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Tax Remedies

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Good Afternoon and Welcome to our

last discussion on Income Taxation!

What are the key learnings on income


taxation that you have gathered so far?
Home REMEDIES
For Dry Skin
Tax
Remedies
Learning Objectives: at the end of this session, the students can:

• Explain the importance of tax remedies for the government and


the taxpayer.
• Determine the prescriptive period of assessing late and unpaid
taxes.
• Recognize the different documents issued for tax assessment.
• Illustrate the tax assessment and protest process.
A. TAX REMEDIES
Definition:
• Method by which a cause of action can be
enforced by law or equity
• Procedure which may be availed of as the means to
obtain the relief desired
A. DEFINE TAX REMEDIES
• On the part of:

Government – the
actions allowed by law to
implement the tax laws or
enforce tax collection.
A. DEFINE TAX REMEDIES
• On the part of:

Taxpayer – these are legal


actions which a taxpayer can
avail to seek relief from
possible excesses by revenue
officers or oppressive effect or
undue burden of tax laws.
A. TAX REMEDIES
Importance:
• Government: Enhance and support the
government’s tax collection
• Taxpayer: Safeguards taxpayer’s rights against
arbitrary action
• A requirement that
legal matters be
resolved according
to established rules
and principles and
that individuals be
treated fairly.
Assessment Process
B. ASSESSMENT PROCESS

1. Tax Audit or Investigation


- the BIR conducts an
audit by issuing LETTER OF
AUTHORITY (LOA).
I. Tax Audit or Investigation

Letter of Authority (LOA)


• - is an official document that empowers Revenue
Officer to examine and scrutinize a taxpayer's accounts and
other accounting records to determine the taxpayer's correct
internal revenue tax liabilities.

What would happen if LOA is not issued?
• Without such an authority, the assessment or
examination is a nullity.
I. Tax Audit or Investigation
Persons Authorized to Issue LOA
TAXPAYER PERSON AUTHORIZED
Under the jurisdiction of the:
* National Office *Commissioner of Internal Revenue
(CIR)

* Regional Offices *Regional Director


Can
assessments be
issued without
approval and
authorization
through an LOA?
Answer: NO.
I. Tax Audit or Investigation
Period covered by Letter of Authority
- A letter of authority (LOA) must cover only one
(1) year at a time.
Do all cases need to be
covered by a Letter of
Authority (LOA)?

General Rule:
Yes. But there are
exceptions.
I. Tax Audit or Investigation
TAX CASES NEED NOT BE COVERED BY AN LOA
❑ Cases involving civil or criminal tax fraud which fall under
the jurisdiction of the National Investigation Division (NID)
under the Enforcement and Advocacy Services (EAS) of the
BIR; and

❑ Policy cases under audit by the special teams in the National


Office.
I. Tax Audit or Investigation
EFFECT OF THE ISSUANCE OF Letter of Authority
(LOA)
 A tax return, statement or declaration filed by a taxpayer may
be modified, changed or amended within three (3 ) years
from the date of filing.
 However, when an LOA has been actually served upon the
taxpayer, amendment shall no longer be allowed.

EFFECT
I. Tax Audit or Investigation

Letter of Authority vs. Letter Notice


Letter of Authority Letter Notice
• addressed to a revenue officer is • not found in the law, it is only for
specifically required by law before the purpose of notifying the taxpayer
an examination of a taxpayer may be that a discrepancy in his tax records
had. has been found by the BIR.

Tax Law: Difference between Letter Notice (LN) and


Letter of Authority (
LoA) (boholchronicle.com.ph)
B. ASSESSMENT PROCESS
Issuance of Subpoena Duces Tecum
- Failure to submit documents to the BIR within
the period prescribed in the
a. Written notice
b. Information or records submitted are incomplete

- Can also result to criminal prosecution (RMC 111-


2016)
Subpoena
Duces
Tecum
B. ASSESSMENT PROCESS
2. ISSUANCE OF NOTICE OF DISCREPANCY

- issuance of NOD to the taxpayer if he is found to be liable for deficiency


tax conducted by a Revenue Officer.

