May 2024

REMEDIES
- Actions available to:
a) The BIR or government in enforcing collection of the proper taxes; or
b) The taxpayer in defending himself or itself against the unlawful enforcement of
tax laws.

Assessment

I. Remedies of the State

Collection
(a) Assessment41 – notice given to the taxpayer that the correct taxes have not been
paid. To be valid, the assessment must:
(a) State the facts and the law on which its conclusion is based;
(b) Include or contain a computation of the tax liabilities, and
(c) Contain a demand for payment within a specified period.

Time of Assessment
GR: Within 3 years after the last day prescribed by law for filing or from the date
of filing the return, whichever is later.

EXC: The 3-year period can be extended in the following cases:

a) In cases where a false or fraudulent return with intent to evade the tax
is filed:

Period of assessment = Within 10 years after the discovery of the

falsity or fraud.

b) Where there is a failure or omission to file a return:

Period of assessment = Within 10 years after the discovery of the

failure or omission.

c) Within any period agreed upon by the taxpayer and the Commissioner
of the BIR. Provided, such agreement is entered into before the
expiration of the 3-year period for assessment.

By distraint (seizure) of personal property

(b)Collection May be
By levy of real property pursued
simultaneously

By court action (civil or criminal)

41
Refers to the Final Assessment Notice (FAN).
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May 2024

Time of Collection:

1) Within 5 years following the assessment;42 or

2) Within the period agreed upon between the taxpayer and the Commissioner
before the expiration of the 5-year period; or
3) Within 10 years after the discovery of the fraud, falsity, or omission in filing a
return even without assessment thru a proceeding in court.

Distraint

Seizure of goods, chattels, or effects, and the personal property, including stocks
and other securities, debts, credits, bank accounts, and interests in and rights to
personal property in sufficient quantity to satisfy the tax, or charge, together with
any increment thereto incident to delinquency, and the expenses of the distraint and
the cost of the subsequent sale.

Levy on Real Property

- may be made before, simultaneously, or after distraint

The BIR shall prepare a duly authenticated certificate showing the name of the
taxpayer and the amounts of the tax and penalty due from him. Said certificate
shall operate with the force of a legal execution throughout the Philippines.

Levy shall be effected by writing upon said certificate a description of the property
upon which levy is made. At the same time, written notice of the levy shall be
mailed to or served upon the Register of Deeds of the province or city where the
property is located and upon the delinquent taxpayer,

Tax Lien

A tax lien is a legal claim placed by the BIR on properties of the taxpayer with
unpaid taxes.

When a taxpayer refuses or neglects to pay the tax, a lien accrues against all
properties and property rights of the taxpayer. However, such tax lien shall not be
valid against any mortgagee, purchaser, or judgment creditor until the Notice of
Lien is filed with the Register of Deeds.

The Notice of Tax Lien prevents the taxpayer or the persons having such control or
custody of the properties from disposing the same to other parties other than the
BIR because such properties shall be taken for partial or full settlement of the
delinquent taxpayer’s tax liabilities.43 This simply means that the taxpayer cannot

42
The collection of the tax is counted 5 years from the assessment of the tax, and not from receipt thereof
by the taxpayer. An assessment is deemed made for purposes of counting the relevant prescriptive
period when such assessment is “released, mailed, or sent” by the Commissioner of the BIR to the
taxpayer (Barcelon Roxas Securities, Inc. vs. CIR, G.R. No. 157064, August 7, 2006; CIR vs. Pascor
Realty and Development Corp., et. al., G.R. No. 128315, June 29, 1999).
43
At any time prior to the transfer of ownership of these properties either to the government or to the
highest bidder in a public auction or prior to the application of the amount garnished to the outstanding
tax liabilities, delinquent taxpayers may request the lifting of these warrants and notices. Provided, the
total tax liabilities being collected are fully satisfied.
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May 2024

II. Remedies of the Taxpayer

Letter of Authority (“LOA”)

An LOA is the authority given to the appropriate revenue officer assigned to perform
assessment functions. The LOA empowers or enables said revenue officer to examine
the books of accounts and other accounting records of a taxpayer for the purpose of
collecting the correct amount of tax. The LOA must thus specify the name of the revenue
officer assigned to conduct the audit/investigation of the taxpayer.

Unless authorized by the Commissioner or his duly authorized representative through an

LOA, an examination of the taxpayer cannot ordinarily be undertaken. Thus, a Final
Assessment Notice (“FAN”) issued on the basis of a mere Letter of Notice (“LN”) is
void.

