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Protesting BIR Assessments

Following the deadline for the filing of the annual income tax returns last April 15, the taxpayers shall now expect an examination of their books of accounts by the revenue officers of the Bureau of Internal Revenue (BIR). With the commitment of the BIR to aggressively improve its tax collection nowadays, the Letter of Authority (LOA), which usually initiates the examination of the books of a taxpayer, may now be underway for issuance. The LOA issued by the BIR requires the taxpayer to grant the revenue examiners access to their books of accounts and to submit documents pertinent to the taxable year under examination. Under the 1997 Tax Code, the BIR is given three (3) years from the actual date of filing of the returns to assess national internal revenue taxes, unless false or fraudulent, or no returns at all were filed, in which case, the prescription period shall be ten (10) years from its discovery. Considering the prescriptive period to assess, the Final Assessment Notice (FAN)/ Final Letter of Demand (FLD) should be issued by the BIR Commissioner or his duly authorized representative within such prescribed period, unless there is a waiver of said statute of limitations to assess as agreed between the BIR and the taxpayer. The FAN/FLD, which requires the payment of the assessed deficiency taxes, should state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the formal letter of demand and assessment notice shall be void. Likewise, service of the FAN/FLD to the taxpayer should be made only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof.

It is therefore imperative on the part of the tax authorities to comply with these requirements in order to validly assert the right of the Government to assess and collect the correct taxes from the taxpayers. The necessity of these requirements is recognized by the Supreme Court in one case, in which it held that the issuance of a valid formal assessment is a substantive prerequisite to tax collection, for it contains not only a computation of tax liabilities but also a demand for payment within a prescribed period, thereby signaling the time when penalties and interests begin to accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due process requires that it must be served on and received by the taxpayer. On the part of the taxpayers, the right to be afforded with opportunity to present its arguments to the assessments issued by the revenue officers may be done by filing of an administrative protest within thirty (30) days from receipt of the assessment. The taxpayer shall also be required to submit the necessary documents in support of the protest within sixty (60) days from date of filing of his letter of protest. Failure to file a valid protest within such period shall render the assessment final, executory and demandable. Based, therefore, on the prevailing jurisprudence and provisions of the Tax Code, the taxpayers right to procedural and substantive due process in case of tax investigations as enshrined in our Constitution is recognized and protected. The taxpayers simply need to be aware of these rights and remedies in order to validly contest the assessment issued by the tax authorities.

The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law). If you have any comments or questions concerning the article, you can e-mail the author at deo.saludario@bdblaw.com.ph or call 403-2001 local 320.