No. 5.

2
Instructor: K.J. Culajara, CPA, JD

MODULE 4-2

Ateneo de Zamboanga University

Accountancy Department
Strategic Tax Management Course

Week 5

TAXPAYER’S REMEDIES

Generally, the taxpayer is given two (2) main remedies:

 Protest or dispute the assessment, or
 Refund/recover erroneously or illegally collected taxes.

I. Protesting an Assessment
 Instances when a pre-assessment notice shall not be required
o When the finding for any deficiency tax is the result of mathematical error
in the computation of the tax as appearing on the face of the return
o When a discrepancy has been determined between the tax withheld and
the amount actually remitted by the withholding agent
o When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have
carried over and automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter(s) of the succeeding
taxable year
o When the excise tax due on excisable articles has not been paid
o When the article locally purchased or imported by an exempt person, such
as, but not limited to vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to non-exempt persons.
 The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
 Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment.
 Within 60 days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
 If the protest is denied in whole or in part, or is not acted upon within 180 days
from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within 30 days from receipt of
the said decision, or from the lapse of 180-day period; otherwise, the decision
shall become final, executory, and demandable.
 Remember that revenue officers must secure a Letter of Authority (LOA) before
examining or assessing a taxpayer as part of due process. Without a LOA, the
examination or assessment is void. (Medicard Philippines, Inc. v. CIR, G.R. No.
222743, April 5, 2017)

A. Step 1: Issuance of the preliminary assessment notice (PAN)

1
No. 5.2
Instructor: K.J. Culajara, CPA, JD

MODULE 4-2

 If after review and evaluation by the CIR or his duly authorized representative, it
is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer a PAN for the
proposed assessment.
 The PAN shall show in detail the facts and the law on which the proposed
assessment is based.
 If the taxpayer fails to respond within 15 days from date of receipt of the PAN, he
shall be considered in default.
o Upon default, a Formal Letter of Demand and Final Assessment Notice
(FLD/FAN) shall be issued calling for payment of the taxpayer’s deficiency
tax liability, inclusive of the applicable penalties.
 If the taxpayer, within 15 days from the date of receipt of the PAN, responds that
he/it disagrees with the findings of deficiency tax, an FLD/FAN shall be issued
within 15 days from the filing/submission of the taxpayer’s response, calling for
payment of the taxpayer’s deficiency tax liability, inclusive of the applicable
penalties.

B. Step 2: Issuance of the formal letter of demand and final assessment notice
(FLD/FAN)
 The FLD/FAN shall be issued by the CIR or his duly authorized representative.
 The FLD/FAN shall call for the payment of the taxpayer’s deficiency tax, and shall
state the facts and the law on which the assessment is based. Without the factual
or legal basis, the FLD/FAN is void.

C. Step 3: Protest the assessment

 The taxpayer may protest against the FLD/FAN within 30 days from the date of
receipt of the FLD/FAN. The taxpayer protesting the assessment may file a
written request for reconsideration or reinvestigation.
o Reconsideration – refers to a plea of re-evaluation 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.
o Reinvestigation – refers to a plea of re-evaluation of an assessment on the
basis of newly discovered or additional evidence that a taxpayer intends to
present in the reinvestigation.
 For requests for reinvestigation, the taxpayer shall submit all
relevant supporting documents in support of his protest within 60
days from the date of filing of his letter of protest, otherwise, the
assessment shall become final.
 If the taxpayer fails to file a valid protest against the FLD/FAN within 30 days from
the date of receipt thereof, the assessment shall become final, executor and
demandable.
 If there are several issues involved in the FLD/FAN but the taxpayer only disputes
or protests against the validity of some of the issues raised, the assessment
attributable to the undisputed issue(s) shall become final, executor, and
demandable.

D. Appeal to the Court of Tax Appeals (CTA) or file for reconsideration to the BIR in
case of inaction or denial

2
No. 5.2
Instructor: K.J. Culajara, CPA, JD

MODULE 4-2

 If the protest is denied by the CIR or his duly authorized representative, the
taxpayer may either
o Appeal to the CTA within 30 days from the date of receipt of the decision,
or
o File for a reconsideration to the CIR within 30 days from the date of
receipt of the decision.
 Note that a motion for reconsideration to the CIR shall not suspend
the 30-day period to appeal to the CTA.
 If the protest or administrative appeal is not acted upon by the CIR within 180
days counted from the date of filing the protest, the taxpayer may either:
o Appeal to the CTA within 30 days from after the expiration of the 180-day
period; or
o Await the final decision of the CIR on the disputed assessment and appeal
such final decision to the CTA within 30 days after the receipt of a copy of
such decision.