- Before NOD, the taxpayer shall be informed, in writing, by the Revenue


District Officer or the Special Investigation Division of the discrepancies in the
taxpayer’s payment of his internal revenue taxes to allow the taxpaper to present his
side of the case.
B. ASSESSMENT PROCESS

NOTICE OF DISCREPANCY
- allows the taxpayer to present and explain his side on the
discrepancies found. The discussion of discrepancy shall in no case extend
beyond thirty (30) days from receipt of NOD.

-Failure on the part of the taxpayer to reconcile and present valid documentary
support, will result in the issuance of a deficiency tax assessment through
PAN.
Notice
of
Discrepancy
:
B. ASSESSMENT PROCESS
3. ISSUANCE OF PRELIMINARY ASSESSMENT
NOTICE (PAN)
- It shall show in detail the facts and the law, rules, and regulations, or jurisprudence on
which the proposed assessment is based. It shall be in writing otherwise, void.

- informing taxpayer about the findings of revenue officer.

- taxpayer has 15 days to reply contesting the finding in the PAN. Remedy

- Failure to reply, the BIR will issue FAN and FLD. Effect
Do all cases need issuance of
PAN?

General Rule:
Yes. But there are
exceptions.
Exception for Issuance of PAN (Sec. 228 Tax Code)
(a) When the finding for any deficiency tax is the result of a mathematical error in the computation
of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
(c) 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 or quarters of the
succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) 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.
B. ASSESSMENT PROCESS
4. ISSUANCE OF FORMAL LETTER OF DEMAND
(FLD) AND FINAL ASSESSMENT NOTICE (FAN)
- Calling for the payment of taxpayer’s deficiency tax or taxes and shall state
facts, the law, rules and regulations, or jurisprudence on which assessment is based;
otherwise, assessment shall be void.

ISSUED WHEN:
❑ The taxpayer failed to respond to the PAN; or
❑ The reply to the PAN was found to be without merit.
B. ASSESSMENT PROCESS

PRESCRIPTIVE PERIOD

Three (3) years from:


Return filed is not fraudulent a. Actual filing of return; or
b. Deadline for filing
whichever is LATER.
Return filed is fraudulent; or
NO return was filed Ten (10) years from discovery.
PRESCRIPTIVE PERIOD OF ASSESSMENT

Illustration 1: Early filing or filling on the deadline

Taxpayer A filed his 2014 annual income tax return which was due on
April 15, 2015 on March 1, 2015. When is the last day of assessment?

Answer: April 15, 2018


Explanation: A return filed before the last day prescribed by the law for filing thereof shall
be considered filed on such last day (Sec. 203, NIRC). The counting of the prescriptive
period shall be reckoned from April 15, 2015. The government must serve the assessment to
the taxpayer on or before April 15, 2018.
PRESCRIPTIVE PERIOD OF ASSESSMENT

Illustration 2: Late filing


Assume instead that Horacio filed his 2014 annual income tax
return on July 1, 2015. When is the last day of assessment?

Answer: July 1, 2018

Explanation: Where the return is filed beyond the period prescribed by the law,
the 3-year period shall be counted from the day the return is filed (Sec. 203,
NIRC). Hence the counting of the prescriptive period shall be reckoned from
July 1, 2015. The assessment must be served on or before July 1, 2018.
Illustration 3:
• Cosa filed a fraudulent income tax return for the year 2011on
April 11,2012. The Bureau of Internal Revenue (BIR)
discovered the fraud on February 20,2013. The last day for
the BIR to collect or to send an assessment notice is:
Answer: February 20, 2023
B. ASSESSMENT PROCESS

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
* Request for Reconsideration
- Refer to a plea of re-evaluation of an assessment on the basis of
existing records without need of additional evidence.
* Request for Reinvestigation
- Refer to a plea of re-evaluation of an assessment with the
additional evidence that a taxpayer intends to present in the
reinvestigation. Submit docs within 60 days from filing of protest
B. ASSESSMENT PROCESS
FINAL DECISION ON A DISPUTE ASSESSMENT
(FDDA)

