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09-06-1999 Revenue Regulations No.

12-99
September 6, 1999
REVENUE REGU!"#$NS N$. 12-99
SU%&E'" ( #mplementing t)e *rovisions o+ t)e National #nternal Revenue
'o,e o+ 199- Governing t)e Rules on !ssessment o+ National #nternal Revenue "a.es,
'ivil *enalties an, #nterest an, t)e E.tra-/u,i0ial Settlement o+ a "a.pa1er2s 'riminal
Violation o+ t)e 'o,e ")roug) *a1ment o+ a Suggeste, 'ompromise *enalt1
"$ ( !ll #nternal Revenue $++i0ers an, $t)ers 'on0erne,
SE'"#$N 1. S0ope. 3 *ursuant to t)e provisions o+ Se0tion 244, in relation to
Se0tion 245 o+ t)e National #nternal Revenue 'o,e o+ 199-, t)ese Regulations are
)ereb1 promulgate, to implement t)e provisions o+ Se0tions 6, -, 204, 226, 24-, 246
an, 249 on assessment o+ national internal revenue ta.es, +ees an, 0)arges an, to
provi,e t)e rules governing t)e e.tra-/u,i0ial settlement o+ a ta.pa1er2s 0riminal
violation o+ t)e sai, 'o,e or an1 o+ its implementing Regulations t)roug) pa1ment o+ a
suggeste, 0ompromise penalt1.
SE'"#$N 2. General *rin0iples. 3
2.1 ")e sur0)arge an,7or interest )erein pres0ribe, s)all appl1 to all ta.es, +ees an,
0)arges impose, un,er t)e 'o,e 8)i0) s)all be 0olle0te, at t)e same time, in t)e same
manner, an, as part o+ t)e ta..
2.2 #n 0ase t)e ta. ,ue +rom t)e ta.pa1er is pai, on a partial or installment basis,
t)e interest on t)e ,e+i0ien01 ta. or on t)e ,elin9uen01 ta. liabilit1 o+ t)e ta.pa1er s)all
be impose, +rom ,ue ,ate o+ t)e ta. until +ull pa1ment t)ereo+. ")e interest s)all be
0ompute, base, on t)e ,iminis)ing balan0e o+ t)e ta., in0lusive o+ interests.
SE'"#$N :. ;ue *ro0ess Re9uirement in t)e #ssuan0e o+ a ;e+i0ien01 "a.
!ssessment. 3
:.1 <o,e o+ pro0e,ures in t)e issuan0e o+ a ,e+i0ien01 ta. assessment(
:.1.1 Noti0e +or in+ormal 0on+eren0e. 3 ")e Revenue $++i0er 8)o au,ite, t)e
ta.pa1er2s re0or,s s)all, among ot)ers, state in )is report 8)et)er or not t)e ta.pa1er
agrees 8it) )is +in,ings t)at t)e ta.pa1er is liable +or ,e+i0ien01 ta. or ta.es. #+ t)e
ta.pa1er is not amenable, base, on t)e sai, $++i0er2s submitte, report o+ investigation,
t)e ta.pa1er s)all be in+orme,, in 8riting, b1 t)e Revenue ;istri0t $++i0e or b1 t)e
Spe0ial #nvestigation ;ivision, as t)e 0ase ma1 be =in t)e 0ase Revenue Regional
$++i0es> or b1 t)e ')ie+ o+ ;ivision 0on0erne, =in t)e 0ase o+ t)e %#R National $++i0e>
o+ t)e ,is0repan01 or ,is0repan0ies in t)e ta.pa1er2s pa1ment o+ )is internal revenue
ta.es, +or t)e purpose o+ ?#n+ormal 'on+eren0e,? in or,er to a++or, t)e ta.pa1er 8it) an
opportunit1 to present )is si,e o+ t)e 0ase. #+ t)e ta.pa1er +ails to respon, 8it)in +i+teen
=15> ,a1s +rom ,ate o+ re0eipt o+ t)e noti0e +or in+ormal 0on+eren0e, )e s)all be
0onsi,ere, in ,e+ault, in 8)i0) 0ase, t)e Revenue ;istri0t $++i0er or t)e ')ie+ o+ t)e
Spe0ial #nvestigation ;ivision o+ t)e Revenue Regional $++i0e, or t)e ')ie+ o+ ;ivision
in t)e National $++i0e, as t)e 0ase ma1 be, s)all en,orse t)e 0ase 8it) t)e least possible
,ela1 to t)e !ssessment ;ivision o+ t)e Revenue Regional $++i0e or to t)e
'ommissioner or )is ,ul1 aut)ori@e, representative, as t)e 0ase ma1 be, +or appropriate
revie8 an, issuan0e o+ a ,e+i0ien01 ta. assessment, i+ 8arrante,.
:.1.2 *reliminar1 !ssessment Noti0e =*!N>. 3 #+ a+ter revie8 an, evaluation b1 t)e
!ssessment ;ivision or b1 t)e 'ommissioner or )is ,ul1 aut)ori@e, representative, as
t)e 0ase ma1 be, it is ,etermine, t)at t)ere e.ists su++i0ient basis to assess t)e ta.pa1er
+or an1 ,e+i0ien01 ta. or ta.es, t)e sai, $++i0e s)all issue to t)e ta.pa1er, at least b1
registere, mail, a *reliminar1 !ssessment Noti0e =*!N> +or t)e propose, assessment,
s)o8ing in ,etail, t)e +a0ts an, t)e la8, rules an, regulations, or /urispru,en0e on 8)i0)
t)e propose, assessment is base, =see illustration in !NNEA ! )ereo+>. #+ t)e ta.pa1er
+ails to respon, 8it)in +i+teen =15> ,a1s +rom ,ate o+ re0eipt o+ t)e *!N, )e s)all be
0onsi,ere, in ,e+ault, in 8)i0) 0ase, a +ormal letter o+ ,eman, an, assessment noti0e
s)all be 0ause, to be issue, b1 t)e sai, $++i0e, 0alling +or pa1ment o+ t)e ta.pa1er2s
,e+i0ien01 ta. liabilit1, in0lusive o+ t)e appli0able penalties.
:.1.: E.0eptions to *rior Noti0e o+ t)e !ssessment. 3 ")e noti0e +or in+ormal
0on+eren0e an, t)e preliminar1 assessment noti0e s)all not be re9uire, in an1 o+ t)e
+ollo8ing 0ases, in 8)i0) 0ase, issuan0e o+ t)e +ormal assessment noti0e +or t)e
pa1ment o+ t)e ta.pa1er2s ,e+i0ien01 ta. liabilit1 s)all be su++i0ient(
=i> B)en t)e +in,ing +or an1 ,e+i0ien01 ta. is t)e result o+ mat)emati0al error in
t)e 0omputation o+ t)e ta. appearing on t)e +a0e o+ t)e ta. return +ile, b1 t)e ta.pa1erC
or
=ii> B)en a ,is0repan01 )as been ,etermine, bet8een t)e ta. 8it))el, an, t)e
amount a0tuall1 remitte, b1 t)e 8it))ol,ing agentC or
=iii> B)en a ta.pa1er 8)o opte, to 0laim a re+un, or ta. 0re,it o+ e.0ess 0re,itable
8it))ol,ing ta. +or a ta.able perio, 8as ,etermine, to )ave 0arrie, over an,
automati0all1 applie, t)e same amount 0laime, against t)e estimate, ta. liabilities +or
t)e ta.able 9uarter or 9uarters o+ t)e su00ee,ing ta.able 1earC or
=iv> B)en t)e e.0ise ta. ,ue on e.0isable arti0les )as not been pai,C or
=v> B)en an arti0le lo0all1 pur0)ase, or importe, b1 an e.empt person, su0) as,
but not limite, to, ve)i0les, 0apital e9uipment, ma0)ineries an, spare parts, )as been
sol,, tra,e, or trans+erre, to non-e.empt persons.
