Basic Remedies of Taxpayers - SEMPRUN

How is a particular taxpayer selected for audit?

- Officers of the Bureau responsible for the conduct of audit/investigation shall prepare a list of all taxpayers who
fall within the selection criteria prescribed in a Revenue Memorandum Order issued by the CIR to establish
guidelines for the audit program of a particular year. Such list shall then be submitted to their respective
Assistant Commissioner for pre-approval and to the CIR for final approval.

How many times can a taxpayer be subjected to examination and inspection for the same taxable year?

General Rule: A taxpayer’s books of accounts shall be subjected to examination and inspection ONLY ONCE for a taxable
year,

EXPN:

1. When the Commissioner determines that fraud, irregularities, or mistakes were committed by the taxpayer;

2. When the taxpayer himself requests a re-investigation or re-examination of his books of accounts;

3. When there is a need to verify the taxpayer’s compliance with withholding and other internal revenue taxes as
prescribed in a Revenue Memorandum Order issued by the CIR.

4. When the taxpayer’s capital gains tax liabilities must be verified; and

5. When the Commissioner chooses to exercise his power to obtain information relative to the examination of
other taxpayers.

LETTER OF AUTHORITY

 The authority given to the appropriate revenue officer assigned to perform assessment functions. It empowers
or enables the revenue officer to examine and scrutinize taxpayer’s books in order to determine their correct tax
liabilities.

 Valid for only 30 days from date of issue, and gives a revenue officer only a period of 120 days from receipt of
LOA to conduct his examination of the taxpayer.

PRE-ASSESSMENT NOTICE

 It is a communication issued by the Regional Assessment Division, or any other concerned BIR office, informing a
Taxpayer who has been audited of the findings of the R.O., following the review of these findings. If the taxpayer
disagrees with the findings stated in the PAN, he shall then have 15 days from his receipt of the PAN to file a
written reply contesting the proposed assessment.

FINAL assessment notice/FINAL LETTER OF DEMAND

 It is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a PAN within the prescribed
period of time, or whose reply to the PAN was found to be without merit. The FAN shall inform the taxpayer of
this fact, and that the report of investigation submitted by the R.O. conducting the audit shall be given due
course. The FLD calling for the payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law,
rules and regulations, or jurisprudence on which the assessment is based, otherwise, the FLD and the FAN shall
be void.

 Under the National Internal Revenue Code, the taxpayer’s remedies may be categorized into REMEDIES BEFORE
PAYMENT AND REMEDIES AFTER PAYMENT.

 The remedy before payment consists of ADMINISTRATIVE REMEDY which is the filing of protest within 30 days
from receipt of assessment, and JUDICIAL REMEDY which is the appeal of the adverse decision of the
Commissioner on the protest with the Court of Tax Appeals, thereafter to the Court of Appeals and finally with
the Supreme Court.

 The remedy after payment is availed of by paying the assessed tax within 30 days from receipt of assessment
and the filing of a claim for refund or tax credit of these taxes on the ground that they are erroneously paid
within two years from date of payment.

 If there is a denial of the claim, appeal to the CTA shall be made within 30 days from receipt of denial but within
two years from date of payment.
  If Commissioner fails to act on the claim for refund or tax credit and the two-year period is about to expire, the
taxpayer should consider the continuous inaction of the Commissioner as a denial and elevate the case to the
CTA before the expiration of the two-year period.

ADMINISTRATIVE REMEDIES

BEFORE PAYMENT:

 Before payment of the deficiency tax assessment, the taxpayer’s remedy is to file a written protest within 30
days from date of receipt of the formal assessment notice. The timely filing of the written protest against the
assessment is mandatory; otherwise, the assessment will become final (Sec. 228, NIRC).

 RECONSIDERATION / REINVESTIGATION

RECONSIDERATION

 is a plea for the re-evaluation of the deficiency tax assessment on the basis of existing records, without need of
additional evidence.

 After filing the protest, the next step would be for the taxpayer to wait for the BIR’s decision. The BIR has 180
days to render its decision, counted from the date of filing of the protest, in case of a request reconsideration.

REINVESTIGATION

 is a plea for the re-evaluation of the assessment on the basis of newly-discovered or additional evidence that a
taxpayer intends to present in the reinvestigation.

