INCOME TAXATION

MARIE STACY MARGARETT DIAZ, CPA, CAT,

MST
Lecturer / Instructor
REMEDIES
THE STATE AND THE TAXPAYER
 SUMMARY OF REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
 PART 1:
REMEDIES OF THE STATE
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
ADMINISTRATIVE LEVEL
ASSESSMENT
ASSESSMENT
◦ A FINDING that taxpayer has not paid the correct
tax

◦ WRITTEN NOTICE to taxpayer to effect that the

amount stated therein is due as a tax and containing
a demand for the payment thereof
POWERS OF CIR IN DETERMINING
THE CORRECT TAX

Obtain data and information from third parties

Conduct inventory surveillance
Examine/inspect books
Prescribe presumptive gross sales/receipts
BURDEN OF PROOF

TAXPAYER

There is a presumption of correctness of the part of

the Commissioner of Internal Revenue.
STAGES OF ASSESSMENT

1. Selection of taxpayers to be audited

2. Audit of the taxpayers
3. Assessment of taxpayers with unpaid or
deficiency tax
MODIFY, CHANGE OR AMEND
RETURNS
Any return filed shall not be withdrawn

Within 3 years from filing can be modified,

changed or amended
BIR TAX AUDIT PROCESS
1. Letter of Authority (LA) to revenue officer
2. Conduct of audit examination
3. Reporting on the results of examination
PRE-AUDIT

Not a regular audit

Written notice signed by the RDO
Conducted entirely within BIR office
State deficiency tax
Require taxpayer to pay within 15 days
TAX AUDIT PROCESS
1. Letter of Authority (LA) to revenue officer
2. Conduct of audit examination
3. Reporting on the results of examination
FREQUENCY OF EXAMINATION
ONCE, every taxable year except:
1. Fraud, irregularities, mistakes
2. Re-investigation / re-examination
3. Verification of compliance with withholding taxes &
other tax
4. Verification of capital gains tax
5. Exercise of power to obtain information relative to
examination of other taxpayer
ASSESSMENT PROCEDURE
1. Pre-Assessment Notice (PAN)
2. Formal Letter of Demand and Final Assessment
Notice (FLD/FAN)
3. Final Decision on a Disputed Assessment
(FDDA)
WHEN IS PRE-ASSESSMENT
NOTICE NOT REQUIRED?

Mathematical error on the face of the return

Discrepancy between the amount withheld &
remitted
Discrepancy between Refund & carried over
WHEN IS PRE-ASSESSMENT
NOTICE NOT REQUIRED? (cont)
When article locally purchased or imported by
exempt person, has been sold or transferred to non-
exempt persons.
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
ADMINISTRATIVE LEVEL
COLLECTION
COLLECTION
Enforced by government once the assessment
achieves finality, when
A. Defaulted in his administrative remedies
B. Denial of protest
C. Upheld by the court
NON-INJUCTION OF TAX
COLLECTION
No court have authority to grant an injunction to
restrain collection of any national taxes, except
CTA, when it may jeopardize the interest of taxpayer
and/or the government.
PAYMENT UNDER PROTEST
Taxpayer may pay contested assessment under protest
to avoid penalties and then later claim for refund
when the disputed assessment is partially or wholly
decided in his favor.
DISTRAINT
Seizure of personal property to enforce
payment of tax.

Warrant of Distraint is a summary

procedure forcing the taxpayer to pay.
DISTRAINT
ACTUAL CONSTRUCTIVE
◦ Delinquent Taxpayer ◦ Delinquent Taxpayer or not
◦ Taking of possession ◦ Prohibited from disposing
◦ Leaving a list of distrained ◦ Taxpayer to sign a receipt of
property or by service of the property or by the revenue
warrant of distraint or officer preparing and leaving a
garnishment list of such property
REQUISITES
◦Taxpayer must be delinquent
◦Subsequent demand for its payment
◦Taxpayer fails to pay tax on time
◦Period to assess or collect has not yet expired
WHO SHALL SEIZE (ACTUAL)

>1,000,000

Commissioner or Duly Authorized

Representative
WHO SHALL SEIZE

≤1,000,000

Revenue District Officer

PROCEDURES (ACTIVE)
1. Commencement of distraint proceedings by
CIR or Revenue District Officer
2. Issuance or the Warrant of Distraint upon
the delinquent taxpayer
PROCEDURES (ACTIVE)
3. Posting of Public Auction Sale Notices in
(2) conspicuous places in the locality
4. Public Auction Sale
WHY CONSTRUCTIVE DISTRAINT
If taxpayer:
A. Is retiring from any business subject to tax
WHY CONSTRUCTIVE DISTRAINT