:.1.4 Dormal etter o+ ;eman, an, !ssessment Noti0e. 3 ")e +ormal letter o+
,eman, an, assessment noti0e s)all be issue, b1 t)e 'ommissioner or )is ,ul1
aut)ori@e, representative. ")e letter o+ ,eman, 0alling +or pa1ment o+ t)e ta.pa1er2s
,e+i0ien01 ta. or ta.es s)all state t)e +a0ts, t)e la8, rules an, regulations, or
/urispru,en0e on 8)i0) t)e assessment is base,, ot)er8ise, t)e +ormal letter o+ ,eman,
an, assessment noti0e s)all be voi, =see illustration in !NNEA % )ereo+>. ")e same
s)all be sent to t)e ta.pa1er onl1 b1 registere, mail or b1 personal ,eliver1. #+ sent b1
personal ,eliver1, t)e ta.pa1er or )is ,ul1 aut)ori@e, representative s)all a0Eno8le,ge
re0eipt t)ereo+ in t)e ,upli0ate 0op1 o+ t)e letter o+ ,eman,, s)o8ing t)e +ollo8ing( =a>
Fis nameC =b> signatureC =0> ,esignation an, aut)orit1 to a0t +or an, in be)al+ o+ t)e
ta.pa1er, i+ a0Eno8le,ge, re0eive, b1 a person ot)er t)an t)e ta.pa1er )imsel+C an, =,>
,ate o+ re0eipt t)ereo+.
:.1.5 ;ispute, !ssessment. 3 ")e ta.pa1er or )is ,ul1 aut)ori@e, representative
ma1 protest a,ministrativel1 against t)e a+oresai, +ormal letter o+ ,eman, an,
assessment noti0e 8it)in t)irt1 =:0> ,a1s +rom ,ate o+ re0eipt t)ereo+. #+ t)ere are
several issues involve, in t)e +ormal letter o+ ,eman, an, assessment noti0e but t)e
ta.pa1er onl1 ,isputes or protests against t)e vali,it1 o+ some o+ t)e issues raise,, t)e
ta.pa1er s)all be re9uire, to pa1 t)e ,e+i0ien01 ta. or ta.es attributable to t)e
un,ispute, issues, in 8)i0) 0ase, a 0olle0tion letter s)all be issue, to t)e ta.pa1er
0alling +or pa1ment o+ t)e sai, ,e+i0ien01 ta., in0lusive o+ t)e appli0able sur0)arge
an,7or interest. No a0tion s)all be taEen on t)e ta.pa1er2s ,ispute, issues until t)e
ta.pa1er )as pai, t)e ,e+i0ien01 ta. or ta.es attributable to t)e sai, un,ispute, issues.
")e pres0riptive perio, +or assessment or 0olle0tion o+ t)e ta. or ta.es attributable to t)e
,ispute, issues s)all be suspen,e,.
")e ta.pa1er s)all state t)e +a0ts, t)e appli0able la8, rules an, regulations, or
/urispru,en0e on 8)i0) )is protest is base,, ot)er8ise, )is protest s)all be 0onsi,ere,
voi, an, 8it)out +or0e an, e++e0t. #+ t)ere are several issues involve, in t)e ,ispute,
assessment an, t)e ta.pa1er +ails to state t)e +a0ts, t)e appli0able la8, rules an,
regulations, or /urispru,en0e in support o+ )is protest against some o+ t)e several issues
on 8)i0) t)e assessment is base,, t)e same s)all be 0onsi,ere, un,ispute, issue or
issues, in 8)i0) 0ase, t)e ta.pa1er s)all be re9uire, to pa1 t)e 0orrespon,ing ,e+i0ien01
ta. or ta.es attributable t)ereto.
")e ta.pa1er s)all submit t)e re9uire, ,o0uments in support o+ )is protest 8it)in si.t1
=60> ,a1s +rom ,ate o+ +iling o+ )is letter o+ protest, ot)er8ise, t)e assessment s)all
be0ome +inal, e.e0utor1 an, ,eman,able. ")e p)rase ?submit t)e re9uire, ,o0uments?
in0lu,es submission or presentation o+ t)e pertinent ,o0uments +or s0rutin1 an,
evaluation b1 t)e Revenue $++i0er 0on,u0ting t)e au,it. ")e sai, Revenue $++i0er s)all
state t)is +a0t in )is report o+ investigation.
#+ t)e ta.pa1er +ails to +ile a vali, protest against t)e +ormal letter o+ ,eman, an,
assessment noti0e 8it)in t)irt1 =:0> ,a1s +rom ,ate o+ re0eipt t)ereo+, t)e assessment
s)all be0ome +inal, e.e0utor1 an, ,eman,able.
#+ t)e protest is ,enie,, in 8)ole or in part, b1 t)e 'ommissioner, t)e ta.pa1er ma1
appeal to t)e 'ourt o+ "a. !ppeals 8it)in t)irt1 =:0> ,a1s +rom ,ate o+ re0eipt o+ t)e
sai, ,e0ision, ot)er8ise, t)e assessment s)all be0ome +inal, e.e0utor1 an, ,eman,able.
#n general, i+ t)e protest is ,enie,, in 8)ole or in part, b1 t)e 'ommissioner or )is ,ul1
aut)ori@e, representative, t)e ta.pa1er ma1 appeal to t)e 'ourt o+ "a. !ppeals 8it)in
t)irt1 =:0> ,a1s +rom ,ate o+ re0eipt o+ t)e sai, ,e0ision, ot)er8ise, t)e assessment s)all
be0ome +inal, e.e0utor1 an, ,eman,able( *rovi,e,, )o8ever, t)at i+ t)e ta.pa1er
elevates )is protest to t)e 'ommissioner 8it)in t)irt1 =:0> ,a1s +rom ,ate o+ re0eipt o+
t)e +inal ,e0ision o+ t)e 'ommissioner2s ,ul1 aut)ori@e, representative, t)e latter2s
,e0ision s)all not be 0onsi,ere, +inal, e.e0utor1 an, ,eman,able, in 8)i0) 0ase, t)e
protest s)all be ,e0i,e, b1 t)e 'ommissioner.
#+ t)e 'ommissioner or )is ,ul1 aut)ori@e, representative +ails to a0t on t)e ta.pa1er2s
protest 8it)in one )un,re, eig)t1 =160> ,a1s +rom ,ate o+ submission, b1 t)e ta.pa1er,
o+ t)e re9uire, ,o0uments in support o+ )is protest, t)e ta.pa1er ma1 appeal to t)e
'ourt o+ "a. !ppeals 8it)in t)irt1 =:0> ,a1s +rom t)e lapse o+ t)e sai, 160-,a1 perio,,
ot)er8ise, t)e assessment s)all be0ome +inal, e.e0utor1 an, ,eman,able.