The taxpayer must be within the jurisdiction of the district of the Revenue Regional
Director issuing the LOA.

Moreover, an LOA must specify the years covered for an investigation of those years to
be valid.48

Note: Previously, the LOA should be served to the taxpayer within 30 days from
the date of its issuance; otherwise, it would become null and void. 49

RAMO No. 1-2020 has amended RAMO No. 1-2000 by deleting the
abovementioned 30-day period. Hence, an LOA which remains unserved
beyond the 30-day period from the date of issuance shall still be considered valid
and enforceable, provided the period to complete the audit process has not yet
expired.50

Notice of Discrepancy (formerly known as Notice for Informal Conference)

A Notice of Discrepancy is a written notice informing a taxpayer that the findings of the
audit conducted on his books of accounts and accounting records indicate that additional
taxes or deficiency assessments have to be paid.

The taxpayer shall then have thirty (30) days from the date of his receipt of the
Notice of Discrepancy to explain his side.

Notes:

(1) The Revenue Officer who audited the taxpayer’s records shall state in his report
whether or not the taxpayer agrees with his findings of the taxpayer’s liability for

48
Commissioner of Internal Revenue vs. Priscila J. Cruz and Jocelyn Cruz-Delos Reyes, CTA (En Banc)
Case Nos. 1646 and 1650, November 13, 2018.
49
RMO No. 43-90; RAMO No. 1-2000.
50
What is crucial is that the entire audit process be completed within a period of 180 days for Revenue
District Office (“RDO”) cases or 240 days for Large Taxpayer (“LT”) cases, from the date of issuance
of the LOA. Therefore, an LOA which is served beyond the 30-day period from its issuance shall still
be considered valid and enforceable, provided the 180/240 day period to complete the audit process has
not yet expired (RMC No. 82-2022).

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May 2024

deficiency taxes. If the taxpayer is not amenable, he shall be informed in writing by

the BIR of the discrepancies in the payment of his internal revenue taxes for the
purpose of the “Discussion of Discrepancy” in order to afford the taxpayer with an
opportunity to present his side of the case.

(2) The Discussion of Discrepancy shall in no case extend beyond thirty (30) days from
receipt of notice thereof. If it is found that the taxpayer is still liable for deficiency
taxes after presenting his side and the taxpayer is still not amenable, his case shall be
endorsed to the reviewing office and approving official in the National Office or
Revenue Regional Office of the BIR for issuance of a deficiency tax assessment.

Pre-assessment Notice or Preliminary Assessment Notice (“PAN”)

When the Commissioner or his duly authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer of his findings in a Preliminary
Assessment Notice (PAN). The PAN shall show in detail the facts and the law or
jurisprudence on which the proposed assessment is based.

The service of the PAN to the taxpayer is a mandatory requirement for issuing the
Formal Letter of Demand/Final Assessment Notice (“FLD/FAN”). The service of the
FLD/FAN prior to the service of the PAN violates the taxpayer’s right to be informed of
the facts and the law on which the assessment was made.51

The taxpayer is given 15 days to respond from date of receipt of the PAN. If the taxpayer
fails to respond to the PAN within the 15-day period or disagrees therewith, the
Commissioner or his duly authorized representative shall issue the Formal Letter of
Demand and Final Assessment Notice (“FLD/FAN”).

Final Assessment Notice (“FAN”)

The FLD/FAN shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based; otherwise, the assessment shall be void.

51
Kokoloko Network Corp. vs. CIR, CTA Case No. 9574, September 24, 2019.
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III. Remedies Available to the State and Taxpayer

A) Compromise
- mutual concession or settlement which can be entered into by the BIR and the
taxpayer even if a (civil) case has been filed in court.
- there is an offer to pay by the taxpayer and an acceptance by the Commissioner.
- called a compromise penalty55 if paid in lieu of criminal prosecution.

Grounds for Compromise:

1) Reasonable doubt as to the validity of the claim against the taxpayer:

(a) The delinquent account or disputed assessment is one resulting from a jeopardy
assessment56;
(b) The assessment is lacking in legal and/or factual basis; or
(c) The taxpayer failed to file an administrative protest on account of the alleged
failure to receive notice of assessment, or
(d) The demand notice allegedly failed to comply with the formalities prescribed
under Section 228 of the Tax Code; or
(f) The assessment was made based on the “Best Evidence Obtainable Rule” under
Section 6(B) of the Tax Code, and there is reason to believe that the same can
be disputed by sufficient and competent evidence; or
(g) The assessment was issued within the prescriptive period for assessment as
extended by the taxpayer’s execution of a Waiver of the Statute of Limitations.
However, the validity or authenticity of such waiver is being questioned or at
issue, and there is strong reason to believe and evidence to prove that the same
is not authentic; or
(h) The assessment is based on an issue where a court of competent jurisdiction has
made an adverse decision against the BIR. However, the Supreme Court has
not decided upon the case with finality.