If taxpayer:
B. Intending to –
1. Leave the Philippines
2. Remove his property
3. Hide/conceal his property
WHY CONSTRUCTIVE DISTRAINT

If taxpayer:
C. Is performing any act tending to
obstruct the proceeding for collection
PROCEDURES (CONSTRUCTIVE)
1. CIR serves the Warrant of Constructive
Distraint
2. Taxpayer must sign the receipt and obligate
himself to preserve the thing distraint
PROCEDURES (CONSTRUCTIVE)
Upon failure to sign receipt
1. prepare a list of such property
2. in presence of 2 witnesses leave a copy in
the premises
LEVY
Seizure of real property to enforce
payment of tax.

Warrant of Levy is a summary procedure

forcing the taxpayer to pay.
PROCEDURES
1. Prepare a Certificate of Levy
2. Issuance/Serve notice to the taxpayer and
Registry of Deeds
3. Advertisement of the public auction sale
4. Public auction sale
LIMITATION OF
DISTRAINT/LEVY
1. Tax is not more than P100
2. WDL shall not be sent earlier than 90 days from
date due and demandable
Except:
1. Amount not paid on time
2. Fails to pay 2nd installment
RESEARCH OF TAXPAYER
PROPERTIES
Fails to pay his delinquent account after service of
WDL
Look for properties that can be attached to tax
liabilities
Serve Notice of Tax Lien or Notice of Levy
Annotate to the back of the title document, in case
of real property
TAX LIEN
A legal claim or charge in a property
established as a security in case of default in
payment of taxes.

Generally, it attaches to the property

irrespective of ownership or transfer thereof.
EXTENT & NATURE
◦ The tax, together with interests, penalties, and costs
that may accrue
◦ The lien shall not be valid against any mortgagee,
purchaser, or judgement creditor until notice of such
lien shall be filed by the Commissioner of Internal
Revenue in the Office of Register of Deeds of the
province or city where the property is located.
EXTENT & NATURE
◦ Lien attaches not only from the service of the
warrant of distraint but from the time tax became
due and payable.
DISTRAINT VS. LEVY
DISTRAINT LEVY
◦ Personal Property ◦ Real Property
◦ Forfeiture by the government is ◦ Forfeiture is authorized
not provided ◦ Right of redemption is
◦ Not given the right of granted in case of real
redemption (distrained personal property levied upon and sold,
property) or forfeited to the government.
AUCTION SALE OF SEIZED
PROPERTY
Within 20 days from levy
Revenue officer advertise auction sale for at least
30 days
Awarded to highest bidder
Excess proceeds returned to taxpayer
FURTHER DISTRAINT OR LEVY
When proceeds of auction sale fails to satisfy the
unpaid taxes.
FORFEITURE
Amounts offered by bidders in 2 consecutive
auction sales are insufficient

Transfer of the title of a specific thing

distraint/levied in the name of the Republic of the
Philippines.
RIGHT OF REDEMPTION
◦ Within 1 year from date of sale
◦ Upon payment of taxes, penalties and interest (from
date of delinquency)
◦ Upon payment of 15% Interest on purchase price per
annum (from date of sale)
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
JUDICIAL LEVEL
CIVIL ACTION
CIVIL ACTION
Taxpayer fails to file an administrative protest with
the CIR within 30 days from receipt.

Failure to appeal the decision to the CTA within 30

days from receipt of the decision.
CIVIL ACTION

These are actions instituted by the government to collect

internal revenue taxes.
A. Distraint – personal properties
B. Levy – real properties
C. Garnishment – interests
WHO HAS JURISDICTION?

<1,000,000

Regional Trial Court, Municipal Trial

Court, Metropolitan Trial Court
WHO HAS JURISDICTION?

≥1,000,000

Court of Tax Appeals

 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL
TRO/INJUCTION
SUIT/ACTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
JUDICIAL LEVEL
CRIMINAL SUIT/ACTION
CRIMINAL ACTION
In consonance with the Constitutional limitations “No
person shall be imprisoned for non-payment of debt or poll
tax”.