:.1.6 !,ministrative ;e0ision on a ;ispute, !ssessment. 3 ")e ,e0ision o+ t)e
'ommissioner or )is ,ul1 aut)ori@e, representative s)all =a> state t)e +a0ts, t)e
appli0able la8, rules an, regulations, or /urispru,en0e on 8)i0) su0) ,e0ision is base,,
ot)er8ise, t)e ,e0ision s)all be voi, =see illustration in !NNEA ' )ereo+>, in 8)i0)
0ase, t)e same s)all not be 0onsi,ere, a ,e0ision on a ,ispute, assessmentC an, =b> t)at
t)e same is )is +inal ,e0ision.
:.1.- 'onstru0tive Servi0e. 3 #+ t)e noti0e to t)e ta.pa1er )erein re9uire, is serve,
b1 registere, mail, an, no response is re0eive, +rom t)e ta.pa1er 8it)in t)e pres0ribe,
perio, +rom ,ate o+ t)e posting t)ereo+ in t)e mail, t)e same s)all be 0onsi,ere, a0tuall1
or 0onstru0tivel1 re0eive, b1 t)e ta.pa1er. #+ t)e same is personall1 serve, on t)e
ta.pa1er or )is ,ul1 aut)ori@e, representative 8)o, )o8ever, re+use, to a0Eno8le,ge
re0eipt t)ereo+, t)e same s)all be 0onstru0tivel1 serve, on t)e ta.pa1er. 'onstru0tive
servi0e t)ereo+ s)all be 0onsi,ere, e++e0te, b1 leaving t)e same in t)e premises o+ t)e
ta.pa1er an, t)is +a0t o+ 0onstru0tive servi0e is atteste, to, 8itnesse, an, signe, b1 at
least t8o =2> revenue o++i0ers ot)er t)an t)e revenue o++i0er 8)o 0onstru0tivel1 serve,
t)e same. ")e revenue o++i0er 8)o 0onstru0tivel1 serve, t)e same s)all maEe a 8ritten
report o+ t)is matter 8)i0) s)all +orm part o+ t)e ,o0Eet o+ t)is 0ase =see illustration in
!NNEA ; )ereo+>.
SE'"#$N 4. 'ivil *enalties. 3
4.1 "8ent1-Dive *er0ent =25G> Sur0)arge. 3 ")ere s)all be impose,, in a,,ition
to t)e basi0 ta. re9uire, to be pai,, a penalt1 e9uivalent to t8ent1-+ive per0ent =25G>
t)ereo+, in an1 t)e +ollo8ing 0ases(
4.1.1 Dailure to +ile an1 return an, pa1 t)e ta. ,ue t)ereon as re9uire, un,er t)e
provisions o+ t)is 'o,e or rules an, regulations on t)e ,ate pres0ribe,C or
4.1.2 Unless ot)er8ise aut)ori@e, b1 t)e 'ommissioner, +iling a return 8it) an
internal revenue o++i0er ot)er t)an t)ose 8it) 8)om t)e return is re9uire, to be +ile,C or
4.1.: Dailure to pa1 t)e ,e+i0ien01 ta. 8it)in t)e time pres0ribe, +or its pa1ment in
t)e noti0e o+ assessmentC or
4.1.4 Dailure to pa1 t)e +ull or part o+ t)e amount o+ ta. s)o8n on an1 return re9uire,
to be +ile, un,er t)e provisions o+ t)is 'o,e or rules an, regulations, or t)e +ull amount
o+ ta. ,ue +or 8)i0) no return is re9uire, to be +ile,, on or be+ore t)e ,ate pres0ribe, +or
its pa1ment.
4.2 Di+t1 *er0ent =50G> Sur0)arge(
4.2.1 #n 0ase o+ 8ill+ul negle0t to +ile t)e return 8it)in t)e perio, pres0ribe, b1 t)e
'o,e, or in 0ase a +alse or +rau,ulent return is 8ill+ull1 ma,e, t)e penalt1 to be impose,
s)all be +i+t1 per0ent =50G> o+ t)e ta. or o+ t)e ,e+i0ien01 ta., in 0ase an1 pa1ment )as
been ma,e on t)e basis o+ su0) return be+ore t)e ,is0over1 o+ t)e +alsit1 or +rau,(
*rovi,e,, ")at a substantial un,er,e0laration o+ ta.able sales, re0eipts or in0ome, or a
substantial overstatement o+ ,e,u0tions, as ,etermine, b1 t)e 'ommissioner or )is ,ul1
aut)ori@e, representative, s)all 0onstitute prima +a0ie evi,en0e o+ a +alse or +rau,ulent
return( *rovi,e,, +urt)er, ")at +ailure to report sales, re0eipts or in0ome in an amount
e.0ee,ing t)irt1 per0ent =:0G> o+ t)at ,e0lare, per return, an, a 0laim o+ ,e,u0tions in
an amount e.0ee,ing t)irt1 per0ent =:0G> o+ a0tual ,e,u0tions, s)all ren,er t)e
ta.pa1er liable +or substantial un,er,e0laration o+ sales, re0eipts or in0ome or +or
overstatement o+ ,e,u0tions, as mentione, )erein( *rovi,e,, +urt)er, t)at t)e term
?8ill+ul negle0t to +ile t)e return 8it)in t)e perio, pres0ribe, b1 t)e 'o,e? s)all not
appl1 in 0ase t)e ta.pa1er, 8it)out noti0e +rom t)e 'ommissioner or )is aut)ori@e,
representative, voluntaril1 +iles t)e sai, return, in 8)i0) 0ase, onl1 25G sur0)arge s)all
be impose, +or late +iling an, late pa1ment o+ t)e ta. in lieu o+ t)e above 50G
sur0)arge. 'onversel1, t)e 50G sur0)arge s)all be impose, in 0ase t)e ta.pa1er +iles t)e
return onl1 a+ter prior noti0e in 8riting +rom t)e 'ommissioner or )is ,ul1 aut)ori@e,
representative.
4.2.2 Se0tion 6 =!> o+ t)e 'o,e provi,es t)at an1 ta. return +ile, b1 a ta.pa1er ?ma1
be mo,i+ie,, 0)ange, or amen,e,? b1 t)e ta.pa1er ?8it)in t)ree =:> 1ears +rom ,ate o+
su0) +iling? provi,e,, )o8ever, t)at ?no noti0e +or au,it or investigation o+ su0) return,
statement or ,e0laration )as, in t)e meantime, been a0tuall1 serve, upon t)e ta.pa1er.?
")us, i+ upon investigation, it is ,etermine, t)at t)e ta.pa1er2s originall1 +ile, ta. return
is +alse or +rau,ulent, su0) ta.pa1er s)all remain liable to t)e 50G 0ivil penalt1
regar,less t)at t)e ta.pa1er )as +ile, )is amen,e, ta. return, i+ t)e sai, amen,e, ta.
return, )o8ever, )as been +ile, onl1 a+ter issuan0e o+ t)e etter o+ !ut)orit1 +or t)e
investigation o+ t)e ta.pa1er2s ta. return or su0) amen,ment )as been ma,e in t)e
0ourse o+ t)e sai, investigation.