- if the BIR do not agree with the protest, then a


FDDA will be issued, where the taxpayer has the
right to elevate the case to the CTA.
B. ASSESSMENT PROCESS
DENIAL PROTEST
WAYS TO DENY PROTEST
1. Direct Denial
2. Indirect Denial- fails to act on taxpayer’s protest within 180 days from date of
submission, protest may be denied.
REMEDY OF THE TAXPAYER
Direct Denial File an appeal with the Court of Tax Appeals
(CTA) Division within 30 days from receipt of the
letter of denial.
Indirect Denial File an appeal with the CTA Division within 30 days
from the lapse of the 180 days period or
Await the final decision of the 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 (RR18-2013).
Tax
Remedie
s II
Learning objectives: At the end of this session, the students can:

• Identify the tax remedies on the part of the government and


taxpayer.
• Distinguish the importance of tax remedies for taxpayers and the
government.
• Explain the rights and obligations of taxpayers and the government
during the assessment and protest process.
• Determine the prescriptive period of assessing late and unpaid taxes.
• Calculate the civil interest and penalties on deficiency taxes.
• Apply ethical principles to resolve ethical dilemmas encountered in
RECALL!
• How would you define Tax Remedies?

• How important are tax remedies to both the


government and the taxpayer?

• How would you explain the concept of tax assessments to


someone who's unfamiliar with it?
RECALL!
• Do all cases need to be covered by a Letter of
Authority? Why or Why not?
RECALL!
• Why would a Revenue officer or any
authorized person issue a Notice of
Discrepancy?
GROUP
ACTIVITY!
Instructions:
Demonstrate the tax assessment and protest
process by illustrating it on the whiteboard using
a marker. Each group will be given 20 minutes to
do so and have 2 representatives to discuss the
said process.
GROUP ACTIVITY
Process Questions:
1. Why does a revenue officer need to issue a letter of authority?
2. What are the remedies of taxpayers during the assessment
process?
3. How many days must the BIR reply with the taxpayer’s
reinvestigation and reconsideration?
4. What remedies will be given to taxpayers upon receipt of PAN
and FAN?
5. What remedy will be given to the taxpayer upon the denial
protest of BIR?
Final Assessment Notice (FAN)

PRESCRIPTIVE PERIOD

Three (3) years from:


Return filed is not fraudulent a. Actual filing of return; or
b. Deadline for filing
whichever is LATER.
Return filed is fraudulent; or
NO return was filed Ten (10) years from discovery.
Illustration:
• Marcelina filed her 2023 Income Tax Return and
paid the tax due thereon on April 1, 2024. The last
day of the Bureau of Internal Revenue (BIR) to send
an assessment is?

Answer: April 15, 2027


Illustration:
• Marcelina filed her 2023 Income Tax Return and
paid the tax due thereon on June 15, 2024. The last
day of the Bureau of Internal Revenue (BIR) to send
an assessment is?

Answer: June 15, 2027


Illustration:
• John filed a fraudulent income tax return for the year
2018 on April 11,2019. The Bureau of Internal
Revenue (BIR) discovered the fraud on March 15,
2022. The last day for the BIR to collect or to send an
assessment notice is:

Answer: March 15, 2032


Use the following data for the next three(3) questions
• A taxpayer disclosed to you the ff information:
Date of filing the Income Tax Return: March 28, 2016
Date assessment was received: June 20, 2018
Request for reinvestigation was filed: July 4, 2018

The last day for the taxpayer to submit relevant supporting documents
is:
September 2, 2018
Use the following data for the next three(3) questions
• A taxpayer disclosed to you the ff information:
Date of filing the Income Tax Return: March 28, 2016
Date assessment was received: June 20, 2018
Request for reinvestigation was filed: July 4, 2018