The CIR may initiate criminal suit against delinquent

taxpayer and may be punished behind bars.
MAY CRIMINAL ACTION BE
FILED DURING THE
PENDENCY OF AN
ADMINISTRATIVE PROTEST
IN THE BIR?
YES. WHAT MATTER IS THE VIOLATION,
NOT THE ACTUAL COMPUTATION.
 PART 2:
REMEDIES OF THE
TAXPAYER
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
ADMINISTRATIVE LEVEL
PROTEST
PROTEST
◦A CHALLENGE against an assessment.

◦A formal letter addressed to the BIR

Commissioner impugning the validity of the
assessment.
TYPES OF PROTEST
1. Request for reconsideration – existing
records

2. Request for re-investigation – newly

discovered / additional evidence
HOW TO FILE
1. File a petition for reconsideration or
reinvestigation with the CIR within 30
days from receipt of assessment.
HOW TO FILE
2. For re-investigation, all relevant
supporting documents should be
submitted within 60 days from date of
submission of petition.
HOW TO FILE
3. Wait for BIR action within 180 days
from:
a. Receipt of FAN/FLD
b. Submission of documents
FAILURE TO FILE A VALID
PROTEST
Will render the FLD/FAN to final and
executory, except:
a. Taxpayer did not receive the FAN
b. Taxpayer availed amnesty program
BURDEN OF PROOF
Burden of proving the assessment was
actually received by the taxpayer rests
upon the government.
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
ADMINISTRATIVE LEVEL
REFUND
REFUND
◦To return (money) in restitution due to
excessive or erroneous payment of a tax or
penalty is collected without authority.
REQUISITES OF REFUND?
Claim must be in writing
It must be filed with the CIR within 2 years
after the payment
Show proof of payment
INTEREST ON REFUNDS
Government cannot be required to pay interest
on taxes refunded to the taxpayer in the absence
of a statutory provision clearly or expressly
directing or authorizing such payment.
TAX CREDIT CERTIFICATE
A. In lieu of cash payment tax warrants or
certificate may be applied against any
internal revenue tax, EXCEPT withholding
taxes
TAX CREDIT CERTIFICATE
B. Original copy is surrendered to the revenue
office
C. Must be used within a period of 5 years
D. Issued in lieu of refunded tax by a taxpayer
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
 JUDICIAL LEVEL
APPEAL TO COURT OF TAX APPEALS
COURT OF TAX APPEALS
Petition For Review
With decision:
◦ Within 30 days from receipt of decision on protest

Without decision:
◦ Within 30 days from lapse of 180 days from date
of filing protest
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
JUDICIAL LEVEL
TRO / INJUCTION
INJUNCTIONS / T.R.O.
When the CTA in its opinion the collection by
the BIR may jeopardize the taxpayer they may
serve a Temporary Restraining Order
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
 JUDICIAL LEVEL
CRIMINAL SUITS AGAINST ERRING BIR OFFICIALS
ACTION FOR DAMAGES
File an action against a revenue officer by
reason of any act done in the performance of
official duty.
CRIMINAL COMPLAINT
Filing of criminal complaint against erring BIR
officials and employees.
 PART 3:
COMMON REMEDIES
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
ADMINISTRATIVE LEVEL
COMPROMISE
COMPROMISE

Mutual concession between the taxpayer

and the government in settling a tax
deficiency amicably.
REQUISITES
Must have a tax liability
There must be an offer (by the taxpayer)
There must be an acceptance (by the
Commissioner)
What can be compromised?
A. Delinquent accounts
B. Cases under administrative protest
C. Civil tax cases being disputed before the
courts
What can be compromised?
D. Collection cases filed in courts
E. Criminal violations, other than those already
filed in court or those involving criminal tax
fraud.
What cannot be compromised?
A. Criminal violation of NIRC already
filed in court
B. Cases involving fraud
C. Withholding tax cases
Grounds for Compromise
A. A reasonable doubt as to the validity of the
claim against the taxpayer exists

B. The financial position of the taxpayer

demonstrates a clear inability to pay the
assessed tax, upon waiver of RA1405 (Secrecy
of Bank Deposits Act)
Minimum Compromise Rate

Financial Incapacity:

Other Cases:
 REMEDIES
STATE COMMON TAXPAYER
ADMINISTRATIVE LEVEL (BIR)
ASSESSMENT COMPROMISE PROTEST
COLLECTION ABATEMENT REFUND
JUDICIAL LEVEL
CIVIL SUIT/ACTION APPEAL TO CTA
CRIMINAL SUIT/ACTION TRO/INJUCTION
CRIMINAL SUIT
AGAINST ERRING BIR
OFFICIALS
ADMINISTRATIVE LEVEL
ABATEMENT
ABATEMENT