SE'"#$N 5. <o,e o+ *ro0e,ures in 'omputing +or t)e "a. an,7or !ppli0able
Sur0)arge. 3 S)o8n )ereun,er are illustrative 0ases +or t)e 0omputation an,
assessment o+ t)e ta., in0lusive o+ sur0)arge =i+ appli0able> an, interest(
5.1 ate +iling an, late pa1ment o+ t)e ta.. 3 #llustration( #n0ome ta. return +or t)e
0alen,ar 1ear 1996 8as ,ue +or +iling on !pril 15, 1999 but t)e ta.pa1er voluntaril1
+ile, )is ta. return, 8it)out noti0e +rom t)e %#R, onl1 on &une :0, 1999. ")e ta. ,ue per
return amounts to *100,000. #n t)is 0ase, t)e ta.pa1er s)all be liable +or ,elin9uen01
penalties 0onsisting o+ 25G sur0)arge, plus 20G interest per annum, 0ompute, +rom ,ue
,ate o+ t)e ta. until ,ate o+ pa1ment, 0ompute, as +ollo8s(
'alen,ar Hear 1996
#n0ome ta. ,ue per return *100,000.00
!,,( 25G sur0)arge +or late +iling an, late
pa1ment =*100,000.00 times 25G> *25,000.00
20G int. p.a. +rom 4-15-99 to 6-:0-99
=*100,000.00 times .0415524> *4,155.24 *29,155.24
3333 33333
"otal amount ,ue =e.0lu,ing suggeste, 0ompromise +or
late +iling an, late pa1ment o+ t)e ta.> *129,155.24
IIIIIIIII
$nl1 one 25G sur0)arge s)all be impose, +or late +iling o+ t)e return an, late pa1ment
o+ t)e ta..
5.2 ")e ta. return is +ile, on time but +ile, t)roug) an internal revenue o++i0er ot)er
t)an 8it) 8)om t)e return is re9uire, to be +ile,. 3 #llustration( ")e ta.pa1er2s 1996
in0ome ta. return is re9uire, to be +ile, t)roug) t)e aut)ori@e, agent banE un,er t)e
/uris,i0tion o+ R;$ East <aEati. %ut, 8it)out prior aut)ori@ation +rom t)e %#R, t)e
ta.pa1er +ile, )is ta. return an, pai, t)e ta. t)roug) t)e aut)ori@e, agent banE un,er
t)e /uris,i0tion o+ R;$ ;avao 'it1. "a. ,ue an, pai, per return is *100,000.00.
'alen,ar Hear 1996
#n0ome ta. ,ue per return *100,000.00
!,,( 25G sur0)arge *25,000.00
33333
"otal amount ,ue *125,000.00
ess( !mount pai, *100,000.00
33333
!mount still ,ue *25,000.00
IIIIIIIII
5.: ate +iling an, late pa1ment ,ue to ta.pa1er2s 8ill+ul negle0t. 3 #llustration(
")e ta.pa1er ,i, not +ile )is in0ome ta. return +or t)e 0alen,ar 1ear 199- 8)i0) 8as
,ue +or +iling on !pril 15, 1996. Fe 8as noti+ie, b1 t)e %#R o+ )is +ailure to +ile t)e ta.
return, +or 8)i0) reason, )e +ile, )is ta. return an, pai, t)e ta., onl1 a+ter t)e sai,
noti0e, on &une :0, 1999. ")e ta. ,ue per return is *100,000.00.
'alen,ar Hear 199-
#n0ome ta. ,ue per return *100,000.00
!,,( 50G sur0)arge +or 8ill+ul negle0t to
+ile t)e return an, late pa1ment o+ t)e ta.
=*100,000 times 50G> *50,000.00
20G int. p.a. +r. 4-15-96 to 6-:0-99
=*100,000.00 times .2415524> *24,155.24 *-4,155.24
33333 33333
"otal amount ,ue =e.0lu,ing suggeste, 0ompromise
+or late +iling an, late pa1ment o+ t)e ta.> *1-4,155.24
IIIIIIIII
5.4 *enalt1 or penalties +or ,e+i0ien01 ta.. 3 !s a rule, no sur0)arge is impose, on
,e+i0ien01 ta. an, on t)e basi0 ta.. Fo8ever, i+ t)e amount ,ue in0lusive o+ penalties is
not pai, on or be+ore t)e ,ue ,ate state, on t)e ,eman, letter, t)e 0orrespon,ing
sur0)arge s)all be impose,.
#llustration No. 1( "a.pa1er +ile, on time )is in0ome ta. return +or 0alen,ar 1ear 199-
an, pai, *100,000.00 on !pril 15, 1996. Upon pre-au,it o+ )is return, it 8as ,is0lose,
t)at )e erroneousl1 0ompute, t)e ta. ,ue. ")e 0orre0t amount o+ ta. ,ue is
*120,000.00. ")e ta.pa1er is assesse, +or ,e+i0ien01 in0ome ta. in a letter o+ ,eman,
an, assessment noti0e issue, on &une :0, 1999.
'alen,ar Hear 199-
"a. ,ue per pre-au,it *120,000.00
ess( !mount assesse, an, pai, per ta. return +ile, *100,000.00
33333
;e+i0ien01 in0ome ta. *20,000.00
!,,( 20G int. p.a. +rom 4-15-96 to 6-:0-99
=*20,000.00 times .2415524> *4,6:1.05
33333
!mount still ,ue *24,6:1.05
IIIIIIIII
#llustration No. 2( !%' '$R*$R!"#$N +ile, its in0ome ta. return +or 0alen,ar 1ear
199- an, pai, on time its in0ome ta. s)o8n t)ereun,er, amounting to *100,000. Sai,
ta.pa1er 8as investigate,. Upon veri+i0ation o+ its a00ounting re0or,s, it 8as ,is0lose,
t)at its ,e,u0tion, +rom gross in0ome, o+ representation e.penses in t)e amount o+
*200,000.00 ,i, not meet all t)e statutor1 re9uisites +or ,e,u0tibilit1. ")e 0orporation
8as ,ul1 noti+ie, o+ t)e sai, ,is0repan01 t)roug) a *reliminar1 !ssessment Noti0e.
%ase, on t)e :5G in0ome ta. rate on 0orporations appli0able in t)e 1ear 199-, t)e
in0ome ta. ,ue a+ter investigation amounts to *1-0,000.00. !+ter ,e,u0tion o+ in0ome
ta. pai, per return +ile,, t)e basi0 ,e+i0ien01 in0ome ta. amounts to *-0,000, e.0lu,ing
penalties. Dailing to protest on time against t)e preliminar1 assessment noti0e, a +ormal
letter o+ ,eman, an, assessment noti0e 8as issue, on <a1 :1, 1999, re9uiring pa1ment
o+ t)e assessment not later t)an &une :0, 1999.
'alen,ar Hear 199-
#n0ome ta. ,ue per investigation *1-0,000.00
ess( #n0ome ta. pai, per return *100,000.00
33333
;e+i0ien01 in0ome ta. *-0,000.00
!,,( 20G int. p.a. +r. 4-15-96 to 6-:0-99 =*-0,000 times .2415524> *16,906.6-
33333
"otal amount still ,ue *66,906.6-
IIIIIIIII
#llustration No. :( AHJ '$R*$R!"#$N +ile, its in0ome ta. return +or 0alen,ar 1ear
199- 8it) a net ta.able in0ome o+ *500,000.00. !t t)e appli0able in0ome ta. rate o+
:5G +or t)e 1ear 199-, its in0ome ta. amounte, to *1-5,000.00. Fo8ever, upon
investigation, it 8as ,is0lose, t)at its in0ome ta. return 8as +alse or +rau,ulent be0ause
it ,i, not report a ta.able in0ome amounting to anot)er *500,000.00. $n its net in0ome
o+ *1,000,000.00, per investigation, t)e in0ome ta. ,ue is *:50,000.00. ;e,u0ting its
pa1ment per return +ile,, t)e ,e+i0ien01, e.0lu,ing penalties, amounte, to *1-5,000.00.