 The taxpayer is required to submit all relevant supporting documents (meaning, those which are necessary to
support the legal and factual bases in disputing the tax assessment) within 60 days from filing the
protest/request for reinvestigation; if he fails to do so within the 60-day period, the assessment shall become
final. The taxpayer will then be barred from disputing the correctness of the assessment by introducing newly-
discovered or additional evidence, and the BIR shall issue its Final Decision on Disputed Assessment (FDDA).

The taxpayer is required to state in his protest:

 (i) the nature of the protest (whether it is one for reconsideration or reinvestigation) specifying newly-
discovered or additional evidence he intends to present if it is for reinvestigation,

 (ii) the date of the assessment notice, and

 (iii) the applicable law, rules and regulations, or jurisprudence on which his protest is based.

AFTER PAYMENT

 After payment of deficiency tax assessment was made, his remedy is to file a written claim for refund or tax
credit with the appropriate government agency – the Bureau of Internal Revenue or the Department of Finance
One Stop Shop Center. The taxpayer need not pay the deficiency tax assessment under protest nor is he
required to write a letter to the BIR protesting said assessment at the time of payment (Secs. 204[C] and 229,
NIRC).

JUDICIAL REMEDIES

 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 the 180-day period; otherwise, the decision shall
become final, executory and demandable (Sec. 228, NIRC).

Recovery of tax erroneously or illegally collected

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be maintained in any court for
the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or
collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been
excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in
any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

 In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided,
however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on
 the face of the return upon which payment was made, such payment appears clearly to have been erroneously
paid.

SEC. 230. Forfeiture of Cash Refund and of Tax Credit. –

 (A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the pertinent provisions of this
Code, which shall remain unclaimed or uncashed within five (5) years from the date the said warrant or check
was mailed or delivered, shall be forfeited in favor of the Government and the amount thereof shall revert to
the general fund.
Allied Banking Corporation vs. Commissioner of Internal Revenue, 611 SCRA 692, G.R. No. 175097. February 5, 2010
Del Castillo, J.

Facts:

 On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to
petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount
of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the
taxable year 2001. Petitioner received the PAN on May 18, 2004 and filed a protest against it on May 27, 2004.

 On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner. Petitioner
received the Formal Letter of Demand with Assessment Notices on August 30, 2004.

 On September 29, 2004, petitioner filed a Petition for Review with the CTA which was raffled to its First Division
and docketed as CTA Case No. 7062.

 On December 7, 2004, respondent CIR filed his Answer. On July 28, 2005, he filed a Motion to Dismiss on the
ground that petitioner failed to file an administrative protest on the Formal Letter of Demand with Assessment
Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.

 On October 12, 2005, the First Division of the CTA rendered a Resolution granting respondent’s Motion to
Dismiss. On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc. The case was docketed as
CTA EB No. 167. Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of
the CTA First Division, the CTA En Banc denied the Petition for Review ]as well as petitioner’s Motion for
Reconsideration.

 The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative protest in
order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part of the
remedies given to a taxpayer in challenging the legality or validity of an assessment.
Issue:

 Whether the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR
appealable to the CTA under RA 9282.

Held:

 Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review by appeal
decisions of the CIR in cases involving disputed assessments. The CTA, being a court of special jurisdiction, can
take cognizance only of matters that are clearly within its jurisdiction.

 The word “decisions” in the above quoted provision of RA 9282 has been interpreted to mean the decisions of
the CIR on the protest of the taxpayer against the assessments. Corollary thereto, Section 228 of the National
Internal Revenue Code (NIRC) provides for the procedure for protesting an assessment.

 In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR issued
a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the proper recourse
of petitioner was to dispute the assessments by filing an administrative protest within 30 days from receipt
thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a Petition for Review
with the CTA. Thus, if we strictly apply the rules, the dismissal of the Petition for Review by the CTA was proper.

 However, In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with
Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter
of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it
is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a
clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination
thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court
accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend
the Formal Letter of Demand with Assessment Notices to be a final decision.

 The Formal Letter of Demand with Assessment Notices which was not administratively protested by the
petitioner can be considered a final decision of the CIR appealable to the CTA because the words used,
specifically the words “final decision” and “appeal”, taken together led petitioner to believe that the Formal
Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed
and that the available remedy was to appeal the same to the CTA.