Cancellation or obliteration of taxes upon

the authority of the BIR under certain
circumstances.
Grounds for Abatement

◦The tax or any portion thereof appears to

be unjustly or excessively assessed
Grounds for Abatement

◦The administration and collection costs

involved do not justify the collection of
the amount due
Grounds for Abatement

◦Taxpayer is dead, abroad or dissolved

corporation without distrainable/leviable
properties

◦Tax case has prescribed

 PART 4:
LIMITATIONS TO
REMEDIES
LIMITATIONS TO THE
ASSESSMENT POWER OF THE
STATE
Prescription.
The power of the state to assess shall prescribe after 3
YEARS from date the return is due or filed,
whichever is LATER.
PRESCRIPTION IN AMENDED
RETURN
If SUBSTANTIALLY DIFFERENT
Prescription shall commence from date of filing the
amended return
But the assessment shall run from filing of the
original return.
DEFINE SUBSTANTIAL
SUBSTANTIAL UNDER-DECLARATION OF
INCOME
(exceeding 30% of that declared)

SUBSTANTIAL OVERSTATEMENT OF
EXPENSES
(exceeding 30% of actual deduction)
LIMITATIONS TO THE
COLLECTION POWER OF THE
STATE
Prescription.
5 YEARS – from assessment or within period for
collection agreed upon in writing before expiration of
the 5-year period
EXCEPTION TO PRESCRIPTION

1. Fraudulent returns (10 years)

2. Willful neglect to file (10 years)
3. Waiver of the statutes of limitation by the
taxpayer (extend not less than 6 months)
GROUNDS FOR SUSPENSION OF
THE STATUTE OF LIMITATION

A. When the CIR is prohibited from making

assessment (TRO) or beginning the distraint or
levy or a proceeding in court, and for 60 days
thereafter
GROUNDS FOR SUSPENSION OF
THE STATUTE OF LIMITATION

B. When the taxpayer requests for a reconsideration

C. When the taxpayer cannot be located

GROUNDS FOR SUSPENSION OF
THE STATUTE OF LIMITATION

D. When warrant of distraint or levy is duly served,

and no property is located

E. When taxpayers is out of the Philippines

PRESCRIPTIVE PERIOD FOR
VIOLATION OF NIRC

Should be filed within 5 YEARS from:

The day of the commission of the violation
The discovery and institution of the judicial
proceedings
DISPUTING AN ASSESSMENT

1. Upon receipt of Pre-Assessment notice the must

explain his position within 15 days.

2. Upon receipt of FLD/FAN, file formal PROTEST

within 30 days.
DISPUTING AN ASSESSMENT

3. Wait for the BIR action within 180 days

a. With denial/adverse decision appeal within 30 days
b. Wait for BIR decision after lapse of 180 days
c. File petition for review within 30 days after lapse of 180
days
DISPUTING AN ASSESSMENT

4. Upon receipt of adverse ruling from CTA may,

within 15 days
a. File a motion for reconsideration w/ CTA
b. File an appeal to CTA en bank
c. File an appeal to the Supreme Court
d. File a petition for review on certiorari to the Supreme
Court
PRESCRIPTIVE PERIOD FOR
REFUND
Claims for Refund from CIR
Within 2 years from date of payment

Appeal to the CTA

30-day period within the 2 years pre-emptory
period for instituting judicial action
 PART 5:
ADDITIONS TO THE
TAX
SURCHARGE & PENALTIES

ADDITION TO THE TAX PROPER, AS A

CONSEQUENCE OF FAILURE TO COMPLY
WITH THE CODE.
SURCHARGES
25% OF TAX DUE
◦FOR LATE PAYMENT

50% OF TAX DUE

◦FOR NON FILING
INTEREST

12% Interest per annum

A. Deficiency interest
B. Delinquency interest
C. Interest on extended payment
COMPROMISE PENALTY

◦ Amount of money to be paid to compromise a tax

violation.
◦ Paid in lieu of criminal prosecution.
◦ There is a table for compromise penalty
 THE END
MARIE STACY MARGARETT P. DIAZ, CPA, CAT, MST
INSTRUCTOR