#t 8as ,ul1 in+orme, o+ t)is +in,ing t)roug) a *reliminar1 !ssessment Noti0e. Dailing
to protest on time against t)e preliminar1 assessment noti0e, a +ormal letter o+ ,eman,
an, assessment noti0e 8as issue, on <a1 :1, 1999 0alling +or pa1ment o+ t)e
,e+i0ien01 in0ome ta. on or be+ore &une :0, 1999.
#n t)is 0ase, sai, 0orporation is liable +or t)e 0ivil penalties o+ 50G sur0)arge +or )aving
+ile, a +alse or +rau,ulent return, plus 20G interest per annum on t)e ,e+i0ien01,
0ompute, as +ollo8s(
'alen,ar Hear 199-
#n0ome ta. ,ue per investigation *:50,000.00
ess( #n0ome ta. pai, per return *1-5,000.00
33333
;e+i0ien01 in0ome ta. *1-5,000.00
!,,( 50G sur0)arge +or +iling a +rau,ulent or +alse
return =*1-5,000.00 times 50G> *6-,500.00
20G int. p.a. +r. 4-15-96 to 6-:0-99
=*1-5,000.00 times .2415524> *42,2-1.6- *129,--1.6-
33333 33333
"otal amount ,ue *:04,--1.6-
IIIIIIIII
5.5 ate pa1ment o+ a ,e+i0ien01 ta. assesse,. 3 #n general, t)e ,e+i0ien01 ta.
assesse, s)all be pai, b1 t)e ta.pa1er 8it)in t)e time pres0ribe, in t)e noti0e an,
,eman,, ot)er8ise, su0) ta.pa1er s)all be liable +or t)e 0ivil penalties in0i,ent to late
pa1ment.
#llustration( %ase, on t)e above #llustration No. :, S0enario 4, assuming t)at t)e
0alen,ar 1ear 199- ,e+i0ien01 in0ome ta. assessment against AHJ '$R*$R!"#$N, in
t)e amount o+ *:04,--1.6-, is not pai, b1 &une :0, 1999, t)e ,ea,line +or pa1ment o+
t)e assessment, an, assuming +urt)er t)at t)is assessment )as alrea,1 be0ome +inal an,
0olle0tible. #n t)is 0ase, su0) 0orporation s)all be 0onsi,ere, late in pa1ment o+ t)e sai,
assessment. !ssuming, +urt)er, t)at t)e 0orporation pa1s its ta. assessment onl1 b1 &ul1
:1, 1999, t)e 0ivil penalties +or late pa1ment s)all be 0ompute, as +ollo8s(
'alen,ar Hear 199-
"otal ,e+i0ien01 in0ome ta. assesse, on <a1 :1, 1999 *:04,--1.6-
!,,( 25G sur0)arge +or late pa1ment
=*:04,--1.6- times 25G> *-6,192.92
20G interest p.a. +rom --1-99 to
--:1-99 =*:04,--1.6-
times .016666-> *5,0-9.54 *61,2-2.46
33333 33333
"otal amount ,ue =e.0lu,ing suggeste, 0ompromise
penalt1 +or late pa1ment> *:66,044.1:
IIIIIIIII
5.6 'omputation o+ 20G interest per annum in 0ase o+ partial or installment
pa1ment o+ a ta. liabilit1. 3 #llustration No. 1( #n 0ase e.ten,e, pa1ment o+ t)e ta. is
,ul1 aut)ori@e,. 3 ;ED '$R*$R!"#$N, ,ue to +inan0ial in0apa0it1, re9ueste, t)at it
be allo8e, to pa1 its in0ome ta. liabilit1 per return +or 0alen,ar 1ear 1996, in t)e
amount o+ *1,000,000.00, in +our =4> mont)l1 installments, starting !pril 15, 1999. #ts
re9uest )as been ,ul1 approve, pursuant to Se0. 5: o+ t)e "a. 'o,e.
#n t)is 0ase, no 25G sur0)arge s)all be impose, +or late pa1ment o+ t)e ta. sin0e its
,ea,line +or pa1ment )as been ,ul1 e.ten,e,. Fo8ever, 20G interest per annum +or t)e
e.ten,e, pa1ment s)all be impose,, 0ompute, base, on t)e ,iminis)ing balan0e o+ t)e
?unpai, amount?, pursuant to t)e provisions o+ Se0tion 249 =;> o+ t)e 'o,e.
No 25G sur0)arge on e.ten,e, pa1ment s)all be impose, provi,e,, )o8ever, t)at t)e
ta.pa1er2s re9uest +or e.tension o+ t)e perio, 8it)in 8)i0) to pa1 is ma,e on or be+ore
t)e ,ea,line pres0ribe, +or pa1ment o+ t)e ta. ,ue. 'onversel1, i+ su0) re9uest is ma,e
a+ter t)e ,ea,line pres0ribe, +or pa1ment, t)e ta.pa1er s)all alrea,1 be treate, late in
pa1ment, in 8)i0) 0ase, t)e 25G sur0)arge s)all be impose,, even i+ pa1ment o+ t)e
,elin9uen01 be allo8e, in partial amorti@ation.
E.ample(
'alen,ar Hear 1996
#n0ome ta. ,ue per return *1,000,000.00
ess( 1st installment o+ t)e ta. on or be+ore 4-15-99 *250,000.00
333333
%alan0e as o+ 4-15-99 *-50,000.00
!,,( 20G int. p.a. +rom 4-15-99 to 5-15-99
=*-50,000.00 times .016666-> *12,500.0:
333333
!mount ,ue on 5-15-99 *-62,500.0:
ess( 2n, installment on 5-15-99 =*250,000.00 plus
*12,500.0: interest> *262,500.0:
333333
%alan0e as o+ 5-15-99 *500,000.00
!,,( 20G int. p.a. +rom 5-15-99 to 6-15-99
=*500,000.00 times .016666-> *6,:::.:5
333333
!mount ,ue on 6-15-99 *506,:::.:5
ess( :r, installment on 6-15-99 =*250,000.00 plus
*6,:::.:5 interest> *256,:::.:5
333333
%alan0e as o+ 6-15-99 *250,000.00
!,,( 20G int. p.a. +rom 6-15-99 to --15-99
=*250,000.00 times .016666-> *4,166.66
333333
4t) an, +inal installment on --15-99 *254,166.66
IIIIIIIIIII
#llustration No. 2( 'omputation o+ ta. ,elin9uen01 in 0ase o+ partial pa1ment o+ t)e ta.
,ue 8it)out prior %#R aut)ori@ation +or e.ten,e, pa1ment. 3
E.ample( GF# '$R*$R!"#$N ,i, not +ile its +inal a,/ustment in0ome ta. return +or
t)e 0alen,ar 1ear 1996 8)i0) 8as ,ue on !pril 15, 1999. ")e %#R in+orme, t)e
0orporation o+ its +ailure to +ile its sai, ta. return an, re9uire, t)at it +ile t)e same,
in0lusive o+ t)e 25G sur0)arge an, 20G interest per annum penalties in0i,ent to t)e
sai, omission. $n <a1 15, 1999 it a,vise, t)at its in0ome ta. ,ue +or t)e sai, 1ear
amounts to *1,000,000.00 but, )o8ever, ,ue to its a,verse +inan0ial 0on,ition at t)e
moment, it 8ill be unable to pa1 t)e entire amount, in0lusive o+ t)e ,elin9uen01
penalties. Fen0e, on <a1 15, 1999, it ma,e a partial pa1ment o+ *400,000.00.