II. Claiming a Refund

 The following are the instances when a claim for refund may be availed of:
o Erroneously or illegally assessed or collected internal revenue taxes,
o Penalties imposed without authority, or
o Any sum alleged to have been excessive or in any manner wrongfully
collected.
 When the CIR is of the opinion that any list, statement or return was false,
fraudulent, or contained any understatement or undervaluation, no tax collected
under such assessment shall be recovered by any suit unless –
o It is proved that the said list, statement or return was not false nor
fraudulent and did not contain any understatement or undervaluation.
 No credit or refund of taxes or penalties shall be allowed unless the taxpayer files
in writing with the CIR a claim for credit or refund within 2 years after the
payment of the tax or penalty: Provided, however, That a return showing an
overpayment shall be considered as a written claim for credit or refund.
 A refund check or warrant which shall remain unclaimed or uncashed within 5
years from the date said warrant or check was mailed or delivered shall be
forfeited in favour of the Government, and the amount thereof shall revert to the
general fund.
 A tax credit certificate issued which shall remain unutilized after 5 years from the
date of issue shall, unless revalidated, be considered valid, and shall not be
allowed as payment for internal revenue tax liabilities of the taxpayer, and the
amount covered by the certificate shall revert to the general fund.

A. Refund and tax credit distinguished

 In a tax refund, there is actual reimbursement.
 In a tax credit, a tax certificate or tax credit memo is issued to the taxpayer, and
this can be applied against any sum that may be due and collectible from the
taxpayer, except withholding taxes.
o Tax credit certificates can no longer be transferred or assigned to any
other person. (R.R. 14-2011)

B. The two-year prescriptive period

3
No. 5.2
Instructor: K.J. Culajara, CPA, JD

MODULE 4-2

 The general rule is that the two-year prescriptive period runs from the payment
of the tax.
o For overpaid quarterly corporate income tax – the two-year prescriptive
period to claim refunds commences to run only from the time the refund
is ascertained, which can only be determined after a final adjustment
return is accomplished. In other words, for corporations, the two-year
period begins from the actual filing of the adjusted return or annual
income tax return, and not on the deadline for filing.
 So, if you file earlier than the last day for filing, the period is
counted from the date of actual filing. (CIR v. Court of Appeals and
BPI, G.R. No. 117254, January 21, 1999)
 For example, the last day to file is on April 15 and you file your
income tax return on April 4, the two-year period will start on April
4.
o For overpaid withholding tax – the period is counted from the end of the
taxable year. (Gibbs v. CIR, G.R. No. L-17406, November 29, 1965)
 Note, however, that in claiming a refund for creditable withholding
taxes, the period is counted from the filing of the taxpayer’s final
adjusted tax return.
o Where the tax is paid in instalments (for natural persons only), the period
for refund begins from date for payment of the last instalment.
 The taxpayer need not wait for the action of the CIR on the claim for refund
before taking his claim to the CTA. Both the claim for refund and appeal to the
CTA must be done within the two-year period.
o Hence, if the period is about to expire, and the CIR has not acted upon the
claim, the taxpayer may file and appeal with the CTA without waiting for
the CIR.
 To claim refunds or tax credits of input VAT or zero-rated or effectively zero-rated
sales, the following procedures must be complied with:
o The taxpayer must first file an administrative claim with the CIR within 2
years from the end of the taxable quarter when the relevant sales were
made.
o The CIR has 120 days to rule on the claim.
o The taxpayer has 30 days from the decision of the CIR or from the
expiration of the 120-day period if the CIR does not act, to file a judicial
claim with the CTA even if this is beyond the two-year period.
 To claim refunds for erroneously or illegally collected taxes, the taxpayer must
file both the administrative claim (to the BIR) and the judicial claim (to the CTA)
within 2 years from the payment of tax. The administrative claim is mandatory
and the CTA will dismiss the case without it.

C. Corporate taxpayer’s options

 The law offers three options to a taxable corporation whose total quarterly
income tax payments in a given taxable year exceeds its total income due:
o Filing for a tax refund, or
o Availing of a tax credit, or
o Carry over the excess credit against the estimated income tax liabilities of
the succeeding quarters.

4
No. 5.2
Instructor: K.J. Culajara, CPA, JD

MODULE 4-2

 If you choose the carry-over option, it is considered irrevocable for that taxable
period, and no application for a tax refund or issuance of a tax credit certificate
shall then be allowed.