THE CPA BOARD EXAMS OUTLINES

by John Mahatma G. Agripa, CPA

TAXATION

FILING OF TAX
RETURNS +
PENALTIES AND
REMEDIES
Supplementary discussions based on lectures
by Atty. Christopher Llamado and
Atty. Dante de la Cruz, CPA
(CPAR)
Note: The following discussion is
incomplete and only contains
the most salient points.
Referral to tax books and
handouts is advised

FILING OF TAX RETURNS:

INDIVIDUALS

In general, individuals subject to tax under the tax code (resident

citizens on income within and without, aliens on income within) are
required to file, except for the following:
o Those with incomes exceeding his personal/additional
exceptions. Individuals have personal exceptions of Php
50,000 with additional Php 25,000 on every dependent
(maximum of 4)
o Those earning purely on compensation subject to substituted
filing (except those with more than one employer)
o Those earning solely on income subject to final withholding
tax (since final taxes are not reportable on the income tax
return)
o Those minimum wage earners and tax-exempt individuals
The following are some rules in the individual filing of tax returns:
o Income of unmarried minors from property received from his
parents shall be included in the joint filing of his parents,
except when donors tax on the property is paid
o Income tax returns are filed in duplicate as per the tax code,
but in practice this is made in triplicate
o Quarterly gross income earners in excess of Php 150,000
have to attach supporting financial statements certified by a
CPA
o Submitted returns may still be amended within three years of
filing, provided that the returns have not been subjected to
any investigation
Taxpayers may opt to pay their dues in installments, if their tax due
is more than Php 2,000. This shall only be made in two equal
payments the first upon filing (deadline: April 15), and the
second on or before July 15 of the same year.
If the taxpayer fails to pay on the first installment, the whole
amount shall be due, including corresponding penalties
(discussion below)

All tax credits and other deductions on the tax due shall be
deducted in full against the first installment payment

FILING OF TAX RETURNS:

E-FILING SYSTEMS

There are two e-filing systems in use, in which some entities are
mandated to file instead of going personally to BIR branches. The
following are required to file through eFPS:
o Large taxpayers
o Corporations with paid-up capital of at least Php 10,000,000
and those using an electronic records system
o Entities operating in PEZA, Clark zone and other economic
zones
o Government offices when remitting their withholdings
Any document necessary with the filing shall be submitted within
15 days to the revenue district office where registered
The following entities are likewise required to file using
eBIRFORMS:
o One-time transaction taxpayers (those paying excise tax,
donors tax, and capital gains tax)
o Government owned and controlled corporations
o Local government units
o Those filing no payment returns such as general professional
partnerships (GPPs are except from income tax, but are still
required to file ITR for information purposes. Income of the
GPP is taxed through the personal capacities of the partners)
Failure to comply will result to payment of Php 1,000 per return,
25% surcharge, and being branded as a non-compliant taxpayer.
Payment made through these electronic means are acknowledged
with the confirmation number

PENALTIES:
SURCHARGE AND INTEREST

A 25% surcharge on the tax payable is imposed on the taxpayer in

the commission of any of the following:
o Failure to pay the tax within the prescribed deadline, when the
payment was made before the receipt of notice from BIR
(regardless of reason behind such failure)
o Filing at the wrong venue (includes failure to pay
electronically if required so)
o Failure to pay in time any deficiency taxes
A 50% surcharge is likewise imposed on the following faults:
o Failure to pay the tax within the prescribed deadline, when the
payment was made after the receipt of notice from BIR
o Filing of false and fraudulent returns
It is important to note that the surcharges are applied on every
single offense made
In addition to the surcharge, a 20% interest per annum on the
basic unpaid tax is applied from the time the tax should have been
paid until fully paid
If the taxpayer requests for an extension on the deadline, the
surcharge is no longer applied if the request is made before the
deadline. Otherwise, the surcharge will remain. In both instance,
the 20% interest is applied on the basic tax payable
Deficiency taxes occur when BIR uncovers taxes still outstanding
from the taxpayer. Deadline for payment of such taxes are relayed
to the taxpayer with an assessment, together with the applicable
surcharge and interest charges. If the taxpayer fails to pay on the
date stated, further surcharges and interest are imposed (on the
amount already charged with surcharges and interest)
Other penalties for taxpayer disobedience are as follows:
o Failure to attach required documents (Php 1,000 per

document)
Failure of withholding agents to withhold and remit taxes (the
amount of tax not withheld, in addition to the taxes to be
paid)

STATE TAX REMEDIES

The state can collect taxes from an evader through assessment

and collection. Assessment involves the determining of the correct
tax due and giving demand of the tax liability to the taxpayer
Generally, BIR is given three years from the date of filing or the
filing deadline (whichever is later) to assess taxpayers. If the case
involves fraudulent returns or failure to file, they are given ten years
from discovery
The following are the prescribed steps in the assessment, though
actually not performed in practice:
o Submission of Notice of Informal Conference to the taxpayer,
to be replied by him within 15 days
o Submission of Preliminary Assessment Notice containing the
tax assessments, to be replied within 15 days
o Submission of Formal Letter of Demand to taxpayer, at which
point the tax demand becomes executory if not protested
within 30 days
When demand becomes executory, BIR can collect the tax within 5
years (or 10 years out of fraud or omission of filing) through either
distraint of personal property or levy of real property or court
action. Deficiencies less than Php 1,000,000 are dealt with in
municipal courts while those greater are in the Court of Tax
Appeals. These actions may be performed simultaneously and at
several instances until the tax due is collected
Tax deficiencies not exceeding Php 100 are no longer bothered

TAXPAYER REMEDIES

Once a formal letter of assessment is received, the following

actions are available to the taxpayer:
o Protest for either a motion for reconsideration or motion for
reinvestigation within 30 days of receipt. Failure to do so
causes the assessment to become final and executory
o If a motion for reinvestigation is filed, supporting documents
must be filed within 60 days of protest
o If denied by the Commissioner or not acted upon in 180 days
after protest, protest to the Court of Tax Appeals and/or file
another motion for reconsideration within 30 days of denial or
passing of 180 days
o If denied by the CTA, taxpayer may file to the Supreme Court
within 15 days
If the taxpayer wishes for a tax refund for a cause of merit, the
following are his course of action:
o Appeal straight to the Court of Tax Appeals two years within
payment of tax; or
o File claim to BIR within two years after payment
o File claim to CTA within 30 days of denial by the BIR (this
period is within two years after payment of tax)
If approved, the taxpayer is issued a refund check, which is valid
only for five years. In practice, refunding taxes is very hard, which is
why applying the refund to other taxes outstanding (tax credit
certificate) is recommended

STATE AND TAXPAYER REMEDIES

The State and the taxpayer may enter in mutual remedies as

follows:
o Compromise is the settlement entered by BIR and the
taxpayer over tax dues. Lack of financial ability to pay is
among the few reasons for a compromise to flourish. In this

case, the taxpayer allows BIR to waive bank secrecy. The

compromise shall be at least 10% of the assessed tax. For
other reasons, the compromise shall be at least 40% of the
tax due. Only tax dues more than Php 1,000,000 can be
compromised. Cases involving fraud cannot be compromised
If the taxpayer proves that the imposition of tax upon him is
unjust, the BIR may cancel his tax liability. But this
cancellation is only on the surcharges, interest and other
penalties