!ssuming t)at t)e %#R ,eman,e, pa1ment o+ t)e unpai, balan0e o+ its ta. obligation
pa1able b1 &une 15, 1999, t)e unpai, balan0e o+ t)e 0orporation2s ,elin9uent in0ome ta.
s)all be 0ompute, as +ollo8s(
'alen,ar Hear 1996
#n0ome ta. ,ue per return *1,000,000.00
!,,( 25G sur0)arge +or late +iling an,
late pa1ment *250,000.00
20G interest per annum +rom 4-15-99
to 5-15-99 =*1,000,000.00
times .016666-> *16,666.-0 *266,666.-0
33333 33333
!mount ,ue as o+ 5-15-99 *1,266,666.-0
ess( *artial pa1ment on 5-15-99*400,000.00
33333
%alan0e as o+ 5-15-99 *666,666.-0
!,,( 20G interest per annum +rom 5-15-99
to 6-15-99 =*666,666.-0 times .016666->*14,444.4-
33333
!mount still ,ue =e.0lusive o+ t)e suggeste, 0ompromise
penalt1 +or late +iling an, late pa1ment *611,111.1-
IIIIIIIII
#+ t)e sai, ta.pa1er +ails to pa1 t)e amount o+ *611,111.1- b1 &une 15, 1999, no +urt)er
25G sur0)arge +or late pa1ment o+ t)e ta. s)all be impose,. #nstea,, onl1 t)e 20G
interest per annum s)all be impose, against t)e ta.pa1er against t)e ta.pa1er, 0ompute,
+rom ,ue ,ate t)ereo+ =i.e., &une 15, 1999> until pai,. #+ sai, ta.pa1er pa1s t)e same on
partial pa1ment basis, t)e 20G interest per annum s)all be 0ompute, on t)e ,iminis)ing
balan0e t)ereo+, pursuant to t)e pro0e,ures in t)e pre0e,ing #llustration No. 1, Se0tion
6.6 )ereo+.
SE'"#$N 6. Suggeste, 'ompromise *enalt1 in E.tra-/u,i0ial Settlement o+ a
"a.pa1er2s 'riminal Violation. 3 Se0tion 204 o+ t)e "a. 'o,e o+ 199- provi,es t)at
?!ll 0riminal violations ma1 be 0ompromise, e.0ept( =a> t)ose alrea,1 +ile, in 0ourt, or
=b> t)ose involving +rau,.? ")is means t)at, in general, t)e ta.pa1er2s 0riminal liabilit1
arising +rom )is violation o+ t)e pertinent provision o+ t)e 'o,e ma1 be settle, e.tra-
/u,i0iall1 instea, o+ t)e %#R instituting against t)e ta.pa1er a 0riminal a0tion in 'ourt.
! 0ompromise in e.tra-/u,i0ial settlement o+ t)e ta.pa1er2s 0riminal liabilit1 +or )is
violation is 0onsensual in 0)ara0ter, )en0e, ma1 not be impose, on t)e ta.pa1er 8it)out
)is 0onsent. Fen0e, t)e %#R ma1 onl1 suggest settlement o+ t)e ta.pa1er2s liabilit1
t)roug) a 0ompromise.
")e e.tra-/u,i0ial settlement o+ t)e ta.pa1er2s 0riminal liabilit1 an, t)e amount o+ t)e
suggeste, 0ompromise penalt1 s)all 0on+orm 8it) t)e s0)e,ule o+ 0ompromise penalties
provi,e, un,er Revenue <emoran,um $r,er No. 1-90 or as )erea+ter revise,.
SE'"#$N -. Repealing 'lause. 3 !n1 revenue issuan0e 8)i0) is in0onsistent
)ere8it) s)all be 0onsi,ere, repeale,, amen,e,, or mo,i+ie, a00or,ingl1.
SE'"#$N 6. E++e0tivit1. 3
6.1 General Rule. 3 #n general, t)e provisions o+ t)ese Regulations s)all be
e++e0tive beginning &anuar1 1, 1996 pursuant to t)e provisions o+ Se0tion 6 o+ R.!. No.
6424, ot)er8ise Eno8n as t)e National #nternal Revenue 'o,e o+ 199-.
6.2 'omputation o+ Sur0)arge an, #nterest on ;e+i0ien01 "a. !ssessment. 3 !n1
,e+i0ien01 ta. assessment issue, beginning &anuar1 1, 1996 s)all be governe, b1 t)e
rules pres0ribe, in t)ese Regulations.
6.: $t)er *rovisions. 3 !n1 provision o+ t)ese Regulations not ot)er8ise
spe0i+i0all1 provi,e, in t)e National #nternal Revenue 'o,e o+ 199- s)all taEe e++e0t
+i+teen =15> ,a1s a+ter publi0ation in an1 ne8spaper o+ general 0ir0ulation.
=SG;.> E;G!R;$ %. ES*#R#"U
Se0retar1 o+ Dinan0e
Re0ommen,ing !pproval(
=SG;.> %EE"F$VEN . RU!$
'ommissioner o+ #nternal Revenue
!NNEA !
*reliminar1 !ssessment Noti0e
!%' 'orporation
12: <aEati !venue
<aEati 'it1
"#N( 000-000-000-000
Gentlemen(
*lease be in+orme, t)at a+ter investigation t)ere )as been +oun, ,ue +rom 1ou
,e+i0ien01 in0ome ta. +or 0alen,ar 1ear 199-, as s)o8n )ereun,er(
!ssessment No. KKKKKKK
"a.able in0ome per return *1,000,000.00
!,,( ;is0repan0ies per investigation
1. Un,e0lare, rental in0ome *200,000.00
2. Non-,e,u0tible interest e.penses:00,000.00
:. Un,o0umente, representation e.penses 150,000.00
4. Non-,e,u0tible ba, ,ebt e.pense 250,000.00 900,000.00
33333 33333
"a.able in0ome per investigation*1,900,000.00
33333
#n0ome ta. ,ue t)ereon =:5G> *665,000.00
ess( #n0ome ta. pai, per return :50,000.00
33333
%alan0e*:15,000.00
!,,( 50G sur0)arge +or +iling o+ +rau,ulent return *15-,500.00
20G interest per annum +rom 4-15-96 to :-15-96 6:,000.00 220,500.00L
33333
"$"! !<$UN" ;UE *5:5,500.00L
L*lease note t)at t)e interest an, t)e total amount ,ue 8ill )ave to be a,/uste, i+ pai,
be1on, :-15-96
")e 0omplete ,etails 0overing t)e a+orementione, ,is0repan0ies establis)e, ,uring t)e
investigation o+ t)is 0ase are s)o8n in t)e a00ompan1ing !NNEA !-1 o+ t)is letter o+
,eman,.
")e 50G sur0)arge )as been impose, pursuant to t)e provisions o+ Se0tion 246=%> o+
t)e National #nternal Revenue 'o,e, as amen,e, b1 R.!. No. 6424, 8)i0) tooE e++e0t
on &anuar1 1, 1996, in vie8 o+ 1our +ailure to report +or in0ome ta. purposes 1our
a+orementione, rental in0ome. Su0) omission ren,ers 1our in0ome ta. return +ile, +or
t)e ta.able 0alen,ar 1ear 199- as a +alse or +rau,ulent return.
")e 20G interest per annum )as been impose, pursuant to t)e provisions o+ Se0tion
249=%> o+ t)e sai, 'o,e.
