nugatory any assessment made by the tax authorities.
• However, PAN is not required in the following cases:
1. When the finding is a result of mathematical computation on the face of return
2. When the discrepancy has been determined between the tax withheld and the
amount actually remitted by with the withholding tax agent
3. When an excise tax due on excisable articles has not been paid
4. When an article locally purchased by an exempt person, has been sold to non-
exempt person
• The taxpayer has 15 days (you can ask for extension but it should be approved) to reply
contesting finding in the PAN.
• If the taxpayer did not comply for 15 days, Taxpayer is considered in default and the BIR
will issue a FAN
Stage 3: Issuance of Formal Letter of Demand or Final Assessment Notice (FAN)
• Issued when: 1) the taxpayer failed to respond to the PAN or 2) the reply to the PAN was
found to be without merit
• Remedy of the taxpayer:
1. File a protest to the CIR or his authorized representative within 30 days from the
date of receipt of the FAN
❖ TYPES OF PROTEST
a. Request for reconsideration – refers to a plea for re-investigation of an
assessment on the basis of existing records without need of additional evidence.
It may involve both a question of fact or of law or both.
b. Request for reinvestigation – refers to a plea of re-evaluation of an assessment
on the basis on newly discovered or additional evidence that a taxpayer intends
to present in the reinvestigation. It may also involve a question of fact or of law
or both.
2. Submit all supporting documents within 60 days from filing of protest (in case of
request for reinvestigation under RR-18-2013)
Stage 4: Denial of Protest
• Ways to deny protest:

1. Direct denial of protest (with formal letter)
2. Indirect denial of protest – of the CIR or his duly authorized representative fails to
act on the taxpayer’s protest within 180 days from date of submission, the protest
may be considered denied.
• Remedy of the Taxpayer:
1. Direct Denial – file an appeal with the Court of Tax Appeals (CTA) Division within 30
days from receipt of letter of denial
2. Indirect Denial – a) File an appeal with the CTA Division within 30 days from the
lapse of the 180-day period or b) await the final decision of CIR or his duly
authorized representative and appeal such final decision to the CTA within 30 days
after the receipt of a copy of such decision
Stage 5: Denial of Appeal by CTA Division

1. File a motion for reconsideration (MR) before the same CTA Division within 15 days
from receipt of the decision
2. Then, if MR is denied, file an appeal with the CTA En Banc within 15 days from
receipt of the decision
Stage 6: Denial of Appeal by CTA En Banc

1. File MR before the CTA En Banc within 15 days from receipt of the decision
2. Then, if MR is denied, file an appeal with the Supreme Court (SC) Division within 15
days from receipt of the decision
Stage 7: Denial of Appeal by SC Division

1. File MR before the same SC Division within 15 days from receipt of the decision
2. Then, if MR is denied, file an appeal with the SC En Banc within 15 days from receipt
of the decision
Stage 8: Denial of Appeal by SC En Banc

1. File MR before the SC En Banc within 15 days from receipt of the decision
2. Then, if MR is denied, the tax payer has no more remedy. The assessment shall
become final, executory and demandable.
❖ From the issuance of FAN, all the periods in availing the remedies are mandatory, in
which failure to comply shall result in the assessment being final, executory and
demandable.
❑ COLLECTION – The BIR may avail of the remedy of collection when the assessment
becomes final, executory and demandable
➢ With Prior Assessment – BIR issued an LOA and it proceeded to an investigation
• Within 5 years from issuance of FAN (regardless kung kailan matapos ang audit
investigation *refer to the 8 stages)
➢ Without Prior Assessment
• Return files is not false or fraudulent – 3 years from a) actual filing of return and
b) Deadline of filing whichever is LATER
• Return files is fraudulent or NO return was filed – 10 years from discovery to pay
the tax deficiency
❑ METHODS OF COLLECTION - BIR can collect delinquent internal revenue taxes through
the following:
➢ DISTRAINT – the seizure by the government of personal property, tangible o
intangible to enforce the payment of taxes
a. Actual Distraint – personal property is physically seized by the BIR and offered
for sale at public auction. The property is sold to the highest bidder and the
proceeds are applied to the payment of the tax due. Distraint of bank is called
Garnishment
b. Constructive Distraint – the person in possession of personal property is made
to sign a receipt, undertaking that he will preserve the property and will not
dispose of the property (within a period of time) without the express authority of
the BIR.
➢ LEVY – the seizure by the government of real properties and interest in the rights
to such properties in order to enforce the payment of taxes.
a. Right of Redemption – for the period of one (1) year from the date of sale the
property may be redeemed by the taxpayer. During this period, the taxpayer is
not deprived of the possession and fruits from the property.
➢ JUDICIAL PROCEEDINGS – BIR may file a) civil case for collection or b ) criminal
case (Tax Evasion)
❖ COMPROMISE – if the taxpayer is unable to pay the insufficient taxes