Assuming the taxpayer submitted documents supporting his motion on


August 26, 2018. The BIR should act on the protest not later than:
February 22, 2019
Use the following data for the next three(3) questions
• A taxpayer disclosed to you the ff information:
Date of filing the Income Tax Return: March 28, 2016
Date assessment was received: June 20, 2018
Request for reinvestigation was filed: July 4, 2018

Assume that BIR did not act on protest, the last day fro taxpayer to
appeal to the Court of Tax Appeals is:
March 24, 2019
Illustration 2:
• A taxpayer received an assessment notice on January 5,
2018. He files a motion for reconsideration with the BIR
on January 15, 2018. When is the last day for the
submission of complete documents to support his
motion for reconsideration?

• Answer: NOT required to submit


COLLECTIO
N
C. COLLECTION
- The BIR may avail of the remedy of collection when the assessment
becomes final, executory and Demandable.

PRESCRIPTIVE PERIOD (Section 222 of the Tax Code)


In General Within 5 years from the
issuance of FAN
Return filed is fraudulent; or
NO return was filed Ten (10) years from discovery
PRESCRIPTIVE PERIOD OF COLLECTION

Illustration 1

On July 15, 2015, Mr. A filed his 2014 income tax return which should have been filed
April 15, 2015. He paid the tax on August 15, 2015. The BIR issued a deficiency
assessment on August 2, 2017.

The deadline to enforce collection shall be on or before August 2, 2022.


Methods of
COLLECTION
Real and
Personal
Properties
C. COLLECTION

METHODS OF COLLECTION
1. Distraint
- it is the seizure by the government of personal property, tangible or
intangible.

Why does the BIR include distraint as a method of collection?


Distraint helps the BIR collect revenue owed to the government. By seizing and
potentially selling the property of delinquent taxpayers, the BIR can recover the
unpaid taxes and use them to fund public services and government programs.
C. COLLECTION

METHODS OF COLLECTION
1. Distraint
- it is the seizure by the government of personal property, tangible or intangible.

a. Actual Distraint – personal property is physically seized by the BIR and


offered for the sale at public auction.
Garnishment - is the distraint of bank accounts.

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
without the express authority of the BIR.
C. COLLECTION
What are the cases in which constructive
distraint may be availed?
a. The taxpayer is retiring from any business subject to tax.
b. He intends to leave the Philippines.
c. He removes his property therefrom.
d. He performs any act tending to obstruct the proceeding for collecting the tax due or
which may be due from him.
C. COLLECTION

METHODS OF COLLECTION

1. Distraint

Persons Authorized to Commence Distraint Proceedings

AMOUNT INVOLVE PERSON AUTHORIZED


More than ₱1,000,000 CIR
₱1,000,000 or less Revenue District Office
C. COLLECTION

METHODS OF COLLECTION

2. Levy - it is the seizure by the government of real property to enforce payment of


taxes.

3. Judicial Proceedings
a. Filing of civil case for collection
b. File a criminal case (Tax evasion)
After learning the methods of collection, does it
violate the essential characteristic of tax where taxes
must not be payable in kind? Why or why not?
• NO. While they involve seizing property or assets from a taxpayer to
satisfy a tax debt, they do not change the fundamental nature of the tax
itself. The property seized is used to fulfill the monetary tax debt, rather
than being accepted as payment "in kind."
D. COMPROMISE

GROUNDS
❑ A reasonable doubt as to the validity of the claim against the taxpayer exists; or
❑ The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax.

ALL CRIMINAL VIOLATIONS MAY BE


COMPROMISED EXCEPT:
❑ those already filed in court; or
❑ those involving fraud.
D. COMPROMISE

MINIMUM AMOUNTS
❑ For cases of financial incapacity – a minimum compromise rate equivalent of
10% of the basic assessment tax.

❑ For other cases – a minimum compromise rate equivalent to 40% of the basic
assessed tax.
D. COMPROMISE
INSTANCES WHEN APPROVAL OF THE
EVALUATION BOARD IS REQUIRED
❑ Where the basic assessed tax involved exceeds 1 million pesos; or
❑ Where the settlement offered is less than the prescribed minimum rates.