*ursuant to t)e provisions o+ Se0tion 226 o+ t)e National #nternal Revenue 'o,e o+
199- an, its implementing Revenue Regulations, 1ou are )ereb1 given t)e opportunit1
to present in 8riting 1our si,e o+ t)e 0ase 8it)in +i+teen =15> ,a1s +rom re0eipt )ereo+. #+
8e +ail to )ear +rom 1ou 8it)in t)e sai, perio,, 1ou s)all be 0onsi,ere, in ,e+ault, in
8)i0) 0ase, a +ormal letter o+ ,eman, an, assessment noti0e s)all be issue, b1 t)is
$++i0e 0alling +or pa1ment o+ 1our a+oresai, ,e+i0ien01 in0ome ta., in0lusive o+ t)e
a+orementione, 0ivil penalt1 an, interest.
Be )ope t)at 1ou 8ill give t)is matter 1our pre+erential attention.
Ver1 trul1 1ours,
!NNEA !-1
!%' '$R*$R!"#$N
12: <aEati !venue
<aEati 'it1
"#N( 000-000-000-000
;E"!#S $D ;#S'RE*!N'#ES
!ssessment No. KKKKKKKK
1. Un,e0lare, rental in0ome =*200,000.00>. 3 Veri+i0ation ,is0lose, t)at 1ou
,erive, t)is rental in0ome +rom t)e lease o+ 1our buil,ing to AHJ '$R*$R!"#$N
,uring t)e ta. 1ear 199- but t)e same, 8it)out an1 legal /usti+i0ation, 8as neit)er
re0or,e, in 1our booEs o+ a00ounts nor ,e0lare, in 1our in0ome ta. return, t)ereb1
resulting to t)e un,erstatement o+ 1our reporte, ta.able in0ome +or t)e sai, ta. 1ear.
2. Non-,e,u0tible interest e.pense =*:00,000.00>. 3 Veri+i0ation ,is0lose, t)at
t)is interest e.pense, 0laime, as ,e,u0tion +rom 1our gross in0ome +or t)e ta. 1ear
199-, 8as a0tuall1 in0urre, in 0onne0tion 8it) 1our loan +rom <r. &U!N '!S"R$. #t
8as, )o8ever, +urt)er ,is0lose, t)at <r. 'astro o8ns an, 0ontrols 60G o+ 1our
outstan,ing 0apital sto0E. Fen0e, t)is interest e.pense is not a vali, ,e,u0tion +rom
1our gross in0ome, pursuant to Se0tion :4=%>=2>, in relation to Se0tion :6=%>=2> o+ t)e
National #nternal Revenue 'o,e 8)i0) provi,es t)at no ,e,u0tion s)all be allo8e, in
respe0t o+ interest e.pense in0urre, bet8een an in,ivi,ual an, a 0orporation more t)an
+i+t1 per0ent =50G> in value o+ t)e outstan,ing sto0E o+ 8)i0) is o8ne,, ,ire0tl1 or
in,ire0tl1, b1 or +or su0) in,ivi,ual.
:. Un,o0umente, representation e.penses =*50,000.00>. 3 Veri+i0ation ,is0lose,
t)at t)is item o+ ,e,u0tion +rom 1our gross in0ome +or t)e ta. 1ear 199- is in +a0t
unsubstantiate, 8it) an1 ,o0umentar1 evi,en0e, )en0e, ,isallo8e, in au,it.
4. Non-,e,u0tible ba, ,ebt e.pense =*250,000.00>. 3 Veri+i0ation ,is0lose, t)at
t)is item o+ ,e,u0tion +rom 1our gross in0ome +or t)e ta. 1ear 199- 8as, in +a0t, a mere
provision +or estimate, un0olle0tible a00ounts +rom 1our 0ustomers as o+ t)e en, o+ t)e
sai, 1ear. Un,er Se0tion :4=E> o+ t)e sai, 'o,e, a mere provision +or estimate,
un0olle0tible a00ounts is not allo8able ,e,u0tion +rom gross in0ome. #n general, +or ba,
,ebts to be ,e,u0tible, t)e +ollo8ing statutor1 re9uisites must )ave been 0omplie, 8it)(
4.1 ")at, t)e ,ebts ,ue +rom 1our ,ebtor or ,ebtors must )ave been as0ertaine,
a0tuall1 8ort)less as o+ t)e en, o+ t)e ta.able 1earC an,
4.2 ")at, t)e same )ave been a0tuall1 0)arge, or 8ritten-o++ in 1our booEs o+
a00ounts as o+ t)e en, o+ t)e sai, ta.able 1ear.
4.: ")at, t)e sai, a00ounts re0eivable )ave a0tuall1 been 0)arge, o++ or 8ritten-o++
t)e booEs o+ a00ounts as o+ t)e en, o+ t)e ta.able 1ear.
")e re0or,s o+ t)is 0ase ,is0lose, t)at 1ou )ave not intro,u0e, an1 evi,en0e to
overt)ro8 t)e vali,it1 o+ our sai, +in,ings.
#t is re9ueste, t)at 1our a+oresai, ,e+i0ien01 in0ome ta. liabilit1 be pai, imme,iatel1
upon re0eipt )ereo+, in0lusive o+ penalties in0i,ent to ,elin9uen01. ")is is our +inal
,e0ision. #+ 1ou ,isagree, 1ou ma1 appeal t)is +inal ,e0ision 8it) t)e 'ourt o+ "a.
!ppeals 8it)in t)irt1 =:0> ,a1s +rom ,ate o+ re0eipt )ereo+, ot)er8ise our sai,
,e+i0ien01 in0ome ta. assessment s)all be0ome +inal, e.e0utor1 an, ,eman,able.
Ver1 trul1 1ours,
!NNEA %
D$R<! E""ER $D ;E<!N;
!%' 'orporation
12: <aEati !venue
<aEati 'it1
"#N( 000-000-000-000
Gentlemen(
*lease be in+orme, t)at a+ter investigation t)ere )as been +oun, ,ue +rom 1ou
,e+i0ien01 in0ome ta. +or 0alen,ar 1ear 199-, as s)o8n )ereun,er(
!ssessment No. KKKKKKK
"a.able in0ome per return *1,000,000.00
!,,( ;is0repan0ies per investigation
1. Un,e0lare, rental in0ome *200,000.00
2. Non-,e,u0tible interest e.penses:00,000.00
:. Un,o0umente, representation e.penses 150,000.00
4. Non-,e,u0tible ba, ,ebt e.pense 250,000.00 900,000.00
33333 33333
"a.able in0ome per investigation*1,900,000.00
33333
#n0ome ta. ,ue t)ereon =:5G> *665,000.00
ess( #n0ome ta. pai, per return :50,000.00
33333
%alan0e*:15,000.00
!,,( 50G sur0)arge +or +iling o+ +rau,ulent return *15-,500.00
20G interest per annum +rom 4-15-96 to :-15-96 6:,000.00 220,500.00L
33333
"$"! !<$UN" ;UE *5:5,500.00L
L*lease note t)at t)e interest an, t)e total amount ,ue 8ill )ave to be a,/uste, i+ pai,
be1on, :-15-96
")e 0omplete ,etails 0overing t)e a+orementione, ,is0repan0ies establis)e, ,uring t)e
investigation o+ t)is 0ase are s)o8n in t)e a00ompan1ing S'FE;UE 1 o+ t)is letter o+
,eman,.