Grounds:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists
2. The financial position of the taxpayer demonstrate a clear inability to pay the
assessed tax
Minimum Amounts:
1. For cases of financial incapacity, a minimum compromise rate equivalent to ten

percent (10%) of the basic assessed tax
2. For other cases, a minimum compromise rate equivalent rate to forty percent
(40%) of the basic assessed tax.
Approval of the Evaluation Board is required when:

1. Where the basic tax involved exceeds one million pesos (P1, 000, 000)
2. Where the settlement offered is less than the prescribed minimum rates
Composition of the Evaluation Board:
1. Commissioner of Internal Revenue
2. Four (4) Deputy Commissioners
❖ ABATEMENT (Cancellation of Tax Liability)
Grounds:
1. The tax or any portion thereof appears to be unjustly or excessively assessed; or
2. The administration and collection costs involved do not justify the collection of
the amount due
Suspension of the Running Statute of Limitations
• The prescriptive period for the assessment and the beginning of distraint or levy
or a proceeding in court for collection of any tax deficiency may be suspended
under the following situations:
1. The taxpayer’s request for reinvestigation was granted
2. Taxpayer cannot be located in the address given in the return
3. No property of the taxpayer can be located
4. The taxpayer is out of the country
*Note: The suspension shall be for the duration of the situation plus 60 days thereafter
❑ CIVIL PENALTIES – additional to the assessed tax
➢ Surcharge
• 25% surcharge shall be collected in any of the following cases:
1. Failure to file any return and pay the tax due on time
2. Filing a return with an internal revenue officer other than those
with whom the return is required to be filed, unless authorized by the
Commissioner of internal revenue
3. Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment
4. Failure to pay the full or part of the amount of tax shown on any
return, or the full amount of tax due for which no return is required to be
filed.
• 50% surcharge shall be collected in any of the following cases:
1. Willful neglect to file a return on time
2. There is willful neglect if the taxpayer files only after prior notice
in writing from the BIR
*There is a simple neglect (25% surcharge) if the taxpayer voluntarily files the return after the
deadline without notice from the BIR
➢ Interest – is an increment on any unpaid amount of tax, assessed from the date
prescribed for payment until the amount is fully paid (12% per annum)
• Deficiency Interest – interest imposed on any deficiency tax due, which interest
shall be assessed and collected from the date prescribed for its payment until
(whichever comes first):
a. Full payment thereof:
b. Upon issuance of a notice and demand by the commissioner or
his authorized representative
• Delinquency Interest – refers to the interest imposed on the failure of the
taxpayer to pay the following:
a. The amount of tax due on any return required to be filed
b. The amount of tax due for which no return is required
c. A deficiency tax, or any surcharge or interest thereon the due date
appearing in the notice and demand of the CIR or his authorized until
the amount is fully paid, which interest shall form part of tax
*Upon the effectivity

of the TRAIN Law, in
no case shall the
deficiency and
delinquency interest
be imposed
simultaneously

Tax Remedies

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Tax Remedies

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TAX REMEDIES

❖ Government – these are courses of action provided by or allowed in the law to

Stage 1: Tax Audit or Investigation

• The BIR conducts an audit by issuing Letter of Authority (LA/LOA)

Stage 4: Denial of Protest

• Ways to deny protest:

Stage 5: Denial of Appeal by CTA Division

Stage 6: Denial of Appeal by CTA En Banc

• Remedy of the Taxpayer:

• Remedy of the Taxpayer:

• Remedy of the Taxpayer:

❖ COMPROMISE – if the taxpayer is unable to pay the insufficient taxes

1. For cases of financial incapacity, a minimum compromise rate equivalent to ten

Approval of the Evaluation Board is required when:

*Upon the effectivity

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