COMPOSITION OF THE EVALUATION BOARD


❑ CIR
❑ 4 Deputy Commissioners
E. ABATEMENT OR CANCELLATION OF TAX
LIABILITY

GROUNDS
❑ The tax or any portion thereof appears to be unjustly or
excessively assessed; or

❑ The administration and collection costs involved do not


justify the collection of the amount due.
F. CIVIL PENALTIES
In addition to the basic tax assessed on the taxpayer, the
following civil penalties will also be collected.

1. Surcharge
2. Interest
F. CIVIL PENALTIES
SURCHARGE - additional fees or penalties imposed on taxpayers for
specific reason
25% surcharge shall be collected in any of the following cases:
* Failure to file any return and pay the tax due on time
* Filing a return with an internal revenue officer other than those with
whom the return is required to be filed, unless authorized by the CIR.
F. CIVIL PENALTIES
SURCHARGE - additional fees or penalties imposed on taxpayers for
specific reason
25% surcharge shall be collected in any of the following cases:
* Failure to pay deficiency tax within the time prescribed for its payment in
the notice of assessment.
* 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.
F. CIVIL PENALTIES

SURCHARGE
50% surcharge shall be collected in any of the following cases:
* Willful neglect to file the return on time
* There is willful neglect if the taxpayer files only after prior notice in
writing from the BIR.
F. CIVIL PENALTIES
INTEREST – an increment on any unpaid amount of tax, assessed from
date prescribed for payment until the amount is fully paid.

❑ Prior to TRAIN Law – twenty percent (20%) per annum.

❑ (2018) Upon effectivity of the TRAIN Law – twelve percent (12%) per
annum.
F. CIVIL PENALTIES

INTEREST
KINDS OF INTEREST
1. Deficiency Interest
- imposed on any deficiency tax due which interest shall be
assessed and collected from the date prescribed for its payment (whichever comes
first)
a. Full payment, thereof;
b. Upon issuance of as notice and demand by the CIR of
his authorized representative
F. CIVIL PENALTIES

INTEREST
KINDS OF INTEREST
2. Delinquency 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 the tax due for which no return is required
c. a deficiency tax, or any surcharge or interest thereon on the due date
appearing in the notice and demand of the CIR or his authorized
representative until the amount is fully paid, which interest shall form part of
the tax.
F. CIVIL PENALTIES

Tax Deficiency Tax Delinquency


• Amount still due and • Failure of taxpayer to pay
collectible from taxpayer tax due on date fixed by
upon audit law or indicated in the
assessment notice.
Formula

Basic Tax Due/ Deficiency Tax xx


Add: Surcharge 25%/50% xx
Add: Deficiency Interest xx
Total xxx
Add: Deliquency Interest xx
Total CP xxx
H. REFUND OF TAXES

REQUISITES:
1. A tax was erroneously or illegally collected by the BIR;
2. The taxpayer should file a written claim for refund or tax credit with the CIR
WITHIN TWO (2) YEARS from the DATE OF PAYMENT of the tax or penalty;
and
3. If the claim for refund is denied by the CIR, file a petition for refund with the CTA:
a. Within 30 days from receipt of the denial; AND
b. Within two (2) years from the date of payment of tax or penalty.
Case Study: Ethical dilemma in tax practice
Y/N is a tax consultant working for a small accounting firm. One of your clients, a small
business owner named Lisa, has approached you with a request to underreport her business
income on her tax return. Lisa believes that by understating her income, she can minimize her
tax liabilities and save money. You know that underreporting income is illegal and unethical, but
you are concerned about losing Lisa's business if you refuse to comply with her request.

Ethical Dilemma: You want to maintain a positive relationship with his client and keep her business.
On the other hand, you know that underreporting income is illegal and goes against your professional
ethics and obligations.

What ethical principles and professional standards can you apply to guide
your decision-making?
END OF DISCUSSION

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