")e 50G sur0)arge )as been impose, pursuant to t)e provisions o+ Se0tion 246=%> o+
t)e National #nternal Revenue 'o,e, as amen,e, b1 R.!. No. 6424, 8)i0) tooE e++e0t
on &anuar1 1, 1996, in vie8 o+ 1our +ailure to report +or in0ome ta. purposes 1our
a+orementione, rental in0ome. Su0) omission ren,ers 1our in0ome ta. return +ile, +or
t)e ta.able 0alen,ar 1ear 199- as a +alse or +rau,ulent return.
")e 20G interest per annum )as been impose, pursuant to t)e provisions o+ Se0tion
249=%> o+ t)e sai, 'o,e.
#n vie8 t)ereo+, 1ou are re9ueste, to pa1 1our a+oresai, ,e+i0ien01 in0ome ta. liabilit1
t)roug) t)e ,ul1 aut)ori@e, agent banE in 8)i0) 1ou are enrolle, 8it)in t)e time s)o8n
in t)e en0lose, assessment noti0e.
Ver1 trul1 1ours,
!NNEA '
!%' 'orporation
12: <aEati !venue
<aEati 'it1
"#N( 000-000-000-000
D#N! ;E'#S#$N $N ;#S*U"E; !SSESS<EN"
Gentlemen(
Re+erring to 1our letter ,ate, <a1 15, 1999, please be in+orme, t)at 1our protest
against our 0alen,ar 1ear 199- ,e+i0ien01 in0ome ta. assessment in t)e amount o+
*5:5,500.00, t)e sub/e0t matter o+ our 0overing letter o+ ,eman, ,ate, <ar0) 15, 1999,
is )ereb1 ,enie, +or la0E o+ +a0tual an, legal basis. ")e a+oresai, assessment is
premise, on t)e +ollo8ing(
1. Un,e0lare, rental in0ome =*200,000.00>. 3 Veri+i0ation ,is0lose, t)at 1ou
,erive, in0ome +rom t)e lease o+ 1our buil,ing to AHJ 'orporation ,uring t)e 1ear
199- but t)is 8as not re0or,e, in 1our booEs o+ a00ounts an, also not reporte, in 1our
in0ome ta. return.
2. Non-,e,u0tible interest e.pense ,e,u0tion =*:00,000.00>. 3 Veri+i0ation
,is0lose, t)at t)is interest e.penses 8as in0urre, in 0onne0tion 8it) 1our loan +rom
<R. &U!N '!S"R$. #t 8as also ,is0lose, t)at <r. 'astro o8ns 60G o+ t)e
outstan,ing sto0E o+ !%' 'orporation. Fen0e t)e sai, interest e.pense is non-
,e,u0tible in 0omputing !%' 'orporation2s ta.able in0ome pursuant to Se0tion :4=%>
=2>=a>, in relation to Se0tion :6=%>=2> o+ t)e N#R', t)at interest pai, on a loan
transa0tion bet8een an in,ivi,ual an, a 0orporation more t)an +i+t1 per0ent =50G> in
value o+ t)e outstan,ing sto0E o+ 8)i0) is o8ne,, ,ire0tl1 or in,ire0tl1, b1 or +or su0)
in,ivi,ual s)all be ,e,u0tible +rom gross in0ome +or in0ome ta. purposes.
:. Un,o0umente, representation e.penses =*150,000.00>. 3 Veri+i0ation
,is0lose, t)at t)e vera0it1 o+ t)is item o+ ,e,u0tion )as not been establis)e,, )en0e,
,isallo8e, as a ,e,u0tion +rom gross in0ome.
4. Non-,e,u0tible ba, ,ebt e.pense =*250,000.00>. 3 Veri+i0ation ,is0lose, t)at
t)is 8as a mere provision +or estimate, 0olle0tible a00ounts as o+ t)e en, o+ t)e 1ear
199-. Un,er Se0tion :4=E>, N#R', a mere provision +or estimate, un0olle0tible
a00ounts is not ,e,u0tible +rom gross in0ome. "o be ,e,u0tible, t8o re9uisites must be
met(
4.1 ")at, t)e ,ebts ,ue +rom 1our ,ebtor7s =a00ounts re0eivable> )ave been
as0ertaine, a0tuall1 8ort)less as o+ t)e en, o+ t)e ta.able 1earC an,
4.2 ")at, t)e sai, a00ounts re0eivable )ave a0tuall1 been 0)arge, o++ or 8ritten-o++
t)e booEs o+ a00ounts as o+ t)e en, o+ t)e ta.able 1ear.
")e re0or,s o+ t)is 0ase ,is0lose, t)at 1ou )ave not intro,u0e, an1 evi,en0e to
overt)ro8 t)e vali,it1 o+ our sai, +in,ings.
#t is re9ueste, t)at 1our a+oresai, ,e+i0ien01 in0ome ta. liabilit1 be pai, imme,iatel1
upon re0eipt )ereo+, in0lusive o+ penalties in0i,ent to ,elin9uen01. ")is is our +inal
,e0ision. #+ 1ou ,isagree, 1ou ma1 appeal t)is +inal ,e0ision 8it) t)e 'ourt o+ "a.
!ppeals 8it)in t)irt1 =:0> ,a1s +rom ,ate o+ re0eipt )ereo+, ot)er8ise our sai,
,e+i0ien01 in0ome ta. assessment s)all be0ome +inal, e.e0utor1 an, ,eman,able.
Ver1 trul1 1ours,
!NNEA ;
'$NS"RU'"#VE SERV#'E $D N$"#'E7S
<E<$R!N;U< D$R(
")e 'ommissioner7Regional ;ire0tor
")ru ')annel
SU%&E'" (
Name o+ "a.pa1er( KKKKKKKKKKKKKKKKKK
!,,ress( KKKKKKKKKKKKKKKKKK
".#.N.( KKKKKKKKKKKKKKKKKK
Min, o+ "a.es( KKKKKKKKKKKKKKKKKK
!mount( *KKKKKKKKKKKKKKKKK
")is is to report t)at #7Be personall1 serve, on t)e sub/e0t ta.pa1er at t)e above given
a,,ress on KKKKKKKKKKKKKK, 1999, t)e +ormal letter o+ ,eman, an, assessment noti0e,
,ate, KKKKKKKKKKKKKKK, 1999, 0alling +or pa1ment o+ )is7its above state, ta. liabilit1.
Fo8ever, t)e ta.pa1er re+use, to a0Eno8le,ge re0eipt t)ereo+. #7Be also trie, to serve
t)e same on KKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKKK, t)e ta.pa1er2s ,ul1 aut)ori@e,
representative, but t)e latter liEe8ise re+use, to a0Eno8le,ge re0eipt t)ereo+.
;ue to t)e +oregoing, t)e sai, +ormal letter o+ ,eman, an, assessment noti0e 8ere
0onstru0tivel1 ,elivere, b1 leaving t)e same 0onspi0uousl1 at t)e ta.pa1er2s
resi,en0e7pla0e o+ business at KKKKKKKKKKKKKKKKKKKKK, on KKKKKKKKKKKK, 1999.
KKKKKKKKKKKKKKKKKKKKKKK
Revenue $++i0er
KKKKKKKKKKKKKKKKKKKKKKKKK KKKKKKKKKKKKKKKKKKKKKKKKK
Name an, Signature o+ Bitness Name an, Signature o+ Bitness
KKKKKKKKKKKKKKKKKKKKKKKKK KKKKKKKKKKKKKKKKKKKKKKKKK
;esignation ;esignation

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