2) Financial inability of the taxpayer to pay

- the compromise must be accompanied by a waiver under the Secrecy of Bank

Deposit Law.

55
Micro taxpayers (those with less than ₱3.0 Million in annual gross sales) and small taxpayers (those with at least
₱3.0 Million but less than ₱20.0 Million in annual gross sales) may avail of a reduced compromise penalty rate of at
NEW
least fifty percent (50%) for violations of Sections 113 (Invoicing and Accounting Requirements for VAT-Registered
Persons), 237 (Issuance of Sales or Commercial Invoices), and 238 (Printing of Sales or Commercial Invoices) of the
Tax Code (Sec. 45(e), R.A. No. 11976).
56
“Jeopardy assessment” refers to a tax assessment which was assessed without the benefit of a complete or partial
audit by an authorized revenue officer. Such assessments are made when it is determined that the assessment and
collection of the deficiency tax would be endangered or jeopardized by prescription due to the taxpayer’s failure to
comply with the audit and investigation requirements to present his books of accounts or pertinent records, or to
substantiate all or any of the deductions, exemptions, or claims claimed in his return.

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May 2024

Amounts of Compromise Settlement

(1) The compromise settlement of any tax liability shall be subject to the following
minimum rates:

(a) For cases of financial incapacity, a minimum compromise rate equivalent to ten
percent (10%) of the basic assessed tax.

(b) For other cases (doubtful validity), a minimum compromise rate equivalent to
forty percent (40%) of the basic assessed tax.

(2) On the other hand, the compromise penalty to be imposed in lieu of a criminal
violation not involving fraudulent acts shall strictly follow the amounts in the
Revised Schedule of Compromise Penalties found in RMO No. 7-2015.

Approval of the Compromise

a) Where the basic tax involved exceeds One Million Pesos (₱1,000,000), or
b) Where the settlement offered is less than the prescribed minimum rates,
the compromise shall be subject to the approval of the National Evaluation
Board (“NEB”) which shall be composed of the Commissioner and four (4)
Deputy Commissioners.

Cases Which May Not Be Compromised

(1) Withholding tax cases, in general;
(2) Criminal tax fraud57 cases confirmed as such by the Commissioner of Internal
Revenue or his duly authorized representative;
(3) Criminal violations already filed in court;
(4) Delinquent accounts with duly approved schedule of installment payments;
(5) Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment, and the taxpayer is agreeable
to such decision by signing the required agreement form for the purpose;
(6) In general, (a) cases which have become final and executory (except where
compromise is requested on the ground of financial incapacity) and (b) estate
tax cases (except where compromise is requested on the ground of doubtful
validity of the assessment).

B) Abate or Cancel a Tax Liability

The Commissioner has the authority to abate or cancel the surcharge, interest, and
compromise penalties.

Grounds to Abate or Cancel a Tax Liability

(1) The tax or any portion thereof appears to be unjustly or excessively assessed;

57
Examples of fraud: (1) discrepancies between receipts per taxpayer’s copy and amount in purchaser’s copy; (2)
possession or use of multiple sets of invoices; (3) misrepresentation; (4) falsification; and (5) keeping 2 or more sets
of books.

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The following are instances when the penalties and/or interest imposed on the
taxpayer may be abated or cancelled on the ground that the imposition thereof is
unjust or excessive:

(a) When the filing of the return or payment of the tax is made at the wrong
venue;
(b) When the taxpayer’s mistake in payment of his tax is due to the erroneous
written official advice of a revenue officer;
(c) When the taxpayer fails to file the return and pay the tax on time due to
substantial losses from prolonged labor dispute, force majeure, or legitimate
business reverses, or to other circumstances beyond the control of the
taxpayer. However, the abatement shall only cover the surcharge and the
compromise penalty, and not the interest imposed under Section 249 of the
Tax Code.
(d) When the assessment is the result of taxpayer’s non-compliance with the
law due to a difficult interpretation of said law.

(2) The administration and collection costs involved do not justify the collection
of the amount due.

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